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
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
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
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-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 2017-12-31

Balance SheetIncome StatementCash Flow

20-F 1 cpflform_20f.htm CPFLFORM_20F cpflform_20f.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, 2017
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)

 

Rodovia Engenheiro Miguel Noel Nascentes Burnier, 1,755, km 2,5
Parque São Quirino
Campinas
São Paulo ‑ 13088 140
(Address of principal executive offices)

Gustavo Estrella
+55 19 3756 8704 – gustavoestrella@cpfl.com.br
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, 2017, there were 1,017,914,746 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  £ 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. £

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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 AND OTHER 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  17 
ITEM 4A.  UNRESOLVED STAFF COMMENTS  64 
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS  64 
ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES  101 
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS  111 
ITEM 8.  FINANCIAL INFORMATION  111 
ITEM 9.  THE OFFER AND LISTING  114 
ITEM 10.  ADDITIONAL INFORMATION  116 
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  133 
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  134 
ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  135 
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  135 
ITEM 15.  CONTROLS AND PROCEDURES  135 
ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT  136 
ITEM 16B.  CODE OF ETHICS  136 
ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES  137 
ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES  137 
ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  137 
ITEM 16F.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT  138 
ITEM 16G.  CORPORATE GOVERNANCE  138 

 
 
 
 

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”, “plan”, “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 regulatory, corporate, 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;

·        

interest rate fluctuation, inflation and exchange rate variation;

·        

actions taken by our major shareholders;

·        

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 141.

 

1


 
Table of Contents
 

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless the context otherwise requires, all references herein to “we,” “us” or “our company” are references to CPFL Energia S.A., its consolidated subsidiaries and jointly controlled entities.

All references herein to “real”, “reais” or “R$” are to the Brazilian real, the official currency of Brazil.  All references to “U.S. dollars”, “dollar” or “US$” are to U.S. dollars, the official currency of the United States.

We maintain our books and records in reais.  We prepared our audited annual 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”).  Certain figures included in this annual report have been rounded; accordingly, figures shown as totals in certain tables may not be an exact arithmetic aggregation of the figures that precede them.

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, 2017, 2016, 2015, 2014, and 2013.  Our financial data as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017, 2016 and 2015 was derived from our audited annual 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 audited annual consolidated financial statements and the related notes included in this annual report.  Our financial data as of December 31, 2014 and 2013 and for each of the two years ended December 31, 2014 and 2013 was derived from our audited annual consolidated financial statements that are not included in this annual report.

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

 

2


 
Table of Contents
 

STATEMENT OF OPERATIONS DATA

 

For the year ended December 31,

 

2017(3)

2017

2016

2015(4)

2014(4)

2013(4)

 

US$

R$

R$

R$

R$

R$

 

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

Net operating revenue

8,085

26,745

19,112

20,599

17,399

14,634

Cost of electric energy services:

 

 

 

 

 

 

Cost of electric energy

5,109

16,902

11,200

13,312

10,643

8,197

Operating cost

838

2,771

2,249

1,907

1,672

1,468

Services rendered to third parties

627

2,075

1,357

1,049

946

1,010

Gross operating income

1,511

4,998

4,306

4,331

4,138

3,960

Operating expenses:

 

 

 

 

 

 

Sales expenses

178

590

547

465

403

377

General and administrative expenses

286

947

849

863

774

929

Other operating expense

132

438

387

358

328

285

Income from electric energy service

914

3,022

2,523

2,645

2,633

2,370

Interest in associates and joint ventures

94

312

311

217

60

121

Financial income (expense):

 

 

 

 

 

 

Income

266

880

1,201

1,143

786

699

Expense

(716)

(2,368)

(2,654)

(2,551)

(1,969)

(1,671)

Net financial income (expenses)

(450)

(1,488)

(1,453)

(1,408)

(1,183)

(971)

Income before taxes

558

1,847

1,381

1,454

1,511

1,519

Social contribution

(51)

(169)

(151)

(160)

(169)

(157)

Income tax

(132)

(435)

(351)

(419)

(455)

(413)

Total taxes

(183)

(604)

(501)

(579)

(624)

(570)

Net income

376

1,243

(879)

875

886

949

Net income attributable to controlling shareholders

357

1,180

901

865

949

937

Net income (loss) attributable to non‑controlling shareholders

19

63

(22)

10

(63)

12

Earnings per share attributable to controlling shareholders(1):

 

 

 

 

 

 

Basic

0.35

1.16

0.89

0.85

0.93

0.92

Diluted

0.35

1.15

0.87

0.83

0.92

0.90

Net income per ADS:

 

 

 

 

 

 

Basic

0.70

2.32

1.77

1.70

1.86

1.84

Diluted

0.70

2.30

1.74

1.66

1.83

1.79

Dividends(2)

85

280

214

205

977

931

Weighted average of number of common shares (in millions)(1).

1,018

1,018

1,018

1,018

1,018

1,018

Dividends per share(1)(2)

0.08

0.28

0.21

0.20

0.96

0.91

Dividends per ADS (2)

0.17

0.55

0.42

0.40

1.92

1.83

 

 

(1) Reflects the capital increases that took place on April 29, 2015, and April 29, 2016 through the issuance of 30,739,955 and 24,900,531 shares, respectively.  In accordance with IAS 33, when there is an increase in the number of shares without an increase in issued capital, the number of shares is adjusted retrospectively for all prior periods presented. 

(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) 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, 2017 of R$3.308 to US$1.00.The average of the month-end commercial selling rates during the year 2017 was R$3.202 to US$1.00.  See “—Exchange Rates” below for more information regarding the real/U.S. dollar exchange rate.

(4) Data for 2014 and 2015 have been restated to reflect a change in presentation of the line item representing Changes in expected cash flows from Concession Financial Assets, which relates to our Distribution segment.  Since January 1, 2016 this line item has been included in Other operating revenues, within Net operating revenue, together with the other income related to the core activity of the asset.  This item was previously presented as part of Net financial expense.  We believe the new presentation more accurately reflects the business model of electricity distribution and provides a better representation of our operational and financial performance.  The reclassification does not affect total assets, equity, net income or cash flows.    The selected historical financial data for 2013 has not been restated to reflect the reclassification, and therefore is not fully comparable with the data for 2017, 2016, 2015 and 2014.

 

3


 
Table of Contents
 

BALANCE SHEET DATA

 

 

For the year ended December 31,

 

2017(2)

2017

2016

2015

2014(3)

2013

 

US$

R$

R$

R$

R$

R$

 

(in millions)

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

982

3,250

6,165

5,683

4,357

4,206

Consumers, concessionaires and licensees

1,300

4,301

3,766

3,175

2,251

2,008

Derivatives

134

444

163

627

23

2

Sector financial assets

64

211

-

1,464

611

-

Other current assets

416

1,375

1,285

1,559

1,972

1,048

Total current assets

2,896

9,581

11,379

12,509

9,215

7,264

Noncurrent assets:

 

 

 

 

 

 

Accounts receivable

72

237

203

129

123

154

Derivatives

62

204

641

1,651

585

317

Sector financial assets

107

355

-

490

322

-

Financial asset of concession

1,979

6,546

5,363

3,597

2,835

2,787

Investments in joint-ventures

303

1,002

1,494

1,248

1,099

1,033

Property, plant and equipment

2,959

9,787

9,713

9,173

9,149

7,717

Intangible Assets

3,201

10,590

10,776

9,210

8,930

8,748

Other noncurrent assets

901

2,979

2,602

2,525

2,887

3,022

Total noncurrent assets

9,583

31,700

30,792

28,024

25,930

23,778

Total assets

12,479

41,282

42,171

40,532

35,144

31,043

Current liabilities:

 

 

 

 

 

 

Short‑term debt(1)

1,600

5,293

3,429

3,641

3,526

1,837

Sector financial liabilities

12

40

598

-

22

-

Other current liabilities

1,828

6,046

4,992

5,884

3,869

3,068

Total current liabilities

3,440

11,379

9,018

9,525

7,417

4,906

Noncurrent liabilities:

 

 

 

 

 

 

Long‑term debt(1)

4,497

14,876

18,733

18,093

15,637

15,187

Sector financial liabilities

2

8

317

-

-

-

Other long‑term liabilities

1,159

3,833

3,729

2,785

2,693

2,152

Noncurrent liabilities

5,658

18,717

22,780

20,877

18,330

17,339

Non-controlling interest

673

2,225

2,403

2,456

2,454

1,775

Net equity attributable to controlling shareholders

2,709

8,962

7,970

7,674

6,944

7,024

Total liabilities and shareholders’ equity

12,479

41,282

42,171

40,532

35,144

31,043

 

 

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

(2) 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, 2017 of R$3.308 to US$1.00.

(3) Data for 2014 have been restated due the completion of the accounting for the purchase price allocation related to acquisition of Dobrevê Energia S.A.  - (“DESA”).

 

4


 
Table of Contents
 

OPERATING DATA

 

 

For the year ended December 31,

 

2017

2016

2015

2014

2013

Energy sold (in GWh):

 

 

 

 

 

Residential

19,122

16,473

16,164

16,501

15,426

Industrial

14,661

13,022

12,748

14,144

14,691

Commercial

10,220

9,720

9,259

9,437

8,837

Rural

3,762

2,474

2,152

2,326

2,081

Public administration

1,456

1,271

1,278

1,295

1,234

Public lighting

1,964

1,746

1,649

1,622

1,586

Public services

2,157

1,840

1,797

1,861

1,820

Own consumption

34

32

33

 34

34

Total energy sold to Final Consumers

53,376

46,578

45,082

 47,221

45,709

Electricity sales to wholesalers (in GWh)

27,557

21,459

17,971

14,988

14,975

Total consumers (in thousands)(1)

9,376

9,224

7,751

7,585

7,386

Installed Capacity (in MW)(2)

3,284

3,259

3,164

3,162

2,988

Assured Energy (in GWh)(3)

13,682

14,188

13,550

13,566

12,758

Energy generated (in GWh)(4)

10,137

12,568

14,310

13,658

11,427

 

 

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

(2) Commencing in 2016 we ceased to account for installed capacity of the Carioba (36 MW) thermoelectric plant and SHPP Cariobinha (1.3 MW), since these facilities are no longer active.

(3) 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”.

(4) Refers solely to the total amount of energy (GWh) produced by conventional management companies and the equivalent participation percentage of renewable energy generation companies (51.60% in 2017, 51.60% in 2016, 51.61% in 2015 and 2014 and 58.84% in 2013).

 

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, 2017 of R$3.308 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.

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 10.  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, 2013

2.343

2.174

1.953

2.446

December 31, 2014

2.656

2.360

2.197

2.740

December 31, 2015

3.905

3.339

2.575

4.195

December 31, 2016

3.259

3.483

3.119

4.156

December 31, 2017

3.308

3.202

3.051

3.381

 

 

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

 

5


 
Table of Contents
 

 

Month‑end

Average for period(1)

Low

High

 

(reais per U.S. dollar)

Month ended:

 

 

 

 

October 2017

3.277

3.191

3.132

3.280

November 2017

3.262

3.259

3.214

3.292

December 2017

3.308

3.292

3.232

3.333

January 2018

3.162

3.211

3.139

3.270

February 2018

3.245

3.232

3.173

3.282

March 2018

3.234

3.288

3.225

3.338

April 2018 (through April 18)

3.384

3.376

3.310

3.426

 

 

(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.

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), although preliminary injunctions have been dismissed.  It is not possible to estimate when these proceedings will be finally decided. 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.

 

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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 20 to 35 years.  The Brazilian Federal constitution requires all concessions relating to public services to 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, financial and other relevant standards, and provided 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, Law No.  9,074/95, Decree No.  7,805/12, Law No.12,783/13, Decree No.  8,461/15, Law No. 13,360/16, Decree No. 9,158/17, Decree No. 9,187/17 and under concession contracts regarding renewal of concessions.  Furthermore, we may also be subject to new regulations enacted by the Brazilian government that could retroactively affect the rules for renewal of our concessions and authorizations.

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 that our distribution companies charge our consumers.  Our tariffs are determined under 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 allows for three types of tariff adjustments:  (i) annual adjustment (reajuste tarifário anual), 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 the electricity we purchase and certain regulatory charges, including charges for the use of transmission and distribution facilities.  ANEEL generally carries out the RTP periodic tariff revision every four or five years (according to the terms of each concession agreement).  The objective of this periodic revision is to share gains with consumers and incentivize concessionaires to increase efficiency levels.  As such, it aims to identify variations in our costs and set a reduction factor based on our operational efficiency that will be applied against the index of our ongoing annual tariff adjustments.  Extraordinary revisions of our tariffs may occur at any time, or may be requested by us.  Extraordinary revisions may have a negative effect on our results of operations or financial position, or may serve to offset unpredictable costs (such as taxes that significantly change our cost structure).  Previously, all revisions in methodologies were addressed in set cycles such as in 2008-2010 and 2010-2014.  However, in 2015, ANEEL changed this procedure to allow for the review of the underlying methodologies applicable to the electrical energy sector from time to time on an item by item basis.  Periodic tariff reviews will be held for CPFL Paulista and RGE Sul in April 2018 and for RGE in June 2018. 

We cannot predict whether ANEEL will establish tariffs or methodologies that are favorable to us.  See “Item 5.  Operating and Financial Review and Prospects—Background—Periodic Revisions—RTP”.

We may not be able to comply with the terms of our concession agreements and authorizations, which could result in fines, other penalties and, depending on the gravity of the non‑compliance, in our concessions or authorizations being terminated.

ANEEL may impose penalties on us in the event that we fail to comply with any provision of our concession agreements or authorizations.  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 annual revenues generated by the relevant concession or authorization, or (if the relevant concession or authorization is non-operational) up to 2.0% of the estimated value of the energy that would have been produced for the twelve months prior to the breach;

 

·

injunctions related to construction activities;

 

·

restrictions on the operation of existing facilities and equipment;

 

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·

requiring the concessionaire’s controlling shareholders to carry out further capital expenditures (not applicable to authorizations);

 

·

intervention by ANEEL in the management of the concessionaire; and

 

·

termination of the concession or authorization.

 

In addition, the Brazilian government may terminate any of our concession agreements or authorizations by means of expropriation if it deems this to be in the public interest.

We are currently in compliance with all of the material terms of our concession agreements and authorizations and each of our power plants is supported by legal permissions granted by the competent authority. However, we cannot assure you that we will not be penalized by ANEEL for breaching our concession agreements or authorizations or that our concessions or authorizations will not be terminated in the future.  The compensation to which we are entitled upon expiration or early termination of our concessions or authorizations may not be sufficient for us to realize the full value of certain assets.  In addition, if any of our concession agreements or authorizations 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 or authorizations could have a material adverse effect on our financial condition and results of operations.

The distribution concessions held by our previous distribution subsidiaries CPFL Santa Cruz, CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista and CPFL Sul Paulista (now merged into CPFL Santa Cruz) were originally granted in 1999 for a sixteen‑year term and have recently been extended to July 2045.  The extensions were granted under the new laws and regulations regarding distribution concessions, in particular Decree No. 7,805/12, Law No. 12,783/13 and Decree No. 8,461/15, so the concessions are now subject to the new targets and standards established by the Brazilian authorities. Such new targets and standards are included in the amendments to the concession agreements.  There is as yet no precedent regarding how the authorities will act under these new laws and regulations, which include certain variables that are beyond our control and which may therefore impair our ability to fully achieve the relevant goals.  If we do not achieve the applicable goals, our distribution concessions and, therefore, our revenues could be adversely affected.  See “Item 4—Information on the Company— Concessions, Permissions and Authorizations —Concessions”.

In our Distribution business, we are required to forecast demand for electricity in the market.  If actual demand is different from our forecast, we could be forced to purchase or sell electricity in the spot market at prices that could lead to additional costs for us, which we may not be able to fully pass on to customers.

Under the New Industry Model Law, an electricity distributor must contract in advance, through public bids, for 100% of the required electricity that it has forecast for its distribution concession areas, and is authorized to pass through the cost of up to 105% of this electricity to consumers.  Over- or under-forecasting demand can have adverse consequences.  If we under-forecast demand and purchase in advance less electricity than we need, in a manner for which we are considered liable under the New Industry Model Law and applicable regulation, we may be required to enter the spot market to purchase the additional electricity at prices substantially higher than under our long term purchase agreements.  We may be prevented from passing through this additional cost in full to consumers; and we would also be subject to penalties under applicable regulation.  On the other hand, if we over-forecast demand and purchase in advance more electricity than we need (for example, if a significant portion of our Potential Free Consumers migrate and purchase electricity in the Free Market), we may be required to sell the excess at prices substantially lower than under our concessions.  In either circumstance, if there are significant differences between our forecast electricity needs and actual demand, our results of operations may be adversely affected.  See “Item 4.  Information on the Company—The Brazilian Power Industry—The New Industry Model Law” and “Item 4.  Information on the Company—Distribution—Purchases of Electricity”.

 

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Commercialization activity is subject to potential losses due to short-term variations in energy prices on the spot market.  In addition, we may not be able to buy electricity in the amount we need to meet our sales agreements, which may expose us to the spot market at prices substantially higher than under our long term agreements.

On August 2, 2012, the Brazilian Ministry of Mines and Energy (MME) enacted Ordinance.  No.  455, which prohibited ex post adjustments to energy volume as of June 1, 2014 and required participants in the Free Market (although not Distributors) to register their expected consumption volume in advance with the Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica), or CCEE, except in cases where they specifically indicate that the agreement concerned is linked to the effective consumption volume.  However, the Brazilian Association of Electricity Traders (or ABRACEEL) obtained an injunction preventing implementation of the rule requiring advance registration of volume requirements under Ordinance No.  455/2012.  As a result, Ordinance No.  455/2012 has been suspended for all CCEE participants (Generators, Traders and Free Consumers), since it may not be applied selectively to a specific group.  In addition, on January 9, 2018, a federal court nullified Ordinance No. 455/2012, on the basis that the MME has no authority to issue a regulation related to the commercialization of electrical energy. However, this decision will still have to be confirmed by the court of appeal due to the requirement for review of all cases involving the Brazilian government.  If this decision is overruled, and if our projected energy volume proves incorrect so that we purchase less or more electricity than we need in the Free Market, 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”.

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.  In 2017, according to data from the National Electrical System Operator (Operador Nacional do Sistema Elétrico), or ONS, approximately 69.9% (73.4% in 2016) of Brazil’s electricity supply came from Hydroelectric Power Plants. According to the ONS, this figure is expected to continue to decrease reaching 68.3% through 2021.

Brazil is subject to unpredictable hydrological conditions, with non‑cyclical deviations from average rainfall.  When hydrological conditions are poor, the ONS may dispatch Thermoelectric Power Plants, including those that we operate, to top up hydroelectric generation and maintain security levels in reservoirs and the electricity supply level in cases when the Hydroelectric Power Plants in Brazil, including those we operate, are unable to generate sufficient energy to honor their Assured Energy requirement in the Energy Reallocation Mechanism (Mecanismo de Realocação de Energia), or MRE.  This process to offset the deficit of hydroelectric energy, which was created in 2000 and is referred to as the Generation Scaling Factor, or GSF, therefore exposes operators of Hydroelectric Power Plants to spot price risk.  The GSF was activated in 2014, 2015 and 2016, requiring us to purchase energy, therefore leading to adverse results in our Generation segment.  Under Federal Law 13,203 of December 8, 2015, we have effectively capped our exposure to this risk for the life of our existing PPAs in our Generation segment, and have covered the cash outlay from January 2015 to July 2020 through the GSF payment we made in 2015 regarding the electricity required to serve our consumers in the Regulated Market.  We remain exposed to this spot price risk, however, with respect to the cost of electricity required to serve our consumers in the Free Market.  For further information, see “Item 4.  Information on the Company—The Brazilian Power Industry—Generation Scaling Factor.”

In the Distribution segment, thermoelectric generation can lead to additional energy purchase costs when the 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 were observed from 2013 through 2015, red tariff flags were applied throughout 2015 since introduction of the system in January 2015.  In 2016, due to an improvement in hydrological conditions, green tariff flags were applied in most months of the year, but 2017 consisted principally of yellow and red tariff flags.  In November 2017, ANEEL held a public hearing in order to review the tariff flags methodology.  In accordance with the new methodology, red tariff flags were applied in November and December 2017. However, in February and March 2018, green tariff flags were applied under the new methodology.  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 for Calculation of Distribution Tariffs”.

 

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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 mandatory 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 the Assured Energy of our Generation Power Plants.

Decree No. 2,655 of July 2, 1998 established that the Assured Energy of generation power plants would be revised every five years.  In 2017, this principle of five-year revision was extended to biomass plants, which led to a reduction in the Assured Energy of CPFL Renováveis’ biomass plants by an average of approximately 25% in that year.  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.  According to Ordinance No.  515/2015 issued by the MME, the first revision of Assured Energy under this process was originally expected to be implemented for Hydroelectric Power Plants (other than SHPPs)  in January 2017.  Since the application of the methodology of this new revision to each Power Plant is not yet available, however, the MME issued Ordinance No.  714/2016, pursuant to which the current Assured Energy for each Hydroelectric Power Plant would remain in effect until December 2017.  The first revision of Assured Energy was implemented in January 2018 under MME Ordinance No. 178/2017 and led to a reduction in the Assured Energy of our Hydroelectric Power Plants by an average of approximately 2.4%. SHPPs, unlike other Hydroelectric Power Plants, have been subject to annual revisions of their Assured Energy since 2010 in accordance with MME No. 463/2009.  These annual revisions have not resulted in reductions in the Assured Energy levels of CPFL Geração’s SHPPs, but have resulted in reductions for CPFL Renováveis’ SHPPs (although in 2017, CPFL Renováveis, together with certain other renewable energy producers, obtained a court order reinstating the initial Assured Energy levels of their SHPPs pending final resolution of their appeal against the revision process). 

We cannot be certain how future revisions will affect the Assured Energy of each of our individual Power Plants, whether the renewable energy producers will succeed in their appeal against the revision process, or whether the overall effect of revisions will increase or decrease our Assured Energy.  When the Assured Energy of a Power Plant is decreased, our ability to supply electricity under that plant’s power purchase agreements is adversely affected, which can lead to a decrease in our revenues and increase our costs if our generation subsidiaries are required to purchase power elsewhere.  We expect revisions of Assured Energy under Decree 2,655/98 to continue to take place every five years for our Power Plants other than SHPPs.  See “Item 4Principal Regulatory AuthoritiesMinistry of Mines and Energy - MME”.

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, including strikes;

·         social unrest;

·         weather and hydrological interferences;

·         unforeseen engineering, regulatory and/or environmental problems;

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

 

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·         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, the need to obtain and maintain licenses, 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 failure to comply with their regulations, or to obtain or maintain licenses.  These actions could include, among other things, the imposition of administrative and criminal sanctions, including fines and revocation of licenses.  The sanctions depend on the seriousness of the infraction or on the extent of damage caused, and any mitigating or aggravating circumstances applicable to the violator.  It is possible that enhanced environmental and health regulations will force us to allocate capital expenditures to compliance, and consequently, increase our level of investment or divert funds from existing planned investments, either of which 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$455 million in our Generation activities (R$393 million in renewable sources and R$62 million in conventional sources), R$9,802 million in our Distribution activities and R$176 million in our commercialization and services activities during the period from 2018 through 2022. 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.

 

In addition to the capital expenditures, we invested R$46 million in 2017 and R$51 million in 2016 related to the construction of transmission lines for CPFL Morro Agudo S.A., which, in accordance with the requirements of IFRIC 12, was recorded as a financial asset of concession in noncurrent assets.

We plan to make capital expenditures aggregating approximately R$2,139 million in 2018 and approximately R$2,108 million in 2019.  Of total budgeted capital expenditures over this period, R$3,787 million are expected to be invested in our Distribution segment, R$323 million in our Renewable Generation segment and R$35 million in our Conventional Generation segment.  In addition, over this period, we plan to invest R$102 million in our commercialization and services activities. We have already contractually committed to part of these expenditures, particularly in generation projects.  See “—Liquidity and Capital Resources—Funding Requirements and Contractual Commitments”.  Planned capital expenditures for development of our generation capacity, and the related financing arrangements, are discussed in more detail under “Item 4.  Information on the Company—Generation of Electricity”.

Our ability to complete the proposed capital expenditure program described above depends on a series of factors, including our ability to charge adequate tariffs for our services, our access to Brazilian and foreign securities markets and several operational and regulatory contingencies, among others. There is no certainty regarding whether we will have the financial resources available to conclude our proposed capital expenditure program.  Any inability to complete this program may have a material adverse effect on us, our operations and the development of our business.

 

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

Under Brazilian law, we are strictly liable for direct and indirect losses and damages resulting from the inadequate provision of electricity distribution services.  In addition, our distribution facilities may, together with our transmission and generation utilities, be held liable for losses and 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.  Until all responsible parties are identified, liability for any losses and damages is attributed as follows:  (i) 35.7% to distribution entities; (ii) 28.6% to transmission entities; and (iii) 35.7% to generation entities.  These percentages are based on the number of votes that each concessionaire has in general meetings of the ONS and, therefore, may change in the future.  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 (amounting to R$2,093 million for the last three fiscal years) in generation businesses other than hydroelectric power, principally wind and biomass generation.  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, 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”.

Our controlling shareholder’s interests could conflict with yours. 

On January 23, 2017, State Grid Brazil Power Participações S.A., or State Grid, consummated the acquisition of common shares representing approximately 54.6% of our voting capital, pursuant to which it has the power to control us. State Grid Brazil Power Participações S.A. is an indirect subsidiary of State Grid Corporation of China, a state-owned enterprise of the People’s Republic of China.  In November 2017, State Grid launched a mandatory tender offer for our shares.  Following the closing of this tender offer on December 5, 2017, State Grid jointly with ESC Energia S.A. held 964,521,902 of our common shares, equivalent to approximately 94.75% of our total share capital.  State Grid has announced that it intends to (i) cancel our registration as a Class A publicly-held company with the CVM; (ii) delist our company from the Novo Mercado section of the B3; (iii) delist our ADSs from the New York Stock Exchange, or the NYSE, and terminate the deposit agreement for our ADSs, and (iv) terminate our registration with the U.S. Securities and Exchange Commission, or the SEC.

Our controlling shareholder may take actions that could be contrary to your interests, and our controlling shareholder will be able to prevent other shareholders, including you, from blocking these actions.  In particular, our controlling shareholder controls the outcome of decisions at shareholders’ meetings, and it can elect a majority of the members of our Board of Directors. 

Our controlling shareholder can direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses.  Its decisions on these matters may be contrary to the expectations or preferences of our non-controlling shareholders, including holders of our ADSs.  For further information regarding State Grid’s acquisition and its announced intentions regarding shareholdings in our company, see “Item 4.  Information on the Company— Overview”.

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

As of December 31, 2017, approximately 75.9% 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 24.1% of our total indebtedness as of December 31, 2017 was denominated in foreign currency, substantially U.S. dollars, compared to approximately 25.0% as of December 31, 2016, although this foreign currency denominated debt is substantially subject to currency swaps that convert these obligations into reais.  In addition, the costs of electricity purchased from the Itaipu Power Plant, or Itaipu, a Hydroelectric Power Plant that is one of our major suppliers, are indexed to the U.S. dollar exchange rate.  Our tariffs are adjusted annually in order to contemplate the losses or gains from these purchases from Itaipu.  Accordingly, when the Brazilian real appreciates against the U.S. dollar, our financing expenses decrease. 

 

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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, 2017, we had total debt of R$20,168.6 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 acquisitions, investments, joint ventures or for other purposes, subject to the restrictions applicable under our existing indebtedness, such as when we acquired RGE Sul in October 2016.  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, such as when we acquired RGE Sul in October 2016, or make non-controlling investments in companies in the sector.  If we do make investments in other electricity companies, this could increase our leverage or reduce our profitability.  Furthermore, we may not be able to integrate an 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.

The level of default by our consumers could adversely affect our business, operational results, and/or financial situation.

The level of default by our consumers may be affected by economic factors such as income levels, unemployment, interest rates, inflation and the price of energy.  The current macroeconomic situation in Brazil, combined with the increase in energy prices in recent years, could lead to an increase in the risk of default by our consumers.  Although we have implemented a number of measures to improve payment collection, we cannot assure you that these measures will be sufficient or effective in maintaining our consumer default at current levels.  If the level of default increases, our business, operational results and financial situation could be adversely affected.

Our business is subject to cyberattacks and security and privacy breaches.

Our business involves the collection, storage, processing and transmission of customers’, suppliers and employees’ personal or sensitive data.  We also use key information technology systems for controlling energy and commercial, administrative and financial operations. An increasing number of organizations, including large businesses, financial institutions and government institutions, have disclosed breaches of their information technology and information security systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure.

The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until launched against a target.  Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems into disclosing user names, passwords, payment card information or other sensitive information, which may in turn be used to access our information technology systems.  Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. 

Although we have developed systems and processes that are designed to protect our data, the data of our customers, employees and suppliers, and to prevent data loss and other security breaches, and expect to continue to expend significant additional resources to bolster these protections, these security measures cannot provide absolute security.  Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our customers’, suppliers’ and employees’ personal or proprietary information that are stored on or accessible through those systems.  Our security measures may also be breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities.  Any actual or perceived breach of our security could interrupt our operations, result in our systems or services being unavailable, result in improper disclosure of data, materially harm our reputation and brand, result in significant legal and financial exposure, lead to loss of customer confidence in, or decreased use of, our products and services, and adversely affect our business and results of operations.  In addition, any breaches of network or data security at our customers or suppliers, including data center, could have similar negative effects.  Actual or perceived vulnerabilities or data breaches may lead to claims against us.

 

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We also expect to spend significant additional resources to protect against security or privacy breaches, and may be required to address problems caused by breaches.  Additionally, while we maintain insurance policies, we do not maintain insurance policies specifically for cyber-attacks and our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. We cannot guarantee that the protections we have in place to protect our operating technology and information technology systems are sufficient to protect against cyberattacks and security and privacy breaches.

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.

Uncertainty over whether the Brazilian government will change policies or regulations affecting these or other factors may contribute to political and economic uncertainty in Brazil and to heightened volatility in Brazilian securities markets and securities issued abroad by Brazilian issuers.  Standard & Poor’s downgraded Brazil below investment grade on September 9, 2015 and further downgraded Brazil from BB to BB- on January 11, 2018, with stable outlook; Fitch Ratings lowered its rating for Brazil from BBB- to BB+ on December 16, 2015 and later to BB with negative outlook on May 5, 2016; and Moody’s Investors Service downgraded Brazil to Ba2 with negative outlook on February 24, 2016 and this position was confirmed on May 26, 2017.  These downgrades reflected poor economic conditions, continued adverse fiscal developments and increased political uncertainty in Brazil.

We cannot assure you that the Brazilian government will continue with its current economic policies, or that these and other developments in Brazil’s economy and government policies will not, directly or indirectly, adversely affect our business and results of operations. 

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.  Following the impeachment of former President Dilma Rousseff on August 31, 2016, uncertainty remains 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, which may 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.

 

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Currently, Brazilian markets are experiencing heightened volatility due to the uncertainties derived from changes in the political scenario and from the ongoing Lava Jato investigation, being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment.  Certain of these companies are also facing investigations, and, in certain cases, being convicted by the competent authorities, such as the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, the U.S. Securities and Exchange Commission, or the SEC and the United States Department of Justice, or the DOJ. Certain of these companies have chosen to enter into leniency agreements with the competent authorities, when possible.  Members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies, have faced allegations and, in certain cases, convictions, or, also, entering into plea bergains, related to crimes of political corruption, involving alleged bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies.  The profits of these kickbacks allegedly financed the political campaigns of political parties of the government that were unaccounted for or not publicly disclosed, in addition to alleged personal enrichment of the recipients of the bribes and the favoring of companies in contracts with the Brazilian government.

The potential outcome of these investigations, convictions, plea bargaining and leniency agreements is still uncertain, but they have already an adverse impact on the image and reputation of the implicated companies, political parties and on the general market perception of the Brazilian economy and political scenario.  We cannot predict whether such allegations, convictions, plea bargaining and agreements will lead to further political and economic instability or whether new allegations, convictions, plea bargaining or agreements against government officials, officers and/or companies will arise in the future.  In addition, we cannot predict the outcome of any such allegations, convictions, plea bargaining and agreements nor their effect on the Brazilian economy.

Developments in these proceedings and investigations could adversely affect our business, financial condition and results of operations. 

 

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.  The exchange rate of the real against the U.S. dollar was R$3.905 on December 31, 2015; R$3.259 on December 31, 2016; and R$3.308 on December 31, 2017.  On April 18, 2018, the exchange rate was R$3.384 per US$1.00.  The real may continue to fluctuate significantly 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, our ADSs.

Inflation and interest rate policies may impact 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 2008 and March 2018, the base interest rate in Brazil, or SELIC, varied between 6.5% p.a.  and 14.0% p.a., reaching its lowest level (6.5%) in March 2018.  On April 18, 2018, the SELIC rate was 6.4% p.a.  Inflation has had and may in the future have significant effects on the Brazilian economy and our business.  Relatively lenient interest rate policies by the government and Brazilian Central Bank 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.  Conversely, tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit.

 

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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 2.3% in 2017.  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, China 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.

Risks Relating to the ADSs and Our Common Shares

Our controlling shareholder may delist our ADSs from the NYSE, which could limit liquidity of the ADSs and adversely affect our business and access to future capital.

In November 2017, our controlling shareholder State Grid launched a mandatory tender offer for our shares.  Following the closing of this tender offer on December 5, 2017, State Grid jointly with ESC Energia S.A. held 964,521,902 of our common shares, equivalent to approximately 94.75% of our total share capital.  State Grid has announced that it intends to (i) cancel our registration as a Class A publicly-held company with the CVM; (ii) delist our company from the Novo Mercado section of the B3; (iii) delist our ADSs from the NYSE, and terminate the deposit agreement for our ADSs, and (iv) terminate our registration with the SEC.

Delisting from the NYSE could have an adverse effect on our business, including our ability to access future capital, and on the trading of the ADSs.  If a delisting of the ADSs were to occur, the ADSs may trade in the over-the-counter market such as on the OTC Bulletin Board or on the “pink sheets”.  The over-the-counter market is generally considered to be a less efficient market, and this could diminish investors’ interest in the ADSs as well as significantly impact the price and liquidity of the ADSs.  Any such delisting may also adversely affect the trading of the ADSs by ADS holders, or impede them from liquidating their holdings.  Delisting may also make it more difficult for us to issue additional securities or secure additional financing, particularly in the United States.  Furthermore, a deregistration would substantially reduce or effectively terminate the trading of our securities in the United States. 

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 common 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.  For further information, see “Item 10.Additional Information—Voting Rights of ADS Holders”.

 

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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 registration made by the custodian with the Brazilian Central Bank’s Information System, or the SISBACEN, for our common shares underlying the ADSs in Brazil, which permits the custodian to remit abroad proceeds related to dividends and other distributions with respect to the common shares.  If you surrender your ADSs and withdraw common shares, you will need to update your registration with the SISBACEN and enter into simultaneous foreign exchange transactions (without the effective remittance of funds) in order to re-enable the remittance abroad of proceeds related to the disposition of or distributions relating to the common shares.  Before entering into these foreign exchange transactions and updating the SISBACEN registration, you will not be able to remit abroad any proceeds relating to the common shares.  If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment upon the sale of our common shares.  For further information, see “Item 10.  Additional Information— Allocation of Net Income and Distribution of Dividends-Payment of Dividends”.

For the registration with the SISBACEN referred to above, as well as for entering into simultaneous foreign exchange transactions, 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 registration with SISBACEN 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 52.5% of the aggregate market capitalization of the B3 S.A. – Brasil, Bolsa e Balcão, or the B3 (previously known as BM&FBOVESPA), as of December 31, 2017.  The top ten stocks in terms of trading volume accounted for 32.1%, 42.8% and 39.3% of all shares traded in 2017, 2016, and 2015, respectively.

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 Rodovia Engenheiro Miguel Noel Nascentes Burnier, km 2,5, Parque São Quirino, CEP 13088-900, Campinas, state of São Paulo, Brazil and our telephone number is +55 19  3756‑8704.  Our Investor Relations Department is located at the same address and its telephone number is +55 19 3756‑6083. 

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 45,386 GWh of electricity we distributed to approximately 9.4 million consumers in 2017.  In electricity generation, our Installed Capacity at December 31, 2017 was 3,284 MW.  Through our interest in CPFL Renováveis, we are also involved in the construction of one SHPP, as a result of which we expect to increase our Installed Capacity to 3,299 MW over the next three years as this is 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 2017, the total amount of electricity sold by our commercialization subsidiaries was 64.6 GWh and 20,066 GWh to affiliated and unaffiliated parties, respectively.

 

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On September 2, 2016, our former shareholder Camargo Correa entered into an agreement to sell its 23.6% stake in our company to State Grid.  Following the announcement, other members of our controlling shareholders block also decided to sell their stakes to State Grid.  As a result, State Grid acquired approximately 54.6% of our voting capital.  State Grid Brazil Power Participações S.A. is an indirect subsidiary of State Grid Corporation of China, a state-owned enterprise of the People’s Republic of China.  The acquisition was approved by the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), the Brazilian antitrust regulator, in September 2016 and by ANEEL in December 2016.  The acquisition was completed and control of our company was transferred to State Grid on January 23, 2017.  In November 2017, State Grid launched a mandatory tender offer for our shares.  Following the closing of this tender offer on December 5, 2017, State Grid jointly with ESC Energia S.A. held 964,521,902 of our common shares, equivalent to approximately 94.75% of our total share capital.  State Grid has announced that it intends to (i) cancel our registration as a Class A publicly-held company with the CVM; (ii) delist our company from the Novo Mercado section of the B3; (iii) delist our ADSs from the NYSE, and terminate the deposit agreement for our ADSs, and (iv) terminate our registration with the SEC.

The following significant developments have occurred in our business since the beginning of 2015:

·

In January 2015, we established CPFL Morro Agudo S.A., a subsidiary of CPFL Geração, which will operate electric energy transmission concessions and carry out construction, implementation, operation and maintenance of transmission facilities on the Basic Network in the Interconnected Power System.

 

·

In April 2015, Morro dos Ventos II Wind farm commenced operations.  Morro dos Ventos II, located in João Câmara, in the state of Rio Grande do Norte, has Installed Capacity of 29 MW and physical guarantee of 15.3 MW.  From April 2015 to January 2016, when the 2011 A-5 auction energy sale contract came into effect, the energy generated by Morro dos Ventos II was injected into the system and sold in the spot market.

 

·

In April 2015, at the 21st A-5/2015 Energy Auction, CPFL Renováveis traded an average of 14.8 MW of contracted energy to be generated by the Boa Vista II SHPPs.  The contract will have a duration of 30 years.

 

·

In an Extraordinary Shareholders’ Meeting held on September 30, 2015, our shareholders approved an internal transaction in which we transferred the Macaco Branco and Rio do Peixe plants from CPFL Centrais Geradoras Ltda. to CPFL Geração, in return for newly-issed shares of CPFL Geração in the amount of R$4 million, the book value of the plant transferred.  This transaction did not impact our audited annual consolidated financial statements for 2015. 

 

·

On December 9, 2015, distribution concessions held by our distribution subsidiaries CPFL Santa Cruz, CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista and CPFL Sul Paulista (now merged into CPFL Santa Cruz) were extended to July 2045 due to application of Law No.  12,783/13 of 2013, which provided the renewal of certain type of distribution concession, subject to certain conditions, for a further term of up to 30 years.  See “Item 4—Information on the Company— Concessions and Authorizations —Concessions”.

 

·

In May 2016, two generation facilities at the Mata Velha SHPP commenced operations, over a year and a half ahead of schedule.  Mata Velha, located in Unaí, in the state of Minas Gerais, has Installed Capacity of 24 MW and average physical guarantee of 13.1 MW.  According to the A-5 auction of 2013, the plant’s energy trading agreement takes effect in January 2017.  Since the plant was completed ahead of schedule, a free market sale agreement was signed, valid until the A-5 2013 auction agreement takes effect.

 

·

In May 2016, the Campo dos Ventos and São Benedito wind complexes started to enter into operations.  As of December 31, 2016, all nine wind farms in these complexes were operational.  The complexes have 231.0 MW (our share is 119 MW) of Installed Capacity and are located in the state of Rio Grande do Norte.

 

·

On June 15, 2016, our subsidiary CPFL Jaguariúna Participações Ltda. agreed to acquire 100% of AES Sul Distribuidora Gaúcha de Energia S.A. (which subsequently changed its name to RGE Sul Distribuidora de Energia S.A., or RGE Sul) from AES Guaíba II Empreendimentos Ltda.  RGE Sul acts as an electric energy distributor in the State of Rio Grande do Sul and has the exclusive right for distribution of energy to the captive market of 118 cities in the State. The transaction closed on October 31, 2016, and the financial results of RGE Sul are reflected in our audited annual consolidated financial statements for November and December 2016.  The purchase price after adjustment amounted to R$1,592 million.  After accounting for R$95 million in cash and cash equivalents acquired within RGE Sul, our net cash outflow on acquisition of RGE Sul was R$1,497 million.

 

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·

On June 2, 2017, CPFL Transmissão Morro Agudo S.A., or CPFL Morro Agudo, a subsidiary of CPFL Geração commenced operations. The concession contract has a duration of 30 years.

 

·

In June 2017, the Pedra Cheirosa wind complex commenced operations. Pedra Cheirosa, located in Itarema, in the state of Ceará, has Installed Capacity of 48.3 MW and a physical guarantee of 26.1 MW. Until December 2017, when the 2013 A-5 auction energy sale contract came into effect, the energy generated by Pedra Cheiorsa was supplied to the system and sold in the spot market.

 

·

On December 15, 2017, the management of RGE Sul and its parent company CPFL Jaguariúna Participações Ltda., CPFL Jaguarúna, approved the merger of CPFL Jaguariúna and RGE Sul. As a consequence of this merger, CPFL Jaguariúna was dissolved. This merger is expected to improve our governance structure and increase synergy with the other companies of the CPFL Energia group. As a result of this merger, the amount of capital stock of RGE Sul was increased by R$63.5 million. The amount of capital stock now held by shareholders CPFL Energia and CPFL Brasil totals R$1,431.6 million.

 

·

On November 21, 2017, through the Resolution for Authorization No. 6,723/2017, ANEEL approved our proposal to consolidate the concessions of our five distribution companies (CPFL Santa Cruz; Companhia Leste Paulista de Energia; Companhia Sul Paulista de Energia; Companhia Luz e Força de Mococa; and CPFL Jaguari, together the Merged Companies), pursuant to Normative Resolution No. 716/2016.  Effective as of January 1, 2018, the Merged Companies were merged with and into a company named CPFL Santa Cruz (which company was previously named CPFL Jaguari). This transaction was approved by Extraordinary General Meetings held on December 31, 2017 at each of the Merged Companies.  This merger is expected to optimize our administrative and operational costs and produce large-scale savings and synergy in 2018.

 

 

As a result of this merger transaction and the resulting transfer of the assets of the Merged Companies to CPFL Santa Cruz, the Merged Companies no longer exist and the capital stock of CPFL Santa Cruz (previously named CPFL Jaguari) was increased from R$20.6 million to R$170.4 million. Such shares are made up of 359,058,396 common shares, fully paid up, held by us as holder of the entire equity interest in CPFL Santa Cruz. For more information, see note 14.4.2 of our audited annual consolidated financial statements.

 

 

According to Normative Resolution No. 716/2016, until the first tariff review of the Merged Companies in March 2021, ANEEL may institute a policy that reconciles the variations in the old tariffs for each of the Merged Companies and the new unified tariff for CPFL Santa Cruz over time. ANEEL decided to introduce the unified tariff during the March 2018 tariff adjustment.

 

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The following chart provides an overview of our corporate structure at March 31, 2018: 

 

Notes:

(1)     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 Centrais Elétricas S.A., or Furnas.

(2)     RGE Sul is held by CPFL Energia (76.3893%) and CPFL Brasil (23.4561% ).

Our core businesses are:

·

Distribution.  In 2017, our five fully-consolidated distribution subsidiaries delivered 45,386 GWh of electricity to approximately 9.4 million consumers primarily in the states of São Paulo and Rio Grande do Sul.

 

·

Conventional Generation.  At December 31, 2017, our conventional generation subsidiaries had Installed Capacity of 2,198 MW.  During 2017, we generated 6,642 GWh of electricity, and we had 9,952 GWh of Assured Energy at December 31, 2017, 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 50 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. In 2017, we began to report within this business the activities of our two transmission assets held through CPFL Geração, CPFL Piracicaba and CPFL Morro Agudo, both of which are operational.

 

·

Renewable Generation.  Our indirect subsidiary, CPFL Renováveis, in which we own a 51.60% 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 40 of our 50 Small Hydroelectric Power Plants.  These 40 Small Hydroelectric Power Plants, of which (i) 39 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 423 MW, and (ii) one Small Hydroelectric Power Plants (Boa Vista II SHPP) under construction, scheduled to commence operations in 2020, and expected to have Installed Capacity of approximately 29.9 MW.  CPFL Renováveis also has 45 wind farms, located in the states of Ceará, Rio Grande do Norte and Rio Grande do Sul, all of which are operational and have aggregate Installed Capacity of 1,309 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, 2017, our total consolidated Installed Capacity through our Renewable Generation segment (calculated on the basis of our 51.60% interest in CPFL Renováveis) was 1,085 MW and we expect that our Renewable Generation segment will reach an Installed Capacity of 1,100 MW in 2020.  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”.

 

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·

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 2017, we sold 20,131GWh of electricity, of which 20,066GWh 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.

 

In addition to our five operating segments above, we consolidate a number of activities known as “Other”.  The activities consolidated under Other consist of, (i) CPFL Telecom and (ii) our holding company expenses other than the amortization of intangible assets related to our concessions, which is allocated to our operational segments.

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, 2017, our total consolidated Installed Capacity (calculated on the basis of our 51.60% interest in CPFL Renováveis) was 3,284 MW, of which 2,198MW was through conventional sources and 1,085 MW 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.  Today, we continue to be the largest energy renewable generation group in terms of Installed Capacity in operation in Brazil and in South America, according to ANEEL and Bloomberg New Energy Outlook.

Our total Installed Capacity at December 31, 2017 represents a 0.8% increase as compared to Installed Capacity of 3,259 MW at December 31, 2016 as a result of the Pedra Cheirosa wind complex beginning operations.  By the end of 2020, when we expect the Boa Vista SHPPs to become operational, we expect our total 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 209 MW (calculated on the basis of our 51.60% interest in CPFL Renováveis’ total portfolio of 406 MW) of renewable generation projects to be developed by CPFL Renováveis in the coming years.  When electricity consumption in Brazil returns to growth, we believe that there will continue to be new opportunities for us to explore investments in additional conventional and renewable generation projects. 

 

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Focus on further improving our operating efficiency.  The distribution of electricity in our distribution concession areas is our largest business segment, representing approximately 48.6% of our consolidated net income in 2017.  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.  We also understand the need to invest in digital assets, such as Smart Grid technology and in 2017 we deployed 1,355 automatic reclosers. These automatic reclosers are supported by our robust proprietary communication infrastructure, including digital radio communication systems, radio frequency mesh and a fiber optic network.

Expand and strengthen our commercialization.  Free Consumers make up a significant segment of the electricity market in Brazil, representing approximately 30% 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 operationsWe believe that further stabilization of the regulatory environment in the Brazilian power industry in future may lead to 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.

Strategy and management for sustainable development. We maintain a strategic focus on a low carbon business portfolio and climate change projects. We aim to strengthen our integrated business management through short- and medium-term economic-financial and socio-environmental key performance indicators and targets, as well as long-term strategic objectives aligned with the United Nations Sustainable Development Goals (SDGs) as well as other national and international commitments.

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 2017.  Our five distribution subsidiaries together supply electricity to a region covering 303,573 square kilometers, primarily in the states of São Paulo and Rio Grande do Sul.  Their concession areas include 6791 municipalities and a population of approximately 22.8 million people.  Together, they provided electricity to approximately 9.4 million consumers as of December 31, 2017.  Our five subsidiaries distributed approximately 14.2% of the total electricity distributed in Brazil in 2017, based on data from the EPE.

Distribution Companies

We have five 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 10.2 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 4.4 million consumers at December 31, 2017.  In 2017, CPFL Paulista distributed 20,485 GWh of electricity, accounting for approximately 24.1% of the total electricity distributed in the state of São Paulo and 6.4% of the total electricity distributed in Brazil during the year.

 

·

CPFL Piratininga.  Companhia Piratininga de Força e Luz, or CPFL Piratininga, supplies electricity to a concession area covering 6,785 square kilometers in the southern part of the state of São Paulo with a population of approximately 4.2 million people.  Its concession area covers 27 municipalities, including the cities of Santos, Sorocaba and Jundiaí.  CPFL Piratininga had approximately 1.7 million consumers at December 31, 2017.  In 2017, CPFL Piratininga distributed 7,921GWh of electricity, accounting for approximately 9% of the total electricity distributed in the state of São Paulo and 2.5% 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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·

RGE.  Rio Grande Energia S.A., or RGE, supplies electricity to a concession area covering 86,152 square kilometers in the state of Rio Grande do Sul with a population of approximately 3.9million people.  Its concession area covers 255 municipalities, including the cities of Caxias do Sul, Gravataí, Passo Fundo and Bento Gonçalves.  RGE had approximately 1.5 million consumers at December 31, 2017.  In 2017, RGE supplied 7,949 GWh of electricity, accounting for approximately 33.2% of the total electricity distributed in the state of Rio Grande do Sul and 2.5% of the total electricity distributed in Brazil during the year.

 

·

RGE Sul.  RGE Sul Distribuidora de Energia S.A., or RGE Sul, supplies electricity to a concession area covering 99,512 square kilometers in the state of Rio Grande do Sul with a population of approximately 3.4 million people.  Its concession area covers 118 municipalities, including the cities of Canoas, São Leopoldo, Novo Hamburgo, Santa Maria and Uruguaiana.  RGE Sul had approximately 1.3 million consumers at December 31, 2017.  In 2017, RGE Sul supplied 6,771 GWh of electricity.

 

·

CPFL Santa Cruz.  CPFL Santa Cruz supplies electricity to a concession area covering 20,684 square kilometers, which includes 39 municipalities in the northwest part of the state of São Paulo, three municipalities in the state of Paraná and three municipalities in the state of Minas Gerais. In 2017, CPFL Santa Cruz distributed 2,260 GWh of electricity to approximately 447,000 consumers, accounting for approximately 2% of the total electricity distributed in the state of São Paulo and 0.7% of the total electricity distributed in Brazil during the year.

 

 

CPFL Santa Cruz is the surviving entity of the merger of our five previous distribution companies CPFL Santa Cruz; Companhia Leste Paulista de Energia; Companhia Sul Paulista de Energia; Companhia Luz e Força de Mococa; and CPFL Jaguari.

 

 

On December 9, 2015, the concessions held by the Merged Companies were extended to July 2045.  For further information on the extension of these concessions, see “Our Concessions and AuthorizationsConcessions”.

  

Distribution Network

Our five 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, including Free Consumers and other concessionaires, are required to pay a tariff for using the system (Tarifa de Uso do Sistema de Distribuição), or TUSD.

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, 2017, our distribution networks consisted of 318,018 kilometers of distribution lines, including 457,741 distribution transformers, and 12,504 km of High Voltage distribution lines between 34.5 kV and 138 kV.  At that date, we had 547 transformer substations for transforming High Voltage into Medium Voltages for subsequent distribution, with total transforming capacity of 18,468 mega‑volt amperes.  Of the industrial and commercial consumers in our concession area, 387 had 69 kV, 88 kV or 138 kV high‑voltage electricity supplied through direct connections to our High Voltage distribution lines.

 

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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 historical largest distribution subsidiaries (CPFL Paulista, CPFL Piratininga and RGE) compare favorably to the average for other major Brazilian electricity distributors 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.  According to the same information, RGE Sul’s loss rates also compare favorably to the national average, although to a lesser degree than our three historical largest subsidiaries.

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 five 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 approximately 441,000 inspections during 2017, which we believe led to a recognition of previously unbilled receivables estimated at approximately R$60.3 million.

Power Outages

The following table sets forth the frequency and duration of electricity outages per consumer for the years ended December 31, 2017 and 2016 for each of our distribution subsidiaries:

 

Year ended December 31, 2017

 

CPFL Paulista

CPFL Piratininga

RGE

RGE Sul

CPFL Santa Cruz(3)

CPFL Jaguari(3)

CPFL Mococa(3)

CPFL Leste Paulista(3)

CPFL Sul Paulista(3)

SAIFI1

4.94

4.45

7.74

7.62

3.69

5.64

6.04

6.19

6.77

SAIDI2

7.14

6.97

14.16

15.58

4.82

6.31

5.92

7.91

8.20

 

 

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

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

(3) Merged into CPFL Santa Cruz effective as of January 1, 2018. For more information, see “Item 4. Information on the Company—Overview” and Note 14.4.2 of our audited annual consolidated financial statements.

 

 

 

Year ended December 31, 2016

 

CPFL Paulista

CPFL Piratininga(4)

RGE

RGE Sul(3)

CPFL Santa Cruz(5)

CPFL Jaguari(5)

CPFL Mococa(5)

CPFL Leste Paulista(5)

CPFL Sul Paulista(5)

SAIFI1

5.00

3.97

7.56

9.41

4.09

6.13

6.63

5.73

11.76

SAIDI2

7.62

8.44

14.44

19.45

5.65

7.10

10.56

8.01

15.20

 

 

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

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

(3) Acquired by us on October 31, 2016.  RGE Sul was not a subsidiary of our company for the first 10 months of 2016.  
(4) In our annual report for 2016, we published SAIFI of 3.80 and SAIDI of 6.97 for CPFL Piratininga, which statistics excluded the effect of a failure in transmission provided by CTEEP due to a storm.  A decision by ANEEL required us to include the effect of this outage in the statistics for CPFL Piratininga.

(5) Merged into CPFL Santa Cruz effective as of January 1, 2018. For more information, see “Item 4. Information on the Company—Overview” and Note 14.4.2 of our audited annual consolidated financial statements.

 

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 2016, the most recent data available, our frequency and duration of interruptions per consumer in the past few years compare favorably to the averages for other Brazilian distribution companies. In addition, our SAIDI and SAIFI numbers have improved significantly from 2016 to 2017, evidencing the effectiveness of our maintenance and investments in these distribution companies.

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.  Following our acquisition of RGE Sul on October 31, 2016, we are currently in discussions with the regulator regarding planned investments designed to improve RGE Sul’s performance indicators, taking into account its current indicators and the characteristics of its concession area.

 

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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 2017, according to data from ANEEL, the amount we reimbursed our consumers remained 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 12.6% 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 2017, we invested approximately R$1,882.5 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 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 2017, 9.0% of the total electricity our distribution subsidiaries acquired was purchased from our generation subsidiaries (including our joint ventures).

In 2017, we purchased 11,779 GWh of electricity from the Itaipu Power Plant, amounting to 15.1% 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$28.73/kW.  Our purchases represent approximately 19.6% (including RGE Sul) of Itaipu’s total supply to Brazil, disregarding the two-month period purchases of electricity by our distribution subsidiary RGE Sul, which control was acquired on October 31, 2016.  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 2017, we paid an average of R$199.58 per MWh for purchases of electricity from Itaipu, compared with R$192.99 during 2016 and R$279.65 during 2015.  These figures do not include the transmission fee.

We purchased 66,195 GWh of electricity in 2017 from generating companies other than Itaipu, representing 84.9% of the total electricity we purchased.  We paid an average of R$191.88 per MWh for purchases of electricity from generating companies other than Itaipu, compared with R$164.77 per MWh in 2016 and R$210.44 per MWh in 2015.  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”.

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,

 

2017

2016

2015

 

(in GWh)

Energy purchased for resale

 

 

 

Itaipu

11,779

10,497

10,261

Electric Energy Trading Chamber - CCEE

2,453

1,195

2,946

Proinfa Program

1,142

1,058

1,058

Energy purchased in the Regulated Market and through bilateral contracts

62,600

51,225

44,342

TOTAL

77,974

63,975

58,607

 

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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 have been 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.  Since distribution companies are required to contract in advance, through public bids, for 100% of their forecast electricity needs and are only authorized to pass through the cost of up to 105% of this electricity to consumers, any involuntary quota to be purchased from generation companies whose concessions were renewed under Law 12,783/13 that takes a distributor’s energy volume to more than 105% of its forecast would lead to additional costs for the distributor.  As a result, Normative Resolution No.  706 of March 29, 2016 provided that the costs resulting from involuntary purchase quotas can be passed on to consumers, and the energy volume can be offset from electricity auctions from existing power generation facilities in the following years.  See “Item 3.  Key Information—Risk Factors—Our operating results depend on prevailing hydrological conditions.  Poor hydrological conditions may affect our results of operations” and “Item 3.  Key Information—Risk Factors—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”.

Transmission Tariffs.  In 2017, we paid a total of R$1,284 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 25 to our audited annual consolidated financial statements for a breakdown of our sales by category.

·         Industrial consumers.  Sales to final industrial consumers accounted for 19.8% of revenues from electricity sales in our Distribution segment in 2017.

·         Residential consumers.  Sales to final residential consumers accounted for 45.2% of our revenues from electricity sales in our Distribution segment in 2017.

·         Commercial consumers.  Sales to final commercial consumers, which include service businesses, universities and hospitals, accounted for 21.3% of our revenues from electricity sales in our Distribution segment in 2017.

·         Rural consumers.  Sales to final rural consumers accounted for 4.6% of our revenues from electricity sales in our Distribution segment in 2017.

·         Other consumers.  Sales to other consumers, which include public and municipal services such as street lighting, accounted for 9.4% of our revenue of electricity sales in our Distribution segment in 2017.

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”.

 

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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 2017 and 2016.  These prices include taxes (ICMS, PIS and COFINS) and were calculated based on our revenues and the volume of electricity sold in 2017 and 2016.

 

 

Year ended December 31, 2017

 

CPFL Paulista

CPFL Piratininga

RGE

RGE Sul

CPFL Santa Cruz(2)

CPFL Leste Paulista(2)

CPFL Sul Paulista(2)

CPFL Jaguari(2)

CPFL Mococa(2)

 

(R$/MWh)

Residential

572.79

585.98

667.24

708.93

646.21

620.96

632.70

590.43

664.57

Industrial

554.80

493.84

500.10

583.76

566.56

518.58

452.88

461.75

565.57

Commercial

563.84

532.64

652.20

706.58

632.20

583.81

585.65

532.52

630.32

Rural

322.43

361.45

339.60

271.45

388.09

360.66

386.92

362.72

407.56

Other

425.13

383.42

264.44

607.72

340.23

442.23

425.43

410.70

449.41

Average

531.64

533.29

502.12

580.28

522.10

507.47

529.24

496.70

567.33

 

 

 

Year ended December 31, 2016

 

CPFL Paulista

CPFL Piratininga

RGE

RGE Sul(1)

CPFL Santa Cruz(2)

CPFL Leste Paulista(2)

CPFL Sul Paulista(2)

CPFL Jaguari(2)

CPFL Mococa(2)

 

(R$/MWh)

Residential

591.80

679.76

665.32

742.37

665.54

599.01

616.72

580.38

650.89

Industrial

569.16

575.46

496.30

582.93

584.23

524.54

460.80

466.23

536.60

Commercial

571.80

609.34

654.51

734.76

650.17

567.98

577.97

531.61

617.03

Rural

322.86

419.32

332.16

275.02

404.93

352.51

379.15

353.03

382.57

Other

434.09

436.56

262.92

505.37

333.73

435.06

419.70

405.37

437.20

Average

546.79

612.09

501.75

590.87

537.89

499.18

521.06

490.20

549.57

 

(1) Average retail prices of RGE Sul reflect the two-month period (November and December 2016) following our acquisition of RGE Sul on October 31, 2016.
(2) On November 21, 2017, through the Resolution for Authorization No. 6,723/2017, ANEEL approved our proposal to consolidate the concessions of our five distribution companies (CPFL Santa Cruz; Companhia Leste Paulista de Energia; Companhia Sul Paulista de Energia; Companhia Luz e Força de Mococa; and CPFL Jaguari, together the Merged Companies), pursuant to Normative Resolution No. 716/2016.  Effective as of January 1, 2018, the Merged Companies were merged with and into a company named CPFL Santa Cruz (which company was previously named CPFL Jaguari). For more information, see “Item 4. Information on the Company—Overview” and note 14.4.2 of our audited annual consolidated financial statements.

 

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, which are set by ANEEL, consist of the three tariffs described under “Item 4.  Information on the CompanySystem TariffsTUSD”.  In 2017, tariff revenues for the use of our network by Free Consumers amounted to R$2,137.6 million.  The average tariff for the use of our network was R$105.73/MWh and R$130.88/MWh in 2017 and 2016, 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, and consumers of our subsidiary RGE, whose meters are read in intervals varying from one to three months.  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 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 the most recent data from ABRADEE, 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 over 90 days overdue.  Bills due and outstanding for over 360 days are classified as irrecoverable.

Customer Service

We strive to provide high‑quality customer service to our distribution consumers.  We provide customer service 24 hours a day, seven days a week.  The requests are received using a variety of platforms such as call centers, our website, SMS and our smartphone application.  In 2017, we responded to approximately 47.9 million inquiries.  We also provide customer service through our branch offices, which handled approximately 5.6 million customer requests in 2017.  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 regulations, revenues from generation are based mainly on the 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 its Assured Energy, even if it does not actually generate all the energy.  For more information, see “—The Brazilian Power Industry—Generation Scaling Factor”.  Conversely, if a generation facility’s output exceeds its Assured Energy, its incremental revenue is equal only to the costs associated with generating the additional energy.

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 3,284 MW as of December 31, 2017.  Most of the electricity we produce comes from our Hydroelectric Power Plants.  We generated a total of 10,137 GWh in 2017, 12,568 GWh in 2016 and 14,310 GWh in 2015.

If less than the total Assured Energy is being generated (i.e., if the GSF is less than 1.0), hydroelectric companies must purchase energy in the spot market to cover the energy shortage and meet their Assured Energy volumes under the MRE.  From 2005 to 2012, the GSF remained above 1.0.  Beginning in 2013, however, this scenario began to change, which led the GSF to remain below 1.0 for the whole of 2014, and in 2015 it ranged from 0.783 to 0.825, requiring electricity generators to purchase energy in the spot market, thereby incurring significant costs.  Under Federal Law 13,203, however, we renegotiate our power purchase agreements for the Regulated Market in December 2015, setting the GSF cost at a risk premium of R$9.50/MWh per year through the end of the power purchase agreement or the end of the concession, whichever occurs sooner.  For more information on the GSF and Federal Law 13,203, see “—The Brazilian Power Industry—Generation Scaling Factor”.

 

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Conventional Generation

Hydroelectric Power Plants

At December 31, 2017, 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 Energia S.A. (formerly VBC), one of our 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’ 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. In 2016, due to the renegotiated GSF, the Serra da Mesa concession was extended to September 30, 2040, in accordance with ANEEL’s Authoritative Resolution No. 6,055/2016.

CERAN Hydroelectric 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 CERAN Hydroelectric 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 Hydroelectric Complex has an Installed Capacity of 360 MW and estimated Assured Energy of 1,515.5 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.  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.  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.

 

·

14 de Julho.  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 GWh. 

 

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We are currently assessing alternative measures in order to raise our results. Discussions are currently underway with ANEEL and other entities in the transmission sector, regarding the conditions under which we will transfer the Monte Claro Substation to the basic network, which could eliminate maintenance costs and our responsability 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. (11.63%) 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.  We sell 40.0% of our share in the Assured Energy of this project to affiliates in our group and 60.0% 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 and responsibility for operation of these assets, and reducing the transmission line energy loss factor (regulatory loss).  The transfer process was completed in October 2016.

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 341.5 MW and total Assured Energy of 2,169.9 GWh per year.  On December 31, 2017, we owned an aggregate 53.34% interest in Termonordeste and Termoparaíba.  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. 

The remaining facility, Carioba, 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.  Commencing 2016 we have ceased to include Carioba in our installed capacity since the facility is inactive.

 

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Small Hydroelectric Power Plants

At December 31, 2017, 10 of our 50 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 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 (now all merged into CPFL Santa Cruz), 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.  In addition, the concession agreements for Macaco Branco and Rio do Peixe were transferred from CPFL Centrais Geradoras to CPFL Geração on September 30, 2015 (see “–Overview”).

 

·

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.

 

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, 2017: 

 

 

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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

2039(1)

Monte Claro

CPFL Geração

65%

84.5

130.0

335.9

516.8

2004

2036

Barra Grande

CPFL Geração

25.01%

172.5

690.0

833.7

3,334.1

2005

2036

Campos Novos

CPFL Geração

48.72%

428.8

880.0

1,612.9

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

 

8,710.8

 

 

 

 

 

 

 

 

 

 

 

 

Thermoelectric plants:

 

 

 

 

 

 

 

 

Carioba

CPFL Geração

100%

-

-

-

-

1954

2027(2)

EPASA facilities:

 

 

 

 

 

 

 

 

Termonordeste

CPFL Geração

53.34%(4)

91.1

170.8

578.5

1,084.5

2010

2042

Termoparaíba

CPFL Geração

53.34%(4)

91.1

170.8

578.9

1,084.5

2011

2042

SUBTOTAL - Thermoelectric plants

 

 

182.2

 

1,157.4

 

 

 

 

 

 

 

 

 

 

 

 

Small Hydroelectric Plants

 

 

 

 

 

 

 

 

Cariobinha

CPFL Geração

100%

-

-

-

-

N/A

2027(2)

Lavrinha

CPFL Centrais Geradoras

100%

0.3

0.3

2.1

2.1

N/A

(3)

Macaco Branco

CPFL Geração

100%

2.4

2.4

14.5

14.5

N/A

2042

Pinheirinho

CPFL Centrais Geradoras

100%

0.7

0.7

4.2

4.2

N/A

(3)

Rio do Peixe I

CPFL Geração

100%

3.1

3.1

3.9

3.9

N/A

2042

Rio do Peixe II

CPFL Geração

100%

15.0

15.0

46.8

46.8

N/A

2042

Santa Alice

CPFL Centrais Geradoras

100%

0.6

0.6

3.6

3.6

N/A

(3)

São José

CPFL Centrais Geradoras

100%

0.8

0.8

2.1

2.1

N/A

(3)

São Sebastião

CPFL Centrais Geradoras

100%

0.7

0.7

4.6

4.6

N/A

(3)

Turvinho

CPFL Centrais Geradoras

100%

0.8

0.8

2.2

2.2

N/A

(3)

SUBTOTAL – Small Hydroelectric Plants   

 

 

24.4

 

84.0

 

 

 

TOTAL – Conventional Generation