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Big developer in foreclosure as lenders call their loans

A mega developer in Jackson County has landed in foreclosure due to sluggish lot sales in the down real estate economy.

Legasus development company saw a portion of its massive land holdings auctioned off on the courthouse steps last week. The company’s business plan is not uncommon among developers: borrowing money to buy the land, market lots and build roads, meanwhile banking on revenue from lot sales to pay the debt. But lots sales haven’t been forthcoming, and the company couldn’t make its payments.

Over-extended developers have been on the rise, according to Rick Boyd, the trustee handling the sale.

Just five years ago, Boyd did an average of three to five foreclosures a month. Now, he may see as many as 40.

The day of the Legasus’ sales last week, Boyd had 20 foreclosures in one day, dashing from Haywood to Jackson to Macon counties all before lunchtime to read out lists of foreclosure notices on the courthouse steps.

While most are single homes and lots, developers with large tracts have been turning up in the mix as well.

“I have done quite a few of the developers that have over-built and got caught,” said Boyd, a real estate broker with Beverly Hanks in Waynesville. “They needed to sell so many lots per quarter to maintain their payments, and when those slowed down they didn’t have the reserves to keep up with the payments. People never foresaw they would build four or five spec homes and have them sit on the market for over two years.”

The foreclosure proceedings against Legasus are for two large tracts: a 368-acre tract on Cullowhee Mountain that’s part of the River Rock development and a 630-acre tract in Whittier called High Grove. They are two of the largest tracts Boyd has seen go into foreclosure.

In both cases, the opening bids were made by Macon Bank, the lender that initiated the foreclosure. Bidding on the tracts can, and likely will, continue for weeks. Buyers have 10 days to submit an upset bid through the court. An upset bid has to be at least 5 percent more than the previous bid.

Phone calls to Legasus’ president, Legasus’ project developer and Legasus’ primary owner were not returned.

Bidding war ahead

Few large tracts of this magnitude have changed hands since the housing boom tapered off two years ago.

The final selling price could be a sign of whether investor confidence has returned in the real estate market, according to Todd Baucom, a real estate broker with Western Carolina Properties in Cullowhee.

“This will be a big signal,” Baucom said. “The question will be how high it goes.”

Baucom predicts the current bid of roughly $5,300 an acre for the Cullowhee Mountain tract could approach $7,000 an acre by the time bidding tops out.

As for the Whittier tract, the rock bottom opening bid of $357 an acre could make for a wild ride.

“That is going to upset and upset and upset. It could go through upsets for the next year,” Baucom said. “It will be very interesting to see what plays out with that.”

It is highly unusual to see an opening bid that is so low compared to the assessed value of the property. Typically, the opening bid is put down by the bank or lender that initiated the foreclosure — in essence buying up their own debt to protect their investment.

What makes the foreclosure unusual is that Macon Bank was owed so little — only $305,000 — on a tract worth millions. Macon Bank’s initial loan to Legasus was for $400,000 in 2004 to fund development activity on the tract. Legasus had paid off some of it, leaving a debt of just $305,000.

Given the small sum that was actually owed, it seems Legasus would try hard to come up with the money and hang on to the land. Baucom surmised Legasus wanted to divest themselves of the tract anyway and therefore didn’t fight to save it.

There’s another possible explanation: more outstanding debt associated with the High Grove tract. Even if Legasus got out from under its small debt to Macon Bank, there was a much larger lender waiting in the wings: a lender of last resort known as Kennedy Funding.

Legasus had borrowed $9.5 million against the property from Kennedy Funding last April. It’s not known exactly how much of the $9.5 million Legasus ever saw, however. Kennedy only made a portion of the full loan available through draw downs. Legasus apparently never realized the full amount of the loan promised by Kennedy.

Whatever Kennedy is still owed will come out of the final sale price.

Collateral for loans

Until recently Legasus owned more than 4,000 acres in Jackson County. The majority of the holdings were in the Tuckasegee and Glenville area, where plans called for 1,800 lots in five separate gated communities spanning 3,500 acres.

In addition to the foreclosures last week, Legasus sold off 300 acres to a private investor for $10.1 million two weeks ago.

The first sign of financial trouble for Legasus appeared in late 2007 when Legasus sold off 850 acres to a private investor for $16 million.

A few months later, the company sought financing from hard-money lender Kennedy Funding for $30 million: $9.5 million using the High Grove development in Whittier as collateral and $20.5 million using a portion of River Rock as collateral.

Legasus has been adept at using its land holdings to leverage financing. Legasus has used various parcels as collateral for more than 50 loans from at least two dozen different banks and lenders to finance property, according to a search with the Jackson County Register of Deeds Office.

It is difficult to figure out just how much outstanding debt Legasus has on all its property. For starters, the loans aren’t all in Legasus’ name. Legasus sometimes created subsidiaries to run the loans through, making it impossible to search for all of them unless you know the names of the subsidiaries.

In addition, there is no way to tell from the deeds of trust how much Legasus has paid back versus how much it still owes on each loan.

Aside from the two big tracts under foreclosure, Legasus is facing foreclosure on a few small lots as well. Last week, two lots of two acres each in the Water Dance development between Tuckasegee and Glenville were sold at foreclosure. The two lots went for a total of $325,000, purchased by Macon Bank, who was doing the foreclosing. Legasus still owed on a $423,000 loan made by Macon Bank in 2006.

There are pending foreclosures against five additional lots in Water Dance.

Developer’s plight mixed blessing for community

Legasus developers have been attracting attention from Jackson County residents for almost two years.

When news of the plans got out in early 2007 — calling for 1,800 lots on 3,500 acres between Tuckasegee and Glenville — Legasus evoked the ire of locals. While Legasus developers pledged to create a high-quality, environmentally-friendly development, locals feared the loss of viewsheds, degradation to water quality and an eroding sense of place from the growth of gated communities.

Residents of Tuckasegee publicly raised concerns about what would happen if the developers got part way into the project only to realize they didn’t have the capital to see it through.

“Two years ago I said, ‘What if the housing bubble bursts?’” recalled Jeanette Cabanis Brewin, a resident in Tuckasegee. “What if they get up there and start ripping the top of the mountain off and they run out of money? What is going to happen to the rest of us?”

That fear has indeed played out in some places.

“Legasus is definitely not alone. There are so many right now that have folded,” said Bryan Tompkins with the U.S. Fish and Wildlife Service in Asheville.

Tompkins has seen developers make an initial foray into development, cutting roads and grading lots, only to find out there isn’t a market for those lots after all.

“When they go bust, they have all these roads cut and they are not there to maintain it,” Tompkins said.

Environmental agencies are left trying to figure out what to do and who is responsible. In Madison County, a development abandoned by its owner needs $750,000 in work to get it back in compliance, Tompkins said. Tompkins wonders if a new owner would be able to take on such a liability.

“Who can do that and what bank is going to give you money to do that?” Tompkins said.

 

Vested rights

Rumors of Legasus’ plans in early 2007 helped spur the creation of a comprehensive development ordinance in Jackson County. The county adopted some of the most stringent development guidelines in the mountains.

The very development that led to the creation of the ordinances was ultimately grandfathered in, however. Legasus received vested rights, allowing it to proceed with development plans exempt from Jackson County’s new rules.

The vested rights most likely will be passed on to any new owner, according to Michael Egan, an attorney in Hendersonville who advised Jackson County during the creation of its development ordinances.

“It would be my opinion that common law vested rights would run with the land,” Egan said.

Vested rights are intended to protect developers caught mid-stream by new ordinances. Legasus argued they’d already spent a great deal designing a master plan and marketing the development to prospective buyers. If they had to start over again, they would be unable to recoup the investment they already had in it, they argued.

The same still holds true, Egan said. If the vested rights don’t pass to the new owner, it would devalue the selling price of the land, and put Legasus back in the same spot of being unable to recoup its investment, he said.

There is one catch, however. Legasus’ argued that all 3,500 acres were entitled to vested rights, even though development forays were further along on some of its tracts than others. Legasus claimed that the disparate tracts shared a common marketing theme. Residents of each development could use the amenities of the other properties, from a clubhouse at one to the golf course at another.

“If a sale of the property would somehow interfere with that common promotional plan then it is possible it might affect the vested rights,” Egan said.

Vested rights aren’t good forever. In this case, the county granted vested rights for five years.

“The clock is ticking,” said Jeanette Cabanis Brewin, a resident in Tuckasegee who has expressed concerns about the mega development. “They have used up almost two and half years of their five years.”

The economic slump may have given the community a reprieve, said Mary Jo Cobb, a Tuckasegee resident who was opposed to the scale of the development.

Most of all, “I hope this has bought us some more time to step back,” Cobb said. “There is so much interest in our environment now than there ever was before. I think that is good. We need to be aware and preserve these mountains.”

Cobb hopes the foreclosure will sideline Legasus’ plans for a golf course.

“That would be fine with me,” Cobb said.

Indeed, the foreclosure throws the fate of a controversial Phil Mickelson-designed golf course on Legasus’ property into question. A tract currently in foreclosure encompasses some of the land slated for a golf course in Legasus’ original plans.

The buyer of the tract could decide to partner with Legasus, in which case the golf course could still be pursued. If the buyer goes off on their own, Legasus could be forced to redesign the course on a different portion of the property or scale it down.

The golf course has yet to receive its state and federal environmental permits. The Army Corps of Engineers and the N.C. Department of Environment and Natural Resources had several concerns with the original design. Legasus’ application has been on hold until it could address those issues — for nearly 18 months now.

“They have not made any effort to address those concerns,” according to Bryan Tompkins with the U.S. Fish and Wildlife Service.

Legasus has lined up a biologist to conduct a bat survey of old mine caves on the property in the fall, but that has been the only movement Tompkins knows of.

Thompkins said it was abnormal to go so long without hearing from Legasus. Tompkins monitors environmental permits from developers all over Western North Carolina and often has to send them back to the drawing board.

“When things were going like gangbusters we would have gotten a response a month later,” Tompkins said of typical developers. “They would turn around with a response on a dime to speed up the permitting process so they could get on with their project.”

The recent news that part of the property is in foreclosure could explain Legasus’ silence, Tompkins said.

Jackson eyes options for current library site

In the game of musical chairs stemming from the library moving out of its current digs on Sylva’s Main Street, “rear ends” may be landing in unexpected places.

The Sylva Police Department was at least temporarily rebuffed — not “rebutted,” though you might think so — in its inquiry into occupying the old library building.

At the town board’s direction, Police Chief Jeff Jamison recently approached the county about the prospect of buying the old library and converting it into a police station. But Jamison learned the county may have plans of its own for the building. The county currently leases space for a few of its departments, which could be relocated to the old library to save on rent money.

The problem, however, is that the building only has 16 parking spaces, said County Manager Ken Westmoreland.

Another option on the table would be to sell the building to the adjacent Jackson Savings Bank. Westmoreland said the bank has long indicated interest in acquiring the building.

He said the county’s about 18 months out from making a decision. Construction has only just now gotten underway on the new library.

Still on the hunt to relieve crowding at the current town hall and police station, Sylva leaders are now eyeing a couple of former fire truck bays in the main level of town hall that are currently used for storage. Town Manager Adrienne Isenhower said they’re just putting the finishing touches on a grant application to the U.S. Department of Agriculture’s Community Facilities Grant and Loan Program to renovate the space, and hope to know by fall if they’ll get the grant.

If so, that’s what they’ll do — and that’s their druthers anyway, Isenhower said.

“I think I would pick what we’re doing [over the county space] because it will put us all in the same place. We want the expansion,” Isenhower said.

Under that scenario, “The renovation is scheduled to begin in fall of 2010,” Chief Jamison said. “The federal Department of Agriculture has money available for municipalities with those kinds of needs to expand.”

Mayor Brenda Oliver said the town would also need to conduct a feasibility study of renovation of the bays for use by police.

Katrina refugee wades into the fray against Duke

As Jackson County leaders continue their fight against Duke Energy, an unassuming local lawyer that few have heard of has appeared as the county’s heavy-hitter against the politically powerful and uber-wealthy Fortune 500 utility.

Attorney Gary Miller, 52, a former business lawyer from New Orleans, has been hired to represent the county in its push to seize control of the Dillsboro dam owned by Duke. Jackson leaders plan to use eminent domain to take over the dam and adjacent shoreline and turn it into a river park. The move would thwart Duke’s plan to demolish the dam, achieving the county’s long-standing goal to save the dam.

Miller spent most of his career to date representing the corporate world. His expertise lies not in the courtroom, but in pulling off complex deals and financings rife with legal maneuvering, at times plowing new ground where precedent was lacking. Miller has negotiated deals between mega-corporations like Shell and Union Carbide. He also has represented casinos, developers, financial syndicates and other large organizations, both private and publicly traded.

“Historically I have been a transaction lawyer. I am typically a paper pusher,” Miller said, downplaying his lawyering past.

A paper pusher, perhaps, but mass quantities of extremely complicated, critically worded paper. Hundreds of pages with millions on the line should the other side manage to get a fast one by in the language. Paper with months of legal maneuvering and tedious research lurking behind the ink.

“Yeah, I’m good at that,” Miller said.

Paper pushing, in the world of lawyers, is how things get done. Jackson County Manager Ken Westmoreland said Miller’s background is a good match for “peculiarities” of the eminent domain case against Duke.

“His experience is in corporate law, working both for and against big corporations. Secondly, he specializes in real estate law, and the condemnation is basically a real estate issue,” Westmoreland said.

The most typical work for Miller involved commercial financings: a gigantic loan collateralized by corporate assets scattered across the county.

“They will hire attorneys in each state to give their opinion of the enforceability of the documents or modify them to make them enforceable,” Miller said.

When some of those assets resided in Louisiana — such as a deal involving an oil might putting up its refineries as part of the collateral — Miller was their guy

“It wasn’t the kind of stuff your average lawyer had knowledge about,” Miller said.

One of Miller’s most interesting jobs involved dueling casinos vying for a single gaming license in New Orleans. The state of Louisiana awarded the gaming license to one casino, while the City of New Orleans granted a lease to a different casino operator. Both groups felt they were entitled to the license — seemingly a no-win situation.

“The governor forced the two groups into a shotgun wedding and they formed a partnership to operate and build it,” Miller said. The joint entity that emerged went bankrupt before they finished construction, complicating an already sticky situation. Miller spent the next two years helping to sort out the mess. Skill in sorting out messes will be critical to resolving the bitter fight and test of wills between Duke and Jackson County.

The path that led Miller to Western North Carolina isn’t exactly a pleasant one. Miller is one of the thousands of Hurriane Katrina refuges who left their home city of New Orleans for good in the aftermath of the devastation and struck out for a new life. Miller hung a new shingle in Bryson City, and calls Sylva home.

Ironically, a life-long love of paddling drew him to Western North Carolina during that trying time. The paddling community is an ally in Duke’s plan to demolish the Dillsboro dam, as it would open up a new stretch of free-flowing river. Miller can frequently be found paddling the Tuckasegee in his free time, and until recently, was a member of American Whitewater, a paddling advocacy group that is a stalwart defender of dam demolition. Yet when it comes to tearing down the dam, Miller sides with the county in its fight to save it. Miller could not talk about specifics in the case or the county’s strategy.

 

The fateful storm

As Hurricane Katrina bore down on Miller’s former city of New Orleans, he sent his wife and two children away. But saddled with an elderly mother on oxygen who refused to leave, Miller, too, was forced to stay behind. Sadly, his mother did not survive the paralyzing power failures that accompanied the storm.

The next day, as Miller tried to make plans to get her body out of the city, his family reached him on his cell phone and warned him of the broken levees and rising water that would soon envelop the already ravaged city. Miller escaped in time, although three weeks would pass before he could finally get his mother’s body out.

While holed up at the home of extended family the next day, Miller got a call from his law firm giving him two choices: transfer to their Houston office or their Baton Rouge office.

“I wasn’t prepared to make a decision to move,” said Miller. “I told them ‘I’ll go off on my own.’”

Miller scrounged to find a rental house for his family in Lake Charles, La., but just as they got settled in, albeit with just a few suitcases between them, a mandatory evacuation was announced for Hurricane Rita.

Miller had given one of the family vehicles to his mother’s caretaker, who had no car of her own and was stranded at a major refugee camp in Dallas. So when the evacuation order came for Rita, he piled his wife, children, mother-in-law, two golden retrievers and a pet guinea pig into their only remaining vehicle and joined the mire of traffic crawling north.

Shortly after Katrina hit, Miller had received an email from John Burton, the then general partner of Nantahala Village Resort, asking if the family was OK. Miller’s family was a regular at the Village, and he had befriended Burton after years of vacationing there. Burton had offered to put them up — an offer Miller initially declined with the intention of continuing his life in New Orleans. But as Miller reflected on his life — no home, no possessions, no job and one family car — Miller contacted Burden to tell him they were on their way.

Burton put them up for free at the Village for six weeks while they figured out what to do.

“Having lived through Katrina and two weeks later being evacuated for Rita, to be honest I was a little gun shy,” Miller said of moving back to New Orleans. “I have lived through many hurricanes, but that was something that was overwhelming.”

Miller had vacationed in WNC as a kid, often to paddle on the Nantahala. He continued the tradition with his own family, and in 1999 he and his wife bought a lot with the intention retiring here one day. They decided to make the move sooner rather than later.

“After Katrina, things and money basically had no meaning to me. My priorities were completely restructured in terms of what was important in life,” Miller said. “When you are working for a Fortune 500 company, you are just helping an officer climb the corporate ladder and make money. I had worked on a lot of ‘sexy ‘things as lawyers call it, but here I can help people. It is more rewarding professionally and emotionally.”

Miller brought a few of his big corporate clients with him, however.

“Clients said, ‘We don’t care where you are as long as you have a phone, a fax and a computer,’” Miller said.

Miller said he hasn’t experienced culture shock. He was tired of the big law firm and city life, despite the big paycheck that go with them. Miller said he paid his dues, from the 3 a.m. phone calls from big money clients who feel like talking and must be humored to missing his kid’s bedtime night after night.

While many may believe Jackson County has little chance of winning against the likes of Duke, there’s little doubt that any settlement that goes the county’s way will have to involve a very complicated game of give and take. Whatever the outcome, Miller will be back in his old element in his new WNC home.

NC Utility Commission OK with dam seizure

Jackson County appears to be on firm footing in its quest to seize the Dillsboro dam from Duke Energy as far as state law goes, but it is unclear whether the county could hit a roadblock from the Federal Energy Regulatory Commission.

Jackson County commissioners have voted to pursue condemnation of the Dillsboro dam and adjacent shoreline under the pretext of creating a river park. On the surface, recreation is grounds for condemnation under state law. Eminent domain law in North Carolina is complex to say the least, however, with seemingly endless exceptions and disclaimers written into the statute.

One pitfall Jackson County can cross off the list, though, is the North Carolina Utility Commission.

“I am not aware of any restrictions under North Carolina public utility law,” said Antoinette Wike, chief counsel for the N.C. Utility Commission.

That’s not to say counties can go around condemning any utility operation they please, such as coal plants or nuclear plants, and converting them into parks. Power plants of larger stature operate under a “certificate of public convenience and necessity” from the state. Considered integral to serving the public demand for electricity, those power plants would be protected from any foray into condemnation, Wike said.

But the Dillsboro dam is so old — nearly 100 years — and produces so little power, it never operated under a certificate of public necessity. Further, the power turbines at the dam have been off-line for five years.

“In this instance the Dillsboro dam and powerhouse have not been used for several years so the Utility Commission, as far as I know, doesn’t really have any jurisdiction over this,” Wike said.

Duke’s lack of upkeep on the Dillsboro dam could ultimately work against the utility in the condemnation fight. Maintenance on the dam was already in decline when major flooding on the Tuckasegee River in 2004 sidelined the hydro plant. Duke had already set its sights on demolishing the dam by then and chose not to invest in repairs to get it working again.

Prior to the flood, the two turbines in the powerhouse were capable of churning out just 225 kilowatts of power — although outside hydropower specialists say that the turbines could be retrofitted and additional ones added to make more power.

Had Dillsboro dam been operational, Duke may have been shielded by the state’s eminent domain laws. Statue allows for the condemnation of property owned by a public utility only if “the property is not in actual public use or not necessary to the operation of the business.”

Duke could try to claim that tearing down the dam is necessary to its operation. Tearing down the Dillsboro dam was considered environmental mitigation to continue operating its 10 other dams in the region — or so everyone thought. Special interests, from environmental agencies to paddling groups, supported dam removal following a three-year series of negotiations aimed at developing a mitigation package for the region that would allow Duke to renew its licenses for the other dams.

In a confusing ruling last summer, however, the Federal Energy Regulatory Commission disputed the notion that Dillsboro dam removal has anything to do with mitigation for the other hydro operations.

“The Commission is not bound to accept that view, and indeed, as the record demonstrates, we do not,” FERC ruled.

That could frustrate any claims by Duke that the dam’s removal is “necessary to the operation” of its business.

Duke may not be without recourse, however. The utility could turn to its powerful and long-standing ally in the fight against Jackson County: none other than the Federal Energy Regulatory Commission. FERC has consistently sided with Duke, from minor tiffs over language to major appeals.

FERC may — or may not — have something to say about Jackson County’s bold move to condemn the dam and halt its demolition.

“It would be premature to speculate on this matter at this point,” said Celeste Miller, spokesperson with FERC.

Miller said it is too early to know what if any sections of the Federal Power Act could come into play in this complicated situation.

Terms of Duke’s offer made public

The terms of Duke Energy’s counter-offer to Jackson County and the town of Franklin in exchange for dropping their opposition to Dillsboro dam removal have been made public.

Duke Energy made a confidential offer to their opponents two weeks ago in hopes of staving off a move by Jackson to use eminent domain to seize the dam. Jackson County commissioners voted 4 to 1 last week to turn down the offer. The Franklin town board followed suit this week with a unanimous vote to reject Duke’s offer.

Franklin Alderman Bob Scott made the terms of the offer public. Once the town board voted on the offer, it became a public record, he said. Scott also believes the residents of Franklin have a right to know what the town board voted to accept or reject on their behalf.

“The public body exists for one reason only and that’s to conduct the public’s business,” Scott said. Furthermore, Duke is a public utility operating as a monopoly in the region and should answer to the public as well.

Here is what Duke has offered Jackson County in exchange for dropping their opposition to dam removal:

• Pay $150,000 to help create a river park along the Tuckasegee River in Dillsboro.

• Provide 200 hours by a Duke staffer to write grants to assist with the river park.

• Pay $75,000 to help Jackson County with the upkeep and management of a boat launch Duke already has plans to build along the Tuck, but will be turning over to the county for maintenance.

• Agree not to seek damages or attorney fees against Jackson County for holding up permits Duke needed to dredge sediment behind the dam. Duke had to go to court to get the permits.

• Speeding up payment of $350,000 for recreational amenities on the Tuckasegee and Lake Glenville that had been already promised. Duke had previously pledged to pay the mitigation sum within 15 years, but would speed it up to five. Duke similarly offered to speed up the already-promised sum of $40,000 for sediment control initiatives.

Here is what Duke had offered Franklin:

• Pay $10,000 for additional amenities at a recreation area on Lake Emory. Duke plans already call for a boat put-in and picnic tables.

In exchange, Duke wanted Jackson and the town of Franklin to drop all legal and public opposition, including challenging Duke in the news media. The offer also was contingent on the majority of terms remaining confidential.

Franklin leaders claim Duke has shortchanged their residents in the way of mitigation for the utility’s dam and powerhouse the Little Tennessee River at Lake Emory. Removing the Dillsboro dam was supposed to count as mitigation credits for Duke’s hydro operation at Lake Emory, but Franklin leaders fail to see the benefit of dam removal in Dillsboro to their residents in Franklin and want to see more direct benefits, primarily around Lake Emory.

Duke begins prepping for dam removal

Despite the looming threat by Jackson County to win control of the Dillsboro Dam using eminent domain, Duke Energy announced that it will begin preparing for its demolition this week by dredging the backlog of sediment from behind the dam.

It marks yet another interesting twist in the increasingly tit-for-tat saga between Jackson and Duke.

Jackson County commissioners voted 4 to 1 last week to launch eminent domain proceedings against Duke to take ownership the Dillsboro dam and adjacent shoreline for the creation of a riverside park. State law allows for the use of eminent domain for parks and recreation.

The move was a last-ditch effort by Jackson County to stop Duke from tearing down the dam. But Duke seems unfazed. The company sent out a press release this week stating that it would begin prepping for sediment removal in anticipation of dam demolition in early 2010.

State and federal environmental agencies have insisted Duke dredge behind the dam to keep the backlogged sediment from flushing downstream and harming the aquatic ecosystem when the dam is removed. Duke is being required to dredge 70,000 cubic yards of the estimated 100,000 cubic yards behind the dam.

It will take six months to remove the sediment, according to Duke. Dam demolition, if not halted by Jackson’s move to seize the dam, would begin in early 2010.

Prep work to dredge the sediment could begin late this week or early next week. Duke will take precautions to minimize the impacts of the earth-moving operation in the river, according to Fred Alexander, Nantahala District Manager of Duke Energy Carolinas.

“We recognize this will be an environmentally sensitive operation, and we are taking great care to follow all appropriate environmental and regulatory requirements,” Alexander said in a statement.

Duke plans to process the sediment and hopes to find a market for its reuse in the construction industry or other uses.

Earlier this year, Jackson refused to grant Duke the permits it needed to dredge the sediment. Duke turned to the courts to demand the permits and won. Jackson was not only forced to relinquish the permits, but faces the prospect of reimbursing Duke’s legal costs to secure the permits.

For eight-tenths of a mile behind the dam, the Tuckasegee River is a wide, slow-moving backwater. Following dam removal, the area will be restored to natural river conditions, Duke said in a press release.

“There will be a significant environmental benefit once we have removed the dam and powerhouse,” said Alexander.

The free-flowing river will create new paddling and fishing opportunities and allow for natural migration of aquatic species.

John Boaze of Fish and Wildlife Associates has argued that a fish passage around the dam could accommodate migration for some species without removing the dam.

Jackson uses eminent domain to take dam

Jackson County played the ultimate trump card in the drawn-out fight against Duke Energy over the Dillsboro dam this week.

County commissioners voted 4 to 1 Monday (June 8) to use the power of eminent domain to seize the dam and surrounding land along the Tuckasegee River from Duke Energy. The move will effectively stop Duke Energy from tearing down the dam as planned. It could also send Duke back to the drawing board on a mitigation package for the region.

Counties can use eminent domain to seize private property if there is a public purpose in mind. In this case, Jackson County wants the dam and surrounding land for a park.

Recreation is accepted as grounds for eminent domain in North Carolina state law. That doesn’t mean Duke won’t challenge the move, however.

“Duke is in for the duration to remove Dillsboro Dam,” Fred Alexander, Duke’s community relations manager in the region, said in a prepared statement.

There might be little Duke can do, however, other than argue over the amount Jackson is willing to pay for the dam and surrounding property. If Jackson County says the dam and surrounding property is needed for a public park and recreation, the courts won’t get into a judgment call on whether the idea for the park is a good one or bad one, according to Charles Szypszak, an expert in public law with the Institute of Government at UNC-Chapel Hill.

“Generally speaking, as long as there is an apparent legitimacy to it, what the courts have said is they don’t look at the details of a taking,” Szypszak said.

Duke could argue that the concept of the park is a ruse, and that Jackson County has an ulterior motive for condemning the dam, however. County commissioners have alternately touted numerous reasons for wanting to keep the dam: as a piece of history, a tourist attraction, its aesthetic value, to provide green power for Dillsboro — even as a way to force Duke to pay up in an ongoing disagreement over what constitutes appropriate mitigation for its hydropower network.

But it is highly unlikely that Duke could prove Jackson’s recreation claims are illegitimate, Szypszak said.

“The court wouldn’t say ‘Well, you say you want it for this but we think you really want it for that,” Szypszak said.

The lack of merit may not stop Duke from trying, however, and potentially burying Jackson County under a mound of litigation. As Fortunate 500 company, Duke could simply outspend Jackson County until commissioners finally grow weary and give up.

Duke has no financial stake in the dam — it hasn’t been maintained and it currently isn’t producing power. When Duke had to cough up mitigation to offset the environmental impacts of its 10 other dams straddling rivers in the region, tearing down the Dillsboro dam and thereby restoring a stretch of free-flowing river was likely seen as an easy out, appeasing the paddling community and environmental agencies.

It has since become apparent just how much the dam means to Jackson County, however. Commissioner William Shelton questioned why Duke doesn’t walk away from its plans to tear it down now that the going has gotten so tough. But it may come down to a test of wills, said Jack Brown, chairman of the Green Island Power Authority in New York. Brown is one of the few that has used eminent domain to wrest ownership of a dam away from another entity and go on to operate it himself.

“Not knowing the mind set of Duke Energy, I don’t know how much they will resist,” Brown said. “They have been unchallenged and pretty much run the show. If they think this is going to be a chink in their armor, that Jackson County is going to come in and take this away from them, they may not want to set the precedent.”

How the vote went down

Duke had caught wind in recent weeks that a move was afoot to start condemnation proceedings. Commissioners were poised to take a vote on the matter last Monday, but Duke staved it off at the last minute with the promise of a counter offer.

Jackson commissioners suspected Duke would make a last-minute bargaining pitch. Just a week earlier, Duke and Jackson County had been brought together for court-ordered mediation in Washington, D.C.

“There was some interesting give and take among the participants and hopefully something positive will come from that,” Chairman Brian McMahan said last week.

Duke’s olive branch apparently fell short of commissioners’ expectations, however. When commissioners reconvened this Monday to consider Duke’s attempt at a settlement, they voted 4 to 1 to reject it.

“It wasn’t for a lack of effort that mediation didn’t work out,” Alexander said. “And I’m certainly sorry it didn’t.”

The terms of Duke’s counter-offer were not made public citing the confidential nature of court-ordered mediation.

After voting to reject Duke’s offer, commissioners had one more order of business before moving on to their big vote of the night. The first step was to formally embrace their desire for a recreational park around the Dillsboro dam. The county recently hired a planning firm, Equinox Environmental, to create a master plan for a park along the shore of the Tuckasegee River in Dillsboro. The dam is a focal point of the design. In hindsight, it’s obvious the county’s intention in drawing up the master plan at a cost of nearly $20,000 was to set the stage for condemnation of the dam and river shore.

A motion to “adopt the major concepts of the Dillsboro Heritage Park” passed with a unanimous vote.

Commissioner Tom Massie, who disagrees with the continued fight against Duke, put aside his dissent to back the conceptual idea for a riverfront park in Dillsboro.

Commissioners then forged ahead with the long-anticipated motion that many in the audience were hoping for.

“I will move that Jackson County institute an eminent domain proceeding to acquire title to the following property for the public purpose of establishing a water front park and recreation facility along the Tuckasegee River and preserving the Dillsboro reservoir,” Chairman Brian McMahan said. McMahan proceeded to list several pieces of property Duke owns along the river shore around the Dillsboro dam, along with the dam itself.

Massie pointed out that the land along the riverbank owned by Duke is already slated to be turned over to the county following dam removal, as Duke would no longer have a use for it once the dam was gone.

The vote to condemn the dam was well orchestrated. Commissioner Joe Cowan made the motion to reject Duke’s counter-offer. Commissioner Mark Jones made the motion to adopt the concepts of the Dillsboro river park. And Commissioner Chairman Brian McMahan made the motion to seize the dam with eminent domain.

The commissioners cited what they call overwhelming support from the people of Jackson County to take this step. Jones cited an online poll by the Crossroad Chronicle newspaper in Cashiers with 78 percent of respondents supporting the county’s fight.

“I’ve heard those same statistics throughout the county as I have worked very hard to ask people their opinion,” Jones said.

Jackson County has proved a tough customer in the fight against Duke Energy. For Commissioner Cowan, standing up to corporate power runs in his blood. His father helped organize the workers at Mead Corporation to form a union decades ago and bring about a fair wage, he said.

Cowan compared his father’s fight to the one against Duke today.

The commissioners have met an untold number of hours in private sessions over the past three years to discuss the drawn-out legal wranglings against Duke. A new face has claimed a seat at the table recently, however. Gary Miller, a Bryson City attorney, has been present at the past three closed sessions. This week, commissioners announced Miller will be their legal counsel on the condemnation proceedings. Paul Nolan, the D.C.-based attorney who specializes in hydropower issues, will continue in a peripheral role as well.

Duke still has two pending legal challenges against Duke. One is an appeal of a state water quality permit that paves the way for dam demolition. Another is an appeal in the U.S. Court of Appeals. Both of those cases will likely be put on hold as eminent domain plays out.

Whatever it takes?

Jackson County has spent around $250,000 in its opposition to Duke over the past five years. The majority has been on legal fees, but some has been for environmental consultation.

In his lone dissent to condemnation, Massie argued that it is time to stop the bleeding.

Massie advocated continuing down the road of mediation, citing a glimmer of hope in the offer Duke already made.

“While it is not what I would have hoped for, Duke has finally made some movement in our direction,” Massie said. “A bird in the hand is better than a bird in the bush.

We are a whole lot better off taking it now and cutting our losses.”

Massie told Duke it wasn’t too late to make the county a better counter-offer, that there was hope yet the commissioners would back down.

“I sincerely hope the action we have taken here today will encourage Duke to come back to us and negotiate some more so we can avoid going through with this proceeding,” Massie imparted to Duke following the vote Monday.

Commissioner William Shelton said he doesn’t understand why Duke won’t agree to a compromise. If Duke would turn over the dam to the county, it could walk away from the fight.

Shelton said the expense of a potentially protracted legal battle was the only thing that gave him pause in his decision.

“The only reservation is the David and Goliath factor. Can we beat Duke and can we afford to beat Duke? But I choose not to have a defeatist attitude,” Shelton said.

McMahan said the cost of giving up the fight is greater than the cost of continuing. He cited the loss of tourism in Dillsboro, the loss of an historic icon, the loss of a popular fishing hole, the loss of an aquatic ecosystem, the loss of green power. The cost of the fight to save the dam pales in comparison, he said.

“It is a small cost to pay to preserve something that is so precious to us,” said McMahan, who grew up fishing around the dam.

Duke’s new permits could last for 30 years or more before the region has another crack at exacting mitigation from the company. McMahan said the county’s chance is now or never.

John Boaze, owner of Fish and Wildlife Associates, shared the latest generation figures off Duke’s 10 hydropower dams in the region. Boaze estimated Duke brought in $33.7 million in revenue off its hydro operations in WNC, for a profit of $6.8 million.

Last week, commissioners learned that Duke Energy was donating $1 million to study the effect of rising sea levels on the Alligator River National Wildlife Refuge. The donation sent a message to Jackson leaders that Duke, a Fortune 500 company, has money at its disposal to offer Jackson County a better deal than it has.

River park a public good?

Dillsboro merchants and residents have become regulars at Jackson County commissioners meetings over the protracted fight against Duke, appearing to both prod and applaud the commissioners in their effort, often appearing with the most recent stack of signed petitions voicing support for the fight.

Shelton said he had to look at the long haul for Dillsboro. The mountain hamlet of galleries, craft shops and gift stores lost a major source of foot traffic when the Great Smoky Mountains Railroad stopped running trains to the town.

“I see a town that is struggling mightily right now,” Shelton said. “If you look at the long-term investment on this concept, it could be an economic development tool for Dillsboro looking into the future.”

Susan Leveille, an artist and owner of Oaks Gallery in Dillsboro, said the town has taken a hit from the loss of the train coupled with the economy. The river park in Dillsboro and preservation of the dam will provide a much-needed focal point and amenity for the town, she said.

“I think it will serve all of us in the county very well,” Leveille said.

Teresa Dowd, the owner of West Carolina Internet Café in Dillsboro, said a public park anchored by the dam is needed desperately.

“When you go to other towns with waterfront that is being utilized, the park generates so much interest among tourists and the locals. It is economically beneficial,” Dowd said.

Commissioner Joe Cowan said the river park around the dam will set Dillsboro up to prosper.

“If you back off and look at it over the long run, the benefits to Jackson County and Dillsboro specifically call for this action,” Cowan said.

McMahan questioned what the river would look like if the dam was gone. If the dam is torn out, the water level in the slow moving backwater stretching for eight-tenths of a mile behind the dam will drop.

“If they jerk that dam out and leave a big mud flat and Dillsboro looks like a bomb hit it, what’s the cost to our tourism economy?” McMahan said.

Commissioners' viewpoints

Chairman Brian McMahan

“I believe that river belongs to the people of the United States of America. That’s our river. Yes we have benefited from the production of power, but it still belongs to the people. I don’t argue the fact that Duke should be allowed to make a profit, that’s part of capitalism. At the same time, if they are going to use our river to generate power, shouldn’t they compensate the people here a little bit more? If you look at what they have offered, it is pennies compared to what they are making off our river. The people have pretty much been ignored.”

 

Commissioner Joe Cowan

“We are all elected by the people of Jackson County. The vast majority of my constituents have said to me ‘Help save the Dillsboro dam.’ I think it is time to stand up to Duke I don’t care if it does cost a million dollars, I think we will beat Duke and will prevail in this lawsuit because we have facts on our side. Never have I seen a large energy corporation come in and take so much from a people of a county and want to take more and more over the next 40 years and give back so little.”

 

Commissioner William Shelton

“This has been a very very tough decision for me. I have gone back and forth. Unfortunately it comes down to whether you vote your heart and morals or do you vote with your head? After lots and lots of tossing and turning I’ve done the very best I could to put my finger on the pulse of my district and I am finding overwhelming support to save the Dillsboro dam. After a long difficult decision, I am going to have to vote with my heart on this.”

 

Commissioner Mark Jones

“I think we should continue the fight. The money we have spent already is the vast majority of the money we are going to have to spend. The economic problems the town of Dillsboro has gone through in recent years, this would be a tremendous benefit.”

 

The lone dissenter: Commissioner Tom Massie

Jackson County commissioners are fool-hardy if they think they can win a fight of this magnitude against Duke Energy, Commissioner Tom Massie expressed to fellow board members for the umpteenth time this week.

Massie nearly begged his fellow commissioners not to go through with the vote for condemnation.

“Condemnation is very, very risky. We are breaking new ground. There is no if’s and’s or but’s. This has never been done in the state of North Carolina, this kind of condemnation,” Massie said. “I am not a gambler. I wouldn’t spend a penny in a poker game. I refuse to gamble the taxpayers’ money of Jackson County with this kind of risky venture. I wouldn’t do it with my money, and I wouldn’t do it with theirs.”

During the county commissioners lengthy closed-door discussion leading up to the vote this week and last week, audience members relegated to the hallway outside the meeting room would occasionally walk over to the door and peer through a small window to see what was going on inside. And more often than not, Massie was the one doing the talking, growing animated at times as his fellow commissioners patiently listened but were ultimately unmoved.

Massie agrees with the rest of the board on one count: Jackson got a raw deal from Duke, he says.

“I didn’t think it was fair then I don’t think it is fair now,” Massie said. “My heart says we should continue this argument and fight but my head says this is not good business. This is a time we need to put emotion aside and we need to make prudent cold calculating business decisions about what is best for the Jackson County taxpayers and residents of this county.”

Massie said the writing is on the wall, and has been for a long time now.

“All the federal and state agencies involved in this thing have sided against Jackson County and are for dam removal. We have lost every single appeal we have had in this fight for the past five years,” Massie said.

Massie said he hopes he is proven wrong and the county prevails this time.

Frequently asked questions

Why does Duke want to tear down the dam?

Dam removal is tied to the larger issue of mitigation for Duke’s hydropower operations in the region. Duke operates 10 other dams on five rivers in the region. The permits for those dams are up, and to get new ones, Duke must offer environmental and recreational mitigation, compensating the public for the use of the rivers to produce profitable hydropower.

Tearing down the Dillsboro Dam is the cornerstone of Duke’s mitigation plan. Paddlers and environmental agencies are excited to see the dam go as it will restore a stretch of free flowing river. Others think Duke is unloading an aging dam it didn’t want anyway under the guise of mitigation.

 

Is there hope for a compromise yet?

Yes. Duke could at any time make Jackson County a counter-offer to back off condemnation proceedings, or vice-versa.

 

What exactly does Jackson plan to take from Duke?

Jackson County voted to initiate condemnation proceedings against the Dillsboro dam, the powerhouse adjacent to the dam and shoreline property Duke owns around the dam on both sides of the river.

 

Can Jackson County legally take the dam from Duke?

Jackson County wants the dam and surrounding property to make a park. Counties are granted the power of eminent domain to seize property for several public uses. One of those is recreation, which the county cited as its reason for the condemnation. Recreation was used to as grounds for eminent domain in the creation of the Great Smoky Mountains National Park.

 

What would Jackson do with the dam?

Jackson County leaders previously said they wanted to operate the dam themselves as a source of green power rather than see it torn down by Duke. Making electricity isn’t just cause for a county to flex eminent domain power, however. But once Jackson has control of the dam under the guise of recreation, it could theoretically try to put the dam in operation for hydropower.

 

What happens now?

Jackson County’s next step is to have a survey and appraisal of the property it plans to condemn. Following the vote Monday night, the county must wait at least 30 days before it can formally file condemnation proceedings through the courts. As for Duke, representatives at the commissioners meeting said their next step is to wait and see if Jackson follows through with formal proceedings.

 

How much will Jackson have to pay for the property?

Jackson will hire an appraiser to determine fair market value for the property. The dollar value will be filed as part of the formal condemnation proceedings in court. When Duke formally initiates the proceedings, it has to put up the money right then. Whatever dollar value Jackson County puts on the dam and surrounding property must be deposited in full in an escrow account held by the court.

If Duke disagrees with Jackson’s offer, it can sue for more money. The ultimate decision would rest with the courts, possibly a jury trial.

 

Can Duke challenge the value Jackson puts on the property?

Yes. The most common protest in a condemnation proceeding is over the monetary value being offered for the property. Duke can go to court claiming the market value of its property is more than what Jackson says it is. Duke’s legal argument would center around what’s a fair price rather than the ideological premise of condemnation.

 

Can Duke challenge Jackson’s use of eminent domain?

Yes. Duke could challenge whether Jackson County has just cause for the condemnation and argue that the dam is not an integral to the recreation plans, although this type of legal challenge to eminent domain is rarely attempted.

The state spells out grounds for eminent domain, one of which is recreation. Whether the particular recreation project is a good idea is not legal grounds for contesting it.

“To say, ‘Well we don’t think it is a very good project’ isn’t going to do very much,” said Charles Szypszak, an expert in public law with the Institute of Government at UNC-Chapel Hill.

 

Can Duke hurry up and tear down the dam?

Duke still owns the dam for the moment. However, hurrying up and tearing down the dam while Jackson gets its ducks in a row for condemnation is logistically impossible.

Before Duke tears down the dam, it is mandated to dredge 70,000 cubic yards of back-logged sediment from behind the dam to prevent it from washing downstream when the dam comes out. The dredging would take approximately five months, according to Fred Alexander, Duke spokesperson.

The target date for dam removal to begin was January 2010. That would get Duke outside the window for spawning season of the endangered Appalachian elktoe mussel, which lives downstream of the dam.

 

If tearing down the Dillsboro dam was Duke’s version of environmental mitigation, what will serve as mitigation if the dam stays?

This is unclear and a matter of great debate. Duke says if the dam stays, it will be required to forgo some of its power generation at the much larger dam upstream at Lake Glenville.

To make hydropower at Lake Glenville, Duke diverts water out of the Tuckasegee River and sends it for miles over land through giant pipes to a power plant before finally being returned to the river. The more water Duke diverts from the river, the more power it can make. The same goes for hydro operations at its other bigger dams, like Nantahala Lake and Bear Lake.

In the meantime, however, several miles of the river downstream of those dams are left with little water, harming the aquatic ecosystem.

Removing the Dillsboro dam was supposed to mitigate for robbing other stretches of the river of water. If the dam doesn’t come out, environmental agencies could insist on Duke restoring more water to those stretches currently being by-passed.

The less water Duke is allowed to divert, the less power it can make at its large Lake Glenville power plant. Because of this, Fred Alexander, a spokesperson for Duke, argues that keeping the Dillsboro dam would actually mean a net loss in hydropower. The amount of power produced off the small Dillsboro dam could not make up for the power production lost at Lake Glenville, Alexander said.

Alexander said it is an either-or proposition. If the Dillsboro dam doesn’t come out, Duke will have to restore more water to the dewatered sections, and thereby lose some of its hydropower capacity.

The mitigation package on file with the Federal Energy Regulatory Commission says only that failured to tear down the dam “may nessicitate” a re-examination of how much water is being diverted from the river below Duke’s larger dams.

John Boaze, an environmental consultant with Fish and Wildlife Associates, said it is not necessarily and either-or proposition, but that other mitigation may be an option contingent on approval by state and federal environmental agencies.

“What becomes of that your guess is as good as mine,” said Boaze.

Jackson County has long held that tearing down the dam was a poor excuse for mitigation that benefited a small segment of the population, namely paddlers. Jackson would rather see greenways along the river, or an environmental trust fund based on a percentage of Duke’s profits off the dams.

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