January 08, 2014GORHAM — Gorham Paper & Tissue LLC began a temporary restructuring of its papermaking operations on Friday, Jan. 3, in response to record-setting natural gas prices, CEO Mike Cummings told members of the Androscoggin Valley community early that afternoon.
"The sudden, extreme increases in New England's natural gas prices makes business-as-usual impossible," Cummings explained in an e-mail. "We can't run paper machines when production costs exceed prices for our products."
The Gorham mill, which has had more than 200 workers on its payroll, uses natural gas to generate the steam that is needed in the papermaking process.
"Although the mill benefits from a direct connection to a major gas pipeline, regional prices for natural gas skyrocketed last month — a partial consequence of New England's constrained pipeline capacity," the CEO explained. "The average daily price for natural gas was $6.70 per decatherm during the previous three Decembers (2010 to 2012). Last month, however, regional prices averaged $13.30 per decatherm, with the high a record-setting $33 per decatherm. The price spike shut down papermaking operations for three days.
"The mill purchases over 3,000 decatherms of natural gas per day during the winter months," Cummings said, pointing out in a mid-afternoon telephone interview that it is easy to do the math and understand the problem.
"We plan to operate only one or two paper machines on a regular basis for the duration of the winter," he said.
The tissue machine will run as close to 24/7 as natural gas prices will allow, Cummings said. "We have a full backlog on the tissue machine and when prices are in their normal range its products are profitable," he said.
Staffing of salaried and hourly employees will be reduced in line with running only one or two rather than three machines, the CEO said.
"It is too soon to know how many employees will be laid off, Cummings said. "It will likely be between 20 and 50.
"Other employees will incur intermittent week-long layoffs depending on the mill's reduced production needs," he explained. "We will re-evaluate staffing when gas prices return to seasonal norms in the spring. And we will continue to seek to push down overhead costs and also make process improvements."
The reaction of the mill workers to this temporary restructuring has made him very proud to be part of the team, Cummings said.
Gov. Maggie Hassan almost immediately issued the following prepared statement in response to GPT's restructuring announcement:
"Gorham Paper and Tissue's announcement is troubling news, and I have instructed state officials from the Department of Resources and Economic Development (DRED) and New Hampshire Employment Security (NHES) to provide every resource possible to assist and support any affected workers.
"DRED officials have been working directly with Gorham Paper and Tissue to identify ways to reduce and stabilize the company's energy costs, and I remain hopeful that the situation can be improved. I encourage the company to strongly consider any options that could reduce the number of potential job losses.
"It remains clear that we must take steps to lower energy and natural gas prices throughout our region to help New Hampshire businesses and families, which is why I have joined with my fellow New England governors in a regional statement of commitment to increase cooperation on energy infrastructure issues, including accelerating the development of additional natural gas pipeline capacity.
"I will continue working closely with all of our partners to identify ways to build a stronger, more reliable energy future for New Hampshire."
Gorham Town Manager Robin Frost said that the underlying problem of spiking natural gas prices is far larger than can be addressed by the Androscoggin Valley alone. She welcomed both the immediate help offered to workers by Gov. Hassan on behalf of the state and its agencies, and the longer-term discussion of improving the year-round supply of natural gas.
"Our first thought is, of course, for the well-being of our area workers and their families here in the Androscoggin Valley," Frost said, "but we are also facing a state- and New England-wide energy problem that must be addressed."
In May 2011, the Gorham mill was acquired with support from investment funds managed by Patriarch Partners, LLC, a private equity firm and holding company that manages 75 companies across 14 industry sectors with revenues in excess of $8 billion. Founded by Lynn Tilton in 2000, Patriarch focuses on the acquisition and invigoration of undervalued iconic American brands where she and her investors believe time, capital and sound strategy can rescue a business and restore its value, thus creating and preserving jobs in the U.S.