Tag Archives: Alcoa

The Direction of the State’s Water Quality Program

September 19, 2013.  Earlier posts talked about two unusual recent  decisions by the Department of Environment and Natural Resources (DENR) on Section 401 water quality certifications  under the Clean Water Act — one concerning  Cleveland County’s proposal to build a new dam on the First Broad River to create a reservoir and the other for federal relicensing of Alcoa’s existing hydroelectric power dams on the Yadkin River.  You can find the Cleveland County  post here and the Alcoa post here.  The question is what those two decisions  say about the current direction of the water quality program.

The  decision to waive the water quality certification for the proposed Cleveland County reservoir — the first deliberate waiver in the history of the N.C. water quality program — cited  a state rule requiring  a decision on a 401 application within 60 days. But  the Cleveland County application was not complete and DENR made no effort to go through the review process (which would have  required an environmental impact statement and a public notice).  As reported in the Charlotte Observer, Division of Water Resources Director Tom Reeder gave a different explanation of the waiver: “The state of North Carolina looked at all of this and said there’s really no value added to us getting involved in this whole thing. Cleveland County would have had to spend more money that would not go to any good purpose.”  The implication was that a state water quality review would add more time and cost when the U.S. Army Corps of Engineers (as the federal permitting agency) opposed the project — even though the state water quality review and the federal permit review usually go hand in hand and rely on the same environmental studies.

Where the Cleveland County project  proposed construction of a new dam;  Alcoa applied for a state water quality certification to cover continued operation of four existing dams on the Yadkin River that were built between 50 and 100 years ago to generate power for the now-closed Alcoa aluminum smelting plant. After nearly a year of review and a public hearing, DENR suddenly denied the Alcoa 401 Certification. The denial letter cited a state rule requiring the  applicant to have title to the project site, the permission of the property owner or the  ability to acquire the property by condemnation.  DENR relied on a lawsuit (filed the same day) claiming state public trust ownership of  the bed of the Yadkin River under the Alcoa dams to conclude that Alcoa  could not show title to the land  under the dams. According to the letter, the lack of either title or permission from the state would make it difficult to assure that Alcoa could meet water quality conditions on operation of the dams.

The earlier posts talked about a number of questions raised by the two decisions. There are also a few things to take away:

DENR has waived a 401 Certification without clearly explaining the reason for the waiver or how waiver decisions will be made in the future.   The decision letter suggests the waiver resulted from DENR’s inability to make a decision within 60 days, but the record shows no attempt to get the additional information needed to make the application complete, provide a public notice of the application or do a complete review.  The  Division of Water Resources director later suggested that  state review would have served no purpose given the Corps of Engineers’ objections to the project. Either reason could also easily apply to other 401 applications.

As to the first explanation,  DENR denied the Alcoa 401 application one month later  after nearly a year of review  with no suggestion that water quality rules required a waiver.  The second reason offered for the waiver (U.S. Army Corps of Engineers opposition) also applies to other projects. The Corps of Engineers often presses federal permit  applicants to look at other alternatives with fewer environmental impacts.   The Corps expressed similar skepticism about the City of Raleigh’s  proposal to build a reservoir on the Little River, but in that case DENR has continued to work with  Raleigh and the Corps of Engineers to look at alternatives and  address the Corps’ concerns.  The same has been true for other large commercial development projects.

DENR treated the Cleveland County reservoir project differently, but has not provided a consistent explanation of the decision or criteria for future 401 Certification waivers.

Denial of  a 401 Certification based on an unresolved claim of public trust ownership of the river bed under the project has implications well beyond Alcoa.   If there is a case to be made for public trust ownership of the upper reaches of the Yadkin River,  the same will be true for  many of the state’s inland rivers. The decision may have implications for  dam  sites proposed by Cleveland County and the City of Raleigh (on the First Broad River and the Little River respectively).

Title to the bed of the Yadkin River under the Alcoa dams  has not yet been determined by the courts, but DENR issues both Individual and general 401 Certifications for a wide range of projects  known to be on state-owned  public trust lands — including mining activities, utility and energy infrastructure, marinas, aquaculture operations, shoreline stabilization projects, water intakes, and dams.  The justification for denial of the Alcoa 401 Certification — that lack of ownership or permission from the state to apply  calls into question the applicant’s ability to comply with water quality conditions — would apply equally to those projects.

DENR has not explained what evidence of title will be required of applicants proposing to construct a project in navigable waters.    A deed to submerged lands may or may not be valid. See the earlier post on public trust doctrine for more explanation of public trust ownership and the way title to state-owned public trust lands can be transferred.   But the existence — or absence — of a state lawsuit claiming title under the public trust doctrine cannot be the deciding factor either.  Public trust ownership does not arise because of a state lawsuit; it is not negated by the absence of one.  Having made public trust ownership a factor in the issuance of 401 Certifications, DENR needs a clear and consistent approach to resolving questions of title to lands under coastal waters and navigable rivers; otherwise the outcomes will be arbitrary and subject to political influence.

The Alcoa denial letter suggests that Alcoa needs specific state permission to apply for a 401 Certification to continue operating the Yadkin hydropower dams, but does not indicate what form that permission must take. Some  activities on state-owned public trust lands have individual submerged lands leases from the State Property Office, but many do not. The state has often relied on environmental permits as the permission to develop on state-owned submerged lands.  It isn’t even clear whether a previous  lease to construct on state-owned public trust lands would be sufficient, since the state’s lawsuit claiming ownership of the Yadkin river admits that Alcoa had permission to build the four dams.

The precedent set by the Alcoa denial could apply to a number of  ongoing commercial activities in coastal waters and state rivers.  One of the (several) interesting things about the Alcoa decision is that it dealt with renewal of an operating license for dams built decades ago with state permission. The DENR denial letter suggests that the state must give express permission for the renewal of licenses and permits for ongoing operations on state-owned public trust lands — activities that could include aquaculture, marina operations, sand mining and other commercial activities. The criteria for granting or denying permission will be another question.

The troubling thing about the Cleveland County and Alcoa decisions is the reliance on rule interpretations that not only break with past practice, but are inconsistent with each other.  With respect to the waiver of a 401 Certification under the 60-day rule, DENR needs to reconcile the Cleveland County and Alcoa decisions. If opposition by the Corps of Engineers was the real reason for the Cleveland County waiver, DENR should explain the criteria for waiver in situation where the Corps has pressed an applicant for alternatives. DENR also needs to  provide  guidance to applicants proposing projects in coastal waters and inland rivers.  Otherwise,  applicants will have little assurance of a clear, consistent and predictable water quality review.

The Uses of a Water Quality Certification: Alcoa

September 9, 2013.   On August 2, 2013, DENR’s Division of Water Resources denied a Section 401 water quality certification for the relicensing of Alcoa’s four hydroelectric dams on the Yadkin River.   (See an  earlier post  for background on  401 Certifications.) The denial letter did not cite any water quality basis for denying the 401 Certification. Instead, the letter  referred to a lawsuit filed the same day by the N.C. Department of Administration  that: 1.  claimed title to the bed of the Yadkin River under the Alcoa dams as public trust land;  and 2. asked the court to   recognized State ownership of the Alcoa dams  based on public trust ownership of the riverbed under the dams.  The significance of the Alcoa 401 Certification denial is that  many projects requiring 401 Certifications are located  in waters that may be covered by the public trust doctrine. The Alcoa  denial raises  some interesting questions about   issuance of  401 Certifications for  activities in rivers and streams in particular.   First, some history on Alcoa’s dams and  the public trust doctrine.

History.  Alcoa operates four dams on the Yadkin River to generate electricity.  Alcoa bought an  unfinished aluminum smelting plant in the town of Badin from a French company in 1915, completed the plant and began operation in 1917 powered by the newly constructed Narrows Dam on the Yadkin River.  As power demand increased, Alcoa  built three more hydroelectric dams on the Yadkin  —  at the Falls (1919),  High Rock (1927)  and Tuckertown (1962).   After Congress strengthened the federal role in permitting hydroelectric power projects,  Alcoa received  a 50-year federal  license to operate the dams (together  known as the “Yadkin Project”) in 1958.  In 2002, Alcoa  began the process of renewing the federal license.

For two years, a group  of North Carolina local governments, state agencies (including DENR), federal  agencies, lakefront homeowners associations, and environmental organizations met  to develop recommended license conditions for the Yadkin Project.  The   group  reached agreement on measures to protect water quality and habitat; provide public access; maintain lake levels and adequate  downstream flows; and create a drought management system for the area affected by the Yadkin Project.  The group submitted the proposed conditions to the Federal Energy Regulatory Commission (FERC) in 2007.  You can find a description of the 2007  relicensing settlement agreement  here.

Shortly after the settlement agreement had been signed,  Alcoa stopped all production at the Badin aluminum works and eliminated the last 30 jobs at the plant.  At its height, the Badin aluminum works employed about 1,000 people, but production had declined over a ten-year period.  As the demand for power at the Badin works lessened, Alcoa  started selling electricity from the Yadkin Project on the wholesale market.  Complete shutdown of the Badin plant set off a backlash. Stanly County, which  did  not sign the relicensing settlement agreement, demanded that Alcoa compensate the county for jobs lost  in the  shut down of the  Badin works and raised concerns about industrial contamination in the area of Alcoa’s Badin plant.  Stanly County  and others opposed to  renewal of Alcoa’s  FERC license  persuaded Gov. Beverly Perdue to intervene in the FERC relicensing and  request transfer of the  Alcoa  license to the State of North Carolina. FERC’s decision on relicensing of the Yadkin Project has now been on hold for several years waiting for the state to make a decision on issuance of a  401 Certification for operation of the dams.

In 2009, DENR   issued a  401 Certification for the Yadkin Project. The certification required   Alcoa to upgrade the hydroelectric generation facilities and make operational changes to improve downstream water quality and  restore flow to streams affected by operation of the dams.  DWQ revoked that  401 Certification in late 2010 after discovering that  information submitted by  Alcoa during the application review  may have been misleading.  After resolving DWQ’s  concerns, Alcoa reapplied for a 401 Certification last  year.   DWQ was  moving toward issuing a new 401 Certification  for the Alcoa dams — there was  a public hearing on a draft 401 Certification  in  May  — when DENR suddenly reversed direction and denied the 401 Certification on August 2, 2013 citing the McCrory administration lawsuit filed the same day. You can find documents related to Alcoa’s recent 401 application (including the denial letter and the complaint in the McCrory administration lawsuit) here.

Public Trust Doctrine. Under ancient law brought to the American colonies from England,  lands under navigable waters are owned by the sovereign and held in trust for the public.  The “public trust doctrine” protects the right of  the public to use the  waters for navigation, fishing, and recreation.  After independence, the states acquired title to public trust lands previously held by the King. Since the state holds lands under navigable waters in trust for the use of the public,  the state rarely transfers ownership of  those lands  outright.  On the other hand, the state  allows many private activities on  state-owned public trust lands — both commercial and non-commercial. Most of the docks, piers, marinas, and fish houses in  coastal waters have been built on state-owned public trust lands.   You will  find  other commercial activities in  coastal waters, rivers and streams including  aquaculture operations,  mining,  commercial recreation facilities,  and  dams (used for various purposes).

The  McCrory administration lawsuit admits  that  Alcoa had state permission to build hydroelectric dams on the Yadkin River. In the late 18th and early 20th century,  the General Assembly allowed a number of companies to build hydroelectric dams and mill dams on state rivers by  special legislation.  It is not clear that the state claimed ownership of the bed of the Yadkin River at the time.  Some early laws authorizing construction of dams on the Yadkin  refer to construction on “non-navigable” sections of the  Yadkin River  and a number of  state court decisions  recognized private ownership  of the bed of the Yadkin River  at  specific locations.   In Rose v. Franklin, 216 N.C. 289, 4 S.E.2d 876 (N.C., 1939), the N.C. Supreme Court noted that the parties to a title dispute admitted that the Yadkin River was a non-navigable stream as it passed through the town of Elkin and found that the plaintiff owned to the center of the river.

Until the 1990s,  court decisions recognized state ownership of lands under: 1. tidal waters (like the waters of the Atlantic Ocean and the coastal bays and sounds); and 2.   other waters that were navigable by sea-going vessels. The second category covered rivers that were below the fall line and deep enough to  be navigated  by large boats.    The public trust cases  appeared to allow private ownership of  the beds of  other rivers and streams,  but recognized a public trust easement on those that could be navigated by  shallow-draft boats or used to float logs downstream.   Decisions like Rose v. Franklin  fit this understanding of the law.

A  1995 N.C. Supreme Court decision, Gwathmey v. State, 464 S.E.2d 674, 342 N.C. 287,   abandoned the use of tidal influence as a factor and stated a simple rule: the public trust doctrine applies to any water body that, in its natural condition, can be navigated by “useful vessels, including small craft used for pleasure”.   It isn’t clear whether  Gwathmey completely abandons the old distinction between waters navigable by sea-going vessels and those  floatable by canoe for purposes of state ownership of the bed. One  problem with the Gwathmey case is that it  involved tidal  waters and marsh where public trust ownership had historically been recognized. The court just substituted one grounds for public trust ownership (navigability) for another (tidal influence).  The decision never  addressed the  impact of the  new rule  on  inland rivers where state courts had  recognized  private ownership of the river bed.  The McCrory administration lawsuit claiming title to the Alcoa dams may require the court to explain how the Gwathmey decision  applies to  interior rivers and streams.

The 401 Certification Decision.  The letter denying the Alcoa 401 Certification offers only one grounds for the denial — the state’s claim of ownership of the Yadkin River bed and the Alcoa dams built there. Citing a water quality rule, 15A NCAC 02H.0502 (f),  the letter says that “signature on the [401] application ‘certifies that the applicant has title to the property, has been authorized by the owner to apply for certification or is a public entity and has the power of eminent domain’. The required ownership certification ensures that the applicant owns the project’s dams and powerhouses and is fully capable of implementing all protections of water quality that may be imposed as conditions in a 401 Certification.”

The  rule applies to  all 401 applicants, raising the question of what will  now be required of applicants proposing development in public trust waters or in rivers and streams where public trust ownership may be in question.   It  is not a standard that seems to have been applied before to projects  on rivers and streams– even in the very recent past.  Just one month earlier, DENR waived a 401 Certification for the proposed Cleveland County dam without requiring the county to  show ownership of the bed of the First Broad River or obtain state permission to apply for a federal Clean Water Act permit  to build a dam.  Beyond dam construction,   a  401 Certification may be required for other commercial activities like in-stream mining; aquaculture;  construction of recreation facilities;  and  water intake structures for industry or agriculture.  Having invoked the requirement for Alcoa’s hydroelectric dams, DENR will need to  explain how the requirement applies to other applicants and permit holders:

— Does the standard set in the Alcoa denial letter apply to all  projects  in navigable  waters that require a 401 Certification?  This is not a trick question;  the letter indicates that  ownership  or  some form of state permission  will be necessary to satisfy DENR that  the applicant  has  sufficient control over  a project  on public trust lands  to  meet water quality conditions on a 401 Certification.

— What  will an applicant have to do to show  private ownership of land under a river or stream? Deciding whether a river or stream is navigable can require a boat trip — literally.  Answering the question of public trust ownership  will be  further complicated by uncertainty about how  the Gwathmey decision  applies to  rivers (or parts of rivers)  that  had  never been considered navigable by sea-going vessels.  In the past, many of those riverbeds had been recognized as  private property subject to a public trust easement for  navigation.

— Without proof of private ownership of the river or stream bed, what  kind of  state permission will be needed?  In the 19th and early 20th century, the General Assembly  often authorized activities in rivers and streams by special legislation  — as it did for  construction of  hydroelectric dams on the Yadkin River.  The state issues leases and easements in public trust lands for some purposes, but  those   programs developed fairly late in the 20th century and have been used for the most part in coastal waters.  The easement criteria in G.S. 146-12  lend themselves more readily to piers and docks  than to more intensive uses such as mining or dam construction.

In something of a reverse of the Alcoa 401 denial,  the state has   often relied on environmental permits as the vehicle for approving  activities in public trust waters.  Under G.S. 146-12, issuance of a  Coastal Area Management Act (CAMA) permit for development in  coastal waters  also  gives  the applicant a state  easement.  (The State Property Office  has an opportunity to review those CAMA applications.)   Outside the coastal counties, it is hard to find consistent application of the easement requirement.  For projects that don’t require a CAMA permit,  there will likely be more uncertainty about  public trust ownership and a less well-trod  path to state approval if the state does own the submerged lands.

— What standards will be applied in granting or denying state permission for activities on public trust lands?  The McCrory administration lawsuit suggests an intent to tie Alcoa’s operation of the Yadkin dams to generate electricity for sale on the wholesale market to compensation for use of the public trust resources.  Outside of leases to mine on  submerged lands, state law has not generally taxed  revenue from commercial  use of public trust resources.

— What happens when Congress has given a federal agency authority  to permit an  activity in navigable waters?  Under the Federal Power Act, FERC  has the authority to license hydroelectric projects in navigable waters of the United States. The U.S. Army Corps of Engineers has authority to permit other types of structures in navigable waters under the  Rivers and Harbors Act of 1899 and  issues Clean Water Act permits to fill navigable waters.  The Section 401 Certification has generally served as the state approval for  federally permitted projects in navigable waters. I don’t know that  the state has previously required a separate easement or lease. I also don’t know whether the federal  agencies believe any other state approval is needed given  Congressional authority  to permit these activities in navigable waters.

Many questions. The answers will be interesting.