Alcoa Corporation has announced that the company and power provider Luminant Generation Company LLC have terminated the electricity contract tied to Alcoa’s Rockdale Operations in Texas.
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 the Company sold surplus electricity since the smelter’s curtailment, Alcoa’s cost of power under the contract exceeded the related revenue.
The Company expects an annual improvement to net income and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of $60 million to $70 million as a result of the contract termination, beginning in the fourth quarter of 2017.
“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, 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 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. The Company will record a charge of approximately $250 million (pre- and after-tax) in the fourth quarter of 2017 associated with the transaction.
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 aluminium powder plant. A decision on those assets is expected by the end of 2017. Separately, the company continues to own more than 30,000 acres of land at the Rockdale site.