Alcoa 2009 Annual Report Download - page 24

Energy
Alcoa produces aluminum from alumina by an electrolytic process requiring large amounts of electric power. Electric
power accounts for approximately 24% of the company’s primary aluminum costs. Alcoa generates approximately
22% of the power used at its smelters worldwide and generally purchases the remainder under long-term arrangements.
Power generated by natural gas, or in the alternative, by fuel oil, as purchased by the company, accounts for
approximately 15% and 14%, respectively, of the company’s total refining production costs. The paragraphs below
summarize the sources of power and the long-term power arrangements for Alcoa’s smelters and refineries.
North America – Electricity
The Deschambault, Baie Comeau and Bécancour smelters in Québec purchase electricity under existing contracts that
run through 2015, which will be followed on by long-term contracts with Hydro-Québec executed in December 2008
that expire in 2040, provided that Alcoa completes the modernization of the Baie Comeau smelter by the end of 2015.
The smelter located in Baie Comeau, Québec purchases approximately 65% of its power needs under the Hydro-
Québec contract and receives the remainder from a 40%-owned hydroelectric generating company, Manicouagan
Power Limited Partnership, whose ownership was restructured in 2009 with Hydro-Québec acquiring the 60% stake
previously held by Abitibi.
The company’s wholly-owned subsidiary, Alcoa Power Generating Inc. (APGI), generates approximately 28% of the
power requirements for Alcoa’s smelters in the U.S. The company generally purchases the remainder under long-term
contracts. APGI owns and operates two hydroelectric projects, Tapoco and Yadkin, consisting of eight dams, under
Federal Energy Regulatory Commission (FERC) licenses. APGI hydroelectric facilities provide electric power, as
needed, for the aluminum smelters at Alcoa, Tennessee and Badin, North Carolina. The Tennessee smelter may also
purchase power from the Tennessee Valley Authority (TVA) under a contract that extends to June 20,
2010. Discussions for the supply of power by TVA to the smelter after the expiration of the current contract are
underway.
APGI received a renewed 40-year FERC license for the Tapoco project in 2005. The relicensing process is nearing
completion for the Yadkin hydroelectric project license. In 2007, APGI filed with FERC a Relicensing Settlement
Agreement with the majority of the interested stakeholders that broadly resolved open issues. The National
Environmental Policy Act process is complete, with a final environmental impact statement having been issued in
April 2008. The remaining requirement for the relicensing was the issuance by North Carolina of the required water
quality certification under Section 401 of the Clean Water Act. The Section 401 water quality certification was issued
on May 7, 2009, but is being appealed, and has been stayed since late May 2009 pending substantive determination on
the appeal. APGI received a year-to-year license renewal from FERC in May 2008, and will continue to operate under
annual licenses until the new Section 401 certification is issued and the FERC relicensing process is complete. With the
Badin smelter idled, power generated from APGI’s Yadkin system is largely being sold to an affiliate, Alcoa Power
Marketing LLC, and then sold into the wholesale market.
The company, through APGI, generates substantially all of the power used at its Warrick smelter using nearby coal
reserves. Since May 2005, Alcoa has owned the nearby Friendsville, Illinois coal reserves, which mine is being
operated by Vigo Coal Company, Inc. The mine is producing approximately one million tons of coal per year, 45% of
the Warrick power plant’s requirements. The balance of the coal used is purchased principally from local Illinois basin
coal producers pursuant to term contracts of varying duration.
In the Pacific Northwest, Alcoa has been operating under a contract with Chelan County Public Utility District (Chelan
PUD) located in the State of Washington that is sufficient to supply about half of the capacity of the Wenatchee smelter
through October 2011. In July 2008, Alcoa and Chelan PUD executed a new contract which will begin in November
2011 and run through October 2028 under which Alcoa will receive approximately 26% of the hydropower output of
Chelan PUD’s Rocky Reach and Rock Island dams.
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