REGIONALREPORT Charlotte

Those who smelt it now get dealt with

Alcoa Inc. is learning the hard way that e-mails never go away. They just resurface during legal proceedings. Late last year, state environmental officials yanked the aluminum maker’s clean-water certificate to operate four hydroelectric dams on the Yadkin River, saying that internal e-mails released at an administrative trial showed Alcoa had misled regulators about the effectiveness of its actions to improve water quality.

Without that certificate, New York-based Alcoa can’t finalize its application to renew its license to operate the dams another 50 years. The dams used to power Alcoa’s smelter complex in Badin, which opened in 1917 and closed in 2007, and the power is now sold into the wholesale electricity market. Gov. Beverly Perdue wants the state to take over the dams. She says Alcoa no longer deserves the license, because the manufacturing operations that were the company’s reason for building them have closed. Alcoa argues that the e-mails just show what one official calls “a healthy debate” about technical issues and that the company is committed to water quality. It plans to appeal the revocation, but it also is adopting a more conciliatory tone toward locals in Stanly County and politicians in Raleigh.

With Alcoa had long sought to separate the smelter from the dams, arguing that closing the first shouldn’t have any bearing on relicensing the second. Now, it’s putting the search for a new tenant for the smelter property front and center. “We know it’s really a separate issue,” says Kevin Anton, Alcoa’s chief sustainability officer. “But the former smelter site is being linked to the hydro project. We’ll accept that — that the community looks at Alcoa as one — so we are committed to redeveloping that site.” The company will spend $10 million this year tearing down 25 buildings at the Badin Works.

With The company hopes that bringing industrial jobs back to recession-ravaged North Carolina might break the standoff between it and Perdue’s team. Others involved aren’t so sure. Carter Wrenn, a longtime political consultant, has been working with the North Carolina Water Rights Committee, which supports the state’s efforts to take over the dams. “There’s a question of ‘Can we trust you?’ Alcoa’s deception right much eliminates that middle ground. The question becomes whether the Federal Energy Regulatory Commission opens up the license process and lets others apply for it.”

With While there is a process for federal regulators to take back, or “recapture” a license from an existing operator, it has never been done. Three years ago, FERC said recapture wasn’t an option for the Yadkin project. Alcoa still says it is best suited to run the dams, but experts following the controversy say to look for more litigation — and negotiation — in the year to come.

Lance

Charlotte-based snack maker Lance Inc. and Pennsylvania-based Snyder’s of Hanover Inc. combined to form Snyder’s-Lance Inc. Based in Charlotte, it’s the nation’s No. 2 salty-snack company, behind Dallas-based Frito-Lay, and has the top ranking in pretzels and sandwich crackers. Executives say the heftier company will have more clout with retailers. Lance CEO David Singer kept that job with the combined company. Snyder CEO Carl Lee Jr. became chief operating officer.

Duke and Progress agree to plug into one other

Charlotte-based Duke Energy Corp. is buying Raleigh-based Progress Energy Inc. in a $26 billion deal that will create the nation’s largest electric utility when it closes at the end of the year. The combined company will provide power to most of North Carolina and have 7.1 million customers in six states. Duke CEO Jim Rogers will become executive chairman; Progress CEO Bill Johnson will be president and CEO. The deal boosts Charlotte’s bid to become an energy hub.

REGIONALREPORT Charlotte

Startups want a jump-start 

Nabeel Hyatt had an idea for a new company — two of them, in fact. It was summer 2001, and he was vice president of strategic partnerships at Internetsoccer.com, a Charlotte startup that provided soccer news and merchandise. He had stayed on after its acquisition but was itching to try something different. As he mulled the possibilities, one thing he knew for sure: Whatever he started wouldn’t be in the Queen City. “It just seemed very obvious to me that Charlotte wasn’t a city that valued startups,” Hyatt, now 34, says. “There was very little support.”

So he focused on Boston and San Francisco, both of which had a strong community of angel investors, engineers and project managers wanting to work with startups. After landing in Cambridge, Mass., he started a couple of businesses before launching Conduit Labs Inc., a game developer for social-networking websites, in 2007. In August, he sold it to San Francisco-based Zynga Inc., which has developed FarmVille and other online games. He’s now head of the Boston unit of a company valued at $5 billion. “It’s unfortunate that I had to leave [Charlotte] because I met some really good people.” Hyatt isn’t the only one frustrated with a lack of support in Charlotte, says Mac Lackey, his boss at Internetsoccer.com (Making Goals, March 2000) and now managing partner of Charlotte-based BlackHawk Capital Management LLC, which focuses on early-stage companies. “We lose really good entrepreneurs to other cities that are better aligned, or we have people sitting in a financial-services job uptown who just don’t know how to stick the shovel in the ground and get started.”

He says there should be a public-private entity that holds networking events and information sessions and can serve as a conduit for legal and other help entrepreneurs need — something like the Council for Entrepreneurial Development. The Durham-based nonprofit’s mission statement pledges support for entrepreneurship statewide, but most of its programs are in the Triangle. “Our funders are here, and we’re supported by the local community,” President Joan Siefert Rose says. “As much as I agree that there is a need and demand for the services, getting the funding in place has prevented CED from expanding.” David Moore is the founder and CEO of Direct Response Concepts Inc., a Charlotte-based developer of mobile-phone software. Help for entrepreneurs exists in the Queen City, he says, if they know where to look. He points to the Ben Craig Center, a business incubator at UNC Charlotte, and says the chamber of commerce and Charlotte Regional Technology Council hold networking and educational sessions. But even he thinks more must be done.

It’s not happening fast enough for Lackey, so BlackHawk is taking matters into its own hands. It recently provided office space to a new technology company in exchange for expertise. And he plans to push city leaders — public and private — to do more. If things don’t change, he says, the region could suffer. “The biggest consequence is the smartest talent may go elsewhere. You get tired of fighting the fight.”

Dustin Miller met his man in a cramped bathroom inside the El Paso, Texas, airport — two guys and a big guitar in one tiny stall. He didn’t care what people in adjacent stalls thought as he oohed and ahhed while examining the man’s 1957 Fender Stratocaster. This was business. Finally, his inspection complete, Miller fished $9,500 in crisp bills from his jeans’ pocket and closed the deal. “I went out one side of the bathroom. He went out the other.”

The guitar had been listed for $15,000 on Craigslist only the day before, and Miller called the owner the minute he saw it. Estimating the instrument was worth as much as $25,000, Miller offered $8,500. “He says, ‘How about 11?’ I say, ‘How about nine-five?’ He says, ‘No, I’m not going down below 11.’ I say, ‘All right, call me if you change your mind.’” Miller, determined not to let $1,500 spoil the deal, jumped in his car and headed to the bank. “I’m in line at the bank when the phone in my pocket rings, and he says, ‘Yeah, let’s do it for nine-five.’ So I book a plane for El Paso.” He later sold the vintage Strat for $17,500.

You could say the guitar has always led Miller down a unique path. Long before the Texas rendezvous, Miller would skip school to hang out at Don’s Music City in his hometown of Burlington and “borrow” his mom’s pickup — though he wasn’t old enough to have a driver license — to hear local bar bands play until the wee hours of the morning. Miller describes his first vintage guitar purchase, back in high school, with the affection others reserve for first dates: “It was a 1978 Fender Precision Bass, canary yellow with a black pick guard and a maple neck. I realized I was holding a time machine in my hands. Where had it been? How many girlfriends had it helped to lose? How many bars had it played in?”

No, it didn’t take long for Dustin Miller to find his passion. “At 14 or 15, I remember walking into this bar and seeing this stage and lights and soundboard and saying, ‘Oh my gosh, this is awesome. This is what I want to do.’” After dropping out of high school to learn how to build and repair string instruments, Miller, now 25, realized his dream. He not only made a living repairing guitars and then selling them on the Internet, but he earned decent money — enough to buy 5 acres and a cabin in the woods near Chapel Hill.

Miller would have you believe he’s an accidental entrepreneur — that his success comes from a series of uncanny coincidences beginning with his being born a lefty. But don’t believe him. Skills culled from a tumultuous childhood and a business acumen whetted by academia — abetted by eBay, Craigslist and cool tools of the e-entrepreneur — gave him what he needed to turn his passion into some serious money.

Impetuous as the El Paso deal sounds, it was underpinned by methodology derived from Miller’s degree from the Bryan School of Business and Economics at UNC Greensboro. “One of my teachers pulled me aside and started talking to me about investment theory,” he says. The prof explained that if someone pays $300 for something and flips it for 30% and does it 39 more times, preserving principal and interest, that person ends up with a compounded sum of $10.8 million. Miller decided he needed at least a 17% profit margin. “If I couldn’t buy it at a certain price, I just wouldn’t do it.”

Miller loved the guitar long before he thought of turning it into a profession. His passion was ignited by a Junior Brown appearance on Country Music Television, featuring the cowboy-hatted virtuoso playing his signature “guit-steel” — a double-neck steel guitar. Afterward, he told his mom, Cindy Riley, that he had to learn to play the guitar. His instructor immediately noticed that Miller held the neck with his right hand — a natural lefty’s grip. Instead of telling him to switch hands, his teacher restrung the guitar. “There was this obstacle I had to overcome, and that made me want to play even more.”

Because he was left-handed, he had to learn to take guitars apart and restring them backward. “I started swapping parts, experimenting, refinishing guitars and sometimes breaking them. And then when I found out that Paul McCartney is left-handed, Jimi Hendrix is left-handed, Kurt Cobain is left-handed — all these guys — then you start to align yourself with this I’m-meant-to-do-this, destiny sort of thing.”

His obsession with tinkering was championed by his dad, Donald Miller, a former Navy sailor who had battled drugs and alcohol for years. His father’s substance abuse added to an already tumultuous childhood. His parents were twice married and twice divorced — both times to and from each other. “I had a pretty bad family situation, back and forth,” Miller says. He recalls his father’s occasional “yearlong stints of sobriety” with fondness and understands his frustration at being underemployed. “Overnight, he went from being this guy who had pay-grade status as a Navy petty officer to flipping burgers in my grandmother’s restaurant.”

But it was one of these underemployed jobs that cemented Miller and his father’s relationship — and indirectly pushed the son toward his future vocation. The work included disassembling old signs in the Millers’ backyard. “So I’m maybe 10 or 11, and he bought me a chisel and blowtorch and taught me how to take the batteries and metal and lights off of them. It was awesome, and we got to spend some good time together.”

Not enough time. His dad lost his war against drugs and alcohol, dying in 2009. “He had this expectation that he should be further along in life, and he was not. I definitely put that pressure on myself to constantly push myself and be better and better and better.”

Miller became so obsessed with fiddling and playing with guitars that he quit high school at 17, finished his junior and senior years in four months online and moved to Phoenix to learn the demanding craft of building and repairing string instruments at the Roberto-Venn School of Luthiery. After completing his degree there he returned to Burlington, opened a guitar shop in nearby Gibsonville, turned a modest profit and then closed it to go to college alongside his former classmates. “I never missed a beat. It was like I was able to jump through time.”

Miller had continued collecting antique guitars in Arizona. Though he sold a few in his Gibsonville shop, it was college that taught him the discipline and methodology to turn his passion into a real business. After Alamance Community College, he enrolled at UNC-G and began working on a bachelor’s in marketing, a subject he loved. “It was analytical. It was borderline scientific. It was experimental. If I could figure out who someone was at their core, I could sell them things.” For the first time, school related to life.

That was in 2007, about the same time he was realizing that vintage guitars were becoming a hot commodity. Starting with only $300, he bought and sold one guitar after another, each at a marginal profit. He turned his newly sharpened marketing eye on baby boomers — bored, affluent and ready to recapture a little of their glory days by strumming the same kind of guitar Clapton plays. Then Craigslist came along, providing Miller the forum for picking up guitars cheaply and, after repairing and marketing them, flipping them for a profit. He quickly learned that it took hot pursuit and cold cash to win the prize online.

“Everybody wanted to trade, and no one had cash,” he says. A guitar would be posted, and “someone would come to them and say, ‘I have a vacuum cleaner and a bag of old toenails.’ But here I was willing to come up with cash. It might not have been what they wanted, but it was cash.” He also invested in a “Web-crawler” application called Notifier. Scanning any website as often as he specified, the program notified Miller as soon as certain keywords popped up — Fender, Martin or Gibson, for instance. “I’d be the first to call, and they would always go, ‘Wow, I just listed it.’ It cost me $18, and that $18 has made me thousands.” He grossed $4,000 to $6,000 in a good month.

But that was then. “The ride is over,” he says. A combination of factors — inflation, market saturation and competition, not to mention the economic downturn — persuaded him earlier this year to unload his inventory and put the proceeds into real estate. “I started all of this out as a $300 pipe [dream]. Now, I’m buying a house with it. To me, it’s just a perfect way to end a chapter and move on to the next thing.”

What that is remains to be seen. Another business, for sure, maybe real estate. One thing is certain: “Speculating on what two pieces of board and six strings are worth? I don’t want to do that anymore.” But he’s never far from a guitar, still keeping his “body and soul” together in a Motown cover band that plays at corporate events.

More than any other profession, trial lawyers have been identified with Democrats. More than 90% of their political fundraising goes to that party, and the percentage might be higher in North Carolina. Last year, a political action committee controlled by North Carolina Advocates for Justice — a trial-lawyer group — doled out $204,000 to Democratic legislative caucuses. The state Republican Party got $1,000. The link is understandable. In civil suits, trial lawyers usually go up against business interests traditionally allied with the GOP.

But despite the riches such litigation has gained some of them, trial lawyers may have been among the biggest losers when Republicans won control of the state legislature in the last election. Members of the new majority in both houses quickly served notice they would wade into one of the trial lawyers’ biggest markets — medical malpractice. Legislation work-ing its way through the General Assembly would limit noneconomic damages, for things such as pain and suffering or disfigurement, and create higher negligence standards to sue emergency-room doctors. In addition to the bill, new Speaker Thom Tillis has set up a special House committee to do nothing but focus on tort reform.

Hospitals and doctors, not surprisingly, are more than happy to see the Republican majority take on the trial lawyers. They’ve argued for years that North Carolina policymakers needed to do more to hold down liability-insurance rates, particularly for such specialists as obstetricians and neurosurgeons, who face the greatest exposure to lawsuits. Supporters says the damage caps will help bring down medical costs by reducing the practice of defensive medicine — physicians trying to protect themselves from possible legal action by ordering more tests than needed — and by attracting more doctors to what will be a more doctor-friendly state. “I think this will help bring stability to the insurance market,” says Sen. Tom Apodaca of Hendersonville. One of the sponsors of the damage-cap bill, he and his Republican colleagues like to point to Texas as an example of the good that can come from damage caps.

Voters there approved an amendment to their state constitution in 2003 to limit the amounts of medical-malpractice awards. Eighteen months later, the number of malpractice cases filed had dropped by half, the number of doctors practicing and insurers doing business in the state had increased, and insurance rates had fallen. Republicans here say the same can happen in North Carolina. They’ve particularly been pushing the notion that more doctors will mean more competition in the health-care marketplace. That competition, along with less defensive medicine, will lead to lower medical costs, they say.

A recent study puts the annual cost related to medical liability at $55.6 billion, 2.4% of the nation’s total spending on health care. But supporters of damage caps may have missed comments by the study’s authors about the defensive-medicine genie already being out of the bottle. The Harvard researchers concluded that, although the cost of defensive medicine is substantial, it’s unlikely to be a source of significant savings. Cap or no cap, doctors and hospitals aren’t going to curb the number of tests or any other costly lawyer-advised practices intended to save them in the event of a lawsuit. Not now, not after they’ve become standard practice.

Dick Taylor, CEO of North Carolina Advocates for Justice, says he doesn’t hear any hue and cry for medical-malpractice reform. He notes that the number of malpractice lawsuits in North Carolina declined in 2009 and that premiums for malpractice insurance are no longer rising. He and his group have been trying to sell the position that a damage cap might run afoul of the state constitution, which implies that juries — not legislators — should decide damages. They’ve even enlisted the help of I. Beverly Lake Jr., a former Republican chief justice of the state Supreme Court, to write letters to legislators making that case. “We hope, at the end of the day, that whatever happens is not devastating to people’s rights for just compensation,” Taylor says.

But if he missed hearing the outcry, Taylor certainly saw the implications of November’s election. Republicans pushed for medical-malpractice reform long before they gained control of the General Assembly. Here and elsewhere, it’s been a pet issue for the GOP. The two sides like to portray the debate as about policy, not politics. Sometimes separating the two isn’t so easy. Putting limits on medical malpractice will damage a longtime Republican nemesis. It could also make that nemesis fighting mad come the next election. As always, to the victor go the spoils.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.

With a multibillion-dollar budget hole to fill, it’s no wonder that state lawmakers have looked past traditional sources of income. Some have hatched plans to siphon money from The Golden LEAF Inc., the Rocky Mount nonprofit set up by legislators to disburse half the state’s proceeds from a 1998 settlement between tobacco companies and 46 states. Its assets of roughly $600 million, fueled by payments of about $70 million a year, lend muscle to its mission: help economically distressed or tobacco-dependent counties. Between December 2000 and early March, it awarded 972 grants totaling $450 million. Lenoir got more money than any other county, much of it from a $100 million grant to build an airplane-parts factory. Wake County, home of N.C. State University, came in second. Some grants have been controversial. But Golden LEAF President Dan Gerlach says that’s bound to happen when funding so many projects and that now is no time to divert money for short-term fixes. “The only way to solve our fiscal problem is to grow the economy because you can’t cut or tax your way out of this.”

Click here for a PDF of the Golden Leaf graphic spread.

Jim Rogers will hand over Duke Energy’s CEO job to Progress Energy CEO Bill Johnson and become executive chairman of the combined company, which will be based in Charlotte.

Charlotte-based Duke Energy Corp.’s $26 billion purchase of Raleigh-based Progress Energy Inc. is expected to close by year-end.

Click here for a PDF of the Duke Energy/Progress Energy chart spread.