Alcoa 2014 Annual Report Download - page 146

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. 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 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.
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 was to be based on a calculation
prepared by the Italian Government (see below). 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 (€173), which included $20 (€14) to write off a receivable from the
Italian Government for amounts due under the now expired tariff structure and $230 (€159) to establish a reserve. On
April 19, 2010, Alcoa filed an appeal of this decision with the General Court of the EU (see below). Prior to 2012,
Alcoa was involved in other legal proceedings related to this matter that separately sought the annulment of the EC’s
July 2006 decision to open an investigation alleging that such decision did not follow the applicable procedural rules
and requested injunctive relief to suspend the effectiveness of the EC’s November 19, 2009 decision. However, the
decisions by the General Court, and subsequent appeals to the European Court of Justice, resulted in the denial of these
remedies.
In June 2012, Alcoa received formal notification from the Italian Government with a calculated recovery amount of $375
(€303); this amount was reduced by $65 (€53) for amounts owed by the Italian Government to Alcoa, resulting in a net
payment request of $310 (€250). In a notice published in the Official Journal of the European Union on September 22,
2012, the EC announced that it had filed an action against the Italian Government on July 18, 2012 to compel it to collect
the recovery amount (on October 17, 2013, the European Court of Justice ordered Italy to so collect). On September 27,
2012, Alcoa received a request for payment in full of the $310 (€250) by October 31, 2012. Following discussions with
the Italian Government regarding the timing of such payment, Alcoa paid the requested amount in five quarterly
installments of $69 (€50) beginning in October 2012 through December 2013. Notwithstanding the payments made,
Alcoa’s estimate of the most probable loss of the ultimate outcome of this matter and the low end of the range of
reasonably possible loss, which is $193 (€159) to $369 (€303), remains the $193 (€159) recorded in 2009 (the U.S. dollar
amount reflects the effects of foreign currency movements since 2009). Alcoa no longer has a reserve for this matter;
instead, Alcoa has a noncurrent asset reflecting the excess of the total of the five payments made to the Italian
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