Alcoa 2013 Annual Report Download - page 38

supplied from self-generated energy. In March 26, 2012, the Eletronorte contract supply was reduced from 423 MW to
263 MW. In March 2012, Alumínio declared that the Eletronorte contract will be terminated by March 31, 2014 and
alternatives for supplying the remaining power needs of both smelters are being analyzed.
Alumínio owns a 25.74% stake in Consórcio Machadinho, which is the owner 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 at full capacity.
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 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
July 2010. Alumínio’s share of the Serra do Facão output is currently being sold in the market. Starting April 1, 2014,
when the existing contract with Eletronorte is terminated, this share of the power from Serra do Facao will supply the
Alumar smelter, replacing power currently being purchased from Eletronorte.
Alumínio is also participating in the Estreito hydropower project in northern Brazil, holding a 25.49% share, which
began commercial operations with its first turbine in 2011. Its eighth and last turbine became operational in March
2013. Aluminio’s share of the plant’s output is supplied to the Alumar smelter which replaced the 160 MW Eletronorte
power contract reduction on March 26, 2012.
With Machadinho, Barra Grande, Serra do Facão and Estreito, Alumínio’s power self-sufficiency is approximately 70%,
to meet a total energy demand of approximately 690 MW from Brazilian primary aluminum plants at full capacity.
Consortia in which Alumínio participates have received concessions for the Pai Querê hydropower project in southern
Brazil (Alumínio’s share is 35%). Development of this concession has not yet begun.
Europe – Electricity
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
(expiring December 31, 2016). The contract for the La Coruña smelter, originally for one year, has been extended for an
additional year (expiring December 31, 2014). Prior to the establishment of power supply under the bilateral contracts,
Alcoa was supplied under a regulated power tariff. On January 25, 2007, the European Commission (EC) announced that
it has opened an investigation to establish whether the regulated electricity tariffs granted by Spain comply with European
Union (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. If the EC’s investigation concludes that the regulated electricity tariffs for
industries are unlawful, Alcoa will have an opportunity to challenge the decision in the EU courts. On February 4, 2014,
the EC announced a decision in this matter stating that the electricity tariffs granted by Spain for year 2005 do not
constitute unlawful state aid. 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, in
the first quarter of 2013, Alcoa restarted 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.
Alcoa owns two smelters in Norway, Lista and Mosjøen, which have long-term power arrangements in place that
continue until the end of 2019.
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