Alcoa 2011 Annual Report Download - page 123

denied post-trial motions. On June 22, 2011, SCRG filed a notice of cross appeal with the Third Circuit Court related to
certain pre-trial decisions of the court and of the court’s post-trial ruling on the negligence claim. The Third Circuit
Court referred this matter to mediation as is its standard practice in appeals.
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. 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. Any such reimbursement would
have to be made by way of a separate claim to Alcoa from the energy authorities and, thus far, no such claim has been
presented. At this time, the company is unable to reasonably predict an outcome for this matter.
European Commission Matters. 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 complies 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 has been incurring higher power
costs at its smelters in Italy subsequent to the tariff end date). 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.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
is being prepared by the Italian Government. Pending formal notification from the Italian Government, Alcoa estimates
that a payment in the range of $300 to $500 will be required (the timing of such payment is uncertain). In late 2009,
after discussions with legal counsel and reviewing the bases on which the EC decided, including the different
considerations cited in the EC decision regarding Alcoa’s two smelters in Italy, Alcoa recorded a charge of $250,
including $20 to write off a receivable from the Italian Government for amounts due under the now expired tariff
structure. 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. On May 22, 2010, Alcoa also filed with
the General Court a request for injunctive relief to suspend the effectiveness of the decision, but, on July 12, 2010, the
General Court denied such request. On September 10, 2010, Alcoa appealed the July 12, 2010 decision to the European
Court of Justice (ECJ); this appeal was dismissed on December 16, 2011.
On March 23, 2011, the EC announced that it has decided to refer the Italian Government to the ECJ for failure to
comply with the EC’s November 19, 2009 decision.
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