Pulp Mill Buys Time On Water Bill

$80,000 payment today avoids shutdown of service to Samoa peninsula

Humboldt Sentinel
12/9/08
By Charles Douglas

EUREKA -- Half a debt paid is better than none at all, water district trustees concluded yesterday as they extended Evergreen Pulp’s lease on life by declining to shut off its water supply.

At a special session of the Water Board held in City Hall on Monday morning before a packed audience, trustees essentially decided to do nothing -- as opposed to implementing default remedies to terminate water service and initiate collection proceedings against the Samoa-based pulp mill.

Instead, they took at face value the promises of Evergreen’s senior vice president, Jim Lund, who said that an $80,000 payment by the close of business today would be followed by covering the remaining past due balance of $155,563.63 by next week.

“My recommendation is that the Board authorize Staff to cut off water delivery to Evergreen Pulp and further authorize staff to pursue recordation,” water district counsel David Martinek stated in a letter to general manager Carol Rische last Thursday.s

Such payments are due within 15 days of notice from the district, with interest charges applicable for any balance past due by more than 30 days. Such notice was given on Nov. 18, with the second notice sent out on Wednesday.

“We sincerely hope default remedies are not necessary,” Rische stated in the first notice. “As we have discussed on many occasions, it is of mutual interest to Evergreen Pulp and HBMWD that water service be maintained to the mill. HBMWD has deferred a number of projects in this year’s approved budget to reduce our cost structure over the coming months, thereby assisting the mill during this difficult financial time.”

Their decision was reached after hearing from officials from the fire district, school district and power plant in the Samoa-Fairhaven area, who said their operations would be crippled if denied their current services fed through the Humboldt Bay Municipal Water District’s commercial line which services Evergreen Pup.

“We want to ensure that the population is protected, frankly,” Water Board president Bruce Rupp said.

Samoa Peninsula Fire District chief Kevin Pope informed trustees that a temporary fix was in the works to install a two-inch line connected to a 200,000 gallon water storage tank, although this still wouldn’t be enough to combat a worst-case scenario.

“If we had a fully involved structure fire, that 200,000 gallons would go pretty quickly,” he said.

Samoa, a former company town, was purchased several years ago by Samoa Pacific Group, LLC, a business alliance between DanCo real estate developer Dan Johnson and Sun Valley Floral Farms CEO Lane DeVries. Pope minced fewer words during a Water Board recess regarding who he though should be responsible for a long-term solution to the town’s water needs.

“I’m not trying to guilt you guys into giving us water, I’m trying to guilt Samoa Pacific into seeing that if there’s a major fire with all those redwood Victorian structures, it’s going to tear through it very quick,” Pope stated to Rische. “I can’t tell Dan Johnson you have to connect to the water, they’re a private company…but if you lose your fire protection and your town burns down, you’ve lost your entire investment.”

In a similar bind is the Peninsula School, which filled their out-of-service swimming pool last week with 285,000 gallons to run a line from in case of fire, according to SPFD general manager Noreen O’Brien -- who suggested that even with additional training, the school might not meet state safety requirements.

“The Fire Marshall could shut down the school if they chose to do that,” she said. “When it comes to children, they don’t want to go on presumptions.”

Water Board trustees were more than unenthusiastic about the idea of residential ratepayers subsidizing the commercial water service to the pulp mill, and emphasized the need to more clearly divide out the commercial and residential services delivered to the peninsula.

“We need to set a deadline for them to be completely separate from our industrial system,” trustee Aldaron Laird said. “We shouldn’t be put in this position again in the future.”

The pulp mill was only able to come up with the $80k because DG Power Company of Fairhaven, also dependent on the commercial supply of water bound for the mill to keep their power plant open, was willing to buy off most of the logs in Evergreen Pulp’s inventory to get them the capital needed.

“I don’t need any logs,” DG Power general manager Bob Marino told trustees, “but in the spirit of community relations…we’re doing everything we can to facilitate the flow of water, so to speak.”

The shutdown of the power plant would deprive the county of 16 megawatts of renewable energy, which according to Marino could impact the local power grid.

“We’re approaching our storm season,” PG&E spokesperson Ida Marufo said. “We look upon Fairhaven as a valuable contributor; they supply about 10% of our power during peak winter usage.”

Not everyone was so ready to take the deal offered by the pulp mill’s management -- namely the pulp mill’s employees, who allege that their bosses failed to pay them during their initial layoff period as required by the federal Warn Act.

“Evergreen Pulp owes millions of dollars to current employees,” union representative Richard Marks said. “We have people in this room who are owed $80,000 in wages they did not receive last week…obviously we have some issues with paying bills here.”

An attachment order was attached to Evergreen Pulp’s assets by Superior Court judge J. Michael Brown a week ago to pay off $321,210 of debt to California Redwood Company, which is rumored to be a potential buyer of the mill if Evergreen’s parent company, Lee and Man Paper Company of Hong Kong decides to cut ties. CRC has allegedly given their “blessing” to the deal, even though their court order would apply to the logs Evergreen Pulp is selling to DG Power.

Aside from these mounting debts to outside contractors, the future of the pulp mill is still in doubt, Lund admitted, due to the global economic crisis and the subsequent collapse of pulp prices as overseas commerce slows to a crawl and the demand for packaging materials drops.

Also on the agenda were the district’s plans to set up an Advisory Committee to guide long-term water resource decisions, which will include 10 public representatives from various “stakeholder” groups such as environmental organizations, real estate interests and local industry. Original plans to include two members of the general public appear to have been scrapped, along with full representation for all the municipalities and special districts served by the HBMWD -- which has drawn criticism from some in local government during recent presentations by trustees.

“I would ask you to just keep an open mind about this,” McKinleyville Community Services District director Dennis Mayo told trustees.

Trustees are looking to speed up the process of resource planning due to concerns with the long-term future of a district deprived of any commercial customers, which will undoubtedly lead to a spike in water bills for local residents and small businesses. Currently the HBMWD has the water rights to 15 million gallons per year from the Mad River, but would need much less than that if deprived of industrial use.

“I think we would need to lock in quickly what we have in the licensing procedure should they go away and not be here in 2009, we need that 15 million gallons to be locked in to our licensing process and not wait two years,” Laird said. “When the first mill had closed, if the district had locked in the process at that time, we would have locked in 30 million gallons of mill water that aren’t there any more…we have an opportunity that has a time frame associated with it.”