Special Subcommittees of the House and Senate Committees on Commerce and Labor Studying the Use of Forest Products as a Renewable Energy Resource

September 23, 2009

Commerce and Labor Studying the Use of Forest Products as a Renewable Energy Resource was held in The initial joint meeting of the Special Subcommittees of the House and Senate Committees on Richmond. The Special Subcommittees appointed Senator A. Donald McEachin and Delegate Benjamin L. Cline as co-chairmen.

Senate Bill 913

Staff Report
Staff outlined the contents of Senate Bill 913 within the context of the Virginia Electric Utility Restructuring Act. Senate Bill 913 strikes language imposing a 1.5 million ton cap on the use of specific forest products including wood chips, sawdust, and bark by investor-owned utilities towards meeting renewable energy generation incentive goals.

The adoption of Senate Bill 1416 and House Bill 3068 of the 2007 Session created the Virginia Electric Utility Regulation Act and established the voluntary renewable portfolio standard (RPS), which provided an incentive for any investor-owned electric utility that has a reasonable expectation of achieving stated percentages of its generation derived from renewable energy sources including sunlight, wind, falling water, and biomass as well as waste, municipal solid waste, wave motion, tides, and geothermal power.

RPS goals are set at 4% of base year sales for 2010 through 2015, 7% of base year sales for 2016 through 2021, 12% of base year sales for 2022 through 2024, and 15% of base year sales for 2025.

Currently, only Dominion and American Electric Power Company (AEP) are eligible to participate in the RPS program. Each eligible utility may submit a plan showing that it has a reasonable expectation of meeting the RPS percentage goals to receive the 0.5% Performance Incentive.

The current language of § 56-585.2 F of the Code of Virginia limits investor-owned utilities participating in an RPS program to the use of no more than 1.5 million tons of forest products, such as wood chips, bark, sawdust, and trees each year, more than was used at wood-fueled generating facilities prior to 2007, towards meeting the section's RPS goals. The 1.5 million ton cap is an industrywide total and will be allocated among utilities participating in the RPS program, based on the proportion of each utility’s share of total electric energy sold in the base year.

Proponents of Senate Bill 913
Senator Richard H. Stuart, patron of Senate Bill 913, presented members with a detailed description of Senate Bill 913 and explained the impact of striking the 1.5 million ton cap from the RPS program. Senator Stuart asserted that Senate Bill 913 will encourage and allow Virginia’s private forest owners to maintain their forests, assist small businesses engaged in wood product manufacturing by expanding the available market for mill residue, and remove unfair limitations placed on creating carbon-neutral, renewable electric energy. Senator Stuart provided facts related to available timber resources, at least 3,300,000 tons according to the Eighth Forest Survey, and a recent decrease in the number of active sawmills in Virginia, 155 in 2007 showing a net loss of 49 mills since 2003.

Senator Stuart challenged the reliability of assumptions used to determine the need for a cap and the tonnage amount of the cap. These assumptions included (i) the amount of unavailable hardwood that could not be harvested, (ii) the conversion factor between cubic feet and pounds, (iii) a fixed amount of forest resources, and (iv) the predicted rise in the cost of wood products for paper production. He also contended that the current legislation restricts the market of the most abundant and readily available renewable resource in Virginia.

The purpose of Senate Bill 913 is to promote fair competition between forest products consumers, end the protection of the paper manufacturing community at the expense of wood fiber providers, and promote a fair market by removing artificial restraints on the use of wood products. The presentation concluded with a list of supporters of Senate Bill 913, which included the Virginia Forest Products Association, the Virginia Loggers Association, the Virginia Farm Bureau Federation, and the Virginia Alternative and Renewable Energy Association.

Next followed the testimony of 10 individuals representing businesses and associations related to the production and supply of forest products. Bill Garden of Potomac Supply, a 300-employee sawmill and lumber producer, explained the effects of the recession on sawmills generally and the need for expanded markets. Currently, Potomac Supply ships chips out of state because the demand and the market price for them in Virginia are so low. Mr. Garden stated that one million tons of green sawdust would generate only 80 megawatts of power. Mr. Garden termed the current legislation as a “blunt instrument” and stated that the State Corporation Commission (SCC) would be a better determiner of any dispute about the appropriate amount of biomass to be used toward meeting RPS goals.

Clark Diehl of Arbortech, Dickie Dost of Chips, Inc, Nelson Flippo of Flippo Lumber, Kenny Gibson of Gibson Logging, Bob Norman, an independent forester, Andrew Smith of the Farm Bureau, Jim Mooney of the Virginia Loggers Association, and August Wallmeyer of International Biofuels gave similar testimony. Each proponent of Senate Bill 913 expounded briefly on the state of the economy and a need for expanded forest product markets. Several spoke to the importance of long-term management of forest land and resources that must be preserved, and many pointed to the SCC as the proper arbiter of any forest products use dispute. Randy Bush of the Virginia Forest Products Association provided a handout to the members that explained the basics of Senate Bill 913 and the 1.5 million ton cap and detailed the benefits of Senate Bill 913 for small businesses involved in forest products production, the benefits to Virginia’s 350,000 plus forest landowners, the promotion of sustainable forest resources, and the benefits to the Commonwealth’s renewable energy goals.

Opponents of Senate Bill 913
W. Scott Johnson and Bill Scarboro of the International Paper Company spoke against SB 913. Mr. Scarboro gave a presentation exploring the sustainability of Virginia’s forests. Mr. Scarboro explained that the 1.5 million ton cap was calculated by adding the tons per year of excess merchantable softwood (1,487,923 tons/year) and excess merchantable hardwood (1,356,567 tons/year) produced in Virginia and adjusting for the amount used by announced utility wood boilers (1,300,000 tons/year). He presented information calculating the potential biomass use of utilities participating in RPS with the 1.5 million ton cap in place and found that the utilities would generate zero megawatts under Phase I of the plan, 31.7 megawatts under Phase II, 57.6 megawatts under Phase III, and 216 megawatts under Phase IV. Mr. Scarboro pointed out that in 2009, Dominion reported to the SCC that it used 650,000 tons of wood chips and wood derivative products per year. He stated that the cap was not limiting the amount of wood products utilities could purchase and that the cap was not hindering the use of wood products by utilities.
Mr. Scarboro’s presentation also illustrated that even with the cap in place, RPS would have a negative impact on the sustainability of Virginia’s forest, with an annual loss of 56.8 million cubic feet and 1.8 million tons of forest area per year. Explaining that local or regional forest products are harvested and used in producing paper, Mr. Scarboro illustrated that forests of the Tidewater Region would experience a net loss of 25,957,067 cubic feet and 908,497 tons as the competing consumer used the resource.

Mr. Scarboro concluded with remarks that the growth and demand of Virginia’s forests are closely balanced and that the current RPS plan allows utilities to gain an extra profit for all renewable energy resources in use before January 1, 2007, and an additional profit on the use of up to 1.5 million tons of biomass without limiting the total amount of biomass that the utilities can use.

Use of Forest Products to Generate Electricity

Lisa C. Moerner, Dir. of Environmental Policy, Dominion Resources
Ms. Moerner gave an overview of Dominion’s current and projected biomass energy needs as part of its overall renewable assets portfolio. Dominion currently has two biomass facilities - one 83 megawatt facility in Pittsylvania County and one six megawatt facility in Altavista. The planned Virginia City Hybrid Energy Center will burn a mixture of coal and wood, generating up to 117 megawatts of electricity from biomass fuel. Ms. Moerner expressed Dominion’s commitment to meet the federal RPS goal of 25% by 2025 under the Waxman-Markey bill, the Virginia RPS goal of 15% by 2025, and the North Carolina RPS goal of 12.5% by 2021. Dominion views the low cost of biomass as a hedge against rising fuel costs and recognizes the need to develop a market for the most attractive and economic biomass fuels.

Ms. Moerner’s report detailed the use of wood chips at the 83 megawatt Pittsylvania power station, the largest biomass station in the eastern United States. Seventy percent of the fuel used by the Pittsylvania power station originates within a 90-mile delivery radius of the station. The six megawatt Altavista power station is fueled by sawdust purchased from local furniture companies.

When evaluating a proposed site for a biomass power station, Dominion reviews the regional “wood basket” and any competing interests. Several of the typical biomass fuels used by Dominion are not limited by the Virginia RPS cap and include slash and logging residues, pre-commercial thinnings, and opportunity fuels such as pallets. Fuels used by Dominion that are affected by the RPS cap include green wood chips, sawdust, and mill residues.

Ron Jefferson, External Affairs Mgr., Appalachian Power Company
Mr. Jefferson reported to members that AEP currently has a 2,000 megawatt capacity, uses no biomass at present, and has no plans to use biomass in the near future.

Impact of Renewable Biomass Energy Generation

The Honorable Robert S. Bloxom, Secretary of Agriculture and Forestry
Secretary Bloxom presented the members with information in advance of a report on the impact of biomass energy generation on the manufacturers, harvesters, and landowners involved in the forest products industry. Secretary Bloxom outlined some of the empirical problems in measuring the impact, which include the varying definitions of biomass and the amount of available forest biomass under the Energy Independence and Security Act of 2007 (EISA) and the more inclusive 2008 Farm Bill.

The 2007 EISA limits the amount of forest biomass from naturally regenerated forest land, and relies primarily on forest biomass from planted stands to meet the fuel standard and qualify for renewable fuel credits. Under EISA, the source of tree biomass delivered to an energy facility would be tracked by a required chain-of-custody system identifying the type of landowner and verifying trees from plantations or natural stands. In addition, federal lands are excluded from such opportunities. In contrast, the 2008 Farm Bill definition of forest biomass does not restrict natural or plantation forest land leaving the available biomass open to most private forest land. Secretary Bloxom presented maps comparing the amount of biomass in the United States and Virginia according to both EISA and the Farm Bill. The full report is expected to be delivered to members in December 2009.

Other Business

Co-chairman Cline requested staff to track any related developments in the federal Waxman-Markey bill.

Next Meeting

The Special Subcommittees intend to hold a joint meeting in December following the publication of the Department of Forestry report. The meeting date will be posted on the General Assembly calendar as soon as information is available.

Co-Chairmen:
The Hon. A. Donald McEachin
The Hon. Benjamin L. Cline

For information, contact:
Frank Munyan, Anne Louise Mason, DLS Staff