PRAIRIE CITY — Prairie Wood Products suspended operations and laid off the majority of its employees on March 1, with company officials saying a sudden change in the Forest Service interpretation of a grant subsidizing transportation costs has put the mill’s future at risk.

Prairie Wood Products officials say they are pursuing expedited negotiations with the Forest Service to resolve the dispute.

“In December 2023, we were awarded a Timber and Biomass Transportation grant with the understanding and representation from the Forest Service that the grant would provide matching funds covering transportation costs on our timber sales on the Malheur National Forest,” said Prairie Wood Products President Jodi Westbrooks.

In February, after submitting reimbursement paperwork, mill officials said they learned that the Washington office of the Forest Service had decided that costs on their existing timber sales were ineligible for reimbursement under the grant.

The situation was “completely inconsistent with our discussions with Forest Service personnel at the local level, both in John Day and at the regional office in Portland,” mill officials said.

Without the grant’s matching funds, company officials say they’ve been forced to suspend a previously approved pilot transportation program shipping pine logs — which Prairie Wood Products, as a white fir/Douglas fir specialist, does not manufacture — to a pine sawmill in Central Oregon.

According to Malheur National Forest Supervisor Anne Niesen, the Forest Service is working with Prairie Wood Products to address the matter concerning the application of a $3 million grant awarded to the mill in 2023.

“It’s important for us at the Forest Service to support rural, timber and wood-based economies,” said Amy Franklin, Malheur National Forest spokeswoman, speaking for Niesen. “These sectors are not only vital for the sustainability of our natural resources but also for the livelihoods of the communities we serve.“

The intent of the grant is to make it economically viable to reduce fuel loads in the forest while also safeguarding the interests of all stakeholders involved to ensure fairness, Forest Service officials said.

Both the pilot transportation program and operations at the Prairie City sawmill are suspended until the transportation program funding is reinstated, Prairie Wood Products officials said.

City and county officials say the mill employed about 50 workers.

“I’m very concerned because it’s imperative we have enough timber coming into both our mills (Prairie Wood Products and Malheur Lumber in John Day) because both mills are super important to our economy here,” said Grant County Commissioner Jim Hamsher, a Prairie City resident.

Hamsher sent a letter this week to state and federal elected representatives asking for assistance.

“I would very much appreciate your help in resolving this crisis,” Hamsher wrote in the letter. “My hope is this grant can be reviewed and to make sure that the intent of the grant is being followed.”

Prairie Wood Products officials say the developments imperil a key piece of wood products industry infrastructure. The company is in the process of re-permitting and modernizing the electrical cogeneration plant at its Prairie City mill, which it says would provide a regional center for processing the large volumes of woody debris and biomass generated by thinning and other forest treatments designed to minimize wildfire risk.

“The Forest Service is shooting itself in the foot with this decision. Unless our company can be successful in Prairie City, the opportunity to restart our cogeneration facility will be lost,” Westbrooks said. “With the updated emissions technology we are planning, our goal is to produce clean hydrogen and become part of the regional clean energy hydrogen hub established and funded through the Inflation Reduction Act of 2023. It would be a terrible shame to lose such a key piece of infrastructure capable of consuming 20 truckloads of biomass per day.”

Prairie City Mayor Ed Clark said he’s deeply concerned about the mill suspending operations.

“It’s very concerning because there’s a lot of jobs that come with that mill. People are making a wage and contributing to the town, and not just Prairie City but to John Day.”

Prairie City officials are in the process of finding ways to avoid hiking rates for water and sewer ratepayers, and the potential hookup of the mill’s cogeneration plant to the city’s water system would have helped with providing revenue to offset costs, officials said.

“They were going to use water and they were going to be a revenue stream — not a massive revenue stream, but it would potentially help with not having to deal with rate hikes for the town at least this fiscal year,” Clark said. “There would have been more of a shared burden by everybody at that point with the mill.”

Tammy Jones, co-owner of the Prairie Saloon in downtown Prairie City, said some of her regulars at the restaurant and bar are mill workers.

“I think it could hurt the town,” she said. “The town was looking forward to seeing (the mill open).”

Across the street, Mountain View Mini Mart owner Joshua Nightingale said the situation “hurts the whole community.”

“Nobody wants to see a major employer stop production,” he said.