jim halloran ca reg affairs manager

Jim HalloranCA Reg Affairs

Manager

The California Off-Road Diesel Rule

2Count on Cat. Everyday.

Agenda

• California Off-Road Rule– The Off-Road rule

• The base rule• The relief measures

– Questions


Background

• Diesel Risk Reduction Plan– 75% reduction by 2010– 85% reduction by 2020

• 8-Hour Ozone• Staff proposes – Board approves• EPA waiver requirement • So what is goal???


Tier 3 VS Tier 4

1996200120052011

2014

In 2011, NOx must be reduced by 50% and

PM by 90%

In 2014, NOx must be reduced by a further

80%; PM limits remain unchanged


Off-Road Rule Delay

Please note that the idling, reporting, labeling, and sales disclosure requirements in the regulation remain in effect and fully enforceable. This means that large fleets still must comply with the April 1, 2010, reporting deadline (i.e., still must report their reduced activity and reduced horsepower to ARB).

Also, in recognition of the continuing effects of the global recession, on March 11, 2010, in Sacramento, ARB will conduct a hearing where stakeholders may testify on whether the off-road regulation should be modified further, beyond the relief that the Board already enacted in July, 2009. At the hearing, ARB will gather more factual information on the impact of the recession on affected fleets to determine if further changes to the regulation are warranted.


Off-Road Rule

• Off-highway diesel vehicles 25+ hp that operate in CA• Required to meet decreasing fleet averages or BACT• Timing based on fleet size• Will require DPF’s and engine/machine turnover• Will require recordkeeping, labeling and idling provisions• Fleets can no longer add Tier 0 or Tier 1 machines to fleet• Steep fines for non-compliance

– $300 – Idling– $500 – NOx - Up to $10,000 for PM w/a $40,000 max


Off-Road Rule – Fleet Average NOx

Nox Targets for Each Max HP GroupCompliance Date: March 1 of Year

25 - 49 HP

50 - 74 HP

75 - 99 HP

100 - 174 HP

175 - 299 HP

300 - 599 HP

600 - 750 HP

> 750 HP

2010 Large Fleets Only) 5.8 6.5 7.1 6.4 6.2 5.9 6.1 7.22011 Large Fleets Only) 5.6 6.2 6.7 6.0 5.8 5.5 5.6 6.82012 Large Fleets Only) 5.3 5.8 6.2 5.5 5.3 5.1 5.2 6.5

2013 5.1 5.5 5.7 5.1 4.9 4.7 4.8 6.12014 4.9 5.1 5.2 4.7 4.5 4.3 4.4 5.72015 4.6 4.8 4.8 4.3 4.1 3.9 4.0 5.32016 4.4 4.4 4.3 3.8 3.6 3.5 3.6 4.92017 4.2 4.1 3.8 3.4 3.2 3.1 3.2 4.52018 4.0 3.7 3.3 3.0 2.8 2.7 2.7 4.12019 3.7 3.4 2.8 2.6 2.3 2.3 2.3 3.82020 3.5 3.2 2.4 2.2 1.9 1.9 1.9 3.4

Table 1 - Large and Medium Fleet Nox Targets For Use in Calculating Fleet Target Rates (g/bhp-hr)


Tier 2

Tier 4

Tier 3

Tier 4 Interim

Off-Road Rule – Fleet Average NOx


Off-Road Rule – Fleet Average PM

PM Targets for Each Max HP GroupCompliance Date: March 1 of Year

25 - 49 HP

50 - 74 HP

75 - 99 HP

100 - 174 HP

175 - 299 HP

300 - 599 HP

600 - 750 HP

> 750 HP

2010 Large Fleets Only) 0.46 0.60 0.62 0.33 0.23 0.18 0.20 0.302011 Large Fleets Only) 0.46 0.60 0.62 0.33 0.23 0.18 0.20 0.302012 Large Fleets Only) 0.39 0.43 0.46 0.26 0.16 0.14 0.14 0.24

2013 0.39 0.43 0.46 0.26 0.16 0.14 0.14 0.242014 0.29 0.23 0.24 0.18 0.11 0.11 0.11 0.182015 0.29 0.23 0.24 0.18 0.11 0.11 0.11 0.182016 0.21 0.18 0.19 0.14 0.08 0.08 0.08 0.112017 0.21 0.18 0.19 0.14 0.08 0.08 0.08 0.112018 0.12 0.12 0.13 0.10 0.06 0.06 0.06 0.082019 0.12 0.12 0.13 0.10 0.06 0.06 0.06 0.082020 0.08 0.08 0.07 0.06 0.03 0.03 0.03 0.06

Table 2 - Large and Medium Fleet PM Targets For Use in Calculating Fleet Target Rates (g/bhp-hr)


Off-Road Rule – Fleet Average PM

Tier 1 w/ DPF

Tier 2 w/ DPF


Off-Road Rule – BACT Options

• For NOx prior to 2015 requires 8% per year of fleet horsepower to be retired, designated low use or replaced/ repowered with a Tier 2 or better - 10% after 2015

• For PM requires 20% of fleet horsepower to be retrofitted per year with highest level VDECS

• Tier 4 (with OEM DPF’s) purchases count towards 20%• Exemptions

– New vehicles 10 years NOx/5 years PM– Application & Safety– Currently retrofitted or experimental


Off-Road Rule – Compliance Process

Will fleet meet NOx fleet average target?

Turn over another engine

No

Will fleet meet PMfleet average target?

Yes

No

Yes Yes

Apply highest level VDECS to another engine

Will 20% of total hphave highest level VDECS

by compliance date?No

NoYes

DoneForYearWill 8%/10% of total hp

be turned over by compliance date?


Compliance Options

EngineRepowers

AftertreatmentFilter/Catalysts

CleanerFuels

RentalEquipment

RetireReplace

EmissionsSolutions

Emissions Upgrade Group


Off-Road Rule – Misc. Issues

• Manufacturer delays – if ordered 4 months before compliance date

• Flex Machines • Average Banking and Trading• Safe installation of DPF’s – visibility

– Pushed by Operating Engineers and OSHA– Policy and procedures coming– “Under the hood installs” primary path


Legislative Credit Provisions

• As of today….• Provides credit for reduced activity from a Jan-Dec ’07

baseline compared to 3/09-3/10 activity levels– Will require records– Can only be used in 2010-11– Can be combined

• Credit for machine retirements and total fleet hp reduction between March 1, 2006, and March 1, 2010 – Credits do not expire– No double counting


Legislative Credit Provisions

• Allows fleets to spread BACT requirements over time

• Special provisions for fleets that meet fleet averages in years 2011-13

• Currently required


Legislative Change Impacts


Credit Provisions – Early Action Items

• Exempt early retrofitted vehicles from future turnover• Double credit for early NOx retrofit • Allows medium fleets prior to 2013 and large fleets in 2010

and 2011 to accumulate NOx carryover turnover credit for repowers installed

• Provides double credit for small and medium fleets that install highest level VDECS prior to March 1, 2012

• More to come????


Guiding Principles


Inventory Options


Off-Road Options


Off-Road Equipment Rule

• Over 4 years of workshops • Board approved on July 26, 2007• Office of Administrative Law approved June 15,

2008 – no EPA waiver to date• Legislative changes approved July 23, 2009• Potential for lawsuits – state and federal • Relief measures to be finalized Sept. Board

Meeting• It’s basically done and time to plan….


Customer Compliance Issues

• You should have fleets registered, labeled and an idling policy in place

• You’ve met the April 1 compliance deadline but still have a number of questions unanswered

• The credit proposals/additional changes to come will provide more time/opportunity

• Incentive money may be opened up but for now it is gone for large and medium fleets


Customer Compliance Issues

• Short/long term compliance plans• Financial/credit situation• Cost effective solutions that make long term sense• Need to understand what the relief measures will

mean• A partner to guide you along the way


Questions?

Comments??

Concerns???


Thank You!

Jim HalloranCA Regulatory Affairs Manager

[email protected]

mailto:[email protected]

Governmental Finance

Solutions

Lease vs. Buy

BUY

• Pay cash or finance price over a period of time• You are the owner of the equipment• At some point you look to trade-in or sell• Non-Appropriations Clause

Governmental solutions

LEASE• Pay for use of equipment over period of time with

option to buy at end of term• The leasing/finance company is the owner of the

machine• At the end of the lease you look to return and

replace equipment or buy it• Non-Appropriations Clause


ADVANTAGES

Lease Buy• Cash Flow?• Control Maint. Costs? • Flexibility? • Total Ownership Cost?


-Example- Need a Grader?

• Sale Price of $186,000• 5 year lease vs purchase (60 month term)• 1200-1500 hours usage per year


CASH FLOW

$186,000

$41,358$24,840

$0

$40,000

$80,000

$120,000

$160,000

$200,000

Cash (1yr) Finance (5yr) Lease (5yr)

EXPENDITURE

CAT Motor Grader (1,500 hrs per yr)


CASH FLOW



$41,358 finance

$24,840 lease

$105,264 Option

+Final LeasePayment of

$24,840$-

$40,000

$80,000

$120,000

$160,000

$200,000

1 2 3 4 5

Year

Finance vs. Lease

ADVANTAGES


X


CONTROL MAINTENANCE COSTS


COST PER HOUR

$70.74

$0

$20

$40

$60

$80

1 2 3 4 5 6YEAR

LEASE COST MAINT. COST



*Maintenance fee may vary by Dealership

*

CONTROL MAINTENANCE COSTSPACKAGED SOLUTIONS

• Match warranty with the term of the lease• Add in service agreements from the Dealer to

budget maintenance & repair costs• Bid a maximum repair cost for term


Warranty

CSA

ADVANTAGES


XX


FLEXIBILITYLeasing

1. Return equipment to dealership at end of term 2. Replace with New equipment3. Purchase or refinance machine3. Look to profit from reselling equipment for higher

than committed return optionFinance (Purchase)

1. Have to trade-in or resell equipment


ADVANTAGES


XXX


TOTAL COST

$186,000$206,790

$228,546

$-

$50,000

$100,000

$150,000

$200,000

$250,000

Cash Finance (5yr) Lease (5yr)

TOTAL COST OF OWNERSHIP



ADVANTAGES


XXX

X


ISSUES

• Option/Residual represents Fair Market Value

• Calculate implied interest rate to make sure it is reasonable

• Read return conditions carefully (I.e. hourly usage, undercarriage/tire wear requirements, etc.)


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BENEFITS• Leasing preserves cash flow• Leasing provides lowest total cost for equipment use• Leasing can help project and control maintenance costs• Leasing allows flexible ownership options• Leasing insures fleet is new and updated• Leases can be tailored to meet specific needs• Leasing eliminates residual risk• Leasing allows 100% financing• Provides planned equipment replacement of customer’s fleet• Leased equipment may not have to be bid (See State Regs)


jim halloran ca reg affairs manager

Documents

offroad regulation

offroad rule delayplease

nox fleet average target

fleet sizewill

enginenowill fleet

vs tier

year of fleet horsepower

oem dpfs purchases count