Alcoa 2012 Annual Report Download - page 34

In the northeast, the purchased power contracts for both the Massena East and Massena West smelters in New York
expire December 31, 2013, subject to their terms and conditions. In December 2007, Alcoa and The New York Power
Authority (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 (MW) of power to NYPA while Massena East was 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effective April 16, 2009 and was superseded by the January 2011 amendment.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 of Directors. Alcoa restarted production at
Massena East 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 2012, and expires December 31, 2015. The contract includes a provision for follow-on service at the
then current rate schedule for industrial customers.
Australia – Electricity
Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by AofA, and that
power currently provides approximately 40% of the electricity for the AofA’s Point Henry smelter. The State
Electricity Commission of Victoria (SECV) 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. Upon the expiration of these
contracts both smelters will purchase power from the Australian National Energy Market (NEM) variable spot market.
In March 2010, AofA and Eastern Aluminium (Portland) Pty Ltd (in respect of the Portland Smelter only) separately
entered into fixed for floating swap contracts with Loy Yang Power in order to manage exposure to variable energy
rates from the NEM for the Point Henry and Portland smelters. The contracts commence from the date of expiration of
the current contracts with the SECV and are in place until December 2036.
Brazil – Electricity
The Alumar smelter is partially supplied by Eletronorte (Centrais Elétricas do Norte do Brasil S.A.) under a long-term
power purchase agreement originally 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 self-generated energy. In March 2012, the Eletronorte contract supply was reduced from 423
MW to 263 MW and will be further reduced to 200 MW in January 2014. In March 2012, Aluminio declared that the
Electronorte contract will be terminated by March 2014 and alternatives for supplying the remaining power needs of
both smelters are being analyzed.
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. Power from Serra do
Facao will replace Electronorte starting January 1, 2014 when the existing contract will be further reduced by 60 MW.
Until then, power from Serra do Facao will be sold externally to the market.
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