Union Carbide Corp. v. Comm'r

T.C. Memo. 2009-50

UNITED STATES TAX COURT

UNION CARBIDE CORPORATION AND SUBSIDIARIES, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11119-99. Filed March 10, 2009.

R determined deficiencies in P’s Federal income

tax for 1994 and 1995. Pursuant to a negotiated

agreement, P was allowed research credits under sec.

41, I.R.C., for 1994 and 1995. In an amended petition

P now seeks additional research credits for 106

projects conducted at its manufacturing plants. To

resolve this action expeditiously, P and R agreed to

try five of the largest projects underlying P’s

research credit claim.

Held: Two of the five projects constitute

qualified research under sec. 41(d), I.R.C.

Held, further, P has established that it included

all activities that were similar to the two qualified

research projects in its calculation of its base amount

under sec. 41(c)(4), I.R.C.

Held, further, P has established that it incurred

$1,045 of additional qualified research expenditures

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(QREs) for wages paid to specific plant employees for

qualified services performed during the two qualified

research projects. The remaining expenditures for

which P claims additional research credits are not QREs

because they were incurred in the production of goods

for sale, not in the conduct of qualified research.

Held, further, P improperly included production

costs in its base amount. However, because P’s error

caused P to overestimate its base amount, we find P’s

error to be harmless and accept P’s calculation of its

additional base period QREs with several adjustments.

Harold J. Heltzer, Alex E. Sadler, Robert L. Willmore, Peter

B. Work, and Allen D. Madison, for petitioner.

Jill A. Frisch, Daniel A. Rosen, Lyle B. Press, Alex

Shlivko, and Jenny D. Boissonneault, for respondent.

CONTENTS

FINDINGS OF FACT . . . . . . . . . . . . . . . . . . . . . . . 9

I. Overview . . . . . . . . . . . . . . . . . . . . . . . . . 9

A. Petitioner . . . . . . . . . . . . . . . . . . . . . . 9

B. Procedural History . . . . . . . . . . . . . . . . . 11

II. Claim Projects . . . . . . . . . . . . . . . . . . . . . 15

A. The Olefins Production Process . . . . . . . . . . . 16

B. The Amoco Anticoking Project . . . . . . . . . . . . 20

1. Overview of Coking . . . . . . . . . . . . . . 20

2. The Coke Reduction Program and Amoco’s

Technology . . . . . . . . . . . . . . . . . . 22

3. The Amoco Anticoking Project . . . . . . . . . 25

C. The Spuds Project . . . . . . . . . . . . . . . . . 32

1. Overview of the Spuds Project . . . . . . . . . 32

2. Petitioner’s Motion for Leave To Amend

Its Petition . . . . . . . . . . . . . . . . . 37

D. The Sodium Borohydride Project . . . . . . . . . . . 38

1. Overview of the Acid Gas Removal System . . . . 38

2. The Sodium Borohydride Project . . . . . . . . 41

E. UOP GA-155 Project . . . . . . . . . . . . . . . . . 48

1. Overview of Fouling in the C3 Column . . . . . 48

2. Overview of Inhibitors . . . . . . . . . . . . 50

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3. The UOP GA-155 Project . . . . . . . . . . . . 52

F. The UCAT-J Project . . . . . . . . . . . . . . . . . 60

1. Overview of Polyethylene Production . . . . . . 60

2. UCAT-J . . . . . . . . . . . . . . . . . . . . 66

3. Overview of the UCAT-J Project . . . . . . . . 70

4. Experimental Runs Before the Credit Years . . . 79

5. Experimental Runs During the Credit Years . . . 79

a. DJM-5265H (UCAT-J Run 1) . . . . . . . . . 81

b. DJM-1810B (UCAT-J Runs 2 and 11) . . . . . 84

c. DJM-1732H (UCAT-J Runs 3 and 15) . . . . . 88

d. DJM-2419H, DJM-1810H, and DJM 2016H

(UCAT-J Runs 4 Through 6) . . . . . . . . . 91

e. DJM-1735H (UCAT-J Runs 7 and 16) . . . . . 95

f. DJL-5264H and DJL-5280H (UCAT-J Runs 8, 9,

18, and 19 . . . . . . . . . . . . . . . . 98

g. DJH-2580H and DJH-2950H (UCAT-J Runs 10 and

12) . . . . . . . . . . . . . . . . . . . . 101

h. DJL-5420H and DJL-5143H (UCAT-J Runs 13 and

14) . . . . . . . . . . . . . . . . . . . . 103

i. DJM-1720H (UCAT-J Run 17) . . . . . . . 104

III. Claimed Costs . . . . . . . . . . . . . . . . . . . . . 106

A. Cost Documentation Used . . . . . . . . . . . . . . 106

1. PCDs and MASs . . . . . . . . . . . . . . . . . 106

2. CMAI Data for Ethylene Byproducts . . . . . . . 107

3. Wage Information . . . . . . . . . . . . . . . 109

4. R&D Budgets . . . . . . . . . . . . . . . . . . 109

B. Costs of the Amoco Anticoking Project . . . . . . . 110

1. Supplies . . . . . . . . . . . . . . . . . . . 110

2. Wages . . . . . . . . . . . . . . . . . . . . . 113

C. Costs of the Spuds Project . . . . . . . . . . . . . 114

D. Costs of the UOP GA-155 Project . . . . . . . . . . 115

1. Supplies . . . . . . . . . . . . . . . . . . . 115

2. Wages . . . . . . . . . . . . . . . . . . . . . 116

E. Costs of the Sodium Borohydride Project . . . . . . 116

F. Costs of the UCAT-J Project . . . . . . . . . . . . 117

1. Supplies . . . . . . . . . . . . . . . . . . . 117

2. Wages . . . . . . . . . . . . . . . . . . . . . 118

IV. Base Period Projects . . . . . . . . . . . . . . . . . . 119

A. Scope of the Trial . . . . . . . . . . . . . . . . . 119

1. Organization of UCC’s Manufacturing Operations

During the Base Period . . . . . . . . . . . . 120

2. Acquisitions and Dispositions Between the

Claim Years and the Base Period . . . . . . . . 122

a. Acquisitions . . . . . . . . . . . . . . . 122

b. Dispositions . . . . . . . . . . . . . . . 124

3. UCC/Shell Polypropylene Business . . . . . . . 125

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a. The Cooperative Undertaking . . . . . . . . 125

b. SPC . . . . . . . . . . . . . . . . . . . . 127

c. Petitioner’s Base Amount Recalculation . . 129

B. Base Period Projects . . . . . . . . . . . . . . . . 130

1. UCC’s Focus on R&D During the Base Period and

Credit Years . . . . . . . . . . . . . . . . . 130

2. The Role of R&D and Engineering at UCC’s

Manufacturing Plants . . . . . . . . . . . . . 130

3. Petitioner’s Identification of Plant-Based

Qualified Research Activities Conducted During

the Base Period . . . . . . . . . . . . . . . . 131

a. Dr. Wadia’s Assignment . . . . . . . . . . 131

b. Dr. Wadia’s Methodology . . . . . . . . . . 133

c. Dr. Wadia’s Conclusions . . . . . . . . . . 134

d. Petitioner’s Concessions . . . . . . . . . 136

i. Nalco Inhibitor Antifouling Test (Run

816) . . . . . . . . . . . . . . . . . 136

ii. Wastewater Activity (Run 809) . . . . 137

iii. Rohm & Haas Runs (Runs 813

and 814) . . . . . . . . . . . . . . 138

e. Activities That Were Not Identified Base

Period Activities . . . . . . . . . . . . . 139

i. NOx . . . . . . . . . . . . . . . . . . 139

ii. John Zink Co. Orders . . . . . . . . . 149

iii. Star Pelleting . . . . . . . . . . . 149

iv. Naphtha Analysis . . . . . . . . . . . 150

f. Duration and Quantities of Product

Produced . . . . . . . . . . . . . . . . . 150

i. Natural and Forced Draft Burner Tests

(Runs 1 through 11, 95, and 96) . . . . 153

ii. Nalco 5211 Tests (Run 15) . . . . . . 157

iii. Vinyl Acetate Catalyst Protection

Tests (Runs 47 and 48 and Runs 594

and 596) . . . . . . . . . . . . . . 159

iv. Butyl Acetate Capacity Increase Test

(Run 161) . . . . . . . . . . . . . . . 161

v. MEK Production Test (Run 175) . . . . . 161

vi. Secondary Refining System Test

(Run 178) . . . . . . . . . . . . . . 162

vii. Spanish Fermentation Ethanol Refining

Test (Run 180) . . . . . . . . . . . 162

viii. Ethanol Tertiary Recovery Test (Run

181) . . . . . . . . . . . . . . . 162

ix. Mexican Fermentation Ethanol Refining

Test (Run 184) . . . . . . . . . . . . 163

x. Propionic Acid Hydrogen Peroxide

Treatment Test (Run 190) . . . . . . . 163

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xi. Adiabatic Hydrogenation Beds

Rearrangement Test (Run 198 . . . . . 163

xii. Butanol Refining Test (Run 202) . . . 164

xiii. DIBK Recycle to Mixed Keytones

Converters Test (Run 608) . . . . . 164

V. Base Period QREs . . . . . . . . . . . . . . . . . . . . 164

A. Documentation . . . . . . . . . . . . . . . . . . . 166

B. Ms. Toivonen’s Costing Methodology . . . . . . . . . 167

1. Identifying the Lead PCD . . . . . . . . . . . 168

2. Identifying the Materials . . . . . . . . . . . 169

3. Tracing the Materials . . . . . . . . . . . . . 169

4. Determining the Unit Costs of Materials . . . . 170

5. Calculating Total Materials Costs . . . . . . . 172

6. Calculating the Wage Costs . . . . . . . . . . 173

7. Calculating the Total Run Costs . . . . . . . . 175

8. Exceptions to Ms. Toivonen’s General Costing

Methodology . . . . . . . . . . . . . . . . . . 175

C. Ms. Toivonen’s Conclusions . . . . . . . . . . . . . 178

D. Disputed Calculations . . . . . . . . . . . . . . . 178

1. Acrolein Refining System Capacity Test (Run

128) . . . . . . . . . . . . . . . . . . . . 179

2. Propyl Dipropasol Refining Test (Run 171) . . . 179

3. Isophorone Mids Conversion Test (Run 173) . . . 180

4. Secondary Refining System Test (Run 178) . . . 180

5. Naphtha-Sulfur Injection Test (Run 807) . . . . 180

6. Methylmercaptopropanal (MMP) Refrigeration

Tests (Run 810) . . . . . . . . . . . . . . 181

OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

I. The Experts . . . . . . . . . . . . . . . . . . . . . . . 186

A. Petitioner’s Expert Witnesses . . . . . . . . . . . 187

1. Peter Spitz . . . . . . . . . . . . . . . . . . 187

2. Gilbert Froment . . . . . . . . . . . . . . . . 187

3. Richard Martin . . . . . . . . . . . . . . . . 188

4. Norman Brockmeier . . . . . . . . . . . . . . . 188

5. Ms. Hinojosa . . . . . . . . . . . . . . . . . 188

6. Dr. Wadia . . . . . . . . . . . . . . . . . . . 189

7. Ms. Toivonen . . . . . . . . . . . . . . . . . 189

B. Respondent’s Expert Witnesses . . . . . . . . . . . 189

1. Roy T. Halle . . . . . . . . . . . . . . . . . 189

2. M. Julianne McClung . . . . . . . . . . . . . . 190

3. Gary Allen . . . . . . . . . . . . . . . . . . 190

II. Whether the Claim Projects Constitute Qualified Research 191

A. The Qualified Research Tests . . . . . . . . . . . . 191

1. The Section 174 Test . . . . . . . . . . . . . 194

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2. The Technological Information Test . . . . . . 197

3. The Business Component Test . . . . . . . . . . 198

4. The Process of Experimentation Test . . . . . . 198

5. Activities That Are Not Qualified Research . . 203

B. The Claim Projects . . . . . . . . . . . . . . . . . 204

1. Plant-Based Research . . . . . . . . . . . . . 204

2. The Amoco Anticoking Project . . . . . . . . . 207

a. The Section 174 Test . . . . . . . . . . . 208

b. The Technological Information Test . . . . 211

c. The Business Component Test . . . . . . . . 212

d. Process of Experimentation Test . . . . . . 212

e. Funded Research . . . . . . . . . . . . . . 215

f. Research After Commercial Production . . . 216

g. Data Collection and Routine Testing . . . . 217

h. Substantiation Requirement . . . . . . . . 219

3. The Spuds Project . . . . . . . . . . . . . . . 220

a. The Section 174 Test . . . . . . . . . . . 221

b. The Remaining Tests . . . . . . . . . . . . 223

4. The Sodium Borohydride Project . . . . . . . . 223

a. The First Three Tests . . . . . . . . . . . 224

b. The Process of Experimentation Test . . . . 224

5. The UOP GA-155 Project. . . . . . . . . . . . . 227

a. The Section 174 Test . . . . . . . . . . . 228

b. The Remaining Tests . . . . . . . . . . . . 230

6. The UCAT-J Project . . . . . . . . . . . . . . 230

a. The Section 174 Test . . . . . . . . . . . 230

i. Uncertainty . . . . . . . . . . . . . . 232

ii. Discovering Information . . . . . . . 235

b. The Technological Information Test . . . . 238

c. The Business Component Test . . . . . . . . 239

d. The Process of Experimentation Test . . . . 239

e. Research After Commercial Production . . . 242

f. Substantiation Requirement . . . . . . . . 243

III. Base Period Activities . . . . . . . . . . . . . . . . 244

A. Whether Petitioner Must Include Activities Conducted

By the Entire Consolidated Group . . . . . . . . . . 245

B. Acquisitions and Dispositions . . . . . . . . . . . 248

C. Polypropylene Runs . . . . . . . . . . . . . . . . . 250

D. Whether Petitioner Included All Activities Similar

to the Claim Projects on Its List of Identified

Runs . . . . . . . . . . . . . . . . . . . . . . . . 251

1. Petitioner’s Sources of Information . . . . . . 251

a. Whether Petitioner Was Required To Use

FOCRs To Identify Base Period Activities . . 251

b. Whether Petitioner Was Required To Consider

Alternative Sources . . . . . . . . . . . . 255

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2. Whether Petitioner Should Include Additional

Activities in Its Base Period Calculation . . . 256

a. NOx . . . . . . . . . . . . . . . . . . . . 257

b. John Zink Co. Products . . . . . . . . . . 257

c. Star Pelleting Line . . . . . . . . . . . . 257

d. Naphtha Analysis . . . . . . . . . . . . . 258

e. Dr. Wadia’s Limitation of Duration . . . . 258

3. Reliability of Dr. Wadia’s Methodology . . . . 260

a. Reliability of Dr. Wadia’s Methodology as

Expert Testimony . . . . . . . . . . . . . 261

i. Whether the Methodology Can Be Tested . 263

ii. Whether the Methodology Is Known or

Accepted in the Community, Has Been

Published, or Has Been Subjected to Peer

Review . . . . . . . . . . . . . . . . 264

iii. Whether the Methodology Is Subject to

Known Rate of Error . . . . . . . . . 264

b. Petitioner’s Definition of “Qualified

Research” . . . . . . . . . . . . . . . . . 268

c. Whether Dr. Wadia Is Biased . . . . . . . . 272

IV. Claimed Costs . . . . . . . . . . . . . . . . . . . . . 273

V. Base Period QREs . . . . . . . . . . . . . . . . . . . . 285

A. Alleged Flaws in Ms. Toivonen’s Costing

Methodology . . . . . . . . . . . . . . . . . . . . 285

B. Alleged Errors in Ms. Toivonen’s

Calculations . . . . . . . . . . . . . . . . . . . . 288

C. Documents Ms. Toivonen Relied Upon . . . . . . . . . 291

D. Consistency Requirement . . . . . . . . . . . . . . 291

1. In General . . . . . . . . . . . . . . . . . . 293

2. Base Case Costs . . . . . . . . . . . . . . . . 294

3. Wage Costs . . . . . . . . . . . . . . . . . . 295

E. Whether Ms. Toivonen Calculated the Cost of

“Qualified Research” Activities . . . . . . . . . . 296

VI. Conclusion . . . . . . . . . . . . . . . . . . . . . . . 296

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Respondent determined deficiencies in

petitioner’s Federal income tax of $20,481,520 and $140,732,254

for 1994 and 1995, respectively. In its petition, as amended,

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petitioner alleges that it is entitled to additional research

credits under section 411 of approximately $3,656,091 and

$4,726,664 for 1994 and 1995, respectively (claimed credits).2

The claimed credits are based on 106 projects it conducted in

various units within six manufacturing plants during 1994 and

1995 (credit years). For purposes of resolving this action

expeditiously, the parties have agreed to try five of the largest

projects3 underlying petitioner’s affirmative research credit

claims (claim projects).4

The issue before the Court is whether petitioner is entitled

to additional research credits under section 41 for 1994 or

1995.5 Resolution of this issue requires us to determine: (1)

1

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years at issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

2

In its original petition, petitioner claimed as affirmative

adjustments additional research credits of $4,808,671 and

$5,851,619 for 1994 and 1995, respectively.

After amending its petition, petitioner has conceded that an

additional project does not satisfy the requirements of sec.

41(d). This concession does not affect our discussion of

petitioner’s claims and will be addressed in the parties’ Rule

155 computations.

3

The term “projects” is used for convenience.

4

Petitioner withdrew a sixth project before trial.

5

All other issues in this case were resolved by agreement of

the parties or our previous Opinion in Union Carbide Foreign

Sales Corp. v. Commissioner, 115 T.C. 423 (2000).

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Whether any of the claim projects constitute qualified research

under section 41(d); (2) whether any of the claim projects

constitute qualified research, whether petitioner included all

activities that were similar to the claim projects in its

calculation of its base amount under section 41(c)(4); (3) if any

of the claim projects constitute qualified research under section

41(d), whether the claimed costs of supplies and wages

attributable to those projects (claimed costs) are qualified

research expenditures under section 41(b) (QREs); and (4) if any

of the claimed costs are QREs, whether petitioner included all

similar costs in its base amount calculation.

FINDINGS OF FACT

I. Overview

Some of the facts have been stipulated and are so found.

The stipulated facts and the accompanying exhibits are

incorporated herein by this reference.

A. Petitioner

Union Carbide Corp. (UCC) was the parent corporation of a

group of corporations (collectively, petitioner) that filed

consolidated Federal income tax returns for the years ending

December 31, 1994 and 1995. UCC is a corporation organized and

existing under the laws of the State of New York. At the time

the petition was filed, UCC maintained its principal corporate

office in Danbury, Connecticut.

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At all relevant times petitioner was a worldwide

manufacturer and marketer of basic chemicals and plastics and

specialty and intermediate chemicals. Petitioner conducted its

operations at large-scale production facilities throughout the

United States and abroad.

Petitioner’s basic chemicals and plastics (C&P) operations

involved the processing of raw hydrocarbon feedstocks--

principally ethane, propane, and naphtha--into basic building-

block chemicals known as olefins. Ethylene and propylene were

the major olefins UCC produced and were key raw materials for

petitioner’s olefins-chain C&P businesses.

Petitioner used process technologies to convert manufactured

and purchased ethylene and polypropylene into first-line

derivatives such as: (1) Polyethylene, which is used for high-

volume applications such as food containers, milk and water

bottles, grocery and trash bags, pipes, and tubing; (2)

polypropylene, which is used for similar high-volume

applications; and (3) ethylene oxide/glycol and derivatives,

which are used for products such as automobile antifreeze,

polyester resin, and film and as raw materials for petitioner’s

specialty and intermediates chemicals business.

Petitioner’s specialty and intermediates chemicals

operations involved the production of a wide variety of specialty

chemical and polymer product lines, as well as solvents and

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chemical intermediates. During the credit years petitioner also

licensed its key olefins-based process technologies, such as the

UNIPOL process for manufacturing polyethylene, to third parties

in the oil and gas petrochemical industries.

During the credit years UCC maintained research and

development (R&D) technical centers in South Charleston, West

Virginia (South Charleston); Tarrytown, New York; Bound Brook,

Edison, and Somerset, New Jersey; and Cary, North Carolina. UCC

carried out process and design engineering at the technical

center in South Charleston.

On February 6, 2001, UCC merged into a wholly owned

subsidiary of Dow Chemical Co. (Dow).

B. Procedural History

UCC, as the common parent of petitioner’s consolidated

group, timely filed consolidated Federal income tax returns for

the years at issue on Forms 1120, U.S. Corporation Income Tax

Return.

On its 1994 and 1995 Federal income tax returns (returns),

petitioner claimed research credits of $14,100,887 and $4,053,901

for 1994 and 1995, respectively (original returns research

credits). UCC elected the reduced research credit under section

280C(c)(3) on its 1995 return, but not on its 1994 return.

In computing the original returns research credits,

petitioner included the following amounts as QREs for 1984

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through 1988 attributable to UCC (UCC’s original returns base

period QREs):

UCC’s Original Returns

Year Base Period QREs

1984 $68,503,722

1985 64,742,828

1986 48,107,169

1987 52,170,492

1988 70,499,622

Total 304,023,833

UCC’s original returns base period QREs for 1984 through 1987

were drawn exclusively from UCC’s R&D technical centers. UCC’s

1988 original returns base period QREs were drawn from UCC’s R&D

technical centers except for $1.9 million attributable to UCC’s

G-1750 reactor at its Seadrift facility in Texas (Seadrift).

UCC’s annual gross receipts for the base period were as

follows:

UCC’s Annual

Year Gross Receipts

1984 $2,737,545,150

1985 2,440,721,126

1986 2,976,592,778

1987 3,547,163,938

1988 5,033,745,128

Total 16,735,768,120

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UCC’s annual gross receipts for 1990 through 1994 were as

follows:

UCC’s Annual

Year Gross Receipts

1990 $4,010,083,913

1991 3,724,913,910

1992 3,608,486,054

1993 3,617,655,799

1994 3,789,545,361

On March 22, 1999, respondent timely mailed a notice of

deficiency to petitioner determining income tax deficiencies of

$20,481,520 and $140,732,254 for 1994 and 1995, respectively.

The parties negotiated an agreement that resolved most of

the issues raised in the notice of deficiency. Respondent

allowed petitioner’s original returns research credits as part of

the negotiated agreement.

Petitioner alleges in its petition, as amended, that it is

entitled to additional claimed credits of approximately

$3,656,091 and $4,726,664 for 1994 and 1995, respectively.6

Petitioner’s claimed credits are based on 106 projects it

conducted in various units within six manufacturing plants during

the claim years.

6

These figures have not been adjusted to reflect the fact

that petitioner has conceded that some of the projects do not

satisfy the requirements of sec. 41(d).

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In computing the claimed credits, petitioner claimed

$56,247,556 and $145,435,822 as additional QREs under section

41(b) for 1994 and 1995, respectively (claimed QREs). The amount

of claimed QREs for 1995 is the full-year amount although

petitioner acknowledges that section 41 does not apply to any

amount paid or incurred after June 30, 1995, and before January

1, 1996, and petitioner will disregard such amounts in computing

the amount of additional research credits to which it is

entitled. On its original 1994 and 1995 returns petitioner

reported the claimed QREs as costs of goods sold. The supply

items that are in dispute are raw materials used to produce goods

for sale.

For purposes of resolving this action expeditiously, the

parties have agreed to try five of the largest projects

underlying petitioner’s affirmative research credit claims.7 The

five claim projects are referred to as: (1) The Amoco anticoking

7

The parties have not specified how they will proceed as to

the remaining credit year projects. The Court hopes that this

opinion will provide the parties with sufficient guidance to

determine whether additional research credits are available for

those projects. However, additional proceedings may be necessary

if the parties cannot agree on the final disposition of the

remaining projects.

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project; (2) the spuds project;8 (3) the sodium borohydride

project; (4) the UOP GA-155 project; and (5) the UCAT-J project.

The Court held two special trial sessions in connection with

the petition claims. The first addressed the research credit

eligibility of the claim projects, and the second addressed

petitioner’s section 41(c) base amount recomputation. Both

parties introduced fact testimony from former UCC employees (in

some instances, current Dow employees) and opinion testimony from

expert witnesses.

II. Claim Projects

UCC conducted the claim projects at the Taft Plant (Taft)

and the Star Plant (Star), both of which were in Hahnville,

Louisiana.9 UCC conducted its olefins production at Taft’s

hydrocarbons unit, which contained two production subunits

designated Olefins-1 and Olefins-2. During the credit years Taft

was a manufacturing plant that included facilities for the

conversion of raw hydrocarbon feedstocks such as ethane, propane,

and naphtha into basic olefins such as ethylene, propylene, and

butadiene. The Amoco anticoking, spuds, sodium borohydride, and

8

Petitioner now concedes that the spuds project is not

qualified research. However, for reasons discussed below, we

will make an independent determination as to whether the spuds

project constitutes qualified research.

9

Following Dow’s acquisition of UCC in 2001, Taft and Star

were integrated into a single petrochemical complex referred to

as St. Charles Operations.

- 16 -

UOP GA-155 projects related to the olefins production process and

were conducted at Taft.

UCC produced film and molding polyethylene resins using

petitioner’s low pressure UNIPOL process technology at Star. The

UCAT-J project related to UCC’s production of polyethylene resins

and was conducted at Star.

A. The Olefins Production Process

A highly simplified description of the olefins production

process at Taft is that hydrocarbon feedstock is pumped from

storage into pyrolysis furnaces, preheated, and diluted with

steam and then is broken into lighter hydrocarbons through

thermal cracking. Hydrocarbons are any chemical compounds

consisting primarily of carbon and hydrogen. Hydrocarbons may

include 1 to more than 60 carbon atoms and can be gases, liquids,

or solids at normal temperatures depending on the number of

carbon atoms in the compound. Hydrocarbons are found in

petroleum, coal, and natural gas. Hydrocarbons are significant

sources of fuel and raw materials for the production of basic

petrochemicals and derivatives such as plastics, rubbers, and

specialty chemicals.

“Cracking” is the process whereby hydrocarbon molecules are

decomposed and recombined into lighter, commercially useful

molecules through the breaking of carbon-to-carbon or carbon-to-

hydrogen bonds. Cracking can be accomplished through a thermal

- 17 -

or a catalytic process. UCC’s olefins production facilities

employed a thermal process called “steam cracking”, whereby a

gaseous or liquid hydrocarbon feed is diluted with steam and

heated in a fire furnace. The steam cracking reaction requires

temperatures in the range of 1400 to 1650 degrees Fahrenheit and

ordinarily occurs for less than half a second before being

“quenched”, or cooled rapidly, in a heat exchanger or by direct

contact with colder fluid. UCC’s heat exchangers are typically

referred to by the acronym “TLE”, which stands for “transfer line

exchanger”. A TLE tubesheet is a flat, circular sheet

approximately 5 feet in diameter that manifolds together many

double concentric tubes each with an inner diameter of about 1

inch. Water and steam flow through the concentric annulus of

each double concentric tube, and the very high temperature

effluent flows through the center tube. Heat is transferred from

the cracked gas, or “effluent”, to the water and steam to quench

the ethylene furnace reaction products. TLEs use the extremely

hot effluent to boil water into high pressure steam that may be

used to power large steam turbine drivers in the product recovery

section of the plant or for other purposes.

The steam cracking process requires the construction and

maintenance of large, capital intensive, and complex cracking

furnaces to supply the necessary heat. Most of the furnaces at

Olefins-1 and 2 were Lummus SRT (SRT stands for “short residence

- 18 -

time”) furnaces. A Lummus SRT furnace consists of a rectangular

firebox with a row of vertical tubular coils, or “cracking sets”,

located in the center plane between two radiating ceramic

refractory walls.

After the effluent is initially quenched in the furnace’s

TLE to minimize secondary chemical reactions, it is further

quenched through direct contact with water and/or oil in a quench

tower. Heavier hydrocarbons, known as “pyrolysis fuel oil”, are

separated from the effluent during the quenching process. The

cracking, quenching, and pyrolysis fuel oil separation processes

occur in the hot section of UCC’s olefins production units.

After quenching, the effluent enters the recovery section

(or cold section) of the olefins production units. The effluent

is first compressed in a multistage centrifugal compressor to the

pressure required for separation. Acid gasses such as carbon

dioxide and hydrogen sulfide are removed in an acid gas removal

unit during the compression process.

Following compression and acid gas removal, the effluent is

dried, chilled, and partially condensed. It then proceeds

through a separations train whereby ethylene, propylene,

butadiene, and byproducts are fractionated and recovered in a

series of distillation columns and related equipment.

Distillation is performed in a column through the

application of heat from a reboiler at the column’s base and the

- 19 -

removal of components in a condenser at the column’s top. The

lighter fraction in the column feed mixture (the fraction

containing the components of the mixture with the lower boiling

points) is separated according to the lower boiling points

relative to the other chemicals in the mixture and recovered as

overhead vapor at the top of the column. The heavier fractions

in the column feed mixture exit as “bottoms” through the column’s

base.

Olefins-1 and Olefins-2 each had several distillation

columns, including the demethanizer (C1) column, which separated

methane from less volatile components; the deethanizer (C2)

column, which separated ethylene and ethane from less volatile

components; the depropanizer (C3) column, which separated

propylene and propane from less volatile components; and the

debutanizer (C4) column, which separated crude butadiene, butane,

and other four-carbon compounds from less volatile components.

The units also included an ethylene fractionator, which separated

ethylene from ethane, and a propylene fractionator, which

separated propylene from propane, as well as several other

columns.

Recovered methane and hydrogen were used primarily as fuel

gas. UCC typically supplied recovered ethylene, propylene, and

crude butadiene to third parties and/or one of UCC’s dedicated

olefins derivatives units. UCC also recovered and sold certain

- 20 -

byproducts of the olefins production process, such as acetylene,

dripolene (pygas), and fuel oil. Ethane and propane recovered in

the process were recycled through the process to extinction.

B. The Amoco Anticoking Project

1. Overview of Coking

Coke is a heavy, hard, and relatively brittle form of carbon

that gradually forms on the interior walls of cracking set coils

during the cracking process. The cracking reaction produces two

types of coke, “catalytic” and “thermal”.10 Catalytic coking is

caused by the reaction between active metal sites on the inner

furnace tube walls and hydrocarbon molecules in the cracked

furnace gas. Thermal coking gradually forms as a result of the

reaction between catalytic coke and the highly reactive products

in the cracked furnace gas. Time and temperature combine to

remove the hydrogen from the hydrocarbon molecules, forming

thermal coke.

Coke buildup adversely influences furnace performance in a

number of ways. Coke insulates the furnace tubes from the

inside, impeding effective heat transfer from the furnace walls

to the gas within the cracking sets. This gradually increases

the skin temperature of the coils to the mechanical limit,

approximately 2,000 degrees Fahrenheit. Coil coking also closes

10

There are other coke formation theories that are not

relevant here.

- 21 -

off the flow cross-section area within the cracking sets and

thereby causes the hydrocarbon partial pressure (the pressure

exerted by the hydrocarbons within the gas mixture) to increase.

Higher partial pressure in the coils reduces the desired ethylene

yield from the furnace.

Coke also accumulates in the TLEs, located immediately

downstream from the radiant section, and the accumulation can

lead to higher hydrocarbon partial pressures and TLE exit

temperatures. Higher pressure in the TLEs caused by coking also

reduces the desired ethylene yield from the furnace.

Because of these effects of coking on furnace operation, the

cracking sets must be decoked periodically. UCC generally

decoked the furnaces in Taft’s hydrocarbons unit every 30 to 60

days through a process in which air and steam were fed into the

cracking sets at elevated temperatures (hot decokes). After

approximately three to four hot decokes, UCC brought the furnaces

down for an extended “cold turnaround” in which damaged cracking

sets were replaced and coke was manually removed from the TLE

system. Hot decokes and cold turnarounds necessarily resulted in

maintenance costs and lost production. Inhibiting coke formation

could result in reduced maintenance, longer furnace run times,

longer equipment life, and increased productivity.

- 22 -

2. The Coke Reduction Program and Amoco’s Technology

Before and during the credit years UCC’s hydrocarbons R&D

group had in place a coke reduction program aimed at achieving

economic and productivity improvements by implementing

technologies designed to reduce or eliminate coke in UCC’s

ethylene furnaces. Because of the inefficiencies caused by coke,

finding ways to reduce or eliminate coke was an important

objective of UCC’s hydrocarbons business. The goal of the coke

reduction program was to reduce the number of decokes per year by

50 percent and increase productivity by 4 to 4.5 percent per

year. If successful, UCC estimated that this would reduce its

decoking costs by $2.4 million per year and increase revenue by

as much as $20 million.

Many coke mitigation technologies have been proposed and

developed in laboratories over the years, but none have succeeded

commercially. Some failed to mitigate coke or even made it

worse. UCC screened and commercially tested numerous anticoking

technologies in the mid-1980s and later. During the credit years

there was no known, generally accepted, commercial coke

mitigation technology for pyrolysis furnaces. UCC considered at

least four technologies during the credit years but tested only

technology developed by Amoco Chemical Corp. (Amoco) during that

period.

- 23 -

One of UCC’s senior engineering scientists, David Milks,

approached Amoco regarding its anticoking technology in January

1994. Dr. Milks operated out of the South Charleston technical

center. On January 21, 1994, Amoco’s anticoking technology

manager wrote to UCC regarding an Amoco-developed furnace

anticoking technology that would mitigate coke formation and

extend furnace run times between decokings. Amoco’s technology

involved the pretreatment of the interior walls of the cracking

sets with a solution of dithiophosphoric acid derivative. Amoco

claimed that the pretreatment bonded to the sites of the tube

walls that promote catalytic coke formation and “poisoned” these

sites for several furnace runs to prevent coke buildup. Amoco

told UCC that its anticoking technology had been successfully

tested in a pilot plant and two commercial plants and that the

treatment had been shown to survive multiple decokes. After

reading about the science behind the technology, Dr. Milks

believed that it was theoretically sound but not yet proven.

Both Dr. Milks and Amoco were interested in testing the

technology on UCC’s facilities.

Several UCC employees formed the Amoco anticoking technology

test team to evaluate the technology on one of the furnaces at

Olefins-2 and to provide a recommendation as to whether UCC

should license the technology and implement it on all of its

furnaces at Taft and other UCC plants. William Hyde, an

- 24 -

operations improvement engineer at Taft, was the team leader. As

the team leader, Mr. Hyde prepared a charter for the team,

evaluated the technology to determine whether it was worth

testing, and coordinated the testing of the technology.

Amoco’s anticoking technology included the treating chemical

and a specialized method of application. Unlike prior decoking

technologies that UCC had tested, which involved the continuous

injection of an anticoking chemical, Amoco’s technology was a

pretreatment to be applied to a clean furnace before introducing

the feed.

Because of the proprietary nature of the technology, Amoco

required the protection of a secrecy agreement before disclosing

its process to UCC. On or about November 23, 1994, UCC entered

into an agreement with Amoco relating to Amoco’s anticoking

technology (the secrecy agreement). The secrecy agreement was

the only agreement UCC entered into with Amoco regarding Amoco’s

anticoking technology. According to the secrecy agreement, UCC’s

goal in conducting the Amoco anticoking project was to evaluate

the technical and economic feasibility of Amoco’s process and

equipment for inhibiting coking in UCC’s ethylene furnaces. UCC

also wanted to determine whether it was interested in a licensing

arrangement with Amoco. UCC’s rights in Amoco’s technology were

limited to these purposes. The secrecy agreement obligated UCC

to provide Amoco with a nonconfidential summary of the Amoco

- 25 -

anticoking technology’s performance no later than 3 months after

testing was completed. UCC gained no rights in, or licenses to,

any Amoco patent, but the secrecy agreement contemplated that the

parties could enter into a licensing agreement after the testing

was completed.

3. The Amoco Anticoking Project

At the beginning of the Amoco anticoking project UCC was

under the impression that the Amoco technology was fairly

established and beyond early developmental stages but that it

would still require some testing before it was proven technology.

Except for the fact that UCC was testing the Amoco technology,

UCC intended to continue its ethylene production process as usual

without decreasing production during the Amoco anticoking

project.

UCC worked with Amoco to draft a test plan that specified

the number of test runs (runs), the run lengths, what would be

measured, and the method of injecting the inhibitor. The run

lengths would be determined by “furnace cycles”, the amount of

time the furnace would run between hot decokes under normal

operating conditions. The test plan called for the collection of

data over four consecutive furnace cycles. The testing would

begin on furnace 24 in Taft’s Olefins-2 unit. The test plan

provided that Amoco would apply the inhibitor to four of the six

coils in the furnace so that the coke formation could be compared

- 26 -

between the treated cracking sets and the untreated cracking

sets. The test plan provided that treating four of the six coils

would ensure that the test results would not be affected by

differences between furnaces or operating conditions.

The test plan called for the collection of various

measurements during decokes, including furnace coil skin

temperature, pressure drop across the coils, TLE inlet pressure,

carbon monoxide, carbon dioxide, and phosphine. Except for

phosphine, these measurements are affected by coke formation.

Phosphine is a toxic substance that can be produced when

phosphorous-containing materials are used as coke inhibitors.

To prepare for the test, Mr. Hyde prepared a Facility

Operational Change Review (FOCR) for the project. An FOCR is a

document that is prepared by the operations personnel when a

significant operational change is to take place. It generally

addresses technical, quality, health, waste, and safety issues

that must be considered before the change is implemented in order

to minimize any risks involved. Jason Tregre, a Taft hydrocarbon

R&D technology manager, participated in the prestartup safety

review on furnace 24. As part of the test preparation UCC also

manufactured and installed nozzles according to design

specifications provided by Amoco. Among the other final test

preparations were several discussions with Amoco representatives

- 27 -

and a walkthrough at Taft on November 7, 1994, in which Amoco and

UCC personnel reviewed the pretreatment application procedures.

On or about November 28, 1994, after a hot decoke, four of

the six cracking sets were treated. Amoco personnel worked with

UCC’s plant operators to apply the treatment using Amoco’s

equipment. Amoco provided the treatment free of charge and

agreed to pay any overtime for additional time that UCC’s

employees would be required to work. The treatment was completed

on November 30, 1994. After the pretreatment was complete, UCC’s

plant personnel returned the furnace to normal operating

conditions.

UCC paid for the feedstocks and fuel gases used during the

project as well as the normal wages of the UCC employees involved

in the project. The supplies used for the project were the same

supplies that UCC used for normal operations, and UCC sold the

materials produced during the Amoco anticoking project in the

ordinary course of its business. The Amoco anticoking project

did not disrupt UCC’s normal manufacturing processes or products.

After the pretreatment was applied, UCC’s plant personnel

took various measurements, including the following, some of which

were not normally taken and others of which were not normally

taken as frequently:

- 28 -

Measurement Frequency Normal

Taken During Test Frequency

Furnace coil Once per day Once every 1

skin to 3 days

temperature

Radiant coil At least once Not normally

pressure drop per day measured

TLE inlet Continuously Continuously

pressure

Carbon monoxide Not specified Not normally

measured

Carbon dioxide During the Not normally

decoke measured

Hydrocarbon and Every 6 minutes Not specified

steam flows for the first 7

days, hourly

thereafter

Phosphine Not specified Not normally

measured

Some of these measurements were collected on the Olefins-2 unit’s

process computer, and others were collected manually.

UCC took measurements for approximately 45 days, then

performed a hot decoke of furnace 24 in January 1995.

Throughout the project UCC continued to decoke furnace 24

according to the plant’s normal schedule. UCC restarted the

furnace on or about January 15, 1995, without retreating the

furnace and continued to take measurements for about 9 days

thereafter.

Dr. Hyde compiled these measurements and sent them to Dr.

Milks and Dr. Husebye, a researcher in the hydrocarbons R&D group

- 29 -

at the South Charleston technical center. Dr. Husebye

reformatted the data and analyzed them. Dr. Husebye did not

typically perform this type of analysis. UCC did not share the

data it collected with Amoco.11

Dr. Husebye and Dr. Milks documented the results of the

first Amoco pretreatment in a report dated February 21, 1995.

The report covered approximately 7 weeks of furnace 24’s

operation. The results showed that carbon monoxide in the

treated cracking sets was initially reduced, indicating

successful coke inhibition. However, after the first hot decoke

and restart of furnace 24, there was no statistically significant

difference in the amount of carbon monoxide in the treated versus

untreated cracking sets. Dr. Milks and Dr. Husebye hypothesized

that the hot decoke that was performed before the Amoco

pretreatment was applied might have been incomplete and the

pretreatment might not have survived the first hot decoke

following the pretreatment. The results from the other

measurements were either inconclusive or indicated no difference

between the treated and untreated cracking sets.

Because the results from the first pretreatment were

inconclusive, Dr. Milks and Dr. Husebye recommended a second

pretreatment with the Amoco technology after a thorough cold

11

Respondent argues that UCC did share data it collected

with Amoco, and there is conflicting testimony on this point.

However, this fact does not control our decision.

- 30 -

turnaround. Amoco personnel applied the second pretreatment in

April 1995 to four of the six cracking sets. UCC personnel

gathered the same data following the second pretreatment as they

had gathered following the first pretreatment, and Dr. Husebye

analyzed the data. While UCC did not retain its analysis of the

second pretreatment, it did retain archived computer records that

included data collected after the second pretreatment that could

be used to reconstruct the original analysis.

Following the second pretreatment, the initial carbon

monoxide levels in the treated cracking sets were again

significantly lower than the carbon monoxide levels in the

untreated sets. However, after the hot decokes of furnace 24 in

May and June 1995, the carbon monoxide levels in the treated and

untreated cracking sets were nearly identical. The results from

the second pretreatment, as a whole, indicated that the Amoco

technology did not inhibit coke formation in furnace 24’s treated

cracking sets during the runs conducted between April and mid-

August 1995.

On August 21, 1995, a furnace operator participating in a

cold turnaround of furnace 24 observed that the TLE cones

connected to the treated cracking sets had significantly greater

amounts of coke deposits than the TLE cones connected to the

untreated cracking sets. This was unexpected, and UCC believed

- 31 -

that the pretreatment may have contributed to the excess coke in

the TLE cones.

During the cold turnaround UCC removed tube samples and coke

samples from furnace 24 to be tested. UCC’s corrosion and

machinery engineering department evaluated the samples and

documented the results of its analysis in a formal project

report. This report included the results of several tests

performed on the samples, analyses of those tests, and

recommendations for future tests of the Amoco technology. UCC

did not prepare any other formal project reports to specifically

document the results of the second pretreatment. However, UCC

reported the results of the two pretreatments in several informal

reports and memoranda.

UCC considered the Amoco anticoking project to be finished

in August 1995, and UCC never again tested the Amoco technology

in any of its ethylene furnaces. UCC later discovered that the

problem might have been caused by a mistake on Amoco’s part in

establishing the feed rate or the quantity of inhibitor to be fed

to the furnaces. This indicated to UCC that Amoco’s technology

was more developmental than UCC originally believed it to be.

UCC never entered into a licensing agreement with Amoco to use

its technology.

UCC used the information gathered during the Amoco

anticoking project primarily to determine that Amoco’s technology

- 32 -

did not effectively reduce coke formation in its commercial

facilities. UCC also learned about the operation of

thiophosphates (the active ingredients in the Amoco technology),

the relationship between sulfur and carbon monoxide levels, and

the effect of anticoking technology on the ceramic material on

TLE cones. UCC used this information in the course of its

business.

Mr. Hyde spent 35 hours in 1994 and 10 hours in 1995 working

on the Amoco anticoking project. Mr. Tregre spent 5 hours

working on the Amoco anticoking project in 1994.12

C. The Spuds Project

1. Overview of the Spuds Project

The spuds project involved replacing four-hole spuds with

one-hole spuds on furnace 3 in Olefins-1 at Taft. The one-hole

spuds were installed on furnace 3 on or about January 13, 1995.

A burner is a device that provides radiant heat in a

pyrolysis furnace through controlled combustion. In a pyrolysis

furnace, combustion is intended to provide a uniform temperature

to the fired radiant wall, allowing for even heat flux

distribution to the cracking set coils.

12

Petitioner does not claim as QREs any wages paid to Dr.

Milks or Dr. Husebye, who operated out of the South Charleston

technical center. Their wages would have been included in

petitioner’s original returns research credits.

- 33 -

The furnaces in Olefins-1 each had 112 radiant wall burners.

The burners are mounted through the furnace radiant wall and

produced a thin, flat circular disk of flame adjacent to the

wall. The burners were equally spaced in a grid pattern and

radiated heat to the process tubes on the centerline of the

furnace. Each burner had a single spud.

A spud is the orifice or port through which fuel gas flows

into the burner. It resembles a bolt with one or more holes at

the end. Spuds are installed at the piping terminations of each

burner and affect fuel flow and pressure. Spuds function to

equally divide the amount of fuel being injected to each burner

so that the heat released from the burners is evenly and

predictably distributed throughout all of the burners in the

firebox. The size and number of spud orifices determine the

pressure of the fuel gas just upstream of the orifice and the

exit velocity of the fuel gas from the orifice, parameters known

as “flow characteristics”. Flow characteristics of the spuds

help determine the burner firing capacity, which is the British

Thermal Unit (BTU) per hour heat output generated by a single

burner, flame stability, and fuel efficiency. As fuel gas passes

through the spud it produces a high velocity gas jet, which

entrains combustion air and mixes it with the fuel. The amount

of air that mixes with the fuel is critical to the stability of

the flame.

- 34 -

When it was first built in the 1960s, Olefins-1 used one-

hole spuds until it was moth-balled in the 1980s. When it was

restarted in 1989, Olefins-1 switched to four-hole spuds in order

to reduce noise. The four-hole spuds were prone to plugging, and

UCC typically cleaned the spuds during furnace shutdowns by

poking them with pieces of wire. Plugging of spuds may also be

improved or eliminated by cleaning the fuel gas system, removing

contaminants in the fuel gas, setting up a regular maintenance

schedule for removing and cleaning the spuds, or increasing the

size of the orifice(s) in the spuds. Some of these methods may

be costly and/or labor intensive. While replacing multihole

spuds with one-hole spuds without changing the total area of the

holes was a known method of reducing plugging, one-hole spuds

cause significantly more noise than multihole spuds and therefore

cannot always be used.

The Taft hydrocarbons unit identified fuel efficiency as an

area for operational improvement. In October 1994 the John Zink

Co. conducted a combustion survey of Taft’s hydrocarbons unit.

The John Zink Co. is a large ethylene burner manufacturer that

manufactured the burner used on furnace 3. Burner manufacturers

generally use their test furnaces to evaluate new spud designs

because testing new spuds in a commercial furnace can be

hazardous and the costs are unreasonably high. However, once a

spud design is proven, it generally performs better on commercial

- 35 -

furnaces than on test furnaces because the higher heat content in

a commercial furnace results in more stable flames. Testing and

evaluating a new spud on a test furnace takes about a day or

less.

Following the survey, the John Zink Co. recommended using

one-hole spuds instead of four-hole spuds in the Olefins-1

furnaces to reduce plugging. UCC had been using one-hole spuds

in its Olefins-2 furnaces since the late 1970s and noticed that

Olefins-2 had not experienced any plugging problems. However,

UCC was concerned about changing to one-hole spuds because they

might create too much noise. Olefins-1 and 2 were physically

different, and noise was more of a concern at Olefins-1 than at

Olefins-2. However, noise was not a major concern because the

plant personnel already wore hearing protection.

UCC followed the John Zink Co.’s recommendation to try

switching from four-hole spuds to spuds with one hole with the

same total hole area. UCC decided to purchase enough spuds for

three furnaces, which would cost $3,400 to $3,700 per furnace.

UCC believed that this was a relatively inexpensive way to solve

the plugging problem. UCC intended to test the new spuds on one

furnace; and if the test was successful, then UCC would

immediately begin replacing the spuds on two other furnaces.

To test the new spuds, UCC planned to monitor performance

data such as: (1) The fuel-to-feed ratio (BTUs of fuel per point

- 36 -

of feed), (2) excess oxygen in the fuel gas, (3) the amount of

combustibles in the fuel gas, and (4) fuel pressure. UCC

intended to evaluate the fuel efficiency improvements by

measuring BTUs in a process computer, measurements that were

available regardless of whether a test was being performed. The

goals of the test were to determine whether the new spuds would:

(1) Stop or reduce plugging; (2) increase efficiency, and if so

by how much; and (3) increase noise, and if so by how much. Mr.

Tregre was involved in this planning.

UCC did in fact take the above test data on furnace 3 for

about 90 days. Mr. James Gorenflo, a furnace technician, was

involved in testing furnace 3. UCC monitored plugging by

checking fuel pressure gauges. The results showed that pressure

was not increasing, which indicated that the new spuds solved the

plugging problem. UCC also evaluated fuel efficiency by

analyzing measurements of fuel gravity and the fuel-to-feed

ratio. Mr. Tregre was involved in this evaluation. The results

showed that fuel efficiency improved, although not as

dramatically as UCC had hoped.

Because the one-hole spuds solved the plugging problem, UCC

installed one-hole spuds on all of its furnaces at Olefins-1

after the 90-day test period was over. While UCC hoped that the

change would increase fuel efficiency more, the fact that the

- 37 -

one-hole spuds solved the plugging problem was sufficient

justification for changing the spuds.

Mr. Tregre spent 70 hours in 1994 and 10 hours in 1995

working on the spuds project. Mr. Gorenflo spent 10 hours in

1995 working on the spuds project.

2. Petitioner’s Motion for Leave To Amend Its Petition

On January 19, 2007, petitioner filed a motion for leave to

amend its petition. If filed, the amended petition would have:

(1) Withdrawn petitioner’s affirmative claim for additional

research credits under section 41 to the extent it was based on

the spuds project, (2) adjusted the claimed QREs to reflect the

withdrawal of the spuds project, and (3) applied the correct

credit rate for 1994. Respondent opposed this motion because the

Court had already held a trial on the claim projects, including

the spuds project. Given the substantial cost of litigation,

respondent argued that he would be prejudiced if the Court was

prevented from rendering a decision on whether the spuds project

satisfied the criteria for qualified research. In addition, to

the extent that petitioner claimed additional research credits

for projects similar to the spuds project that were not litigated

in the claim year trial, respondent argued that he would be

prejudiced by the absence of a decision on whether the spuds

project constituted qualified research.

- 38 -

Following a hearing on this motion on August 29, 2007, we

denied petitioner’s motion because we found that it would be

unfair to allow petitioner to unilaterally alter its agreement

with respondent to hold a trial on the five claim projects.

D. The Sodium Borohydride Project

1. Overview of the Acid Gas Removal System

The sodium borohydride project involved the injection of a

sodium borohydride solution into the Olefins-2 caustic scrubber.

The Olefins-1 and Olefins-2 acid gas removal systems remove

carbon dioxide and hydrogen sulfide from cracked furnace gas.

Acid gases are impurities that can cause operational problems in

downstream plant equipment. Acid gas removal is also necessary

to meet product specifications.

The acid gas removal system consists of a regenerative

monoethanolamine (MEA) system followed by a caustic scrubber.

Cracked furnace gas is fed into the MEA system, where it is

washed with a countercurrent flow of amine solution that removes

the bulk of acid gases. As an incidental benefit the MEA system

removes the impurity acetaldehyde from the cracked furnace gas.

Acetaldehyde is a highly reactive compound created in trace

quantities during the thermal cracking of hydrocarbons in the

presence of steam. It is formed in the furnaces through the

interaction of free radicals from steam and ethane or other raw

materials. Acetaldehyde can polymerize and foul plant equipment.

- 39 -

After being treated by the MEA system, the cracked furnace

gas passes through a two-stage caustic scrubber for removal of

residual acid gases. The caustic scrubber is sized so that it

can reduce acid gases to specification levels even when the MEA

system is shut down.

The MEA systems in both Olefins-1 and Olefins-2 had to be

periodically shut down and manually cleaned because of the

fouling of heat transfer surfaces partially caused by

acetaldehyde polymerization. Fouling is the deposition of heavy

organic solids that were dissolved in process fluid. When one of

the MEA systems is down, the cracked furnace gas passes through

only the caustic scrubber for acid gas removal. The caustic

scrubber, however, does not remove acetaldehyde. Taft’s MEA

systems ordinarily ran from 3 to 6 months between shutdowns,

depending on the feedstocks used and furnace cracking conditions.

Cleaning the MEA system normally took about 14 days.

In the early 1990s UCC produced at its Taft plant a

hydrocarbon product called crude butadiene. Crude butadiene is

highly reactive and is a major contributor to fouling in the

olefins process equipment. When the MEA system was shut down and

only the caustic scrubber was used to remove acid gases, some

acetaldehyde would leave the process with the crude butadiene.

In 1994 Shell Oil Co. (Shell) was Taft’s primary customer

for crude butadiene. At the time, Taft stored crude butadiene in

- 40 -

two storage tanks and transported it in barges to Shell, which

operated a plant directly across the Mississippi River from Taft.

Shell had a product specification limiting the amount of

acetaldehyde in Taft’s crude butadiene to 100 parts per million

(ppm) because acetaldehyde would foul Shell’s processing

equipment. On one occasion in the summer of 1994, UCC

manufactured crude butadiene that did not meet Shell’s

acetaldehyde specification. Shell refused to accept a barge

shipment of that crude butadiene and returned it to Taft.

When the MEA system was in service, acetaldehyde levels in

Taft’s crude butadiene were well below 100 ppm. However,

acetaldehyde levels reached between 500 and 800 ppm when the MEA

system was shut down. One method that UCC used to bring off-

specification crude butadiene within specification levels was

called “blending”. UCC would store off-specification crude

butadiene and then blend it with on-specification crude butadiene

when the MEA system was restarted.

However, when the amount of off-specification crude

butadiene exceeded UCC’s available storage capacity, UCC would

have to attempt to recycle the crude butadiene or find a

purchaser who would accept it as it was. Another problem of

blending was that it was difficult to calculate the amount of on-

specification product needed to blend with the off-specification

product. UCC was also considering building a pipeline directly

- 41 -

from Taft to the Shell plant, which would reduce or eliminate the

need for storage tanks and make blending impractical. Therefore,

UCC did not view blending as a permanent solution to the problem

of off-specification crude butadiene.

2. The Sodium Borohydride Project

Because of the shortcomings of blending, UCC sought a way to

remove acetaldehyde from crude butadiene during the periods that

the MEA system was shut down for maintenance. UCC decided that a

possible solution was to add sodium borohydride to the caustic

scrubber to remove acetaldehyde when the MEA system was shut down

for maintenance.

In February 1995 UCC considered using sodium borohydride

regularly to remove acetaldehyde if using sodium borohydride

proved to be effective. UCC knew that sodium borohydride was

effective in removing aldehydes, including acetaldehyde, as UCC

had been testing sodium borohydride in laboratories for such

purposes as early as 1961. UCC and its competitors had

successfully used sodium borohydride in commercial processes to

remove acetaldehyde and other carbonyl compounds from products.

However, UCC did not know how effectively sodium borohydride

could remove acetaldehyde in the caustic scrubber. Liquid sodium

borohydride was often used to remove acetaldehyde from other

liquids, but in the caustic scrubber UCC would need to use liquid

sodium borohydride to remove acetaldehyde from a gas. The

- 42 -

interaction of a liquid with a gas is much more difficult to

predict than the interaction of a liquid with other liquids.

UCC also knew that sodium bisulfate could be used to remove

acetaldehyde. However, UCC would have had to use a higher

concentration of sodium bisulfate than sodium borohydride to

effectively remove acetaldehyde, and sodium bisulfate was more

difficult to work with than sodium borohydride.

On October 10, 1994, Mr. George Brandon, a senior production

specialist at Taft, initiated an FOCR for injecting sodium

borohydride into the caustic scrubber in Olefins-2. According to

the FOCR, the purpose of the project was to run a test to

determine whether sodium borohydride could be used to remove

acetaldehyde when the MEA system was shut down.

An R&D report dated January 9, 1995, prepared by Robert

Manyik, a consultant in the hydrocarbons R&D group, was attached

to the FOCR. In the R&D report Dr. Manyik proposed a plant test

to add sodium borohydride to the caustic scrubber when the MEA

system was down in order to remove acetaldehyde to on-

specification levels. UCC would use a sodium borohydride

solution called VenPure, sold by Morton Performance Chemicals

(Morton). The R&D report addressed whether such a test was

feasible, identified potential hazards that could arise during a

test, and provided the necessary technical information that would

be needed to conduct the test. The R&D report specified the

- 43 -

equipment that was available, how much sodium borohydride UCC

would purchase, the rate at which the sodium borohydride would be

added, and the benefits and drawbacks of diluting the sodium

borohydride. The FOCR also included a diagram illustrating how

the sodium borohydride would be injected and a memorandum setting

out, in question and answer format, the duration of the test, the

controls that would be monitored, whether the sodium borohydride

would be diluted, the physical configuration of the injection

equipment, operation temperatures and pressures for the injection

equipment, and UCC’s plan to prevent the buildup of salt

precipitates.

One of the departments that reviewed the FOCR was Taft’s

Environmental Pollution Department (EPD). The EPD endorsed the

sodium borohydride project provided that certain conditions were

met. These conditions were that the EPD would sample and monitor

the plant’s wastewater for the presence of boron 2 weeks before,

during, and 2 weeks after the test, and the use of sodium

borohydride would be immediately terminated if the monitoring

indicated that the wastewater quality was beginning to

deteriorate. The EPD was concerned that large amounts of boron

might enter the wastewater system and disrupt the wastewater

treatment. Another condition that the EDP imposed was that the

injection rate would not exceed 5 pounds per hour; and if the

- 44 -

plant was required to increase this rate, it would seek approval

from the EPD at that time.

Approval from UCC’s R&D department was also necessary before

beginning the project because it involved the introduction of a

new chemical to the process. UCC wanted to ensure that the

change was safe and that there would be no adverse consequences

to the plant process from the injection of sodium borohydride.

The R&D department approved the sodium borohydride project on

January 13, 1995, and the engineering department approved the

sodium borohydride project on February 20, 1995.

UCC believed that a plant test was necessary to determine

whether sodium borohydride would effectively remove acetaldehyde

in an actual caustic scrubber. UCC was uncertain how well the

sodium borohydride would mix with the acetaldehyde because of the

difficulty in modeling liquid-gas interactions. Therefore, while

it was known that sodium borohydride would react with

acetaldehyde in a laboratory or pilot plant setting, UCC was not

sure how well sodium borohydride and acetaldehyde would react in

a full-scale plant given the plant’s size, gas flow, and

configuration. Because cracked furnace gas travels quickly

through the caustic scrubber, UCC was unsure whether the

residence time of the sodium borohydride in the caustic scrubber

would give the sodium borohydride sufficient time to react with

the acetaldehyde and bring the crude butadiene within

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specification levels. UCC was also unsure of the appropriate

rate to inject the sodium borohydride and of the effect the

sodium borohydride would have on the boron concentration of the

wastewater. Because of these uncertainties as to how sodium

borohydride would interact with acetaldehyde, UCC referred to the

sodium borohydride project as a “test run”.

After injecting the sodium borohydride, UCC intended to

monitor the acetaldehyde content of crude butadiene extracted

from the caustic scrubber. The EPD also planned to monitor the

wastewater for boron content.

The equipment for the sodium borohydride project was

initially installed at Olefins-1 on June 11, 1995, but the crude

butadiene remained within specification levels when the Olefins-1

unit’s MEA system was shut down for maintenance. Accordingly,

UCC moved the equipment to Olefins-2 and conducted the test

there. UCC had a limited amount of sodium borohydride and did

not want to waste it on crude butadiene that was already on-

specification. The sodium borohydride project began in the

Olefins-2 unit on or about June 12, 1995, and ran for

approximately 2 weeks.

During the test, UCC injected the sodium borohydride

solution into the Olefins-2 caustic scrubber. To inject the

sodium borohydride UCC used a small tote tank (owned by Morton)

to hold the solution, a small metering pump to inject the

- 46 -

solution, and tubing to connect the tank and the pump to the

process. Morton recommended an amount for UCC to inject, and UCC

followed that recommendation initially but then made adjustments

as the project progressed. UCC did not regularly record the

amount of sodium borohydride that was injected during the test.

Taft employees monitored the crude butadiene production from

the Olefins-2 unit’s C4 column during the sodium borohydride

project. UCC measured the acetaldehyde content of the crude

butadiene every 12 hours. UCC normally took these measurements

about three times a week. To take the measurements, plant

operators took samples of crude butadiene to Taft’s central

quality control laboratory for testing. In addition, Mr. Brandon

measured acetaldehyde levels in the cracked furnace gas entering

and exiting the caustic scrubber. To take these measurements,

Mr. Brandon used a device called a “drager pump and tube system”.

The tubes would indicate how many ppm of acetaldehyde the cracked

gas contained. Mr. Brandon took these measurements at least

daily for the duration of the project. Mr. Brandon did not

normally take such measurements. As planned, the EPD also

monitored the wastewater approximately every 12 hours. The EPD

normally monitored the wastewater weekly unless a special test

was being run.

Mr. Brandon collected and recorded the results of the crude

butadiene analyses and drager tube tests and reported the results

- 47 -

to Terry Swindle, a Taft engineer assisting with the sodium

borohydride project. Mr. Brandon devoted approximately 200 hours

to the sodium borohydride project. The EPD collected and

recorded the results of the wastewater monitoring and reported to

Mr. Swindle that the boron was within acceptable limits.

However, the data collected from the sodium borohydride project

were not documented in a final project report. UCC treated the

January 9, 1995, R&D report prepared by Dr. Manyik as the

functional equivalent of a project report even though the report

was prepared before the test of sodium borohydride occurred.

UCC considered the sodium borohydride project to be a

success because the sodium borohydride effectively kept the

acetaldehyde in the crude butadiene production below the 100 ppm

specification level. Accordingly, Taft began to use sodium

borohydride regularly to reduce acetaldehyde levels when an MEA

system was shut down.

Several years later, UCC discovered that using sodium

borohydride to remove acetaldehyde caused unacceptably high

levels of ethanol, a byproduct of the reaction, in the crude

butadiene. During the credit years UCC believed that ethanol

would leave the system with the spent caustic and therefore did

not consider whether ethanol would be a problem and did not

measure it. However, the ethanol remained in the crude butadiene

and later caused it to fail Shell’s new specifications.

- 48 -

Therefore, UCC began using a new product to remove acetaldehyde

instead of sodium borohydride.

E. UOP GA-155 Project

1. Overview of Fouling in the C3 Column

The UOP GA-155 project involved the injection of an

inhibitor, UOP GA-155, into the C3 column line at Olefins-1 in an

attempt to reduce fouling in the C3 column trays and reboilers.

Fouling is a major problem for petrochemical plants.

Consequences of fouling may include declining performance,

frequent shutdowns of process equipment, loss of operation time,

and increased maintenance costs for cleaning or replacement of

equipment.

Fouling is a particular problem in distillation column

services. Deposit buildup in distillation columns can reduce

capacity and efficiency by blocking the flow path and by impeding

the performance of heat exchangers. An ethylene unit can

experience polymer fouling in the C2, C3, and C4 distillation

columns. The C3 column typically has the worst fouling problem.

The main function of the C3 column was to separate the

propylene and propane (C3 molecules) and heavier hydrocarbons.

The liquid hydrocarbon steam entered the C3 column at the

column’s midpoint and fell to the bottom where it was heated by

one of the two reboilers mounted on the column’s base. The

lighter C3 molecules were vaporized and captured at the top of

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the column, while the remaining heavier components exited the

bottom of the column and traveled on to the C4 column. The C3

column contained approximately 40 trays that held the liquid

hydrocarbon stream being processed so that it could be exposed to

the vapor generated by the reboiler.

Column fouling is typically greatest within the reboiler and

also occurs in the trays. One cause of fouling in distillation

columns is the polymerization of reactive components in the

liquid phase of distillation. Polymerization is the linking of

double bonds to form long chain molecules. Most of the

polymerization is due to the reaction of diolefins and reactive

species such as styrenics.

In the mid-1990s Olefins-1 was experiencing high levels of

fouling in the C3 columns, reboilers, and internal trays caused

by the formation of polybutadiene polymer, a rubbery black

substance that adhered to the insides of the column. There were

two reboilers mounted to the base of the C3 column, but only one

operated at a time. The polybutadiene polymer fouled the tubes

in the operating reboiler and restricted the liquid flow. When

the reboiler fouled to the point that it became inoperable, it

was taken out of service and cleaned, and the clean reboiler was

placed in service. Typically, it took about 2 weeks to clean a

fouled reboiler and cost about $25,000. In 1994 and 1995 the

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ideal run time for a reboiler between cleanings was 2 to 3

months.

The polybutadiene polymer also accumulated on the trays to

the point that the vapors rising from the bottom of the column

could not pass through the holes in the tray. This fouling

created a high differential pressure in the column, causing the

column to flood with liquid and become inoperable. At this

point, plant employees would have to shut down the column and

clean it. In 1994 and 1995 the ideal run time for a C3 column

was approximately 3 years but, depending on the feedstock,

cracking, and operating conditions, the column would not always

run that long. It would typically take about a month to clean a

fouled C3 column and cost about $50,000. Occasionally the entire

olefins unit needed to be shut down when a column cleaning

occurred.

2. Overview of Inhibitors

An inhibitor is a chemical that is added to a chemical plant

to reduce fouling and increase the time that a particular piece

of equipment will operate before it needs to be cleaned or shut

down. Olefins plants use two types of inhibitors (1)

polymerization/oxidation inhibitors and (2) dispersants.

Polymerization/oxidation inhibitors are added to stabilize

certain products that can polymerize or break down when exposed

to air. Dispersants are added to products to keep impurities

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suspended in the liquid hydrocarbon stream from depositing on

plant surfaces and fouling them. An effective inhibitor will

improve column and reboiler run length times and will not cause

any additional problems in the plant.

UCC used about 12 different inhibitors in its olefins

manufacturing processes at any particular time in the early

1990s. In 1994 and 1995 UCC used different inhibitors in its

olefins manufacturing units because an inhibitor that works well

in one olefins plant may not necessarily work well in another

olefins plant. Because equipment differs from plant to plant, an

inhibitor might have a different residence time or different

contact times in different columns. In addition, flow rates,

pressures, and temperatures, which all affect the operation of an

inhibitor, differ from plant to plant.

The vendors from whom UCC purchased inhibitors tested the

inhibitors in laboratories to verify that they would in fact

inhibit polymerization or oxidation. However, UCC could not

determine how well the inhibitors would work in one of its plants

without testing them in the plant. UCC generally gathered data

when using a new inhibitor and compared that data to baseline

data to determine whether the inhibitor worked as expected. The

purpose of inhibitors is to extend the time equipment can be used

before it must be shut down and cleaned. Therefore, one way to

know whether an inhibitor is effective is to compare the run time

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of a compressor, reboiler, or column operating with the inhibitor

against the preinhibitor run time of the same equipment. UCC

believed that the test of a new inhibitor should last for about

as long as the vendor claims the equipment will run with the use

of the inhibitor. UCC also generally used inhibitor tests to

determine the proper dosage. While UCC believed it was important

to use enough of an inhibitor for it to be effective, excessive

use of an inhibitor can have adverse effects on the production

process or on the plant’s products. Furthermore, because

inhibitors are expensive, using a higher dosage than is necessary

will reduce the economic benefit of using the inhibitor.

The hydrocarbons R&D group was generally involved in

decisions to test process inhibitors at UCC’s plants because the

tests would involve the introduction of a new chemical into the

plant and could have environmental, health, and safety

consequences. R&D was familiar with the chemistries and

processes of the plants and could provide input on whether a new

inhibitor might be effective in the plant, what dosage levels to

use, how to set up the test plan, and how to measure the results

of the inhibitor use.

3. The UOP GA-155 Project

Dripolene was a byproduct of Taft’s olefins production

process that flowed out the bottom of the C4 column, the final

column in the olefins separations train. UCC could not ship

- 53 -

dripolene unless it was stabilized with a certain amount of

polymerization/oxidation inhibitor. Without the inhibitor, the

dripolene could react with oxygen and present an explosion

hazard.

Before undertaking the UOP GA-155 project, Taft’s

hydrocarbons unit had been injecting a stabilizer known as UOP-5

into the dripolene as it flowed out of the C4 column. The active

ingredient of UOP-5 was phenylenediamine. The dripolene from

Olefins-1 and 2 was blended and stored in the same tank, so the

Olefins-1 dripolene was stabilized by the inhibitor injected into

the Olefins-2 dripolene.

Because cleaning the reboilers and shutting down the columns

was very expensive, UCC was always looking for ways to decrease

operating costs by reducing fouling. Mr. Brandon discussed the

problem with members of Taft’s hydrocarbons R&D group to try to

find ways to reduce fouling in the C3 column. Mr. Brandon

approached UOP, a supplier to the petrochemical industry, to

determine whether UOP had a product that could be fed directly

into the Olefins-1 C3 column to both reduce fouling and stabilize

the dripolene. UOP reviewed UCC’s process stream, operation,

equipment, and operating conditions. On the basis of those

observations, UOP recommended that UCC use UOP GA-155, which

contains phenylenediamine (the active ingredient used in UOP-5)

as well as a dispersant. UOP told UCC the approximate

- 54 -

percentages of UOP-5 and the dispersant contained in UOP GA-155.

UOP maintained that UOP GA-155 would operate as an oxidation

inhibitor in the C3 column, the phenylenediamine would stabilize

the dripolene, and the dispersant would mitigate fouling in the

C3 column. UOP represented to UCC that UOP GA-155 was effective

in extending process run length.

UCC had not previously used UOP GA-155 in any of its

facilities and was not aware of any other olefins plants in the

country that had used UOP GA-155. However, UOP told UCC that

some of the ingredients in UOP GA-155 were industry-wide standard

materials that were being used in olefins plants. UCC did not

consider other possible inhibitors or chemicals because their

cost was excessive because they were bundled with the purchase of

services that UCC did not want.

UCC wanted to test UOP GA-155 in its plant because

successful laboratory tests do not guarantee that an inhibitor

will be effective enough in a full-scale plant to justify its

cost. While manufacturers often made representations to UCC

regarding the inhibitors that they were selling, the inhibitors

did not always work as represented.

To test the UOP GA-155, UCC planned to inject UOP GA-155

into the C3 column feed instead of into the dripolene product as

it had done with UOP-5. The UOP GA-155 would then flow out of

- 55 -

the bottom of the C3 column, flow into the C4 column feed, and

flow out of the C4 column and the plant with the dripolene.

Mr. Brandon initiated an FOCR, numbered 94-80 (FOCR 94-80),

for moving the equipment that was being used to inject UOP-5 into

the Olefins-2 dripolene product over to Olefins-1 in order to

inject the inhibitor into the C3 column feed. UCC hoped that

injecting the inhibitor into the C3 column feed instead of

injecting it into the dripolene as it flowed out of the C4 column

would inhibit fouling in the depropanizer system. Mr. Brandon

initiated another FOCR, numbered 94-61 (FOCR 94-61), for changing

the inhibitor from UOP-5 to UOP GA-155 and injecting UOP GA-155

into the C3 column feed. FOCRs were generally required when

introducing new inhibitors because the introduction of a new

inhibitor is a process change. According to FOCR 94-61, the

purpose of the change was to reduce fouling in the C3 and C4

columns and their reboilers. The FOCR listed as concerns that

needed resolution (1) whether the customers would approve of the

change and (2) whether UCC had a pump that had a high enough

discharge pressure.

Mr. Brandon’s supervisor instructed Mr. Brandon to keep the

UOP GA-155 project on hold until the necessary approvals had been

obtained from the hydrocarbons R&D group, the EPD, and UCC’s

customers. UCC informed its customers that UOP GA-155 would be

injected into Taft’s Olefins-1 production process, and its

- 56 -

customers did not object. The FOCRs were finally approved on

September 22, 1994.

While Mr. Brandon hoped that UOP GA-155 would increase the

C3 column’s run time, he was not certain how effective UOP GA-155

would be. Mr. Brandon was also concerned that UOP GA-155 could

actually harm UCC’s production process. Specifically, he was

concerned that adding a dispersant to the column could cause

existing polymers to loosen from the column walls and trays and

plug the column. If that happened, UCC would have to shut down

the column and possibly the entire Olefins-1 unit. In addition,

Mr. Brandon was concerned about the effect that UOP GA-155 might

have on Taft’s commercial products because the UOP GA-155 would

flow out with the crude dripolene. Because UOP GA-155 would be a

new ingredient in the product, it was possible that it could

adversely affect the downstream olefins products or cause

problems when fed into customers’ production processes.

The injection of UOP GA-155 into the C3 column feed line in

Olefins-1 began soon after the final approvals were obtained for

FOCR 94-61 and FOCR 94-80 on September 22, 1994. The

hydrocarbons R&D group asked the plant personnel to collect data

during the test. Accordingly, Mr. Brandon collected daily all of

the pertinent data that were regularly recorded on the process

computer system in the Olefins-1 control room, including

differential column pressure, feed flows, throughput rate, steam

- 57 -

temperatures, and steam flows. Differential column pressure is

the measurement of the different pressures across the column

trays from top to bottom. When polybutadiene polymer accumulates

on the trays, the trays plug and the differential pressure

increases. While UCC did not normally review these measurements

daily, UCC did monitor reboiler chest pressure when there were

problems. It was also typical in the industry to measure column

differential pressure when equipment is prone to fouling.

During the test Mr. Brandon also measured and recorded

condensate pressure of the reboiler every day. Neither Mr.

Brandon nor any of UCC’s other employees had monitored the

condensate pressure daily before the UOP GA-155 project. An

increase in condensate pressure is a primary indicator of

reboiler fouling.

Mr. Brandon and other employees also took samples of

dripolene and analyzed the inhibitor levels once per 12-hour

shift. Before the UOP GA-155 project, UCC’s employees had

analyzed the inhibitor levels in the dripolene once a week for

quality control. Mr. Brandon took measurements for approximately

90 days during the UOP GA-155 project. Mr. Brandon also kept

track of reboiler run lengths both before and during the test

period. Mr. Brandon spent approximately 200 hours in 1994 and

200 hours in 1995 working on the UOP GA-155 project.

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It would take approximately 3 years to determine whether UOP

GA-155 substantially extended the run length of the C3 column.

UCC could determine whether UOP GA-155 was reducing fouling in

the column by opening the column, but that was not practical.

Therefore, UCC relied on indicators such as differential column

pressure to determine whether UOP GA-155 was reducing fouling in

the column.

It would take at least 3 months for UCC to assess whether

UOP GA-155 would increase the run length of the reboiler because

the normal run length of a reboiler without the addition of an

inhibitor is about 2 to 3 months. UCC believed that a successful

inhibitor could extend the run length of a reboiler to about 6

months. Therefore, while Mr. Brandon recorded data only for

about 90 days, UCC treated the project as beginning on September

22, 1994, and lasting for 6 months. During this time the

Olefins-1 unit operated normally except for the addition of the

activities described above. UCC sold the products produced

during the UOP GA-155 project in the ordinary course of its

business.

UCC considered the UOP GA-155 project to be a success

because it reduced fouling and increased the run length of the

reboiler to 6 months.

Mr. Brandon recorded the results of the project and shared

them with Mr. Swindle. However, Mr. Brandon did not prepare a

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formal project report after the project was completed or save the

data for use when fouling of Olefins-2 was discovered in 1997 or

1998. However, the results of the project would have been

reported in the quarterly reports that the hydrocarbons R&D group

prepared. The results of the UOP GA-155 project were also

included in a memorandum prepared for a conference call to be

held on July 27, 1995. The memorandum did not include data from

the project but reported the results as follows:

UOP Inhibitor Project: Recall that in the beginning of

the second half last year, the UOP-5 inhibitor was

replaced with the UOP GA-155 inhibitor and it was

injected earlier in the system in order to reduce

fouling of the C3 Column Reboilers in Ole-1. In

January of this year, the east kettle [reboiler] had to

be taken out of service due to tube leaks which were

not caused by the inhibitor or fouling - it was due to

attack from carbonic acid in the steam condensate. The

newly purchased kettle, which was installed last

October, was then put in service and is still in

service. We feel that the success of the kettle - six

month life - is primarily due to the use of the new

inhibitor. In addition, the new inhibitor is now also

being used in Ole-2.

UCC did not always prepare formal project reports when an

inhibitor test such as the UOP GA-155 project was performed.

Although it was preferable for a project report to be prepared to

summarize the results of an inhibitor test, this did not always

happen because it was not always a top priority.

On or about October 28, 1994, about a month after the UOP

GA-155 project began, Mr. Brandon began preparing an FOCR for a

project to begin using UOP GA-155 in Olefins-2. On November 29,

- 60 -

1994, Mr. Swindle recommended that UOP GA-155 be used at Olefins-

2. On or about June 14, 1995, after the completion of the UOP

GA-155 project, UCC began injecting UOP GA-155 into Olefins-2’s

C2 column tail. The purpose of this change was to reduce fouling

in the C2, C3, and C4 columns in Olefins-2 and simultaneously

stabilize the dripolene. However, during a plant shutdown in

1997 or 1998, UCC discovered that the dispersant in UOP GA-155

caused severe fouling in the Olefins-2.

F. The UCAT-J Project

1. Overview of Polyethylene Production

The UCAT-J project involved a series of runs using a new

polyethylene (PE) catalyst referred to as UCAT-J conducted at

Star. PE is a plastic made by reacting ethylene with other

materials to form polymers, or molecular chains, of ethylene.

The PE production process generally involves a reaction between a

polymerization-initiating catalyst (as relevant here, M-1 or

UCAT-J13), a cocatalyst, a monomer (usually ethylene), a

comonomer (hexene or butene), triethylaluminum (TEAl), and

hydrogen. Once polymerization begins, monomer molecules diffuse

to the growing polymer chains and resin is formed. Following

polymerization, the resin is discharged into a separate vessel

known as a product purge bin. Purging removes the residual

13

The UCAT-J and M-1 catalysts are described in greater

detail below.

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hydrocarbons in the resin and deactivates the catalyst and

cocatalyst. The resin is then fed into a pelletizer, which

converts the resin into pellets. The pelleted PE resin is the

finished product. UCC typically shipped pelleted PE in hopper

cars (which each hold about 185,000 pounds of PE resin) to

customers who used it to make items such as grocery and trash

bags, packaging, thin-walled containers, and industrial liners.

Star was dedicated to the commercial production of linear

low-density film and molding resins (LLDPE) and medium density

(MDPE) and high density (HDPE) molding resins using UCC’s low-

pressure UNIPOL process technology. “UNIPOL” is the trade name

for a low-pressure gas phase fluidized bed process that UCC

developed and licensed to third parties. Star’s Low Pressure 3

Unit (LP-3) operated two UNIPOL reactors: Reactor 1, which was

used primarily for HDPE molding resins, and Reactor 2, which was

used primarily for LLDPE film resins. Although used for

different purposes, the two reactors were physically and

technologically identical. Reactor 1 and Reactor 2 operated

continuously 24 hours a day except for limited downtime

maintenance, transitions, and unforeseen problems such as

electrical outages.

In the early 1990s UCC began to plan the design of another

UNIPOL manufacturing facility, Low Pressure 6 Unit (LP-6). LP-6

was designed to produce PE using UCAT-J as the catalyst, but UCC

- 62 -

decided to install two different sets of catalyst feeders so that

M-1 could be used at the plant if UCC could not commercialize

UCAT-J by the time LP-6 was complete. UCC believed that it was

likely that it would be able to use UCAT-J at LP-6 once it was

constructed, but also knew that beginning the design of LP-6

before UCAT-J was ready for commercial production was a risk.

UCC did not want to wait until UCAT-J was commercialized before

building LP-6 because it takes years to design and build a

manufacturing facility and UCC wanted LP-6 to be completed close

to the time that UCAT-J was commercialized. LP-6 began producing

PE in June of 1995 using UCAT-J.

A UNIPOL reactor is referred to as a “fluidized bed” because

the circulating gas flow in the reactor causes the solid granular

resin to fluidize. The catalyst is fed directly into the side of

the fluidized bed through an injection system. A cocatalyst is

also fed into the bottom of the UNIPOL reactor to activate the

catalyst and promote catalyst activity.

“Reactor operability” refers to a wide range of potential

reactor operating issues, including catalyst stability,

reproducibility (whether the reactor consistently produces the

same responses), reactor control, production rate control,

product discharge, and downstream equipment operation. Reactor

operability is affected by a number of factors such as the

history of the reactor since it was last cleaned (i.e., how often

- 63 -

it has been exposed to oxygen and moisture), the mix of products

run on the reactor, the purity of the feed streams, and the

catalysts and cocatalysts used on the reaction system.

A significant UNIPOL operability issue is the formation of

sheets and agglomerates caused by static in the reactor. Sheets

and agglomerates are often referred to as continuity problems

because they interrupt the continuous operation of the reactors.

Sheets are formed when resin continues to react in a stagnant

zone (a zone with poor fluidization) next to the walls of the

reactor. Without fluidization to remove the heat of reaction,

the resin fuses together and forms sheet-like blocks ranging from

paper thin to several inches in thickness and several feet in

length. Agglomerates are formed when granular resin fuses

together forming solid or tightly adhered chunks ranging from

popcorn sized to several feet in diameter. These chunks can be

caused by sheets folding or rolling in the fluidizing bed, poor

catalyst distribution, localized poor heat transfer, or areas of

poor fluidization on the reactor distributor plate. Sheets and

agglomerates interfere with fluidization and plug the product

purge bin valve, requiring UCC to shut down and clean the

reactors.

Another operability issue is the formation of small, dust-

like particles called “fines”. Fines can create static (which

- 64 -

can lead to sheeting), cause continuity problems in the reactor,

and foul the cycle gas system.

The occurrence of operability problems might require a

reactor to be “killed”. A reactor kill (or CO kill) is typically

accomplished by the injection of carbon monoxide into the

reaction cycle gas to either reduce the rate of reaction (a

minikill) or stop all reaction as quickly as possible.

PE material meeting all applicable product specifications is

referred to as “aim-grade”. PE material that does not meet all

applicable product specifications is referred to as “off-grade”.

The production of off-grade material was not unusual, and UCC

sold both aim-grade and off-grade resin to third parties but at

different prices. Specific product properties of PE resins

include the average particle size (APS), density (for solid

molded resin), bulk density (for loose resin powder), film

appearance rating (FAR), hexane extractables (relating to the

stickiness of the resin), melt flow index, melt flow ratio (MFR),

and resin morphology.

The specific properties of the PE products made in a UNIPOL

reactor are determined by a variety of factors, including the

catalyst used and reactor operating conditions. The key reactor

operating conditions that determine the properties of the PE

resin are reactor temperature, ethylene partial pressure,

- 65 -

hydrogen-to-ethylene ratio, comonomer ratio, TEAl cocatalyst

ratio (Al/Ti), and residence time.

Star’s reactors made a variety of PE base resins. UCC

identified base resins using a three-letter prefix followed by a

four-number code and either an “H” or a “B”. The prefix of all

base resins begins with a “D”, followed by a “J” if UCAT-J is

used as the catalyst or a “G” if M-1 is used as the catalyst,

followed by an “H”, “M”, or “L” depending on the melt index

range. The four-number code identifies the density and melt

index designation. The final “H” or “B” identifies the comonomer

as hexene or butene, respectively.

A transition is the period when reactor conditions are

changed from one product’s specifications to a new product’s

specifications. A transition typically takes three to four bed

turnovers to complete, and each bed turnover lasts about 2 hours.

A bed turnover is the average amount of time material stays in

the reactor before flowing out of the product stream. The resin

made during transitions is either intermediate-grade material

that can be recycled into aim-grade resin or off-grade material

sold for scrap uses such as picnic tables and barrels. Once a

reactor is transitioned into a new product it takes a number of

additional bed turnovers to “line out” the reactor. Lining out

the reactor involves increasing the production rate back to the

normal level after slowing down for the transition and returning

- 66 -

operation conditions back to their normal steady state. After a

transition from M-1 to UCAT-J, it takes at least 12 hours to line

out the reactor.

2. UCAT-J

In a chemical reaction, a catalyst is a substance that

increases the rate of the reaction or causes the reaction to

occur under different conditions than otherwise possible.

Polymerization cannot occur in a UNIPOL reactor without a

catalyst. The catalyst provides the site on which the polymer

chain grows. A PE catalyst “precursor” refers to the catalyst

state before the incorporation of aluminum alkyl catalyst

modifying agents.

From Star’s startup in 1981 through the beginning of the

UCAT-J runs at Star in 1992, Reactor 1 and Reactor 2 at the LP-3

unit operated exclusively on a catalyst called M-1. UCC

continued to use M-1 at Star during the credit years during

normal production runs occurring between UCAT-J runs. Despite

its extensive experience using M-1, UCC occasionally experienced

operability and continuity problems with M-1, particularly

sheeting.

UCC developed UCAT-J as a superior catalyst alternative to

M-1. The primary advantage of UCAT-J is that UCAT-J is over four

times more “active” than M-1, meaning that the same amount of

catalyst makes over four times as much PE resin as can be made

- 67 -

with M-1. This, in turn, significantly reduces both capital

outlays for catalyst manufacturing facilities and the cost of

catalysts used in manufacturing PE. UCAT-J also requires less

hydrogen and TEAl than M-1, thereby reducing manufacturing costs

further, and improves some properties of PE resin such as FAR.

However, UCC used about the same amount of ethylene, hexene, and

butene regardless of whether it used M-1 or UCAT-J. Although UCC

had not commercialized UCAT-J during the credit years, UCC knew

of these advantages during the credit years and described them to

its licensees in anticipation of UCAT-J’s commercialization.

M-1 and UCAT-J are both Ziegler-Natta catalysts, a general

category of PE catalysts made from a transition metal such as

titanium and requiring a cocatalyst to initiate polymerization.

Both catalysts are based on a chemical solution of magnesium

chloride, titanium trichloride, and tetrahydrofuran, although the

proportions of these materials in M-1 and UCAT-J are different.

Most significantly, UCAT-J has a higher titanium loading and

magnesium-to-titanium ratio than M-1, both of which give UCAT-J

superior activity. Both M-1 and UCAT-J use titanium to provide

the catalyst active site and TEAl as the co-catalyst.

To create M-1, a chemical solution is added to small

particles of treated silica, which absorb the solution. Most of

the tetrahydrofuran is then evaporated to produce a free-flowing

solid, which is the M-1 precursor. The M-1 precursor is then

- 68 -

reduced with aluminum alkyls, diethylaluminum chloride (DEAC) and

tri-n-hexylaluminum (TnHAl), to produce the M-1 catalyst.

Catalyst reduction refers to the treatment of the catalyst

precursor with aluminum alkyl modifying agents to moderate

catalyst activity and ensure acceptable product properties such

as bulk density and particle size. The aluminum alkyl reduction

agents used for both M-1 and UCAT-J were DEAC and TnHAl. In its

final form, M-1 is a dry powder resembling sand.

UCAT-J is spray dried instead of being silica based. The

chemical solution is transformed into a fine droplet spray in a

spray dryer. As these droplets pass through a drying chamber,

the tetrahydrofuran evaporates, leaving only the solid catalyst.

The catalyst is then added to mineral oil to create a slurry (a

mixture of liquid and insoluble solids) of UCAT-J precursor. The

UCAT-J precursor is then reduced with aluminum alkyls. Although

Star made its own M-1 catalyst precursor, UCC made UCAT-J

precursor at a separate catalyst manufacturing facility in South

Charleston and shipped it to Star.

Because of the different methods by which they are made, M-1

and UCAT-J have different “catalyst morphology”, a term used to

describe the size, shape, and surface texture of a catalyst

particle. M-1 catalyst particles have a substantially larger APS

than those of UCAT-J. M-1 particles are typically rounder and

smoother than UCAT-J particles. UCAT-J’s morphology creates some

- 69 -

problems that were not present with M-1, particularly increased

fines and resin flowablity problems. These problems created

operating uncertainties that had not been resolved by the

beginning of 1994. UCAT-J and M-1 also respond differently to

other chemicals present during polymerization, respond

differently to reactor conditions, and create differences in PE

product properties.

M-1 precursor is reduced in the catalyst manufacturing unit

before the catalyst is delivered for use in the reactor. UCAT-J

precursor, in contrast, requires “in-line” catalyst reduction,

meaning that the DEAC and TnHAl modifying agents are injected

into the catalyst stream immediately before it is fed into the

UNIPOL reactor.

Before the first UCAT-J run at Star, which occurred in May

1992, UCC installed new equipment at Star to allow the in-line

reduction of UCAT-J precursor. The in-line precursor

modification system was a new unit operation installed

specifically for use with UCAT-J. In this system, UCAT-J

precursor was placed into a slurry feed tank, agitated to

maintain good dispersion, and pumped at a controlled rate. DEAC

and TnHAl were pumped into the catalyst stream at a specific

ratio to the catalyst feed. Following the injection of the

aluminum alkyls, the precursor flowed into a static mixer to

- 70 -

ensure adequate contacting and then into a residence time pot to

provide time for the in-line modification to occur.

The UCAT-J in-line reduction system presented several

operating uncertainties not present with M-1. When the system

was first used, it created catalyst consistency problem that were

due in part to the absence of static mixers and in part to the

fact that the original design contacted the UCAT-J precursor with

DEAC first and then with TnHAl, as was customary with M-1. UCC

later discovered that consistency improved when the order was

reversed. UCC also had difficulty controlling flow rates,

keeping control consistent and accurate, and injecting UCAT-J

because a slurry does not disburse as easily as a dry catalyst

like M-1. These uncertainties were not resolved by 1994.

3. Overview of the UCAT-J Project

The UCAT-J commercialization program involved the

development of UCAT-J to the point where it could be

commercialized. UCC’s UNIPOL licensing business wanted to

commercialize UCAT-J in order to: (1) Derive revenues from

selling UCAT-J to existing UNIPOL licensees; (2) be able to tout

the superior qualifies of UCAT-J to prospective UNIPOL licensees;

(3) avoid the capital costs associated with constructing plants

to manufacture the less-productive M-1 catalyst; and (4) reduce

Star’s manufacturing costs as a result of UCAT-J’s superior

productivity. The UCAT-J commercialization program took place at

- 71 -

Star from 1992 to 1996. References to the “UCAT-J project” are

only to those runs that occurred during the credit years.

Once UCC made the decision to commercialize UCAT-J, members

from process R&D, product R&D, and catalyst R&D formed an

interdisciplinary UCAT-J technology task force. The members met

monthly or bimonthly, usually in person, to review the status of

the commercialization effort and develop strategies for

overcoming problems with UCAT-J implementation.

During 1993 through 1995 UCC’s process R&D group conducted

what it called “experimental runs” of UCAT-J on a small-scale

UNIPOL reactor at a pilot plant at the South Charleston technical

center. UCC defined an experimental run as a run of a product

that UCC deemed noncommercial.14 During the credit years UCC’s

manufacturing business required that a commercial facility

conduct at least two, but preferably three, objective-meeting

experimental runs of new PE products, including products made

with a new catalyst, for the products to be considered

commercial. The successful completion of two to three objective-

meeting runs would demonstrate the operability of a new

technology to the satisfaction of the UNIPOL R&D and

manufacturing organizations. A customer’s qualification of a PE

resin depended on an independent inquiry related to the

14

We use the term “experimental run” for convenience and

consistency with UCC’s terminology.

- 72 -

suitability of the product produced and did not establish that

the product could be produced consistently enough to be

considered commercial. UCC was not required to advise customers

that they were receiving base resins produced with UCAT-J unless

a specific contractual term required such a disclosure.

The South Charleston pilot plant’s UNIPOL reactors were used

strictly for R&D purposes, and one reactor was dedicated to UCAT-

J. UCC ran UCAT-J on the pilot plant reactor to evaluate

catalyst performance, estimate optimal operating conditions for

the commercial reactors, and make PE resin for evaluation by the

product R&D group in Bound Brook. After experimenting with new

technologies on the pilot plant, UCC generally experimented with

the technologies on its mid-size UNIPOL reactors at Seadrift

before experimenting with the technology on the larger reactors

at Star. However, UCC took some UCAT-J products from the pilot

plant directly to Star or did not test them on smaller reactors

at all.

Successful commercialization of UCAT-J required UCC to

conduct experimental runs at UCC’s commercial plants to evaluate

whether UCAT-J could be used with reactor operability and resin

properties at least equivalent to, and hopefully better than,

those achieved using M-1. While UCC was often able to achieve at

least the same level of reactor operability and continuity using

UCAT-J as it had achieved with M-1 at pilot plants, commercial-

- 73 -

scale plant tests were also necessary because there were

significant differences between the pilot plants and commercial

reactors. For example, the bed volume of Star’s commercial

reactors was about 825 times the size of the bed volume of the

pilot plant reactor. Because of this difference, UCC’s pilot

plant and commercial reactors use different methods of

fluidization. These differences affect the amount of sheeting

and static in a reactor. Accordingly, a successful run at the

pilot plant did not indicate that sheeting and static would not

cause significant problems when a similar run was conducted at a

commercial plant.

The first commercial-scale run using UCAT-J was conducted on

UCC’s smallest commercial-scale reactor, the G-1750 reactor at

Seadrift, in 1991. UCC continued the UCAT-J commercialization

program at Star until 1996. UCC did not consider UCAT-J fully

commercial before the program was completed because UCC did not

know with certainty how UCAT-J would affect reactor operability

and continuity, how it would affect product quality and how much

off-grade material it would produce, whether there would be

problems feeding the catalyst into the reactor, and how it would

respond to CO kills. UCC was also concerned about reactor feed

stability, fines creation, production rate control, resin

properties, sheeting, and agglomeration. Such reactor

operability and continuity issues could develop at any time

- 74 -

during an experimental run, so process R&D representatives

remained on site for the duration of the runs, even after the

reactor had been successfully transitioned into UCAT-J. Process

R&D preferred longer experimental runs because they afforded more

opportunities to evaluate reactor operability and continuity.

UCAT-J experimental runs were initiated by the completion of

an experimental run request by the appropriate business manager,

R&D group leader, inventory planning and control (IPAC) manager,

and plant department head. IPAC controlled the scheduling of the

experimental runs and the duration of each run. When scheduling

the runs, IPAC considered existing customer orders and the risks

posed by experimental runs so that the experimental runs would

fit UCC’s commercial requirements. Once an experimental run

request was completed and the experimental run was scheduled,

representatives from process R&D in South Charleston would

prepare a strategic run plan with input from the UCAT-J

technology task force. The principal purpose of a strategic run

plan was to communicate to all interested parties the run

objectives, key operating parameters, analytical requirements,

and run coverage. After receiving the strategic run plan, a Star

engineer would prepare a tactical run plan. The purpose of the

tactical run plan was to give detailed run instructions to the

plant operators responsible for reactor operation. Strategic run

plans and tactical run plans were not prepared for routine

- 75 -

commercial production runs. The operations improvement group

would also complete a “New Product Introduction/Commercialization

Procedure Checklist” showing whether all required documentation

was in place.

The function of process R&D representatives during

experimental runs was to evaluate what was happening in the

reactor, identify problems, create hypotheses for how to solve

those issues or improve the process, and test those hypotheses by

conducting experiments. Process R&D representatives conducted

experiments by adjusting operating ratios, modifying catalyst

properties, and introducing new reactor control technologies.

Process R&D generally did not address minor problems that could

be solved by troubleshooting, which were addressed by the

production group at the plant.

During the UCAT-J project process R&D regularly collected

various measurements of reactor operability and continuity and

product properties. While many of these measurements were

collected during nonexperimental runs, process R&D

representatives collected some data that were not normally

collected and took other measurements more frequently than they

normally would. For example, process R&D measured residual

aluminum and titanium to monitor for TEAl starvation during the

UCAT-J project but did not normally take these measurements.

TEAl starvation occurs when there is an inadequate amount of TEAl

- 76 -

cocatalyst in the reactor. This lowers hydrogen and comonomer

response and catalyst productivity, which cause a loss of control

over the reactor and product properties. Process R&D also

measured hexane extractables more frequently than normal during

the UCAT-J project. The process R&D representatives recorded

their observations in R&D notebooks. At least every other day

process R&D sent an e-mail update to the members of the UCAT-J

technology task force and UCC’s management. This was not done

for normal commercial production runs. Process R&D

representatives were also called upon to address significant

production problems with products made using the M-1 catalyst

during the credit years.

Representatives from catalyst R&D and product R&D, both

based in Bound Brook, were available as needed. Samples of PE

resins made during UCAT-J experimental runs were shipped to the

product R&D group for testing to ensure that the resin was

equivalent to or better than that made with M-1. Any remaining

aim-grade resin made during the experimental runs was sold to

UCC’s customers. Product R&D did not provide coverage or test

resin samples for routine commercial production runs with M-1.

The run team, comprising representatives from process R&D

and Star’s management and operations staff, met before each run

to discuss the run objectives and transition into UCAT-J. The

run team also met regularly during the course of the UCAT-J runs

- 77 -

to assess the status of the run objectives and develop strategies

for resolving any operating problems that had surfaced. At the

end of each run the run team met to discuss the extent to which

the run objectives had been met. The run team presented these

findings at meetings of the UCAT-J technology task force. In

addition, process R&D representatives prepared a run notebook for

each run containing the strategic run plan, the tactical run

plan, the R&D monthly report description of the run, the

presentation to the UCAT-J technology task force, e-mails and

other communications regarding the run, and lab data. Process

R&D also described the UCAT-J runs in monthly reports issued by

the process R&D group, but these reports did not provide

technical details concerning the runs. Process R&D did not

generally mention normal production runs in these reports.

4. Experimental Runs Before the Credit Years

UCC conducted nine UCAT-J run campaigns on reactor 2 at Star

from May 1992 to November 1993. The UCAT-J runs conducted at

Star in 1992 and 1993 involved only hexene LLDPE film resins made

on reactor 2. These were the principal products made at Star and

UNIPOL licensee plants and tended to have tighter product

requirements than molding resins. At the end of 1993 UCC had

conducted no UCAT-J runs on reactor 1 or on reactor 2 with either

molding or butene film resins.

- 78 -

About 6 percent of the PE resin UCC made at Star in 1993 was

made with UCAT-J. By the end of 1993, UCC had resolved some

uncertainties related to UCAT-J such as an issue related to

catalyst particle size. The plant personnel at Star also gained

experience operating the plants using UCAT-J and were at ease

using UCAT-J and in transitions. Furthermore, a number of UCAT-J

runs had produced no off-grade product.

However, the UCAT-J runs conducted at Star in 1992 and 1993

suffered from numerous operability problems. Many were

unresolved as of the end of 1993, including: (1) Gas channeling

(resin becomes stagnant and nitrogen is channeled through the

resin instead of mixing with it, causing inadequate resin

purging); (2) TEAl starvation; (3) sticky stretch LLDPE resins

(resins that agglomerated and did not flow properly); (4)

sheeting; and (5) poor control over product properties such as

melt index, density, and hexane extractables caused by

differences in UCAT-J and M-1 catalyst morphology. UCC was

confident that many of these issues could be resolved but was

unsure when or how it would be able to resolve them.

Following a UCAT-J run campaign on LLDPE film resins in

November 1993, a moratorium was imposed on further experimental

runs on film resins to allow R&D to work out various problems,

some related to UCAT-J and others that were general plant

- 79 -

problems. UCC did not believe that UCAT-J was ready to be

commercialized by the end of 1993.

5. Experimental Runs During the Credit Years

At the beginning of 1994 some of the major outstanding

issues with UCAT-J were: (1) Obtaining acceptable product

properties in fractional melt index film resins; (2) resolving

butene film bulk density problems; (3) determining the cause of

and preventing resin stickiness; (4) establishing operating

parameters for UCAT-J film resins; (5) developing UCAT-J for

molding resins; and (6) ensuring that UCAT-J met operational

requirements. UCC believed it needed to conduct additional

experimental runs to resolve these issues.

UCC seeks research credits for the expenses incurred in 19

UCAT-J runs (UCAT-J runs 1 through 19) conducted at Star during

the credit years. The base resins produced, types of resin

produced (low-density film or high-density molding), start and

end dates of the runs, and pounds of base resin produced

according to UCC’s product cost detail reports (PCDs) are

included in the chart below:

- 80 -

Aim-Grade Off-Grade

Resin Resin

Run Base Start Produced Produced

No. Resin Resin Type Date End Date (pounds) (pounds)

1 DJM-5265H HDPE Molding 2/16/94 2/17/94 958,968 -

2 DJM-1810B LLDPE Film 10/22/94 10/26/94 4,832,092 771,350

1 2

3 DJM-1732H LLDPE Film 11/14/94 11/15/94 188,068 1,162,650

4 DJM-2419H LLDPE Film 12/11/94 12/13/94 1,632,872 765,700

5 DJM-1810H LLDPE Film 12/13/94 12/17/94 5,254,885 455,700

6 DJM-2016H LLDPE Film 12/17/94 12/18/94 703,691 -

3 4

7 DJM-1725H LLDPE Film 12/18/94 12/18/94 731,842 137,100

8 DJL-5264H HDPE Molding 1/26/95 1/27/95 6,135,634 797,750

9 DJL-5280H HDPE Molding 1/27/95 1/28/95 1,864,465 -

10 DJH-2580H LLDPE Film 3/3/95 3/6/95 2,601,861 578,450

11 DJM-1810B LLDPE Film 3/4/95 3/13/95 8,707,791 1,058,450

12 DJH-2950H LLDPE Film 3/6/95 3/6/95 132,324 148,750

13 DJL-5420H HDPE Molding 3/25/95 3/26/95 696,181 -

14 DJL-5143H HDPE Molding 3/26/95 3/27/95 1,006,947 -

5 6

15 DJM-1732H LLDPE Film 5/16/95 5/22/95 4,091,446 2,430,700

16 DJM-1725H LLDPE Film 5/22/95 5/26/95 3,653,813 966,350

17 DJM-1720H LLDPE Film 5/26/95 5/27/95 886,625 520,100

8

19 DJL-5280H HDPE Molding 6/22/95 6/23/95

1

This amount was found on a PCD for DJM-1734H. UCC could

not find a PCD for DJM-1732H, so it used the PCD for a similar

product.

2

This amount was found on a PCD for DJM-1734H. UCC could

not find a PCD for DJM-1732H, so it used the PCD for a similar

product.

3

This amount includes base resin produced during both run 7

and another experimental run that took place in November 1994.

4

This amount includes base resin produced during both run 7

and another experimental run that took place in November 1994.

5

This amount was found on a PCD for DJM-1734H. UCC could

not find a PCD for DJM-1732H, so it used the PCD for a similar

product.

- 81 -

6

This amount was found on a PCD for DJM-1734H. UCC could

not find a PCD for DJM-1732H, so it used the PCD for a similar

product.

7

The resin that petitioner claims UCC produced during run 18

is included in the amount of resin petitioner claims UCC produced

during run 8.

8

The resin that petitioner claims UCC produced during run 19

is included in the amount of resin petitioner claims UCC produced

during run 9.

a. DJM-5265H (UCAT-J Run 1)

UCAT-J run 1 was the first UCAT-J run at Star with a molding

resin and the first UCAT-J run conducted on reactor 1. The base

resin, DJM-5265H, was selected to be the first molding resin made

with UCAT-J at Star because it was a basic cornerstone product

that Star made in large quantities and UCC considered it to be a

low-risk product. UCC had made aim-grade DJM-5265H at the pilot

plant using UCAT-J and found UCAT-J to be equivalent to M-1 with

respect to operability and continuity on that scale.

Before UCAT-J run 1, two short runs of DJM-5265H had been

conducted at the UNIPOL facility of a licensee, Hanwa Chemical

Corp. (Hanwa), in Korea. While the runs at Hanwa were generally

successful, they lasted only a few days, and the second run was

aborted when the second transition failed. These results were of

limited value to UCC because Hanwa’s reactors were different from

Star’s reactors. Hanwa’s reactors were just over half the size

of Star’s reactors and so were less prone to static.

Furthermore, Hanwa’s reactors had a purification system for raw

materials that was considerably better than UCC’s purification

- 82 -

system. As a result, Hanwa’s reactor feed was much cleaner than

UCC’s and the catalyst had better productivity.

The objectives of UCAT-J run 1 were to: (1) Successfully

scale up production (adjust production to take into account the

differences in reactor size) of DJM-5265H from the South

Charleston pilot plant to reactor 1; (2) produce aim-grade resin

for customer qualification; and (3) establish reactor operability

and continuity on reactor 1. As to the third objective, UCC was

not merely confirming that reactor operability and continuity

were as expected. UCC wanted to evaluate how well reactor 1

worked with UCAT-J.

UCC’s primary concerns before UCAT-J run 1 were that: (1)

The differences between the pilot plant and reactor 1 at Star

could cause the product to go off grade; (2) TEAl starvation

could cause operability and continuity problems; (3) difficulties

with CO kills could occur if any kills were necessary; and (4)

resin clumpiness could cause operability and continuity problems.

As with all of the UCAT-J runs discussed below (although not

specifically mentioned below for brevity), representatives from

process R&D and product R&D provided coverage for UCAT-J run 1

and process R&D collected data, some of which were not normally

collected or was not normally collected as frequently.

Additionally, samples of resin were collected during and

- 83 -

following the run and were sent to product R&D in Bound Brook for

evaluation.

UCAT-J run 1 was aborted after 17 hours because of sheeting

caused by the use of M-1 before the transition to UCAT-J and the

formation of a spongy material that resembled Styrofoam. UCC

analyzed the spongy material and determined that it formed

because of the use of UCAT-J. But because the sheeting was

caused by M-1, UCC was unable to determine the extent to which

the use of UCAT-J contributed to the shutdown.

UCC also discovered a discrepancy between the Ti/Al ratio

calculated by flow rate and the measured Ti/Al ratio that

correlated with catalyst feed rate. UCC was unable to explain

this discrepancy and was concerned about TEAl starvation. UCC

also discovered more fines than expected.

UCAT-J run 1 did not last long enough for UCC to draw any

conclusions from the run. It remained uncertain following the

run whether UCAT-J could be used on reactor 1 with operability,

continuity, and resin properties equivalent to those achievable

with M-1. Because of the formation of the spongy material, TEAl

starvation concerns, and increased fines, UCC had serious doubts

as to its ability to make further product. Therefore, it did not

attempt to make another molding resin run again until 1995.

According to a PCD for DJM-5265H, UCC produced 958,968

pounds of aim-grade base resin for customer evaluation during

- 84 -

UCAT-J run 1.15 Petitioner claims as QREs costs associated with

producing 960,150 pounds of aim-grade base resin during UCAT-J

run 1.

b. DJM-1810B (UCAT-J Runs 2 and 11)

UCAT-J run 2 was the first UCAT-J run conducted at Star

using butene, as opposed to hexene, as the comonomer. UCC wanted

its plant operators to gain production experience using butene

comonomers in anticipation of the startup of LP-6. There had

been successful runs of DJM-1810B at Seadrift, the pilot plant,

and a licensee’s facility, which encouraged UCC to believe that

it would be able to use butene as a comonomer at Star. However,

process R&D had encountered significant difficulties producing

butene film resins using UCAT-J with acceptable bulk density

because of particle morphology differences between UCAT-J and

M-1.

The principal objective for UCAT-J run 2 was to successfully

scale up UCAT-J on the butene film resin from the pilot plant to

Star. A successful scale-up would require that the run: (1)

Demonstrate operability using UCAT-J equivalent to that

achievable using M-1; (2) reach aim-grade production within a

15

As discussed below, PCDs were produced monthly and

annually, not for specific projects. However, no base resin

produced with UCAT-J was made in more than one run in any given

month during the credit years. Accordingly, the PCD for the

month in which a UCAT-J run occurred would include information

only for that particular run.

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specified period; (3) produce no significant off-grade material

once the transition was complete; and (4) produce resin with

acceptable bulk density. UCC was uncertain before the run

whether any of these requirements would be met or whether the

scale-up would be successful. UCC also hoped to produce 10 to 12

million pounds of aim-grade resin to sell to customers during

UCAT-J run 2.

To achieve acceptable bulk density, process R&D planned to

change the catalyst reduction ratios and increase the amount of

isopentane in the reactor during the run. Process R&D regarded

both changes as experimental and was uncertain whether they would

improve bulk density without adversely affecting reactor

productivity.

Additional objectives of UCAT-J run 2 were to demonstrate a

closed reactor restart with UCAT-J following a CO kill on M-1 and

to demonstrate the ability to kill the reactor while it contained

UCAT-J. UCC had never attempted a closed reactor restart at Star

with UCAT-J. UCC had had some experience with CO kills using

UCAT-J, but the results had been mixed. In particular, mini-

kills had been much less effective when using UCAT-J as compared

with M-1.

UCC was also concerned about several other risks, including:

(1) TEAl starvation; (2) resin carryover (a negative effect of

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low resin APS, which may result from steps taken to improve bulk

density); and (3) resin clumpiness.

UCAT-J Run 2 began well and met some of the objectives,

including the first successful reactor startup with UCAT-J, no

significant off-grade material produced, and unexpectedly high

bulk density. However, UCC experienced operating problems a few

days into the run that required the reactor to be shut down and

the run aborted. The most significant of these problems were

unexplained production rate swings and the formation of “cue

balls” of PE resin that were about the size of softballs. UCC

hypothesized that the cause of the cue balls was poor catalyst

dispersion, and accordingly it planned to change the injection

tube for the next run of DJM-1810B to improve catalyst dispersion

and determine whether that would solve the problem.

According to a PCD for DJM-1810B, UCC produced 4,832,092

pounds of aim-grade and 771,350 pounds of off-grade base resin

during UCAT-J run 2. Petitioner claims as QREs costs associated

with producing 4,954,150 pounds of aim-grade and 771,350 pounds

of off-grade base resin during UCAT-J run 2.

UCAT-J run 11 was the second run of DJM-1810B. UCC’s

primary objective was to make DJM-1810B without the problems

experienced in UCAT-J run 2.

UCAT-J run 11 lasted from March 4 to 13, 1995, the longest

run for a single product during the UCAT-J project. A long run

- 87 -

is usually evidence that the run was successful. However, the

transition to DJM-1810B was unusually long and difficult, and a

significant amount of off-grade resin was produced. Once UCAT-J

was introduced into the reactor, the resin bulk density

unexpectedly dropped significantly, causing the product purge bin

to plug. This resulted in significant off-grade material and

required the production rate to be lowered. UCC did not

anticipate the bulk density problem because UCAT-J run 2 produced

resin with unexpectedly high bulk density. There were also

problems with catalyst stability, sheeting, poor hydrogen

control, and melt index swings. These problems were all specific

to UCAT-J and were not anticipated before the run.

Because of the bulk density and operability problems, UCC

decided to return the testing of DJM-1810B to Seadrift. While

UCAT-J run 11 provided valuable operating data, it did not

establish that reactor 1 at Star could produce UCAT-J butene

LLDPE film resins with operability and continuity equivalent to

that achieved using M-1.

According to a PCD for DJM-1810B, UCC produced 8,707,791

pounds of aim-grade and 1,058,450 pounds of off-grade base resin

during UCAT-J run 11. Petitioner claims as QREs costs associated

with producing 8,941,350 pounds of aim-grade and 1,058,450 pounds

of off-grade base resin during UCAT-J run 11.

- 88 -

c. DJM-1732H (UCAT-J Runs 3 and 15)

UCAT-J run 3 produced DJM-1732H, a low-density, high-melt-

index LLDPE film resin. UCAT-J run 3 was the first UCAT-J

experimental run of an LLDPE film resin with a hexene comonomer

conducted at Star since November 1993. UCC experienced so many

problems during the November 1993 run and the run had such a

negative impact on manufacturing that R&D wanted to do more work

on smaller reactors before attempting the run again at Star. UCC

had conducted runs of DJM-1732H at Star in January and March 1993

for 1 day each, but these runs were too short to establish that

the process could be used with sufficient operability and

continuity.

The objectives of UCAT-J run 3 were to: (1) Produce

sufficient product for customer qualification; (2) run reactor 2

at normal Star rates with operability and continuity equivalent

to or better than M-1; (3) reach aim-grade production within a

specified period; and (4) produce no significant off-grade

material. UCC was uncertain whether any of these objectives

could be met or whether the run would be successful.

Because low-density, high-melt-index LLDPE film resin is

sticky by design, resin flowability was a primary concern before

UCAT-J run 3. UCC was also concerned about: (1) TEAl

starvation; (2) resin carryover; (3) difficulties with CO kills,

if they were necessary; and (4) resin clumpiness. Resin

- 89 -

clumpiness had also been a problem when using M-1 to make DJM-

1732H but tended to be worse with UCAT-J.

UCAT-J run 3 had several successes: (1) UCC was able to use

CO mini-kills, which produced a rapid and significant effect; (2)

no fines were produced; and (3) a hopper car of resin was

produced. However, the run as a whole was considered a failure

and several problems occurred: (1) There was extensive formation

of clumpy resin that plugged the product purge bin; (2) there was

poor melt index control; and (3) there was TEAl starvation in the

reactor. Process R&D evaluated these problems, identified their

potential causes, and developed possible solutions for future

runs. UCC determined that the next run might be more successful

if it: (1) Lowered the ethylene partial pressure in the reactor

to reduce the amount of hexane; (2) controlled the cycle gas

composition and flow ratio; and (3) doubled the TEAl feed into

the reactor for 20 minutes (known as giving the reactor a “TEAl

shot”) periodically even if starvation was not expected and more

frequently during upset conditions. UCAT-J run 3 did not

establish that UCAT-J could be used with operability and

continuity equivalent to that achieved using M-1.

According to a PCD for DJM-1734H, not DJM-1732H, UCC

produced 188,068 pounds of aim-grade and 1,162,650 pounds of off-

grade DJM-1734H in 1994. No PCD was available for DJM-1723H for

1994. Petitioner claims as QREs costs associated with producing

- 90 -

188,850 pounds of aim-grade and 1,162,650 pounds of off-grade

base resin during UCAT-J run 3. However, other postrun

documentation indicates that UCC produced 743,987 pounds of aim-

grade base resin during UCAT-J run 3.

In addition to the objectives stated for UCAT-J run 3, a

goal of UCAT-J run 15, the next run of DJM-1732H, was to

implement measures developed by process R&D to control resin

stickiness and TEAl levels and to demonstrate acceptable

operability and continuity using UCAT-J in reactor 2. To control

resin stickiness, process R&D recommended that ethylene partial

pressure be lowered below 90 psi, which had never been done

before at Star with UCAT-J. This change to reactor conditions

was considered experimental and had two drawbacks: (1) Lowering

the ethylene partial pressure could lower the productivity of the

catalyst, which would lower resin APS and increase fines, causing

fouling; and (2) if the reactor transitioned back to M-1, it

would be necessary to increase the ethylene partial pressure by a

greater amount. UCC also planned to give the reactor periodic

TEAl shots to minimize TEAl starvation, which UCC began using in

run 4 (discussed below). However, UCC was unsure whether these

steps would be successful.

UCC hoped to produce 23 hopper cars of DJM-1732H for

customer qualification and consumption. Other run objectives

were to: (1) Run reactor 2 at normal production rates; (2) reach

- 91 -

aim-grade production within a specified period; and (3) produce

no significant off-grade material.

UCAT-J run 15 was generally successful. UCC was able to

control resin stickiness by lowering the ethylene partial

pressure, and UCC was able to maintain good catalyst productivity

even though it is more difficult to maintain at low ethylene

partial pressure. Overall, operability and continuity were good

throughout the run. However, while flowability improved, it was

still slightly worse than flowability that had been achieved

using M-1. Furthermore, there was some TEAl starvation due to

the TEAl feed system, though less than had occurred during

previous runs. Therefore, the information gained was valuable to

UCC but process R&D still had some concerns.

A PCD for DJM-1734H, not DJM-1732H, shows that UCC produced

4,091,446 pounds of aim-grade DJM-1734H in 1995. No PCD was

available for DJM-1732H for 1995. Petitioner claimed as QREs

costs associated with producing 4,108,850 pounds of aim-grade and

2,430,700 pounds of off-grade base resin during UCAT-J run 15.

d. DJM-2419H, DJM-1810H, and DJM 2016H (UCAT-J

Runs 4 Through 6)

UCAT-J runs 4 through 6 were all runs of hexene LLDPE film

resins. With the exception of DJM-1810H (UCAT-J run 5), which

had been used as an experimental bed resin for various types of

reactor testing, Star had limited experience with the UCAT-J

resins to be made in these runs.

- 92 -

UCC designed UCAT-J run 4 to make DJM-2419H, which UCC had

previously made at Star only during a 1-day run in 1993. UCC

produced approximately 600,000 pounds of DJM-2419H in 1993 and

UCC’s customers had accepted DJM-2419H made with UCAT-J.

However, UCC was still uncertain whether it would be able to

produce DJM-2419H at Star consistently with satisfactory

operability.

UCC designed UCAT-J run 5 to make DJM-1810H. UCC had used

DJM-1810H as an experimental bed resin and had produced it in 11

runs at Star during 1992 and 1993. UCC experienced significant

problems during the earlier runs. During the later runs UCC used

DJM-1810H as an experimental bed for catalyst reduction tests,

order of reduction tests, and similar tests. UCC made about 170

hopper cars of DJM-1810H in 1993. DJM-1810H produced with UCAT-J

had already been accepted by customers. However, UCC still

considered DJM-1810H to be an experimental resin at this point,

primarily because it had flowability problems.

UCC designed UCAT-J run 6 to produce DJM-2016H, which UCC

had never made at Star. However, UCC had produced DJM-2016H at

other plants during earlier experimental runs and customers had

qualified resin produced during those runs. UCC expected results

similar to those that had been obtained during runs of DJM-1810H

(UCAT-J run 5).

- 93 -

The overarching goal of these runs was to demonstrate

sustained operability of UCAT-J with hexene LLDPE film resins.

The specific run objectives listed on the strategic run plan were

to: (1) Produce sufficient product for customer qualification;

(2) further commercial experience through the extended production

run of DJM-2419H (UCAT-J run 4) and DJM-1810H (UCAT-J run 5)

(among other runs not claimed); (3) run reactor 2 at normal Star

rates with operability equivalent to that achieved using M-1; (4)

reach aim-grade production within a specified period; and (5)

produce no significant off-grade material outside product

transitions.

In response to a recommendation made at the UCAT-J

technology task force meeting following UCAT-J run 3, UCC decided

to run reactor 2 at a lower than normal ethylene partial pressure

during UCAT-J runs 4 through 6 to improve resin flowability. UCC

considered this change to be an experiment because it was

uncertain whether the change would successfully eliminate

flowability problems and there was a risk that the change could

significantly reduce catalyst productivity. UCC also decided to

use production rate control, which is an automated system to

control the catalyst feed rate and the ethylene partial pressure

in the reactor. The goal of this system was to maximize

production rate by allowing production rate to run closer to the

constraints of the reactor system.

- 94 -

Because of the problems with TEAl starvation in UCAT-J run

3, UCC decided to experiment with TEAl shots during UCAT-J runs 4

through 6. However, UCC was concerned that increasing the Ti/Al

ratio would also increase hexane extractables.

In addition to TEAl starvation, UCC identified several other

risks related to UCAT-J runs 4 through 6: (1) Resin carryover;

(2) difficulties with CO kills, if they were necessary; and (3)

resin clumpiness.

Process R&D representatives evaluated the ethylene partial

pressure and TEAl shot experiments during UCAT-J runs 4 through 6

in addition to the support that R&D provided to all of the UCAT-J

runs.

UCAT-J runs 4 through 6 were generally successful. Reducing

the ethylene partial pressure and using production rate control

reduced the stickiness problem and giving the reactor TEAl shots

reduced TEAl starvation. UCC viewed this as a substantial

achievement. The only significant problem was a decrease in FAR,

which occurs when there are gels or foreign matter in the film.

UCC took samples of the resin to try to determine the potential

causes and solutions for the decreased FAR. UCC hypothesized

that the decrease in FAR was caused by the use of wet hexene.

Process R&D concluded that it had gained confidence that

Star could produce DJM-1810H (UCAT-J run 5) and DJM-2016H (UCAT-J

run 6) with sufficient operability and continuity. However, UCC

- 95 -

believed that additional experiments were necessary to reach this

conclusion with respect to DJM-2419H (UCAT-J run 4).

According to a PCD for DJM-2419H, UCC produced 1,632,872

pounds of aim-grade and 765,700 pounds of off-grade base resin

during UCAT-J run 4. Petitioner claims as QREs costs associated

with producing 1,640,950 pounds of aim-grade and 765,700 pounds

of off-grade base resin during UCAT-J run 4.

According to a PCD for DJM-1810H, UCC produced 5,254,885

pounds of aim-grade and 455,700 pounds of off-grade base resin

during UCAT-J run 5. Petitioner claims as QREs costs associated

with producing 5,270,050 pounds of aim-grade and 455,700 pounds

of off-grade base resin during UCAT-J run 5.

According to a PCD for DJM-2016H, UCC produced 703,691

pounds of aim-grade base resin during UCAT-J run 6. Petitioner

claims as QREs costs associated with producing 704,600 pounds of

aim-grade base resin during UCAT-J run 6.

e. DJM-1735H (UCAT-J Runs 7 and 16)

UCAT-J run 7 was an experimental run of DJM-1725H, another

hexene LLDPE film resin that is very sticky and had shown poor

flowability. UCAT-J run 7 began and ended on December 18, 1994.

UCC also produced DJM-1725H in November 1994, but there were so

many problems with clumpy resin, melt index control, and TEAl

starvation that UCC did not use that resin for customer

qualification.

- 96 -

As in UCAT-J runs 4 through 6, the overarching objective of

UCAT-J run 7 was to demonstrate sustained operability of UCAT-J

with hexene LLDPE film resins. The specific run objectives were

to: (1) Produce sufficient product for customer qualification;

(2) run reactor 2 at normal Star rates with operability

equivalent to that achieved with M-1; (3) reach aim-grade

production within a specified period; and (4) produce no

significant off-grade material outside of product transitions.

UCC implemented the recommendation of the UCAT-J technology

task force to run reactor 2 at a lower than normal ethylene

partial pressure to improve resin flowability. UCC also gave the

reactor TEAl shots to reduce TEAl starvation but was still

concerned that increasing the TEAl ratio would also increase

hexane extractables. In addition to the support R&D provided to

all of the UCAT-J runs, process R&D representatives evaluated the

ethylene partial pressure and TEAl shots experiments.

UCAT-J run 7 was generally successful. The only significant

problem was a decrease in FAR caused by gels or foreign matter in

the film, which had also occurred during UCAT-J runs 4 through 6.

UCC took samples of the resin to try to determine the potential

causes and solutions for the decreased FAR. UCC believed that

additional experiments were necessary to gain confidence that it

could produce DJM-1725H with sufficient operability and

continuity.

- 97 -

According to the summary report of the UCAT-J experimental

runs conducted at Star, UCC produced 480,461 pounds of aim-grade

and 177,821 pounds of off-grade base resin during UCAT-J run 7.

According to a PCD for DJM-1725H, UCC produced 541,866 pounds of

aim-grade and zero pounds of off-grade base resin. Petitioner

claims as QREs costs associated with producing 737,200 pounds of

aim-grade and 137,100 pounds of off-grade base resin, which

includes total production for 1994 (both UCAT-J run 7 and the run

that took place in November 1994).

UCC produced DJM-1725H again in UCAT-J run 16 because UCAT-J

run 7 did not establish that DJM-1725H could be made without

continuity problems during longer runs. TEAl starvation remained

another significant operating issue.

In addition to the objectives for UCAT-J run 7, the goals of

UCAT-J Run 16 were to implement measures developed by process R&D

to control resin stickiness and TEAl levels and to demonstrate

acceptable operability and continuity of UCAT-J in reactor 2. As

in UCAT-J run 15, to control resin stickiness process R&D

recommended that ethylene partial pressure be lowered below 90

psi. UCC also planned to use periodic TEAl shots to minimize

TEAl starvation. However, UCC was unsure whether these steps

would be successful.

UCAT-J run 16 was generally successful. UCC controlled

resin stickiness by lowering the ethylene partial pressure below

- 98 -

90 psi, and UCC was able to maintain good catalyst productivity.

Overall, operability and continuity were good throughout the run.

However, while flowability improved, it was still slightly worse

than the flowability that could be achieved using M-1.

Furthermore, there was some TEAl starvation due to the TEAl feed

system, though less than had occurred during previous runs.

Therefore, the information gained was valuable to UCC but process

R&D still had some concerns.

According to a PCD for DJM-1725H, UCC produced 3,653,813

pounds of aim-grade and 966,350 pounds of off-grade base resin

during UCAT-J run 16. Petitioner claims as QREs costs associated

with producing 3,665,150 pounds of aim-grade and 966,350 pounds

of off-grade base resin during UCAT-J run 16.

f. DJL-5264H and DJL-5280H (UCAT-J Runs 8, 9,

18,and 19

UCAT-J runs 8 (DJL-5264H) and 9 (DJL-5280H) were the next

experimental runs of HDPE molding resins after UCAT-J run 1,

which UCC aborted before it could draw any meaningful

conclusions. Following UCAT-J run 1, process R&D took a year to

evaluate UCAT-J molding resins in the pilot plant before

conducting another experimental run at Star. UCC determined that

UCAT-J was equivalent to M-1 with respect to reactor operability

and continuity when making DJL-5264H and DJL-5280H at its pilot

plant, but UCC was still uncertain whether UCAT-J would perform

as well at Star. UCC had not yet determined that it could make

- 99 -

DJL-5264H or DJL-5280H consistently on full-scale commercial

reactors before UCAT-J runs 8 and 9.

The objectives of UCAT-J runs 8 and 9 were to: (1) Produce

sufficient product for customer qualification; (2) run reactor 1

at normal Star rates with operability equivalent to that achieved

using M-1; (3) reach aim-grade production within a specified

period; and (4) produce no significant off-grade material.

The primary risks UCC identified for UCAT-J runs 8 and 9

were: (1) TEAl starvation; (2) resin carryover; and (3)

difficulties with CO kills, if they were necessary. To reduce

the risk of TEAl starvation, UCC measured aluminum and titanium

during the run and gave the reactor periodic TEAl shots. Since

TEAl starvation had not been a problem with M-1, these

measurements were not taken during commercial runs using M-1.

Although resin carryover was listed as a risk on the strategic

run plan for UCAT-J runs 8 and 9, according to the strategic run

plan UCC did not actually expect resin carryover to be a problem.

UCAT-J runs 8 and 9 were generally successful. Reactor 1

demonstrated acceptable operability and continuity and all other

run objectives were met. There was some melt index variation

(resin in some hopper cars had a higher melt index than the resin

in others), but this was not significant problem. Some TEAl

starvation also occurred, but it did not cause the resin to go

off grade; and UCC determined that it could most likely fix the

- 100 -

problem by implementing a different TEAl system. Because UCAT-J

runs 8 and 9 each lasted only 1 day, UCC did not have time to

fully evaluate operability and continuity. However, the

information UCC gained was valuable, and one or two more

successful experimental runs would establish to UCC’s

satisfaction that the process was ready for commercialization.

UCAT-J runs 18 and 19 were the next experimental runs of

DJL-5264H and DJL-5280H. The operability and continuity of

reactor 1 in making these products remained uncertain before

these runs, as only a few short HDPE molding resin runs had been

conducted up to this point with mixed results.

The primary objectives of UCAT-J run 18 were to operate at

normal Star rates with operability equivalent to that achieved

using M-1 and to make a maximum of 250,000 pounds of off-grade

material.

UCAT-J run 18 yielded 825,000 pounds of off-grade material,

which indicated poor operability, particularly poor control of

the resin properties in the reactor. There were also problems

with the product purge bin, poor flowability, and poor melt index

control. However, UCAT-J run 19 was generally successful.

According to a PCD for DJL-5264H, UCC produced 6,135,634

pounds of aim-grade and 797,750 pounds of off-grade base resin

during 1995, including both UCAT-J runs 8 and 18. Postrun

documentation indicates that UCC produced 933,000 pounds of aim-

- 101 -

grade base resin during run 8 and 5,313,000 pounds of aim-grade

and 825,000 pounds of off-grade base resin during UCAT-J run 18.

Petitioner claims as QREs costs associated with producing

6,143,300 pounds of aim-grade and 797,750 pounds of of

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