Company Quick10K Filing
CPFL Energy
20-F 2019-12-31 Filed 2020-04-24
20-F 2018-12-31 Filed 2019-04-22
20-F 2017-12-31 Filed 2018-04-24
20-F 2016-12-31 Filed 2017-04-17
20-F 2015-12-31 Filed 2016-04-15
20-F 2014-12-31 Filed 2015-04-17
20-F 2013-12-31 Filed 2014-04-04
20-F 2012-12-31 Filed 2013-04-17
20-F 2011-12-31 Filed 2012-03-30
20-F 2010-12-31 Filed 2011-06-06
20-F 2009-12-31 Filed 2010-04-05

CPL 20F Annual Report

Item 17 £ Item 18 £
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information Selected Financial and Operating Data
Item 4. Information on The Company Overview
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees Directors and Senior Management
Item 7. Major Shareholders and Related Party Transactions Major Shareholders
Item 8. Financial Information Consolidated Statements and Other Financial Information
Item 9. The Offer and Listing Trading Markets
Item 10. Additional Information Memorandum and Articles of Incorporation
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services Audit and Non‑Audit Fees
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.1 exhibit01_1.htm
EX-3.1 exhibit03_1.htm
EX-8.1 exhibit08_1.htm
EX-12.1 exhibit12_1.htm
EX-12.2 exhibit12_2.htm
EX-13.1 exhibit13_1.htm
EX-13.2 exhibit13_2.htm

CPFL Energy Earnings 2014-12-31

Balance SheetIncome StatementCash Flow

20-F 1 cplform20f_2014.htm FORM 20-F cplform20f_2014.htm - Generated by SEC Publisher for SEC Filing  

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20‑F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2014
Commission File Number 1‑32297

CPFL ENERGIA S.A.

(Exact name of registrant as specified in its charter)

CPFL ENERGY INCORPORATED

The Federative Republic of Brazil

(Translation of registrant’s name into English)

(Jurisdiction of incorporation or organization)

 

Rua Gomes de Carvalho, 1,510, 14th floor ‑ Suite 142
CEP 04547‑005 Vila Olímpia ‑ São Paulo, São Paulo
Federative Republic of Brazil
+55 11 3841‑8507

(Address of principal executive offices)

Gustavo Estrella
+55 19 3756 8704 – gustavoestrella@cpfl.com.br
Rodovia Engenheiro Miguel Noel Nascentes Burnier, 1,755, km 2,5 – Parque São Quirino – Campinas, São Paulo ‑ 13088 140
Federative Republic of Brazil

(Name, telephone, e‑mail and/or facsimile
number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which
registered:

Common Shares, without par value*
American Depositary Shares (as evidenced by American Depositary Receipts), each representing 2 Common Shares

New York Stock Exchange

 

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

As of December 31, 2014, there were 962,274,260 common shares, without par value, outstanding

 

 
 

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes    No  £ 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.

Yes  £   No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    No  £ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  £   No  £   N/A 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non‑accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b‑2 of the Exchange Act (Check one):

Large Accelerated Filer    Accelerated Filer  £   Non‑accelerated Filer  £ 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  £   IFRS    Other  £ 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 £   Item 18  £   

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

Yes  £   No 

 

 

                                                                                                       


 
 

 

Table of Contents

                                                                                Page

Contents

FORWARD-LOOKING STATEMENTS  1 
CERTAIN TERMS AND CONVENTIONS  1 
PRESENTATION OF FINANCIAL INFORMATION  2 
ITEM 1.  Identity of Directors, Senior Management and Advisers  2 
ITEM 2.  Offer Statistics and Expected Timetable  2 
ITEM 3.  Key Information  2 
ITEM 4.  Information on the Company  16 
ITEM 4A.  Unresolved Staff Comments  62 
ITEM 5.  Operating and Financial Review and Prospects  62 
ITEM 6.  Directors, Senior Management and Employees  95 
ITEM 7.  Major Shareholders and Related Party Transactions  103 
ITEM 8.  Financial Information  106 
ITEM 9.  The Offer and Listing  108 
ITEM 10.  Additional Information  110 
ITEM 11.  Quantitative and Qualitative Disclosures About Market Risk  128 
ITEM 12.  Description of Securities Other than Equity Securities  129 
ITEM 13.  Defaults, Dividend Arrearages and Delinquencies  130 
ITEM 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds  130 
ITEM 15.  Controls and Procedures  130 
ITEM 16A.  Audit Committee Financial Expert  131 
ITEM 16B.  Code of Ethics  132 
ITEM 16C.  Principal Accountant Fees and Services  132 
ITEM 16D.  Exemptions from the Listing Standards for Audit Committees  133 
ITEM 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers  133 
ITEM 16F.  Change in Registrant’s Certifying Accountant  133 
ITEM 16G.  Corporate Governance  133 
ITEM 16H.  Mine Safety Disclosure  135 

 

i


 
 
 
 

FORWARD‑LOOKING STATEMENTS

This annual report contains information that constitutes forward‑looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Many of the forward‑looking statements contained in this annual report can be identified by the use of forward‑looking words, such as “believe,” “may,” “aim,” “estimate,” “continue,” “anticipate,” “will,” “intend,” “expect” and “potential,” among others.  Forward‑looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition.  Those statements appear in a number of places in this annual report, principally under the captions “Item 3.  Key Information—Risk Factors”, “Item 4.  Information on the Company” and “Item 5.  Operating and Financial Review and Prospects”.  We have based these forward‑looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward‑looking statements.  These factors include:

·         general economic, political, demographic and business conditions in Brazil and particularly in the markets we serve;

·         changes in applicable laws and regulations, as well as the enactment of new laws and regulations, including those relating to environmental, tax and employment matters;

·         electricity shortages;

·         changes in tariffs;

·         our inability to generate electricity due to water shortages, transmission outages, operational or technical problems or physical damages to our facilities;

·         potential disruption or interruption of our services;

·         inflation and exchange rate variation;

·         the early termination of our concessions to operate our facilities;

·         increased competition in the power industry markets in which we operate;

·         our inability to implement our capital expenditure plan, including our inability to arrange financing when required and on reasonable terms;

·         changes in consumer demand;

·         existing and future governmental regulations relating to the power industry; and

·         the risk factors discussed under “Item 3.  Key Information—Risk Factors,” beginning on page 6.

Forward‑looking statements speak only as of the date they were made, and we undertake no obligation to update or to revise them after we distribute this annual report because of new information, future events or other factors.  In light of these limitations, you should not place undue reliance on forward‑looking statements contained in this annual report.

CERTAIN TERMS AND CONVENTIONS

A glossary of electricity industry terms is included in this annual report, beginning on page 136.

 

 

1


 
 

PRESENTATION OF FINANCIAL INFORMATION

We maintain our books and records in reais.  We prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). 

ITEM 1.                        Identity of Directors, Senior Management and Advisers

Not applicable.

ITEM 2.                        Offer Statistics and Expected Timetable

Not applicable.

ITEM 3.                        Key Information

Selected Financial and Operating Data

The tables below contain a summary of our financial data as of and for years ended December 31, 2014, 2013, 2012, 2011, and 2010.  Our financial data as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 was derived from our consolidated financial statements, which appear elsewhere in this annual report and were prepared in accordance with IFRS, as issued by the IASB.  You should read this selected financial data in conjunction with our consolidated financial statements and the related notes included in this annual report.  Our financial data as of December 31, 2012, 2011 and 2010 and for each of the two years ended December 31, 2011 was derived from our audited financial statements that are not included in this annual report. 

We restated our balance sheets, as of January 1, 2012 and December 31, 2012, and the Statements of Income, Comprehensive Income, Change in Shareholders’ Equity and Cash Flows for the years ended December 31, 2012 and 2011 as a result of the adoption, as of January 1, 2013, of two new standards issued by the IASB: IAS 19 (Employee Benefits – as revised in 2011) and IFRS 11 (Joint Arrangements).  However, data for 2010 has not been restated in application of new accounting standards mentioned above and therefore cannot be compared to the the financial information presented for the years ended December 31, 2014, 2013, 2012 and 2011.

The following tables present our selected financial data as of and for each of the periods indicated.

 

2


 
 

STATEMENT OF OPERATIONS DATA

 

For the year ended December 31,

 

 

2014(5)

2014(6)

 

2014

2013

2012(7)

2011(7)

2010(8)

 

US$

US$

R$

R$

R$

R$

R$

 

 

(in millions, except per share and per ADS data)

Net operating revenue

5,395

6,515

17,306

14,634

14,891

12,674

12,024

Cost of electric energy services:

 

 

 

 

 

 

 

Cost of electric energy

3,318

4,007

10,643

8,197

8,253

6,668

6,222

Operating cost

521

630

1,672

1,468

1,378

1,070

1,068

Services rendered to third parties

295

356

946

1,010

1,356

1,138

1,051

Gross operating income

1,261

1,523

4,044

3,960

3,904

3,798

3,683

Operating expenses:

 

 

 

 

 

 

Sales expenses

126

152

403

377

468

364

301

General and administrative expenses

241

291

774

929

724

595

443

Other operating expense

102

123

328

285

377

213

200

Income from electric energy service

792

956

2,540

2,370

2,335

2,625

2,739

Interest in associates and joint ventures

19

22

60

121

121

82

-

Financial income (expense):

 

 

 

 

 

Income

278

335

890

699

707

753

483

Expense

(617)

(745)

(1,980)

(1,671)

(1,285)

(1,156)

(837)

Net financial income (expenses)

(340)

(410)

(1,089)

(971)

(578)

(403)

(354)

Income before taxes

471

569

1,511

1,519

1,878

2,304

2,385

Social contribution

(53)

(64)

(169)

(157)

(178)

(204)

(221)

Income tax

(142)

(171)

(455)

(413)

(493)

(555)

(604)

Total taxes

(194)

(235)

(624)

(570)

(671)

(759)

(825)

Net income

276

334

886

949

1,207

1,545

1,560

Net income attributable to controlling shareholders

296

357

949

937

1,176

1,493

1,538

Net income (loss) attributable to non‑controlling shareholders

(20)

24

(63)

12

31

52

22

Earnings per share attributable to controlling shareholders(1):

 

 

 

 

 

 

 

Basic

0.31

0.37

0.99

0.97

1.22

1.55

1.66

Diluted

0.30

0.36

0.97

0.95

1.20

1.55

1.66

Net income per ADS(1):

 

 

 

 

 

 

 

Basic

0.61

0.74

1.97

1.94

2.44

3.10

3.32

Diluted

0.60

0.73

1.94

1.90

2.40

3.10

3.32

Dividends(2)

305

368

977

931

1,096

1,506

1,260

Weighted average of number of common shares (in millions)

962

962

962

962

962

962

962

Dividends per share(1)(2)

0.32

0.38

1.02

0.97

1.14

1.57

1.31

Dividends per ADS(2)

0.63

0.76

2.03

1.94

2.28

3.13

2.62

 

 

3


 
 

BALANCE SHEET DATA

 

For the year ended December 31,

 

 

2014(5)

2014(6)

 

2014

2013

 

2012(7)

2011(7)

 

2010(8)

 

US$

US$

R$

R$

R$

R$

R$

 

 

(in millions)

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

1,358

1,640

4,357

4,206

2,435

2,663

1,563

Consumers, concessionaires and licensees

702

847

2,251

2,008

2,205

1,861

1,816

Other current assets

812

981

2,606

1,050

905

799

519

Total current assets

2,872

3,469

9,215

7,264

5,545

5,323

3,898

Noncurrent assets:

 

 

 

 

 

 

 

Accounts receivable

38

46

123

154

162

182

196

Financial asset of concession

884

1,067

2,835

2,787

2,343

1,377

935

Investments in joint-ventures

343

414

1,099

1,033

1,022

1,006

-

Property, plant and equipment

2,767

3,342

8,878

7,717

7,104

5,673

5,786

Intangible Assets

2,854

3,447

9,156

8,748

9,180

8,535

6,585

Other noncurrent assets

1,182

1,428

3,793

3,339

3,568

3,073

2,657

Total noncurrent assets

8,069

9,745

25,884

23,778

23,379

19,846

16,159

Total assets

10,941

13,214

35,099

31,043

28,294

25,169

20,057

Current liabilities:

 

 

 

 

 

 

Short‑term debt(3)

1,099

1,328

3,526

1,837

1,962

1,496

2,251

Other current liabilities

1,213

1,465

3,891

3,068

3,007

2,819

2,177

Total current liabilities

2,312

2,792

7,417

4,906

4,969

4,315

4,428

Noncurrent liabilities:

 

 

 

 

 

 

 

Long‑term debt(3)

4,870

5,882

15,624

15,184

13,511

10,317

7,167

Other long‑term liabilities

833

1,006

2,673

2,155

2,553

1,879

1,712

Noncurrent liabilities

5,704

6,888

18,297

17,339

16,064

12,196

8,879

Non-controlling interest

761

919

2,441

1,775

1,510

1,485

256

Net equity attributable to controlling shareholders

2,164

2,614

6,944

7,024

6,381

7,173

6,494

Total liabilities and shareholders’ equity

10,941

13,214

35,099

31,043

28,294

25,169

20,057

 

 

4


 
 

OPERATING DATA

 

For the year ended December 31,

 

2014

2013

2012(10)

2011(10)

2010(8)

Energy sold (in GWh):

 

 

 

 

 

Residential

16,501

15,426

14,567

13,626

12,983

Industrial

14,144

14,691

14,536

14,718

15,413

Commercial

9,437

8,837

8,714

8,140

7,695

Rural

2,326

2,081

2,093

1,991

2,100

Public administration

1,295

1,234

1,220

1,154

1,112

Public lighting

1,622

1,586

1,525

1,495

1,444

Public services

1,861

1,820

1,864

1,823

1,742

Own consumption

34

34

33

33

33

Total energy sold to Final Consumers

47,221

45,709

44,552

42,979

42,522

Electricity sales to wholesalers (in GWh)

14,987

14,975

14,429

12,271

12,737

Total consumers (in thousands)(4)

7,586

7,386

7,176

6,952

6,748

Installed Capacity (in MW)

3,162

2,988

2,961

2,644

2,309

Assured Energy (in GWh)(9)

13,566

12,758

12,742

11,678

7,786

Energy generated (in GWh)

13,658

11,427

10,570

9,638

9,142

 

 

(1) Net income per share and Dividends per share are based on the number of shares resulting from the reverse and forward stock split of our common shares, which occurred in July 2011, as if they had occurred on January 1, 2010.

(2) “Dividends” represent the total amount of dividends from net income for each period indicated, subject to approval of the shareholders at the general shareholders’ meeting to be held in the following year.

(3) Short‑term debt and long‑term debt include loans and financing, debentures, accrued interest on loans, financing and debentures and derivatives.

(4) Represents active consumers (meaning consumers who are connected to the Distribution Network), rather than consumers invoiced at period‑end.

(5) Translated at the commercial selling rate at closing for the purchase of U.S. dollars, as reported by the Brazilian Central Bank, as of March 31, 2015 of R$3.208 to US$1.00.

(6) Translated at the commercial selling rate at closing for the purchase of U.S. dollars, as reported by the Brazilian Central Bank, as of December 31, 2014 of R$2.656 to US$1.00.

(7) Data for 2012 and 2011 have been restated in application of IAS 19 – Employee Benefits (as revised in 2011) and IFRS 11 – Joint Arrangements, as described in our audited annual consolidated financial statements for the year ended December 31, 2013.  With respect to IAS 19 – Employee Benefits, the principal adjustments are as follows: (i) changes in the accounting record method of actuarial gain and losses, such that accumulated differences between actuarial estimates and actual obligations are recognized in Other Comprehensive Income when they occur, and (ii) instead of recording interest cost and expected returns on plan assets as was previously done, we now record an amount for “net interest”.  With respect to IFRS 11 – Joint Arrangements, the results of the joint-ventures Campos Novos Energia S.A. (“ENERCAN”), BAESA - Energética Barra Grande S.A. (“BAESA”), Chapecoense Geração S.A. (“Chapecoense”) and Centrais Elétricas da Paraíba S.A. (“EPASA”) are recognized using the equity method of accounting in 2014, 2013, 2012 and 2011 rather than through proportional consolidation as was previously the case.

(8) Data for 2010 has not been restated in application of IAS 19 – Employee Benefits (as revised in 2011)  and IFRS 11 – Joint Arrangements. 

(9) Refers to Assured Energy in GW available at the end‑period, multiplied by the number of hours per year.  For further information about commencement of operations of each power plant, see “Item 4.  Information on the Company”.

(10) 2012 and 2011 volume information was restated for comparison purposes between operational and financial information, due to the adoption of IFRS 11.

 

Convenience Translations into U.S. Dollars

Solely for the investor’s convenience, we have translated certain amounts included in this annual report from reais into U.S. dollars at the commercial selling rate at closing for the purchase of U.S. dollars, as reported by the Brazilian Central Bank, as of December 31, 2014 of R$2.656 to US$1.00.  In light of the depreciation of the Brazilian real compared to the U.S. dollar in the first quarter of 2015, we have also presented these amounts translated into U.S. dollars at the commercial selling rate at closing as of March 31, 2015 of R$3.208 to US$1.00.  The translated amounts have been rounded.  These translations should not be considered as a representation that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate, as of those dates or any other date.  In addition, the translations should not be construed as a representation that the amounts translated into U.S. dollars are in accordance with generally accepted accounting principles.  See “—Exchange Rates” below for more information regarding the real/U.S. dollar exchange rate.

 

 

5


 
 
Exchange Rates

The Brazilian Central Bank allows the real/U.S. dollar exchange rate to float freely, and it has intervened occasionally to control unstable movements in foreign exchange rates.  We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise.  The real may substantially depreciate or appreciate against the U.S. dollar.  For more information on these risks, see “Item 3.  Additional Information—Risk Factors—Risks Relating to Brazil”.

The following table provides information on the selling exchange rate, expressed in reais per U.S. dollar (R$/US$), for the periods indicated.

 

Year‑end

Average for period(1)

Low

High

 

(reais per U.S. dollar)

Year ended:

December 31, 2010

1.666

1.759

1.655

1.881

December 31, 2011

1.876

1.671

1.535

1.902

December 31, 2012

2.044

1.958

1.702

2.112

December 31, 2013

2.343

2.174

1.953

2.446

December 31, 2014

2.656

2.360

2.197

2.740

 

 

(1) Average for period represents the average of the month‑end selling exchange rates during the relevant period.

 

Month‑end

Average for period(1)

Low

High

 

(reais per U.S. dollar)

Month ended:

 

 

 

 

October 2014

2.444

2.448

2.391

2.534

November 2014

2.560

2.548

2.484

2.614

December 2014

2.656

2.639

2.561

2.740

January 2015

2.662

2.634

2.575

2.711

February 2015

2.878

2.816

2.689

2.881

March 2015

3.208

3.139

2.866

3.268

April 2015 (through April 13)

3.101

3.104

3.047

3.156

 

 

(1)  Average for period represents the average of the selling exchange rates at the close of trading on each business day during such period.

Risk Factors

Risks Relating to Our Operations and the Brazilian Power Industry
We are subject to comprehensive regulation of our business, which fundamentally affects our financial performance.

Our business is subject to extensive regulation by various Brazilian regulatory authorities, particularly the National Electric Energy Agency (Agência Nacional de Energia Elétrica), or ANEEL.  ANEEL regulates and oversees various aspects of our business and establishes our tariffs.  If we are obligated by ANEEL to make additional and unexpected capital investments and are not allowed to adjust our tariffs accordingly, if ANEEL does not authorize the recovery of all costs or if ANEEL modifies the regulations related to tariff adjustments, we may be adversely affected.

In addition, both the implementation of our strategy for growth and our ordinary business may be adversely affected by governmental actions such as changes to current legislation, the termination of federal and state concession programs, creation of more rigid criteria for qualification in public energy auctions, or a delay in the revision and implementation of new annual tariffs.

 

6


 
 

If regulatory changes require us to conduct our business in a manner substantially different from our current operations, our operations and financial results may be adversely affected.

The regulatory framework under which we operate is subject to legal challenge.

The Brazilian government implemented fundamental changes in the regulation of the power industry in legislation passed in 2004 known as the Lei do Novo Modelo do Setor Elétrico, or New Industry Model Law.  Challenges to the constitutionality of the New Industry Model Law are still pending before the Brazilian Federal Supreme Court (Supremo Tribunal Federal).  If all or part of the New Industry Model Law were held to be unconstitutional, there would be uncertain consequences for the validity of existing regulation and the further development of the regulatory framework.  The outcome of the legal proceedings is difficult to predict, but it could have an adverse impact on the entire energy sector, including our business and results of operations.

We are uncertain as to the renewal of our concessions and authorizations.

We carry out our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian government.  Our concessions range in duration from 16 to 35 years.  The Brazilian constitution requires that all concessions relating to public services be awarded through public tender.  Under laws and regulations specific to the electric energy sector, the Brazilian government may renew existing concessions for an additional period of up to 20 or 30 years, depending on the nature of the concession, without public tender, provided that the concessionaire has met minimum performance standards and that the proposal is otherwise acceptable to the Brazilian government.  The Brazilian government has considerable discretion under Law No. 8,987/95, or the Concession Law, and under concession contracts with respect to renewal of concessions.

The first of our distribution concessions due to expire are those held by our distribution subsidiaries CPFL Santa Cruz, CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista and CPFL Sul Paulista, which were originally granted in 1999 for a 16‑year term that is due to expire in July 2015. 

Law No. 12,783/13 of 2013 provided that existing distribution concessions such as those held by CPFL Santa Cruz, CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista and CPFL Sul Paulista could be renewed, subject to certain conditions, for a further term of up to 30 years.  Accordingly, in 2014 we applied for renewal of those concessions in time for the renewal date of July 2015.  On March 31, 2015, however, before we had received a response from the authorities to these requests for renewal, it was reported that a federal court in Brasília had issued a decision in a case commenced by the Brazilian public prosecutor against ANEEL and the Brazilian federal government stating that distribution concessions, particularly those that have already been renewed in the past, may not be automatically renewed without certain requirements being met.   Since we are not a party to this litigation, and we understand it may be subject to appeal, we are currently unable to predict its effect on our requests for renewal of these concessions.  See “Item 4.  Information on the Company—Our Concessions and Authorizations—Concessions”.   We cannot give any assurance that the concessions expiring in July 2015 will be renewed, or whether the financial conditions of any renewed or new concessions will be acceptable.  If these or any of our concessions are not renewed, or if they are renewed subject to conditions that are unfavorable to us, our revenues could be adversely affected.

The tariffs that we charge for sales of electricity to Captive Consumers and the tariffs for using the distribution system that we charge to Free and Special Consumers are determined by ANEEL pursuant to concession agreements with the Brazilian government, so our operating revenues could be adversely affected if ANEEL makes decisions relating to our tariffs that are not favorable to us.

ANEEL has substantial discretion to establish the tariff rates our distribution companies charge our consumers.  Our tariffs are determined pursuant to concession agreements with the Brazilian government, and in accordance with ANEEL’s regulations and decisions.

Our concession agreements and Brazilian law establish a mechanism that permits three types of tariff adjustments: (i) annual adjustment (reajuste tarifário annual), or RTA, (ii) periodic revision (revisão tarifária periódica), or RTP, and (iii) extraordinary revision (revisão tarifária extraordinária), or RTE.  We are entitled to apply each year for the annual adjustment, which is designed to offset some effects of inflation on tariffs and pass through to consumers certain changes in our cost structure that are beyond our control, such as the cost of electricity we purchase and certain regulatory charges, including charges for the use of transmission and distribution facilities.  In addition, ANEEL carries out a periodic revision every four or five years that is aimed at identifying variations in our costs as well as setting a factor based on our operational efficiency that will be applied against the index of our ongoing annual tariff adjustments, the objective of which is to share any related gains with our consumers.  We are also subject to extraordinary revision of our tariffs that may negatively affect our results of operations or financial position.

 

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We cannot be sure if ANEEL will establish tariffs at rates that are favorable to us, due to changes in the methods used by ANEEL in calculating the periodic revision adjustments.  The methodology set by ANEEL for the 2011-2014 periodic revision cycle under Resolution No. 457/2011 negatively impacted our financial condition and results of operations.  In addition, to the extent that any of these adjustments are not granted by ANEEL in a timely manner, our financial condition and results of operations may be adversely affected.  The methodology to be applied in the 2015-2018 periodic revision cycle is currently subject to public consultation, which is expected to be concluded during the first half of 2015.  See “Item 5.  Operating and Financial Review and Prospects—Background—Periodic Revisions—RTP”.

We could be penalized by ANEEL for failing to comply with the terms of our concession agreements, which could result in fines, other penalties and, depending on the gravity of the non‑compliance, in our concessions being terminated.

ANEEL may impose penalties on us in the event that we fail to comply with any provision of our concession agreements.  Depending on the gravity of the non‑compliance, these penalties could include the following:

·         warning notices;

·         fines per breach of up to 2.0% of the revenues from the concession in the financial year prior to the date of the breach;

·         injunctions related to the construction of new facilities and equipment;

·         restrictions on the operation of existing facilities and equipment;

·         intervention by ANEEL in the management of the concessionaire; and

·         termination of the concession.

In addition, the Brazilian government has the power to terminate any of our concessions by means of expropriation for reasons related to the public interest.

We are currently in compliance with all of the material terms of our concession agreements. However, we cannot assure you that we will not be penalized by ANEEL for breaching our concession agreements or that our concessions will not be terminated in the future.  The compensation to which we are entitled upon expiration or early termination of our concessions may not be sufficient for us to realize the full value of certain assets.  In addition, if any of our concession agreements is terminated for reasons attributable to us, the effective amount of compensation by the granting authorities could be materially reduced through the imposition of fines or other penalties.  Accordingly, the imposition of fines or penalties on us or the termination of any of our concessions could have a material adverse effect on our financial condition and results of operations.

We may not be able to fully pass through the costs of our electricity purchases and, to meet demand, we could be forced to purchase electricity in the spot market at prices substantially higher than under our long‑term purchase agreements.

Under the New Industry Model Law, an electricity distributor must contract in advance, through public bids, for 100% of its forecast electricity needs for its distribution concession areas, and is authorized to pass up to 105% of this electricity on to consumers.  Over‑ or under‑forecasting demand can have adverse consequences.  If our forecast demand is incorrect and we purchase less or more electricity than we need, we may be prevented from fully passing through the costs of our electricity purchases and we may also be forced to enter into the spot market to purchase or sell electricity at prices substantially higher or lower than under our long‑term purchase agreements.  For instance, the New Industry Model Law provides, among other restrictions, that if our forecasts fall significantly short of actual electricity demand, we may be forced to make up the shortfall in the spot market.  Our forecast electricity demand may prove inaccurate, including as a result of consumers moving between the different markets (regulated and free).  If there are significant variations between our electricity needs and the volume of our electricity purchases, our results of operations may be adversely affected.  See “Item 4.  Information on the Company—The Brazilian Power Industry—The New Industry Model Law”. 

 

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We may not be able to buy electricity in the amount we need to meet our sales agreements in the free market, which may lead us to be exposed to the spot market at prices substantially higher than under our long term agreements.

On August 2, 2012, the MME enacted Act. No. 455, under which ex post energy volume adjustment has been prohibited since June 1, 2014, and the parties will have to register ex ante with the Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica), or CCEE, their expected consumption volume, except when the parties have specifically indicated that the relevant agreement is linked to the effective consumption volume.  However, the Brazilian Association of Electricity Traders (ABRACEEL) obtained an injunction against Act 455/2012, preventing the implementation of the ex ante contract registration rule to energy traders. The application of this Act in the CCEE has been suspended for all agents (Generators, Traders and Free Consumers), since it may not apply only to a specific group of agents. This Act applies only to the Free Market and does not affect distributors.  Under this system, if the injunction is lifted, and if our projected energy volume is incorrect and we purchase less or more electricity than we need, we would no longer be able to adjust for our exposure to the energy volume purchased.  See “Item 4. Information on the Company—The New Industry Model Law—Recent Developments in the Free Market”.

We generate a significant portion of our operating revenues from consumers that are allowed to seek alternative electricity suppliers.  We may face other types of competition that could adversely affect our market share and revenues.

Within our concession areas, other electricity suppliers are permitted to compete with us in offering electricity to certain consumers that qualify as Free Consumers, to whom our distribution subsidiaries may supply electricity only at regulated tariffs.  These consumers qualified as Free Consumers may elect to opt out of our regulated distribution system upon the expiration of their contracts with us by providing six months’ prior notice, following which they may only return upon five years’ prior notice.  At December 31, 2014, we supplied energy to 46 Free Consumers, which accounted for approximately 1.5% of our net operating revenues of our Distribution segment, and approximately 2.5% of the total volume of electricity sold by our Distribution segment during 2014.  In addition, other consumers meeting certain criteria may become Free Consumers, for example Special Customers who may move to energy from renewable energy sources, such as Small Hydroelectric Power Plants, or SHPPs, wind power or biomass.  At December 31, 2014 we had a total of 1,649 consumers who could choose their supplier, or Potentially Free Consumers.  Potentially Free Consumers accounted for approximately 9.0% of the net operating revenues of our Distribution segment, and approximately 12.7% of the total volume of electricity sold by our Distribution segment during 2014.  See “Item 4. Information on the Company—The New Industry Model Law—The Free Market”.

Additionally, it is possible that our large industrial clients could be authorized by ANEEL to generate electric energy for their own consumption or sale to other parties, in which case they may obtain an authorization or concession for the generation of electric power in a given area, which could adversely affect our results of operations.

Our operating results depend on prevailing hydrological conditions.  Poor hydrological conditions may affect our results of operations.

We are dependent on the prevailing hydrological conditions in Brazil, the country in which we operate.  In 2014, according to data from the National Electrical System Operator (Operador Nacional do Sistema Elétrico), or ONS, approximately 73% of Brazil’s electricity supply came from Hydroelectric Power Plants. 

 

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Brazil is subject to unpredictable hydrological conditions, with non‑cyclical deviations from average rainfall.  In order to compensate for poor hydrological conditions and to maintain security levels in reservoirs and the electricity supply level, the ONS may dispatch Thermoelectric Power Plants, including those operated by us.  The replacement of hydroelectric generation with thermoelectric generation may lead to adverse results in our Generation segment since Hydroelectric Power Plants, including those operated by us, may receive an amount of energy lower than their Assured Energy in the Energy Reallocation Mechanism (Mecanismo de Realocação de Energia), or MRE.  This deficit of energy, called the Generation Scaling Factor, or GSF, will represent an expense valued at the electricity spot price, exposing the operator of the Hydroelectric Power Plants to spot price risk.

In the Distribution segment, thermoelectric generation can lead to additional costs with energy purchase, when ONS dispatches Thermoelectric Power Plants by merit order, and extraordinary charges, such as a component of the System Service Charge (Encargo de Serviço do Sistema), the ESS, related to energy security, the ESS-SE, when these power plants are dispatched out of the merit order.  These additional costs are ultimately passed through by the distributor to consumers through tariff increases in future annual adjustments or periodic reviews, as permitted by regulation.  However, there may be a cash flow mismatch in the intervening period, since these costs must be covered immediately, while the tariffs are only readjusted later.  For more information, see “Item 4.  Information on the Company—The Brazilian Power Industry—Regulatory Charges—ESS”.

 

In January 2015, the electricity sector began to implement a mechanism of monthly “tariff flags” under which consumer invoices may be subject to tariff additions on a monthly basis when energy supply costs reach certain levels, enabling consumers to adapt their usage to current energy costs.    Revenues collected under the tariff flag system are repaid to distribution companies on the basis of their relative energy cost for the period.  Due to the poor hydrological conditions that have been observed since 2013, red tariff flags have been applied since introduction of this system in January 2015.  Although this mechanism mitigates the cash flow mismatch in part, it may be insufficient to cover the thermoelectric energy supply costs, and distributors still bear the risk of cash flow mismatches in the short term.  See “Item 4.  Information on the Company—The Brazilian Power Industry—Basis of Calculation of Distribution Tariffs”.

The impact of an electricity shortage and related electricity rationing, as in 2001 and 2002, may have a material adverse effect on our business and results of operations.

Periods of severe or sustained below‑average rainfall resulting in an electricity shortage may adversely affect our financial condition and results of operations.  For example, during the low rainfall period of 2000 and 2001, the Brazilian government instituted the Rationing Program, a program to reduce electricity consumption that was in effect from June 1, 2001 to February 28, 2002.  The Rationing Program established limits for energy consumption for industrial, commercial and residential consumers, with reductions in consumption ranging from 15% to 25%.  If Brazil experiences another electricity shortage (a condition which might happen and we are not able to control or anticipate), the Brazilian government may implement similar or other policies in the future to address the shortage.  For example, electricity conservation programs, including mandated reductions in electricity consumption, could be implemented if poor hydrological conditions cannot be offset in practice by other energy sources, such as Thermoelectric Power Plants, thereby resulting in a low supply of electricity to the Brazilian market.

We are uncertain as to the review of our Hydroelectric Power Plants’ Assured Energy.

Decree No. 2,655 of July 2, 1998 established that the Assured Energy of generation power plants would be revised every five years.  As part of these revisions, the Brazilian Ministry of Mines and Energy (MME) can revise a company’s Assured Energy, limited to a maximum change of 5% per revision or 10% over the entire period of the concession agreement.  In addition to these periodic revisions, it is still unclear when the effects of the first revision are expected to take place for all Hydroelectric Power Plants (with the exception of SHPPs), since Portaria No. 681 of December 30, 2014 provided that all Assured Energy values will remain unchanged until December 31, 2015 and did not set a date for the change.  We cannot be certain whether the MME will make any revisions to our Assured Energy, either under the periodic revision cycle or under this extraordinary revision, and if so whether it will increase or decrease our Assured Energy.  If our Assured Energy is decreased, our ability to supply electricity under our power purchase agreements, or PPAs, would be adversely affected, which could lead to a decrease in our revenues and increase our costs if our generation subsidiaries are required to purchase power elsewhere.  See “Item 4Principal Regulatory AuthoritiesMinistry of Mines and Energy - MME”.

 

 

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Construction, expansion and operation of our electricity generation, transmission and distribution facilities and equipment involve significant risks that could lead to lost revenues or increased expenses.

The construction, expansion and operation of facilities and equipment for the generation, transmission and distribution of electricity involve many risks, including:

·         the inability to obtain required governmental permits and approvals;

·         the unavailability of equipment;

·         supply interruptions;

·         work stoppages;

·         labor unrest;

·         social unrest;

·         weather and hydrological interferences;

·         unforeseen engineering and environmental problems;

·         increases in electricity losses, including technical and commercial losses;

·         construction and operational delays, or unanticipated cost overruns;

·         the inability to win electricity auctions promoted by ANEEL; and

·         unavailability of adequate funding.

If we experience these or other problems, we may not be able to generate or distribute electricity in amounts consistent with our projections, which may have an adverse effect on our financial condition and results of operations.

We are subject to environmental and health regulations that may become more stringent in the future and may result in increased liabilities and increased capital expenditures.

Our activities are subject to comprehensive federal, state and municipal legislation as well as regulation and supervision by Brazilian governmental agencies that are responsible for the implementation of environmental and health laws and policies.  These agencies could take enforcement action against us for our failure to comply with their regulations.  These actions could include, among other things, the imposition of fines and revocation of licenses.  It is possible that enhanced environmental and health regulations will force us to allocate capital expenditures to compliance, and consequently, divert funds from planned investments.  Such a diversion could have a material adverse effect on our financial condition and results of operations.

If we are unable to complete our proposed capital expenditure program in a timely manner, the operation and development of our business may be adversely affected.

We plan to invest approximately R$2,121 million in our generation activities (R$2,058 million in renewable sources and R$62 million in conventional sources), R$6,413 million in our distribution activities and R$395 million in our commercialization and services activities during the period from 2015 through 2019.  Our ability to carry out this capital expenditure program depends on a variety of factors, including our ability to charge adequate tariffs for our services, our access to domestic and international capital markets and a variety of operating, regulatory and other contingencies.  We cannot be certain that we will have the financial resources to complete our proposed capital expenditure program, and failure to do so could have a material adverse effect on the operation and development of our business.

 

 

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We are strictly liable for any damages resulting from inadequate provision of electricity services, and our contracted insurance policies may not fully cover such damages.

Under Brazilian law, we are strictly liable for direct and indirect damages resulting from the inadequate provision of electricity distribution services.  In addition, our distribution facilities may, together with our generation utilities, be held liable for damages caused to others as a result of interruptions or disturbances arising from the generation, transmission or distribution systems, whenever these interruptions or disturbances are not attributed to an identifiable member of the ONS.  We cannot assure you that our contracted insurance policies will fully cover damages resulting from inadequate rendering of electricity services, which may have an adverse effect on us.

We may not be able to create the expected benefits and return on investments from our renewable energy generation businesses.

Through our subsidiary CPFL Renováveis we have made substantial capital investments in generation businesses other than hydro power, principally wind and biomass.  These renewable generation businesses are dependent on certain factors that are not within our control and may significantly affect these businesses.

In the biomass business, we may suffer from market shortages of sugar cane, a necessary input for biomass generation.  In addition, we depend to a certain extent on the performance of our partners in the operation of biomass plants.  The operation of wind farms involves significant uncertainties and risks, including financial risk associated with the difference between the energy we generate and the energy contracted through the public energy auctions.  These financial risks are principally: (i) lower wind intensity and duration than that contemplated in the study phase of the project; (ii) any delay in commencement of a wind farm’s operations; and (iii) unavailability of wind turbines at levels above the performance benchmarks.

If these generation plants are not able to generate the energy we have contracted to supply, we may be obliged to buy the shortfall in the spot market.  Spot market prices are volatile and may be higher than the price at which our renewable energy subsidiaries have contracted to sell energy, which would increase our costs and lead to losses in this segment.  See “Item 4.  Information on the Company—The Brazilian Power Industry—The New Industry Model Law”.

We are controlled by a few shareholders acting together, and their interests could conflict with yours.

As of December 31, 2014, ESC Energia S.A., or ESC, PREVI (through BB Carteira Livre I FIA) and Energia São Paulo Fundo de Investimento em Ações, or Energia São Paulo FIA/Bonaire Participações S.A., owned 24.33%, 29.99% and 14.87%, respectively, of our outstanding common shares.  Bonaire Participações S.A., or Bonaire, is a holding company controlled by Energia São Paulo Fundo de Investimento em Ações.  These entities are parties to a shareholders’ agreement, pursuant to which they share the power to control us.  Our controlling shareholders may take actions that could be contrary to your interests, and our controlling shareholders will be able to prevent other shareholders, including you, from blocking these actions.  In particular, our controlling shareholders control the outcome of decisions at shareholders’ meetings, and they can elect a majority of the members of our Board of Directors.  Our controlling shareholders can direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses.  Their decisions on these matters may be contrary to the expectations or preferences of our non-controlling shareholders, including holders of our ADSs.  See “Item 7.  Major Shareholders and Related Party Transactions—Shareholders’ Agreement”.

We are exposed to increases in prevailing market interest rates as well as foreign exchange rate risk.

As of December 31, 2014, approximately 82.0% of our total indebtedness was denominated in reais and indexed to Brazilian money‑market rates or inflation rates, or bore interest at floating rates.  The remaining 18.0% of our total indebtedness was denominated in U.S. dollars and substantially subject to currency swaps that converted these obligations into reais.  In addition, the costs of electricity purchased from the Itaipu Power Plant, or Itaipu, are indexed to the U.S. dollar exchange variation.  Our tariffs are adjusted annually in order to contemplate the losses or gains from such electricity acquisition.  Accordingly, if these indexation rates rise or the U.S. dollar/real exchange rates appreciate, our financing expenses will increase.

 

 

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Our indebtedness and debt service obligations could adversely affect our ability to operate our business and make payments on our debt.

As of December 31, 2014, we had a debt of R$19,150 million.  Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the principal, interest or other amounts due in respect of our indebtedness.  In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions applicable under our existing indebtedness.  If we incur additional debt, the risks associated with our leverage would increase.

We may acquire other companies in the electricity business, as we have in the past, and these acquisitions could increase our leverage or adversely affect our consolidated performance.

We regularly analyze opportunities to acquire other companies engaged in activities along the entire electricity generation, transmission and distribution chain.  If we do acquire other electricity companies, this could increase our leverage or reduce our profitability.  Furthermore, we may not be able to integrate the acquired company’s activities and achieve the economies of scale and expected efficiency gains that often drive such acquisitions.  Any such failure could harm our financial condition and results of operations.

Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.  This involvement, as well as Brazilian political and economic conditions, could adversely affect our business and the trading price of our ADSs and our common shares.

The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations.  The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports.  Our business, financial condition and results of operations may be adversely affected by changes in policy or regulations at the federal, state or municipal levels involving or affecting factors such as:

·         interest rates;

·         monetary policy;

·         currency fluctuations;

·         inflation;

·         liquidity of domestic capital and lending markets;

·         tax policies;

·         changes in labor laws;

·         regulatory environment of our sector;

·         exchange rates and exchange controls and restrictions on remittances abroad, such as those that were briefly imposed in 1989 and early 1990; and

·         other political, social and economic developments in or affecting Brazil.

We cannot assure you that the Brazilian government will continue with the current economic policies, or that any changes implemented by the Brazilian government will not, directly or indirectly, affect our business and results of operations.

 

 

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Political conditions may have an adverse impact on the Brazilian economy and on our business.

Current political conditions in Brazil may affect the confidence of investors and the public in general as well as the development of the economy. Uncertainty with regard to matters such as the presidential administration’s future policies and appointments to influential governmental positions and ongoing investigations into allegations of corruption in state-controlled enterprises may also affect the confidence of investors and the general public. It may also have an adverse impact on the Brazilian economy, our business, financial condition, results of operations and the market price of our common shares and ADSs.

Exchange rate instability may adversely affect our financial condition and results of operations and the market price of the ADSs and our common shares.

The Brazilian currency has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies over the last decade.  On December 31, 2012, 2013 and 2014, the exchange rate of the real against the U.S. dollar was R$2.044, R$2.343 and R$2.656 per US$1.00, respectively. On April 13, 2015, the exchange rate was R$3.101 per US$1.00.  The real may further depreciate against the U.S. dollar in the future.

Depreciation of the real increases the cost of servicing our foreign currency denominated debt and the cost of purchasing electricity from the Itaipu power plant, a Hydroelectric Power Plant that is one of our major suppliers and that adjusts electricity prices based in part on its U.S. dollar costs.  Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations, curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies.  Depreciation of the real against the U.S. dollar can also lead to decreased consumer spending, deflationary pressures and reduced growth in the economy as a whole.  On the other hand, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current account, as well as dampen export‑driven growth.  Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

Depreciation of the real  also reduces the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our common shares and, as a result, the ADSs.

Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business.

Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world.  Between 2006 and 2014, the base interest rate in Brazil, or SELIC, varied between 7.25% p.a. and 17.25% p.a., reaching its lowest level (7.25%) at the end of 2012. On April 13, 2015, the SELIC rate was 12.65% p.a..  Inflation and the Brazilian government’s measures to fight it, principally through the Brazilian Central Bank, have had and may in the future have significant effects on the Brazilian economy and our business.  Tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit.  Conversely, more lenient government and Brazilian Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, volatility in growth and the need for sudden and significant interest rate increases, which could negatively affect our business.  In addition, if Brazil again experiences high inflation, we may not be able to adjust the rates we charge our consumers to offset the effects of inflation on our cost structure.

Developments and the perception of risk in other countries, including the United States and emerging market countries, may adversely affect the market price of Brazilian securities, including our ADSs and our common shares.

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, the European Union and emerging market countries.  The global financial crisis that commenced in 2008 led to significant consequences, including stock and credit market volatility, unavailability of credit, higher interest rates, a general economic slowdown, volatile exchange rates and inflationary pressure.  Global recovery from this crisis has been slower than expected in recent years, with the largest emerging economies of China, Brazil and India posting weaker than expected results and the European Union is continuing to experience weak GDP growth, although the United States posted GDP growth of approximately 3.0% in 2014.  Although economic conditions in other countries may differ significantly from economic conditions in Brazil, investor reactions to developments in those countries may have an adverse effect on the market value of securities of Brazilian issuers.  Crises in the United States, the European Union or emerging market countries may diminish investor interest in securities of Brazilian issuers, including ours.  This could adversely affect the trading price of the ADSs or our common shares, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

 

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Risks Relating to the ADSs and Our Common Shares
Holders of our ADSs do not have the same voting rights as our shareholders.

Holders of our ADSs do not have the same voting rights as holders of our shares.  Holders of our ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreements.  ADS holders exercise voting rights by providing instructions to the depositary, as opposed to voting at shareholders’ meetings or by proxy.  In practice, the ability of a holder of ADSs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary, either directly or through the holder’s custodian and clearing system.

If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the common shares into non‑Brazilian currency and remit the proceeds abroad.  If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal.  Thereafter, upon the disposition of or distributions relating to the common shares, you will not be able to remit abroad non‑Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration.  If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner.  The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares.

We may not be able to offer our common shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our common shares in connection with any future issuance of our common shares unless a registration statement under the Securities Act is effective with respect to such common shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement relating to preemptive rights with respect to our common shares, and we cannot assure you that we will file any such registration statement.  If such a registration statement is not filed and an exemption from registration does not exist, Citibank N.A., as depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale.  However, these preemptive rights will expire if the depositary does not sell them, and U.S. holders of ADSs will not realize any value from the granting of such preemptive rights.

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature.  The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States.  Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited.  There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.  The ten largest companies in terms of market capitalization represented 50.7% of the aggregate market capitalization of the BM&FBOVESPA S.A. ‑ Bolsa de Valores, Mercadorias & Futuros, or BM&FBOVESPA, as of December 31, 2014.  The top ten stocks in terms of trading volume accounted for 46.3%, 41.3% and 43.0% of all shares traded on the BM&FBOVESPA in 2014, 2013, and 2012, respectively.

 

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ITEM 4.                        Information on the Company

Overview

We are a corporation (sociedade por ações) incorporated and existing under the laws of Brazil with the legal name CPFL Energia S.A.  Our principal executive offices are located at Rua Gomes de Carvalho, 1,510, 14th floor – Suite 142, Vila Olímpia, CEP 04547‑005, in the City of São Paulo, state of São Paulo, Brazil and our telephone number is +55 11 3841‑8507. 

We are a holding company that, through our subsidiaries, distributes, generates, transmits and commercializes electricity in Brazil as well as provides energy-related services.  We were incorporated in 1998 as a joint venture among VBC Energia S.A., or VBC, 521 Participações S.A. and Bonaire to combine their interests in companies operating in the Brazilian power sector.

We are one of the largest electricity distributors in Brazil, based on the 43,160 GWh of electricity we distributed to approximately 7.6 million consumers in 2014.  In electricity generation, our Installed Capacity at December 31, 2014 (after accounting for the acquisition of Dobrevê Energia S.A., or DESA, in October 2014) was 3,162 MW.  Through our interest in CPFL Renováveis, we are also involved in the building of 1 SHPP and 12 wind farms, as a result of which we expect to increase our Installed Capacity (also after accounting for the acquisition of DESA) to 3,299 MW over the next five years as they are completed.

We also engage in power commercialization, buying and selling electricity to power producers, Free Consumers and power trading companies.  We also provide agency services to Free Consumers before the CCEE and other agents as well as electricity‑related services to our affiliates and unaffiliated parties.  In 2014, the total amount of electricity sold by our commercialization subsidiaries was 1,773 GWh and 9,840 GWh to affiliated and unaffiliated parties, respectively.

The following significant developments have occurred in our business since the beginning of 2013:

·        In July 2013, CPFL Renováveis carried out its IPO and its common shares began trading publicly on the BM&FBOVESPA.  The offering consisted of a primary offering of 29.2 million common shares (including overallotment option) and a concurrent secondary offering of 44.0 million common shares, at a price of R$12.51 per share.  As a result of this transaction, our interest in CPFL Renováveis was reduced from 63% to 58.84%.  Although our interest was reduced, the transaction resulted in an increase of R$59.3 million in our shareholder’s equity, capital reserve account, due to the increase of the nominal value of the shares of CPFL Renováveis.  All references in this Annual Report to our total Installed Capacity and other operating information as at and for the year ended December 31, 2013 reflect the impact of this change in shareholding and consolidation.

·        In August 2013, CPFL Coopcana Biomass Thermoelectric Plant, or UTE Coopcana, commenced operations.  UTE Coopcana is located in São Carlos do Ivaí, in the state of Paraná, has Installed Capacity of 50 MW, and has sold all its energy in the Free Market under a supply agreement with a 21‑year term averaging 18 MW of contracted energy.

·        In September 2013, operations started at the Campo dos Ventos II Wind Farm with 30 MW of Installed Capacity.  The Campo dos Ventos II Wind Farm is located in João Câmara, in the state of Rio Grande do Norte and was acquired in the 2010 Reserve Energy Auction (LER).  ANEEL has authorized the start of commercial operations of Campo dos Ventos II Wind Farm by means of Dispatch No. 4,706 of December 5, 2014, when the energy generated by these farms became fully available to the system. Campo dos Ventos II became entitled to bill energy, as provided for in the 2010 Reserve Energy Auction (LER) rules, even though the conclusion of the construction of the ICG (shared generation facilities) – which are not a responsibility of the company – were still pending. Therefore, Campo dos Ventos II Wind Farm has been recording revenues since September 2013.

 

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·        In November 2013, Alvorada Biomass Thermoelectric Plant, or UTE Alvorada, commenced operations.  UTE Alvorada is located in Araporã, in the state of Minas Gerais, has Installed Capacity of 50 MW, and has sold all its energy in the Free Market under a supply agreement with a 20‑year term averaging 18 MW of contracted energy.

·        In December 2013, at the Second A‑5/2013 Energy Auction, CPFL Renováveis traded an average of 26.1 MW of contracted energy to be generated by the Pedra Cheirosa Complex, consisting of two wind farms in the state of Ceará 51.3 MW of Installed Capacity.  An “A‑5” auction is an energy auction held five years before the initial delivery date.  The contracts arising from the trade will be executed with the distribution companies that participated in the auction as energy purchasers.  The contracts will have a duration of 20 years, with energy supply commencing January 1, 2018.  The traded energy was sold at an average price of R$125.04 per MWh, with annual adjustments to be made in accordance with IPCA.

·        The acquisition of Rosa dos Ventos Geração e Comercialização de Energia S.A., or Rosa dos Ventos, by CPFL Renováveis was completed in February 2014.  The acquisition price, after all adjustments, was R$103.4 million, consisting of (i) R$70.3 million in cash and (ii) the assumption of net debt in the amount of R$33.1 million.  Rosa dos Ventos holds an ANEEL authorization to exploit two wind farms: (i) Canoa Quebrada, which has Installed Capacity of 10.5 MW; and (ii) Lagoa do Mato, which has Installed Capacity of 3.2 MW.  These wind farms are located on the coast of the state of Ceará and are in full commercial operation, and all the energy generated has been contracted to Eletrobrás through the Electric Energy Alternative Sources Incentive Program (Programa de Incentivo às Fontes Alternativas de Energia Elétrica), or Proinfa Program, which was established by the Brazilian government.

·        In February 2014, CPFL Renováveis entered into an agreement with Arrow – Fundo de Investimento em Participações, or Arrow, an investment fund, to acquire Arrow’s indirect subsidiary DESA, by way of the merger of DESA’s holding company, WF2 Holding S.A., or WF2, with and into CPFL Renováveis, in exchange for the issuance of 61,752,782 new common shares of CPFL Renováveis to Arrow on October 1, 2014.  As a result of this transaction, our interest in CPFL Renováveis was reduced from 58.84% to 51.61%.  DESA has been operating with installed power of 278 MW and has renewable generation construction projects with Installed Capacity of 53 MW, whose operations are expected to start in 2016.  All references in this Annual Report to our total Installed Capacity and other operating information as at and for the year ended December 31, 2014 reflect the impact of this change in shareholding and consolidation as from October 1, 2014.  See note 15.6.2 to our audited annual consolidated financial statements.

·        In March 2014, CPFL Renováveis completed the last wind farm of the Atlântica Complex located in the municipality of Palmares do Sul, in the state of Rio Grande do Sul, has Installed Capacity of 120 MW, and has sold all its energy at the Alternative Sources Auction (“LFA/2010”) with a 20-year supply term and 52.7 average MW of contracted energy. The Complex windmills have gradually started operating since November 2013.

·        In June 2014, Macacos  Complex (the wind farms of Pedra Preta, Costa Branca, Juremas and Macacos) was deemed fit for operation by ANEEL, beginning as of May 1, 2014.  Beginning on this date, the wind farms became eligible to bill for energy as required by the rules of the Alternative Sources Auction (LFA) 2010. Macacos Complex has Installed Capacity of 78.2 MW, physical guarantee of 37.5 average-MW and is located in the city of João Câmara, in Rio Grande do Norte.

 

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·        In October 2014, CPFL Eficiência Energética S.A. (“CPFL ESCO”) commenced its operations. Located in Campinas, state of São Paulo, this company provides consulting and management services related to energetic efficiency improvements, rental of generation assets and research and development activities for energy-related programs. Self-production activities, which were conducted by CPFL Serviços until October 2014, are also part of CPFL ESCO services portfolio.

·        The incorporation of CPFL Transmissora Morro Agudo S.A., subsidiary company of CPFL Geração, was approved in January 2015, with the objective of operating and exploiting electric energy transmission concessions, including the construction, implementation, operation and maintenance of transmission facilities, of the basic network of the Interconnected Power System.

 

The following chart provides an overview of our corporate structure at March 31, 2015:

 

Notes:

(1)     Controlling shareholders;

(2)     Includes the 0.1% stake of Camargo Corrêa S.A.;

(3)     Includes the 0,5% stake of Caixa de Previdência dos Funcionários do Banco do Brasil;

(4)     Includes the 0.2% stake of Petros e Sistel pension funds;

(5)     51.54% stake of the availability of power and energy of Serra da Mesa HPP, regarding the Power Purchase Agreement between CPFL Geração and Furnas.

 

Our core businesses are:

·        Distribution.  In 2014, our eight fully‑consolidated distribution subsidiaries delivered 43,160 GWh of electricity to approximately 7.6 million consumers primarily in the states of São Paulo and Rio Grande do Sul.

·        Conventional Generation.  At December 31, 2014 our conventional generation subsidiaries had Installed Capacity of 2,248 MW.  During 2014, we generated a total of 11,179 GWh of electricity, and we had 10,106 GWh of Assured Energy at December 31, 2014, the amount of energy representing our long‑term average electricity production, as established by ANEEL, which is the primary driver of our revenues from generation activities.  We hold equity interests in eight Hydroelectric Power Plants: Serra da Mesa, Monte Claro, Barra Grande, Campos Novos, Luiz Eduardo Magalhães‑Lajeado, Castro Alves, 14 de Julho and Foz do Chapecó.  Although the concession for the Serra da Mesa Hydroelectric Facility is held by another party, Furnas, we are entitled to 51.54% of its Assured Energy.  We also own three Thermoelectric Power Plants, Termonordeste, Termoparaíba and Carioba, although the Carioba Thermoelectric Power Plant has been deactivated.  In addition, 10 of our 49 Small Hydroelectric Power Plants remain under the management of two of our conventional generation subsidiaries, CPFL Geração and CPFL Centrais Geradoras, and report their results within the Conventional Generation segment.

 

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·        Renewable Generation.  Our indirect subsidiary, CPFL Renováveis, in which we own a 51.61% interest through CPFL Geração, concentrates our activities in energy generation through renewable sources.  CPFL Renováveis operates all of our wind farms and Thermoelectric Biomass Power Plants as well as 39 of our 49 Small Hydroelectric Power Plants.  These 39 Small Hydroelectric Power Plants, of which (i) 38 Small Hydroelectric Power Plants located in the states of São Paulo, Santa Catarina, Rio Grande do Sul, Minas Gerais, Mato Grosso and Paraná, are operational and have aggregate Installed Capacity of 399 MW, and (ii) 1 Small Hydroelectric Power Plant under construction to scheduled to commence operations in 2016 and are expected to have Installed Capacity of approximately 24 MW.  CPFL Renováveis also has 45 wind farms, of which (i) 33 farms, located in the states of Ceará, Rio Grande do Norte and Rio Grande do Sul, are operational and have aggregate Installed Capacity of 999 MW, and (ii) the remaining 12 farms are under construction, scheduled to commence operations between 2016 and 2018, and are expected to have Installed Capacity of approximately 312 MW.  CPFL Renováveis has eight operational Thermoelectric Biomass Power Plants, with aggregate Installed Capacity of 370 MW, located in the states of Minas Gerais, Paraná, São Paulo and Rio Grande do Norte.  CPFL Renováveis also operates the Tanquinho Solar Power Plant, which is located in the state of São Paulo and has Installed Capacity of 1.1 MWp.  At December 31, 2014, our total consolidated Installed Capacity through our Renewable Generation segment (calculated on the basis of our 51.61% interest in CPFL Renováveis) was 914 MW and as a result of the acquisition of DESA in October 2014, we expect that our Renewable Generation segment will reach an Installed Capacity of 2,108 MW in 2018.  These capacity amounts do not include eventual decreases in our installed capacity ballast (limit of energy produced in our own power plants that we are allowed to sell).  Those decreases are calculated by the Ministry of Mines and Energy, for power plants participating in MRE.  For further details about MRE, see “—Regulatory Charges—Energy Reallocation Mechanism”.

·        Commercialization.  Our commercialization subsidiaries handle our commercialization operations and provide agency services to Free Consumers before the CCEE and other agents, including guidance on their operational requirements.  CPFL Brasil, our largest commercialization subsidiary, procures and sells electricity to Free Consumers, other commercialization and generation companies and distribution facilities.  In 2014, we sold 11,613 GWh of electricity, of which 9,840 GWh was sold to unaffiliated third parties.

·        Services.  Commencing January 1, 2012, we report the results of our services activities as a separate operating segment.  Our activities in this sector include providing electricity‑related services, such as project design and construction, to our affiliates and unaffiliated parties.

Our Strategy

Our overall objective is to consolidate our leadership position in the Brazilian electricity sector while creating value for our shareholders.  We seek to achieve these goals in all of our sectors (distribution, conventional generation, renewable generation, commercialization and services) by pursuing operational efficiency (through innovation and technology) and growth (through business synergies and new projects).  Our strategies are grounded on financial discipline, social responsibility and enhanced corporate governance.  More specifically, our approach involves the following key business strategies:

Complete the development of our existing renewable generation projects, expand our generation portfolio by developing new conventional and renewable energy generation projects and maintain our position as market leader in renewable energy sources.  At December 31, 2014, our total consolidated Installed Capacity (calculated on the basis of our 51.61% interest in CPFL Renováveis) was 3,162 MW, of which 2,248 MW was conventionally generated and 914 MW was generated through renewable sources.  Through CPFL Renováveis, in August 2011 we became the largest renewable energy generation group in Brazil in terms of Installed Capacity and capacity under construction, according to ANEEL.

 

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Our total Installed Capacity at December 31, 2014 represents a 5.8% increase as compared to Installed Capacity of 2,988 MW at December 31, 2013.  This growth was due to the acquisition of the Rosa dos Ventos Wind Farms, the commercial start‑up of two wind complexes, Atlântica and Macacos, and the acquisition of DESA.

By the end of 2018, when we expect the Mata Velha SHPP and Campo dos Ventos, São Benedito, Morro dos Ventos II and Pedra Cheirosa Wind Complexes to become operational, we expect our Installed Capacity to reach 3,299 MW.

Many of our generation facilities hold long‑term PPAs, approved by ANEEL, which we believe will ensure us an attractive rate of return on our investment.  We also have a consolidated portfolio of 1,944 MW (calculated on the basis of our 51.61% interest in CPFL Renováveis’ total portfolio of 3,767 MW) of renewable generation projects to be developed by CPFL Renováveis in the coming years.  As consumption of electricity in Brazil increases, we believe that there will continue to be new opportunities for us to explore investments in additional conventional and renewable generation projects.

Focus on further improving our operating efficiency.  The distribution of electricity in our distribution concession areas is our largest business segment, representing approximately 95.3% of our consolidated net income in 2014.  We continue to focus on improving the quality of our service and maintaining efficient operating costs by exploiting synergies and technologies.  We also make an effort to standardize and update our operations regularly, introducing automated systems where possible.  In recent years, in order to achieve a new level of operational efficiency, we commenced roll out of the Tauron Program, which consists of two main projects: Smart Metering for Commercial and Industrial consumers (high and medium voltage customers) and Mobile Workforce Management.  This program is already delivering benefits, with 24,554 smart meters deployed in the field and our eight distribution companies operating with a data dispatch system for emergency services, replacing the previous voice-based system. 

Expand and strengthen our commercialization.  Free Consumers make up a significant segment of the electricity market in Brazil, representing approximately 25% of the market.  Through our subsidiary CPFL Brasil, our commercialization subsidiary, we are focusing on signing bilateral contracts with former customers of our distribution companies that became Free Consumers, in addition to attracting additional Free Consumers from concession areas other than those covered by our distribution companies.  In order to achieve this objective, we foster positive relationships with customers by providing dedicated key account managers, CCEE operational support and PPAs customized to each consumer profile.

Position ourselves to take advantage of consolidation in our industry by using our experience in successfully integrating and restructuring other operations.  We believe that with the stabilization of the regulatory environment in the Brazilian power industry, there may be substantial consolidation in the generation, transmission and, particularly, the distribution sectors.  Given our financial strength and managerial expertise, we believe that we are well‑positioned to take advantage of this consolidation.  If promising assets are available on attractive terms, we may make acquisitions that complement our existing operations and afford us and our consumers further opportunities to take advantage of economies of scale.

Maintain a high level of social responsibility in the communities in which we operate.  We aim to hold our business operations to the highest standards of social responsibility and sustainable development.  We also support initiatives to advance the economic, cultural and social interests of the communities in which we operate and contribute effectively to their further development.

Follow enhanced corporate governance standards.  We are dedicated to maintaining the highest levels of management transparency and corporate governance, providing equitable shareholder rights and, through various measures, including the increase of our free float and the liquidity of our shares, seeking value for our shareholders.

 

 

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Our Service Territory

 

 


Distribution

We are one of the largest electricity distributors in Brazil, based on the amount of electricity we delivered in 2014.  Our eight distribution subsidiaries together supply electricity to a region covering 176,521 square kilometers, primarily in the states of São Paulo and Rio Grande do Sul.  Their concession areas include 5611 municipalities and a population of approximately 18 million people.  Together, they provided electricity to approximately 7.6 million consumers as of December 31, 2014.  Our eight subsidiaries distributed approximately 13% of the total electricity distributed in Brazil in 2014, based on data from the Energetic Studies Company (Empresa de Pesquisas Energéticas), or EPE.

Distribution Companies

We have eight distribution subsidiaries:

·        CPFL Paulista.  Companhia Paulista de Força e Luz, or CPFL Paulista, supplies electricity to a concession area covering 90,440 square kilometers in the state of São Paulo with a population of approximately 9.6 million people.  Its concession area covers 234 municipalities, including the cities of Campinas, Bauru, Ribeirão Preto, São José do Rio Preto, Araraquara and Piracicaba.  CPFL Paulista had approximately 4.1 million consumers at December 31, 2014.  In 2014, CPFL Paulista distributed 22,852 GWh of electricity, accounting for approximately 22.8% of the total electricity distributed in the state of São Paulo and 6.6% of the total electricity distributed in Brazil during the year.


1               This total refers to the total number of municipalities situated within our subsidiaries’ concession areas.  In addition, we serve consumers located in municipalities outside of our concession areas in cases where those consumers are not served by the local concessionaire.

 

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·        CPFL Piratininga.  Companhia Piratininga de Força e Luz, or CPFL Piratininga, supplies electricity to a concession area covering 5,618 square kilometers in the southern part of the state of São Paulo with a population of approximately 3.7 million people.  Its concession area covers 27 municipalities, including the cities of Santos, Sorocaba and Jundiaí.  CPFL Piratininga had approximately 1.6 million consumers at December 31, 2014.  In 2014, CPFL Piratininga distributed 9,532 GWh of electricity, accounting for approximately 11.5% of the total electricity distributed in the state of São Paulo and 3.3% of the total electricity distributed in Brazil during the year.

·        RGE.  Rio Grande Energia S.A., or RGE, supplies electricity to a concession area covering 58,940 square kilometers in the state of Rio Grande do Sul with a population of approximately 3.7 million people.  Its concession area covers 255 municipalities, including the cities of Caxias do Sul, Gravataí, Passo Fundo and Bento Gonçalves.  During 2014, RGE won a new tender for two municipalities in the state, Putinga and Anta Gorda.  RGE had approximately 1.4 million consumers at December 31, 2014.  In 2014, RGE supplied 8,287 GWh of electricity, accounting for approximately 33.6% of the total electricity distributed in the state of Rio Grande do Sul and 2.2% of the total electricity distributed in Brazil during the year.

·        CPFL Santa Cruz.  Companhia Luz e Força Santa Cruz, or CPFL Santa Cruz, supplies electricity to a concession area covering 11,870 square kilometers, which includes 27 municipalities in the northwest part of the state of São Paulo and three municipalities in the state of Paraná.  In 2014, CPFL Santa Cruz distributed 1,096 GWh of electricity to approximately 202,000 consumers, accounting for approximately 0.8% of the total electricity distributed in the state of São Paulo and 0.2% of the total electricity distributed in Brazil during the year.

·        CPFL Jaguari.  Companhia Jaguari de Energia, or CPFL Jaguari, supplies electricity to a concession area covering 252 square kilometers, which includes two municipalities of the state of São Paulo.  In 2014, CPFL Jaguari distributed 502 GWh of electricity to approximately 38,000 consumers.

·        CPFL Mococa.  Companhia Luz e Força de Mococa, or CPFL Mococa, supplies electricity to a concession area covering 1,844 square kilometers, which includes one municipality in the state of São Paulo and three municipalities in the state of Minas Gerais.  In 2014, CPFL Mococa distributed 210 GWh of electricity to approximately 45,000 consumers.

·        CPFL Leste Paulista.  Companhia Leste Paulista de Energia, or CPFL Leste Paulista, supplies electricity to a concession area covering 2,589 square kilometers, which includes seven municipalities of the state of São Paulo.  In 2014, CPFL Leste Paulista distributed 295 GWh of electricity to approximately 56,000 consumers.

·        CPFL Sul Paulista.  Companhia Sul Paulista de Energia, or CPFL Sul Paulista, supplies electricity to a concession area covering 3,802 square kilometers, which includes five municipalities of the state of São Paulo.  In 2014, CPFL Sul Paulista distributed 382 GWh of electricity to approximately 81,000 consumers.

Distribution Network

Our eight distribution subsidiaries operate distribution lines with voltage levels ranging from 11.9 kV to 138 kV.  These lines distribute electricity from the connection point with the Basic Network to our power substations, in each of our concession areas.  All consumers that connect to these distribution lines, such as Free Consumers or other concessionaires, are required to pay a tariff for using the system (Tarifa de Uso do Sistema de Distribuição), or TUSD.

 

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Each of our subsidiaries has a distribution network consisting of a widespread network of predominantly overhead lines and substations having successively lower voltage ranges.  Consumers are classified in different voltage levels based on their consumption of, and demand for, electricity.  Large industrial and commercial consumers receive electricity at High Voltage ranges (up to 138 kV) while smaller industrial, commercial and residential consumers receive electricity at lower voltage ranges (2.3 kV and below).

At December 31, 2014, our distribution networks consisted of 240,944 kilometers of distribution lines, including 353,722 distribution transformers.  Our eight distribution subsidiaries had 9,881 km of High Voltage distribution lines between 34.5 kV and 138 kV.  At that date, we had 445 transformer substations for transforming High Voltage into Medium Voltages for subsequent distribution, with total transforming capacity of 14,571 mega‑volt amperes.  Of the industrial and commercial consumers in our concession area, 345 had 69 kV, 88 kV or 138 kV high‑voltage electricity supplied through direct connections to our High Voltage distribution lines.

System Performance

Electricity Losses

We experience two types of electricity losses: technical losses and commercial losses.  Technical losses are those that occur in the ordinary course of our distribution of electricity.  Commercial losses are those that result from illegal connections, fraud or billing errors and similar matters.  Electricity loss rates of our three largest distribution subsidiaries (CPFL Paulista, CPFL Piratininga and RGE) compare favorably to the average for other major Brazilian electricity distributors in 2013 according to the most recent information available from the Brazilian Association of Electric Energy Distributors (Associação Brasileira de Distribuidores de Energia Elétrica), or ABRADEE, an industry association.

We are also actively engaged in efforts to reduce commercial losses from illegal connections, fraud or billing errors.  To achieve this, in each of our eight subsidiaries, we have deployed trained technical teams to conduct inspections, enhanced monitoring for irregular consumption, increased replacements for obsolete measuring equipment and developed a computer program to discover and analyze irregular invoicing.  We conducted 226,042 inspections during 2014, which we believe led to a recovery of receivables estimated at more than R$28 million.

Power Outages

The following table sets forth the frequency and duration of electricity outages per consumer for the years ended December 31, 2014 and 2013 for each of our distribution subsidiaries:

 

Year ended December 31, 2014

 

CPFL Paulista

CPFL Piratininga

RGE

CPFL Santa Cruz

CPFL Jaguari

CPFL Mococa

CPFL Leste Paulista

CPFL Sul Paulista

SAIFI1

4.87

4.20

9.14

5.29

4.31

7.26

6.19

6.91

SAIDI2

6.92

6.98

18.77

6.75

5.36

6.76

8.40

9.55

 

 

(1) Frequency of outages per consumer per year (number of outages).

(2) Duration of outages per consumer per year (in hours).

 

Year ended December 31, 2013

 

CPFL Paulista

CPFL Piratininga

RGE

CPFL Santa Cruz

CPFL Jaguari

CPFL Mococa

CPFL Leste Paulista

CPFL Sul Paulista

SAIFI1

4.73

4.58

9.04

6.82

5.43

4.93

6.33

6.72

SAIDI2

7.14

7.44

17.35

6.97

5.92

4.86

7.58

9.08

 

 

(1) Frequency of outages per consumer per year (number of outages)

(2) Duration of outages per consumer per year (in hours)

We seek to improve the quality and reliability of our power supply, as measured by the frequency and duration of our power outages.  According to data from ABRADEE for 2013, our frequency and duration of interruptions per consumer in the past few years compare favorably to the averages for other Brazilian distribution companies.

 

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Based on data published by ANEEL, the duration and frequency of outages at CPFL Paulista and CPFL Piratininga are among the lowest in Brazil compared to companies of similar size.  The duration of outages at RGE are comparatively higher than those at CPFL Paulista and CPFL Piratininga, but they remain in line with the average rate for power companies in Southern Brazil mainly as a result of the lack of redundancies in its distribution system, the use of medium voltage lines and a lower level of automation in the network.  However, their duration and frequency of outages are below the national average.

ANEEL establishes performance indicators per consumer to be complied with by power companies.  If these indicators are not reached, we are obliged to reimburse our consumers, and our revenues are negatively affected.  In 2013, according to data from ANEEL, the amount we reimbursed our consumers was lower than the average amount reimbursed by power companies of similar size.

Our distribution subsidiaries have construction and maintenance technology that allows for repairs of the electricity network without interruption in electricity service, thereby allowing us to have low rates of scheduled interruption, which amounts to up to approximately 7.8% of total interruptions.  Unscheduled interruptions due to accidents or natural causes, including lightning storms, fire and wind represented the remainder of our total interruptions.  In 2014, we invested approximately R$702 million in our Distribution segment, primarily in: (i) expansion, maintenance, improvement, automation, modernization and reinforcement of the electrical system in order to meet market growth; (ii) operational infrastructure; (iii) customer service; and (iv) research and development programs, among other things.  We expect to invest an additional R$1,168 million for such purposes throughout 2015.

We strive to improve response times for our repair services.  The quality indicators for the provision of energy by CPFL Paulista and CPFL Piratininga have maintained levels of excellence while complying with regulatory standards.  This was also mainly the result of our efficient operational logistics, including the strategic positioning of our teams and the technology and automation of our network and operation centers, together with a preventive maintenance and conservation plan.

Purchases of Electricity

Most of the electricity we sell is purchased from unrelated parties, rather than generated by our facilities.  In 2014, 11.3% of the total electricity our distribution subsidiaries acquired was purchased from our generation subsidiaries (including our joint‑ventures).

In 2014, we purchased 10,417 GWh of electricity from the Itaipu Power Plant, amounting to 17.7% of the total electricity we purchased.  Itaipu is located on the border of Brazil and Paraguay and is subject to a bilateral treaty between the two countries pursuant to which Brazil has committed to purchasing specified amounts of electricity.  This treaty will expire in 2023.  Electric utilities operating under concessions in the midwest, south and southeast regions of Brazil are required by law to purchase a portion of the electricity that Brazil is obligated to purchase from Itaipu.  The amounts that these companies must purchase are governed by take‑or‑pay contracts with tariffs established in US$/kW.  ANEEL determines annually the amount of electricity to be sold by Itaipu.  We pay for energy purchased from Itaipu in accordance with the ratio between the volume established by ANEEL and our statutorily established share, regardless of whether Itaipu generates such amount of electricity, at a price of US$26.05/Kw.  Our purchases represent approximately 17% of Itaipu’s total supply to Brazil.  This share was fixed by law according to the amount of electricity sold in 1991.  The rates at which companies are required to purchase Itaipu’s electricity are established pursuant to the bilateral treaty and fixed to cover Itaipu’s operating expenses, payments of principal and interest on its U.S. dollar‑denominated debts and the cost of transmitting the power to their concession areas.

The Itaipu Power Plant has an exclusive transmission network.  Distribution companies pay a fee for the use of this network.

In 2014, we paid an average of R$132.82 per MWh for purchases of electricity from Itaipu, compared with R$121.11 during 2013 and R$104.98 during 2012.  These figures do not include the transmission fee.

We purchased 48,463 GWh of electricity in 2014 from generating companies other than Itaipu, representing 82.3% of the total electricity we purchased.  We paid an average of R$201.79 per MWh for purchases of electricity from generating companies other than Itaipu, compared with R$147.30 per MWh in 2013 and R$121.11 per MWh in 2012.  For more information on the Regulated Market and the Free Market, see “—The New Industry Model Law— The Regulated Market” and “—The New Industry Model Law— The Free Market”.

 

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The following table shows amounts purchased from our suppliers in the Regulated Market and in the Free Market, for the periods indicated.

 

Year Ended December 31,

 

2014

2013

2012

 

(in GWh)

Energy purchased for resale

 

Itaipu

10,417

10,719

10,781

Electric Energy Trading Chamber - CCEE

5,074

2,974

2,662

Proinfa Program

1,043

1,019

1,070

Energy purchased in the Regulated Market and through bilateral contracts

42,345

42,980

48,085

TOTAL

58,879

57,692

62,597

 

The provisions of our electricity supply contracts are governed by ANEEL regulations.  The main provisions of each contract relate to the amount of electricity purchased, the price, including adjustments for various factors such as inflation indexes, and the duration of the contract.

Beginning in 2013, all distribution companies in Brazil are required to purchase electricity from generation companies whose concessions were renewed in accordance with Law 12,783/13.  The tariffs and volumes of electricity to be purchased by each distribution company, as well as the provisions of the applicable agreements between the generation and distribution companies, were set by ANEEL in the law.  See “Item 3.  Key Information—Risk Factors—Our operating results depend on prevailing hydrological conditions.  Poor hydrological conditions may require a higher dispatch of thermoelectric generation in the Brazilian electric system, which may affect our results of operations”.

Transmission Tariffs.  In 2014, we paid a total of R$485 million in tariffs for the use of the transmission network, including Basic Network tariffs, connection tariffs and transmission of high‑voltage electricity from Itaipu at rates set by ANEEL.

Consumers and Tariffs

Consumers

We classify our consumers into five principal categories.  See note 27 to our audited annual consolidated financial statements for a breakdown of our sales by category.

·        Industrial consumers.  Sales to final industrial consumers accounted for 24.7% of revenues from electricity sales in our Distribution segment in 2014.

·        Residential consumers.  Sales to final residential consumers accounted for 41.8% of our revenues from electricity sales in our Distribution segment in 2014.

·        Commercial consumers.  Sales to final commercial consumers, which include service businesses, universities and hospitals, accounted for 22.2% of our revenues from electricity sales in our Distribution segment in 2014.

·        Rural consumers.  Sales to final rural consumers accounted for 3.2% of our revenues from electricity sales in our Distribution segment in 2014.

·        Other consumers.  Sales to other consumers, which include public and municipal services such as street lighting, accounted for 8.1% of our revenue of electricity sales in our Distribution segment in 2014.

 

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Retail Distribution Tariffs.  We classify our consumers into two different groups, Group A consumers and Group B consumers, based on the voltage level at which electricity is supplied to them.  Each consumer is placed in a certain tariff level defined by law and based on its respective classification.  Some discounts are available depending on the consumer classification, tariff level or environment for trading (Free Consumers and generators).  Group B consumers pay higher tariffs.  Tariffs in Group B vary by type of consumer (residential, rural, other categories and public lighting).  Consumers in Group A pay lower tariffs, decreasing from A4 to Al, because they are supplied electricity at higher voltages, which requires lower use of the energy distribution system.  The tariffs we charge for sales of electricity to Final Consumers are determined pursuant to our concession agreements and regulations ratified by ANEEL.  These concession agreements and related regulations establish a cap on tariffs that provides for annual, periodic and extraordinary adjustments.  For a discussion of the regulatory regime applicable to our tariffs and their adjustment, see “—The Brazilian Power Industry”.

Group A consumers receive electricity at 2.3 kV or higher.  Tariffs for Group A consumers are based on the voltage level at which electricity is supplied, and the time of day electricity is supplied.  The consumers may opt for a different tariff applicable in peak periods in order to optimize the use of the electric network.  Tariffs for Group A consumers consist of two components: the TUSD and the tariff for energy consumption, or TE.  The TUSD, expressed in reais per kW, is based on: (i) the electricity demand contracted by the party connected to the system; (ii) certain regulatory charges; and (iii) technical and non‑technical losses of energy on the distribution system.  The TE, expressed in reais per MWh, is based on the amount of electricity actually consumed.  These consumers may opt to purchase electricity in the Free Market under the New Industry Model Law.  See  “—The New Industry Model Law”.

Group B consumers receive electricity at less than 2.3 kV (220V and 127V).  Tariffs for Group B consumers are charged for the tariff for using the distribution system and also for energy consumption.  Both are charged in R$/MWh.

The following tables set forth our average retail prices for each consumer category for 2014 and 2013.  These prices include taxes (ICMS, PIS and COFINS) and were calculated based on our revenues and the volume of electricity sold in 2014 and 2013.

 

 

Year ended December 31, 2014

 

CPFL Paulista

CPFL Piratininga

RGE

CPFL Santa Cruz

CPFL Leste Paulista

CPFL Sul Paulista

CPFL Jaguari

CPFL Mococa

(R$/MWh)

Residential

394.06

378.82

431.13

415.97

374.54

381.50

309.37

437.22

Industrial

364.14

330.51

327.26

384.69

302.95

286.98

237.19

302.98

Commercial

366.82

352.67

419.95

421.79

344.86

356.49

284.17

388.85

Rural

203.82

232.05

220.55

249.83

213.03

225.60

184.13

233.33

Other

280.68

254.17

186.10

225.00

255.96

257.10

208.68

270.16

Total

357.14

347.00

331.10

346.49

301.75

322.53

252.07

346.54

 

Year ended December 31, 2013

CPFL Paulista

CPFL Piratininga

RGE

CPFL Santa Cruz

CPFL Leste Paulista

CPFL Sul Paulista

CPFL Jaguari

CPFL Mococa

(R$/MWh)

Residential

362.57

351.98

430.59

345.40

391.18

389.56

286.82

478.59

Industrial

311.98

304.74

301.21

320.33

328.00

304.86

241.09

347.11

Commercial

320.44

328.12

416.85

358.88

368.54

365.49

267.43

428.69

Rural

180.39

210.91

221.40

207.09

225.19

228.55

174.64

248.85

Other

241.97

237.18

183.19

169.24

324.87

269.18

216.20

295.39

Total

317.96

321.24

323.81

286.17

329.32

332.46

248.96

382.16

 

 

Under current regulations, residential consumers may be eligible to pay a reduced tariff (Tarifa Social de Energia Elétrica), or the TSEE.  Families eligible to benefit from the TSEE are (i) those registered with the Brazilian government’s Single Registry of Social Programs (Cadastro Único para Programas Sociais do Governo Federal) with monthly per capita income at or below half the national minimum wage and (ii) those who receive the Continued Social Assistance Provision Benefits (Benefício da Prestação Continuada da Assistência Social).  Discounts range from 10% to 65% on energy consumption per month.  In addition, these residential consumers are not required to pay the Proinfa Program charge or any extraordinary tariff approved by ANEEL.  Indigenous peoples and residents of traditional rural communities (quilombos) receive free electricity up to maximum consumption of 50 kWh.

 

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TUSD.  The TUSD tariffs are set by ANEEL and consist of the three tariffs described under “Item 4.  Information on the CompanySystem TariffsTUSD”.  In 2014, tariff revenues for the use of our network by Free Consumers amounted to R$991 million.  The average tariff for the use of our network was R$58.97/MWh and R$55.78/MWh in 2014 and 2013, respectively, including the TUSD we charge to other distributors connected to our Distribution Networks.

Billing Procedures

The procedure we use for billing and payment for electricity supplied to our consumers is determined by consumer and tariff categories.  Meter readings and invoicing take place on a monthly basis for Low Voltage consumers, with the exception of rural consumers, whose meters are read in intervals varying from one to two months, as authorized by relevant regulation.  Bills are issued from meter readings or, if meter readings are not possible, from the average of monthly consumption.  Low voltage consumers are billed within a maximum of three business days after the meter reading, with payment required within a minimum of five business days after the invoice presentation date.  In case of nonpayment, we send the consumer a notice of nonpayment with the following month’s invoice and we allow the consumer up to 15 days to settle the amount owed to us.  If payment is not received within three business days after that 15‑day period, the consumer’s electricity supply may be suspended.  We may also take other measures, such as inclusion of the consumer in the list of debtors of credit reporting agencies, or extrajudicial or judicial collection through collection agencies.

High voltage consumers are read and billed on a monthly basis with payment required within five business days after the receipt of an invoice.  In the event of nonpayment, we send the consumer a notice up to two business days, after the due date, giving a deadline of 15 days to make payment.  If payment is not made within three business days after that 15‑day period, the consumer’s service is discontinued.

According to data from ABRADEE for 2013, the percentage of customers in default for our three largest distribution subsidiaries compare favorably to the average for other major Brazilian electricity distributors.  For this purpose, consumers in default are consumers whose bills are up to 90 days overdue.  Bills due and outstanding for over 360 days are deemed unrecoverable.

Customer Service

We strive to provide high‑quality customer service to our distribution consumers.  We provide customer service 24 hours a day, 7 days a week.  The requests are received using a variety of platforms such as call centers, our website, SMS and our smartphone application.  In 2014, we responded to approximately 29.6 million inquiries.  We also provide customer service through our branch offices, which handled approximately 5.2 million customer requests in 2014.  The growth in electronic requests has allowed us to reduce our customer service costs and provide customer service through our call center to a larger number of customers without access to the Internet.  Following receipt of a customer service request, we dispatch our technicians to make any necessary repairs.

Generation of Electricity

We are actively expanding our generating capacity.  In accordance with Brazilian regulation, revenues from generation are based mainly on Assured Energy of each facility, rather than its Installed Capacity or actual output.  Assured Energy is a fixed output of electricity established by the Brazilian government in the relevant concession agreement.  For certain companies, actual output is determined periodically by the ONS in view of demand and hydrological conditions.  Provided that a generation facility has sold its electricity and participates in the MRE, it will receive at least the revenue amount that corresponds to the Assured Energy, even if it does not actually generate all the energy.  Conversely, if a generation facility’s output exceeds its Assured Energy, its incremental revenue is equal only to the costs associated therewith.

 

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Most of our Hydroelectric Power Plants are members of the MRE, a system by which hydroelectric generation facilities share the hydrological risks of the Interconnected Power System.  Our total Installed Capacity in our Conventional Generation and Renewable Generation segments was 3,162 MW as of December 31, 2014.  Most of the electricity we produce comes from our Hydroelectric Power Plants.  We generated a total of 13,658 GWh in 2014, 11,427 GWh in 2013 and 10,570 GWh in 2012, in each case after accounting for the decrease in our participation in CPFL Renováveis as a result of its initial public offering in 2013 and the agreement with Arrow in 2014 (see “– Overview”).

Conventional Generation

Hydroelectric Power Plants

At December 31, 2014, our subsidiary CPFL Geração owned a 51.54% interest in the Assured Energy from the Serra da Mesa Power Plant.  Through its generation subsidiaries CERAN, BAESA, ENERCAN and Chapecoense, CPFL Geração also owned interests in the Monte Claro, Barra Grande, Campos Novos, Castro Alves, 14 de Julho and Foz do Chapecó Power Plants, which have been operational since December 2004, November 2005, February 2007, March 2008, December 2008 and October 2010, respectively.  Through CPFL Jaguari Geração, we owned a 6.93% interest in the Assured Energy from the Luis Eduardo Magalhães Power Plant.

All Installed Capacity and Assured Energy numbers stated in the discussion below refer to the full capacity of the plant in question rather than our consolidated share of such energy, which reflects our interest in the plant.

Serra da Mesa.  Our largest Hydroelectric Facility in operation is the Serra da Mesa facility, which we acquired in 2001 from ESC (formerly VBC), one of our controlling shareholders.  Furnas began construction of the Serra da Mesa facility in 1985.  In 1994, construction was suspended due to a lack of resources, which led to a public bidding procedure in order to resume construction.  Serra da Mesa currently consists of three Hydroelectric Facilities located on the Tocantins River in the state of Goiás.  The Serra da Mesa facility began operations in 1998 and has a total Installed Capacity of 1,275 MW.  The concession for the Serra da Mesa facility is owned by Furnas, which is also the operator, and we own part of the facility.  Under Furnas’ rental agreement with us, which has a 30‑year term commencing in 1998, we have the right to 51.54% of the Assured Energy of the Serra da Mesa facility until 2028 even if, during the term of the concession, there is an expropriation or forfeiture of the concession or the term of the concession expires.  We sell all of such electricity to Furnas under an electricity purchase contract that was renewed in March 2014 at a price that is adjusted annually based on the IGP‑M.  This contract expires in 2028.  Our share of the Installed Capacity and Assured Energy of the Serra da Mesa facility is 657 MW and 3,030 GWh/year, respectively.  On May 30, 2014, the concession held by Furnas was formally extended to November 12, 2039.  

CERAN Complex.  We own a 65.0% interest in CERAN, a subsidiary that was granted a 35‑year concession in March 2001 to construct, finance and operate the CERAN hydroelectric complex.  The other shareholders are CEEE (with 30.0%) and Desenvix (with 5.0%).  The CERAN hydroelectric complex consists of three Hydroelectric Power Plants: Monte Claro, Castro Alves and 14 de Julho.  The Complex is located on the Antas River approximately 120 km north of Porto Alegre, near the city of Bento Gonçalves, in the state of Rio Grande do Sul.  The entire CERAN Complex has an Installed Capacity of 360 MW and estimated Assured Energy of 1,515.4 GWh per year, of which our share is 985 GWh/year.  We sell our participation in the Assured Energy of this Complex to affiliates in our group.  These facilities are operated by CERAN, under CPFL Geração’s supervision.

·        Monte Claro (CERAN Complex).  Monte Claro’s first generating unit, which became operational in 2004, has Installed Capacity of 65 MW and the second generating unit, which became operational in 2006, also has an Installed Capacity of 65 MW, giving total Installed Capacity of 130 MW and Assured Energy of 516.8 GWh per year. 

·        Castro Alves (CERAN Complex).  In March 2008, the first generation unit of the Castro Alves Power Plant became operational, with total Installed Capacity of 43.4 MW.  In April 2008, the second generation unit became operational, with Installed Capacity of 43.4 MW.  In June 2008, this plant became fully operational (when the third generation unit started operations), giving total Installed Capacity of 130 MW and annual Assured Energy of 560.6 GWh per year.

 

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·        14 de Julho (CERAN Complex).  The first generation unit of the 14 de Julho Power Plant became operational in December 2008, and the second generation unit became fully operational in March 2009.  This plant has a total Installed Capacity of 100 MW and an annual Assured Energy of 438.0 GWh. 

We are currently engaged in refurbishment of the CERAN complex.  We are installing equipment to assure the free flow of water in the three hydroelectric plants, which will therefore increase their availability.  In 2013, we completed refurbishment of the Monte Claro Hydroelectric Power Plant, and we are currently monitoring that equipment to determine its efficiency.  Subject to the results of this monitoring, we intend to agree to a schedule of the remaining improvements with ANEEL and expect to complete the improvements in all CERAN facilities by the end of 2016.  In addition, discussions with ANEEL and other entities in the transmission sector are ongoing regarding the conditions under which we will transfer the Monte Claro Substation to the Basic Network, which would eliminate maintenance costs and our responsibility for operation of the Substation.

Barra Grande.  This facility became fully operational in May 2006 with a total Installed Capacity of 690 MW and total Assured Energy of 3,334.1 GWh per year.  CPFL Geração owns a 25.01% interest in this plant.  The other shareholders of the joint venture are Alcoa (42.18%), CBA (Companhia Brasileira de Alumínio) (15.0%), DME (Departamento Municipal de Eletricidade de Poços de Caldas) (8.82%), and Camargo Corrêa Cimentos S.A. (9.0%).  We sell our participation in the Assured Energy of this facility to affiliates in our group.

Campos Novos.  We own a 48.72% interest in ENERCAN, a joint venture formed by a consortium of private and public sector companies that was granted a 35‑year concession in May 2000 to construct, finance and operate the Campos Novos Hydroelectric Facility.  The plant was constructed on the Canoas River in the state of Santa Catarina, and became fully operational in May 2007 with a total Installed Capacity of 880 MW and Assured Energy of 3,310.4 GWh per year, of which our interest is 1,612.9 GWh per year.  The other shareholders of ENERCAN are CBA (33.14%), Votorantim Metais Níqueis S.A. (11.6%) and CEEE (6.51%).  The plant is operated by ENERCAN under CPFL Geração’s supervision.  We sell our participation in the Assured Energy of this joint venture to affiliates in our group.

Foz do Chapecó.  We own a 51.0% interest in Chapecoense, a joint venture formed by a consortium of private and public sector companies that was granted a 35‑year concession in November 2001 to construct, finance and operate the Foz do Chapecó Hydroelectric Power Plant.  The remaining 49.0% interest in the joint venture is divided among Furnas, which holds a 40.0% interest, and CEEE, which holds a 9.0% interest.  The Foz do Chapecó Hydroelectric Power Plant is located on the Uruguay River, on the border between the states of Santa Catarina and Rio Grande do Sul.  The Foz do Chapecó Power Plant became fully operational in March 2011 with 855 MW of total Installed Capacity and Assured Energy of 3,784.3 GWh per year.  Of our 51.0% share in the Assured Energy of this project, we sell 40.0% to affiliates in our group and 11.0% through Agreements on Energy Commercialization in the Regulated Market (Contratos de Comercialização de Energia no Ambiente Regulado), or CCEARs.  In January 2013, at the request of ANEEL, we began the process of transferring the Foz do Chapecó Substation and exclusive transmission lines to the Basic Network, thereby eliminating maintenance costs, responsibility for operation of these assets and reducing the transmission line energy loss factor (regulatory loss).

Luis Eduardo Magalhães.  We own a 6.93% interest in the Assured Energy from the Luis Eduardo Magalhães Power Plant, also known as UHE Lajeado.  The plant is located on the Tocantins River in the state of Tocantins and became fully operational in November 2002 with a total Installed Capacity of 902.5 MW and Assured Energy of 4,613 GWh per year.  The plant was built by Investco S.A., a consortium comprised of Lajeado Energia, EDP (Energias de Portugal), CEB (Companhia Energética de Brasília) and Paulista Lajeado (which we acquired in 2007).

Thermoelectric Power Plants

We operate three Thermoelectric Power Plants.  Termonordeste, which commenced operations in December 2010, and Termoparaíba, which commenced operations in January 2011 under ANEEL authorizations, are powered by fuel oil from the EPASA complex, with total Installed Capacity of 341.6 MW and total Assured Energy of 2,169.0 GWh.  On December 31, 2014, we owned an aggregate 57.13% interest in Termonordeste and Termoparaíba, which was diluted to 53.34% as of March 2015.  See note 38.4 to our audited annual consolidated financial statements.  The Termonordeste and Termoparaíba Thermoelectric Power Plants are located in the city of João Pessoa, in the state of Paraíba.  The electricity from these power plants was sold in CCEARs, and part of this energy was purchased by our own distributors.

 

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The Carioba facility has an Installed Capacity of 36 MW; however, it has been officially deactivated since October 19, 2011, as provided for in Order No. 4,101 of 2011.  We have applied to terminate the Carioba concession since ANEEL reduced the subsidy associated with the Fuel Usage Quota Account (Conta de Consumo de Combustível), or the CCC Account.  ANEEL has recommended that the MME terminate Carioba’s concession.  The MME is currently analyzing the request.

Small Hydroelectric Power Plants

At December 31, 2014, 10 of our 49 Small Hydroelectric Power Plants were under the management of two of our conventional generation subsidiaries, CPFL Geração and CPFL Centrais Geradoras. These 10 Small Hydroelectric Power Plants reported their results within the Conventional Generation segment.  They consist of two groups of facilities:

·        Nine of these facilities were originally managed together with their associated distribution companies within our Distribution segment.  Law No. 12,783/13 of January 11, 2013 specified the conditions for the renewal of generation, transmission and distribution concessions obtained under articles 17, 19 or 22 of Law No. 9,074 of July 7, 1995.  Under Law No. 12,783/13, these concessions may be extended once, at the discretion of the Brazilian government, for up to 30 years, in order to ensure the continuity and efficiency of the services rendered and of low tariffs.  In addition, Law No. 12,783/13 provided that holders of concessions that were due to expire in 2015, 2016 and 2017 could apply for early renewal in 2013, subject to certain conditions.  However, Resolution No. 521/12 published by ANEEL on December 14, 2012 established that the generation concessions to be renewed under Law No. 12,783/13 must be partitioned into separate operating entities in cases where the Installed Capacity of the original concessionaire entity exceeded 1 MW.  On October 10, 2012, in anticipation of Law 12,783/13, we applied for early renewal of the concessions held by our distribution subsidiaries CPFL Santa Cruz, CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista and CPFL Sul Paulista, which were originally granted in 1999 for a 16‑year term.  Pursuant to the partition requirement under Resolution No. 521/12, we were required to separate the generation and distribution activities of three of the plants, Rio do Peixe I and II and Macaco Branco, whose generation facilities were transferred to CPFL Centrais Geradoras on August 29, 2013.  At that time, our Management decided for operational reasons to partition the generation and distribution activities of the remaining six facilities held by the five distribution subsidiaries (Santa Alice, Lavrinha, São José, Turvinho, Pinheirinho and São Sebastião), the generation facilities of which were also transferred to CPFL Centrais Geradoras.

·        During 2014, the concessions for the Salto do Pinhal and Ponte do Silva facilities were terminated under Authorizing Resolution No. 4,559/2014, which determined that concessions for inactive Micro Hydroelectric Power Plants would be extinguished without reversion of the respective assets to the government.

·        The remaining facility, Cariobinha, has been held by CPFL Geração since the signing of the concession contract.

On December 4, 2012, the concessions of the Rio do Peixe I and II and Macaco Branco Small Hydroelectric Power Plants were renewed for 30 years under Law No. 12,783/13.  The renewals of these concessions were subject to the following conditions:

(i)            The energy generated must be sold to all distribution companies in Brazil according to quotas defined by ANEEL (previously, energy was sold only to the related distribution subsidiary);

(ii)           The concessionaire’s annual revenue is set by ANEEL, subject to tariff reviews (previously, the energy prices were defined contractually and adjusted according to the IPCA); and

(iii)          The assets that remained unamortized at the renewal date would be indemnified, and the indemnification payment would not be considered as annual revenue.  The remuneration relating to new assets or existing assets that were not indemnified would be considered as annual revenue.  Rio do Peixe I and II received a total of R$34.4 million in indemnification payments.  The assets of Macaco Branco had been fully amortized, and therefore generated no indemnification payment.

 

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The following table sets forth certain information relating to our principal conventional generation facilities in operation and the Small Hydroelectric Power Plants that reported their results within the Conventional Generation segment as of December 31, 2014:

 

Holding company

Partic.

Capacity (MW)

Assured Energy (GWh)

Placed in service

Concession expires

 

 

 

Our share

TOTAL

Our share

TOTAL

 

 

Hydroelectric plants:

 

 

 

 

 

 

 

 

Serra da Mesa

CPFL Geração

51.54%

657.1

1,275.0

3,029.5

5,878.0

1998

2028(1)

Monte Claro.

CPFL Geração

65%

84.5

130.0

335.9

516.8

2004

2036

Barra Grande

CPFL Geração

25.01%

172.6

690.0

833.9

3,334.1

2005

2036

Campos Novos

CPFL Geração

48.72%

428.7

880.0

1,612.8

3,310.4

2007

2035

Castro Alves

CPFL Geração

65%

84.5

130.0

364.4

560.6

2008

2036

14 de Julho

CPFL Geração

65%

65.0

100.0

284.7

438.0

2008

2036

Luis Eduardo Magalhães

CPFL Jaguari de Geração

6.93%

62.5

902.5

319.7

4,613.0

2001

2032

Foz do Chapecó

Chapecoense

51%

436.1

855.0

1,930.0

3,784.3

2010

2036

SUBTOTAL ‑ Hydroelectric plants

 

 

1,991.0

 

8,710.9

 

 

 

 

 

 

 

 

 

 

 

 

Thermoelectric plants:

 

 

 

 

 

 

 

 

Carioba

CPFL Geração

100%

36.0

36.0

93.7

93.7

1954

2027(2)

EPASA facilities:

 

 

 

 

 

 

 

 

Termonordeste

CPFL Geração

57.13%(5)

97.6

170.8

619.6

1,084.5

2010

2042

Termoparaíba

CPFL Geração

57.13%(5)

97.6

170.8

619.6

1,084.5

2011

2042

SUBTOTAL ‑ Thermoelectric plants

 

 

231.2

 

1,332.9

 

 

 

 

 

 

 

 

 

 

 

 

Small Hydroelectric Plants

 

 

 

 

 

 

 

 

Cariobinha

CPFL Geração

100%

1.3

1.3

-

N/A

2027(2)

Lavrinha

CPFL Centrais Geradoras

100%

0.3

0.3

(4)

(4)

N/A

(3)

Macaco Branco

CPFL Centrais Geradoras

100%

2.4

2.4

14.5

(4)

N/A

2042

Pinheirinho

CPFL Centrais Geradoras

100%

0.6

0.6

(4)

(4)

N/A

(3)

Rio do Peixe I

CPFL Centrais Geradoras

100%

3.1

3.1

N/A

N/A

2042

Rio do Peixe II

CPFL Centrais Geradoras

100%

15.0

15.0

46.9

N/A

N/A

2042

Santa Alice

CPFL Centrais Geradoras

100%

0.6

0.6

(4)

(4)

N/A

(3)

São José

CPFL Centrais Geradoras

100%

0.8

0.8

(4)

(4)

N/A

(3)

São Sebastião

CPFL Centrais Geradoras

100%

0.7

0.7

(4)

(4)

N/A

(3)

Turvinho

CPFL Centrais Geradoras

100%

0.8

0.8

(4)

(4)

N/A

(3)

SUBTOTAL – Small Hydroelectric Plants

 

 

25.6

 

61.4

 

 

 

TOTAL – Conventional Generation

 

 

2,248

 

10,105.2

 

 

 

 

 

(1) The concession for Serra da Mesa is held by Furnas.  We have a contractual right to 51.54% of the Assured Energy of this facility, under a 30‑year rental agreement.

(2) Inactive power plant.

(3) Hydroelectric projects with an Installed Capacity equal to or less than 1,000 kW that are registered with the regulatory authority and the administrator of power concessions but do not require concession or authorization processes for operating.

(4) Power plants that currently do not have Assured Energy approved by the MME.  We have recently requested ANEEL and the MME approve the parameters of reference used to calculate the Assured Energy for these power plants. However, until the approval of Assured Energy at these plants is published, energy produced by these plants will be sold in the spot market.

(5) After a capital increase on January 31, 2014, the holdings of certain shareholders of the joint venture EPASA were diluted. As per the actual Shareholders Agreement, these shareholders were entitled to repurchase shares in order to reconstitute their holdings, and accordingly, on March 1, 2015, CPFL Geração holds 53.34% of EPASA. See note 38.4 of our audited annual consolidated financial statements.

 

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Renewable Generation

At December 31, 2014, through our subsidiary CPFL Geração, we owned a 51.61% interest in CPFL Renováveis, a company resulting from an association with another Brazilian renewable energy producer, Energias Renováveis S.A., or ERSA, which holds our subsidiaries engaged in the generation of electricity from renewable sources.  Through CPFL Renováveis, in August 2011, we became the largest renewable energy generation group in Brazil in terms of Installed Capacity and capacity under construction, according to ANEEL.  We have fully consolidated CPFL Renováveis in our financial statements since August 1, 2011.  CPFL Renováveis carried out its initial public offering in July 2013, resulting in a decrease in our shareholding from 63% to 58.84%. On October 1, 2014, CPFL Renováveis acquired 100% of the shares of DESA through an issuance of shares of CPFL Renováveis, resulting in a decrease in our shareholding of CPFL Renováveis from 58.84% to 51.61%.

CPFL Renováveis invests in independent renewable energy production sources with low environmental and social impact, such as Small Hydroelectric Power Plants, wind farms, biomass‑fueled thermoelectric plants and photovoltaic solar plants, focusing exclusively on the Brazilian market.  CPFL Renováveis has extensive experience in the development, acquisition, construction and operation of electricity-generating plants using renewable energy sources.  CPFL Renováveis operates in the four main segments of the renewable energy generation industry in Brazil: Small Hydroelectric Power Plants, wind farms, biomass‑fueled thermoelectric plants and photovoltaic solar plants.  CPFL Renováveis operates in eight Brazilian states and its business contributes to the local and regional economic and social development.

At the date of this Annual Report, CPFL Renováveis consists of the generation entities described below.  All Installed Capacity and Assured Energy numbers stated in the discussion below refer to the full capacity of the plant in question rather than our consolidated share of such energy, which only reflects our interest in the plant.   

·        28 subsidiaries involved in the generation of electric energy through 39 Small Hydroelectric Power Plants, consisting of (i) 38 SHPPs that are operational, with aggregate Installed Capacity of 399 MW, located in the states of São Paulo, Santa Catarina, Rio Grande do Sul, Paraná, Minas Gerais and Mato Grosso, and (ii) the Mata Velha SHPP, with 24 MW of Installed Capacity (from DESA), located in the state of Minas Gerais, which is under construction and scheduled to commence operations in 2016.

·        45 subsidiaries involved in the generation of electric energy from wind sources.  Of this total, 33 farms, located in the states of Ceará, Rio Grande do Norte and Rio Grande do Sul, are operational and have aggregate Installed Capacity of 999 MW (or aggregate capacity of 1,003 MW based on the total industrial capacity of CPFL Renováveis’ assets).  The remaining 12 farms are under construction, scheduled to commence operations between 2016 and 2018, and are expected to have aggregate Installed Capacity of approximately 312 MW.

·        Eight subsidiaries involved in the generation of electric energy from biomass, all of which are operational, with total Installed Capacity of 370 MW, located in the states of Minas Gerais, Paraná, São Paulo and Rio Grande do Norte.  On August 27, 2010, CPFL Bioenergia’s Baldin Plant, our first sugarcane bagasse‑powered plant started operations, with 45 MW of total Installed Capacity.  CPFL Bio Formosa began operations on September 2, 2011, with total Installed Capacity of 40 MW.  CPFL Bio Buriti began operations on October 7, 2011 with total Installed Capacity of 50 MW.  Bio Ipê began operations on May 17, 2012 with total Installed Capacity of 25 MW.  Bio Pedra began operations on May 31, 2012 with total Installed Capacity of 70 MW.  On October 18, 2012, we completed the acquisition of the Ester Thermoelectric Power Plant, which has total Installed Capacity of 40 MW.  CPFL Coopcana and CPFL Alvorada, each with 50 MW of total Installed Capacity, began operations on August 28, 2013 and November 11, 2013, respectively.

 

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·        One subsidiary involved in the generation of electric energy from a solar power plant, Tanquinho, which is located in the state of São Paulo and has total Installed Capacity of 1.1 MWp.  Tanquinho started operations on November 27, 2012 and is expected to generate approximately 1.6 GWh/year.

Existing Installed Capacity

The following describes our existing and operational renewable generation plants:

Small Hydroelectric Power Plants

Small Hydroelectric Power Plants are plants with generation capacity between 1 MW and 30 MW and a reservoir area of up to three square kilometers.  A typical Small Hydroelectric Power Plant operates under a “run-of-river” system and as a result, it may experience idleness when the available water flow is less than the turbine inflow capacity.  If flows are greater than the equipment’s capacity, water flows through a spillway.  Small Hydroelectric Power Plants are allowed to participate in the MRE, and in this case, the amount of energy sold by the power plant depends solely on its certificate of guarantee and not on its individual energy production. 

CPFL Renováveis operates 39 of our 49 (48 operational and 1 under construction) Small Hydroelectric Power Plants primarily under the concession and registration regime, all located in the state of São Paulo, Minas Gerais, Mato Grosso, Paraná, Santa Catarina and Rio Grande do Sul.

There have been several revisions, mainly consisting of reductions, to CPFL Renováveis’ Assured Energy, on account of reductions in the expected operational performance.

The automation of these power plants allows us to carry out control, supervision and operations remotely.  Since CPFL Energia acquired CPFL Renováveis’ renewable business, we have established an operational center for the management and monitoring of our power plants in Jundiai, São Paulo. Regarding the remote control, supervison and operation of the wind energy assets, we have also established a remote control center in Fortaleza , Ceará.

Biomass Thermoelectric Power Plants

Biomass‑fueled thermoelectric plants are generators that use the combustion of organic matter for the production of energy.  This organic matter may include products such as sugarcane bagasse, vegetable coal, biogas, black liquor, rice husk and wood chips.  Energy fueled by biomass is renewable and creates less pollution than other energy forms, such as those obtained from the use of fossil fuels (petroleum and coal), create.  The construction period of biomass‑fueled thermoelectric plants is shorter than that of Small Hydroelectric Power Plants (from one to two years, on average).  The necessary investment per installed MW for the construction of a biomass‑fueled thermoelectric plant is proportionally lower than the investment for construction of a Small Hydroelectric Power Plant.  On the other hand, the operation of a biomass‑fueled thermoelectric plant is generally more complex, as it involves the acquisition, logistics and construction of organic matter used for power generation.  For this reason, the operational costs of biomass‑fueled thermoelectric plants tend to be higher than the operational costs of Small Hydroelectric Power Plants.

Despite being more complex, biomass‑fueled thermoelectric plants benefit from: (i) expedited environmental licensing; (ii) abundant fuel in Brazil, which may come from sub‑products of other activities (e.g. wood chips); and (iii) proximity to consumers, reducing transmission costs.  Fuel acquisition and logistics costs are significantly lower for biomass‑fueled thermoelectric plants compared to Thermoelectric Power Plants from non‑renewable sources.  Additionally, even though they are eligible for the Clean Development Mechanism established by the Kyoto Protocol (Mecanismo de Desenvolvimento Limpo), or MDL, and have the potential to generate carbon credits, biomass-fueled thermoelectric plants installed in Brazil have encountered difficulties in obtaining approval for projects due to the methodology of the approval process.

We currently have eight biomass‑fueled thermoelectric plants under the authorization regime, located in the states of São Paulo, Minas Gerais, Rio Grande do Norte and Paraná.

CPFL Bioenergia.  In partnership with Baldin Bioenergia, we have constructed a co‑generation plant in the city of Pirassununga, in the state of São Paulo, that became operational in August 2010.  This co‑generation plant has total Installed Capacity of 45.0 MW.  The plant has an Assured Energy of 112.1 GWh and all of its electricity is sold to CPFL Brasil.

 

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CPFL Bio Formosa.  In 2009, CPFL Brasil established the Baia Formosa power plant (CPFL Bio Formosa), located in the city of Baía Formosa, in the state of Rio Grande do Norte, with total Installed Capacity of 40 MW.  The CPFL Bio Formosa plant began operations in September 2011.   Approximately 11 MW of energy were sold in the A-5 auction (see “— The New Industry Model Law —Auctions on the Regulated Market”), with CCEARs in force until 2025.

CPFL Bio Buriti.  In March 2010, CPFL Bio Buriti, which was formed to develop electric energy generation projects using sugarcane bagasse, executed a partnership agreement with Grupo Pedra Agroindustrial to develop new biomass generation projects.  The CPFL Bio Buriti plant, located in the city of Buritizal, in the state of São Paulo, began its operations in October 2011.  The total Installed Capacity of this plant is 50 MW.  CPFL Bio Buriti has an associated PPA of 184.1 GWh in force until 2030 with CPFL Brasil.

CPFL Bio Ipê.  In March 2010, CPFL Bio Ipê, which was formed to develop electric energy generation projects using sugarcane bagasse, executed a partnership agreement with Grupo Pedra Agroindustrial to develop new biomass generation projects.  The CPFL Bio Ipê plant, located in Nova Independência, in the state of São Paulo, began its operations in May 2012.  The total Installed Capacity of this plant is 25 MW.  This project has an associated PPA of 71.7 GWh in force until 2030 and the energy has been entirely sold to CPFL Brasil.

CPFL Bio Pedra.  In March 2010, CPFL Bio Pedra, which we formed to develop electric energy generation projects using sugarcane bagasse, executed a partnership agreement with Grupo Pedra Agroindustrial to develop new biomass generation projects.  Bio Pedra, located in Serrana, in the state of São Paulo, started operations in May 2012 with total Installed Capacity of 70 MW and Assured Energy of 213.7 GWh.  The electricity from Bio Pedra has been sold through an auction held in 2010, with CCEARs in force until 2027.

CPFL Bio Ester.  In October 2012, CPFL Renováveis completed the acquisition of the electrical energy and steam co‑generation assets of SPE Lacenas Participações Ltda., which controlled the Ester Thermoelectric Power Plant, located in the municipality of Cosmópolis, in the state of São Paulo.  Around 7 MW average of co‑generation energy from the Ester Thermoelectric Power Plant was commercialized in the 2007 alternative energy sources auction, for a period of 15 years.  The remaining 3.2 MW of energy was sold on the free market for 21 years.

CPFL Coopcana.  The construction of UTE Coopcana began in 2012 in the city of São Carlos do Avaí, in the state of Paraná, and operations started on August 28, 2013.  The total Installed Capacity of UTE Alvorada is of 50 MW and Assured Energy is 157.7 GWh.  This project has an associated PPA in force until 2033 with CPFL Brasil.

CPFL Alvorada.  The UTE Alvorada plant is located in the city of Araporã, in the state of Minas Gerais, began operations in November 2013.  The total Installed Capacity of UTE Alvorada is 50 MW and Assured Energy is 158.6 GWh.  This project has an associated PPA in force until 2032 with CPFL Brasil.

Solar Power Plant

Tanquinho.  The Tanquinho solar power plant, in the state of São Paulo, started operations in November 2012, with total Installed Capacity of 1.1 MWp.  We expect Tanquinho to generate approximately 1.6 GWh per year.

Wind Farms

Wind power is derived from the force of the wind passing over the blades of a wind turbine and causing the turbine to spin.  The amount of mechanical power that is transferred and the potential of electricity to be produced are directly related to the density of the air, the area covered by the blades of the wind turbine and the wind speed and height of each wind turbine.

 

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The construction of a wind farm is less complex than the construction of Small Hydroelectric Power Plants, consisting of the preparation of the foundation and installation of wind turbines, which are assembled on site by suppliers.  The construction period of a wind farm is shorter than that of a Small Hydroelectric Power Plant, ranging from 18 months to two years, on average.  The investment per installed MW for the construction of a wind farm is proportionally lower than the investment for construction of a Small Hydroelectric Power Plant.  In contrast, the operation may be more complex and there are more risks associated with the variability of winds, especially in Brazil, where there is little history of wind measurement.

Certain regions of Brazil are more favorable in terms of wind speed, with higher average speeds and lower volatility as measured by speed variation, allowing for more predictability in the volume of wind energy to be produced.  Wind farms operate complementary to hydroelectric plants, since wind speed is usually higher in drought periods and it is, therefore, possible to preserve water from reservoirs in scarce rain periods.  The complementary operation of wind farms and Small Hydroelectric Power Plants should allow us to “stock up” on electric power in the Small Hydroelectric Power Plants’ reservoirs during periods of high wind power generation.  Estimates of the 2001 Wind Potential Atlas (Atlas do Potencial Eólico) (the latest study on the subject) indicate a wind energy potential of 143 GW in Brazil, a volume that greatly exceeds the country’s current total Installed Capacity of 4.4 GW as of December 2014 according to ANEEL signaling a high growth potential in this segment.  Wind farms are also eligible for MDL and have the potential to generate carbon credits for sale.

We currently have 42 wind farms under the authorization regime, located in the states of Ceará, Rio Grande do Norte and Rio Grande do Sul.

Praia Formosa: Praia Formosa Wind Farm, in the state of Ceará, began operations in August 2009.  It has an Installed Capacity of 105 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The PPA is in force until August 2029.

Icaraizinho: Icaraizinho Wind Farm, in the state of Ceará, began operations in October 2009.  It has an Installed Capacity of 54.6 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The PPA is in force until October 2029.

Foz do Rio Choró: Foz do Rio Choró Wind Farm, in the state of Ceará, began operations in January 2009.  It has an Installed Capacity of 25.2 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The PPA is in force until June 2029.

Paracuru: Paracuru Wind Farm, in the state of Ceará, began operations in November 29, 2008.  It has an Installed Capacity of 25.2 MW and an associated PPA in force until November 2028.

Taíba Albatroz: Taíba Albatroz Wind Farm, in the state of Ceará, has an Installed Capacity of 16.5 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The acquisition of Taíba Albatroz Wind Farm was concluded in June 2012.

Bons Ventos: Bons Ventos Wind Farm, in the state of Ceará, has an Installed Capacity of 50.0 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The acquisition of Bons Ventos Wind Farm was concluded in June 2012. 

Canoa Quebrada: Canoa Quebrada Wind Farm, in the state of Ceará, has an Installed Capacity of 57.0 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The acquisition of Canoa Quebrada Wind Farm was concluded in June 2012.

Enacel: Enacel Wind Farm, in the state of Ceará, has an Installed Capacity of 31.5 MW and an associated agreement with Eletrobras under the Proinfa Program to sell all of the energy generated for a period of 20 years.  The acquisition of Enacel Wind Farm was concluded in June 2012.

Santa Clara Complex: Santa Clara Complex, in the state of Rio Grande do Norte, comprises seven wind farms with an Installed Capacity of 188 MW and an associated CCEAR in force until June 2032.  The Santa Clara wind farms sold their energy through the 2009 Reserve Energy Auction.

 

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Campo dos Ventos II Wind Farm.  In 2010, CPFL Geração acquired Campo dos Ventos II Wind Farm (CPFL Renováveis currently holds this investment) in the cities of João Câmara and Parazinho, in the state of Rio Grande do Norte, which began operations in September 2013.  This wind farm has an Installed Capacity of 30 MW and Assured Energy of 131.4 GWh.  The electricity from Campo dos Ventos II has been sold through an auction held in 2010, with PPAs in force until August 2033.

Rosa dos Ventos Wind Farm: In June 2013, CPFL Renováveis acquired Rosa dos Ventos Wind Farm (Canoa Quebrada and Lagoa do Mato fields), located in the state of Ceará.  This wind farm has an Installed Capacity of 13.7 MW and the electricity produced by Rosa dos Ventos is subject to an agreement with Eletrobras under the Proinfa Program.

Atlântica Complex: The Atlântica Complex consists of the Atlântica I, II, IV and V Wind Farms.  The Complex has an aggregate Installed Capacity of 120 MW and aggregate Assured Energy of 461.7 GWh.  The electricity from these wind farms has been sold through an alternative energy auction held in 2010, with CCEARs in force until 2033.  The Atlântica Complex commenced operations in March 2014.

Macacos Complex:  The Macacos Complex consists of the Pedra Preta, Costa Branca, Juremas and Macacos Wind Farms.  The Complex has an aggregate Installed Capacity of 78.2 MW and aggregate Assured Energy of 37.1 MWavg.  The Macacos Complex sold its energy through the 2010 Alternative Sources Auction.

Morro dos Ventos Complex: The Morro dos Ventos Complex consists of the Morro dos Ventos I, Morro dos Ventos III, Morro dos Ventos IV, Morro dos Ventos VI and Morro dos Ventos IX Wind Farms.  The Complex has an aggregate Installed Capacity of 144.0 MW and aggregate Assured Energy of 68.5 MWavg.  The Morro dos Ventos Complex sold its energy through the 2009 Reserve Energy Auction.

Eurus Complex: Eurus Complex consists of the Eurus I and Eurus III Wind Farms.  The Complex has an aggregate Installed Capacity of 60 MW and aggregate Assured Energy of 31.6 MWavg.  The Eurus Complex sold its energy through the 2010 Reserve Energy Auction.

The following table sets forth certain information relating to our principal renewable facilities, held by CPFL Renováveis (51.61% our share) in operation as of December 31, 2014:

 

Capacity (MW)

Assured Energy (GWh)

Placed in service

Facility upgraded

Concession expires

 

Our share

TOTAL

Our share

TOTAL

 

 

 

Small Hydroelectric plants:

 

 

 

 

 

 

 

Alto Irani

10.8

21.0

61.9

120.0

2008

 

2032

Americana

15.5

30.0

26.6

51.5

1949

2002

2027

Andorinhas

0.3

0.5

1.9

3.7

1940

 

(4)

Arvoredo

6.7

13.0

35.1

68.1

2010

 

2032

Barra da Paciência

11.9

23.0

67.3

130.4

2011

 

2029

Buritis

0.4

0.8

1.6

3.1

1922

 

2027(2)

Capão Preto

2.2

4.3

10.3

20.0

1911

2008

2027

Chibarro

1.3

2.6

7.3

14.1

1912

2008

2027

Cocais Grande

5.2

10.0

22.0

42.6

2009

 

2029

Corrente Grande

7.2

14.0

38.6

74.7

2011

 

2030

Diamante

2.2

4.2

7.2

14.0

2005

 

2019

Dourados

5.6

10.8

31.6

61.2

1926

2002

2027

Eloy Chaves

9.7

18.8

52.4

101.5

1954

1993

2027

Esmeril

2.6

5.0

13.0

25.2

1912

2003

2027

Fiqueiropolis

10.0

19.4

56.5

109.5

2010

 

2034

Gavião Peixoto

2.5

4.8

17.3

33.5

1913

2007

2027

Guaporé

0.4

0.7

2.5

4.9

1950

 

(4)

Jaguari

6.1

11.8

20.3

39.4

1917

2002

2027

Lençóis

0.9

1.7

4.7

9.1

1917

1988

2027

Ludesa

15.5

30.0

95.8

185.7

2007

 

2032

Monjolinho

0.3

0.6

0.5

1.0

1893

2003

2027(2)

Ninho da Águia

5.2

10.0

29.4

56.9

2011

 

2029

Novo Horizonte

11.9

23.0

47.0

91.1

2011

 

2032

Paiol

10.3

20.0

49.8

96.5

2010

 

2032

Pinhal

3.5

6.8

16.7

32.4

1928

1993

2027

Pirapó

0.4

0.8

2.6

5.1

1952

 

(4)

Plano Alto

8.3

16.0

44.1

85.5

2008

 

2032

Saltinho

0.4

0.8

3.3

6.4

1950

 

(4)

Salto Góes

10.3

20.0

50.2

97.2

2012

 

2040

Salto Grande

2.4

4.6

11.7

22.6

1912