Blue Heron Paper Company

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Blue Heron Paper Company

419 Main Street
Oregon City, Oregon 97045
U.S.A.
Telephone: (503) 650-4211
Fax: (503) 650-4521
Web site: http://www.blueheronpaper.com

Private Company
Incorporated: 2000
Employees: 255
Sales: $220 million (2006 est.)
NAIC: 322120 Paper Mills

Blue Heron Paper Company recycles more than 500 tons of newsprint, magazines, and other paper each day as well as manufacturing numerous grades of newsprint, high bright specialty papers, and bag papers. The company has been employee-owned since 2000.

BEGINNINGS

Though Blue Heron was incorporated in 2000, the history of its mill and operations can be traced to the early 20th century. In 1908, W. P. Hawley purchased a mill site in Oregon City, Oregon, that had been home to a flour mill, saw mill, woolen mill, and paper mill at various points since it was built in the 1830s. Hawley Pulp and Paper Company began producing its first paper in 1909 at the rate of 20 tons per day. The following year, Hawley added a second paper-making machine to manufacture light tissue paper and fruit wrap. Soon thereafter, the company installed a third machine that produced fruit wrap and bread paper. In 1916, a fourth machine that manufactured newsprint came on line.

Throughout the 1920s and even the 1930s, the company continued steadily to produce paper. All of the raw material it used was virgin wood fiber. In 1923, a temporary setback in production occurred when fire destroyed Hawley's first machine, but the company rebuilt the machine in 1924. Hawley Pulp and Paper prospered, and, in 1928, it was able to replace its fourth machine with the largest and fastest newsprint manufacturing machine in the western United States.

Then, in 1948, the Los Angeles Times Mirror purchased the mill and renamed it, appropriately, Publishers Paper Company. Under the Times Mirror, the mill pioneered several innovations. In 1950, it became the first paper mill to use sawmill chips rather than whole logs to manufacture paper. In 1975, it branched out into recycling when it began a 25 ton per day paper de-inking operation, a necessary step in recycling paper. The company also distinguished itself for its environmentally conscious innovations. In 1972, it won the first Governor's Clean Up Pollution award for sulfite improvements and effluent water treatment, and, in 1984, it received the Governor's Energy Award and the National Award for Energy for its heat recovery system.

NEW OWNERSHIP IN 1986

When Jefferson Smurfit Corporation purchased Publishers Paper Company in 1986, the company became Smurfit Newsprint Corporation with a workforce of close to 270 employees. Under Smurfit management, the company repeatedly ran afoul of the regulations and standards set by the Oregon's Department of Environmental Quality (DEQ). From 1987 to 1998, the company paid seven civil penalties totaling about $42,500 for violating air and water pollution laws. In 1998, it pleaded guilty to criminal charges and was fined $65,000 for a 1995 incident involving violating the federal Clean Water Act. In 1999 it exceeded the standards of its Willamette River wastewater discharge permit.

In 1998, Smurfit purchased Stone Container Corporation and became Smurfit-Stone, the largest producer of cardboard boxes and other paperboard packaging materials. In a move to reduce debt and to concentrate on its core business, Smurfit-Stone moved to sell Smurfit Newsprint to KPS Special Situations Fund LF of New York, local mill management, and mill employees in 2000. David Shapiro, a KPS partner, laid out KPS's plans for its future involvement with the company in a 2000 Oregonian article. KPS would be a "medium-term owner. Our horizon is three to seven years." After this period, KPS planned to turn its share of the company over to employees or to another company.

Mike Siebers, a third-generation paper maker and vice-president and general manager of the mill, was slated to become president of the new employee stock ownership plan (ESOP). "We don't want to curtail operations," he said in a 2000 Oregonian article, adding, "We want to keep the union in place. One of our strengths is our work force." However, terms of the sale included salary and benefit concessions on the part of the workers and management. Smurfit-Stone informed all employees that if the union voted to reject the cuts, it would give 60 days notice and close the mill.

Despite urgings by union leadership to vote yes on the contract, members of the Association of Western Pulp & Paper Workers Union refused cuts of about 17.4 percent in pay and 3.4 percent in benefits (slightly less than originally proposed) in return for one-third ownership of the mill in a first-round vote of 133 to 70. Union members decided to contact an expert for advice in attempting a total takeover of the company through an ESOP despite the fact that Shapiro proclaimed 100 percent employee ownership "an unrealistic alternative" in the March 15, 2000, Oregonian.

In the end, in late March 2000, three weeks after the first vote, union members voted 104 to 92 to take a 17.4 percent pay and benefit cut in exchange for 35 percent ownership of the mill and representation on its board, and, by May, KPS owned 60 percent of company, mill employees 35 percent, and management the remaining 5 percent. However, the close vote left friction between employees who had been for and against the KPS offer. According to union leadership, in a March 2000, Oregonian article, workers were not "overwhelmed" with the final accepted offer, but were "happy to be working instead of hitting the bricks."

Half a year later, in September 2000, the new management of the renamed Blue Heron Paper faced another environmental warning and challenge. Despite the fact that Smurfit renewed the mill's DEQ permit two months ahead of schedule, as allowed by a 1997 state law, the former management's environmental record came under attack and state officials delayed the company's wastewater permit. Local environmental groups also took Blue Heron to task. The Northwest Environmental Defense Center challenged a DEQ decision to reduce a fine against the Smurfit management by the standard 80 percent after the company self-disclosed that its wastewater manager had falsified compliance records. The Northwest Environmental Defense Center also alleged that the mill's warm wastewater had violated the Clean Water Act and sued the company in district court, seeking penalties of $4 million. The center was backed by other environmental groups, scientists, and federal regulators that agreed that the Willamette, consistently above 70 degrees in summer, was too hot for salmon, protected under the Endangered Species Act.

COMPANY PERSPECTIVES

Our strategy is to be more diversified and to try to be more responsive to our customers than our bigger competitors can be.

In May 2001, Blue Heron agreed to a legal settlement that entailed reducing its wastewater pollution, installing fish screens, and donating $40,000 to conservation groups in return for which the Northwest Environmental Defense Center dropped its challenge of Blue Heron's wastewater permit. The Oregon DEQ issued the company a permit that required a temperature reduction plan that phased in wastewater cooling measures, a first on its part. The company had to reduce its wastewater monthly average temperature to 80 degrees within four years, while studying the feasibility of reducing it to 68 degrees. The cost of installing the new fish screens at its water intake sites alone cost Blue Heron more than $2 million.

The early years of the new century were not prosperous ones for the U.S. paper industry. A survey by the American Forest and Paper Association, cited in the Oregonian on April 15, 2004, found that mill capacity nationwide declined by 3.6 percent from 2001 to 2003 in the face of increased foreign competition, maturing domestic markets, and continuing competition from plastics and electronic media. Blue Heron, one of only nine remaining paper-manufacturing operations in Oregon by 2004, suffered increasing expenses when the cost of power exploded during the 2000–01 energy crisis.

In 2003, the mill temporarily laid off about 80 hourly and salaried workers, a third of its workforce, for two weeks due to high energy costs. Energy prices spiked in March 2003 to levels three to four times as high as they had been in 2000. Blue Heron also shut down two of its small papermaking machines to conserve expenditures, leaving in operation only its largest machine and its paper recycling machinery. Although Blue Heron was Portland General Electric's (PGE) second largest customer, it could not "afford to hand over an excessive amount of [its] hard-earned dollars to an energy company for a few hours or days of production," Siebers explained in a March 2003 Oregonian article. When, in September 2003, PGE agreed to pay $8.5 million to resolve charges that it had engaged in fraudulent transactions with Enron, its parent company, Blue Heron received $250,000 compensation.

However, by 2004, the mill had switched to buying power on the open market in a move to cut costs. In 2005, the company joined in an energy-efficiency project with Oregon's Energy Trust. Energy Trust, authorized by the state legislature in 2002, agreed to pay half of the $10 million to $11 million private-public initiative to upgrade Blue Heron's recycling capacity.

After the upgrade, Blue Heron was able to receive an additional 100 tons of recycled paper for a total of 600 tons daily. This simultaneously cut electricity costs by about 25 percent and reduced greenhouse gas emissions. Waste newspapers and magazines accounted for close to 80 percent of Blue Heron's raw material, up from 60 percent before the project. As part of its focus on recycled paper, Blue Heron also purchased the Pomona, California, 100 percent recycled newsprint mill from Smurfit Group plc, creating the Blue Heron Paper Company of California LLC in mid-2005. Unfortunately, China's increasing export demand for waste paper drove up waste paper prices more than 30 percent in late 2006. This, combined with increased energy prices, led Blue Heron to close the Pomona plant in 2007.

Union contract negotiations resumed in mid-2005 and with them disagreements between labor and management at Blue Heron. The company proposed a labor contract that would double health costs for some workers and keep wages below levels reached before the 17.4 percent cut five years earlier. Workers insisted on seeing wages restored to levels near those of five years earlier, and once again rejected the first and second proposed four-year contract, this time by votes of 179 to 9 and 149 to 40, respectively.

KEY DATES

1908:: W. P. Hawley opens the Hawley Pulp and Paper Mill in Oregon City, Oregon.
1923:: Fire takes out the company's first machine.
1928:: The company installs the largest and fastest newsprint manufacturing machine in the western United States.
1948:: The Los Angeles Times Mirror purchases the company and renames it Publishers Paper Co.
1986:: Jefferson Smurfit purchases Publishers Paper and renames it Smurfit Newsprint Corporation.
2000:: Smurfit sells the mill to KPS Special Situations Fund, mill employees, and management; the new company, an employee stock ownership plan (ESOP), is called Blue Heron Paper Company.
2005:: Blue Heron acquires a Pomona, California, newsprint recycling mill and renames it Blue Heron Paper Company of California.
2007:: The company sells Blue Heron of California.

Finally, in a third vote in 2005, employees chose two to one to accept a 15 percent pay increase and lower the company's retirement age from 62 to 61 for medical benefits. They also accepted a change in the profit-sharing formula. A year later, KPS sold Blue Heron to its employees, making back about five times its original investment. Blue Heron, profitable since July 2005 and entirely employee-owned, was finally in a position to realize some of the early hopes for its ESOP that Siebers had expressed in the Oregonian in January 2000 that workers would be in a better position to look out for the company's economic well-being and "to do things … that benefit[ed] the company."

Carrie Rothburd