Alcoa 2003 Annual Report Download - page 64

X. Environmental Matters
Alcoa participates in environmental assessments and cleanups
atanumberoflocations.Theseinclude approximately 30owned
or operating facilities and adjoining properties, approximately
39 previously owned or operated facilities and adjoining properties,
andapproximately 67 Superfund and other waste sites. A liability
is recorded for environmental remediation costs or damages when
acleanup program becomes probable andthecostsordamages
can be reasonably estimated. See Note A for additional information.
As assessmentsand cleanups proceed, the liability is adjusted
based on progress in determining the extent of remedial actions and
relatedcosts anddamages. Theliability can change substantially due
to factors such as the nature and extent of contamination, changes
in remedial requirements, and technological changes. Therefore,
it is not possible to determine the outcomes or to estimate with any
degree of accuracy the potential costs for certain of these matters.
The following discussion provides additional details regarding
the current status of Alcoa’s significant sites where the final outcome
cannot be determined or the potential costs in the future cannot
be estimated.
Massena, New York. Alcoa has been conducting investigations
and studies of the Grasse River, adjacent to Alcoa’s Massena, NY
plant site, under order from the U.S. Environmental Protection
Agency
(EPA) issued under the Comprehensive Environmental
Response,Compensation, and Liability Act, also known as Super-
fund. Sediments and fish in the river contain varying levels of
polychlorinated biphenyl
(PCB) .
During 2000 and 2001, Alcoa completed certain studies and
investigations on the river, including pilot tests of sediment-capping
techniques, and other remediation technologies. In June 2002, Alcoa
submitted a final Analysis of Alternatives Report based on these
evaluations andincluded additional remedial alternatives required by
the
EPA .Therangeofcosts associated with the remedial alternatives
evaluated in the 2002 report is between $2 and $525. A lcoa believes
that rational, scientific analysis supports a remedy involving
the containment of sediments in place via natural or man-made
processes. Based on anassessmentofthe EPA decision-making
processatthe end of 2002, Alcoa concluded that the selection
of the $2 alternative, based on natural recovery only, was remote.
In June 2003, based on river observations during the spring of 2003,
the
EPA requested that Alcoa gather additional field data to assess
the potential forsediment erosion from winter river ice formation
and breakup. Alcoa has collected a significant portion of the
additional data and is in the process of data analysis and determining
how this phenomenon should be factored into the range of remedial
alternatives being considered. It is anticipated that a report of
findings will be issued to the
EPA in the secondquarterof 2004.
Subsequent to this submittal, a revised Analysis of Alternatives
Report will be submitted at a date to bedetermined.
Alcoa continues to believe that alternatives involving the largest
amounts of sediment removal should not be selected for the Grasse
River remedy. Therefore, Alcoa believes that the alternatives that
should reasonably be considered for selection range from engineered
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capping and natural recovery of $30 to acombination of moderate
dredging, capping, and natural recovery of $90. Accordingly, Alcoa
adjusted thereservefortheGrasseRiver to $30 at the end of
2002, representing the low end of therange of possible alternatives,
as no one of the alternatives is more likely to be selected than
any other.
The
EPA ’s ultimate selection of a remedy could result in additional
liability. However, as the process continues, it allows for input that
can influence the scope and cost of the remedy that will be selected
by the
EPA in its issuance of the formal Record of Decision (ROD) .
Alcoa may be required to record a subsequent reserve adjustment
at the time the
ROD is issued.
Sherwin, Texas. In connection with the sale of the Sherwin
alumina refinery in Texas, which was required to be divested as
part of theReynolds merger in 2000, Alcoa has agreed to retain
responsibility for the remediation of then existing environmental
conditions, as well asaproratashareofthefinalclosureofthe
active waste disposal areas, which remain in use. Alcoa’s share of
the closure costs is proportional to the total period of operation
of theactive wastedisposalareas.Alcoa estimated its liability for
the active disposal areas by making certain assumptions about
the period of operation, the amount of material placed in the area
prior to closure, and the appropriate technology, engineering, and
regulatory status applicable to final closure. The most probable cost
for remediation has been reserved. It is reasonably possible that
an additional liability, not expected to exceed $75, may be incurred
if actual experience varies from the original assumptions used.
Basedonthe foregoing, it is possible that Alcoa’s results of
operations, in a particular period, could be materially affected by
matters relating to these sites. However, based on facts currently
available, management believes that adequate reserves have been
provided and that the disposition of these matters will not have
amateriallyadverse effect on the financial position or liquidity of
the company.
Alcoa’s remediation reserve balance at the end of 2003 and 2002
was $395 and $436 (of which $65and$68wereclassifiedasa
current liability), respectively, and reflects the most probable costs
to remediate identified environmental conditions for which costs
can be reasonably estimated. Of the 2003 reserve balance, approxi-
mately 31% relates to the Massena, NY and Sherwin, TX sites.
Remediation expenses charged to the reserve were $32 in 2003,
$50 in 2002, and$72in2001.Theseinclude expenditures currently
mandated, as well as those not required by any regulatory authority
or third party. In 2003, the reserve balance was reduced by approxi-
mately $9, primarily for adjustments based on recent assessments of
remaining work required at certain sites. In 2002, the reserve balance
was increased by approximately $55, primarily to cover anticipated
future environmental expenditures at various sites, including
Massena, and for acquisitions made.
Included in annual operating expenses are the recurring costs
of managing hazardous substances and environmental programs.
These costs are estimated to be about 2% of cost of goods sold.