Alcoa 2013 Annual Report Download - page 37

both of which used lignite supplied by the Company’s Sandow Mine. Upon completion of lignite mining in the Sandow
Mine in 2005, lignite supply transitioned to the formerly Alcoa-owned Three Oaks Mine. The Company retired its
three wholly-owned generating units at Rockdale (Sandow Units 1, 2 and 3) in late 2006, and transitioned to an
arrangement under which Luminant is to supply all of the Rockdale smelter’s electricity requirements under a long-
term power contract that does not expire until at least the end of 2038, with the parties having the right to terminate the
contract after 2013 if there has been an unfavorable change in law or after 2025 if the cost of the electricity exceeds the
market price. In August 2007, Luminant and Alcoa closed on the definitive agreements under which Luminant has
constructed and operates a new circulating fluidized bed power plant (Sandow Unit 5) adjacent to the existing Sandow
Unit 4 and, in September 2007, on the sale of Three Oaks Mine to Luminant. Concurrent with entering into the
agreements under which Luminant constructed and operates Sandow Unit 5, Alcoa and Luminant entered into a power
purchase agreement whereby Alcoa purchased power from Luminant. That Sandow Unit 5 power purchase agreement
was terminated by Alcoa, effective December 1, 2010. In June 2008, Alcoa temporarily idled half of the capacity at the
Rockdale smelter and in November 2008 curtailed the remainder of Rockdale’s smelting capacity. In late 2011, Alcoa
announced that it would permanently close two of the six idled potlines at its Rockdale, Texas smelter. Demolition and
remediation activities related to these actions began in the first half of 2012 and were completed in 2013. In August
2012, Alcoa and the Lower Colorado River Authority (LCRA) announced that they had entered into an agreement
whereby Alcoa would sell to LCRA all of the real estate associated with the Rockdale location, along with all of
Alcoa’s surface and groundwater rights and certain plant and equipment assets (other than the smelter and atomizer),
and assign Alcoa’s power contracts with Luminant to LCRA. After conducting due diligence associated with the
proposed transaction, LCRA decided not to pursue the proposed transaction and allowed the agreement to terminate in
May 2013.
In the Northeast, the purchased power contracts for both the Massena East and Massena West smelters in New York
expired on December 31, 2013, subject to their terms and conditions. Commencing on January 1, 2014, the Massena
smelters receive physical power pursuant to a new thirty-year energy contract executed between Alcoa and the New
York Power Authority (NYPA), as amended in January 2011. The January 2011 amendment provides Alcoa additional
time to complete the design and engineering work for its Massena East modernization plan. Implementation of the
Massena East modernization plan is subject to further approval of the Alcoa Board of Directors. Alcoa announced on
January 15, 2014 the accelerated closure of the remaining potlines at its Massena East smelter.
The Mt. Holly smelter in South Carolina purchases electricity from Santee Cooper under a contract that was amended
and restated in 2012, and expires December 31, 2015. The contract includes a provision for follow-on service at the
then current rate schedule for industrial customers.
Australia – Electricity
Power is generated from extensive brown coal deposits covered by a long-term mineral lease held by AofA, and that
power currently provides approximately 40% of the electricity for AofA’s Point Henry smelter. The State Electricity
Commission of Victoria (SECV) provides the remaining power for this smelter, and all power for the Portland smelter,
under contracts with Alcoa Portland Aluminium Pty Ltd, a wholly-owned subsidiary of AofA, in respect of its interest
in Portland, that extend to 2014 and 2016, respectively. Upon the expiration of these contracts, both smelters will
purchase power from the Australian National Energy Market (NEM) variable spot market. In March 2010, AofA and
Eastern Aluminium (Portland) Pty Ltd (in respect of the Portland Smelter only) separately entered into fixed for
floating swap contracts with Loy Yang Power in order to manage exposure to variable energy rates from the NEM for
the Point Henry and Portland smelters. The fixed for floating swap contract with Loy Yang Power for the Point Henry
smelter was terminated in 2013. The fixed for floating swap contract with Loy Yang Power for the Portland smelter
commences from the date of expiration of the current contract with the SECV and is in place until December 2036.
Brazil – Electricity
The Alumar smelter is partially supplied by Centrais Elétricas do Norte do Brasil S.A. (Eletronorte) under a long-term
power purchase agreement originally expiring in December 2024. Eletronorte has supplied the Alumar smelter from
the beginning of its operations in 1984. Since 2006, Alumínio’s power needs of the Poços de Caldas smelter have been
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