California crackdown

|  May 10, 2010 |

Selected transcriptions from CARB’S April 22 public hearing

 

Just before we went to press with the May issue of Equipment World the California Air Resources Board and staff held a public hearing in Sacremento to present it’s plan for addressing the criticisms brought up in February by the Associated General Contractors of America. 

As we reported in the May issue under the subhead “Get your numbers right,” AGC had argued that California’s contractors were already meeting CARB’s required emission levels – and will do so for years to come because the recession has idled many machines and CARB overestimated the state’s construction fleet and the amount of diesel used in construction machines. CARB staff presented their plan for accommodating these changes and admitted their models for off-road diesel emissions may have been off by a factor of 1.4 to 2 (40 to 100 percent.)

But CARB’s proposed modifications to the plan seemed like so much weak tea considering the magnitude of their error. Contractors and industry spokespeople were hardly satisfied. After the staff presentation, the public comment period was strongly critical of both the proposed plan and the failure of CARB to get it’s calculations for diesel emissions anywhere near accurate. Space and deadline considerations for the magazine did not allow us to to publish much of the lengthy testimony that followed, however below we cite selected quotes from members of the public who spoke out at the meeting:

Rental: National chains will survive, California-based stores will not:

Michael Graboski, American Rental Association

We’ve been honest with you, the board and the staff, and we’ve been supportive of the regulations.  But I’m here to tell you that the rental businesses today are hurting just like everybody else.  We see a storm ahead because both the on and off-road rules impose requirements that few rental businesses are going to be able to satisfy going forward, and I’m going to explain to you why.

 

Our business model is based on replacement.  Our fleets are some of the cleanest in the state; however, our businesses tell us that they have not been able to invest in new equipment since about 2008.  The fleets have aged, and when the economy recovers we will resume buying new equipment, because that’s our business model.  But modeling some of our cleaner fleets have shown that while they may be complaint through 2013, we’re going to fail in 2014 for both rules, even assuming recovery and investment gets back underway.

 

We have an economist, HIS Global Insight, and they believe that the economy is going to bottom this year and they believe – or they have stated that real rental revenues will have fallen by about 58-percent since 2007 for the current year.  They also think that there’s going to be a V recovery and our real revenue is going to reach back to 2007 levels sometime in 2014 or maybe 2015, that’s more optimistic than some other studies I’ve seen.

 

But our businesses tell us that they will be probably delayed a year from when the economy reaches recovery stage, till they can go ahead and make investments necessary to new equipment, because their balance sheets have been so severely damaged and their fleet values are so greatly depressed.  Others say that we’re too optimistic, but I don’t know, and I don’t know what your crystal ball says.

 

The problem with our picture is that the V, the top of the V, the recovery is coincident with when the attainment demonstration has to be made.  And if we guess wrong, the rules that are here are going to really morally wound our businesses.  So I would suggest that you can’t rush to fix things again with the uncertainty in recovery timing and the impact on emissions.  So we would propose that you stay the rules, and since waivers haven’t been granted, there’s no current harm; don’t enforce them when the waivers are awarded.  And unless you have certainly regarding attainment, ask EPA to extend that attainment date.  The recession has invalidated the plan and a clear path to attainment doesn’t exist.  And perform an honest analysis of the emissions, a realistic analysis, and create certainty for business and only revise the rules when you’ve done that. 

 

American Rental Association is 231 businesses in California, approximately 500 separate stores.  We have fleets anywhere from small fleets to very, very large fleets.  Some of the larger fleets, which are national chain fleets, like Hertz and United, have horsepowers in the range of 300,000 horsepowers in their fleets.

 

National chains will survive because they’ll be able to move equipment in and out.  But the large independents that have many stores, some up to 20 stores, many of them only function in California, and they’re feeling a lot of heat right now.  What we did was we took their actual DOORs fleets and we used Global Insight’s predicted investment projections based on revenue projections.  We didn’t put any timeframe delay in, and we find that even the very, very cleanest large fleets that in 2007-2008 timeframe had an age of let’s say three years, now have an age of five years; next year it will have an age of six years without investment money to recover.  And if you try to roll that forward in time, even assuming that you’re going to have money to buy back, you can’t pass the 2014 or 2015 regs.

 

We could greatly decrease the size of our fleets, but then what happens is that there is insufficient equipment available when business picks back up in order to sustain the investment that’s necessary for the business.

 

Changing regs midstream short changes manufacturers:

James Jack, Emissions Control Technology Association

One of the things that we want to strongly urge the board to consider as we move forward is the the impact the changes to the regulation will have on the investment that clean technology manufacturers have made in California.  When California started regulating diesel emissions, these regulations spurred companies to make significant investments in research and development that have resulted in new pollution control patents and new pollution-reducing devices, such as diesel particulate filters.  The manufacturers of these retrofit devices have developed clean technology solutions that will help the state meet its clean air goals, also providing equipment owners a more cost-effective way to comply with the regulations, by allowing them to retrofit instead of replace their equipment.

 

Further changes to the regulation, however, put manufacturers of clean technology equipment at risk.  They’ve built their business model, secured investment capital, and deployed significant resources in California based on the regulations that this state has adopted.  Their ability to generate a return on that capital for their investors, shareholders, and employees is depending on the state meeting the regulatory commitments it has made.  Significant changes to the environment will put this investment at risk and will threaten the economic viability of these manufacturers in California. 

 

If the manufacturers are unable to sustain their investment many will be forced to leave the marketplace altogether, stifling the growth of California’s green economy and leaving California fewer choices to meet its clean air goals.  More importantly, such changes in the regulator environment can send a chilling message to other clean technology innovators who are looking to California as an incubator for clean technologies and to be the engine for the nation’s green economy.

 

Slide the rule forward five years

Michael Kennedy, AGC

As you know, for some time AGC is focused on the emissions inventory that provided the foundation for this rule.  We did that because we don’t quarrel with the balance you’ve tried to strike between the economy and environmental protection.  We do believe in improvement in air quality in California.  We have wives, we have children, we have neighbors in this state, and we’re not asking you and we do not ask you to relax your objectives.

 

What I’m going to do today is just turn to the last page in the book.  AGC has just completed an update of its 2009 inventory of emissions from the regulated fleets.  What you have in front of you is a slide summarizing where the latest information leads us in NOx emissions from the regulated fleets.  The red line in this graph represents the original emissions inventory that the staff conducted.  The white line represents the goals you have set for our fleets.  And the yellow line is what the best information available today tells us about where the emissions are actually going to be.

 

Now I talk about the best information available today, we’re talking about the DOORS data that was not available at the time this rule was developed.  I’m talking about data indicating that there are approximately 7.5-percent of the vehicles in the fleet who operate low-use, and I’m talking about data made available by your Board of Equalization and the U.S. Department of Energy on diesel fuel consumption in the state of California.  If I could go to the second slide, please.

 

This is a similar slide for particulate matter.  Again, the red line represents the original emissions inventory on which you based your decision to adopt this rule.  The white line represents the environmental objectives that you set for our fleets.  And the yellow line indicates where we are today.  Before going on I want to emphasize just one small point; the yellow line on these graphs does not represent anything relating to the downturn in the economy.  The emissions projections that you have in front of you here and that we have provided to each of you individually are based on the same activity levels and growth factors that your staff used to develop their original emissions inventory.  This is reflective of changes coming out of the DOORS data, the low-use equipment, and a reconciliation between the model and the diesel fuel consumption.  We do not advocate that you abandon the model, but we do find it necessary to adjust it. 

 

Finally, I just want to make it clear that by all accounts we have a large cushion.  We have an opportunity to provide some direction to where we go from here, and I urge you to provide that direction today.

 

I would just ask you, it is our recommendation that you slide the schedule for this rule for five years, and I want to underscore that merely delaying enforcement of this rule will not achieve your objectives.  As recently as last week a local contractor sold seven more pieces of construction equipment and laid off three more mechanics.  Unless or until the schedule itself is slid, merely delaying enforcement will not affect the economic outcome.  Business people see the water building behind the dam; they know it’s going to break.

 

Numbers wrong by a factor of 3.5:

Jim Lyons, Sierra Research

 We’re the company that has done the updated emissions inventory.  It’s only recently been made available to CARB staff.  I understand they’re looking at it.  I just wanted to make a couple of points about what we’ve done that I didn’t hear out of the staff presentation.

 

First, unlike the December inventory, this one has been updated with an additional dose, if you will, of DOORS data from February.  Our vehicle population is about 150,000, not the 100,000 or so we had in December.  And we have looked at this issue of the top-down or fuel-based calibration of the off-road model.  Specifically what we’ve done is we have accounted for things like the use of clear fuel in off-road equipment. We have accounted for the use of fuel in all the equipment subject to the rule.

 

I’ll just conclude by saying while the staff has got their adjustment of a factor about 1.4 to 2, our analysis indicates that that factor is about 3.5, so we would feel that you have even more cushion than the staff has led you to believe.  

 

Industry needs some clear direction:

Michael Steele, AGC

Good morning.  Thank you.  Just a couple of points.  I’m very pleased to hear today that the staff now agrees that the previous inventory is too high.  We have a difference of opinion, as Jim just pointed out, in terms of how far off the inventory is.  One thing that kind of concerns me though is that I heard that this issue sort of first came up when Professor Harley’s report came out, I think I heard them say December – it was actually September of last year.  But actually Professor Harley was not the first person to raise this issue about the adequacy or the accuracy of the off-road model.  That was raised by Professor Robert Sawyer back in 2000.  It was also raised earlier by Dr. Harley before this rule was even adopted, in a contract paper that he wrote for the Air Resources Board back in 2004.

 

So this issue of the off-road model having a problem in terms of the fuel analysis has been out there.  I’m glad we’re finally hearing about it today before the board. 

 

I also want to comment on this enforcement relief.  The enforcement relief is a statement by staff  that they will not enforce the rule until EPA grants the waiver.  And as they have acknowledged, they have no legal authority to enforce the rule until EPA grants the waiver.  On the same day they announced this enforcement stay, which is a sham, they wrote a letter to the EPA urging immediate granting of the waiver.

 

So on the one hand they’re sending out this message to the community that relief if forthcoming, on the other they’re begging EPA to withdraw the relief.  What staff slides show this morning is also that what we have been telling you, which is the way that fleets are complying with this rule is by shrinking, is true.  They say that 55-percent of the fleets are taking advantage of the shrinking fleet low-use exemptions, and as we have pointed out, that is an economic disaster for the industry.  You don’t cope by getting smaller and smaller and smaller and eventually disappearing.

 

And we can have more delay and more time for study, that’s all well and good, but the industry needs some clear direction from you today and the staff needs clear direction.  I was very pleased that Chairman Nichols started out by saying that the job today is to provide clear direction to the staff and that you have to make decisions despite the uncertainties.  The clear direction the staff needs is to provide relief and to provide relief that pushes this schedule out, by simply saying that we will provide some deferral of the deadline until 2013, 2015, whatever you might pick, but then you have to catch up, you’ve got a giant balloon payment due, is just inviting disaster.  And from a business perspective, if you know that you’re going to have to catch up in three years, you’ve got to start making those expenditures now, when you can least afford it.

 

The exodus of business from California:

Tom Brown, AGC

As stakeholders in the industry and stakeholders in this regulation, we are truly committed in providing accurate data.  We believe, as submitted by Sierra Research, the most recent report sheds new light.  While we understand staff continues to review and examine this data, we also want to remind the board and staff of the sensitivity of this regulation and the impact to the construction industry. 

 

The impact alone to operating engineers, to brothers and sisters that operate equipment, is upwards of 38 to 40-percent of unemployment.  Those are devastating numbers.  These individuals now find themselves wondering how are they going to pay for their health insurance, how are they going to pay for the bills by not having a job, keeping in mind these are well-paid individuals that are on the average  cost an employer somewhere between $65 to $72 an hour.  So these folks are people that generate a fair income; they’re not the ones that you would say that were overextended and got themselves in trouble. 

 

Another concern is the exodus of businesses in California, small businesses, the backbone of America, the entrepreneurs of our nation.  Whether it be the recession or the financial inability to make the immediate investments in equipment is totally unfair to these individuals and their firms during these times. 

 

The model  advised and most recently submitted by Sierra Research clearly shows that we have achieved these goals the staff and the board has set out long before they were needed.  Respectfully, we request the board’s schedule be deferred to 2015 of this regulation.  I thank you.

 

Maybe I could have kept 20 of those tractors?

Mike Shaw, contractor

I’m a San Diego County resident, I’m a grading contractor and equipment owner.  And I think that one of the things that has become apparent today is that you have a flawed model from which this regulation has been built on.  It’s going to be an academic discussion with some very bright people to determine maybe how flawed the model is; you say between 40 and 100-percent; we think perhaps as much as 300-percent or more.  And, you know, again, these bright people are going to come up with a resolution for this over time and come to an agreement; that’s pretty neat.

 

Now on the other side of the table you have people out here, people like me, that have taken steps towards compliance.  I’m a compliant contractor now, after having spent between $5 million and $6 million on new engines and retiring over 45 pieces of equipment, 28,000 horsepower.  It’s really encouraging to me to hear today in this room that maybe we were off only 100-percent and maybe I only had to spend $2.5 million instead of the $5 million I’ve already spent, and maybe I could’ve kept 20 of those tractors that I had to get rid of to become compliant today. 

 

So I’m a little discouraged about this process and I think it’s very important that before anything else happens you come to the bottom line on this thing.  We still have to make these boots comply because they take a lot of time and a lot of planning, cost a lot of money.  So this has got to be fixed before you move on.

 

Bottom line on this thing, I think that it’s my belief and I have reviewed the Sierra information for as well as I can read it; it looks pretty good to me.  I don’t think there’s any question you can’t push this thing back five years, to 2015, and still get everything that you want.  My comments.

 

 

Put aside feelings and decide the case on the facts:

William Davis, Southern California Contractors Association

I’m the executive vice president of the Southern California Contractors Association.  And my job, the way I look at it anyway, in dealing with this agency is to be cooperative, informative and constructive as an advocate for our industry.  I’m not among those who describe your staff or yourselves as folks with cloven hooves and horns.  And we hope to keep moving forward in that direction.

And in that spirit I’d like to wish each of you a happy Earth Day.  I didn’t hear anybody do that today, which sort of surprised me considering the celebration that’s going on outside and inside the building.  I don’t think I’ll mention Lenin’s birthday because it just doesn’t seem to play.

But one of the things that you also said today, Chairman Nichols, is that in making decisions about these regulations, that you have to consult with your feelings and beliefs on a personal basis.  And as an attorney, and I think Ms. Kennard is also an attorney, we were sort of hoping that you guys would consider yourselves a jury. 

A jury has to put aside their personal feelings and beliefs and decide the case on the facts.  Our industry would prefer that you use the standard for criminal juries, beyond a reasonable doubt, but we would settle for preponderance of evidence.

And as is with this microphone we don’t believe that this regulation can be a one-size-fits-all document.  We think this rule should offer maximum flexibility and maximum incentives for our industry, more flies with honey than vinegar, my mother used to say, and I think that there is something in that.

For example, if you were to grant the AGC request to change the requirements for the regulation to 2015, it would put everybody in the pool for[Carl]  Moyer money and other kinds of grants.  Not the program at South Coast, which is a seven-year program but everybody else.  We think that that incentive would be a good incentive to get large and medium fleets to retrofit early.

We have concerns about having an active and vibrant industry in California that helps provide technological solutions to these problems as well. 

There are some other issues, with the staff comments this morning, we don’t actually use the recession word in construction.  We call it a depression when you’re down 50 percent from where you were five years ago.  We don’t expect to return to those levels, which is 2005, anytime soon.  And there are several others.  I guess I’ll have to submit them in writing to you.

 

Postpone the entire rule, not just target dates:

Dave Harrison, director of safety, International Union of Operating Engineers Local 3

Before I go into what I was going to say I wanted to make a small point.  Just last week Toyota closed their  plant down in Freemont laying off 5,500 Californians.  And I come here today and I see a Toyota on display out in front of the Cali PA building.  A little disheartening.

I’m here once again to participate in the regulatory process and help to ensure that the off-road rules are implemented in a responsible manner.  You still have a rule that’s unsafe, unreasonable and financially crippling, and you still do not have a waiver to legally implement that rule. 


It’s frustrating because we asked for an extension of the entire rule two years ago.  Now we’ve got common causewith these other folks, the gentleman that spoke earlier that spent millions of dollars to comply with a rule that you can’t legally enforce, and we told you so two years ago.  So welcome to our frustration.

We’re also asking that when you postpone the rule, you postpone the entire rule.  Reporting on initial compliance and all your target dates as AGC has asked.  And if you only postpone the compliance dates and not the target dates you’ve essentially created an impossible goal and are forcing our contractors to climb what was once a steep hill to now a sheer cliff.  They call that compression, and it doesn’t work.  It’s going to double and triple the problem.

We believe that improved air quality is a must, but we do not believe that it should be achieved at the pure expense of Californians.  The AGC is giving you a fresh look.  The economy is giving you reduced activity and reduced inventory.  You have the tools to achieve your goals.  You just now have to choose to use them. 

 

Your new number one principle—get the numbers right:

Michael Lewis, Construction Industry Air Quality Coalition

I wanted to talk to you about a couple of things today.  And I wanted to say that I think it’s time to overhaul this regulation, not just tinker around the edges.

I’m a little disappointed that the staff didn’t come up with some more specific things for you to get your teeth into today, so I’m going to give you several.

First and foremost on your guiding principles you need a new number one.  It needs to be get the numbers right.  Nowhere in any of what’s been presented to you today is anybody suggesting that they’re going to spend time to get the numbers right, and that’s what you need to do. 

This rule was based on a whole set of assumptions and numbers in the beginning that we now have corrected.  We have fuel.  We have fleet makeup.  We have low use.  We have load factors.  And those numbers all need to be updated and gotten right because until they’re right you’re asking us to spend hundreds of millions of dollars, billions of dollars to reduce phantom emissions, and we’re not going to do that.

Secondly, I don’t think it’s fair to combine the savings we’ve realized, the emissions for this rule with the trucking rule.  We’ve joined with the trucking associations and we are about to undertake an analysis of the truck rule model, very similar to the one that AGC did.  And we believe that we’re going to be able to demonstrate significant reduced emissions as a result to that analysis, and that needs to be taken into account separately.

With regard to your instructions today I would suggest you do the following.  You need to tell your staff to revise this rule, to keep the reporting, keep the idling, keep the sales disclosure and put everybody on the same timeline as the small fleets, the 2015.  That would give us the certainty.

The second thing is to tell your staff to go back and fix the model.  They’re not going to do that by September.  It’s probably going to take until sometime in 2012 to do that.  But you need to update the model.  You need to reflect the fleet changes.  You need to review the load factor data, which we believe is also inflated.  You need to revisit the growth assumptions.  None of those things were changed in the AGC analysis, and if you add those in that bottom line on their chart drops off the page.  And I think it’s important to get those numbers right and revisit them and fix this rule before it will go into effect in 2015.

Finally, we’ve been working on that draft bubble concept that I told you about.  We have some language.  We’re testing it on some fleets right now.  I would like to inject it in the process at some point, perhaps for that later round of changes.  It’s going to involve some changes on your part because we’re going to want to include portable equipment, forklifts and perhaps some other rules in that bubble, and that’s going to cause some dislocation in your organization, but I think it will be worthwhile.

I’m just concerned that this rule has needlessly cost us millions of dollars already.  It’s put quite a few contractors out of business.  Ad it’s very important that we get the numbers right and use that data as the basis for moving forward.

 

Protect proactive and compliant fleets:

Nick Pfeiffer, Granite Construction

Granite owns a fleet of about 900 pieces of off-road equipment and also owns a fleet of about 900 on-highway trucks, so I’d like to think we have a pretty good understanding of exactly what fleets are up against with both of these rules.

I also have been engaged with current staff for the last five years or so as these things have been developed. I would like to thank staff for noting some of our comments over the last couple of months in their presentation but would like to stress two specific items that I’d like to be considered with any amendments. 

The first is that they need to protect proactive and compliant fleets.  Some items here that I just want to hit on– there needs to be fair and equitable enforcement of these rules as they are on the books to protect fleets that have taken actions and invested money in complying.

With regard to any amendments, there needs to be recognition of and reward for early actions, similar to what was done with the ARB 2X credits, rewarding the early repowers, things like that. 

And then lastly, there needs to be adequate time between any amendments and the compliance dates that those amendments affect so that fleets can adjust their compliance strategies.  It’s a very complex thing.  There’s budget cycles.  You have to invest money years in advance of the compliance space, so there needs to be time for fleets to adjust their strategies.

This being said, Granite operates in the same construction industry that the rest of the people who have testified today operate in.  The industry, the market is down in California, and there’s no disputing that.  And so there – we feel there needs to be some relief given so that there’s some breathing room there.

Looking at it from Granite’s perspective, with a diverse fleet of equipment of not only on-road and off-road but portable equipment and everything else, the single largest hurdle for us compliance wise is the 2014 on-highway DPF deadline.  That’s what construction companies run up against because it’s such a black and white deadline, and for many vocational trucks there’s not a retrofit options.  Given there’s a lot of developments in retrofit  technology, but the trucks just do not lend themselves to retrofit.

So to close I would say we definitely think there’s a lot of merit in the bubble concept that’s been floated out there.  That would allow fleets to manage the compliance with these rules, the same way that they manage their fleet as one big fleet of equipment.  And just to reiterate, the two items I’d like to stress is the need to protect proactive and compliant fleets, and secondly to allow some economic relief over the next – over the foreseeable future.

 

 

 

 

 

 

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