As filed with the Securities and Exchange Commission on June 30, 2010
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2009
Commission file number: 001-14668
COMPANHIA PARANAENSE DE ENERGIA – COPEL
(Exact Name of Registrant as Specified in its Charter)
Energy Company of Paraná (Translation of Registrant’s Name into English) | The Federative Republic of Brazil (Jurisdiction of Incorporation or Organization) |
Rua Coronel Dulcídio, 800
80420-170 Curitiba, Paraná, Brazil
(Address of Principal Executive Offices)
Ronald Thadeu Ravedutti
+55 41 3222 2027 - ri@copel.com
Rua Coronel Dulcídio, 800, 3rd floor - 80420-170 Curitiba, Paraná, 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:
| Name of Each Exchange on Which Registered |
Preferred Class B Shares, without par value* | New York Stock Exchange |
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Preferred Class B Share | New York Stock Exchange |
* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange.
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
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of December 31, 2009:
145,031,080 Common Shares, without par value
394,841 Class A Preferred Shares, without par value
128,229,454 Class B Preferred Shares, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesx 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¨ Nox
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.
Yesx 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).
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 filerx Accelerated filer¨ Non-accelerated filer¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP¨ IFRS ¨ Otherx
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 18x
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¨ Nox
PRESENTATION OF INFORMATION
In this annual report, we refer to Companhia Paranaense de Energia—Copel, and, unless the context otherwise requires, its consolidated subsidiaries as “Copel,” the “Company,” “we” or “us.”
References to (i) the “real,” “reais” or “R$” are to Brazilianreais (plural) and the Brazilianreal (singular) and (ii) “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars.
Our audited consolidated financial statements as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 included in this annual report have been prepared in accordance with the accounting practices adopted in Brazil (“Brazilian GAAP”), which are based on:
· Brazilian corporate law (“Lei das SAs” or “Brazilian Corporate Law”);
· the rules and regulations of the Brazilian Securities Commission,Comissão de Valores Mobiliários(“CVM”);
· the accounting manual of the Brazilian regulatory agency for the electricity sector,Agência Nacional de Energia Elétrica— ANEEL (“ANEEL”); and
· the accounting standards issued by the Accounting Pronouncements Committee,Comitê de Pronunciamentos Contábeis, (the “CPC”).
Brazilian GAAP differs in certain material respects from accounting principles generally accepted in the United States (“U.S. GAAP”). For more information about the main differences between Brazilian GAAP and U.S. GAAP, and a reconciliation of our net income and shareholders’ equity from Brazilian GAAP to U.S. GAAP, see Note 41 to our consolidated financial statements.
References in this annual report to the “Common Shares,” “Class A Shares” and “Class B Shares” are to our common shares, class A preferred shares and class B preferred shares, respectively. References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing one Class B Share. The ADSs are evidenced by American Depositary Receipts (“ADRs”).
Certain terms are defined the first time they are used in this annual report. As used herein, all references to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively, references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively, references to “MW” and “MWh” are to megawatts and megawatt hours, respectively, and references to “kV” are to kilovolts. These and other technical terms are defined in the “Technical Glossary” that begins on page 99.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. We may also make written or oral forward-looking statements in our annual report to shareholders, in our offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees. These statements are not historical facts and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “anticipates,” “believes,” “estimates,” “expects,” “plans” and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve only the current view of management and are subject to a number of inherent risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to:
· Brazilian political and economic conditions;
· economic conditions in the State of Paraná;
· developments in other emerging market countries;
· our ability to obtain financing;
· lawsuits;
· technical and operational difficulties related to the provision of electricity services;
· changes in, or failure to comply with, governmental regulations;
· competition;
· electricity shortages; and
· other factors discussed below under “Item 3. Key Information – Risk Factors.”
All forward-looking statements are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement contained in this annual report.
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 DATA
You should read the selected financial information presented below in conjunction with the consolidated financial statements and the notes thereto.
The selected financial data as of and for the year ended December 31, 2005 have been prepared in accordance with Brazilian GAAP in force at the time of the preparation of such financial statements, which does not include certain accounting standards that became effective as of January 1, 2006.
Our consolidated financial statements are prepared in accordance with Brazilian GAAP, which differs in certain material respects from U.S. GAAP. See Note 41 to our consolidated financial statements for a summary of the main differences between Brazilian GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of shareholders’ equity as of December 31, 2009 and 2008 and net income for the years ended December 31, 2009, 2008 and 2007.
| As of and for the year ended December 31, |
| | | | | |
| (R$ million) |
Income Statement Data: | | | | | |
Brazilian GAAP | | | | | |
Operating revenues | 8,797 | 8,305 | 7,920 | 7,421 | 6,801 |
Net operating revenues | 5,617 | 5,459 | 5,204 | 4,681 | 4,440 |
Operating expenses | (4,270) | (4,012) | (3,636) | (3,160) | (3,620) |
Operating income(3) | 1,347 | 1,447 | 1,568 | 1,521 | 820 |
Financial income (expenses), net | 66 | 94 | 20 | 295 | (101) |
Equity in results of investees | 14 | 14 | 10 | (1) | 9 |
Other income (expense), net | – | _ | _ | _ | (11) |
Income taxes | (377) | (458) | (460) | (558) | (198) |
Income (loss) before non-controlling interest and extraordinary item | 1,050 | 1,097 | 1,138 | 1,257 | 519 |
Non-controlling interest | (23) | (18) | (31) | (14) | (16) |
Net income (loss) | 1,026 | 1,079 | 1,107 | 1,243 | 503 |
Dividends declared(4) | 249 | 262 | 268 | 281 | 123 |
U.S. GAAP | | | | | |
Operating revenues | 8,797 | 8,305 | 7,920 | 7,421 | 6,801 |
Net operating revenues | 5,617 | 5,459 | 5,204 | 4,681 | 4,440 |
Operating income | 1,245 | 1,338 | 1,352 | 1,464 | 884 |
Net income (loss)(6) | 929 | 948 | 998 | 1,027 | 565 |
Net income (loss) attributable to parent company(6) | 914 | 923 | 982 | 1,024 | 549 |
Net income (loss) attributable to non-controlling interest(6) | 15 | 25 | 16 | 3 | 16 |
Balance Sheet Data: | | | | | |
Brazilian GAAP | | | | | |
Current assets | 3,828 | 3,573 | 3,288 | 3,080 | 2,472 |
Recoverable rate deficit (CRC)(5) | 1,255 | 1,320 | 1,250 | 1,194 | 1,182 |
Non-current assets | 1,950 | 2,118 | 1,978 | 1,828 | 2,047 |
Property, plant and equipment, net | 7,528 | 7,049 | 6,835 | 6,733 | 5,991 |
Total assets | 13,833 | 13,254 | 12,473 | 11,990 | 10,930 |
Loans and financing and debentures (current) | 136 | 293 | 265 | 929 | 215 |
Current liabilities | 1,841 | 1,963 | 1,941 | 2,648 | 2,352 |
Loans and financing and debentures (long-term) | 1,537 | 1,571 | 1,838 | 1,733 | 1,829 |
Non-current liabilities | 2,909 | 2,997 | 3,065 | 2,759 | 2,947 |
Shareholders’ equity | 8,830 | 8,053 | 7,236 | 6,376 | 5,487 |
Capital stock | 4,460 | 4,460 | 4,460 | 3,875 | 3,480 |
U.S. GAAP | | | | | |
Total assets | 14,116 | 12,902 | 12,236 | 11,854 | 11,122 |
Non-current liabilities | 2,979 | 2,129 | 2,201 | 1,812 | 2,803 |
Shareholders’ equity(6) | 9,239 | 8,762 | 8,089 | 7,407 | 6,079 |
Shareholders’ equity attributable to parent company(6) | 9,022 | 8,551 | 7,893 | 7,221 | 6,011 |
Shareholders’ equity attributable to non-controlling interest(6) | 216 | 211 | 196 | 185 | 68 |
| As of and for the year ended December 31, |
| | | | | |
| (R$ except numbers of shares) |
Share and per share data: | | | | | |
Brazilian GAAP | | | | | |
Net income per share at year end: | 3.75 | 3.94 | 4.04 | 4.54 | 1.84 |
Dividends per share at year end | | | | | |
Common Shares | 0.87 | 0.91 | 0.93 | 0.98 | 0.43 |
Class A Shares | 1.63 | 1.63 | 1.63 | 1.41 | 1.27 |
Class B Shares | 0.96 | 1.00 | 1.03 | 1.07 | 0.47 |
Number of shares outstanding at year end (in thousands): | | | | | |
Common Shares | 145,031 | 145,031 | 145,031 | 145,031 | 145,031 |
Class A Shares | 395 | 398 | 398 | 399 | 403 |
Class B Shares | | | | | |
Total | | | | | |
U.S. GAAP | | | | | |
Basic and diluted - earnings per share: | | | | | |
Common Shares | 3.19 | 3.22 | 3.43 | 3.57 | 1.94 |
Class A Shares | 4.18 | 4.17 | 4.37 | 4.25 | 1.27 |
Class B Shares | 3.51 | 3.54 | 3.77 | 3.93 | 2.14 |
Shares outstanding (weighted average – in thousands): | | | | | |
Common Shares | 145,031 | 145,031 | 145,031 | 145,031 | 145,031 |
Class A Shares | 396 | 398 | 399 | 403 | 404 |
Class B Shares | | | | | |
Total | | | | | |
| | | | | | |
____________
(1) On July 2, 2007, the shareholders approved a reverse split of our shares 1,000-for-1. For comparative purposes, this chart reflects the reverse split retroactively for the years of 2006 and 2005.
(2) The 2006 financial information includes the accounts of our subsidiary Araucaria.
(3) Operating income before financial results and equity in results of investees.
(4) We may elect to treat dividends for Brazilian tax purposes as interest on equity, subject to limitations under Brazilian Corporate Law. The amount of interest on equity included in our dividends was R$ 230.0 million in 2009, R$ 228.0 million in 2008, R$ 200.0 million in 2007, R$ 123.0 million in 2006 and the entire amount distributed in 2005.
(5) Amounts due from the State of Paraná that were included in current assets totaled R$ 50.0 million in 2009, R$ 47.1 million in 2008, R$ 40.5 million in 2007, R$ 35.2 million in 2006 and R$ 31.8 million in 2005. Amounts due from the State of Paraná that were included in long-term assets totaled R$ 1,205 million in 2009, R$ 1,272.8 million in 2008, R$ 1,209.9 million in 2007, R$ 1,158.9 million in 2006 and R$ 1,150.5 million in 2005. See Note 9 to our consolidated financial statements. This item includes both current and non-current CRC account receivables.
(6) Effective January 1, 2009, Company adopted the new accounting guidance for “Non-controlling interests in consolidated financial statements.” The prior periods have also been adjusted for the adoption of this guidance.
EXCHANGE RATES
While the Banco Central do Brasil (the “Central Bank”) allows thereal/U.S. dollar exchange rate to float freely, it has intervened occasionally to control unstable movements in foreign exchange rates. Thereal may depreciate or appreciate against the U.S. dollar substantially in the future. For more information on these risks, see “Risk Factors – Risks Relating to Brazil.”
The following table provides information on the selling exchange rate, expressed inreais per U.S. dollar (R$/U.S.$), for the periods indicated.
| Exchange rate of Brazilian currency per U.S.$1.00 |
| | | | |
2005 | 2.1633 | 2.7621 | 2.4125 | 2.3407 |
2006 | 2.0586 | 2.3711 | 2.1679 | 2.1380 |
2007 | 1.7325 | 2.1556 | 1.9300 | 1.7713 |
2008 | 1.5593 | 2.5004 | 1.8335 | 2.3370 |
2009 | 1.7024 | 2.4218 | 1.9905 | 1.7412 |
____________
Source:Central Bank.
(1) Represents the average of the exchange rates on the last day of each month during the relevant period.
| | |
December 2009 | 1.7096 | 1.7879 |
January 2010 | 1.7227 | 1.8748 |
February 2010 | 1.8046 | 1.8773 |
March 2010 | 1.7637 | 1.8231 |
April 2010 | 1.7306 | 1.7806 |
May 2010 | 1.7315 | 1.8811 |
June 2010 (until June 10, 2010) | 1.8185 | 1.8658 |
____________
Source:Central Bank.
We have translated some of the U.S. dollar amounts contained in this annual report intoreais. The rate used to translate such amounts was R$ 1.7412 to U.S.$ 1.00, which was the rate for the selling of U.S. dollars in effect as of December 31, 2009 as reported by the Central Bank of Brazil. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the U.S. dollar amounts represent, or could have been converted into,reais.
RISK FACTORS
Risks Relating to Brazil
Brazilian political and economic conditions could affect our business and the market price of the ADSs and our common shares.
The Brazilian government’s economic policies have in the past involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by these economic policies should they be reinstated. These and other measures could also affect the market price of the ADSs and our common shares.
Fluctuations in the value of the Brazilian real against foreign currencies may result in uncertainty in the Brazilian economy and the Brazilian securities market, and they could have a material adverse effect on our net income and cash flow.
In recent years, the Brazilianreal has fluctuated against foreign currencies, and the value of therealmay rise or decline substantially from current levels. For several years, and continuing through the first half of 2008, the Brazilianrealstrengthened regularly against the U.S. dollar. Thereal depreciated significantly against the U.S. dollar in the second half of 2008, but then appreciated against the U.S. dollar in 2009 in the context of broader economic recovery in Brazil. For additional information about historical exchange rates and the impact of the depreciation of thereal, see “Item 3. Key Information – Exchange Rates.”
Depreciation of therealincreases the cost of servicing our foreign currency-denominated debt and the cost of purchasing electricity from the Itaipu power plant, a hydroelectric facility that is one of our major suppliers and that adjusts electricity prices based in part on its U.S. dollar costs. Depreciation of therealalso creates additional inflationary pressures in Brazil that may negatively affect us. Depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. dollar value of our dividends and the U.S. dollar equivalent of the market price of our common shares and the ADSs.
If Brazil experiences substantial inflation in the future, our margins and the market price of the Class B Shares and ADSs may be reduced.
Brazil has in the past experienced extremely high rates of inflation. More recently, Brazil’s annual rates of inflation, measured in accordance with the variation of theÍndice Geral de Preços — Disponibilidade Interna (“IGP-DI”) index, were 3.8% in 2006, 7.9% in 2007, 9.1% in 2008, (1.4)% in 2009, and 2.8% for the three months ended March, 31, 2010. The Brazilian government has in the past taken measures to combat inflation, and public speculation about possible future government actions have had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual readjustments based on inflation indices, if Brazil experiences substant ial inflation in the future, and the Brazilian government adopts inflation control policies similar to those adopted in the past, our costs may increase faster than our revenues, our operating and net margins may decrease and, if investor confidence lags, the price of the Class B Shares and ADSs may fall. Inflationary pressures may also curtail our ability to access foreign financial markets and may lead to further government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy.
Changes in Brazilian tax policies may have an adverse effect on us.
The Brazilian government has changed its tax policies in ways that affect the electricity sector, and it is likely to do so again in the future. These changes include increases in the tax rates affecting energy companies and, occasionally, the collection of temporary taxes related to specific governmental purposes. If we are unable to adjust our tariffs accordingly, we may be adversely affected.
Political instability surrounding the upcoming presidential election in Brazil could adversely affect our results of operations and the price of our Class B shares and ADSs
The next presidential election in Brazil is scheduled for October 2010, and we cannot guarantee that the next administration will maintain the economic policies that were adopted by the current administration. If the Brazilian government were to make significant changes to current economic policy, these changes could adversely affect our results of operations, the market price of our Class B shares and ADSs, as well as the Brazilian economy generally.
In addition, uncertainty concerning the results of the election and speculation surrounding actions of the future government could influence the perception of risk in Brazil among international investors, which could in turn adversely affect the market price of our Class B shares and ADSs. The market prices of Brazilian companies have been volatile during past presidential elections.
Risks Relating to Our Operations
We are controlled by the State of Paraná, and government policy could have a material adverse effect on us and on our business.
We are controlled by the State of Paraná, which holds 58.6% of our outstanding common voting shares as of the date of this annual report, and whose interests may differ from other shareholders. As a major shareholder, the State of Paraná has the power to control all of our operations, including the power to elect a majority of the members of our Board of Directors and determine the outcome of any action requiring common shareholder approval, including transactions with related parties and corporate reorganizations.
Government policies undertaken by the State of Paraná in accordance with federal law could have a material adverse effect on us and our business, results of operations, financial condition or prospects.
We are largely dependent upon the economy of the State of Paraná.
Our distribution market for the majority of our sales of electricity is located in the State of Paraná. Although a more competitive market involving possible sales to customers outside Paraná might develop in the future, our business depends and is expected to continue to depend to a very large extent on the economic conditions of Paraná. We cannot assure you that economic conditions in Paraná will be favorable to us in the future. The GDP (Gross Domestic Product) of the State of Paraná decreased 0.5% in 2009, while Brazil’s GDP decreased 0.2% during the same period.
We are involved in several lawsuits that could have a material adverse effect on our business if their outcome is unfavorable to us.
As a result of our operating activities in the electric energy sector, our contractual relationships and our investments, we are the defendant in several legal actions, mainly relating to civil, administrative, labor and tax claims. The outcome of these proceedings is uncertain and, if determined against us, may result in obligations that could materially affect our results of operations. For additional information, see “Item 8. Financial Information –Legal Proceedings.”
The development of power generation projects is subject to substantial risks.
In connection with the development of a generation project, we generally must obtain feasibility studies, governmental concessions or authorizations, permits and approvals, condemnation agreements, equipment supply agreements, engineering, procurement and construction contracts, sufficient equity and debt financing and site agreements, each of which involves third parties over which we have no control. In addition, project development is subject to environmental, engineering and construction risks that can lead to cost overruns, delays and other impediments to timely complete within a project’s budget. We cannot assure you that all required permits and approvals for our projects will be obtained, that we will be able to secure private sector partners for any of ourprojects, that we or any of our partners will be able to obtain adequate financing for our projects or that financing will be available on a non-recourse basis to us. If we are unable to complete a project, whether at the initial development phase or after construction has commenced, we may not be able to recover our investment in such a project, which may be substantial.
Risks Relating to the Brazilian Electricity Sector
We are uncertain as to the renewal of our concessions.
We carry out our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian federal government. Our current concessions range in duration from 20 to 35 years, with the first set to expire in 2015.
Thirteen of our generation concessions have already been renewed once and are therefore not entitled to further renewal without undergoing a public bidding process, pursuant to applicable law. The concessions for three of our generation facilities will expire in 2015 (namely, the Capivari Cachoeira, Mourão and Chopim I facilities). Our generation concessions that have not yet been renewed may be renewed for an additional 20-year period, except for the concession of the Mauá facility, which is subject to a non-renewable concession. Our main transmission and our distribution concessions will expire in July 2015 and may be extended another 20 years, at the discretion of the granting authority. Our other transmission concessions may be renewed for 30 years.
The Brazilian constitution requires that all concessions relating to public services, such as electricity, be awarded through a bidding process. Under laws and regulations specific to the electric sector, the federal government may renew existing concessions for additional periods, provided that the concessionaire has met minimum performance standards and that the proposal is otherwise acceptable to the federal government. For public service concessions, the federal government decides whether to renew contracts or to require a new bidding process based on, among other things, the public interest. Therefore, there can be no assurance that our concessions will be extended, and, if they are extended, the conditions under which such extension will be granted. If our concessions are not extended, or are extended under less favorable conditions, our operations and financi al results may be adversely affected.
The tariffs that we charge for sales of electricity to captive customers are determined pursuant to a concession agreement with the Brazilian government through ANEEL, and our operating revenues could be adversely affected if ANEEL makes decisions relating to our tariffs that are unfavorable to us. Moreover, ANEEL’S decisions may be contested in judicial or administrative proceedings initiated by public authorities or customers.
ANEEL has substantial discretion to establish the tariff rates we charge our customers. Our tariffs are determined pursuant to a concession agreement with ANEEL and in accordance with ANEEL’s regulatory decision-making authority.
Our distribution concession agreement and Brazilian law establish a price cap mechanism that permits three types of tariff adjustments: (i) annual readjustment (reajuste anual), (ii) periodic revision (revisão periódica), and (iii) extraordinary revision (revisão extraordinária). We are entitled to apply each year for the annual readjustment, which is designed to offset some effects of inflation on tariffs and pass through to customers certain changes in our cost structure that are beyond our control, such as the cost of electricity we purchase from certain sources and certain other regulatory charges, including charges for the use of transmission facilities. In addition, ANEEL carries out a periodic revision every four years that is aimed at identifying variations in our costs as well as setting a factor based on our operational efficiency that will be applied against the index of our ongoing annual tariff readjustments, the effect of which is to ensure that we share the benefits of improved economies of scale with our customers. We may also request an extraordinary revision of our tariffs in the case of a significant and unpredictable event, including if such an event significantly alters our cost structure.
We cannot assure you that ANEEL will establish tariffs at rates that are favorable to us. In addition, to the extent that any of these adjustments are not granted by ANEEL in a timely manner, our financial condition and results of operations may be adversely affected.
In addition, ANEEL’s decisions relating to our tariffs may be contested by public authorities or by our customers. Administrative and judicial decisions resulting from these challenges may modify ANEEL’s decisions in a manner that is unfavorable to us, which may adversely affect our financial condition and results of operations.
Certain customers in our concession area may cease to use our distribution system.
Our distribution business generates a large portion of its revenues by charging customers a tariff to use its distribution system. Large electricity customers within the geographic area of our concession that meet certain regulatory requirements may qualify as Free Customers (“Free Customers”). A Free Customer, under some circumstances, is entitled to connect directly to the main national transmission network known as the Interconnected Transmission System (“Interconnected Transmission System”), in which case that Free Customer would cease to pay our distribution tariff. This loss may adversely affect our revenues and results of operations.
In addition, some customers in our concession area produce their own energy. Although many of these customers continue to use our distribution system to transport the energy they produce, we cease to collect a distribution tariff if a self-producing customer discontinues its use of our distribution system. Our results of operations will be adversely affected if the number of self-producing customers that do not pay our distribution tariff were to increase.
Our operating results depend on prevailing hydrological conditions and the availability of natural gas. 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.
We are dependent on the prevailing hydrological conditions in the geographic region in which we operate. In 2009, according to data from the National Electric System Operator (“ONS”), more than 68% of Brazil’s installed capacity came from hydroelectric generation facilities. Our region is subject to unpredictable hydrological conditions, with non-cyclical deviations from average rainfall. The most recent period of low rainfall was in the years prior to 2001, when 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. A recurrence of poor hydrological conditions that result in a low supply of electricity to the Brazilian market could cause, among other things, the implementation of broad electricity conservation programs, including mandated reductions in electricity consumption. We cannot assure you that periods of severe or sustained below-average rainfall will not adversely affect our future financial results.
Similarly, if a shortage of natural gas were to occur, this would increase the general demand for energy in the market and therefore increase the risk that a rationing program would be instated.
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 ANEEL. ANEEL regulates and oversees various aspects of our business and establishes our tariffs. If we are obliged by ANEEL to make additional and unexpected capital investments and are not allowed to adjust our tariffs accordingly, or if ANEEL modifies the regulations related to such adjustment, we may be adversely affected.
In addition, the implementation of our growth strategy, as well as the ordinary carrying out of our business may be adversely affected by governmental actions such as changes to current legislation, the termination of federal or state concession programs, the creation of more exacting criteria for qualification in future public energy auctions, or a delay in the revision and implementation of new annual tariffs.
If we are required to conduct our business in a manner substantially different from our current operations as a result of regulatory changes, 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 regulation of the power industry under 2004 legislation known as the New Industry Model Law(Lei do Novo Modelo do Setor Elétrico). Challenges to the constitutionality of the New Industry Model Law are still pending before the Brazilian Supreme Court. If all or part of the New Industry Model Law were held to be unconstitutional, it would have uncertain consequences for the validity of existing regulation and the further development of the regulatory framework. The outcome of the leg al proceedings is difficult to predict, but they could have an adverse impact on the entire energy sector, including our business and results of operations.
We may be forced to purchase energy in the spot market at higher prices if our forecasts for energy demand are not accurate, and we may not be entitled to pass on any increased costs to our final customers.
Under the New Industry Model Law, electric energy distributors, including us, must contract to purchase, through public bids conducted by ANEEL, 100% of the forecasted electric energy demand for their respective distribution concession areas, up to five years prior to the actual delivery of electric energy. If our forecasts fall significantly short of actual electricity demand, we may be forced to make up for the shortfall by entering into short-term agreements to purchase electricity in the spot market. We cannot guarantee that our forecasts for energy demand in our distribution concession area will be accurate, and if they are not, we may face significantly higher prices in the spot market to satisfy our electric energy distribution obligations, as well as penalties imposed by the Electric Energy Trading Chamber, Câmara de Comercialização de Energia Elétrica (“CCEE”). In addition, if our forecasts surpass actual demand by more than the allowed margin, we will not be able to pass on to our final customers the cost of the excess energy that we acquire.
We generate a portion of our operating revenues from Free Customers who may seek other energy suppliers upon the expiration of their contracts with us.
During 2009, Copel Geração e Transmissão provided electricity to a total of 14 Free Customers. As of December 31, 2009 we had 10 Free Customers representing approximately 1.9% of our gross operating revenues from energy sales and approximately 2.4% of the total quantity of electricity sold by us. Approximately 15.9% of the megawatts sold under contract to such customers are set to expire in 2010. There can be no assurance that, upon the expiration of these contracts, the Free Customers will purchase energy from us.
Our equipment, facilities and operations are subject to numerous environmental and health regulations which may become more stringent in the future and may result in increased liabilities and increased capital expenditures.
Our distribution, transmission and generation activities are subject to comprehensive federal, state and local legislation, as well as supervision by Brazilian governmental agencies that are responsible for the implementation of environmental and health laws and policies. These agencies could take enforcement action against us for our failure to comply with their regulations and with requirements established for the maintenance of our environmental licenses. These actions could include, among other things, the imposition of fines and revocation of licenses. It is possible that enhanced environmental and health regulations will force us to allocate capital towards compliance, and consequently, divert funds away from planned investments. Such a diversion could have a material adverse effect on our financial condition and results of operations.
ANEEL could penalize us for failing to comply with the terms of our concessions or with applicable laws and regulations, and we may not recover the full value of our investment in the event that any of our concessions are terminated.
Our concessions are for terms of 20 to 35 years and may be extended if certain conditions are met. In the event that we fail to comply with any term of our concessions or applicable law or regulation, ANEEL may impose penalties on us, which may include warnings, the imposition of substantial fines (in some instances, up to two percent of our revenues in the fiscal year immediately preceding the assessment) and restrictions on our operations, among others. ANEEL may also terminate our concessions prior to the expiration of their terms if we fail to complywith their provisions or if ANEEL determines, through an expropriation proceeding, that terminating our concession would be in the public interest. If ANEEL terminates any of our concessions before their expiration, we would not be a ble to operate the segment(s) of our business that had been authorized by the concession. Furthermore, any compensation that we may receive from the federal government for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment. The early termination or non-renewal of any of our concessions or the imposition of severe fines or penalties by ANEEL could have a material adverse effect on our financial condition and results of operations. See “The Brazilian Power Industry-Concessions.”
The construction, expansion and operation of our generation, transmission, and distribution of electricity facilities and equipment, involve significant risks that may cause loss of revenues or increase of expenses.
The construction, expansion and operation of our generation, transmission, and distribution of electricity, facilities and equipment, involve many risks, including supply interruptions, strikes, climate and hydrological interference, unexpected environmental and engineering problems, increase in losses of electricity (including technical and commercial losses) and the unavailability of adequate financing.
In the event we experience these or other problems, we might not be able to generate, transmit and distribute electricity in favorable quantities and on favorable terms, which may adversely affect our financial condition and the results of our operations.
If we are unable to conclude our investment program proposed in the schedule foreseen, the operation and development of our business could be adversely affected.
We plan to invest approximately R$ 499.7 million in our generation and transmission activities (including UHE Mauá), R$ 761.8 million in our distribution activities and R$ 81.4 million in our telecommunications activities in 2010. Our ability to complete this investment program depends on a series of factors, including our ability to charge appropriate fees for our services and a variety of regulatory and operational contingencies, among others. There is no assurance that we will have the financial resources to complete our proposed investment program, and our inability to do so may adversely affect the operation and development of our business, including the risk of fines levied by ANEEL, as well as reduction in tariff levels.
Our reported financial condition and results could be adversely affected by changes in Brazilian accounting principles due to the convergence to IFRS.
Brazilian accounting principles have been undergoing rapid change pursuant to legislation adopted late in 2007, requiring, among other things, that Brazilian accounting standard-setters move toward convergence with International Financial Reporting Standards (“IFRS”). Changes that took effect in 2008 have been given effect for all periods presented in our audited consolidated financial statements and are described in Note 3 to the audited consolidated financial statements.
Many new accounting standards have been adopted but have not yet taken effect, while others are expected in the near future. We cannot yet predict the effects on our financial statements that will result when these changes take effect. These effects could include reducing our reported revenues, operating income or net income, or adversely affecting our balance sheet. Such changes could adversely affect our compliance with financial covenants under our financing facilities. They could also reduce the ability of our subsidiaries to pay dividends to us, or our ability to pay dividends to our shareholders.
Two aspects of IFRS that we would like to point out, if they are adopted in Brazil, concern the recognition of regulatory assets and accounting for our concessions. Under Brazilian accounting principles and U.S. GAAP, we recognize as assets and liabilities certain amounts that we are legally entitled to collect, or are required to pay, respectively, in the future under the regulations applicable to our distribution business. Accounting for regulatory assets and liabilities in this way has a material effect on our reported financial condition and results of operations. See “Item 5. Operating and Financial Review and Prospects.” Currently, there are authoritative interpretations of IFRS that we believe might limit our ability to recognize these assets and liabilities, as well as the manner in which we account for our concessions. We and other sim ilarly situated Brazilian companies are discussing these issueswith the Brazilian standard-setters and regulators, but we cannot predict the outcome of those discussions or the ultimate manner in which IFRS or Brazilian standards based on IFRS will apply to us.
Risks Relating to the Class B Shares and ADSs
As a holder of ADSs you will generally not have voting rights at our shareholders’ meetings.
In accordance with Brazilian Corporate Law and our bylaws, holders of the Class B Shares, and thus of the ADSs, are not entitled to vote at our shareholders’ meetings except in limited circumstances. This means, among other things, that you, as a holder of the ADSs, are not entitled to vote on corporate transactions, including any proposed merger.
In addition, in the limited circumstances where the holders of Class B Shares are entitled to vote, holders may exercise voting rights with respect to the Class B Shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs. There are no provisions under Brazilian Corporate Law or under our bylaws that limit ADS holders’ ability to exercise their voting rights through the depositary bank (“Depositary”) with respect to the underlying Class B Shares. However, the procedural steps involved create practical limitations on the ability of ADS holders to vote. For example, holders of our Class B Shares will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. In accordance with the deposit agreement, we will provide the notice to the Depositary, which wi ll in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the Depositary how to vote their shares. Because of this extra procedural step involving the Depositary, the process for exercising voting rights will take longer for ADS holders than for holders of Class B Shares. ADSs for which the Depositary does not receive timely voting instructions will not be voted at any meeting.
As a holder of ADSs you will have fewer and less well-defined shareholders’ rights in Brazil than in the United States and certain other jurisdictions.
Our corporate affairs are governed by our bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil. Under Brazilian Corporate Law you and the holders of the Class B Shares may have fewer and less well-defined rights to protect your interests in connection with actions taken by our Board of Directors or the holders of Common Shares than under the laws of some jurisdictions outside Brazil.
Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the United States securities markets or markets in certain other jurisdictions outside Brazil. In addition, rules and policies against self-dealing and regarding the preservation of minority shareholder interests may be less developed and not enforced in Brazil than in the United States, which could potentially disadvantage you as a holder of the preferred shares and ADSs. In addition, shareholders in Brazilian companies must hold five percent of the outstanding share capital of a corporation in order to have standing to bring shareholders’ derivative suits, and shareholders in Brazilian companies ordinarily do not have standing to bring a class action suit.
You may be unable to exercise preemptive rights relating to the preferred shares.
You will not be able to exercise the preemptive rights relating to the Class B Shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”) is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. The Depositary will not offer rights to you as a holder of the ADSs unless the rights are either registered under provisions of the Securities Act or are subject to an exemption from the registration requirements. We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale of your preemptive rights by the Dep ositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. If you are unable to participate in rights offerings, your holdings may also be diluted.
If you exchange your ADSs for Class B Shares, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.
Brazilian law requires that parties obtain a certificate of registration from the Central Bank in order to be allowed to remit foreign currencies, including U.S. dollars, abroad. For the ADSs, the Brazilian custodian for the Class B Shares has obtained the necessary certificate from the Central Bank for the payment of dividends or other cash distributions relating to the preferred shares or upon the disposition of the preferred shares. If you exchange your ADSs for the underlying Class B Shares, however, you may only rely on the custodian’s certificate for five business days from the date of exchange.
Thereafter, you must obtain your own certificate of registration or register in accordance with Central Bank and CVM rules, in order to obtain and remit U.S. dollars abroad upon the disposition of the Class B Shares or distributions relating to the preferred shares. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the preferred shares. Pursuant to Central Bank rules, obtaining this registration requires exchange transactions, which are subject to taxes in Brazil. For more information, see “– Taxation – Brazilian Tax Considerations – Other Brazilian Taxes.”
If you attempt to obtain your own certificate of registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to the preferred shares or the return of your capital in a timely manner. The custodian’s certificate of registration and any certificate of foreign capital registration you obtain may be affected by future legislative changes. Additional restrictions may be imposed in the future on the disposition of the underlying Class B Shares or the repatriation of the proceeds from disposition.
The Brazilian government may impose exchange controls and restrictions on remittances abroad which may adversely affect your ability to convert funds inreais into other currencies and to remit other currencies abroad.
You may be adversely affected by the imposition of restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion ofreais into foreign currencies. The Brazilian government could choose to impose this type of restrictions if there is deterioration in Brazilian foreign currency reserves or a shift in Brazil’s exchange rate policy. Reimposition of these restrictions would hinder or prevent your ability to convert dividends, distributions or the proceeds from any sale of Class B Shares, as the case may be, fromreais into U.S. dollars or other currencies and to remit those funds abroad. We cannot assure you that the Brazilian government will not take similar measures in the future. The relative volatility and illiquidity of the Brazilian securities markets may impair your ability to sell the Class B Shares underlying the ADSs.
The Brazilian securities markets are substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and certain other jurisdictions outside Brazil, and are not as highly regulated or supervised as some of these other markets. The illiquidity and relatively small market capitalization of the Brazilian equity markets may cause the market price of securities of Brazilian companies, including our ADSs and Class B Shares, to fluctuate in both the domestic and international markets, and may substantially limit your ability to sell the Class B Shares underlying your ADSs at a price and time at which you wish to do so.
Item 4. Information on the Company
THE COMPANY
We are engaged in the generation, transmission, distribution and sale of electricity in the Brazilian State of Paraná, pursuant to concessions granted by the Brazilian regulatory agency for the electricity sector, ANEEL. We also provide telecommunications and other services.
At December 31, 2009, we generated electricity at 17 hydroelectric plants and one thermoelectric plant, for a total installed capacity of 4,549.6 MW (approximately 99.6% of which is hydroelectric). Including the installed capacity of generation companies in which we have an ownership interest, our total installed capacity is 5,159.4 MW. Our electric power business is subject to comprehensive regulation by ANEEL.
We hold concessions to distribute electricity in approximately 98.5% of the 399 municipalities in the State of Paraná and in the municipality of Porto União in the State of Santa Catarina. At December 31, 2009, we owned and operated 1,942.0 km of transmission lines and 179,351.1 km of distribution lines, constituting one of the largest distribution networks in Brazil. Of the electricity volume we supplied to our Final Customers during 2009:
· 36.4% was to industrial customers;
· 26.6% to residential customers;
· 19.7% to commercial customers; and
· 17.3% to rural and other customers.
Key elements of our business strategy include the following:
· expanding our power generation, transmission, distribution, and telecommunication systems;
· expanding our generation business’ sales to Free Customers both inside and outside the State of Paraná;
· seeking productivity improvements in the short term and sustained growth in the long term;
· striving to keep customers satisfied and our workforce motivated and prepared;
· seeking cost efficiency and innovation;
· achieving excellence in data, image, and voice transmission; and
· researching new technologies in the energy sector in order to expand power output with renewable and non-polluting sources.
Historical Background
We were formed in 1954 by the State of Paraná to engage in the generation, transmission and distribution of electricity, as part of a plan to bring the electric energy sector under state control. We acquired the principal private power companies located in the State of Paraná in the early 1970s. During the period from 1970 to 1977, we significantly expanded our transmission and distribution network and the connection of our network to networks in other Brazilian states. In 1979, a change in state law permitted us to extend our generating activities to include production from sources other than hydroelectric and thermal power plants. We are currently the largest energy company in the State of Paraná. We are a corporation incorporated and existing under the laws of Brazil, under thelegal name Companhia Paranaense de Energia – Copel. Our head offices are located at Rua Coronel Dulcídio, 800, CEP 80420-170 Curitiba, Paraná, Brazil. Our telephone number at the head office is (55-41) 3322-3535.
Relationship with the State of Paraná
The State of Paraná owns (directly and indirectly) 58.6% of our Common Shares and, consequently, has the ability to control the election of the majority of the members of our Board of Directors, the appointment of senior management and our direction, future operations and business strategy.
Corporate Structure
Prior to 2001, we were a single corporation engaged in the generation, transmission and distribution of electricity and in certain related activities. In order to facilitate our proposed privatization and compliance with the changed regulatory regime, we transferred our operations to four wholly-owned subsidiaries- one each for generation, transmission, distribution and telecommunications- and our investments in other companies to a fifth wholly-owned subsidiary. This corporate restructuring was completed in July 2001.
In 2007, to comply with energy sector legislation, we divided the assets of our transmission business (“Copel Transmissão”) between our distribution business (“Copel Distribuição”) and our generation business, Copel Geração. As a result, we changed the name of the latter entity to Copel Geração e Transmissão S.A. We also liquidated Copel Participações S.A. and distributed the equity interests it held in our controlled companies between Copel Geração e Transmissão and our holding company. We are currently seeking approval from ANEEL to merge Copel Empreendimentos Ltda. and Centrais Eólicas do Paraná Ltda. – CEOLPAR into Copel Geração e Transmissão S.A. The current organization of the group as of December 31, 2009 is as described below:
Business
In the past, our generation and distribution businesses were integrated, and we sold most of the electricity we generated to the customers of our distribution business. This changed as a result of the implementation of the New Industry Model Law, enacted in 2004. Today, open auctions on the regulated market are the primary channel by which our generation business sells energy, and they are one of the primary channels by which our distribution business purchases energy to resell to customers. Our generation business only sells energy to our distribution business through auctions in the regulated market. Our distribution business, like certain other Brazilian distribution companies, is also required to purchase energy from Itaipu Binacional (“Itaipu”), a hydroelectric facility equally owned by Brazil and Paraguay, in an amount determined by the Brazilian gov ernment based on our share in the
Brazilian electricity market. Itaipu has an installed capacity of 14,000 MW. Pursuant to a 1973 treaty between Brazil and Paraguay, Brazil purchases a substantial majority of the electricity generated by Itaipu. For more information, see “Item 4. Information on the Company – The Brazilian Power Industry.”
The following table sets forth the total electricity we generated and purchased in each of the last five years, by showing the total amount of electricity generated and purchased by Copel Geração e Transmissão and the total amount of electricity purchased by Copel Distribuição in the last five years.
| |
| | | | | |
| (GWh) |
Copel Geração e Transmissão | | | | | |
Electricity generated | 18,321 | 20,372 | 18,134 | 10,358 | 18,436 |
Electricity purchased from others(1) | | | | | |
Total electricity generated and purchased by Copel Geração e Transmissão | | | | | |
| | | | | |
Copel Distribuição | | | | | |
Electricity purchased from Itaipu(2) | 5,379 | 5,468 | 4,666 | 4,665 | 4,683 |
Electricity purchased from Auction – CCEAR – subsidiaries | 1,488 | 1,229 | 1,203 | 1,038 | 891 |
Electricity purchased from Auction – CCEAR – other | 14,185 | 12,746 | 11,850 | 10,294 | 7,338 |
Electricity purchased from others(3) | | | | | |
Total electricity purchased by Copel Distribuição | | | | | |
Total electricity generated and purchased by Copel Geração e Transmissão and Copel Distribuição | | | | | |
____________
(1) Includes capacity made available but not fully delivered (including energy from MRE and CCEE).
(2) Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil purchase electricity generated by Itaipu.
(3) Includes capacity made available but not fully delivered (including energy from Elejor and CCEE).
The following table sets forth the total electricity we sold to Free Customers, captive customers, distributors, energy traders and other utilities in the south of Brazil through the Interconnected Transmission System that links the states in the south and southeast of Brazil, by showing the total amount of electricity sold by Copel Geração e Transmissão and Copel Distribuição in the last five years.
| |
| | | | | |
| (GWh) |
Copel Geração e Transmissão | |
Electricity delivered to Free Customers | 1,044 | 1,185 | 1,461 | 1,179 | 1,173 |
Electricity delivered to out of state distributors under Initial Supply Contracts | 0 | 0 | 0 | 0 | 35 |
Electricity delivered to bilateral agreements. | 1,051 | 3,538 | 3,945 | 4,287 | 3,778 |
Electricity delivered to Auction – CCEAR – subsidiaries | 1,488 | 1,229 | 1,203 | 1,038 | 891 |
Electricity delivered to Auction – CCEAR – other | 13,478 | 11,435 | 10,737 | 10,136 | 7,597 |
Electricity delivered to the Interconnected System(1) | | | | | |
Total electricity delivered by Copel Geração e Transmissão | | | | | |
| |
Copel Distribuição | |
Electricity delivered to captive customers | 20,242 | 19,633 | 18,523 | 17,511 | 17,524 |
Electricity delivered to distributors in the State of Paraná | 524 | 495 | 474 | 457 | 450 |
Spot Market – CCEE | | | | | |
Total electricity delivered by Copel Distribuição | | | | | |
Subtotal | | | | | |
Losses by Copel Geração e Transmissão and Copel Distribuição | | | | | |
Total electricity delivered by Copel Geração e Transmissão and Copel Distribuição | | | | | |
____________
(1) Includes capacity made available but not fully delivered.
Generation
Generation Facilities
At December 31, 2009, we operated 17 hydroelectric plants and one thermoelectric plant, with a total installed capacity of 4,549.6 MW. If we include the installed capacity of the generation companies in which we have an ownership interest, our total installed capacity is 5,159.4 MW. We produce electricity almost exclusively through our hydroelectric plants. Our assured energy, which represents our minimum potential total output, totaled 17,189 GWh in 2009. Our actual generation in any year differs from our assured energy, as a result of hydrological conditions and other factors. We generated 18,322 GWh in 2009, 20,372 GWh in 2008, 18,134 GWh in 2007 and 10,358 GWh in 2006. The generation of electrical energy at our hydroelectric plants is supervised and coordinated by our generation operation center in the city of Curitiba. This operation center is responsible for c oordinating the operations related to approximately 99.2% of our total installed capacity.
The following table sets forth certain information relating to our main plants in operation at December 31, 2009.
| | | | | |
| | (MW) | (GWh/yr) | | |
| | | | | |
Hydroelectric | Foz do Areia | 1,676 | 5,045 | 1980 | 2023 |
Hydroelectric | Segredo | 1,260 | 5,282 | 1992 | 2029 |
Hydroelectric | Salto Caxias | 1,240 | 5,300 | 1999 | 2030 |
Hydroelectric | Capivari Cachoeira | 260 | 955 | 1970 | 2015 |
____________
(1) Values used to determine volumes committed for sale.
Governador Bento Munhoz da Rocha Neto (the “Foz do Areia” plant).The Foz do Areia hydroelectric plant is located on the Iguaçu River, approximately 350 kilometers southwest of the city of Curitiba. The plant began full operations in 1981.
Governador Ney Aminthas de Barros Braga (the “Segredo” plant). The Segredo hydroelectric plant is located on the Iguaçu River, approximately 370 kilometers southwest of the city of Curitiba. The plant began full operations in 1993.
Governador José Richa (the “Salto Caxias” plant). The Salto Caxias hydroelectric power plant is located on the Iguaçu River, approximately 600 kilometers southwest of the city of Curitiba. The plant began full operations in 1999.
Governador Pedro Viriato Parigot de Souza (the “Capivari Cachoeira Plant”).The Capivari Cachoeira hydroelectric plant is the largest underground hydroelectric plant in Brazil. The reservoir is located on the Capivari River, approximately 50 kilometers north of the city of Curitiba, and the power station is located on the Cachoeira River, approximately 110 kilometers northeast of the city of Curitiba. The plant began full operations in 1972.
In addition to our generation facilities, we have ownership interests in several other generation companies. Since 2004, we are required by law to retain a majority of the voting shares of any company in which we obtain an ownership interest. The following table sets forth information regarding certain generation plants in which we had an ownership interest as of December 31, 2009:
| | | | | | |
| | (MW) | (GWh/yr) | | (%) | |
Thermal | Araucária | 484.1 | 3,419.0(1) | September 2006 | 80.0 | 2029 |
Hydroelectric | Elejor Facility (Santa Clara and Fundão) | 246.3 | 1,229.0 | July 2005
June 2006 | 70.0 | 2036 |
Hydroelectric | Dona Francisca | 125.0 | 700.8 | February 2001 | 23.03 | 2033 |
Hydroelectric | Foz do Chopim | 29.1 | 188.0 | October 2001 | 35.77 | 2030 |
____________
(1) The assured energy of thermal plants such as Araucária varies depending on the price of natural gas, according to criteria established by The Ministry of Mines and Energy (“MME”).
Dona Francisca. We own 23.03% of the common shares of the Dona Francisca Energética S.A. hydroelectric power plant (“Dona Francisca”), located on the Jacuí River in the State of Rio Grande do Sul. The other shareholders are Gerdau S.A. with a 51.82% interest, Celesc S.A. with a 23.03% interest and Desenvix S.A. with a 2.12% interest. The plant has been operating since 2001. As of December 31, 2009, Dona Francisca had debt in the total amount of R$ 90.5 million, R$ 81.1 million of which reflects loans extended to it by the Inter-American Development Bank andBanco Nacional de Desenvolvimento Econômico e Social(“BNDES”),a Brazilian development bank wholly owned by the Brazilian government. The debt is secured by a pledge of shares of DonaFrancisca. We have a power purchase agreement with Dona Francisca, valued at R$ 60.0 million annually, which will terminate in March 2015 and which obligates Copel Geração to purchase 100.0% of the energy generated at Dona Francisca.
Foz do Chopim. The Foz do Chopim hydroelectric plant is located on the Chopim River in the State of Paraná. We own 35.77% of the capital of the Foz do Chopim hydroelectric plant, and Silea Participações Ltda. owns the remaining 64.23%. The plant has been operating since 2001.
Elejor Facility. The Elejor Facility consists of the Santa Clara and Fundão hydroelectric plants, both of which are located on the Jordão River in the State of Paraná. The aggregate total installed capacity of the units is 246.3 MW, which includes two smaller hydroelectric generation units installed in the same location. Centrais Elétricas do Rio Jordão S.A. (“Elejor”) signed a concession agreement with a term of 35 years for the Santa Clara and Fundão plants in October 2001. The construction of the plants began in December 2002 and in April 2004, respectively. The Santa Clara plant began operations in 2005. The Fundão plant began operations in 2006. As of December 31, 2009, we own 70.0% of the common shares of Elejor, and PaineraPar own s the remaining 30.0%.
Elejor is required to make monthly payments to the federal government for the use of hydroelectric resources, with total annual payments of R$ 19.0 million. This amount is adjusted on an annual basis by the Brazilian General Market Price Index,Índice Geral de Preços do Mercado (“IGP-M Index”). In 2009, the aggregate amount of concession payments paid by Elejor to the federal government was R$ 35.9 million.
In September 2002, Centrais Elétricas Brasileiras S.A.- Eletrobras (“Eletrobras”), a company controlled by the Brazilian Government, executed a shareholders’ agreement with Elejor, under which Eletrobras has the obligation to subscribe for 59,900,000 preferred class B shares to be issued by Elejor. Elejor had been required to acquire Eletrobras’s preferred class B shares in 32 quarterly installments (adjusted by the IGP-M Index plus interest of 12.0% per year). The said preferred shares were fully redeemed in January 2010.
We have a power purchase agreement with Elejor that provides that we will purchase all of the energy produced by the Santa Clara and Fundão facilities at a set rate until 2015, to be adjusted annually in accordance with the IGP-M Index.
Araucária. We have an 80.0% interest in UEG Araucária Ltda., which owns the Araucária thermoelectric plant. In December 2006, UEG Araucária Ltda. entered into a lease agreement under which it leased the plant to Petrobras, and Petrobras entered into an operation and maintenance agreement with our subsidiary Copel Geração e Transmissão under which Copel Geração e Transmissão operates and maintains the plant. Both agreements have been extended through December 2011. Due to electrical problems that have now been resolved, the Araucária thermoelectric plant ceased its operational activities from January 2008 until May 2008.
Expansion of Generating Capacity
We expect to spend R$ 499.7 million in 2010 to expand our generation and transmission capacity, of which R$ 323.3 million will be invested in the Mauá hydroelectric power plant.
We have interests in several generation projects. The following table sets forth information regarding our planned major generation projects for the period from 2010 to 2013.
| Estimated installed capacity | Estimated assured energy(1) | | Beginning of operation (expected) | | |
| (MW) | (GWh/year) | (R$ million) | | (%) | |
Mauá | 361.0 | 1,732 | 1,069 | April 2011 | 51.0 | Concession granted |
São Jerônimo | 331.0 | 1,560 | 1,131 | Unknown | 41.2 | Concession granted |
____________
(1) Values used to determine volumes committed for sale.
Mauá. In October 2006, a consortium in which we hold a 51% stake and Eletrosul holds a 49% stake was awarded a concession to construct and operate the Mauá hydroelectric power plant on the Tibagi River in the State of Paraná. The Mauá facility will have an installed capacity of 361.0 MW and will be located between the municipalities of Telêmaco Borba and Ortigueira. Construction began on July 21, 2008. Commercial generation is scheduled to begin in April 2011. From the facility’s total power output of 197.7 average MW, 192.0 average MW are committed under a 30-year contract to distributors at a price of R$ 112.96/MWh (adjusted annually in accordance with the IPCA inflation index), with supply starting in January 2011.
São Jerônimo. The São Jerônimo hydroelectric power plant will be located between the municipalities of Tamarana and São Jerônimo da Serra on the Tibagi River in the State of Paraná. The plant will have two generation units, with a total installed capacity of 331 MW. It is unclear when the construction of the facility will begin. There are a number of issues that must be resolved before construction can begin, the most significant being that we must obtain permission from the Brazilian Congress to start construction because the plant’s reservoir will be partially located in an indigenous area.
Proposed Projects
We are involved in various initiatives to study the technical, economic and environmental feasibility of certain generation projects. These proposed generation projects would have a total of 225.2 MW of installed capacity. The following table sets forth information regarding our proposed generation projects.
| | Estimated Installed | Estimated Assured | | |
| | (MW) | (GWh/yr) | (R$ million) | (%) |
| | | | | |
Hydroelectric | SHP(1) Cavernoso II | 19.0 | 92.5 | 70 | 100 |
Hydroelectric | SHP Bela Vista | 29.0 | 157.4 | 110 | 36 |
Hydroelectric | SHP Pinhalzinho | 10.9 | 52.1 | 45 | 30 |
Hydroelectric | SHP Burro Branco | 10.0 | 45.1 | 40 | 30 |
Hydroelectric | SHP Foz do Turvo | 8.8 | 41.2 | 35 | 30 |
Hydroelectric | SHP Foz do Curucaca | 29.5 | 142.2 | 115 | 15 |
Hydroelectric | SHP Salto Alemã | 29.0 | 139.7 | 115 | 15 |
Hydroelectric | SHP São Luiz | 26.0 | 125.3 | 100 | 15 |
Hydroelectric | SHP Alto Chopim | 20.3 | 98.0 | 80 | 15 |
Hydroelectric | SHP Rancho Grande | 17.7 | 85.3 | 70 | 15 |
Hydroelectric | SHP Dois Saltos | 25.0 | 119.1 | 90 | 30 |
(1)SHP = Small Hydroelectric Power Plant.
In 2010, we plan to bid for concessions to construct and operate new hydroelectric power plants in power auctions in the regulated market for new generation projects. In order to prepare, we are studying the feasibility of our participation in the hydroelectric projects planned to be listed in the “A-5” auctions of 2010.
We also will conduct studies of new hydroelectric power plants planned to be constructed on the Piquiri River in the State of Paraná.
In addition to the projects described above, we also are developing several projects to diversify our energy generation:
· Small thermal electric plants that use sugar cane pulp as fuel– In January 2009, we publicly announced our interest in entering into partnerships to develop power plants in the State of Paraná that generate electricity from sugar cane pulp. However, no partnerships have yet been formed.
· Wind Potential Map of the State of Paraná– An R&D+I project, in partnership with other entities, to map the wind potential in all regions of the State of Paraná resulted in the publication of the Atlas of Wind Potential of the State of Paraná. These studies may lead to government auctions for wind farm concessions, in which Copel may participate.
Other renewable energy projects under study or development include re-use of urban waste for power generation, cultivation of micro algae for energy production, wind energy, photovoltaic, electricity from the crude vegetable oil and biogas production from algae of our reservoirs.
Transmission and Distribution
General
Electricity is transferred from power plants to customers through transmission and distribution systems. Transmission is the bulk transfer of electricity from generating facilities to the distribution system by means of the Interconnected Transmission System, in tension bigger or equal to 230kV. Distribution is the transfer of electricity to Final Customers, in tension smaller or equal to 138kV.
The following table sets forth certain information concerning our transmission and distribution systems at the dates presented.
| |
| | | | | |
Transmission and subtransmission lines (km): | | | | | |
230 kV and 500 kV | 1,929.4 | 1,822.0 | 1,822.0 | 1,739.8 | 1,737.0 |
138 kV | 7.2 | 7.8 | 7.8 | 7.8 | 7.8 |
69 kV(2) | 5.4 | 5.4 | _ | _ | _ |
Distribution lines (km): 230 kV | 66.1 | – | – | – | – |
138 kV | 4,578.8 | 4,495.7 | 4,290.7 | 4,238.5 | 4,056.3 |
88 kV(4) | – | 58.2 | 58.2 | 58.2 | 58.2 |
69 kV | 967.2 | 1,185.0 | 1,173.2 | 1,166.1 | 1,137.2 |
34.5 kV | 78,357.4 | 76,903.0 | 76,524.7 | 74,460.8 | 74,156.7 |
13.8 kV | 95,381.6 | 96,545.7 | 94,999.7 | 91,296.6 | 91,419.3 |
Transformer capacity (MVA): | | | | | |
Transmission and distribution substations (69 kV – 500 kV) | 18,112.8(3) | 17,855.8(3) | 16,702.2(3) | 16,043.9 | 15,168.9 |
Generation (step up) substations | 5,004.1 | 5,004.1 | 5,004.1 | 5,004.1 | 5,004.1 |
Distribution substations (34.5 kV) | 1,507.6 | 1,624.0 | 1,624 | 1,624 | 1,434 |
Distribution transformers | 8,934.7 | 8,565.0 | 8,216.4 | 6,651 | 6,651 |
Total energy losses | 7.3% | 7.3% | 7.2% | 7.2% | 8.3% |
________________
(1) In December 2007, to comply with energy sector legislation, we transferred the assets of Copel Transmissão to Copel Distribuição (69 kV – 138 kV) and to Copel Geração (a small portion of our assets of 138 kV and all our assets of 230 kV and above), changing the name of the latter to Copel Geração e Transmissão.
(2) As approved by ANEEL in 2008, these 69 kV transmission lines held by Copel Distribuição were transferred to Copel Geração e Transmissão, since they were part of our transmission business segment.
(3) This figure includes transformers with primary tensions of 69 kV and 138 kV which belong to Copel Distribuição but are implemented in 230 kV and 525 kV substations, which belong to Copel Geração e Transmissão.
(4) Reclassified to 138 kV in 2009.
Transmission
Our transmission system consists of all our assets of 230 kV and above and a small portion of our 69 kV and 138 kV assets, which are used to transmit the electricity we generate and the energy we receive from other sources. In addition to using our transmission lines to provide energy to customers in the State of Paraná, we also transmit energy through the Interconnected Transmission System. Two companies owned by the federal government, Centrais Elétricas do Sul do Brasil S.A. – Eletrosul (“Eletrosul”) and Furnas Centrais Elétricas S.A. – Furnas (“Furnas”), also maintain significant transmission systems in the State of Paraná. Furnas is responsible for the transmission of electricity from Itaipu, while Eletrosul’s transmission system links the states in the south of Brazil. Copel, like the other utilities that own transmission facilities, is required to give other parties access to its transmission facilities for appropriate fees. ANEEL sets the charges for the use of the Interconnected Transmission System.
The construction of new transmission facilities of 230 kV and higher must be awarded in a bidding process or otherwise authorized by ANEEL. We are permitted by ANEEL to make minor improvements to some of the existing 230 kV and 500 kV facilities.
In May 2009, Copel Geração e Transmissão won a public bidding carried out by ANEEL for the construction and operation of a 115 km transmission line of 525 kV between the municipalities of Foz do Iguaçu and Cascavel.
In June 2010, Copel won another public auction for the construction and operation of two facilities, both located in the State of São Paulo. The first concession is a 356 km transmission line of 500 kV and the second one is a 230 kV substation.
Distribution
Our distribution system consists of a widespread network of overhead lines and substations with voltages up to 138 kV and a small portion of our 230kV assets. Higher voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial and commercial customers and other customers. At December 31, 2009, we provided electricity in a geographic area encompassing approximately 98% of the State of Paraná and served over 3.6 million customers.
Our distribution network includes 179,351 km of distribution lines, 340,882 distribution transformers and 236 distribution substations of 34.5 kV each. During 2009, 104,640 new customers were connected to our network, including customers connected through the rural and urban electrification programs. We are continuing to implement compact grid design distribution lines in urban areas where there is a large concentration of trees in the vicinity of the distribution grid.
We have 33 customers who are directly supplied with energy at a high voltage (69 kV and above) through connections to our distribution lines. These customers accounted for approximately 6.4% of the total volume of electricity sold by Copel Distribuição or 3.2% of our total volume of electricity sold in 2009.
We are responsible for expanding the 138 kV and 69 kV distribution grid within our concession area.
System Performance
We determine the energy losses of our distribution system separately from those of our transmission system. The total losses from our distribution system were obtained by the difference between the energy allocated to the system and the energy supplied to the customers.
Our energy losses totaled 7.3% of our available energy in 2009and includes losses from the basic transmition grid and Itaipu.
Information regarding the duration and frequency of outages for our customers is set forth in the following chart for the years indicated.
| |
Quality of supply indicator | | | | | |
DEC – Duration of outages per customerper year (in hours) | 12h55min | 12h11min | 13h 32 min | 14h 47 min | 13h 29 min |
FEC – Frequency of outages per customer per year (number of outages) | 11.04 | 10.69 | 12.41 | 13.66 | 13.51 |
Purchases
The following table contains information concerning volume, costs and average tariffs for the main sources of the electricity we purchased in the last three years.
| | | | | |
Itaipu | | | | | |
Volume(GWh) | 5,379 | 5,468 | 4,666 | 4,665 | 4,683 |
Cost (R$ millions) | 478.4 | 502.4 | 385.4 | 335.4 | 464.4 |
Average tariff (R$/MWh) | 88.94 | 91.88 | 82.59 | 71.90 | 99.17 |
Auctions in the regulated market | | | | | |
Volume (GWh) | 14,185 | 12,746 | 11,850 | 10,293 | 7,338 |
Cost (R$ millions)(1) | 1,184.9 | 976.2 | 845.1 | 654.1 | 430.6 |
Average tariff (R$/MWh) | 83.53 | 76.59 | 71.32 | 63.55 | 58.69 |
Cien | | | | | |
Volume (GWh) | - | - | 1,533 | 3,504 | 3,504 |
Cost (R$ million) | - | - | 111.2 | 227.4 | 309.3 |
Average tariff (R$/MWh) | - | - | 72.53 | 64.89 | 88.28 |
________________
(1) These numbers do not include short-term energy purchased through the Electric Energy Trading Chamber - CCEE.
Itaipu
We purchased 5,379 GWh of electricity from Itaipu in 2009, which constituted 11.6% of our total available electricity in 2009 and 22.5% of Copel Distribuição’s total available electricity in 2009. Our purchases represented approximately 8.0% of Itaipu’s supply to Brazil. Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil are required by law to purchase Brazil’s portion of the energy generated by Itaipu in a proportion that correlates with the volume of electricity that they provide to customers. The energy quota that each such distribution company is required to purchase from Itaipu increases whenever Itaipu adds to its own generation capacity. The rates at which these companies are required to purchase Itaipu’s energy are fixed to cover Itaipu’s operating expenses and payments of principal and interest on Itaipu’s U.S. dollar-denominated borrowings, as well as the cost of transmitting the power to their concession areas. These rates are denominated in U.S. dollars, and have been set for 2010 at U.S.$ 24.63 per kW.
In 2009, we paid an average tariff of R$ 88.94 per MWh for energy from Itaipu, compared to R$ 91.88 per MWh during 2008. These figures do not include the transmission tariff that distribution companies must pay for the transmission of energy from Itaipu.
Auctions in the Regulated Market
In 2009, we purchased 14,185 GWh of electricity through auctions in the regulated market. This energy represents 56% of the total electricity we purchased. For more information on the regulated market and the free market, see “–The Brazilian Power Industry –The New Industry Model Law.”
Cien
We entered into two agreements on December 13, 1999 to purchase firm capacity and associated energy from Cien (the “Cien Agreements”).The Cien Agreements were terminated on January 1, 2008, leaving us with a deficit of 400MW. In order to compensate for this deficit in our distribution business, we acquired (i) 159.36 average MW, at a price of R$ 104.74/MWh, for the period from 2007 to 2014 at the auction held on December 14, 2006, and (ii) 159.14 average MW from other distributors. On February 20, 2009, we purchased 144.5 average MW to supplement our supply agreements from March to December 2009 (for an average cost of R$ 145.77/MWh). The Ministry of Mines and Energy (“MME”) authorized Cope l to compensate for the energy that Copel was to purchase under the Cien Agreements, and to pass through the related cost increases to its Final Customers. These energy contracts, while not sufficient to fully compensate for the energy shortfall caused by the cancellation of the Cien Agreement, were sufficient to meet the entire demand load of Copel.
Sales to Final Customers
During 2009, we supplied approximately 96% of the energy distributed directly to captive customers in the State of Paraná. Our concession area includes over 3.6 million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, to the south of the State of Paraná. During 2009, we also sold energy to a total of 14 Free Customers, four of which are located outside of our concession area. On December 31, 2009, we had 10 Free Customers. During 2009, the total power consumption throughout our concession area, including Free Customers, was 21,286 GWh as compared to 20,818 GWh during 2008. The following table sets forth certain information regarding our volumes of energy sold to, and revenues (in millions ofreais) from sales of energy to, different categories of purchasers for the periods indicated.
| |
Categories of purchaser | | | | | |
| (GWh) | (R$ in millions) | (GWh) | (R$ in millions) | (GWh) | (R$ in millions) | (GWh) | (R$ in millions) | (GWh) | (R$ in millions) |
Industrial customers | 7,748 | 2,114.8 | 7,955 | 2,077.3 | 7,740 | 1,934.1 | 7,200 | 1,751.7 | 7,639 | 1,649.2 |
Residential | 5,664 | 2,213.8 | 5,379 | 1,990.1 | 5,143 | 1,900.1 | 4,826 | 1,884.1 | 4,653 | 1,857.0 |
Commercial | 4,200 | 1,446.8 | 3,967 | 1,321.8 | 3,722 | 1,242.6 | 3,407 | 1,172.1 | 3,231 | 1,092.9 |
Rural | 1,680 | 280.3 | 1,606 | 261.2 | 1,522 | 247.1 | 1,431 | 242.5 | 1,389 | 242.2 |
Other(1) | | | | | | | | | | |
Total(2) | | | | | | | | | | |
____________
(1) Includes public services such as street lighting, electricity supply for municipalities and other governmental agencies, as well as our own consumption.
(2) Total GWh does not include our energy losses.
The following table sets forth the number of our Final Customers in each category at December 31, 2009.
| Number of Final Customers |
Industrial | 66,970 |
Residential | 2,859,749 |
Commercial | 300,138 |
Rural | 352,992 |
Other(1) | |
Total | |
____________
(1) Includes street lighting, as well as electricity for municipalities and other governmental agencies, public services and own consumption.
Industrial and commercial customers accounted for approximately 32% and 22%, respectively, of our total revenues from energy sales during 2009. In 2009, 34% of our total revenues from energy sales were from sales to residential customers.
Tariffs
Retail Tariffs. We classify our customers in two groups (“Group A Customers” and “Group B Customers”), based on the voltage level at which electricity is supplied to them and on whether they are considered as industrial, commercial, residential or rural customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Under Brazilian regulation, low voltage customers such as residential customers (other than Low Income Residential Customers, as defined below) pay the highest tariff rates, followed by 13.8kV and 34.5kV voltage customers, usually commercial customers and 69kV and 138kV voltage customers, usual ly industrial customers.
Group A Customers receive electricity at 2.3 kV or higher and the tariffs applied to them are based on the actual voltage level at which energy is supplied and the time of year and the time of day the energy is supplied. Tariffs are comprised of two components: a “capacity charge” and an “energy charge.” The capacity charge, expressed inreaisper kW, is based on the higher of (i) contracted firm capacity and (ii) power capacity actually used. The energy charge, expressed inreaisper MWh, is based on the amount of e lectricity actually consumed as evidenced by our metering.
Group B Customers receive electricity at less than 2.3 kV, and the tariffs applied to them are comprised solely of an energy charge and are based on the classification of the customer.
ANEEL modifies our tariffs annually, generally in June. For more information about the distribution tariff adjustments that have been made by ANEEL in recent years, see “Item 5. Operating and Financial Review and Prospects—Overview—Rates and Prices.”
The following table sets forth the average tariffs (including value-added taxes) for each category of Final Customer in effect in 2009, 2008, 2007, 2006 and 2005.
| | | | | |
| (R$/MWh) | (R$/MWh) | (R$/MWh) | (R$/MWh) | (R$/MWh) |
| | | | | |
Industrial | 273.0 | 261.1 | 249.9 | 243.3 | 215.91 |
Residential | 390.9 | 370.0 | 369.5 | 390.4 | 399.12 |
Commercial | 344.5 | 333.2 | 333.9 | 344.0 | 338.23 |
Rural | 166.9 | 162.7 | 162.4 | 169.5 | 174.37 |
Others customers | 247.8 | 241.3 | 238.9 | 246.3 | 243.47 |
All Final Customers | 307.7 | 293.6 | 288.6 | 294.3 | 282.19 |
(1) In June 2007, ANEEL required us to decrease our Retail Tariffs by an average of 1.22% pursuant to the annual tariff readjustment. The primary reason that ANEEL required this decrease was to account for the devaluation of the U.S. dollar against the real in 2006.
Low Income Residential Customers. Under Brazilian law, we are required to provide discounted rates to certain low income residential customers (“Low Income Residential Customers”). In 2009, we served 709,816 Low Income Residential Customers, totaling the R$ 66.3 million grant approved by ANEEL (the amount paid by the Brazilian Federal Government to Copel).
The following table sets forth the current minimum discount rates approved by ANEEL for each category of Low Income Residential Customer.
| |
Up to 30 kWh per month | 65% |
From 31 to 100 kWh per month | 40% |
From 101 to 220 kWh per month | 10% |
Special Customers.A customer of our distribution business that consumes at least 500 kV (a “Special Customer”) may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants. A Special Customer that chooses to purchase energy from a supplier other than Copel Geração e Transmissão continues to use our distribution system and pay our distribution tariff. However, as an incentive for Special Customers to purchase from alternative sources, we are required to reduce the tariff paid by Special Customers by 50%. This discount does not impact the revenues of our distribution business, since ANEEL allows us to increase the tariffs of our other distribution customers to c ompensate for this discount.
Transmission Tariffs. A transmission concessionaire is entitled to annual revenues based on the transmission network it owns and operates. These revenues are periodically readjusted according to criteriastipulated in the concession contract. We are a party to four transmission concession contracts, each of which has a different structure for calculating this revenue value.
Our main transmission concession accounted for 93% of our gross transmission revenues in 2009. Under the concession contract of our main transmission facilities, 38% of the transmission revenues are updated on an annual basis by the IGPM and the other 62% are subject to the tariff review process.
In addition, we have three concession agreements for individual transmission lines, which correspond to an aggregate of 7% of our transmission revenues. Under one of these agreements, the revenues are updated on an annual basis by the IGPM and under the other two agreements revenues are subject to the tariff review process.
The first periodic revision related to our main transmission concession scheduled for 2005 was only carried out in 2007, at which point ANEEL applied a reduction of 15.08%. This adjustment was applied retroactively to July 2005, and was passed on to our Final Customers until June 2009. The remainder of our annual revenues was subject to adjustment by IGP-M.
In 2009, our transmission tariffs were readjusted by the IGPM, resulting in an upward readjustment of 3.6%. In addition, as of June 1, 2009, the permitted annual transmission revenues of Copel Geração e Transmissão were increased to R$ 283.4 million, due to an increase in transmission services provided by Copel Geração e Transmissão, resulting in a total average increase of 11.0%. A second periodic revision was scheduled for 2009, but was then postponed until 2010.
In June 2010, pursuant to this second periodic revision, ANEEL granted provisional approval to reduce transmission tariffs by 22.88%, applied to the revenues of new installations in the Interconnected Transmission System, and applied retroactively to total transmission revenues from July 1, 2009 onward. This was a provisional approval by ANEEL, and no final decision has been made.
Other Businesses
Telecommunications
Copel Telecomunicações S.A. Pursuant to an authorization from the Brazilian National Telecommunication Agency,Agência Nacional de Telecomunicações(“ANATEL”) to provide corporate telecommunication services within the State of Paraná and international long-distance services. We have been offering these services since August 1998 through the use of our fiber optics network (13.9 thousand km by the end of 2009). In 2009, we served 216 of the 399 municipalities in the State of Paraná, which represent 88.5% of the total population of the state. In addition to our commercial servi ces, we have also been involved in an educational project aimed at providing public elementary and middle schools in the State of Paraná with broadband Internet access.
We provide services to most of the major Brazilian telecommunication companies that operate in the State of Paraná. We have 720 clients, which include supermarkets, universities, banks, Internet service providers and television networks. We also provide a number of different telecommunication services to our subsidiaries.
Sercomtel.We own 45.0% of the stock of Sercomtel Telecomunicações S.A. and Sercomtel Celular S.A. (together, “Sercomtel”). Sercomtel holds concessions to provide fixed and mobile telephone services in the municipalities of Londrina and Tamarana in the State of Paraná and has obtained ANATEL’s authorization to provide telephone services to all other cities in the State of Paraná. Currently, Sercomtel operates under an authorization regime in the cities of Cambé, Ibiporã and Arapongas. The city of Rolândia has been serviced since April 2009, and the cities of Apucarana and Maringá are expected to begin to receive service by the end of 2010. Sercomtel has concessions from ANATEL to provide cable television in São Jos&# 233; in the State of Santa Catarina and Osasco in the State of São Paulo and radio-wave television transmission in Maringá in the State of Paraná. As a result of impairment tests conducted in 2008, our entire investment in Sercomtel Celular S.A. was written off.
As of December 31, 2009, Sercomtel Telecomunicações, in its concessions area for fixed telephone services, had a total of 179,443 telephone lines installed, of which 160,037 were in operation. As of December 31,2009, Sercomtel Celular had an installed capacity of 3,328 terminals in its TDMA system, of which 3,087 were in operation, as well as an installed capacity of 102,623 terminals in its GSM system, of which 79,875 were in operation. In December 2009, Sercomtel started providing 3G services with a capacity of 20,000 lines, of which 2,162 are currently installed. Sercomtel’s Telecomunicações’ 2009 net revenues were R$ 146.2 million, with net loss of R$ 20.7 million, and Sercomtel Celular’s 2009 net revenues were R$ 33.6 million, with net loss of R$ 11.2 million.
Water and Sewage
In January 2008, Copel bought the 30% stake in Dominó Holdings S.A. (“Dominó Holdings”) held by Sanedo Ltda., a wholly-owned subsidiary of Grupo Veola, for R$ 110.2 million. We now own 45.0% of the total outstanding share capital of Dominó Holdings, which in turn owns 39.7% of the voting stock or 34.7% of the total capital of Companhia de Saneamento do Paraná – Sanepar (“Sanepar”), a public utility company that provides 345 urban and rural municipalities and approximately 8.8 million people in the State of Paraná with water distribution services and 5.1 million with sewage services. The State of Paraná owns 60.0% of the outstanding voting capital of Sanepar. Dominó Holdings’ net income in 2009 was R$ 42.0 million. The other shareholders of Dominó Holdings are Andrade Gutierrez Concess& #245;es S.A and Daleth Participações S.A, each with 27.5%.
In February 2003, the State of Paraná issued a decree canceling the Sanepar shareholders’ agreement and dismissing the board members appointed by Dominó Holdings. Dominó Holdings is currently engaged in litigation with the State of the Paraná in connection with this issue.
Gas
We are engaged in the distribution of natural gas through Companhia Paranaense de Gás (“Compagas”), the company that holds the exclusive rights to supply piped gas in the State of Paraná. Compagas’ customers include industries, thermoelectric plants, cogeneration plants, businesses, gas stations and residences. Compagas is focusing its marketing efforts on substituting gas for fuel oil and other fuels as a means of achieving greater energy efficiency and enhancing its market share.
As of December 31, 2009, we owned 51.0% of the capital stock of Compagas and accounted for this interest through consolidation. The minority shareholders of Compagas are Petrobras and Mitsui Gas, each of which owns 24.5% of the capital stock of Compagas.
Compagas distributes natural gas from Bolivia supplied through the Bolivia-Brazil gas pipeline. The volume contracted by Compagas is sufficient to safely meet demand in the next two years. For future supplies, Compagas has already started to negotiate with Petrobras in order to contract additional purchases of Brazilian natural gas. Petrobras has indicated through its Anticipated Gas Production Plan (Antecipação de Produção de Gás – Plangás), that the investments made by Petrobras and other Brazilian companies are expected to significantly increase the availability of Brazilian natural gas in the market, which is expected to increase from 29 million cubic meters p er day in 2008 to 59 cubic meters per day in 2010. Additionally, two new re-gasification plants became operational in August 2008 and March 2009, with a total processing capacity of 21 million cubic meters per day of natural gas. Compagas owns a gas distribution network in the State of Paraná consisting of 520 km of pipelines. During 2009, Compagas recorded a daily average sales volume of 295.3 million cubic meters of natural gas to 6,730 customers and 197.8 million cubic meters to Araucária thermoelectric plant. In 2009, Compagas’ net revenues were R$ 212.9 million, and its net income was R$ 34.6 million.
Services
We own 40.0% of the share capital of ESCO Electric Ltda. (“ESCO”), a company that assists customers with their electricity needs through the provision of consulting services, planning and project implementation, automation services, operation, maintenance, training and technical assistance. The Instituto de Tecnologia para o Desenvolvimento – LACTEC – owns the remaining 60% of the share capital. ESCO also markets products and services aimed at obtaining greater energy efficiency and energy conservation. During 2009, ESCO did not recordrevenue and it had a net loss of R$ 0.7 million. All operations of this company were discontinued in 2008 and we expect it to be liquidated during 2010-2011.
Concessions
We operate under concessions granted by the Brazilian government for our generation, transmission and distribution businesses.
In the generation segment, as of 2003 there is no longer any practical difference between a concessionaire and an independent producer. However, all concession agreements that were in effect prior to 2003 establish that the concessionaire has the right to renew the contract for an additional 20-year period. Concessions granted to independent producers between 1995 and 2003 can be renewed for an additional 20 years at ANEEL’s discretion, a process which can no longer be carried out with generation concessions granted after 2003, as is the case with the Mauá hydroelctic plant. After the final expiration date of a generation concession, as indicated in the table below, the concession will be subject to a competitive bidding process.
In the transmission and distribution segments, for the concessions auctioned after 1995, concessionaires have the right to request for their concessions agreements to be renewed for an additional period of 35 years. However, our distribution and our main transmission concessions were auctioned before 1995 and the concession agreement provides for possible extensions for a 20-year period, which we will solicit from ANEEL, in each case 36 months prior to expiration.
Generation
Since 1999, thirteen of our generation plants have had their concessions extended by Brazilian authorities, in each case for a 20-year term, as allowed by law. According to applicable law, these concessions are not eligible for a second extension. For each of our generation facilities for which the concession has not yet been extended, we will have the option to solicit a 20-year extension.
Concessions for new generation projects, granted after 2003, such as Mauá, are non-renewable, meaning that upon expiration, a further concession will be granted pursuant to a competitive bidding process.
The following table sets forth information relating to the terms as well as the renewals of our generation concessions.
| | | | |
| | | |
Foz do Areia | May 1973 | May 2003 | January 2001 | May 2023 |
São Jorge | December 1974 | December 2004 | April 2003 | December 2024 |
Apucaraninha | October 1975 | October 2005 | April 2003 | October 2025 |
Guaricana | August 1976 | August 2006 | August 2005 | August 2026 |
Chaminé | August 1976 | August 2006 | August 2005 | August 2026 |
Segredo | November 1979 | November 2009 | September 2009 | November 2029 |
Derivação do Rio Jordão | November 1979 | November 2009 | September 2009 | November 2029 |
Salto Caxias | May 1980 | May 2010 | September 2009 | May 2030 |
Cavernoso | January 1981 | January 2011 | September 2009 | January 2031 |
Rio dos Patos | February 1984 | February 2014 | Possible | February 2034(1) |
Capivari Cachoeira | April 1965 | May 1995 | June 1999 | July 2015 |
Mourão | January 1964 | January 1994 | June 1999 | July 2015 |
Chopim I | March 1964 | March 1994 | June 1999 | July 2015 |
Figueira | March 1969 | March 1999 | June 1999 | March 2019 |
Marumbi | March 1956 | Not defined by authorities | Not defined by authorities | Not defined by authorities |
____________
(1) Expected final expiration date (current expiration date: February 2014).
In September 2009, MME renewed the following power plant concessions for an additional term of 20 years: Segredo (final term expiring 2029), Salto Caxias (final term expiring 2030) Derivação do Rio Jordão (final term expiring 2029), and Cavernoso power plant (final term expiring in 2031).
We have ownership interests in several other generation projects, through generation partnerships established with certain other companies. The following table sets forth information relating to the terms of the concessions of certain generation plants in which we had an ownership interest as of December 31, 2009.
| | | | |
| | | |
Dona Francisca | Dona Francisca Energética SA -DFESA | July 1979 | August 2033 | Possible |
Santa Clara and Fundão | Elejor | October 2001 | October 2036 | Possible |
Araucária | UEG Araucária Ltda. | December 1999 | December 2029 | Possible |
Mauá | Consórcio Energético Cruzeiro do Sul | June 2007 | July 2042 | Not Possible |
Foz do Chopim | Foz do Chopim Energética | April 2000 | April 2030 | Possible |
Transmission
Under our transmission concession contracts, we have the right to request 20- to 30-year extensions of the concessions from ANEEL, provided that such request is delivered within 36 months prior to the expiration of the contract in question. Our principal transmission concession, which corresponds to 93% of our transmission revenues, expires on July 7, 2015, but is renewable for a period of 20 years. In addition, we have three concession agreements for individual transmission lines, which correspond to an aggregate of 7% of our transmission.
The following table sets forth certain information relating to the terms and renewal of our transmission concessions:
| | | | Expected final expiration date |
| | | |
Main transmission concession | July 2001 | July 2015 | Possible | July 2035 |
Bateias – Jaguariaíva Transmission Line | August 2001 | August 2031 | Possible | August 2061 |
Bateias – Pilarzinho Transmission Line | March 2008 | March 2038 | Possible | March 2068 |
Foz do Iguaçu - Cascavel Oeste Transmission Line | November 2009 | November 2039 | Possible | November 2069 |
Distribution
We operate our distribution business pursuant to a concession granted to us on June 24, 1999, which expires on July 7, 2015. We will have the right to request a 20-year extension of this concession from ANEEL 36 months prior to its expiration according to the concession agreement.
Competition
We have concessions to distribute electricity in substantially all of the State of Paraná, and we do not face competition from the five utilities that have been granted concessions for the remainder of the state. As a result of legislation passed in 2004, however, other suppliers are able to offer electricity to our existing Free Customers at prices lower than those we currently charge. However, when a captive customer becomes a Free Customer, it is still required to pay to use our distribution system. The reduction in net revenue of our distribution business is therefore compensated with a reduction in our costs for energy that we would otherwise acquire to sell to these customers.
Furthermore, under certain circumstances, Free Customers may be entitled to connect directly to the Interconnected Transmission System rather than our distribution system. Unlike a Free Customer’s choice of another energy supplier, in which case that customer must still use our distribution network and thus pay us the appropriate tariff, our distribution business ceases to collect tariffs from a customer that connects directly to the Interconnected Transmission System. The migration of customers from the distribution network to the transmission network therefore results in the loss of revenues for our distribution business.
Distribution and transmission companies are required to permit the use of their lines and ancillary facilities for the distribution and transmission of electricity by other parties upon payment of a tariff.
Free Customers are limited to:
· existing customers (those connected to the distribution network before July 1995) with demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 kV;
· new customers (those connected to the distribution network after July 1995) with demand of at least 3 MW at any voltage; and
· customers with demand of at least 500 kW and that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants or biomass projects.
During 2009, we provided electricity to a total of 14 Free Customers, and on December 2009 we had 10 Free Customers. These customers represented approximately 1.9% of our gross operating revenues from energy sales and approximately 2.4% of the total quantity of electricity sold by us in 2009. Contracts with Free Customers that are set to expire in 2010 represent approximately 15.9% of the total megawatts sold under contract to such customers. There can be no assurance that, upon the expiration of these contracts, the Free Customers will purchase energy from us.
At December 31, 2009, we had 43 customers that were eligible to qualify as Free Customers. These customers represented approximately 3.9% of our total volume of electricity sold in 2009, and approximately 5.3% of our total gross operating revenues from energy sales for that year.
In the generation business, any producer may be granted a concession to build or manage thermoelectric and small hydroelectric generating facilities in the State of Paraná. Brazilian law provides for competitive bidding for generation concessions for hydroelectric facilities with capacity higher than 30 MW.
In the transmission business, Brazilian law provides for competitive bidding for transmission concessions for facilities with voltage of 230 kV or greater that will form part of the Interconnected Transmission System.
Brazilian law requires that all of our concessions be subject to a competitive bidding process upon their expiration. We intend to apply for the extension of each concession 36 months prior to its expiration. We may face significant competition from third parties in bidding for renewal of such concessions or for any new concessions. The loss of certain concessions could adversely affect our results of operations.
Environment
Our construction and operation activities for the generation, transmission and distribution of electric energy, distribution of natural gas and our telecommunications operations are subject to federal, state and municipal environmental regulations.
All our activities are subject to our Sustainability and Corporate Citizenship Policy, which integrates corporate planning and sustainability management in order to optimize our financial, social and environmental performance.
Our transmission facilities that pre-date the introduction of environmental licensing requirements in 1986 are currently undergoing a diagnostic process with the relevant environmental authorities to ensure that the operations of these older facilities are brought in line with current environmental regulations.
We renew our environmental licenses in accordance with the procedures of the environmental authorities. We are in compliance with all material environmental regulations and our more recent (post-1986) generation, transmission and distribution projects are in compliance with federal and state regulations.
In 2009, compulsory environmental audits were completed for the hydroelectric plants of Mourão, São Jorge, Salto do Vau, Melissa, Governador Bento M. da Rocha Netto and Governador Ney Aminthas de B. Braga, and, in January 2010, for the hydroelectric plants of Cavernoso and Apucaraninha. These audits revealed that, in some cases, we need to improve our compliance with environmental standards in our operations, as well as increase our provisions for certain environmental risks. Together with the environmental regulators, we have established a plan to become fully compliant with relevant environmental standards. We are taking steps to execute this plan, and our audit concluded that we are fully capable of doing so.
These inspections were required by the State of Paraná as a condition for the renewal of the operating licenses for the above plants, and also allowed us to obtain an independent evaluation of our environmental policies and compliance with laws and regulations.
In March 2008, we received the necessary site license to begin construction of the Mauá hydroelectric power plant. This site license was granted after approval of an environmental plan, which contains various programs and sub-programs designed to prevent, mitigate and offset any negative environmental and social impact of this project, while enhancing the positive effects of the project.
We are involved with environmental and social programs including the “Socio-Environmental Education for Sustainability” (Educação Socioambiental para a Sustentabilidade) program and the “Tribute to the Waters” (Tributo às Águas) program.
Through thePrograma de Educação Socioambiental para a Sustentabilidade, Copel promotes the communication among stakeholders and develops projects of environmental sensitization with the communities in the vicinities, being an important reference for theenvironmental and social responsibilityof the company through the "et hics of care" regarding the environment.
ThePrograma Tributo às Águasaims to improve the quality and availability of water in Copel’s reservoirs through managing and monitoring the watersheds. As part of this program, Copel participates in thePrograma de Gestão Ambiental Integrada em Microbacias- PGAIM to promote the quality and availability of water in the State of Paraná.
To reinforce our commitment to environmental, social and economic sustainability, we are signatories to the United Nations Global Compact, and we actively seek to implement the principles of the Global Compact in our daily activities and our corporate culture. We also report to the Global Reporting Initiative.
Plant, Property and Equipment
Our principal properties consist of the generation, transmission and distribution facilities described in “– Business – Generation and Purchasers of Energy” and “– Business – Transmission and Distribution.” Of the net book value of our total property, plant and equipment at December 31, 2009 (including construction in progress), generation and transmission facilities represented 48.2%, distribution facilities represented 32.9%, telecommunications represented 2.5%, supply of gas represented 2.2%, Elejor represented 7.3% and Araucária thermoelectric plant represented 6.8%. We believe that our facilities generally are adequate for our present needs and suitable for their intended purposes.
The Condemnation Process
Although we receive concessions from the Brazilian government to construct hydroelectric projects, we do not receive title to the land on which the projects are located and in order for us to construct, the land must be condemned. Land required for the implementation of our projects may only be condemned pursuant to specific legislation. We generally negotiate with communities and individual owners occupying the land so as to resettle such communities in other areas and to compensate individual owners. Our policy of resettlement and compensation generally has resulted in the settlement of condemnation disputes. At December 31, 2009, we estimated our liability related to the settlement of such disputes to be approximately R$ 11.5 million. This amount does not include the projections for land condemnation included in the budgets for each of our projects.
THE BRAZILIAN POWER INDUSTRY
General
In August 2009, the MME approved a ten-year expansion plan under which Brazil’s installed power generation capacity is projected to increase to 154.6 GW by 2017, of which 76.0% is projected to be hydroelectric (including small hydroelectric plants), 17.8% is projected to be thermoelectric, 2.2% is projected to be nuclear and 4.0% is projected to be from alternative energy sources such as wind and biomass.
Approximately 38% of the installed power generating capacity of Brazil is currently owned by Eletrobras (including its wholly-owned subsidiary Eletronuclear and its 50.0% participation interest in Itaipu). Through its subsidiaries, Eletrobras is also responsible for 56% of the installed transmission capacity equal or above 230 kV within Brazil. In addition, some Brazilian states control entities involved in the generation, transmission and distribution of electricity.They include Companhia Energética de São Paulo – CESP, Companhia Energética de Minas Gerais – CEMIG and us, among others.
Principal Regulatory Authorities
Ministry of Mines and Energy – MME
The MME is the primary regulator of the power industry, acting as the granting authority on behalf of the Brazilian government and empowered with policymaking, regulatory and supervisory powers.
National Electric Energy Agency – ANEEL
The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. ANEEL’s primary responsibility is to regulate and supervise the power industry in accordance with the policies set forth by the MME and to respond to matters which are delegated to it by the Brazilian government and the MME. ANEEL’s current responsibilities include, among others, (i) administering concessions for electric energy generation, transmission and distribution, including the approval of electricity tariffs, (ii) enacting regulations for the electric energy industry, (iii) implementing and regulating the utilization of energy sources, including the use of hydroelectric power, (iv) promoting the public bidding process for new concessions, (v) settling administrative disputes among electricity sector entities and electricity purchasers, and (vi) defi ning the criteria and methodology for the determination of transmission tariffs.
National Electric System Operator – ONS
The ONS was created in 1998. The ONS is a non-profit, private entity comprised of electric utilities engaged in the generation, transmission and distribution of electric energy, in addition to other private participants such as importers, exporters and Free Customers. The Brazilian government nominates three executive officers to the ONS’ board of executive officers. The primary role of the ONS is to coordinate and control the generation and transmission operations in the Interconnected Transmission System, subject to the ANEEL’s regulation and supervision. The objectives and principal responsibilities of the ONS include, among others, operational planning for the generation industry, organizing the use of the domestic Interconnected Transmission System and international interconnections, guaranteeing that all parties in the industry have access to the tr ansmission network in a non-discriminatory manner, assisting in the expansion of the electric energy system, proposing plans to the MME for extensions of the Interconnected Transmission System, and submitting rules for the operation of the transmission system for ANEEL’s approval.
Electric Energy Trading Chamber – CCEE
The CCEE is a not-for-profit private organization subject to authorization, inspection and regulation by ANEEL. The CCEE is responsible, among other things, for (i) registering all the energy purchase agreements in the regulated market,Contratos de Comercialização de Energia no Ambiente Regulado (“CCEAR”), and registering the agreements resulting from market adjustments and the volume of electricity contracted in the free market, and (ii)accounting for and clearing short-term transactions. The CCEE is composed of holders of concessions, permissions and authorizations in the electricity industry and Free Custome rs, and its board of directors is composed of four members appointed by these agents and one by the MME, who is the chairman of the board of directors.
Energy Sector Monitoring Committee – CMSE
The CMSE was created by the New Industry Model Law to monitor service conditions in the next five years and to recommend preventative measures to ensure energy supply adequacy, including demand-side action and contracting of energy reserves.
Eletrobras
Eletrobras serves as a holding company for the following federally-owned energy companies: Companhia Hidro Elétrica do São Francisco – Chesf, Furnas, Eletrosul, Centrais Elétricas do Norte do Brasil S.A. –Eletronorte, Companhia de Geração Térmica de Energia Elétrica – CGTEE and Eletrobras Termonuclear S.A. –Eletronuclear. Eletrobras manages funds generated by some of the regulatory charges, as well as the commercialization of energy from Itaipu and from alternative energy sources, under the Proinfa Program.
Historical Background of Industry Legislation
The Brazilian constitution provides that the development, use and sale of electric energy may be undertaken directly by the Brazilian government or indirectly through the granting of concessions, permissions or authorizations. Historically, the Brazilian electric energy industry has been dominated by generation, transmission and distribution concessionaires controlled by the Federal or State governments. Since 1995, the Brazilian government has taken a number of measures to reform the Brazilian electric energy industry.in general, these measures were aimed at increasing the role of private investment and eliminating foreign investment restrictions in order to increase overall compet ition and productivity in the industry.
The following is a summary of the principal events related to changes to the regulatory and legal framework of the Brazilian electricity sector:
· In 1995: (i) the Brazilian constitution was amended to authorize foreign investment in power generation; (ii) the Concessions Law was enacted, requiring that all concessions for energy related services be granted through public bidding processes, providing for the creation of independent producers and Free Customers and granting electricity suppliers and Free Customers open access to all distribution and transmission systems; and (iii) a portion of the controlling interests held by Eletrobras and various Brazilian states in generation and distribution companies were sold to private investors.
· In 1998, the Power Industry Law was enacted, providing for, among other things: (i) the creation of the ONS; (ii) the separation of generation, transmission, distribution and energy trading activities; and (iii) the appointment of BNDES as the financing agent of the power industry, especially to support new generation projects.
· In 2001, Brazil faced a serious energy crisis that lasted through February 2002. During this period, the Brazilian government implemented an energy-rationing program in the most adversely affected regions, namely the southeast, central-west and northeast regions of Brazil. In April 2002, the Brazilian government established an extraordinary tariff readjustment to compensate for financial losses incurred by the electricity suppliers as a result of the rationing period.
· In 2004, the Brazilian government enacted the New Industry Model Law, in an effort to further restructure the power industry with the ultimate goal of providing customers with a secure electricity supply at low tariffs.
Concessions
The companies or consortia that wish to build or operate facilities for generation, transmission or distribution of electricity in Brazil must participate in a competitive bidding process or must apply to the MME or to ANEEL for a concession, permission or authorization, as the case may be. Concessions grant rights to generate, transmit or distribute electricity in a specific concession area for a specified period. This period is usually 35 years for new generation concessions, and 30 years for new transmission or distribution concessions. An existing concession may be renewed at the granting authority’s discretion, except in some specific cases provided by law.
The Concessions Law establishes, among other things, the conditions that the concessionaire must comply with when providing electricity services, customers’ rights and the respective obligations of the concessionaire and the granting authority. In addition to the Concession Law, the concessionaire must also comply with the general regulations governing the electricity sector. The main provisions of the Concessions Law and related ANEEL regulations are summarized as follows:
Adequate service. The concessionaire must render adequate service to all customers in its concession and must maintain certain standards with respect to regularity, continuity, efficiency, safety and accessibility.
Use of land. The concessionaire may use public land or request that the granting authority expropriate necessary private land for the benefit of the concessionaire. In the latter case, the concessionaire must compensate the affected private landowners.
Strict liability. The concessionaire is strictly liable for all damages arising from the provision of its services.
Changes in controlling interest. The granting authority must approve any direct or indirect change in the concessionaire’s controlling interest.
Intervention by the granting authority. The granting authority may intervene in the concession, by means of a presidential decree, to ensure the adequate performance of services, as well as the full compliance with applicable contractual and regulatory provisions. Within 30 days of such a decree, the granting authority’s representative must commence an administrative proceeding in which the concessionaire is entitled to contest the intervention. During the term of the administrative proceeding, the granting authority shall appoint an individual to manage the concession. If the administrative proceeding is not completed within 180 days of the issuance of the decree, the intervention will be stopped and the concession will be returned to the concessionaire. The concession is al so returned to the concessionaire if the granting authority’s representative decides not to terminate the concession and the concession has not yet expired.
Termination of the concession. The termination of the concession agreement may occur by means of expropriation and/or forfeiture. Expropriation is the early termination of a concession for reasons related to the public interest. An expropriation must be specifically approved by law or decree. Forfeiture must be declared by the granting authority after ANEEL or the MME has made a final administrative ruling that the concessionaire, among other things, (i) has failed to render adequate service or comply with an applicable law or regulation, (ii) no longer has the technical, financial or economic capacity to provide adequate service, or (iii) has not complied with penalties assessed by the granting authority. The concessionaire may contest any expropriation or forfeiture in the courts.
A concession agreement may also be terminated (i) through the mutual agreement of the parties, (ii) upon the bankruptcy or dissolution of the concessionaire, or (iii) following a final, non-appealable judicial decision rendered in a proceeding filed by the concessionaire.
When a concession agreement is terminated, all assets, rights and privileges that are materially related to the rendering of electricity services revert to the Brazilian government. Following termination, the concessionaire is entitled to indemnification for its investments in assets that have not been fully amortized or depreciated, after deduction of any amounts due by the concessionaire related to fines and damages.
Expiration. When the concession expires, all assets, rights and privileges that are materially related to the rendering of the electricity services revert to the Brazilian government. Following the expiration, the concessionaire is entitled to indemnification for its investments in assets, which have not been fully amortized or depreciated as of the expiration.
Penalties.ANEEL regulations govern the imposition of sanctions against agents in the electricity sector and classify the appropriate penalties based on the nature and importance of the breach (including warnings, fines, temporary suspension from the right to participate in bidding procedures for new concessions, licenses or authorizations and forfeiture). For each infraction, the fines can be up to two percent of the revenue (net of value-added tax and services tax) of the concessionaire in the 12-month period preceding any penalty notice. Some infractions that may result in fines relate to the failure of the agent to request ANEEL’s approval for certain actions, including the following: (i) execution of contracts between related parties in certain situations; (ii) sal e or assignment of the assets related to services rendered as well as the imposition of any encumbrance (including any security, bond, guaranty, pledge and mortgage) on these or any other assets related to the concession or the revenues from electricity services; (iii) changes in controlling interest of the holder of the authorization or concession; and (iv) certain changes to the bylaws. In the case of contracts executed between related parties that are submitted for ANEEL’s approval, ANEEL may seek to impose restrictions on the terms and conditions of these contracts and, in extreme circumstances, require that the contract be rescinded.
The New Industry Model Law
The New Industry Model Law introduced material changes to the regulation of the power industry, in order to (i) provide incentives to private and public entities to build and maintain generation capacity, and (ii) ensure the supply of electricity in Brazil at low tariffs through a competitive electricity public bidding process. The key elements of the New Industry Model Law include:
· Ensuring the existence of two markets: (1) the regulated market, a more stable market in terms of supply of electricity, and (2) a market specifically addressed to certain participants (i.e., Free Customers and energy-trading companies), called the free market, that permits a certain degree of competition vis-à-vis the regulated market.
· Restrictions on certain activities of distributors, which require them to focus on their core business of distribution activities in order to promote more efficient and reliable services to captive customers.
· Elimination of self-dealing, providing an incentive for distributors to purchase electricity at the lowest available prices rather than buying electricity from related parties.
· Respect for contracts executed prior to the New Industry Model Law, in order to provide regulatory stability for transactions carried out before its enactment.
The New Industry Model Law excludes Eletrobras and its subsidiaries from the National Privatization Program, which is a program originally created by the Brazilian government in 1990 to promote the privatization process of state-owned companies.
Parallel Environment for the Trading of Electric Energy
Under the New Industry Model Law, electricity purchase and sale transactions are carried out in two different segments: (i) the regulated market, which contemplates that distribution companies will purchase by public auction all the electricity they need to supply their customers; and (ii) the free market, which provides for the purchase of electricity by non-regulated entities (such as the Free Customers and energy traders).
However, the electricity arising from (i) low capacity generation projects located near consumption points (such as certain co-generation plants and small hydroelectric power plants), (ii) plants qualified under the Proinfa Program, an initiative established by the Brazilian government to create incentives for the development of alternative energy sources, such as wind power projects, small hydroelectric power plants and biomass projects, (iii)Itaipu and (iv) Angra 1 and 2 are subject to specific rules different from the rules applicable to the regulated market and to the free market.
The electricity generated by Itaipu will continue to be sold by Eletrobras to the distribution concessionaires operating in the South, Southeast and Midwest Interconnected Transmission System. The rates at which Itaipu-generated electricity is traded are denominated in U.S. dollars and established pursuant to a treaty between Brazil and Paraguay. As a consequence, Itaipu rates rise or fall in accordance with the variation of the U.S. dollar/real exchange rate. Changes in the price of Itaipu-generated electricity are, however, subject to the Parcel A cost recovery mechanism discussed below under “—Distribution Tariffs.”
Beginning January 2013, the energy generated by nuclear plants Angra 1 and 2 will be sold by Eletronuclear to the distribution concessionaires at a rate that will be calculated by ANEEL.
The New Industry Model Law does not affect bilateral agreements entered into before 2004.
The Regulated Market
In the regulated market, distribution companies must purchase their expected electricity requirements for their captive customers in the regulated market, through a public auction process. The auction process is administered by ANEEL, either directly or through the CCEE, under certain guidelines provided by the MME.
Electricity purchases are made through two types of bilateral agreements: Energy Agreements (Contratos de Quantidade de Energia) and Capacity Agreements (Contratos de Disponibilidade de Energia). Under an Energy Agreement, a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, among other conditions, which could interrupt the supply of electricity. In such case, the generator would be required to purchase e lectricity elsewhere in order to comply with its supply commitments. Under a Capacity Agreement, a generator commits to make a certain amount of capacity available to the regulated market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage.
Under the New Industry Model Law, the estimate of demand from distributors is the principal factor in determining how much electricity the system as a whole will contract. A distributor is obligated to contract all of its projected electricity needs, as opposed to 95.0% under the previous regime. A deviation in actual demand from projected demand results in penalties to distributors. In the event of under-contracting, the distributor is penalized directly in an amount that increases as the difference between projected demand and actual demand increases. An under-contracting distributor must also pay to meet its demand by purchasing energy in the spot market.
In the event of over-contracting, where the contracted volume falls between 100% and 103% of actual demand, the distributor is not penalized and the additional costs are compensated for through increases in its customers’ tariffs. Where the contracted volume is over 103% of actual demand, the distributor must sell energy in the spot market. If the contract price proves lower than the current spot market price, the distributor sells its excess energy for a profit. On the other hand, if the contract price is higher than the spot market price, the distributor sells its extra energy at a loss.
With respect to the granting of new concessions, the newly enacted regulations provide that bids for new hydroelectric generation facilities may include, among other things, the minimum percentage of electricity to be supplied in auctions in the regulated market. Concessions for new generation projects, such as Mauá, in our case, are non-renewable, meaning that upon expiration, the concessionaire must again complete a competitive bidding process.
The Free Market
The free market covers transactions between generation concessionaires, IPPs, self-generators, energy traders, exporters and importers of electric energy and Free Customers. The free market also covers bilateralagreements between generators and distributors signed under the old model, until they expire. Upon expiration, such contracts must be executed under the New Industry Model Law guidelines.
A consumer that is eligible to choose its supplier may only do so upon the expiration of its contract with the local distributor, with advance notice or, in the case of a contract with no expiration date, upon 15 days notice in advance of the date on which the distributor must provide MME with its estimated electricity demand for the year. In the latter case, the contract will only be terminated in the following year. Once a consumer has chosen the free market, it may only return to the regulated system once it has given its regional distributor five years notice, provided that the distributor may reduce such term at its discretion. Such an extended period of notice seeks to assure that, if necessary, the distributor can buy additional energy in auctions in the regulated market without imposing extra costs on the captive market.
State-owned generators may sell electricity to Free Customers, however, as opposed to private generators, they are obligated to do so through an auction process.
Regulation under the New Industry Model Law
A July 2004 decree governs the purchase and sale of electricity in the regulated market and the free market, as well as the granting of authorizations and concessions for electricity generation projects. This decree includes, among other items, regulations relating to auction procedures, the form of power purchase agreements and the mechanism for passing costs through to Final Customers.
Under these regulations, all electricity-purchasing agents must contract all of their electricity demand in accordance with established guidelines. Electricity-selling agents must show that the energy to be sold comes from existing or planned power generation facilities. Agents that do not comply with such requirements are subject to penalties imposed by ANEEL.
These regulations also require electricity distribution companies to fulfill their electricity supply obligations primarily through public auctions. In addition to these auctions, distribution companies can purchase electricity from: (i) generation companies that are connected directly to the distribution company (except for hydroelectric power plants with capacity higher than 30 MW and certain thermoelectric power plants), (ii) electricity generation projects participating in the initial phase of the Proinfa Program, (iii) power purchase agreements entered into before the New Industry Model Law was enacted, and (iv) the Itaipu power plant.
The MME establishes the total amount of energy that will be contracted in the regulated market and the number and type of generation project that will be auctioned each year.
All electricity generation, distribution and trading companies, independent producers and Free Customers are required to notify ANEEL, by August 1st of each year, of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. Each distribution company is also required to notify ANEEL, within the 60-day period preceding each electricity auction, of the amounts of electricity that it intends to contract in the auction. In addition, distribution companies are required to specify the portion of the contracted amount they intend to use to supply potentially Free Customers.
Auctions in the Regulated Market
Electricity auctions for new generation projects are held (i) in the fifth year before the initial delivery date of electricity (referred to as “A-5” auctions), and (ii) in the third year before the commencement of commercial operation (referred to as “A-3” auctions). Existing power generators hold auctions (i) in the year before the initial delivery date (referred to as “A-1” auctions), and (ii) up to four months before the delivery date (referred to as “market adjustments”). Auctions exclusively for electricity from wind, small hydro and biomass power plants are held between years “A-1” and “A‑5.” New and existing power generators may participate in the reserve energy auctions as long as these generators increase the power system capacity or they did not achieve commercial operation by Januar y 2008. Invitations to bid in the auctions are prepared by ANEEL, in accordance with guidelines established by the MME, including the requirement that the lowest bid wins the auction. Each generation companythat participates in the auction executes a contract for purchase and sale of electricity with each distribution company, in proportion to the distribution companies’ respective estimated demand for electricity. The only exception to these rules relates to the market adjustment auction, where the contracts are between specific selling and distribution companies. The contracts for both A-5 and A-3 auctions have a term of between 15 and 30 years, and the contracts for A-1 auctions have a term between five and 15 years. The contracts for A-1 auctions, carried out in 2005, are allowed to have a three-year term with initial supply in 2006. Contracts arising from market adjustment auctions are limited to a two-year term. The reserve e nergy contracts are limited to a 35-year term.
The quantity of energy contracted from existing generation facilities may be reduced for three reasons: (i) to compensate for captive customers that become Free Customers; (ii) to compensate for market deviations from the estimated market projections (up to four percent per year of the annual contracted amount, beginning two years after the initial electricity demand is estimated); and (iii) to adjust the quantity of contracted energy in bilateral agreements entered into prior to the enactment of the New Industry Model Law. With regard to (i) above, the reduction in net revenue caused when a captive customer becomes a Free Customer is compensated for by the increased amounts that Free Customers are required to pay to use our distribution system. However, a Free Customer may disconnect from our distribution system (and therefore cease to pay us a distribution tariff ) if it chooses to connect directly to the Interconnected Transmission System or if it generates energy for self-consumption and transports this energy without using our distribution system. Because a Free Customer that connects directly to the Interconnected Transmission System no longer pays us a distribution tariff, we might not be able to fully recover this loss in revenues.
Since 2004, CCEE has conducted nine auctions for new generation projects, seventeen auctions for existing power generation facilities, one auction for alternative generation projects, and two auctions for reserve energy in order to increase energy supply security. No later than August 1st of each year, the generators and distributors provide their estimated electricity generation or estimated electricity demand for the five subsequent years. Based on this information, MME establishes the total amount of electricity to be traded in the auction and determines which generation companies will participate in the auction. The auction is carried out in two phases via an electronic system.
After the completion of the auction (except in the case of reserve energy auction), generators and distributors execute the CCEAR, in which the parties establish the price and amount of the energy contracted in the auction. The price is adjusted annually based on price variations published by the IPCA (Índice Nacional de Preços ao Consumidor Amplo,calculated and published byFundação Instituto Brasileiro de Geografia e Estatística –IBGE). The distributors grant financial guaranties to the generators (main ly receivables from the distribution service) to secure their payment obligations under the CCEAR.
Also after completion of the auction, the generation concessionaire and the CCEE execute theContrato de Energia de Reserva (“CER”), in which the parties establish the price and amount of the energy contracted for in the auction. The distributors, free customers and self-producing customers then execute theContrato de Uso da Energia de Reserva (“CONUER”) with CCEE, in order to use the reserve energy. The reserve energy consumers grant financial guaranties to CCEE to secure their payment obligations under CONUER.
The Annual Reference Value
Brazilian regulation establishes a mechanism (the “Annual Reference Value”) that limits the costs that can be passed through to Final Customers. The Annual Reference Value corresponds to the weighted average of the electricity prices in the A-5 and A-3 auctions (excluding alternative energy auctions), calculated for all distribution companies.
The Annual Reference Value creates an incentive for distribution companies to contract their expected electricity needs in the A-5 auctions, where the prices are expected to be lower than in A-3 auctions. The Annual Reference Value is applied during the first three years of the power purchase agreements for new power generation projects. Beginning in the fourth year, 100.0% of the electricity acquisition costs from these projects is passed through to customers. The decree establishes the following permanent limitations on the ability of distribution companies to pass-through costs to customers: (i) no pass-through of costs for electricity purchases that exceed 103% of actual demand; (ii) limited pass-through of costs for electricity purchases made in an A-3 auction, if thevolume of the acquire d electricity exceeds two percent of the volume of electricity purchased in the A-5 auctions; (iii) if the volume contracted from existing generation projects decreases by over four percent, new contracts from new generation projects are afforded limited pass-through. The MME establishes the maximum acquisition price for electricity generated by existing projects. If distributors do not comply with the obligation to fully contract their demand, the pass-through of costs from energy acquired in the short-term market is the lower of the spot market price and the Annual Reference Value.
Electric Energy Trading Convention
The Electric Energy Trading Convention (Convenção de Comercialização de Energia Elétrica) regulates the organization and functioning of the CCEE and defines, among other things, (i) the rights and obligations of CCEE participants, (ii) the penalties to be imposed on defaulting agents, (iii) the means of dispute resolution, (iv) trading rules in the regulated and free markets, and (v) the accounting and clearing process for short-term transactions.
Restricted Activities of Distributors
Distributors in the Interconnected Transmission System are not permitted to (i) engage in activities related to the generation or transmission of electric energy, (ii) sell electric energy to Free Customers, except for those in their concession area and under the same conditions and tariffs maintained with respect to captive customers, (iii) hold, directly or indirectly, any interest in any other company, corporation or partnership, or (iv) engage in activities that are unrelated to their respective concessions, except for those permitted by law or the relevant concession agreement. A generator is not allowed to hold more than a ten percent equity interest in any distributor.
Elimination of Self-Dealing
Since the purchase of electricity for captive customers is now performed through auctions in the regulated market, “self-dealing” (under which distributors were permitted to meet up to 30.0% of their energy needs using energy that was either self-produced or acquired from affiliated companies) is no longer permitted.
Challenges to the Constitutionality of the New Industry Model Law
The New Industry Model Law is currently being challenged on constitutional grounds before the Brazilian Supreme Court. The Brazilian government moved to dismiss the actions arguing that the constitutional challenges were moot because they related to a provisional measure that had already been converted into law. To date, the Supreme Court has not reached a final decision and we do not know when such a decision may be reached. While the Supreme Court is reviewing the law, its provisions have remained in effect. Regardless of the Supreme Court’s final decision, certain portions of the New Industry Model Law relating to restrictions on distributors performing activities unrelated to the distribution of electricity, including sales of energy by distributors to Free Customers and the elimination of self-dealing, are expected to remain in full force and effect.
Tariffs for the Use of the Distribution and Transmission Systems
ANEEL regulates access to the distribution and transmission systems and establishes tariffs for the use of these systems. The tariffs are (i) network usage charges, which are charges for the use of the proprietary local grid of distribution companies (“TUSD”) and (ii) tariffs for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities (“TUST”).
TUSD
Users of a distribution system pay the distribution concessionaire a tariff known as the TUSD. The TUSD is divided into two parts: one related to the contracted power in R$/kW and other related to the regulatory charges in R$/kWh. The amount paid by the users of a distribution system is calculated by multiplying the maximum contracted power for each of the customer’s points of connection to the concessionaire’s distribution system, by the tariff in R$/kW, plus the multiplication of the power consumption by the tariff in R$/kWh, per month.
In relation to the captive customers, the TUSD is part of the supply tariff that is calculated based on the voltage used by each customer.
TUST
The TUST is paid by distribution companies, generators and Free Customers for use of the Interconnected Transmission System (electrical transmission system with voltage equal or higher than 230 kV). This tariff is revised annually according to (i) the location of the user of the transmission system and (ii) the annual revenues that a transmission company is permitted to collect for the use of its assets in the Interconnected Transmission System. The ONS, an entity that represents all transmission companies that own assets in the Interconnected Transmission System, coordinates the payment of transmission tariffs to these transmission companies. Users of the Interconnected Transmission System sign contracts with the ONS, which allows them to use the transmission grid in return for paying TUST. A transmission company that owns transmission assets which are not part of the Interconnected Transmission System makes this other transmission system available to interested users for a separately-negotiated fee.
Distribution Tariffs
Distribution tariff rates to final customers (including the TUSD) are subject to review by ANEEL, which has the authority to adjust and review these tariffs in response to changes in energy purchase costs and market conditions. When adjusting distribution tariffs, ANEEL divides the costs of distribution companies into (i) costs that are beyond the control of the distributor, or Parcel A costs, and (ii) costs that are under control of distributors, or Parcel B costs. ANEEL’s tariff readjustment formula treats these two categories differently.
Parcel A costs include, among others, the following:
· costs of electricity purchased in ANEEL public auctions;
· costs of electricity purchased from Itaipu;
· costs of electricity purchased pursuant to bilateral agreements by small distribution companies;
· charges for connection to and use of the transmission and distribution systems; and
· energy sector regulatory charges.
Parcel B costs include, among others, the following:
· a component designed to compensate the distributor for the investments made by the distributor on the concession assets;
· depreciation costs; and
· a component designed to compensate the distributor for its operating and maintenance costs.
Each distribution company’s concession agreement provides for an annual readjustment (reajuste anual). In general, Parcel A costs are fully passed through to consumers. Parcel B costs, however, are only adjusted for inflation in accordance with the IGP-M index, minus the X factor.
In February 2010, our distribution concession contract with ANEEL was amended. As a result, the next increase in our distribution tariffs will be reduced, causing a reduction of approximately 0.5% in our distribution revenues. Our Board of Directors approved the amendment in order to mitigate the possibility of a lawsuit or judicial proceeding on the matter. Nevertheless, we cannot assure you that no such action will be brought.
Electricity distribution concessionaires are also entitled to periodic tariff revisions (revisão periódica) every four or five years. These revisions are aimed at (i) assuring necessary revenues to cover efficient Parcel B operational costs and adequate compensation for investments deemed essential for services provided within the scope of each such company’s concession and (ii) determining the “X factor.”
The X factor for each distribution company is calculated based on two components:
· Xa, based on the application of the IPC-A to the personnel portion of the concessionaire’s operational costs; and
· Xe, based on the concessionaire’s increases in its economies of scale due to market growth, and which is measured at each periodic tariff revision.
In addition, ANEEL recently enacted new regulations under which distribution companies will be required to comply under penalty of law with minimum pre-established targets measured by a new quality of service indicator related to customer satisfaction.
In addition, a distribution concessionaire is entitled to an extraordinary tariff review (revisão extraordinária) on a case-by-case basis, to ensure its financial stability and compensate it for unpredictable costs, including taxes, that significantly change its cost structure. Extraordinary tariff adjustments were granted (i) in June 1999 to compensate for increased costs of electricity purchased from Itaipu as a result of the devaluation of the real against the dollar, (ii) in 2000 to compensate for the increase inContribuição para o Financiamento da Seguridade Social - COFINS (Social Security Financing Contribution) from two to three percent, and (iii) in December 2001 to compensate for losses caused by the Rationing Program.
Since October 2004, on the date of a subsequent tariff readjustment or tariff revision, whichever occurs earlier, distribution companies have been required to execute separate contracts for the connection and use of the distribution system and for the sale of electricity to their potentially Free Customers.
Incentives
In 2000, a Federal decree created the Thermoelectric Priority Program,Programa Prioritário de Termeletricidade (“PPT”), for purposes of diversifying the Brazilian energy matrix and decreasing Brazil’s strong dependence on hydroelectric plants. The incentives granted to the thermoelectric plants included in the PPT are: (i) guarantee of gas supply for 20 years, as per an MME regulation (ii) assurance that the costs related to the acquisition of the electric energy produced by thermoelectric plants will be passed on to customers through tariffs up to the normative value established by ANEEL, and (iii) guarantee of access to a special BNDES financing program for the electric ener gy industry.
In 2002, the Brazilian government established the Proinfa Program to encourage the creation of alternative energy sources. Under the Proinfa Program, Eletrobras shall purchase the energy generated by alternative sources for a period of 20 years. In its initial phase, the Proinfa Program is limited to a total contracted capacity of 3,300 MW. In its second phase, which will start after the 3,300 MW cap has been reached, the Proinfa Program intends to purchase up to 10% of Brazil’s annual electric energy consumption from alternative sources. The first phase of the Proinfa program commenced in 2004.
Energy Sector Regulatory Charges
State and Municipal ICMS Compensation
From January 1, 2010 to December 31, 2012, distributors will be required to pay a levy in the amount of 0.3% of their annual net operating revenues, which will be transferred to certain states and municipalities in compensation for losses in tax revenues resulting from the fact that these states and municipalities became connected to the Interconnected Transmission System, and therefore no longer receive energy from locally-generated sources. These funds must be used by the states and municipalities to provide increased access toelectricity, to finance social and environmental projects, as well as to conduct research and development and support energy efficiency initiatives.
EER
TheEncargo de Energia de Reserva(“EER”) is a regulatory charge designed to raise funds for energy reserves that have been contracted through CCEE. These energy reserves must be created in order to attempt to ensure a sufficient supply of energy in the Interconnected Transmission System. The EER shall to be collected from Final Customers of the Interconnected Transmission System. According to the applicable regulation, there was only one payment to this fund during the fiscal year of 2009. Nevertheless, beginning in 2010, this charge has been collected on a monthly basis.
RGR Fund
In certain circumstances, electric energy companies are compensated for certain assets used in connection with a concession if the concession is revoked or is not renewed. In 1971, the Brazilian Congress created a reserve fund designed to provide these compensatory payments (the “RGR Fund”). In February 1999, ANEEL established a fee requiring public-industry electric companies to make monthly contributions to the RGR Fund at an annual rate equal to 2.5% of the company’s fixed assets in service, not to exceed three percent of total operating revenues in any year. In recent years, no concessions have been revoked or have failed to be renewed, and the RGR Fund has been used principally to finance generation and distribution projects. The RGR Fund is scheduled to be phased out by the end of 2010 and ANEEL shall revise certain tariffs so that the Final Cu stomers will receive some benefit from the termination of the RGR Fund.
UBP
Independent Power Producers – IPPs reliant on hydrological resources (except small hydroelectric power plants) are required to make contributions for using a public asset,Uso de Bem Público (“UBP”) according to the rules of the corresponding public bidding process for the granting of concessions. Eletrobras receives the UBP payments in a specific account.
CCC
Distribution companies (and also some transmission companies responsible for Free Customers) must contribute to the Fuel Consumption Account,Conta de Consumo de Combustível (“CCC Account”). The CCC Account was created in 1973 to generate financial reserves to cover fossil fuel costs in order to reduce tariffs to be paid by consumers supplied by thermoelectric power plants. However, since July 2009 the CCC reserves have been used to cover the difference of the cost of generation in the isolated systems (supplied only by thermoelectric power plants) and the cost of generation in the Interconnected Transmission System. The CCC Account is administered by Eletrobras. The CCC Account, in turn, reimburses electric companies for a substantial portion of the power generation costs of their thermoelectric power plants of the isolated systems.
In February 1998, the Brazilian government provided for the phasing out of the CCC Account. During the 2003-2005 period, subsidies from the CCC Account were phased out for thermal power plants that were constructed prior to February 1998 and that are connected to the Interconnected Transmission System. Thermal power plants constructed after that date will not be entitled to subsidies from the CCC Account. In April 2002, the Brazilian government established that subsidies from the CCC Account would continue to be paid, for a period of 20 years, to thermoelectric plants located in isolated systems.However, in December 2009, the Brazilian government revoked this sunset provision and the CCC is therefore no longer set to expire.
CDE
In 2002, the Brazilian government instituted the Electric Energy Development Account,Conta de Desenvolvimento Energético (“CDE Account”). The CDE Account is funded by (i) monthly payments made by concessionaires for the use of public assets, (ii) penalties and fines imposed by ANEEL and (iii) the annual fees paidby agents offering electric energy to Final Customers, by means of an additional charge added to the tariffs for the use of the transmission and distribution systems. These fees are adjusted annually. The CDE Account was created to support (i) the development of energy production throughout Brazil, (ii) the production of energy by alternative energy sources, and (iii) the universalization of electric energy services throughout Brazil. The CDE will be in effect for 25 years and be regulated by the executive branch and managed by Eletrobras.
Itaipu Transmission Charge
The Itaipu hydroelectric plant has an exclusive transmission grid and is not part of the Interconnected Transmission System. Companies that are entitled to receive electricity from Itaipu pay a transmission charge, in an amount equal to their proportional quota of Itaipu generated electricity for the use of the grid.
Use of Water Resources Tax
Holders of concessions and authorizations that allow for the exploitation of water resources must pay a total tax of 6.75% of the value of the energy they generate, which for purposes of this calculation is based on a rate set by ANEEL. Beginning on January 1, 2010, ANEEL set this rate at R$ 64.69/MWh. The proceeds of this tax are shared among the states and municipalities where the plant or the plant’s reservoir is located, as well as with certain federal agencies.
ANEEL Inspection Fee
The ANEEL Inspection Fee is an annual fee due by the holders of concessions, permissions or authorizations equal to a proportion of their revenues. The ANEEL Inspection Fee requires these holders to pay up to 0.5% of their annual revenue to ANEEL in 12 monthly installments.
Default on the Payment of Regulatory Charges
The New Industry Model Law provides that the failure to pay required contributions to the RGR Fund, Proinfa Program, CDE Account, CCC Account, or make certain payments, such as those due from the purchase of electric energy in the regulated market or from Itaipu, will prevent the defaulting party from receiving readjustments or reviews of their tariffs (except for an extraordinary review) and will also prevent the defaulting party from receiving funds from the RGR Fund, CDE Account or CCC Account.
Energy Reallocation Mechanism
The Energy Reallocation Mechanism (“MRE”) attempts to mitigate the risks borne by hydroelectric generators due to variations in river flows (hydrological risk).
Under Brazilian law, each hydroelectric plant is assigned a determined amount of “assured energy,” according to an energy supply risk criteria defined by MME, based on historical river flow records. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
The MRE tries to guarantee that all participating plants receive the revenue corresponding to their assured energy, irrespective of the volume of electricity generated by them. In other words, the MRE effectively reallocates the electricity, transferring the surplus from those who have produced in excess of their assured energy to those that have produced less than their assured energy. The relocation, which occurs in the Interconnected Transmission System, is determined by the ONS, considering the nationwide electricity demand and hydrological conditions, regardless of the power purchase agreement of each individual generator. The volume of electricity actually generated by the plant, whether more or less than their assigned assured energy quotient, is priced pursuant to a tariff known as the “Energy Optimization Tariff,” designed to cover only the variable operation and maintenance costs of the plant, so that generators are largely unaffected by the actual dispatch of their plants.
Research and Development
The companies holding concessions and permissions for distribution of electricity must invest a minimum of 0.50% of their annual net operational revenues in research and development and 0.50% in energy efficiency programs. Beginning on January 1, 2016, these percentages will become 0.75% and 0.25%, respectively.
A company holding concessions and authorizations for generation and transmission of electricity must invest a minimum of one percent of its annual net operational revenues in research and development. A company that generates electricity exclusively from small hydroelectric power plants, cogeneration or alternative energy projects is not subject to this requirement.
The amount to be invested in research and development must be distributed as follows:
· 40% to the company research and development projects, under the coordination of ANEEL;
· 40% to the Ministry of Sciences and Technology, to be invested in national research and development projects; and
· 20% to the MME, to defray EPE.
Environmental Regulations
The Brazilian constitution gives both the federal and state governments the power to enact laws designed to protect the environment. A similar power is given to municipalities whose local interests may be affected. Municipal laws are considered a supplement to federal and state laws. A violator of applicable environmental laws may be subject to administrative and criminal sanctions, and will have an obligation to repair or provide compensation for environmental damages. Administrative sanctions may include substantial fines and suspension of activities, while criminal sanctions may include fines and, for individuals, possible imprisonment. Criminal sanctions, including the imposition of fines or possible imprisonment, can be imposed against executive officers and employees of companies who commit environmental crimes.
Our energy generation, distribution and transmission facilities are subject to environmental licensing procedures, which include the preparation of environmental impact assessments before such facilities are constructed. Once the respective environmental licenses are obtained, their maintenance is still subject to the compliance with certain requirements. We were one of the first energy concessionaires in Brazil to provide an environmental impact assessment and report in connection with the construction of a power plant (Segredo Power Plant, 1987). More recently, the Salto Caxias Power Plant (1995-1999) was constructed in accordance with one of the most comprehensive environmental impact mitigation programs ever implemented in Brazil.
In recent years, several important pieces of environmental regulation have been enacted. The Law of Environmental Crimes, which took effect in 1998, establishes a general framework of liability for environmental crimes. Recent federal laws and statutes have established the National System for Management of Water Resources and the National Council of Water Resources to address the major environmental issues facing the hydroelectric sector and users of water resources. In July 2000, the Brazilian government created an independent agency, the National Water Agency, to regulate and supervise the use of water resources.
The Brazilian Forestry Code and related regulations deal with the maintenance and acquisition of areas affected by hydroelectric plant reservoirs. These regulations may result in increased maintenance, reforestation and condemnation costs to energy industry concessionaires. In addition, ParanáState law requires a mandatory environmental audit of all companies, like us, whose activities may impact the environment within the state. The environmental and maintenance departments of our Company are responsible for performing this audit.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The statement of operations for the years ended December 31, 2009, 2008 and 2007 have been prepared in accordance with Brazilian GAAP including the provisions of Law Nos. 11,638/07 and 11,941/09.
Rapid changes in Brazilian accounting principles are continuing, as Brazilian accounting standard-setters move toward convergence with IFRS. Many new accounting standards have been adopted and are currently being implemented. Others are expected in the near future. We cannot yet predict the effects on our financial statements that will result when these changes take effect. Based on preliminary analysis, the two principal aspects of IFRS that could have a material impact on us concern the recognition of regulatory assets and accounting for our concessions. See “Item 3. Risk Factors –Risks Relating to the Brazilian Electricity Sector.” For more information, see Note 4 to our consolidated fi nancial statements.
Overview
Brazilian Economic Conditions
All of our operations are in Brazil, and we are affected by general Brazilian economic conditions. In particular, the general performance of the Brazilian economy affects demand for electricity, and inflation affects our costs and our margins. The Brazilian economic environment has been characterized by significant variations in economic growth rates, with very low growth from 2001 through 2003 and an economic recovery that has led to consistent growth since 2004. Between the fourth quarter of 2008 and the first quarter of 2009, Brazilian GDP decreased due to the global financial crisis. Since then, the Brazilian economy has shown a return to growth.
The following table shows selected economic data for the periods indicated:
| |
| | | |
| |
Inflation (IGP-DI) | (1.4)% | 9.1% | 7.9% |
Appreciation (depreciation) of therealvs. US dollar | 34.2% | (24.2)% | 20.7% |
Period-end exchange rate – US$ 1.00(1) | 1.7412 | 2.3370 | 1.7713 |
Average exchange rate – US$ 1.00 | 1.9905 | 1.8335 | 1.9300 |
Change in realGDP(2) | (0.2)% | 5.4% | 5.4% |
Average interbank interest rates(3) | 9.7% | 12.4% | 11.9% |
______________
(1) Thereal/U.S. dollar exchange rate at June 10, 2010 was R$ 1.8185 per U.S.$ 1.00.
(2) In 2007, the Brazilian Geography and Statistics Institute (“IBGE”) adopted a new GDP calculation method, which affected the GDP figures of prior years.
(3) Calculated in accordance with Central Clearing and Custody House (“CETIP”) methodology (based on nominal rates).
Sources:FGV-Fundação Getúlio Vargas, the Brazilian Central Bank, the Brazilian Geography and Statistics Institute (“IBGE”) and Central Clearing and Custody House (“CETIP”).
Changes to Brazilian Accounting Principles
New accounting standards have recently been adopted in Brazil, and we expect that further changes will occur as a result of the convergence of Brazilian GAAP with IFRS. In particular, the CPC has issued new technical accounting rules and pronouncements, which became effective for the year ended December 31, 2010. Changes to Brazilian accounting standards resulting from the convergence of Brazilian GAAP and IFRS could have a material impact on our results of operations. For more information, see Note 4 to our consolidated financial statements.
Rates and Prices
Our results of operations are significantly affected by changes in the prices and tariffs that we charge for electricity. Most of our revenues come from electricity sales to captive customers at regulated rates defined by ANEEL. We also sell energy through auctions, bilateral agreements and to Free Customers at prices that are not directly regulated, but are heavily influenced by energy regulatory policy. In the auctions held during 2004 and 2005, the electricity prices in the agreements with delivery dates beginning in 2005, 2006 and 2007 reflected an electricity surplus, resulting in a reduction of energy prices. Electricity prices for agreements with delivery dates beginning in 2008 and 2009 were higher than prior years, due to increased demand in 2008.
Sales to Final Customers represented about 49.5% of the volume of electricity we delivered in 2009, and accounted for 79% of our gross energy sales revenues. Almost all of such sales were to captive customers. The rates we charge to our captive customers are set by ANEEL based on considerations established by law and regulations. For more information, see “Item 4. Information on the Company – The Brazilian Electric Power Industry – Distribution Tariffs.” In general, if our costs for energy increase, the tariff process permits us to recover these costs from our customers through higher rates in future periods. However, if we do not receive tariff increases to cover our costs, if the recovery is delayed, or if our Board of Directors elects to reduce the tariff increase awarded by ANEEL,our profits and cash flows may be adversely affected.
ANEEL modifies our Retail Tariffs annually, generally in June. In recent years, the adjustments have been as follows:
· In June 2007, ANEEL required us to decrease our Retail Tariffs by an average of 1.22% pursuant to the annual tariff readjustment. The primary reason that ANEEL required this decrease was to account for the devaluation of the U.S. dollar against therealin 2006.
· In June 2008, ANEEL reduced our Retail Tariffs by an average of 3.35% pursuant to its preliminary periodic revision, which occurs every four years. However, giving effect to the recovery of Parcel A costs, which are calculated each year, the average effect of this reduction on our customers was an increase of 0.04%. On June 2, 2009, after a final adjustment by ANEEL, our Retail Tariffs were reduced by an average of 3.65%. However, giving effect to the recovery of Parcel A costs, the average effect of this on our customers was a reduction of 0.27%.
· In June 2009, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 18.04%, of which 11.42% related to the tariff increase and 6.62% referred to an increase in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2009. After giving effect to the recovery of Parcel A costs, the average effect of the above tariff readjustment on our captive customers was an increase of 12.98%.
However, due to the global economic crisis, our Executive Committee, pursuant to instructions from our controlling shareholder, determined that the Retail Tariff readjustment set forth by ANEEL should have on average no effect on our captive customers. Consequently, on June 24, 2009, we submitted to ANEEL a formal request asking for the deferral of part of the annual readjustment to future periods. However, the requirement was not approved by ANEEL. Subsequently, at an extraordinary shareholders’ meeting, the implementation of a tariff adjustment was approved, which provides a discount equivalent to the tariff increase approved by ANEEL for all Final Customers that pay their bills on time.
In February 2010, our distribution concession contract with ANEEL was amended. As a result, the next increase in our distribution tariffs will be reduced, causing a reduction of approximately 0.5% in our distribution revenues. Our Board of Directors approved the amendment in order to mitigate the possibility of a lawsuit or judicial proceeding. Nevertheless, we cannot assure you that no such action will be brought.
· In June 2010, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 9.74%, of which 6.88% related to the tariff increase and 2.86% referred to an increase in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2010. After giving effect to the recovery of Parcel A costs, the average effect of this tariff readjustment on our captive customers was an increase of 2.46%.
Purchase and Resale of Energy
Our distribution business purchases energy from generation companies and resells this energy to final customers at regulated rates. For more information, see “Item 4. Information on the Company – Business – Generation and Purchases of Energy.” Our major long-term contracts or purchase obligations are described below.
· We purchase energy from Itaipu at prices that are determined based on the Itaipu project’s costs, including servicing its U.S. dollar-denominated debt. In 2009, our electricity purchases from Itaipu amounted to R$ 478.4 million.
· Our distribution business is required to purchase a large portion of its energy needs from the regulated market. For more information, see “Item 4. Information on the Company – The Company – Public Auction.”
Under current legislation, the amount that our distribution business charges to Final Customers is composed of two fees: a fee for the actual energy consumed and a fee for the use of our distribution system. Since the regulated rates at which our distribution business sells energy to final customers are substantially the same as the rates at which it purchases energy (after accounting for deductions and the cost of energy purchased for resale), our distribution business does not generate operating profit from the sale of electricity to final customers. Rather, our distribution business generates operating profit principally by collecting tariffs for the use of our distribution system.
Impact of the CRC Account
One of our most significant assets consists of the obligations of the State of Paraná under an agreement that was most recently amended in January 2005. These obligations derive from amounts we were entitled to recover under a prior regulatory regime, and as a result they are referred to as the recoverable rate deficit account or “CRC” account (from the Brazilian termConta de Resultados a Compensar). As of December 31, 2009, the outstanding balance of the CRC Account was R$ 1,254.6 million. The balance is adjusted for IGP-DI, bears interest at 6.65%, and is payable in monthly installments through May 2024. If the State of Paraná fails to make payments on a timely basis, we may apply dividends we owe to the State of Paraná in its capacity as our shareholder against amounts it owes us under the CRC Account agreement.
Special Obligations
We record a liability for contributions received from the federal government and our customers exclusively for investment in our distribution network. We record the amount of these contributions on our balance sheet as a reduction of our fixed assets, under the caption “special obligations,” and, upon the conclusion or termination of the operating concession granted to us, the amount of these contributions will be offset against our fixed assets, including those purchased with the contributions received from the federal government and our customers. The accounting treatment for Special Obligations under Brazilian GAAP changed and these obligations are amortized prospectively starting on the date of future tariff reviews for each distribution concessionaire. The amount we recorded as special obligations as of December 31, 2009 was R$ 930 million.
Critical Accounting Policies
In preparing our financial statements, we make estimates concerning a variety of matters. Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us. We have discussed in “Overview” above certain accounting policies relating to regulatory matters. In the discussion below, we have identified several other matters for which our financial information would be materially affected if either (i) we reasonably used different estimates or (ii) in the future we change our estimates in response to changes that are reasonably likely to occur.
The discussion below addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation. Please see the Notes to our consolidated financial statements included herein for a more detailed discussion of the application of these and other accounting policies, and for identification of the effects brought by the adoption of the new accounting pronouncements (Note 41(c)(viii)).
Rapid changes in Brazilian accounting principles are continuing, as Brazilian accounting standard-setters move toward convergence with IFRS. Many new accounting standards have been adopted and are currently being implemented. Others are expected in the near future.
With the enactment of Law No. 11,638/2007, which has updated the Brazilian corporate legislation so as to bring the accounting practices adopted in Brazil closer to IFRS, the Accounting Pronouncements Committee has published new technical accounting rules and pronouncements.
As of the date of these financial statements, 27 new technical pronouncements have been issued by CPC and approved by CVM rulings, for mandatory application as of 2010. The technical pronouncements and technical interpretations applicable to Copel can be found in Note 4 to our consolidated financial statements.
Revenue Recognition
We recognize our revenues on an accrual basis. We therefore recognize revenue when persuasive evidence of an arrangement exists, delivery of goods has occurred or services have been rendered, our price to the customer has been fixed or is determinable, and collection is reasonably assured, regardless of when the cash is received.
We bill our residential, industrial and commercial customers monthly. Unbilled revenues from the billing date to month-end are estimated based on the prior month’s billing and recognized as revenue at the end of the month in which the service was provided. We read our individual customers’ meters systematically throughout the month in order to determine how much energy we have sold to them. At the end of each month, the amount of energy delivered to each customer since their last meter reading date is estimated and the corresponding unbilled revenue is determined based upon a customer’s daily estimated usage by class and applicable customer rates reflecting significant historical trends and experience. Differences between estimated and actual unbilled revenues, which have historically been insignificant, are recognized in the following month.
Deferred Regulatory Assets
In accordance with Brazilian GAAP, we have deferred and capitalized certain costs that we expect to recover through rate increases. This approach is similar to that taken in SFAS No. 71, which provides that rate-regulated entities account for their assets and liabilities in a manner consistent with the recovery of those costs in their rates, if the rates are designed to recover the costs of providing the regulated service and if the competitive environment makes it likely that such rates can be charged and collected. Certain expenses and revenues subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. We are entitled to recover these costs according to Brazilian regulations. ANEEL pe rforms a rate readjustment on an annual basis. If ANEEL excludes all or part of a cost from recovery, that portion of the deferred regulatory asset is impaired and is accordingly reduced to the extent of the excluded cost. For more information, seeNote 11 to the consolidated financial statements. The deferred regulatory assets reflected in our consolidated balance sheet under Brazilian GAAP totaled R$ 335.0 million at December 31, 2009 (CVA and other regulatory assets). The deferred regulatory liabilities totaled R$ 58.4 million at December 31, 2009 (CVA and other regulatory liabilities).
Impairment of Long-Lived Assets
Long-lived assets, primarily property, plants and equipment, comprise a significant amount of our total assets. We evaluate our long-lived assets and make judgments and estimates concerning the carrying value of these assets, including amounts to be capitalized, depreciation and useful lives. The carrying values of these assets are reviewed for impairment periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This requires us to make long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for our products and services, future market conditions and regulatory developments. Significant and unanticipated change s to these assumptions could require a provision for impairment in a future period. We carried out tests in 2009 that resulted in the impairment of R$ 17.6 million for Sercomtel. For our other investments, no other provision for impairment was necessary in 2009. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.
Electric Energy Trading Chamber - CCEE
For accounting purposes, we recognize costs and revenues related to purchases and sales of energy in the spot market based on our internal estimates, which estimates are reviewed by the CCEE.
We claimed a credit based on energy purchased from Itaipu during the energy rationing period that occurred in 2001, where there was a significant difference between the purchase price of Itaipu energy and energy sold at a loss in the spot market. We are contesting a determination by ANEEL that would require us to recognize, in our current liabilities at December 31, 2009, R$ 1,176.0 million in costs for energy we purchased for resale in the spot market during a period of electricity rationing period in 2001 and the first quarter of 2002. Our management believes that losses resulting from the final ruling of this claim are not probable. We have no provision relating to this matter. However, we may be required to contribute to the amounts owed by other energy companies under similar lawsuits, and as of December 31, 2009, we had provisions of R$ 30.4 million to cover p robably losses related to these other lawsuits.
Reserve for Contingencies
Our subsidiaries and we are party to certain legal proceedings in Brazil arising in the normal course of business regarding tax, labor, civil and other issues.
We account for contingencies in accordance with Brazilian GAAP, which is similar to SFAS No. 5, “Accounting for Contingencies.” Such accruals are estimated based on the determination that it is probable that a future event will confirm that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of loss can be reasonably estimated. By their nature, contingencies will only be resolved when a future event or events occur or fail to occur; typically such events will occur a number of years in the future. The evaluation of these contingencies is performed by our internal and external legal counsel. Accounting for contingencies requires significant judgment by management concerning the estimated probabilities and ranges of exposure to potential liability. Management’s assessment of our expos ure to contingencies could change as new developments occur or more information becomes available. The outcome of the contingencies could vary significantly and could materially impact our consolidated results of operations, cash flows and financial position.
The legal proceedings for which we classify our risk of loss as “possible” totaled R$ 1,879.4 million as of December 31, 2009, of which R$ 110.7 million was related to labor claims, R$ 1,195.1 million was related toregulatory proceedings, R$ 115.9 million was related to civil claims and R$ 457.7 million was related to tax proceedings.
Employee Retirement and Health Benefits
We sponsor a defined-benefit pension plan and defined-contribution pension plan covering substantially all of our employees. We have also established retirement health care plans. We determine our funding obligations based on calculations performed by independent actuaries using assumptions that we provide about interest rates, investment returns, rates of inflation, mortality rates and future employment levels. These assumptions directly affect our liability for accrued pension costs.
In 2009, we recorded expenses in the amount of R$ 14.2 million for our pension and health care plans. We estimate that we will incur expenses in the amount of R$ 28.0 million in 2010 (according to actuarial calculations), plus the monthly costs of these plans.
Deferred Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using prevailing rates. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results. The deferred taxes balances subject to the federal taxing department inspection are those constituted over the 2005 to 2009 basis.
Operating Segments
Our most important operating segments are Copel Geração e Transmissão, which is engaged in electricity generation and transmission, and Copel Distribuição, which is engaged in electricity distribution. For more information, see Note 39 to our audited consolidated financial statements.
Our largest operating segment in terms of revenue is distribution. Revenues from our distribution business represented 64.3%, 64.4% and 64.6% of our total net operating revenues in 2009, 2008 and 2007, respectively, before eliminations and adjustments. Revenues from our generation and transmission business represented 28.6%, 26.4% and 24.9% of our total net operating revenues in 2009, 2008 and 2007, respectively, before eliminations and adjustments. These percentages were calculated taking into account the net operating revenues of each of our business segments and our total combined net operating revenues for each fiscal year, not taking into account any consolidation adjustments.
The profitability of our segments differs. Although our distribution segment is the largest contributor to our net operating revenues, it has a lower operating margin than our generation and transmission segment. Operating profit from our distribution segment was 20.5% of our total operating profit in 2009. Operating profit from our generation and transmission segment was 60.4% of total operating profit. These percentages were calculated taking into account the net operating profit of each of our business segments and our net combined operating profit during 2009.
Analysis of Electricity Sales and Cost of Electricity Purchased
The following table sets forth the volume and average rate components of electricity sales and purchases for the years 2007 to 2009.
| | | |
Electricity Sales: | | | |
Sales to Final Customers: | | | |
Average price (R$/MWh):(1) | | | |
Industrial customers(2) | 272.95 | 261.14 | 249.88 |
Residential customers | 390.85 | 369.97 | 369.46 |
Commercial customers | 344.47 | 333.20 | 333.87 |
Rural customers | 166.86 | 162.65 | 162.37 |
Other customers(3) | 247.77 | 241.25 | 238.90 |
All customers(2) | 307.70 | 293.57 | 288.61 |
Volume (GWh): | | | |
Industrial customers(2) | 7,748 | 7,955 | 7,740 |
Residential customers | 5,664 | 5,379 | 5,143 |
Commercial customers | 4,200 | 3,967 | 3,722 |
Rural customers | 1,680 | 1,606 | 1,522 |
Other customers(3) | 1,994 | 1,911 | 1,858 |
All customers(2) | 21,286 | 20,818 | 19,985 |
Total revenues from sales to Final Customers (millions of R$) | 6,550 | 6,111 | 5,768 |
Sales to distributors and others:(4) | | | |
Average price (R$/MWh)(1) | 88.90 | 87.54 | 89.50 |
Volume (GWh)(5) | 15,692 | 15,570 | 15,284 |
Total revenues (millions of R$) | 1,395 | 1,363 | 1,368 |
Electricity Purchases: | | | |
Purchases from Itaipu: | | | |
Average cost (R$/MWh)(6) | 88.94 | 91.88 | 82.59 |
Volume (GWh) | 5,379 | 5,468 | 4,666 |
Percentage of total Itaipu production purchased | 8.0 | 8.1 | 6.5 |
Total cost (millions of R$)(7) | 478 | 502 | 385 |
Purchases from others: (4) | | | |
Average cost (R$/MWh) | 78.70 | 75.22 | 63.03 |
Volume (GWh)(5) | 16,570 | 15,674 | 16,565 |
Total cost (millions of R$)(7) | 1,304 | 1,179 | 1,044 |
____________
(1) Average prices or costs have been computed by dividing (i) the corresponding revenues or expenses without deduction of ICMS Tax by (ii) MWh of electricity sold or purchased.
(2) Includes Free Customers outside Paraná.
(3) Includes public services such as street lighting, as well as supply of electricity to government agencies, and our own consumption.
(4) Energy traded between Copel’s subsidiaries not included.
(5) Energy Reallocation Mechanism not included.
(6) Our purchases of electricity generated by Itaipu are stated inreais and paid for on the basis of a capacity charge expressed in U.S. dollars per kW plus a “wheeling” (or transportation) charge expressed inreais per kWh.
(7) See “Item 4. Information on the Company – Business – Generation and Purchases of Energy” for an explanation of our expenses relating to electricity purchases.
Results of Operations for the Years Ended December 31, 2009, 2008 and 2007
The following table summarizes our results of operations for the years ended December 31, 2007, 2008 and 2009:
| |
| | | |
| (R$ million) |
Operating revenues: | | | |
Electricity sales to Final Customers | | | |
Residential | 1,071.7 | 935.9 | 876.3 |
Industrial | 1,107.7 | 1,069.2 | 985.7 |
Commercial | 698.0 | 622.0 | 570.4 |
Rural | 135.5 | 123.1 | 113.7 |
Others | 240.7 | 218.6 | 201.6 |
Electricity sales to distributors | 1,394.8 | 1,363.1 | 1,367.6 |
Use of our distribution and transmission systems | 3,636.0 | 3,473.1 | 3,317.0 |
Telecom revenues | 104.8 | 80.6 | 63.9 |
Piped gas revenues | 261.3 | 283.7 | 244.1 |
Other operating revenues | 146.0 | 136.1 | 179.8 |
Taxes and contributions levied on revenue | | | |
| | | |
Operating expenses: | | | |
Electricity purchased for resale | (1,681.9) | (1,615.1) | (1,279.3) |
Use of Interconnected Transmission System | (609.6) | (466.7) | (446.1) |
Payroll | (802.6) | (673.8) | (649.7) |
Pension and health care plans | (14.2) | (30.0) | 13.9 |
Material | (67.9) | (57.5) | (63.2) |
Raw materials and supply for power generation business | (21.1) | (19.3) | 9.0 |
Natural gas and supply for gas business | (135.4) | (163.8) | (132.7) |
Third party services | (306.1) | (268.2) | (240.9) |
Depreciation and amortization | (391.5) | (404.7) | (430.0) |
Provisions and reversals | 51.2 | (98.9) | (242.4) |
Other operating expenses | | | |
| | | |
| | | |
Operating income(1) | 1,347.3 | 1,446.3 | 1,568.3 |
Equity in results of investees | 14.3 | 14.3 | 9.5 |
Financial income (expenses), net | | | |
Income before income taxes and non-controlling interest | 1,427.2 | 1,555.0 | 1,598.0 |
Income taxes | | | |
Net income before non-controlling interest | | | |
Non-controlling interest | | | |
Net income | | | |
____________
(1) Operating income before financial results and equity in results of investees.
Results of Operations for 2009 compared with 2008
Operating Revenues
Our operating revenues (before deductions for taxes and contributions) increased by 5.9%, or R$ 491.1 million, in 2009 compared with 2008. Of this increase, R$ 284.8 million was due to electricity sales to Final Customers and R$ 162.9 million was due to charges for use of our transmission and distribution systems. Revenues from sales to distributors increased by 2.3%, or R$ 31.7 million. Our net operating revenues (after deductions for taxes and contributions) increased by 2.9%, or R$ 158.5 million, in 2009 compared with 2008.
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 9.6% or R$ 284.8 million in 2009, mainly due to growth in the volume of electricity sold (2.2% in 2009). The average tariff for Final Customers increased by 4.8% as compared to the 2008 average rate. The average tariff rates for the residential, industrial, commercial and rural classes of Final Customers increased by 5.7%, 4.5%, 3.4% and 2.6%, respectively. The variation in average price increases between different classes of customers reflects the fact that the tariffs established by ANEEL in 2008 and 2009 varied depending upon the voltage level received.
The increase in the volume of energy sold to Final Customers in 2009 primarily reflected an increase in the number of Final Customers in each category.
· The volume of electricity sold to residential customers increased by 5.3% in 2009. Of this increase, 53.5% was due to an increased number of customers and 46.5% was due to an increase in average consumption per residential customer. This increase was driven mainly due to sales of energy consuming products as a consequence of a greater availability of credit.
· The volume of electricity sold to commercial customers increased by 5.9%. Of this increase, 29.7% was due to an increased number of customers and 70.3% was due to an increase in average consumption per commercial customer. In 2009, the service sector in the State of Paraná experienced favorable conditions, particularly in automotive, wholesale and retail, and food and beverage industries.
· The volume of electricity sold to rural customers increased by 4.6%. Of this increase, 109.9% was due to an increased number of customers, and was partially offset by a decrease in the average consumption per rural customer. This decrease in average per capita consumption occurred due an increase in the number of low-income rural customers benefiting from the Luz para Todos program, which provides energy to low-income customers that use small amounts of energy.
· The volume of electricity sold to industrial customers, including both captive customers and Free Customers, decreased by 2.6% in 2009. This decrease was caused by (i) a general decline in industrial activity in the State of Paraná due to the economic crisis and (ii) a decrease in the number of our industrial Free Customers in 2009, from 14 to 10. The four free customers that stopped purchasing energy from us consumed an average of approximately 16 MW, representing 0.8% of our assured energy.
Electricity Sales to Distributors. Electricity sales to distributors include sales in auctions in the regulated market (78.8% of total revenues for sales to distributors in 2009), sales under bilateral agreements (14.1%), and sales in the spot market (7.1%).
Our revenues from electricity sales to distributors increased by 2.3%, or R$ 31.7 million, in 2009 compared with 2008. This was principally caused by an increase in the volume of energy we sold under (i) energy sale agreements pursuant to auctions in the regulated market for the period of 2009 through 2016 (with an annual average volume of 2,148 GWh) and (ii) short term contracts for energy we sold in the spot market, which increased from 101 GWh in 2008 to 639 GWh in 2009. This increase was partially offset by a decrease of approximately 2,480 GWh in the volume of energy we sold under certain bilateral agreements, some of which were terminated.
Use of Our Transmission and Distribution Systems. Revenues from the use of our transmission and distribution systems increased by 4.7%, or R$ 162.9 million, in 2009. This increase was mainly due to (i) the 12.98% average increase in tariffs for the use of our distribution system paid by the approximately 30% of our final customers that do not pay their bills on time (ii) a 0.8% increase in the volume of energy delivered through our distribution system and (iii) a 3.6% increase in tariffs for the use of our transmission system.
Telecommunications. Revenues from our telecommunications segment increased by 30.1%, or R$ 24.2 million, primarily due to an increase in both the number of clients and demand for new telecommunication services by existing clients.
Distribution of Piped Natural Gas. Revenues from distribution of natural gas decreased by 7.9%, or R$ 22.4 million, in 2009, primarily due to the effects of the global economic crisis, which reduced industrial activity.
Other Operating Revenues. The principal elements in other revenue are revenues from the leasing of the Araucária thermoelectric plant to Petrobras and service revenues under the operating and maintenance agreement for the Araucária thermoelectric plant. Other operating revenues increased by 7.4%, or R$ 10.0 million, in 2009 mainly due to a contractual adjustment under the operating and maintenance agreement, which increased our operating and maintenance fees.
Deductions from Operating Revenue
Taxes and Contributions Levied on Revenue. Taxes and contributions levied on revenue increased by 11.7%, or R$ 332.7 million, mainly due to: (i) R$ 31.4 million in COFINS and PIS/PASEP taxes that we agreed to include in Refis - taxes recovery program; (ii) increases in the amounts we are required by ANEEL to pay into the CDE Account and the RGR Fund; and (iii) an increase in the ICMS rate, which increased from 27% to 29% since April 1, 2009.
Operating Costs and Expenses
The attached financial statements present our operating costs and expenses by function. However, in accordance with Brazilian GAAP, Note 33 to the financial statements presents this information by nature. For ease of understanding, the analysis below reflects the information presented by nature.
Our total operating costs and expenses increased by 6.4%, or R$ 257.4 million, in 2009 compared with 2008, including amounts recognized as other operating expenses. The following were the principal factors in the increase of our operating costs and expenses.
· Energy Purchased for Resale. Our costs for the energy we purchased for resale increased by 4.1%, or R$ 66.8 million, in 2009. This increase was mainly due to higher acquisition costs from auction energy (CCEAR), from Itiquira, Dona Francisca and Proinfa. This increase was partially offset by the lower cost of energy acquired from Itaipu and CCEE.
The average cost of energy we purchased in auctions in the regulated market increased from R$ 76.59/MWh in 2008 to R$ 83.53/MWh in 2009, and the volume we purchased in the regulated market increased from 12,746 GWh in 2008 to 14,184 GWh in 2009.
The average cost of energy we purchased from Itaipu decreased from R$ 91.88/MWh in 2008 to R$ 88.94/MWh in 2009, and the volume we purchased from Itaipu decreased from 5,468 GWh in 2008 to 5,379 GWh in 2009.
The volume we purchased in the spot market decreased from 1,015 GWh in 2008 to 309 GWh in 2009, and the cost of energy we purchased in the spot market, which reflects a number of different variables, in average was lower in 2009.
· Use of Interconnected Transmission System. Expenses we incurred for our use of the Interconnected Transmission System increased by 30.6%, or R$ 142.9 million, in 2009. This increase was mainly due to the effect of the CVA amortization combined with the increase in the basic network quota and the higher charges for the use of the energy system – ESS.
· Payroll. Payroll expenses increased by 19.1%, or R$ 128.8 million, in 2009 compared with 2008, mainly due to R$ 56.9 million in expenses related to the voluntary retirement program (PDV), which began in 2009, and a 7.5% and 6.0% average salary increase, implemented in October 2008 and October 2009, respectively.
· Pension and Health Care Plans.Pension and Health Care expenses totaled R$ 14.2 million in 2009, compared with expenses of R$ 30.0 million in 2008. This decrease reflects mainly the booking of amounts receivable determined in the actuarial annual report for 2009 in the amount of R$ 61.3 million (in 2008 this revenue was R$ 31.3 million), calculated pursuant to CVM Instruction 371/2009, offsetby pass-through of costs to Fundação Copel in connection with thePró-Saúde program and pension plan and healthcare expenses.
· Materials. Materials expenses increased by 18.1%, or R$ 10.4 million, in 2009 compared with 2008, primarily due to the increase in the acquisition of electric power system materials and service tools.
· Raw Material and Supplies for Power Generation Business. These expenses, consisting of the cost of mineral coal purchased for the Figueira thermoelectric plant, were R$ 21.2 million in 2009, compared with expenses of R$ 19.3 million in 2008.
· Natural Gas and Supplies for Gas Business. The expenses related to natural gas purchases decreased by 17.4%, or R$ 28.5 million, in 2009. This decrease was mainly driven by the lower level of activity observed in the period as a result of the effects of the global economic crisis and the consequent lower gas volumes purchased, in addition to the fall in raw material prices. This decrease also reflected the appreciation of thereal against the U.S. dollar, since natural gas prices are set in U.S. dollars.
· Third-Party Services. Third-party services expenses increased 14.1%, or R$ 37.9 million, in 2009 compared with 2008, mainly due to increased maintenance expenses, including pruning and ground clearing activities, which are intended to reduce the duration and frequency of power outages. Expenses for meter reading and invoice delivery also contributed to this increase.
· Provisions and Reversions.Provisions and reversions decreased from an expense of R$ 98.9 million in 2008 to a credit of R$ 51.2 million in 2009, primarily due to the reversal of a provision of R$ 178.8 million related to a lawsuit concerning the application of COFINS taxes on revenue from energy sales. We settled this lawsuit with the government and agreed to pay a portion of this amount in installments. As a result, the provision was reversed, and portions of it were recorded in “other operating expenses” and “financial expenses.”
· Other Operating Expenses. Other operating expenses increased by 35.6%, or R$ 76.4 million, compared with 2008, mainly due to a R$ 61.9 million expense we agreed to pay pursuant to our settlement with the government of a lawsuit concerning the application of COFINS taxes on revenue from energy sales.
Equity in Results of Investees
Equity in results of investees was R$ 14.3 million in both 2008 and 2009. Equity investment reflects the equity income or loss from the affiliates of Copel, partially offset by the amortization of goodwill. In 2009, an increase in our equity ownership of certain of our subsidiaries was offset by the asset impairment at Sercomtel. Tests conducted in December 2009 concerning the impairment of the Company’s assets indicated that assets related to Sercomtel Telecomunicações S.A. and Sercomtel Celular S.A. were impaired by R$ 35.9 million and R$ 6.2 million, respectively. We therefore recorded this loss, of which R$ 17.6 million was recorded in the fourth quarter of 2009 related to Sercomtel Telecomunicações. The other amounts were recorded in 2008.
Financial Income (Expenses), Net
We recognized R$ 65.6 million of net financial income in 2009, compared to net financial income of R$ 94.4 million in 2008. Financial revenues decreased by 25.1% or R$ 122.7 million in 2009 compared with 2008, mainly due to (i) decrease in interest and revenues from financial investments and (ii) the effect of exchange rate variations on the CRC Account, adjusted by the IGP-DI rate (which decreased by 1.4% in 2009). Financial expenses decreased by 23.8%, or R$ 94.0 million, in 2009 compared with 2008, mainly due to (i) a decrease in interest paid on our outstanding debt, since we paid off certain debentures (for more information see Note 22 to the financial statements) and (ii) the effects of monetary and foreign exchange variations as a result of a 25.5% appreciation of the real against the dollar in the period.
Income Taxes and Social Contribution
In 2009, we recognized income tax and social contribution expenses of R$ 377.3 million, reflecting an effective tax rate of 26% on our pretax income. This compared to income tax and social contribution expenses of R$ 458.1 million in 2008, reflecting an effective tax rate of 29.5% on our 2008 pretax income. The reduction in the effective tax rate related to 2009 compared to 2008 was mainly caused by: (i) the benefit of reduced penalties and restatement by the SELIC interest rate, caused by the passage of Law 11.941/2009, which represented a reduction of 2.0%, and (ii) reduction of impairment for FINAM investment, which represented a reduction of 0.41%.
Results of Operations for 2008 compared with 2007
Operating Revenues
Our operating revenues (before deductions for taxes and contributions) increased by 4.9%, or R$ 385.3 million, in 2008 compared with 2007. Of this increase, R$ 221.1 million was due to sales to Final Customers and R$ 156.1 million was due to charges for use of our transmission and distribution systems. Revenues from sales to distributors decreased by 0.3%, or R$ 4.5 million. Our net operating revenues (after deductions for taxes and contributions) increased by 4.9%, or R$ 255.1 million, in 2008 compared with 2007.
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 8.0% in 2008, mainly due to growth in the volume of electricity sold (4.2% in 2008). The average tariff for Final Customers increased by 1.7% as compared to the 2007 average rate. The average tariff rates for the residential, industrial and rural classes of Final Customers increased by 0.1%, 4.5% and 0.2%, respectively, while the average tariff rate for the commercial class of Final Customers decreased by 0.2%. The variation in average price increases between different classes of customers reflects the fact that the tariffs established by ANEEL in June 2007 and 2008 varied depending upon the voltage level received and the gradual phasing out of the crossed subsidies between hig h and low voltage customers.
The increase in the volume of energy sold to Final Customers in 2008 primarily reflected an increase in the number of Final Customers in each category.
· The volume of electricity sold to residential customers increased by 4.6% in 2008. Of this increase, 55.9% was due to an increased number of customers and 44.1% was due to an increase in average consumption per residential customer. The State of Paraná experienced continued economic growth in 2008, as well as increased sales of energy consuming products due to greater availability of credit.
· The volume of electricity sold to industrial customers increased by 2.8% (includes captive and free industrial consumers) in 2008. The primary reason for this increase was an increase of 8.3% in the number of industrial customers, mainly in the following sectors: textiles, paper, cardboard, cellulose and food and beverages.
· The volume of electricity sold to commercial customers increased by 6.6%. Of this increase, 48.6% was due to an increased number of customers and 51.4% was due to an increase in average consumption per commercial customer. In 2008, the service sector in the State of Paraná experienced favorable conditions, particularly in the food, hotel, wholesale and retail segments.
· The volume of electricity sold to rural customers increased by 5.5%. Of this increase, 11.3% was due to an increased number of customers and 88.7% was due to an increase in average consumption per rural customer. The State of Paraná experienced continued economic growth in 2008, as well as increased sales of energy consuming products due to greater availability of credit.
Electricity Sales to Distributors. Electricity sales to distributors include sales in auctions in the regulated market (60.1% of total revenues for sales to distributors in 2008), sales under bilateral agreements (32.2%), sales in the spot market (3.5%) and sales to small distributors in the State of Paraná (4.2%).
Our revenues from electricity sales to distributors decreased by 0.3%, or R$ 4.5 million, in 2008 compared with 2007. This was principally caused by (i) a decrease of R$ 76.2 million in revenues from sales pursuant to bilateral agreements, mainly because Araucária ceased to sell the energy to our customers (all energy it produces is exclusively being used by Petrobras), and its only current source of revenue are monthly lease payments carried out by Petrobras, in its capacity as lessee of the plant’s facilities, and (ii) a decrease of R$ 21.1 million in sales in the spot market, mainly due to termination of our energy supply contract with Cien, which required us to use our energy surplus we intended to sell in the spot market. These decreases were largely offset by an increase of R$ 96.7 million in revenues from (i) sales pursuant to auctions in the regula ted market for energy contracts for the period of 2008-2014, in the amount of R$ 61.4 million in 2008, and (ii) annual readjustments of current energy contracts by the IPCA Index, in the amount of R$ 35.3 million.
Use of Our Transmission and Distribution Systems. Revenues from the use of our transmission and distribution systems increased by 4.7%, or R$ 156.1 million, in 2008. This increase was mainly due to an increase of 3.9%, or R$ 123.2 million, in revenues from the use of our distribution system, primarily due to an increase of 2.5% in the number of users of our distribution system.
Telecommunications. Revenues from our telecommunications segment increased by 26.1%, or R$ 16.7 million, primarily due to an increase in both the number of clients and demand for new telecommunication services by existing clients.
Distribution of Piped Natural Gas. Revenues from distribution of natural gas increased by 16.2%, or R$ 39.6 million, in 2008, primarily due to an increase of 54% in the number of new clients.
Other Operating Revenues. The principal elements in other revenues are revenue from the lease of the UEG Araucária thermoelectric plant to Petrobras and service revenue under the operating and maintenance agreement for the same plant. Other operating revenues decreased by 24.4%, or R$ 43.8 million, in 2008 because the operations of the Araucária thermoelectric plant were suspended from January through May 2008 due to equipment failure.
Deductions from Operating Revenue
Taxes and Contributions Levied on Revenue. Taxes and contributions levied on revenue increased by 4.8%, or R$ 130.1 million, in 2008, reflecting an increase of 4.9% in our revenues in 2008.
Operating Costs and Expenses
The attached financial statements present our operating costs and expenses by function. However, in accordance with Brazilian GAAP, Note 32 to the financial statements presents this information by nature. For ease of understanding, the analysis below reflects the information presented by nature.
Our total operating costs and expenses increased by 10.4%, or R$ 377.1 million, in 2008, compared to 2007, including amounts recognized as other operating expenses. The following were the principal factors in the increase.
· Energy Purchased for Resale. Our costs for the energy we purchased for resale increased by 26.2%, or R$ 335.8 million, in 2008. This increase was mainly a result of higher energy acquisition costs and an increase of 24.6% in the amount of energy generated by Itaipu that we are required to purchase pursuant to applicable regulation, which increased from 6.5% in 2007 to 8.1% in 2008.
The average cost of energy we purchased in auctions in the regulated market increased from R$ 71.32/MWh in 2007 to R$ 76.59/MWh in 2008, and the volume we purchased in the regulated market increased from 11,850 GWh in 2007 to 12,746 GWh in 2008.
The average cost of energy we purchased from Itaipu increased from R$ 82.59/MWh in 2007 to R$ 91.88/MWh in 2008, and the volume we purchased from Itaipu increased from 4,666 GWh in 2007 to 5,468 GWh in 2008.
The volume we purchased in the spot market increased from 162 GWh in 2007 to 959 GWh in 2008, and the average cost of energy we purchased in the spot market, which reflects a number of different variables, also increased significantly.
In addition, in 2007 we recognized R$ 100.9 million that we had provisioned to purchase energy under Cien contracts in the first quarter of 2007. We also recognized R$ 172.8million that wehad originally provisioned to pay for PASEP/COFINS contributions on energy purchased for resale, and R$ 66.1 million as CVA liability.
· Use of Interconnected Transmission System. Expenses we incurred for our use of the Interconnected Transmission System increased by 4.6%, or R$ 20.6 million, in 2008. This increase was mainly due to an aggregate increase of R$ 55.8 million in the costs for connection to and use of the Interconnected Transmission System and an increase of R$ 52.1 million in system service charges (ESS). These increased costs were partially offset by a credit of R$ 64.3 million to our CVA account in 2008.
· Payroll. Payroll expenses increased by 3.7%, or R$ 24.1 million, in 2008 compared with 2007. This increase primarily resulted from pay raises of 5.5% and 7.5%, applicable as of October 2007 and October 2008, respectively.
· Pension and Health Care Plans. Pension and Health Care expenses totaled R$ 30.0 million in 2008, compared with a credit of R$ 13.9 million in 2007. This increase occurred mainly due a decrease in the amount recorded as revenues related to post-employment benefit plans, totaling R$ 71.6 million in 2007 and R$ 31.3 million in 2008.
· Materials. Materials expenses decreased by 9.0%, or R$ 5.7 million, in 2008 compared with 2007, primarily due to decreased acquisitions of fuel, auto parts, IT material and “other materials.”
· Raw Material and Supplies for Power Generation Business. These expenses, consisting of the cost of mineral coal purchased for the Figueira thermoelectric plant, were R$ 19.3 million in 2008, compared with a credit of R$ 9.0 million in 2007. In 2007, this account reflected a non-recurring reversal of PASEP and COFINS tax contingencies in the amount of R$ 29.9 million, which resulted in a net credit.
· Natural Gas and Supplies for Gas Business. The expenses related to natural gas purchases increased by 23.4%, or R$ 31.1 million, compared with 2007, reflecting the higher acquisition cost of natural gas by Compagas to serve its third-party gas distribution market. This increase also reflected the depreciation of thereal against the U.S. dollar, since natural gas prices are set in U.S. dollars.
· Third-Party Services.Third-party services increased 11.3%, or R$ 27.3 million, in 2008 compared with 2007, reflecting increases in expenses related to: (i) electric power system maintenance (R$ 14.9 million); (ii) postal services (R$ 3.7 million); (iii) data processing and transmission (R$ 3.3 million); and (iv) technical, scientific and administrative consultation (R$ 2.5 million).
· Provisions and Reversions. Provisions and reversions declined by 59.2%, or R$ 143.5 million, in 2008 compared with 2007, primarily due the fact that the provision of R$ 171.6 million related to COFINS tax contingencies occurred in 2007 and was a non-recurring event.
· Other Operating Expenses. Other operating expenses increased by 23.3%, or R$ 40.5 million, compared with 2007, mainly due to the effects of accounting for R$ 36.7 million in 2008 as provisions for the decrease in the value of certain tax incentives.
Equity in Results of Investees
Equity in results of investees increased by 50.5%, or R$ 4.8 million, compared with 2007, mainly due to an increase of 30% in our equity ownership in Dominó Holdings S.A., which corresponds toR$ 23.2 million in revenue in 2008. This was offset by impairments in our investments in Sercomtel Telecom equivalent to R$ 18.3 million and in Sercomtel Celular equivalent to R$ 6.2 million.
Financial Income (Expenses), Net
We recognized R$ 94.4 million of net financial income in 2008, compared to net financial income of R$ 20.2 million in 2007.
Our financial revenues increased 23.4%, or R$ 92.6 million, mainly due to increased income from treasury investments of R$ 60.7 million and an increase in the IGP-DI inflation index, which adjusts the transfer of CRC funds to us from the State of Paraná.
Our financial expenses increased by 4.9%, or R$ 18.5 million in 2008, which mainly reflected the effect of the depreciation of thereal on our foreign currency-denominated debt. The effect of this depreciation was partially offset by the discontinuation of the CPMF Tax and the reduction of our overall debt.
Income Taxes and Social Contribution
In 2008, we recognized income tax and social contribution expenses of R$ 458.1 million, reflecting an effective tax rate of 29.5% on our pretax income. This compared to income tax and social contribution expenses of R$ 460.3 million in 2007, reflecting an effective tax rate of 28.8% on our 2007 pretax income. This variation primarily resulted from (i) a 0.7% increase in the tax rate for interest on capital and (ii) a 0.6% increase in our provision for losses related to a tax incentive investment program known as FINAM - provision not deductible for tax purposes.
Liquidity and Capital Resources
Our principal capital requirements are to finance the expansion and upgrading of our electricity distribution and transmission system and to finance the expansion of our generation business. Capital expenditures were R$ 979.0 million in 2009 (including R$ 191.4 million investment in the Mauá hydroelectric plant), R$ 812.2 million in 2008 (including the investment of R$ 50.3 in the Mauá hydroelectric plant, R$ 110.2 million in the acquisition of the additional stake of 30% in Dominó Holdings and investments made in the Araucária thermoelectric plant, Compagas and Elejor) and R$ 530.4 million in 2007 (including the acquisition of Centrais Eólicas do Paraná and investments in the Araucária thermoelectric plant, Compagas and Elejor). The following table sets forth a breakdown of our capital expenditures for the periods indicated.
| |
| | | |
| (R$ million) |
Generation and transmission | 250.2 | 143.4 | 56.7 |
Distribution | 655.2 | 497.7 | 423.8 |
Telecom | 38.4 | 24.7 | 31.6 |
Interest in equity investees | 0.1 | 110.2(2) | 3.1(1) |
Araucária thermoelectric plant | 10.1 | 8.8 | 0.9 |
Compagas | 24.9 | 26.1 | 13.8 |
Elejor | | | |
Total | | | |
____________
(1) Includes the acquisition of the Centrais Eólicas do Paraná power plant in the amount of R$ 2.1 million.
(2) Acquisition of 30% stake in Dominó Holdings S.A.
Our total budgeted capital expenditures for our wholly owned subsidiaries for 2010 is R$ 1,342.9 million, of which:
· R$ 761.8 million is for distribution;
· R$ 499.7 million is for generation and transmission, including R$ 323.3 million for the construction of the Mauá hydroelectric plant; and
· R$ 81.4 million is for our telecommunication business.
Our following controlled companies also budgeted their own capital expenditures for 2010, as described below:
· Compagas: R$ 31.8 million;
· Araucaria: R$ 9.1 million; and
· Elejor: R$ 6.5 million.
Historically, we have financed our liquidity and capital requirements primarily with cash provided by our operations and through external financing. Our principal source of funds in 2009 was our operating activities. Net cash provided by operating activities was R$ 1,289.7 million in 2009 and R$ 1,561.0 million in 2008. We expect our operating cash flow to be sufficient to finance our capital expenditures in 2010.
Our ability to generate cash sufficient to meet our planned expenditures is dependent upon a variety of factors, including our ability to maintain adequate tariff levels, to obtain regulatory and environmental authorizations, to access domestic and international capital markets, and a variety of operating and other contingencies. In addition, we may seek to invest in controlling interests in other existing electric utilities, in communications services or in other areas, each of which may require additional domestic and international financing.
Like other state-owned companies, we are subject to restrictions under resolutions of the National Monetary Council,Conselho Monetário Nacional (“CMN”) on our ability to obtain financing from domestic and international sources. These restrictions could limit our ability to access external sources of funding if our internally generated funds are insufficient to meet our budgeted capital expenditures.
Our total outstanding loans and financing at December 31, 2009 were R$ 1,673.4 million. Approximately R$ 64.3 million of the total debt outstanding at December 31, 2009 was denominated in U.S. dollars and R$ 28.3 million was indexed to a basket of foreign currencies. For more information on the terms of these loans and financings, see Note 21 of our consolidated financial statements. Our major loans and financing arrangements are:
· Eletrobras – We have R$ 299.5 million in outstanding debt under government programs to finance new generation products.
· IDB – We have R$ 28.3 million in debt under a loan agreement to finance the development of the Segredo hydroelectric facility and the Rio Jordão deviation project. This loan is guaranteed by the Brazilian government and secured by liens on the financed assets.
· Banco do Brasil S.A. – We have R$ 339.8 million of outstanding debt with Banco do Brasil, which we contracted to pay debentures issued in 2002, 2005 and 2006.
· Debentures – As of December 31, 2009, we had a total of R$ 807.6 million in outstanding convertible debentures issued by Elejor and non-convertible debentures issued by Copel. The terms of these debentures are summarized in Note 22 of our consolidated financial statements.
In addition, BNDES has agreed to provide a loan to Copel of R$ 339 million to finance the construction of the Mauá hydroelectric plant. Mauá is owned by Consórcio Energético Cruzeiro do Sul, in which Copel has a 51.0% interest and Eletrosul has a 49.0% interest. BNDES will provide 50.0% of the loan amount, and Banco do Brasil S.A. will provide the remaining 50.0%. All the receivables arising from this plant were pledged in favor of BNDESuntil full repayment of the loan. As of December 31, 2009, we had an aggregate of R$ 111.5 million in outstanding debt with BNDES and Banco do Brasil under this facility.
We have several legal contingencies and proceedings that could have a material adverse impact on our liquidity. In addition, we are contesting a determination by ANEEL that would require us to pay additional amounts for energy we purchased for resale during the electricity-rationing period in 2001 and the first quarter of 2002. We are also involved in several lawsuits, including challenges of the legality of certain federal taxes, which have been assessed against us, claims by industrial customers that certain increases in electricity tariffs from March through November 1986 were illegal and several labor related claims. These contingencies are described in “Item 8. Financial Information – Legal Proceedings.” If any of these claims are decided against us either individually or in the aggregate, they could have a material adverse affect on our liquidit y and our financial condition.
Contractual Obligations
In the table below, we set forth certain of our contractual obligations as of December 31, 2009, and the period in which such contractual obligations come due. The table below does not include pension liabilities or estimated interest payments on our loans and financing and debentures.
| |
| | | | | |
| (R$ million) |
Contractual obligations: | | | | | |
Loans and financing | 865.7 | 81.7 | 118.1 | 434.3 | 231.6 |
Debentures | 807.5 | 54.2 | 672.1 | 69.0 | 12.2 |
Suppliers(1) | 719.3 | 543.5 | 87.9 | 87.9 | - |
Purchase obligations(2) | 25,371.6 | 2,224.0 | 5,591.7 | 5,223.4 | 12,332.5 |
Concession payments – Elejor(3) | 1,022.9 | 37.9 | 73.4 | 73.4 | 838.2 |
Tax recovery programs(4) | 253.6 | 122.5 | 131.1 | - | - |
Post employment benefits(5) | | | | | |
Total | | | | | |
____________
(1) Consists of gas supplied by Petrobras to the Araucária thermoelectric plant.
(2) Consists of electric power purchase commitments pursuant to binding obligations which include all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions and delivery dates. Based upon the applicable purchase price at December 31, 2009.
(3) Payments to the federal government arising from Elejor’s concession agreement.
(4) For more details, see Note 10 to our consolidated financial statements.
(5) For more details, see Note 41(c)(iii) to our consolidated financial statements.
We are also subject to contingencies with respect to tax, labor and civil claims and have provisioned R$ 560.1 million for accrued liabilities for legal proceedings related to these claims as of December 31, 2009. For more information, see “Item 8. Financial Information – Legal Proceedings” and Notes 10 and 29 to our consolidated financial statements.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
U.S. GAAP Reconciliation
We prepare our consolidated financial statements in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. The main differences are described in Note 41 to our consolidated financial statements. Our net income in accordance with Brazilian GAAP was R$ 1,026.4 million in 2009, R$ 1,078.7 million in 2008 and R$ 1,106.6 million in 2007, considering the effects of the application of ASC 810 “Consolidation” (SFAS no. 160), described below. Under U.S. GAAP, we would have reported net income ofR$ 928.6 in 2009, R$ 948.1 million in 2008 and R$ 997.9 million in 2007. Our shareholders’ equity in accordance with Brazilian GAAP was R$ 8,830.0 million at December 31, 2009 and R$ 8,053.1 million at December 31, 2008. Under U.S. GAAP, we would have reported shareho lders’ equity of R$ 9,238.7 million at December 31, 2009 and R$ 8,761.9 million at December 31, 2008, considering the effects of the application of ASC 810 “Consolidation”, described below.
ASC 810 “Consolidation” clarifies that a non-controlling interest in an operating subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributed to the parent and to the non-controlling interest. This statement was effective prospectively for fiscal years beginning after December 15, 2008 (calendar year 2009), with presentation and disclosure requirements applied retrospectively to comparative financial statements. Effective January 1, 2009, the Company adopted the provision of this statement and applied its presentation requirements retrospectively.
For a discussion of the principal differences between Brazilian GAAP and U.S. GAAP as they relate to our consolidated financial statements and a reconciliation of net income and shareholders’ equity, see Note 41 to our consolidated financial statements.
Item 6. Directors, Senior Management and Employees
We are managed by:
· a Board of Directors, which may consist of seven to nine members and is currently composed of nine members; and
· a Board of Executive Officers, which consists of eight members.
Board of Directors
The Board of Directors ordinarily meets once every three months and is responsible, among other things, for:
· establishing our corporate strategy;
· defining the general orientation of our business;
· defining the responsibilities of members or our Board of Executive Officers; and
· choosing and replacing members of our Board of Executive Officers.
Meetings of the Board of Directors require a quorum of a majority of the directors and are taken by majority vote. The members of the Board of Directors are elected to serve for two-year terms and may be reelected. Among the current nine members of the Board of Directors:
· seven are elected by the holders of the Common Shares;
· one is elected by minority shareholders, holders of both the Common Shares or preferred shares; and
· one is elected by our employees.
The member of our Board of Directors who is elected by the non-controlling shareholders has the right to veto (provided it is duly justified) the choice made by the majority of the members of our Board of Directors, of the independent accountant.
The State of Paraná and BNDES Participações S.A. – BNDESPAR (“BNDESPAR”), with the intervention of the Company and Paraná Investimentos, S.A., are parties to a shareholders’ agreement dated December 22, 1998, as amended on March 29, 2001 (the “Shareholders’ Agreement”). BNDESPAR is a wholly-owned subsidiary of BNDES. Under the Shareholders’ Agreement, the parties agree to exercise their voting rights so that:
· the State of Paraná appoints five members to the Board of Directors; and
· BNDESPAR appoints two members to the Board of Directors.
According to Brazilian Corporate Law, minority shareholders are entitled to appoint and remove a member of the Board of Directors, in a separate election, where such minority shareholders (i) hold at least 15% of the company’s voting shares or (ii) hold at least ten percent of the company’s outstanding non-voting shares.
The terms of the current members of the Board of Directors expire in 2011. The current members are as follows:
| | |
To be filled | Chairman | – |
Ronald Thadeu Ravedutti | Director | 2010 |
Jorge Michel Lepeltier | Director | 2007 |
Munir Karam | Director | 2008 |
Laurita Costa Rosa | Director | 2004 |
Rogério de Paula Quadros | Director | 2005 |
Luiz Antonio Rodrigues Elias | Director | 2006 |
João Carlos Fassina | Director | 2010 |
The following are brief biographies of the current members of our Board of Directors:
Ronald Thadeu Ravedutti. Mr. Ravedutti is 59 years old. He received a degree in economics from the Social Studies Foundation of Paraná and completed post-graduate courses in utility finance, economics and finance, engineering economics, financial administration and systems analysis. Ronald has had a long career as an employee of Copel. Previously, he was the Chief Financial and Market Relations Officer (April to December 1994), Chief Financial and Investor Relations Officer (2003 to 2004), Chief Administration Officer (2004 to 2005) and Chief Distribution Officer (2005 to 2010). He is currently our Chief Executive Officer.
Jorge Michel Lepeltier.Mr. Lepeltier is 62 years old. He received a degree in economics and accounting from the Pontifícia Universidade Catoĺica de São Paulo and attended an environmental management course in the Escola Superior de Agricultura “Luiz de Queiroz” ESALQ-USP. Previously, Mr. Lepeltier was Treasurer and Administrative–Finance Officer and Market Relations Officer of Brasmotor S.A. and Audit Manager at PricewaterhouseCoopers. Mr. Lepeltier was appointed by the minority shareholders.
Munir Karam. Mr. Karam is 72 years old. He received a law degree from Federal University of Paraná. Formerly, he served as a state judge and law professor. Currently, Mr. Karam is the Chairman of the Board of Directors of Paraná Previdência, the Paraná State pension fund, as well as a member of the law faculty at the Federal University of Paraná. Mr. Karam was appointed by the State of Paraná.
Laurita Costa Rosa. Ms. Rosa is 51 years old. She received a degree as a certified public accountant from the Social Studies Foundation of the State of Paraná. Previously, Ms. Rosa was the General Secretary of the Commercial Registrar of the State of Paraná. Ms. Rosa was appointed by the State of Paraná.
Rogério de Paula Quadros. Mr. Quadros is 58 years old.He received a degree in economic sciences from the State University of Ponta Grossa. Previously, Mr. Quadros was the President of the Financial, Budget and Audit Committee of the Municipality of Ponta Grossa. He was appointed by the State of Paraná.
Luiz Antonio Rodrigues Elias.Mr. Elias is 56 years old. He received a degree in economics from University Benett-Centro Universitário Metodista de Brasilia. Previously, Mr. Elias was an officer of Rede Ferroviáia Federal by appointment of the Ministry of Planning and a researcher of the National Institute ofIntellectual Property. Mr. Elias is currently an officer of technological and innovation development of the Ministry of Sciences and Technology, Chairman of the management committees of the electric power fund and mineral fund and a member of the Fiscal Council of the Brazilian Nuclear Industries. Mr. Elias was appointed by BNDESPAR.
João Carlos Fassina.Mr. Fassina is 55 years old. He received a degree in education from the Universidade Tuiuti do Paraná. At Copel, Mr. Fassina served on the Board of Ethics and was a member of the Profit Sharing Committee, whose members are chosen by the employees. Mr. Fassina is currently the Supervisor of Work Safety.
Board of Executive Officers
Our Board of Executive Officers meets weekly and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by our bylaws.
According to our bylaws, our Board of Executive Officers consists of eight members. The Executive Officers are elected by the Board of Directors for three-year terms but may be removed by the Board of Directors at any time. Under the Shareholders’ Agreement, BNDESPAR has the right to appoint one member to the Board of Executive Officers. The terms of the current members of the Board of Executive Officers expire in December 2011. The current members are as follows:
| | |
Ronald Thadeu Ravedutti | Chief Executive Officer | 2010 |
Luiz Antonio Rossafa | Chief Management Officer | 2010 |
Regina Maria Bueno Bacellar | Chief Legal Officer | 2010 |
Vlademir Santo Daleffe | Chief Distribution Officer | 2010 |
Raul Munhoz Neto | Chief Power Generation & Transmission and Telecommunications Officer | 2006 |
Edson Sardeto | Chief Engineering Officer | 2010 |
Rafael Iatauro | Chief Financial Officer, Investor Relations Officer and Investment Portfolio Manager | 2010 |
Marlene Zannin | Chief Environment and Corporate Citizenship Officer | 2009 |
The following are brief biographies of the current members of our Board of Executive Officers:
Ronald Thadeu Ravedutti. Mr. Ravedutti is 59 years old. He received a degree in economics from the Social Studies Foundation of Paraná and completed post-graduate courses in utility finance, economics and finance, engineering economics, financial administration and systems analysis.Ronald has had a long career as an employee of Copel. Previously, he was the Chief Financial and Market Relations Officer (April to December 1994), Chief Financial and Investor Relations Officer (2003 to 2004), Chief Administration Officer (2004 to 2005) and Chief Distribution Officer (2005 to 2010). He is currently our Chief Executive Officer.
Raul Munhoz Neto. Mr. Munhoz Neto is 66 years old. He received a degree in mechanical engineering from the Federal University of Paraná. Previously, Mr. Munhoz Neto was the Chief Financial and Administrative Officer of Araucária thermoelectric plant and Chief Construction and Engineering Officer of Copel.
Luiz Antonio Rossafa.Mr. Rossafa is 55 years old. He received a degree in agronomical engineering from Luiz Meneghel Agronomy College in Paraná and a master’s degree in Agriculture from Paulista State University (UNESP). Mr. Rossafa was the Chairman of the Regional Engineering, Architecture and Agronomy Committee of the State of Paraná.
Marlene Zannin. Ms. Zannin is 55 years old. She holds a degree in Law from Faculdade de Direito de Curitiba. Ms. Zannin also completed a post-graduate course in civil procedural law from Instituto Brasileiro de Estudos Jurídicos. At the Curitiba City Hall, Capital of Paraná State. Ms. Zannin was Municipal Environment Secretary, in 1985. She worked for 2 years as Chairperson of the Committee of Environment of Brazilian Lawyer Association of Paraná State OAB/PR. At Copel Geração e Transmissão, she served as Chief Environment and Social Responsibility Official (2006 to 2008) and has served as Chief Assistant Officer since 2007.
Regina Maria Bueno Bacellar. Ms. Bacellar is 50 years old. She holds a degree in Law from Faculdade de Direito de Curitiba. Ms. Bacellar has multiple master’s degrees, including in: social relations law, with an emphasis in administrative, civil and environmental law from the Pontifícia Universidade Católica de São Paulo,environmental law from the University of Florida, South American European trade law from the Instituto Brasileiro de Estudos Jurídicos, ecology and law from Universidade Tuiuti do Paraná and environmental law from the Universidade de Aveiro. At Copel, she has served as Assistant General counsel (2008-2010); Manager of General Counsel (2004 to 2008); Coordination M anager (2003 to 2004); Legal Assistant to the President (1997 to 1999); and Assistant Coordination Manager (1996 to 1997).
Edson Sardeto. Mr. Sardeto is 52 years old. He received a degree in electrical engineering from the Universidade Federal do Paraná. Mr. Sardeto completed post-graduate courses in electrical energy engineering from the Universidade de São Paulo and business management from the University of Nevada. At Copel, he has served as Commercial Distribution Manager; Executive Secretary of the Consumer Counsel; Manager of Distribution and Coordination in 2007; Regional Manager of northeast Distribution (2003 to 2007); and Manager of Engineering Distribution for the northeast region (2001 to 2002).
Rafael Iatauro. Mr. Iatauro is 73 years old. He holds a law degree from the Universidade Católica do Paraná. Mr. Iatauro received a degree in Public Administration from the Ohio State University. Before joining Copel, Mr. Iatauro served as Chief Secretary of the State of Paraná from 2007 to 2010, an advisor to the Brazilian Association of Municipalities and Board Member at Cohapar and Ferroeste.
Vlademir Santo Daleffe. Mr. Daleffe is 47 years old. He has an industrial electrical engineering degree from the Universidade Tecnológica Federal do Paraná. Mr. Daleffe completed a post-graduate course in business management from the Universidade Católica do Paraná (in partnership with the University of Texas at Austin) and in technical management of energy concessions from the Universidade Federal do Paraná. Mr. Daleffe is a board member of Compagas and Lactec. At Copel, he served as Manager of Energy Distribution, Manager of Distribution for the western region of Brazil, (1998 to 2003 and 2005 to 2007); Manager of Distribution for the eastern region of Brazil (2004) and Assistant to the Director of Distribution (1997 to 1998).
Fiscal Council
We have a permanent Fiscal Council, which generally meets every three months. The Fiscal Council consists of five members and five alternates elected for one-year terms by the shareholders at the annual meeting. The Fiscal Council, which is independent of our management and of our external auditors, is responsible for:
· reviewing our financial statements and reporting on them to the shareholders;
· issuing special reports on proposed changes in capitalization, corporate budgets and proposed dividend distributions and any corporate reorganization; and
· in general, supervising the activities of management and reporting on them to our shareholders.
The following table lists the current and alternate members of the Fiscal Council, who were appointed at the 55th annual shareholders’ meeting held on April 27, 2010, and whose terms expire in 2011.
| |
Osmar Alfredo Kohler – President | 2008 |
Heron Arzua | 2005 |
Massao Fabio Oya | 2010 |
Wilson Portes | 2008 |
Murici dos Santos | 2010 |
| |
| |
Moacir José Soares | 2003 |
Maurílio Leopoldo Schmitt | 2003 |
To be filled | – |
Serafim Charneski | 2004 |
To be filled | – |
Audit Committee
In June 2005, our shareholders amended our bylaws to establish an Audit Committee composed of at least three members of our Board of Directors, each of whom serves a term of two years, and may be re-elected. Pursuant to the Audit Committee charter, the Audit Committee members are appointed by, and may be replaced by a resolution taken by our Board of Directors. The current members of the Audit committee with terms until 2011 are: Mr. Jorge Michel Lepeltier, Mr. Rogério de Paula Quadros and Ms. Laurita Costa Rosa, who is the financial expert. All of the members of the Audit Committee are members of our Board of Directors. The Audit Committee is responsible for our financial statements, ensuring that we are in compliance with all legal requirements related to our reporting obligations, monitoring the work of the independent auditors and our staff who are responsible for internal auditing of the Company and reviewing the effectiveness of our internal control and risk management procedures and staff.
Under Brazilian Corporate Law, the function of hiring independent auditors is reserved for the board of directors of a company. As a result, our Board of Directors acts as our Audit Committee, as specified in Section 3(a)(58) of the Exchange Act, for purposes of approving, on a case-by-case basis, any engagement of our independent auditors for audit and non-audit services provided to us or our subsidiaries. Except in these respects, our Audit Committee is comparable to and performs the functions of audit committees of U.S. companies.
Compensation of Directors and Officers
For the year ended December 31, 2009, the aggregate amount of compensation paid by us to the members of our Board of Directors, Board of Executive Officers and Fiscal Council was R$ 7.2 million of which 78.5% was for our Board of Executive Officers, 12.5% was for our Board of Directors, and 9.0% was for our Fiscal Counsel, as approved by our 54th annual shareholders’ meeting held on April 23, 2009.
We have no service contracts with our directors providing for benefits upon termination of employment.
Employees
At December 31, 2009, we had 8,560 employees, compared to 8,405 employees at December 31, 2008 and 8,347 employees at December 31, 2007. Including employees at Compagas, Elejor and UEG Araucária Ltda. (companies in which we have a majority stake) we had 8,682 employees by the end of 2009.
The following table sets forth the number of our employees and a breakdown of employees by category of activity as of the dates indicated in each area of our operations.
| |
Area | | | |
Generation and transmission | 1,314 | 1,317 | 1,394 |
Distribution | 5,490 | 5,423 | 5,351 |
Telecomunication | 294 | 262 | 243 |
Corporation staff and research and development | 1,439 | 1,381 | 1,342 |
Other employees | | | |
Total employees Copel wholly-owned subsidiaries | | | |
Compagas | 106 | 104 | 85 |
Elejor | 6 | 6 | 6 |
Araucária | | | |
Total | | | |
All of our employees are covered by collective bargaining agreements that we renegotiate annually with the unions that represent the various employee groups. In 2009, we negotiated and signed labor agreements with the unions representing our employees. These new bargaining agreements became effective in October 2009 and will be in place for a one-year term. We agreed to salary increases of 6.02% in 2009.
We provide a number of benefits to our employees. The most significant is the sponsorship ofFundação Copel de Previdência e Assistência Social (“Fundação Copel”), which supplements the Brazilian government retirement and health benefits available to our employees. As of December 31, 2009, approximately 99% of our employees had elected to participate in a defined contribution plan.
In accordance with federal law and our compensation policy, our employees participate in a profit-sharing plan. The Board of Directors and the shareholders must approve the amount of such compensation, which is determined in accordance with an agreement between an employee committee and us. An employee’s receipt of compensation is conditioned on the company meeting certain benchmarks described in the above-mentioned agreement, as confirmed in our published year-end balance sheet. The amount of profit-sharing distributions provisioned and approved for the 2009 fiscal year (including Compagas) was R$ 65.0 million, a decrease of 1.2% when compared with the 2008 distribution, which totaled R$ 65.8 million. The 2008 profit-sharing distribution increased 21.3% compared with that of 2007, which totaled R$ 54.3million. The terms of the profit-sharing agreement are curr ently being revised and negotiated for future years.
Copel instituted a voluntary retirement program (“PDV”) aimed at employees who receive retirement benefits from the INSS (“National Social Security Institute”). 328 employees retired pursuant to this program in 2009. An additional 222 had retired by March 15, 2010. As a result of the anticipated retirement of 550 employees, we expect our payroll expenses in 2010 to be 6.8% lower, or R$ 60.0 million, than they would have been in the absence of this plan. The right to take part in the voluntary retirement program in the future will be granted to employees who will retire through the INSS system.
Share Ownership
As of May 31, 2010, board members and executive officers held, collectively, directly or indirectly, less than 1.0% of any class of our shares.
Item 7. Major Shareholders and Related Party Transactions.
Since 1954, the State of Paraná has owned the majority of our Common Shares and has exercised control over us. At December 31, 2009, the State of Paraná directly owned 58.6% of the Common Shares, and BNDESPAR owned directly and indirectly 26.4% of the Common Shares.
The following table sets forth certain information regarding the ownership of our Common Shares at December 31, 2009.
| |
| (thousands) | (% of total) |
State of Paraná | 85,029 | 58.6 |
BNDESPAR | 38,299 | 26.4 |
Eletrobras | 1,531 | 1.1 |
Public Float– ADSs | 152 | 0.1 |
Public Float – BM&FBOVESPA | 19,466 | 13.4 |
Others | 544 | 0.4 |
All directors and officers as a group(1) | | |
Total | | |
____________
(1) Our directors and officers hold an aggregate of 111 Common Shares.
At May 2010, 2.76% of the Common Shares and 13.59% of the Class B Shares were held by 184 holders who reside in the United States and have registered with the Companhia Brasileira de Liquidação e Custódia (“CBLC”). At the same date, the ADSs represented 0.10% of the Common Shares and 31.12% of the Class B Shares, and together, approximately 14.64% of our total share capital. By May 2010, our shareholders had required to convert 1,271 Class A Shares into Class B shares.
The following table sets forth certain information regarding the ownership of our Class B Shares at December 31, 2009.
| |
| (thousands) | (% of total) |
State of Paraná | 14 | - |
BNDESPAR | 27,282 | 21.3 |
Eletrobras | - | - |
Traded as ADSs | 40,078 | 31.3 |
Traded in the BOVESPA Market | 60,515 | 47.2 |
Others | 340 | 0.2 |
All directors and officers as a group | | |
Total | | |
Shareholders’ Agreement
Under the Shareholders’ Agreement, the State of Paraná cannot approve, without BNDESPAR’s prior authorization, the following matters:
· amendments to our bylaws;
· reductions or increases of our capital stock;
· changes in our corporate purpose;
· creation of a new class of our preferred shares;
· issuances of securities convertible into our shares or call options for our shares;
· reverse splits or splits of issued shares;
· incorporation of reserves, funds or accounting provisions that affect the rights and interests of minority shareholders;
· liquidations or voluntary corporate restructurings;
· mergers, spin-offs, transformations, transfers or acquisitions of interests in other companies;
· incorporation of wholly-owned subsidiaries;
· adoption of policy with respect to minority shareholders in the case of merger, amalgamation, split-off and transfer of control in Copel; and
· reduction in mandatory dividends.
RELATED PARTY TRANSACTIONS
We engage in transactions, including the sale of electric energy, with our principal shareholders and with our affiliates. The tariffs we charge on electric energy sold to our related parties are approved by ANEEL, and the amounts are not material.
Transactions with Shareholders
The following summarizes the most significant transactions with our principal shareholders:
Government of the State of Paraná
The State of Paraná owns 58.6% of our Common Shares. We had accounts receivable from the government of the State of Paraná under the CRC Account Agreement in the amount of R$ $1,254.6 million at December 31, 2009. The outstanding balance bears interest of 6.65% per year and is adjusted in accordance with the IGP-DI inflation index. We also had ICMS payables in the amount of R$ 165 million as of December 31, 2009. ICMS expenses during 2009 amounted to R$ 1.8 billion. We recorded interest income and monetary variation receivable from the government of the State of Paraná under the CRC of R$ 65.6 million in 2009. For more information, see “Item 5. Operating and Financial Review and Prospects – Overview – Impact of CRC Account.”
BNDES and BNDESPAR
BNDESPAR, a wholly-owned subsidiary of BNDES, owns 26.4% of our Common Shares and has the right to appoint two members to our Board of Directors. We had loans from BNDES (related to Compagas) of R$ 12.7 million as of December 31, 2009, and recorded interest expenses of R$ 0.7 million in 2009. As of December 31, 2009, we had debentures issued from Elejor and payable to BNDESPAR of R$ 190.3 million.
In March 2010, we realized a capital increase in Elejor, in the amount of R$ 126 million, which corresponds to Copel’s equity stake in Elejor. As a result of this capital increase, Elejor paid off its debentures that were held by BNDESPAR.
In addition, BNDES has provided a loan to Copel of R$ 339 million to finance the construction of the Mauá hydroelectric plant. Mauá is owned by Consórcio Energético Cruzeiro do Sul, in which Copel has a 51.0% interest and Eletrosul has a 49.0% interest. BNDES will provide 50.0% of the loan amount, and Banco do Brasil S.A. will provide the remaining 50.0%. All the receivables related to this plant were pledged in favor of BNDES until full repayment of the loan. As of December 31, 2009, we had an aggregate of R$ 111.5 million in outstanding debt with BNDES and Banco do Brasil under this facility.
Fundação Copel
Fundação Copel de Previdência e Assistência Socialis an entity of Closed Pension Funds that runs and operates benefit plans, welfare and social assistance, which is sponsored by Copel, Compagas and other entities.In 2009, Copel made payments to Fundação Copel consisting of: (i) rental in amount of R$8.3 million and (ii) R$ 14.2 million for expenditure on pension and welfare plans.
Transactions with Affiliates
Dona Francisca Energética S.A.
We own 23.0% of the total issued and outstanding share capital of Dona Francisca Energética S.A. We had accounts payable in the amount of R$ 5.1 million as of December 31, 2009. We provided guarantees to Dona Francisca in connection with loans obtained from the Inter-American Development Bank – IDB, and to BNDES, in an amount proportionate to our interest in Dona Francisca. The outstanding balance of the loans and financing was R$ 90.5 million as of December 31, 2009.
We have a power purchase agreement with Dona Francisca, valued at R$ 60.0 million annually, which obligates Copel Geração e Transmissão to purchase 100.0% of the energy generated at Dona Francisca until March 2015.
Item 8. Financial Information.
See Item 18. “Financial Statements” and pages F-1 through F-140.
LEGAL PROCEEDINGS
We are currently subject to numerous proceedings relating to civil, administrative, labor and tax claims. Our consolidated financial statements only include reserves for probable and reasonably estimable losses and expenses we may incur in connection with pending litigation. At December 31, 2009, our reserves for such contingencies were R$ 560.1 million, which we believe to be sufficient to meet probable and reasonably estimated losses in the event of unfavorable rulings relating to the legal proceedings in which we are a party. However, we cannot assure you that these reserves will be sufficient.
ANEEL Determinations
We are contesting a determination by ANEEL that would require us to recognize, in our current liabilities at December 31, 2009, R$ 1,176 million in costs for energy we purchased for resale in the spot market during a period of electricity rationing period in 2001 and the first quarter of 2002. Our management believes the final ruling of this claim will be favorable to us, and we have therefore not made a related provision. However, we may be required to contribute to the amounts owed by other energy companies under similar lawsuits, and as of December 31, 2009, we had provisions of R$ 30.4 million to cover probable losses related to these other lawsuits. For more information, see Note 35 to the Financial Statements.
Tax and Social Contribution Claims
Until recently, we were party to a lawsuit disputing the legality or constitutionality of certain federal taxes and social contributions assessed against us, including our obligations to pay COFINS, a tax to finance social security. We won this lawsuit in 1998, but the court’s decision was subject to conflicting subsequent decisions by the Brazilian Supreme Court. Since our management determined that the likelihood of ultimately losing this lawsuit was probable, we recorded a provision in the amount of R$ 184.0 million.
In November 2009, we settled this lawsuit by agreeing to pay R$ 136.7 million, plus interest at the SELIC rate. We reversed R$ 178.8 million in provisions related to this lawsuit, and we agreed to pay 30 monthly installments to the Brazilian government, beginning in November 2009 and ending in April 2012. As of December 31, 2009, this debt totaled R$ 128.8 million.
We have also challenged the payment of contributions to the PIS/PASEP program (Programs for Social Integration and for the Establishment of Public Employee’s Patrimony). The basis for calculation of PIS and PASEP have changed over time, resulting in significant differences in the final amounts due, and we believe that these changes have not been made in accordance with the Brazilian Constitution.
We are party to administrative and judicial proceedings pursuant to which we are challenging claims of the Brazilian Social Security authorities to pay additional security contributions for the period between 2000 and 2006. In these proceedings, we estimate the value of our probable loss to be R$ 29.2 million and the value of our possible loss to be R$ 279.6 million.
Labor Related Claims
We are the defendant in several lawsuits filed by either current or past employees of ours, related to overtime claims, dangerous work conditions, relocation, and other matters. As of December 31, 2009, we have provisioned R$ 158.4 million to cover probable losses related to these lawsuits.
Regulatory
We are disputing certain regulatory and legal proceedings in connection with ANEEL’s allegations that we violated regulatory standards related to the duration and frequency of power outages experienced by our Final Customers. As of December 31, 2009, we have provisioned R$ 37.0 million to cover probable losses related to these proceedings.
Cruzado Period Claims
We are a defendant in several lawsuits brought by industrial customers alleging that increases in electricity tariffs during a price freeze imposed by the federal government from March through November 1986 (the “Cruzado Period”) were illegal. The plaintiffs further allege that all of our tariff increases after the Cruzado Period were illegal, in part because they included the Cruzado Period increases in the amount that served as the basis for calculating the further increases. As of December 31, 2009, we have provisioned R$ 5.3 million to cover probable losses related to these lawsuits.
Additional Claims
We are a party to several lawsuits related to accidents involving equipment used in our electricity transmission and distribution systems, as well as vehicle accidents. As of December 31, 2009, we have provisioned R$ 57.2 million to cover probable losses related to these lawsuits.
In July 2004, Rio Pedrinho Energética S.A. (“Rio Pedrinho”) and Consórcio Salto Natal Energética S.A. (“Salto Natal”) commenced arbitration proceedings against Copel Distribuição seeking approximately R$ 25.0 million each for outstanding amounts that had been billed to us under energy purchase agreements with them, and any associated penalties. In September 2005, the arbitration panel ordered Copel Distribuição to pay each company approximately R$ 27.5 million.
We filed a lawsuit in November 2005 in the local courts in Curitiba seeking to annul the decision of the arbitration panel. Subsequently, Rio Pedrinho and Salto Natal filed judicial execution proceedings seeking to require that we pay them the awards granted by the arbitration. As of December 31, 2009, we had provisioned R$ 84.0 million in connection with these arbitrations.
In a lawsuit filed in November 29, 2004 by Ivaí Engenharia de Obras S.A. (“Ivaí”) related to its construction work on the Rio Jordão deviation project, Copel was ordered to pay R$ 180.9 million based on a claim by Ivaí that its contractually established remuneration from Copel was insufficient to cover Ivaí’s costs related to the project. Copel appealed this decision and was partially successful, avoiding the application of the SELIC interest rate in addition to the penalty interest. Copel will continue to dispute this claim in court. As of December 31, 2009, the Company has recorded a provision of R$ 113.8 million for probable losses.
We are a party to several lawsuits brought by landowners the land of whom has been affected by our transmission and distributions lines. As of December 31, 2009, we have provisioned R$ 14.9 million to cover a probable losses related to these lawsuits.
For more information on our contingencies, see Note 29 of the consolidated financial statements.
DIVIDEND PAYMENTS
In accordance with our bylaws and Brazilian Corporate Law, we regularly pay annual dividends for each fiscal year within sixty days of the declaration at the annual shareholders’ meeting. To the extent amounts are available for distribution, we are required to distribute as a mandatory dividend an aggregate amount equal to at least 25.0% of our adjusted net profit. Dividends are allocated pursuant to the formula described in “Dividend Priority of Class A Shares and Class B Shares” below. Under Brazilian Corporate Law, we are not permitted to suspend the mandatory dividend payable with respect to the Common Shares, to the Class A Shares and to the Class B Shares for any year. Brazilian Corporate Law permits, however, a company to suspend the payment of all dividends if theBoard of Directors, with the approval of the Fiscal Council, reports at the shareholders’ meeting that the distribution would be incompatible with the financial circumstances of the company. In such a case, companies with publicly traded securities must submit a report to the CVM providing the reasons for the suspension of dividend payments. Notwithstanding the above, Brazilian Corporate Law and our bylaws provide that Class A Shares and Class B Shares shall acquire voting rights if we suspend the mandatory dividend payments for more than three consecutive fiscal years. We are not subject to any contractual limitations on our ability to pay dividends.
Calculation of Adjusted Net Profit
Dividends with respect to a fiscal year are payable from our adjusted net profit for such period. Brazilian Corporate Law defines “net profit” for any fiscal year as the result of a fiscal year after the deduction of income and social contribution taxes for that fiscal year and after the deduction of any amounts allocated to employees’ and management’s participation in our results in such fiscal year. The “net profit” for a relevant fiscal year is subject to adjustment by the addition or subtraction of amounts allocated to legal and other reserves, the result of which is known as our adjusted net profit.
In accordance with Brazilian Corporate Law, we must maintain a legal reserve, to which we must allocate a minimum of five percent of our net profits for each fiscal year until such reserve reaches an amount equal to 20.0% of our capital stock (calculated in accordance with Brazilian Corporate Law). However, we are not required to make any allocations to our legal reserve in a fiscal year in which the legal reserve, when added to our other established capital reserves, exceeds 30.0% of our total capital. The amounts to be allocated to such reserve must be approved by our shareholders in a shareholders’ meeting and may be used only for the increase of our capital stock or compensation of losses. At December 31, 2009, our legal reserve was R$ 428.9 million, or approximately 9.6% of our capital stock at that date.
In addition to deducting amounts for the legal reserve, under Brazilian Corporate Law net profit may also be adjusted by deducting amounts allocated to:
· the contingency reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits to a contingency reserve for anticipated losses that are deemed probable in future years, which amount may be estimated;
· the tax incentives reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits resulting from government donations or subsidies for investment purposes.
On the other hand, net profits may also be increased by:
· the reversal of any amounts previously allocated to a contingency reserve in the fiscal year in which the loss that had been anticipated does not occur as projected or in which the anticipated loss occurs but is lower than the contingency allocated to it; and
· any amounts included in the unrealized profits reserve that have been realized in the relevant fiscal year and have not been used to offset losses, as approved by our shareholders’ meeting, upon proposal of our Board of Directors or Board of Executive Officers.
The amounts available for distribution are determined on the basis of the Statutory Financial Statements prepared using the method required by Brazilian Corporate Law, which differ from our consolidated financial statements, included herein.
Dividend Priority of Class A Shares and Class B Shares
According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least ten percent higher than the dividends per share paidto the Common Shares. Class A Shares have a dividend priority over the Class B Shares, and Class B Shares have a dividend priority over the Common Shares. To the extent funds are available, dividends are to be paid in the following order:
· first, the holders of Class A Shares have the right to receive a minimum dividend equal to ten percent of the total share capital represented by the Class A Shares outstanding as at the end of the fiscal year in respect of which the dividends have been declared;
· second, to the extent there are additional amounts to be distributed after all amounts allocated to the Class A Shares have been paid, the holders of Class B Shares have the right to receive a minimum dividend per share equal to (1) the mandatory dividend divided by (2) the total number represented by Class B Shares outstanding as at the end of the fiscal year in respect of which the dividends have been declared; and
· third, to the extent that there are additional amounts to be distributed after all amounts allocated to the Class A Shares and the Class B Shares have been paid, the holders of Common Shares have the right to receive an amount per share equal to (1) the mandatory dividend divided by (2) the total number of Common Shares outstanding as at the end of the fiscal year in respect of which dividends have been declared, provided that the Class A Shares and Class B Shares receive dividends per share at least ten percent higher than the dividends per share paid to the Common Shares.
To the extent that there are additional amounts to be distributed after all amounts described in the preceding items have been paid and in the form therein described, any such additional amount will be divided equally among all our shareholders.
Payment of Dividends
We are required to hold an annual shareholders’ meeting by April 30th of each year at which, among other things, an annual dividend may be declared by decision of the shareholders on the recommendation of the management, as approved by the Board of Directors. The payment of annual dividends is based on the financial statements prepared for the fiscal year ending December 31. Under Brazilian Corporate Law, we must pay dividends to shareholders of record within 60 days of the date of the shareholders meeting that declared the dividends. A shareholders’ resolution may set forth another date of payment, which must occur prior to the end of the fiscal year in which such dividend was declared. We are not required to adjust the amount of paid-in capital for inflation for the period from the end of the last fiscal year to the date of declaration or to a djust the amount of the dividend for inflation for the period from the end of the relevant fiscal year to the payment date. Consequently, the amount, in real terms, of dividends paid to holders of Class B Shares may be substantially reduced due to inflation.
According to our bylaws, our management may declare interim dividends to be paid from profits in our semi-annual financial statements approved by our shareholders. Any payment of interim dividends count towards the mandatory dividend for the year in which the interim dividends were paid.
Pursuant to Brazilian Corporate Law, we may pay interest on equity in lieu of dividends as an alternative form of making distributions to shareholders. We may treat a payment of interest on equity as a deductible expense for tax purposes, provided that it does not exceed the lesser of:
· the total amount resulting from (1) Long-Term Interest Rate (Taxa de Juros a Longo Prazo, or “TJLP”) multiplied by (2) the total shareholders’ equity (determined in accordance with Brazilian Corporate Law), less certain deductions prescribed by Brazilian Corporate Law; and
· the greater of (1) 50.0% of current net income (after the deduction of social contribution on profits (CSLL -Contribuição Social sobre o Lucro Líquido) and before taking such distributions and any deductions for corporate income tax) for the year in respect of which the payment is made or (2) 50.0% of retained earnings and profit reserves for the year prior to the year in respect of which the payment is made.
Shareholders who are not residents of Brazil must register with the Central Bank in order to receive dividends, sales proceeds or other amounts with respect to their shares in order to be eligible to receive amounts remitted in foreign currency outside of Brazil. The Class B Shares underlying the ADSs are held in Brazil by the Custodian, as agent for the Depositary, which is the registered owner of our shares.
Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the Custodian on behalf of the Depositary, which will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be delivered to the Depositary for distribution to holders of ADSs. In the event that the Custodian is unable to immediately convert the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before such dividends are converted and remitted.
The table below sets forth the cash distributions we paid as interest on equity for the periods indicated.
| | Distribution
(R$ thousand) | |
| | | | | | |
2005 | June 2006 | 122,995 | 0.42811 | 1.27167 | 0.47101 | 0.44945 |
2006 | June 2007 | 280,951 | 0.98001 | 1.41617 | 1.07821 | 1.02666 |
2007 | May 2008 | 267,750 | 0.93356 | 1.62979 | 1.02713 | 0.97842 |
2008 | May 2009 | 261,834 | 0.91289 | 1.62979 | 1.00438 | 0.95680 |
2009 | May 2010 | 249,459 | 0.86965 | 1.62979 | 0.95679 | 0.91158 |
The table below sets forth the cash distributions we paid as interest on equity, translated into U.S.$ based on the exchange rate at year-end, for the periods indicated.
| | Distribution
(U.S.$ thousand) | Payment per thousand shares (U.S.$) |
| | | | | | |
2005 | June 2006 | 52,546 | 0.18290 | 0.54329 | 0.20123 | 0.19202 |
2006 | June 2007 | 131,408 | 0.45838 | 0.66238 | 0.50431 | 0.48020 |
2007 | May 2008 | 151,160 | 0.52705 | 0.92011 | 0.57987 | 0.55237 |
2008 | May 2009 | 112,039 | 0.39062 | 0.69739 | 0.42977 | 0.40941 |
2009 | May 2010 | 143,268 | 0.49945 | 0.93602 | 0.54950 | 0.52354 |
Significant Changes
In February 2010, our distribution concession contract with ANEEL was amended. As a result, the next increase in our distribution tariffs will be reduced, causing a reduction of approximately 0.5% in our distribution revenues. Our Board of Directors approved the amendment in order to mitigate the possibility of a lawsuit or judicial proceeding on the matter. Nevertheless, we cannot assure you that no such action will be brought.
In June 2010, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 9.74%, of which 6.88% related to the tariff increase and 2.86% referred to an increase in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2010. After giving effect to the recovery of Parcel A costs, the average effect of this tariff readjustment on our captive customers was an increase of 2.46%.
Item 9. The Offer and Listing
The principal trading market for the Class B Shares is the BOVESPA market, which is maintained byBM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (the “BOVESPA Market”). On May 31, 2010, we had approximately 3,107 shareholders of our Class B Shares.
The following table sets forth the reported high and low closing sale prices for the Class B Shares on the São Paulo Stock Exchange for the periods indicated.
| Price per 1,000 Class B Shares |
| | |
| (R$) |
2005 | 19.20 | 10.50 |
2006 | 26.13 | 17.70 |
2007 | 35.20 | 23.40 |
2008 | 34.15 | 20.20 |
1st Quarter | 29.60 | 24.44 |
2nd Quarter | 32.60 | 27.80 |
3rd Quarter | 34.15 | 22.00 |
4th Quarter | 27.50 | 20.20 |
2009 | 39.00 | 21.10 |
1st Quarter | 25.70 | 21.10 |
2nd Quarter | 30.03 | 24.80 |
3rdt Quarter | 31.53 | 26.70 |
4th Quarter | 39.00 | 30.60 |
December | 39.00 | 34.30 |
2010, up to and including May | 39.75 | 33.00 |
1st Quarter | 39.75 | 36.41 |
January | 39.62 | 37.20 |
February | 39.75 | 36.55 |
March | 38.53 | 36.41 |
2nd Quarter | 36.81 | 33.00 |
April | 36.81 | 34.54 |
May | 36.55 | 33.00 |
On July 2, 2007, the shareholders approved a reverse split of our shares 1,000-for-1. In the United States, the Class B Shares trade in the form of ADSs, each representing one Class B Share (as a result of the reverse stock split), issued by The Bank of New York Mellon, as depositary (the “Depositary”) pursuant to a Deposit Agreement (the “Deposit Agreement”) between Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs. The ADSs trade under the symbols ELP and ELPVY. The following table sets forth the reported high and low closing sales prices for ADSs on the NYSE for the period indicated.
| U.S. dollars per ADS |
| | |
| (U.S.$) |
2005 | 8.71 | 3.88 |
2006 | 12.22 | 7.64 |
2007 | 19.06 | 11.04 |
2008 | 21.78 | 8.77 |
1st Quarter | 17.59 | 13.86 |
2nd Quarter | 20.27 | 16.22 |
3rd Quarter | 21.78 | 11.66 |
4th Quarter | 14.32 | 8.77 |
2009 | 22.52 | 8.32 |
1st Quarter | 11.53 | 8.32 |
2nd Quarter | 15.73 | 10.96 |
3rd Quarter | 17.63 | 13.46 |
4th Quarter | 22.52 | 17.33 |
December | 22.52 | 20.14 |
2010, up to and including May | 23.12 | 18.21 |
1st Quarter | 23.12 | 19.88 |
January | 23.12 | 20.35 |
February | 22.07 | 19.88 |
March | 21.97 | 20.42 |
2nd Quarter | 21.29 | 18.21 |
April | 21.29 | 20.12 |
May | 20.86 | 18.21 |
On June 19, 2002, shares of the Company were listed through Latibex, which is part of the Madrid Stock Exchange (“Latibex”). Latibex is a Euro-based market for Latin American securities. The shares trade under the symbol XCOP. On December 1, 2008, Copel’s preferred stock was included in the Latibex Top Index, which is made up of the 15 most liquid stocks traded on the Latibex. Copel’s stock became, as of that date, a component of the three indexes used by FTSE Latibex (FTSE Latibex Top, FTSE Latibex Brasil, and FTSE Latibex All Share).
Item 10. Additional Information
MEMORANDUM AND ARTICLES OF ASSOCIATION
Organization
We are a publicly traded company duly registered with the CVM under No. 1431-1. According to Article One of our bylaws, our objectives and purposes are:
· researching and studying, technically and economically, all energy sources;
· researching, studying, planning, constructing and developing the production, transformation, transportation, storage, distribution and trade of energy in any of its forms, chiefly electric power, as well as fuels and energy raw materials;
· studying, planning, designing, constructing and operating dams and their reservoirs, as well as other undertakings for multiple uses of water resources;
· providing information and technical assistance services concerning the rational use of energy by business undertakings, with the aim of implementing and developing economic activities deemed relevant for the development of the State of Paraná; and
· implementing electronic data transmission, electronic communications, cellular telephone systems, and other endeavors that may be deemed relevant to the Company and the State of Paraná.
Except as described in this section, our bylaws do not contain provisions addressing the duties, authority, or liabilities of directors and management, which are instead established by Brazilian Corporate Law.
Qualification of Directors
Brazilian Corporate Law provides that only shareholders of a company may be appointed to its board of directors, although there is no minimum share ownership requirement for qualification as a director. Our bylaws also require that each director be a Brazilian citizen and reside in Brazil.
Limitations on Directors’ Powers
Under Brazilian Corporate Law, if a director or an executive officer has a conflict of interest with the company in connection with any proposed transaction, the director or executive officer may not vote in any decision of the board of directors or of the board of executive officers related to that transaction, and must disclose the nature and extent of the conflict of interest for transcription in the minutes of the meeting. A director or an executive officer may not transact any business with a company, including accepting any loans, except on reasonable or fair terms and conditions that are identical to the terms and conditions prevailing in the market or offered by third parties. According to our bylaws, shareholders set the aggregate compensation payable to directors and executive officers. For more information, see “Item 6. Directors, Management and Empl oyees.”Our bylaws do not establish any mandatory retirement age limits.
Shareholders’ Meetings
We convene shareholders’ meetings by publishing a notice inDiário Oficial do Estado – PR, O Estado do Paranáand the Diário de São Paulo. The convening of our shareholders’ meeting is made through publication of a notice to shareholders in three newspapers, which are determined at the previous shareholders’ meeting. As provided by Brazilian Corporate Law, publications have to be made in the official newspaper located in the state of our corporate headquarters, in a newspaper with wide circulation in th e same city as our corporate headquarters, and in a newspaper with wide circulation in the same location as our stock exchange. The notice must be published no fewer than three times, beginning at least 30 calendar days prior to the scheduled meeting date.
Right of Withdrawal
Brazilian Corporate Law provides that under certain circumstances a shareholder has the right to withdraw its equity interest from a company and to receive a payment for the portion of shareholder’s equity attributable to his or her equity interest. This right of withdrawal may be exercised:
· by a dissenting holder of the adversely affected class of shares (including any holder of Class B Shares) in the event that a majority of all outstanding Common Shares authorizes:
the creation of a new class of preferred shares or an increase in an existing class of preferred shares relative to the other class of shares, except if already set forth under or authorized by our bylaws;
the modification of a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares; or
· by a dissenting shareholder (including any holder of Class B Shares) in the event that a majority of all outstanding Common Shares authorizes:
a reduction in the mandatory distribution of dividends;
a change in our corporate purpose;
a split up, subject to the conditions set forth in Brazilian Corporate Law; or
a transformation of us into another type of company;
· by a dissenting or non-voting holder of Common Shares or Class A Shares, in the event that a majority of all outstanding shares authorizes:
the acquisition of control of another company at a price which exceeds certain limits set forth in Brazilian Corporate Law;
a transfer of all of our share capital to another company, making the Company a wholly-owned subsidiary of such company, known as an “incorporação de ações;”
a merger or consolidation (“incorporação”); or
our participation in a group of concerns (“grupo de sociedades”) as defined under Brazilian Corporate Law.
The dissenting shareholders, if any, also have a right of withdrawal in the event that the entity resulting from our merger,incorporação de ações, or spin-off fails to become a listed company within 120 days of the shareholders’ meeting at which the relevant decision was taken. The dissenting or non-voting shareholders only have a withdrawal right if they held the shares that have been adversely affected at the time of the first call for the shareholders’ meeting in which the relevant decision was made. If a public announcement of the action taken or to be taken was made prior to the call for the shareholders’ meeting, the shareholders’ ownership of shares is base d on the date of announcement.
The right of withdrawal lapses 30 days after publication of the minutes of the shareholders’ meeting at which the action is taken, except when the resolution is subject to confirmation by, or to prior approval of, the majority of the preferred shareholders of each class of affected shares (which must be made at a special meeting to be held within one year). In that case the 30-day term is counted from the date the minutes of the special meeting are published. We are entitled to reconsider any action giving rise to redemption rights within ten days following the expiration of such rights if the redemption of shares of dissenting shareholders would jeopardize its financial stability.
In addition, rights of withdrawal connected to our merger or consolidation (incorporação) into another company, to our participation in a group of concerns (grupo de sociedades) and to the acquisition of control of another company at a price which exceeds certain limits set forth in Brazilian Corporate Law may not be exercised by holders of shares if such shares (i) are liquid, defined as being part of the BOVESPA Index (the “Ibovespa”) or other stock exchange index (as defined by the CVM), and (ii) are widely held, such t hat the controlling shareholder or companies it controls have less than 50.0% of our shares. Our Class B Shares are included on the Ibovespa.
Pursuant to our bylaws, in the situations described above and in the event of a delisting of our shares, our shareholders shall be entitled to redeem their shares at market value. The market value of the shares shall be determined by a specialized appraisal company or a group of experts selected by the shareholders.
Pursuant to Brazilian Corporate Law, each preferred share of a class that is admitted to trading on a Brazilian stock exchange must have the following rights under the Company’s bylaws:
· one or both of the following priorities: priority in the receipt of fixed or minimum dividend and/or priority in the reimbursement of capital, with or without premium; and
· one of the following rights: (A) right to participate in the distribution of the mandatory dividend of at least 25.0% of adjusted net profit, pursuant to the following criteria: (i) priority in the receipt of dividends corresponding to at least three percent of the shares’ book value, and (ii) right to participate on the profit distribution with the Common Shares, in equal conditions, after the Common Shares have received dividends as set forth in (i) above; or (B) right to receive dividends in an amount per share at least 10.0% higher than the amount per share paid to holders of Common Shares; or (C) tag-along right at a price equal to at least 80.0% of the price paid to the controlling shareholder in case of transfer of control.
Our bylaws comply with the directives of CVM as follows: (i) our Class A Shares shall have priority in the distribution of minimum dividends of ten percent per year,pro rata, calculated as a percentage of the paid-in capital stock represented by such shares on December 31of the previous fiscal year; (ii) our Class B Shares shall have priority in the distribution of minimum dividends,pro rata, in the amount equivalent to 25.0% of our net profits, as adjusted in accordance with Section 202 and its paragraphs of Law No. 6,404/76, c alculated as a proportion of the paid-in capital stock represented by such shares on December 31st of the previous fiscal year; (iii) the dividends provided in item (ii) above to the Class B Shares shall be paid only from outstanding profits after the payment of priority dividends to Class A Shares; (iv) the dividends to be paid per preferred share, regardless of the class, shall be at least ten percent higher than the dividends to be paid per Common Share, as provided by Brazilian Corporate Law.
Liquidation
In the event of liquidation of the Company, after all creditors have been paid, all shareholders will participate equally and ratably in any remaining residual assets.
Liability of the Shareholders for Further Capital Calls
Neither Brazilian Corporate Law nor our bylaws provide for capital calls. The shareholders’ liability is limited to the payment of the issue price of the shares subscribed or acquired.
Conversion Rights
Our bylaws provide that the only permitted conversion of shares is Class A Shares into Class B Shares.
Form and Transfer
Our shares are maintained in book-entry form with a transfer agent (the “Transfer Agent”). To make a transfer of shares, the Transfer Agent makes an entry in the register, debits the share account of the transferor and credits the share account of the transferee.
Transfers of shares by foreign investors are made in the manner described above and are executed by the investor’s local agent on the investor’s behalf. However, if the original investment was registered with the Central Bank pursuant to a foreign investment mechanism regulated by Resolution No. 2,689 of January 26, 2000 of the CMN (“Resolution 2,689”) as described under “– Exchange Controls” below, the foreign investor must declare the transfer in its electronic registration.
A shareholder may choose, in its individual discretion, to hold its shares through CBLC. Shares are added to the CBLC system through Brazilian institutions that have clearing accounts with the CBLC. Our shareholder registry indicates which shares are listed on the CBLC system. Each participating shareholder is in turn registered in a register of beneficial shareholders maintained by the CBLC and is treated in the same manner as the other registered shareholders.
Regulation of and Restrictions on Foreign Investors
Foreign investors face no legal restrictions barring them from holding Common Shares, Class A Shares, Class B Shares or ADSs.
The ability to convert into foreign currency dividend payments and proceeds from the sale of Class B Shares or preemptive rights and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the registration of the relevant investment with the Central Bank. Any foreign investor who registers with the CVM in accordance with Central Bank Resolution 2,689 may buy and sell securities on Brazilian stock exchanges without obtaining a separate certificate of registration for each transaction.
Annex V to CMN Resolution No. 1,289 (the “Annex V Regulations”) allows Brazilian companies to issue depositary receipts in foreign exchange markets. Our ADS program is duly registered with the Central Bank and the CVM.
Our bylaws do not impose any limitation on the rights of Brazilian residents or non-residents to hold our shares and exercise the rights in connection therewith.
Disclosure of Shareholder Ownership
Brazilian regulations require that any person or group of persons representing the same interest that has directly or indirectly reached an interest corresponding to five percent or more of any class of shares, or any rights under such shares, of a publicly traded company must disclose its share ownership to the CVM and stock exchanges in which the shares are traded. In addition, a statement containing the required information must be published in the newspapers. Any subsequent increase of five percent or more in ownership of any class of shares must be similarly disclosed. Also, the same obligation applies if any person or group of persons representing the same interest and holding an interest corresponding to five percent or more of any class of shares of a publicly traded company for any reason ceases to hold this participation.
MATERIAL CONTRACTS
For information concerning our material contracts, see “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.”
EXCHANGE CONTROLS
The ownership of Class A Shares, Class B Shares or Common Shares of the Company by individuals or legal entities domiciled outside Brazil is subject to certain conditions established under Brazilian law, as described below.
The right to convert dividend payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investments have been registered with the Central Bank. Such restrictions on the remittance of foreign capital abroad may hinder or prevent Banco Itaú S.A., as custodian for the Class B Shares represented by ADSs (the “Custodian”), or holders who have exchanged ADSs for Class B Shares from converting dividends, distributions or the proceeds from any sale of such Class B Shares, as the case may be, into U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs could be adversely affected by delays in, or refusal to grant any, required government approval for conversions of Brazil ian currency payments and remittances abroad of the Class B Shares underlying the ADSs.
Under Resolution 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. The definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad.
To be eligible to invest in the Brazilian financial and capital markets, foreign investors must:
· appoint at least one representative in Brazil with powers to perform actions relating to foreign investments;
· complete the appropriate foreign investor registration form;
· register as a foreign investor with the CVM; and
· register the foreign investment with the Central Bank.
Securities and other financial assets held by foreign investors must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM.
The Annex V Regulations provide for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. Prior to the issuance of the ADSs, the ADS program was approved under the Annex V Regulations by the Central Bank and the CVM. Accordingly, the proceeds from the sale of ADSs by ADS holders outside Brazil are free of Brazilian foreign investment controls and holders of the ADSs who are not resident in a tax haven will be entitled to favorable tax treatment. For more information, see “– Taxation – Brazilian Tax Considerations – Taxation of Gains.”
An electronic registration has been issued in the name of the Depositary with respect to the ADSs and is maintained by the Custodian on behalf of the Depositary. Pursuant to this electronic registration, the Custodian and the Depositary are able to convert dividends and other distributions with respect to the Class B Shares represented by ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for Class B Shares, such holder will be entitled to continue to rely on the Depositary’s electronic registration for five business days after such exchange, following which such holder must seek to obtain its own electronic registration with the Central Bank.
Pursuant to Central Bank Resolution No. 3.845, the withdrawal of Class B Shares upon cancellation of ADSs requires simultaneous exchange transactions in the event the investor decides not to dispose of those Class B Shares. The simultaneous exchange transactions are required in order to obtain a certificate of registration of Class B Shares with the Central Bank. This transaction will be subject to tax in Brazil. For more information, see “– Taxation – Brazilian Tax Considerations – Other Brazilian Taxes.”
Thereafter, any holder of Class B Shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such Class B Shares, unless such holder obtains his own electronic registration. A holder that obtains an electronic registration may be subject to less favorable Brazilian tax treatment than a holder of ADSs. For more information, see “– Taxation – Brazilian Tax Considerations.”
The federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the federal government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with federal government directives. The imbalance in Brazil’s balance of payments increased during 1998, and there can be no assurance that the federal government will not impose similar restrictions on foreign repatriations in the future.
TAXATION
The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Class B Shares or ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change. Prospective purchasers of Class B Shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs.
Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of Class B Shares or ADSs. Prospective holders of Class B Shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs in their particular circumstances.
Brazilian Tax Considerations
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs by an individual, entity, trust or organization resident or domiciled outside Brazil for purposes of Brazilian taxation (“Non-Brazilian Holder”). It is based on Brazilian law currently in effect, which is subject to differing interpretations and changes that may apply retroactively. This discussion does not address all the Brazilian tax considerations that may be applicable to any particular Non-Brazilian Holder, and each Non-Brazilian Holder should consult its own tax advisor about the Brazilian tax consequences of investing in Class B Shares or ADSs.
Taxation of Dividends
Dividends paid by the Company in cash or in kind from profits of periods beginning on or after January 1, 1996 (i) to the Depositary in respect of Class B Shares underlying ADSs or (ii) to a Non-Brazilian Holder in respect of Class B Shares generally will not be subject to Brazilian withholding income tax. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates depending upon the year in which the profits have been obtained.
Distributions of Interest on Equity
In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on the equity of the company as an alternative form of making dividend distributions. The rate of interest may not be higher than TJLP, as determined by the Central Bank from time to time. The total amount distributed as interest on equity may not exceed, for tax purposes, the greater of (i) 50.0% of net income (after the deduction of the social contribution on net profits and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on equity) related to the period in respect of which the payment is made and (ii) 50.0% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of w hich the payment is made.
Distributions of interest on equity paid to Brazilian and Non-Brazilian Holders of Class B Shares, including payments to the Depositary in respect of Class B Shares underlying ADSs, are deductible by the Company for Brazilian corporate income tax and social contribution on net profits purposes as far as the limits above described are observed. Such payments are subject to Brazilian withholding income tax at the rate of 15.0%, except for payments to shareholders situated in tax haven jurisdictions (that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the beneficial owner of the income derived from transactions carried out and attributable to a Non-Brazilian Holder - “ Tax Haven Holder”), which payments are subject to withholding income tax at a 25.0% rate. These payments may be included, at their net value, as part of any mandatory dividend. To the extent that payment of interest on net equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax, plus the amount of declared dividends, is at least equal to the mandatory dividend.
Taxation of Gains Outside Brazil
According to Law No. 10,833 of December 29, 2003, capital gains realized on the disposition of assets located in Brazil by a Non-Brazilian Holder, whether to another non-Brazilian resident or to Brazilian residents, are subject to taxation in Brazil. In this sense, if the Class B Shares are disposed of by a Non-Brazilian Holder, as they are defined as assets located in Brazil, such holder will be subject to income tax on the gains assessed, following the rules described below, whether the disposition is conducted in Brazil or abroad and with a Brazilian resident or not.
A disposition of Class B Shares can occur abroad if an investor decides to cancel its investment in ADSs and register the underlying Class B Shares as a direct foreign investment under Law No. 4,131. Any capital gain arising from sales or other dispositions of Class B Shares outside Brazil would be subject to Brazilian income tax atthe rate of 15.0% or, if the investor is a Tax Haven Holder, 25.0%, which should be withheld by the purchaser of the Class B Shares outside Brazil or its attorney-in-fact in Brazil.
Regarding ADSs, although the matter is not free from doubt, the gains realized by a Non-Brazilian Holder on the disposition of ADSs to another Non-Brazilian Holder should not be taxed in Brazil, based on the theory that ADSs do not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you that Brazilian courts would adopt this theory. Thus, the gain on a disposition of ADSs by a Non-Brazilian Holder to a resident in Brazil (or possibly even to a Non-Brazilian Holder in the event that courts determine that ADSs would constitute assets located in Brazil) may be subject to income tax in Brazil.
Taxation of Gains in Brazil
For purposes of Brazilian taxation, the income tax rules on gains related to disposition of Class B Shares vary depending on the domicile of the Non-Brazilian Holder, the form by which such Non-Brazilian Holder has registered its investment before the Brazilian Central Bank and/or how the disposition is carried out, as described below.
Generally, gains are defined as the positive difference between the amount realized on the sale or exchange of a security and its acquisition cost. Gains assessed on the disposition of the Class B Shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:
· exempt from income tax when assessed by a Non-Brazilian Holder registered under Resolution No. 2,689 of the National Monetary Council (“2,689 Holder”) that is not a Tax Haven Holder; or
· subject to income tax at a rate of 15.0% in any other case, including the gains assessed by a Non-Brazilian Holder that (i) is not a 2,689 Holder, or (ii) is a 2,689 Holder and a Tax Haven Holder. In these cases, a withholding income tax of 0.005% on the sale value shall be applicable and can be offset with the eventual income tax due on the capital gain.
There can be no assurance that the current preferential treatment for 2,689 Holders will continue in the future.
Any other gains assessed on a disposition of the Class B Shares that is not carried out on the Brazilian stock exchange is subject to an income tax rate of 15.0%, except for gains assessed on Tax Haven Holders who are subject to an income tax rate of 25.0%. If these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market, through an intermediary, the withholding income tax of 0.005% on the sale value shall also be applicable and can be offset with the eventual income tax due on the capital gain.
The deposit of Class B Shares in exchange for the ADSs may be subject to Brazilian income tax if the acquisition cost of the Class B Shares is lower than (i) the average price per Class B share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of the deposit; or (ii) if no Class B Shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of Class B Shares were sold during the 15 trading sessions immediately preceding such deposit. In this case, the difference between the acquisition cost and the average price of the Class B Shares, calculated as set forth above, shall be considered a capital gain subject to income tax at a rate of 15.0% or 25.0% in the case of investors that are Tax Haven Holders. There may be arguments to claim that this taxation is not applicable in the case of a Non-Brazilian Holder that is registered under Resolution No. 2,689 (other than Tax Haven Holders), which should not be subject to income tax in such a transaction.
The withdrawal of Class B Shares upon cancellation of ADSs is not subject to Brazilian income tax, as long as the regulatory rules are appropriately observed with respect to the registration of the investment before the Central Bank.
In the case of redemption of the Class B Shares or ADSs or capital reduction by a Brazilian corporation, with subsequent withdrawal of the ADSs, such as our company, the positive difference between the amounteffectively received by the Non-Brazilian Holder and the acquisition cost of the securities redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15.0% or 25.0%, as the case may be.
Any exercise of preemptive rights relating to the Class B Shares or ADSs will not be subject to Brazilian taxation. Gains on the sale or assignment of preemptive rights will be subject to the same tax treatment applicable to disposition of Class B Shares.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of Class B Shares or ADSs by a Non-Brazilian Holder except for gift and inheritance taxes levied by some states in Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or in the relevant State to individuals or entities that are resident or domiciled within such State in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of Class B Shares or ADSs.
Pursuant to Decree No. 6,306 of December 14, 2007 (“Decree No. 6,306/07”), a tax on foreign exchange transactions (“IOF/Exchange”) may be imposed on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) or vice-versa. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%, except for: (i) foreign exchange transactions for the inflow of funds related to investments effectuated by a Non-Brazilian Holder in the Brazilian financial and capital market, in which case the rate is 2.0%, and (ii) payment of dividends, capital gain and interest on shareholders’ equity related to the investment mentioned under item (i) above, in which case the rate is zero. Nonetheless, the Brazilian government may increase the rate to a maximum of 25.0%. Any such increase will be ap plicable only prospectively.
The withdrawal of Class B Shares upon cancellation of ADSs will be subject to IOF/Exchange at the rate of 0.38%, considering that a simultaneous exchange transaction are required for this operation if the investor remains with the Class B Shares, pursuant to Resolution No. 3.845, issued by the Brazilian Central Bank.
Also under Decree No. 6,306/07, the Tax on Bonds and Securities Transactions (“IOF/Bonds”) may be levied on transactions involving bonds and securities, including those carried out on Brazilian stock, futures or commodities exchanges. As a general rule, the rate of this tax is currently zero. The Brazilian government may, however, increase the rate to a maximum of 1.5% per day, but only in respect of future transactions. IOF/Bonds Tax is levied at a rate of 1.5% on the assignment of shares traded in the Brazilian stock market in order to permit the issuance of ADSs.
As a general rule, until December 31, 2007, transactions carried out in Brazil that resulted in the transfer of funds from an account maintained with a Brazilian financial institution were subject to the Temporary Contribution on Financial Transactions (“CPMF Tax”), at the rate of 0.38%. However, as of January 1, 2008, the CPMF Tax is no longer in force, and should not be levied on any debit to bank accounts carried after that date.
U.S. Federal Income Tax Considerations
The statements regarding U.S. tax law set forth below are based on U.S. law as in force on the date of this annual report, and changes to such law subsequent to the date of this annual report may affect the tax consequences described herein (possibly with retroactive effect). This summary describes the principal U.S. federal income tax consequences of the ownership and disposition of Class B Shares or ADSs, but it does not purport to be a comprehensive description of all of the U.S. tax consequences that may be relevant to a decision to hold or dispose of Class B Shares or ADSs. This summary applies only to purchasers of Class B Shares or ADSs who will hold the Class B Shares or ADSs as capital assets and does not apply to special classes of holders such as dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, holders of ten percent or more of our shares (taking into account shares held directly or through depositary arrangements), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders who elect to account for their investment in Class B Shares or ADSs on a mark-to-market basis, partnerships or other pass-through entities,insurance companies, U.S. expatriates, and persons holding Class B Shares or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction for U.S. federal income tax purposes.
Each holder is encouraged to consult such holder’s tax advisor concerning the overall tax consequences to it, including the consequences under laws other than U.S. federal income tax laws, of an investment in Class B Shares or ADSs.
In this discussion, references to a “U.S. holder” are to a beneficial holder of a Class B Share or an ADS (i) that is a citizen or resident of the United States of America, (ii) that is a corporation, or any other entity taxable as a corporation, organized under the laws of the United States of America, any state thereof, or the District of Columbia, or (iii) that is otherwise subject to U.S. federal income taxation on a net basis with respect to the Class B Share or ADS.
For purposes of the U.S. Internal Revenue Code of 1986, as amended, which we call the “Code,” holders of ADSs will generally be treated as owners of the Class B Shares represented by such ADSs.
Taxation of Distributions
A U.S. holder will recognize dividend income for U.S. federal income tax purposes in an amount equal to the amount of any cash and the value of any property distributed by us as a dividend to the extent that such distribution is paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, when such distribution is received by the custodian (or by the U.S. holder in the case of a holder of Class B Shares). The amount of any distribution will include the amount of Brazilian tax withheld on the amount distributed, and the amount of a distribution paid inreais will be measured by reference to the exchange rate for convertingreais into U.S. dollars in effect on the date the distribution is received by the custodian (or by a U.S. holder in the case of a holder of Class B Shares). If the custodian (or U.S. holder in the case of a holder of Class B Shares) does not convert suchreais into U.S. dollars on the date it receives them, it is possible that the U.S. holder will recognize foreign currency loss or gain, which would be ordinary loss or gain, when thereais are converted into U.S. dollars. Dividends paid by us will not be eligible for the dividends received deduction all owed to corporations under the Code.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs will be subject to taxation at a maximum rate of 15.0% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and rele vant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2009 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 2010 taxable year. Based on existing guidance, it is not clear whether dividends received with respect to the Class B Shares will be treated as qualified dividends, because the Class B Shares themselves are not listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or Class B Shares and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to treat dividends as qualified for tax reporting purposes. Because such procedures have not yet been issued, it is not clear whe ther we will be able to comply with them. Holders of ADSs and Class B Shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in the light of the considerations discussed above and their own particular circumstances.
Distributions out of earnings and profits with respect to the Class B Shares or ADSs generally will be treated as dividend income from sources outside of the United States and generally will be treated separately along with other items of “passive” income for purposes of determining the credit for foreign income taxes allowed under the Code. Subject to certain limitations, Brazilian income tax withheld in connection with any distribution with respect to the Class B Shares or ADSs may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder if such U.S. holder elects for that year to credit all foreign income taxes. Alternatively such Brazilian withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be all owed for withholding taxes imposed in respect of certain short-term or hedged positions and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit, after non-U.S. taxes, is insubstantial. U.S. holders should consult their own tax advisors concerning the implications of these rules in light of their particular circumstances.
Distributions of additional shares to holders with respect to their Class B Shares or ADSs that are made as part of a pro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax.
Holders of Class B Shares or ADSs that are foreign corporations or nonresident alien individuals, which we call “non-U.S. holders,” generally will not be subject to U.S. federal income tax or withholding tax on distributions with respect to Class B Shares or ADSs that are treated as dividend income for U.S. federal income tax purposes unless such dividends are effectively connected with the conduct by the holder of a trade or business in the United States.
Taxation of Capital Gains
Upon the sale or other disposition of a Class B Share or ADS, a U.S. holder generally will recognize gain or loss for U.S. federal income tax purposes. The amount of the gain or loss will be equal to the difference between the amount realized in consideration for the disposition of the Class B Share or ADS (including the gross amount of the proceeds before the deduction of any Brazilian tax) and the U.S. holder’s tax basis in the Class B Share or ADS. Such gain or loss generally will be subject to U.S. federal income tax as capital gain or loss and will be long-term capital gain or loss if the Class B Share or ADS has been held for more than one year on the date of the disposition. The net amount of long-term capital gain recognized by an individual holder before January 1, 2011 generally is subject to taxation at a maximum rate of 15.0%. Capi tal losses may be deducted from taxable income, subject to certain limitations. Gain realized by a U.S. holder on a sale or disposition of Class B Shares or ADSs generally will be treated as U.S. source income. Consequently, if Brazilian tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign source income of the appropriate type in respect of which the credit may be used. Alternatively, such Brazilian tax may be taken as a deduction against taxable income if the U.S. holder does not take a credit for any foreign income tax during the taxable year.
A non-U.S. holder will not be subject to U.S. federal income tax or withholding tax on gain realized on the sale or other disposition of a Class B Share or ADS unless (i) such gain is effectively connected with the conduct by the holder of a trade or business in the United States, or (ii) such holder is an individual who is present in the United States of America for 183 days or more in the taxable year of the sale and certain other conditions are met.
Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the ADSs or Class B Shares to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is furnished to the Internal Revenue Service.
A non-U.S. holder generally will be exempt from these information reporting requirements and backup withholding tax, but may be required to comply with certain certification and identification procedures in order to establish its eligibility for such exemption in connection with payments received within the United States or through certain U.S.-related intermediaries.
DIVIDENDS AND PAYING AGENTS
Entitlement to dividends arises on the date of acquisition of our shares or ADS. For a description of restrictions related to payments of dividends to foreign investors, see “Item 10. Additional Information – Memorandum and Articles of Incorporation – Regulation of and Restrictions on Foreign Investors” and “Item10. Additional Information – Exchange Controls.” The Depositary will distribute dividends and other distributions to the holders of our ADSs.
DOCUMENTS ON DISPLAY
We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its Public Reference Room at 100 Fifth Street, N.W., Washington, D.C. 20459. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Since November 4, 2002, we are required to make filings with the SEC by electronic means. Any filings we make electronically will be available to the public over the Internet at the SEC’s web site athttp://www.sec.gov.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk arising from our normal business activities. These market risks principally involve the possibility of changes in both foreign currency exchange rates and interest rates that will adversely affect the value of our assets and liabilities, in addition to our future cash flow and earnings. Foreign exchange rate risk exists to the extent our costs are denominated in currencies other than those in which we earn revenues. Similarly, we are subject to market risk deriving from changes in interest rates, which may affect the cost of our financing.
Foreign Currency Exchange Rate Risk
At December 31, 2009, we had R$ 64.3 million of outstanding indebtedness denominated in U.S. dollars and R$ 28.3 million of indebtedness indexed to a basket of foreign currencies comprised by U.S dollars, Euros, Swiss francs and Japanese yen. At December 31, 2008, we had R$ 94.0 million of outstanding indebtedness denominated in U.S. dollars, R$ 6.5 million of indebtedness denominated in Japanese yen and R$ 62.5 million of indebtedness indexed to a basket of foreign currencies comprised by U.S dollars, Euros, Swiss francs and Japanese yen. In addition, our energy purchases from Itaipu are denominated in U.S. dollars. We do not have revenues denominated in any of the above foreign currencies and, due to applicable regulations that require us to keep excess cash on deposit inreal-denominated deposits with Brazilian banks, we do not have monetary assets denominated in such currencies. The potential loss to us that would result from a hypothetical ten percent change in foreign currency exchange rates would be approximately R$ 6.4 million, primarily due to the increase in ourreal-denominated financial statements in the principal amount of the foreign currency indebtedness described above (which increase would be reflected as an expense in our income statement). A hypothetical and instantaneous change of ten percent in foreign currency exchange rates would result in an additional cash outflow of approximately R$ 50.2 million, reflecting the increased cost inreaisof servicing foreign-currency indebtedness and purchasing energy from Itaipu, which will be compensated in the next tariff adjustment.
Interest Rate Risk
At December 31, 2009, we had outstanding R$ 1,673.4 million in loans and financing, of which R$ 338.6 million bore interest at fixed interest rates and R$ 1,334.8 million bore interest at floating rates of interest (primarily the TJLP, CDI and LIBOR). Pursuant to applicable regulations, we invest excess cash primarily in short-term instruments. A hypothetical, instantaneous and unfavorable change of 100 basis points in interest rates applicable to floating rate financial assets and liabilities held at December 31, 2009, would result in a net additional cash inflow of approximately R$ 2.8 million. The above sensitivity analysis is based on the assumption of an unfavorable 100 basis point movement of the interest rates applicable to each homogeneous category of financial assets and liabilities. A homogeneous category is defined according to the currency in which finan cial assets and liabilities are denominated and assumes the same interest rate movement within each homogeneous category (i.e. U.S. dollars; currencies in thecurrency basket). As a result, our interest rate risk sensitivity model may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable movements of all interest rates are unlikely.
Item 12. Description of Securities Other than Equity Securities
No Applicable.
Item 12A. Debt Securities
Not applicable.
Item 12B. Warrants and Rights
Not applicable.
Item 12C. Other Securities
Not applicable.
Item 12D. American Depositary Shares
The Bank of New York Mellon (the “Depositary”), serves as the depositary for our ADSs. ADS holders are required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.
ADS holders are required to pay the Depositary: (i) an annual fee of up to U.S.$ 0.02 per ADS (or portion thereof) for administering the ADS program, and (ii) amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission, or conversion of foreign currency into U.S. dollars. In both cases, the Depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
ADS holders are also required to pay additional fees for certain services provided by the Depositary, as set forth in the table below.
| Fee payable by ADS holders |
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | U.S.$ 5.00 or less per 100 ADSs (or portion thereof) |
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | U.S.$ 5.00 or less per 100 ADSs (or portion thereof) |
Distribution of cash dividends | U.S.$ 0.02 or less per ADS |
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | A fee equivalent to the fee that would be payable if securities distributed to the holder had been shares and the shares had been deposited for issuance of ADSs |
Depositary services | U.S.$ 02 (or less) per ADSs per calendar year |
Transfer and registration of shares on the Depositary’s share register to or from the name of the depositary or its agent when the holder deposits or withdraws shares | Registration or transfer fees |
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | Expenses of the Depositary |
Converting foreign currency to U.S. dollars | Expenses of the Depositary |
Taxes and other governmental charges the Depositary or the custodian are required to pay on any ADS or share underlying an ADS (e.g., stock transfer taxes, stamp duty or withholding taxes) | As necessary |
Any charges incurred by the Depositary or its agents for servicing the deposited securities | As necessary |
Payments by the Depositary
The Depositary pays us an agreed amount, which includes reimbursements for certain expenses we incur in connection with the ADS program. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the year ended December 31, 2009, this amount was U.S.$ 772,934.
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Financial Responsibility, Disclosure Controls and Procedures, and Report on Internal Control Over Financial Reporting
(a) Disclosure Controls and Procedures
We have carried out an evaluation under supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2009.
Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of December 31, 2009 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management as appropriate in order to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Our internal controls were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2009. In making this assessment, it used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2009.
Deloitte Touche Tohmatsu Auditores Independentes, an independent registered public accounting firm, has issued the attestation report below on our internal control over financial reporting as of December 31, 2009.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Companhia Paranaense de Energia - Copel
We have audited the internal control over financial reporting of Companhia Paranaense de Energia - Copel and subsidiaries (the "Company" or “Copel”) as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying consolidated financial statements. Our responsibility is to express an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of finan cial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s consolidated balance sheet as of December 31, 2009, and the related consolidated statements of operations, changes in shareholders’ equity, cash flows and the added value in operations for the year then ended, of Companhia Paranaense de Energia – Copel and subsidiaries and our report dated June 25, 2010, expressed an unqualified opinion on those consolidated financial statements.
/s/ Deloitte Touche Tohmatsu Auditores Independentes
Deloitte Touche Tohmatsu Auditores Independentes
Curitiba, Paraná, Brazil
June 25, 2010.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has reviewed the qualifications and backgrounds of the members of the Audit Committee and determined that Laurita Costa Rosa is an “audit committee financial expert” within the meaning of Item 16A and is independent. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees – Board Practices – Board Committees – Audit Committee.”
Item 16B. Code of Ethics
In November 2003, we adopted a code of ethics that also applies to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. In June 2008, we updated our code of ethics based on the corporate governance practices issued by the Global Reporting Initiative – GRI, AccountAbility 1000 – AA1000. We have posted copies of this code of ethics, which we refer to as our “Code of Conduct,” on our Internet website at the following address: www.copel.com/ir. Copies of our code of ethics may also be obtained without charge by writing to us at the address set forth on the front cover of this Form 20-F. We have not granted any implicit or explicit waivers from any provision of our code of ethics to the officers described above since the adoption of the code.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
Deloitte Touche Tohmatsu Auditores Independentes acted as our independent registered public accounting firm for the fiscal years ended December 31, 2009, 2008 and 2007.
The table below sets forth the total amount paid to Deloitte Touche Tohmatsu Auditores Independentes for services performed in 2009, 2008 and 2007, and breaks down these amounts by category of service in millions ofreais:
| Year ended December 31, |
| | | |
| (R$ million) |
| | | |
Audit fees | 1.3 | 1.6 | 1.4 |
Audit-related fees | – | – | – |
Tax fees | – | – | – |
All other fees | | | |
Total | | | |
Audit Fees
Audit fees are fees billed for the audit of our annual financial statements and for the reviews of our quarterly Brazilian GAAP financial information in connection with statutory and regulatory filings or engagements.
Audit Committee Pre-Approval Policies and Procedures
Neither our Board of Directors nor our Audit Committee has established pre-approval policies and procedures for the engagement of our Registered Public Accounting Firm for services. Our Board of Directors expressly approves on a case-by-case basis any engagement of our Registered Public Accounting Firm for audit and non-audit services provided to us or our subsidiaries. Our Audit Committee provides recommendations to our Board of Directors regarding such engagements. For more information regarding our Board of Directors and Audit Committee, see “Item 6. Directors, Senior Management and Employees – Board Practices.”
Item 16D. Exemption from the Listing Standards for Audit Committees
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Changes in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
| New York Stock Exchange Corporate Governance Rules for U.S. Domestic Issuers | |
Director Independence |
303A.01 | A company listed on the New York Stock Exchange (a “listed company”) must have a majority of independent directors on its Board of Directors. “Controlled companies” are not required to comply with this requirement. | The majority of the members of Copel’s board of directors are “independent” as defined in the NYSE standards. |
| | |
303A.03 | The non-management directors of a listed company must meet at regularly scheduled executive sessions without management. | The non-management directors of Copel do not hold regularly scheduled executive sessions without management. |
| | |
303A.04 | A listed company must have a Nominating/ Corporate Governance Committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. "Controlled companies" are not required to comply with this requirement. | Copel does not have a nominating/ corporate governance committee. As a controlled company, Copel would not be required to comply with the nominating/ corporate governance committee requirements if it were a U.S. domestic issuer. |
| | |
303A.05 | A listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. "Controlled companies" are not required to comply with this requirement. | Copel does not have a compensation committee. As a controlled company, Copel would not be required to comply with the compensation committee requirements if it were a U.S. domestic issuer. |
|
303A.06
303A.07 | A listed company must have an audit committee with a minimum of three (3) independent directors who satisfy the independence requirements of Rule 10A-3 under the Exchange Act, with a written charter that covers certain minimum specified duties. | Our shareholders amended our bylaws to establish an Audit Committee composed of at least three board members (all of which are independent), each of whom serves a term of two years, and may be re-elected. Pursuant to the Audit Committee Charter, the Audit Committee members are appointed by, and may be replaced by, the Board of Directors. All of the members of the Audit Committee are members of our Board of Directors.
The Audit Committee is responsible for our Financial Statements, ensuring that we are in compliance with all legal requirements related to our reporting obligations, monitoring the work of the independent auditors and our staff who are responsible for internal auditing of the Company and reviewing the efficacy of our internal control and risk management procedures and staff. |
| | |
303A.08 | Shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. | Under Brazilian Corporate Law, shareholder pre-approval is required for the adoption of any equity compensation plans and material revisions thereto. |
| | |
303A.09 | A listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. | Copel does not have formal governance guidelines that address all of the matters specified in the NYSE rules. However, Copel has adopted corporate governance guidelines that follow the model proposed by the Instituto Brasileiro de Governança Corporativa- IBGC (Brazilian Institute of Corporate Governance). |
| | |
303A.10 | A listed company must adopt and disclose a code of business conduct and ethics for its directors, officers and employees, and must promptly disclose any waivers of the code for directors or executive officers. | Copel has adopted a code of ethics that applies to the board of directors, the fiscal council, management and employees. Copel will disclose any waivers of the requirements of the code for directors or executive officers in its annual report on Form 20-F. |
| | |
303A.12 | A CEO of a listed company must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of Section 303A. | Copel’s CEO will promptly notify the NYSE in writing after any executive officer of Copel becomes aware of any material non-compliance with any applicable provisions of the NYSE corporate governance rules. |
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
Reference is made to pages F-1 through F-140.
Item 19. Exhibits
1.1 | Amended and Restated By-laws of the Company dated as of April 27, 2010 (English translation) |
2.1 | Deposit Agreement (common shares) dated as of March 21, 1996, as amended and restated as of November 21, 2007, filed with the SEC on February 12, 2009 as an exhibit to our Registration Statement on Form F-6 and in incorporated herein by reference. |
2.2 | Deposit Agreement (preferred shares) dated as of March 21, 1996, as amended and restated as of November 21, 2007, filed with the SEC on February 12, 2009 as an exhibit to our Registration Statement on Form F-6 and in incorporated herein by reference. |
4.1 | The Adjustment Agreement of August 4, 1994 between the State of Paraná and Companhia Paranaense de Energia-Copel (the “Adjustment Agreement”) (incorporated by reference to our Form F-1 333-7148, filed with the SEC on June 30, 1997) and the Deed of Amendment to the Adjustment Agreement (Quarto Termo Aditivo ao Termo de Ajuste celebrado em 21 de janeiro de 2005) (English translation). (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005, filed with the SEC on June 30, 2006). |
8.1 | List of Subsidiaries. |
12.1 | Certification of the Chief Executive Officer of Copel, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. |
12.2 | Certification of the Chief Financial Officer of Copel, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. |
13.1 | Certification of Chief Executive Officer of Copel, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
13.2 | Certification of the Chief Financial Officer of Copel, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
There are omitted from the exhibits filed with or incorporated by reference into this annual report certain promissory notes and other instruments and agreements with respect to our long-term debt none of which authorizes securities in a total amount that exceeds ten percent of our total assets. We hereby agree to furnish to the Securities and Exchange Commission copies of any such omitted promissory notes or other instruments or agreements as the Commission requests.
TECHNICALGLOSSARY
Annual Permitted Revenues: The annual revenue established by ANEEL to be charged by a transmission concessionaire for the use of its transmission lines by third parties, which include Free Customers, generators and distributors.
Assured Energy: Determined amount assigned to each hydroelectric plant according to the energy supply risk criteria defined by MME. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
Average Tariff or Rate: Total sales revenue divided by total megawatt hours (MWh) sold for each relevant period, including in the case of the Company, unbilled electricity, or electricity which has been delivered to a customer, but for which the utility has yet to deliver a bill. Total sales revenue, for the purpose of computing average tariff or rate, includes both gross billings before deducting value-added tax and unbilled electricity sales upon which such taxes have not yet accrued.
Capacity Agreement: Agreement under which a generator commits to make a certain amount of electrical capacity available to the Regulated Market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage.
Capacity Charge: A charge for sales of energy that is based on the amount of firm capacity contracted by a customer and that is independent of the amount of energy actually consumed by that customer.
Distribution: The transfer of electricity from the transmission lines at grid supply points and its delivery to customers through distribution lines at voltages between 13.8 kV and 44 kV.
Distributor: An entity supplying electrical energy to a group of customers by means of a distribution network.
Energy Agreement: Agreement under which a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, which could interrupt the supply of electricity. In such case, the generator would be required to purchase electricity elsewhere in order to comply with its supply commitments.
Energy Charge: A charge for sales of energy to a customer that is based on the amount of energy actually consumed by that customer.
Final Customer: A party that uses electricity for its own needs.
Firm Capacity: The level of electricity that we can deliver from a specified power plant with a 95.0% degree of certainty, determined in accordance with certain prescribed statistical models.
Free Customers: Electricity customers that are able to choose their own power suppliers since they meet the following requirements: (i) demand of at least 3 MW at any voltage for existing customers (those connected to the distribution network before July 1995); (ii) demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 kV for new customers (those connected to the distribution network after July 1995); and (iii) demand of at least 500 kW and that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants or biomass projects (also known as Special Customers).
Free Market: Market segment that permits a certain degree of competition. The free market specifically contemplates purchase of electricity by non-regulated entities such as Free Customers and energy traders.
Generating Unit: An electric generator together with the turbine or other device that drives it.
Gigawatt (GW): One billion watts.
Gigawatt hour (GWh): One gigawatt of power supplied or demanded for one hour, or one billion watt hours.
Group A Customers: A group of customers that uses electricity at 2.3 kV or higher. Tariffs applied to this group are based on the actual voltage level at which energy is supplied and the time of day and year the energy is supplied.
Group B Customers: A group of customers that uses electricity at less than 2.3 kV. Tariffs applied to this group are comprised solely of an energy charge and are based on the classification of the customer.
High Voltage: A class of nominal system voltages equal to or greater than 100,000 volts and less than 230,000 volts.
Hydroelectric Plant: A generating unit that uses water power to drive the electric generator.
Initial Supply Contracts: A requirement made to distribution and generation companies in order to ensure access to a stable electricity supply at prices that guarantee a fixed rate of return for the electricity generation companies during the transition period leading to the establishment of a free and competitive electricity market.
Installed Capacity: The level of electricity that can be delivered from a particular generating unit on a full-load continuous basis under specified conditions as designated by the manufacturer.
Interconnected Transmission System: Systems or networks for the transmission of energy, connected together by means of one or more lines and transformers.
IPP: Independent Power Producer, a legal entity or consortium holding a concession or authorization for power generation for sale for its own account to public utility concessionaires or Free Customers.
Kilovolt (kV): One thousand volts.
Kilowatt (kW): One thousand watts.
Kilowatt hour (kWh): One kilowatt of power supplied or demanded for one hour, or one thousand watt hours.
Low Income Residential Customers: A group of customers that consumes less than 220 kWh per month and has filed an application to receive benefits under any of the federal government’s social programs. Low-income residential customers are considered a subgroup of residential customers and are not subject to payment of emergency capacity and emergency acquisition charges or any extraordinary tariff approved by ANEEL.
Megawatt (MW): One million watts.
Megawatt average (MWavg):An amount of energy in MWh divided by the time (in hours) in which such energy is produced or consumed.
Megawatt hour (MWh): One megawatt of power supplied or demanded for one hour, or one million watt hours.
Megavolt Ampère (MVA): One thousand volt ampères.
Regulated Market: Market segment in which distribution companies purchase all the electricity needed to supply customers through public auctions. The auction process is administered by ANEEL, either directly or through
CCEE, under certain guidelines provided by the MME. The regulated market is generally considered to be more stable in terms of supply of electricity.
Retail Tariff: Revenue charged by distribution companies to its customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Retails tariffs are subject to annual readjustments by ANEEL.
Special Customers: A group of customers that uses at least 500 kV. A Special Customer may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants.
Spot Market:Deregulated market segment in which electricity is bought or sold for immediate delivery. In general, prices of spot market energy purchases tend to be substantially higher than the price of energy under long-term energy purchase agreements.
Substation: An assemblage of equipment, which switches and/or changes or regulates the voltage of electricity in a transmission and distribution system.
Thermoelectric Plant: A generating unit which uses combustible fuel, such as coal, oil, diesel natural gas or other hydrocarbon as the source of energy to drive the electric generator.
Transmission: The bulk transfer of electricity from generating facilities to the distribution system at load center station by means of the transmission grid (in lines with capacity between 69 kV and 525 kV).
Transmission Tariff: Revenue charged by a transmission concessionaire based on the transmission network it owns and operates. Transmission tariffs are subject to periodic revisions by ANEEL.
Utility: An entity that is the holder of a concession or authorization to engage in the generation, transmission or distribution of electric energy in Brazil.
Volt: The basic unit of electric force analogous to water pressure in pounds per square inch.
Watt: The basic unit of electrical power.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| CompanhiaParanaense DeEnergia– Copel |
| By: /s/ Ronald Thadeu Ravedutti |
| Name: Ronald Thadeu Ravedutti |
| Title: Chief Executive Officer |
| By: /s/ Rafael Iatauro |
| Name: Rafael Iatauro |
| Title: Chief Financial Officer |
Date: June 30, 2010.
Companhia Paranaense
de Energia - Copel
Consolidated Financial Statements as of
December 31, 2009 and 2008 and for the
Three Years Ended December 31, 2009
and Report of Independent Registered
Public Accounting Firm
 | Deloitte Touche Tohmatsu Rua Pasteur, 463 - 5º andar Curitiba – PR – 80250-080 Brasil Tel: + 55 (41) 3312-1400 Fax:+ 55 (41) 3312-1470
www.deloitte.com.br |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Companhia Paranaense de Energia - COPEL
Curitiba - PR, Brazil
We have audited the accompanying consolidated balance sheets of Companhia Paranaense de Energia - COPEL (a Brazilian corporation) and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in shareholders' equity, cash flows and added value for each of the three years in the period ended December 31, 2009, all expressed in Brazilian reais. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of Companhia Paranaense de Energia - COPEL and subsidiaries as of December 31, 2009 and 2008, and the results of their operations, the changes in shareholders' equity, their cash flows and the added value in operations for each of the three years in the period ended December 31, 2009, in conformity with accounting practices adopted in Brazil.
Accounting practices adopted in Brazil vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 41 to the consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's effectiveness of internal control over financial reporting as of December 31, 2009, based on the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 25, 2010 expressed an unqualified opinion on the effectiveness on the Company's internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu Auditores Independentes
Curitiba, Paraná, Brazil
June 25, 2010
Companhia Paranaense de Energia - Copel
Consolidated Balance Sheets
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| December 31 | |
Assets | 2009 | | 2008 | |
| | | | |
Current assets | | | | |
Cash and cash equivalents (Note 6) | 1,696,152 | | 1,813,576 | |
Customers and distributors (Note 7) | 1,117,858 | | 1,032,952 | |
Allowance for doubtful accounts (Note 8) | (54,018 | ) | (56,284 | ) |
Services to third parties, net | 8,718 | | 7,904 | |
Dividends receivable (Note 17) | 5,135 | | 5,247 | |
Services in progress | 92,472 | | 64,765 | |
CRC transferred to the State Government (Note 9) | 49,549 | | 47,133 | |
Recoverable taxes (Note 10) | 352,412 | | 257,339 | |
Deferred Regulatory Assets - CVA (Note 11) | 218,500 | | 111,098 | |
Other regulatory assets (Note 12) | 17,526 | | 31,511 | |
Bonds and securities | 78,959 | | 2 | |
Collaterals and escrow accounts (Note 13) | 113,701 | | 150,794 | |
Other receivables (Note 14) | 36,591 | | 42,856 | |
Inventories (Note 15) | 94,190 | | 64,260 | |
| | | | |
| 3,827,745 | | 3,573,153 | |
| | | | |
Noncurrent assets | | | | |
Customers and distributors (Note 7) | 51,377 | | 82,176 | |
Allowance for doubtful accounts (Note 8) | - | | (246 | ) |
Telecommunications services | 1,011 | | 3,211 | |
CRC transferred to the State Government (Note 9) | 1,205,025 | | 1,272,770 | |
Recoverable taxes (Note 10) | 438,978 | | 462,609 | |
Deferred Regulatory Assets - CVA (Note 11) | 98,963 | | 53,494 | |
Other regulatory assets (Note 12) | - | | 11,085 | |
Bonds and securities | 40,103 | | 69,063 | |
Collaterals and escrow accounts (Note 13) | 24,195 | | 37,868 | |
Judicial deposits (Note 16) | 73,436 | | 113,497 | |
Other receivables (Note 14) | 16,949 | | 12,214 | |
| | | | |
| 1,950,037 | | 2,117,741 | |
| | | | |
| | | | |
| | | | |
Investments(Note 18) | 395,565 | | 395,938 | |
Property, plant and equipment, net(Note 19) | 7,528,432 | | 7,048,675 | |
Intangible assets(Note 20) | 131,717 | | 118,119 | |
| 10,005,751 | | 9,680,473 | |
| | | | |
Total assets | 13,833,496 | | 13,253,626 | |
The accompanying notes are an integral part of these financial statements.
F - 2
Companhia Paranaense de Energia - Copel
Consolidated Balance Sheets
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| December 31 | |
Liabilities and shareholders' equity | 2009 | | 2008 | |
| | | | |
Current liabilities | | | | |
Loans and financing (Note 21) | 81,698 | | 98,461 | |
Debentures (Note 22) | 54,195 | | 195,000 | |
Suppliers (Note 23) | 543,529 | | 497,832 | |
Taxes and social contribution (Note 10) | 536,453 | | 407,072 | |
Dividends payable | 90,806 | | 245,166 | |
Payroll, social changes and accruals (Note 24) | 206,957 | | 159,388 | |
Post-employment benefits (Note 25) | 22,505 | | 22,066 | |
Deferred Regulatory Liabilities - CVA (Note 11) | 25,020 | | 28,327 | |
Other regulatory liabilities (Note 12) | 8,315 | | 26,192 | |
Regulatory charges (Note 26) | 29,523 | | 43,123 | |
Research and Development and Energy Efficiency (Note 27) | 121,005 | | 126,484 | |
Other accounts payable (Note 28) | 121,156 | | 114,383 | |
| | | | |
| 1,841,162 | | 1,963,494 | |
Noncurrent liabilities | | | | |
Loans and financing (Note 21) | 784,144 | | 769,056 | |
Debentures (Note 22) | 753,384 | | 802,116 | |
Reserve for contingencies (Note 29) | 474,544 | | 593,365 | |
Suppliers (Note 23) | 175,796 | | 214,157 | |
Taxes and social contribution (Note 10) | 174,406 | | 29,528 | |
Post-employment benefits (Note 25) | 352,976 | | 425,879 | |
Deferred Regulatory Liabilities - CVA (Note 11) | 25,020 | | 2,373 | |
Other regulatory liabilities (Note 12) | 26 | | 7,257 | |
Research and Development and Energy Efficiency (Note 27) | 90,493 | | 72,079 | |
Deferred revenues (Note 18) | 74,994 | | 74,994 | |
Other accounts payable (Note 28) | 2,953 | | 6,674 | |
| | | | |
| 2,908,736 | | 2,997,478 | |
| | | | |
Noncontrolling interest | 253,537 | | 239,567 | |
| | | | |
Shareholders' equity | | | | |
Stock capital (Note 30a) | 4,460,000 | | 4,460,000 | |
Capital reserves (Note 30c) | 838,340 | | 838,340 | |
Profit reserves (Note 30d) | 3,531,721 | | 2,754,747 | |
| | | | |
| 8,830,061 | | 8,053,087 | |
| | | | |
Total liabilities and shareholders' equity | 13,833,496 | | 13,253,626 | |
The accompanying notes are an integral part of these financial statements.
F - 3
Companhia Paranaense de Energia - Copel
Consolidated Statements of Operations
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| December 31 | |
| 2009 | | 2008 | | 2007 | |
Operating revenues (Note 31) | | | | | | |
Electricity sales to final customers | 3,253,687 | | 2,968,880 | | 2,747,680 | |
Electricity sales to distributors | 1,394,806 | | 1,363,094 | | 1,367,595 | |
Use of main transmission grid | 3,635,969 | | 3,473,098 | | 3,316,963 | |
Telecommunications revenues | 104,844 | | 80,604 | | 63,893 | |
Distribution of piped gas | 261,325 | | 283,709 | | 244,080 | |
Other | 146,045 | | 136,010 | | 179,883 | |
| | | | | | |
| 8,796,676 | | 8,305,395 | | 7,920,094 | |
| | | | | | |
Deductions from Operating Revenues (Note 32) | (3,179,365 | ) | (2,846,617 | ) | (2,716,433 | ) |
| | | | | | |
Net operating revenues | 5,617,311 | | 5,458,778 | | 5,203,661 | |
| | | | | | |
Operating costs (Note 33) | | | | | | |
Energy purchased for resale | (1,681,876 | ) | (1,615,086 | ) | (1,279,335 | ) |
Use of main transmission grid | (609,649 | ) | (466,652 | ) | (446,067 | ) |
Personel and Management | (630,037 | ) | (531,031 | ) | (463,865 | ) |
Pension and healthcare plans | (13,479 | ) | (25,737 | ) | 14,169 | |
Materials and supplies | (58,390 | ) | (49,175 | ) | (50,308 | ) |
Raw materials and supplies for electricity generation | (21,231 | ) | (19,274 | ) | 8,954 | |
Natural gas and supplies for the gas business | (135,353 | ) | (163,846 | ) | (132,726 | ) |
Third-party services | (228,536 | ) | (190,269 | ) | (161,319 | ) |
Depreciation and amortization | (363,597 | ) | (376,789 | ) | (399,387 | ) |
Other | (23,962 | ) | (35,583 | ) | (11,784 | ) |
| | | | | | |
| (3,766,110 | ) | (3,473,442 | ) | (2,921,668 | ) |
| | | | | | |
Gross Operating Income | 1,851,201 | | 1,985,336 | | 2,281,993 | |
| | | | | | |
Other income (expenses) (Note 33) | | | | | | |
Sales expenses | (45,566 | ) | (29,769 | ) | (31,140 | ) |
General and administrative expenses | (388,226 | ) | (256,912 | ) | (298,830 | ) |
Other revenues (expenses), net | (70,132 | ) | (252,377 | ) | (383,760 | ) |
| | | | | | |
| (503,924 | ) | (539,058 | ) | (713,730 | ) |
| | | | | | |
Operating income before financial results and equity in results of investees | 1,347,277 | | 1,446,278 | | 1,568,263 | |
| | | | | | |
Interest income (expenses) (Note 34) | | | | | | |
Interest income | 365,918 | | 488,620 | | 396,017 | |
Interest expenses | (300,294 | ) | (394,257 | ) | (375,774 | ) |
| | | | | | |
| 65,624 | | 94,363 | | 20,243 | |
| | | | | | |
Equity in results of investees (Note 18) | 14,327 | | 14,318 | | 9,509 | |
| | | | | | |
Income before Income Tax and Social Contribution (Note 10) | 1,427,228 | | 1,554,959 | | 1,598,015 | |
| | | | | | |
Income Tax and Social Contribution | | | | | | |
Income Tax and Social Contribution (Note 10) | (287,602 | ) | (352,064 | ) | (536,168 | ) |
Deferred Income Tax and Social Contribution (Note 10) | (89,724 | ) | (106,082 | ) | 75,853 | |
| | | | | | |
| (377,326 | ) | (458,146 | ) | (460,315 | ) |
| | | | | | |
Net Income before noncontrolling interest | 1,049,902 | | 1,096,813 | | 1,137,700 | |
| | | | | | |
Noncontrolling interest | (23,469 | ) | (18,069 | ) | (31,090 | ) |
| | | | | | |
Net income for the year | 1,026,433 | | 1,078,744 | | 1,106,610 | |
Net Income per outstanding shares at year end / expressed in Brazilian Reais | 3,75 | | 3,94 | | 4,04 | |
The accompanying notes are an integral part of these financial statements.
F - 4
Companhia Paranaense de Energia - Copel
Consolidated Statements of Added Value
Expressed in thousands of Brazilian reais, except per share amount
| | | | | Profit reserves | | | | | |
| | | | | | | | | | | | |
| Capital
stock | | Capital
reserves | | Legal
reserve | | InvestmentsReserve | | Retained
earnings | | Total | |
At December 31, 2006 | 3,875,000 | | 817,293 | | 268,323 | | 1,415,654 | | - | | 6,376,270 | |
Capital increase | 585,000 | | - | | - | | (585,000 | ) | - | | - | |
Tax incentive (Note 18 c) | - | | 21,047 | | - | | - | | - | | 21,047 | |
Net income for the year | - | | - | | - | | - | | 1,106,610 | | 1,106,610 | |
Appropriation of net income | - | | - | | - | | - | | - | | - | |
Legal reserve | - | | - | | 55,330 | | - | | (55,330 | ) | - | |
Interest on equity | - | | - | | - | | - | | (200,000 | ) | (200,000 | ) |
Dividends | - | | - | | - | | - | | (67,750 | ) | (67,750 | ) |
Transfer to profit reserve | - | | - | | - | | 783,530 | | (783,530 | ) | - | |
| | | | | | | | | | | | |
At December 31, 2007 | 4,460,000 | | 838,340 | | 323,653 | | 1,614,184 | | - | | 7,236,177 | |
Net income for the year | - | | - | | - | | - | | 1,078,744 | | 1,078,744 | |
Appropriation of net income | - | | - | | - | | - | | - | | - | |
Legal reserve | - | | - | | 53,937 | | - | | (53,937 | ) | - | |
Interest on equity | - | | - | | - | | - | | (228,000 | ) | (228,000 | ) |
Dividends | - | | - | | - | | - | | (33,834 | ) | (33,834 | ) |
Investment reserve | - | | - | | - | | 762,973 | | (762,973 | ) | - | |
| | | | | | | | | | | | |
At December 31, 2008 | 4,460,000 | | 838,340 | | 377,590 | | 2,377,157 | | - | | 8,053,087 | |
Net income for the year | - | | - | | - | | - | | 1,026,433 | | 1,026,433 | |
Appropriation of net income | - | | - | | - | | - | | - | | - | |
Legal reserve | - | | - | | 51,322 | | - | | (51,322 | ) | - | |
Interest on equity | - | | - | | - | | - | | (230,000 | ) | (230,000 | ) |
Dividends | - | | - | | - | | - | | (19,459 | ) | (19,459 | ) |
Investment reserve | - | | - | | - | | 725,652 | | (725,652 | ) | - | |
| | | | | | | | | | | | |
At December 31, 2009 | 4,460,000 | | 838,340 | | 428,912 | | 3,102,809 | | - | | 8,830,061 | |
The accompanying notes are an integral part of these financial statements.
F - 5
Companhia Paranaense de Energia - Copel
Consolidated Statement of Cash Flows
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| December 31 | |
| 2009 | | 2008 | | 2007 | |
Cash flows from operating activities | | | | | | |
Net income for the year | 1,026,433 | | 1,078,744 | | 1,106,610 | |
| | | | | | |
Adjustments to reconcile net income to cash provided | | | | | | |
by operating activities: | | | | | | |
Reversal of allowance for doubtful accounts | 16,448 | | (5,824 | ) | (4,353 | ) |
Depreciation | 384,336 | | 395,312 | | 418,143 | |
Amortization of intangible assets - concession | 3,829 | | 3,829 | | 3,100 | |
Amortization of intangible assets - goodwill | - | | 1,791 | | 4,808 | |
Amortization of intangible assets - other | 3,383 | | 3,811 | | 3,906 | |
Unrealized monetary and exchange variations, net | 52,823 | | 98,526 | | 82,633 | |
Equity in results of investees | (14,327 | ) | (13,956 | ) | (9,509 | ) |
Deferred income tax and social contribution | 89,724 | | 106,082 | | (75,853 | ) |
Variations in the regulatory assets and liabilities-CVA | (113,154 | ) | (204,425 | ) | 797 | |
Variations in other regulatory assets and liabilities, net | 232 | | (51,643 | ) | 45,904 | |
Contract renegotiation - CIEN | - | | - | | (62,862 | ) |
Accruals for long-term liabilities | 111,098 | | 104,718 | | 248,385 | |
Provision (reversal) for tax incentives | 733 | | 23,902 | | (12,789 | ) |
Reversal of provision for post-employment benefits | (61,385 | ) | (38,329 | ) | - | |
Provision for R&D and energy efficiency | 28,115 | | - | | - | |
REFIS installments – Law no. 11,941/2009 | 7,118 | | - | | - | |
Loss on disposal of investments | - | | 8,742 | | 2,240 | |
Loss on disposal of property, plant, and equipment, net | 38,618 | | 14,565 | | 29,141 | |
Loss on disposal of intangible assets, net | 487 | | 516 | | 13,972 | |
Non controlling interest | 23,469 | | 18,069 | | 31,090 | |
| | | | | | |
Increase (decrease) in assets | | | | | | |
Customers and distributors | (73,640 | ) | 86,522 | | (77,696 | ) |
Telecommunications services | 809 | | 4,439 | | (5,066 | ) |
Interest on shareholders´ equity and dividends received from investees | 15,846 | | 13,444 | | 20,342 | |
Services in progress | (27,707 | ) | (13,422 | ) | (31,305 | ) |
CRC transferred to State Government | 130,967 | | 120,048 | | 111,267 | |
Recoverable taxes | (84,965 | ) | (61,253 | ) | 74,441 | |
Inventories | (29,930 | ) | (12,065 | ) | (751 | ) |
Judicial deposits | 14,511 | | (1,931 | ) | (9,900 | ) |
Other receivables | 1,786 | | 19,543 | | (21,860 | ) |
| | | | | | |
Increase (decrease) in liabilities | | | | | | |
Loans and financing - interest paid | (119,102 | ) | (156,512 | ) | (75,260 | ) |
Debentures – interest paid | (110,035 | ) | (122,984 | ) | (229,544 | ) |
Provisions for contingencies | (36,155 | ) | (28,921 | ) | - | |
Suppliers | 1,747 | | 131,322 | | (25,976 | ) |
Taxes and social contribution charges | 10,095 | | 8,297 | | (52,618 | ) |
Payroll and labor accruals | 47,569 | | 13,269 | | 11,901 | |
Post-employment benefits | (11,079 | ) | (10,423 | ) | (125,425 | ) |
Regulatory charges | (13,600 | ) | 10,401 | | (18,983 | ) |
Research and development and energy efficiency | (28,432 | ) | (1,239 | ) | 10,964 | |
Other accounts payable | 12,552 | | 28,087 | | (17,151 | ) |
Noncontrolling interest | (9,499 | ) | (10,029 | ) | (5,469 | ) |
| | | | | | |
Net cash provided by operating activities | 1,289,718 | | 1,561,023 | | 1,357,274 | |
| | | | | | |
The accompanying notes are an integral part of these financial statements.
F - 6
Companhia Paranaense de Energia - Copel
Consolidated Statement of Cash Flows
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| 2009 | | 2008 | | 2007 | |
Cash flows from investing activities | | | | | | |
Acquisition of Centrais Eólicas do Paraná - net of acquired cash | - | | - | | (1,393 | ) |
Acquisition of control in Dominó Holdings - net of acquired cash | - | | (108,962 | ) | - | |
Disposal (acquisition) of other investments – net of acquired cash | (151 | ) | 134 | | (6,503 | ) |
Additions to property, plant, and equipment | (957,313 | ) | (697,713 | ) | (522,933 | ) |
Additions to intangible assets | (21,566 | ) | (8,416 | ) | (4,407 | ) |
Bonds and securities | (14,989 | ) | (69,063 | ) | - | |
Collaterals and escrow accounts | 18,499 | | 1,508 | | (76,596 | ) |
Special Obligations | 57,421 | | 79,673 | | 48,580 | |
Proceeds from sale of property, plant, and equipment | 6,373 | | 11,297 | | 6,653 | |
| | | | | | |
Net cash used in investing activities | (911,726 | ) | (791,542 | ) | (556,599 | ) |
| | | | | | |
Cash flows from financing activities | | | | | | |
Loans and financing issued | 144,262 | | 34,818 | | 346,592 | |
Payment of the principal amount of loans and financing | (62,987 | ) | (86,492 | ) | (99,853 | ) |
Payment of the principal amount of debentures | (163,175 | ) | (176,072 | ) | (717,738 | ) |
Interest on shareholders’ equity and dividends paid | (413,516 | ) | (269,030 | ) | (292,809 | ) |
| | | | | | |
Net cash used in financing activities | (495,416 | ) | (496,776 | ) | (763,808 | ) |
| | | | | | |
Net increase in cash and cash equivalents | (117,424 | ) | 272,705 | | 36,867 | |
| | | | | | |
Cash and cash equivalents at the beginning of the year | 1,813,576 | | 1,540,871 | | 1,504,004 | |
Cash and cash equivalents at the end of the year | 1,696,152 | | 1,813,576 | | 1,540,871 | |
| | | | | | |
| (117,424 | ) | 272,705 | | 36,867 | |
| | | | | | |
Supplementary cash flow information | | | | | | |
| | | | | | |
Income tax paid | 331,676 | | 348,916 | | 387,049 | |
Transactions not affecting cash | | | | | | |
| | | | | | |
Business acquisitions | | | | | | |
Assets acquired including goodwill | - | | 116,713 | | 2,164 | |
Liabilities assumed | - | | (6,487 | ) | (21 | ) |
| | | | | | |
Acquisition price paid | - | | 110,226 | | 2,143 | |
Cash and cash equivalents acquired | - | | (1,264 | ) | (750 | ) |
| | | | | | |
Acquisition price, net of acquired cash and cash equivalents | - | | 108,962 | | 1,393 | |
The accompanying notes are an integral part of these financial statements.
F - 7
Companhia Paranaense de Energia - Copel
Consolidated Statements of Added Value
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| | | Consolidated | |
| | | 2009 | | 2008 | | 2007 | |
Revenues | | | | | | | | |
Sales of electricity, services, and other revenues (Note 31) | | | 8,796,676 | | 8,305,395 | | 7,920,094 | |
Allowance for doubtful accounts (Note 33 f) | | | (16,448 | ) | 5,824 | | (3,899 | ) |
Other operating revenues (expenses) | | | (32,015 | ) | (30,059 | ) | (31,039 | ) |
| | | | | | | | |
Total | | | 8,748,213 | | 8,281,160 | | 7,885,156 | |
| | | | | | | | |
( - ) Supplies acquired from third parties | | | | | | | | |
Electricity purchased for resale | | | (1,885,246 | ) | (1,787,845 | ) | (1,429,417 | ) |
Use of the main transmission grid (-) ESS | | | (569,140 | ) | (458,067 | ) | (495,318 | ) |
Materials, supplies, and services from third-parties | | | (406,836 | ) | (353,885 | ) | (295,206 | ) |
Natural gas and supplies for the gas business | | | (179,362 | ) | (195,265 | ) | (148,400 | ) |
Emergency capacity charges and Proinfa | | | (326 | ) | (254 | ) | (256 | ) |
Other | | | (8,549 | ) | (160,573 | ) | (271,836 | ) |
| | | | | | | | |
Total | | | (3,049,459 | ) | (2,955,889 | ) | (2,640,433 | ) |
| | | | | | | | |
( = ) GROSS ADDED VALUE | | | 5,698,754 | | 5,325,271 | | 5,244,723 | |
| | | | | | | | |
( - ) Depreciation and amortization | | | (391,548 | ) | (404,743 | ) | (429,957 | ) |
| | | | | | | | |
( = ) NET ADDED VALUE | | | 5,307,206 | | 4,920,528 | | 4,814,766 | |
| | | | | | | | |
( + ) Transferred Added Value | | | | | | | | |
Interest income (Note 34) | | | 376,352 | | 488,620 | | 396,017 | |
Equity pick up in results of investees | | | 14,327 | | 13,956 | | 9,509 | |
| | | | | | | | |
Total | | | 390,679 | | 502,576 | | 405,526 | |
| | | | | | | | |
ADDED VALUE TO DISTRIBUTE | | | 5,697,885 | | 5,423,104 | | 5,220,292 | |
The accompanying notes are an integral part of these financial statements.
F - 8
Companhia Paranaense de Energia - Copel
Consolidated Statements of Added Value
All amounts expressed in thousands of Brazillian reais unless otherwise stated (continued)
| | | Consolidated | | |
| | | 2009 | | 2008 | | 2007 | |
DISTRIBUTION OF ADDED VALUE | | | | | | | | |
| | | | | | | | |
Personnel | | | | | | | | |
Salaries and wages (Note 33 c) | | | 538,665 | | 484,257 | | 451,156 | |
Pension and healthcare plans | | | 14,177 | | 30,016 | | (13,851 | ) |
Meal assistance and education allowance (Note 33 c) | | | 55,695 | | 49,078 | | 45,675 | |
Social charges - FGTS | | | 38,555 | | 34,694 | | 31,994 | |
Labor indemnifications (reversal) (Note 33 c) | | | 56,852 | | (825) | | 8,293 | |
Profit sharing (Note 33 c) | | | 64,995 | | 65,816 | | 54,254 | |
Transfer to construction in progress (Note 33 c) | | | (86,746 | ) | (80,214) | | (54,304 | ) |
| | | | | | | | |
Total | | | 682,193 | | 582,822 | | 523,217 | |
| | | | | | | | |
Government | | | | | | | | |
Federal | | | 1,862,542 | | 1,747,205 | | 1,713,440 | |
State | | | 1,785,795 | | 1,595,280 | | 1,513,381 | |
Municipal | | | 2,636 | | 3,019 | | 3,530 | |
| | | | | | | | |
Total | | | 3,650,973 | | 3,345,504 | | 3,230,351 | |
| | | | | | | | |
Financing agents | | | | | | | | |
Interest and penalties | | | 301,110 | | 385,166 | | 318,259 | |
Leases and rents (Note 33 g) | | | 13,707 | | 12,799 | | 10,765 | |
| | | | | | | | |
Total | | | 314,817 | | 397,965 | | 329,024 | |
| | | | | | | | |
Shareholders | | | | | | | | |
Noncontrolling interest | | | 23,469 | | 18,069 | | 31,090 | |
Interest on capital (Note 30 d) | | | 230,000 | | 228,000 | | 200,000 | |
Proposed dividends (Note 30 d) | | | 19,459 | | 33,834 | | 67,750 | |
Profit reserves | | | 776,974 | | 816,910 | | 838,860 | |
| | | | | | | | |
Total | | | 1,049,902 | | 1,096,813 | | 1,137,700 | |
| | | | | | | | |
| | | 5,697,885 | | 5,423,104 | | 5,220,292 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
F - 9
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
1 The Company and its Operations
Companhia Paranaense de Energia - Copel (Copel, the Company or the Parent Company) is a public company with shares traded on Corporate Governance Level 1 of BM&FBOVESPA’s Special Listings and on stock exchanges in the United States of America and Spain. Copel is a mixed capital company, controlled by the Government of the State of Paraná, engaged, through its subsidiaries, in researching, studying, planning, building, and exploiting the production, transformation, transportation, distribution, and sale of energy, in any form, but particularly electric energy. These activities are regulated by the National Electric Energy Agency - ANEEL, which reports to the Ministry of Mines and Energy - MME. Additionally, Copel takes part in consortiums, private enterprises, or mixed capital companies in order to operate mostly in the areas of energy, t elecommunications, natural gas, and water supply and sanitation.
Copel’s wholly-owned subsidiaries, other subsidiaries and consortiom are featured below. Non financial/accounting information, such as information about supplied market, installed capacity, and assured power, has not been audited by the independent auditors.
a) Copel Geração e Transmissão S.A.
Copel Geração e Transmissão S.A. operates the Company’s power generation business, which is based on the operation of 17 hydroelectric power plants and one thermoelectric power plant, listed below, amounting to total installed capacity of 4,549.61 MW, and power transmission services, based on 30 substations at voltages equal to or greater than 230 kV and 1,942.0 km of transmission lines in Paraná, most of which are part of the Brazilian Basic Transmission Network. The concession for 1,773.3 km of these lines expires in July 2015, the concession for 137.1 km (Bateias – Jaguariaíva 230 kV line) expires in August 2031, and the concession for 31.6 km (Bateias – Pilarzinho 230 kV line) expires in March 2038, subject to extension at the discretion of the granting authority (Note 31.a).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Power generation plants
Power plant | River | Installed capacity (MW) | | Assured Power (avg MW) | | Date concession was issued | | Year of expiration |
| | | | | | | | |
Hydroelectric plants | | | | | | | | |
Gov, Bento Munhoz da Rocha Neto (Foz do Areia) | Iguaçu | 1,676.00 | | 576.00 | | May 24, 73 | | May 23, 23 |
Gov, Ney Aminthas de Barros Braga (Segredo) | Iguaçu | 1,260.00 | | 603.00 | | Nov 14, 79 | | Nov 15. 29 |
Gov, José Richa (Caxias) | Iguaçu | 1,240.00 | | 605.00 | | May 02, 80 | | May 04, 30 |
Gov, Pedro Viriato Parigot de Souza | Capivari - Cachoeira | 260.00 | | 109.00 | | Apr 23, 65 | | Jul 07, 15 |
Guaricana | Arraial | 36.00 | | 13.60 | | Aug 13, 76 | | Aug 16, 26 |
Chaminé | São João | 18.00 | | 11.60 | | Aug 13, 76 | | Aug 16, 26 |
Apucaraninha | Apucaraninha | 10.00 | | 6.71 | | Oct 13, 75 | | Oct 12, 25 |
Mourão | Mourão | 8.20 | | 5.30 | | Jan 20, 64 | | Jul 07, 15 |
Derivação do Rio Jordão | Jordão | 6.50 | | 5.85 | | Nov 14, 79 | | Nov 15, 29 |
Marumbi | Ipiranga | 4.80 | | 3.94 | | (*) | | |
São Jorge | Pitangui/Tibagi | 2.30 | | 1.62 | | Dec 04, 74 | | Dec 03, 24 |
Chopim I | Chopim | 1.98 | | 1.27 | | Mar 20, 64 | | Jul07, 15 |
Rio dos Patos | Rio dos Patos/Ivaí | 1.72 | | 1.13 | | Feb 14, 84 | | Feb 14, 14 |
Cavernoso | Cavernoso/Iguaçu | 1.30 | | 0.86 | | Jan 07, 81 | | Jan 07, 31 |
Salto do Vau | Palmital | 0.94 | | 0.60 | | Jan 27, 54 | | (**) |
Pitangui | Pitangui | 0.87 | | 0.57 | | Dec 05, 54 | | (**) |
Melissa | Melissa | 1.00 | | 0.57 | | Oct 08, 93 | | (**) |
| | | | | | | | |
Thermoelectric plant | | | | | | | | |
Figueira | | 20.00 | | 10.30 | | Mar 21, 69 | | Mar 26, 19 |
Total | | 4,549.61 | | 1,956.92 | | | | |
(*) Under approval by ANEEL
(**) Facilities under 1MW are only subject to registration before ANEEL
b) Copel Distribuição S.A.
Copel Distribuição S.A. runs the Company's power distribution and regulated sales to 1,109 locations in 392 out of the 399 municipalities in the State of Paraná, and also to the town of Porto União, in the State of Santa Catarina. Its current concession, which is set to expire on July 7, 2015, may be extended for another 20 years, at the discretion of the granting authority.
c) Copel Telecomunicações S.A.
Copel Telecomunicações S.A. is engaged in providing communications and telecommunications services and in conducting studies, projects, and planning in the field of telecommunications, as well as any related activities, as authorized by law, for an indeterminate period of time, on a non-exclusive basis, both nationally and internationally, with a service area comprising the State of Paraná and Region II of the General Grants Plan of the National Telecommunications Agency - ANATEL, which reports to the Ministry of Communications.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
d) Companhia Paranaense de Gás – Compagas
Compagas is a quasi-public entity in which Copel holds a 51% interest and whose main activity is the supply of piped natural gas, through a 520-km long distribution network set up throughout Paraná in the municipalities of Araucária, Curitiba, Campo Largo, Balsa Nova, Palmeira, Ponta Grossa, and São José dos Pinhais. Compagas supplies a total of 6,731 customers, comprising 102 industrial customers, 34 vehicular gas stations, 253 commercial customers, 6,338 households, 2 co-generation plants, one company which uses natural gas as a raw material, and the Araucária Thermoelectric Power Plant.
e) Elejor - Centrais Elétricas do Rio Jordão S.A.
Elejor is a special purpose company in which Copel holds a 70% voting interest and which was set up to implement and run the Fundão – Santa Clara Power Complex, on the Jordão River, within the Iguaçu River sub-basin, in the State of Paraná, comprising the Santa Clara and Fundão Power Plants. These facilities feature 240.34 MW of installed capacity, in addition to small hydropower units embedded in the Santa Clara and Fundão dams, with 3.6 MW and 2.4 MW of installed capacity, respectively. The concession for the project was granted on October 23, 2001 for a 35-year term, renewable for up to 20 years upon request by the holder and at ANEEL’s discretion.
f) Copel Empreendimentos Ltda.
Copel Empreendimentos Ltda. is limited liability company wholly-owned by Copel Geração e Transmissão and set up to provide services in connection with the planning, coordination, and organization of companies involved in power generation and transmission, and with power plant management, construction, operation, and maintenance, in addition to holding interests in other companies.
g) UEG Araucária Ltda.
UEG Araucária Ltda. is a limited liability company in which Copel holds an 20% interest and Copel Empreendimentos holds a 60% interest, and which was set up to generate and sell electric power, using natural gas as fuel. The Araucária Power Plant has an installed capacity of 484.15 MW. Its authorization to operate as an independent power producer was issued by ANEEL on December 22, 1999 for a 30-year term, which can be extended upon request by the holder and at ANEEL’s discretion.
On December 28, 2006, UEG Araucária signed an agreement with Petróleo Brasileiro S.A. - Petrobras, a minority shareholder, leasing the Araucária Thermoelectric Power Plant for a period of one year, ended on December 31, 2007 and extended a few times until December 31, 2008. On February 19, 2009, the lease was renewed for another three years, as of January 1, 2009 and until December 31, 2011, subject to early termination should UEG Araucária successfully participate at ANEEL-sponsored power auctions. The lease provides for the use of the Araucária Power Plant for power generation by Petrobras, at its own expense; UEG Araucária is entitled to lease payments comprising a fixed and a variable portion, pursuant to the lease agreement.
h) Centrais Eólicas do Paraná
Centrais Eólicas do Paraná Ltda. is a limited liability company held by Copel (with a 30% interest) and Copel Generation and Transmission (with a 70% interest). It has been set up to build, assemble, and operate a 2.5 MW wind power plant, in the region of Palmas, in the State of Paraná.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
i) Consórcio Energético Cruzeiro do Sul
Consórcio Energético Cruzeiro do Sul is an independent power producer, owned by Copel Geração e Transmissão (51%), and by Eletrosul Centrais Elétricas S.A. (49%).On October 10, 2006, at Auction of Power from New Projects 004/2006, this company won the rights to the concession of the Mauá Hydroelectric Power Plant, which will feature 361 MW of installed capacity; the concession is valid for 35 years from the date of signature, which took place on July 3, 2007.
j) Dominó Holdings S.A.
Dominó Holdings S.A. is a company which owns 34.75% of the share capital of the Sanitation Company of Paraná – Sanepar, a mixed capital company whose business comprises basic sanitation services, including water supply and sewage collection and treatment. Since January 2008, when it became the holder of 45% of Dominó Holding' share capital by acquiring the 30% interest held by Sanedo Participações Ltda., Copel has exercised joint control of the company together with the remaining shareholders (Note 18 d).
2 Basis of Presentation
Authorization for the completion of these financial statements was granted at the Meeting of the Board of Officers held on March 15, 2010.
The financial statements featured in this report are in accordance with accounting practices adopted in Brazil (Brazilian GAAP) including the provisions of the Brazilian Corporate Law, as amended by Law no. 11,638/2007 and by Executive Act no. 11,941/2009, with the specific legislation enacted by ANEEL, and with the regulations of the Brazilian Securities and Exchange Commission (CVM).
3 Consolidated Financial Statements
The financial statements of subsidiaries and investees are adjusted to comply with the accounting practices adopted by Copel (Parent Company).
Copel has consolidated the financial statements of its wholly-owned subsidiaries and of the subsidiaries listed in Note 1.
The financial statements of jointly-controlled subsidiary Dominó Holdings have been adjusted to comply with Copel’s accounting practices and have been proportionally consolidated, applying Copel’s ownership percentage to each item of these statements.
All other subsidiaries observe the same accounting practices adopted by Copel.
The balance sheets and statements of operations of the companies included in the consolidation are shown in Note 40, reclassified for the purpose of ensuring consistency with the chart of accounts adopted by Copel.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The Parent Company’s investments in the shareholders’ equities of subsidiaries, their shareholders’ equities, as well as the balances of assets, liabilities, revenues, costs, and expenses arising from intercompany operations, have been eliminated upon consolidation, and the non controlling interests are shown separately in the liabilities section of the balance sheets and in the statement of operations, so that the consolidated financial statements effectively represent the balances of transactions with third parties.
Disbursements in connection with Consórcio Energético Cruzeiro do Sul are recorded as property, plant, and equipment in progress, proportionally to Copel’s share in the consortium.
The balance sheets and the statements of operations of the wholly-owned subsidiaries and other subsidiaries are featured in Note 39, and their statements of operations are featured in Note 40, reclassified for the purpose of ensuring consistency with the account classification adopted by Copel.
For purposes of presentation and comparison, the following reclassifications have been made in the statements as of December 31, 2008:
Original account | | Reclassified account | | Consolidated | |
| | | | | |
Long-term receivables | | Long-term receivables | | December 31, 2008 | |
| | | | | |
Investments(a) | | Property, plant, and equipment | | 56,517 | |
| | | | | |
a) Consórcio Energético Cruzeiro do Sul, pursuant to ANEEL Ruling no. 3,467, dated 09.18.2008, applicable as of 01.01.2009 (Note 19.g)
We have not identified any adjustments which could have an impact on the Company’s income and on its shareholders’ equity as of December 31, 2008.
4 Changes in Accounting Policies
With the enactment of Law no. 11,638/2007, which has updated the Brazilian corporate legislation so as to bring the accounting practices adopted in Brazil closer to the International Financial Reporting Standards (IFRS), new technical accounting rules and pronouncements have been published, in compliance with the IFRS, by the Accounting Pronouncements Committee (CPC).
As of the date of these financial statements, 27 new technical pronouncements have been issued by CPC and approved by CVM rulings, for mandatory application as of 2010. The technical pronouncements (CPCs) and technical interpretations (ICPCs) applicable to Copel, in light of its operations, are:
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
CPC/IPC no. | Title |
| |
CPC 15 | Business combinations |
CPC 16 | Inventories |
CPC 18 | Investments in subsidiaries and investees |
CPC 19 | Investments in joint ventures |
CPC 20 | Cost of loans |
CPC 21 | Interim statements |
CPC 22 | Information by segments |
CPC 23 | Accounting policies, changes in estimates, and error correction |
CPC 24 | Subsequent event |
CPC 25 | Provisions, contingent liabilities, and contingent assets |
CPC 26 | Presentation of financial statements |
CPC 27 | Property, Plant, and Equipment |
CPC 30 | Revenues |
CPC 31 | Noncurrent assets maintained for sale and discontinued operations |
CPC 32 | Taxes on income |
CPC 33 | Employee benefits |
CPC 36 | Consolidated statements |
CPC 37 | Initial adoption of international accounting standards (IFRS 1) |
CPC 38 | Financial instruments: recognition and measurement |
CPC 39 | Financial instruments: presentation |
CPC 40 | Financial instruments: evidence |
CPC 43 | Initial adoption of CPC Pronouncements 15 to 40 |
ICPC 01 | Concession agreements (IFRIC 12) |
ICPC 03 | Complementary aspects of leasing operationsl (IFRIC 4, SIC 15, and SIC 27) |
ICPC 08 | Accounting for proposed dividend payments |
ICPC 09 | Individual financial statements, separate financial statements, consolidated financial statements, and aplication of the equity method |
ICPC 10 | Interpretation of the initial application to p., p.,& e. and investment assets of technical pronouncements CPCs 27,28,37, and 43 |
The Company´s management is currently reviewing the impacts of the changes introduced by these new pronouncements. In the case of adjustments resulting from the adoption of the new accounting practices as of January 1, 2010, Copel will assess the need to recalculate the effects these changes would have had on its 2009 financial statements, for purposes of comparison, as if they had been in effect since the beginning of the fiscal year ended of December 31, 2009.
5 Main Accounting Practices
a) General Accounting Practices
1) Cash and cash equivalents
Cash and cash equivalents includes cash, bank deposits, and temporary short-term financial investments with immediate liquidity. Temporary short-term investments are recorded at fair value as of the date of the balance sheets (Note 6).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2) Customers and distributors
This item comprises billed power sales to final customers and to distributors, estimated power supplied but unbilled as of the date of the financial statements, and supply of natural gas, accounted for on an accrual basis (Note 7).
3) Materials and supplies (including those under property, plant, and equipment)
Materials and supplies in inventory, classified under current assets, have been recorded at their average acquisition cost, and those assigned for investments, classified under property, plant, and equipment, have been recorded at their acquisition cost (goods in bulk, such as poles and cables, are recorded according to average cost). Recorded amounts do not exceed their replacement costs or realization figures.
4) Bonds and Securities
It comprises National Treasury bonds classified as held to maturity, thus recorded at amortized cost plus yield calculated according to the respective yield curves. (Note 36).
5) Investments
Permanent interest in subsidiaries and investees have been recorded under the equity method. Other investments have been recorded at their acquisition cost, net of provision for losses, when applicable (Note 18). Equity in subsidiaries has been eliminated upon consolidation.
6) Goodwill based on expected future profitability
Goodwill on acquisition of investments whose economic basis is future profitability has been amortized on a straight line basis over a 10-year period. As of December 31, 2008 the amount of goodwill had already been entirely amortized (Note 18).
7) Intangible assets - concessions
Amounts recorded as intangible assets at the time of acquisitions of interests in companies which holds concessions have been amortized over the respective remaining terms of each concession on a straight line basis (Note 20).
8) Impairment test
Property, plant, and equipment and intangible assets are tested periodically for impairment in order to detect evidence of unrecoverable losses or whenever significant events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. Whenever there is a loss, resulting from situations where an asset’s carrying amount exceeds its recoverable value, defined as the greater between the asset´s fair value less costs to sell and its value in use, this loss is charged to the statements of operations.
9) Loans, financing, and debentures
Loans, financing, and debentures are adjusted according to monetary and exchange rate variations up to the date of the financial statements, including interest and other contractual charges.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
10) Taxes and social contributions
Operating revenues (sale of energy and Revenues services) are subject to value-added tax (Imposto sobre Circulação de Mercadorias e Serviçosor ICMS) and service tax (Imposto sobre Serviçosor ISS), at the applicable rates, and to the PIS (Social Integration Program), COFINS (Contribution for the Financing of Social Security), and PASEP (Program for the Formation of the Civil Servants' Fund) social contributions.
Credits resulting from the non-cumulative nature of PIS/PASEP and COFINS charges are featured as deductions from the operating costs sold in the statement of operations.
Recoverable advance payments of amounts eligible for offsetting are featured in current or noncurrent assets, according to their expected realization.
Income tax comprises corporate income tax and social contribution, which are calculated based on taxable income (adjusted income), at the applicable rates, which are: 15%, plus 10% on any amounts exceeding R$ 240 a year, for corporate income tax, and 9% for social contribution. Thus, the additions of temporarily non deductible expenses or the exclusion of temporarily non taxable revenues are adjusted in the profit for the year to calculate taxable income and generate deferred tax assets and liabilities.
Deferred tax credits resulting from tax losses carryforwards or negative bases for the calculation of social contribution are recognized only as long as it is possible that future taxable income will occur and shall be used. Deferred income tax and social contribution assets have been calculated on tax losses, negative bases for the calculation of social contribution, and temporary differences, at the applicable rates, and take into account the expected future generation of taxable income, discounted to present value and based on technical feasibility studies approved by the Company’s Board of Directors.
Copel, as allowed by Provisional Measure no. 449/2008, has chosen the Transitional Tax System (RTT) for fiscal years 2008 and 2009.
11) Pension and healthcare plan
The costs incurred with pension funds and other post retirement benefits are accounted for on an accrual basis, based on costs and obligations computed by independent actuaries in accordance with the rules established by CVM Statement 371/2000 (Note 25).
12) Reserve for contingencies
These are recorded as of the date of the financial statements based on likelihood of losses, in the light of the nature of each contingency. The bases and the nature of each reserve are described in Note 29.
13) Other rights and obligations
All other assets and liabilities, whenever required by law or by contract, are adjusted until the date of the financial statements.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
14) Use of estimates
The preparation of financial statements, in accordance with the accounting practices adopted in Brazil, requires that Copel’s senior management to make estimates and adopt assumptions that indeed affect the reported figures of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the balance sheet, and the reported figures of revenues and expenses. Actual figures may differ from these estimates. The main estimates in the financial statements refer to the recording of the effects resulting from the provision for doubtful accounts, the useful lives of property, plant, and equipment, the reduction of the recoverable value of noncurrent assets, the provision for contingencies, income tax, pension plan and post-employment benefit assumptions, unbilled energy supply to final customers, and the sale and purchase of p ower in the Electric Energy Trading Chamber (CCEE), whose billing and settlement are subject to review by CCEE participants.
15) Calculation of income
Revenues, costs, and expenses are recognized on the accrual basis, i.e., when products are delivered and services actually rendered, regardless of when cash is received or paid.
The operating revenues are recognized when:(i) the amount of the sale is reliably measurable;(ii) the costs incurred or to be incurred in the transaction are reliably measurable;(iii) it is likely that the economic benefits will be received by the Company; and(iv) the risks and benefits have been fully transferred to the respective final customer or buyer.
16) Tax Incentives
Tax incentives are recorded at their historical cost, adjusted to their estimated realizable amount (Note 18).
17) Net income per outstanding share
Net income per outstanding share is calculated based on the number of shares outstanding at the balance sheet date (Note 30).
18) Fair Value of Financial Instruments
The fair values of publicly quoted investments are based on the current purchase prices. The Company sets the fair value of financial instruments with no active market or published prices through valuation techniques. These include the use of recent transactions with third parties, reference to other instruments which are substantially similar, analysis of discounted cash flows, and price-setting models which use the largest amount of information generated by the market and the lowest amount of information generated by Company management.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) Energy Sector-Specific Regulatory Accounting Practices
1) Regulatory assets and liabilities
The rate setting mechanism in Brazil guarantees the recovery of certain Copel Distribuição’s costs in connection with the purchase of energy and with regulatory charges through annual rate increases. Following ANEEL instructions, Copel Distribuição records variations of these costs as deferred regulatory assets and liabilities, when there is a likely expectation that future revenues, equivalent to the incurred costs, will be billed and collected, as direct result of the inclusion of such costs in an adjusted rate set according to the parametric formula established in the company’s concession agreement.
Deferred regulatory assets and liabilities are realized upon authorization by the granting authority for their inclusion in Copel Distribuição’s rate basis, which is adjusted annually on the anniversary date of its concession agreement.
2) Allowance for doubtful accounts
The allowance for doubtful accounts is deemed sufficient by Copel’s senior management to cover potential losses on the realization of customer receivables and others whose recovery is considered unlikely.
This allowance is set up based on the amounts overdue by residential customers for over 90 days, the amounts overdue by commercial customers for over 180 days, and the amounts overdue by industrial and rural customers, public agencies, public lighting, and public services for over 360 days, pursuant to the Electric Utility Accounting Manual. It comprises receivables billed until the date of the balance sheets, accounted for on an accrual basis (Note 8).
3) Property, Plant, and Equipment
Recorded at their acquisitoin or construction cost. Depreciation is calculated under the straight line method, based on accounting balances recorded in the respective Record Units, pursuant to DNAEE Ordinance no. 815, dated November 30, 1994, supplemented by ANEEL Resolution no. 15, dated December 24, 1997. Annual depreciation rates are set in the tables annexed to ANEEL Resolution no. 240, dated December 5, 2006, and Ministry of Communications Ordinance no. 96/1995, and are featured in Note 19.
4) Construction work in progress
Overhead expenses are allocated to property, plant, equipment and other construction in progress. The allocation of direct costs with personnel and third-party services is based on criteria permitted by ANEEL. These costs are recovered through the rate-setting mechanism.
Financial charges, interest, and monetary variation on financing from third-parties in connection with property, plant, and equipment in progress are allocated to these items of property, plant, and equipment in progress during the construction period (Note 19).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
5) Special obligations
In compliance with Accounting Instruction 6.3.23 of the Electric Utility Accounting Manual, special obligations related to the concession, corresponding to contributions received from federal, state, or municipal governments and from customers in general for investments on the electric energy distribution network, are recorded in a specific subgroup of the noncurrent liabilities and are presented, for Financial Statements purposes as a reduction of property, plant, and equipment. The amortization is calculated based on the same average depreciation rate of the corresponding assets (Note 19).
6) Intangible assets
Recorded at their acquisition or development cost. Amortization, when applicable, is calculated under the straight line method (Note 20).
7) Unbilled revenues
Unbilled revenues correspond to revenues from sales of energy to final customers which have been delivered but not yet billed and to revenues from the use of the distribution grid not yet billed, both of which are calculated based on estimates covering the period from the meter reading day to the last day of the month.
8) Power purchase and sale transactions in the Spot Market (CCEE)
Power purchase and sale transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or based on estimates prepared by Copel’s senior management, when this information is not available in time (Note 35).
9) Energy Efficiency Programs (EEPs), Research and Development (R&D), National Scientific and Technological Development Fund (FNDCT), and Ministry of Mining and Energy (MME)
These are research and development and energy efficiency programs to which distribution company utilities are required by ANEEL to allocate 1% of their net operating revenues.
The funds are applied in projects approved by ANEEL and in contributions to FNDCT and to the Ministry of Mining and Energy (MME) (Note 27).
10) Environmental Issues
Environmental assets are capitalized when the allocation of expenses in connection with certain items of property, plant, and equipment is in compliance with the rules set forth by the Electric Utility Accounting Manual. Expenses not attributable to property, plant, and equipment are recognized directly to results for the year.
Environmental liabilities are recognized under liabilities when their occurrence is likely and may be reasonably estimated.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
6 Cash and Cash Equivalents
. | | | | December 31, |
| | 2009 | | 2008 |
| | | | |
Cash and Banks | | 79,617 | | 88,161 |
Short term investments | | | | |
Federal Banks | | 1,614,023 | | 1,720,936 |
Private Banks | | 2,512 | | 4,479 |
| | 1,616,535 | | 1,725,415 |
| | | | |
| | 1,696,152 | | 1,813,576 |
Short-term investments are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. These short-term investments comprise Certificates of Deposit (CDs) issued by official banks; repurchased agreement - the issuer (Bank) is committed to buying the security back, and the buyer is committed to selling it; and quotas in investment funds which hold government issued securities (managed by official banks). These investments have yielded on average 100% of the variation of the Interbank Deposit Rate as of December 31, 2009 and 2008.
7 Customers and Distributors
| | | December 31, | |
| 2009 | | 2008 | |
| | | | |
Customers | | | | |
Residential | 189,728 | | 164,189 | |
Industrial | 176,972 | | 155,920 | |
Commercial | 109,523 | | 93,828 | |
Rural | 20,950 | | 18,575 | |
Public entities | 38,154 | | 24,948 | |
Public lighting | 13,317 | | 14,341 | |
Public services | 12,388 | | 12,286 | |
Unbilled | 170,960 | | 151,659 | |
Installment receivables – current portion | 97,422 | | 91,614 | |
Installment receivables – noncurrent | 48,036 | | 78,123 | |
Low income customer rates | 11,386 | | 28,800 | |
Penalties on overdue bills | 9,985 | | 9,101 | |
State Government-"Luz Fraterna" Program | 4,030 | | 7,500 | |
Gas supply | 14,726 | | 22,450 | |
Other current receivables | 15,432 | | 17,256 | |
Other noncurrent receivables | 3,341 | | 3,732 | |
| | | | |
| 936,350 | | 894,322 | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | | December 31, | |
| 2009 | | 2008 | |
Distributors | | | | |
Electricity sales | | | | |
Electricity sales to distributors - CCEE (Note 35) | 40,609 | | 9,931 | |
Energy auction | 127,854 | | 96,074 | |
Bilateral agreements | 27,713 | | 74,026 | |
Generation companies current reimbursement | 303 | | 571 | |
Generation companies noncurrent reimbursement | - | | 321 | |
Short-term sale | 123 | | 126 | |
| | | | |
| 196,602 | | 181,049 | |
| | | | |
Use of main transmission grid | | | | |
Power grid | 15,109 | | 16,246 | |
Basic Network | 21,174 | | 23,511 | |
| | | | |
| 36,283 | | 39,757 | |
| | | | |
Accounts receivable, net | 1,169,235 | | 1,115,128 | |
| | | | |
Current assets - accounts receivable, | 1,117,858 | | 1,032,952 | |
Noncurrent assets - accounts receivable | 51,377 | | 82,176 | |
a) Low income customers rate
In September 2002, the Company started applying the low income rate to electricity bills based on the new criteria for eligibility as low income customers.
On December 17, 2002, Law no. 10,604 modified the means of compensation to distribution companies, authorizing the granting of an economic subsidy, in order to contribute to the low price of the low income rate. This subsidy is funded by the dividend surplus owed by Centrais Elétricas Brasileiras S.A. -Eletrobras to the Federal Government, in connection with the sale of energy by Federal Government-owned generation companies at energy auctions, and by Global Reversal Reserve (RGR) funds.
ANEEL, through different resolutions, set forth a new methodology for the calculation of the economic subsidy to which distribution companies are entitled, in order to offset the effects of the rate policy applicable to low income customers. As of December 2009, the low income rate was applied to 706,652 customers, who account for 24.71% of the total of 2,859,738 residential customers supplied by Copel.
The balance receivable as of December 31, 2009, refers to installments which have already been ratified by ANEEL and which are yet to be transferred by Eletrobras.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
8 Allowance for Doubtful Accounts
Copel’s senior management has considered the following amounts as sufficient to cover potential losses on the realization of receivables:
| | | | | | | December 31, |
| 2008 | | Additions(*) | | Write-offs | | 2009 |
| | | | | | | |
Residential | 5,544 | | 9,969 | | (9,268) | | 6,245 |
Industrial | 40,735 | | 4,800 | | (5,434) | | 40,101 |
Commercial | 8,506 | | 275 | | (2,918) | | 5,863 |
Public entities | 947 | | 325 | | - | | 1,272 |
Other | 798 | | 29 | | (290) | | 537 |
| | | | | | | |
| 56,530 | | 15,398 | | (17,910) | | 54,018 |
| | | | | | | |
Current portion | 56,284 | | 15,644 | | (17,910) | | 54,018 |
Noncurrent portion | 246 | | (246) | | - | | - |
| | | | | | | December 31, |
| 2007 | | Additions(*) | | Write-offs | | 2008 |
| | | | | | | |
Residential | 16,268 | | (623) | | (10,101) | | 5,544 |
Industrial | 41,941 | | 7,549 | | (8,755) | | 40,735 |
Commercial | 8,454 | | 3,913 | | (3,861) | | 8,506 |
Public entities | 1,725 | | (778) | | - | | 947 |
Other | 14,673 | | (13,644) | | (231) | | 798 |
| | | | | | | |
| 83,061 | | (3,583) | | (22,948) | | 56,530 |
| | | | | | | |
Current portion | 71,592 | | 7,640 | | (22,948) | | 56,284 |
Noncurrent portion | 11,469 | | (11,223) | | - | | 246 |
| | | | | | | December 31, |
| 2006 | | Additions(*) | | Write-offs | | 2007 |
| | | | | | | |
Residential | 15,083 | | 12,660 | | (11,475) | | 16,268 |
Industrial | 39,720 | | 8,945 | | (6,724) | | 41,941 |
Commercial | 6,600 | | 7,658 | | (5,804) | | 8,454 |
Public entities | 37,722 | | (35,997) | | - | | 1,725 |
Other | 12,601 | | 2,619 | | (547) | | 14,673 |
| | | | | | | |
| 111,726 | | (4,115) | | (24,550) | | 83,061 |
| | | | | | | |
Current portion | 111,726 | | (15,584) | | (24,550) | | 71,592 |
Noncurrent portion | - | | 11,469 | | - | | 11,469 |
(*)Net of reversals and recoveries
The applied criteria, in addition to taking into account management’s experience of the historical of losses experienced, also complies with the criteria recommended by ANEEL.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
9 Recoverable Rate Deficit (CRC) transferred to the Government of the State of Paraná
By means of a fourth amendment dated January 21, 2005, the Company again renegotiated with the Government of Paraná the outstanding CRC (Account for Compensation of Income and Losses) balance as of December 31, 2004, in the amount of R$ 1,197,404, to be paid in 244 installments under the Price amortization system, restated according to the IGP-DI inflation index plus interest of 6.65% p.y., with the first installment due on January 30, 2005 and the others due in subsequent and consecutive months.
The State Government has been in compliance with the payments of the renegotiated installments according to the terms of the fourth amendment to the CRC agreement. Amortizations are secured by resources from dividends.
Maturity of noncurrent installments:
| December 31, |
| 2009 | | 2008 |
2010 | - | | 50,268 |
2011 | 52,845 | | 53,611 |
2012 | 56,359 | | 57,176 |
2013 | 60,107 | | 60,979 |
2014 | 64,105 | | 65,034 |
2015 | 68,368 | | 69,359 |
2016 | 72,915 | | 73,972 |
2017 | 77,764 | | 78,892 |
2018 | 82,936 | | 84,138 |
2019 | 88,451 | | 89,734 |
2020 | 94,334 | | 95,702 |
2021 | 100,607 | | 102,066 |
2022 | 107,298 | | 108,854 |
after 2022 | 278,936 | | 282,985 |
Total | 1,205,025 | | 1,272,770 |
| | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in CRC Transferred to the Government of the State of Paraná:
| Current portion | | Noncurrent portion | | Consolidated total |
Balances | | |
| | | | | |
As of December 31, 2007 | 40,509 | | 1,209,853 | | 1,250,362 |
Interest | 79,539 | | - | | 79,539 |
Monetary variation | 1,286 | | 108,764 | | 110,050 |
Transfers | 45,847 | | (45,847) | | - |
Amortization | (120,048) | | - | | (120,048) |
| | | | | |
As of December 31, 2008 | 47,133 | | 1,272,770 | | 1,319,903 |
Interest | 83,834 | | - | | 83,834 |
Monetary variation | (192) | | (18,004) | | (18,196) |
Transfers | 49,741 | | (49,741) | | - |
Amortization | (130,967) | | - | | (130,967) |
| | | | | |
As of December 31, 2009 | 49,549 | | 1,205,025 | | 1,254,574 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
10 Taxes and Social Contribution
| December 31, |
| 2009 | | 2008 |
Current assets | | | |
Deferred income and social contribution taxes(a) | 41,238 | | 40,183 |
Income and social contribution taxes paid in advance(b) | 279,241 | | 189,135 |
VAT (ICMS) paid in advance | 29,868 | | 26,863 |
PIS/Pasep and Cofins taxes on revenue paid in advance | 908 | | - |
Other taxes paid in advance | 1,157 | | 1,158 |
| | | |
| 352,412 | | 257,339 |
| | | |
Noncurrent assets | | | |
Deferred income and social contribution taxes(a) | 355,021 | | 400,141 |
VAT (ICMS) paid in advance | 83,957 | | 62,468 |
| | | |
| 438,978 | | 462,609 |
| | | |
Current liabilities | | | |
Deferred income and social contribution taxes(a) | 80,443 | | 48,630 |
Income and social contribution taxes payable | 123,486 | | 115,476 |
VAT (ICMS) payable | 164,209 | | 132,380 |
PIS/Pasep and Cofins on revenue taxes payable | 24,687 | | 38,353 |
Tax Recovery Program - Refis (d) | 107,974 | | 35,068 |
Income tax withheld on interest on capital | 29,027 | | 30,791 |
Other taxes | 6,627 | | 6,374 |
| | | |
| 536,453 | | 407,072 |
| | | |
Noncurrent liabilities | | | |
Deferred income and social contribution taxes(a) | 42,756 | | 28,910 |
VAT (ICMS) payable | 547 | | 618 |
Tax recovery programs(d) | 131,103 | | - |
| | | |
| 174,406 | | 29,528 |
IRPF = Corporate income tax | | | |
CSLL = Social contribution tax | | | |
| | | |
a) Deferred income and social contribution taxes
Company records deferred income tax, calculated at the rate of 15%, plus an additional rate of 10%, and deferred social contribution, at the rate of 9%.
Tax credits related to the pension and healthcare plans are realized according the movement of the related accrual based on the actuarial valuation conducted annually by an independent actuary, pursuant to the rules set forth in CVM Instruction no. 371/2000. Deferred taxes on all other accruals will be realized as judicial rulings are issued and regulatory assets are realized.
Under current tax legislation, tax losses and negative bases for social contributions may be offset against future income, up to the limit of 30% of the taxable income for each year, without expiration period.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Tax credits have been recorded as follows:
| | | December 31, |
| 2009 | | 2008 |
| | | |
Current assets | | | |
Pension and healthcare plans | 5,545 | | 3,073 |
Tax loss carryforwards | 4,172 | | 4,405 |
Deferred regulatory assets - CVA | 8,507 | | 9,631 |
Temporary differences | 23,014 | | 23,074 |
| | | |
| 41,238 | | 40,183 |
| | | |
Noncurrent assets | | | |
Pension and healthcare plans | 119,669 | | 144,552 |
Tax loss carryforwards | 17,802 | | 13,283 |
Temporary differences: | | | |
Reserve for contingencies | 149,066 | | 181,711 |
Allowance for doubtful accounts | 22,350 | | 22,959 |
FINAN provision | 3,291 | | 4,563 |
Deferred regulatory liabilities - CVA | 8,507 | | |
Accruals for regulatory liabilities | 7,705 | | 7,062 |
Accruals for effects of network charges | 6,922 | | 6,923 |
Amortization of goodwill | 19,709 | | 19,088 |
| | | |
| 355,021 | | 400,141 |
| | | |
(-) Current liabilities | | | |
Deferred regulatory liabilities - CVA | 74,290 | | 34,438 |
Surplus power | 195 | | 928 |
Temporary differences | 5,958 | | 13,264 |
| | | |
| 80,443 | | 48,630 |
| | | |
(-) Noncurrent liabilities | | | |
Temporary exclusions | | | |
Deferred regulatory liabilities - CVA | 33,647 | | 17,068 |
Rate for the use of Distribution system (TUSD) | 155 | | 32 |
Other regulatory assets | - | | 3,982 |
Gas supply | 8,954 | | 7,828 |
| | | |
| 42,756 | | 28,910 |
| | | |
| 273,060 | | 362,784 |
Company’s Board of Directors and Fiscal Council have approved the technical study prepared by the Chief Finance, Investor Relations, and Corporate Partnerships Office on future profitability projections, discounted at present value, which points out to the realization of deferred taxes. The consolidated estimated realizable amount for 2010 is negative because of the deferred income tax and social contribution liabilities realization in that year. According to the estimate of future taxable income, the realization of deferred taxes is shown below:
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| Estimated realizable amount | | Actual realized amount | | Estimated realizable amount |
. | | | | | |
2009 | 66,942 | | 100,994 | | |
2010 | - | | - | | (39,205) |
2011 | - | | - | | 71,822 |
2012 | - | | - | | 35,274 |
2013 | - | | - | | 60,524 |
2014 | - | | - | | 29,288 |
2015 to 2017 | - | | - | | 37,740 |
Until 2019 | - | | - | | 77,617 |
| 66,942 | | 100,994 | | 273,060 |
Projected future income will be revised by management upon the approval of the financial statements for fiscal year 2009.
b) Income tax and social contribution paid in advance
Amounts recorded as corporate income tax and social contribution on net income (paid in advance) refer to corporate tax credits and amounts withheld.
c) Recoverable ICMS (VAT)
The amounts recorded as recoverable ICMS (VAT) refer to credits from the acquisition of property, plant, and equipment under Supplemental Law no. 87/96, which shall be recovered monthly at the rate of 1/48 pursuant to Supplemental Law no. 102, dated July 11, 2000.
d) Tax recovery programs
| Debt amount | | Benefits-Law No.11,941 | | SELIC Interest | | Updated debt amount | | Advanced payment | | Updated debt amount |
| | | | | | | | | | | |
Refis program – INSS(1) | 35,068 | | - | | - | | 35,068 | | - | | 35,068 |
| | | | | | | | | | | |
Law no.11,941/09(2) | | | | | | | | | | | |
IRPJ | 42,538 | | (8,762) | | 326 | | 34,102 | | (2,231) | | 31,871 |
CSLL | 5,925 | | (1,460) | | 43 | | 4,508 | | (311) | | 4,197 |
COFINS tax | 43,956 | | (9,853) | | 330 | | 34,433 | | (2,305) | | 32,128 |
PIS /PASEP tax | 9,543 | | (2,139) | | 72 | | 7,476 | | (501) | | 6,975 |
COFINS tax – lawsuit | 196,839 | | (60,174) | | 1,321 | | 137,986 | | (9,148) | | 128,838 |
| | | | | | | | | | | |
| 298,801 | | (82,388) | | 2,092 | | 218,505 | | (14,496) | | 204,009 |
| | | | | | | | | | | |
| 333,869 | | (82,388) | | 2,092 | | 253,573 | | (14,496) | | 239,007 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The effects on 2009 income are shown below:
Reversal of provision for contingencies (Note 33.f) | 178,753 |
Taxes (PIS/PASEP and COFINS) – deductions from revenues (Note 32) | (31,359) |
Taxes – operating expenses (Note 33.g) | (61,872) |
Financial expense – interest | (90,164) |
Financial expense – penalties | (2,476) |
| (7,118) |
1) REFIS Program
On December 16, 2000, Copel signed up for the Tax Recovery Program (REFIS), established by Law no. 9,964, dated April 10, 2000, in order to pay in 60 monthly installments an outstanding debt to the National Social Security Institute (INSS) in the consolidated amount (net of interest and fines) of R$ 82,540, retroactive to March 1, 2000. At the end of this period, a balance remained, pending a ruling by the fiscal authority regarding the right by Copel to use certain tax credits, which was later rejected.
On September 14, 2006, Copel signed up for a new tax recovery program, called Special Installment Plan or PAEX, created under Provisional Measure no. 303/06, to pay off the remaining balance under REFIS taking advantage of the benefits of this plan (80% discount off the penalties imposed and 30% off interest due), resulting, according to Social Security's initial calculation, in the amount of R$ 37,782 to be paid in six installments, adjusted according to the SELIC interest rate. These installments have already been paid.
Nevertheless, the INSS has already indicated it plans to “restore” the interest charges that were waived under REFIS I, in the amount of R$ 38,600 (as of September 2006). For purposes of provisioning, this amount has been restated and reduced by 30%, pursuant to the benefit afforded under article 9 of Provisional Measure 303/96. Copel, however, has disputed this claim, requesting that the calculations that supposedly justify this charge be presented. As of the date of these statements, INSS has not yet made a final decision on how it will calculate the total of this debt, thus it has suspended the collection of the respective credits.
Accordingly, in light of these circumstances, the Company maintained the provision in the amount of R$ 35,068 to cover the new INSS claim under PAEX.
2) Installment Plan – Law no. 11,941/09
Pursuant to a ruling by the 4th District Federal Court, which became final on August 18, 1998, Copel was granted immunity from the levy of COFINS tax on power sales from 1995 until June 2001. Even though this ruling was final, the Federal Revenue Service (RFB) issued Copel two notices for failure to collect COFINS tax: on February 19, 2002, notice no. 10980.000932/2002-90, for fiscal year 1997, and on August 22, 2003, notice no. 10980.007831/2003-21, for the first three quarters of 1998. Simultaneously, it filed a lawsuit requesting the cancellation of the immunity ruling, which, after a long legal battle regarding the lapse of RFB's right to dispute the ruling, has been submitted to 4th District Federal Court for judgment on the merits. Copel has thus reclassified the corresponding risk of loss as probable, since there’s consol idated legal precedent in favor of the federal government.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
As this lawsuit was reclassified as probable loss, in November 2009 Copel chose to apply for the installment plan created under Law no. 11,941, dated May 27, 2009, to pay off the COFINS-related debt in connection with the two notices mentioned above. Since there has been a provision in connection with this lawsuit in the amount of R$ 184,037, and in light of the reduced penalties afforded under Law no. 11,941/09, the original amount of this debt became R$ 136,665, which, restated according to the SELIC interest rate as of December 31, 2009 (pursuant to article 3, paragraph 3, of that law), totals
R$ 137,986.
The Company also included in this installment plan fiscal debts owed by Copel Distribuição in connection with income tax and social contribution in February 2004, and income tax in December 2007, March 2008, and April 2008, which amount to R$ 48,463. These taxes were paid through compensation statements, which have not been approved by RFB. Taking into account reduced penalties and restatement by the SELIC interest rate (pursuant to Law no. 11,941/2009), the amount of this debt as of December 31, 2009 was R$ 38,610. Copel further included debts resulting from revised bases for calculation of PIS/PASEP and COFINS taxes for 2005 to 2008, in the amount of R$ 53,499, which, taking into account reduced penalties and restatement by the SELIC interest rate (pursuant to article 3, paragraph 3, of Law no. 11,941/2009), amounted to R$ 41,909 as of Decembe r 31, 2009.
With the payment of two installments and the accrual of SELIC interest as of December 31, 2009, pursuant to article 3, paragraph 3, of Law no. 11,941, the total outstanding debt is R$ 253,573.
As of the date of these statements, there has been no consolidation of installments by RFB.
Copel has rigorously fulfilled its obligations in connection with these installment plans.
Reconciliaton of the provision for income tax and social contribution:
The reconciliation of the provision for income tax (IRPJ) and social contribution (CSLL), calculated at the applicable rates, with the amounts recorded in the statement of income is shown below:
| | | | | December 31, |
| 2009 | | 2008 | | 2007 |
Income before Income tax and Social Contribuition | 1,427,228 | | 1,554,959 | | 1,598,015 |
| | | | | |
Income tax and Social Contribution at Statutory | (485,258) | | (528,686) | | (543,325) |
income tax rates | | | | | |
| | | | | |
Tax effects on: | | | | | |
Interest on capital | 78,200 | | 77,520 | | 68,000 |
Dividends | 3,295 | | 2,882 | | 3,088 |
Equity in investees | 1,575 | | 1,305 | | (595) |
FINAM - (losses) and gains | (183) | | (5,976) | | 3,197 |
Present value adjustment - Compagas | (912) | | (819) | | (736) |
Non-deductible expenses | (917) | | (1,627) | | - |
Tax benefits - Law no. 11,941/09 | 27,904 | | - | | - |
Tax incentives | 3,530 | | 4,699 | | 4,735 |
Other | (4,560) | | (7,444) | | 5,321 |
Current IRPJ and CSLL | (287,602) | | (352,064) | | (536,168) |
| | | | | |
Deferred IRPJ and CSLL | (89,724) | | (106,082) | | 75,853 |
| | | | | |
IRPJ = Corporate income tax | | | | | |
CSLL = Social contribution on net income | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
11 Deferred regulatory assets - CVA
The regulatory assets and liabilities accounts (CVA) records variations of the following cost items, which are not controlled by the distribution company as approved at the Annual tariff adjustment by ANEEL and relate to amounts disbursed by companies during the year: Electricity purchased for resale (Bilateral Contracts, Itaipu, and Auctions), Transmission of electricity purchased (Transmission of Electricity from Itaipu and Basic Network Charges), and Regulatory Charges or use of Charges – Fuel Consumption Account (CCC) quota; Energy Development Account (CDE) quota; System Services (ESS); and Program of Incentives for Alternative Energy Sources (Proinfa) quotas.
Under Resolution no. 839, dated June 23, 2009, ANEEL authorized Copel Distribuição to apply, as of June 24, 2009, an average rate increase of 18.04% to its rates for sales to final customers, of which 11.42% correspond to the annual rate review and 6.62% correspond to financial components, including the Portion A regulatory asset (CVA), which amounts to R$ 252,951, composed of two installments: CVA being processed for rate year 2008-2009, in the amount of R$ 264,025, and CVA balance from previous years to be offset, in the amount of (R$ 11,074).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The balance of the Deferred Regulatory Assets and Liabilities – CVA is detailed below:
| | | | | December 31, |
| 2009 | | 2008 | | 2009 | | 2008 |
| Current assets | | Noncurrent assets |
Recoverable CVA, 2008 tariff adjustment review | | | | | | | |
Fuel Consumption Account - CCC | - | | 17,966 | | - | | - |
Use of transmission installations (Basic Network) | - | | 15,908 | | - | | - |
Electricity purchased for resale (Itaipu) | - | | 11,611 | | - | | - |
Charges for system services - ESS | - | | 9,133 | | - | | - |
Energy Development Account - CDE | - | | 169 | | - | | - |
Incentives to Alternative Energy Sources – Proinfa | - | | 2,817 | | - | | - |
| - | | 57,604 | | - | | - |
| | | | | | | |
Recoverable CVA, 2009 tariff adjustment review | | | | | | | |
Fuel Consumption Account – CCC | 7,482 | | 8,512 | | - | | 8,512 |
Use of transmission installations (Basic Network) | 21,052 | | 12,412 | | - | | 12,412 |
Electricity purchased for resale (Itaipu) | 49,036 | | 16,588 | | - | | 16,588 |
Charges for system services - ESS | 17,038 | | 13,121 | | - | | 13,121 |
Energy Development Account - CDE | 6,139 | | 204 | | - | | 204 |
Incentives to Alternative Energy Sources –Proinfa | 10,986 | | - | | - | | - |
Electricity purchased for resale (CVA Energy) | 6,191 | | 1,881 | | - | | 1,881 |
Transport of purchased power (Itaipu) | 1,613 | | 776 | | - | | 776 |
| 119,537 | | 53,494 | | - | | 53,494 |
| | | | | | | |
Recoverable CVA, 2010 tariff adjustment review | | | | | | | |
Fuel Consumption Account - CCC | 17,166 | | - | | 17,166 | | �� - |
Use of transmission installations (Basic Network) | 18,277 | | - | | 18,277 | | - |
Power purchased for resale (Itaipu) | 23,042 | | - | | 23,042 | | - |
Energy Development Account - CDE | 2,830 | | - | | 2,830 | | - |
Incentives to Alternative Energy Sources - Proinfa | 252 | | - | | 252 | | - |
Power purchased for resale (CVA Energy) | 36,547 | | - | | 36,547 | | - |
Transport of purchased power (Itaipu) | 849 | | - | | 849 | | - |
| 98,963 | | - | | 98,963 | | - |
| 218,500 | | 111,098 | | 98,963 | | 53,494 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | | | | December 31, |
| 2009 | | 2008 | | 2009 | | 2008 |
| Current liabilities | | Noncurrent liabilities |
CVA variations subject to offsetting, 2008 tariff adjustment review | | | | | | | |
Electricity purchased for resale (CVA Energy) | - | | 25,727 | | - | | - |
Transport of purchased power (Itaipu) | - | | 227 | | - | | - |
| - | | 25,954 | | - | | - |
| | | | | | | |
CVA variations subject to offsetting, 2010 tariff adjustment review | | | | | | | |
Incentives to alternative sources (Proinfa) | - | | 2,373 | | - | | 2,373 |
| - | | 2,373 | | - | | 2,373 |
CVA variations subject to offsetting, 2010 tariff adjustment review | | | | | | | |
Charges for system services - ESS | 25,020 | | - | | 25,020 | | - |
| 25,020 | | - | | 25,020 | | - |
Total | 25,020 | | 28,327 | | 25,020 | | 2,373 |
| | | | | | | |
The changes in the balances of deferred regulatory assets and liabilities - CVA restated by the SELIC interest rate are shown on the following table:
. | | | | | | | | | December 31, |
| 2008 | | Deferral | | Amortization | | Restatement | | Transfers | | 2009 |
Assets | | | | | | | | | | | |
Fuel Consumption Account – CCC | 34,990 | | 30,874 | | (26,329) | | 2,279 | | - | | 41,814 |
Use of transmission installations for use of trans. syst. (Basic Network) | 40,732 | | 51,833 | | (38,872) | | 3,913 | | - | | 57,606 |
Electricity purchased for resale (Itaipu) | 44,787 | | 106,811 | | (64,172) | | 7,694 | | - | | 95,120 |
Charges on use of system services - ESS | 35,375 | | 5,875 | | (27,831) | | 3,619 | | - | | 17,038 |
Energy Development Account - CDE | 577 | | 17,080 | | (6,762) | | 904 | | - | | 11,799 |
Incentives to Alternative Energy Sources - Proinfa | 2,817 | | 21,878 | | (14,668) | | 1,463 | | - | | 11,490 |
Electricity purchased for resale (CVA Energy) | 3,762 | | 79,692 | | (6,704) | | 2,535 | | - | | 79,285 |
Transmission of electricity from Itaipu | 1,552 | | 3,223 | | (1,701) | | 237 | | - | | 3,311 |
| 164,592 | | 317,266 | | (187,039) | | 22,644 | | - | | 317,463 |
Current | 111,098 | | 113,480 | | (187,039) | | 17,728 | | 163,233 | | 218,500 |
Non-current | 53,494 | | 203,786 | | - | | 4,916 | | (163,233) | | 98,963 |
Liabilities | | | | | | | | | | | |
Charges for system services – ESS | - | | 49,260 | | - | | 780 | | - | | 50,040 |
Incentives to Alternative Sources - Proinfa | 4,746 | | (4,712) | | - | | (34) | | - | | - |
Electricity purchased for resale (CVA Energy) | 25,727 | | - | | (27,214) | | 1,487 | | - | | - |
Transmission of electricity from Itaipu | 227 | | - | | (261) | | 34 | | - | | - |
| 30,700 | | 44,548 | | (27,475) | | 2,267 | | - | | 50,040 |
Current | 28,327 | | 7,880 | | (27,475) | | 1,794 | | 14,494 | | 25,020 |
Non-current | 2,373 | | 36,668 | | - | | 473 | | (14,494) | | 25,020 |
| | | | | | | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
12 Other Regulatory Assets and Liabilities
Consolidated balances are shown below:
| Assets December 31, 2009 | | Liabilities December 31, 2009 |
| Current | | Non current | | Total | | Current | | Non current | | Total |
| | | | | |
Copel Distribuição S.A. | | | | | | | | | | | |
Basic network review adjustment(a) | 6,088 | | - | | 6,088 | | 7,255 | | - | | 7,255 |
Contracted energy shortfall – CIEN contract(b) | 11,438 | | - | | 11,438 | | - | | - | | - |
Other | - | | - | | - | | 1,060 | | 26 | | 1,086 |
| 17,526 | | - | | 17,526 | | 8,315 | | 26 | | 8,341 |
| | | | | | | | | | | |
| Assets December 31, 2008 | | Liabilities December 31, 2008 |
| | | Non | | | | | | Non | | |
| Current | | current | | total | | Current | | current | | total |
Copel Distribuição | | | | | | | | | | | |
Basic network review adjustment(a) | 11,458 | | 6,088 | | 17,546 | | 14,511 | | 7,255 | | 21,766 |
Contracted energy short fall – CIEN contract(b) | 20,053 | | 4,997 | | 25,050 | | - | | - | | - |
Other | - | | - | | - | | 2 | | 2 | | 4 |
| 31,511 | | 11,085 | | 42,596 | | 14,513 | | 7,257 | | 21,770 |
Copel Geração e Transmissão | | | | | | | | | | | |
Basic network review adjustment(a) | - | | - | | - | | 11,679 | | - | | 11,679 |
| 31,511 | | 11,085 | | 42,596 | | 26,192 | | 7,257 | | 33,449 |
| | | | | | | | | | | |
a) Basic Network Charge Adjustment
The concession agreements signed by the transmission companies contain a clause which sets the date of July 1, 2005 as the date of the first periodic review of annual allowed revenues. The rate review was concluded and its results were approved on July 1, 2007, applicable retroactively to July 1, 2005. Thus, it became necessary to calculate the retroactive discrepancy for the period from 2005 to 2007, which has been treated as a “review adjustment share”.
This balance, which has been accrued by transmission companies, was offset over 24 months, from July 2007 until June 2009.
ANEEL has calculated the discrepancy corresponding to the “connection point review adjustments” for all distribution companies, resulting in a balance of R$ 22,915 to be paid by Copel Distribuição to Copel Transmissão. As far as the “basic network review adjustments", the application of Copel Distribuição participation percentage to the total adjustment share resulted in the amount of R$ 29,020 to be collected from the remaining transmission companies which underwent the rate review process.
Out of the amounts that are being settled with the transmission companies, R$ 10,739, which correspond to the “connection point review adjustments”, and R$ 14,511, which correspond to the “basic network review adjustments”, have been taken into account in Copel Distribuição June 2008 rate review, and the remainder was taken into account in the June 2009 rate review and shall be settled by June 2010.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) Contracted Energy Shortfall – CIEN Contract
The amount of R$ 30,112 refers to an advance for the coverage of Copel's uncovered power demand, which had to be supplied through spot market transactions from January through April 2008, due to the termination of the agreement with Companhia de Interconexão Energética – CIEN, authorized under MME Ordinance no. 294/2006. This amount was tentatively taken into account in Copel Distribuição’s June 2008 rate review. The discrepancies resulting from the review of the amounts recorded provisionally in advance amounted to R$ 22,875, which was taken into account in the 2009 rate review and which shall be settled by June 2010.
13 Collaterals and Escrow Accounts
| December 31, |
| 2009 | | 2008 |
Current assets | | | |
Escrow deposits | 113,701 | | 150,794 |
| 113,701 | | 150,794 |
Noncurrent assets | | | |
Collateral under STN agreement (Note 21.b) | 24,195 | | 37,868 |
| 24,195 | | 37,868 |
| | | |
There is an amount of R$ 21,072 invested in Unibanco S.A., as of December 31, 2009, yielding 100% of the variation of the DI rate (R$ 19,730 as of 2008, yielding 100.5% of the variation of the DI rate), in a reserve account set up to secure a debt to BNDESPAR, in connection with the issue of Elejor debentures, pursuant to a Private Agreement on Revenue Attachment and Other Covenants.
There are R$ 59,787, as of December 31, 2009 (R$ 54,403 as of 2008), invested in Banco do Brasil, yielding 100% of the variation of the DI rate, in a reserve account set up to secure to ANEEL the construction of the Mauá Power Plant by Copel Geração e Transmissão.
The remaining deposits meet the requirements of the Spot Market (CCEE) and are tied to the operations conducted at power auctions, CCEE settlements, and ANEEL auctions.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
14 Other Receivables
| December 31, |
| 2009 | | 2008 |
Current assets | | | |
Advance payments to employees | 8,352 | | 8,264 |
Advance payments | 8,149 | | 9,305 |
Decommissioning in progress | 6,181 | | 4,795 |
Sale of property and rights | 4,535 | | 1,872 |
Installment plan for Onda Provedor de Serviços | 4,349 | | 4,348 |
Recoverable salaries of transferred employees | 3,663 | | 3,819 |
Services to third-parties | 3,577 | | 1,347 |
Advance payments to suppliers | 2,381 | | 5,187 |
Compulsory loans | 926 | | 1,806 |
Acquisition of fuels under the Fuel Consumption Account (CCC) | 638 | | 185 |
Lease of the Araucária Power Plant | 550 | | 7,474 |
Allowance for doubtful accounts | (10,896) | | (9,531) |
Other receivables | 4,186 | | 3,985 |
| 36,591 | | 42,856 |
Noncurrent assets | | | |
Advance payments to suppliers | 8,290 | | 2,435 |
Sale of property and rights | 4,437 | | 4,788 |
Compulsory loans | 3,814 | | 3,561 |
Other receivables | 408 | | 1,430 |
| 16,949 | | 12,214 |
The allowance for doubtful accounts refers to the balance of installments owed by Onda Provedor de Serviços, whose realization is unlikely, and to an unrealizable amount mostly comprising wages of loaned employees.
15 Inventories
| Operation / Maintenance | | Property, plant, and equipment in
progress - inventories |
| December
31, 2009 | | December
31, 2008 | | December
31, 2009 | | December
31, 2008 |
Copel Geração e Transmissão | 9,683 | | 10,423 | | 17,911 | | 19,286 |
Copel Distribuição | 76,170 | | 48,150 | | 167,529 | | 100,094 |
Copel Telecomunicações | 7,166 | | 5,151 | | 17,641 | | 14,507 |
Compagas | 1,171 | | 536 | | 6,576 | | 5,071 |
Elejor | - | | - | | 1,051 | | 1,051 |
| 94,190 | | 64,260 | | 210,708 | | 140,009 |
| | | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
16 Judicial Deposits
The balances of judicial deposits under noncurrent receivables are shown below:
| Total judicial deposits | | Deduction of contingencies | | Noncurrent |
| December
31, 2009 | | December
31, 2009 | | December
31, 2009 | | December
31, 2008 |
Labor claims | 61,642 | | (23,722) | | 37,920 | | 58,637 |
. | | | | | | | |
Civil: | | | | | | | |
Suppliers | 22,822 | | (22,822) | | - | | - |
Civil claims | 16,932 | | (10,568) | | 6,364 | | 14,846 |
Easements | 2,391 | | - | | 2,391 | | 10,660 |
Customers tariff litigation | 1,426 | | (1,426) | | - | | 1,835 |
| 43,571 | | (34,816) | | 8,755 | | 27,341 |
. | | | | | | | |
Tax | 53,722 | | (27,029) | | 26,693 | | 26,671 |
. | | | | | | | |
Others | 68 | | - | | 68 | | 848 |
| 159,003 | | (85,567) | | 73,436 | | 113,497 |
| | | | | | | |
Escrow deposits have been classified under Reserve for Contingencies and are detailed in Note 29.
17 Dividends Receivable
| December 31, |
| 2009 | | 2008 |
Investees | | | |
Sanepar | | | |
Interest on shareholders´ equity and dividends received from investees | 5,135 | | 5,247 |
. | 5,135 | | 5,247 |
| | | |
Transferred financing - (STN - Secretaria do Tesouro Nacional)
The Company transferred existing loans and financing to its wholly-owned subsidiaries at the time of their constitution in 2001. Nevertheless, since the agreements for transfer to the respective subsidiaries have not been formalized together with the financial institutions, these amounts are also recorded under the Parent Company.
These loans and financing are transferred with the same interest and charges agreed by the Parent Company and are shown separately as receivables from the wholly-owned subsidiaries, and as loans and financing liabilities owed by the subsidiaries.
Loan Agreement – Copel Distribuição
On February 27, 2007, ANEEL approved the loan agreement signed by Copel (lender) and Copel Distribution (borrower), in the amount of R$ 1,100,000. This loan has a five-year term, bearing interestcorresponding to 104% of the DI rate, and its funds were used in the expenditure program for the concession and in the payment of debentures transferred to Copel Distribution, which were due on March 1, 2007.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Elejor Loan Agreement
On April 7, 2004, Copel signed a loan agreement with Elejor, to ensure the continuity of the construction of the power plants that make up the Fundão-Santa Clara Power Complex; the agreement provides for payment in 120 monthly and consecutive payments, plus prorated interest corresponding to 3.198% a year and a spread equivalent to the variation of the Interbank Deposit Rate, as from the date of each transfer. The loan’s grace period was extended to February 2016, in the second amendment to the Elejor Shareholders’ Agreement, on April 18, 2005.
18 Investments
a) Main information about Copel’s investees
| Number of shares or quotas held by Copel | | Total ownership % | | Paid in share capital | | Shareholders' Equity(2) | | Net Income (losses) (2) |
| | | |
| Common | | Preferred | | Quotas | | | | |
Investees | | | | | | | | | | | | | 2009 |
Sanepar | 51,797,823 | | 12,949,456 | | - | | 34.75 | | 374,268 | | 858,059 | | 65,243 |
Sercomtel - Telecom. | 9,018,088 | | 4,661,913 | | - | | 45.00 | | 246,896 | | 88,584 | | (59,383) |
Foz do Chopim | - | | - | | 8,227,542 | | 35.77 | | 23,000 | | 46,452 | | 27,371 |
Dona Francisca | 153,381,798 | | - | | - | | 23.03 | | 66,600 | | 85,013 | | 40,308 |
Sercomtel Celular | 9,018,029 | | 4,661,972 | | - | | 45.00 | | 36,540 | | - | | (11,265) |
Dois Saltos Empreend. (1) | - | | - | | 300,000 | | 30.00 | | 1,000 | | 1,000 | | - |
Copel Amec (1) | - | | - | | 48,000 | | 48.00 | | 100 | | 321 | | 11 |
Carbocampel (1) | 1,336,742 | | - | | - | | 49.00 | | 2,728 | | 2,279 | | (49) |
Escoelectric Ltda.(1) | - | | - | | 3,220,000 | | 40.00 | | 7,217 | | (4,259) | | (1,691) |
. | | | | | | | | | | | | | |
(1) Unaudited by independent auditors |
(2) Shareholders' equity and net income have been adjusted to Copel's accounting practices |
| | | | | | | | | | | | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) Changes to the investments in investees
| Balance as of December 31, 2008 | | Equity pick-up | | Investments, APFCI** | | Proposed dividends and IOE* | | Other | | Balance as of December 31, 2009 |
| | | | |
| | | | |
Investees | | | | | | | | | | | |
Sercomtel – Telecomunicações | 84,886 | | (9,096) | | - | | - | | - | | 75,790 |
Sercomtel Telecom. - Impairment(e) | (18,301) | | (17,626) | | - | | - | | - | | (35,927) |
Foz do Chopim | 16,519 | | 9,790 | | - | | (9,693) | | - | | 16,616 |
Dona Francisca | 10,332 | | 9,284 | | - | | - | | - | | 19,616 |
Dois Saltos Empreend. | 300 | | - | | - | | - | | - | | 300 |
Copel Amec | 149 | | 5 | | - | | - | | - | | 154 |
Escoelectric | (1,027) | | (677) | | - | | - | | - | | (1,704) |
Escoelectric – APFCI** | 1,025 | | - | | - | | - | | - | | 1,025 |
Carbocampel | (69) | | (23) | | 1,209 | | - | | - | | 1,117 |
Carbocampel – APFCI** | 1,059 | | - | | (1,059) | | - | | - | | - |
Sercomtel Celular | 6,195 | | - | | - | | - | | - | | 6,195 |
Sercomtel Celular -Impairment(f) | (6,195) | | - | | - | | - | | - | | (6,195) |
Sanepar | 281,524 | | 22,670 | | - | | (6,041) | | - | | 298,153 |
| 376,397 | | 14,327 | | 150 | | (15,734) | | - | | 375,140 |
Other investments | | | | | | | | | | | |
Amazon Investment Fund (FINAM)(c) | 30,012 | | - | | - | | - | | - | | 30,012 |
FINAM - Nova Holanda(c) | 14,868 | | - | | - | | - | | - | | 14,868 |
Northeastern Investment Fund (FINOR)(c) | 9,870 | | - | | - | | - | | - | | 9,870 |
FINAM - Investco (c) | 7,903 | | - | | - | | - | | - | | 7,903 |
Other tax incentives | 2,315 | | - | | - | | - | | - | | 2,315 |
Provision for losses - Finam/Finor(c) | (35,835) | | - | | - | | - | | (733) | (1) | (36,568) |
Provision for losses - Nova Holanda(c) | (14,868) | | - | | - | | - | | - | | (14,868) |
Property for future service use | 3,821 | | - | | - | | - | | 1,776 | (2) | 5,597 |
Other investments | 1,455 | | - | | 1 | | - | | (160) | (3) | 1,296 |
| 19,541 | | - | | 1 | | - | | 883 | | 20,425 |
| 395,938 | | 14,327 | | 151 | | (15,734) | | 883 | | 395,565 |
* Interest on Equity
** Advance per Future Capital Increase | | | | | | | | |
(1) Supplemental provision for losses on tax incentives | | | | |
(2) Transfers from p.,p.,&e., of which R$ 1,465 are in service and R$ 311 are in progress | | | | |
(3) Reclassification of additions to Consórcio Cruzeiro do Sul (Mauá Power Plant) | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| Balance as of December 31, 2007 | | Equity pick-up | | Investments, APFCI** | | Proposed dividends and IOE** | | Inclusion of Dominó in consolidation | | Other | | Balance as of December 31, 2008 |
| | | | | |
| | | | | |
Investees | | | | | | | | | | | | | |
Dominó Holdings(d) | 90,155 | | - | | - | | - | | (90,155 | ) | - | | - |
Sercomtel Telecom. | 82,153 | | 4,371 | | - | | (1,638) | | - | | - | | 84,886 |
Sercomtel Telecom. - Impairment(f) | - | | (18,301) | | - | | - | | - | | - | | (18,301) |
Foz do Chopim | 16,353 | | 8,966 | | - | | (8,478) | | - | | (322) | | 16,519 |
Dona Francisca | 5,931 | | 4,401 | | - | | - | | - | | - | | 10,332 |
Dois Saltos Empreend. | - | | - | | - | | - | | - | | 300 | | 300 |
Copel Amec | 140 | | 9 | | - | | - | | - | | - | | 149 |
Escoelectric | (1,390) | | 363 | | - | | - | | - | | - | | (1,027) |
Escoelectric - APFCI** | 1,025 | | - | | - | | - | | - | | - | | 1,025 |
Carbocampel | (56) | | (13) | | - | | - | | - | | - | | (69) |
Carbocampel - APFCI** | 1,059 | | - | | - | | - | | - | | - | | 1,059 |
Sercomtel Celular | 8,759 | | (2,564) | | - | | - | | - | | - | | 6,195 |
Sercomtel Celular - Impairment (g) | - | | (6,195) | | - | | - | | - | | - | | (6,195) |
Braspower – APFCI** | 176 | | - | | 20 | | - | | - | | (196) | | - |
Sanepar | - | | 23,158 | | - | | (6,173) | | 264,539 | | - | | 281,524 |
| | | | | | | | | | | | | |
| 204,305 | | 14,195 | | 20 | | (16,289) | | 174,384 | | (218) | | 376,397 |
| | | | | | | | | | | | | |
Other investments | | | | | | | | | | | | | |
Amazon Investment Fund (FINAM)(c) | 30,012 | | - | | - | | - | | - | | - | | 30,012 |
FINAM - Nova Holanda(c) | 14,868 | | - | | - | | - | | - | | - | | 14,868 |
Northeastern Investment Fund (FINOR)(c) | 9,870 | | - | | - | | - | | - | | - | | 9,870 |
FINAM - Investco (c) | 7,903 | | - | | - | | - | | - | | - | | 7,903 |
Other tax incentives | 2,315 | | 362 | | - | | (362) | | - | | - | | 2,315 |
Provision for losses - Finam/Finor(c) | (26,801) | | - | | - | | - | | - | | (9,034) | | (35,835) |
Provision for losses - Nova Holanda(c) | - | | - | | - | | - | | - | | (14,868) | | (14,868) |
Assets for future use | 4,588 | | - | | 120 | | - | | - | | (887) | | 3,821 |
Other investments | 1,508 | | (239) | | 247 | | 239 | | - | | (300) | | 1,455 |
| 44,263 | | 123 | | 367 | | (123) | | - | | (25,089) | | 19,541 |
| 248,568 | | 14,318 | | 387 | | (16,412) | | 174,384 | | (25,307) | | 395,938 |
* Interest on Equity ** Advance per Future Capital Increase (1) Dividends from the previous year. (2) Balance transferred from other investments to investees. (3) Interest sold in October 2008. (4) Constitution/addition to provision | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
c) Tax Incentives
In 2009, Copel recalculated the market value of its investments in FINAM and FINOR, based on their average prices on the São Paulo Stock Exchange (BM&FBOVESPA). Based on the FINAM and FINOR prices on December 31, 2009, the Company recorded an addition to the provision for the devaluation of these investments in the amount of R$ 733, thus raising the total balance to R$ 36,568.
d) Dominó Holdings
On January 14, 2008, Copel became the holder of 45% of the share capital of Dominó Holdings S.A., by acquiring a 30% interest held by Sanedo Participações Ltda. for R$ 110,226, with an approximate discount of R$ 74,402, based on the expected future profitability of the company. Upon consolidation of the balance sheets, this discount was reclassified to Deferred Revenues, under Long-Term Liabilities.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
With this acquisition, Copel acquired control of the company in conjunction with the remaining shareholders. Dominó Holdings has been consolidated into Copel’s balance sheets proportionally to the Company’s interest in it.
The main items of assets, liabilities, and the statement of operations of Dominó Holdings, as well as the corresponding consolidated shares, are shown below:
Dominó Holdings S.A. | Balances as of December 31, 2009 |
| Full amounts | | Revaluation
reserve (1) | | Adjusted balance | | Copel's
ownership (45%) |
. | | | | | | | |
ASSETS | 728,193 | | (44,756) | | 683,437 | | 307,547 |
Current assets | 14,187 | | - | | 14,187 | | 6,384 |
Noncurrent assets | 714,006 | | (44,756) | | 669,250 | | 301,163 |
. | | | | | | | |
LIABILITIES | 728,193 | | (44,756) | | 683,437 | | 307,547 |
Current liabilities | 11,021 | | - | | 11,021 | | 4,959 |
Noncurrent liabilities | 7 | | - | | 7 | | 4 |
Shareholders' equity | 717,165 | | (44,756) | | 672,409 | | 302,584 |
| | | | | | | |
STATEMENT OF INCOME | | | | | | | |
Operational expenses | (4,829) | | - | | (4,829) | | (2,173) |
Financial income (losses) | (953) | | - | | (953) | | (428) |
Result of equity in investees | 47,775 | | 2,603 | | 50,378 | | 22,670 |
Net income for the period | 41,993 | | 2,603 | | 44,596 | | 20,069 |
. | | | | | | | |
Statment of Cash Flow | | | | | | | |
Cash used in operating activities | 3,720 | | - | | 3,720 | | 1,674 |
Cash provided by investing activities | 11,661 | | - | | 11,661 | | 5,247 |
Cash flow used in financing activities | 9,300 | | - | | 9,300 | | 4,185 |
| | | | | | | |
(1) Balances have been adjusted due to accounting practices not adopted by the Parent Company | | |
| | | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Dominó Holdings S.A. | Balances as of December 31, 2008 |
| Full amounts | | Revaluation
reserve (1) | | Adjusted balance | | Copel's ownership (45%) |
| | | | | | | |
ASSETS | 697,081 | | (47,359) | | 649,722 | | 292,375 |
Current assets | 15,998 | | - | | 15,998 | | 7,199 |
Noncurrent assets | 681,083 | | (47,359) | | 633,724 | | 285,176 |
| | | | | | | |
LIABILITIES | 697,081 | | (47,359) | | 649,722 | | 292,375 |
Current liabilities | 12,503 | | - | | 12,503 | | 5,626 |
Noncurrent liabilities | 7 | | - | | 7 | | 4 |
Shareholders' equity | 684,571 | | (47,359) | | 637,212 | | 286,745 |
| | | | | | | |
STATEMENT OF INCOME | | | | | | | |
Operational expenses | (3,153) | | - | | (3,153) | | (1,419) |
Financial income (losses) | (798) | | - | | (798) | | (359) |
Result of equity in investees | 47,543 | | 2,298 | | 49,841 | | 22,428 |
Provision for income tax and social contribution | (13) | | - | | (13) | | (6) |
Net income for the period | 43,579 | | 2,298 | | 45,877 | | 20,644 |
| | | | | | | |
Statment of Cash Flow | | | | | | | |
Cash used in operating activities | (3,503) | | - | | (3,503) | | (1,576) |
Cash provided by investing activities | 14,908 | | - | | 14,908 | | 6,709 |
Cash flow used in financing activities | (12,455) | | - | | (12,455) | | (5,605) |
| | | | | | | |
(1) Balances have been adjusted due to accounting practices not adopted by the Parent Company | | |
| | | | | | | |
e) Centrais Eólicas do Paraná
The Company held a 30% interest in Centrais Eólicas do Paraná (Ceopar).On September 6, 2007, Copel acquired, through Copel Geração e Transmissão, the remaining 70% interest held by Wobben Windpower Indústria e Comércio Ltda., thus becoming the holder of 100% of the share capital of Ceopar. This transaction resulted in a negative goodwill of R$ 592, which was reclassified upon consolidation to Deferred Revenues, under Noncurrent Liabilities.
f) Impairment tests
The conclusion in December 2009 of impairment tests on Copel’s assets, based, when applicable, on the same assumptions mentioned in the Property, Plant, and Equipment note (Note 19.f), indicated, with an adequate level of certainty, that a part of the assets in Sercomtel Telecomunicações S/A (R$ 35,927) and Sercomtel Celular S/A (R$ 6,195) were valued above their recoverable amount, thus requiring the accrual of corresponding losses due to impossibility of recovering these amounts through future profits by these companies. In 2009, Copel recorded R$ 17,626 in the statement of income (R$ 24,496 in 2008).
No need to record provisions for devaluation of investments was identified in 2009 for the remaining investments of the Company.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
19 Property, Plant and Equipment
| | | | | | | | | December 31, |
| | | | | 2009 | | | | | | 2008 |
| Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net |
| | | | | | | | | | | |
In service(a) | | | | | | | | | | | |
Copel Geração e Transmissão | 5,313,956 | | (2,201,518) | | 3,112,438 | | 5,250,080 | | (2,070,575) | | 3,179,505 |
Copel Distribuição | 5,279,874 | | (2,461,909) | | 2,817,965 | | 4,816,165 | | (2,288,653) | | 2,527,512 |
Copel Telecomunicações | 370,972 | | (231,162) | | 139,810 | | 358,300 | | (206,587) | | 151,713 |
Compagas | 188,948 | | (50,881) | | 138,067 | | 159,486 | | (42,324) | | 117,162 |
Elejor | 606,816 | | (63,077) | | 543,739 | | 606,737 | | (46,689) | | 560,048 |
UEG Araucária | 645,229 | | (139,522) | | 505,707 | | 641,682 | | (107,978) | | 533,704 |
Centrais Eólicas do Paraná | 4,129 | | (2,632) | | 1,497 | | 4,129 | | (2,424) | | 1,705 |
Dominó Holdings | 1 | | - | | 1 | | 1 | | - | | 1 |
| 12,409,925 | | (5,150,701) | | 7,259,224 | | 11,836,580 | | (4,765,230) | | 7,071,350 |
Construction in progress | | | | | | | | | | | |
Copel Geração e Transmissão | 519,759 | | - | | 519,759 | | 350,721 | | - | | 350,721 |
Copel Distribuição | 586,423 | | - | | 586,423 | | 470,643 | | - | | 470,643 |
Copel Telecomunicações | 48,776 | | - | | 48,776 | | 29,874 | | - | | 29,874 |
Compagas | 29,005 | | - | | 29,005 | | 33,671 | | - | | 33,671 |
Elejor | 8,292 | | - | | 8,292 | | 8,292 | | - | | 8,292 |
UEG Araucária | 7,000 | | - | | 7,000 | | 881 | | - | | 881 |
| 1,199,255 | | - | | 1,199,255 | | 894,082 | | - | | 894,082 |
| 13,609,180 | | (5,150,701) | | 8,458,479 | | 12,730,662 | | (4,765,230) | | 7,965,432 |
Special obligations (b) | | | | | | | | | | | |
Copel Geração e Transmissão | (187) | | - | | (187) | | (187) | | - | | (187) |
Copel Distribuição | (994,099) | | 64,239 | | (929,860) | | (936,678) | | 20,108 | | (916,570) |
| (994,286) | | 64,239 | | (930,047) | | (936,865) | | 20,108 | | (916,757) |
. | | | | | | | | | | | |
Property, plant and equipment, net | 12,614,894 | | (5,086,462) | | 7,528,432 | | 11,793,797 | | (4,745,122) | | 7,048,675 |
| | | | | | | | | | | |
Under Articles 63 and 64 of Decree no. 41,019, dated February 26, 1957, the assets and facilities used in the generation, transmission, distribution, and sale of energy are related to these services and cannot be retired, sold, or pledged in guarantee without the prior written approved of the ANEEL. ANEEL Resolution no. 20/1999 establishes the procedures for assets to be retired or sold and determines that the proceeds from the sales of assets which are no longer useful to the concessions should be deposited in a restricted bank account to be invested in the concession.
Financial charges and interest on loans from third-parties for investments in construction in progress have been recorded through transfers to Property, Plant, and Equipment in Progress, for a total of R$ 7,113 in 2009 (R$ 1.470 in 2008).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a) Property, plant, and equipment in service by nature of asset
| | | | | | | | | | | December 31, |
| | | | | 2009 | | | | | | 2008 |
| Cost | | Accumulated Depreciation | | Consolidated net value | | Cost | | Accumulated Depreciation | | Consolidated net value |
| | | | | | | | | | | |
Machinery and equipment | 8,379,806 | | (3,540,961) | | 4,838,845 | | 7,874,370 | | (3,258,316) | | 4,616,054 |
Reservoirs, dams, and water mains | 2,874,228 | | (1,134,126) | | 1,740,102 | | 2,869,541 | | (1,069,984) | | 1,799,557 |
Buildings | 726,077 | | (340,870) | | 385,207 | | 710,019 | | (320,950) | | 389,069 |
Land | 123,185 | | - | | 123,185 | | 121,357 | | - | | 121,357 |
Gas pipelines | 146,896 | | (31,862) | | 115,034 | | 115,738 | | (27,504) | | 88,234 |
Vehicles | 140,369 | | (90,281) | | 50,088 | | 127,128 | | (77,327) | | 49,801 |
Furniture and implements | 19,364 | | (12,601) | | 6,763 | | 18,427 | | (11,149) | | 7,278 |
| 12,409,925 | | (5,150,701) | | 7,259,224 | | 11,836,580 | | (4,765,230) | | 7,071,350 |
| | | | | | | | | | | |
The fully depreciated amount of property, plant, and equipment in service was R$ 832,974 as of December 31, 2009, and R$ 695,508 as of December 31, 2008.
b) Special obligations
These are obligations related to the Electric Energy Public Service Concession and represent funds provided by the Federal Government and customers, as well as certain unconditional donations and grants for investments in the electric energy public service in the distribution activity. The special obligations are established by the regulatory authorities for transmission and distribution concessions, and, by the end of the concession, the amount of special obligations would be offset against the net book value of related assets.
In accordance with ANEEL Resolution number 234, dated October 31, 2006, which establishes the principles for the Second Cycle of Periodic tariff Review of Electric Energy Public Service Distribution Concessions, the criteria above was changed. Starting in July 2008, for Copel Distribuição, the special obligations are amortized, using the depreciation rates applied for depreciation of the related Property, plant and equipment.
By the end of the concession, for reimbursement purposes of the assets related to concessions, the remaining balance of unamortized special obligations will be deducted from the residual book value of the related assets. Both amounts will be adjusted according to criteria to be established by ANEEL.
The change in the characteristics of special obligations introduced by this new Regulatory Resolution, establishes that the depreciation of assets acquired with funds from Special Obligations will no longer be included in the Portion B component of the companies’ revenues (tariff mechanism).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c) Electric Energy Universalization Plans(1)
ANEEL set forth the overall conditions for the Universalization of Electric Energy Supply under Law no. 10,438, dated April 26, 2002, as amended by Law no. 10,762, dated November 11, 2003, aiming to supply new customers connected at low voltage (lower than 2.3 kV), with loads of up to 50 kW. ANEEL Resolution no. 223, dated April 29, 2003, set forth the general conditions for Electric Energy Universalization Plans, and was later amended by Resolution no. 52, dated March 25, 2009. To guide the process of review of Universalization Plans, ANEEL issued Resolution no. 175, dated November 28, 2005, and amended by Resolution no. 365, dated May 19, 2009.
On November 11, 2003, Decree no. 4,873 established the National Program for the Universalization of Electric Energy Use and Access, named Luz para Todos (“Light for Everyone”), which aims to provide electricity to the Brazil’s rural population, focused on family agriculture, which does not yet have access to this public service. This program is coordinated by the Ministry of Mines and Energy and carried out with the participation of Eletrobras. In Paraná, the Ministry is represented by Eletrosul, and the participants are the State Government and Copel. Furthermore, the program is integrated with several social and rural development programs implemented by the Federal Government and by State Governments, to ensure that the rural electrification efforts result in increased agricultural output, in increased income and in social inclus ion, providing better standards of living to the rural communities. Originally scheduled to achieve 100% electrification throughout Brazil by 2008, the program has been extended until 2010 under Decree no. 6,442/2008, due to new customer demand throughout virtually all Brazilian states.
In 2009, the program connected 16,756 new customers, reaching roughly 60,000 since its inception; this figure is expected to reach 78,500 by December 2010, thus concluding universalization within Copel's concession area.
Copel signed with Eletrobras three financing and subsidy agreements, in the amount of R$ 231,010. The first two agreements have already been concluded, while agreement ECF no. 206/2007 is still in progress, with the release of R$ 63,215 out of a total of R$ 126,430. A fourth agreement is being negotiated for the connection of another 16,000 customers.
The total estimated investments under the contracts for the program are shown down below:
Source | R$ | | Share (GWh) |
Federal Government - CDE subsidy | | 62,882 | | 19% |
Government of the State of Paraná | | 33,002 | | 10% |
RGR Financing | | 168,129 | | 51% |
Contractor – Copel | | 66,007 | | 20% |
Program total | | 330,020 | | 100% |
As of December 2009, the total amount invested in the Luz para Todos program was R$ 228,515.
(1) Unaudited by the independent auditors
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
d) Depreciation rates
The main depreciation rates, pursuant to ANEEL Resolution no. 240, dated December 5, 2006, as replaced by Resolution no. 367, dated June 26, 2009, and to Ministry of Communications Ordinance no. 96/1995 are:
| % |
Generation | |
General equipment | 10.00 |
Generators | 3.30 |
Reservoirs, dams, and water mains | 2.00 |
Hydraulic turbines | 2.50 |
Gas and steam turbines | 5.00 |
Water cooling and treatment facilities | 5.00 |
Gas conditioning equipment | 5.00 |
Transmission | |
System structure and conductors < 69 kV | 5.00 |
System structure and conductors => 69 kV and power transformers | 2.50 |
General equipment | 10.00 |
Reconnectors | 4.30 |
Distribution | |
System structure and conductors => 69 kV | 2.50 |
System structure and conductors < 69 kV and distribution transformers | 5.00 |
Capacitor boards < 69 kV | 6.70 |
Capacitor boards => 69 kV | 5.00 |
General equipment | 10.00 |
Central administration | |
Buildings | 4.00 |
Office machinery and equipment | 10.00 |
Furniture and implements | 10.00 |
Vehicles | 20.00 |
Telecommunications | |
Energy and transmission equipment (telecommunications) | 10.00 |
Overhead and underground cabling, wiring, and private switching center | 10.00 |
Natural gas supply | |
Gas pipelines | 3.30 |
Gas pipeline operating equipment | 10.00 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
e) Changes in property, plant, and equipment
| Construction | | Special | | |
Balances | in service | | in progress | | liabilities | | Consolidated |
As of 2007 | 6,973,238 | | 725,895 | | (857,192) | | 6,841,941 |
Reclassif. of additions to Cons.Cruzeiro do Sul | - | | 50,067 | | - | | 50,067 |
Expenditure program | - | | 647,646 | | - | | 647,646 |
Transfer to p.,p.,&e. in service | 537,430 | | (537,430) | | - | | - |
Depreciation quotas charged to income | (415,420) | | - | | 20,108 | | (395,312) |
Write-offs | (12,560) | | (2,005) | | - | | (14,565) |
Sales | (11,297) | | - | | - | | (11,297) |
Customer contributions | - | | - | | (79,673) | | (79,673) |
Transfer of assets assigned for future use | (46) | | - | | - | | (46) |
Transfers between p., p., &e. and intangible assets | 5 | | (3,164) | | - | | (3,159) |
Supplemental provision for contingencies | - | | 13,073 | | - | | 13,073 |
As of December 31, 2008 | 7,071,350 | | 894,082 | | (916,757) | | 7,048,675 |
Reclassif. of additions to Cons.Cruzeiro do Sul | - | | 160 | | - | | 160 |
Expenditure program | - | | 957,313 | | - | | 957,313 |
Transfer to p.,p.,&e. in service | 646,251 | | (646,251) | | - | | - |
Depreciation quotas charged to income | (428,467) | | - | | 44,131 | | (384,336) |
Capitalized depreciation quotas | (11,091) | | 11,091 | | - | | - |
Write-offs | (11,250) | | (27,368) | | - | | (38,618) |
Sales | (6,373) | | - | | - | | (6,373) |
Customer contributions | - | | - | | (57,421) | | (57,421) |
Transfer of assets assigned for future use | (1,465) | | (311) | | - | | (1,776) |
Transfers between p., p., &e. and intangible assets | 269 | | - | | - | | 269 |
Supplemental provision for contingencies | - | | 10,539 | | - | | 10,539 |
As of December 31, 2009 | 7,259,224 | | 1,199,255 | | (930,047) | | 7,528,432 |
| | | | | | | |
f) Impairment tests
The Company has a policy of periodically evaluating and monitoring the recoverable value of its assets. In addition, in accordance with Technical Pronouncement CPC 01 – Impairment of long-lived assets, whenever there is evidence that the Company`s assets carrying amounts may not be recoverable or events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable in the future the Company must immediately record a provision for impairment.
The main assumptions used for the evaluation and conclusions of Copel’s impairment tests are listed below:
1) Lowest level of cash generating unit: held concessions are analyzed individually;
2) Recoverable Value: value in use, or an amount equivalent to the discounted cash flows (before taxes) resulting from the continuous operation of an asset until the end of its useful life;
3) Calculation of value in use:Company’s method for calculating the value in use of an asset was based on future cash flows in constant currency, discounted to present value according to Copel´s weighted average cost of capital (WACC) rate, before income taxes, pursuant to the recommendation contained in Technical Pronouncement CPC 01.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Cash flows have been estimated based on current operational results, on the Company's annual corporate budgets, as approved by the Board of Directors, and on future trends in the Electric Energy sector.
As for the time frame for the analysis, the Company has taken into account the expiration date of each concession.
As for market growth, Copel’s projections are consistent with historical data and the Brazilian economy's growth projections.
The respective cash flows have been discounted at average discount rates, obtained through a methodology commonly employed on the market and supported by the regulatory agency, taking into account the weighed average cost of capital (WACC).
Management believes it has a contractually guaranteed right to be indemnified for compensation for the assets related to concessions upon their expiration, and it expects, currently and until further regulation is issued on this matter, that such indemnity will be valued according to the book value of the respective assets. Thus, the principle of valuation of residual assets upon expiration of concessions has been established as the book value of these assets.
In light of the principles discussed above, Copel has not identified the need to record a provision for impairment of its assets.
g) Consórcio Energético Cruzeiro do Sul(1)
Consórcio Energético Cruzeiro do Sul, an independent power producer owned by Copel Geração e Transmissão (with a 51% interest) and by Eletrosul Centrais Elétricas S.A. (49%), won, on October 10, 2006, at the ANEEL Auction of Power from New Projects 004/2006, the rights to build and run the Mauá Hydroelectric Power Plant for 35 years.
This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main powerhouse rated 350 MW and a secondary powerhouse rated 11 MW, for a total of 361 MW of installed capacity, which is enough to supply approximately one million people. The facility will take advantage of the hydroelectric potential identified in the middle section of the Tibagi River, between the towns of Telêmaco Borba and Ortigueira, in east Paraná. The plant’s reservoir will have a perimeter of 80 km and a surface of 83.8 km2. The dam will have a length of 745 m at the top and a maximum height of 85 m and will be built with roller-compacted concrete. The dam’s total solid volume will be around 630,000 m3.
Total estimated expenditures amount to approximately R$ 1,069,000 as of April 2008, of which 51% (R$ 545,190) will be invested by Copel Geração e Transmissão, while the remaining 49% (R$ 523,810) will be invested by Eletrosul Centrais Elétricas S.A.
On November 17, 2008, the board of Banco Nacional de Desenvolvimento Econômico e Social – BNDES approved the financing for the Mauá Hydroelectric Power Plant. The financed amount corresponds to approximately 70% of Copel's total expenditures in connection with the Mauá Power Plant.
(1) Technical information unaudited.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The facility’s total power output was sold at an ANEEL auction at a price of R$ 112.96/MWh, as of November 1, 2006, restated annually according to the variation of the IPCA inflation index. The company sold 192 average MW, for supply starting in April 2011. The assured power of the project, established in its concession agreement, was 197.7 average MW, after full motorization, and the maximum reference rate set in the auction notice was R$ 116.00/MWh.
Pursuant to the contract, the consortium in charge of construction will only be entitled to a bonus if each generating unit becomes operational ahead of schedule. This bonus equals 50% of the net revenues earned during the period ahead of schedule. The intended commercial operation of the facility ahead of schedule shall be informed to the other party by the consortium with minimum advance notice of 390 days from the new dates and formally ratified with minimum advance notice of 150 days.
Given the current stage of the construction, Company’s management believes that the consortium will not request authorization for commercial operation of the facility ahead of schedule.
Work began in May 2007 with the procurement of the basic project and the beginning of the executive project for the facility and its associated transmission system, which comprises the preparation of technical specifications, calculation records, designs, and other documents regarding the different structures within the facility, additional geological surveys, and topography services. The basic project has been concluded and approved by ANEEL. The project has an Environmental Impact Study and an Environmental Impact Report, which have been discussed at public hearings and meetings and approved by the licensing authority, resulting in the issue of Installation License no. 6,496/2008. The service order for the beginning of the construction of the Mauá Hydroelectric Power Plant was signed on July 21, 2008, and commercial generation is scheduled for 2011.
The construction site has been fully set up, with area cleanup, terrain leveling, landfill compaction, and construction of industrial and administrative facilities and personnel quarters. The following tasks have also been concluded: excavation of ordinary soil and exposed rock in the river diversion structure, the load chamber, the powerhouse, the tailrace channel, and the dam area (left bank of the river); excavation of underground rock in the river diversion tunnels, the access tunnels to the penstocks, the vertical and underground sections of the penstocks, and the drainage tunnel; excavation of ordinary soil around the intake tunnel and the rock quarry; laying of concrete in the intake structures of the diversion tunnels.
On September 1, 2009, the soil and rock barriers which separated the diversion tunnels from the riverbed were removed. Since then, the Tibagi River has been also flowing through the diversion tunnels. On November 10, 2009, the base of the upstream cofferdam was completed, diverting the river entirely through the tunnels and allowing construction of the main dam to begin on the riverbed.
The following tasks are currently being carried out: excavation of underground rock in the intake tunnel; laying of concrete in the powerhouse; excavation of rock in the dam area (riverbed); laying of roller-compacted concrete in the dam structure on the right bank (blocks 8 to 16); leveling and compacting of the substation landfill; and manufacture of electromechanical equipment.
As of January 2009, in compliance with ANEEL Ruling no. 3,467, dated September 18, 2008, expenditures in this project have been recorded under Property, Plant, and Equipment, proportionally to the Company’s stake. In December 31, 2009, Copel Geração e Transmissão’s balance under Property, Plant, and Equipment in progress related to this project was R$ 247,947.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
20 Intagible Assets
| | | | | | | | | | | | | December 31, |
| | | | | | | | | | | | | 2009 | | 2008 |
| Rights of use of software | | Concessionand goodwill | | Accumulatedamortization | | Easements | | R&D | | Other | | Net | | Net |
| | | | | | | | | | | | | | | |
In service | | | | | | | | | | | | | | | |
Assets with estimated useful lives | | | | | | | | | | | | | | | |
Copel Geração e Transmissão | 12,044 | | - | | (9,522) | (1) | 14,730 | | - | | - | | 17,252 | | 13,679 |
Copel Distribuição | 28,996 | | - | | (24,903) | (1) | 21,392 | | - | | - | | 25,485 | | 25,556 |
Copel Telecomunicações | 3,799 | | - | | (3,560) | (1) | - | | - | | - | | 239 | | 973 |
Compagas | 3,481 | | - | | (1,812) | (1) | - | | - | | - | | 1,669 | | 1,997 |
Elejor | - | | - | | - | | 101 | | - | | - | | 101 | | 101 |
UEG Araucária | 90 | | - | | (73) | (1) | - | | - | | - | | 17 | | 23 |
Dominó Holdings | 1 | | - | | - | | - | | - | | - | | 1 | | 1 |
Concession - Elejor (a) | - | | 22,626 | | (2,828) | | - | | - | | - | | 19,798 | | 20,552 |
Concession - Copel Empreend. (b) | - | | 53,954 | | (7,037) | | - | | - | | - | | 46,917 | | 49,262 |
Concession - Sanepar (d) | - | | 10,942 | | (8,025) | | - | | - | | - | | 2,917 | | 3,647 |
Goodwill - Sercomtel Telecom. (c) | - | | 42,289 | | (42,289) | | - | | - | | - | | - | | - |
Goodwill - Sercomtel Celular (c) | - | | 5,814 | | (5,814) | | - | | - | | - | | - | | - |
| 48,411 | | 135,625 | | (105,863) | | 36,223 | | - | | - | | 114,396 | | 115,791 |
Assets without estimated useful lives | | | | | | | | | | | | | | | |
Copel Geração e Transmissão | - | | - | | - | | - | | - | | 30 | | 30 | | 30 |
Copel Distribuição | - | | - | | - | | - | | - | | 103 | | 103 | | 103 |
Compagas | - | | - | | - | | - | | - | | - | | - | | 20 |
| - | | - | | - | | - | | - | | 133 | | 133 | | 153 |
| 48,411 | | 135,625 | | (105,863) | | 36,223 | | - | | 133 | | 114,529 | | 115,944 |
In progress | | | | | | | | | | | | | | | |
Copel Geração e Transmissão | - | | - | | - | | 1,434 | | 86 | | - | | 1,520 | | 249 |
Copel Distribuição | 618 | | - | | - | | 1,891 | | 12,313 | | - | | 14,822 | | 1,764 |
Copel Telecomunicações | 819 | | - | | - | | - | | - | | - | | 819 | | 135 |
Elejor | - | | - | | - | | 27 | | - | | - | | 27 | | 27 |
| 1,437 | | - | | - | | 3,352 | | 12,399 | | - | | 17,188 | | 2,175 |
| | | | | | | | | | | | | 131,717 | | 118,119 |
(1) Annual amortization rate: 20% | | | | | | | | | | |
The fully amortized amount of intangible assets in service was R$ 78,318 as of December 31, 2009, and R$76,426 as of December 31, 2008.
a) Concession – Elejor
The acquisition of the shares held by Triunfo Participações S.A., in December 2003, resulted in total concession intangible asset of R$ 22,626, which corresponded to a balance of R$ 19,798 as of December 31, 2009. The straight line method amortization of concession intangible asset was economically determined by the expected income from the commercial operation of the concession, which expires in October 2036, and its effect on the statement of operations as of December 31, 2009 was R$ 754 (R$ 754 as of December 31, 2008).
b) Concession - Copel Empreendimentos
The acquisition on May 31, 2006 of Copel Empreendimentos, which was previously known as El Paso Empreendimentos e Participações Ltda. and which held a 60% interest in UEG Araucária Ltda., resulted in net final concession intangible asset of R$ 53,954, with a balance of R$ 46,917 as of December 31, 2009. The straight line method amortization of concession intangible asset was economically determined by the expected income from the commercial operation of the concession, which expires in December 2029, and its effect on the statement of income as of December 31, 2009 was R$ 2,345 (R$ 2,345 as of 2008).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c) Goodwill – Sercomtel
The investments in Sercomtel S.A. Telecomunicações and in Sercomtel Celular S.A. include goodwill on acquisition (R$ 42,289 and R$ 5,814), which have been fully amortized at the annual rate of 10%, with a charge to income of R$ 1,791 (R$ 1,568 plus R$ 223) in 2008, R$ 4,808 (R$ 4,228 plus R$ 580) in 2007 and of R$ 4,808 (R$4,228 plus R$ 580) in 2006. The goodwill was determined by the expected future profitability, resulting from the assessment of the return on investment based on discounted cash flows.
d) Concession – Sanepar
In 1998, the acquisition by Dominó Holdings S.A. of an interest in Sanepar resulted in concession intangible asset of R$ 24,316, with a balance of R$ 6,484 as of December 31, 2009. This balance, proportionally to Copel's stake (45%), corresponds to R$ 2,917, and has been amortized over 15 years as of 1999, at the rate of R$ 61 a month, with a charge to income of R$ 730 as of December 31, 2009 (R$ 730 as of December 31, 2008).
e) Changes in intangible assets
Balances | In service | | In progress | | Total |
As of December 31, 2007 | 112,888 | | 3,603 | | 116,491 |
Consolidation of Dominó Holdings - Sanepar concession | 4,378 | | - | | 4,378 |
Expenditure program | - | | 4,038 | | 4,038 |
Capitalizations | 8,630 | | (8,630) | | - |
Amortization quotas – concession | (3,829) | | - | | (3,829) |
Amortization quotas – goodwill | (1,791) | | - | | (1,791) |
Amortization quotas - other intangible assets | (3,811) | | - | | (3,811) |
Disposal | (516) | | - | | (516) |
Transfers between intangible assets and p., p.,&e. | (5) | | 3,164 | | 3,159 |
As of December 31, 2008 | 115,944 | | 2,175 | | 118,119 |
Expenditure program | - | | 21,566 | | 21,566 |
Capitalizations | 6,739 | | (6,739) | | - |
Amortization quotas – concession | (3,829) | | - | | (3,829) |
Amortization quotas – goodwill | (3,383) | | - | | (3,383) |
Amortization quotas transf. to int. assets in progress | (186) | | 186 | | - |
Disposal | (487) | | - | | (487) |
Transfers between intangible assets and p., p.,&e. | (269) | | - | | (269) |
As of December 31, 2009 | 114,529 | | 17,188 | | 131,717 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
21 Loans and Financing
The breakdown of loans and financing balances is detailed below:
| | | | | | | Current
liabilities | | | | Noncurrent liabilities |
| | | | | 2009 | | 2008 | | 2009 | | 2008 |
| Principal amount | | Accrued Interest | | Total | | Total | | | | |
Foreign currency | | | | | | | | | | | |
IDB(a) | 18,615 | | 533 | | 19,148 | | 25,938 | | 9,189 | | 36,552 |
National Treasury(b) | 4,944 | | 681 | | 5,625 | | 8,647 | | 58,654 | | 85,359 |
Banco do Brasil(c) | - | | - | | - | | 6,517 | | - | | - |
Eletrobras | 5 | | - | | 5 | | 7 | | 22 | | 36 |
| 23,564 | | 1,214 | | 24,778 | | 41,109 | | 67,865 | | 121,947 |
Local currency | | | | | | | | | | | |
Banco do Brasil(c) | 163 | | 10,246 | | 10,409 | | 16,410 | | 330,190 | | 330,389 |
Eletrobras(d) | 38,168 | | 14 | | 38,182 | | 34,411 | | 261,142 | | 275,207 |
Eletrobras - Elejor(e) | - | | - | | - | | - | | 117 | | 26,092 |
BNDES - Compagas(f) | 6,349 | | - | | 6,349 | | 6,526 | | 6,394 | | 13,111 |
Finep(g) | 145 | | 11 | | 156 | | 5 | | 6,940 | | 2,310 |
BNDES(h) | - | | 884 | | 884 | | - | | 55,748 | | - |
Banco do Brasil(i) | - | | 940 | | 940 | | - | | 55,748 | | - |
| 44,825 | | 12,095 | | 56,920 | | 57,352 | | 716,279 | | 647,109 |
| 68,389 | | 13,309 | | 81,698 | | 98,461 | | 784,144 | | 769,056 |
Breakdown of loans and financing by currency and index:
Currency (equivalent inreais) / Index | 2009 | | % | | 2008 | | % |
Foreign currency | | | | | | | |
U.S. dollar | 64,306 | | 7.43 | | 94,049 | | 10.84 |
Yen | - | | - | | 6,517 | | 0.75 |
IDB currency basket | 28,337 | | 3.27 | | 62,490 | | 7.20 |
| 92,643 | | 10.70 | | 163,056 | | 18.79 |
| | | | | | | |
Local currency | | | | | | | |
Noncurrent Interest Rate's Reference Unit (URTJLP) | 132,055 | | 15.25 | | 2,335 | | 0.27 |
General Price Index - Market (IGP-M) | 874 | | 0.10 | | 930 | | 0.11 |
Fiscal Reference Unit (UFIR) | 94,651 | | 10.93 | | 71,361 | | 8.23 |
Eletrobras Financing Rate (FINEL) | 204,671 | | 23.64 | | 264,349 | | 30.47 |
BNDES Monetary Unit (UMBND) | 1,105 | | 0.13 | | 19,637 | | 2.26 |
Interbank Deposit Certificate (CDI) | 339,843 | | 39.25 | | 345,849 | | 39.87 |
| 773,199 | | 89.30 | | 704,461 | | 81.21 |
| 865,842 | | 100.00 | | 867,517 | | 100.00 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Variations in the main foreign currencies and rates applied to the Company’s loans and financing:
Currency/index | | | | Variation (%) |
| | 2009 | | 2008 |
U.S. dollar | | (25.49) | | 31.94 |
Yen | | (27.10) | | 62.89 |
IDB currency basket | | 0.17 | | 6.22 |
TJLP | | 6.12 | | 6.27 |
IGP-M | | (1.72) | | 9.81 |
Finel | | (0.35) | | 1.90 |
UMBND | | (25.66) | | 33.86 |
CDI | | (37.22) | | 21.82 |
Maturity of noncurrent installments:
| Foreign currency | | National currency | | | | |
| | | December 31, |
| | | | | 2009 | | 2008 |
2010 | - | | - | | - | | 73,988 |
2011 | 14,138 | | 50,163 | | 64,301 | | 68,064 |
2012 | 3,643 | | 50,130 | | 53,773 | | 50,069 |
2013 | 2,337 | | 50,665 | | 53,002 | | 48,257 |
2014 | 1,172 | | 380,128 | | 381,300 | | 376,151 |
2015 | - | | 48,748 | | 48,748 | | 44,368 |
2016 | - | | 32,545 | | 32,545 | | 26,767 |
2017 | - | | 16,158 | | 16,158 | | 6,719 |
2018 | - | | 15,248 | | 15,248 | | 5,975 |
2019 | - | | 12,500 | | 12,500 | | 3,726 |
2020 | - | | 10,628 | | 10,628 | | 2,456 |
2021 | - | | 6,970 | | 6,970 | | 5 |
2022 | - | | 6,968 | | 6,968 | | - |
After 2022 | 46,575 | | 35,428 | | 82,003 | | 62,511 |
| 67,865 | | 716,279 | | 784,144 | | 769,056 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in loans and financing:
| Foreign currency | | National currency | | |
| Current | | Noncurrent | | Current | | Noncurrent | | Total |
As of December 31, 2007 | 30,498 | | 118,282 | | 62,186 | | 716,986 | | 927,952 |
Funds raised | - | | - | | - | | 34,818 | | 34,818 |
Capitalized interest | - | | - | | - | | 12,062 | | 12,062 |
Interest | 7,327 | | - | | 67,918 | | 2,781 | | 78,026 |
Monetary and exchange variation | 12,421 | | 31,042 | | 176 | | 14,024 | | 57,663 |
Transfers | 27,377 | | (27,377) | | 133,562 | | (133,562) | | - |
Amortization - principal amount | (17,656) | | - | | (68,836) | | - | | (86,492) |
Amortization - interest | (18,858) | | - | | (137,654) | | - | | (156,512) |
As of December 31, 2008 | 41,109 | | 121,947 | | 57,352 | | 647,109 | | 867,517 |
Funds raised | - | | - | | - | | 144,262 | | 144,262 |
Capitalized interest | - | | - | | - | | 2,267 | | 2,267 |
Interest | 6,199 | | - | | 63,265 | | 1,073 | | 70,537 |
Monetary and exchange variation | (8,290) | | (27,161) | | (57) | | (1,144) | | (36,652) |
Transfers | 26,921 | | (26,921) | | 77,288 | | (77,288) | | - |
Amortization - principal amount | (17,221) | | - | | (45,766) | | - | | (62,987) |
Amortization - interest | (23,940) | | - | | (95,162) | | - | | (119,102) |
As of December 31, 2009 | 24,778 | | 67,865 | | 56,920 | | 716,279 | | 865,842 |
a) Inter-American Development Bank – IDB
Loan for the Segredo Hydroelectric Power Plant and for the Jordão River Diversion Project, received on January 15, 1991, in the amount of US$ 135,000. This debt is amortized semi-annually, with final maturity in January 2011. Interest is calculated according to the IDB funding rate, which in the fourth quarter of 2009 was 4.14% p.a. The agreement features provisions providing for termination in the following cases:
1)Default by the debtor on any other obligation set forth in the agreement or agreements signed with the bank for financing of the project;
2)Withdrawal or suspension of the Federal Republic of Brazil as a member of the IDB;
3)Default by the guarantor, if any, of any obligation set forth in the guaranty agreement;
4) Ratio between current assets and total current commercial and bank financing, except for the current share of noncurrent indebtedness and dividends to be reinvested, lower than 1.2; and
5)Ratio between noncurrent indebtedness and shareholders’ equity exceeding 0.9.
This agreement is guaranteed by the Federal Government and by mortgage and fiduciary guarantees.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) National Treasury Department – (Secretaria do Tesouro Nacionalor STN)
The restructuring of medium and long-term debt, signed on May 20, 1998, in connection with the financing received under Law no. 4,131/62, is shown below:
| | Term (years) | | Final maturity | | Grace period (years) | | | | |
Bond type | | | | | | | | December 31, |
| | | | | | | | 2009 | | 2008 |
Par Bond | | 30 | | 04.15.2024 | | 30 | | 27,787 | | 37,296 |
Capitalization Bond | | 20 | | 04.15.2014 | | 10 | | 10,673 | | 17,507 |
Debt Conversion Bond | | 18 | | 04.15.2012 | | 10 | | 6,568 | | 12,368 |
Discount Bond | | 30 | | 04.15.2024 | | 30 | | 19,251 | | 25,896 |
New Money Bonds | | 15 | | 04.15.2009 | | 7 | | - | | 466 |
Flirb | | 15 | | 04.15.2009 | | 9 | | - | | 473 |
| | | | | | | | 64,279 | | 94,006 |
| | | | | | | | | | |
The annual interest rates and repayments are as follows:
Bond type | | Annual interest rates (%) | | Payments |
Par Bond | | 6.0 | | single |
Capitalization Bond | | 8.0 | | semi-annual |
Debt Conversion Bond | | Six-month LIBOR + 0.8750 | | semi-annual |
Discount Bond | | Six-month LIBOR + 0.8125 | | single |
New Money Bonds | | Six-month LIBOR + 0.8750 | | semi-annual |
Flirb | | Six-month LIBOR + 0.8125 | | semi-annual |
As collateral for this agreement, the Company has assigned and transferred to the Federal Government, conditioned to the non-payment of any financing installment, the credits that are made to the Company’s centralized revenues account, up to a limit sufficient to cover the payment of installments and other charges payable upon each maturity. For the Discount and Par Bonds, there are collateral deposits of R$ 9,990 and R$ 14,205 as of December 31, 2009 (R$ 15,460 and R$ 22,408 as of December 31, 2008), respectively, recorded under guarantees and escrow deposits, in noncurrent assets (Note 13).
c) Banco do Brasil S.A.
The Company has the following contracts with Banco do Brasil:
1) Agreements denominated in Japanese yen for the gas thermoelectric substation at Salto Caxias Power Plant, repayable in 20 semi-annual installments, starting on March 7, 2000 subject to 2.8% p.a. interest and a 3.8% p.a. brokerage commission. This debt is guaranteed by Copel’s accounts receivables;
2) Private Credit Assignment Agreement with the Federal Government, through Banco do Brasil S.A., signed on March 30, 1994, repayable in 240 monthly installments based on the Price amortization system starting on April 1, 1994, monthly restated by the TJLP and IGP-M plus interest of 5.098% p.a. and guaranteed by Copel’s accounts receivables; and
3) The following Parent Company credit notes:
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | Issue date | | Principal maturity | | Financial charges due semi-annually | | |
Credit notes | | | | | | | | Total |
Commercial no. 330.600.129 | | January,31,2007 | | January,31,2014 | | 106.5% of the average CDI rate | | 30,084 |
Industrial no. 330.600.132 | | February,28,2007 | | February,28,2014 | | 106.2% of the average CDI rate | | 237,944 |
Industrial no. 330.600.151 | | July,31,2007 | | July,31,2014 | | 106.5% of the average CDI rate | | 18,673 |
Industrial no. 330.600.156 | | August,28,2007 | | August,28,2014 | | 106.5% of the average CDI rate | | 14,780 |
Industrial no. 330.600.157 | | August,31,2007 | | August,31,2014 | | 106.5% of the average CDI rate | | 38,362 |
| | | | | | | | 339,843 |
As a guarantee, Banco do Brasil has been authorized to deduct any amounts credited, on any grounds, to the Company's deposit account to cover, in part or in full, the outstanding balance due under the line of credit. It has also been irrevocably authorized, regardless of prior notice, to offset the bank’s receivable, which corresponds to the outstanding balance due under the line of credit, with any credits the Company has or accrues at Banco do Brasil.
d) Eletrobras – Centrais Elétricas Brasileiras S.A.
Loans originated from the Eletrobras Financing Fund (FINEL) and from the Global Reversal Reserve (RGR) for the expansion of the generation, transmission, and distribution systems. Repayments started in February 1999, and the last payment is due in August 2021. Interest of 5.0% to 8.0% p.a. and principal are repaid monthly, adjusted by the FINEL and Federal Reference Unit (UFIR) rates.
Contract ECFS – 142/2006, was signed on May 11, 2006 by Copel Distribuição and Eletrobras, in the amount of R$ 74,340, for use in the “Luz para Todos” rural electrification program. Out of the total amount, R$ 42,480 came from RGR funds, and R$ 31,860 were economic subsidies from CDE (Energy Development Account) funds. This loan has a grace period of 24 months and bears interest of 5% p.a. plus a commission of 1% p.a. It is repayable in 120 equal monthly installments, with final maturity on September 30, 2018. In April 2009, Copel received R$ 11,066, of which R$ 6,320 came from RGR funds and R$ 4,746 from CDE funds; as of this date, the Company received R$ 63,104, of which R$ 36,056 came from RGR funds and R$ 27,048 from CDE funds. There will be no further disbursements under this agreement.
Contract ECFS – 206/2007, was signed on March 3, 2008 by Copel Distribuição and Eletrobras, in the amount of R$ 126,430, for use in the “Luz para Todos” rural electrification program. Out of the total amount, R$ 108,369 came from RGR funds, and R$ 18,061 were economic subsidies from CDE (Energy Development Account) funds. This loan has a grace period of 24 months and bears interest of 5% p.a. plus a commission of 1% p.a. It is repayable in 120 equal monthly installments, with final maturity on August 30, 2020. On August 13, 2008, Copel withdrew R$ 37,929, of which R$ 32,511 came from RGR funds and R$ 5,418 from CDE funds. On June 5, 2009, the Company received R$ 25,286, of which R$ 21,674 came from RGR funds and R$ 3,612 from CDE funds.
These loans are secured by Copel’s own revenues, pursuant to a mandate issued by public act, and by the issue of promissory notes in the same number of outstanding installments.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
e) Eletrobras – Elejor
For purposes of presentation of the consolidated financial statements, the value of the shares to be redeemed by Elejor has been reclassified from noncontrolling interest to loans and financing, under noncurrent liabilities.
The 59,900,000 preferred shares in Elejor held by Eletrobras, in the amount of R$ 59,900, were to be reacquired by the issuer (Elejor) in 32 consecutive quarterly installments, each in the amount of 1,871,875 shares, starting in the 24th month from the beginning of commercial operation of the project, which took place after the last generating unit entered operation on August 31, 2006.
The paid in amounts are restated according to the IGP-M index, pro rata temporis, between the date the shares were paid in and the actual payment date, plus interest of 12% p.a..
In August 2007, nine installments redeemed in advance by Elejor, for R$ 20,385, plus financial charges of R$ 18,725, for a total of R$ 39,110.
In December 2008, 29,035,700 shares redeemed by Elejor, for R$ 35,133, plus financial charges of R$ 54,867, for a total of R$ 90,000.
In August 2009, 2,883,810 shares redeemed by Elejor, for R$ 3,489, plus financial charges of R$ 8,211, for a total of R$ 11.600.
In October 2009, 2,411,006 shares redeemed by Elejor, for R$ 2,917, plus financial charges of R$ 5,083, for a total of R$ 8,000.
In December 2009, 2,322,609 shares redeemed by Elejor, for R$ 2,810, plus financial charges of R$ 5,216, for a total of R$ 8.026.
The remaining balance of R$ 117 as of December 2009 corresponded to financial charges.
f) BNDES – Compagas
BNDES balance includes four agreements signed by Compagas on December 14, 2001, repayable in 99 monthly installments, with interest of 4% p.a.. Two of these agreements were signed for the purchase of machinery and equipment, subject to the TJLP rate (limited to 6% p.a.), and two were signed for capital expenditure, subject to the BNDES monetary unit (UMBND) rate.
This financing is guaranteed by Compagas’ gas supply receivables, which shall be deposited exclusively in a bank account at Banco Itaú S.A.
g) Financiadora de Estudos e Projetos – FINEP
1)Loan agreement no. 02070791-00, signed on November 28, 2007 to partially cover expenses incurred in the preparation of the "Generation Research and Development Project for 2007.
Total credit amounts to R$ 5,078. The first installment, in the amount of R$ 1,464, was released in April 2008, the second one, in the amount of R$ 2,321, was released in May 2009, and the remaining ones will be deposited to the extent there is financial and budget availability. A share of 1% of the funds will be allocated to cover inspection and supervision expenses. The principal amount of this debt will be subject to equalized interest of 6.37% p.a., due on the 15th day of each month, including the months of the grace period. The outstanding balance will be paid to FINEP in 49 monthly and successive installments, the first one due on December 15, 2010, and the last one on December 15, 2014. Copel Geração e Transmissão has committed to pay a share of the project preparation costs, with its own resources, in the minimum amount of R$ 564.
In order to guarantee the contract, Copel Geração e Transmissão has authorized Banco do Brasil to withhold the amounts due to FINEP from the bank account in which its monthly revenues are deposited. In case the covenants of the contract are not fully complied with, Copel can have a full loss of the benefit of equalization.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2)Loan agreement no. 02070790-00, signed on November 28, 2007 to partially cover expenses incurred in the preparation of the "Transmission Research and Development Project for 2007".
The total credit amounts to R$ 3,535. The first installment, in the amount of R$ 844, was released in October 2008, the second one, in the amount of R$ 2,451, was released in December 2009, and the remaining ones will be deposited to the extent there is financial and budget availability. A share of 1% of the funds will be allocated to cover inspection and supervision expenses. The principal amount of this debt will be subject to equalized interest of 6.13 % p.a., due on the 15th day of each month, including the months of the grace period. The outstanding balance will be paid to FINEP in 49 monthly and successive installments, the first one due on December 15, 2010, and the last one on December 15, 2014. Copel Geração e Transmissão has committed to pay a share of the project preparation costs, with its own resources, in the minimum amount of R$ 393.
To secure the contract, Copel Geração e Transmissão has authorized Banco do Brasil to withhold the amounts due to FINEP from the checking account in which its monthly revenues are deposited. In the event of breach of contract, Copel shall lose the benefit of interest equalization.
h) BNDES - Copel Geração e Transmissão
On March 17, 2009, Copel Geração e Transmissão signed with BNDES Loan Agreement no. 08.2.0989.1, with Copel as a intervening agent, to fund the construction of the Mauá Hydroelectric Power Plant and its transmission system, in consortium with Eletrosul. The loan amounts to R$ 169,500, which will be released in installments as funds are required and pursuant to BNDES' financial scheduling.
This loan will be paid off in 192 monthly installments, starting on February 15, 2012 and ending on January 15, 2028, bearing interest of 1.63% above the Long-Term Interest Rate (TJLP), which will be paid quarterly during the grace period and monthly after the first payment of the principal amount.
As a guarantee for the payment of all amounts due under this agreement, Copel Geração e Transmissão has pledged in favor of BNDES a lien on all the revenues from the sale of energy under Agreements for Energy Trade on the Regulated Power Market (“Contratos de Compra de Energia no Ambiente Regulado” or CCEARs) in connection with this project, which shall be collected in a special main account for this purpose. The Company shall also set up two "reserve accounts" to cover any shortfalls in the main account. This guarantee will be operated under an Agreement on Revenue Transfer and Attachment, Account Management, and Other Covenants signed by Copel Geração e Transmissão, BNDES, and Banco do Brasil.
The first installment was made available in July 2009, in the amount of R$ 55,748.
The contract contains provisions on accelerated maturity in certain conditions.
i)Banco do Brasil – Transfer of BNDES funds
On April 16, 2009, Copel Geração e Transmissão signed with Banco do Brasil Loan Agreement no. 21/02000-0, with Copel as an intervening agent, to fund the construction of the Mauá Hydroelectric Power Plant and its transmission system, in consortium with Eletrosul. The loan amounts to R$ 169,500, which will be released in installments pursuant to the Uses and Sources Schedule attached to the agreement.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
This loan will be paid off in 192 monthly installments, starting on February 15, 2012 and ending on January 15, 2028, bearing interest of 2.13% above the Long-Term Interest Rate (TJLP), which will be paid quarterly during the grace period and monthly after the first payment of the principal amount. As a guarantee for the payment of all amounts due under this agreement, Copel Geração e Transmissão has pledged in favor of Banco do Brasil a lien on all the revenues from the sale of energy under Agreements for Energy Trade on the Regulated Power Market (“Contratos de Compra de Energia no Ambiente Regulado” or CCEARs) in connection with this project, which shall be collected in a special main account for this purpose. The Company shall also set up two "reserve accounts" to cover any shortfalls in the main account. This guarantee will be operated under an Agreement on Revenue Transfer and Attachment, Account Management, and Other Covenants signed by Copel Geração e Transmissão, BNDES, and Banco do Brasil.
The first installment was made available in August 2009, in the amount of R$ 55,748.
The contract contains provisions on accelerated maturity in certain conditions.
22 Debentures
The balance of debentures is detailed below:
| December 31, |
| | | | | Current liabilities | | Noncurrent liabilities |
| | | | | 2009 | | 2008 | | 2009 | | 2008 |
| Principal amount | | Charges | | Total | | Total | | Total | | Total |
Parent Company(a) | - | | 17,238 | | 17,238 | | 169,233 | | 600,000 | | 600,000 |
Elejor(b) | 34,665 | | 2,292 | | 36,957 | | 25,767 | | 153,384 | | 202,116 |
| 34,665 | | 19,530 | | 54,195 | | 195,000 | | 753,384 | | 802,116 |
| | | | | | | | | | | |
Maturity of noncurrent installments:
| December, 31 |
| 2009 | | 2008 |
| | | |
2010 | - | | 36,455 |
2011 | 636,054 | | 638,454 |
2012 | 36,054 | | 38,454 |
2013 | 36,054 | | 38,454 |
2014 | 33,005 | | 35,409 |
2015 | 11,105 | | 13,290 |
2016 | 1,112 | | 1,600 |
| | | |
| 753,384 | | 802,116 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in the balances of debentures:
Balances | | Current liabilities | | Noncurrent
liabilities | | Consolidated Total |
As of 2007 | | 171,827 | | 1,002,674 | | 1,174,501 |
Interest | | 121,025 | | - | | 121,025 |
Monetary variation | | 8 | | 638 | | 646 |
Transfers | | 201,196 | | (201,196) | | - |
Amortization – principal amount | | (176,072) | | - | | (176,072) |
Amortization - interest | | (122,984) | | - | | (122,984) |
As of 2008 | | 195,000 | | 802,116 | | 997,116 |
Charges | | 83,416 | | - | | 83,416 |
Monetary variation | | 23 | | 234 | | 257 |
Transfers | | 48,966 | | (48,966) | | - |
Amortization – principal amount | | (163,175) | | - | | (163,175) |
Amortization - interest | | (110,035) | | - | | (110,035) |
As of 2009 | | 54,195 | | 753,384 | | 807,579 |
| | | | | | |
a) Parent Company Debentures
1) Fourth Issue of Debentures
The issuance of 60,000 debentures constituted the fourth single issuance carried out by the Company on September 1, 2006, in the amount of R$ 600,000, completed on October, 6, 2006, with full subscription totaling R$ 607,899, valid for five years as from date of issuance and with final maturity, in sole series, on September 1, 2011. Debentures are single, non-convertible into shares, book-entry, nominative and without guarantee.
The interest on the nominal value of the debentures is 104% of the One-day Interbank Deposit (DI over) rate, "extra group", stated as a percentage per annum, on the basis of 252 business days, disclosed daily by the Clearing House for the Custody and Financial Settlement of Securities (CETIP) (at the DI rate) and calculated on the compound and cumulative interest method on a pro rata temporis basis for the business days elapsed. The interest corresponding to the capitalization period will be due and paid on a semi-annual basis, with the first due date on March 1, 2007 and the last on September 1, 2011. The debentures may not be renegotiated.
The funds obtained from the public distribution of debentures will be used to extend debt maturities through the payment of financial obligations, as well as to the injection of cash. The funds obtained from the Issuance shall be used for the financial settlement of 1/3 of the principal value of the debentures of the 3rd issuance of the Issuer, due on February 1, 2007 and settlement of the principal of the debentures of the 2nd issuance of the Issuer, due on March 1, 2007.
The debentures feature provisions setting forth accelerated maturity in the following cases:
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
1) Bankruptcy ruling against the issuer or any subsidiary controlled, directly or indirectly, by the issuer, or filing for business reorganization in bankruptcy by the issuer or by any subsidiary controlled, directly or indirectly, by the issuer (or any similar judicial proceeding similar which replaces or complements the current legislation on bankruptcy and business reorganization, including judicial or extrajudicial recovery);
2) Non-payment of any amounts due to debenture holders on the dates set forth in the agreement;
3) Court ruling for intervention in the concession or for termination of the concession for the services of distribution, transmission, or generation of power by the issuer or by the subsidiaries of the issuer;
4) Notwithstanding the provision in item (2) above, the default by the issuer or by Copel Generation on any non-financial obligation or the untruthfulness of any statement contained in this agreement or in the pledge agreement, not remedied in ten business days from the date of default or of proof of untruthfulness. This ten business day deadline is not applicable to obligations for which a specific deadline has been set;
5) Legitimate protest against any security of the issuer or of any subsidiary controlled, directly or indirectly, by the issuer, with single or aggregate value equal to or greater than R$ 25,000, such an amount being restated annually according to the variation of the IGP-M index calculated and published by Fundação Getúlio Vargas, except in the event such protest is made in error or bad faith by third parties, provided that such situation is proven validly by the issuer or subsidiary controlled, directly or indirectly, by th e issuer, as the case may be, or in the event it is cancelled within thirty days of its filing;
6) Final court or arbitration ruling against the issuer or any subsidiary controlled, directly or indirectly, by the issuer in aggregate amount greater than R$ 40,000, such an amount being restated annually according to the variation of the IGP-M index, provided the issuer or any subsidiary controlled, directly or indirectly, by the issuer fails to prove payment of the aggregate amount to the fiduciary agent, within ten business days from such supposed payment, in compliance with the schedule and conditions set forth in such final court or arbitration ruling;
7) Accelerated maturity of any debt of the issuer or of any subsidiary controlled, directly or indirectly, by the issuer in a single or aggregate amount equal to or greater than R$ 25,000, such an amount being restated annually according to the variation of the IGP-M index;
8) Lack of payment by the issuer or by any subsidiary controlled, directly or indirectly, by the issuer of any financial obligations in aggregate amount equal to or greater than R$ 25,000, such an amount being restated annually according to the variation of the IGP-M index;
9) Violation by the issuer or by any subsidiary controlled, directly or indirectly, by the issuer, during the term of this agreement, of laws, rules, and regulations, including those of environmental nature, which affect or may affect the issuer’s ability to legitimately fulfill its obligations set forth in this agreement; and
10) Any change in the corporate object contained in the issuer’s by-laws which modifies the primary business activity of the issuer.
2) Third Issue of Debentures
A single series of 40,000 debentures makes up the third issue of simple debentures, concluded on May 9, 2005, fully subscribed for R$ 400,000, with a four-year term. These debentures matured and were paid off on February 1, 2009.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) Debentures – Elejor
The contract for Elejor’s first issue of debentures was signed with BNDES Participações S.A. – BNDESPAR, with Copel intervening as “Guarantor Shareholder”.
These funds were raised to be employed in the following:
1) Investments in the Fundão-Santa Clara Power Complex, on the Jordão River, in the State of Paraná;
2) Investments in two small hydropower plants, the Santa Clara I SHP and the Fundão SHP;
3) Payment of 50% of the amounts borrowed between July 1, 2004 and September 30, 2004 under the loan agreement signed on April 7, 2004 with the Guarantor Shareholder;
4) Full payment of the funds loaned by the Guarantor Shareholder from October 1, 2004 until the date the first debentures were paid in;
5) Payment of operating expenses of the issuer's business, including the purchase of electricity to meet supply obligations; and
6) Financing of the social and environmental programs in connection with the investments in the Fundão-Santa Clara Power Complex.
One thousand debentures were issued in two series, the first one comprising 660 debentures, and the second one, 340. Both of them are nominal, convertible into common shares and into class C preferred shares, at the discretion of the debenture holders.
The total amount of this issuance was R$ 255,626. The debentures had a face value of R$ 256 on the issuance date, February 15, 2005, and this value is restated according to the variation of the long term interest rate (TJLP).
The final maturity of the first series is scheduled for February 15, 2015. After the grace period for the principal amount of 48 months from the issuance date, amortization will take place in 24 quarterly installments pursuant to the agreement. The first amortization payment is due on May 15, 2009.
The final maturity of the second series is scheduled for February 15, 2016. After the grace period for the principal amount of 60 months from the issuance date, amortization will take place in 24 quarterly installments pursuant to the agreement. The first amortization payment is due on May 15, 2010.
The first and second series yield interest based on the variation of TJLP, plus a 4% p.a. spread on the outstanding balance of each series. Interest on the first series is due annually, in the first twelve months from the issue date, and quarterly thereafter. The first payment was due on February 15, 2006, and the last one, on February 15, 2015. Interest on the second series is due annually, in the first 24 months from the issue date, and quarterly thereafter. The first payment was due on May 15, 2007, and the last one, on February 15, 2016.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
In December 2008, R$ 42,621 were paid in advance, plus financial charges of R$ 2,379, for a total of R$ 45,000.
In August 2009, R$ 5,487 were paid in advance, plus financial charges of R$ 313, for a total of R$ 5.800.
In October 2009, R$ 3,784 were paid in advance, plus financial charges of R$ 216, for a total of R$ 4,000.
In December 2009, R$ 4,256 were paid in advance, plus financial charges of R$ 244, for a total of R$ 4.500.
The agreement contains the following guarantees:
1) Letter of guarantee signed by Copel taking main responsibility for payment to debenture holders;
2) Lien on rights resulting from the concession agreement: pursuant to the terms and provisions of the private agreements for lien on revenues and other covenants between the issuer, the fiduciary agent, and the depositary bank, an irrevocable lien was constituted, with due authorization by ANEEL; and
3) Lien on revenues and escrow deposits for payment: pursuant to the agreement between the issuer, the fiduciary agent, and the depositary bank, a centralizing account and an escrow account were constituted and shall be kept until final settlement of all obligations under this agreement.
The debentures agreement includes covenants, which may result in antecipation in maturity terms if there is covenant default.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
23 Suppliers
| December 31, |
| 2009 | | 2008 |
Transmission network use charges | | | |
Basic Network | 63,209 | | 57,096 |
Energy transmission | 4,310 | | 4,182 |
Connections | 274 | | 265 |
| 67,793 | | 61,543 |
Electricity suppliers | | | |
Eletrobras (Itaipu) | 80,104 | | 100,040 |
Furnas Centrais Elétricas S.A. | 34,375 | | 32,757 |
Companhia Hidro Elétrica do São Francisco - Chesf | 33,696 | | 32,108 |
Companhia Energética de São Paulo – Cesp | 12,031 | | 11,488 |
Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A. | 11,330 | | 10,234 |
Centrais Elétricas do Norte do Brasil S.A. - Eletronorte | 10,856 | | 10,316 |
CPFL Energia S.A. | 10,041 | | 994 |
Itiquira Energética S.A. | 10,000 | | 9,247 |
Companhia Energética de Minas Gerais - Cemig | 6,530 | | 4,660 |
Dona Francisca Energética S.A. | 5,100 | | 5,128 |
Cia. Estadual de Geração e Transmissão de Energia Elétrica S.A. - CEEE | 3,819 | | 3,632 |
Spot Market - CCEE (Note 35) | 1,859 | | 27,976 |
Other suppliers | 26,656 | | 13,789 |
| 246,397 | | 262,369 |
Materials and services | | | |
Petróleo Brasileiro S.A. - Petrobras - gas acquired by Compagas | 23,166 | | 36,775 |
Petróleo Brasileiro S.A. - Petrobras - renegotiation(a) | 43,949 | | - |
Petróleo Brasileiro S.A. - Petrobras - renegotiation - noncurrent(a) | 175,796 | | 214,157 |
Other suppliers | 162,224 | | 137,145 |
| 405,135 | | 388,077 |
| 719,325 | | 711,989 |
Current | 543,529 | | 497,832 |
Noncurrent | 175,796 | | 214,157 |
Petróleo Brasileiro S.A. – Petrobras
On March 6, 2006, Copel signed an agreement with Petrobras to settle the pending issues regarding the gas purchase agreement for the Araucária Thermoelectric Power Plant. This agreement comprised the signing of an Out-of-Court Agreement, under which Copel Generation Company, with Copel as joint debtor, acknowledged a R$ 150,000 debt to Petrobras, as the assignee of Compagas’ credits to Copel Generation, which shall be paid in 60 monthly installments adjusted by the Selic rate, starting in January 2010.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
On May 30, 2006, Copel Generation signed a Statement for the Ratification of mutual settlement with Compagas under which both parties fully and irrevocably release each other from all obligations and rights under the Natural Gas Purchase and Sale Agreement signed by them on May 30, 2000 and terminated on May 31, 2005, renouncing any claims against each other, on any grounds, as of the date of the Out of Court Agreement and the acknowledgement of debt signed by them and by Petrobras, with the participation of Copel. The acknowledgement of debt by Copel Generation remains.
Main power purchase agreements
| Period of | Purchased power | Date of | Average purchase |
| Supply | (Avg. MW/p.y.) | auction | price (R$) |
Auction of power from existing facilities | | | |
1st Auction - 2005 Product | 2005 to 2012 | 915.00 | December 7, 2004 | 57.51 |
1st Auction - 2006 Product | 2006 to 2013 | 421.58 | December 7, 2004 | 67.33 |
1st Auction - 2007 Product | 2007 to 2014 | 4.86 | December 7, 2004 | 75.46 |
2nd Auction - 2008 Product | 2008 to 2015 | 58.32 | April 2, 2005 | 83.13 |
4th Auction - 2009 Product | 2009 to 2016 | 29.82 | October 11,2005 | 94.91 |
5th Auction - 2007 Product | 2007 to 2014 | 159.38 | December 14, 2006 | 104.74 |
| | 1,588.96 | | |
Auction of power from new facilities | | | |
1st Auction - 2008 Hydro Product | 2008 to 2037 | 3.61 | December 16, 2005 | 106.95 |
1st Auction - 2008 Thermal Product | 2008 to 2022 | 28.56 | December 16, 2005 | 132.26 |
1st Auction - 2009 Hydro Product | 2009 to 2038 | 3.26 | December 16, 2005 | 114.28 |
1st Auction - 2009 Thermal Product | 2009 to 2023 | 41.59 | December 16, 2005 | 129.26 |
1st Auction - 2010 Hydro Product | 2010 to 2039 | 66.32 | December 16, 2005 | 114.57 |
1st Auction - 2010 Thermal Product | 2010 to 2024 | 64.3 | December 16, 2005 | 121.81 |
3rd Auction - 2011 Hydro Product | 2011 to 2040 | 57.66 | October 10, 2006 | 120.86 |
3rd Auction - 2011 Thermal Product | 2011 to 2025 | 54.22 | October 10, 2006 | 137.44 |
4th Auction - 2010 Thermal Product | 2010 to 2024 | 18.32 | July 26, 2007 | 134.64 |
5th Auction - 2012 Hydro Product | 2012 to 2041 | 52.5 | October 16, 2007 | 129.14 |
5th Auction - 2012 Thermal Product | 2012 to 2026 | 117.27 | October 16, 2007 | 128.37 |
6th Auction - 2011 Thermal Product | 2011 to 2025 | 51.07 | September 17, 2008 | 128.42 |
7th Auction - 2013 Hydro Product | 2013 to 2042 | 12.24 | September 30, 2008 | 98.98 |
7th Auction - 2013 Thermal Product | 2013 to 2027 | 303.99 | September 30, 2008 | 145.23 |
Santo Antonio | 2012 to 2041 | 106 | December 10, 2007 | 78.87 |
Jirau | 2013 to 2042 | 141.51 | May 19, 2008 | 71.37 |
| | 1,122.42 | | |
The table features the main power purchase agreements signed in the regulated power trading environment. These contracts are restated annually according to the IPCA inflation index.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
24 Payroll, social charges and labor accruals
| Consolidated |
| 2009 | | 2008 |
Payroll | | | |
Profit sharing | 64,995 | | 65,816 |
Taxes and social contribution | 28,574 | | 26,659 |
Payroll, net | 178 | | 103 |
Compensation - Voluntary Redundancy (Note 33.c.2) | 15,859 | | - |
Assignments to third-parties | - | | 5 |
| 109,606 | | 92,583 |
Labor accruals | | | |
Vacation | 55,602 | | 50,909 |
Social charges on paid vacation and 13th salary | 17,458 | | 15,896 |
Accruals for voluntary redundancy program | 24,291 | | - |
| 97,351 | | 66,805 |
| 206,957 | | 159,388 |
25 Post-Employment Benefits
a) Pension Plan
The Company and its subsidiaries sponsor retirement and pension plans (Pension Plans I, II, and III) and a medical and dental care plan (Healthcare Plan) to both current and retired employees and their dependents.
Pension Plans I and II are defined benefit plans, while Plan III is a defined contribution plan.
The cost shares borne by the plans’ sponsors are recorded according to an actuarial valuation prepared annually by independent actuaries pursuant to the rules of CVM Ruling no. 371/2000. The economic and financial assumptions, for purposes of actuarial valuation, are discussed with the independent actuaries and approved by the sponsors’ management.
Up to July 2007, the flow of payment of contributions under Plans I and II was guaranteed under an agreement called “Private Agreement for Adjustment of Mathematical Reserves for the Basic and Supplemental Pension Plans”, signed on January 20, 1999. This agreement provides for the extinction of liabilities under certain conditions. Based on legal opinions by external and internal legal experts, the Company notified the management of Fundação Copel de Previdência e Assistência Social, on July 27, 2007, that no contribution payments would be made under that agreement as of August 2007, since the obligations contained therein expired.
In September 2007, Fundação Copel disputed Copel's interpretation, which led to a joint request for review and ruling by the State Department of Supplemental Pension Plans (SPC).
In November 2007, the State Department of Supplemental Pension Plans requested further information and suggested the contraction of an independent actuarial audit in order to review the settlement process and to issue a conclusive report on the suitability of the economic and financial assumptions used and on whether the debt and/or contract were settled/terminated.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
In July 2008, Fundação Copel submitted to the SPC an audit report prepared by their actuarial consultants, and in October 2008, the SPC sent a letter to Fundação Copel requesting further information and evidence supporting that report. Up to this moment, SPC has not issued any pronuncement on the matter.
The outcome of this issue will not affect the amounts which have already been recorded as a liability pursuant to CVM Instruction no. 371/2000. In fact, it will only affect the cash flow of the payment of contributions between Copel and Fundação Copel.
b) Healthcare Plan
The Company and its subsidiaries allocate resources for the coverage of health-care expenses incurred by their employees and their dependents, within rules, limits, and conditions set in specific regulations. Coverage includes periodic medical exams and is extended to all retirees and pensioners for life.
c) Balance sheet and statement of operations
Amounts recognized in the balance sheet, under Post-Employment Benefits, are summarized below:
| | | December 31, |
| 2009 | | 2008 |
Pension Plan | | | |
Pension Plan - Plans I and II (Defined benefit) | - | | 95,436 |
Pension Plan - Plan III (Voluntary defined contribution) - employees | 10,235 | | 9,111 |
| 10,235 | | 104,547 |
. | | | |
Healthcare Plan | 365,246 | | 343,398 |
| 375,481 | | 447,945 |
Current | 22,505 | | 22,066 |
Noncurrent | 352,976 | | 425,879 |
The amounts recognized in the statement of operations are shown below:
| | | | | December 31, |
| 2009 | | 2008 | | 2007 |
Pension plan - periodic post-employment cost | (95,436) | | (31,420) | | (110,345) |
Pension plan (Defined contribution) | 54,139 | | 48,275 | | 45,997 |
Healthcare plan - post-employment | 45,859 | | (6,909) | | 38,746 |
Healthcare plan contributions | 16,994 | | 27,462 | | 18,330 |
| 21,556 | | 37,408 | | (7,272) |
(-) Transfers to construction in progress | (7,379) | | (7,392) | | (6,579) |
| 14,177 | | 30,016 | | (13,851) |
| | | | | |
The annual estimated cost for 2009, calculated by an independent actuary, resulted in income due to the actuarial gains which are being amortized and whose amounts exceed the regular periodic cost of the plans.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in the Post-Employment Benefits balance
Balances | Current liabilities | | Noncurrent liabilities | | Consolidated Total |
As of December 31, 2007 | 42,286 | | 454,411 | | 496,697 |
Appropriation of actuarial calculation | - | | (38,329) | | (38,329) |
Pension and healthcare contributions | 75,737 | | - | | 75,737 |
Transfers | (9,797) | | 9,797 | | - |
Amortizations | (86,160) | | - | | (86,160) |
As of December 31, 2008 | 22,066 | | 425,879 | | 447,945 |
Appropriation of actuarial calculation | - | | (61,385) | | (61,385) |
Pension and healthcare contributions | 82,941 | | - | | 82,941 |
Transfers | 11,518 | | (11,518) | | - |
Amortizations | (94,020) | | - | | (94,020) |
As of December 31, 2009 | 22,505 | | 352,976 | | 375,481 |
| | | | | |
d) Actuarial valuation pursuant to CVM Ruling no. 371/2000
Actuarial assumptions
The actuarial assumptions used to determine the amounts of liabilities and costs for 2009 and 2008 are shown below:
| | Real | | Nominal | |
Economics | | | | | |
Inflation p.a. | | | | 5.20% | |
Discount rate expected return on plan assets rate | | 6.00% | | 11.51% | |
Compensation increase p.a. | | 2.00% | | 7.30% | |
Demographics | | | | | |
Mortality table | | | | AT - 83 | |
Disabled mortality table | | | | AT - 49 | |
Disability table | | | | Light | |
Number of participants and beneficiaries:
| | Pension plan | | Healthcare plan | |
Number of participants in 2009(1) | | | |
| | | | | |
Number of active participants | | 8,735 | | 8,384 | |
Number of inactive participants | | 5,863 | | 4,677 | |
Number of dependents | | - | | 23,674 | |
| | | | | |
Total | | 14,598 | | 36,735 | |
| | | | | |
(1) Unaudited information
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Actuarial valuation
| | | | | | | December 31, |
| | | | | 2009 | | 2008 |
| Pension plan | | Healthcare plan | | |
Benefits plan | | | Total | | Total |
| | | | | | | |
Fully or partially covered obligations | 2,915,084 | | 476,227 | | 3,391,311 | | 3,067,284 |
Fair value of plan's assets | (3,509,658) | | (110,981) | | (3,620,639) | | (3,496,623) |
Subtotal | (594,574) | | 365,246 | | (229,328) | | (429,339) |
Actuarial gain to be amortized | 564,461 | | - | | 564,461 | | 868,173 |
| (30,113) | | 365,246 | | 335,133 | | 438,834 |
Not recognized asset | 30,113 | | - | | 30,113 | | - |
Total liability | - | | 365,246 | | 365,246 | | 438,834 |
In light of the Brazilian legislation on pension funds, particularly Supplemental Pension Management Council’s Rule no. 26, the Company does not record the net assets as of the end of the fiscal year.
The acturial valuation assessment of defined benefit plans is calculated by the projected unit credit cost method (PUC). The net assets of the benefit plan are valued according to market values (mark to market).
Since the year ended on December 31, 2006, Copel has chosen to not defer future actuarial gains and losses recorded in the healthcare plan, rather recording them immediately in the statement of operations.
As of December 31, 2009, the balance of accumulated amounts in the defined contribution plan was R$ 1,420,320 (R$ 1,142,537 on December 31, 2008).
Changes in actuarial liabilities
| | | December 31, |
. | Pension plan | | Healthcare plan |
|
Benefit Obligation, beginning of the year 2008 | 2,518,605 | | 476,830 |
Service cost | 15,963 | | 1,492 |
Interest cost | 282,252 | | 52,527 |
Benefits paid | (199,381) | | (24,889) |
Actuarial gains (losses) | (3,742) | | (52,373) |
Benefit Obligation , end of the year 2008 | 2,613,697 | | 453,587 |
Cost of current service | 20,398 | | 1,534 |
Interest cost | 289,985 | | 50,274 |
Benefits paid | (200,067) | | (31,672) |
Actuarial gains (losses) | 191,071 | | 2,504 |
Benefit Obligation, end of the year 2009 | 2,915,084 | | 476,227 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in actuarial assets
| | | December 31, |
| Pension plan | | Healthcare plan |
Fair value of plan's assets as of 2007 | 3,255,449 | | 114,392 |
Return on plan assets | 363,364 | | 12,372 |
Contributions sponsor and employees | 4,226 | | 62,771 |
Benefits paid | (199,381) | | (73,540) |
Actuarial gains (losses) | (37,332) | | (5,698) |
Fair value of plan's assets as of 2008 | 3,386,326 | | 110,297 |
Return on plan assets | 384,655 | | 12,519 |
Contributions sponsor and employees | 14,254 | | 63,057 |
Benefits paid | (200,067) | | (70,668) |
Actuarial gains (losses) | (75,510) | | (4,224) |
Fair value of plan's assets as of 2009 | 3,509,658 | | 110,981 |
Estimated costs
The estimated net periodic plan costs (gains) for 2010, according to the actuarial criteria of CVM Ruling no. 371/2000, for each plan are shown below:
| Pension Plan | | Healthcare plan | | 2009 |
| | | | | |
Cost of current service | 15,760 | | 6,179 | | 21,939 |
Estimated interest cost | 311,160 | | 47,278 | | 358,438 |
Estimated return on plan assets | (393,702) | | (12,776) | | (406,478) |
Estimated employee contributions | (14,166) | | (12,695) | | (26,861) |
Amortization of gains and losses | (22,422) | | - | | (22,422) |
| (103,370) | | 27,986 | | (75,384) |
26 Regulatory Charges
| December 31, |
| 2009 | | 2008 |
Energy Development Account – CDE | 17,818 | | 14,904 |
Global Reversal Reserve – RGR | 7,245 | | 6,045 |
Fuel Consumption Account – CCC | 4,460 | | 22,174 |
| 29,523 | | 43,123 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
27 Research and Development and Energy Efficiency
ANEEL set forth criteria for the application of funds in Energy Efficiency Programs (EEPs) by power distribution concession and permission holders, pursuant to the regulations issued by the regulatory agency. Under the same resolution, the Manual for the Energy Efficiency Program was approved.
ANEEL also approved the Manual for Technological Research and Development Programs in the Power Sector. In October 2006, ANEEL established the criteria and procedures for the calculation, application, and collection by concession, permission, and authorization holders of the funds to be assigned monthly to Energy Efficiency and Research and Development projects, to the National Fund for Scientific and Technological Development (FNDCT), and to the Ministry of Mining and Energy (MME), pursuant to Law no. 9,991/00.
Copel’s balances allocated to Research and Development and Energy Efficiency are detailed below:
| Used-projects in progress | | Payable Amount | | Balance to be used in projects | | Balance as of
December 31, 2009 | | Balance as of
December 31, 2008 |
Research and Development - R&D | | | | | | | | | |
FNDCT | - | | 1,325 | | - | | 1,325 | | 18,649 |
MME | - | | 682 | | - | | 682 | | 9,345 |
R&D | 25,196 | | - | | 79,365 | | 104,561 | | 85,596 |
| 25,196 | | 2,007 | | 79,365 | | 106,568 | | 113,590 |
Energy Efficiency Program - EEP | 20,428 | | - | | 84,502 | | 104,930 | | 84,973 |
| 45,624 | | 2,007 | | 163,867 | | 211,498 | | 198,563 |
| | | | | Current | | 121,005 | | 126,484 |
| | | | | Noncurrent | | 90,493 | | 72,079 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The changes in these balances are shown below:
| FNDCT Current | | MME Current | | Current | | R&D Noncurrent | | Current | | EEP Noncurrent | | Total |
Balances | | | | | | |
As of December 31, 2007 | 20,157 | | 10,287 | | 75,893 | | - | | 78,943 | | - | | 185,280 |
Additions | 14,111 | | 7,056 | | 14,111 | | - | | 18,338 | | - | | 53,616 |
SELIC interest rate | - | | - | | 7,818 | | - | | 6,704 | | - | | 14,522 |
Tranfers | - | | - | | (37,509) | | 37,509 | | (34,570) | | 34,570 | | - |
Execution of programs and ayments | (15,619) | | (7,998) | | - | | - | | - | | - | | (23,617) |
Concluded projects | - | | - | | (12,226) | | - | | (19,012) | | - | | (31,238) |
As of December 31, 2008 | 18,649 | | 9,345 | | 48,087 | | 37,509 | | 50,403 | | 34,570 | | 198,563 |
Additions | 14,831 | | 7,415 | | 2,900 | | 11,933 | | 3,023 | | 16,182 | | 56,284 |
SELIC interest rate | - | | - | | 1,383 | | 5,448 | | 1,236 | | 5,185 | | 13,252 |
Tranfers | - | | - | | (18) | | 18 | | 20,352 | | (20,352) | | - |
Execution of programs and payments | (32,155) | | (16,078) | | - | | - | | - | | - | | (48,233) |
Concluded projects | - | | - | | (2,699) | | - | | (5,669) | | - | | (8,368) |
As of December 31, 2009 | 1,325 | | 682 | | 49,653 | | 54,908 | | 69,345 | | 35,585 | | 211,498 |
| | | | | | | | | | | | | |
28 Other Accounts Payable
| December 31, |
| 2009 | | 2008 |
Current liabilities | | | |
Concession charge - ANEEL grant | 36,576 | | 38,649 |
Financial compensation for use of water resources | 19,402 | | 17,601 |
Collected public lighting charge | 17,989 | | 18,669 |
Reimbursements of customer contributions | 15,304 | | 18,037 |
Participation in consortia | 7,309 | | 4,833 |
Collaterals | 4,521 | | 1,723 |
Advance payments from customers | 3,945 | | 93 |
Compensation to the Apucaraninha indian community | 2,596 | | 2,498 |
Insurance companies - premiums payable | 2,251 | | 3,181 |
Other liabilities | 11,263 | | 9,099 |
| 121,156 | | 114,383 |
Noncurrent liabilities | | | |
Compensation to the Apucaraninha indian community | 2,596 | | 4,995 |
Other liabilities | 357 | | 1,679 |
| 2,953 | | 6,674 |
| | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
29 Reserve for Contingencies
The Company is a party to several labor, tax and civil claims filed before different courts. Copel’s management, based on the opinion of its legal counsel, maintains a reserve for contingencies in connection with lawsuits with probable chance of an unfavorable outcome.The balances of the Company’s reserve for contingencies, net of escrow deposits, are shown below:
| Contingencies | | Judicial deposits | | | | Net provision |
| | | | | 2009 | | 2008 |
Labor (a) | 158,431 | | (23,722) | | 134,709 | | 104,354 |
Regulatory (b) | 37,010 | | - | | 37,010 | | 36,851 |
Civil: | | | | | | | |
Suppliers (c) | 84,024 | | (22,822) | | 61,202 | | 52,209 |
Civil and administrative claims (d) | 57,213 | | (10,568) | | 46,645 | | 23,213 |
Easements (e) | 14,902 | | - | | 14,902 | | 15,615 |
Condemnations and property (e) | 125,339 | | - | | 125,339 | | 119,645 |
Customers (f) | 5,324 | | (1,426) | | 3,898 | | 4,571 |
Environmental claims (g) | 10 | | - | | 10 | | - |
| 286,812 | | (34,816) | | 251,996 | | 215,253 |
Tax: | | | | | | | |
COFINS tax (Note 10.d.2) | - | | - | | - | | 178,753 |
Other taxes (h) | 77,858 | | (27,029) | | 50,829 | | 58,154 |
| 77,858 | | (27,029) | | 50,829 | | 236,907 |
| 560,111 | | (85,567) | | 474,544 | | 593,365 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Changes in this reserve are shown below:
| Balance as of December 31, 2008 | | Additions (reversals) | | Additions to p., p., &e. | | Payments | | Balance as of December 31,
2009 |
Labor | 129,699 | | 53,551 | | 4 | | (24,823) | | 158,431 |
Regulatory | 36,851 | | 151 | | - | | 8 | | 37,010 |
Civil: | | | | | | | | | |
Suppliers | 52,209 | | 31,815 | | - | | - | | 84,024 |
Civil and administrative claims | 29,987 | | 32,743 | | - | | (5,517) | | 57,213 |
Easements | 15,615 | | - | | 4,825 | | (5,538) | | 14,902 |
Condemnations and real estate | 119,645 | | - | | 5,710 | | (16) | | 125,339 |
Customers | 5,465 | | 128 | | - | | (269) | | 5,324 |
Environmental claims | - | | 10 | | - | | - | | 10 |
| 222,921 | | 64,696 | | 10,535 | | (11,340) | | 286,812 |
Tax: | | | | | | | | | |
COFINS tax | 178,753 | | (178,753) | | - | | - | | - |
Other taxes | 85,158 | | (7,300) | | - | | - | | 77,858 |
| 263,911 | | (186,053) | | - | | - | | 77,858 |
| 653,382 | | (67,655) | | 10,539 | | (36,155) | | 560,111 |
The amount related to claims classified as reasonably possible losses, estimated by the Company as of December 31, 2009, reached R$ 1,879,460, of which R$ 110,706 correspond to labor claims; R$ 1,195,126 to regulatory claims; R$ 115,942 to civil claims; and R$ 457,686 to tax claims.It is important to point out that Copel’s has a good chance of success in the lawsuit it filed to dispute the effects of ANEEL Ruling no. 288/2002, based on the opinion of its legal counsel, as discussed in Note 35 herein, “Spot Market (CCEE)”.
a) Labor claims
Labor claims comprise claims filed by former employees of Copel in connection with the payment of overtime, hazardous working conditions, transfer bonuses, salary equalization/reclassification, and other matters, and also claims by former employees of contractors (joint liability) and third-parties (secondary responsability) involving indemnity and other matters. They also include labor claims by retired Copel employees against the Copel Foundation, which will reflect on the Company.
b) Regulatory claims
Copel is disputing on the administrative and on the judicial level notifications issued by the regulatory agency in connection with supposed regulatory violations. The main lawsuits currently in progress, in the amount of R$ 30,373, are those involving Companhia Estadual de Energia Elétrica - CEEE and Dona Francisca Energética S.A., in which ANEEL Ruling no. 288/2002 is being disputed. The probable success in these lawsuits will result in changes in CCEE (Spot Market) accounting, which would require the recording of a reserve for these amounts, since Copel would be required to pay off the amounts due.
c) Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A.
The companies Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A. required the filing of the arbitration proceedings with the Chamber of Arbitrage of the Getúlio Vargas Foundation, through which they plead the payment of the overdue installment values, as well as the cancellation fines, related to the electric energy purchase and sale agreements signed with Copel Distribuição. The arbitrage proceedings were judged to be valid and, consequently, Copel Distribuição was sentenced topay the claimed amounts plus the attorney’s fees. The Company has filed for a court order making the arbitration ruling void.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Management, based on the opinion of its legal counsel that it is likely to lose this case, on the available information, and on the current stage of the lawsuits, decided to set aside a reserve for contingencies in the original amount of the debt, adjusted according to the original contractual terms, which amounted to R$ 84,024 as of December 31, 2009.
d) Civil and administrative claims
These claims usually involve compensation for accidents involving power grids and vehicle accidents.
e) Easements, condemnation, and property
Copel’s real estate claims comprise mostly cases of condemnation and easements, in which compensation is always mandatory pursuant to the Federal Constitution, which requires that the Federal Government pay just compensation, in cash, prior to condemnation of private property or to the imposition of restrictions on the use of property without transfer of title. Lawsuits are usually filed when parties fail to agree on the amount of compensation due.
Ivaí Engenharia de Obras S.A.
In a lawsuit filed by Ivaí Engenharia de Obras S.A., Copel was sentenced to the payment of R$ 180,917 as compensation for a supposed economic-financial imbalance under Contract D-01, concerning construction work for the Jordão River diversion project. Copel appealed this decision and was partially successful, avoiding the application of the SELIC interest rate on top of the penalty interest. Copel will continue to dispute this claim in court, through all means legally available.
The Company has recorded a reserve for contingencies in the amount of R$ 113,795, in light of the evaluation conducted by its Chief Legal Office, which estimates that a loss is probable.
f) Customer claims
These claims usually involve compensation for damage to electric appliances, moral damages arising from the rendering of services (such as suspension of supply), and lawsuits filed by industrial customers challenging the constitutionality of the tariff increase which became effective during the Brazilian Government’s “Cruzado Plan” and claiming refunds of the amounts involved. The company recognized a reserve to cover probable losses on those lawsuits, regarding the tariff charged to industrial customers in the period from March to November 1986, this charges on late payments. The amount is considered sufficient to cover probable losses.
g) Environmental claims
Environmental claims involving Copel and its subsidiaries usually comprise class entity suits whose goal is to stop the environmental licensing process for new projects or the recovery of permanent protection areas around electricity plant reservoirs which have been illegally used by individuals. Copel estimates that unfavorable outcomes would result only in the cost of new environmental studies and of the recovery of Company-owned land.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Furthermore, Copel had on December 31, 2009 commitments to environmental agencies in the amount of R$ 89,541 (R$ 17,674 as of 2008), which shall be completed over the next few years, as a consequence, this amount will mostly be incorporated into the Company's property, plant, and equipment as disbursements occur.
h) Other taxes
1) Service Tax (ISS)
Main discussions refer to the tax assessments filed against the company due to a possible lack of payment of ISS upon the use of third-party services.
2) Value -Added Tax on Sales and Services (ICMS)
The majority of the discussions involve the filing of a judicial claim by the Group A consumers against the inclusion of the contracted demand in the calculation basis of ICMS. However, in almost all of these judicial claims, the judiciary has removed the Company from the defendant position of the demand and maintains the State of Paraná as legitimate defendant to respond for the possible incorrect collection of ICMS amounts on the contracted demand of electric energy.
3) Urban Real Estate Tax (IPTU)
Copel has started administrative proceedings to dispute IPTU charges on its concession-related properties. In fact, this claim has been widely accepted in the courts in cases of tax executions filed by State municipalities against Copel.
4) Social Security Contributions
Copel is party to a wide range of administrative and judicial proceedings involving social security contributions. Most claims, however, involve Copel’s joint liability for the collection of social security contributions levied on services rendered by third-parties.
5) Rural Real Estate Tax (ITR)
Discussions on ITR involve, basically, the questioning of the incidence of this tax on the flooded areas resulting from the construction of hydroelectric plants, as well as on the areas currently in possession of people settled due to the Resettling Programs which are, also, due to the construction of hydroelectric plants.
6) Contribution for Intervention in the Economic Domain (CIDE/FUST)
Company has filed administrative claims questioning five Assessment Notifications issued by the National Telecommunications Agency (ANATEL) claiming the collection of a possible complementary debt from January to June 2006 to the Telecommunications Universalization Fund (FUST). Copel Telecomunicações argues that the basis for calculation of FUST charges is correct, pursuant to the applicable legislation and there is no reason to claim a complementary debt.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
30 Shareholders' Equity
a) Stock capital
As of December 31, 2009, Copel’s paid in stock capital, represented by shares with no par value, amounts to R$ 4,460,000. The different classes of shares and main shareholders are detailed below:
| | In shares |
Shareholders | | Common | | Class A Preferred | | Class B Preferred | | Total |
| | | % | | | % | | | % | | | % |
State of Paraná | | 85,028,598 | 58.63 | | - | - | | 13,639 | 0.01 | | 85,042,237 | 31.08 |
BNDESPAR | | 38,298,775 | 26.41 | | - | - | | 27,282006 | 21.28 | | 65,580,781 | 23.96 |
Eletrobras | | 1,530,774 | 1.06 | | - | - | | - | - | | 1,530,774 | 0.56 |
Stock exchanges: | | | | | | | | | | | | |
BM&FBOVESPA(1) | | 19,465,551 | 13.42 | | 127,327 | 32.25 | | 60,515,455 | 47.19 | | 80,108,333 | 29.27 |
NYSE(2) | | 152,436 | 0.11 | | - | | | 40,077,562 | 31.26 | | 40,229,998 | 14.70 |
Latibex(3) | | - | - | | - | - | | 301,167 | 0.23 | | 301,167 | 0.11 |
Municipalities | | 178,393 | 0.12 | | 12,797 | 3.24 | | - | - | | 191,190 | 0.07 |
Other shareholders | | 376,553 | 0.25 | | 254,717 | 64.51 | | 39,625 | 0.03 | | 670,895 | 0.25 |
| | 145,031,080 | 100.00 | | 394,841 | 100.00 | | 128,229,454 | 100.00 | | 273,655,375 | 100.00 |
(1) São Paulo Stock Exchange |
(2) New York Stock Exchange |
(3) Latin American Securities Market in Euros, linked to the Madrid Stock Exchange |
As of December 31, 2008 the different classes of shares and main shareholders are detailed below:
| | | | | | | | | | | | | | | | In shares |
| | | | | | | | |
Shareholders | | Common | | Class A Preferred | | Class B Preferred | | Total |
| | | | % | | | | % | | | | % | | | | % |
| | | | | | | | | | | | | | | | |
State of Paraná | | 85,028,598 | | 58.63 | | - | | - | | 13,639 | | 0.01 | | 85,042,237 | | 31.08 |
BNDESPAR | | 38,298,775 | | 26.41 | | - | | - | | 27,282,006 | | 21.28 | | 65,580,781 | | 23.96 |
Eletrobras | | 1,530,774 | | 1.06 | | - | | - | | - | | - | | 1,530,774 | | 0.56 |
Stock Exchanges: | | | | | | | | | | | | | | | | |
BM&FBOVESPA(1) | | 14,202,488 | | 9.79 | | 127,587 | | 32.04 | | 74,423,942 | | 58.04 | | 88,754,017 | | 32.43 |
NYSE(2) | | 5,415,233 | | 3.73 | | - | | - | | 26,352,280 | | 20.55 | | 31,767,513 | | 11.61 |
Latibex(3) | | - | | - | | - | | - | | 116,067 | | 0.09 | | 116,067 | | 0.04 |
Municipalities | | 178,393 | | 0.12 | | 14,711 | | 3.70 | | - | | - | | 193,104 | | 0.07 |
Other shareholders | | 376,819 | | 0.26 | | 255,879 | | 64.26 | | 38,184 | | 0.03 | | 670,882 | | 0.25 |
| | | | | | | | | | | | | | | | |
| | 145,031,080 | | 100.00 | | 398,177 | | 100.00 | | 128,226,118 | | 100.00 | | 273,655,375 | | 100.00 |
(1) São Paulo Stock Exchange | | | | | | | | | | | | | | |
(2) New York Stock Exchange | | | | | | | | | | | | | | |
(3) Latin American Securities Market in Euros, linked to the Madrid Stock Exchange | | |
Each common share entitles its holder to one vote in the general shareholders’ meetings. Preferred shares, which do not carry voting rights, are divided into classes A and B.
Class “A” preferred shares have priority in the reimbursement of capital and the right to non-cumulative annual dividends of 10%, calculated proportionately to the capital represented by the shares of this class.
Class “B” preferred shares have priority in the reimbursement of capital and the right to the distribution of minimum dividends, calculated as 25% of adjusted net income, pursuant to the corporate legislation and to the Company’s by-laws, calculated proportionately to the capital represented by the shares of this class. Class “B” shareholders have priority only over the common shareholders in the distribution of mandatory dividends, which shall only be paid out of the remaining net income after the payment of priority dividends to class “A” shareholders.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
According to Article 17 and following paragraphs of Federal Law 6,404/76, dividends paid to preferred shares must be at least 10% higher than those paid to common shares.
b) Shareholder Breakdown
As of December 31, 2009 (In Shares) |
Shareholding Position of the Holders of more than 5% of Each Class of Stock (Entities and Individuals) |
Shareholder | Common Shares | Class A Preferred Shares | Class B Preferred Shares | Total |
Shares | % | | % | | % | Shares | % |
Controlling Shareholders | State Of Paraná | 85,028,598 | 58.63 | - | - | 13,639 | 0.01 | 85,042,237 | 31.08 |
BNDES Participações S.A. - BNDESPAR | 38,298,775 | 26.41 | - | - | 27,282,006 | 21.28 | 65,580,781 | 23.96 |
Credit Suisse Hedging-Griffo Cv S.A (Funds) | | 9,774,900 | 6.74 | - | - | 175,830 | 0.14 | 9,950,730 | 3.64 |
Blackrock Inc. (Funds) | | - | - | - | - | 7,817,189 | 6.10 | 7,817,189 | 2.86 |
Treasury Stock | | - | - | - | - | - | - | - | - |
Other Shareholders | | 11,928,807 | 8.22 | 394,841 | 100.00 | 92,940,790 | 72.47 | 105,264,438 | 38.46 |
Total | | 145,031,080 | 100.00 | 394,841 | 100.00 | 128,229,454 | 100.00 | 273,655,375 | 100.00 |
Obs.: BNDES Participações S.A. - BNDESPAR is a public company, wholly-owned by Banco Nacional de Desenvolvimento Social - BNDES, which is 100.0% owned by the Federal Government of Brazil.
As of December 31, 2009 (In Shares) |
Consolidated Shareholding Position of the Majority Shareholders and Senior Management of the Company and Free-Floating Stock |
Shareholders | Common Shares | Class A Preferred Shares | Class B Preferred Shares | Total |
Shares | % | | % | | % | Shares | % |
Majority Shareholder | | 123,327,373 | 85.04 | - | - | 27,295,645 | 21.29 | 150,623,018 | 55.04 |
S. Management | Board Of Directors | 9 | - | - | - | - | - | 9 | - |
Board Of Officers | 102 | - | - | - | - | - | 102 | - |
Fiscal Council | | - | - | - | - | - | - | - | - |
Treasury Stock | | - | - | - | - | - | - | - | - |
Other Shareholders | | 21,703,596 | 14.96 | 394,841 | 100.00 | 100,933,809 | 78.71 | 123,032,246 | 44.96 |
Total | | 145,031,080 | 100.00 | 394,841 | 100.00 | 128,229,454 | 100.00 | 273,655,375 | 100.00 |
Free-Float | | 21,703,596 | 14.96 | 394,841 | 100.00 | 100,933,809 | 78.71 | 123,032,246 | 44.96 |
c) Capital reserves
| | | | December 31, | |
| | 2009 | | 2008 | |
Contributions and grants for investments | | 702 | | 702 | |
Recoverable Rate Deficit Account (CRC) | | 790,555 | | 790,555 | |
Tax incentive – FINAM | | 47,083 | | 47,083 | |
| | 838,340 | | 838,340 | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
d) Profit reserves
| | | | December 31, | |
| | 2009 | | 2008 | |
Legal reserve | | 428,912 | | 377,590 | |
Investment reserve | | 3,102,809 | | 2,377,157 | |
| | 3,531,721 | | 2,754,747 | |
Legal reserve is computed based on 5% of the net income for the year under BR GAAP, before any distributions, limited to 20% of stock capital.
Investment reserve arises from the retention of net income remaining after legal and statutory distributions, and is intended to retain funds for the Company's future investments program after the approval of the investment capital budget at the shareholders ordinary meeting.
The proposed distribution of dividends is shown below:
Year ended December 31, |
| 2009 | | 2008 | | 2007 |
Net income for the fiscal year | 1,026,433 | | 1,078,744 | | 1,106,610 |
Tax effects on Copel for distributing interest on capital | (78,200) | | (77,520) | | (68,000) |
Net income for the year net of the tax effects of | | | | | |
interest on capital | 948,233 | | 1,001,224 | | 1,038,610 |
Legal reserve (5%) computed over net income above | (47,412) | | (50,061) | | (51,931) |
Basis for calculation of minimum dividends | 900,821 | | 951,163 | | 986,679 |
Mandatory minimum dividends (25%) | 225,205 | | 237,791 | | 246,670 |
Income tax withheld (IRRF) on interest on capital | 24,254 | | 24,043 | | 21,080 |
Adjusted minimum dividend, incl. effects of income tax withheld (IRRF) | 249,459 | | 261,834 | | 267,750 |
Interest on capital | 230,000 | | 228,000 | | 200,000 |
Dividends | 19,459 | | 33,834 | | 67,750 |
Distributed dividends allocated to: | | | | | |
Common shares | 126,126 | | 132,398 | | 135,397 |
Class A preferred shares | 644 | | 649 | | 649 |
Class B preferred shares | 122,689 | | 128,787 | | 131,704 |
Interest on capital is recorded as Interest expenses and, for the presentation purposes of the financial statements, is shown as an allocation of the net income for the fiscal year. In the statement of income, its reversal was made under a specific item in financial expenses, as required by CVM.
On October 29, 2009, the 126th Meeting of the Board of Directors approved the payment of interest on capital in lieu of dividends, up to the legal limit, by the wholly-owned subsidiaries to the parent company, and by the parent company to its shareholders, after the General Shareholders' Meeting in the first four months of 2010, or before then, should the Board of Officers so choose.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The Board of Officers, at a meeting on November 11, 2009, decided to start payment of advance interest on capital in lieu of dividends for fiscal year 2009 on December 7, 2009, to shareholders who held shares on November 12, 2009. This payment amounted to R$ 168,000,000.00, pursuant to Law no. 9,249/95, and will be deducted from the annual dividends for 2009, once they're determined.
31 Operating Revenues
| Year ended December 31, |
| 2009 | | 2008 | | 2007 |
Electricity sales to final customers | | | | | |
Residential | 1,071,740 | | 935,934 | | 876,287 |
Industrial | 1,107,740 | | 1,069,201 | | 985,685 |
Commercial, services, and other activities | 697,997 | | 622,046 | | 570,418 |
Rural | 135,520 | | 123,071 | | 113,720 |
Public agencies | 95,853 | | 86,334 | | 82,165 |
Public lighting | 73,883 | | 67,005 | | 63,518 |
Public services | 67,902 | | 63,403 | | 61,992 |
Network charge adjustment share | 3,052 | | 1,886 | | (6,105) |
| 3,253,687 | | 2,968,880 | | 2,747,680 |
Electricity sales to distributors | | | | | |
Agreements for Power Trade on the
Regulated Market - CCEAR (auction) | 1,098,636 | | 818,585 | | 721,899 |
Bilateral contracts | 197,207 | | 496,380 | | 576,457 |
Sales Eletric Energy Trading Chamber - CCEE | 98,963 | | 48,129 | | 69,239 |
| 1,394,806 | | 1,363,094 | | 1,367,595 |
Charges for the use of the main transmission grid | | | | | |
Rate for the use of the distribution system (TUSD) | | | | | |
Residential | 1,142,061 | | 1,054,150 | | 1,023,847 |
Industrial | 1,030,657 | | 1,043,588 | | 984,423 |
Commercial, services, and other activities | 748,765 | | 687,563 | | 657,504 |
Rural | 144,807 | | 138,138 | | 133,400 |
Public entities | 102,078 | | 96,529 | | 95,785 |
Public lighting | 78,839 | | 74,943 | | 74,211 |
Public services | 72,440 | | 70,925 | | 72,318 |
Free Customers | 138,706 | | 150,605 | | 151,714 |
Basic Network and Basic Network Connections | 168,945 | | 140,503 | | 141,663 |
Connection grid | 2,720 | | 3,439 | | 764 |
Basic Network charge adjustment share | 5,951 | | 12,715 | | (18,666) |
| 3,635,969 | | 3,473,098 | | 3,316,963 |
. | | | | | |
Revenues from telecommunications | 104,844 | | 80,604 | | 63,893 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
. | 2009 | | 2008 | | 2007 |
Distribution of piped gas | 261,325 | | 283,709 | | 244,080 |
Other | | | | | |
Leases and rents | 97,696 | | 95,316 | | 125,768 |
Revenues from services | 38,040 | | 30,445 | | 44,900 |
Charged service | 9,179 | | 9,316 | | 8,393 |
Other revenues | 1,130 | | 933 | | 822 |
| 146,045 | | 136,010 | | 179,883 |
| 8,796,676 | | 8,305,395 | | 7,920,094 |
a) Basic Network – rate for the use of the transmission system (TUST)
Transmission companies are entitled to Annual Allowed Revenues (RAP), whose initial amounts and adjustment criteria are set forth in the companies' concession agreements. Copel Geração e Transmissão holds three transmission concession agreements, with different rate review criteria and revenue structures.
Concession Agreement no. 060/2001 covers the concession for the public service of power transmission comprising the facilities in operation as of December 31, 1999, collectively named Existing Basic Network (RBSE), and the facilities and network upgrades authorized by ANEEL since then, collectively named New Facilities of the Basic Network (RBNI). In addition to the basic network, this agreement grants Copel the operation of facilities collectively named Other Transmission Facilities (DITs) and the sharing of facilities with other transmission utilities. This concession has a 20-year term from the date of publication of Law no. 9,074/1995 and expires on July 7, 2015. The current agreement features a rate review clause which covers only the new authorized facilities, while the revenues from the existing system are isolated, i.e., they will not be incre ased until the expiration of the concession, but only adjusted according to the IGP-M inflation index.
Transmission Concession Agreement no. 075/2001, granted to the Company on August 7, 2001, covers the concession for the implementation of the 230-kV transmission line between the Bateias substation, in Campo Largo, and the Jaguariaíva substation, the respective line inputs, and other facilities required for the operation of the line. This concession has a 30-year term from the date of signature of the agreement, i.e., it expires on August 17, 2031, but may be extended for another 30 years, at ANEEL’s discretion. This agreement does not include a rate review clause, and its allowed revenues are adjusted annually according to the IGP-M index.
On March 17, 2008, Copel signed with ANEEL Concession Agreement no. 006/2008, covering the 230-kV transmission line between the Bateias and Pilarzinho substations in Curitiba. This project is currently under construction and is estimated to operate on June 17, 2009. The agreement has a 30-year term and provides for rate review in the 5th, 10th, and 15th year after signature. In the years between rate reviews, its allowed revenues will be adjusted according to the IPCA inflation index. The facility became commercially operational on September 12,2009.
On November 19, 2009, Copel signed concession agreement no. 27/2009 with ANEEL, for the concession to build the 525-kV transmission line connecting the Foz do Iguaçu substation and the Cascavel-West substation. This project is currently under construction and is scheduled to enter operation two years from the signature of the concession agreement.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
32 Deductions from Operating Revenues
| | | December 31, |
| 2009 | | 2008 | | 2007 |
Taxes and social contributions on sales | | | | | |
VAT (ICMS) | 1,802,096 | | 1,600,758 | | 1,507,882 |
COFINS | 677,458 | | 642,930 | | 594,658 |
COFINS – Tax Recovery Programs (Note 10.d.1) | 25,765 | | | | |
PIS/PASEP | 147,162 | | 139,579 | | 130,249 |
PIS/PASEP – Tax Recovery Programs (Note 10.d.1) | 5,594 | | - | | - |
ISSQN | 1,786 | | 1,834 | | 2,571 |
| 2,659,861 | | 2,385,101 | | 2,235,360 |
Regulatory charges | | | | | |
Energy Development Account (CDE) | 204,186 | | 189,561 | | 184,294 |
Fuel Consumption Account (CCC) | 180,148 | | 153,208 | | 179,071 |
Global Reversal Reserve (RGR) | 78,560 | | 64,877 | | 61,105 |
Research and development and energy efficiency -R&D and EEP | 56,284 | | 53,616 | | 56,347 |
Other | 326 | | 254 | | 256 |
| 519,504 | | 461,516 | | 481,073 |
| 3,179,365 | | 2,846,617 | | 2,716,433 |
33 Operating Costs and Expenses
The breakdown of costs and expenses in 2009, 2008 and 2007 is shown below:
| | | | | | | December 31, 2009 |
| Costs of goods and/or services | | Sales expenses | | General and administrative expenses | | Other revenues (expenses),Net | | Total |
Nature of costs and expenses | | | | | | | | | |
Electricity purchased for resale (a) | (1,681,876) | | - | | - | | - | | (1,681,876) |
Charges for use of power grid (b) | (609,649) | | - | | - | | - | | (609,649) |
Personnel and management (c) | (630,037) | | (4,764) | | (167,749) | | - | | (802,550) |
Pension and healthcare plans (Note 25) | (13,479) | | (321) | | (377) | | - | | (14,177) |
Materials and supplies (d) | (58,390) | | (2,862) | | (6,679) | | - | | (67,931) |
Raw materials and supplies for power generation | (21,231) | | - | | - | | - | | (21,231) |
Natural gas and supplies for the gas business | (135,353) | | - | | - | | - | | (135,353) |
Third-party services (e) | (228,536) | | (25,137) | | (52,435) | | - | | (306,108) |
Depreciation and amortization | (363,597) | | (10) | | (24,111) | | (3,830) | | (391,548) |
Accruals and reversals (f) | - | | (16,448) | | - | | 67,655 | | 51,207 |
Other costs and expenses (g) | (23,962) | | 3,976 | | (136,875) | | (133,957) | | (290,818) |
| (3,766,110) | | (45,566) | | (388,226) | | (70,132) | | (4,270,034) |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | | | | | | December 31, 2008 |
| Costs of goods and/or services | | Sales expenses | | General and administrative expenses | | Other revenues (expenses), net | | Total |
Nature of costs and expenses | | | | | | | | | |
| | | | | | | | | |
Electricity purchased for resale(a) | (1,615,086 | ) | - | | - | | - | | (1,615,086) |
Use of main transmission grid(b) | (466,652 | ) | - | | - | | - | | (466,652) |
Personnel and management(c) | (531,031 | ) | (3,652 | ) | (139,144 | ) | - | | (673,827) |
Pension and healthcare plans | (25,737 | ) | (280 | ) | (3,999 | ) | - | | (30,016) |
Materials and supplies(d) | (49,175 | ) | (2,999 | ) | (5,300 | ) | - | | (57,474) |
Raw materials and supplies for electricity generation | (19,274 | ) | - | | - | | - | | (19,274) |
Natural gas and supplies for the gas business | (163,846 | ) | - | | - | | - | | (163,846) |
Third-party services(e) | (190,269 | ) | (22,867 | ) | (55,112 | ) | - | | (268,248) |
Depreciation and amortization | (376,789 | ) | (13 | ) | (22,321 | ) | (5,620 | ) | (404,743) |
Accruals and reversals(f) | - | | 5,824 | | - | | (104,718 | ) | (98,894) |
Other costs and expenses(g) | (35,583 | ) | (5,782 | ) | (31,036 | ) | (142,039 | ) | (214,440) |
| (3,473,442 | ) | (29,769 | ) | (256,912 | ) | (252,377 | ) | (4,012,500) |
| | | | | | | December 31, 2007 |
Nature of costs and expenses | Costs of goods and/or services | | Sales expenses | | General and administrative expenses | | Other revenues (expenses), net | | Total |
| | | | | | | | | |
| | | | | | | | | |
Electricity purchased for resale (a) | (1,279,335 | ) | - | | - | | - | | (1,279,335) |
Use of main transmission grid (b) | (446,067 | ) | - | | - | | - | | (446,067) |
Personnel and management (c) | (463,865 | ) | (2,263 | ) | (183,589 | ) | - | | (649,717) |
Pension and healthcare plans (Note 25) | 14,169 | | (99 | ) | (219 | ) | - | | 13,851) |
Materials and supplies (d) | (50,308 | ) | (1,271 | ) | (11,639 | ) | - | | (63,218) |
Raw materials and supplies for electricity generation | 8,954 | | - | | - | | - | | 8,954) |
Natural gas and supplies for the gas business | (132,726 | ) | - | | - | | - | | (132,726) |
Third-party services (e) | (161,319 | ) | (21,535 | ) | (58,088 | ) | - | | (240,942) |
Depreciation and amortization | (399,387 | ) | (18 | ) | (22,644 | ) | (7,908 | ) | (429,957) |
Accruals and reversals (f) | - | | 3,899 | | - | | (246,334 | ) | (242,435) |
Other costs and expenses (g) | (11,784 | ) | (9,853 | ) | (22,651 | ) | (129,518 | ) | (173,806) |
| | | | | | | | | |
| (2,921,668 | ) | (31,140 | ) | (298,830 | ) | (383,760 | ) | (3,635,398) |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a) Electricitypurchased for resale
| Year ended December 31, |
| 2009 | | 2008 | | 2007 |
Eletrobras - Centrais Elétricas Brasileiras S.A. (Itaipu) | 478,383 | | 502,417 | | 385,359 |
Furnas Centrais Elétricas S.A. - auction | 322,514 | | 295,615 | | 280,608 |
Companhia Hidro Elétrica do São Francisco - Chesf – auction | 305,207 | | 283,870 | | 256,302 |
Itiquira Energética S.A. | 116,195 | | 107,894 | | 98,175 |
Companhia Energética de São Paulo - Cesp – auction | 115,162 | | 104,722 | | 93,949 |
Centrais Elétricas do Norte do Brasil S. A. - Eletronorte – auction | 99,748 | | 92,794 | | 84,724 |
Câmara de Comercialização de Energia - CCEE | 81,902 | | 148,635 | | 45,100 |
CPFL Energia S.A. | 74,927 | | 8,828 | | - |
Program for incentive to alternative energy sources – Proinfa | 63,764 | | 63,239 | | 41,363 |
Dona Francisca Energética S.A. | 60,303 | | 55,496 | | 51,536 |
Companhia Energética de Minas Gerais - Cemig – auction | 58,578 | | 42,877 | | 37,239 |
Cia. Estadual de Geração e Transmissão de Energia Elétrica S.A. - CEEE – auction | 34,773 | | 32,472 | | 30,946 |
Companhia de Interconexão Energética - CIEN | - | | - | | 111,193 |
(-) –Renegotiaton of contracts - CIEN | - | | - | | (100,862) |
Energy purchased for resale – Deferred Regulatory liabilities - CVA | (100,204) | | (71,990) | | (52,250) |
(-) Pasep/Cofins taxes on power purchased for resale | (203,370) | | (172,759) | | (150,082) |
Other utilities - auction | 173,994 | | 120,976 | | 61,337 |
Other Utilities | - | | - | | 4,698 |
| 1,681,876 | | 1,615,086 | | 1,279,335 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b) Charges for the Use of the Main Transmission Grid
| December 31, |
| 2009 | | 2008 | | 2007 |
Furnas Centrais Elétricas S.A. | 123,697 | | 113,415 | | 106,504 |
System Service Charges – ESS | 95,468 | | 71,261 | | 19,132 |
Cia. Transmissora de Energia Elétrica Paulista – Cteep | 65,323 | | 60,477 | | 55,549 |
Companhia Hidro Elétrica do São Francisco – Chesf | 59,594 | | 56,193 | | 53,814 |
Eletrosul Centrais Elétricas S.A. | 44,790 | | 39,651 | | 36,315 |
Centrais Elétricas do Norte do Brasil S. A. – Eletronorte | 42,975 | | 40,518 | | 36,490 |
Companhia Energética de Minas Gerais – Cemig | 25,037 | | 20,255 | | 18,443 |
TSN Transmissora Nordeste Sudeste de Energia S.A. | 19,795 | | 18,477 | | 16,797 |
Novatrans Energia S.A. | 19,521 | | 18,722 | | 17,160 |
National System Operator – nos | 19,206 | | 16,429 | | 17,484 |
Cia. Estadual de Geração e Transmissão de Energia Elétrica S.A. – CEEE | 17,457 | | 16,217 | | 15,188 |
Empresa Amazonense de Transmissão de Energia – Eate | 16,545 | | 15,344 | | 14,103 |
ATE II Transmissora de Energia S.A. | 8,407 | | 8,018 | | 7,917 |
Empresa Norte de Transmissão de Energia S.A. – Ente | 8,403 | | 7,858 | | 7,474 |
Itumbiara Transmissora de Energia Ltda | 7,990 | | 7,611 | | 7,131 |
Expansion Transmissora de Energia Elétrica S.A. | 7,649 | | 7,253 | | 6,702 |
Empresa Transmissora de Energia Oeste Ltda - Eteo | 6,759 | | 6,381 | | 5,942 |
STN Sistema de Transmissão Nordeste S.A | 6,740 | | 6,386 | | 5,926 |
NTE Nordeste Transmissora de Energi S.A | 5,905 | | 5,570 | | 4,662 |
ATE Transmissora Energia S.A | 5,508 | | 5,279 | | 4,981 |
Integração Transmissão Energia – INTESA | 4,679 | | 2,921 | | - |
ATE III Transmissora de Energia S.A | 4,381 | | 2,641 | | - |
Arthemis Transmissora de Energia S.A | 3,583 | | 3,411 | | 2,978 |
(-) Pasep/Cofins taxes on charges for use of power grid | (54,959) | | (62,676) | | (68,383) |
Deferred regulatory assets/liabilities - use of the main transmission grid | (13,216) | | (64,319) | | 22,997 |
Other utilities | 58,412 | | 43,359 | | 30,761 |
| 609,649 | | 466,652 | | 446,067 |
| | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c) Personnel and Management Expenses
| | December 31, |
| | 2009 | | 2008 | | 2007 |
Personnel | | | | | | |
Wages and salaries | | 530,168 | | 476,552 | | 443,906 |
Social charges on payroll | | 171,319 | | 153,999 | | 143,115 |
| | 701,487 | | 630,551 | | 587,021 |
Profit sharing (1) | | 64,995 | | 65,816 | | 54,254 |
Meal assistance and education allowance | | 55,695 | | 49,078 | | 45,675 |
Labor indemnifications (reversals)(2) | | 24,291 | | (825) | | 8,293 |
Compensation - volunt. redundancy/retirement(2) | | 16,702 | | - | | |
Compensation - PDV(2) | | 15,859 | | - | | |
| | 879,029 | | 744,620 | | 695,243 |
(-) Transfers to construction in progress | | (86,567) | | (80,043) | | (54,174) |
| | 792,462 | | 664,577 | | 641,069 |
Management | | | | | | |
Wages and salaries | | 8,473 | | 7,705 | | 7,250 |
Social charges on payroll | | 1,770 | | 1,716 | | 1,528 |
Other expenses | | 24 | | - | | |
| | 10,267 | | 9,421 | | 8,778 |
(-) Transfers to construction in progress | | (179) | | (171) | | (130) |
| | 10,088 | | 9,250 | | 8,648 |
| | 802,550 | | 673,827 | | 649,717 |
1) Profit sharing
Since 1996, the Company has carried out an employee profit sharing program, which is paid to the extent previously established operational and financial goals are met. The amount of profit sharing has been accrued as follows:
| | | December 31, |
| 2009 | | 2008 | | 2007 |
Copel Geração e Transmissão | 14,721 | | 16,289 | | 13,431 |
Copel Distribuição | 46,102 | | 45,580 | | 37,126 |
Copel Telecomunicações | 3,528 | | 3,534 | | 2,831 |
Copel Participações | - | | - | | 461 |
Compagas | 644 | | 413 | | 405 |
| 64,995 | | 65,816 | | 54,254 |
2) Voluntary redundancy and Retirement Incentive Programs
On December 14, 2009, Company management launched, effective as of that date, a Voluntary Redundancy Program (PDV), which provides special compensation to employees who have been with the Company for at least 10 years, who have obtained Social Security retirement benefits, and who choose to resign from the Company.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The deadline for applications by employees who had been granted retirement benefits by INSS until December 14, 2009 expired on January 13, 2010, and the deadline for employees who are granted INSS retirement benefits as of December 15, 2009 expires 30 days from Copel's receipt of retirement confirmation letters from INSS.
The termination timeframe from employees who had been granted retirement benefits by INSS until December 14, 2009 was March 1 to March 15, 2010, and the timeframe for employees who are granted INSS retirement benefits as of December 15, 2009 runs from the first to the 15th day of the first month after application to the program.
Employees who quit by December 2009 under the voluntary redundancy programs launched in January 2009 received supplemental compensation pursuant to the new rules created on December 14, 2009.
d) Materials and Supplies
. | | | | | | |
| | December 31, |
| | 2009 | | 2008 | | 2007 |
Fuel and vehicle parts | | 22,586 | | 21,565 | | 24,663 |
Materials for the electric system | | 18,517 | | 13,573 | | 12,892 |
Cafeteria supplies | | 6,179 | | 5,048 | | 4,315 |
Office supplies | | 5,849 | | 5,160 | | 3,318 |
Materials for civil construction | | 3,782 | | 3,320 | | 2,920 |
Tools | | 2,763 | | 1,529 | | 1,550 |
Safety supplies | | 2,269 | | 2,211 | | 1,973 |
IT equipment | | 1,635 | | 725 | | 2,527 |
Lodging supplies | | 1,049 | | 997 | | 1,446 |
Other materials | | 3,302 | | 3,346 | | 7,614 |
| | 67,931 | | 57,474 | | 63,218 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
e) Third-Party Services
| | December 31, |
| | 2009 | | 2008 | | 2007 |
Transmission grid | | 74,986 | | 57,830 | | 42,884 |
Technical, scientific, and adm. Consulting | | 25,437 | | 22,886 | | 23,232 |
Postal services | | 24,960 | | 22,683 | | 18,997 |
Authorized and registered agents | | 21,274 | | 19,605 | | 19,563 |
Telephone services | | 16,243 | | 15,513 | | 12,757 |
Administrative support services | | 15,889 | | 15,202 | | 15,164 |
Data processing and transmission | | 15,708 | | 20,032 | | 16,730 |
Security | | 14,589 | | 12,648 | | 9,996 |
Travel | | 13,139 | | 11,340 | | 9,866 |
Meter reading and bill delivery | | 11,003 | | 7,918 | | 7,350 |
Personnel training | | 8,678 | | 7,680 | | 6,321 |
Upkeep of right of way areas | | 8,316 | | 5,235 | | 4,337 |
Civil maintenance services | | 8,015 | | 5,619 | | 3,933 |
Services in "green areas" | | 5,735 | | 5,069 | | 5,427 |
Customer service | | 5,707 | | 4,365 | | 5,699 |
Vehicle maintenance and repairs | | 4,498 | | 4,012 | | 4,006 |
Cargo shipping | | 3,854 | | 2,980 | | 4,521 |
Satellite communications | | 3,722 | | 4,948 | | 4,650 |
Telephone operator | | 3,133 | | 2,604 | | 2,768 |
Auditing | | 3,097 | | 2,803 | | 2,649 |
Advertising | | 1,434 | | 1,504 | | 1,847 |
Other services | | 16,691 | | 15,772 | | 18,245 |
| | 306,108 | | 268,248 | | 240,942 |
f) Allowance and Reversals
| | December 31, |
| | 2009 | | 2008 | | 2007 |
Allowance (reversals) for doubtful accounts | | | | | | |
Customers and distributors (Note 7) | | 15,398 | | (3,583) | | (6,275) |
Third-party services and other credits | | 1,050 | | (2,241) | | 2,376 |
| | 16,448 | | (5,824) | | (3,899) |
Reserve (reversals) for contingencies (Note 29) | | | | | | |
Labor | | 53,551 | | 51,786 | | 45,509 |
Regulatory | | 151 | | 34,690 | | 86 |
Suppliers | | 31,815 | | 2,255 | | 880 |
Civil and administrative claims | | 32,743 | | 17,387 | | 4,979 |
Customers | | 128 | | (1,048) | | (4,147) |
Environmental | | 10 | | (163) | | 7 |
COFINS tax | | (178,753) | | 7,140 | | 171,613 |
Other taxes | | (7,300) | | (7,329) | | 27,407 |
| | (67,655) | | 104,718 | | 246,334 |
| | (51,207) | | 98,894 | | 242,435 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
g) Other Operating Costs and Expenses
| | | | December 31, |
| 2009 | | 2008 | | 2007 |
Financial compensation for use of water resources | 80,227 | | 86,513 | | 73,938 |
Taxes | 11,212 | | 10,930 | | 7,448 |
Taxes - Tax Recovery Program (Note 10.d) | 61,872 | | - | | - |
Reparations | 51,705 | | 5,164 | | 2,100 |
Concession charge - ANEEL grant (1) | 35,905 | | 45,710 | | 33,497 |
Losses in the decommissioning and disposal of assets | 32,984 | | 6,829 | | 14,670 |
ANEEL inspection FEE | 15,403 | | 17,821 | | 17,246 |
Leases and rents (2) | 13,707 | | 12,799 | | 10,765 |
Insurance | 6,868 | | 6,118 | | 7,693 |
Own power consumption | 5,868 | | 5,678 | | 5,596 |
Donations - Rouanet Law and fund for the rights of children and teenagers - FIA | 5,897 | | 7,312 | | 7,176 |
Advertising | 3,464 | | 3,633 | | 2,384 |
Provision (reversal) for devaluation of tax incentives | 733 | | 23,902 | | (12,789) |
Recovery of costs and expenses | (41,760) | | (39,967) | | (53,196) |
General costs and expenses | 6,733 | | 21,998 | | 57,278 |
| 290,818 | | 214,440 | | 173,806 |
1) Concession charges – ANEEL Grant
These are charges for the concession of Use of Public Property (Uso de Bem Públicoor UBP) in connection with the start of operation of the Santa Clara Hydroelectric Power Plant (Elejor), which are recorded under liabilities, proportionately to the actual number of days until the respective collection month and the expiration date of the concession.
As compensation for the use of the public property under this concession contract, Elejor shall pay to the Federal Government, from the 6th until the 35th year of the concession, or as long as it runs the corresponding hydropower projects, monthly installments equivalent to 1/12 of the annual proposed payment of R$ 19,000, pursuant to the Bidding Confirmation.
These installments are restated annually or at the legally applicable intervals, according to the IGP-M inflation index, starting in May 2001.
The main amount on the date of signature of the concession contract was R$ 570,000. This amount, restated monthly according to the variation of IGP-M, totaled R$ 1,130,521, distributed as follows:
| | Nominal Value | | Present Value |
Payments made until December 2009 | | 107,512 | | 107,512 |
2010 | | 37,918 | | 36,356 |
2011 | | 36,712 | | 32,477 |
2012 | | 36,712 | | 29,968 |
2013 | | 36,712 | | 27,653 |
After 2013 | | 874,955 | | 277,972 |
| | 1,130,521 | | 511,938 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2) Leases and rents
| | | | | | December 31, |
| | 2009 | | 2008 | | 2007 |
Facilities | | 12,100 | | 9,668 | | 6,845 |
Copying machines | | 3,353 | | 3,408 | | 3,443 |
Other | | 699 | | 775 | | 860 |
(-) PIS and COFINS credits | | (1,262) | | (345) | | - |
(-) Transfers to p,,p,,&e, in progress | | (1,183) | | (707) | | (383) |
| | 13,707 | | 12,799 | | 10,765 |
Copel’s estimate for expenses with property rentals in 2010 is basically the same as 2009, plus contractual monetary adjustment rates. Management belives that there are no risks in connection with contract termination,
Of the total R$ 12,100 spent in rental of properties, R$ 8,300 refer to the rental of the Km 3 Center facilities, signed by Copel and the Copel Foundation, and which is the most significant rental agreement held by the Company. In future periods, the rent amount will be adjusted according to the variation of the market value of the facility.
34 Interest Income (Expenses), Net
| | | | December 31, |
| 2009 | | 2008 | | 2007 |
Interest income | | | | | |
Income on tempory cash investments | 171,821 | | 205,046 | | 144,357 |
Income from CRC transferred | - | | - | | - |
to State Government (Note 9) | 83,834 | | 79,539 | | 76,062 |
Penalties on overdue receivables | 59,420 | | 55,096 | | 46,677 |
Interest on taxes paid in advance | 27,168 | | 10,113 | | 15,612 |
Interest on Deferred Regulatory Assets - CVA | 22,343 | | 11,630 | | 10,553 |
Fines | 9,407 | | 11,879 | | 7,237 |
Interest and commissions on loan agreements | - | | - | | - |
Monetary variation of CRC transferred to State Government (Note 9) | (18,196) | | 110,050 | | 91,464 |
Other financial revenues | 10,121 | | 5,267 | | 4,055 |
| 365,918 | | 488,620 | | 396,017 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | | December 31, |
| 2009 | | 2008 | | 2007 |
(-) Interest expenses | | | | | |
Interest on loans and financing | 149,134 | | 210,136 | | 230,203 |
PIS/PASEP-COFINS on interest on capital | 39,644 | | 36,198 | | 31,132 |
Interest on Tax Recovery Program (Note 10.d.1) | 90,164 | | - | | - |
Interest on R&D and EEP | 13,252 | | 14,522 | | 11,267 |
IOF tax | 9,619 | | 8,354 | | 14,831 |
Late fees, tax penalties, and other penalties | 1,438 | | 8,977 | | 3,845 |
Interest on tax installments | 2,092 | | - | | - |
Penalties - Tax Recovery Program (Note 10.d.1) | 2.476 | | - | | - |
Monetary variations on Deferred Regulatory Liabilities - CVA | 1,966 | | 9,489 | | 22,375 |
Monetary and exchange variations | (10,434) | | 68,341 | | 8,025 |
Other financial expenses | 943 | | 38,240 | | 54,096 |
| 300,294 | | 394,257 | | 375,774 |
| 65,624 | | 94,363 | | 20,243 |
35 Spot Market (CCEE)
MAE has ceased its operations, and as a consequence its activities, assets, and liabilities were absorbed on November 12, 2004 by the Electric Energy Trading Chamber (CCEE or Spot Market), a private corporate entity subject to ANEEL regulation and inspection.
Copel has not recognized as actual and final the data concerning the sale of electric energy by Copel Distribuição on the Wholesale Energy Market (MAE or Spot Market) in 2000, 2001, and the first quarter of 2002. These data were calculated according to criteria and amounts that take into account decisions by the Regulatory Agency which have been challenged by the Company both administratively and judicially.
Company's claim is substantially based on the fact that it conducted electricity sale transactions, which should not serve as basis for calculations made by the regulatory agency, only to fulfill contractual obligations to customers on the southeastern market, the estimated amount of calculation differences was approximately R$ 1,176,000 (adjusted as of December 31, 2009), which has not been recognized by the Company as a supplier liability.
Based on the opinion of its legal counsel, management considers it possible that the final rulings in these lawsuits will be favorable to the Company.
a) CIEN Contract Renegotiation(1)
In order to guarantee the supply under the signed agreement with CIEN, Copel has participated in all power sale mechanisms under the applicable legislation, pursuant to MME Ordinance no. 294/2006. The shortage of offer by power generators at the auctions of power from existing facilities (A-1) in 2007 and 2008, has not allowed Copel to fully make up for the lost supply under the CIEN contract.
(1)Technical information unaudited by the independent auditors.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Copel’s participation in adjustment auctions and the Mechanism for the Offsetting of Surpluses and Deficits (MCSD), has allowed the Company to partially make up for the CIEN volume, so that it will be able to fully meet the projected demand for 2009, 2010, 2011, and 2012.
In 2008, Copel had already made up for a part of the CIEN volume through the 2008 A-5 auction of power from new projects and a contract with the Jirau Power Plant, starting in 2013.
b) Current transactions at CCEE(1)
The accumulated balances of transactions carried out by the Company are:
| Copel Geração e Transmissão | | Copel Distribuição | | Elejor | | UEG Araucária | December 31, |
| | | | | | | | | 2009 | | 2008 |
Current assets (Note 6) | | | | | | | | | | | |
As of December 2008 | 642 | | 14 | | - | | 105 | | 761 | | 9,931 |
From January through March 2009 | 225 | | - | | - | | - | | 225 | | - |
From July through September 2009 | 10,095 | | 747 | | - | | - | | 10,842 | | - |
From October through December 2009 | 27,758 | | 140 | | 883 | | - | | 28,781 | | - |
| 38,720 | | 901 | | 883 | | 105 | | 40,609 | | 9,931 |
Current liabilities (Note 21) | | | | | | | | | | | |
As of December 2008 | - | | - | | - | | - | | - | | 27,976 |
From October through December 2009 | - | | 1,859 | | - | | - | | 1,859 | | - |
| - | | 1,859 | | - | | - | | 1,859 | | 27,976 |
Changes in spot-market energy amounts (CCEE) in 2009 are shown below:
| | Amount to be settled | | Settlement | | Appropriation | | Amount to be settled |
| | 2008 | | | | | | 2009 |
Current assets | | | | | | | | |
As of December 2008 | | 9,931 | | (8,824) | | (346) | | 761 |
From January to March 2009 | | - | | (23,024) | | 23,249 | | 225 |
From July to September 2009 | | - | | (19,613) | | 30,455 | | 10,842 |
From October to December 2009 | | - | | (9,151) | | 37,932 | | 28,781 |
| | 9,931 | | (60,612) | | 91,290 | | 40,609 |
(-) Current liabilities | | | | | | | | |
Up to December 2008 | | 27,976 | | (32,584) | | 4,608 | | - |
From January to March 2009 | | - | | (36,338) | | 36,338 | | - |
From April to June 2009 | | - | | (30,223) | | 30,223 | | - |
From July to September 2009 | | - | | (649) | | 649 | | - |
From October to December 2009 | | - | | - | | 1,859 | | 1,859 |
| | 27,976 | | (99,794) | | 73,677 | | 1,859 |
Net total | | (18,045) | | 39,182 | | 17,613 | | 38,750 |
(1)Technical information unaudited by the independent auditors.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
36 Financial Instruments
a) Overview
The use of financial instruments by the Company is restricted to Cash and cash equivalents, Bonds and Securities, Accounts Receivable from government agencies, CRC Transferred to State Government, Loans and Financing, Debentures, and Suppliers.
b) Market Value of Financial Instruments
The market values of the Company’s main financial instruments as of December 31, 2009, which approximate to their book value, are shown below:
Financial Instruments Consolidated | | | | Market Value | | | | Book Value |
| | December 31, 2009 | | December 31, 2008 | | December 31, 2009 | | December 31, 2008 |
Cash and cash equivalents | | 1,696,152 | | 1,813,576 | | 1,696,152 | | 1,813,576 |
Costumers and distributors | | 1,115,217 | | 1,058,598 | | 1,115,217 | | 1,058,598 |
Accounts receivable from government agencies | | 132,191 | | 172,854 | | 132,191 | | 172,854 |
CRC transferred to State Government | | 1,254,574 | | 1,319,903 | | 1,254,574 | | 1,319,903 |
Bonds and securities(1) | | 119,064 | | 70,438 | | 119,062 | | 69,065 |
Collaterals and escrow deposits - bonds as security(1) | | 113,310 | | 150,761 | | 113,308 | | 150,761 |
Suppliers | | 719,325 | | 711,989 | | 719,325 | | 711,989 |
Loans and financing | | 865,842 | | 867,517 | | 865,842 | | 867,517 |
Debentures(2) | | 795,784 | | 974,454 | | 807,579 | | 997,116 |
Suppliers - Eletrobras (Itaipu) | | 80,104 | | 100,040 | | 80,104 | | 100,040 |
Suppliers - Petrobras (Compagas) | | 23,166 | | 36,775 | | 23,166 | | 36,775 |
1) The market values of quotas in investment funds was calculated according to criteria established by the respective by-laws and ratified by the managing banks.
2) The market value of the Company’s debentures was calculated according to the Unit Price quote as of December 31, 2009, obtained from the National Association of the Financial Market Institutions (ANDIMA), and the value of Elejor’s debentures was obtained from C&D Distribuidora de Títulos e Valores Mobiliários.
c) Risk Factors
1) Credit risk
The Company’s credit risk comprises the possibility of losses due to non-payment of customers electric energy bills. This risk is closely related to factors that are either internal or external to Copel. To mitigate this risk, the Company focuses on the management of receivables, detecting customer segments which are most likely not to pay their bills, suspending power supply, and implementing specific collection policies, such as obtaining guarantees from late payers, whenever possible.
Doubtful accounts are properly covered by provisions to offset potential losses in their realization.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2) Foreign currency risk
This risk comprises the possibility of losses due to fluctuations in exchange rates, which may reduce assets or increase liabilities denominated in foreign currencies.
The financial investments classified under cash and cash equivalents held by the Company comprise almost entirely securities with the rate of return based on the return of federal bonds. The Company’s foreign currency indebtedness is not significant and it is not exposed to foreign exchange derivatives, The Company monitors all relevant exchange rates.
The effect of the exchange rate variation resulting from the electricity purchase agreement with Eletrobras (Itaipu) is recorded under Deferred Regulatory Assets and Liabilities - CVA as invoices are paid and it is passed on to customers in Copel Distribuição's annual tariff reviews.
The exchange rate variation resulting from the purchase of gas from Petrobras by Compagas has a direct impact on the Company's results, Compagas continually negotiates with its customers, trying whenever possible to pass these costs on to them.
The Company’s exposure to foreign currency risk is shown below:
Foreign Currency | | Assets | | Liabilities | | Net exposure |
| | | | | | 2009 |
Collaterals and escrow accounts | | 24,195 | | - | | 24,195 |
Loans and financing | | - | | (92,643) | | (92,643) |
Suppliers | | | | | | |
Eletrobras (Itaipu) | | - | | (80,104) | | (80,104) |
Petrobras (Compagas) | | - | | (23,166) | | (23,166) |
| | 24,195 | | (195,913) | | (171,718) |
3) Interest rate risk
This risk comprises the possibility of losses due to fluctuations in interest rates, which may increase the Interest expenses in connection with liabilities on the market.
The Company has not performed transactions with derivatives to cover this risk, but it has continually monitored interest rates, in order to assess the potential need for such transactions for protection for interest rate risks.
4) Accelerated maturity risk
This risk results from the potential noncompliance with contract covenants, such as those contained in the loan, financing, and debenture agreements of the Company, which usually require that certain economic and financial ratios, which are calculated and analyzed periodically for compliance, are kept at determined levels (financial covenants).
5) Power shortage risk
This risk results from the possibility of periods with low levels of rainfall, since Brazil relies heavily on hydroelectric sources, which depend on the water levels in their reservoirs to operate.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
A long period of drought may reduce the water levels in hydroelectric plant reservoirs and result in losses due to reduced revenues if a new rationing program is implemented.
According to the 2009 Annual Power Operation Plan, published annually atwww.ons.org.br, the National System Operator projects a comfortable situation in terms of supply to the power market over the next 5 years, from May 2009 until December 2013, based on the probability analyses used in this kind of study. The criteria for guarantee of supply established by the National Power Policy Council (CNPE) (risk of power deficit below 5%) is easily met in all regions of Brazil during this five-year period)(1).
6) Risk of non-renewal of concessions
Copel holds concessions for electricity generation, transmission, and distribution services, with the expectation that they will be renewed by the Ministry of Mining and Energy with the support of ANEEL, If the extension of these concessions is not approved by the regulatory authority or even if it occurs at additional costs to the Company ("costly concession"), current profitability and activity levels may be affected.
7) Financial Instruments – Derivatives
Pursuant to CVM Ruling No. 550, dated October 17, 2008, Copel reviewed its transactions and did not identify any derivative instruments.
8) Risk of failure to observe the construction schedule under Concession Contract No. 001/2007 – MME – Mauá Power Plant
In the event of failure to observe the construction schedule for the Mauá Power Plant, the members of Consórcio Energético Cruzeiro do Sul are subject to the penalties established in the applicable legislation, particularly those established under ANEEL resolutions, In addition to penalties, the members of the consortium are liable to fulfill the power sale agreements signed in the regulated environment (CCEARs), pursuant to ANEEL regulation.
Delays in the delivery of power from the Mauá Power Plant will need to be attributable to court orders which prevented the beginning of construction or interrupted it, i.e., an obligation affected by the acts of third-parties, particularly those of the government, or to an act of God orforce majeure, In these circumstances, the concession contract itself provides for the waiver of liability of the concession holders.
d) Sensitivity Analysis
Copel conducted a sensitivity analysis for the financial instruments, in compliance with CVM Instruction No. 475, dated December 17, 2008, which requires the presentation of two additional risk scenarios with 25% and 50% deterioration of each risk variable. These scenarios may have impacts on the future income and/or cash flows of the Company, as shown below:
(1)Unaudited information.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Assumptions:
1) Probable Scenario:maintenance of rates at the same levels observed in the average market expectations for 2010, according to the Focus Report issued the Brazilian Central Bank as of December 31, 2009;
2) Adverse Scenario: deterioration of 25% compared to the baseline in the main risk factor for each financial instrument;
3) Remote Scenario: deterioration of 50% compared to the baseline in the main risk factor for each financial instrument.
| | | | | December 31, 2009 |
Operation | Basis | | Probable Scenario | | Adverse Scenario | | Remote Scenario |
Financial Assets | | | | | | | |
Financial Investments | 1,616,535 | | 1,779,161 | | 1,738,505 | | 1,697,849 |
CRC transferred to State Government | 1,254,574 | | 1,311,031 | | 1,296,917 | | 1,282,803 |
| 2,871,109 | | 3,090,192 | | 3,035,422 | | 2,980,652 |
Financial Liabilities | | | | | | | |
Loans and financing | | | | | | | |
Foreign currency | 92,643 | | 93,111 | | 116,389 | | 139,667 |
National currency | 773,199 | | 819,635 | | 831,243 | | 842,852 |
Debentures | 807,579 | | 885,351 | | 904,795 | | 924,238 |
| 1,673,421 | | 1,798,097 | | 1,852,427 | | 1,906,757 |
This sensitivity analysis aims to measure the impact of changes in the market variables on each financial instrument used by the Company, The balances as of December 31, 2009 have been used as the basis for the projection of future balances as of December 31, 2010. The actual behavior of each debt balance will follow the respective contracts, and the balance of financial investments may fluctuate as the need or availability of cash is affected by the Company's regular operations and the operations of its subsidiaries and investees. Nevertheless, the settlement of transactions involving these estimates may result in different amounts than those estimated due to the inherent subjectivity of the process of preparation of sensitivity analyses.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
37 Related-Party Transactions
The main balances of related party transactions in Copel’s balance sheet are:
| | | | | | | | | | December 31, |
Related party / Nature of operation | | Assets | | Liabilities | | Income | | Assets | | Liabilities | | Income | | Income |
| | | | | | 2009 | | | | | | 2008 | | 2007 |
, | | | | | | | | | | | | | | |
Controlling Shareholders | | | | | | | | | | | | | | |
Government of the State of Paraná | | | | | | | | | | | | | | |
Supply to final customers | | 57,137 | | - | | 79,088 | | 74,150 | | - | | 95,461 | | 94,286 |
Power bill installments | | 35,267 | | - | | 3,959 | | 50,712 | | - | | 7,024 | | 6,567 |
Telecommunications services | | 6,292 | | - | | 9,618 | | 7,731 | | - | | 6,000 | | 6,000 |
Telecom bill installments | | 4,113 | | - | | 560 | | 6,231 | | - | | 1,018 | | 934 |
CRC (Note 9) | | 1,254,574 | | - | | 65,638 | | 1,319,903 | | - | | 189,589 | | 167,526 |
ICMS (VAT) (Note 10) | | 113,825 | | 164,756 | | - | | 89,331 | | 132,998 | | - | | - |
Wages and social charges of transferred employees | | 2,155 | | - | | - | | 2,185 | | - | | - | | - |
Dividends payable | | - | | 73,958 | | - | | - | | 77,635 | | - | | - |
, | | | | | | | | | | | | | | |
BNDES | | | | | | | | | | | | | | |
Financing for investments in gas pipelines | | | | | | | | | | | | | | |
Financing for investments in gas pipelines (N. 21.f) | - | | 12,743 | | (1,073) | | - | | 19,637 | | (2,781) | | (2,398) |
Financing for the Mauá HPP and its Associated | | | | | | | | | | | | | | |
Transmission System (Note 21.h) | | - | | - | | (3,769) | | - | | - | | - | | - |
, | | | | | | | | | | | | | | |
BNDESPAR | | | | | | | | | | | | | | |
Debentures (Note 22.b) | | - | | 190,341 | | (21,133) | | - | | 227,883 | | (26,862) | | (27,378) |
Dividends payable | | - | | 51,193 | | - | | - | | 54,218 | | - | | - |
, | | | | | | | | | | | | | | |
Investees | | | | | | | | | | | | | | |
Dona Francisca Energética | | | | | | | | | | | | | | |
Purchase of power | | - | | 5,100 | | (60,303) | | - | | 5,128 | | (55,496) | | (51,536) |
, | | | | | | | | | | | | | | |
Sanepar | | | | | | | | | | | | | | |
Dividends receivable from Dominó Holdings | | 5,135 | | - | | - | | 5,247 | | - | | - | | - |
, | | | | | | | | | | | | | | |
Senior management | | | | | | | | | | | | | | |
Wages, social charges, and others (Note 33.c) | | - | | - | | (10,267) | | - | | - | | (9,421) | | (8,778) |
Pension and healthcare contributions (Note 25.c) | | - | | - | | (222) | | - | | - | | (140) | | (90) |
, | | | | | | | | | | | | | | |
Other related parties | | | | | | | | | | | | | | |
Petrobras | | | | | | | | | | | | | | |
Lease of Araucária TPP (Note 1.g) | | 550 | | - | | 40,583 | | 7,474 | | - | | 45,246 | | 79,144 |
Suppy and transport of gas | | 188 | | - | | 11,422 | | 949 | | - | | 11,302 | | 14,140 |
Purchase of gas for resale | | - | | 23,166 | | (135,256) | | - | | 36,775 | | (163,748) | | (132,510) |
Advance payment to suppliers | | 8,290 | | - | | - | | 3,196 | | - | | - | | - |
, | | | | | | | | | | | | | | |
Fundação Copel | | | | | | | | | | | | | | |
Rent of facilities (Note 33.g.2) | | - | | - | | (8,300) | | - | | - | | (6,847) | | (4,449) |
Pension and healthcare plans (Note 25) | | - | | 375,481 | | 14,177 | | - | | 447,945 | | 30,016 | | (13,851) |
, | | | | | | | | | | | | | | |
Instit, de Tecnol, p/ o Desenvolvimento - Lactec | | | | | | | | | | | | |
Services rendered and R&D | | 23,419 | | 211 | | (7,643) | | 11,509 | | 16 | | (13,325) | | (11,706) |
F -97
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The balances of transactions between the Company and its investees are shown in Note 16.
BNDES - BNDES Participações S.A. - BNDESPAR holds 26,41% of the Company’s common shares and has the right to appoint two members of the Board of Directors, BNDESPAR is a wholly-owned subsidiary of BNDES, with which the Company has financing agreements, described in Note 20.
Dona Francisca Energética S.A. - The Company became guarantor of the loans signed by its investee Dona Francisca Energética S.A. with the National Economic and Social Development Bank (BNDES) (joint debtor), and with Bradesco (joint debtor), As of December 31, 2008, the outstanding debt was R$ 40,367 and R$ 23,391, respectively.
Eletrobras –Eletrobras holds 1,06% of the Company’s common shares; Copel, has obtained financing from Eletrobras, described in Note 20.
The amounts resulting from operating activities involving related parties are billed at the rates approved by the regulatory agency (ANEEL).
1) The amounts resulting from the operating activities of Copel Distribuição involving other related parties are billed at the rates approved by ANEEL, and those of Copel Telecomunicações are accounted for according to terms and conditions similar to those in effect in transactions with independent parties.
2) Agreement for renegotiation of power bills and Luz Fraterna Program bills with Copel Distribuição, in the original amount of R$ 84,883, and agreement for renegotiation of the bills for internet connection at public schools with Copel Telecomunicações, in the amount of R$ 12,000. These agreements were signed on April 20, 2007, for payment in 45 monthly installments, restated according to the SELIC interest rate, generating the financial revenues shown in the table above.
3) Reimbursement of wages and social charges for employees transferred to the Paraná State Government. The Company set aside a provision in the amount of R$ 2,036 in connection with the 2008 and 2009 balances.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
4) BNDESPAR holds 26.41% of the Company’s common shares and has the right, under a shareholders’ agreement, to appoint two members of the Board of Directors. BNDESPAR is a wholly-owned subsidiary of BNDES, with which the Company has financing agreements, described in Note 19, and a debenture issue agreement ( debentures), described in Note 20.b.
5) Power purchase agreement signed by Dona Francisca Energética and Copel Geração e Transmissão, expiring on October 6, 2015.
6) These balances refer to transactions with Petrobras, which holds a 24.5% interest in Compagas, and with its subsidiaries, Petrobras Distribuidora S.A. - BR and Petrobras Gás SA – Gaspetro. The supply and transport of piped gas and the purchase of gas for resale are conducted at market prices and conditions. Advance payments to suppliers refer to the gas purchase contract covering guaranteed volumes and transport capacity, higher than those actually consumed and used, which contains a future compensation clause. Compagas has the right to receive unused gas in subsequent months, and it may offset amounts under contract but not consumed over a period of up to 10 years. In light of the prospects of increased consumption by the market, Company management believes it will consume the accumulated gas volumes as of December 31, 2009 in the next fiscal years.
7) The Institute of Technology for Development (LACTEC) was constituted on February 6, 1997 as a nonprofit organization whose goal is to promote economic, scientific, technological, and social development and the sustainable conservation of the environment. In 2000, it was qualified by the Ministry of Justice, based on Law no. 9,970, as a Public Interest Civil Society Organization (OSCIP), which allows it, among other things, to enter partnerships with government agencies with no need for competitive bidding. Its members are: Copel, the Federal University of Paraná (UFPR), the Engineering Institute of Paraná (IEP), the Paraná Federation of Industries (FIEP), and the Commercial Association of Paraná (ACP). LACTEC has service and R&D contracts with Copel Geração e Transmissão and Copel Distribuição, which are subject to prior or later control and approval by ANEEL. The asset balances refer to Energy Efficiency and R&D programs, recorded under current assets, in service in progress, until the respective projects are concluded, pursuant to ANEEL.
38 Insurance
The types of risk coverage and the term of the Company’s main insurance policies are shown below:
| | Expiration | | Consolidated |
Policy | | date | | Amount insured |
Specified risks(a) | | 08/24/2010 | | 1,834,870 |
Fire - Company-owned and rented facilities(b) | | 08/24/2010 | | 368,907 |
Civil liability - Copel(c) | | 08/24/2010 | | 6,000 |
Civil liability - Compagas(c) | | 08/30/2010 | | 4,200 |
Engineering risks - Copel(d) | | 08/24/2010 | | dependent on each event |
Domestic and international transport - export and import(e) | | 08/24/2010 | | dependent on each event |
Multi-risk - Compagas(f) | | 08/10/2010 | | 5,767 |
Multi-risk - Compagas(f) | | 09/20/2010 | | 720 |
Multi-risk - Elejor(f) | | 06/05/2010 | | 1,961 |
Vehicles(g) | | 05/20/2010 | | market value |
Miscellaneous risks(h) | | 08/24/2010 | | 717 |
Operational risks - Elejor(i) | | 09/25/2010 | | 612,000 |
Operational risks - UEG Araucária(j) | | 05/31/2010 | | 469,966 |
Insurance for indemnizations in Courts of Law(k) | | 02/05/2012 | | 33,223 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a) Insurance for specified risks
This policy covers substations and power plants, listing their main equipment and respective insured amounts, It provides basic coverage against fire, lightning strikes, explosions of any kind, and additional coverage for potential electrical damage, miscellaneous risks, and risk to electronics and computers.
b) Fire insurance
This policy covers both Company-owned and rented facilities and part of their contents, It ensures payment of reparations to the insurance holder or property owner for the damages resulting from basic fire hazards, lightning strikes, and explosions of any kind, plus additional coverage for windstorms.
c) Civil liability insurance
This insurance provides coverage for liability for involuntary damages, bodily and/or material and/or moral, caused to third-parties as a result of the Company’s commercial and/or industrial operations.
d) Insurance for engineering risks – Copel
This insurance provides coverage for risks of installation, assembly, disassembly, and testing of new equipment, particularly at substations and electricity plants. Policies are purchased for each risk event, according to the occurrence and need for coverage for risks of performing engineering services.
e) Transportation insurance
This insurance provides coverage for losses and damages caused to products transported by any appropriate means within both the domestic and foreign marketplaces and during import and export operations to and from foreign markets. Policies are purchased for each risk event, and are basically used to cover the transport of electrical, electronic, and telecommunications equipment.
f) Multi-risk insurance
This policy comprises the assets of the Company and provides coverage for potential damages caused by fire, lighting strikes, explosions, electrical malfunctions, risks to electronic equipment, recovery of records and documents, windstorms, smoke, and theft.
g) Vehicle insurance
This insurance covers the payment of reparations of damage suffered and expenses incurred as a result of risks to which Compagas’ 15 insured vehicles are subject, It provides basic coverage for the vehicles and additional and optional civil liability coverage for material, bodily, and moral damages caused to third-parties. Coverage limits for damages to third-parties are R$ 150 for material damages and R$ 300 for bodily damages, for each vehicle.
h) Insurance for miscellaneous risks – Copel
This insurance covers losses and material damage caused to the assets listed in the insurance policy by any accidents with an external cause, including transportation risks. This type of insurance covers mobile and/or stationary electric equipment, computers, and electronics. whether in use at the Company's facilities or leased or loaned to third-parties.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
i) Insurance for operational risks - Elejor
This insurance covers sudden, unforeseen, and accidental losses and material damage to Elejor buildings, merchandise, raw materials, unfinished and finished products, packages, machinery, tools, furniture, and other devices and facilities which are part of the insured facility, in addition to loss of profit events.
j) Insurance for operational risks – UEG Araucária
This policy provides coverage for all risks (all legally insurable risks), including machinery failure, for all the facilities of the Araucária Thermoelectric Power Plant.
k) Insurance for indemnizations in Courts of Law
This insurance covers the settlement of final rulings in lawsuits against Compagas, It has the same standing as a judicial bond, replacing judicial deposits in cash, attachment of assets, and bank guarantees.
This performance bond is aimed at companies which, being under contract, are bound to guarantee to its customers that such contracts, as far as pricing, deadlines and other specifications, will be performed in full. Public agencies within the direct or indirect public administration may also, pursuant to Law No. 8,666/93 and to Law No. 8,883/94, receive insurance policies as guarantee from its suppliers of goods and services, contractors, and public tender participants.
This type of insurance is designed to guarantee full performance of a contract, It does not cover damages but rather liabilities for breach of contract, and it is a form of contractual guarantee provided for by Brazilian law, which may replace bank guarantees, cash bonds, or government bonds.
39 Wholly-owned Subsidiaries
Shown below are the financial statements, reclassified for purposes of standardization of the chart of accounts, as of December 31, 2009, 2008 and 2007, of the following subsidiaries of Copel: Copel Geração e Transmissão (GET), Copel Distribuição (DIS), Copel Telecomunicações (TEL), Compagas (COM), Elejor (ELE), UEG Araucária (UEG), Copel Empreendimentos (CEM), Centrais Eólicas (CEO), and Dominó Holdings (DOM), In order to allow an analysis of the statement of operation by the nature of the expenses, the operating costs and expenses are presented in an aggregate form.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
ASSETS | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM |
2009 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
TOTAL ASSETS | | 5,384,160 | | 5,929,073 | | 256,770 | | 263,264 | | 610,415 | | 658,550 | | 399,106 | | 9,490 | | 307,547 |
CURRENT ASSETS | | 1,145,067 | | 1,708,450 | | 56,063 | | 64,047 | | 58,016 | | 145,581 | | 8,347 | | 7,993 | | 6,384 |
Cash and cash equivalents | | 784,032 | | 192,468 | | 31,889 | | 41,177 | | 19,581 | | 131,257 | | 8,043 | | 7,849 | | 812 |
Customers and distributors | | 235,752 | | 835,788 | | - | | 19,993 | | 16,326 | | - | | - | | 83 | | - |
Telecommunications services | | - | | - | | 12,079 | | - | | - | | - | | - | | - | | - |
Dividends receivable | | 3,931 | | - | | - | | - | | - | | - | | - | | - | | 5,135 |
Services in progress | | 18,497 | | 73,975 | | - | | - | | - | | - | | - | | - | | - |
CRC transferred to the State Government | | - | | 49,549 | | - | | - | | - | | - | | - | | - | | - |
Recoverable taxes | | 9,479 | | 202,283 | | 4,113 | | 556 | | - | | 13,645 | | 304 | | 54 | | 437 |
Deferred regulatory assets - CVA | | - | | 218,500 | | - | | - | | - | | - | | - | | - | | - |
Other regulatory assets | | - | | 17,526 | | - | | - | | - | | - | | - | | - | | - |
Collaterals and escrow deposits | | 72,061 | | 19,626 | | - | | 195 | | 21,631 | | 27 | | - | | - | | - |
Other receivables | | 11,632 | | 22,565 | | 816 | | 955 | | 478 | | 652 | | - | | 7 | | - |
Inventories | | 9,683 | | 76,170 | | 7,166 | | 1,171 | | - | | - | | - | | - | | - |
NONCURRENT ASSETS | | 4,239,093 | | 4,220,623 | | 200,707 | | 199,217 | | 552,399 | | 512,969 | | 390,759 | | 1,497 | | 301,163 |
Noncurrent receivables | | 137,614 | | 1,701,435 | | 11,063 | | 30,474 | | 240 | | 245 | | - | | - | | 91 |
Customers and distributors, net | | - | | 51,377 | | - | | 21,067 | | - | | - | | - | | - | | - |
Telecommunications services | | - | | - | | 1,011 | | - | | - | | - | | - | | - | | - |
CRC transferred to the State Government | | - | | 1,205,025 | | - | | - | | - | | - | | - | | - | | - |
Recoverable taxes | | 86,747 | | 279,166 | | 10,020 | | 524 | | - | | - | | - | | - | | - |
Deferred regulatory assets - CVA | | - | | 98,963 | | - | | - | | - | | - | | - | | - | | - |
Bonds and securities | | 40,103 | | - | | - | | - | | - | | - | | - | | - | | - |
Collaterals and escrow deposits | | - | | 24,195 | | - | | - | | - | | - | | - | | - | | - |
Judicial deposits | | 8,883 | | 38,098 | | 32 | | 185 | | 240 | | 245 | | - | | - | | 91 |
Advance payments to suppliers | | - | | - | | - | | 8,290 | | - | | - | | - | | - | | - |
Other receivables | | 1,881 | | 4,611 | | - | | 408 | | - | | - | | - | | - | | - |
Investments | | 403,750 | | 4,250 | | - | | 2 | | - | | - | | 390,759 | | - | | 298,153 |
Property, Plant, and Equipment | | 3,632,010 | | 2,474,528 | | 188,586 | | 167,072 | | 552,031 | | 512,707 | | - | | 1,497 | | 1 |
Intangible Assets | | 65,719 | | 40,410 | | 1,058 | | 1,669 | | 128 | | 17 | | - | | - | | 2,918 |
| | | | | | | | | | | | | | | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
LIABILITIES | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM |
2009 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES | | 5,384,160 | | 5,929,073 | | 256,770 | | 263,264 | | 610,415 | | 658,550 | | 399,106 | | 9,490 | | 307,547 |
CURRENT LIABILITIES | | 893,028 | | 1,299,058 | | 20,920 | | 56,800 | | 89,770 | | 3,685 | | - | | 5,645 | | 4,959 |
Loans and financing | | 52,616 | | 12,490 | | - | | 6,349 | | - | | - | | - | | - | | - |
Debentures | | - | | - | | - | | - | | 36,957 | | - | | - | | - | | - |
Suppliers | | 121,657 | | 433,800 | | 5,158 | | 24,275 | | 3,337 | | 2,604 | | - | | 2 | | 7 |
Taxes and social contributions | | 133,505 | | 282,590 | | 2,706 | | 11,848 | | 2,734 | | 367 | | - | | 27 | | 300 |
Dividends due | | 473,108 | | 206,481 | | 1,156 | | 8,228 | | 7,150 | | - | | - | | 5,616 | | 4,647 |
Payroll and labor provisions | | 54,006 | | 139,562 | | 10,730 | | 2,240 | | 111 | | 32 | | - | | - | | 5 |
Post-employment benefits | | 5,969 | | 15,501 | | 990 | | - | | - | | - | | - | | - | | - |
Deferred regulatory liabilities - CVA | | - | | 25,020 | | - | | - | | - | | - | | - | | - | | - |
Other regulatory liabilities | | - | | 8,315 | | - | | - | | - | | - | | - | | - | | - |
Customer charges due | | 3,791 | | 25,732 | | - | | - | | - | | - | | - | | - | | - |
R&D and EEP | | 11,741 | | 106,761 | | - | | - | | 1,830 | | 673 | | - | | - | | - |
Concession charge - ANEEL grant | | - | | - | | - | | - | | 36,576 | | - | | - | | - | | - |
Other accounts payable | | 36,635 | | 42,806 | | 180 | | 3,860 | | 1,075 | | 9 | | - | | - | | - |
NONCURRENT LIABILITIES | | 829,432 | | 1,454,348 | | 16,394 | | 17,030 | | 419,109 | | 3,600 | | - | | - | | 4 |
Loans and financing | | 300,809 | | 147,224 | | - | | 6,394 | | 117 | | - | | - | | - | | - |
Debentures | | - | | - | | - | | - | | 153,384 | | - | | - | | - | | - |
Provisions for contingencies | | 213,223 | | 229,129 | | 1,983 | | 320 | | 190 | | 3,053 | | - | | - | | 4 |
Intercompany loans | | - | | 658,724 | | - | | - | | 265,418 | | - | | - | | - | | - |
Suppliers | | 196,863 | | - | | - | | - | | - | | - | | - | | - | | - |
Taxes and social contributions | | - | | 82,114 | | - | | 8,953 | | - | | 547 | | - | | - | | - |
Post-employment benefits | | 96,013 | | 241,546 | | 14,411 | | 1,006 | | - | | - | | - | | - | | - |
Deferred regulatory liabilities - CVA | | - | | 25,020 | | - | | - | | - | | - | | - | | - | | - |
Other regulatory liabilities | | - | | 26 | | - | | - | | - | | - | | - | | - | | - |
R&D and EEP | | 19,928 | | 70,565 | | - | | - | | - | | - | | - | | - | | - |
Other accounts payable | | 2,596 | | - | | - | | 357 | | - | | - | | - | | - | | - |
SHAREHOLDERS' EQUITY | | 3,661,700 | | 3,175,667 | | 219,456 | | 189,434 | | 101,536 | | 651,265 | | 399,106 | | 3,845 | | 302,584 |
Stock capital | | 3,505,994 | | 2,624,841 | | 194,755 | | 111,140 | | 69,450 | | 707,440 | | 397,983 | | 3,061 | | 113,368 |
Capital reserves | | - | | - | | - | | - | | 1,322 | | - | | 39,618 | | - | | - |
Profit reserves | | 155,706 | | 550,826 | | 24,701 | | 78,294 | | 30,764 | | - | | - | | 784 | | 189,216 |
Accumulated losses | | - | | - | | - | | - | | - | | (56,175) | | (38,495) | | - | | - |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
STATEMENT OF INCOME | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM |
2009 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
OPERATING REVENUES | | 1,894,220 | | 6,702,849 | | 142,366 | | 269,049 | | 181,637 | | 40,583 | | - | | 1,088 | | - |
Electricity sales to final customers | | 161,174 | | 3,096,604 | | - | | - | | - | | - | | - | | - | | - |
Electricity sales to distributors | | 1,445,063 | | 63,841 | | - | | - | | 181,637 | | - | | - | | 1,088 | | - |
Use of main transmission grid | | 251,797 | | 3,471,023 | | - | | - | | - | | - | | - | | - | | - |
Telecommunications revenues | | - | | - | | 142,072 | | - | | - | | - | | - | | - | | - |
Distribution of piped gas | | - | | - | | - | | 264,009 | | - | | - | | - | | - | | - |
Leases and rents | | 1,136 | | 57,178 | | - | | - | | - | | 40,583 | | - | | - | | - |
Other operating revenues | | 35,050 | | 14,203 | | 294 | | 5,040 | | - | | - | | - | | - | | - |
DEDUCTIONS FROM OPERATING REVENUES | | (273,075) | | (2,812,768) | | (24,582) | | (56,167) | | (8,669) | | (3,754) | | - | | (350) | | - |
NET OPERATING REVENUES | | 1,621,145 | | 3,890,081 | | 117,784 | | 212,882 | | 172,968 | | 36,829 | | - | | 738 | | - |
OPERATING COSTS AND EXPENSES | | (806,827) | | (3,613,317) | | (89,324) | | (163,287) | | (81,862) | | (59,795) | | (35) | | (458) | | (2,173) |
Energy purchased for resale | | (73,679) | | (1,902,998) | | - | | - | | (2,022) | | - | | - | | - | | - |
Use of main transmission grid | | (181,159) | | (490,646) | | - | | - | | (10,674) | | (14,021) | | - | | - | | - |
Personnel and management | | (195,554) | | (549,050) | | (38,822) | | (9,867) | | (1,767) | | (380) | | - | | - | | (27) |
Pension and healthcare plans | | 13,356 | | (24,993) | | (1,165) | | (1,153) | | - | | - | | - | | - | | - |
Materials and supplies | | (12,268) | | (52,841) | | (1,294) | | (645) | | (576) | | (66) | | - | | (227) | | (1) |
Raw materials and supplies for electricity generation | | (21,979) | | - | | - | | - | | - | | (1,936) | | - | | - | | - |
Natural gas and supplies for gas business | | - | | - | | - | | (135,353) | | - | | - | | - | | - | | - |
Third-party services | | (62,230) | | (250,563) | | (11,429) | | (4,567) | | (8,599) | | (10,551) | | (1) | | (56) | | (1,332) |
Depreciation and amortization | | (136,274) | | (165,185) | | (31,111) | | (9,003) | | (16,387) | | (31,896) | | - | | (208) | | (730) |
Provisions and reversals | | (31,352) | | (102,886) | | (1,564) | | (32) | | (190) | | - | | - | | - | | - |
Concession charge - ANEEL grant | | - | | - | | - | | - | | (35,905) | | - | | - | | - | | - |
Other operating costs and expenses | | (105,688) | | (74,155) | | (3,939) | | (2,667) | | (5,742) | | (945) | | (34) | | 33 | | (83) |
OPERATING INCOME BEFORE FINANCIAL RESULTS AND EQUITY IN RESULTS OF INVESTEES | | 814,318 | | 276,764 | | 28,460 | | 49,595 | | 91,106 | | (22,966) | | (35) | | 280 | | (2,173) |
Interest income (expenses) | | 68,019 | | 100,246 | | 4,228 | | 2,604 | | (45,756) | | 13,105 | | 741 | | 730 | | (428) |
Result of equity in investees | | (4,806) | | - | | - | | - | | - | | - | | (5,917) | | - | | 22,670 |
OPERATING REVENUES (EXPENSES) | | 877,531 | | 377,010 | | 32,688 | | 52,199 | | 45,350 | | (9,861) | | (5,211) | | 1,010 | | 20,069 |
Provision for income tax and s, contribution | | (220,340) | | (27,270) | | (7,645) | | (16,733) | | (15,244) | | - | | (144) | | (226) | | - |
Deferred income tax and social contribution | | (2,405) | | (30,027) | | (151) | | (822) | | - | | - | | - | | - | | - |
INCOME (EXPENSES) FOR THE PERIOD | | 654,786 | | 319,713 | | 24,892 | | 34,644 | | 30,106 | | (9,861) | | (5,355) | | 784 | | 20,069 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
ASSETS | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM |
2008 | | | | | | | | | | | | | | | | | |
TOTAL ASSETS | 5,380,379 | | 5,483,670 | | 243,934 | | 260,485 | | 620,177 | | 670,698 | | 404,461 | | 9,905 | | 292,375 |
CURRENT ASSETS | 1,261,255 | | 1,603,722 | | 48,259 | | 80,942 | | 51,478 | | 136,090 | | 7,785 | | 8,200 | | 7,199 |
Cash and cash equivalents | 920,861 | | 354,286 | | 29,638 | | 55,892 | | 136 | | 117,189 | | 7,598 | | 8,097 | | 1,424 |
Customers and distributors, net | 220,963 | | 759,209 | | - | | 22,450 | | 15,300 | | - | | - | | 96 | | - |
Telecommunications services, net | - | | - | | 10,837 | | - | | - | | - | | - | | - | | - |
Dividends receivable | - | | - | | - | | - | | - | | - | | - | | - | | 5,247 |
Services in progress | 10,541 | | 54,224 | | - | | - | | - | | - | | - | | - | | - |
CRC transferred to the State Government | - | | 47,133 | | - | | - | | - | | - | | - | | - | | - |
Recoverable Taxes | 7,530 | | 141,399 | | 2,076 | | 556 | | 1,634 | | 9,420 | | 187 | | - | | 528 |
Deferred regulatory assets - CVA | - | | 111,098 | | - | | - | | - | | - | | - | | - | | - |
Other regulatory assets | - | | 31,511 | | - | | - | | - | | - | | - | | - | | - |
Collaterals and escrow accounts | 79,079 | | 37,208 | | - | | - | | 34,042 | | 29 | | - | | - | | - |
Other receivables | 11,858 | | 19,504 | | 557 | | 1,508 | | 366 | | 9,452 | | - | | 7 | | - |
Inventories | 10,423 | | 48,150 | | 5,151 | | 536 | | - | | - | | - | | - | | - |
NONCURRENT ASSETS | 4,119,124 | | 3,879,948 | | 195,675 | | 179,543 | | 568,699 | | 534,608 | | 396,676 | | 1,705 | | 285,176 |
Total other noncurrent assets | 113,219 | | 1,768,466 | | 12,980 | | 26,691 | | 231 | | - | | - | | - | | 3 |
Customers and distributors, net | 75 | | 81,855 | | - | | 23,650 | | - | | - | | - | | - | | - |
Telecommunications services | - | | - | | 3,211 | | - | | - | | - | | - | | - | | - |
CRC transferred to the State Government | - | | 1,272,770 | | - | | - | | - | | - | | - | | - | | - |
Recoverable Taxes | 89,433 | | 241,987 | | 9,417 | | 434 | | - | | - | | - | | - | | - |
Deferred regulatory assets - CVA | - | | 53,494 | | - | | - | | - | | - | | - | | - | | - |
Other regulatory assets | - | | 11,085 | | - | | - | | - | | - | | - | | - | | - |
Collaterals and escrow deposits | - | | 37,868 | | - | | - | | - | | - | | - | | - | | - |
Judicial deposits | 21,830 | | 64,698 | | 352 | | 115 | | 231 | | - | | - | | - | | 3 |
Other receivables | 1,881 | | 4,709 | | - | | 2,492 | | - | | - | | - | | - | | - |
Investments | 412,646 | | 2,474 | | - | | 2 | | - | | - | | 396,676 | | - | | 281,524 |
Property, Plant, and Equipment | 3,530,039 | | 2,081,585 | | 181,587 | | 150,833 | | 568,340 | | 534,585 | | - | | 1,705 | | 1 |
Intangible Assets | 63,220 | | 27,423 | | 1,108 | | 2,017 | | 128 | | 23 | | - | | - | | 3,648 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
LIABILITIES | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM | |
2008 | | | | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES | | 5,380,379 | | 5,483,670 | | 243,934 | | 260,485 | | 620,177 | | 670,698 | | 404,461 | | 9,905 | | 292,375 | |
CURRENT LIABILITIES | | 942,890 | | 1,124,075 | | 21,960 | | 66,455 | | 75,516 | | 5,901 | | - | | 1,228 | | 5,626 | |
Loans and financing | | 61,373 | | 14,313 | | - | | 6,526 | | - | | - | | - | | - | | - | |
Debentures | | - | | - | | - | | - | | 25,767 | | - | | - | | - | | - | |
Suppliers | | 68,791 | | 415,006 | | 5,287 | | 38,769 | | 4,597 | | 3,501 | | - | | 2 | | 4 | |
Taxes and social contributions | | 128,827 | | 206,295 | | 1,922 | | 8,842 | | 1,209 | | 375 | | - | | 1,226 | | 383 | |
Dividends payable | | 562,618 | | 141,100 | | 3,655 | | 10,814 | | 1,538 | | - | | - | | - | | 5,237 | |
Payroll and labor provisions | | 39,664 | | 109,161 | | 8,737 | | 1,421 | | 119 | | 41 | | - | | - | | 2 | |
Post-employment benefits | | 5,908 | | 15,106 | | 1,018 | | - | | - | | - | | - | | - | | - | |
Deferred regulatory liabilities - CVA | | - | | 28,327 | | - | | - | | - | | - | | - | | - | | - | |
Other regulatory liabilities | | 11,680 | | 14,512 | | - | | - | | - | | - | | - | | - | | - | |
Regulatory assets | | 3,548 | | 39,575 | | - | | - | | - | | - | | - | | - | | - | |
R&D and EEP | | 28,352 | | 93,506 | | - | | - | | 2,652 | | 1,974 | | - | | - | | - | |
Concession charges - ANEEL grant | | - | | - | | - | | - | | 38,649 | | - | | - | | - | | - | |
Other accounts payable | | 32,129 | | 47,174 | | 1,341 | | 83 | | 985 | | 10 | | - | | - | | - | |
NONCURRENT LIABILITIES | | 808,528 | | 1,317,310 | | 18,050 | | 23,828 | | 466,875 | | 3,671 | | - | | - | | 4 | |
Loans and financing | | 246,927 | | 153,326 | | - | | 13,111 | | 26,092 | | - | | - | | - | | - | |
Debentures | | - | | - | | - | | - | | 202,116 | | - | | - | | - | | - | |
Reserve for contingencies | | 183,421 | | 191,483 | | 958 | | 284 | | - | | 3,053 | | - | | - | | 4 | |
Intercompany loans | | - | | 597,227 | | - | | - | | 238,060 | | - | | - | | - | | - | |
Suppliers | | 237,807 | | - | | - | | - | | | | - | | - | | - | | - | |
Taxes and social contributions | | - | | 20,869 | | - | | 8,041 | | - | | 618 | | - | | - | | - | |
Post-employment benefits | | 130,054 | | 278,005 | | 17,092 | | 728 | | - | | - | | - | | - | | - | |
Deferred regulatory liabilities - CVA | | - | | 2,373 | | - | | - | | - | | - | | - | | - | | - | |
Other regulatory liabilities | | - | | 7,257 | | - | | - | | - | | - | | - | | - | | - | |
R&D and EEP | | 5,324 | | 66,755 | | - | | - | | - | | - | | - | | - | | - | |
Deferred revenues | | - | | - | | - | | - | | - | | - | | - | | - | | - | |
Other accounts payable | | 4,995 | | 15 | | - | | 1,664 | | 607 | | - | | - | | - | | - | |
SHAREHOLDERS' EQUITY | | 3,628,961 | | 3,042,285 | | 203,924 | | 170,202 | | 77,786 | | 661,126 | | 404,461 | | 8,677 | | 286,745 | |
Stock capital | | 3,400,378 | | 2,171,928 | | 194,755 | | 85,143 | | 69,848 | | 707,440 | | 397,983 | | 3,061 | | 113,368 | |
Capital reserves | | - | | - | | - | | - | | 1,134 | | - | | 39,618 | | - | | - | |
Profit reserves | | 228,583 | | 870,357 | | 9,169 | | 85,059 | | 6,804 | | - | | - | | 5,616 | | 173,377 | |
Accumulated losses | | - | | - | | - | | - | | - | | (46,314 | ) | (33,140 | ) | - | | - | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
STATEMENT OF OPERATIONS 2008 | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | | DOM | |
| | | | | | | | | | | | | | | | | | | |
OPERATING REVENUES | | 1,804,035 | | 6,264,057 | | 113,734 | | 289,839 | | 172,127 | | 45,247 | | - | | 1,070 | | - | |
Electricity sales to final customers | | 165,006 | | 2,804,767 | | - | | - | | 2,538 | | - | | - | | - | | - | |
Electricity sales to distributors | | 1,385,477 | | 60,722 | | - | | - | | 169,589 | | - | | - | | 1,070 | | - | |
Use of main transmission grid | | 228,129 | | 3,330,176 | | - | | - | | - | | - | | - | | - | | - | |
Telecommunications revenues | | - | | - | | 113,734 | | - | | - | | - | | - | | - | | - | |
Distribution of piped gas | | - | | - | | - | | 286,120 | | - | | - | | - | | - | | - | |
Other operating revenues | | 25,423 | | 68,392 | | - | | 3,719 | | - | | 45,247 | | - | | - | | - | |
DEDUCTIONS FROM OPERATING REVENUES | (259,947 | ) | (2,498,139 | ) | (19,435 | ) | (56,103 | ) | (8,602 | ) | (4,185 | ) | - | | (206 | ) | - | |
NET OPERATING REVENUES | | 1,544,088 | | 3,765,918 | | 94,299 | | 233,736 | | 163,525 | | 41,062 | | - | | 864 | | - | |
OPERATING COSTS AND EXPENSES | | (747,100 | ) | (3,173,767 | ) | (77,569 | ) | (190,381 | ) | (93,464 | ) | (54,327 | ) | - | | 1,701 | | (2,149 | ) |
Electricity purchased for resale | | (70,065 | ) | (1,789,931 | ) | - | | - | | (815 | ) | - | | - | | - | | - | |
Use of main transmission grid | | (163,618 | ) | (366,561 | ) | - | | - | | (14,599 | ) | (7,081 | ) | - | | - | | - | |
Personnel and management | | (163,277 | ) | (462,382 | ) | (32,570 | ) | (7,641 | ) | (1,574 | ) | (402 | ) | - | | - | | (16 | ) |
Pension and healthcare plans | | (822 | ) | (27,464 | ) | (1,627 | ) | 37 | | - | | - | | - | | - | | - | |
Materials and supplies | | (10,282 | ) | (44,466 | ) | (1,659 | ) | (542 | ) | (215 | ) | (67 | ) | - | | (228 | ) | (1 | ) |
Raw materials and supplies for energy generation | | (19,577 | ) | - | | - | | - | | - | | (2,230 | ) | - | | - | | - | |
Natural gas and supplies for gas business | | - | | - | | - | | (163,846 | ) | - | | - | | - | | - | | - | |
Third-party services | | (59,795 | ) | (207,434 | ) | (12,295 | ) | (4,454 | ) | (7,573 | ) | (13,159 | ) | - | | (478 | ) | (1,373 | ) |
Depreciation and amortization | | (140,360 | ) | (176,081 | ) | (29,731 | ) | (9,364 | ) | (16,483 | ) | (31,722 | ) | - | | (209 | ) | (730 | ) |
Reserve (reversals) for contingencies | | (20,919 | ) | (75,316 | ) | 3,081 | | (116 | ) | - | | - | | - | | 2,625 | | (3 | ) |
Concession charge - ANEEL grant | | | | - | | - | | - | | (45,710 | ) | - | | - | | - | | - | |
Other operating costs and expenses | | (98,385 | ) | (24,132 | ) | (2,768 | ) | (4,455 | ) | (6,495 | ) | 334 | | - | | (9 | ) | (26 | ) |
OTHER REVENUES (EXPENSES), NET | | (138 | ) | (7,034 | ) | 471 | | 53 | | - | | - | | - | | - | | - | |
OPERATING INCOME BEFORE FINANCIAL RESULTS AND EQUITY IN RESULTS OF INVESTEES | | 796,850 | | 585,117 | | 17,201 | | 43,408 | | 70,061 | | (13,265 | ) | - | | 2,565 | | (2,149 | ) |
Interest income (expenses) | | 23,956 | | 146,909 | | 3,603 | | 5,924 | | (60,464 | ) | 12,471 | | 816 | | 3,110 | | (359 | ) |
Equity in results of investees (loss) | | 5,759 | | - | | - | | - | | - | | - | | (655 | ) | - | | 23,158 | |
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | | 826,565 | | 732,026 | | 20,804 | | 49,332 | | 9,597 | | (794 | ) | 161 | | 5,675 | | 20,650 | |
Income tax and social contribution | | (205,537 | ) | (100,483 | ) | (5,237 | ) | (15,791 | ) | (3,121 | ) | - | | (170 | ) | (1,117 | ) | (6 | ) |
Deferred income tax and social contribution | | �� (4,738 | ) | (87,169 | ) | (1,723 | ) | (1,234 | ) | - | | - | | - | | - | | - | |
NET INCOME (LOSSES) FOR THE YEAR | | 616,290 | | 544,374 | | 13,844 | | 32,307 | | 6,476 | | (794 | ) | (9 | ) | 4,558 | | 20,644 | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
STATEMENT OF OPERATIONS 2007 | | GET | | DIS | | TEL | | COM | | ELE | | UEG | | CEM | | CEO | |
OPERATING REVENUES | | 1,682,165 | | 6,140,711 | | 92,799 | | 273,119 | | 158,038 | | 164,913 | | - | | 504 | |
Electricity sales to final customers | | 164,935 | | 2,582,762 | | - | | - | | 3,986 | | 113 | | - | | - | |
Electricity sales to distributors | | 1,275,980 | | 76,221 | | - | | - | | 154,052 | | 85,656 | | - | | 504 | |
Use of main transmission grid | | 196,488 | | 3,416,988 | | - | | - | | - | | - | | - | | - | |
Telecommunications revenues | | - | | - | | 92,799 | | - | | - | | - | | - | | - | |
Distribution of piped gas | | - | | - | | - | | 265,954 | | - | | - | | - | | - | |
Other operating revenues | | 44,762 | | 64,740 | | - | | 7,165 | | - | | 79,144 | | - | | - | |
DEDUCTIONS FROM OPERATING REVENUES | (238,836 | ) | (2,396,337 | ) | (14,148 | ) | (50,507 | ) | (7,989 | ) | (10,459 | ) | - | | (18 | ) |
NET OPERATING REVENUES | | 1,443,329 | | 3,744,374 | | 78,651 | | 222,612 | | 150,049 | | 154,454 | | | | 486 | |
OPERATING COSTS AND EXPENSES | | (645,483 | ) | (2,895,143 | ) | (75,279 | ) | (153,524 | ) | (81,948 | ) | (133,735 | ) | (15 | ) | (276 | ) |
Electricity purchased for resale | | (55,490 | ) | (1,412,068 | ) | - | | - | | (1,678 | ) | (34,917 | ) | - | | - | |
Use of main transmission grid | | (169,278 | ) | (548,597 | ) | - | | - | | (15,062 | ) | (10,205 | ) | - | | - | |
Personnel and management | | (157,569 | ) | (450,103 | ) | (28,716 | ) | (6,001 | ) | (1,506 | ) | (419 | ) | - | | - | |
Pension and healthcare plans | | 16,513 | | (1,536 | ) | (226 | ) | (811 | ) | - | | - | | - | | - | |
Materials and supplies | | (11,272 | ) | (50,423 | ) | (950 | ) | (425 | ) | (81 | ) | (35 | ) | - | | (180 | ) |
Raw materials and supplies for energy generation | | 10,673 | | - | | - | | - | | - | | (25,419 | ) | - | | - | |
Natural gas and supplies for gas business | | - | | - | | - | | (132,726 | ) | - | | - | | - | | - | |
Third-party services | | (57,0354 | ) | (192,088 | ) | (11,263 | ) | (3,450 | ) | (6,608 | ) | (10,813 | ) | (15 | ) | (10 | ) |
Depreciation and amortization | | (137,7554 | ) | (190,839 | ) | (28,243 | ) | (7,314 | ) | (16,310 | ) | (49,427 | ) | - | | (69 | ) |
Reserve (reversals) for contingencies | | (5,1177 | ) | (36,256 | ) | (3,503 | ) | (429 | ) | - | | - | | - | | - | |
Concession charge - ANEEL grant | | - | | - | | - | | - | | (33,497 | ) | - | | - | | - | |
Other operating costs and expenses | | (79,1533 | ) | (13,233 | ) | (2,378 | ) | (2,368 | ) | (7,206 | ) | (2,500 | ) | - | | (17 | ) |
OTHER INCOME (EXPENSES), NET | | (31,9322 | ) | (12,001 | ) | (81 | ) | - | | - | | 1 | | - | | - | |
OPERATING INCOME BEFORE FINANCIAL RESULTS AND EQUITY IN RESULTS OF INVESTEES | | 765,914 | | 837,230 | | 3,291 | | 69,088 | | 68,101 | | 20,720 | | (15 | ) | 210 | |
Interest income (expenses) | | 30,061 1 | | 114,918 | | 1,615 | | 3,083 | | (60,117 | ) | 6,584 | | (649 | ) | 19 | |
Equity in results of investees (loss) | | 1488 | | - | | - | | - | | - | | - | | 12,527 | | - | |
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | | 796,123 | | 952,148 | | 4,906 | | 72,171 | | 7,984 | | 27,304 | | 11,863 | | 229 | |
Income tax and social contribution | (205,4765 | ) | (285,286 | ) | (3,140 | ) | (24,284 | ) | (1,873 | ) | (11,100 | ) | - | | (17 | ) |
Deferred income tax and social contribution | (4,7566 | ) | 10,943 | | 1,522 | | - | | - | | 4,675 | | - | | - | |
NET INCOME (LOSSES) FOR THE YEAR | | 585,891 | | 677,805 | | 3,288 | | 47,887 | | 6,111 | | 20,879 | | 11,863 | | 212 | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
40 Segment Information
The Company’s business segments were represented by Copel S.A. (Holding) and its wholly-owned subsidiaries: Copel Geração e Transmissão S.A. (Generation and Transmission), Copel Distribuição S.A. (Distribution), Copel Telecomunicações S.A. (Telecom), Companhia Paranaense de Gás – Compagas, Centrais Elétricas do Rio Jordão S.A. – Elejor, Copel Empreendimentos Ltda, UEG Araucária and Centrais Eólicas do Paraná Ltda and Dominó Holdings S.A. (2009).
The Company evaluates and manages segment performance based on information generated from its statutory accounting records maintained in accordance with Brazilian GAAP and reflected in its consolidated financial statements.
Information on total segment assets as at December 31, 2009 and 2008, under Brazilian GAAP, is as follows:
| December 31 | |
| 2009 | | 2008 | |
| | | | |
Holding | 10,148,860 | | 9,774,440 | |
Generation and Transmission | 5,384,160 | | 5,380,379 | |
Distribution | 5,929,073 | | 5,483,670 | |
Other | 2,505,142 | | 2,502,035 | |
Eliminations | (10,133,739 | ) | (9,886,898 | ) |
| | | | |
Total assets | 13,833,496 | | 13,253,626 | |
In order to allow the analysis of the statement of income according to the nature of the expenses, the operating costs and expenses are presented in aggregate form. These statements feature the results of operations of 2009 and 2008, not taking into account the equity in the results of subsidiaries.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2009
FINANCIAL STATEMENT 2009 | Generation and Transmission | | Distribution | | Other | | Holding | | Eliminations and noncontrolling interest | | Copel consolidated |
| | | | | | | | | | | |
OPERATING REVENUES | 1,894,220 | | 6,702,850 | | 634,723 | | - | | (435,116) | | 8,796,677 |
Electricity sales to final customers | 161,174 | | 3,096,604 | | - | | - | | (4,091) | | 3,253,687 |
Electricity sales to distributors | 1,445,063 | | 63,841 | | 182,725 | | - | | (296,823) | | 1,394,806 |
Use of main transmission grid | 251,797 | | 3,471,023 | | - | | - | | (86,851) | | 3,635,969 |
Telecommunications revenues | - | | - | | 142,072 | | - | | (37,228) | | 104,844 |
Distribution of piped gas | - | | - | | 264,009 | | - | | (2,684) | | 261,325 |
Leases and rents | 1,136 | | 57,177 | | 40,583 | | - | | (1,200) | | 97,696 |
Other operating revenues | 35,050 | | 14,205 | | 5,334 | | - | | (6,239) | | 48,350 |
DEDUCTIONS FROM OPERATING REVENUES | (273,075) | | (2,812,768) | | (93,522) | | - | | - | | (3,179,365) |
| | | | | | | | | | | |
NET OPERATING REVENUES | 1,621,145 | | 3,890,082 | | 541,201 | | - | | (435,116) | | 5,617,312 |
| | | | | | | | | | | |
OPERATING COSTS AND EXPENSES | (789,588) | | (3,598,442) | | (396,268) | | 111,337 | | 435,116 | | (4,237,845) |
Energy purchased for resale | (73,679) | | (1,902,998) | | (2,022) | | - | | 296,823 | | (1,681,876) |
Use of main transmission grid | (181,159) | | (490,646) | | (24,695) | | - | | 86,851 | | (609,649) |
Personnel and management | (195,554) | | (549,050) | | (50,863) | | (7,083) | | - | | (802,550) |
Pension and healthcare plans | 13,356 | | (24,993) | | (2,318) | | (222) | | - | | (14,177) |
Materials and supplies | (12,268) | | (52,841) | | (2,810) | | (13) | | - | | (67,932) |
Raw materials and supplies - generation | (21,979) | | - | | (1,936) | | - | | 2,684 | | (21,231) |
Natural gas and supplies - gas business | - | | - | | (135,353) | | - | | - | | (135,353) |
Third-party services | (62,230) | | (250,563) | | (36,535) | | (4,338) | | 47,558 | | (306,108) |
Depreciation and amortization | (136,274) | | (165,185) | | (89,335) | | (754) | | - | | (391,548) |
Provisions and reversals | (31,352) | | (102,886) | | (1,786) | | 187,231 | | - | | 51,207 |
Concession charge - ANEEL grant | - | | - | | (35,905) | | - | | - | | (35,905) |
Compensation for use of water resources | (75,819) | | - | | (4,408) | | - | | - | | (80,227) |
Other operating costs and expenses | (12,630) | | (59,280) | | (8,302) | | (63,484) | | 1,200 | | (142,496) |
| | | | | | | | | | | |
OTHER REVENUES (EXPENSES), NET | (17,240) | | (14,875) | | (668) | | 591 | | - | | (32,192) |
| | | | | | | | | | | |
OPERATING INCOME BEFORE FINANCIAL RESULTS AND EQUITY IN RESULT OF INVESTEES | 814,317 | | 276,765 | | 144,265 | | 111,928 | | - | | 1,347,275 |
| | | | | | | | | | | |
Interest income (expenses) | 68,018 | | 100,246 | | (24,778) | | (77,865) | | - | | 65,621 |
Equity in results of investees | (4,806) | | - | | 16,753 | | 1,048,689 | | (1,046,310) | | 14,326 |
| | | | | | | | | | | |
OPERATING REVENUES (LOSSES) | 877,529 | | 377,011 | | 136,240 | | 1,082,752 | | (1,046,310) | | 1,427,222 |
| | | | | | | | | | | |
Provision for income tax and s, contribution | (220,340) | | (27,270) | | (39,992) | | - | | - | | (287,602) |
Deferred income tax and social contribution | (2,405) | | (30,026) | | (973) | | (56,319) | | - | | (89,723) |
Minority interests | - | | - | | - | | - | | (23,470) | | (23,470) |
| | | | | | | | | | | |
INCOME (LOSSES) FOR THE PERIOD | 654,784 | | 319,715 | | 95,275 | | 1,026,433 | | (1,069,780) | | 1,026,427 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2008
Financial Statements 2008 | Generation and Transmission | | Distribution | | Other | | Holding | | Eliminations and noncontrolling interest | | Copel consolidated | |
OPERATING REVENUES | 1,804,035 | | 6,264,057 | | 622,017 | | - | | (384,714 | ) | 8,305,395 | |
Electricity sales to final customers | 165,006 | | 2,804,767 | | 2,538 | | - | | (3,431 | ) | 2,968,880 | |
Electricity sales to distributors | 1,385,477 | | 60,722 | | 170,659 | | - | | (253,764 | ) | 1,363,094 | |
Use of main transmission grid | 228,129 | | 3,330,176 | | - | | - | | (85,207 | ) | 3,473,098 | |
Telecommunications revenues | - | | - | | 113,734 | | - | | (33,130 | ) | 80,604 | |
Distribution of piped gas | - | | - | | 286,120 | | - | | (2,411 | ) | 283,709 | |
Leases and rents | 891 | | 50,245 | | 45,246 | | - | | (1,067 | ) | 95,315 | |
Other | 24,532 | | 18,147 | | 3,720 | | - | | (5,704 | ) | 40,695 | |
DEDUCTIONS FROM OPERATING REVENUES | (259,947 | ) | (2,498,139 | ) | (88,531) | | - | | - | | (2,846,617 | ) |
NET OPERATING REVENUES | 1,544,088 | | 3,765,918 | | 533,486 | | - | | (384,714 | ) | 5,458,778 | |
OPERATING COSTS AND EXPENSES | (747,100 | ) | (3,173,767 | ) | (416,189) | | (29,713 | ) | 384,792 | | (3,981,977 | ) |
Electricity purchased for resale | (70,065 | ) | (1,789,931 | ) | (815) | | - | | 245,725 | | (1,615,086 | ) |
Use of main transmission grid | (163,618 | ) | (366,561 | ) | (21,680) | | - | | 85,207 | | (466,652 | ) |
Personnel and management | (163,277 | ) | (462,382 | ) | (42,203) | | (5,965 | ) | - | | (673,827 | ) |
Pension and healthcare plans | (822 | ) | (27,464 | ) | (1,590) | | (140 | ) | - | | (30,016 | ) |
Materials and supplies | (10,282 | ) | (44,466 | ) | (2,712) | | (14 | ) | - | | (57,474 | ) |
Raw materials and supplies – electricity generation | (19,577 | ) | - | | (2,230) | | - | | 2,533 | | (19,274 | ) |
Natural gas and supplies - gas business | - | | - | | (163,846) | | - | | - | | (163,846 | ) |
Third-party services | (59,795 | ) | (207,434 | ) | (39,332) | | (3,909 | ) | 42,222 | | (268,248 | ) |
Depreciation and amortization | (140,360 | ) | (176,081 | ) | (88,239) | | (63 | ) | - | | (404,743 | ) |
Provisions and reversals | (20,919 | ) | (75,316 | ) | 5,587 | | (8,246 | ) | - | | (98,894 | ) |
Concession charge - ANEEL grant | - | | - | | (45,710) | | - | | - | | (45,710 | ) |
Compensation for use of water resources | (81,493 | ) | - | | (5,020) | | - | | - | | (86,513 | ) |
Other operating costs and expenses | (16,892 | ) | (24,132 | ) | (8,399) | | (11,376 | ) | 9,105 | | (51,694 | ) |
OTHER REVENUES (EXPENSES), NET | (138 | ) | (7,034 | ) | 524 | | (23,875 | ) | - | | (30,523 | ) |
OPERATING INCOME (LOSS) BEFORE FINANCIAL RESULTS AND EQUITY IN RESULTS OF INVESTEES | 796,850 | | 585,117 | | 117,821 | | (53,588 | ) | 78 | | 1,446,278 | |
Interest income (expenses) | 23,956 | | 146,909 | | (34,899) | | (41,525 | ) | (78 | ) | 94,363 | |
Equity in results of investees | - | | - | | 22,979 | | (8,661 | ) | - | | 14,318 | |
INCOME (LOSS) BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | 820,806 | | 732,026 | | 105,901 | | (103,774 | ) | - | | 1,554,959 | |
Income tax and social contribution | (205,537 | ) | (100,483 | ) | (25,442) | | (20,602 | ) | - | | (352,064 | ) |
Deferred income tax and social contribution | (4,738 | ) | (87,169 | ) | (2,957) | | (11,218 | ) | - | | (106,082 | ) |
Noncontrolling interest | - | | - | | - | | - | | (18,069 | ) | (18,069 | ) |
INCOME (LOSS) FOR THE YEAR | 610,531 | | 544,374 | | 77,502 | | (135,594 | ) | (18,069 | ) | 1,078,744 | |
| | | | | | | | | | | | |
Capital Expenditure | (91,669 | ) | (495,198 | ) | (60,779) | | - | | - | | (647,646 | ) |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
2007
STATEMENT OF OPERATIONS 2007 | Generation and Transmission | | Distribution | | Other | | Holding | | Eliminations and noncontrolling interest | | Consolidated |
OPERATING REVENUES | 1,682,165 | | 6,140,711 | | 689,373 | | - | | (592,155) | | 7,920,094 |
Electricity sales to final customers | 164,935 | | 2,582,762 | | 4,099 | | - | | (4,116) | | 2,747,680 |
Electricity sales to distributors | 1,275,980 | | 76,221 | | 240,212 | | - | | (224,818) | | 1,367,595 |
Use of main transmission grid | 196,488 | | 3,416,988 | | - | | - | | (296,513) | | 3,316,963 |
Telecommunications revenues | - | | - | | 92,799 | | - | | (28,906) | | 63,893 |
Distribution of piped gas | - | | - | | 265,954 | | - | | (21,874) | | 244,080 |
Leases and rents | 782 | | 46,850 | | 79,144 | | - | | (1,009) | | 125,767 |
Other | 43,980 | | 17,890 | | 7,165 | | - | | (14,919) | | 54,116 |
DEDUCTIONS FROM OPERATING REVENUES | (238,836) | | (2,396,337) | | (83,121) | | - | | 1,861 | | (2,716,433) |
NET OPERATING REVENUES | 1,443,329 | | 3,744,374 | | 606,252 | | - | | (590,294) | | 5,203,661 |
OPERATING COSTS AND EXPENSES | (645,483) | | (2,895,143) | | (444,777) | | (209,180) | | 590,294 | | (3,604,289) |
Electricity purchased for resale | (55,490) | | (1,412,068) | | (36,595) | | - | | 224,818 | | (1,279,335) |
Use of main transmission grid | (169,278) | | (548,598) | | (25,267) | | - | | 297,076 | | (446,067) |
Personnel and management | (157,569) | | (450,102) | | (36,642) | | (5,621) | | 217 | | (649,717) |
Pension and healthcare plans | 16,513 | | (1,536) | | (1,037) | | (89) | | - | | 13,851 |
Materials and supplies | (11,272) | | (50,423) | | (1,671) | | (6) | | 154 | | (63,218) |
Raw materials and supplies – electricity generation | 10,673 | | - | | (25,419) | | - | | 23,700 | | 8,954 |
Natural gas and supplies - gas business | - | | - | | (132,726) | | - | | - | | (132,726) |
Third-party services | (57,035) | | (192,088) | | (32,159) | | (5,249) | | 45,589 | | (240,942) |
Depreciation and amortization | (137,755) | | (190,839) | | (101,363) | | - | | - | | (429,957) |
Provisions and reversals | (5,117) | | (36,256) | | (3,932) | | (197,130) | | - | | (242,435) |
Concession charge - ANEEL grant | - | | - | | (33,497) | | - | | - | | (33,497) |
Compensation for use of water resources | (69,472) | | - | | (4,466) | | - | | - | | (73,938) |
Other operating costs and expenses | (9,681) | | (13,233) | | (10,003) | | (1,085) | | (1,260) | | (35,262) |
OTHER INCOME (EXPENSES), NET | (31,932) | | (12,001) | | (80) | | 13,286 | | (382) | | (31,109) |
OPERATING INCOME (LOSS) BEFORE FINANCIAL RESULTS AND EQUITY IN RESULTS OF INVESTEES | 765,914 | | 837,230 | | 161,395 | | (195,894) | | (382) | | 1,568,263 |
Interest income (expenses) | 30,061 | | 114,918 | | (49,465) | | (75,269) | | (2) | | 20,243 |
Equity in results of investees | - | | - | | - | | 9,509 | | - | | 9,509 |
INCOME (LOSS) BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | 795,975 | | 952,148 | | 111,930 | | (261,654)) | | (384) | | 1,598,015 |
Income tax and social contribution | (205,476) | | (285,286) | | (40,414) | | (4,992) | | - | | (536,168) |
Deferred income tax and social contribution | (4,756) | | 10,943 | | 6,197 | | 63,469 | | - | | 75,853 |
Noncontrolling interest | - | | - | | - | | - | | (31,090) | | (31,090) |
INCOME (LOSS) FOR THE YEAR | 585,743 | | 677,805 | | 77,713 | | (203,177) | | (31,474) | | 1,106,610 |
| | | | | | | | | | | |
Capital Expenditure | (57,809) | | (412,950) | | (45,724) | | - | | - | | (516,483) |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
41 Summary of principal Differences between Brazilian GAAP and U.S. GAAP
(a) Description of the GAAP differences
Copel's accounting policies comply with Brazilian GAAP and its consolidated financial statements are prepared in accordance with Brazilian GAAP, Notes 4 and 5 to the financial statements summarize the accounting policies adopted by the Company. Accounting policies that differ significantly from accounting principles generally accepted in the United States of America ("U.S. GAAP") are summarized as follows.
Effective January 1, 2009, Company adopted the requirements of ASC 810 “Consolidation” (SFAS no. 160) for non-controlling interests in consolidated financial statements. Presentation of prior periods have been retrospectively adjusted to contemplate this adoption.
a(i) Supplementary Accounting for Inflation in 1996 and 1997 for U.S GAAP
Under Brazilian GAAP, accounting for inflation was discontinued effective January 1, 1996. Prior to that date, Brazilian GAAP statements included indexation adjustments which partially accounted for the effect of inflation on property, plant and equipment, investments (together denominated permanent assets), special obligations and shareholders' equity, and reported the net charge or credit in the statement of operations. However, under U.S. GAAP, Brazil ceased to be treated as a high inflationary economy only as from January 1, 1998. Accordingly the financial information for purposes of U.S. GAAP should include the effects of the variation in the inflation index, Index - Internal Availability (IGP-DI), on permanent assets. The IGP-DI index increased by 9,3% in 1996 and 7,5% in 1997.
For purposes of the U.S. GAAP reconciliation, shareholders' equity under U.S. GAAP was increased by R$ 141,150 and R$ 329,583 as of December 31, 2009 and 2008, respectively, due to the additional inflation restatement adjustments, net of depreciation. The amounts related to historical cost generated increases in depreciation and amortization charges of R$ 156,166, R$ 159,856 and R$ 158,817 in 2009, 2008 and 2007, respectively.
a(ii) Concession arrangements
When concessions expire unrenewed, the property, plant and equipment reverts to the Brazilian government and under Brazilian legislation. Copel is required to be reimbursed by the Brazilian government for the amounts recorded in local books of such assets at that time. Under Brazilian GAAP, property, plant and equipment are recorded at construction cost or purchase price and are depreciated over their useful lives. All existing infrastructure assets were acquired by Copel with none being received as a result of the concession agreement.
Under U.S. GAAP the individual property, plant and equipment accounting balances may be higher or lower than the Brazilian GAAP balances due to supplementary accounting for inflation in 1996 and 1997, the capitalization of interest costs related to construction in progress, indemnification costs and fair value adjustments on acquisition as described in Note 41.a(iv) to the December 31, 2009 financial statements. Under U.S. GAAP property, plant and equipment are depreciated over their useful lives to this salvage or residual value at the end of the concession period. The residual value at the expiration of the concession agreement recorded in local book of the property, plant and equipment, will be equal to the amount to be reimbursed by the Brazilian government at that time.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a(iii) Statement of cash flows
By Requirement of Law 11,638/07 and 11,941/09, the Cash Flow Statements presented on pages F-07 and F-08 are now mandatory, under BRGAAP, in replacement of the Statement of Changes in Financial Position. The Statements of Cash Flows are presented in accordance with Brazilian GAAP (CPC 03 Cash Flow) and aligned with International Accounting Standard No. 7, describing cash flows from operating, financing and investing activities.
As mentioned in Note a (vi) below, the Company has adopted the provisions of ASC 810 “Consolidation” during 2009, with presentation and disclosure requirements applied retrospectively to comparative financial statements. This standard provides that a non-controlling interest in an operating subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. As such, based on this new presentation requirements, decreases in non-controlling interest resulting from payments of interest in shareholders’ equity or dividends would be presented as financing activities in the statement of cash flows under U.S.GAAP. This change in presentation under US GAAP would increase the cash provided by operating activities and the cash used in financing activities presented in accordance with accounting practices adopted in Brazil in the amou nt of R$ 9,422, R$ 2,438 and R$ 486 for the years ended December 31, 2009, 2008 and 2007, respectively.
a(iv) Regulatory accounting policies
a(iv).1 Capitalization of interest costs relating to construction in progress
Under Brazilian energy sector regulatory accounting, since March 1999 Copel imputed interest on shareholders' funds applied in construction in progress and such interest was capitalized, Additionally, as from December 31, 1995 Copel started capitalizing interest costs and related monetary and exchange variations of borrowed funds to construction in progress.
Under U.S. GAAP, only capitalization of interest on borrowed funds is acceptable; therefore, for U.S. GAAP reconciliation purposes, the imputed interest on shareholders' funds, exchange variations and general administrative expenses, which were capitalized and included in construction in progress, were reversed. Only interest and monetary variation on borrowed funds remains capitalized and the depreciation is computed using the rates applicable to the corresponding class of property, plant and equipment.
a(iv).2 Indemnification costs
Brazilian utility companies are allowed to capitalize excess costs incurred in the course of building new plants, such as contractual penalties on delays in construction or contractors' claims and provision for labor and civil contingencies recorded after the construction is concluded and the plants are already operating. Under U.S. GAAP, such excess costs would not be capitalized.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a(v) General accounting policies
a(v).1 Pension and other benefits
Under Brazilian GAAP, up to 2000, the pension and other retirement benefit costs were recognized when contributions were made to the plans. As from 2001, the Company recognized the pension and other post-retirement benefits costs in accordance with Deliberation CVM 371/2000, which is similar to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 87 - "Employers' Accounting for Pensions" and SFAS No. 106 - "Employers' Accounting for Post-retirement Benefits Other than Pensions" (subsequently codified within ASC 715 “Compensation-Retirement Benefits”), however, differences arise on the determination and amortization of actuarial gains and losses and the net tr ansitional obligation due to the different dates on which the respective standards were first applied.
Under U.S. GAAP, SFAS No. 87 “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Post-retirement Benefits Other Than Pensions”, amended in 2006 by SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" (subsequently codified within ASC 715 “Compensation-Retirement Benefits”) require recognition of costs on a more comprehensive accrual basis. Under ASC 715, U.S. GAAP requires the recognition of either an asset or a liability, stated at fair value, for the difference between projected benefit obligations (as defined in SFAS No. 87 and SFAS No. 106) and plan assets, and all the changes in that funded status to be recognized through comprehensive income, ASC 715 also establishes the measurement date of plan assets and obligations as the date of the employer's fiscal year end, a nd provides for additional annual disclosures. The disclosures required by ASC 715 are presented in Note 41.c.(iii) below.
Under Brazilian GAAP, for the health care plan, the Company has opted by the entire actuarial results recognition during the year. For U.S. GAAP purposes, such recognition is based on the corridor method.
a(v).2 Goodwill and concession intangible asset adjustments
Sercomtel S.A. - Telecomunicações and Sercomtel Celular S.A.
Under Brazilian GAAP the goodwill on the purchase of the 45% interest in Sercomtel S.A. - Telecomunicações and Sercomtel Celular S.A. was totally amortized over ten years up to December 31, 2008.
For U.S. GAAP reconciliation purpose, the Company, according to ASC 350 “Intangibles – Goodwill and Other” (SFAS no. 142), stopped amortizing goodwill as from January 1, 2002 and reviewed it for impairment in accordance with paragraph 19(h) of ASC 323 “Investments – Equity Method and Joint Ventures” (APB no. 18). The reversal of the amortization recorded under BR GAAP for the year ended December 31, 2008 was R$ 1,791 and for the year ended December 31, 2007 was R$ 4,808.
For Brazilian GAAP purposes, the Company recorded provision for impairment in the amounts of R$ 6,195 for Sercomtel Celular S.A. and of R$ 35,927 for Sercomtel S.A. – Telecomunicações, for the balances at December 31, 2009. For U.S. GAAP purposes, the Company has recorded an additional impairment losses in the amounts of R$ 3,703 for Sercomtel Celular S.A. and of R$ 26,936 for Sercomtel S.A. – Telecomunicações, either for the balances at December 31, 2009.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Centrais Elétricas Rio Jordão - Elejor
In 2004, the Company acquired 30% of the common shares of Elejor and recorded R$ 22,626 of concession intangible asset under Brazilian GAAP. Under U.S. GAAP, fair values were assigned to assets acquired and liabilities assumed and the residual of consideration paid over the fair value of assets and liabilities was recorded as concession intangible asset in the amount of R$ 24,349. The difference between concession intangible asset calculated under Brazilian GAAP and U.S. GAAP is represented by fair value adjustments at December 31, 2009:
| 2009 |
| |
Concession intangible asset recorded under Brazilian GAAP –30% of Elejor’s common shares | 19,798 |
Fair value adjustments | 4,551 |
| |
Concession intangible asset recorded under U.S. GAAP –30% of Elejor’s common shares | 24,349 |
No intangible impairment was identified for this concession intangible.
Copel Empreendimentos Ltda.
In 2006, the Company acquired the quotas of El Paso Empreendimentos Ltda, parent company of UEG Araucária, and changed its name to Copel Empreendimentos Ltda, as described in Note 41.a.(v)12. As a result of this acquisition, Copel recorded R$ 53,954 of concession intangible asset under Brazilian GAAP, which started amortization in 2007.
a(v).3 Equity in results of investees
Law No. 11,638/07 and 11,941/09 have changed the affiliate concept and the application scope of the equity method. As of January 1 2008, the investments in affiliates where the company has significant influence: (i)in which an investor participates with more than 20% of the investees common stock; (ii) that they are part of the same economic group; (iii) are under common control, will be evaluated by the equity method of accounting.
Under U.S. GAAP, the equity method is only required for investments with significant influence as established in ASC 323 “Investments-Equity Method and Joint Ventures”. During 2008, the Company increased its interest in Dominó Holdings S.A. from 15% to 45%, accordingly, under U.S. GAAP, from 2008 this investment should be accounted for using equity method.
In addition, under Brazilian energy regulatory accounting, equity in results of investees is recognized in a special caption in the statement of operations before the caption other income (expenses). Under U.S. GAAP equity in results of investees is classified in the statement of operations in a caption before income tax expenses.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a(v).4 Adjustment on equity interest in joint-controlled subsidiary consolidated proportionately under Brazilian GAAP
Asfrom January 14, 2008 Dominó Holdings S.A. is accounted for using proportional consolidation under Brazilian GAAP, Under USGAAP, it is accounted for using equity method.
Sumarized balance sheet, statement of income and cash flow information as of and for the year ended December 31, 2009 of Dominó Holdings S.A. under Brazilian GAAP are presented in Note 18 item “d”. The effect of this adjustment is included as adjustment on equity interest of joint controlled subsidiary consolidated proportionally under Brazilian GAAP, a line item in the reconciliations of net income and shareholder’s equity.
a(v).5 Deferred charges
With the adoption of Law 11,638/07 and 11,941/09 the accounting treatment of “Deferred Charges” has changed for Brazilian GAAP.
With such changes and considering that the Company applied the requirements of Law 11,638/07 retroactively as from January 1, 2006, Brazilian GAAP and U.S. GAAP treatment for research and development and pre operating costs became similar.
For Brazilian GAAP, the accounting group “Deferred Charges” was extinguished and as of January 1, 2006. Balances registered in this caption were reclassified to Property, Plant and Equipment, Intangible assets or, if they do not fulfill the requirements to be classified in those groups, they were treated as expenses.
For U.S. GAAP, the amounts previously recognized as expenses remained written off.
a(v).6 Tax incentives recognition
Until 2007, under Brazilian GAAP, tax incentives gains are recorded directly against shareholders’ equity. For 2007 the tax incentives gains amounted to R$ 21,047.
Under U.S. GAAP, tax incentives gains are recorded in the statement of operations.
From January 1st, 2008 on, Law No. 11,638/07 and 11,941/09 have changed the Brazilian GAAP accounting treatment for tax incentives to record gains in the statement of operations.
a(v).7 Income taxes
Under Brazilian GAAP, deferred income tax liabilities are recognized based on the amount of future expected taxes to be paid. Deferred income tax assets related to deductible temporary differences or tax loss carryforwards are recognized when there is a reasonable certainty that the Company will generate profits against which it can offset such an asset. In addition, there are no expiration dates for the tax loss carryforwards.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Under U.S. GAAP, deferred income tax assets related to deductible temporary differences or tax loss carryforwards are recognized and, if necessary, a valuation allowance is recorded if it is more likely than not that such assets will not be realized.
According to U.S. GAAP, the Company has recorded deferred tax assets and liabilities for income tax and social contribution tax, as presented below:
| As of December 31 | |
| 2009 | | 2008 | |
Deferred tax asset under U.S. GAAP | 427,498 | | 465,083 | |
Deferred tax liability under U.S. GAAP | (224,558 | ) | (332,756 | ) |
| | | | |
Net deferred tax asset under U.S. GAAP | 202,940 | | 132,327 | |
In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods for which deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets is considered realizable; however, could be reduced in the ne ar term if estimates of future taxable income are reduced.
The Company adopted the provisions of ASC 740 “Income Tax” as from January 1, 2007 and recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As a result of the implementation of ASC 740, the company did not record any further tax benefit or a liability related to uncertainty in income taxes, beyond those already recorded under Accounting practices adopted in Brazil (note 10).
The Company and its subsidiaries file federal income tax returns only in Brazil. For years before 2004, the Company is no longer subject to Brazilian federal income tax examinations. All income before taxes, Noncontrolling interest and related income taxes are from Brazilian sources. The main lawsuits challenges by the Brazilian Revenue Service are described in note 10. Management, based on the opinion of the legal counsel, considers that there are no significant risks that are not covered by liabilities already recorded or that would result in a material change to its financial position or results of operations. The Company cannot predict that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company’s policy is to record penalties and interest related to unrecognized tax benefits as Interest expenses in the consolidated statements of income. For the balances shown in note 10, the Company made escrow deposits waiting for the final decision by the Brazilian courts. Therefore the company is not subject to penalties and the interest expenses are offset by the monetary restatement applied to the judicial deposits.
For purposes of the U.S. GAAP reconciliation, the adjustment for deferred taxes relates to the U.S. GAAP adjustments.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a(v).8 Comprehensive income
Brazilian GAAP does not recognize the concept of comprehensive income.
Under U.S. GAAP, ASC 220 “Comprehensive Income” (SFAS no. 130), requires the disclosure of comprehensive income. Comprehensive income is comprised of net income and other comprehensive income that include charges or credits directly to equity. For U.S. GAAP reconciliation purposes, the amounts related to the initial transition obligation and unrecognized gains (losses)of the pension plan and the related deferred tax effect were recorded as adjustments directly to equity and have been considered as other comprehensive income.
The components of accumulated other comprehensive income are as follows:
| December 31 | |
| 2009 | | 2008 | |
Unrecognized gain on pension plan | 346,158 | | 638,265 | |
Income tax | (117,694 | ) | (217,010 | ) |
| | | | |
Total accumulated other comprehensive income | 228,464 | | 421,255 | |
a(v).9 Earnings per share
Under Brazilian GAAP net income or loss per share is calculated based on the number of shares outstanding at the balance sheet date. Under U.S. GAAP, the earnings per share calculation takes into account common stock equivalents and the weighted average number of shares outstanding during the reporting period. Also, U.S. GAAP requires the computation of diluted earnings per share, which is not a practice under Brazilian GAAP. For all periods presented the Company does not have any potential common stock equivalents that could have a dilutive effect.
Since the preferred and common shareholders have different dividends, voting and liquidation rights, basic and diluted earnings per share have been calculated using the ''two-class'' method. The ''two-class'' method is an earnings allocation formula that determine earnings per share for preferred and common stock according to the dividends declared as required by the Company's by-laws and participation rights in undistributed earnings calculated in accordance with the rights to dividends of each class of shares as discussed on Note 30 (a).
The basic and dilutive earnings per share are presented on the table in Note 41 b(ii).
Earnings per share data is presented per thousand shares. Such presentation is consistent with the practice in Brazil of trading and quoting shares in share lots.
a(v).10 Impairment of long-lived assets
There were no differences relating to impairment provisions, between Brazilian GAAP and U.S. GAAP financial statements, and there were no circumstances or events to require the impairment tests to be performed for U.S. GAAP, for the years presented based on analysis performed, Copel has not identified the need to record a provision for impairment of its long-lived assets under US GAAP, exceptfor the impairment provision recorded for the balances of the investment and goodwill related to Sercomtel S.A. – Telecomunicações and Sercomtel Celular S.A.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
a(v).11 Centrais Elétricas do Rio Jordão S.A. - Elejor
Acquisition of Elejor
As of December 18, 2003, the Company acquired from Triunfo Participações e Investimentos S.A. 30% of the common shares of Elejor. Accordingly, the Company holds 70% of the shareholding control of Elejor and 35% of the total shares of Elejor.
Under U.S. GAAP, the Company has recorded such acquisition based on the fair value of the assets acquired and liabilities assumed in accordance with the purchase method of accounting pursuant to ASC 805.
Payment of concession
Elejor signed the concession agreement on October 25, 2001 which has a term of 35 years for the Santa Clara and Fundão hydroelectric plants. Elejor will pay the Federal Government for the exploitation of hydro-electrical resources, from the sixth through the end of the 35th year, with annual payments of R$ 19 million (original amount), payable in monthly installments, beginning on October 25, 2006. This amount is monetarily adjusted, on an annual basis, by the IGP-M. As of December 31, 2009, the contractual obligation, monetarily adjusted, for the payments through the end of the concession totaled R$ 1,130,521 (2008 – R$ 1,137,521), equivalent to R$ 357,906 (2008 – R$ 349,448) at its present value. The discount rate used for determining the present value was 11% p.y. for 2009 and 2008.
Under Brazilian GAAP, the costs related to the contractual obligations for the payments through the end of the concession are recorded similar to rental agreements (operating leases).
Under U.S. GAAP, the contractual obligations were recorded at present value as a liability, with an offsetting entry as intangible assets, at the date of the acquisition of the concession. As from that date, the reversal of the present value of the liability was recorded as an increase on the intangible assets until the related PP&E became operational and as a financial expense that date from. The intangible asset recorded is realized through amortization considering the period from the beginning of operations of related PP&E and the remaining term of the concession.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
| | | | | | | 2009 | |
|
Concession
liability
| |
Intangible
asset
| | Amounts recorded in shareholders' equity | | Amounts recorded in statements of operations | |
Net present value at the date of the acquisition of the concession | 98,028 | | 98,028 | | - | | - | |
Increase of the liability as a result of monetary adjustment and present value adjustment reversal | 259,878 | | 165,892 | | (93,986) | | (8,458) | |
Amortization of intangible concession asset | | | (34,049) | | (34,049) | | (8,798) | |
Amounts recorded as of and for the year ended December 31, 2009 under U.S. GAAP | 357,906 | | 229,871 | | (128,035) | | (17,256) | |
| | | | | | | | |
Liability recorded under Brazilian GAAP as of December 31, 2009 | 36,576 | | - | | 36,576 | | (2,073) | |
| | | | | | | 2008 | |
| Concession
liability | | Intangible
asset | | Amounts recorded in shareholders' equity | | Amounts recorded in statements of operations | |
Net present value at the date of the acquisition of the concession | 98,028 | | 98,028 | | - | | - | |
Increase of the liability as a result of monetary adjustment and present value adjustment reversal | 251,420 | | 165,892 | | (85,528) | | (52,355) | |
Amortization of intangible concession asset | - | | (25,251) | | (25,251) | | (8,797) | |
Amounts recorded as of and for the year ended December 31, 2008 under U.S. GAAP | 349,448 | | 238,669 | | (110,779) | | (61,152) | |
| | | | | | | | |
Liability recorded under Brazilian GAAP as of December 31, 2008 | 38,649 | | | | 38,649 | | 11,565 | |
| | | | | | | 2007 | |
| Concession
liability | | Intangible
asset | | Amounts recorded in shareholders' equity | | Amounts recorded in statements of operations | |
Net present value at the date of the acquisition of the concession | 98,028 | | 98,028 | | - | | - | |
Increase of the liability as a result of monetary adjustment and present value adjustment reversal | 199,065 | | 165,892 | | (33,173) | | (13,883) | |
Amortization of intangible concession asset | - | | (16,454) | | (16,454) | | (9,168) | |
Amounts recorded as of and for the year ended December 31, 2007 under U.S. GAAP | 297,093 | | 247,466 | | (49,627) | | (23,051) | |
| | | | | | | | |
Liability recorded under Brazilian GAAP as of December 31, 2007 | 27,084 | | - | | 27,084 | | (5,086) | |
a(v).12 Acquisition of Copel Empreendimentos Ltda, (former El Paso Empreendimentos e Participações Ltda.)
In 2006, the Company has acquired 60% of of capital quotas of UEG Araucária. Under U.S. GAAP, the Company has recorded such acquisition based on the fair value of the assets acquired and liabilities assumed in accordance with the purchase method of accounting pursuant to ASC 805 “Business Combinations” (SFAS no. 141).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
The purchase price allocation identified an intangible asset related to the right to explore UEG Araucária generation concession. The total amount assigned to the intangible asset will be amortized from October 2006 (beginning of UEG operations) to December 22, 2029 (date the concession expires), therefore resulting in an annual amortization rate of 4,3%. The amortization expense recorded under U.S. GAAP was R$ 7,914 in the years ended 2009, 2008 and 2007.
a(v).13 Acquisition of Centrais Eólicas do Paraná
In September, 2007, Copel Geração S/A acquired Wobben Windpower’s 70% interest inCentrais Eólicas do Paraná. The amount paid for this acquisition wasR$ 2,143.After this operation,Copel Participações S/A and Copel Geração e Transmissão S/A became the owners of Ceopar.
The purchase price allocation identified a negative goodwill which was allocated as a pro rata reduction of the property, plant and equipment amounts. The total amount assigned to property, plant and equipment will be amortized from over the useful lives of the respective assets.
a(v).14 Acquisition of Dominó Holdings S.A.
As described in Note 18(d), on January 14, 2008 Copel has acquired 30% interest of the share capital of Dominó Holdings S.A..
Under U.S. GAAP, the Company has recorded such acquisition based on the fair value of the assets acquired and liabilities assumed in accordance with the purchase price method of accounting to ASC 805.
The purchase price allocation identified a negative goodwill which has been allocated to investments. The differences between the cost of the investments and the amount of the underlining equity in net assets of the investee is accounted for as if the investee were a consolidated subsidiary, thus representing for US GAAP purposes, a reduction of depreciation expenses in the amount of R$ 3,720 in the years ended December 31, 2009 and 2008.
a(v).15 Financial statement note disclosures
Brazilian GAAP in general requires less information to be disclosed in the notes to the financial statements than U.S. GAAP. The additional disclosures required by U.S. GAAP, which are relevant to the accompanying financial statements, are included herein.
a(v).16 Reclassifications
Reserves for contingencies
Under Brazilian GAAP, the reserves for contingencies are stated net of their corresponding judicial deposits in the financial statements.
Under U.S. GAAP, the balances of the provisions for contingencies and their corresponding judicial deposits are recorded gross. Accordingly, noncurrent assets and noncurrent liabilities under U.S. GAAP
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
would be increased by R$ 85,567 and R$ 60,017 at December 31, 2009 and 2008, respectively. This difference has no net income or shareholders’ equity effect.
a.(vi) Presentation of non-controlling interest
Under Brazilian GAAP non-controlling interest is reported in the consolidated balance sheet in the mezzanine section between liabilities and equity. Also, net income attributable to non-controlling interest is reported as an expense in arriving at consolidated net income.
ASC 810 “Consolidation” (SFAS no. 160) clarifies that a non-controlling interest in an operating subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributed to the parent and to the non-controlling interest. This statement was effective prospectively for fiscal years beginning after December 15, 2008 (calendar year 2009), with presentation and disclosure requirements applied retrospectively to comparative financial statements. Effective January 1, 2009, the Company adopted the provision of this statement and applied its presentation requirements retrospectively.
(b) Reconciliation of differences between Brazilian GAAP and U.S. GAAP
b(i) Shareholders' equity reconciliation of the differences between Brazilian GAAP and U.S. GAAP
| | | December 31, |
| Ref, to Note 41 | | 2009 | | 2008 |
Shareholders’ equity under Brazilian GAAP | | | 8,830,061 | | 8,053,087 |
Reclassification of noncontrolling interest under Brazilian GAAP | a.(vi) | | 253,537 | | 239,567 |
| | | | | |
Increase (decrease) due to remeasurement up to December 31, 1997, based on IGP-DI | | | | | |
Property, plant and equipment | | | | | |
Cost | a.(i) | | 5,033,201 | | 5,065,468 |
Accumulated depreciation | a.(i) | | (4,892,051) | | (4,735,885) |
| | | | | |
| | | 141,150 | | 329,583 |
| | | | | |
Different criteria for | | | | | |
Capitalization of interest during construction | | | | | |
Reversal of interest capitalized under Brazilian regulatory accounting, net of accumulated depreciation | a.(iv).1 | | (245,195) | | (279,980) |
Reversal of monetary and exchange variations and administrative expenses capitalized under Brazilian regulated accounting, net of accumulated depreciation | a.(iv).1 | | (298,954) | | (285,885) |
Capitalization of interest under U.S. GAAP | a.(iv).1 | | 1,185,156 | | 1,147,300 |
Depreciation of capitalized interest under U.S. GAAP | a.(iv).1 | | (864,676) | | (826,762) |
Reversal of indemnification costs, net of accumulated amortization | a.(iv).2 | | (214,811) | | (208,894) |
Pension Plan adjustment | a.(v).1 | | 594,574 | | 868,065 |
Reversal of goodwill amortization recorded in B.R. GAAP | a.(v).2 | | 42,228 | | 42,658 |
Impairment of goodwill for U.S. GAAP | a.(v).2 | | (30,639) | | (29,613) |
Reversal of equity in results of investees recognized under Brazilian GAAP | a.(v).3 | | (417) | | (691) |
Adjustment on equity interest in joint-controlled subsidiary consolidated proportionately under Brazilian GAAP, | a.(v).4 | | - | | 5,110 |
Deferred charges | a.(v).5 | | (3,593) | | (5,172) |
Reversal of concession agreement Elejor recognized under Brazilian GAAP | a.(v).11 | | 36,576 | | 38,649 |
Monetary adjustment and present value adjustment reversal on concession liability - Elejor | a.(v).11 | | (93,987) | | (85,528) |
Amortization of intangible concession asset – Elejor | a.(v).11 | | (34,049) | | (25,251) |
Reversal of amortization of deferred charges recognized under Brazilian GAAP – UEGA | a.(v).12 | | 30,167 | | 30,167 |
Amortization of intangible concession asset recognized under U.S. GAAP – UEGA | a.(v).12 | | (25,721) | | (17,807) |
Depreciation of property, plant and equipment underlying to the investment of Dominó Holdings S.A. and Centrais Eólicas Ltda. | a.(v).13 / a.(v).14 | | 7,440 | | 3,720 |
Deferred income tax effects on the adjustments above | a.(v).7 | | (70,120) | | (230,457) |
| | | | | |
Shareholders' equity under U.S. GAAP | | | 9,238,727 | | 8,761,866 |
Shareholders'equity attributable to parent company | | | 9,022,287 | | 8,550,528 |
Shareholders'equity attributable to non-controlling interest | | | 216,440 | | 211,338 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b(ii) Net income reconciliation of the differences between Brazilian GAAP and U.S. GAAP
| | | | | Year ended December 31 |
| Ref, to | | | | | | |
| Note 41 | | 2009 | | 2008 | | 2007 |
| | | | | | | |
Net income under Brazilian GAAP | | | 1,026,433 | | 1,078,744 | | 1,106,610 |
Reclassification of noncontrolling interest under Brazilian GAAP | a.(vi) | | 23,469 | | 18.069 | | 31,090 |
| | | | | | | |
Increase (decrease) due to remeasurement up to December 31, 1997-based on IGP-DI | | | | | | | |
Property, plant and equipment: | | | | | | | |
Cost | a.(i) | | (32,267) | | (24,801) | | (26,530) |
Depreciation | a.(i) | | (156,166) | | (159,856) | | (158,817) |
| | | | | | | |
| | | (188,433) | | (184,657) | | (185,347) |
| | | | | | | |
Different criteria for | | | | | | | |
Capitalization of interest during construction | | | | | | | |
Reversal of interest capitalized under Brazilian regulatory accounting net of depreciation | a.(iv).1 | | 34,785 | | 34,979 | | 44,315 |
Reversal of monetary and exchange variations and administrative expenses capitalized under Brazilian regulated accounting. net of depreciation | a.(iv).1 | | (13,069) | | (6,366) | | 8,097 |
Capitalization of interest under U.S. GAAP | a.(iv).1 | | 37,856 | | 39,027 | | 38,483 |
Depreciation of capitalized interest under U.S. GAAP | a.(iv).1 | | (37,914) | | (35,453) | | (35,463) |
Reversal of indemnification costs, net of amortization | a.(iv).2 | | (5,917) | | (6,284) | | (94,438) |
Pension - ASC 715 | a.(v).1 | | 21,096 | | 70,064 | | (6,932) |
Health-care - ASC 715 | a.(v).1 | | (2,480) | | (60,285) | | (12,562) |
Reversal of goodwill amortization recorded under BR GAAP | a.(v).2 | | (430) | | 4,893 | | 7,719 |
Impairment of goodwill under US GAAP | a.(v).2 | | (1,026) | | (25,926) | | (3,687) |
Reversal of equity in results of investees recognized under Brazilian GAAP | a.(v).3 | | 274 | | (274) | | 80 |
Adjustment on equity interest in joint controlled subsidiary consolidated proportionally under Brazilian GAAP and impairment | a.(v).4 | | (5,110) | | 5,110 | | - |
Deferred charges | a.(v).5 | | 1,579 | | - | | 36 |
Reversal of concession agreement Elejor recognized under Brazilian GAAP | a.(v).11 | | (2,073) | | 11,565 | | (5,086) |
Monetary adjustment and present value adjustment reversal on concession liability - Elejor | a.(v).11 | | (8,459) | | (52,355) | | (13,883) |
Amortization of intangible concession asset - Elejor | a.(v).11 | | (8,798) | | (8,797) | | (9,168) |
Reversal of amortization of deferred charges recognized under Brazilian GAAP – UEGA | a.(v).12 | | - | | 55 | | 30,112 |
Amortization of intangible concession asset recognized underU.S. GAAP – UEGA | a.(v).12 | | (7,914) | | (7,914) | | (7,914) |
Depreciation of property, plant and equipment underlying to the investment of Dominó Holdings S.A. and Centrais Eólicas Ltda. | a.(v).13 / a.(v).14 | | 3,720 | | 3,720 | | - |
Tax incentives | a.(v).6 | | - | | - | | 21,047 |
Deferred income tax effects on the adjustments above | a.(v).7 | | 61,021 | | 70,275 | | 84,889 |
| | | | | | | |
Net income under U.S. GAAP | | | 928,610 | | 948,190 | | 997,998 |
Net income attributable to parent company | | | 914,009 | | 922,993 | | 981,810 |
Net income attributable to non controlling interest | | | 14,601 | | 25,197 | | 16,188 |
| | | | | | | |
Other comprehensive income | a.(v).8 | | (192,791) | | (3,731) | | (42,104) |
| | | | | | | |
Comprehensive income under U.S. GAAP | | | 735,819 | | 944,459 | | 955,894 |
Comprehensive income attributable to parent company | | | 721,218 | | 919,262 | | 939,706 |
Comprehensive income attributable to non controlling interest | | | 14,601 | | 25,197 | | 16,188 |
| | | | | | | |
Net income per share in accordance with U.S. GAAP attributable to parent company | | | | | | | |
| | | | | | | |
Common shares - Basic and Diluted | a.(v).9 | | 3.19 | | 3.22 | | 3.43 |
| | | | | | | |
Weighted average (thousand) common shares outstanding | | | 145,031 | | 145,031 | | 145,031 |
| | | | | | | |
Preferred shares Class A - Basic and Diluted | a.(v).9 | | 4.18 | | 4.17 | | 4.37 |
| | | | | | | |
Weighted average (thousand) preferred shares | | | 396 | | 398 | | 399 |
| | | | | | | |
Preferred shares Class B - Basic and Diluted | a.(v).9 | | 3.51 | | 3.54 | | 3.77 |
| | | | | | | |
Weighted average (thousand) preferred shares | | | 128,228 | | 128,226 | | 128,225 |
| | | | | | | |
Net income attributable to controlling shareholder allocated to: | | | | | | | |
Common shares | | | 462,512 | | 467,067 | | 496,843 |
Preferred shares Class A | | | 1,655 | | 1,660 | | 1,743 |
Preferred shares Class B | | | 449,842 | | 454,266 | | 483,224 |
| | | | | | | |
| | | 914,009 | | 922,993 | | 981,810 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
b(iii) Statements of changes in shareholders' equity in accordance with U.S. GAAP
| Equity attributable to parent company | | Non-controlling interest | | Total equity | |
| | | | | | |
Shareholders'equity under U.S. GAAP at December 31, 2006 | 7,221,144 | | 185,451 | | 7,406,595 | |
Comprehensive income: | | | | | | |
Net income | 981,810 | | 16,188 | | 997,998 | |
Other comprehensive income | (42,104) | | - | | (42,104) | |
Dividends - interest on equity | (267,750) | | (5,469) | | (273,219) | |
| | | | | | |
Shareholders'equity under U.S. GAAP at December 31, 2007 | 7,893,100 | | 196,170 | | 8,089,270 | |
Comprehensive income: | | | | | | |
Net income | 922,993 | | 25,197 | | 948,190 | |
Other comprehensive income | (3,731) | | - | | (3,731) | |
Dividends - interest on equity | (261,834) | | (10,029) | | (271,863) | |
| | | | | | |
Shareholders'equity under U.S. GAAP at December 31, 2008 | 8,550,528 | | 211,338 | | 8,761,866 | |
Comprehensive income: | | | | | | |
Net income | 914,009 | | 14,601 | | 928,610 | |
Other comprehensive income | (192,791) | | - | | (192,791) | |
Dividends - interest on equity | (249,459) | | (9,499) | | (258,958) | |
| | | | | | |
Shareholders'equity under U.S. GAAP at December 31, 2009 | 9,022,287 | | 216,440 | | 9,238,727 | |
(c) Additional disclosures required by U.S. GAAP
Based on the report of the Company's independent actuaries, the funded status and related amounts under U.S. GAAP as at December 31, 2009 and 2008 for the Company's pension obligations to retirees in accordance with ASC 715 "Employer's Disclosures About Pensions and Other Post-Retirement Benefits" (SFAS no.132), are as follows:
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(i) Retirement Pension Plan
c(i).1 Changes in Benefit Obligation
| December 31, |
| 2009 | | 2008 |
Benefit obligation, beginning of year | 2,613,697 | | 2,518,605 |
Service cost | 20,398 | | 15,963 |
Interest cost | 289,985 | | 282,252 |
Actuarial (gain) losses | 191,071 | | (3,742) |
Benefits paid | (200,067) | | (199,381) |
| | | |
Benefit obligation, end of year | 2,915,084 | | 2,613,697 |
c(i).2 Changes in plan assets
| December 31, |
| 2009 | | 2008 |
Fair value of plan assets, beginning of year | 3,386,326 | | 3,255,449 |
Expected return on plan assets | 384,655 | | 363,364 |
Company contributions | - | | 4,226 |
Emplyees contributions | 14,254 | | - |
Actuarial gain (loss) | (75,510) | | (37,332) |
Benefits paid | (200,067) | | (199,381) |
| | | |
Fair value of plan assets, end of year | 3,509,658 | | 3,386,326 |
c(i).3 Funded status
| December 31, |
| 2009 | | 2008 |
Actuarial present value of: | | | |
Vested benefit obligation | 2,408,872 | | 1,867,005 |
Non-vested benefit obligation | 498,781 | | 746,933 |
| | | |
Total accumulated benefit obligation | 2,907,653 | | 2,613,938 |
| | | |
Projected benefit obligation | 2,915,084 | | 2,613,697 |
Fair value of plan assets | (3,509,658) | | (3,386,326) |
| | | |
Total assets at December 31 | (594,574) | | (772,629) |
| | | |
Total assets required at December 31 | (594,574) | | (772,629) |
| | | |
Total liabilities recognized by the Company under Brazilian GAAP | - | | 95,436 |
| | | |
Total adjustments to U.S. GAAP shareholders' equity | 594,574 | | 868,065 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(i).4 Actuarial weighted average assumptions (percentage)
| 2009 | | 2008 | | 2007 |
| (i) | | (ii) | | (i) | | (ii) | | (i) | | (ii) |
| | | | | | | | | | | |
Discount rate | 11.52 | | 6.00 | | 11.51 | | 6.00 | | 11.35 | | 6.00 |
Salaryincrease rate | 7.30 | | 2.00 | | 7.30 | | 2.00 | | 7.15 | | 2.00 |
Expected return on plan assets | 11.52 | | 6.00 | | 11.51 | | 6.00 | | 11.35 | | 6.00 |
Inflation | 5.20 | | - | | 5.20 | | - | | 5.05 | | - |
| | | | | | | | | | | |
(i) With inflation
(ii) Without inflation
c(i).5 Components of Net Periodic Pension Cost
| Year ended December 31 |
| 2009 | | 2008 | | 2007 |
Service cost | 20,398 | | 15,963 | | 14,279 |
Interest cost | 289,985 | | 282,252 | | 243,846 |
Expected return on assets | (384,655) | | (363,364) | | (324,401) |
Amortizations | | | | | |
Net actuarial gain | (28,006) | | (36,335) | | (36,810) |
Employees' contributions | (14,254) | | - | | (327) |
| | | | | |
Net periodic pension revenue under U.S. GAAP | (116,532) | | (101,484) | | (103,413) |
| | | | | |
Pension revenue considered under Brazilian GAAP | 95,436 | | 31,420 | | 110,345 |
| | | | | |
Adjustment to U.S. GAAP net income | 21,096 | | 70,064 | | (6,932) |
The components of the projected net periodic pension credit for 2010 are as follows:
| 2010 |
Service cost | 15,760 |
Interest cost | 311,160 |
Expected return on assets | (393,702) |
Amortizations | - |
Net actuarial (gain) loss | (4,838) |
Employees contributions | (14,166) |
| |
Net periodic pension credit under U.S. GAAP | (85,786) |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(ii) Post-retirement health-care plan
c(ii).1 Changes in benefit obligation
| December 31, |
| 2009 | | 2008 |
Benefit obligation, beginning of year | 453,587 | | 476,830 |
Service cost | 1,534 | | 1,492 |
Interest cost | 50,274 | | 52,527 |
Actuarial gain | 2,504 | | (52,373) |
Benefits paid (only inactive participants) | (31,672) | | (24,889) |
| | | |
Benefit obligation, end of year | 476,227 | | 453,587 |
c(ii).2 Changes in plan assets
| December 31, |
| 2009 | | 2008 |
Fair value of plan assets, beginning of year | 110,297 | | 114,392 |
Return on plan assets | 12,519 | | 12,372 |
Company’s contributions | 63,057 | | 62,771 |
Actuarial losses | (4,224) | | (5,698) |
Benefits paid (only inactive participants) | (70,668) | | (73,540) |
| | | |
Fair value of plan assets, end of year | 110,981 | | 110,297 |
c(ii).3 Funded status
| December 31 |
| 2009 | | 2008 |
Total accumulated benefit obligation | 476,227 | | 453,587 |
Fair value of plan assets | (110,981) | | (110,297) |
| | | |
Unfunded position | 365,246 | | 343,290 |
| | | |
Total liabilities at December 31, | 365,246 | | 343,290 |
Total liabilities recognized by the Company under Brazilian GAAP | (365,246) | | (343,290) |
| | | |
Total adjustments to U.S. GAAP shareholders' equity | - | | - |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(ii).4 Net periodic post-retirement costs
| Year ended December 31 |
| 2009 | | 2008 | | 2007 |
Service cost | 1,534 | | 1,492 | | 2,056 |
Interest cost | 50,274 | | 52,527 | | 50,277 |
Expected return on plan assets | (12,519) | | (12,372) | | (13,476) |
Amortizations | | | | | |
Net actuarial loss | - | | 2,679 | | 3,512 |
Unrecognized net transition obligation | 9,050 | | 9,050 | | 9,050 |
| | | | | |
Net periodic post-retirement cost under U.S. GAAP | 48,339 | | 53,376 | | 51,419 |
| | | | | |
Post-retirement revenues (costs) considered under Brazilian GAAP | (45,859) | | 6,909 | | (38,857) |
| | | | | |
Adjustment to U.S. GAAP net income | (2,480) | | (60,285) | | (12,562) |
The components of the projected net periodic post-retirement cost for 2010 are as follows:
| 2010 |
Service cost | 6,179 |
Interest cost | 47,278 |
Actual return on assets | (12,776) |
Amortizations | |
Initial transition obligation | 8,974 |
(Gain) and losses | 209 |
| |
Net periodic post-retirement cost under U.S. GAAP | 49,864 |
c(ii).5 Sensitivity analysis
The following table sets forth a sensitivity analysis demonstrating the effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic postretirement health care benefit costs and the accumulated postretirement benefit obligation for health care benefits.
| | Total Obligation | | Annual Interest | | Service Cost |
Increase of 1% | | 626,745 | | 64,806 | | 8,030 |
Decrease of 1% | | 389,332 | | 39,507 | | 4,037 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(iii) Benefits to be paid
The benefits expected to be paid by the Company for the next ten years and in the aggregate for the five fiscal years thereafter are as follows:
Year | | Pension Plan | | Other Benefits | | Total |
2010 | | 210,469 | | 34,565 | | 245,034 |
2011 | | 216,257 | | 26,358 | | 242,615 |
2012 | | 223,365 | | 23,382 | | 247,747 |
2013 | | 232,914 | | 20,883 | | 253,797 |
2014 | | 242,294 | | 19,325 | | 261,619 |
2015 | | 252,387 | | 18,932 | | 271,319 |
2016 | | 260,600 | | 18,612 | | 279,212 |
2017 | | 269,100 | | 18,418 | | 287,518 |
2018 | | 276,894 | | 18,019 | | 294,913 |
2019 | | 283,055 | | 17,520 | | 300,575 |
2020 | | 287,026 | | 16,714 | | 303,740 |
2021 | | 289,155 | | 14,566 | | 303,721 |
2022 | | 290,310 | | 12,149 | | 302,459 |
2023 | | 290,309 | | 10,727 | | 301,036 |
2024 | | 289,017 | | 7,877 | | 296,894 |
c(iv) Asset allocation and investment strategy
The asset allocation for the Company's pension and health-care plans at the end of 2009 and 2008 and the target allocation for 2009, by asset category, is broken down below:
| Year ended December 31 | |
| Target allocation for 2010 | | 2009 | | 2008 | |
| | | | | | |
Equity securities (a) | 4,0% | | 4,0% | | 11,1% | |
Real estate (b) | 1,8% | | 1,8% | | 2,1% | |
Loans (c) | 1,7% | | 1,7% | | 1,6% | |
Fixed income (d) | 92,2% | | 92,2% | | 84,8% | |
Other | 0,3% | | 0,3% | | 0,4% | |
| | | | | | |
| 100,0% | | 100,0% | | 100,0% | |
The plan assets are valued using the fair market value assumptions as follows:
(a) Equities Securities – are valued at market prices based on quoted prices in the Bolsa de Valores de São Paulo – BM&FBOVESPA (São Paulo Stock Exchange).
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
(b) Real Estate – the valuation is determined by periodic fair value valuation based on market prices using an independent appraisal report. These independent appraisers use the following valuation methodologies to value the assets: market values for similar assets or replacement cost.
(c) Loans – are valued based on the present value of cash flows embedded in the loans discounted at an appropriate current market rate. We believe this value represents a fair estimate of their fair market rates.
(d) Fixed Income – these are securities which generate interest income based on a percentage of the average daily Brazilian interbank interest rate and are thus considered market rates.
The assets mix allowed by Law for Pension Funds can be composed by fixed income, equity securities, loans and real estate.
The Fund administration has decided to maintain the historical assets mix, under a very low risk on equities securities and strong positions on governamental debts related bonds, were interest rates are higher than actuarial targets.
Find below the target limits estipulated by the Fund administration:
| Plan I and II (DB)(**) | | Plan III (VC)(**) |
| target (%)(*) | | minimum (%)(*) | | target (%)(*) | | Minimum (%)(*) |
Fixed Income(1) | 94 | | 87 | | 63 | | 50 |
Equity Securities | 1 | | - | | 22 | | 15 |
Loans | 1 | | - | | 15 | | 3 |
Real State | 3 | | - | | - | | - |
Structured Investment | 1 | | - | | - | | - |
| | | | | | | |
(*) % based on each Plan total of investments
(**)for more information, see Note 25.a
(1) The Fundação Copel’s management has decided to keep a more conservative participation in Equity Securities, in relation to the allowed legal limit, which is 70%, as a consequence, the allocation in the Fixed Income has increased in 2009 compared to the limits estipulated for 2008.
As of December 31, 2009 and 2008, the pension plan assets include securities issued by Copel as follows:
| Defined benefit pension plan |
| 2009 | | 2008 |
Debentures | - | | 5,776 |
Shares | 1,482 | | 3,600 |
| | | |
| 1,482 | | 9,376 |
The Company expects to contribute with R$ 59,693 to its pension plan which includes the defined benefit plans (plans I and II) and the defined contribution plan (plan III) and R$ 46,663 to its health-care plan in 2010.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Additional information
Copel is also a sponsor of a defined contribution plan for all employees.
The contribution for the years ended December 31, 2009, 2008 and 2007 were, respectively, R$ 49,289, R$ 43,196 and R$ 44,028.
c(v) Concentration of credit risk
Credit risk with respect to customer accounts receivable is diversified, Copel continually monitors its customer accounts receivable and limits its exposure to bad debts by curtailing service if any invoice is one month overdue. Exceptions comprise supply of electricity that must be maintained for reasons of safety or national security. The Company purchased electricity for resale from Eletrobras (Itaipu) totaling R$ 478.383, R$ 502,417, and R$ 385,359, corresponding to 28,4%, 31,1%, and 30,1% of the cost of electricity purchased for resale, in 2009, 2008 and 2007, respectively, Eletrobras owns 1,1% of the Company's common shares.
c(vi) Fair value measurement
ASC 820 “Fair Value Measurements and Disclosures” (SFAS no. 157), which defines a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 does not require any new fair value measurement; however it establishes additional disclosures about instruments measured at fair value. That pronouncement has been effective since January 1, 2008.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more details see Note 36.
Furthermore, ASC 820 also provides requirements of three-level hierarchy for fair value measurements based upon the observable and unobservable inputs to the valuation of a financial instrument at the measurement date. ASC 820 defines observable inputs as market data obtained from independent sources, and unobservable inputs reflect market assumptions.
The three-level hierarchy of fair value is, as followed:
Level 1: Quoted prices for identical instruments in active market;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable;
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
Level 3: Instruments whose significant inputs are unobservable.
| Year Ended 31.12.09 | Quoted price in active market for identicalassets Level 1 | Significant other observableinputs Level 2 | Significant unobservableinputs Level 3 |
| | | | |
Goodwill in investees | | | | |
– Sercomtel Telecomunicações and Sercomtel Celular | - | - | - | - |
In accordance with the provisions of ASC 350, the goodwill related to the investees Sercomtel Telecomunicações e Sercomtel Celular with an U.S. GAAP carrying amount of R$ 30,639 were written down to their fair value of zero calculated through significant unobservable inputs, resulting in an impairment charge of total amount, which was included in earnings for the year ended December 31, 2009 in addition to the amounts already recorded for BRGAAP (note 18 f).
The fair value of goodwill (level 3) are based on internal appraisal using the discounted cash flow method. The main no observable inputs used in the calculation are the following:
· Discount Interest Rate of 13,18%, equivalent to the Company´s WACC for Telecom business;
· Period of Cash Flows: 10 years, until the end of Sercomtelproperty plant and equipment usefull life;
· Projection of Future Revenues, Costs and Expenses: Based on actual levels, with no projected increases related to inflation or NDP (National Domestic Product). The rational for this assumption is related to the fact that the Company´s Market has been stagnated and geographical expansion depends on new concessions.
The effects of fair value measurements using significant unobservable inputs on changes in level 3 assets for the period are:
| | Goodwill | Impairment | Total |
| | | | |
Total at December 31, 2008 | | 30,639 | (29,613) | 1,026 |
Provision for impairment complement | | - | (1,026) | (1,026) |
Total at December 31, 2009 | | 30,639 | (30,639) | - |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
c(vii) Bonds and securities
| | | | | | Fair value | Net carrying amount |
Description | Classification | Rate p.y. | Issuance date | Maturity date | Type | 2009 | 2008 | 2009 | 2008 |
LTN | Held to maturity | 14,45% | 05/20/2008 | 01/04/2010 | Amortized cost | 78,975 | 70,438 | 78,959 | 69,065 |
LFT | Held to maturity | SELIC* - 0,06% | 08/07/2009 | 03/16/2011 | Amortized cost | 20,636 | - | 20,650 | - |
LTN | Held to maturity | 10,45% | 04/23/2009 | 01/01/2011 | Amortized cost | 1,071 | - | 1,071 | - |
LTN | Held to maturity | 10,42% | 04/29/2009 | 01/01/2011 | Amortized cost | 4,487 | - | 4,491 | - |
LFT | Held to maturity | SELIC* - 0,05% | 07/14/2009 | 03/07/2012 | Amortized cost | 4,831 | - | 4,836 | - |
LFT | Held to maturity | SELIC* - 0,015% | 11/30/2009 | 06/15/2011 | Amortized cost | 9,064 | - | 9,055 | - |
| | | | | | 119,064 | 70,438 | 119,062 | 69,065 |
*SELIC interest rate. |
c(viii) New accounting pronouncements
In June 2009, the FASB issued the FASB Accounting Standards Codification (ASC). The Codification became the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and does not have an effect on our financial position, results of operations or liquidity.
ASC 810 “Consolidation” clarifies that a non-controlling interest in an operating subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributed to the parent and to the non-controlling interest. This statement was effective prospectively for fiscal years beginning after December 15, 2008 (calendar year 2009), with presentation and disclosure requirements applied retrospectively to comparative financial statements. Effective January 1, 2009, the Company adopted the provision of this statement and applied its presentation requirements retrospectively.
In June 2009, the FASB issued ASC 855 “Subsequent Events”, a new accounting standard for accounting and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The standard is effective for interim or annual periods ending after June 15, 2009. The Company already adopts this statement.
ASC 323 “Investments-Equity Method and Joint Ventures” addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in aninvestment from the equity method to the cost method. ASC 323 was effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. ASC 323 is applied prospectively with early application prohibited. The adoption of ASC 323 did not have any impact on our consolidated financial condition or results of operations.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
ASC 715 “Compensation-retirement Benefits” provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plans. This guidance is intended to ensure that an employer meets the objectives of the disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan to provide users of financial statements with an understanding of the following: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets; and significant concentrations of risk within plan assets. The Company has complied with the disclosure requirements.
ASC 350 “Intangibles-Goodwill and Other” amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. This guidance is effective prospectively for intangible assets acquired or renewed after January 1, 2009. The adoption of ASC 350 did not have any impact on our consolidated financial condition or results of operations.
Effective January 1, 2009, the Company implemented the Accounting Standards Update (ASU) number 2010-06 Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 and are expected to provide more robust disclosures about (1) the different classes ofassets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to Interpretation No. 46(R) on the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-17 was issued. The amendments replace the quantitative based risks and rewards calculation, for determining which reporting entity has a controlling financial interest in a VIE, with a qualitative analysis when determining whether or not it must consolidate a VIE. The newly required approach is focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits fr om the entity. The amendments also require an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendments eliminated the scope exception on qualifying special-purpose entities (“QSPE”) and require enhanced disclosures about: involvement with VIEs, significant changes in risk exposures, impacts on the financial statements, and, significant judgments and assumptions used to determine whether or not to consolidate a VIE. This new standard has not been incorporated into ASC and is effective for fiscal years beginning after November 15, 2009. The Company does not believe the adoption of this new standard will have a material impact on its Financial Statements.
In June 2009, the “FASB” issued an amendment to the accounting and disclosure requirements for transfers of financial assets. Subsequently, in December 2009, the Accounting Standards Update (ASU) number 2009-16 Accounting for Transfers of Financial Assets was issued. The amendments improve financial reporting requiring greater transparency and additional disclosures for transfers of financialassets and the entity’s continuing involvement with them and also change the requirements for derecognizing financial assets. In addition, the amendments eliminate the exceptions for QSPE from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. This new sta ndard is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact of adopting this Statement.
Accounting Standards Update (ASU) number 2009-08 Earnings per share issued by the FASB providesadditional guidance related to calculation of earnings per share. This guidance amends ASC 260 and is effective for fiscal years beginning after January 1, 2009.
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
42 Condensed unconsolidated financial information of Companhia Paranaense de Energia – Copel
The condensed unconsolidated financial information of Companhia Paranaense de Energia - Copel, as of December 31, 2009 and 2008 and for each of the three years in the period ending on December 31, 2009, under Brazilian GAAP is as follows:
(a) Balance sheets
| | | | December 31 |
| | 2009 | | 2008 |
Assets | | | | |
Current assets | | | | |
Cash and cash equivalents | | 479,044 | | 318,455 |
Dividends receivable | | 696,279 | | 719,061 |
Recoverable taxes | | 121,541 | | 94,009 |
Collateral and escrow accounts | | 161 | | 436 |
Bonds and securities | | 78,959 | | 2 |
Other receivables | | | | |
| | | | |
| | 1,375,986 | | 1,131,965 |
| | | | |
Noncurrent assets | | | | |
Intercompany loans | | 988,421 | | 929,293 |
Bonds and securities | | | | 69,063 |
Recoverable taxes | | 62,521 | | 121,338 |
Judicial deposits | | 25,662 | | 26,268 |
Other receivables | | | | |
| | | | |
| | 1,078,363 | | 1,149,094 |
| | | | |
Investments | | 7,674,713 | | 7,472,829 |
Intangible assets | | | | |
| | | | |
| | 8,772,874 | | 8,642,475 |
| | | | |
| | | | |
| | | | |
Liabilities and shareholders’ equity | | | | |
Current liabilities | | | | |
Loans and financing | | 15,868 | | 24,896 |
Debentures | | 17,238 | | 169,233 |
Taxes and social contribution | | 102,465 | | 57,993 |
Dividends payable | | 84,630 | | 239,265 |
Other | | | | |
| | | | |
| | 221,111 | | 492,232 |
| | | | |
Noncurrent liabilities | | | | |
Loans and financing | | 388,254 | | 414,959 |
Debentures | | 600,000 | | 600,000 |
Taxes and social Contribution | | 82,792 | | - |
Reserve for contingencies | | 26,642 | | 214,162 |
| | | | |
| | 1,097,688 | | 1,229,121 |
| | | | |
Shareholders' equity | | | | |
Capital stock | | 4,460,000 | | 4,460,000 |
Capital reserves | | 838,340 | | 838,340 |
Profit reserves | | | | |
| | | | |
| | | | |
| | | | |
Total liabilities and shareholders' equity | | | | |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
(b) Statements of operations
| | | | | December 31 |
| 2009 | | 2008 | | 2007 |
Operating income (expenses) | | | | | |
Personnel expenses | (7,083) | | (5,965) | | (5,621) |
Third party services | (4,338) | | (3,909) | | (5,249) |
Taxes and social contribution | (7) | | (2,473) | | (35) |
Provisions and reversals | 187,231 | | (8,246) | | (197,130) |
Other expenses, net | (63,875) | | (32,633) | | 11,765 |
| | | | | |
| 111,928 | | (53,226) | | (196,270) |
| | | | | |
Operating profit (loss) before financial results and equity in results of investees | 111,928 | | (53,226) | | (196,270) |
| | | | | |
Interest results | | | | | |
Interest income | 133,892 | | 107,428 | | 90,891 |
Interest expenses | (211,757) | | (172,633) | | (193,806) |
| | | | | |
| (77,865) | | (65,205) | | (102,915) |
| | | | | |
Equity in results of investees | 1,048,689 | | 1,227,542 | | 1,346,836 |
| | | | | |
Income before income tax and social contribution | 1,082,752 | | 1,109,111 | | 1,047,651 |
| | | | | |
Income tax and social contribution | (56,319) | | (30,367) | | 58,959 |
| | | | | |
Net income for the year | 1,026,433 | | 1,078,744 | | 1,106,610 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
(c) Statements of cash flows
| December 31 |
| 2009 | | 2008 | | 2007 |
| | | | | |
Net cash provided by operating activities | 698,193 | | 544,738 | | 152,399 |
| | | | | |
Cash Flows from Investing activities | | | | | |
Payments under loans to related parties | - | | 176,027 | | - |
Additions to other investiments-net of cash acquired | (150) | | (58,584) | | (5,836) |
| | | | | |
Net cash provided by (used in) investing activities | (150) | | 117,443 | | (5,836) |
| | | | | |
Cash Flows from Financing activities | | | | | |
Loans and financing obtained | - | | - | | 334,982 |
Debentures | (133,360) | | (133,320) | | (717,738) |
Dividends paid | (404,094) | | (266,592) | | (292,323) |
| | | | | |
Net cash provided by (used in) financing activities | (537,454) | | (399,912) | | (675,079) |
| | | | | |
Net increase (decrease) in cash and cash equivalents | 160,589 | | 262,269 | | (528,516) |
| | | | | |
Cash and cash equivalents at the beginning of the year | 318,455 | | 56,186 | | 584,702 |
| | | | | |
Cash and cash equivalents at the end of the year | 479,044 | | 318,455 | | 56,186 |
| | | | | |
| 160,589 | | 262,269 | | (528,516) |
On December 28, 2007, Law no. 11,638 was enacted, altering, revoking and adding new provisions to Brazilian corporate law.
The unconsolidated condensed financial statements as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007 have been prepared in accordance with BRGAAP including the provisions of Law no. 11,638/07 and Executive Act No. 449/08.
Information relating to Companhia Paranaense de Energia - Copel unconsolidated condensed financial statements presented above is as follows:
• Recoverable Taxes - As of December 31, 2009 and 2008 Companhia Paranaense de Energia - Copel recorded part of the tax credits referring to tax loss carryforwards, based on expectations of future taxable income for income tax and social contribution up to a period of 10 years.
• Related Parties:The Company has the following balances outstanding with related parties:
| | | December 31 |
| 2009 | | 2008 |
Noncurrent assets | | | |
| | | |
Copel Distribuição | 723,003 | | 691,233 |
Elejor | 265,418 | | 238,060 |
| | | |
Total | 988,421 | | 929,293 |
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
• Investments - As of December 31, 2009 and 2008, investments in subsidiaries are comprised as follows:
| | | | December 31 |
| | 2009 | | 2008 |
| | | | |
Copel Geração e Transmissão | | 3,661,700 | | 3,628,961 |
Copel Distribuição | | 3,175,667 | | 3,042,285 |
Dominó Holdings S.A. | | 302,584 | | 286,745 |
Copel Telecomunicações | | 219,456 | | 203,924 |
Other Investments | | 315,306 | | 310,914 |
| | | | |
| | 7,674,713 | | 7,472,829 |
| | | | |
• Dividends receivable - The dividends receivable are comprised as follows:
| | | | December 31 |
| | 2009 | | 2008 |
Investees and subsidiaries | | | | |
Copel Geração e Transmissão | | 473,108 | | 562,618 |
Copel Distribuição | | 206,481 | | 141,100 |
Compagas | | 4,196 | | 5,515 |
Dominó Holdings | | 4,648 | | 5,237 |
Copel Telecomunicações | | 1,156 | | 3,655 |
Elejor | | 5,005 | | 936 |
Centrais Eólicas do Paraná | | 1,685 | | - |
| | | | |
Total | | 696,279 | | 719,061 |
| | | | |
• Debentures - The information related to the Company’s debentures is disclosed in note 21, item a,
• Reserve for contingencies - Companhia Paranaense de Energia - Copel recorded reserves for contingencies mainly related to Cofins and PIS/PASEP, See note 28 for more information.
The provisions for contingencies are shown below:
| | | | December 31 |
| | 2009 | | 2008 |
| | | | |
Regulatory | | 9,249 | | 9,249 |
Civil | | 40 | | 434 |
Tax: | | | | |
Tax claims | | 17,353 | | 25,726 |
COFINS (note 10) | | - | | 178,753 |
| | | | |
| | 26,642 | | 214,162 |
Restriction of transfer of funds from subsidiaries - The subsidiaries described below qualify as either concessionaires of public services or independent power producers. As such, any transfer of funds to
Companhia Paranaense de Energia - Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazillian reais unless otherwise stated
the respective parent company, in the form of loans or advances, requires approval by ANEEL. This regulatory restriction does not apply to cash dividends determined in accordance with the Brazilian Corporate Law.
As of December 31, 2009, total restricted subsidiaries net assets amount to R$ 7,590,168 composed as follows:
| | 2009 |
| | |
Copel Geração e Transmissão S.A. | | 3,661,700 |
Copel Distribuição S.A. | | 3,175,667 |
UEG Araucária Ltda, | | 651,265 |
Centrais Elétricas Rio Jordão – Elejor | | 101,536 |
| | |
Total | | 7,590,168 |
43 Subsequent Event
In March 2010, Copel provided R$ 126,000 to investee Elejor, corresponding to its 70% interest in the company; Paineira, the other shareholder, also provided funds corresponding to its 30% interest, Elejor then made a payment of R$ 179,647 to BNDESPAR to settle debentures issued by the company and held by BNDESPAR.
In April 2010, the tax authorities blocked the amount of R$ 181,014 from the Company´s cash equivalents to guarantee an eventual payment, related to a tax matter which was considered by the Company as of December 31, 2009 as a possible loss. Copel is engaged in obtaining the reversal of such decision. The Company´s opinion regarding the risk of loss of this matter remains as possible.
In June 2010, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 9.74%, of which 6.88% related to the tariff increase and 2.86% referred to an increase in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2010. After giving effect to the recovery of Parcel A costs, the average effect of this tariff readjustment on our captive customers was an increase of 2.46%.
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