Alcoa 2013 Annual Report Download - page 36

notification to reduce to close to zero its purchasing obligation under the power contracts for the three smelters
effective at the end of 2014. Alcoa’s provision of such advanced notification to Hydro-Québec does not require Alcoa
to reduce its electricity consumption accordingly. However, providing such notification ensures that Alcoa would have
the right to do so if it deems such an action to be necessary.
The Company’s wholly-owned subsidiary, Alcoa Power Generating Inc. (APGI), generates approximately 29% of the
power requirements for Alcoa’s smelters operating in the U.S. The Company generally purchases power under long-
term contracts. APGI owns and operates the Yadkin hydroelectric project, consisting of four dams in North Carolina,
and the Warrick coal-fired power plant located in Indiana.
For several years, APGI has been pursuing a new long-term license for the Yadkin hydroelectric project from the
Federal Energy Regulatory Commission (FERC). In 2007, APGI filed with the Federal Energy Regulatory Commission
(FERC) a Relicensing Settlement Agreement signed by a majority of 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 relicensing was the issuance by North Carolina of the
required water quality certification under Section 401 of the Clean Water Act. North Carolina’s Department of
Environment and Natural Resources (DENR) issued a Section 401 water quality certification on May 7, 2009, but it
was appealed and has been stayed since late May 2009 pending substantive determination on the appeal. In September
2012, APGI filed a new application for a 401 certificate seeking a fresh review of its application. However, on
August 2, 2013, the State of North Carolina filed suit in state court seeking a declaratory ruling that it, not APGI, owns
the Yadkin riverbed beneath the hydroelectric project as well as a portion of the project dams. Upon the filing of the
lawsuit, the DENR denied APGI’s 401 certificate, asserting that it cannot review the application given the dispute over
ownership of the lands and the project. APGI has appealed that denial in the administrative court of North Carolina and
has also informed FERC of the appeal, a necessary step to demonstrate that the relicensing proceeding remains pending
before FERC. APGI removed the riverbed lawsuit to federal court in 2013.
Pending completion of the relicensing process, APGI received year-to-year license renewals from FERC starting in
May 2008, and will continue to operate under annual licenses until a new Section 401 certification is issued and the
FERC relicensing process is complete. Since the permanent closure of the Badin, North Carolina smelter, 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. Proceeds from sales to the wholesale market are used to offset higher priced power contracts
at other U.S. operations.
APGI generates substantially all of the power used at the Company’s Warrick, Indiana smelter using nearby coal
reserves. Since May 2005, Alcoa has owned the nearby Friendsville, Illinois coal reserves, with the Friendsville Mine
being operated by Vigo Coal Company, Inc. The Friendsville Mine is producing approximately one million tons of coal
per year. In June 2011, the Red Brush West Mine, owned by Alcoa and operated by Vigo Coal, was opened and
produced approximately 60,000 tons per month over an eighteen-month period, but operation ceased in 2013. In the
second quarter of 2013, Liberty Mine, also owned by Alcoa and operated by Vigo Coal, began producing coal and is
operating at a level of approximately one million tons per year. Friendsville and Liberty Mines together combine to
supply 95% of the power plant’s future needs. The balance of the coal used is royalty coal or purchased coal from the
Illinois basin.
In the State of Washington, Alcoa’s Wenatchee smelter operates under a contract with Chelan County Public Utility
District (Chelan PUD) under which Alcoa receives approximately 26% of the hydropower output of Chelan PUD’s
Rocky Reach and Rock Island dams.
Starting on January 1, 2013, the Intalco smelter began receiving physical power from the Bonneville Power
Administration (BPA) pursuant to a new contract executed between Alcoa and BPA, under which Alcoa receives
physical power at the Northwest Power Act mandated industrial firm power (IP) rate through September 30, 2022.
Prior to 2007, power for the Rockdale smelter in Texas was historically supplied from Company-owned generating
units and units owned by Luminant Generation Company LLC (formerly TXU Generation Company LP) (Luminant),
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