Cate Street Capital alters plans for proposed torrefied wood facility in Millinocket, Maine, aims to build US$140M steam-thermal plant with more than triple the capacity of the original proposal; status of US$25M state bond backing project uncertain

MILLINOCKET, Maine , March 7, 2014 () – A New Hampshire investment company has changed the "whole nature" of its proposal to build New England's first torrefied wood facility at the former Great Northern Paper Co. mill, leaving unclear the status of the $25 million state bond backing the project, officials said Thursday.

Cate Street Capital's plans now call for replacing the $70 million microwave torrefaction plant with a $140 million steam-thermal plant like those built in Crockett, Texas, and Selma, Ala. The new plant would employ 50 people instead of 35 and more than triple the amount of pellets created and tree wastes used annually, Cate Street spokesman Scott Tranchemontagne said. Torrefied wood pellets are described as a renewable substitute for coal.

Finance Authority of Maine staff members reported the changes at FAME's Feb. 20 board of directors meeting. FAME board member Patrick Murphy said he was checking with FAME attorney Christopher Roney to see whether the changes would nullify the board's 8-5 vote on Oct. 17 approving the bond.

"The verbal report that we got was that the whole nature of this deal has supposedly changed," Murphy said Thursday. "I think where the board stands is, they [board members] really want to take a very close look at what is going on, and why it is happening."

Roney did not return several messages on Thursday. Murphy, who chaired the Feb. 20 meeting, was among members who voted against the bond in October. Created by the Legislature, FAME is an independent state agency that develops and administers programs related to the financing of higher education and business in Maine, according to its website.

Tranchemontagne's statement came a day after leaders from Cate Street, which owns GNP's East Millinocket paper mill, asked a state legislative committee to enact a bill that would force Brookfield Asset Management to share profits from the electricity generation Brookfield does through three hydrodams on the Penobscot River. The bill drew strong local and labor support, but Brookfield opposes it as unconstitutional.

Cate Street officials called the legislation a key to its plans to restart the paper mill and rehire 212 workers whose layoff was announced on Feb. 6.

Millinocket Town Council Chairman Richard Angotti Jr. said he was unaware of the changes to the torrefied wood project but did know that Cate Street officials had contacted Town Manager Peggy Daigle to set a meeting with town leaders.

"I have been told nothing. It is as simple as that. There is hearsay going all over the place. You can take your pick which comments you want to listen to on any given day," Angotti said Thursday. "They [Cate Street] are keeping us in the dark while they are holding us hostage on their taxes."

Cate Street informed FAME first of the project changes because, as the agency responsible for the $25 million bond, it is a key element to the project, said Tranchemontagne. He declined to comment on whether project changes would affect the bond issuance, but said that Cate Street must also see whether the project's local and Maine Department of Environmental Protection permits should be altered or resubmitted for the new plans.

"We went to FAME proactively to update them on the change of technology on our project," Tranchemontagne said. "It would be presumptuous of me to determine how FAME should respond to this."

East Millinocket and Millinocket officials said in January that the company owes both towns about $3 million in overdue property taxes -- $2.3 million in taxes in Millinocket and $657,900 in East. Those taxes remain unpaid. Tranchemontagne said he was unaware of the tax payment timeline.

"If they don't do something soon," Angotti said, "we will have to act."

Angotti said the company he works for, Mid-South Engineering, is designing the torrefied wood project for Cate Street, but his work does not involve him in that process. He said he sees no conflict of interest because the council has not taken any votes involving Cate Street recently. He said he would decide when votes occur whether to recuse himself.

Since the company bought the East Millinocket and Millinocket paper mills for $1 from Brookfield Asset Management in September 2011, Cate Street has received more than $142 million in federal and state tax breaks and loans for the mills and the torrefaction project.

Tranchemontagne said the Millinocket project changes, which call for replacing machinery made by Rotawave Ltd. of Scotland microwave machinery with technology from Zilkha Biomass Energy Co. of Houston, would make the state bond more secure.

Zilkha's plants, Tranchemontagne said, use a variation of two manufacturing processes that have been around for decades -- the Masonite process used to produce wallboard and the Kraft pulping techniques that make pulp for paper manufacture.

"This is time-tested technology. This steam process has also been demonstrated in more of a large-scale demo project than Rotawave technology," Tranchemontagne said. "Rotawave technology is fine: Nothing wrong with it. This allows us to increase our capacity, create more jobs and puts the company on a stronger financial footing from the get-go.

"This is really, more than anything, a response to our potential demand. Our customers have told us they need to be assured that we could produce more," he added. "With the new technology, we can produce more tons annually more quickly."

Cate Street is assembling private financing to complement FAME's $25 million loan guarantee and the $19 million in new market tax creditsthe Millinocket project is slated to receive. The credits are designed to spur investment in low-income communities. The company hopes to begin building the plant in May or June, a few months behind its most recent schedule, Tranchemontagne said.

Prep work on the site began in October 2012, but the plant has been repeatedly delayed by Cate Street's lack of financing.

A spokesman from Zilkha, which is located in Houston, declined to comment. According to that company's website, its first commercial black pellet plant was built in Crockett in October 2010. It is rated to produce 40,000 tons of pellets annually and has shipped to more than a dozen coal-fired electricity plants in Europe and North America.

Zilkha purchased a 500,000-metric-ton-per-year plant in Selma at a bankruptcy auction in May 2010. The plant features 15 pellet mills. It will be commissioned in late 2014 as a 275,000-metric-ton-per-year plant, the company's first full-scale commercial mill, according to the website.

It was unclear whether Zilkha technology would be used to build several more machines Cate Street has slated for installation in Eastport and Millinocket over the next several years. State officials back the project because they estimate that if successful, the enterprise could attract as many as 1,500 new jobs to the state.

If it fails, taxpayers would be on the hook for the $25 million bond.


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