20070812 Ver 2_APGI Response_20061026

ALCOA
October 23, 2006
Mr. John Dorney
401 Development Unit Supervisor
NC Division of Water Quality
1650 Mail Service Center
Raleigh, NC 27699-1650
Alcoa Power Generating Inc.
Yadkin Division
PO Box 576
Badin, North Carolina 28009-0576
Tel: [phone]
Fax: [phone]
www.alcoa.com/yadkin
g g, C? 11V7 P
J C T 2 6 2006
UENR - WATER UUALIT'Y
'YkTLANQS AND S T ORMWATF_R BRANCH
Re: APGI Response to NCDWQ Questions from Conference Call of September 19,
2006 and Letter of June 30, 2006 regarding Yadkin Project DO Enhancement
during Generation Unit Refurbishment/Upgrade
Dear Mr. Dorney,
I am writing in response to questions about Alcoa Power Generating Inc.'s (APGI)
Proposed Unit Refurbishment/Upgrade and Dissolved Oxygen (DO) Enhancement
Schedule (Proposed Schedule) for the Yadkin Project (Project) that were raised by
the North Carolina Division of Water Quality (NCDWQ) during a conference call on
September 19, 2006 and in a letter to APGI dated June 30, 2006. 1 have attempted
to address each of the questions fully below. Some of the responses are
restatements of answers to questions provided in a letter to Ms. Darlene Kucken,
NCDWQ, dated June 30, 2006.
1. During the September 19 conference call, NCDWQ asked APGI if it could modify
its proposed schedule for dissolved oxygen enhancement at the four Yadkin Project
developments such that DO enhancement at the Tuckertown development would be
completed by the end of 2016.
At NCDWQ's request, APGI has reevaluated its entire unit refurbishment/upgrade
and DO enhancement schedule and has concluded that for both economic and
logistical reasons it is not feasible to make any further modifications to the
refurbishment/upgrade schedule that would accelerate the refurbishment/upgrade of
the three Tuckertown units by 2016. However, APGI understands NCDWQ's desire
to have improved DO conditions in the Tuckertown tailwaters sooner than would
occur if DO enhancement at Tuckertown is tied to the Tuckertown
refurbishment/upgrade schedule. Therefore, if, based on study after the completion
of DO enhancements at High Rock it is determined that the Tuckertown tailwaters
do not meet state DO standards, APGI is willing to commit to completing DO
enhancements at Tuckertown by the end of 2016 and to have that enhancement
technology fully operational by May 1 of 2017. Such DO enhancement will be
completed in 2016 irrespective of the refurbishment/upgrade schedule for the
Tuckertown units. The overall schedule for the refurbishment/upgrade of the Yadkin
Project units will remain the same as shown under "Proposed Schedule" in Table 3
(attached), as will the DO enhancement schedule for the Narrows, High Rock and
Falls developments where DO enhancement will be completed at the time unit
refurbishment/upgrade.
2. What percent of time (approximately) is each unit operated at the Narrows and
High Rock facilities during the May to November timeframe?
APGI has used its historic operating records to estimate the percentage of time
each of the Narrows and High Rock units have operated during the months May
through November for the period 2000-2005 (Tables 1 and 2, attached). Two sets
of numbers are provided for each of the units at both Narrows and High Rock. The
percent unit hours/total station hours is the number of hours a specific unit ran
divided by the total hours that the station was generating power. For example, if all
4 Narrows units ran for 1 hour, the number would be 25% for a specific unit. The
percent total hours/period hours is the amount of time each unit ran for all the hours
between May and November.
In reviewing the data in these tables please keep in mind that these percentages
are based on APGI's recent history of operating the existing units, only one of which
(Narrows Unit 4) has been refurbished/upgraded. The percentages vary between
years because APGI's determination of which unit(s) it operates on any given day
may be based on a number of highly variable factors including inflow, need for
power, generating schedule, unit efficiency, maintenance issues, etc. Moreover, as
the refurbishment/upgrade of these units is ongoing, the operating schedule will
change significantly as units are taken out and put back into service. Also, after unit
refurbishment/upgrade is complete, APGI may not necessarily run the units as it
does currently, in terms of order of preference, etc. However, I would note again,
that one of the major commitments being made by APGI as part of the overall
Proposed Schedule is that as unit refurbishments/upgrades are completed, and
aeration technology is added, the units with aeration technology will be operated on
a first-on, last-off basis, subject to unit availability.
Also, I would like to point out that the data for Narrows shows clearly that in recent
years Unit 4 is has run much more frequently than Units 1-3. This demonstrates
APGI's concerted effort to operate Unit 4 first-on, last-off when it is feasible to do so.
There was a slight decline in the Unit 4 percentage in 2005 (as compared to the two
previous years). This was because in 2005 APGI was required to clear the Narrows
transmission line right-of-way. During the transmission line clearing, as a safety
precaution, APGI took the transmission line closest to the trees out of service, which
was the Unit 4 line. Thus, during the period of transmission line clearing, Unit 4 was
not in operation.
3. Please address why you need two years of engineering work and modeling on
the Narrows facility before improvements can be done to meet water quality
standards. It is unclear to us why your schedule for the Narrows facility could not
be accelerated into year 2007 to start the needed improvements at this facility,
especially since it is our understanding that the physical fix at Narrows Units 1, 2
and 3 is rather similar to that done for Unit 4.
Although NCDWQ is correct in noting that the "physical fix", in terms of DO
enhancement (draft tube cone aeration valves), planned for Narrows Units 1-3 is
similar to those installed on Narrows Unit 4, it must be remembered that the addition
of the aeration valves is occurring as part of a much larger and logistically
challenging unit refurbishment/upgrade project. In fact, one of the primary reasons
for including the installation of the draft tube cone aeration valves during
refurbishment/upgrade is their installation requires a complete tear down of the unit.
The tear down and rebuild cost is approximately $1 million per unit, and there is a
high risk for damage to the generator during this work. So avoiding two tear downs
of any given unit is paramount.
More specifically, in letters dated March 31, 2006 and June 30, 2006, APGI
provided NCDWQ with additional information about the time needed for engineering
work and other tasks that must be completed before APGI can begin work on
refurbishing/upgrading Narrows Unit 2. As part of that engineering work, APGI was
seeking the most beneficial turnaround time for Unit 2's runner design, construction
and delivery. For that reason, APGI had previously contracted with an engineering
modeling and design firm. Notably too, the Narrows powerhouse has two families
of turbine runners, Units 1-2 and Units 3-4. While similar, there are enough
differences in design (e.g. different run speeds, gate size/configuration) that warrant
additional engineering to optimize the hydraulic efficiencies of the turbine runner for
Unit 2. In addition to the turbine runner design, the engineering for the balance of
plant systems, those systems that support the turbine/generator, is also in progress
to support the life extension effort of the Narrows powerhouse. More specifically,
upgrades to the power house cranes, electrical power distribution and control
systems, fire protection and cooling water system will also occur during the unit
outages.
As outlined in the June 30, 2006 letter, and the revised Proposed Schedule, through
the remainder of this year and through 2007, APGI is not only completing
engineering work for the next units, but is also actively working with manufacturers
and suppliers to procure the necessary equipment. Now that Unit 2's runner
modeling and general design is complete, there is a 15 month period for more
specific design, construction, equipment fabrication, testing and delivery. These
necessarily sequential steps allow for installation, start-up and commissioning into
early 2008, but APGI will be using that time to also work through the same design
issues for Narrows Unit 1. In addition, as mentioned previously, APGI will be taking
parallel steps in the intervening period to upgrade auxiliary equipment, specifically
refurbishing the powerhouse cranes that are necessary for the installation of Units
2, 1, and 3.
In summary, the Proposed Schedule takes into account all the required elements of
the refurbishment/upgrade program, including design, procurement, manufacture,
delivery, staging, and installation of necessary parts, equipment and materials,
installation, start up and commissioning of the unit - all of which must be
accomplished safely. APGI would also note that Narrows Unit 2 is scheduled to be
completed by March 31, 2008, prior to a new FERC license for the Project, a mere 3
months beyond NCDWQ's original requested completion date, and before the
historical low DO period of May through November.
4. Documentation for costs of alternative improvement plans. In your March 31
letter and at our May meeting, you refer to costs of various alternative schedules.
Please provide quantitative documentation for those conclusions.
In a letter dated March 31, 2006, APGI provided NCDWQ with the estimated cost
impacts to APGI associated with two alternative refurbishment/upgrade schedules
as shown in the Table 3 (attached). In comparison to the Proposed Schedule,
APGI's economic analysis for Alternative 1 indicates the Project's net present value
of cash flows would be reduced by nearly $6 million. The reduction in net present
value of cash flows from the investment would be just under $2 million for
Alternative 2.
All the economic analyses provided above and in the March 31, 2006 letter were
similarly performed and were based on several factors that were held constant
across the analysis of the Proposed Schedule, Alternatives 1 and 2. Those
constant factors include:
• From the Yadkin Project OASIS relicensing model:
o Average streamflow based on the 74 year (1930-2003) database
o Power prices (on a weighted average basis) of $49 per megawatt hour
on peak and $30 per megawatt hour off peak (2004 Platts Southern,
Into Index) without a cost escalator over time
• 2006 estimates of capital cost of the refurbishment/upgrade program
• 2006 operating costs without a cost escalator over time
• Projected increased operating costs associated with relicensing without a
cost escalator over time - (Since the economic analyses were originally
performed in March 2006 and the APGI Agreement In Principle for the
Yadkin Project was delivered for signature in June 2006, projected increased
operating costs associated with relicensing are not the same. Since this is a
constant factor across the Proposed Schedule, Alternatives 1 and 2,
differences in outcomes should be minimal.)
• 40 year license term
• 9% discount rate - (Alcoa's present internal standard for these types of
analysis.)
Net Present Value calculation per Microsoft Excel
As noted above, the variable factors include when certain steps in the
refurbishment/upgrade program occur and the order of those steps as highlighted in
Table 3 (attached).
APGI and its parent company, Alcoa, have rigorous economic standards that capital
improvements must meet. The alternative schedules' impact on the net present
value of cash flows is significant to Alcoa.
Given the numerous logistical considerations addressed in question 2, APGI's and
Alcoa's financial requirements, and the impact of other anticipated commitments in
the Project relicensing settlement, our belief is that the documentation we've
provided of the costs of alternatives compared to the Proposed Schedule shows
that the alternatives to APGI's Proposed Schedule are not practical.
5. Please be aware that the DWQ approved Quality Assurance Performance Plan
(QAPP) must be submitted to DWQ at the time of the 401 application for our review.
APGI understands that it must submit an approved QAPP along with its 401
application for the Project. As we discussed in our August 9 meeting, APGI will
begin working in close consultation with NCDWQ staff on a QAPP in the near
future.
6. APG/ will need to develop a Flow Monitoring and Compliance Plan in
consultation with Progress Energy (Progress), the USGS, and other resource
agencies. This Plan will then need to be part of the 401 application and filed with
FERC within 12 months of the effective date of a new license.
Also as discussed in our August 9 meeting, APGI understands that it needs to file a
draft Flow Monitoring and Compliance Plan, developed in consultation with
Progress, USGS and other resource agencies, along with its 401 application for the
Project. Consultation with some of these parties on appropriate means of
monitoring flows from the Project developments is already underway, and
discussions regarding the feasibility of various flow monitoring options and related
reporting requirements will continue as part the development of the final relicensing
settlement agreement for the Project.
7. Please provide justification for postponing the beginning of refurbishment
upgrade work on Tuckertown until 2016, with a completion date of 2018. This
appears to provide a 3 year period of no improvement at Tuckertown.
The timing of the refurbishment/upgrade of the Tuckertown units must be evaluated
in the overall context of the Proposed Schedule. Once DO levels within the High
Rock tailwater are improved, it is possible that a corresponding improvement in
Tuckertown tailwater DO levels may also be achieved. Although APGI has been
unable to demonstrate this expected effect with the existing equipment, we remain
convinced that improved DO at High Rock will translate downstream because travel
times through Tuckertown Reservoir are relatively short (less than a day), and
because the Reservoir stratifies infrequently, and then only weakly. Knowing that
there is the potential to see improved DO levels in the Tuckertown tailwater as a
result of aeration at High Rock, it would be imprudent for APGI to design DO
enhancement technology for Tuckertown until after improvements at High Rock
have been completed and studies have been done to determine what, if any,
changes in the Tuckertown tailwater DO levels have been achieved.
Under the Proposed Schedule, the installation of aeration equipment at all three
High Rock units will be completed by the end of 2012. After that, the Proposed
Schedule allows for two seasons of monitoring/study to determine the effect on
Tuckertown tailwater DO. At the completion of the study effort, it will be known how
much, if any, DO enhancement capability is required at Tuckertown to bring those
tailwaters up to standards. On that basis, APGI will then have one year to design
and procure appropriate aeration technology for the Tuckertown development that
can be installed when unit refurbishment/upgrade begins in 2016.
As we have discussed previously, it may be that only one year is needed to
adequately study the High Rock/Tuckertown DO connection following completion of
the refurbishments/upgrades at the three High Rock units. However, APGI believes
it is prudent that the Proposed Schedule allow for two seasons of study, in case
there are unusual meteorological or hydrological conditions during the first year that
prevent the study from occurring or that cause unusual DO conditions in the river
and reservoirs.
Based on our conference call of Oct. 23, 2006, APGI understands that it has
provided responses to all of NCDWQ's outstanding questions such that NCDWQ
can support the dissolved oxygen enhancement schedule below.
Final nn Enhancement Schedule
Year High Rock Tuckertown Narrows Falls
2008 Unit 2
2009 Unit 1
2010 Unit 3 Unit 3
2011 Unit 2 Stud
2012 Unit 1 Stud
2013 Stud
2014 Study Unit 1, if
needed
2015 Unit 2, if
needed
2016 If needed Unit 3, if
needed
As always, we thank you for your willingness to work with APGI on these issues.
Sincerely,
??5
Gene Ellis
Licensing & Property Manager
cc: Darlene Kucken, NCDWQ
Steve Reed, NCDWR
Ben West, USEPA
Table 1
Narrows Development Percent of Unit Operation (May-November, 2000-2005)
Num ber of hours in operation - May thru Nov

Unit 1
Unit 2
Unit 3
Unit 4 Total hours
of operation
2000 2760 1785 866 875 3356
% unit hours/total hours 82.24% 53.19% 25.80% 26.07%
total hours/ period hours 53.74% 34.75% 16.86% 17.04% 65.34%
2001 1452 1657 657 2138 3537
% unit hours/total hours 41.05% 46.85% 18.58% 60.45%
total hours/ period hours 28.27% 32.26% 12.79% 41.63% 68.87%
2002 2036 1690 843 1875 3337
% unit hours/total hours 61.01% 50.64% 25.26% 56.19%
total hours/ period hours 39.64% 16.41% 36.51% 64.97%
2003 3947 3624 4633 4798
% unit hours/total hours 82.26% g 75.53% 96.56%
total hours/ period hours 76.85% 65 70.56% 90.21 % 93.42%
2004 2371 2157 4616 4738
% unit hours/total hours 50.04% . 45.53% 97.43%
total hours/period hours 46.16% 52.24% 42.00% 89.88% 92.25%
2005 2363 2291 1687 2787 3394
% unit hours/total hours 69.62% 67.50% 49.71% 82.12%
total hours/ period hours 46.01% 1 44.61% 32.85% 54.26% 66.08%
Average hours 2488 2267
Average percent of hours 64.37% 57.94%
1639 I-OZ I JODU
40.07% 69.80%
Average percent of period 48.45% 44.14%
Notes:
31.91% 54.92% 75.16%
The % unit hours/total station hours is the number of hours a specific unit ran divided by the total
hours that the station was generating power. For example, if all 4 Narrows units ran for 1 hour, the
number would be 25% for a specific unit.
The % total hours/period hours is the amount of time the each unit ran for all the hours between May
and November.
Table 2
High Rock Percent of Unit Operation (May-November, 2000-2005)
Number of hours in o eration - May thru Nov

Unit 1
Unit 2
Unit 3 Total hours of
operation
2000 1810 1527 1324 2755
% unit hours/total hours 65.70% 55.43% 48.06%
total hours/ period hours 35.24% 29.73% 25.78% 53.64%
2001 1460 1597 801 2350
% unit hours/total hours 62.13% 67.96% 34.09%
total hours/ period hours 28.43% 31.09% 15.60% 45.76%
2002 1770 1539 1109 2391
% unit hours/total hours 74.03% 64.37% 46.38%
total hours/ period hours 34.46% 29.96% 21.59% 46.55%
2003 4170 4045 3852 4448
% unit hours/total hours 93.75% 90.94% 86.60%
total hours/ period hours 81.19% 78.76% 75.00% 86.60%
2004 3333 3164 2780 3838
% unit hours/total hours 86.84% 82.44% 72.43%
total hours/ period hours 64.89% 61.60% 54.13% 74.73%
2005 2671 2399
1 2623 3408
% unit hours/total hours 78.37% 70.39% 76.97%
% total hours/ period hours 52.01% 46.71% 51.07% 66.36%
Average hours 2536 2379 2082 3195
Average percent of hours 76.80% 71.92% 60.75%
Average percent of period 49.37% 46.31% 40.53% 62.27%
Notes:
The % unit hours/total station hours is the number of hours a specific unit ran divided by the total
hours that the station was generating power. For example, if all 3 High Rock units ran for 1 hour, the
number would be 33% for a specific unit.
The % total hours/period hours is the amount of time the each unit ran for all the hours between May
and November.
Table 3
Summary of APGI's Proposed Unit Refurbishment/Upgrade Schedule and Two
Alternative Schedules Considered
PrnnnCPrl Rnhpdi le
Year vvv High Rock Tuckertown Narrows Falls
2008 Unit 2
2009 Unit 1
2010 Unit 3 Unit 3
2011 Unit 2 Stud
2012 Unit 1 Stud
2013 Stud
2014 Stud Unit 1
2015 Unit 2
2016 Unit 1 Unit 3
2017 Unit 2
2018 Unit 3
Alternative 1 - Accelerated Compared to Proposed Plan: High Rock by 2011
1 Year Studv / Tuckertown by 2015 / Falls by 2014
Year High Rock Tuckertown Narrows Falls
2008 Unit 2
2009 Unit 3 Unit 1
2010 Unit 2 Unit 3
2011 Unit 1 Stud
2012 Stud Unit 1
2013 Unit 1 Unit 2
2014 Unit 2 Unit 3
2015 Unit 3
Alternative 2 - Accelerated Compared to Proposed Plan: High Rock by 2011
1 Year Study / Tuckertown by 2015 / Falls by 2016
Decelerated Compared to Proposed Plan: Narrows by 2012
Year High Rock Tuckertown Narrows Falls
2008 Unit 2
2009 Unit 3
2010 Unit 2
2011 Unit 1 Unit 1
2012 Stud Unit 3
2013 Unit 1 Stud
2014 Unit 2 Unit 1
2015 Unit 3 Unit 2
2016 Unit 3