Alcoa to record $250M charge in Q4 related to early termination agreement
Alcoa Corporation announced that the company and power provider Luminant Generation Company 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. 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 of $60M to $70M as a result of the contract termination, beginning in Q4. In accordance with the early termination agreement, Alcoa made a lump sum payment of $237.5M on October 10 and transferred approximately 2,200 acres of related land and other assets to Luminant. The company will record a charge of approximately $250M in Q4 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 aluminum 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.