Alcoa and the great North Carolina power grab

November 30, 2010, 1:00 PM UTC

The company closed its aluminum plant on the Yadkin River, but the dams it built still make power. Who should benefit?

Badin, N.C.: They used to make aluminum here. The smelter ran next to a pretty lake, and the heat inside was so intense that the quick on the back of a man’s fingers would tingle.

Aluminum built this town. It built the houses and the schools, a hospital and a golf course. Later there was a theater that in its day was the largest between Richmond and Atlanta. There were jobs that paid double the wages of work in a textile mill, and they were as prized as a favorite fishing hole.

The smelter closed in 2002. The ingot room next door, where the metal from here and later elsewhere was poured and shaped, went five years later. And today the last products of Alcoa’s Badin Works can be found at the town’s tiny history museum, where a quarter-pound souvenir ingot costs $5.

To power its operations, Alcoa (AA) built a series of enormous hydroelectric dams, four in all, along a 38-mile stretch of the Yadkin River as it cuts through the heart of the state. But with the smelter disassembled and the ingot room gone cold, the power is a commodity, sold into an electrical grid hungry for clean energy. Alcoa’s federal license, received in 1958, has expired, and it operates the dams under an extension as it seeks relicensing for another 50 years’ use of the river.

In another era Alcoa would already have its license. But North Carolina Gov. Bev Perdue and officials in Stanly County, home to three of the dams, are asking federal regulators to do what they have never done before: say no. Their message is simple. With the smelter and the local jobs and much of the tax base gone, they say Alcoa’s right to the license, its right to make money from the river, has vanished. They want control of the river — and the revenue it generates — returned to the public.

Says Keith Crisco, North Carolina’s secretary of commerce: “Everybody’s done a good job of making this a complicated issue, but to me it’s pretty basic: There’s an economic asset there, and it’s our job today to get the best value for the people of North Carolina.”

The battle over the Alcoa dams — and it is a battle, fought on both a grand and often personal scale by armies of lawyers, lobbyists, and neighbors — is about the control of a resource. But it’s also about what, if any, obligations corporations have to the places like Badin that they leave behind as their businesses change. As Stanly County’s manager Andy Lucas puts it: “They’re giving us the crumbs off the king’s table. That’s our water. It should benefit us.”

Rick Bowen, the president of Alcoa Energy in New York, runs the company’s global portfolio of dams and power plants, all focused on supplying low-cost electricity in a business where managing the price of power is essential to making money. As a business matter, he says, it’s simple: Alcoa built the dams, and it has no intention of letting them go. “We can’t make everybody happy,” he says. “I think Stanly County, rightfully so, is completely harmed by the fact that the smelter is not there. There’s no denying that the jobs and that everything that was benefited by us being present there for close to 100 years provided them a financial benefit. With any community we leave like that, we know it’s a hardship. But the remaining asset that’s there is not going to be able to make up that cost. I don’t know what we can do about that.”

Anger and frustration on both sides, says Bowen, are harming the efforts to find a new use for the smelter property and bring jobs back to Badin, a community that seems trapped in time, waiting for the pickup trucks to once again fill the parking lots across from the plant.

“Badin is a microcosm about what’s great about America, what built America, and what challenges industrial America faces,” says Jeff Michael, a touch of sadness and regret in his voice. Michael went to Badin Elementary, where the school mascot is still the Watt, and he keeps a weekend farm nearby. Now the head of the Urban Institute at the University of North Carolina at Charlotte, he did his master’s planning thesis on the town. “If there ever was a community that could be a model for the private and public sectors coming together, it’s Badin,” he says. “This could heal the old wounds. Instead we find ourselves in the news tearing each other apart.”

The town that aluminum built

The recipe for making aluminum is essentially the same as it was in 1886, when Alcoa’s founder Charles Martin Hall co-invented the process. You start with bauxite, which is processed with caustic agents, heat, and pressure to yield aluminum oxide, or alumina. The alumina is suspended in a chemical bath while a current passes from a carbon anode into the solution. The oxygen bonds with the carbon, and the aluminum sinks to the bottom. Electricity is a quarter of production costs. Aluminum companies focus on finding a source of cheap power when deciding where to put a smelter.

An early Alcoa competitor, L’Aluminium Français, got to this remote section of North Carolina first, drawn to a section of the Yadkin River called the Narrows, where the water squeezed through a gorge and then fell in a series of violent cataracts. There was no town here. So the company started one, laying out Badin in the Garden City-style popular in Europe, with winding streets and stylish cottages and apartments. Then World War I came. The French left to fight, their credit ran out, and Alcoa bought the project in 1915. Two years later the first dam was complete, and a smelter along the shore of Badin Lake was running.

Badin’s population hit 5,000 by the mid-1920s and then began a long decline. Today the town is home to 1,800 people, including 850 inmates at the nearby Albemarle Correctional Institution, which the town annexed a few years back to get more money under revenue-sharing formulas. Alcoa’s shutdown wiped out a third of the tax base, and the town now has one gas station and a single traffic light.

Alcoa paid for a study on revitalizing Badin and has promised the town some land for a park. There’s talk of an equestrian center and of ecotourism. Mayor Jim Harrison, who spent 31 years working for Alcoa, thinks the town’s best bet is to have the company continue running things; he supports relicensing. Badin’s two square miles are virtually surrounded by the aluminum company’s land holdings. “Alcoa has got the cards,” Harrison says. “They’ve got the land. They have everything.”

The ghosts of the past economy are everywhere in Stanly County. Along with the smelter, many of the mills have closed, and a good job now often means driving 45 minutes to Charlotte. “This county’s dying,” Roger Dick says as he drives his SUV along the back roads, past the last of this year’s corn and cotton. “It’s a service economy, bedroom community. That’s not good economics. The infrastructure doesn’t pay for itself.”

Dick grew up near Badin, and three generations of his family worked for Alcoa. He got a football scholarship to Appalachian State, started three years on the offensive line, came home, and became a banker. He founded the Bank of Stanly in 1983. Now it’s the largest bank in the county, and Dick has emerged as the leading community voice of the forces battling Alcoa. “Show me a community that has a right to a public water resource like this, that did not give it up and that did not prosper, and then look at us. Rich in water, but relatively, we’re struggling. We have no jobs.”

Dick and other opponents of relicensing say that without the smelter, Alcoa’s control of the dams doesn’t provide enough local benefits. The power revenues and the profits flow elsewhere, they say, while the economy here continues to sag. But it gets fuzzy after that. There’s no consensus on how the money would be spent, how the resources might be divided, or even how much of the revenue might stay at home if the state wrested the license from Alcoa.

From a pontoon boat on Badin Lake, it’s easy to see what the fight is all about. Hawks wheel overhead in the fall sky. Herons and egrets gingerly strut through the reedy marshes looking for bait fish. A water-intake pipe from the city of Albemarle draws in 4 million gallons a day. On the far shore the mansions of Uwharrie Point, a gated golf and resort community, come down to the shoreline. And at the end is the Narrows Dam, with its quaint brick powerhouse, like something from a Currier and Ives etching.

A river that divides a community

The Yadkin may start as a carefree and babbling mountain stream, but by the time it enters the Alcoa system, the water and flow are tracked and monitored like warehoused inventory. “You’re trying to figure out where a cubic foot of water is going to be at any given time, and everybody is saying, ‘This is where I think it ought to be,’ ” says Gene Ellis, as he peers over the boat’s bow and describes the task of managing more than 500 miles of shoreline, some 35 square miles of water, and four dams that can produce 215 megawatts of electricity. Most coal plants are several times larger, but they also have to pay more for their fuel.

Now retired from Alcoa, where he started as a metal grader, Ellis is on contract to oversee the relicensing at the state level. He says that the state’s case is deeply flawed, logistically and legally. His fight is both professional and personal, dividing his family. His brother-in-law, Jim Nance, is one of Roger Dick’s closest friends and a major voice in the effort to wrestle Alcoa to the ground. “I understand where he’s coming from, and he understands where I’m coming from,” says Nance. “The key issue is jobs. Water and access to water will help create jobs.”

Jobs are only part of the equation, and the demands on the water are more complicated than providing the juice to run a smelter. The water at the top of the reservoir system has to satisfy homeowners on High Rock Lake, who get angry when their boat ramps are left high and dry. Then it has to push the turbines on the first of the four dams. There’s water for drinking and for bass-fishing tournaments. And all the while, there are downstream users below Alcoa’s domain — including Progress Energy’s hydro dams that start 10 miles south — that rely on the flow. At the end of line is Georgetown, S.C., where too little water can allow a brackish tide to close the water-treatment plant.

Alcoa bristles when its opponents say that the company acts as though it owns the river and the water. It doesn’t, but the license gives it substantial water rights and a powerful negotiating position for changes to those rights. State officials can imagine a time during the life of the next license when North Carolina might need to use the Yadkin as a major water source, and they don’t relish having to possibly pay Alcoa for revenue lost when water is diverted from the turbines.

Water rights were just one part of a 2007 settlement agreement that Alcoa hammered out after five years of meetings with property owners and governments. The state of North Carolina, which is now fighting to strip Alcoa of its license, signed the agreement. Twice. Stanly County didn’t sign and has sued the state. It says Alcoa’s industrial legacy has left the land and water polluted, and that state regulators looked past that record when granting the company a key permit. Alcoa disputes those allegations and is assisting the state in its defense, helping one North Carolina agency while it fights others.

And for Perdue and her team, there is this slightly inconvenient truth: Federal regulators have never taken back, or recaptured, a license. The Federal Power Act contains a brief section that addresses the process, which requires congressional approval, but there’s no precedent for how it might actually work.

Alcoa’s opponents say that regulatory complexities aside, the morality of their argument couldn’t be clearer. Alcoa, they say, had a deal with Stanly County and by extension the state of North Carolina when the license was granted in 1958. It got to use the river to make power to provide local jobs. And with the jobs gone, the company doesn’t deserve the license.

Not surprisingly, Alcoa says its opponents’ tactics amount to a misguided guilt trip. Although federal regulations require dams to have a public purpose, the statutes don’t define what that means.

Alcoa officials invoke lots of local benefits that are included in the relicensing agreement. There are the boat ramps and swimming areas and the water-safety classes it gives to school kids. There are water deals the company has negotiated with municipalities, and land it has agreed to donate to the state park system and the local land trust. “The reality,” Bowen says, “is there’s a lot of public good as it relates to jobs and money throughout the state and recreational areas and such, and we’ll continue to do so as operators of the dams.”

Nothing on his list includes a factory paycheck, at least not here. But Bowen says the money Alcoa makes selling low-cost electricity from these and other dams offsets higher energy costs at its struggling U.S. smelters — now more than half idle as production moves elsewhere — keeping industrial jobs in America, if not Stanly County.

Alcoa is still a $20-billion-a-year company, but the playing field has changed. Alcoa lost a bruising takeover battle in 2007 for Alcan, the Canadian company that it founded and then spun off. Rusal, the Russian giant, now claims the mantle of world’s largest aluminum producer, while Alcoa and Rio Tinto Alcan (RIO) battle for second place. Although the global recession has eased, aluminum prices are still well below their peak, and Alcoa faces intense business pressures on six continents. All of which makes the Yadkin Project and the $40 million-plus in annual power revenue it creates a seemingly deadly combination of a financial rounding error and a monumental headache.

“You’re speaking to the nuisance factor as some might call it,” says Bowen. The market for renewable energy is strong and likely to be stronger, he says. “These are all good assets. They’re good, long-term, reliable assets that have performed for close to 100 years for us. I guess I’m not real excited about unloading them because we get a couple of people who aren’t real happy with us.”

Alcoa beat back legislation last year that would have created a state trust to manage the hydroelectric projects. Its most effective argument was that the state wanted to seize private property without paying sufficient compensation. “It’s almost as if it’s Venezuela,” a company spokesman said during the fight.

The other side of town

The old smelter lies a block west of Badin’s storefront town hall, just past the railroad tracks and the alumina storage bins that rise like grain silos against the sky.

This looks like the edge of town, but it isn’t. West Badin is on the back side, all but invisible. Alcoa built this part of the town for its black employees, complete with three churches and a segregated school with a bell tower and an aluminum roof. In what’s left of the small commercial center in West Badin, John Westbrook runs a community center and convenience store that is named for his deceased father, Ike Westbrook, who put in 32 years at Alcoa.

He supports Alcoa and says the opponents haven’t been clear on what they would do if they got hold of the license. And in the interlocking world of Stanly County, his life is woven into the dealings of the other side. He bought his building from Roger Dick’s bank, got his financing there as well, and considers him a friend.

In the early years the two sides of Badin were joined by a road that ran through the works. But when the smelter was torn down and rebuilt in the 1960s, the road was blocked, separating east from west. What’s left is a pockmarked and forlorn cluster of houses spread over a dozen small blocks.

“We’re just wasting away,” Westbrook says. “My utmost wish was for them to tear that big piece of tin down from the middle of the road. They didn’t have to build it that way. They did it on purpose, but nobody cared what they did as long as somebody was working.”

Alcoa has had success elsewhere finding new owners for smelter property. In Alcoa, Tenn., developers want to turn one site into a mixed residential and commercial center. In Troutdale, Ore., just east of Portland, a FedEx (FDX) distribution center opened this summer where a smelter once hugged the Columbia River.

All of this gives Kevin Gullette the feeling of possibility. He’s the director of economic development in Stanly County, and although his bosses are locked in battle with Alcoa, it’s his job to bring industry to the county. “What we tell people is that the relicensing of the hydroelectric dams and the redevelopment of the plant are two separate things,” says Gullette, who calls the property one of the premier industrial sites on the East Coast.

Stanly County’s lawsuit against the state is expected to conclude in February, which pushes back a federal decision on the license until next year at the earliest. With appeals, it could drag on longer. That means it’s still Alcoa’s license, and Alcoa making money from the river.

Below the Narrows Dam, just past the tailwaters swirling out of the powerhouse and the high-voltage lines that lead back toward town, the Yadkin River emerges in a steep and short valley, a glimpse and a shadow of what it once was. Then quickly, the river is absorbed into the impoundment of Falls Lake, where it meets the last dam in the Alcoa system.

Before aluminum came here, before the dams, before the politicians and regulators and neighbors fought over the river, the shad used to make their way this far upstream each spring to spawn. It was said that the old-timers could smell the fish as they entered the Narrows, and the men would drop what they were doing and race to the water to catch all they could before the massive run ended.

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