Statement of Michael Sopp, Anchor Glass Container, Elmira, New York

Opening

Mr. Chairman, members of the Committee:

Thank you for the opportunity to tell you what runaway energy prices are doing to our business, our employees, our customers, and our region. I'll be brief.

Who We Are

My name is Michael Sopp, and I am the general manager of the Anchor Glass Container plant in Elmira, New York not far from here, in Chemung County. A total of 365 of us work at the plant, where we make glass containers for customers who produce soups, sauces, juices, beer, soft drinks and other foods and beverages. We manufacture 540 million glass containers a year in Elmira. Our business has been growing incrementally and, unlike so many of the trendier dot.coms, it has grown through a combination of quality production, sound capital investment, and good old-fashioned sales work.

The Anchor Glass Container plant in Elmira has an annual payroll of over $19 million. The annual economic impact to the greater Chemung County area is over $90 million. Over all, glass manufacturing represents hundreds of millions of dollars to the economy of the Southern Tier.

Anchor Glass is, in many ways, representative of many businesses in this region that manufacture a variety glass products, from fiber optics to crystal vases. Manufacturing glass containers is an old business, and an important one to the region, providing a good living for generations of families along New York's Southern Tier. However, because the business has been around a long time and because there are so many competitors, our profit margins are naturally low.

Now, Mr. Chairman, consider the fact that the manufacturing of glass is also an energy intensive business. Our manufacturing process uses high heat in large furnaces to turn sand and soda ash, common elements from the earth, into glass. The energy we use in those furnaces represents about 13 percent of the cost of making a ketchup bottle, a pickle jar or a jug for cranberry juice. That's a very high percentage of our cost, compared to many other manufacturers. So you can see why we have to manage energy costs very carefully. And we do.

By necessity, we have become sophisticated and experienced buyers of energy--overwhelmingly natural gas. We have people at corporate headquarters who constantly monitor energy prices, plan ahead, work to manage our risk and get the best energy prices. But even our experience and care cannot protect us in the current environment.

The Problem

Mr. Chairman--the current cost of natural gas is literally killing our business and threatening our entire region with severe economic consequences -- and I am not even speaking of the heating bills that every employee at our plant has to face when she or he goes home. Allow me to refer to the attached charts in the way of an illustration.

In 2000, natural gas prices were73% greater than the five-year average for the period 1995 through 1999 (see Appendix 1).

For the first quarter of 2001, natural gas prices were an astounding189% greater than the five year average for the first quarter periods 1996 through 2000 (see Appendix 2).

Increases of this magnitude cannot be passed through to our customers. As a result, much needed dollars that should be used for capital up-keep and production improvements must be spent to pay our gas bill. This, is turn, limits our ability to continue to contain the costs associated with the manufacturing process that will allow us to maintain our market share and remain competitive in the global market.

Anchor Glass Container Corporation operates a family of sixteen glass container manufacturing facilities across the U.S. and Canada, all of which are faced with the same issues of sky-rocketing energy costs associated with the market price for natural gas. However, the Elmira plant is faced with the additional inequity of excessive intrastate transportation and distribution rates from the Local Distribution Company (LDC). In fact, much of the year, the cost to transport natural gas from the production area of Texas to the city gate of our LDC in New York is less that the distribution rate to get the gas from the LDC to our plant. This further hinders our ability to compete with our sister plants for production that can be placed at any number of plants across North America.

Effect on our Business and Employees

The increase in energy costs has affected our profitability of operations and can inevitably lead to production cutbacks. Capital equipment rebuilds will be delayed, plans for new expansion become questionable and a downward cycle begins to take hold. The result of high energy costs will translate into lost wages and jeopardize continued economic growth and prosperity for the Chemung County region. This is a trend that must not be allowed to continue. Collectively and individually the manufacturers and other businesses in the Chemung County regions have worked very hard to grow the industrial base of the Southern Tier economy.

Effect on our Customers

While our customers have been understanding of the burden of increasing energy costs and partnered with us through participation in a temporary energy surcharge, the offset from the surcharge is only a fraction of the total cost. Much like the glass container industry, many of our customers simply can not pass through higher prices in the form of price increase without jeopardizing their market position. And so the cycle of rising energy prices begins to affect an economic downturn much larger than just the glass container industry.

Closing

We do not know whether the resolution of this crisis, if there is one, lies in tax policy, energy policy, energy conservation programs, a combination of these, or some entirely different combination. But we do know that all of us at the Elmira plant of Anchor Glass Container Corporation--if not all of us in this region and this industry--need relief, and we need it now. The Elmira Plant has weathered many storms over the past 88 years but none have proven to be as potentially devastating to the long term feasibility of our business as the current increase in energy prices.

We commend your leadership on this important issue, and wish to offer you an open invitation to tour our Elmira facility so that we can share with you , first hand, the pride that we take in each stage of our manufacturing and distribution process.

[Attachments are being retained in the Committee files.]