MILLINOCKET – State officials are pursuing three options to maintain the Katahdin Paper Co. LLC mill and create an independent energy production facility on the Katahdin Avenue campus, Gov. John Baldacci said Monday.

While indicating it still was far too early to get into any details about those options or to make promises, Baldacci expressed greater confidence Monday than he had Friday that the mill’s 208 workers would continue working beyond Katahdin Paper’s July 28 shutdown date.

Whichever option eventually is selected will require a reinvestment in the mill, Baldacci said, without offering any indication as to who would be paying for that investment. All three options “require investment of some sort. Some have quicker startup times and shorter startup money …

“We are just talking about a sense, a gut feeling,” Baldacci said of his increasing optimism. “From what I heard today, nothing has come forward that would be in any way discouraging.”

The mill is a prime spot for an alternative energy production facility, the governor said. It has a direct connection to the New England power grid; is close to a significant water supply; has large industrial space; and is at one end of the Golden Road, the region’s best artery into North America’s largest contiguous forest, he said.

Baldacci placed the mill’s woes in the larger context of the state’s own struggles to wean itself from total dependence on traditional energy sources and find alternative energy solutions.

“The timing of everything isn’t just particular to the mill and paper mills. It’s more broad than that,” Baldacci said. “It’s part of a larger strategy that we have.”

Three groups of state officials are reviewing options for the site with Katahdin Paper Co. officials, Baldacci said.

Mill officials announced last week that record oil prices and rising pulp, wood, diesel fuel and gasoline costs would force an indefinite closure of the mill beginning July 28, and a curtailment at the company’s East Millinocket mill, unless alternative energy is found. The mills in Millinocket and East Millinocket, which employs about 350 workers, are the Katahdin region’s largest employers.

Entirely fueled by oil, the Millinocket plant used more than 400,000 barrels in 2007 to produce its steam and heat.

If the Millinocket mill shuts down, workers have predicted that another massive out-migration will occur, such as happened in 2002 and 2003 after Katahdin Paper’s predecessor, Great Northern Paper Co., closed the Millinocket and East Millinocket mills.

Schools, town government and local businesses will be devastated. Most are still recovering from the first closure, which helped slash the town’s population from close to 10,000 residents at its peak to about 5,300.

Yet the mill itself is far from desolate. Over the last four years management and workers have almost ruthlessly pruned from the mill any obsolete equipment and practices and slowly rebuilt its customer base.

The plant’s No. 11 paper machine – Maine’s youngest such machine – is valued at $150 million in today’s market and is booked with orders for catalog, magazine and retail industry fliers through 2008.

The mill has a skilled, experienced work force, and a high customer satisfaction level that includes Sears and Target, which use Katahdin paper for newspaper inserts and fliers, and the magazines Women’s World and Reader’s Digest.

Power generation is nothing new at the mill site. Brascan Corp.’s Great Lakes Group paid $156.5 million to Great Northern for the company’s six hydroelectric power stations and 11 dams along the West Branch of the Penobscot River in 2002.

Scott Gonya, a town councilor and Millinocket mill senior technician, sees a sad irony in the mill’s oil and energy woes, tracing it back to the breakup of the former Great Northern Paper Co. in 2002.

Brascan Corp. of Toronto, now called Brookfield Asset Management, bought the mills in 2003 and reopened them as Katahdin Paper, contracting Fraser Papers Inc. to operate the mills.

Brookfield Asset also owns Brookfield Renewable Power Inc., which now charges Katahdin Paper for the electricity generated by the mill’s former hydroelectric stations, Gonya said. Those power stations are located at Ripogenus, North Twin, Dolby and Weldon dams and at the grinding rooms at the Millinocket and East Millinocket mills.

With the rising cost of electricity, reduced electricity use at the Millinocket mill, and an increase in the amount of electricity sold by the hydroelectric stations to the New England grid, the mill today would have plenty of money to create alternative energy sources, pay its oil costs and reinvest in more paper manufacture had it not sold its power stations, Gonya said.

“Everyone says we need a second source of energy and that we shouldn’t be totally dependent on oil,” Gonya said. “Well, we weren’t totally dependent on oil. We had a second source of energy – electricity from the dams. We had six generating facilities and now we have none.

“That’s what made Great Northern such a powerhouse,” he added. “We had the power, we had the machines, the wood and fiber source, the water, and the captive work force. We had everything we needed.”

It might cost $1 million a month to pay for oil to run the mill, Gonya said, but Brookfield Asset makes at least $1 million a week selling electricity on the grid – more than enough to run the mill.

Brookfield, Gonya said, “deserves to be chastised for separating the power from the mill.”

“If they don’t want to run the mills to keep people employed, there are an awful lot of people who don’t think that they should be allowed to come here and make money and just use our water and not have any benefit to the people,” he added. “What’s the benefit to the people?”