Growth Strategies. Synergies Strengthen Fundamentals. January 2007

Transcription

1 Growth Strategies Synergies Strengthen Fundamentals January

2 Disclaimer Some statements in this presentation are regarded under U.S. Securities law as forward-looking statements, i.e., statements that are subject to risks and uncertainties. Forward-looking statements are forecasts which may differ materially from the final figures and which are not under our control. For further information on the risks and uncertainties as they relate to us, please see our 20-F form for 2005, in particular, item 3 which contains Basic Information RiskFactors. All figures are expressed in Brazilian GAAP. 2

3 Agenda Background Overview on strategies Business outlook How we will finance our growth Our Strategies are reflected in our results 3

4 The blend of current shareholders provides long term perspective Our shareholder diversity provides a worldwide business management vision focused on the sustainability of company activities. Listed in major stock exchanges BOVESPA Common shares: cmig3 Daily trading volume: R$ 2 million Preferred shares: cmig4 Daily trading volume: R$ 45 million NYSE ADR ( preferred share backed): CIG Ratio : 1 ADR=1,000 preferred shares Daily trading volume: US$ 15 million Approximately 19 million ADR outstanding LATIBEX Preferred shares : xcmig4 Common Shares 70,874 million MG 51% SEB 33% International investors 6% Local investors 10% Ownership Total shares 162,153 million Preferred Shares 91,279 million International investors 68% Local Investors 29% MG and others 3% Shares in Treasury 69 million 4

5 Our focus on electric energy business allows us to spot opportunities in synergic sectors Ownership Our shareholder diversity yields a worldwide business management vision focused on the sustainability of company activities. Structure reflects the regulations set by the National Agency for Electric Energy (ANEEL). Estado de Minas Gerais 22% Cemig Distribuição SA Cemig Geração e Transmissão SA Efficientia SA Horizontes Energia SA Southern Electric Brasil Participações Ltda 14% Cemig Capim Branco Energia SA Cemig PCH SA Usina Térmica Ipatinga SA Cemig Trading SA Usina Termelétrica Barreiro SA Sá Carvalho SA Composição do Capital Social Subsidiárias integrais Privados Nacionais 21% Privados Internacionais 42% Participações Outros 1% Companhia de Gás de Minas Gerais - Gasmig Empresa de Infovias SA Companhia Transleste de Transmissão Companhia Transudeste de Transmissão Companhia de Transmissão Centroeste de Minas Companhia Transirapé de Transmissão Central Termelétrica de Cogeração SA Rosal Energia SA Central Hidrelétrica Pai Joaquim S A 5

6 Corporate governance : continual implementation of best practices Highlights: BoD approves nomination of external auditors Executive Board coordinates external auditor selection process (in compliance with the Brazilian Procurement Legislation for state owned companies) 6 BoD members appointed by minority shareholders Fiscal Council plays key role on: Accounting practices Dividend policy Prevention of fraud Financial statements analysis SOX compliance Section 302 Certification Internal control and procedures on schedule for certification BOVESPA level 1 NYSE listed company practices Code of ethics Board of Directors 14 members Shareholders Executive Board Conselho Fiscal ( Fiscal Council) 5 members 6

7 Focus on Sustainability rewarded by the international community Social and Environmental Responsibility is a commitment with a long term view which assures not only the preservation of the company s activities as well as avoids the externalization of undue costs to the society allowing a symbiotic coexistence with the environment. Our actions to assure the sustainability were recognized by the international community. CEMIG was appointed by the 7th consecutive time as a member of the Dow Jones Sustainability Index and is the only Latin American Utility included in the Index. 7

8 Service quality to our clients as a top priority State of Minas Gerais Quality Award Cemig Distribuição S.A. won the Quality Award-PMQ Criteria of Excellence of a National Quality Award Recognizes companies that adopt practices of modern and efficient management Compares favorably against industry benchmarks. ISO Certification Cemig Distribuição S.A. expanded the certification of its operating processes to NBR ISO 9001:2000. More than 80% of workforce is now operating its activities according to this certification. Certifies the uniformity of procedures, continuous improvement, greater visibility within the Company s operations and proper attention to the needs of clients and all other interested parties. 8

9 Change over the last three years shows accelerated growth Management already has the necessary tools to meet growth demands; EBITDA (R$ m) Net Income (R$ m) Our shareholders are aligned with our common value-adding objective; Dividend Yield (%) 14 Long-term view which allows us to seize asset acquisition opportunities in order to meet the commitments of our Long Term Strategic Plan; Market Capitalization (R$ m) In maintaining our excellent financial position we show commitment to growth and shareholder returns Total Shareholder's Return (%)

10 Agenda Background Overview on strategies Business outlook How we will finance our growth Our Strategies are reflected in our results 10

11 Fundamentals of our Long Term Strategic Plan Focus on electricity business Expansion opportunities evaluated using strict profitability criteria Low risk business portfolio Adequate structural balance of the electric energy business segments : generation, transmission, and distribution Strong presence in all of the segments that create value Financial stability Clear objectives guarantee sustainability for the long-term Indebtedness Cash flow Credit quality Higher standards of Corporate governance and integrity Incorporation of practices that add value for the shareholder Code of ethics 11

12 Long Term Strategic Plan addresses sustainable growth Broadening of CEMIG's area of activity, with focus on the electricity industry Growth outside of the current geographical area First steps in investing internationally Within Brazil, expansion up to regulatory limits with sustainable growth Acting prudently Adding value Addressing the long-term interests of shareholders: New dividend policy with a 50% payout and extraordinary dividends, every two years, provided there are available cash. Corporate governance directed at transparency and respect for the interests of minority shareholders 12

13 Our Long Term Strategic Plan foresees accelerated growth for the next 30 years Incorporation of our goals and commitments to our bylaws in order to give stability to the company's long-term planning Capex limited to 40% of EBITDA in 2006: 65% in 2007: 55% After 2008, with acquisitions: 50% Investment only in power generation, transmission and distribution projects that offer real internal rates of return where minimum is above the level projected in the Company s Long Term Strategic Plan, save for legal obligations; Maintaining operating revenues and expenses at Cemig Distribuição S.A., and any other subsidiary carrying out electric energy distribution activity, in line with tariff adjustments and rate revisions. 13

14 Growth through Acquisition: Synergies Strengthen Fundamentals. Acquisitions added significant value though only partially reflected in the third quarter results: We serve more than 10 million clients as of today; EBITDA reached R$ 905 million in the third quarter 2006, 30% higher than the 3Q05; Record sales of 38,057 GWh in the first nine months of 2006, including 752 GWh of Light. New projects added more operational capacity: Generation capacity increased by 169 MW; New lines increased network by 8,839 km, with 468 Km of LT s and 8,371 Km of RD s; 3.8 million more consumers in 31 municipalities in the state of Rio de Janeiro. Third quarter operating performance shows strengthening of Cemig s fundamentals: Cemig GT revenue increased 22% compared with the same period of 2005; Cemig D energy sales show consistent growth throughout 2006; 22% growth of network revenues compared to the same period of

15 Consolidated Results (jan-sep/ R$ thousands) Company Net Income EBITDA Cemig Geração/Transmissâo 487,590 1,010,103 Cemig Distribuição 552, ,044 Cemig Holding (55,781) (60,878) Gasmig 28,207 39,909 Infovias 3,469 33,941 Sá Carvalho 16,586 23,110 Efficientia Ipatinga 5,127 8,602 Horizontes 8,974 10,173 Pai Joaquim 204 (95) Transleste 2,193 3,205 Cogeração 1,599 1,687 Rosal Energia 15,359 16,549 Capim Branco 13,578 15,378 Cemig PCH 8,597 8,815 UTE Barreiro 81 1,080 RME Light 14,799 46,848 TBE 9,862 17,514 Cemig Consolidated 1,113,267 2,102,234 In Q1 to Q3: Acquisitions accountable for 2.2% of net income and 3.1% of cash generation Earnings per share R$ lots of one thousand shares 3,4 3,2 2,8 3,0 2,8 2,8 2,3 2,1 1,8 2,0 1,6 Consolidated EBITDA Margin (%) 39,7 40,6 34, , , ,1 23, T04 2T04 3T04 4T04 1T05 2T05 3T05 4T05 1T06 2T06 3T06 EBITDA R$ millions 15

16 Accelerated growth from acquisitions We look for partners that add value through: Reducing the neccessity of using equity Transparency of the economic-financial evaluation of projects Access to financing at low costs Maximization of cash generation: Surplus cash generation Rolling over debt Look for the best opportunities for financial funding Continued improvement in our credit risk rating 16

17 New companies create significant value for the Group Values in millions of reais Gross Revenue R$ million Consumer Energy Sales GWh Number of employees EBITDA R$ million Debt R$ million Cemig GT Cemig D Light TBE Others Consolidated total * * Included employees of Cemig Holding 17

18 International class company in performance Total assets : R$ 24.5 billion Shareholders equity : R$ 8.1 billion Consolidated gross debt: R$ 8.2 billion Consolidated earnings through Sep 06 R$ 7.0 billion Energy sales to the principal states of Brazil Initiating foreign investments 18

19 New map of Cemig in the country Generation capacity 6,456 MW Sales to end consumers 12,031 GWh Supply 8,629 GWh 43 Contracts 1 Industrial client 24 GWh PCHs 12 MW 5 Industrial clients 1,307 GWh Rosal Energia SA 55 MW 3 Industrial clients 156 GWh Generation Capacity of 852 MW and 3.8 million consumers 19

20 Agenda Background Overview on strategies Business outlook How we will finance our growth Our Strategies are reflected in our results 20

21 Power Generation Outlook We are expanding our generation capacity by 455 MW in The addition of the last UHE de Capim Branco I machine and two UHE Irapé machines contributed to the increase of 257 MW of installed capacity. Secured the concession of UHE de Baguari of 140 MW. We are already the fifth largest generator in Brazil. Plant Installed Capacity Assured Energy (MW) (MW médios) Major Hydroelectric plants São Simão Emborcação Nova Ponte Jaguara Miranda Três Marias Volta Grande Irapé Aimorés Light Generation (19,85%) Others Total Hydroelectrics Total Thermoelectrics Eólica 1 0 Total M nine month Sales - GWh M06 21

22 Cemig s Power Plants 57 Power Plants in operation Baguari Hydroelectric Large Power Plant (19) Small Power Plant (32) Thermoelectric (04) Wind (01) Under Construction (01) Figures as of September

23 Power Generators are the most exposed to risks Regulated market Concessions granted based on the least price approach Power purchase contract Auctions organized by a Federal agency Final buyer : distributors New capacity : longer term, no market risk, inflation adjusted Existing capacity: shorter term, volume reduction at the distributor discretion, inflation adjusted Unregulated market Target : large industrial clients, large businesses Price freely negotiated : conditions, term, inflation adjustement Usually take or pay contracts 23

24 Power Generation Price Trend Price will behave differently according to the nature of the contract to be auctioned by the ANEEL Existing capacity ( so called old energy ) contracts: power to be supplied in one year from now Term is 8 years Imply distributor s forecasted demand risk Contractual volume can be reduced New capacity ( so called new energy ) contracts Power to be supplied in three or five years from now Term is 30 years No risk on the contractual volume reduction by distributors 24

25 Price for existing power capacity is getting close to the marginal cost. The existing capacity plus new scheduled additions will meet the demand up to Beyond 2011, new power projects will be needed to cope with the demand growth. Natural gas fired thermal power projects will play important role in the long term power supply. Natural gas price will have an impact on the energy price trend R$/Mwh Existing Capacity Contracted Price Source: 05,06 ANEEL auctions, EPE s 10 Y Expansion Plan, PSR Consulting New capacity Expected price

26 Power Transmission Outlook Expansion projects can be carried out in three ways: New concessions to be granted through auctions Projects are selected by the ONS in light of the National Grid needs Auctions are organized by ANEEL Contracts are standard and term is for 30 years Bids are for annual revenue. Authorization to build, directly requested by the ANEEL In certain cases, ANEEL may request any utility to build a transmission line or a substation of regional impact Acquisition of existing facility 26

27 Transmission regulation has been the oldest and most successful one Competition for concession contract Cap price approach Allowed revenue: the winner bid is the lowest revenue earned from users 30 year long concession Stable Cash flow Guaranteed contracts signed with users Receivables pledged as guarantees Annual inflation adjustment Revenue secured regardless the use of the asset Low operating risk Penalties are applied only in the case of bad maintenance or poor performance Fixed income alike investment 27

28 Power Transmission Outlook Facilities built before 1995 Concession will expire on July 8, year extension may be granted at ANEEL discretion Allowed return to be reviewed in a near future Extension of Transmission Network - Km /2006 Lines of 500 KV Lines of 345 KV Lines of 230 KV Total Incorporation of TBE increased installed capacity for transmission lines for Cemig by 10 % Cemig Corporation is the sixth largest Transmitor of energy in the country 28

29 New challenge: spotting the international market opportunities Investment in Chile: Charrúa transmission line Nueva Temuco, 220 kv, 190 km Concession period: 20 years Partner: Alusa (51%) Investment: US$ 60 millions Annual Revenue: US$ 6.5 millions Financing: 70% the investment Investment up to date: US$ 6 millions Start of implantation: June/2005 Environmental lincense: February/2007 Start of work: March/2007 Start of operation: July/2008 Development of administrative capacity to operate in the regulatory environments in other countries. 29

30 Distribution business is the most regulated one Allowed return on asset approach Benchmark WACC: currently 11.26% Operating expenses : Full passed through mechanism Energy purchase expenses under certain circumstances Yearly inflation adjusted Tracking account for offsetting estimated expenses Revenues come from: Charges on D grid use by the access free users Sales to captive users 5 year rate setting review Sharing of productivity gains with the users 30

31 Electricity Distribution Outlook Distributors are supposed to buy power to meet 100% of the forecasted demand. In case a large consumption client ( eligible as free consumer) choses another supplier, distributor are allowed to reduce the contractual volume at the same amount If the growth is poor, contractual volume can be reduced by 4% yearly. Distributors are supposed to buy power through auctions organized by the CCEE ( clearing house type agency). The power purchase agreements are standard. Cemig Figures 9 Months (MWh) Var. % Residential 4,962,046 4,927, % Industrial 17,950,748 17,157, % captive 3,617,649 4,113, % free 14,333,099 13,044, % Commercial 2,858,594 2,785, % Rural 1,461,706 1,412, % Others 2,011,402 1,936, % Supply 8,060, , % TOTAL 37,304,753 29,177, % 10% 19% 13% 34% 24% Industrial Residential Comercial Rural Others 31

32 Acquisition of Light Light is the holding company Light Energia : 852 MW power generation capacity Light Serviços de Eletricidade SA: electricity distribution company 3.4 million clients Sales volume : Gwh Stockholding structure of LIGHT Minority stockholders: 10.4% EDF: 10.0% RME : 79.6% RME holding Cemig: 25.0% Andrade Gutierrez: 25.0% Pactual: 25.0% LUCE: 25.0% 32

33 Consolidated Sales for Distribution Business GWh Quartely sales growth nine month sales LIGHT LIGHT CEMIG D CEMIG D M05 9M06 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 Cemig Corporation is a leader in the Brazilian market for sales to end consumers Acquisition of Light increased sales by 12 % 33

34 New projects undergo strict evaluation process Our strategy to expand installed capacity includes generation efficiency requirements: Fair economic-financial balance Installed capacity expansion on three performance levels to contribute to efforts to generate economic development Improve financial capacity to finance own projects Protect the interests of shareholders, employees, clients and suppliers Through Through investment selection with returns always above WACC Technological and operational improvements Superior management practices 34

35 New projects add installed capacity in order to meet increasing demand for electricity Projects 2005 Through Sep/ Growth ( %) 2006/2005 After 2006 Installed capacity Generation ( em MW) % UHE Irapé 100% UHE Capim Branco I* - 21,0526% UHE Capim Branco II* - 21,0526% 44 UHE Baguari* - 34% 48 PCH s * - 49% 23 RME LIGHT 19,85% Network reach Transmission ( km) % 236 Distribution % Sub-transmission (km) % Total % Consumers % * * Investments made in partnerships with diverse investors 35

36 CAPEX Business ( * ) M CONSOLIDATED Segmentation GENERATION TRANSMISSION DISTRIBUTOR Distribution Extension and reinforcement of existing networks Light for All Others Sub- transmission HOLDING Other businesses Reconciliation to Cash Flow ( ** ) INVESTMENT IN ACQUISITIONS LIGHT(20%) US$80 million TBE(21%) TOTAL ( * ) Values in millions of reais ( ** ) Includes advancement of suppliers and warehouse We added the last turbine of Irapé in operation: plant sold energy at R$125/MWh for 30 years 36

37 EBITDA forecast for the coming years Companies adjusted GT 1,391 1,451 1,570 1,630 1,717 1,820 D OTHER COMPANIES(*) Consolidated 1, ,035 1, ,319 1, ,758 1, ,644 1, ,755 1, ,932 (*)Includes HOLDING 1. April 2008 rate review Capture productivity COMMENTS ABOUT DISTRIBUTOR EBITDA IN Interest charge (R$50 million, as of today) financial compensation on the reimbursement for a lower revenue as of May

38 Agenda Background Overview on strategies Business outlook How we will finance our growth Our Strategies are reflected in our results 38

39 Financial Management strictly in conformity to the Strategic Plan Our Long Term Strategic Plan resulted in a credit risk rating review: Upgrade of our Fitch rating, from A- to A+ (6/29/06); Moody s is preparing to review rating; We are rolling over our debts, lengthening the maturity and reducing costs: Issuance of Commercial Paper by CEMIG D (R$300 MM) and CEMIG GT (R$ 900 MM), at a cost of 103% of CDI. On January 27, 2006, CRC credits placed in a Receivables Fund (FIDC) in the amount of R$ 1,659 million: R$ 900 million in senior shares R$ 759 million in subordinate shares 39

40 How we will finance our growth Our strategy encompasses key elements in financing our expansion We will seek partners who can add value via: reduced need for equity transparency of the economic/financial evaluation of projects access to low-cost financing Maximization of cash management Generation of surplus Rollover of maturing debt Search for the best opportunities to raise funds to finance expansion Continual improvement of our credit risk rating Statement of Cash Flows (consolidated) Values in millions of reais 9M06 Cash at start of period 1,469 Cash from operations 1,542 Net income 1,113 Depreciation and amortization 479 Suppliers (39) Deferred tariff adjustment - Other adjustments (11) ICMS on TUSD - Financing Activity 433 Financing obtained 2,204 Payment of loans and financing (216) Others (1,555) Investment Activity (1,412) Investments outside concession area (507) Investments in concession area (1,060) Special obligations - consumer contributions 159 Others (4) Cash at end of period 2,032 40

41 Lengthened Debt Maturity Profile Main Indexes R$ million Values as of September 2006 CDI/Selic 63% Average tenor: 3,8 years 900 RGR/Finel 4% Dólar 11% IGPM 14% Outros 7% Yen 1% a considers R$1,200 million regarded to Commercial Papers from 90 day period raised in July. Average cost of debt is 9.89% p.a., with constant prices (as of September 2006) without considering Light and TBE debts. The debt ratios continue improving the credit quality of the Company 41

42 Debt matured schedule with subsequent events R$ million Values as of September 2006 Original Debt Commercial Paper roll over Debenture Repricing Average tenor: 5.0 years A

43 Opportunities for raising funds to finance expansion due to financial market high liquidity Debt rollover Bank Loans Assignment of receivables Local Capital Market Debentures are the major funding source (long-term, denominated in Wholesale Prices Index [IGP- M]) FIDC (receivables fund) International Capital Market Eurobonds Perpetual bonds Multilateral Agencies IFC, JBIC, CAF Long Term Tax breaks on remittance of interests 43

44 Agenda Background Overview on strategies Business outlook How we will finance our growth Our Strategies are reflected in our results 44

45 Growth of Consolidated Earnings Statement of Results (Consolidated) Value in millions of reais 9M06 3Q06 9M05 3Q05 FY2005 Net Revenue Operating Expenses (5.347) (1.918) (4.198) (1.503) (6.342) EBIT EBITDA Financial Result (208) (38) (43) 124 (3) Non-operating result (13) 7 (39) (19) (53) Provision for Income taxes, Social Cont. and Deferred income tax (456) (200) (665) (219) (471) Interest on own capital reversal Minority shareholders (2) (2) 1-1 Net income

46 Consolidated Sales to end consumers GWh Sales in the Third Quarter Quarterly Sales Growth LIGHT CEMIG LIGHT CEMIG 9 Months CEMIG LIGHT 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q GWh in addition from Light increase 2% of sales in the 3th quarter. 46

47 Net revenues Consolidated Operating Revenues Value in millions of reais 9M06 3Q06 9M05 3Q05 FY2005 Sales to end consumers 7,316 2,729 6,538 2,382 8,919 TUSD ,201 Subtotal 8,223 3,048 7,402 2,674 10,120 Supplies Network transmission revenue Gas supply Others Subtotal 9,742 3,673 8,156 2,933 11,112 Deferred tariff readjustment Deductions (2,772) (1,074) (2,599) (870) (3,467) Net Revenues 6,970 2,599 6,148 2,063 8,236 47

48 Operating Expenses impacted by non-controllable costs Consolidated Operating Expenses (Values in millions of reais) 9M06 3Q06 9M05 3Q05 FY2005 Purchased Energy 1, , ,455 Personnel/Managers/Board/Profit Shares ,106 Depreciation and Amortization Fuel Consumption Account - CCC Energy Development Account - CDE Charges for the use of Basic Transmission Network Third Party Services Pension Fund (Forluz) Materials Production Materials Royalties Purchased Gas for Resale Operational Provisions PROINFA Energy Efficiency and R&D Other expenses Total 5,347 1,918 4,198 1,503 6,342 48

49 Non-recurring items: Adjusted results show sustainable growth Values in thousands 9M06 9M05 Net Income 1,113,267 1,487,200 (a) Deferred Tariff adjustment - (412,597) (b) CVA Recomposition of TUST 61,555 - (c) Annual Salary Increase 117,040 (d) Reversal of Provision for RGR (43,402) (e) Income from overdue bills Inc. cl (31,869) Adjusted net income 1,216,591 1,074,603 EBITDA 2,102,234 2,394,124 (a) Deferred Tariff Adjustment - - (487,576) (b) CVA Recomposition of TUST 93,265 - (c) Annual Salary Increase 177,425 (d) Reversal of Provision for RGR (65,760) Adjusted EBITDA 2,307,164 1,906,548 49

50 Cemig Generation and Transmission Statement of Results - Cemig Generation and Transmission Values in millions of Reais 9M06 3Q06 9M05 3Q05 FY2005 Net Revenue 1, , ,964 Operating Expenses (901) (342) (606) (218) (1,154) EBIT EBITDA 1, EBITDA Margin 57.2% 56.1% 67.8% 67.6% 50.3% Financial Result (368) (132) (282) 17 (526) Non-Operating Result (1) 1 (4) (3) (5) Provision for Income taxes, Social Cont. and Deferred Income taxes (167) (59) (194) (112) (93) Interest of Own Capital Reversal Net Income Net margin 27.6% 30.0% 35.1% 40.8% 23.8% 50

51 Cemig Distribution Statement of Results - Cemig Distribution Values in millions of reais 9M06 3Q06 9M05 3Q05 FY2005 Net Revenue Operating Expenses (4.009) (1.316) (3.672) (1.317) (5.225) EBIT EBITDA EBITDA Margin 19,9% 23,2% 28,5% 21,7% 22,7% Financial Result 19 (56) Non-Operating Result (21) (7) (23) (10) (31) Provision for Income taxes, Social Cont. and Deferred Income taxes (222) (75) (417) (108) (398) Interest of Own Capital Reversal Net Income Net Margin 11,9% 12,7% 19,2% 13,5% 15,5% 51

52 52

53 Glossary Average outage frequency (FEC): Average number of outages suffered in a given period per consumer, in a given group of consumers. Debt coverage index: Ebitda divided by total financial expenses in the year. This gives a figure for the company s capacity to pay debt servicing. Deferred Tariff Adjustment (RTD): Every four years Aneel decides on a periodic tariff review for each electricity distributor, to adjust the level of annual adjustments to preserve the financial equilibrium of the concession contracts, coverage of efficient operational costs and adequate remuneration of investment. On April 8, 2003, this adjustment for Cemig was set provisionally at 31.53%, but the final adjustment decided was 44.41%, and the percentage difference of 12.88% will be applied to Cemig s tariffs in deferred format: i.e., as an addition to each of the annual tariff adjustments decided for the years 2004 through 2007, cumulatively. The difference between the adjustment to which Cemig Distribuição is entitled and the tariff in fact charged to consumers has been recognized in Cemig s financial reporting as a Regulatory Asset. Ebitda: Earnings before interest, tax, depreciation and amortization a measure of a company s operational cash flow, providing an indicator of the cash flow generated by a company s principal business. Ebitda margin: Ebitda/net operating revenue. This provides a view of the company s cash generation capacity. Hedge: Financial mechanism for protection against fluctuations in prices e.g. of commodities -, or variables such as interest rates or exchange rates. Hydroelectric power plant: A generating plant that uses the mechanical energy of falling water to operate electricity generators. Manageable costs: Costs that essentially depend on the efficacy of corporate management, such as personnel expenses, materials, outsourced services, etc. also referred to as controllable costs. Net margin: Net income / Net operating revenue an indication of a business s profitability. Outage time per consumer (DEC): Average service outage time per consumer in a given group of consumers over the specified period. The Extraordinary Tariff Recomposition (RTE): This was a tariff adjustment granted by the government in December 2001 to the distributors and generators of the regions where rationing was imposed. It was one of the conditions of the General Accord for the Electricity Sector: an increase of 2.9% in the tariff of residential consumers (with the exception of Low-Income Residential Consumers), and an increase of 7.9% for other consumers. Its purpose was to make good the losses suffered by distributors and generators as a result of the reduction of consumption imposed by the government. The duration of the adjustment varies in accordance with the time necessary to recover the loss of each concession holder. The CCC (Fuel Consumption Account): This account was created to accumulate funds to cover the increase in costs associated with greater use of thermal generation plants in the event of drought since the marginal operating costs of thermal plants are greater than those of hydroelectric plants. All Brazil s electricity companies are obliged to make an annual contribution to the CCC, calculated on the basis of estimates of the amount of fuel likely to be required by the thermal plants in the following year. 53

54 Glossary The CDE (Energy Development) Account: This is a source of subsidies to make alternative energy sources such as wind and biomass more competitive, and promote universalization of electricity services. It is funded by annual payments made by the concession holders for the use of public assets, and also from penalty payments imposed by Aneel for infringements. The CRC (Results Compensation Account): Before 1993, electricity concession holders in Brazil were given a guarantee of a rate of return on their investment in the assets used in the provision of electricity to clients, and the tariffs charged to clients were uniform over the whole country. Profits generated by the more profitable concession holders were reallocated to the less profitable concession holders, in such a way that the rate of return on assets was equal to the national average for all of the companies. Though the results for the majority of Brazil s electricity concession holders were deficits, these were posted by the federal government as assets in the CRC account of each company. When the CRC Account, and the concept of guaranteed return, were abolished, concession holders that had positive balances in their CRC accounts were able to offset these balances against any liabilities owed to the federal government. The CVA the Offsetting Account for Variations of Portion A items: Portion A is the list, used in the calculation of the electricity distributors annual tariff adjustments, of the utility s cost items that are not under its own control. The CVA mechanism compensates for changes in the list s total over the year to the new tariff date. The variation positive or negative is passed on in the tariff adjustment. The Global Reversion Reserve (RGR): This is an annual amount included in the costs of concession holders to generate a fund for expansion and improvement of public electricity services. The amounts are paid monthly to Eletrobrás, which is responsible for the management of the resulting fund, and are to be employed in the Procel mechanism. Thermal power plant: A generating plant that converts chemical energy contained in fossil fuels into electricity. Total return to stockholders: Sum of the dividend yield and the percentage appreciation in the stock price. TUSD Toll for Use of the Distribution System: This is paid by generation companies, and by Free Consumers, for the use of the distribution system belonging to the distribution concession holder to which the generator or Free Consumer is connected, and is revised annually in accordance with inflation and the investments made by the distributor in the previous year for maintenance and expansion of its network. The amount is: the quantity of energy contracted with the distribution concession holder for each link point, in kw, multiplied by a tariff in R$/kW set by Aneel. Volt: Unit of the electrical potential at which energy is supplied. Voltage: For the purposes of efficient transport of electrical energy over transmission lines from the generating plant to the consumer, there are various levels of transmission voltage. Similarly, electricity is used by consumers at various different voltage levels. Watt (W): Unit of power required for a device to operate. 1,000 watts is a kilowatt (kw), 1 million watt is a Megawatt (MW), and 1 billion watts is a Gigawatt (GW). Watt-hour: Measure of energy (work done by electric power): The kilowatt hour, Megawatt hour, Gigawatt hour and Terawatt hour (KWh, MWh, GWh, TWh) respectively represent 1,000, 1 million, 1 billion and 1 trillion watt-hours. 54