Lancaster Development Inc. (LDI) Executive Vice President Marty Galasso Jr. was making a tour through the ConExpo-Con/Agg tradeshow in Las Vegas in 2005 and happened to pick up a brochure about the Combustion Catalyst System (CCS) for diesel engines. While there were impressive percentages regarding emissions reductions, the initial attraction was fuel savings and the dollars associated.
LDI, an award-winning construction company in upstate New York, is a third-generation family-owned business that specializes in heavy/highway construction of roads, bridges and large site development. Lancaster is one of the largest highway contractors in upstate New York.
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Much of the success of Lancaster has come from the dedicated team of employees led by brothers Mark and Marty Galasso Jr., who are always seeking ways to improve operations with innovative business methods and techniques. While attending ConExpo 2005, one of the largest international construction industry trade shows, Marty Galasso stopped at an Emissions Technology exhibit booth promoting a CCS. With a brochure in hand stating fuel savings of 8-20%, depending on usage and application, he planned to further investigate the product as it would apply to Lancaster’s fleet of construction vehicles and equipment.
The CCS developed by Phoenix-based Emissions Technology Inc. (ETI) is the size of a phone book and is installed near the diesel engine’s turbocharger. The technology makes the engine’s combustion cleaner and more efficient by injecting a platinum-based catalyst into the combustion chamber. The concept is similar to taking a catalytic converter and introducing it on the front end of the combustion. The catalytic aerosol enhances the combustion process, providing more efficient and complete combustion during the power stroke and less smoldering burn during the exhaust stroke. Thus, more unburned fuel is converted into useful energy in the engine, reducing fuel consumption and harmful emissions.
Having grown up in the construction business with a background in field construction operations, as well as training in heavy equipment mechanics and a degree in accounting, Galasso understood fully the technical applications, product benefits and cost benefits. He was convinced.
Tymark, a distributor of aftermarket diesel-emissions-control products, is an ETI distributor for named accounts in North America, the Caribbean and South Africa with exclusivity in New York and Texas. Tymark offered an initial project assessment program: Install up to five CCS units on selected equipment, run the catalyst for the break-in period and then compare the new fuel-consumption levels against the previous, verified baseline levels.
“After approximately 800 hours of operational usage, our fleet was showing anticipated savings. Tri-axles consumption was reduced 8-12%; dozers 13-16%; generators 15-20%; and our 365BL Cat excavator was at a 20% reduction,” said Galasso. “Even seeing these types of results, we were still a bit skeptical. Then our 365BL excavator ran out of catalyst and its fuel consumption jumped nearly 20%. Once the catalyst was reloaded, the fuel consumption returned to the previous 20% savings we had seen before. That was the proof we needed that it was the CCS and not some other variable that was causing the fuel reductions.”
Tymark then presented a fleet analysis, showing all the applicable pieces of equipment, their utilization hours and catalyst consumption, the cost of the distribution units and catalyst and the projected fuel savings based upon operational results. When installed on the entire fleet, the return on investment was less than 26 weeks, or basically one season in upstate New York. However, there was a substantial initial investment needed.
“We then reviewed financing options,” said Galasso. “They were able to offer us financing, an expensed lease option with a $1 buyout or the option our CFO chose, which is the operational lease with a fair-market buyout at the end of three years.”
The operational lease included the units, three years of catalyst, extended warranty, taxes, hoses and installation parts and labor.
“Because we chose the operational lease, it was like we were using 4% money after tax. Not even our bank could match this,” stated Tim Gaffney, chief financial officer (CFO) for LDI. “While the lease was a no-brainer for operations, from the financial side the real benefit was a 10% fuel savings (fleet savings less the monthly lease payment). Reviewing the previous year’s numbers, a 10% fuel savings would have resulted in a 12% increase to net income after tax; a 4% increase to working capital; a 16% improvement to earnings before taxes, 9% to earnings before interest and taxes; and 4% to earnings before interest, taxes, depreciation and amortization.”
Seeking a reward
Once the season ended, LDI began to install the CCS during the winter. “We want to be prepared for the next season, so we would see the maximum results in the summer,” stated Basil McGiver, construction manager. “Part of my job is to control cost where possible. Based upon the fuel savings, it is like we are doing 2007 work at 2006 fuel costs. As the equipment usage gets close to the 400 hours, we check the bottle of catalyst, and if it needs to be replaced we can do this in the field in less than five minutes. When Mr. Galasso first brought this to me, I rolled my eyes and thought, ‘snake oil.’ Now I want it on every piece of equipment that consumes more than four gallons per hour.”
So what about the environment? “We are working with our New York State Chapter of the Associated General Contractors [AGC/NYS] to help guide New York State Department of Environmental Conservation [DEC] in attaining environmental goals in a fiscally responsible manner,” said Mark Galasso, president of LDI and 2008 Chairman of AGC/NYS.
In January, the AGC/NYS joined with 10 other corporations or trade associations to send a letter to DEC Commissioner Pete Grannis requesting the establishment of financial incentives to comply with the Diesel Emissions Reduction Act of 2006. This new law requires heavy-duty vehicles operating on public works projects to use ultralow-sulfur diesel (ULSD) fuel and be equipped with the best available retrofit technology to reduce emissions.
“We are committed to the success of this important new law, but recognize the challenges associated with implementing this new and currently unfunded mandate,” stated Mark Galasso. “Going green in three years means that I have to be in business to even worry about being green.”
Concerns surrounding this initiative include the difficulty for private diesel-machine owner-operators to implement without incentives at the state level. Additional concerns are that the effect of these new requirements will largely fall upon contractors bidding on construction projects around the state. The letter cites programs instituted in Texas, California and Oregon to cover the cost of emission-reduction retrofits and asks for the DEC to fashion a similar program in New York.
“While the CCS has reduced our emissions prior to being mandated, the amount of money saved will help us fund the cost of going green when it is no longer an option.” said Mark Galasso. “While we are always seeking ways to help the environment, especially reducing emissions, I’d be lying if I didn’t say that the reduction in fuel was my primary attraction to the product. Right now it’s about the economics. As the cost of diesel fuel increases, it only makes the fuel percentage saved more valuable.
“If you look at diesel fuel prices for the last quarter of 2007, the cost of a gallon of fuel is made up of approximately 16% for taxes, 6% for distribution and marketing, 17% for refining and 61% for crude oil. With crude oil closing in on $95 per barrel, we are now seeing ULSD retailing for $3.50 a gallon. When preparing budgets for next year, I know that I have the jump on my competition, at least for a little while. Now in 2008, diesel is at a 28% increase at $3.50 a gallon and up from where it was in 2007 at $2.50 a gallon. While I don’t want to give away our secret, our industry needs every advantage it can get,” added Galasso.
When the smoke clears
When Blake Sowards, quarry superintendent for Carver Sand and Gravel, was approached regarding a “pollution-busting” product that also decreased fuel consumption, it sounded too good to be true. However, what Sowards proved to himself was how much this product did save his company and how quickly he got a return on his investment.
Sowards first installed the CCS on a diesel generator set. Three weeks after the installation, fuel consumption dropped five gallons per hour (gph) from 23 to 18, or 22%. Capitalizing on the initial success, Sowards installed a second CCS on a diesel-powered 340-hp loader. Fuel consumption dropped from 7.5 gph to 6.2 gph, a decrease of 17%. Both the generator set and the loader were being used in a quarry that provides aggregate product for heavy/highway and bridge construction as well as other markets and is located in Schoharie County, about 20 miles west of Albany.
Realizing the benefits of the CCS, Sowards installed a third unit on a diesel-driven 350-hp excavator also used in the quarry. After the break-in period, fuel consumption fell from 13 gph to 9 gph, a difference of 30%.
“The two things we noticed right after the installations were that the engines were putting out less black smoke, and there was a noticeable increase in power while the engines were loaded,” said Sowards. “The fuel savings came a few hundred hours later, which completely blew us away.”
After seeing the results of the first three installations, Sowards has installed five more systems and is now in the process of implementing a fleet-wide program. Sowards estimated that Carver will save in excess of 100,000 gal in diesel fuel alone this year. “We will retrofit the equipment that consumes the most fuel first, and then work our way back toward our smaller inventory,” he said.
In addition, according to independent third-party lab tests conducted by Olson-EcoLogic, ETI’s CCS has been found to cut black smoke or particulate matter, hydrocarbons, carbon monoxide and nitrogen oxide, and fuel consumption will decrease between 10 and 15%.
The U.S. Environmental Protection Agency mandated that all engines built after Dec. 31, 2006, must reduce the level of particulate matter and nitrogen/nitrous oxides below the current levels established in the EPA 2004 regulations.
“No doubt that the new technology and more efficient engines mean higher cost,” said Mark Galasso. “Retrofitting the fleet with a technology that helps reduce emissions and also reduces fuel consumption is just a smart investment all around for the future of our company.”