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Jim Halloran CA Reg Affairs Manager

The California Off-Road Diesel Rule. Jim Halloran CA Reg Affairs Manager. Agenda. California Off-Road Rule The Off-Road rule The base rule The relief measures Questions. Count on Cat. Everyday. 2. Background. Diesel Risk Reduction Plan 75% reduction by 2010 85% reduction by 2020

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Jim Halloran CA Reg Affairs Manager

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  1. The California Off-Road Diesel Rule Jim Halloran CA Reg Affairs Manager

  2. Agenda • California Off-Road Rule • The Off-Road rule • The base rule • The relief measures • Questions Count on Cat. Everyday. 2

  3. 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??? Count on Cat. Everyday. 3

  4. 1996 2001 2005 2011 2014 Tier 3 VS Tier 4 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 Count on Cat. Everyday. 4

  5. 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. Count on Cat. Everyday. 5

  6. 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 Count on Cat. Everyday. 6

  7. Off-Road Rule – Fleet Average NOx Count on Cat. Everyday. 7

  8. Tier 2 Tier 3 Tier 4 Off-Road Rule – Fleet Average NOx Tier 4 Interim Count on Cat. Everyday. 8

  9. Off-Road Rule – Fleet Average PM Count on Cat. Everyday. 9

  10. Tier 1 w/ DPF Tier 2 w/ DPF Off-Road Rule – Fleet Average PM Count on Cat. Everyday. 10

  11. 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 Count on Cat. Everyday. 11

  12. Yes Yes No No No Off-Road Rule – Compliance Process Will fleet meet NOx fleet average target? Will fleet meet PM fleet average target? Yes Done For Year No Will 8%/10% of total hp be turned over by compliance date? Will 20% of total hp have highest level VDECS by compliance date? Yes Turn over another engine Apply highest level VDECS to another engine Count on Cat. Everyday. 12

  13. Compliance Options Emissions Upgrade Group Engine Repowers Rental Equipment Emissions Solutions Cleaner Fuels Retire Replace Aftertreatment Filter/Catalysts Count on Cat. Everyday. 13

  14. 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 Count on Cat. Everyday. 14

  15. 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 Count on Cat. Everyday. 15

  16. 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 Count on Cat. Everyday. 16

  17. Legislative Change Impacts Count on Cat. Everyday. 17

  18. 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???? Count on Cat. Everyday. 18

  19. Guiding Principles Count on Cat. Everyday. 19

  20. Inventory Options Count on Cat. Everyday. 20

  21. Off-Road Options Count on Cat. Everyday. 21

  22. 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…. Count on Cat. Everyday. 22

  23. 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 Count on Cat. Everyday. 23

  24. 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 Count on Cat. Everyday. 24

  25. Questions? Comments?? Concerns??? Count on Cat. Everyday. 25

  26. Thank You! Jim HalloranCA Regulatory Affairs ManagerJPH@CAT.COM916-498-3331 Count on Cat. Everyday. 26

  27. Governmental Finance Solutions Lease vs. Buy

  28. 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

  29. 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 Governmental solutions

  30. ADVANTAGES Lease Buy • Cash Flow? • Control Maint. Costs? • Flexibility? • Total Ownership Cost? Governmental solutions

  31. -Example- Need a Grader? • Sale Price of $186,000 • 5 year lease vs purchase (60 month term) • 1200-1500 hours usage per year Governmental solutions

  32. CASH FLOW CAT Motor Grader (1,500 hrs per yr) Governmental solutions

  33. CASH FLOW CAT Motor Grader (1,500 hrs per yr) Governmental solutions

  34. ADVANTAGES Lease Buy • Cash Flow? • Control Maint. Costs? • Flexibility? • Total Ownership Cost? X Governmental solutions

  35. * CONTROL MAINTENANCE COSTS CAT Motor Grader (1,500 hrs per yr) CAT Motor Grader (1,500 hrs per yr) *Maintenance fee may vary by Dealership Governmental solutions

  36. 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 Governmental solutions

  37. ADVANTAGES Lease Buy • Cash Flow? • Control Maint. Costs? • Flexibility? • Total Ownership Cost? X X Governmental solutions

  38. FLEXIBILITY Leasing 1. Return equipment to dealership at end of term 2. Replace with New equipment 3. Purchase or refinance machine 3. Look to profit from reselling equipment for higher than committed return option Finance (Purchase) 1. Have to trade-in or resell equipment Governmental solutions

  39. ADVANTAGES Lease Buy • Cash Flow? • Control Maint. Costs? • Flexibility? • Total Ownership Cost? X X X Governmental solutions

  40. TOTAL COST CAT Motor Grader (1,500 hrs per yr) Governmental solutions

  41. ADVANTAGES Lease Buy • Cash Flow? • Control Maint. Costs? • Flexibility? • Total Ownership Cost? X X X X Governmental solutions

  42. 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.) Governmental solutions

  43. 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) Governmental solutions

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