Alcoa 2013 Annual Report Download - page 136

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its appeal of the decision of the Consiglio di Stato (this appeal was subsequently withdrawn in March
2013). 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 (see above), 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. On February 21, 2013, Alcoa received a revised request letter from CSSE demanding
Alcoa’s subsidiary, Alcoa Trasformazioni S.r.l., make a payment in the amount of $97 (€76), including interest, which
reflects a revised calculation methodology by CCSE and represents the high end of the range of reasonably possible
loss associated with this matter of $0 to $97 (€76). Alcoa has rejected that demand and has formally challenged it
through an appeal before the Administrative Court on April 5, 2013. The Administrative Court scheduled a hearing for
December 19, 2013, which was subsequently postponed until April 17, 2014. 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 complied 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 had been incurring higher power costs at its
smelters in Italy subsequent to the tariff end date through the end of 2012). 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 was to be based on a calculation
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. Prior to 2012, Alcoa was involved in other
legal proceedings related to this matter that sought the annulment of the EC’s July 2006 decision to open an
investigation alleging that such decision did not follow the applicable procedural rules and requested injunctive relief
to suspend the effectiveness of the EC’s November 19, 2009 decision. However, the decisions by the General Court,
and subsequent appeals to the European Court of Justice, resulted in the denial of these remedies.
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) for 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
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