Report from the NC General Assembly

I spent Tuesday afternoon at the NC General Assembly, speaking to members of the NC House Water Resources Committee. It is one of three House committees that is considering legislation (SB 967) that supports a government takeover of the Yadkin Project.

Here is a copy of my remarks:

My name is Gene Ellis and I represent Alcoa Power Generating Incorporated. I was born and raised in North Carolina and I have lived in Stanly County for more than 30 years. For the past seven years, I’ve been working on the relicensing of the Yadkin Hydroelectric Project.

I have to tell you, I never thought I’d see the day when the State of North Carolina contemplated taking over a private business. And that’s exactly what this State Trust bill is – the taking of a privately-owned business that Alcoa started here in 1915.

And, it could cost the state of North Carolina $500 million or more – a half-billion dollars – at a time when the state is in the midst of its worst budget crisis in years.

Some people say this bill doesn’t really do anything – it just puts a structure in place to operate the Yadkin Project if a takeover happens. But a vote to create a Yadkin River Trust is a clear indication that the General Assembly supports a government takeover despite the cost. If this bill becomes law, it will be possible for the state to pursue a government takeover.

Before I discuss the bill, let me touch on a few basic facts about the Yadkin Project.

Alcoa bought and owns the land – more than 38,000 acres along the Yadkin River, including the land underneath the lakes.

Alcoa built the dams. With our own private money and no government funding.

Alcoa has a license to run the dams, not a lease. Much like the FCC provides a license to radio stations to use the airwaves.

Alcoa provides jobs and pays taxes on its property, just like other businesses in North Carolina. In fact, we are the single largest taxpayer in Stanly County.

Alcoa’s Yadkin profits are not hundreds of millions. As stated in our new license application, we generate about $44 million a year in gross revenue, but after operating costs, taxes, depreciation and other expenses, we earn a profit of about $8 million.

Let me address the three main reasons why you should oppose Senate Bill 967 and a takeover of our hydroelectric project.

1. The cost to North Carolina taxpayers;

2. The violation of private property rights; and

3. The fact that the State of North Carolina does not need to take our dams, generating facilities and land to have control over the water in the Yadkin River.

First, Control of the Water

Supporters of this bill have expressed concern about a private company controlling the water. Alcoa doesn’t control the water in the Yadkin River.

We don’t claim to own the water. Our hydropower operations don’t consume the water – it just flows through. And we don’t determine who can withdraw water. The state and federal governments have that authority.

State law gives North Carolina the authority to regulate water use within the Yadkin River, including the right to issue new water withdrawal permits. That’s a right the state has exercised in the past by approving inter-basin transfers, most recently on the Yadkin and Catawba Rivers.

Granting Alcoa a new federal license for the Yadkin Project will not change the State of North Carolina’s ability – in any way – to control withdrawals of water.

There are 21 other privately-owned hydro businesses in North Carolina just like ours. And in each and every case, the state controls the water.

The Cost to North Carolina

Now, I would like to spend a few minutes talking about the cost of a government takeover. As I said earlier, a takeover could cost North Carolina more than $500 million.

Let me first say that we don’t believe a government takeover is possible. The deadline to pursue a government takeover expired more than three years ago, and the staff of FERC – the Federal Energy Regulatory Commission – has recommended against any further consideration of a government takeover.

In fact, the federal government has never taken over a private hydro project at the end of the license. We believe the only way for the state to take our private property is to condemn it and pay fair market value.

But let’s assume that a government takeover is possible. The Federal Power Act requires that Alcoa be reimbursed for its net investment in the Yadkin Project – a figure that is about $91 million today before being adjusted for inflation.

On top of that, Alcoa is entitled to severance damages… which would add hundreds of millions of dollars to the price tag. That’s what it would cost for Alcoa to develop comparable energy assets today.

And finally, if a government takeover did take place, the state would inherit an outstanding obligation for an additional $200 million in required upgrades and refurbishing responsibilities for the dams, generators and turbines. Because of these expenditures, Alcoa expects to operate these facilities at a negative cash flow for the next several years. The state would have to bear that same responsibility if it took over the Yadkin Project.

So, a government takeover isn’t necessary for North Carolina to control the water. And a government takeover would be extremely expensive.

Now, let’s go back to the issue of private property rights.

Taking Private Property

A few days ago, we celebrated the Fourth of July and everything that is wonderful about America. But the taking of a private business by the government goes against one of America’s fundamental values – the protection of our private property rights.

This bill would take Alcoa’s private property. And that’s not a very popular idea. A few weeks ago, we hired McLaughlin & Associates, a respected national pollster, to conduct a public opinion poll of North Carolina voters on this issue. And they spoke loud and clear.

Here’s what the voters said:

81 percent of North Carolina voters are opposed to the idea of our state government using taxpayer money to take over a privately-owned business.

63 percent oppose the government getting into the power business.

And by an overwhelming 3 to 1 margin, voters in North Carolina trust a private company to manage a hydropower project more than they would trust our state government to do it.

That final point is an issue worth discussing. Make no mistake, this is a complex business to operate. To the best of my knowledge, the state does not have any expertise in running hydro facilities or daily energy trading or transmission of power to the grid.

There has been the suggestion that the state could simply take our business and then turn around and hand it over to another private company to manage and profit from. But how can North Carolina take a business from one private company, then hand it over to someone else?

Before I finish, I would like to address a couple of other issues that have been raised.

The Environmental Issues

Let me start with the environmental issues.

Alcoa has been working with the State through the Department of Environment and Natural Resources and the Division of Waste Management for years to clean up waste sites associated with our operations in Stanly County. And you should know that these waste sites aren’t the result of Alcoa failing to follow any state or federal regulations… these are waste sites that date back to the early part of the last century, long before anyone fully understood the need to take precautions when disposing of waste materials.

The truth is, we take full responsibility for our waste sites. We’ve already spent more than $10 million on remediation efforts and have followed the direction of the state.

As I told you earlier, I live in Stanly County myself ... I’ve raised my family there, including two daughters who mean the world to me, so I care just as much as anyone else that we protect public health and the environment.

Testing has shown that these waste sites don’t pose any human or environmental threat – and the State concurs. We have agreed to continue testing and monitoring these sites to make sure they don’t pose any danger in the future. Alcoa has a permanent legal responsibility for these sites.

If there is any evidence that Alcoa needs to be doing more to clean up these waste sites, then the state of North Carolina already has the full authority to require additional steps. Taking over the Yadkin Project won’t add to the control the State already has.

The Issue of Jobs

Now, let’s talk about jobs. There has been a suggestion that our original 1958 license was conditioned on providing jobs at Alcoa’s aluminum plant in Badin. That is simply not true. If you look at the documents – and I will be happy to share them with you – you will find only a singlereference to jobs. It is mentioned in the hearing examiner documents where the length of the license is being discussed. It is not even mentioned in the license order where requirements are laid out for the Project owner.

We are all concerned about the loss of traditional manufacturing jobs in North Carolina. We worked hard to minimize the impact to our employees and our community. But, the fact is, no hydro business in America is required to support a certain number of jobs in order to receive or maintain a license. FERC staff made that point in the final Environmental Impact Statement for Yadkin it issued in 2006.

An Open Process

Last, let’s talk about process. All privately-owned hydro businesses like ours are regulated by the federal government. And the federal government has a thorough licensing process in place.

We started our effort seven years ago and we did it with the active involvement of state and federal agencies… local governments… local residents and business owners… environmental groups … and other interested stakeholders.

Those groups – nearly two dozen of them, including DENR – support a new license for Alcoa. And so has the staff of FERC. After studying this issue for two years, FERC staff issued an environmental impact statement that recommended issuing Alcoa a new long-term license for the Yadkin Project. After an equally thorough review, North Carolina’s DWQ issued a water quality certificate for the Yadkin Project, stating that Alcoa will meet all required water quality standards.

So what you have here is a situation where Alcoa followed an established, very open process involving over a hundred people… where it gained the support of state agencies representing North Carolina’s interests … where it gained the support of lakefront property owners represented by groups like High Rock Lake, Badin Lake and the Uwharrie Point Community Associations …. where it gained the support of local governments – including two communities in Stanly County – the City of Albemarle and the Town of Badin… where it gained the support of environmental groups like The Nature Conservancy and American Rivers … and where it gained the support of the staff of the Federal Energy Regulatory Commission.

You have all of these groups who support a new license for Alcoa. And, remember, these are groups with tremendous experience… groups who care deeply about protecting our water quality… groups that have a direct interest in how the Project and its lakes are managed.

Closing

At the end of the day, this bill is not about protecting North Carolina’s control of the water. It isnot about protecting the environment. It is not about economic development.

It is about taking private property.

It is about a dangerous precedent that threatens North Carolina’s business climate.

It is about the $500 million burden to North Carolina taxpayers.

Thank You. Mr. Chairman.