The Yadkin, the state’s second largest river (only the Cape Fear is bigger), is a gentle giant as it traverses the northwest foothills from Wilkesboro to Elkin to Pilot Mountain State Park in Surry County. From there, it turns south toward Salisbury, gathering size and force from its various tributaries until, passing the Uwharrie mountain range, it’s squeezed from 1,000 feet wide to less than 100 feet in the gorge known as “the Narrows.” Over a 38-mile stretch from above High Rock Mountain to just below the Narrows, the Yadkin falls almost 400 feet in elevation, further concentrating its power.
“The Yadkin is enormous,” says Dean Naujoks, the Yadkin Riverkeeper. “It is unbelievable what a resource it is, and nobody’s ever paid much attention to it. I call it the forgotten river.”
The reason it’s forgotten is that the Yadkin’s powerthe power of its falling waterwas tied up almost a century ago by Alcoa, then called the Aluminum Company of America. Alcoa built three dams in the early 20th century, and a fourth in 1962, and used them to generate electricity for a massive aluminum smelting plant in the little Stanly County town of Badin. (See “Timeline: Alcoa on the Yadkin”)
The Yadkin’s power, Alcoa’s critics say, could have been used to supply electricity to 170,000 homes or to small manufacturers that might’ve come to the area if Alcoa’s smelter hadn’t. Instead, all the power went to a single plant that once employed about a thousand workers but recently had a workforce of just 400 to 500.
And today, even that one plant sits empty: Alcoa closed it in 2007 (“curtailed it,” the company says), sending its jobs to newer facilities abroad. Indeed, the name Alcoa is no longer an acronym for an American company. It is instead a global brand for a firm that makes aluminum in Iceland, Brazil or wherever it’s most efficient to do so. But not in North Carolina.
Nonetheless, Alcoa retains control of the Yadkin and is seeking a 50-year renewal of its operating license, which expired last year. With its smelter shut down, it sells the electricity to wholesalers or “the grid.” Most of the power ends up in other states, the company reports. The revenues, minus payroll for a skeletal workforce of about three dozen in North Carolina, belong to an Alcoa power subsidiary based in Tennessee. The profits are distributed worldwide.
Stanly County’s leaders think there’s something wrong with that picture. They want the Yadkin, a public resource, to work for the region, not Alcoa. Over the last year, they’ve persuaded top state officials, including Gov. Bev Perdue, that Alcoa should go.
A key ally in their battle is Keith Crisco, who owned a manufacturing business in Asheboro and was a leader in the anti-Alcoa movement before Perdue appointed him secretary of commerce this year. Now Crisco heads up the state’s campaign to block Alcoa’s relicensing, saying the company has stiffed the local economy and dragged its feet on environmental issues.
“Not only does APGI [the Alcoa subsidiary] not offer the benefits that were a quid pro quo for the state’s support of its initial license,” Crisco says in the Perdue administration’s 21st Century Plan for the Yadkin, “but it produces harm in that it does virtually nothing to address the water quality needs or the economic or recreational needs of the region.”
“It’s almost as if it’s Venezuela,” Alcoa spokesman Kevin Lowery retorts. The company maintains that the license is Alcoa’s property, and the state’s effort to take it is akin to President Hugo Chavez nationalizing his country’s oil industry.
Yadkin Riverkeeper Naujoks is on Stanly County’s side. He accuses Alcoa of exploiting the Yadkin for profit while leaving the region with “a toxic legacy” of cancer-causing PCBspolychlorinated biphenylsand other contaminants from the smelter. The extent of the damage is not yet understood, he maintains, because neither Alcoa nor state environmental regulators have thoroughly investigated it.
Naujoks likens the situation in Badin to the investigation of PCB pollution in Wake County’s Crabtree Creek, with which he was involved when he was the Upper Neuse Riverkeeper. Those contaminants originated miles away, at the old Ward Transformer plant. “Once they started digging, they just kept finding more and more problems farther and farther out,” Naujoks says.
On a damp October day, Naujoks has come to Badin for a ride on Jimmy Dick’s pontoon boat and to help him make the case against relicensing Alcoa. Dick, a university professor who grew up near Badin and returned after his retirement, is a more vociferous critic of Alcoa than even Naujoks. He vies for the title of biggest Alcoa critic with his brother, Roger Dick, president of a community bank company and the force behind the anti-Alcoa campaign, who thinks the Yadkin is worth billions to the local economy as a source of cheap hydroelectric power, and even more to the state as a future source of drinking water.
Steering his boat on Badin Lake in front of the hulking smelter, Jimmy Dick recounts how in 1958, when Alcoa last came up for license renewal, the company argued that it needed the maximum allowable term of 50 years to ensure it could recoup its planned investments in a fourth dam and in doubling the smelter’s capacity. In a legal brief, the company noted that the license was subject to “recapture” when it expired, at which point “the management of Carolina Aluminum could not rely on any assured source of power” for the plant.
The point, Jimmy Dick says angrily, is that Alcoa knew half a century ago that its licensewhich he terms a contract, not “property”was for a limited time. Alcoa also knew that it could make big bucks in Badin before the contract was up. But now, as local leaders try to reclaim the license, he says, Alcoa acts like it owns the river and should be allowed to stay there forever.
As for the pollution issues, Dick worked at the plant when he was young, as did his father and grandfather. Everyone saw the dumping, only no one knew of the environmental consequences. Regardless of the pollution, he says, if the plant were still operating, “no one would be challenging the license.” But when Alcoa gave up on the plant, Dick says, it gave up its rights on the river.
“It was a contract,” Dick shouts over the wind and his pontoon’s engine. “They got their 50 years with our public resource, and the benefit to the public was the jobs. But now the jobs are gone, and the contract’s finished, and we want our resource back. So, Alcoa, get the hell out.”
If it sounds like Alcoa’s done for, however, it isn’t. Because under the Federal Power Act, the decision about who controls the Yadkin isn’t up to the state but the five-member Federal Energy Regulatory Commission (FERC) in Washington. And ultimately, it’s up to Congress.
According to a FERC spokesman, not once since the act became law in 1920 has the commission done what the state is asking it to do: reject a license holder’s renewal application while also recommendingas the law requiresthat Congress pass a bill to allow FERC to award the license to someone elsein this case, a state water authority that doesn’t exist yet.
Recapture, as this process is called, is a cumbersome process. Deliberately so, historians say, since many in the 1920 Congress wanted to bestow control of the nation’s rivers to private companies, with no strings attached. Still, recapture is in the law to assure that the license holder, among all contenders, is best able to achieve a river’s various “beneficial public uses.”
Crisco argues that recapture is justified in Alcoa’s case. In a Sept. 8 filing to FERC, he says the state doesn’t relish fighting with a major corporation and remains “business-friendly.” But Alcoa’s “failure to contribute in any manner to the economic health and well-being of North Carolina” leaves the state no choice but to step in and try to redirect the profits from the Yadkin to the region’s economic development and water quality needs.
In a heated response filed with FERC Oct. 9, Alcoa’s Washington lawyer called the Perdue administration’s challenge “an amalgamation of factual misstatements and legal arguments that are inventive in the extreme.”
The lawyer, David Poe, asked FERC to dismiss it and immediately renew Alcoa’s license without offering Gov. Perdue a chance to appear before the commission, as Perdue requested.
Perdue’s aides say they don’t expect any action from FERC until next year, after a dispute over whether Alcoa qualifies for a clean water certificate from the state is settled. Until FERC rules, Alcoa can operate with a temporary license. (See “The long and circuitous path to license renewal“)
While those battles continue, Alcoa is in Raleigh battling a bill in the General Assembly (Senate Bill 967) that would create a Yadkin River Trust Authority to assume Alcoa’s license. The bill sailed through the Senate this year with bipartisan support, but failed in the House just before the session ended, when Alcoa’s team of lobbyists went on the attack, convincing conservative legislators and some progressives that Alcoa’s property rights were under assault.
The bill remains alive for the 2010 short session, however, and Crisco is confident it will pass.
The five lobbyists Alcoa sent to the House only hinted at the huge amount of money at stake for the company and, on the other side, for the Yadkin region. Together, Alcoa’s dams, powerhouses and generators can produce 215 megawatts of electricity, the equivalent of a small coal-burning plant or about one-fourth the power of the 900-megawatt Shearon Harris nuclear reactor in Wake County. The Yadkin Project, as it’s known, annually produces about one-seventh of the power of Shearon Harris, according to public records.
In short, Alcoa’s dams are worth hundreds of millions, if not billions, of dollars (estimates of the cost for another nuclear reactor at Shearon Harris start at $8 billion), far more than they cost to build and maintain over the years. That’s because a hydropower plant, unlike a coal or nuclear facility, is cheap to install, easy to operate, and the “fuel”the water from the Yadkinis essentially free.
Once the dams are constructed, the water behind them is dropped down passageways onto turbines that power the generatorswith the amount of generated power dependent on how far the water falls.
Under the Federal Power Act, if Alcoa lost its license, it would be entitled to compensation for its property but not the “fair market value” if it were to sell, for example, to a public utility like Duke Energy. Instead, the law requires compensation to be calculated using a formula based on a company’s net investment: the cost to build, minus depreciation. Until recently, when Alcoa started spending money on turbine upgrades, its net investment in the Yadkin Project was just $24 million, according to FERC records.
In a small administrative building next to the idled smelting plant, Gene Ellis, who is leading Alcoa’s relicensing efforts, says that anything less than full market value as compensation would amount to an unconstitutional “taking” of Alcoa’s property, notwithstanding the formula in the license agreement.
Ellis says that with the turbine upgrades, Alcoa’s net investment is now $91 million. But he maintains that in a recapture, the company would also be entitled to “severance payments” based on the amount of its lost future earnings, which could amount to hundreds of millions of dollars more.
Severance, he concedes, isn’t defined in the law; nor is it part of the compensation formula. The state doesn’t buy Ellis’ severance definition, and it estimates in its filings to FERC that the license can be recaptured for $150 million tops, including the cost of deferred maintenance that Alcoa didn’t count.
The state estimates that the Yadkin River Trust would earn at least $20 million a year on the power plantsat current revenue levels of about $40 million annuallyand more when acquisition costs are repaid.
And if electricity rates increase, so would the profits.
To Ellis, the debate over compensation is moot since he believes that APGI (the Alcoa subsidiary) is entitled to a new license, regardless of the state’s objections.
Alcoa’s license to generate power on the Yadkin was never predicated on keeping the smelting plant running, he says. Rather, it was given and should be renewed based on Alcoa’s ability to keep the power plants operating, while also being “a good steward” of the river. That it’s done, he maintains, by creating some 23,000 acres of recreational lakes and reservoirs (mainly the sprawling High Rock Lake and Badin Lake, the small but very deep (almost 200 feet) impoundment behind the Narrows Dam) and by donating land to various parks, including Morrow Mountain State Park and the Uwharrie National Forest.
Alcoa owns an additional 15,000 acres of timberland, Ellis says. As part of its relicensing application, it negotiated with local stakeholders for their support, pledging to donate 1,442 acres to various jurisdictions if the application is approved.
The fact that 23 public and civic organizations signed on as supporters, Ellis says, “shows that the public interest is being served.”
Ellis concedes that the smelting plant, like most industrial plants of its vintage, polluted for most of its history. “Before modern- day environmental regulations, everybody used the ‘Back 40’ to get rid of their waste byproducts,” he says, and, like the rest, Alcoa dumped. Waste oils, PCBs and PAHs (polycyclic aromatic hydrocarbons): They all were poured on the ground, into a lagoon next to the plant or into the town dump, he admits.
Ellis shows a visitor around the plant site, pointing out the many places where Alcoa removed soil, sealed its pollution with clay, and drilled test wells that demonstrate, he says, that no contaminants are leaching into the aquifer or the lake.
Stanly County contested that position when the company applied to the state for a 401 water quality certificate for the Yadkin Project. The application (and, ordinarily, its approval) is a required step in the FERC licensing process.
The county commissioned a study of pollutants in Badin Lake by Dr. John Rogers, a Clemson University professor and ecotoxicologist who co-directs Clemson’s environmental institute. Rogers found evidence of a “relationship” between the kinds of PCBs he found in the lake’s sediments and material used in the smelternear the plant itself, he reported, the relevant concentrations were 10 to 100 times greater than in other places.
Alcoa disputed Rogers’ findings, saying the PCBs in the lake were commonplace in industry and could’ve originated elsewhere. In any event, the state Division of Water Quality, part of the Department of Environment and Natural Resources, limited its 401 review to impacts from Alcoa’s generating facilities, steering clear of the smelter’s problems.
Ellis says that was the correct call because the certificate is for the power plants, not the smelter. Moreover, if pollution is traced to the smelter, Alcoa will be required to clean it up, regardless of what happens to the power license.
After that, however, the situation got murky. DWQ approved the 401 permit, but with a requirement that before it was issued, Alcoa must post a $240 million bond to ensure that it will make necessary improvements to the turbines in the power plants. The old ones are reducing dissolved oxygen levels in the river, impairing water quality for the fish. Alcoa didn’t dispute the need, but neither did it post the bond. Instead, it appealed the requirement as exceeding the division’s authority. Stanly County and Naujoks, the riverkeeper, also appealed, and, in September, an administrative law judge sided with them and blocked DWQ from issuing Alcoa the permit pending a hearing, probably in February.
Interestingly, the governor’s office sided with the county and Naujoks against its own state agency.
Meanwhile, the state Division of Public Health, a unit of the Department of Health and Human Services, posted a fish consumption advisory for Badin Lake because of the elevated levels of PCBs and mercury. Most people should limit themselves to one meal per week of largemouth bass and catfish caught there, it said. Pregnant women and children under 15 shouldn’t eat any.
Alcoa tried unsuccessfully to block the posting.
Naujoks argues that for all of Alcoa’s test wells and capping, it hasn’t opened the plant site to an independent assessment of the contamination. He’s challenged Alcoa to do so “and shut us up.” Ellis says it’s not necessary. The Division of Water Quality has certified that Badin Lake is safe for swimming, he noted. And the Division of Waste Management, another unit in DENR, found that wherever the PCBs came from, they pose no threat to human health.
Whether any of this will matter to FERC isn’t clear. Ellis says it won’t, because there’s no link between the power plants and the pollution in Badin Lake. The state, however, cites the 401 dispute and the fish advisory in a section of its filing to FERC titled “Environmental Degradation of Yadkin Water Quality Remains a Public Concern.”
“Regrettably,” Secretary Crisco says, “the more recent history of this licensee fails to demonstrate that the State can rely on the licensee’s concern for the State’s well-being.”
Roger Dick, Jimmy’s brother, is an unusual sort of banker, the kind who talks passionately about economics on a human scale; about ethical, socially responsible businesses; about how Ronald Reagan led us astray with his thoughtless support of free trade; and about how cool it is that Pittsboro has a currency based on barter. A liberal Democrat? No. Roger Dick, like his brother and most of Stanly County’s leading citizens, is a free-enterprise Republicanone with a strong distaste for monopolies.
Dick is president of Uwharrie Capital Corporation, a holding company for a trio of community banks in Stanly, Anson and Cabarrus counties whose mission, he says, is to “restart the local economy” after a long period of stagnation. Its annual report comes with a “Shop Local” refrigerator magnet. The home office is a converted department store in downtown Albemarle, the Stanly County seat.
The Uwharrie stretch of the Yadkin, Dick says, was always remote and poor, a place with rocky soils and a river whose banks were too steep to locate a textile mill. But the Yadkin holds a tremendous amount of water and power, both of which can mean jobs for the regionbut not if Alcoa’s in charge.
Alcoa started to shut down the smelter in 2002, the same year it began its relicensing process under the Federal Power Act. Dick says he sat down at the table with Alcoa, expecting it would cut a deal to retain its license in return for sharing its power revenues with the community, both for economic development and pollution cleanup. But Alcoa offered only cheap timberland, he says, some of it already clear-cut. That’s when he started to read up on the law and its history.
Originally called the Federal Water Power Act, the 1920 statute capped a long, bitter fight in Congress over who should be in charge of the nation’s waterways, the people (government) or private companies.
Breakthroughs in dam building and in long-distance electricity transmission (via alternating current) had made hydropower hugely profitable. Businesses like Alcoa naturally wanted to control itwithout government interference, if possible.
But the conservation movement was also gaining steam, and Presidents Theodore Roosevelt and Woodrow Wilson fought to keep the nation’s rivers as public trusts and out of the hands of private monopolies. “Keep an eye on the Aluminum Company that is trying to get control of your water powers,” Roosevelt warned in 1915, when he was out of office. “Don’t let go of them.”
Five years later, Wilson signed a compromise that gave the federal government jurisdiction over the rivers (taking it away from the states), but allowed leases to public or private enterprises for limited periodswith “recapture” permitted when the license expired.
All this is covered in a 1959 book, The Conservation Fight, written by Judson King, a turn-of-the-century progressive who worked with Roosevelt and Gifford Pinchot, the famed forester, among others.
Wilson, according to King, worried that the recapture clause in the law was so diluted and complicated that it would prove unworkable.
Indeed, Roger Dick says, recapture has never been used, but that’s somewhat misleading. The fact is, a number of states where the rivers had big hydropower potentialNew York and Washington among themcreated their own public power authorities after 1920 and applied to Washington for the licenses, which they still hold. They then subcontracted with private firms like Alcoa, but under terms favorable to the states.
Before his election as president, New York Gov. Franklin D. Roosevelt created the New York State Power Authority in 1931. It still controls the power plant at Niagara Falls. And in South Carolina, Strom Thurmond learned from FDR and created the Santee Cooper Authority, still a low-cost hydropower generator for that state.
But in North Carolina, Alcoa was already operating on the Yadkin by 1920, and the state never protected itself. It supported Alcoa’s initial bid for licensing and, when the first license expired in 1958, backed Alcoa’s application for a 50-year license based on its promised expansion of the Badin smelter.
Now is the time for North Carolina to rectify its mistake, Dick argues. The reason recapture is in the law, according to his reading of history, is for cases such as this, in which the licensee’s interests and the public interest are diametrically opposed.
If the state misses this chance, it won’t get another one for 50 years. Meanwhile, Alcoa will have perfected a perfidious kind of globalism: It still generates power from the Yadkin, and the power is still linked to industrial jobsonly the jobs are in Iceland.
That’s the kind of free trade we don’t need, Roger Dick says. He thinks the conditions are rightweak dollar, available laborfor local manufacturing to make a comeback in this country. His banks would love to get behind it. The Yadkin region would have an advantage, he thinks, if a state or regional authority could help make cheap electricity available to such start-ups. But it can’t happen as long as Alcoa holds its monopoly.
“If you don’t control monopolies,” Dick says, “you’ve just put some poo in the cogs of a free-market system. Free markets cannot function with monopolies hanging around.”
And when the monopolies are multinational, he says, local enterprises don’t stand a chance against them.
Roger Dick doesn’t swear at Alcoa like Jimmy does. He prefers historical hyperbole. Letting Alcoa control the Yadkin, Roger Dick says, is similar to what the American colonists rebelled against with the British trading monopolies. “It’s no different than if they hit our beaches toting rifles and with knapsacks on their backs,” he declares. “They’re taking our dignity. They’re taking our ability to restart an economy.”
But Roger Dick is as irate as his brother when he hears Alcoa’s argument that recapturing the license would be a “taking” of its private property and therefore unconstitutional.
“Alcoa will say they’re not contractually obligated to provide jobs, but it was certainly morally implied,” Roger Dick says. Now, the Perdue administration is ready to pay them exactly what their licensetheir contractpromised when they signed it, but that’s not good enough for them?
“I’m a free-market capitalist,” Roger Dick went on, “I believe good capitalism is virtuous. I believe when you put people back to work, that’s how you build community. We’ve got to get back in our society to making things, not just being the raw material for global capital. Our economy should be serving our society. But we’ve got a society serving our economy.”