20070812 Ver 2_Proposed Plan_20060511

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ALCOA
Proposed Plan
Alcoa Power Generating Inc.
Yadkin Division
PO Box 576
Badin, North Carolina 28009-0576
Tel: [phone]
Fax: [phone]
www.alcoa.com/yadkin
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.
D WO Response:
DWQ understands that it is important for Alcoa to consider the need for
refurbishments to existing units during the new license and DWQ has presented a
negotiated position of willingness to work with you to allow you to achieve this goal
while still achieving the goal of meeting state standards for DO in the tailwaters below
each hydro. However, refurbishments are not a requirement of the relicensing or the
401 Certification; they are a requirement of continued business operations. Therefore
how Alcoa proceeds with necessary refurbishments are not a 401 Certification issue
and are solely an issue for continued Alcoa business operations.
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.
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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 11, 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 company's cash flow and to the net
present value of the cash flows of the Project. 1
DWO Response:
Alcoa presented a proposal to DWQ requesting that DWQ allow Alcoa to conduct unit
refurbishments and DO enhancements simultaneously. DWQ presented a negotiated
position to Alcoa to allow adequate time for conducting both refurbishments and
enhancements together, beginning with one or more of the Narrow units because Alcoa
noted that the Narrow unit upgrades would allow them to recuperate their investments
quicker than work done on the High Rock units. DWQ acknowledged this Alcoa
business decision, but reminded Alcoa that DWQ expected all units on Narrows and
High Rock hydros to have DO enhancements completed within three years of the
license renewal (by 2011). DWQ further allowed Alcoa an additional three years to
complete any needed DO enhancements at Tuckertown and Falls (by 2014). DWQ
requested that Alcoa demonstrate that they would not be able to meet such a schedule.
DWQ agrees that Alcoa must carefully schedule work to reduce financial impacts to
the company.
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
' 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?)
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 only one of the four
Project tailwaters being able to meet applicable DO standards within 3 years of a new FERC
license.
DWO Response on two above paragraphs:
DWQ agrees that it is likely, based on the one unit upgrade at Narrows, that DO will
meet state standards in the Falls tailwaters as a result of DO enhancement at the
Narrows hydro. DWQ also agrees that this is not as clear for the Tuckertown tailwater
p as a result of DO enhancement at the High Rock hydro. This points to the need to
conduct DO enhancements on one or more of the units at High Rock to begin to test the
effectiveness of these enhancements on the Tuckertown tailwater. If enhancements do
not appear to affect the Tuckertown tailwater, then engineering studies can begin
immediately to determine how the DO standards will be met in the Tuckertown
tailwater.
Alternative 1- Accelerated Compared to Proposed Plan: High Rock by 2011 / 1 Year Study
/Tuckertown by 2015 /Falls by 2014
As requested, APGI has considered the economic impact associated with Alternative 1.
i Scheduled as shown in Attachment 1, Alternative 1 would have a significant economic
cj impact on APGI. Additional capital in excess of $14 million dollars over a five year period
(2007-2011) would be needed to allow the refurbishments and upgrades to be completed at
the same time as the planned units at Narrows. Additionally, there would be further
significant generation losses on an annual basis during this accelerated schedule. The
economic analysis for this case indicates the Project's net present value of cash flows would
be reduced by nearly $6 million.
DWO Response:
The capital required for refurbishments are irrelevant to the relicensing processaaw
-the stakeholders in the process, including DWQ, have commented on this several times.
V? The only actual costs related to the relicensing and meeting the conditions of the 401
Certification are related to the DO enhancement features to be installed.
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
APGI has also evaluated the economic impact of Alternative 2. This alternative would also
have a significant negative economic impact when compared with the APGI proposal. The
reduction in net present value of cash flows from the investment would be just under $2
million for this case. This is due primarily to the smaller earlier return on investment for the
High Rock units and deferral of the more beneficial Narrows units into the future.
DWO Response:
This alternative does not present the conditions as proposed by DWQ to have DO
enhancements installed on all units on both Narrows and High Rock by 2011. Without
modeling, it is not possible for Alcoa to demonstrate that DO standards will be met at
least 90 percent of the time at the Narrows and Falls tailwaters. Without approved
modeling and modeling results, DWQ is not able to agree to this alternative.
Accelerated Determination of DO Enhancement Needs at Tuckertown and Falls
As requested in your question number three, APGI has also considered what could be done
to accelerate necessary DO enhancement at Tuckertown and Falls. Although we understand
the NC Division of Water Quality's (DWQ) interest in accelerating this part of the Plan, we
are unable to see how the schedule for these two developments could be accelerated much,
as at both Falls and Tuckertown, a decision if DO enhancement will be necessary can only
be made after the DO enhancements are completed at the upstream developments, Narrows
and High Rock, respectively. Any further acceleration of the schedule is in conflict with the
need to gather adequate information to make an informed decision as to whether DO
enhancement is needed, and if needed, what DO enhancement measures to plan for at Falls
and Tuckertown. Additionally, any further acceleration of the schedule cannot realistically
be achieved due to engineering, logistics, and procurement of equipment.
As was outlined in the Proposed Plan, APGI is planning for refurbishments and upgrades for
Tuckertown beginning in 2016 in conjunction with the required generator rewind work. As
part of the Proposed Plan, APGI will monitor the effect of the DO improvements from High
Rock on Tuckertown as the installation of the refurbished and upgraded units at High Rock
are completed from 2010 through 2012. However, APGI cannot determine the full benefit
of DO improvements at High Rock to the water quality at Tuckertown until after it has had a
chance to study 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.
DWO Response:
DWQ believes that Alcoa has had adequate time under the current license to consider
all options that may be available to Alcoa to install DO enhancements on all of its
hydros where deemed necessary. DWQ agrees that it is critical for Alcoa to fully
understand how often and for how long each of the units operates and what impacts
these operations may have on the receiving stream in terms of meeting state standards.
DWQ also agrees that two years of studying the effects of DO enhancements may be
preferable to one year of study, depending on the conditions of that particular year.
These considerations again point to the importance of completing DO enhancements on
all the High Rock and Narrows units in such a manner as to optimize the downstream
conditions and to document the effects of each unit upgrade on downstream conditions.
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,
t?u??
Gene Ellis
?\Q??
Licensing & Property Manage
10" C eA .
&XV5
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DW Overall R onse: C.- Ct
DWQ
• j 'ti -accept the
AKVQ neg sated proposal of completion of DO enhancement installation on all units at
both Na ows and High Rock by 2011, and on all units at both Falls and Tuckertown
by 2014. DWQ understands that the DO enhancements at Narrows may result in
downstream conditions that would not require DO enhancement on units at Falls, but
this will be determined with at least one year of study following completion of the DO
enhancements at Narrows. DWQ further understands that Alcoa will have a more
difficult and costly challenge meeting state DO standards in the Tuckertown tailrace
should the DO enhancements at High Rock prove to be ineffective for the Tuckertown
tailwaters. DWQ is willing to work very closely with Alcoa to assess the effects of the
High Rock DO enhancements on the Tuckertown tailwaters and may be willing to
allow for up to two years of studying these effects. DWQ will require DO standards to
be met in all tailwaters at least 95 percent of the time below all hydros by 2014.
See Attachment 1 as proposed by DWQ to accomplish the above stated goals DWQ
believes that it is necessary to conduct studies on the effects of the DO enhancements
on the downstream tailwaters as they are installed on the upstream hydro DWQ
understands that not all units are operated all the time and that the enhanced units will
be operated on a `first on, last off' basis Studying the effects of these unit by unit
enhancements on the downstream waters will be critical for determining the needed
downstream DO enhancements and how downstream hydros should be operated prior
to full enhancement completion by the end of 2014..
Attachment 1
DWQZProposed Plan for DO Enhancements (assumes completion by December 31 of
said ear
Year High Rock Tuckertown Narrows Falls
2008 Unit 2 Stud Effects
2009 Unit 3 Stud Effects Unit 1 Stud Effects
2010 Unit 2U- U-4. Stud Effects Unit 3 Stud Effects
2011 Unit Wn" Stud Effects Stud
2012 Stud Unit 1 Unit 1 Stud Unit 1
2013 Stud Unit 2 Unit 2
2014 Stu& Unit 34 Unit 3t7itr"
2015 uff"
2016 Unit 1 {3
2017 uni"
2018 Unit 3
- yb ".QO'ZJ all"- wv-,(V ca 5 I fWAI
M "V,L
k? Na? Falls
2008
2009 Uni-t-3 U*W4
20" Unit 2 unni -3
2W4 un6t 1 study
stuffy uni"
2044 UM" U*"
2W
Unit 3
Study 1 Tuelier-town bv 2015 / Falls by 2016; Deeelerated Comparedto Proposed Plan,
Nar-r-ows by 2012
Tuelier-to ,,. Na-rfews 1
2048
2009
244-0 Un"
244 U-r 4
U*" Study
?e 1 a
uIt" Unt"
tYri7" U-ni t-2
Ltfl"
i fA