Alcoa 2009 Annual Report Download - page 118

European Commission Matters. In July 2006, the European Commission (EC) announced that it had opened an
investigation to establish whether an extension of the regulated electricity tariff granted by Italy to some energy-
intensive industries complies with European Union (EU) state aid rules. The Italian power tariff extended the tariff that
was in force until December 31, 2005 through November 19, 2009 (Alcoa incurred higher power costs of $23 pretax at
its smelters in Italy between the tariff end date and December 31, 2009). The extension was originally through 2010,
but the date was changed by legislation adopted by the Italian Parliament effective on August 15, 2009. Prior to
expiration of the tariff in 2005, Alcoa had been operating in Italy for more than 10 years under a power supply
structure approved by the EC in 1996. That measure provided a competitive power supply to the primary aluminum
industry and was not considered state aid from the Italian Government. The EC’s announcement expressed concerns
about whether Italy’s extension of the tariff beyond 2005 was compatible with EU legislation and potentially distorted
competition in the European market of primary aluminum, where energy is an important part of the production costs.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
is being prepared by the Italian Government. Pending notification from the Italian Government, Alcoa estimates that a
payment in the range of $300 to $500 will be required during 2010. Alcoa is preparing to appeal this decision to the
General Court of the EU and will pursue all substantive and procedural legal steps available to it to annul the EC’s
decision, including seeking injunctive relief to suspend the effectiveness of the decision. After discussions with legal
counsel and reviewing the bases on which the EC decided, including the different considerations cited in the EC
decision regarding Alcoa’s two smelters in Italy, Alcoa recorded a charge of $250, including $20 to write-off a
receivable from the Italian Government for amounts due under the now expired tariff structure. This $250 charge was
reflected in Cost of goods sold on the accompanying Statement of Consolidated Operations.
Separately, on November 29, 2006, Alcoa filed an appeal before the European Court of First Instance seeking the
annulment of the EC’s decision to open an investigation alleging that such decision did not follow the applicable
procedural rules. On March 25, 2009, the European Court of First Instance denied Alcoa’s appeal. On June 4, 2009,
Alcoa appealed the March 25, 2009 ruling; however, no decision on that appeal is expected until 2011 or later.
In January 2007, the EC announced that it had opened an investigation to establish whether the regulated electricity
tariffs granted by Spain comply with EU state aid rules. Alcoa has been operating in Spain for more than nine years
under a power supply structure approved by the Spanish Government in 1986, an equivalent tariff having been granted
in 1983. The investigation is limited to the year 2005 and is focused both on the energy-intensive consumers and the
distribution companies. The investigation provided 30 days to any interested party to submit observations and
comments to the EC. With respect to the energy-intensive consumers, the EC opened the investigation on the
assumption that prices paid under the tariff in 2005 were lower than the pool price mechanism, therefore being, in
principle, artificially below market conditions. Alcoa submitted comments in which the company provided evidence
that prices paid by energy-intensive consumers were in line with the market, in addition to various legal arguments
defending the legality of the Spanish tariff system. It is Alcoa’s understanding that the Spanish tariff system for
electricity is in conformity with all applicable laws and regulations, and therefore no state aid is present in the tariff
system. Alcoa believes that the total potential impact from an unfavorable decision would be approximately $12 pretax
(€8). While Alcoa believes that any additional cost would only be assessed for the year 2005, it is possible that the EC
could extend its investigation to later years. A decision by the EC is expected in 2010. If the EC’s investigation
concludes that the regulated electricity tariffs for industries are unlawful, Alcoa will have an opportunity to challenge
the decision in the EU courts.
Environmental Matters. Alcoa continues to participate in environmental assessments and cleanups at a number of
locations. These include 30 owned or operating facilities and adjoining properties, 31 previously owned or operating
facilities and adjoining properties, and 70 waste sites, including Superfund (Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA)) sites. A liability is recorded for environmental remediation when a
cleanup program becomes probable and the costs or damages can be reasonably estimated.
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