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ALCOA
March 31, 2006
Ms. Darlene Kucken
Supervisor, Basinwide Planning Unit
NC Division of Water Quality
1617 Mail Service Center
Raleigh, NC 27699
Alcoa Power Generating Inc.
Yadkin Division
PO Box 576
Badin, North Carolina 28009-0576
Tel: 1-888-886-1063
Fax: 1-704-422-5776
www.alcoa.com/yadkin
Re: APGI Responses To NCDWQ Questions About Yadkin Project DO
Enhancement During Generation Unit Refurbishment/Upgrade
Dear Ms. Kucken,
Thank you for meeting with me and representatives of the relicensing team for
Alcoa Power Generating Inc.'s (APGI) Yadkin Project (Project), licensed by the
Federal Energy Regulatory Commission as Project No. 2197. We appreciate your
time over the last several months as we discussed the planned refurbishment and
upgrade program for the Project. As you know, APGI has committed to significant
investments in turbine, generator, and auxiliary equipment improvements at the
Project, and in the course of that work, APGI is striving to incorporate an efficient
and effective program to increase aeration at the Project developments in order to
meet North Carolina's water quality standards for dissolved oxygen (DO) levels in
the Project development's tailwaters.
In January 2006, APGI proposed a Project Unit Refurbishment/Upgrade and DO
Enhancement Plan (Proposed Plan, attached) that represents APGI's preferred
business case considering impacts to Project economic value, engineering/
logistical considerations, and DO enhancement. APGI believes that its Proposed
Plan meets the objectives of improving DO levels in the Project tailwaters as rapidly
as possible while avoiding unreasonable or unnecessary economic losses to APGI.
However, in correspondence and in our most recent meeting, you have asked us to
consider several potential changes to the Proposed Plan, and to provide you with
information regarding the added costs and logistical complications associated with
each. Specifically you asked us to consider three basic questions:
1) Could APGI accelerate the upgrades of Narrows Units 1 & 3, and High Rock
Units 1, 2 & 3 to all be completed within 3 years of new license (by
12/31 /11)?
2) Could APGI complete the High Rock unit upgrades first, rather than Narrows
(as proposed by APGI)?
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3) Could APGI determine DO enhancement needs at Falls and Tuckertown
sooner than currently shown in the proposed schedule?
To address the first two questions, we have considered two alternative schedules.
Alternative 1 has APGI completing Narrows Units 1, 2, and 3 and High Rock Units
1, 2, and 3 by the end of 2011, a year earlier than in the Proposed Plan. Alternative
2 has all the units at High Rock and Narrows being completed by the end of 2012
(as in the Proposed Plan), but with the High Rock units completed first. Both of
these alternatives assume a minimum of one-year of dissolved oxygen monitoring
and study following completion of all the High Rock and all Narrows units in order to
assess the need for additional DO enhancement at Tuckertown and Falls,
respectively. In Attachment 1, the Proposed Plan and the alternative schedules are
shown.
Proposed Plan
APGI believes its Proposed Plan for DO enhancement and unit refurbishment and
upgrade is the best alternative from both an economic and environmental
standpoint.
One of the primary considerations in the Proposed Plan is the need for
refurbishments to existing units in order to keep them in service. The generating
units and auxiliary equipment in the Yadkin Project's High Rock and Narrows
developments are more than 70 years old, while the Tuckertown development units
and auxiliary equipment is up to 50 years old. As noted below, the Falls units have
had more recent refurbishment. All these units and auxiliary equipment require
refurbishment to allow continued operation through the period of the new license
and beyond. In short, generally speaking, the units at Narrows and High Rock
require attention sooner than the units at Tuckertown and Falls.
Also, it is important to understand that the economics of the program are largely
driven by the number of generating units APGI has in service at any one time. If
two units are down at the same time, the increased loss in generation on an annual
basis is significant. For example, the generation loss of one unit at Narrows for six
months would be approximately 6% of the average annual generation for the entire
Project while taking down a unit at High Rock at the same time could increase
generation losses for that year to 9%. Depending on streamflow, a 3 percent loss in
generation can represent $1 million or more in revenue to APGI.
Of the Yadkin Project's four developments, Narrows has, by far, the greatest
generating capacity and provides approximately 50% of the total Project generation.
This is mainly due to the high head at this facility (175 ft versus approximately 55 to
60 at other three developments). The other three developments provide
approximately 17% of total Project output each. As a result, the overall Yadkin
Project economics are particularly sensitive to the timing of taking units at Narrows
out of service. Therefore, in the Proposed Plan, APGI is proposing to refurbish and
upgrade the Narrows units first since the rate of return on invested capital is higher
due to their greater energy output. The High Rock units would be completed second
based on the age and current condition of the units. The Tuckertown units would be
completed thereafter based on age and the current condition of the turbine runners.
Finally, the Falls units would be completed last since the runners for Units 2 and 3
were replaced in 1962, and the runner for Unit 1 was replaced in 1981.
It must also be understood that unit refurbishment and upgrade must be done in
phases in order to accommodate necessary engineering and studies. In Phase I of
the refurbishment and upgrade program, hydraulic model studies of the turbine
runner and detailed engineering are performed for the turbines. Approval of project
funding, fabrication and procurement then follow over Phase II, which requires 12 to
18 months to complete. Finally, Phase III includes field installation followed by
testing over a period of six months, before the generating units can be put back into
on line for commercial operation. During the Phase III installation and start up
testing period, there is a loss of generation for the units being refurbished and
upgraded.
From a dissolved oxygen perspective, as we have explained in our recent meetings,
there is considerable economic advantage to APGI installing DO enhancements
(i.e., aeration technology) at the same time that it undertakes refurbishment and
upgrade of its generating units. However, undertaking both programs
(refurbishments and DO enhancement) at once requires APGI to carefully schedule
the work so that it does not take too many generating units out of service at the
same time, whether for refurbishments, upgrades or enhancements, in order to
avoid significant short term impacts to the co7any's cash flow and to the net
present value of the cash flows of the Project.
APGI thinks there are other environmental advantages to its Proposed Plan. Based
on the results of our studies of Narrows Unit 4 (with aeration valves), and given the
very short retention time of water in Falls Reservoir (generally 2 hours or less),
APGI believes that the DO improvements achieved in the Narrows tailwater once
aeration technology is installed at all four generating units may be translated
downstream to the Falls tailwater, and that further DO enhancement may not be
required at Falls. If this is so, then completing the refurbishments and DO
enhancements at Narrows first will allow two of the four Yadkin Project
developments to meet applicable DO standards within 2 years of a new FERC
license.
On the other hand, the potential for improved DO concentrations in the Tuckertown
tailwaters as a result of installation and operation of aeration technology at High
Rock is not as clear. Therefore, it is possible that accelerating the refurbishment of
the High Rock units (with concurrent installation of aeration technology) will result in
Cash flow is net income plus amounts charged off for depreciation, depletion, amortization, and
extraordinary charges to reserves (which are bookkeeping deductions and not paid out in actual
cash) minus capital expended, plus or minus changes in working capital.
The net present value of cash flows is a financial analysis that reflects the difference between the
present value of the cash inflows and the present value of the cash outflows associated with an
investment project. The analysis takes the cash flow estimated annually for each year in the future
and values it at present day dollars. This is performed to determine if a project is worth funding (i.e.
Will the project make money?)
Attachment 1
Proposed Plan
11 Year High Rock Tuckertown Narrows Falls
2008 Unit 2
2009 Unit 1
2010 Unit 3 Unit 3
2011 Unit 2 Stud
2012 Unit 1 Study
2013 Study
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 Study / Tuckertown by 20151 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 Study 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 Study Unit 3
2013 Unit 1 Stud
2014 Unit 2 Unit 1
2015 Unit 3 Unit 2
2016 Unit 3
DO conditions in the two tailwaters following completion of all three High Rock
Units. Optimally, monitoring and study would occur over a period of two summer
seasons before a final determination of DO enhancement needs at Tuckertown is
made. (As we discussed at an earlier meeting, two seasons of study is preferred,
as DO conditions in any given season can be significantly affected by unusual
weather or flow events.) However, at a minimum, one summer season of DO
monitoring and study will be required following completion of all the High Rock units.
APGI is also proposing a two year period of study following completion of all four
Narrows units, as a basis of determining DO enhancement needs at Falls. Again,
while the study period could be reduced to a single season, as noted above, APGI
believes that allowing for two seasons of monitoring and study reduces the potential
that study results will be biased by unusual weather, temperature or flow conditions.
Overall, given the need to study DO conditions at Tuckertown and Falls for at least
one full summer season following completion of unit refurbishments at all the High
Rock and Narrows units, the most the determination of DO enhancement needs at
Tuckertown and Falls could be accelerated, under the proposed schedule, would be
by one year. Moreover, given the additional capital investment that will have to be
made by APGI at these two developments, should studies indicate that additional
DO enhancement is needed at these two developments, it would seem imprudent to
base the determination of the need for such expenditures on a single season of
monitoring and study.
We hope that this letter provides you with the additional information which you
requested. Thank you for your continued willingness to work with APGI to develop
a DO enhancement schedule that will realize significant environmental benefits
while allowing APGI to manage its economic losses. If you have any questions,
please contact me.
Sincerely,
Gene Ellis
Licensing & Property Manager
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