Closed mill not eager to give up water rights.

Byline: LARRY BACON The Register-Guard

DUNES CITY - With or without a working mill, International Paper Co. has decided it's not interested in giving up its water rights to Siltcoos and Tahkenitch lakes.

"It's not looking like a negotiated settlement will happen," Dwight French, manager of the state Water Resources Department's water rights section, said.

International Paper was challenged earlier this year in its attempt to obtain permanent rights to store and withdraw a large volume of water from the two lakes. The company maintains dams on the outlets for the lakes and has held permits to use the water since 1960 for its paper mill operations at Gardiner.

The mill shut down in late 1998 and shows no signs of reopening, but IP has continued to regulate the lake levels. Several years ago, IP began paperwork to convert its water rights permits to certificates that would make the rights permanent. That would allow the company to sell them or gain tax advantages by donating them to a public entity.

The certificates were tentatively granted in February, but then several parties - including Siltcoos Lake residents, Dunes City officials and WaterWatch of Oregon - learned of the application and appealed the certificates' issuance.

The challenge gives Water Resources Department director Paul Cleary the right to schedule a hearing or rule on the matter without a hearing. However, department officials had said they hoped a negotiated settlement could avert a hearing and end the legal process.

IP officials earlier said they might be willing to negotiate. But in a letter to French earlier this month, the company said it sees no need for a hearing and believes that Cleary should move ahead with confirming the certificates.

The letter said IP has immediate plans to change its operation of the dams and is willing to remain "open to discussions" with Dunes City residents, but that the water rights certification process is not an appropriate forum for such discussions.

Despite IP's stance, French said the department will continue to explore a negotiated settlement. He said he does not know when Cleary will make a decision on whether to hold a hearing.

WaterWatch attorney Karen Russell said IP's position all but requires a hearing. She said her organization will fight to overturn the water rights because the company is no longer using the water and the rights should go back to public ownership.

Dunes City Councilor David Jackson said IP's position is "disappointing but not the end of the world."

The city had hoped to obtain the water rights and the right to regulate the lake through such negotiations.

Jackson said the city's main interest is to have the current levels of Siltcoos Lake maintained. If IP is willing to assure that, the city's concerns may be addressed, he said.

In fact, he said, if the matter does go to a hearing the city could withdraw its challenge - for fear that a loss of IP's water rights would prompt the state to require the floodgates on the dam be kept open to allow lake levels to fluctuate naturally.

If IP is granted the permanent water rights, Jackson said, the company may ultimately be willing to transfer them to the city.