The Yadkin River & Hydropower:
The Potential For Abuse
A White Paper
By Roger Dick
Hydropower is our nation’s leading renewable energy resource. According to the Energy Information Administration (www.eia.doe.gov), depending on when it is measured, hydropower generates more than 10 percent of the total U.S. energy supply.
Who owns our nation’s hydropower plants? About 180 are federal; another approximately 2,000 plants are nonfederal. Nonfederal hydropower projects are licensed by the Federal Energy Regulatory Commission (FERC) for periods of 30 to 50 years and must be periodically relicensed. A nonfederal project is not necessarily owned by a private corporation; for example, many municipalities and states also own and operate hydropower projects licensed by FERC.
Some may have you think that the nonfederal hydropower results purely from the workings of the free enterprise system and capitalism; it doesn’t. At the core of the development of nonfederal hydropower in the United States is a free grant by the federal government of the exclusive, monopoly right to use the nation’s public waters to generate electric power. Unlike many other areas like telecommunications and off-shore oil drilling rights, the federal government does not auction or require licensees to pay for this valuable right. Where, as at the Yadkin Project, the licensee sells the electricity generated by the Project at the highest price the market will bear, a FERC license is essentially a huge federal subsidy; and in the case of for-profit corporations that own these licenses, this amounts to a subsidy funded by a hidden tax to the people that effectively removes wealth from the people to whom it rightfully belongs and transfers it to private hands.
The 50-year limit on licenses to use the public’s water resources allows periodic reassessment of whether this public subsidy to private companies is in the public interest.
Knowing who owns private hydropower generating assets is a first step toward prevention of abuse of market power, like that which aggravated the electricity crisis in California in 2001. Characterized by a combination of very high prices and rolling blackouts, the California electricity crisis, also known as the Western Energy Crisis, resulted from widespread market manipulation by energy companies such as Enron and Reliant Energy.
Do not think this can never happen again—or that it cannot happen in North Carolina.
How An Energy Crisis Came About
With the worthy goal of providing consumers with cheaper electricity, California was the first state to deregulate its power market and allow people to choose their own power provider. The resulting dysfunctional market—which was built around power marketers selling electricity at the highest price the market would bear, rather than rates based on the cost of generating the electricity—forced California consumers to spend $50 million a day on electricity when Enron companies gamed Western energy markets and Reliant Energy shut down a power plant in California to purposefully cause wholesale power prices to spike to unreasonably high levels.
Although these schemes were clear violations of the Federal Power Act, FERC failed to take immediate action to mitigate market power abuse in the California markets. The uncomfortable truth about FERC is that it lacks the resources necessary to fully police the energy market. Private power companies made millions in profits during this energy crisis and cost California more than $30 billion. In 2003 the electric market-based rate authority of Enron Power Marketing, Inc. and Enron Energy Services, Inc. was revoked. Enron collapsed, while Texas-based Reliant Energy still remains one of the largest independent power producers in the nation.
The Solution: Public Ownership if the Hydro Power Plant Owner Refuses to Share Benefits Fairly and Equitably with the Community
When the laws governing hydropower were drafted, the rates of electric utilities were generally regulated, and those companies had to pass the savings attributable to relatively inexpensive hydropower to their customers. This is no longer the case in many states.
The threat of the exercise of market power and manipulation is also very real in these states. Deregulation evangelists once predicted a competitive, efficient and lower-priced energy delivery system—but that optimistic scenario has failed to materialize. Electricity rates have actually risen more in the deregulated states than in the regulated ones.
Particularly because the government gives hydropower licensees the right to use the nation’s waters to generate electricity, for free, those entities should not be allowed to extract huge financial profits from deregulated electricity markets while giving little or nothing back to the states and local communities where the hydropower projects are located. Hydropower can make a significant contribution to states and local communities. The New York Power Authority, for example, produces some of our nation’s cheapest electricity, supporting local economic development while promoting efficient energy consumption and developing environmentally-friendly sources of power for the future. As early as 1907, New York Governor Charles Evans Hughes declared that the state’s undeveloped waterpower “should be preserved and held for the benefit of the people and should not be surrendered to private interests.”
The strength of our federal system is that we generally allow citizens and corporations to make choices that allow the public the fullest breadth of benefits. Whether those decisions involve public ownership or private ownership, the ultimate goal is that the public resource, like water, is used for the benefit of the people, and not for the exclusive or near-exclusive benefit of a private entity. Where a licensee has not demonstrated good stewardship of its use of the public’s natural resources, or fails to share with the affected communities the benefits available from the development of these resources, then it is time to consider changing the ownership. This is perfectly consistent with our mixed economic system, and if exercised properly, best protects the public and the water resources as well.
Water: The Larger Issue
Through licensing, FERC controls how hydroelectric plants will be constructed, operated and maintained. But FERC licenses also determine how to allocate water flow between energy generation, cooling water, water to sustain fish and our eco-system, water for industrial uses and public sanitation, water for recreation and water to drink. All of the dams in FERC’s database are associated not only with power production, but with flood control, navigation, recreation, irrigation and water quality.
Before issuing any license to use the public’s waterways for hydropower, FERC must determine that the project is the best adapted in terms of using the water for power purposes, as well as multiple uses like recreation, fish and wildlife, public water supply, irrigation and other beneficial public uses. Effective citizen and resource agency participation helps assure that FERC licenses protect and restore fish and wildlife resources, recreation, and water quality of the rivers affected by hydropower projects across our nation.
The highest and best adapted use of water should be to sustain life and the quality of life. That means that providing potable water for local residents and their welfare—whether economic, aesthetic, or otherwise—should have priority over maximizing private profit from the generation of hydroelectric power. Yet as the situation now stands with the Yadkin River, the reverse could be true, because the electricity generated—to be sold at the highest price the market will bear—primarily benefits the licensee and its stockholders, most of whom reside outside the state.
It is also important to consider population growth. North Carolina is expected to expand from 9 million citizens today to nearly 11 million people by 2020. Why should we keep in place a system that favors hydropower for a private monopoly over drinking water and other people-friendly uses that are necessary for and that could enhance the quality of the lives of our state’s citizens, which will include our descendants? They simply will have no ability to take control and reverse this situation for decades if we do not act now, because the FERC license is like a contract that prevents FERC from changes that the licensee does not voluntarily agree to; and yet, what corporate head could be expected to deny his shareholders profits in exchange for public benefits if the law does not require him or her to do so?
A chairman of the World Water Commission once said that “the wars of the 21st century will be fought over water.” This is happening right here in North Carolina. Citizens in the Yadkin Basin are fighting a worldwide conglomerate—Alcoa—for the rights to their own backyard water resources.
The Yadkin Hydroelectric Project: Alcoa vs North Carolina
Here are the details: Alcoa Power Generating Inc. (APGI), Yadkin Division, has applied to FERC for a new license for the Yadkin Hydroelectric Project, which includes four reservoirs and powerhouses on the Yadkin River. Alcoa and its predecessors have had essentially free use of the waters of the Yadkin River since 1915. The current license was granted to Alcoa way back in 1958, when an Alcoa smelting plant in turn provided jobs to citizens in the rural counties of the lower Yadkin Basin.
Alcoa no longer runs a smelting operation in North Carolina, but it is determined to renew its lucrative control over the Yadkin-Pee Dee river basin for the next 50 years, and retain the associated hydroelectric generation which it plans to sell at the highest price it can obtain on the open market. If FERC approves the request, Alcoa’s electric power generation will allow it to use water from the Yadkin River for its own profit while providing little or no benefit to the people of North Carolina.
Alcoa’s license expired in April. State leadership asked for and FERC has authorized up to a one year extension to provide it with additional time to study the present license application. There are questions and issues associated with the use of the state’s water resources, and the effects of the 80 plus years of aluminum smelting in the area that have affected the public health in the past and could well continue to do so, in the future. The Massachusetts Institute of Technology has ranked aluminum smelting as one of the top 10 most toxic manufacturing processes on the planet, and the specific effects of Alcoa’s operations on the health and well-being of both our citizens and our waters and lands have yet to be thoroughly evaluated.
Our government granted a 50-year license to Alcoa in the 1950s based on Alcoa’s planned capital investment in manufacturing and North Carolina jobs. When Alcoa accepted that license, it understood that the federal government had no obligation to renew that license and that the government could “recapture” the project for the public at the end of the license term. Alcoa is a global conglomerate hoping its control of public water resources in North Carolina will in effect be perpetual.
Do Not Let Alcoa “Own” North Carolina Water Resources and Hydropower Plants
If Alcoa gets this license renewed, we North Carolinians will effectively lose control of our water resources for another 50 years. Alcoa has already benefited handsomely from the control of this water since 1915. The 1958 license gave Alcoa the right to use essentially all of the flow of the river to produce electric power for its aluminum operations. With changing weather conditions and growing populations, we question the wisdom of granting a new 50-year license that would give Alcoa primacy in deciding how the state’s water resources are used, or that could require North Carolina citizens to pay Alcoa for the right to drink water from their own basin’s River. Alcoa operates in more than 300 locations in 44 countries. It is a multinational corporation that prioritizes its international shareholder base. The needs of this group of international investors will necessarily be in conflict with the best interests of North Carolinians going forward. Further, because the risk of conflicts with foreign investors owning the license to North Carolina water resources through a private corporation is so high, it is time for North Carolina to get in control of its water resources now. Otherwise, the fact is: there will be no choice for North Carolinians to exercise in this matter for at least another 50 years..
According to the Associated Press, in 2007 Alcoa spent $820,000 lobbying on tariffs affecting world aluminum trade and, among other concerns, lobbying on energy legislation and the licensing of hydroelectric dams. Make no mistake about it; Alcoa will go to great lengths to further and maintain its monopoly of this guaranteed source of revenue and valuable natural resource.
We cannot allow a private multinational corporation to control North Carolina’s public waters for the next 50 years. The Narrows of the Yadkin are and could well remain the one of the most remarkable water power sites in the Atlantic States. Our state leaders must have the foresight to submit a plan to FERC for federal recapture of the water, a plan that will not make us pay to drink from our own River—especially if those flows are being used to deliver power outside the State of North Carolina—or, even worse, deny us the use of our waters at any price. I urge all concerned citizens to contact their representatives and the Governor’s Office now to prevent this travesty from happening. Our state must not allow private sector monopoly control of the River we rely upon to supply so much of our public water supply and to contribute so much to the quality of our lives, as well as allowing us to plan for the future.
FERC licenses are supposed to achieve the best balance of beneficial uses in the public interest. It is naive to assume the potential hydroelectric market power threat from Alcoa or other private sector companies will remain benign. Low electricity prices and absolute control over our own water supply resources are fundamental to the long-term health of the North Carolina economy.
In the states of New York and Washington, agreements exist that allow Alcoa to use the water resources that belong to the people for its own purposes, provided the people and their state governments remain effectively in control of their water resources, so that the primary benefit and use of these resources remain with the citizens, regardless of changes in corporate ownership or in corporate plans. We want these same rights for North Carolinians.
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