Alcoa 2006 Annual Report Download - page 73

Massena, NY—Alcoa has been conducting inves-
tigations 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 Superfund. Sediments and
fish in the river contain varying levels of PCBs.
In 2002, Alcoa submitted an Analysis of Alternatives
Report that detailed a variety of remedial alternatives with
estimated costs ranging from $2 to $525. Because the
selection of the $2 alternative (natural recovery) was
considered remote, Alcoa adjusted the reserve for the Grasse
River in 2002 to $30 representing the low end of the range
of possible alternatives, as no single alternative could be
identified as more probable than the others.
In June of 2003, based on river observations during the
spring of 2003, the EPA requested that Alcoa gather addi-
tional field data to assess the potential for sediment erosion
from winter river ice formation and breakup. The results of
these additional studies, submitted in a report to the EPA in
April of 2004, suggest that this phenomenon has the poten-
tial to occur approximately every 10 years and may impact
sediments in certain portions of the river under all remedial
scenarios. The EPA informed Alcoa that a final remedial
decision for the river could not be made without sub-
stantially more information, including river pilot studies on
the effects of ice formation and breakup on each of the
remedial techniques. Alcoa submitted to the EPA and the
EPA approved a Remedial Options Pilot Study (ROPS) to
gather this information. The scope of this study includes
sediment removal and capping, the installation of an ice
control structure, and significant monitoring.
In May of 2004, Alcoa agreed to perform the study at an
estimated cost of $35. Most of the construction work was
completed in 2005 with monitoring work proposed through
2008. The findings will be incorporated into a revised
Analysis of Alternatives Report, which is expected to be
submitted in 2008. This information will be used by the
EPA to propose a remedy for the entire river. Alcoa adjusted
the reserves in the second quarter of 2004 to include the $35
for the ROPS. This was in addition to the $30 previously
reserved.
The reserves for the Grasse River were re-evaluated in the
fourth quarter of 2006 and an adjustment of $4 was made.
This adjustment is to cover commitments made to the EPA
for additional investigation work, for the on-going
monitoring program including that associated with the
ROPS program, to prepare a revised Analysis of Alternatives
Report, and for an interim measure that involves, annually,
the mechanical ice breaking of the river to prevent the
formation of ice jams until a permanent remedy is selected.
This reserve adjustment is intended to cover these commit-
ments through 2008 when the revised Analysis of
Alternatives report will be submitted.
With the exception of the natural recovery remedy, none
of the existing alternatives in the 2002 Analysis of Alter-
natives Report are more probable than the others and the
results of the ROPS are necessary to revise the scope and
estimated cost of many of the current alternatives.
The EPA’s ultimate selection of a remedy could result in
additional liability. Alcoa may be required to record a
subsequent reserve adjustment at the time the EPA’s Record
of Decision is issued, which is expected in 2008 or later.
Sherwin, TX—In connection with the sale of the
Sherwin alumina refinery in Texas, which was required to
be divested as part of the Reynolds merger in 2000, Alcoa
has agreed to retain responsibility for the remediation of the
then existing environmental conditions, as well as a pro rata
share of the final closure of the active waste disposal areas,
which remain in use. Alcoa’s share of the closure costs is
proportional to the total period of operation of the active
waste disposal areas. 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 clo-
sure. 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.
East St. Louis, IL—In response to questions regarding
environmental conditions at the former East St. Louis, IL
operations, Alcoa entered into an administrative order with
the EPA in December 2002 to perform a remedial inves-
tigation and feasibility study of an area used for the disposal
of bauxite residue from historic alumina refining operations.
A draft feasibility study was submitted to the EPA in April
2005. The feasibility study includes remedial alternatives
that range from no further action at $0 to significant grad-
ing, stabilization, and water management of the bauxite
residue disposal areas at $75. Because the selection of the $0
alternative was considered remote, Alcoa increased the
environmental reserve for this location by $15 in the second
quarter of 2005, representing the low end of the range of
possible alternatives which met the remedy selection criteria,
as no alternative could be identified as more probable than
the others. The EPA has not completed a final review of the
feasibility study and the EPA’s selection of a remedy could
result in additional liability. Alcoa may be required to
record a subsequent reserve adjustment at the time the
EPA’s Record of Decision is issued.
Based on the 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 dis-
position of these matters will not have a materially adverse
effect on the financial position or liquidity of the company.
Alcoa’s remediation reserve balance was $334 and $389
at December 31, 2006 and December 31, 2005 (of which
$49 and $39 was classified as a current liability),
respectively, and reflects the most probable costs to
remediate identified environmental conditions for which
costs can be reasonably estimated. In 2006, the remediation
reserve was decreased by approximately $14 due to an
adjustment for the ongoing monitoring program at the
Massena, NY facility and an adjustment for the liabilities at
the Russian fabricating facilities acquired in January 2005.
The adjustment to the reserve for the Russian fabricating
facilities was made after further investigations were com-
pleted whereby Alcoa was able to obtain additional
information about the environmental condition and the
associated liabilities with these facilities. The adjustment for
the acquired facilities was recorded as an opening balance
sheet adjustment and had no impact on net income.
Remediation expenses charged against the reserve were
approximately $41 in 2006, $53 in 2005, and $46 in 2004.
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