Alcoa 2012 Annual Report Download - page 129

timing of such payment. Alcoa commenced payment of the requested amount in five quarterly installments of $66
(€50), paying the first installment on October 31, 2012. It is possible that Alcoa may be required to accelerate payment
or pay in a lump sum. Notwithstanding the payment request or the timing of such payments, Alcoa’s estimate of the
most probable loss of the ultimate outcome of this matter and the low end of the range of reasonably possible loss,
which is $209 (€159) to $375 (€303), remains the $209 (€159) (the U.S. dollar amount reflects the effects of foreign
currency movements since 2009) recorded in November 2009. At December 31, 2012, Alcoa’s reserve for this matter
stands at $143 (€109), reflecting the payment made in October 2012. The full extent of the loss will not be known until
the final judicial determination, which could be a period of several years.
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 before the ECJ. The hearing of the May 29, 2009 appeal was held on
June 24, 2010. On July 21, 2011, the ECJ denied Alcoa’s appeal.
As a result of the EC’s November 19, 2009 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 (expired 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).
At the end of 2011, as part of a restructuring of Alcoa’s global smelting system (see Note D), management decided to
curtail operations at the Portovesme smelter during the first half of 2012. This action may lead to the permanent closure
of the Portovesme smelter, due to the uncertain prospects for viable, long-term power, along with rising raw materials
costs and falling global aluminum prices (mid-2011 to late 2011). In March 2012, Alcoa decided to delay the
curtailment of the Portovesme smelter until the second half of 2012 based on negotiations with the Italian Government
and other stakeholders. In September 2012, Alcoa began the process of curtailing the Portovesme smelter, which was
fully curtailed by the end of 2012.
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 its 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
company provided evidence that prices paid by energy-intensive consumers were in line with the market, in addition to
various legal arguments defending the legality of the Spanish tariff system. 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 the tariff system. While Alcoa does not believe that an unfavorable decision is probable, management has
estimated that the total potential impact from an unfavorable decision could be approximately $90 (€70) pretax. Also,
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