Alcoa 2015 Annual Report Download - page 152

2016, Glencore filed notice of its application for interlocutory appeal of the February 8 ruling. AWA and SCA have 10
days to respond. At this time, the Company is unable to reasonably predict the ultimate outcome for this matter.
Before 2002, Alcoa purchased power in Italy in the regulated energy market and received a drawback of a portion of the
price of power under a special tariff in an amount calculated in accordance with a published resolution of the Italian
Energy Authority, Energy Authority Resolution n. 204/1999 (“204/1999”). In 2001, the Energy Authority published
another resolution, which clarified that the drawback would be calculated in the same manner, and in the same amount, in
either the regulated or unregulated market. At the beginning of 2002, Alcoa left the regulated energy market to purchase
energy in the unregulated market. Subsequently, in 2004, the Energy Authority introduced regulation no. 148/2004, which
set forth a different method for calculating the special tariff that would result in a different drawback 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of the Consiglio di Stato (this appeal was subsequently withdrawn in March 2013).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, and further postponed until June 19, 2014. On this date, the Administrative Court listened to Alcoa’s oral argument,
and on September 2, 2014, rendered its decision. The Administrative Court declared the payment request of CCSE and the
Energy Authority to Alcoa to be unsubstantiated based on the 148/2004 resolution with respect to the January 19, 2007
through November 19, 2009 timeframe. On December 18, 2014, the CCSE and the Energy Authority appealed the
Administrative Court’s September 2, 2014 decision; however, a date for the hearing has not been scheduled. As a result of
the conclusion of the European Commission Matter on January 26, 2016 described below, management has modified its
outlook with respect to a portion of the pending legal proceedings related to this matter. As such, a charge of $37
(€34) was recorded in Restructuring and other charges for the year ended December 31, 2015 on the accompanying
Statement of Consolidated Operations to establish a partial reserve for this matter. At this time, the Company is unable to
reasonably predict the ultimate outcome for this matter.
European Commission Matter. 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.
128