Alcoa 2013 Annual Report Download - page 56

write off a receivable from the Italian Government for amounts due under the now expired tariff structure and $230
million (€159 million) 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 million (€303 million); this amount was reduced by $65 million (€53 million) for amounts owed by the Italian
Government to Alcoa, resulting in a net payment request of $310 million (€250 million). In a notice published in the
Official Journal of the European Union on September 22, 2012, the EC announced that it had filed an action against the
Italian Government on July 18, 2012 to compel it to collect the recovery amount, and on October 17, 2013, the ECJ
ordered Italy to so collect. On September 27, 2012, Alcoa received a request for payment in full of the $310 million
(€250 million) by October 31, 2012. Following discussions with the Italian Government regarding the timing of such
payment, Alcoa paid the requested amount in five quarterly installments of $69 million (€50 million) beginning in
October 2012 through December 2013. Notwithstanding the payment request, Alcoa’s estimate of the most probable
loss of the ultimate outcome of this matter and the low end of the range of reasonably possible loss, which is $219
million (€159 million) to $418 million (€303 million), remains the $219 million (€159 million) (the U.S. dollar amount
reflects the effects of foreign currency movements since 2009) recorded in 2009. At December 31, 2013, Alcoa no
longer has a reserve for this matter. Instead, Alcoa has a noncurrent asset of $126 million (€91 million) reflecting the
excess of the total of the five payments made to the Italian Government over the reserve Alcoa recorded in 2009. The
full extent of the loss will not be known until the final judicial determination, which could be a period of several years.
As previously reported, in January 2007, the EC announced that it had opened an investigation to establish whether the
regulated electricity tariffs granted by Spain comply with EU state aid rules. At the time the EC opened its
investigation, Alcoa had been operating in Spain for more than nine 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 is focused both on the energy-intensive consumers and the distribution companies. The investigation
provided 30 days to any interested party to submit observations and comments to the EC. With respect to the
energy-intensive consumers, the EC opened the investigation on the assumption that prices paid under the tariff in 2005
were lower than a pool price mechanism, therefore being, in principle, artificially below market conditions. Alcoa
submitted comments in which the company provided evidence that prices paid by energy-intensive consumers were in
line with the market, in addition to various legal arguments defending the legality of the Spanish tariff system. 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 the tariff system. While Alcoa does not believe that an unfavorable
decision is probable, management has estimated that the total potential impact from an unfavorable decision could be
approximately $95 million (€70 million) pretax. Also, while Alcoa believes that any additional cost would only be
assessed for the year 2005, it is possible that the EC could extend its investigation to later years. 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.
Environmental Matters
Alcoa is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act,
also known as Superfund (CERCLA) or analogous state provisions regarding the usage, disposal, storage or treatment
of hazardous substances at a number of sites in the U.S. The Company has committed to participate, or is engaged in
negotiations with federal or state authorities relative to its alleged liability for participation, in clean-up efforts at
several such sites. The most significant of these matters, including the remediation of the Grasse River in Massena,
NY, are discussed in the Environmental Matters section of Note N to the Consolidated Financial Statements under the
caption “Environmental Matters” on pages 122-126.
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