Where New York and Chelan County, Washington, control the license for the dams that produce hydroelectric power, there are huge economic benefits to the localities and a large number of guaranteed jobs...Download
1958 Federal Power Commission Licensing Order for Yadkin Project found that there would be 900 jobs provided by Alcoa at the Badin Works aluminum smelter using the hydroelectric power generated by the four dams on the Yadkin River. The Badin Works aluminum smelter is now closed and those jobs have been sent overseas by Alcoa... Download
We’d like to tell you some of the story behind the relicensing of the Yadkin River as we know it. We do not claim to be perfect in our understanding, but we have learned quite a bit since we became involved with this process. We have borrowed from others in putting this together and provided the sources as much as possible.
There have been three concerns as we have gone through this process.
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The relicensing process includes a series of meetings involving stakeholders. The licensee controls this process, sets the agenda, directs the discussions, etc. Stanly County had representation at these meetings. It was not until the Stanly County Commissioners met with representatives of Alcoa did the Commissioners take a different approach.
Stanly County decided to seek funds through the relicensing process to assist the county with the installation of infrastructure. Many places in our county have such poor quality water that residents cannot drink it and some have even been advised not to bathe in it. With the loss of manufacturing and other losses on the county's tax base, leaders wanted some assistance to address the nearly $80 million needed to put water lines in the ground.
The relicensing process includes the creation of a Relicensing Settlement Agreement that all participating agencies are asked to sign. If a participant does not sign, that party is excluded from the process. It must then proceed independently to become a formal intervenor in the FERC relicensing process. That is what happened when Stanly County decided not to sign the RSA, because it did not believe that enough was being offered to participants from the relicensing process.
History of the FERC Relicensing Process
"Imagine a bunch of people like me: nonprofit administrators, some fish biologists, a few city and county employees, and a few lake home owners – all very nice, intelligent people. We're sitting in a room facing a team of Alcoa corporate lawyers. Can you imagine what that would be like? We were told that there would be no discussion of the economic issues - only environmental issues, and only environmental issues pertaining to the lakes - not the smelting plant. So we spent years sitting around a table with Alcoa lawyers discussing lake levels, dissolved oxygen and fish life cycles. Never a word about the value of the hydroelectric production. Never a word about jobs. Never a word about economic remuneration for the kilowatts. And mostly because we were too naive to insist. The length of the license - 50 years - was not up for discussion. They controlled the agenda and the discussion and the resettlement agreement. We were handed it and told to sign it and that was that.
"The ridiculous thing was that we were sitting there in the first place. The people who should have been sitting there were the Secretary of Commerce and the Secretary of the Department of Environmental Resources, the Governor's Chief of Staff or Budget Officer, staff from the Speaker's office or the Senate Pro Tem. Commerce at least has the experience of negotiating with corporations all the time - incentives for jobs. There was never anyone at the table with the experience or the clout necessary to really negotiate with them. Admittedly, in hindsight, how incredibly silly that the state allowed me and a bunch of fish biologists to negotiate an agreement worth multimillions to the state?"
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The first part of the story comes in part from the reading of several books that tell us about the United States at the end of the 19th century and beginning of the 20th century. Our nation was still struggling a bit to identify itself in the world and to wrestle with this new idea called democracy. Some large industrialists saw an opportunity to make themselves rich and powerful. Andrew Mellon was one of those who wanted to gain a monopoly in the aluminum business. He was also setting his sights on oil, gas and electricity since the smelting process required a huge amount of electricity.
The Conservation Fight written by Judson King chronicles the debate that ensued especially between the industrialists and conservationists over the rights to control natural resources and thus whole industries. (Judson King's book is difficult to find for purchase, but can be read in its entirety at http://www.questia.com.) The battles raged in Congress for decades, more between states rights vs. federalists and industrialists vs. conservationists than between Democrats and Republicans. King's book, while more about the Tennessee Valley Authority than anything, describes the maneuvering that took place in Congress over who would have control of the waters of the United States.
"On April 30, 1920, a conference Coalition produced a 'compromise bill.' In it the jurisdiction of the federal government over water power in all navigable rivers was affirmed. Ownership was vested in the United States. No more titles in fee simple and in perpetuity could pass to private hands. The commission (established by the legislation) could propose to Congress the construction of hydroelectric stations by the government. A crystal clear definition of navigable waters in the compromise bill made certain that the term included all navigable rivers from source to mouth and that the presence of shoals or falls did not transfer jurisdiction to the states.
"The conservationists had won out on these provisions, but the utility and banking interests had succeeded also. The charges levied for use of water were not to be calculated on the value of the use but merely to pay for the expenses of the commission and cost of administering the act. Most prized of all was the tricky recapture clause making it so difficult and expensive for the government to recover possession at the end of 50 years that the conservationists charged the leases would be perpetual.
"The crux of the compromise was that a politically appointed, ill-staffed, and ill-financed commission would be authorized to grant leases, probably in perpetuity, to private monopolies on public waters worth many, many millions, for a pittance. Proponents of the bill held that it was the only way to accomplish rapid and much needed development. Its opponents charged that this solution was a surrender to the utilities. It was both antipublic and indefensible."
President Woodrow Wilson signed the Federal Water Power Act on June 10, 1920. This legislation is at the heart of what is being debated and determined in the Yadkin basin at the present time.
Congress decided with the passage of the Federal Water Power Act that the Yadkin River was a public resource. The legislation provided the potential for private development and public development with licenses being issued to provide authority to generate electricity using the water. Both kinds of development were to exist, but every 50 years or so, the public could look at the record and decide whether the use of the river was so important that the public might be better served by a change in ownership.
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During the time of the debate in Congress, much was going on in the Yadkin Valley. In the late 1890s "The Falls at the Narrows on the Yadkin" was listed in International Engineering Journals as one of the top ten sites for development of hydroelectric power on the North American Continent. This is the same time period that the electrification of America was taking place. The possibility of long range power transmission revolutionized the electric industry technically and financially, plunged it deep into national politics, and brought water power into sharp competition with coal, oil and gas in the generation of electricity. Once worthless waterfalls, in remote rural places like the "Falls at the Narrows" now possessed multi-million dollar potential that led to a veritable gold rush to obtain ownership of these sites.
A license to generate hydropower at the Narrows was first filed in 1896 by Egbert Hambley, a gold mining engineer from Salisbury. Hambley, as an engineer, knew from the scientific journals of the times the value of the Yadkin to produce cheap hydro power. He did not have the capital to develop the resource, just the knowledge of how to file the application...a resource worth millions was being claimed for filing fees. Hambley partnered with Mr. Whitney, an investment banker, from Pittsburgh.
Alcoa has recorded in its board minutes in 1896 its desire to create a monopoly in bauxite and hydro power as a means to control their competitive position. Whitney was also an investment partner of Mr. Andrew Mellon, and together they had created a monopoly over coal and gas supplies in the east. But Whitney got in front of Mellon on the hydropower on the Yadkin at the Narrows and this angered Mellon against Whitney. Later, when Whitney found himself in financial hard times, Mellon and the Union Trust Bank would not support him and he was bankrupted. (There was much litigation around Whitney's bankruptcy and Mellon, Union Trust, and other associates of Mellon came under considerable scrutiny and accusations.)
The French also made aluminum and were looking for cheap hydro to be competitive. The French bought the "Narrows Project" from the Whitney bankruptcy. The French began construction on their aluminum plant in the wilderness.....they came for the massive wealth of electrical power that the river created on its way to the ocean. World War I broke out and the French banks funding the project withdrew their financial support as capital was now needed at home to help finance the war effort. President Adrien Badin made the rounds of Wall Street seeking the capital to keep his venture alive and all declined to support his fledging company. It was the beginning of World War I, there was a tremendous demand for aluminum, and a fortune to be made. The only potential competitor to Alcoa remaining at this time was this small French company in Badin. The Wall Street investment bankers all knew Whitney and certainly did not want to make the same mistake that Whitney had made when he sought to compete with Mellon. President Badin turned to Andrew Mellon who bought the development for 28,000,000 francs. The Badin plant was a godsend to Alcoa, with sales dockets bursting from the stimulus of war needs and healthy price increases as a result of Alcoa accomplishing its objective, an aluminum monopoly.
During the following decades Alcoa managed the waters of the Yadkin River with three dams located on an approximate 38-mile stretch from just above the present I-85 bridge to the Falls Dam just above where the Uwharrie converges to create the Pee Dee. Alcoa had either built or completed the construction of the dams and had to acquire lands over which the waters flowed.
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Across the country, most dams and projects built before the time of the Federal Water Power Act were owned and operated by private interests. Public power agencies became more prevalent after passage of the Act, providing public power and economic development to a large portion of the country, especially west of the Mississippi.
The Federal Power Commission, now called the Federal Energy Regulatory Commission, is given the responsibility to determine who will receive a license to develop hydropower using the waters of our country.
Section 15(a)(2) of the Federal Power Act states "Any new license issued under this section shall be issued to the applicant having the final proposal which the Commission determines is best adapted to serve the public interest…" and requires the Commission to consider the factors enumerated in section 15 (a)(2) and (a)(3) of the Federal Power Act, which includes the effect of the Project on the applicant's operations and "its workers, and the related community."
Section 14 (b) of the Federal Power Act states "in the relicensing proceeding…any Federal department or agency may timely recommend…that the United States exercise its right to take over any project or projects." The Commission itself may make such recommendation.
Given these standards, every time a license is considered for issuance or for renewal, the Commission should weigh the best circumstances for the public interest and either issue a license to that preferred applicant or seriously consider recommending take over of the project from a current licensee if there is a better use in the public interest and no competing applicant appears with a better proposal.
In 1958 it was time for Alcoa to acquire a license from the Federal Power Commission, the agency that was given oversight of the FWPA. During the license process, Alcoa asked for permission to build another dam on the Yadkin. Alcoa argued for and won a 50-year license based upon the cycle of investments to run the smelting plant at Badin and the provision of jobs to the region.
The Presiding Examiner for the FPC stated that "Badin is one of the smaller plants in the aluminum industry in America today. The witness Harper stated that Alcoa believes that the trend is toward larger plants, but realizes the adverse effects upon the Badin area if the plant were to be discontinued and feels some responsibility toward the people of the community. The company had 977 employees upon the payroll of Badin at the beginning of 1957. . . The operations of the Badin plant of Aluminum are a useful contribution to the industrial life of the Yadkin Valley and their continuation is greatly in the public interest.
"A provision is inserted which requires the maintenance of the highest level at High Rock from June 1 to September 1 of each year which is practicable and consistent with the reservoir's primary purpose of providing firm energy for the smelting operations at Badin.
There is little doubt upon reading the record of the license issued in 1958 that it was based upon the continuation of smelting operations run by Alcoa at Badin and the benefits that the operation provided to the Yadkin Valley. Does the license being issued in 2008 address what is in the public interest?
The important point is this: reading the law and understanding its context makes one wonder why the Federal Energy Regulatory Commission lacks the courage to implement and follow the law?
Teddy Roosevelt and his supporters had to compromise to get the law passed, but they fought to leave in certain provisions. They knew that they had to turn over much of the control of the waterways to the private developers in the early 1900s, but they trusted that, if they put the right words in the law, eventually, enlightened and better empowered future generations could seek the benefits that they were not politically able to bring to fruition in their lifetime.
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Please understand that this is neither a nationalization of private interests nor taking of corporate property. The law specifically allows the transfer of the project. Alcoa addresses this possibility in the application it filed with the Federal Energy Regulatory Commission (new name for commission).
"Section 14 of the Federal Power Act (FPA) reserves to the United States the right to take over a non-publicly owned project upon expiration of its license. In the event that such a take over is ordered by the Federal Energy Regulatory Commission (FERC), Alcoa Power Generating, Inc. (APGI) would, pursuant to Section 14, be entitled to be reimbursed for its 'net investment' not to exceed 'fair value,' plus any 'severance damages' suffered (see 16 U.S.C. 807). Fair value estimate of the project is $137,339,555 including the original cost of land within the project of $6,791,638. APGI's net investment as of 2005 is $24,158,903."
While this seems like a lot of money, "hydro generation is a virtual money machine that creates wealth that can be sold on the electric grid until the end of time. According to Alcoa's approximated internal rate of return on its hydro investments (9.72 percent), anyone could go to Wall Street, borrow 100 percent of the money needed for the project, tear down the dams and start over, and still repay all the debt in approximately eight years. There is no market risk of failure when abstracting the value of hydro for sales on the grid....it is like pumping oil from a well you cannot pump dry for sale on the commodities market at a price that always guarantees a profit." (Roger Dick, CEO, Uwharrie Capital)
Alcoa (APGI) estimates in their application documents the annual value of the project produced power is $43,600,000. The application indicates $28,310,097 in annual project operating costs. The estimate profit by their numbers is approximately $8,400,000.
It is very difficult to get accurate values for hydro power but they could be well over $100,000,000 per year for this project. Profits are probably understated at $40 to $50 million annually. Alcoa is asking the citizens of our state to forfeit these ever increasing profits for 50 years! Profits are more than sufficient to pay the debt that will fund the recapture and provide much needed resources for economic development and infrastructure needs facing North Carolina.
In conclusion, the citizens of North Carolina should not consent to giving away the control or the economic benefits of our second largest watershed for the next half century. The federal law provides the opportunity for the citizens to own this project or to at least have a greater stake in both its management and value that is in the best interest of the people of our region and our state.