PALCO faces log shortage; layoffs, shutdowns possible

2/9/05
PALCO faces log shortage;
layoffs, shutdowns possible

by Glenn Franco Simmons

The Eureka Reporter

(Editor’s note: In next week’s issue and as a matter of fairness, The Eureka Reporter will take a look at the Humboldt Watershed Council from its perspective.)

How can it be, that PALCO faces a log shortage and possibly more mill shutdowns and layoffs?

“Our issues really started in the middle of 2004, when we were actually ahead of our planned harvest level for 2004 at the end of the first half,” said PALCO President and Chief Executive Officer Robert Manne. “Starting in the second half, the (North Coast Regional) Water Quality Control Board started slowing down various previously approved timber harvest plans. The water board was taking more and more time to approve erosion-control plans during the second half, such that we entered the fourth quarter of 2004 without having approved plans, and then we were hit with extreme weather. This nearly totally stopped our logging at year end, so we ended the calendar year with only 15 million board feet of logs on our decks.

“Normally, what we need is 30-plus million board feet of logs on our decks to help us get through the winter months, which are primarily the first quarter – January, February and March. We have always used that large log deck to supplement the harvests in Freshwater and Elk, which we have done ever since signing the habitat conservation plan.”

That strategy has never been a problem up to this year, Manne said.

These are THPs, he added, that have already been approved by the California Department of Forestry, California Department of Fish and Game, U.S. Fish and Wildlife Service and NOAA Fisheries and they met all of the company’s HCP commitments.

The fact that they have been approved by those federal and state agencies is particularly frustrating to PALCO, when one state agency is holding them up, Manne said.

“We have approved timber harvests plans from CDF,” Manne said, “some of which were approved as much as two years ago. The irony of the whole situation is that we have been cutting below our sustained yield level for the past six years and we are not asking for anything special or new with these THPs.

“That put us in an immediate desperate position. So I had to remove a shift from our Fortuna sawmill and 38 people were laid off. Eleven were reassigned to other jobs, and that’s where we stand.”

But there is more to the issue than only the Freshwater Creek and Elk River watersheds.

“The water board had also originally slowed down approval of plans in the Van Duzen and Larabee areas, too, which are also normal to the ongoing operations for us,” Manne said. “Those were not additional plans; they are plans we already assumed would be approved by the water board since CDF had approved them also. When we started the year, there were as many as 10 plans outstanding that were awaiting release in these watersheds also, many of which have at this point been approved.

“So if you think about this, these are significant parts of our first-half harvests. In fact, these 12 controversial plans in Freshwater and Elk amount to 48 percent of our first quarter’s harvest. That’s why they are so critical. And you combine that with the fact that we only had 15 million board feet of logs to start the year, and you can see that it puts us in a jeopardy position with no logs for ourselves.

“As a footnote,” Manne said, “the PALCO HCP originated on March 1, 1999, when PALCO signed an agreement with the state of California and the federal government to sell the Headwaters Forest southeast of Eureka to the public. As part of that agreement, the company developed an HCP that provides long-term protection for 17 species on PALCO land, while ensuring that the company can continue to grow and harvest trees. We were promised predictability of log supply on an annual sustained basis and certainty and streamlining of the THP approval process. Neither of these appears to have happened.

“We are caught in what Gov. (Arnold) Schwarzenegger calls business unfriendly overlapping and duplicative regulations. For the past 20 years-plus, CDF has been the prime agency for approving timber harvest plans in the state of California.”

But that has changed, since new state legislation has given the water board additional authority to “non-concur” on CDF’s previously approved THPs.

“Because of those new Senate bills, SB390 and SB810,” Manne said, “we now find ourselves with CDF approving our timber harvest plans, and the water board stopping them in their tracks after the fact. So we find ourselves in a battle between two state agencies concerning who has the ultimate authority to finally approve a timber harvest plan. But we are not the only ones caught in these overlapping regulations; we are just the largest company and the company that is always on the front line of these controversies.”

PALCO doesn’t only want the plans approved, but it needs them approved in a timely manner because of one additional technicality of the HCP agreement, Manne said.

“It is also extremely important for the following reason: One of our commitments, which is part of our habitat protection of the HCP, is that we agree to conduct surveys in the spring for different species,” Manne said. “Starting on March 1, we start surveying for owls, ospreys and marbled murrelets. This is their prime nesting season and we work to identify their exact locations. Once the survey season starts, you cannot begin operation on any new THP in that area. So the timing of plan approvals is also just as important in order for us to be able to operate on those plans in these early months of the year. If the plans do not get approved before the start of the survey season, our ability to log on those THPs will be delayed for months and in some instances they could be delayed as much as a year for the impacted THPs.

“That’s the operational and financial predicament we find ourselves in. It’s getting them approved; it’s getting them approved prior to March 1 so we can start to operate on them. And these THPs represent a significant part of the volume we need in the first quarter and the first half of 2005.”

PALCO had many supporters at a recent water board hearing. They spoke about the necessity of the water board clearing the THPs as quickly as possible.

“There was quite a contingent,” Manne said. “I addressed the board outlining the financial and operational impacts to this company if these THPs are not approved, and (we) presented our latest science and we also addressed some of our logistical issues. We had testimony from employees, chamber (of commerce) leaders, the mayor of Rio Dell, our three major logging contractors, two of our major customers, and the U.S. Fish and Wildlife Service and NOAA Fisheries, as well as the California Department of Fish and Game. The end result of the water board meeting was that the board members stated that the final decision on the THPs will be in the hands of the board’s Executive Officer Catherine Kuhlman.

“Since that meeting, we have had several conversations with the board at all levels. And my staff has met with her staff to continue to have detailed dialogue about the timber harvest plans. We now have a much more collaborative approach in motion right now and we are trying to keep the interactions as positive as possible. But you must realize that behind the executive officer there are a few members of the water board staff who are ideological, at times, and occasionally take some very extreme restrictive positions.”

PALCO now finds itself in what Manne termed “a very precarious financial situation.”

“Knowing we were more desperate to get these plans approved and to even further protect water quality in these areas,” Manne said, “we have offered to provide for additional mitigation above the norm for each of these plans. This includes improving other sediment sources throughout our ownership at our expense in order seek final approval and to allow us to move forward. Our point is this: the new THPs produce very little new sediment and we have developed the science to demonstrate that fact, but we are willing to fix thousands of other yards of legacy (past logging) sediments if we can just get these plans approved to get us through this very difficult time.”

In fact, the company is proposing to mitigate these legacy sediments, up to 4,650 percent in the Elk River watershed and 913 percent in the Freshwater watershed.

Without the THPs approved, PALCO will not be fixing any historic logged-over areas, Manne said.

“I feel the water board has not given our offer enough serious consideration and they really should,” Manne said. “At this point, the decision still rests in the hands of the executive officer and her staff. The meetings have definitely been much more positive recently, and we hold high hopes that the majority of these plans can be approved so we can avoid any more serious layoffs or even more extreme closings of mills.

“We’re hoping that within the next two weeks, we can have this resolved. If we can’t get it resolved in that same time period, we’re going to have additional layoffs. … We need logs and it is just not as simple as going out and buying logs off the open market, because there are very few logs on the market this time of year. And besides, we need cash to buy those logs.”

So PALCO is caught in a Catch-22. It needs logs to keep the cash stream going, but its timber harvest plans that would supply those logs are sitting in limbo before a state water board that many in the industry feel is hostile to the logging industry.

Despite all the controversy and worry, Manne said he remains optimistic; but, he did say that unless something changes soon, there will be more mill shutdowns and layoffs.