Alcoa 2012 Annual Report Download - page 128

148/2004 which set forth a different method for calculating the special tariff that would result in a different drawback
for the regulated and unregulated markets. Alcoa challenged the new regulation in the Administrative Court of Milan
and received a favorable judgment in 2006. Following this ruling, Alcoa continued to receive the power price drawback
in accordance with the original calculation method, through 2009, when the European Commission declared all such
special tariffs to be impermissible “state aid.” In 2010, the Energy Authority appealed the 2006 ruling to the Consiglio
di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato ruled in favor of the Energy Authority and
against Alcoa, thus presenting the opportunity for the energy regulators to seek reimbursement from Alcoa of an
amount equal to the difference between the actual drawback amounts received over the relevant time period, and the
drawback as it would have been calculated in accordance with regulation 148/2004. On February 23, 2012, Alcoa filed
its appeal of the decision of the Consiglio di Stato, and that appeal remains pending. On March 26, 2012, Alcoa
received a letter from the agency (Cassa Conguaglio per il Settore Eletrico (CCSE)) responsible for making and
collecting payments on behalf of the Energy Authority demanding payment in the amount of approximately $110
(€85), including interest. By letter dated April 5, 2012, Alcoa informed CCSE that it disputes the payment demand of
CCSE since (i) CCSE was not authorized by the Consiglio di Stato decisions to seek payment of any amount, (ii) the
decision of the Consiglio di Stato has been appealed and that appeal remains pending, and (iii) in any event, no interest
should be payable. On April 29, 2012, Law No. 44 of 2012 (“44/2012”) came into effect, changing the method to
calculate the drawback. Alcoa believes that under 44/2012 its range of reasonably possible loss is from $0 to $50 (€39).
Following the effectiveness of 44/2012, Alcoa has received no further demands from CCSE. At this time, the company
is unable to reasonably predict an outcome for this matter.
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 has been incurring higher power costs at its
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 (see below). 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 (€173), which included $20 (€14) to write off a
receivable from the Italian Government for amounts due under the now expired tariff structure and $230 (€159) to
establish a reserve. 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 (ECJ); this appeal was dismissed on December 16, 2011.
In June 2012, Alcoa received formal notification from the Italian Government with a calculated recovery amount of
$375 (€303); this amount was reduced by $65 (€53) of amounts owed by the Italian Government to Alcoa, resulting in
a net payment request of $310 (€250). In a notice published in the Official Journal of the European Union on
September 22, 2012, the EC announced that it had filed an action against the Italian Government on July 18, 2012 to
compel it to collect the recovery amount. On September 27, 2012, Alcoa received a request for payment in full of the
$310 (€250) by October 31, 2012. Since then, Alcoa has been in discussions with the Italian Government regarding the
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