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October 10, 2008

Alcoa Signs Power MOU with Bonneville Power Administration

PITTSBURGH--Alcoa (NYSE:AA) today announced it has signed a Memorandum of Understanding (MOU) with Bonneville Power Administration (BPA) for a power contract to supply its Alcoa Intalco Works (Ferndale, Washington) aluminum smelter through 2028.

The MOU provides the framework for a contract which would begin in October 2011. It would provide up to 240MW of direct power sales, enough to operate the facility at 50% capacity, contingent upon BPA acquiring additional power to augment the NW power system, within certain threshold price levels.

John Thuestad, President of Alcoa’s US Primary Products, said the MOU was an important step toward helping to secure a long-term future for the plant.

“Alcoa Intalco Works has been a part of the Northwest community for more than 40 years. With the passion of our employees and support of the local community we have survived difficult periods including the NW power crisis of 2001,” Mr Thuestad said.

“While there is still much work to do, I am confident we will bring this negotiation to a successful conclusion in an effort to increase the competitiveness of the plant and continue to provide family wage jobs and value to the region. There are opportunities to improve the overall environmental performance of this plant as well as improve its productivity. We realistically can not do that without some certainty on a long-term power solution. This MOU helps create the framework to eliminate that barrier.”

Under the terms of the contract, Alcoa would commit to minimum payroll levels, based on the amount of power supplied. In addition, assuming at least ten years of power can be assured prior to the contract start, Alcoa would commit to spending between $125 million and $160 million by 2028.

“Installation of new technology will reduce greenhouse gas emissions dramatically, making the plant one of the most environmentally friendly in the US.”

Alcoa’s relationship with BPA spans more than 65 years. The federal power marketing agency previously supplied power to operate the smelter, which has a nameplate capacity of 279,000 metric tons, at 100% capacity.

Today the plant operates with power purchased under a short-term contract which expires in 2011.

“Without a long-term power solution, the future of this plant is uncertain. The MOU provides us with renewed optimism for the future.”

Alcoa and Bonneville are targeting to conclude the contract negotiation by January 2009.