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For the second time in four years, the Plum Creek timber company has been assessed one of the largest penalties in Maine history for violations of the state's Forest Practices Act. The company has apologized for three improper clearcuts in an area near Moosehead Lake that is now protected by a conservation easement.

The violations occurred on a 2008 harvest in Beaver Cove on the east shore of Moosehead Lake. Regional enforcement coordinator Tim Whitworth of the Maine Forest Service says some state foresters visiting the site last year noticed what they thought was a particularly heavy cut. They investigated and found a series of clearcuts that did not have adequate separation zones or required harvest plans prepared by a licensed forester.

"They had a harvesting crew working, like in a thousand acre block or so, and they did these -- what they thought were regeneration cuts -- and they turned out to be clearcuts," Whitworth says. "There was a 64-acre clearcut; a 72-acre clearcut and a 104-acre clearcut."

Under a settlement agreement, Plum Creek will pay a civil penalty of $38,675 dollars for the violation, change its policy for regeneration harvests and participate in forest practices training.

"We made an error with this harvest and removed more trees than our plan had called for," says Mark Doty, a resource manager and spokesman for Plum Creek.

He says the company will also undergo a voluntary, independent audit of its 884,000 acres in Maine. "We apologize, and we pledge to do better going forward. We have made significant changes to our processes to prevent this from happening again."

Four years ago, Plum Creek was fined $57,000 dollars for forestry, permitting and wetland violations. At the time it was the largest penalty ever assessed under the Forest Practices Act.

In 2009 Plum Creek acknowledged that it mistakenly harvested a deer wintering yard and violated a voluntary agreement with the Department of Inland Fisheries and Wildlife. One month later, the company came under fire for a logging contractor's operations on Kibby Mountain in western Maine, where erosion caused a 900-foot mudslide.

The Natural Resources Council of Maine, which has been one of the company's biggest critics, brought that situation to light. NRCM staff scientist Nick Bennett says the latest penalty is part of a pattern. "It indicates a consistent pattern of disregard for both the health of Maine's environment and for Maine's environmental laws and regulations," he says. "It's just a question of trust and they keep violating the public trust."

Bennett says what's also concerning is that the latest harvesting violations occurred in an area that is part of the Moosehead Concept Plan conservation easement. Terms of the easement prohibit most types of development and require the woods to be sustainably managed.

Plum Creek sold the development rights on 350,000 around Moosehead Lake as part of its plan to develop two large-scale resorts and hundreds of housing lots in the same region. Approved by the Land Use Regulation Commission last fall, the plan is being challenged in court by the NRCM and other groups.

In the meantime, Alan Hutchinson of the Forest Society of Maine, says Plum Creek will face more scrutiny from his group, which provides oversight of the terms of the easement.

"The Forest Society of Maine, as the easement holder, is now part of their planning process around harvests like this so we'll be watching very carefully and trying to ensure that they do things properly, and if they don't in the future we'll hold them accountable under the easement as well," Hutchinson says.

That means in addition to penalties from the state, the company could also face fines from the Forest Society of Maine for any future violations on easement holdings.

###

The company has agreed to pay fines and change practices after being cited for violating the state's forest practices laws.

A company planning a major development near Moosehead Lake is facing fines for timber harvesting violations.

Maine's Department of Conservation says Plum Creek Maine Timberlands has agreed to pay a $38,675 civil penalty for the violations.

State officials say improper harvest operations on the company's property resulted in three clearcuts that did nto have adequate separation zones or harvest plans prepared by a licensed forester.

The violations occurred on the company's land in Township A2, Range 14 WELS, on the lake's eastern side. In addition to paying the penalty, Plum Creek has agreed to adjust its policy in handling regeneration harvests and to participate in forest practices training.

Plum Creek has proposed a major residential development and resort complex on the lake.

###

Department of Labor grants designed to benefit out-of-work Montana timber workers were hailed this week by Sens. Max Baucus and Jon Tester.

The intent of the $1.8 million in grants is to offer re-training opportunities for such workers over the next two years.

"This grant will be a lasting opportunity for Montanans to get the help they need to find good-paying jobs here at home," said Baucus, chairman of the Senate Finance Committee. "The closure of the Smurfit-Stone mill and layoffs at other mills were devastating for Montana, and you can bet I’ll keep working to ensure folks in our state are on the path toward economic recovery and growth."

The Montana Department of Labor and Industry will distribute the money to employment agencies in Lincoln, Flathead, Lake, Mineral, Missoula, Ravalli and Sanders counties.

"For the folks whose livelihoods depended on Montana’s wood products industry, this is a step to help them and their families get back on their feet," said Tester, who noted 1,700 Montanans lost jobs in the industry in 2009.

A U.S. Department of Labor release indicated that the grant is primarily for around 450 workers affected by layoffs at Plum Creek Timber Co., and Smurfit-Stone Container Corp. Plum Creek laid off employees between Jan. 8 and June 25, 2009. Smurfit-Stone laid off workers following its closure on Dec. 31, 2009.

###

The U.S. Department of Labor has announced a $1.8 million grant to offering job training and other assistance to about 450 workers laid off by wood products companies in western Montana.

The Department of Labor and Industry will administer the program to help workers laid off by Plum Creek Timber Co. between Jan. 8 and June 25, 2009 and by Smurfit-Stone Container Corp., earlier this year.

The grant will be distributed among communities in Lincoln, Flathead, Sanders, Lake, Mineral, Missoula and Ravalli counties.

Montana Sens. Max Baucus and Jon Tester say local employment bureaus will work with participants to provide services including short-term training and education and employment plan development.

 ###

Lumber and wood products maker Weyerhaeuser Co. spent $790,000 in the first quarter to lobby federal officials on issues including homebuyer tax credits to boost the sagging housing market.

The amount was detailed in a disclosure report. It's an increase from $720,000 in the fourth quarter and $910,000 in the first quarter of 2009. The year-ago report was amended this year to increase the amount originally reported by $20,000.

Congress approved an $8,000 tax credit for first-time homebuyers early last year as part of a plan to boost the economy and extended it until May, when it was allowed to lapse.

Weyerhaeuser also lobbied on renewable energy, health care changes, greenhouse-gas legislation, and a bill to make permanent a cut in the tax companies pay on timber gains. The timber-tax proposals have not progressed far in the House and Senate.

Weyerhaeuser lobbied Congress, the White House, the IRS, the departments of Commerce, Treasury and Agriculture, the Environmental Protection Agency and others, according to the report filed April 20 with Congress.

###

By Erik Olson, The Daily News, tdn.com, May 13, 2010

Business is picking up at Weyerhaeuser Co.'s Longview log export docks, fueled by a sudden rise in timber demand from China, company officials said at a meeting with community leaders Thursday morning.

Japanese logs exports to Japan - traditionally Weyerhaeuser's largest Asian trading partner - were flat in Longview for the quarter ending March 31, and Korean exports were steady, Steve Barnowe-Meyer, Weyerhaeuser's state forest team leader, said at the Cowlitz Expo Center.

Weyerhaeuser last month reported $373 million worth of log sales for the first quarter ending March 31 companywide, a 14 percent boost from the previous year.

The company does not break down quarterly financial data for specific export facilities, nor does it report export and domestic sales separately, company spokesman Anthony Chavez said. The Longview facility is Weyerhaeuser's largest on the West Coast, he said.

Industry and investment analysts say Chinese demand for timber and lumber is clearly propelling log sales along the West Coast and Canada. Other analysts are wary that the boom times won't last.

Chinese log importers have been moving away from timber suppliers in Russia, whose prices have tripled over the past three years due to rising tariffs and transportation costs, said George Fisher, an investment analyst for Seeking Alpha, a national financial blog.

China is starting to plant its own forests of fast-growing trees, but they are too young to harvest, Fisher said.

"These factors will ensure a robust timber import market for the foreseeable future," Fisher said.

Chinese timber demand is already driving economic growth in the Cowlitz County. The Port of Longview exported 92.6 million metric tons of logs in the first quarter, a staggering 250 percent jumped from the previous year. The uptick in log exports is part of the reason the port is asking shippers to add about 10 new union longshore jobs.

Lumber exports to China are also skyrocketing, according to Random Lengths, a forest-products industry trade publication. In 2009, U.S. lumber exports to China jumped 72 percent from the previous year, while Canadian exports rose 123 percent, according to Random Lengths.

However, a timber industry analyst cautioned not to read too much into China's log-buying surge. Invoking the name of the world's most populated nation can send markets into a tizzy that may not last, said Paul Latta, an analyst at Seattle-based McAdams Wright Ragen brokerage.

"These days, mentioning China with the log markets was a lot like mentioning dot com in the tech markets of the 1990s," Latta said.

China's government is tight-lipped with financial information, making long-term forecasting difficult, he added.

"Data on China is a lot more difficult to get your arms around."

###

PLUM CREEK - MONTANA

HELENA -- The state is considering using a $40 million windfall to buy thousands of acres of former Plum Creek Timber land from The Nature Conservancy.

The proposal from the Department of Natural Resources and Conservation goes to the state Land Board on Monday.

The money comes from a court order that says that PPL Montana needs to pay rent for the land on which its hydroelectric dams sit. Part of that order included damages owed the state in excess of $40 million.

In 2008, The Nature Conservancy agreed to buy 310,000 acres from Plum Creek. The conservancy now wants to sell much of it to the state.

The Land Board, made up of the state’s five statewide elected officials, will meet Monday to look at the plan to use money from the PPL lawsuit to buy the land.

### 

Weyerhaeuser Co. shareholders increased their power over management this week when they passed a proposal to give major stakeholders the right to convene special meetings.

A spokesperson for Weyerhaeuser -- one of the world's largest providers of timber, pulp and paper -- confirmed in an email late Thursday that the measure extending the right to call special meetings to shareholders had passed.

Typically only management and board members can call special meetings, but the recession has unhappy investors seeking greater influence over board directors and, in some cases, securing a greater say on realigning operations.

"Shareowner input on the timing of shareowner meetings is especially important during a major restructuring -- when events unfold quickly and issues may become moot by the next annual meeting," according to proxy-research firm Egan Jones, which supported the initiative.

The move highlights the wider trend: Between 2004 and 2008, the percentage of Standard & Poor's 500 companies that grant special meetings grew by 23, or 4.5 percentage points, to 44.9%, according to FactSet SharkRepellent, a research group.

Last year such measures won shareholder support at CVS Caremark, Sprint Nextel, Safeway, Motorola Inc. and R.R. Donnelly & Sons.

This year there are 41 shareholder proposals seeking a say on special meetings, said FactSet.

Company boards are generally opposed to such measures, claiming the meetings can be time consuming and costly. And of course, no one wants to face the tirade of an angry stakeholder.

Weyerhaeuser management asked shareholders to vote against the nonbinding proposal, but company directors generally heed shareholder recommendations.

Last year, Weyerhaeuser investors supported a nonbinding proposal to allow shareholders to remove directors with a simple majority vote, doing away with a supermajority requirement. A proposal was put forward this year to incorporate that tenet into company bylaws with management's backing.

That proposal also passed on Thursday, said Weyerhaeuser spokesperson Anthony Chavez.

According to Egan Jones, the Weyerhaeuser special-meetings proposal sought to allow investors holding 10% or more of outstanding shares the power to call meetings without exception.

Shares of Weyerhaeuser rose about 1.2% during a general decline in the market to $47.47. In another proposal, the company agreed to become a real estate investment trust this year, which allows for the company to pay out the maximum amount of shares to shareholders under IRS rules.

For 2010 the agency allows a 90% stock distribution of earnings and profits.

###

Weyerhaeuser Co. said on Friday its shareholders have approved its plans to issue a large number of shares as part of its conversion to a real estate investment trust.

The wood products company said it has not set a timetable for the conversion and corresponding payout of earnings and profit, although it has said it could happen as soon as this year.

The company said it intends to distribute the maximum amount of stock allowable by tax rules. For 2010, that would be a 90 percent stock distribution of earnings and profits, the company said.

Weyerhaeuser shares rose 31 cents to $47.20 in midday trading.

###

An 11th-hour plea by Plum Creek Timber Co. to loosen density restrictions in the Seeley Lake planning region isn't playing well at the Missoula County Courthouse.

"We pretty much told them we weren't interested," County Commissioner Jean Curtiss said Friday.

Indeed, commissioners have instructed their planning staff to look for areas designated to allow a minimal number of houses that would be better off with no homes at all.

Much of the land to be scrutinized is owned by the timber company, which in recent years has turned increasingly to real estate sales.

Plum Creek is asking for a more balanced plan that treats the company "reasonably and fairly as a valued, contributing member of the community with legitimate property rights and economic interests," Kathleen Sims, the company's senior director of real estate law, said Friday in an e-mail.

The issue figures to be a bone of contention as the Seeley Lake Regional Plan reaches its final stages. Already the commissioners have conducted five public hearings, with a sixth slated for April 21 in Missoula, when changes to the plan will be aired out.

Curtiss said the commissioners could be ready to make some motions at the following hearing, which will probably be held in Seeley Lake, though no date has been set.

Plum Creek owns 35 percent of the acreage in the planning region, which blankets the Clearwater River drainage from Summit Lake to the Blackfoot River. At the March 17 hearing in Missoula, the timber company's David Greer proposed changes to four land-use designations in the plan.

Greer asked that dwelling units on three of the four resource protection levels be at least doubled - from one per 80 acres to one per 40 acres on some, from one per 160 to one per 80 on others. The most protected lands that would still allow dwellings shouldn't be one per 640, but one per 160, Greer said.

***

At the most recent hearing last Wednesday, commissioners directed their staff to look at the latter two designations to see if there were areas that would be better off designated for timber and agriculture rather than residential, said Pat O'Herren, the county's Rural Initiatives director.

Plum Creek also zeroed in on Section 17, just north of Placid Lake. There are roughly 140 lots in two-thirds of a section that aren't Plum Creek-owned, Sims wrote. "Plum Creek has requested that the growth policy reflect a density of one unit to 20 acres on Plum Creek's adjacent property. This would equate to a much lower density than currently exists on the developed areas around the shoreline of the lake."

Placid Lake homeowners have avidly resisted a plan to allow Plum Creek to build on Section 17, which straddles the drainage into the lake. They say homes there would jeopardize an ecologically sensitive area as well the water quality of the lake.

What's more, "Plum Creek has no legal entitlement to residential uses in the area, as commercial forestry remains a viable economic use in Plum Creek's holdings in the Clearwater Valley," maintained California attorney Jim Moose, one of those homeowners and president of the Placid Mission Coalition, in a March 28 letter to the county.

Plum Creek counters that the current draft provides an "economic and market advantage to existing owners of small, rural lots, like the numerous 1-acre lots on Placid Lake."

The plan penalizes Plum Creek "for not restricting public access or aggressively subdividing, selling, developing or otherwise converting its property," Sims wrote. "If adopted (as is) the draft plan will provide an unambiguous but perverse incentive to all Missoula County landowners to convert their land for development."

***

The Seeley Lake plan is resource-based, Curtiss said.

"That's why people who live in Seeley love Seeley. It talks about lynx and grizzly bear, lakes and water quality and all of those things. When that's the basis for a plan, looking at it, is it appropriate then to put houses in that interface?" she said.

"We've had a fair amount of testimony that this area is kind of the base of the Crown of the Continent," said O'Herren. "It's where the crown kind of begins at its southern end."

Couple that with the amount of Plum Creek land prioritized in the area by the Nature Conservancy and Trust for Public Land, he said. "They seem to have put a lot of faith in those studies that have indicated there's incredible resources there, and put their money there as well."

Commissioners, based on input they've received, have also asked their staff to look at a more clustered approach at Woodworth east of Salmon Lake, and at adding the flexibility to change density in areas close to the town of Seeley Lake and on state lease land around the lake when and if sewer and water systems reach them.

Such flexibility does two things, Curtiss said.

"It gives them opportunities to have more cabin sites, and two, it gives the folks in Seeley who are working on trying to get a sewer built a lot more households to help pay for the infrastructure," she said.

According to Sims, who has participated in the process from the start, her company wants to support the Seeley plan. But it has "fundamental disagreements ... in a number of key areas," she said.

"Plum Creek supports planning that is reasonable, equitable, and fairly applied," she wrote. "This plan as drafted, with the changes proposed by Commissioner Curtiss, does not reflect those important attributes, is not good for local business, does not reflect sound planning (and) respect for property rights, and it is not good for the Seeley community, greater Missoula County or Plum Creek."

###

The (Centralia) Chronicle, March 26, 2010

As debate continues about the role of logging practices and landslides in the 2007 Chehalis River flood, Weyerhaeuser Co. has agreed to a review of its watershed analysis on Stillman Creek and the upper Chehalis River and will voluntarily increase its landslide protections while the studies are completed.

Although the changes are temporary, the state Department of Natural Resources said they anticipate permanent changes after the studies are complete.

"While this is initially a voluntary action on the part of Weyerhaeuser, I expect that the scientific information generated by this and other efforts of the partnership will result in improvements to resource protection," said Commissioner of Public Lands Peter Goldmark, a Democrat who was elected to office after using the 2007 Chehalis River flood as an example of what he said were lax logging rules under his Republican predecessor.

Under current forest practice rules, potentially unstable slopes can be logged under what is known as a watershed analysis, which is outside the forest practice rules used on other forested lands. These watershed analyses are developed by the landowners and stakeholders and then reviewed by the Department of Natural Resources. In its Thursday press release, the Department of Natural Resources said analyses of the state's 52 watersheds are "dated," allowing logging using information that hasn't been updated since 1992.

Under this agreement, Weyerhaeuser agrees to apply current forest practices rules and avoidance measures while it reviews its watershed analysis. The company and DNR also pledged to review the effectiveness of the existing watershed analysis prescriptions in those two watersheds and apply emerging technologies like slope stability models, digital elevation terrain mapping and advanced aerial photography imagining to enhance detection of potentially unstable slopes.

"We are pleased to partner with DNR and Commissioner Goldmark on this initiative and share the technical and scientific information we have gained on potentially unstable slope management over the last several years," Rich Wininger, Weyerhaeuser's vice president, said in a statement.

The DNR urged other logging companies to voluntarily agree to have their own watershed analyses reviewed and to operate under stronger interim protections until the reviews are complete.

Weyerhaeuser received criticism after the 2007 flood, with a Seattle Times investigative report just days after the deluge suggesting that logging on the steep slopes caused landslides that created temporary dams and contributed to the rush of water downstream. Others also say clear-cutting caused more rain to flow off the hillsides, adding to what became the worst Chehalis River flood in recorded history.

###

West Fraser and Interfor announced last Monday that they had purchased Weyerhaeuser’s timber tenures in the Kamloops and Headwaters Forest Districts.

West Fraser is taking over Tree Farm License 35 (Jamieson Creek)southwest of Barriere plus portions of Weyerhaeuser’s forest license for a total annual allowable cut (AAC) of 682,000 cubic meters.

Interfor’s share of the former Weyerhaeuser forest license is 275,000 cubic meters.

"We’ll focus on the mountain pine beetle damaged stands in the Kamloops area to begin with," said Wayne Clogg, West Fraser senior vice-president, woodlands. "It’s hard to put a date on when we would be up to speed in the Vavenby area. We plan to start work on the tenures this summer."

There has been no logging in the local Weyerhaeuser operating areas for about two years, although there has been some reforestation done.

"Obviously, that has been difficult for the contractors who rely on that work," said Clogg.

According to a news release from West Fraser, the acquisition is expected to benefit the company’s operations in 100 Mile House, Chasm (near Clinton) and Williams Lake.

The tenures will increase West Fraser’s long-term timber supply and are expected to offset anticipated declines in supply caused by the mountain pine beetle.

The plywood mill at Williams Lake has been operating steadily despite the economic downturn, said Clogg. The 100 Mile and Chasm sawmills slowed down with a work-share agreement in 2009.

The Tree Farm License is an area-based tenure, Clogg said. That means West Fraser will have exclusive rights to harvest timber within its boundaries.

The forest license, on the other hand, is volume-based. It gives the company the right to harvest so many cubic meters per year inside the Kamloops Timber Supply Area. Within the TSA the various forest companies have their own operating areas, but those are based on informal agreements among the companies and are not legally designated.

Interfor’s share of the deal includes about half of Weyerhaeuser’s former operating areas in the northern portion of the TSA, said Ric Slaco, Interfor’s vice president and chief forester.

"With the completed purchase, Interfor is planning to resumeharvesting activities sometime this year," said Slaco. "Exact details of where and who is not known at this time."

The Interfor vice president noted that the company’s new mill at Adams Lake is now running at full capacity and the newly acquired tenure with help support its fiber needs.

Weyerhaeuser announced the proposed sale of its timber tenures in 2008 when it closed its Kamloops sawmill.

Tk’emlups Indian Band and Skeetchetstn Indian Band, concerned about the loss of resources and jobs, have opposed the deal.

Weyerhaeuser permanently closed its Vavenby sawmill in 2003.

###

HELENA - Minutes after anti-mining protesters were arrested and removed by police from the state Land Board's Capitol meeting room, the board voted 3-2 today to approve leasing 570 million tons of state-owned coal for development into a mine in southeastern Montana's Otter Creek Valley.

Gov. Brian Schweitzer, who voted for leasing the coal, extolled the long-term economic benefits of a new, massive coal mine in the valley, saying it would bring $5 billion in tax revenue over the life of a mine.

"This is not one-time money," he said. "Every time the Legislature comes to town, there will be a pot of $500 million waiting for them."

State Auditor Monica Lindeen and Secretary of State Linda McCulloch joined Schweitzer in accepting an $85.8 million "bonus bid" from Arch Coal Inc. of St. Louis to lease the coal for the next 10 years.

Attorney General Steve Bullock and state Superintendent of Public Instruction Denise Juneau voted against the lease. Juneau has opposed leasing the coal from the beginning; Bullock has opposed it since the board voted in February to lower the minimum bid price, saying the state is not getting a fair value for its resources.

The vote came after five protesters from Missoula disrupted the meeting by chanting "Hands off Otter Creek - you're not listening!" as McCulloch motioned for the vote to approve the lease.

The protesters, who had been sitting in the front row of chairs in the packed meeting room, sat down in the room several feet from board members, chanting, and refused to leave.

Schweitzer recessed the meeting and Helena Police officers ordered the room cleared, as they waited for other officers to arrive and assist with arresting the protesters. About 40 minutes later, police handcuffed and arrested the protesters for disorderly conduct.

The governor and other Land Board members then filed back into the room, reconvened the meeting and discussed the lease before eventually voting on it.

Before the protest, the board listened to 90 minutes of testimony from opponents and supporters of the lease. Opponents said the state is getting a poor deal for the coal, and that it's irresponsible for the state to take part in enabling a huge, new coal mine that will contribute to global warming, other air pollution and damaging of water resources in the area.

Support came from organized labor, school officials near Otter Creek, Arch Coal, economic-development boosters and some disabled citizens, who testified in favor of the lease because, they said, it would help the state with its short-term budget picture and avoid proposed cuts to human services that would affect the disabled.

The lease gives Arch Coal the right to develop the large coal field 150 miles east of Billings, along with its lease of another 730 million tons of privately owned coal that is interspersed with the state coal.

Schweitzer and others said the mine wouldn't be developed until five to seven years in the future.

INITIAL REPORT: A meeting of the state Land Board was halted this morning after five people stood to protest the state’s plan to lease coal tracts for development in southeastern Montana.

Helena Police officers were called to the state capitol building to arrest the five people, all members of the Northern Rockies Rising Tide, a Missoula-based environmental organization opposing coal development.

Secretary of State Linda McCulloch had just made a motion to approve the leases when the five protestors stood to say in unison, "Hands off Otter Creek coal. You’re not listening."

Gov. Brian Schweitzer, a member of the state Land Board, recessed the meeting and had the room cleared. The five protestors sat down and refused to leave.

St. Louis-based mining giant Arch Coal Inc. has offered nearly $86 million to develop the state-owned coal in the Otter Creek valley. Schweitzer said Tuesday hoped the board would approve the deal during today’s meeting.

###

Arch Coal Inc. said Thursday it was the successful bidder for a state coal lease for the Otter Creek tracts in southeastern Montana.

Arch subsidiary, Ark Land Co., was the sole bidder and offered $85.8 million, payable in April.

The coal lease will give Arch the right to mine 8,300 acres ofstate-owned minerals.

"We view the combined Otter Creek coal reserves as a strategic platform for future growth in the Northern Powder River Basin," Chairman and Chief Executive Steven Leer said in a statement.

Arch now controls about 1.5 billion tons of coal in Montana’s OtterCreek area, including previous reserve additions in November 2009 through Great Northern Properties Ltd. The company signed a coal lease with Great Northern to mine 9,600 acres of Great Northern-owned minerals, paying 10 cents a ton, or $73.1 million, over five years.

St. Louis-based Arch Coal (NYSE: ACI) is the second-largest U.S. coal producer with revenue of $2.6 billion in 2009.

###

Montana officials approved a lease agreement with Arch Coal Inc. (ACI) for hundreds of millions of tons of state coal reserves, opening up new tracts for mining where the company already has lease holdings.

The state land board voted 3-to-2 Thursday in favor of the lease package for an estimated 572 million tons of recoverable coal reserves after years of debate. The state-controlled Otter Creek reserves are interspersed with an estimated 731 million tons of private reserves Arch leased last fall.

Under the state agreement, Arch will pay a lump sum of $86 million up front plus a 12.5% royalty on each ton of coal it mines among other ongoing payments. The St. Louis-based coal producer already has a large mining footprint in the Powder River Basin, which stretches through Montana and Wyoming accounting for more than 40% of U.S. coal output.

Arch was the lone bidder for the reserves. The land board, which consists of top state officials including Democratic Gov. Brian Schweitzer, originally asked for a minimum bid of 25 cents a ton. But after getting no offers, it lowered the minimum bid to 15 cents a ton, which is the amount Arch offered.

Schweitzer, who voted in favor of the lease agreement, said the new coal mining will bring ongoing benefits to the state's coffers, public education, job growth and Montana's economy.

Thursday's vote was delayed as people attending the board meeting loudly chanted: "Hands off Otter Creek, you're not listening." The protesters forced a recess as state officials had them cleared from the meeting room.

The state went through a lengthy process to lease the rights to the reserves, which Montana received nearly a decade ago from the federal government. The state's part of the Powder River Basin represents only a fraction of its production, with a majority of the mining located in neighboring Wyoming.

The Otter Creek reserves come with challenges. Montana coal tends to have a higher sodium content than Wyoming coal, traditionally limiting the number of power plants that can burn it. The Otter Creek region also needs an estimated 90 miles of new railroad track to connect it with existing lines. Finally, potential federal climate-change regulations could curb demand for coal by power generators over the long term.

Arch will need state environmental permits before moving forward, with mining on the state reserves not likely to start for five to seven years, said Mary Sexton, director of Montana's natural resources and conservation department.

Arch Coal shares recently traded 4.2% lower to $24.91.

Environmental groups have opposed the leasing of the reserves by the state. The groups argued increased coal mining would harm theenvironment. They also questioned whether the state was getting the best deal for the reserves, or just trying to raise state revenue in the face of budget challenges.

But business groups supported leasing the reserves to develop the state's economy and fuel job growth. Educational officials also lobbied for the leases, saying local schools are desperate for more funding. Revenue from the sale will go to education.

Last November, Arch Coal reached a lease agreement in Otter Creek with privately held Great Northern Properties LP to mine an estimated 9,600acres. The deal includes a front-end bonus of 10 cent a ton, or $73 million, to be paid over five years.

###

HELENA - Gov. Brian Schweitzer said Wednesday that if Montana's Land Board approves an $86 million bid for state coal leases, the money could be used to reduce pending state budget cuts he is considering.

Schweitzer said some of the money could also be used to fund local stimulus projects that the administration currently has frozen - as long as everyone understands it's coal money that is making it possible.

The governor, who said avoiding cuts for services to the disabled would be his top priority, said not all cuts may be avoided.

"I am not using an ax here. This is a surgeon's knife," Schweitzer said. "We are going to carve small pieces out. If I carve too much there will just be more money available when the appropriators arrive next legislative session."

But first, the Land Board must approve the bid from Arch Coal Inc. that gives it the right to mine a half-billion tons of state-owned coal in southeastern Montana near the Wyoming border, a place known as the Otter Creek coal tracts.

The board meets Thursday to make a decision. The Department of Natural Resources and Conservation is recommending approval.

Environmentalists, without success, have been trying to persuade the Land Board, chaired by Schweitzer, to stop the development. They argue a mine would industrialize a rural area of Montana and exacerbate global warming when the coal is burned.

Secretary of State Linda McCulloch, a member of the Land Board who has advocated for leasing the coal land, said she expects to vote in favor of it Thursday. She pointed out that up to a billion dollars in royalties would go into the trust that provides money to state schools.

But McCulloch, who was previously superintendent of public instruction, hopes the upfront bonus bid also is used to help education.

"Of course it's my hope we use that money for schools in Montana," she said

The governor said he has been particularly troubled by proposed budget cuts that would trim services for the disabled.

"If we can't protect our most vulnerable, what does that say about our society?" Schweitzer said. "It's not just me. I think we Montanans have a special place in our heart for the disability community. I am going to pull back from those cuts if that money is approved."

The governor is currently mulling a $40 million cut, almost 5 percent, to the state budget as a way to ensure the state doesn't face a deficit next year.

The administration's move to freeze spending on more than $3 million of local stimulus projects has drawn the ire of some Republican lawmakers and local officials.

The Democratic governor said the coal money would allow him to release that money - but with some conditions.

Schweitzer said he may personally inspect the projects to make sure they are worthy. And, in an apparent jab to Republicans, he said he may not send money to districts of legislators who originally opposedallocating the stimulus money last year in House Bill 645.

Sen. Dave Lewis, a Helena Republican, was among the first to raise theissue of the frozen funding. A new firehouse in Ryegate, currently on hold after the administration's decision, is in Lewis' district.

"Remind the governor that I voted for House Bill 645 - and if I have to come up there and kiss his ring to get the firehouse in Ryegate, I will do that," Lewis said. "Let's get things down the road here."

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The public took ownership of 112,000 acres of Plum Creek Timber Co. land earlier this week when the second phase of the Montana Legacy Project took effect.

The Nature Conservancy and The Trust for Public Land helped arrange the western Montana land deal in February. The purchase was financedby $250 million in federal money, and the land was transferred to the U.S. Forest Service on Monday.

The Lolo National Forest got 67,000 acres, and the Flathead National Forest received the remaining 45,000 acres.

The Montana Legacy Project will eventually involve a total of 320,000acres of Plum Creek land being conveyed to state or federal agencies at a total cost of $510 million.

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The state Land Board unanimously approved buying 41,000 acres of former Plum Creek Timber Co. land in Fish Creek for a future state park and wildlife management area.

Thursday's vote cleared the way for the Montana Department of Fish, Wildlife and Parks to spend $17.35 million in state and federal dollars for the purchase. Most of the money comes from federal Pittman-Robinson grants for wildlife habitat work. FWP is contributing about $3 million in park development funds.

Fish Creek runs south of Interstate 90, between Alberton and Lolo Hot Springs. While it has been extensively logged and suffered from several forest fires, it also holds lots of prime elk winter range and bull trout spawning habitat.

The nonprofit land trust The Nature Conservancy bought the land from Plum Creek in 2008 as part of the Montana Legacy Project. Plum Creek is divesting itself of about 310,000 acres of timberland in western Montana. While most of that is set to go to the U.S. Forest Service, the state jumped on the Fish Creek property to stitch together large patchwork holdings it already owns there.

FWP parks manager Lee Bastian said the planning process for the state park will have lots of public input. While much of the interest is focused on river activity around Alberton Gorge, the best flat area for camping and other facilities extends from the mouth of Fish Creek south into the drainage.

That area was originally drawn to contain 7,650 acres. It now has about 6,200 acres.

Two factors drove that change. One was an increase in the asking price from The Nature Conservancy, which brokered the deal with Plum Creek. TNC originally asked for $14.35 million for the property, but an appraisal valued it at closer to $22 million. TNC officials said they couldn't make that large a donation to the state.

So shifting some acreage out of the state park and into wildlife management meant the state could tap a larger chunk of Pittman-Robinson federal dollars. That federal fund is making up most of the $3 million price increase.

The second factor was concern from Mineral County residents who argued the park was too large and improperly placed. They wanted more or all of the land to be put into wildlife management.

Bastian said of the 97 public comments received on the Fish Creek deal, those writing about the state park were split evenly over support and opposition. Reducing the park size was a first step in addressing those concerns, he said.

"All the rest of that is to be determined," Bastian said. "We know that's going to take some time. We just want to start with good, open dialogue with everybody."

Gov. Brian Schweitzer said the proposal went through the Land Board without dissention.

"It's a good deal for Montana, and we're buying it for less than appraised value," Schweitzer said. "It's a piece of land we will treasure for generations to come."

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Plum Creek Timber Company, Inc. today announced that Marc F. Racicot will join the company's board of directors, effective March 1, 2010.

Racicot was president and chief executive officer of the American Insurance Association from 2005 through 2009. Prior to that, he was a partner in the law firm of Bracewell & Giuliani, LLP. He served as governor of the state of Montana from 1993 to 2001.

"Marc's impressive background as an experienced statesman and leader, along with his deep roots in the state of Montana will be of great value to Plum Creek," said Rick Holley, president and chief executive officer. "We are very pleased that he has agreed to join our board."

Racicot serves on the boards of Allied Capital Corporation, The Avista Corp., Burlington Northern Santa Fe Corporation and Massachusetts Mutual Life Insurance Company.

Racicot earned a bachelor's degree in English from Carroll College in Helena, Montana, and a law degree from the University of Montana. For many years, Racicot has been involved in numerous nonprofit enterprises including United Way, Jobs for America's Graduates and the board of visitors for the University of Montana School of Law.

Racicot is the eighth independent member of Plum Creek's board, which is comprised of nine individuals.

Plum Creek is the largest and most geographically diverse private landowner in the nation with approximately 7 million acres of timberlands in major timber producing regions of the United States and wood products manufacturing facilities in the Northwest.

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Last month, bankrupt Smurfit-Stone announced it was done in Montana. However, a more-important news item passed with little notice the next day. On Dec. 15, Weyerhaeuser's board of directors "determined that conversion to a real estate investment trust (REIT) would best support the company's strategic direction." CFO.com reports the conversion should occur by Dec. 31, 2010.

In other words, the transformation pioneered by Montana's very own Plum Creek will be complete. With Weyerhaeuser's conversion, America's last major integrated timber company, the biggest, baddest timber beast of them all, will be no more.

Now, Weyerhaeuser liked being a timber beast, but Congress and Wall Street left it no choice. While the REIT conversion process is complex, the bottom-line math is simple and brutal: Integrated manufacturers pay a corporate tax rate of 35 percent on net income, and stockholders are further hit with capital gains. But a REIT pays no corporate income tax. Instead, the income is "distributed" to shareholders who pay the lower gains rate of 15 percent.

On $100 in an integrated company that nets $10, you'll net about $5.52 after taxes. On $100 in an otherwise-identical REIT, you'll net around $7.65, much better.

The flip side of this bargain is that the IRS's cut shrinks from $4.48 to $1.35, a tax loophole so vast, the timber industry threw millions of acres and hundreds of mills through it. How did Congress respond? They gave Weyerhaeuser $172 million in tax breaks in 2008, lowering its tax rate to match that for its REIT competition, in essence a bribe not to become a REIT. Worked well, didn't it?

Weyerhaeuser spent 2009 shifting its mills into "taxable REIT subsidiaries" or selling them. The sales have generated $6-billion-plus in retained earnings which Weyerhaeuser must now clear off the books, distributing it to its shareholders, most likely in the form of stock. The money came mostly from a 114-facility deal with International Paper – a former integrated that was spun away from its land base. Helping IP swing the deal is, according to the blog Dead Tree Edition, $2 billion of "black liquor" tax credits from taxpayers. Incidentally, Reason reports Stone scored $500 million.

Current shareholders will get that stock, and because the effective rate of return on each dollar of REIT stock value will go up 38 percent, each share will be worth at least that much more than integrated stock. Weyerhaeuser stock was trading at under 20 bucks a share in March. As I write this, it's $44 and climbing.

Clearly, despite being last in line, going REIT will be good for Weyerhaeuser stockholders. What about for everyone else? Or for the forests?

Well, integrateds used to make money either by buying cheap wood or growing their own "free" wood, then efficiently milling it into finished products. They made money primarily from manufacturing.

But for REITs, manufacturing is a sideshow. Federal law mandates that manufacturing assets held in a "TRS" can only be 25 percent of total holdings and can only produce 20 percent of total earnings.

REITs can, and do, sidestep the manufacturing earnings limit by shifting costs internally. Milling must still be efficient, but if the REIT-owned TRS buys wood from the REIT at a premium price, the premium goes straight into REIT profit at a lower tax rate. Most if not all profit therefore comes from selling wood off the real estate for milling, or, if the profit from land sales is higher, by selling the dirt – preferably after cutting as many trees as possible.

What's the bottom line? Crosscut.com nailed it: "forests are no longer about timber; they're about harvesting tax-advantaged money." Giant chunks of what we used to think of as the forest-products sector no longer focus on making forest products. They are focused strictly on making money; as much as possible in the most tax-favorable way in the shortest possible time.

America's timber beasts aren't dead. All of them, from Plum Creek to Mead to Longfibre to Potlatch and Weyerhaeuser have simply evolved … into money beasts. They still roam the forests, and they're hungrier than ever, for your money. I'll explain how next time.

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The Weyerhaeuser Company has finally dropped that other shoe, or at least has decided to drop it. Last month, Weyerhaeuser announced that its board of directors had finally committed the company to becoming a Real Estate Investment Trust or REIT. The company may make the switch in 2010. Or it may not. The only question is when.

Arguably, that has been the question for a long time. Many investors and observers have been awaiting this news for years.

In 2008, the company lobbied successfully for legislation that cut its tax rate in half, comparable to the corporate tax paid by a REIT — if a REIT paid taxes. But a REIT isn't likely to have much taxable income. Instead, it channels 90 percent of its earnings to shareholders, who pay as individuals, avoiding the "double taxation" levied on most corporate profits and dividend income.

Weyerhaeuser will hardly be the first on its block to take the plunge. Congress created the REIT back in 1960, evidently in order to make the joys of commercial real estate speculation available to Everyman. (This was, of course, long before Everyman started viewing his own house as a speculative investment.) As that long-gone Congress conceived them, REITs "are, in essence, financial vehicles that allow investors to pool their capital for participation in real estate ownership or mortgage financing, while providing those investors with the benefits of many of the tax advantages available to larger and more sophisticated investors and businesses who can afford to invest directly in real estate," Jack H. McCall explains in The Legal Basics of REITs (PDF), published by Tennessee Journal of Business Law in 2001. "Hence, REITs can generally be thought of as ... a kind of business enterprise that is analogous to a mutual fund for real estate investments."

Twenty-nine years later, Congress "modernized" the legislation, allowing a REIT to own a taxable operating subsidiary to provide unconventional services to tenants of REIT property. This could mean providing telecom services to the people who live or work in your high-rise. It could also mean milling the timber cut on your forest land. Plum Creek got the IRS to say yes, the REIT laws applied to timber too. By now, Jada A. Graves wrote a few years ago in REIT.com, "timber REITs have joined an assorted group of equity REITs specializing in movie theaters, correctional facilities, and car dealerships."

Once the IRS said yes, Plum Creek quickly reorganized itself as a REIT. Plum Creek’s transformation attracted a lot of outside capital. The company promptly used its new wealth to buy The Timber Company, which owned all of Georgia Pacific’s timberland. Thanks to the GP purchase, Plum Creek has supplanted Weyerhaeuser as the nation’s largest private timber land holder. Other traditional forest products companies have restructured accordingly. In 2004, 2005, and 2006, Rayonier, Longview Fibre, and Potlatch became REITs too.

And no wonder: In many analysts' and investors' eyes the advantages of the old vertically integrated forest products company have been outweighed by disadvantages in the federal tax code. Wall Street doesn’t want the timber without the tax breaks. A flow of logs to nearby mills has been replaced by a flow of tax-advantaged dollars to distant investors. To Wall Street, forests are no longer about wood; they're about money.

"Forest land is increasingly a financial, rather than an industrial asset," the UW College of Forest Resources reported to the Washington Legislature last spring. The report observed that "old-line companies have monetized their forest assets and been replaced by institutional investor-managers, or reorganized into real estate investment trusts."

Wall Street has just been waiting for Weyerhaeuser to join the 21st century. Scott St. Clair wrote in Crosscut that "Wall Street effectively made the decision that it will no longer measure the value of Weyerhaeuser by what it makes but, rather, by what it owns."

What it owns no longer includes much of King County. Since 2000, Weyerhaeuser has shifted its geographic focus within Washington, abandoning East King County for Southwest Washington, where it ships logs and lumber through the Port of Longview. Weyerhaeuser still owns or manages more than 20 million acres, over a million of it in Washington, from its headquarters in Federal Way. But the company has closed its Snoqualmie and Enumclaw mills and sold its timber in King, Pierce, and Snohomish counties.

While the company hasn't rushed into changing its corporate form, it has already laid the groundwork for a REIT conversion. A Real Estate Investment Trust may be basically a tax scam created by federal law, but it's a tax scam that operates under very specific rules. Structurally, a company that wants the tax dodge can't get more than 20 percent of its earnings from operations that aren't REIT-qualified.

At the beginning of August 2008, right after Weyerhaeuser announced 1,500 layoffs, St. Clair wrote that "starting a few years ago, Weyerhaeuser began spinning off assets. Always committed to focusing only on businesses in which it could be a major player, it now shifted to getting out of many of those businesses altogether. Its printing and writing-grade paper operations became, in a complex trade, part of Canadian-based Domtar Industries. And just last week, in perhaps the biggest blow of all, Weyerhaeuser closed on the sale of its packaging business to [International Paper]. Some 114 facilities, including paper mills, carton plants, and recycling centers, were sold for $6 billion."

Unloading the paper and container board operations gets Weyerhaeuser through that particular hoop in the REIT law, and many people assumed that was why the company unloaded them. Weyerhaeuser spokesman Bruce Amundson said early last year that wasn't so, that neither division fit into Weyerhaeuser's view of the future. With the proliferation of online communication, the future of paper looked questionable. And with Asian companies starting to supply the Asian market for container board, the future of that product line looked questionable too. To compete, the company would have had to start manufacturing abroad. It had no experience manufacturing outside North America, and no interest in investing the large amounts of capital that offshore container board plants would have required.

Nevertheless, Amundson didn't deny that the company had made the structural changes it would need to become a REIT. It has already reorganized itself into two separate reporting units: timber, and everything else. It has also started reporting on a calendar-year schedule, as the REIT law requires.

And it has stockpiled cash. Weyerhaeuser's revenues are tied closely to the housing market. Not surprisingly, the company's 2008 annual report featured some pretty bleak numbers: Net sales and revenues from continuing operations dropped 25.9 percent. Basic and diluted net earnings per share dropped 255 percent. The company slashed its dividend from 60 cents to 25 cents per share, and then, in the second quarter, surprised many analysts by slashing it again, down to a nickel.

Some people saw the second dividend cut as a step in the right direction. To become a REIT, the company must distribute its retained earnings to its shareholders. Eighty percent can be distributed in the form of stock. That means 20 percent will have to be distributed as cash. Because the company has an estimated $6.5 billion of retained earnings, it would have to come up with about $1.3 billion in cash. Without saying it planned to become a REIT, Weyerhaeuser made it clear that the second dividend cut enabled it to hoard cash, just in case. After the second dividend cut, Longbow Research analyst Joshua Zaret observed that "everything they're doing now is about preserving cash."

And Zaret approved. He thinks the REIT conversion is long overdue. He'd prefer a pure timber REIT, but what Weyerhaeuser will have when it makes the switch looks far better to him than what it has now. What it will have, essentially, is the same tax advantage its competitors enjoy. Zaret sounds somewhat outraged by that suggestion that reorganizing Weyerhaeuser's entire corporate structure in order to save taxes is perverse. "Is there a better reason?" he asks.

Daniel Jack Chasan is an author, attorney, and writer of many articles about Northwest environmental issues.

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