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Independent Tribune

independenttribune.com
6/29/2008

Yadkin River: Stanly County leaders urge state to study wresting rights to river from aluminum giant Alcoa

BADIN - Up a steep hill from this community’s small downtown and past a locked gate, a 200-foot dam built in the early 1900s continues to harness the power of the Yadkin River where it once flowed through a corridor of rock known as “The Narrows.“

Owned by a subsidiary of aluminum manufacturing giant Alcoa, the dam is one of four at the center of an emerging battle for control over a 38-mile stretch of the river, which possesses North Carolina’s second-largest watershed and is a valuable source of drinking water, hydroelectric energy and recreation.

For 85 years, Alcoa used its dams, collectively called the Yadkin Project, to create reservoirs that turned turbines and powered a nearby smelting plant.

Even though Alcoa shuttered its plant last year, citing increased international competition, Alcoa Power Generating Inc. is seeking a 50-year renewal of its federal license to generate electricity and more than $40 million in gross annual revenue from the dams, which are about 50 miles east of Charlotte.

Several Stanly County political and business leaders, however, are lobbying the government to intervene, arguing Alcoa no longer operates in the public’s best interest and calling on officials to consider seizing the project and establishing a public power authority.

The Federal Energy Regulatory Commission, which oversees this project and about 1,600 others, has never exercised its authority to recommend the takeover of a project against the wishes of an incumbent licensee.

Many in and around Badin, one of the last company towns built in America, resent their neighbors’ efforts and don’t want to imagine life without Alcoa’s presence. At its peak, the company’s plant provided about 1,000 high-paying jobs to a rural region, and Alcoa helped build and maintain the town.

The company’s opponents say they are advocating to protect the public and would be satisfied with Alcoa retaining control if it agrees to share more of the river’s benefits.

The opponents’ campaign appears to be gaining momentum among state leaders.

The North Carolina General Assembly is currently weighing whether to create a commission to study its potential role in capturing the project and establishing a public power authority. Alcoa is lobbying against the legislation, saying it would set a dangerous precedent and issuing a poll the company says shows public opinion on its side.

In April, Gov. Mike Easley became the highest-ranking public official yet to call for further study of the issues raised by Alcoa’s opponents.

Specifically, the opponents:

In recent months, at Stanly’s request, six counties including Cabarrus have joined in adopting resolutions opposing Alcoa’s application for a long-term license and encouraging Easley to continue to intervene. The Centralina Council of Governments, a Charlotte-based regional planning organization, has also passed a similar resolution, and Lt. Gov. and Democratic gubernatorial nominee Beverly Perdue has joined Easley in writing FERC to express concerns.

In response, Alcoa maintains it has earned the right to manage the river because it has a record of good stewardship, it has worked to forge an agreement that would balance recreational, environmental and power-generating functions and it continues to make positive economic contributions to the area.

The company, which remains the county’s largest taxpayer, has also won the support of many residents and public officials while spending more than five years and $20 million on its application.

So far, the five-member FERC board has issued Alcoa a one-year extension of its original license, which was granted in 1958 and had been set to expire April 30.

Alcoa’s representatives are optimistic a long-term license will be issued early in 2009, but the company must obtain a state water-quality certificate before FERC will consider the hydroelectric license.

The state granted a certificate in November, but a procedural technicality reopened the record for public comment, allowing the opponents to submit testing by a Clemson University expert who disputed earlier findings.

Alcoa then withdrew that application and submitted another in May. The state generally acts on such applications within a year, but the legislation authorizing a study commission would temporarily suspend that decision.

If the state certifies the river’s water quality, FERC can approve, amend or deny Alcoa’s hydroelectric application at any time.

Company town as case study

Badin, currently home to about 1,100 residents, provides a striking example of the economic and political forces driving the dispute.

The town was started in the early 1900s by French aluminum manufacturers, who sold it to Alcoa in 1915 when called home for World War I.

For most of Badin’s history, Alcoa owned much of the town’s land and invested heavily to provide amenities for the company’s employees. Natives still proudly point visitors, for example, to the spot where Alcoa built the largest opera house between Atlanta and Richmond, Va., to provide a venue for residents who were largely isolated before automobile travel became widespread.

But that facility was demolished in the 1950s, town leaders said, when it could no longer draw enough acts to sustain itself, and the site now houses a post office.

More significantly than its social scene, Badin has also seen its population and tax base steadily decline with the fortunes of American manufacturing.

The company’s opponents say the town, which wasn’t incorporated until 1990, deserves more help to lure new jobs and maintain decaying infrastructure as the smelting plant sits idle on the banks between dams.

County commissioners recently passed a tax increase to support the Badin’s volunteer fire department, and they estimate the town needs about $10 million in upgrades to the aging water and sewer system it inherited from Alcoa.

Badin officials agreed to support Alcoa’s relicensing bid, and the town would receive land for a public park along with other environmental and recreational enhancements the company has proposed.

According to Roger Dick, the 57-year-old founder and CEO of regional bank holding company Uwharrie Capital Corp., the town shouldn’t have settled so readily and likely wouldn’t have done so if its people had better understood the situation.

Because Alcoa no longer provides smelting jobs and sells its electricity wholesale on the national grid at the market rate, the company is essentially asking permission to tap for primarily private gain a nearly guaranteed source of power and profit that rightfully belongs to the people of the United States, Dick said.

A public power authority could be more accountable to the state’s residents than Alcoa, Dick said, ensuring access to cheap water and power, allowing the basin’s communities to be highly selective in the industries they recruit and ensuring a more secure future. Under public control, he said, the river could help fuel a regional economic revival.

If Alcoa’s application is permitted, Dick said, “we will have literally given away the very economic engine we need.“

Dick’s view contrasts sharply with that of Badin’s mayor, Jim Harrison, who was born in town at an Alcoa-built hospital and retired after working for the company for 31 of his 67 years.

Harrison acknowledges the town has declined considerably from its cosmopolitan pinnacle, but he chooses to appreciate Alcoa’s efforts to build Badin rather than blame the company for its recent struggles.

Harrison worries about altering a relationship that has proven mutually beneficial for decades, and he suspects Alcoa’s opponents might prefer to see lakefront property developed rather than preserved as park land in accordance with Alcoa’s proposal. He also wonders why the county has taken a hostile approach toward a company with deep roots in the region, and he says “profit” shouldn’t be considered “a dirty word.“

Harrison trusts Alcoa to redevelop the smelter site in conjunction with government officials, he said, and he also has the company’s word to help expand town limits, which are almost entirely landlocked by Alcoa property.

“Who’s going to do any better?” Harrison asked. “Do you want to ride over a company for the public interest?“

Competing campaigns

As the dispute has simmered in Badin and surrounding communities, the opposing factions have developed dueling legal and public relations campaigns to help shape the terms of their clash.

Alcoa has portrayed itself as a generous corporate citizen attacked by overzealous critics, while its opponents insist they haven’t been treated fairly or taken seriously during a debate to decide what could become one of the most significant issues before North Carolina in a generation.

One of the opening salvos came last year, when Stanly County retained the services of two law firms and a public relations firm after county officials were unhappy with the terms of a settlement proposal Alcoa developed through a series of meetings with stakeholders that began in 2002.

More than 20 public and private entities signed the deal. Among other provisions, it would add about 1,000 acres to Morrow Mountain State Park, which borders the river, and adjust how water is managed and allocated.

Stanly leaders, however, declined to sign on during a closed-session meeting with Alcoa representatives, and the county has since become the most active of the eight participants opposed to the proposal.

County Manager Jerry Myers said the proposal did not offer just compensation to Stanly residents.

County Commission Chairman Tony Dennis said Alcoa representatives often did not listen to opponents’ concerns and sometimes did not include their comments in official records of the proceedings.

The company says many of the county’s issues were outside the bounds of the relicensing process.

“I can’t sign that damn paper,” Dennis remembers saying. “It’s not been a fair negotiation at all.“

Shortly thereafter, the county hired Spiegel & McDiarmid, a Washington, D.C.-based law firm whose specialties include FERC-related cases.

Stanly has also hired Carolinas-based law firm Parker, Poe, Adams & Bernstein to represent its interests in the state and Raleigh-based public relations firm MMI Associates to market its message.

The county has spent about $500,000 - roughly a penny of its tax base - on the matter, Myers said.

In addition, some Alcoa opponents have started a nonprofit group called the N.C.Water Rights Coalition, protested in the state capital of Raleigh, launched a Web site, placed print and radio ads and attracted former NASCAR driver Richard Petty as a spokesman. Petty owns a house near the river and is a former Randolph County commissioner.

Alcoa has its own Web site devoted to debunking its opponents’ statements and has placed its own print and radio ads.

Takeover: Provided

for but unlikely

The crux of the opponents’ argument rests in the 1920 Federal Power Act, which established FERC’s predecessor, the Federal Power Commission, and governs the relicensing process.

In deciding whether to renew a license, the act states, the commission should consider both the licensee’s compliance record and its actions “related to the project which affect the public.“

The act also reserves the government’s right to either award the project to a competitor, decommission it or take it over, provided the licensee receives compensation for its investment.

To compete for the license themselves, the opponents would have had to submit an application about two years ago. They say they did not do so because they did not fully understand the licensing process at the time.

County officials only attended initial discussions because Alcoa has facilities in their jurisdiction, and they did not discover the possibility of taking over the dams until they consulted with Spiegel & McDiarmid, Myers said.

Even though they missed the deadline to compete, they argue the Yadkin Project is perfectly suited for takeover in the spirit of the law.

According to Dick, the act was designed to encourage development of hydroelectric sites and resulted from a compromise between conservationists and utility and banking interests that simultaneously established public ownership of power sites but made the recapture process difficult and expensive.

In this case, FERC staff members have already recommended against takeover, noting in a draft environmental impact statement released last year that they “do not consider federal takeover to be a reasonable alternative for the projects” because “no federal agency has suggested that federal takeover would be appropriate, and no federal agency has expressed an interest in operating the projects.“

The company’s opponents discount those statements as boilerplate language and say FERC commissioners should be free to independently judge each case regardless of their staff’s recommendations.

Past precedent indicates FERC is not inclined to take such a stand, but Alcoa’s opponents say the agency lacks sufficient resources and is too closely aligned with the interests of the energy industry to independently entertain takeover.

“FERC has never seriously considered it,” said Frances Francis, a former FERC staff member who is now an attorney for Spiegel & McDiarmid, "They just don’t want to be bothered."

FERC staff said the agency’s commissioners are committed to the public interest and will evaluate the entire record before ruling.

What it would take

Achieving a takeover would require significant expense, Congressional approval and likely an agreement between federal and state authorities to organize a public power authority.

Although takeover is theoretically possible, licensing and property manager Gene Ellis said, it would result in a complicated process that could introduce questions about private property rights and damage North Carolina’s business-friendly reputation.

“It’s a lot of very considerable restructuring in order to complete what they’re thinking about,” Ellis said. “I don’t know how you get to that point from where we are now.“

Under the law, any interested party would have to compensate Alcoa for the value of the project. Alcoa has listed that figure as about $137 million when adjusted for inflation, but Francis said authorities could rule it closer to $25 million or $50 million, and Ellis said they could rule it much higher by awarding severance damages.

Whatever the cost, Alcoa’s opponents maintain the pursuit of takeover is valid and would be worth it in the long term. Realizing such an arrangement, though, would likely necessitate action from figures even more powerful than Easley.

“It cannot be done unless there is a helluva lot of clout,” Francis said.

Control over water, power gains political traction

Myers said the county would likely need help from at least the state or a regional consortium to complete such an initiative, and Alcoa’s opponents have pursued a variety of avenues to build support.

Although county officials continue to sound their environmental concerns, Myers said they have found more political traction by advancing financial arguments.

Alcoa won its original license by testifying that making improvements such as investing in a new dam at Tuckertown and receiving a 50-year license would help the company sustain its Badin operation, which then employed 977 people.

Now that the company directly employs about 30 people in Stanly County and has pulled out some of its equipment, its opponents say it should not have so much control over the river’s water and power potential.

Under the current license, municipalities must get permission Alcoa and FERC in order to begin new withdrawals of one million gallons per day or more, and the company can charge those who bypass its dams for lost power-generation revenue.

Francis said the basin’s communities should have further assurances their needs will be heard and provided for at reasonable cost. Ellis said the company has consistently worked with municipalities to get water where it is needed.

Albemarle, for example, currently pays the fee for lost generation in part because it doesn’t return its water directly to the same basin, unlike several municipalities that do not bypass the dams and have pre-existing agreements to withdraw water for free.

Under Alcoa’s proposal, Albemarle would be allowed to withdraw up to 11 million gallons per day for free and between 11 million and 30 million gallons with the fee.

Mayor Whit Whitley said the town, which supported the settlement agreement and currently uses about seven million gallons per day, is unlikely to ever exceed its permitted capacity.

The city paid Alcoa about $20,000 for water last year, and Whitley said the company has been “very fair” in negotiations. But Alcoa’s opponents say political leaders will not want Alcoa in the way if demand skyrockets during the next half-century.

Within that timeframe, the fast-growing Cabarrus County cities of Concord and Kannapolis could further affect how the river’s water is allocated. To provide for future water needs, those cities last year received a state certificate to withdraw up to 10 million gallons per day from both the Yadkin to their east and the Catawba to their west. State Sen. Fletcher Hartsell, who represents Cabarrus, said he would like to see that privilege explicitly protected in a new hydroelectric license.

“Personally, it’s the water that I consider to be the primary issue,” Hartsell said. “It is a significant issue that has really not as yet become significant” in the public eye.

The opponents also dispute the degree to which the basin’s residents benefit from the company’s production of power.

Unlike Duke Energy and Progress Energy, which generate electricity elsewhere on the river, Alcoa is not a state-regulated utility and has no retail customers in North Carolina, Francis said.

The long-term value of the project’s power is difficult to determine with certainty, but Alcoa listed the project’s average annual revenues at $43.6 million in its settlement proposal. After expenses, depreciation, taxes and relicensing enhancements, the company cites net profits of about $8.4 million per year.

Alcoa’s opponents say the company shouldn’t be entitled to all that money after shutting down its smelting operation, but Ellis said takeover isn’t warranted because the company continues to contribute to the local economy and uses some of its profits to help offset costs at other locations, which he said helps to keep jobs in the United States.

The company says it makes an economic impact of more than $8 million per year in Stanly County, including more than $500,000 in property taxes, and Ellis said Alcoa often ran its relatively small Badin plant at loss before a severe economic downturn in 2002 proved too much.

Furthermore, Alcoa is aggressively pursuing redevelopment of the smelter site, plans to invest more than $200 million in renovations to its dams during the next decade, has already made concessions that will cost about $1.6 million per year and annually considers restarting its Badin operation, Ellis said.

“I can’t imagine how you come up with a better package than what we’ve come up with,” he said.

On the issues of both water and power, the company’s opponents contemplate two potential worst-case scenarios: Alcoa itself has been rumored as a ripe target for acquisition by outside firms, and it could also request FERC transfer the Yadkin Project license to another entity.

The conditions of the license would not change regardless of who holds it, but the opponents fear either possibility could leave local residents with even less access to the river’s benefits.

Dispute divides region

Despite their populist tone, Alcoa opponents say they’ve struggled to gain support among some area residents, many of whom, like Harrison, are former employees who see potential takeover as an intrusion on free enterprise.

Most “Alcoans,” as Harrison calls them, regard the company as better able - and, some say, more deserving of the right - to manage the river than government authorities.

Whitley didn’t work for Alcoa, but he shares some sentiments with many who did. Whether the “hue and cry” Stanly has incited has been motivated by idealism or greed, Whitley said, the government should not interfere to undermine Alcoa’s business.

“Good God, our democracy is founded on that,” he said. “This is just one thing we don’t need to meddle with.“

If the government can freeze Alcoa’s water-quality certificate and seize its dams, Ellis and Alcoa supporters ask, what protection would any successful business have against similar treatment?

“I guess if we were a communistic state, we could go ahead and take over anything we wanted,” Whitley said. “I’d like to get something for nothing. Wouldn’t you?“

Dick, who calls himself a “fire-breathing capitalist,” said government would simply be enforcing an agreement Alcoa willingly entered 50 years ago. Because its fuel is renewable and virtually perpetual, hydroelectric production does not put private capital at significant risk and does not lend itself to regulation through competitive forces, he said.

By several measures, the desires of the basin’s communities seem split.

In addition to the standoff among municipalities and counties over Alcoa’s settlement proposal, newspapers have published editorials and letters to the editor both for and against prompt relicensing.

The dispute has even divided two nonprofit organizations with similar missions.

The Land Trust of Central North Carolina, a regional land preservation organization, signed the settlement agreement. Central Park NC, which strives to preserve the natural and cultural assets of the region by using them to create a sustainable local economy, declined to do likewise.

Is challenge warranted?

As each side continues to stake its claim, Alcoa’s opponents concede they aren’t sure when or if they will succeed. The company’s supporters say the quarrel could ultimately waste public money out of an ill-construed desire to halt the inevitable at the 11th hour.

Myers, the county manager, said he occasionally - and temporarily - encounters self-doubt over whether he has pursued the proper course for his constituents.

Ellis doesn’t believe the county’s fight will prove worthwhile.

Even if the company’s opponents were to succeed and the state was to take over the project, profits are not likely to stay in Stanly, he said.

“As a resident of Stanly County, I’m really concerned about the image it portrays about our county,” Ellis said. “I’m not convinced they’ve made a good investment.“

The company’s opponents, however, say they feel compelled to continue to champion their cause and hope they have increased public awareness.

“The time may be right,” said Francis, the attorney working for the county. “Maybe power is shifting over enough so the people have a chance.“

Even if they do not succeed in capturing the river, Alcoa’s opponents are adamant the region should receive more concessions from Alcoa, which they say has negotiated more readily elsewhere in the country.

Ellis said that there has been ample time for discussion and that the company, which has won accolades for its commitment to ethics and environmental sustainability, has won considerable support during the relicensing process. He urged Alcoa’s opponents to drop their objections so the benefits of the settlement proposal can kick in.

The opponents, however, seem to be settling into their role in what they characterize as a David-versus-Goliath struggle for the well-being of future generations.

“What they have tried to do just ain’t right,” Myers said of Alcoa. “It may be as legal as anything in the world, but it is not moral.“

Harrison, Badin’s mayor, said he doesn’t know how the dispute will end or how his small town will fare as a result. Now that state officials are stepping in as the decision nears federal hands, Harrison expects his role in a resolution will be limited.

“Lord only knows,” he said when asked what will happen next. “I just hope the right thing comes out of all of it, what’s right for everybody.“

Contact Josh McCann: 704-789-9152

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