4. Corporate overview – Highlights
in the Brazilian electricity sector
• Market cap of
, listed
and on
• LTM3Q13 Adj. EBITDA2 of
and Adj. Net Income2
of
• Differentiated
: >50% of net income, semisince IPO in 2004
annually.
• Presence concentrated in the
of Brazil
through 8 subsidiaries
and a
of
in
in Brazil
private Generator with an equivalent stake of
, more than
4
1) On Nov, 14, 2013; 2) IFRS (+) proportionate consolidation of minorities’ stakes at gencos (+) regulatory assets & liabilities (-) non-recurring
items.
6. Corporate governance
World-Class Corporate Governance Practices
• Shares listed in differentiated segments:
• BM&FBovespa Novo Mercado
• NYSE (ADR Level III)
• Compliant with the Sarbanes-Oxley Act
• Board of Directors composed by 7 members:
• 1 Independent Member
• Advised by 3 Committees
• Self-Assessment for Board of Directors and Fiscal Council
• Enforcement of policies for disclosure of information and for
prevention of insider trading by employees
• Dividend Policy:
• Minimum of 50% of net income, semi-annually
6
7. CPFL Energia enjoys long term concessions
2015
2027
2028
2032
2035
2036
CPFL Santa
Cruz
CPFL
Paulista
CPFL
Piratininga
HPP Luis
Eduardo
Magalhães
HPP
Campos
Novos
HPP Foz do
Chapecó
CPFL Jaguari
RGE
HPP
Serra da
Mesa1
CPFL Sul
Paulista
CPFL Leste
Paulista
…
~3%
CPFL
Energia's
EBITDA
19 SHPPs
(CPFL
Renováveis)
HPP Castro
Alves
HPP Monte
Claro
1 TPP
(Carioba)
CPFL Mococa
HPP Barra
Grande
HPP 14 de
Julho
SHPP Rio do
Peixe (I/II)
SHPP Macaco
Branco
7
<1%
CPFL
Energia's
installed
capacity
CPFL Energia requested
Aneel to renew the expiring
concessions
Distribution
Generation
1) Furnas has the concession for HPP Serra da Mesa. CPFL has the contractual right of 51.54% of the plant’s assured energy, according to the 30year leasing contract, maturing in 2028.
8. CPFL Energia | EBITDA breakdown
CPFL Energia – LTM3Q13 Adj. EBITDA Breakdown¹ | R$ million
CPFL Energia - Consolidated1 | 4,427
Competitive Supply3
113
2%
Generation
1,808
57%
Distribution
2,506
41%
Distribution Segment
CPFL Santa Cruz
CPFL Leste
Paulista
CPFL Jaguari
CPFL Sul Paulista
CPFL Mococa
5%
55%
CPFL
Paulista
26%
RGE
14%
CPFL
Piratininga
Generation Segment
Conventional
1,208
67%
33%
Alternative
Energy
599
3rd Tariff Review Cycle
CPFL Piratininga
Oct-122
CPFL Santa Cruz
CPFL Leste Paulista
CPFL Jaguari
Feb-132
CPFL Sul Paulista
CPFL Mococa
Apr-13
RGE
8
8
CPFL Paulista
Jun-13
1) Adjusted by regulatory assets & liabilities and non-recurring items; does not consider the holding company; 2) 12 months retroactive effect; 3)
Commercialization in the free market and Services
9. CPFL Energia’s ambitions
Leadership among private companies in the electric sector,
with a diversified portfolio in different businesses related to Energy
GENERATION
• Operational Excellence,
presenting the highest
margins of the sector
• Expansion of installed
capacity in hydro and thermal
with attractive returns
DISTRIBUTION
• Market leader, doubling the
market share in Brazil
• Operational excellence
through innovation and new
technologies (smart grid)
• Leadership in renewable
sources (> 4 GW by 2020)
COMPETITIVE SUPPLY
• Leadership in
commercialization in the free
market
• Maximization of
profitability, through a best-inclass set of solutions
9
9
SERVICES
• Largest services company in
the power sector
• Strong growth of sales
11. Distribution Segment
1º
Market share: 13%
CAGR 2008-12
3.7%
TUSD
+4.1%
Captive
• 7.3 million customers
• 569 municipalities
• Footprint: most developed regions
• High potential in per capita
consumption
2008
2009
2010
2011
2012
2010
2011
LTM 3Q12 LTM 3Q13
Industrial
Residential
26%
44%
14%
Others
16%
Commercial
2008
11
1) Excluding sales at CCEE; 2) Source: EPE.
2009
2012
2013
12. Brazilian economy and market performance
2006
2007
2008
Real wage bill
2006
12
-2.7
0.7
0.4
3.9
2007
2008
2009
2010
2011
2012
Industrial production
Industrial consumption
•
•
•
•
•
•
•
8.5
6.8
6.7
6.6
6.0
10.9
5.9
5.2
9.1
2007
2008
Retail sales
2009
2010
2011
2012
Commercial consumption
Other variables influencing energy
consumption
10.5
9.3
-7.4
-6.7
3.1
2.9
6.0
6.1
2.8
3.3
Industrial production2 and CPFL’s
industrial consumption3 | %YoY growth
2006
5.6
6.2
5.5
4.5
4.9
2009
2010
2011
2012
Residential consumption
9.7
7.7
Retail sales2 and CPFL’s commercial
consumption3 | %YoY growth
6.6
6.9
7.3
5.2
3.9
6.0
6.1
6.8
5.9
6.9
5.9
4.5
Real wage bill1 and CPFL’s residential
consumption | %YoY growth
Population growth
Migration
Credit
Household appliances
Temperature
Rainfalls
Public investments
1) Source: IBGE/LCA. 2) Source: IBGE. 3) Take into account changes in billing calendar for free consumers.
13. Distribution business
Footprint in the most developed regions of Brazil
Southeast:
CPFL Paulista, CPFL Piratininga, CPFL Santa Cruz,
CPFL Leste Paulista, CPFL Jaguari, CPFL Sul Paulista,
CPFL Mococa
South: RGE
Leadership in the distribution segment
•
•
•
•
•
Start Up
8 distribution companies;
13% of market share;
7.3 million customers;
569 municipalities;
LTM3Q13 sales of 58,197 GWh | 04-12 CAGR of 3.7%
Discos’ Acquisitions | Key dates
1
1
1912
13
13
1997-2001
2006
2007
1) Acquired by VBC (one of CPFL Paulista’s controlling shareholder at the time) and PSEG in 1997, during the privatization process, and incorporated by CPFL Energia
in 2001 (67,03%). In 2006, CPFL Energia acquired the additional stake (32.67%).
14. Distribution: best-in-class operational efficiency
Avg. Length of Power Outages per Consumer per Year - DEC
2012 (hours)
10.8
8.1 8.3 8.4 9.4 9.8 9.9
5.8 7.5
4.5 5.3 5.7
21.6
19.3 19.4 20.0
16.5 16.9 18.2
14.5 14.6 14.7
Avg. Frequency of Power Outages per Consumer per Year – FEC
2012 (# occurrences)
8.4 8.9 8.9 9.0 9.1
7.0 7.9 8.1
6.6
5.4 5.7 5.8 6.0 6.4
4.2 4.6 4.7 4.7 5.3
14
10.9 11.8
13.0
15. Cost-cutting Initiatives
Zero-Base Budget
Tauron Program
Inefficiencies from past
budgets are not carried over
to the next periods
Introduction of the smart
grid technology in the
distribution network
Corporate Services
Center
Implementation of a backoffice services provider to
increase operating
productivity and efficiency
Cost-cutting Initiatives Total (2015 x 2011):
Value Initiatives
Corporate Level
• Reduction of consulting services and
“insourcing” of activities: reduction of
≈47%
• Standardization of outsourced labor:
reduction of ≈52%
• Improved management of travel expenses:
reduction of ≈18%
• Consumption of paper and office supplies:
reduction of ≈66%
15
Operational Level
• Optimization of inspections (loss
prevention), process review, and
improvement in assertiveness: reduction
of ≈17%
• Metering and delivery of bills - online
billing (email), changes in layout/type of
paper, alignment of bank fees for all
Discos: reduction of ≈11%
16. Projeto Tauron – smart grid
Optimized logistics for field teams
(georeferenced maps)
• Real-time consumption readings
• Faster power restoration
• Analysis of consumer load curve
• Savings with optimized routes
Tablets for real-time communication
• Dynamic dispatch of teams
• Real-time fraud detection
• Real-time power outage detection
• Automated routing of teams
• On-line update of field services’ progress
Achievements
• Automated dispatch + tablets deployed in ~35% of all teams (RGE and CPFL Piratininga)
• 10,500 smart meters already installed as of Nov-13 (42%) – (Target: 25,000 large consumers)
• Implementation of RF Mesh Telecom Network already concluded
16
EBITDA acumulado até setembro: R$ 24 milhões
EBITDA 9M13: R$ 24 million
22. CPFL Renováveis | High quality and diversified portfolio
Diversified and high quality portfolio, delivering superior performance, mitigating
risks, ensuring reliable load factors and providing capacity to grow with different
sources
High Quality Development, Construction and
Operation
•
•
•
•
•
Biomass
Solar
21%
Selective high quality project development
Wind projects certified by industry leaders
Backed by high quality equipment suppliers
Long term O&M contracts
Energy generation monitoring and optimization
Wind Portfolio
Attractive location due
to high wind speeds
Installed Capacity1
0%
19%
SHPP
60%
Wind
Total: 1,735 MW
CPFL Renováveis benefits from the
complementarity of sources
•
Biomass Portfolio
Proximity to sugarcane
production centers
Reservoir storage at high levels in the first semester
while wind energy generation is concentrated in the
second semester of the year
Region
NE
Reservoir Storage (%)
22
22
Feb
Mar Apr May Jun Jul
Wind (Generation - MWavg)
1) To be fully operational by 2016
Aug
Sep Oct Nov Dec
Reservoir Storage
506
SO
Wind Generation MW
Jan
958
CW/SE
Complementarity of Sources Mitigating Risks
MW
271
Operating:
Hydro
Wind
Biomass
Solar
SHPP Portfolio
Exposure to
abundant hydro
resources
Under Construction:
Hydro
Wind
SHPP Potential (Southeast and Midwest Regions)
Biomass
Wind Potential (Northeast and South Regions)
23. CPFL Renováveis | Unparalleled wind conditions
combined with top technology
Wind Features in Brazil are the Most Adequate for Power Generation | The average
wind in Brazil (Northeast) has a similar intensity with less variability
Brazil (NE)
Area
89%
Frequency
United States
Frequency
Frequency
Europe
Area
95%
Ideal Wind Speed
Wind Speed (m/s)
Ideal Wind Speed
Area
99%
Wind Speed (m/s)
Ideal Wind Speed
Wind Speed (m/s)
Technology Has Shown Great Improvements in Recent Years | Recently developed technology for
wind power plants allows greater load factors
Europe and EUA
180
Brazil
100m
3.000kW
160
140
Altura (m)
120
Rotor Diameter (m)
Rating (kW)
80m
1.800kW
Greater
efficiency
70m
1.500kW
100
50m
750kW
80
30m
300kW
60
40
17m
75kW
20
0
1980 1990
23
1990 1995
1995 2000
2000 2005
2000 2005
2010
Improved
availability
Reduced
generation
losses
24. CPFL Renováveis | Installed capacity (MW)
Wind
SHPP – Small Hydro
Biomass
3,818
5,553
Under
development
Total
Portfolio
Possible
Probable
Highly Confident
100% with PPA
1,735
1,283
Operating
(Nov-13)
Small Hydro
Under
construction
End of
2016
Biomass
Wind
Total
• 35 operating: 327MW
• 8 operating: 370MW
• 16 operating: 586MW
• 60 operating: 1,283MW1
• Under construction: -
• Under construction: -
• 17 under construction: 452MW
• 17 under construction: 452MW
• Under development: 626MW
• Under development: -
• Under development: 3,192MW
• Under development: 3,818MW
Total: 4,230MW
Total: 5,553MW1
Total: 953MW
24
Total: 370MW
1) Including Tanquinho solar power plant – 1MWp of installed capacity
26. CPFL Renováveis | Portfolio under construction
Commercial start-up in 2013-2016(e) | 452 MW / 219 MWavg
(e)
(MW)
(MWavg)
10 wind turbines installed
and in test phase; 5 wind
turbines in final
installation phase
4Q135
120
52.7
R$ 154.87
20 years
4Q135
78.2
37.5
R$ 152.67
20 years
Starting final installation
phase
40.2
Free market
19 years
Contract to supply wind
turbines signed; executive
projects underway
89.0
Free market
19 years
Contract to supply wind
turbines signed; executive
projects underway
1Q16
2Q16
82.0
172.0
Atlântica wind farms
26
1) Atlântica I, II, IV and V; 2) Macacos, Pedra Preta, Costa Branca and Juremas; 3) Campo dos Ventos I, III, V; 4) Ventos de São Benedito, Ventos de Santo Dimas, Santa Mônica, Santa
Úrsula São Domingos and Ventos de São Martinho; 5) Considering the start-up of the first farm in the complex; 6) Projects with energy sold to the free market in the long term, with
29. Competitive power supply| Regulated vs. free market
Main differences
No choice - distribution company
Free choice
Distribution company
Distribution company
Regulated by ANEEL
Free negotiation
Advantages
Regulated Market
Lower prices
73%
Free choice from energy supplier
27%
Better predictability of energy expenses
Customization according to consumer seasonality
Free Market1
Who can join
after July, 1995
Free
Special
29
> 3,000 kW
500-3,000 kW
units totaling 500 kW
1) Source: EPE. 12 months ended in Sep-13.
before July, 1995
-
any
any
> 69 kV
any
< 69 kV
incentivized
Group A
Group A
incentivized
incentivized
30. Competitive power supply
1º
Market share: 10%
• CPFL Brasil was awarded the winner
of Exame Magazine’s 2013 Best and
Largest Companies (category
Energy)
Sector Leader
• 288 free consumers
• The Company was selected among
gencos, discos, transcos and other
players in the electric sector
throughout Brazil
2010 | 2011 | 2013
• Nationwide outreach
• Value-added product portfolio
• Synergy with CPFL Renováveis
Portfolio (Free Consumers)
213
179
Outside the
concession area
Number of Consumers (#) | CPFL Brasil
Inside the
concession area
CAGR = 30%
288
75
52
231
129
80
Free Market
in Brazil
30
Current: 11.7 GW avg
Potential: +7.1 GW avg
2009
2010
2011
74
2008
141
2012
3Q13
31. Competitive power supply | Opportunities
Number of free clients in Brazil
# of competitive customers – larger than 3 MW
# of special customers – from 0.5 to 3 MW
1,141
CAGR=53.8%
CAGR=8.7%
897
441
477
503
578
616
221
539
204
Sep/09 Sep/10 Sep/11 Sep/12 Sep/13
Sep/09 Sep/10 Sep/11 Sep/12 Sep/13
Current: 9.8 GWavg
Potential: +2.1 GWavg
Current: 1.9 GWavg
Potential: +5.0 GWavg
Competitive advantages of CPFL:
market leadership, expertise and synergies with CPFL Renováveis
31
Source: ANEEL and CCEE
32. Services Segment | CPFL Serviços
• Foundation: 2006
• Core Business: offers a wide range of value-added
services, ranging from engineering projects to maintenance and
recovery of equipment. These services are designed to help
consumers improve the efficiency, cost and reliability of their
electric equipment
• Type of services: construction of transmission and distribution
networks; maintenance and recovery of equipment; selfgeneration networks (cogeneration, energy-efficiency projects
and distributed generation arrays – solar energy)
Transmission
networks
32
Self-generation
networks
Distribution
networks
Recovery of
equipment
33. Services Segment | CPFL Total and CPFL Atende
• CPFL Total offers collection services with an
established authorized network; capacity to
collect utility bills, such as
water, energy, telephone, and cable TV.
• Capability of cross-sale with other service
providers, enabling the collection via energy
bills.
33
• Foundation: 2008
• Core Business: provider of contact center and
customer relationship services to other utility
companies
• Services: face-to-face attendance, backoffice, credit recovery, toll-free customer
support, ombudsman, service desk and sales
34. Competitive power supply and Services | Financials1
Net revenues
2,040
EBITDA
Net income
2,161
1,909
303
278
1,699
293
201
164
124
113
56
2010
34
2011
1) Pro forma
2012
LTM3Q13
2010
2011
2012
LTM3Q13
2010
2011
2012
LTM3Q13
41. CPFL Energia | Strong and robust liquidity
Debt amortization schedule1 (Sep/13) | R$ million
Cash coverage:
5,406
2.4x short-term
amortization (12M)
Average tenor: 4.08 years
Short-term (12M): 14.4% of total
4,200
3,315
2,886
2,686
2,283
2,231
198
Cash
41
Short-term
2014²
2015
2016
2017
2018
2019+
1) Disregard financial charges (ST = R$ 350 million; LT = R$ 61 million), hedge (net positive effect of R$ 350 million) and MTM (R$ 60 million).
2) Considers amortization as of October 01, 2014.
42. Achievements
Perspectives 2H13
Achievements
CPFL Renováveis new projects
• 2H13: 328 MW to be added
• Start-up: Coopcana (50 MW), Campo dos Ventos
II (30 MW) and Alvorada (50 MW)
• 4Q13: 198 MW to be added
Recovery signals in industrial segment, favoring energy
consumption: +2.7% in 2Q13
Industrial segment growing again:
+2.5% in 3Q13
Productivity gains
Productivity gains
• Focus on reduction and cost optimization (Zero
Based-Budget and Corporate Services Center)
• Maturation of Tauron Project (smart grid): higher
productivity, lower costs
• Optimization in the occupation of Company’s
buildings – sale of idle assets
42
• PMSO – real decrease of R$ 137 million
(9M13 x 9M11)
• Tauron Project – EBITDA of R$ 24 million
in 9M13
• Sale of properties and vehicles – R$ 47
million in 3Q13
44. Energy sector in Brazil: business segments
Consumers
74.2 million consumers
Generation
• 126 GW of
installed capacity1
• 78.2% Renewable
energy1
• Eletrobrás: ~31%
of total assets
Transmission
Distribution
• 68 Companies
• 63 Companies
• 107,400 km of
transmission lines
• 459 TWh of billed
energy2
• Eletrobrás: ~56%
of total assets
• Top 5: ~50% of
the market
Competitive Power Supply
Captive Market
74.2 million Consumers
334 TWh of billed energy2
Free Market
1,757 Consumers
125 TWh of billed energy2
44
1) Source: ANEEL - November 21, 2013; 2) Source: EPE - 12 months ended in Set -13.
45. Brazilian electricity matrix
Brazilian Energy Matrix
Brazil’s electricity matrix is predominantly renewable, with hydro installed capacity totaling 69% of
the total supply, while biomass, wind and SHPPs account for 14%. In the next years, it is expected
that other sources will grow, mainly wind, reaching 10% of total installed capacity in 2022.
Evolution of Installed Capacity (GW) 2013-20221
2013
2022
129 GW
45
2017
153 GW
183 GW
1) Source: EPE - National Energy Balance 2013 and 10-year Energy Plan 2013-2022; 2) Others: considers coal, oil, diesel and process gas.
46. Mechanics of regulated auctions
Gencos
• New Energy: Initial supply 5 years after the auction
• Term of contract: 15-30 years
• Objective: Cover discos market growth and finance new
generation
• Energy contract limit: no limit
A-5 Auction
•
•
•
•
A-3 Auction
A-1 Auction
2013
•
•
•
•
“New” Energy: Initial supply 3 years after the auction
Term of contract: 15-30 years
Objective: Adjust discos’ contracted energy levels
Energy contract limit: 2% of the load
“Old” or Existing Energy: Initial supply in the following year
Term of contract: 1-15 years
Objective: Replace old contracts, maintaining the discos’ contracting level
Energy contract limit: 96% to 100% of the Replacement Amount (MR)
2014
2015
2016
2017
2018
Reserve Energy Auction - LER:
Discos are not required to declare contracting needs and generation costs are covered through sector charges
Discos
Discos must purchase electric energy to supply their captive market, five years in advance,
in public auctions (Regulated Market – ACR)
46
47. World’s most attractive alternative energy market
Renewables in Brazil are expected to grow at a CAGR of 9.5%, from 16 GW in 2012 to
36 GW in 2021 and still a highly fragmented market
Unrealized Potential to be Explored in Brazil
Potential Realized
Wind
Potential: 143GW
Installed capacity: 2.0GW
1%
SHPP
Potential: 17.5GW
Installed capacity: 5.0GW
29%
Biomass
Potential: 17.2GW
Installed capacity: 8.9GW
Highly Fragmented Market | Renewables
Market Share in Brazil based on contracted
energy (22GW)
8%
Renova 5%
52%
Energimp 4%
QGER 4%
Evolution of Brazilian Installed Capacity by
Source | GWh
4.6% p.a.
182
Brookfield 3%
Cosan2 3%
CAGR
36
122
16
10
10
Renewables 9.5%
16
Other
5.1%
13
Natural Gas
Eletrosul 3%
Elecnor 2%
Bioenergy 2%
2.7%
Hydro
Others 66%
3.6%
117
85
2012A
47
2021E
Source: ANEEL, PDE 2021 and Company; 1) Projected to 2020; 2) Considers the export of 2/3 of energy produced by the Company;
48. Stable and solid regulatory framework
Description
Environmental
& Streamlined
Implementation
Process
Access to Multiple
Sales Channels
Dedicated
Sovereign
Funding Conditions
Discounts on
Transmission
Charges
Discount of at least 50% (TUST and TUSD)
48
Regulated energy auctions and the free
market
Long term inflation protected/linked PPA
(average 20-30 years)
Special niche in the free market for “special
client” (demand between 0.5-3.0MW)
Current special free market of 2.7% (1.6GW)
to potential of 9.6% (5.8GW)
BNDES Financing
Low Cost – average interest rate of 7.0%
Long-term funding of 16 years
Attractive capital structure
Favorable Tax
Regime and
Fiscal Incentives
Faster and simpler environmental process
Faster construction cycle
Sustainability
“Lucro Presumido” with reduction in the
effective tax rate to 5% - 15% from 34%
REIDI (special program of incentives for
infrastructure development) - exemption of
PIS/COFINS,
Exemption of ICMS (movement tax) and IPI
(production tax)
Source: Company ; 1) Tax on revenues
Natural consequence of projects with lower
environmental impact
Annual auctions to match growth in energy
consumption
Price of energy at the captive market structurally
higher than at the free market given regulatory
charges
Not a sector specific benefit
BNDES has been providing support for the sector for
many years
Policies in place since 1996
Not a direct government expenditure/tax break
Not applicable for regulated auctions
Tax regime for small enterprises (annual revenues
below R$78 mm), which is not sector specific
REIDI is applicable for all infrastructure projects
ICMS/IPI1: discussions on expanding tax incentives to
SHPPs
49. Pressure on tariffs
Average tariff1 (CPFL Piratininga) - [R$/MWh]2
-24%
Taxes
Sector
charges
Distribution
Transmission
Generation
R$/MWh
(6%)
(18%)
(9%)
(45%)
1st CRTP3
2003-2006
(14%)
(22%)
(7%)
(13%)
(8%)
(15%)
(4%)
(44%)
(53%)
3rd CRTP3
2011-2014
R$/MWh
%
-16%
-22.1
-27%
20.0
88%
-4.2
-18%
-25.6
-38%
-26.0
-39%
-7.4
-24%
-21.6
-69%
-25.8
(22%)
%
-13.3
82
(22%)
-16%
-18.5
-11%
2012 Tariff
after RTE4
The Distribution segment, intensive in O&M expenses, has gone through periodic tariff reviews to
reduce costs and improve efficiency, while Generation and Transmission segments, capitalintensives, did not suffer the same regulation
49
1) Average of all classes and voltages; does not take into account financial components. 2) Constant figures in December/12. Amounts
adjusted by IPCA | Source: CPFL Energia. 3) Periodic Tariff Review. 4) Extraordinary Tariff Review.
