July 29, 2003


Hon. Magalie Salas, Secretary

Federal Energy Regulatory Commission

888 First Street, NE

Washington , DC 20426


Re:                   Yadkin Hydroelectric Project

                        FERC Project 2197  

Subject:            Administrative Review requested by the High Rock Lake Association  

On June 2, 2003 , The High Rock Lake Association (HRLA) requested from the FERC a clarification of the “Operating Guidelines” for FERC Project 2197 via letter forwarded to the FERC by the office of Congressman Howard Coble.  On July 26, 2003 ,  LeBoeuf, Lamb, Greene, and MacRae, the legal firm representing Alcoa Power Generating Inc (APGI) provided a comment to the FERC concerning the request.  In the comment they expressed their concern that the request was “procedurally deficient” since it had not been sent to everyone on the service list for project 2197.  They further stated their belief that the terms included in the Headwater Benefits agreement amended in 1968 between Alcoa and Progress Energy (CP&L) provided the explanation for the discrepancy between APGI’s interpretation of the “Operating Guidelines” as amended in 1968 and the interpretation by the HRLA.  Their closing comments suggested they had no problem with the FERC providing their interpretation of the “Operating Guidelines” and Headwater Benefits to the HRLA.  The request from HRLA was not to obtain APGI’s interpretation of the “Operating Guidelines”, the request was to clarify the actual intent of the FERC when the “Operating Guidelines” were amended in 1968.  Based on recent correspondence, it appears the Commission is indeed performing the requested administrative review.  

SaveHighRockLake.org is an organization representing the environmental and recreational interests of approximately 7000 stakeholders of Project 2197.  As noted in many previous filings, our organization and our members are deeply concerned with environmental issues affecting the entire Yadkin-Pee Dee river basin as well as issues dealing specifically with High Rock Lake .  We have only recently been able to obtain a copy of the Headwater Benefits agreement between Alcoa and Progress Energy.  We have now had a chance to review the Headwater Benefits agreement from 1926, the 1968 letter of agreement between Alcoa and CP&L, the Order Approving the Headwater Benefits Settlement and the Order Amending License (MAJOR) for Project 2197.  After reading the comments from APGI, we believe the true issue at hand is the use of the terms contained in the 1968 Headwater Benefits agreement to establish the “minimum” discharge requirement from High Rock Lake and Project 2197 as a whole.  We would like to offer our support of HRLA’s request and ask that the Commission consider the following information when performing their administrative review.  


Headwater Benefits and License amendment issues:


The Headwater Benefits regulations:  

According to all of the information we could find on the FERC web site, the Headwater Benefits program is to provide financial compensation for headwater improvements resulting in additional energy generation capabilities.  We have been unable to identify any provisions within the Headwater Benefits regulations that would address the many environmental studies necessary to establish a “minimum” river flow parameter within an approved Headwater Benefits Agreement.  There is no mention of using this program to establish specific operating parameters that would supercede or modify those specifically included as part of the license to operate a hydroelectric project.  There is no indication this is a goal of, or even allowed by the Headwater Benefits regulations.  There is no mention of methods available to Governmental Agencies or recognized stakeholders to comment on or participate in the process of determining Headwater Benefits settlements.   

The approval of the 1926 agreement between Tallassee Power and Carolina Power appears to have been approved as a negotiated settlement for headwater benefits charges between CP&L and Alcoa in 1965.  There is no evidence of any information being supplied that would be necessary for the Commission to determine the Energy Gains, Sections 10(f) Costs, the Annual energy gains received at the downstream project or the portion of the annual energy generated at the headwater project that is assigned to the joint-use power costs to accurately calculate the headwater benefits.  

The 1926 Headwater Benefits Agreement:  

The original 1926 Headwater Benefits agreement stated the purpose of constructing High Rock Lake was to impound the FLOOD WATERS of the Yadkin River within the High Rock Reservoir AND the Narrows Reservoir and to subsequently release those waters in a controlled fashion from BOTH reservoirs.  The agreement did NOT attempt to establish any type of minimum discharge requirement other than stating in Section II that discharges below the Narrows plant “shall be sustained at the highest practicable amount”.  To the contrary, it did specifically state that any time the inflow to High Rock Lake dropped below 3600 cfs that CP&L could request “in no event more than the equivalent of the daily flow into the High Rock Reservoir”.  Section III of the agreement states that changes or suspension to the regulated flow can be made “at any time and from time to time by mutual agreement”.  This agreement established in Section V, an annual headwater benefits payment of $100,000 which was a very large sum in 1926 and guaranteed CP&L would contribute a minimum of $4,000,000 over the next 40 years toward the construction and operational costs of High Rock Lake .  The 1926 agreement also included wording in Section VIII stating that “None of the parties hereto shall be liable for any act or thing done or omitted to be done or occurring in whole or in part by reason of act of God …… dry weather, … or any other thing reasonably beyond the control and not attributable to the neglect or fault of the parties hereto.”  This agreement was legal and binding on all parties and their successors until December 31, 1967 , and thereafter until terminated by mutual consent of the parties, but in no event longer than ninety-nine years beginning on January 1st, 1968 .   

The 1968 Headwater Benefits amendments:  

In the Commission’s March 29, 1968 , ORDER APPROVING HEADWATER BENEFITS SETTLEMENT, the letter of agreement between Alcoa and CP&L is specifically listed as a modification to the agreement of February 19, 1926 .  The wording in the letter agreement included modifications to the minimum average weekly regulated flow below the Narrows plant, but did NOT state these changes would be a complete replacement for all of the conditions defined in Section II of the 1926 agreement.  The only stated replacement of specific sections of the 1926 agreement was to Section V, pertaining to the annual headwater benefits payment reduction to $62,500.  There is no indication in the letter agreement or the Order Approving Headwater Benefits Settlement that the two page letter agreement between Alcoa and CP&L was intended to be a complete replacement for the 1926 agreement.  

The 1968 Project License amendment:  

The stated intent of the “Operating Guides for Operation of Badin Works,” Parts I through IV amendment request from Alcoa in 1968 was to keep the levels of High Rock Lake within the limits defined by Line 7 and stated that the discharge limits imposed by rule # 8 would take precedence over all other rules during the defined recreation season.  This rule effectively established the maximum discharge limits from Project 2197 that are not to be exceeded if the elevation of High Rock Lake is below the levels defined by line 7.  There was no indication in the “Operating Guidelines” amendment or in any public forum that these changes would establish a minimum amount that MUST be discharged.  Alcoa claimed publicly that this change could cost them power generation revenues but was being done to provide enhanced recreational opportunities at High Rock Lake .  This Operating Guidelines amendment was approved by order of the FERC on March 29, 1968, based on the specific wording “to limit” the discharge and “to maintain higher water levels in High Rock Reservoir during the recreation season” included in the license amendment request.  The “ORDER AMENDING LICENSE (MAJOR)” specifically stated the licensee was to “operate the High Rock Reservoir generally in accordance with the “Operating Guides for Operation of Badin Works,” Parts I through IV.  There was no mention of including terms from the Headwater Benefits financial compensation agreement.  


The February 19, 1926 agreement between Tallassee Power and CP&L was approved as an appropriate Headwater Benefits settlement between Alcoa Aluminum and CP&L by the FERC in 1965. The terms and provisions of Section II and Section V are the only portions of the 1926 agreement have been specifically modified. The modifications to Section II were not requested or approved by the Commission as complete replacements for Section II, effectively making them additions to Section II but not specifically replacing any of the terms of Section II.  Section VIII of the agreement is still fully in effect, effectively addressing periods of low flow conditions in the Yadkin River and the possible need to vary from the terms of the agreement in the event of a drought.  This combined with the provisions of Section III would allow Alcoa to react to adverse environmental conditions in the river basin without penalty and without the need to request a license variance simply by coming to a “mutual agreement” with CP&L.  The establishment of a minimum river flow parameter greater than what would occur naturally during periods of low flow was appropriately not even attempted in the 1926 agreement.  There is no indication this is a goal of, or even allowed by the Headwater Benefits regulations.  Establishment of a minimum river flow requirement without the proper environmental assessments can NOT be allowed based solely on a financial compensation agreement between two corporations and should be expressly prohibited as this could create a direct conflict of interests.  This is truly an environmental consideration impacting millions of citizens throughout the entire river basin and can only be appropriately determined by extensive environmental studies. Allowing this degree of latitude would permit any licensee to effectively write their own rules outside the boundaries of their license, avoiding the costs associated with the environmental studies that would be necessary and circumventing the process of stakeholder and Governmental Agency participation.  Any other method of establishing a minimum river flow requirement would be highly “procedurally deficient”.  

The stated INTENT of the 1968 license amendment for Project 2197 was to LIMIT the discharge from High Rock Lake and to maintain higher lake levels during the recreation season.  The actual wording in the Order Amending the Project license stated “According to the Licensee, the effect of using the proposed rule curve would be to maintain higher water levels in High Rock reservoir during the recreation season, May 15 to September 15.”  This would imply there were no scientific studies supplied to support this claim and the intent of the Commission would have been for the Licensee to live up to this claim.   This stated goal could only be accomplished by interpreting the word limit to mean “maximum discharge” with the understanding that this limit would be less than the amount of water flowing into High Rock Lake .  In the absence of any supporting studies or data, the Commission and stakeholders entitled to comment on license modifications were forced to accept the word of the licensee that these changes would accomplish the stated goals.   

While the license amendment was highly publicized by the licensee, the Headwater Benefits agreement terms appear to have been unmentioned and undisclosed to the public in 1968. The subtle wording differences in the Project License amendment and the Headwater Benefits amendments were not typographical errors.  The specific terms used in each case would not commonly be mistaken for each other and were obviously intended to ensure the highest chance of approval from the group(s) directly affected by each amendment.   

Applying the wording included in the License amendment allowed those entitled to comment on the license modification to erroneously believe that during the recreation season the discharge would be maintained somewhere between 0 and the limits established by Rule # 8 of the “Operating Guides for Operation of Badin Works”, and High Rock Lake would be maintained within the limits defined by Line 7.  Believing this interpretation at least removed the ambiguity of the original wording stating “the minimum flow shall be sustained at the highest practicable amount”.  This gave stakeholders some assurance that the “highest practicable amount” would not be solely at the discretion of the licensee and virtually guaranteed they would respond positively.  Again, the actual wording in the Order Amending the Project license stated “The State of North Carolina Wildlife Resources Commission, the Corps of Engineers, and the Department of the Interior, each reported favorably on the proposal to limit the drawdown of the reservoir as outlined in the Licensee’s application filed January 8, 1968 .”  There is no indication these agencies supported or condoned the establishment of a minimum river flow requirement as contained in the Headwater Benefits amendment.   

Applying the wording included in the Headwater Benefits agreement letter between Alcoa and CP&L would indicate that the flow would never drop below the values stated in Rule # 8 of the “Operating Guides for Operation of Badin Works”.  This virtually guaranteed a positive response from CP&L since their required annual payment was being reduced and the conditions of the Headwater Benefits agreement would not be subject to scrutiny or comment from stakeholders and Governmental Agencies.  

 Our Request of the Commission:  

The Commission recently stated in it’s clarification of APGI’s responsibilities under the “Drought contingency Plan for 2003” that APGI’s ultimate responsibility is to fulfill the terms specifically included in their license to operate Project 2197.  In support of the request from HRLA and in the interest of a fair and comprehensive review for all stakeholders in FERC Project 2197, SaveHighRockLake.org respectfully requests that the Commission specifically consider the following while performing the Administrative Review:  

  1. Verify that the terms and conditions contained in Sections III and Section VIII of the original 1926 agreement continue to be recognized as part of the FERC approved Headwater Benefits Settlement Agreement. 
  1. The “not less than” wording of the terms included in the 1968 Headwater Benefits amendment between APGI and CP&L should be specifically excluded as parameters affecting the “Operating Guides for Operation of Badin Works,” Parts I through IV for Project 2197 as they attempt to establish an environmental condition without appropriate environmental assessments, have not be appropriately reviewed or commented on by stakeholders or Governmental Agencies and are not specifically included within the project license. 
  1. APGI should be instructed to operate Project 2197 within the discharge and lake level limits specified in the “Operating Guides for Operation of Badin Works,” Parts I through IV that are  specifically included in the Project license. 
  1. Since Rule # 8 of the amended license does not contain a minimum discharge requirement, clarify that APGI may respond in an environmentally appropriate manner to future drought conditions simply by “mutual agreement” with CP&L to “suspend or change such regulation of the flow” as stated in Section III of the 1926 agreement.
  1. In the absence of the necessary environmental studies to establish an appropriate minimum discharge requirement for Project 2197, establish the restriction imposed by nature and stated in the original 1926 agreement of “in no event more than the equivalent of the daily flow into the High Rock Reservoir” to be used as the minimum discharge requirement for Project 2197 during periods of low flow conditions until the required studies have been completed for relicensing of the project in 2008.  


Respectfully submitted,

Robert W. Petree

Robert W. Petree

Chairman of the Board