Alcoa 2012 Annual Report Download - page 36

the regulated electricity tariffs for industries are unlawful, Alcoa will have an opportunity to challenge the decision in
the EU courts. Due to the high cost position of the La Coruña and Avilés smelters, combined with rising raw material
costs and falling aluminum prices, in early January 2012, Alcoa announced its intentions to partially and temporarily
curtail its La Coruña and Avilés, Spain smelters. The partial curtailments were completed in the first half of 2012. As a
result of a modification to the load interruptibility regime currently in place in the Spanish power market, Alcoa has
commenced the restart of a portion (25,000 mpty combined for Avilés and La Coruña) of the capacity previously
curtailed in the first half of 2012 to meet the requirements of the modified interruptibility regime. See the
Management’s Discussion and Analysis of Financial Condition and Results of Operations section for more
information.
In March 2009, Alcoa and Orkla ASA exchanged respective stakes in the Sapa AB and Elkem Aluminium ANS
companies. Pursuant to the exchange, Alcoa assumed 100% ownership of the two smelters in Norway, Lista and
Mosjøen, at the end of the first quarter of 2009. These smelters have long-term power arrangements in place which
continue until at least 2019.
Iceland – Electricity
Alcoa’s Fjarðaál smelter in eastern Iceland began operation in 2007. Central to those operations is a forty-year power
contract under which Landsvirkjun, the Icelandic national power company, built the Kárahnjúkar dam and hydro-
power project, and supplies competitively priced electricity to the smelter. In late 2009, Iceland imposed two new taxes
on power intensive industries, both for a period of three years, from 2010 through 2012. One tax is based on energy
consumption; the other is a pre-payment of certain other charges, and will be recoverable from 2013 through 2015. In
2012, Iceland extended the energy consumption tax though 2015.
North America – Natural Gas
In order to supply its refineries and smelters in the U.S. and Canada, Alcoa generally procures natural gas on a
competitive bid basis from a variety of sources including producers in the gas production areas and independent gas
marketers. For Alcoa’s larger consuming locations in Canada and the U.S., the gas commodity and the interstate
pipeline transportation are procured to provide increased flexibility and reliability. Contract pricing for gas is typically
based on a published industry index or New York Mercantile Exchange (NYMEX) price. The Company may choose to
reduce its exposure to NYMEX pricing by hedging a portion of required natural gas consumption.
Australia – Natural Gas
AofA holds a 20% equity interest in a consortium that bought the Dampier-to-Bunbury natural gas pipeline in October
2004. This pipeline transports gas from the northwest gas fields to AofA’s alumina refineries and other users in the
Southwest of Western Australia. AofA uses gas to co-generate steam and electricity for its alumina refining processes
at the Kwinana, Pinjarra and Wagerup refineries. Approximately 85% of AofA’s gas supplies are under long-term
contract out to 2020. AofA is progressing multiple supply options to replace expiring contracts, including investing
directly in projects that have the potential to deliver cost-based gas.
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