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April 15, 2014

MEMORANDUM

SUBJECT: Economic Impact Analysis for New Source Performance Standard for

Grain Elevators

FROM: Robin Langdon

Economist A E G (C439

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TO: Bill Schrock

Environmental Enginee r NRG ( E

- 143

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This document addresse s the economic and small business im pacts of the proposed requirements of the New Source Performance Standard (NSPS) for Grain Elevators (Subpart DDa)

. The proposed requirements would be incurred only by affected facilities that commence construction, modification, or reconstruction after the date Subpart DDa is proposed. The incremental cost s estimated for subpart DDa would be for

annua lized capital costs for sheds, dryer screens, and fabric filters at some affected facilities, as well as annual opacity testing at affected facilities, weekly visual inspection of affected facilities, inspection of fabric filters for affected facilities ev ery six months, the recordkeeping associated with visual monitoring and inspections, reporting in EPA’s emissions reporting tool
, and compliance costs to meet PM and opacity standards for affected facilities associated with temporary storage facilities

. T he projections for the number of affected facilities and detailed cost estimates are provided in “Impacts of Grain Elevator NSPS Subpart DDa Requirements ” , which is available in the docket.

Cost Impacts

Economic impact analyses focus on changes in market prices and output levels. If changes in market prices and output levels in the primary markets are significant enough, impacts on other markets may also be examined. Both the magnitude of costs needed t o comply with the rule and the distribution of these costs among affected facilities can have a role in determining how the market will change in response to rule. T he total annualized costs associated with Subpart DDa’s proposed requirements (that are d ifferent than the Subpart DD requirements) are $ 1

. 1 million for the total number of affected facilities that are projected to be constructed, reconstructed, or modified by the fifth year following promulgation. These costs are not expected to result in a significant market impact
, whether they are passed on to the purchaser or absorbed by firms

.2

Small Business Impacts

EPA performed a screening analysis for impacts on all affected small entities by comparing compliance costs to average sales revenues. This is known as the cost

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revenue or cost

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- sales ratio, or the “sales test.” The “sales test” is the impact method ology EPA primarily employs in analyzing small entity impacts as opposed to a “profits test,” in which annualized compliance costs are calculated as a share of profits. The sales test is frequently used because revenues or sales data are commonly availabl e for entities impacted by EPA regulations, and profits data normally made available are often not the true profit earned by firms because of accounting and tax considerations. The use of a “sales test” for estimating small business impacts for a rulemaki ng is consistent with guidance offered by EPA on compliance with SBREFA 1 and is consistent with guidance published by the U.S. SBA’s Office of Advocacy that suggests that cost as a percentage of total revenues is a metric for evaluating cost increases on s mall entities in relation to increases on large entities. 2

The proposed requirements for subpart DDa include the following two North American Industry Classification System (NAICS) codes: 424510

– Grain and Field Bean Merchant Wholesalers, and 493130

– Farm Product Warehousing and Storage. The Small Business Administration (SBA) defines a small entity in NAICS code 424510 as having an average of 100 or fewer employees at the firm level
, and in NAICS code 493130 as having annual average revenues at the f irm level of $25.5 million or less. 3 To identify the small entities, EPA reviewed the Office of Enforcement and Compliance Assurance’s database of grain elevators subject to the existing NSPS . The database has approximately 344 grain elevators included; we removed 6 1 grain elevators from the screening analysis because they were duplicates at the firm level. Also, because the database did not always include a definitive NAICS code for each entry, EPA included a grain elevator in the screening analysis (i ) if the grain elevator was listed under NAICS code 424510 and had 100 employees or fewer at the firm level , (ii) if the grain elevator was listed under NAICS code 493130 and had annual average revenues at the firm level of $25.5 million or less, or (iii) if the grain elevator entry did not include a NAICS code
, but d ata indicated the grain elevator had 100 employees or fewer at the firm level or annual average

1 The SBREFA compliance guidance to EPA rulewriters regarding the types of small business analysis that should be considered can be found at http://www.epa.gov/sbrefa/documents/Guidance

- RegFlexAct.pdf

. See Table 2 on page 36 for guidance on interpretations of the magnitude of the cost

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- sales numbers.
2 U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Reg ulatory Flexibility Act, Implementing the President’s Small Business Agenda and Executive Order 13272, June 2010.
3 Refer to http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf for more information on SBA small business size standards.3

revenues at the firm level of $25.5 million or less

. 4 Using the database of grain elevators subj ect to the existing NSPS and the SBA’s small business size standards , EPA identified 87 small entities, or 31% of the total number of grain elevators in the database. 5

For the screening analysis, because we did not know the number of employees or annual average revenues associated with new grain elevators, EPA applied the size distribution of existing grain elevators to projected new ones , i.e., EPA assumed that 31% of the total number of affected facilities projected to be constructed,
reconstr ucted, or modified by the fifth year following promulgation will be small entities

. To complete the screening analysis, E PA collected information on number of employees and sales receipts at the firm level using the following information resources

– Hoove rs ( http://www.hoovers.com/ ), Manta ( http://www.manta.com/ ), Bloomberg Businessweek ( http://investing.businessweek.com/research/company/overview/overview.asp ), and company websites. For compliance costs, EPA used the cost estimates provided in “Impacts of Grain Elevator NSPS Subpart DDa Requirements ”. We calculated an average compliance cost per affected facility by dividing the total annualized costs associated with Subpart DDa req uirements (that are different than Subpart DD requirements) in the fifth year following promulgation ($ 1

. 1 million) by the total number of affected facilities that are projected to be constructed, reconstructed, or modified by the fifth year following promulgation (221 affected facilities)

.

Conclusions

These projected compliance costs are not expected to res ult in a significant market impact, whether they are passed on to the purchaser or absorbed by firms. T he small business screening analysis results indicated that approximately 9 8 % of all affected small facilities would have a cost

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- sales ratio of less than 1 % , with a minimum a cost

to

- sales ratio of less than 1%, an average cost

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- sales ratio of less than 1%, and a maximum cost

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- sales ratio of 2

. 4 %

. The results also indicated that about 2% o f all affected small facilities, or 2 facilities , may have a c ost

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- sales ratio of between 2 .3 and 2.4%

. We conclude that the proposed requirements of the New Source Performance Standard (NSPS) for Grain Elevators will not have a significant economic impact on a substantial number of small entities.

4 If the NAICS code for a grain elevator was indicated as 424510 (with a small entity threshold of 100 or fewer employees) and we did not have data on number of employees but did have data on annual average sales receipts, we included the grain elevator in the screening analysis if the sales receipt data indicated the grain elevator was a small entity

. 5 Of the total number of grain elevators in the database, w e were not able to locate information for 19

. We were not able to determine if th ose 19 were small ent ities, and they are not includ ed in the screening analysis

.