COMPRESSED NATURAL GAS VEHICLES FOR THE CITY OF MILWAUKEE'S DEPARTMENT OF PUBLIC WORKS: A COST BENEFIT ANALYSIS Erika Cheng, Lael Grigg Erika Jones, and Adam Smith May 9, 2011

Overview  Project Scope – Erika Jones  Cost-Benefit Analysis – Erika Cheng  Model, Analysis and Results – Adam Smith  Conclusions and Recommendations – Lael Grigg

Problem Statement  Challenges  Cost-effective service delivery  Fluctuating fuel costs  Environmental emissions  Opportunities  CMAQ funding  Green the Fleet while reducing costs

Research Question  Focus on Compressed Natural Gas (CNG)  Cost-Benefit Analysis:  What are the marginal costs associated with purchasing CNG fueled refuse packers?

Natural Gas  Natural gas most feasible, available option  Lower carbon content, clean-burning  Compressed versus liquefied natural gas

DPW Fleet Services Vehicles  In 2010:  705 on-road vehicles using diesel  966,700 gallons of fuel consumed  $2.8 million spent on fuel  Per vehicle, diesel vehicles are most costly

DPW Refuse Packers  Account for roughly 5 percent of fleet  In 2010, 127 standard diesel refuse packers  30 percent more than ten years old  Ideal vehicle life eleven years

Assumptions  Section maintains current fleet size  Packers replaced after twelve year life  Ten new packers purchased in 2012  Packers used until 2023

Cost-Benefit Analysis  Compare costs of CNG and diesel packers between 2012 and 2023  Estimate Net Present Value of choosing CNG

Factors Considered  Vehicle Purchase Price  Fuel Costs and Fuel Economy  Tax Credits, Incentives, and Reimbursements  Environmental Emissions  Health Impacts  Project Life and Salvage Value  Energy Dependence  Garage Facilities  Fuel Safety  Fueling Stations  Labor and Training  Maintenance and Operations Included in ModelNot Included in Model

Factors Included in Model  Vehicle Purchase Price  Fuel Costs and Fuel Economy  Tax Credits, Incentives, and Reimbursements  Alternative Fuel Infrastructure Tax Credit  CNG and Diesel Fuel Excise Tax Credits  Federal CNG Vehicle Tax Incentive  Environmental Emissions and Health Impacts  CO 2 and PM 10

Model Specifications and Analysis  Four specifications  Results based on static point estimates  Results based on parameter ranges, random sampling Incentives Not Renewed Incentives Renewed Emissions Excluded 12 Emissions Included 34 NotesModel Specifications

Results Based on Point Estimates Incentives Not Renewed Incentives Renewed Emissions Excluded $34,000$449,000 Emissions Included $47,000$462,000  2010 dollars  Positive net present values  Large impacts of incentives  343 tons of avoided CO 2 emissions Net Present Value of 2012 CNG Refuse Packer Purchases Notes

Results Based on Parameter Ranges Incentives Not Renewed Incentives Renewed Emissions Excluded $54,000$455,000 Emissions Included $101,000$501,000  2010 dollars  Positive net present values  Negative ranges Mean Net Present Value of 2012 Refuse Packer Purchases Notes

Results, Continued Incentives Not Renewed Incentives Renewed Emissions Excluded 71%100% Emissions Included 85%100% Probability of Positive Net Benefits Probability of Net Loss Greater than $100,000 Incentives Not Renewed Incentives Renewed Emissions Excluded 4.6%0% Emissions Included 1.7%0%

Conclusions  Large impact of incentives  Modest impact of environmental benefits  Also found three very influential factors  Vehicle purchase price  Fuel cost  Fuel economy

Conclusions  Relative vehicle purchase price CNG initial vehicle price will likely decrease Diesel vehicle cost may increase The difference in up front costs significantly impacts our Net Present Value estimates

Conclusions  Relative fuel cost Fuel costs are not stable Diesel prices change over time, sometimes from day to day CNG prices also fluctuate

Conclusions  Relative fuel economy CNG fuel economy for refuse packers may increase

Recommendations  Purchase ten CNG refuse packers in 2012  Monitor vehicle performance and fuel costs  Continue pursuing grant opportunities and other incentives

Special Thanks To the City of Milwaukee staff for their guidance and interest in alternative fuel vehicles. In particular, we thank Thomas Bell, Budget and Management Special Assistant; Michael O’Donnell, Quality Assurance Coordinator; Paul Klajbor, Administrative Services Manager; Jeffrey A. Tews, CPFP, Fleet Operations Manager. Professor Andrew Reschovsky The LaFollette faculty and staff Stephen Collins, Peter Dermody, Sarah Hurley, Emily Ley, and Ted Schuster

Questions?

Hydraulic Fracturing  Process for recovering natural gas from shale  Wastewater contains known carcinogens  Exempt from Clean Water and Clean Air Acts  2009 bills (HR 2766 and S 1215) introduced to remove exemption and protect groundwater

Parameter Name Point Estimate (Range or Standard Deviation) Source(s) Alternative Fuel Additional Tax Credit0.55U.S. DOE EERE, n.d.b. Annual CNG Use (DGE)3648Average VMT/CNG Fuel Economy Annual Diesel Use (Gallons)3105Average VMT/Diesel Fuel Economy Average Vehicle Miles Travelled*6,675 (6,475 to 6,875)DPW Data and Jeffrey Tews CNG CO 2 Emissions7773U.S. EPA, n.d.b. CNG Fuel Excise Tax Credit0.202U.S. Internal Revenue Service, 2009 CNG Maintenance Costs2.03DPW Data, Johnson, 2010 CNG PM 10 Emissions0.015Lyford-Pike, 2003 Diesel CO 2 Emissions9,966U.S. EPA, n.d.a. Diesel Fuel Excise Tax Credit0.244U.S. Internal Revenue Service, 2009 Diesel Maintenance Costs2.03DPW Data Diesel PM 10 Emissions0.24Lyford-Pike, 2003 Discount Rate*0.035 (0.03 to 0.04)Thomas Bell Federal CNG Vehicle Tax Incentive0.80 up to $32,000Johnson, 2010 Fuel Economy CNG (mpDGE)** 1.83 (0.0485)DPW Data and Jeffrey Tews, Authors Fuel Economy Diesel (gallons)** 2.15 (0.025)DPW Data and Jeffrey Tews, Authors Growth Rate for CNG** (0.0106)AEO 2011 estimate, Authors, NWC Growth Rate for Diesel** ( )AEO 2011 estimate, Authors, NWC Additional Cost of CNG Packer*37,000 (30,000 to 40,000)Jeffrey Tews Price of CNG1.68AEO 2011 for year 2012 Price of Diesel2.96AEO 2011 for year 2012 Shadow Price Avoided CO 2 ($/ton)*3 (3 to 20)Matthews and Lave, 2000 Shadow Price of Avoided PM 10 ($/ton)*1500 (1500 to 6700)Matthews and Lave, 2000 Total Vehicles Purchased in Authors Useful Vehicle Life (years)12Jeffrey Tews *Variables assume a uniform distribution; **Variables assume a normal distribution