Statement of United Corrstack, Incorporated

Introduction

On behalf of United Corrstack, Incorporated (“UCI”), I am pleased to provide this statement in connection with hearings on energy tax policy conducted by the Select Revenue Measures Subcommittee on April 19 and 24, 2007.  I wish to comment on two objectives I believe are important for Congress to consider as it continues work on tax credits and other incentives for the development of alternative energy technologies.    Those two objectives are, first, to ensure that tax credits will be available for a sustained period of time and, second, to ensure that a standard tax credit rate is available to as broad a spectrum of alternative energy technologies as possible.

Several bills dealing with tax credits for alternative energy technologies have been introduced.  H.R. 197, introduced by Rep. Earl Pomeroy, would extend the production tax credit for electricity produced by renewables for another five years.  While this would be helpful, I recommend careful attention to two other bills, H.R. 1924, introduced by Reps. Kendrick Meek and Wally Herger, and H.R. 2001, introduced by Reps. Jay Inslee and Lee Terry.  These would be particularly beneficial to my company, which is developing a biomass-fired cogeneration plant adjacent to our paper mill.  However, I recognize that other technologies also deserve support and encourage the Committee to take a broad and equitable approach to encourage alternative energy technologies as it confronts the challenges of climate change, energy efficiency, the security of energy independence, and economic growth.

Background on United Corrstack, LLC

Before discussing the effect of the production and investment tax credit issues on our company, I first would like to describe our operations.  United Corrstack (“UCI”), located in Reading, Pa., has been in business since 1993 and is a subsidiary of Interstate Resources, Inc.  (“IRI”), a privately-held corporation based in Arlington, Va. that owns and operated several paper mill and package-making facilities throughout the eastern United States.  UCI is a paper mill that produces recycled corrugating medium in a range of weights between 23 and 33 lbs.  Our paper product is sold on a wholesale basis to many package-making facilities primarily within a 150-mile radius of Reading, Pa.  Our annual sales are approximately $50 million.  We have 75 direct employees and our activities result in indirect fulltime employment of more than 30 other workers.  Our direct employees work in a union shop, with union-scale wages and benefits.   UCI prides itself on producing the highest quality paper, providing superior customer service and maintaining a strong and positive presence in the Reading area.

Corrstack’s Energy Challenge

Since we began operating, we have been 100 percent dependent on fossil energy purchased from local utilities.  We purchase 9 MW per day of electricity from our local electric utility.  In addition, we purchase approximately 5mm gallons No. 2 fuel oil or equivalent natural gas per year to heat the boilers that produce steam for our paper processing machines.

In the first (8) years of our plant’s operation, the cost of electricity, oil and natural gas was reasonable enough that our operations were sufficiently profitable.  However, during the past five years, our energy costs have nearly doubled.  Last year alone, we paid more than $11 million for energy.  Since our product is priced as a commodity traded on an open exchange, we cannot pass these higher energy costs onto our customers.  These higher costs have cut into our margin, thereby challenging our plant’s profitability.

We do not blame our local utilities for these higher costs since they are forced to pass on their own escalating wholesale costs to retail customers like us.  Still, we found ourselves having to take action in order to maintain the employment and economic viability of our facility.

Concurrently with rising utility costs burdening our facility, our region has had to deal with another problem, how to dispose of ever-increasing volumes of waste that for years has been transported to landfills both local and in other states.  With these landfills now operating at near capacity, United Corrstack viewed these dual problems of higher energy costs and near-capacity landfills as a problem that could be turned into an exciting opportunity.

Creating a New Path Forward

We plan to break ground soon on a 30 MW biomass-fueled cogeneration plant that will allow us to generate our own steam and electric power for use in our paper mill in Reading, with excess power being sold to the local utility replacing additional fossil fuel generated electricity.  The plant is expected to come on line in the third quarter of 2008.  We expect that the successful operation of this plant will save our company approximately $3-4 million per year in natural gas and electricity costs.

The proposed plant is the first of its kind in the northeast and is an innovative approach to clean energy.  The facility will use a circulating fluidized bed (CFB) boiler for fuel flexibility, low emissions and high efficiency in a cogeneration process for maximum thermal efficiency.  It will burn about 800 tons per day of biomass fuel from waste sources, including pallets, railroad ties, paper sludge, residual wood and various construction and demolition residue.  In addition, about three per cent of the waste to be used as fuel will be burlap and other wastes from the local Hershey Chocolate facility.  Our goal is to reduce the consumption of purchased natural gas and No. 2 fuel oil by at least 85 per cent.

The steam energy produced will be sufficient not only to serve our existing paper mill, but a new mill that we expect to construct within a few years.  We also will have sufficient residual electrical power to sell to our local utility.  We are bearing the infrastructure expense of constructing a new substation, interconnect equipment, and new transmission lines to accommodate that exchange of electricity.

The production of power and steam in this new facility will be subject to strict environmental guidelines administered by the Pennsylvania Department of Environmental Protection.  We expect the DEP to issue our permit in early June.  Groundbreaking will take place shortly thereafter.  The facility is expected to come on line in mid 2008. It will maintain 75 jobs and create up to 150 new jobs in the Reading area. 

The Value of the Production Tax Credit

Under current law that expires at the end of 2008, we qualify for a modest production tax credit that would result in about $1.2 million per year.  The rate under which we qualify is half the rate available to other renewable and energy efficiency technologies such as wind and geothermal.  Also, current law only applies to half of the types of biomass, such as residual wood and pallets. 

The legislation proposed by Reps. Meek and Herger would help us by equalizing the production tax rate for open-loop biomass to the level that applies to wind and geothermal.  However, even though the Meek-Harger bill would give us the full rate equivalency, it still would only apply to half the fuel we use since the definition of biomass under the current tax code is limited. 

The legislation proposed by Reps. Inslee and Terry takes a different approach.  It would create a new classification under the tax code for combined heat and power sources and make it eligible for a 10 per cent investment tax credit.  The Inslee-Terry bill may benefit us more since the 10 per cent investment tax credit would apply to our entire production process.  We understand that if both bills are enacted, we would have to choose which one is better for our facility.  We would make that decision at the appropriate time.  However, the Committee may wish to consider making both the investment and production tax credit provisions, or at least some elements of both provisions, available so that other worthy biomass-fired cogeneration plants can become more attractive to investors. 

We believe the cogeneration process we will use at our site merits equal treatment with these other sources.  Beyond the help that either bill would provide us, however, there is another reason to encourage more of these facilities nationwide.

The use of biomass fuel in a clean-burning, advanced technology combined heat and power (CHP) system such as the one we are developing at United Corrstack should be encouraged in any change to the tax code contemplated by Congress.  The thermal efficiency rating of CHP systems exceeds 60 per cent while the thermal efficiency rating of conventional coal-fired utility plants rarely exceeds 30 per cent.  This is because a CHP system utilizes excess steam for industrial process rather than let it escape into the atmosphere as is the case with conventional coal-fired plants. 

In addition, biomass has certain benefits that fossil fuels do not.  Biomass is as dependable and plentiful a resource as the sun, wind and water.  Biomass is carbon neutral because it creates its carbon by absorbing CO2 and, unlike typical fossil fuels, it contains very little sulfur and metals.  If there is any drawback to biomass, however, it lies in how the biomass fuel is brought to the power plant.  While there is a substantial interstate transmission pipeline system to ship natural gas and oil, there is no comparable long-distance shipping capability for biomass.  We are negotiating with trucking companies that can bring us the biomass fuel we need for the next two to three years.  Beyond that, however, we cannot be certain.  Therefore, an increase in the production tax credit would provide protection for our capital investment by giving us a financial cushion to offset escalating transportation costs.   

Conclusion

Our plant is unique in the northeast, not only because we are using biomass from local sources that otherwise would go to landfills, but because we are complying with the strictest environmental protection standards.  We believe our facility will be a prototype that can be used elsewhere in the country.   I want to emphasize that we have made the decision to proceed with construction of our biomass cogeneration facility regardless of whether the current tax credit provisions remain unchanged.  Nevertheless, because of fuel supply and other risks we are taking, we strongly believe Congress should act to provide longer term stability in the provision of tax credits for renewable, combined heat and power and other alternative energy resources.  This not only would be good for United Corrstack, it would help the growth of alternative energy resources elsewhere. 

Thank you for the opportunity to provide these comments.