WestRock paper mill was Tacoma Water’s biggest customer. Its closure will cost you $$
The ripple effects of Tacoma’s loss of a legacy paper mill extend beyond the job losses, with the loss also of revenue and the surprising role the mill has played in the city’s water system.
It’s become a conundrum for Tacoma Public Utilities and the city: While Tacoma Water always encourages conservation among customers, the ultimate conservation move — a major customer’s departure from the system — means a reconfigured system in the future, along with higher rates.
Representatives of the WestRock mill, 801 Portland Ave. E., announced its planned September closure on Aug. 1, affecting about 400 workers at the site.
Compounding the closure and layoffs, a Tacoma Water official explained, is that the utility cannot just shut off the pipes and call it a day, with its system long designed to provide the volume used by the mill, going back decades.
Scott Dewhirst, superintendent of Water with Tacoma Public Utilities, spoke with The News Tribune on Thursday about what’s next following the closure next month of the WestRock mill in Tacoma’s Tideflats.
“They’re by far our largest customer by volume and revenue,” he added. “They use currently about 16 million gallons of water a day, which is about 30-31% of our average day demand throughout the entire year. … So they’re a large component of our system from a volume perspective. Also, they are by far our largest revenue producer and customer as well.”
Dewhirst said the mill generates around $7.3 million annually in revenue for the utility.
Beyond the monetary loss, issues regarding the city’s water system itself come into play.
“The fact that they were using a lot of water kept that water moving through the system and kept all the water fresh,” he said. “Now that that’s going to go away, we’re putting that water into that same piping system, but now we’ve got to help induce some turnover that’s not going to be there anymore. So there’s some additional things we’re going to have to do on the operation side to really adjust to our operational reality now that they’re not here to pull that large demand.”
He added that “you can’t change that system very easily, or very quickly, or very inexpensively.”
He explained that the utility had “committed resources — pipes, large pipes — to serve that large customer for many, many decades. When they go away, we’re left with a lot of pipes that’s really too big for the system.“
Dewhirst noted that “some residual usage in demand for a period of time” is anticipated from the mill, and the utility has dealt with WestRock shutdowns for maintenance in the past, “so we’ve had a chance to kind of see what that was like and learn from that.”
But, he admitted, “We haven’t figured it all out yet.”
In the WestRock’s quarterly report filed Aug. 4, the company noted that “We expect to incur aggregate charges of approximately $345 million associated with the Tacoma mill closure, consisting of approximately $247 million in asset write-down or related charges, $12 million in severance and other employee costs, and $86 million in other restructuring costs (e.g., mill shutdown, contract termination and facility carrying costs).”
It added that it expects “cash costs to be partially offset in a future period by proceeds from the sale of this facility.”
Initial rate proposals
The effects of the mill closure came before the TPU board at its Aug. 23 study session, where Dewhirst shared a presentation informed by the utility’s earlier work envisioning such a departure.
“We had some concerns it could happen, and enough of a concern that in 2021 we had an internal auditor team look at what if this were to happen,” Dewhirst told The News Tribune. “So now we have a report that we produced internally that says, ‘Here’s all the things that we should be thinking about now that it’s going to happen.’”
The Aug. 23 presentation noted, “Although we expect some variable cost savings, we anticipate that there will also be increased costs as we work to ensure we mitigate potential impacts to water quality.”
“This loss of demand will require major changes and reconfiguration of our system,” the presentation noted. “Staff are analyzing what improvements may be needed due to the loss of nearly one-third of our average day demand.”
The assumptions of WestRock’s shutdown outlined in the presentation showed a gradual, not immediate end of services to the site, stating:
▪ Mill demand is equal to 7.2 million gallons a day for last quarter 2023 (average maintenance level).
▪ Consumption decreases to zero by the end of 2024.
It added that “There is a risk that we will see a full closure earlier than assumed.”
It also noted the “Potential to market excess water and reduce the rate impacts for our customers in the longer-term.”
The presentation included the closure’s financial impact before any rate increases. It listed a revenue loss of nearly $6 million between Oct. 1, 2023 and Dec. 31, 2024, and total revenue loss of about $101 million over the planning period of Oct. 1, 2023 through the end of 2034.
The initial rate increase options presented at the study session include:
▪ One-time increase in 2024: Described as “4% already approved with additional 8% system average annual rate adjustment (12% total).
▪ Gradual rate increases over three years: Described as including the 4% already approved for 2024 “with additional 5% system average annual rate adjustment (9% total); projected rate increases for 2025 and 2026 at 3.5% base case with additional 1.5% each year (5% total).
▪ Rate increases starting in 2025: This was the “not recommended” option presented. It described projected rate increases for 2025 and 2026 at “3.5% base case with additional 4.5% each year (8% increase each year).”
“Although we would be able to use reserves early and recognize additional revenue from the rate stabilization account to meet debt service coverage requirements, we would lose approximately $6 million in 2023-2024 as well as compounded losses,” the presentation noted with the third option.
Dewhirst told The News Tribune that the rate increases could range from an estimated $2.28 to $3.65 per month for customers, depending on the option chosen.
“We do have rate adjustments that are normally programmed for the biennium,” he said. “And we’re going to be looking into increasing our support for those vulnerable customers,” through its Bill Credit Assistance Plan.
Dewhirst said that “We’re going to do our best to increase our BCAP support for them to potentially offset this adjustment to them in 2024.”
“We’ve got a number of Tacomans who are going to lose their job here … and we can’t lose sight of that,” he said. “So we’re trying to make sure we’re doing everything we can to limit the impact, but the reality is … it’s hard to change that system overnight.”
Any proposed rate increase will have to be considered and approved by both the TPU board and the City Council, and Dewhirst emphasized that “it’s not like it’s going to happen next week. It would be many months out,” before a decision.
But, he added, “there’s no way to just chop off that part of our system and pretend it doesn’t exist.”
