Are Fuel Costs Cutting into Your Profits?

1. Are Fuel Costs Cutting into Your Profits? Virginia Ready-Mixed Concrete Association

2. Today’s Topics • Conservation management • Cost management • Alternative fuels • Tax credits and incentives • In the future…

3. Conservation Management • Light vehicle fleet • Plan and combine crew transportation. • Consolidate fleets • Set vehicle usage expectations • Set daily mileage constraints • Downsize • Smaller trucks • High mileage passenger vehicles • Maintenance • Tire pressure • Tune ups

4. Conservation Management • Heavy Vehicle Fleet • Maintenance • Driving habits • Logistics management

5. Conservation Management • Logistics Management • Route control • Road traffic and communication • Delivery timing • End goal is to reduce idle time: • Idling in traffic • Idling at the job site • Idling at the plant

6. Conservation Management • Heavy Equipment • Avoid prolonged idling: Typical vehicles may consume 1 – 2 gallons of fuel or more per hour of idling. • Consider implementing a driver or operator training program to refresh operators’ skills as well as to help them better understand the effect of their driving or operating habits on fuel use. • Log fuel use by vehicle and machinery to help identify fuel leaks and poor performing vehicles in a fleet.

7. Reduce Idle Time • Modern heavy equipment no longer requires extensive warm up time prior to starting work • Turn off your equipment if it is going to idle longer than 10 minutes

8. Minimize Engine Load • Detach or disable power take off equipment that is unnecessary • Run equipment at capacity. Overloading equipment increases fuel consumption and increases maintenance costs

9. Fuel Quality Management • Clean fuel will yield greater equipment power • Monitor the API. 35 degrees API at 60 degrees will yield the optimum BTUs to produce the manufactures specified horsepower. • Watch the use of blended fuels. Type #1 diesel versus type #2 diesel can effect fuel consumption by 10% per operating hour.

10. Cold Weather Fuel Management • Alcohol based degellers can reduce engine efficiency • Thermostatically controlled heaters will keep gelling to a minimum and keep fuel filters clean.

11. Fuel System Maintenance • Keep the fuel filter clean. 4 microns of dirt will accelerate fuel system deterioration and increase fuel consumption • Use high quality filters. Manufacturer recommended consumables will help keep the fuel system in the best possible working order. Cheap filters may let contaminants into the fuel system effecting horsepower and engine performance • Monitor the quality of the fuel at the job site. Work with your suppliers to guarantee API and that their delivery systems are designed to minimize contamination.

12. Preventive Maintenance • Develop and implement a preventive maintenance schedule for all vehicles and machinery. • Consider synthetic lubricants, which have a demonstrated ability to increase energy efficiency through reduced friction, as well as to prolong vehicle and machinery life.

13. Load Management • Where appropriate, shift more-efficient vehicles and machinery into higher duty cycles and less-efficient ones to lower duty tasks. • Where appropriate, combine the loads of small vehicles into one larger vehicle (over the longer term, evaluate use and loading levels to help select the appropriate vehicle or machine when it comes time to replace the existing one). • Fill fuel tanks to 95 percent of capacity to allow for expansion and reduce spillage.

14. Conservation Management • Remote monitoring systems • Idle shutdown timers

15. Ready- Mixed Plant Equipment • Compressor Management. Compressors use significant amounts of electricity. • Reduce air leaks • Maintain compressors to OEM recommended schedules • Evaluate overall air system performance. Can CFM be maintained by running few compressors. • When upgrading your systems consider replacing compressors with fewer higher capacity units

16. Aggregate Production • Maintain mining equipment to OEM specifications • Maximize the use of conveyers to transport aggregate • Shut equipment down when not in use.

17. Aggregate Production • Model crusher plant operations • Optimize each piece of equipment to get maximum performance out of each stage of production • Locate crushers, screens and stockpiles efficiently to minimize unnecessary product transport • The primary drivers for this model are flow rates, gradations and power consumption of the primary crusher.

18. Alternative Fuels • Ethanol • Solar • Geothermal • Bio-Diesel • Compressed natural gas (Methane) • Hydrogen

19. Bio-Diesel • Expect a 5% reduction in power due to a lower BTU content in the fuel • This fuel has a tendency to be highly contaminated • Higher cost per gallon • Increased maintenance costs • Minimal production standards to control product quality

20. Methane • Landfill gas • Anaerobic digesters • Wastewater treatment plants

21. Landfill Gas Systems • Co-location with landfills. • Reduce land costs • Existing civil infrastructure • Easier permitting process (NYMBY management)

22. Anaerobic Digesters • Anaerobic digestion is the use of natural processes and chemicals in accelerate the decomposition of organic material. This leads to the production of methane fuel.

23. Sources of Alternative Methane • Landfill Management Database: LMOP • Wastewater treatment plants • Food processing plants • Large dairy farms and cooperatives • EPA Superfund sites • Environmental clean up sites

24. Hydrogen Fuel • Not ready for prime time! • Leading manufacturers are all committing R&D resources to finding a reliable solution. Five to ten years in the future.

25. Cost Management • Bulk fuel purchases • Market timing • Commodity hedging • Tax credits

26. Bulk Fuel Purchases • Commodity contracts. Contracts size 42,000 gal. • Storage considerations • Cost of money • Partial contracts – work with local suppliers.

27. Market Timing • Hope to get lucky! • Buy and sell commodity contracts hoping to come out ahead on the spread to finance your fuel requirements.

28. Fuel Hedging • The word is defined as “a means of protection or defense (including financial loss).” Hedging thus should be recognized and exercised as a protection against financial loss/cost.

29. Benefits of Fuel Hedging • Cost reduction • Volatility reduction • Profit speculation • Greater profit forecast accuracy • Improved operating job estimate accuracy

30. Tax Credits and Incentives • Bio-Fuels can yield a tax credit of up to $1.00 for every gallon of bio-fuel used in the construction process. • Compressed natural gas (CNG) can yield a tax credit of up to $1.00 per gallon plus an addition $45,000 per piece of heavy equipment converted to duel fuel or CNG powered. • Hydro-carbon credits or green house gas (GHG) credits may be available through the CFC Exchange. Average GHG is $3.50 per ton. • Tax credits up to $40,000 per vehicle for the purchase of alternative fuel vehicles.

31. In the Future… • Near term ethanol based alternative fuels are becoming increasingly available. We expect to see more flexible fuel vehicles and heavy equipment in the next few years. • Longer term will likely be hydrogen fueled vehicles. The current forecast is that light and heavy vehicles will be fuel cell based.

32. In the Future… Why hydrogen and fuel cells? • Nationalism towards fossil fuel independence. • Global warming initiatives • Rapidly declining fuel production costs • Improved reliability reduced maintenance costs of electric motors as compared to internal combustion engines.

33. Questions?