[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]








   SMALL BUSINESS INNOVATORS: ON THE CUTTING EDGE OF ENERGY SOLUTIONS

=======================================================================

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             APRIL 26, 2012

                               __________



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



            Small Business Committee Document Number 112-066
              Available via the GPO Website: www.fdsys.gov

                                _____

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76-472                    WASHINGTON : 2012
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Scott Tipton................................................     1
Hon. Mark Critz..................................................     2

                               WITNESSES

Ralph Tommaso, CEO, Head of Business Development. Greenworks 
  Holdings, Bethlehem, PA........................................     4
Jerry Taylor, President & CEO, MFA Oil Company, Columbia, MO.....     6
Michael McAdams, President, Advanced Biofuels Association, 
  Washington, DC.................................................     8
Matthew Hughes, Director of Business Development--ETC) 
  Environmental Tank & Container), JWF Industries, Johnstown, PA.    10

                                APPENDIX

Prepared Statements:
    Ralph Tommaso, CEO, Head of Business Development. Greenworks 
      Holdings, Bethlehem, PA....................................    25
    Jerry Taylor, President & CEO, MFA Oil Company, Columbia, MO.    30
    Michael McAdams, President, Advanced Biofuels Association, 
      Washington, DC.............................................    36
    Matthew Hughes, Director of Business Development--ETC) 
      Environmental Tank & Container), JWF Industries, Johnstown, 
      PA.........................................................    38
Questions for the Record:
    None
Answers for the Record:
    None
Additional Materials for the Record:
    BioDiesel Written Testimony of Anne Steckel..................    41

 
   SMALL BUSINESS INNOVATORS: ON THE CUTTING EDGE OF ENERGY SOLUTIONS

                              ----------                              


                        THURSDAY, APRIL 26, 2012

                  House of Representatives,
     Subcommittee on Agriculture, Energy and Trade,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10 a.m., in room 
2360, Rayburn House Office Building. Hon. Scott Tipton 
(chairman of the subcommittee) presiding.
    Present: Representatives Tipton, Bartlett, King, Critz.
    Chairman Tipton. The hearing will now come to order. And I 
would like to thank each of our witnesses for being with us 
here today to take time from their busy schedules. And we do 
look forward to your testimony.
    Today we are going to examine innovative ways that small 
businesses contribute to energy production. Specifically, we 
are going to look at advanced biofuels such as cellulosic 
ethanol and new innovative technology companies that have 
developed to produce energy from previously used materials. We 
are also going to look at the role of research and development 
in spurring innovative technology.
    Today's topic is one of significant importance for our 
nation. As we all know, energy is critical to our economy. 
Economic prosperity in the United States is closely tied to the 
availability of reliable, affordable energy supplies. This is 
not a new issue. The way we discuss it, however, has changed. 
In recent years we have seen energy prices skyrocket. You only 
need to look at the sign at your local service station when you 
fill your gas tank or read the bottom-line on your home heating 
and fuel bills to see how much more we are paying for energy 
now compared to just 10 years ago. This puts tremendous strain 
on American families and small businesses. In order for us to 
take steps forward, we must reduce our dependence on foreign 
sources of energy and develop new homegrown energy solutions 
right here in our home communities.
    That is why this hearing on innovative energy solutions is 
so important. I do not believe that the search for new energy 
sources should be a zero sum game when we foster one industry 
to the detriment of another. Our economy is driven by energy 
and we must take a balanced approach to exploring ways to meet 
our energy needs. That means looking for ways to increase 
production of everything we need, including oil, natural gas, 
and coal, in addition to renewable energy like advanced 
biofuels, wind, and solar energy.
    As has been shown in almost all industries in the United 
States, small businesses can be the catalyst that drives 
innovation to new and better technology. New technologies 
harness energy that we did not have the capabilities to be able 
to utilize before. There are many exciting developments in the 
biofuel wind, solar, and hydroelectric industries.
    Colorado is a national wind energy leader and has lots of 
small businesses who are finding innovative ways to be able to 
be successful. One of these Colorado small businesses employs 
24 people and is leading the way in direct, dried generator 
technology for wind turbines, which I understand will be more 
reliable, more efficient, lower rate, and lower cost than 
competing technologies and will reduce the cost of energy. 
Having said that, businesses in the wind industry are not 
immune from the same challenges faced by other businesses, and 
one of the biggest complaints that I continue to hear from wind 
energy developers is the need for certainty from the federal 
government. Vestas, which is a major employer in my district, 
has warned that it could lay off as many as 1,600 Colorado 
workers and wind project developers have essentially put their 
plans on hold until the federal government acts.
    Wind is critical to the ``all of the above'' energy 
approach. And I believe Congress must provide certainty 
necessary so that this industry can continue to have economic 
growth and protect American jobs. I will continue to support 
these jobs and push for this timely solution. The advancement 
of new technologies moves us towards an ``all of the above'' 
energy policy and greater energy independence that grows our 
economy and is able to create American jobs.
    Just last week I introduced H.R. 4381, Planning for 
American Energy Act of 2012. This legislation represents a true 
``all of the above'' energy plan that embraces all of America's 
vast energy resources. The bill strengthens our energy security 
by requiring the Secretary of the Interior to be able to 
develop a strategic plan every four years on how to responsibly 
develop our federal onshore energy resources, including oil, 
natural gas, coal, wind, solar, hydropower, geothermal, oil, 
shale, biomass, and other minerals so that we can meet the 
needs of the United States' energy needs. We live in a country 
with tremendous natural resources, and firmly believe that we 
can responsibly develop alternative sources of fuel along with 
our more traditional sources, and I believe that this 
legislation will help foster that development.
    Again, I would like to thank each of you for taking the 
time to be able to be with us here today. I look forward to 
hearing your testimony and I now yield to Ranking Member Critz 
for his opening statement.
    Mr. Critz. Thank you, Mr. Chairman. And thank you, 
gentlemen, for being here.
    In the last year, energy prices have been predictably 
unpredictable. Since October, oil prices skyrocketed from $80 
per barrel to $110 resulting in higher costs at the pump. With 
a gallon of gas near $4, alternative energy sources have again 
become critical and in many regards it is small businesses that 
are leading the way. Whether it is developing renewable 
biofuels or creating innovative technologies, entrepreneurs are 
essential to our nation's energy future.
    Across the country, small businesses are working to develop 
new energy sources and rethink existing fossil fuels. As a 
result, these firms have become agents of change in the energy 
sector, generating new ideas and the jobs that come with them. 
Perhaps another area our small firms are as critical as they 
are is in the biodiesel sector. An overwhelming number of its 
production facilities are true small businesses, as 
approximately 90 percent meet the definition of a small 
producer.
    Since 2005, the 3.4 billion gallons of biodiesel produced 
in the U.S. have displaced an equivalent amount of imported 
diesel fuel. Not only does this reduce our dependence on 
foreign energy sources and decrease greenhouse gas emissions, 
but it also supports nearly 40,000 jobs.
    Another area where small firms are playing a key role is in 
the development of innovative technologies related to 
traditional energy sources. This is clearly evident with regard 
to natural gas exploration. Shale gas, in particular, has 
created new jobs for local drilling service companies and 
regional heavy equipment companies. As they grow, so do the 
local economies they are located in, creating demand for 
restaurants, hotels, and other service companies.
    Today, I am looking forward to hearing how we can support 
these businesses. To ensure that progress continues on all of 
these fronts, we have to make certain that policies are in 
place to support small firms and their research, whether they 
are family farms harvesting the raw materials for biodiesel or 
their manufacturing partners. It also means continued 
investment in research that will ensure traditional fossil 
fuels can be used in an environmentally efficient and friendly 
manner. Determining the proper mix of these policies is often 
challenging, and that is why today's hearing is so timely.
    I am also looking forward to understanding what barriers 
these innovative companies are facing, as well as determining 
if government should play a role or simply get out of the way. 
In some energy sectors government action has been useful, while 
in others it may have been less so.
    In this regard, small business challenges are our 
challenges, and ensuring that they continue to play a pivotal 
role in the energy industry is vital. The reality is that the 
more domestic options we have for energy, the better for 
everyone. With all of these alternatives on the table, the U.S. 
is better positioned to reduce its dependence on foreign oil 
over the long term.
    Today it could be biodiesel and ethanol, natural gas, and 
soon clean coal. No one has a crystal ball and our energy needs 
will surely grow, so it is essential that we diversify our 
energy supply as much as possible.
    Entrepreneurs remain at the forefront of these changes, not 
only as consumers but as researchers, developers, and 
innovators. This role is natural for them, and I look forward 
to hearing about the inroads they are making in this critical 
area during today's hearing.
    Again, I thank you for being here. Thank you, Mr. Chairman. 
I yield back.
    Chairman Tipton. Well, thank you. And I would like to take 
a moment to be able to explain our timing lights for you. You 
will each receive five minutes to be able to deliver your 
testimony and the light will start out as green. When you have 
one minute remaining the light will turn yellow, and finally it 
will turn red at the end of your five minutes and you will be 
escorted out if you exceed that. I am kidding. We will 
certainly let you wrap up your testimony.

  STATEMENTS OF RALPH TOMMASO, CEO, GREENWORKS HOLDINGS, LLC; 
   JERRY TAYLOR, PRESIDENT AND CEO, MFA OIL COMPANY; MICHAEL 
McADAMS, PRESIDENT, ADVANCED BIOFUELS ASSOCIATION; MATT HUGHES, 
     BUSINESS DIRECTOR DEVELOPMENT, ENVIRONMENTAL TANK AND 
                   CONTAINER, JWF INDUSTRIES

    Chairman Tipton. So I would like to start out introducing 
Mr. Ralph Tommaso. He is our first witness. He is CEO of 
Greenworks Holdings, LLC, in Windgap, Pennsylvania. After 
graduating from the New York University, Ralph began his career 
in the Chicago Mercantile Exchange and later as a restaurateur. 
When he saw what was to become of the waste that was generated 
at the restaurant, he researched and developed a better way to 
be able to utilize that waste and created Environmental Energy 
Recycling Corporation. EERC, a member company of Greenworks 
Holdings, LLC, gathers biological waste, fat, oils, and greases 
from the food industry and transforms it into clean burning 
biofuels to promote a healthier environment and to be able to 
promote America's energy independence. Last year, EERC combined 
with a similar company in Lehigh Valley, Smarter Fuels, and 
created Greenworks, LLC. Thank you for being here, Mr. Tommaso, 
and if you would like to give your testimony.

                   STATEMENT OF RALPH TOMMASO

    Mr. Tommaso. Thank you. Good morning, Chairman Tipton, 
Ranking Member Critz, and other distinguished members of the 
Committee. Thank you for the privilege to address you guys 
today.
    My name is Ralph Tommaso and I am the CEO and co-founder of 
Greenworks Holdings. My partner, Dave Dunham and I are very 
proud of what we have built. A little over a year ago we had 30 
employees primarily in Pennsylvania, and today we have 153 
employees in the Northeast and the Southeast. When Dave and I 
each began our companies in 2005, we set out to change the way 
fat, oils, and grease wastes were used in this country. We 
envisioned waste being diverted from the animal feed industry 
and into clean burning energy to fuel America's economy.
    In 2004, I read a study produced by the University of 
Georgia which proved that cooking oils and animal fats were 
superior fuels to Number 4 and Number 6 oils when used in 
industrial heating applications. Moreover, the emissions were 
low with waste greases when compared to Number 2 fuel oil, 
especially with regards to sulfur and CO2 emissions. 
The study results motivated us to continue to refine our 
process, and by 2006 we were selling our recycled vegetable oil 
and biofuel based to two New York City skyscrapers. Our biofuel 
products are approved by the U.S. Environmental Protection 
Agency under their renewable fuel standard.
    Our growth is dependent on feed stocks that we procure. The 
thought that the United States consumes over 18.5 million 
barrels of oil per day is daunting to an industry as new as 
ours. In 2010, we found an uncommon source. Millions of gallons 
of degraded fats and oils in solid form, or what we like to 
call the biofuel equivalent of the Canadian tar sands. Catfish 
Processing Facilities design and build football field-size 
retention ponds to collect and process their wastewater. This 
water generated when the plant is washed and sanitized daily 
catches all the small pieces of fats and solids that are left 
over in the filleting process. Over a period of years, this fat 
accumulates on the surface of the ponds.
    Upon a long, competitive battle with other biofuel and 
rendering companies we were awarded 100 percent of the bids for 
this accumulated fat or a total of 10 ponds with up to 60 
million gallons of regenerating feed stock, kind of a gift that 
keeps on giving. And that was the easy part. And now we came to 
the intensive process of extracting the fats and oils and 
turning them into one of our usable finished fuels.
    What we did next reminds me of one of those final tables at 
the World Poker Tour where the guy goes all-in with a pair of 
sixes. Not only did we need to put together the logistics and 
the colossal excavating equipment necessary to harvest the 
ponds, but we built two plants, one in Alabama and one in 
Mississippi to process all that material locally. Each plant 
was designed to process 20 million gallons per year from 
material that was the consistency of dirt. Using heat, 
pressure, and mechanical separation--these were technologies 
that we adapted from our other plants, as well as some tricks 
that we learned from the petroleum--we were able to produce a 
biofuel that has superior performance characteristics to 
current industrial heating oils. Leveraging our plants and 
employees, we also recently began collecting used cooking oil 
from the area restaurants as well, signing up 250 new accounts 
in our first month and paying them for a waste product that 
they used to pay somebody to take away.
    By teaming up with the catfish industry, our efforts have 
revitalized two southern towns with double-digit unemployment. 
Greenworks has provided over $4 million to the construction 
trade during the last six months and hundreds of jobs have been 
saved in the catfish industry through our harvesting of the 
oil. We have brought hope to a depressed area that was starving 
for work and thirsty to get behind an industry that sustains 
itself over the long term.
    We deal with ever-changing regulations around our product 
and its applications which cause us concern not only for the 
success of our company but for the people that believe in us. 
In an effort to participate in the regulatory and legislative 
process, we have members of the Advanced Biofuel Association 
led by Mike McAdams to my right, and are represented directly 
by Connie Lawson. The RFS2 program was written with just 
transportation and home heating oil in mind. We recommend that 
it be expanded so that such biofuels like ours may be used in 
manufacturing and large-scale heating as well. Manufacturing 
industries use petroleum products and many facilities need to 
reduce their emissions given new EPA regulations. Biofuels 
represent a potentially cost effective way for the 
manufacturing industry to reduce harmful emissions, thus saving 
manufacturing jobs while simultaneously creating and preserving 
jobs in the biofuel industry.
    I thank you for this opportunity to share our ideas and 
innovative efforts at Greenworks Holdings.
    Chairman Tipton. Thank you, Mr. Tommaso.
    Next up is Jerry Taylor, president and CEO of MFA Oil 
Company and co-founder of MFA Oil Biomass, which is 
headquartered in Columbia, Missouri. The goal of MFA Oil 
Biomass is to create a vertically integrated renewable energy 
supply chain by combining MFA Oil's knowledge of the energy 
industry in markets with farming knowledge with its cooperative 
members. A native of Omaha, Nebraska, Jerry received a bachelor 
of science in marketing from the University of Missouri in 
1969. After serving with the U.S. Army, he spent six years in 
the banking and brokerage business. He then returned to 
Missouri as the owner/manager of a chain of convenience stores. 
Jerry joined MFA Oil in 1982 and served in several capacities 
before being named president in 2003.
    Welcome to the Subcommittee, Mr. Taylor. And I look forward 
to your testimony.

                   STATEMENT OF JERRY TAYLOR

    Mr. Taylor. Thank you, Chairman Tipton and Ranking Member 
Critz and the members of the Subcommittee. Thank you for the 
invitation to testify today.
    I am Jerry Taylor, president and CEO of MFA Oil Company, a 
farmer-owned energy cooperative in Missouri with 40,000 
members. MFA Oil supplies fuels, lubricants, and propane to 
customers in seven Midwestern states.
    Our cooperative has a long history in leading renewable 
fuels innovation. Starting in the 1960s, MFA Oil produced 
gasohol. Most recently in the early 2000s, we ventured into the 
biodiesel production, and in 2008, we began writing the next 
chapter of our renewable energy story, Biomass.
    In 2011, we took a major step forward and partnered with 
Aloterra Energy to form MFA Oil Biomass, a separate small 
business with the mission of leading the cooperative into this 
new, renewable energy field. Critical to this, as with anything 
we do, was to gain farmer trust and support. To ease their 
concerns and gain commitment, we realized that we needed to 
become experts in each area of our own supply chain. We are 
utilizing our existing knowledge in farming, energy, and 
commodities to form a vertically integrated renewable energy 
supply chain. The vertically integrated system provides farmers 
an energy crop source, unique harvesting and planting equipment 
for the crop's rhizomes, special harvesting services for the 
mature crop, processing technology and marketing services to 
get the best return for the farmers and the cooperative.
    A key to success in any business is flexibility to respond 
to changing markets, so for us a versatile feed stock was 
critical. Miscanthus giganteus meets that need, not just as a 
viable feed stock but one with incredible potential. Miscanthus 
is a perennial grass that is noninvasive, drought and pest 
resistant, and needs less fertilizer than food crops. This 
translates into less runoff into the water system. The target 
farm is margin or underproductive land that is not used for row 
crop production.
    At 10 to 15 tons per acre, Miscanthus more than doubles its 
nearest competitor in tonnage. Each ton contains about a 
million and a half BTUs, which means at full maturity each 
project area can produce enough energy to power 65,000 homes or 
1.6 million barrels of renewable liquid fuels each year. One 
hundred seventy five farm families have dedicated acres to this 
new energy crop, and we anticipate this number will grow to 
over 1,600 as our projects scale up to maturity at 50,000 acres 
per region. In liquid fuel language, this would create a 20-
year reserve of 93 million barrels of liquid fuel.
    To avoid betting the farm on an unproven technology, we are 
focused on existing markets and technology, such as solid fuel 
pellets. We have developed a biomass furnace company and 
heating systems with 100 in operation today. Our future plans 
entail building biorefineries inside our biomass reserve areas 
that make multiple higher value products that each replace part 
of the barrel of oil. This allows a conservative approach 
instead of betting our future on the success of a specific 
conversion technology. Beyond the quickly developing liquid 
fuel and bio-based chemical markets, we are implementing a 
model using Miscanthus to assist small towns across the U.S. in 
complying with EPA, wastewater discharge measurements, as well 
as helping to reclaim mining lands.
    It is hard to articulate just how difficult it was and 
still is to educate farmers on a strange new plant called 
Miscanthus giganteus. This was not an attempt to plant a known 
crop in a new industry but an unknown crop in a nonexistent 
industry. Add to that a crop that at the time was too expensive 
to plant and it was being planted by hand. And we are asking 
farmers to spend capital without a return on investment as the 
crop matures.
    However, I believe our success thus far had a lot to do 
with the fact that we are a farmer-owned cooperative. As a 
cooperative, we are able to work hand-in-hand with producers, 
as valued trusted business partners, allowing farmers to boost 
their earnings from the marketplace and diversity their income 
streams. Our farmer owners see incredible opportunities as this 
endeavor takes off. They recognize the potential to offer rural 
communities permanent manufacturing jobs. A new cash crop for 
farmers, a local source for green heating, renewable liquid 
fuel sources, bio-based chemicals, green building materials, 
water treatment systems, soil reclamation systems, and consumer 
packaging.
    Again, thank you for this opportunity to testify today and 
I will be glad to receive any questions.
    Chairman Tipton. Thank you so much, Mr. Taylor. I 
appreciate that.
    Our next witness is Michael McAdams, president of Advanced 
Biofuels Association. Under his leadership, the ABFA is going 
to become an active partner with leaders in Washington as they 
work to transform our nation's energy policy by creating long-
term renewable solutions that will create jobs and strengthen 
our energy security. Mr. McAdams has testified before Congress 
and the executive agencies and participates In a number of 
advanced biofuel forms across the country. He holds a 
bachelor's degree from Virginia Polytechnic Institute and State 
University, and a J.D. from American University's Washington 
College of Law. Thank you for being with us today, Mr. McAdams. 
I look forward to your testimony.

                  STATEMENT OF MICHAEL McADAMS

    Mr. McAdams. Thank you, Mr. Chairman. Chairman Tipton, 
Ranking Member Critz. Congratulations.
    Congressman Bartlett. I am honored to be with you this 
morning and proud to report to this Committee and to the 
Congress that America's domestic advanced biofuels industry has 
moved from the beaker to the barrel, all in record time. And 
like most part of our nation's economy small business and 
American ingenuity are proving to the engine driving our 
success. The Advanced Biofuels Association represents over 40 
of our nation's and world's leading advanced biofuels and 
advanced feed stock producers. Our members range in size from 
large household names to small and medium-sized companies.
    Since our inception, the association has advocated for a 
level playing field.
    When it comes to public policies specifically calling for 
technology neutrality, feed stock neutrality, as well as 
parenting in the form of any government support. Washington 
should not be in the business of picking winners and losers. 
Many of our members specifically fit within the definitions of 
a small business found under the current law. In fact, I am 
delighted to be appearing with one of our members on the panel 
day. Mr. Ralph Tommaso of Greenworks Holdings, a company who is 
delivering renewable advanced gallons today.
    The association represents a wide range of technology 
platforms from Synthetic biology and hydroprocessing to 
gasification to name just a few.
    Our members are working on developing a wide range of feed 
stocks. Some are planning Giant Miscanthus, sugar beets, and 
creating cellulosic sugars from woods, grasses, and municipal 
solid waste while others are planning new forms of trees and 
growing algae to produce agricultural grade oils for refining. 
The challenge for all companies large and small is to build and 
deploy first of kind, no innovative technologies, which produce 
these new advanced biofuels. In order to be successful, these 
small business owners must manage the technology scale-up risk, 
the volatility of commodity prices, and the certainty of 
regulatory policy.
    Before we discuss policy, let me start today by sharing 
some of the biggest successes we have occurred over the last 
year. The Air Force has flown the F-16 Thunderbirds on a 
mixture of advanced biofuels. And the Navy has tested the 
advanced biofuels and ships and vehicles. The commercial sector 
has flown the first cross-country flight on a blend of 
renewable jet fuel.
    We have one member, Dynamic Fuels, producing a million 
gallons of renewable net and renewable diesel a week and have 
five members who have gone public. In addition, Colorado member 
companies, are preparing to deploy their innovative 
technologies this year. Gevo will produce an isobutanol, a 
drop-in fungible fuel. They will commission its 18 million 
gallon plant in June in Luverne, Minnesota, while Sundrop Fuels 
is on target to break ground to build a 50 million gallon 
cellulosic gasoline plant in Louisiana. As you can see from our 
membership base, there are significant opportunities to create 
jobs in rural American, both from the growing of the feed 
stocks to the deployment of the plants.
    To your point on innovation, we are seeing new fuels that 
can be blended in new ways with existing products; the 
opportunity to make new bioproducts and the possibility to grow 
new feed stocks which are more sustainable and more productive 
than the existing options. These hold the ability to create an 
entire new set of opportunities for farmers and land owners.
    Mr. Chairman, turning to policy, as you recognized in 
calling this hearing, there are significant numbers of small 
business people involved in this sector. Several of our members 
welcome the opportunity to participate in various small 
business administrative programs which we call for matching 
funds and leveraging. One member company has been able to 
leverage the pre-engineering cost with a matching contribution 
in assisting in the building of a plant in Florida. That is a 
$150 million plant that is going up.
    Unfortunately, other companies have been unable to utilize 
the Small Business Administration's funding options as they 
have utilized large partners who are supported by venture 
capital organizations of scale. I have been told this prevents 
them from being able to access most of the funds available.
    Earlier I spoke about regulatory certainty. Nothing more 
important to small business owners and innovators than a 
consistent long-term policy frame from which to build a 
business. For our sector, the single most important component 
is the renewable fuel standard passed overwhelmingly in 2007 by 
a bipartisan Congress and signed into law by President Bush. 
Although it is not perfect, it is fundamentally important that 
the Congress continue to send a strong bipartisan signal of 
support if we wish to continue the remarkable progress and 
growth of an advanced biofuels industry.
    As for tax policy, it has been a mixed bag at best. Many of 
the existing provisions have already expired and some are 
crafted in such a manner that they are not helpful to small 
business or create an uneven playing field across the entire 
sector. As you know, all of these are complicated by the 
current record of renewable and have been on a piecemeal basis 
for a number of years. This simply does not provide certainty 
on which to build a business.
    I want to thank you for allowing me to be here, Mr. 
Chairman, and I look forward to answering any of your 
questions.
    Chairman Tipton. I would now like to yield to Mr. Critz to 
be able to introduce our final witness.
    Mr. Critz. Thank you, Mr. Chairman.
    Matthew Hughes is the director of business development for 
Environmental Tank and Container, a subsidiary of JWF 
Industries in Johnstown. It manufactures frac tanks, mud tanks, 
flowback tanks, and impoundments for oil and gas companies. It 
now employs 450. Is that right?
    Mr. Hughes. No. Eighty.
    Mr. Critz. Eighty. Okay. Eighty individuals and occupies a 
total of 800,000 square feet of manufacturing space. It is part 
of JWF Industries, which has humble roots as a two-man 
operation run out of a garage and now has successfully grown 
into a company with six locations, five of which are located in 
Johnstown. Oh, I see. It is 450 employees across all companies; 
I gotcha.
    Mr. Hughes. Correct.
    Mr. Critz. Recently, this success was noted by PA Business 
Central, which recognized it as a top 100 organization. Matt, 
welcome, and I look forward to your testimony.

                    STATEMENT OF MATT HUGHES

    Mr. Hughes. Chairman Tipton, Ranking Member Critz, and 
members of the Subcommittee, thank you for the opportunity to 
testify today. My name is Matthew Hughes. I am the director of 
business development with Environmental Tank and Container. 
Going forward I will refer to our company as ETC.
    I would like to start off by saying that our CEO, William 
Polacek, would like to apologize for not being able to attend 
today's hearing.
    Located in Johnstown, Pennsylvania, ETC occupies a 160,000 
square foot building currently shared with our subcontractor, 
United Industrial. This property was originally a World War II 
era munitions factory, later transformed into a railcar 
factory, and now houses our operations. Officially opening just 
over 11 months ago, ETC, like many small business start-ups in 
the oil and gas industry, owes its existence to shale energy. 
Each time you come across a success story like ETC's which was 
born in the shale boom, you will find many other companies like 
United Industrial that are getting a second chance at life. 
United, once tied exclusively to the commercial fabrication 
market, fell victim to the economic downturn of 2008 and was 
forced into bankruptcy. Shale energy blew life back into the 
almost shuttered plant which had three workers in May of 2011, 
and was up to 80 by year's end. Employing everything from 
engineers and welders, project managers, and sales people.
    Shale energy is a rapidly changing industrial with plenty 
of room for growth. Back in 2006, our president and CEO, 
William Polacek, investigated business opportunities within the 
Marcella shale. It felt like there may be opportunities down 
the road but did not see a good fit at the time. Like many good 
entrepreneurs, he believed his hunch and kept his eye on the 
young industry waiting for his opportunity. It came in 2010 
when some of the larger exploration and production companies 
announced that they were converting their Marcellus operations 
into a closed-loop system. The new protocol changed the method 
used for containing drilling waste and also outlined best 
practices for onsite water storage. Both initiatives created 
the demand for portable steel storage containers, and because 
the ETC was a nimble, small business, it was able to quickly 
respond to those needs. ETC answered the needs when the market 
asked for reliable, durable, frac tanks that were leak-free and 
capable of withstanding the rough terrain in cold winters in 
Pennsylvania. ETC answered the need when drilling contractors 
had to store all on-site drilling fluids in tanks instead of 
earth and land pits. ETC answered the need when drillers, 
already slowed down by a multitude of time-consuming permitting 
procedures, asked for a portable above-ground water 
impoundments that did not require soil disturbance permits. And 
we are proud to say that we are answering the call again, this 
time in the design and development of onsite treatment 
equipment that reduces the amount of frac fluid that is hauled 
offsite for disposal.
    While ETC can be credited for some innovation in our 
industry, we must also give credit to our customers, many of 
which are independent owner-operators of oil field service 
companies, equipment rental firms, and engineering groups. They 
were first to see the need and come to us with their ideas. By 
virtue of opening our doors, we have created a means for many 
others to spur innovation and growth. Mr. Polacek always 
reminds us that we will be building things a year from now that 
people have not invented yet.
    Recently, most businesses that served the natural gas 
portion of the shale industry are facing a common obstacle. The 
price of natural gas is now too low relative to what it cost to 
extract it. When you visit a natural gas well pad, attend an 
industry trade show, or speak with customers about future 
orders, the same concern arises. How will this industry 
continue to grow and prosper if the price of natural gas stays 
as low as it is? And what is frustrating to us as small 
businesses is that we cannot fix that issue with our hard work, 
innovation, and resolve. The fix lies in creating and mandating 
demand.
    In closing, I ask the members of the Subcommittee to be 
mindful of a the young start-up companies, the once bankrupt 
businesses that are rising from the ashes, and the multitude of 
small businesses that rely on shale energy for their 
livelihoods, and to consider looking into what you can do as 
policymakers to help increase the demand for natural gas as a 
cleaner fuel option for our energy sector and a cleaner fuel 
option for our transportation sector.
    Chairman Tipton, Ranking Member Critz, and members of the 
Subcommittee, thank you for working together in a bipartisan 
manner to help small businesses succeed, help fuel job growth, 
and to help our nation become more energy independent. Thank 
you.
    Chairman Tipton. Thank you, Mr. Hughes. I appreciate you 
all staying within the time. We would not really have dragged 
you out. So, but we do appreciate that.
    Mr. Tommaso, we will move on to questions now and I would 
like to start with you. A common theme across all industries 
that we hear about in this Committee is regulatory certainty 
and general confusion put forth in the form of government 
regulation. Can you talk a little bit about the regulatory 
process in your industry as well as the process on how some of 
these new fuels are categorized by the EPA?
    Mr. Tommaso. Sure. The first thing, when we started in 
2005, that was first when the biodiesel subsidy came out where 
it was a 50 percent per gallon production credit for biodiesel 
made from second use oils and a dollar for the virgin oils. And 
in any new industry, as it builds traction you are building the 
customer on a one-off basis and the way Mr. Taylor talked about 
building the trust with the farmers, we build the trust with 
our customers that this fuel is going to be here when we make 
the conversions to switch over from petroleum to biofuels. The 
uncertainty and the changes in the policy affect us because as 
we produce this fuel based on certain circumstances and certain 
economics, when they go away we have to go away or either 
subsidize--basically fund those subsidies until or if they do 
come back. And that ends up causing a lot of disruption to us. 
Supply chains, supply flows, and we have a large logistics arm. 
Five million gallons worth of storage, 60 tank cars that drive 
around the country on a daily basis. So when all of a sudden 
those subsidies go away and those customers are looking for 
product to be priced competitive and the economics change 
overnight the way they have done since 2006 on and off, it does 
affect us very drastically.
    Chairman Tipton. How does the EPA categorize the fuels you 
produce?
    Mr. Tommaso. Currently, we are classified as an advanced 
biofuel, a D5 RIN over the--since the program's inception in 
July of 2010. The rules changed twice and again reclassifying 
us twice and changing the value of our RIN. And again, this has 
also caused a big disruption to our market.
    Chairman Tipton. So changing oils, when the EPA does that--
--
    Mr. Tommaso. No good.
    Chairman Tipton [continuing]. That is hurting your ability 
to be able to grow the business?
    Mr. Tommaso. Absolutely.
    Chairman Tipton. You need some certainty in there.
    I am curious as to the role that the federal government's 
research and development efforts have on your business. What is 
that community like in terms of the R&D and does it work in 
partnership with small businesses?
    Mr. Tommaso. We have had very little experience with state-
run R&D or government-run R&D programs. We do a lot of all the 
R&D ourselves. We did employ Penn State to do a private study 
for us, as well as we have chemical engineers that we employ 
that used to work in the petroleum industry that came on with a 
lot of industry secrets that helped us to make a better fuel.
    Chairman Tipton. How about you, Mr. Taylor? Are you using 
state and federal government R&D?
    Mr. Taylor. Yes, we are.
    Chairman Tipton. Okay. Mr. McAdams.
    Mr. McAdams. A lot of my members are.
    Chairman Tipton. Okay, great.
    Mr. Tommaso, I am intrigued a little bit by the work that 
you are doing with these catfish hatcheries, to be able to skim 
off the fat that is there. Where does an idea like that come 
from?
    Mr. Tommaso. Oh, that was interesting. We had some sales 
guy that came out from Louisiana that had access to one pond 
and he was very undercapitalized, did not know the technology, 
and did not have a market for the product but had an inside 
track and saw it and went to the plant owner and told them 
about its possibility but did not have the means to extract it. 
And then when interest started to develop over this one pond, 
we were the only ones that had the ability to harvest it, 
process it, and actually find a market for it. So that is when 
we sent a team down there to develop that market and bid on all 
those other 12 ponds. And we did some experimenting. At first 
we pulled loads off the pond in a very crude manner, trucked 
them back to Pennsylvania, processed them down in Pennsylvania, 
and then sold them back to Texas into the Houston field market. 
And then from there we developed the whole business development 
of going down there and going after all the 12 plants.
    Chairman Tipton. Great example of American 
entrepreneurialism. You did not have a bureaucrat out of 
Washington, D.C. come down and say we have a great idea. This 
actually came out from the working area.
    Mr. Tommaso. Yes. There was a mechanical contracting 
company that went out of business a couple of days before we 
got down there and there were 60 guys ready to start manning 
excavating equipment, trucks, welding. It was an excellent 
opportunity.
    Chairman Tipton. Terrific.
    Mr. Taylor, can you explain a little bit about the 
differences of creating biofuels for transportation and 
biofuels for electrical generation?
    Mr. Taylor. As far as biomass is concerned?
    Chairman Tipton. Right.
    Mr. Taylor. The difference, at least the approach that we 
have taken, is to produce the biomass is sort of the first 
thing we had to do. And we're actually creating a number of 
paths with relationships both towards cellulosic, which would 
take the crop in some form or fashion into their process or 
densifying it into pellets, but more of almost a biomass, kind 
of a bio refinery. Some of it could be building products and 
other things but those channels we see as--we have a multiple 
of channels that we are putting in play to be able to maximize 
the value of the crop, which is the number one thing as a 
farmer-owned cooperative we are trying to do. Does that answer 
your question?
    Chairman Tipton. Yes, I think that gets to it. And just 
kind of going back to the catfish, because we have heard of 
being able to take French fry oil and be able to operate a 
vehicle, are you doing some experimenting with that? You 
mentioned using it for heating.
    Mr. Tommaso. I originally came out of the restaurant 
business in New York City where there is a large heating oil--
indusrial heating oil number 4 and number 6 market. My partner, 
Dave Dunham, started in the trucking industry. He actually 
started collecting used cooking oil and converting his father's 
tractor trailers to run on vegetable oil to lower the gas. In 
the long term, running raw vegetable oils in transportation is 
not a viable option. We developed the market to run large 
industrial applications, power plants, universities, as well as 
district heating plants to run on our fuels.
    Mr. McAdams. Mr. Chairman, if I could come back and kind of 
tie that question with your first question. I am going to get 
in the weeds just a second because I think it makes the point 
that both of these gentlemen are trying to make. So, for 
instance, if he tries to use a hardwood to make pellets or to 
make biopower, he has no problem. But if we go into the 
transportation fuels industry and we want to build a half a 
billion dollar cellulosic plant and make a drop-in renewable 
jet fuel from wood, the definitions under the RFS are 
incredibly prescriptive. If Ralph wants to take his catfish 
oil, he has to have a determination from the EPA that 
specifically says it is a waste.
    Now, this is a problem. This is a term of art, waste. What 
is a waste? Well, waste is something that has no value. So as I 
try to certify fuels on behalf of my 43 different members, 
every single feed stock has to go under the RFS and be 
determined whether it is certified under the law, which means 
many of his feed stocks have had to be singly submitted for 
their greenhouse gas reductions, the only law in America that 
regulates greenhouses gases for each of the four categories. 
And if the EPA does not determine that his molecule is a pure 
hydrocarbon molecule, then he is not a D$ RIN; he is a D5 RIN. 
And the difference is a buck. Now, that is a big difference.
    So the devil is in the details here. And in defense of the 
EPA, the statute was prescriptive in some way when we 
originally wrote it in 2007, and that is because candidly the 
incumbent industry had been around longer and people understood 
it. I am not criticizing the incumbent industry, but as we move 
forward, one of the challenges for our association and for all 
the guys sitting at this table is to have a level playing field 
so all of these different molecules can come in and lower the 
cost for the American driving consumer, whether it is diesel, 
jet, or gasoline. And we still have impediments in the 
regulatory structure that we are working on today. And I am 
hoping that we can get some of these rules through R&D, such as 
the heating oil rule that would expand the market for Ralph, or 
the commingling rule that would allow the Colorado butanol 
company to deploy his fuel which he cannot now. Those are the 
kinds of things I think that you are trying to drive it.
    Chairman Tipton. I appreciate those comments.
    Mr. Taylor, in regards to some of the federal research and 
development efforts, are they being focused in the right areas?
    Mr. Taylor. The areas that we have participated in are very 
specific. The state of Missouri through a small business rural, 
small business grants was a study, for example, done on which 
energy crop would be the best for Missouri. We were the lead on 
that study. Miscanthus was the chosen crop and we have had two 
studies since that point. So we have utilized three different 
studies sponsored by the State of Missouri Small Business 
Administration.
    Chairman Tipton. Good. Mr. McAdams, there seems to be 
pretty rapid breakthrough in technology in a variety of 
different fields that are out there. You were just speaking to 
it a bit but could you estimate where most of these innovations 
have come from? I think you spoke to it just a second ago.
    Mr. McAdams. The private sector.
    Chairman Tipton. It is all the private sector?
    Mr. McAdams. It is private sector. Now, I will say I was 
the keynote speaker at NREL this year. Very talented group 
where the government has a good facility and a consortium they 
built at the Department of Energy to try to help lower the cost 
of testing different enzymatic reactions. And that has been 
helpful. I think there are 38 members of the consortium. But a 
lot of this is privately financed. And a lot of these guys have 
been at it for five years. What I am really proud to say is 
when the private sector focuses on innovation and they are 
trying to make a dollar at it, they do it real quickly and they 
do it economically efficient. And so that is why it is so 
important that a framework like the RFS or a tax code if you 
choose to have one is neutral and lets a level playing field so 
we can raise the capital to actually fund the targeted R&D that 
each of these technologies need.
    Chairman Tipton. Going back to your previous comments, 
would you be recommending that Congress play a more vigorous 
role in terms of oversight of the EPA in terms of having common 
sense regulations that are coming into play?
    Mr. McAdams. I think it is always a good conversation that 
the executive agencies have with the U.S. Congress. Over my 
tenure in Washington I found that the dialogue actually helps 
focus the mind and that it brings an opportunity to really ask 
questions. Sometimes in the legislative process we do not have 
the time to get into some of the weeds and what we have done 
constitutionally is we have delegated a lot of these specific 
decisions to the agencies. And I think it is really important 
that Congress have a very vigorous and active role in making 
sure that the statutes, their content and their intent is met. 
And I like that dialogue personally. So I would encourage you 
to do that and I think there are a lot of opportunities to 
expedite the deployment of these technologies through that 
dialogue.
    Chairman Tipton. The renewable fuel standard has been set 
at 36 billion gallons of biofuels to be inserted into the 
transportation fuel pool by 2022. Is that a realistic goal?
    Mr. McAdams. I think that it was a very optimistic stretch 
target. And so what we see is the flexibility that was built 
into the statute. I commend the Congress for the flexibility 
they built in with the off ramps. What you have in terms of 
specific application now of the statute is you saw, for 
instance, the cellulosic pool number was lowered over 90 
percent in 2011. The pool was also lowered over 90 percent in 
2012, and they are getting ready to make a recommendation in 
2013. This has been an incredibly difficult economic market and 
the economic market did not match up with the stretch targets 
that were put in the statute. So I now have many members that 
are planning to bring to market. We are really beginning to see 
some of the cellulosic sector come in and try to meet these 
mandates. What EPA has allowed to do is to gift some of those 
gallons into the advanced pool. A big question on whether they 
can gift it into the biomass-based diesel pool. I agree with 
the National Biodiesel Board that moving forward there is a 
great opportunity to raise the billion gallon ceiling on the 
biomass-based diesel pool. We could probably do upwards of two 
billion gallons between now and 2022. And if that is backing 
out foreign oil, I think everybody from the executive branch 
and the legislative branch ought to look at that and what 
opportunities you have to kind of move some of these buckets 
around.
    Chairman Tipton. Mr. Tommaso, Mr. Taylor, do you have any 
comments on that?
    Mr. Taylor. I do, if I may, Mr. Chairman. I think there is 
another piece to it as far as some of the environment we have 
been in over the last few years. We have been refining, oil 
refining since 1939. We know the commodity pretty well. This 
economic vacuum over the last three or four years was also 
accompanied by crude oil reaching a high in July 2008 at $147 
and hitting somewhere in the low 30s by the summer of 2009, 
gutted most, if not any desire to be in renewable and risk your 
own money. This belief now, one of the reasons--we are an 83-
year-old organization--our belief and the reason we have 
entered it is because we believe that generally global BTU 
prices had gone to another level in general and consequently, 
lowered the bar, so to speak, for renewables; hence, we have 
entered it. It is, I think, paramount to let programs work. Now 
the environment is correct. If we come out of the sort of 
economic vacuum we have been in, global prices are up and 
likely to stay. It gives now the right environment if time is 
lent. And that includes the BCAP programs for biomass, which we 
implemented very successfully. It is a very good program. We 
believe our model is almost the poster child for success in 
that. It helped a farmer get over the hump while we made the 
investment in environmental assessments, equipment, processes, 
plants, all of those types of things. All of those things are 
now in play because of those two things--a recovering economy 
and a higher fuel of global BTU products. Let the programs 
work.
    Chairman Tipton. Mr. Hughes, I do not want to leave you 
out. Can you describe the new technology that is in frac tanks 
and elaborate on how these banks can mitigate some of the fears 
and risks associated with fracking?
    Mr. Hughes. Yes, sir. I know for a fact that our facility, 
when we manufacture our tanks we do not differentiate on 
quality. Some of the same gentlemen that are welding on 
military vehicles are also welding on these tanks. So we 
practice the utmost integrity when we are working on them.
    I think one of the bigger parts that needs to be understood 
is the oil and gas operators have implemented pretty much their 
own best practices, self implementing them, and have gotten 
away from a lot of the in-ground impoundments and have moved 
over to hard side portable tanks, which makes it a lot easier 
to manage the fluid through all courses of the operation.
    Chairman Tipton. You may well be aware in the West we have 
plenty of natural gas. We definitely need the jobs. As you 
know, we need to do it in a responsible way to be able to 
achieve that. With pricing that we have, we have got a real 
challenge. Do you see a pathway to be able to make the 
production of natural gas literally more viable in this 
country?
    Mr. Hughes. Well, as you know, in our section as Mr. Critz 
knows, the majority of the Marcellus sits over a dry gas and we 
are moving more west towards where there are fluids that come 
up with the actual dry gas. Most of these operators need 
probably about 500 barrels of fluids that come up with their 
gas production per day in order to offset the very low prices 
that are in place right now for the dry gas. But as far as a 
path, I believe that we need to really focus on base loading 
our energy sector to be able to use that gas to generate 
electricity. And I know that is what a lot of the larger oil 
and gas companies, Exxon for one, is forecasting out to 2030, 
that the majority of increase for natural gas will come from 
electric generation.
    Chairman Tipton. You know, you may not have seen it, it 
just came out in headlines this morning where an EPA official 
apologizes for they call it crucify oil companies. Is that 
going to give some pause? Because it does need to be all of the 
above. We need all of these energy sources. Are we seeing an 
overreach again by the EPA?
    Mr. Hughes. I would say yes, sir.
    Chairman Tipton. Great. I concur. I would now like to yield 
to Mr. Critz for his questions.
    Mr. Critz. Thank you, Mr. Chairman. Since the Chairman 
ended with you, Matt, we will start with you, and it is a 
pretty straightforward question I have. The innovation taking 
place in the gas industry has had a profound impact on 
Pennsylvania. Can you talk about how Bill Polacek and ETC are 
able to seize on these opportunities? What is it that you saw 
and how is it that you got into this business so quickly? I am 
thrilled to hear the Chairman talk about the gas that is in 
Colorado, because they need your tanks, too, but that is 
another conversation.
    Mr. Hughes. We will be visiting them soon.
    Mr. Critz. But if you would, just walk through the process 
of how you ended up here.
    Mr. Hughes. Sure. We are a contract metal fabricator. Mr. 
Polacek has been in business since 1987. He started in a two-
car garage and now employs close to 450 people. And our main 
facility, JWF Industries occupies just a little under a million 
square feet. Mr. Polacek is very entrepreneurial and did, as I 
mentioned earlier, keep his eye on this business. And when it 
first started there was not very much opportunity for metal 
fabrication. They dug a lot of pits. They lined them. They 
stored their water in the pits. They stored their drill 
cuttings in the pits. They stored their drill mud in the pits. 
Those have been highly--well, I do not want to say highly 
regulated but they have self-policed themselves, realized what 
they had to do in order to make things good and in order to 
proceed forward with the drilling operations and minimize the 
amount of environmental impact. When they imposed those, that 
is when we got involved and that is when Bill actually was able 
to seize the opportunity.
    We are what we consider a mid-range producer. Most of the 
companies that we compete against are down in the Texas-
Louisiana area and they produce in very high volumes. What we 
saw in the market was an opportunity to produce a very good 
quality product at a medium volume and then answer the needs to 
the innovations that are required in order to keep growing this 
business. So we had several companies come to us and ask us if 
we could customize a particular tank, tweak it, or actually 
help them design it to be more functional for what they do.
    And as I mentioned, we are actually getting involved with 
one particular company. It was a great story. A very young 
engineer walked into our office and had a good idea regarding 
water clarification system in order to clean the residual frac 
fluid onsite which eliminates the amount of transportation, 
eliminates the amount of trucking, and also it eliminates the 
amount of water that is needed to begin the subsequential 
fracking processes. And it is that kind of innovation that we 
were open to. So that is basically what we are very well known 
for in the industry is our ability to adapt the innovation and 
be able to be flexible enough to work with some of the smaller 
companies.
    Mr. Critz. You made me think of a company you need to talk 
to, but that is for another conversation. I remember talking 
with Bill, too, about the quality. You mentioned that your 
welders are doing military applications but they are also doing 
these tanks and that has also been part of your success; these 
tanks are top notch and there is no failure in any of these 
weld joints. Is that correct?
    Mr. Hughes. That is correct, sir.
    Mr. Critz. Okay. Aquatech. Remember Aquatech?
    Mr. Tommaso, I am absolutely astounded, baffled, interested 
in this catfish pond. I guess it's reclamation; I do not even 
know what you would call it. You say it is a football field 
size pond that has--I was looking through my paper because I 
was not sure if I heard it correctly--is the material that you 
want 3 to 10 feet deep or are the ponds 3 to 10 feet deep?
    Mr. Tommaso. No, the ponds are 100 feet wide by 300 feet 
long by 30 feet deep.
    Mr. Critz. Thirty feet deep. Okay.
    Mr. Tommaso. And as they are sanitizing and washing down 
the plants every day they are using about three million gallons 
of water of which about two percent is fats and solids. Every 
day. So all that goes into this pond. The solids flow to the 
bottom, the water stays in the middle, and the fats rise to the 
surface. And over the course of approximately three years you 
have a cap on these ponds of 3 to 10 feet deep.
    Mr. Critz. That is amazing. I am just trying to envision a 
football field with 10 feet worth of fat.
    Mr. Tommaso. When that salesman came to me with a jar of 
this fat and the odor was horrendous and it was a sight to see, 
and he was showing us pictures, it did not do it justice until 
you flew down there and were standing in front of this pond.
    Mr. Critz. That is amazing. Now, have--you never been on 
that show ``Dirtiest Jobs''?
    Mr. Tommaso. No.
    Mr. Critz. I was listening to your testimony, and it really 
threw me because of the massive size of this thing. But the one 
question I do have for you is whether converting used fryer oil 
to biofuels is an old-fashioned process? Someone has to collect 
the oil from restaurants. How challenging is it to manage the 
collection process and keep your costs at a level that you are 
actually making money on this?
    Mr. Tommaso. We had the benefit of starting in other 
industries, so we came without any bad habits and we started 
with technology. And we currently have over 40 trucks that go 
out every day to restaurants. We collect from about 17,000 
restaurants in 12 states. And we use UPS logistics. We use 
satellite technology. We use tablets in the trucks. We have 
live data knowing how much is in each truck, what the volume 
is. And we use this same technology that companies like UPS and 
Federal Express do to get this piece of paper across the 
country overnight for $12.
    Mr. Critz. Okay. All right.
    Mr. Tommaso. But is a massive undertaking.
    Mr. Critz. Well, restaurants are dotted all over the place, 
so it must be massive just managing it.
    Mr. Tommaso. That is why these ponds are easy.
    Mr. Critz. Yes, I guess once you have your delivery route 
or your pickup route it is just a route. It is just a truck 
route. Okay.
    Mr. Taylor, you work with nearly 200 family farms and you 
anticipate scaling up to 1,500. Now, agriculture is still the 
number one industry in Pennsylvania, and there are a lot of 
small family farms. What are some of the benefits and 
challenges you face in working with so many of these family-
owned farms?
    Mr. Taylor. The MFA Biomass, which we own 60 percent and 
Aloterra owns 40 percent. Aloterra really brought the 
Miscanthus expertise, feed stock, and a number of other 
expertise. What we bring to the table is logistics. We are the 
seventh largest propane retailer in the country and we've 
started several companies.
    Mr. Critz. And you do a sort of exchange; is that correct? 
You deliver propane and pick up the stuff that you need? Or is 
that not part of it?
    Mr. Taylor. No. What we have done, just to give you an 
example, a real life example, southwest Missouri, it is big 
chicken poultry country. They have a group of growers. The 
average grower might have six houses, might use 20,000 gallons 
of propane in a year to heat those houses at $1.60 per gallon 
approximately. Now that grower grows 15 acres on his farm of 
Miscanthus with a number of growers. We built a processing 
plant in the center to pick that up and pelletize it with our 
delivery trucks. We take it back and put it into the feed bin. 
We have a system for feeding it into the furnaces which we 
build now in southern Missouri. We build those furnaces. We 
have over 100 locations now. And his cost, we essentially can 
guarantee him a cost, the equivalent cost of about 80 to 90 
cents a gallon of propane. About half of what he is paying now. 
And obviously a very small delta with energy input because all 
you are doing is harvesting it once a year. So it is truly the 
economic effect. And that farm, that means approximately close 
to $20,000. And that is significant. The bottom-line effect 
turns out to be about $400 an acre net profit improvement if 
they use Miscanthus.
    Mr. Critz. Well, you said you are on the logistics side? So 
my next question was about the Department of Agriculture's 
biomass crop assistance program, and I think it has been 
important to the growth of your industry. Can you discuss where 
it would be if this funding source had not been available?
    Mr. Taylor. Yes, I can. I call it prospectus. I think in 
the sovereign world we call it the ruling or whatever it is 
when BCAP came out. In the opening paragraph, when I read this 
the opening paragraph said we have the chicken and the egg 
problem. Farmers will not grow it because they do not even know 
the equipment to handle it; plants will not locate in the 
places because nobody is growing it. It was a chicken and an 
egg problem. What we witnessed first-hand with BCAP was an 
absolute resolution of that chicken and an egg problem. When we 
received BCAP funding for approximately 13,000 acres, our first 
13,000 acres, and we are now just finishing up that planting 
process, there were a number of things we had to do. Most 
people that are in the rhizome business or the Miscanthus 
business want rhizomes as high as possible. We want costs as 
low as possible. So what we had to do is spend a year 
multiplying the rhizomes or a couple or three years. 
Multiplying the rhizomes to get the costs down per acre from 
$1,400. In our BCAP program we are at $750. This year on the 
2012 budget we hope to be at $550. We hope in another year we 
will have driven that down to $300 an acre to establish that. 
That would have been impossible without BCAP funding the 
bridge, getting the bridge for the farmer. Because the money 
did not come to us. The money goes to the farmer to plant the 
crop. It takes three years for it to mature, massive tonnage. 
So you have rhizome costs coming down.
    On the other hand you have got to have time to develop the 
logistics. Two years ago all the rhizomes were planted with 
people on the backs of the wagons dropping rhizomes down 
chutes. MFAO Biomass has partnered with an English company. We 
are now making the planters in Kansas. Twenty-four of them are 
now off the line which we have purchased and are in fields 
planting plants. Four-wheel planter, five miles an hour, that 
is 40 acres a day per planter. That is doable and we think we 
can now grow when they grow so we are up to--we are going to be 
pushing 80. Keep in mind the industry just two years ago was at 
five acres a day with four people on a planter. So this is so 
new trying to work out those systems to get the efficiency--not 
just efficiencies--to ward out any system that will work is 
happening because BCAP was available.
    The important thing with BCAP is it does not take just one 
year. The funding is critical to bridge the people that have 
already started on that path to get them to year two or three 
as it was originally designed, in three years to be able to let 
these things play out. Our game plan is absolutely to be on our 
own the fourth year. We needed three years of help from BCAP. 
We went from $280 million or whatever it was down to $17 
million this year. And who knows. It is critical, we think, to 
bridge that gap for the farmer because it is an unknown entity 
at this point. We now have broken that chicken and egg problem 
because of BCAP.
    Mr. Critz. Mr. McAdams, did you want to weigh in?
    Mr. McAdams. I just want to say it is one of the top 
priorities of the association. We represent Freedom, which is a 
giant Miscanthus grower out of Georgia. We are hoping to see 
them plant----
    Mr. Critz. We represent Freedom, too.
    Mr. McAdams. That you do. They are looking at trying to do 
30,000 acres. They are currently right now working with some 
folks. They actually have helped Aloterra in terms of their 
planting. Congressman Kingston was pivotal last year in putting 
some level of funding, 17 million, into the process for the 
BCAP program. I am not real optimistic in the House Farm Bill 
process but we are hoping this morning over in the Senate Farm 
Bill that they will restore a higher level of funding. It is 
key for us to have certified feed stocks, which these would be 
available to make the gallons. And it is a chicken and egg 
problem. I think he laid it out beautifully.
    Mr. Critz. You have in your testimony, and I want to circle 
back around to something called Miscanthus giganteus, which is 
I think what we are talking about. Back in my part of the world 
there are people talking about something called switchgrass as 
a feed stock. What are you describing, and is switchgrass 
something that is in a temperate zone? I saw where you can grow 
this Miscanthus giganteus in a wide range of areas. So can you 
explain to me exactly what that is?
    Mr. McAdams. Sure. Well, let me say that the administration 
put together a biomass council to look at where you have 
various feed stocks available to support an advanced biofuels 
industry. And the conclusion of that was you could grow 
different feed stocks in different areas and it was not a one 
size fits all model. And so one of the great things about giant 
Miscanthus is you can grow this in subgrow crop land. So kind 
of loamy soils that you would not grow corn or cotton or 
anything else on. So you can take unproductive land and you can 
turn that into a real high-yield crop on a per acre basis. If 
you look in Oklahoma, switchgrass was a natural field grass in 
Oklahoma. If you look in Colorado, you have got a lot of beetle 
kill. So if we could get the definitions right in terms of what 
woods we could use, my, what a tremendous opportunity you would 
have to deploy cellulosic plants in Colorado.
    So I think this is one of the areas as we look moving 
forward, this is one of the areas we could probably do a little 
better fine tuning, particularly regulatorily as we move 
forward.
    Mr. Taylor. We use a specific clone called the Illinois 
clone, which is a sterile plant. It has no seeds. It is 
noninvasive. Because we are farmers, we understand our rows or 
any number of other plants that have been invasive, we felt 
that was a critical thing, to be noninvasive. So it is a 
sterile, nonseeded plant. We had to prove that in our EA under 
NEPA when we did that. One of the reasons that crop is number 
one is its tonnage. One of the reasons it was not done is 
because you are planting with rhizomes. And now that we have 
solved a pretty good share of the problems with the handling of 
the rhizomes, propagating, digging them up and doing it, that 
cost is what has come down significantly.
    Mr. Critz. Good. Mr. McAdams, you testified or in your 
testimony you discussed the benefits but also the challenges 
with using SBA investment programs. How important is equity 
investment and venture capital to the future of renewable 
fuels?
    Mr. McAdams. Well, obviously, it is very important. Let me 
just start there. But let me say it depends on where the 
company is in its cycle. So if I am a new company coming into 
the market for the first time, probably the VC world is pretty 
important. And again, if you look at some of the more 
successful, more known companies in this space, they came out 
of the VC industry. Some of the smaller ones that are not at 
that stage, I think the Small Business Administration could 
really help them specifically in the SBIR programs, some of the 
research and develop monies. I was really delighted to get the 
example for this hearing today about the pre-engineering cost. 
This is a guy with less than 10 employees that has a very novel 
technology that they are trying to deploy in Florida, and that 
helped him leverage what is about to be a $150 million 
facility. The loan was $3.5 million. It came out of the state 
program from the 2010 funding out of SBA.
    So I think it is a combination of things. And it really 
depends on what is the size of the company. Obviously, 
companies like DuPont have a different way to finance things 
than Ralph Tommaso. So I see them all in all sizes and again, 
it is not one size fits all.
    Mr. Critz. Well, you mentioned something earlier about D4 
and D5, and you are talking a different language to me. So at 
some point I want you to come in and talk to my staff about 
what that is so that I have a better understanding of it.
    Mr. McAdams. I would be delighted to do that.
    Mr. Critz. And just one closing comment. It is great to 
hear all of this because our subcommittee is Ag and Energy, so 
it is really interesting to hear everything that is going on. I 
was at a Steel Caucus hearing in Pittsburgh last week and we 
were talking about the price of natural gas. It is $2.20, $2.30 
right now, but the natural gas industry says that once the LNG 
plants are up along the border and we start exporting, then it 
is probably going to hit about $5 to $6 a cubic foot. And that 
is the sweet spot for them. It is the dry gas, and you are 
right, we are sitting on a lot of dry gas, but are getting to 
this wet gas area now. So that is the figure that I am keeping 
in my head, because certainly we want manufacturing and 
everything going on.
    So with that, I want to mention that the Chairman came to 
Pittsburgh with me last week, and he is taking credit for my 
big victory on Tuesday. As long as he continues to be nice, I 
will give him all the credit he wants.
    Chairman Tipton. Thank you, Mr. Critz. I would now like to 
recognize Mr. King.
    Mr. King. Thank you, Mr. Chairman. And I thank the 
witnesses for your testimony. There have been a lot of things 
illuminated here in this discussion and testimony and the Q&A 
afterwards.
    I think there is a place to go that we ought to examine 
from a public policy standpoint and it caught my interest when 
I see Mr. McAdams's testimony on the F-16s. I will tell it as I 
know it and then ask you to respond accordingly. I happen to be 
in a position where some of this information comes into my ears 
and it does not get published and I will tell it this way. The 
Pentagon decided that they wanted to have by my narrative, an 
F18 that they would fly at mach 1 and do so on biofuels. And so 
in order to create the biofuels necessary for the bio jet fuel, 
a 50/50 blend, biodiesel and regular jet fuel, they did not 
want to apparently take a few thousand gallons from a regular 
biodiesel producer but instead went to Pennsylvania to raise 
some algae in the dark that came from the bottom of the ocean 
where the sun does not penetrate in tanks with an individual 
there that had the skills and ability to do that. And then they 
needed to feed it something, so they found some condemned sugar 
from sugarcane in Louisiana, took it to Pennsylvania, fed it to 
the algae, looked around to see how we extrude the biodiesel 
out of this algae. Well, let us send it to Iowa. And we extrude 
the biodiesel. And they did that, shipped it out to Edwards Air 
Force Base, put it in an F-16 and flew it at mach 1.
    Now, it seems to me there would be a lot of gyrations to go 
through and it appears that they wanted to avoid the criticism 
of food versus fuel. As I listened to the testimony here and 
the Q&A, I have not heard that come up. I am concerned that 
that could be a significant barrier within the mind of the 
administration. If the Pentagon itself could go to such great 
lengths to accomplish something that would have been done much 
easier in a far less period of time.
    Mr. McAdams, do you have any experience with that? Do you 
have a comment on that?
    Mr. McAdams. I am very aware of the certification process 
in the military. I have been working very closely as an 
association head on behalf of my members with the military, the 
Air Force, and the Navy. We are incredibly supportive of the 
MOU that was released last year that calls for funding, the 
$510 million program between the Department of Energy, the U.S. 
Department of Agriculture, and the Department of Defense.
    Mr. King. Are they wasting money trying to avoid the food 
versus fuel argument?
    Mr. McAdams. I would say our association supports a 
technology and feed stock neutral approach. I would be 
delighted to share with you the letter that we gave to Senator 
McCain on this subject about three weeks ago in reference to 
his questions to our association on how that matter went down.
    Mr. King. Is it your understanding that it went down any 
differently than I described it?
    Mr. McAdams. I am not sure I know that example. They 
recently did a 450,000 gallon purchase. That also involved an 
algae company.
    Mr. King. You used the express feed stock neutral.
    Mr. McAdams. Well, when I used the expression feed stock 
neutral, what I am talking about is if you scope a specific 
solicitation and you require something specifically, that is 
not feed stock neutral. And so what you have a propensity to do 
is you try to pick a feed stock winner. Right? And so our 
association has been feed stock neutral since the beginning. 
What you are talking about was a specific REMAT to use a 
percentage of algae in a specifically made jet fuel.
    And let me just correct you on one thing with all due 
respect, sir. You cannot use biodiesel to make jet. Biodiesel 
has oxygen in it. It is 11 percent oxygen. So when you make jet 
fuel you are to use a hydrocarbon only. Jet fuel is the most 
narrowly prescriptive fuel to come out of the oil industry or 
coming out of the renewable industry. So it is a very tightly 
confined spec.
    Mr. King. Is it possible to process the biodiesel so that 
you can use it?
    Mr. McAdams. You can take----
    Mr. King. And is it more cost effective than the method I 
described?
    Mr. McAdams. You can take the feed stock, right, and you 
could take Ralphs catfish oil or you could take white greases 
or brown greases. And depending on the technology you use, 
which is generally hydro processing an isomerisation. You can 
make a jet fuel out of renewable. You can also take oils out of 
algae and process it into a jet fuel. The cost of the range of 
feed stocks varies. They are not all the same cost. I think 
that is the point.
    Mr. King. I think it would be substantially higher than the 
method that I described.
    Mr. McAdams. I think that is probably correct.
    Mr. King. Thank you. There is more to be drilled into here.
    But I wanted to turn to Mr. Tommaso before I ran out of 
time because you intrigued me with 10 feet of catfish fat on a 
100 by 300 foot area. I do not know, 1,000, 1,100 cubic yards 
of fat. That is a lot of fat. And I did not think of catfish as 
being fat. And this is intriguing to me that we have 30 percent 
of our young people who are obese, even to the point where the 
former secretary of defense said it was a national security 
issue. And if we can process and we are all innovators here so 
if we can process--this is a bit of a facetious question, you 
can see it coming--but if we can process catfish fat into 
energy, biodiesel, for example, has anybody given any thought 
of how you convert all that extra human weight that the First 
Lady is trying to reduce into something that could be useful 
energy?
    Mr. Tommaso. I see a movie on that. No, there is a lot of 
fat. The catfish industry is shrinking, number one, due to the 
changing tastes of the consumers trying to reduce their fat as 
well as cheaper exports coming out of Southeast Asia. So every 
catfish plant is trying to grab a bigger piece of the shrinking 
pie. So that industry is in dire straits.
    Mr. King. It is true that we had a surgeon in California 
that was collecting human fat and converting it into biodiesel 
and burning it in his car and someone thought there was an 
ethical problem with that. I did not. I thought it was a pretty 
good utilization of human energy.
    So my clock has run out. I thank all the witnesses and I 
yield back the rest of my time, Mr. Chairman.
    Chairman Tipton. Thank you, Mr. King.
    Again, I would like to thank all of our witnesses for their 
testimony and input today. Very interesting when we are hearing 
comments of starting in a garage. We just held a jobs fair down 
in Alamos, Colorado. A young man was describing some work that 
he is doing on a fuel cell and interesting just watching and 
observing. Around the room there was some skepticism, and 
others that were very intrigued, could not help but bring to 
mind a guy named Steve Jobs who did pretty well with Apple 
starting out in his garage. And I think these are American 
energy solutions that we need to be pursuing.
    So energy production is vital for the nation's economic and 
national security, and in most industries in the U.S., small 
businesses are the catalyst that drives innovation in new and 
better technology, new technology that harnesses energy that we 
did not have the capabilities to be able to use before. There 
are many exciting developments in biofuel--wind, solar, and 
hydroelectric industries, and new technology development not 
only moves us toward that ``all of the above'' energy policy 
and greater energy independence but also grows our economy and 
jobs.
    This has been a very interesting hearing. I think the 
catfish fat probably took the cake. And we do look forward to 
following these advancements in the coming months and working 
with my colleagues to be able to expand energy production in 
the United States. It is that important for us.
    I ask unanimous consent that members have five legislative 
days to be able to submit statements and supporting materials 
for the record. Without any objection, so ordered. And the 
hearing is now adjourned. Thank you again.
    [Whereupon, at 11:19 a.m., the Subcommittee was adjourned.]


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