Mill's closure could trigger default on state agreement

Mar. 15—The closure of the Canton paper mill raises questions over whether the Pactiv Evergreen will have to repay some or all of a $12 million state grant it received eight years ago.

The mill embarked on a $62 million investment in the mid-2014 clean up its coal-fired smokestacks. Two of the oldest coal-fired boilers — Peter G and Big Bill — were converted to natural gas, dramatically reducing air pollution.

Canton paper mill an environmental success story

The Canton paper mill is closing at a time when its environmental impact is the best it's ever been.

Through the years, regulatory agencies have dogged the mill's owners to clean up its impact on air, land and water — whether that owner was Champion Paper, International Paper, the employee-owned Blue Ridge Paper Products, Evergreen Packaging and most recently Pactiv Evergreen.

State records show steady progress. A permit for discharges into the Pigeon River issued last year declared the mill was in full compliance of environmental regulations.

The mill has also made huge strides in meeting air quality standards thanks largely to a major investment in the mid-2010s to clean up its coal-fired smokestacks. Two of the oldest coal-fired boilers — Peter G and Big Bill — were converted to natural gas, dramatically reducing air pollution.

DEQ tracks emissions for six major air pollutants emitted by the mill, with an emission calculation for each boiler at the plant.

Readings for the No. 1 and No. 2 gas boilers don't begin showing up until 2017, at which time emissions from the Big Bill and Peter G began declining. By 2018, there were no emissions recorded from the two oldest boilers in the plant.

"While overall power consumption is relatively constant over this period, the reported emission rate of almost all the major pollutants was reduced," said Shawn Taylor, the spokesperson for the N.C. DEQ's air quality division.

A spreadsheet tracking mill emissions since 2010 show pollution reductions are stark.

—The annual reduction of nitrogen oxide was 50%.

—Sulfur dioxide emissions were down from 96%.

—Carbon monoxide emissions fell by almost half.

—Particulate matter saw a nearly 75% drop.

—Mercury emissions were almost halved.

Only Hydrogen chloride emissions increased, but by less than 2%.

The mill received a $12 million grant to offset the cost of the natural gas conversion thanks to a state program to encourage job creation and retention. The grant came with strings attached, however.

The mill pledged to maintain its workforce for 10 years, not dropping below a minimum of 800 employees nor reducing salaries, per the terms of the grant.

That agreement doesn't expire until Dec. 31, 2024. The mill's impending closure now raises the question of whether all or part of the state funds will need to be repaid — a question that will be navigated in uncharted waters.

"Media reports of the company's situation became public last Tuesday evening," said David Rhoades, the communications director for the N.C. Department of Commerce. "So we have only just begun our investigation into the specific circumstances of the company's action."

The state has never before seen a breach of contract under the Job Maintenance and Capital Development program, or JMAC for short, Rhoades said. But that's likely about to happen given that the Pactiv Evergreen mill plans to close about 18 months before the agreement expires.

The grant is just one of several pending issues to be settled once the state receives a formal notice from the mill on its intent to close, which hadn't happened as of March 10.

"Any decision regarding potential repayments under the JMAC agreement will only occur after we complete a full assessment," Rhoades said.

The mill must file annual workforce reports with the state to ensure it's in compliance with the grant terms.

According to the most recent report for the 2021 calendar year, the Canton mill employed 808 individuals at an average wage of $81,311, based on both hourly and salaried workers. The report only includes the Canton mill and not the satellite facility in Waynesville.

The wage rate amounted to 155% of the average wage in the county — well above the minimum requirement that wages exceed 140% of the average wage earned in Haywood.

A bit of history

In 2014, the Canton paper mill was staring down new federal air quality requirements that executives said couldn't be met without an expensive upgrade. A deal was struck to give the mill a $12 million grant, in exchange for the mill making at least a $50 million capital investment and continuing to employ a minimum of 800 workers at a higher-than-average pay rate for at least a decade.

Initially, the Canton mill wasn't eligible for the grant funds because the county wasn't considered economically distressed. But mill leaders worked with the region's legislators and community leaders in a bipartisan effort to secure financial assistance for the air quality upgrades.

Then-N.C. Sen. Jim Davis, along with N.C. Reps. Joe Sam Queen and Michele Presnell, were joined by colleagues representing Western North Carolina, and all went to bat for the company. Legislation was passed to change the JMAC rules so that the Canton mill could get $12 million, the maximum allowable amount.

An agreement was signed by mill company officials, the N.C. Department of Commerce, the N.C. Attorney General's office and Haywood County operations.

The county had chipped in with incentives of its own for the mill totalling an estimated $226,000. The county gives the mill a credit for a portion of the additional property taxes it would otherwise owe on the new natural gas boilers, said County Attorney Frank Queen.

At the end of the 10 year-agreement, the county would have been able to collect the full freight of property taxes on the value of the new equipment.

The mill ended up investing a total of $67 million to convert two of the plant's coal-fired boilers to natural gas, according to articles in The Mountaineer at the time. The upgrade was successful and significantly reduced plant emissions according to data provided by the N.C. Department of Environmental Quality (see info box).

What's next?

Grant agreements, especially ones for economic development, often have a clawback clause, meaning if the grant terms aren't met, the money must be repaid.

That happened in Haywood County more than a decade ago. A company was given a property tax break for a manufacturing plant in the Beaverdam Industrial Park, but ended up folding.

The JMAC agreement signed in early 2015 includes a section spelling out the conditions for default and for termination, and the conditions under which the grant funds must be repaid.

Most of the conditions are for failure to honor any portion of the agreement, though there's an out in the event of bankruptcy or the company falling under the jurisdiction of a court if it is unable to pay its bills.

Rhoades said the N.C. Department of Commerce officials will meet with the paper mill team and assess the situation.

"Any decision regarding potential repayments under the JMAC agreement will only occur after we complete a full assessment," he said.

Queen said the issue of a clawback for mill incentives has not been discussed at the county level yet. N.C. Attorney General Josh Stein said his office will enforce legal agreements acquired by Pactiv Evergreen when they became mill owners.

"The closing of the paper mill is devastating news for the town of Canton," Stein said in an email comment to The Mountaineer. "I've spoken with Mayor Smathers and I share his deep concern about what this means for the livelihoods of people in his community and the area's economy and social fabric. My office will do everything in our power to help ensure that the mill complies with its legal obligations to its workers and the town, and I'll continue to be in touch with Mayor Smathers in the coming months."