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Case number 17-1243, State of North Carolina petitioner versus Federal Energy Regulatory Commission.

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Mr. Doggett for the petitioner, Mr. Kennedy for the respondent, and Mr. McBride for the intervener.

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Mr. Doggett.

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May I please record?

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My name is Jim Doggett and I represent the state of North Carolina.

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Good morning.

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I'd like to reserve three minutes of my time for rebuttal, if I may.

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The license granted to Alcoa to generate power from North Carolina's second largest river system, which has now been transferred to Cube, should be vacated for three reasons.

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First, Alcoa chilled the emergence of competition for its license by stating that its Baden-Works smelting plant would only have its operations curtailed temporarily.

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As a result, under FERC's rules, licensing should be reopened.

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FERC's decision not to use its actual powers to reopen licensing was not based on reasoned decision making.

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Third, FERC also failed to adequately consider North Carolina's proposal that the Ag In project be placed under public ownership.

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With respect to your first argument,

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Is that based on the premise that at the time it filed its application, Alcoa knew that it was going to permanently close the Badden works?

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No, Your Honor, that's not a premise that underlies our argument.

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Because you do at one point argue that in your brief, that they knew that, almost like that there's a kind of like fraudulent concealment theory.

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But you're saying that you don't have to establish that.

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It's just the fact that they represented that it was temporary and then facts changed and it became permanent later.

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that that's sufficient to require for to have found their application to be incurably.

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Deficient.

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Yes, sure.

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I think that's that's correct.

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We even assuming that they did not know it was going to be permanent.

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There was no representation as to how long temporary meant was there.

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They didn't say it's temporary.

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We're going to be back in

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Handling the aluminum in three years, or five years, or two years, there was no representation as to the meaning of the temporary period, was there?

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Well, Judge Santel, I think they did very clearly say that the shutdown, that the curtailment, first of all, the word curtailment implies that simply of limitation of activity.

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Second of all, they said that it would be temporary.

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And getting back to my question, was there any representation as to how long the curtailment or temporary shutdown was going to be?

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No, Your Honor.

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So far as you knew, as far as North Carolina knew or Fert knew when the application was filed, temporary could have meant 10 years.

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That's correct.

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It could have been much less.

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Is there any real material misrepresentation, whether intentional or unintentional here?

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Is there any materiality to the difference between an unspecified temporary period and a permanent period?

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Yes, Judge, until I think it is material.

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In the state of North Carolina, when ALCOA curtailed operations at the Baden Works, there was a real hope that the jobs would come back.

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And in the subsequent filings that ALCOA made to FERC in the years after 2002, there was no indication that they had decided to shutter the plan entirely.

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And so I think that was material.

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The plant had been closed for six years at the time the application was filed.

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Four years, I believe.

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It was curtailed in 2002, and then the outpatient was in 2006.

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I'm sorry, 0-2-06, but substantial length of time.

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Yes, that's correct, that it had been curtailed by four years.

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But from the perspective of someone who might be considering competing for a license to run a hydropower facility, it takes a good deal of time to prepare a license.

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When the plant was, before it was curtailed in 2002,

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How much of the power from the Yadkin project was used for activities at the plant?

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Your Honor, I'm not sure if that's in the record.

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I believe most of the power was.

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Before the shutdown occurred, 400 people were employed at the plant and its smelters were operational.

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Because I didn't see that in the briefing.

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Maybe it's in the record somewhere and I didn't see it, I don't think, in FERC's decision.

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I mean, because part of your argument is that this is material because how the power would be used is material, right?

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And so there was some sort of expectation

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at the time that the license application process was going, that Alcoa would have an advantage because it was material how the power was going to be used and there was at least some sort of expectation that a significant amount of the power would be used for the Badden works.

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But at the time of the application, they represented that only about 2% of the power was going to be used for baton works, right?

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That's correct.

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About the 2% figure, I think the important thing to recognize is not that 2% is obviously a fairly small point, the amount of power that was being used by 2006, but that there was a hope that the amount of power that would eventually be used to operate Baden Works and provide jobs.

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North Carolinians would go up above 2% much higher than it had been in the past.

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So your argument is that

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The at the time that they filed their application where they represented that 2% would be used for industrial use their own industrial use that gave them an inherent advantage over any other applicant that was just going to operate the facility and sell on the open market.

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I believe the 2% figure was the amount of power that they were using when they submitted their application in 2006, not in 2002.

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In 2006, yes.

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I'm sorry.

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At the time, I guess my point is that the argument on the other side is that look, even if ALCOA, even if it's correct,

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that to assume that Alcoa kind of had some sort of advantage because the power was going to be used for Baden Works, the representation was that only two percent of the power was going to be used for Baden Works.

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I mean there's nothing in the record that shows that FERC in granting the license

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did so with the expectation that that plant was going to reopen and it was going to go from 2% to 50% or 75 or 100 or whatever it was prior to 2002.

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Right.

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Is there anything like that in the record?

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Well, I think the materiality of the representations that were made before Alcoa filed its license and when it did file its license, don't go to necessarily misleading FERC.

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It's rather that potential competitors saw that the shutdown was not permanent.

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Alcoa stated that the shutdown was temporary.

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The normal mean of temporary is that something is going to resume.

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But I guess in order to kind of

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gauge the merits of your argument, don't we have to, you know, it's easy to make that up, but what evidence or what do we have to look to to infer that people were chilled by this representation that was made at the time of the license, which was that we're using 2% of the power for this plan.

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Well, I think you look at two things, Your Honor.

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First, that ALCOA said that the shutdown would be temporary.

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And second, you can look at the reaction that happened in North Carolina after it really did finally become a political issue in the state, and you saw that actually the jobs were not coming back.

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What you saw happen is that local people in Stanley County in North Carolina began to complain about this.

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Eventually, that issue bubbled up to the state level, and it became a major issue within state politics that ALCOA was seeking a license to run the Yadkin Project, and it had fired all the employees, didn't plan to hire them back.

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And once the actual facts came out, you can see the materiality, because there was a volcanic eruption in North Carolina of anger.

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about what had happened and became the major political issue.

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If we were told that FERC was arbitrary and capricious or otherwise acted unlawfully in not letting you file a three-year late objection, if you would, to the application, what is it at this point in life you think is going to happen that's going to get better for the people of North Carolina?

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project is going on.

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The transfer to cube has been made.

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What is going to happen?

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It's going to help your people out.

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Well, if well, believe me, I like to help the people of North Carolina.

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Of course, Judge Santel.

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Go ahead.

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Well, first there would be an opportunity for Alcoa is gone now.

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If Cube wanted to compete again, Cube's license application could be compared against competitors that might offer greater benefits to the North Carolina.

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It would also have to be compared against the recapture request or license application that North Carolina would file that would offer greater benefits to the state of North Carolina than what Cube has provided.

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So it's your contention that the relief that we should grant is vacating the license, which vacates... Essentially, Cube will have paid 200-some million dollars to take over this license for nothing.

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or, you know, they'll have the opportunity to re-compete, but if they lose that competition, then they'll be left holding the bag, so to speak.

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Well, I don't know the terms of what Cube's agreement with Alcoa were.

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It may be that Cube is protected from this kind of eventuality.

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You would expect that a party represented by sophisticated counsel where a license had only been granted temporarily, subject to a petition review, would have protected themselves from that.

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But that $200 million figure, that half, a quarter of a billion dollars is a fair figure to think about here, because essentially what happened is that Alcoa delayed revealing that the shutdown of Bayton Works would be permanent.

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As a result, it was able to sell its license on the market to the highest bidder for a quarter of a billion dollars.

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Do you think the Alcoa smell plant will reopen at this point?

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At this point, no.

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Right.

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So we just can't unscramble the ag that you've been complaining about.

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Of course, that's definitely correct.

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The smelting plan is gone.

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But what's also gone is North Carolina's opportunity to compete for the license.

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And our position has been that North Carolina, if it had the opportunity to compete for the license, if its proposal that the ag can project be recaptured and considered, we would have gotten.

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presence of that word temporary or similar words in the application in any way hamper the ability of North Carolina to compete for the license had North Carolina chosen to do so?

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Well, I think it delayed the emergence of this as a political issue in North Carolina.

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I think if Alcoa had been forthright... So the harm here is the delaying of the political issue.

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That's correct.

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Instead of this issue... That's very correct, I think.

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Instead of this issue emerging in 2002, when ALCOA curtailed operations at the Baden plant, it emerged in 2008 and 2009, at which point it was no longer possible for North Carolina to compete for the license.

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Again, I think things would have turned out very differently if ALCOA had shut down the plant.

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So you were deprived not of an opportunity, but at most of an incentive to compete.

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You had the same opportunity to compete for the license without the word temporary in the application.

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You may not have had as great an incentive, but you had the opportunity.

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So you're two or three years late in making your objection.

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Well, the state of North Carolina, I think, is differently situated in, say, a private competitive or a hydropower license.

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The purpose of the state of North Carolina is not to seek out hydropower opportunities.

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It's to respond to the desires and needs of its citizens.

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And once it became clear that these jobs weren't coming back, there was an uproar in North Carolina.

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And at that point, it became a live political issue for the state.

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And the state wanted to make sure that this valuable asset

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would actually be used for public purposes, which is the entire purpose of the Federal Power Act.

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It's to make sure... What public purposes are left out there for it to be used for at this point?

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What public purposes are left out there for it to be used for at this point?

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The jobs are gone.

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This melting plant has been shuttered for years and years now.

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In fact, it's not even physically there anymore, is it?

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Well, I think the FPA envisions that there will be a vigorous competitive process when license come up for renewal to determine which are they do now.

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What is the public purpose that left that you could be advancing?

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With this lesson, if North Carolina comes in to compete, what is the public purpose?

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Assume that you're correct that you were relying on Alcoa to advance the public purpose of maintaining the smelting plant.

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What is the public purpose North Carolina could be advancing at this point?

[00:16:00] Speaker 06:
Well, in the state's recapture request, Your Honor, the state stated that it wanted to use the profits from the Yadkin project to try to fund economic development projects around the state to support the state's community colleges.

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The state also indicated that there was a need for the state to gain greater control over its water resources as well.

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So I think that this is exactly the sort of competition that the FPA intends to foster, where there's a chance to weigh different applications against one another and look at them and compare them to determine which one best serves the public interest.

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And that's precisely what didn't happen here.

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So your public interest is simply a generality.

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If the state owns it, we'll spend the money on good things.

[00:16:41] Speaker 06:
Well, and again, there have also been problems with its environmental management of the dams.

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The state believes it would be a better environment.

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Didn't that all have been raised as it was?

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If there is problems with the environmental, that has nothing to do with the representations about the temporary closing.

[00:17:00] Speaker 06:
Well, I think in 2002, if the state had considered applying for... The state had to certify the environmental questions, even under this scenario, didn't they?

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Didn't the state have the issues or two?

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That's correct, Your Honor.

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Yes.

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So environmental is off the table.

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That's my guess.

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Well, I think who will serve as a better environmental steward is an issue that's considered in FERC re-licensing, and it's not worth finding.

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But in this particular one, the state has already certified on these facts that issued the certification required of states on the re-licensing, right?

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The state did issue a 401 certificate, that's what I just said.

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What year was that?

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I believe it was finally issued in 2015.

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All right.

[00:17:52] Speaker 04:
Thank you.

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We'll give you some time on rebuttal.

[00:17:55] Speaker 06:
Thank you.

[00:18:02] Speaker 04:
Mr. Kennedy.

[00:18:05] Speaker 04:
Yes, Your Honor.

[00:18:05] Speaker 04:
Good morning.

[00:18:06] Speaker 00:
Good morning.

[00:18:07] Speaker 00:
Robert Kennedy on behalf of the Commission.

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Just to pick up on the last discussion about Alcoa's environmental stewardship, I would also just note that the state of North Carolina's environmental

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agencies signed off on the settlement agreement that laid out how the project would operate, what sort of environmental remediation would take place going forward.

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So that, as you said, Judge Santel, that issue has been resolved and is generally off the table.

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Just getting back to what was discussed, the underlying issue here, the bait and swish claim such as it is.

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I think it's important what, fundamentally what North Carolina is claiming is that, hey, we believe this asset can be used differently and for our view of how the power should be distributed should take precedence over Alcoa's because now we know they're using it in ways we don't agree with.

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And I think the possibility

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that ALCOA would sell power into the market and use the project power in the manner it thought was best was apparent from the beginning.

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I mean, as you talked about in this initial consultation document in 2002, ALCOA was forthright and said, and I think it's important, they came out and said our operations have been temporarily curtailed and that we're selling power into the market.

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And I think there's two things that are important about this document.

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Everything seems to hinge on the use of the word temporary in that document.

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And it was issued in September 2002, which is just one month after market conditions caused Alcoa to scale back its operations.

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So the notion that this was some sort of smoke screen or ruse to chill competition, I think, is undercut by the very chronology.

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Second, the document, the purpose of this initial consultation document is just to give everyone a heads up.

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This is, we're coming up on relicensing.

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These are the issues that could emerge so you can start a conversation with the environmental resource agencies and interested parties so that they can identify what studies need to be conducted and the like.

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ALCOA didn't need to get into how the power was going to be used or anything like that, but they did put that in there.

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But that's not it.

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I mean, two years later, March 2004, ALCOA comes in and says, we told you back in 2002, market conditions caused us to stop curtail operations.

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Two years later, that's still the case.

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And I think what they said here is important.

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They said, the bulk of the power and energy generated at the project is no longer needed for industrial purposes.

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And in the state's brief, they contend that ALCOA dangled the possibility of the jobs coming back.

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And I think this document for sure undercuts that.

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Rather than dangling the possibility of jobs coming back, ALCOA assigned a power purchase contract with the industrial facility to its power marketer and was selling it to the market.

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That's two years before the deadline for competing applications.

[00:21:00] Speaker 03:
How long would it take, just ballpark, for someone else in the market to decide we want to come in and bid for this license?

[00:21:13] Speaker 00:
It's an extensive process.

[00:21:16] Speaker 00:
Months?

[00:21:16] Speaker 00:
I would say years.

[00:21:18] Speaker 00:
A couple years?

[00:21:18] Speaker 00:
Yeah, yeah.

[00:21:21] Speaker 00:
And so the initial documents four years out from the deadline, the subsequent letter was two years out.

[00:21:28] Speaker 00:
And again, as Your Honors have pointed out, what ELCOA ultimately filed was completely consistent with its public representations.

[00:21:36] Speaker 03:
So in terms of the concern about skewing competition and fending off competitors,

[00:21:45] Speaker 03:
really the only document that likely matters is the 2002, right?

[00:21:50] Speaker 03:
I mean, if you thought that the license application were a little bit overly bullish about the jobs returning, I mean, it's ridiculous to think that five days before the deadline would have had any material impact.

[00:22:06] Speaker 00:
Right.

[00:22:07] Speaker 00:
But I think it's important that the

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what's in the application.

[00:22:12] Speaker 00:
Again, underscores that ALCOA was being candid and what it represented in the application is consistent with what it was saying.

[00:22:21] Speaker 03:
If we look at the application, it does seem to emphasize a great deal the importance of the project.

[00:22:29] Speaker 03:
The Yadkin project is, present tense, critical to ALCOA's primary metals operations.

[00:22:37] Speaker 00:
Right, but I think if you keep reading, what they say there is, A, that the Bayton Works plant had been curtailed and only two to five megawatts were in use.

[00:22:47] Speaker 00:
Fair enough, but in terms of overall emphasis.

[00:22:49] Speaker 00:
It's important to their industrial operations because they can sell that low-cost power and use the proceeds to offset the cost of energy at their other facilities.

[00:23:00] Speaker 00:
Not that again that The specific product these specific bottom works are coming back.

[00:23:07] Speaker 04:
Oh, I'm right right can I ask you about the argument that's made so in paragraph 68 of the

[00:23:18] Speaker 04:
order denying rehearing at JA 932 and 933.

[00:23:23] Speaker 04:
The Commission said that the issue of how Project Power will be used is not relevant to the licensing proceeding.

[00:23:37] Speaker 04:
Are you before us

[00:23:45] Speaker 04:
conceding that it is not relevant?

[00:23:50] Speaker 04:
Because I can't understand from your brief exactly what your position is here.

[00:23:56] Speaker 00:
I think the, in retrospect, the phrase how project power will be used was a little bit imprecise looking back.

[00:24:04] Speaker 00:
What Section 15 of the Federal Power Act 808 requires is that it requires the Commission to look at

[00:24:12] Speaker 00:
one of the factors is the need for power.

[00:24:14] Speaker 00:
Certainly that is relevant.

[00:24:15] Speaker 00:
The applicants need for power, and if they're selling into the market, that equates into sort of the region's need for power.

[00:24:22] Speaker 03:
And the statute is pretty broad, right?

[00:24:26] Speaker 03:
It focuses the commission on the public interest.

[00:24:31] Speaker 03:
It specifically talks about interests of customers, communities, workers, and so on.

[00:24:42] Speaker 03:
It seems a bit much for FERC to just say none of that is relevant.

[00:24:47] Speaker 00:
Now, specifically what it says is if the applicant, and this is 15, where are we?

[00:24:56] Speaker 00:
It's in D. Right, A to D. It says consider, what it directs the commission to do is consider the alternatives to licensing the project.

[00:25:07] Speaker 00:
If this applicant comes in and says part of my need is based on my industrial operations that I use this project power for, the commission has to look at, okay, well what if the project goes away?

[00:25:18] Speaker 00:
What will be the effect of the alternative source of power on the applicant's industrial operations?

[00:25:24] Speaker 00:
and the local community.

[00:25:25] Speaker 00:
And what the commission incorporates that into its analysis, generally the effect on communities by looking at the difference in price between the power being generated by the proposed project and alternative sources.

[00:25:39] Speaker 00:
And that comparison was carried out in the licensing order.

[00:25:43] Speaker 00:
What the commission, so need

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for power is relevant, obviously, under Section 15.

[00:25:49] Speaker 00:
What the Commission doesn't get into is directing which specific customers should receive project power.

[00:25:55] Speaker 00:
From the inception, from 1920 till now, absent congressional direct from Congress, the Commission leaves that determination up to the licensee and generally lets market forces determine.

[00:26:06] Speaker 04:
But when the Commission issued the original license in the 1950s,

[00:26:13] Speaker 04:
Wasn't it relevant to their granting at that point?

[00:26:18] Speaker 00:
Absolutely.

[00:26:19] Speaker 04:
That the power was going to be used for this plant?

[00:26:23] Speaker 00:
Because in that application process, the ALCOA came in and said, we're going to use this power for this project.

[00:26:31] Speaker 00:
And in that posture, for the Bay of Worms, and in that posture, Section 15 directs the commission to consider that as part of its need analysis, whether there is a need for a project.

[00:26:41] Speaker 00:
And also the smelting operations also factored into the length of the license.

[00:26:48] Speaker 00:
The idea was that it could be refurbished twice if we gave it a 50-year license term.

[00:26:54] Speaker 00:
So that's how it factored in.

[00:26:56] Speaker 00:
But there was no license requirement that, throughout those 50 years, ALCOA give the X percentage of the power to the House of Representatives.

[00:27:06] Speaker 05:
They certainly treated it as irrelevant at the time of that authorization, and to reject it is completely irrelevant here.

[00:27:14] Speaker 05:
Some might say that's arbitrary and capricious.

[00:27:16] Speaker 05:
Why would some be wrong if they said that?

[00:27:19] Speaker 00:
Well, because you need to look at what was proposed to the commission in this case.

[00:27:24] Speaker 00:
Alcoa came in and said, we're going to be selling the power into the market.

[00:27:29] Speaker 00:
2% right now is used for the Baden Works.

[00:27:32] Speaker 00:
That's the only thing that's changed in the ensuing shutdown of the project, that 2%.

[00:27:35] Speaker 00:
The commission's analysis proceeded on the basis that Alcoa would be selling power into the market.

[00:27:42] Speaker 00:
So the fact that the Baden Works subsequently closed

[00:27:44] Speaker 00:
didn't affect the Commission's analysis in any manner.

[00:27:49] Speaker 04:
That's not what they said.

[00:27:50] Speaker 04:
They said that how it will be used is not relevant.

[00:27:54] Speaker 00:
which specific customers, I think is what was intended here, is not relevant to the commission's analysis unless someone comes in as LCOA did the first go around and said, part of my need is for my industrial operations, then it factors into the analysis.

[00:28:10] Speaker 00:
But if the applicant is just going to be satisfying a general need, selling it to the market, then the commission doesn't

[00:28:19] Speaker 00:
looks at it on that basis rather than directing that the project power go to any specific entity versus another.

[00:28:27] Speaker 00:
Just getting into the second issue, the proposed takeover and transfer, our position is that it is foreclosed by Section 14 of the Federal Power Act, which specifically requires in the takeover context that the federal government

[00:28:45] Speaker 00:
Take over and thereafter maintain and operate and that's not what the state's proposing here So I think the Commission was well within its discretion in was that was that Reason articulated by the Commission it was it was in the paragraph 142 of the relicensing order

[00:29:08] Speaker 00:
But not on rehearing.

[00:29:11] Speaker 00:
Right.

[00:29:11] Speaker 00:
And the issue that has arisen with that is whether that's a chennery problem, and we submit that it's not.

[00:29:16] Speaker 00:
The relicensing order was issued.

[00:29:19] Speaker 00:
It's a commission order.

[00:29:20] Speaker 00:
It was issued under authority delegated to the Office of Energy Projects.

[00:29:26] Speaker 00:
This is not in the brief because it came up on rehearing, but I would just note that

[00:29:30] Speaker 00:
Section 375.308 authorizes the director to take action in licensing proceedings, and Section 385.1902 makes that final agency action.

[00:29:43] Speaker 00:
Yes, it was not dealt with rehearing, but I don't believe that means the commission can't rely on its initial statement in the licensing order.

[00:29:51] Speaker 00:
What the rehearing order?

[00:29:52] Speaker 03:
Because it remains one of the grounds of decision unless it's explicitly abandoned.

[00:29:58] Speaker 00:
Yes, I mean, I think the rehearing order essentially, I mean, the purpose obviously is to correct any errors in the initial decision and address any new arguments that are raised.

[00:30:09] Speaker 00:
And I think a somewhat analogous case is this Court's, I believe, 2011 decision in Murray Energy versus FERC, where there's a question as to the directors

[00:30:20] Speaker 00:
authority, and the court found that it had been ratified on rehearing.

[00:30:24] Speaker 00:
Now, to be clear, there it was explicit ratification because the delegation issue had been raised below, but I think fundamentally that is what's happening in this order and in most rehearing orders.

[00:30:35] Speaker 00:
The commission corrects whatever errors it sees fit, but otherwise ratifies the licensing order.

[00:30:40] Speaker 00:
And I think if you look at the last couple pages of the rehearing order...

[00:30:46] Speaker 03:
It may be true in most orders, but what's striking about this sequence is that the treatment of this issue in the original licensing order, which references the authority question, is pretty perfunctory.

[00:31:05] Speaker 03:
And then there's a motion for rehearing.

[00:31:07] Speaker 03:
And then on the rehearing order, there's a pretty extensive treatment of this issue.

[00:31:12] Speaker 03:
And it doesn't.

[00:31:14] Speaker 03:
doesn't come back and repeat the authority question.

[00:31:19] Speaker 00:
Right.

[00:31:19] Speaker 00:
Well, with respect to the discussion in the initial order, I think part of its perfunctoriness is the fact that it's pretty clearly, in our view, foreclosed by the language of the statute.

[00:31:31] Speaker 00:
On rehearing, there's a list of a number of issues, anywhere between 11 and 15 issues raised on rehearing, and the commission focused primarily on those that had not been

[00:31:43] Speaker 00:
addressed in detail below.

[00:31:44] Speaker 00:
And there have been various variations on the theme.

[00:31:48] Speaker 00:
This statutory construction argument, I think it's a 34-page rehearing order.

[00:31:53] Speaker 00:
There is, I believe, one sentence dedicated to the discussion of why it's not foreclosed by the language, and it's what we hear in the brief that, well, it doesn't explicitly say we don't have to pass it along.

[00:32:04] Speaker 00:
So I think the commission's treatment of the issue in general on rehearing was appropriate, unless there's any further questions, Your Honor.

[00:32:13] Speaker 00:
Thank you.

[00:32:14] Speaker 00:
Thank you.

[00:32:18] Speaker 04:
All right, Mr. McBride for intervener.

[00:32:21] Speaker 02:
Good morning and may it please the court.

[00:32:23] Speaker 02:
Morning.

[00:32:24] Speaker 02:
There was no bait and switch.

[00:32:27] Speaker 02:
There are four documents, only four, that you need to look at to come to that determination.

[00:32:32] Speaker 02:
First, JA 353.

[00:32:36] Speaker 02:
which is a paragraph from the initial consultation document.

[00:32:40] Speaker 02:
One month, as counsel for the commission said, after the temporary curtailment, ALCOA forthrightly referred to the temporary curtailment and said, during this period, energy generated at the project is used by ALCOA to support its other aluminum operations or is sold on the open market.

[00:33:01] Speaker 02:
Second, JA366, a voluntary submission from Council for Alcoa.

[00:33:12] Speaker 02:
And Judge Katz, I think this goes directly to the question you were asking about how much time somebody would need to prepare a competing application.

[00:33:20] Speaker 02:
This letter is profoundly important to this question.

[00:33:24] Speaker 02:
Because it is simply not true that Alcoa repeatedly said this curtailment was temporary.

[00:33:30] Speaker 02:
And Judge Centella did not say that in the application.

[00:33:34] Speaker 02:
It said it exactly once.

[00:33:36] Speaker 02:
It said it in that initial consultation document at 353.

[00:33:41] Speaker 02:
And then in this letter at 366, it harkened back to that representation.

[00:33:47] Speaker 02:
It said, due to adverse business conditions in the aluminum industry, Alcoa in late 2002 decided to temporarily curtail the production of primary aluminum at the Baden Works.

[00:33:59] Speaker 02:
But it went on, very, very important to say, although some minimal amount of project power continues to be consumed at the industrial facility, the bulk of the power and energy generated at the project is no longer needed for industrial purposes.

[00:34:14] Speaker 02:
in the interim since the smelter shutdown had been selling the power, et cetera.

[00:34:19] Speaker 02:
Given that aluminum market conditions still have not improved sufficiently to permit resumption of aluminum smelting at Baden Works, Alcoa has now decided to assign its purchase contract to another of its affiliates.

[00:34:31] Speaker 02:
So things have changed greatly.

[00:34:35] Speaker 02:
Now it's a year and a half after that decision.

[00:34:37] Speaker 02:
Any reasonable person, Judge Katz, is, I think, reading this letter, and it's only two pages long,

[00:34:43] Speaker 02:
should have said to themselves, oh my God, Baden Works may not be coming back.

[00:34:49] Speaker 02:
We'd better get a competing application going.

[00:34:52] Speaker 04:
Thirdly... But here we have the benefit of, I guess, hindsight, so to speak, to determine whether there would have been interest in others, perhaps.

[00:35:03] Speaker 04:
And we see that once the announcement is made, there is interest.

[00:35:07] Speaker 04:
There's interest

[00:35:09] Speaker 04:
by the state and there's interest by at least one private entity.

[00:35:15] Speaker 04:
Why shouldn't we take that into consideration?

[00:35:17] Speaker 02:
Well, there may have been interest later, as you say, and I know you're aware of that later, Judge Wilkins, but the state said this morning, and it said in its brief at 3 that it was resting on its hope that the Baden works would come back.

[00:35:32] Speaker 02:
My point to you is

[00:35:34] Speaker 02:
Alcoa voluntarily informed the Commission and the world.

[00:35:37] Speaker 02:
This letter was served on the service list.

[00:35:39] Speaker 02:
This plant may not be coming back, and that was in 2004.

[00:35:44] Speaker 02:
And competent counsel should know that the deadline was the same for competing applications as it was for Alcoa, April 30, 2006, to get an application prepared.

[00:35:55] Speaker 02:
They had more than two years' notice from this letter, Judge Katzis.

[00:35:59] Speaker 02:
And then at 381 in the application, they say curtailed.

[00:36:03] Speaker 02:
And at page 6 of our brief, we point out that in 2005, in the initial draft of the application which people were provided by ALCOA, and the State acknowledges that at page 9, note 4 of its brief, they had a draft of an application if they wanted to work from that, Judge Katz, in 2005, and the draft didn't say temporary.

[00:36:23] Speaker 02:
So never again, other than harking back in 2004 to the 2002 statement, did ALCOA ever say it was temporary.

[00:36:31] Speaker 03:
If the commission had assessed all of these facts and the timeline that you're running through and then the timeline going forward from 2006 and said, we don't think equity compels reopening or supports reopening, that would be fine.

[00:37:00] Speaker 03:
Arguably, it seems like their assessment of all of this was artificially constricted when on the back end, they just say, we're not going to look at downstream use at all because we don't think it's relevant.

[00:37:20] Speaker 02:
That had been a commission determination consistently since 1920 with two exceptions.

[00:37:30] Speaker 02:
One is the power authority estate in New York case cited in the briefs in which Congress clearly intended the Commission found, the FPC found, that there be a regional allocation of the power.

[00:37:41] Speaker 02:
The other case was City of Seattle, which we discuss in our brief, which the commission cited on rehearing.

[00:37:47] Speaker 02:
And the commission in 2013 on relicensing acknowledged that it erred in getting into allocation of the power at the time of initial licensing in Seattle.

[00:37:59] Speaker 02:
Put those two exceptions to one side, and the commission has been consistent for almost 100 years, that it only looks at need and not allocation of power.

[00:38:10] Speaker 02:
Okay?

[00:38:11] Speaker 02:
That is an unbroken interpretation of the statute, Judge Katz, that I think is powerful here.

[00:38:20] Speaker 03:
And consistent with all of the language about considering interest of the community and such?

[00:38:28] Speaker 02:
Yes, and I think the Commission explained that this morning.

[00:38:31] Speaker 02:
Sure, it can take those things into account, particularly if it's not going to relicense the project.

[00:38:36] Speaker 02:
But here, Alcoa was forthright all the way along.

[00:38:39] Speaker 02:
about what it was, what its circumstances were.

[00:38:42] Speaker 02:
And by the way, I think what's really important for you to understand, Alcoa didn't say, we don't want to pay all this money to do all this environmental cleanup for some other reason, don't want to do this.

[00:38:55] Speaker 02:
What Alcoa said was, we're a prisoner of the global aluminum marketplace.

[00:39:02] Speaker 02:
We can't operate this Baden-Works facility profitably because of the market.

[00:39:09] Speaker 02:
And everybody ought to know that even as large as Alcoa is, Alcoa doesn't run the global aluminum marketplace.

[00:39:18] Speaker 02:
And so the state and anybody else, a potential competitor, Judge Wilkins, should have said, oh my god, Alcoa is a prisoner here.

[00:39:28] Speaker 02:
Let's get some help in understanding the global marketplace, or at least let's just look at the price of aluminum and see if it's coming back.

[00:39:35] Speaker 02:
And if it's not, maybe we ought to put two and two together and figure out that these maidenworks probably aren't coming back.

[00:39:44] Speaker 02:
And it's not reasonable to just rely on your hope that they'll come back, as the state has said.

[00:39:50] Speaker 02:
If there's a reasonable likelihood they're not coming back, any chance, I would argue,

[00:39:56] Speaker 02:
then you got the same deadline everybody else does to get your competing application.

[00:40:01] Speaker 04:
So what's your response to the argument by your friends on the other side that Alcoa

[00:40:14] Speaker 04:
received an advantage.

[00:40:16] Speaker 04:
Perhaps it wasn't a big advantage, but there was some advantage that Alcoa had in the licensing, relicensing process because of the presence of the Baden Works project.

[00:40:32] Speaker 02:
I don't believe it was a factor because, as the commission has said, by the time the application goes in, only 2 percent of the power from the project is going to Baden Works.

[00:40:43] Speaker 02:
Everybody's aware now, by then, 98 percent's going into the marketplace.

[00:40:47] Speaker 02:
In the draft, it was closer to 96 or 97 percent, but this has been known for years.

[00:40:53] Speaker 02:
So the use of power by the Baden Works was really almost inconsequential.

[00:40:58] Speaker 02:
at best, and the Commission has said really it's irrelevant because it's not allocation of power, it's not the use of the power, it's the need for the power.

[00:41:06] Speaker 02:
And the Commission made a determination that there was a regional need for the power from this project.

[00:41:12] Speaker 02:
That was the need predicate.

[00:41:14] Speaker 02:
Whereas, by the way, Judge Santel, 50 or 60 years ago at the time of the initial licensing,

[00:41:19] Speaker 02:
Although there was discussion of use of the power at the Baden Works, as the Commission said in its brief, the Commission also noted at that time back in the 50s that it was impossible to figure out what the need for this power would be in the future.

[00:41:36] Speaker 02:
You couldn't project that far into the future.

[00:41:39] Speaker 02:
So by the time we get to relicensing, the need question Judge Wilkins has determined on a regional basis.

[00:41:45] Speaker 02:
And there the commission found there was a need for the project.

[00:41:48] Speaker 02:
And it really was irrelevant that the Baden Works was using 2 percent or no percent at that point.

[00:41:54] Speaker 02:
There was still a need.

[00:41:55] Speaker 02:
That's how the commission analyzes that issue.

[00:41:59] Speaker 04:
All right.

[00:41:59] Speaker 02:
And could I just make one last point that what the state is really trying to do is fundamentally unfair to my client.

[00:42:08] Speaker 02:
Because, as you noted, this purchase price was in the hundreds of millions of dollars.

[00:42:14] Speaker 02:
The company has spent tens of millions of dollars since.

[00:42:17] Speaker 02:
This is cute.

[00:42:19] Speaker 02:
To do all the things that are required under the license.

[00:42:22] Speaker 02:
And the state, in its brief at 17 Note 6,

[00:42:26] Speaker 02:
refers to ALCOA's net investment of $24 or $91 million.

[00:42:30] Speaker 02:
It presents two different figures there and wants to suggest, apparently, that it should be allowed to have a federal takeover, hand from the federal government to the state, and pay $24 or $91 million for something that we spent hundreds of millions of dollars on in good faith.

[00:42:46] Speaker 02:
And under the statute, only the federal government gets to pay net investment plus severance damages.

[00:42:51] Speaker 02:
14A makes it absolutely clear that if the state takes the project, it's got to be at just compensation, fair market value.

[00:43:00] Speaker 02:
Thank you very much.

[00:43:00] Speaker 04:
Thank you.

[00:43:04] Speaker 04:
All right.

[00:43:05] Speaker 04:
Mr. Doggett, we'll give you two minutes.

[00:43:07] Speaker 06:
Thank you, Your Honor.

[00:43:08] Speaker 06:
I'd just like to make a few quick points.

[00:43:12] Speaker 06:
First, responding to my friend's comment about North Carolina's hope.

[00:43:15] Speaker 06:
North Carolina's hope that the jobs would come back to Baden was not a groundless hope.

[00:43:19] Speaker 06:
Alcoa specifically stated that the shutdown at Baden would be temporary.

[00:43:24] Speaker 06:
And furthermore, there were some references to the 2004 letter that Alcoa submitted.

[00:43:30] Speaker 06:
That letter did not state or disavow ALCOA's previous statement that the shutdown would be temporary.

[00:43:36] Speaker 06:
To the contrary, it stated that conditions at Baton Works or conditions in the aluminum market had not improved enough for smelting to continue, which suggests that it would start up again at some point.

[00:43:46] Speaker 06:
ALCOA in that letter also reserved the right to rescind its assignment of the contract, again, revealing the temporary nature of what had happened.

[00:43:55] Speaker 06:
I'd also like to make a quick

[00:43:58] Speaker 06:
a comment about what Council for FERC said.

[00:44:01] Speaker 06:
Council for FERC, I believe, acknowledged that in the rehearing order, there was no discussion of the Federal Power Act and whether Northland's proposal was or within the Federal Power Act, when that was a specific issue that we moved for rehearing on, and there was no response at all.

[00:44:20] Speaker 06:
So we think we're at least entitled to a chance for FERC, in the first instance, to actually address that issue itself.

[00:44:27] Speaker 06:
We would respect the request that the license be vacated.

[00:44:29] Speaker 06:
And this case remanded for licensing to be reopened.

[00:44:34] Speaker 06:
And in the alternative, we would request for the license to be vacated.

[00:44:39] Speaker 06:
And this case remanded so can consider on a reason basis whether licensing should be reopened and whether North Carolina's recapture proposal should be considered further.

[00:44:50] Speaker 06:
Thank you.

[00:44:51] Speaker 04:
Thank you.

[00:44:51] Speaker 04:
We'll take the case under advisement.

[00:44:55] Speaker 06:
Stand, please.