Alcoa 2015 Annual Report Download - page 46

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. APGI removed the
riverbed lawsuit to federal court in 2013. On May 6, 2015, U.S. Federal Judge Terrance Boyle declared that the
relevant segment of the Yadkin River was not navigable at the time of North Carolina statehood and issued a ruling on
September 28, 2015 that APGI owns the riverbed for the 37-mile relevant segment. The State of North Carolina has
filed an appeal with the Fourth Circuit Court of Appeals.
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 FERC issues a new license. 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 into the wholesale market.
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. (Vigo Coal). The Friendsville Mine is producing approximately 900,000
tons of coal per year and is scheduled to cease production at the end of March 2016. Liberty Mine, also owned by
Alcoa and operated by Vigo Coal, produces coal and is operating at a level of approximately 1.4 million tons per year.
Friendsville and Liberty Mines together supply 99% of the power plant’s needs. The balance of the coal used is royalty
coal.
In the State of Washington, Alcoa’s Wenatchee smelter is served by 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. In November 2015, Alcoa announced the curtailment of the Wenatchee smelter
which was completed by the end of December 2015.
Starting on January 1, 2013, the Intalco smelter began receiving physical power from the Bonneville Power
Administration (BPA) pursuant to a 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. In May 2015,
the contract was amended to reduce the amount of physical power received from BPA and allow for additional
purchases of market power.
Prior to 2007, power for the Rockdale smelter in Texas was historically supplied from Company-owned generating
units and Sandow Unit 4 owned by Luminant Generation Company LLC (formerly TXU Generation Company LP)
(Luminant), both of which used lignite supplied by the Company’s Sandow Mine and Three Oaks Mine. Upon
completion of lignite mining in the Sandow Mine in 2005, lignite supply transitioned to the formerly Alcoa-owned
Three Oaks Mine. The Company retired its three wholly-owned generating units at Rockdale (Sandow Units 1, 2 and 3)
in late 2006, and transitioned to an arrangement under which Luminant is to supply all of the Rockdale smelter’s
electricity requirements under a long-term power contract that does not expire until at least the end of 2038, with the
parties having the right to terminate the contract after 2013 if there has been an unfavorable change in law or after 2025
(by Luminant only) if the cost of the electricity exceeds the market price. In August 2007, Luminant and Alcoa closed
on the definitive agreements under which Luminant has constructed and operates a new circulating fluidized bed power
plant (Sandow Unit 5) adjacent to the existing Sandow Unit 4 and, in September 2007, on the sale of Three Oaks Mine
to Luminant. Concurrent with entering into the agreements under which Luminant constructed and operates Sandow
Unit 5, Alcoa and Luminant entered into a power purchase agreement whereby Alcoa purchased power from Luminant.
That Sandow Unit 5 power purchase agreement was terminated by Alcoa, effective December 1, 2010. In June 2008,
Alcoa temporarily idled half of the capacity at the Rockdale smelter and in November 2008 curtailed the remainder of
Rockdale’s smelting capacity. In late 2011, Alcoa announced that it would permanently close two of the six idled
potlines at the smelter. Demolition and remediation activities related to these actions were completed in 2013. On
April 29, 2014, Luminant Generation LLC, Luminant Mining Company LLC, Sandow Power Company LLC and their
affiliated debtors filed petitions under Chapter 11 of the U.S. Bankruptcy Code with the U.S Bankruptcy Court for the
District of Delaware. The Bankruptcy Court has confirmed the debtors’ amended plan of reorganization and has
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