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Document Number: 

75) ll-A-14 

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Research Triangle Park, North Carolina 27711 V 

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February 1987 

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Section 2 

MANUAL ESTIMATING METHODOLOGY 

William M. Vatavuk 

Economic Analysis Branch, OAQPS 

This section presents a methodology that wil l enable the user, having 

knowledge of the source being controlled, to produce study-level cost 

estimates for a control system to control that source. The methodology, 

which applies to each of the control systems included in thi s Manual, i s 

general enough to be used with other "add-on" systems as well . Further, 

the methodology may also be applicable to estimating costs of fugitiv e 

emission controls and of other nonstack abatement methods. 

Before presenting thi s methodology in detail , we should firs t discuss 

the various kinds of cost estimates and then define the cost categories and 

engineering economy concepts employed in making the estimates. 

2.1 Types of Cost Estimates 

As noted above, the costs and estimating methodology in thi s Manual 

are directed toward the ."study" estimate, of +_ 30% accuracy. According to 

Perry's Chemical Engineer's Handbook, a study estimate i s "... . used to 

estimate the economic feasibilit y of a project before expending significant 

funds for piloting , marketing, land surveys, and acquisition .. . [However] 

i t can be prepared at relativel y low cost with minimum data."'*) Specifically , 

to make a study estimate, the following must be known: 

o Location of the source within the plant; 

o Rough sketch of the process flow sheet (i.e. , the relative locations 

of the equipment in the system); 

o Preliminary sizes of, and material specifications for, the system 

equipment items; 
2-2 

o Approximate sizes and types of construction of any buildings required 

to house the control system; 

o Rough estimates of utilit y requirements (e.g. , electricity) ; 

o Preliminary flow sheet and specifications for ducting and piping; 

o Approximate sizes of motors required.(1) 

In addition, an estimate of the labor hours required for engineering 

and drafting i s needed, as the accuracy of an estimate (study or otherwise) 

is highly dependent on the amount of engineering work expended on the 

project. 

There are, however, four other types of estimates, three of which 

are more accurate than the study estimate. These are:^ ) 

o "Order-of-magnitude"—"a rule of-thumb procedure applied only t o 

repetitive types of plant installation s for which there exists good 

cost history". It s accuracy i s >+30%. (However, according to 

Perry's , "...n o limit s of accuracy can safely be applied to it." ) 

The sole input required for making thi s level of estimate i s the 

control system's capacity (often measured by the maximum volumetric 

flowrate of the gas passing through the system). So-called "six -

tenths factor" estimates (not to be confused with factored 

estimates) are examples of thi s type. 

o "Scope'V'Budget authorization'V'Prel iminary". This estimate, 

nominally of +_ 20% accuracy, requires more detailed knowledge than 

the study estimate regarding the site , flow sheet, equipment, 

buildings, etc. In addition, rough specifications for the insulation 

and instrumentation are also needed. 

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o "Project control "/"Definitive " estimates, accurate to within + 10%, 

•require yet more information than the scope estimates, especially 

concerning the site , equipment, and electrica l requirements. 

o "Firm"/"Contractor's"/"Detai1ed". This i s the most accurate (+ 5X) 

of the estimate types, requiring complete drawings, specifications , „^ n 

and sit e surveys. Further, "[t]im e seldom permits the preparation -

of such estimates prio r to an approval to proceed with the project."(*) 

For the purposes of regulatory development, study estimates have been 

found to be acceptable, as they represent a compromise between the less 

accurate "order-of-magnitude" and the more accurate estimate types. The te r 

former are too imprecise to be of much value, while the latte r are not only ^^, 

very expensive to make, but require detailed sit e and process-specific tn ( 

knowledge that most Manual users wil l not have available to them. an ( 

2.2 Cost Categories Defined se ( 

The names given certain "categories" of costs and what they contain p0< 

vary considerably throughout the literature . Certain words lik e "capital c0 ; 

cost" can have vastly differen t meanings, which can often lead to confusion, , „ 

even among cost estimators. To avoid thi s confusion and, at the same time, 

provide uniformity in the Manual , basic terms are defined in thi s Section iand wil l be used throughout. The terminology used i s adapted from that of i n , 

the American Association of Cost Engineers^ 2). Although i t has been c o 

developed for general use, i t is readily adaptable to air pollution eontrol es 

system costing. fa 

2.2.1 Elements of Total Capital Investment w 0 

First , two general kinds of costs are estimated, total capital investment i t 

(TCI) and total annual cost (TAC). The tota l capital investment includes fa 

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all costs required to purchase equipment needed for the control system 

(termed "purchased equipment" costs), the costs of labor and materials for 

installing that equipment (termed "direct installation" costs), site 

preparation, building costs, and certain other costs which are termed 

"indirect installation" costs. Direct installation costs include costs for 

foundations and supports, erecting and handling the equipment, electrical 

work, piping, insulation, and painting. Indirect installation costs include 

such costs as engineering costs; construction and field expenses (i.e., 

costs for construction supervisory personnel, office personnel, rental of 

temporary offices, etc.); contractor fees (for construction and engineering 

firms involved in the project); start-up and performance test costs (to get 

the control system running and to verify that it meets performance guarantees); 

and contingencies. Contingencies is a catch-all category that covers unforeseen costs that may arise, including (but certainly not limited to) "... 

possible redesign and modification of equipment, escalation increases in 

cost of equipment, increases in field labor costs, and delays encountered 

in start-up."(2) 

These elements of total capital investment are displayed in Figure 

2-1. Note that the sum of the purchased equipment cost, direct and 

indirect installation costs, site preparation, and buildings costs 

comprise the battery 1imits estimate. By definition, this is the total 

estimate "... for a specific job without regard to required supporting 

facilities which are assumed to already exist..."(2) at the plant. This 

would mainly apply to control systems installed in existing plants, though 

it could also apply to those systems installed in new plants when no special 

facilities for supporting the control system would be required. 
Figure 2-1 Elements of Total Capital Investment 

o Primary Control Device 

o Auxiliary Equipment 

(including ductwork) 

o Instrumentation3 

o Sales Taxes3 

o Freight3 

o Foundations and Supports 

o Handling and Erection 

o Electrical 

6 Piping 

o Insulation 

o Painting 

Purchased 

Equipment 

Cost 

o Engineering 

o Construction and Field 

Expenses 

o Contractor Fees 

o Start-up 

o Performance Test 

o Contingencies 

Direct 

-Installation 

Cost0 

Site Preparat1onc»

d 

Bu1ldingsd 

Indirect 

Installation 

Cost0 

Lande 

Working Cap1tale 

Total 

Nondepreciable 

Investment 

Total 

Direct 

Cost 

Total 

Indirect 

Cost 

"Battery 

Limits" 

Cost 

0ff-S1te 

fadlitese 

Total 

Depreciable 

Investment 

Total 

Capital 

Investment ro 

i 

cn 

a 

b 

c 

d 

These costs are factored from the sum of the control device and auxiliary equipment costs. 

These costs are factored from the purchased equipment cost. 

Usually required only at "grass roots" installations. 

Unlike the other direct and indirect costs, costs for these items are not^ factored from the purchased equipment 

cost. Rather, they are sized and costed separately. 

Normally not required with add-on control systems. 

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Where required, these supporting facilitie s would encompass units to 

produce steam, electricity , and treated water; laboratory buildings, railroad 

spurs, roads, and the like . I t i s unusual, however, for a control system 

to have one of these units (e.g. , a power plant) dedicated to it . The 

system needs are rarely that great. However, i t may be necessary—especially 

in the case of control systems installed in new or "grass roots" plants--

for extra capacity to be buil t into the sit e generating plant to service 

the system. (A venturi scrubber, which often requires large amounts of 

electricity , i s a good example of this.) I t i s customary for the utilit y costs 

to be charged to the project as operating costs at a rate which covers both 

the investment and operating costs for the utility . 

As Figure 2-1 shows, there are two other costs which may be included 

in the total capital investment for a control system. These are "working 

capital", and "land". The firs t of these, working capital , is a fund set 

aside to cover the initia l costs of fuel , chemicals, and other materials, 

as well as labor and maintenance. I t usually does not apply to control 

systems, for the quantities of utilities , materials, labor, etc. , they 

require are usually small. (An exception might be an oil-fire d thermal 

incinerator, where a small supply (e.g. , 30-day) of distillat e fuel would 

have to be available during it s initia l period of operation.) 

Land may also be required. But, since most add-on control systems 

take up very littl e space (a quarter-acre or less) thi s cost would be 

relativel y small. (Certain control systems, such as those used for flue 

gas desulfurization, require larger quantities of land for the process 

equipment, chemicals storage, and waste disposal.) 

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2-7 

Note also in Figure 2-1 that the working capital and land are 

"nondepreciable", expenses. In other words, these costs are "recovered" 

when the control system reaches the end of it s useful lif e (generally in 10 

to 20 years). Conversely, the other capital costs are "depreciable", in 

that they cannot be recovered and are included in the calculation of the 

income tax credit and depreciation allowance, whenever such taxes are 

considered in a cost analysis. (In the Manual methodology, however, 

income taxes are not considered. See Section 2.3.) 

Notice that when 100% of the system costs are depreciated, jio salvage 

value i s taken for the system equipment at the conclusion of it s useful life . 

This i s a reasonable assumption for add-on control systems, as most of the 

equipment, which is designed fo r a specifi c source, cannot be used elsewhere 

without modifications. Even i f i t were reusable, the cost of disassembling 

the system into it s components could be as high (or higher) than the salvage 

value. 

2.2.2 Elements of Total Annual Cost 

The Total Annual Cost (TAC) for control systems is comprised of three 

elements: "direct" costs, (DC) "indirect" costs, (IC) and "recovery credits " 

(RC), which are related by the following equation: 

TAC = DC + IC - RC (2-1) 

Clearly , the basis of these costs is one year, as thi s period allows for 

seasonal variations in production (and emissions generation) and i s directl y 

usable in profitabilit y analyses. (See Section 2.3.) 

Di rect costs are those which tend to be proportional or partiall y 

proportional to the quantity of exhaust gas processed by the control system 

per unit time. These include costs for raw materials, utilitie s (steam, 

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electricity, process and cooling water, etc.), waste treatment and disposal, 

maintenance materials, replacement parts, and operating, supervisory, and 

maintenance labor. Of these direct costs, costs for raw materials, utilities, 

and waste treatment and disposal are variable, in that they tend to be a 

direct function of the exhaust flowrate. That is, when the flowrate is at 

its maximum rate, these costs are highest. Conversely,, when the flowrate 

is zero, so are the costs. 

Semi variable direct costs are only partly dependent upon the exhaust 

flowrate. These include all kinds of labor, maintenance materials, and 

replacement parts. Although these costs are a function of the gas flowrate, 

they are not 1inear functions. Even while the control system is not 

operating, some of the semi variable costs continue to be incurred. 

Indirect, or "fixed", annual costs are those whose values are totally 

independent of the exhaust flowrate and, in fact, would be incurred even if 

the control system were shut down. They include such categories as overhead, 

property taxes, insurance, and capital recovery. 

Finally, the direct and indirect annual costs are offset by recovery 

credits, taken for materials or energy recovered by the control system, 

which may be sold, recycled to the process, or reused elsewhere at the 

site. These credits, in turn, must be offset by the costs necessary for 

their purification, storage, transportation, and any other costs required 

to make them reusable or resalable. Great care and judgement must be 

exercised in assigning values to recovery credits since materials recovered 

may be of small quantity or of doubtful purity, resulting in their having less 

value than virgin material. 

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2-9 

The various annual costs and their interrelationships are displayed in 

Figure 2-2. A more thorough description of these costs and how they may 

be estimated is given in Section 2.4. 

2.3 Engineering Economy Concepts 

As mentioned previously, the estimating methodology presented in 

Section 2.4 rests upon the notion of the "factored" or study estimate. 

However, there are other concepts central to the cost analyses which must 

be understood. These are (1) the time value of money, (2) cash flow, and . 

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(3) annualization. 0 u 

2.3.1 Time Value of Money 

The "time value of money" is based on the truism that "...a dollar now 

is worth more than the prospect of a dollar... at some later date."(3) 

o L 

A measure of this value is the interest rate which "...may be thought of as 

the return obtainable by the productive investment of capital. 

"(3) 

o M 

2.3.2 Cash Flow o R 

During the lifetime of a project, various kinds of cash expenditures 

are made and various incomes are received. The amounts and timing of these 

expenditures and incomes constitute the cash flows for the project. In 

control system costing it is normal to consider expenditures (negative cash 

flows) and unusual to consider income (positive cash flows), except for 

product or energy recovery income. By the simplifying convention recommended 

by Grant, Ireson, and Leavenworth(4), each annual expenditure (or payment) 

is considered to be incurred at the end of the year, even though the payment 

will probably be made sometime during the year in question. (The error 

introduced by this assumption is minimal, however.) Figure 2-3, which 

shows three hypothetical cash flow "diagrams", illustrates these end-ofyear payments. In these diagrams, "P" represents the capital investment, 

/ ^ 
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Figure 2-2 Elements of Total Annual Cost 

o Raw materials 

o Utilities 

- Electricity 

Steam 

- Water 

- Others 

Variable 

o 

o 

Labor 

- Operating 

- Supervisory 

- Maintenance 

Maintenance materials 

Replacement parts 

•Semi variable 

Di rect 

Annual 

Costs 

o Overhead 

o Property Taxes 

o Insurance 

o Capital Recovery 

Materials 

Energy 

Indirect 

-Annual 

Costs 

Recovery 

Credits 

Total 

Annual 

Cost 

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Figure 2-3 Hypothetical Cash Flow Diagrams 

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Al> 

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A2| 

All Values 

3 4 

• Are Constant Year (Real) Dollars 

5 6 7 

A3I A4 A5 A6 A7 

Y ., w 

1 v 

£ I 9 

Ae A91 

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10 

AlO 

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II. P 

2 2 4 5 t 1 8 9 10 

A A A , A A , A A A ' A w A 

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rov 

1 

. 7 10 Year 

III Al Al Al Al Al 

^ ro l-» rr < rr to < o> O- ~> a. rr a. x. 
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w n 1le the A's denote the end-of-year annual payments. Note that in al l 

diagrams, the cash flows are in "constant" ("real") dollars , meaning that 

they do not reflec t the effects of inflation . Also note that in the top 

diagram (I) , the annual payments are differen t for each year. (These 

represent the control system annual costs (exclusive of capital recovery) 

described in Section 2.2.) In reality , these payments would be different , 

as labor and maintenance requirements, labor and utilit y costs, etc. , would 

vary from year to year. A generally upward trend in annual costs would be 

seen, however. 

In diagram II , these fluctuating annual payments have been converted 

to equal payments. This can be done by calculating the sum of the present 

values of each of the annual payments shown in diagram I and annualizing 

the total net present value to equivalent equal annual payments via a capital 

recovery factor. (See discussion in the following paragraphs and in Section 

2.3.3.) Alternatively , i t is adequate to choose a value of A equal to the 

sum of the direc t and indirec t annual costs estimated for the firs t year. 

This assumption i s in keeping with the overall accuracy of study estimates 

and allows for easier calculations. 

Finally , notice diagram III . Here, the annual costs (Al) are again 

equal, while the capital investment (P) i s missing. Put simply, P has been 

incorporated into Al SO that Al reflects not only the various annual costs 

but the investment as-well. This was done by introducing another term, the 

capital recovery factor (CRF), defined as follows: "when multiplied by a 

present debt or investment , [the CRF] gives the uniform end-of-year payment 

necessary to repay the debt or investment in n years with interest rate i."(5 ) 

The product of the CRF and the investment (P) is the capital recovery cost (CRC) 

CRC = CRF x P (2-2) 

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where: 

CRF = i( l + i) n 

(1 + D11.! 

(2.-3) 

Therefore, A* i s the sum of A and the CRC, or: 

A

1

 = A + CRF "x P (2-4) 

In thi s context, "n " i s the control system economic life , which, 

as stated above, typicall y varies from 10 t o 20 years. The interes t rate 

("i") used in thi s Manual i s a real rate of 10% (annual). This value i s 

used in most of the OAQPS cost analyses and is in keeping with current EAB 

guidelines 

(6) 

and the Office of Management and Budget recommendation for use 

in regulatory analyses.( 7) 

I t may be helpful to illustrat e the difference between "real" and 

"nominal" interes t rates. The mathematical relationship between them i s 

straightforward: (*>) 

(1 + 1n) = (1 + i)(l +' r) (2-5) 

where: 

i n i - the annual nominal and real interes t rates, respectively 

r = the annual inflatio n rate 

Clearly, the "real" rate does not consider inflatio n and is in keeping 

with the expression of annual costs in constant (i.e. , real) dollars . 

EAB guidelines also recommend the exclusion of income tax considerations 

from cost analyses.v») Not only does thi s simplif y the analysis, but i t 

also allows fo r the calculation of the "economic" costs of air pollution 

control--!.e. , the true cost to society. Income taxes generally represent 

transfer payments from one segment of society to another and as such are not 

properly part of the economic costs. 

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2.3.3 Annualization Methods 

The above method of "smoothing out" the investment into equal end-ofyear payments, i s termed the "equivalent uniform annual cash flow" (EUAC) 

method.W In addition to it s inherent simplicity , thi s method i s very 

useful when comparing the costs of two or more alternative control systems 

(i.e.,'thos e which are designed to control the same source to an equivalent 

degree). In fact , the EUAC's--or simply the total annual costs--of two 

competing systems may be compared even i f both the systems have differen t 

economic lives , say 10 and 20 years. We recommend that the EUAC method be 

used for control cost work unless particula r circumstances preclude it s 

use. 

Comparisons of systems with differin g economic lives cannot be made, 

however, using the other two annualization (i.e. , profitabilit y analysis) 

methods--"present worth" and "internal rate of return". The "present 

worth" (or "discounted cash flow") method involves the "discounting" of al l 

cash flows occuring after year "0" (i.e. , the system startup date) back to 

year "0". These cash flows are discounted by multiplying each by a "discount 

factor", 1 , where "m" i s the number of years from year 0 t o the year 

(1 + i)" 1 

in which the cash flow is incurred. The sum of these discounted cash flows 

is then added to the capital investment to yiel d the "present worth" of the 

project. The alternative having the highest present worth would be selected 

(in control system costing thi s i s usually a negative number). But when 

comparing the present worths of alternative systems, the system lifetimes 

must be equal for the comparison to be valid . 

(9) 

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The thir d annualization method, "internal rate of return" (IRR), i s 

similar to the present worth method, in that i t involves the discounting of 

a series of unequal cash flows. However, where with the PW method the 

interest rate, "i" , is set beforehand, in the IRR method the interest rate 0 

i s solved fo r (usually via trial-and-error) after arbitraril y setting the 

PW to zero. When comparing alternative systems, the one with the highest 

IRR is selected.(10) But again, the alternative systems compared must have 

equal economic lives . o 

2.4 Estimating Procedure 

The estimating procedure used in the Manual consists of fiv e steps: 

(1) obtaining the "facilit y parameters" and "regulatory options" fo r a 

given facility ; (2) "roughing out" the control system design; (3) sizing 

the control system components; (4) estimating the costs of these individual 

components; and (5) estimating the costs (capital and annualized) of the 

enti re system. o 

2.4.1 Facilit y Parameters and Regulatory Options o 

Obtaining the facilit y parameters and regulatory options involves 

not only assembling the parameters of the ai r pollutio n source (i.e. , the 

quantity, temperature, and composition of the emission stream(s)), o 

but also compiling data for the facility' s operation. (Table 2-1 list s 

examples of these.) Note that two kinds of facilit y parameters are identified -- "intensive" and "extensive". The former are simply those variables ° 

whose values are independent of quantity or dimensions - - i.e. , the "extent" 

of the system. Conversely, "extensive" parameters encompass al l size-dependent 

variables, such as the gas volumetric flowrate. 

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Table 2-1 Facility Parameters and Regulatory Options (H) 

FACILITY PARAMETERS 

o Intensive 

- Facilit y status (new or existing, location) 

- Gas characteristics {temperature, pressure, moisture content) 

- Pollutant concentration(s) and/or particle size distribution 

o Extensive 

- Facility capacity 

- Facility life 

- Gas flow rate 

- Pollutant emission rate(s) 

REGULATORY OPTIONS 

o No control 

o "Add-on" devices 

- Emission 1 imits 

- Opacity 

o Process modifications 

- Raw material changes 

- Fuel substitution 

o Others 

- Coal desulfurization 

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2-17 

Like the facility parameters, the "regulatory options" are usually 

specified by others. These options are ways to achieve a predetermined 

emission limit. They range from "no control" to maximum control technically 

achievable. The option provided will depend, firstly, on whether the t0 t 

emission source is a stack (point source), a process leak ("process fugitives" s0U r 

source) or an unenclosed (or partly closed) area, such as a storage pile Cont 

("area fugitives" source). Stacks are normally controlled by "add-on" 

devices. As discussed above, this Manual will deal primarily with these 

add-on devices. (However, some of these devices can be used to control 

process fugitives in certain cases, such as a fabric filter used in conjunction 

with a building evacuation system.) Add-ons are normally used to meet a 

specified emission level, although in the case of particulate emissions, 

they may also be required to meet an opacity level. 2.4 

2.4.2 Control System Oesign 

Step 2 -- roughing out the control system design -- first involves Siz 

deciding what kinds of systems will be priced (a decision that will depend thi 

on the pollutants to be controlled, gas stream conditions, and other factors), Bef 

and what auxiliary equipment will be needed. When specifying the auxiliary the 

equipment, several questions need to be answered: cet 

o What type of hood (if any) will be needed to capture the emissions thf 

at the source? in: 

o Will a.fan be needed to convey the exhaust through the system? of 

o Is a cyclone or.another pre-cleaner needed to condition the exhaust of 

before it enters the control device? th 

o Will the captured pollutants be disposed of or recycled? How will (T 

this be done? 

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2-18 

o Can the on-site utility capacity (e.g., electricity) accomodate the 

added requirements of the control system? 

The kinds of auxiliary equipment selected will depend on the answers 

to these and other site-specific questions. However* regardless of the 

source being controlled, each system will likely contain, along with the 

control device itself, the following auxiliaries: 

o Hood, or other means for capturing the exhaust; 

o Ductwork, to convey the exhaust, from the source, to, through, and 

from the control system; 

o Fan system (fan, motor, starter, inlet/outlet dampers, etc.), to 

move the exhaust through the system; 

o Stack, for dispersing the cleaned gas into the atmosphere. 

2.4.3 Sizing the Control System 

Once the system components have been selected, they must be sized. 

Sizing is probably the most critical step, because the assumptions made in 

this step will more heavily influence the capital investment than any other. 

Before discussing how to size equipment, we need to define the term. For 

the purposes of this Manual, "sizing" is the calculation (or estimation) of 

certain "critical" design parameters for a control device against which 

the purchased cost of that device is most accurately correlated. For 

instance, the purchased cost of an electrostatic precipitator (ESP) is most 

often correlated with its collecting area. This, in turn, is a function 

of the exhaust volumetric flowrate, the overall collection efficiency and 

the empirically-determined drift velocity, the ESP "critical" parameter. 

(Table 2-2 lists examples of these parameters.) 

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2-19 

Table 2-2 Examples of Typical Control Device Parameters(H) 

GENERAL spe< 

Material of construction: e.g. , carbon steel 

Insulated? Yes 

Economic 1ife : 20 yr 

Redundancy3: none 

Not( 

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. DEVICE-SPECIFIC

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not 

- Air-to-clot h rati o ("critica l parameter"): 7.5 t o 1 

K

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- Pressure drop: 6.0 in w.g. (inches water gauge) 1 

- Construction: suction (vs. pressurized) 

- Duty: continuous (vs. intermittent) „ . 

- Other features: dilutio n air port (for exhaust temperature regulation) 

sys 

COIT 

a

 Refers to whether there are any extra equipment items installed (e.g. , 

fans) t o function in case the basic item becomes inoperative, so as to avoid 

shutting down the entire system. 

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Also listed in Table 2-2 are "general" parameters which must also be 

specified before the purchased cost of the system equipment can be estimated. 

Note that, unlike the control device parameters, these may apply to any 

kind of control system. These include materials of construction (which may 

range from carbon steel to various stainless steels to fiberglass-reinforced 

polyester), presence or absence of insulation, and the economic or "useful" 

life of the system. As indicated in Section 2.3.2, this last parameter is 

required for estimating the annual capital recovery costs. The lifetime 

not only varies according to the type of the control system, but with the 

severity of the environment in which it is installed. (Representative 

values for this and the other control device parameters will be presented 

in those Sections of the Manual covering them.) 

2.4.4 Estimating Total Capital Investment 

The fourth step is estimating the total purchased cost of the control 

system equipment. These costs are available from this Manual for the most 

commonly used add-on control devices and auxiliary equipment. Each type of 

equipment is covered in a separate section. (See Table of Contents.) 

Most of these costs, in turn, have been based on data obtained from 

control equipment vendors. There are over one hundred of these firms, many 

of whom fabricate and erect a variety of control systems. 

(12) 

They have 

readily available, current price list s of their equipment, usually indexed 

by model designation. I f the items for which costs are requested are 

fabricated, "off-the-shelf" equipment, then the vendor can provide a 

written quotation listin g their costs, model designations, date of quotation, 

estimated shipment date, and other information. (See Figure 2-4 for a 

sample quotation.) Moreover, the quote is usually "F.O.B." ("free-on-board") 

3*/ 

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•2-21 

Figure 2-4 Typical Vendor Quotation 

QUOTAT| 

xess Equipment Plant 

r MAIL DROP # 12 

U.S. EPARESEARCH TRIANGLE PARK 

DURHAM, NC 27711 

ATTN: MR. BILL VATAVUK 

"1 

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ha,y<e been deleted.) 

• 

QUOTATION NO. 

OATE 

REFERENCE 

85S23382 

9-23-85 

VERBAL - BUDGET 

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Thank you for your inquiry. We are pleased to submit our quotation as follows: 

OUANTtTY DESCRIPTION PRICE 

ITEM #1 PREHEATER 

MODEL 191-19 SIZE #9 IMPERVITE SHELL & TUBE HEAT EXCHANGER WITH

 : 

55.8 SQ. FT. OF HEAT TRANSFER AREA AND CODE STAMPED 

ITEM #2 CONDENSER 

MODEL 191-19 SIZE #12 IMPERVITE SHELL 4 TUBE HEAT EXCHANGER WITH 

74.5 SQ. FT. OF HEAT TRANSFER AREA AND CODE STAMPED 

APPROVAL DWG'S 2- 3 WEEKS AFTER RECEIPT OF ORDER. 

THIS QUOTATION IS IN CONFIRMATION OF OUR PHONE CONVERSATION OF 

9/18/85. 

! $ 7,147.1 

7,430.1 

1! 

Sl 

it 

d 

ESTIMATED SHIPMENT 6 t Q 8 WEEKS AFTER • RECEIPT OF OROER RECEIPT OF ORAWING APPROVAL 

Prices are F.O.B. >. Net 30 Days. • • 

Unless otherwise stated these prices are subject to acceptance within 30 days from date. 

By. 3.2-

ANT PURCHASE OROEB RESULTING FROM THIS QUOTATION WIU BE SUBJECT TO THE CONTRACT TERMS ANO CQNOfTIONS PRINTS) ON THE REVERSE SIOE OF THIS1 
P.24 

W''.. 

T|| 2-22 

the vendor, meaning that no taxes, freight , or other charges are included. 

However, i f the items are not off-the-shelf , they must be custom fabricated 

or, in the case of very large systems, constructed on-site . In such cases, 

the vendor can stil l give quotations—but wil l likel y take much longer to 

do so and may even charge for thi s service, to recoup the labor and overhead 

expenses of his estimating department. 

- As discussed in Section 2.2 in thi s Manual, the total capital investment 

Is "factored" from the "purchased equipment cost", which in turn , is the 

•0 sum of the base equipment cost (control device plus auxiliaries), freight , 

instrumentation, and sales tax. The values of these installatio n factors 

depend on the type of the control system installed and are, therefore, 

listed in the individual Manual sections dedicated to them. 

The costs of freight , instrumentation, and sales tax are calculated 

differentl y from the direc t and indirec t installatio n costs. These items 

are "factored" also, but from the base equipment cost (F.O.B. the vendor(s)). 

But unlike the installatio n factors , these factors are essentially equal 

for al l control systems. Values for these are as follows: 

Cost Range Typical 

Freight 0.01 - 0.10 0.05 

Sales tax 0 - 0.08 0.03 

Instrumentation 0.05 - 0.30 0.10 

The range in freight costs reflects the distance between the vendor and the 

site . The lower end is typical of major U.S. metropolitan areas, while the 

latte r would reflec t freight charges to remote locations such as Alaska and 

Hawaii.(H) The sales tax factors simply reflec t the range of local and 

state tax rates currently in effect in the U.S.(13) 

A/3 
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I 

IN' 

li 

2-23 

The range of instrumentation factors is also quite large. For systems 

requiring only simple continuous or manual control , the lower factor would 

apply. However, i f the control is . intermittent and/or requires safety backup 

instrumentation, the higher end of the range would be applicable/* 1) 

Finally , some "package" control systems (e.g. , incinerators covered in 

Section 3) have built-i n controls, whose cost is included in the base 

equipment cost. In those cases, the factor t o use would, of course, be zero. 

2.4.5 Retrofi t Cost Considerations 

The installatio n factors liste d elsewhere in the Manual apply primarily 

to systems installe d in new facilities . These factors must be adjusted 

whenever a control system is sized for, and installed in (i.e , "retrofitted") 

an existing facility . However, because the size and number of auxiliarie s 

are usually the same in a retrofi t situation , the tota l purchased cost of 

the control system would probably mrt be differen t from the new plant 

purchased cost. An exception is the ductwork cost, fo r in many retrofi t 

situations exceptionally long duct runs are required to ti e the control 

system into the existing process. 

Each retrofi t installatio n is unique; therefore, no general factors 

can be developed. Nonetheless, some general information can be given 

concerning the kinds of system modifications one might expect in a retrofit : 

1 . Auxil iaries . Again, the most important component to consider i s 

the ductwork cost. In addition, to requiring very long duct runs, 

some retrofit s require extra tees, elbows, dampers, and other 

fittings . 

2. Handling and Erection. Because of a "tigh t fit" , special care may 

need to be taken when unloading, transporting, and placing the 

<J3 
P.26 

2-24 

equipment. This cost could increase significantly if special 

means (i.e., helicopters) are needed to get the equipment on roofs 

UP or to other inaccessible places. 

3. Piping, Insulation, and Painting. Like ductwork, large amounts 

of piping may be needed to tie in the control device to sources of 

process and cooling water, steam, etc. Of course, the more piping 

}* and ductwork required, the more insulation and painting will be 

needed. 

' 4. Site Preparation. Unlike the other categories, this cost may 

actually decrease, for most of this work would have been done when 

) the original facility was built. 

5* Facilities. Conceivably, retrofit costs for this category could 

be the largest. For example, if the control system requires large 

amounts of electricity (e.g., a venturi scrubber), the facility's 

power plant may not be able to service it. In such cases, the 

facility would have to purchase the additional power from a public 

utility, expand its power plant, or build another one. In any 

case, the cost of electricity supplied to that control system 

would likely be higher than if the system were installed in 

a new facility where adequate provision for its electrical needs 

would have been made. 

6" Engineering. Designing a control system to fit into an existing 

plant normally requires extra engineering, especially when the 

system is exceptionally large, heavy, or utility-consumptive. For 

the same reasons, extra supervision may be needed when the 

installation work is being done. 

<2S 
P.27 

2-25 

7. Lost Production. This cost is incurred whenever a retrofit control 2.4. 

system cannot be tied into the process during normally scheduled 

maintenance periods. Then, part or all of the process may have to ouj 

be temporarily shut down. The revenue lost during this shutdown t 0 n 

period is a bonafide retrofit expense. mav 

8. Contingency. Due to the uncertain nature of retrofit estimates, -be*fc 

the contingency (i.e., uncertainty) factor in the estimate should w^er 

be increased. svs1 

From the above points, it is apparent that some or most of these instal- sect 

Iation costs would increase in a retrofit situation. However, there may be 

other cases where the retrofitted installation cost would be less than the witl 

cost of installing the system in a new plant. This could occur when one are 

control device, say an ESP, is being replaced by a more efficient unit--a 2.4 

baghouse, for example. The ductwork, stack, and other auxiliaries for the 

ESP may be adequate for the new system, as perhaps would the support ley 

facilities (power plant, etc.). lab 

2.4.6 Estimating Annual Costs dat 

Determining the total annual cost is the last step in the estimating are 

procedure. As mentioned in Section 2.2 the TAC is comprised of three 

components -- direct and indirect annual costs and recovery credits. Unlike 

the installation costs, which are "factored" from the purchased equipment 

cost, annual cost items are usually computed from known data on the 

system size and operating mode, as well as from the facility and control 

device parameters. 

Following is a more detailed discussion of the items comprising the 

total annual cost. (Values/factors for these costs are also given in the 

sections for the individual devices.) 

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P.28 

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2-26 

2.4.6.1 Raw Material s 

Raw materials are generally not required with control systems. Exceptions 

would be chemicals used in absorbers or venturi scrubbers as absorbents or 

to neutralize acidic exhaust gases (e.g. , hydrochloric acid). Chemicals 

may also be required to treat wastewater discharged by scrubbers or absorbers 

•before releasing i t t o surface waters. But, these costs are only considered 

when a wastewater treatment system is exclusively dedicated to the control 

system. In most cases, a pro-rata waste treatment charge is applied. (See 

section 2.4.6,5.) 

Quantities of chemicals required are calculated via material balancies, 

with an extra 10 t o 20% added for miscellaneous losses. Costs fo r chemicals 

are available from the Chemical Marketing Reporter and similar publications. 

2.4.6.2 Operating Labor 

The amount of labor required for a system depends on it s size, complexity, 

level of automation, and operating mode (i.e. , batch or continuous). The 

labor is usually figured on an hours-per-shift basis. As a rule, though, 

data showing explici t correlations between the labor requirement and capacity 

are hard to obtain. A typical correlation is logarithmic: 

h-(^y (2-

6) 

L

i

 v i 

where: Li» Lg

 = labor requirements for systems 1 and 2 

v

l »

 v2 = capacities of systems 1 and 2 (as measured by the 

gas flow rate, for instance) 

y = 0.2 t o 0.25 (typical ly)<1 4 ) 

The exponent in equation (2-6) can vary considerably, however. Conversely, 

in many cases, the amount of operator labor required for a system wil l be 

approximately the same regardless of it s size. 

j>7 
P.29 

2-27 

A certain amount must be added to operating labor to cover supervisory inci 

requirements. Fifteen per cent of the operating labor requirement is and 

representative. (15) puis 

To obtain the annual labor cost, multipl y the operating and supervisory 

labor requirements by the respective wage rates (i n $/hr) and the system are 

operating factor (number of hours per year the system is in operation). sysi 

The wage rates also vary widely, depending upon the source category, gent 

geographical location , etc . These data are tabulated and periodicall y heri 

updated by the U.S. Department of Labor, Bureau of Labor Statistics , in it s 

Monthly Labor Review and in other publications. Finally , note that these whe 

are base labor rates, which do not include payroll and plant overhead. 

(See overhead discussion below.) 

2.4.6.3 Maintenance 

Maintenance labor i s calculated in the same way as operating labor 

and is influenced by the same variables. The maintenance labor rate, 

however, is normally higher than the operating labor rate, mainly because 

more skille d personnel are required. A 10% wage rate premium is typical.(15) 

Further, there are expenses for maintenance materials - - oil , other 

lubricants , duct tape, etc. , and a host of small tools . Costs fo r these 

items can be figured individually , but since they are normally so small,

 ft E 

they are typicall y factored from the maintenance labor. Reference 15

 re c 

suggests a factor of 100% of the maintenance labor. 

2.4.6.4 Utilitie s 

This cost category covers many differen t items, ranging from electricit y 

to compressed air. Of these, only electricit y is common to al l control 

devices, where fuel oi l and natural gas are generally used only by 

with. 

ar 

£$ 
P.30 

2-28 

incinerators; water and water treatment, by venturi scrubbers, quenchers, 

and spray chambers; steam, by carbon adsorbers; and compressed air , by 

pulse-jet fabri c filters . 

Techniques and factors for estimating utilit y costs for specific devices 

are presented in thei r respective sections. However, because nearly every 

system requires a fan to convey the exhaust gases to and through it , a 

general expression fo r computing the fan electricit y cost (Ce) is given 

here:' 1 1 ) 

Ce = 0.746 Q AP s & PP 

6356 TI (2-7) 

where: 

Q = gas flowrate (actual ft^/min) 

AP = pressure drop through system (inches of water, gauge) 

(Values fo r AP are given in the sections covering the equipment 

items.) 

s = specific gravity of gas relative to ai r (1.000, for al l practical 

purposes) 

9 = operating factor (hr/yr) 

n = combined fan and motor efficiency (usually 0.60 to 0.70) 

Pe = electricit y cost ($/kwhr). 

A similar expression can be developed for calculating pump motor electricit y 

requi rements. 

2.4.6.5 Water Treatment and Disposal 

Though often overlooked, there can be a significan t cost associated 

with treating and/or disposing of waste material captured by a control system 

that neither can be sold nor recycled to the process. 

Liquid waste streams, such as the effluent from a venturi scrubber, 

are usually processed before being released to surface waters. The type 

* ? 
2-29 

P.31 

and extent of thi s processing will , of course, depend on the characteristics 

of the effluent . For example, the waste can firs t be sent to one (or more) 

clarifiers , for coagulation and removal of suspended solids . The precipitate 

from the clarifie r i s then conveyed t o a rotary filter , where most of the 

liqui d i s removed. The resulting filte r cake is then disposed of, via land 

filling , fo r example. 

The annual cost of thi s treatment is relativel y high—$1.00 t o 

$2.00/thousand gallons treated or more.(15) The solid waste disposal costs 

(via land filling , for example) typicall y would add another $20 to $30/ton 

disposed of.(l^ ) This, however, would not include transportation to the 

disposal site . More information on these technologies and their costs is 

found in References (16) and (17). 

2.4.6.6 Replacement Parts 

This cost i s computed separately from maintenance, because i t is a 

large expenditure, incurred one or more times during the useful lif e of a 

control system. This category includes such items as carbon (fo r carbon 

adsorbers), bags (for fabric filters ) and catalyst (for catalyti c 

incinerators), along with the labor for their installation . 

The annual cost of the replacement materials i s a function of the 

initia l parts cost, the parts replacement labor cost,'the lif e of the 

parts, and the interest rate, as follows: 

CRCp = (Cp + Cpl)CRFp (2-8) 

where: CRCp = capital recovery cost of replacement parts ($/yr) 

Cp = initia l cost of replacement parts, including taxes 

and freight ($) 

Cpi = cost of parts replacement labor ($) 

CRFp = capital recovery factor (defined in Section 2.3). 

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In the Manual methodology, replacement parts are treated the same as 

any other investment, in that they are also considered an expenditure that 

must be amortized over a certain period. Also, the useful lif e of the parts 

(typicall y 2 t o 5 years) i s generally less than the useful lif e of the rest 

of the control system. 

Replacement part labor wil l vary, depending upon the amount of the 

material, it s workability , accessibilit y of the control device, and other 

factors. 

2.4.6.7 Overhead 

This cost is easy to calculate, but often difficul t to comprehend. 

Much of the confusion surrounding overhead i s due to the many different 

ways i t is computed and t o the several costs i t includes, some of which 

may appear to be duplicative . 

There are, generally, two categories of overhead, payrol 1 and pl ant. 

Payroll overhead includes expenses directl y associated with operating, 

supervisory, and maintenance labor, such as: workmen's compensation, Social 

Security and pension fund contributions, vacations, group insurance, and 

other fringe benefits . Some of these are fixed costs (i.e. , they must be 

paid regardless of how many hours per year an employee works). Payroll 

overhead is traditionall y computed as a percentage of the total annual 

labor cost (operating, supervisory, and maintenance). 

Conversely, plant (or "factory") overhead account for expenses not 

necessarily tied to the operation and maintenance of the control system, 

including: plant protection, control laboratories , employee amenities, 

plant lighting , parking areas, and landscaping. Some estimators compute 

31 
P.33 

*>« 

2-31 

plant overhead by taking a percentage of all. labor plus maintenance materials(IB! -

while others factor it from the total labor costs alone. (19) 

For "study" estimates, it is sufficiently accurate to combine payroll 

w 

and plant overhead into a single indirect cost. This is done in this Manual. 

Also, overhead will be factored from the sum of all labor (operating, 

supervisory, and maintenance) plus maintenance materials, the approach 

recommended in reference 18. The factors recommended therein range from 50 

to 70% (1Q) An average value of 60% is used in this Manual. 

2.4.6.8 Property Taxes, Insurance, and Administrative Charges 

These three indirect operating costs are factored from the system total 

capital investment, and typically comprise 1,1, and 2% of it, respectively. 

Taxes and insurance are self-explanatory. "Administrative charges" covers 

sales, research and development, accounting, and* other home office expenses. 

(It should not be confused with plant overhead, however.) For simplicity, 

the three items are usually combined into a single, 4% factor. This value, 

incidentally, is standard in all OAQPS cost analyses. 

2.4.6.9 Capital Recovery 

As discussed in Section 2.3, the annualization method used in the Manual 

is. the equivalent uniform annualized cost method. Recall that the cornerstone 

of this method is the capital recovery factor which, when multiplied by 

the total capital investment, yields the capital recovery cost. (See 

equation 2-2.) 

However, whenever there are parts in the control system that must 

be replaced before the end of its useful life, equation 2-2 must be adjusted, 

to avoid double-counting. 

jn-
P.34 

'••§& • 

2-32 

That is : 

CRCS = CRFS [TCI - (Cp + Cp l)] (2-9) 

where: 

CRCS = capital recovery cost for control system (%/yr) 

TCI = total capital investment for enti re system ($). 

CRFS - capital recovery factor for control system 

The term (Cp+Cpi) accounts for the cost of those parts that would be 

replaced during the useful lif e of the control system and the labor for 

replacing them. Clearly, CRFS and CRFp wil l not be equal unless the control 

system and replacement part lives are equal. 

33 
P.35 

2-33 

References fo r Section 2: 

1 . Perry, Robert H., and Chilton , Cecil H., Perry's Chemical Engineer's 

Handbook (Fift h Edition). New York: McGraw-Hill, 1973, pp. 25-12 to 

25-16. 

2 . Humphries, K. K. and Katell , S., Basic Cost Engineering, New York: 

Marcel Dekker, 1981, pp. 17-33. 

3. Grant, E.L., Ireson, W.G., Leavenworth, R.S., Principles of Engineering 

Economy, Sixth Edition. New York: John Wiley & Sons, 1976, p.25. 

4 . Ibid. , p. 35. 

5. Ibid., p. 36. 

6. EAB Guideline Memo: "Interes t Rates fo r Regulatory Impact Analyses 

(RIA)", May 27, 1982. 

7. "Interim Regulatory Impact Analysis Guidance," Office of Management 

and Budget, June 5, 1981. 

8. Grant, et al.., Op. Cit. , p. 67. 

9. Ibid. , p. 91 . 

10. Ibid., pp. 107-131. 

1 1 . Vatavuk, W. M. and Neveril, R. B., "Estimating Costs of Air-Pollutio n 

Control Systems—Part I : Parameters fo r Sizing Systems," Chemi cal 

Engineering, October 6* 1980, pp. 165-168. 

12. Pollution Equipment News, Pittsburgh: Rimbach Publishing, 1982, pp. 

71-72. 

13. Internal Revenue Service, Form 1040, 1985. 

14. Peters, M. S. and Timmerhaus, K. D., Plant Design and Economics 

for Chemical Engineers (Third Edition] -; NewYork: McGraw-Hill, 1980, 

p. 195. 

15. Vatavuk, W. M. and Neveril, R. B., "Estimating Costs of Air-Pollutio n 

Control Systems—Part II : Factors fo r Estimating Capital and Operating 

Costs," Chemical Engineering, November 3, 1980, pp. 157-162. 

16. Ibid. , "Part XVII: Particle Emissions Control," Chemical Engineering, 

Apri l 2, 1984, pp. 97-99. 

17. The RCRA Risk-Cost Analysis Model : U.S. Environmental Protection Agency, 

Office of Solid Waste, January 13, 1984. 

18. Peters and Timmerhaus, Op. Cit. , p. 203. 

19. Humphries and Katell , Op. Cit. , pp. 64-68. 

3i