Hello again,
In my understanding the water cooling section is connected to the annealing section so that the wire is cooled before entering the normal atmosphere. This is what prevents discoloration or oxidation you have described.
If the steam in the annealing section if supplied by some external source, or the steam tube in the water if created by the hot wire itself, there is only one purpose for that steam and that is to keep any oxygen away from the hot wire. This would also be the case if you used nitrogen instead of steam.
The water level in the cooling section must balance the steam or nitrogen pressure and the flow upwards of the water itself by virtue of being dragged along by the moving wire so that the wire is sufficiently cooled to prevent oxidation. The more water the better, within reason of course. Cooling section inlet and outlet water seals augment the water pressure. You are therefore creating a water pressure balance.
Unfortunately I do not have access to data to steam or nitrogen flow rates for your particular annealer but there should be water level sight glasses, etc. on your annealer to guide you on how to set up the water cooling portion of your annealer.
The easiest way to compare cost of steam to nitrogen is to calculate the cost to boil "x' amount (volume) of saturated steam and compare that to the cost of purchasing an equivalent volume of nitrogen. If you need assistance with the steam calculation, any university trained mechanical engineer who studied thermodynamics can easily assist you with that issue.
Kindest Regards,
Peter Stewart-Hay
Principal
Stewart-Hay Associates
www.Stewart-Hay.com