Alcoa 2010 Annual Report Download - page 26

Alumínio owns a 30.99% stake in Maesa – Machadinho Energética S.A., which is the owner of 83.06% of the
Machadinho hydroelectric power plant located in southern Brazil. Alumínio’s share of the plant’s output is supplied to
the Poços de Caldas smelter, and is sufficient to cover 55% of its operating needs.
Alumínio has a 42.18% interest in Energética Barra Grande S.A. – BAESA, which built the Barra Grande hydroelectric
power plant in southern Brazil. Alumínio’s share of the power generated by BAESA covers the remaining power needs
of the Poços de Caldas smelter and, as noted above, a portion of the power needs of Alumínio’s interest in the Alumar
smelter.
Alumínio also has 34.97% share in Serra do Facão in the southeast of Brazil, which began commercial generation in
August 2010. Alumínio’s share of the Serra do Facão output is currently being sold in the market.
With Machadinho and Barra Grande, Alumínio’s current power self-sufficiency is approximately 40%, to meet a total
energy demand of approximately 690 megawatts from Brazilian primary plants.
Alumínio is also participating in the Estreito hydropower project in northern Brazil, holding a 25.49% share. This
project is in the final stages of construction, and start-up is anticipated in the first quarter of 2011.
Consortia in which Alumínio participates have received concessions for the Pai Querê hydropower project in southern
Brazil (Alumínio’s share is 35%) and the Santa Isabel hydropower project in northern Brazil (Alumínio’s share is
20%). Development of these concessions has not yet begun.
Europe – Electricity
Until December 31, 2005, the company purchased electricity for its smelters at Portovesme and Fusina, Italy under a
power supply structure approved by the European Commission (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. In 2005,
Italy granted an extension of the regulated electricity tariff that was in force until December 31, 2005 through
November 19, 2009. (The extension was originally through 2010, but the date was changed by legislation adopted by
the Italian Parliament effective on August 15, 2009.) In July 2006, the EC announced that it had opened an
investigation to establish whether the extension of the regulated electricity tariff granted by Italy complied with
European Union (EU) state aid rules. On November 19, 2009, the EC announced a decision in its investigation, stating
that the extension of the tariff by Italy constituted unlawful state aid, in part, and ordered the Italian government to
recover a portion of the benefit Alcoa received since January 2006 (including interest). On April 19, 2010, Alcoa filed
an appeal against the decision of the EC with the European General Court. Additionally on May 22, 2010, Alcoa filed
an application for interim measures (suspension of decision) in connection with the EC at the European General Court.
On July 12, 2010, the European General Court dismissed the request for interim measures due to lack of urgency.
Alcoa appealed this ruling on September 10, 2010. Additional details about this matter are in Part I, Item 3. (Legal
Proceedings) of this report. On February 25, 2010, the Italian government issued a decree law (No.3 2010)
implementing a request from the electrical transmission system operator to reinforce the level of system security on the
islands of Sicily and Sardinia. The decree law provides the means for end-consumers to provide and be paid for
interruptible services up to December 31, 2012. On May 26, 2010, the EC ruled that scheme introduced by the decree
law to be a “non-aid”. Alcoa applied for and gained rights to sell this service in Sardinia from the Portovesme smelter.
On July 29, 2010, Alcoa reached agreement with a power supplier to enter into a new contract expiring on
December 31, 2012. This arrangement is expected to enable operation of the Portovesme smelter through
December 31, 2012. The Fusina smelter was temporarily curtailed due to high energy costs in May 2010. As of
June 30, 2010, the Fusina smelter was temporarily idled.
The company’s smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity under bilateral power
contracts that commenced in May 2009 and are due to expire on December 31, 2012. Prior to the establishment of
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
18