Enhancements planned for the ISIS-cement based on PCA’s review comments

Meeting with the Portland Cement Association (PCA) December 15, 2009

Portland Cement Association and cons tituents joined EPA over the phone Tyrone Wilson

Stuart Sessions Doug Roark

Ed Sullivan

Tian Liu

EPA

Elineth Torres

Ravi Srivastava Tom Walton- over the phone

Will Yelverton

Contractors to EPA Samudra Vijay- Sam Analytic Solutions LLC – over the phone Brooks Depro- RTI – over the phone

Topics for discussion

I. Market Structure Texas, Florida and California will each have to demand centers. Demand centers will be based on the main metropolitan areas and population.

II. Demand projections - EPA updated consumption data based on the la test projections from PCA (summer 2009 Forecast and 2009 Long-term forecast which reflects the deeper and prolonged slump for cement consumption with the recession)

III. Supply EPA updated kiln retirement and projections based on the latest projections from PCA (October, 2009)

III. Transportation - Ravi Cost of transporting cement will come from the data received from PCAUnits Bureau of Transporta

tion

Statistics Washington State Dept of Transportation North

American

Cement Transportation American University

(Cents per

Metric Ton per Mile) 33.06 7.64 11.02 7.18

(Cents per Short Ton per Mile) 29.99 6.93 10.00 6.51

($ per Short Ton per mile) 0.30 0.07 0.10 0.07

IV. AVC – Elineth and Brooks

Per PCA, PCA’s Financial Benchmark Report will be release to us – within to weeks to

EPA

On the fuel cost and availability) – EPA de veloped a Fuel Matrix in ISIS based on fuel data reported in PCA’s U.S. and Canadian Portland Cement Industry: Plant Information Summary of 2008

PCA commented that the ISIS Model is unrealistic in simulating the possibility that kilns would change from a primary fuel to 100% al ternate fuel, and instead the following fuel use pattern may be used:

o Kilns typically use Bituminous coal

o TDF and MKF - 20% maximum for wet a nd long dry, 10-12% for preheater and precalciner

o Natural gas - 1-2% co-firing

o Pet Coke – 10-20%

Also PCA’s Labor Energy Survey- from Ed. Sullivan- breaks down by type of kilnnational total for each fuel. Ed will send the Survey to EPA.

Also, PCA commented that using some sort of waste fuels together with coal can have a SO2 removal effect that won’t be captur e on the emission intensity of each fuel.

On the new ph/pc kilns –performance guarant ee that all the SO2 from fuel will be

scrubbed out with the li mestone- lime conversion

Nox- short term variable varies more with combustion requirements and conditions

- emissions of NOx are well established5. Updating escalation factors PCA commented that for the transporta tion cost escalation factor- EPA should

differentiate vs. the cost of the fuel vs. the co st (labor) of the driver and capital charge for

the truckCost escalation for new kilns- escalation cost will be similar to the escalation cost of a refinery or other facilities

Economic parameters-

- Capital recovery period- manufacturi ng of a new plan + pollution control

i. Stu- 15% nominal – low e nd of capital recovery

ii. At least 15 years- use 12 years

- Critical life – plant life- upper 50 years- as low as 30-35 years – assume 40

years

- Capital recovery period for new cement plants ??? PCA to get back to us

Brownfield facilities have a shorter life period, - 8 years

PCA assessment of the NESHAP have some of this information- depend on the age of the plant- longevity of plant depends on the quarry- so 15 years might not be feasible for all

kilnsIV. Capacity Replacement

1. Updating cost of installing new equipment, substitution of new/expansion/upgrade production capacity for existing capacity based on data provided by PCA

2. Abandoning the “conversions” - EPA should abandon the “conversion” concept altogether, and instead assume only expa nsions/replacement and/or Greenfield.

- PCA- commented on capacity c onstraints in the model:

o If reasonable values are used for: a) the $/ton for greenfield facilities as well as replacements; and b) rate of return required for investment in new capacity, then ISIS would not need to focus that much on capacity

constraints.

- PCA suggested that instead of having a capac ity constraint for greenfield facilities or replacements, ISIS perhaps could have an aggregate constraint on capital availability for the entire industry. EP A will need some guidance from PCA on what is acceptable- annually or in five year blocks. This to be discussed as an agenda item in the call to address th e transportation matrix. PCA concurred.

- PCA mentioned that the 7%- OMB social di scount rate is not reasonable as the minimum rate of return required for new capital investment. Ravi suggested that perhaps a 12-15% discount rate is more appropriate. PCA agreed. We need to agree to a number that is reasonable. This also will be an agenda item for our next call. PCA agreed.