Plant of the Year for 2007

The company’s resurrection, recent accomplishments and ongoing transformation, as well as the opportunities it promises its employees, investors, community and society, have earned Flambeau River Papers our recognition as Plant Services “Survivor USA” Plant of the Year.

Deep roots

Park Falls is perhaps the most geographically isolated community in Wisconsin. The city’s 2,800 residents live in a region distinguished by vast forests, abundant lakes, hiking trails and wildlife. The pulp and paper mill is the largest employer in the area and is one of just a handful of manufacturers. There are only two traffic lights in the entire county, both installed to accommodate traffic trucking raw materials in and finished paper out of the mill.

Pulp and paper were first manufactured in Park Falls in the 1890s. During the next 100-plus years, the mill’s name changed several times, but the faces largely remained the same. Many employees spent their entire working career at the mill.

Tom Ratzlaff, Park Fall’s part-time mayor and a full-time beater engineer, has been employed at Flambeau River Papers since 1979. Dan Detko, president of Local 2-0445 of the United Steel Workers of America, the union representing the mill employees, graduated from high school on a Sunday and walked into the mill for work the next day.

Plant closure

When Smart Papers acquired the mill from Fraser Papers early in 2005, the goal was to expand its position in the premium specialty segment. Things soon got shaky because of rising costs and price pressures. Energy costs were the primary concern, rising from $400,000 to $1.4 million per month. In March 2006, barely a year after buying the mill, Smart Papers declared bankruptcy.

“It was a devastating blow to the region when the mill went down,” says Detko. “The mill is a huge part of the Northern Wisconsin area economy.” Flambeau River Papers purchases 140,000 cords of wood per year and produces 22 to 27 truckloads of product per day. The bankruptcy touched not just the mill employees, but logging companies, those who truck the logs and the final product, and other local companies in support roles.

“The mill’s closing was huge. Finding new jobs for the 300 displaced employees in a town of 2,800 people was next to impossible. Some found new jobs or moved away, but many stuck around to see if efforts to re-start the mill would be successful,” says Ratzlaff.

Escape from liquidation

A team of investors led by Butch Johnson of Johnson Timber acquired the asset from bankruptcy court in July and reopened the mill as Flambeau River Papers on August 9, 2006. “We were the only party that wanted to keep the mill open. Everyone else wanted liquidation,” says Johnson, the CEO and majority owner of Flambeau River Papers. The main challenge was financing. “The banks didn’t greet us with open arms because they weren’t sure we’d stay around and be profitable.” Loans and grants ultimately helped with reopening. Financing for the purchase included a $4 million loan from the Wisconsin Department of Commerce.

Staffing the mill was easier. “We lost a couple of key people when the mill went bankrupt, but the vast majority returned. They hung on to rumors, later validated, that the mill would reopen,” says Randy Stoeckel, the mill’s vice president and general manager. The mill reopened with no change to the labor union agreement: No wages were reduced and no benefits were cut. “We decided if we were going to make it work, we would do it with better operations, not on the backs of the employees.”

The transformation

A new management philosophy immediately took root. Johnson has been in the forest products industry since 1973, but this was his first venture in paper mill operations.

“From our perspective, Johnson’s inexperience in operating paper mills was a blessing.” Ratzlaff explains. “His outside-in view enabled him to see the mill differently, without predisposed ideas. While previous owners wanted to see a profit before they would make capital investments, Johnson’s team was willing to make the necessary, positive investments. In addition, he valued the employees’ knowledge and brought them in as advisors even before he actually owned the mill.”

Achieving long-term viability would require dramatic change. Energy costs were running well more than $1 million per month, and half of that represented natural gas.

A primary concern was a drastic reduction in the mill’s reliance on purchased fossil fuels, and the new owners envisioned eventually becoming self-sufficient by using the mill’s own resources to generate energy.

However, the goal was complicated by the plant’s condition. “The mill’s infrastructure had deteriorated under Fraser Papers and Smart Papers,” says Detko. “The new management team had to focus on getting structural and machine integrity where it needed to be in order to be competitive. Substantial capital would have to be invested in projects such as a new winder for the #1 machine, steam boxes on the paper machines, new clamp trucks and roof repairs.”

To jump-start the business, the new management team established an exclusive distributorship that would support a lean production strategy. “We knew the high cost of selling and maintaining a sales force, and we lacked time to put an experienced sales force together,” explains Bob Byrne, president of Flambeau River Papers.

“CellMark was selected to be our exclusive distributor, not only because they have established sales connections, but because of their financing capabilities, which reduced our need for receivable financing.”

The new objective was constant production. The CellMark arrangement reduced the variety of products, which could help streamline operations, maximize machine utilization, and minimize inventory problems. “CellMark does an excellent job in the sale of paper and has kept all three paper machines busy 24/7,” Byrne says.

Re-starting over

With a clear path forward, the mill worked fast to protect the assets that were about to start up – from water, steam and chemical flow preparation to equipment inspections and maintenance – and implement much-needed process and equipment improvements.

“We held our first meeting with key department heads and employees on July 5, and by the time the mill reopened on August 9 we had made $2 million in improvements,” says Stoeckel. The turbine on #6 was rebuilt to generate reliable power. The #3 machine steam turbine was rebuilt to stabilize machine operations. Asbestos was removed from #1 and #2 digesters and non-invasive ultrasonic testing was performed, variable-speed drives were installed, and work was completed on the wastewater treatment and chiller for the pulp mill acid plant.

The top five priorities were completed before the mill reopened:

• Recover raw water tank heat
• Recover PM3 flash steam
• Identify and repair compressed air leaks
• Identify and repair failed steam traps
• Automate wastewater treatment with dissolved oxygen blower control

A $350,000 line of credit from CleanTech Partners helped to finance the five projects.

CleanTech Partners is a private, non-profit investment organization designed to support Wisconsin energy efficiency projects. Its primary funding is provided by Focus on Energy, a public-private partnership dedicated to managing energy costs in Wisconsin.

Analysts from CleanTech Partners and Focus on Energy were brought in to assist the mill’s employee-led energy team in identifying and financing energy efficiency projects. “The staff at Flambeau River Papers had known of opportunities to save energy for many years and accumulated a long pending project list,” says Brent English, senior technology analyst at CleanTech Partners. “We had extensive dialogues with the previous mill owners, who were reluctant to spend the money even though they were cognizant of the opportunities for savings. This is common of management teams in this incredibly conservative industry.”

The employee-designed recovery projects were the largest of the five, and their completion earned the company the Wisconsin Governor's 2007 Pulp and Paper Energy Efficiency Award. Capturing heat lost from vented steam and the hot water system, and recycling the heat and hot water back to the pulp mill and paper machines, cost $190,000. It saved $2.1 million in natural gas cost savings the first year, increased pulp production by 12 tons per day, improved paper machine operations, and reduced demand on the Flambeau River by as much as 1,500 gallons per minute.

“There are still another 70 projects on the board and the mill is working to fund the top seven. The estimated $3 million worth of capital costs is projected to generate $7 million per year in energy savings for the mill, with an average of six months to payback,” English adds.

Less coal, more wood

The mill’s large conventional boilers fire wood and coal, and they want to get to 100% wood if feasible. Robert Govett, a professor at the University of Wisconsin-Stevens Point, College of Natural Resources, introduced the new owners to the Wood-Fueled Boiler Financial Feasibility spreadsheet program (http://forest.wisc.edu/extension/BoilerProgram.xls). The spreadsheet provides a starting point for analyzing financial feasibility.

The program allowed mill analysts to calculate the costs, annual savings and payback period of displacing coal with wood. They used models to calculate the cost per net million BTU of different fuels, factoring variables such as moisture content and efficiencies against mill-specific operational parameters.

The calculations revealed that coal consumption could be reduced by decreasing the moisture content in the biomass, giving it a higher BTU value. By making this change, the boiler that once burned 50 tons of coal per day is now burning 10 tons per day.

“The people at Flambeau River Papers were very quick studies. We helped them access suitable feed stocks and assess raw material costs, and we helped them get started with the spreadsheet,” says Govett. “They used their analyses in clever, creative ways to generate efficiencies that established a competitive advantage.”

Teams drive improvements

A series of mill improvement (MIP) teams organized by the employees are driving best practice process and technology initiatives. “These are typically 10-week teams that set their own goal, capture the savings, and then sustain the savings in their designated areas,” says Byrne. “We try to structure the teams with 60% hourly and 40% salaried personnel from various departments affiliated with the team’s targeted goal. The improvements are generally implemented on the side while the plant is running.” MIP initiatives include:

• Broke reuse: The first MIP team concentrated on changing work processes to reduce losses in waste fibers, known as broke. Formed in early June, the broke reuse team targeted wasteful habits to reduce bulk reprocessing costs and increase the use of de-ink product to improve the margin. Positive cost savings began in late June and the initiative was completed in August. The broke reuse team achieved $2.2 million annual savings by reducing reprocessing shrinkage. Methods are now in place to ensure the savings are continually captured.
• FMEA: The mill initiated its first ever failure modes and effects analysis (FMEA) on its 55-year-old #1 winder. Salaried and hourly production and maintenance personnel identified everything that could possibly go wrong with the winder, the severity of the problems, probability, consequences and actions to avoid future failures. As a result, a $750,000 winder replacement project was initiated in June and the installation and startup of the Webco winder was completed in mid-August.
• Fiber optimization: The goal of the fiber optimization team is to enable the use of all low-cost fiber in the papers, produce more tons, increase efficiency and improve the way grades are scheduled on the paper machine. It is addressing how the departments work together to improve the quality of pulp sent to the paper machines. The team has a target of $2.1 million in annual savings from the work they will perform during their 10-week tenure. The team began in August in parallel with the paper machine reliability team because the missions are interrelated.
• Paper machine reliability: The paper machine reliability team is targeting a reduction in downtime of 5% before its 10 weeks are up. Using reliability-centered analysis, they plan to identify and reduce the biggest causes of unscheduled downtime and capture an estimated $800,000 per year savings.

Procedural changes, training and better planning of equipment outages are the primary focus.

Finally, because it didn’t have the resources in house, a third-party contractor was hired to conduct condition-based maintenance (CBM) for the mill’s paper machines, pulp mill, water treatment, boiler house and turbines, and there are plans to add more equipment to the list. The mill had not had a reliability mindset for many years and management is intent on implementing processes and technologies to get it back.

Management faces challenges

External business challenges have required creative thinking. “Our most vicious problem is that kraft pulp hardwood and softwood prices are up while paper prices have declined,” says Johnson. “We continue to work on what we can influence and control, but our primary obstacle is the price of paper. To compensate, we are getting out of commodity grades of uncoated paper and into specialty grades, which have a higher positive margin.”

The company’s health insurance carrier was seeking a 17% rate increase. In response, the company instituted a health awareness program to minimize future healthcare costs. Working on this program with the carrier appears to be reaping early rewards as the carrier has reduced this year’s increase to 12%, in line with average industry rate increases.

The local power company is seeking a 14% increase in electricity prices on top of a 10% increase instituted after the mill reopened in 2006. Flambeau River Papers is part of an electrical users group that is attempting to intervene and reduce or eliminate the requested increase.

Regulatory uncertainty is another concern. The U.S. EPA promulgated new boiler maximum achievable control technology (MACT) requirements regarding hazardous air pollutants. The requirement was amended and dropped by most states but not Wisconsin, leaving the state’s mills bound by more stringent and costly guidelines than competitors in other states. “It appears the Wisconsin Department of Natural Resources will follow the rest of the states and the federal government timeline, but this is subject to change as many governmental regulations are,” said Stoeckel.

Future vision

Beyond its short-term goals, the mill is actively pursuing a vision of becoming entirely fossil fuel independent so it will no longer be subject to the high prices of natural gas or coal. Eliminating natural gas as a fuel would save the mill between $4 million and $5 million per year. Eliminating coal would generate an estimated $1.2 million annual savings while reducing the mill’s fossil fuel carbon output. If accomplished, Flambeau River Papers would become first energy-independent integrated mill in North America.

Three projects are in the works to achieve this goal.

The mill’s pellet project is one method of completely eliminating the need for coal. Flambeau River Papers is looking at new technology that uses densified biomass fuel with a heat value more than 10,000 BTU per pound made from wood mixed with a binder. The densified biomass fuel pellets would replace the coal used at the mill.

A second project would replace the coal and natural gas the mill now buys. The mill would generate steam and electricity from woody biomass such as logging residues, which is a renewable resource and virtually carbon-neutral. This can be achieved with biomass gasifier technology from ThermoChem Recovery International (TRI, www.tri-inc.net) that gasifies wood waste to produce synthesis gas, or syngas, as a replacement for natural gas. The gasifier also can convert cellulosic feedstocks into biofuels.

Gas converted to liquid could be used or sold on the open market, and the rest of the gas unconverted to liquid would be burned to make steam and electricity. “The benefits of this technology and its ability to meet our steam and electric demands make this a viable long term project,” says Byrne. Execution of the biomass gasification project is pending financing and USDA loan guarantees.

The third effort has Johnson working toward achieving energy self-sufficiency with a proposed Flambeau River Biorefinery. Situated adjacent to Flambeau River Papers and governed as a separate limited-liability corporation, it would be capable of producing renewable electrical power, pulp and steam for the paper mill, and ethanol. Fed by softwood chips, the cellulosic ethanol biorefinery would produce ethanol and pulp concurrently. The cost-effective pulp line would use fewer chemicals and less energy to produce stronger sulfite pulp. The plan also calls for generating 50 million gallons of ethanol per year. Trials are being conducted at a USDA lab to refine the process and equipment to make the project more economically attractive. Once financed, the $300 million biorefinery is expected to take 24 months to complete.

Efforts to secure private investments and public funds for the mill’s visionary projects are underway. A proposed Wisconsin state budget includes a $5 million renewable energy grant for Flambeau River Papers to become energy-independent. The president of CleanTech Partners, Masood Akhtar, is helping to source funding for the biomass and biorefinery initiatives. A $30 million DOE grant application was submitted for the biofuels project in August and awarding of the grant will take place next April. An earlier attempt to secure an $80 million DOE grant resulted in Flambeau River Biorefinery ranking ninth of 44 applicants when just six grants were awarded.

Prospects are solid

“Our first year of operation was not profitable, nor was it projected to be at startup,” says Johnson. “You pay a high price to buy back into the marketplace,” But production rates are on the rise. Historically, the sulfite mill produced 150 tons per day, and is now up to 172 tons per day. “Our goal is to get to 180 tons per day,” he says. One hundred tons of waste paper are processed daily, and 80 tons per day of usable de-ink fiber are produced. “In the past, we produced 132,000 annual short tons of uncoated paper,” he adds, “Our goal is to get to 160,000 tons per year.”

The mill’s prospects remain bright. Great strides have been made improving its infrastructure and operations as well as its product quality. Sales are improving, energy costs are being controlled, employees are motivated, and the mill is hiring both salary and union positions. Moreover, there’s optimism about the mill’s fossil-free, energy-self-sufficient, biotechnology vision.

Roaring back from the brink of bankruptcy, Flambeau River Papers is an example of how traditionally conservative industries can – and must – stretch the imagination, raise the bar and reinvent the business paradigm.