Alcoa 2009 Annual Report Download - page 27

power supply under the bilateral contracts, Alcoa was supplied under a regulated power tariff. On January 25, 2007, the
EC announced that it has opened an investigation to establish whether the regulated electricity tariffs granted by Spain
comply with EU state aid rules. Alcoa operated in Spain for more than ten 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 it is focused both on the energy-intensive consumers and the distribution companies. 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 that tariff system. A decision by the EC has not yet been made. 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.
Pursuant to the exchange arrangement with Orkla previously described, Alcoa assumed 100% ownership of the two
smelters in Norway, Lista and Mosjøen, at the end of the first quarter of 2009. These smelters have long-term power
arrangements in place which continue until at least 2019.
Iceland – Electricity
Alcoa’s Fjarðaál smelter in eastern Iceland began operation in 2007. Central to those operations is a 40-year power
contract under which Landsvirkjun, the Icelandic national power company, built the Kárahnjúkar dam and hydro-
power project, and supplies competitively priced electricity to the smelter. First power was supplied to the Fjarðaál
smelter in April 2007, and with the completion of the Kárahnjúkar project in late 2007, the smelter achieved full
production in April 2008. In late 2009, Iceland imposed two new taxes on power intensive industries, both for a period
of 3 years, from 2010 through 2012. One tax is based on energy consumption; the other is a pre-payment of certain
other charges, and will be recoverable from 2013 through 2015.
North America – Natural Gas
In order to supply its refineries and smelters in the U.S. and Canada, the company generally procures natural gas on a
competitive bid basis from a variety of sources including producers in the gas production areas and independent gas
marketers. For Alcoa’s larger consuming locations in Canada and the U.S., the gas commodity as well as interstate
pipeline transportation is procured to provide increased flexibility and reliability. Contract pricing for gas is typically
based on a published industry index or New York Mercantile Exchange (NYMEX) price. The company may choose to
reduce its exposure to NYMEX pricing by hedging a portion of required natural gas consumption.
Australia – Natural Gas
Alcoa of Australia (AofA) holds a 20% equity interest in a consortium that bought the Dampier-to-Bunbury natural gas
pipeline in October 2004. This pipeline transports gas from the northwest gas fields to Alcoa’s alumina refineries and
other users in the Southwest of Western Australia. AofA uses gas to co-generate steam and electricity for its alumina
refining processes at the Kwinana, Pinjarra and Wagerup refineries. Gas supply from Apache Northwest Pty Ltd and a
separate joint venture, in which Apache is a participant, was curtailed beginning in June 2008 following an explosion
and fire at its Varanus Island gas processing plant. Supply was progressively restored beginning in August 2008, with
full supply being returned in June 2009. The shortfall in gas supply from Varanus Island was covered by short term
contracts with other gas producers and liquid fuels. Production at the Kwinana, Pinjarra and Wagerup refineries was
not materially impacted.
Patents, Trade Secrets and Trademarks
The company believes that its domestic and international patent, trade secret and trademark assets provide it with a
significant competitive advantage. The company’s rights under its patents, as well as the products made and sold under
them, are important to the company as a whole and, to varying degrees, important to each business segment. The
patents owned by Alcoa generally concern particular products or manufacturing equipment or techniques. Alcoa’s
business as a whole is not, however, materially dependent on any single patent, trade secret or trademark.
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