F - 1

Appendix F: Cost Methodology

This appendix explains the cost methodology used to estimate the costs of the proposed amendments to the off-road regulation. Sec tion A below explains why the compliance costs for the current off-road regulatio n are different than those presented in the original staff report (ARB, 2007a). Section B outlines the cost methodology, and
Section C lists references used.

A. Updated Current Regulatory Costs

The current regulation costs presented (in Chapter VII of this document) are different than those estimated in the original staff report ( ARB, 2007a) for several reasons, including:

• The current regulation costs presented in Chapter VII are in 2010 dollars; the original staff report cost estimates were presented in 2006 dollars.

• The current regulation costs are the costs associa ted with vehicle turnover and retrofitting only; the original staff report estima tes included additional costs for reporting, labeling, and retrofit operational and m aintenance costs. It is reasonable to leave out the reporting and labeling costs because all fleets must report and label their vehicles, even under the pro posed amended regulation; hence, it was not necessary to recalculate these co sts for the purposes of comparing the current regulatory costs with the pro posed amended regulation costs or for comparing regulation amendment proposa ls. Staff did not include retrofit operational and maintenance costs because these costs, when calculated, were insignificant compared to the over all compliance costs for the

statewide fleet.

• The current regulation costs in Chapter VII take i nto account the amendments made to the regulation since its initial approval i n 2007. These amendments include the Assembly Bill (AB) 8 2X amendments, and the delay of enforcement of the March 1, 2010, compliance date which have re sulted in a cost savings for many fleets. Because the regulation has already be en amended to give economic relief to affected fleets, staff believed it was appropriate to recalculate the costs of the regulation, as it currently exists , and not how it was originally adopted.

• The cost estimates for both the current regulation and the proposed amended regulation in this staff report were calculated usi ng the most recent inventory of off-road vehicles, which includes fewer vehicles th an previously estimated. The original staff report costs were calculated using a n estimated statewide vehicle inventory. However, because more accurate reported data from the Diesel Offroad On-line Reporting System (DOORS) now exists, s taff believes it is more appropriate to estimate statewide costs based on th is updated inventory data.

For the many reasons stated above, it was more appr opriate to recalculate the statewide costs of the regulation, as it currently exists, than to compare the proposed amended regulatory costs to the original costs pres ented in the 2007 staff report.F - 2 B. Updated Cost Methodology

As stated in Chapter VII, the methodology used to c alculate the costs in this staff report were similar to the methodology used when originall y estimating the costs for the offroad regulation. For a full description of the ori ginal cost methodology, please see Chapter XI of the original Technical Support Docume nt (TSD) for the off-road regulation (ARB, 2007b). The subsections below provide a summ ary of the updated cost methodology, as well as the retrofit and vehicle co sts used in the modeling.

1. Statewide Costs

The original methodology relied on the compliance m odeling for 200 sample fleets, and required these costs to be scaled to reflect statew ide costs. However, the updated methodology used to calculate costs for this report used the Off-road Simulation Model (OSM) to model the compliance paths of approximatel y 8,800 real fleets reported to DOORS (DOORS, 2010). For each fleet in DOORS, OSM calculated the costs the fleet would normally spend without the regulation in plac e. These costs are referred to as a fleet’s baseline costs, and depend upon a fleet’s a verage age and natural turnover rate. Once the baseline cost for a fleet was determined, a compliance cost was then calculated, based on a fleet’s anticipated complian ce path. The difference between a fleet’s baseline cost, and a fleet’s compliance cos t is the cost attributed to the off-road regulation. For more information on OSM, please se e Appendix D.

Once these costs were calculated for each fleet, th ey were summed to provide staff with the overall compliance costs for each year over the life of the regulation (for those fleets in DOORS). To determine the cost in 2010 dollars, the cost for each year was multiplied by the net present value (NPV) 1 factor.

Although the fleets in DOORS represent a majority o f the fleets affected by the regulation, there are still some fleets that have n ot reported to DOORS (and are therefore not in compliance with the off-road regul ation). To account for these noncompliant fleets (estimated to be 10 percent of the statewide fleet), the costs for each year were multiplied by a 1.1 noncompliance fa ctor.

2. Compliance Costs

The compliance path for each real fleet included th e option of retrofitting or accelerated turnover (to new or used vehicles). Although repow ering a vehicle with a new engine is a viable compliance option, it is not applicable to all vehicle types and horsepower categories and is expected to be a relatively rare compliance choice. Therefore, to simplify the analysis, staff did not include repowe rs as a compliance option in OSM.

1 NPV = 1/(1+r)^n, where r = the annual interest rat e, and n = the number of years in the future. An annual five percent real interest rate is the basis of all economic impacts, assuming seven percent nominal interest rate and two percent inflation rat e.F - 3 a) Vehicle costs

The new and used vehicle costs were determined from for-sale prices of vehicles of various types. Prices were plotted by vehicle age and curve fit on a dollar per horsepower ($/hp) basis to represent the typical pr ice for each vehicle type. For a majority of the vehicle types in the off-road inven tory, this analysis had already been performed; these numbers are available in Appendix J of the original TSD of the offroad regulation (ARB, 2007b), and were used in this analysis. However, for various types of GSE vehicles, prices were compiled from us ed vehicles for sale on several websites, including Machinerytrader.com and Tradequ ip.com. The $/hp values used for

GSE vehicles is included in Attachment 1.

b) Retrofit costs

Staff contacted several retrofit manufactures to co llect current retrofit costs. These costs were used in OSM, and are shown below in Tabl e F-1 (Aleixo, 2010, Halloran, 2010, Machado, 2010, Swenson, 2010).

Table F-1: Retrofit Costs

Horsepower Range Retrofit Cost Less than 50 hp $16,750 50 hp – 125 hp $17,588 125 hp – 175 hp $19,733 175 hp – 300 hp $24,796 300 hp – 400 hp $28,763 400 hp and Greater $52,333

c) Additional costs

When the costs for the original regulation were cal culated, staff included a ‘transportation cost’ of $10/hp to account for the potential price impact on changes in demand for clean and dirty vehicles (ARB, 2007b). This cost was also included in OSM, and was added to the price of every vehicle (new or used) purchased for compliance.

An additional cost that was also included in the or iginal regulation costs was the Tier 4 premium. This cost was to account for the increase in cost for Tier 4 vehicles because of the exhaust aftertreatment technology expected t o be used in those engines. The Tier 4 premium costs were estimated to be similar t o the cost of a retrofit device, and

are shown below in Table F-2.F - 4 Table F-2: Tier 4 Premium Costs

Horsepower Range Retrofit Cost Less than 50 hp $8,000 50 hp – 175 hp $12,000 175 hp – 400 hp $18,000 400 hp and Greater $30,000

C. References

Aeroservicios, 2010. Vehicle information from Aero servicios. Last accessed October 25, 2010. www.aeroservicios.com/system/

AeroTech, 2010. Vehicle information from JBT Areot ech. Last accessed October 25,

2010. http://www.jbtaerotech.com/

Aleixo, 2010. Personal communication between Joe Al eixo of DCL International Inc., and Cory Parmer, ARB; June 1, 2010.

ARB, 2003b. California Air Resources Board. Carl Moyer Program Guidelines. California Air Resources Board, September 2003. http://www.arb.ca.gov/msprog/moyer/guidelines/2003m oyerguide.pdf

ARB, 2007a. California Air Resources Board. Staff Report: Initial Statement of Reasons for Proposed Rulemaking; Regulation for In-Use Off- Road Diesel Vehicles . California Air Resources Board, April 2007. http://www.arb.ca.gov/regact/2007/ordiesl07/isor.pd f

ARB, 2007b. California Air Resources Board. Technical Support Document: Regulation

for In-Use Off-Road Diesel Vehicles . California Air Resources Board, April 2007. http://www.arb.ca.gov/regact/2007/ordiesl07/TSD.pdf

DOORS, 2010. Diesel Off-road On-line Reporting Sys tem. https://secure.arb.ca.gov/ssldoors/doors_reporting/ reporting.php

EEA, 1995. Memorandum from Sandy Webb of EEA to Bi ll Albee, FAA, and Rich Wilcox, EPA, entitled: Technical Data to Support FAA's Advisory Circular o n Reducing
Emissions from Commercial Aviation. September 25, 1995.

Halloran, 2010. Personal communication between Jam es Halloran of Caterpillar, Inc., and Cory Parmer, ARB; June 21, 2010.

Machado, 2010. Personal communication between Crys tal Machado of HUSS Inc., and Cory Parmer, ARB; June 12, 2010.

MachineryTrader, 2010. Vehicle prices from Machine ry Trader. Last accessed October 25, 2010. http://www.machinerytrader.com/F - 5

Mercury, 2010. Personal communication between Debb ie Taylor of Mercury GSE and Stan Armstrong, ARB, August 9, 2010.

Swenson, 2010. Personal communication between Tom Swenson of Cleaire Advanced Emissions Controls, LLC., and Cory Parmer, ARB; Jun e 1, 2010.

SunMachinery, 2010. Drilling rig prices from Sun M achinery. Last accessed on October 25, 2010. http://www.sunmachinery.com/

Sunnda, 2010. Workover rig vehicle information fro m Sunnda Corporation. Last accessed October 25, 2010. www.sunnda.com/

Tradequip, 2010. Vehicle prices from Tradequip Int ernational. Last accessed on October 25, 2010. www.tradequip.com/F - 6 Attachment 1 – GSE Vehicle Costs

New Vehicle Types Added

The table below identifies the new 2 vehicle types for which the costs were included in OSM. If not enough cost data could be found, the c osts for a similar vehicle type were used, and are noted in Table F1-1 below.

Table F1-1: Vehicle Types with Updated Costs

Vehicle Type

Aerial Lifts

Forklifts Other General Industrial Equipment (used "Other Con struction" costs) Other Material Handling Equipment (used "Other Cons truction" costs) Sweepers/Scrubbers Drill Rig (Mobile) Workover Rig (Mobile) A/C Tug Narrow Body A/C Tug Wide Body Baggage Tug

Belt Loader Bobtail (used "Skid Steer Loader" costs) Cargo Loader Cargo Tractor (used "Tractor/Loader/Backhoe" costs) Forklift (GSE) (used "Forklift" costs) Lift (GSE) (used "Aerial Lift" costs) Other GSE (used "Other Construction" costs) Passenger Stand (used "Aerial Lift" costs)

Estimated Vehicle Costs

The costs used for estimating new and used vehicle prices are shown in the Table F1-2 below (Aeroservicios, 2010; AeroTech, 2010; EEA, 19 95; MachineryTrader, 2010; Mercury, 2010; SunMachinery, 2010; Sunnda, 2010; Tr adequip, 2010).

2 Not included in the cost estimates for the origina l regulation (ARB, 2007b).F - 7Table F1-2: Vehicle $/hp Cost by Vehicle Type (Ages 0 to 85)Vehicle Age (Years)Vehicle Type0 1 2 3 4 5 6 7 8 9 10 11 12Aerial Lifts 2368 1951 1608 1325 1092 900 741 611 504 415 342 282 232Forklifts 641 599 559 522 487 455 425 397 370 346 323 301 281Sweepers/Scrubbers 442 413 386 361 337 315 294 275257 240 224 209 196Drill Rig (Mobile) 1766 1568 1392 1236 1098 975 865768 682 606 538 478 424Workover Rig (Mobile) 1035 950 872 800 734 674 618567 521 478 438 402 369A/C Tug Narrow Body 975 914 857 803 753 705 661 620581 545 510 479 449A/C Tug Wide Body 975 914 857 803 753 705 661 620 581 545 510 479 449Baggage Tug 1016 904 804 716 637 566 504 448 399 355 316 281 250Belt Loader 551 516 483 452 423 397 371 348 326 305286 267 250Cargo Loader 1051 1007 966 926 888 851 816 782 750719 689 661 633Vehicle Age (Years)Vehicle Type13 14 15 16 17 18 19 20 21 22 23 24 25Aerial Lifts 191 158 130 107 88 73 60 49 41 34 28 23 19Forklifts 263 245 229 214 200 186 174 163 152 142 132 124 115Sweepers/Scrubbers 183 171 160 149 139 130 122 114106 99 93 87 81Drill Rig (Mobile) 377 334 297 264 234 208 184 164145 129 115 102 90Workover Rig (Mobile) 339 311 285 262 240 220 202 186 170 156 144 132 121A/C Tug Narrow Body 420 394 369 346 325 304 285 267251 235 220 206 193A/C Tug Wide Body 420 394 369 346 325 304 285 267 251 235 220 206 193Baggage Tug 222 198 176 157 139 124 110 98 87 78 6961 55Belt Loader 234 220 206 193 180 169 158 148 139 130122 114 107Cargo Loader 607 582 558 535 513 492 471 452 433 415 398 382 366F - 8Vehicle Age (Years)Vehicle Type26 27 28 29 30 31 32 33 34 35 36 37 38Aerial Lifts 15 13 11 9 7 6 5 4 3 3 2 2 2Forklifts 108 101 94 88 82 76 71 67 62 58 54 51 47Sweepers/Scrubbers 76 71 66 62 58 54 50 47 44 41 3836 33Drill Rig (Mobile) 80 71 63 56 50 44 39 35 31 28 2422 19Workover Rig (Mobile) 111 102 93 86 79 72 66 61 5651 47 43 40A/C Tug Narrow Body 181 170 159 149 140 131 123 115108 101 95 89 83A/C Tug Wide Body 181 170 159 149 140 131 123 115 108 101 95 89 83Baggage Tug 49 43 39 34 30 27 24 21 19 17 15 13 12Belt Loader 100 93 88 82 77 72 67 63 59 55 52 48 45Cargo Loader 351 336 322 309 296 284 272 261 250 240 230 220 211Vehicle Age (Years)Vehicle Type39 40 41 42 43 44 45 46 47 48 49 50 51Aerial Lifts 1 1 1 1 1 1 1 1 1 1 1 1 1Forklifts 44 41 38 36 34 31 29 27 26 24 22 21 19Sweepers/Scrubbers 31 29 27 26 24 22 21 19 18 17 1615 14Drill Rig (Mobile) 17 15 13 12 11 9 8 7 7 6 5 5 4Workover Rig (Mobile) 36 33 31 28 26 24 22 20 18 1715 14 13A/C Tug Narrow Body 78 73 69 64 60 57 53 50 47 44 41 38 36A/C Tug Wide Body 78 73 69 64 60 57 53 50 47 44 4138 36Baggage Tug 11 9 8 7 7 6 5 5 4 4 3 3 3Belt Loader 42 40 37 35 33 31 29 27 25 24 22 21 19Cargo Loader 203 194 186 179 171 164 157 151 145 139 133 127 122F - 9Vehicle Age (Years)Vehicle Type52 53 54 55 56 57 58 59 60 61 62 63 64Aerial Lifts 1 1 1 1 1 1 1 1 1 1 1 1 1Forklifts 18 17 16 15 14 13 12 11 10 10 9 9 8Sweepers/Scrubbers 13 12 11 11 10 9 9 8 8 7 7 6 6Drill Rig (Mobile) 4 3 3 3 2 2 2 2 1 1 1 1 1Workover Rig (Mobile) 12 11 10 9 8 8 7 7 6 5 5 5 4A/C Tug Narrow Body 34 32 30 28 26 24 23 21 20 19 18 17 16A/C Tug Wide Body 34 32 30 28 26 24 23 21 20 19 1817 16Baggage Tug 2 2 2 2 1 1 1 1 1 1 1 1 1Belt Loader 18 17 16 15 14 13 12 11 11 10 9 9 8Cargo Loader 117 112 108 103 99 95 91 87 84 80 77 74 71Vehicle Age (Years)Vehicle Type65 66 67 68 69 70 71 72 73 74 75 76 77Aerial Lifts 1 1 1 1 1 1 1 1 1 1 1 1 1Forklifts 7 7 6 6 6 5 5 5 4 4 4 3 3Sweepers/Scrubbers 5 5 5 4 4 4 4 3 3 3 3 3 2Drill Rig (Mobile) 1 1 1 1 1 1 1 1 1 1 1 1 1Workover Rig (Mobile) 4 4 3 3 3 3 2 2 2 2 2 2 1A/C Tug Narrow Body 15 14 13 12 11 11 10 9 9 8 8 77A/C Tug Wide Body 15 14 13 12 11 11 10 9 9 8 8 7 7Baggage Tug 1 1 1 1 1 1 1 1 1 1 1 1 1Belt Loader 8 7 7 6 6 6 5 5 5 4 4 4 3Cargo Loader 68 65 62 60 57 55 53 50 48 46 44 43 41F - 10Vehicle Age (Years)Vehicle Type78 79 80 81 82 83 84 85Aerial Lifts 1 1 1 1 1 1 1 1Forklifts 3 3 3 2 2 2 2 2Sweepers/Scrubbers 2 2 2 2 2 2 1 1Drill Rig (Mobile) 1 1 1 1 1 1 1 1Workover Rig (Mobile) 1 1 1 1 1 1 1 1A/C Tug Narrow Body 6 6 6 5 5 5 4 4A/C Tug Wide Body 6 6 6 5 5 5 4 4Baggage Tug 1 1 1 1 1 1 1 1Belt Loader 3 3 3 3 3 2 2 2Cargo Loader 39 37 36 34 33 32 30 29