Alcoa 2010 Annual Report Download - page 119

smelters in Italy subsequent to the tariff end date). 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 formal notification from the Italian Government, Alcoa estimates
that a payment in the range of $300 to $500 will be required during 2011. In late 2009, 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. On April 19, 2010,
Alcoa filed an appeal of this decision with the General Court of the EU. Alcoa will pursue all substantive and
procedural legal steps available to annul the EC’s decision. On May 22, 2010, Alcoa also filed with the General Court a
request for injunctive relief to suspend the effectiveness of the decision, but, on July 12, 2010, the General Court
denied such request. On September 10, 2010, Alcoa appealed the July 12, 2010 decision to the European Court of
Justice; a judgment by that Court is expected early in 2011.
As a result of the EC’s decision, management had contemplated ceasing operations at its Italian smelters due to
uneconomical power costs. In February 2010, management agreed to continue to operate its smelters in Italy for up to
six months while a long-term solution to address increased power costs could be negotiated.
Also in February 2010, the Italian Government issued a decree, which was converted into law by the Italian Parliament
in March 2010, to provide interruptibility rights to certain industrial customers who were willing to be subject to
temporary interruptions in the supply of power (i.e. compensation for power interruptions when grids are overloaded)
over a three-year period. Alcoa applied for and was granted such rights (expiring on December 31, 2012) related to its
Portovesme smelter. In May 2010, the EC stated that, based on their review of the validity of the decree, the
interruptibility rights should not be considered state aid. On July 29, 2010, Alcoa executed a new power agreement
effective September 1, 2010 through December 31, 2012 for the Portovesme smelter, replacing the short-term, market-
based power contract that was in effect since early 2010.
Additionally in May 2010, Alcoa and the Italian Government agreed to a temporary idling of the Fusina smelter. As of
June 30, 2010, the Fusina smelter was fully curtailed (44 kmt-per-year).
Separately, on November 29, 2006, Alcoa filed an appeal before the General Court (formerly 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 General Court denied Alcoa’s appeal. On May 29,
2009, Alcoa appealed the March 25, 2009 ruling. The hearing of the May 29, 2009 appeal was held on June 24, 2010
and a decision from the Court of Justice is expected in 2011.
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. At the time the EC opened their investigation, Alcoa had 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 a pool price
mechanism, therefore being, in principle, artificially below market conditions. Alcoa submitted comments in which the
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