Alcoa 2010 Annual Report Download - page 25

Prior to 2007, power for the Rockdale smelter in Texas was historically supplied from company-owned generating
units and units owned by Luminant Generation Company LLC (formerly TXU Generation Company LP) (Luminant),
both of which used lignite supplied by the company’s Sandow Mine. Upon completion of lignite mining in the Sandow
Mine in 2005, lignite supply transitioned to the formerly Alcoa-owned Three Oaks Mine. The company retired its three
wholly-owned generating units at Rockdale (Units 1, 2 and 3) in late 2006, and transitioned to an arrangement under
which Luminant is to supply all of the Rockdale smelter’s electricity requirements under a long-term power contract
that does not expire until at least the end of 2038, with the parties having the right to terminate the contract after 2013
if there has been an unfavorable change in law or after 2025 if the cost of the electricity exceeds the market price. In
August 2007, Luminant and Alcoa closed on the definitive agreements under which Luminant has constructed and
operates a new circulating fluidized bed power plant adjacent to the existing Sandow Unit Four Power Plant and, in
September 2007, on the sale of the Three Oaks Mine to Luminant. In June 2008, Alcoa temporarily idled half of the
capacity at the Rockdale smelter due to the uneconomical price of the electricity supply from Luminant resulting from
the unreliable operation of the Sandow Unit Four Power Plant, and in November 2008 curtailed the remainder of
Rockdale’s smelting capacity due to continued uneconomic power supply and overall market conditions. In August
2008, Alcoa filed suit in District Court in Cameron, Texas against Luminant and certain of its parents and affiliates
seeking damages for Luminant’s alleged wrongful conduct that resulted in the electricity supply issues to the smelter.
The resolution of this proceeding is described in Part I, Item 3. (Legal Proceedings) on page 39.
In the northeast, the purchased power contracts for both the Massena East and Massena West smelters in New York
expire not earlier than December 31, 2013. In December 2007, Alcoa and NYPA reached agreement in principle on a
new energy contract to supply the Massena East and Massena West smelters for 30 years, beginning on January 1,
2014, following an amendment in January 2011. The definitive agreement implementing this arrangement became
effective February 24, 2009. A subsequent amendment, providing Alcoa additional time to complete the design and
engineering work for its Massena East modernization plan, and providing for the return of 256 megawatts of power to
NYPA while Massena East is idled, was entered into effective April 16, 2009 and was superseded by the January 2011
amendment. Implementation of the Massena East modernization plan is subject to further approval of the Alcoa Board.
In January 2011, Alcoa announced that it will re-start production at Massena East beginning in the first quarter of 2011.
The Mt. Holly smelter in South Carolina purchases electricity from Santee Cooper under a contract that was amended
and restated in 2010, and expires December 31, 2015, subject to certain extension provisions.
At the end of 2005, all production was temporarily curtailed at the Eastalco smelter located in Frederick, Maryland.
The curtailment coincided with the expiration of the smelter’s power contract on December 31, 2005, as a
competitively-priced replacement power supply could not be obtained. Alcoa announced in the first quarter of 2010
that it will permanently close the Eastalco smelter.
Australia – Electricity
Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by Alcoa of
Australia Limited (AofA), and that power currently provides approximately 40% of the electricity for the company’s
smelter in Point Henry, Victoria. The State Electricity Commission of Victoria provides the remaining power for this
smelter, and all power for the Portland smelter, under contracts with AofA and Eastern Aluminium (Portland) Pty Ltd,
a wholly-owned subsidiary of AofA, in respect of its interest in Portland, that extend to 2014 and 2016, respectively.
AofA and Eastern Aluminium (Portland) Pty Ltd (in respect of the Portland Smelter only) entered into new power
contracts with Loy Yang Power in March 2010 to secure electricity supply to the Portland and Point Henry smelters
from the expiry of the current contracts with the State Electricity Commission of Victoria until 2036.
Brazil – Electricity
The Alumar smelter is supplied by Eletronorte (Centrais Elétricas do Norte do Brasil S.A.) under a long-term power
purchase agreement expiring in December 2024. Eletronorte has supplied the Alumar smelter from the beginning of its
operations in 1984. Since 2006, Alcoa Alumínio S.A.’s (Alumínio) remaining power needs for the smelter are supplied
from the Barra Grande hydroelectric project. Beginning in 2012, the Eletronorte supply will be reduced by the amount
of additional power to be supplied from Barra Grande.
17