PORT TOWNSEND — News that Port Townsend Paper Corp. is closing two box-making plants in British Columbia and Alberta, Canada — plants that the Port Townsend Paper mill supplies with products — caught members of United Steelworkers Local 175 by surprise.

“We were left a little bit off guard on what they were going to do with jobs here,” said Mike Orr, vice president of Local 175, who spoke last week for the union representing more than 260 of the Port Townsend mill’s 290 employees.

“It’s a little concerning. People on the floor are just waiting for what comes next.”

Chuck Madison, spokesman for Port Townsend Paper, said Saturday that he had no comment. Mill executives have been reluctant to talk to the news media since new management took over in 2008.

The mill annually produces more than 320,000 tons of unbleached kraft pulp, paper and linerboard, which have been used to make cardboard boxes in the Canadian plants.

Orr: Union suspicions

Orr, who has worked at the Port Townsend mill since 1992 and is now a boiler operator in the power plant, said he felt that the announcement from Port Townsend Paper executives clarified why mill management put eight new hires on stand-by status about two weeks ago.

Orr said that four more experienced employees possibly were being shifted into positions that could be vacated through retirements.

As the union sees it, Orr said, the 12 positions are being phased out. Some other jobs, he said, have been left unfilled through attrition.

Orr said he knew of three openings in the maintenance department — two millwrights and an instrument technician — that will not be filled.

Grant to retain, add jobs

However, the mill is expected to retain its 290 jobs and create 108 temporary jobs through a $2 million grant awarded to Port Townsend Paper on Monday — the day before the mill announced the Canada box plant closures.

The money from the state Department of Commerce, which comes from federal stimulus funds, is to be used to upgrade the mill’s biomass cogeneration boiler and plant, which produce green power to the mill, returning unused energy generated back to the Puget Sound Energy customer grid.

The mill’s grant application states that Port Townsend Paper agrees to leverage $53 million in additional funding to match the grant.

Expects production decrease

Orr said that the union expects the Port Townsend mill — Jefferson County’s largest private employer — will decrease production, but members do not know when.

Financially embattled Port Townsend Paper Corp., which in 2007 successfully filed for and exited Chapter 11 bankruptcy protection to restructure its debt, had 310 employees at the time.

The federal bankruptcy court move took $50 million of debt off the company’s balance sheet. The company’s Chapter 11 exit was funded by a $60 million loan, which was backstopped by hedge funds, GoldenTree Asset Management and Thales Holding Ltd.

Port Townsend Paper Corp. executives announced Tuesday the company’s closure of two Canadian box production plants in Kelowna, British Columbia, and Calgary, Alberta, but declined to elaborate on how the action could affect the Port Townsend mill’s staffing and operations.

The company confirmed the Canadian corrugated box production plants will shut down in early December.

The Port Townsend Paper Family of Companies in Port Townsend and Canada employed about 660 people overall.

Orr worried about what he called even more pressing issues on the Port Townsend mill’s horizon: water, a Bonneville Power Administration power discount coming to an end this year and the possible loss of federal tax credits to mills that use “black liquor” as an alternative fuel.

The mill is powered by Clallam County Public Utility District through BPA. The mill uses eight to 10 times the water the entire city of Port Townsend uses.

Orr said the mill has long been conserving water, using between 7 and 8 million gallons a day instead of up to 10 million gallons per day in past years.

City officials confirmed last week that water reserves are running low and they were waiting for autumn rains to fall, but said that they foresee no water shortage.

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Port Townsend-Jefferson County Editor Jeff Chew can be reached at 360-385-2335 or at jeff.chew@peninsuladailynews.com.