Alcoa's new tactic in dam dispute: Charm By Ken Otterbourg, contributor

FORTUNE -- The long-running fight between North Carolina and Alcoa over the future of four hydroelectric dams near Charlotte is heating up during this frigid winter.

As Fortune featured last November (see Alcoa and the great North Carolina power grab), Alcoa is battling to maintain licensing rights to the four dams it built nearly 100 years ago to help power an aluminum smelter in the area. With the smelter now closed and the jobs long gone, North Carolina wants the rights to the 38-mile stretch of the Yadkin River controlled by the dams back. Alcoa's 50-year license to those rights has expired, and it's fighting to renew it.

Since the story ran, Alcoa has turned on the charm offensive with state and local officials. The company says Fortune's reporting caused it to "refresh" its approach, including increased community outreach and dialogue, and speeding up the redevelopment of its smelter site in the tiny town of Badin. What hasn't changed, of course, is Alcoa's position that the state has no business trying to take over the dams, which provide upwards of $40 million a year in revenue from power generation.

Late last year, North Carolina revoked an environmental permit that Alcoa needs to complete its license-renewal application with the Federal Energy Regulatory Commission. That move came after company emails released at an administrative trial suggested Alcoa had misled North Carolina on the effectiveness of its actions to improve water quality at the dam sites along the Yadkin River. Alcoa (AA, Fortune 500) is appealing the revocation and says the emails are taken out of context.

While only one part of the state's campaign against Alcoa, the revocation removed an embarrassing situation for Gov. Bev Perdue, who is leading the charge against the company. Some of the state's attorneys had been on Alcoa's side during that trial.

The state's argument is that Alcoa's license -- which expired in 2008 and is being extended on a temporary basis -- shouldn't be renewed because the smelter and the jobs it provided are gone. While Alcoa has a handful of employees who maintain the dams and the reservoirs, the electricity is sold to the grid, and most of the money leaves the hard-hit area. The company says federal regulations don't require it to maintain a factory as a condition for operating the dams.

Fortune reported that Alcoa considered the dams and the closed smelter as separate issues. Now, it's changed course, and is accepting the link between the facilities. Legally, Alcoa says, they are separate. But the court of public opinion here has always cared little about such technicalities.

To that end, Alcoa plans to spend $10 million this year tearing down 25 buildings at the Badin Works and hustling to get the remaining property in shape for redevelopment. Bringing industrial jobs to North Carolina is something Alcoa and Perdue's team can agree on, although it's unclear whether a new tenant will lead to a thaw in relations and a resolution.

New message, new messenger

With the license revocation, some of Alcoa's opponents are ratcheting up their legal assaults against the company. Whether the arguments hold water is less important than playing for time. The goal isn't necessarily to win but to be a big enough nuisance that Alcoa decides this fight isn't worth the trouble. On the other hand, Perdue is up for election in two years, and if she loses, her replacement may not have the same agenda to control the dams.

An Alcoa spokesman told Fortune that the company still believes it is best suited to run the dams and that the litigation only delays the company's planned improvements to the four reservoirs, which are used by thousands of residents for recreation.

With the new message, Alcoa has also dispatched to North Carolina a new messenger, Kevin Anton, the company's chief sustainability officer. He has been meeting with stakeholders across the state and generally getting good reviews, although an audience with Perdue remains elusive.

The political equation -- already tense -- is in some ways even more combative. Alcoa beat back a bill in 2009 that would have created a state trust to operate the dams. Legislators responded last year by approving the formation of a regional development commission focused on the counties around the dams. Its first meeting was last month, and the commission's board is already being criticized for being stacked with politicians of both parties who agree on one thing: Alcoa shouldn't get a new license. To top of page

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