Document ppBRgDzao5Gm84GvN2ya4zRmD

Monsanto J. J. Zeman - B2SK February 3, 1976 Dielectrics Business Plan REFERENCE; TO R. G. Potter Enclosed is the business plan for the replacement of PCBs in dielectric fluids. The basis of the plan is to develop Monsanto compounds which satisfy our customers' needs and protect our existing market position and profitability, if possible. The timing of the plan changed from an initial goal of phasing out at the earliest feasible time to the present goal of phasing out in a planned and orderly manner. The plan is designed in such a fashion that it provides for a stair-step approach to go/no-go decision points for all facets of the capacitor and transformer dielectric businesses. This document is also a working document and it is by no means intended to be in its final version. It is so con structed that as things change, the plan can be easily up dated and still provide the basic control needed. The key components of the plan are the strategic summary; the capacitor U.S.-, the capacitor Europe-, and the trans former worldwide - tactical approaches; and the potential problem analysis. All of the planning within this document is based on these items. Each involved department should take this plan and prepare their own individual detailed work plans. The dielectric business plan is the instrument which provides the overall direction for this program. /bh Enclosure IN 10 REV. I '72 dSvsI223727 STLCOPCB4053519 I. Business Plan TABLE OF CONTENTS Page No. A. Strategic Summary B. Results and Goals C. General Summary of Action Steps D . Business Position Identification/Analysis U.S. and RCW E. Critical Assumptions F. Technical G. Capital Program H. Manufacturing Capacity I. Business Position Identi./Anal. - Europe J. Financial II. Capacitor Action Plan 1-1 I-1-: 1-3 1-5 1-9 1-10 1-14 1-16 1-17 1-20 A. U. S. - 1. 2. 3. Tactical Approach Alternatives Events Chart II-l II-2 II-4 B. Europe - 1. Tactical Approach 2. Alternatives 3. Events Chart 11-14 11-15 11-16 Ill. Transformer Action Plan A. Tactical Approach B. Trichlorobenzene Issue C. Europe D. Events Chart (Worldwide) III-l III-l III-l III-2 IV. Impact on Related Business A. Economic Dependence 1. U. S. Manufacture 2. Polyphenyl Tree 3. Europe IV-1 IV-3 IV-4 V. Appendix 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Potential Problem Analysis - Capacitors Capacitor Dielectric Fluid Potential (Chart 1) Monsanto Capacitor Sales Forecast (Chart 2) Transformer Fluid Market (Chart 3) Capacitor Fluid Sales (U. S. Produced)(Chart 4a) Capacitor Fluid Sales (U. K. Produced)(Chart 4b) Transformer Fluid Sales (U. S. Produced) (Chart 5a) Transformer Fluid Sales (U. K. Produced) (Chart 5b) Toxicological Program Retrofit Opportunity Patent Position G. E. Timetable and Regulatory Situation Price Plan V-l V-12 V-13 V-14 V-15 V-16 V-17 V-18 V-19 V-47 V-51 V-53 V-56 DSW 223728 STLCOPCB4053520 I. Business Plan A. Strategic Summary 1. Withdraw from supply of chlorinated biphenyl dielectrics (PCB) in U.S.A./Canada when a suitable replacement is available, from whatever source. Date to be established by 8/1/76. 2. Establish MCS 1238 as the major replacement for PCB in capacitors in U.S.A. and Canada. 3. On the basis of (2), establish MCS 1238 as a major re placement for PCB in capacitors in Europe, Japan, and other major markets as they move away from PCBs. Diccontinue production of PCB in Europe. Date to be established by 8/1/77. 4. Achieve worldwide performance income for total dielec trics of $4.4M in 1976 and $4.5M in 1979, which maintains the performance income through the transition period. 5. Continue transformer PCB replacement evaluation until late in 1976 and, if at that time no strong candidate can be supported, phase out PCB transformer fluids without a Monsanto replacement, at the same time as PCB capacitor fluids. 6. Resolve by mid-1976 the need for a second supplier for MCS 1238 in Europe, e.g. Prodelec or Bayer. 7. Investigate growth opportunities in dielectric fluids through developmental programs, such as cable dielectric/ coolants and transformer oil modifiers. B. Results and Goals 1. Results a. Phase out of PCB production when a suitable replace ment is available, from whatever source. b. Replace our present PCB capacitor fluid with a nonPCB fluid (MCS 1238), and: 1) Achieve in 1979 a P.I. of $4.5M worldwide total dielectrics ($4.05M US-produced, $0.45M Europe). Position the business for future growth beyond 1979. 2) Achieve sales volume in 1979 of 19.5M pounds worldwide. 1-1 DSW 223729 STLCOPCB4053521 c. If we have a viable product, replace present PCB transformer fluids with a non-PCB fluid generating a minimum of 32% Pi on sales, and with a sales volume of 6-10M pounds per year by 1979 in U.S.A. and Canada. d. Maintain Monsanto image as a responsible company during transition from PCBs and in the clean-up phase following discontinuation of PCB production; while recovering the costs for this involvement, e.g. perform incineration of waste fluids on a break-even basis. e. Be in a position to supply MCS 1238 in Europe in 1980 from a local blending facility, earning 40% gross profit minimum. (Note: Volume was estimated at 3M pounds per year, but Monsanto Europe requested a change to 5M to 6M pounds, which would adjust long range forecast in years 1979-85.) Goals a. Achieve a worldwd.de performance income in 1976 of $4.4M. ($4.0M US-produced, $0.4M European produced). b. MCS 1238 blending facility in U.S.A. demonstrated at design rate (11M pounds^ear) six months after G.E.'s commitment. c. Obtain customer commitment to MCS 1238 early enough to support AR submission for project 3023 (non-PCB Dielectrics) by 12/1/77. d. Reach a decision by late in 1976 on whether to continue a transformer fluid replacement program. e. Obtain European customer commitment to support approval of an AR for European blending by January 1, 1978. 1-2 STLCOPCB4053522 General Summary of Action Steps 1. Capacitors MCS 1238 a. Complete environmental study on MCS 1238 (excl. 2-year feeding study) by July 1976. b. Obtain G.E. commitment to MCS 1238 sufficient to: 1) Support an interim blending facility (in production six months after commitment). 2) Justify a major plant (CEA 3023). c. Cooperate as needed with capacitor industry/ insurance groups to obtain approval for MCS 1238 capacitors - in terms of fire safety. d. Establish raw material supply sufficient for forecast volumes of MCS 1238 in interim blending facility; MCS 1238 supply to commence six months after G.E. Commitment. e. Complete construction of interim MCS 1238 blending facility and start up six months after G.E. com mitment. f. Obtain AR approval for CEW 3023 project (MIPB/ TXS/blending) by December 31, 1977. 2. Transformers MCS 1866* a. Cooperate with G.E./Westinghouse to complete test transformer evaluation of MCS 1866 by June 1, 1976. b. Cooperate with G.E. and Westinghouse/insurance groups to establish fire resistance rating for MCS 1866. c. Establish by March 1, 1976 an environmental test ing program which will completely evaluate MCS 1839 and MCS 1866 by March 1, 1977, (excl. 2-year feed ing study). d. Make decision by late in 1976 whether to continue a transformer replacement fluid program. * A blend of 60% MCS 1839 (alkylated biphenyl) and trichlorobenzene (TCB). SW 223731 1-3 STLCOPCB4053523 C. General Summary of Action Steps (continued) 3. International Involvement a. Establish Canadian/Latin American MCS 1238 capacitor evaluation programs to support a request for their commitment in 1977 - June 1976. b. Establish agreement with 7-8 Key European capacitor producers to schedule MCS 1238 trials sufficient to make a commitment by October 1977 - May 1, 1976. c. Complete training of European technical personnel and provide technical documentation on MCS 1238 to support key customer and government activities in Europe - March 15, 1976. d. Set up a program for transformers only when we have a viable product. 4. Pricing a. Increase dielectric fluid domestic pricing March 1, 1976, and later in the year to cover the expenses of commitment and changeover from PCB. b. Increase U.S. export price by at least 10% March 1, 1976 to achieve 1976 P.I. of $0.70M. 5. Growth Programs a. Determine if there is opportunity for growth in new dielectric programs such as cable oils and transformer oil modifiers. DSW 223732 1-4 STLCOPCB4053524 D. Business Position Identification/Analysis - U.S. & ROW 1. Our current range of products serve two major markets: a. Dielectric liquids in capacitors (devices for storing electrical energy). b. Dielectric/coolant in special* fire resistant power transformers, e.g. those in the 500-10,000 KVA range commonly used in factory and residential installations. * Special - e.g., U.S.A. annual usage of PCB transformer fluids is approximately 1M gallons compared to usage of mineral oil transformer coolants of 90M gallons. 2. Capacitor Market a. The worldwide potential expressed as M pounds of Aroclor is: 1974 1975 1976 1977 1978 1979 1980 1985 50 37 43 46 47 49 50 56 b. A geographic breakdown is given in Chart 1 in the Appendix V-12 (Capacitor Dielectric Fluid Potential) c. In 1975 Monsanto held 58% of worldwide market. d. Our major competitors outside of U.S.A. are: Prodelec (France) - Monsanto Relative Share Bayer (Germany) - Monsanto Relative Share 3.2 6.4 e. U.S. market (40% of world market) is under pressure to convert to non-PCB dielectric. f. Other world markets are forecast to follow later because they are not under the same environmental pressure. g- MCS 1238 Aroclor We plan to progressively replace Aroclor worldwide with MCS 1238 (M pounds). 1974 1975 1976 1977 1978 1979 1980 1985 1.3 11.0 16.5 19.5 20.5 23.5 32.5 21.5 23.3 12.2 4.0 0 0 0 Chart 2 in the Appendix V-13 shows details of Monsanto Capacitor Fluids Sales Forecast. DSW 223733 1-5 STLCOPCB4053525 D. Business Position Identification/Analysis (continued) h. In converting to non-PCB replacement capacitor fluids, major competition will not be with other producers of identical products to MCS 1238, but with alternative technologies. E.g., Dow Fluid XFS 4169L Phthalate Ester Metallized Plastic Film Chloralkylene 12) ,, Bichlorobiphenyl) uroPe 3. Transformer Market a. The worldwide potential expressed as M pounds of Aroclor-Trichlorobenzene blends is: 1974 1975 1976 1977 1978 1979 1980 1985 51 53 50 47 56 59 62 76 (Note: Aroclor on average represents 60% by weight of the blend.) b. A geographic breakdown is given in Chart 3 in the Appendix V-14 (Transformer Fluid Market). c. In 1975 Monsanto held 42% of the worldwide market. d. Our major competitors outside of U.S.A. are: Prodelec (France) - Monsanto Relative Share 1.8 Bayer (Germany) - Monsanto Relative Share 4.9 (Note: Both of these are basic in chlorinated benzene, while Monsanto purchases.) e. The U.S. market (30% of world consumption) is under pressure to convert to non-PCB replacements. The French market (30%) and other European markets (22%) are not under the same pressure. f. We presently seek to replace PCBs with an alternative fluid in U.S.A. and Canada only. M Pounds PCB trans former fluid Non-PCB trans former fluid 1974 1975 1976 1977 1978 1979 1980 1985 21.5 20.7 17.2 10.2 2.2 0 0 0 4.2 6.0 7.5 10.0 DSW 223734 STLCOPCB4053526 D. Business Position Identification/Analysis (continued) g. In the transition from PCB competition will be: - Silicones - High flash point oil distillates - Air-cooled designs - Redesigned fire protected oil systems 4. Based on our market in chemical base dielectric fluids, we can seek growth opportunities for non-PCB fluids in new dielectric market segments, which we expect to arise from a world shortage of naphthenic-based oils, e.g. cable dielectrics/coolants and transformer oil modifiers. 5. Price Trend a. Capacitor Fluids 1) Prices domestically have tended to follow costs to yield a gross profit in the range 40-45% (see Chart 4a in the Appendix v-15 - Capacitor Fluid Sales, U.S. Produced). 2) Prices in export markets have in recent years been relatively lower reflecting specifically French attempts to move volume. (See Chart 4a) 3) The cost of Aroclor represents 4-5% of the total capacitor cost so that capacitor cost is compara tively insensitive to fluid price. 4) We plan to price M.CS 1238 to yield a 25% minimum performance income return on replacement capital (45% G.P. minimum) . 1-7 0S\N 223735 STLCOPCB4053527 D. Business Position Identification/Analysis (continued) b. Transformer Fluids 1) Prices domestically have tended to follow costs to yield a gross profit in the range 35-40% (see Chart 5a in the Appendix v-17 - Transformer Fluid Sales, U.S. Produced). 2) Prices in export markets have, while following costs, yielded relatively lower gross profits reflecting both the competitive edge of our competitors' basic position in chlorinated benzenes and the French intention to move volume. (See Chart 5a) 3) The cost of transformer PCB represents 20-25% of the cost of the transformer so that this market is much more sensitive to price change. Additionally, there is an ultimate ceiling on fluid price related to the cost of competing transformer installation designs. 4) To achieve the desired volume, our cost for any non-PCB replacement material must permit pricing no higher than 1.5 times 1975 PCB-blend price per gallon. At this level, we must be able to satisfy performance income criteria. 5) After product changeover to non-PCB fluids, there will not be the present relationship between capacitor and transformer prices because replacements are not from a common base stock. 1-8 DSW 223736 STLCOPCB4053528 E. Critical Assumptions 1. The capacitor industry will design around the reduced fire resistance of MCS 1238. 2. There will not be any government ban on PCBs in U.S.A. for capacitor/transformer use through 1977. 3. Some level of fire resistance below that of PCBs is acceptable for replacement transformer fluids and MCS 1866 meets such standards. 4. There will be no ban on electrical use of PCBs in Europe through 1978, but that European governments will move to support non-PCB requirements. 5. There will be no major growth in capacitor fluid volume usage 1976-1980. 6. MCS 1238 priced for 32% margin on sales performance income minimum maintains a cost/performance advantage over Dow XFS 4169L. 7. Phthalates will not be accepted as functionally suit able dielectrics for wide scale use in capacitors. 8. No major capacitor design changes which would rule out use of fluids are within two years of commerciali zation. 9. The transition timetables given us by our customers are reliable. ***** 1-9 STLCOPCB4053529 F. Technical 1. Capacitor Fluids a. Function. A capacitor is a device to store elec trical energy. It consists of two electrodes separated by a dielectric medium. The functions of the medium are to store electrical energy between the two charged electrodes and to insulate one electrode from another. The ability to store energy is deter mined by dielectric constant (DK) and dielectric strength. The ability to insulate against complete electrical breakdown is measured by dielectric strength, against temporary breakdown by corona inception voltage, and against current leakage by dissipation factor (Df). Dielectric constant varies over a range of 1 to 100 with molecular structure while dielectric strength and corona voltage are less sensitive to structure. Low frequency dissipation factor measures ionic impurities, present initially in the fluid or resulting from breakdown in use, which conduct current across the medium. Fluid impregnated paper or plastics have been the dielectric medium of choice because of their much higher dielectric strength as opposed to gases and their much greater ability to completely fill the void between charged surfaces as opposed to solids. Capacitor designers seek fluids optimizing high di electric constant, high dielectric strength, high corona inception voltage and low dissipation factor with safety and low cost. b. Industry Standard. Monsanto Aroclor 1016 with a high DK, high dielectric strength, low dissipation factor, historical low cost, and excellent fire resistance is the industry standard. it will eventually be re placed because of hazard to the environment. c. Monsanto Replacement Fluid. MCS 1238 has the same high dielectric constant and strength as Aroclor and gives equivalent electrical performance in capacitors. Fire resistance is the only significant deficiency. Lack of fire resistance in MCS 1238 will be circum vented by capacitor manufacturers1 use of fused designs. MCS 1238 biodegrades rapidly, does not bioaccumulate and has a low order of mammalian and aquatic acute toxicity, thus rectifying the environ mental objections to PCBs. Chronic toxicity studies are underway. Accelerated life tests in our labora tories demonstrate substantially equivalent life to 1-10 DSW 223738 STLCOPCB4053530 Aroclor based capacitors. These results have been duplicated at General Electric and Electrical indus tries. Successful operation and performance has also been demonstrated in commercial processing equipment at GE, Cornell Dubilier and Electrical Utilities. MCS 1238 is a blend of TXS (toylyl xylyl sulfone) and MIPB (monoisopropyl biphenyl). TXS is a very high dielectric constant material developed by us in sufficient purity to be usable in conjunction with stable low dielectric constant materials to give desired capacitor performance. We have use patent coverage which claims capacitors containing TXS with hydrocarbons. The biphenyl base of the IPB hydro carbon is significant to our family tree viability which also involves heat transfer and encapsulent fluid products. Processes for the MCS 1238 blend and raw material have been demonstrated. Final definition for full scale design is nearing completion. Competitive Fluids and Technology 1) DOP and DINP esters (dioctyl phthalate and diisononyl phthalate) have been actively promoted as PCB replacements and are low cost products, but have the following deficiencies which are prevent ing their acceptance: low dielectric constant (75% of MCS 1238 and Aroclor) tendency to hydrolyze with use increasing dissipation factor, low corona inception and extinction voltages, inability to be used at all in power capacitors (30% of total market). 2) Dow XFS 4169L, a chlorinated aromatic, is the only other replacement candidate being significantly promoted. Although it does have good corona in ception and extinction voltages, its dielectric constant is also low (85% of MCS 1238); it has a 7% density penalty to the customer and does not biodegrade as readily as MCS 1238. 3) Technologies which could impact use of MCS 1238 include tight wound metallized polypropylene film construction requiring no fluid impregnant (for low voltage capacitors) and all film construction where fluid impregnation does not increase capaci tance as much as for paper (for power capacitors). Both methodologies involve significant technical problems not resolved to date. 1-11 DS\N 223739 STLCOPCB4053531 2. Transformer Fluids a. Function. A transformer is a device for converting power at one voltage to equivalent power at a different voltage. The functions of a transformer medium are to insulate the electrical components from each other and to remove thermal energy from power losses. Fluids have been widely used in power transformers because of their good dielectric strength and their superior ity over gases and solids in transferring heat by convection. Dielectric strength and heat transfer properties, in particular viscosity at low ambient temperatures, are the most important functional prop erties. Other properties important in practice are resistance to oxidative or hydrolytic deterioration in use, fire resistance in case of a catastrophic failure and safety in the environment. b. Industry Standards 1) Mineral oils are the most widely used transformer oils because of their good electrical and heat transfer properties, stability and low cost. They are not used in fire-risk areas because they are combustible. 2) Askarels (mixtures of Aroclors and tri- and tetrachlorobenzenes added to reduce low temperature viscosity) are used in fire-critical areas because they do not support combustion, in addition to having good electrical and heat transfer properties, excellent stability and reasonable costs. c. Monsanto Replacement Fluids for Askarels. MCS 1866, a mixture of alkyl biphenyl and TCB (trichlorobenzene) which has dielectric strength and heat transfer char acteristics similar to current Aroclor based products. Fire resistance is less than Aroclor/TCB, but slightly better than mineral oils. While biodegradation rate is slow, the acute toxicity is very low. Bioaccumula tion and fish toxicity studies are underway. General Electric has rated the fluids as promising based on laboratory tests, and we have supplied them with fluid for the next phase of testing. We have a process for production of development samples and are progressing toward a process of engineering design. d. Competitive Fluids and Technology 1) Mineral oil is used in the majority of applications where fire hazard is low and can replace askarels 1-12 DSW 223740 STLCOPCB4053532 3. Technical Programs (1976 Budget $960 M) a. Capacitors 1) Provide development quantities of MCS-1238 at a rate of at least 40,000 pounds/month ($200 M). 2) Complete process for engineering design of MIPB, TXS and MCS-1238 ($100 M). 3) Obtain toxicity and environmental data required for approval of MCS-1238 by industry and govern ment agencies ($100 M). 4) Support commercial development of MCS-1238 ($200 M). b. Transformers 1) Complete process and property optimization of MCS-1866 ($100 M). 2) Provide development quantities and develop process for engineering design for MCS-1866 ($110 M) . 3) Evaluate alternates for TCB in blends with alkyl biphenyl ($50 M). c. Long Range 1) Provide fundamental information leading to modified fluids of improved dielectric performance to solve future dielectric system problems ($75 M). 4. Risk Because of Voids Lack of accepted fire resistance standards for transformer fluids may lead to lack of acceptance of MCS-1866. 1-13 DSW 223741 STLCOPCB4053533 G. Capital Program (1976-1980) 1976 1) Over $2M 2) 500M - $2m 3) 0 - 500 List Proiects Total NFC Only Location Priority AR Date NFC $M 650* 1977 1) Over $2M 2) 500M- $2M 3) 0-500 CEA 3023 Europe MCS 1238 blending Total NFC Only Undecided 2 12/77 10,500 12/77 600 155 1978 1) Over $2M 2) 500m- $2m 3) 0-500 WGK Historical Replacement 165 1979 1) Over $5M (Only) 1980 1) Over $5M (Only) * Europe NFC incl. 1-14 0S\N 223742 STLCOPCB4053534 G. Capital Program (continued) 1976 1) 0-500 Project WGK Blending Plant WGK Blending Ex pansion Newport Effluent/ Waste Handling WGK Misc. Aroclor Projects AR NO. AR Date NFC ($M) Req. 8683 - * ** 450 100 - 76 25 - 76 75 $650M * After receiving commitment from G.E. ** 6 months after the initial blending project 1-15 0S\N 223743 STLCOPCB4053535 H. Manufacturing Capacity (Product Mix Basis) Location 1 Aroclor WGK M Lbs. Capacity M Lbs. Sales % Occupancy 1975 1976 1977 1978 59,800 30,700 51.3 59.800 29.800 49.8 50,200 12,100 24.0 50,200 0 Location 2 Aroclor Newport M Lbs. Capacity M Lbs. Sales % Occupancy 13,200 7,500 56.8 13,200 7,400 56.8 13,200 7,500 56.8 13,200 5,500 41.7 Location 3 MCS 1238 Interim WGK M Lbs. Capacity M Lbs. Sales % Occupancy 2,360 1,300 55 13,500 11,000 81 20,000* 16,500 82 * After completion of the $100M Expansion Project. 1-16 STLCOPCB4053536 I. Business Position Identification/Analysis - Europe 1. Our current range of products serves two major markets, namely dielectric liquids in capacitors and special dielectric coolants in transformers. 2. Capacitor Market a. The European potential for dielectric liquids in capacitors expressed as M pounds Aroclor is: 1974 1975 21 17 1976 20 1977 20 1978 21 1979 21 1980 1985 21 21 The growth is negligible because improvements in capacitor design which reduce the amount of liquid used are absorbing the normal growth of 5-10% p.a. b. The split between Western and Eastern Europe is given in Chart 1 in the Appendix V-12 (Capacitor Dielectric Fluid Potential). c. In 1975 Monsanto held approximately 25% of the European market. d. Our major competitors in Europe are Prodelec, France (Monsanto relative share: 0.64); Bayer, Germany (Monsanto relative share: 1.25); with minor competitors, Caffaro, Italy and Coquisa/ Flix, Spain. e. Use of our product in Western Europe (70% of the total European market) is limited by OECD recom mendations, but there is no immediate pressure to convert to a non-PCB dielectric. Events in the U.S.A. however, together with pressure that can be brought into the OECD by the U.S. government, is likely to create the need for conversion. In Eastern Europe, there is concern over worker safety and an increasing use of Western technology; to the extent that Western capacitor technology will in the future be based on non-PCB dielectric fluids, the same demand should be present in Eastern Europe. DSW 223745 1-17 STLCOPCB4053537 I. Business Position Identification/Analysis - Europe (cont'd) f. We plan toprogressively replace Aroclor with MCS 1238 (M pounds): MCS 1238* Aroclor 1974 - 6.8 1975 5.5 1976 5.9 1977 0.2 6.0 1978 1.0 4.0 1979 5.7 1980 6.0 _ 1985 6.5 -- g. In converting to replacement fluids for capacitors, major competition will not come from products iden tical to MCS 1238, but from alternate technologies. E.G., Prodelec's Chloroalkylene 12 (Alkylated Dichlorodephenyl, which might be ruled out because of its similarity to a PCB). Dow Fluid XFS-4169L (Butylated Monochloro Diphenyl Oxide and Esters. 3. Transformer Market a. The European potential expressed as M pounds of Pyroclor (Aroclor + Trichlorobenzenes) is: 1974 28 1975 1976 27.5 25 1977 23 1978 25 1979 26 1980 28 1985 30 b. Our market is in Western Europe, as the Eastern bloc is self-sufficient with locally manufactured askarel. c. In 1975 Monsanto held approximately 10% of the European market. d. Our major competitors in Europe are: Prodelec, France - Monsanto relative share 0.19 Bayer, Germany - " " " 0.27 Caffaro, Italy - " " " 0.44 Coquisa/tlix, Spain- " " " 0.47 e. The European market is not under the same pressure as the U.S. market to convert the non-PCB replace ments. However, events in the U.S.A. will affect Europe, both via the media and the OECD. * Volumes do not agree with business group results. See note on page 1-2. 1-18 DSW 223746 STLCOPCB4053538 I. Business Position Identification/Analysis - Europe (cont'd) f. We will decide whether to seek to replace our current PCB business with an alternative only when replacements acceptable to the U.S. market are defined. There are already higher cost alternative safety transformer systems, e.g., dry type transformers, cast resin transformers, specially protected mineral oil filled transformers, etc. Any new replacement fluid must be able to compete on a cost/performance basis with the existing systems. 4. Profit Trends a. Traditionally this business yielded 25-30% gross profit (see Chart 5b), but in the last two years, price controls and competitive activity have kept market prices low. b. The cost of Aroclor represents 5-10% of the cost of most capacitors. The impact of fluid cost is minor. However, in the case of transformers, the fluid cost is 25-35% of the cost of the transformer and there is a limit on fluid price since alterna tive safety transformer systems already exist. c. Non-PCB Capacitor Fluids MCS 1238 to yield 30% G.P. and P.i. minimum 20% on replacement capital.* d. Non-PCB Transformer Fluids Position to be defined. * These targets, as supplied by Monsanto Europe, must reconcile with Corporate goals. These are under discussion with Europe and will be resolved before the final European plan is published. 1-19 0S>N STLCOPCB4053539 J. Financial (To be provided) 1-20 dS\N 223748 STLCOPCB4053540 II. Capacitor Action Plan - U.S. A.1 - Tactical Approach The detailed events on the following pages are premised upon the "main line" course of action. At certain points in the program there are alternative routes that may prove better and, if they are taken, then some of the detailed action plans must be modified. The "main line" can be summarized as follows: 1. Our choice of product for replacing PCBs in capacitors is MCS 1238, a blend of monoisopropyl biphenyl (MIPB) and tolyl xylyl sulfone (TXS). 2. We will move rapidly to establish an interim blending and treating operation at Krummrich Plant within 6 months of a customer commitment. This project could readily be debottlenecked to permanently serve our needs, but may prove to be a temporary installation if another site is chosen for self-manufacture of MIPB and TXS. 3. We will complete and sign contracts for toll manufac ture for MIPB and TXS blend components in time to begin shipments within time parameters defined by major customers. 4. The Monsanto pricing plan will be completed by March 1, 1976 detailing interim and long-term pricing for MCS 1238, as well as an escalation schedule for PCBs as phase-out approaches. 5. We will determine the target date to cease manufacture of PCBs by August 1, 1976. 6. Documents and activities leading to self-manufacture of TXS and MIPB will be timed to postpone major capital commitments until results of 2-year medical studies can be foreseen with greater evidence. Tentaive Dates: PIR 6/77; AR 12/77. Alternative courses and circumstances which might lead to considering adopting them are discussed under "Alternatives U.S." II-l DSW 223749 STLCOPCB4053541 II. Capacitor Action Plan - U.S. A.2 - Alternatives 1. Products From a technical standpoint, there probably a number of hydrocarbon base stocks that could serve the role of MIPB, which was selected because it will be low in cost and supports the polyphenyl investment. The role of TXS as an enhancer of dielectric constant is more unique. There may be slightly different sulfones that would work, but all should be covered by our patent. Another area of chemistry which has not been fully explored is in aromatic ketones, but they would be much more expensive. From the standpoint of meeting our timetable for com mercialization, we must remain with MCS 1238, if some unforeseen weakness is found in the product, at least one year will be lost in changing to something else. Therefore, if MCS 1238 fails, we would question the viability of a continuing effort in capacitor fluids. 2. Plant Sites Most of the site evaluation work has concerned adapta tion of Aroclor equipment at Krummrich Plant and phosphate ester/Santosol 100 equipment at Delaware River Plant, which was rejected because of lack of capacity in existing equipment. Capital requirements and available time favor Krummrich -- but abKrummrich we are faced with a potential problem of PCB contamination of at least the first few batches. The "main line" plan has assumed that the contamination can be held to a level that is low, temporary, and acceptable, and a blending project using PCB equipment is underway using pre-approved authority funds. A third alternate, using potentially idle Silica and plasticizer equipment at Everett, is under evaluation. MIPB manufacture and MCS 1238 blending could be done in this equipment. This could be the lowest capital route to in-house manufacture of MIPB and without any question of PCB contamination. Based on preliminary capital estimates, it has been decided to have both raw materials, TXS and MIPB, made by converters. However, Everett remains a potential site for blending. A decision is expected by mid-March. II-2 DSW 223750 STLCOPCB4053542 3. Timing of Major Investments The main line plan calls for deferral of commitments to major investment until interim results of two year feeding studies are known, specifically the Master List calls for approval of a $10.5M project in December 1977. However, if evaluation shows that capital for the Queeny site for TXS is low (<$1M), then earlier implementation should be considered. To get adequate quantities of TXS at acceptable cost through toll manufacture, we must commit to a lump sum of $600M to set up facilities. If the capital for internal manufacture is not much more, it seems more desirable to spend the money to build our own unit rather than someone else's, provided payback time on the increment is short. A recommendation on this point is scheduled for February on the Events Chart. A similar situation may exist in an Everett project for MIPB. If both these possibilities materialize, no Master List project would be needed. The European capacitor action plan starts on 11-14. II-3 DSW 223751 STLCOPCB4053543 II. A.3 - Capacitor Action Plan (Events Chart - U.S. TIMING___________________________________ACTIONS Jan. 1976 DECISIONS/APPROVALS 1/31 Research geared to 4QM pounds/month production Feb. 1976 H H I 2/11 Presentation completed on medical/ environmental package 2/17 Visit to G.E. to quote price for research volumes of MCS 1238 2/28 Detailed storage trials underway a 0) M fO~crOoo-li STLCOPCB4053544 TIMING March 1976 ACTIONS 3/1 Complete pricing study for both short and long term, based on replacement capital DECISIONS/APPROVALS 3/8 Visit to G.E. to quote interim and long term pricing 3/22 Potential visit to Westinghouse on transformer blend grade change to facilitate interim blending (if WGK is selected) 3/15 Decision on location for interim MIPB and TXS 3/15 Decision on site for interim blending April 1976 4/1 Present test data and protocol to federal agencies . O OtP' 4/1 Recommendation to Management on potential in-house interim manufac ture of TXS and MIPB (assumes low capital) 4/15 Complete contract signing for toll manufacture (MIPB and TXS) 4/15 Complete business/economic review for go/no-go recommendation to CAC 4/15 Issue report on various acute toxicity tests 4/1 Decision from G.E. Need favor able response 4/15 AR approval of WGK or Everett project 4/15 Decision on sites for in-house manufacture of MIPB and TXS and companion blending facility 4/22 Favorable CAC decision TIMING May 1976 ACTIONS 5/1 Final shipments of 100-42 to Westinghouse (if WGK chosen) DECIS IONS /APPROVALS June 1976 6/1 Approved PED's for TXS and MIPB to CED 6/15 Decontamination of used equipment for MCS 1238 blending complete (if WGK chosen) O CO to iWo -U41t* TIMING July 1976 ACTIONS 7/1 Results of various feeding studies 7/15 Determine need to debottleneck blending DECIS IONS/APPROVALS EM Aug. 1976 i -j 8/15 Complete AR to debottleneck blend ing to 20M lb/yr (if needed) 8/15 Establish patent licensing policy o (/) NJ NW> CJ1 cn STLCOPCB4053547 TIMING Sept. 1976 ACTIONS 9/1 Start up toll manufacture of TXS and flashed MIPB 9/1 90 day feeding test results on MIPB and TXS DECISIONS/APPROVALS 9/1 AR approval for debottlenecking of blending system (if needed) H H I 00 Oct. 1976 9/15 Release tank cars as needed from Aroclor 1016 service for decontamin ation and conversion to MCS 1238 service 10/1 Start up WGK blending 10/15 Demonstration of rate and quality at o WGK c/) :> w-UO4)l 10/15 Begin shipments from WGK STLCOPCB4053548 A C T IO N S D E C IS IO N S /A P P R O V A L S TIMING vo VO e' t*er* OV pH O P DSW 223757 H-9 STLCOPCB4053549 TIMING 1st Qtr '77 ACTIONS DECISIONS/APPROVALS 3/1 Demonstrate debottlenecked blending rate at WGK. H H 2nd Qtr '77 I H O o \ to to CO -4 <cJo1 5/77 Customer long-term commitment to 1238. 6/77 PIR approval on project for in-house manufacture of MIPB and TXS. 6/77 90-day results from chronic feeding study. STLCOPCB4053550 TIMING 3rd Qtr '77 ACTIONS DECISIONS/APPROVALS * 8/77 ARDT from CED to Roger Beal. AR grade sales forecast to Roger Beal. H H I 4th Qtr '77 H H o o? 11/77 Final draft AR complete. Nj Co CO 12/77 CED begin Project Definition Report. 12/77 AR approval for in-house 12/77 Final shipments of Aroclor manufacture of MIPB and TXS. 1016. Begin final decontamination of equipment and tank cars. STLCOPCB4053551 TIMING 1st Qtr '78 ACTIONS 3/78 Decontamination work complete. DECISIONS/APPROVALS 1/78 6-month inhalation study results. 2nd Qtr '78 H H I Hro 3rd Qtr '78 trc~Oooo*o4 4th Qtr '78 4/78 Results of 2 year chronic studies on MIPB & TXS. STLCOPCB4053552 TIMING_______ _________________________ACTIONS____________________________ 1st Qtr '79 1/79 Begin field construction of MIPB and TXS facility DECISIONS /APPROVALS 2nd Qtr '79 3rd Qtr '79 4th Qtr '79 s 12/79 Start up in-house manufacture of .MIPB and TXS 1st Qtr '80 O % Hto 3 a> 2/80 Demonstrate rate and quality STLCOPCB4053553 II. Capacitor Action Plan - Europe B.l - Tactical Approach , The European plan targets the same result as the U.S. plan -- complete withdrawal of PCBs from the market -- but differs in tactics because of the existence of major competition and a less emotional regulatory climate. The "main line" plan for Europe can be summarized as follows: 1. Create a climate for regulatory action against PCBs by making MCS 1238 visible as a viable replacement. 2. Supply European requirement for MCS 1238 (3$f pounds in 1979) from the U.S. to build market share pending local manufacture. 3. Decision by July 1976 on need to establish a licensed 2nd supplier in Europe. 4. Submit A.R. for local blending (and potentially MIPB manufacture) by January 1978. 5. Cease manufacture of PCBs in Europe by a target date of 1/1/79. 6. Supply solely from local manufacture (but using TXS ex-U.S.) by 1/1/80. A discussion of potential modifications of this course is given under "Alternatives". 11-14 os* STLCOPCB4053554 IX. Capacitor Action Plan - Europe B.2 - Alternatives 1. Products Monsanto will totally follow the U.S. technical route in Europe. 2. Market Approach We have two major competitors in Europe. Bayer produce in multi-purpose equipment and will be relatively unscathed by a withdrawal from dielectric supply. If they withdraw protection of their Diphyl (Biphenyl/Diphenyl Oxide) heat transfer fluid supply may be required. Prodelec have a much larger proportion of their total income dependent on.a dielectric future. They will seek to protect this by promotion of lower chlorinated biphenyl technology, and by typifyingMnsanto withdrawal as a U.S over reaction to political pressures which Europe should not follow. An offer to Prodelec of some form of participation in the dielectric future as a second supplier licensee could lead to a more rapid and successful achievement of our European objectives. 3. Sites/Sources Since biphenyl is made at Newport, it seems logical to consider installing dedicated facilities there for MIPB, although our lower-overhead Antwerp site also merits consideration. We should first determine justification vs. possible toll conversion. Justifi cation may include credibility as a true local source in addition to economics. TXS volume is relatively small and probably should be supplied from the U.S. Blending in existing PCB equipment at Newport is prob ably feasible, but raises the same potential contamina tion problem as at Krummrich and should be similarly resolved. One alternate blending site would be an idle Pydraul blending unit at Antwerp. 4. Timing European competitors are unlikely to abandon PCB's unless there is a governmental regulation to force the issue. European customers have done little testing of non-PCB fluids and G.E. has not released 1238 data to their licensees. For these reasons, we do not believe that Europe could be accelerated to the U.S. timetable by unilateral Monsanto action on PCB withdrawal without jeopardizing our ability to attain the preliminary sales forecast. Therefore, our timing considerations should be premised entirely on the rate of progress toward regulation by OECD. DSW 223763 11-15 STLCOPCB4053555 II. B.3 - Capacitor Action Plan - (Events Chart - Europe) TIMING Jan. '76 ACTIONS DECISIONS/APPROVALS H HI H Feb. '76 2/20 Recommendation on European approach to OECD March 15 meeting. o % 2/15 Complete Europe product evaluation to tw-o4 plan. O 2/28 Approval of European product evaluation plan. STLCOPCB4053556 DS\N 22375 TIMING Mar 176 ACTIONS 3/7 Completed action for OECD March 15 meeting. H HI H -0 Apr *76 3/15 -Complete technical training of European personnel. -Support technical documentation. -Including 3 sets of slides of environmental presentation. DECISIONS/APPROVALS TIMING May '76 ACTIONS 5/1 Evaluation program agreed with 7 key capacitor producers. DECISIONS/APPROVALS 5/12 Development forecast MCS 1238 require ments for Europe for balance 1976. II-1 8 June '76 o U) to tcoo oO>) TIMING July '76 ACTIONS 7/1 Recommendation on USSR approach and required resources (and Rumania). DECISIONS/APPROVALS Aug. '76 7/30 . Environmental data presented to European Agencies. DSW 223767 TIMING Sept *76 9/1 ACTIONS Key customers have capacitors on test. DECISIONS/APPROVALS Oct 76 TIMING Nov. *76 ACTIONS DECISIONS/APPROVALS Dec. '76 12/15 Complete evaluation of government attitudes towards PCB replacements. o s ro to co -4 0<>0 11-22 TIMING Jan. '77 ACTIONS Report completed results and confirm schedules for capacitor trials. ' DECISIONS/APPROVALS DS\N 223771 STLCOPCB4053563 11-23 IS" ft cS- . u T IM IN G __________________ I * r` A C T IO N S D E C IS IO N S /A P P R O V A L S DECISIONS/APPROVALSA C T I O N S tt-- tC-- <u DSW 223772 cd 3 11-24 STLCOPCB4053564 TIMING July <77 ACTIONS 7/1 Source evaluation complete for MIPB/TXS DECISIONS/APPROVALS H H I ro ui Aug. '77 a c/) ro io CO CO TIMING Sept. *77 ACTIONS DECISIONS/APPROVALS H H I ro 'CT\ Oct. .77 10/1 Key Customer Commitment. 0 1 10/7 Volume forecast for Ex-U.S.A sales. STLCOPCB4053566 i f DECISIONS/APPROVALS ACTIONS c c-- tt- >o o <u 3 Q 11-27 STLCOPCB4053567 TIMING 1st Qtr. *78 1/1 ACTIONS European inventory (3 mo. sales) in place. DECISIONS/APPROVALS 1/1 AR approval for European blending plant 11-28 2nd Qtr. `78 o tt0oo4 O -rrr TIMING 3rd Qtr. *78 ACTIONS Y* 7/1 Issue shutdown and decontamination plan for Newport PCB. DECISIONS/APPROVALS 8/1 Approval of shutdown and decontamination plan. H H I ro vo 4th Qtr. `78 o o) S rroo C^-^4O11 12/31 Newport UK Aroclor production ceased. DECISIONS/APPROVALS I ON 5h C^ +3 <3? -MP EH rH 11-30 G\ S U+ <3? 13 CM STLCOPCB4053570 TIMING 3rd Qtr. '79 ACTIONS DECISIONS/APPROVALS 11-31 4th Qtr. '79 10/1 Demonstrate "blending plant at rated capacity. o % IO I0-O43 <0 TIMING 1st Qtr. 8o ACTIONS 1/1 Assume exclusive supply from European blending facility. DECISIONS/APPROVALS 11-32 2nd Qtr. 80 o % H-33 STLCOPCB4053573 Ill. Transformer Action Plan A. Tactical Approach 1. The actions on the following pages are necessarily less detailed than those related to capacitors, since we are not certain that we have a viable product. We do have a candidate in a blend of MCS 1839, a highly alkylated biphenyl, with trichlorobenzene. The actions described are intended to bring us to go/no-go decisions at various steps toward commercialization; if the product survives them, it will be necessary to re-examine the plan and detail the further steps involved in justify ing dedicated facilities. 2. One step in the plan is firm -- U.S. production of the present PCB-based transformer blends will cease essen tially concurrently with PCBs for capacitors, whether a replacement has been qualified or not. B. Trichlorobenzene issue 1. The most serious obstacle to success of 1839 is that it has only exhibited the needed low-temperature viscosity when blended with trichlorobenzene (TCB). TCB has been used for the same purpose in blends with PCB for many years and also is widely used as an intermediate and a solvent. While TCB has not yet acquired any environ mental notoriety, there is a good probability that it will do so in future years -- being a chlorinated aromatic, it may well exhibit biomagnification, persis tence or other unfavorable characteristics. 2. The only U.S. source of electrical grade TCB is Hooker, who make it as a by-product of Lindane. They may not be ready to spend the effort and money needed to assess and defend its environmental acceptability. 3. We conclude that the current program should continue for the time being on the basis of blends with TCB, but before significant investment is made, a full resolution of the TCB issue is mandatory -- preferably by finding a non-chlorinated diluent. C. Europe No separate European Events Chart has been prepared. For now, the only appropriate plan is for periodic communication as to status, with more detailed plans firmed up when we conclude that we do have a viable product. Final shutdown of Newport askarel production will be determined by 8/1/77. DSW 223782 III-l STLCOPCB4053574 III. D. Transformer Action Plan (Events Chart - Worldwide) TIMING T 1st Qtr *76 2/76 ACTIONS Solicit customer information on materials compatibility 2/76 Obtain GE/Westinghouse agreement to model testing program 3/76 Identify site and rough economics of interim manufacture 3/76 Define fire test program DECISIONS/APPROVALS Ill- 2nd Qtr '76 4/76 Analyze research program for find ing a replacement for TCB as a diluent to 5/76 Conclusion on patentability 6/76 Begin 90 day feeding studies 4/76 Management decision to accept TCB or alternate diluent program or drop oto to to C--0O04 CO