Fuel Sourcing

The Power of Biomass.  Delivered.

We have built over the past three years a fuel aggregation business that we operate near Snowflake, Arizona to collect forest thinning and woody waste within a 75-mile radius and transport such biomass fuel to our Snowflake plant. This business includes five Jackson Wood Shavers to manufacture pine shaving material for horse bedding, a high speed Virville bagger for the pine shavings, two local sawmills with up to a 20 million board foot capacity, a Morbark Pole Peeler, screening equipment for mulch production, several pieces of heavy equipment (including feller bunchers, skidders, grinders, chippers, etc.), and a fleet of semi-trucks and trailers used to transport biomass material to the plant and storage area and, on occasion, to transport wood-related products being sold to outside companies.

Our fuel aggregation business is focused on providing cost-effective forest residue biomass fuel to our Snowflake plant by collecting it directly from the source, transporting and then manufacturing and selling lumber, mulch or other high value products to outside companies to substantially reduce the cost of by-product biomass hog fuels. We also provide certain forest thinning services for hire.

As part of our fuel procurement strategy, we bid on and contract with the U.S. Forest Service (“USFS”) for timber sale, salvage sale and service contracts to remove material from the National Forests, and work with other forestry businesses and agencies to harvest biomass fuel.

We have in place or have completed approximately 23 contracts with the U.S. Forest Service, either directly or as a subcontractor, for the collection, chipping/grinding and hauling of woody waste material. We are also subcontractors for the stewardship contract awarded to Future Forests, LLC in September 2004 to thin areas of the Arizona forest that are unhealthy due to crowding, beetle kill and drought conditions.

In June 2002, the largest forest fire in the history of the southwest, the Rodeo-Chediski Fire, burned over 475,000 acres within close proximity of the site of our Snowflake plant. A large portion of the initial biomass material for our Snowflake plant comes from our harvesting of the fire damaged trees from this area under individual contracts with the USFS to remove such fuel. We have harvested over 20,000 acres of the fire-damaged area under contract.

Additionally, we have contracts to manage and collect material from several community green waste sites, and collect biomass from the waste generated by Renegy’s and other area sawmills. Historically, we had been running our sawmills with over 50% of the sawlogs’ volume becoming fuel for the Snowflake plant. However, due to recent lumber price declines, we have suspended all sawmilling operations and do not anticipate restarting such operations until lumber prices improve. We currently have in place existing contracts to grind, chip and remove all woody vegetation and biomass accumulating at several public green waste disposal sites in Payson and Heber, Arizona, and several third party sawmill sites.

Overall, from burned areas, green forest thinning work, green waste sites and sawmill waste, we have collected approximately 400,000 tons of biomass and over $1 million of retail value of saw logs. A substantial portion of that accumulated biomass and almost all of the saw logs with retail value were lost during two fires that took place in 2007. However, with additional fuel collection completed since the fire, combined with the significant remaining inventory that was not burned, as of the date of this filing, we now have approximately 24 months’ worth of wood fuel in storage to be used by our Snowflake plant.

We also recently signed a five-year agreement to process wood materials into horse shavings (wood shavings used in horse stables) for distribution throughout the southwest with a large horse shavings dealer. Beginning October 1, 2007 and continuing for five years, we committed to produce 40,000 bags, each holding twelve cubic feet of shavings, per month for this company. We have also installed equipment to peel bark and manufacture log poles for home construction, fences and utilities. Additionally, we have contracts to provide mulch material for home and garden use. We have the necessary equipment to filter out the mulch material from biomass piles in order to sell the more valuable mulch material and save the remaining chips for boiler fuel.

We understand the importance of a diversified fuel strategy.  As part of our strategy, in addition to gathering biomass fuel from the forest, we continually seek opportunities to secure alternate supplies of biomass to supplement the fuel for our plants.  Such additional sources of biomass may include industrial waste (such as paper sludge), local green waste sites, municipal waste, agricultural waste, and woody construction and debris waste.