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April 15, 2014

MEMORANDUM

SUBJECT: Economic Impact Analysis for New Source Performance Standard for 

Grain Elevators

FROM: Robin Langdon 

Economist

AEG (C439-02)

TO: Bill Schrock

 Environmental Engineer

NRG (E-143-03)

This document addresses the economic and small business impacts 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 costs estimated for subpart DDa would be for

annualized 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 every 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. The 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 to 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. 

The total annualized costs associated with Subpart DDa’s proposed requirements (that 

are different 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.
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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-torevenue or cost-to-sales ratio, or the “sales test.” The “sales test” is the impact 

methodology 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 available 

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 rulemaking is 

consistent with guidance offered by EPA on compliance with SBREFA1and 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 small 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 firm 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 61 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 data indicated 

the grain elevator had 100 employees or fewer at the firm level or annual average 

 

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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-to-sales numbers.

2

U.S. SBA, Office of Advocacy. A Guide for Government Agencies, How to Comply with the Regulatory 

Flexibility Act, Implementing the President’s Small Business Agenda and Executive Order 13272, June 

2010.

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Refer to http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf for more information on SBA 

small business size standards. 
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revenues at the firm level of $25.5 million or less.

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 Using the database of grain elevators 

subject 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, 

reconstructed, or modified by the fifth year following promulgation will be small 

entities. To complete the screening analysis, EPA collected information on number of 

employees and sales receipts at the firm level using the following information resources 

– Hoovers (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 requirements (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 result in a significant market 

impact, whether they are passed on to the purchaser or absorbed by firms. The small 

business screening analysis results indicated that approximately 98% of all affected 

small facilities would have a cost-to-sales ratio of less than 1%, with a minimum a costto-sales ratio of less than 1%, an average cost-to-sales ratio of less than 1%, and a

maximum cost-to-sales ratio of 2.4%. The results also indicated that about 2% of all 

affected small facilities, or 2 facilities, may have a cost-to-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. 

 

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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.

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

We were not able to determine if those 19 were small entities, and they are not included in the screening 

analysis.