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
Included in Model





Vehicle Purchase Price
Fuel Costs and Fuel
Economy
Tax Credits, Incentives,
and Reimbursements
Environmental
Emissions
Health Impacts
Not Included in Model







Project Life and Salvage
Value
Energy Dependence
Garage Facilities
Fuel Safety
Fueling Stations
Labor and Training
Maintenance and
Operations
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
 CO2
and PM10
Model Specifications and Analysis
Model Specifications
Incentives
Not Renewed
Notes
Incentives
Renewed
Emissions
Excluded
1
2
Emissions
Included
3
4



Four specifications
Results based on static
point estimates
Results based on
parameter ranges,
random sampling
Results Based on Point Estimates
Net Present Value of 2012 CNG
Refuse Packer Purchases
Incentives
Not Renewed
Incentives
Renewed
Emissions
Excluded
$34,000
$449,000
Emissions
Included
$47,000
$462,000
Notes




2010 dollars
Positive net present
values
Large impacts of
incentives
343 tons of avoided
CO2 emissions
Results Based on Parameter Ranges
Mean Net Present Value of 2012
Refuse Packer Purchases
Incentives
Not Renewed
Incentives
Renewed
Emissions
Excluded
$54,000
$455,000
Emissions
Included
$101,000
$501,000
Notes



2010 dollars
Positive net present
values
Negative ranges
Results, Continued
Probability of Positive Net Benefits
Incentives
Not Renewed
Probability of Net Loss Greater
than $100,000
Incentives
Renewed
Incentives
Not Renewed
Incentives
Renewed
Emissions
Excluded
71%
100%
Emissions
Excluded
4.6%
0%
Emissions
Included
85%
100%
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
 CNG
initial vehicle price will likely decrease
 Diesel
 The
vehicle purchase price
vehicle cost may increase
difference in up front costs significantly
impacts our Net Present Value estimates
Conclusions
 Relative
 Fuel
fuel cost
costs are not stable
 Diesel
prices change over time, sometimes from
day to day
 CNG
prices also fluctuate
Conclusions
 Relative
 CNG
fuel economy
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
Alternative Fuel Additional Tax Credit
Annual CNG Use (DGE)
Annual Diesel Use (Gallons)
Average Vehicle Miles Travelled*
CNG CO2 Emissions
CNG Fuel Excise Tax Credit
CNG Maintenance Costs
CNG PM10 Emissions
Diesel CO2 Emissions
Diesel Fuel Excise Tax Credit
Diesel Maintenance Costs
Diesel PM10 Emissions
Discount Rate*
Federal CNG Vehicle Tax Incentive
Point Estimate
(Range or Standard Deviation)
0.55
3648
3105
6,675 (6,475 to 6,875)
7773
0.202
2.03
0.015
9,966
0.244
2.03
0.24
0.035 (0.03 to 0.04)
0.80 up to $32,000
Fuel Economy CNG (mpDGE)**
Fuel Economy Diesel (gallons)**
Growth Rate for CNG**
Growth Rate for Diesel**
Additional Cost of CNG Packer*
Price of CNG
Price of Diesel
Shadow Price Avoided CO2 ($/ton)*
Shadow Price of Avoided PM10 ($/ton)*
Total Vehicles Purchased in 2012
Useful Vehicle Life (years)
1.83 (0.0485)
2.15 (0.025)
0.002 (0.0106)
0.018 (0.011975)
37,000 (30,000 to 40,000)
1.68
2.96
3 (3 to 20)
1500 (1500 to 6700)
10
12
Parameter Name
*Variables assume a uniform distribution; **Variables assume a normal distribution
Source(s)
U.S. DOE EERE, n.d.b.
Average VMT/CNG Fuel Economy
Average VMT/Diesel Fuel Economy
DPW Data and Jeffrey Tews
U.S. EPA, n.d.b.
U.S. Internal Revenue Service, 2009
DPW Data, Johnson, 2010
Lyford-Pike, 2003
U.S. EPA, n.d.a.
U.S. Internal Revenue Service, 2009
DPW Data
Lyford-Pike, 2003
Thomas Bell
Johnson, 2010
DPW Data and Jeffrey Tews, Authors
DPW Data and Jeffrey Tews, Authors
AEO 2011 estimate, Authors, NWC
AEO 2011 estimate, Authors, NWC
Jeffrey Tews
AEO 2011 for year 2012
AEO 2011 for year 2012
Matthews and Lave, 2000
Matthews and Lave, 2000
Authors
Jeffrey Tews