Alcoa 2012 Annual Report Download - page 35

Alumínio is also participating in the Estreito hydropower project in northern Brazil, holding a 25.49% share. Four out
of its eight generation units began commercial operation in 2011. Three additional units began operation in 2012, and
the remaining unit is expected to begin commercial operation by March 2013. Aluminio’s share of the plant’s output is
supplied to the Alumar smelter which replaced the 160 MW Electronorte power contract reduction on March 26, 2012.
With Machadinho, Barra Grande, Serra do Facão and Estreito, Alumínio’s current power self-sufficiency is
approximately 70%, to meet a total energy demand of approximately 690 MW from Brazilian primary aluminum
plants.
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. This appeal was dismissed by the European Court of Justice on
December 16, 2011. 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 the 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. Additional details
about this matter are in Part I, Item 3 (Legal Proceedings) of this report. On July 29, 2010, Alcoa reached agreement
with a power supplier to enter into a new contract expiring on December 31, 2012. This arrangement would have
enabled operation of the Portovesme smelter through December 31, 2012. In January 2012, Alcoa announced that it
decided to curtail operations at its Portovesme smelter. This curtailment was completed in November 2012. This
curtailment may lead to the permanent closure of the facility. Additionally, in 2010, the Fusina smelter was temporarily
curtailed due to high energy costs. As of June 30, 2010, the Fusina smelter was fully curtailed.
Alcoa’s smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity under bilateral power contracts. The
contracts that commenced in May 2009 expired on December 31, 2012 and have been replaced with new bilateral
contracts commencing on January 1, 2013. The contracts for San Ciprián and Avilés smelters each have a 4 year term.
The contract for the La Coruña smelter is for a single year. 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 approved by the Spanish
Government in 1986, an equivalent tariff having been granted in 1983. The investigation is limited to the year 2005 and
it is focused both on the energy-intensive consumers and the distribution companies. 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 that tariff system. A decision by the EC has not yet been made. If the EC’s investigation concludes that
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