Comment Log Display

May 22, 2007

California Air Resources Board
1001 "I" Street	
P.O. Box 2815 
Sacramento, CA 95812

Re: Proposed Regulations for Off-road Diesel Equipment

Dear Board Members:


I am the founder, and president of a small grading, paving and
general engineering company, Appian Engineering, Inc. We were
established in 1988, and maintain an office and shop in Milpitas,
California. The company has approximately forty employees and
annual sales of ten million dollars providing grading and paving
services to private developers and general contractors in the San
Francisco Bay Area. We take pride in giving our costumers
value-added construction at competitive prices, on schedule. In
order to accomplish this we maintain a modern fleet of primarily
Caterpillar equipment, which we service with our own staff. 

I have watched your efforts to establish NOx and particulate
standards for off-road diesel equipment with interest. Our
equipment fleet, which will be directly impacted by these
regulations, is comprised of thirty-four pieces with a value of
roughly $4,000,000. Of these, twenty-five are manufactured by
Caterpillar. This fleet has original manufacture dates from 1960
to 2006 with the majority manufactured from 1990 to 2006 (17). We
have sixteen pieces that are Tier Zero or Unrated, eleven Tier One
(two of our scapers have twin engines, both Tier One), and nine
Tier Two. Our newer purchases tend to be about half high dollar
pieces (more than $250,000) and small pieces (less than $50,000).
Our largest pieces, twin engine scrapers cost nearly $1,000,000
apiece without GPS or laser control systems (which add roughly
$100,000 per piece). We currently purchase on average two to three
hundred thousand dollars annually on new equipment, but this amount
varies greatly with economic conditions and includes technology
purchases and on and off-road vehicles. Over the last two years we
have concentrated on technology purchases including advanced GPS
equipment control systems since they offer improvements in
productivity in excess of 35%. We think we are well positioned
because of our loyal customer base, efficient employees, and
strong balance sheet.

Given the recent recommendations that you are considering, we
anticipate that we will have to increase our equipment purchases
to over $500,000 per year for at least ten years, whether these
are financially good years or bad. This amount will not include
any additional purchases of technology or new vehicles. We are
currently creating a plan to do just that, though we remain
uncertain of its feasibility. However, we can predict some more
certain consequences of this proposed regulation. 

First, few small and medium contractors have as modern a fleet of
equipment as we do. Fewer still have as strong a balance sheet.
Many will not be able to make this transition. Consolidation will
be a fact of life in California construction, with significantly
fewer small companies. They will bear the burden of these
regulations due to their limited capital access, even thought they
may be more productive, higher-valued to their customers, and
account for more job creation.

Second, prices for new equipment with higher tier engines will
rise dramatically. While the California market is large, it is not
driving international demand. The largest producers will fulfill
the demands that are easiest and more cost effective for them.
Already waiting time for new equipment deliveries are stretching
into months in California. With the demand for high tier engines
increasing and the supply relatively fixed, dealers will increase
prices to allocate scarce equipment among their customers.

Third, as equipment prices rise, so will the prices of all goods
for which construction is an input. This includes new homes, new
roads, repairs and improvements to the existing highway system,
new buildings housing new and growing businesses, new retail space
as well as all the things that substitute for new construction like
existing homes, offices, and retail space. The cost of living and
home-ownership, already well ahead of the national average, will
rise further and faster than the rest of the country where these
regulations are not in effect. You should note that this is not
only the direct effect of the regulations. It is compounded by the
increased concentration within the industry when small specialty
firms without access to capital are forced to close. Worse yet,
many of these small contractors may be the most efficient and
innovative in the industry. This could create the unintended
consequence of less innovation and lower productivity, leading to
an industry with greater rather than less pollution.

Fourth, putting all of the emphasis on one element of the
construction process neglects the fact that technology is driving
increased equipment productivity faster than nearly any other area
today. The introduction of automatic laser and GPS control systems
is changing the face of grading and paving construction. By
forcing construction companies to focus the bulk of their
resources on cleaner burning engines, CARB is unintentionally
reducing the resources available for new technology. These
advances such as automatic controls that provide real time job
information to the operator in the cab have the potential to
significantly increase productivity, cutting emissions
dramatically. And, they do so with lower costs to contractors and
builders rather than with the higher costs of your proposed
regulations. In a world of scarcity, you are simply mandating that
resources that are improving industry efficiency today are
re-allocated to new diesel engine purchase for designs that do not
even exist in the case of Tier Four engines. This seems a poor
trade-off. While we may wish it were otherwise, work gets done
with the tools at hand.

Finally, the Law of Demand states that as the price for any good
or service increases less of that good is consumed, other things
being equal. The general rise in the price of construction will
mean less construction. With less construction, some good paying
jobs with great benefits are going to be lost. My company supports
over forty families with good wages, health benefits and pensions.
They are great citizens, active in their communities. It is hard
for me to understand why they should be the ones to pay for
cleaner burning engines when we, construction companies and our
employees, only use what manufacturers sell us. Our primary goal
is to use the equipment in the most efficient manner possible to
serve our customers. Give us cleaner burning or even alternative
fuel equipment that is cost effective, and you will not have to
regulate us. We will embrace the technology. We care about the
environment, too.

These regulations are ill-considered. If cleaner burning engines
are one answer to cleaner air, ask the industry that makes the
engines to lead the way in producing them. If they need incentives
to do so, consider a pollution permit system that has proven
effective for other industries. If this is really an issue of
importance to California, the state should offer incentives to the
equipment manufacturing industry to provide the best available
solutions. Don’t destroy good jobs and good companies with
regulations whose results may be directly opposite of your
intensions. Such mandates can only hurt California and
Californians.

Sincerely,



John B. Estill
President