20070812 Ver 2_Memo Addressing the Issues in S.L. 2008-137_20081020

A Memorandum Addressing the Issues in S.L. 2008-137
Prepared by Alcoa Power Generating Inc.
October 20, 2008
The N.C. General Assembly, through S.L. 2008-1371, has directed the Environmental
Review Commission to study three issues in light of the pending issuance of a new 50-year
license by the Federal Energy Regulatory Commission (FERC) to Alcoa Power Generating Inc.
(APGI) for its Yadkin Hydroelectric Project (Yadkin Project or Project). These issues include:
(1) the socioeconomic impact resulting from the loss of jobs at Badin Works in Stanly County;
(2) the assurance of an adequate clean future water supply from the Yadkin River; and (3) the
allocation of water for non-power uses. This memorandum provides background along with
details of APGI's position with respect to those specific issues and also includes a discussion of
topics that, although not specifically mentioned for study in the authorizing legislation, have
been raised during the Project's relicensing and the discussion of the study bill.
I. Background on the Yadkin Hydroelectric Project
The Yadkin Project is owned and operated by APGI, a wholly-owned subsidiary of Alcoa
Inc. (Alcoa). The Project is comprised of four hydroelectric stations, dams and reservoirs along
a 38-mile stretch of the Yadkin River, all of which sets within and among 38,000 acres of real
estate in Piedmont North Carolina owned by APGI. The four reservoirs are: High Rock,
Tuckertown, Narrows (Badin Lake) and Falls. The Project produces clean, renewable energy and
has an installed capacity of 215 megawatts.
Starting in 1915, APGI's predecessors invested substantial capital to purchase property
and related flood rights along the Yadkin River and develop the Yadkin Project. While the
electricity generated at the Project was originally used to support the electric power needs of
Alcoa's Badin Works smelter, the power is now sold on the open market and is available for use
by electrical consumers, including residential customers and industrial users.
The Federal Relicensing Process - The operation of the Yadkin Project is regulated by
FERC. FERC's predecessor, the Federal Power Commission, issued a 50-year license for the
Project in 1958.2 When the license expired at the end of April 2008, APGI received an annual
license that renews automatically until a new long-term license is issued. The company expects
FERC to issue a new long-term license for the Project in 2009.
The FERC relicensing process formally began in September 2002. APGI worked closely
with stakeholders for more than five years to address key issues related to the Yadkin Project and
its role within the Yadkin - Pee Dee River watershed. More than 100 people participated in the
relicensing process, initially through "Issue Advisory Groups" that were established in February
2003, and later more than 30 organizations participated in the settlement negotiations. A total of
See Appendix #1 - S.L. 2008-137
a See Appendix #2 - 1958 License Order and Hearing Examiner's Decision. As discussed further herein, the FERC
license for the Yadkin Project was modified a number of times before its expiration in 2008.
23 technical studies were conducted from 2003 to 2005.' The studies, recommended by
relicensing participants, focused on issues such as water quality, wetlands, fisheries, aquatic
habitat, rare species, wildlife and terrestrial habitat, recreation, and historic and prehistoric
cultural issues.
The Relicensing Settlement Agreement4 - As part of its effort to engage stakeholders
and to resolve issues at the state and local level, APGI voluntarily chose to pursue a relicensing
settlement agreement that would address local interests and resolve key issues to the greatest
extent possible. Settlement negotiations began in early 2005 and continued for two years. A
formal Relicensing Settlement Agreement (RSA) was submitted to FERC for approval on May 7,
2007. The agreement - supported by 23 major stakeholder groups - strikes a balance among
many competing interests along the Yadkin River. 5 If approved by FERC, as contemplated in
the RSA, the RSA will resolve most of the issues raised during the course of relicensing the
Project and many of its provisions will become part of the new license as terms and conditions.
Stanly County participated in the relicensing process until mid-2006. In a June 26, 2006
letter to APGI, Stanly County indicated it was not willing to sign the RSA. Stanly County
attempted to justify its refusal to sign the RSA by pointing to APGI's unwillingness to bear the
cost of a new water and sewer system for the town of Badin to replace the one Alcoa built for the
town more than 80 years ago, APGI's decision not to donate certain land to Stanly County, and
APGI's "failure" to provide revenue enhancements to the Town of Badin and Stanly County.b
APGI responded to Stanly County with a letter that explained that it could not agree to Stanly
County's demands because these issues were not related to the Project relicensing and were
better addressed in separate discussion.? Despite support for the RSA from the City of
Albemarle and the Town of Badin (both located within Stanly County), the County withdrew
from the settlement discussions. Thereafter, Stanly County was not involved in the negotiations
process that resulted in the final RSA that was submitted to FERC in May 2007.8
Benefits of the RSA - As a result of the measures agreed upon in the RSA and issuance
by FERC of a final new license for the Project as contemplated in the RSA, North Carolina and
its citizens and environment will benefit from improved water quality, increased recreational
opportunities and stronger environmental protections. Here is a summary of key benefits of the
RSA:
• Improved Water Quality: In conjunction with a planned $240 million investment to
refurbish, upgrade and improve the efficiency of its power generators under the new
license, APGI will install state-of-the-art aeration technology to increase dissolved
oxygen levels and improve water quality in the Yadkin River.
• Higher Water Levels & A More Consistent Flow of Water: To support recreational
and environmental interests, while providing adequate downstream flow releases to
support downstream municipal and industrial uses in both North and South Carolina,
3 See Appendix 93 - Relicensing Studies
4 See Appendices #4, #5 & #6 - Yadkin Project Relicensing Settlement Agreement
S See Appendix #7 - List of RSA Signatories
6 See Appendix #8 - June 26, 2006 Letter from Stanly County Board of Commissioners Chairman Tony Dennis
7 See Appendix #9 - July 19, 2006 Letter from APGI Licensing and Property Manager Gene Ellis
e As noted below, Stanly County later opposed the issuance of the water quality certificate needed for the renewal of
the FERC license.
2
APGI has agreed to implement operational changes that will keep more water in High
Rock Lake and provide a more consistent flow of water to downstream water users.
Improved Drought Management: APGI will implement a comprehensive drought
management plan (known as the "Low Inflow Protocol") that will protect reservoir water
levels while providing adequate downstream flows during drought conditions. The plan
requires APGI to reduce power generation and send less water downstream when certain
drought-related triggers are reached.
Shoreline Protections: The shorelines of the Yadkin Project reservoir will be given
further protection and portions will be preserved in a natural, undeveloped state, while
current property owners will be given more flexibility regarding shoreline development.
APGI will revise its Shoreline Management Plan to provide greater flexibility regarding
the construction of new piers and other related activities, while ensuring any new
development is conducted in an environmentally responsible manner.
Increased Land Conservation and New Recreation Opportunities: APGI will donate
or make available for purchase more than 6,000 acres (roughly 40% of its non-Project
land holdings) for recreation, game lands or conservation. Part of that 6,000 acres
includes donation by APGI of more than 1,000 acres of its non-Project land for the
expansion of Morrow Mountain State Park in Stanly County and 14 acres to the Town of
Badin for a new public park along the Badin Lake waterfront. APGI will also donate 63
acres of land to Rowan County for the continued protection of and public access to the
Eagle Point Nature Preserve.
Expanded Public Recreation Facilities: APGI has agreed to invest more than $1
million in the development and maintenance of new or expanded public recreation
facilities within the Yadkin Project, including a new public swim area in Rowan County,
new tailwater fishing access areas, two new reservoir fishing piers and 10 new camp
sites.
Increased Water Withdrawals by Local Municipalities: The City of Albemarle will be
allowed to increase water withdrawals up to 30 million gallons per day, pending FERC
approval. That is more than four times the amount of its current water consumption.
APGI estimates that its cost in implementing the provisions of the RSA will be about $2
million per year over the course of the new license period. It should be emphasized, however,
that the RSA and its corresponding benefits to the State of North Carolina and its citizens and
environment will not go in to effect until a new license, which satisfies and incorporates the
provisions of the RSA, is granted by FERC to APGI.
II. The Yadkin Study Bill (S.L. 2008-137)
Issue #1: The Socioeconomic Impact Due to Job Losses at Badin Works
Alcoa began producing aluminum at the Badin Works smelter in 1917. At the time, it
was one of the nation's first smelters. But 85 years later, it had become one of the nation's
smallest and oldest smelting facilities. Like many North Carolina manufacturing companies, the
Badin Works smelter was affected by changing global economic factors. It could no longer
remain financially competitive and aluminum smelting was curtailed in August 2002. The plant
continued to manufacture high-purity aluminum until October 2007.
Having served as the largest employer in Stanly County for many years, there is no
question that the company's decision to curtail operations at the Badin Works smelter affected
the community. However, it is important to examine three critical questions: (1) Did Alcoa take
meaningful steps to minimize the impact of the loss of jobs on the community?; (2) Has Alcoa
continued to support the economic growth of Stanly County?; and (3) Has Stanly County
recovered from the loss of jobs at Badin Works? In that connection, is the employment history at
Badin Works relevant to the relicensing of the Yadkin Project?
Did Alcoa take meaningful steps to minimize the impact of the loss of jobs? Yes.
When aluminum smelting was curtailed in 2002, the job cuts immediately affected 236 of the
plant's 373 employees. The Badin Works plant maintained the reduced workforce in 2003 and
that figure gradually declined over the years until the remaining jobs were lost in October 2007.
Here's a breakdown of what happened to those employees: 140 employees (37 percent) retired
with pension and benefits after receiving substantial pay and benefits for up to two years; 96
employees (26 percent) transferred to new positions within Alcoa; and 137 employees (37 percent)
were laid off and received substantial pay and benefits for up to two years.
Alcoa spent approximately $200,000 to assist employees who sought other employment.
The company provided services to assist in the transition to a new job, including resume
development, interviewing skills and job placement services. In addition, a NAFTA-related
government program provided free tuition to laid-off employees. Many former employees took
advantage of this program, attended Stanly Community College and were eligible for
outplacement services offered by the College.
Since the curtailment in 2002, Alcoa and the Alcoa Foundation have been strong
financial supporters of Stanly Community College. The company joined forces with the College
to establish the Displaced Workers Training Program to ensure displaced workers could receive
the valuable skills training they needed to land a new job. The program has trained hundreds of
employees who lost their jobs when manufacturing and textile companies closed their plants.
Following the curtailment, Alcoa sought to redevelop the Badin Works site to attract new
industries and new jobs to the area. Alcoa hired a consultant to conduct a "Highest and Best
Use" Study for the plant site and began marketing the site to several companies in partnership
with local, regional and statewide economic development agencies. Alcoa has had discussions
with companies interested in the site and remains committed to redeveloping this property in a
manner that will support the local economy and offer opportunity to grow the county's tax base.
Has Alcoa continued to support the economic growth of Stanly County? Yes.
Despite the job losses, Alcoa and APGI remain important contributors to the Stanly County
community with a direct economic impact of almost $9 million a year based upon consideration
of payroll, property taxes, sales and use taxes, and other factors. The companies remain the
largest single taxpayer in Stanly County, with annual property taxes of more than $500,000.
APGI employs 31 people and an additional 80 contractors.
4
Alcoa actively supports economic development efforts in Stanly County. In December
2007, the Alcoa Foundation provided a $250,000 economic development grant to benefit the
Town of Badin. The two-year grant, which will be administered by the N.C. Rural Economic
Development Center, is designed to revitalize the downtown business district. This is one
example of how Alcoa, APGI, and the Alcoa Foundation have contributed $3 million to support
non-profit organizations in North Carolina during the past 20 years.
Indirectly, APGI's reservoirs have contributed significantly to the economic growth of
the region. When the Yadkin Project was developed, it led to the impoundment of four
reservoirs along the Yadkin River, including Badin Lake and High Rock Lake. The economic
impact the reservoirs have brought to Piedmont North Carolina - by promoting responsible
development, increasing property values, supporting local businesses and attracting tourists to
the region - is substantial. The reservoirs are one of the region's crown jewels and have served
as an economic force in Stanly County and the surrounding counties for decades.
Has Stanly County recovered from the loss of jobs at Badin Works? Yes. Statistics
show that the Stanly County economy has performed well since the curtailment of the Badin
Works plant. Specifically, Stanly County grew its tax base by $705 million (20.5%) from 2001
to 2008, representing an increase of more than $4.5 million in annual tax revenues; Stanly
County added 2,496 new jobs between 2001 and June 2008, while unemployment rates dropped
by 1.1%; and per capita income for Stanly County increased 13.5 percent between 2000 and
2005, from $23,135 to $26,251, reflecting its status in the top half of the State's counties.
Is the employment history at Badin Works relevant to the Yadkin Project
relicensing? No. First, regarding the existing license, Stanly County has attempted to create the
incorrect impression that the 1958 FERC licensing order somehow required that APGI maintain
a certain number of jobs at the Badin Smelter, or that the changes at the plant and its ultimate
curtailment must somehow prevent the renewal of that license. Neither contention is correct.
Neither the 1958 decision of the Federal Power Commission (FERC's predecessor) (19 FPC 704)
nor the underlying Hearing Examiner's (19 FPC 707) decision required as a condition of the
license that a certain number of jobs be maintained at the Badin Smelter, or even that the plant be
kept open. Only in a section of his opinion entitled "Length of the License Period"9 did the
Hearing Examiner refer to Alcoa testimony regarding the relative size and competitiveness of the
Badin smelter as of 1958, as well as the necessary investment and the consequent jobs created, to
justify the issuance of a license of 50 years' duration. There is no other discussion of jobs in any
other context in the Hearing Examiner's decision. The creation of jobs is not even mentioned in
the Commission's decision adopting the Hearing Examiner's decision.
Second, in the Project relicensing proceeding, FERC staff expressly rejected this
argument in Scoping Document 2 on May 4, 2007, wherein FERC staff stated,
"Relicensing Project No. 2197 is unrelated to the possible future closing of the
Badin Plant or any other Alcoa Inc. business activity not associated with the
operation of the Yadkin Project by Alcoa [Power] Generating.'"
9 See Appendix #2 pps. I 1-15
10 P-2197-073, Scoping Document 2, issued May 4, 2007, page 8.
5
Further, in the Final Environmental Impact Statement that was issued for the Yadkin Project,
FERC staff stated:
"We do not view the decisions made by businesses that have used project power,
however negatively they have affected the local economy, as a project effect.
Thus, it is not incumbent upon the project to remedy that effect."' 1
As a consequence, as noted by FERC staff, neither the status of the Badin plant nor the jobs there
were in any way intended to be assured or controlled by the existing license and have been
rejected as a part of the current relicensing process.
Issue #2: Assurance of an Adequate Clean Future Water Supply
APGI recognizes that North Carolina must have access to an adequate clean water supply
to help meet its future water needs. The issuance of a new long-term license for APGI to
generate hydropower along the Yadkin River will not impair the State's ability to address its
future water needs, and APGI will continue to provide the benefit of its reservoirs' water storage
that is already being utilized for municipal water use. North Carolina currently has - and will
maintain - ample authority to regulate water use within the Yadkin River, including the right to
withdraw more water from the Yadkin River and to transfer water between basins, subject to
federal oversight and the rights of downstream riparian owners. By contrast, APGI's rights are
limited and subject to state and federal regulation that govern the use of the water in the
reservoirs of the Yadkin Project. Furthermore, the issuance of a new, long term license for the
Yadkin Project will obligate APGI to allow for reasonable withdrawals of water stored in the
Project reservoirs for water supply purposes, in accordance with plans approved under North
Carolina law.
Adequate Water Suvnly
APGI owns real property along the Yadkin and with it, the riparian rights to reasonably
use the water to which its property adjoins. To understand the role of the Project in providing
water supply for North Carolina, one must understand the intricate interplay between federal and
state law and their effect on APGI's riparian rights.
Understanding FERC Power to Regulate: FERC has specific authority to regulate any
proposed withdrawals of water from the Yadkin Project. 12 The power of the federal government
11 Final Environmental Impact Statement For Hydropower Licenses Yadkin Hydroelectric Project - FERC Project
2197-073, Yadkin-Pee Dee River Hydroelectric Project - FERC Project 2206-030, issued April 2008, pages A-30
through A-31.
12 Under federal law, jurisdiction over the navigable streams and waterways of the United States is essentially shared
between the U.S. Army Corps of Engineers ("USACOE") and FERC. As between them, USACOE's jurisdiction is
older. Some of that authority dates back to the earliest days of the nation, but in the 1899 Rivers and Harbors Act, 33
U.S.C. S 401 et seq., USACOE was given express authority to regulate the placement of dams or obstructions in
waters of the United States. USACOE's jurisdiction was modified, however, with the enactment of the Federal
Water Power Act in 1920, the statute we now refer to as Part I of the Federal Power Act ("FPA"), to provide for the
licensing and regulation of hydroelectric dams and accompanying impoundments. 16 U.S.C. § 791 et seq. These
historic antecedents and blending of federal jurisdiction is most easily seen in Section 4(e) of the FPA where FERC's
to regulate hydroelectric dams and reservoirs derives from the authority of the United States,
"...To regulate Commerce ...among the several States, and with the Indian Tribes." U .S.
Constitution, Article 1, Section 8. The Federal Power Act (FPA) asserted the authority of the
United States over navigable streams because of its role in interstate commerce, and through the
FPA the United States began to regulate construction and operation of dams because of its effect
on navigation. U.S. v. State of West Virginia, 295 U.S. 463 (1935). However, the United States,
through the FPA, has never asserted ownership over the water in interstate rivers, and in fact all
state law rights of ownership and use of water - except as may affect navigation - are explicitly
preserved by the FPA. 16 U.S.C.A. Section 821.13
What FERC is regulating through the FPA license is APGI`s right as a landowner under
North Carolina law to reasonably use water it impounds in the Yadkin Project.
Having created the reservoirs of the Yadkin Project, APGI's authority over the water in
those reservoirs is limited. It can use that water to generate electricity, according to the terms
and conditions of its FPA license. The license gives FERC the authority to direct APGI to grant
access for the installation of water intakes, as well to regulate the charges that APGI can levy for
such access and/or the water withdrawn, subject to North Carolina's broader determinations
regarding use of the state's native water resources. 14 Specifically, the FPA preserves water
rights under state law. Moreover, section 10(a)(1) of the FPA requires that the operation of the
impoundment meet the "best adapted" standard regarding balancing beneficial public uses of the
water, including environmental protection, recreation, irrigation, flood control and water supply.
Understanding State Water Rights: The State of North Carolina has the authority to
control use of the water in the Yadkin River, subject to FERC regulation of the impoundments of
the Yadkin Project and the U.S. Army Corps of Engineers' requirements regarding navigation.
The right to consume the water in the Project's reservoirs (i.e. withdraw and not return it,
as compared to merely direct it through a turbine at the dam) is entirely a matter of state law. 15
Because the Yadkin/Pee Dee River is an interstate river that originates in North Carolina, has
tributary flows from southern Virginia, and then flows into South Carolina, all three states have
rights with respect to consumption of water in the Yadkin River basin. In other words, no one
state can exclude the others from the water by diverting or consuming it. Where a conflict arises
between or among states regarding their rights to interstate waters, the United States Supreme
authority to issue licenses is defined, subject to the approval of the USACOE and the Secretary of the Army
regarding the effects of any licensed dams or other structures on navigation. 16 U.S.C. § 797(e).
13 § 821. State laws and water rights unaffected: Nothing herein contained shall be construed as affecting or
intending to affect or in any way to interfere with the laws of the respective States relating to the control,
appropriation, use, or distribution of water used in irrigation or for municipal or other uses, or any vested right
acquired therein.
" See Georgia Power Company, 98 F.E.R,C. 161,239, P-2177-041, (2002).
15 There seems little doubt that there is an opportunity for conflict between FERC's Section I0(a)(1) judgment on
balancing beneficial uses of the water and the state's judgment on water consumption/diversion, In practice,
however, it appears that by giving wide deference to state law, FERC has managed to avoid such conflicts. See
Georgia Power Company, supra; Alabama Power Co., 74 F.E.R.C. ¶ 61,157, P-349-030, (1996); See also Alabama
Power Co., 75 F.E.R.C. 161,025, at p, 61,077 (order denying rehearing. ("f TJhe Commission's role is limited to
granting or denying permission for a third party to use lands and waters of a licensed project. The rights to the water
itself must be obtained pursuant to state law.")
Courtt6 will apply the federal common law doctrine of "equitable apportionment." Pursuant to
this doctrine, the water rights laws of no affected state will be dispositive, although the Court
will take them into account in the exercise of its equitable powers to determine the conflicting
states' rights to that water. 17
The Supreme Court has recognized that watershed (or basin) transfers are generally the
prerogative of the state. The Court has noted that, "[d]iversions from one watershed to another
are commonly made in both states, and the practice is recognized by the decisions of their
courts."18
Thus, the State of North Carolina has the sovereign authority to control consumptive uses
of the water as well as whether the water should be diverted from the Yadkin River watershed to
some other watershed. However, the State can only control consumption and diversion of a
"reasonable" amount of the water in the Yadkin watershed in North Carolina since South
Carolina, a co-equal sovereign to North Carolina19 with respect to the waters of the Yadkin/Pee
Dee River, also has rights to receive water in the river once it leaves the border of North
Carolina. And the rights of both states regarding diverted water are subject to the navigability
servitude of both FERC and USACOE.
Understanding APGI's Riparian Rights: The FPA license for the Yadkin Project gives
APGI the right, through the operation of federal law, to maintain and operate impoundments
behind its dams, and to control the flow of water through its turbines or spillways, all of which
are activities affecting navigation. However, its right to actually use the water in the Yadkin
River for these purposes derives not from federal law, but from its ownership of riparian lands
that adjoin the original course of the river, lands owned in fee simple upon which the dams and
the reservoirs reside. As noted above, those are state law rights, guaranteed to all such
landowners by the State of North Carolina, and those rights do not include the right to decide
how the water is consumed or diverted to another watershed.
The common law doctrine of "riparian rights" that exists in North Carolina demonstrates
that private riparian owners have rights in the water to the extent that the water is subject to the
uses and rights of those riparian owners. A person who owns land adjacent to a watercourse --
whether navigable or non-navigable -- is a riparian owner. 20 Riparian rights in North Carolina
are those rights annexed to the parcel of property in actual contact with a natural watercourse. 21
16 These water disputes between or among states must be filed with the U.S. Supreme Court under its original
jurisdiction.
17 See, e.g. Arizona v. California, 373 U.S. 546, 597 (1963) ("The doctrine of equitable apportionment is a method
of resolving water disputes between States. It was created by this Court in the exercise of its original jurisdiction
over controversies in which States are parties.") Colorado v1 New Mexico, 459 U.S. 176, 183 (1982) ("Equitable
apportionment is the doctrine of federal common law that governs disputes between States concerning their rights to
use the water of an interstate stream. It is a flexible doctrine which calls for the 'exercise of an informed judgment
on a consideration of many factors' to secure a'just and equitable allocation'.")
18 Wyoming v. Colorado, 259 U.S. 419, 466 (192 ])(citations omitted), reh. Den. And decree modified, 260 U.S. 1
(1922)
19 See Pollard's Lessee v. Hagan, 44 U.S. 212 (1844). By the time the Yadkin River reaches North Carolina,
Virginia's rights to its waters are no longer an issue.
20 Aycock, Introduction to Water Use Law in North Carolina, 46 N.C.L.Rev. 1, 17 (1967) ("Aycock").
21 Id., p.4 (internal citations omitted).
8
Riparian rights are property rights, are valuable, and cannot be arbitrarily or capriciously
destroyed or impaired. 2
At common law, traditionally, the owner of the riparian parcel had a right to have the
flow in the watercourse undiminished in quality and quantity, except for diversions by upstream
riparian owners for "natural" uses, such as drinking, bathing, and irrigation. Industrial uses were
permitted only to the extent that water could be returned to the stream without substantial
diminution of quantity or impairment in quality. 23 The N.C. Supreme Court has since adopted
the rule of reasonable use, also referred to as the American rule. Whether a use is reasonable is a
question of fact, determined by, inter alia, the occasion and manner of the application of the use,
the nature and size of the stream, the importance and necessity of the use and the extent of injury
that it causes. 24
This brief discussion of riparian rights does not fully define the scope of riparian rights
held by riparian owners, but is included simply to demonstrate that private riparian owners hold
rights that are well established at common law.
How the FERC License Specifically Affects Water Withdrawals: The Project license
is the principal mechanism for FERC's regulation of the disposition of water in the Project. As
noted earlier, what FERC is actually regulating through the FPA license is APGI's right as a
landowner under North Carolina law to reasonably use water it impounds. Essentially, FERC is
permitting the licensee to operate hydroelectric impoundment structures (i.e. dams) on the waters
of the United States in return for the licensee's commitment to exercise its land ownership rights
(including its water riparian right) in the manner provided in the license. The following
provisions of the Project license are of particular note:
(1) Reservation of federal rights to Project waters. Under Article 1325 of the existing
1958 license 6, the United States reserves the right to use the water of the impoundment in the
amounts necessary for navigation, subject to such reasonable rules and regulations that the
Secretary of the Army might prescribe in the interest of navigation as well as FERC's own rules
for the protection of life, health and property.
(2) The Project license has specific requirements and limitations on licensee's ability to
convey Project property and associated property rights. Article 17 directs APGI to retain
possession of all project property, including "...all franchises, easements, water rights, and rights
22 Shepard's Point Land Co. v. Atlantic Hotel, 132 N.C. 517, 538,44 S.E. 39, 45-46 (1903).
23 Martz, Water for Mushrooming Populations, 62 W. Va. L. Rev. 1, 8 (1959), quoted in Aycock 5-6.
24 Dunlap v. Carolina Power & Light Co., 212 N.C. 814, 820, 195 S.E. 43, 47 (1938).
25 Article 13 is a standard license article that appeared in all licenses issued around that same time. Today's versions
of standard license articles are found in the L-Forms, referenced in 18 CFR § 2.9. When the new Yadkin Project
license is issued by FERC, it probably will incorporate by reference Form L-5 (54 F.P.C. 1832), Article 12 of which
appears to be identical to Article 13 of the 1958 license. Id. at 1836.
2 The terms and conditions of the 1958 license, as amended over the years, are also the terms of the annual license
that became effective on May 1, 2008 with the expiration of the 50-year term of the 1958 license.
9
of occupancy and use." Also, Article 35, adopted in 1980 as FERC's standard land use article27,
states that,
"...(c) The Licensee may convey easements or rights-of-way across, or leases of,
project lands for:... (8) water intake or pumping facilities that do not extract
more than one million gallons per day from a project reservoir."
However, before APGI is permitted to make a conveyances pursuant to Article 35(c), it is
required by Article 35(e) to consult with federal and state resource agencies and take steps to
ensure protection of "...scenic, recreational, and other environmental values of the project."
Given changes in FERC licensing since 1980, the new license for the Yadkin Project is
likely to contain different and more direct provisions regarding withdrawals from Project waters.
The standard license form now issued by FERC that will be applicable to the Yadkin Project, L-
5, 28 includes an article regarding water withdrawal, denominated Article 13, which provides:
"Article 13. On the application of any person, association, corporation, Federal
agency, State or municipality, the Licensee shall permit such reasonable use of its
reservoir or other project properties, including works, lands and water rights, or
parts thereof, as may be ordered by the Commission, after notice and opportunity
for hearing, in the interests of comprehensive development of the waterway or
waterways involved and the conservation and utilization of the water resources of
the region for water supply or for the purposes of steam-electric, irrigation,
industrial, municipal or similar uses. The Licensee shall receive reasonable
compensation for use of its reservoir or other project properties or parts thereof
for such purposes, to include at least full reimbursement for any damages or
expenses which the joint use causes the Licensee to incur. Any such
compensation shall be fixed by the Commission either by approval of an
agreement between the Licensee and the party or parties benefiting or after notice
and opportunity for hearing.i29
Therefore, although the rp esent FERC license does not directly address water withdrawal rights,
the new license for the Yadkin Project that FERC will issue will specifically address withdrawal
of water from Project reservoirs for water supply and other RMoses.
27 Although Article 35 was part of the 1958 license and is now part of the annual license currently in effect for the
Yadkin Project, the standard land use article that became Article 35 is now routinely included in new licenses issued
by FERC, and is expected to be part of the new, long term license that PERC will issue for the Yadkin Project.
28 Form L-5 applies to major constructed projects that affect navigable waters as well as lands of the United States,
and would be applicable to the Yadkin Project by virtue of its proximity to the Uwharrie National Forest. See 18
CFR § 2.9.
29 54 F.P.C. 1832, 1836-7. The balance of Article 13 reads,
"Applications shall contain information in sufficient detail to afford a full understanding of the proposed
use, including satisfactory evidence that the applicant possesses necessary water rights pursuant to
applicable State law, or a showing of cause why such evidence cannot concurrently be submitted, and a
statement as to the relationship of the proposed use to any State or municipal plans or orders which may
have been adopted with respect to the use of such waters."
10
Summary: APGI's disposition and use of the water in the reservoirs of the Yadkin
Project are governed by North Carolina law. In addition, the present Yadkin Project license
further regulates APGI's management of the reservoirs, including releases from the dams, and
management of the lands that are part of the Project. FERC's regulation of management of
Project lands includes regulation of placement of facilities in the reservoirs for water
withdrawals. APGI, as the licensee, is not permitted to grant an easement for the facilities that
withdraw more than one million gallons per day unless it first obtains FERC approval.
However, the new license will have provisions that address water withdrawals
specifically, and will require APGI to approve requests that are consistent with state law.
Specifically, the new long term license will provide for: (1) an obligation on the part of APGI to
permit persons, associations, corporations, municipalities, state and federal agencies to seek
reasonable withdrawals of water stored in the Project reservoirs for water supply purposes, in
accordance with plans approved under North Carolina law for the use of such waters; and (2)
FERC regulation of the compensation that APGI would receive due to withdrawal of impounded
water.
Clean Water Su
Granting a long-term license to APGI will not affect North Carolina's ability to maintain
a clean water supply. APGI has acted as a good steward of the water quality of the Yadkin and
water quality is an important feature of the Project's relicensing. The NC Division of Water
Quality (DWQ) has the authority to review and rule on the 401 Water Quality Certificate
application, which is a necessary step in the FERC relicensing process. Its review focuses on
whether the water discharged from the Project's powerhouses meets applicable water quality
standards. APGI has worked closely with DWQ during this process and APGI believes that
DWQ will issue the 401 certificate after a thorough review of the water quality issues involved.
NC 401 Water Quality Certificate - As part of the federal relicensing process, Section
401 of the federal Clean Water Act requires APGI to obtain a water quality certificate from the
State of North Carolina. The Section 401 certificate focuses on whether the water being
discharged from the Yadkin Project meets North Carolina's water quality standards. As
previously pointed out, APGI plans to invest $240 million to refurbish and upgrade the Project's
power generators, increase dissolved oxygen levels and improve water quality as part of the
Yadkin Project RSA.
APGI submitted an application for a Section 401 certificate to the DWQ on May 9, 2007.
After six months of evaluation, DWQ issued a Section 401 Water Quality Certification to APGI
on November 17, 2007.
In January 2008, Stanly County appealed DWQ's issuance of the 401 Water Quality
Certificate. In statements filed on February 22, 2008, attorneys for the State of North Carolina
defended DWQ's work, stating that APGI "has provided adequate assurance that the work of the
Yadkin Project will not result in a violation of applicable water quality standards and discharge
guidelines."
11
In April 2008, State officials discovered that a required legal notice regarding its
application for a water quality certificate was not published, as required by law. 30 Asa result,
DWQ revoked APGI's water quality certificate, published the required public notice and agreed
to accept public comments for a 15-day period ending on May 2, 2008. Because federal laws
require the State to act on Section 401 applications within one year'- before May 10, 2008, in
this case - DWQ had little time to adequately review the public comments it received. At
DWQ's request, APGI withdrew and immediately resubmitted its application for a Section 401
water quality certificate to allow more time for DWQ to consider the application. DWQ now has
until May 8, 2009 to take action on APGI's resubmitted 401 application.
During this current 401 application review period, DWQ asked APGI to prepare plans for
additional studies involving water and sediment sampling. Study plans have been developed and
water quality sampling was conducted in August 2008.
As part of these studies, DWQ asked that APGI sample water discharged from the
Narrows Powerhouse for Priority Pollutants (heavy metals and organic pollutants including
volatile organic compounds, acid extractable compounds, base-neutral compounds, and PCBs).
The final report of those discharge samples was filed with DWQ on September 29, 2008. The
report found that none of the pollutants were detected in concentrations in excess of the NC
water quality standards and, in most cases, the concentrations were below the method detection
limit (i.e., the levels were so low that they could not be detected). These results demonstrate that
the operation of the Narrows development does not result in the discharge of any of these
pollutants in excess of NC water quality standards. In addition, APGI revised and submitted the
sediment sampling plan the agency requested. APGI now considers the application complete.
Previous Water Quality Studies: The State of North Carolina monitors water quality in
the Yadkin-Pee Dee River, and the Yadkin Project reservoirs as part of its State-wide ambient
water quality monitoring program. Through these State monitoring efforts, it is well documented
that the Yadkin Project reservoirs suffer from moderate eutrophication, which is the enrichment
of the waters by inputs of phosphorous and nitrogen from both point and non-point sources, as
well as turbidity and sediment concentrations, which come from sources upstream of the
reservoirs.
As part of the relicensing process, APGI conducted two studies specific to water quality.
The Water Quality Monitoring Study examined reservoir and tailwater water quality based on
four years of monthly water quality monitoring data collected at more than 20 monitoring
stations throughout the Yadkin Project. The study also examined hpw water quality is affected
by reservoir water levels and flow releases. The Sediment Fate and Transport Study reviewed
existing data and literature to understand the sources of sediment in the Yadkin Project, and to
estimate the load of sediment retained within the reservoirs. The results of APGI's water quality
studies confirmed the State's earlier conclusions regarding water quality in the Project reservoirs.
In addition to the studies cited above, the N.C. Department,of Public Health is currently
conducting a fish tissue study at Badin Lake. The intended purpose of the study is to evaluate
30 APGI had provided the information necessary for the publication of the notice. The lack of publication was
apparently an inadvertent oversight, not attributable to APGI.
12
exposure risk and human health concerns associated with the consumption of fish from Badin
Lake. The study is not designed to trace any contaminants found in fish tissue back to a specific
location or source. Analytical results are expected to be completed in November 2008.
Further, as part of its remediation effort, APGI and the N.C. Department of Environment
and Natural Resources (DENR) recently entered into a voluntary agreement for remediation of a
small area in an embayment at the base of Narrows powerhouse. This remediation stems from
capacitors that were discovered in late 2001 discarded behind the Powerhouse. The capacitors
were removed in 2002. This effort involves the removal of a small amount of contaminated soil
and sediments remaining behind the Powerhouse in the area where the capacitors were
discovered. DENR has submitted the scope of work for public comment and, with final agency
approval, APGI will begin remediation as early as possible. All work will be completed in
accordance with the approved remediation plan. (Please see discussion of other environmental
issues below at pages 32 to 36).
Summary: Since constructing the Yadkin Project, APGI has worked to preserve the
water quality. The construction of the Yadkin Project reservoirs has made the Yadkin River an
available water source for North Carolina. It is the role of DWQ to preserve, protect and
enhance North Carolina's water and groundwater resources through quality monitoring programs
and through its permitting authority. DWQ had previously determined that APGI met all the
requirements for a 401 water quality certification. DWQ's review of the current application
should continue without interference. If allowed to do so, APGI believes that DWQ will issue
the 401 certificate because, as numerous studies have shown, there is nothing in the
environmental record that will prevent DWQ from doing so.
Issue #3: Allocation of Water for Non-Power Uses
Water allocation and the provision of water for non-power uses is already being studied
by the ERC, and, as noted earlier, the RSA has - and the new, long term license will have -
numerous protections for the allocation of water for non-power uses that will benefit the people
of North Carolina. APGI has a good track record of working with municipalities, including
during times of drought, to manage the allocation of water in the Project's reservoirs for
consumptive purposes. In addition, as previously stated, the State has ultimate authority over the
control of water in the Yadkin River, subject to certain FERC regulations and to APGI's riparian
water rights.
- ERC Water Allocation Study: The ERC's ongoing water allocation study will look
comprehensively at the issues of water accumulation, storage, allocation and use in a broader
context. Some key water allocation issues relative to the Yadkin Project have already been
addressed in the federal relicensing process, including meeting downstream flow requirements
and maintaining adequate water levels for recreation and environmental purposes. These issues
are addressed in the RSA at Sections 3, 1.1 through 3.1.3.2.31
- Drought Management: Management of the Yadkin River during periods of drought
has become a significant focus for APGI as well as the stakeholders of the Yadkin. Based on the
31 See Appendix #5
13
experience gained during the drought of 2002, APGI developed a drought management plan
through consultation with Progress Energy, state agencies, interested homeowners and
businesses that are affected by extreme drought conditions. This consensus plan, described as the
Low Inflow Protocol, which is part of the RSA32, will be implemented in a new FERC license
term and outlines specific actions that APGI must take when certain specific drought events
occur. During the recent prolonged drought that affected Piedmont North Carolina, APGI has
voluntarily adopted many elements of the proposed Low Inflow Protocol, even though the new
license has been delayed. These drought provisions do not foreclose other actions by the State of
North Carolina regarding drought, but they do provide components which could be part of a
more comprehensive State drought process. 33
• Water Withdrawals: The Yadkin Project reservoirs are the source of water for many
local communities in the Piedmont, including public drinking water systems operated by
Albemarle, Denton and Salisbury. Albemarle withdraws about 7 million gallons of water a day
(on average) from the Yadkin Project, making it one of the largest water users. As noted earlier,
the State of North Carolina has the authority to regulate water use within the Yadkin River
Basin, including the right to issue water withdrawal permits to meet demand. APGI does not
oppose use of its reservoirs for drinking water, although FERC must approve new, large volume
water withdrawals from the Yadkin Project.
During the past 50 years, four new major water intakes and withdrawals were approved at
the Yadkin Project. APGI successfully worked with three municipalities and one irrigation user
to provide new withdrawal intakes from the Yadkin Project. In addition, APGI worked with
one municipality that needed to increase its water withdrawal amounts over time. Some of these
withdrawals would presently be considered Interbasin Transfers.
Ill. Other Issues Covered by S.L. 2008-137 - Issuance of the Water Quality Certificate
Section 4 of S.L. 2008-137 deals with when DENR's DWQ can issue a Section 401 water
quality certificate ("401 certificate") to APGI, which is a necessary step in the relicensing
process. Section 4 does not suspend action by DENR, and, in fact, is very specific in noting that
the study should proceed "without delaying" the agency's decision on the 401 certificate. This
section even notes that it is not "the intent of the General Assembly to delay the processing" of
the 401 certificate. The language says that the ERC report shall be considered by DENR when it
makes a decision whether to issue the 401 certificate, but clarifies that this is only "to the extent
allowed by State and federal statutes and rules." Thus, APGI anticipates timely action on the
pending 401 certification application.
According to DENR's regulations, once the agency has received all of the necessary
information for a 401 certificate application, the agency has 60 days to make a decision whether
to issue the certificate. Section 4 states that the ERC report is part of that information deemed
necessary to "trigger" the 60-day time limit. In no way, however, does this language keep
DENR from acting on the 401 certificate once it has all of the information it needs. To the
contrary, Section 4 specifically notes that, should the ERC study be delayed for any reason,
32 See Section 3.1.4 and Appendix A of the RSA at Appendix
33 In fact, the 2008 General Assembly adopted comprehensive drought management legislation. S.L. 2008-143.
14
DENR should not delay making its decision, in recognition of the time limits that apply to the
401 certificate decision, which requires final action by May 8, 2009. Because Section 2 of S.L.
2008-137 requires the ERC report to be finalized on February 1, 2009, DENR is expected to take
action on the 401 certificate within 60 days, i.e., by April 1, 2009.
IV. Topics Outside the Scope of the ERC Study
A. Federal Takeover or "Recapture"
Stanly County uses the word "recapture" when discussing its proposal that the State of
North Carolina take over APGI's Yadkin Project and enter into the public power business.
"Recapture" is Stanly County's euphemism for the words, "taking" or "take over", the latter
phrase being that used in the FPA to describe the federal government's right to buy out a
licensee's investment in a hydro project when a license expires. That option is set forth in 16
USC § 807, which is Section 14 of the FPA. Note that this right to take over a license is a power
that only the federal government has, and only the federal government may choose to exercise.
At the expiration of a license FERC has two options: (1) it may relicense a project, or (2)
FERC may recommend that the Project be taken over, and thereafter be maintained and operated
by the federal government. Federal takeover of a project has never occurred in the 88 years since
the FPA was enacted.
FERC may consider the advisability of a government takeover either on its own motion
or on the motion of a federal department or agency, but by no other party, not even a state or one
of its municipal entities. If FERC determines that the United States should exercise its right to
take over a project upon the expiration of a license, it submits its recommendation to Congress
and Congress must take action to take over the project on behalf of FERC or an agency or
department by appropriating the money for it, if FERC or a federal agency or department does
not recommend takeover, then at the expiration of the existing license, FERC is required to issue
a new license.
With respect to the Yadkin Project, neither FERC nor any federal agency or department
has recommended that the Project be taken over. In fact, just the opposite occurred. In its Final
Environmental Impact Statement released in April 2008, FERC staff stated:
"We do not consider federal takeover to be a reasonable alternative for the
Projects. 34 Federal takeover of the Projects would require Congressional
approval. While that fact alone would not preclude further consideration of this
alternative, there is currently no evidence showing that a federal takeover should
be recommended to Congress. No federal agency has suggested that federal
takeover would be appropriate, and no federal agency has expressed an interest in
operating the Projects."
so The FPA license for P-2206, the Yadkin - Pee Dee Project, immediately downstream of the Yadkin Project, also
expired at the end of April 2008. That project is owned by Progress Energy of the Carolinas LLC. FERC has been
conducting its relicensing of both projects simultaneously, and its Final Environmental Impact Statement covered
both projects.
15
P-2197-073, Final Environmental Impact Statement, issued April 18, 2008.
Moreover, the two-year notice provision found in subsection (a) of § 807 which gives the
federal government the opportunity to take over a project is no longer available. A
recommendation to take over the Project would have had to have been provided at least two
years prior to the expiration of the current license. 35 The 50-year license APGI had been
operating under expired on May 1, 2008, which means that during the two-year notice period
that began in May 2006 either FERC or a federal agency or department would have had to begin
the take over process. No take over action was commenced.
Stanly County's argument that the federal takeover price is net investment (un-
depreciated book value) is simply wrong. In Section 807(a) the FPA specifically provides for
severance damages in addition to "net investment... not to exceed fair value". FERC is required
to hold a hearing to determine the take over price, so any argument that the State would have to
pay a price "considerably lower" than APGI's claimed value for the Yadkin Project is, at best,
sheer speculation. In addition, because the new license will require significant upgrade
investments by whoever is the licensee (more than $240 million) the actual cost to any new
owner would be considerably greater than the purchase price paid for the Project.
The underlying assumption by Stanly County that the State of North Carolina has any
take over rights under the FPA is at odds with the words of the statute, FERC regulations and
past actions, and completely without foundation. Only the federal government has take over
rights. No state or local government has any take over rights. All the FPA preserves for the
State is its condemnation rights, under which it would have to pay fair market value for the
Project. The timing for a federal take over action has passed and FERC staff is on record saying
that take over of the Yadkin Project is not an option. Accordingly, Project take over is not
something that the Environmental Review Commission should be asked to consider.
B. Environmental Waste Sites
Some of the arguments articulated by Stanly County advocates against relicensing the
Yadkin Project have nothing to do with the Project at all. Rather, these are arguments directed at
Alcoa, APGI's parent company, and involve claims concerning environmental conditions at the
Badin Works smelter site, including claims of sites where no such conditions exist, as discussed
below. These sites are being properly and timely addressed by Alcoa, under the supervision of
appropriate state and federal environmental agencies.
The Badin Works smelter began operations in 1917, before anyone fully understood the
potential impact of waste material and long before there were any environmental guidelines or
state or federal regulations in place. As a result, like virtually all older industrial sites
worldwide, there exists some amount of contamination at the old Badin Works smelter that
requires environmental remediation and clean up. Alcoa has been working with state and federal
officials for many years to manage waste sites associated with the Badin Works smelter in an
appropriate manner.
35 16 U.S.C. § 807(a)
16
Alcoa began working with state and federal officials more than 20 years ago to identify
and investigate waste sites on its property in Stanly County and to take appropriate action to
remediate sites that might pose a health or environmental danger. This work is being done under
the close supervision of DENR in accordance with the Resource Conservation and Recovery Act
(RCRA), a federal program implemented by the State of North Carolina to regulate the
management of waste.
Through the RCRA process, Alcoa identified and investigated 47 potential waste sites
associated with the Badin Works smelter in Stanly County, a total of 6 of which were later found
to require remediation. Alcoa has spent more than $8 million to provide appropriate
environmental characterization and protection at all 47 of these sites. As part of the RCRA
process, Alcoa also recently developed a work plan for the required Corrective Measures Study
for the 6 sites where further measures are called for. This plan, submitted to the DENR Division
of Waste Management (DWM) in April 2008, determines what additional remediation measures
or ongoing monitoring is needed to protect the public and the environment. The study plan is
currently being reviewed by DWM officials. Once the plan has been finalized and approved by
the State, Alcoa will begin implementing the required actions. Subject to the implementation of
this plan upon its approval, the State of North Carolina has determined that no further action is
necessary for these sites at this time.
Beginning in 2006, Stanly County officials started raising concerns about additional
waste sites that it contended might have been overlooked or ignored by Alcoa. In each instance,
Alcoa has worked closely with State or County officials to investigate these claims and search
for any evidence of waste as discussed below.
On April 19, 2007, County Manager Jerry Myers submitted a letter to DENR that listed
15 possible waste sites. Dexter Matthews, Director of DWM, reviewed the sites and responded
to Mr. Myers on May 18, 2007. Mr. Matthews noted that 10 of the sites were currently "being
addressed or have already been addressed by the Division's Hazardous Waste Section as part of
the RCRA (Resource Conservation and Recovery Act) corrective action process." Another 2
sites were old landfills that are included on the State's inventory of old landfills identified for
future action.
As for the three additional sites, the first is the former Yadkin Brick plant, which is not
owned by Alcoa but is owned by two property owners. In September, 2007, DENR investigated
the site of one property owner and no evidence of waste was noted. The other property owner
denied DENR access. The State has indicated that Alcoa does not have any responsibility for the
remediation of this site. The second site is a lime disposal area that Alcoa had reported to the
DWM in February 2007. Alcoa investigated the site, collected soil and groundwater samples and
hired an outside environmental firm to conduct an independent risk assessment. Results show
that chemicals found there are contained, have not impacted soil, groundwater or surface water
and are unlikely to pose unacceptable risk to human health or the environment. Those results
were shared with the State and Stanly County officials. 36 The third site is near Mountain Creek
36 Alcoa would note that Stanly County also sampled groundwater from this area. Stanly County has not shared its
sampling results with Alcoa.
17
Dam (Mercedes Road) where steel drums containing hazardous waste were alleged to be buried.
This location has never been owned by Alcoa or used for waste disposal by the company, Three
representatives from DENR investigated the site on November 16, 2007, using ground
penetrating radar to search for metal drums. The search did not indicate any burial of waste
materials or any disturbance.
Stanly County has also raised concerns about another potential waste site, known as the
Chivington Site near Morrow Mountain State Park, in a June 2007 filing with FERC. On
November 20, 2007, two members of DWM Inactive Hazardous Site Branch, investigated the
alleged dumping site. No evidence of a site was found. Alcoa conducted a follow-up
investigation in December 2007 to pinpoint the exact location. An electromagnetic survey was
performed to search for metal drums to an approximate depth of 30 feet, The study did not-
indicate the presence of any metal drums or hazardous waste.
In sum, Alcoa has spent millions of dollars to remediate waste sites in Stanly County and
additional efforts are ongoing. The company has also responded to each claim of additional sites
and shown that there are no such sites that are not being addressed. Upon approval of the
Corrective Measures Study by DWM, Alcoa will begin the final phase of remediation and
monitoring designed for long-term protection of human health and the environment. Stanly
County has not been - and will not be - asked to bear the cost of this remediation.
In addition, to ensure transparency with remediation efforts, Alcoa has offered for Stanly
County to participate in any future sampling or monitoring efforts, offering to split samples in
the event Stanly County wants to have them independently analyzed.
C. Arsenic Allegations
Stanly County has made the false assertion that Alcoa is responsible for high levels of
arsenic in the land and river adjacent to its plant located in Massena, NY (Grasse River).37
Arsenic is a substance sometimes present in the spent pot linings of an aluminum smelter. At
Massena, however, Alcoa's remediation group has concluded that arsenic is not a chemical of
concern for remediation of the land adjacent to the Massena location or for the Grasse River.
Similarly, contrary to any claim or implication to the contrary, there is no widespread
arsenic contamination at Badin Works due to APGI's smelting operations. Any arsenic
associated with Badin Works is contained in an onsite landfill and there simply is no plausible
way that arsenic from Badin Works could result in elevated arsenic levels in well water across
Stanly County as has been alleged. Moreover, studies show that there is no impact on water in
Badin Lake or the groundwater in other parts of the County.
During the RCRA investigation discussed above, Alcoa tested the groundwater on its
property for arsenic levels. There was only one place, an onsite landfill, that contained even
37 Stanly County has used a reference to environmental liabilities that the company might incur in Alcoa's 2007
Annual Report as evidence of wrongdoing by Alcoa in this regard. Specifically, Stanly County asserts that mention
of "Asset Retirement Obligations" in the Report relates to liability reserves being set up for items such as spent pot
lining which Stanly County claims are rich in arsenic.
18
slightly elevated levels (less than one part per million). Moreover, sampling of the nearby surface
waters showed that there is no impact on the water in Badin Lake or in groundwater in the area.
The elevated arsenic levels in the onsite landfill is likely from a combination of naturally
occurring arsenic and residual arsenic from spent pot lining buried in the landfill. Arsenic
naturally occurs in soil - and can become more prevalent if certain soil conditions are present.
In fact, during a joint meeting between APGI and Stanly County, a State Geologist pointed out
that Stanly County contains high levels of arsenopyrite (a form of fools gold with arsenic
associated with it) which is a natural explanation for the high levels of arsenic, such as those
commonly found in the County's soil and groundwater.
Alcoa also tested the water in Badin Lake and Little Mountain Creek for elevated arsenic
levels. These are the only outfalls from the Badin Works site that could be affected by the
groundwater at the onsite landfill and the arsenic levels were basically undetectable. Alcoa also
tested the groundwater at other waste sites for elevated arsenic levels. After conducting
extensive testing, only one trace of arsenic was found. One groundwater test at the Alcoa Badin
landfill showed arsenic levels of 0.0066 parts per million. This is significantly below the federal
standards for safe drinking water set by the Environmental Protection Agency which is at .010
parts per million (10 parts per billion) to protect consumers from the effects of long-term,
chronic exposure to arsenic.
D. Alcoa's Power Agreements in Other States
Questions have been raised about the nature of Alcoa's agreements to purchase low-cost
hydropower in New York State and Washington State and whether North Carolina should
receive similar benefits from Alcoa.
The circumstances in these other states are significantly different, with important and
significant distinctions between APGI's hydropower operations in North Carolina and Alcoa's
contracts to purchase hydropower in New York State and Washington State.
In New York State and Washington State: Alcoa and/or APGI do not own or operate
any hydroelectric facilities in these states. Rather, Alcoa has long-term contracts to purchase
low-cost power from publicly-owned hydropower facilities for its aluminum smelters. The
hydroelectric facilities in these states were built and paid for by the federal government and local
utilities.
In North Carolina: Beginning in 1915, Alcoa and its subsidiaries invested $80 million to
purchase approximately 50,000 acres of land and related floor rights and to build four dams and
powerhouses along the Yadkin River in North Carolina. APGI owns the hydroelectric project
and owns riparian property rights that allow it to use the water that crosses its property. No
government funding or assistance was provided to construct the dams and power house or to
purchase the land.
APGI's investment of millions of dollars in land rights, dams and reservoirs represents
the crucial distinction between the situations in North Carolina and other states. In North
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Carolina, Alcoa and its subsidiaries invested its own money to purchase land that, under North
Carolina law, provides the company with riparian water rights. By contrast, In New York and
Washington State, Alcoa purchases hydropower from state- or federally-owned power plants and
has made no independent investment in hydro facilities in those states.
V. Conclusion
APGI has attempted to address the issues that the ERC was directed to study related to
the pending issuance of a new fifty-year license by the FERC to APGI's Yadkin Hydroelectric
Project, as well as other issues that have been raised by Stanly County during the relicensing
process and discussions of the study bill. If there are questions that remain or if additional
clarification is needed with respect to anything included or not included in this brief, please
contact APGI's representatives and a subject matter expert will be made available to you.
20