As filed with the Securities and Exchange Commission on June 30, 2011
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, 2010
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)
Lindolfo Zimmer
+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, 2010:
145,031,080 Common Shares, without par value
389,931 Class A Preferred Shares, without par value
128,234,364 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 Securities Exchange Act of 1934. (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 x Other¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
N/A
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 Securities Exchange Act of 1934).
Yes¨ Nox
PRESENTATION OF FINANCIAL AND OTHER 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$” are to Brazilianreais (plural) and the Brazilianreal (singular) and (ii) “U.S. dollars,” “dollars” or “US$” are to United States dollars. We maintain our books and records in reais.
Our consolidated financial statements at December 31, 2010 and 2009 and for the two years ended December 31, 2010 have been audited, as stated in the report appearing herein, and are included in this annual report.
We prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. These consolidated annual financial statements are our first financial statements prepared in accordance with IFRS. IFRS 1 – “First ‑time Adoption of International Financial Reporting Standards” has been applied in preparing these financial statements, considering that our previous primary GAAP was Brazilian GAAP and that we have considered January 1, 2009 as the date of transition to IFRS. Reconciliations and descriptions of the effects of the transition from Brazilian GAAP to IFRS are included in note 4 to our consolidated financial statements.
Until December 31, 2009, we prepared our consolidated financial statements in accordance with accounting practices adopted in Brazil in effect on and prior to December 31, 2009, or “Previous Brazilian GAAP”, which were based on:
· Brazilian Law No. 6,404/76, as amended by Brazilian Law No. 9,457/97, Brazilian Law No. 10,303/01, and Brazilian Law No. 11,638/07, which we refer to collectively as the Brazilian Corporation Law;
· the rules and regulations of the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM, the accounting standards issued by the Brazilian Institute of Independent Accountants (Instituto dos Auditores Independentes do Brasil), or Ibracon, and the Brazilian Federal Accounting Council (Conselho Federal de Contabilidade), or CFC; and
· the accounting standards issued by the Brazilian Accounting Standards Committee (Comitê de Pronunciamentos Contábeis), or the CPC, and applicable on and prior to December 31, 2009.
In preparing our consolidated financial statements as of and for the two years ended December 31, 2010, the comparative figures in respect of 2009 have been restated to reflect the effects of the transition from Prior Brazilian GAAP to IFRS. We also prepare individual financial statements in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which include the pronouncements issued by the CPC applicable to dates and periods ended after December 31, 2009, for certain purposes, including for the calculation of dividends.
We have not been required to prepare financial statements for any period prior to 2009 in accordance with IFRS. Therefore, our financial information derived from our consolidated financial statements as of and for the years ended December 31, 2008, 2007 and 2006 was prepared in accordance with Previous Brazilian GAAP. For periods before 2009, we prepared a reconciliation of our net income and shareholders’ equity from Previous Brazilian GAAP to U.S. GAAP. However, we have not prepared any reconciliation of shareholders' equity or net income from Previous Brazilian GAAP or U.S. GAAP to IFRS for periods before 2009. Accordingly, our financial information as of and for the years ended December 31, 2010 and 2009 is not directly comparable to our financial information as of and for the years ended December 31, 2008, 2007 and 2006.
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 95.
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 conditions 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
The tables below contain a summary of our financial data as of and for each of the periods indicated, derived from our consolidated annual financial statements, which have been audited by our independent registered accounting firm. The information set forth in this section should be read in conjunction with our consolidated annual financial statements (including the notes thereto) and “Presentation of Financial and Other Data” and “Item 5. Operating and Financial Review and Prospects.”
The financial information derived from our consolidated financial statements as of and for the years ended December 31, 2010 and 2009, included elsewhere in this annual report, was prepared in accordance with IFRS. These consolidated annual financial statements are our first annual consolidated financial statements to be prepared in accordance with IFRS. IFRS 1, “First-time Adoption of International Reporting Standards,” has been applied in preparing these consolidated financial statements, considering that our previous primary GAAP was Brazilian GAAP and that we have considered January 1, 2009 as the date of transition to IFRS. Therefore, we are presenting information related to the years ended December 31, 2010 and 2009. The financial information derived from our consolidated financial statements as of and for the years ended December 31, 2008, 2007 and 2006 was prepared in accordance with Previous Brazilian GAAP. However, we have not made any reconciliation of shareholders' equity or net income from Previous Brazilian GAAP to IFRS. Accordingly, our financial information as of and for the years ended December 31, 2010 and 2009 is not directly comparable to our financial information as of and for the years ended December 31, 2008, 2007 and 2006, and for this reason, financial data from these years is not presented herein.
We have included information with respect to the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares and preferred shares since January 1, 2009 in reais and in U.S. dollars translated from reais at the commercial market selling rate in effect as of the payment date under the caption “Item 8. Financial Information - Dividends and Dividend Policy - Payment of Dividends.” We prepare individual financial statements in accordance with Brazilian GAAP for certain purposes, including for the calculation of dividends.
| As of and for the year ended December 31, |
| | |
| (R$ million) |
Income Statement Data: | | |
Operating revenues | 6,901 | 6,250 |
Operating costs and expenses | (5,968) | (5,207) |
Result of equity in investees | 99 | 14 |
Operating income before financial results | 1,032 | 1,057 |
Financial income (expenses), net | 348 | 7 |
Other revenues (expense), net | (576) | (89) |
Income tax and social contribution | (370) | (252) |
Net income for the period | 1,010 | 812 |
Attributable to Parent Company | 988 | 792 |
Attributable to non controlling interest | 22 | 20 |
Dividends declared(1) | 256 | 249 |
Balance Sheet Data: | | |
Current assets | 4,158 | 3,612 |
Recoverable rate deficit (CRC)(2) | 1,341 | 1,255 |
Non-current assets | 4,805 | 3,807 |
Property, plant and equipment, net | 6,664 | 6,660 |
Total assets | 17,859 | 16,313 |
Loans and financing and debentures (current) | 704 | 136 |
Current liabilities | 2,537 | 1,723 |
Loans and financing and debentures (long-term) | 1,281 | 1,538 |
Non-current liabilities | 4,027 | 4,065 |
Equity | 11,296 | 10,524 |
Attributable to Parent Company | 11,030 | 10,296 |
Attributable to non controlling interest | 266 | 228 |
Capital stock | 6,910 | 4,460 |
(1) 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$200.0 million in 2010 and R$230.0 million in 2009.
(2) Amounts due from the State of Paraná that were included in current assets totaled R$58.8 million in 2010 and R$49.5 million in 2009. Amounts due from the State of Paraná that were included in long-term assets totaled R$1,282.4 million in 2010 and R$1,205.0 million in 2009. See Note 8 to our consolidated financial statements. This item includes both current and non-current CRC account receivables.
| | |
| (R$ except number of shares) |
Basic and diluted earnings per share: | | |
Common Shares | 5.21 | 3.71 |
Class A Shares | 3.79 | 3.04 |
Class B Shares | 3.45 | 2.76 |
Dividends per share at year end: | | |
Common Shares | 0.98 | 0.87 |
Class A Shares | 2.53 | 1.63 |
Class B Shares | 1.08 | 0.96 |
Number of shares outstanding at year end (weighted average in thousands): | | |
Common Shares | 145,031 | 145,031 |
Class A Shares | 390 | 395 |
Class B Shares | | |
Total | | |
Table of Contents
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$/US$), for the periods indicated.
| Exchange rate of Brazilian currency per US$1.00 |
| | | | |
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 |
2010 | 1.6554 | 1.8811 | 1.7589 | 1.6662 |
____________
Source:Central Bank.
(1) Represents the average of the exchange rates on the last day of each month during the relevant period.
| | |
December 2010 | 1.6662 | 1.7117 |
January 2011 | 1.6510 | 1.6887 |
February 2011 | 1.6612 | 1.6776 |
March 2011 | 1.6287 | 1.6757 |
April 2011 | 1.5654 | 1.6194 |
May 2011 | 1.5747 | 1.6339 |
June 2011 (until June 21, 2011) | 1.5744 | 1.6108 |
____________
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$1.6662 to US$1.00, which was the rate for the selling of U.S. dollars in effect as of December 31, 2010 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.
Table of Contents
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. In addition, uncertainty regarding such changes 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 in case they are reinstated. These and other measures could also affect the market price of the ADSs and our common shares.
Dilma Rousseff was elected President of Brazil in October 2010, and she took office in January 2011. We cannot guarantee that the Rousseff administration will maintain the economic policies that were adopted by the past administration. If the Brazilian government decided 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 current 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.
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 and 2010 in the context of broader economic recovery in Brazil. For additional information about historical exchange rates, see “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, 11.3% in 2010 and 2.4% for the three months ended March 31, 2011. The Brazilian government has in the past taken measures to combat inflation, and public speculation about possible future government actions has had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual readjustments based on inflation indices, if Brazil experiences substantial 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 inthe 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 may 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.
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 increased 8.3% in 2010, while Brazil’s GDP increased 7.5% 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 transmission and power generation projects is subject to substantial risks.
In connection with the development of transmission and generation projects, 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 the consent of 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 our projects, 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 investment 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 new public bidding process. The renewal process for Rio dos Patos and Marumbi is ongoing. The concessions for three of our generation facilities, which were already renewed in 1995, 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 concessions of the Mauá and Colíder facilities, which are subject to non-renewable concessions. 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. Despite the renewal provision in our main transmission concession contract, we are not assured of our ability to effectively renew this concession due to uncertainty surrounding the renewal process.
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, if such renewal is in the public’s interest. Therefore, there can be no assurance that our concessions will be extended, and, if they are extended, if the conditions under which such extension are granted will be favorable to us. If our concessions are not extended, or are extended under less favorable conditions, our operations and financial 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 ANEELmakes 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, which 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. At any time, we may also request an extraordinary revision of our tariffs in the case of a significant and unexpected 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. To the extent that any of our requests for 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 would 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 2010, according to data from ANEEL, 71% of Brazil’s installed capacity came from hydroelectric generation facilities. Our region is subject to unpredictable hydrological conditions because of non-cyclical deviations in average rainfall. The most recent period of low rainfall was in the years prior to 2001, when the Brazilian government instituted the Rationing Program (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.
In addition, 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 our day-to-day operations may be adversely affected by governmental actions such as changes to current legislation, the termination of federal or state concession programs, changes in the public energy auction process, 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 the regulation of the power industry under the 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 thevalidity of existing regulation and the further development of the regulatory framework. The outcome of the legal 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. We cannot guarantee that our forecasts for energy demand in our distribution concession area will be accurate. If our forecasts fall 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 where we may pay significantly more for energy. In addition, if we underestimate our distribution energy needs, we may be subject to penalties imposed by the Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica, or “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.
As of December 31, 2010, we had 11 Free Customers representing approximately 2.0% of our operating revenues from energy sales and approximately 2.3% of the total quantity of electricity sold by us. Approximately 12.1% of the megawatts sold under contract to such customers are set to expire in 2011. 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 result in, among other things, the imposition of fines and revocation of licenses, which could have a material adverse effect on our financial condition or results of operations. It is also 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 potentially substantial fines (in some instances, up to 2% 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 comply with 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 able 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 ourfinancial condition and results of operations. See “Item 4. Information on the Company - The Brazilian Power Industry - Concessions.”
The construction, expansion and operation of our generation, transmission and distribution 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 on schedule, the operation and development of our business could be adversely affected.
In 2011, we plan to invest approximately R$1,024.8 million in our generation and transmission activities (including UHE Mauá and UHE Colíder), R$933.3million in our distribution activities and R$102.4million in our telecommunications activities. Our ability to complete this investment program depends on multiple factors, including our ability to charge sufficient fees for our services and a variety of regulatory and operational contingencies. 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 leading to the imposition of fines levied by ANEEL as well as reduction in tariff levels.
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 (the “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 will 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.
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 havefewer 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 the United States and certain 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. For instance, rules and policies against self-dealing and regarding the preservation of minority shareholder interests may be less developed and not as robustly enforced in Brazil as 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 5% 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. Therefore, 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 Depositary 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 increased taxes and the inability 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 “Item 10. Additional Information - 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.
In the past, the Brazilian government has imposed 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 again choose to impose this type of restriction if, among other things, there is deterioration in Brazilian foreign currency reserves or a shift in Brazil’s exchange rate policy. Reimposition of these restrictionswould 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.
Table of Contents
Item 4. Information on the Company
THE COMPANY
We are engaged in the generation, transmission, distribution and sale of electricity mainly 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, 2010, 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 5,158.5 MW. Our electric power business is subject to comprehensive regulation by ANEEL.
We hold concessions to distribute electricity in 392 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, 2010, we owned and operated 1,913.0 km of transmission lines and 181,993.7 km of distribution lines, constituting one of the largest distribution networks in Brazil. Of the electricity volume we supplied to our Final Customers during 2010:
· 36.4% was to industrial customers;
· 26.5% to residential customers;
· 20.0% to commercial customers; and
· 17.1% 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 worked to increase the connectivity 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.
Currently, we are the largest energy company in the State of Paraná. We are a corporation incorporated and existing under the laws of Brazil, under the legal 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 and our website is www.copel.com.
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 operated as a single corporation engaged in the generation, transmission and distribution of electricity and in certain related activities. In 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, 2010 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 captive customers. Our generation business only sells energy to our distribution business through auctions in the regulated market. Our distribution business, like certain other Braziliandistribution 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 government based on our proportionate share in the Brazilian electricity market. Itaipu has an installed capacity of 14,000 MW. Pursuant to a 1973 treaty between Brazil and Paraguay, Brazilian companies purchase the 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.
| |
| | | | | |
| (GWh) |
Copel Geração e Transmissão | | | | | |
Electricity generated | 24,321 | 18,321 | 20,372 | 18,134 | 10,358 |
Electricity purchased from others(1) | | | | | |
Total electricity generated and purchased by Copel Geração e Transmissão | | | | | |
| | | | | |
Copel Distribuição | | | | | |
Electricity purchased from Itaipu(2) | 5,306 | 5,379 | 5,468 | 4,666 | 4,665 |
Electricity purchased from Auction – CCEAR – subsidiaries | 1,230 | 1,488 | 1,229 | 1,203 | 1,038 |
Electricity purchased from Auction – CCEAR – other | 15,418 | 14,185 | 12,746 | 11,850 | 10,294 |
Electricity purchased from other(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 | 1,054 | 1,044 | 1,185 | 1,461 | 1,179 |
Electricity delivered to bilateral agreements | 1,455 | 1,051 | 3,538 | 3,945 | 4,287 |
Electricity delivered to Auction – CCEAR – subsidiaries | 1,230 | 1,488 | 1,229 | 1,203 | 1,038 |
Electricity delivered to Auction – CCEAR – other | 13,405 | 13,478 | 11,435 | 10,737 | 10,136 |
Electricity delivered to the Interconnected System(1) | | | | | |
Total electricity delivered by Copel Geração e Transmissão | | | | | |
| |
Copel Distribuição | |
Electricity delivered to captive customers | 21,304 | 20,242 | 19,633 | 18,523 | 17,511 |
Electricity delivered to distributors in the State of Paraná | 568 | 524 | 495 | 474 | 457 |
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 , including losses | | | | | |
____________
(1) Includes capacity made available but not fully delivered.
Generation
Generation Facilities
At December 31, 2010, 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 5,158.5 MW. We produce electricity almost exclusively through our hydroelectric plants. Our assured energy totaled 1,961.6 average MW in 2010. Our generation varies year by year as a result of hydrological conditions and other factors. We generated 24,321 GWh in 2010, 18,321 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 coordinating the operations related to approximately 99.4% of our total installed capacity, including some of the plants in which we hold participatory interests.
The following table sets forth certain information relating to our main plants in operation at December 31, 2010.
| | | | | |
| | (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 Netto (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. Between 2004 and 2010, we were required by law to retain a majority of the voting shares of any company in which we obtained an ownership interest. Starting in 2010, it became possible for us to hold minority interests in companies. The following table sets forth information regarding the generation plants in which we had an ownership interest as of December 31, 2010:
| | | | | | |
| | (MW) | (GWh/yr) | | (%) | |
Thermal | Araucária | 484.1 | 3,419.0(1) | September 2006 | 80.0 | 2029 |
Hydroelectric | Elejor Facility (Santa Clara and Fundão) | 246.4 | 1,229.0 | July 2005
June 2006 | 70.0 | 2036 |
Hydroelectric | Dona Francisca | 125.0 | 683.3 | February 2001 | 23.0 | 2033 |
Hydroelectric | Foz do Chopim | 29.1 | 188.0 | October 2001 | 35.8 | 2030 |
Hydroelectric | Lajeado | 902.5 | 4,613.0 | January 1998 | 0.8 | 2032 |
Wind Power | Palmas | 2.5 | 5.3 | February 1999 | 100.0 | 2029(2) |
____________
(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”).
(2) The concession for Palmas is for potential exploration, and such concession is automatically renewed.
Dona Francisca. We own 23.03% of the common shares of Dona Francisca Energética S.A. (“DFESA”). The other shareholders are Gerdau S.A. with a 51.82% interest, Celesc S.A. with a 23.03% interest andDesenvix S.A. with a 2.12% interest. Dona Francisca Hydroelectric Power Plant is located on the Jacuí River in the State of Rio Grande do Sul. The plant began full operations in 2001. As of December 31, 2010, DFESA had debt in the total amount of R$59.4 million, R$51.7 million of which reflects loans extended to it by the Inter-American Development Bank and Banco 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 DFESA. We have a power purchase agreement with DFESA, valued at R$61.2 million annually, which will terminate in October 2015 and which obligates Copel Geração e Transmissão to purchase 100% of its assured energy.
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 common shares of the Foz do Chopim Hydroelectric Plant, and Silea Participações Ltda. owns the remaining 64.23%. The plant began full operations in 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 246.4 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, 2010, we own 70.0% of the common shares of Elejor, and PaineraPar owns 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 2010, the aggregate amount of concession payments paid by Elejor to the federal government was R$45.9 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 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 agreed to operate and maintain the plant. Both agreements have been extended through December 2011.
Expansion of Generating Capacity
We expect to spend R$836.3 million in 2011 to expand our generation capacity, of which R$164.4 million will be invested in the Mauá Hydroelectric Power Plant, R$492.4 will be invested in the Colíder Hydroelectric Power Plant and R$78.5 will be invested in the Cavernoso II Small Hydroelectric Power Plant. The remaining approximately R$100 million will be spent on equipment maintenance, the modernization of the Foz de Areia Plant and inventory for the Rio Piquiri plants, among other projects.
We have interests in several generation projects. The following table sets forth information regarding our planned major generation projects.
| | Estimated assured energy(1) | | Beginning of operation (expected) | | |
| (MW) | (GWh/year) | (R$ million) | | (%) | |
Mauá HPP | 361.0 | 1,732 | 1,069 | 2011 | 51.0 | Concession granted |
São Jerônimo HPP | 331.0 | 1,560 | 1,131 | To be determined | 41.2 | Concession granted |
Colíder HPP | 300.0 | 1,573 | 1,570 | 2014 | 100.0 | Concession granted |
Cavernoso II SHP | 19.0 | 93 | 120 | 2012 | 100.0 | 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 Centrais Elétricas do Sul do Brasil S.A. – Eletrosul (“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 2011. From the facility’s assured energy 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, as of November 1, 2006, restated annually according to the variation of the IPCA inflation index (R$134,09/MWh as of December 31, 2010), 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.
Colíder. In July 2010, we won an ANEEL auction for a 35-year concession to construct and operate the Colíder Hydroelectric Power Plant on the Teles Pires River in the State of Mato Grosso. The Colíder facility will have an installed capacity of 300.0 MW and will be located in the municipalities of Nova Canaã do Norte, Colíder, Itaúba and Cláudia. Construction will begin in 2011 and commercial generation is scheduled to begin in 2014. From the facility’s assured energy of 179.6 average MW, 125.0 average MW are committed under a 30-year contract to distributors at a price of R$103.40/MWh (adjusted annually in accordance with the IPCA inflation index), with supply starting in January 2015. The remaining 54.6 average MW power not sold under this contract has yet to be contracted for and is still available for sale to large customers in the free market.
Cavernoso II. The Cavernoso II Small Hydroelectric Power Plant will be located in the municipalities of Virmond and Candói on the Cavernoso River in the State of Paraná. Construction will begin in 2011 and commercial generation is scheduled to begin in 2012. The plant will have 19.0 MW of installed capacity and 10.6 average MW of assured power. At an ANEEL auction in August 2010, at we sold 7.6 average MW of assured power from the Cavernoso II SHP to distributors, at a price of R$146.99/MWh (adjusted annually in accordance with the IPCA inflation index). Supply under these contracts will begin in January 2013 and will continue for 30 years. The remaining 3 average MW power not sold under these contracts has yet to be contracted for and is still available for sale to large customers in the free market.
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 206.2 MW of installed capacity. The following table sets forth information regarding our proposed generation projects.
| Estimated Installed | Estimated Assured | |
| (MW) | (GWh/yr) | (%) |
SHP Bela Vista | 29.0 | 157.4 | 36 |
SHP Dois Saltos | 25.0 | 119.1 | 30 |
SHP Pinhalzinho | 10.9 | 52.1 | 30 |
SHP Burro Branco | 10.0 | 45.1 | 30 |
SHP Foz do Turvo | 8.8 | 41.2 | 30 |
SHP Foz do Curucaca | 29.5 | 142.2 | 15 |
SHP Salto Alemã | 29.0 | 139.7 | 15 |
SHP São Luiz | 26.0 | 125.3 | 15 |
SHP Alto Chopim | 20.3 | 98.0 | 15 |
SHP Rancho Grande | 17.7 | 85.3 | 15 |
__________________
In 2011, 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 2011. 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 conducting studies related to future government auctions for wind farms, in which we may eventually participate. Other renewable energy projects under study or development include the use of municipal solid waste in power generation, cultivation of micro algae for energy production, wind energy, solar photovoltaic energy, energy from the crude vegetable oil and biogas production from micro algae.
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 greater than or equal to 230 kV. Distribution is the transfer of electricity to Final Customers, in tension lesser or equal to 138 kV.
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 | 1,900.4 | 1,929.4 | 1,822.0 | 1,822.0 | 1,739.8 |
138 kV | 7.2 | 7.2 | 7.8 | 7.8 | 7.8 |
69 kV(2) | 5.4 | 5.4 | 5.4 | _ | _ |
Distribution lines (km): 230 kV | 66.1 | 66.1 | – | – | – |
138 kV | 4,586.3 | 4,578.8 | 4,495.7 | 4,290.7 | 4,238.5 |
88 kV(4) | – | – | 58.2 | 58.2 | 58.2 |
69 kV | 981.5 | 967.2 | 1,185.0 | 1,173.2 | 1,166.1 |
34.5 kV | 79,496.2 | 78,357.4 | 76,903.0 | 76,524.7 | 74,460.8 |
13.8 kV | 96,863.6 | 95,381.6 | 96,545.7 | 94,999.7 | 91,296.6 |
Transformer capacity (MVA): | | | | | |
Transmission and distribution substations (69 kV – 500 kV)(3) | 18,398.6 | 18,112.8 | 17,855.8 | 16,702.2 | 16,043.9 |
Generation (step up) substations | 5,006.8 | 5,004.1 | 5,004.1 | 5,004.1 | 5,004.1 |
Distribution substations (34.5 kV) | 1,533.7 | 1,507.6 | 1,624.0 | 1,624.0 | 1,624.0 |
Distribution transformers | 9,312.4 | 8,934.7 | 8,565.0 | 8,216.4 | 6,651 |
Total energy losses | 7.5% | 7.3% | 7.3% | 7.2% | 7.2% |
________________
(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 greater 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, 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 compensation at a level set by ANEEL.
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 500 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 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 230 kV assets. Higher voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial, commercial customers and other customers. At December 31, 2010, we provided electricity in a geographic area encompassing approximately 98% of the State of Paraná and served 3.8 million customers.
Our distribution network includes 181,994 km of distribution lines, 349,256 distribution transformers and 237 distribution substations of 34.5 kV, 34 substations of 69 kV and 80 substations of 138 kV. During 2010, 131,216 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 31 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 6.2% of the total volume of electricity sold by Copel Distribuição or 2.9% of our total volume of electricity sold in 2010.
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 are calculated by taking the difference between the energy allocated to the system and the energy supplied to the customers.
Our energy losses totaled 7.5% of our available energy in 2010and includes losses from the basic transmission 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 customer per year (in hours) | 11h28min | 12h55min | 12h11min | 13h32min | 14h47min |
FEC – Frequency of outages per customer per year (number of outages) | 9.46 | 11.04 | 10.69 | 12.41 | 13.66 |
| _________________ | | | | | |
The Company has outperformed the 2010 quality of supply target indicators requested by ANEEL (DEC: 14h01min and FEC: 12.80).
Purchases
The following table contains information concerning volume, costs and average tariffs for the main sources of the electricity we purchased in the last five years.
| | | | | |
Itaipu | | | | | |
Volume(GWh) | 5,306 | 5,379 | 5,468 | 4,666 | 4,665 |
Cost (R$ millions) | 468.3 | 521.0 | 502.4 | 385.4 | 335.4 |
Average tariff (R$/MWh) | 88.3 | 96.9 | 91.9 | 82.6 | 71.9 |
Auctions in the regulated market | | | | | |
Volume (GWh) | 15,418 | 14,185 | 12,746 | 11,850 | 10,293 |
Cost (R$ millions)(2) | 1,370.3 | 1,184.9 | 976.2 | 845.1 | 654.1 |
Average tariff (R$/MWh) | 88.9 | 83.5 | 76.6 | 71.3 | 63.6 |
Cien | | | | | |
Volume (GWh) | - | - | - | 1,533 | 3,504 |
Cost (R$ million) | - | - | - | 111.2 | 227.4 |
Average tariff (R$/MWh) | - | - | - | 72.5 | 64.9 |
________________
(1) Presented in accordance with Previous Brazilian GAAP.
(2) These numbers do not include short-term energy purchased through the Electric Energy Trading Chamber - CCEE.
Itaipu
We purchased 5,306 GWh of electricity from Itaipu in 2010, which constituted 10.6% of our total available electricity in 2010 and 21.2% of Copel Distribuição’s total available electricity in 2010. Our purchases represented approximately 6.2% of Itaipu’s total production. 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 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 2011 at US$24.9 per kW per month.
In 2010, we paid an average tariff of R$88.3 per MWh for energy from Itaipu, compared to R$96.9 per MWh during 2009. 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 2010, we purchased 15,418 GWh of electricity through auctions in the regulated market. This energy represents 66.1% 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 400 MW, for which we compensated by buying energy at public auctions. The Ministry of Mines and Energy (“MME”) authorized Copel 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. We no longer need to buy energy to compensate for this shortfall.
Sales to Final Customers
During 2010, we supplied approximately 96% of the energy distributed directly to captive customers in the State of Paraná. Our concession area includes 3.8 million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, located the south of the State of Paraná. We also sold energy to a total of 11 Free Customers, three of which are located outside of our concession area. During 2010, the total power consumption of our captive customers and Free Customers was 22,359GWh, a 5% increase as compared to 21,286GWh during 2009. The following table sets forth information regarding our volumes of energy sold to different categories of purchasers for the periods indicated.
|
Categories of purchaser | | | | | |
| (GWh) |
Industrial customers | 8,146 | 7,748 | 7,955 | 7,740 | 7,200 |
Residential | 5,925 | 5,664 | 5,379 | 5,143 | 4,826 |
Commercial | 4,466 | 4,200 | 3,967 | 3,722 | 3,407 |
Rural | 1,774 | 1,680 | 1,606 | 1,522 | 1,431 |
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, 2010.
| Number of Final Customers |
Industrial | 69,208 |
Residential | 2,964,805 |
Commercial | 308,988 |
Rural | 366,694 |
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 22% and 16%, respectively, of our total revenues from energy sales during 2010. In 2010, 24% 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 13.8 kV and 34.5 kV voltage customers, usually commercial customers and 69 kV and 138 kV voltage customers, usually 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 electricity 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 for each category of Final Customer in effect in 2010 and 2009.
| | |
| (R$/MWh) |
Industrial | 159.24 | 148.67 |
Residential | 233.78 | 221.07 |
Commercial | 202.68 | 191.35 |
Rural | 143.04 | 134.80 |
Other customers | 156.07 | 145.62 |
All Final Customers | 186.09 | 174.98 |
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 2010, we served 702,882 Low Income Residential Customers. For servicing these customers, we received a R$70.6 million grant, which was approved by ANNEL, from the Brazilian Federal Government.
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 compensate 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 annually readjusted according to criteria stipulated in the concession contract. We are a party to six transmission concession contracts, three of which are in the operational stage and three of which are in construction. Not all of the transmission concession contracts employ the same revenue model.
Under our main transmission concession, which involves our main transmission facilities and accounted for 92% of our gross transmission revenues in 2010, 40% of the transmission revenues are updated on an annual basis by the IGPM and the other 60% 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 reduced the tariffs we receive by 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 or IPCA, as applicable.
In addition, we have five concession agreements for transmission lines and substations, which correspond to an aggregate of 8% of our transmission revenues. Under one of these agreements, the revenues are updated on an annual basis by the IGPM and the revenues are not subject to the tariff review process, but the annual revenue will be reduced in 50% from the 16 year on, as of 2016. The other four agreements revenues are subject to the tariff review process.
In 2010, the transmission tariffs of two of our contracts were readjusted by the IGPM, resulting in an increase of 4.2% and one was readjusted by the IPCA, and has increased by 5.2%. In addition, in July 2010 pursuant to a second periodic revision of our principal concession, ANEEL granted provisional approval of a reduction in our transmission tariff by 22.88%, applied to the revenues of new installations in the Interconnected Transmission System, and applied retroactively from July 1, 2009 onward. In June 2011, ANEEL has reviewed the figures of the second periodic revision and changed the annual revenues reduction to 19.94%.
Other Businesses
Telecommunications
Copel Telecomunicações S.A. Pursuant to an authorization from the Brazilian National Telecommunication Agency,Agência Nacional de Telecomunicações(“ANATEL”), we 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 (totaling 17.63 thousand km of fiber optic cables by the end of 2010). In 2010, we served 242 of the 399 municipalities in the State of Paraná. In addition to our commercial services, 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. In total, we have 980 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 have been served since November 2008 and May 2010, respectively. Sercomtel has concessions from ANATEL to provide cable television in São José 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 of December 31, 2010, Sercomtel Telecomunicações, in its concessions area for fixed telephone services, had a total of 209,502 telephone lines installed, of which 184,171 were in operation. As of December 31, 2010, Sercomtel Celular had an installed capacity of 106,739 terminals in its Global System for Mobil Communications (“GSM”) system, of which 74,901 were in operation. In December 2009, Sercomtel started providing 3G services with a capacity of 20,000 lines, of which 3,550 are currently installed. Sercomtel’s Telecomunicações’ 2010 net revenues were R$144.3 million, with net income of R$20.5 million, and Sercomtel Celular’s 2010 net revenues were R$29.7 million, with net loss of R$6.9 million. As a result of impairment testsconducted in 2008, our entire investment in Sercomtel Celular S.A. was written off. In 2010, the impairment test of Sercomtel Telecomunicações identified the need for a reversal of the loss of R$23.4 million. As of December 31, 2010, our investment in Sercomtel Telecomunicações was R$72.5 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 344 urban and rural municipalities and approximately 9.2 million people in the State of Paraná with water distribution services and 5.7 million with sewage services. The State of Paraná owns 60.0% of the outstanding voting capital of Sanepar. Dominó Holdings’ net income in 2010 was R$45.2 million. The other shareholders of Dominó Holdings are Andrade Gutierrez Concessões 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’s customers include thermoelectric plants, cogeneration plants, gas stations, other businesses and residences. Compagas is focusing its business strategy on marketing the benefits of substituting gas for fuel oil and other fuels as a means of achieving greater energy efficiency, as well as on enhancing its market share.
As of December 31, 2010, we owned 51.0% of the capital stock of Compagas and accounted for this interest through consolidation, since we control this company. The minority shareholders of Compagas are Petrobras and Mitsui Gas, each of which owns 24.5% of the capital stock of Compagas.
Compagas recorded an increase of 18.7% in the volume of natural gas distributed, from 809,076 cubic meters per day in 2009 to 960,681 cubic meters per day in 2010. Its number of customers increased 38%, from 6,731 in 2009 to 9,288 in 2010. In 2010, Compagas distributed 253.4 million cubic meters to the Araucária Thermoelectric Plant an increase of 28.1%. Compagas owns a gas distribution network in the State of Paraná, covering 546 kilometers in 2010, an increase from the 520 kilometers covered in 2009. In 2010, Compagas’s net revenues were R$267.8 million, an increase of 17.9%, and its net income was R$40.5 million, an increase of 27.1%.
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 2010, ESCO did not record revenue and it had a net income of R$1.6 million. All operations of this company were discontinued in 2008 and we expect it to be liquidated during 2011.
Concessions
We operate under concessions granted by the Brazilian government for our generation, transmission and distribution businesses.
In the generation segment, as from 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 2003establish 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 Hydroelectric 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. Our distribution and our main transmission concessions were auctioned before 1995 and renewed in 1995. Although these concessions expire in 2015 and are by their terms renewable for an additional 20 years, we are not assured of our ability to effectively renew these concessions due to uncertainty surrounding the renewal process. For more details see Note 9 to our Consolidated Financial Statements.
Generation
Since 1999, 13 of our generation plants have had their concessions extended by Brazilian authorities, in each case for the 20-year term 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 request a 20-year extension. The Rio dos Patos renewal was requested in January 2011 and the Marumbi renewal request is currently being reviewed by ANEEL.
Concessions for new generation projects, granted after 2003, such as the Mauá Hydroelectric Plant, 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 | Renewal requested in January 2011 | Expiration by decree of the Brazilian government |
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 | Expiration by decree of the Brazilian government | Extension by decree of the Brazilian government | Expiration by decree of the Brazilian government |
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 5 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 the other generation plants in which we had an ownership interest as of December 31, 2010.
| | | | |
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 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 92% of our transmission revenues, expires on July 7, 2015, and may not be renewed. In addition, we have three concession agreements for transmission lines and substations, which correspond to an aggregate of 8% of our transmission, which can be approved for an additional 30 years. We plan on applying for, and receiving, extensions for all of our transmission concessions, which may be renewed for an additional 30 years.
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(1) | 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 |
____________
(1) Although the concession contract contains a clause allowing for its extension, the Federal Government of Brazil is considering disallowing such extension for all such concession contracts granted prior to 1995.
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 500kW that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants or biomass projects.
During 2010, we provided electricity to a total of 11 Free Customers. These customers represented approximately 2.0% of our operating revenues from energy sales and approximately 2.3% of the total quantity of electricity sold by us in 2010. Contracts with Free Customers that are set to expire in 2011 represent approximately 12.1% of the total megawatts sold under contract to such customers. There can be no assurance that, upon the expiration of these contracts, these Free Customers will purchase energy from us.
At December 31, 2010, we had 39 customers that were eligible to qualify as Free Customers. These customers represented approximately 3.8% of our total volume of electricity sold in 2010, and approximately 5.2% of our total 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 of 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 the 1986 environmental licensing requirements are currently being inspected by the relevant environmental authorities to ensure that these older facilities are compliant 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, state and municipal regulations.
In 2010, the compulsory environmental inspections for the hydroelectric plant of Guaricana and 525 kV transmission lines of Salto Caxias – Salto Santiago and Salto Caxias – Cascavel were concluded. These inspections did not reveal any necessary interventions, liabilities or provisions for remaining risks. These inspections did reveal the opportunity for improvement in certain areas and the need to conform to certain criteria established by applicablelegislation. However, the inspections found that we are fully capable of implementing the corrective actions proposed in the action plan we filed with the environmental regulators.
These compulsory environmental inspections are required by law as a condition for the renewal of operating licenses. These inspections also allow us to obtain an independent assessment 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 and, in December 2010, we received the necessary site licenses to begin construction of the Colíder Hydroelectric Plant and the Cavernoso II Small Hydroelectric Plant. These site licenses were granted after we received approval of our 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 in environmental and social programs including the “Education for Sustainability” (Educação para a Sustentabilidade) program and the “Tribute to the Waters Program” (Programa Tributo às Águas).Through thePrograma de Educação para a Sustentabilidade, Copel promotes the communication among stakeholders and develops projects of environmental sensitization with the communities in the vicinities.
TheTribute to the Waters Program aims 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.
Plant, Property and Equipment
Our principal properties consist of the generation and telecommunications facilities described in “Business - Generation and Purchasers of Energy.” Of the net book value of our total property, plant and equipment at December 31, 2010 (including construction in progress), generation facilities represented 81.4%, telecommunications represented 3.3%, Elejor represented 7.9% and Araucária Thermoelectric Plant represented 7.3%. We believe that our facilities generally are adequate for our present needs and suitable for their intended purposes.
The Expropriation Process
Although we receive concessions from the Brazilian government to construct hydroelectric facilities, we do not receive title to the land on which the facilities are to be located. In order for us to construct, the land must be expropriated. The land required for the implementation of a hydroelectric facility may only be expropriated 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 expropriation disputes. At December 31, 2010, we estimated our liability related to the settlement of such disputes to be approximately R$12.9 million. This amount is in addition to amounts for land expropriation included in each of our hydroelectric facility budgets.
THE BRAZILIAN POWER INDUSTRY
General
In November 2010, the MME approved a ten-year expansion plan under which Brazil’s installed power generation capacity is projected to increase to 167.0 GW by 2019, of which 70.0% is projected to be hydroelectric, 15.0% is projected to be thermoelectric, 2.0% is projected to be nuclear and 13.0% is projected to be from alternative energy sources such as wind, biomass and small hydroelectric plants.
Approximately 37% 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 and acts as the Brazilian governmental authority 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 monitoring and managing the public bidding process for new concessions, (v) settling administrative disputes among electricity sector entities and electricity purchasers, and (vi) defining the criteria and methodology for the determination of transmission and distribution tariffs.
National Electric System Operator – ONS
The ONS (Operador Nacional do Sistema Elétrico) 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 primary role of the ONS is to coordinate and regulate 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, ensuring that industry participants have access to the transmission 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 formulating regulations regarding the operation of the transmission system for ANEEL’s approval.
Electric Energy Trading Chamber – CCEE
The CCEE is a non-profit, private entity subject to authorization, inspection and regulation by ANEEL. The CCEE is responsible for, among other things, (i) registering all 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, permissionsand authorizations in the electricity industry and Free Customers, 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 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 competition and productivity in the industry.
The following is a summary of the principal developments in 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, the creation of the ONS and 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 for the first time implemented the extraordinary tariff readjustment to compensate the electricity suppliers for financial losses incurred 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 stable supply of electricity at reasonable prices.
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 toANEEL 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 rights and obligations of the concessionaire and the granting authority. In addition to the Concessions 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 a third party 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 also 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 that have not been fully amortized or depreciated as of the expiration.
Penalties.ANEEL regulations govern the imposition of sanctions against electricity sector participants and determine 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 2% 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 to request ANEEL’s approval to, among other things: (i) execute certain contracts between related parties; (ii) sell or assign the assets related to services rendered as well as impose 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) effect a change in the controlling interest of the holder of the authorization or concession; and (iv) make 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 electric energy 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 distribution activities, including requiring distributors 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 by providing an incentive for distributors to purchase electricity at the lowest available prices rather than buying electricity from related parties.
· Upholding 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 was 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, the purchase and sale of electricity is 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 the following is subject to specific rules different from the rules applicable to the regulated market and to the free market (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.
The electricity generated by Itaipu will continue to be sold by Eletrobras to the distribution concessionaires operating in the South, Southeast and Midwest portions of the Interconnected Transmission System. The rates atwhich 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 electricity 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 could result in penalties to distributors. In the event of under-contracting, the distributor is penalized directly in an amount that increases as the difference between the amount of energy contracted for 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 excess 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 bilateral agreements 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 and with advance notice or, in the case of a contract with no expiration date, upon 15 daysnotice 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 only with five years prior notice to its regional distributor, provided that the distributor may reduce such term at its discretion. TW’s 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.
Private generators may sell electricity directly to Free Costumers. State-owned generators may sell electricity directly to Free Customers but are obligated to do so only through private auctions carried out by the state-owned generators exclusively to Free Customers or by the Free Customers.
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.
These regulations establish the guidelines under which electricity-purchasing agents must contract their electricity demand. 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 contract for 100% of their energy needs primarily through public auctions. In addition to these auctions, distribution companies can purchase limited amounts (up to 10% of their demand) 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 projects 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 1 of each year of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. In advance of each electricity auction, each distribution company is also required to inform ANEEL of the amount 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 (as “A-5” auctions), and (ii) in the third year before the commencement of commercial operation (“A-3” auctions). Existing power generators hold auctions (i) in the year before the initial delivery date (“A-1” auctions), and (ii) up to four months before the delivery date (“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 January 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 company that 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, except for the market adjustment and reserve energy auctions. 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 auctionshave a term between 5 and 15 years. Contracts arising from market adjustment auctions are limited to a two-year term. The reserve energy 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 4% 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 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 eleven auctions for new generation projects, nine auctions for energy from existing power generation facilities, one auction for alternative generation projects, and three auctions for reserve energy in order to increase energy supply security and ten auctions for market adjustments. No later than August 1 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 electronically in two phases.
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. The distributors grant financial guarantees to the generators (mainly 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 provide for the terms of the use of the reserve energy. The reserve energy customers grant financial guarantees 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 encourages 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 of the acquisition of electricity in the A-3 auctions, if the amount of purchased energy exceeds 2% of the amount of electricity contracted in the A-5 auctions; (iii) if the volume contracted from existing generation projects decreases by over 4%, 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 10% 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. As of 2004, all of a distributors demand must be met through purchases made in public auctions.
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 product 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 to transmission companies for the 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 Interconnected 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.
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 (“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 customers. 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. While we cannot assure you that no such action will be brought, we believe the risk of such action being brought to be low: ANEEL has spoken in favor of distributors in this matter in the past, stating that this is an indisputable matter and that the rules were clear and that the terms under dispute were included in the concession contract with the distributor.
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 Boperational 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 2% to 3%, 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 Termoeletricidade (“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 a 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 energy industry.
In 2002, the Brazilian government established the Proinfa Program to encourage the generation 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 are 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 with losses in tax revenues that these states and municipalities suffered when they became connected to the Interconnected Transmission System, due to the fact that they no longer receive energy from locally-generated sources. These funds must be used by the states and municipalities to provide increased access to electricity, to finance social and environmental projects, and 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, which are mandatory, were 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. 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 3% 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 was scheduled to be phased out by the end of 2010, but the Brazilian Congress approved a law, which is still subject to the President of Brazil approval, that extends the RGR Fund until 2035.
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 customers 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 in 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 are connected to the Interconnected Transmission and that were constructed prior to February 1998 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 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 paid by 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 alternativeenergy sources, and (iii) the provision of electric energy services to all of Brazil. The CDE will be in effect until 2027 and is regulated by the executive branch and managed by Eletrobras.
Itaipu Transmission Fee
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 fee in an amount equal to their proportional share of the Itaipu generated electricity.
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 an ANEEL determined percentage 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. We comply with payment obligations related to Regulatory Charges.
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 1% 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 supervision 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 an environmental law may be subject to administrative and criminal sanctions and will have an obligation to repair or provide compensation to the affected party for environmental damages. Administrative sanctions may include substantial fines and suspension of activities, while criminal sanctions may include fines and, for individuals, including for directors and employees of companies that commit environmental crimes, possible imprisonment.
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). 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.
The Law of Environmental Crimes, which took effect in 1998, establishes a general framework of liability for environmental crimes. 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 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, Paraná state law requires a mandatory environmental audit of companies whose activities may impact the environment within the state.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The information derived from our statement of operations for the years ended December 31, 2010 and 2009 has been prepared in accordance with IFRS as issued by the IASB. For more information see “Presentation of Financial and Other Information” and Note 4 to our consolidated financial 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. In 2009, Brazilian GDP decreased due to the global financial crisis. Since then, the Brazilian economy has shown a return to growth, growing 7.5% in 2010.
The following table shows selected economic data for the periods indicated:
| |
| | |
Inflation (IGP-DI) | 11.3% | (1.4)% |
Appreciation (depreciation) of therealvs. U.S. dollar | 4.5% | 34.2% |
Period-end exchange rate – US$1.00(1) | 1.6662 | 1.7412 |
Average exchange rate – US$1.00 | 1.7589 | 1.9905 |
Change in real GDP | 7.5% | (0.2)% |
Average interbank interest rates(2) | 9.9% | 9.7% |
______________
(1) Thereal/U.S. dollar exchange rate at June 21, 2011 was R$1.5910 per US$1.00.
(2) 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”).
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, 2009 and 2010 were higher than prior years, due to increased demand since 2008.
Sales to Final Customers represented about 48.3% of the volume of electricity we delivered in 2010, and accounted for 72.1% of our 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 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 US 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 net effect of this reduction on our customers was an increase of 0.04% on tariffs. 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 net effect of this on our customers was a reduction of 0.27% on tariffs.
· 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 net effect of the above tariff readjustment on our captive customers was an increase on tariffs 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%.
· In June 2011, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 5.55%, of which 5.77% related to the tariff increase and 0.22% referred to an decrease in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2011. 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 2.99%.
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 “Item 4. Information on the Company - Business - Purchases.” 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 2010, our electricity purchases from Itaipu amounted to R$468.3 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 - Distribution - Auctions in the Regulated Market.”
Under current legislation, the amount that our distribution business charges 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 (Conta de Resultados a Compensar). As of December 31, 2010, the outstanding balance of the CRC Account was R$1,341.2 million. The balance is adjusted for IGP-DI, bears interest at 6.65%, and is payable in monthly installments through April 2025. 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
The contributions received from the federal government and our customers exclusively for investment in our distribution network are named as special obligations. We record the amount of these contributions on our balance sheet as a reduction of our intangible and financial assets, under the caption “special obligations,” and, upon the conclusion or termination of the operating concession granted to us, the amount of these contributions is offset against intangible and financial assets. The amount we recorded as special obligations as of December 31, 2010 was R$293.6 million as a reduction of intangible assets and R$1,426.1 million as a reduction of financial assets.
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 Notes 2, 3 and 4 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.
Property, Plant and Equipment
We have adopted the deemed cost methodology to determine the fair value of Copel Geração e Transmissão’s property, plant, and equipment, specifically for the generation business as of the date of transition of ourfinancial statements to the IFRSs (January 1, 2009). These assets are depreciated according to the linear method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful life of the assets related to concession's infrastructure, limited to the term of said concession, when applicable. The estimated useful life, the residual amounts, and depreciation are reviewed as of the date of the balance sheets, and the effect of any changes in estimates is recorded prospectively.
Internal studies have shown that the balances as of January 1, 2009 of assets related to telecommunications business were compatible with their fair values and supported by impairment tests. Costs directly attributable to construction work as well as interest and financial charges on loans from third-parties during construction are recorded under property, plant, and equipment in progress.
Accounting for concession arrangements
We account for our concession agreements for transmission and distribution business in accordance with IFRIC 12 - Service Concession Agreements.
IFRIC 12 establishes that electric energy utilities should record and measure revenues according to IAS 11 - Construction Contracts and IAS 18 - Revenues, even when governed by a single concession agreement. We record our construction revenues in connection with the construction services for infrastructure employed in the power transmission and distribution services. The respective costs are recognized when incurred in the statement of operations for the corresponding period, as construction costs.
Since we outsource the construction of power distribution infrastructure to non-related parties and that a large part of the work is carried out over short periods, our construction margin on power distribution business is not significant, and may reach amounts close to zero. Our construction margin adopted for the transmission business in 2010 was 1.65% (1.80% in 2009) and results from a calculation methodology which takes into account the respective business risk.
For the distribution concession arrangements, we recognize financial assets and intangible assets, based on the bifurcated model, as a counterpart of construction revenue. Financial assets represent our understanding of our unconditional right to receive cash payments upon expiration of the concession from ANEEL, which is the reimbursements set forth in the concession agreements, designed to compensate us for the investments made in infrastructure which have not been recovered through the collection of tariffs from users. Intangible assets represent the right to access and to operate the infrastructure, built or acquired by us or provided to be used by us as part of the concession agreement. Intangible assets are determined as the construction fair value deducted by the estimated financial asset, and by the accumulated amortization and impairment losses, when applicable (residual amount). The amortization of intangible assets reflects our estimated future economic benefits pattern, which approximates to 15% per year, limited to the term of the concession.
Since distribution financial assets do not have determinable cash flows – as we operate under the assumption that the value of the corresponding reimbursements will be based on the replacement cost of the concession assets and as they do not feature the necessary characteristics to be classified under any other category of financial assets – they are classified as “available for sale”. The cash flows related to these assets are determined taking into account the replacement cost of PPE named Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by ANEEL. The return on these financial assets is based on the regulatory Weighted Average Cost of Capital or WACC approved by ANEEL in the periodic rate review process carried out every four years.
For the transmission concession arrangements, we recognize financial assets as a counterpart of construction revenue. These include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) revenues from the operation and maintenance of infrastructure effectively constructed; and (iii) the financial return on these revenues guaranteed by ANEEL during the term of the concession. Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Annual Permitted Revenues (Receita Annual Permitida or RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistema or ONS). Upon expiration of the concession, any uncollected amounts related to the construction, operation, and maintenance of infrastructure shall be received directly from ANEEL, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP). These financial assets do not have an active market, present fixed and ascertainable cash flows, and are thus classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.
Generation concessions are deemed out of scope of IFRIC 12 and were accounted for under other applicable IFRS.
Additional information on the accounting for intangible and financial assets arising from concession agreements is disclosed in Note 2.23 and 2.24 to our consolidated financial statements.
The recognition of fair value for intangible and financial assets arising on concession contracts is subject to assumptions and estimates, and the use of different assumptions could affect the balances recorded. The estimated useful lives of the underlying assets, as well as the rate of return of the financial assets also require significant assumptions and estimates, which different assumptions and estimates and changes in future circumstances, could have a significant impact on our results of operations.
Revenue Recognition
We recognize revenue on an accrual basis: we 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. Under the accrual basis, we recognize revenue 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 certain of our individual customers’ meters systematically throughout the month in order to estimate how much energy we have sold to individual customers as a group. 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.
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 the amounts to be capitalized, the depreciation rates and useful lives of these long-lived assets. 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 the demand for our products and services, future market conditions and regulatory developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. During the fiscal year ended on December 31, 2010, the UEG Araucária verified that there are internal indicators pointing tothe possibility of certain assets being over their recoverable value, particularly the asset related to the low recurring dispatch of the thermal facility’s total energy output capacity. In light of these indicators and the impairment tests based on its value in use, we recorded a provision for the non-recoverable goodwill in UEG Araucária in the amount of R$44.6 million as of December 31, 2010.
On December 31, 2010, based on the impairment tests we have reverted impairment losses in Sercomtel Telecomunicações in the amount of R$23.4 million, mainly due to improvement in economic scenarios of the investee.
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, when 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, 2010, R$1,473.0 million in costs for energy we purchased for resale in the spot market during the electricity rationing period of 2001 and the first quarter of 2002. Our management believes that losses resulting from the final ruling of this claim are not probable and therefore 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, 2010, we had provisions of R$33.8 million to cover probably losses related to these other lawsuits.
Reserve for Risks (Labor, Civil and Tax)
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 risks 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, risks 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 risks is performed by our internal and external legal counsel. Accounting for risks requires significant judgment by management concerning the estimated probabilities and ranges of exposure to potential liability. Management’s assessment of our exposure to risks could change as new developments occur or more information becomes available. The outcome of the risks could vary significantly and could materially impact our consolidated results of operations, cash flows and financial position. The reserve for risks as of December 31, 2010 amounted R$866.4 million, of which R$321.5 million was related to tax proceedings, R$306.4 million was related to civil claims, R$146.3 million was related to labor claims, R$53.2 million was related to employee benefits and R$38.8 million was related to regulatory proceedings.
The legal proceedings for which we classify our risk of loss as “possible” totaled R$2,967.7 million as of December 31, 2010, of which R$1,629.0 million was related to regulatory proceedings, R$1,049.1 million was related to tax proceedings, R$141.2 million was related to civil claims, R$115.6 million was related to labor claims and R$32.8 million was related to employee benefits.
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 a health care plan for current and retired employees. We determine our funding obligations for these plans 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 2010, we recorded expenses in the amount of R$124.2 million for our pension and health care plans. We estimate that we will incur expenses in the amount of R$55.3 million in 2011 (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 2006 to 2010 basis.
Transition to International Financial Reporting Standards
We have changed our consolidated financial reporting from Brazilian GAAP to International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. We adopted IFRS for the fiscal year ended December 31, 2010 and retrospectively applied IFRS to the fiscal year ended December 31, 2009 for comparative purposes. The transition date for our adoption of IFRS was January 1, 2009, the date on which the opening balance sheets were prepared in accordance with these new accounting practices. IFRS differs in certain significant respects from U.S. GAAP.
Note 4 to our consolidated financial statements describes the effects of adoption of the IFRS to our consolidated financial statements and also contains a reconciliation of equity and net income recorded under Brazilian GAAP as of and for the year ended December 31, 2009 to the amounts recorded under IFRS.
Explanation of Exemptions and Exceptions Applied in the Transition to IFRS
In our transition to IFRS, we have applied certain voluntary exemptions, at the transition date of January 1, 2009, provided for in the standards issued by the IASB, as follows:
· Business combination exemption. We applied an exemption referring to business combinations, electing not to restate the business combinations carried out before the transition date at fair value.
· Fair value as deemed cost exemption. We elected to measure property, plant and equipment at fair value as the deemed cost of those assets for purposes of our balance sheet as of the transition date.
· Employee benefit exemption. We recognized all past actuarial gains and losses cumulatively as of January 1, 2009.
· Loan cost exemption.We applied the exemption regarding loan costs set forth under IFRS 1 and thus have not capitalized interest to eligible assets before January 1, 2009, the transition date.
The remaining optional exemptions do not apply to the Company, and, therefore, had no impact on our consolidated financial statements and the mandatory exceptions provided for under IFRS standards were in accordance with the accounting practices we previously adopted, and, therefore, had no impact on our consolidated financial statements.
For more details, see Note 4 to our consolidated financial statements.
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 2009 and 2010.
| |
| | |
Electricity Sales | | |
Sales to Final Customers | | |
Average price (R$/MWh):(1) | | |
Industrial customers(2) | 159.24 | 148.67 |
Residential customers | 233.78 | 221.07 |
Commercial customers | 202.68 | 191.35 |
Rural customers | 143.04 | 134.80 |
Other customers(3) | 156.07 | 145.62 |
All customers(2) | 186.09 | 174.98 |
Volume (GWh): | | |
Industrial customers(2) | 8,146 | 7,748 |
Residential customers | 5,925 | 5,664 |
Commercial customers | 4,466 | 4,200 |
Rural customers | 1,774 | 1,680 |
Other customers(3) | | |
All customers(2) | | |
Total revenues from sales to Final Customers (millions of R$) | 4,160.8 | 3,724.6 |
Sales to distributors(4) | | |
Average price (R$/MWh)(1) | 81.64 | 77.05 |
Volume (GWh)(5) | 15,777 | 15,692 |
Total revenues (millions of R$) | 1,288.0 | 1,209.2 |
Electricity Purchases | | |
Purchases from Itaipu | | |
Average cost (R$/MWh)(6) | 88.26 | 96.86 |
Volume (GWh) | 5,306 | 5,379 |
Percentage of total Itaipu production purchased | 6.2 | 8.0 |
Total cost (millions of R$)(7) | 468.3 | 521.0 |
Purchases from others(4) | | |
Average cost (R$/MWh) | 83.50 | 78.21 |
Volume (GWh)(5) | 18,011 | 16,570 |
Total cost (millions of R$)(7) | 1,504.0 | 1,295.8 |
_________
(1) Average prices or costs have been computed by dividing (i) the corresponding revenues or expenses by (ii) MWh of electricity sold or purchased.
(2) Includes Free Customers outside Paraná.
(3) Includes public services such as street lighting, as well as supply of electricity to government agencies, and our own consumption.
(4) Energy traded between Copel’s subsidiaries not included.
(5) Energy Reallocation Mechanism not included.
(6) Our purchases of electricity generated by Itaipu are stated inreais and paid for on the basis of a capacity charge expressed in U.S. dollars per kW plus a “wheeling” (or transportation) charge expressed inreais per kWh.
(7) See “Item 4. Information on the Company - Business - Generation” and “Item 4. Information on the Company - Business - Purchases” for an explanation of our expenses relating to electricity purchases.
Results of Operations for the Years Ended December 31, 2010 and 2009
The following table summarizes our results of operations for the years ended December 31, 2009 and 2010:
| |
| | |
| (R$ million) |
Operating revenues: | | |
Electricity sales to Final Customers: | 2,213.4 | 2,059.5 |
Residential | 723.5 | 677.2 |
Industrial | 730.5 | 673.9 |
Commercial | 467.7 | 433.3 |
Rural | 126.9 | 118.8 |
Other classes | 164.8 | 156.3 |
Electricity sales to distributors | 1,288.0 | 1,209.2 |
Use of main distribution and transmission grid | 2,272.4 | 1,975.1 |
Residential | 661.7 | 575.0 |
Industrial | 566.6 | 477.9 |
Commercial | 437.5 | 370.4 |
Rural | 126.9 | 107.7 |
Other classes | 154.8 | 134.0 |
Other distribution and transmission revenues | 325.0 | 310.1 |
Construction revenues | 663.5 | 601.9 |
Telecommunications revenues | 97.9 | 80.2 |
Distribution of Piped gas | 237.3 | 205.2 |
Other operating revenues | 128.6 | 119.0 |
| 6,901.1 | 6,250.1 |
Operating costs and expenses: | | |
Electricity purchased for resale | (1,972.3) | (1,816.8) |
Use of main distribution and transmission grid | (592.7) | (553.2) |
Personnel and management | (811.5) | (810.1) |
Pension and health care plans | (124.2) | (109.7) |
Material and supplies | (84.1) | (69.2) |
Raw materials and supplies for power generation business | (23.0) | (21.2) |
Natural gas and supplies for gas business | (144.6) | (128.9) |
Third-party services | (350.9) | (321.1) |
Depreciation and amortization | (543.0) | (539.8) |
Accruals and provisions | (362.8) | 39.9 |
Construction costs | (662.9) | (601.6) |
Other operating expenses | (296.1) | (275.3) |
| (5,968.1) | (5,207.0) |
| | |
Result of equity in investees | 99.3 | 14.3 |
Financial income (expenses), net | 348.4 | 6.7 |
Income before income tax and social contribution | 1,380.7 | 1,064.2 |
Income tax and social contribution | (370.5) | (251.9) |
Net income for the period | 1,010.3 | 812.3 |
Net income attributable to parent company | 987.8 | 791.8 |
Net income attributable to non-controlling interest | 22.5 | 20.5 |
Other comprehensive income | 2.0 | 11.5 |
Comprehensive income | 1,012.3 | 823.7 |
Comprehensive income attributable to parent company | 989.8 | 803.2 |
Comprehensive income attributable to non-controlling interest | 22.5 | 20.5 |
Results of Operations for 2010 compared with 2009
Operating Revenues
Our operating revenues increased by 10.4%, or R$ 651.0 million, in 2010 compared with 2009. Of this increase, R$ 153.8 million was due to electricity sales to Final Customers and R$ 297.3 million was due to charges for use of our main distribution and transmission grid. Revenues from electricity sales to distributors increased by 6.5%, or R$ 78.8 million and construction revenue increased by 10.2% or R$61.6 million.
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 7.5% or R$ 153.8 million in 2010. The average tariff for Final Customers increased by 6.4% as compared with 2009average rate. The average tariff rates for the residential, industrial, commercial and rural classes of Final Customers increased by 5.8%, 7.1%, 5.9% and 6.1%, respectively. The variation in average price increases between different classes of customers reflects the fact that the tariffs established by ANEEL in 2009 and 2010 varied depending upon the voltage level received.
The increase in the volume of energy sold to Final Customers in 2010 compared with 2009 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 2010 compared with 2009. Of this increase, 3.7% was due to an increased number of customers and 0.9% was due to an increased 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 industrial customers, including both captive customers and Free Customers, increased by 5.1% in 2010 compared with 2009. Of this increase 3.3% was due to an increased number of customers and 1.8% was due to an increase in average consumption per industrial customers, which in turn were caused the better performance of the food, automotive and machinery and equipment industries.
· The volume of electricity sold to commercial customers increased by 6.3% in 2010 compared with 2009. Of this increase, 3.4% was due to an increase in average consumption per commercial customer and 2.9% was due to an increased number of customers. In 2010, the increase in commercial segment occurred due to the healthy job market and the increase in consumer credit.
· The volume of electricity sold to rural customers increased 5.6% in 2010 compared with 2009. Of this increase, 3.9% was due to an increased number of customers and 1.7% was due to an increased in average consumption per industrial customers. This increase was driven mainly due to the Brazilian economy expansion.
Electricity Sales to Distributors. Electricity sales to distributors include sales in auctions in the regulated market (77.3% of total revenues for sales to distributors in 2010), sales under bilateral agreements (14.6% of total revenues for sales to distributors in 2010) and sales in the spot market (8.1% of total revenues for sales to distributors in 2010).
Our revenues from electricity sales to distributors increased by 6.5% or R$78.8 million, in 2010 compared with 2009. This increase was caused by: (i) increased prices under power purchase agreements in the regulated market (CCEAR) and bilateral contracts; and (ii) higher revenue from short-term electricity market (CCEE);
Use of Main Distribution and Transmission Grid. Our revenues from the use of main distribution and transmission grid increased by 15.1% or R$297.3 million, in 2010 compared with 2009. This was principally caused by: (i) increased use of the grid; and (ii) the tariff adjustment.
Telecommunications revenues. Revenues from our telecommunications segment increased by 22.0% or R$17.6 million in 2010, primarily due to an increase in both the number of clients and demand for new telecommunication services by existing clients.
Distribution of Piped Gas. Revenues from distribution of piped gas increased by 15.7% or R$32.1 million in 2010, mainly due to the effect of the global economic recovery and the resulting increase in gas sales, particularly to the industrial segment, which increased by 11.0% in 2010 compared to 2009.
Other Operating Revenues. Other operating revenues increased by 8.1% or R$9.6 million, in 2010 mainly due to greater dispatch at the Araucária Thermal Power Plant in the second half of 2010.
Operating Costs and Expenses
The attached financial statements present our operating costs and expenses by function. However, in accordance with IFRS, Note 31 to the financial statements presents this information according to the nature of the operating cost or expense. For ease of understanding, the analysis below reflects the information presented by nature.
Our total operating costs and expenses increased by 14.6%, or R$761.1 million, to R$5,968.1 million in 2010 from R$5,207.0 million in 2009, including amounts recognized as other operating expenses. The following were the principal factors in the increase of our operating costs and expenses:
· Electricity Purchased for Resale. Our costs for the energy we purchased for resale increased by 8.6%, or R$155.5 million, to R$1,972.3 million in 2010 compared with R$1,816.8 million in 2009. This increase was mainly due to higher acquisition costs from auctions in the regulated market and from the Proinfa program, which were partially offset by the reduction in the cost of energy purchased from Itaipu. The average cost of energy we purchased in auctions in the regulated market increased from R$83.53/MWh in 2009 to R$88.90/MWh in 2010, and the volume we purchased in the regulated market increased from 14,185 GWh in 2009 to 15,418 GWh in 2010. The average cost of energy we purchased from Itaipu decreased from R$96.86/MWh in 2009 to R$88.26/MWh in 2010, and the volume we purchased from Itaipu decreased from 5,379 GWh in 2009 to 5,306 GWh in 2010.
· Use of Main Distribution and Trasmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased by 7.1%, or R$39.5 million, to R$592.7 million in 2010 compared with R$553.2 million in 2009. This increase was mainly due to new infrastructure in operation and due to the increase in system service charges (ESS).
· Personnel and Management. Personnel and management expenses increased by 0.2%, or R$1.4 million, to R$811.5 million in 2010 compared with R$810.1 million in 2009, mainly due to wage increases that became effective in October 2009 (6.0%) and October 2010 (6.5%).
· Pension and Health Care Plans. Pension and Health Care expenses increased 13.2%, or R$14.5 million, to R$124.2 million in 2010, compared with R$109.7 million in 2009. This line item reflects the accrual of liabilities pursuant to the 2010 actuarial report on our healthcare plan.
· Materials and supplies. Materials and supplies expenses increased by 21.5%, or R$14.9 million, to R$84.1 million in 2010 compared with R$69.2 million in 2009, substantially due to an increase in the volume of electric power system materials that we acquired in 2010.
· Raw Material and Supplies for Power Generation Business. These expenses increased 8.2%, or R$1.8 million, to R$23.0 million in 2010, compared with R$21.2 million in 2009. This increase mainly consists of the increased cost of mineral coal purchased for the Figueira Thermoelectric Plant from R$256.0 per ton in 2009 to R$263.7 per ton in 2010.
· Natural Gas and Supplies for Gas Business. The expenses related to natural gas purchases increased by 12.2%, or R$15.7 million, to R$144.6 million in 2010 compared with R$128.9 million in 2009. This increase was mainly caused by the increased volume of natural gas acquired by Compagas to supply third-parties, from 809,076 cubic meters per day in 2009 to 960,681 cubic meters per day in 2010.
· Third-Party Services. Third-party services expenses increased 9.3%, or R$29.8 million, to R$350.9 million in 2010 compared with R$321.1 million in 2009, largely due to increased expenses with power grid maintenance, as well as increased costs related to data processing and transmission.
· Depreciation and Amortization. Depreciation and amortization expenses increased 0.6%, or R$3.2 million, to R$543.0 million in 2010 from R$539.8 million in 2009.
· Accruals and provisions. The provisions and reversals expenses increased by R$402.7 million in 2010 compared with 2009 mainly due to the provisions related to COFINS legal proceedings of R$234.6 million.
· Construction Costs. Construction costs increased 10.2%, or R$61.3 million, to R$662.9 million in 2010 from R$601.6 million in 2009, primarily due to an increased number of energy transmission and distribution construction projects in progress.
· Other Operating Expenses. Other operating expenses increased by R$20.8 million to an expense of R$296.1 million in 2010, compared with an expense of R$275.3 million in 2009. This variation due mostly to higher payments of financial compensation for the use of water resources, due to increased hydroelectric power output, and, to a lesser extent, was due to the recognition of losses due to asset impairment (impairment of goodwill of UEG Araucária in the amount of R$ 44.6 million) and the recognition of losses from the sale of assets.
Result of Equity in Investees
Result of equity in investees was R$99.3 million in 2010. Equity investment reflects the equity income or loss of our affiliates. In 2010, the increase was mainly due to: (i) R$34.0 million was from Dona Francisca Energética (R$27.7 million of which resulted from the reversal of provisions); (ii) R$32.6 million was from Sercomtel Telecom (R$23.4 million of which resulted from the reversal of impairment losses); (iii) R$22.1 million from Sanepar; and (iv) R$10.1 million from Foz do Chopim Energética. For more details see Note 16 to our consolidated financial statements.
In 2009, result of equity in investees amounted R$14.3 million, which was mainly caused by: (i) R$22.7 million of equity income from Sanepar; (ii) R$17.0 million of equity loss from Sercomtel – Telecomunicações; and (iii) R$9.3 million of equity income from Dona Francisca Energética.
Financial Income (Expenses), Net
We recognized R$348.4 million of net financial income in 2010, compared to net financial income of R$6.7 million in 2009. Financial revenue increased by 93.3% or R$ 314.8 million in 2010 compared to 2009, mainly due to the result of the monetary variation on our financial assets from the distribution activities and on the assets related to CRC transferred to the State Government. Financial expenses decreased by 8.1%, or R$26.9 million in 2010 compared with 2009, mainly due to lower debt charges and the effects of joining the Tax Recovery Program (Refis) in 2009.
Income Taxes and Social Contribution
In 2010, we recognized income tax and social contribution expenses of R$370.5 million, reflecting an effective tax rate of 26.8% on our pretax income. In 2009, we recognized income tax and social contribution expenses of R$251.9 million, reflecting an effective tax rate of 23.7% on our 2009 pretax income. The increase in the effective tax rate related to 2010 compared to 2009 was mainly caused by: (i) in 2010, we did not present the tax benefit related to the reduction of penalties and interests caused by the Law 11,941/2009, which represented an increase of 2.0% in the effective tax rate; (ii) the increase of equity in result of investees by R$29.5 million, which represented a reduction of 2.1%; (iii) reduction of R$10.7 million in interest on capital and dividends, which represented an increase of 1.0%; and (iv) the changes in accounting practices had tax effects that were compensated by the Transitional Tax Regime (RTT).
Liquidity and Capital Resources
Our principal capital requirements are to finance the expansion and upgrade of our electricity distribution and transmission system and to finance the expansion of our generation facilities. Capital expenditures were R$1,059.9 in 2010 (including R$168.7 million investment in the Mauá Hydroelectric Plant) and R$979.0 million in2009 (including R$191.4 million investment in the Mauá Hydroelectric Plant). The following table sets forth a breakdown of our capital expenditures for the periods indicated.
| |
| | |
| (R$ million) |
Generation and transmission | 275.6 | 250.2 |
Distribution | 676.3 | 655.2 |
Telecom | 75.4 | 38.4 |
Result of equity in investees | 0.2 | 0.1 |
Araucária Thermoelectric Plant | 11.8 | 10.1 |
Compagas | 15.7 | 24.9 |
Elejor | | |
Total | | |
Our total budgeted capital expenditures for our wholly owned subsidiaries for 2011 is R$2,060.5 million, of which:
· R$1,024.8 million is for generation and transmission, including R$164.4 million for the construction of the Mauá Hydroelectric Plant; and R$492.4 million for the construction of the Colíder Hydroelectric Plant;
· R$933.3 million is for distribution; and
· R$102.4 million is for our telecommunication business.
Our following controlled companies also budgeted their own capital expenditures for 2011, as described below:
· Compagas: R$33.8 million;
· Araucária: R$23.3 million; and
· Elejor: R$ 9.3 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 2010 was our operating activities. Net cash provided by operating activities was R$1,247.7 million in 2010 and R$1,241.2 million in 2009. We expect our operating cash flow to be sufficient to finance our capital expenditures in 2011.
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 the required 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 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 the National Monetary Council,Conselho Monetário Nacional (“CMN”) restrictions on our ability to obtain financing from domestic and international sources. Specifically, if our internally generated funds are insufficient to meet our budgeted capital expenditures, CMN restrictions could limit our ability to accept external sources of funding.
Our total outstanding loans and financing at December 31, 2010 were R$1,985.2 million. Approximately R$56.7 million of the total debt outstanding at December 31, 2010 was denominated in U.S. dollars and R$9.2 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$302.3 million in outstanding debt under government programs to finance new generation products.
· IDB – We have R$9.2 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$703.8 million of outstanding debt with Banco do Brasil, consisting of financings we contracted to pay debentures issued in 2002, 2005 and 2006, as well as a September 2010 fixed-rate credit agreement.
· Debentures – As of December 31, 2010, we had a total of R$621.2 million in outstanding non-convertible debentures issued by Copel. The terms of these debentures are summarized in Note 22 of our consolidated financial statements.
· BNDES has provided a loan to Copel of R$339 million to finance the construction of the Mauá Hydroelectric Plant. Mauá is owned by Consórcio Energético Cruzeiro do Sul, in which Copel has a 51.0% interest and Eletrosul has a 49.0% interest. BNDES is providing 50.0% of the loan amount, and Banco do Brasil S.A. is providing the remaining 50.0%. All the receivables arising from this plant were pledged in favor of BNDES until full repayment of the loan. As of December 31, 2009, we had an aggregate of R$ 113.3 million and as of December 31, 2010, we had an aggregate of R$ 277.9 million in outstanding debt with BNDES and Banco do Brasil under this facility.
In addition, we have obtained approval from the CMN to apply for BNDES financing in the amount of R$1,648.0 million for five projects (LT Foz do Iguaçu - Cascavel Oeste, UHE Colíder, LT Araraquara II - Taubaté, SE Cerquilho III e PCH Cavernoso II). These loans requests are being analyzed by BNDES.
Lastly, in November 2010, a loan agreement in amount of R$52.2 million was signed by Copel Telecomunicações S.A. with FINEP (Financiadora de Estudos e Projetos) to partially support the BEL – Extra Broadband project, however no disbursement has been made.
We are party to several legal proceedings that could have a material adverse impact on our liquidity if the rulings are adverse to us. In addition, we are contesting a determination by ANEEL that would require us to pay additional amounts for energy we purchased for resale during the electricity-rationing period in 2001 and the first quarter of 2002. We are also involved in several lawsuits, including challenges to the legality of certain federal taxes, which have been assessed against us, claims by industrial customers that certain increases in electricity tariffs from March through November 1986 were illegal and several labor related claims. These contingencies are described in “Item 8. Financial Information - Legal Proceedings.” If any of these claims are decided against us either individually or in the aggregate, they could have a material adverse affect on our liquidity and our financial condition.
Contractual Obligations
In the table below, we set forth certain of our contractual obligations as of December 31, 2010, and the period in which such contractual obligations come due. The table below includes pension liabilities and estimated interest payments on all our contractual obligations.
| |
| | | | | |
| (R$ million) |
Contractual obligations: | | | | | |
Loans and financing | 2,040.5 | 150.8 | 459.1 | 995.9 | 434.7 |
Debentures | 673.3 | 673.3 | – | – | – |
Suppliers(1) | 784.3 | 575.1 | 136.3 | 72.9 | – |
Purchase obligations(2) | 60,520.9 | 2,702.4 | 6,760.1 | 7,794.6 | 43,263.8 |
Concession payments(3) | 2,356.9 | 38.8 | 95.9 | 160.9 | 2,061.3 |
Eletrobras - Itaipu | 10,841.2 | 431.0 | 1,032.2 | 2,252.2 | 7,125.8 |
Tax recovery programs(4) | 232.4 | 200.8 | 31.6 | – | – |
Post employment benefits(5) | | | | | |
Total | | | | | |
____________
(1) Mainly consists of gas supplied by Petrobras to the Araucária Thermoelectric Plant.
(2) Consists of electric power purchase commitments pursuant to binding obligations which commitments 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, 2010.
(3) Payments to the federal government arising from Elejor’s concession agreement.
(4) For more details, see Note 12 to our consolidated financial statements.
(5) For more details, see Note 23 to our consolidated financial statements.
We are also subject to risks with respect to tax, labor and civil claims and have provisioned R$866.4 million for accrued liabilities for legal proceedings related to these claims as of December 31, 2010. For more information, see “Item 8. Financial Information - Legal Proceedings” and Notes 12 and 28 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.
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 seven 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
· electing the members of our Board of Executive Officers.
Meetings of the Board of Directors require a quorum of a majority of the directors and decisions are made 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 seven members of the Board of Directors:
· five are elected by the holders of the Common Shares;
· one is elected by minority shareholders; 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 of the independent accountant made by the majority of the members of our Board of Directors.
The State of Paraná and BNDES Participações S.A. – BNDESPAR (“BNDESPAR”), acting through 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 10% of the company’s outstanding non-voting shares.
The terms of the current members of the Board of Directors expire in 2012. The current members are as follows:
| | |
Mauricio Schulman | Chairman | 2011 |
Lindolfo Zimmer | Director | 2011 |
Pedro Luiz Cerize | Director | 2011 |
Paulo Procopiak de Aguiar | Director | 2011 |
José Richa Filho | Director | 2011 |
Ivan Lelis Bonilha | Director | 2011 |
Vacant | Director | 2011 |
The following are brief biographies of the current members of our Board of Directors:
Maurício Schulman. Mr. Schulman is 79 years old. He received a degree in civil engineering from Universidade Federal do Paraná and a specialization degree in business administration. Mr. Schulman has also taken additional courses in electricity and economy in France. Previously, Mr. Schulman served as Chief Corporate Management Officer and Chief Executive Officer at Eletrobras; served as Chairman at Eletrobras, Light S.A. and Brazilian Committee to Commission de Integration Elétrica Regional; served as Chief Administrative Officer at Companhia de Desenvolvimento Econômico do Paraná – Codepar, Banco Nacional de Habitação – BNH and Federação Nacional dos Bancos - Fenaban (National Bank Federation). He also was State Secretary of the Treasury in the State of Paraná. Mr. Maurício Schulman was appointed by the State of Paraná.
Lindolfo Zimmer. Mr. Zimmer is 68 years old. He received a degree in economic engineering and industrial management from Federal University of Rio de Janeiro and in mechanical engineering and economics from Federal University of Paraná. He has MBA in marketing from Fundação Getúlio Vargas – FGV-PR. Previously, Mr. Zimmer served as Chief Executive Officer of Dobreve Energia S.A. – Desa, where he also was a member of its board of directors; advisor at Instituto de Engenharia do Paraná - IEP (State Engineering Institute) and at Federação das Indústrias do Paraná – Fiep (Industries Federation of the State of Paraná) at the Social Responsibility Thematic Council; Chief Marketing Officer at Companhia Paranaense de Energia - Copel (2000 to 2003); Chief OperationOfficer at Copel (1995 to 1999); Chief Engineering and Construction Officer at Copel (1979 to 1982); Chairman of the Management Committee at Copel Telecomunicações and Copel Transmissão S.A.; member of the Management Committee at Copel Geração S.A. and Copel Distribuição S.A.; Chief Official for Special Works - Foz do Areia Power Plant; manager of the Electromechanical Engineering Department at Foz do Areia Power Plant; manager of Mechanical Maintenance and Mechanical Engineering Divisions at Copel; engineer at Salto Osório Power Plant - Copel; manager at Capivari-Cachoeira Power Plant; technical director at Inepar S.A.; department manager at Eletrobras S.A.; vice-president at Instituto Pró-Cidadania de Curitiba; and the Government Secretary for the Municipality of Curitiba.
Pedro Luiz Cerize.Mr. Cerize is 41 years old. He received a degree in Business Management from EASP - Fundação Getúlio Vargas (1991) and a master’s degree in Finance from IBMEC (1993). Previously, Mr. Cerize was responsible for the variable income at Banco BBA Creditanstalt (1997 to 2000) and was a member of the Board of Directors at Porto Seguro S.A. Mr. Cerize has also serve as a member of the Board of Directors at Cosan S.A. Indústria e Comércio since 2008 and founding-partner of Skopos Administradora de Recursos S.C. Ltda.
Paulo Procopiak de Aguiar. Mr. Aguiar is 70 years old. He received a degree in Civil Engineering from Universidade Federal do Paraná and specialization degrees in business administration for executives and theoretical and applied economics from Fundação Getúlio Vargas - FGV-PR and in the economics of hydroelectric undertakings from Universidade Federal do Paraná. Mr. Aguiar also has a degree in hydrology and hydroelectric undertakings from Centro Internacional de Estudos, Paris. Previously, Mr. Aguiar served as Chief Executive Officer, Chief Technical Officer and Chief Financial Officer at Copel; Chief Financial and Economical Control Officer at Departamento Nacional de Águas e Energia Elétrica; Chief Financial Officer at Eletrobras; National Assistant Secretary of Energy; and a Member of the Board of Directors of Eletrobras (1985 to 1989), Eletrosul (1986 to 1989) and Light (1985 to 1989). Mr. Aguiar currently serves as Officer at Cimento Itambé Company and was appointed by the State of Paraná.
José Richa Filho. Mr. José Richa is 46 years old. He has a bachelor’s degree in civil engineering from Universidade Católica do Paraná and a graduate degree in public management from Sociedade Paranaense de Ensino e Informática. Previously, Mr. Jose Richa was Chief Administrative and Financial Officer at the Departamento de Estradas de Rodagem - DER-PR (State Body for Roads); Chief Administrative and Financial Officer at Agência de Fomento do Paraná S.A. (State Development Agency); and Management Secretary of the Municipality of Curitiba. Mr. Jose Richa was appointed by the State of Paraná.
Ivan Lelis Bonilha. Mr. Bonilha is 43 years old. He received a master’s degree in state law from Pontifícia Universidade Católica de São Paulo and has a degree in law from Universidade Federal do Paraná. Previously, Mr. Bonilha served as an advisor at Ordem dos Advogados do Brasil - OAB (Brazilian Bar Association) in the State of Paraná; advisor and member of the Legislative Issues Commission at OAB - Federal Council; attorney in Curitiba; vice-president of the Fórum dos Procuradores Gerais das Capitais (State Capital Cities Attorney General Committee). Mr. Bonilha was appointed by the State of Paraná.
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:
| | |
Lindolfo Zimmer | Chief Executive Officer | 2011 |
Yára Christina Eisenbach | Chief Corporate Management Officer | 2011 |
Julio Jacob Júnior | Chief Legal Officer | 2011 |
Pedro Augusto do Nascimento Neto | Chief Distribution Officer | 2011 |
Jaime de Oliveira Kuhn | Chief Power Generation & Transmission and Telecommunications Officer | 2011 |
Jorge Andriguetto Junior | ChiefEngineering Officer | 2011 |
Ricardo Portugal Alves | Chief Financial Officer, Investor Relations Officer and Investment Portfolio Manager | 2011 |
Gilberto Mendes Fernandes | Chief Environment and Corporate Citizenship Officer | 2011 |
The following are brief biographies of the current members of our Board of Executive Officers:
Lindolfo Zimmer. Mr. Zimmer is 68 years old. He received a degree in economic engineering and industrial management from Federal University of Rio de Janeiro and in mechanical engineering and economics from Federal University of Paraná. He has MBA in marketing from Fundação Getúlio Vargas – FGV-PR. Previously, Mr. Zimmer served as Chief Executive Officer of Dobreve Energia S.A. – Desa, where he also was a member of its board of directors; advisor at Instituto de Engenharia do Paraná - IEP (State Engineering Institute) and at Federação das Indústrias do Paraná – Fiep (Industries Federation of the State of Paraná) at the Social Responsibility Thematic Council; Chief Marketing Officer at Companhia Paranaense de Energia - Copel (2000 to 2003); Chief Operation Officer at Copel (1995 to 1999); Chief Engineering and Construction Officer at Copel (1979 to 1982); Chairman of the Management Committee at Copel Telecomunicações and Copel Transmissão S.A.; member of the Management Committee at Copel Geração S.A. and Copel Distribuição S.A.; Chief Official for Special Works - Foz do Areia Power Plant; manager of the Electromechanical Engineering Department at Foz do Areia Power Plant; manager of Mechanical Maintenance and Mechanical Engineering Divisions at Copel; engineer at Salto Osório Power Plant - Copel; manager at Capivari-Cachoeira Power Plant; technical director at Inepar S.A.; department manager at Eletrobras S.A.; vice-president at Instituto Pró-Cidadania de Curitiba; and as Government Secretary for the Municipality of Curitiba.
Yára Christina Eisenbach.Ms.Eisenbach is 57 years old. She received a degree in law from the Pontifícia Universidade Católica do Paraná – PUC-PR and post-graduate degree in business administration. She also has specialization degrees in business planning, bidding and administrative contracts and procurement. Previously, she was a Consulting Analyst in Copel’s Ombudsman Office (2006-2010), Regional Chairwoman of the National Association of Public Transportation and Traffic (2003-2006), CEO of Companhia de Urbanização de Curitiba S.A. – URBS (2003-2004), Paraná State Planning and General Coordination Secretary (2002-2003), head of the Paraná State Government Program Coordination Center (1995-2002) and an advisor to several UN international agencies (Unesco, UNDP and IICA); advisor to Projeto Prodesam, a project from the State of Espírito Santo Government for planning, management and procurement; advisor to BIRD for the Program in Training and Dissemination of Public Tenders, in the terms of the agreement between the World Bank and the Brazilian Government; law advisor for State of Paraná projects financed by external institutions (BID, BIRD and JBIC); lawyer in the Division of Binding and Taxation Law at Copel (1990 to 1992); manager of the Records, Public Tenders and Contracts Division at Copel (1984 to 1990).
Julio Jacob Junior.Mr. Jacob is 35 years old. He has a degree in law from Pontifícia Universidade Católica do Paraná - PUC-PR and specialization degree in Corporate Law, Civil Procedure Law and Administrative Law. Previously, he served as Chief Legal Officer at Instituto Curitiba Saúde; Manager of the legal division at Companhia de Urbanização de Curitiba - URBS; lawyer dealing with Commercial Law (specially oil distribution contracts), Administrative Law, Societary Law and Electoral Law; Advisor at Ordem dos Advogados do Brasil (Brazilian Bar Association) in Curitiba; member of the Young Lawyers Commission at Ordem dos Advogados do Brasil - OAB/PR.
Pedro Augusto do Nascimento Neto. Mr. Nascimento is 54 years old. He holds an Executive MBA from Instituto Superior de Administração de Empresas/PUC-PR in partnership with the Business Management School at Texas University, Austin (1998); graduate degree in corporate management from Universidade Federal do Paraná – UFPR (1997); Electrical Engineering degree from Escola de Engenharia de Lins-SP (1979). Previously, at Copel, Mr. Pedro Augusto was Electrical Engineer at Copel’s Chief Office for Works and Transmission (2006 to 2010); Chief Distribution Officer at Copel Distribuição S.A. (1999 to 2002); assistant to the Chief Distribution Officer (1998 to 1999); Regional Chief Distribution Official at Copel (1995 to 1998); manager of several areas related to the distribution segment (1982 to 1995); Electrical Engineer in charge of inspecting distribution works (1980 to 1982); and visiting professor at Faculdade de Administração e Economia - FAE Business School, for the graduate course in Management by Quality (2000 to 2002).
Jaime de Oliveira Kuhn. Mr. Kuhn is 48 years old. He has a degree in electrical engineering from Universidade Federal de Santa Maria (1986) and a specialization degree in technical management of power concessionaries from Universidade Federal de Paraná (2002). Previously, he was Chief Official for the Operation of Power Transmission System, Planning and Engineering at Companhia Paranaense de Energia - Copel (2007 to 2008); Assistant engineer to the Chief Technical Officer at Centrais Elétricas do Rio Jordão - Elejor (2005 to 2006); assistant to the Chief Official for Generation Operation and Maintenance at Copel (2003 to 2005); Coordinator for the ISO 9001:2001 certification process (O&M) in Copel power plants, certified by ABNT (2003 to 2005); Manager of the Production Division at Foz do Areia, Segredo and Foz Jordão Power Plants - Copel (1999 a 2003); Manager of several units related to power generation (1990 to 1999); Supervisor of the electric and electronic maintenance team at Foz do Areia Power Plant - Copel (1988 to 1989); and Engineer in Engine projects at Weg Máquinas (1986 to 1987).
Jorge Andriguetto Junior. Mr. Andriguetto is 58 years old. He holds a degree in civil engineering from Federal University of Paraná (1975) and a Master’s degree in hydraulic engineering from the International Institute for Hydraulic and Environmental Engineering – IHE in Delf, Netherlands (1982). Previously, at Copel, Mr. Andriguetto was Chief Official for Expansion Planning, Engineering and Construction in Power Generation (2006 to 2010); Coordinator of Copel’s participation in several energy auctions and Technical Coordinator of viability studies and projects in undertakings of interest to Copel (1996 to 2004); Manager of the Hydraulic Works Department (1996 to 2000); Manager of the Energetic Development Coordination (1994 to 1995); Manager of the Civil Construction Works Department at Copel (1991 to 1994); Manager of the Planning and Analysis Division (1987 to 1991) and Civil Engineer in several areas at Copel (1976 to 1987). Mr. Andriguetto was also the head professor at Universidade Católica do Paraná (1976 to 1978).
Ricardo Portugal Alves.Mr. Alves is 57 years old. He received a degree in business management from Pontifícia Universidade Católica do Paraná (1977); degree in philosophy from Pontifícia Universidade Católica do Paraná (1977); and a graduate degree in Business Management from Richard Ivey Business School, Canada. Previously at Copel, Mr. Alves served as Chief Capital Market Official (2008 to 2010); Assistant to the Investor Relations Officer (2003); Chief Financial and Investor Relations Officer (2001 to 2003); Chief Investor Relations Official (1996 to 2001); Chief Financial Planning Official (1995 to 1996); Assistant to the Chief Financial Planning Official (1993 to 1995); Manager of the Financial Planning Department and of the Tax and Financial Analysis Division (1987 to 1991); professional activities concerning economics and finance (1978 to 1987).
Gilberto Mendes Fernandes. Mr. Fernandes is 54 years old. He has a technical degree in electronics from Centro Federal de Educação Tecnológica - Cefet/Paraná (1975) and has been trained in Strategic Planning. Previously, he was advisor to TVSBT Rio de Janeiro, rendering services through his company GMF Consultoria S.S. Ltda. (2002 to 2010); responsible for the project and implementation of the television system at PUC-PR (1989); partner manager at the company Imagem Arte em Vídeo (1986 to 2002); project and implementation of video production companies - Câmera 9, Vídeo 1, Trípoli Produções (1986 to 1990); Technician in charge of the Museu da Imagem e do Som do Paraná - MIS (1985 to 1986); Technical Coordinator of the radio, television and cinema division at Secretaria de Estado da Comunicação Social do Paraná (1983 to 1986); responsible for the implementation of the television system at Universidade Federal do Paraná (1983 to 1984); Technical Supervisor of the engineering department at Rede Paranaense de Comunicação - RPC/Curitiba (1977 to 1989).
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 our 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 56th annual shareholders’ meeting held on April 28, 2011, and whose terms expire in April 2012.
| |
Joaquim Antonio Guimarães de Oliveira Portes – President | 2011 |
Luiz Eduardo da Veiga Sebastiani | 2011 |
Jorge Michel Lepeltier | 2011 |
Wancler da Silva Ferreira | 2011 |
Vacant | - |
| |
| |
Osni Ristow | 2011 |
Sergio Roberto Zonatto | 2011 |
Roberto Brunner | 2011 |
Marcelo Cerize | 2011 |
José Luiz Montans Anacleto Junior
____________________________ | 2011 |
Audit Committee
Pursuant to Rule 10A-3 under the Exchange Act, we have 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 2013 are: Mr. Paulo Procopiak de Aguiar, who is the financial expert, Mr. Pedro Cerize and Mr. Jose Richa Filho. All of the members of the Audit Committee are members of our Board of Directors. The Audit Committee is responsible for helping to prepare 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, 2010, 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$7.7 million, of which 81.4% was for our Board of Executive Officers, 11.2% was for our Board of Directors, and 7.4% was for our Fiscal Council, as approved by our 55th annual shareholders’ meeting held on April 27, 2010.
We have no service contracts with our directors providing for benefits upon termination of employment.
Employees
At December 31, 2010, we had 8,907 employees, compared to 8,560 employees at December 31, 2009 and 8,405 employees at December 31, 2008. Including employees at Compagas, Elejor and UEG Araucária Ltda. (companies in which we have a majority stake) we had 9,041 employees by the end of 2010.
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.
| |
| | |
Generation and transmission | 1,438 | 1,314 |
Distribution | 5,564 | 5,490 |
Telecommunications | 330 | 294 |
Corporation staff and research and development | 1,551 | 1,439 |
Other employees | | |
Total employees of Copel wholly-owned subsidiaries | | |
Compagas | 117 | 106 |
Elejor | 7 | 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 2010, we negotiated and signed labor agreements with the unions representing our employees. These new bargaining agreements became effective in October 2010 and will be in place for a one-year term. We agreed to salary increases of 6.5% in 2010.
We provide a number of benefits to our employees. The most significant is our 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, 2010, 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 2010 fiscal year (including Compagas) was R$66.2 million, an increase of 1.8% when compared with the 2009 distribution, which totaled R$65.0 million. 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 terms of the profit-sharing agreement are currently 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”).In 2009,352 employees retired pursuant to this program. An additional 408 retired in 2010. The total cost of this program (2009 and 2010) was approximately R$77 million.
In March 2011, a new voluntary retirement program (“PSDV”) was launched. It is a permanent program and aims to not only reduce costs, but also to prepare a retiree’s successor for the retired professional. Pursuant to the plan, an employee who has at least 20 years of work and 50 years of age can join the program and will have up to 12 months to prepare his successor. A participant of the national retirement program is not obliged to join the PSDV.
Share Ownership
As of May 31, 2011, 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, 2010, 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, 2010.
| |
| (thousands) | (% of total) |
State of Paraná | 85,029 | 58.6 |
BNDESPAR | 38,299 | 26.4 |
Eletrobras | 1,531 | 1.1 |
Public Float – ADSs | 132 | 0.1 |
Public Float – BM&FBOVESPA | 19,489 | 13.4 |
Other | 541 | 0.4 |
All directors and officers as a group(1) | | |
Total | | |
____________
(1) Our directors and officers hold an aggregate of 10,011 Common Shares.
At May 31, 2011, 2.57% of the Common Shares and 10.46% of the Class B Shares were held by 173 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 0.09% of the Common Shares and 33.28% of the Class B Shares, and together, approximately 15.64% of our total share capital. By May 31 2011, our shareholders had voted to convert 986 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, 2010.
| |
| (thousand) | (% of total) |
State of Paraná | 14 | – |
BNDESPAR | 27,282 | 21.3 |
Eletrobras | – | – |
Traded as ADSs | 40,067 | 31.3 |
Traded in the BM&FBOVESPA Market | 60,680 | 47.3 |
Other | 189 | 0.1 |
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$1,341.2 million at December 31, 2010. 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$175.0 million as of December 31, 2010. ICMS expenses during 2010 amounted to R$2.1 billion. We recorded interest income and monetary variation receivable from the government of the State of Paraná under the CRC of R$215.7 million in 2010. For more information, see “Item 5. Operating and Financial Review and Prospects - Overview - Impact of the 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$6.4 million as of December 31, 2010, and recorded interest expenses of R$0.9 million in 2010.
In March 2010, we realized a capital increase in Elejor, in the amount of R$126.0 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 approved a loan to Copel of R$339.0 million to finance the construction of the Mauá Hydroelectric Plant, of which R275.0 million was disbursed before December 31, 2010. 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 thereceivables related to this plant were pledged in favor of BNDES until full repayment of the loan. As of December 31, 2010, R$277.9 million was outstanding to BNDES and Banco do Brasil under this facility.
Fundação Copel
Fundação Copel de Previdência e Assistência Socialis closed pension fund that runs and operates benefit plans, welfare and social assistance, which is sponsored by Copel, Compagas and other entities.In 2010, Copel made payments to Fundação Copel consisting of: (i) rental in amount of R$8.4 million and (ii) R$124.2 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$5.5 million as of December 31, 2010. 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$9.8 million as of December 31, 2010.
We have a power purchase agreement with Dona Francisca, valued at R$61.2 million annually, which obligates Copel Geração e Transmissão to purchase 100.0% of the energy generated at Dona Francisca until October 2015.
Item 8. Financial Information.
See pages F-1 through F-139.
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, 2010, our reserves for such risks were R$866.4 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. As of December 31, 2010, we estimate that the total amount of claims against us, excluding disputes involving non-monetary claims or claims not easily evaluated in the current stage of proceedings, classified as possible losses, was approximately R$2,967.8 million, of which R$115.6 million correspond to labor claims; R$32.8 to employee benefits; R$1,629.0 million to regulatory claims; R$141.2 million to civil claims; and R$1,049.1 million to tax claims. For more information, see Note 28 to the financial statements.
ANEEL Determinations
We are contesting a determination by ANEEL that would require us to recognize, in our current liabilities at December 31, 2010, R$1,473.0 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 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, 2010, we had provisions of R$33.8 million to cover probable losses related to these other lawsuits.
Tax and Social Contribution Claims
During the second half of 2010, two lawsuits were decided before the Federal Regional Court (Tribunal Regional Federal, or “TRF”) in favor of the federal government, reversing the prior judgment that recognized our immunity regarding the payment of COFINS tax. As a result, the Federal Internal Revenue Service (ReceitaFederal) issued an infraction notice demanding the payment of COFINS tax from the periods between August 1995 and December 1996, and between October 1998 and June 2001. As of December 31, 2010, we had provisioned R$40.2 million and R$194.3 million for each period, respectively, for a total provision of R$234.5 million to cover probable losses related to these lawsuits.
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 has 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.
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, 2010, we have provisioned R$199.6 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, 2010, we have provisioned R$38.9 million to cover probable losses related to these proceedings.
“Plano 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, 2010, 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, 2010, we have provisioned R$73.2 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 due under energy purchase agreements, and any associated penalties. In September 2005, the arbitration panel ordered Copel Distribuição to pay each company approximately R$27.5 million. As of December 31, 2010, the evaluation of our internal and external legal counsel for this claim was considered as probable loss.
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, 2010, we had provisions of R$86.1 million to cover probable losses related to this proceeding.
As the result of a November 2004 lawsuit filed by Ivaí Engenharia de Obras S.A. (“Ivaí”), we were ordered to pay R$180.9 million based on a claim by Ivaí that amounts paid by us were insufficient to cover Ivaí’s costs related to Ivaí’s construction work on the Rio Jordão project. We appealed this decision and were partially successful, avoiding the application of the SELIC interest rate in addition to the penalty interest. We were granted an injunction to suspend this payment, which also resulted in the suspension of the provisional enforcement then brought by Ivaí. As of December 31, 2010, we had provisions of R$119.8 million to cover probable losses related to this proceeding.
We are a party to several lawsuits brought by landowners whose land has been affected by our transmission and distributions lines. As of December 31, 2010, we have provisioned R$9.0 million to cover a probable losses related to these lawsuits.
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 of the dividends 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, Class A Shares and Class B Shares for any year. Brazilian Corporate Law permits, however, a company to suspend the payment of all dividends if the Board of Directors, with the approval of the Fiscal Council, reports at the shareholders’ meeting that the distribution would be detrimental to the Company given its financial circumstances. 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, and such voting rights will continue until all dividend payments, including back payments, have been made. We are not subject to any contractual limitations on our ability to pay dividends.
Calculation of Adjusted Net Profit
Annual dividends 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 5% 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, 2010, our legal reserve was R$478.3 million, or approximately 6.9% 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 10% higher than the dividends per share paid to the holders of 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 that dividends are paid, they 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 10% of the total share capital represented by the Class A Shares outstanding 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 of Class B Shares outstanding 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 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 10% 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 yearin 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 adjust 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 of dividends paid to holders of Class B Shares may be substantially reduced due to inflation.
Pursuant 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.
In order to be eligible to receive amounts remitted in foreign currency outside of Brazil, 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. 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 dividends and as interest on equity for the periods indicated.
| | Distribution
(R$ thousand) | |
| | | | | | |
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 |
2010 | May, 2011 | 281,460 | 0.98027 | 2.52507 | 1.07854 | 1.02852 |
The table below sets forth the cash distributions we paid as dividends and as interest on equity, translated into US$ based on the exchange rate at year-end, for the periods indicated.
| | Distribution
(US$ thousand) | Payment per thousand shares (US$) |
| | | | | | |
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 |
2010 | May, 2011 | 168,923 | 0.58833 | 1.51547 | 0.64731 | 0.61728 |
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. While we cannot assure you that no such action will be brought, we believe the risk of such action being brought to be low: ANEEL has repeatedly spoken in favor of distributors in this matter, stating that this is an indisputable matter and that the rules were clear and that the terms possible under dispute where included in the concession contract with the distributor.
In June, 2011, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 5.55%, of which 5.77% related to the tariff increase and 0.22% referred to a decrease in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2011. 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 2.99%.
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, 2011, we had approximately 3,062 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$) |
2006 | 26.13 | 17.70 |
2007 | 35.20 | 23.40 |
2008 | 34.15 | 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 |
2010 | 44.60 | 33.00 |
1st Quarter | 39.75 | 36.41 |
2nd Quarter | 37.20 | 33.00 |
3rdt Quarter | 40.19 | 35.76 |
4th Quarter | 44.60 | 37.11 |
December | 44.60 | 40.33 |
2011, up to and including May | 46.50 | 39.70 |
1st Quarter | 45.20 | 39.70 |
January | 45.20 | 41.60 |
February | 42.40 | 39.70 |
March | 44.50 | 41.60 |
2nd Quarter | 46.50 | 41.00 |
April | 46.50 | 42.30 |
May | 44.20 | 41.00 |
_______________
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 |
| | |
| (US$) |
2006 | 12.22 | 7.64 |
2007 | 19.06 | 11.04 |
2008 | 21.78 | 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 |
2010 | 26.28 | 18.07 |
1st Quarter | 23.12 | 19.88 |
2nd Quarter | 21.29 | 18.07 |
3rd Quarter | 23.12 | 20.21 |
4th Quarter | 26.28 | 22.38 |
December | 26.28 | 23.87 |
2011, up to and including May | 29.41 | 24.00 |
1st Quarter | 27.79 | 24.00 |
January | 26.93 | 24.59 |
February | 25.86 | 24.00 |
March | 27.79 | 25.43 |
2nd Quarter | 29.41 | 26.55 |
April | 29.41 | 27.59 |
May | 27.00 | 26.55 |
__________________
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 businesses, 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 resident.
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 and fair terms for the Company 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, Senior Management and Employees.” Our bylaws do not establish any mandatory retirement age limits.
Shareholders’ Meetings
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.Generally, we make such notice inDiário Oficial do Estado – PR, O Estado do Paranáand the Diário de São Paulo.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 the 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 an 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.
Dissenting shareholders 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 shares that were 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 based 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 of the shareholders meeting at which the relevant decision was taken). 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 that the controlling shareholder or companies it controls have less than 50.0% of our shares. Our Class B Shares are included in 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
· if the preferred share has restricted or no right to vote, at least 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 3% 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 rights 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 10% per year,pro rata, calculated as a percentage of the paid-in capital stock represented by such shares on December 31 of 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 of Law No. 6,404/76, calculated as a proportion of the paid-in capital stock represented by such shares on December 31st of the previous fiscal year; (iii) the dividends paid on Class B Shares pursuant to item (ii) above shall be paid only from any remaining profits after the payment of priority dividends to Class A Shares; and (iv) the dividends to be paid per preferred share, regardless of the class, shall be at least 10% 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 Resolution2,689 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 5% 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. Any subsequent increase in ownership of any class of share must be similarly disclosed. If such increase results in change of corporate control or administrative structure, or if the increase imposes a public offering, a statement containing the required information must be published in the newspapers that are widely circulated in Brazil. Any subsequent increase of 5% 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 5% 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 Brazilian 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 Brazilian 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 of a tax haven will be entitled to favorable tax treatment. For more information, see “Taxation - Brazilian Tax Considerations - Taxation of Gains Outside Brazil.”
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 which 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 theyare 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 at the 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 amount effectively 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 applicable 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 disposeof 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 10% 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 allowed 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 relevant 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 whether 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 allowed 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%. Capital 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 “Memorandum and Articles of Association - Regulation of and Restrictions on Foreign Investors” and “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 at http://www.sec.gov.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
See note 36.3 to our consolidated financial statements for disclosure about market risk.
Item 12. Description of Securities Other than Equity Securities
Not 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 US$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.
Table of Contents
| Fee payable by ADS holders |
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | US$5.00 or less per 100 ADSs (or portion thereof) |
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | US$5.00 or less per 100 ADSs (or portion thereof) |
Distribution of cash dividends | US$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 | US$0.02 (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, 2010, this amount was US$886,879.74.
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, 2010.
Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of December 31, 2010 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, 2010. 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- COSO. Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2010.
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, 2010.
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”) as of December 31, 2010, 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 Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on 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 International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards (IFRSs), and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) 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, 2010, 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 consolidated financial statements as of and for the year ended December 31, 2010, of the Company and our report dated June 16, 2011 expressed an unqualified opinion on those consolidated financial statements.
/s/ Deloitte Touche Tohmatsu Auditores Independentes
June 16, 2011
Curitiba, Paraná, Brazil
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 Paulo Procopiak de Aguiar is an “audit committee financial expert” within the meaning of Item 16A. Mr. Aguiar would be independent as defined under the rules of the NYSE, except that he is chief executive of a company whose costs for electric power purchasesfrom Copel exceed 2% of its revenues. Under NYSE rules, the magnitude of those payments would be inconsistent with independence. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees - 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, 2010 and 2009.
The table below sets forth the total amount paid to Deloitte Touche Tohmatsu Auditores Independentes for services performed in 2010 and 2009, and breaks down these amounts by category of service in millions ofreais:
| Year ended December 31, |
| | |
| (R$ million) |
Audit fees | 1.5 | 1.3 |
Audit-related fees | 0.1 | – |
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 IFRS 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.”
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
On April 18, 2011, KPMG Auditores Independentes (“KPMG”) replaced Deloitte Touche Tohmatsu Auditores Independentes (“Deloitte”) as our independent public accountants for the fiscal years starting January 1, 2011. The change in auditors was made pursuant to a Brazilian law that limits the consecutive terms that certain service providers may serve. Because of the limitations set forth in this law, we did not seek to renew Deloitte’s contract when it expired and Deloitte did not attempt to stand for reelection. The replacement of Deloitte by KPMG was approved by our Board of Directors and Audit Committee. Deloitte is engaged as our auditor for the fiscal years ended December 31, 2010 and 2009 until the filling of this Form 20-F with the Securities and Exchange Commission.
Deloitte audited our financial statements for the fiscal years ended December 31, 2009 and December 31, 2010. None of the reports of Deloitte on our financial statements for either of such fiscal years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years and until its contract expired, there were no disagreements with Deloitte, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Deloitte’s satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with any reports it would have issued, and there were no "reportable events" as that term is defined in Item 16F(a)(1)(v) of Form 20-F. Deloitte did not audit, or performed limited review of, any of our financial statements for any period subsequent to December 31, 2010.
We have provided Deloitte with a copy of the foregoing disclosure, and have requested that it furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with suchdisclosure. We are including as Exhibit 15.1 to this Form 20-F a copy of the letter from Deloitte as required by Item 16F(a)(3) of Form 20-F.
During the fiscal years ended December 31, 2009 and December 31, 2010, we did not consult with KPMG regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinion that might be rendered by KPMG on our financial statements. Further, KPMG did not provide any written or oral advice that was an important factor considered by us in reaching a decision as to any such accounting, auditing or financial reporting or any matter being the subject of disagreement or “reportable event” or any other matter as defined in Item 16F(a)(v) of Form 20-F.
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. As a controlled company, Copel would not be required to comply with the board of director independence requirements if it were a U.S. domestic issuer. |
| | |
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. |
Nominating/Corporate Governance Committee |
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. |
CompensationCommittee |
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. |
Audit Committee |
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 who 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. |
Equity Compensation Plans |
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. |
Corporate Governance Guidelines |
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). |
Code of Ethics for Directors, Officers and Employees |
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. |
Certification Requirements |
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 and certify he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. | 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 and will also certify if he is not aware of any violation by the listed company of NYSE corporate governance listing standards. Copel submits every year an Annual Written Affirmation to the NYSE and will submit an interim Written Affirmation when required. |
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
Reference is made to pages F-1 through F-139.
Item 19. Exhibits
1.1 | Amended and Restated By-laws of the Company dated as of April 28, 2011 (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. |
15.1 | Letter fromDeloitte Touche Tohmatsu Auditores Independentes |
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 10% 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.
TECHNICAL GLOSSARY
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 new customers (those connected to the distribution network after July 1995); (ii) demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 kV for existing customers (those connected to the distribution network before 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 throughCCEE, 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.
SHP - Small Hydroelectric Plant: Hydroelectric plants with generating capacity between 1,000 kW and 30,000 kW with a reservoir covering an area equal to or less than 3.0 km2.
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.
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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/ Lindolfo Zimmer |
| | |
| | Title: Chief Executive Officer |
| | By: /s/ Ricardo Portugal Alves |
| | Name: Ricardo Portugal Alves |
| Title: Chief Financial Officer |
Date: June 30, 2011.
Companhia Paranaense
de Energia - Copel
Consolidated Financial Statements as of
December 31, 2010 and 2009 and
Report of Independent Registered
Public Accounting Firm
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 statement of financial position of Companhia Paranaense de Energia - COPEL and subsidiaries (the “Company”) as of December 31, 2010 and 2009 and as of January 1, 2009, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2010. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Companhia Paranaense de Energia - COPEL and subsidiaries as of December 31, 2010 and 2009 and January 1, 2009, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2010, in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 16, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu Auditores Independentes
Curitiba, Paraná, Brazil
June 16, 2011
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Financial Position
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | |
| ASSETS | Note | | | |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| CURRENT ASSETS | | | | |
| Cash and cash equivalents | 5 | 1,794,416 | 1,518,523 | 1,649,481 |
| Bonds and securities | 6 | 534,095 | 365,243 | 314,774 |
| Collaterals and escrow accounts | 6 | 64,078 | 5,047 | 127 |
| Customers and distributors | 7 | 1,162,627 | 1,071,986 | 981,842 |
| Dividends receivable | 15 | 5,851 | 5,135 | 5,247 |
| CRC transferred to the State Government | 8 | 58,816 | 49,549 | 47,133 |
| Receivables related to concession | 9 | 54,700 | 44,070 | 27,685 |
| Other receivables | 10 | 161,069 | 133,002 | 105,050 |
| Inventories | 11 | 121,424 | 112,102 | 83,547 |
| Income tax and social contribution | 12 | 158,213 | 270,558 | 200,544 |
| Other current recoverable taxes | 12 | 37,536 | 31,933 | 28,021 |
| Prepaid expenses | 13 | 4,965 | 4,966 | 3,573 |
| | | | | |
| | | 4,157,790 | 3,612,114 | 3,447,024 |
| | | | | |
| NONCURRENT ASSETS | | | | |
| Noncurrent receivables | | | | |
| Bonds and securities | 6 | 7,151 | 40,103 | 69,063 |
| Collaterals and escrow accounts | 6 | 26,280 | 24,195 | 37,868 |
| Customers and distributors | 7 | 43,729 | 51,932 | 85,046 |
| CRC transferred to the State Government | 8 | 1,282,377 | 1,205,025 | 1,272,770 |
| Judicial deposits | 14 | 400,699 | 159,012 | 173,514 |
| Receivables related to concession | 9 | 2,423,345 | 1,828,220 | 1,460,462 |
| Other receivables | 10 | 15,224 | 16,949 | 12,214 |
| Income tax and social contribution | 12 | 12,341 | - | - |
| Other noncurrent recoverable taxes | 12 | 84,862 | 83,957 | 62,468 |
| Deferred income tax and social contribution | 12 | 507,710 | 397,882 | 398,873 |
| Receivables from related parties | 15 | 1,575 | - | - |
| | | 4,805,293 | 3,807,275 | 3,572,278 |
| | | | | |
| Investments | 16 | 483,450 | 405,653 | 406,755 |
| Property, plant, and equipment, net | 17 | 6,663,945 | 6,659,648 | 6,772,095 |
| Intangible assets | 18 | 1,748,954 | 1,828,213 | 1,735,689 |
| | | | | |
| | | 13,701,642 | 12,700,789 | 12,486,817 |
| | | | | |
| TOTAL ASSETS | | 17,859,432 | 16,312,903 | 15,933,841 |
| |
| The accompanying notes are an integral part of these financial statements. |
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Financial Position
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | |
| LIABILITIES | Note | | | |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| CURRENT LIABILITIES | | | | |
| Payroll, social charges and accruals | 19 | 175,584 | 206,957 | 159,388 |
| Suppliers | 20 | 612,568 | 543,529 | 497,832 |
| Income tax and social contribution | 12 | 153,249 | 124,505 | 134,263 |
| Other tax payable | 12 | 378,871 | 325,990 | 235,588 |
| Loans and financing | 21 | 83,095 | 81,698 | 98,461 |
| Debentures | 22 | 621,157 | 54,195 | 195,000 |
| Dividends payable | | 163,634 | 90,806 | 243,652 |
| Post-employment benefits | 23 | 24,255 | 22,505 | 21,344 |
| Customer charges due | 24 | 56,105 | 29,523 | 43,123 |
| Research and Development and Energy Efficiency | 25 | 155,991 | 121,005 | 126,484 |
| Payables related to concession - use of public property | 26 | 40,984 | 38,029 | 38,166 |
| Other accounts payable | 27 | 71,308 | 84,581 | 75,744 |
| | | | | |
| | | 2,536,801 | 1,723,323 | 1,869,045 |
| | | | | |
| NONCURRENT LIABILITIES | | | | |
| Suppliers | 20 | 144,936 | 175,796 | 214,157 |
| Tax payable | 12 | 32,252 | 131,650 | 618 |
| Deferred income tax and social contribution | 12 | 887,218 | 901,084 | 935,022 |
| Loans and financing | 21 | 1,280,982 | 784,144 | 769,056 |
| Debentures | 22 | - | 753,384 | 802,116 |
| Post-employment benefits | 23 | 384,208 | 352,976 | 331,165 |
| Research and Development and Energy Efficiency | 25 | 90,732 | 90,493 | 72,079 |
| Payables related to concession - use of public property | 26 | 340,099 | 312,626 | 319,433 |
| Other accounts payable | 27 | - | 2,953 | 6,674 |
| Reserve for risks | 28 | 866,378 | 560,111 | 653,382 |
| | | | | |
| | | 4,026,805 | 4,065,217 | 4,103,702 |
| EQUITY | 29 | | | |
| Attributable to Parent Company | | | | |
| Share capital | | 6,910,000 | 4,460,000 | 4,460,000 |
| Capital reserves | | - | 838,340 | 838,340 |
| Equity valuation adjustments | | 1,546,053 | 1,649,170 | 1,750,069 |
| Accumulated other comprehensive income | | 13,463 | 11,464 | - |
| Legal reserves | | 478,302 | 428,912 | 377,590 |
| Retained earnings | | 2,056,526 | 2,908,112 | 2,316,218 |
| Additional proposed dividends | | 25,779 | - | - |
| | | 11,030,123 | 10,295,998 | 9,742,217 |
| | | | | |
| Attributable to non-controlling interest | | 265,703 | 228,365 | 218,877 |
| | | | | |
| | | 11,295,826 | 10,524,363 | 9,961,094 |
| | | | | |
| TOTAL LIABILITIES AND EQUITY | | 17,859,432 | 16,312,903 | 15,933,841 |
| |
| The accompanying notes are an integral part of these financial statements. |
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Companhia Paranaense de Energia – Copel
Consolidated Statements of Operations
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
| CONTINUOUS OPERATIONS | Note | | |
| | | 2010 | 2009 |
| OPERATING REVENUES | | | |
| Electricity sales to final customers | 30 | 2,213,403 | 2,059,554 |
| Electricity sales to distributors | 30 | 1,288,001 | 1,209,157 |
| Use of main distribution and transmission grid | 30 | 2,272,421 | 1,975,117 |
| Construction revenues | 30 | 663,534 | 601,880 |
| Telecommunications revenues | 30 | 97,882 | 80,262 |
| Distribution of piped gas | 30 | 237,272 | 205,158 |
| Other operating revenues | 30 | 128,600 | 119,012 |
| | | 6,901,113 | 6,250,140 |
| | | | | |
| Cost of sales and services provided | | | |
| Electricity purchased for resale | 31 | (1,972,275) | (1,816,848) |
| Use of main distribution and transmission grid | 31 | (592,741) | (553,174) |
| Personnel and Management | 31 | (634,277) | (630,917) |
| Pension and healthcare plans | 31 | (97,528) | (85,243) |
| Materials and supplies | 31 | (75,533) | (58,993) |
| Raw materials and supplies for power generation | 31 | (22,975) | (21,231) |
| Natural gas and supplies for the gas business | 31 | (144,648) | (128,916) |
| Third-party services | 31 | (245,232) | (228,579) |
| Depreciation and amortization | 31 | (511,491) | (509,230) |
| Construction costs | 31 | (662,887) | (601,614) |
| Other | 31 | (16,556) | 5,961 |
| | | (4,976,143) | (4,628,784) |
| | | | | |
| GROSS PROFIT | | 1,924,970 | 1,621,356 |
| Other Operating Revenues (Expenses) | | | |
| Sales expenses | 31 | (62,466) | (54,281) |
| General and administrative expenses | 31 | (353,626) | (434,693) |
| Other revenues (expenses), net | 31 | (575,908) | (89,247) |
| Result of equity in investees | 16 | 99,337 | 14,327 |
| | | (892,663) | (563,894) |
| | | | | |
| OPERATING INCOME BEFORE FINANCIAL RESULTS | | 1,032,307 | 1,057,462 |
| | | | | |
| Financial income ( Expenses ) | | | |
| Financial revenues | 32 | 652,231 | 337,396 |
| Financial expenses | 32 | (303,806) | (330,661) |
| | | 348,425 | 6,735 |
| | | | | |
| OPERATING INCOME | | 1,380,732 | 1,064,197 |
| INCOME TAX AND SOCIAL CONTRIBUTION | | | |
| Income tax and social contribution | 12 | (497,968) | (290,770) |
| Deferred income tax and social contribution | 12 | 127,517 | 38,851 |
| | | (370,451) | (251,919) |
| | | | | |
| NET INCOME FOR THE PERIOD | | 1,010,281 | 812,278 |
| Attributable to Parent Company | | 987,807 | 791,776 |
| Attributable to non-controlling interest | | 22,474 | 20,502 |
| | | | | |
| BASIC AND DILUTED NET EARNING PER SHARE ATTRIBUTED | | | |
| TO PARENT COMPANY SHAREHOLDERS - in reais | | | |
| Class A preferred shares | 29 | 5.2075 | 3.7066 |
| Class B preferred shares | 29 | 3.7904 | 3.0389 |
| Common shares | 29 | 3.4456 | 2.7624 |
The accompanying notes are an integral part of these financial statements. |
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Comprehensive Income
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | 2010 | 2009 |
| NET INCOME FOR THE PERIOD | 1,010,281 | 812,278 |
| Adjustments to financial assets classified as available for sale - Distribution concession | 3,029 | 17,369 |
| (-) Taxes on financial asset adjustments | (1,030) | (5,905) |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | 1,012,280 | 823,742 |
| Attributed to Parent Company | 989,806 | 803,240 |
| Attributed to non-controlling | 22,474 | 20,502 |
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Changes in Equity
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | | | | |
| | | Attributable to Parent Company | Total | Attributable
to non-
controlling | Consolidated
Total |
| | | | | Equity | Accumulated Other | Income reserves |
| | | Retained | Additional | |
| | | Share | Capital | valuation | Comprehensive | Legal | earnings | proposed | Retained |
| | Note | capital | reserves | adjustments | Income | reserve | reserve | dividends | earnings |
Balance as of January 1, 2009
(after adoption of the new accounting rules) | | 4,460,000 | 838,340 | 1,750,069 | - | 377,590 | 2,316,218 | - | - | 9,742,217 | 218,877 | 9,961,094 |
| | | | | | | | | | | | | |
| Net income for the period | | - | - | - | - | - | - | - | 791,776 | 791,776 | 20,502 | 812,278 |
| Other comprehensive income | | | | | | | | | | | | |
| Adjustments to financial assets deemed available for sale, net of taxes | | - | - | - | 11,464 | - | - | - | - | 11,464 | - | 11,464 |
| Total comprehensive income for the period | | - | - | - | 11,464 | - | - | - | 791,776 | 803,240 | 20,502 | 823,742 |
| Transfer to retained earnings | 29 | - | - | (100,899) | - | - | - | - | 100,899 | - | - | - |
| Allocation proposed at the G.S.M.: | | | | | | | | | | | | |
| Legal reserve | | - | - | - | - | 51,322 | - | - | (51,322) | - | - | - |
| Interest on capital | | - | - | - | - | - | - | - | (230,000) | (230,000) | - | (230,000) |
| Dividends | | - | - | - | - | - | - | - | (19,459) | (19,459) | (11,014) | (30,473) |
| Retained earnings | | - | - | - | - | - | 725,652 | - | (725,652) | - | - | - |
| Transfer to retained earnings | | - | - | - | - | - | (133,758) | - | 133,758 | - | - | - |
| Balance as of December 31, 2009 | | 4,460,000 | 838,340 | 1,649,170 | 11,464 | 428,912 | 2,908,112 | - | - | 10,295,998 | 228,365 | 10,524,363 |
| Net income for the period | | - | - | - | | - | - | - | 987,807 | 987,807 | 22,474 | 1,010,281 |
| Other comprehensive income | | | | | | | | | | | | |
| Adjustments to financial assets deemed available for sale, net of taxes | | - | - | - | 1,999 | - | - | - | - | 1,999 | - | 1,999 |
| Total comprehensive income for the period | | - | - | - | 1,999 | - | - | - | 987,807 | 989,806 | 22,474 | 1,012,280 |
| Transfer to retained earnings | 29 | - | - | (103,117) | - | - | - | - | 103,117 | - | - | - |
| Share capital increase | | 2,450,000 | (838,340) | - | - | - | (1,611,660) | - | - | - | - | - |
| Advance for future capital increase | | - | - | - | - | - | - | - | - | - | 30,812 | 30,812 |
| Allocation proposed at the G.S.M.: | | | | | | | | | | | | |
| Legal reserve | | - | - | - | - | 49,390 | - | - | (49,390) | - | - | - |
| Interest on capital | | - | - | - | - | - | - | - | (200,000) | (200,000) | - | (200,000) |
| Dividends | | - | - | - | - | - | - | 25,779 | (81,460) | (55,681) | (15,948) | (71,629) |
| Retained earnings | | - | - | - | - | - | 760,074 | - | (760,074) | - | - | - |
| Balance as of December 31, 2010 | | 6,910,000 | - | 1,546,053 | 13,463 | 478,302 | 2,056,526 | 25,779 | - | 11,030,123 | 265,703 | 11,295,826 |
| |
| The accompanying notes are an integral part of these financial statements. |
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Cash Flows
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
| | Note | | |
| | | 2010 | 2009 |
| Cash flows from operating activities | | | |
| Net income for the period | | 1,010,281 | 812,278 |
| Adjustments for the reconciliation of net income with the generation of cash | | | |
| by operating activities: | | | |
| Depreciation | 17.2 | 336,902 | 348,965 |
| Amortization of intangible assets - concession | 18 | 200,992 | 185,785 |
| Amortization of intangible assets - other | 18 | 5,098 | 5,031 |
| Unrealized monetary and exchange variations, net | | (116,826) | 126,341 |
| Return on accounts receivable related to concession | 9.1 | (272,613) | (282,315) |
| Result of equity in subsidiaries and investees | 16.6 | (99,337) | (14,327) |
| Income tax and social contribution | 12.1 | 497,968 | 290,770 |
| Deferred income tax and social contribution | 12.2 | (127,517) | (38,851) |
| Provision for losses in receivables related to concession | 9.3 | 21,333 | 6,700 |
| Allowance for doubtful accounts | 31.6 | 26,424 | 16,448 |
| Provision for losses from devaluation of investments | 31.6 | 2,114 | 733 |
| Reserves (reversal) for risks | 31.6 | 334,238 | (57,118) |
| Provision for post-employment benefits | | 48,314 | 34,052 |
| Provision for research and development and energy efficiency | 25 | 61,339 | 56,284 |
| Write-off of accounts receivable related to concession | 9.1 | 25,707 | 26,686 |
| Write-off of investments | 16.6 | 589 | 160 |
| Write-off of property, plant, and equipment, net | 17.4 | 26,641 | 22,594 |
| Write-off of intangible assets, net | 18 | 14,871 | 17,540 |
| Write-off of intangible assets related to concession - goodwill | 18.4 | 44,572 | - |
| | | | | |
| Increase (decrease) in assets | | | |
| Customers and distributors | | 84,274 | 107,429 |
| Dividends and interest on capital received | | 18,067 | 15,845 |
| CRC transferred to the State Government | 8 | 129,095 | 130,967 |
| Judicial deposits | | (241,687) | 14,502 |
| Other receivables | | (26,522) | (33,021) |
| Inventories | | (9,322) | (28,555) |
| Income tax and social contribution | | 104,587 | (70,014) |
| Other recoverable taxes | | 3,630 | (25,401) |
| Receivables from related parties | | (1,575) | - |
| Prepaid expenses | | 1 | (1,393) |
| | | | | |
| Increase (decrease) in liabilities | | | |
| Payroll, social charges and accruals | | (31,373) | 47,569 |
| Suppliers | | 4,122 | (13,415) |
| Paid income tax and social contribution | | (469,224) | (300,528) |
| Other taxes payables | | (62,932) | 219,341 |
| Loans and financing - interest due and paid | 21 | (106,408) | (119,102) |
| Debentures - interest due and paid | 22 | (71,338) | (110,035) |
| Post-employment benefits | | (15,332) | (11,080) |
| Customers charges due | | 26,582 | (13,600) |
| Research and development and energy efficiency | | (45,399) | (56,601) |
| Payables related to concession - use of public property | | (38,274) | (38,266) |
| Other accounts payable | | (16,349) | 4,919 |
| Reserves for risks | | (27,971) | (36,153) |
| | | | | |
| Net cash generated (used) by operating activities | | 1,247,742 | 1,241,164 |
| (next page) | | | |
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Companhia Paranaense de Energia – Copel
Consolidated Statement of Cash Flows
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| (continued) | | | |
| | Note | | |
| | | 2010 | 2009 |
| Cash flows from investing activities | | | |
| Bonds and securities | | (183,880) | (10,013) |
| Additions to investiments | | (180) | (151) |
| Additions to property, plant, and equipment | | (353,367) | (243,791) |
| Additions to intangible assets related to concession | 18 | (655,411) | (679,248) |
| Additions to other intangible assets | 18 | (28,177) | (1,122) |
| Customer contributions | | 89,177 | 57,422 |
| | | | | |
| Net cash generated (used) by investing activities | | (1,131,838) | (876,903) |
| | | | | |
| Cash flows from financing activities | | | |
| Paid-in capital in subsidiaries by non-controlling shareholders | | 30,812 | - |
| Loans and financing from third-parties | 21 | 552,479 | 144,262 |
| Payment of the principal amount of loans and financing | 21 | (46,593) | (62,987) |
| Payment of the principal amount of debentures | 22 | (177,908) | (163,175) |
| Dividends and interest on capital paid | | (198,801) | (413,319) |
| | | | | |
| Net cash generated (used) by financing activities | | 159,989 | (495,219) |
| | | | | |
| Increase (decrease) in cash and cash equivalents | | 275,893 | (130,958) |
| | | | | |
| Cash and cash equivalents at the beginning of the period | 5 | 1,518,523 | 1,649,481 |
| Cash and cash equivalents at the end of the period | 5 | 1,794,416 | 1,518,523 |
| | | | | |
| Variation in cash and cash equivalents | | 275,893 | (130,958) |
| |
| The accompanying notes are an integral part of these financial statements |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| 1 | General Information Companhia Paranaense de Energia - Copel (Copel, the Company or the Parent Company), headquartered at Rua Coronel Dulcídio, 800, Batel, Curitiba, State of Paraná, is a public company with shares traded on Corporate Governance Level 1 of the Special Listings of the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA S.A.) 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. Copel and its subsidiaries (Group or Company) are engaged 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 (Agência Nacional de Energia Elétricaor ANEEL), which reports to the Ministry of Mines and Energy (Ministério das Minas e Energiaor MME). Additionally, Copel takes part in consortiums, private enterprises, or mixed capital companies in order to operate mostly in the areas of energy, telecommunications, natural gas, and water supply and sanitation. |
| 2 | Main Accounting Policies 2.1 Statement of compliance Copel’s financial statements are comprised by the consolidated financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). 2.2 Basis of presentation Authorization for the publication of these financial statements was granted at the Meeting of the Board of Officers held on March 21, 2011 and on June 16, 2011. These financial statements featured in this report are prepared based on historical cost, except in the case of certain financial instruments valued at fair value and certain property, plant, and equipment valued at deemed cost at the transition date, as described in the following accounting practices. The historical cost is usually based on the fair value of the disbursements made in exchange for the assets at hand. These consolidated financial statements are the first to be prepared by the Company in compliance with the IFRSs. The effects of the first-time adoption of the IFRSs are disclosed in Note 4. Below is a summary of the main accounting policies adopted by the Copel group: 2.3 Basis for consolidation The consolidated financial statement includes de statements of the Company and of its subsidiaries and exclusive investment funds. Control in subsidiaries is deemed as de power by the company to control their financial and operational policies to reap benefits from their activities. 2.4 Cash and cash equivalents Cash and cash equivalents includes cash, bank deposits, and temporary short-term financial investments with original maturity of 90 days. Temporary short-term investments are recorded at cost as of the date of the balance sheets, plus earnings accrued as of the final date of the fiscal year. Cash and cash equivalents, have immediate liquidity, and are subject to an insignificant risk of change in value. 2.5 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 statements, and supply of natural gas, accounted for on an accrual basis. |
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Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2.6 Bonds and Securities
It comprises financial instruments classified as available for sale and held to maturity. The accounting treatment of these financial instruments is described in item 2.29.
2.7 Allowance for doubtful accounts
The allowance for doubtful accounts is recorded in amounts 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. It comprises receivables billed until the date of the balance sheets, accounted for on accrual basis.
2.8 Segments
Operational segments are defined as business activities which may yield revenues and require expenses, whose operational results are regularly reviewed by the entity’s chief decision maker to underpin the decision-making regarding resources to be allocated to the segment and to evaluate its performance, and for which there is available individualized financial information.
2.9 Accounts payable related to concession – use of public property
This item corresponds to the amounts set forth in the concession agreement in connection with the right to explore hydraulic energy potential (onerous concession). These agreements are signed as Use of Public Property (Uso de Bem Públicoor UBP) agreements. Liability is recorded on the date of signature of the concession agreement, regardless of the schedule of disbursements set forth therein. The initial accrual of the liability (obligation) and the corresponding intangible asset (concession rights) corresponds to the future disbursements at present value.
Amortization of the intangible assets is calculated under the linear method for the remaining term of the concession. The financial liability is restated by the effective interest rate method and reduced by the payments under contract.
2.10 Dividends and interest on capital
The distribution of dividends and interest on capital are recorded as a liability in the Company’s financial statements at the end of the fiscal year, based on its by-laws. However, any amounts above the minimum mandatory dividends are only recorded under liabilities on the date they are approved and announced at the General Shareholders’ Meeting. The tax benefit of interest on capital is recorded in the statement of operations.
2.11 Intangible assets - concessions
Intangibles recorded at the acquisition date in companies which holds concessions and are amortized over the respective remaining terms of each concession (concession rights with limited term).
2.12 Investments in non-controlled companies
The results, assets, and liabilities of investees are incorporated into Copel’s financial statements according to the equity method. Pursuant to the equity method, investments in investees are at first recorded at cost and then adjusted for purposes of accounting of the Group’s share of comprehensive income/loss. When the Group’s share of losses in an investee exceeds its interest in it, the Group no longer recognizes these additional losses (accrual of losses down to zero). Any additional losses are only recognized if the Group has incurred legal obligations or other liabilities or has made payments on behalf of the investee.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The amount exceeding the cost of acquisition of the Group’s interest in the net fair value of assets, liabilities, and identifiable contingent liabilities of the investee on the date of acquisition is accrued as goodwill, when not related to concessions. For concessions, refer to item 2.11.
The requirements of IAS 39 are applicable for purposes of determining the need to record impairment losses in connection with the Group’s interests in investees. If necessary, the total book value of the investment (including goodwill) is tested for impairment pursuant to IAS 36 – Impairment of Assets, as a single asset, through comparison between its recoverable value and its book value. Recognized impairment losses are added to the book value of the corresponding investment. The reversal of these losses is recognized according to IAS 36 and as the recoverable value of the corresponding investment is subsequently increased.
2.13 Participation in joint ventures
A joint venture is an agreement under which the Group and other parties conduct economic activities subject to joint control, a situation where decisions about strategic financial and operational policies concerning the joint venture's activities require approval by all parties sharing joint control.
The Group presents its interest in Dominó Holdings in its consolidated financial statements according to the proportional consolidation method. The Group’s participation in the assets, liabilities, and results of Dominó Holdings are consolidated proportionally under the corresponding items of the consolidated financial statements, line by line.
2.14 Statement of operations
Revenues, costs, and expenses are recorded under the accrual method, i.e., when products are delivered and services actually rendered, regardless of receipt or payment.
2.15 Revenue recognition
Operating revenues are recognized when: (i) the amount of the revenue 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 are received by the Company; and (iv) the risks and benefits have been fully transferred to the respective buyer.
Revenues are valued at the fair value of the payment received or to be received, with the deduction of discounts and/or bonuses granted and charges on sales.
2.15.1 Unbilled revenues
Unbilled revenues correspond to revenues from sales of power 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.
2.15.2. Rendered services
Revenues under a service agreement are recognized according to the stage of completion of the agreement, determined as follows:
· Installation fees are recognized according to the stage of completion of the installation services, determined proportionally between the total estimated time for completion of services and the time elapsed at the end of each reporting period;
· Service fees included in the price of products sold are recognized proportionally to their total costs, based on historical trends of actual services rendered in connection with products sold previously.
· Revenues for services are recognized at the contractual rates according to the number of hours worked and whenever direct expenses are incurred based on time and materials used.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2.15.3. Construction revenues and construction costs
IFRIC 12 and SIC 29 establish that electric energy utilities should record and measure revenues of according to IAS 11 - Construction Contracts and IAS 18, IFRIC 13 and SIC 31 – Revenues, even when governed by a single concession agreement. The Company records construction revenues in connection with the construction services for infrastructure employed in the power transmission and distribution services.
The respective costs are recognized when incurred in the statement of operations for the corresponding period, as construction costs.
Given that the Company outsources the construction of power distribution infrastructure to non-related parties and that a large part of the work is carried out over short periods, the construction margin to the Company’s power distribution business is not significant, and may reach amounts close to zero.
The construction margin adopted for the transmission business in 2010 is 1.65% (1.80% in 2009) and results from a calculation methodology which takes into account the respective business risk.
2.15.4. Revenues from dividends and interest
Revenues from dividends are recognized when the shareholder's right to receive said dividends is established.
Interest revenues from financial assets are recognized when it is likely that the future economic benefits shall be earned by the Group and the amount of these revenues may be determined reliably. Interest revenues are recognized according to the straight-line method based on the effective time and interest rate applicable to the outstanding principal amount; the effective interest rate is the one which discount with precision the estimated future cash earnings over their estimated lives or terms with regard to the initial net book value of the such financial assets.
2.15.5. Lease revenues
The Group’s policy for recognition of operating lease revenues is described in Note 2.16.1 – Leases – The Group as a Lessor.
2.16 Leases
Leases are classified as financial whenever the terms of the lease substantially transfer all risks and benefits of property ownership to the lessee. All other leases are classified as operating leases.
2.16.1. The Group as a Lessor
Lease revenues from operating leases are recognized according to the linear method during the term of each lease.
2.16.2. The Group as a Lessee
Payments under operating leases are recognized as expenses according to the linear method based on the duration of the lease, except when other methods are more representative of the time when the economic benefits of the leased asset are consumed or received. Contingent payments resulting from operating leases are recognized as expenses in the period when they are settled.
2.17 Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamberor CCEE)
Power purchase and sale transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or to estimates prepared by Copel’s senior management, when this information is not available in time.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2.18 Research and Development Programs - R&D - and Energy Efficiency Programs - EEP
These are research and development and energy efficiency programs to which utilities are required to allocate 1% of their net operating revenues as defined by ANEEL pursuant to Law no. 9,991/00 and ANEEL Resolutions no. 300/08 and 316/08.
2.19 Provision for environmental costs and obligations
Environmental liabilities are recognized under liabilities when their occurrence is likely and may be reasonably estimated.
They are recognized as the Company assumes formal obligations before regulatory agencies or becomes aware of potential risks related to socio-environmental issues, which may lead to cash disbursements that are deemed probable and that may be estimated. During the project implementation phase, the provision is recorded against property, plant, and equipment or intangible assets in progress. Once the project enters commercial operation, all costs or expenses incurred with socio-environmental programs related to the project’s operation and maintenance licenses are recorded directly to expense for the corresponding period.
2.20 Post-employment benefits
The Company sponsors benefits plans to its employees, described in detail in Note 23. The amounts of these actuarial obligations (contributions, costs, liabilities, and/or assets) are calculated annually by an independent actuary on the same base date as the end of the fiscal period and are recorded pursuant to IAS 19, and by IFRIC 14.
The adoption of the project unit credit method adds each year of service as the source of an additional benefit unit, adding up to the calculation of the final liability.
Other actuarial assumptions are used which take into account biometric and economic tables in addition to historical data from the benefits plans, obtained from the manager of these plans, the Copel Foundation.
Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.
2.21 Taxes and social contributions
Sales and services revenues 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 accounted for by deducting such from the cost of products sold in the statement of operations.
Advance payments of amounts eligible for offsetting are accounted for 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.
Deferred income tax and social contribution credits resulting from temporary discrepancies, tax losses or negative bases for the calculation of social contribution are recognized only as long as there is a possibility of a tax basis that allows for their realization. Deferred income tax and social contribution assets have been calculated on taxes losscarryforwards, and temporary differences, at the applicable rates, and take into account the expected future generation of taxable income, based on technical feasibility studies approved by the Company’s Board of Directors.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Provisional Measure no. 449/08, converted into Law no. 11,941/09, created the Transitional Tax Regime (Regime Tributário de Transiçãoor RTT), applicable to entities subject to corporate income tax (Imposto de Renda da Pessoa Jurídicaor IRPJ) based on taxable income. The adoption of this regime was optional in 2008 and 2009, whereas in 2010 it became mandatory and will remain so until a new law is passed governing the tax effects of the new accounting methods and criteria, with a view to tax neutrality.
The goal of this tax regime is to neutralize the potential tax impact resulting from the changes in accounting criteria for the recognition of revenues, costs, and expenses introduced by Law no. 11,638/07.
With the adoption of this regime the changes in criteria for the recognition of revenues, costs, and expenses will not have an effect on the assessment of the basis for the calculation of taxes, both on revenues and on income. The accounting methods and criteria to be considered for tax purposes are those in effect as of December 31, 2007.
2.22 Property, Plant, and Equipment
The Company has adopted the deemed cost to determine the fair value of Copel Geração e Transmissão’s property, plant, and equipment, specifically for the generation business as of the date of transition of Copel’s financial statements to the IFRSs (January 1, 2009). These assets are depreciated according to the linear method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful life of the assets related to concession's infrastructure, limited to the term of mentioned concession, when applicable. The estimated useful life, the residual amounts, and depreciation are reviewed as of the date of the balance sheets, and the effect of any changes in estimates is recorded prospectively. (see Note 4.2.8).
Internal studies by the Group have shown that the balances as of January 1, 2009 of assets related to telecommunications business were compatible with their fair values and supported by impairment tests. (see Note 4.2.8).
Costs directly attributable to construction work as well as interest and financial charges on loans from third-parties during construction are recorded under property, plant, and equipment in progress.
2.23 Accounts receivable related to concession
2.23.1. Financial assets - Distribution
These refer to reimbursements set forth in the public power distribution service concession agreements, which the Company understands as an unconditional right to cash payments upon expiration of the concession from the granting authority (ANEEL). These reimbursements are designed to compensate the Company for the investments made in infrastructure which have not been recovered through the collection of tariffs at the end of the concession because of their useful lives being longer than the term of said concession.
Since these financial assets do not have determinable fixed cash flows – as the Company operates under the assumption that the value of the corresponding reimbursements will be based on the replacement cost of the concession assets and as they do not feature the necessary characteristics to be classified under any other category of financial assets – they are classified as “available for sale”. The cash flows related to these assets are determined taking into account the replacement cost of PPE named Regulatory Compensation Basis (Base de Remuneração Regulatóriaor BRR), defined by the granting authority. The methodology of the BRR is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession. This tariff basis (BRR) is reviewed every four years taking into account several factors. Its goal is to reflect the variation in the prices of physical assets, including write-offs, depreciation, and additions of assets to the concession infrastructure (physical assets).
The return on these financial assets is based on the regulatoryWeighted Average Cost of CapitalorWACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
In the periods between periodic rate reviews, the balance of these financial assets must be adjusted according to Company’s management expectation of increase variations in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.
Since there is not an active market for these financial assets, the Company determines their fair value using the same components of the regulatory compensation rate set forth by ANEEL (regulatory WACC). These components, updated as of the date of the balance sheets, determine the new interest rate used by the Company to restate to present value the fixed cash flows set forth in the last periodic rate review and estimated until the next review in 2012. Due to the nature of these financial assets, the Company believes this methodology is the one which better reflects their fair value in the view of market participants, since the rate of return set forth by ANEEL takes into consideration, in addition to the risk-free rates of return, all risks inherent to the sector.
2.23.2. Financial assets - Transmission
These refer to receivables in connection with the power transmission concession agreements and include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) revenues from the operation and maintenance of infrastructure effectively constructed; and (iii) the financial return on these revenues guaranteed by the granting authority during the term of the concession.
Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Annual Allowed Revenues (Receita Annual Permitidaor RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistemaor ONS, in Portuguese). Upon expiration of the concession, any uncollected amounts related to the construction, operation, and maintenance of infrastructure shall be received directly from the granting authority, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP).
These financial assets do not have an active market, present fixed and ascertainable cash flows, and are thus classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.
2.24 Intangible assets
2.24.1. Concession agreements - distribution
These comprise the right to access and to commercial operation of infrastructure, built or acquired by the operator or provided to be used by the operator as part of the electric energy public service concession agreement (the right to charge fees to the users of the public service provided by the operator), in compliance with IAS 38 – Intangible assets, IFRIC 12– Concession Agreements.
Intangible assets are determined as the remaining portion after the assessment of the financial assets (residual amount), due to their recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by consumers, subject thus to demand risk.
Intangible assets are recorded at their fair acquisition and construction value, minus accumulated amortization and impairment losses, when applicable.
The amortization of intangible assets reflects the pattern of estimated accrual of the corresponding economic benefits by Copel Distribuição, with expectation of average amortization of 15% a year, limited to the term of the concession.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2.24.2. Intangible assets acquired separately
Intangible assets with defined useful lives acquired separately are recorded at cost, minus accumulated amortization and impairment losses. Amortization is recorded linearly based on the estimated useful lives of the corresponding assets. The estimated useful lives and the amortization method are reviewed at year-end, and the effect of any changes in estimates is recorded prospectively.
2.24.3. Write-off of intangible assets
Intangible assets are written-off upon sale or whenever there are no future economic benefits from use or sale to be received. Any gains or losses resulting from the write-off of intangible assets, measured as the difference between the net sale revenue and the asset's book value, are recorded to income or expense at the time of write-off.
2.25 Impairment value of assets
Property, plant, and equipment and intangible assets are assessed annually to detect evidence of unrecoverable losses or whenever significant events or changes in circumstances indicate that the book value of any such asset may not be recoverable. Whenever there is a loss, resulting from situations where an asset’s book value exceeds its recoverable value, defined as the greater between the asset’s value in use and its net sale value, this loss is recorded to expenses.
2.26 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 actual purchase cost. Recorded amounts do not exceed their estimated sale price, minus all estimated costs of completion and required costs for carrying out the sale.
2.27 Provisions
Provisions are recorded for current liabilities (legal or assumed) resulting from past events, whose amounts may be estimated reliably and whose settlement is likely.
When some or all economic benefits required for the settlement of a provision are expected to be recouped from a third party, a corresponding assets is recorded if, and only if, this reimbursement is virtually guaranteed and its amount may be reliably ascertained.
2.28 Earnings per share or EPS
Earnings per share are calculated based on the weighted average of the number of shares outstanding during the reporting period. For all presented periods, the Company has not had any potential instruments equivalent to common shares which could have a diluting effect. Thus the basic earnings per share are equivalent to the diluted earnings per share.
Since holders of preferred and common shares are entitled to different dividends, voting rights, and settlements, basic and diluted earnings per share have been calculated according to the “two-class method". The two-class method is a formula for allocation of earnings which determines earnings per preferred share and per common share according to the declared dividends, pursuant to the Company's by-laws and to the rights to participation in non-distributed earnings calculated in accordance with the right to dividends of each share type, as discussed in Note 29.1.6.
Basic and diluted earnings per share are shown in Note 29.1.7.
All earnings per share data is shown effectively on a per share basis.
2.29 Financial instruments
Financial assets and liabilities are recorded whenever a Group entity is a party to the terms and conditions of the financial instrument at hand.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Non-derivative financial instruments include cash and cash equivalents, receivables from customers, Recoverable Rate Deficit (Conta de Resultados a Compensaror CRC) transferred to the Government of the State of Paraná, financial investments, accounts receivable in connection with concessions, loans and financing, debentures, transactions with suppliers, accounts payable in connection with concessions (use of public property), and others. These financial instruments are recorded immediately on the date of transaction, i.e., when the corresponding right or liability arises, are initially recorded at fair value plus or minus any transaction costs that are directly attributable. After initial accrual, these instruments are valued as shown below:
Financial assets
2.29.1. Instruments held to maturity
If the Company and/or its subsidiaries are interested in and capable of holding any financial assets until maturity, they are classified as held to maturity. Investments held to maturity are valued at amortized cost according to the effective interest rate method, minus any reductions in their recoverable value.
2.29.2. Instruments available for sale
The initial assessment of financial instruments classified as “available for sale” is made based on their fair value and subsequently at their market value. The variation in the fair value resulting from the difference between the market interest rates and the effective interest rates is recorded directly to equity, net of tax effects, as an adjustment on accumulated other comprehensive income, without being recorded through income for the corresponding period. The interest portion set at the beginning of the corresponding agreement, calculated based on the effective interest rate method, as well as any changes in expected cash flows, are recorded to income for the applicable period.
At the time of settlement of a financial instrument classified as a financial asset available for sale, any gains or losses accrued under equity are recorded to income or expense for the applicable period.
2.29.3. Financial instruments recorded at fair value through profit and loss
Financial instruments are classified as recorded at fair value to income if they are held for dealing or designated as such at initial accrual. Financial instruments are recorded at fair value to income if the Company and/or its subsidiaries manage these investments and make purchase or sale decisions based on their fair value in the context of an investment and risk management strategy set by the Company and/or its subsidiaries. After initial accrual, attributable transaction costs are recorded to income when incurred.
2.29.4. Loans and receivables
This category only comprises non-derivative assets with fixed or ascertainable payments which are not quoted in any active markets. They are recognized according to the amortized cost or effective interest rate methods.
Financial liabilities and equity instruments
2.29.5 Classification as debt or equity instruments
Debt and equity instruments issued by a Group entity are classified as financial liabilities or equity, according to the nature of the underlying agreement and the definitions of financial liability and equity instrument.
2.29.6. Equity instruments
Equity instruments are contracts containing residual participation in the assets of a company after the deduction of all its liabilities. Equity instruments issued by the Group are recorded when the corresponding funds are received, net of the direct issuance costs.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The repurchase of the Company's own equity instruments is recorded and deducted directly to equity. No gains or losses are recorded to income from the purchase, sale, issue, or cancellation of the Company’s own equity instruments.
2.29.7. Compound instruments
The portions that make up the compound instruments issued by the Company (convertible securities) are classified separately as financial liabilities and equity according to the nature of the underlying agreement and the definitions of financial liabilities and equity instruments. The conversion option which is settled through the exchange of a fixed amount of cash or other financial asset for a fixed number of the Company’s own equity instruments is deemed an equity instrument.
On the date of issue, the fair value of the liability component is estimated according to the interest rates in effect on the market for similar non-convertible instruments. This amount is recorded as a liability based on the amortized cost as determined by the effective interest rate method until its elimination by conversion or until its maturity.
The conversion option classified as equity is determined by deducting the value of the liability component from the fair value of the compound instrument as a whole. This amount is recorded and included in equity, net of income tax effects, and is not reassessed. Furthermore, the conversion option classified as equity will remain recorded under equity until the option is exercised, in which case the balance recorded under equity will be transferred to the goodwill in the issue of securities item or to another item under equity. When the conversion option is not exercised on the date of maturity of a convertible security, the balance recorded under equity is transferred to the accrued earnings item or to another item under equity. No gains or losses are recorded to income after the conversion or the expiration of the conversion option.
The transaction costs related to the issue of convertible securities are allocated to liabilities and to the equity components proportionally to the allocation of the gross resources received. The transaction costs related to the equity component are recorded directly to equity. The transaction costs related to the liability component are included in the book value of this component and amortized over the lifespan of the corresponding convertible securities according to the effective interest rate method.
2.29.8. Financial liabilities
Financial liabilities are classified as “financial liabilities at fair value recorded to profit and loss” or “other financial liabilities”.
2.29.9. Financial liabilities recorded at fair value to profit and loss
Financial liabilities are classified as financial liabilities recorded at fair value to income when they are held for sale or designated at fair value recorded to income.
A financial liability is classified as held for sale if:
• it was acquired mostly for repurchase in the short term;
• it is part of an identified financial instrument portfolio managed jointly by the Group and features a recent pattern of effective short-term profitability; and
• it is a derivative not designated as an actual hedging instrument.
A financial liability not held for sale may be designated as recorded at fair value to income at initial accrual if:
• such designation eliminates or significantly reduces inconsistencies in valuation or accrual which would otherwise arise;
• this financial liability is part of a group of financial assets or liabilities or both, managed and performance-evaluated based on its fair value in accordance with the established risk management or investment strategy of the Group, and when information about the Group is supplied internally on the same basis; or
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
• this financial asset is part of a contract containing one or more embedded derivatives and IAS 39 - Financial Instruments: Accrual and Valuation allows the combined (assets or liabilities) contract to be fully designated as recorded at fair value to income.
Financial liabilities recorded at fair value to income are presented at fair value, and the respective gains or losses are recorded to income. Net gains or losses recorded to income incorporate interest paid on the financial liabilities. Fair value is determined according to the description contained in Note 36.
2.29.10. Other financial liabilities
Other financial liabilities (including loans) are valued at amortized cost according to the effective interest rate method.
The effective interest rate method is used to calculate the amortized cost of financial liabilities and to allocate their interest expenses over their respective terms. The effective interest rate is the rate that precisely deducts the estimated future cash flows (including fees paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) throughout the estimated lifespan of the liability at hand, or, when appropriate, throughout a shorter period, for the initial accrual of the net book value of the liability.
2.29.11. Write-offs of financial liabilities
The Group writes off financial liabilities only when its obligations are eliminated and cancelled or settled. The difference between the book value of the written-off financial liability and the corresponding disbursement made or to be made is recorded to income.
2.29.12. Financial instruments - derivatives
The Company maintains investment funds which operate with derivative financial instruments, with the sole purpose of protecting these funds' portfolios.
2.30 New and revised rules and interpretations which have not been adopted yet
The rules and changes in existing rules shown below have been published and are mandatory for the Group’s fiscal periods starting on January 1, 2011 of thereafter, or for subsequent periods. The Group has not, however, carried out early adoption of these rules and changes.
· IFRS 9, “Financial instruments”, issued in November 2009. This rule is the first step in the process of replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces new requirements for the classification, measurement, and write-off of financial assets and liabilities and will likely affect the Group’s recording of financial assets. This rule is not applicable until January 1, 2013, but it may be adopted early.
The Group is yet to evaluate the full impact of IFRS 9. Early indications, however, are that it may affect the Group’s accounting of debt-related financial assets available for sale, since IFRS 9 only allows the accrual of fair value gains and losses in other comprehensive income, if these are related to equity investments which are not kept for sale.
· IAS 24 (revised), “Related Party Disclosures", issued in November 2009. It replaces IAS 24, “Related Party Disclosures", issued in 2003. The revised IAS 24 is mandatory for periods starting as of January 1, 2011. Early adoption, in whole or in part, is allowed.
The revised rule clarifies and simplifies the definition of related party and eliminates the requirement that entities related to the government disclose details of all transactions with the government and other government-related entities. The Group will apply the revised rule as of January 1, 2011. When it is applied, the Group and the Parent Company will be required to disclose all transactions between its subsidiaries and investees. The Group is currently operating systems which will collect the necessary information. Thus, it is not possible at this time to disclose the impact, if any, of the revised rule on the disclosures of related parties.
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
· “Classification of rights issues” (change to IAS 32), issued in October 2009. The change applies to fiscal years starting as of February 1, 2010. Early adoption is allowed. The change addresses the accounting of stock rights denominated in currencies other than the issuer's functional currency. As long as certain conditions are met, these stock rights are now classified as equity,regardless of the currency in which its price is denominated. Previously, this stock had to be accounted for as derivative liabilities. The change is applicable retroactively, in compliance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. The Group will apply the revised rule as of January 1, 2011.
· IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”, applicable in fiscal periods started on July 1, 2010 or thereafter. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the issue of equity instruments to the creditor in order to settle, in full or in part, the financial liability (debt conversion). This requires a gain or loss to be recorded to income, which is valued by the difference between the book value of the financial liability and the fair value of the equity instruments issued. If the fair value of the issued financial instruments can not be reliably valued, the equity instruments must be valued to reflect the fair value of the settled financial liability. The Group will apply this interpretation as of January 1, 2011. It does not anticipate any impact on the financial statements of the Group or the Parent Company.
· “Prepayments of Minimum Funding Requirements" (amendment to IFRIC 14). These changes correct an unintentional consequence of IFRIC 14, IAS 19 - “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. Without these changes, entities may not recognize as assets certain voluntary prepayments for minimum funding contributions. This was not the intended result when IFRIC 14 was issued, and these changes aim to correct that. They will be applicable in fiscal years starting on January 1, 2011. Early adoption is allowed. Changes must be applied retroactively to the first published comparative period. The Group will apply these changes in the reporting period starting on January 1, 2011.
The rules and changes in existing rules shown in the table below have been published and are mandatory for periods shown:
New interpretations and changes to existing rules | Introduced changes | Applicable in fiscal periods starting as of: | Date of application at Copel |
Amendment to IAS 32, "Financial Instruments: Presentation – Disclosure of Stock Rights” | IASB has amended IAS 32 to allow rights, options, or warrants to acquire a fixed number of an entity's own equity instruments by a fixed amount in any currency to be classified as equity instruments, provided the entity offers rights, options, or warrants proportionally to all holders of the same category of non-derivative equity instruments. | Issued in October 2009. Applicable in fiscal periods starting as of: February 1, 2010. | In the fiscal year starting on January 1, 2011, if applicable. |
IFRIC 19 – “Extinguishing Financial Liabilities with Equity Instruments” | Clarifies the IFRS requirements when an entity renegotiates the terms of a financial liability with its creditor, who agrees to accept stock or other equity instruments to settle the financial liability in part or in full. | Issued in November 2009. Applicable in fiscal periods starting as of: July 1, 2010 | In the fiscal year starting on January 1, 2011, if applicable. |
Amendment to IFRS 1 – “First-Time Adoption of IFRS – Limited Exemption from Comparative IFRS 7 Disclosures to Entities Adopting IFRS for the First Time” | Offers the entities that are adopting the IFRSs for the first time the same options given to current IFRS users when adopting the changes to IFRS 7. It also clarifies the transition rules for the changes to IFRS 7. | Issued on July 1, 2010. Applicable in fiscal periods starting as of: January 1, 2011 | In the fiscal year starting on January 1, 2011, if applicable. |
IAS 24 - “Related Party Disclosures” (revised in 2009) | Changes the definition of related party and changes certain related-party disclosure requirements for entities related to the government. | Issued in November 2009. Applicable in fiscal periods starting as of: January 1, 2011 | In the fiscal year starting on January 1, 2011, if applicable. |
Amendment to IFRIC 14 | Eliminates unintentional consequences of the treatment of prepayments, where there are minimum funding requirements. The balances of prepayments of contributions in certain circumstances are recognized as assets instead of expenses. | Issued in November 2009. Applicable in fiscal periods starting as of: January 1, 2011 | In the fiscal year starting on January 1, 2011, if applicable.
|
IAS 19 – “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction" |
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
New interpretations and changes to existing rules | Introduced changes | Applicable in fiscal periods starting as of: | Date of application at Copel |
IFRS 9 “Financial Instruments” | IFRS 9 is the first standard issued as part of a larger project to replace IAS 39. IFRS 9 retains, but rather simplifies, the measurement model and establishes two main categories of measurement of financial assets: amortized cost and fair value. The classification basis depends on the entity’s business model and on the contractual characteristics of the cash flows of the financial assets. The guideline included in IAS 39 on impairment of financial assets and hedge accounting remains in effect. | Issued in November 2009. Applicable in fiscal periods starting as of: January 1, 2013. | In the fiscal year starting on January 1, 2013, if applicable.
|
The prior years amounts do not have to be restated whether an entity adopts the new rules for the periods started or to be started before January 1, 2012. |
Improvements to the IFRSs in 2010
The amendments shown in the table below are generally applicable to fiscal years starting as of January 1, 2011, unless otherwise indicated. Early adoption, although allowed by the IASB, is not available in Brazil.
New interpretations and changes to existing rules | Introduced changes | Applicability |
IFRS 1 – “First-Time Adoption of IFRS” | (a) Changes in accounting policy in the year of adoption | Applied prospectively. |
Clarifies that if a company which adopts the IFRS for the first time changes its accounting policies or its use of exemptions under IFRS 1 after having published an interim financial report according to IAS 34, "Interim Financial Reporting", then it must explain these changes and update the reconciliations between the prior GAAP and the IFRS. | |
(b) Basis for revaluation as deemed cost Allows first-time adopters of the IFRS to use the fair value determined by a specific event as deemed cost, even if the event takes place after the transition date, but before the publication of the first IFRS-compliant financial statements. When this revaluation takes place after the transition date, but during a period covered by the entity's first IFRS-compliant financial statements, any subsequent adjustments to the fair value determined by an event shall be recorded to equity. This event may be, for instance, a privatization or acquisition. | Entities which have adopted the IFRS in previous periods may apply this change retroactively in the first fiscal year after the change becomes applicable, provided the valuation date is within the period of the first IFRS-compliant financial statements. |
(c) Use of estimated cost for operations subject to regulated prices (such as public service utilities) | Applied prospectively. |
Entities subject to regulated tariffs may use previous accounting figures, based on the previous GAAP, for property, plant, and equipment or intangible assets as deemed cost on a per item basis. Entities which use this exemption are required to test each item for impairment pursuant to IAS 36 on the transition date. | |
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
3
New interpretations and changes to existing rules | Introduced changes | Applicability |
IFRS 3 – “Business Combinations” | (a) Transition requirements for contingent consideration based on a business combination which took place before the revised IFRS became applicable. | Applicable in fiscal years starting as of July 1, 2010. Applied retroactively. |
Clarifies that changes to IFRS 7 – “Financial Instruments: Disclosures”, IAS 32 – “Financial Instruments: Presentation”, and IAS 39 – “Financial Instruments: Recognition and Measurement”, which eliminate the exemption of contingent consideration, do not apply to contingent considerations arising from business combinations whose acquisition dates precede the application of IFRS 3 (as amended in 2008). | |
(b) Valuation of non-controlling interests The choice to value non-controlling interests at fair value or at the proportionate share of the acquiree's net assets only applies to instruments which represent the current stockholding position and entitle their bearers a proportionate share of the net assets in case of liquidation. All other non-controlling interest components are measured at fair value, unless otherwise required by the IFRS. | Applicable to fiscal years starting as of July 1, 2010. Applied prospectively, as of the date the entity starts to apply IFRS 3. Applicable in fiscal years starting as of July 1, 2010. Applied prospectively. |
(c) Share-based payments which have not been exchanged or voluntarily exchanged | |
The guideline for application of IFRS 3 applies to all share-based payment transactions which are part of a business combination, including share-based payments which have not been exchanged or voluntarily exchanged. | |
New interpretations and changes to existing rules | Introduced changes | Applicability |
IFRS 7 – “Financial Instruments” | Emphasizes the interaction between quantitative and qualitative disclosures about the nature and the extent of risks associated with financial instruments. | January 1, 2011 |
Applied retroactively. |
IAS 1 – “Presentation of Financial Statements" | Clarifies that entities shall present an analysis of other comprehensive income for each component of equity, in the statement of changes in shareholders’ equity or in the notes to the financial statements. | January 1, 2011 |
Applied retroactively. |
IAS 27 – “Consolidated and Separate Financial Statements” | Clarifies that the changes made as of IAS 27 to IAS 21 – “The Effect of Changes in Foreign Exchange Rates”, IAS 28 – “Investments in Associates”, and IAS 31 – “Interests in Joint Ventures” are prospectively applicable to fiscal years starting as of July 1, 2009, or before then, when IAS 27(R) was adopted early. | Applicable in fiscal years starting as of July 1, 2010. Applied retroactively. |
IAS 34 – “Interim Financial Reporting" | Offers guidelines to illustrate how to apply the disclosure principles of IAS 34 and adds disclosure requirements about: | January 1, 2011 |
. circumstances which are likely to affect the fair value of financial instruments and their classification; | Applied retroactively. |
. transfers of financial instruments between different levels of fair value ranking; | |
. changes in the classification of financial assets; and | |
. changes in contingent assets and liabilities. | |
IFRIC 13 – “Customer Loyalty Programmes” | The meaning of “fair value" is clarified in the context of measurement of credits in customer loyalty programmes. | January 1, 2011 |
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| 3 | MainAccounting Judgments and Estimates In the application of the Group’s accounting policies described in Note 2 herein, Company management must make judgments and prepare estimates concerning the book values of assets and liabilities which may not be easily obtained from other sources. Estimates and the respective assumptions are based on historical experience and in other factors deemed material. Actual results may differ from these estimates. Estimates and underlying assumptions are continuously reviewed. The effects resulting from reviewed accounting estimates are recognized in the period when these estimates are reviewed, if the review only affects this period, or also in subsequent periods if the review affects both the current period as well as future periods. |
| 3.1 Main judgments in the application of accounting policies Below are the main judgments, except those involving estimates (see Note 3.2), made by Company management during the process of application of the Group’s accounting policies and which most significantly affect the amounts recognized in the Company’s financial statements. 3.1.1. Financial assets held to maturity Management has reviewed the Group’s financial assets in conformity with capital maintenance and liquidity requirements and has confirmed the Group’s intent and ability to hold these assets until maturity. The book value of the financial assets held to maturity is R$68,647 as of December 31, 2010 (R$120,867 as of December 31, 2009). These assets are described in detail in Note 6. 3.2 Main sources of uncertainty in estimates Below are the main assumptions about the future and other main sources of uncertainty in estimates at the end of each reporting period, which may lead to significant adjustments in the book value of assets and liabilities in the next fiscal year. 3.2.1. Useful life of property, plant, and equipment As shown in Note 2.22 – Property, Plant, and Equipment, the Group reviews the estimated useful lives of its assets under property, plant, and equipment at the end of each reporting period. During the current period, the Company has reviewed the useful life expectancy and confirmed the understanding that the use by the Company of the depreciation rates set by ANEEL is consistent with the useful lives of its assets. The review of the useful life expectancy of telecommunications assets has not resulted in significant changes. 3.2.2. Valuation of financial instruments As described in Note 36 on financial instruments, the Group employs valuation techniques which include information not based on observable market data to estimate the fair value of certain kinds of financial instruments. This note features detailed information about the main assumptions used in the assessment of the fair value of financial instruments, as well as a sensitivity analysis of these assumptions. Company management believes the chosen valuation techniques and the employed assumptions are adequate to determine the fair value of its financial instruments. 3.2.3. 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 or which are calculated based on estimates covering the period from the meter reading day to the last day of the month. 3.2.4. Useful lives of intangible assets (finite useful life) As shown in Note 2.24 – Intangible Assets, the Group reviews the estimated useful lives of its intangible assets at the end of each reporting period. During the current period, the Company has reviewed the useful life expectancy of its intangible assets, and no changes were made. 3.3 Power purchase and sale transactions in Spot Market (Electric Energy trading Chamberor CCEE) Power purchase and sale transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or to estimates prepared by Copel’s senior management, when this information is not available in time. The amount recognized as a provision is the best estimate of the considerations required to settle the liabilities at the end of each reporting period, taking into account the risks and uncertainties inherent to such liabilities. When this provision is measured based on the estimated cash flows required to settle the liability, its book value corresponds to the present value of these cash flows. |
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| 4 | Effects of the first-time adoption of the IFRS 4.1 Effects of the first-time adoption of the IFRSs on the consolidated financial statements 4.1.1. Application of the IFRSs The Company’s consolidated financial statements for the fiscal year ended on December 31, 2010 are the first statements to be presented in compliance with the IFRSs. The Company has applied the accounting policies discussed in Note 2 to all featured periods, including the balance sheet on the transition date, which has been set as January 1, 2009. In the measurement of adjustments to the opening balances and in the preparation of the balance sheet as of the transition date, the Company has applied the mandatory exemptions and certain optional exemptions from retrospective application contained in IFRS 1 and - First-Time Adoption of International Accounting Rules, as shown in the following notes. 4.1.1.1 Exemptions from full retrospective application – chosen by the Company The Company has chosen to apply the following exemptions from retrospective application: (a) Business combination exemption The Company has applied the business combination exemption described in IFRS 1 and, thus, has not restated the business combinations which took place before January 1, 2009, the transition date. (b) Fair value as deemed cost exemption The Company has chosen to measure certain items of property, plant, and equipment at fair value as of January 1, 2009. The application of this exemption is detailed in Note 4.2.8. (c) Employee benefit exemption The Company has chosen to recognize all past actuarial gains and losses cumulatively as of January 1, 2009. The application of this exemption is detailed in Note 4.2.6. (d) Loan cost exemption. The Company has applied the exemption regarding borrowing costs set forth under IFRS 1 and IAS 23 and thus has not capitalized interest to eligible assets before January 1, 2009, the transition date. The remaining optional exemptions do not apply to the Company, as shown below: § share-based payment and accounting of commercial leases the IFRSs had already been compatible as of 2009 regarding these transactions; § accumulated exchange differences, since the Company does not hold interests in foreign subsidiaries; § insurance contracts, since the Company does not have any such operations; assets and liabilities of subsidiaries, investees, and joint ventures, since only the Parent Company’s individual financial statements and the Company’s consolidated statements have been prepared; § compound financial instruments, since the Company did not have any outstanding balances in connection with this kind of instrument as of the transition date; § refurbishment liabilities included in the cost of land, buildings, and equipment, since the Company does not hold any liabilities of this kind. 4.1.1.2 Exceptions from retrospective application observed by the Company The estimates used in the preparation of these financial statements as of January 1, 2009 and December 31, 2009 are consistent with the estimates made on the same dates in compliance with the previous Brazilian GAAP . All other mandatory exceptions do not apply to the Company: § Hedge accounting § Reversal of financial assets and liabilities § Participation of non-controlling holders |
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Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
4.1.2. Reconciliations with the previous accounting practices
Effects of adoption of the IFRSs on the consolidated statement of financial position
| | | | First-time Adoption of
IFRS | | | First-time Adoption of
IFRS | |
| | | Previous | | | | Previous | | | |
| ASSETS | Item | BR GAAP | Reclassif. | Adjusments | IFRSs | BR GAAP | Reclassif. | Adjusments | IFRSs |
| | | 01.01.2009 | | | 01.01.2009 | 12.31.2009 | | | 12.31.2009 |
| CURRENT ASSETS | | | | | | | | | |
| Cash and cash equivalents | 4.2.9 | 1,813,576 | (164,095) | - | 1,649,481 | 1,696,152 | (177,629) | - | 1,518,523 |
| Bonds and securities / Collaterals and escrow accounts | 4.2.9 | 150,796 | 164,105 | - | 314,901 | 192,660 | 177,630 | - | 370,290 |
| Customers and distributors | 4.2.1 | 984,572 | - | (2,730) | 981,842 | 1,072,558 | - | (572) | 1,071,986 |
| Dividends receivable | | 5,247 | - | - | 5,247 | 5,135 | - | - | 5,135 |
| CRC transferred to the State Government | | 47,133 | - | - | 47,133 | 49,549 | - | - | 49,549 |
| Accounts receivable related to concession | 4.2.3 | - | - | 27,685 | 27,685 | - | - | 44,070 | 44,070 |
| Other receivables | 4.2.1 | 104,048 | - | 1,002 | 105,050 | 124,097 | - | 8,905 | 133,002 |
| Inventories | 4.2.3 | 64,260 | - | 19,287 | 83,547 | 94,190 | - | 17,912 | 112,102 |
| Taxes and social contribution | 4.2.7/8 | 189,135 | 11,409 | - | 200,544 | 279,241 | (6,534) | (2,149) | 270,558 |
| Other prepaid current taxes | | 28,021 | - | - | 28,021 | 31,933 | - | - | 31,933 |
| Deferred income tax and social contribution | 4.2.9 | 40,183 | (40,183) | - | - | 41,238 | (41,238) | - | - |
| Prepaid expenses | | 3,573 | - | - | 3,573 | 4,966 | - | - | 4,966 |
| Deferred regulatory assets - CVA | 4.2.1 | 111,098 | - | (111,098) | - | 218,500 | - | (218,500) | - |
| Other regulatory assets | 4.2.1 | 31,511 | - | (31,511) | - | 17,526 | - | (17,526) | - |
| | | | | | | | | | |
| | | 3,573,153 | (28,764) | (97,365) | 3,447,024 | 3,827,745 | (47,771) | (167,860) | 3,612,114 |
| NONCURRENT ASSETS | | | | | | | | | |
| Noncurrent receivables | | | | | | | | | |
| Financial investments | | 106,931 | - | - | 106,931 | 64,298 | - | - | 64,298 |
| Customers and distributors | 4.2.1 | 85,141 | - | (95) | 85,046 | 52,388 | - | (456) | 51,932 |
| CRC transferred to State Government | | 1,272,770 | - | - | 1,272,770 | 1,205,025 | - | - | 1,205,025 |
| Judicial deposits | 4.2.9 | 113,497 | 60,017 | - | 173,514 | 73,436 | 85,567 | 9 | 159,012 |
| Accounts receivable related to concession | 4.2.3 | - | - | 1,460,462 | 1,460,462 | - | - | 1,828,220 | 1,828,220 |
| Other receivables | | 12,214 | - | - | 12,214 | 16,949 | - | - | 16,949 |
| Prepaid current taxes | | 62,468 | - | - | 62,468 | 83,957 | - | - | 83,957 |
| Deferred income tax and social contribution | 4.2.7/9 | 400,141 | 40,183 | (41,451) | 398,873 | 355,021 | 41,238 | 1,623 | 397,882 |
| Deferred regulatory assets - CVA | 4.2.1 | 53,494 | - | (53,494) | - | 98,963 | - | (98,963) | - |
| Other regulatory assets | 4.2.1 | 11,085 | - | (11,085) | - | - | - | - | - |
| | | 2,117,741 | 100,200 | 1,354,337 | 3,572,278 | 1,950,037 | 126,805 | 1,730,433 | 3,807,275 |
| | | | | | | | | | |
| Investments | 4.2.9 | 395,938 | - | 10,817 | 406,755 | 395,565 | - | 10,088 | 405,653 |
| Property, plant, and equipment, net | 4.2.3/8 | 7,048,675 | - | (276,580) | 6,772,095 | 7,528,432 | - | (868,784) | 6,659,648 |
| Intangible assets | 4.2.3 | 118,119 | - | 1,617,570 | 1,735,689 | 131,717 | - | 1,696,496 | 1,828,213 |
| | | | | | | | | | |
| | | 9,680,473 | 100,200 | 2,706,144 | 12,486,817 | 10,005,751 | 126,805 | 2,568,233 | 12,700,789 |
| | | | | | | | | | |
| TOTAL ASSETS | | 13,253,626 | 71,436 | 2,608,779 | 15,933,841 | 13,833,496 | 79,034 | 2,400,373 | 16,312,903 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | First-time Adoption of
IFRS | | | First-time Adoption of
IFRS | |
| LIABILITIES | Item | Previous
BR GAAP | Reclassif. | Adjusments | IFRSs | Previous
BR GAAP | Reclassif. | Adjusments | IFRSs |
| | | 01.01.2009 | | | 01.01.2009 | 12.31.2009 | | | 12.31.2009 |
| CURRENT LIABILITIES | | | | | | | | | |
| Payroll, social charges and accruals | | 159,388 | - | - | 159,388 | 206,957 | - | - | 206,957 |
| Suppliers | | 497,832 | - | - | 497,832 | 543,529 | - | - | 543,529 |
| Income tax and social contribution | 4.2.7 | 115,476 | 18,787 | | 134,263 | 123,486 | - | 1,019 | 124,505 |
| Other tax liabilities | 4.2.9 | 242,966 | (7,378) | | 235,588 | 332,524 | (6,534) | - | 325,990 |
| Deferred income tax and social contribution | 4.2.9 | 48,630 | (48,630) | - | - | 80,443 | - | (80,443) | - |
| Loans and financing | | 98,461 | - | - | 98,461 | 81,698 | - | - | 81,698 |
| Debentures | | 195,000 | - | - | 195,000 | 54,195 | - | - | 54,195 |
| Dividends payable | 4.2.9 | 245,166 | - | (1,514) | 243,652 | 90,806 | - | - | 90,806 |
| Post-employment benefits | 4.2.6 | 22,066 | - | (722) | 21,344 | 22,505 | - | - | 22,505 |
| Regulatory charges | | 43,123 | - | - | 43,123 | 29,523 | - | - | 29,523 |
| R&D and Energy Efficiency | | 126,484 | - | - | 126,484 | 121,005 | - | - | 121,005 |
| Accounts payable related to concession - use of public property | 4.2.3 | 38,649 | - | (483) | 38,166 | 36,576 | - | 1,453 | 38,029 |
| Other accounts payable | 4.2.9 | 75,734 | 10 | - | 75,744 | 84,580 | 1 | - | 84,581 |
| Other regulatory liabilities | 4.2.1 | 26,192 | - | (26,192) | - | 8,315 | - | (8,315) | - |
| Deferred regulatory liabilities - CVA | 4.2.1 | 28,327 | - | (28,327) | - | 25,020 | - | (25,020) | - |
| | | | | | | | | | |
| | | 1,963,494 | (37,211) | (57,238) | 1,869,045 | 1,841,162 | (6,533) | (111,306) | 1,723,323 |
| NONCURRENT LIABILITIES | | | | | | | | | |
| Suppliers | | 214,157 | - | - | 214,157 | 175,796 | - | - | 175,796 |
| Tax liabilities | | 618 | - | - | 618 | 131,650 | - | - | 131,650 |
| Deferred income tax and social contribution | 4.2.7/9 | 28,910 | 48,630 | 857,482 | 935,022 | 42,756 | - | 858,328 | 901,084 |
| Loans and financing | | 769,056 | - | - | 769,056 | 784,144 | - | - | 784,144 |
| Debentures | | 802,116 | - | - | 802,116 | 753,384 | - | - | 753,384 |
| Post-employment benefits | 4.2.6 | 425,879 | - | (94,714) | 331,165 | 352,976 | - | - | 352,976 |
| R&D and Energy Efficiency | | 72,079 | - | - | 72,079 | 90,493 | - | - | 90,493 |
| Accounts payable related to concession - use of public property | 4.2.3 | - | - | 319,433 | 319,433 | - | - | 312,626 | 312,626 |
| Deferred revenues | 4.2.5 | 74,994 | - | (74,994) | - | 74,994 | - | (74,994) | - |
| Other accounts payable | | 6,674 | - | - | 6,674 | 2,953 | - | - | 2,953 |
| Reserve for risks | 4.2.8 | 593,365 | 60,017 | - | 653,382 | 474,544 | 85,567 | | 560,111 |
| Deferred regulatory liabilities - CVA | 4.2.1 | 2,373 | - | (2,373) | - | 25,020 | - | (25,020) | - |
| Other regulatory liabilities | 4.2.1 | 7,257 | - | (7,257) | - | 26 | - | (26) | - |
| | | | | | | | | | |
| | | 2,997,478 | 108,647 | 997,577 | 4,103,702 | 2,908,736 | 85,567 | 1,070,914 | 4,065,217 |
| NON-CONTROLLING SHAREHOLDERS' | | | | | | | | | |
| INTERESTS | 4.2.9 | 239,567 | (239,567) | - | - | 253,537 | (253,537) | - | - |
| | | | | | | | | | |
| EQUITY | | | | | | | | | |
| Attributable to the Parent Companyshareholders | | | | | | | | | |
| Share capital | | 4,460,000 | - | - | 4,460,000 | 4,460,000 | - | - | 4,460,000 |
| Capital reserves | | 838,340 | - | - | 838,340 | 838,340 | - | - | 838,340 |
| Equity valuation adjustments | 4.2.3/8 | - | - | 1,750,069 | 1,750,069 | - | - | 1,660,634 | 1,660,634 |
| Legal reserve | | 377,590 | - | - | 377,590 | 428,912 | - | - | 428,912 |
| Retained earnings | | 2,377,157 | - | (60,939) | 2,316,218 | 3,102,809 | - | (194,697) | 2,908,112 |
| | | 8,053,087 | - | 1,689,130 | 9,742,217 | 8,830,061 | - | 1,465,937 | 10,295,998 |
| | | | | | | | | | |
| Attributable to non-controlling shareholders | 4.2.9 | - | 239,567 | (20,690) | 218,877 | - | 253,537 | (25,172) | 228,365 |
| | | | | | | | | | |
| | | 8,053,087 | 239,567 | 1,668,440 | 9,961,094 | 8,830,061 | 253,537 | 1,440,765 | 10,524,363 |
| | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | 13,253,626 | 71,436 | 2,608,779 | 15,933,841 | 13,833,496 | 79,034 | 2,400,373 | 16,312,903 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Reconciliation of the consolidated equity
| | | |
| EQUITY | Item | 01.01.2009 | 12.31.2009 |
| Total equity under the previous BR GAAP | | 8,053,087 | 8,830,061 |
| Non-controlling interests | | 239,567 | 253,537 |
| Revaluation of property, plant, and equipment | 4.2.8 | 2,647,925 | 2,473,116 |
| Recognition of concession contracts - transmission | 4.2.3 | 3,166 | 75,850 |
| Recognition of concession contracts - distribution | 4.2.3 | (37,670) | (35,824) |
| Onerous concession contracts - use of public property (UBP) | 4.2.3 | (72,129) | (79,423) |
| Write-off of regulatory assets and liabilities | 4.2.1 | (145,864) | (277,635) |
| Post-employment benefits | 4.2.6 | 95,436 | - |
| Reversal of negative goodwill | 4.2.5 | 74,994 | 74,994 |
| Additional proposed dividends | 4.2.9 | 1,514 | - |
| Capitalization of loan costs | 4.2.2 | - | 13,516 |
| Other transition effects | | - | (24,398) |
| Tax effects on adjustments | 4.2.7 | (898,932) | (779,431) |
| Total adjustments to equity | | 1,668,440 | 1,440,765 |
| TOTAL EQUITY UNDER THE IFRSs | | 9,961,094 | 10,524,363 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Effects of the adoption of the IFRSs on the consolidated statement of operations
| CONTINUOUS OPERATIONS | Item | Previous BR GAAP | Effect of transition to IFRSs | IFRSs |
| | | 12.31.2009 | | 12.31.2009 |
| OPERATING REVENUES | | | | |
| Electricity sales to final customers | 4.2.1 | 2,066,448 | (6,894) | 2,059,554 |
| Electricity sales to distributors | | 1,209,157 | - | 1,209,157 |
| Use of main distribution and transmission grid | 4.2.1 | 1,944,017 | 31,100 | 1,975,117 |
| Construction revenue and margin | 4.2.4 | - | 601,880 | 601,880 |
| Telecommunications | | 80,262 | - | 80,262 |
| Distribution of piped gas | | 205,158 | - | 205,158 |
| Other operating revenues | 4.2.1 | 112,269 | 6,743 | 119,012 |
| | | 5,617,311 | 632,829 | 6,250,140 |
| Cost of sales and services provided | | | | |
| Electricity purchased for resale | 4.2.1 | (1,681,876) | (134,972) | (1,816,848) |
| Use of main distribution and transmission grid | 4.2.1 | (609,649) | 56,475 | (553,174) |
| Personnel and Management | | (630,037) | (880) | (630,917) |
| Pension and healthcare plans | 4.2.6 | (13,479) | (71,764) | (85,243) |
| Materials and supplies | | (58,390) | (603) | (58,993) |
| Raw materials and supplies for power generation | | (21,231) | - | (21,231) |
| Natural gas and supplies for the gas business | | (135,353) | 6,437 | (128,916) |
| Third-party services | | (228,536) | (43) | (228,579) |
| Depreciation and amortization | 4.2.3/8 | (363,597) | (145,633) | (509,230) |
| Construction costs | 4.2.4 | - | (601,614) | (601,614) |
| Other costs | 4.2.3 | (23,962) | 29,923 | 5,961 |
| | | (3,766,110) | (862,674) | (4,628,784) |
| GROSS PROFIT | | 1,851,201 | (229,845) | 1,621,356 |
| Other Operating Revenues (Expenses) | | | | |
| Sales expenses | 4.2.3/6/8 | (45,566) | (8,715) | (54,281) |
| General and administrative expenses | 4.2.3/6/8 | (388,226) | (46,467) | (434,693) |
| Other revenues (expenses), net | 4.2.3/6/8 | (70,132) | (19,115) | (89,247) |
| Result of equity in subsidiaries and investees | | 14,327 | - | 14,327 |
| | | (489,597) | (74,297) | (563,894) |
| | | | | |
| RESULT OF OPERATIONS | | 1,361,604 | (304,142) | 1,057,462 |
| | | | | |
| Interest income (losses) | | | | |
| Interest revenues | 4.2.1/3 | 365,918 | (28,522) | 337,396 |
| Interest expenses | 4.2.1/2/3 | (300,294) | (30,367) | (330,661) |
| | | 65,624 | (58,889) | 6,735 |
| OPERATING INCOME | | 1,427,228 | (363,031) | 1,064,197 |
| INCOME TAX AND SOCIAL CONTRIBUTION | | | | |
| Income tax and social contribution | 4.2.7 | (287,602) | (3,168) | (290,770) |
| Deferred income tax and social contribution | 4.2.7 | (89,724) | 128,575 | 38,851 |
| | | (377,326) | 125,407 | (251,919) |
| NET INCOME FOR THE PERIOD | | 1,049,902 | (237,624) | 812,278 |
| Attributed to Parent Company shareholders | | 1,026,433 | (234,657) | 791,776 |
| Attributed to non-controlling shareholders | 4.2.9 | 23,469 | (2,967) | 20,502 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Reconciliation of the consolidated income
| CONSOLIDATED INCOME | Item | Operating income | Net income for
the period |
| | | | 12.31.2009 |
| Net income under the previous BR GAAP | | 1,427,228 | 1,049,902 |
| Depreciation of property,plant, & equipment (deemed cost) | 4.2.8 | (174,809) | (174,808) |
| Recognition of concession contracts - transmission | 4.2.3 | 72,684 | 72,684 |
| Recognition of concession contracts - distribution | 4.2.3 | (15,523) | (15,523) |
| Onerous concession contracts - use of public property (UBP) | 4.2.3 | (7,294) | (7,294) |
| Capitalization of borrowing costs | 4.2.2 | 13,516 | 13,516 |
| Write-off of regulatory assets and liabilities | 4.2.1 | (131,771) | (131,771) |
| Post-employment benefits | 4.2.6 | (95,436) | (95,436) |
| Other transition effects | | (24,398) | (24,398) |
| Tax effects on adjustments | 4.2.7 | - | 125,406 |
| Total adjustments to income | | (363,031) | (237,624) |
| NET INCOME FOR THE PERIOD UNDER THE IFRSs | | 1,064,197 | 812,278 |
Effects of the adoption of the IFRSs on the consolidated statement of cash flows
| | | Effect of | |
| | Previous | transition | |
| STATEMENT OF CASH FLOWS | BR GAAP | to the IFRSs | IFRSs |
| | | | 12.31.2009 |
| Cash flows from operating activities | 1,289,718 | (48,554) | 1,241,164 |
| Cash flows from investing activities | (911,726) | 34,823 | (876,903) |
| Cash flows from financing activities | (495,416) | 197 | (495,219) |
4.2 Effects of the changes in accounting practices due to adoption of the IFRS framework on the consolidated financial statements
4.2.1. Conceptual structure for the preparation and presentation of financial statements
Companies must prepare their financial statements in accordance the IFRS framework, which establishes the bases for the recognition of assets, liabilities, revenues, and expenses, among other concepts. The differences between estimated amounts included in the calculation of electricity tariffs and those effectively recorded by the Company, recognized before the application of the IFRS framework as regulatory assets and liabilities, are not recognized in the balance sheet according to this pronouncement, since they do not meet the definition of assets and/or liabilities.
Thus, the balances of regulatory assets and liabilities accrued before the date of first-time adoption of the IFRS have been recorded against accrued earnings and income for the current fiscal period, on the accrual basis.
4.2.2. Borrowing costs IAS 23
The accounting practice adopted by the Company has been changed to reflect the requirement of capitalization of borrowing costs attributable to the acquisition, construction, or production of assets and eligible to be deemed part of the cost of said assets.
The amount of borrowing costs eligible for capitalization has been defined by the Company by applying the weighted average rate on the expenses with intangible assets and property, plant, and equipment in progress.
The Company has adopted this practice for accounting periods starting as of January 1, 2009.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
4.2.3. Concession Contracts (IFRIC 12 and SIC 29)
These rules provide guidelines to concession holders about how to account for public service concessions to private entities and sets forth the general principles of revenue recognition and measurement of liabilities and rights related to service concession contracts.
On account of the adoption of this interpretation and of the right, under the electric energy public service concession contracts, to charge for the use of the concession infrastructure, the Company has recognized the following:
Distribution business: (i) an intangible asset which corresponds to the right to access to property that makes up the required infrastructure for carrying out the public services, and (ii) a financial asset corresponding to the remaining balance of infrastructure (residual value of physical infrastructure) at the end of the concession to be received directly from the granting authority, as compensation for investments made by the Company in infrastructure and not yet amortized. According to the concession contracts, this financial asset represents an unconditional right to reimbursement in cash or other financial asset directly from the granting authority.
Transmission business: a financial asset that corresponds to the construction, operation, and maintenance revenues under the concession contract which have been earned by making the constructed or acquired infrastructure available to users, with no demand risk and guaranteed by the Brazilian regulations, and that is considered an unconditional right to pre-determined cash flows under the concession contracts.
The intangible asset that is recognized as consideration for construction services is measured at fair value at the time of initial recognition. After initial recognition, the intangible asset is measured at cost, which includes the costs of capitalized loans minus accumulated amortization.
Under power distribution concession contracts, the financial asset is classified as a financial instrument available for sale, based on the assumption that the value of the reimbursement upon expiration of the concession contract will be calculated by the granting authority by taking into account the replacement cost of PPE named Regulatory Compensation Basis (Base de Remuneração Regulatóriaor BRR), defined by the granting authority. The BRR’s methodology is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession. The cash flows related to these assets are determined taking into account the replacement cost of PPE. BRR is reviewed every four years taking into account several factors. Its main goal is to reflect the variation in the prices of physical assets, including write-offs, depreciations, and additions of assets to the concession infrastructure (physical assets) associated with the financial asset.
The return on these financial assets is based on the regulatory WACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.
In the periods between periodic rate reviews, the balance of these financial assets is adjusted according to the expectation by Company management of variations in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.
Since there is not an active market for these financial assets, the variations in the fair value of the financial asset balance due to the perception of market participants regarding the difference between the regulatory rate of return and the market rates is adjusted periodically based on a methodology established by Company management, and this adjustment, when applicable, is recorded directly in the accumulated other comprehensive income account, under equity.
Given that the financial asset yields the annual 9.95% regulatory WACC and that this return is recognized as revenues for the monthly billing of customer tariffs, it is already valued at present value.
Under power transmission concession contracts, the financial asset is classified as “loans and receivables”, measured at first at fair value and subsequently at amortized cost, according to the effective interest rate method.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Furthermore, according to SIC 29, under concession contracts for use of public property (onerous concessions) where the concession holder’s right and the corresponding liability are deemed to arise simultaneously upon signature of the contract, particularly for the employment of water resources for power generation, the intangible asset is initially (upon term of acceptance) measured at cost.
In the case of concessions with fixed payments to the granting authority, the cost corresponding to the amounts already disbursed and to be disbursed in the future must be recognized at present value. Thus, payments for the use of public property which had been recorded as expenses when settled have been measured initially at their present value on the start date of the concession and recorded against intangible assets, which are amortized over the term of the concession. The corresponding liability is restated according to the respective financial charges incurred as of the date of presentation of the financial statements.
4.2.4. Construction contracts (IAS 11)
This pronouncement establishes the accounting treatment for revenues and expenses related to construction contracts and uses the recognition criteria set forth in IFRS framework for the Preparation and Presentation of Financial Statements to determine the time when contract revenues and the costs related to them must be recognized in the statement of operations.
In order to comply with this technical pronouncement, the Company has recorded revenues and costs related to construction services. The construction margin adopted was close to zero for the distribution business, given that the Company outsources the construction of infrastructure to non-related parties. The construction margin for the transmission business in 2010, however, was 1.65% (1.80% in 2009) and results from a calculation methodology which takes into account the respective business risk.
4.2.5. Reversal of negative goodwill on the acquisition of interests in subsidiaries
According to IFRS 3, when the amount paid in an acquisition is lower than the book value of the net assets and liabilities acquired pursuant to the previous BR GAAP, the Company recorded a negative goodwill in the balance sheet and to amortized it over a reasonable estimated term. According to the IFRSs, the difference between the amount paid and the fair value of the net assets and liabilities acquired must be recorded to income. On January 1, 2009, the Company reversed a negative goodwill balance that had been recorded under Deferred Revenues in the amount of R$74,994 to retained earnings. The equity as of January 1, 2009 and December 31, 2009 were increased accordingly.
4.2.6. Employee benefits
The Company has chosen to apply the employee benefits exemption of IFRS 1. Thus, the net cumulative actuarial gains, in the amount of R$868,065, have been fully amortized. Given the asset ceiling rule in IAS 19, the liability of R$95,436 recorded under retirement liabilities pursuant to the old BR GAAP was offset against accrued earnings as of January 1, 2009. Also given the asset ceiling rule, the pension plan surplus of R$772,629 was not recognized on the transition date because it was not available to the Company. From this date onwards, the Company has been offsetting actuarial losses against the unrecognized surplus. Should the surplus be drained by actuarial losses in the future, the Company will then follow the corridor approach, i.e., actuarial gains and losses will only be recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.
4.2.7. Income tax and social contribution: the deferred taxes
The changes in accounting practices resulting from the first-time adoption to IFRS have had tax effects, which have been neutralized by the application of the the Transitional Tax Regime (Regime Tributário de Transição or RTT) set forth under Law no. 11,941, dated May 27, 2009. This neutrality has generated deferred income tax and social contribution balances.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
4.2. 8. Deemed cost
The Company has chosen to adopt the deemed cost for the assets related to the power generation business of Copel Geração e Transmissão, adjusting the opening balances as of the transition date, January 1, 2009, according to their fair values, estimated by internal experts (engineers) with professional experience, objectivity, and technical knowledge of the evaluated assets. The evaluation was conducted per cash generating unit taking into consideration the use of the assets, the technological changes made and in progress, the economic environment where they operate, and the planning and other business peculiarities of the Company. The evaluation reports prepared by the experts on February 15, 2011 have been approved by the Board of Officers and the Board of Directors of the Group. Furthermore, a review of the estimated economic useful lives and the residual values of the assets has also been conducted. The increase in depreciation expenses which have been recalculated on account of the application of deemed cost resulted in R$156,453 in 2010 and R$155,058 in 2009.
Internal studies by the Group have shown that the balances as of January 1, 2009 of assets related to the telecommunications business were compatible with their fair values, as: i) there is no strong evidence that there are differences between the fair value, minus depreciation accrued in that fiscal year, and the fair value measured at the beginning of the fiscal year on January 1, 2009, and ii) the result of the impairment tests on these assets show that their book value is fully recoverable over their useful lives. The useful lives of these assets were reviewed as of January 1, 2010, and the main changes to the depreciation rates are described in Note 17.5. The same methodology was applied to the following subsidiaries: UEG Araucária Ltda, Elejor, and Centrais Eólicas.
Copel Geração e Transmissão’s property, plant, and equipment as of January 1, 2009 was increased by R$2,640,753, and jointly controlled subsidiary Dominó Holding’s property, plant, and equipment was increased by R$7,172, net of taxes. Deferred income tax and social contribution liabilities were increased by R$897,856 on account of the adoption of deemed cost by Copel Geração e Transmissão.
A breakdown of Copel Geração e Transmissão's power generation assets by category is shown below:
| Previous BR GAAP | Deemed cost | IFRS |
| Cost | | | |
| Machinery and equipment | 1,291,931 | 1,825,501 | 3,117,432 |
| Reservoirs, dams, and water mains | 2,668,134 | 4,128,844 | 6,796,978 |
| Buildings | 442,892 | 858,989 | 1,301,881 |
| Land | 91,727 | 83,467 | 175,194 |
| Vehicles | 17,575 | 7,184 | 24,759 |
| Furniture and implements | 3,345 | 2,618 | 5,963 |
| | 4,515,604 | 6,906,603 | 11,422,207 |
| Accumulated depreciation | | | |
| Machinery and equipment | (517,723) | (969,722) | (1,487,445) |
| Reservoirs, dams, and headrace channels | (1,046,460) | (2,681,944) | (3,728,529) |
| Buildings | (229,501) | (605,512) | (835,013) |
| Vehicles | (13,124) | (6,681) | (19,805) |
| Furniture and implements | (2,319) | (1,991) | (4,310) |
| | (1,809,127) | (4,265,850) | (6,075,102) |
| Property, plant, and equipment in service, net | 2,706,477 | 2,640,753 | 5,347,105 |
Company management has estimated that the effects of the adoption of deemed cost on the depreciation expenses in future years will be close to those recorded in 2009 and 2010.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
4.2.9. Reclassifications
In compliance with the new accounting pronouncements, the Company has made the following reclassifications in its financial statements.
· Escrow deposits related to provision for risks and previously recorded as a reduction of the corresponding provisions have been reclassified to noncurrent assets (IAS 1);
· Deferred taxes previously presented under current assets have been reclassified to noncurrent assets (IAS 1);
· Exclusive funds previously presented under cash and cash equivalents have been reclassified to bonds and securities (IAS 27);
· Dividends declared beyond the mandatory minimum, after the date of the financial statements but before authorization for their issue was given, were recognized as liabilities. In compliance with the new accounting practices, these dividends remain recorded under equity;
· Non-controlling interests which were presented as noncurrent liabilities are now presented under equity, according to the new accounting practices. In the statement of operations, they were presented before income for the period, and now they are included in the Group’s consolidated results (IAS 1).
· Reclassification of offsetting between tax assets and liabilities (IAS 1).
| 5 | Cash and Cash Equivalents |
5
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Cash and banks | 58,958 | 79,615 | 88,161 |
| Financial investments w ith immediate liquidity | 1,735,458 | 1,438,908 | 1,561,320 |
| | 1,794,416 | 1,518,523 | 1,649,481 |
Financial investments with immediate liquidity are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. These financial investments comprise: Certificates of Deposit (CDs); transactions with repurchase commitments - the issuer (Bank) is committed to buying a security back, and the buyer is committed to selling it; and quotas in investment funds which hold government issued securities. These investments have yielded on average 100% of the variation of the Interbank Deposit Certificate rate as of December 31, 2010 and December 31, 2009.
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current assets | | | |
| Bonds and securities (6.1) | 534,095 | 365,243 | 314,774 |
| Collaterals and escrow accounts (6.2) | 64,078 | 5,047 | 127 |
| | 598,173 | 370,290 | 314,901 |
| Long-term receivables | | | |
| Bonds and securities | 7,151 | 40,103 | 69,063 |
| Collateral under STN agreement (Note 21.2) | 26,280 | 24,195 | 37,868 |
| | 33,431 | 64,298 | 106,931 |
F - 33
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | |
6.1 Securities | | | | |
| |
| |
| Category | | | | |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Securities available for sale | | | | |
CDB (1 and 2) | CDI | 100,785 | 104,030 | 108,804 |
Repurchase operation (3) | CDI | 17,328 | - | 19,390 |
Repurchase operation (2) | Selic | 2,961 | 2,699 | 3,110 |
Repurchase operation (2) | Fixed rate | 98,552 | 21,786 | 2,292 |
LTN (2) | Fixed rate | 44,482 | 3,374 | - |
LFT (2) | Selic | 175,043 | 32,777 | 48,938 |
NTN - F | Fixed rate | 27,309 | 3,051 | 5,127 |
Quotas in Funds (3 and 4) | CDI | 124 | 116,762 | 108,151 |
LFBB | CDI | 6,015 | - | - |
| | | 472,599 | 284,479 | 295,812 |
| Securities held until maturity | | | | |
LTN (2) | Fixed rate | 6,140 | 84,520 | 88,025 |
LFT (2) | Selic | 60,662 | 36,347 | - |
Quotas in Funds (3 and 4) | CDI | 1,845 | - | - |
| | | 68,647 | 120,867 | 88,025 |
| | | 541,246 | 405,346 | 383,837 |
| | Current | 534,095 | 365,243 | 314,774 |
| | Noncurrent | 7,151 | 40,103 | 69,063 |
LFT - Financial Treasury Bonds
LTN - National Treasury Bonds
NTN-F - National Treasury Notes - F series
LFBB - Banco do Brasil Financial Bonds | | | | |
Copel holds bonds and securities which bear variable interest rates. The terms of these securities vary between one and 48 months from the end of the reporting period. Counterparts hold at least a credit rating of A. None of these assets is overdue or has issues of recovery or impairment at the end of the fiscal year.
1) Among the main amounts invested in certificates of deposit (CDBs), there are:
· R$65,612, restated as of December 31, 2010 (R$59,787 as of December 31, 2009 and R$54,403 as of January 1, 2009), 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;
· R$4,430 invested in Itaú Unibanco S.A., restated as of December 31, 2010 (R$21,072 as of December 31, 2009 and R$19,730 as of January 1, 2009), yielding 100% of the variation of the DI rate on average, in a reserve account set up to secure a debt to BNDES Participações S.A. - BNDESPAR, in connection with the issue of Elejor debentures, pursuant to a Private Agreement on Revenue Attachment and Other Covenants.
2) Collaterals for ANEEL auctions by Copel Geração e Transmissão in the amount of R$67,162 as of December 31, 2010 (R$41,323 as of December 31, 2009);
3) Collaterals for Agreements for Energy Trade on the Regulated Power Market (“Contratos de Comercialização de Energia no Ambiente Regulado”or CCEARs) at CCEE in the amount of R$27,146 as of 2010 (R$3,156 as of 2009); and.
4) An allowance related to a financing agreement signed with BNDES in 2001 by UEG Araucária in the amount of R$26 in 2010 (R$26 in 2009).
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
6.2 Collaterals and escrow accounts
There are R$63,473, restated as of December 31, 2010, invested in Caixa Econômica Federal, yielding the TR rate, in a reserve account set up to secure to ANEEL the construction of the Colíder Power Plant by Copel Geração e Transmissão. This amount is recorded under current assets.
| | | | | | | | |
| 7 | Customers and distributors | | | | | | |
| |
| |
| | | | Not yet | Overdue for | Overdue for | | | |
| | | | due | up to 90 days | over 90 days | | | Total |
| | | | | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| | Consumers | | | | | | | |
| | Residential | | 117,162 | 78,389 | 4,098 | 199,649 | 189,728 | 164,189 |
| | Industrial | | 114,881 | 33,724 | 35,434 | 184,039 | 176,972 | 155,920 |
| | Commercial | | 86,156 | 28,147 | 4,237 | 118,540 | 109,523 | 93,828 |
| | Rural | | 15,985 | 6,769 | 1,250 | 24,004 | 20,950 | 18,575 |
| | Public entities | | 19,970 | 19,235 | 4,061 | 43,266 | 38,154 | 24,948 |
| | Public lighting | | 15,199 | 286 | 188 | 15,673 | 13,317 | 14,341 |
| | Public services | | 13,970 | 355 | 10 | 14,335 | 12,388 | 12,286 |
| | Unbilled | | 198,363 | - | - | 198,363 | 170,960 | 151,659 |
| | Energy installment plan | | 84,477 | 6,656 | 10,708 | 101,841 | 97,422 | 91,614 |
| | Energy installment plan - long-term | 40,498 | - | - | 40,498 | 48,036 | 78,123 |
| | Low income subsidies - Eletrobrás (7.1) | 24,376 | - | - | 24,376 | 11,386 | 28,800 |
| | Penalties on overdue bills | | 2,842 | 3,809 | 2,960 | 9,611 | 9,985 | 9,101 |
| | State Government-"Luz Fraterna" Program | 2,055 | 7,016 | 2,457 | 11,528 | 4,030 | 7,500 |
| | Other receivables | | 12,945 | 5,360 | 5,984 | 24,289 | 14,859 | 14,526 |
| | Other receivables - long-term | 3,231 | - | - | 3,231 | 2,885 | 3,637 |
| | | | 752,110 | 189,746 | 71,387 | 1,013,243 | 920,595 | 869,047 |
| | Distributors | | | | | | | |
| | Bulk supply | | | | | | | |
| | CCEAR - auction | | 133,004 | - | - | 133,004 | 127,854 | 96,074 |
| | Bilateral agreements | | 26,586 | - | 123 | 26,709 | 27,836 | 74,152 |
| | CCEE (Note 34) | | 21,446 | - | 105 | 21,551 | 40,609 | 9,931 |
| | Reimbursement to generators | - | - | 1,194 | 1,194 | 303 | 571 |
| | Reimbursement to generators - long-term | - | - | - | - | - | 321 |
| | | | 181,036 | - | 1,422 | 182,458 | 196,602 | 181,049 |
| | Charges for use of power grid | | | | | | |
| | Power grid | | 17,311 | 1,880 | 2,361 | 21,552 | 15,109 | 16,246 |
| | Basic network and connection grid | 14,552 | 153 | 399 | 15,104 | 21,174 | 23,511 |
| | | | 31,863 | 2,033 | 2,760 | 36,656 | 36,283 | 39,757 |
| | Telecommunications | | | | | | | |
| | Telecommunications services | 2,918 | 6,735 | 7,918 | 17,571 | 9,650 | 8,376 |
| | Telecommunications services - long-term | - | | | - | 1,011 | 3,211 |
| | | | 2,918 | 6,735 | 7,918 | 17,571 | 10,661 | 11,587 |
| | Gas distribution | | 17,319 | 359 | 869 | 18,547 | 14,726 | 22,450 |
| | Allowance for doubtful accounts (7.2) | - | - | (62,119) | (62,119) | (54,949) | (57,002) |
| | | | 985,246 | 198,873 | 22,237 | 1,206,356 | 1,123,918 | 1,066,888 |
| | 12.31.2010 | Current | 941,517 | 198,873 | 22,237 | 1,162,627 | | |
| | | Noncurrent | 43,729 | - | - | 43,729 | | |
| | 12.31.2009 | Current | 875,319 | 182,177 | 14,490 | | 1,071,986 | |
| | | Noncurrent | 51,932 | - | - | | 51,932 | |
| | 01.01.2009 | Current | 822,877 | 150,338 | 8,627 | | | 981,842 |
| | | Noncurrent | 85,046 | - | - | | | 85,046 |
The average time for collection of energy sales is 12 days from customers and 10 days from power distribution concession and permit holders.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
7.1 Low income – customers rates
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 utilities, authorizing the granting of an economic subsidy, in order to contribute to the low price for 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 power by Federal Government-owned generation companies at power 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 utilities are entitled, in order to offset the effects of the rate policy applicable to low income customers.As of December 2010, the low income rate was applied to 702,882 customers, who account for 23.7% of the total of 2,964,793 residential customers supplied by Copel.
7.2 Allowance for doubtful accounts
Copel’s senior management has considered the following amounts as sufficient to cover potential losses on the realization of receivables:
| | | | |
| | | Additions / | | |
| | Balance | (reversals) | Write-offs | Balance |
| | 12.31.2009 | | | 12.31.2010 |
| Consumers and distributors | | | | |
| Residential | 6,245 | 11,680 | (10,271) | 7,654 |
| Industrial | 40,101 | 5,375 | (4,715) | 40,761 |
| Commercial | 5,863 | 8,539 | (3,522) | 10,880 |
| Rural | 185 | 163 | (279) | 69 |
| Public entities | 1,272 | 221 | (40) | 1,453 |
| Public lighting | 149 | 6 | - | 155 |
| Public services | - | 2 | - | 2 |
| Utilities | 203 | 21 | - | 224 |
| Telecommunications | 931 | 233 | (243) | 921 |
| | 54,949 | 26,240 | (19,070) | 62,119 |
| |
| |
| | | Additions / | | |
| | Balance | (reversals) | Write-offs | Balance |
| | 01.01.2009 | | | 12.31.2009 |
| Consumers and distributors | | | | |
| 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 |
| Rural | 177 | 297 | (289) | 185 |
| Public entities | 947 | 325 | - | 1,272 |
| Public lighting | 169 | (20) | - | 149 |
| Public services | - | 1 | (1) | - |
| Utilities | 206 | (3) | | 203 |
| Utilities - long-term | 246 | (246) | - | |
| Telecommunications | 472 | 675 | (216) | 931 |
| | 57,002 | 16,073 | (18,126) | 54,949 |
The applied criteria, in addition to taking into account management’s experience as far as the record of actual losses, also comply with the parameters recommended by ANEEL.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
8 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 (Conta de Resultados a Compensaror 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.a., which are collected monthly, 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:
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| 2010 | - | - | 50,268 |
| 2011 | - | 52,845 | 53,611 |
| 2012 | 62,728 | 56,359 | 57,176 |
| 2013 | 66,899 | 60,107 | 60,979 |
| 2014 | 71,348 | 64,105 | 65,034 |
| 2015 | 76,093 | 68,368 | 69,359 |
| 2016 | 81,154 | 72,915 | 73,972 |
| 2017 | 86,551 | 77,764 | 78,892 |
| 2018 | 92,307 | 82,936 | 84,138 |
| 2019 | 98,446 | 88,451 | 89,734 |
| 2020 | 104,993 | 94,334 | 95,702 |
| 2021 | 111,976 | 100,607 | 102,066 |
| 2022 | 119,423 | 107,298 | 108,854 |
| 2023 | 135,836 | 114,434 | 116,094 |
| After 2023 | 174,623 | 164,502 | 166,891 |
| | 1,282,377 | 1,205,025 | 1,272,770 |
Changes in CRC Transferred to the Government of the State of Paraná:
| | | |
| | Current | Noncurrent | |
| Balances | assets | receivables | Total |
| As of January 1, 2009 | 47,133 | 1,272,770 | 1,319,903 |
| Interest and fees | 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 |
| Interest and fees | 79,546 | - | 79,546 |
| Monetary variation | 2,772 | 133,396 | 136,168 |
| Transfers | 56,044 | (56,044) | - |
| Amortization | (129,095) | - | (129,095) |
| As of December 31, 2010 | 58,816 | 1,282,377 | 1,341,193 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
9 Accounts receivable related to concession
9.1 Changes in accounts receivable related to concession
| | | | |
| | Current | Noncurrent | Noncurrent | |
| Balances | assets | receivables | special liabilities | Total |
| As of January 1, 2009 | 27,685 | 2,632,185 | (1,171,723) | 1,488,147 |
| Additions | - | 282,315 | - | 282,315 |
| WACC-based regulatory return on capital | 94,654 | - | - | 94,654 |
| Receipt of WACC-based regulatory return | (94,654) | - | - | (94,654) |
| Capitalization of intangible assets in progress | - | 380,844 | (65,910) | 314,934 |
| Transfers from long-term to current assets | 197,952 | (197,952) | - | - |
| Transfers to charges for the use of main distributions and transmission grid - customers | (181,567) | - | - | (181,567) |
| Allowance for losses | - | (6,700) | - | (6,700) |
| Adjustment of financial assets classified as available for sale | - | 17,369 | - | 17,369 |
| Monetary variation | - | (36,052) | 20,530 | (15,522) |
| Write-offs | - | (26,686) | - | (26,686) |
| As of December 31, 2009 | 44,070 | 3,045,323 | (1,217,103) | 1,872,290 |
| Additions | - | 272,613 | - | 272,613 |
| WACC-based regulatory return on capital | 126,685 | - | - | 126,685 |
| Receipt of WACC-based regulatory return | (126,685) | - | - | (126,685) |
| Capitalization of intangible assets in progress | - | 482,145 | (69,889) | 412,256 |
| Transfers from long-term to current assets | 196,923 | (196,923) | - | - |
| Transfers to charges for the use of main distributions and transmission grid - customers | (186,293) | - | - | (186,293) |
| Transfers of investments - assets assigned for future use | - | 3 | - | 3 |
| Allowance for losses | - | (21,333) | - | (21,333) |
| Adjustment of financial assets classified as available for sale | - | 3,029 | - | 3,029 |
| Monetary variation | - | 290,312 | (139,125) | 151,187 |
| Write-offs | - | (25,707) | - | (25,707) |
| As of December 31, 2010 | 54,700 | 3,849,462 | (1,426,117) | 2,478,045 |
a) Effects of the variation of the WACC set by ANEEL compared to the indicator set by Company management.
9.2 Accounts receivable related to concession – Distribution
| | | | |
| |
| |
| | Current | Noncurrent | Noncurrent | |
| Balances | assets | receivables | special liabilities | Total |
| As of January 1, 2009 | - | 1,978,748 | (1,171,723) | 807,025 |
| WACC-based regulatory return on capital | 94,654 | - | - | 94,654 |
| Receipt of WACC-based regulatory return | (94,654) | - | - | (94,654) |
| Capitalization of intangible assets in progress | - | 380,844 | (65,910) | 314,934 |
| Adjustment of financial assets classified as available for sale | - | 17,369 | - | 17,369 |
| Monetary variation | - | (36,052) | 20,530 | (15,522) |
| Write-offs | - | (26,686) | - | (26,686) |
| As of December 31, 2009 | - | 2,314,223 | (1,217,103) | 1,097,120 |
| WACC-based regulatory return on capital | 126,685 | - | - | 126,685 |
| Receipt of WACC-based regulatory return | (126,685) | - | - | (126,685) |
| Capitalization of intangible assets in progress | - | 482,145 | (69,889) | 412,256 |
| Transfers of investments - assets assigned for future use | - | 3 | - | 3 |
| Adjustment of financial assets classified as available for sale | - | 3,029 | - | 3,029 |
| Monetary variation | - | 290,312 | (139,125) | 151,187 |
| Write-offs | - | (25,707) | - | (25,707) |
| As of December 31, 2010 | - | 3,064,005 | (1,426,117) | 1,637,888 |
a) Effects of the variation of the WACC set by ANEEL compared to the indicator set by Company management.
The Electric Energy Public Service Concession Contract signed by the Federal Government (granting authority) and Copel Distribuição (concession holder – operator), which regulates the operation of the electric energy distribution public service, sets forth:
· The services the operator must render and to whom (customer category) they must be rendered;
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
· The performance standards for the rendering of the public service, regarding maintenance and customer service quality improvement, and the duty by the operator, upon return of the concession, to return the infrastructure in the same conditions they were received upon the signature of the concession contract. To meet these obligations, constant investments are made throughout the term of the concession. Thus, the assets related to the concession may be replaced a few times until the expiration of the concession;
· The requirement that the assets related to the infrastructure must revert to the granting authority at the end of the concession in exchange for reimbursement; and
· The regulation of prices through a rate mechanism established in the concession contract based on a parametric formula (Portions A and B) and the establishment of types of rate review, to ensure rates are sufficient to cover costs, amortize investments, and provide return on the invested capital.
Based on the characteristics set forth under the power distribution concession agreement, Company management believes the conditions are met for the application of Technical Interpretation IFRIC 12 and SIC 29 – Concession Contracts, which provides guidelines for the accounting of public service concessions by private operators, so that the power distribution business is properly reflected, comprising:
(a) Estimated portion of investments made and not amortized or depreciated by the end of the concession for being an unconditional right to reimbursement in cash or other financial assets directly by the granting authority; and
(b) Remaining portion after the assessment of the financial asset (residual amount), classified as an intangible asset due its recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by consumers (see Note 18).
The infrastructure that has been received or built for the distribution business, originally represented by property, plant, and equipment and intangible assets, is recovered through two cash flows: (a) a portion through power consumption by customers (monthly billing of energy consumed/sold) over the term of the concession; and (b) a portion as reimbursement for revertible assets at the end of the concession, to be received directly from the granting authority or from another entity to which the granting authority assigns this task.
This reimbursement is made based on the share of investments related to revertible assets which has not been amortized or depreciated yet and which have been made with the purpose of ensuring that the services rendered are continuous and up-to-date.
The financial asset is classified as a financial instrument available for sale, based on the assumption adopted by Company management that the value of the reimbursement upon expiration of the concession contract will be calculated by the granting authority by taking into account the replacement cost of PPE named Regulatory Compensation Basis (BRR), defined by the granting authority. The methodology of the BRR is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession.
The cash flows related to these assets are determined taking into account the replacement cost of PPE. BRR is reviewed every four years taking into account several factors. Its main goal is to reflect the variation in the prices of physical assets, including write-offs, depreciation, and additions of assets to the concession infrastructure (physical assets) associated with the financial asset.
The return on these financial assets is based on the regulatory WACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.
In the periods between periodic rate reviews, the balance of these financial assets is adjusted according to the expectation by Company management of increase or decrease in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Since there is not an active market for these financial assets, the variations in the fair value of the financial asset balance due to the perception of market participants regarding the difference between the regulatory rate of return and the market rates is adjusted periodically based on a methodology established by Company management, and this adjustment, when applicable, is recorded directly in the accumulated other comprehensive income account, under equity.
9.3 Accounts receivable related to concession – Transmission
| | | |
| | Current | Noncurrent | |
| Balances | assets | receivables | Total |
| As of January 1, 2009 | 27,685 | 653,437 | 681,122 |
| Additions | - | 282,315 | 282,315 |
| Transfers from long-term to current assets | 197,952 | (197,952) | - |
| Transfers to charges for the use of main dristribution and transmission grid | (181,567) | - | (181,567) |
| Allow ance for losses | - | (6,700) | (6,700) |
| As of December 31, 2009 | 44,070 | 731,100 | 775,170 |
| Additions | - | 272,613 | 272,613 |
| Transfers from long-term to current assets | 196,923 | (196,923) | - |
| Transfers to charges for the use of main dristribution and transmission grid | (186,293) | - | (186,293) |
| Allow ance for losses | - | (21,333) | (21,333) |
| As of December 31, 2010 | 54,700 | 785,457 | 840,157 |
These refer to receivables in connection with the power transmission concession agreements and include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) revenues from the operation and maintenance of infrastructure effectively constructed; and (iii) the financial return on these revenues guaranteed by the granting authority during the term of the concession.
Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Permitted Revenues (Receita Anual Permitidaor RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistemaor ONS).
Upon expiration of the concession, any uncollected amounts related to the construction, operation, and maintenance of infrastructure shall be received directly from the granting authority, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through guaranteed revenues.
For purposes of preparation of the future cash flows of transmission contracts in order to determine the effective interest rate to record the return on the balance of this asset over the term of the concession, Company management, in addition to taking into consideration the Permitted Revenues (RAP) to be received over the term of the concession, has also adopted the assumption that the final installment included in the cash flow refers to the reimbursement of the physical assets related to this financial asset.
As they feature fixed and ascertainable cash flows, these financial assets are classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.
Commitments regarding transmission concessions
9.3.1. 525-kV Araraquara 2 - Taubaté Transmission Line
This transmission line was awarded to the Company at ANEEL Auction no. 001/10, on June 10, 2010.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Total expenses already owed to suppliers of equipment and services in connection with the Araraquara 2 – Taubaté Transmission Line amounted to R$243,398 as of December 31, 2010.
9.3.2. 230-kV Cerquilho III Substation
This 230/138-kV (300 MVA) substation was awarded to the Company at ANEEL Auction no. 001/10, on June 10, 2010.
Total expenses already owed to suppliers of equipment and services in connection with the Cerquilho III Substation amounted to R$40,724 as of December 31, 2010.
10 Other Receivables
| |
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current assets | | | |
| Service in progress, net (10.1) | 110,374 | 92,472 | 64,765 |
| Advance payment for judicial deposits | 9,927 | 3,183 | 5,732 |
| Advance payments to employees | 9,126 | 8,352 | 8,264 |
| Disposal of property and rights | 9,048 | 4,535 | 1,872 |
| Decommissioning in progress | 6,284 | 6,181 | 4,795 |
| Installment plan for Onda Provedor de Serviços | 4,348 | 4,349 | 4,348 |
| Lease of the Araucária Power Plant | 4,296 | 550 | 7,474 |
| Recoverable salaries of transferred employees | 4,174 | 3,663 | 3,819 |
| Services to third-parties | 3,631 | 3,577 | 1,347 |
| Acquisition of fuels under the Fuel Consumption Account (CCC) | 2,406 | 638 | 185 |
| Advance payments to suppliers | 3,248 | 11,289 | 6,191 |
| Allowance for doubtful accounts (10.2) | (9,979) | (10,896) | (9,531) |
| Other receivables | 4,186 | 5,109 | 5,789 |
| | 161,069 | 133,002 | 105,050 |
| Noncurrent receivables | | | |
| Advance payments to suppliers | 9,902 | 8,290 | 2,435 |
| Disposal of property and rights | 2,325 | 4,437 | 4,788 |
| Compulsory loans | 2,833 | 3,814 | 3,561 |
| Other receivables | 164 | 408 | 1,430 |
| | 15,224 | 16,949 | 12,214 |
10.1 Service in progress
This item refers to services currently in progress within the Company, most of which are related to the Research and Development and Energy Efficiency programs, which upon conclusion are offset against the respective liability recorded for this purpose, in compliance with the applicable regulations.
10.2 Allowance for doubtful accounts
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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
11 Inventories
| Operation/Maintenance | Construction in progress -
inventories |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Copel Geração e Transmissão | 24,429 | 27,595 | 29,710 | - | - | - |
| Copel Distribuição | 83,893 | 76,170 | 48,150 | - | - | - |
| Copel Telecomunicações | 11,758 | 7,166 | 5,151 | 17,511 | 17,641 | 14,507 |
| Compagás | 1,344 | 1,171 | 536 | - | - | - |
| Elejor | - | - | - | 2,702 | 1,051 | 1,051 |
| | 121,424 | 112,102 | 83,547 | 20,213 | 18,692 | 15,558 |
12 Income Tax, Social Contribution, and Other Taxes
12.1 Income Tax and Social Contribution
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current assets | | | |
| IRPJ and CSLL paid in advance | 518,889 | 446,926 | 423,461 |
| IRPJ and CSLL to be offset against liabilities | (348,557) | (169,834) | (215,539) |
| IRRF on IOC to be offset against liabilities | (12,119) | (6,534) | (7,378) |
| | 158,213 | 270,558 | 200,544 |
| Noncurrent | | | |
| IRPJ and CSLL paid in advance | 12,341 | - | - |
| | 12,341 | - | - |
| Current liabilities | | | |
| IRPJ and CSLL due | 501,806 | 294,339 | 349,802 |
| IRRF on IOC to be offset against assets | (348,557) | (169,834) | (215,539) |
| | 153,249 | 124,505 | 134,263 |
| IRPJ = Corporate income tax | | | |
| CSLL = Social contribution on net income | | | |
| IRRF = Income tax withheld | | | |
| IOC = Interest on capital | | | |
Amounts recorded as corporate income tax (IRPJ) and social contribution paid in advance refer to amounts paid in advance and corporate tax return (DIPJ) credits, which are offset against the respective taxes payable by each company, pursuant to the Brazilian tax legislation.
12.2 Deferred income tax and social contribution
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%.
Taxes levied on the healthcare plan are realized according to the actuarial assessment conducted annually by an independent actuary. Deferred taxes on all other accruals will be realized as judicial rulings are issued.
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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Deferred income tax and social contribution credits have been recorded as follows:
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Noncurrent receivables | | | |
| Tax losses and negative tax basis | 10,966 | 23,346 | 16,355 |
| Pension and healthcare plans | 135,384 | 123,842 | 147,691 |
| Other temporary additions | | | |
| Reserve for risks | 290,385 | 172,080 | 168,486 |
| Allowance for doubtful accounts | 24,477 | 22,350 | 22,959 |
| Amortization - concession | 35,917 | 19,709 | 19,088 |
| Provision for effects of network charges | 6,922 | 6,922 | 6,923 |
| FINAN provision | 3,659 | 3,291 | 4,563 |
| Other | - | 26,342 | 12,808 |
| | 507,710 | 397,882 | 398,873 |
| Noncurrent liabilities | | | |
| Transitional Tax System - RTT | | | |
| Deemed cost of assets | 802,556 | 854,742 | 906,721 |
| Other | 47,607 | 12,092 | (7,587) |
| Other temporary exclusions | | | |
| Capitalization of financial charges | 4,595 | - | 2,551 |
| Provision for negative goodwill | 25,297 | 25,297 | 25,297 |
| Gas supply | 7,163 | 8,953 | 8,040 |
| | 887,218 | 901,084 | 935,022 |
| | (379,508) | (503,202) | (536,149) |
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, which indicates the realization of deferred taxes. According to the estimate of future taxable income, the realization of deferred taxes is shown below:
| | | |
| | | | |
| | Estimated | Actual | Estimated |
| | realizable | realized | realizable |
| | amount | amount | amount |
| 2010 | (39,205) | 58,140 | - |
| 2011 | - | - | 17,311 |
| 2012 | - | - | 10,045 |
| 2013 | - | - | 472 |
| 2014 | - | - | 286 |
| 2015 | - | - | 265,084 |
| 2016 to 2018 | - | - | (34,694) |
| 2019 to 2021 | | | (117,317) |
| After 2021 | - | - | (520,695) |
| | (39,205) | 58,140 | (379,508) |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
12.3 Other taxes paid in advance and other taxes due
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current assets | | | |
| ICMS(VAT) paid in advance (12.3.1) | 36,785 | 29,868 | 26,863 |
| PIS/Pasep and Cofins taxes paid in advance | 7,966 | 28,728 | 17,187 |
| PIS/Pasep and Cofins to be offset against liabilities | (7,966) | (27,820) | (17,187) |
| Other taxes paid in advance | 751 | 1,157 | 1,158 |
| | 37,536 | 31,933 | 28,021 |
| Noncurrent receivables | | | |
| ICMS(VAT) paid in advance (12.3.1) | 82,029 | 83,957 | 62,468 |
| Recoverable income tax withheld on finance investments | 2,833 | - | - |
| | 84,862 | 83,957 | 62,468 |
| Current liabilities | | | |
| ICMS (VAT) payable | 173,989 | 164,209 | 132,380 |
| PIS/Pasep and Cofins payable | 75,511 | 52,507 | 55,540 |
| PIS/Pasep and Cofins to be offset against assets | (7,966) | (27,820) | (17,187) |
| Tax Recovery Programs (12.3.2) | 94,887 | 107,974 | 35,068 |
| Income tax withheld on interest on capital | 45,813 | 29,027 | 30,791 |
| Income tax withheld on IOC to be offset against assets | (12,119) | (6,534) | (7,378) |
| Other taxes | 8,756 | 6,627 | 6,374 |
| | 378,871 | 325,990 | 235,588 |
| Noncurrent liabilities | | | |
| ICMS (VAT) payable | 623 | 547 | 618 |
| Tax Recovery Programs (12.3.2) | 31,629 | 131,103 | - |
| | 32,252 | 131,650 | 618 |
12.3.1. 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 1/48 pursuant to Supplemental Law no. 102, dated July 11, 2000.
12.3.2. Tax recovery programs
| | | | | | |
| . | | | | | | |
| | Debt | Benefits - | SELIC | Updated debt | Advance | Updated debt |
| | amount | Law 11,941 | Interest | amount | payment | amount |
| Law no. 11,941/09 | | | | | | |
| IRPJ | 42,538 | (8,762) | 2,313 | 36,089 | (16,253) | 19,836 |
| CSLL | 5,925 | (1,460) | 298 | 4,763 | (2,264) | 2,499 |
| COFINS tax | 43,956 | (9,853) | 2,309 | 36,412 | (16,795) | 19,617 |
| PIS/PASEP taxes | 9,543 | (2,139) | 501 | 7,905 | (3,646) | 4,259 |
| COFINS tax - law suit | 196,839 | (60,174) | 10,600 | 147,265 | (66,960) | 80,305 |
| | 298,801 | (82,388) | 16,021 | 232,434 | (105,918) | 126,516 |
The effects on the 2010 statement of operations, recorded as financial expenses, were R$14,623 under Consolidated (Note 32).
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
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. 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 consolidated legal precedent in favor of the federal government.
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, 2010 (pursuant to article 3, paragraph 3, of that law), totals R$147,265.
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. 11,941/09), the amount of this debt as of December 31, 2010 was R$40,852. 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 the same benefits and restatement by the SELIC interest rate (pursuant to article 3, paragraph 3, of Law no. 11,941/09), amounted to R$44,317 as of December 31, 2010.
With the payment of installments and the accrual of SELIC interest as of December 31, 2010, pursuant to article 3, paragraph 3, of Law no. 11,941, the total outstanding debt is R$126,517.
As of the date of these statements, there has been no ratification of the installment plan by the RFB.
Copel has rigorously fulfilled its obligations in connection with these installment plans.
12.4 Reconciliation 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:
| | |
| | 2010 | 2009 |
| Income before IRPJ and CSLL | 1,380,732 | 1,064,197 |
| IRPJ and CSLL (34%) | (469,449) | (361,827) |
| Tax effects on: | | |
| Interest on capital | 70,319 | 78,200 |
| Dividends | 432 | 3,295 |
| Equity in results of investees | 31,023 | 1,575 |
| FINAM - (losses) and gains | - | (183) |
| Nondeductible expenses | (3,247) | (917) |
| Tax benefit - Law no. 11,941/09 | - | 27,904 |
| Tax incentives | 4,856 | 3,530 |
| Other | (4,385) | (3,496) |
| Current IRPJ and CSLL | (497,968) | (290,770) |
| Deferred IRPJ and CSLL | 127,517 | 38,851 |
| Actual rate - % | 26.8% | 23.7% |
| IRPJ = Corporate income tax | | |
| CSLL = Social contribution on net income | | |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | |
| 13 | Prepaid Expenses | | | |
| |
| |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| | Current assets | | | |
| | Insurance premiums | 4,855 | 4,856 | 3,391 |
| | Program of incentive to alternative energy sources - PROINFA | 35 | 46 | 19 |
| | Other | 75 | 64 | 163 |
| | | 4,965 | 4,966 | 3,573 |
| |
| |
| 14 | Judicial Deposits | | | |
| |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| | Tax claims | 231,429 | 53,721 | 53,457 |
| | Labor claims | 73,596 | 61,643 | 83,982 |
| | Civil claims | | | |
| | Suppliers | 73,400 | 25,650 | 2,828 |
| | Civil claims | 14,197 | 14,104 | 18,793 |
| | Easements | 2,144 | 2,400 | 10,660 |
| | Customer claims | 1,677 | 1,426 | 2,729 |
| | | 91,418 | 43,580 | 35,010 |
| | | | | |
| | Other | 4,256 | 68 | 1,065 |
| | | 400,699 | 159,012 | 173,514 |
| | | | |
| | | | |
| 15 | Receivables from Related Parties | | | |
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Investees | | | |
| Dividends and/or interest on capital | | | |
| Dona Francisca Energética | 955 | - | - |
| Sanepar | 4,896 | 5,135 | 5,247 |
| | 5,851 | 5,135 | 5,247 |
| | | | |
| Other related parties | | | |
| Paineira Participações e Empreendimentos | 1,575 | - | - |
| | 1,575 | - | - |
| | 7,426 | 5,135 | 5,247 |
| Current assets - Dividends receivable | 5,851 | 5,135 | 5,247 |
| Noncurrent assets - Investees/subsidiaries | 1,575 | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
16 Investments
16.1 Main information about Copel’s investees
| | | | | | | |
| | | | | | | Net | Group |
| | Main | | | | | income | Interest |
| 12.31.2010 | business | Assets(1) | Liabilities(1) | Equity(1) | Revenues | (losses)(1) | % |
| Cia. Saneamento do Paraná - Sanepar | Water supply/sanitation | 2,332,804 | 1,407,194 | 925,610 | 666,123 | 63,489 | 34.75 |
| Sercomtel S.A. - Telecom. | Telecommunications | 273,953 | 112,921 | 161,032 | 144,320 | 20,472 | 45.00 |
| Foz do Chopim Energética S.A | Electric energy | 50,250 | 2,483 | 47,767 | 34,260 | 28,167 | 35.77 |
| Dona Francisca Energ. Ltda. | Electric energy | 297,342 | 79,542 | 217,800 | 58,955 | 142,864 | 23.03 |
| Sercomtel Celular S.A. | Telecommunications | 10,801 | 31,317 | - | 29,715 | (6,902) | 45.00 |
| Dois Saltos Empreend. de Ger. de Energia Elétrica Ltda | Electric energy | 1,350 | 350 | 1,000 | - | - | 30.00 |
| Copel Amec S/C Ltda. | Services/consulting | 327 | 2 | 325 | - | 11 | 48.00 |
| Carbocampel S.A. | Services/consulting | 3,553 | 1,058 | 2,495 | - | (52) | 49.00 |
| Escoelectric Ltda. | Services/consulting | 2,628 | 4,848 | (2,220) | - | 1,600 | 40.00 |
| (1)Balances adjusted to COPEL's accounting practices | | | | | | |
| |
| |
| | | | | | | Net | Group |
| | Main | | | | | income | Interest |
| 12.31.2009 | business | Assets(1) | Liabilities(1) | Equity(1) | Revenues | (losses)(1) | % |
| Cia. Saneamento do Paraná - Sanepar | Water supply/sanitation | 2,128,241 | 1,270,182 | 858,059 | 625,231 | 65,243 | 34.75 |
| Sercomtel S.A. - Telecom. | Telecommunications | 204,505 | 115,921 | 88,584 | 146,215 | (59,383) | 45.00 |
| Foz do Chopim Energética S.A | Electric energy | 48,939 | 2,487 | 46,452 | 33,525 | 27,371 | 35.77 |
| Dona Francisca Energ. Ltda. | Electric energy | 369,385 | 284,212 | 85,173 | 58,102 | 40,308 | 23.03 |
| Sercomtel Celular S.A. | Telecommunications | 16,030 | 29,643 | - | 33,629 | (11,265) | 45.00 |
| Dois Saltos Empreend. de Ger. de Energia Elétrica Ltda | Electric energy | 1,000 | - | 1,000 | - | - | 30.00 |
| Copel Amec S/C Ltda. | Services/consulting | 314 | - | 321 | - | 11 | 48.00 |
| Carbocampel S.A. | Services/consulting | 3,554 | 1,177 | 2,279 | - | (49) | 49.00 |
| Escoelectric Ltda. | Services/consulting | 2,161 | 6,420 | (4,259) | - | (1,691) | 40.00 |
| (1)Balances adjusted to COPEL's accounting practices | | | | | | |
16.1.1. Sanepar
In 1998, the acquisition by Dominó Holdings S.A. of an interest in Sanepar resulted in concession rights in the amount of R$24,316, with a balance of R$4,864 as of December 31, 2010. This balance, proportionally to Copel's stake (45%), corresponds to R$2,189, 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, 2010 (R$730 as of December 31, 2009).
16.1.2. Sercomtel
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 17.6), 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. In 2010, a new test indicated the need to recognize a reversal of the previous loss in Sercomtel S.A. Telecomunicações in the amount of R$23,390.
16.2 Main information about Copel’s subsidiaries
Non financial/accounting information, such as information about supplied market, installed capacity, and assured power, has not been audited.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
16.2.1. 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 32 substations at voltages equal to or greater than 230 kV and 1,913 mi 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.
| | | | | |
| Power Plants | River | Installed
capacity
(MW) | Assured
power
(average MW) | ANEEL
concession
date | Concession
expiration
date |
| Hydroelectric facilities | | | | | |
| Gov. Bento Munhoz da Rocha Netto (Foz do Areia) | Iguaçu | 1,676.00 | 576.00 | 05.24.1973 | 05.23.2023 |
| Gov. Ney Aminthas de Barros Braga (Segredo) | Iguaçu | 1,260.00 | 603.00 | 11.14.1979 | 11.15.2029 |
| Gov. José Richa (Caxias) | Iguaçu | 1,240.00 | 605.00 | 05.02.1980 | 05.04.2030 |
| Gov. Pedro Viriato Parigot de Souza | Capivari-Cachoeira | 260.00 | 109.00 | 04.23.1965 | 07.07.2015 |
| Guaricana | Arraial | 36.00 | 16.08(2) | 08.13.1976 | 08.16.2026 |
| Chaminé | São João | 18.00 | 11.60 | 08.13.1976 | 08.16.2026 |
| Apucaraninha | Apucaraninha | 10.00 | 6.71 | 10.13.1975 | 10.12.2025 |
| Mourão | Mourão | 8.20 | 5.30 | 01.20.1964 | 07.07.2015 |
| Derivação do Rio Jordão | Jordão | 6.50 | 5.85 | 11.14.1979 | 11.15.2029 |
| Marumbi | Ipiranga | 4.80(1) | 5.92(3) | 03.14.1956 | - (1) |
| São Jorge | Pitangui | 2.30 | 1.62 | 12.04.1974 | 12.03.2024 |
| Chopim I | Chopim | 1.98 | 1.48(2) | 03.20.1964 | 07.07.2015 |
| Rio dos Patos | Rio dos Patos/Ivaí | 1.70(3) | 1.02(3) | 02.14.1984 | 02.14.2014 |
| Cavernoso | Cavernoso | 1.30 | 0.96(2) | 01.07.1981 | 01.07.2031 |
| Melissa | Melissa | 1.00 | 0.64(2) | 04.02.2002 | - (4) |
| Salto do Vau | Palmital | 0.94 | 0.60 | 04.02.2002 | - (4) |
| Pitangui | Pitangui | 0.87(3) | 0.51(3) | 04.02.2002 | - (4) |
| Thermal facility | | | | | |
| Figueira | | 20.00 | 10.30 | 03.21.1969 | 03.26.2019 |
| Total | | 4,549.59 | 1,961.59 | | |
(1)Submitted to approval by ANEEL
(2)New amounts set by MME Ordinance no. 16 of07/26/2010
(3)New amounts set by MME Ordinance no. 1 of01/26/2011
(4)Facilities under 1 MW are only subject to registration before ANEEL
16.2.2. Copel Distribuição S.A.
Copel Distribuição S.A. runs the Company's power distribution and regulated sales to 1,111 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
16.2.3. 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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
16.2.4. Companhia Paranaense de Gás - Compagas
Compagas is a mixed capital company in which Copel holds a 51% interest and whose main activity is the supply of piped natural gas, through a 546-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 9,288 customers, comprising 107 industrial customers, 34 vehicular gas stations, 293 commercial customers, 8,849 households, 2 co-generation plants, one company which uses gas for power generation at peak times, one company which uses natural gas as a raw material, and the Araucária Thermal Power Plant.
16.2.5. 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 constituted 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. Its concession to operate as an independent power producer was issued by ANEEL on October 25, 2001 for a 35-year term, renewable upon request by the holder for up to 20 years and at the granting authority’s discretion.
16.2.6. UEG Araucária Ltda.
UEG Araucária Ltda. is a limited liability company held by Copel (with a 20% interest) and Copel Geração e Transmissão (with a 60% interest). It 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, renewable upon request by the holder and at the granting authority’s discretion.
16.2.7. Centrais Eólicas do Paraná Ltda.
Centrais Eólicas do Paraná Ltda. is a limited liability company held by Copel (with a 30% interest) andCopel Geração e Transmissão (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. Its authorization to operate as an independent power producer is valid for 30 years as of September 29, 1999, renewable upon request by the holder and at the granting authority’s discretion.
As part of the ongoing restructuring of Copel, the incorporation of Centrais Eólicas do Paraná, with transfer of its assets and liabilities to Copel Geração e Transmissão, has been submitted to ANEEL for authorization.
16.3 Main information about the jointly controlled subsidiary
16.3.1. Dominó Holdings S.A.
Dominó Holdings is a private corporation in which Copel holds a 45% interest, sharing joint control with the remaining shareholders. The company was set up to hold interests in other companies. It currently holds 34.75% of the share capital of theCompanhia de Saneamento do Paraná – Sanepar, a mixed capital company whose business comprises basic sanitation services, including water supply and sewage collection and treatment.
The main items of assets, liabilities, and the statement of operations of Dominó Holdings, as well as the corresponding consolidated shares, are shown below:
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | |
| Dominó Holdings S.A. | Balances as of 12.31.2010 |
| | Adjusted balance(1) | COPEL's stake
(45%) |
| | | |
| ASSETS | 733,985 | 330,292 |
| Current assets | 14,181 | 6,381 |
| Noncurrent assets | 719,804 | 323,911 |
| | |
| LIABILITIES | 733,985 | 330,292 |
| Current liabilities | 10,995 | 4,947 |
| Noncurrent liabilities | 7 | 3 |
| Equity | 722,983 | 325,342 |
| | | |
| STATEMENT OF OPERATIONS | | |
| Operating expenses | (2,843) | (1,279) |
| Interest income (expenses) | (956) | (431) |
| Results of equity in investees | 49,024 | 22,061 |
| Provision for IR and CSLL | (9) | (4) |
| Net income for the period | 45,216 | 20,347 |
| (1)Balances have been adjusted to COPEL's accounting practices | | |
| |
| |
| Dominó Holdings S.A. | Balances as of 12.31.2009 |
| | Adjusted balance(1) | COPEL's stake
(45%) |
| ASSETS | 699,375 | 314,719 |
| Current assets | 14,187 | 6,384 |
| Noncurrent assets | 685,188 | 308,335 |
| | |
| LIABILITIES | 699,375 | 314,719 |
| Current liabilities | 11,021 | 4,960 |
| Noncurrent liabilities | 7 | 3 |
| Equity | 688,347 | 309,756 |
| | | |
| STATEMENT OF OPERATIONS | | |
| Operating expenses | (4,829) | (2,173) |
| Interest income (expenses) | (952) | (428) |
| Results of equity in investees | 50,378 | 22,670 |
| Provision for IR and CSLL | - | - |
| Net income for the period | 44,597 | 20,069 |
| (1)Balances have been adjusted to COPEL's accounting practices | | |
16.4 Financial statements of Copel’s subsidiaries and jointly controlled subsidiary
Shown below are the Statement of Financial Position of Copel’s subsidiaries as of December 31, 2010, December 31, 2009 and January 1, 2009 and the statements of operations as of December 31, 2010 and December 31, 2009, reclassified for purposes of ensuring consistency with the account classification adopted by Copel and with the effects of first-time adoption of IFRS. In order to allow the analysis of the statement of operations according to the nature of the expenses, the operating costs and expenses are presented in aggregate form:
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
ASSETS
12.31.2010 | GET | DIS | TEL | COM | ELE | UEG | CEO | DOM |
| TOTAL ASSETS | 8,485,910 | 6,708,119 | 291,909 | 263,498 | 809,217 | 654,107 | 10,389 | 330,292 |
| CURRENT ASSETS | 1,705,037 | 1,963,891 | 42,797 | 65,249 | 43,361 | 155,136 | 9,101 | 6,381 |
| Cash and cash equivalents | 1,163,455 | 669,079 | 6,942 | 37,769 | 21,053 | 147,720 | 8,923 | 1,006 |
| Bonds and securities | 146,454 | 30,813 | - | - | 5,227 | 26 | - | - |
| Collaterals and escrow accounts | 63,473 | 201 | - | 404 | - | - | - | - |
| Customers | 213,070 | 931,463 | 19,929 | 24,009 | 16,220 | - | 102 | - |
| Dividends receivable | 4,480 | - | - | - | - | - | - | 4,896 |
| CRC transferred to State Government | - | 58,816 | - | - | - | - | - | - |
| Receivables related to concession | 54,700 | - | - | - | - | - | - | - |
| Other receivables | 28,152 | 127,198 | 661 | 552 | 518 | 4,499 | - | - |
| Inventories | 24,429 | 83,893 | 11,758 | 1,344 | - | - | - | - |
| Income tax and social contribution | 280 | 30,685 | 821 | 1 | - | 2,883 | 69 | 479 |
| Other current taxes to offset | 4,449 | 30,089 | 2,426 | 564 | - | 8 | - | - |
| Prepaid expenses | 2,095 | 1,654 | 260 | 606 | 343 | - | 7 | - |
| NONCURRENT ASSETS | 6,780,873 | 4,744,228 | 249,112 | 198,249 | 765,856 | 498,971 | 1,288 | 323,911 |
| Long-Term Receivables | 927,450 | 3,451,017 | 13,934 | 28,748 | 13,107 | 15,423 | - | 97 |
| Financial investments | 5,306 | 26,280 | - | 1,845 | - | - | - | - |
| Customers | - | 43,729 | - | 15,800 | - | - | - | - |
| CRC transferred to State Government | - | 1,282,377 | - | - | - | - | - | - |
| Judicial deposits | 21,652 | 147,895 | 233 | 205 | 133 | 249 | - | 97 |
| Receivables related to concession | 785,457 | 1,637,888 | - | - | - | - | - | - |
| Advance payments to suppliers | - | - | - | 9,902 | - | - | - | - |
| Other receivables | 1,878 | 3,280 | - | 164 | - | - | - | - |
| Income tax and social contribution | - | - | - | - | - | 12,341 | - | - |
| Other current taxes to offset | 10,453 | 64,303 | 7,273 | - | - | 2,833 | - | - |
| Deferred income tax and social contribution | 102,704 | 245,265 | 6,428 | 832 | 7,724 | - | - | - |
| Receivables from subsidiaries | - | - | - | - | 5,250 | - | - | - |
| Investments | 390,810 | 4,232 | - | - | - | - | - | 323,814 |
| Property, Plant, and Equipment | 5,427,187 | - | 222,291 | - | 529,749 | 483,430 | 1,288 | - |
| Intangible Assets | 35,426 | 1,288,979 | 12,887 | 169,501 | 223,000 | 118 | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
LIABILITIES
12.31.2010 | GET | DIS | TEL | COM | ELE | UEG | CEO | DOM |
| TOTAL LIABILITIES | 8,485,910 | 6,708,119 | 291,909 | 263,498 | 809,217 | 654,107 | 10,389 | 330,292 |
| CURRENT LIABILITIES | 964,245 | 1,449,633 | 33,721 | 60,066 | 57,018 | 6,202 | 6,434 | 4,947 |
| Payroll, social charges and accruals | 42,321 | 118,790 | 11,014 | 2,935 | 147 | 78 | - | 6 |
| Suppliers | 167,101 | 444,987 | 7,759 | 26,325 | 3,879 | 4,772 | 1 | - |
| Income tax and social contribution | 119,049 | - | - | 12,252 | 6,963 | - | - | - |
| Other taxes | 33,976 | 254,811 | 3,290 | 1,947 | 1,250 | 1,227 | 33 | 297 |
| Loans and financing | 46,233 | 17,950 | - | 6,330 | - | - | - | - |
| Dividends due | 510,952 | 355,968 | 10,474 | 9,628 | - | - | 6,400 | 4,644 |
| Post-employment benefits | 6,232 | 16,811 | 1,093 | - | - | - | - | - |
| Regulatory charges | 3,630 | 52,475 | - | - | - | - | - | - |
| R&D and Energy Efficiency | 12,569 | 140,381 | - | - | 2,927 | 114 | - | - |
| Accounts payable related to concession - use of public property | - | - | - | - | 40,984 | - | - | - |
| Other payables | 22,182 | 47,460 | 91 | 649 | 868 | 11 | - | - |
| NONCURRENT LIABILITIES | 1,795,582 | 1,941,675 | 16,826 | 8,754 | 613,983 | 3,676 | - | 3 |
| Investees and subsidiaries | - | 715,539 | - | - | 295,788 | - | - | - |
| Suppliers | 160,736 | - | - | - | - | - | - | - |
| Tax liabilities | - | 11,553 | - | - | - | 623 | - | - |
| Deferred income tax and social contribution | 822,195 | 32,563 | - | 7,163 | - | - | - | - |
| Loans and financing | 425,628 | 525,711 | - | 43 | - | - | - | - |
| Post-employment benefits | 104,541 | 262,728 | 15,774 | 1,165 | - | - | - | - |
| R&D and Energy Efficiency | 26,285 | 64,447 | - | - | - | - | - | - |
| Accounts payable related to concession - use of public property | 22,249 | - | - | - | 317,850 | - | - | - |
| Other payables | - | - | - | - | - | - | - | - |
| Reserve for risks | 233,948 | 329,134 | 1,052 | 383 | 345 | 3,053 | - | 3 |
| EQUITY | 5,726,083 | 3,316,811 | 241,362 | 194,678 | 138,216 | 644,229 | 3,955 | 325,342 |
| Attributable to Parent Company shareholders | | | | | | | | |
| Share capital | 3,505,994 | 2,624,841 | 194,755 | 135,943 | 69,450 | 707,440 | 3,061 | 113,368 |
| Capital reserves | - | - | - | - | 104,034 | - | - | - |
| Equity valuation adjustments | 1,540,695 | 13,463 | - | - | - | - | - | 5,358 |
| Legal reserve | 182,162 | 108,500 | 3,521 | 14,636 | - | - | - | 14,717 |
| Retained earnings | 145,366 | 570,007 | 43,086 | 31,172 | - | - | 894 | - |
| Unrealized income reserve | - | - | - | - | - | - | - | 191,899 |
| Additional proposed dividends | 351,866 | - | - | 12,927 | - | - | - | - |
| Accrued losses | - | - | - | - | (35,268) | (63,211) | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
STATEMENT OF OPERATIONS
12.31.2010 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| OPERATING REVENUES | 1,721,556 | 4,939,328 | 139,153 | 267,829 | 180,957 | 45,374 | - | 912 | - |
| Electricity sales to final customers | 113,102 | 2,104,950 | - | - | - | - | - | - | - |
| Electricity sales to distributors | 1,300,613 | 64,471 | - | - | 180,957 | - | - | 912 | - |
| Charges for the use of main transmission grid | 236,698 | 2,117,454 | - | - | - | - | - | - | - |
| Construction revenues | 41,019 | 599,634 | - | 22,881 | - | - | - | - | - |
| Telecommunications | - | - | 139,153 | - | - | - | - | - | - |
| Distribution of piped gas | - | - | - | 237,272 | - | - | - | - | - |
| Leases and rents | 1,130 | 53,755 | - | - | - | 50,001 | - | - | - |
| Other operating revenues | 28,994 | (936) | - | 7,676 | - | (4,627) | - | - | - |
| OPERATING COSTS AND EXPENSES | (1,094,516) | (4,577,731) | (99,047) | (212,120) | (58,751) | (65,688) | (38) | (529) | (1,279) |
| Electricity purchased for resale | (58,281) | (2,170,875) | - | - | (2,071) | - | - | - | - |
| Charges for the use of main transmission grid | (184,585) | (468,723) | - | - | (8,600) | (12,564) | - | - | - |
| Personnel and management | (198,137) | (546,834) | (43,920) | (12,796) | (1,774) | (748) | - | - | (29) |
| Pension and healthcare plans | (30,535) | (86,359) | (5,655) | (1,239) | - | - | - | - | - |
| Materials and supplies | (21,192) | (60,132) | (1,517) | (709) | (226) | (89) | - | (245) | - |
| Raw materials and supplies for electricity generation | (20,704) | - | - | - | - | (2,271) | - | - | - |
| Natural gas and supplies for the gas business | - | - | - | (144,648) | - | - | - | - | - |
| Third-party services | (72,269) | (277,437) | (16,747) | (14,283) | (8,647) | (8,830) | (2) | (60) | (489) |
| Depreciation and amortization | (262,802) | (180,701) | (28,540) | (11,508) | (29,523) | (28,226) | - | (208) | (730) |
| Provisions and reversals | (17,475) | (106,913) | 903 | (39) | (155) | - | - | - | - |
| Construction costs | (40,372) | (599,634) | - | (22,881) | - | - | - | - | - |
| Other operating costs and expenses | (188,164) | (80,123) | (3,571) | (4,017) | (7,755) | (12,960) | (36) | (16) | (31) |
| RESULT OF EQUITY IN INVESTEES | (3,345) | - | - | - | - | - | (9,246) | - | 22,061 |
| RESULT OF OPERATIONS | 623,695 | 361,597 | 40,106 | 55,709 | 122,206 | (20,314) | (9,284) | 383 | 20,782 |
| Interest income (expenses) | 62,311 | 378,910 | 4,059 | 5,256 | (102,203) | 13,278 | 352 | 785 | (431) |
| OPERATING INCOME | 686,006 | 740,507 | 44,165 | 60,965 | 20,003 | (7,036) | (8,932) | 1,168 | 20,351 |
| Income tax and social contribution | (221,956) | (193,982) | (11,287) | (20,734) | (14,336) | - | (63) | (274) | (4) |
| Deferred income tax and social contribution | 65,072 | (22,012) | (184) | 307 | 7,724 | - | - | - | - |
| INCOME (LOSSES) FOR THE PERIOD | 529,122 | 524,513 | 32,694 | 40,538 | 13,391 | (7,036) | (8,995) | 894 | 20,347 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
ASSETS
12.31.2009 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| TOTAL ASSETS | 7,957,319 | 5,586,303 | 258,084 | 259,130 | 836,022 | 658,550 | 399,106 | 9,490 | 314,719 |
| CURRENT ASSETS | 1,204,610 | 1,439,645 | 55,413 | 70,486 | 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 |
| Bonds and securities | 67,406 | 19,429 | - | - | 21,631 | 27 | - | - | - |
| Collaterals and escrow accounts | 4,655 | 197 | - | 195 | - | - | - | - | - |
| Customers | 235,752 | 835,215 | 12,079 | 19,993 | 16,326 | - | - | 83 | - |
| Dividends receivable | 3,931 | - | - | - | - | - | - | - | 5,135 |
| CRC transferred to State Government | - | 49,549 | - | - | - | - | - | - | - |
| Receivables related to concession | 44,070 | - | - | - | - | - | - | - | - |
| Other receivables | 30,435 | 95,047 | 566 | 6,790 | 28 | 652 | - | - | - |
| Inventories | 27,595 | 76,170 | 7,166 | 1,171 | - | - | - | - | - |
| Income tax and social contribution | 479 | 145,091 | 2,076 | 2 | - | 12,732 | 304 | 54 | 437 |
| Other current taxes to offset | 4,091 | 24,988 | 1,385 | 556 | - | 913 | - | - | - |
| Prepaid expenses | 2,164 | 1,491 | 252 | 602 | 450 | - | - | 7 | - |
| NONCURRENT ASSETS | 6,752,709 | 4,146,658 | 202,671 | 188,644 | 778,006 | 512,969 | 390,759 | 1,497 | 308,335 |
| Long-Term Receivables | 883,108 | 2,779,383 | 13,027 | 30,498 | 240 | 245 | - | - | 91 |
| Financial investments | 40,103 | 24,195 | - | - | - | - | - | - | - |
| Customers | - | 50,921 | 1,011 | 21,067 | - | - | - | - | - |
| CRC transferred to State Government | - | 1,205,025 | - | - | - | - | - | - | - |
| Judicial deposits | 17,677 | 87,360 | 236 | 209 | 240 | 245 | - | - | 91 |
| Receivables related to concession | 731,100 | 1,097,120 | - | - | - | - | - | - | - |
| Advance payments to suppliers | - | - | - | 8,290 | - | - | - | - | - |
| Other receivables | 1,881 | 4,611 | - | 408 | - | - | - | - | - |
| Income tax and social contribution | - | - | - | - | - | - | - | - | - |
| Other current taxes to offset | 8,122 | 71,775 | 4,060 | - | - | - | - | - | - |
| Deferred income tax and social contribution | 84,225 | 238,376 | 6,611 | 524 | - | - | - | - | - |
| Receivables from subsidiaries | - | - | 1,109 | - | - | - | - | - | - |
| Investments | 451,258 | 4,250 | - | - | - | - | 390,759 | - | 308,243 |
| Property, Plant, and Equipment | 5,408,642 | - | 188,586 | - | 548,215 | 512,707 | - | 1,497 | 1 |
| Intangible Assets | 9,701 | 1,363,025 | 1,058 | 158,146 | 229,551 | 17 | - | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
LIABILITIES
12.31.2009 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| TOTAL LIABILITIES | 7,957,319 | 5,586,303 | 258,084 | 259,130 | 836,022 | 658,550 | 399,106 | 9,490 | 314,719 |
| CURRENT LIABILITIES | 460,027 | 1,090,066 | 19,764 | 55,388 | 91,223 | 3,685 | - | 5,645 | 4,959 |
| Payroll, social charges and accruals | 54,006 | 139,562 | 10,730 | 2,240 | 111 | 32 | - | - | 5 |
| Suppliers | 121,657 | 433,800 | 5,158 | 24,275 | 3,337 | 2,604 | - | 2 | 7 |
| Income tax and social contribution | 114,262 | - | - | 8,762 | 1,481 | - | - | - | - |
| Other taxes | 21,675 | 202,146 | 2,706 | 1,674 | 1,253 | 367 | - | 27 | 300 |
| Loans and financing | 52,616 | 12,490 | - | 6,349 | - | - | - | - | - |
| Debentures | - | - | - | - | 36,957 | - | - | - | - |
| Dividends due | 37,675 | 111,268 | - | 8,228 | 7,150 | - | - | 5,616 | 4,647 |
| Post-employment benefits | 5,969 | 15,501 | 990 | - | - | - | - | - | - |
| Regulatory charges | 3,791 | 25,732 | - | - | - | - | - | - | - |
| R&D and Energy Efficiency | 11,741 | 106,761 | - | - | 1,830 | 673 | - | - | - |
| Accounts payable related to concession - use of public property | - | - | - | - | 38,029 | - | - | - | - |
| Other payables | 36,635 | 42,806 | 180 | 3,860 | 1,075 | 9 | - | - | - |
| NONCURRENT LIABILITIES | 1,714,099 | 1,444,762 | 16,597 | 17,054 | 722,687 | 3,600 | - | - | 4 |
| Investees and subsidiaries | - | 658,724 | - | - | 265,418 | - | - | - | - |
| Suppliers | 196,863 | - | - | - | - | - | - | - | - |
| Tax liabilities | - | 48,311 | - | - | - | 547 | - | - | - |
| Deferred income tax and social contribution | 866,834 | - | - | 8,953 | - | - | - | - | - |
| Loans and financing | 300,809 | 147,224 | - | 6,394 | 117 | - | - | - | - |
| Debentures | - | - | - | - | 153,384 | - | - | - | - |
| Post-employment benefits | 96,013 | 241,546 | 14,411 | 1,006 | - | - | - | - | - |
| R&D and Energy Efficiency | 19,928 | 70,565 | - | - | - | - | - | - | - |
| Accounts payable related to concession - use of public property | 9,048 | - | - | - | 303,578 | - | - | - | - |
| Other payables | 2,596 | - | - | 357 | - | - | - | - | - |
| Reserve for risks | 222,008 | 278,392 | 2,186 | 344 | 190 | 3,053 | - | - | 4 |
| EQUITY | 5,783,193 | 3,051,475 | 221,723 | 186,688 | 22,112 | 651,265 | 399,106 | 3,845 | 309,756 |
| Attributable to Parent Company shareholders | | | | | | | | | |
| Share 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 | - | - |
| Equity valuation adjustments | 1,641,998 | 11,464 | - | - | - | - | - | - | 7,172 |
| Legal reserve | 155,706 | 82,274 | 1,886 | 12,609 | 2,017 | - | - | - | 13,700 |
| Retained earnings | 44,062 | 237,684 | 22,816 | 62,939 | 28,747 | - | - | 784 | - |
| Unrealized income reserve | - | - | - | - | - | - | - | - | 175,516 |
| Additional proposed dividends | 435,433 | 95,212 | 2,266 | - | - | - | - | - | - |
| Accrued earnings (losses) | - | - | - | - | (79,424) | (56,175) | (38,495) | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
STATEMENT OF OPERATIONS
12.31.2009 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| OPERATING REVENUES | 1,708,925 | 4,420,923 | 117,784 | 227,089 | 172,968 | 36,829 | - | 738 | - |
| Electricity sales to final customers | 103,470 | 1,960,175 | - | - | - | - | - | - | - |
| Electricity sales to distributors | 1,274,395 | 57,879 | - | - | 172,968 | - | - | 738 | - |
| Charges for the use of main transmission grid | 260,136 | 1,801,832 | - | - | - | - | - | - | - |
| Construction revenues | 41,791 | 545,882 | - | 14,207 | - | - | - | - | - |
| Telecommunications | - | - | 117,490 | - | - | - | - | - | - |
| Distribution of piped gas | - | - | - | 207,842 | - | - | - | - | - |
| Leases and rents | 1,136 | 57,177 | - | - | - | 40,584 | - | - | - |
| Other operating revenues | 27,997 | (2,022) | 294 | 5,040 | - | (3,755) | - | - | - |
| OPERATING COSTS AND EXPENSES | (1,041,990) | (4,316,069) | (93,045) | (181,653) | (58,831) | (59,795) | (35) | (458) | (2,173) |
| Electricity purchased for resale | (73,679) | (2,037,970) | - | - | (2,022) | - | - | - | - |
| Charges for the use of main transmission grid | (181,159) | (434,171) | - | - | (10,674) | (14,021) | - | - | - |
| Personnel and management | (196,425) | (554,202) | (38,822) | (11,345) | (1,767) | (380) | - | - | (27) |
| Pension and healthcare plans | (26,728) | (76,624) | (4,886) | (1,272) | - | - | - | - | - |
| Materials and supplies | (12,915) | (53,478) | (1,294) | (653) | (576) | (66) | - | (227) | (1) |
| Raw materials and supplies for electricity generation | (21,979) | - | - | - | - | (1,936) | - | - | - |
| Natural gas and supplies for the gas business | - | - | - | (128,916) | - | - | - | - | - |
| Third-party services | (63,069) | (255,958) | (11,429) | (13,291) | (8,599) | (10,551) | (1) | (56) | (1,332) |
| Depreciation and amortization | (269,114) | (167,516) | (31,111) | (9,003) | (29,449) | (31,896) | - | (208) | (730) |
| Provisions and reversals | (41,256) | (103,515) | (1,564) | (36) | (190) | - | - | - | - |
| Construction costs | (41,525) | (545,882) | - | (14,207) | - | - | - | - | - |
| Other operating costs and expenses | (114,141) | (86,753) | (3,939) | (2,930) | (5,554) | (945) | (34) | 33 | (83) |
| RESULT OF EQUITY IN INVESTEES | (4,806) | - | - | - | - | - | (5,917) | - | 22,670 |
| RESULT OF OPERATIONS | 662,129 | 104,854 | 24,739 | 45,436 | 114,137 | (22,966) | (5,952) | 280 | 20,497 |
| Interest income (expenses) | 73,762 | 65,940 | 4,228 | 2,604 | (76,082) | 13,105 | 741 | 730 | (428) |
| OPERATING INCOME | 735,891 | 170,794 | 28,967 | 48,040 | 38,055 | (9,861) | (5,211) | 1,010 | 20,069 |
| Income tax and social contribution | (222,292) | (29,901) | (7,645) | (15,319) | (15,243) | - | (144) | (226) | - |
| Deferred income tax and social contribution | 47,705 | 47,173 | 1,114 | (822) | - | - | - | - | - |
| INCOME (LOSSES) FOR THE PERIOD | 561,304 | 188,066 | 22,436 | 31,899 | 22,812 | (9,861) | (5,355) | 784 | 20,069 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
ASSETS
01.01.2009 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| TOTAL ASSETS | 8,030,981 | 5,236,194 | 243,102 | 260,510 | 858,846 | 670,698 | 404,461 | 9,905 | 299,546 |
| CURRENT ASSETS | 1,310,966 | 1,425,681 | 47,943 | 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 |
| Bonds and securities | 78,986 | 37,174 | - | - | 34,042 | 29 | - | - | - |
| Collaterals and escrow accounts | 93 | 34 | - | - | - | - | - | - | - |
| Customers | 220,963 | 756,479 | 10,837 | 22,450 | 15,300 | - | - | 96 | - |
| Dividends receivable | - | - | - | - | - | - | - | - | 5,247 |
| CRC transferred to State Government | - | 47,133 | - | - | - | - | - | - | - |
| Receivables related to concession | 27,685 | - | - | - | - | - | - | - | - |
| Other receivables | 21,748 | 72,640 | 427 | 1,179 | 1 | 9,452 | - | - | - |
| Inventories | 29,710 | 48,150 | 5,151 | 536 | - | - | - | - | - |
| Income tax and social contribution | 5,774 | 85,772 | 769 | - | 1,634 | 9,363 | 187 | - | 528 |
| Other current taxes to offset | 3,491 | 22,926 | 991 | 556 | - | 57 | - | - | - |
| Prepaid expenses | 1,655 | 1,087 | 130 | 329 | 365 | - | - | 7 | - |
| NONCURRENT ASSETS | 6,720,015 | 3,810,513 | 195,159 | 179,568 | 807,368 | 534,608 | 396,676 | 1,705 | 292,347 |
| Long-Term Receivables | 762,858 | 2,543,726 | 12,464 | 26,715 | 231 | - | - | - | 3 |
| Financial investments | - | 37,868 | - | - | - | - | - | - | - |
| Customers | 75 | 81,760 | 3,211 | 23,650 | - | - | - | - | - |
| CRC transferred to State Government | - | 1,272,770 | - | - | - | - | - | - | - |
| Judicial deposits | 31,592 | 87,492 | 786 | 139 | 231 | - | - | - | 3 |
| Receivables related to concession | 653,437 | 807,025 | - | - | - | - | - | - | - |
| Advance payments to suppliers | - | - | - | 8,290 | - | - | - | - | - |
| Other receivables | 1,881 | 4,709 | - | (5,798) | - | - | - | - | - |
| Other current taxes to offset | 7,001 | 52,497 | 2,970 | - | - | - | - | - | - |
| Deferred income tax and social contribution | 68,872 | 199,605 | 5,497 | 434 | - | - | - | - | - |
| Investments | 462,500 | 2,474 | - | - | - | - | 396,676 | - | 292,343 |
| Property, Plant, and Equipment | 5,485,877 | - | 181,587 | - | 568,340 | 534,585 | - | 1,705 | 1 |
| Intangible Assets | 8,780 | 1,264,313 | 1,108 | 152,853 | 238,797 | 23 | - | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | |
LIABILITIES
01.01.2009 | GET | DIS | TEL | COM | ELE | UEG | CEM | CEO | DOM |
| TOTAL LIABILITIES | 8,030,981 | 5,236,194 | 243,102 | 260,510 | 858,846 | 670,698 | 404,461 | 9,905 | 299,546 |
| CURRENT LIABILITIES | 522,369 | 1,021,335 | 21,858 | 63,365 | 75,034 | 5,901 | - | 1,228 | 5,626 |
| Payroll, social charges and accruals | 39,664 | 109,161 | 8,737 | 1,421 | 119 | 41 | - | - | 2 |
| Suppliers | 68,791 | 415,006 | 5,287 | 38,769 | 4,597 | 3,501 | - | 2 | 4 |
| Income tax and social contribution | 111,925 | - | - | 8,245 | - | - | - | 1,080 | - |
| Other taxes | 22,624 | 157,717 | 1,922 | 597 | 1,209 | 375 | - | 146 | 383 |
| Loans and financing | 61,373 | 14,313 | - | 6,526 | - | - | - | - | - |
| Debentures | - | - | - | - | 25,767 | - | - | - | - |
| Dividends due | 148,205 | 130,247 | 3,655 | 7,724 | 1,538 | - | - | - | 5,237 |
| Post-employment benefits | 5,758 | 14,636 | 916 | - | - | - | - | - | - |
| Regulatory charges | 3,548 | 39,575 | - | - | - | - | - | - | - |
| R&D and Energy Efficiency | 28,352 | 93,506 | - | - | 2,652 | 1,974 | - | - | - |
| Accounts payable related to concession - use of public property | - | - | - | - | 38,166 | - | - | - | - |
| Other payables | 32,129 | 47,174 | 1,341 | 83 | 986 | 10 | - | - | - |
| NONCURRENT LIABILITIES | 1,685,697 | 1,260,941 | 14,863 | 23,853 | 768,332 | 3,671 | - | - | 3 |
| Investees and subsidiaries | - | 597,227 | - | - | 238,060 | - | - | - | - |
| Suppliers | 237,807 | - | - | - | - | - | - | - | - |
| Tax liabilities | - | - | - | - | - | 618 | - | - | - |
| Deferred income tax and social contribution | 899,187 | 2,497 | - | 8,041 | - | - | - | - | - |
| Loans and financing | 246,927 | 153,326 | - | 13,111 | 16,875 | - | - | - | - |
| Debentures | - | - | - | - | 202,116 | - | - | - | - |
| Post-employment benefits | 90,121 | 226,845 | 13,471 | 728 | - | - | - | - | - |
| R&D and Energy Efficiency | 5,324 | 66,755 | - | - | - | - | - | - | - |
| Accounts payable related to concession - use of public property | 8,152 | - | - | - | 311,281 | - | - | - | - |
| Other payables | 4,995 | 15 | - | 1,664 | - | - | - | - | - |
| Reserve for risks | 193,184 | 214,276 | 1,392 | 309 | - | 3,053 | - | - | 3 |
| EQUITY | 5,822,915 | 2,953,918 | 206,381 | 173,292 | 15,480 | 661,126 | 404,461 | 8,677 | 293,917 |
| Attributable to Parent Company shareholders | | | | | | | | | |
| Share capital | 3,400,378 | 2,171,928 | 194,755 | 85,143 | 78,667 | 707,440 | 397,983 | 3,061 | 113,368 |
| Capital reserves | - | - | - | - | 1,134 | - | 39,618 | - | - |
| Equity valuation adjustments | 1,742,897 | - | - | - | - | - | - | - | 7,172 |
| Legal reserve | 122,967 | 66,289 | 641 | 11,014 | 512 | - | - | - | 12,697 |
| Retained earnings | 142,260 | 704,848 | 10,985 | 74,045 | 7,297 | - | - | 5,616 | - |
| Unrealized income reserve | - | - | - | - | - | - | - | - | 160,680 |
| Additional proposed dividends | 414,413 | 10,853 | - | 3,090 | - | - | - | - | - |
| Accrued earnings (losses) | - | - | - | - | (72,130) | (46,314) | (33,140) | - | - |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
16.5 Consolidated statement of operations broken down by company
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 2010 and 2009, not taking into account the equity in the results of subsidiaries.
| | | | | | | | | | |
STATEMENT OF OPERATIONS
12.31.2010 | GET | DIS | TEL | COM | ELE | UEG | Other | Parent
Company | Subtractions
and
minority int. | Consolidated |
| OPERATING REVENUES | 1,721,556 | 4,939,328 | 139,153 | 267,829 | 180,957 | 45,374 | 912 | - | (393,996) | 6,901,113 |
| Electricity sales to final customers | 113,102 | 2,104,950 | - | - | - | - | - | - | (4,649) | 2,213,403 |
| Electricity sales to distributors | 1,300,613 | 64,471 | - | - | 180,957 | - | 912 | - | (258,952) | 1,288,001 |
| Charges for the use of the power grid | 236,698 | 2,117,454 | - | - | - | - | - | - | (81,731) | 2,272,421 |
| Construction revenues | 41,019 | 599,634 | - | 22,881 | - | - | - | - | - | 663,534 |
| Telecommunications | - | - | 139,153 | - | - | - | - | - | (41,271) | 97,882 |
| Distribution of piped gas | - | - | - | 237,272 | - | - | - | - | - | 237,272 |
| Leases and rents | 1,130 | 53,755 | - | - | - | 50,001 | - | - | (1,200) | 103,686 |
| Other operating revenues | 28,994 | (936) | - | 7,676 | - | (4,627) | - | - | (6,193) | 24,914 |
| OPERATING COSTS AND EXPENSES | (1,094,516) | (4,577,731) | (99,047) | (212,120) | (58,751) | (65,688) | (1,846) | (252,440) | 393,996 | (5,968,143) |
| Electricity purchased for resale | (58,281) | (2,170,875) | - | - | (2,071) | - | - | - | 258,952 | (1,972,275) |
| Charges for the use of the power grid | (184,585) | (468,723) | - | - | (8,600) | (12,564) | - | - | 81,731 | (592,741) |
| Personnel and management | (198,137) | (546,834) | (43,920) | (12,796) | (1,774) | (748) | (29) | (7,276) | - | (811,514) |
| Pension and healthcare plans | (30,535) | (86,359) | (5,655) | (1,239) | - | - | - | (433) | - | (124,221) |
| Materials and supplies | (21,192) | (60,132) | (1,517) | (709) | (226) | (89) | (245) | (14) | - | (84,124) |
| Raw materials and supplies for electricity generation | (20,704) | - | - | - | - | (2,271) | - | - | - | (22,975) |
| Natural gas and supplies for the gas business | - | - | - | (144,648) | - | - | - | - | - | (144,648) |
| Third-party services | (72,269) | (277,437) | (16,747) | (14,283) | (8,647) | (8,830) | (551) | (4,255) | 52,113 | (350,906) |
| Depreciation and amortization | (262,802) | (180,701) | (28,540) | (11,508) | (29,523) | (28,226) | (938) | (754) | - | (542,992) |
| Provisions and reversals | (17,475) | (106,913) | 903 | (39) | (155) | - | - | (239,097) | - | (362,776) |
| Construction costs | (40,372) | (599,634) | - | (22,881) | - | - | - | - | - | (662,887) |
| Financial compensation for use of water resources | (106,066) | - | - | - | (6,144) | - | - | - | - | (112,210) |
| Other operating costs and expenses | (82,098) | (80,123) | (3,571) | (4,017) | (1,611) | (12,960) | (83) | (611) | 1,200 | (183,874) |
| RESULT OF EQUITY IN INVESTEES | - | - | - | - | - | - | 22,061 | 77,276 | - | 99,337 |
| RESULT OF OPERATIONS | 627,040 | 361,597 | 40,106 | 55,709 | 122,206 | (20,314) | 21,127 | (175,164) | - | 1,032,307 |
| Interest income (expenses) | 62,311 | 378,910 | 4,059 | 5,256 | (102,203) | 13,278 | 706 | (13,892) | - | 348,425 |
| OPERATING INCOME | 689,351 | 740,507 | 44,165 | 60,965 | 20,003 | (7,036) | 21,833 | (189,056) | - | 1,380,732 |
| Income tax and social contribution | (221,956) | (193,982) | (11,287) | (20,734) | (14,336) | - | (341) | (35,332) | - | (497,968) |
| Deferred income tax and social contribution | 65,072 | (22,012) | (184) | 307 | 7,724 | - | - | 76,610 | - | 127,517 |
| INCOME (LOSSES) FOR THE PERIOD | 532,467 | 524,513 | 32,694 | 40,538 | 13,391 | (7,036) | 21,492 | (147,778) | - | 1,010,281 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | | | |
STATEMENT OF OPERATIONS
12.31.2009 | GET | DIS | TEL | COM | ELE | UEG | Other | Parent
Company | Subtractions
and
minority int. | Consolidated |
| OPERATING REVENUES | 1,708,925 | 4,420,923 | 117,784 | 227,089 | 172,968 | 36,829 | 738 | - | (435,116) | 6,250,140 |
| Electricity sales to final customers | 103,470 | 1,960,175 | - | - | - | - | - | - | (4,091) | 2,059,554 |
| Electricity sales to distributors | 1,274,395 | 57,879 | - | - | 172,968 | - | 738 | - | (296,823) | 1,209,157 |
| Charges for the use of the power grid | 260,136 | 1,801,832 | - | - | - | - | - | - | (86,851) | 1,975,117 |
| Construction revenues | 41,791 | 545,882 | - | 14,207 | - | - | - | - | - | 601,880 |
| Telecommunications | - | - | 117,490 | - | - | - | - | - | (37,228) | 80,262 |
| Distribution of piped gas | - | - | - | 207,842 | - | - | - | - | (2,684) | 205,158 |
| Leases and rents | 1,136 | 57,177 | - | - | - | 40,583 | - | - | (1,200) | 97,696 |
| Other operating revenues | 27,997 | (2,022) | 294 | 5,040 | - | (3,754) | - | - | (6,239) | 21,316 |
| OPERATING COSTS AND EXPENSES | (1,041,990) | (4,316,069) | (93,045) | (181,653) | (58,831) | (59,795) | (2,666) | 111,928 | 435,116 | (5,207,005) |
| Electricity purchased for resale | (73,679) | (2,037,970) | - | - | (2,022) | - | - | - | 296,823 | (1,816,848) |
| Charges for the use of the power grid | (181,159) | (434,171) | - | - | (10,674) | (14,021) | - | - | 86,851 | (553,174) |
| Personnel and management | (196,425) | (554,202) | (38,822) | (11,345) | (1,767) | (380) | (27) | (7,083) | - | (810,051) |
| Pension and healthcare plans | (26,728) | (76,624) | (4,886) | (1,272) | - | - | - | (222) | - | (109,732) |
| Materials and supplies | (12,915) | (53,478) | (1,294) | (653) | (576) | (66) | (228) | (13) | - | (69,223) |
| Raw materials and supplies for electricity generation | (21,979) | - | - | - | - | (1,936) | - | - | 2,684 | (21,231) |
| Natural gas and supplies for the gas business | - | - | - | (128,916) | - | - | - | - | - | (128,916) |
| Third-party services | (63,069) | (255,958) | (11,429) | (13,291) | (8,599) | (10,551) | (1,389) | (4,338) | 47,558 | (321,066) |
| Depreciation and amortization | (269,114) | (167,516) | (31,111) | (9,003) | (29,449) | (31,896) | (938) | (754) | - | (539,781) |
| Provisions and reversals | (41,256) | (103,515) | (1,564) | (36) | (190) | - | - | 186,498 | - | 39,937 |
| Construction costs | (41,525) | (545,882) | - | (14,207) | - | - | - | - | - | (601,614) |
| Financial compensation for use of water resources | (75,819) | - | - | - | (4,408) | - | - | - | - | (80,227) |
| Other operating costs and expenses | (38,322) | (86,753) | (3,939) | (2,930) | (1,146) | (945) | (84) | (62,160) | 1,200 | (195,079) |
| RESULT OF EQUITY IN INVESTEES | - | - | - | - | - | - | 22,670 | (8,343) | - | 14,327 |
| RESULT OF OPERATIONS | 666,935 | 104,854 | 24,739 | 45,436 | 114,137 | (22,966) | 20,742 | 103,585 | - | 1,057,462 |
| Interest income (expenses) | 73,762 | 65,940 | 4,228 | 2,604 | (76,082) | 13,105 | 1,043 | (77,865) | - | 6,735 |
| OPERATING INCOME | 740,697 | 170,794 | 28,967 | 48,040 | 38,055 | (9,861) | 21,785 | 25,720 | - | 1,064,197 |
| Income tax and social contribution | (222,292) | (29,901) | (7,645) | (15,319) | (15,243) | - | (370) | - | - | (290,770) |
| Deferred income tax and social contribution | 47,705 | 47,173 | 1,114 | (822) | - | - | - | (56,319) | - | 38,851 |
| INCOME (LOSSES) FOR THE PERIOD | 566,110 | 188,066 | 22,436 | 31,899 | 22,812 | (9,861) | 21,415 | (30,599) | - | 812,278 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
16.6 Changes to the investments in non-controlled companies | | | |
| |
| |
| | | | Additions | Proposed | Provision | Amortization | | |
| | Balance as of | Result of | and | dividends | for | of concession | | Balance as of |
| | 12.31.2009 | equity | APFCI | and IOC | losses | rights | Other | 12.31.2010 |
| Investees | | | | | | | | |
| Sanepar | 305,325 | 22,062 | - | (5,761) | - | - | - | 321,626 |
| Concession - Sanepar | 2,918 | - | - | - | - | (730) | - | 2,188 |
| Dona Francisca | 19,616 | 33,962 | - | (3,417) | - | - | - | 50,161 |
| Sercomtel - Telecomunicações | 39,863 | 32,601 | - | - | - | - | - | 72,464 |
| Foz do Chopim | 16,616 | 10,075 | - | (9,605) | - | - | - | 17,086 |
| Carbocampel | 1,117 | 24 | 83 | - | - | - | - | 1,224 |
| Dois Saltos Empreend. | 300 | - | - | - | - | - | - | 300 |
| Copel Amec | 154 | 2 | - | - | - | - | - | 156 |
| Escoelectric | (1,704) | 611 | 586 | - | - | - | - | (507) |
| Escoelectric - APFCI | 1,025 | - | (481) | - | - | - | - | 544 |
| | 385,230 | 99,337 | 188 | (18,783) | - | (730) | - | 465,242 |
| Other investments | | | | | | | | |
| FINAM | 2,456 | - | - | - | - | - | - | 2,456 |
| FINOR | 858 | - | - | - | (89) | - | - | 769 |
| Investco S.A. | 7,903 | - | - | - | - | - | - | 7,903 |
| Assets assigned for future use | 5,596 | - | - | - | (1,044) | - | (14) | 4,538 |
| Other investments | 3,610 | - | (8) | - | (981) | - | (79) | 2,542 |
| | 20,423 | - | (8) | - | (2,114) | - | (93) | 18,208 |
| | 405,653 | 99,337 | 180 | (18,783) | (2,114) | (730) | (93) | 483,450 |
| |
| |
| |
| | | | Additions | Proposed | Provision | Amortization | | |
| | Balance as of | Result of | and | dividends | for | of concession | | Balance as of |
| | 01.01.2009 | equity | APFCI | and IOC | losses | rights | Other | 12.31.2009 |
| Investees | | | | | | | | |
| Sanepar | 288,695 | 22,670 | - | (6,040) | | - | - | 305,325 |
| Concession - Sanepar | 3,648 | - | - | - | | (730) | - | 2,918 |
| Sercomtel - Telecomunicações | 66,585 | (17,029) | - | (9,693) | | - | - | 39,863 |
| Foz do Chopim | 16,519 | 97 | - | - | | - | - | 16,616 |
| Dona Francisca | 10,332 | 9,284 | - | - | | - | - | 19,616 |
| Carbocampel | (69) | 1,186 | - | - | | - | - | 1,117 |
| Carbocampel - APFCI | 1,059 | (1,209) | 150 | - | | - | - | - |
| Escoelectric - APFCI | 1,025 | - | - | - | | - | - | 1,025 |
| Escoelectric - Provision for devaluation | (1,027) | (677) | - | - | | - | - | (1,704) |
| Dois Saltos Empreend. | 300 | - | - | - | | - | - | 300 |
| Copel Amec | 149 | 5 | - | - | | - | - | 154 |
| | 387,216 | 14,327 | 150 | (15,733) | | (730) | - | 385,230 |
| Other investments | | | | | | | | |
| FINAM | 3,008 | - | - | - | - | - | (552) | 2,456 |
| FINOR | 1,039 | - | - | - | - | - | (181) | 858 |
| Investco S.A. | 7,903 | - | - | - | - | - | - | 7,903 |
| Assets assigned for future use | 3,820 | - | - | - | 1,776 | - | - | 5,596 |
| Other investments | 3,769 | - | 1 | - | - | - | (160) | 3,610 |
| | 19,539 | - | 1 | - | 1,776 | - | (893) | 20,423 |
| | 406,755 | 14,327 | 151 | (15,733) | 1,776 | (730) | (893) | 405,653 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
17 Property, Plant, and Equipment
17.1 Property, plant, and equipment in service by category
| | | |
| | | Accumulated | P., P., &E. |
| | Cost | depreciation | in service, net |
| | | | 12.31.2010 |
| Machinery and equipment | 4,388,067 | (2,103,285) | 2,284,782 |
| Reservoirs, dams, and water mains | 7,122,207 | (4,059,368) | 3,062,839 |
| Buildings | 1,381,957 | (905,487) | 476,470 |
| Land | 182,322 | - | 182,322 |
| Vehicles | 32,043 | (25,951) | 6,092 |
| Furniture and implements | 11,097 | (8,367) | 2,730 |
| | 13,117,693 | (7,102,458) | 6,015,235 |
| |
| |
| |
| |
| | | Accumulated | P., P., &E. |
| | Cost | depreciation | in service, net |
| | | | 12.31.2009 |
| Machinery and equipment | 4,341,495 | (1,964,209) | 2,377,286 |
| Reservoirs, dams, and water mains | 7,119,339 | (3,905,678) | 3,213,661 |
| Buildings | 1,375,565 | (875,103) | 500,462 |
| Land | 182,215 | - | 182,215 |
| Vehicles | 31,560 | (24,470) | 7,090 |
| Furniture and implements | 11,282 | (7,758) | 3,524 |
| | 13,061,456 | (6,777,218) | 6,284,238 |
| |
| |
| |
| |
| | | Accumulated | P., P., &E. |
| | Cost | depreciation | in service, net |
| | | | 01.01.2009 |
| Machinery and equipment | 4,318,624 | (1,815,164) | 2,503,460 |
| Reservoirs, dams, and water mains | 7,118,570 | (3,752,053) | 3,366,517 |
| Buildings | 1,374,557 | (841,952) | 532,605 |
| Land | 182,216 | - | 182,216 |
| Vehicles | 28,411 | (22,720) | 5,691 |
| Furniture and implements | 10,677 | (6,892) | 3,785 |
| | 13,033,055 | (6,438,781) | 6,594,274 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | |
17.2 Changes in property, plant, and equipment in service by category | |
| |
| |
| |
| | Balance as of | | | | | Balance as of |
| | 12.31.2009 | Additions | Depreciation | Write-offs | Transfers | 12.31.2010 |
| Land | 232,155 | 36,737 | - | 3 | - | 268,895 |
| Buildings, const. sites & improvements | 519,552 | 32,458 | (29,971) | (347) | - | 521,692 |
| Machinery and equipment | 1,989,106 | 182,805 | (125,803) | (8,821) | - | 2,037,287 |
| Vehicles | 7,643 | 121 | (1,622) | (1,088) | - | 5,054 |
| Furniture and implements | 3,616 | 601 | (606) | (1,538) | - | 2,073 |
| Reservoirs, dams, and water mains | 3,270,038 | 67,785 | (155,211) | - | - | 3,182,612 |
| Thermal power plant | 504,657 | 11,673 | (24,216) | (9,734) | - | 482,380 |
| Other | 132,722 | 35,968 | - | (5,116) | 219 | 163,793 |
| | 6,659,648 | 368,148 | (337,429) | (26,641) | 219 | 6,663,945 |
| | | | | | |
| | Balance as of | | | | | Balance as of |
| | 01.01.2009 | Additions | Depreciation | Write-offs | Transfers | 12.31.2009 |
| Land | 191,358 | 41,020 | - | (223) | - | 232,155 |
| Buildings, const. sites & improvements | 530,806 | 21,796 | (32,030) | (1,020) | - | 519,552 |
| Machinery and equipment | 2,042,594 | 91,915 | (125,703) | (19,700) | - | 1,989,106 |
| Vehicles | 5,809 | 5,053 | (2,096) | (1,123) | - | 7,643 |
| Furniture and implements | 3,898 | 538 | (773) | (47) | - | 3,616 |
| Reservoirs, dams, and water mains | 3,367,718 | 57,469 | (155,149) | - | - | 3,270,038 |
| Thermal power plant | 533,535 | 4,159 | (33,214) | 177 | - | 504,657 |
| Other | 96,377 | 37,003 | - | (658) | 159 | 132,881 |
| | 6,772,095 | 258,953 | (348,965) | (22,594) | 159 | 6,659,648 |
| | | |
| 17.3 Property, plant, and equipment by company | | |
| |
| | | Accumulated | P., P., & E. |
| | Cost | depreciation | net |
| | | | 12.31.2010 |
| In service | | | |
| Copel Geração e Transmissão | 11,452,043 | (6,592,462) | 4,859,581 |
| Copel Telecomunicações | 407,446 | (256,316) | 151,130 |
| Elejor | 606,907 | (87,101) | 519,806 |
| UEG Araucária | 647,168 | (163,738) | 483,430 |
| Centrais Eólicas do Paraná | 4,129 | (2,841) | 1,288 |
| | 13,117,693 | (7,102,458) | 6,015,235 |
| Construction in progress | | | |
| Copel Geração e Transmissão | 567,606 | - | 567,606 |
| Copel Telecomunicações | 71,161 | - | 71,161 |
| Elejor | 9,943 | - | 9,943 |
| | 648,710 | - | 648,710 |
| | 13,766,403 | (7,102,458) | 6,663,945 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
| | | Accumulated | P., P., & E. |
| | Cost | depreciation | net |
| | | | 12.31.2009 |
| In service | | | |
| Copel Geração e Transmissão | 11,434,310 | (6,337,009) | 5,097,301 |
| Copel Telecomunicações | 370,972 | (231,162) | 139,810 |
| Elejor | 606,816 | (66,893) | 539,923 |
| UEG Araucária | 645,228 | (139,522) | 505,706 |
| Centrais Eólicas do Paraná | 4,129 | (2,632) | 1,497 |
| Dominó Holdings | 1 | - | 1 |
| | 13,061,456 | (6,777,218) | 6,284,238 |
| Construction in progress | | | |
| Copel Geração e Transmissão | 311,341 | - | 311,341 |
| Copel Telecomunicações | 48,776 | - | 48,776 |
| Elejor | 8,292 | - | 8,292 |
| UEG Araucária | 7,001 | - | 7,001 |
| | 375,410 | - | 375,410 |
| | 13,436,866 | (6,777,218) | 6,659,648 |
| |
| |
| |
| | | Accumulated | P., P., & E. |
| | Cost | depreciation | net |
| | | | 01.01.2009 |
| In service | | | |
| Copel Geração e Transmissão | 11,422,206 | (6,075,103) | 5,347,103 |
| Copel Telecomunicações | 358,300 | (206,587) | 151,713 |
| Elejor | 606,737 | (46,689) | 560,048 |
| UEG Araucária | 641,682 | (107,978) | 533,704 |
| Centrais Eólicas do Paraná | 4,129 | (2,424) | 1,705 |
| Dominó Holdings | 1 | - | 1 |
| | 13,033,055 | (6,438,781) | 6,594,274 |
| Construction in progress | | | |
| Copel Geração e Transmissão | 138,774 | - | 138,774 |
| Copel Telecomunicações | 29,874 | - | 29,874 |
| Elejor | 8,292 | - | 8,292 |
| UEG Araucária | 881 | - | 881 |
| | 177,821 | - | 177,821 |
| | 13,210,876 | (6,438,781) | 6,772,095 |
Under Articles 63 and 64 of Decree no. 41,019, dated February 26, 1957, the assets and facilities used mostly in the generation of power are attached to these services and cannot be withdrawn, sold, assigned, or mortgaged without the prior written consent of the regulatory agency. ANEEL Resolution no. 20/99, however, regulates the release of assets from the concessions of the public Electric energy utilities, granting prior authorization to the release of assets that are deemed useless to the concession, when intended for sale, provided that the proceeds from such transaction be deposited in a special bank account assigned to investment in the concession. For concession contracts of the use of public property (UBP) type, infrastructure usage restrictions are set forth in article 19 of ANEEL Decree no. 2003/96.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
17.4 Changes in property, plant, and equipment | | | |
| |
| | P., P., & E. | |
| Balances | in service | in progress | Total |
| As of Januay 1, 2009 | 6,594,274 | 177,821 | 6,772,095 |
| Expenditure program | - | 258,953 | 258,953 |
| Transfer to p.,p.,&e. in service | 35,247 | (35,247) | - |
| Depreciation quotas charged to income | (348,965) | - | (348,965) |
| Write-offs | 3,523 | (26,117) | (22,594) |
| Transfers from intangible assets in service | 159 | - | 159 |
| As of December 31, 2009 | 6,284,238 | 375,410 | 6,659,648 |
| Expenditure program | - | 368,148 | 368,148 |
| Transfer to p.,p.,&e. in service | 84,104 | (84,104) | - |
| Depreciation quotas charged to income | (336,902) | - | (336,902) |
| Depreciation quotas - Pasep/Cofins credits | (527) | - | (527) |
| Write-offs | (15,897) | (10,744) | (26,641) |
| Transfers of assets assigned for disposal | 3 | - | 3 |
| Transfers from intangible assets in service | 216 | - | 216 |
| As of December 31, 2010 | 6,015,235 | 648,710 | 6,663,945 |
| |
| |
| |
17.5 Depreciation rates | | | |
| |
| | | | |
| | | Depreciation rates (%) |
| | | 12.31.2010 | 12.31.2009 |
| Generation | | | |
| General equipment | | 9.73 | 10.00 |
| Generators | | 3.09 | 3.30 |
| Reservoirs, dams, and headrace channels | | 2.00 | 2.00 |
| Hydraulic turbines | | 2.47 | 2.50 |
| Gas and steam turbines | | 5.00 | 5.00 |
| Water cooling and treatment facilities | | 5.00 | 5.00 |
| Gas conditioning equipment | | 5.00 | 5.00 |
| Central administration | | | |
| Facilities | | 4.00 | 4.00 |
| Office machinery and equipment | | 10.00 | 10.00 |
| Furniture and implements | | 10.00 | 10.00 |
| Vehicles | | 20.00 | 20.00 |
| Telecommunications | | | |
| Transmission equipment | | 7.70 | 10.00 |
| Terminal equipment | | 10.50 | 11.40 |
| Infrastructure | | 6.30 | 6.40 |
The Company, when applicable, uses the depreciation rates set by the regulatory agency, in light of the right to reimbursement at the end of the concession contract.
The average rate for machinery and equipment is 2.85%.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
17.6 Impairment of assets
The Company has a policy of periodically evaluate and monitor the projected future performance of its assets. Accordingly, and in light of Technical Ruling IAS 36 – Impairment of Assets, whenever there is clear evidence that the Company has assets recorded at unrecoverable values or whenever events or changes in circumstances indicate that the book value of an asset may not be recoverable in the future the Company must immediately account for such discrepancies by means of a provision for losses.
The main principles underpinning the conclusions of Copel’s impairment tests are listed below:
· lowest level of cash generating unit: held concessions are analyzed individually;
· recoverable value: value in use, or an amount equivalent to the discounted cash flows (before taxes) resulting from the continuous use of an asset until the end of its useful life; and
· assessment of value in use: based on future cash flows in constant currency, converted to current value according to a real discount rate, before income taxes.
The respective cash flows are estimated based on actual operational results, on the Company's annual corporate budget, as approved by the Board of Directors, on the resulting multi-year budget, and on future trends in the power sector.
As for the time frame for the analysis, the Company takes 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 prospects.
The respective cash flows are discounted at average discount rates, obtained through a methodology commonly employed by the market and supported by the regulatory agency, taking into account the weighted average cost of capital (WACC), which varied according to business segment between 5.11% and 9.33%, net of taxes.
Management believes it has a contractually guaranteed right to compensation for the assets related to concessions upon their expiration, and it accepts, for purposes of calculation of reimbursement and until further regulation is issued on this matter, that such compensation be valued according to the fair value of replacement 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.
Based on the assumptions above, the Company has not identified a need to set aside an impairment provision.
During the assignment of the new costs to power plants, when applicable, this amount has been limited to the value of the impairment test.
17.7 Consórcio Energético Cruzeiro do Sul
Consórcio Energético Cruzeiro do Sul isan 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 004/06, this company acquired 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.
Expenditures 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.
Consórcio Energético Cruzeiro do Sul won, on October 10, 2006, at the ANEEL Auction of Power from New Projects 004/06, the concession to build and run the Mauá Hydroelectric Power Plant for 35 years as an independent power producer.
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 discovered in the middle section of the Tibagi River, between the towns of Telêmaco Borba and Ortigueira, in mideastern Paraná.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Total estimated expenditures amount to approximately R$1,069,000 as of October 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.
On November 17, 2008, the board ofBanco 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 that facility.
The Mauá Hydroelectric Power Plant’s 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 (R$134,09/MWh as of December 31, 2010). A total of 192 average MW were sold, for supply starting in January 2011 for 30 years. The assured power of the project, established in its concession agreement, was 197.7 average MW, after full motorization.
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. 6,496/08. 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.
Due to a preliminary injunction in Civil Action no. 1999.7001.007514-6, which has delayed the beginning of construction work, thus delaying the beginning of commercial power generation by each generating unit, Copel will guarantee the power purchase agreements with its own power generation and short-term energy purchases.
The project shall enter commercial operation at the end of 2011.
Expenditures in this project have been recorded under Property, Plant, and Equipment, proportionally to the Company’s stake in the consortium.As of December 31, 2010, Copel Geração e Transmissão’s balance under Property, Plant, and Equipment related to this project was R$494,137.
Total expenses already owed to suppliers of equipment and services in connection with the Mauá Power Plant amounted to R$162,035 as of December 31, 2010 (R$274,621 as of December 31, 2009).
17.8 Colíder Hydroelectric Power Plant
On July 30, 2010, at ANEEL Auction of Power from New Projects 003/10, Copel Geração e Transmissão won the rights to the concession of the Colíder Hydroelectric Power Plant, which will feature 300 MW of installed capacity; the concession is valid for 35 years from the date of signature of Concession Contract no. 001/11-MME-UHE Colíder, which took place on January 17, 2011.
This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main powerhouse rated 300 MW, which is enough to supply approximately one million people. The facility will take advantage of the hydroelectric potential discovered on the Teles Pires River, between the towns of Nova Canaã do Norte and Itaúba, in the northern region of the State of Mato Grosso.
Total estimated expenditures amount to approximately R$1,570,400 as of July 2010.
Copel has applied for financing from the National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Socialor BNDES) for the Colíder Hydroelectric Power Plant.
The Colíder Hydroelectric Power Plant’s power output was sold at an ANEEL auction at a final price of R$103.40/MWh, as of July 1, 2010, restated according to the variation of the IPCA inflation index (R$106.23/MWh as of December 31, 2010). A total of 125 average MW were sold, for supply starting in January 2015 for 30 years. The assured power of the project, established in its concession agreement, was 179.6 average MW, after full motorization.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The project holds a Preliminary License from the Mato Grosso State's Environmental Department (SEMA/MT), issued under number 298127/09 on December 1, 2009 and valid until November 30, 2012. Construction License no. 58830/10 was issued on December 21, 2010 by SEMA/MT and is valid until December 20, 2013.
The authorization for archaeological recovery was issued by the National Historical and Artistic Heritage Institute (Instituto do Patrimônio Histórico e Artístico Nacionalor IPHAN) on October 29, 2010, pursuant to IPHAN Ordinance no. 30/10.
The service order for the beginning of the construction of the Colíder Hydroelectric Power Plant was signed on March 1, 2011. Commercial generation by the first generating unit shall start in June 2014, six months ahead of the schedule contained in the concession contract.
Total expenses already owed to suppliers of equipment and services in connection with the Colíder Power Plant amounted to R$1,285,284 as of December 31, 2010.
17.9 Cavernoso II Small Hydropower Plant (SHP)
On August 26, 2010 at ANEEL Auction no. 07/10, Copel Geração e Transmissão S.A. sold the power output of the Cavernoso II SHP, a project with 19 MW of installed capacity located on the Cavernoso River, between the towns of Virmond and Candói, in the State of Paraná. On account of this sale, it obtained authorization to build and run the project for 35 years as of February 28, 2011, the date of publication of Ordinance no. 133 of the Ministry of Mines and Energy, issued on February 25, 2011.
This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main power plant rated 19 MW, which is enough to supply 50 thousand people.
Total estimated expenditures amount to approximately R$120,000 as of August 2010.
The Cavernoso II SHP’s power output was sold at a final price of R$146.99/MWh, as of August 1, 2010, restated according to the variation of the IPCA inflation index (R$151.11/MWh as of December 31, 2010). A total of 7.73 average MW were sold, for supply starting in November 2012 for 30 years. The project’s assured power, set forth under Ordinance no. 133 of the Ministry of Mines and Energy, dated February 25, 2011, is 10.56 average MW.
Total expenses already owed to suppliers of equipment and services in connection with the Cavernoso SHP amounted to R$94.365 as of December 31, 2010.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
18 Intangible assets
| | | | | | |
| | Rights of use | Concession | Concession | Accumulated | | |
| | of software | rights | contracts | amortization | Other | Total |
| | | | | | | 12.31.2010 |
| In service | | | | | | |
| Assets with finite useful lives | | | | | | |
| Copel Geração e Transmissão | 2,287 | - | - | (1,984)(1) | 43 | 346 |
| Copel Distribuição (18.1) | - | - | 3,675,078 | (2,675,783)(2) | - | 999,295 |
| Copel Telecomunicações | 4,067 | - | - | (3,659)(1) | - | 408 |
| Compagas (18.2) | 3,473 | - | 195,767 | (64,199)(2) | - | 135,041 |
| Elejor (18.3) | - | - | 263,920 | (43,812)(2) | 102 | 220,210 |
| UEG Araucária | 190 | - | - | (72)(1) | - | 118 |
| Concession right - Elejor (18.3) | - | 22,626 | - | (3,583)(2) | - | 19,043 |
| Authorization - UEGA (18.4) | - | - | - | - | - | - |
| | 10,017 | 22,626 | 4,134,765 | (2,793,092) | 145 | 1,374,461 |
| Assets with indefinite useful lives | | | | | | |
| Copel Geração e Transmissão | - | - | - | - | 18 | 18 |
| Compagas | - | - | - | - | 20 | 20 |
| | - | - | - | - | 38 | 38 |
| | 10,017 | 22,626 | 4,134,765 | (2,793,092) | 183 | 1,374,499 |
| In progress | | | | | | |
| Copel Geração e Transmissão (18.5) | 11,591 | - | 22,249 | - | 1,222 | 35,062 |
| Copel Distribuição (18.1) | - | - | 583,261 | - | - | 583,261 |
| Copel Telecomunicações | 12,476 | - | - | - | 3 | 12,479 |
| Compagas | - | - | 34,440 | - | - | 34,440 |
| Elejor | - | - | - | - | 2,790 | 2,790 |
| | 24,067 | - | 639,950 | - | 4,015 | 668,032 |
| Special Liabilities | | | | | | |
| Copel Distribuição (18.6) | - | - | (406,333) | 112,756 | - | (293,577) |
| | - | - | (406,333) | 112,756 | - | (293,577) |
| | | | | | | 1,748,954 |
| (1)Annual amortization rate: 20% | | | | | | |
| (2)Amortization over the term of the concession | | | | | | |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | |
| | Rights of use | Concession | Concession | Accumulated | | |
| | of software | rights | contracts | amortization | Other | Total |
| | | | | | | 12.31.2009 |
| In service | | | | | | |
| Assets with finite useful lives | | | | | | |
| Copel Geração e Transmissão | 2,139 | - | - | (1,757)(1) | 44 | 426 |
| Copel Distribuição (18.1) | - | - | 3,581,979 | (2,486,847)(2) | - | 1,095,132 |
| Copel Telecomunicações | 3,799 | - | - | (3,560)(1) | - | 239 |
| Compagas (18.2) | 3,461 | - | 178,801 | (52,693)(2) | - | 129,569 |
| Elejor (18.3) | - | - | 263,920 | (34,497)(2) | 101 | 229,524 |
| UEG Araucária | 90 | - | - | (73)(1) | - | 17 |
| Concession right - Elejor (18.3) | - | 22,626 | - | (2,828)(2) | - | 19,798 |
| Authorization - UEGA (18.4) | - | 53,954 | - | (7,037) | - | 46,917 |
| | 9,489 | 76,580 | 4,024,700 | (2,589,292) | 145 | 1,521,622 |
| Assets with indefinite useful lives | | | | | | |
| Copel Geração e Transmissão | - | - | - | - | 18 | 18 |
| Compagas | - | - | - | - | 20 | 20 |
| | - | - | - | - | 38 | 38 |
| | 9,489 | 76,580 | 4,024,700 | (2,589,292) | 183 | 1,521,660 |
| In progress | | | | | | |
| Copel Geração e Transmissão (18.5) | - | - | 9,048 | - | 209 | 9,257 |
| Copel Distribuição (18.1) | - | - | 590,699 | - | - | 590,699 |
| Copel Telecomunicações | 819 | - | - | - | - | 819 |
| Compagas | - | - | 28,557 | - | - | 28,557 |
| Elejor | - | - | - | - | 27 | 27 |
| | 819 | - | 628,304 | - | 236 | 629,359 |
| Special liabilities | | | | | | |
| Copel Distribuição (18.6) | - | - | (387,046) | 64,240 | - | (322,806) |
| | - | - | (387,046) | 64,240 | - | (322,806) |
| | | | | | | 1,828,213 |
| (1)Annual amortization rate: 20% | | | | | | |
| (2)Amortization over the term of the concession | | | | | | |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | |
| | Rights of use | Concession | Concession | Accumulated | | |
| | of software | rights | contracts | amortization | Other | Total |
| | | | | | | 01.01.2009 |
| In service | | | | | | |
| Assets with finite useful lives | | | | | | |
| Copel Geração e Transmissão | 2,087 | - | - | (1,520)(1) | 43 | 610 |
| Copel Distribuição (18.1) | - | - | 3,480,661 | (2,313,329) (2) | - | 1,167,332 |
| Copel Telecomunicações | 4,094 | - | - | (3,121)(1) | - | 973 |
| Compagas (18.2) | 3,455 | - | 159,489 | (43,782) (2) | - | 119,162 |
| Elejor (18.3) | - | - | 263,920 | (25,251) (2) | 101 | 238,770 |
| UEG Araucária | 90 | - | - | (67)(1) | - | 23 |
| Concession right - Elejor (18.3) | - | 22,626 | - | (2,074)(2) | - | 20,552 |
| Authorization - UEGA (18.4) | - | 53,954 | - | (4,691) | - | 49,263 |
| | 9,726 | 76,580 | 3,904,070 | (2,393,835) | 144 | 1,596,685 |
| Assets with indefinite useful lives | | | | | | |
| Copel Geração e Transmissão | - | - | - | - | 18 | 18 |
| Compagas | - | - | - | - | 20 | 20 |
| | - | - | - | - | 38 | 38 |
| | 9,726 | 76,580 | 3,904,070 | (2,393,835) | 182 | 1,596,723 |
| In progress | | | | | | |
| Copel Geração e Transmissão (18.5) | - | - | 8,152 | - | - | 8,152 |
| Copel Distribuição (18.1) | - | - | 472,408 | - | - | 472,408 |
| Copel Telecomunicações | 135 | - | - | - | - | 135 |
| Compagas | - | - | 33,671 | - | - | 33,671 |
| Elejor | - | - | - | - | 27 | 27 |
| | 135 | - | 514,231 | - | 27 | 514,393 |
| Special Liabilities | | | | | | |
| Copel Distribuição (18.6) | - | - | (395,535) | 20,108 | - | (375,427) |
| | - | - | (395,535) | 20,108 | - | (375,427) |
| | | | | | | 1,735,689 |
| (1)Annual amortization rate: 20% | | | | | | |
| (2)Amortization over the term of the concession | | | | | | |
| |
Changes in intangible assets by category | | | | |
| |
| | | Concession | | Concession | | |
| Balances | | contracts | Software | rights | Other | Total |
| As of January 1, 2009 | | 1,661,969 | 3,756 | 69,815 | 149 | 1,735,689 |
| Capitalizations | | 641,864 | 1,282 | - | - | 643,146 |
| Transfer to receivables related to concession | | (314,934) | - | - | - | (314,934) |
| Amortization quotas - concession and authorization | (192,610) | (1,201) | (3,100) | - | (196,911) |
| Disposal | | (38,267) | (461) | - | - | (38,728) |
| Other | | (49) | - | - | - | (49) |
| As of December 31, 2009 | | 1,757,973 | 3,376 | 66,715 | 149 | 1,828,213 |
| Capitalizations | | 579,451 | 25,408 | - | 2,764 | 607,623 |
| Transfer to receivables related to concession | | (412,256) | - | - | - | (412,256) |
| Amortization quotas - concession and authorization | (210,602) | (1,268) | (3,100) | - | (214,970) |
| Disposal | | (7,581) | (27) | (44,572) | - | (52,180) |
| Other | | (7,479) | - | - | 3 | (7,476) |
| As of December 31, 2010 | | 1,699,506 | 27,489 | 19,043 | 2,916 | 1,748,954 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Changes in intangible assets – analytical breakdown
| | | | | | | | |
| | | | Concession Contract | | Other | Concession/ | |
| | | | special liabilities | | | authorization | |
| Balances | in service | progress | in service | progress | in service | progress | (negative goodwill) | Total |
| As of January 1, 2009 | 1,523,166 | 514,230 | (270,206) | (105,221) | 3,742 | 163 | 69,815 | 1,735,689 |
| Expenditure program | - | 679,248 | - | - | - | 1,122 | - | 680,370 |
| Customer contributions | - | - | - | (57,422) | - | - | - | (57,422) |
| ANEEL grant - use of public property | - | 946 | - | - | - | - | - | 946 |
| Present value adjustments - ANEEL grant | - | (50) | - | - | - | - | - | (50) |
| Capitalizations - to receivables related to concession | - | (380,844) | - | 65,910 | - | - | - | (314,934) |
| Capitalizations - to intangible assets in service | 175,150 | (175,150) | (28,539) | 28,539 | 218 | (218) | - | - |
| Amortization quotas - concession and authorization | (236,928) | - | 44,318 | - | (1,201) | - | (3,100) | (196,911) |
| Write-offs | (7,448) | (9,765) | (185) | - | (130) | (12) | - | (17,540) |
| Transfer to investments - assets for future use | (1,465) | (311) | - | - | - | - | - | (1,776) |
| Transfer to p., p., &e. in service | - | - | - | - | (159) | - | - | (159) |
| As of December 31, 2009 | 1,452,475 | 628,304 | (254,612) | (68,194) | 2,470 | 1,055 | 66,715 | 1,828,213 |
| Expenditure program | - | 655,411 | - | - | - | 28,177 | - | 683,588 |
| Customer contributions | - | - | - | (89,177) | - | - | - | (89,177) |
| ANEEL grant - use of public property | - | 40,243 | - | - | - | - | - | 40,243 |
| Present value adjustments - ANEEL grant | - | (27,042) | - | - | - | - | - | (27,042) |
| Capitalizations - to receivables related to concession | - | (482,145) | - | 69,889 | - | - | - | (412,256) |
| Capitalizations - to intangible assets in service | 172,084 | (172,084) | (22,936) | 22,936 | 1,150 | (1,150) | - | - |
| Amortization quotas - concession and authorization | (247,060) | - | 46,068 | - | (1,268) | - | (3,100) | (205,360) |
| Amortization quotas - PASEP/COFINS credits | (12,060) | - | 2,449 | - | - | - | - | (9,611) |
| Write-offs | (12,090) | (2,752) | - | - | (29) | - | (44,572) | (59,443) |
| Transfer to investments - assets for future use | - | 15 | - | - | - | - | - | 15 |
| Transfer to p., p., &e. in service | (216) | - | - | - | - | - | - | (216) |
| As of December 31, 2010 | 1,353,133 | 639,950 | (229,031) | (64,546) | 2,323 | 28,082 | 19,043 | 1,748,954 |
18.1 Concession - Copel Distribuição
The concession’s intangible assets represent the right to operate construction services and electricity supply services and will be recovered through customer consumption and billing.
ANEEL establishes the estimated economic useful life of each asset that makes up the energy distribution infrastructure, for purposes of tariff setting and also of assessment of the amount of compensation to be paid for revertible assets at the end of the concession's term. This estimate is reasonable and adequate for accounting and regulatory purposes and represents the best estimate of the assets’ economic useful lives accepted by the industry.
The amortization of intangible assets reflects the pattern of estimated accrual of the corresponding economic benefits by Copel Distribuição, with expectation of average amortization of 15% a year, limited to the term of the concession.
The residual amount of each asset remaining over the term of the concession is allocated as accounts receivables related to the concession (Note 9).
18.2 Concession Contract - Compagas
These intangible assets are related to the construction of infrastructure and the acquisition of the necessary assets for the operation of gas distribution services and to the right to collect from customers for gas supply. The construction of infrastructure and the acquisition of assets are deemed service rendering by the granting authority.
The amortization of intangible assets reflects the pattern of estimated corresponding economic benefits to be earned by Compagas.
At the end of the concession, the assets related to gas distribution service shall revert to the granting authority, and Compagas shall be reimbursed for the investments made based on their amortized replacement value, assessed through an independent auditing company, based on the values to be determined then.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
18.3 Concession Contract - Elejor
Concession Contract
Intangible assets related to the use of public property (UBP) under an onerous concession. These intangible assets have been amortized over the term of the concession contract, and the corresponding liability has been amortized by payments. (Note 26 - Accounts payable related to concession – use of public property).
Concession Rights
The acquisition of the shares held by Triunfo Participações S.A., on December 18, 2003, resulted in total concession intangible asset of R$22,626. The straight line method of amortization of the 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 31,2010 was R$754 (R$754 as of December 31,2009).
18.4 Authorization - UEG Araucária
The acquisition on May 31, 2006 of the quotas held by El Paso Empreendimentos e Participações Ltda., controlling holder of UEG Araucária Ltda., resulted in authorization rights in the amount of R$53,954. During the fiscal year ended on December 31, 2010, the Company verified that there are internal indicators pointing to the possibility of certain assets being over their recoverable value, particularly the asset related to the low recurring dispatch of the thermal facility's total energy output capacity. In light of these indicators and the impairment tests based on its value in use, Company management decided to fully write-off the amount, of R$44,571 as of December 31, 2010.
18.5 Copel Geração e Transmissão
Intangible assets related to the use of public property (UBP) under an onerous concession. These intangible assets have been amortized over the term of the concession contract, and the corresponding liability has been amortized through payments. (Note 26 - Accounts payable related to concession – use of public property).
On December 31, 2010, the Group had R$10,926 (R$9,048 as of December 31, 2009 and R$8,152 as of January 1, 2009) recorded in connection with the Mauá Power Plant Concession Contract and R$11,323 recorded in connection with the Colíder Power Plant.
18.6 Special liabilities
Special liabilities comprise customers’ contributions, Federal Government budget grants, federal, state, and municipal funds, and special credits assigned to the investments in facilities related to a concession.
The scheduled date for settlement of these liabilities was the concession expiration date. ANEEL, by means of Regulatory Resolution no. 234/2006, dated October 31, 2006, as amended by Resolution no. 338, dated November 25, 2008, established the guidelines, the applicable methodologies, and the initial procedures for the conduction of the second cycle of the periodic tariff review involving the Brazilian power distribution utilities, changing the characteristics of these liabilities. Both the outstanding balance and new additions have been amortized as of July 1, 2008, pursuant to ANEEL Ruling no. 3,073/06 and Circular Letter no. 1,314/07. Amortization is calculated based on the same average depreciation rate of the corresponding assets.
18.7 Recoverable value of intangible assets (finite useful lives)
The Company has assessed the recoverable value of its intangible assets based on the present value of the corresponding estimated future cash flows.
The values assigned to the assumptions represent Company management’s evaluation of the energy industry’s future trends and are based both on external sources of information and on historical data.
Cash flows have been estimated based on the Company’s operating results and projections until the end of the concession, under the following main assumptions:
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
· Organic growth compatible with historical data and the Brazilian economy's growth prospects; and
· The average discount rate obtained through a methodology commonly employed on the market, taking into account the weighted average cost of capital (WACC), as discussed in Note 17.6.
The recoverable value of these assets exceeds their book value, so there are no impairment losses to record, except for the write-off of UEG Araucária’s authorization rights, as discussed in Note 18.4.
18.8 Energy Universalization and theLuz para TodosProgram
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, namedLuz para Todos (“Light for Everyone”), which aims to provide electricity to the share of 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 (MME) 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 inclusion, providing better standards of living to the rural communities. The program has been extended until December 31, 2011, under Decree no. 7,324, dated October 5, 2010, to cover the completion of theLuz para Todos Program’s construction work under contract with Eletrobras.
In 2010, the program connected 13,036 new customers, reaching roughly 72,000 since its inception; this figure is expected to reach 78,000 by December 2011, thus concluding universalization within Copel's concession area.
Copel signed with Eletrobras four financing and subsidy agreements, in the amount of R$278,166. The first two ones have already been fully executed. Only two contracts are still under way: ECFS no. 206/07, under which the Company received R$88,501, of which R$75,858 came from RGR funds and R$12,643 from CDE funds, out of the estimated total of R$109,642; and ECFS no. 273/09, under which the Company received R$19,183, of which R$16,443 came from RGR funds and R$2,740 from CDE funds, out of the estimated total of R$63,944.
The total estimated investments under the contracts for the program are broken down below:
| | |
| Source | R$ | Share |
| 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 31, 2010, the total amount invested in theLuz para Todosprogram was R$322,598.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
19 Payroll, social charges and accruals
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Social liabilities | | | |
| Taxes and social contributions | 29,987 | 28,574 | 26,659 |
| Social charges on paid vacation and 13thsalary | 18,866 | 17,458 | 15,896 |
| | 48,853 | 46,032 | 42,555 |
| Labor liabilities | | | |
| Payroll, net | 242 | 178 | 103 |
| Vacation | 60,022 | 55,602 | 50,909 |
| Profit sharing | 66,151 | 64,995 | 65,816 |
| Accruals for voluntary termination program | 314 | 24,291 | - |
| Compensation - voluntary termination | - | 15,859 | - |
| Assignments to third-parties | 2 | - | 5 |
| | 126,731 | 160,925 | 116,833 |
| | 175,584 | 206,957 | 159,388 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
20 Suppliers
| | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Transmission network use charges | | | |
| Basic Network | 62,948 | 63,209 | 57,096 |
| Energy transmission | 4,537 | 4,310 | 4,182 |
| Connections | 286 | 274 | 265 |
| | 67,771 | 67,793 | 61,543 |
| Electricity suppliers | | | |
| Eletrobrás (Itaipu) | 74,316 | 80,104 | 100,040 |
| Furnas Centrais Elétricas S.A. | 39,317 | 34,375 | 32,757 |
| Companhia Hidro Elétrica do São Francisco - Chesf | 35,136 | 33,696 | 32,108 |
| Petróleo Brasileiro S.A. - Petrobras | 17,096 | 3,318 | 1,385 |
| Spot Market - CCEE (Note 34) | 19,695 | 1,859 | 27,976 |
| Companhia Energética de São Paulo - Cesp | 14,356 | 12,031 | 11,488 |
| Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A. | 14,185 | 11,330 | 10,234 |
| Mechanism for the Offsetting of Surpluses and Deficits - MCSD | 14,002 | 10,018 | 3,031 |
| Centrais Elétricas do Norte do Brasil S.A. - Eletronorte | 11,395 | 10,856 | 10,316 |
| Itiquira Energética S.A. | 10,025 | 10,000 | 9,247 |
| Dona Francisca Energética S.A. | 5,506 | 5,100 | 5,128 |
| Companhia Energética de Minas Gerais - Cemig | 5,419 | 6,530 | 4,660 |
| Cia. Estadual de Geração e Transmissão de Energia Elétrica S.A. - CEEE | 4,012 | 3,819 | 3,632 |
| Light S.A. | 2,993 | 2,838 | 2,710 |
| CPFL Energia S.A. | - | 10,041 | 994 |
| Other suppliers | 19,488 | 10,482 | 6,663 |
| | 286,941 | 246,397 | 262,369 |
| Materials and services | | | |
| Petróleo Brasileiro S.A. - Petrobras - gas purchase by Compagas | 25,720 | 23,166 | 36,775 |
| Petróleo Brasileiro S.A. - Petrobras - renegotiation (20.1) | 48,312 | 43,949 | - |
| Petróleo Brasileiro S.A. - Petrobras - renegotiation - noncurrent (20.1) | 144,936 | 175,796 | 214,157 |
| Other suppliers | 183,824 | 162,224 | 137,145 |
| | 402,792 | 405,135 | 388,077 |
| | 757,504 | 719,325 | 711,989 |
| Current | 612,568 | 543,529 | 497,832 |
| Noncurrent | 144,936 | 175,796 | 214,157 |
20.1 Petróleo Brasileiro S.A. – Petrobras - renegotiation
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$150,000 debt to Petrobras, as the assignee of Compagas’ credits to Copel Geração, which shall be paid in 60 monthly installments adjusted by the Selic rate, starting in January 2010.
On May 30, 2006, Copel Geração signed a Statement for the Retification of mutual settlement with Compagas under which both parties fully and irrevocably release each other from all obligations and rights under the Natural Gas Purchase and Sale Agreement signed by them on May 30, 2000 and terminated on May 31, 2005, renouncing any claims against each other, on any grounds, as of the date of the Out of Court Agreement and the acknowledgement of debt signed by them and by Petrobras, with the participation of Copel. The acknowledgement of debt by Copel Geração remains.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
20.2 Main power purchase agreements
The table below features the main power purchase agreements signed in the regulated power trading environment. These contracts are shown at original value and are restated annually according to the IPCA inflation index.
| | | | |
| | Period of | Purchased power | Date of | Average purchase |
| | supply | (annual avg. MW) | auction | price (R$/MWh) |
| Auction of power from existing facilities | | | | |
| 1st Auction - 2005 Product | 2005 to 2012 | 942.92 | 12.07.2004 | 57.51 |
| 1st Auction - 2006 Product | 2006 to 2013 | 450.88 | 12.07.2004 | 67.33 |
| 1st Auction - 2007 Product | 2007 to 2014 | 9.79 | 12.07.2004 | 75.46 |
| 2nd Auction - 2008 Product | 2008 to 2015 | 67.65 | 04.02.2005 | 83.13 |
| 4th Auction - 2009 Product | 2009 to 2016 | 43.25 | 10.11.2005 | 94.91 |
| 5th Auction - 2007 Product | 2007 to 2014 | 160.04 | 12.14.2006 | 104.74 |
| | | 1,674.53 | | |
| Auction of power from new facilities | | | | |
| 1st Auction - 2008 Hydro Product | 2008 to 2037 | 3.61 | 12.16.2005 | 106.95 |
| 1st Auction - 2008 Thermal Product | 2008 to 2022 | 28.56 | 12.16.2005 | 132.26 |
| 1st Auction - 2009 Hydro Product | 2009 to 2038 | 3.26 | 12.16.2005 | 114.28 |
| 1st Auction - 2009 Thermal Product | 2009 to 2023 | 41.59 | 12.16.2005 | 129.26 |
| 1st Auction - 2010 Hydro Product | 2010 to 2039 | 66.32 | 12.16.2005 | 114.57 |
| 1st Auction - 2010 Thermal Product | 2010 to 2024 | 64.30 | 12.16.2005 | 121.81 |
| 3rd Auction - 2011 Hydro Product | 2011 to 2040 | 57.66 | 10.10.2006 | 120.86 |
| 3rd Auction - 2011 Thermal Product | 2011 to 2025 | 54.22 | 10.10.2006 | 137.44 |
| 4th Auction - 2010 Thermal Product | 2010 to 2024 | 18.32 | 07.26.2007 | 134.64 |
| 5th Auction - 2012 Hydro Product | 2012 to 2041 | 52.50 | 10.16.2007 | 129.14 |
| 5th Auction - 2012 Thermal Product | 2012 to 2026 | 117.27 | 10.16.2007 | 128.37 |
| 6th Auction - 2011 Thermal Product | 2011 to 2025 | 51.07 | 09.17.2008 | 128.42 |
| 7th Auction - 2013 Hydro Product | 2013 to 2042 | 12.24 | 09.30.2008 | 98.98 |
| 7th Auction - 2013 Thermal Product | 2013 to 2027 | 303.99 | 09.30.2008 | 145.23 |
| Santo Antonio | 2012 to 2041 | 106.00 | 12.10.2007 | 78.87 |
| Jirau | 2013 to 2042 | 141.51 | 05.19.2008 | 71.37 |
| | | 1,122.42 | | |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
21 Loans and Financing
| | | | | | | | |
| | | | | | Current | | | Noncurrent |
| | | | | | liabilities | | | liabilities |
| | | | 12.31.2010 | 12.31.2009 | 01.01.2009 | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| | Principal amount | Interest | Total | | | | | |
| Foreign currency | | | | | | | | |
| IDB (21.1) | 9,066 | 167 | 9,233 | 19,148 | 25,938 | - | 9,189 | 36,552 |
| National Treasury (21.2) | 4,731 | 547 | 5,278 | 5,625 | 8,647 | 51,397 | 58,654 | 85,359 |
| Banco do Brasil | - | - | - | - | 6,517 | - | - | - |
| Eletrobrás | 5 | - | 5 | 5 | 7 | 15 | 22 | 36 |
| | 13,802 | 714 | 14,516 | 24,778 | 41,109 | 51,412 | 67,865 | 121,947 |
| Local currency (reais) | | | | | | | | |
| Banco do Brasil (21.3) | 194 | 12,585 | 12,779 | 10,409 | 16,410 | 691,007 | 330,190 | 330,389 |
| Eletrobrás (21.4) | 44,632 | 11 | 44,643 | 38,182 | 34,411 | 257,673 | 261,142 | 275,207 |
| Eletrobrás - Elejor | - | - | - | - | - | - | 117 | 26,092 |
| BNDES - Compagas (21.5) | 6,330 | - | 6,330 | 6,349 | 6,526 | 43 | 6,394 | 13,111 |
| Finep (21.6) | 1,952 | 15 | 1,967 | 156 | 5 | 5,855 | 6,940 | 2,310 |
| BNDES (21.7) | - | 1,389 | 1,389 | 884 | - | 137,496 | 55,748 | - |
| Banco do Brasil - BNDES transfer (21.8) | - | 1,471 | 1,471 | 940 | - | 137,496 | 55,748 | - |
| | 53,108 | 15,471 | 68,579 | 56,920 | 57,352 | 1,229,570 | 716,279 | 647,109 |
| | 66,910 | 16,185 | 83,095 | 81,698 | 98,461 | 1,280,982 | 784,144 | 769,056 |
Breakdown of loans and financing by currency and index
| | | | | | |
| | | | | | | |
| Currency (equivalent inreais) / Index | | | | | |
| | 12.31.2010 | % | 12.31.2009 | % | 01.01.2009 | % |
| Foreign currency | | | | | | |
| U.S. dollar | 56,695 | 4.16 | 64,306 | 7.43 | 94,049 | 10.84 |
| Yen | - | - | - | - | 6,517 | 0.75 |
| IDB currency basket | 9,233 | 0.68 | 28,337 | 3.27 | 62,490 | 7.20 |
| | 65,928 | 4.84 | 92,643 | 10.70 | 163,056 | 18.79 |
| National currency (reais) | | | | | | |
| Noncurrent Interest Rate (TJLP) | 285,709 | 20.94 | 132,055 | 15.25 | 2,335 | 0.27 |
| General Price Index - Market (IGP-M) | 616 | 0.05 | 874 | 0.10 | 930 | 0.11 |
| Fiscal Reference Unit (UFIR) | 125,363 | 9.19 | 94,651 | 10.93 | 71,361 | 8.23 |
| Eletrobrás Financing Rate (FINEL) | 176,954 | 12.97 | 204,671 | 23.64 | 264,349 | 30.47 |
| BNDES Monetary Unit (UMBND) | 6,373 | 0.47 | 1,105 | 0.13 | 19,637 | 2.26 |
| Interbank Deposit Certificate (CDI) | 703,134 | 51.54 | 339,843 | 39.25 | 345,849 | 39.87 |
| | 1,298,149 | 95.16 | 773,199 | 89.30 | 704,461 | 81.21 |
| | 1,364,077 | 100.00 | 865,842 | 100.00 | 867,517 | 100.00 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Indicators and variations in the main foreign currencies and rates applied to the Company’s loans and financing
| | | | | |
| | | | | | |
| Currency/index | | | | | Variation (%) |
| | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| U.S. dollar | | | (4.31) | (25.49) | 31.94 |
| IDB currency basket | | | 3.86 | 0.17 | 6.22 |
| TJLP | | | 6.00 | 6.12 | 6.27 |
| IGP-M | | | 11.32 | (1.72) | 9.81 |
| FINEL | | | 2.18 | (0.35) | 1.90 |
| UMBND | | | (3.76) | (25.66) | 33.86 |
| CDI | | | 24.44 | (37.22) | 21.82 |
| |
| |
Maturity of noncurrent installments | | | | |
| |
| | Foreign | National | | | |
| | currency | currency | | | |
| | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| 2010 | - | - | - | - | 73,988 |
| 2011 | - | - | - | 64,301 | 68,064 |
| 2012 | 3,486 | 64,215 | 67,701 | 53,773 | 50,069 |
| 2013 | 2,236 | 185,932 | 188,168 | 53,002 | 48,257 |
| 2014 | 1,121 | 515,396 | 516,517 | 381,300 | 376,151 |
| 2015 | - | 183,780 | 183,780 | 48,748 | 44,368 |
| 2016 | - | 46,919 | 46,919 | 32,545 | 26,767 |
| 2017 | - | 30,188 | 30,188 | 16,158 | 6,719 |
| 2018 | - | 29,278 | 29,278 | 15,248 | 5,975 |
| 2019 | - | 26,530 | 26,530 | 12,500 | 3,726 |
| 2020 | - | 23,935 | 23,935 | 10,628 | 2,456 |
| 2021 | - | 18,834 | 18,834 | 6,970 | 5 |
| 2022 | - | 17,186 | 17,186 | 6,968 | - |
| After 2022 | 44,569 | 87,377 | 131,946 | 82,003 | 62,511 |
| | 51,412 | 1,229,570 | 1,280,982 | 784,144 | 769,056 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Changes in loans and financing
| | | | | |
| | Foreign currency | National currency | |
| | Current | Noncurrent | Current | Noncurrent | Total |
| As of January 1, 2009 | 41,109 | 121,947 | 57,352 | 647,109 | 867,517 |
| Funds raised | - | - | - | 144,262 | 144,262 |
| Charges | 6,199 | - | 63,265 | 3,340 | 72,804 |
| Monetary and exchange variation | (8,290) | (27,161) | (57) | (1,144) | (36,652) |
| Transfers | 26,921 | (26,921) | 77,288 | (77,288) | - |
| Amortization of principal amounts | (17,221) | - | (45,766) | - | (62,987) |
| Amortization of interest and variations | (23,940) | - | (95,162) | - | (119,102) |
| As of December 31, 2009 | 24,778 | 67,865 | 56,920 | 716,279 | 865,842 |
| Funds raised | - | - | - | 552,479 | 552,479 |
| Charges | 3,491 | - | 82,096 | 11,850 | 97,437 |
| Monetary and exchange variation | (928) | (1,687) | 441 | 3,494 | 1,320 |
| Transfers | 14,766 | (14,766) | 54,532 | (54,532) | - |
| Amortization of principal amounts | (12,777) | - | (33,816) | - | (46,593) |
| Amortization of interest and variations | (14,814) | - | (91,594) | - | (106,408) |
| As of December 31, 2010 | 14,516 | 51,412 | 68,579 | 1,229,570 | 1,364,077 |
21.1 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 2010 was 4.13% p.a. The agreement features provisions providing for termination in the following cases:
· default by the debtor on any other obligation set forth in the agreement or agreements signed with the bank for financing of the project;
· withdrawal or suspension of the Federal Republic of Brazil as a member of the IDB;
· default by the guarantor, if any, of any obligation set forth in the guaranty agreement;
· 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
· ratio between noncurrent indebtedness and equity exceeding 0.9.
This agreement is guaranteed by the Federal Government and by mortgage and fiduciary guarantees.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
21.2 Department of the National Treasury - STN
The restructuring of medium and noncurrent debt, signed on May 20, 1998, in connection with the financing received under Law no. 4,131/62, is shown below:
| | | | | | |
| | Term | Final | Grace period | | | |
| Bond type | (years) | maturity | (years) | | | |
| | | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Par Bond | 30 | 04.15.2024 | 30 | 26,591 | 27,787 | 37,296 |
| Capitalization Bond | 20 | 04.15.2014 | 10 | 7,947 | 10,673 | 17,507 |
| Debt Conversion Bond | 18 | 04.15.2012 | 10 | 3,761 | 6,568 | 12,368 |
| Discount Bond | 30 | | | 18,376 | 19,251 | 25,896 |
| New Money Bonds | 15 | | | - | - | 466 |
| Flirb | 15 | | | - | - | 473 |
| | | | | 56,675 | 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$10,850 and R$15,430 as of December 31, 2010 (R$9,990 and R$14,205 as of December 31, 2009 and R$15,460 and R$22,408 as of January 1, 2009), respectively (Note 6).
21.3 Banco do Brasil S.A.
The Company has the following contracts with Banco do Brasil:
1) Private Credit Assignment Agreement with the Federal Government, through Banco do Brasil, 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 receivable.; and
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2) The following Parent Company credit notes:
| | | | | | |
| | Issue | Principal | Financial charges | Principal | | |
| Credit notes | date | maturity | due semi-annually | amount | Charges | Total |
| Commercial no. 330.600.129 | 01.31.2007 | 01.31.2014 | 106.5% of the average CDI rate | 29,000 | 1,331 | 30,331 |
| Industrial no. 330.600.132 | 02.28.2007 | 02.28.2014 | 106.2% of the average CDI rate | 231,000 | 8,531 | 239,531 |
| Industrial no. 330.600.151 | 07.31.2007 | 07.31.2014 | 106.5% of the average CDI rate | 18,000 | 827 | 18,827 |
| Industrial no. 330.600.156 | 08.28.2007 | 08.28.2014 | 106.5% of the average CDI rate | 14,348 | 531 | 14,879 |
| Industrial no. 330.600.157 | 08.31.2007 | 08.31.2014 | 106.5% of the average CDI rate | 37,252 | 1,362 | 38,614 |
| | | | | 329,600 | 12,582 | 342,182 |
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.
3) Fixed Credit Assignment Agreement no. 21/02255-4, in the amount of R$350,000, signed by Copel Distribuição and Banco do Brasil on September 10, 2010, for the single purpose of financing working capital.
This debt will be paid in three annual and consecutive installments, the first one due on August 25, 2013, in the amount of R$116,666, and the others in the amount of R$116,667, due on July 11, 2014 and August 15, 2015, plus financial charges proportional to the share of the principal amount being paid off, so that the payment of the final installment will repay the debt in full.
The outstanding amounts will be subject to charges based on the basic return rate of the Brazilian"poupança" (national savings account or IRP) plus additional charges based on the fluctuating interest rate that will be calculated exponentially, based on the daily equivalent rate (calendar year of 365 or 366 days). The actual rate resulting from the combination of the fluctuating interest rate and the IRP will be equivalent, for each period of calculation, to 98.5% of the variation of the Interbank Deposit Certificate rate (CDI) for the same period. Charges will be accrued and capitalized monthly in the account linked to the agreement, on the due date and upon settlement of the debt, for payment together with the principal amount installments.
To ensure the payment of any liabilities under this agreement, Copel Distribuição has committed to assign, attach, and pledge in favor of Banco do Brasil trade notes, duly endorsed and accompanied by the corresponding signed authorization for withdrawal.
The contract contains provisions on accelerated maturity in certain conditions.
The amount of R$350,000 was made available to the Company in full on September 10, 2010.
21.4 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 – 142/06, 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 (Conta de Desenvolvimento Energéticoor 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.
The total funds received under this contract amount to 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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Contract ECFS – 206/07 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. On September 14, 2010, amendment ECFS-206-D/2010 was signed, changing the financed amount to R$109,642, of which R$93,979 are from RGR funds and R$15,663 are economic subsidies. 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. In August 2008, Copel withdrew R$37,929, of which R$32,511 came from RGR funds and R$5,418 from CDE funds. In June 2009, the Company received R$25,286, of which R$21,674 came from RGR funds and R$3,612 from CDE funds. In March 2010, the Company received R$25,286, of which R$21,674 came from RGR funds and R$3,612 from CDE funds.
Contract ECFS – 273/09, was signed on February 18, 2010 by Copel Distribuição and Eletrobras, in the amount of R$63,944, for use in the “Luz para Todos” rural electrification program. Out of the total amount, R$54,809 came from RGR funds, and R$9,134 were economic subsidies from CDE 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 November 30, 2012. In December 2010, Copel withdrew R$19,183, of which R$16,443 came from RGR funds and R$2,740 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.
21.5 BNDES - Compagas
Financing from BNDES for the expansion of the Company’s gas distribution network. This financing agreement is divided into subcredits, a part of which is restated by an interest rate of 4% p.a. plus the TJLP long-term interest rate, and the remainder by the variation of the BNDES Monetary Unit (UMBND). This agreement does not contain restrictive provisions, and the final installment is due on January 15, 2012.
This financing is guaranteed by Compagas’ gas supply receivables, corresponding to two financing installments, which shall be deposited exclusively and kept in a checking account at Banco Itaú S.A.
21.6 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".
The 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, the third one, in the amount of R$866, was released in December 2010 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 interest of 6.37% p.a., resulting from the equalization factor, 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.
In order to guarantee 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.
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".
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
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 interest of 6.13 % p.a., resulting from the equalization factor, 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.
In order to guarantee 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.
3) Loan agreement no. 02100567-00, signed on November 29, 2010 to partially cover expenses incurred in the preparation of Copel Telecomunicações’ "BEL Project”. No disbursements under this agreement have been made as of the date hereof.
The R$52,198 credit shall be made available in six installments, to the extent FINEP has financial and budget availability to do so. The principal amount of this debt will be subject to interest of 4% p.a., resulting from the equalization factor, due on the 15th day of each month, including the months of the grace period. The outstanding balance will be paid to FINEP in 81 monthly and successive installments, the first one due on August 15, 2012, and the last one on April 15, 2019.
21.7 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 second one, in February 2010, in the amount of R$29,193, and the third one, in December 2010, in the amount of R$52,555.
The contract contains provisions on accelerated maturity in certain conditions.
21.8 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.
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 eTransmissão 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 Comercialização 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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The first installment was made available in August 2009, in the amount of R$55,748, the second one, in March 2010, in the amount of R$29,193, and the third one, in December 2010, in the amount of R$52,555.
The contract contains provisions on accelerated maturity in certain conditions.
22 Debentures
| | | | | | | | | |
| | | | | | Current | | | Noncurrent |
| | | | | | liabilities | | | liabilities |
| | | | 12.31.2010 | 12.31.2009 | 01.01.2009 | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Debentures | Principal amount | Charges | Total | Total | | | | |
Parent Company (22.1) | 600,000 | 21,157 | 621,157 | 17,238 | 169,233 | - | 600,000 | 600,000 |
Elejor (22.2) | - | - | - | 36,957 | 25,767 | - | 153,384 | 202,116 |
| | 600,000 | 21,157 | 621,157 | 54,195 | 195,000 | - | 753,384 | 802,116 |
Maturity of noncurrent installments
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| 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 |
Changes in the balances of debentures
| | | | |
| | Current | Noncurrent | |
| | liabilities | liabilities | Total |
| As of January 1, 2009 | 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 and variations | (110,035) | - | (110,035) |
| As of December 31, 2009 | 54,195 | 753,384 | 807,579 |
Charges | 62,824 | - | 62,824 |
Transfers | 753,384 | (753,384) | - |
Amortization - principal amount | (177,908) | - | (177,908) |
Amortization - interest and variations | (71,338) | - | (71,338) |
| As of December 31, 2010 | 621,157 | - | 621,157 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
22.1 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 was 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 cases described in Copel’s financial statements as of December 31, 2009.
22.2 Debentures - Elejor
Elejor, in compliance with the changes and conditions contained in the first amendment to its debenture contract, paid off in advance, on March 5, 2010, all the remaining debentures held by BNDESPAR, in the amount of R$181,239. The full outstanding debt to BNDESPAR has been paid.
23 Post-Employment Benefits
23.1 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, where income is predetermined according to the wage level of each participant, and 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 IAS 19 and IFRIC 14. The economic and financial assumptions, for purposes of actuarial valuation, are discussed with the independent actuaries and approved by the sponsors’ senior management.
23.2 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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
23.3 Statement of financial position and statement of operations
Amounts recognized in the balance sheet, under Post-Employment Benefits, are summarized below:
| | | | | |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Pension plan (23.1) | | | | |
| Benefits Plan - Plan III (DC) | | 9,111 | 10,235 | 9,111 |
| Healthcare plan (23.2) | | 399,352 | 365,246 | 343,398 |
| | | 408,463 | 375,481 | 352,509 |
| | Current | 24,255 | 22,505 | 21,344 |
| | Noncurrent | 384,208 | 352,976 | 331,165 |
The amounts recognized in the statement of operations are shown below:
| | | |
| | 2010 | 2009 |
| Pension plan (DC) | 51,801 | 53,922 |
| Pension plan (DC) - managers | 471 | 217 |
| Healthcare plan - post-employment | 48,314 | 34,052 |
| Healthcare plan | 31,090 | 28,797 |
| Healthcare plan - managers | 8 | 5 |
| | 131,684 | 116,993 |
| (-) Transfers to construction in progress (a) | (7,463) | (7,261) |
| | 124,221 | 109,732 |
a) Amount related to the accrual of direct labor from property, plant, and equipment, not taking into account administrative expenses.
The annual estimated cost for 2010, 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.
Out of the total costs, R$98,282 (R$85,788 in 2009) and R$25,939 (R$23,944 in 2009) have been included as operating costs and administrative expenses, respectively.
Changes in the post-employment benefits balance
| | | | |
| | Current | Noncurrent | |
| | liabilities | liabilities | Total |
| As of January 1, 2009 | 21,344 | 331,165 | 352,509 |
Appropriation of actuarial calculation | - | 34,052 | 34,052 |
Pension and healthcare contributions | 82,941 | - | 82,941 |
Transfers | 12,241 | (12,241) | - |
Amortizations | (94,021) | - | (94,021) |
| As of December 31, 2009 | 22,505 | 352,976 | 375,481 |
Appropriation of actuarial calculation | - | 48,314 | 48,314 |
Pension and healthcare contributions | 83,370 | - | 83,370 |
Transfers | 17,082 | (17,082) | - |
Amortizations | (98,702) | - | (98,702) |
| As of December 31, 2010 | 24,255 | 384,208 | 408,463 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
23.4 Actuarial valuation pursuant to IAS 19 and IFRS 14
23.4.1. Actuarial assumptions
The actuarial assumptions used to determine the amounts of liabilities and costs for 2010 and 2009 are shown below:
| | | | | |
| | | 2010 | | 2009 |
| | Real | Nominal | Real | Nominal |
| Economics | | | | |
Inflation p.a. | - | 5.07% | - | 5.20% |
Discount rate expected return on plan assets rate | 6.00% | 11.37% | 6.00% | 11.51% |
Compensation increase p.a. | 2.00% | 7.17% | 2.00% | 7.30% |
| Demographics | | | | |
Mortality table | | AT - 2000 | | AT - 83 |
Disabled mortality table | | AT - 83 | | AT - 49 |
Disability table | | Light M | | Light |
23.4.2. Number of participants and beneficiaries
| | | | | | | |
| | | | | Pension plan | | Healthcare |
| | | DB plan | | DC plan | | plan |
| | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 |
| Number of active participants | 8,984 | 8,735 | 8,364 | 8,685 | 8,384 | 8,213 |
| Number of inactive participants | 6,337 | 5,863 | 5,781 | 5,092 | 4,677 | 4,636 |
| Number of dependents | - | - | - | 23,927 | 23,674 | 24,437 |
Total | 15,321 | 14,598 | 14,145 | 37,704 | 36,735 | 37,286 |
| |
23.4.3. Life expectancy based on average ages - Table AT-2000 (in years) | | |
| |
| | | | | | | |
| | | | | DB Plan | SB Plan | DC Plan |
| As of December 31, 2009 | | | | | | |
Retired participants | | | | 20.85 | - | 26.48 |
Pensioner participants | | | | 20.82 | - | 33.68 |
| | | | | | | |
| As of December 31, 2010 | | | | | | |
Retired participants | | | | 20.05 | 26.67 | 26.67 |
Pensioner participants | | | | 19.26 | - | 29.25 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The average age of the inactive members of the Company's pension and healthcare plans is 62.7 years.
23.4.4. Actuarial valuation
| | | | | | |
| | Pension | Healthcare | | | |
| Benefits plan | plan | plan | | | |
| | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Defined benefit obligation | 3,454,626 | 548,924 | 4,003,550 | 3,391,311 | 3,067,284 |
| Fair value of plan's assets | (3,939,606) | (128,560) | (4,068,166) | (3,620,639) | (3,496,623) |
| Plan coverage status | (484,980) | 420,364 | (64,616) | (229,328) | (429,339) |
| Actuarial gains/losses | - | (21,012) | (21,012) | - | - |
| Not recognized asset (Note 4.2.6) | 484,980 | - | 484,980 | 594,574 | 772,737 |
| Total liability | - | 399,352 | 399,352 | 365,246 | 343,398 |
Actuarial gains or losses arisen from changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.
The actuarial valuation assessment of defined benefit plans is calculated by the projected unit credit cost method. The net assets of the benefit plan are valued according to market values.
As of December 31, 2010, the balance of accumulated amounts in the defined contribution plan was R$1,643,297 (R$1,420,320 on December 31, 2009).
23.4.5. Changes in actuarial liabilities
| | | |
| | Pension | Healthcare |
| | plan | plan |
| Benefit Obligation, beginning of the year 2009 | 2,613,697 | 453,587 |
| Service cost | 20,398 | 1,534 |
| Interest cost | 289,985 | 50,274 |
| Benefits paid | (200,067) | (31,672) |
| Actuarial losses (gains) | 191,071 | 2,504 |
| Benefit Obligation, end of the year 2009 | 2,915,084 | 476,227 |
| Service cost | 15,760 | 6,180 |
| Interest cost | 311,160 | 47,277 |
| Benefits paid | (227,651) | (45,750) |
| Actuarial losses (gains) | 440,273 | 64,990 |
| Benefit Obligation, end of the year 2010 | 3,454,626 | 548,924 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
23.4.6. Changes in actuarial assets
| | | |
| | Pension | Healthcare |
| | plan | plan |
| Fair value of plan's assets as of January 1, 2009 | 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 December 31, 2009 | 3,509,658 | 110,981 |
| Return on plan assets | 393,702 | 12,776 |
| Contributions sponsor and employees | 25,138 | - |
| Benefits paid | (227,651) | (45,750) |
| Actuarial gains (losses) | 238,759 | 50,553 |
| Fair value of plan's assets as of December 31, 2010 | 3,939,606 | 128,560 |
23.4.7. Estimated costs
The estimated net periodic plan costs (gains) for 2011, according to the actuarial criteria of IAS 19, for each plan are shown below:
| | | | |
| | Pension | Healthcare | |
| | plan | plan | Total |
| | | | 2011 |
| Cost of current service | 22,616 | 6,507 | 29,123 |
| Estimated interest cost | 383,499 | 62,313 | 445,812 |
| Estimated return on plan assets | (441,922) | (13,556) | (455,478) |
| Estimated employee contributions | (16,885) | - | (16,885) |
| Costs (revenues) | (52,692) | 55,264 | 2,572 |
Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.
23.4.8. Sensitivity Analysis
The following tables feature a sensitivity analysis which shows the effect of a one percent increase or decrease in the assumed rates of variation of pension and healthcare costs on the aggregate service cost and interest cost components of the net periodic post-employment pension and healthcare costs and on the accumulated post-employment pension and healthcare benefit liabilities.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | |
| | | Projected scenarios - December 2011 |
| | Risk | Actual amount | 1% increase (*) | 1% decrease (*) |
| | | | | |
| Post-employm ent healthcare plan sensitivity | | | | |
Effect on interest payment cost | 1% variation | 68,628 | 78,433 | 60,291 |
Effect on liability | 1% variation | 547,759 | 624,033 | 479,688 |
| | | | | |
| Pension plan sensitivity | | | | |
Discount rate | 1% variation | - | -1.1% | 1.1% |
Inflation | 1% variation | - | 0.0% | 0.0% |
Wage increase | 1% variation | - | 0.1% | -0.1% |
Death rate (1-year increase in life expectancy) | 1% variation | - | 0.7% | -0.8% |
| (*) The effect on the interest payment cost and on the liability, in the event of a positive 1% variation, will be 2%, while in the eventof a negative variation it will be 0%. The percentages indicate the impact on total liabilities of a 1% increase or decrease in thediscount, inflation, wage increase, and death rates. |
| | | | | |
23.4.9. Employee benefits payable
The estimated benefits to be paid by the Company in the next five years and the total benefits for the following five fiscal years are shown below:
| | | | |
| | Pension | Healthcare | |
| | plan | plan | Total |
| | | | |
| 2011 | 304,685 | 34,538 | 339,223 |
| 2012 | 257,257 | 34,543 | 291,800 |
| 2013 | 262,652 | 36,605 | 299,257 |
| 2014 | 270,625 | 35,343 | 305,968 |
| 2015 | 279,197 | 36,789 | 315,986 |
| 2016-2020 | 1,590,725 | 217,241 | 1,807,966 |
23.4.10. Asset allocation and investment strategy
The asset allocation for the Company’s pension and healthcare plans at the end of 2010 and 2009 and the allocation goal for 2011, by asset category, are shown below:
| | | | |
| | Goal for 2011 | 2010 | 2009 |
| Fixed income (a) | 85.6% | 88.8% | 92.2% |
| Variable income (b) | 10.0% | 7.6% | 4.0% |
| Loans (c) | 1.6% | 1.6% | 1.7% |
| Real estate (d) | 1.6% | 1.7% | 1.8% |
| Structured investments (e) | 1.0% | 0.1% | 0.0% |
| Other | 0.2% | 0.2% | 0.3% |
| | 100.0% | 100.0% | 100.0% |
The plan assets are valued according to the following assumptions about fair market value:
a) Fixed Income – securities which yield interest revenues based on a percentage of the daily average interbank interest rate and which are thus deemed market values.
b) Variable income – securities which are valued according to the market prices quoted on the São Paulo Stock Exchange (BOVESPA).
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
c) Loans – loans are valued based on the actual value of the cash flows embedded into them discounted at the current applicable market rate. The Company believes this value represents a fair estimate of the fair market values of these loans.
d) Real estate – the values of real estate are determined by periodic valuation of fair value based on market prices according to independent valuation reports. These independent reporters use the following methodologies to evaluate assets: market value of similar assets or replacement cost.
e) Structured investments - these are investments in quotas of investment funds which hold equity interests, interests in emerging companies, interests in real estate funds and in investment funds classified as multimarket and whose regulations strictly comply with the Brazilian legislation issued by CVM.
The asset composition allowed by the Pension Fund Law may comprise fixed income, variable income, loans, structured investments, and real estate.
The fund management has decided to maintain the historical composition of assets, with very low risk in variable income and strong positions in government debt securities, which yield higher interest rates than the actuarial goals.
Below are the limits set by the Fund management:
| | | | | |
| | Plans I and II (DB) | Plan III (DC) |
| | goal (%)(*) | minimum (%) | goal (%) | minimum (%) |
| Fixed income (**) | 89.0% | 87.0% | 72.0% | 50.0% |
| Variable income | 5.0% | 0.0% | 22.0% | 0.0% |
| Loans | 1.0% | 0.0% | 5.0% | 0.0% |
| Real estate | 4.0% | 0.0% | 0.0% | 0.0% |
| Structured investments | 1.0% | 0.0% | 1.0% | 0.0% |
| (*) Goal based on total investments for each plan | | | | |
| (**) COPEL Foundation management has chosen to hold a more conservative interest in variable income compared to thelegal limit, which is 70%, and thus the fixed income allocation increased in 2010 compared to the limits set for 2009 |
On December 31, 2010 and 2009, the pension plan assets included the following securities issued by Copel:
| | | | |
| | | Defined benefits pension plan |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Debentures | - | - | 5,776 |
| Shares | 5,229 | 1,482 | 3,600 |
| | 5,229 | 1,482 | 9,376 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
23.4.11. Plan assets and expected rate of return
The main categories of plan assets and the expected rate of return for each at the end of the period are shown below:
| | | | | |
| | | Expected return | Fair value of plan assets |
| | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 |
| Fixed income | 9.5% | 13.8% | 4,893,772 | 4,620,089 |
| Variable income | 20.0% | 20.0% | 408,049 | 200,906 |
| Loans | 15.4% | 15.4% | 87,610 | 83,605 |
| Real estate | 9.5% | 10.0% | 91,235 | 92,458 |
| Structured investments | 0.0% | 0.0% | 3,011 | - |
| Other | 12.7% | 11.5% | 11,953 | 15,582 |
| Expected weighted average return (*) | 10.0% | 14.4% | 502,727 | 635,032 |
| (*) The expected weighted average return percentage is obtained by dividing the amount of the expected return by theprevious year's investment position. The amount of the expected weighted average return is obtained by multiplying the figures for each segment in theprevious year by expected return percentage for the current year. |
The overall expected rate of return corresponds to the weighted average of the expected rates for the different categories of plan assets. The evaluation of expected rate of return conducted by Company management is based on historical trends and market analysts' projections for each asset during the term of the respective liability.
The current return on plan assets is R$636,495 (R$726,958 in 2009).
The history of experience adjustments is shown below:
| | | | | | | |
| | Pension plan - DB | Healthcare plan | | |
| | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 |
| Present value of the defined benefits liability | (3,454,626) | (2,915,084) | (548,924) | (476,227) | (4,003,550) | (3,391,311) |
| Fair value of plan assets | 3,939,606 | 3,509,658 | 128,560 | 110,981 | 4,068,166 | 3,620,639 |
| Deficit / Surplus | 484,980 | 594,574 | (420,364) | (365,246) | 64,616 | 229,328 |
| Experience adjustments in plan liabilities | (440,273) | (191,071) | (64,991) | (2,504) | (505,264) | (193,575) |
| Experience adjustments in plan assets | 238,759 | (75,510) | 50,553 | (4,225) | 289,312 | (79,735) |
In 2011, the Company expects to contribute R$59,429 to the pension plan, which includes both defined benefit plans (plans I and II) and the defined contribution plan (plan III), and R$50,559 to the healthcare plan.
23.4.12. Additional information
Copel also sponsors a defined contribution plan for all its employees.
The contributions made in the years ended on December 31, 2010, 2009 and 2008 were R$51,689, R$49,289, and R$43,196.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
24 Customer charges due
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Fuel Consumption Account (CCC) | 27,607 | 4,460 | 22,174 |
| Energy Development Account (CDE) | 18,807 | 17,818 | 14,904 |
| Global Reversal Reserve (RGR) | 9,691 | 7,245 | 6,045 |
| | 56,105 | 29,523 | 43,123 |
25 Research and Development and Energy Efficiency
Power distribution, generation, and transmission utilities are required to allocate an annual share of 1% of their net operating revenues to power sector research and development and energy efficiency programs, pursuant to Law no. 9,991/00 and ANEEL Resolutions no. 316/08 and 300/08.
The balances set aside by Copel for investment in R&D and EEP projects are broken down below:
Balances accrued for investment in R&D and EEP
| | | | | | | |
| | Applied and | Balance to | Balance to | Balance as of | Balance as of | Balance as of |
| | unfinished | collect | apply | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Research and Development - R&D | | | | | | |
FNDCT | - | 2,686 | - | 2,686 | 1,325 | 18,649 |
MME | - | 1,344 | - | 1,344 | 682 | 9,345 |
R&D | 17,929 | - | 91,132 | 109,061 | 104,561 | 85,596 |
| | 17,929 | 4,030 | 91,132 | 113,091 | 106,568 | 113,590 |
| Energy Efficiency Program - EEP | 61,627 | - | 72,005 | 133,632 | 104,930 | 84,973 |
| | 79,556 | 4,030 | 163,137 | 246,723 | 211,498 | 198,563 |
| | | | Current | 155,991 | 121,005 | 126,484 |
| | | | Noncurrent | 90,732 | 90,493 | 72,079 |
Changes in the balances of R&D and EEP
| | | | | | | | |
| | FNDCT | MME | | R&D | | EEP | |
| | current | current | current | noncurrent | current | noncurrent | Total |
| As of January 1, 2009 | 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 |
Transfers | - | - | (18) | 18 | 20,352 | (20,352) | - |
Execution of programs andpayments | (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 |
Additions | 15,934 | 7,948 | 1,124 | 15,093 | - | 21,240 | 61,339 |
SELIC interest rate | - | - | 638 | 6,333 | - | 12,314 | 19,285 |
Transfers | - | - | 7,606 | (7,606) | 47,135 | (47,135) | - |
Execution of programs and payments | (14,573) | (7,286) | - | - | - | - | (21,859) |
Concluded projects | - | - | (18,688) | - | (4,852) | - | (23,540) |
| As of December 31, 2010 | 2,686 | 1,344 | 40,333 | 68,728 | 111,628 | 22,004 | 246,723 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
26 Accounts payable related to concession – use of public property
These refer to concession charges for use of public property (UBP) incurred as of the start of operation of each project until the final date of the concession, with an opposite entry recorded under intangible assets.
| | | | | | | |
| | | Current liabilities | | Noncurrent liabilities |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Copel Geração e Transmissão | | | | | | |
Mauá HPP (26.1.1) | - | - | - | 10,926 | 9,048 | 8,152 |
Colider HPP (26.1.2) | - | - | - | 11,323 | - | - |
| Elejor | | | | | | |
Fundão-Santa Clara Hydroelectric Power Complex (26.2.1) | 40,984 | 38,029 | 38,166 | 317,850 | 303,578 | 311,281 |
| | 40,984 | 38,029 | 38,166 | 340,099 | 312,626 | 319,433 |
| | | |
| | | |
| | Nominal value | Present value |
| Payments made until December 2010 | 145,787 | 145,787 |
| 2011 | 40,798 | 39,292 |
| 2012 | 38,755 | 34,793 |
| 2013 | 38,755 | 32,438 |
| 2014 | 38,755 | 30,242 |
| After 2014 | 849,379 | 326,904 |
| | 1,152,229 | 609,456 |
In 2010, the Company recorded expenses of R$55,501 and R$8,797 (R$30,326 and R$8,797 in 2009) in the financial expense and intangible asset amortization accounts.
26.1 Generation and Transmission
26.1.1. Mauá Hydroelectric Power Plant (Note 17.7)
As compensation for the use of the public property under this concession contract, Copel shall pay to the Federal Government, from the facility’s start of commercial operation until the 35th year of the concession, or as long as it runs the corresponding hydropower project, monthly installments equivalent to 1/12 of the annual proposed payment of R$643 (51% of 1,262), pursuant to article 6 of Concession Contract no. 001/07 - MME – UHE Mauá.
These installments are restated annually or at the legally applicable intervals, according to the IPCA (Índice de Preços ao Consumidor Amplo or Wide Customer Price Index) inflation index.
The calculation of present value was made taking into account an actual net discount rate of around 5.65% p.a., compatible with the estimated noncurrent rate and not related to the expected rate of return of the project.
The present value of the accounts payable related to concession - use of public property as of December 31, 2010 is R$10,926, under noncurrent liabilities.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
26.1.2. Colíder Hydroelectric Power Plant (Note 17.8)
As compensation for the use of the public property under this concession contract, Copel shall pay to the Federal Government, from the facility’s start of commercial operation until the 35th year of the concession, or as long as it runs the corresponding hydropower project, monthly installments equivalent to 1/12 of the annual proposed payment of R$1.256, pursuant to article 6 of Concession Contract no. 001/11 - MME – UHE Colíder.
These installments are restated annually or at the legally applicable intervals, according to the IPCA (Índice de Preços ao Consumidor Amplo or Wide Customer Price Index) inflation index.
The calculation of present value was made taking into account an actual net discount rate of around 7.74% p.a., compatible with the estimated noncurrent rate and not related to the expected rate of return of the project.
The present value of the accounts payable related to concession - use of public property as of December 31, 2010 is R$11,323, under noncurrent liabilities.
26.2 Elejor
26.2.1. Fundão - Santa Clara Hydroelectric Power Complex
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 and to article 6 of Concession Contract no. 125/01 – ANEEL –Complexo Energético Fundão – Santa Clara – AHE’s Fundão e Santa Clara.
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 IGP-M inflation index minus the monthly payments already made, totaled R$1,041,968 as of December 31, 2010 (R$1,023,008 as of December 31, 2009).
The original amount on the date of signature of the contract was recorded at present value. On December 31, 2010, this amount was recorded under liabilities for R$358,834, of which R$40,984 were under current liabilities and R$317,850 were under noncurrent liabilities.
The calculation of present value was made taking into account an actual net discount rate of around 11% p.a., compatible with the estimated noncurrent rate and not related to the expected rate of return of the project.
This concession was granted on October 23, 2001, the respective contract was signed on October 25, 2001, and it expires on October 25, 2036.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
27 Other Accounts Payable
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current liabilities | | | |
Collected public lighting charge | 18,224 | 17,989 | 18,669 |
Financial compensation for use of water resources | 16,135 | 19,402 | 17,601 |
Customers | 7,107 | 2,647 | 1,676 |
Reimbursements of customer contributions | 7,027 | 18,182 | 19,737 |
Collaterals | 5,946 | 4,521 | 1,723 |
Insurance companies - premiums payable | 3,005 | 2,251 | 3,181 |
Compensation to the Apucaraninha indian community | 2,759 | 2,596 | 2,498 |
ANEEL inspection fee | 1,638 | 1,250 | 1,451 |
Advance payments from customers | 606 | 3,945 | 93 |
Participation in consortia | 339 | 7,309 | 4,833 |
Other liabilities | 8,522 | 4,489 | 4,282 |
| | 71,308 | 84,581 | 75,744 |
| Noncurrent liabilities | | | |
Compensation to the Apucaraninha indian community | - | 2,596 | 4,995 |
Other liabilities | - | 357 | 1,679 |
| | - | 2,953 | 6,674 |
28 Reserve for Risks
The Company is a party to several labor, tax and civil claims filed before different courts. Copel’s senior management, based on the opinion of its legal counsel, maintains a reserve for risks in connection with probable chance of an unfavorable outcome.
| | | | | | | |
| | | 12.31.2010 | | 12.31.2009 | | 01.01.2009 |
| | | Judicial | | Judicial | | Judicial |
| | Risks | Deposits | Risks | Deposits | Risks | Deposits |
| Tax (28.1) | 321,479 | 26,226 | 77,858 | 27,029 | 263,911 | 27,004 |
| Labor (28.2) | 146,348 | 25,329 | 123,259 | 23,722 | 95,254 | 25,345 |
| Employee benefits (28.3) | 53,245 | - | 35,172 | - | 34,445 | - |
| Civil | | | | | | |
Suppliers (28.4) | 86,101 | 70,568 | 84,024 | 22,822 | 52,209 | - |
Civil and administrative claims (28.5) | 73,237 | 12,002 | 57,213 | 10,568 | 29,987 | 6,774 |
Easements (28.6) | 9,065 | - | 14,902 | - | 15,615 | - |
Condemnations and real estate (28.6) | 132,709 | - | 125,339 | - | 119,645 | - |
Customers (28.7) | 5,305 | 1,677 | 5,324 | 1,426 | 5,465 | 894 |
| | 306,417 | 84,247 | 286,802 | 34,816 | 222,921 | 7,668 |
| Environmental claims (28.8) | 42 | - | 10 | - | - | - |
| Regulatory (28.9) | 38,847 | - | 37,010 | - | 36,851 | - |
| | 866,378 | 135,802 | 560,111 | 85,567 | 653,382 | 60,017 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | |
| | Balance as of | | | | Balance as of |
| | 12.31.2009 | Additions | Reversals | Payments | 12.31.2010 |
| Tax | | | | | |
COFINS tax | - | 234,563 | - | - | 234,563 |
Other taxes | 77,858 | 22,199 | (18,802) | 5,661(1) | 86,916 |
| | 77,858 | 256,762 | (18,802) | 5,661 | 321,479 |
| Labor | 123,259 | 46,105 | (12,190) | (10,826) | 146,348 |
| Employee benefits | 35,172 | 28,653 | (600) | (9,980) | 53,245 |
| Civil | | | | | |
Suppliers | 84,024 | 2,733 | (656) | - | 86,101 |
Civil and administrative claims | 57,213 | 44,896 | (22,721) | (6,151) | 73,237 |
Easements | 14,902 | 1,614 | (7,281) | (170) | 9,065 |
Condemnation and real estate | 125,339 | 8,742 | (1,302) | (70) | 132,709 |
Customers | 5,324 | 776 | (640) | (155) | 5,305 |
| | 286,802 | 58,761 | (32,600) | (6,546) | 306,417 |
| Environmental claims | 10 | 32 | - | - | 42 |
| Regulatory | 37,010 | 8,173 | (56) | (6,280) | 38,847 |
| | 560,111 | 398,486 | (64,248) | (27,971) | 866,378 |
| (1)Reclassification of current liabilities - other payables | | | | |
| |
| | Balance as of | | | | Balance as of |
| | 01.01.2009 | Additions | Reversals | Payments | 12.31.2009 |
| Tax | | | | | |
COFINS tax | 178,753 | 5,284 | (184,037) | - | - |
Other | 85,158 | 2,182 | (9,482) | - | 77,858 |
| | 263,911 | 7,466 | (193,519) | - | 77,858 |
| Labor | 95,254 | 55,487 | (4,060) | (23,422) | 123,259 |
| Employee benefits | 34,445 | 3,641 | (1,514) | (1,400) | 35,172 |
| Civil | | | | | |
Suppliers | 52,209 | 31,815 | | - | 84,024 |
Civil and administrative claims | 29,987 | 34,454 | (1,712) | (5,516) | 57,213 |
Easements | 15,615 | 6,783 | (1,958) | (5,538) | 14,902 |
Condemnation and real estate | 119,645 | 6,398 | (688) | (16) | 125,339 |
Customers | 5,465 | 903 | (775) | (269) | 5,324 |
| | 222,921 | 80,353 | (5,133) | (11,339) | 286,802 |
| Environmental claims | - | 10 | - | - | 10 |
| Regulatory | 36,851 | 164 | (13) | 8(1) | 37,010 |
| | 653,382 | 147,121 | (204,239) | (36,153) | 560,111 |
| (1)Reclassification of current liabilities - other payables | | | | |
Lawsuits with Likelihood of Losses deemed as probable
28.1 Tax Claims
28.1.1. Contribution for the Financing of Social Security -Contribuição para o Financiamento da Seguridade Socialor COFINS
Lawsuit no. 10980.004398/2010-09 – Curitiba Federal Revenue Service Office.
In the second half of 2010, the 4th District Federal Court’s ruling favorable to the Federal Government in lawsuit no. 2000.04.01.100266-9 became final, overturne the ruling in lawsuit no. 95.0011037-7 which had recognized the Company’s immunity from payment of COFINS tax.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
As a result of this ruling, on December 7, 2010 the Federal Revenue Service Office in Curitiba issued Notice no. 9/2010 to Copel, requesting payment of COFINS tax from August 1995 to December 1996.
This charge results from the Federal Revenue Service’s understanding that Copel had declared in its corporate tax liability statement to be liable for R$40,678 in COFINS taxes due over the disputed period and that the Service's statute of limitations for collection of this debt had been suspensed since the ruling in lawsuit no. 95.0011037-7, which recognized the Company's immunity from the levy of COFINS, became final – this ruling was, however, overturned by the 4th District Federal Court in lawsuit no. 2000.04.01.100266-9.
This understanding by the Federal Revenue Service and the complexity and peculiarity of the facts and of the legal matter involved have led the Chief Legal Office’s to consider the principal amount of R$40,246 a probable loss.
On the other hand, the Company argues in its defense that the declarations contained in its tax liability statements were not acknowledgements of debt, because the liabilities at hand were already under legal dispute (lawsuit no. 95.0011037-7), and that the Federal Revenue Service’s right to collect had already lapsed.
Lawsuit no. 10980.720458/2011-15 – Curitiba Federal Revenue Service Office.
In the second half of 2010, the 4th District Federal Court’s ruling favorable to the Federal Government in lawsuit no. 2000.04.01.100266-9 became final, overturning the ruling in lawsuit no. 95.0011037-7 which had recognized the Company’s immunity from payment of COFINS tax.
As a result of this ruling, the Federal Revenue Service issued a notice of violation to Copel, requesting payment of COFINS tax from October 1998 to June 2001 on account of the favorable ruling in lawsuit no. 2000.04.01.100266-9.
The Federal Revenue Service believes this ruling suspensed the statute of limitations on its claim to this tax credit.
This understanding by the Federal Revenue Service and the complexity and peculiarity of the facts and of the legal matter involved have led the Chief Legal Office’s to consider the principal amount of R$194,317 a probable loss.
Nevertheless, the Company upholds in its defense, that the Federal Government has run out to claim for this tax credit, due to it had not been recorded in a timely manner, in order to prevent the statue of limitations.
28.1.2. Service Tax (ISS)
These claims involve tax penalties imposed on Copel for not having withheld service tax on the services rendered to the Company by third-parties, in the amount of R$116.
28.1.3. Value -Added Tax on Sales and Services (ICMS)
Most of these claims comprise lawsuits filed by Group A customers disputing the inclusion of their contractual energy demand in the basis for calculation of ICMS, in the amount of R$6,401. In almost all of these lawsuits, courts have excluded Copel as one of the defendants, leaving the State of Paraná as the single defendant, who is liable for a potential refund of ICMS charged illegally on customers’ contractual power demand.
28.1.4. Urban Real Estate Tax (IPTU)
Copel is disputing both administratively and judicially the levy of IPTU charges on its concession-related properties, on grounds that these are tax exempt. In fact, the Company has been successful in some cases of tax executions filed by State municipalities against it, in the amount of R$759.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
28.1.5. Social Security Contributions
Copel is party to a wide range of administrative and judicial proceedings involving social security contributions. Most claims filed administratively or judicially, however, involve Copel’s joint liability for the collection of social security contributions levied on services rendered by third-parties. The Company set aside a reserve in the amount of R$30,057 in connection with these claims.
28.1.6. Single Electric Energy Tax –Imposto Único de Energia Elétricaor IUEE
This is a lawsuit filed by city administrations against the Federal Government and Copel, requesting payment of amounts supposedly owed as cash transfers of IUEE, minus the amounts paid in previous lawsuits, totaling R$4,933.
28.1.7. Contribution for Intervention in the Economic Domain –Contribuição de Intervenção no Domínio Econômico or CIDE
This item refers to lawsuits claiming CIDE owed on UEG Araucária royalty payments. First ruling was favorable to the plaintiffs, in the amount of R$3,053.
28.1.8. Other Federal Taxes
The Company is party to other lawsuits regarding federal taxes in the amount of R$41,596.
28.2 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 equality/reclassification, and other matters, and also claims by former employees of contractors (joint responsability) and third-parties (secondary responsability) involving indemnity and other matters.
28.3 Employee benefits
These are labor claims by retired Copel employees against the Copel Foundation, which will reflect on the Company.
28.4 Supplier claims
Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A.
Copel Distribuição is disputing in court the validity of the terms and conditions of the power purchase and sale agreements signed with Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A., based on the argument that they grant benefits to the selling companies. At the same time, both companies, after having rescinded the agreements, filed for arbitration before the Arbitration Chamber of Fundação Getúlio Vargas, which sentenced Copel to the payment of contractual penalties for having caused the rescission of the agreement. Copel has filed for a court order making the arbitration ruling void.
Given that both companies have already withdrawn the amounts in escrow (R$35,913 on June 17, 2010, R$22,823 on October 1, 2009, and R$11,833 on February 3, 2010), the Chief Legal Office has maintained the classification of likely loss. Both companies submitted bank guarantees to withdraw those amounts. In addition to the ongoing legal dispute, outstanding balances under these lawsuits might remain and be enforced, which led Company management to set aside a reserve forrisk in the original amount of the debts, which amounted to R$100,286 restated as of December 31, 2010. Out of this amount, R$14,185 are recorded in the Suppliers account.
28.5 Civil and administrative claims
These claims usually involve compensation for accidents involving power grids and vehicle accidents.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
28.6 Easements, condemnation, and real estate
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 expropriation 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 before the 1st Fiscal Court of Curitiba, Ivaí Engenharia de Obras S.A. won the right to receive credits from Copel Geração e Transmissão in connection with the execution of contract D-01, which comprised the Jordão River diversion works. These credits were compensation for a supposed economic and financial imbalance in the contract. Based on this ruling, Ivaí filed a separate collection lawsuit before the 4th Fiscal Court of Curitiba and obtained a ruling ordering Copel to pay the amount of R$180,917, as of October 31, 2005, plus restatement by the average between the INPC and IGP-DI inflation indicators, delinquent interest of 1% a month, and 3.2% as legal fees. Copel is appealing this ruling.
Copel then obtained a preliminary injunction, issued by Minister Castro Meira of the Superior Court of Justice (Tribunal Superior de Justiçaor STJ) under no. 15,372-PR, suspending the collection suit and the provisional enforcement requested by Ivaí.
The Company is currently waiting for a ruling by Minister Caio Meira on the Special Appeal it filed in the collection suit, under no. 1096906.
Given the particular aspects of this dispute, the Chief Legal Office has deemed it a probable loss. The Company had set aside, as of December 31, 2010, a corresponding reserve for risks in the amount of R$119,787.
28.7 Customer claims
These claims usually involve compensations 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.
28.8 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.
28.9 Regulatory claims
The Company is disputing, both administratively and judicially, notifications issued by the regulatory agency in connection with supposed regulatory violations, including the charge of R$33,812 in lawsuits 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.
Lawsuits with Losses deemed as possible
The amount related to cases classified as possible losses, estimated by the Company and its subsidiaries as of December 31, 2010, reached R$2,967,755, of which R$115,626 correspond to labor claims; R$32,796 to employee benefits; R$1,629,001 to regulatory claims; R$141,233 to civil claims; and R$1,049,099 to tax claims.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
For one of the tax claims included in the amount of R$1,049,099 described above, a court-ordered attachment of R$181,014 took place in April 2010. Company management is making its best efforts to revert it. Its classification remains as possible loss.
Lawsuits where losses are possible also include the lawsuits described in Note 28.1.1, covering the amount of R$550,331 in penalties and interest. The remaining tax claims with possibility of loss are spread over 369 lawsuits pertaining to miscellaneous tax issues.
Among regulatory claims, one of the most important is the one involving ANEEL Ruling no. 288, in the amount of R$1,473,000, detailed in Note 34. The remaining regulatory claims with possibility of loss are spread over 24 lawsuits pertaining to miscellaneous regulatory matters.
The labor, employee benefits, civil, administrative, environmental, and real estate claims classified as possible loss are spread over approximately 2,827 lawsuits, with individual values estimated by the Company's legal counsel below R$8,407.
The ITR (Imposto sobre Propriedade Territorial Ruralor Rural Property Tax) claims usually involve disputes over ITR levied on areas flooded on account of the construction of hydroelectric plants and on areas currently in possession of individuals who have been resettled, also on account of the construction of hydroelectric plants.
Other commitments
Furthermore, Copel had on December 31, 2010 commitments in the amount of R$81,735 (R$89,541 as of December 31, 2009 and R$17,674 as of January 1, 2009), which shall be realized over the next few years.
29 Equity
29.1 Equity attributable to Parent Company
29.1.1. Stock capital
As of December 31, 2010, Copel’s paid-in share capital was R$6,910,000 (R$4,460,000 as of December 31, 2009 and January 1, 2009). The different classes of shares (with no par value) 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 |
| Eletrobrás | 1,530,774 | 1.06 | - | - | - | - | 1,530,774 | 0.56 |
| Free float: | | | | | | | | |
BM&FBOVESPA(1) | 19,488,627 | 13.44 | 129,439 | 33.20 | 60,679,709 | 47.32 | 80,297,775 | 29.34 |
NYSE(2) | 131,825 | 0.09 | - | - | 40,066,921 | 31.25 | 40,198,746 | 14.69 |
Latibex(3) | - | - | - | - | 156,093 | 0.12 | 156,093 | 0.06 |
| Municipalities | 178,393 | 0.12 | 12,797 | 3.28 | - | - | 191,190 | 0.07 |
| Other shareholders | 374,088 | 0.25 | 247,695 | 63.52 | 35,996 | 0.02 | 657,779 | 0.24 |
| | 145,031,080 | 100.00 | 389,931 | 100.00 | 128,234,364 | 100.00 | 273,655,375 | 100.00 |
| (1)São Paulo Stock, Commodities, and Futures Exchange | | | | | | |
| (2)New York Stock Exchange | | | | | | | |
| (3)Latin American Securities Market in Euros, linked to the Madrid Stock Exchange | | | | |
The market value of Company stock as of December 31, 2010 is shown below:
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
| | Number of shares | Market value |
| | | |
| Common shares | 145,031,080 | 5,511,181 |
| Class A preferred shares | 389,931 | 16,381 |
| Class B preferred shares | 128,234,364 | 5,321,726 |
| | 273,655,375 | 10,849,288 |
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 in 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.
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.
29.1.2. Shareholder Breakdown
| C O M P A N H I A P A R A N A E N S E D E E N E R G I A - C O P E L | As of 12/31/2010
(in shares) |
SHAREHOLDING POSITION OF THE HOLDERS OF MORE THAN 5% OF EACH CLASS OF STOCK (ENTITIES AND INDIVIDUALS)
|
| SHAREHOLDERS | Common Shares | Class A Preferred Shares | Class B Preferred Shares | Total |
| Shares | % | Shares | % | 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 |
| OTHER SHAREHOLDERS | 21,703,707 | 14.96 | 389,931 | 100.00 | 100,938,719 | 78.71 | 123,032,357 | 44.96 |
| TOTAL | 145,031,080 | 100.00 | 389,931 | 100.00 | 128,234,364 | 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. It holds a shareholders' agreement with the State Government. |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| C O M P A N H I A P A R A N A E N S E D E E N E R G I A - C O P E L | As of 12/31/2009
(in shares) |
SHAREHOLDING POSITION OF THE HOLDERS OF MORE THAN 5% OF EACH CLASS OF STOCK (ENTITIES AND INDIVIDUALS)
|
| SHAREHOLDERS | Common Shares | Class A Preferred Shares | Class B Preferred Shares | Total |
| Shares | % | Shares | % | 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 |
| BARCLAYS PLC. (FUNDS) | - | - | - | - | 7,817,189 | 6.10 | 7,817,189 | 2.86 |
| 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. It holds a shareholders' agreement with the State Government. |
In fiscal year 2010, 4,910 shares were converted from class A preferred shares to class B preferred shares.
| C O M P A N H I A P A R A N A E N S E D E E N E R G I A - C O P E L | As of 12/31/2010
(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 | % | Shares | % | Shares | % |
| MAJORITY SHAREHOLDER | 123,327,373 | 85.04 | - | - | 27,295,645 | 21.29 | 150,623,018 | 55.04 |
| S. MANAGEMENT | BOARD OF DIRECTORS | 10,008 | - | - | - | 10 | - | 10,018 | - |
| BOARD OF OFFICERS | 102 | - | - | - | - | - | 102 | - |
| OTHER SHAREHOLDERS | 21,693,597 | 14.96 | 389,931 | 100.00 | 100,938,709 | 78.71 | 123,022,237 | 44.96 |
| TOTAL | 145,031,080 | 100.00 | 389,931 | 100.00 | 128,234,364 | 100.00 | 273,655,375 | 100.00 |
| FREE-FLOAT | 21,693,597 | 14.96 | 389,931 | 100.00 | 100,938,709 | 78.71 | 123,022,237 | 44.96 |
C O M P A N H I A P A R A N A E N S E D E E N E R G I A - C O P E L | As of 12/31/2009
(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 | % | 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 | - |
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 |
29.1.3. Capital reserves
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Recoverable Rate Deficit Account (CRC) | - | 790,555 | 790,555 |
| Donations and subsidies for investments | - | 702 | 702 |
| Tax incentives - FINAM | - | 47,083 | 47,083 |
| | - | 838,340 | 838,340 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
29.1.4. Income reserves
| | | | |
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Legal reserve | 478,302 | 428,912 | 377,590 |
| Investment reserve | 2,056,526 | 2,908,112 | 2,316,218 |
| Additional proposed dividends | 25,779 | - | - |
| | 2,560,607 | 3,337,024 | 2,693,808 |
The legal reserve is computed based of 5% of the net income for the fiscal year, before any distributions, limited to 20% of stock capital.
The investment reserve is designed to cover the Company’s expenditure program, pursuant to article 196 of the Brazilian Corporate Law. It is funded by retaining any remaining net income for the fiscal year, after the legal reserve and interest on capital are assigned.
In 2010, after approval by the General Shareholders’ Meeting, R$1,611,660 were incorporated into the Company’s share capital, from the realization of the investment reserve.
29.1.5. Equity Valuation Adjustments
The Company recognized the fair value adjustment of its property, plant, and equipment on the date of first-time adoption of the IFRSs. A counterpart entry to this adjustment, net of deferred income tax and social contribution, was recorded in the equity valuation adjustments account under equity. The realization is accounted for in the retained earnings account, as depreciation and write-off of the property, plant, and equipment fair value adjustment are recorded to income.
Changes in the equity valuation adjustments account
| | |
| | Total |
| As of January 1, 2009 (Note 4.2.8) | 1,750,069 |
Realization of equity valuation adjustments - deemed cost | (100,899) |
| As of December 31, 2009 | 1,649,170 |
Realization of equity valuation adjustments - deemed cost | (103,117) |
| As of December 31, 2010 | 1,546,053 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
29.1.6. Proposed distribution of dividends
| | |
| | 12.31.2010 |
| Calculation of minimum mandatory dividends (25%) - (1) | |
| Net income for the period | 987,807 |
| Legal reserve (5%) | (49,390) |
| Basis of calculation for minimum mandatory dividends | 938,417 |
| | 234,604 |
| Adjusted basis of calculation for dividends | |
| Net income for the period | 987,807 |
| Legal reserve (5%) | (49,390) |
| Realization of equity valuation adjustment | 103,117 |
| | 1,041,534 |
| Proposed dividends, net (25%) - (2) | |
| Interest on capital | 200,000 |
| Income tax withheld on IOC | (21,077) |
| Proposed dividends | 81,460 |
| | 260,383 |
| Additional proposed dividends (2-1) | 25,779 |
| Gross value of dividends per share: | |
| Common shares | 0.98027 |
| Class A preferred shares | 2.52507 |
| Class B preferred shares | 1.07854 |
| |
| Gross value of dividends per share category: | |
| Common share | 142,170 |
| Class A preferred shares | 985 |
| Class B preferred shares | 138,305 |
Taking into account the impact of the increase in depreciation expenses and disposals on account of the application of the new accounting rules on property, plant, and equipment, Company management has chosen to exclude these depreciation and disposal effects for purposes of dividends to be distributed to shareholders, during the realization of the entire difference generated by the new amount. Thus, the basis for calculation of dividends, which until 2009 reflected the adjusted net income for the period pursuant to the Brazilian Corporate Law, will be increased as of 2010 in the same proportion of the realization of the equity evaluation adjustments account.
In 2009, while recording an originally published income of R$1,026,433, the Company distributed R$249,459 as interest on capital and dividends.
Interest on capital is recorded in financial expenses and, for the purposes of preparation of the financial statements, is shown as an allocation of the net income for the fiscal year. In the statement of operations, its reversal was made under a specific item in financial expenses.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
29.1.7. Income per share – basic and diluted
| | | |
| | 12.31.2010 | 12.31.2009 |
| Basic and diluted numerator | | |
| Basic and diluted net income per share category, attributable to parent company | | |
Class A preferred shares | 2,050 | 1,469 |
Class B preferred shares | 486,044 | 389,668 |
Common shares | 499,713 | 400,639 |
| | 987,807 | 791,776 |
| Basic and diluted denominator | | |
| Weighted average number of shares (in thousands): | | |
Class A preferred shares | 393,683 | 396,319 |
Class B preferred shares | 128,230,612 | 128,227,976 |
Common shares | 145,031,080 | 145,031,080 |
| | 273,655,375 | 273,655,375 |
| Basic and diluted earning per share attributable to | | |
| Parent Company: | | |
Class A preferred shares | 5.2075 | 3.7066 |
Class B preferred shares | 3.7904 | 3.0389 |
Common shares | 3.4456 | 2.7624 |
The weighted average amount of common shares used in the calculation of the basic earnings per share is reconciliated with the weighted average amount of common shares used in the calculation of diluted earnings per share, since there are no financial instruments with diluting potential.
29.2 Equity attributable to non-controlling interest
| | | | | |
| | Compagas | Elejor | UEG Araucária | Total |
| As of January 1, 2009 | 84,913 | 1,739 | 132,225 | 218,877 |
Proposed dividends | (9,065) | (1,949) | - | (11,014) |
Income (losses) for the period | 15,630 | 6,844 | (1,972) | 20,502 |
| As of December 31, 2009 | 91,478 | 6,634 | 130,253 | 228,365 |
Funds for capital increase | - | 30,813 | - | 30,813 |
Proposed dividends | (15,949) | - | - | (15,949) |
Income (losses) for the period | 19,864 | 4,017 | (1,407) | 22,474 |
| As of December 31, 2010 | 95,393 | 41,464 | 128,846 | 265,703 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
30 Operating Revenues
| | | | | | | |
| | Gross | PIS/Pasep | | Regulatory | Service tax | Net |
| | revenues | & Cofins taxes | ICMS (VAT) | charges | (ISSQN) | revenues |
| | | | | | | 12.31.2010 |
| Electricity sales to final customers | 3,517,008 | (327,156) | (948,563) | (27,886) | - | 2,213,403 |
| Electricity sales to distributors | 1,488,178 | (145,462) | (392) | (54,323) | - | 1,288,001 |
| Charges for the use of the main | | | | | | |
| transmission grid | 4,295,275 | (395,817) | (1,057,679) | (569,358) | - | 2,272,421 |
| Construction revenues | 663,534 | - | - | - | - | 663,534 |
| Revenues from telecommunications | 129,040 | (7,385) | (22,925) | - | (848) | 97,882 |
| Distribution of piped gas | 300,598 | (25,341) | (37,853) | - | (132) | 237,272 |
| Other operating revenues | 152,414 | (14,043) | (3) | (8,808) | (960) | 128,600 |
| | 10,546,047 | (915,204) | (2,067,415) | (660,375) | (1,940) | 6,901,113 |
| |
| |
| |
| | Gross | PIS/Pasep | | Regulatory | Service tax | Net |
| | revenues | & Cofins taxes | ICMS (VAT) | charges | (ISSQN) | revenues |
| | | | | | | 12.31.2009 |
| Electricity sales to final customers | 3,250,761 | (301,344) | (869,923) | (19,940) | - | 2,059,554 |
| Electricity sales to distributors | 1,394,806 | (141,199) | (310) | (44,140) | - | 1,209,157 |
| Charges for the use of the main | | | | | | |
| transmission grid | 3,684,706 | (367,084) | (880,808) | (461,697) | - | 1,975,117 |
| Construction revenues | 601,880 | - | - | - | - | 601,880 |
| Revenues from telecommunications | 104,844 | (6,082) | (17,756) | - | (744) | 80,262 |
| Distribution of piped gas | 261,325 | (22,773) | (33,293) | - | (101) | 205,158 |
| Other operating revenues | 146,045 | (17,498) | (6) | (8,589) | (940) | 119,012 |
| | 9,444,367 | (855,980) | (1,802,096) | (534,366) | (1,785) | 6,250,140 |
Regulatory charges
| | | |
| | 2010 | 2009 |
| Regulatory Charges | | |
Energy Development Account (CDE) | 226,845 | 214,504 |
Fuel Consumptuon Account (CCC) | 281,152 | 184,692 |
Global Reversal Reserve (RGR) | 78,445 | 78,560 |
Research and Development and Energy Efficiency Programs - R&D and EEP | 61,157 | 56,284 |
Other charges | 12,776 | 326 |
| | 660,375 | 534,366 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Power sales to final customers and use of the power grid by customer category
| | | | | |
| Electicity sales to final customers | Use of the power grid |
| | 2010 | 2009 | 2010 | 2009 |
| Residential | 1,156,856 | 1,071,740 | 1,336,081 | 1,142,061 |
| Industrial | 1,200,225 | 1,107,740 | 1,227,069 | 1,033,406 |
| Commercial, services, and other activities | 760,206 | 697,997 | 892,046 | 748,765 |
| Rural | 146,606 | 135,646 | 170,367 | 144,807 |
| Public agencies | 102,035 | 95,853 | 119,089 | 102,078 |
| Public lighting | 78,226 | 73,883 | 91,341 | 78,839 |
| Public services | 72,854 | 67,902 | 85,146 | 72,440 |
| Free customers | - | - | 181,323 | 138,706 |
| Basic Network, BN connections, and connection grid | - | - | 2,856 | 2,407 |
| Operation and maintenance (O&M) revenues | - | - | 42,952 | 42,090 |
| Effective interest revenues | - | - | 147,005 | 179,107 |
| | 3,517,008 | 3,250,761 | 4,295,275 | 3,684,706 |
Power sales to distributors
| | | |
| | Electricity sales to distributors |
| | 2010 | 2009 |
| Agreements for Power Trade on the Regulated Market - CCEAR (auction) | 1,151,485 | 1,098,636 |
| Bilateral contracts | 223,788 | 197,207 |
| Electric Energy Trading Chamber - CCEE | 112,905 | 98,963 |
| | 1,488,178 | 1,394,806 |
Other operating revenues
| | | |
| | Other operating revenues |
| | 2010 | 2009 |
| Other operating revenues | | |
Leases and rents | 103,686 | 97,696 |
Revenues from services | 39,669 | 38,040 |
Charged service | 7,422 | 9,179 |
Other revenues | 1,637 | 1,130 |
| | 152,414 | 146,045 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
31 Operating Costs and Expenses
Consolidated operating costs and expenses are broken down below:
| | | | | | |
| | Costs of | | General and | Other | |
| Nature of costs and expenses | goods and/or | Sales | administrative | rev. (exp.), | Total |
| | services | expenses | expenses | net | |
| | | | | | 2010 |
| Electricity purchased for resale (31.1) | (1,972,275) | - | - | - | (1,972,275) |
| Use of main distribution and transmission grid (31.2) | (592,741) | - | - | - | (592,741) |
| Personnel and management (31.3) | (634,277) | (5,805) | (171,432) | - | (811,514) |
| Pension and healthcare plans (Note 23) | (97,528) | (666) | (26,027) | - | (124,221) |
| Materials and supplies (31.4) | (75,533) | (977) | (7,614) | - | (84,124) |
| Raw materials and supplies for power generation | (22,975) | - | - | - | (22,975) |
| Natural gas and supplies for the gas business | (144,648) | - | - | - | (144,648) |
| Third-party services (31.5) | (245,232) | (33,557) | (72,117) | - | (350,906) |
| Depreciation and amortization | (511,491) | (53) | (27,618) | (3,830) | (542,992) |
| Accruals and provisions (31.6) | - | (26,424) | - | (336,352) | (362,776) |
| Construction cost | (662,887) | - | - | - | (662,887) |
| Other costs and expenses (31.7) | (16,556) | 5,016 | (48,818) | (235,726) | (296,084) |
| | (4,976,143) | (62,466) | (353,626) | (575,908) | (5,968,143) |
| |
| |
| |
| | Costs of | | General and | Other | |
| Nature of costs and expenses | goods and/or | Sales | administrative | rev. (exp.), | Total |
| | services | expenses | expenses | net | |
| | | | | | 2009 |
| Electricity purchased for resale (31.1) | (1,816,848) | - | - | - | (1,816,848) |
| Use of main distribution and transmission grid (31.2) | (553,174) | - | - | - | (553,174) |
| Personnel and management (31.3) | (630,917) | (4,764) | (174,370) | - | (810,051) |
| Pension and healthcare plans (Note 23) | (85,243) | (545) | (23,944) | - | (109,732) |
| Materials and supplies (31.4) | (58,993) | (2,862) | (7,368) | - | (69,223) |
| Raw materials and supplies for power generation | (21,231) | - | - | - | (21,231) |
| Natural gas and supplies for the gas business | (128,916) | - | - | - | (128,916) |
| Third-party services (31.5) | (228,579) | (33,627) | (58,860) | - | (321,066) |
| Depreciation and amortization | (509,230) | (10) | (26,711) | (3,830) | (539,781) |
| Accruals and provisions (31.6) | - | (16,448) | - | 56,385 | 39,937 |
| Construction cost | (601,614) | - | - | - | (601,614) |
| Other costs and expenses (31.7) | 5,961 | 3,975 | (143,440) | (141,802) | (275,306) |
| | (4,628,784) | (54,281) | (434,693) | (89,247) | (5,207,005) |
The table below features the balances of construction costs allocated to the respective expense categories:
| | | |
| | 2010 | 2009 |
| Personnel and management | 59,305 | 46,796 |
| Materials and supplies | 390,478 | 381,257 |
| Third-party services | 161,880 | 145,850 |
| Other | 51,224 | 27,711 |
| | 662,887 | 601,614 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
31.1 Electricity purchased for resale
| | | |
| | 2010 | 2009 |
| Eletrobrás - Centrais Elétricas Brasileiras S.A. (Itaipu) | 468,296 | 521,023 |
| Furnas Centrais Elétricas S.A. - auction | 357,763 | 322,514 |
| Companhia Hidro Elétrica do São Francisco - Chesf - auction | 332,801 | 305,207 |
| Companhia Energética de São Paulo - Cesp - auction | 129,120 | 115,162 |
| Itiquira Energética S.A. | 117,813 | 116,195 |
| Centrais Elétricas do Norte do Brasil S. A. - Eletronorte - auction | 109,926 | 99,748 |
| Program for incentive to alternative energy sources - Proinfa | 105,972 | 75,685 |
| Petróleo Brasileiro S.A. - Petrobras - auction | 100,569 | 33,598 |
| Dona Francisca Energética S.A. | 61,189 | 60,303 |
| Electric Energy Trading Chamber - CCEE | 58,446 | 62,110 |
| Companhia Energética de Minas Gerais - Cemig - auction | 52,378 | 58,578 |
| Cia. Estadual de Geração e Transmissão de Energia Elétrica S.A. - CEEE - auction | 37,700 | 34,773 |
| Light S.A. - auction | 28,557 | 26,166 |
| Tractbel Energia S.A. - auction | 20,841 | 14,886 |
| (-) Pasep/Cofins taxes on electricity purchased for resale | (210,150) | (203,370) |
| Other utilities - auction | 201,054 | 174,270 |
| | 1,972,275 | 1,816,848 |
31.2 Use of main transmission grid
| | | |
| | 2010 | 2009 |
| Furnas Centrais Elétricas S.A. | 127,827 | 123,697 |
| Cia Transmissora de Energia Elétrica Paulista - Cteep | 68,658 | 65,323 |
| Companhia Hidro Elétrica do São Francisco - Chesf | 59,878 | 59,594 |
| Centrais Elétricas do Norte do Brasil S. A. - Eletronorte | 49,843 | 42,975 |
| Eletrosul Centrais Elétricas S.A. | 43,847 | 44,790 |
| System Service Charges - ESS | 41,021 | 24,251 |
| Companhia Energética de Minas Gerais - Cemig | 25,696 | 25,037 |
| TSN Transmissora Nordeste Sudeste de Energia S.A. | 21,088 | 19,795 |
| Novatrans Energia S.A. | 20,978 | 19,521 |
| National System Operator - ONS | 19,842 | 19,206 |
| Cia Estadual de Geração e Transmissão de Energia Elétrica S.A. - CEEE | 17,744 | 17,457 |
| Empresa Amazonense de Transmissão de Energia - Eate | 17,434 | 16,545 |
| ATE II Transmissora de Energia S.A. | 8,941 | 8,407 |
| Empresa Norte de Transmissão de Energia S.A. - Ente | 8,913 | 8,403 |
| Itumbiara Transmissora de Energia Ltda | 8,468 | 7,990 |
| Expansion Transmissora de Energia Elétrica S.A. | 8,063 | 7,649 |
| Empresa Transmissora de Energia Oeste Ltda - Eteo | 7,219 | 6,759 |
| STN Sistema de Transmissão Nordeste S.A | 7,145 | 6,740 |
| NTE Nordeste Transmissora de Energia S.A | 6,253 | 5,905 |
| ATE Transmissora Energia S.A | 5,743 | 5,508 |
| Integração Transmissão Energia - Intesa | 5,553 | 4,679 |
| Serra Mesa Transm. Energia Ltda. - SMTE | 4,975 | 4,983 |
| LT Triângulo S.A. | 4,771 | 4,697 |
| ATE III Transmissora Energia S.A | 4,707 | 4,381 |
| Arthemis Transmissora de Energia S.A | 3,796 | 3,583 |
| (-) Pasep/Cofins taxes on charges for use of power grid | (65,866) | (54,959) |
| Other utilities | 60,204 | 50,258 |
| | 592,741 | 553,174 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
31.3 Personnel and management
| | | |
| | 2010 | 2009 |
| Personnel | | |
Wages and salaries | 561,842 | 530,187 |
Social charges on payroll | 186,042 | 171,319 |
| | 747,884 | 701,506 |
Profit sharing | 66,151 | 64,995 |
Meal assistance and education allowance | 66,511 | 55,695 |
Labor indemnifications (reversals) | - | 24,291 |
Compensation - Volunt. termination/retirement | 19,737 | 16,702 |
Compensation - Voluntary termination Program | - | 15,859 |
| | 900,283 | 879,048 |
(-) Transfers to construction in progress (a) | (99,650) | (79,263) |
| | 800,633 | 799,785 |
| Management | | |
Wages and salaries | 8,922 | 8,472 |
Social charges on payroll | 1,959 | 1,770 |
Other expenses | - | 24 |
| | 10,881 | 10,266 |
| | 811,514 | 810,051 |
a) Amount related to the allocation of construction in progress direct labor, not taking into account administrative expenses.
Profit sharing
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 shared amount has been accrued as follows:
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Copel Geração e Transmissão | 14,373 | 14,721 | 16,289 |
| Copel Distribuição | 46,950 | 46,102 | 45,580 |
| Copel Telecomunicações | 3,900 | 3,528 | 3,534 |
| Compagas | 928 | 644 | 413 |
| | 66,151 | 64,995 | 65,816 |
31.4 Materials and Supplies
| | | |
| | 2010 | 2009 |
| Materials for the electric system | 27,040 | 18,517 |
| Fuel and vehicle parts | 24,006 | 22,586 |
| Cafeteria supplies | 7,875 | 6,179 |
| Materials for civil construction | 8,222 | 3,782 |
| Office supplies | 4,124 | 5,849 |
| Tools | 1,691 | 2,763 |
| Safety supplies | 2,400 | 2,271 |
| Lodging supplies | 1,408 | 1,049 |
| IT equipment | 1,458 | 1,635 |
| Other materials | 5,900 | 4,592 |
| | 84,124 | 69,223 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
31.5 Services from third-parties
| | | |
| | 2010 | 2009 |
| Transmission grid | 91,053 | 74,986 |
| Meter reading and bill delivery | 28,168 | 30,900 |
| Data processing and transmission | 25,170 | 15,708 |
| Authorized and registered agents | 24,359 | 21,274 |
| Technical, scientific, and adm. consulting | 18,881 | 25,437 |
| Administrative support services | 17,875 | 15,889 |
| Security | 17,247 | 14,589 |
| Telephone services | 15,900 | 16,243 |
| Travel | 13,495 | 13,139 |
| Upkeep of right of way areas | 11,183 | 8,316 |
| Civil maintenance services | 10,618 | 8,015 |
| Personnel training | 10,548 | 8,678 |
| Customer service | 7,143 | 5,707 |
| Services in "green areas" | 6,864 | 5,735 |
| Vehicle maintenance and repairs | 5,235 | 4,498 |
| Satellite communications | 4,522 | 3,722 |
| Cargo shipping | 4,106 | 3,854 |
| Postal services | 3,594 | 5,063 |
| Telephone operator | 3,532 | 3,133 |
| Auditing | 2,714 | 3,097 |
| Advertising | 1,497 | 1,434 |
| Other services | 27,202 | 31,649 |
| | 350,906 | 321,066 |
31.6 Accruals and provisions
| | | |
| | 2010 | 2009 |
| Allowance for doubtful accounts | 26,424 | 16,448 |
| Provision for devaluation of equity interests | 2,114 | 733 |
| Reserve (reversals) for risks (Note 28) | | |
COFINS tax | 234,563 | (178,753) |
Tax | 3,397 | (7,300) |
Labor | 33,915 | 51,427 |
Employee benefits | 28,053 | 2,127 |
Suppliers | 2,077 | 31,815 |
Civil and administrative claims | 22,175 | 32,742 |
Easements | (5,667) | 4,825 |
Condemnation and real estate | 7,440 | 5,710 |
Customers | 136 | 128 |
Environmental | 32 | 10 |
Regulatory | 8,117 | 151 |
| | 334,238 | (57,118) |
| | 362,776 | (39,937) |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
31.7 Other operating costs and expenses
| | | |
| | 2010 | 2009 |
| Financial compensation for use of water resources | 112,210 | 80,227 |
| Losses in the decommissioning and disposal of assets | 50,203 | 22,542 |
| Asset impairment losses | 44,572 | - |
| Provision for losses - receivables related to concession | 21,333 | 6,700 |
| ANEEL inspection fee | 19,988 | 15,403 |
| Reparations | 17,917 | 51,705 |
| Leases and rents | 16,670 | 14,976 |
| Taxes | 16,548 | 73,091 |
| Insurance | 7,726 | 7,056 |
| Sports incentives, Rouanet Law and fund for the rights of children and teenagers - FIA | 7,099 | 5,897 |
| Own power consumption | 6,489 | 5,868 |
| Advertising | 4,340 | 3,490 |
| Recovery of costs and expenses | (42,209) | (42,520) |
| Other costs and expenses, net | 13,198 | 30,871 |
| | 296,084 | 275,306 |
32 Financial Income (Expenses)
| | | |
| | 2010 | 2009 |
| Financial revenues | | |
Return on financial investments held for sale | 162,812 | 158,968 |
Return on financial investments held until maturity | 5,104 | 12,853 |
Monetary variation of receivables related to concession | 151,187 | - |
Monetary variation of CRC transfer (Note 8) | 136,168 | (18,196) |
Return on CRC transfer (Note 8) | 79,546 | 83,834 |
Penalties on overdue bills | 70,985 | 59,420 |
Interest on prepaid taxes | 23,752 | 27,168 |
Fines | 11,879 | 9,407 |
Interest and commissions on loan agreements | - | - |
Other financial revenues | 10,798 | 3,942 |
| | 652,231 | 337,396 |
| (-) Financial expenses | | |
Debt charges | 105,118 | 135,618 |
Monetary variation of payables related to concession - use of public property | 55,501 | 30,326 |
PIS/PASEP-COFINS on interest on capital | 32,506 | 39,644 |
Monetary and exchange variations | 23,193 | (10,435) |
Contractual reparations | 19,506 | - |
IOF tax | 19,389 | 9,619 |
Interest on R&D and EEP | 19,285 | 13,252 |
Interest on tax installments | 14,623 | 2,092 |
Monetary variation of receivables tied to concession | - | 15,522 |
Interest - tax recovery program | - | 90,164 |
Penalties - tax recovery program | - | 2,476 |
Other financial expenses | 14,685 | 2,383 |
| | 303,806 | 330,661 |
| | 348,425 | 6,735 |
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$42,513 as of December 31, 2010 (R$20,629 as of December 31, 2009).
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
33 Operational Segments
33.1 Products and services which generate revenues for the reporting segments
The Company operates in five reporting segments identified by management, through the Chief Executive Office and the chief offices of each business area, taking into consideration the regulatory environments, the strategic business units, and the different products and services. These segments are managed separately, since each business and each company requires different technologies and strategies.
In the years of 2010 and 2009 all sales were made within Brazilian territory.
We have not identified any Company customer who individually accounts for more than 10% of total net revenues in 2010.
The Group’s reporting segments are:
power generation and transmission (GET) –this segment comprises the generation of electric energy from hydraulic, wind, and thermal projects, the transport and transformation of the power generated by the Company, and the construction, operation, and maintenance of all power transmission substations and lines.This segment operates through Copel Geração e Transmissão, UEG Araucária, and Centrais Eólicas do Paraná;
power distribution and sales (DIS) –this segment comprises the distribution and sale of electric energy, the operation and maintenance of the distribution infrastructure, and related services. It operates through Copel Distribuição;
telecommunications (TEL) –this segment comprises telecommunications and general communications services. It operates through Copel Telecomunicações;
gas –this segment comprises the public service of piped natural gas distribution. It operates through Compagas; and
Holding Company (HOL) -this segment comprises participation in other companies. It operates through Copel, Copel Empreendimentos (until June 2010), and Dominó Holdings.
The Company evaluates the performance of each segment based on information derived from the accounting records.
The accounting policies of the operational segments (Note 2.8) are the same as those described in the summary of main accounting practices and record transactions between segments as transactions with third-parties, i.e., at current market prices.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
33.2 Assets per reporting segment
| | | | | | | | |
| ASSETS | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2010 | | | | | | interest | |
| TOTAL ASSETS | 9,959,623 | 6,708,119 | 291,909 | 263,498 | 12,984,711 | (12,348,428) | 17,859,432 |
| CURRENT ASSETS | 1,912,635 | 1,963,891 | 42,797 | 65,249 | 1,109,196 | (935,978) | 4,157,790 |
| Cash and cash equivalents | 1,341,151 | 669,079 | 6,942 | 37,769 | 90,828 | (351,353) | 1,794,416 |
| Bonds and securities | 151,707 | 30,813 | - | - | 175 | 351,400 | 534,095 |
| Collaterals and escrow accounts | 63,473 | 201 | - | 404 | - | - | 64,078 |
| Customers | 229,392 | 931,463 | 19,929 | 24,009 | - | (42,166) | 1,162,627 |
| Dividends receivable | 4,480 | - | - | - | 894,719 | (893,348) | 5,851 |
| CRC transferred to the State Government | - | 58,816 | - | - | - | - | 58,816 |
| Receivables related to concession | 54,700 | - | - | - | - | - | 54,700 |
| Other receivables | 33,169 | 127,198 | 661 | 552 | - | (511) | 161,069 |
| Inventories | 24,429 | 83,893 | 11,758 | 1,344 | - | - | 121,424 |
| Income tax and social contribution | 3,232 | 30,685 | 821 | 1 | 123,474 | - | 158,213 |
| Other current taxes to offset | 4,457 | 30,089 | 2,426 | 564 | - | - | 37,536 |
| Prepaid expenses | 2,445 | 1,654 | 260 | 606 | - | - | 4,965 |
| NONCURRENT ASSETS | 8,046,988 | 4,744,228 | 249,112 | 198,249 | 11,875,515 | (11,412,450) | 13,701,642 |
| Noncurrent receivables | 955,980 | 3,451,017 | 13,934 | 28,748 | 1,443,091 | (1,087,477) | 4,805,293 |
| Financial investments | 5,306 | 26,280 | - | 1,845 | - | - | 33,431 |
| Customers | - | 43,729 | - | 15,800 | - | (15,800) | 43,729 |
| CRC transferred to the State Government | - | 1,282,377 | - | - | - | - | 1,282,377 |
| Judicial deposits | 22,034 | 147,895 | 233 | 205 | 230,332 | - | 400,699 |
| Receivables related to concession | 785,457 | 1,637,888 | - | - | - | - | 2,423,345 |
| Advance payments to suppliers | - | - | - | 9,902 | - | - | 9,902 |
| Other receivables | 1,878 | 3,280 | - | 164 | - | - | 5,322 |
| Income tax and social contribution | 12,341 | - | - | - | - | - | 12,341 |
| Other current taxes to offset | 13,286 | 64,303 | 7,273 | - | - | - | 84,862 |
| Deferred income tax and social contribution | 110,428 | 245,265 | 6,428 | 832 | 144,757 | - | 507,710 |
| Receivables from subsidiaries | 5,250 | - | - | - | 1,068,002 | (1,071,677) | 1,575 |
| Investments | 390,810 | 4,232 | - | - | 10,432,424 | (10,344,016) | 483,450 |
| Property, Plant, and Equipment | 6,441,654 | - | 222,291 | - | - | - | 6,663,945 |
| Intangible assets | 258,544 | 1,288,979 | 12,887 | 169,501 | - | 19,043 | 1,748,954 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
| ASSETS | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2009 | | | | | | interest | |
| TOTAL ASSETS | 9,461,381 | 5,586,303 | 258,084 | 259,130 | 12,375,787 | (11,627,782) | 16,312,903 |
| CURRENT ASSETS | 1,416,200 | 1,439,645 | 55,413 | 70,486 | 846,757 | (216,387) | 3,612,114 |
| Cash and cash equivalents | 942,719 | 192,468 | 31,889 | 41,177 | 487,899 | (177,629) | 1,518,523 |
| Bonds and securities | 89,064 | 19,429 | - | - | 79,120 | 177,630 | 365,243 |
| Collaterals and escrow accounts | 4,655 | 197 | - | 195 | - | - | 5,047 |
| Customers | 252,161 | 835,215 | 12,079 | 19,993 | - | (47,462) | 1,071,986 |
| Dividends receivable | 3,931 | - | - | - | 169,612 | (168,408) | 5,135 |
| CRC transferred to the State Government | - | 49,549 | - | - | - | - | 49,549 |
| Receivables related to concession | 44,070 | - | - | - | - | - | 44,070 |
| Other receivables | 31,115 | 95,047 | 566 | 6,790 | 2 | (518) | 133,002 |
| Inventories | 27,595 | 76,170 | 7,166 | 1,171 | - | - | 112,102 |
| Income tax and social contribution | 13,265 | 145,091 | 2,076 | 2 | 110,124 | - | 270,558 |
| Other current taxes to offset | 5,004 | 24,988 | 1,385 | 556 | - | - | 31,933 |
| Prepaid expenses | 2,621 | 1,491 | 252 | 602 | - | - | 4,966 |
| NONCURRENT ASSETS | 8,045,181 | 4,146,658 | 202,671 | 188,644 | 11,529,030 | (11,411,395) | 12,700,789 |
| Noncurrent receivables | 883,593 | 2,779,383 | 13,027 | 30,498 | 1,111,371 | (1,010,597) | 3,807,275 |
| Financial investments | 40,103 | 24,195 | - | - | - | - | 64,298 |
| Customers | - | 50,921 | 1,011 | 21,067 | - | (21,067) | 51,932 |
| CRC transferred to the State Government | - | 1,205,025 | - | - | - | - | 1,205,025 |
| Judicial deposits | 18,162 | 87,360 | 236 | 209 | 53,045 | - | 159,012 |
| Receivables related to concession | 731,100 | 1,097,120 | - | - | - | - | 1,828,220 |
| Advance payments to suppliers | - | - | - | 8,290 | - | - | 8,290 |
| Other receivables | 1,881 | 4,611 | - | 408 | 1,759 | - | 8,659 |
| Income tax and social contribution | - | - | - | - | - | - | - |
| Other current taxes to offset | 8,122 | 71,775 | 4,060 | - | - | - | 83,957 |
| Deferred income tax and social contribution | 84,225 | 238,376 | 6,611 | 524 | 68,146 | - | 397,882 |
| Receivables from subsidiaries | - | - | 1,109 | - | 988,421 | (989,530) | - |
| Investments | 451,258 | 4,250 | - | - | 10,417,658 | (10,467,513) | 405,653 |
| Property, Plant, and Equipment | 6,471,061 | - | 188,586 | - | 1 | - | 6,659,648 |
| Intangible assets | 239,269 | 1,363,025 | 1,058 | 158,146 | - | 66,715 | 1,828,213 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
ASSETS | | | | | |
Eliminations and
non controlling
interest | |
| GET | DIS | TEL | GAS | HOL | Consolidated |
01.01.2009 | | | | | | |
TOTAL ASSETS | 9,570,430 | 5,236,194 | 243,102 | 260,510 | 12,225,512 | (11,601,907) | 15,933,841 |
CURRENT ASSETS | 1,506,734 | 1,425,681 | 47,943 | 80,942 | 722,615 | (336,891) | 3,447,024 |
Cash and cash equivalents | 1,046,283 | 354,286 | 29,638 | 55,892 | 327,477 | (164,095) | 1,649,481 |
Bonds and securities | 113,057 | 37,174 | - | - | 438 | 164,105 | 314,774 |
Collaterals and escrow accounts | 93 | 34 | - | - | - | - | 127 |
Customers | 236,359 | 756,479 | 10,837 | 22,450 | - | (44,283) | 981,842 |
Dividends receivable | - | - | - | - | 297,466 | (292,219) | 5,247 |
CRC transferred to the State Government | - | 47,133 | - | - | - | - | 47,133 |
Receivables related to concession | 27,685 | - | - | - | - | - | 27,685 |
Other receivables | 31,201 | 72,640 | 427 | 1,179 | 2 | (399) | 105,050 |
Inventories | 29,710 | 48,150 | 5,151 | 536 | - | - | 83,547 |
Income tax and social contribution | 16,771 | 85,772 | 769 | - | 97,232 | - | 200,544 |
Other current taxes to offset | 3,548 | 22,926 | 991 | 556 | - | - | 28,021 |
Prepaid expenses | 2,027 | 1,087 | 130 | 329 | - | - | 3,573 |
NONCURRENT ASSETS | 8,063,696 | 3,810,513 | 195,159 | 179,568 | 11,502,897 | (11,265,016) | 12,486,817 |
Noncurrent receivables | 763,089 | 2,543,726 | 12,464 | 26,715 | 1,179,227 | (952,943) | 3,572,278 |
Financial investments | - | 37,868 | - | - | 69,063 | - | 106,931 |
Customers | 75 | 81,760 | 3,211 | 23,650 | - | (23,650) | 85,046 |
CRC transferred to the State Government | - | 1,272,770 | - | - | - | - | 1,272,770 |
Judicial deposits | 31,823 | 87,492 | 786 | 139 | 53,274 | - | 173,514 |
Receivables related to concession | 653,437 | 807,025 | - | - | - | - | 1,460,462 |
Advance payments to suppliers | - | - | - | 8,290 | - | - | 8,290 |
Other receivables | 1,881 | 4,709 | - | (5,798) | 3,132 | - | 3,924 |
Other current taxes to offset | 7,001 | 52,497 | 2,970 | - | - | - | 62,468 |
Deferred income tax and social contribution | 68,872 | 199,605 | 5,497 | 434 | 124,465 | - | 398,873 |
Receivables from subsidiaries | - | - | - | - | 929,293 | (929,293) | - |
Investments | 462,500 | 2,474 | - | - | 10,323,669 | (10,381,888) | 406,755 |
Property, Plant, and Equipment | 6,590,507 | - | 181,587 | - | 1 | - | 6,772,095 |
Intangible assets | 247,600 | 1,264,313 | 1,108 | 152,853 | - | 69,815 | 1,735,689 |
| | | | | | | |
F-118
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
33.3 Liabilities per reporting segment
| | | | | | | | |
| LIABILITIES | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2010 | | | | | | interest | |
| TOTAL LIABILITIES | 9,959,623 | 6,708,119 | 291,909 | 263,498 | 12,984,711 | (12,348,428) | 17,859,432 |
| CURRENT LIABILITIES | 1,033,899 | 1,449,633 | 33,721 | 60,066 | 900,738 | (941,256) | 2,536,801 |
| Payroll, social charges and accruals | 42,546 | 118,790 | 11,014 | 2,935 | 299 | - | 175,584 |
| Suppliers | 175,753 | 444,987 | 7,759 | 26,325 | 333 | (42,589) | 612,568 |
| Income tax and social contribution | 126,012 | - | - | 12,252 | 14,985 | - | 153,249 |
| Other taxes | 36,486 | 254,811 | 3,290 | 1,947 | 82,425 | (88) | 378,871 |
| Loans and financing | 46,233 | 17,950 | - | 6,330 | 17,860 | (5,278) | 83,095 |
| Debentures | - | - | - | - | 621,157 | - | 621,157 |
| Dividends payable | 517,352 | 355,698 | 10,474 | 9,628 | 163,560 | (893,348) | 163,634 |
| Post-employment benefits | 6,232 | 16,811 | 1,093 | - | 119 | - | 24,255 |
| Regulatory charges | 3,630 | 52,475 | - | - | - | - | 56,105 |
| R&D and EEP | 15,610 | 140,381 | - | - | - | - | 155,991 |
| Payables tied to concession - use of public property | 40,984 | - | - | - | - | - | 40,984 |
| Other accounts payable | 23,061 | 47,460 | 91 | 649 | - | 47 | 71,308 |
| NONCURRENT LIABILITIES | 2,413,241 | 1,941,675 | 16,826 | 8,754 | 728,508 | (1,082,199) | 4,026,805 |
| Investees and subsidiaries | 295,788 | 715,539 | - | - | 3,675 | (1,015,002) | - |
| Suppliers | 160,736 | - | - | - | - | (15,800) | 144,936 |
| Tax liabilities | 623 | 11,553 | - | - | 20,076 | - | 32,252 |
| Deferred income tax and social contribution | 822,195 | 32,563 | - | 7,163 | 25,297 | - | 887,218 |
| Loans and financing | 425,628 | 525,711 | - | 43 | 380,997 | (51,397) | 1,280,982 |
| Post-employment benefits | 104,541 | 262,728 | 15,774 | 1,165 | - | - | 384,208 |
| R&D and EEP | 26,285 | 64,447 | - | - | - | - | 90,732 |
| Payables tied to concession - use of public property | 340,099 | - | - | - | - | - | 340,099 |
| Other accounts payable | - | - | - | - | - | - | - |
| Reserve for risks | 237,346 | 329,134 | 1,052 | 383 | 298,463 | - | 866,378 |
| EQUITY | 6,512,483 | 3,316,811 | 241,362 | 194,678 | 11,355,465 | (10,324,973) | 11,295,826 |
| Attributable to Parent Company | | | | | | | |
| Share capital | 4,285,945 | 2,624,841 | 194,755 | 135,943 | 7,023,368 | (7,354,852) | 6,910,000 |
| Capital reserves | 104,034 | - | - | - | - | (104,034) | - |
| Equity valuation adjustments | 1,540,695 | 13,463 | - | - | 1,564,874 | (1,559,516) | 1,559,516 |
| Legal reserve | 182,162 | 108,500 | 3,521 | 14,636 | 493,019 | (323,536) | 478,302 |
| Retained earnings | 146,260 | 570,007 | 43,086 | 31,172 | 2,056,526 | (790,525) | 2,056,526 |
| Unrealized income reserve | | | | | 175,516 | (175,516) | - |
| Proposed additional dividends | 351,866 | - | - | 12,927 | 25,779 | (364,793) | 25,779 |
| Accrued losses | (98,479) | - | - | - | - | 98,479 | - |
| Attributable to non-controlling | - | - | - | - | - | 265,703 | 265,703 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
| LIABILITIES | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2009 | | | | | | interest | |
| TOTAL LIABILITIES | 9,461,381 | 5,586,303 | 258,084 | 259,130 | 12,375,787 | (11,627,782) | 16,312,903 |
| CURRENT LIABILITIES | 560,580 | 1,090,066 | 19,764 | 55,388 | 219,537 | (222,012) | 1,723,323 |
| Payroll, social charges and accruals | 54,149 | 139,562 | 10,730 | 2,240 | 276 | - | 206,957 |
| Suppliers | 127,600 | 433,800 | 5,158 | 24,275 | 586 | (47,890) | 543,529 |
| Income tax and social contribution | 115,743 | - | - | 8,762 | - | - | 124,505 |
| Other taxes | 23,322 | 202,146 | 2,706 | 1,674 | 96,232 | (90) | 325,990 |
| Loans and financing | 52,616 | 12,490 | - | 6,349 | 15,868 | (5,625) | 81,698 |
| Debentures | 36,957 | - | - | - | 17,238 | - | 54,195 |
| Dividends payable | 50,441 | 111,268 | - | 8,228 | 89,277 | (168,408) | 90,806 |
| Post-employment benefits | 5,969 | 15,501 | 990 | - | 45 | - | 22,505 |
| Regulatory charges | 3,791 | 25,732 | - | - | - | - | 29,523 |
| R&D and EEP | 14,244 | 106,761 | - | - | - | - | 121,005 |
| Payables tied to concession - use of public property | 38,029 | - | - | - | - | - | 38,029 |
| Other accounts payable | 37,719 | 42,806 | 180 | 3,860 | 15 | 1 | 84,581 |
| NONCURRENT LIABILITIES | 2,440,386 | 1,444,762 | 16,597 | 17,054 | 1,151,390 | (1,004,972) | 4,065,217 |
| Investees and subsidiaries | 265,418 | 658,724 | - | - | 1,109 | (925,251) | - |
| Suppliers | 196,863 | - | - | - | - | (21,067) | 175,796 |
| Tax liabilities | 547 | 48,311 | - | - | 82,792 | - | 131,650 |
| Deferred income tax and social contribution | 866,834 | - | - | 8,953 | 25,297 | - | 901,084 |
| Loans and financing | 300,926 | 147,224 | - | 6,394 | 388,254 | (58,654) | 784,144 |
| Post-employment benefits | 96,013 | 241,546 | 14,411 | 1,006 | - | - | 352,976 |
| R&D and EEP | 19,928 | 70,565 | - | - | - | - | 90,493 |
| Payables tied to concession - use of public property | 312,626 | - | - | - | - | - | 312,626 |
| Other accounts payable | 2,596 | - | - | 357 | - | - | 2,953 |
| Reserve for risks | 225,251 | 278,392 | 2,186 | 344 | 53,938 | - | 560,111 |
| EQUITY | 6,460,415 | 3,051,475 | 221,723 | 186,688 | 11,004,860 | (10,400,798) | 10,524,363 |
| Attributable to Parent Company | | | | | | | |
| Share capital | 4,285,945 | 2,624,841 | 194,755 | 111,140 | 4,971,351 | (7,728,032) | 4,460,000 |
| Capital reserves | 1,322 | - | - | - | 877,958 | (40,940) | 838,340 |
| Equity valuation adjustments | 1,641,998 | 11,464 | - | - | 1,667,806 | (1,660,634) | 1,660,634 |
| Legal reserve | 157,723 | 82,274 | 1,886 | 12,609 | 442,612 | (268,192) | 428,912 |
| Retained earnings | 73,593 | 237,684 | 22,816 | 62,939 | 2,908,112 | (397,032) | 2,908,112 |
| Unrealized income reserve | | | | | 175,516 | (175,516) | - |
| Proposed additional dividends | 435,433 | 95,212 | 2,266 | - | - | (532,911) | - |
| Accrued losses | (135,599) | - | - | - | (38,495) | 174,094 | - |
| Attributable to non-controlling | - | - | - | - | - | 228,365 | 228,365 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
LIABILITIES | GET | DIS | TEL | GAS | HOL | Eliminations and
non controlling interest | Consolidated |
| |
01.01.2009 |
TOTAL LIABILITIES | 9,570,430 | 5,236,194 | 243,102 | 260,510 | 12,225,512 | (11,601,907) | 15,933,841 |
CURRENT LIABILITIES | 604,532 | 1,021,335 | 21,858 | 63,365 | 503,493 | (345,538) | 1,869,045 |
Payroll, social charges and accruals | 39,824 | 109,161 | 8,737 | 1,421 | 245 | - | 159,388 |
Suppliers | 76,891 | 415,006 | 5,287 | 38,769 | 568 | (38,689) | 497,832 |
Income tax and social contribution | 113,005 | - | - | 8,245 | 13,013 | - | 134,263 |
Other taxes | 24,354 | 157,717 | 1,922 | 597 | 50,998 | - | 235,588 |
Loans and financing | 61,373 | 14,313 | - | 6,526 | 24,896 | (8,647) | 98,461 |
Debentures | 25,767 | - | - | - | 169,233 | - | 195,000 |
Dividends payable | 149,743 | 130,247 | 3,655 | 7,724 | 244,502 | (292,219) | 243,652 |
Post-employment benefits | 5,758 | 14,636 | 916 | - | 34 | - | 21,344 |
Regulatory charges | 3,548 | 39,575 | - | - | - | - | 43,123 |
R&D and EEP | 32,978 | 93,506 | - | �� - | - | - | 126,484 |
Payables tied to concession - use of public property | 38,166 | - | - | - | - | - | 38,166 |
Other accounts payable | 33,125 | 47,174 | 1,341 | 83 | 4 | (5,983) | 75,744 |
NONCURRENT LIABILITIES | 2,457,700 | 1,260,941 | 14,863 | 23,853 | 1,281,424 | (935,079) | 4,103,702 |
Investees and subsidiaries | 238,060 | 597,227 | - | - | - | (835,287) | - |
Suppliers | 237,807 | - | - | - | - | (23,650) | 214,157 |
Tax liabilities | 618 | - | - | - | - | - | 618 |
Deferred income tax and social contribution | 899,187 | 2,497 | - | 8,041 | 25,297 | - | 935,022 |
Loans and financing | 263,802 | 153,326 | - | 13,111 | 414,959 | (76,142) | 769,056 |
Debentures | 202,116 | - | - | - | 600,000 | - | 802,116 |
Post-employment benefits | 90,121 | 226,845 | 13,471 | 728 | - | - | 331,165 |
R&D and EEP | 5,324 | 66,755 | - | - | - | - | 72,079 |
Payables tied to concession - use of public property | 319,433 | - | - | - | - | - | 319,433 |
Other accounts payable | 4,995 | 15 | - | 1,664 | - | - | 6,674 |
Reserve for risks | 196,237 | 214,276 | 1,392 | 309 | 241,168 | - | 653,382 |
EQUITY | 6,508,198 | 2,953,918 | 206,381 | 173,292 | 10,440,595 | (10,321,290) | 9,961,094 |
Attributable to Parent Company | | | | | | | |
Share capital | 4,189,546 | 2,171,928 | 194,755 | 85,143 | 4,971,351 | (7,152,723) | 4,460,000 |
Capital reserves | 1,134 | - | - | - | 877,958 | (40,752) | 838,340 |
Equity valuation adjustments | 1,742,897 | - | - | - | 1,757,241 | (1,750,069) | 1,750,069 |
Legal reserve | 123,479 | 66,289 | 641 | 11,014 | 390,287 | (214,120) | 377,590 |
Retained earnings | 155,173 | 704,848 | 10,985 | 74,045 | 2,316,218 | (945,051) | 2,316,218 |
Unrealized income reserve | - | - | - | - | 160,680 | (160,680) | - |
Proposed additional dividends | 414,413 | 10,853 | - | 3,090 | - | (428,356) | - |
Accrued losses | (118,444) | - | - | - | (33,140) | 151,584 | - |
Attributable to non-controlling | - | - | - | - | - | 218,877 | 218,877 |
F -121
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
33.4 Statement of operations per reporting segment
| | | | | | | | |
| STATEMENT OF OPERATIONS | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2010 | | | | | | interest | |
| OPERATING REVENUES | 1,948,799 | 4,939,328 | 139,153 | 267,829 | - | (393,996) | 6,901,113 |
| Electricity sales to final customers - third-parties | 113,102 | 2,100,301 | - | - | - | - | 2,213,403 |
| Electricity sales to final customers - between segments | - | 4,649 | - | - | - | (4,649) | - |
| Electricity sales to distributors - third-parties | 1,223,530 | 64,471 | - | - | - | - | 1,288,001 |
| Electricity sales to distributors - between segments | 258,952 | - | - | - | - | (258,952) | - |
| Use of the power grid - third-parties | 166,600 | 2,105,821 | - | - | - | - | 2,272,421 |
| Use of the power grid - between segments | 70,098 | 11,633 | - | - | | (81,731) | - |
| Construction revenues | 41,019 | 599,634 | - | 22,881 | - | - | 663,534 |
| Telecommunications services to third-parties | - | - | 97,882 | - | - | - | 97,882 |
| Telecommunications services between segments | - | - | 41,271 | - | | (41,271) | - |
| Distribution of piped gas | - | - | - | 237,272 | - | - | 237,272 |
| Other operating revenues from third-parties | 69,659 | 51,265 | - | 7,676 | - | - | 128,600 |
| Other operating revenues between segments | 5,839 | 1,554 | - | - | - | (7,393) | - |
| OPERATING COSTS AND EXPENSES | (1,219,484) | (4,577,731) | (99,047) | (212,120) | (253,757) | 393,996 | (5,968,143) |
| Electricity purchased for resale | (60,352) | (2,170,875) | - | - | - | 258,952 | (1,972,275) |
| Charges for the use of the power grid | (205,749) | (468,723) | - | - | - | 81,731 | (592,741) |
| Personnel and management | (200,659) | (546,834) | (43,920) | (12,796) | (7,305) | - | (811,514) |
| Pension and health care plans | (30,535) | (86,359) | (5,655) | (1,239) | (433) | - | (124,221) |
| Materials and supplies | (21,752) | (60,132) | (1,517) | (709) | (14) | - | (84,124) |
| Raw materials and supplies for generation | (22,975) | - | - | - | - | - | (22,975) |
| Natural gas and supplies for gas business | - | - | - | (144,648) | - | - | (144,648) |
| Third-party services | (89,806) | (277,437) | (16,747) | (14,283) | (4,746) | 52,113 | (350,906) |
| Depreciation and amortization | (320,759) | (180,701) | (28,540) | (11,508) | (1,484) | - | (542,992) |
| Provisions and reversals | (17,630) | (106,913) | 903 | (39) | (239,097) | - | (362,776) |
| Construction costs | (40,372) | (599,634) | - | (22,881) | - | - | (662,887) |
| Other operating costs and expenses | (208,895) | (80,123) | (3,571) | (4,017) | (678) | 1,200 | (296,084) |
| RESULT OF EQUITY IN INVESTEES AND SUBSIDIARIES | (3,345) | - | - | - | 1,225,676 | (1,122,994) | 99,337 |
| RESULT OF OPERATIONS | 725,970 | 361,597 | 40,106 | 55,709 | 971,919 | (1,122,994) | 1,032,307 |
| Interest income (expenses) | (25,829) | 378,910 | 4,059 | 5,256 | (13,971) | - | 348,425 |
| OPERATING INCOME (LOSSES) | 700,141 | 740,507 | 44,165 | 60,965 | 957,948 | (1,122,994) | 1,380,732 |
| Income tax and social contribution | (236,566) | (193,982) | (11,287) | (20,734) | (35,399) | - | (497,968) |
| Deferred income tax and social contribution | 72,796 | (22,012) | (184) | 307 | 76,610 | - | 127,517 |
| INCOME (LOSSES) FOR THE PERIOD | 536,371 | 524,513 | 32,694 | 40,538 | 999,159 | (1,122,994) | 1,010,281 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | | | | |
| STATEMENT OF OPERATIONS | | | | | | Eliminations and | |
| | GET | DIS | TEL | GAS | HOL | non controlling | Consolidated |
| 12.31.2009 | | | | | | interest | |
| OPERATING REVENUES | 1,919,460 | 4,420,923 | 117,784 | 227,089 | - | (435,116) | 6,250,140 |
| Electricity sales to final customers - third-parties | 103,470 | 1,956,084 | - | - | - | - | 2,059,554 |
| Electricity sales to final customers - between segments | - | 4,091 | - | - | - | (4,091) | - |
| Electricity sales to distributors - third-parties | 1,151,278 | 57,879 | - | - | - | - | 1,209,157 |
| Electricity sales to distributors - between segments | 296,823 | - | - | - | - | (296,823) | - |
| Use of the power grid - third-parties | 183,548 | 1,791,569 | - | - | - | - | 1,975,117 |
| Use of the power grid - between segments | 76,588 | 10,263 | - | - | | (86,851) | - |
| Construction revenues | 41,791 | 545,882 | - | 14,207 | - | - | 601,880 |
| Telecommunications services to third-parties | - | - | 80,262 | - | - | - | 80,262 |
| Telecommunications services between segments | - | - | 37,228 | - | | (37,228) | - |
| Distribution of piped gas | - | - | - | 207,842 | - | (2,684) | 205,158 |
| Other operating revenues from third-parties | 60,095 | 53,583 | 294 | 5,040 | - | - | 119,012 |
| Other operating revenues between segments | 5,867 | 1,572 | - | - | - | (7,439) | - |
| OPERATING COSTS AND EXPENSES | (1,161,074) | (4,316,069) | (93,045) | (181,653) | 109,720 | 435,116 | (5,207,005) |
| Electricity purchased for resale | (75,701) | (2,037,970) | - | - | - | 296,823 | (1,816,848) |
| Charges for the use of the power grid | (205,854) | (434,171) | - | - | - | 86,851 | (553,174) |
| Personnel and management | (198,572) | (554,202) | (38,822) | (11,345) | (7,110) | - | (810,051) |
| Pension and healthcare plans | (26,728) | (76,624) | (4,886) | (1,272) | (222) | - | (109,732) |
| Materials and supplies | (13,784) | (53,478) | (1,294) | (653) | (14) | - | (69,223) |
| Raw materials and supplies for generation | (23,915) | - | - | - | - | 2,684 | (21,231) |
| Natural gas and supplies for gas business | - | - | - | (128,916) | - | - | (128,916) |
| Third-party services | (82,275) | (255,958) | (11,429) | (13,291) | (5,671) | 47,558 | (321,066) |
| Depreciation and amortization | (330,667) | (167,516) | (31,111) | (9,003) | (1,484) | - | (539,781) |
| Provisions and reversals | (41,446) | (103,515) | (1,564) | (36) | 186,498 | - | 39,937 |
| Construction costs | (41,525) | (545,882) | - | (14,207) | - | - | (601,614) |
| Other operating costs and expenses | (120,607) | (86,753) | (3,939) | (2,930) | (62,277) | 1,200 | (275,306) |
| RESULT OF EQUITY IN INVESTEES AND SUBSIDIARIES | (4,806) | - | - | - | 830,785 | (811,652) | 14,327 |
| RESULT OF OPERATIONS | 753,580 | 104,854 | 24,739 | 45,436 | 940,505 | (811,652) | 1,057,462 |
| Interest income (expenses) | 11,515 | 65,940 | 4,228 | 2,604 | (77,552) | - | 6,735 |
| OPERATING INCOME (LOSSES) | 765,095 | 170,794 | 28,967 | 48,040 | 862,953 | (811,652) | 1,064,197 |
| Income tax and social contribution | (237,761) | (29,901) | (7,645) | (15,319) | (144) | - | (290,770) |
| Deferred income tax and social contribution | 47,705 | 47,173 | 1,114 | (822) | (56,319) | - | 38,851 |
| INCOME (LOSSES) FOR THE PERIOD | 575,039 | 188,066 | 22,436 | 31,899 | 806,490 | (811,652) | 812,278 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
34 Spot Market (CCEE)
The Wholesale Energy Market or 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), 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), currently CCEE, 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.
The Company's claim is substantially based on the fact that it conducted power 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$1,473,000 (adjusted as of December 31, 2010), which has not been recognized by the Company as a supplier liability.
Based on the opinion of its legal counsel, management considers as possible the Company´s chances of losses on these lawsuits final decision.
Current transactions at CCEE
| | | | | | | | |
| | Copel | | | | | | |
| Geração e | Copel | | UEG | | | |
| Transmissão | Distribuição | Elejor | Araucária | | | |
| | | | | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Current assets (Note 7) | | | | | | | |
Until December 2009 | - | 14 | - | 105 | 119 | 761 | 9,931 |
From January through March 2010 | - | - | - | - | - | 225 | - |
From July through September 2010 | - | - | - | - | - | 10,842 | - |
From October through December 2010 | 21,053 | - | 379 | - | 21,432 | 28,781 | - |
| | 21,053 | 14 | 379 | 105 | 21,551 | 40,609 | 9,931 |
| Current liabilities (Note 20) | | | | | | | |
Until December 2009 | - | - | - | - | - | - | 27,976 |
From October through December 2010 | - | 19,266 | 429 | - | 19,695 | 1,859 | - |
| | - | 19,266 | 429 | - | 19,695 | 1,859 | 27,976 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Changes in CCEE balances
| | | | | |
| | Outstanding | | | Outstanding |
| | balances | Payments | Additions | balances |
| | 12.31.2009 | | | 12.31.2010 |
| Current assets | | | | |
Until December 2009 | 40,609 | (18,558) | (21,932) | 119 |
From January through March 2010 | - | (32,568) | 32,568 | - |
From April through June 2010 | - | (33,061) | 33,061 | - |
From July through September 2010 | - | (34,446) | 34,446 | - |
From October through December 2010 | - | (6,958) | 28,390 | 21,432 |
| | 40,609 | (125,591) | 106,533 | 21,551 |
| (-) Current liabilities | | | | |
Until December 2009 | 1,859 | (2,563) | 704 | - |
From January through March 2010 | - | (1,993) | 1,993 | - |
From April through June 2010 | - | (16,994) | 16,994 | - |
From July through September 2010 | - | (30,027) | 30,027 | - |
From October through December 2010 | - | (3,836) | 23,531 | 19,695 |
| | 1,859 | (55,413) | 73,249 | 19,695 |
| Net total | 38,750 | (70,178) | 33,284 | 1,856 |
35 Operating Lease Agreements
35.1 The Group as a lessee
| | | |
| | 2010 | 2009 |
| Real estate | 13,988 | 12,165 |
| Photocopiers | 2,872 | 3,353 |
| Other | 1,190 | 720 |
| (-) PIS and COFINS tax credits | (1,380) | (1,262) |
| | 16,670 | 14,976 |
Copel’s estimate for expenses for the next fiscal years is basically the same as 2010, plus contractual monetary restatement rates, and there are no risks in connection with contract rescission.
Out of the total R$13,926 spent in rental properties, R$7,750 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, this amount will be restated according to a real estate appraisal of the property.
The Company has not identified any operating lease commitments which are noncancelable.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
35.2 The Group as a lessor
| | | |
| Leases and rents revenues | 2010 | 2009 |
| Equipment and facilities | 52,134 | 55,571 |
| Araucária Thermal Power Plant | 50,000 | 40,583 |
| Real estate | 816 | 818 |
| Facility sharing | 736 | 724 |
| | 103,686 | 97,696 |
Operating leases refer to revenues from rental of Copel property; lessees do not hold an option to purchase these assets upon expiration of the lease.
The Company has not identified any operating lease receivables which are noncancelable.
The leases of equipment and structures refer to operating leases of predetermined attachment points in utility poles for the installation of cabling, accessories, and telecommunications equipment, with monthly payment, pursuant to article 73 of Law no. 9,472, dated July 16, 1997 (General Telecommunications Law), to ANEEL/ANATEL/ANP Joint Resolution no. 001, dated November 24, 1999, and to ANEEL Resolution no. 581, dated October 29, 2002. They are also aimed at lowering costs of implementation of infrastructure to the power and telecommunications sector operators, optimizing the use of poles, and obtaining margins which contribute to more competitive tariffs (lower electric energy tariffs).
On December 28, 2006, UEG Araucária signed an agreement with Petróleo Brasileiro S.A. - Petrobras, a minority shareholder, leasing the Araucária Thermal 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.
36 Financial Instruments
The use of financial instruments by the Company is restricted to Cash and Cash Equivalents, Customers and Distributors, Accounts Receivable from Government Agencies, Recoverable Rate Deficit (CRC) Transferred to the Government of the State of Paraná, Bonds and Securities, Accounts Receivable Related to Concession, Accounts Payable Related to Concession, Loans and Financing, Debentures, and Suppliers.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | | |
| | Level | | | Book value |
| | | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Financial assets | | | | |
Cash and cash equivalents (Note 5) | - | 1,794,416 | 1,518,523 | 1,649,481 |
Customers (Note 7) | - | 1,039,377 | 988,731 | 892,619 |
Receivables from government agencies (Note 7) | - | 166,979 | 135,187 | 174,269 |
CRC transferred to State Government (Note 8) | - | 1,341,193 | 1,254,574 | 1,319,903 |
Bonds and securities (Note 6) | 2 | 541,246 | 405,346 | 383,837 |
Collaterals and escrow accounts (Note 6) | - | 90,358 | 29,242 | 37,995 |
Receivables related to concession (Note 9) | 3 | 2,478,045 | 1,872,290 | 1,488,147 |
| Financial liabilities | | | | |
Loans and financing (Note 21) | - | 1,364,077 | 865,842 | 867,517 |
Debentures (Note 22) | - | 621,157 | 807,579 | 997,116 |
Derivatives | 3 | 47 | 1 | 9 |
Payables related to concession - use of public property (Note 26) | - | 381,083 | 350,655 | 357,599 |
Eletrobrás - Itaipu (Note 20) | - | 74,316 | 80,104 | 100,040 |
Petrobras - Compagas (Note 20) | - | 25,720 | 23,166 | 36,775 |
Other Suppliers (Note 20) | - | 657,468 | 616,055 | 575,174 |
| Level 1: obtained from quoted prices (non-adjusted) on active markets for identical assets or liabilities. | |
| Level 2: obtained through other variables, in addition to quoted prices in Level 1, which are observable for the assets or liabilities at hand. | |
| Level 3: obtained through valuation techniques w hich include variables for assets or liabilities, but which do not rely on observable market data. |
36.1 Fair value and rating level for assessment of fair value of financial instruments
36.1.1. Non-derivative financial assets
Cash and cash equivalents, customers, and receivables from government agencies have fair values that are approximate to their book values, due to their nature and realization schedules.
Bonds and securities and collaterals and escrow accounts have fair values of R$541,251 and R$90,157, respectively, as of December 31, 2010. The fair values have been calculated according to information made available by the financial agents for each security and to the market values of the bonds issued by the Brazilian government.
The CRC transfer to the State Government has fair value of R$1,392,764 as of December 31, 2010. The Company based its calculation on the comparison with a noncurrent, variable interest rate National Treasury bond (NTN-B), which yields approximately 6% p.a. plus the IPCA inflation index.
36.1.2. Non-derivative financial liabilities
Liabilities to Eletrobras – Itaipu, Petrobras, and other suppliers have fair values that are approximate to their book values, due to their nature and maturity.
The Company’s debentures have fair value of R$616,831 as of December 31, 2010, calculated according to the Unit Price quote on December 31, 2010, obtained from the National Association of the Financial Market Institutions (Associação Nacional das Instituições do Mercado Financeiroor ANDIMA).
The Company's loans and financing have fair value of R$1,285,295 as of December 31, 2010. The fair value has been calculated based on the cost of the last issue by the Company, in September 2010, of 98.5% of the CDI variation.
Accounts payable related to concession – use of public property have fair value of R$488,155 as of December 31, 2010, calculated based on the rate of return for the last project auctioned by ANEEL and won by the Company.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
36.1.3. Derivative financial liabilities
Other liabilities – derivatives have fair value of R$47 as of December 31, 2010, R$1 as of 2009, and R$9 as of 2008 (Note 36.3.9).
36.1.4. Rating level 3 for assessment of fair value
This rating level includes accounts receivable related to concession and other liabilities - derivatives.
The detailed breakdown of receivables related to concession is featured in Note 9, as detailed below:
§ A table reconciling initial and final balances, with a separate breakdown of additions, disposals, transfers, losses, monetary variation, and fair value adjustments;
§ Criteria for identification and measurement; and
§ Assumptions adopted by Company management to restate the recoverable amount.
Other liabilities – derivatives are detailed in Note 36.3.9 herein.
36.2 Financial instruments by category
| | | | |
| Book value |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Financial assets | | | |
| Receivables and loans | | | |
| Cash and cash equivalents | 1,794,416 | 1,518,523 | 1,649,481 |
| Customers and distributors | 1,039,377 | 988,731 | 892,619 |
| Receivables from government agencies | 166,979 | 135,187 | 174,269 |
| CRC transferred to State Government | 1,341,193 | 1,254,574 | 1,319,903 |
| Receivables related to concession | 840,157 | 775,171 | 681,122 |
| Collaterals and escrow accounts | 90,358 | 29,242 | 37,995 |
| Available for sale | | | |
| Receivables related to concession | 1,637,888 | 1,097,119 | 807,025 |
| Bonds and securities | 472,599 | 284,479 | 295,812 |
| Held until maturity | | | |
| Bonds and securities | 68,647 | 120,867 | 88,025 |
| Financial liabilities | | | |
| Fair value through income | | | |
| Held for dealing | | | |
| Other liabilities - derivatives | 47 | 1 | 9 |
| Other financial liabilities | | | |
| Loans and financing | 1,364,077 | 865,842 | 867,517 |
| Debentures | 621,157 | 807,579 | 997,116 |
| Payables related to concession - use of public property | 381,083 | 350,655 | 357,599 |
| Eletrobrás - Itaipu | 74,316 | 80,104 | 100,040 |
| Petrobras - Compagas | 25,720 | 23,166 | 36,775 |
| Other suppliers | 657,468 | 616,055 | 575,174 |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
Summary of bonds and securities held to maturity
| | | | | | | | | | |
| | | | | | | | Fair value | | Net
book value |
| | | Annual | Issue | | | | | | |
| Description | Classification | rate | date | Maturity | Type | 12.31.2010 | 12.31.2009 | 12.31.2010 | 12.31.2009 |
| | Held to | | | | Amortized | | | | |
| LTN | maturity | 10.45% | 4/23/2009 | 1/3/2011 | cost | 1,183 | 1,071 | 1,183 | 1,071 |
| | Held to | | | | Amortized | | | | |
| LTN | maturity | 10.42% | 4/29/2009 | 1/3/2011 | cost | 4,957 | 4,487 | 4,957 | 4,491 |
| | Held to | | | | Amortized | | | | |
| LFT | maturity | SELIC | 7/14/2009 | 3/7/2012 | cost | 5,303 | 4,831 | 5,306 | 4,836 |
| | Held to | | | | Amortized | | | | |
| LFT | maturity | SELIC | 8/7/2009 | 3/16/2011 | cost | 22,651 | 20,636 | 22,654 | 20,650 |
| | Held to | | | | Amortized | | | | |
| LFT | maturity | SELIC | 11/30/2009 | 6/15/2011 | cost | 9,949 | 9,064 | 9,946 | 9,055 |
| | Held to | | | | Amortized | | | | |
| LFT | maturity | SELIC | 7/13/2010 | 6/15/2011 | cost | 22,044 | - | 22,037 | - |
| | Held to | | | | Amortized | | | | |
| LFT | maturity | SELIC | 9/2/2009 | 12/21/2011 | cost | 720 | - | 719 | - |
36.3 Risk Factors
36.3.1. Credit risk
The Company’s credit risk comprises the possibility of losses due to difficulties in collecting payment of bills issued to customers, concession holders, and permission holders. 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, related to real estate or personal securities whenever possible.
Doubtful accounts are properly covered by provisions to offset potential losses in their realization.
36.3.2. Foreign currency risk - US dollar
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 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 power purchase agreement with Eletrobras (Itaipu) is passed on to customers in Copel Distribuição's next rate review.
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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The Company’s exposure to foreign currency (US dollar) risk is shown below:
| | | | |
| | | | |
| | Assets | Liabilities | Net
exposure |
| | | | 12.31.2010 |
| Collaterals and escrow accounts (STN) | 26,280 | - | 26,280 |
| Loans and financing | - | (65,928) | (65,928) |
| Suppliers | | | |
| Eletrobrás (Itaipu) | - | (74,316) | (74,316) |
| Petrobras (purchase of gas by Compagas) | - | (25,720) | (25,720) |
| | 26,280 | (165,964) | (139,684) |
Sensitivity analysis
The Company has developed a sensitivity analysis in order to measure the impact of the devaluation of the U.S. dollar on its loans and financing subject to exchange risk.
The baseline takes into account the existing balances in each account as of December 31, 2010, and the likely scenario takes into account the balances subject to the exchange rate variations (end-of-period R$/US$ rates) of R$1.75 per USD, estimated as market average projections for 2011 according to the Focus Report issued by the Brazilian Central Bank on December 31, 2010.
| | | | |
| | Risk | Baseline
12.31.2010 | Projected scenarios -
December 2011
Likely |
| Financial assets | | | |
| Collaterals and escrow accounts | USD appreciation | 26,280 | 27,601 |
| | | 26,280 | 27,601 |
| Financial liabilities | | | |
| Loans and financing | | | |
| IDB(1) | USD appreciation | 9,233 | 9,697 |
| STN | USD appreciation | 56,675 | 59,525 |
| Eletrobrás | USD appreciation | 20 | 21 |
| | | 65,928 | 69,243 |
| Suppliers | | | |
| Eletrobrás (Itaipu) | USD appreciation | 74,316 | 78,054 |
| Petrobras (purchase of gas by Compagas) | USD appreciation | 25,720 | 27,014 |
| | | 100,036 | 105,068 |
| Net Exposure | | (139,684) | (146,710) |
| (1)Calculation does not take into account the influence of fluctuations in the IDB currency basket |
36.3.3. Interest rate and monetary variation risk
This risk comprises the possibility of losses due to fluctuations in interest rates or other indicators, which may reduce revenues or increase financial expenses in connection with assets and liabilities on the market.
The Company has not engaged in transactions with derivatives to cover this risk, but it has continually monitored interest rates and market indicators, in order to assess the potential need for such transactions for protection for interest rate risks.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
The Company’s exposure to interest rate and monetary variation risks is shown below:
| | | | |
| | | | |
| | Assets | Liabilities | Net
exposure |
| | | | 12.31.2010 |
| Financial investments - cash equivalents | 1,735,458 | - | 1,735,458 |
| Financial investments - collaterals and bonds and securities | 605,324 | - | 605,324 |
| CRC transferred to State Government | 1,341,193 | - | 1,341,193 |
| Receivables related to concession | 2,478,045 | - | 2,478,045 |
| Loans and financing | - | (1,298,149) | (1,298,149) |
| Debentures | - | (621,157) | (621,157) |
| | 6,160,020 | (1,919,306) | 4,240,714 |
Sensitivity analysis
The Company has developed a sensitivity analysis in order to measure the impact of variable interest rates and monetary variations on its financial assets and liabilities subject to these risks.
The baseline takes into account the existing balances in each account as of December 31, 2010, and the likely scenario takes into account the indicators (CDI/SELIC of 12.25%, IGP-DI of 5.50%, IGP-M of 5.54%, and TJLP of 6%) estimated as market average projections for 2011 according to the Focus Report issued by the Brazilian Central Bank on December 31, 2010.
| | | | |
| Transaction | Risk | Baseline
12.31.2010 | Projected
scenarios -
December 2011
Likely |
| Financial assets | | | |
| Financial investments - cash equivalents | Lower CDI/SELIC | 1,735,458 | 1,944,754 |
| Financial investments - collaterals and bonds and securities | Lower CDI/SELIC | 605,324 | 685,476 |
| CRC transferred to State Government | Lower IGP-DI | 1,341,193 | 1,414,959 |
| Receivables related to concession | Lower IGP-M | 2,478,045 | 2,615,329 |
| | | 6,160,020 | 6,660,518 |
| Financial liabilities | | | |
| Loans and financing | | | |
| Banco do Brasil | Higher CDI | 703,786 | 789,999 |
| Eletrobrás - Finel | Higher IGP-M | 176,953 | 178,915 |
| Eletrobrás - RGR | No risk(1) | 125,363 | 125,363 |
| BNDES - Compagás | Higher TJLP | 6,373 | 6,755 |
| Finep | Higher TJLP | 7,822 | 8,290 |
| BNDES – Copel Geração e Transmissão | Higher TJLP | 138,885 | 147,218 |
| Banco do Brasil – BNDES funds transfer | Higher TJLP | 138,967 | 147,306 |
| | | 1,298,149 | 1,403,846 |
| Debentures | Higher CDI | 621,157 | 697,249 |
| | | 1,919,306 | 2,101,095 |
| (1)Loan restated according to the UFIR rate |
36.3.4. 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 indicators, which are calculated and analyzed periodically for compliance, be kept at determined levels (financial covenants).
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
36.3.5. Environmental risks
Power sector activities may cause significant negative impacts and damages to the environment. The applicable legislation imposes on those who directly or indirectly cause environmental harm the duty to repair or compensate for the damages to the environment and to affected third-parties, regardless of culpability (strict liability). The costs of environmental recovery of compensation may force the Company to delay or redirect investments in other areas and may have an adverse effect on the Company. The Company ensures the balance between environmental conservation and the operation of its business by establishing guidelines and practices to be observed in all operations, in order to reduce environmental impact, focusing on the sustainable development of its business.
36.3.6. 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.
A long period of drought may reduce the water levels in power plant reservoirs and result in losses due to reduced revenues if a new rationing program is implemented.
According to the 2010 Annual Power Operation Plan, published annually at www.ons.org.br, the National System Operator projects a safe situation in terms of supply to the power market over the next 5 years, from May 2010 until December 2014. The parameter for supply guarantee established by the National Energy Policy Council (CNPE), which corresponds to risk of energy deficit below 5%, is easily met in all regions over the five year period in a scenario of average GDP growth of 5% a year, between 2011 and 2014. Even in the event of adverse hydrological conditions, market supply will be guaranteed by the application of Short-Term Operating Procedures (POCP), approved by CMSE, which may trigger additional thermal generation dispatch and maximization of exchanges to ensure safety reserves in reservoirs at the end of each dry season.
36.3.7. Risk of non-renewal of concessions
Copel holds concessions for power generation, transmission, and distribution services, with the expectation that they will be renewed by the Ministry of Mines and Energy (MME) 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 ("onerous concession"), current profitability and activity levels may be affected.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | |
Date of expiration
of concessions/authorizations |
| Concessions - Copel Geração e Transmissão | |
Hydroelectric Power Plants | |
Gov. Bento Munhoz da Rocha Netto (Foz do Areia) | 05.23.2023 |
Gov. Ney Aminthas de Barros Braga (Segredo) | 11.15.2029 |
Gov. José Richa (Caxias) | 05.04.2030 |
Gov. Pedro Viriato Parigot de Souza | 07.07.2015 |
Guaricana | 08.16.2026 |
Chaminé | 08.16.2026 |
Apucaraninha | 10.12.2025 |
Mourão | 07.07.2015 |
Derivação do RioJordão | 11.15.2029 |
Marumbi | - (a) |
São Jorge | 12.03.2024 |
Chopim I | 07.07.2015 |
Rio dos Patos | 02.14.2014 |
Cavernoso | 01.07.2031 |
Melissa | - (b) |
Salto do Vau | - (b) |
Pitangui | - (b) |
Mauá | 07.03.2042 |
Colíder | 01.17.2046 |
Thermal Power Plant | |
Figueira | 03.26.2019 |
Transmission concessions | |
Contract no. 060/01 - Transmission system | 07.07.2015 |
Contract no. 075/01 - Bateias - Jaguariaíva Transmission Line | 08.16.2031 |
Contract no. 006/08 - Bateias - Pilarzinho Transmission Line | 03.16.2038 |
Contract no. 027/09 - Foz do Iguaçu - Cascavel Oeste Transmission Line | 11.18.2039 |
Contract no. 010/10 - Araraquara 2 - Taubaté Transmission Line | 10.05.2040 |
Contract no. 015/10 - Cerquilho III Substation | 10.05.2040 |
| Concession - Copel Distribuição | 07.07.2015 |
| Concession - Compagas | 07.06.2024 |
| Concession - Elejor | 10.25.2036 |
| Authorization - UEG Araucária | 12.22.2029 |
| (a)Currently under approval process at ANEEL |
| (b)Facilities rated under 1 MW are only required to submit registration before ANEEL | |
As far as potential reimbursements at the end of the concession, there is uncertainty regarding how to measure the amounts to be paid for reversal of concession assets to the granting authority.
36.3.8. Gas shortage risk
This risk involves potential periods of shortage of natural gas supply to meet the Company’s gas distribution and thermal generation business requirements.
Long periods of gas shortage could result in losses due to lower revenues by subsidiaries Compagas and UEG Araucária.
36.3.9. Derivative financial instruments
The Company employs derivative financial instruments with the sole purpose of protecting itself against variable interest rate volatility.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | | |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 |
| Liabilities | | | |
| Future DI rate contracts | 47 | 1 | 9 |
| Current portion | 47 | 1 | 9 |
In order to protect against the effects of volatility on active exposures (DI interest rates) of bonds and securities, the Company hired future DI rate operations, negotiated at BM&FBOVESPA and registered at CETIP, whose nominal balances and conditions are as follows:
During 2010, the result of operations with derivative financial instruments on the futures market was a gain of R$53 (loss of R$137 in 2009).
Contracts are adjusted daily in accordance with the future DI rates published by BM&FBOVESPA. The reference (notional) values of these outstanding contracts as of December 31, 2010 corresponded to R$57,253 (R$1,901 as of December 31, 2009 and R$6,976 as of January 1, 2009).
On December 31, 2010, a share of the Company’s federal bonds in the amount of R$7,993 was deposited as collateral for transactions at BM&FBOVESPA S.A. (the Stock, Commodities, and Futures Exchange of São Paulo).
36.4 Indebtedness Level
| | | |
| | 12.31.2010 | 12.31.2009 |
| Debt - loans and financing | 1,364,077 | 865,842 |
| Debt - debentures | 621,157 | 807,579 |
| Cash and cash equivalents and financial investments | 2,392,589 | 1,888,813 |
| Net indebtedness | (407,355) | (215,392) |
| Equity | 11,295,826 | 10,524,363 |
| Net indebtedness ratio | -3.61% | -2.05% |
36.5 Financing lines
Copel does not employ financing lines such as: non-guaranteed overdraft accounts; non-guaranteed bills of exchange; guaranteed overdraft accounts; and guaranteed bank credit lines with different maturities until 2011 and which may be extended by mutual agreement.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
36.6 Liquidity and interest table
| | | | | | | | |
| | Interest(1) | Under one
month | 1 to 3
months | 3 months
to a year | 1 to 5
years | Over 5
years | Total |
| December 31, 2010 | | | | | | | |
| Cash and cash equivalents | - | 1,794,416 | - | - | - | - | 1,794,416 |
| Customers | 0.76% | 22,051 | 9,508 | 28,459 | 60,000 | - | 120,018 |
| CRC transferred to State Government | 6,65% p.a. + IGP-DI | 11,973 | 23,947 | 107,759 | 840,030 | 1,981,717 | 2,965,426 |
| Bonds and securities + exclusive funds | 99,9% of CDI | 357,492 | 26,089 | 45,592 | 133,362 | - | 562,535 |
| Collaterals and escrow accounts | TR and USD variation(3) | 64,078 | - | - | - | 98,724 | 162,802 |
| Receivables related to concession | WACC+rate of return(2) | 29,587 | 59,304 | 273,828 | 5,050,599 | 2,076,135 | 7,489,453 |
| | | 2,279,597 | 118,848 | 455,638 | 6,083,991 | 4,156,576 | 13,094,650 |
| December 31, 2009 | | | | | | | |
| Cash and cash equivalents | - | 1,518,523 | - | - | - | - | 1,518,523 |
| Customers | 0.76% | 23,889 | 10,013 | 29,806 | 60,884 | - | 124,592 |
| CRC transferred to State Government | 6,65% p.a. + IGP-DI | 10,758 | 21,515 | 96,819 | 738,003 | 1,899,229 | 2,766,324 |
| Bonds and securities + exclusive funds | 99,9% of CDI | 1,497,675 | 1,090 | 17,065 | 165,611 | - | 1,681,441 |
| Collaterals and escrow accounts | TR and USD variation(3) | - | - | 4,655 | 392 | 90,074 | 95,121 |
| Receivables related to concession | WACC+rate of return(2) | 25,246 | 50,676 | 218,367 | 1,275,632 | 3,456,491 | 5,026,412 |
| | | 3,076,091 | 83,294 | 366,712 | 2,240,522 | 5,445,794 | 11,212,413 |
| (1)Effective interest rate - weighted average | |
| (2)Regulatory WACC +project's rate of return |
| (3)National currency: TR; foreign currency: see Note 21.2 | |
| | | | | | | | |
| | Interest(1) | Under a
month | 1 to 3
months | 3 months
to a year | 1 to 5 years | Over 5
years | Total |
| December 31, 2010 | | | | | | | |
| Loans and financing | Note 21 | 22,916 | 28,656 | 99,167 | 1,455,068 | 434,672 | 2,040,479 |
| Debentures | Note 22 | - | 32,247 | 641,103 | - | - | 673,350 |
| Derivatives | Future DI rate | 47 | - | - | - | - | 47 |
| Payables related to concession - use of public property | Rate of return + IGP-M & IPCA | 3,524 | 7,048 | 31,715 | 253,278 | 2,061,329 | 2,356,894 |
| Eletrobrás - Itaipu | USD | - | 77,507 | 353,466 | 3,284,329 | 7,125,809 | 10,841,111 |
| Petrobras - Compagas | 100% of CDI | 3,988 | 8,158 | 38,647 | 194,202 | - | 244,995 |
| Other suppliers | - | 214,026 | 125,151 | 185,168 | 14,944 | - | 539,289 |
| Post-employment benefits | 7.17% | 28,269 | 56,537 | 254,417 | 1,213,013 | 1,807,966 | 3,360,202 |
| Purchase liabilities | IGP-M & IPCA | - | 457,253 | 2,245,114 | 14,554,719 | 43,263,760 | 60,520,846 |
| | | 272,770 | 792,557 | 3,848,797 | 20,969,553 | 54,693,536 | 80,577,213 |
| December 31, 2009 | | | | | | | |
| Loans and financing | Note 21 | 20,065 | 34,132 | 80,602 | 844,862 | 297,595 | 1,277,256 |
| Debentures | Note 22 | - | 39,756 | 66,211 | 846,790 | 1,865 | 954,622 |
| Derivatives | Future DI rate | 1 | - | - | - | - | 1 |
| Payables related to concession - use of public property | Rate of return + IGP-M & IPCA | 3,192 | 6,386 | 28,736 | 212,287 | 1,617,507 | 1,868,108 |
| Eletrobrás - Itaipu | USD | - | 81,698 | 373,409 | 2,847,733 | 6,891,569 | 10,194,409 |
| Petrobras - Compagas | 100% of CDI | 3,662 | 7,403 | 34,669 | 233,591 | - | 279,325 |
| Other suppliers | - | 200,786 | 100,654 | 163,644 | 12,373 | - | 477,457 |
| Post-employment benefits | 7.30% | 20,420 | 40,839 | 183,775 | 1,004,778 | 2,941,387 | 4,191,199 |
| Purchase liabilities | IGP-M & IPCA | - | 408,335 | 1,944,258 | 14,939,266 | 43,415,944 | 60,707,803 |
| | | 248,126 | 719,203 | 2,875,304 | 20,941,680 | 55,165,867 | 79,950,180 |
| (1)Effective interest rate - weighted average | | | | | | | |
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
37 Related-Party Transactions
| | | | | | | | | |
| Related party /Nature of operation | | | Assets | | | Liabilities | | Income |
| | 12.31.2010 | 12.31.2009 | 01.01.2009 | 12.31.2010 | 12.31.2009 | 01.01.2009 | 2010 | 2009 |
| Controlling shareholders | | | | | | | | |
State of Paraná | | | | | | | | |
Dividends payable (1) | - | - | - | 58,140 | 32,336 | 77,635 | - | - |
Electricity bill installments (2) | 39,838 | 36,270 | 50,712 | - | - | - | 1,292 | 3,959 |
Luz FraternaProgram (3) | 11,528 | 4,030 | 7,500 | - | - | - | - | - |
Telecom bill installments (2) | 4,376 | 3,984 | 6,231 | - | - | - | 182 | 560 |
Wages/charges of transferred employees (4) | 2,457 | 2,155 | 2,185 | - | - | - | - | - |
CRC (Note 8) | 1,341,193 | 1,254,574 | 1,319,903 | - | - | - | 215,714 | 65,638 |
ICMS (VAT) (Note 12.3.1) | 118,814 | 113,825 | 89,331 | 174,612 | 164,756 | 132,998 | - | - |
BNDES (5) | | | | | | | | |
Financing for investments in gas pipelines (Note 21.5) | - | - | - | 6,373 | 12,743 | 6,526 | (897) | (1,073) |
Financing for the Mauá HPP and its Associated Transmission System (Note 21.7) | - | - | - | 138,885 | 56,632 | - | (6,090) | (3,769) |
BNDESPAR (5) | | | | | | | | |
Debentures - Elejor | - | - | - | - | 190,341 | 25,767 | (3,248) | (21,133) |
Dividends payable (1) | - | - | - | 42,601 | 17,149 | 54,218 | - | - |
| Investees | | | | | | | | |
Dona Francisca Energética | | | | | | | | |
Purchase of electricity (6) | - | - | - | 5,506 | 5,100 | 5,128 | (61,189) | (60,303) |
Dividends receivable by COPEL | 955 | - | - | - | - | - | - | - |
Sanepar | | | | | | | | |
Dividends receivable by Dominó Holdings | 4,896 | 5,135 | 5,247 | - | - | - | - | - |
| Senior management | | | | | | | | |
Wages, social charges, and others (Note 31.3) | - | - | - | - | - | - | (10,881) | (10,266) |
Pension and healthcare plans (Note 23) | - | - | - | - | - | - | (479) | (222) |
| Other related parties | | | | | | | | |
Petrobras | | | | | | | | |
Lease of Araucária TPP (Note 35.2) | 4,296 | 550 | 7,474 | - | - | - | 50,000 | 40,583 |
Supply and transport of gas (7) | 177 | 188 | 949 | - | - | - | 11,644 | 11,422 |
Purchase of gas for resale (7) | - | - | - | 25,720 | 23,166 | 36,775 | (144,519) | (128,818) |
Advance payment to suppliers (7) | 9,902 | 8,290 | 3,196 | - | - | - | - | - |
Dividends payable (7) | - | - | - | 2,359 | 2,016 | 1,892 | - | - |
Mitsui Gás e Energia do Brasil Ltda. (8) | | | | | | | | |
Dividends payable | - | - | - | 2,359 | 2,016 | 1,892 | - | - |
Paineira Participações S.A. | | | | | | | | |
Dividends payable | - | - | - | - | 2,145 | 401 | - | - |
COPEL Foundation(Fundação COPEL) | | | | | | | | |
Rent of administrative facilities | - | - | - | - | - | - | (8,401) | (7,649) |
Pension and healthcare plans (Note 23) | - | - | - | 408,463 | 375,481 | 352,509 | - | - |
| Instit. de Tecnol. p/ o Desenvolvimento - Lactec (9) | | | | | | | | |
Services rendered and R&D | 28,064 | 23,419 | 11,509 | 433 | 211 | 16 | (9,170) | (7,643) |
The amounts resulting from the operating activities of Copel Distribuição involving 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.
1) In 2010, out of the total dividends proposed to the Government of the State of Paraná and to BNDESPAR, in the amounts of R$83,366 and R$59,826, the Company made advance payments during 2010 of R$25,226 and R$17,225, respectively.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
2) Agreement for renegotiation of power bills andLuz FraternaProgram 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) TheLuz FraternaProgram, created under Law no. 491, dated September 11, 2003, allows the State Government to pay for the electricity bills of low income families in Paraná – which have duly applied for the program – provided their consumption does not exceed 100 kWh a month. This benefit is available to residential customers with single phase connections, rural customers with single phase connections or two phase connections with circuit breakers of up to 50 ampères. Applicants must not have more than one electricity bill under their names and must not have any pending debts to Copel.
4) 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 balances as of September 30, 2010 and June 30, 2010.
5) 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 21.
6) Power purchase agreement signed by Dona Francisca Energética and Copel Geração e Transmissão, expiring on October 6, 2015.
7) 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 S.A. – 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 Compagas’ expansion plan and the prospects of increased consumption by the market, Compagas management believes it will consume the accumulated gas volumes as of December 31, 2010 in the next fiscal years.
8) Mitsui Gás e Energia do Brasil Ltda. holds 24.5% of Compagas’ share capital.
9) The Institute of Technology for Development (LACTEC) was constituted on February 6, 1997 as a not for profit 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.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| | | |
| Policy | Expiration
date | Amount insured |
| Specified risks (38.1) | 8/24/2011 | 1,829,168 |
| Fire - Company-owned and rented facilities (38.2) | 8/24/2011 | 457,451 |
| Civil liability - COPEL (38.3) | 8/24/2011 | 6,000 |
| Civil liability - Compagas (38.3) | 8/30/2011 | 4,200 |
| Engineering risks - COPEL (38.4) | 8/24/2011 | dependent on each event |
| Domestic and international transport - export and import (38.5) | 8/24/2011 | dependent on each event |
| Multi-risk - Compagas (38.6) | 8/10/2011 | 5,767 |
| Multi-risk - Compagas (38.6) | 9/20/2011 | 720 |
| Multi-risk - Elejor (38.6) | 6/5/2011 | 924 |
| Vehicles (38.7) | 8/20/2011 | market value |
| Miscellaneous risks (38.8) | 8/24/2011 | 732 |
| Operational risks - Elejor (38.9) | 9/25/2011 | 541,852 |
| Operational risks - UEG Araucária (38.10) | 5/31/2011 | 449,723 |
| Court guarantee (38.11) | 5/2/2012 | 58,473 |
| Performance bond - Copel (38.12) | 1/15/2013 | 14,700 |
| Performance bond - Copel (38.12) | 4/1/2013 | 5,082 |
| Performance bond - Copel (38.12) | 7/30/2015 | 63,313 |
38.1 Insurance against 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 against potential electrical damage, miscellaneous risks, and risk to electronics and computers.
38.2 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 against windstorms.
38.3 Civil liability insurance
This insurance provides coverage against 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.
38.4 Insurance against engineering risks - Copel
This insurance provides coverage against risks of installation, assembly, disassembly, and testing of new equipment, particularly at substations and power plants. Policies are purchased before each risk event, according to the occurrence and need for coverage against risks of carrying out engineering services.
38.5 Transport insurance
This insurance provides coverage against losses and damages caused to products transported by any appropriate means within both the domestic and foreign market and during import and export operations to and from foreign markets. Policies are purchased before each risk event, and are basically used to cover the transport of electrical, electronic, and telecommunications equipment.
38.6 Multi-risk insurance
This policy comprises the assets of the Company and provides coverage against potential damages caused by fire, lighting strikes, explosions, electrical malfunctions, risks to electronic equipment, recovery of records and documents, windstorms, smoke, and theft or aggravated larceny.
Table of Contents
Companhia Paranaense de Energia – Copel
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
38.7 Vehicle insurance
This insurance covers the payment of reparations of damage suffered and expenses incurred as a result of risks to which Compagas’ 26 insured vehicles are subject. It provides basic coverage for the vehicles and additional and optional civil liability coverage against material, bodily, and moral damages caused to third-parties. Coverage limits for damages to third-parties are R$150,000 for material damages and R$300,000 for bodily damages, for each vehicle.
38.8 Insurance against miscellaneous risks - Copel
This insurance covers losses and material damage caused to the assets listed in the policy by any accidents with an external cause, including transport 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.
38.9 Insurance against 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 establishment, in addition to loss of profits.
38.10 Insurance against operational risks – UEG Araucária
This policy provides coverage against all risks (all legally insurable risks), including machinery failure, for all the facilities of the Araucária Thermal Power Plant.
38.11 Court guarantee
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.
38.12 Contract Performance Bond
This bond covers damages resulting from failure by the bond acquirer, Copel, to perform the duties set forth in the concession agreements signed with ANEEL.
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 by Brazilian law, which may replace bank guarantees, cash bonds, or government bonds.
39 Subsequent events
In June 2011, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 5.55%, of which 5.77% related to the tariff increase and 0.22% referred to a decrease in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2011. 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 2.99%.
