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Aluminum Manufacturer Reaches Early Termination Of Power Contract With Texas Power Provider

October 13, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Alcoa Corporation announced that the company and power provider Luminant Generation Company LLC have terminated the electricity contract tied to Alcoa’s Rockdale Operations in Texas.

As a result of the termination, Luminant announced that it is retiring its Sandow Power Plant, located next to Alcoa's facilities and which had been shielded from significant exposure to the downturn in the wholesale power market due to the Alcoa contract (see related story today for more)

The smelter at Rockdale has been fully curtailed since the end of 2008.

The termination of the contract, which had been set to expire no later than 2038, was effective as of October 1, 2017.

While Alcoa sold surplus electricity since the smelter’s curtailment, Alcoa’s cost of power under the contract exceeded the related revenue, the company said

Alcoa expects an annual improvement to net income and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) of $60 million to $70 million as a result of the contract termination, beginning in the fourth quarter of 2017.

In accordance with the early termination agreement, Alcoa made a lump sum payment of $237.5 million on October 10, 2017 and transferred approximately 2,200 acres of related land and other assets to Luminant. Alcoa will record a charge of approximately $250 million (pre- and after-tax) in the fourth quarter of 2017 associated with the transaction.

"Reaching a resolution on the Rockdale power contract aligns with two of our strategic priorities – to reduce complexity and to drive returns," said William Oplinger, Alcoa Executive Vice President and Chief Financial Officer. "It eliminates a complex, long-term contract tied to the Rockdale location, and positions Alcoa for improved profitability and higher returns."

In addition to the power contract, Alcoa and Luminant terminated other related fuel and lease agreements effective as of the same October 1 date.

As a result of the early termination, Alcoa has initiated a strategic review of the remaining buildings and equipment associated with the smelter, casthouse and the aluminum powder plant. A decision on those assets is expected by the end of 2017. Separately, Alcoa continues to own more than 30,000 acres of land at the Rockdale site.

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