**Statement of William Carlson, Chairman**

**USA Biomass Power Producers Alliance**

**Testimony before the Subcommittee on**

**Trade, Tourism and Economic Development**

**Senate Committee on Commerce, Science & Transportation**

**August 16, 2006**

Chairman Smith and Members of the Subcommittee:

The USA Biomass Power Producers Alliance (USABPPA) and its Oregon
members and partners greatly appreciate the opportunity to present
testimony on the emergence of renewable energy and the associated
economic development opportunities in Oregon, the Pacific Northwest and
the United States. The USABPPA is a trade organization, representing the
interests of approximately two-thirds of the nation's total of about 100
operating open loop biomass power facilities.

We first wish to thank the Senate and Congress for adding, first in the
2004 JOBS Bill and then again in the 2005 Energy Bill, open loop biomass
to the list of renewable technologies qualifying for the Federal Section
45 Production Tax Credit, albeit at only half the rate available to some
other technologies. This action, coupled with rising fossil prices and
similar state renewable programs, have produced a resurgence of interest
in biomass power not seen since the mid 1980's. Prior to this action,
the trend had been in the opposite direction, with over 30% of all
biomass power facilities across the United States having closed since
the 1980's, including several in Oregon.

In Oregon, activity has been especially frenzied, with nearly 15
proposals for new or reopened plants being developed, with a combined
capacity in excess of 150 megawatts. Oregon has a good combination of
programs for renewable power that includes:

1\. Establishment by the Oregon Public Utilities Commission (OPUC) of
reasonable utility fossil based avoided costs available in contracts as
long as 20 years.

2\. A State Business Energy Tax Credit (BETC) of 35% of project capital
cost, deductible over 5 years.

3\. A grant program administered by the Energy Trust of Oregon for
projects selling their output to either PacifiCorp or Portland General
Electric.

4\. A ruling by the OPUC that projects selling at the utility's avoided
cost retain their "green tags" for potential sale to others.

The above programs and rulings, coupled with the first ever availability
of the federal Section 45 Production Tax Credit, have made Oregon a
hotbed of biomass power activity.

The typical biomass power proposal in Oregon is for a 5-10 megawatt
power plant located at an existing sawmill or plywood plant. These
locations provide a source of reasonably priced mill waste (bark,
sawdust, shavings), a steam customer in the form of lumber dry kilns or
veneer dryers and an existing infrastructure to support the development.
These proposals piece the above circumstances together with various
state and federal programs to create an economically viable project.
Each piece of the puzzle is important.

Almost exclusively, these proposed projects are located in rural Oregon
communities such as Cave Junction, Lakeview, Tillamook, Roseburg and the
Warm Springs Reservation; communities that have been economically hard
hit by the dismantling of much of the forest products infrastructure in
Oregon over the last 15 years. Though the total capitalization of an
individual project may total only \$12-25 million, it would be the
largest private investment in these communities in many years, providing
much needed property taxes, jobs and hope.

The model described above is about to be truncated, however, by the
impending expiration of the federal tax credit, which requires projects
to be placed in service prior to the end of 2007. At this time, it
appears that only projects at Rough & Ready Lumber in Cave Junction,
Douglas County Lumber in Roseburg and Freres Lumber in Lyons will meet
this deadline, at least partly because each was able to find a used
turbine-generator matching its requirements. All others will likely be
placed on the shelf, awaiting extension of the federal production tax
credit by Congress as, with only 16½ months remaining in the tax credit
qualification period, a project not already contracted for cannot be
completed in time.

This is truly a shame, as biomass, among renewables, offers many
societal and environmental benefits beyond the mere displacement of
fossil fuel power generation that all renewable technologies offer. The
rural economic development potential was described above. Secondly,
biomass power delivers capacity and energy reliably and on demand, and
thus can be used to offset the purchasing utility's need for new power
generation, something several renewable technologies cannot offer.

In addition, fueling of biomass power facilities can contribute to the
elimination of air pollution from open burning, prescribed fires or
forest fires. Utilization of urban wood waste can reduce the demand for
scarce landfill space. Biomass power generation has the potential to
lower greenhouse gas emissions below the zero net carbon emissions
common to all renewable technologies, and further lower existing methane
emissions from wood decomposing in the woods or landfills, or burning in
uncontrolled prescribed or forest fires, replacing these methane
emissions with much less damaging carbon dioxide.

Oregon forests, particularly those east of the crest of the Cascades and
in Southern Oregon, need a massive thinning effort to reverse the build
up of brush and small trees that have resulted from 100 years of fire
exclusion. The existence of a network of biomass power facilities is
critical to this effort, as typically 50% or more of the thinned
material is not suitable for traditional forest products, but all is
suitable for fuel. The combination of thinning to produce small sawlogs
and biomass fuel is far more economic and environmentally preferable
than thinning with subsequent open burning of the thinned material as is
commonly done in Oregon. Scarce federal dollars can thus treat far more
acres with the result that the forest is more quickly returned to health
and rendered more fire resistant. At the same time, the forest products
industry in Oregon can be rebuilt on the basis of a steady long term
supply of small sawlogs. The "steady" and "long term" phrases are
prerequisites in any federal thinning program before large scale capital
for new mills or power plants can be obtained.

The types of biomass power projects utilizing forest thinning material
unfortunately require a stronger set of power contract pricing and
incentives than do the mill waste projects described earlier, and all
such project proposals in Oregon and elsewhere in the West are currently
stalled. These projects would benefit dramatically from an equalization
of the federal production tax credit among all renewables, and by the
funding of Section 210 of the 2005 Energy Bill, which established a
grant program to assist with the cost of transporting fuel from forest
thinning activities. Currently, open loop biomass power qualifies for
only ½ the credit of wind or geothermal power. We would request that
Congress address and remedy this inequity when it considers an extension
to the Section 45 Production Tax Credit. This was the No. 1
recommendation of the Western Governor's Association Biomass Task Force.

A second strong reason to create a level playing field among renewables
with regards to the tax credit is that many states, including some
Pacific Northwest states, fill needs for renewable capacity via
auctions. This method of adding new renewable capacity has been judged
by the Federal Energy Regulatory Commission (FERC) as an acceptable
means of implementing PURPA. For biomass power, it means that their bids
are typically not accepted by utilities as they are underbid by wind and
geothermal producers who qualify for the full federal credit. In some
states, as much as 95% of all new capacity is in wind and geothermal.
Again, we ask that this inequity be eliminated when the federal
production tax credit is renewed.

In summary, biomass power has seen a resurgence in Oregon, and elsewhere
in the United States, due to a combination of a newly expanded federal
tax credit, strong Oregon state programs and wise rulings by the OPUC. A
few mill waste based projects are proceeding prior to the 12/31/07
expiration of the tax credit, but many more are being shelved, awaiting
an extension of the credit by Congress. Projects based on forest
thinning residuals require at least that the tax credit be brought up to
the level of equity with wind and geothermal projects.

Utilized to its full beneficial extent in Oregon, biomass power
facilities could approach 1000 mw of capacity, and in the process,
strengthen and expand rural economies including rural forest products
industries, lower criteria air emissions, make a large contribution to
lowering greenhouse gas emissions in the State, displace imported fossil
fuel and increase energy security, and help restore Oregon's incredible
forests to health and fire resistance. Delivery of these benefits on a
large scale awaits the extension by Congress of the Section 45
Production Tax Credit and the equalization of the credit among renewable
technologies.

The USA Biomass Power Producers Alliance and its Oregon members and
partners appreciate the opportunity to testify at this hearing.