Report of Foreign Issuer (6-k)

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of December, 2019
Commission File Number 32297

 
CPFL Energy Incorporated
(Translation of Registrant's name into English)

 
Rua Jorge de Figueiredo Correa, nº 1632, parte
CEP 13087-397 - Jardim Professora Tarcilla, Campinas – SP
Federative Republic of Brazil
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  Form 20-F ___X___ Form 40-F _______

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_________________

.

 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Table of Contents

 

Company Data

 

Capital Composition

1

Cash Dividends

2

Individual interim financial statements

 

Statement of Financial Position - Assets

3

Statement of Financial Position - Liabilities and Equity

4

Statement of Income

5

Statement of Comprehensive Income

6

Statement of Cash Flows – Indirect Method

7

Statement of Changes in Equity

 

01/01/2019 to 12/31/2019

8

01/01/2018 to 12/31/2018

9

Statements of Value Added

10

Consolidated Financial Statements

 

Statement of Financial Position - Assets

11

Statement of Financial Position - Liabilities and Equity

12

Statement of Income

13

Statement of Comprehensive Income

14

Statement of Cash Flows - Indirect Method

15

Statement of Changes in Equity

 

01/01/2019 to 12/31/2019

16

01/01/2018 to 12/31/2018

17

Statements of Value Added

18

Management Report

19

Notes to financial statements 

32

Reports

 

Independent Auditor’s Report - Unqualified

121

Management declaration on financial statements

127

Management declaration on independent auditor’s report

128

 

 

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Capital Composition

Number of Shares

(In units)

Closing Date

12/31/2019

Paid-in capital

 

Common

1,152,254,440

Preferred

0

Total

1,152,254,440

Treasury Stock

0

Common

0

Preferred

0

Total

0

 

 

1

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Cash dividends

Event

Approval

Description

Beginning of payment

Type of share

Class of share

Amount per share

(Reais/share)

Annual and extraordinary general meeting

04/30/2019

Dividends

 

Common

 

0.48018

 

 

 

2

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Financial Position – Assets

(In thousands of Brazilian reais - R$)

       
         

 Code

 Description

  Current Year  12/31/2019

 Previous Year  12/31/2018

 Previous Year  12/31/2017

1

Total assets

  13,753,291

  10,807,954

-  

1.01

Current assets

909,539

799,599

-  

1.01.01

Cash and cash equivalents

   33,909

   79,364

-  

1.01.06

Taxes recoverable

   59,025

   18,087

-  

1.01.06.01

Current taxes recoverable 

   59,025

   18,087

-  

1.01.06.01.01

Income tax and social contribution recoverable

78

  9,441

-  

1.01.06.01.02

Other taxes recoverable

   58,947

     8,646

-  

1.01.08

Other current assets

816,605

702,148

-  

1.01.08.03

Other

816,605

702,148

-  

1.01.08.03.01

Other receivables

  400

  417

-  

1.01.08.03.04

Dividends and interest on capital

816,205

701,731

-  

1.02

Noncurrent assets

  12,843,752

  10,008,355

-  

1.02.01

Long-term assets

514,274

191,019

-  

1.02.01.07

Deferred taxes

   85,474

112,522

-  

1.02.01.07.02

Deferred tax assets

   85,474

112,522

-  

1.02.01.09

Receivables from related parties

424,387

   72,933

-  

1.02.01.09.02

Receivables from subsidiaries

424,387

   72,933

-  

1.02.01.10

Other noncurrent assets

  4,413

 5,564

-  

1.02.01.10.04

Escrow Deposits

  453

  703

-  

1.02.01.10.10

Other receivables

  3,960

  4,861

-  

1.02.02

Investments

  12,327,132

9,816,139

-  

1.02.02.01

Equity interests

  12,327,132

9,816,139

-  

1.02.02.01.02

Equity interests in subsidiaries

  12,327,132

9,816,139

-  

1.02.03

Property, plant and equipment

  2,226

  1,087

-  

1.02.03.01

Property, plant and equipment - in service

  2,226

  1,087

-  

1.02.04

Intangible assets

  120

  110

-  

1.02.04.01

Intangible assets

  120

  110

-  

 

 

 

 

 

3

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Financial Position – Liabilities and Equity

(In thousands of Brazilian reais - R$)

         

 Code

 Description

  Current Year  12/31/2019

 Previous Year  12/31/2018

 Previous Year  12/31/2017

2

Total liabilities

  13,753,291

  10,807,954

  -  

2.01

Current liabilities

738,697

531,380

  -  

2.01.02

Trade payables

  4,698

  2,854

  -  

2.01.02.01

Domestic suppliers

  4,698

  2,854

  -  

2.01.03

Taxes payable

   65,944

   13,519

  -  

2.01.03.01

Federal taxes

   65,894

   13,500

  -  

2.01.03.01.01

Income tax and social contribution payable

   40,629

  8,261

  -  

2.01.03.01.02

Other taxes

   25,265

  5,239

  -  

2.01.03.03

Municipal taxes

50

19

  -  

2.01.03.03.01

Municipal Others

50

19

  -  

2.01.05

Other liabilities

668,055

515,007

  -  

2.01.05.02

Others

668,055

515,007

  -  

2.01.05.02.01

Dividends and interest on capital payable

645,737

491,602

  -  

2.01.05.02.07

Other payables

   22,318

   23,405

  -  

2.02

Noncurrent liabilities

   20,213

   13,825

  -  

2.02.02

Other liabilities

   20,090

   13,584

  -  

2.02.02.02

Others

   20,090

   13,584

  -  

2.02.02.02.04

Other payables

   20,090

   13,584

  -  

2.02.04

Provisions

  123

  241

  -  

2.02.04.01

Tax, social security, labor and civil provisions

  123

  241

  -  

2.02.04.01.02

Social security and labor provisions

20

  -  

  -  

2.02.04.01.04

Civil provisions

  103

  241

  -  

2.03

Equity

  12,994,381

  10,262,749

  -  

2.03.01

Issued capital

9,388,081

5,741,284

  -  

2.03.02

Capital reserves

   (1,640,962)

469,257

  -  

2.03.04

Earnings reserves

6,515,726

4,428,502

  -  

2.03.04.01

Legal reserve

1,036,126

900,992

  -  

2.03.04.02

Statutory reserve

4,046,305

3,527,510

  -  

2.03.04.06

Dividend

1,433,295

  -  

  -  

2.03.08

Other comprehensive income

   (1,268,464)

   (376,294)

  -  

2.03.08.01

Accumulated comprehensive income

   (1,268,464)

   (376,294)

  -  

 

 

 

4

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of income

(In thousands of Brazilian reais - R$)

         

Code

Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

3.01

Net operating revenue

  2,309

1

  -  

3.03

Gross profit

  2,309

1

  -  

3.04

Operating income (expenses)

2,775,006

  2,206,914

  -  

3.04.02

General and administrative expenses

(52,712)

  (43,930)

  -  

3.04.02.01

Depreciation and amortization

   (273)

(201)

  -  

3.04.02.02

Other general and administrative expenses

(52,439)

  (43,729)

  -  

3.04.05

Other operating expenses

  -  

9

  -  

3.04.06

Share of profit (loss) of investees

2,827,718

  2,250,835

  -  

3.05

Profit before finance income (costs) and taxes

2,777,315

  2,206,915

  -  

3.06

Finance income (costs)

   48,018

  (27,300)

  -  

3.06.01

Finance income

   49,344

  (22,160)

  -  

3.06.02

Financial expenses

   (1,326)

(5,140)

  -  

3.07

Profit (loss) before taxes on income

2,825,333

  2,179,615

  -  

3.08

Income tax and social contribution

  (122,662)

   (121,575)

  -  

3.08.01

Current

(71,122)

  (88,317)

  -  

3.08.02

Deferred

(51,540)

  (33,258)

  -  

3.09

Profit (loss) from continuing operations

2,702,671

  2,058,040

     -  

3.11

Profit (loss) for the year

2,702,671

  2,058,040

  -  

 

 

5

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Comprehensive Income

(In thousands of Brazilian reais - R$)

         

Code

Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

4.01

Profit for the period

2,702,671

2,058,040

  -  

4.02

Other comprehensive income

  (866,498)

  (220,817)

  -  

4.02.01

Comprehensive income for the period of subsidiaries

  (866,498)

  (220,817)

  -  

4.03

Total comprehensive income for the year

1,836,173

1,837,223

  -  

 

6

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Cash Flows – Indirect Method

(In thousands of Brazilian reais – R$)

         

Code

Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

6.01

Net cash from operating activities

  1,288,697

  566,167

  -  

6.01.01

Cash generated from operations

(8,022)

  (68,204)

  -  

6.01.01.01

Profit before taxes

  2,825,333

  2,179,615

  -  

6.01.01.02

Depreciation and amortization

   273

   201

  -  

6.01.01.03

Provision for tax, civil and labor risks

   408

(117)

  -  

6.01.01.05

Interest on debts, inflation adjustment and exchange rate changes

    (6,318)

   2,932

  -  

6.01.01.07

Share of profit (loss) of investees

   (2,827,718)

   (2,250,835)

  -  

6.01.02

Changes in assets and liabilities

  1,318,107

  718,840

  -  

6.01.02.02

Dividend and interest on capital received

  1,295,427

  596,100

  -  

6.01.02.03

Taxes recoverable

(5,388)

  109,719

  -  

6.01.02.05

Escrow deposits

   260

   (25)

  -  

6.01.02.10

Other operating assets

   1,277

   1,147

  -  

6.01.02.11

Trade payables

   1,845

   1,210

  -  

6.01.02.12

Other taxes and social contributions

19,815

   4,541

  -  

6.01.02.16

Tax, civil and labor risks paid

(542)

(259)

  -  

6.01.02.19

Other operating liabilities

   5,413

   6,407

  -  

6.01.03

Others

  (21,388)

  (84,469)

  -  

6.01.03.01

Interest paid on debts and debentures

  -  

(4,235)

  -  

6.01.03.02

Income tax and social contribution paid

  (21,388)

  (80,234)

  -  

6.02

Net cash from investing activities

   (4,469,473)

  (28,283)

  -  

6.02.01

Acquisition of interest with no change in control

   (4,107,555)

  -  

  -  

6.02.02

Purchases of property, plant and equipment

(1,763)

(286)

  -  

6.02.04

Purchases and construction of intangible assets

   (15)

   (42)

  -  

6.02.05

Securities, pledges and restricted deposits - investment

  -  

(250)

  -  

6.02.07

Advances for future capital increases

  (14,160)

  (82,415)

  -  

6.02.08

Intragroup loans to subsidiaries

   (424,371)

  (80,512)

  -  

6.02.09

Receiving of intragroup loans from subsidiaries

78,391

  135,222

  -  

6.03

Net cash from financing activities

  3,135,321

   (465,101)

  -  

6.03.01

Capital increase by non-controlling shareholders

  3,622,305

  -  

  -  

6.03.05

Repayment of principal of borrowings and debentures

  -  

   (186,000)

     -  

6.03.08

Dividend and interest on capital paid

   (486,984)

   (279,101)

  -  

6.05

Increase (decrease) in cash and cash equivalents

  (45,455)

72,783

  -  

6.05.01

Cash and cash equivalents at the beginning of the year

79,364

   6,581

  -  

6.05.02

Cash and cash equivalents at the end of the year

33,909

79,364

  -  

7

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Changes in Equity – from January 1, 2019 to December 31, 2019

(In thousands of Brazilian reais – R$)

               

 Code

 Description

 Issued capital 

 Capital reserves,
stock options and treasury stock

 Earnings reserves

 Retained earnings/accumulated losses

 Other comprehensive income

 Equity

5.01

Opening balances

   5,741,284

   469,257

   4,428,503

   -  

(376,295)

10,262,749

5.03

Adjusted opening balances

   5,741,284

   469,257

   4,428,503

   -  

(376,295)

10,262,749

5.04

Capital transactions with shareholders

   3,646,797

(2,110,219)

   1,433,295

(2,074,414)

   -  

   895,459

5.04.01

Capital increase

   3,694,342

   -  

   -  

   -  

   -  

   3,694,342

5.04.02

Public offering costs

   (47,545)

   -  

   -  

   -  

   -  

   (47,545)

5.04.06

Dividends

   -  

   -  

   1,433,295

(1,433,295)

   -  

   -  

5.04.08

Other changes

   -  

   (75,299)

   -  

   -  

   -  

   (75,299)

5.04.09

Gain (loss) on interest in subsidiaries with no change in control

   -  

   -  

   -  

765

   -  

765

5.04.10

Dividend approved

   -  

   -  

   -  

(641,884)

   -  

(641,884)

5.04.11

Acquisition of noncontrolling interest of CPFL Renováveis

   -  

(2,034,920)

   -  

   -  

   -  

(2,034,920)

5.05

Total comprehensive income

   -  

   -  

   -  

   2,702,671

(866,498)

   1,836,173

5.05.01

Profit for the year

   -  

   -  

   -  

   2,702,671

   -  

   2,702,671

5.05.02

Other comprehensive income

   -  

   -  

   -  

   -  

(866,498)

(866,498)

5.05.02.03

Equity on comprehensive income of subsidiaries

   -  

   -  

   -  

   -  

(866,498)

(866,498)

5.06

Internal changes in equity

   -  

   -  

   653,929

(628,257)

   (25,672)

   -  

5.06.01

Recognition of reserves

   -  

   -  

   135,134

(135,134)

   -  

   -  

5.06.06

Equity on comprehensive income of subsidiaries

   -  

   -  

   -  

  25,672

   (25,672)

   -  

5.06.07

Changes in statutory reserve in the year

  -  

   -  

   518,795

(518,795)

   -  

   -  

5.07

Closing balances

   9,388,081

(1,640,962)

   6,515,727

   -  

(1,268,465)

12,994,381

 

8

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Changes in Equity – from January 1, 2018 to December 31, 2018

(In thousands of Brazilian reais – R$)

               

 Code

 Description

 Issued capital 

 Capital reserves,
stock options and treasury stock

 Earnings reserves

 Retained earnings/accumulated losses

 Other comprehensive income

 Equity

5.01

Opening balances

   5,741,284

   468,014

   2,916,737

-  

  (164,506)

   8,961,529

5.03

Adjusted opening balances

   5,741,284

   468,014

   2,916,737

-  

  (164,506)

   8,961,529

5.04

Capital transactions with shareholders

    -  

1,238

-  

  (488,785)

-  

  (487,547)

5.04.06

Dividends

-  

-  

-  

  (488,785)

-  

  (488,785)

5.04.08

Other changes

-  

1,238

-  

-  

-  

1,238

5.05

Total comprehensive income

-  

-  

-  

   1,975,433

  (186,671)

   1,788,762

5.05.01

Profit for the year

-  

-  

-  

   2,058,040

-  

   2,058,040

5.05.02

Other comprehensive income

-  

-  

-  

(82,607)

  (186,671)

  (269,278)

5.05.02.03

Equity on comprehensive income of subsidiaries

-  

-  

-  

(82,607)

  (186,671)

  (269,278)

5.06

Internal changes in equity

-  

  5

   1,511,766

  (1,486,648)

(25,118)

  5

5.06.01

Recognition of reserves

-  

-  

   102,902

  (102,902)

-  

-  

5.06.06

Equity on comprehensive income of subsidiaries

-  

-  

-  

  25,118

(25,118)

-  

5.06.07

Changes in statutory reserve in the year

    -  

-  

   1,408,864

  (1,408,864)

-  

-  

5.06.08

Other changes

-  

  5

-  

-  

-  

  5

5.07

Closing balances

   5,741,284

   469,257

   4,428,503

-  

  (376,295)

10,262,749

 

9

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Individual Financial Statements

Statement of Value Added

(In thousands of Brazilian reais – R$)

     
         

 Code

 Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

7.01

Revenues

4,322

329

   -  

7.01.01

Sales of goods and services

2,544

  1

   -  

7.01.03

Revenues related to construction of own assets

1,778

328

   -  

7.02

Inputs purchased from third parties

   (19,329)

   (12,857)

   -  

7.02.02

Materials, energy, third-party services and others

   (19,329)

   (12,857)

   -  

7.03

Gross value added

   (15,007)

   (12,528)

   -  

7.04

Retentions

  (275)

  (201)

   -  

7.04.01

Depreciation, amortization and depletion

  (275)

  (201)

   -  

7.05

Net added value generated

   (15,282)

   (12,729)

   -  

7.06

Added value received in transfer

   2,913,366

   2,268,815

   -  

7.06.01

Share of profit (loss) of investees

   2,827,718

   2,250,835

   -  

7.06.02

Finance income

  85,648

  17,980

   -  

7.07

Added value to be distributed

   2,898,084

   2,256,086

   -  

7.08

Distribution of added value

   2,898,084

   2,256,086

   -  

7.08.01

Personnel and charges

  29,470

  27,035

   -  

7.08.01.01

Salaries and wages

  11,073

  10,679

   -  

7.08.01.02

Benefits

  16,982

  14,885

   -  

7.08.01.03

FGTS (Severance Pay Fund)

1,415

1,471

   -  

7.08.02

Taxes, fees and contributions

   164,498

   165,840

   -  

7.08.02.01

Federal

   164,466

   165,799

   -  

7.08.02.02

State

   32

   41

   -  

7.08.03

Interest and Rentals

1,445

5,171

   -  

7.08.03.01

Interest

1,315

5,135

   -  

7.08.03.02

Rentals

130

   36

   -  

7.08.04

Interest on capital

   2,702,671

   2,058,040

   -  

7.08.04.02

Dividend (including additional dividend proposed)

   2,075,179

   546,274

   -  

7.08.04.03

Retained earnings / Loss for the period

   627,492

   1,511,766

   -  

 

 

 

10

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Financial Position – Assets

(In thousands of Brazilian reais – R$)

       
         

 Code

 Description

  Current Year  12/31/2019

 Previous Year  12/31/2018

 Previous Year  12/31/2017

1

Total assets

  44,078,293

  42,211,530

-  

1.01

Current assets

  10,340,630

9,402,316

-  

1.01.01

Cash and cash equivalents

1,937,163

1,891,457

-  

1.01.02

Short-term financial investments

851,004

-  

-  

1.01.02.01

Financial Investments Measured at Fair Value Through Profit or Loss

851,004

-  

-  

1.01.02.01.02

Securities Designated at Fair Value

851,004

-  

-  

1.01.03

Trade receivables

4,985,578

4,547,951

-  

1.01.03.01

Consumers

4,985,578

4,547,951

-  

1.01.06

Taxes recoverable

419,126

411,256

-  

1.01.06.01

Current taxes recoverable

419,126

411,256

-  

1.01.06.01.01

Income tax and social contribution recoverable

   87,698

123,739

-  

1.01.06.01.02

Other taxes recoverable

331,428

287,517

-  

1.01.07

Prepaid expenses

   76,756

172,155

-  

1.01.08

Other current assets

2,071,003

2,379,497

-  

1.01.08.03

Others

2,071,003

2,379,497

-  

1.01.08.03.01

Other receivables

571,405

638,850

-  

1.01.08.03.02

Derivatives

281,326

309,484

-  

1.01.08.03.04

Dividends and interest on capital

100,297

100,182

-  

1.01.08.03.06

Sector financial asset

1,093,588

1,330,981

-  

1.01.08.03.07

Contract asset

   24,387

-  

-  

1.02

Noncurrent assets

  33,737,663

  32,809,214

-  

1.02.01

Long-term assets

  14,335,003

  12,909,303

-  

1.02.01.04

Trade receivables

713,068

752,795

-  

1.02.01.04.01

Consumers

713,068

752,795

-  

1.02.01.07

Deferred taxes

1,064,716

956,380

-  

1.02.01.07.02

Deferred tax assets

1,064,716

956,380

-  

1.02.01.08

Prepaid expenses

  4,608

  6,367

-  

1.02.01.10

Other noncurrent assets

  12,552,611

  11,193,761

-  

1.02.01.10.03

Derivatives

369,767

347,507

-  

1.02.01.10.04

Escrow deposits

757,370

854,374

-  

1.02.01.10.05

Income tax and social contribution recoverable

101,528

   67,966

-  

1.02.01.10.06

Other taxes recoverable

370,595

185,725

-  

1.02.01.10.08

Concession financial asset

8,779,717

7,430,149

-  

1.02.01.10.09

Investments at cost

116,654

116,654

-  

1.02.01.10.10

Others receivables

731,410

921,073

-  

1.02.01.10.11

Sector financial asset

  2,748

223,880

-  

1.02.01.10.12

Contract asset

1,322,822

1,046,433

-  

1.02.02

Investments

997,997

980,362

-  

1.02.02.01

Equity interests

997,997

980,362

-  

1.02.02.01.04

Equity interests in joint ventures

997,997

980,362

-  

1.02.03

Property, plant and equipment

9,083,710

9,456,614

-  

1.02.03.01

Property, plant and equipment - in service

8,757,085

9,245,854

-  

1.02.03.03

Property, plant and equipment - in progress

326,625

210,760

-  

1.02.04

Intangible assets

9,320,953

9,462,935

-  

1.02.04.01

Intangible assets

9,320,953

9,462,935

-  

1.02.04.01.01

Concession contract

9,234,857

9,380,811

-  

1.02.04.01.02

Goodwill

  6,115

  6,115

-  

1.02.04.01.03

Other intangible assets

   79,981

   76,009

-  

 

 

11

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

 

 

12

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Statement of Financial Position – Liabilities and Equity

(In thousands of Brazilian reais – R$)

         

 Code

 Description

  Current Year  12/31/2019

 Previous Year  12/31/2018

 Previous Year  12/31/2017

2

Total liabilities

44,078,293

42,211,530

-  

2.01

Current liabilities

10,065,908

   8,415,132

-  

2.01.01

Payroll and related taxes

   125,057

   119,252

-  

2.01.01.01

Social taxes

  28,149

  27,154

-  

2.01.01.02

Payroll taxes

  96,908

  92,098

-  

2.01.02

Trade payables

   3,260,180

   2,398,085

-  

2.01.02.01

Domestic suppliers

   3,260,180

   2,398,085

-  

2.01.03

Taxes payable

   960,497

   765,438

-  

2.01.03.01

Federal taxes

   516,266

   327,658

-  

2.01.03.01.01

Income tax and social contribution

   218,961

   100,450

-  

2.01.03.01.02

Other taxes

   297,305

   227,208

-  

2.01.03.02

State taxes

   435,155

   430,149

-  

2.01.03.03

Municipal taxes

9,076

7,631

-  

2.01.03.03.01

Other municipal taxes

9,076

7,631

-  

2.01.04

Borrowings

   3,458,775

   3,363,465

-  

2.01.04.01

Borrowings

   2,776,193

   2,446,113

-  

2.01.04.01.01

In local currency

   768,691

   876,777

-  

2.01.04.01.02

In foreign currency

   2,007,502

   1,569,336

-  

2.01.04.02

Debentures

   682,582

   917,352

-  

2.01.05

Other payables

   2,261,399

   1,768,892

-  

2.01.05.02

Others

   2,261,399

   1,768,892

-  

2.01.05.02.01

Dividends and interest on capital payable

   668,859

   532,608

-  

2.01.05.02.04

Derivatives

  29,400

8,139

-  

2.01.05.02.06

Use of public asset

  11,771

  11,570

-  

2.01.05.02.07

Other payables

   1,094,267

   979,296

-  

2.01.05.02.08

Regulatory charges

   232,251

   150,656

-  

2.01.05.02.09

Private pension plan

   224,851

  86,623

-  

2.02

Noncurrent liabilities

20,729,147

21,264,015

-  

2.02.01

Borrowings

15,450,798

17,013,339

-  

2.02.01.01

Borrowings

   7,587,102

   8,989,846

-  

2.02.01.01.01

In local currency

   4,585,552

   4,927,927

-  

2.02.01.01.02

In foreign currency

   3,001,550

   4,061,919

-  

2.02.01.02

Debentures

   7,863,696

   8,023,493

-  

2.02.02

Other liabilities

   3,629,505

   2,135,089

-  

2.02.02.02

Others

   3,629,505

   2,135,089

-  

2.02.02.02.03

Trade payables

   359,944

   333,036

-  

2.02.02.02.04

Private pension plan

   2,153,327

   1,156,639

-  

2.02.02.02.05

Derivatives

6,157

  23,659

-  

2.02.02.02.06

Sector financial liability

   102,561

  46,703

-  

2.02.02.02.07

Use of public asset

  91,181

  89,965

-  

2.02.02.02.08

Other payables

   759,332

   475,396

-  

2.02.02.02.09

Other taxes, fees and contributions

805

9,691

-  

2.02.02.02.10

Income tax and social contribution

   156,198

-  

-  

2.02.03

Deferred taxes

   1,048,069

   1,136,227

-  

2.02.03.01

Deferred income tax and social contribution

   1,048,069

   1,136,227

-  

2.02.03.01.01

Deferred income tax and social contribution

   1,037,689

   1,126,141

-  

2.02.03.01.02

Others deferred taxes

  10,380

  10,086

-  

2.02.04

Provisions

   600,775

   979,360

-  

2.02.04.01

Tax, social security, labor and civil provisions

   600,775

   979,360

    -  

2.02.04.01.01

Tax provisions

  53,825

   389,823

-  

2.02.04.01.02

Social security and labor provisions

   235,085

   219,314

-  

2.02.04.01.04

Civil provisions

   245,464

   281,304

-  

2.02.04.01.05

Others provisions

  66,401

  88,919

-  

2.03

Consolidated equity

13,283,238

12,532,383

-  

2.03.01

Issued capital

   9,388,081

   5,741,284

-  

2.03.02

Capital reserves

  (1,640,962)

   469,257

-  

2.03.04

Earnings reserves

   6,515,726

   4,428,502

-  

2.03.04.01

Legal reserve

   1,036,126

   900,992

-  

2.03.04.02

Statutory reserve

   4,046,305

   3,527,510

-  

2.03.04.06

Dividend

   1,433,295

-  

-  

2.03.08

Other comprehensive income

  (1,268,464)

  (376,294)

-  

2.03.08.01

Accumulated comprehensive income

  (1,268,464)

  (376,294)

-  

2.03.09

Noncontrolling interests

   288,857

   2,269,634

-  

13

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of income

(In thousands of Brazilian reais – R$)

       
         

 Code

 Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

 3.01

 Net operating revenue

   29,932,474

  28,136,627

  -  

 3.02

 Cost of electric energy services

  (23,354,891)

   (22,347,258)

  -  

 3.02.01

 Cost of electric energy

  (18,370,994)

   (17,838,165)

  -  

 3.02.02

 Cost of operation - Depreciation and amortization

(1,278,272)

  (1,237,627)

  -  

 3.02.03

 Cost of operation  - Others

(1,615,893)

  (1,496,127)

  -  

 3.02.04

 Cost of services rendered to third parties

(2,089,732)

  (1,775,339)

  -  

 3.03

 Gross profit

  6,577,583

5,789,369

  -  

 3.04

 Operating expenses/income

(1,865,043)

  (1,746,705)

  -  

 3.04.01

 Selling expenses

(699,910)

  (608,184)

  -  

 3.04.01.01

 Depreciation and amortization

  (5,211)

   (4,260)

  -  

 3.04.01.02

 Allowance for doubtful accounts

(233,424)

  (169,259)

  -  

 3.04.01.03

 Other selling expenses

(461,275)

  (434,665)

  -  

 3.04.02

 General and administrative expenses

(1,027,230)

  (987,291)

  -  

 3.04.02.01

 Depreciation and amortization

(109,132)

(65,319)

  -  

 3.04.02.02

 Other general and administrative expenses

(918,098)

  (921,972)

  -  

 3.04.05

 Other operating expenses

(486,993)

  (485,428)

  -  

 3.04.05.01

 Amortization of concession intangible asset

(288,438)

  (286,858)

  -  

 3.04.05.02

 Other operating expenses

(198,555)

  (198,570)

  -  

 3.04.06

 Share of profit (loss) of investees

  349,090

334,198

  -  

 3.05

 Profit before finance income (costs) and taxes

  4,712,540

4,042,664

  -  

 3.06

 Finance income (costs)

(726,247)

  (1,102,687)

  -  

 3.06.01

 Finance income

  903,575

762,413

  -  

 3.06.02

 Financial expenses

(1,629,822)

  (1,865,100)

  -  

 3.07

 Profit before taxes

  3,986,293

2,939,977

  -  

 3.08

 Income tax and social contribution

(1,237,996)

  (773,982)

  -  

 3.08.01

 Current

(1,108,326)

  (805,845)

  -  

 3.08.02

 Deferred

(129,670)

   31,863

  -  

 3.09

 Profit from continuing operations

  2,748,297

2,165,995

  -  

 3.11

 Consolidated profit for the year

  2,748,297

2,165,995

  -  

 3.11.01

 Attributable to owners of the Company

  2,702,671

2,058,040

  -  

 3.11.02

 Attributable to noncontrolling interests

45,626

107,955

  -  

 3.99.01.01

 ON

  2.48

2.02

  -  

 3.99.02.01

 ON

  2.47

2.01

  -  

 

 

 

14

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Comprehensive Income

(In thousands of Brazilian reais – R$)

         

 Code

 Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

4.01

Consolidated profit for the year

  2,748,297

  2,165,995

   -  

4.02

Other comprehensive income

(866,498)

(220,817)

   -  

4.02.01

Actuarial gains (losses), net of tax effects

(865,402)

(238,780)

   -  

4.02.02

Credit risk in mark to market of financial liabilities

  (1,096)

17,963

   -  

4.03

Consolidated comprehensive income for the year

  1,881,799

  1,945,178

   -  

4.03.01

Attributable to owners of the Company

  1,836,173

  1,837,223

   -  

4.03.02

Attributable to noncontrolling interests

45,626

  107,955

   -  

 

 

 

 

15

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Cash Flows – Indirect Method

(In thousands of Brazilian reais – R$)

         

Code

Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

6.01

Net cash from operating activities

   5,788,532

   856,686

-  

6.01.01

Cash generated from operations

   6,978,359

   5,919,953

-  

6.01.01.01

Profit before taxes

   3,986,293

   2,939,977

-  

6.01.01.02

Depreciation and amortization

   1,681,053

   1,594,064

-  

6.01.01.03

Provision for tax, civil and labor risks

   204,795

   153,977

-  

6.01.01.04

Allowance for doubtful accounts

   233,424

   169,259

-  

6.01.01.05

Interest on debts, inflation adjustment and exchange rate changes

   919,836

   1,117,742

-  

6.01.01.06

Pension plan expense (income)

   112,603

  89,909

-  

6.01.01.07

Equity interests in subsidiaries, associates and joint ventures

  (349,090)

  (334,198)

-  

6.01.01.08

Loss (gain) on disposal of noncurrent assets

   189,566

   216,275

-  

6.01.01.09

Others

   (121)

(27,052)

-  

6.01.02

Changes in assets and liabilities

   906,458

  (2,893,526)

-  

6.01.02.01

Consumers, concessionaries and licensees

  (631,078)

  (1,006,291)

-  

6.01.02.02

Dividend and interest on capital received

   331,754

   311,347

-  

6.01.02.03

Taxes recoverable

  (174,263)

  92,090

-  

6.01.02.05

Escrow deposits

   130,725

  22,926

-  

6.01.02.06

Sector financial asset

   628,157

  (846,216)

-  

6.01.02.07

Receivables - CDE

  36,240

  59,196

-  

6.01.02.10

Other operating assets

(70,790)

(47,836)

-  

6.01.02.11

Trade payables

   889,002

  (848,880)

-  

6.01.02.12

Other taxes and social contributions

  10,344

(59,102)

-  

6.01.02.13

Other liabilities with private pension plan

  (144,494)

  (107,668)

-  

6.01.02.14

Regulatory charges

  81,595

  (430,944)

-  

6.01.02.16

Tax, civil and labor risks paid

  (484,153)

  (215,873)

-  

6.01.02.17

Sector financial liability

(25,696)

(64,361)

-  

6.01.02.18

Payables - CDE

(20,187)

  71,779

-  

6.01.02.19

Other operating liabilities

   349,302

   176,307

-  

6.01.03

Others

  (2,096,285)

  (2,169,741)

-  

6.01.03.01

Interest paid on debts and debentures

  (1,132,479)

  (1,353,339)

-  

6.01.03.02

Income tax and social contribution paid

  (963,806)

  (816,402)

-  

6.02

Net cash from investing activities

  (3,068,691)

  (1,850,687)

-  

6.02.01

Capital increase of shareholders

-  

   (1,096)

-  

6.02.02

Purchases of property, plant and equipment

  (188,994)

  (275,986)

-  

6.02.03

Purchases of contract asset

  (2,054,306)

  (1,769,573)

-  

6.02.04

Purchases and construction of intangible assets

(19,147)

(16,864)

-  

6.02.05

Securities, pledges and restricted deposits - investment

  (1,184,804)

  (554,668)

-  

6.02.06

Securities, pledges and restricted deposits - redemption

   378,560

   767,500

-  

6.03

Net cash from financing activities

  (2,674,135)

  (364,185)

-  

6.03.01

Capital increase of noncontrolling shareholder

   3,622,305

7,994

-  

6.03.02

Capital increase in existing equity interest

  (4,107,555)

-  

-  

6.03.04

Borrowings and debentures raised

   5,256,705

   9,610,814

-  

6.03.05

Repayment of principal of borrowings and debentures

  (7,136,611)

   (10,204,257)

-  

6.03.06

Repayment of derivatives

   219,257

   543,427

-  

6.03.07

Advance for future capital increase

   12

-  

-  

6.03.08

Dividend and interest on capital paid

  (534,061)

  (322,163)

-  

6.03.09

Intragroup loans to subsidiaries

5,813

-  

-  

6.05

Increase (decrease) in cash and cash equivalents

  45,706

  (1,358,186)

-  

6.05.01

Cash and cash equivalents at the beginning of the year

   1,891,457

   3,249,643

-  

6.05.02

Cash and cash equivalents at the end of the year

   1,937,163

   1,891,457

-  

 

 

16

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Changes in Equity – from January 1, 2019 to December 31, 2019

(In thousands of Brazilian reais – R$)

             
                   

 Code

 Description

 Issued capital 

 Capital reserves,
stock options and treasury stock

 Earnings reserves

 Retained earnings/accu-mulated losses

 Other comprehensive income

 Equity

 Noncontrolling interests

 Consolidated equity

5.01

Opening balances

  5,741,284

  469,257

  4,428,503

-  

  (376,295)

   10,262,749

   2,269,634

   12,532,383

5.03

Adjusted opening balances

  5,741,284

  469,257

  4,428,503

-  

  (376,295)

   10,262,749

   2,269,634

   12,532,383

5.04

Capital transactions with shareholders

  3,646,797

(2,110,219)

  1,433,295

(2,074,414)

-  

  895,459

  (2,026,323)

(1,130,864)

5.04.01

Capital increase

  3,694,342

   -  

   -  

-  

-  

  3,694,342

122

  3,694,464

5.04.02

Public offering costs

   (47,545)

   -  

   -  

-  

-  

   (47,545)

-  

   (47,545)

5.04.06

Dividends

   -  

   -  

  1,433,295

(1,433,295)

-  

   -  

-  

   -  

5.04.08

Gain (loss) on interest in subsidiaries with no change in control

   -  

   (75,299)

   -  

-  

-  

   (75,299)

  75,299

   -  

5.04.09

Dividend proposal approved

   -  

   -  

   -  

765

-  

   765

-  

   765

5.04.10

Dividend approved

   -  

   -  

   -  

(641,884)

-  

(641,884)

(29,109)

(670,993)

5.04.11

Acquisition of noncontrolling interest of CPFL Renováveis

   -  

(2,034,920)

   -  

-  

-  

(2,034,920)

  (2,072,635)

(4,107,555)

5.05

Total comprehensive income

   -  

   -  

   -  

   2,702,671

  (866,498)

  1,836,173

  45,626

  1,881,799

5.05.01

Profit for the year

   -  

   -  

   -  

   2,702,671

-  

  2,702,671

  45,626

  2,748,297

5.05.02

Other comprehensive income

   -  

   -  

   -  

-  

  (866,498)

(866,498)

-  

(866,498)

5.05.02.01

Financial instruments adjustment

   -  

   -  

   -  

-  

   (1,662)

  (1,662)

-  

  (1,662)

5.05.02.02

Tax on financial instruments adjustment

   -  

   -  

   -  

-  

565

   565

-  

   565

5.05.02.06

Other comprehensive income - actuarial gains (losses)

   -  

   -  

   -  

-  

  (865,401)

(865,401)

-  

(865,401)

5.06

Internal changes in equity

   -  

   -  

  653,929

(628,257)

(25,672)

   -  

  (80)

(80)

5.06.01

Recognition of reserves

   -  

   -  

  135,134

(135,134)

-  

   -  

-  

   -  

5.06.04

Realization of deemed cost of property, plant and equipment

   -  

   -  

   -  

  38,897

(38,897)

   -  

-  

   -  

5.06.05

Tax effect on realization of deemed cost

   -  

   -  

   -  

   (13,225)

  13,225

   -  

-  

   -  

5.06.07

Changes in statutory reserve in the year

   -  

   -  

  518,795

(518,795)

-  

   -  

-  

   -  

5.06.08

Other changes

   -  

   -  

   -  

-  

-  

   -  

  (80)

(80)

5.07

Closing balances

  9,388,081

(1,640,962)

  6,515,727

-  

  (1,268,465)

   12,994,381

   288,857

   13,283,238

 

 

 

 

17

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Changes in Equity – from January 1, 2018 to December 31, 2018

(In thousands of Brazilian reais – R$)

             
                   

 Code

 Description

 Issued capital 

 Capital reserves,
stock options and treasury stock

 Earnings reserves

 Retained earnings/accu-mulated losses

 Other comprehensive income

 Equity

 Noncontrolling interests

 Consolidated equity

5.01

Opening balances

  5,741,284

  468,014

  2,916,737

  -  

   (164,506)

  8,961,529

  2,224,816

   11,186,345

5.03

Adjusted opening balances

  5,741,284

  468,014

  2,916,737

  -  

   (164,506)

  8,961,529

  2,224,816

   11,186,345

5.04

Capital transactions with shareholders

  -  

   1,238

  -  

   (488,785)

  -  

   (487,547)

  (63,024)

   (550,571)

5.04.06

Dividends

  -  

  -  

  -  

   (488,785)

  -  

   (488,785)

  (68,685)

   (557,470)

5.04.08

Gain (loss) on interest in subsidiaries with no change in control

  -  

   1,238

  -  

  -  

  -  

   1,238

   5,661

   6,899

5.05

Total comprehensive income

  -  

  -  

  -  

  1,975,433

   (186,671)

  1,788,762

  107,955

  1,896,717

5.05.01

Profit for the year

  -  

  -  

  -  

  2,058,040

  -  

  2,058,040

  107,955

  2,165,995

5.05.02

Other comprehensive income

  -  

  -  

  -  

  (82,607)

   (186,671)

   (269,278)

  -  

   (269,278)

5.05.02.01

Financial instruments adjustment

  -  

  -  

  -  

   (125,162)

78,953

  (46,209)

  -  

  (46,209)

5.05.02.02

Tax on financial instruments adjustment

  -  

  -  

  -  

42,555

  (26,844)

15,711

  -  

15,711

5.05.02.06

Other comprehensive income - actuarial gains (losses)

  -  

  -  

  -  

  -  

   (238,780)

   (238,780)

  -  

   (238,780)

5.06

Internal changes in equity

  -  

5

  1,511,766

   (1,486,648)

  (25,118)

5

(113)

(108)

5.06.01

Recognition of reserves

  -  

  -  

  102,902

   (102,902)

  -  

  -  

  -  

  -  

5.06.04

Realization of deemed cost of property, plant and equipment

  -  

  -  

  -  

38,057

  (38,057)

  -  

  -  

  -  

5.06.05

Tax effect on realization of deemed cost

  -  

  -  

     -  

  (12,939)

12,939

  -  

  -  

  -  

5.06.07

Changes in statutory reserve in the year

  -  

  -  

  1,408,864

   (1,408,864)

  -  

  -  

  -  

  -  

5.06.08

Other changes

  -  

5

  -  

  -  

  -  

5

(113)

(108)

5.07

Closing balances

  5,741,284

  469,257

  4,428,503

  -  

   (376,295)

   10,262,749

  2,269,634

   12,532,383

 

 

18

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated Financial Statements

Statement of Value Added

(In thousands of Brazilian reais – R$)

         

 Code

 Description

 Current year
01/01/2019 to 12/31/2019

 Previous Year
01/01/2018 to 12/31/2018

 Previous Year
01/01/2017 to 12/31/2017

7.01

Revenues

  45,092,420

  42,759,621

-  

7.01.01

Sales of goods and services

  42,921,143

  40,854,038

-  

7.01.02

Others revenues

2,087,995

1,772,222

-  

7.01.02.01

Revenue from infrastructure construction of the concession

2,087,995

1,772,222

-  

7.01.03

Revenues related to the construction of own assets

316,706

302,620

-  

7.01.04

Allowance for doubtful accounts

  (233,424)

  (169,259)

-  

7.02

Inputs purchased from third parties

   (24,303,691)

   (23,378,560)

-  

7.02.01

Cost of sales and services

   (20,293,644)

   (19,757,090)

-  

7.02.02

Materials, energy, third-party services and others

  (4,010,047)

  (3,621,470)

-  

7.03

Gross value added

  20,788,729

  19,381,061

-  

7.04

Retentions

  (1,687,809)

  (1,602,182)

-  

7.04.01

Depreciation, amortization and depletion

  (1,399,371)

  (1,315,323)

-  

7.04.02

Others

  (288,438)

  (286,859)

-  

7.04.02.01

Amortization of intangible assets of the concession

  (288,438)

  (286,859)

-  

7.05

Net added value generated

  19,100,920

  17,778,879

-  

7.06

Added value received in transfer

1,330,738

1,183,083

-  

7.06.01

Share of profit (loss) of investees

349,090

334,198

-  

7.06.02

Finance income

981,648

848,885

-  

7.07

Added value to be distributed

  20,431,658

  18,961,962

-  

7.08

Distribution of added value

  20,431,658

  18,961,962

-  

7.08.01

Personnel and charges

1,475,314

1,390,996

-  

7.08.01.01

Salaries and wages

817,839

795,377

-  

7.08.01.02

Benefits

590,696

530,120

-  

7.08.01.03

FGTS (Severance Pay Fund)

   66,779

   65,499

-  

7.08.02

Taxes, fees and contributions

  14,477,215

  13,452,580

-  

7.08.02.01

Federal

7,503,812

7,231,289

-  

7.08.02.02

State

6,942,156

6,195,062

-  

7.08.02.03

Municipal

   31,247

   26,229

-  

7.08.03

Interest and Rentals

1,730,832

1,952,391

-  

7.08.03.01

Interest

1,651,188

1,879,399

-  

7.08.03.02

Rentals

   79,644

   72,992

-  

7.08.04

Interest on capital

2,748,297

2,165,995

-  

7.08.04.02

Dividend (including additional proposed)

2,075,179

581,029

-  

7.08.04.03

Retained earnings / Loss for the period

673,118

1,584,966

-  

 

 

19

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Management Report

 

Dear Shareholders,

In compliance with the law and the Bylaws of CPFL Energia S.A. (“CPFL Energia” or “Company”), the Management of the Company hereby submits to you the Management Report and financial statements of the Company, along with the reports of the independent auditor and fiscal council for the fiscal year ended December 31, 2019. All comparisons herein are made with consolidated figures for fiscal year 2018, except when specified otherwise.

 

 

1.       Opening remarks

 

The year 2019 signaled a new moment for the CPFL Energia Group. Three years after its control was acquired by Chinese conglomerate State Grid, CPFL Energia returned to the capital markets through a new share offering to access funds that may be necessary to ensure the Group’s continuous growth. The idea was to keep the Company listed, go back to the market, so that investors could once again follow the trajectory of CPFL, which remains the same as before - a company that is concerned with transparency, financial discipline and strong governance.

Funds raised from the share offering were used to acquire State Grid’s interest in CPFL Renováveis. As part of this process, in July 2019, we started to fully integrate the administrative activities of CPFL Renováveis and CPFL Energia (concluded in 3Q19) primarily to capture potential synergies between the organizational models of both companies. This initiative further reinforces the Management’s commitment to the Company’s growth and to creating value for its shareholders.

The CPFL group remained active this year, making improvements in its operations and management and seeking to adopt industry best practices. We continued the deployment of cutting-edge technologies in our business and the digitalization of support activities to achieve greater cost-efficiency, while constantly monitoring the developments in the political and economic scenario in our markets in Brazil.

The 2019 results reflected the growth in energy sales, our disciplined management of costs and expenses, as well as the decline in interest rates in Brazil.

Electricity supply (energy billed to final consumers) totaled 53,375 GWh, up 0.5%. The residential and commercial segments recorded growth of 3.8% and 4.8%, respectively, reflecting the slow recovery of economic activity, while the industrial segment registered a 4.6% decline. Electricity supply through other concessionaires, licensees and authorized suppliers reached 18,351 GWh, an increase of 3.3%.

Operating cash generation of the CPFL group, measured by EBITDA, reached R$ 6,394 million in 2019 (+13.4%), reflecting the positive results, mainly in the distribution business, whose EBITDA reached R$ 3,696 million in 2019 (+23.0%), mainly reflecting the conclusion of the tariff review process at CPFL Paulista, RGE Sul and RGE during the course of 2018. Moreover, the Company has been conducting organizational reviews in order to simplify its processes and structure to bring greater efficiency and focus to its business.

We continue to work on value-creation initiatives and on our investment plan in 2019, backed by financial discipline, as well as the engagement and commitment of our teams. We invested R$ 2,254 million during this period.

20

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

With the focus on optimizing the capital structure, consolidated financial leverage of CPFL Energia remains at adequate levels. The Company’s net debt to EBITDA ratio was 2.52 times at the end of the year based on the criteria used to measure our financial covenants.

Another important development in the second quarter was the change in the dividend payment policy, which set the minimum payout at 50%. As such, starting from 2020, a balance will be achieved between growth and yield.

On the social and sustainability fronts, we invested R$150 million in the “CPFL in Hospitals Program”, an initiative that will help public and philanthropic institutions to reduce their electricity bills through energy efficiency actions. Over the next 3 years, photovoltaic panels generating up to 25MWp of energy will be installed at the philanthropic hospitals, which will help reduce about 6,000 t/CO2 per year – the equivalent of planting about 900 trees.

Finally, the management of CPFL Energia reiterates its trust and commitment to shareholders, clients, partners, society and other stakeholders, while remaining optimistic about the advances in the Brazilian electricity sector and confident about our business platform, based on operational efficiency, corporate governance, sustainability, financial discipline and synergistic growth, and being increasingly prepared to face the challenges and opportunities in the country.

 

SHAREHOLDERS’ STRUCTURE (simplified)

CPFL Energia is a holding company that owns stake in other companies:

 

21

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Reference date: 12/31/2019

Notes:

(1) RGE is held by CPFL Energia (89.0107%) and CPFL Brasil (10.9893%);

(2) CPFL Soluções = CPFL Brasil + CPFL Serviços + CPFL Eficiência;

(3) 51.54% stake of the availability of power and energy of Serra da Mesa HPP, regarding the Power Purchase Agreement between CPFL Geração and Furnas;

(4) CPFL Renováveis is held by CPFL Energia (46.7609%) and CPFL Geração (53.1831%).

 

 

 

22

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

2.       Comments on the macroeconomic and regulatory scenario

 

MACROECONOMIC SCENARIO

After three years of sharp contraction between 2014 and 2016, a period marked by diverse political upheavals, the Brazilian economy embarked on a slow and irregular recovery in 2017, 2018 and 2019.

A few shocks hit the Brazilian economy in 2019. Notable among them was the tragedy at Brumadinho, which led to a steep reduction in iron ore mining; the continuing recession in Argentina, which adversely affected Brazilian exports, especially manufactured goods; and the global economic and commerce slowdown. Basically, these were the same factors that caused the decline in industrial production in 2019, despite the growth in domestic demand.

With a fairly moderate pace of the economy, the idleness of the factors of production remained high, which was reflected in very low inflation rates (especially the core measures). This scenario, combined with the growing prospects of the social security reform being approved, led the Brazilian Central Bank to loosen its monetary policy once again, taking interest rates to the lowest levels ever (both in real and nominal terms) during the second half of the year.

The approval of social security reform, which will avoid a strong growth in social security spending in the long term, consolidated the vision of a structural interest rate reduction in the near future, and the interest curve as a whole underwent a sharp correction, with a decline in long-term interest rates.

The monetary stimulus drive, with regular injection of funds into the economy (workers’ severance fund (FGTS), corporate social contributions (PIS-PASEP) and the 13th installment of the family allowance (Bolsa Família) program), started boosting the economy until the end of 2019. Better data are seen in credit, trade and some service and industry segments. Even the construction segment, which faced the consequences of the crisis more severely and longer, has started showing signs of certain recovery.

The decline in domestic interest rates also resulted in swaps of more expensive external financing for domestic credit, which is free of exchange risk and more accessible during this moment of monetary expansion – not only through banks but also - and increasingly - the capital markets. Together with the increase in funding through issue of shares and securities, the demand for the U.S. dollar on the spot market to settle debts owed to international creditors increased, which exerted certain pressure on the Brazilian real. But nothing that could change inflation projections or the outlook for monetary policy.

As such, the year 2019 comes to a close with the economy gaining traction and the lagging effects of monetary expansion still to produce results. Inflation was pressured by the effects of change in prices related to proteins, reflecting the sudden reduction in Chinese pork supply, but this aspect does not raise concerns in the monetary policy horizon. Brazil’s Monetary Policy Committee (Copom) has signaled a cautious approach, so much so that the Selic basic interest rate should decline very slightly or not at all in 2020.

Projections by the Brazilian Central Bank indicate the maintenance of interest rates at low levels for a long time. While the slight difference between domestic and foreign interest rates reduces investor appetite for fixed income securities, the growth difference should encourage the inflow of overseas funds into the country for investments, including additional depreciation and even the possibility of a slight appreciation of the currency. The international scenario should contribute to a year of greater interest in emerging economies and the recent revision of Brazil’s risk rating by S&P backs this improved outlook.

The dilution of uncertainties seen this year-end suggests that 2020 could be a year of less tension and volatility across markets, with mild impacts on our economy. However, the risks of an increase in uncertainties still seem relevant to us. In the external scenario, the U.S. presidential elections should cause moments of tension, just as the uncertainty surrounding the recent agreement between the U.S. and China. On the domestic front, the risk of worsening political tensions too cannot be ruled out, remembering that the post-social security reform economic agenda is more diffuse. Lastly, note that there are two "fiscal scapegoats" that may cause inconvenience in the short term.

23

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The first is the situation of state entities: few states have less than 90% of their revenues committed to current expenses (the most recent case of the city of Rio de Janeiro, which suspended payments, is an example of the fragile scenario in which the so-called federative pact will be conducted).

The other is the ceiling on government spending: if it is not relaxed, compliance with it will require draconian tax efforts (especially from 2021), with restrictive potential effect on the economy.

Thus, growth projections for the Brazilian economy continue to indicate a faster pace of recovery than now. The average of forecasts made by market players indicates that GDP will grow from 1.1% in 2019 to around 2.2% in 20201. Weakened external demand and fiscal adjustment measures, which weigh on government consumption and public investments, tend to reduce the pace of recovery in the short term.

 

 

REGULATORY ENVIRONMENT

The key changes in sector regulations in the distribution segment in 2019 are outlined below:

1)   ANEEL streamlined the criteria and procedures to prepare the Monthly Energy Operation Program (PMO) and to determine the Differences Settlement Price (PLD) through Resolution (REN) 843 of April 2, 2019;

2)   ANEEL revised, through Ratification Resolution (REH) 2551/19 and REN 845, both of May 21, 2019, the activation ranges and the additional Tariff Flags;

3)   Through ANEEL Normative Resolution 846 of June 11, 2019, the regulation on penalties imposed on concession holders, permit holders, authorized agents and other energy services and facilities providers, as well as entities responsible for system operation, electricity sale and management of resources arising from sectorial charges was streamlined;

4)   ANEEL amended Normative Resolution 699/2016, which addresses controls over legal actions and deals between concessionaires, licensees, authorized agents and their related parties, through Normative Resolution 865 of December 17, 2019.

 

 

ELECTRICITY TARIFFS AND PRICES

 

Distribution Segment

 

Annual Tariff Adjustment (ATA):

The following distribution companies had tariffs adjusted in 2019:

 


 

1 Data from the Central Bank of Brazil’s Focus market readout on February 26,2020.

24

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

CPFL Santa Cruz

CPFL Paulista

RGE

RGE Sul

Ratifying Resolution

2,522

2,526

2,557

Adjustment

13.70%

12.02%

10.05%

Parcel A

1.12%

0.78%

-2.16%

Parcel B

0.90%

2.17%

2.21%

Financial Components

11.68%

9.07%

10.00%

Effect on consumer billings

13.31%

8.66%

8.63%

1.72%

Date of entry into force

03/22/2019

8/4/2019

06/19/2019

 

Considering the merger of the concessions RGE and RGE Sul in 12/31/2018, the same percentage of adjustment was considered for the two concessions, but the effect on consumer billings is different for each one of the concessions.

 

Periodical Tariff Revision (PTR):

 

CPFL Piratininga

Ratifying Resolution

2,627

Adjustment

1.88%

Parcel A

-6.64%

Parcel B

1.24%

Financial Components

7.28%

Effect on consumer billings

-7.80%

Date of entry into force

10/23/2019

 

CPFL Piratininga

On October 23, 2019, Aneel approved the results of the fourth Periodic Tariff Review of the distributor CPFL Piratininga. The average impact to be perceived by consumers is -7.80% and details can be found in the table above.

 

Generation Segment

Electricity sale contracts of generators contain specific adjustment clauses, whose main index is the average annual variation measured by the IGP-M. Contracts signed in the Regulated Contracting Environment (ACR) are indexed to the IPCA, and bilateral contracts signed by the indirect subsidiary Campos Novos Energia (Enercan) use a combination of dollar and IGP-M indexes.

 

25

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

3.       Operating Performance

 

ENERGY SALES

In 2019, electricity sales to final consumers (quantity of electricity billed to final consumers) totaled 53,375 GWh, an increase of 0.5% (284 GWh) compared to 2018.

It is noteworthy the performance of the residential and commercial segments, which accounted 58.2% of the electricity sales to final consumers:

·      Residential and Commercial Classes: increases of 3.8% and 4.8%, respectively, reflecting the temperature effects of the beginning and end of the year. This effect was partially offset by the expansion of Distributed Generation in the concession area and by the macroeconomic scenario.

·      Industrial Class: reduction of 4.6%, reflecting the weak economic performance in the year and the effects of customer migrations to the free market.

Electricity sales to wholesaler’s, through other concessionaires, licensees and authorized reached 18,351 GWh, which represented an increase of 3.3% (595 GWh), mainy due to the increase in sales by the distribution companies.

 

 

PERFORMANCE IN THE ELECTRICITY DISTRIBUTION SEGMENT

The Group maintained its strategy of encouraging the dissemination and sharing of best management and operational practices at its distributors in an effort to increase operational efficiency and improve the quality of services provided to clients.

Find below the results posted by distributors in the main indicators that measure quality and reliability of power supply. The Equivalent Duration of Interruptions (SAIDI) measures the average duration, in hours, of interruptions suffered by consumers in the year, while the SAIFI (Equivalent Frequency of Interruptions) measures the average number of interruptions suffered per consumer per year.

SAIDI and SAIFI Indexes*

Distributor

SAIDI (hours)

SAIFI (interruptions)

2019

2018

2019

2018

CPFL Paulista

6.72

6.17

4.38

4.03

CPFL Piratininga

6.48

5.92

4.34

3.87

RGE

14.01

14.44

6.25

6.10

CPFL Santa Cruz

5.56

6.01

4.25

5.09

 

PERFORMANCE IN THE ELECTRICITY GENERATION SEGMENT

In 2019, the installed capacity of the Generation segment of CPFL group totaled 4,304 MW, considering its 99.94% interest in CPFL Renováveis.

On December 31, 2019, the portfolio of CPFL Renováveis totaled 2,133 MW of installed capacity in operation, comprising 40 SHPPs (453 MW), 45 wind farms (1,309 MW), 8 biomass-powered thermal power plants (370 MW) and 1 solar plant (1 MW).

26

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

We are constantly evaluating new opportunities to explore investments in additional conventional and renewable generation projects. We have a total portfolio of 2.9 GW of renewable generation projects to be developed in the coming years and currently have 110 MW under construction:

Lucia Cherobim SHPP: project located in the state of Paraná, is scheduled to start operating in 2024. The installed capacity is of 28.0 MW and the physical guarantee is of 16.6 average MW. The energy was sold under a long-term contract at the 2018 new energy auction (A-6). (Price: R$ 189.95 / MWh - December 2019).

Gameleira Complex Wind Farms: the wind farms Costa das Dunas, Figueira Branca, Farol de Touros and Gameleira, located in the state of Rio Grande do Norte, is scheduled to start operating in 2024. The installed capacity is of 81.7 MW and the physical guarantee is of 39.4 average MW. There was an increase in installed capacity, from 61.3 MW to 81.7 MW, due to the optimization of the wind turbine power. Part of the energy (12.0 average MW) was sold under a long-term contract at the 2018 new energy auction (A-6). (Price: R $ 89.89 / MWh - December 2019).

 

4.       Economic and Financial Performance

 

The Management’s comments on economic and financial performance and the operating results should be read together with the financial statements and notes to the financial statements.

 

Operating Revenue

Gross operating revenue was of R$ 45,009 million, representing an increase of 5.6% (R$ 2,383 million), due to the increases: (i) of 9.4% (R$ 2,740 million) in electricity sales to final consumers; (ii) of 11.9% (R$ 650 million) in the electricity sales to wholesalers; (iii) of 11.4% (R$ 551 million) in other operating income; and (iv) of 17.8% (R$ 316 million) in the revenue with construction of concession infrastructure. These effects were partially offset by the variation of R$ 1,810 million in the sectoral financial assets and liabilities, from an asset of R$ 1,208 million in 2018 to a liability of R$ 602 million in 2019, and the reduction of 18.7% (R$ 64 million) in the update of concession’s financial asset.

Deductions from operating revenue were of R$ 15,077 million, presenting an increase of 4.1% (R$ 587 million). Net operating revenue was of R$ 29,932 million, representing an increase of 6.4% (R$ 1,796 million).

 

Operating Cash Flow - EBITDA

EBITDA is a non-accounting measurement calculated by Management as the sum of income, taxes, financial income/loss, depreciation and amortization. This measurement serves as an indicator of management performance and is usually monitored by the market. Management complied with the concepts of CVM Instruction 527 of October 4, 2012, while calculating this non-accounting measurement.

 

Reconciliation of Net Income and EBITDA

 

2019

2018

Net Income

2,748,296

2,165,995

Depreciation and Amortization

1,681,053

1,594,065

Assets Surplus Value Amortization

579

579

Financial Income/Loss

726,247

1,102,687

Social Contribution

336,610

213,673

Income Tax

901,386

560,310

EBITDA

6,394,173

5,637,308

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Operating cash flow, as measured by EBITDA, reached R$ 6,394 million, an increase of 13.4% (R$ 757 million), mainly due to the increase of 6.4% (R$ 1,796 million) in net operating revenue and the increase of 4.4% (R$ 15 million) in equity income. These effects were partially offset by the increase of 3.0% (R$ 533 million) in costs with energy purchase and sector charges, and the increase of 10.4% (R$ 521 million) in operating costs and expenses, including expenses with private pension fund and costs with construction of concession infrastructure.

 

Net Income

In 2019, net income reached R$ 2,748 million, an increase of 26.9% (R$ 582 million), mainly due to the increase of 13.4% (R$ 757 million) in EBITDA and the reduction of 34.1% (R$ 376 million) in net financial expenses. These effects were partially offset by the increases of R$ 464 million in Income Tax and Social Contribution and of 5.5% (R$ 87 million) in depreciation and amortization.

 

Allocation of Net Income from the Fiscal Year

CPFL Energia´s dividend policy stipulates that a minimum of 50% of adjusted net income, in accordance with the Brazilian Corporate Law, will be distributed to shareholders. The proposal for allocation of net income from the fiscal year is shown below:

 

Thousands of R$

Net income of the fiscal year - Individual

               2,702,671

Realization of comprehensive income

                    25,672

Prescribed dividend

                         765

Net income base for allocation

               2,729,108

Legal reserve

                 (135,134)

Statutory reserve - working capital reinforcement

                 (518,795)

Mandatory minimum dividend

                 (641,884)

Proposed additional dividend

              (1,433,295)

 

Dividend

The Board of Directors propose the payment of R$ 2,075 million in dividends to holders of common shares traded on B3 S.A. – Brasil, Bolsa, Balcão (B3). This proposed amount corresponds to R$ 1.800972882 per share, related to the fiscal year of 2019.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Statutory Reserve – Working Capital Reinforcement

For this fiscal year, considering the current macro scenario with an incipient economic recovery, and also considering the uncertainties regarding hydrology, the Company’s Management is proposing the allocation of R$ 519 million to the statutory reserve - working capital reinforcement.

 

Indebtedness

At the close of 2018, gross financial debt (including derivatives) of the Company reached R$ 18,294 million, presenting a reduction of 7.4%. Cash and cash equivalents totaled R$ 1,937 million, an increase of 2.4%. As such, net financial debt decreased 8.4% to R$ 16,356 million.

 

5.       Investments

 

In 2019, investments of R$ 2,254 million were made in business maintenance and expansion, of which R$ 2,033 million was destined to distribution, R$ 159 million to generation (R$ 126 million to renewable generation and R$ 33 million to conventional generation) and R$ 62 million to commercialization, services and others. In addition, we invested R$ 21 million in the transmission segment and, according to the requirements of IFRIC 15, it was recorded as “Contractual Asset of Transmission Companies” (in other credits).

CPFL Energia’s investments in 2019 include:

Distribution: investments in expansion, maintenance, improvement, automation, modernization and strengthening the electricity system to meet market growth, in operational infrastructure, customer service and research and development programs, among other areas. On December 31, 2019, our distributors had 9.8 million customers, an increase of 0.2 million customers. Our distribution network consisted of 329,370 kilometers of distribution lines (adding 5,391 kilometers of lines), including 476,474 distribution transformers (adding 11,847 transformers). Our five distribution subsidiaries had 12,856 kilometers of high voltage distribution lines of between 34.5 kV and 138 kV (adding 292 kilometers of lines). On that date, we had 555 transformer substations, from high voltage to medium voltage, for subsequent distribution (adding 07 substations), with total transformer capacity of 18,703 MVA (adding 125 MVA);

Generation: in 2019, were invested R$ 159 million, of which R$ 33 million of conventional generation and R$ 126 million of renewable generation, spent mainly on the Lucia Cherobim SHPP and on the wind farms of Gameleira Complex (Costa das Dunas, Figueira Branca, Farol de Touros and Gameleira).

 

6.       Corporate Governance

 

The corporate governance model adopted by CPFL Energia and its subsidiaries is based on the principles of transparency, equity, accountability and corporate responsibility.

In 2019, CPFL completed 15 years of its IPO on the B3 and the New York Stock Exchange (NYSE). With more than 100 years of history in Brazil, the Company has its shares listed on the Novo Mercado segment of the B3 with Level III ADRs on the NYSE (until January 27, 2020, due to the conclusion of NYSE’s delisting process), both special listing segments for companies that comply with corporate governance best practices. All CPFL shares are common shares, entitling shareholders the right to vote with 100% Tag Along rights guaranteed in case of sale of shareholding control.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL’s Management is composed of the Board of Directors (Board), its decision-making authority, and the Board of Executive Officers, its executive body.  The Board is responsible for defining the strategic business direction of the holding company and subsidiaries, and is composed of 7 members, two of whom are independent members, whose term of office is 1 year and who are eligible for reelection.

The Charter of the Board establishes the procedures for evaluating the directors, under the leadership of the Chairman, as well as their key duties and rights.

The Board has set up five advisory committees (Strategy and Processes Management, Human Resources Management, Related Parties, Risks Management and Budget and Corporate Finance), which support the Board in its decisions and monitor relevant and strategic issues, such as people and risk management, sustainability, monitoring of internal audit, analysis of transactions with related parties of shareholders pertaining to the controlling block and handling of incidents recorded through complaint hotlines and ethical conduct channels.

The Board of Executive Officers is made up of 1 Chief Executive Officer, 1 Deputy Chief Executive Officer and 8 Executive Vice Presidents, all with terms of office of two years, eligible for reelection, who are responsible for executing the strategy of CPFL Energia and its subsidiaries, as defined by the Board of Directors in line with corporate governance guidelines.  To ensure alignment of governance practices, the Chief Executive Officer and the Deputy Chief Executive Officer sit on the Boards of Directors of companies that make up the CPFL group.

CPFL has a permanent Fiscal Council, consisting of 3 members and 3 alternate members, which also performs the functions of the Audit Committee, in compliance with the Sarbanes-Oxley Act (SOX) rules applicable to foreign companies listed on U.S. stock exchanges.

The guidelines and documents on corporate governance are available at the Investor Relations website http://www.cpfl.com.br/ir.

 

7.       Capital Markets

 

The shares of CPFL Energia, which have a free float of 16.29% (up to December 31, 2019), are listed both on the São Paulo Stock Exchange (B3) and the New York Stock Exchange (NYSE).

In 2019, CPFL Energia shares apreciated 23.2% on the B3 and 17.8% on the NYSE, closing the year at R$ 35.55 per share and US$ 17.46 per ADR, respectively. The average daily trading volume in 2019 was R$ 61.4 million, of which R$ 59.6 million on the B3 and R$ 1.8 million on the NYSE, representing an increase of 379.7% over 2018. This increase in the trading volume of CPFL Energia's shares is mainly due to the increase in the Company's free float, from 5.25% to 16.29%, after the Public Offering of Shares, concluded on June 12, 2019 Number of trades on the B3 increased 222.6%, from a daily average of 1,645 trades in 2018 to 5,307 in 2019.

 

8.       Sustainability and Corporate Responsibility

 

We develop initiatives aimed at generating shared value between the company and its stakeholder groups in order to ensure competitiveness, through excellence in operations, and contribute to better economic, social and environmental conditions in the areas of influence. In line with the strategic plan of the CPFL Group, the commitments and business guidelines aim to promote sustainable development and are incorporated into the decision-making process and actions. See the highlights below.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Sustainability plan: definition of the sustainability strategy with a focus on three pillars - Sustainable energy, smart solutions and shared value with society - and key enablers for our work - Ethics, Transparency, People development and inclusion, with public commitments and value initiatives in several areas of the company, contributing to the achievement of the United Nations Sustainable Development Goals (SDGs).

Sustainability platform: sustainability management tool that includes performance indicators and targets aligned with the Strategic Plan and the Sustainability Plan, as well as the perspective of its key stakeholder groups.

Sustainability Committee: executive management body responsible for monitoring the Sustainability Plan and Platform, evaluating and recommending the inclusion of sustainability criteria and guidelines in the decision-making process, monitoring trends and critical topics for the sustainable development of the company.

 

Climate Change: we maintain a strategic focus on low carbon businesses and projects that aim to combat climate change and its effects, working on the management of greenhouse gas emissions (GHG), risk and opportunity management, innovation with a focus on the development of products and solutions, engagement with organizations and initiatives such as the Brazilian Network of the Global Compact and the Getúlio Vargas Foundation (FGV) and Disclosure through market reports and our communication channels.

Ethics Management and Development System (SGDE): The Integrity Program ensures adequate mechanisms to promote an ethical culture, in line with the principles of the CPFL Energia group. The program has 4 pillars made up of procedures that include support from top management, guidelines such as the Code of Ethical Conduct, as well as communication tools such as training and the external channel for ethics, evaluation and monitoring. We can highlight actions taken / implemented by the Integrity Program, such as: Maintenance of the 2018/2019 Pro-Ethics Seal. The award was granted by the Comptroller General of the Union (CGU) to a select group of 26 companies out of 373 participants, who encourage the voluntary adoption of integrity measures and committed to implementing actions aimed at preventing, detecting and remedying acts of corruption and fraud , the on-site training / e-learning of the Integrity Program for 5,462 employees of the CPFL group, the implantation of the Monthly Integrity Conversation - CMI in all units of the CPFL group, Integrity Day that featured a lecture by professor and philosopher Mário Sérgio Cortella . In addition, 12 Ethics Committee meetings were held in 2019 to address issues related to ethics management, considering suggestions, consultations and complaints received in the period

Human Resources Management: In 2019, we trained 11,746 people, representing 81% of the workforce. There were 4,264 classroom classes and 27,175 hours of online training. We also launched the first School of Operators in Brazil, free training that develops professionals to operate the electrical system. Altogether, there were 592 hours of training and 24 students trained.

 

9.       Independent Auditors

 

KPMG Auditores Independentes (KPMG) was engaged by CPFL Energia to audit the financial statements of the Company as an independent auditor. In accordance with CVM Instruction 381/03, we inform that in 2019 KPMG provided services not related to external audit, whose aggregate fees were more than 5% of all fees paid for the audit service (corporate, regulatory and SOX).

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

For the fiscal year ended on December 31, 2019, KPMG provided, in addition to the audit of corporate and regulatory financial statements, review of interim information and SOX audit, the following services:

 

Nature

 

Contract

 

Duration

Compliance with financial covenants

 

12/28/2016

 

Fiscal Years from 2017 to 2021

Compliance of information to BNDES

 

06/24/2019

 

3 months

Tax compliance services – Bookkeeping and Tax Accounting (ECF)

 

12/28/2016

 

Fiscal Years from 2017 to 2021

Other tax compliance services

 

09/01/2017

 

24 months

Previously agreed procedures - Tax reviews and rectifications of previous years

 

05/03/2018 and 07/05/2018

 

12 months

Bookkeeping and Tax Accounting (ECD) – fiscal year 2017

 

05/18/2018

 

24 months

Previously agreed procedures – Impacts evaluation of the CFURH (ANEEL)

 

09/30/2018

 

6 months

 

We contracted a total of R$ 1,256 thousand for the above services, which corresponds to approximately 28% of the fees for external audit of the corporate and regulatory financial statements, revision of interim information and SOX audit for the fiscal year 2019, of the Company and its subsidiaries.

The hiring of independent auditors, in accordance with the Bylaws, is recommended by the Audit Board. The Board of Directors deliberates on the selection or removal of independent auditors.

Pursuant to CVM Instruction 381/03, KPMG represented to the Management of CPFL Energia that the provision of the above-mentioned services does not affect the independence and objectivity required for the performance of external audit services.

 

10.  Acknowledgements

 

The Management of CPFL Energia thanks its shareholders, customers, suppliers and communities in the areas of operations of its subsidiaries for their trust in the Company in 2018. It also thanks, in a special way, its employees for their competence and dedication in meeting the objectives and targets set.

 

The Management

 

For more information on the performance of this and other companies of the CPFL Energia Group, visit www.cpfl.com.br/ir.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

NOTES TO FINANCIAL STATEMENTS

 

SUMMARY

 

     

ASSET

2

LIABILITY AND EQUITY

3

STATEMENT OF INCOME

4

STATEMENT OF COMPREHENSIVE INCOME

5

STATEMENT OF CHANGES IN SHAREHOLDER’ EQUITY

6

STATEMENT OF CASH FLOW

7

STATEMENT OF VALUE ADDED

8

(1)

OPERATIONS

9

(2)

PRESENTATION OF THE FINANCIAL STATEMENTS

11

(3)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

14

(4)

FAIR VALUE MEASUREMENT

26

(5)

CASH AND CASH EQUIVALENTS

27

(6)

MARKETABLE SECURITIES

27

(7)

CONSUMERS, CONCESSIONAIRES AND LICENSEES

27

(8)

TAXES RECOVERABLE

29

(9)

SECTOR FINANCIAL ASSET AND LIABILITY

30

(10)

DEFERRED TAX ASSETS AND LIABILITIES

31

(11)

CONCESSION FINANCIAL ASSET

35

(12)

OTHER RECEIVABLES

35

(13)

INVESTMENTS

36

(14)

PROPERTY, PLANT AND EQUIPMENT

41

(15)

INTANGIBLE ASSETS

43

(16)

CONTRACT ASSETS

45

(17)

TRADE PAYABLES

45

(18)

BORROWINGS

46

(19)

DEBENTURES

49

(20)

PRIVATE PENSION PLAN

53

(21)

REGULATORY CHARGES

59

(22)

TAXES, FEES AND CONTRIBUTIONS PAYABLES

60

(23)

PROVISION FOR TAX, CIVIL AND LABOR RISKS AND ESCROW DEPOSITS

61

(24)

OTHER PAYABLES

63

(25)

EQUITY

64

(26)

EARNINGS PER SHARE

66

(27)

NET OPERATING REVENUE

68

(28)

COST OF ELECTRIC ENERGY

69

(29)

OPERATING COSTS AND EXPENSES

70

(30)

FINANCE INCOME (COSTS)

70

(31)

SEGMENT INFORMATION

70

(32)

RELATED PARTY TRANSACTIONS

71

(33)

INSURANCE

72

(34)

RISK MANAGEMENT

73

(35)

FINANCIAL INSTRUMENTS

75

(36)

NON-CASH TRANSACTIONS

83

(37)

COMMITMENTS

83

(38)

EVENTS AFTER THE REPORTING PERIOD

83

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

CPFL Energia S.A.

Statements of financial position at December 31, 2019 and December 31, 2018

(in thousands of Brazilian Reais)

 
 

Note

Parent company

 

Consolidated

ASSETS

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

                 
                 

Current assets

               

Cash and cash equivalents

5

   33,909

 

   79,364

 

  1,937,163

 

  1,891,457

Marketable securities

6

-  

 

-  

 

  851,004

 

-  

Consumers, concessionaires and licensees

7

-  

 

-  

 

  4,985,578

 

  4,547,951

Dividends and interest on capital

13

  816,205

 

  701,731

 

  100,297

 

  100,182

Income tax and social contribution recoverable

8

78

 

  9,441

 

   87,698

 

  123,739

Other taxes recoverable

8

   58,947

 

  8,646

 

  331,428

 

  287,517

Derivatives

35

-  

 

-  

 

  281,326

 

  309,484

Sector financial asset

9

-  

 

-  

 

  1,093,588

 

  1,330,981

Contract assets

16

-  

 

-  

 

   24,387

 

-  

Other assets

12

  400

 

  417

 

  648,161

 

  811,005

Total current assets

 

  909,539

 

  799,599

 

   10,340,630

 

  9,402,316

                 

Noncurrent assets

               

Consumers, concessionaires and licensees

7

-  

 

-  

 

  713,068

 

  752,795

Intragroup loans

32

  424,387

 

   72,933

 

-  

 

-  

Escrow Deposits

23

  453

 

  703

 

  757,370

 

  854,374

Income tax and social contribution recoverable

8

-  

 

-  

 

  101,528

 

   67,966

Other taxes recoverable

8

-  

 

-  

 

  370,595

 

  185,725

Sector financial assets

9

-  

 

-  

 

  2,748

 

  223,880

Derivatives

35

-  

 

-  

 

  369,767

 

  347,507

Deferred tax assets

10

   85,474

 

  112,522

 

  1,064,716

 

  956,380

Concession financial asset

11

-  

 

-  

 

  8,779,717

 

  7,430,149

Investments at cost

 

-  

 

-  

 

  116,654

 

  116,654

Other assets

12

  3,960

 

  4,863

 

  736,019

 

  927,440

Investments

13

   12,327,132

 

  9,816,139

 

  997,997

 

  980,362

Property, plant and equipment

14

  2,226

 

  1,087

 

  9,083,710

 

  9,456,614

Contract asset

16

-  

 

-  

 

  1,322,822

 

  1,046,433

Intangible assets

15

  120

 

  110

 

  9,320,953

 

  9,462,935

Total noncurrent assets

 

   12,843,753

 

   10,008,356

 

   33,737,664

 

   32,809,214

                 

Total assets

 

   13,753,291

 

   10,807,954

 

   44,078,293

 

   42,211,530

 

The accompanying notes are an integral part of these financial statements.

 

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL Energia S.A.

Statements of financial position at December 31, 2019 and December 31, 2018

(in thousands of Brazilian Reais)

 
 

Note

 

Parent company

 

Consolidated

   

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

LIABILITIES AND EQUITY

                 

Current liabilities

                 

Trade payables

17

 

4,698

 

2,854

 

3,260,180

 

2,398,085

Borrowings

18

 

   -  

 

   -  

 

2,776,193

 

2,446,113

Debentures

19

 

   -  

 

   -  

 

682,582

 

917,352

Private pension plan

20

 

   -  

 

   -  

 

224,851

 

   86,623

Regulatory liabilities

21

 

   -  

 

   -  

 

232,251

 

150,656

Income tax and social contribution payable

22

 

   40,629

 

8,261

 

218,961

 

100,450

Other taxes, fees and contributions payable

22

 

   25,315

 

5,258

 

741,536

 

664,989

Dividends

   

645,737

 

491,602

 

668,859

 

532,608

Estimated payroll

   

   -  

 

   -  

 

125,057

 

119,252

Derivatives

35

 

   -  

 

   -  

 

   29,400

 

8,139

Use of public asset

   

   -  

 

   -  

 

   11,771

 

   11,570

Other payables

24

 

   22,318

 

   23,405

 

1,094,269

 

979,296

Total current liabilities

   

738,697

 

531,380

 

  10,065,908

 

8,415,132

                   

Noncurrent liabilities

                 

Trade payables

17

 

   -  

 

   -  

 

359,944

 

333,036

Borrowings

18

 

   -  

 

   -  

 

7,587,102

 

8,989,846

Debentures

19

 

   -  

 

   -  

 

7,863,696

 

8,023,493

Private pension plan

20

 

   -  

 

   -  

 

2,153,327

 

1,156,639

Income tax and social contribution payable

22

 

   -  

 

   -  

 

156,198

 

   -  

Other taxes, fees and contributions payable

22

 

   -  

 

   -  

 

805

 

9,691

Deferred tax liabilities

10

 

   -  

 

   -  

 

1,048,069

 

1,136,227

Provision for tax, civil and labor risks

23

 

123

 

241

 

600,775

 

979,360

Derivatives

35

 

   -  

 

   -  

 

6,157

 

   23,659

Sector financial liability

9

 

   -  

 

   -  

 

102,561

 

   46,703

Use of public asset

   

   -  

 

   -  

 

   91,181

 

   89,965

Other payables

24

 

   20,090

 

   13,584

 

759,331

 

475,396

Total noncurrent liabilities

   

   20,213

 

   13,825

 

  20,729,147

 

  21,264,015

                   

Equity

25

               

Issued capital

   

9,388,081

 

5,741,284

 

9,388,081

 

5,741,284

Capital reserves

   

   (1,640,962)

 

469,257

 

   (1,640,962)

 

469,257

Legal reserve

   

1,036,125

 

900,992

 

1,036,125

 

900,992

Statutory reserve - working capital improvement

   

4,046,305

 

3,527,510

 

4,046,305

 

3,527,510

Dividend

   

1,433,295

     

1,433,295

   

Accumulated comprehensive income

   

   (1,268,465)

 

  (376,294)

 

   (1,268,465)

 

  (376,294)

     

  12,994,381

 

  10,262,749

 

  12,994,381

 

  10,262,749

Equity attributable to noncontrolling interests

   

   -  

 

   -  

 

288,857

 

2,269,634

Total equity

   

  12,994,381

 

  10,262,749

 

  13,283,238

 

  12,532,383

                   

Total liabilities and equity

   

  13,753,291

 

  10,807,954

 

  44,078,293

 

  42,211,530

 

The accompanying notes are an integral part of these financial statements

 

35

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

CPFL Energia S.A.

Statements of income for the years ended on December 31, 2019 and 2018

(in thousands of Brazilian Reais, except for Earnings per share)

 
 

Note

Parent company

 

Consolidated

 

2019

 

2018 (1)

 

2019

 

2018 (1)

Net operating revenue

27

          2,309

 

                1

 

     29,932,474

 

     28,136,627

Cost of services

               

Cost of electric energy

28

               -  

 

               -  

 

    (18,370,994)

 

    (17,838,165)

Cost of operation

 

               -  

 

               -  

 

     (2,894,165)

 

     (2,733,754)

Depreciation and amortization

 

               -  

 

               -  

 

     (1,278,272)

 

     (1,237,627)

Other cost of operation

29

               -  

 

               -  

 

     (1,615,893)

 

     (1,496,127)

Cost of services rendered to third parties

29

               -  

 

               -  

 

     (2,089,732)

 

     (1,775,339)

   

 

 

 

 

 

 

 

Gross profit

 

          2,309

 

                1

 

       6,577,583

 

       5,789,369

Operating expenses

               

Selling expenses

 

               -  

 

               -  

 

        (699,910)

 

        (608,184)

Depreciation and amortization

 

               -  

 

               -  

 

            (5,211)

 

            (4,260)

Allowance for doubtful accounts

 

               -  

 

               -  

 

        (233,424)

 

        (169,259)

Other selling expenses

29

               -  

 

               -  

 

        (461,275)

 

        (434,665)

General and administrative expenses

 

       (52,712)

 

       (43,930)

 

     (1,027,230)

 

        (987,291)

Depreciation and amortization

 

           (273)

 

           (201)

 

        (109,132)

 

          (65,319)

Other general and administrative expenses

29

       (52,439)

 

       (43,728)

 

        (918,098)

 

        (921,972)

Other operating expenses

 

               -  

 

                9

 

        (486,993)

 

        (485,427)

Amortization of concession intangible asset

 

               -  

 

               -  

 

        (288,438)

 

        (286,858)

Other operating expenses

29

               -  

 

                9

 

        (198,555)

 

        (198,569)

   

 

 

 

 

 

 

 

Income from electric energy services

 

       (50,403)

 

       (43,920)

 

       4,363,450

 

       3,708,467

                 

Equity interests in subsidiaries, associates and joint ventures

13

   2,827,718

 

   2,250,835

 

          349,090

 

          334,198

                 

Income before financial income

 

   2,777,315

 

   2,206,915

 

       4,712,540

 

       4,042,664

                 

Financial income (expenses)

30

             

Financial income

 

        49,344

 

       (22,160)

 

          903,575

 

          762,413

Financial expenses

 

        (1,326)

 

        (5,140)

 

     (1,629,822)

 

     (1,865,100)

   

        48,018

 

       (27,300)

 

        (726,247)

 

     (1,102,687)

Profit before taxes

 

   2,825,333

 

   2,179,616

 

       3,986,293

 

       2,939,977

Social contribution

10

       (30,828)

 

       (30,814)

 

        (336,610)

 

        (213,673)

Income tax

10

       (91,835)

 

       (90,760)

 

        (901,386)

 

        (560,310)

   

     (122,662)

 

     (121,575)

 

     (1,237,996)

 

        (773,982)

                 

Profit for the year

 

   2,702,671

 

   2,058,040

 

       2,748,297

 

       2,165,995

                 

Profit (loss) for the year attributable to owners of the Company

         

       2,702,671

 

       2,058,040

Profit (loss) for the year attributable to noncontrolling interests

         

           45,626

 

          107,955

Basic earnings per share attributable to owners of the Company (R$):

26

       

               2.48

 

               2.02

Diluted earnings per share attributable to owners of the Company (R$):

26

       

               2.47

 

               2.01

 

(1)     See note 2.8

The accompanying notes are an integral part of these financial statements

36

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL Energia S.A.

 Statements of comprehensive income for the years ended December 31, 2019 and 2018

 (In thousands of Brazilian reais - R$)

 
   

Parent company

   

 

 

 

   

2019

 

2018

Profit for the year

 

  2,702,671

 

  2,058,040

         

Other comprehensive income

       

Items that will not be reclassified subsequently to profit or loss

       

Comprehensive income for the period of subsidiaries

 

   (866,498)

 

   (220,817)

         

Total comprehensive income for the period - individual

 

  1,836,173

 

  1,837,223

         
         
   

Consolidated

   

2019

 

2018

         

Profit for the year

 

  2,748,297

 

  2,165,995

         

Other comprehensive income

       

Items that will not be reclassified subsequently to profit or loss

       

- Actuarial gains (losses), net of tax effects

 

   (865,402)

 

   (238,780)

- Credit risk in fair value measurement of financial liabilities

 

(1,097)

 

   17,963

         

Total comprehensive income for the year

 

  1,881,799

 

  1,945,178

Attributable to owners of the Company

 

  1,836,173

 

  1,837,223

Attributable to noncontrolling interests

 

   45,626

 

  107,955

 

The accompanying notes are an integral part of these financial statements

 

37

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL Energia S.A.

 Statements of changes in shareholders' equity for the years ended December 31, 2019 and 2018

 (In thousands of Brazilian reais - R$)

 
         

 Earnings reserves

 

 Accumulated comprehensive income

         

 Noncontrolling interests

 
         

 

 

 Statutory reserves

 

 

 

 

 

 

         

 

 

 

   
 

 Issued capital

 

 Capital reserve

 

 Legal reserve

 

 Concession financial asset

 

 Working capital improvement

 

 Dividend

 

 Deemed cost

 

 Private pension plan / Credit risk in fair value measurement

 

 Retained earnings

 

 Total

 

 Accumulated comprehensive income

 

 Other equity components

 Total equity

Balance at December 31, 2017

  5,741,284

 

468,014

 

798,090

 

826,600

 

  1,292,046

 

-

 

  405,840

 

  (570,346)

 

-

 

  8,961,528

 

  11,833

 

  2,212,983

 

  11,186,344

                                                   

Total comprehensive income

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  (186,671)

 

  1,975,433

 

  1,788,762

 

  -

 

107,955

 

  1,896,717

 Profit for the year

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  2,058,040

 

  2,058,040

 

  -

 

107,955

 

  2,165,995

 Other comprehensive income - credit risk in fair value measurement

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  52,109

 

(34,146)

 

17,963

 

  -

 

-

 

17,963

 Effects of first adoption of IFRS 9 / CPC 48

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(48,461)

 

(48,461)

 

  -

 

-

 

(48,461)

 Other comprehensive income - actuarial gains (losses)

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  (238,780)

 

-

 

(238,780)

 

  -

 

-

 

(238,780)

                                                   

 Internal changes in equity

-

 

  5

 

102,902

 

(826,600)

 

  2,235,465

 

-

 

  (25,118)

 

-

 

  (1,486,648)

 

 5

 

(1,777)

 

1,664

 

  (108)

Realization of deemed cost of property, plant and equipment

-

 

-

 

-

 

-

 

-

 

-

 

  (38,057)

 

-

 

38,057

 

-

 

(2,693)

 

2,693

 

-

Tax effect on realization of deemed cost

-

 

-

 

-

 

-

 

-

 

-

 

  12,939

 

-

 

(12,939)

 

-

 

916

 

  (916)

 

-

Recognition of legal reserve

-

 

-

 

102,902

 

-

 

-

 

-

 

-

 

-

 

(102,902)

 

-

 

  -

 

-

 

-

Changes in statutory reserve in the year

-

 

-

 

-

 

(826,600)

 

  2,235,465

 

-

 

-

 

-

 

  (1,408,864)

 

-

 

  -

 

-

 

-

Other changes in noncontrolling interests

-

 

  5

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  5

 

  -

 

  (113)

 

  (108)

                                                   

Capital transactions with owners

-

 

1,238

 

-

 

-

 

-

 

-

 

-

 

-

 

(488,785)

 

(487,547)

 

  -

 

(63,024)

 

(550,571)

Interim dividend

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

 -

 

(4,452)

 

(4,452)

Dividend proposal  approved

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(488,785)

 

(488,785)

 

  -

 

(64,233)

 

(553,018)

Other changes

-

 

1,238

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,238

 

  -

 

5,661

 

6,899

                                                   

Balance at December 31, 2018

  5,741,284

 

469,257

 

900,992

 

-

 

  3,527,510

 

-

 

  380,721

 

  (757,016)

 

-

 

  10,262,749

 

  10,055

 

  2,259,578

 

  12,532,383

                                                   

Total comprehensive income

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  (866,498)

 

  2,702,671

 

  1,836,173

 

  -

 

45,626

 

  1,881,799

 Profit for the year

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  2,702,671

 

  2,702,671

 

  -

 

45,626

 

  2,748,297

 Other comprehensive income - credit risk in fair value measurement

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  (1,097)

 

-

 

(1,097)

 

  -

 

-

 

(1,097)

 Other comprehensive income - actuarial gains (losses)

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  (865,402)

 

-

 

(865,402)

 

  -

 

-

 

(865,402)

                                                   

 Internal changes in equity

-

 

-

 

135,134

 

-

 

518,795

 

-

 

  (25,672)

 

-

 

(628,257)

 

-

 

(1,777)

 

1,697

 

  (80)

Realization of deemed cost of property, plant and equipment

-

 

-

 

-

 

-

 

-

 

-

 

  (38,897)

 

-

 

38,897

 

-

 

(2,693)

 

2,693

 

-

Tax effect on realization of deemed cost

-

 

-

 

-

 

-

 

-

 

-

 

  13,225

 

-

 

(13,225)

 

-

 

916

 

  (916)

 

-

Recognition of legal reserve

-

 

-

 

135,134

 

-

 

-

 

-

 

-

 

-

 

(135,134)

 

-

 

  -

 

-

 

-

Changes in statutory reserve in the year

-

 

-

 

-

 

-

 

518,795

 

-

 

-

 

-

 

(518,795)

 

-

 

  -

 

-

 

-

Other changes in noncontrolling interests

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  -

 

  (80)

 

  (80)

                                                   

Capital transactions with owners

  3,646,797

 

  (2,110,218)

 

-

 

-

 

-

 

  1,433,295

 

-

 

-

 

  (2,074,414)

 

895,459

 

  -

 

  (2,026,323)

 

  (1,130,864)

Capital increase (decrease)

  3,694,342

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  3,694,342

 

 -

 

  122

 

  3,694,464

Public offering  costs

(47,544)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(47,544)

 

  -

     

(47,544)

Gain (loss) on interest in subsidiaries with no change in control

-

 

(75,298)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(75,298)

 

  -

 

75,298

 

-

Acquisition of non-controlling interests  of CPFL Renováveis (note 1.c)

   

  (2,034,920)

 

-

 

-

 

-

 

-

 

-

 

-

     

  (2,034,920)

 

  -

 

  (2,072,635)

 

  (4,107,555)

Additional proposed dividend

-

 

-

 

-

 

-

 

-

 

  1,433,295

 

-

 

-

 

  (1,433,295)

 

-

 

  -

 

-

 

-

Dividend approved

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

  765

 

  765

 

 -

 

-

 

  765

Dividend proposal  approved

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(641,884)

 

(641,884)

 

  -

 

(29,109)

 

(670,993)

                                                   

Balance at December 31, 2019

  9,388,081

 

  (1,640,962)

 

  1,036,125

 

-

 

  4,046,305

 

  1,433,295

 

  355,049

 

(1,623,514)

 

-

 

  12,994,381

 

  8,278

 

280,578

 

  13,283,238

 

The accompanying notes are an integral part of these financial statements.

38

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL Energia S/A

 Statements of cash flow for the years ended December 31, 2019 and 2018

 (in thousand of Brazilian Reais)

 
   

Parent company

 

Consolidated

   

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Profit before taxes

 

   2,825,333

 

   2,179,616

 

   3,986,293

 

  2,939,977

Adjustment to reconcile profit to cash from operating activities

               

   Depreciation and amortization

 

   273

 

   201

 

   1,681,053

 

  1,594,064

   Provision for tax, civil and labor risks

 

   408

 

  (117)

 

   204,795

 

  153,977

   Allowance for doubtful accounts

 

  -  

 

  -  

 

   233,424

 

  169,259

   Interest on debts, monetary adjustment and exchange rate changes

 

  (6,318)

 

   2,932

 

   919,836

 

  1,117,742

   Pension plan expense (income)

 

  -  

 

  -  

 

   112,603

 

89,909

   Equity interests in subsidiaries, associates and joint ventures

 

  (2,827,718)

 

  (2,250,835)

 

(349,090)

 

   (334,198)

   Impairment

 

  -  

 

  -  

 

  -  

 

-  

   Loss (gain) on disposal of noncurrent assets

 

  -  

 

  -  

 

   189,566

 

  216,275

   Deferred taxes (PIS and COFINS)

 

  -  

 

  -  

       

   Others

 

  -  

 

  -  

 

  (121)

 

  (27,052)

   

  (8,022)

 

   (68,204)

 

   6,978,359

 

  5,919,953

Decrease (increase) in operating assets

               

   Consumers, concessionaires and licensees

 

  -  

 

  -  

 

(631,078)

 

(1,006,291)

   Dividend and interest on capital received

 

   1,295,427

 

   596,100

 

   331,754

 

  311,347

   Taxes recoverable

 

  (5,388)

 

   109,719

 

(174,263)

 

92,090

   Escrow deposits

 

   260

 

(25)

 

   130,725

 

22,926

   Sector financial asset

 

  -  

 

  -  

 

   628,157

 

   (846,216)

   Receivables - CDE

 

  -  

 

  -  

 

  36,240

 

59,196

   Other operating assets

 

   1,276

 

   1,147

 

   (70,790)

 

  (47,835)

                 

Increase (decrease) in operating liabilities

               

   Trade payables

 

   1,845

 

   1,210

 

   889,002

 

   (848,880)

   Other taxes and social contributions

 

  19,815

 

   4,541

 

  10,344

 

  (59,102)

   Other liabilities with private pension plan

 

  -  

 

  -  

 

(144,494)

 

   (107,668)

   Regulatory charges

 

  -  

 

  -  

 

  81,595

 

   (430,944)

   Tax, civil and labor risks paid

 

  (542)

 

  (259)

 

(484,153)

 

   (215,873)

   Sector financial liability

 

  -  

 

  -  

 

   (25,696)

 

  (64,361)

   Payables - CDE

 

  -  

 

  -  

 

   (20,187)

 

71,779

   Other operating liabilities

 

   5,413

 

   6,407

 

   349,303

 

  176,308

Cash flows provided (used) by operations

 

   1,310,084

 

   650,636

 

   7,884,817

 

  3,026,428

   Interest paid on debts and debentures

 

  -  

 

  (4,235)

 

  (1,132,479)

 

(1,353,339)

   Income tax and social contribution paid 

 

   (21,388)

 

   (80,234)

 

(963,806)

 

   (816,402)

Cash flows provided (used) by operations activities

 

   1,288,696

 

   566,167

 

   5,788,530

 

  856,686

                 

Investing activities

               

   Decrease (increase) of capital in subsidiaries

 

  (4,107,555)

 

  -  

 

  -  

 

(1,096)

   Purchases of property, plant and equipment

 

  (1,763)

 

  (286)

 

(188,994)

 

   (275,986)

Purchases of contract asset

 

  -  

 

  -  

 

  (2,054,306)

 

(1,769,573)

   Purchases and construction of intangible assets

 

(15)

 

(42)

 

   (19,147)

 

  (16,864)

   Securities, pledges and restricted deposits - investment

 

  -  

 

  (250)

 

  (1,184,804)

 

   (554,669)

   Securities, pledges and restricted deposits - redemption

 

  -  

 

  -  

 

   378,560

 

  767,500

   Advances for future capital increases

 

   (14,160)

 

   (82,415)

 

  -  

 

-  

   Intragroup loans to subsidiaries

 

(424,371)

 

   (80,512)

 

  -  

 

-  

   Receiving of intragroup loans from subsidiaries

 

  78,391

 

   135,222

 

  -  

 

-  

   

 

 

 

 

 

 

 

Net cash generated by (used) In investing activities

 

  (4,469,473)

 

   (28,283)

 

  (3,068,691)

 

(1,850,688)

                 

Financing activities

               

   Capital Increase of noncontrolling shareholder

 

   3,622,305

 

  -  

 

   3,622,305

 

  7,994

   Increase of capital in subsidiaries

 

  -  

 

  -  

 

  (4,107,555)

 

-  

   Borrowings and debentures raised

 

  -  

 

  -  

 

   5,256,705

 

  9,610,814

   Repayment of principal of borrowings and debentures

 

  -  

 

(186,000)

 

  (7,136,612)

 

  (10,204,257)

   Repayment of derivatives

 

  -  

 

  -  

 

   219,257

 

  543,427

  Advance for future capital increase

 

  -  

 

  -  

 

  12

 

-  

  Dividend and interest on capital paid

 

(486,984)

 

(279,101)

 

(534,061)

 

   (322,163)

  Dividend and interest on capital paid

 

  -  

 

  -  

 

   5,813

 

-  

Net cash generated by (used in) financing activities

 

   3,135,321

 

(465,101)

 

   1,433,420

 

   (364,185)

Net increase (decrease) in cash and cash equivalents

 

   (45,456)

 

  72,783

 

  45,704

 

(1,358,187)

Cash and cash equivalents at the beginning of the year

 

  79,364

 

   6,581

 

   1,891,457

 

  3,249,642

Cash and cash equivalents at the end of the year

 

  33,909

 

  79,364

 

   1,937,163

 

  1,891,457

 

 

The accompanying notes are an integral part of these financial statements.

39

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL Energia S.A.

Statements of value added for the years ended December 31, 2019 and 2018

(in thousand of Brazilian Reais - R$)

 
 

Parent company

 

Consolidated

 

2019

 

2018

 

2019

 

2018

1. Revenues

  4,322

 

  329

 

   45,092,420

 

   42,759,621

1.1 Operating revenues

  2,544

 

   1

 

   42,921,143

 

   40,854,038

1.2 Revenues related to the construction of own assets

  1,778

 

  328

 

  316,706

 

  302,620

1.3 Revenue from infrastructure construction of the concession

-  

 

-  

 

  2,087,995

 

  1,772,222

1.4 Allowance for doubtful accounts

-  

 

-  

 

   (233,424)

 

   (169,259)

               

2. (-) Inputs

  (19,329)

 

  (12,858)

 

  (24,303,692)

 

  (23,378,560)

2.1 Electricity Purchased for Resale

-  

 

-  

 

  (20,293,644)

 

  (19,757,090)

2.2 Material

(1,937)

 

(625)

 

   (1,554,949)

 

   (1,349,291)

2.3 Outsourced Services

  (14,860)

 

  (10,502)

 

   (1,685,925)

 

   (1,529,696)

2.4 Other

(2,531)

 

(1,731)

 

   (769,174)

 

   (742,483)

               

3. Gross added value (1 + 2)

  (15,007)

 

  (12,528)

 

   20,788,729

 

   19,381,061

               

4. Retentions

(273)

 

(201)

 

   (1,687,809)

 

   (1,602,182)

4.1 Depreciation and amortization

(273)

 

(201)

 

   (1,399,371)

 

   (1,315,323)

4.2 Amortization of intangible assets of the concession

-  

 

-  

 

   (288,438)

 

   (286,859)

               

5. Net added value generated (3 + 4)

  (15,281)

 

  (12,730)

 

   19,100,920

 

   17,778,879

               

6. Added value received in transfer

  2,913,365

 

  2,268,815

 

  1,330,738

 

  1,183,083

6.1 Financial Income

   85,648

 

   17,980

 

  981,648

 

  848,885

6.2 Equity interests in subsidiaries, associates and joint ventures

  2,827,718

 

  2,250,835

 

  349,090

 

  334,198

               

7. Added value to be distributed (5 + 6)

  2,898,085

 

  2,256,086

 

   20,431,658

 

   18,961,962

               

8. Distribution of added value

             

8.1 Personnel and Charges

   29,470

 

   27,035

 

  1,475,315

 

  1,390,996

8.1.1 Direct Remuneration

   11,073

 

   10,679

 

  817,839

 

  795,377

8.1.2 Benefits

   16,982

 

   14,885

 

  590,696

 

  530,120

8.1.3 Government severance indemnity fund for employees - F.G.T.S.

  1,415

 

  1,471

 

   66,779

 

   65,499

8.2 Taxes, Fees and Contributions

  164,498

 

  165,840

 

   14,477,216

 

   13,452,580

8.2.1 Federal

  164,466

 

  165,799

 

  7,503,813

 

  7,231,289

8.2.2 Estate

32

 

41

 

  6,942,156

 

  6,195,062

8.2.3 Municipal

-  

 

-  

 

   31,247

 

   26,230

8.3 Interest and Rentals

  1,445

 

  5,170

 

  1,730,833

 

  1,952,391

8.3.1 Interest

  1,315

 

  5,136

 

  1,651,188

 

  1,879,399

8.3.2 Rental

  130

 

35

 

   79,645

 

   72,992

8.4 Interest on capital

  2,702,671

 

  2,058,040

 

  2,748,297

 

  2,165,995

  8.4.1 Dividend (including additional proposed)

  2,075,179

 

  546,274

 

  2,075,179

 

  581,029

8.4.2 Retained Earnings

  627,492

 

  1,511,766

 

  673,118

 

  1,584,966

 

  2,898,084

 

  2,256,086

 

   20,431,658

 

   18,961,962

 

The accompanying notes are an integral part of these financial statements.

40

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

CPFL ENERGIA S.A.

NOTES TO THE FINANCIAL STATEMENTS

AT DECEMBER 31, 2019 AND 2018

 (Amounts in thousands of Brazilian reais – R$, unless otherwise stated)

 

( 1 ) OPERATIONS

 

CPFL Energia S.A. (“CPFL Energia” or “Company”) is a publicly-held corporation incorporated for the principal purpose of operating as a holding company, with equity interests in other companies primarily engaged in electric energy distribution, generation and commercialization activities in Brazil. 

The Company’s registered office is located at Rua Jorge Figueiredo Corrêa, nº 1.632, Jardim Professora Tarcília, CEP 13087-397 – Campinas - SP - Brazil.

The Company has direct and indirect interests in the following subsidiaries and joint-ventures:

Energy distribution

 

Company type

 

Equity interest

 

Location (state)

 

Number of municipalities

 

Approximate number of consumers (in thousands)

 

Concession period

 

End of the concession

                             

 Companhia Paulista de Força e Luz ("CPFL Paulista")

 

Publicly-held corporation

 

Direct
100%

 

Interior of São Paulo

 

234

 

4,581

 

30 years

 

 November 2027

 Companhia Piratininga de Força e Luz ("CPFL Piratininga")

 

Publicly-held corporation

 

Direct
100%

 

Interior and coast of São Paulo

 

27

 

1,789

 

30 years

 

 October 2028

RGE Sul Distribuidora de Energia S.A.  ("RGE") (f)

 

Publicly-held corporation

 

Direct and Indirect
100%

 

Interior of Rio Grande do Sul

 

381

 

2,922

 

30 years

 

 November 2027

  Companhia Jaguari de Energia  ("CPFL Santa Cruz")

 

Privately-held corporation

 

Direct
100%

 

Interior of São Paulo, Paraná and Minas Gerais

 

45

 

466

 

30 years

 

 July 2045

 

                   

Installed power (MW)

Energy generation (conventional and renewable sources) and Energy transmission

 

Company type

 

Equity interest

 

Location (state)

 

Number of plants / type of energy

 

Total

 

CPFL share

                         

CPFL Geração de Energia S.A.
("CPFL Geração")

 

Publicly-held corporation

 

Direct
100%

 

São Paulo and Goiás

 

3 Hydropower (a)

 

1295

 

678

CERAN - Companhia Energética Rio das Antas
("CERAN")

 

Privately-held corporation

 

Indirect
65%

 

Rio Grande do Sul

 

3 Hydropower

 

360

 

234

Foz do Chapecó Energia S.A.
("Foz do Chapecó")

 

Privately-held corporation

 

Indirect
51% (d)

 

Santa Catarina and
Rio Grande do Sul

 

1 Hydropower

 

855

 

436

Campos Novos Energia S.A.
("ENERCAN")

 

Privately-held corporation

 

Indirect
48.72%

 

Santa Catarina

 

1 Hydropower

 

880

 

429

BAESA - Energética Barra Grande S.A.
("BAESA")

 

Publicly-held corporation

 

Indirect
25.01%

 

Santa Catarina and
Rio Grande do Sul

 

1 Hydropower

 

690

 

173

Centrais Elétricas da Paraíba S.A.
("EPASA")

 

Privately-held corporation

 

Indirect
53.34%

 

Paraíba

 

2 Thermal

 

342

 

182

Paulista Lajeado Energia S.A.
("Paulista Lajeado")

 

Privately-held corporation

 

Indirect
59.93% (b)

 

Tocantins

 

1 Hydropower

 

903

 

38

CPFL Energias Renováveis S.A.
("CPFL Renováveis")

 

Publicly-held corporation

 

Direct and Indirect
99.94%

 

(c)

 

(c)

 

(c)

 

(c)

CPFL Centrais Geradoras Ltda ("CPFL Centrais Geradoras")

 

Limited liability company

 

Direct
100%

 

São Paulo and Minas Gerais

 

6 SHPs

 

4

 

4

CPFL Transmissão Piracicaba S.A  ("CPFL Transmissão Piracicaba")

 

Limited liability company (h)

 

Indirect
100%

 

São Paulo

 

n/a

 

n/a

 

n/a

CPFL Transmissão Morro Agudo S.A ("CPFL Transmissão Morro Agudo") 

 

Limited liability company (h)

 

Indirect
100%

 

São Paulo

 

n/a

 

n/a

 

n/a

CPFL Transmissão Maracanaú S.A. (“CPFL Maracanaú”) (e)

 

Limited liability company (h)

 

Indirect
100%

 

Ceará

 

n/a

 

n/a

 

n/a

CPFL Transmissão Sul I S.A. (“CPFL Sul I”) (e)

 

Limited liability company (h)

 

Indirect
100%

 

Santa Catarina

 

n/a

 

n/a

 

n/a

CPFL Transmissão Sul II S.A. (“CPFL  Sul II”) (e)

 

Limited liability company (h)

 

Indirect
100%

 

Rio Grande do Sul

 

n/a

 

n/a

 

n/a

 

Energy commercialization

 

Company type

 

Core activity

 

Equity interest

CPFL Comercialização Brasil S.A. ("CPFL Brasil")

 

Privately-held corporation

 

Energy commercialization

 

Direct
100%

Clion Assessoria e Comercialização de Energia Elétrica Ltda ("CPFL Meridional")

 

Limited liability company

 

Commercialization and provision of energy services

 

Indirect
100%

CPFL Comercialização de Energia Cone Sul Ltda ("CPFL Cone Sul")

 

Limited liability company (h)

 

Energy commercialization

 

Indirect
100%

CPFL Planalto Ltda ("CPFL Planalto")

 

Limited liability company

 

Energy commercialization

 

Direct
100%

CPFL Brasil Varejista de Energia Ltda ("CPFL Brasil Varejista")

 

Limited liability company (h)

 

Energy commercialization

 

Indirect
100%

41

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Provision of services

 

Company type

 

Core activity

 

Equity interest

CPFL Serviços, Equipamentos, Industria e Comércio S.A.
("CPFL Serviços")

 

Privately-held corporation

 

Manufacturing, commercialization, rental and maintenance of electro-mechanical equipment and service provision

 

Direct
100%

Nect Serviços Administrativos de Infraestrutura Ltda ("CPFL Infra")

 

Limited liability company

 

Provision of infrastructure and fleet services

 

Direct
100%

Nect Servicos Administrativos de Recursos Humanos Ltda ("CPFL Pessoas")

 

Limited liability company

 

Provision of human resources services

 

Direct
100%

Nect Servicos Administrativos Financeiros Ltda ("CPFL Finanças")

 

Limited liability company

 

Provision of financial services

 

Direct
100%

Nect Servicos Adm de Suprimentos e Logistica Ltda ("CPFL Supre")

 

Limited liability company

 

Supply and logistics services

 

Direct
100%

CPFL Atende Centro de Contatos e Atendimento Ltda  ("CPFL Atende")

 

Limited liability company

 

Provision of call center services

 

Direct
100%

CPFL Total Serviços Administrativos Ltda ("CPFL Total")

 

Limited liability company

 

Collection services

 

Direct 
100%

CPFL Eficiência Energética Ltda ("CPFL Eficiência")

 

Limited liability company (h)

 

Energy efficiency management

 

Direct
100%

TI Nect Serviços de Informática Ltda ("Authi")

 

Limited liability company

 

Provision of IT services

 

Direct
100%

CPFL Geração Distribuída de Energia Ltda ("CPFL GD")

 

Limited liability company (h)

 

Provision of maintenance services for energy generation companies

 

Indirect
100%

             

Others

 

Company type

 

Core activity

 

Equity interest

CPFL Jaguari de Geração de Energia Ltda ("Jaguari Geração")

 

Limited liability company

 

Holding company

 

Direct
100%

Chapecoense Geração S.A. ("Chapecoense")

 

Privately-held corporation

 

Holding company

 

Indirect
51%

Sul Geradora Participações S.A. ("Sul Geradora")

 

Privately-held corporation

 

Holding company

 

Indirect
99.95%

CPFL Telecomunicações Ltda ("CPFL Telecom")

 

Limited liability company (h)

 

Telecommunication services

 

Direct
100%

 

a)     CPFL Geração has 51.54% of the assured energy and power of the Serra da Mesa hydropower plant, which concession is owned by Furnas.

 

b)     Paulista Lajeado holds a 7% interest in the installed power of Investco S.A. (5.94% interest in total capital).

 

c)     CPFL Renováveis has operations in the states of São Paulo, Minas Gerais, Mato Grosso, Santa Catarina, Ceará, Rio Grande do Norte, Paraná and Rio Grande do Sul and its main activities are: (i) holding investments in companies of the renewable energy segment; (ii) identification, development, and exploration of generation potentials; and (iii) sale of electric energy. At December 31, 2019, CPFL Renováveis had a portfolio of 107 enterprises with of 2,446.3 MW of installed capacity (2,132.7 MW in operation): 

 

·        Hydropower generation: 41 SHP’s (481.1 MW) with 40 SHPs in operation (453.1 MW) and 1 SHPs under construction/development (28. MW);

·        Wind power generation: 57 enterprise (1,594.1 MW) with 45 in operation (1,308.5 MW) and 12 under construction/development (285.6 MW);

·        Biomass power generation: 8 plants in operation (370 MW);

·        Solar power generation: 1 solar plant in operation (1.1 MW).

 

d)     The joint venture Chapecoense has as its direct subsidiary Foz do Chapecó and fully consolidates its financial statements.

 

e)     Incorporated on March 2019, the purpose of these enterprises is the exploring concessions for electric power transmission, including the construction, operation and maintenance of basic grid transmission facilities.

 

f)       As described in note 13.5 of financial statements of December 31, 2018, the merger of RGE with RGE Sul was approved by ANEEL. Since January 1, 2019, the operations of these subsidiaries have been carried out only by RGE Sul, which adopted the trade name “RGE”.

42

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

g)     On September 30, 2019, the partial spin-off of Nect Serviços Administrativos de Infraestrutura Ltda. - “CPFL Infra” (formerly Nect Serviços Administrativos Ltda.) into four specific business segments (Supplies, Human Resources, Financial Services and Infrastructure) was approved, together with the merger of the spun-off portion into the three new companies; namely, CPFL Supre, CPFL Finanças and CPFL Pessoas. The purpose of the transaction is to improve the quality of services provided by the company, through greater specialization in its activities. The net assets in this transaction were appraised at R$16,746 and did not have any effect on the consolidated financial statements of the group or result in any change in the equity interest of the companies.

 

h)     Subsidiaries that were transformed from corporations to limited liability companies, as decided in shareholders meetings held in January 2020.

 


Acquisition of interest in the subsidiary CPFL Renováveis ​​

 

On September 30, 2019, the Company entered into a share purchase and sale agreement with its parent company State Grid Brazil Power Participações S.A. (“State Grid”) thereby purchasing 243,771,824 shares of subsidiary CPFL Renováveis, thus increasing its total (direct and indirect) equity interest from 51.60% to 99.94% in CPFL Renováveis. The amount paid in cash was R$ 16.85 per share, totaling R$ 4,107,555. Considering that this transaction did not constitute a business combination, its accounting involved, in the balance  of parent company, an increase of R$ 2,072,635 in the Company's investment account and a decrease of R$ 2,034,920 in the capital reserve account, due to the transaction between shareholders. In the consolidated financial statements, the related effects were a decrease of R$ 2,072,635 in the shareholders equity attributable to noncontrolling interests and a decrease of R$ 2,034,920 in the capital reserve account.


New York Stock Exchange delisting

On December 18, 2018, the Company's Board of Directors Meeting approved the Company’s intention to: (i) terminate the Second Amended and Restated Deposit Agreement (“Deposit Agreement”) with Citibank N.A. (“Citibank”) with respect to its American Depositary Receipts (“ADRs”); (ii) delist its American Depositary Shares (“ADSs”) from the New York Stock Exchange (“NYSE”); and (iii) once the Company complies with the applicable requirements, cancel its registration with the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the economic rationale for maintaining a listing on the NYSE has decreased partly due to: (i) increases in the volume of Brazilian shares traded on B3 S.A. – Bolsa, Brasil, Balcão (“B3”) in Brazil by foreign investors due to the internationalization of the Brazilian financial and capital markets, as well as the narrowing of the differences between the Brazilian and the US international financial reporting standards; and (ii) a downward trend in recent years in the trading volume of the Company's ADSs on the NYSE.

On February 10, 2020, the Company, through a Notice to the Market, informed that the delisting of its NYSE ADSs, mentioned in item (ii) above, will be effective as of this date.

 

( 2 ) PRESENTATION OF THE FINANCIAL STATEMENTS

2.1 Basis of preparation

The individual (Parent Company) and consolidated financial statement has been prepared and is being presented in accordance with the International Financial Reporting Standards – IFRS,  issued by the International Accounting Standard Board – IASB, and accounting practices adopted in Brazil.

Accounting practices adopted in Brazil encompass those included in Brazilian corporate law and the technical pronouncements, guidelines and interpretations issued by the Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis - CPC) and approved by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).

43

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The Company and its subsidiaries (“Group”) also follows the guidelines of the Accounting Manual of the Brazilian Electricity Sector and the standards laid down by the Brazilian Electricity Regulatory Agency (Agência Nacional de Energia Elétrica – ANEEL), when these do not conflict with the accounting practices adopted in Brazil and/or International Financial Reporting Standards.

Management states that all material information of the financial statements is disclosed and corresponds to what is used in the Group's management.

The financial statements were authorized for issue on March 4, 2020.

 

2.2 Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following items recorded in the statements of financial position: i) derivative financial instruments measured at fair value and ii) non derivative financial instruments measured at fair value through profit or loss. The classification of the fair value measurement in the level 1, 2 or 3 categories (depending on the degree of observance of the variables used) is presented in note 35 – Financial Instruments.

 

2.3 Use of estimates and judgments

The preparation of the financial statements requires the Group’s management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

By definition, the accounting estimates are rarely the same as the actual results. Accordingly, the Group’s management review the estimates and assumptions on an ongoing basis, based on previous experience and other relevant factors. Adjustments resulting from revisions to accounting estimates are recognized in the period in which the estimates are revised and applied on a prospective basis.

The main accounts that require the adoption of estimates and assumptions, which are subject to a greater degree of uncertainty and may result in a material adjustment if these estimates and assumptions suffer significant changes in subsequent periods, are:

·       

Note 7 – Consumers, concessionaires and licensees (Allowance for doubtful accounts: key assumptions regarding to the expected credit loss – ECL and premises for measuring the supply and Tariff for use of the distribution system (“TUSD”) not invoiced);

·       

Note 9 – Sector financial asset and liability (Regulatory discretion and judgement over certain items);

·       

Note 10 – Deferred tax assets and liabilities (recognition of assets: availability of future taxable profit against which the tax losses can be utilized);

·       

Note 11 – Concession financial asset (assumptions for fair value measurement, based on significant unobservable inputs, see note 34);

·       

Note 12 – Other assets (allowance for doubtful accounts: key assumptions regarding to the expected and credit loss – ECL);

·       

Note 14 – Property, plant and equipment (definition of useful lives and key assumptions regarding recoverable amounts);

·       

Note 15 – Intangible assets (key assumptions regarding recoverable amounts);

·       

Note 16 – Contract Asset (key assumptions regarding recoverable amounts);

44

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

·       

Note 20 – Private pension plan (key actuarial assumptions used in the measurement of defined benefit obligations); and

·       

Note 23 – Provision for tax, civil and labor risks and escrow deposits (recognition and measurement: key assumptions on the probability and magnitude of outflow of resources).

2.4 Functional currency and presentation currency

The Group’s functional currency is the Brazilian Real, and the individual and consolidated financial statements is being presented in thousands of reais. Figures are rounded only after sum-up of the amounts. Consequently, when summed up, the amounts stated in thousands of reais may not tally with the rounded totals.

2.5 Segment information

An operating segment is a component of the Company (i) that engages in operating activities from which it earns revenues and incurs expenses, (ii) whose operating results are regularly reviewed by Management to make decisions about resources to be allocated and assess the segment's performance, and (iii) for which individual financial information is available.

The Group’s officers use reports to make strategic decisions, segmenting the business into: (i) electric energy distribution activities (“Distribution”); (ii) electric energy generation and transmission from conventional sources activities (“Generation”); (iii) electric energy generation activities from renewable sources (“Renewables”); (iv) energy commercialization activities (“Commercialization”); (v) service activities (“Services”); and (vi) other activities not listed in the previous items.

2.6 Information on equity interests

The Company's equity interests in direct and indirect subsidiaries and joint ventures are described in note 1. Except for (i) the companies ENERCAN, BAESA, Chapecoense and EPASA, which use the equity method of accounting, and (ii) the non-controlling interest in the subsidiary Paulista Lajeado in Investco S.A., all other entities are fully consolidated.

At December 31, 2019 and 2018 the noncontrolling interests in the consolidated balances refer to interests held by third parties in subsidiaries CERAN, Paulista Lajeado and CPFL Renováveis.

2.7 Statement of value added

The Company has prepared the individual and consolidated statements of value added (“DVA”) in conformity with technical pronouncement CPC 09 - Statement of Value Added, which are presented as an integral part of the financial statements in accordance with accounting practices adopted in Brazil and as supplementary information to the financial statements in accordance with IFRS, as this statement is neither provided for nor required by IFRS.

2.8 New presentation of financial statements of 2018 – breakdown of lines

Starting in 2019, focusing on improving the presentation of the financial statements for the monitoring of results by Group Management, through a better analysis of costs and expenses accounts, the Company split the depreciation and amortization in two lines in the income statement.

For comparability purposes, these changes were applied retrospectively according to CPC 23/IAS 8, and therefore, the financial statements regarding 2018 are being restated with the same breakdown. There are no changes in costs and expenses assumptions.

The following table summarizes the impacts on financial statements of 2018 for the Group:

45

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Parent company

 

Consolidated

 

2018

 

2018

 

Originally disclosed

 

Breakdown of lines

 

New presentation

 

Originally disclosed

 

Breakdown of lines

 

New presentation

                       

Net operating revenue

1

 

  -

 

  1

 

  28,136,627

 

-

 

  28,136,627

Cost of electric energy services

                     

Cost of electric energy

  -

 

  -

 

  -

 

  (17,838,165)

 

-

 

  (17,838,165)

Cost of operation

  -

 

  -

 

  -

 

  (2,733,754)

 

-

 

  (2,733,754)

Depreciation and amortization

  -

 

  -

 

  -

 

-

 

(1,237,627)

 

 (1,237,627)

Other cost of operation

  -

 

  -

 

  -

 

-

 

(1,496,127)

 

  (1,496,127)

Cost of services rendered to third parties

  -

 

  -

 

  -

 

  (1,775,339)

 

-

 

  (1,775,339)

             

 

 

 

 

 

Gross profit

1

 

  -

 

  1

 

  5,789,369

 

-

 

  5,789,369

Operating expenses

                     

Selling expenses

  -

 

  -

 

  -

 

(608,184)

 

-

 

(608,184)

Depreciation and amortization

  -

 

  -

 

  -

 

-

 

  (4,260)

 

(4,260)

Allowance for doubtful accounts

  -

 

  -

 

  -

 

(169,259)

 

-

 

(169,259)

Othet selling expenses

  -

 

  -

 

  -

 

(438,925)

 

4,260

 

(434,665)

                       

General and administrative expenses

  (43,930)

 

  -

 

(43,930)

 

(987,291)

 

-

 

(987,291)

Depreciation and amortization

  -

 

(201)

 

  (201)

 

-

 

  (65,319)

 

(65,319)

Other general and administrative expenses

  -

 

  (43,728)

 

(43,728)

 

-

 

  (921,972)

 

(921,972)

                       

Other operating expenses

9

 

  -

 

  9

 

(485,427)

 

-

 

(485,427)

Amortization of concession intangible asset

  -

 

  -

 

  -

 

-

 

  (286,858)

 

(286,858)

Other operating expenses

  -

 

9

 

  9

 

-

 

  (198,569)

 

(198,569)

                       

Income from electric energy services

  (43,920)

 

  -

 

(43,920)

 

  3,708,467

 

-

 

  3,708,467

                       

Equity interests in subsidiaries, associates and joint ventures

2,250,835

 

  -

 

  2,250,835

 

334,198

 

-

 

334,198

Financial income (expenses)

                     

Finance income

  (22,160)

 

  -

 

(22,160)

 

762,413

 

-

 

762,413

Financial expenses

  (5,140)

 

  -

 

(5,140)

 

  (1,865,100)

 

-

 

  (1,865,100)

 

  (27,300)

 

  -

 

(27,300)

 

  (1,102,687)

 

-

 

  (1,102,687)

Profit before taxes

2,179,616

 

  -

 

  2,179,616

 

  2,939,977

 

-

 

  2,939,977

Social contribution

  (30,814)

 

  -

 

(30,814)

 

(213,673)

 

-

 

(213,673)

Income tax

  (90,760)

 

  -

 

(90,760)

 

(560,310)

 

-

 

(560,310)

 

  (121,575)

 

  -

 

(121,575)

 

(773,982)

 

-

 

(773,982)

                       

Profit for the year

2,058,040

 

  -

 

  2,058,040

 

  2,165,995

 

-

 

  2,165,995

                       

Profit (loss) for the period attributable to owners of the Company

           

  2,058,040

 

-

 

  2,058,040

Profit (loss) for the period attributable to noncontrolling interests

           

107,955

 

-

 

107,955

Basic earnings per share attributable to owners of the Company (R$):

           

2.02

 

-

 

2.02

Diluted earnings per share attributable to owners of the Company (R$):

           

2.01

 

-

 

2.01

 

 

( 3 )  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies used in the preparation of these individual and consolidated financial statements are described below. These policies have been consistently applied in all reporting periods, except for the new accounting pronouncements and interpretations adopted by the Group on January 1, 2019 described in note 3.17.

3.1   Cash and cash equivalents

In the statements of cash flows, cash and cash equivalents include negative balances of overdraft accounts that are immediately payable and are an integral part of the Group’s cash management.

Cash and cash equivalents comprise the balances of cash and financial investments with original maturities of three months or less from the contract date, which are subject to an insignificant risk of change in fair value at the settlement date and are used by the Group in the management of short-term obligations.

The purpose of determining the components of the company's cash and cash equivalents is to maintain sufficient cash to ensure the continuity of investments and the fulfillment of short- and long-term obligations, maintaining the return on its capital structure at appropriate levels aimed at business continuity and increased value for shareholders and investors.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

3.2   Concession agreements

Distribution subsidiaries:

ICPC 01 (R1) and IFRIC 12 – Service Concession Arrangements establish general guidelines for the recognition and measurement of obligations and rights related to concession agreements and apply to situations in which the granting authority controls or regulates which services the concessionaire should provide with the infrastructure, to whom the services should be provided and at what price, and controls any significant residual interest in the infrastructure at the end of the concession period.

When these definitions are met, the infrastructure of distribution concessionaires is segregated at the time of construction in accordance with the CPC and IFRS requirements, so that the following are recognized in the financial statements (i) an intangible asset corresponding to the right to operate the concession and collect from the users of public utilities, and (ii) a financial asset corresponding to the unconditional contractual right to receive cash (indemnity) by transferring control of the assets at the end of the concession.

The concession financial asset of distribution is measured at fair value, determined in accordance with the remuneration base for the concession assets, pursuant to the legislation in force established by the regulatory authority (ANEEL), and takes into consideration changes in the fair value, mainly based on factors such as new replacement value, and adjustment for IPCA (Extended Consumer Price Index) to the subsidiaries of the distribution segment. The financial asset of distribution is classified at fair value through profit or loss, with the corresponding fair value changes entry in an operating income/expense account in the statement of profit or loss for the year (notes 4 and 25).

The remaining amount is recognized as an intangible asset and relates to the right to charge consumers for electric energy distribution services and is amortized in accordance with the consumption pattern that reflects the estimated economic benefit to the end of the concession.

Considering that (i) the tariff model does not provide for a profit margin for the infrastructure of discos construction services, (ii) the way in which the subsidiaries manage the constructions by using a high level of outsourcing, and (iii) the fact that there is no provision for profit margin on construction in the Group‘s business plans, Management is of the opinion that the margins on this operation are irrelevant, and therefore no mark-up to the cost is considered in revenue. The construction revenues and costs are therefore presented in the statement of profit or loss for the year in the same amounts.

 

Transmission subsidiaries:

The Group’s transmission companies are responsible for constructing and operating the transmission infrastructure in order to carry the energy from the generation centers to the distribution points, according to their concession arrangements.

The energy transmission company has the obligation to maintain its transmission infrastructure available to its users to guarantee the receipt of the Permitted Annual Revenue (RAP) during the concession agreement term. Potential unamortized investments generate the right to indemnity at the end of the concession arrangement.

The transmission infrastructure is classified as a contract asset. The right to consideration for goods and services is subject to the satisfaction of performance obligations and not only to the passage of time.

3.3   Financial Instruments

-        Financial Assets

Financial assets are recognized initially on the date that they are originated or on the trade date at which the Company or its subsidiaries become parties to the contractual provisions of the instrument. Derecognition of a financial asset occurs when the contractual rights to the cash flows from the asset expire or when the risks and rewards of ownership of the financial asset are transferred.

Subsequent Measurement  and gains and losses:

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Financial assets measured at fair value through profit or loss (FVTPL)

These assets are subsequently measured at fair value. Net gains or losses, including interest or dividend income, are recognized in profit or loss.

Financial assets at amortized cost

These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on the derecognition is recognized in profit or loss.

Debt investments at fair value through other comprehensive income (FVOCI)

These assets are subsequently measured at fair value. Net gains and losses are recognized in other comprehensive income, except the interest income calculated using the effective interest method, foreign exchange gains and losses and impairment, that are recognized in profit or loss. In the moment of the derecognition, the accumulated gain or loss in other comprehensive income (loss) is reclassified to profit or loss for the period. The Group does not hold financial assets under this classification.

Equity instruments at fair value through other comprehensive income

These assets are subsequently measured at fair value. Changes in fair value are recognized in other comprehensive income (loss) and never will be reclassified in profit or loss. Dividends are recognized as gains in profit or loss (unless the dividend clearly represents a recovery of part of the investment cost The Group does not hold financial assets under this classification.

 

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

Amortized cost: A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL.

o   it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

o   its contractual terms give rise on specified dates to cash flows that are related solely to payments of principal and interest on the principal amount outstanding.

Fair Value through Other Comprehensive Income (FVOCI): A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

o   it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets ; and

o   its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in Other Comprehensive Income. This election is made on an investment-by-investment basis.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets (see note 33). On initial recognition, the Group may irrevocably designate a non derivative financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

Business model assessment:

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether:

-        management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

-        how the performance of the portfolio is evaluated and reported to the Group’s management;

-        the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

-        how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

-        the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

 

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Assessment whether contractual cash flows are solely payments of principal and interest:

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

o   contingent events that would change the amount or timing of cash flows;

o   terms that may adjust the contractual coupon rate, including variable‑rate features;

o   prepayment and extension features; and

o   terms that limit the Group’s claim to cash flows from specified assets (e.g. based on the performance of an asset).

For transactions involving the purchase and sale of energy by the trading subsidiaries, the Group has an accounting policy defined according to the business strategy with instruments measured at amortized cost, which refer to agreements already entered into and still held with the purpose of receipt or delivery of energy in accordance with the requirements by the company related to purchase or sale. The transactions are usually long term and are never settled by the net cash amount or with another financial instrument and, even if some contract has a certain flexibility, the strategy of the Group’s portfolio is not changed for this reason.

 

-        Financial liabilities

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Financial liabilities are initially recognized on the date that they are originated or on the trade date at which the Company or its subsidiaries become a party to the contractual provisions of the instrument. The Group have the following main financial liabilities:

(i)               Measured at fair value through profit or loss: these are financial liabilities that are: (i) held for trading, (ii) designated at fair value in order to match the effects of recognition of income and expenses to obtain more relevant and consistent accounting information, or (iii) derivatives. These liabilities are measured at fair value, which fair value changes recognized in profit or loss except for changes in fair value attributable to credit risk which are recognized in comprehensive income.

 

(ii)              Measured at amortized cost: these are other financial liabilities not classified into the previous category. They are measured initially at fair value net of any cost attributable to the transaction and subsequently measured at amortized cost using the effective interest rate method.

The Group recognizes financial guarantees when these are granted to non-controlled entities or when the financial guarantee is granted at a percentage higher than the Company's interest to cover commitments of joint ventures. Such guarantees are initially measured at fair value, by recognizing (i) a liability corresponding to the risk of non-payment of the debt, which is amortized against finance income simultaneously and in proportion to amortization of the debt, and (ii) an asset equivalent to the right to compensation by the guaranteed party or a prepaid expense under the guarantees, which is amortized by receipt of cash from other shareholders or at the effective interest rate over the term of the guarantee. After initial recognition, guarantees are measured periodically at the higher of the amount determined in accordance with CPC 25 / IAS 37 and the amount initially recognized less accumulated amortization.

Financial assets and liabilities are offset and presented at their net amount when there is a legal right to offset the amounts and the intent to realize the asset and settle the liability simultaneously.

The classifications of financial instruments (assets and liabilities) are described in note 35.

 

- Issued Capital

Common shares are classified as equity. Additional costs directly attributable to share issues and share options are recognized as a deduction from equity, net of any tax effects.

 

3.4   Property, plant and equipment

Items of property, plant and equipment are measured at acquisition, construction or formation cost less accumulated depreciation and, if applicable, accumulated impairment losses. Cost also includes any other costs attributable to bringing the assets to the place and in a condition to operate as intended by Management, the cost of dismantling the items and restoring the site on which they are located and capitalized borrowing costs on qualifying assets.

The replacement cost of items of property, plant and equipment is recognized if it is probable that it will involve economic benefits for the subsidiaries and if the cost can be reliably measured, and the value of the replaced item is written off. Maintenance costs are recognized in profit or loss as they are incurred.

Depreciation is calculated on a straight-line basis, at annual rates of 2% to 20%, taking into consideration the estimated useful life of the assets, as instructed and defined by the Granting Authority.

Gains and losses on disposal/write-off of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the asset and are recognized net within other operating income/expenses.

Assets and facilities used in the electric generation, transmission and distribution activities are tied to these services and may not be removed, donated, disposed of, assigned or pledged in mortgage without the prior and express authorization of the ANEEL. The ANEEL, through Resolution No. 20 of February 3, 1999, amended by Normative Resolution No. 691 of December 8, 2015, releases Public Electric Energy Utility concessionaires from prior authorization for release of assets of no use to the concession, but determines that the proceeds from the disposal be deposited in a restricted bank account for use in the acquisition of new assets related to electric energy services.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

3.5   Intangible assets and Contract asset – in progress

Includes rights related to non-physical assets such as goodwill and concession exploitation rights, software and rights-of-way.

Goodwill that arises on the acquisition of subsidiaries is measured based on the difference between the fair value of the consideration transferred for acquisition of a business and the net fair value of the assets, adding the portion of noncontrolling interests and liabilities of the subsidiary acquired.

Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill and other intangible assets with indefinite useful lives, if any, are not subject to amortization and are tested annually for impairment.

Negative goodwill is recognized as a gain in the statement of profit or loss in the year of the business acquisition.

In the individual financial statements, fair value adjustments (value added) of net assets acquired in business combinations are included in the carrying amount of the investment and the amortization is classified in the individual statement of income as “equity interest in associates and joint ventures” in accordance with ICPC 09 (R2). In the consolidated financial statements, the amount is stated as intangible asset and its amortization is classified in the consolidated statement of profit and loss as “amortization of concession intangible asset” in other operating expense.

Intangible assets corresponding to the right to operate concessions may have three origins, as follows:

(i)               Acquisitions through business combinations: the portion arising from business combinations that corresponds to the right to operate the concession amortized in straight-line method over the remaining period of the concessions.

(ii)              Investments in infrastructure (application of ICPC01 (R1) and IFRIC 12 – Concession contracts) - in progress: under the electric energy distribution concession agreements with the subsidiaries, the recognized intangible asset corresponds to the concessionaires' right to charge the consumers for use of the concession infrastructure. Since the exploration term is defined in the agreement, intangible assets with defined useful lives are amortized over the concession period in proportion to a curve that reflects the consumption pattern in relation to the expected economic benefits. For further information, see note 3.2.

Items comprised in the infrastructure are directly tied to the Company’s electric energy distribution operation and shall comply with the same regulatory rules described in item 3.4.

(iii)            Use of public asset: certain generation concessions were granted with the condition of payments to the federal government for use of public asset. On the signing date of the respective agreements, the Company’s subsidiaries recognized intangible assets and the corresponding liabilities, at present value. The intangible assets, capitalized by interest incurred on the obligation until the start-up date, are amortized on a straight-line basis over the remaining period of each concession. 

 

As of January 1, 2018, the concession infrastructure assets of the distribution companies were classified as contract assets during the construction or improvement period in accordance with the criteria of CPC 47 / IFRS 15.

 

3.6   Impairment

-        Financial assets

The Group assesses evidence of impairment for certain receivables at both an individual and a collective level. Receivables that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

The Group recognizes impairment losses for ECLs on: (i) financial assets measured at amortized cost; (ii) debt investments measured at FVOCI, when applicable; and (iii) contract assets.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The Group measures impairment allowances, adopting the simplified method of recognizing,  at an amount equal to lifetime, except for debt securities with low credit risk at the end of the reporting period, which are measured as 12-month ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating the expected credit losses, the Group considers a simplified approach of default assessment which consists in measuring the expected loss of a financial asset equivalent to the lifetime expected credit loss of an asset including reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

The Group considers a financial asset to be in default when the borrower has not complied with its contractual payment obligations and is unlikely to pay its obligations.

The Group uses an allowance matrix based on its historical default rates observed along the expected lifetime of the trade receivables to estimate the expected credit losses for the lifetime of the asset where the history of losses is adjusted to consider the effects of the current conditions and its forecasts of future conditions that did not affect the period in which the historical data were based.

The methodology developed by the Group resulted in a percentage of expected loss for bills of consumers, concessionaires and licens that is in compliance with IFRS 9 described as expected credit losses, comprising in a single percentage the probability of loss weighted by the expected loss and possible results, that is, comprising the Probability of Default (“PD”), Exposure At Default (“EAD”) and Loss Given Default (“LGD”).

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI, when applicable, are credit-impaired. A financial asset is ‘credit‑impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit‑impaired includes the following observable data:

o   significant financial difficulty of the borrower or issuer;

o   a breach of contract clauses;

o   the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;

o   it is probable that the borrower will enter bankruptcy or other financial reorganization; or

o   the disappearance of an active market for a security because of financial difficulties.

Impairment losses related to consumers, concessionaires and licensees recognized in financial assets and other receivables, including contract assets, are recognized in profit or loss.

- Non-financial assets

Non-financial assets that have indefinite useful lives, such as goodwill, are tested annually for impairment to assess whether the asset's carrying amount does not exceed its recoverable amount. Other assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may be impaired.

An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount, which is the greater of (i) its fair value less costs to sell or (ii) its value in use.

The assets (e.g. goodwill, concession intangible asset) are segregated and grouped together at the lowest level that generates identifiable cash flows (the "cash generating unit", or CGU). If there is an indication of impairment, the loss is recognized in profit or loss. Except in the case of goodwill impairment, which cannot be reversed in the subsequent period, impairment analysis are reassessed for any possibility of reversals.

3.7   Provisions

A provision is recognized if, as a result of a past event, there is a legal or constructive obligation that can be estimated reliably, and it is probable (more likely than not)  that an outflow of economic resources will be required to settle the obligation. When applicable, provisions are determined by discounting the expected future cash outflows at a rate that reflects current market assessment and the risks specific to the liability.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

3.8   Employee benefits

Certain subsidiaries have post-employment benefits and pension plans, recognized, being considered sponsors of these plans. Although the plans have particularities, they have the following characteristics:

(i)               Defined contribution plan: a post-employment benefit plan under which the Sponsor pays fixed contributions into a separate entity and will have no liability for the actuarial deficits of the plan. The obligations are recognized as an expense in the statement of profit or loss in the periods during which the services are rendered.

(ii)              Defined benefit plan: The net obligation is calculated as the difference between the present value of the actuarial obligation based on assumptions, biometric studies and interest rates in line with market rates, and the fair value of the plan assets as of the reporting date. The actuarial liability is calculated annually by independent actuaries, under the responsibility of Management, using the projected unit credit method. Actuarial gains and losses are recognized in other comprehensive income when they occur. Net interest (income or expense) is calculated by applying the discount rate at the beginning of the period to the net amount of the defined benefit asset or liability. When applicable, the cost of past services is recognized immediately in profit or loss.

If the plan records a surplus and it becomes necessary to recognize an asset, the recognition is limited to the present value of future economic benefits available in the form of reimbursements or future reductions in contributions to the plan.

 

3.9   Dividend and Interest on capital

Under Brazilian law, the Company is required to distribute a mandatory minimum annual dividend of 25% of profit adjusted in accordance with the Company´s bylaws. A provision may only be made for the minimum mandatory dividend, and dividends declared but not yet approved are only recognized as a liability in the financial statements after approval by the competent body. According to Law 6.404/76, the amounts paid out to shareholders in excess of the mandatory minimum dividend, will therefore be held in equity, in the “additional dividend proposed” account, as they do not meet the present obligation criteria at the reporting date.

On May 21, 2019, the Company's Board of Directors approved a Dividend Policy that establishes the Company’s annual dividend distribution of at least 50% of the adjusted profit in accordance with Law 6,404/76. This policy establishes factors that will influence the distribution amounts, such as the Company's financial condition, future prospects, macroeconomic conditions, tariff reviews and adjustments, regulatory changes and the Company's growth strategy. It also highlights that certain obligations specified in financial contracts may limit the amount to be distributed. The approved policy is merely indicative in order to signal to the market the treatment the Company intends to give to the dividend distribution and, therefore, it has a programmatic nature and is not binding on the Company or its managing bodies.

As established in the Company's bylaws and in accordance with current Corporate law, the Board of Directors is responsible for declaring an interim dividend and interest on capital determined in a half-yearly statement of income. An interim dividend and interest on capital declared at the base date of June 30, if any, is only recognized as a liability in the Company's financial statement after the date of the Board of Directors’ decision.

Interest on capital receives the same treatment as dividend and is also stated in changes in equity. The withholding income tax on interest on capital is always recognized as a charge to equity with a balancing item in liabilities upon the proposal for its payment, even if not yet approved, since it meets the criterion of obligation at the time of Management’s proposal.

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

3.10  Revenue Recognition

The operating revenue in the normal course of the subsidiaries’ activities is measured at the consideration received or receivable. The operating revenue is recognized when it represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

IFRS 15 / CPC 47 establishes a revenue recognition model that considers five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Thus, revenue is recognized only when (or if) the performance obligation is satisfied, that is, when the “control” of the goods or services of a certain transaction is actually transferred to the customer.  

The revenue from electric energy distribution is recognized when the energy is supplied. The energy distribution subsidiaries perform the reading of their customers consumption based on a reading routine (calendar and reading route) and invoice monthly the consumption of MWh based on the reading performed for each consumer. As a result, part of the energy distributed during the month is not billed at the end of the month and, consequently, an estimate is developed by Management and recorded as “Unbilled”. This unbilled revenue estimate is calculated using as a base the total volume of energy of each distributor made available in the month and the annualized rate of technical and commercial losses.

The revenue from energy generation sales is recognized based on the assured energy and at tariffs specified in the terms of the supply contracts or the current market price, as appropriate.

The revenue from energy commercialization is recognized based on bilateral contracts with market agents and properly registered with the Electric Energy Commercialization Chamber – CCEE.

The revenue from services provided is recognized when the service is provided, under a service agreement between the parties.

The revenue from construction contracts is recognized based on the reach of the performance obligation over time, considering the fulfillment of one of the following criteria:

(a)   the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs;

(b)   the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced;

(c)   the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

The provision of infrastructure construction services is recognized in accordance with CPC 47 / IFRS 15, against a contract asset. 

The revenues of the transmission companies, recognized as operating revenue, are:

·        Construction revenue: Refers to the services of construction of electric energy transmission facilities. These are recognized according to the percentage of completion of the construction works.

·        Financing component: Refers to the interest recognized under the accrual basis method on the amount receivable from the construction revenue.

·        Revenue from operation and maintenance: Refers to the services of operation and maintenance of electric energy transmission facilities aimed at non-interruption of availability of these facilities, recognized based on incurred costs.

No single consumer accounts for 10% or more of the Group’s total revenue.

 

3.11         Income tax and social contribution

Income tax and social contribution expenses are calculated and recognized in accordance with the legislation in force and comprise current and deferred taxes. Income tax and social contribution are recognized in the statement of profit or loss except to the extent that they relate to items recognized directly in equity or other comprehensive income, when the net amounts of these tax effects are already recognized, and those arising from the initial recognition in business combinations.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Current taxes are the expected taxes payable or receivable/recoverable on the taxable profit or loss which reflects the uncertainties related to the calculation, if any. Deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the equivalent amounts used for tax purposes and for tax loss carryforwards and reflects the uncertainty related to the income tax, if any. 

The Company and certain subsidiaries recognized in their financial statements the effects of tax loss carryforwards and temporarily nondeductible differences, based on projections of future taxable profits, approved annually by the Boards of Directors and examined by the Fiscal Council. The subsidiaries also recognized tax credits relating to the benefit of merged intangible, which are amortized on a straight-line basis over the remaining period of each concession agreement.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity.

Deferred income tax and social contribution assets are reviewed at each annual reporting date and are reduced to the extent that it is no longer probable that the related taxes benefit will be realized.

 

3.12         Earnings per share

Basic earnings per share are calculated by dividing the profit or loss for the year attributable to the controlling shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share are calculated by dividing the profit or loss for the year attributable to the controlling shareholders, adjusted by the effects of instruments that potentially would have impacted the profit or loss for the year by the weighted average of the number of shares outstanding, adjusted by the effects of all dilutive potential convertible notes for the reporting periods, in accordance with CPC 41 / IAS 33.

 

3.13         Government grants – CDE

Government grants are only recognized when it is reasonably certain that these amounts will be received by the Group. They are recognized in profit or loss for the periods in which the Group recognizes as income the discounts granted in relation to the low-income subsidy and other tariff discounts.

The subsidies received through funds from the Energy Development Account - CDE (note 27) have the main purpose of offsetting discounts granted and expenses already incurred in order to provide immediate financial support to the distribution companies, in accordance with CPC 07 / IAS 20.

 

3.14         Sector financial asset and liability

According to the tariff pricing mechanism applicable to the distribution companies, the energy tariffs should be set at a price level (price cap) that ensures the economic and financial equilibrium of the concession. Therefore, the concessionaires and licensees are authorized to charge their consumers (after review and ratification by ANEEL) for: (i) the annual tariff increase; and (ii) every four or five years, according to each concession agreement, the periodic review for purposes of reconciliation of part of Parcel B (controllable costs) and adjustment of Parcel A (non-controllable costs).

The distributors' revenue is mainly comprised of the sale of electric energy and for the delivery (transmission) of the electric energy through the distribution infrastructure (network). The distribution concessionaires' revenue is affected by the volume of energy delivered and the tariff. The electric energy tariff is comprised of two parcels which reflect a breakdown of the revenue:

·        Parcel A (non-controllable costs): this parcel should be neutral in relation to the entity's performance, i.e., the costs incurred by the distributors, classifiable as Parcel A, is fully passed through the consumer or borne by the Granting Authority; and

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

·        Parcel B (controllable costs): comprised of capital expenditure on investments in infrastructure, operational costs and maintenance and remuneration to the providers of capital. It is this parcel that actually affects the entity's performance, since it has no guarantee of tariff neutrality and thus involves an intrinsic business risk.

This tariff pricing mechanism can cause temporary differences arising from the difference between the predicted costs (Parcel A and other financial components) included in the tariff at the beginning of the tariff period and those actually incurred while it is in effect. This difference constitutes a right of the concessionaire to receive cash when the incurred costs included in the tariff are lower than those actually incurred, or an obligation to pay if the incurred costs are higher than those actually incurred.

 

3.15         Business combination

Business combinations are accounted for by applying the acquisition method. The consideration transferred including the recognized amount of any noncontrolling interest in the acquiree, less the recognized fair value of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. Costs related to the acquisition are recognized in profit or loss, when incurred.

At the acquisition date, other assets and liabilities are recognized at fair value, except for: (i) deferred taxes, (ii) employee benefits, and (iii) share-based payments.

The noncontrolling interests are initially measured either at fair value or at the noncontrolling interests’ proportionate share of the acquiree’s identifiable net assets. The measurement method is chosen on a transaction-by-transaction basis.

The measurement method is chosen on a transaction-by-transaction basis. The excess of the consideration transferred, added to the portion of noncontrolling interests, over the fair value of the identifiable assets (including the concession intangible asset) and net liabilities assumed at the acquisition date are recognized as goodwill. In the event that the fair value of the identifiable assets and net liabilities assumed exceeds the consideration transferred, a bargain purchase is identified and the gain is recognized in the statement of profit or loss at the acquisition date.

 

3.16         Basis of consolidation

(i) Business combinations

The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any noncontrolling interest in the acquiree, less the recognized fair value of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date.

(ii) Subsidiaries and joint ventures

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Joint ventures are accounted for using the equity method of accounting from the moment joint control is established.

The accounting policies of subsidiaries and joint ventures taken into consideration for purposes of consolidation and/or equity method of accounting, as applicable, are aligned with the Group's accounting policies.

In the individual (parent company) financial statements, the financial information on subsidiaries and joint ventures are accounted for under the equity method. In the consolidated financial statements, the information on joint ventures is accounted for under the equity method.

The consolidated financial statements include the balances and transactions of the Company and its subsidiaries. The balances and transactions of assets, liabilities, income and expenses have been fully consolidated for the subsidiaries. Prior to consolidation into the Company's financial statements, the financial statements of subsidiaries CPFL Geração, CPFL Brasil, CPFL Jaguari Geração, CPFL Eficiência Energética and CPFL Renováveis are fully consolidated into those of their subsidiaries.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Intragroup balances and transactions, and any income and expenses derived from these transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with investees are eliminated in proportion to the Company's interest in the subsidiary, if applicable. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the CPFL Energia interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

In the case of subsidiaries, the portion related to noncontrolling interests is stated in equity and in the statements of profit or loss and comprehensive income in each year presented. 

The balances of joint ventures, as well as the Company’s interest in each of them are described in note 13.4.

(iii) Acquisition of noncontrolling interests

Accounted for as transaction among shareholders. Consequently, no gain or goodwill is recognized as a result of such transaction.

 

3.17         New standards and interpretations

Several standards and interpretations have been issued and/or revised by the IASB and the CPC and are effective for accounting periods beginning January 1, 2019.

 

a)     IFRS 16 / CPC 06 (R2) - Leases

Issued on January 13, 2016, establishes, in the lessee’s view, a new form for accounting for leases currently classified as operating leases, which are now recognized similarly to leases classified as finance leases. As regards the lessors, it virtually retains the requirements of IAS 17 / CPC 06 (R1), including only some additional disclosure aspects. IFRS 16 / CPC 06 (R2) is effective for annual reporting periods beginning on or after January 1, 2019.

IFRS 16 introduces a single model of accounting for leases in the statement of financial position for lessees, eliminating the prior classification between finance and operating leases. The lessee shall recognize an asset relating to the right to use the leased asset and a lease liability that represents the obligation to make lease payments. Exemptions are available for short-term leases (contracts with a maximum term of 12 months) and low-value items (fair value of the identified leased asset is less than US$ 5,000).

The standard defines that a contract is or contains a lease if it conveys the right to control the use of the identified assets for a period of time for a consideration. The Company and its subsidiaries assessed the pronouncement, mainly for the lease agreements of plots of land for the wind farms of CPFL Renováveis’ indirect subsidiaries, as they presented material amounts and are long term. Due to the fact that most of these agreements present a variable compensation to the lessor based on the energy generated by each complex, IFRS 16 does not allow the recognition of the lease liability and, consequently, of the right of use related to such agreements. Regarding other agreements in which the lessor is entitled to a fixed compensation, the Group assessed the standard and concluded that there was no material impact on its adoption.

For other agreements in which the Company and/or its subsidiaries are lessees, as a result of the initial adoption of CPC 06 (R2) / IFRS 16, with respect to leases previously classified as operating leases, the amounts resulting from the right-of-use asset, as well as the lease liability, were considered immaterial and were not recorded.

 

b)     IFRIC 23 / ICPC 22 – Uncertainty over Tax Treatments

Issued in May 2017 in order to clarify the accounting for tax positions that may not be accepted by the tax authorities regarding to IRPJ and CSLL matters. In general lines, the main point of analysis of the interpretation refers to the probability of acceptance by the tax authorities of the tax treatment chosen by the Group.

IFRIC 23 / ICPC 22 is effective for annual reporting periods beginning on or after January 1, 2019. The Group assessed the interpretation and the impact of adopting the standard, was the reclassification of the balance of provision for tax risks related to income taxes to the line item Corporate income tax (note 22).

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

3.18         New standards and interpretations not yet effective and not early adopted - revision of technical pronouncements n° 14 of the CPC (CVM resolution 836/19)

New standards and amendments to standards and IFRS interpretations were issued by the IASB and are not yet effective for the year ended December 31, 2019. The Group has not adopted these amendments in preparing these financial statements:

Definition of a business (amendment to CPC 15 (R1) / IFRS 3): this amendment clarifies the definition of ‘business’, aiming to facilitate the decision of companies on how to classify the acquisition of a set of activities and assets between a business combination or simply an acquisition of groups of assets.

Disclosure Initiative - Definition of Material (Amendments to IAS 1 / CPC 26 (R1) and IAS 8 / CPC 23):  this amendment clarifies the definition of ‘material’, aiming to help companies make a better judgment to define whether information on a particular item, transaction or other event shall be disclosed in the financial statements without substantially changing existing requirements.

Based on a preliminary assessment, Management believes that application of these amendments will not have a material effect on the disclosures and amounts recognized in its consolidated financial statements.

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 4 ) FAIR VALUE MEASUREMENT

 

A few the Group’s accounting policies and disclosures require the fair value measurement, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, additional information on the assumptions made in the fair value measurement is disclosed in the notes specific to that asset or liability.

The Group measures fair value as the price that would be received for the sale of the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

- Property, plant and equipment, intangible assets and contract

The fair value of items of property, plant and equipment, intangible and contract asset is based on the market approach and cost approaches using quoted market prices for similar items when available and replacement cost when appropriate.

- Financial instruments

Financial instruments measured at fair value are valued based on quoted prices in an active market, or, if such prices are not available, they are assessed using pricing models, applied individually to each transaction, taking into consideration future cash flows, based on the contractual conditions, discounted to present value at rates obtained from market interest curves, having as a basis, whenever available, information obtained from the websites of B3 S.A. and “Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais – ANBIMA” (note 34) and also includes the debtor's credit risk rate.

The right to compensation, to be paid by the Federal Government when the distribution concessionaires’ assets are handed over at the end of the concession period are classified as measured at fair value through profit or loss. The methodology adopted for valuing these assets is based on the tariff review process for distributors. This process, conducted every four or five years according to each concessionaire, involves assessing the replacement price of the distribution infrastructure, in accordance with criteria established by the granting authority (“ANEEL”). This valuation basis is also used for establishing the distribution tariff, which is adjusted annually up to the next tariff review, based on main inflation indices.

Accordingly, at the time of the tariff review, each distribution concessionaire adjusts the position of the financial asset base for compensation at the amounts ratified by the granting authority and uses the Extended Consumer Price Index (“IPCA”) as the best estimates for adjusting the original value until next tariff review process.

 

( 5 ) CASH AND CASH EQUIVALENTS

 

 

Parent company

Consolidated

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Bank balances

2,195

 

2,824

 

   450,622

 

   422,968

Short-term financial investments

  31,714

 

  76,540

 

1,486,541

 

1,468,489

Overnight investment (a)

   -  

 

   -  

 

   -  

 

   66

Private credit notes (b)

  31,714

 

  76,540

 

1,279,740

 

   639,601

Investment funds (c)

   -  

 

   -  

 

   206,801

 

   828,822

Total

  33,909

 

  79,364

 

1,937,163

 

1,891,457

 

a)   Bank account balances, which earn daily interest by investment in repurchase agreements secured on Bank Certificate Deposit (CDB) and interest of 15% of the variation in the Interbank Certificate of Deposit (CDI).

b)   Short-term investments in (i) Bank Certificates of Deposit (CDB) R$ 994,521 in December 31, 2019 and R$ 462,551 in December 31, 2018, (ii) secured debentures R$ 284,863 and R$ 177,050 in December 31, 2018 and (iii) leasing notes (R$ 356). All with major financial institutions that operate in the Brazilian financial market, with daily liquidity, short term maturity, low credit risk and interest equivalent, on average, to 94.13% of the CDI.

c)   Investments funds, with high liquidity and interest equivalent, on average, to 92.26% of the CDI.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 6 ) MARKETABLE SECURITIES

 

   

Consolidated

Marketable securities

 

December 31, 2019

Through investment funds (a)

 

449,786

Direct investment (b)

 

401,218

Total

 

851,004

 

(a)   This refers to amounts invested in government securities, Financial Bills ("LF") and Financial Treasury Bills ("LFT"), through investment fund quotas, yielding on average 99.87% of the CDI, with maturities starting in September 2020.

 

(b)   This refers to amounts invested in government securities and LFT, yielding on average 100% of the CDI, with maturity in September 2020.

 

( 7 ) CONSUMERS, CONCESSIONAIRES AND LICENSEES

 

The consolidated balance includes mainly activities from the supply of electric energy, broken down as follows at December 31, 2019 and 2018:

 

   

Consolidated

   

 Amounts

 

 Past due

 

 Total

   

 not due 

 

 until 90 days

 

 > 90 days

 

December 31, 2019

 

December 31, 2018

 Current

                   

 Consumer classes

                   

 Residential

 

   862,310

 

   623,993

 

  74,327

 

1,560,630

 

1,459,186

 Industrial

 

   338,849

 

  77,400

 

  87,829

 

   504,078

 

   480,184

 Commercial

 

   365,729

 

  96,886

 

  35,884

 

   498,499

 

   466,483

 Rural

 

   110,692

 

  27,253

 

  11,919

 

   149,864

 

   123,392

 Public administration

 

  87,233

 

  28,149

 

4,007

 

   119,389

 

  99,051

 Public lighting

 

  66,735

 

6,890

 

5,747

 

  79,373

 

  77,868

 Public utilities

 

  99,803

 

  19,536

 

5,317

 

   124,655

 

   121,840

 Billed

 

1,931,351

 

   880,107

 

   225,030

 

3,036,488

 

2,828,004

 Unbilled

 

1,230,883

 

   -  

 

   -  

 

1,230,883

 

1,158,106

 Financing of consumers' debts

 

   172,992

 

  37,469

 

  36,970

 

   247,431

 

   224,903

 CCEE transactions

 

   319,728

 

2,313

 

  28,313

 

   350,354

 

   175,176

 Concessionaires and licensees

 

   387,444

 

3,838

 

  12,346

 

   403,628

 

   428,361

 Others

 

  50,191

 

   -  

 

   -  

 

  50,191

 

  34,002

   

4,092,589

 

   923,727

 

   302,659

 

5,318,975

 

4,848,552

 Allowance for doubtful accounts

             

  (333,396)

 

  (300,601)

Total

             

4,985,578

 

4,547,951

                     

 Noncurrent

                   

 Financing of consumers' debts

 

   179,045

 

   -  

 

   -  

 

   179,045

 

   196,635

 Free energy

 

6,739

 

   -  

 

   -  

 

6,739

 

6,360

 CCEE transactions

 

   221,382

 

   305,901

 

   -  

 

   527,284

 

   549,800

   

   407,166

 

   305,901

 

   -  

 

   713,068

 

   752,795

 

Financing of Consumers' Debts - Refers to the negotiation of overdue receivables from consumers, principally public administration. Payment of some of these receivables is guaranteed by the debtors, by pledging the bank accounts through which their ICMS (VAT) revenue is received.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Electric Energy Commercialization Chamber (CCEE) transactions - The amounts refer to the sale of electric energy on the spot market. The noncurrent amounts mainly comprise: (i) adjustments of entries made by the CCEE in response to certain legal decisions (preliminary decisions) in the accounting processes for the period from September 2000 to December 2002; (ii) provisional accounting entries established by the CCEE; and (iii) opening balances due to the CCEE temporary situation in function of injunctions from generating companies due to the hydrological scenario and its financial impacts over free market. The subsidiaries consider that there is no significant risk on the realization of these assets and consequently no allowance was recognized for these transactions.

Concessionaires and licensees - Refer basically to receivables for the supply of electric energy to other concessionaires and licensees, mainly by the subsidiaries CPFL Geração, CPFL Brasil and CPFL Renováveis.

Allowance for doubtful accounts

The allowance for doubtful debts is set up based on the expected credit loss (ECL), adopting the simplified method of recognizing, based on the history and future probability of default. The allowance methodology is detailed in note 35.(e).

Movements in the allowance for doubtful accounts are shown below:

 

 

Consumers, concessionaires

and licensees

 

Other assets
(note 12)

 

Total

At December 31, 2017

  (266,876)

 

(29,379)

 

  (296,255)

Allowance - reversal (recognition) net

  (277,802)

 

1,419

 

  (276,383)

Recovery of revenue

   107,122

 

   -  

 

   107,122

Effects on first adoption of IFRS 9 / CPC 48

(72,687)

 

  (738)

 

(73,426)

Write-off of accrued receivables

   209,641

 

   -  

 

   209,641

At December 31, 2018

  (300,601)

 

(28,698)

 

  (329,299)

Allowance - reversal (recognition) net

  (433,224)

 

  (320)

 

  (433,543)

Recovery of revenue

   200,046

 

   73

 

   200,119

Write-off of accrued receivables

   200,382

 

(73)

 

   200,309

At December 31, 2019

  (333,396)

 

(29,019)

 

  (362,415)

           

   

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 8 ) TAXES RECOVERABLE

 

 

Parent company

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Current

             

Prepayments of social contribution – CSLL

   -  

 

   -  

 

5,088

 

  12,373

Prepayments of income tax - IRPJ

   -  

 

   49

 

  12,522

 

  36,972

Income tax and social contribution to be offset

   78

 

9,392

 

  70,088

 

  74,395

Income tax and social contribution recoverable

   78

 

9,441

 

  87,698

 

   123,739

               

Withholding income tax - IRRF on interest on capital

  40,099

 

7,909

 

  40,432

 

8,163

Withholding income tax - IRRF

  18,847

 

346

 

  80,499

 

  92,210

State VAT - ICMS to be offset

   -  

 

   -  

 

   144,415

 

   125,669

Social Integration Program - PIS

   -  

 

   65

 

  10,958

 

9,970

Contribution for Social Security Funding - COFINS

   -  

 

326

 

  51,084

 

  46,741

Others

   -  

 

   -  

 

4,039

 

4,764

Other taxes to be recoverable

  58,947

 

8,646

 

   331,428

 

   287,517

 

 

 

 

 

 

 

 

Total current

  59,025

 

  18,087

 

   419,126

 

   411,256

               

Noncurrent

             

Social contribution to be offset - CSLL

   -  

 

   -  

 

  65,589

 

  62,458

Income tax to be offset - IRPJ

   -  

 

   -  

 

  35,939

 

5,508

Income tax and social contribution recoverable

   -  

 

   -  

 

   101,528

 

  67,966

               

State VAT - ICMS to be offset

   -  

 

   -  

 

   191,523

 

   174,596

Social Integration Program - PIS

   -  

 

   -  

 

  30,987

 

1,060

Contribution for Social Security Funding - COFINS

   -  

 

   -  

 

   142,779

 

4,885

Others

   -  

 

   -  

 

5,306

 

5,185

Other taxes to be recoverable

   -  

 

   -  

 

   370,595

 

   185,725

               

Total noncurrent

   -  

 

   -  

 

   472,123

 

   253,691

   

Withholding income tax - IRRF – Relates mainly to IRRF on financial investments.

Social contribution to be offset – CSLL – In noncurrent, it refers basically to the final unappealable favorable decision in a lawsuit filed by the subsidiary CPFL Paulista. The subsidiary CPFL Paulista is awaiting the authorization for utilization of credit from the Federal Revenue in order to carry out its subsequent offset.

State VAT - ICMS to be offset – In noncurrent, it refers mainly to the credit recorded on purchase of assets that results in the recognition of property, plant and equipment, intangible assets and financial assets.

Exclusion of ICMS from the PIS and COFINS tax base

A few subsidiaries of the Group are parties to several pending legal proceedings involving the Brazilian federal government that address the exclusion of ICMS amounts from the PIS and COFINS tax base, as well as the Group subsidiaries’ rights to receive refunds of other amounts previously paid. In 2019, CPFL Santa Cruz (related to the original lawsuit presented by four merged companies - CPFL Leste Paulista, CPFL Sul Paulista, CPFL Jaguari and CPFL Mococa) received a favorable final judicial decision on these matters, which is not subject to further appeal. As a result, CPFL Santa Cruz recognized a tax credit of R$ 166,870 using the calculation method in accordance with the “Federal Revenue Orientation 13/2018”. Based on advice of external legal counsel, the Group understands that amounts received as tax credits by its distribution subsidiaries and will need to be refunded to consumers as soon the Brazilian Federal Revenue approves such tax credits as compensation payable to affected consumers. The Group is still discussing with its external legal advisors the relevant time period applicable to calculating the refunds of tax credits to consumers, which may be for a period of three, five or ten years . On 2019, CPFL Santa Cruz recognized a liability related to tax credits that need to be refunded for the maximum period of 10 years.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

As a result, for the year ended December 31, 2019, CPFL Santa Cruz recognized  an increase of R$ 167,777 as “Taxes Recoverable”, against R$ 132,607 of increase in “Other Payable – Consumers” and a reduction of R$ 34,495 as “Deduction from operating revenues – PIS and COFINS” financial adjustment of R$ 675. No other amounts have been recognized as the other Group subsidiaries await final decisions in their respective legal proceedings.

 

( 9 ) SECTOR FINANCIAL ASSET AND LIABILITY

The breakdown of the balances of sector financial asset and liability and the movement for the year are as follows:

 

 

Consolidated

 

At December 31, 2018

 

Operating revenue

 

Finance income or expense

 

At December 31, 2019

   

(note 27)

 

(note 30)

 
 

Deferred

 

Approved

 

Total

 

Constitution

 

Through billing

 

Monetary adjustment

 

Deferred

 

Approved

 

Total

Parcel "A"

   1,306,751

 

592,281

 

  1,899,031

 

753,571

 

(1,367,194)

 

103,815

 

  891,247

 

  497,977

 

  1,389,225

CVA (*)

                                 

CDE (**)

   208,156

 

(7,275)

 

  200,881

 

  50,609

 

   (149,085)

 

   16,954

 

   1,277

 

  118,083

 

  119,360

Electric energy cost

   586,027

 

634,599

 

  1,220,626

 

130,313

 

   (925,376)

 

   49,173

 

  294,291

 

  180,446

 

  474,737

ESS and EER (***)

(562,800)

 

   (450,230)

 

   (1,013,030)

 

  (441,381)

 

  857,459

 

  (45,704)

 

(341,381)

 

   (301,275)

 

(642,656)

Proinfa

   246

 

  3,129

 

  3,375

 

  43,537

 

  (24,907)

 

  2,236

 

  881

 

23,361

 

24,242

Basic network charges

  36,256

 

   23,526

 

   59,782

 

180,488

 

  (55,344)

 

  3,728

 

  180,686

 

  7,967

 

  188,654

Pass-through from Itaipu

   1,141,254

 

465,184

 

  1,606,438

 

902,954

 

(1,200,945)

 

   82,886

 

  848,587

 

  542,747

 

  1,391,334

Transmission from Itaipu

  31,784

 

   12,439

 

   44,222

 

  37,098

 

  (35,857)

 

  2,575

 

29,275

 

18,763

 

48,038

Neutrality of sector charges

   (40,763)

 

(8,370)

 

  (49,133)

 

(42,280)

 

67,696

 

   (971)

 

   9,636

 

  (34,324)

 

  (24,688)

Overcontracting

   (93,409)

 

  (80,721)

 

   (174,130)

 

  (107,768)

 

99,164

 

   (7,062)

 

(132,005)

 

  (57,791)

 

(189,796)

Other financial components

(275,550)

 

   (115,325)

 

   (390,875)

 

(86,443)

 

97,605

 

  (15,737)

 

(285,566)

 

   (109,885)

 

(395,451)

                                   

Total

   1,031,201

 

476,956

 

  1,508,156

 

667,128

 

(1,269,589)

 

   88,079

 

  605,681

 

  388,092

 

  993,775

                                   

Current assets

       

  1,330,981

                     

  1,093,588

Noncurrent assets

       

  223,880

                     

   2,748

Current liabilities

       

-  

                     

  -  

Noncurrent liabilities

       

  (46,703)

                     

(102,561)

 

(*)        Deferred tariff costs and gains variations from Parcel “A” items

(**)       Energy Development Account – CDE

(***)     System Service Charge (ESS) and Reserve Energy Charge (EER)

 

CVA

Refers to the variations of the Parcel A account, in accordance with note 3.14. These amounts are adjusted based on the SELIC rate and are compensated in the subsequent tariff processes.

Neutrality of sector charges

This refers to the neutrality of the sector charges contained in the electric energy tariffs, calculating the monthly differences between the amounts billed relating to such charges and the respective amounts considered at the time the distributors’ tariff was set.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Overcontracting

Electric energy distribution concessionaires are required to guarantee 100% of their energy market through contracts approved, registered and ratified by ANEEL. It is also assured to the distribution concessionaires that costs or revenues derived from energy surplus will be passed through the tariffs, limited to 5% of the energy load requirement. These amounts are adjusted based on SELIC rate and are compensated in the subsequent tariff processes.

Other financial components

Refers mainly to: (i) excess demand and excess reactive power that, will be amortized upon the approval of the periodic tariff review cycles; (ii) recalculations of the tariff processes and (iii) tariff effect arising from the bilateral agreement between the parties signatories of the Power Trading Chamber in the Regulated Environment – CCEAR, and (iv) financial guarantees for energy contracts.

 

( 10 ) DEFERRED TAX ASSETS AND LIABILITIES

 

 

10.1         Breakdown of tax assets and liabilities

 

Parent company

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

 Social contribution credit/(debit)

             

 Tax losses carryforwards

  22,174

 

  29,750

 

   124,852

 

   137,577

 Tax benefit of merged intangible

   -  

 

   -  

 

  89,511

 

  97,288

 Temporarily nondeductible differences  

553

 

  (355)

 

  (218,616)

 

  (292,257)

 Subtotal

  22,727

 

  29,395

 

   (4,254)

 

(57,392)

               

 Income tax credit / (debit)

             

 Tax losses carryforwards

  61,209

 

  84,113

 

   345,462

 

   382,359

 Tax benefit of merged intangible

   -  

 

   -  

 

   288,754

 

   315,189

 Temporarily nondeductible/taxable differences  

1,537

 

  (986)

 

  (602,934)

 

  (809,917)

 Subtotal

  62,747

 

  83,127

 

  31,282

 

  (112,369)

               

PIS and COFINS credit/(debit)

             

 Temporarily nondeductible/taxable differences  

   -  

 

   -  

 

(10,380)

 

(10,086)

               

 Total

  85,474

 

   112,522

 

  16,647

 

  (179,847)

               

 Total tax credit

  85,474

 

   112,522

 

1,064,716

 

   956,380

 Total tax debit

   -  

 

   -  

 

  (1,048,069)

 

  (1,136,227)

 

10.2  Tax benefit of merged intangible asset

Refers to the tax benefit calculated on the intangible assets derived from the acquisition of subsidiaries, as shown in the following table, which were merged and are recognized in accordance with the concepts of CVM Instructions No. 319/1999 and No. 349/2001 and ICPC 09 (R2) - Individual Financial Statements, Separate Financial Statements, Consolidated financial statements and Application of the Equity Method. The benefit is being realized  in proportion to the tax amortization of the merged intangible assets that originated them as per CPC 27 and CPC 04 (R1) - Clarification of acceptable methods of depreciation and amortization, over the remaining concession period, as shown in note 15.

64

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Consolidated

 

December 31, 2019

 

December 31, 2018

Social contribution

 

Income tax

 

Social contribution

 

Income tax

CPFL Paulista

  36,620

 

   101,723

 

  41,246

 

   114,572

CPFL Piratininga

9,145

 

  31,385

 

  10,180

 

  34,938

RGE Sul (RGE)

  43,746

 

   144,878

 

  45,863

 

   153,618

CPFL Geração

   -  

 

  10,769

 

   -  

 

  12,061

Total

  89,511

 

   288,754

 

  97,288

 

   315,189

 

10.3  Accumulated balances on nondeductible temporary / taxable differences

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

Social contribution

 

Income tax

 

PIS/COFINS

 

Social contribution

 

Income tax

 

PIS/COFINS

Temporarily nondeductible/taxable differences 

                     

Provision for tax, civil and labor risks

  41,817

 

   116,158

 

   -  

 

  57,635

 

   160,096

 

   -  

Private pension fund

4,006

 

  11,127

 

   -  

 

2,913

 

8,093

 

   -  

Allowance for doubtful accounts

  33,288

 

  92,466

 

   -  

 

  30,316

 

  84,211

 

   -  

Free energy supply

9,632

 

  26,756

 

   -  

 

9,166

 

  25,462

 

   -  

Research and development and energy efficiency programs

  33,289

 

  92,468

 

   -  

 

  27,506

 

  76,405

 

   -  

Personnel-related provisions

6,225

 

  17,293

 

   -  

 

5,208

 

  14,467

 

   -  

Depreciation rate difference

4,097

 

  11,380

 

   -  

 

4,764

 

  13,235

 

   -  

Derivatives

(46,344)

 

  (128,733)

 

   -  

 

(58,698)

 

  (163,051)

 

   -  

Recognition of concession - adjustment of intangible asset (IFRS/CPC)

   (5,352)

 

(14,867)

 

   -  

 

   (6,399)

 

(17,775)

 

   -  

Recognition of concession - adjustment of financial asset (IFRS/CPC)

  (171,599)

 

  (476,664)

 

   -  

 

  (148,561)

 

  (410,608)

 

   -  

Actuarial losses  (IFRS/CPC)

  25,567

 

  71,020

 

   -  

 

  26,001

 

  72,223

 

   -  

Fair value measurement - derivatives

   (8,670)

 

(24,082)

 

   -  

 

2,711

 

7,532

 

   -  

Fair value measurement - debts

9,440

 

  26,222

 

   -  

 

   (1,854)

 

   (5,147)

 

   -  

Others

(28,477)

 

(77,238)

 

(10,380)

 

(18,030)

 

(50,236)

 

(10,086)

Temporarily nondeductible/taxable differences - accumulated
 comprehensive income:

                     

Property, plant and equipment  - adjustment of deemed cost (IFRS/CPC)

(45,568)

 

  (126,578)

 

   -  

 

(48,806)

 

  (135,572)

 

   -  

Actuarial losses  (IFRS/CPC)

   137,853

 

   382,925

 

   -  

 

  58,071

 

   161,307

 

   -  

Fair value measurement - derivatives

  (318)

 

  (883)

 

   -  

 

(89)

 

  (247)

 

   -  

Fair value measurement - debts

   (6,638)

 

(18,439)

 

   -  

 

   (6,683)

 

(18,567)

 

   -  

Temporarily nondeductible/taxable differences - business combination - CPFL Renováveis

                     

Deferred taxes - asset:

                     

Provision for tax, civil and labor risks

  10,748

 

  29,855

 

   -  

 

  11,620

 

  32,277

 

   -  

Fair value of property, plant and equipment (negative value added of assets)

  18,344

 

  50,955

 

   -  

 

  19,817

 

  55,047

 

   -  

Deferred taxes - liability:

                     

Value added derived from determination of demed cost

(19,177)

 

(53,270)

 

   -  

 

(24,690)

 

(68,584)

 

   -  

Intangible asset - exploration right/authorization

  (216,651)

 

  (601,809)

 

   -  

 

  (227,199)

 

  (631,106)

 

   -  

Other temporary differences

   (4,128)

 

   (8,995)

 

   -  

 

   (6,976)

 

(19,379)

 

   -  

Total

  (218,616)

 

  (602,934)

 

(10,380)

 

  (292,257)

 

  (809,917)

 

(10,086)

 

10.4  Expected period of recovery

The expected period of recovery of the deferred tax assets recorded in noncurrent assets derived from temporarily nondeductible / taxable differences and tax benefit of merged intangible assets is based on the average period of realization of each item included in deferred assets, and tax loss carryforwards are based on the projections of future profits, approved by the Board of Directors and reviewed by the Fiscal Council. They are comprised as follows:

65

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Expectations of Recovery

 

Consolidated

     

2020

 

   265,942

2021

 

   247,722

2022

 

   213,155

2023

 

   174,733

2024

 

   154,993

2025 a 2027

 

   848,256

2028 a 2030

 

   171,811

2031 a 2033

 

15,139

Total

 

   2,091,751

 

10.5  Reconciliation of the income tax and social contribution amounts recognized in the statements of profit or loss for 2019 and 2018:

 

Parent company

 

2019

 

2019

 

Social contribution

 

Income tax

 

Social contribution

 

Income tax

Income before taxes

2,825,333

 

2,825,333

 

2,179,615

 

2,179,615

Adjustments to reflect effective rate:

             

Equity in subsidiaries, associates and joint ventures

  (2,827,718)

 

  (2,827,718)

 

  (2,250,835)

 

  (2,250,835)

Amortization of intangible asset acquired

(13,528)

 

   -  

 

(13,528)

 

   -  

Interest on capital income

   345,484

 

   345,484

 

   424,892

 

   424,892

Other permanent additions (exclusions), net

  12,959

 

  24,239

 

  14,840

 

  22,449

Tax base

   342,530

 

   367,338

 

   354,984

 

   376,121

Statutory rate

9%

 

25%

 

9%

 

25%

Tax credit/(debit)

(30,828)

 

(91,834)

 

(31,949)

 

(94,030)

Recorded (unrecognizad) Tax credit, net

   -  

 

   -  

 

1,134

 

3,270

Total

(30,828)

 

(91,835)

 

(30,814)

 

(90,760)

               

Current

(17,677)

 

(53,445)

 

(22,401)

 

(65,916)

Deferred

(13,151)

 

(38,390)

 

   (8,413)

 

(24,844)

               
               
               
 

Consolidated

 

2019

 

2018

 

Social contribution

 

Income tax

 

Social contribution

 

Income tax

Profit before taxes

3,986,293

 

3,986,293

 

2,939,977

 

2,939,977

Reconciliation to reflect effective rate:

             

Equity in subsidiaries

  (349,090)

 

  (349,090)

 

  (334,198)

 

  (334,198)

Amortization of intangible asset acquired

  48,649

 

  62,756

 

  48,649

 

  62,756

Effect of presumed profit system

  (383,968)

 

  (444,168)

 

  (242,700)

 

  (289,923)

Adjustment of revenue from excess demand and excess reactive power

   162,438

 

   162,438

 

   153,302

 

   153,302

Interest on capital income

   -  

 

   -  

 

   -  

 

(52,336)

Other permanent additions (exclusions), net

   103,889

 

  50,343

 

   101,581

 

  87,162

Tax base

3,568,211

 

3,468,572

 

2,666,611

 

2,566,740

Statutory rate

9%

 

25%

 

9%

 

25%

Tax credit/(debit)

  (321,139)

 

  (867,143)

 

  (239,995)

 

  (641,685)

Recorded (unrecognizad) Tax credit, net

(12,903)

 

(29,148)

 

  26,323

 

  81,375

Provision for tax risks

   (2,570)

 

   (5,097)

 

   -  

 

   -  

Total

  (336,610)

 

  (901,386)

 

  (213,673)

 

  (560,310)

               

Current

  (303,332)

 

  (804,994)

 

  (227,464)

 

  (578,381)

Deferred

(33,279)

 

(96,392)

 

  13,791

 

  18,071

    

Amortization of intangible asset acquired – Refers to the permanent nondeductible portion of amortization of intangible assets derived from the acquisition of investees. In the parent company, these amounts are classified in the line item of equity in subsidiaries, in conformity with ICPC 09 (R2) (note 13).

66

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Recognized (unrecognized) tax credit, net - the recognized tax credit refers to the amount of tax credit on tax loss carryforwards recorded as a result of review of projections of future profits. The unrecognized tax credit refers to losses generated for which currently is not probable that enough future taxable profits will be generated to absorb them.

Deferred income tax and social contribution expense recognized in profit or loss of R$ 129,671 (income of R$ 31,863 in 2018) refers to (i) tax loss carryforwards (expense of R$ 49,703 in 2019 and income of R$ 112,491 in 2018); (ii) tax benefit of the merged goodwill (expense of R$ 34,212 in 2019 and R$ 34,850 in 2018) and (iii) temporary differences (expense of R$ 45,257 in 2019 and R$ 45,778 in 2018).

 

10.6  Deferred income tax and social contribution recognized directly in equity

The deferred income tax and social contribution recognized directly in equity (other comprehensive income) in 2019 and 2018 were as follows:

   

Consolidated

   

2019

 

2018

   

Social Contribution

 

Income tax

 

Social Contribution

 

Income tax

Actuarial losses (gains)

 

1,122,747

 

1,122,747

 

313,243

 

313,243

Limits on the asset ceiling

 

   44,058

 

   44,058

 

  6,617

 

  6,617

Basis of calculation

 

1,166,805

 

1,166,805

 

319,860

 

319,860

Statutory rate

 

9%

 

25%

 

9%

 

25%

Calculated taxes

 

   (105,012)

 

   (291,701)

 

  (28,786)

 

  (79,964)

Limitation on recognition (reversal) of tax credits

 

   25,229

 

   70,080

 

  7,325

 

   20,347

Taxes recognized in other comprehensive income on actuarial losses

 

  (79,783)

 

   (221,621)

 

  (21,461)

 

  (59,617)

                 

Credit risk fair value measurement of financial liabilities

 

1,662

 

1,662

 

  (78,953)

 

  (78,953)

Deemed cost of property, plant and equipment

 

38,897

 

38,897

 

   38,057

 

   38,057

Subtotal

 

40,559

 

40,559

 

  (40,896)

 

  (40,896)

Statutory rate

 

9%

 

25%

 

9%

 

25%

Calculated taxes

 

   (3,650)

 

  (10,140)

 

  3,681

 

   10,224

                 

Total taxes recognized in other comprehensive income

 

  (83,434)

 

   (231,760)

 

  (17,780)

 

  (49,393)

 

10.7  Unrecognized tax credits

As of December 31, 2019, the parent company has tax credits on tax loss carryforwards that were not recognized amounting to R$ 82,573 since at present there is no reasonable assurance of the generation of future taxable profits. This amount can be recognized in the future, according to the annual reviews of taxable profit projections.

Some subsidiaries have also income tax and social contribution credits on tax loss carryforwards that were not recognized because currently rather is no reasonable assurance that enough future taxable profits will be generated to absorb them. At December 31, 2019, the main subsidiaries that have such income tax and social contribution credits are CPFL Renováveis (R$ 748,435), RGE Sul (R$ 71,894), Sul Geradora (R$ 72,711), CPFL Telecom (R$ 32,978), CPFL Serviços (R$ 6,188) and Jaguari Geração (R$ 2,467). These tax losses can be carried forward indefinitely.

67

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 11 ) CONCESSION FINANCIAL ASSET

 

 

 

 Distribution

 

 Transmition

 

 Consolidated

At December 31, 2017

6,330,681

 

238,723

 

6,569,404

Current

-  

 

  23,736

 

  23,736

Noncurrent

6,330,681

 

214,987

 

6,545,668

Transfer - contract asset

836,516

 

   -  

 

   836,516

Transfer - intangible asset

  (52,803)

 

   -  

 

(52,803)

Fair value adjustment

362,073

 

   -  

 

   362,073

Disposals

  (46,318)

 

   -  

 

(46,318)

Adoption IFRS 15 / CPC 47

-  

 

  (238,723)

 

  (238,723)

           

At December 31, 2018

7,430,149

 

   -  

 

7,430,149

Noncurrent

7,430,149

 

   -  

 

7,430,149

Transfer - contract asset

1,090,393

 

   -  

 

1,090,393

Transfer - intangible asset

   (3,502)

 

   -  

 

   (3,502)

Fair value adjustment

296,037

 

   -  

 

   296,037

Disposals

  (33,361)

 

   -  

 

(33,361)

At December 31, 2019

8,779,717

 

   -  

 

8,779,717

Noncurrent

8,779,717

 

   -  

 

8,779,717

 

The amount refers to the financial asset corresponding to the right established in the concession agreements of the energy distributors to receive cash by compensation upon the return of the assets to the granting authority at the end of the concession, measured at fair value.

According to the current tariff model, the remuneration for this asset is recognized in profit or loss upon billing to consumers and the realization occurs upon receipt of the electric energy bills. Moreover, the difference to adjust the balance at fair value (new replacement value – “VNR” – note 4) is recognized as a balancing item to the operating income account (note 27) in the statement of profit or loss for the year.

At 2019, the balance of write-offs of R$ 33,361 (R$ 46,318 at 2018) refers to the write-off of the adjustment related to the asset in the amount of R$ 15,404 (R$ 17,058 at 2018) and the write-off of the asset of R$ 17,957 (R$ 29,260 at 2018).

68

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 12 ) OTHER ASSETS

 

   

Consolidated

   

Current

 

Noncurrent

   

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Advances - Fundação CESP

 

  13,562

 

3,929

 

6,797

 

6,797

Advances to suppliers

 

  43,587

 

4,031

 

   -  

 

   -  

Pledges, funds and restricted deposits

 

1,431

 

  77,442

 

   569,733

 

   524,461

Orders in progress

 

   130,954

 

   142,708

 

9,448

 

6,844

Services rendered to third parties

 

  23,388

 

9,281

 

   -  

 

   -  

Energy pre-purchase agreements

 

   -  

 

   -  

 

  10,432

 

  25,390

Prepaid expenses

 

  76,756

 

   172,155

 

4,608

 

6,367

GSF renegotiation

 

6,488

 

  13,701

 

   -  

 

5,782

Receivables - CDE

 

   147,470

 

   183,710

 

   -  

 

   -  

Advances to employees

 

  20,640

 

  22,287

 

   -  

 

   -  

Contract asset of transmission

 

   -  

 

  23,535

 

   -  

 

   226,117

Others

 

   212,904

 

   186,923

 

   135,000

 

   125,681

(-) Allowance for doubtful debts (note 7)

 

(29,019)

 

(28,698)

 

   -  

 

   -  

Total

 

   648,161

 

   811,005

 

   736,019

 

   927,440

 

Pledges, funds and restricted deposits: refer to guarantees offered for transactions conducted in the CCEE and investments required by the subsidiaries’ loans agreements.

Orders in progress: encompass costs and revenues related to ongoing decommissioning or disposal of intangible assets and the service costs related to expenditure on projects in progress under the Energy Efficiency (“PEE”) and Research and Development programs (“P&D”). Upon the closing of the respective projects, the balances are amortized against the respective liability recognized in Other Payables (note 24).

Receivables – CDE: refer to: (i) low-income subsidies amounting to  R$ 16,944 (R$ 12,536 at December 31, 2018), (ii) other tariff discounts granted to consumers amounting to R$ 130,516  (R$ 170,858 at December 31, 2018), and (iii) tariff discounts – court injunctions amounting to R$ 9 (R$ 317 at December 31, 2018).

 

( 13 ) INVESTMENTS

 

 

Parent company

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Equity method

             

By equity method of the subsidiary and joint venture

   11,741,300

 

9,088,049

 

   988,516

 

   970,302

Advances for future capital increases

   14,160

 

  82,395

 

   -  

 

   -  

Subtotal

   11,755,460

 

9,170,444

 

   988,516

 

   970,302

Fair value of assets, net

  565,617

 

   639,640

 

9,481

 

  10,060

Goodwill

  6,054

 

6,054

 

   -  

 

   -  

Total

   12,327,132

 

9,816,139

 

   997,997

 

   980,362

 

At December 31, 2019, the advance for future capital increase refers to advances mainly to the subsidiaries CPFL Eficiência. At December 31, 2018, the advance for future capital increase refers to advances mainly to the subsidiaryCPFL Eficiência (R$ 42,400) and CPFL Serviços (R$ 39,900).

 

13.1         Equity interests – equity method

The main information on investments in direct equity interests is as follows:

69

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

   

December 31, 2019

 

December 31, 2019

 

December 31, 2018

 

2019

 

2018

Investment

 

Total assets

 

Issued capital

 

Equity

 

Profit or loss for the period

 

Share of equity of investees

 

Share of profit (loss) of investees

CPFL Paulista

 

  10,917,071

 

1,308,373

 

  1,522,421

 

837,604

 

  1,522,421

 

1,910,866

 

837,604

 

649,516

CPFL Piratininga

 

  4,073,042

 

  249,321

 

564,024

 

281,634

 

564,024

 

  516,235

 

281,634

 

182,654

CPFL Santa Cruz

 

  1,463,945

 

  170,413

 

465,625

 

101,228

 

465,625

 

  392,040

 

101,228

 

81,191

RGE

 

-

 

-

 

-

 

-

 

-

 

  -

 

-

 

232,731

RGE Sul (RGE)

 

  9,997,093

 

2,809,820

 

  4,000,469

 

614,109

 

  3,489,745

 

3,286,587

 

559,783

 

255,854

CPFL Geração

 

  5,401,315

 

1,043,922

 

  3,068,752

 

862,726

 

  3,068,752

 

2,625,465

 

862,726

 

766,451

CPFL Renováveis  (*)

 

  8,662,437

 

3,698,060

 

  4,544,433

 

96,628

 

  2,125,023

 

  -

 

52,388

 

-

CPFL Jaguari Geração

 

68,518

 

  40,108

 

58,310

 

9,849

 

58,310

 

  58,656

 

9,849

 

13,592

CPFL Brasil

 

  1,394,345

 

  3,000

 

86,651

 

109,090

 

86,651

 

  72,680

 

109,090

 

91,502

CPFL Planalto

 

6,706

 

630

 

6,466

 

4,022

 

6,466

 

  2,444

 

4,022

 

3,567

CPFL Serviços

 

238,200

 

  120,929

 

131,181

 

13,445

 

131,181

 

  120,929

 

13,445

 

(24,076)

CPFL Atende

 

31,513

 

  13,991

 

24,296

 

11,266

 

24,296

 

  19,363

 

11,266

 

9,527

CPFL Infra (**)

 

20,598

 

38

 

14,025

 

17,643

 

14,025

 

  16,558

 

17,643

 

19,087

CPFL Pessoas (**)

 

7,260

 

811

 

4,517

 

2,047

 

4,517

 

  -

 

2,047

 

-

CPFL Finanças (**)

 

9,123

 

385

 

5,566

 

3,982

 

5,566

 

  -

 

3,982

 

-

CPFL Supre (**)

 

5,432

 

826

 

3,267

 

1,232

 

3,267

 

  -

 

1,232

 

-

CPFL Total

 

39,793

 

  9,005

 

35,348

 

25,665

 

35,348

 

  19,953

 

25,665

 

21,690

CPFL Telecom

 

4,381

 

  1,928

 

4,188

 

  113

 

4,188

 

  5,465

 

  113

 

4,442

CPFL Centrais Geradoras

 

19,746

 

  16,128

 

16,020

 

  22

 

16,020

 

  15,998

 

  22

 

  618

CPFL Eficiência

 

143,512

 

  76,073

 

118,189

 

(3,835)

 

118,189

 

  85,744

 

(3,835)

 

(11,908)

AUTHI

 

23,473

 

10

 

11,846

 

11,836

 

11,846

 

  21,463

 

11,836

 

28,604

Subtotal - by subsidiary's equity

                 

  11,755,460

 

9,170,444

 

  2,901,740

 

  2,325,042

Amortization of fair value adjustment of assets

                 

-

 

  -

 

(74,023)

 

(74,207)

Total

                 

  11,755,460

 

9,170,444

 

  2,827,719

 

  2,250,835

                                 

Investment

                 

  11,741,300

 

9,088,049

       

Advances for future capital increases

                 

14,160

 

  82,395

       

 

(*) See Note 1.H
(**) Corporate restructuring (spin-off). See Note 1.g

 

Asset surplus (value added) of net assets acquired in business combinations are classified in the parent’s statement of profit or loss in the group of Investments. In the parent company’s statement of profit or loss, the  amortization of the asset surplus (value added) of net assets of R$ 74,023 (R$ 74,207 at December 2018) is classified in line item “share of profit (loss) of investees”, in conformity with ICPC 09 (R2).

The movements, in the parent company, of the balances of investments in subsidiaries for years of 2019 and 2018 are as follows:

Investment

 

Investment at December 31, 2017

 

Capital increase

 

Share of profit (loss) of investees

 

Share of profit (loss) of investees (OCI)

 

Effects on first adoption of IFRS 9 / CPC 48

 

Dividend and Interest on capital

 

Advances for future capital increases/ Others

 

Corporate restructuring (Note 13.5)

 

Investment at December 31, 2018

CPFL Paulista

 

1,370,403

 

  350,000

 

649,516

 

(168,019)

 

  (18,453)

 

   (272,581)

 

   -  

 

   -  

 

   1,910,866

CPFL Piratininga

 

461,059

 

  -  

 

182,654

 

   (43,507)

 

  (11,996)

 

(71,975)

 

   -  

 

   -  

 

   516,235

CPFL Santa Cruz

 

340,463

 

  -  

 

   81,191

 

   1,376

 

(1,556)

 

(29,433)

 

   -  

 

   -  

 

   392,040

RGE

 

1,680,334

 

  -  

 

232,731

 

  (2,135)

 

(7,148)

 

-  

 

   -  

 

   (1,903,782)

 

   -  

RGE Sul (RGE)

 

1,228,317

 

  -  

 

255,854

 

   562

 

(7,121)

 

(98,763)

 

  9

 

1,907,728

 

   3,286,587

CPFL Geração

 

2,354,115

 

  -  

 

766,451

 

  (6,220)

 

  -  

 

   (490,124)

 

1,243

 

   -  

 

   2,625,465

CPFL Jaguari Geração

 

   50,970

 

  -  

 

   13,592

 

  -  

 

  -  

 

   (5,906)

 

   -  

 

   -  

 

  58,656

CPFL Brasil

 

   96,093

 

  -  

 

   91,502

 

  (2,873)

 

(2,187)

 

(93,717)

 

   -  

 

(16,138)

 

  72,680

CPFL Planalto

 

  3,293

 

  -  

 

  3,567

 

  -  

 

  -  

 

   (4,417)

 

   -  

 

   -  

 

2,444

CPFL Serviços

 

105,105

 

  -  

 

(24,076)

 

  -  

 

  -  

 

-  

 

  39,900

 

   -  

 

   120,929

CPFL Atende

 

   19,338

 

  -  

 

  9,527

 

  -  

 

  -  

 

   (9,501)

 

   -  

 

   -  

 

  19,363

Nect

 

   15,515

 

  -  

 

   19,087

 

  -  

 

  -  

 

(18,044)

 

   -  

 

   -  

 

  16,558

CPFL Total

 

   20,624

 

  -  

 

   21,690

 

  -  

 

  -  

 

(22,361)

 

   -  

 

   -  

 

  19,953

CPFL Telecom

 

  2,018

 

33,360

 

  4,442

 

  -  

 

  -  

 

   (1,111)

 

(33,245)

 

   -  

 

5,465

CPFL Centrais Geradoras

 

   16,177

 

  -  

 

618

 

  -  

 

  -  

 

   (798)

 

   -  

 

   -  

 

  15,998

CPFL Eficiência

 

   55,252

 

  -  

 

(11,908)

 

  -  

 

  -  

 

-  

 

  42,400

 

   -  

 

  85,744

AUTHI

 

   18,694

 

  -  

 

   28,604

 

  -  

 

  -  

 

(25,835)

 

   -  

 

   -  

 

  21,463

   

7,837,770

 

  383,360

 

2,325,042

 

(220,816)

 

  (48,461)

 

   (1,144,566)

 

  50,307

 

(12,192)

 

   9,170,444

 

70

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Investment

 

Investment at December 31, 2018

 

Capital increase/ payment of capital

 

Share of profit (loss) of investees

 

Other comprehensive income

 

Dividend and Interest on capital

 

Advances for future capital increases

 

Others

 

Investment at December 31, 2019

CPFL Paulista

 

1,910,866

 

-  

 

837,604

 

   (609,470)

 

   (616,579)

 

   -  

 

-  

 

1,522,421

CPFL Piratininga

 

516,235

 

-  

 

281,634

 

   (160,197)

 

(73,647)

 

   -  

 

-  

 

   564,024

CPFL Santa Cruz

 

392,040

 

-  

 

101,228

 

   28

 

(27,671)

 

   -  

 

-  

 

   465,625

RGE Sul (RGE)

 

3,286,587

 

-  

 

559,783

 

  (68,062)

 

   (288,563)

 

   -  

 

-  

 

3,489,745

CPFL Geração

 

2,625,465

 

-  

 

862,726

 

  (19,373)

 

   (324,769)

 

   -  

 

(75,298)

 

3,068,752

CPFL Renováveis

 

-  

 

-  

 

   52,388

 

-  

 

-  

 

   -  

 

2,072,635

 

2,125,023

CPFL Jaguari Geração

 

   58,656

 

-  

 

  9,849

 

-  

 

(10,194)

 

   -  

 

-  

 

  58,310

CPFL Brasil

 

   72,680

 

    -  

 

109,090

 

   (9,425)

 

(85,693)

 

   -  

 

-  

 

  86,651

CPFL Planalto

 

  2,444

 

-  

 

  4,022

 

-  

 

-  

 

   -  

 

-  

 

6,466

CPFL Serviços

 

120,929

 

   39,900

 

   13,445

 

-  

 

   (3,193)

 

(39,900)

 

-  

 

   131,181

CPFL Atende

 

   19,363

 

-  

 

   11,266

 

-  

 

   (6,334)

 

   -  

 

-  

 

  24,296

CPFL Infra

 

   16,558

 

-  

 

   17,643

 

-  

 

(14,087)

 

   -  

 

   (6,089)

 

  14,025

CPFL Pessoas

 

-  

 

-  

 

  2,047

 

-  

 

-  

 

   -  

 

  2,470

 

4,517

CPFL Finanças

 

-  

 

-  

 

  3,982

 

-  

 

-  

 

   -  

 

  1,584

 

5,566

CPFL Supre

 

-  

 

-  

 

  1,232

 

-  

 

-  

 

   -  

 

  2,035

 

3,267

CPFL Total

 

   19,953

 

    -  

 

   25,665

 

-  

 

(10,270)

 

   -  

 

-  

 

  35,348

CPFL Telecom

 

  5,465

 

   95

 

113

 

-  

 

   (1,389)

 

(95)

 

-  

 

4,188

CPFL Centrais Geradoras

 

   15,998

 

-  

 

   22

 

-  

 

-  

 

   -  

 

-  

 

  16,020

CPFL Eficiência

 

   85,744

 

   42,400

 

   (3,835)

 

-  

 

   22,120

 

(28,240)

 

-  

 

   118,189

AUTHI

 

   21,463

 

-  

 

   11,836

     

(21,453)

     

-  

 

  11,846

   

9,170,444

 

   82,395

 

2,901,740

 

   (866,498)

 

   (1,461,722)

 

(68,235)

 

1,997,337

 

  11,755,460

 

(1) Decrease in equity interest without change of control, relating to capital increase through capitalization of Advance for Future Capital Increase (AFCI) by subsidiary CPFL Geração at subsidiary CPFL Renováveis in the first half of 2019. For being a transaction between owners, it was recorded with a balancing item in equity.;

(2) Acquisition, by the Company, of additional equity interest od 46.76% of the subsidiary CPFL Renováveis (note 1.c);

(3) Corporate reorganization  (note 1.g )

 

 In the consolidated, the investment balances refer to interests in joint ventures accounted for using the equity method:

Investments in joint ventures

 

December 31, 2019

 

December 31, 2018

 

2019

 

2018

 

 Share of equity

 

Share of profit (loss)

                 

Baesa

 

156,185

 

   175,189

 

750

 

791

Enercan

 

207,868

 

   175,122

 

123,240

 

101,392

Chapecoense

 

381,219

 

   378,558

 

140,949

 

127,250

EPASA

 

243,244

 

   241,433

 

  84,730

 

105,343

Fair value adjustments of assets, net

 

9,481

 

  10,060

 

   (579)

 

   (579)

   

997,997

 

   980,362

 

349,090

 

334,198

  

13.2         Fair value adjustments and goodwill

Fair value adjustments  refer basically to the right to the concession acquired through business combinations. The goodwill refers basically to acquisitions of investments and is based on projections of future profits.

In the financial statements, these amounts are classified as Intangible Assets (note 15).

13.3         Dividends and interest on capital receivable

At December 31, 2019 and 2018, the Company has the following amounts receivable from the subsidiaries below, relating to dividends and interest on capital:

 

71

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Parent company

 

Dividends

 

Interest on capital

 

Total

Subsidiary

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

CPFL Paulista

   504,789

 

  92,596

 

   115,928

 

   110,214

 

  620,717

 

   202,810

CPFL Piratininga

  32,172

 

6,226

 

  35,254

 

  31,708

 

   67,426

 

  37,934

CPFL Santa Cruz

   -  

 

   -  

 

  39,728

 

  19,160

 

   39,728

 

  19,160

CPFL Jaguari

3,473

 

   -  

 

   -  

 

   -  

 

  3,473

 

   -  

RGE Sul (RGE)

   -  

 

  26,795

 

   -  

 

  94,312

 

-  

 

   121,107

CPFL Geração

   -  

 

  71,099

 

  53,937

 

   102,436

 

   53,937

 

   173,535

CPFL Centrais Geradoras

815

 

815

 

   -  

 

   -  

 

  815

 

815

CPFL Jaguari Geração

  10,194

 

3,398

 

   -  

 

   -  

 

   10,194

 

3,398

CPFL Brasil

   -  

 

   111,083

 

1,200

 

2,451

 

  1,200

 

   113,534

CPFL Atende

   -  

 

   -  

 

343

 

876

 

  343

 

876

CPFL Telecom

   -  

 

1,111

 

   -  

 

   -  

 

-  

 

1,111

CPFL Eficiência

2,630

 

  12,195

 

2,550

 

  15,104

 

  5,179

 

  27,299

AUTHI

  10,000

 

151

 

   -  

 

   -  

 

   10,000

 

151

 

   567,266

 

   325,469

 

   248,940

 

   376,261

 

  816,205

 

   701,731

 

The consolidated balance includes dividends and interest on capital receivable amounting to R$ 100,297 at December 31, 2019 and R$ 100,182 at December 31, 2018 related basically to joint ventures.

After resolutions of the AGMs/EGMs of its subsidiaries, the Company recognized in 2019 R$ 598,534 relating to dividends and interest on capital for 2018. In addition, the subsidiaries declared in 2019 (i) R$ 471,984 relating to interim dividends on the interim results for 2019, (ii) interest on capital on the results for 2019 of R$ 293,661 and (iii) R$ 121,841 relating to minimum mandatory dividend for 2019.

From the amounts recognized as receivables, R$ 1,295,427 were paid to the Company by subsidiaries in 2019.

 

13.4         Noncontrolling interests and joint ventures

The disclosure of interests in subsidiaries, in accordance with IFRS 12 and CPC 45, is as follows:

 

13.4.1     Movements in noncontrolling interests

   

CERAN

 

CPFL Renováveis

 

Paulista Lajeado

 

Total

At December 31, 2017

 

  86,031

 

2,058,079

 

  80,707

 

2,224,816

Equity Interests and voting capital

 

35.00%

 

48.40%

 

40.07%

   
                 

Equity attributable to noncontrolling interests

 

  34,731

 

  62,470

 

  10,754

 

   107,955

Dividends

 

(44,314)

 

(13,511)

 

(10,860)

 

(68,685)

Other movements

 

   -  

 

5,656

 

  (108)

 

5,548

At December 31, 2018

 

  76,448

 

2,112,693

 

  80,493

 

2,269,634

Equity interest and voting capital

 

35.00%

 

48.44%

 

40.07%

   
               

   -  

Equity attributable to noncontrolling interests

 

  36,914

 

950

 

7,762

 

  45,625

Gain (loss) on interest in subsidiaries with no change in control

 

   -  

 

  75,298

 

   -  

 

  75,298

Acquisition of noncontrolling interest

 

   -  

 

  (2,072,635)

 (1)

   -  

 

  (2,072,635)

Dividends

 

   (9,228)

 

(11,895)

 

   (7,986)

 

(29,109)

Other movements

 

   -  

 

122

 

(77)

 

   45

At December 31, 2019

 

   104,134

 

   104,532

 

  80,191

 

   288,857

Equity Interests and voting capital

 

35.00%

 

0.06%

 

40.07%

   

 

(1) Refers to acquisition of 46.76% interest in subsidiary CPFL Renováveis by the Company from the controlling shareholder State Grid.

 

72

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

13.4.2     Summarized financial information on subsidiaries that have noncontrolling interests

The summarized financial information on subsidiaries that have noncontrolling interests at December 31, 2019 and 2018, is as follows:

   

December 31, 2019

 

December 31, 2018

   

CERAN

 

CPFL Renováveis

 

Paulista Lajeado

 

CERAN

 

CPFL Renováveis

 

Paulista Lajeado

Current assets

 

  78,836

 

  1,312,372

 

  19,734

 

  80,367

 

1,330,819

 

  15,499

Cash and cash equivalents

 

  33,140

 

412,579

 

9,564

 

  32,729

 

   876,571

 

5,687

Noncurrent assets

 

   751,546

 

   10,496,351

 

   141,185

 

   799,390

 

  10,845,036

 

   144,863

                         

Current liabilities

 

   215,198

 

  1,545,741

 

  35,374

 

   246,482

 

1,396,120

 

  33,883

Borrowings and debentures

 

   106,128

 

617,030

 

   -  

 

   106,555

 

   819,993

 

   -  

Other financial liabilities

 

  13,256

 

430,257

 

250

 

  13,406

 

7,670

 

282

Noncurrent liabilities

 

   317,660

 

  5,616,562

 

782

 

   414,852

 

6,528,563

 

1,033

Borrowings and debentures

 

   211,051

 

  4,387,676

 

   -  

 

   316,581

 

4,738,841

 

   -  

Other financial liabilities

 

  91,181

 

-  

 

   -  

 

  89,965

 

   -  

 

   -  

Equity

 

   297,523

 

  4,646,421

 

   124,763

 

   218,423

 

4,251,172

 

   125,446

  Equity attributable to owners of the Company

 

   297,523

 

  4,544,434

 

   124,763

 

   218,423

 

4,147,795

 

   125,446

  Equity attributable to noncontrolling interests

 

   -  

 

101,987

 

   -  

 

   -  

 

   103,377

 

   -  

                         
   

2019

 

2018

   

CERAN

 

CPFL Renováveis

 

Paulista Lajeado

 

CERAN

 

CPFL Renováveis

 

Paulista Lajeado

Net operating revenue

 

   339,041

 

  1,928,011

 

  42,206

 

   333,289

 

1,936,319

 

  52,510

Operacional costs and expenses

 

  (102,685)

 

   (724,479)

 

(25,224)

 

(95,321)

 

  (727,557)

 

(26,115)

Depreciation and amortization

 

(43,033)

 

   (645,722)

 

   (4)

 

(41,378)

 

  (623,106)

 

   (4)

Interest income

 

4,821

 

   73,216

 

679

 

6,191

 

  93,076

 

691

Interest expense

 

(39,623)

 

   (420,775)

 

   -  

 

(53,629)

 

  (517,403)

 

  (614)

Income tax expense

 

(52,197)

 

  (47,152)

 

   (2,814)

 

(48,239)

 

  37,276

 

   (3,145)

Profit (loss) for the year

 

   105,468

 

107,024

 

  19,370

 

  99,230

 

   118,805

 

  26,838

 Attributable to owners of the Company

 

   105,468

 

   96,628

 

  19,370

 

  99,230

 

   109,264

 

  26,838

  Attributable to noncontrolling interests

 

   -  

 

   10,396

 

   -  

 

   -  

 

9,542

 

   -  

 

13.4.3     Joint ventures

The summarized financial information on joint ventures at December 31, 2019 and December 31, 2018, is as follows:

   

December 31, 2019

 

December 31, 2018

   

Enercan

 

Baesa

 

Chapecoense

 

Epasa

 

Enercan

 

Baesa

 

Chapecoense

 

Epasa

Current assets

 

   219,117

 

  66,863

 

   379,359

 

   294,877

 

   208,326

 

  68,956

 

   345,737

 

   327,084

Cash and cash equivalents

 

  77,290

 

  18,315

 

   240,645

 

  96,130

 

  66,519

 

  17,425

 

   184,002

 

  18,269

Noncurrent assets

 

   982,032

 

   915,379

 

   2,472,085

 

   470,864

 

1,033,320

 

   966,664

 

2,604,162

 

   502,618

                                 

Current liabilities

 

   390,817

 

  72,383

 

   451,803

 

  93,512

 

   385,271

 

  50,639

 

   424,635

 

   152,168

Borrowings and debentures

 

   133,548

 

   -  

 

   138,759

 

  35,660

 

   137,225

 

   -  

 

   138,706

 

  34,473

Other financial liabilities

 

7,131

 

  35,944

 

75,668

 

1,416

 

5,869

 

  34,832

 

  74,156

 

1,346

Noncurrent liabilities

 

   383,699

 

   285,269

 

   1,652,152

 

   216,233

 

   496,953

 

   284,391

 

1,782,993

 

   224,933

Borrowings and debentures

 

   255,756

 

   -  

 

   913,308

 

   115,842

 

   383,358

 

   -  

 

1,045,402

 

   151,964

Other financial liabilities

 

  25,513

 

   271,267

 

   731,113

 

   -  

 

  26,936

 

   272,079

 

   734,630

 

   -  

Equity

 

   426,632

 

   624,591

 

   747,489

 

   455,996

 

   359,422

 

   700,590

 

   742,271

 

   452,601

                                 
   

2019

 

2018

   

Enercan

 

Baesa

 

Chapecoense

 

Epasa

 

Enercan

 

Baesa

 

Chapecoense

 

Epasa

Net operating revenue

 

   650,900

 

   286,378

 

   881,458

 

   560,203

 

   591,875

 

   321,142

 

   863,861

 

   840,005

Operacional costs and expenses

 

  (192,780)

 

  (201,494)

 

(195,973)

 

  (319,024)

 

  (188,756)

 

  (214,448)

 

  (191,749)

 

  (562,097)

Depreciation and amortization

 

(49,110)

 

(50,832)

 

(124,244)

 

(34,690)

 

(50,051)

 

(50,609)

 

  (117,858)

 

(34,525)

Interest income

 

5,573

 

1,850

 

16,309

 

3,990

 

4,793

 

4,176

 

  15,729

 

5,106

Interest expense

 

(33,399)

 

(31,533)

 

(163,977)

 

(13,972)

 

(46,042)

 

(53,946)

 

  (191,818)

 

(17,491)

Income tax and social contribution expenses

 

  (126,313)

 

   (1,124)

 

(136,830)

 

(38,983)

 

  (101,484)

 

   (1,229)

 

  (124,284)

 

(38,740)

Profit (loss) for the period

 

   252,941

 

2,999

 

   276,370

 

   158,839

 

   208,100

 

3,164

 

   249,510

 

   197,481

Equity Interests and voting capital

 

48.72%

 

25.01%

 

51.00%

 

53.34%

 

48.72%

 

25.01%

 

51.00%

 

53.34%

  

Even holding more than 50% of the equity interest in Epasa and Chapecoense, the subsidiary CPFL Geração jointly controls these investments with other shareholders. The analysis of the classification of the type of investment is based on the Shareholders' Agreement of each joint venture.

The borrowings from BNDES obtained by the joint venture  Chapecoense establish restrictions on the payment of dividend to subsidiary CPFL Geração above the minimum mandatory dividend of 25% without the prior consent of BNDES.

73

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

13.4.4     Joint ventures operation

Through its wholly-owned subsidiary CPFL Geração, the Company holds part of the assets of the Serra da Mesa hydropower plant, located on the Tocantins River, in Goiás State. The concession and the right to operate the hydropower plant are held by Furnas Centrais Elétricas S.A. In order to maintain these assets operating jointly with Furnas (jointly operation), CPFL Geração was assured 51.54% of the installed power of 1,275 MW (657 MW) and the assured energy of mean 637.5 MW (mean 328.57 MW) until 2028.

 

13.5         Corporate restructurings in 2019

Share purchase of CPFL Renováveis

Partial spin-off of Nect

On September 30, 2019, the partial spin-off of Nect Serviços Administrativos de Infraestrutura Ltda. - “CPFL Infra” (formerly Nect Serviços Administrativos Ltda.) into four specific business segments (Supplies, Human Resources, Financial Services and Infrastructure) was approved, together with the merger of the spun-off portion into the three new companies; namely, CPFL Supre, CPFL Finanças and CPFL Pessoas. The purpose of the transaction is to improve the quality of services provided by the company, through greater specialization in its activities. The net assets in this transaction were appraised at R$16,746 and did not have any effect on the consolidated financial statements of the group or result in any change in the equity interest of the companies.

 

74

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 14 )      PROPERTY, PLANT AND EQUIPMENT

 

 

 Consolidated

 

Land

 

Reservoirs, dams and  water mains

 

Buildings, construction and improvements

 

Machinery and equipment

 

Vehicles

 

Furniture and fittings

 

In progress

 

Total

At December 31, 2017

   168,494

 

  1,319,257

 

   1,094,777

 

  6,870,389

 

  75,771

 

7,245

 

   251,192

 

9,787,125

Historical cost

   207,365

 

  2,066,850

 

   1,652,178

 

  9,693,512

 

   122,540

 

  22,026

 

   251,192

 

  14,015,662

Accumulated depreciation

(38,870)

 

   (747,593)

 

(557,400)

 

   (2,823,123)

 

(46,769)

 

(14,782)

 

   -  

 

  (4,228,537)

                               

Additions

   -  

 

-  

 

  -  

 

-  

 

   -  

 

   -  

 

   296,165

 

   296,165

Disposals

   (8)

 

-  

 

  (7,908)

 

  (16,434)

 

   (3,517)

 

(31)

 

   (8,478)

 

(36,376)

Transfers

  20,181

 

151,754

 

  41,464

 

101,468

 

  12,250

 

793

 

  (327,908)

 

   -  

Transfers to/from other assets - cost

   (2,755)

 

-  

 

(100,720)

 

106,775

 

   -  

 

6

 

   (6,584)

 

   (3,279)

Depreciation

   (8,082)

 

  (79,237)

 

   (61,540)

 

   (432,524)

 

(19,402)

 

  (546)

 

   -  

 

  (601,329)

Write-off of depreciation

2

 

-  

 

  -  

 

  8,180

 

2,032

 

   44

 

   -  

 

  10,259

Transfers from/to other assets - depreciation

  (994)

 

-  

 

  20,714

 

  (22,706)

 

   (2)

 

   -  

 

   -  

 

   (2,987)

Others

   -  

 

-  

 

  15

 

  645

 

   -  

 

   -  

 

6,373

 

7,033

                               
                               

At December 31, 2018

   176,839

 

  1,391,775

 

   986,800

 

  6,615,793

 

  67,135

 

7,512

 

   210,760

 

9,456,614

Historical cost

   224,783

 

  2,218,604

 

   1,585,723

 

  9,905,396

 

   131,549

 

  23,039

 

   210,760

 

  14,299,854

Accumulated depreciation

(47,944)

 

   (826,829)

 

(598,923)

 

   (3,289,603)

 

(64,415)

 

(15,527)

 

   -  

 

  (4,843,240)

                               

Additions

   -  

 

-  

 

  -  

 

-  

 

   -  

 

   -  

 

   301,459

 

   301,459

Disposals

   -  

 

(5)

 

   (31,080)

 

  (31,033)

 

(33,045)

 

   -  

 

   (8)

 

(95,171)

Transfers

603

 

   15,882

 

  51,413

 

111,804

 

7,358

 

449

 

  (187,510)

 

   -  

Transfers from/to other assets - cost

   (1,333)

 

(8,249)

 

  (6,952)

 

   12,987

 

   -  

 

(40)

 

1,924

 

   (1,662)

Depreciation

   (8,880)

 

  (84,660)

 

   (61,634)

 

   (446,046)

 

(17,156)

 

  (851)

 

   -  

 

  (619,228)

Write-off of depreciation

   -  

 

  5

 

   2,231

 

   17,616

 

  21,846

 

   -  

 

   -  

 

  41,698

                               

At December 31, 2019

   167,228

 

  1,314,749

 

   940,779

 

  6,281,123

 

  46,136

 

7,070

 

   326,625

 

9,083,710

Historical cost

   224,053

 

  2,226,232

 

   1,599,104

 

  9,999,155

 

   105,863

 

  23,447

 

   326,625

 

  14,504,478

Accumulated depreciation

(56,825)

 

   (911,483)

 

(658,325)

 

   (3,718,031)

 

(59,727)

 

(16,377)

 

   -  

 

  (5,420,768)

                               

Average depreciation rate 2018

3.86%

 

3.65%

 

3.96%

 

4.45%

 

13.89%

 

3.70%

       

Average depreciation rate 2019

3.86%

 

3.89%

 

3.94%

 

4.54%

 

13.77%

 

5.80%

       

 

The balance of construction in progress, in the consolidated balances, refers mainly to works in progress of operating and/or under development subsidiaries, especially for the projects of CPFL Renováveis, which has construction in progress of R$ 248,018 at December 31, 2019 (R$ 139,614  at December 31, 2018).

In conformity with CPC 20 (R1) and IAS 23, the interest on borrowings taken by subsidiaries to finance the works is capitalized during the construction phase. In the consolidated balances, for the year of 2019 there were no capitalizations, in 2018 R$ 10,591 were capitalized at a rate of 8.74% p.a..

In the consolidated balances, the depreciation amounts are recognized in the statement of profit or loss in line item “Depreciation and amortization”.

At December 31, 2019, the total amount of property, plant and equipment pledged as collateral for borrowings, as mentioned in note 18, is approximately R$ 3,957,132, mainly relating to the subsidiary CPFL Renováveis (R$ 3,908,099).

 

14.1 Impairment testing

For all the reporting years the Company assesses whether there are indicators of impairment of its assets that would require an impairment test. The assessment was based on external and internal information sources, taking into account fluctuations in interest rates, changes in market conditions and other factors. For 2019 and 2018 no provision for impairment was required.

75

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 15 ) INTANGIBLE ASSETS

15.1.  Intangible Assets

 

Consolidated

 

Goodwill

 

Concession right

 

Other intangible assets

 

Total

   

Acquired in business combinations

 

   Distribution infrastructure - operational

 

   Distribution infrastructure - in progress

 

Public utilities

   

At December 31, 2017

6,115

 

  4,117,105

 

5,554,447

 

  825,476

 

  25,904

 

  60,777

 

  10,589,824

Historical cost

6,152

 

  7,558,645

 

  11,442,528

 

  825,476

 

  35,840

 

   174,407

 

  20,043,048

Accumulated Amortization

(37)

 

(3,441,540)

 

   (5,888,080)

 

  -  

 

   (9,936)

 

  (113,630)

 

  (9,453,223)

                           

Additions

   -  

 

-  

 

   -  

 

  -  

 

   -  

 

  18,670

 

  18,670

Amortization

   -  

 

   (286,858)

 

  (703,511)

 

  -  

 

   (1,419)

 

   (8,989)

 

  (1,000,777)

Transfer - contract assets

   -  

 

-  

 

723,813

 

  -  

 

   -  

 

   -  

 

   723,813

Transfer - financial asset

   -  

 

-  

 

   52,803

 

  -  

 

   -  

 

   -  

 

  52,803

Disposal and transfer - other assets

   -  

 

  (63,187)

 

(43,419)

 

  -  

 

   -  

 

5,504

 

  (101,102)


Adoption of IFRS 15 / CPC 47 (Note 3)

   -  

 

-  

 

   -  

 

(825,476)

 

   -  

 

   -  

 

  (825,476)

Others

   -  

 

  5,130

 

   -  

 

  -  

 

   -  

 

   47

 

5,177

                           

At December 31, 2018

6,115

 

  3,772,188

 

5,584,136

 

  -  

 

  24,485

 

  76,009

 

9,462,935

Historical cost

6,152

 

  7,495,458

 

  11,909,149

 

  -  

 

  35,840

 

   217,542

 

  19,664,141

Accumulated Amortization

(37)

 

(3,723,270)

 

   (6,325,012)

 

  -  

 

(11,355)

 

  (141,532)

 

   (10,201,206)

                           

Additions

   -  

 

-  

 

   -  

 

  -  

 

   -  

 

  19,147

 

  19,147

Amortization

   -  

 

   (288,438)

 

  (761,884)

 

  -  

 

   (1,419)

 

(16,840)

 

  (1,068,581)

Transfer - contract assets

   -  

 

-  

 

949,548

 

  -  

 

   -  

 

   -  

 

   949,548

Transfer - financial asset

   -  

 

-  

 

3,502

 

  -  

 

   -  

 

   -  

 

3,502

Disposal and transfer - other assets

   -  

 

-  

 

(47,263)

 

  -  

 

   -  

 

1,663

 

(45,600)

                           

At December 31, 2019

6,115

 

  3,483,750

 

5,728,040

 

  -  

 

  23,065

 

  79,981

 

9,320,953

Historical cost

6,152

 

  7,495,458

 

  12,814,937

 

  -  

 

  35,840

 

   238,352

 

  20,590,739

Accumulated Amortization

(37)

 

(4,011,708)

 

   (7,086,896)

 

  -  

 

(12,774)

 

  (158,372)

 

   (11,269,787)

 

In the consolidated financial statements the amortization of intangible assets is recognized in the income statement as follows: (i) “depreciation and amortization” for amortization of distribution infrastructure intangible assets, use of public asset and other intangible assets; and (ii) “amortization of concession intangible asset” for amortization of the intangible asset acquired in business combination.

In conformity with CPC 20 (R1) and IAS 23, the interest on borrowings taken by subsidiaries for construction financing is capitalized during the construction stage for qualifying assets. In the consolidated, for of the year of 2019, R$ 25,641 were capitalized at a rate of 8.09% p.a.. In 2018, R$ 18,015 were capitalized, at a rate of 7.99% p.a..

 

15.2     Intangible asset acquired in business combinations

The breakdown of the intangible asset related to the right to operate the concessions acquired in business combinations is as follows:

76

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

Annual amortization rate

 

Historic cost

 

Accumulated amortization

 

Net value

 

Net value

 

2019

 

2018

Intangible asset - acquired in business combinations

                     

Intangible asset acquired, not merged

                     

CPFL Paulista

  304,861

 

(226,974)

 

77,888

 

   87,873

 

3.28%

 

3.28%

CPFL Piratininga

   39,065

 

   (27,629)

 

11,435

 

   12,730

 

3.31%

 

3.32%

RGE Sul (RGE)

  3,768

 

(2,369)

 

   1,399

 

  1,575

 

4.68%

 

4.70%

CPFL Geração

   54,555

 

   (39,179)

 

15,376

 

   17,221

 

3.38%

 

3.38%

CPFL Jaguari Geração

  7,896

 

(4,391)

 

   3,505

 

  3,775

 

3.41%

 

3.41%

CPFL Renováveis

  3,653,906

 

(1,210,510)

 

   2,443,397

 

  2,602,622

 

4.36%

 

5.90%

Subtotal

  4,064,052

 

(1,511,051)

 

   2,553,000

 

  2,725,797

       
                       

Intangible asset acquired and subsumed

                     

RGE Sul (RGE)

  1,433,007

 

(1,023,268)

 

   409,739

 

  461,795

 

3.63%

 

3.63%

CPFL Geração

  426,450

 

(343,396)

 

83,053

 

   93,020

 

2.34%

 

2.34%

Subtotal

  1,859,457

 

(1,366,664)

 

   492,792

 

  554,816

       
                       

Intangible asset acquired and merged – reassembled

                     

Parent company

                     

CPFL Paulista

  1,074,026

 

(819,075)

 

   254,952

 

  287,156

 

3.00%

 

3.00%

CPFL Piratininga

  115,762

 

   (81,875)

 

33,887

 

   37,723

 

3.31%

 

3.31%

CPFL Jaguari Geração

   15,275

 

(9,296)

 

   5,978

 

  6,438

 

3.01%

 

3.01%

RGE Sul (RGE)

  366,887

 

(223,746)

 

   143,141

 

  160,256

 

4.67%

 

4.67%

Subtotal

  1,571,949

 

(1,133,992)

 

   437,958

 

  491,574

       
                       
                       

Total

  7,495,458

 

(4,011,708)

 

   3,483,750

 

  3,772,188

       

 

The intangible asset acquired in business combinations is related to the right to operate the concessions and comprises:

- Intangible asset acquired, not subsumed

  Refers to basically to the intangible asset from acquisition of the shares held by noncontrolling interests prior to adoption of CPC 15 and IFRS 3.

- Intangible asset acquired and subsumed

Refers to the intangible asset from the acquisition of subsidiaries that were incorporated into the respective equity, without application of CVM legal instructions No. 319/1999 and No. 349/2001, that is, without segregation of the related tax benefit installment amount.

- Intangible asset acquired and merged – reassembled

In order to comply with ANEEL requirements and avoid the amortization of the intangible asset resulting from the merger of parent company causing a negative impact on dividend paid to noncontrolling interests, at the time of the merger, the subsidiaries applied the concepts of CVM legal instructions No. 319/1999 and No. 349/2001 to the intangible asset. A reserve was therefore recognized to adjust the intangible, against a special goodwill reserve on the merger of equity in each subsidiary, so that the effect of the transaction on the equity reflects the tax benefit of the merged intangible asset. These changes affected the Company's investment in subsidiaries, and in order to adjust this, a nondeductible intangible asset was recognized for tax purposes, in order to recompose it.

 

15.3.      Impairment testing

For all the reporting years the Company assesses whether there are indicators of impairment of its assets that would require an impairment test. The assessment was based on external and internal information sources, taking into account fluctuations in interest rates, changes in market conditions and other factors.

For 2019 and 2018, based on the aforementioned assessment of indication of impairment , no provision for impairment was required.

77

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 16 CONTRACT ASSET

 

 

 

Distribution

 

Transmission

 

Consolidated

At December 31, 2017

  -  

 

  -  

 

-  

Adoption of IFRS 15 / CPC 47

  825,476

 

  -  

 

  825,476

Additions

  1,787,588

 

  -  

 

  1,787,588

Transfer - intangible assets in service

(723,813)

 

  -  

 

   (723,813)

Transfer - financial assets

(836,516)

 

  -  

 

   (836,516)

Disposal and transfer - other assets

(6,303)

 

  -  

 

(6,303)

           

At December 31, 2018

  1,046,433

 

  -  

 

  1,046,433

           

Reclassification from other assets

  -  

 

  249,652

 

  249,652

Additions

  2,061,715

 

20,970

 

  2,082,685

Transfer - intangible assets in service

(949,548)

 

  -  

 

   (949,548)

Transfer - financial assets

(1,090,393)

 

  -  

 

   (1,090,393)

Monetary adjustment

  -  

 

31,725

 

   31,725

Cash inputs - RAP

  -  

 

  (23,344)

 

  (23,344)

           

At December 31, 2019

  1,068,207

 

  279,003

 

  1,347,210

Current

  -  

 

24,387

 

   24,387

Noncurrent

  1,068,207

 

  254,616

 

  1,322,822

 

Contractual asset of distribution companies: Refers to concession infrastructure assets of the distribution companies during the construction period.

Contract asset of transmission companies: refers to the right to receive the “Permitted Annual Revenue – RAP” over the concession period as well as an indemnity at the end of the concession of the transmission subsidiaries. The change into contract asset for the group’s electric energy transmission subsidiaries did not have material impacts on the Group’s consolidated financial statements.

 

 

 17  TRADE PAYABLES

 

   

Consolidated

   

December 31, 2019

 

December 31, 2018

Current

       

System service charges

 

2,707

 

  62,674

Energy purchased

 

2,288,441

 

1,607,116

Electricity network usage charges

 

   250,600

 

   205,656

Materials and services

 

   554,940

 

   368,344

Free energy

 

   163,492

 

   154,296

Total

 

3,260,180

 

2,398,085

         

Noncurrent

       

Energy purchased

 

   359,944

 

   333,036

 

78

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

18  BORROWINGS

 

 The movement in borrowings are as follows:

   

Consolidated

   

At December 31, 2017

 

Raised

 

Repayment

 

Interest, monetary adjustment and fair value measurement

 

Exchange rates

 

Interest paid

 

At December 31, 2018

Measured at cost

                           

Local currency

                           

Pre fixed

 

   900,257

 

  166,404

 

(173,528)

 

  53,283

 

  -  

 

   (53,641)

 

   892,776

Post Fixed

                           

TJLP and TLP

 

   3,449,468

 

   1,315,898

 

(442,504)

 

   288,171

 

  -  

 

(262,744)

 

   4,348,289

Selic

 

   140,099

 

  -  

 

   (33,875)

 

  11,251

 

  -  

 

  (3,358)

 

   114,117

CDI

 

   1,541,278

 

23,359

 

(1,112,713)

 

  72,957

 

  -  

 

(138,609)

 

   386,272

IGP-M

 

  57,291

 

  -  

 

   (10,511)

 

9,788

 

  -  

 

  (4,679)

 

  51,889

UMBNDES

 

   2,293

 

  -  

 

(500)

 

515

 

  -  

 

  (156)

 

   2,152

Other

 

  74,740

 

32,418

 

   (45,807)

 

6,477

 

  -  

 

  (1,426)

 

  66,403

Total at cost

 

   6,165,427

 

   1,538,079

 

(1,819,438)

 

   442,442

 

  -  

 

(464,613)

 

   5,861,896

                             

Borrowing costs (*)

 

   (31,816)

 

   (35,984)

 

  -  

 

  10,607

 

  -  

 

  -  

 

   (57,193)

                             

Measured at fair value

                           

Foreign currency

                           

Dollar

 

   4,698,184

 

   2,666,880

 

(3,289,857)

 

   170,383

 

   774,483

 

(164,965)

 

   4,855,108

Euro

 

   218,814

 

  879,500

 

(215,824)

 

3,348

 

  (1,873)

 

  (4,466)

 

   879,499

Fair value measurement

 

   (58,552)

 

  -  

 

  -  

 

(44,799)

 

  -  

 

  -  

 

(103,351)

Total at fair value

 

   4,858,446

 

   3,546,380

 

(3,505,681)

 

   128,932

 

   772,610

 

(169,431)

 

   5,631,255

                             

Total

 

10,992,057

 

   5,048,475

 

(5,325,119)

 

   581,980

 

   772,610

 

(634,044)

 

11,435,958

Current

 

   3,589,607

                     

   2,446,113

Noncurrent

 

   7,402,450

                     

   8,989,846

 

   

Consolidated

Category

 

At December 31, 2018

 

Raised

 

Repayment

 

Interest, monetary adjustment and fair value measurement

 

Exchange rates

 

Interest paid

 

At December 31, 2019

Measured at cost

                           

Local currency

                           

Pre fixed

 

   892,776

 

  -  

 

(177,669)

 

  48,661

 

  -  

 

   (52,370)

 

   711,398

Post Fixed

                           

TJLP

 

   3,158,119

 

  -  

 

(435,016)

 

   243,332

 

  -  

 

(222,102)

 

   2,744,331

TLP (IPCA)

 

   1,190,169

 

  379,000

 

  -  

 

   102,519

 

  -  

 

   (62,650)

 

   1,609,038

Selic

 

   114,117

 

  -  

 

   (36,830)

 

   8,441

 

  -  

 

  (2,655)

 

  83,073

CDI

 

   386,272

 

  476,000

 

(679,021)

 

  46,756

 

  -  

 

   (49,995)

 

   180,012

IGP-M

 

  51,889

 

  -  

 

   (11,142)

 

   5,935

 

  -  

 

  (4,077)

 

  42,605

UMBNDES

 

   2,152

 

  -  

 

(540)

 

   213

 

  -  

 

  (131)

 

   1,694

Other

 

  66,403

 

  -  

 

   (26,354)

 

   2,209

 

  -  

 

  (2,482)

 

  39,777

Total at cost

 

   5,861,896

 

  855,000

 

(1,366,572)

 

   458,066

 

  -  

 

(396,462)

 

   5,411,928

                             

Borrowing costs (*)

 

   (57,193)

 

  (9,068)

 

  -  

 

   8,577

 

  -  

 

  -  

 

   (57,684)

                             

Measured at fair value

                           

Foreign currency

                           

Dollar

 

   4,855,108

 

  726,314

 

(1,542,785)

 

   148,189

 

   142,957

 

(151,366)

 

   4,178,417

Euro

 

   879,499

 

  -  

 

   (47,004)

 

   6,824

 

  14,217

 

  (6,844)

 

   846,692

Fair value measurement

 

(103,351)

 

  -  

 

  -  

 

  87,295

 

  -  

 

  -  

 

   (16,056)

Total at fair value

 

   5,631,255

 

  726,314

 

(1,589,789)

 

   242,308

 

   157,174

 

(158,210)

 

   5,009,052

                             

Total

 

11,435,958

 

   1,572,246

 

(2,956,361)

 

   708,951

 

   157,174

 

(554,672)

 

10,363,296

Current

 

   2,446,113

                     

   2,776,193

Noncurrent

 

   8,989,846

                     

   7,587,102

 

(*) In accordance with CPC 48/IFRS 9, this refers to borrowing costs directly attributable to the issuance of the respective debts, measured at cost.

 

The detail on borrowings are as follows:

79

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

       

Consolidated

       

Category

 

Annual interest

 

December 31, 2019

 

December 31, 2018

 

Maturity range

 

Collateral

                     

Measured at cost - Local Currency

                   

Pre fixed

                   

FINEM

 

Fixed rate from 2.5% to 8%

(a)

  264,093

 

   418,336

 

2011 to 2024

 

(i) Liens on equipment; (ii) Pledge and liens on credit rights; (iii) Reserve, centralizing and receivables accounts; (iv) Pledge of emergent rights of the authorizations; (v) Pledge of shares; (vi) CPFL Renováveis, CPFL Energia e State Grid Brazil Power guarantee

FINAME

 

Fixed rate from 2.5% to 10%

(a)

54,328

 

  48,672

 

2012 to 2025

 

(i) Liens on equipment; (ii) Pledge and liens on credit rights; (iii) Reserve, centralizing and receivables accounts; (iv) CPFL Renováveis, CPFL Energia e State Grid Brazil Power guarantee

FINEP

 

Fixed rate from 3.5% to 5%

 

  944

 

   6,576

 

 2013 to 2021

 

Bank guarantee

Bank loans

 

Fixed rate from 9.5% to 10.14%

 

  392,033

 

   419,191

 

 2027 to 2037

 

(i)  Liens on equipment; (ii) Pledge of revenue; (iii) Pledge of shares; (iv)Pledge of emergents rights authorized; (v) Reserve account; (vi) Bank guarantee; (vii) CPFL Renováveis guarantee

       

  711,398

 

   892,776

       

Post Fixed

                   

TJLP

                   

FINEM

 

 TJLP and TJLP + from 1.72% to 5.5%

(b)

  2,721,358

 

   3,128,625

 

2009 to 2033

 

(i) Pledge and liens on equipment; (ii) Pledge and liens on credit rights (iii) Reserve, centralizing and receivables accounts; (iv) Pledge of shares (v) Pledge of emergents rights authorized by ANEEL; (vi) Pledge of beneficiary shares; (vii) CPFL Renováveis, CPFL Energia and State Grid Brazil Power guarantee; (viii) Bank guarantee

FINAME

 

TJLP + 2.2% to 4.2%

(b)

14,853

 

  20,935

 

2017 to 2027

 

(i) CPFL Energia guarantee and (ii) Liens on equipment and receivables

FINEP

 

 TJLP and TJLP + 5%

 

   4,284

 

   3,491

 

2016 to 2024

 

Bank guarantee

Bank loans

 

TJLP + 2.99% to 3.1%

 

   3,837

 

   5,069

 

2005 to 2023

 

CPFL Energia guarantee

       

  2,744,331

 

   3,158,119

       

IPCA

                   

FINEM

 

 IPCA + 4.74% to 4.80%

 

  1,609,038

 

   1,190,169

 

2020 to 2028

 

(i) CPFL Energia guarantee and; (ii) Liens on receivables

       

  1,609,038

 

   1,190,169

       

SELIC

                   

FINEM

 

SELIC + 2.19% to 2.66%

(c)

79,131

 

   108,752

 

2015 to 2022

 

(i)State Grid Brazil Power and CPFL Energia guarantee and (ii) Receivables

FINAME

 

SELIC + 2.70% to 3.90%

 

   3,943

 

   5,365

 

2016 to 2022

 

(i) CPFL Energia guarantee and (ii) Liens on equipment

       

83,073

 

   114,117

       

CDI

                   

Bank loans

 

(i) 105% of CDI
(ii) CDI from - 1.25% to + 1.90%

(c)

  180,012

 

   208,384

 

2012 to 2023

 

(i)  CPFL Energia guarantee; (ii) Structure of redeemable preferred shares and (iii) CPFL Renováveis  CPFL Energia guarantee

Promissory note

 

103.4% of CDI

(c)

  -  

 

   177,888

 

2019

 

(i) CPFL Energia guarantee

       

  180,012

 

   386,272

       

IGPM

                   

Bank loans

 

IGPM + 8.63%

 

42,605

 

  51,889

 

2023

 

(i) Liens on equipment and receivables (ii)  Pledge of shares of SPE and rights authorized by ANEEL and receivables of operation contracts

                     

UMBNDES

                   

Bank loans

 

UMBNDES + from 1.99% to 5%

 

   1,694

 

   2,152

 

 2006 to 2023

 

(i) CPFL Energia guarantee

                     

Other

                   

Other

     

39,777

 

  66,403

 

 2007 to 2023

 

(i) Promissory notes, (ii) Bank guarantee, and (iii) Receivables

                     

Total - Local currency

     

  5,411,928

 

   5,861,897

       
                     

Borrowing costs (*)

     

  (57,684)

 

   (57,193)

       
                     
                     

Measured at fair value - Foreign Currency

               

Dollar

                   

Bank loans (Law 4.131)

 

US$ + Libor 3 months + from 0.8% to 1.55%

 

  975,333

 

   1,866,418

 

2017 to 2022

 

(i) CPFL Energia guarantee and (ii) Promissory notes

Bank loans (Law 4.131)

 

US$ + from 1.96% to 4.32%

 

  3,203,083

 

   2,988,689

 

2017 to 2022

 

(i) CPFL Energia guarantee and (ii) Promissory notes

       

  4,178,416

 

   4,855,108

       

Euro

                   

Bank loans (Law 4.131)

 

Euro + from 0.42% to 0.96%

 

  846,692

 

   879,499

 

2019 to 2022

 

(i) CPFL Energia guarantee and (ii) Promissory notes

                     

Fair value measurement

     

  (16,056)

 

(103,351)

       
                     

Total in foreign currency

     

  5,009,051

 

   5,631,255

       
                     

Total

     

   10,363,295

 

11,435,959

       
                     

(*) In accordance with CPC 48/IFRS 9, this refers to borrowing costs directly attributable to the issuance of the respective debts.

                     

The subsidiaries hold  swaps converting the operating cost of currency variation to interest tax variation in reais. For further information about the considered rates, see note 35.

                     

Effective rate:

                   

(a)  30% to 70% of CDI

 

(b)  60% to 110% of CDI

 

(c)  100% to 130% of CDI

       

 

As segregated in the tables above, in conformity with CPC 48 and IFRS 9, the Group classified their debts as (i) financial liabilities measured at amortized cost, and (ii) financial liabilities measured at fair value through profit or loss.

The objective of the classification as financial liabilities of borrowings measured at fair value is to reduce the effects of the recognition of gains and losses derived from fair valuing  debt-related derivatives in order to obtain more relevant and consistent accounting information, reducing the accounting mismatch.

Changes in the fair values of these borrowings are recognized in the Group’s finance income (costs), except for the change in fair value due to credit risk, which is recognized in other comprehensive income. At December 31, 2019, the accumulated gains obtained from the fair value measurement of these debts were R$ 16,056 (R$ 103,351 at December 31, 2018) plus the unrealized gains obtained from the fair value measurement  of derivative financial instruments of R$ 24,178 (losses of R$ 65,678 at December 31, 2018), contracted as a hedge against exchange rate variation (Note 35), generated total net unrealized gain of R$ 40,234 (R$ 37,673 at December 31, 2018).

The maturities of the principal of borrowings recorded in noncurrent liabilities are scheduled as follows:

80

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Maturity

 

Consolidated

2021

 

   2,587,780

2022

 

   1,521,850

2023

 

   894,184

2024

 

   495,832

2025

 

   471,073

2026 to 2030

 

   1,319,711

2031 to 2035

 

   227,898

2036 to 2040

 

66,074

Subtotal

 

   7,584,402

Fair value measurement

 

   2,700

Total

 

   7,587,102

 

The main indexes used for adjusting borrowings for inflation and the indebtedness profile in local and foreign currency, already considering the effects of the derivative instruments, are as follows:

 

   

Accmulated variation %

 

Consolidated

     

% of debt

Index

 

2019

 

2018

 

December 31, 2019

 

December 31, 2018

IGP-M

 

7.30

 

7.54

 

   0.4

 

   0.5

TJLP

 

6.30

 

6.72

 

  26.5

 

  27.6

TLP (IPCA)

 

4.20

 

3.69

 

  15.5

 

  10.4

CDI

 

5.97

 

6.40

 

  50.1

 

  52.6

Other

         

   7.5

 

   8.9

           

   100.0

 

   100.0

 

Main borrowings raised in the period:

   

Released (R$ thousand)

                   

Category
Subsidiary

 

Total approved

 

 Released in 2019

 

 Net of fundraising costs

 

Interest

 

Repayment

 

Utilization

 

Annual rate

 

Effective annual rate

                                 

Local currency

                               

CDI - Promissory note

                               

CPFL Paulista

 

  351,000

 

  351,000

 

350,649

 

Bullet

 

Bullet in
December 2019

 

Working capital

 

103,4% of CDI

 

104,95% of CDI

CPFL Piratininga

 

  125,000

 

  125,000

 

124,818

 

Bullet

 

Bullet in
December 2019

 

Working capital

 

103,4% of CDI

 

104,95% of CDI

IPCA - BNDES

                               

CPFL Paulista

 

  953,392

 

  100,000

 

   98,124

 

Monthly

 

Monthly from April 2020

 

Subsidiary´s investment plan

 

IPCA + 4,74%

 

IPCA + 5,43%

CPFL Piratininga

 

  347,264

 

55,000

 

   53,968

 

Monthly

 

Monthly from April 2020

 

Subsidiary´s investment plan

 

IPCA + 4,80%

 

IPCA + 5,45%

RGE

 

  1,133,024

 

  154,000

 

151,110

 

Monthly

 

Monthly from April 2020

 

Subsidiary´s investment plan

 

IPCA + 4,74%

 

IPCA + 5,43%

CPFL Santa Cruz

 

  174,954

 

70,000

 

   68,686

 

Monthly

 

Monthly from April 2020

 

Subsidiary´s investment plan

 

IPCA + 4,80%

 

IPCA + 5,53%

                                 

Foreign Currency

                               

Law 4.131

                               

CPFL Santa Cruz

 

28,000

 

28,000

 

   28,000

 

Semiannually

 

Bullet in
March 2022

 

Working capital

 

USD + 3,06%

 

USD + 3,06%

CPFL Geração

 

13,500

 

13,500

 

   13,500

 

Semiannually

 

Bullet in
September 2020

 

Working capital

 

USD + 1,96%

 

USD + 1,96%

CPFL Santa Cruz

 

14,000

 

14,000

 

   14,000

 

Semiannually

 

Bullet in
September 2020

 

Working capital

 

USD + 1,96%

 

USD + 1,96%

CPFL Piratininga

 

43,000

 

43,000

 

   43,000

 

Semiannually

 

Bullet in
September 2020

 

Working capital

 

USD + 1,96%

 

USD + 1,96%

CPFL Paulista

 

  309,814

 

  309,814

 

309,814

 

Semiannually

 

Bullet in
September 2020

 

Working capital

 

USD + 2,17%

 

USD + 2,17%

CPFL Paulista

 

  318,000

 

  318,000

 

318,000

 

Semiannually

 

Bullet in
September 2020

 

Working capital

 

USD + 1,96%

 

USD + 1,96%

                                 
   

3,810,948

 

1,581,314

 

1,573,670

                   

 

Covenants

Borrowings raised by Group companies require the compliance with certain restrictive financial clauses, under penalty of restriction in the distribution of dividends and/or advance maturity of the related debts. Furthermore, failure to comply with the obligations or restrictions mentioned may result in default in relation to other contractual obligations (cross default), depending on each borrowing agreement. Additionally, borrowings contain non-financial covenants, which are met as per the last calculation period.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The calculations are made on an annual or semiannual basis, as appropriate. As the maximum and minimum ratios vary among the contracts, we present below the most critical parameters of each ratio, considering all contracts in effect at December 31, 2019.

 

Ratios required for the individual financial statements of the subsidiaries CPFL Paulista, CPFL Piratininga, CPFL Santa Cruz and RGE:

·        Debt indebtedness divided by EBITDA maximum between 3.50 and 3.75; and

·        Debt indebtedness divided by the sum of Equity and Debt indebtedness maximum of 0.9.

Ratios required for the individual financial statements of subsidiaries of CPFL Renováveis owners of the contract:

·        Debt Service Coverage Ratio (DCSR) minimum between 1.0 and 1.3;

·        Company capitalization ratio minimum between 25% and 30 %; and

·        General Indebtedness Ratio maximum of 80%.

Ratios required for the consolidated statements of CPFL Renováveis

·        Debt indebtedness divided by EBITDA maximum of 3.75; and

·        Net Debt divided by the sum of Equity and Net Debt maximum of 0.55.

 

Ratios required for the  consolidated financial statements of CPFL Energia

·        Debt indebtedness divided by EBITDA maximum of 3.75;

·        Debt indebtedness divided by the sum of Equity and Debt indebtedness maximum of 0,72; and

·        EBITDA divided by the finance income/expense results minimum of 2.25.

Ratio required in the consolidated financial statements of State Grid Brazil Power Participações S.A.

·        Equity divided by Total Assets (disregarding the effects of IFRIC 12/OCPC 01) minimum of to 0.3.

For purposes of determining covenants, the definition of EBITDA at the Company takes into consideration mainly the consolidation of subsidiaries, associates and joint ventures based on the Company’s direct or indirect interests in those companies (for both EBITDA and assets and liabilities).

The Group’s management monitors these ratios on a systematic and constant basis, so that all conditions are met. In the opinion of the Group’s management, all covenants and financial and non-financial clauses are properly complied as of December 31, 2019.

 

 19  DEBENTURES

 

The movement in debentures are as follows:

82

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Consolidated

Category

 

At December 31, 2017

 

Raised

 

Repayment

 

Interest, monetary adjustment and fair value measurement

 

Interest paid

 

At December 31, 2018

Measured at cost - Post fixed

 

 

 

 

 

 

 

 

 

 

 

 

Post fixed

 

 

 

 

 

 

 

 

 

 

 

 

TJLP

 

  495,408

 

  -

 

(46,768)

 

37,539

 

  (58,080)

 

  481,099

CDI

 

7,446,556

 

  4,163,000

 

  (4,832,370)

 

592,746

 

  (652,185)

 

6,717,747

IPCA

 

1,311,432

 

  -

 

  -

 

118,026

 

  (62,030)

 

1,367,428

Total at cost

 

9,253,396

 

  4,163,000

 

  (4,879,138)

 

748,311

 

  (719,295)

 

8,566,274

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowing costs (*)

 

  (76,870)

 

(17,261)

 

  -

 

34,334

 

  -

 

  (59,796)

Measured at fair value - Post fixed

 

  -

 

 

 

 

 

 

 

 

 

 

IPCA

 

  -

 

416,600

 

  -

 

10,389

 

  -

 

  426,989

Fair value measurement

 

  -

 

  -

 

  -

 

7,378

 

  -

 

  7,378

Total at fair value

 

  -

 

  -

 

  -

 

17,767

 

  -

 

  434,367

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

9,176,527

 

  4,562,339

 

  (4,879,138)

 

800,412

 

  (719,295)

 

8,940,845

Current

 

1,703,073

 

 

 

 

 

 

 

 

 

  917,352

Noncurrent

 

7,473,454

 

 

 

 

 

 

 

 

 

8,023,493

 
 

Consolidated

Category

 

At December 31, 2018

 

Raised

 

Repayment

 

Interest, monetary adjustment and fair value measurement

 

Interest paid

 

At December 31, 2019

Measured at cost - Post fixed

                       

Post fixed

                       

TJLP

 

   481,099

 

  -  

 

   (70,761)

 

   33,384

 

  (4,732)

 

   438,990

CDI

 

   6,717,747

 

   3,688,000

 

(4,000,383)

 

421,070

 

(489,966)

 

   6,336,467

IPCA

 

   1,367,428

 

  -  

 

(109,106)

 

123,090

 

   (60,504)

 

   1,320,909

Total at cost

 

   8,566,274

 

   3,688,000

 

(4,180,250)

 

577,544

 

(555,202)

 

   8,096,368

                         

Borrowing costs (*)

 

   (59,796)

 

  (3,541)

 

  -  

 

   21,122

 

  -  

 

   (42,215)

Measured at fair value - Post fixed

 

  -  

                   

IPCA

 

   426,989

 

  -  

 

  -  

 

   40,556

 

   (22,606)

 

   444,939

Fair value measurement

 

   7,378

 

  -  

 

  -  

 

   39,808

 

  -  

 

  47,186

Total at fair value

 

   434,367

 

  -  

 

  -  

 

   80,364

 

   (22,606)

 

   492,125

                         

Total

 

   8,940,845

 

   3,684,459

 

(4,180,250)

 

679,030

 

(577,808)

 

   8,546,278

Current

 

   917,352

                 

   682,582

Noncurrent

 

   8,023,493

                 

   7,863,696

 

The detail on debentures are as follows :

83

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

       

Consolidated

       

Category

 

Annual Interest

 

December 31, 2019

 

December 31, 2018

 

Maturity range

 

Collateral

                     

Measured at cost - Post fixed

               
                     

TJLP

 

TJLP + 1%

(c)

   438,990

 

   481,099

 

2009 to 2029

 

Liens

CDI

 

(i) From 103,6% to 109,75% of CDI
(ii) CDI + 0,75% to 0,83%

(a)

   5,339,824

 

   5,858,319

 

2018 to 2025

 

CPFL Energia guarantee

 

From 104,75% to 110% of CDI

(a)

   996,644

 

   859,428

 

2015 to 2022

 

No guarantee

IPCA

 

IPCA + from 4,42% to 5,8%

(b)

   1,320,909

 

   1,367,428

 

2019 to 2027

 

CPFL Energia guarantee

       

   8,096,368

 

   8,566,274

       
                     
   

Borrowing costs (*)

 

   (42,215)

 

   (59,796)

       
                     

Measured at fair value - Post fixed

               

IPCA

 

IPCA + 5,80%

(b)

   444,939

 

   426,989

 

2024 to 2026

 

CPFL Energia guarantee

                     
   

Fair value measurement

 

  47,186

 

7,378

       
                     
   

Total

 

   8,546,278

 

   8,940,845

       
                     

Certain debentures have swap exchanging the variation based on IPCA for variation based on CDI.

For further information on the rates considered, see note 35.

Effective rate

                   

(a) 104.68% to 110.77% of the CDI | CDI + 0.76% to 0.89%

(b) IPCA + 4.84% to 6.31%

(c) TJLP + 3.48%

 

(*) In accordance with CPC 48/IFRS 9, this refers to borrowing costs directly attributable to the issuance of the respective debts.

As shown in the table above, the Group classifies its debentures as (i) financial liabilities measured at amortized cost; and (ii) financial liabilities measured at fair value through profit or loss.

The classification of debentures measured at fair value as financial liabilities is aimed at reducing the accounting mismatching of the effects of the recognition of gains and losses derived from the fair value measurement of hedging derivatives linked to such debentures, in order to obtain a more relevant and consistent accounting information.

The changes in the fair values of these debentures are recognized in the Group finance income (expenses), except for the fair value changes in credit risk calculation, which is recognized in other comprehensive income. As at December 31, 2019, the accumulated losses obtained from the fair value measurement of such debentures amounted to R$ 47,186 (R$ 7,378 at December 31, 2018) which, offset by the gains obtained from  the fair value measurement of the derivative instruments of R$ 70,517 (R$ 21,012 at December 31, 2018), undertaken to hedge the interest rate changes (note 35), generated a total gain of R$ 23,331 (R$ 13,634 at December 31, 2018).

The maturities of the principal of debentures recognized in noncurrent liabilities are as follows:

84

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Maturity

 

Consolidated

2021

 

   1,191,059

2022

 

   1,732,136

2023

 

   2,416,082

2024

 

   1,932,174

2025

 

   309,402

2026 to 2030

 

   235,657

Subtotal

 

   7,816,510

Fair value measurement

 

47,186

Total

 

   7,863,696

 

Main additions in the year:

           

Released (R$ thousand)

 

             
                                 

Category
Subsidiary

 

Issue

 

Quantity issued

 

Released in 2019

 

 Net of fundraising costs

 

Interest

 

Repayment

 

Annual rate

 

Effective annual rate

Local currency - CDI

                               

CPFL Brasil

 

5th issue
1st series

 

105,000

 

105,000

 

104,834

 

Semiannual

 

Bullet in December 2019

 

103,6% of CDI

 

106,82% of CDI

CPFL Brasil

 

5th issue
2st series

 

220,000

 

220,000

 

219,652

 

Semiannual

 

2 annual installments from January 2023

 

108,25% of CDI

 

109,06% of CDI

CPFL Paulista

 

10th issue

 

1,380,000

 

1,380,000

 

1,378,596

 

Semiannual

 

2 annual installments from May 2023

 

107% of CDI

 

107,84% of CDI

CPFL Piratininga

 

11th issue

 

215,000

 

215,000

 

214,697

 

Semiannual

 

2 annual installments from May 2023

 

107% of CDI

 

107,84% of CDI

CPFL Santa Cruz

 

3th issue

 

190,000

 

190,000

 

189,703

 

Semiannual

 

Bullet in May 2022

 

107% of CDI

 

107,84% of CDI

RGE

 

10th issue

 

740,000

 

740,000

 

739,206

 

Semiannual

 

2 annual installments from May 2023

 

107% of CDI

 

107,84% of CDI

CPFL Renováveis

 

9th issue
1st series

 

30,000

 

300,000

 

299,955

 

Semiannual

 

Bullet in November 2022

 

104,75% of  CDI

 

105,45% of CDI

CPFL Renováveis

 

9th issue
2st series

 

53,800

 

538,000

 

537,815

 

Semiannual

 

3 semiannual installments from November 2022

 

106% of CDI

 

106,66% of CDI

                                 
           

3,688,000

 

3,684,459

               

 

The amounts obtained from the main additions were used in the investment plan, refinancing of debts and improvement of working capital of subsidiaries.

 

Pre-payment

At 2019, R$ 3,506,174 (R$ 3,247,401 at December 31, 2018) of debenture were paid in advance, whose due dates were from until November 2028.

 

Covenants

The debenture agreements are subject to certain restrictive covenants, including covenants that require the Company and its subsidiaries to maintain certain financial ratios within pre-established parameters. Moreover, these agreements contain restrictive non-financial covenants, which are complied with as per the last measurement period. The debentures issued in 2019 are subject to the following restrictive covenants:

Ratios required in the consolidated financial statements of CPFL Energia

·        Net Debt divided by EBITDA less than or equal to 3.75.

·        EBITDA divided by finance income (costs) higher than or equal to 2.25.

The Group’s management monitors these ratios on a systematic and constant basis, so that all conditions are met. In the opinion of the Group’s management, all covenants and financial and non-financial clauses are properly complied as of December 31, 2019.

85

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

20  PRIVATE PENSION PLAN

 

The subsidiaries sponsor supplementary retirement and pension plans for their employees, with the following characteristics :

20.1         Characteristics

CPFL Paulista

 

The plan currently in force for the employees of the subsidiary CPFL Paulista through FUNCESP is a Mixed Benefit Plan, with the following characteristics:

(i)       Defined Benefit Plan (“BD”) – in force until October 31, 1997 – a defined benefit plan, which grants a Proportional Supplementary Defined Benefit (“BSPS”), in the form of a lifetime income convertible into a pension, to participants enrolled prior to October 31, 1997, the amount being defined in proportion to the accumulated past service time up to that date, based on compliance with the regulatory requirements for granting. The total responsibility for coverage of actuarial deficits of this plan falls to the subsidiary.

 

(ii)      Mixed model, as from November 1, 1997, which covers:

·        scheduled retirement, under a variable contribution plan, consisting of a benefit plan, which is a defined contribution plan up to the granting of the income, and does not generate any actuarial liability for the subsidiary. The benefit plan only becomes a defined benefit plan, consequently generating actuarial responsibility for the subsidiary, after the granting of a lifetime income, convertible or not into a pension.

Additionally, the subsidiary’s Managers may opt for a Free Benefit Generator Plan – PGBL (defined contribution), operated by either Banco do Brasil or Bradesco.

 

CPFL Piratininga

 

As a result of the spin-off of Bandeirante Energia S.A. (subsidiary’s predecessor), the subsidiary CPFL Piratininga assumed the responsibility for the actuarial liabilities of that company’s employees retired and terminated until the date of spin-off, as well as for the obligations relating to the active employees transferred to the subsidiary.

On April 2, 1998, the Secretariat of Pension Plans – “SPC” approved the restructuring of the retirement plan previously maintained by Bandeirante, creating a "Proportional Supplementary Defined Benefit Plan – BSPS”, and a "Mixed Benefit Plan", with the following characteristics:

(i)       Defined Benefit Plan (“BD”) - in force until March 31, 1998 – a defined benefit plan, which grants a Proportional Supplementary Defined Benefit (BSPS), in the form of a lifetime income convertible into a pension to participants enrolled until March 31, 1998, in an amount calculated in proportion to the accumulated past service time up to that date, based on compliance with the regulatory requirements for granting. In the event of death while working or the onset of a disability, the benefits incorporate the entire past service time. The subsidiary has full responsibility for covering the actuarial deficits of this Plan.

 

(ii)      Defined Benefit Plan - in force after March 31, 1998 – defined-benefit type plan, which grants a lifetime income convertible into a pension based on the past service time accumulated after March 31, 1998, based on 70% of the average actual monthly salary for the last 36 months of active service. In the event of death while working or the onset of a disability, the benefits incorporate the entire past service time. The responsibility for covering the actuarial deficits of this Plan is equally divided between the subsidiary and the participants.

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

(iii)    Variable Contribution Plan – implemented together with the Defined Benefit plan effective after March 31, 1998. This is a defined-contribution type pension plan up to the granting of the income and generates no actuarial liability for the subsidiary. The pension plan only becomes a Defined Benefit type plan after the granting of the lifetime income, convertible (or not) into a pension, and accordingly starts to generate actuarial liabilities for the subsidiary.

Additionally, the subsidiary’s Managers may opt for a Free Benefit Generator Plan – PGBL (defined contribution), operated by either Banco do Brasil or Bradesco.

 

RGE Sul (RGE)

The subsidiary RGE has retirement and pension plans for its employees and former employees managed by Fundação CEEE de Previdência Privada, comprising:

(i) “Plan 1” (“Plano Único RGE”): A “defined benefit” plan with benefit level equal to 100% of the inflation adjusted average of the last salaries, deducting the presumed benefit from the Social Security, with a Segregated Net Asset. that is closed to new participants since 1997. This plan was recorded at the dissolved Rio Grande Energia S.A. until the merger of the distribution companies approved on December 31, 2018, as mentioned in note 13.5; and

(ii) “Plan 2” (“Plano Único RGE Sul”): A “defined benefit” plan that is closed to new participants since February 2011. The subsidiary’s contribution matches the contribution from the benefitted employees, in the proportion of one for one, including as regards the Fundação’s administrative funding plan.

For employees hired after the closing of the plans of Fundação CEEE, “defined contribution” private pension plans were implemented, being Bradesco Vida e Previdência for employees hired between 1997 and 2018 by the dissolved Rio Grande Energia S.A., and Itauprev for employees hired by RGE as from 2011, as well as for new employees to be hired after the event of merger of the distribution companies.

 

CPFL Santa Cruz

With the event of the grouping of subsidiaries in 2017, the company’s official plan is the CMSPREV, managed by IHPREV Fundo de Pensão. The same plan was maintained for employees that had the benefits plan managed by BB Previdência - Fundo de Pensão from Banco do Brasil.

 

CPFL Geração

The employees of the subsidiary CPFL Geração participate in the same pension plan as CPFL Paulista.

In addition, managers may opt for a Free Benefit Generator Plan – PGBL (defined contribution), operated by either Banco do Brasil or Bradesco.

20.2         Movements in the defined benefit plans                   

 

December 31, 2019

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1 (*)

 

Plano 2

 

Present value of actuarial obligations

   6,164,035

 

   1,773,089

 

   152,254

 

   464,335

 

   681,363

 

   9,235,076

Fair value of plan's assets

  (4,517,265)

 

  (1,353,050)

 

(105,914)

 

(466,390)

 

(503,867)

 

  (6,946,486)

Present value of obligations (fair value of assets), net

   1,646,770

 

   420,039

 

  46,340

 

  (2,055)

 

   177,496

 

   2,288,590

Effect of asset ceiling

  74,849

 

  -  

 

  -  

 

   2,055

 

  -  

 

  76,904

Net actuarial liability recognized in the statement of financial position

   1,721,619

 

   420,039

 

  46,340

 

  -  

 

   177,496

 

   2,365,494

                       
                       
 

December 31, 2018

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE

 

RGE Sul (RGE)

 

Total

       

Plano 1

 

Plano 2

 

Present value of actuarial obligations

   5,123,238

 

   1,416,391

 

   119,964

 

   382,993

 

   553,493

 

   7,596,079

Fair value of plan's assets

  (4,215,431)

 

  (1,205,647)

 

   (98,836)

 

(413,043)

 

(463,571)

 

  (6,396,529)

Present value of obligations (fair value of assets), net

   907,807

 

   210,744

 

  21,129

 

   (30,050)

 

  89,922

 

   1,199,550

Effect of asset ceiling

  -  

 

  -  

 

  -  

 

  30,050

 

  -  

 

  30,050

Net actuarial liability recognized in the statement of financial position

   907,807

 

   210,744

 

  21,129

 

  -  

 

  89,922

 

   1,229,600

 

The movements net liability occurred in the period in the present value of the actuarial obligations and the fair value of the plan’s assets are as follows :

87

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1 (*)

 

Plano 2

 

Present value of actuarial obligations at December 31, 2017

   4,615,061

 

   1,247,462

 

   110,801

 

   365,924

 

   524,293

 

   6,863,541

Gross current service cost

   835

 

   4,365

 

  78

 

   175

 

   2,790

 

   8,243

Interest on actuarial obligations

   421,083

 

   114,628

 

  10,109

 

  33,552

 

  48,218

 

   627,590

Participants' contributions transferred during the year

  24

 

   2,078

 

  -  

 

   395

 

   842

 

   3,339

Actuarial loss (gain): effect of changes in demographic assumptions

  -  

 

  -  

 

  -  

 

  -  

 

   345

 

   345

Actuarial loss (gain): effect of financial assumptions

   485,142

 

   135,540

 

   8,409

 

   8,921

 

  12,774

 

   650,786

Benefits paid during the year

(398,907)

 

   (87,682)

 

  (9,433)

 

   (25,974)

 

   (35,769)

 

(557,765)

Present value of actuarial obligations at December 31, 2018

   5,123,238

 

   1,416,391

 

   119,964

 

   382,993

 

   553,493

 

   7,596,079

Gross current service cost

   925

 

   5,449

 

  84

 

   185

 

   2,352

 

   8,995

Interest on actuarial obligations

   449,173

 

   125,059

 

  10,507

 

  34,342

 

  48,796

 

   667,877

Participants' contributions transferred during the year

  -  

 

   1,886

 

  -  

 

   620

 

   1,136

 

   3,642

Actuarial loss (gain): effect of changes in demographic assumptions

  (2,900)

 

(77)

 

  (165)

 

  -  

 

  -  

 

  (3,142)

Actuarial loss (gain): effect of financial assumptions

   1,037,048

 

   321,011

 

  31,516

 

  73,759

 

   113,836

 

   1,577,170

Benefits paid during the year

(443,449)

 

   (96,628)

 

  (9,652)

 

   (27,564)

 

   (38,250)

 

(615,543)

Present value of actuarial obligations at December 31, 2019

   6,164,035

 

   1,773,089

 

   152,254

 

   464,335

 

   681,363

 

   9,235,076

                       
 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1 (*)

 

Plano 2

 

Fair value of actuarial assets at December 31, 2017

  (3,925,061)

 

  (1,105,738)

 

   (94,378)

 

(387,322)

 

(446,670)

 

  (5,959,170)

Expected return during the year

(359,588)

 

(102,621)

 

  (8,634)

 

   (35,950)

 

   (41,166)

 

(547,959)

Participants' contributions transferred during the year

(24)

 

  (2,078)

 

  -  

 

  (395)

 

  (842)

 

  (3,339)

Sponsors' contributions

   (65,096)

 

   (25,460)

 

  (1,027)

 

  (7,643)

 

  (6,712)

 

(105,938)

Actuarial loss (gain): return on actuarial assets

(264,569)

 

   (57,432)

 

  (4,230)

 

  (7,707)

 

  (3,950)

 

(337,888)

Benefits paid during the year

   398,907

 

  87,682

 

   9,433

 

  25,974

 

  35,769

 

   557,765

Fair value of actuarial assets at December 31, 2018

  (4,215,431)

 

  (1,205,647)

 

   (98,836)

 

(413,043)

 

(463,571)

 

  (6,396,529)

Expected return during the year

(372,121)

 

(107,795)

 

  (8,699)

 

   (37,500)

 

   (40,947)

 

(567,063)

Participants' contributions transferred during the year

  -  

 

  (1,886)

 

  -  

 

  (620)

 

  (1,136)

 

  (3,643)

Sponsors' contributions

   (92,756)

 

   (34,444)

 

  (1,604)

 

  (7,748)

 

  (6,959)

 

(143,512)

Actuarial loss (gain): return on actuarial assets

(280,404)

 

   (99,905)

 

  (6,426)

 

   (35,042)

 

   (29,504)

 

(451,281)

Benefits paid during the year

   443,449

 

  96,628

 

   9,652

 

  27,564

 

  38,250

 

   615,543

Fair value of actuarial assets at December 31, 2019

  (4,517,265)

 

  (1,353,050)

 

(105,914)

 

(466,390)

 

(503,867)

 

  (6,946,486)

  

20.3         Movements in recognized assets and liabilities

The movements in net liability are as follows:

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1

 

Plano 2

 

Net actuarial liability at December 31, 2017

   690,000

 

   141,724

 

  16,424

 

  -  

 

  77,623

 

   925,770

Expenses (income) recognized in the statement of profit or loss

  62,330

 

  16,372

 

   1,553

 

  (188)

 

   9,842

 

  89,909

Sponsors' contributions transferred during the year

   (65,096)

 

   (25,460)

 

  (1,027)

 

  (7,643)

 

  (6,712)

 

(105,938)

Actuarial loss (gain): effect of changes in demographic assumptions

  -  

 

  -  

 

  -  

 

  -  

 

   345

 

   345

Actuarial loss (gain): effect of financial assumptions

   485,142

 

   135,540

 

   8,409

 

   8,921

 

  12,774

 

   650,786

Actuarial loss (gain): return on actuarial assets

(264,569)

 

   (57,432)

 

  (4,230)

 

  (7,707)

 

  (3,950)

 

(337,888)

Effect of asset ceiling

  -  

 

  -  

 

  -  

 

   6,617

 

  -  

 

   6,617

Net actuarial liability at December 31, 2018

   907,807

 

   210,744

 

  21,129

 

     -  

 

  89,922

 

   1,229,600

Other contributions

  13,662

Total liability

   1,243,263

   

Current

  86,623

Noncurrent

   1,156,639

   
 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1 (*)

 

Plano 2

 

Net actuarial liability at December 31, 2018

   907,807

 

   210,744

 

  21,129

 

  -  

 

  89,922

 

   1,229,600

Expenses (income) recognized in the statement of profit or loss

  77,977

 

  22,711

 

   1,892

 

  (178)

 

  10,201

 

   112,602

Sponsors' contributions transferred during the year

   (92,756)

 

   (34,444)

 

  (1,604)

 

  (7,748)

 

  (6,959)

 

(143,512)

Actuarial loss (gain): effect of changes in demographic assumptions

  (2,900)

 

(77)

 

  (165)

 

  -  

 

  -  

 

  (3,143)

Actuarial loss (gain): effect of changes in financial assumptions

   1,037,048

 

   321,011

 

  31,516

 

  73,759

 

   113,836

 

   1,577,170

Actuarial loss (gain): return on actuarial assets

(280,404)

 

   (99,905)

 

  (6,426)

 

   (35,042)

 

   (29,504)

 

(451,281)

Effect of asset ceiling

  74,849

 

  -  

 

  -  

 

   (30,791)

 

  -  

 

  44,058

Net actuarial liability at December 31, 2019

   1,721,619

 

   420,039

 

  46,340

 

  -  

 

   177,496

 

   2,365,494

Other contributions

  12,683

Total liability

   2,378,178

   

Current

   224,851

Noncurrent

   2,153,327

  

20.4         Expected contributions and benefits

The expected contributions to the plans for 2020 are shown below:

Expected contributions

 
 

2020

CPFL Paulista

121,055

CPFL Piratininga

40,263

CPFL Geração

2,481

RGE Sul (RGE) - Plan 1

7,393

RGE Sul (RGE) - Plan 2

6,102

Total

177,294

88

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The expected benefits to be paid by in the next 10 years are shown below:

Expected benefits to be paid

                     
 

2020

 

2021

 

2022

 

2023

 

2024 to 2029

 

Total

CPFL Paulista

   436,163

 

   448,553

 

   460,445

 

   471,438

 

3,017,325

 

4,833,924

CPFL Piratininga

  99,957

 

   104,651

 

   108,695

 

   113,023

 

   774,546

 

1,200,872

CPFL Geração

  10,728

 

  10,992

 

  11,238

 

  11,494

 

  73,016

 

   117,468

RGE Sul (RGE) - Plan 1

  28,695

 

  29,642

 

  30,980

 

  32,025

 

   213,150

 

   334,492

RGE Sul (RGE) - Plan 2

  38,642

 

  40,078

 

  41,785

 

  43,447

 

   293,489

 

   457,441

Total

   614,185

 

   633,916

 

   653,143

 

   671,427

 

4,371,526

 

6,944,197

 

At December 31, 2019, the average duration of the defined benefit obligation was 10.3 years for CPFL Paulista, 12.5 years for CPFL Piratininga, 10.7 years for CPFL Geração, 11.3 years for RGE Plan 1 and 12.5 years for RGE Plan 2.

 

20.5         Recognition of private pension plan income and expense

Supported by the opinion of  external actuarial estimate, the Group’s management presents the actuarial estimate of the expenses and/or income to be recognized in 2020 and the income/expense recognized in 2019 and 2018 are as follows:

 

2020 estimated

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1

 

Plano 2

 

Service cost

   1,533

 

   9,135

 

   124

 

  (308)

 

   2,244

 

  12,728

Interest on actuarial obligations

   441,784

 

   128,027

 

  10,914

 

  33,434

 

  49,190

 

   663,349

Expected return on plan assets

(323,926)

 

   (98,386)

 

  (7,563)

 

   (33,885)

 

   (36,272)

 

(500,032)

Effect of asset ceiling

   5,561

 

  -  

 

  -  

 

   153

 

  -  

 

   5,714

Total expense (income)

   124,952

 

  38,776

 

   3,475

 

  (606)

 

  15,162

 

   181,759

                       
 

2019 actual

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

 

Total

       

Plano 1 (*)

 

Plano 2

 

Service cost

   925

 

   5,449

 

  84

 

   185

 

   2,352

 

   8,993

Interest on actuarial obligations

   449,173

 

   125,059

 

  10,507

 

  34,342

 

  48,796

 

   667,877

Expected return on plan assets

(372,121)

 

(107,795)

 

  (8,699)

 

   (37,500)

 

   (40,947)

 

(567,062)

Effect of asset ceiling

  -  

 

  -  

 

  -  

 

   2,795

 

  -  

 

   2,795

Total expense (income)

  77,977

 

  22,711

 

   1,892

 

  (178)

 

  10,201

 

   112,603

                       
 

2018 actual

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE

 

RGE Sul (RGE)

 

Total

       

Plano 1

 

Plano 2

 

Service cost

   835

 

   4,365

 

  78

 

   175

 

   2,790

 

   8,243

Interest on actuarial obligations

   421,083

 

   114,628

 

  10,109

 

  33,552

 

  48,218

 

   627,590

Expected return on plan assets

(359,587)

 

(102,622)

 

  (8,634)

 

   (35,950)

 

   (41,166)

 

(547,959)

Effect of asset ceiling

  -  

 

  -  

 

  -  

 

   2,035

 

  -  

 

   2,035

Total expense (income)

  62,330

 

  16,372

 

   1,553

 

  (188)

 

   9,842

 

  89,909

 

The main assumptions taken into consideration in the actuarial calculation at the end of the reporting period were as follows:

   

CPFL Paulista, CPFL Geração and CPFL Piratininga

   
     

RGE (Plans 1 e 2)

   

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

                 

Nominal discount rate for actuarial liabilities:

 

7.43% p.a.

 

9.10% p.a.

 

9.10% p.a.

 

9.10% p.a.

Nominal return rate on plan assets:

 

7.43% p.a.

 

9.10% p.a.

 

9.10% p.a.

 

9.10% p.a.

Estimated rate of nominal salary increase:

 

5.56% p.a. (*)

 

5.56% p.a. (*)

 

5.97% p.a. (**)

 

5.97% p.a. (**)

Estimated rate of nominal benefits increase:

 

4.00% p.a.

 

4.00% p.a.

 

4.00% p.a.

 

4.00% p.a.

Estimated long-term inflation rate (basis for the nominal rates above)

 

4.00% p.a.

 

4.00% p.a.

 

4.00% p.a.

 

4.00% p.a.

General biometric mortality table:

 

AT-2000 (-10)

 

AT-2000 (-10)

 

BR-EMS sb v.2015

 

BR-EMS sb v.2015

Biometric table for the onset of disability:

 

Low Light

 

Low Light

 

Medium Light

 

Medium Light

Expected turnover rate:

 

ExpR_2012

 

ExpR_2012

 

Null

 

Null

Likelihood of reaching retirement age:

 

After 15 years of filiation and 35 years of service time for men and 30 years of service time for women

 

After 15 years of filiation and 35 years of service time for men and 30 years of service time for women

 

100% when a beneficiary of the plan first becomes eligible for full benefit

 

100% when a beneficiary of the plan first becomes eligible for full benefit

                 

(*) Estimated rate of nominal salary increase for CPFL Piratininga was 6.39% p.a. at December 31, 2019 and 2018.

       

(**) Estimated rate of nominal salary increase for RGE (plan 1) was 5.15% p.a. at December 31, 2019 and 2018.

       

89

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

20.6         Plan assets

The following tables show the allocation (by asset segment) of the assets of the Group CPFL pension plans, at December 31, 2019 and 2018 managed by FUNCESP and Fundação CEEE. The tables also show the distribution of the guarantee resources established as target for 2020, obtained in light of the macroeconomic scenario in December 2019.

Assets managed by the plans are as follows:

   

Assets managed by Fundação CESP

 

Assets managed by Fundação CEEE

   

CPFL Paulista and CPFL Geração

 

CPFL Piratininga

 

RGE Sul (RGE)

       

Plan 1

 

Plan 2

   

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Fixed rate

 

75%

 

77%

 

76%

 

81%

 

76%

 

78%

 

74%

 

77%

Federal governament bonds

 

61%

 

55%

 

58%

 

53%

 

66%

 

68%

 

64%

 

67%

Corporate bonds (financial institutions)

 

1%

 

3%

 

2%

 

5%

 

5%

 

5%

 

5%

 

5%

Corporate bonds (non financial institutions)

 

0

 

1%

 

-  

 

1%

 

2%

 

3%

 

3%

 

3%

Multimarket funds

 

4%

 

4%

 

4%

 

4%

 

2%

 

2%

 

2%

 

2%

Other fixed income investments

 

9%

 

15%

 

12%

 

18%

 

  -  

 

-  

 

-  

 

-  

Variable income

 

17%

 

15%

 

17%

 

13%

 

21%

 

18%

 

21%

 

18%

Investiment funds - shares

 

17%

 

15%

 

17%

 

13%

 

21%

 

18%

 

21%

 

18%

Structured investments

 

4%

 

2%

 

4%

 

2%

 

  -  

 

1%

 

1%

 

1%

Equity funds

 

-  

 

-  

 

-  

 

-  

 

  -  

 

-  

 

-  

 

1%

Real estate funds

 

-  

 

-  

 

-  

 

-  

 

  -  

 

1%

 

1%

 

1%

Multimarket fund

 

4%

 

2%

 

4%

 

2%

 

  -  

 

-  

 

-  

   

Total quoted in na active market

 

96%

 

94%

 

97%

 

97%

 

96%

 

96%

 

96%

 

96%

                                 

Real estate

 

3%

 

3%

 

2%

 

2%

 

2%

 

2%

 

2%

 

2%

Transactions with participants

 

1%

 

1%

 

1%

 

2%

 

1%

 

2%

 

2%

 

2%

Other investments

 

-  

 

1%

 

-  

 

-  

 

  -  

 

-  

 

-  

 

-  

Escrow deposits and othes

 

-  

 

1%

 

-  

 

-  

 

  -  

 

-  

 

-  

 

-  

Total no quoted in na active market

 

4%

 

6%

 

3%

 

3%

 

4%

 

4%

 

4%

 

4%

 

The plan assets do not include any properties occupied or assets used by the Company.

 

 

Target for 2020

 

FUNCESP

 

Fundação Família Previdência

 

CPFL Paulista and CPFL Geração

 

CPFL Piratininga

 

RGE Sul ("RGE")

     

Plan 1

 

Plan 2

Fixed income investments

61.3%

 

51.6%

 

76.0%

 

76.0%

Variable income investments

24.9%

 

35.5%

 

9.0%

 

11.0%

Real estate

3.6%

 

1.8%

 

2.0%

 

3.0%

Transactions with participants

1.9%

 

2.7%

 

2.0%

 

2.0%

Structured investments

0.0%

 

0.0%

 

11.0%

 

8.0%

Investments abroad

8.4%

 

8.4%

 

0.0%

 

0.0%

 

100.00%

 

100.00%

 

100.00%

 

100.00%

 

The allocation target for 2020 was based on the recommendations for allocation of assets made at the end of 2019 by FUNCESP and Fundação CEEE, in their Investment Policy. This target may change at any time during 2020, in light of changes in the macroeconomic situation or in the return on assets, among other factors.

The asset management aims at maximizing the return on investments, but always seeking to minimize the risks of actuarial deficit. Accordingly, investments are always made considering the liability that they must honor. The two main studies for Funcesp and Fundação CEEE to achieve the investment management objectives are the Asset Liability Management – ALM and the Technical Study of Compliance and Appropriateness of the Real Interest Rate, both conducted at least once a year, taking into consideration the projected flow of benefit payments (liability flow) of the pension plans managed by the Foundations.

The ALM study is used as a base to define the strategic allocation of assets, which comprises the target participations in the asset classes of interest, from the identification of efficient combinations of assets, considering the existence of liabilities and the need for return, immunization and liquidity of each plan, considering projections of risk and return. The simulations generated by the ALM studies assist in the definition of the minimum and maximum limits of allocation in the different asset classes, defined in the plans’ Investment Policy, which is also used as a risk control mechanism.

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(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The Technical Study of Compliance and Appropriateness of the Real Interest Rate aims at proving the appropriateness and compliance of the annual real interest rate to be adopted in the actuarial valuation of the plans and the projected annual real rate of return of the investments, considering their projected flows of revenues and expenses.

These studies are used as a base to determine the assumptions of estimated real return of the pension plans’ investments for short-term and long-term horizons and assist in the analysis of their liquidity, since they consider the flow of benefit payments against the assets considered liquid. The main assumptions considered in the studies are, in addition to the liability flow projections, the macroeconomic and asset price projections, through which estimates of the expected short-term and long-term profitability are obtained, taking into account the current portfolios of the benefit plans.

20.7         Sensitivity analysis

The significant actuarial assumptions for determining the defined benefit obligation are discount rate and mortality. The following sensitivity analyses were based on reasonably possible changes in the assumptions at the end of the reporting period, with the other assumptions remaining constant.

In the presentation of the sensitivity analysis, the present value of the defined benefit obligation was calculated using the projected unit credit method at the end of the reporting period, the same method used to calculate the defined benefit obligation recognized in the statement of income, according to CPC 33 / IAS 19.

See below the effects on the defined benefit obligation if the discount rate were 0.25 percentage points lower (higher) and if general biometric mortality table were to be softened (aggravated) in one year:

   

Gain (loss)

 

CPFL Paulista

 

CPFL Piratininga

 

CPFL Geração

 

RGE Sul (RGE)

   
           

Plan 1

 

Plan 2

 

Total

Nominal discount (*)

 

-0,25 p.p.

 

160,456

 

   56,441

 

  4,116

 

   13,297

 

   21,548

 

255,858

   

+0,25 p.p.

 

   (153,552)

 

(53,580)

 

   (3,928)

 

(12,683)

 

(20,456)

 

   (244,199)

                             

General biometric mortality table (**)

 

+1 ano

 

   (169,890)

 

(40,984)

 

   (4,005)

 

(11,057)

 

(15,957)

 

   (241,893)

   

-1 ano

 

169,223

 

   40,473

 

  3,993

 

   10,917

 

   15,743

 

240,349

 

* The Company's assumption based on the actuarial report for the nominal discount rate was 7.43% p.a. The projected rates are decreased or increased by 0.25 p.p. to 7.18% p.a. and 7.68% p.a..

** The Company's assumption based on the actuarial report for the mortality table was AT-2000 (-10) for FUNCESP and BREMS sb v.2015 for the Fundação Família Previdência plans. The projections were carried out with increase or decrease of 1 year in the respective mortality tables.

20.8         Investment risk

The major part of the resources of the Company’s benefit plans is invested in the fixed income segment and, within this segment, the greater part of the funds is invested in federal government bonds, indexed to the IGP-M, IPCA and SELIC, which are the index for adjustment of the actuarial liabilities of the Company’s plans (defined benefit plans), representing the matching between assets and liabilities.

Management of the Company’s benefit plans is monitored by the Investment and Pension Plan Management Committee, which includes representatives of active and retired employees, as well as members appointed by the Company. Among the duties of the Committee are the analysis and approval of investment recommendations made by FUNCESP investment managers, which occurs at least quarterly.

FUNCESP and Fundação CEEE uses the following tools to control market risks in the fixed income and variable income segments: VaR, Tracking Risk, Tracking Error and Stress Test.

Fundação Família Previdência also uses Sharpe, Generalized Sharpe and Drawn Down. In addition, to assess the market risk exposure of the plans' portfolios, the Base EBA Year Exposure is calculated and Stress Simulations are performed.  The EBA consists of a metric that expresses the risk exposure of the portfolio as a percentage of equity, considering the sum of the exposures generated by each asset, based on the definition of increase/decrease of the respective risk factors.

FUNCESP and Fundação Família Previdência Investment Policies determine additional restrictions that, along with those already established by law, define the percentages of diversification for investments and establish the strategy of the plans, including the limit of credit risk in assets issued or co-obligation of the same legal entity to be adopted internally.

91

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

 21  REGULATORY LIABITIES

 

 

Consolidated

 

December 31, 2019

 

December 31, 2018

Financial compensation for the use of water resources

1,265

 

1,701

Global reversal reserve - RGR

17,260

 

17,288

ANEEL inspection fee -TFSEE

7,375

 

5,470

Tariff flags and others

206,352

 

126,196

Total

232,251

 

150,656

 

Tariff flags and others –. Refers basically to the tariff flag adopted for bills in November and December 2019 and  2018 and not yet ratified by the Centralizing Account For Tariff Flag Resources (“CCRBT”).

92

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 22  TAXES, FEES AND CONTRIBUTIONS

 

   

Consolidated

   

December 31, 2019

 

December 31, 2018

Current

       

IRPJ (corporate income tax)

 

156,240

 

73,058

CSLL (social contribution on net income)

 

62,721

 

27,392

Income tax and social contribution

 

218,961

 

100,450

         

ICMS (State VAT)

 

435,155

 

430,149

PIS (tax on revenue)

 

36,657

 

30,760

COFINS (tax on revenue)

 

168,195

 

152,945

PIS/COFINS payment

 

9,323

 

-  

Income tax withholding on interest on capital

 

40,099

 

-  

Other taxes

 

52,105

 

51,135

Other taxes

 

741,536

 

664,989

         

Total current

 

960,497

 

765,438

         

Noncurrent

       
         

IRPJ (corporate income tax)

 

156,198

 

-  

         

ICMS (State VAT)

 

805

 

772

PIS/COFINS payment

 

-  

 

8,919

Other taxes

 

805

 

9,691

         

Total  noncurrent

 

157,003

 

9,691

  

Corporate Income tax – IRPJ: in noncurrent, due to the initial application of IFRIC 23 / ICPC 22 - Uncertainty Over Income Tax Treatments, this refers to the reclassification of provision for tax risks related to income tax payable. The case refers to the Writ of Mandamus filed by the subsidiary CPFL Piratininga, which discussed the possibility of excluding the Social Contribution on Profit (CSLL) from its own calculation base, as well as from the calculation base of the Corporate Income Tax (IRPJ); for such case, it is more probable that the Tax Authorities will not accept the procedure.

 

The Group also has some uncertain income tax treatments for which management concluded that it is probable more likely than not that they will be accepted by the tax authority and for which the effect of potential contingencies is disclosed in note 23 – Provision for tax, civil and labor risks and escrow deposits.

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(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 23  PROVISION FOR TAX, CIVIL AND LABOR RISKS AND ESCROW DEPOSITS

 

 

Consolidated

 

December 31, 2019

 

December 31, 2018

 

Provision for tax,civil and labor risks

 

Escrow Deposits

 

Provision for tax,civil and labor risks

 

Escrow Deposits

               

Labor

   235,085

 

96,094

 

   219,314

 

   103,760

               

Civil

   245,464

 

66,243

 

   281,304

 

  99,604

               

Tax

             

FINSOCIAL

   -  

 

  -  

 

  39,727

 

  99,146

Income Tax

7,571

 

  417,664

 

   154,717

 

   401,381

Others

  46,255

 

  177,369

 

   195,379

 

   150,472

 

  53,825

 

  595,033

 

   389,823

 

   650,999

               

Others

  66,401

 

   1

 

  88,920

 

   12

               

Total

   600,775

 

  757,370

 

   979,360

 

   854,374

 

The movements in the provision for tax, civil, labor and other risks are shown below:

 

 

Consolidated

 

December 31, 2018

 

Adições

 

Reversões

 

Pagamentos

 

Atualização monetária

 

Reclassifi-cação (nota 22)

 

December 31, 2019

Labor

   219,314

 

  86,735

 

(29,967)

 

(68,927)

 

  27,932

 

  -  

 

   235,085

Civil

   281,304

 

   107,671

 

(43,679)

 

  (123,054)

 

  23,223

 

  -  

 

   245,464

Tax

   389,823

 

   121,146

 

(55,221)

 

  (276,652)

 

  30,927

 

(156,198)

 

  53,825

Others

  88,920

 

6,571

 

(16,420)

 

(15,518)

 

2,849

 

  -  

 

  66,401

Total

   979,360

 

   322,121

 

  (145,288)

 

  (484,153)

 

  84,932

 

(156,198)

 

   600,775

  

The provision for tax, civil, labor and other risks was based on the assessment of the risks of losing the lawsuits to which the Group is part, where the likelihood of loss is probable in the opinion of the outside legal counselors and the Management of the Group.

The principal pending issues relating to litigation, lawsuits and tax assessments are summarized below:

a.      Labor: The main labor lawsuits relate to claims filed by former employees or labor unions for payment of salary adjustments (overtime, salary parity, severance payments and other claims).

 

b.      Civil

Bodily injury - refer mainly to claims for indemnities relating to accidents in the Company's electrical grids, damage to consumers, vehicle accidents, etc.

Tariff increase - refer to various claims by industrial consumers as a result of tariff increases imposed by DNAEE Administrative Rules 38 and 45, of February 27 and March 4, 1986, when the “Plano Cruzado” economic plan price freeze was in effect.

 

c.      Tax - this refers to lawsuits in progress at the judicial and administrative levels resulting from the subsidiaries' operations, related to tax matters involving INSS, FGTS, SAT, PIS and COFINS.

d.      Others: The line item of “others” refers mainly to lawsuits involving regulatory matters.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Possible losses

The Group is part to other lawsuits in which Management, supported by its external legal counselors, believes that the chances of a successful outcome are possible due to a solid defensive position in these cases, therefore no provision was recognized. It is not yet possible to predict the outcome of the courts’ decisions or any other decisions in similar proceedings considered probable or remote.

The claims relating to possible losses at December 31, 2019 and 2018 were as follows:  

 

 

Consolidated

   
 

December 31, 2019

 

December 31, 2018

   
           

Labor

583,348

 

  786,901

 

Work accidents, risk premium for dangerousness at workplace and overtime

Civil

  1,815,143

 

   1,630,630

 

Personal injury and overfed tariffs

Tax

  4,350,740

 

   3,822,488

 

Income tax and social contribution (note 22)

Tax - Others

  2,654,331

 

   2,377,101

 

INSS, ICMS, FINSOCIAL, PIS and COFINS

Regulatory

   76,404

 

  139,593

 

Technical, commercial and economic-financial supervisions

Total

  9,479,966

 

   8,756,713

   

 

(a) Tax :

(i) There is a discussion about the deductibility for income tax of the expense recognized in 1997 relating to the commitment assumed in regard to the pension plan of employees of the subsidiary CPFL Paulista with Fundação CESP in the estimated amount of R$ 1,478,266 with a linked escrow deposit in the amount of R$ 248,725  Further to such deposit, there are escrow deposits in the amount of R$ 22,264 and financial guarantee (insurance and letters of guarantee), under the terms required by the relevant procedural law.  On May 23, June 6 and September 17, 2019, unfavorable rulings on the special appeal filed by the Company were rendered by the Second Panel of Judges of the Higher Court of Justice (STJ). These rulings have not yet been fully published, and the Company, when it has access to the decision, may evaluate the applicable appeals still at the level of the STJ. Additionally, the Company has an extraordinary appeal in the initial stage at the Federal Supreme Court (STF). Consequently, based on the current stage of the appeal, both at the STJ and at the STF, and based on the opinion of its legal advisors, the Company remains confident in the legal grounds consubstantiating the appeal and will continue to defend its arguments before the judiciary branch, assessing the chances of loss as not probable, there is a new opportunity for the analysis of the case at the Federal Supreme Court (STF), with a constitutional approach with sound bases, indicating possible success in the extraordinary appeals, and will continue to try to avoid possible cash outflows should it be required to replace existing judicial guarantees with cash deposits.

 (ii) in 2016, the subsidiary CPFL Renováveis received a tax infringement notice in the amount of R$ 327,547 relating to the collection of Withholding Income Tax - IRRF on the remuneration of capital gain incurred with parties resident and/or domiciled abroad, arising from the sale of Jantus SL in December 2011, for which the Company’s management, supported by the opinion of its outside legal counselors, assessing the chances of loss as not probable;

(iii)  in 2016 the subsidiary CPFL Geração received a tax infringement notice in the inflation adjusted amount of R$ 482,734 related to the collection of IRPJ and CSLL for the calendar year 2011, calculated on the alleged capital gain identified on the acquisition of ERSA Energias Renováveis S.A. and on the recording of differences in the fair value remeasurement of SMITA Empreendimentos e Participações S.A., company acquired in a downstream merger, for which the Company’s management, supported by the opinion of its outside legal counselors, assessing the chances of loss as not probable. 

(b) Labor:

As regards labor contingencies, there is a discussion about the possibility of changing the inflation adjustment index adopted by the Labor Court. Currently there is a decision from the Supreme Federal Court (STF) that suspends the change ruled by the Superior Labor Court (TST), which intended to replace the index currently adopted by the Labor Court (“TR”) by the IPCA-E. The Supreme Court considered that the TST’s decision entailed an unlawful interpretation and was not compliant with the determination of the effects of prior court decisions, violating its competence to decide on a constitutional matter. In view of such decision, and until a final decision is issued by the STF, the current index adopted by the Labor Court (“TR”) remains valid, which has been acknowledged by the TST in recent decisions. Therefore, the Group’s management considers the risk of losses as possible and as the matter still requires definition by the Courts, it is not possible to reasonably estimate the amounts involved. In addition, in accordance with Law No. 13,467 of November 11, 2017, the TR is the inflation adjustment index of the Labor Court since the law came into effect.

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(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Based on the opinion of their outside legal counselors, the Group’s management believes that the amounts provided for reflect the current best estimate.

 

 24  OTHER PAYABLES

 

 

Consolidated

 

Current

 

Noncurrent

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

Consumers and concessionaires

   114,610

 

  93,612

 

183,938

 

  47,831

Energy efficiency program - PEE

   230,451

 

   183,225

 

  89,522

 

   120,563

Research & Development - P&D

  93,658

 

   110,495

 

125,111

 

  72,941

EPE / FNDCT / PROCEL

  49,275

 

  38,052

 

   -  

 

   -  

Reversion fund

1,712

 

1,712

 

  12,615

 

  14,327

Advances

   234,556

 

   197,470

 

  43,263

 

  48,724

Tariff discounts - CDE

  76,632

 

  96,819

 

   -  

 

   -  

Provision for socio environmental costs

  24,485

 

  22,489

 

203,844

 

   110,261

Payroll

  18,004

 

  15,674

 

   -  

 

   -  

Profit sharing

  98,713

 

  95,502

 

  29,631

 

  20,575

Collection agreements

  93,740

 

  85,018

 

   -  

 

   -  

Business combination

7,901

 

7,598

 

   -  

 

   -  

Others

  50,533

 

  31,630

 

  71,406

 

  40,174

Total

1,094,269

 

   979,296

 

759,331

 

   475,396

 

(*) EPE - Energy Research Company;

FNDCT- National Fund for Scientific and Technological Development;

PROCEL - National Electricity Conservation Program.

Consumers and concessionaires: refer to liabilities with consumers in connection with overpayments and adjustments of billing to be offset or returned to consumers as well the participation of consumers in the “Programa de Universalização” program. In noncurrent, this refers mainly to the transfer of PIS and COFINS to consumers (Note 8) and to spot market electricity (CCEE) related to ANEEL Order No. 288.

Research & Development, PROCEL National Electric Conservation Program and Energy Efficiency Programs: the subsidiaries recognized liabilities relating to amounts already billed in tariffs (1% of net operating revenue), but not yet invested in the research & development and energy efficiency programs. These amounts are subject to adjustment at the SELIC rate, through the date of their realization.

Advances: refer mainly to advances from customers in relation to advance billing by the subsidiary CPFL Renováveis, before the energy or service has actually been provided or delivered.

Provision for socio environmental costs and asset retirement: refers mainly to provisions recognized by the indirect subsidiary CPFL Renováveis in relation to socio environmental licenses as a result of events that have already occurred and obligations to remove assets arising from contractual and legal requirements related to leasing of land on which the wind farms are located. Such costs are accrued against property, plant and equipment and will be depreciated over the remaining useful life of the asset. These provisions are made based on estimates and assumptions related to discount rates, the expected cost for demobilization and removal at the end of the authorization period for these plants. These costs may differ from what may be incurred by the Company. The real discount rate used to calculate the present value was 3.22%, based on government bond rates with a similar maturity date until the end of the authorizations.

Tariff discounts – CDE: refer to the difference between the tariff discount granted to consumers and the amounts received via the CDE.

 

Profit sharing: mainly comprised by:

96

 
 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

(i)   in accordance with a collective labor agreement, the Group introduced an employee profit-sharing program, based on the achievement of operating and financial targets previously established;

(ii) Long-Term Incentive Program: refers to the Long-Term Incentive Plan for the Group’s Executives, approved by the Board of Directors, which consists in an incentive in financial resources based on salary multiples and that are driven by the company’s results and average performance in the three fiscal years after each concession.

 

 25  EQUITY

 

The shareholders’ interest in the Company’s Equity at December 31, 2019 and 2018 is shown below:

 

   

Number of shares

   

December 31, 2019

 

December 31, 2018

Shareholders

 

Common shares

 

Interest %

 

Common shares

 

Interest %

State Grid Brazil Power Participações S.A.

 

730,435,698

 

63.39%

 

730,435,698

 

71.76%

ESC Energia S.A.

 

234,086,204

 

20.32%

 

234,086,204

 

23.00%

Members of the Executive Board

 

  189

 

0.00%

 

  189

 

0.00%

Other shareholders

 

187,732,349

 

16.29%

 

   53,392,655

 

5.25%

Total

 

1,152,254,440

 

100.00%

 

1,017,914,746

 

100.00%

 

25.1         Capital management

The Company’s policy is to maintain a solid capital base in order to keep the trust of the investor, the creditors and the market and to ensure the business sustainability. Management monitors the return on capital and the strategy of rising dividends from the subsidiaries to the Company and from the Company to the controlling shareholders.

The Company manages the leverage ratio analyzing the advantages and the security provided by an improved equity capital position. The Company monitors capital using the gearing ratio calculated by  net debt to EBITDA.

In  2019, the consolidated capital structure and leverage ratio of CPFL Energia remained at adequate levels. The Company’s net debt reached 2.52 times the EBITDA at the end of 2019 under the criterion for measuring the Company’s financial covenants, lower than in the prior year. The Group’s policy is to keep such ratio below 3.5, since most of its agreements use this measurement.  Historically, the Company has not acquired its own shares in the market.

25.2         Public Offering of Shares

On April 2, 2019, the Company informed B3 S.A. - Brasil, Bolsa, Balcão of its intention to carry out a public offering of common shares ("Offering"), and on April 18, 2019, B3 approved its request for extension of the term to reach a minimum percentage of outstanding (free float) shares in the market of 15% of the Company's total capital up to October 31, 2019. On April 24, 2019, a Material Fact was disclosed by the Company, stating that it had filed a Registration Statement on Form F-3 ("Form F-3") with the Securities and Exchange Commission ("SEC"), allowing the Company to carry out certain public offerings of common shares issued by it in the United States, including as American Depositary Shares ("ADS").

On June 12, 2019, following the announcements previously made, the Company disclosed in a Material Fact that the Board of Directors had approved, within the scope of the Offering and pursuant to CVM Instruction 476, a price per share of R$ 27.50 and the Company's capital increase amounting to R$ 3,212,471, through the issue of 116,817,126 new shares. As a result, capital increased from R$ 5,741,284 to R$ 8,953,755 and the total number of registered common shares with no par value increased from 1,017,914,746 to 1,134,731,872. On June 27, 2019, the number of shares was increased by a supplementary lot of 15% of the total shares initially offered (without considering the Additional Lot), i.e., 17,522,568 common Company-issued shares under the same conditions and price of the shares initially offered, increasing the total number of shares to 1,152,254,440. On June 28, 2019, these shares were settled, totaling R$ 481,871 from the capital increase, increasing capital to R$ 9,435,626 at December 31, 2019.   

The issue costs totaled R$ 47,544, net of tax effects, up to December 31, 2019.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The Offering was carried out, simultaneously: (i) with restricted efforts of placement in Brazil, in the non-organized over-the-counter market; and (ii) abroad, There was no reallocation of shares between the Brazilian Offering and the International Offering, due to the demand verified in Brazil and abroad during the course of the Offering and, therefore, there was no allocation of ADSs in the context of the International Offering, and therefore, all the shares were distributed under the Brazilian Offering.

On December 19, 2019, the Company’s Board of Directors and the Executive Board of CPFL Geração approved the holding of a public tender offer of the common shares issued by CPFL Energias Renováveis, outstanding in the market, for the purpose of converting its registration as a publicly-held company category “A” into category “B” (“OPA Conversion of Registration”) and/or exit from the New Market (“OPA Exit from the New Market”, and, together with the OPA Conversion of Registration, “OPA”), to be carried out by CPFL Geração, direct controlling shareholder of CPFL Renováveis. The holding of the OPA is subject to its registration by the CVM and its authorization by B3 and will be intended for the acquisition of up to 291,550 common shares issued by CPFL Renováveis outstanding in the market, which represent, on that date, 0.056% equity interest in CPFL Renováveis (“Outstanding Shares”).

 

25.3         Capital reserve

This refers basically  to the registration of operations involving subsidiary CPFL Renováveis: (i) business combination in 2011 (R$ 228,322); (ii) public offering of shares in 2013 (R$ 59,308); (iii) association with DESA in 2014 (R$ 180,297); decrease due to: (iv) acquisition, by the Company, of equity interest previously held by the parent company State Grid in 2019 (R$ 2,034,920) (Note 1.c) and (v) change in equity interest without change in control in 2019 (R$ 75,298) (Note 13.1).

In accordance with ICPC 09 (R2) and IFRS 10/CPC 36, these effects were recognized as transactions between shareholders, directly in Equity.

25.4          Earnings reserve

The balance of earnings reserve at December 31, 2019 is R$ 5,082,430 that refers to : i) Legal Reserve of R$ 1,036,125; e ii) statutory reserve - working capital improvement of R$ 4,046,305.

 

25.5         Accumulated comprehensive income

Accumulated comprehensive income is comprised of:

(i)     Deemed cost: Refers to the recognition of the fair value adjustment of the deemed cost of the generating plants' property, plant and equipment, of R$ 355,049;

 

(ii)    Private pension plan: the debt balance of R$ 1,674,527 (net of income taxes) refers to the effects recognized directly in comprehensive income, in accordance with IAS 19 / CPC 33 (R2); and

 

(iii)  Effects of the credit risk in the fair value measurement of financial liabilities, net of income taxes, in accordance with IFRS 9 / CPC 48 (credit amount of R$ 51,012).

 

 

 

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

25.6         Dividends

At the Board of Directors’ Meeting held on April 30, 2019, approval was given for the declaration dividend for 2018 in the amount of R$ 488,785.

The Company also declared in 2019 R$ 641,884 relating to minimum mandatory dividend, as set forth by Law 6,404/76, and for each share the amount of R$ 0.557068261 was attributed.

In 2019, the Company paid R$ 486,906 relating to the dividend for 2018.

 

25.7         Termination of the statutory reserve of the concession financial asset

On April´s 27th , 2018 shareholders meeting it was approved the termination of the statutory reserve of the concession financial asset and the transfer of the reserve amount R$826,600 to Retained Earnings.

 

25.8         Allocation profit for the year

The Company’s bylaws establish the payment of minimum dividend of 25% of the profit for the year, adjusted as required by law, to the holders of its shares.

The proposal for allocation of profit for the year is shown in the table below:

 

 

2019

Profit for the year - Parent company

2,702,671

Realization of comprehensive income

25,672

Statutory reserve - concession financial asset  - reversal

765

Profit base for allocation

2,729,108

Legal reserve

(135,134)

Statutory reserve - working capital improvement

(518,795)

Mandatory dividend

(641,884)

Addicional dividend

(1,433,295)

 

For the year ended by December 31, 2019, considering the slow economic recovery scenario and the lack of predictability for the hydrologic situation, the Company’s management is proposing to be allocated the total amount of R$ 518,795 as statutory reserve – working capital improvement.

 

 26  EARNINGS PER SHARE

 

Earnings per share – basic and diluted

The calculation of the basic and diluted earnings per share as at December 31, 2019 and 2018 was based on the profit for the year attributable to controlling shareholders and the weighted average number of common shares outstanding during the reporting years:   

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

   

2019

 

2018

Numerator

       

Profit attributable to controlling shareholders

 

   2,702,671

 

2,058,040

Denominator

       

Weighted average number of shares held by shareholders

 

   1,087,828,995

(**)

   1,017,914,746

         

Earnings per share - basic

 

2.48

 

2.02

         

Numerator

       

Profit attributable to controlling shareholders

 

   2,702,671

 

2,058,040

Dilutive effect of convertible debentures of subsidiary CPFL Renováveis (*)

 

(13,764)

 

   (7,525)

Profit attributable to controlling shareholders

 

   2,688,943

 

2,050,515

         

Denominator

       

Weighted average number of shares held by shareholders

 

   1,087,828,995

(**)

   1,017,914,746

         

Earnings per share - diluted

 

2.47

 

2.01

         

(*) Proportional to the percentage of participation of the Company in the subsidiaries.

(**) Considering events occurred in June 12th and 28th, 2019, related to the Company´s IPO process (note 25.2).

   

(*)The numerator dilutive effect in the calculation of diluted earnings per share takes into consideration the dilutive effect from the debentures convertible into shares issued by indirect subsidiaries of the Company (note 19). These financial instruments reduce the amount of earnings available to the Company’s controlling shareholders. The effects were calculated taking into account the assumption that said debentures would be converted into common shares of the subsidiaries at the beginning of each year.

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Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 27 NET OPERATING REVENUE

 

   

Consolidated

 

 

 

   

Number of Consumers

 

In GWh

 

R$ thousand

 

 

   

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Consumer class

                       

Residential

 

8,721,256

 

8,544,035

 

  20,355

 

  19,618

 

  15,356,697

 

  13,549,879

Industrial

 

  57,116

 

  58,241

 

  13,198

 

  13,834

 

5,222,522

 

5,188,778

Commercial

 

   529,815

 

   532,592

 

  10,700

 

  10,211

 

6,674,870

 

6,038,086

Rural

 

   363,500

 

   361,908

 

3,231

 

3,583

 

1,430,315

 

1,334,868

Public administration

 

  61,868

 

  60,685

 

1,468

 

1,459

 

   957,935

 

   879,910

Public lighting

 

  11,809

 

  11,659

 

2,039

 

2,003

 

   838,116

 

   767,246

Public services

 

  10,512

 

  10,194

 

2,348

 

2,348

 

1,241,696

 

1,150,227

Billed

 

9,755,876

 

9,579,314

 

  53,339

 

  53,057

 

  31,722,151

 

  28,908,995

Own comsuption

 

   -  

 

   -  

 

   36

 

   34

 

   -  

 

   -  

Unbilled (net)

 

   -  

 

   -  

 

   -  

 

   -  

 

  39,477

 

   112,441

(-) Reclassificacion to Network Usage Charge - TUSD - Captive Consumers

 

   -  

 

   -  

 

   -  

 

   -  

 

   (12,769,168)

 

   (11,095,762)

Electricity sales to final consumers

 

9,755,876

 

9,579,314

 

  53,375

 

  53,091

 

  18,992,460

 

  17,925,674

                         

Furnas Centrais Elétricas S.A.

         

2,875

 

2,875

 

   578,603

 

   544,342

Other concessionaires and licensees

         

  18,351

 

  17,757

 

4,215,041

 

3,825,201

(-) Reclassificacion to Network Usage Charge - TUSD - Captive Consumers

         

   -  

 

   -  

 

  (133,073)

 

(96,717)

Spot market energy

         

4,208

 

3,828

 

1,309,117

 

1,082,945

Electricity sales to wholesalers

         

  25,435

 

  24,459

 

5,969,688

 

5,355,771

                         

Revenue due to Network Usage Charge - TUSD - Captive Consumers

                 

  12,902,241

 

  11,192,479

Revenue due to Network Usage Charge - TUSD - Free Consumers

                 

3,359,298

 

2,650,565

(-) Compensation paid for failure to comply with the limits of continuity

                 

(84,461)

 

(57,630)

Revenue from construction of concession infrastructure

                 

2,087,995

 

1,772,222

Sector financial asset and liability (Note 9)

                 

  (602,461)

 

1,207,917

Concession financial asset - fair value adjustment (Note 11)

                 

   280,632

 

   345,015

Energy development account - CDE - Low-income, tariff discounts - judicial injunctions, and other tariff discounts

                 

1,516,077

 

1,536,366

Other revenues and income

                 

   587,668

 

   697,878

Other operating revenues

                 

  20,046,989

 

  19,344,812

Total gross operating revenue

                 

  45,009,138

 

  42,626,257

Deductions from operating revenues

                       

ICMS

                 

  (6,936,560)

 

  (6,188,323)

PIS

                 

  (676,174)

 

  (659,352)

COFINS

                 

  (3,173,715)

 

  (3,037,164)

ISS

                 

(19,830)

 

(16,871)

Energy development account - CDE

                 

  (3,642,384)

 

  (4,016,362)

Research and development and energy efficiency
programs

                 

  (224,642)

 

  (207,653)

PROINFA

                 

  (175,283)

 

  (151,718)

Tariff flags and others

                 

  (180,572)

 

  (178,536)

Financial compensation for the use of water resources - CFURH

                 

   (9,359)

 

   -  

Others

                 

(38,145)

 

(33,651)

                   

   (15,076,664)

 

   (14,489,630)

                         

Net operating revenue

                 

  29,932,474

 

  28,136,627

     

27.1.   Adjustment of revenues from excess demand and excess reactive power

As provided for in Sub-module 2.7 of the Tariff Regulation Procedures – PRORET, approved through Normative Resolution No. 463/2011, since the 4th cycle of period tariff review of the distribution subsidiaries, the revenues earned from excess demand and excess reactive power have been recorded as sector liability. Since May 2015. The recorded amounts will be amortized as from the 5th cycle, (already in effect for subsidiary CPFL Piratininga) when they will be deducted from Portion B (portion of manageable costs of the tariffs), except for subsidiary CPFL Santa Cruz, whose amortization started in the Annual Tariff Review – RTA of March 2017 due to the renewal of its concession in 2015.

 

101

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

27.2.        Periodic tariff review (“RTP”) and Annual tariff adjustment (“RTA”)

       

2019

 

2018

Distributor

 

Month

 

RTA / RTP

 

Effect perceived by consumers (a)

 

RTA / RTP

 

Effect perceived by consumers (a)

CPFL Paulista

 

April (b)

 

12.02%

 

8.66%

 

12.68%

 

16.90%

CPFL Piratininga

 

October

 

1.88%

 

-7.80%

 

20.01%

 

19.25%

RGE

 

June

 

10,05% (c)

 

8.63%

 

21.27%

 

20.58%

RGE Sul (RGE)

 

June

 

10,05% (c)

 

1.72%

 

18.45%

 

22.47%

CPFL Santa Cruz

 

March

 

13.70%

 

13.31%

 

(b)

 

(b)

 

(a)   Represents the average effect perceived by the consumer, as a result of the elimination from the tariff base of financial components that had been added in the prior tariff adjustment.

(b)   For 2018, the average annual tariff adjustment of CPFL Santa Cruz was 5.71%, 4.41% regarding the economic tariff adjustment and 1.30% regarding relevant financial components. The average effect to be perceived by consumers of the original concessions are:

 

   

Jaguari

 

Mococa

 

Leste Paulista

 

Sul Paulista

 

Santa Cruz

Effect perceived by consumers

 

21.15%

 

3.40%

 

7.03%

 

7.50%

 

5.32%

 

27.3.        Energy Development Account (CDE) – Low income, other tariff subsidies and tariff discounts - injunctions

Law 12,783 of January 11, 2013 determined that the amounts related to the low-income subsidy, as well as other tariff discounts shall be fully subsidized by amount from the CDE.

Income of R$ 1,516,077 was recognized in 2019 (R$ 1,536,366 in 2018), of which (i) R$ 78,277 for the low-income subsidy (R$78,081 in 2018), (ii) R$ 1,255,000 for other tariff discounts (R$ 1,354,845 in 2018) and (iii) R$ 182,800 for tariff discounts – CCRBT injunctions and subsidy (R$ 103,440 in 2018).

27.4.        Energy development account (“CDE”)

ANEEL, by means of Ratifying Resolution (“REH”) No. 2,510 of December 18, 2018, amended by REH No. 2,368 of February 9, 2018, established the definitive annual quotas of CDE for the year 2019. These quotas comprise: (i) annual quota of the CDE – USAGE account; and (ii) quota of the CDE – Energy account, (final settlements finished in March 2019), related to part of the CDE contributions received by the electric energy distribution concessionaires in the period from January 2013 to January 2014, charged from consumers and passed on to the CDE Account in up to five years from the RTE of 2015. ANEEL, by means of REH n° 2,521 of March 20, 2019, ANEEL established the payment in advance of quota intended for the amortization of the ACR Account, due to its positive balance, with payment and pass through to the CDE Account for March 2019 to August 2019, cancelling the previously REH nº 2,231 of 2017.

102

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 28 ) COST OF ELECTRIC ENERGY

 

   

Consolidated

   

GWh

 

R$ thousand

Electricity Purchased for Resale

 

2019

 

2018

 

2019

 

2018

Itaipu Binacional

 

11,021

 

11,117

 

  2,793,901

 

  2,668,346

PROINFA

 

   1,102

 

   1,111

 

  397,242

 

  330,638

Energy purchased through auction in  the regulated market and bilateral contracts and spot market

 

66,283

 

61,461

 

14,199,139

 

13,969,953

PIS and COFINS credit

 

  -  

 

  -  

 

(1,483,542)

 

(1,502,673)

Subtotal

 

78,406

 

73,689

 

15,906,740

 

15,466,264

                 

Electricity network usage charge

               

Basic network charges

         

  2,080,667

 

  2,114,720

Transmission from Itaipu

         

  281,185

 

  266,153

Connection charges

         

  173,593

 

  162,852

Charges for use of the distribution system

         

47,828

 

48,811

System service charges - ESS net of coner pass trough (*)

         

   4,385

 

(106,002)

Reserve energy charges - EER

         

  122,553

 

  134,824

PIS and COFINS credit

         

(245,958)

 

(249,458)

Subtotal

         

  2,464,254

 

  2,371,901

                 

Total

         

18,370,994

 

17,838,165

 

103

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 29 ) OPERATING COSTS AND EXPENSES

 

 

Parent company

 

 

 

 

   

 

 

 

Operating Expenses

   

 

 

 

Cost of operation

 

Cost of services rendered to third parties

 

Selling expenses

 

General and administrative expenses

 

Other operating expenses

 

Total

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Personnel

  945,628

 

   901,333

 

  2

 

   -  

 

   173,133

 

   172,700

 

   361,787

 

   340,442

 

   -  

 

   -  

 

 1,480,550

 

 1,414,475

Private Pension Plans

   112,603

 

  89,909

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   112,603

 

  89,909

Materials

   256,423

 

   228,001

 

1,039

 

   888

 

  13,708

 

9,089

 

8,118

 

  20,100

 

   -  

 

   -  

 

   279,288

 

   258,078

Third party services

   219,464

 

   210,234

 

2,641

 

2,294

 

   173,376

 

   166,693

 

   319,403

 

   312,533

 

   -  

 

   -  

 

   714,884

 

   691,754

Costs of infrastructure construction

   -  

 

   -  

 

2,086,057

 

 1,772,162

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

 2,086,057

 

 1,772,162

Others

  81,776

 

  66,650

 

   (7)

 

   (6)

 

   101,057

 

  86,183

 

   228,790

 

   248,897

 

   198,555

 

   198,569

 

   610,170

 

   600,293

Collection fees

   -  

 

   -  

 

   -  

 

   -  

 

  99,520

 

  87,432

 

   -  

 

   -  

 

   -  

 

   -  

 

  99,520

 

  87,432

Leases and rentals

  50,974

 

  43,898

 

   -  

 

   -  

 

   -  

 

   -  

 

  22,397

 

  22,898

 

   -  

 

   -  

 

  73,371

 

  66,796

Publicity and advertising

  55

 

  21

 

   -  

 

   -  

 

   -  

 

  15

 

 21,272

 

  19,155

 

   -  

 

   -  

 

  21,327

 

  19,191

Legal, judicial and indemnities

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   172,495

 

   186,686

 

   -  

 

   -  

 

   172,495

 

   186,686

Donations, contributions and subsidies

1,687

 

2,053

 

   -  

 

   -  

 

   -  

 

   -  

 

3,849

 

5,108

 

   -  

 

   -  

 

5,536

 

7,161

Gain (loss) on disposal, retirement and other noncurrent assets

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   189,566

 

   210,840

 

   189,566

 

   210,840

Amotization of the risk premium paid -GSF

  13,470

 

  13,413

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

  13,470

 

  13,413

Others

  15,589

 

7,265

 

   (7)

 

   (6)

 

1,537

 

  (1,264)

 

8,777

 

  15,049

 

8,989

 

   (12,271)

 

  34,885

 

8,773

Total

1,615,893

 

1,496,127

 

2,089,732

 

1,775,339

 

461,275

 

434,665

 

918,098

 

921,972

 

198,555

 

198,569

 

5,283,553

 

4,826,672

 

104

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

( 30 ) FINANCE INCOME (COSTS)

 

   

Consolidated

   

2019

 

2018

Financial income

       

Income from financial investments

 

   263,241

 

   222,773

Late payment interest and fines

 

   312,450

 

   276,350

Adjustment for inflation of tax credits

 

  35,328

 

  14,819

Adjustment for inflation of escrow deposits

 

  33,721

 

  37,322

Adjustment for inflation and exchange rate changes

 

  62,969

 

  70,201

Discount on purchase of ICMS credit

 

  23,605

 

  33,779

Adjustments to the sector financial asset (note 9)

 

  88,079

 

  80,240

PIS and COFINS on other finance income

 

(46,035)

 

(46,217)

PIS and COFINS on interest on capital

 

(32,040)

 

(39,355)

Others

 

   162,285

 

   112,503

Total

 

   903,575

 

   762,413

         

Finance costs

       

Interest on debts

 

  (1,130,447)

 

  (1,328,693)

Adjustment for inflation and exchange rate changes

 

  (295,189)

 

  (368,141)

(-) Capitalized interest

 

  25,641

 

  28,606

Use of public asset

 

(12,911)

 

(17,759)

Others

 

  (216,916)

 

  (179,114)

Total

 

  (1,629,822)

 

  (1,865,100)

         

Finance expense, net

 

  (726,247)

 

  (1,102,687)

 

Interests were capitalized at an average rate of 8.09% p.a. in 2019 (8.27% p.a. in 2018) on qualifying assets, in accordance with CPC 20 (R1) and IAS 23.

In line item of monetary adjustment and exchange rate changes, the expense includes the effects of gains of R$ 207,055  at 2019 (loss of R$ 617,545 at 2018) on derivative instruments (note 35).

 

( 31 ) SEGMENT INFORMATION 

 

The segregation of the Group’s operating segments is based on the internal financial information and management structure and is made by type of business: electric energy distribution, electric energy generation (conventional and renewable sources), electric energy commercialization and services rendered activities.

Profit or loss, per segment include items directly attributable to the segment, as well as those that can be allocated on a reasonable basis, if applicable. Prices charged between segments are determined based on similar market transactions. Note 1 presents the subsidiaries according to their areas of operation and provides further information on each subsidiary and its business line and segment.

The information segregated by segment is presented below, according to the criteria established by the Group’s officers:

105

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

2019

Distribution

 

Generation (conventional source)

 

Generation
(renewable source)

 

Commercialization

 

Services

 

Subtotal

 

Other (*)

 

Elimination

 

Total

                                   

Net operating revenue

  24,217,986

 

710,730

 

   1,426,648

 

  3,487,008

 

  87,791

 

  29,930,163

 

2,311

 

   -  

 

  29,932,474

(-) Intersegment revenues

  42,311

 

502,151

 

   501,363

 

  3,696

 

   526,574

 

1,576,095

 

   -  

 

  (1,576,095)

 

   -  

Cost of electric energy

   (15,623,488)

 

  (133,035)

 

  (319,634)

 

   (3,342,502)

 

   -  

 

   (19,418,659)

 

   -  

 

1,047,664

 

   (18,370,994)

Operating costs and expenses

  (4,940,793)

 

  (122,509)

 

  (404,845)

 

  (48,710)

 

  (476,006)

 

  (5,992,863)

 

(52,544)

 

   528,431

 

  (5,516,977)

Depreciation and amortization

  (820,206)

 

  (118,573)

 

  (645,722)

 

(7,048)

 

(26,511)

 

  (1,618,061)

 

(62,992)

 

   -  

 

  (1,681,053)

Income from electric energy service

2,875,809

 

838,765

 

   557,810

 

   92,443

 

   111,848

 

4,476,675

 

  (113,225)

 

   -  

 

4,363,450

Equity interests in subsidiaries, associates and joint ventures

   -  

 

349,090

 

   -  

 

-  

 

   -  

 

   349,090

 

   -  

 

   -  

 

   349,090

Finance income

   624,459

 

  45,323

 

   172,658

 

   33,461

 

6,062

 

   881,963

 

  49,578

 

(27,966)

 

   903,575

Finance expenses

  (821,739)

 

  (197,998)

 

  (576,292)

 

  (56,160)

 

   (4,270)

 

  (1,656,459)

 

   (1,329)

 

  27,966

 

  (1,629,822)

Profit (loss) before taxes

2,678,529

 

1,035,180

 

   154,176

 

   69,744

 

   113,639

 

4,051,269

 

(64,976)

 

   -  

 

3,986,293

Income tax and social contribution

  (843,954)

 

  (171,594)

 

(47,152)

 

  (22,269)

 

(30,357)

 

  (1,115,326)

 

  (122,671)

 

   -  

 

  (1,237,996)

Profit (loss) for the period

1,834,575

 

863,586

 

   107,024

 

   47,475

 

  83,282

 

2,935,943

 

  (187,647)

 

   -  

 

2,748,297

Purchases of contract asset PP&E and intangible assets

2,033,342

 

  32,536

 

   126,158

 

  8,577

 

  52,058

 

2,252,671

 

1,778

 

   -  

 

2,254,449

                                   
                                   

2018

Distribution

 

Generation (conventional source)

 

Generation
(renewable source)

 

Commercialization

 

Services

 

Subtotal

 

Other (*)

 

Elimination

 

Total

                                   

Net operating revenue

  22,457,079

 

661,831

 

   1,468,254

 

  3,491,300

 

  58,163

 

  28,136,627

 

   -  

 

   -  

 

  28,136,627

(-) Intersegment revenues

  10,238

 

482,548

 

   468,065

 

  5,152

 

   474,646

 

1,440,650

 

   -  

 

  (1,440,650)

 

   -  

Cost of electric energy

   (15,022,304)

 

  (102,421)

 

  (320,346)

 

   (3,352,745)

 

   -  

 

   (18,797,816)

 

   -  

 

   959,650

 

   (17,838,165)

Operating costs and expenses

  (4,440,783)

 

  (104,606)

 

  (407,211)

 

  (47,287)

 

  (437,709)

 

  (5,437,597)

 

(39,333)

 

   481,000

 

  (4,995,931)

Depreciation and amortization

  (766,796)

 

  (116,372)

 

  (623,106)

 

(2,346)

 

(22,521)

 

  (1,531,143)

 

  (209)

 

   -  

 

  (1,531,351)

Income from electric energy service

2,237,434

 

820,979

 

   585,655

 

   94,074

 

  72,579

 

3,810,721

 

(39,542)

 

   -  

 

3,771,179

Equity interests in subsidiaries, associates and joint ventures

   -  

 

334,198

 

   -  

 

-  

 

   -  

 

   334,198

 

   -  

 

   -  

 

   334,198

Finance income

   574,685

 

  75,844

 

   131,694

 

   46,102

 

5,782

 

   834,107

 

(22,092)

 

(49,602)

 

   762,413

Finance expenses

  (884,583)

 

  (324,121)

 

  (635,820)

 

  (59,128)

 

   (5,908)

 

  (1,909,559)

 

   (5,143)

 

  49,602

 

  (1,865,100)

Profit (loss) before taxes

1,927,537

 

906,899

 

  81,530

 

   81,049

 

  72,453

 

3,069,467

 

(66,778)

 

   -  

 

3,002,690

Income tax and social contribution

  (495,120)

 

  (137,089)

 

  37,276

 

  (27,945)

 

(29,529)

 

  (652,408)

 

  (121,575)

 

   -  

 

  (773,982)

Profit (loss) for the period

1,432,416

 

769,810

 

   118,805

 

   53,104

 

  42,924

 

2,417,060

 

  (188,352)

 

   -  

 

2,228,707

Purchases of contract asset PP&E and intangible assets

1,769,569

 

  11,517

 

   225,202

 

  2,926

 

  52,855

 

2,062,069

 

353

 

   -  

 

2,062,422

 

(*) Others – refer basically to assets and transactions which are not related to any of the identified segments.

 

( 32 ) RELATED PARTY TRANSACTIONS

 

The Company’s controlling shareholders are as follows:

·   State Grid Brazil Power Participações S.A.

Indirect subsidiary of State Grid Corporation of China, a Chinese state-owned company primarily engaged in developing and operating businesses in the electric energy sector.

·   ESC Energia S.A.

Subsidiary of State Grid Brazil Power Participações S.A.

The direct and indirect interests in operating subsidiaries are described in note 1.

Controlling shareholders, subsidiaries, associates, joint ventures and entities under common control and that in some way exercise significant influence over the Company and its subsidiaries and associates were considered as related parties.

The main transactions are listed below:

a)     Purchase and sale of energy and charges - refer basically to energy purchased or sold by distribution, commercialization and generation subsidiaries through short or long-term agreements and tariffs for the use of the distribution system (TUSD). Such transactions, when conducted in the free market, are carried out under conditions considered by the Company as similar to market conditions at the time of the trading, according to internal policies previously established by the Company’s management. When conducted in the regulated market, the prices charged are set through mechanisms established by the regulatory authority.

b)     Intangible assets, Property, plant and equipment, Materials and Service – refers mainly to rendered services in advisory and  management of energy plants, consulting and engineering.

c)     Advances – refer to advances for investments in research and development.

 

106

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

In September 2019, the Company acquired from its parent company State Grid 243,771,824 shares from its subsidiary CPFL Renováveis, as described in note 1(c).

Certain Company’s subsidiaries have retirement supplementation plans with  Fundações CESP and Família Previdência, offered to their employees. For additional information, see note 20 Private Pension Plan.

The Group has a “Related Parties Committee”, comprising representatives of two independent members and one officer of the Company, which evaluates the main transactions with related parties.

Management has considered the closeness of relationship with the related party together with other factors to determine the level of detail of the disclosed transactions and believes that significant information regarding transactions with related parties has been adequately disclosed.

The total compensation of key management personnel in 2019, in accordance with CVM Decision 560/2008, was R$ 100,588  (R$ 90,783 in 2018). This amount comprises R$ 83,636 (R$ 78,335 in 2018) in respect of short-term benefits and R$ 2,251 (R$ 2,160 in 2018) of post-employment benefits, and a recovery of R$ 14,701 of expenses related to other long-term benefits ( R$ 10,288 in 2018) , and refers to the amount registered under the accrual method.

The intercompany loan balance at the parent company in the amount of R$ 424,387 refers mainly to the loan to the subsidiary CPFL Renováveis, with maturity until July 2020 and subject to interest equivalent to 107% of the CDI.

Transactions with entities under common control basically refers to transmission system charge paid by the Company’s subsidiaries to the direct or indirect  subsidiaries of State Grid Corporation of China.

 

Transactions involving controlling shareholders, entities under common control or  significant influence and joint ventures:

 

 Consolidated

 

ASSETS

 

LIABILITIES

 

INCOME

 

EXPENSES

 

December 31, 2019

 

December 31, 2018

 

December 31, 2019

 

December 31, 2018

 

2019

 

2018

 

2019

 

2018

                               

Advances

                             

BAESA – Energética Barra Grande S.A.

   -  

 

   -  

 

   -  

 

657

 

   -  

 

   -  

 

   -  

 

   -  

Foz do Chapecó Energia S.A.

   -  

 

   -  

 

   -  

 

930

 

   -  

 

   -  

 

   -  

 

   -  

ENERCAN - Campos Novos Energia S.A.

   -  

 

   -  

 

   -  

 

1,155

 

   -  

 

   -  

 

   -  

 

   -  

EPASA - Centrais Elétricas da Paraiba

   -  

 

   -  

 

   -  

 

418

 

   -  

 

   -  

 

   -  

 

   -  

                               

Energy purchase and sales, and charges

                             

Entities under common control (State Grid Corporation of China subsidiaries)

   -  

 

   -  

 

2,998

 

   16

 

   -  

 

   -  

 

   200,771

 

   152,369

BAESA – Energética Barra Grande S.A.

3,082

 

   -  

 

6,544

 

2,993

 

3,095

 

   12

 

  33,792

 

  44,575

Foz do Chapecó Energia S.A.

1,773

 

   -  

 

  45,009

 

  41,850

 

  20,901

 

   18

 

   495,111

 

   490,713

ENERCAN - Campos Novos Energia S.A.

1,017

 

943

 

  62,330

 

  78,639

 

  11,674

 

  10,338

 

   364,383

 

   354,430

EPASA - Centrais Elétricas da Paraiba

   -  

 

   -  

 

6,737

 

  13,397

 

   -  

 

   19

 

  79,701

 

   143,845

                               

Intangible assets, property, plant and equipment, materials and service rendered

                             

Entities under common control (State Grid Corporation of China subsidiaries)

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   77

 

   -  

BAESA – Energética Barra Grande S.A.

198

 

2

 

   -  

 

   -  

 

2,240

 

2,225

 

   -  

 

   -  

Foz do Chapecó Energia S.A.

   11

 

   15

 

   -  

 

   -  

 

2,148

 

2,143

 

   -  

 

   -  

ENERCAN - Campos Novos Energia S.A.

2

 

2

 

   -  

 

   -  

 

1,991

 

1,902

 

   -  

 

   -  

EPASA - Centrais Elétricas da Paraíba S.A.

   -  

 

534

 

   -  

 

   -  

 

392

 

3

 

   -  

 

   -  

                               
                               

Dividends and interest on capital

                             

BAESA – Energética Barra Grande S.A.

3,504

 

3

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

Chapecoense Geração S.A.

     37,090

 

  33,733

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

ENERCAN - Campos Novos Energia S.A.

  59,289

 

  65,010

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

                               

Acquisition of interest in subsidiaries

                             

State Grid Brazil Power Participações S.A.

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

 (d)

 

   -  

                               
                               

Others

                             

Instituto CPFL

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

   -  

 

3,711

 

4,151

  

( 33 ) INSURANCE

 

The subsidiaries maintain insurance policies with coverage based on specialized advice and takes into account the nature and degree of risk. The amounts are considered sufficient to cover any significant losses on assets and/or responsibilities. The main insurance policies are:

 

107

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Description

 

Type of coverage

 

December 31, 2019

Concession financial asset / Intangible assets

 

Fire, lightning, explosion, machinery breakdown, electrical damage and engineering risk

 

3,054,310

Transport

 

National transport

 

700,408

Automobiles

 

Comprehensive cover

 

  3,396

Civil liability

 

Electric energy distributors and others

 

255,000

Personnel

 

Group life and personal accidents

 

877,387

Insurance

 

Insurance guarantee

 

3,995,725

Others

 

Operational risks and others

 

310,237

Total

     

9,196,463

 

For the civil liability insurance of the officers, the insured amount is shared among the companies of the CPFL Energia Group. The premium is paid individually by each company involved, and the revenue is the base for the apportionment criterion.

 

( 34 ) RISK MANAGEMENT

 

The Group’s businesses comprise mainly the generation, trading and distribution of electricity. As concessionaire of public services, the activities and/or tariffs of its major subsidiaries are regulated by ANEEL.

Risk management structure

At CPFL Group, the risk management is conducted through a structure that involves the Board of Directors and Supervisory Board, Advisory Committees, Executive Board, Internal Audit, Corporate Risks and Compliance Management and business areas. This management is regulated by the Corporate Risk Management Policy, which describes the risk management model as well as the attributions of each agent and the exposures of the main risks.

The Board of Directors of CPFL Energia is responsible for deciding on the risk limit methodologies recommended by the Executive Board, and for being aware of the exposures and mitigation plans presented in the event these limits are exceeded. This forum is also responsible for being aware of and monitoring any important weaknesses in controls and/or processes, as well as relevant regulatory compliance failures, following up on the plans proposed by the Executive Board to correct them.

The Advisory Committee(s) of the Board of Directors, in its role(s) of technical body(ies), is responsible for becoming aware of (i) the risk monitoring models, (ii) the exposures to risks, and (iii) the control levels (including their effectiveness), and follow the mitigation actions indicated for the reframing of the exposures of the approved limits, supporting the Board of Directors in the performance of its statutory role related to risk management .

The Fiscal Council of CPFL Energia is responsible for, among other things, certifying that Management has means to identify the risks on the preparation and disclosure of the financial statements to which the CPFL Group is exposed as well as for monitoring the effectiveness of the control environment.

The Executive Board of CPFL Energia is responsible for conducting businesses within the risk limits defined, and should take the required measures to avoid that the exposure to risks exceeds such limits and report any excess of the limit to the Board of Directors of CPFL Energia, presenting mitigation actions.

The Internal Audit, Risks and Compliance Management is responsible for the (i) coordination of the risk management process at the CPFL Group, developing and keeping updated Corporate Risk Management methodologies that involve the identification, measurement, monitoring and reporting of the risks to which the CPFL Group is exposed; (ii) periodic monitoring of the risk exposures and monitoring of the implementation of  mitigation actions by the business managers; (iii) monitoring and reporting of the status of the mitigation plans signaled by for reclassification of the exposures to the approved limits; and (iv) assessment of the internal control environment of the CPFL Group companies and interaction with the respective Business Managers, seeking the definition of action plans in the event of deficiencies identified.

108

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

The business areas have the primary responsibility for the management of the risks inherent to its processes, and should conduct them within the exposure limits defined and implementing mitigation plans for the main exposures as well as develop and maintain an proper environment of operational controls to effectiveness and business continuity and its associated business units.

The main market risk factors that affect the businesses are as follows:

Foreign exchange risk: This risk derives from the possibility of the Group incurring losses and cash constraints due to fluctuations in exchange rates, increasing the balances of liabilities denominated in foreign currency or decreasing the portion of revenue arising from annual adjustment of part of the tariff based on the fluctuation of the dollar, in power sale agreements of the joint venture ENERCAN. The exposure related to funding in foreign currency is hedged by swap transactions. The exposure related to ENERCAN revenue, proportional to the interest held by the Company, is hedged by financial instruments such as the zero-cost collar described in note 35.b.1. The quantification of these risks is presented in note 35. In addition, the subsidiaries are exposed in their operating activities to fluctuations in exchange rates on purchase of electricity from Itaipu. The compensation mechanism - CVA protects the distribution subsidiaries against any economic losses.

Interest rate risk and inflation indexes: This risk arises due to the possibility of the Group incurring losses due to fluctuations in interest rates and in inflation indexes, which would increase the finance costs related to borrowings and debentures. The quantification of this risk is presented in note 35.

Credit risk: this risk arises from the possibility of the subsidiaries incurring losses resulting from difficulties in collecting amounts billed to customers. This risk is managed by the sales and services segments through norms and guidelines applied in terms of the approval, guarantees required and monitoring of the operations. In the distribution segment, even though it is highly pulverized, the risk is managed through monitoring of defaults, collection measures and cutting off supply. In the generation segment there are contracts under the regulated environment (ACR) and bilateral agreements that call for the posting of guarantees.

Risk of under/overcontracting from distributors: risk inherent to the energy distribution business in the Brazilian market to which the distributors of the CPFL Group and all distributors in the market are exposed. Distributors are prevented from fully passing through the costs of their electric energy purchases in two situations: (i) volume of energy contracted above 105% of the energy demanded by consumers and (ii) level of contracts lower than 100% of such demanded energy. In the first case, the energy contracted above 105% is sold in the CCEE (Electric Energy Trading Chamber) and is not passed through to consumers, that is, in PLD (Spot price used to valuate the energy traded in the spot market – “Preço de Liquidação de Diferenças”) scenarios lower than the purchase price of these contracts, there is a loss for the concession. In the second case, the distributors are required to purchase energy at the PLD amount at the CCEE and do not have guarantees of full pass-through to the consumer tariffs, there is a penalty for insufficiency of contractual guarantee. These situations may be mitigated if the distributors are entitled to exposures or involuntary surpluses.

 

Market risk of commercialization companies: this risk arises from the possibility of commercialization companies incurring losses due to variations in the prices that will value the positions of energy surplus or deficit of its portfolio in the free market, marked against the market price of electricity.

Risk of shortage of hydroelectric energy: The energy sold by the Company is mostly generated by hydro power plants. The lack of rain for a long period may result in reduction of the water volume in plants’ dams, which jeopardizes the recovery of its volume, and may result in losses due to an increase in costs for purchasing energy or in revenue reduction due to the implementation of extensive energy saving programs or the adoption of a new rationing program, as occurred in 2001.

In 2019, the rain levels were below the normal average, mainly in the second half of the year, leading to a reduction in storage levels in dams.

Risk of acceleration of debts: the Company has borrowing agreements and debentures with restrictive covenants normally applicable to these types of transactions. These covenants are monitored and do not restrict the capacity to operate normally, if met at the contractual intervals or if prior agreement is obtained from the creditors for failure to meet.

109

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Regulatory risk: The electric energy supplied tariffs charged to captive consumers by the distribution subsidiaries are set by ANEEL, at intervals established in the concession agreements entered into with the Federal Government and in accordance with the periodic tariff review methodology established for the tariff cycle. Once the methodology has been ratified, ANEEL establishes tariffs to be charged by the distributor to the final consumers. In accordance with Law 8,987/1995, the tariffs set shall ensure the economic and financial equilibrium of the concession agreement at the time of the tariff review, but could result in lower adjustments than expected by the electric energy distributors.

Financial instruments risk management

The Group maintains operating and financial policies and strategies to protect the liquidity, safety and profitability of their assets. Accordingly, control and follow-up procedures are in place as regards the transactions and balances of financial instruments, for the purpose of monitoring the risks and current rates in relation to market conditions. An assessment of this potential impact arising from the volatility of risk factors and their correlations is performed periodically to execute the decision making process and to comply with the risk management strategy, which may incorporate financial instruments, including derivatives.

Portfolios composed of these financial instruments are monitored monthly, allowing the monitoring of financial results and their impact on cash flow.

For the construction contracts for transmission companies signed in 2019, the Group is also exposed to market risks related to the volatility of commodity and construction material prices, such as the aluminum needed for the construction stage. In line with its risk management policy, risk mitigation strategies are used to reduce this volatility in cash flows. These mitigation strategies include derivative instruments, mainly forward transactions, futures and options.

Risk management controls: In order to manage the risks inherent to the financial instruments and to monitor the procedures established by Management, the Group uses Luna and Bloomberg software systems to calculate the fair value measurement, stress testing and duration of the instruments, and assess the risks to which the Group is exposed. Historically, the financial instruments contracted by the Group supported by these tools have produced adequate risk mitigation results. It must be stressed that the Company and its subsidiaries routinely contract derivatives, always with the appropriate levels of approval, only in the event of exposure that Management regards as a risk. The Group does not enter into transactions involving speculative derivatives.

 

( 35 ) FINANCIAL INSTRUMENTS

 

The main financial instruments, at fair value and/or the carrying amount is significantly different of the respective fair value, classified in accordance with the Group’s accounting practices, are:

110

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

             

Consolited

             

December 31, 2019

 

Note

 

Category / Measurement

 

Level (*)

 

Carrying amount

 

Fair value

Assets

                 

Cash and cash equivalent

5

 

(a)

 

Level 2

 

   1,937,163

 

1,937,163

Securities

6

 

(a)

 

Level 1

 

   851,004

 

   851,004

Derivatives

35

 

(a)

 

Level 2

 

   645,674

 

   645,674

Derivatives - Zero-cost collar

35

 

(a)

 

Level 3

 

   5,419

 

5,419

Concession financial asset - distribution

11

 

(a)

 

Level 3

 

   8,779,717

 

8,779,717

Total

           

12,218,977

 

  12,218,977

                   

Liabilities

                 

Borrowings - principal and interest

18

 

(b)

 

Level 2 (***)

 

   5,354,243

 

5,350,030

Borrowings - principal and interest (**)

18

 

(a)

 

Level 2

 

   5,009,052

 

5,009,052

Debentures - Principal and interest

19

 

(b)

 

Level 2 (***)

 

   8,054,153

 

8,056,757

Debentures - principal and interest (**)

19

 

(a)

 

Level 2

 

   492,125

 

   492,125

Derivatives

35

 

(a)

 

Level 2

 

35,557

 

  35,557

             

18,945,130

 

  18,943,521

(*) Refers to the hierarchy for fair value measurement

(**) As a result of the initial designation of this financial liability, the consolidated balances reported a loss of  R$ 127,102 in 2019  (a gain of R$ 37,421 in 2018).

(***) Only for disclosure purposes, in accordance with CPC 40 (R1) / IFRS 7

                   

Key

                 

Category/Measurement:

                 

(a) - Measured at fair value throgh profit or loss

                 

(b) - Measured at amortized cost

                 

  

The classification of financial instruments in “amortized cost” or “fair value through profit or loss” is based on the portfolio business model and in the characteristics of expected cash flow for each instrument.

The financial instruments for which the carrying amounts approximate the fair values, due to their nature, at the end of the reporting year are:

·      Financial assets: (i) consumers, concessionaires and licensees, (ii) leases, (iii) intercompany loans between associates, subsidiaries and parent company, (iv) receivables – CDE, (v) pledges, funds and restricted deposits, (vi) services rendered to third parties, (vii) collection agreements and (viii) sector financial asset;

·      Financial liabilities: (i) trade payables, (ii) regulatory charges, (iii) use of public asset, (iv) consumers and concessionaires, (v) FNDCT/EPE/PROCEL, (vi) collection agreement, (vii) reversal fund, (viii) payables for business combination, (ix) tariff discounts – CDE and (x) sector financial liability.

In addition, in 2019 there were no transfers between the fair value hierarchy levels.

 

a)     Measurement of financial instruments

As mentioned in note 4, the fair value of a security corresponds to its maturity value (redemption value) adjusted to present value by the discount factor (relating to the maturity date of the security) obtained from the market interest curve, in Brazilian reais.

The three levels of the fair value hierarchy are:

Level 1: Quoted prices in an active market for identical instruments;

Level 2: Observable inputs other than quoted prices in an active market that are observable for the asset or liability, directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3: Instruments whose relevant factors are not observable market inputs.

Pricing of forward and futures contracts is on the basis of future curves of the underlying assets. Said curves are usually provided by the stock exchanges on which these assets are traded, or other market price providers. When price is not available for the intended maturity, it is obtained on the basis of interpolation between available maturities.

As the distribution concessionaries classified the respective concession financial assets as fair value through profit or loss, the relevant factors for fair value measurement are not publicly observable. Therefore, the fair value hierarchy classification is level 3. The movements and respective gains (losses) in profit for or loss at the period are R$ 281,340  (R$ 345,015 in 2018) and the main assumptions are described in note 11 and 27.

111

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Additionally, the main assumptions used in the fair value measurement of the zero-cost collar derivative, the fair value hierarchy of which is Level 3, are disclosed in note 35 b.1.

The Company recognizes in “Investments in the financial statements” the 5.94% interest held by the indirect subsidiary Paulista Lajeado Energia S.A. in the total capital of Investco S.A. (“Investco”), in the form of 28,154,140 common shares and 18,593,070 preferred shares. As Investco’s main objective of its operations is to generate electric energy for commercialization by the shareholders holding the concession, the Company opted to recognize the investment at cost that the best estimate of their fair value, since there is no recent information available for determining fair value, in accordance with IFRS 9.

 

b)     Derivatives

The Group has the policy of using derivatives to hedge against the risks of fluctuations in exchange and interest rates, without any speculative purposes. The Group has currency hedges in a volume compatible with the net exchange exposure, including all assets and liabilities pegged to exchange rate variation.

The hedging instruments entered into by the Group are currency or interest rate swaps with no leverage component, margin call requirements or daily or periodic adjustments. In addition, the subsidiary CPFL Geração contracted in 2015 a zero-cost collar derivative (see item b.1 below) and, in 2019, a forward purchase derivative of aluminum without physical delivery.

As a large part of the derivatives entered into by the subsidiaries have their terms fully aligned with the hedged debts, and in order to obtain more relevant and consistent accounting information through the recognition of income and expenses, these debts were designated for accounting recognition at fair value (notes 18 and 19). Other debts that have terms different from the derivatives contracted as a hedge continue to be recognized at amortized cost. Furthermore, the Group did not adopt hedge accounting for transactions with derivative instruments.

In 2019, the subsidiary CPFL Geração, aiming at hedging input purchases for the construction of new transmission projects, carried out transactions with derivatives, through forward purchases of aluminum for future settlement, in order to reduce the risk of price fluctuation for the aluminum (pure) purchase period.

At December 31, 2019, the Group had the following swap transactions, all traded on the over-the-counter market:

   

Fair values (carrying amounts)

                       

Strategy

 

Assets

 

Liabilities

 

Fair value, net

 

Values at cost, net (1)

 

Gain (loss) on fair value measurement

 

Currency / debt index

 

Currency / swap index

 

Maturity range

 

Notional

                                     

Derivatives to hedge debts designated at fair value

                                   

Exchange rate hedge

                                   

Bank Loans - Law 4.131

 

  542,278

 

  (29,231)

 

  513,047

 

487,030

 

   26,017

 

 US$ + (Libor 3 months + 0,8% to 1,55%) or (1,96% to 3,65%)

 

99,80% to 116% do CDI or CDI + 0,12%

 

October/18 to March/22

 

3,838,488

Bank Loans - Law 4.131

 

13,391

 

  (6,157)

 

7,234

 

  9,074

 

   (1,840)

 

 Euro + 0,42% to 0,96%

 

102% to 105,8% of CDI

 

April/19 to March/22

 

834,630

                                     
   

  555,670

 

  (35,388)

 

520,282

 

496,104

 

  24,178

               
                                     

 Hedge variation price index

                                   

 Debentures

 

90,004

 

-  

 

90,004

 

   19,486

 

  70,517

     

100,15% to 104,3% of CDI

 

August/25

 

416,600

                                     

Subtotal debt hedge

 

  645,673

 

  (35,388)

 

  610,285

 

515,591

 

   94,695

               
                                     

Other (2)

                     

Currency / debt index

 

Maturity range

 

Notional in US$

   

Zero cost collar

 

   5,419

 

-  

 

5,419

 

   -  

 

  5,419

 

US$

 

July/18 a september/20

 

  22,174

   

Commodity forward contract (aluminum)

 

-  

 

(16)

 

  (16)

 

   -  

 

   (16)

 

aluminum (US$/ton)

 

July/20

 

3,889

   

NDF - Aluminum

 

-  

 

  (153)

 

  (153)

 

  52

 

(205)

 

US$

 

July/20

 

6,296

   

Subtotal other

 

   5,419

 

  (169)

 

5,250

 

  52

 

  5,198

               
                                     

Total

 

  651,093

 

  (35,557)

 

615,536

 

515,643

 

  99,893

               
                                     

Current

 

   281,326

 

(29,400)

                           

Noncurrent

 

   369,767

 

  (6,157)

                           

   

For further details on terms and information on debts and debentures, see notes 18 and 19

(1)The value at cost are the derivative amount without the respective fair value measurement, while the notional refers to the balance of the debt and is reduced according to the respective amortization;

(2) Due to the characteristics of derivatives, the notional amount is presented in U.S. dollar.

 

112

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Changes in derivatives are stated below:

 

 

At December 31, 2017

 

Interest, monetary adjustment, exchange rate and fair value measurement

 

Repayment

 

At December 31, 2018

Values at cost, net

 

 

 

 

 

 

 

 

To debts designated at fair value

 

  526,148

 

  662,147

 

  (556,927)

 

 631,368

To debts not designated at fair value

 

  17,881

 

(21,817)

 

25,484

 

  21,548

Others (zero cost collar

 

  -

 

  11,984

 

  (11,984)

 

-

Fair value measurement (*)

 

  9,095

 

(36,817)

 

 

 

  (27,722)

 

 

 

 

 

 

 

 

 

 

 

  553,124

 

  209,599

 

  (543,427)

 

  625,194

 

   

Consolidated

   

At December 31, 2018

 

Interest, monetary adjustment, exchange rate and fair value measurement

 

Repayment

 

At December 31, 2019

Values at cost, net

               

To debts designated at fair value

 

   631,368

 

   75,241

 

(191,018)

 

  515,591

To debts not designated at fair value

 

  21,548

 

   (857)

 

   (20,691)

 

  -  

Others

 

   -  

 

7,600

 

  (7,548)

 

52

Fair value measurement (*)

 

(27,722)

 

127,615

 

  -  

 

99,893

   

   625,194

 

209,599

 

(219,257)

 

  615,536

 

(*) The effects of the fair value adjustments of derivatives on profit or loss and comprehensive income for 2019 are: (i) gain of R$ 139,361 for debts designated at fair value, (ii) loss of R$ 577 for debts not designated at fair value, and (iii) loss of R$ 11,169 for other derivatives.

 As mentioned above, certain subsidiaries elected to fair value measurement debts for which they have fully debt-related derivatives instruments (note 18 and 19).

The Group has recognized gains and losses on their derivatives. However, as these derivatives are used as a hedging instrument, these gains and losses minimized the impacts of fluctuations in exchange and interest rates on the hedged debts. For years ended at December 31, 2019 and 2018, the derivatives generated the following impacts on the consolidated profit or loss, recognized in the line item of Finance costs on monetary adjustment and exchange rate changes and in the consolidated comprehensive income in the credit risk in the fair value measurament, related to debts at fair value.

 

 

Gain (Loss) on income

 

Gain (Loss) in comprehensive income

Hedged risk / transaction

 

2019

 

2018

 

2019

 

2018

Interest rate variation

 

   16,559

 

(19,747)

 

-  

 

  -  

Fair value measurement

 

   46,243

 

  13,135

 

  2,685

 

   272

Exchange variation

 

   65,424

 

   672,061

 

-  

 

  -  

Fair value measurement

 

   78,829

 

(47,904)

 

   (148)

 

(2,025)

   

  207,055

 

   617,545

 

  2,537

 

(1,753)

 

b.1) Zero-cost collar derivative transactions entered into by CPFL Geração

In 2015, the subsidiary CPFL Geração entered into a transaction involving put options and call options in US$, both having the same institution as counterpart, and that combined are featured as a transaction usually known as zero-cost collar. Entering into this transaction does not have any speculative purpose, in as much as it is aimed at minimizing any negative impacts on future revenue of the joint venture ENERCAN, which has electric energy sale agreements with annual adjustment of part of the tariff based on the dollar variation. In addition, according to Management’s view, the scenario in 2015 was favorable to enter into this type of financial instrument, considering the high volatility implicit in dollar options and the fact that there is no initial cost for this type of transaction.

The total amount contracted was US$ 111,817 thousand, with due dates between October 1, 2015 and September 30, 2020. At December 31, 2019, the total amount contracted was US$ 22,174, considering the options already settled until this date. The strike prices of the dollar options vary from R$ 4.20 to R$ 4.40 for put options and from R$ 5.40 to R$7.50 for call options.

113

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

These options were measured at fair value in a recurring manner, as required by IFRS 9 /CPC 48. The fair value of the options that are part of this transaction was calculated based on the following assumptions:

 

Valuation technique(s) and key information

We used the Black Scholes Option Pricing Model, which aims to obtain the fair price of the options involving the following variables: value of the asset, strike price of the option, interest rate, term and volatility.

Significant unobservable inputs

Volatility determined based on the average market pricing calculations, future dollar and other variables applicable to this specific transaction, with average variation of 13.22%.

Relationship between unobservable inputs and fair value (sensitivity)

A slight rise in long-term volatility, analyzed separately, would result in an insignificant increase in fair value. If the volatility were 10% higher and all the other variables remained constant, the net carrying amount (asset) would increase by R$ 203, resulting in a net asset of R$ 5,623.

 

The following table reconciles the opening and closing balances of the call and put options for 2018, as required by IFRS 13/CPC 46:

 

   

Consolidated

   

Assets

 

Liabilities

 

Net

At December 31, 2017

 

  52,058

 

-  

 

52,058

Measurement at fair value

 

(23,707)

 

-  

 

   (23,707)

Net cash, received from settlement flows

 

(11,984)

 

-  

 

   (11,984)

At December 31, 2018

 

  16,367

 

-  

 

16,367

Measurement at fair value

 

   (3,400)

 

-  

 

  (3,400)

Net cash, received from settlement flows

 

   (7,548)

 

-  

 

  (7,548)

At December 31, 2019

 

5,419

 

-  

 

   5,419

 

The fair value measurement of these financial instruments was recognized as finance income (expense) of the year, and no effects were recognized in other comprehensive income.

 

c)     Concession financial assets

As the distribution subsidiaries have classified the respective financial assets of the concession as measured at fair value through profit or loss, the relevant factors to measure the fair value are not publicly observable and there is no active market. Therefore, the classification of the fair value hierarchy is level 3.

d)     Market risk

Market risk is the risk that changes in market prices – e.g. foreign exchange rates and interest rates – will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Group uses derivatives to manage market risks.

 

Sensitivity analysis

The Group performed sensitivity analyses of the main risks to which their financial instruments (including derivatives) are exposed, mainly comprising changes in exchange and interest rates.

114

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

When the risk exposure is considered asset, the risk to be taken into account is a reduction in the pegged indexes, due to a consequent negative impact on the Group’s profit or loss. Similarly, if the risk exposure is considered liability, the risk is of an increase in the pegged indexes and the consequent negative effect on the profit or loss. The Group therefore quantify the risks in terms of the net exposure of the variables (dollar, euro, CDI, IGP-M, IPCA, TJLP and SELIC), as shown below:

d.1)  Exchange rates variation

Considering that the net exchange rate exposure at December 31, 2019 is maintained, the simulation of the effects by type of financial instrument for three different scenarios would be:

   

 Consolidated

           

Decrease (increase)

Instruments

 

Exposure (a)
R$ thuosand

 

Risk

 

Exchange depreciation (b)

 

Currency appreciation  of 25% (c)

 

Currency appreciation of 50% (c)

Financial asset instruments

 

  -  

     

   -  

 

  -  

 

   -  

Financial liability instruments

 

(4,174,769)

     

(87,520)

 

  978,052

 

2,043,624

Derivatives - Plain Vanilla Swap

 

   4,221,801

     

  88,506

 

(989,071)

 

   (2,066,647)

   

47,032

 

drop in the dolar

 

986

 

   (11,019)

 

(23,023)

                     

Financial liability instruments

 

(835,977)

     

(34,709)

 

  182,963

 

400,634

Derivatives - Plain Vanilla Swap

 

   847,774

     

  35,198

 

(185,545)

 

  (406,288)

   

11,797

 

drop in the euro

 

489

 

(2,582)

 

   (5,654)

                     

Total

 

58,829

     

1,475

 

   (13,601)

 

(28,677)

                     

Effects in the accumulated comprehensive income

         

1,271

 

   (11,312)

 

(23,896)

Effects in the income of the year

         

204

 

(2,289)

 

   (4,781)

                     
           

Decrease (increase)

Instruments

 

Exposure (a)
R$ thousand

 

Risk

 

Currency depreciation (b)

 

Currency appreciation of 25% (c)

 

Currency appreciation of 50% (c)

Derivativos zero-cost collar

 

22,174

 (d)

raise of dollar

 

   (682)

 

(8,989)

 

(17,296)

Commodity forward contract (aluminum)

 

3,889

 (d)

drop in the aluminum (US$/ton)

 

   -  

 

(2,891)

 

   (3,852)

NDF - Aluminum

 

6,296

 (d)

drop in the dollar

 

   -  

 

(6,255)

 

(12,511)

 

(a) The exchange rate considered at 12/31/2019 was R$ 4.03 to US$ 1.00 and R$ 4.53 to €$ 1.00.

(b) As per the exchange rate curves obtained from information made available by B3 S.A. - Brasil, Bolsa, Balcão, with the exchange rate being considered at R$ 4.12 and R$4.72, and the currency depreciation at 2.10% and 4.15% for USD and EUR, respectively at 12/31/2019.

(c) As required by CVM Instruction No. 475/2008, the percentage increases in the ratios applied refer to the information made available by B3 S.A. – Brasil, Bolsa, Balcão.

(d) Due to the characteristics of these derivatives, the notional amount is presented in USD.

 

Except for zero-cost collar derivative and commodity forward contract, as the net exchange exposure of the dollar and the euro for the other derivative instruments is an asset, the risk is a drop in the dollar, and the euro,  therefore, the exchange rate is appreciated by 25% and 50% in relation to the probable exchange rate.

 

d.2) Interest rates variation

Assuming that the scenario of net exposure of the financial instruments indexed to floating interest rates at December 31, 2019 is maintained, the net finance cost for the next 12 months for each of the three scenarios defined, would be:

115

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

 

 Consolidated

Instruments

 

Exposure
R$ thousand

 

Risk

 

rate in the period

 

rate likely scenario (a)

 

likely scenario

 

Raising/Drop index by 25% (b)

 

Raising/Drop index by 50% (b)

Financial asset instruments

 

   2,919,915

             

132,564

 

   165,705

 

   198,846

Financial liability instruments

 

(6,516,480)

             

  (295,848)

 

(369,810)

 

(443,772)

Derivatives - Plain Vanilla Swap

 

(4,976,115)

             

  (225,916)

 

(282,395)

 

(338,873)

   

(8,572,680)

 

raise of CDI

 

5.97%

 

4.54%

 

  (389,200)

 

(486,500)

 

(583,799)

                             

Financial liability instruments

 

(145,558)

             

   (4,469)

 

  (5,586)

 

  (6,703)

   

(145,558)

 

raise of IGP-M

 

7.30%

 

3.07%

 

   (4,469)

 

  (5,586)

 

  (6,703)

                             

Financial liability instruments

 

(3,183,323)

             

  (162,031)

 

(202,539)

 

(243,047)

   

(3,183,323)

 

raise of TJLP

 

6.30%

 

5.09%

 

  (162,031)

 

(202,539)

 

(243,047)

                             

Financial liability instruments

 

(3,422,062)

             

  (156,388)

 

(117,291)

 

   (78,194)

Derivatives - Plain Vanilla Swap

 

   516,826

             

   23,619

 

17,714

 

  11,809

Concession financial asset

 

   8,779,717

             

401,233

 

   300,925

 

   200,617

   

   5,874,481

 

drop of IPCA

 

4.20%

 

4.57%

 

268,464

 

   201,348

 

   134,232

                             

Setorial financial assets and liabilities

 

   993,775

             

   45,316

 

33,987

 

  22,658

Financial liability instruments

 

   (83,073)

             

   (3,788)

 

  (2,841)

 

  (1,894)

   

   910,702

 

drop of SELIC

 

5.97%

 

4.56%

 

   41,528

 

31,146

 

  20,764

                             

Total

 

(5,116,378)

             

  (245,708)

 

(462,131)

 

(678,553)

                             

Effects in the accumulated comprehensive income

                 

1,289

 

   1,047

 

   804

Effects in the income of the year

                 

  (246,997)

 

(463,178)

 

(679,357)

 

(a)   The indexes were obtained from information available in the market.

(b)   As required by CVM Instruction number 475/2008, the percentages of increase were applied to the indexes in the probable scenario.

Additionally, the debts exposed to pre-fixed indexes would generate an expense of R$ 52,075.

e)     Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from Consumers, Concessionaires and Licensees and financial instruments. Monthly, the risk is monitored and classified according to the current exposure, considering the limit approved by Management.

 

Impairment losses on financial assets recognized in profit or loss are presented in note 7 – Consumers, Concessionaires and Licensees.

 

Receivables and contract assets - Consumers, Concessionaries and Licensees

 

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, Management also considers the factors that may influence the credit risk of its customer base.

 

The Group uses a provision matrix to measure the expected credit losses of trade receivables according to the consumer class (Residential, Commercial, Rural, Public Power, Public Lighting, Public Services), Other Revenues and Unbilled Revenue, comprising mostly a large number of dispersed balances.

 

Loss rates are based on actual credit loss experience over the past. These rates reflect differences between economic conditions during the period over which the historical data have been collected, current conditions and the Group’s view of future economic conditions over the expected lives of the receivables. Accordingly, an “adjusted” revenue was calculated, reflecting the Group perception on expected loss. Such “adjusted” revenue was allocated by consumption class (matrix) according to the interval currently used in the allowance guided by the regulatory parameters as follows:

 

Class

 

Days

 

Period

Residential

 

        90

 

Revenue of 3 months prior to the current month

Commercial and other revenues

 

      180

 

Revenue of 6 months prior to the current month

Industrial, rural, public power in general

 

      360

 

Revenue of 12 months prior to the current month

Unbilled

 

        -  

 

Uses revenue of the same month

116

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

 

Therefore, based on the assumptions above, an “Adjusted” ratio of the expected credit losses (“ECL”) allowance for the month is calculated, which was determined dividing the “Actual ECL” allowance by the “Adjusted Revenue” for each month. Then, the ECL allowance is estimated monthly, considering the respective moving average for the months of the "Adjusted” monthly ratios and applied to the actual revenue for the current month.

 

Based on this criterion, the ECL allowance percentage to be applied is changed monthly to the extent that the moving average is calculated.

 

The methodology used by Management includes a percentage that is compliant with the IFRS rule described as expected credit losses, including in a single percentage the probability of loss, weighted by the expected loss and possible outcomes, that is, including Probability of default (“PD”), Exposure at default (“EAD”) and Loss Given Default (“LGD”).

 

Macroeconomic factors

After studies developed by the Company to assess which variables present a correlation ratio with the actual amount of Expected Credit Losses Allowance, no ratios or macroeconomic factors that would have material impacts or that had direct correlation with the default level were identified, due to the electric sector characteristic of having instruments that mitigate the risk of losses, such as cutting energy supply to default customers.

 

Cash and cash equivalents, marketable securities

 

The Group limits its exposure to credit risk by investing only in liquid debt securities and only with counterparties that have a credit rating of at least AA-.

 

The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. Management did not identify for the years 2018 and 2019 that the securities had a significantly change in credit risk.

 

f)      Liquidity analysis

The Company manages liquidity risk by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of its financial liabilities. The table below sets out details of the contractual maturities of the financial liabilities as at December 31, 2019, taking into account principal and future interest, and is based on the undiscounted cash flow, considering the earliest date on which the Group has to settle their respective obligations.

 

       

Consolidated

December 31, 2019

 

Note

 

Less than 1 month

 

1-3 months

 

3 months to 1 year

 

1-3 years

 

4-5 years

 

More than 5 years

 

Total

Trade payables

 

17

 

3,238,843

 

  21,258

 

   78

 

   211,697

 

   -  

 

   148,247

 

  3,620,123

Borrowings - principal and interest

 

18

 

   222,237

 

   580,245

 

2,842,610

 

4,941,612

 

1,890,206

 

2,845,013

 

13,321,923

Derivatives

 

35

 

   -  

 

9,332

 

  45,060

 

9,572

 

   -  

 

   -  

 

63,964

Debentures - principal and interest

 

19

 

  10,811

 

   101,704

 

   770,047

 

3,691,282

 

4,053,800

 

1,592,045

 

10,219,689

Regulatory charges

 

21

 

   231,130

 

1,122

 

   -  

 

   -  

 

   -  

 

   -  

 

  232,252

Use of public asset

     

981

 

1,962

 

8,828

 

  17,096

 

  28,494

 

  45,591

 

  102,952

Others

 

24

 

   103,808

 

   110,173

 

  45,357

 

3,423

 

3,423

 

   189,707

 

  455,891

Consumers and concessionaires

     

  57,182

 

  57,429

 

   -  

 

   -  

 

   -  

 

   183,938

 

  298,549

EPE / FNDCT / PROCEL

     

   44

 

5,158

 

  44,073

 

   -  

 

   -  

 

   -  

 

49,275

Collections agreement

     

  46,439

 

  47,301

 

   -  

 

   -  

 

   -  

 

   -  

 

93,740

Reversal fund

     

143

 

285

 

1,284

 

3,423

 

3,423

 

5,769

 

14,327

Total

     

3,807,810

 

   825,796

 

3,711,980

 

8,874,682

 

5,975,923

 

4,820,603

 

28,016,794

 

Derivatives

The Group adopts a policy of using derivatives to hedge the risks of exchange rate and interest rate fluctuations, mostly currency or interest rate swaps. The derivative transactions are entered into with first-tier banks and financial institutions with a minimum rating of AA-, based on the major credit rating agencies in the market (note 35).

117

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

The Group adopts the policy of offering financial guarantees for the obligations of its subsidiaries and joint ventures. At September 30, 2019 and December 31, 2018, the Company had provided guarantees to certain financial institutions for the credit facilities granted to its subsidiaries and joint ventures, as mentioned in notes 18 and 19.

 

( 36 ) NON-CASH TRANSACTIONS    

 

 

Consolidated

 

December 31, 2019

 

December 31, 2018

       

Interest capitalized

  25,641

 

  28,606

Intercompany loan payment with dividend of noncontrolling shareholders

  81

 

377

Provision for socio environmental costs capitalized in property, plant and equipment

  83,334

 

1,684

Transfer between property, plant and equipament and other assets

1,662

 

5,515

 

 

( 37 ) COMMITMENTS   

 

The Group’s commitments as regards long-term energy purchase agreements and plant construction projects at December 31, 2019, as follows:

 

Subsidiaries

 

       

Consolidated

Commitments at December 31, 2019

 

Duration

 

Less than 1 year

 

1-3 years

 

4-5 years

 

More than 5 years

 

Total

Rentals

 

until 13 years

 

 39,060

 

  71,914

 

  68,779

 

   82,430

 

   262,183

Energy purchase agreements (except Itaipu)

 

until 25 years

 

  11,988,989

 

  21,701,899

 

  22,211,015

 

   41,829,746

 

  97,731,649

Energy purchase from Itaipu

 

until 25 years

 

2,896,696

 

5,642,618

 

6,097,490

 

   15,803,644

 

  30,440,448

Electricity network usage charge

 

until 29 years

 

2,762,294

 

7,192,517

 

9,172,126

 

   25,725,396

 

  44,852,333

GSF renegotiation

 

until 28 years

 

  16,468

 

  37,886

 

  36,484

 

  228,865

 

   319,703

Power plant construction projects

 

until 14 years

 

   758,370

 

   654,777

 

   239,322

 

  1,119,285

 

2,771,754

                         

Total

     

  18,461,877

 

  35,301,611

 

  37,825,216

 

   84,789,366

 

   176,378,070

                         

Joint ventures

                       
                         

Commitments at December 31, 2019

 

Duration

 

Less than 1 year

 

1-3 years

 

4-5 years

 

More than 5 years

 

Total

Power plant construction projects

 

until 5 years

 

3,502,439

 

5,321,975

 

   693,788

 

  -

 

9,518,202

GSF renegotiation and others

 

until 17 years

 

  33,566

 

   132,856

 

   132,965

 

  396,102

 

   695,489

Total

     

3,536,005

 

5,454,831

 

   826,754

 

  396,102

 

  10,213,692

 

 

The power plant construction projects include commitments made basically to construction related to the subsidiaries of the renewable energy segment.

 

( 38 ) EVENTS AFTER THE REPORTING PERIOD   

 

 

38.1 Borrowings

From January 1, 2020 to the date of approval of these financial statements, the Company’s subsidiaries obtained borrowings with the following conditions and details:

118

 
 

(Free Translation of the original in Portuguese)

Standard Financial Statements – DFP –  Date: December 31, 2019 - CPFL Energia S.A.

 

Type
Company

 

 Released until March 2020

 

Payment of interest

 

Repayment of principal

 

Purpose

 

Annual financial charges

 

Effective annual rate

 

Effective rate with derivatives

Foreign currency - Law 4,131

                           

Dollar

                           

CPFL Paulista

 

   174,960

 

Quarterly

 

Annual as from February 2023

 

Working capital

 

USD + 2.39%

 

USD + 2.39%

 

CDI + 0.85%

CPFL Paulista

 

   196,567

 

Quarterly

 

Single installment in February 2025

 

Working capital

 

USD + 2.40%

 

USD + 2.40%

 

CDI + 0.89%

RGE

 

   100,000

 

Semiannual

 

Single installment in January 2025

 

Working capital

 

USD + 2.64%

 

USD + 2.64%

 

CDI + 0.90%

CPFL Brasil

 

   107,000

 

Semiannual

 

Single installment in February 2023

 

Working capital

 

USD + 1.83%

 

USD + 1.83%

 

CDI + 0.61%

CPFL Renováveis

 

   120,000

 

Semiannual

 

Annual as from February 2023

 

Working capital

 

USD + 2.07%

 

USD + 2.07%

 

CDI + 0.80%

CPFL Santa Cruz

 

   108,000

 

Semiannual

 

Annual as from February 2023

 

Working capital

 

USD + 2.07%

 

USD + 2.07%

 

CDI + 0.80%

RGE

 

   418,280

 

Semiannual

 

Annual as from February 2023

 

Working capital

 

USD + 2.07%

 

USD + 2.07%

 

CDI + 0.80%

Euro

                           

CPFL Piratininga

 

   419,760

 

Quarterly

 

Single installment in March 2025

 

Working capital

 

EURO + 0.70%

 

EURO + 0.70%

 

CDI + 0.83%

   

1,644,567

                       

 

119

 
 

 

 BOARD OF DIRECTORS

 

 

Bo Wen

Chairman

 

Shirong Lyu

Vice Chairman

 

Yan Qu

Yumeng Zhao

Gustavo Estrella

Antonio Kandir

Marcelo Amaral Moraes

Anselmo Henrique Seto Leal

Hong Li

Directors

 

 

EXECUTIVE BOARD

 

GUSTAVO ESTRELLA

Chief Executive Officer

 

SHIRONG LYU

Senior Executive Vice President, holding also the function of

Strategy, Innovation and Business Excellence Vice President

 

YUMENG ZHAO

Executive Vice President

 

YUEHUI PAN

Chief Financial Executive Officer and Investor Relations Officer

 

GUSTAVO PINTO GACHINEIRO

Legal and Institutional Relations Vice President

 

FLÁVIO HENRIQUE RIBEIRO

Business Management Vice President

 

120

 
 

 

 

LUIS HENRRIQUE FERREIRA PINTO

Regulated Operations Vice President

 

KARIN REGINA LUCHESI 

Market Operations Vice Presidnt

 

VITOR FAGALI

Business Development Vice President

 

 

ACCOUNTING DIVISION

 

SERGIO LUIS FELICE

Accounting Director

CT CRC 1SP192767/O-6

 

 

120

 
 

INDEPENDENT AUDITORS' REPORT

 

KPMG Auditores Independentes

Avenida Coronel Silva Telles, nº 977, 10º andar - Dahruj Tower 13024-001 - Campinas/SP - Brasil

Caixa Postal 737 - CEP: 13012-970 - Campinas/SP - Brasil Telefone +55 (19) 3198-6000, Fax +55 (19) 3198-6001

www.kpmg.com.br

 
 

Independent auditors’ report on the individual and consolidated financial statements

 

To the Directors and Shareholders of

CPFL Energia S.A.

Campinas – SP

 

Opinion

We have audited the individual and consolidated financial statements of CPFL Energia S.A. (the “Company”), identified as the parent company and consolidated, respectively, which comprise   the statement of financial position as of December 31, 2019 and the respective statements of income, comprehensive income, changes in shareholder´s equity and cash flows for the year then ended, and the corresponding notes comprising significant accounting policies and other explanatory information.

In our opinion, the aforementioned financial statements present fairly, in all material aspects, the individual and consolidated financial position of CPFL Energia S.A. as of December 31, 2019, and of its operations and cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil and in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

 

Basics for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the individual and consolidated financial statements” section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements of EthicsStandardsBoardsforAccountantsandProfessionalStandardissuedbyFederalAccounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 
 

(a)

Revenue recognition from energy distributed, but not billed
(Notes 3.10 and 27 to the individual and consolidated financial statements)
 

Not billed revenue recognized by the Company corresponds to the electricity distributed, but not billed to the consumers, and its billing is measured based on the reading cycles that, in some cases, exceed the period of accounting closing. The recognition of the not billed revenue takes into consideration all of the historical data, the systems configuration, as well as Company´s judgments in order to estimate the consumption by consumers. Due to the relevance of the amounts and the judgments involved that can affect the amount of the revenues in the consolidated financial statements and in the amount of the investment recorded under the equity method in the individual financial statements, we considered this matter as significant for our audit.

 

How this matter has been conducted in our audit

We evaluated the design, implementation, and effectiveness of key internal controls related to the determination of the amount of the  revenue recognized from energy distributed, but not billed. We involved our information technology specialists to evaluate the systems and the technology environment used in the determination of the balances recorded. We analyzed the key assumptions used by the Company in the development of such estimates, such as the technical and commercial losses index. In addition, we  tested the integrity and accuracy of the data used in the calculation and performed a valuation test, by comparing the amounts recognized by the Company with assumptions resulting from our independent auditing tests. We also assessed whether the disclosures in the consolidated financial statements were in accordance with the applicablestandards.

 

Based on the evidence obtained from the procedures summarized above, we consider acceptable the revenue recognition from energy distributed, but not billed, in the  context of the individual and consolidated financial statements taken as a whole, for year ended December 31, 2019.

 

 
 
(b) Impairment of the deferred tax assets from the subsidiary CPFL Energias Renováveis S.A.
(Notes 3.11 and 10 to the individual and consolidated financial statements)

 

The individual and consolidated financial statements include tax credits over tax loss carryforwards and temporary differences from thesubsidiaryCPFLEnergiasRenováveisS.A., for which the realization is supported by estimates of taxable income based on the subsidiary´s judgments and supported in its business plan. Due to the uncertainties that are inherent to the process of determining the future taxable income estimates,  which support the recognition of the impairment of  the tax credits, and the fact that any change in methodologies and assumptions for the determination of estimates that may have a material impact the value of such assets and, consequently, the individual and consolidated financial statements taken as a whole, we considered this matter as significant for our audit.

 

How this matter has been conducted in our audit

We evaluated the design, implementation and operational effectiveness of the key internal controls implemented by the subsidiary related to the preparation and review of the business plan, budget, technical studies and analysesas to the probability of existence of future taxable income. With the support of our corporate finance specialists, we analyzed the reasonableness and consistency of the data and assumptions and of the methodologies used by the subsidiary for the projection of future taxable income, particularly those related to the projected economic growth, volume, and price of sales of energy, and we compared with the data obtained from external sources. With the support of our tax specialists, we evaluated the calculation in which the current tax rates are applied. We also assessed whether the disclosures in the individual and consolidated financial statements consider all relevantinformation.

 

 

In the course of our audit work, we identified adjustments that would affect the measurement and disclosure of the deferred tax assets, which were not recorded by management, because they were considered immaterial. Based on the evidence obtained from the procedures summarized above, we consider that the net realizable value of deferred tax assets of the subsidiary is acceptable in the context of the individual and consolidated financial statements taken as a whole, related to the fiscal year ended on December 31, 2019.

 

 
 

Other matters - Statements of Value Added

The individual and consolidated statements of value added (DVA) for the year ended December 31, 2019, prepared under the responsibility of the Company's management, and presented as supplementary information for IFRS purposes, were submitted for the auditing procedures jointly with audit of the Company's financial statements. For the purposes of forming our opinion, we evaluate whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria as defined in Technical Pronouncement CPC 09 - Statement of Added Value. In our opinion, this statement of value added have been properly prepared, in all material respects, in accordance with the criteria defined in this Technical Pronouncement and is consistent with the individual and consolidated financial statements taken as a whole.

 

Other information that accompanies the individual and consolidated financial statements and the auditor’s report

Management is responsible for the other information, which comprises the Management report.

Our opinion on the individual and consolidated financial statements does not cover the Management report and we do not express any form of assurance conclusion thereon.

In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Management Report, we are required to report that fact. We have nothing to report in thisregard.

 

Responsibilities of management and those charged with governance for the individual and consolidated financial statements

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of the financial statements are free from material misstatement, due to fraud or error. In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.  Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 
 

Auditors’ responsibilities for the audit of the individual and consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these individual and consolidated financial statements.

As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

–    Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

–    Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

–    Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

–    Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

–    Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

–    Obtain sufficient appropriate audit evidence regarding the financial information of the group entities or business activities within the Company to express an opinion on the individual and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit, and therefore, responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter, or, when in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

 

Campinas, March 05, 2020.

 

 

 

 

KPMG Auditores Independentes

CRC (Regional Accounting Council) 2SP027612/O-4 (Original in Portuguese signed by)

Marcio José dos Santos Accountant CRC 1SP252906/O-0

 

 

 

Management declaration on financial statements

In compliance with the provisions in items V and VI of article 25 of the Brazilian Securities & Exchange Commission (CVM) Instruction No. 480, of December 7, 2009, as amended by CVM Instruction No. 586, of June 8, 2017, the chief executive officers and the officers of CPFL Energia S.A, a publicly traded company, with its registered office at Rodovia Engo Miguel Noel Nascentes Burnier, km 2,5, Parque São Quirino - Campinas - SP -  Brasil, enrolled with the National Register of Legal Entities (CNPJ ) under No. 02.429.144/0001-93, hereby stated that:

a)     they have reviewed and discussed, and agree with, the opinions expressed in the opinion of KPMG Auditores Independentes on the financial statements of CPFL Energia of December 31, 2019;

b)     they have reviewed and discussed, and agree with, the financial statements of CPFL Energia of December 31, 2019;

 

Campinas, March 05, 2019.

 

 

__________________________________

GUSTAVO ESTRELLA

Chief Executive Officer

 

__________________________________

YUEHUI PAN

Chief Financial Executive Officer and

Investor Relations Officer

 

 
 

Management declaration on independent auditors’ report

In compliance with the provisions in items V and VI of article 25 of the Brazilian Securities & Exchange Commission (CVM) Instruction No. 480, of December 7, 2009, as amended by CVM Instruction No. 586, of June 8, 2017, the chief executive officers and the officers of CPFL Energia S.A, a publicly traded company, with its registered office at Rodovia Engo Miguel Noel Nascentes Burnier, km 2,5, Parque São Quirino - Campinas - SP - Brasil, enrolled with the National Register of Legal Entities (CNPJ ) under No. 02.429.144/0001-93, hereby stated that:

a) they have reviewed and discussed, and agree with, the opinions expressed in the opinion of KPMG Auditores Independentes on the financial statements of CPFL Energia of December 31, 2019;

b) they have reviewed and discussed, and agree with, the financial statements of CPFL Energia of December 31, 2019;

 

Campinas, March 05, 2019.

 

 

__________________________________

GUSTAVO ESTRELLA

Chief Executive Officer

 

__________________________________

YUEHUI PAN

Chief Financial Executive Officer and

Investor Relations Officer

 

 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 09, 2020
 
CPFL ENERGIA S.A.
 
By:  
 /S/  YueHui Pan
  Name:
Title:  
 YueHui Pan 
Chief Financial Officer and Head of Investor Relations
 
 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that 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. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.