CTEEP Companhia de Transmissão de Energia Elétrica Paulista (Convenience translation into English from the original previously issued in Portuguese)

Transcription

1 CTEEP Companhia de Transmissão de Energia Elétrica Paulista Individual (parent company) and consolidated (consolidated) financial statements prepared in accordance with the accounting practices adopted in Brazil. 1

2 CONTENTS Management Report...3 Balance Sheets...10 Statement of Income...12 Statement of Comprehensive Income...13 Statement of Changes in Shareholders Equity...14 Statement of Cash Flows...15 Statement of Value Added...17 Notes to the Financial Statements Operations Presentation of the financial statements Main accounting practices Standards and interpretations new, revised and not yet adopted Cash and cash equivalents Financial investments Accounts receivable Amounts receivable - Treasury Office Taxes and contributions to be offset Tax benefit - Parent company s goodwill Collaterals and linked deposits Investments Property, plant and equipment Intangible Loans and financing Debentures Taxes and social charges to collect Taxes paid in installments Law Deferred PIS and COFINS Regulatory charges payable Provisions Amounts payable CESP Foundation Special obligations - Reversal / Amortization Shareholders equity Net operating revenue Costs of construction and O&M services and general and administrative expenses Financial income Other operating revenues (expenses) Income tax and social contribution Related-party transactions Financial instruments Commitments assumed operating leases Insurances Supplementary pension plan under Law 4.819/ Subsequent events...88 Independent Auditors Report on the Financial Statements...90 Tax Council Report...93 Representation by Officers on the Independent Auditors Report...94 Representation by Officers on the financial statements... 95

3 Management Report 2014 Message from Management With important accomplishments, 2014 was a decisive year for CTEEP. The Company is currently in an adjustment cycle due to the reduction of revenue, derived from the extension of the concession and from the strategic review performed by Grupo ISA, whose focus are efficiency and profitability. Consequently, we worked in an assertive manner and created a management platform focused on pillars of improvement of operating efficiency, increase in investments profitability and reinforcement in the corporate governance levels, and, above all, in wholly-owned subsidiaries and jointly-controlled entities. In 2014, we kept discipline in the implementation of programs of reduction of costs; promoted a broad introspection process, of looking inside the business, aiming at identifying improvement opportunities, which resulted in the adoption of a series of actions which enabled the adaptation of CTEEP to the new scenario, with gains in efficiency and improvement in profitability of investments, not hurting service quality, as evidenced by operating indexes. The continuity provided to internal improvements and the search for efficiency allowed expressive gains in operating expenses and costs and were decisive for the performance presented by the Company in 2014: net operating revenues totaled R$ 1.1 billion, a growth of R$ 123 million in relation to 2013, whereas net profit grew from R$ 32 million to R$ 380 million. Another important event which occurred in 2014 was the delivery of the report regarding the compensation of existing assets which were not amortized and/or depreciated prior to May/2000 without a doubt the main vector for the recovery of the Company s sustainable growth ability, which took seven months of hard work and support to the consultants in order to obtain the pieces of information needed for the preparation of the appraisal report, in compliance with ANEEL s (Electrical Power National Agency) Resolution No We are absolutely devoted to the approval of the amounts presented up to the conclusion of this process and later receipt of the compensation of assets mentioned. Still in 2014, the full project IE Madeira began operating. The undertaking, which counts with a relevant investment from CTEEP, stands out in a technological point of view because it is the largest continuous current in the world, with 2,375 kilometers long, crossing Brazil from the North to the Southeast, enabling the addition of an important charge of energy to the National Interconnected System (SIN). We have also implemented the Regulatory Matters Management, created to systematize and guarantee an integrated external and attentive look to matters related to the regulation of the Company, perfecting the relationship and intensifying dialogue with the Granting Power. Positive outcomes and conquers were only possible to be reached because we broke paradigms and invested in the alignment with every collaborator regarding the goals and commitments to, together, assure the Company s sustainability. As a public service provider, we know the importance of our work in the social-environmental field as well, which is translated in the adoption of ethical actions, in the search of transparent dialogues, in the concern with the environment and in our ability to generate value to our stakeholders. I am certain that we ended 2014 stronger, with an internal culture aimed at the achievement of results and with the consolidation of a management model that aims at efficiency and profitability. These are CTEEP s differentials. 3

4 Management Report 2014 In addition, it is based on such differentials that we will continue to work to support the Company in the next years and to overcome challenges to come, generating income to stakeholders, working as a leader in communities we are inserted in and contributing to the country s growth. 1. COMPANY S PROFILE Reynaldo Passanezi Filho CEO With a structure of 13,724 km of transmission lines, 19,189 km of circuits, 2,280 km of fiber optic cables and 107 substations with a voltage of up to 550 kv, CTEEP is one of the main electricity transmission companies in Brazil. Headquartered in the city of São Paulo, the Company has four regional units located in cities of Bauru, Cabreúva, Jupiá, São Paulo and Taubaté, one Transmission Operation Center (COT) in the city of Jundiaí, and one Backup Center (COR) in the city of Cabreúva. CTEEP also has equity interests in the following companies, established to provide electric power transmission services: 100% in Interligação Elétrica de Minas Gerais (IEMG), Interligação Elétrica Pinheiros (IEPinheiros), Interligação Elétrica Serra do Japi (Serra do Japi) and Evrecy Participações Ltda.; 51% in Interligação Elétrica do Madeira (IEMadeira) and Interligação Elétrica Garanhuns (IEGaranhuns); 50% in Interligação Elétrica Sul (IESul); and 25% in Interligação Elétrica Norte e Nordeste (IENNE). Consequently, through its subsidiaries, the Company has operations in 16 Brazilian states (Rio Grande do Sul, Santa Catarina, Paraná, São Paulo, Minas Gerais, Espírito Santo, Rondônia, Mato Grosso, Mato Grosso do Sul, Goiás, Tocantins, Maranhão, Piauí, Paraíba, Pernambuco and Alagoas) and is responsible for transmitting annually around 25% of all of the electricity produced in Brazil and approximately 55% of the electricity consumed in the Southeast region. Through its operations and those of its subsidiaries, CTEEP contributes to the development of the national infrastructure, connecting generation companies, other transmission companies, free consumers and energy distributors for the supply of electricity to the end consumers. Shareholding structure In December 2014, CTEEPs paid up capital was R$2,215.3 million, represented by 64,484,433 common shares (40% of total) and 96,775,022 preferred shares (60% of total). Controlled by ISA, one of the largest linear infrastructure systems companies in Latin America, CTEEP has over 60 thousand shareholders, both individuals and legal entities, from different countries, from which we highlight below those holding over 5% of common or preferred shares: Common shares TRPL3 (40% of total) Preferred shares TRPL4 (60% of total) Total Capital stock 89,5% 9,6% 7,0% 35,4% 9,8% 52,4% 27,3% 38,0% 5,8% 4,2% 16,6% 0,7% ISA Capital do Brasil Eletrobras Outros 4 3,6% ISA Capital do Brasil Eletrobras Governo do Estado de São Paulo Vinci Ltda Outros ISA Capital do Brasil Eletrobras Governo do Estado de São Paulo Vinci Ltda Outros

5 Management Report 2014 With its shares traded on BM&FBovespa, since 2002 CTEEP is listed on Level 1 of Corporate Governance. The Company has also an American Depositary Receipts (ADRs) program under Rule 144A in the United States since Operations In order to meet a more demanding scenario and the growing demand, CTEEP permanently invests in the application of new technologies aggregating value to its network, with a strong emphasis in operation and maintenance activities. Such focus aims at guaranteeing efficiency and quality in providing its transmission services. Operating performance CTEEP is compensated according to the availability of its assets through the Annual Allowed Revenue (RAP), that is, the unavailability of assets means a decrease in compensation. Consequently, operational performance is measured by several indexes, among them: Availability of Assets, Equivalent Duration of Interruption (DREQ) and Equivalent Frequency of Interruption (FREQ). These indexes have met all goals established by the sector s regulatory agencies in Availability of Lines recorded % (goal of 99.75%), Availability of Transformers recorded % (goal of 99.50%), Availability of Reactors recorded % (goal of 99.55%), DREQ recorded of 2,2 minutes to a maximum limit of 6.0 minutes and FREQ recorded of times to a maximum limit of times. In addition to operating its facilities with efficiency, the Company promotes improvements on its network to meet satisfactorily the country s growing energy demand. To this end, in 2014 CTEEP put 41 reinforcement and improvement projects in operation, which, from their inception to completion, represented investments of R$66.1 million in the year and contend with a total investment of r$ million and added 134 MVA of installed capacity to the power system. Still in 2014, other than the amount invested in the 41 projects, the Company, also considering the subsidiaries and jointly-controlled entities, invested R$ million in reinforcements, new connections, improvements and conclusion of bid construction work and expects R$ million for 2015 Another highlight of 2014 was the start of operations, in May, of Lot F (Rectifier station and inverter station) of the subsidiary IEMadeira, which counts with the Porto Velho Araraquara transmission line, with over 2,300 kilometers in length and started operating in August This is an important project since it allows that the electricity generated in the North region can be transported to other locations. Sustainable management CTEEP develops important projects in the economic, social and environmental sphere related to its operations, aiming at balancing the development of the organization and the demands from society. In 2014, ISA s Sustainability Diagnosis was applied in all entities from the group, considering references such as Dow Jones Sustainability Index, Global Report Initiative (GRI), Global Pact, ISO 26000, other than internal policies and alignments. The goal was to determine the stage of development regarding themes of sustainability, identifying gaps and implementing improvements in management by means of a structured action plan, covering all the Company s relationship groups. Reaffirming the commitment with transparency of social, economic and environmental development, in the second quarter of 2015, the Company will issue the Sustainability Report, based on GRI indexes. This publication, which is in its seventh consecutive year, reports socio-environmental information and the outcome of actions with its relationship groups, CTEEP consolidated a management model based on commitment and on the generation of value to our public in short, medium and long terms. 5

6 Management Report 2014 Corporate governance CTEEP is listed on Level 1 of Corporate Governance (IGC) of BM&FBovespa, of which are part companies with acknowledged transparency in the stakeholders relationship. Consequently, aiming at guiding decisions of its professionals, the Company counts with the Code of Ethics and the Code of Corporate Governance, approved by the Management Board. Both Establish the commitment of the high management and its collaborators with transparency in management and in the relationship with its many interest public. In 2014, aiming at improving the guidelines and approval processes involving expenditures and/or investments in the Company, as well as providing a greater control of these activities, the Board reviewed CTEEP s Manual of Amounts and Documents. Also in 2014, the Management Board approved the review of the Policy of Disclosure of Relevant Act or Fact, aiming at providing more agility and transparency to the disclosure process of relevant information and efficiency in using Company s resources. 2. ECONOMIC AND FINANCIAL PERFORMANCE RAP adjustment In June 2014, Resolution (REH) was published, establishing the RAP of CTEEP and its subsidiaries and jointly-controlled entities for the period of July 2014 to June Total RAP of the Company and its subsidiaries was R$627.8 million in July 2013, and R$751.7 million in July 2014, presenting an increase of R$123.9 million, equivalent to 19.7%. 6.9% of the IPCA/IGPM adjustment and 9.7% of the variation of the adjustment portion, and 3.1% of additional RAP to new investments. Total RAP of jointly-controlled entities was R$555.4 million in July 2013, and R$578.8 million in July 2014, presenting an increase of R$23.4 million, reflecting a RAP reduction due to periodic tax review of the subsidiaries IESul (4,6%), IEMadeira - Lot D (4,5%) and Lot F (3,81%), offset by the cycle s monetary adjustment. Income 2014 In 2014, the Consolidated Gross Operating Revenue was R$1,234.3 million, a growth of 10.4% in compared to the same period of 2013 when it reported R$1,118.3 million. The variation arose from, mainly, the increase of 26.3% in O&M revenues, combined with the reduction of 14.5% in financial revenues. Consolidated construction revenues amounted to R$265.1 million on 2014, practically stable compared to R$267.9 million in 2013, due to the increase in reinforcement, transmission lines reconstruction and implementation of autotransformers bank, negatively offset by the beginning of operations of Lot K of auction 004/2011 in the third quarter of 2013 of the subsidiary IEPinheiros. In 2014, the consolidated Operation and Maintenance (O&M) revenues amounted to R$740.6 million compared to R$586.6 million in 2013; an increase of 26.3%. The main effects were: (i) recognition of positive adjustment portion of R$24.5 million (negative adjustment portion of R$43.6 million in 2013); (ii) receipt of surplus apportionment of the system in 2014 amounting to R$42.0 million (R$13.9 million in 2013); (iii) positive variation of 6.9% of IGPM/IPCA of the Annual Allowed Revenue (RAP) cycle of 2013/2014 to 2014/2015; and (iv) beginning of operation of new reinforcement projects. The consolidated Financial Revenue amounted to R$207.5 million in the year, a decrease of 14.5% compared to the same period of 2013 (R$242.7 million), reflecting a review of financial flow as a 6

7 Management Report 2014 consequence of the change of tax regime for the determination of PIS/COFINS (Actual Profit to Presumed Profit) of the subsidiary IEPinheiros. Other Revenues refer to rents with the fixed telephone company and rendering of services related to outsourced maintenance and technical analysis. In 2014, Other Revenues amounted to R$21.2 million and were constant when compared to 2013, reflecting the increase of 10.8% in rent revenues, but offset by the decrease of 23.8% in service rendering revenues. Deduction from Operating Revenue were R$131.5 million in 2014, a decrease of 4.1% compared with R$137.2 million in The variance reflects, mainly: (i) increase of 0.8% of taxes on revenue which accompanies the variation of operating revenue, offset by the change in the rate of deferred PIS and COFINS of subsidiary IEPinheiros, arising from the change in tax regime from actual profit to presumed profit; and (ii) decrease of 17.8% of regulatory charges, especially CDE and PROINFA, due to the consumption of costumers. Due to the facts mentioned above, the consolidated net operating revenue in 2014 was R$1,102.9 million, an increase of 12.4% in relation to the same period in 2013, which was R$981.2 million. Net operating (expenses) /revenues decreased 70.5%, amounting to an expense of R$203.8 million in 2014 comparing to the expenses of R$690.6 in 2013, mainly due to: (i) reversal of the construction services installment, which did not represent addition revenue generation, amounting to R$19.2 million; (ii) PIS and COFINS untimely credit, in the second quarter of 2014, on acquisitions of the last 5 years of machinery and equipment to the operation of electric power transmission, not previously determined, amounting to R$21.4 million; (iii) disposal of unserviceable assets, amounting to R$8.2 million; and (vi) recognition, in the third quarter of 2013 of the provision for losses on the realization of amounts receivable of SeFaz SP, amounting to R$516.2 million. O&M costs decreased 6.5%, with R$299.3 million in 2014, comparing to R$320.2 million in Main variations are: (i) resizing/review of service contracts, especially the fleet of vehicles and maintenance of service routes of transmission line; (ii) growth under inflation in personnel due to a best use of overtime and notices; and (iii) reprogramming of some O&M operations in order to meet the technical needs and in accordance with intervening restrictions of the system. Cost of construction services remained practically stable during the year, recording R$242.3 million in 2014, comparing to R$243.7 million in 2013, following the variation of construction revenues. Equity result in 2014 recorded a revenue of R$90.9 million, an increase of 42.2% comparing to the revenue of R$63.9 million in Especially for the beginning of operations of Lots D (Transmission Lines) F (Substations) of IEMadeira, in August 2013 and May 2014, respectively. Consequently, IENNE, which presented losses of R$10.4 million in 2013 due to tariff review, presented profits of R$3.9 in Also due to increase in profits of R$14.9 million due to variation of financial revenue of IEGaranhuns. Financial Income decreased 83.5% totaling R$11.9 million in 2014 compared to R$72.2 million in 2013 due to: (i) recognition of revenues of monetary variations and active interests, amounting to R$78.6 million in 2014, compared to R$143.2 million in 2013 referring to adjustment by IPCA % of accounts receivable of reversible asset Law ; (ii) reduction of income of financial investments due to the lower volume of resources applied in the period; and (iii) reduction of interest and charges on loans and financing, due to settlement of contracts. Income tax and social contribution presented expenses of R$80.5 million in 2014 compared to credits of R$169.2 million in 2013, basically due to deferred income tax and social contribution set up, referring to losses on realization of amounts receivable of SeFaz-SP in the third quarter of The effective rate of income tax and social contribution was 17.5% in 2014, following variation of income. 7

8 Management Report 2014 Due to the factors mentioned above, Net Profit in 2014 amounted to R$379.7 million, compared to R$31.9 million in Ebitda Consolidated, according to ICVM 527/12, reached R$ million in 2014, an increase of R$ million in comparison to 2013, when it recorded a negative amount of R$ million. The main variation refers to the provision for losses on SeFaz-SP credit realization, according to Other Operating Expenses/ Revenues. Consolidated Gross Debt as of December 31, 2014 amounted to R$1,191.9 million, a decrease of 3.8% comparing to the end of 2013, when it recorded R$1,239.5 million. Consolidated Net Debt amounted to R$707.6 million, an increase of 10.7% comparing to the previous year. The main effect was the decrease of 19.3% in Cash, which totaled R$484.3 million as of December 31, 2014, against R$600.0 million in INVESTMENTS In 2014, CTEEP, its subsidiaries and jointly-controlled companies, invested in reinforcements, new connections and other, amounting to R$507.0 million, compared to R$815.4 million in The main reason for the reduction of investments performed in 2014 is the reprograming of systemic improvements in the parent company, and in a smaller scale in the subsidiary IEMadeira. Investment Plan 2015 In December 2014, a meeting of the Management Board approved the Investment Plan for 2015 of up to R$ million, of which (i) R$ million to reinforcements, new connections and improvements, which generate additional revenues to the Company as of the boost of each investment project, (ii) R$ million of investments to subsidiaries for the conclusion of construction of the original project, as well as improvements, reinforcements and new connections, also generating additional revenues to the Company, and (iii) R$ 44.1 million in personnel capitalization, compensated as a whole with the project s investments and corporate, compensated through CAIMI (Annual Cost of Fixed or Mobile Facilities). 4. CAPITAL MARKET CTEEP common and preferred shares (BM&FBovespa: TRPL3 and TRPL4) closed 2014 at R$46.00 and R$41.50, respectively, which represents a variance of % and %, respectively, compared to In the same period, Ibovespa showed a depreciation 2.91% and the Electric Energy Index (IEE) showed an appreciation of %. During 2014, the average daily trading volume (ADTV) of CTEEP preferred shares on BM&FBovespa was R$7.7 million. The total volume traded in the year was R$1,971 million. With a daily average of 1,248 trades, CTEEP s preferred shares were negotiated times in CTEEP also participates in a sponsored Level 1 American Depositary Receipts (ADR) program, backed by common and preferred shares at the ratio of 1 Depositary Share for 1 share of both classes. Preferred share-backed ADRs (more liquid) closed 2014 at US$ Capital increase In a meeting of the Management Board, in September 2014, the following occurred: (i) the approval of CTEEP s capital increase was approved, amounting to R$ million, according to the issuance of 8,597,890 preferred shares, corresponding to 93.0% of the total offered. In the Extraordinary General 8

9 Management Report 2014 Meeting, in October 2014, the adjustment in article 4 of the Bylaws was approved, according to the proposal of the Management Board. 5. INDEPENDENT AUDITORS With respect to the provision of services related to the external audit, CTEEP states that Grant Thornton Auditores Independentes (Grant Thornton) has only provided services related to the Audit of the Individual and Consolidated Financial Statements for the fiscal year The Management 9

10 Balance Sheets As of December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Assets Note Current Cash and cash equivalents 5 1,390 1,257 4,696 4,270 Financial investments 6 398, , , ,756 Accounts receivable (concession asset) 7 647, , , ,388 Inventory 43,426 50,788 45,696 61,767 Taxes and contributions to be offset 9 32,146 70,507 34,480 72,765 Credits with subsidiaries 30 37, , Prepaid expenses Other 82,911 92, , ,626 1,244,223 1,471,273 1,434,367 1,590,167 Noncurrent Long-term assets Accounts receivable (concession asset) 7 2,324,696 2,387,060 3,165,656 3,218,954 Amounts receivable - Treasury Office 8 802, , , ,027 Tax benefit goodwill 10 30,473 60,359 30,473 60,359 Deferred income tax and social contribution , , , ,268 Collaterals and linked deposits 11 62,353 76,282 62,353 76,282 Inventory 37,993 47,748 37,993 47,748 Other 12,706 11,752 24,395 23,453 3,458,879 3,445,496 4,311,528 4,289,091 Investments 12 1,967,284 1,659,227 1,315,669 1,075,009 Property, plant and equipment 13 24,538 10,370 24,553 10,370 Intangible 14 26,148 14,195 56,022 46,069 2,017,970 1,683,792 1,396,244 1,131,448 5,476,849 5,129,288 5,707,772 5,420,539 Total assets 6,721,072 6,600,561 7,142,139 7,010,706 Notes are an integral part of the financial statements. 10

11 Balance Sheets As of December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Liabilities Note Current Loans and financing 15 93, , , ,811 Debentures 16 83, ,884 83, ,884 Suppliers 46,481 22,631 75,470 50,356 Taxes and social charges to collect 17 24,641 17,909 26,521 20,131 Tax installments plans - Law 11, ,950 13,915 14,950 13,915 Regulatory charges payable 20 57,063 35,913 59,705 38,666 Interest on own capital and dividends payable 24(b) 33, ,092 33, ,092 Provisions 21 26,986 26,981 27,469 27,997 Amounts payable CESP Foundation 22 5,375 6,091 5,375 6,091 Other 10,313 13,863 16,215 20, , , , ,272 Noncurrent Long-term liabilities Loans and financing ,216 76, , ,026 Debentures , , , ,756 Tax installments plans - Law 11, , , , ,827 Deferred PIS and COFINS 19 79,867 54, , ,860 Deferred income tax and social contribution ,956 34,547 Regulatory charges payable 20 21,981 36,020 22,610 36,020 Provisions , , , ,898 Special obligations reversal/amortization 23 24,053 24,053 24,053 24,053 1,159,076 1,008,701 1,438,223 1,338,987 Shareholders equity Capital 24 (a) 2,215,291 2,000,000 2,215,291 2,000,000 Capital reserve 24 (c) 1,277,356 1,364,907 1,277,356 1,364,907 Advances for future capital increase Profit reserves 24 (d) 1,671,732 1,516,874 1,671,732 1,516,874 Additional dividend distribution proposal 24 (b) - 30,000-30,000 5,165,045 4,912,447 5,165,045 4,912,447 Non-controlling ownership ,567-5,165,045 4,912,447 5,228,612 4,912,447 Total Liabilities and Shareholders equity 6,721,072 6,600,561 7,142,139 7,010,706 Notes are an integral part of the financial statements. 11

12 Statements of Income Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Note Net operating revenue , ,235 1,102, ,168 Cost of construction, operation and maintenance services 26 (487,729) (497,685) (541,618) (563,934) Gross profit 484, , , ,234 Operating (expenses) revenues General and administrative 26 (155,829) (149,789) (159,562) (153,543) Management fees 26 e 30 (4,107) (4,777) (4,841) (5,355) Other operating revenues (expenses), net 28 (39,962) (531,926) (39,356) (531,679) Equity result , ,834 90,905 63,857 (56,642) (564,658) (112,854) (626,720) Profit (loss) before revenues and financial expenses and taxes on profit 428,324 (240,108) 448,316 (209,486) Financial revenues , , , ,279 Financial expenses 27 (122,960) (212,243) (142,334) (232,061) 27,010 90,078 11,891 72,218 Profit (loss) before income tax and social contribution 455,334 (150,030) 460,207 (137,268) Income tax and social contribution Current 29 (46,405) (52,390) (50,354) (55,556) Deferred 29 (30,714) 234,341 (30,121) 224,745 (77,119) 181,951 (80,475) 169,189 Net Profit for the period 378,215 31, ,732 31,921 Attributable to: Controlling shareholders 378,215 31,921 Non-controlling shareholders 1,517 - Basic earnings per share 24 (e) Diluted earnings per share 24 (e) Notes are an integral part of the financial statements. 12

13 Statement of comprehensive income Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Net income for the period 378,215 31, ,732 31,921 Other comprehensive income Total 378,215 31, ,732 31,921 Attributable to: Controlling shareholders 378,215 31,921 Non-controlling shareholders 1,517 - Notes are an integral part of the financial statements. 13

14 Statement of Changes in Shareholders Equity Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company and Consolidated Capital Capital reserve Advances for future capital increase Legal reserve Statutory reserve Unrealized profits Profit retention reserve Accumulated profit Profit reserve Additional dividend distribution proposal Total Noncontrolling ownership Total As at December 31, ,162,626 2,202, , ,263 25,858 1,338, ,078,230-5,078,230 Capital increase (Note 24 (a)) 837,374 (837,374) Unrealized profits reserve realization (1,821) - 1, Interest on the Company s own capital expired Dividends expired ,732-1,732-1,732 Net income for the period ,921-31,921-31,921 Profit allocation: Legal reserve set up , (1,596) Interest on own capital (R$ 1, per share) (Note 24 (b)) (165,558) (34,442) - (200,000) - (200,000) Proposed additional dividend (R$ 0, per share) (Note 24 (b)) (24,037) (5,963) - 30, As at December 31, ,000,000 1,364, , ,263-1,166,490-30,000 4,912,447-4,912,447 Capital increase (Note 24 (a)) 215,291 (87,551) , ,740 Interest on the Company s own capital expired Dividends expired ,917-1,917-1,917 Proposed additional dividend (30,000) (30,000) - (30,000) Acquisition of additional ownership with non-controllers ,050 62,050 Net income for the period , ,215 1, ,732 Profit allocation: Legal reserve set up , (18,911) Statutory reserve set up , (75,643) Profit retention reserve set up ,304 (60,304) Interest on own capital (R$ 0, per share) (Note 24 (b)) (30,000) - (30,000) - (30,000) Intermediate dividends (R$ 1, per share) (Note 24 (b)) (165,000) - (165,000) - (165,000) Set up dividends (31,029) - (31,029) - (31,029) As at December 31, ,215,291 1,277, , ,906-1,226, ,165,045 63,567 5,228,612 Notes are an integral part of the financial statements. 14

15 Statement of cash flows Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Cash flow in operating activities Net income for the period 378,215 31, ,732 31,921 Adjustments to reconcile net profit to cash generated by (used in) operating activities Deferred PIS and COFINS (Note 20) 24,899 27, ,155 Depreciation and amortization (Notes 13, 14 e 26) 8,860 7,339 8,860 7,339 Deferred income tax and social contribution 30,714 (234,341) 30,121 (224,745) Provision for contingencies (Note 21 (a)) 3,638 6,947 3,694 6,947 Residual cost of property, plant and equipment written off (Note 13) Tax benefit goodwill (Note 10) 29,886 29,888 29,886 29,888 Amortization of concession asset in the acquisition of subsidiaries (Note 12) 2,490 2,491 2,490 2,491 Realization of loss in subsidiaries (Note 12) (2,386) (2,418) (2,386) (2,418) Equity result (Note 12) (143,256) (121,834) (90,905) (63,857) Provision for SEFAZ - 516, ,255 Interest and currency and Exchange variation on assets and liabilities 125, , , , , , , ,003 (Increase) decrease of assets Accounts receivable 92,154 1,939,208 75,126 1,847,966 Inventory 17,116 (9,544) 25,826 (18,834) Amounts receivable - Treasury Office (159,075) (172,796) (159,075) (172,796) Taxes and contributions to be offset 38,472 (58,551) 38,396 (58,509) Collaterals and linked deposits 13,929 (1,592) 13,929 (1,592) Other (13,263) (3,410) (18,724) (18,794) (10,667) 1,693,315 (24,522) 1,577,441 Increase (decrease) in liabilities Suppliers 23,850 (30,742) 25,114 (12,912) Taxes and social charges to collect 6,732 (118,524) 6,390 (118,921) Tax installments plans - Law 11,941 (14,463) (13,531) (14,463) (13,531) Regulatory charges payable 5,509 (7,999) 6,027 (7,186) Provisions 5 71 (528) 628 Amounts payable CESP Foundation (716) (135) (716) (135) Other (3,550) (419) (4,114) (1,448) 17,367 (171,279) 17,710 (153,505) Net cash generated by operating activities 465,899 1,957, ,898 1,949,939 Notes are an integral part of the financial statements. 15

16 Statement of cash flows Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Cash flow from investing activities Financial investments 179,924 (578,547) 179,722 (595,756) Property, plant and equipment (Note 13) (17,330) (4,415) (17,345) (4,415) Intangible (Note 14) (18,074) (8,155) (18,564) (11,204) Investments (Note 12) (180,850) (279,266) (165,700) (243,666) Cash used in investing activities (36,330) (870,383) (21,887) (855,041) Cash flow from financing activities Loans additions (Notes 15 and 16) 251, , , ,498 Payment of loans (principal) (Notes 15 and 16) (333,463) (1,927,107) (359,578) (1,952,588) Payment of loans (interest) (Notes 15 and 16) (51,091) (210,607) (69,125) (226,859) Payment/Receipt of derivative financial instruments - 55,752-55,752 Paid-in capital 127, ,740 Dividends and interest on own capitals paid (Note 25 (b)) (423,858) (34) (423,858) (34) Cash used in financing activities (429,436) (1,381,996) (473,585) (1,400,231) Net increase (decrease) in cash and cash equivalents 133 (295,229) 426 (305,333) Cash and cash equivalents at the end of the period 1,390 1,257 4,696 4,270 Cash and cash equivalents in the beginning of the period 1, ,486 4, ,603 Changes in cash and cash equivalents 133 (295,229) 426 (305,333) Total income tax and social contribution determined by the Company in 2014 was R$46,405 which were offset with a credit from negative balance in The total amount of income tax and social contribution paid by the Company in 2013 was R$ The total consolidate amount of income tax and social contribution in the years was R$2,731 (R$165,881 in 2013). Notes are an integral part of the financial statements. 16

17 Statements of value added Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Revenues Operating 1,096, ,008 1,234,340 1,118,345 Other operating 24,117 18,431 25,616 18,431 1,120, ,439 1,259,956 1,136,776 Inputs acquired from third parties Cost of services rendered (23,311) (27,679) (30,679) (38,946) Materials, energy, outsourced services and other (373,311) (877,524) (412,176) (927,369) (396,622) (905,203) (442,855) (966,315) Gross added value 723,815 58, , ,461 Withholdings Depreciation and amortization (8,860) (7,339) (8,860) (7,339) Net added value generated by the entity 714,955 50, , ,122 Received upon transfer Equity result 143, ,834 90,905 63,857 Financial revenues 149, , , ,279 Total value added to be distributed 1,008, ,052 1,053, ,258 Distribution of value added Payroll Direct compensation (174,700) (164,739) (184,041) (172,234) Benefits (42,090) (43,953) (43,264) (44,225) FGTS (15,079) (14,793) (15,367) (14,831) (231,869) (223,485) (242,672) (231,290) Taxes and contributions Federal (241,063) 25,138 (254,152) (2,933) State (253) (327) (178) (523) Municipal (20,580) (19,167) (20,588) (19,168) (261,896) 5,644 (274,918) (22,624) Notes are an integral part of the financial statements. 17

18 Statements of value added Years ended on December 31, 2014 and 2013 In thousands of Reais, except when otherwise indicated Parent company Consolidated Remuneration of third-party capital Rent (13,574) (13,978) (14,154) (14,364) Interest and currency and exchange variations (122,627) (211,312) (141,895) (231,059) (136,201) (225,290) (156,049) (245,423) Remuneration of own capital Interest on own capital and dividends (226,029) (31,921) (226,029) (31,921) Retained earnings 152, ,703 - Notes are an integral part of the financial statements. 18

19 1. Operations 1.1 Business activity CTEEP - Companhia de Transmissão de Energia Elétrica Paulista (CTEEP or Company) is a publicly-traded company authorized to operate as an electric power concessionaire to serve the public, engaged in planning, constructing, operating and maintenance of power transmission systems, as well as in researching and developing electric power transmission and other activities related to the technology available. Its activities are regulated and supervised by the National Electric Energy Agency (ANEEL). The Company was established after a partial spin-off of Companhia Energética de São Paulo (CESP) and started to operate on April 1, On November 10, 2001, EPTE - Empresa Paulista de Transmissão de Energia Elétrica S.A. (EPTE), a company deriving from the partial spin-off of Eletricidade de São Paulo S.A. (Eletropaulo), was merged into the Company. The State Government of São Paulo (then the controlling shareholder) sold 31,341,890,064 common shares held by it, corresponding to 50.10% of the common shares issued by CTEEP, in a privatization auction held on June 28, 2006, at the São Paulo Stock Exchange (BOVESPA), in accordance with Invitation to Bid SF/001/2006. The company that won the auction was Interconexión Eléctrica S.A. E.S.P. The transaction was financially settled on July 26, 2006, with the consequent transfer of ownership of the shares to ISA Capital do Brasil S.A. (ISA Capital), a Brazilian company controlled by Interconexión Eléctrica S.A. E.S.P. (ISA), headquartered in Colombia, which was established to operate in Brazil and thereby became the controlling shareholder of CTEEP. The aforementioned transaction was approved by ANEEL on July 25, 2006, as set forth in the Authorizing Resolution 642/06, published in the Official Gazette dated July 26, The Company s shares are traded on the Bolsa de Valores, Mercadorias e Futuros - BM&FBovespa (São Paulo Stock, Mercantile and Futures Exchange). Additionally, CTEEP has an American Depositary Receipts (ADRs) program - Rule 144 A in the United States. The depositary of the ADRs is the JPMorgan Chase Bank and the custodian is Banco Itaú S.A. In September 2002, the Company adhered to the differentiated corporate governance practices Level 1 of BM&FBovespa. The commitments assumed arising from such adherence ensure greater transparency of the Company with the market, investors and shareholders, facilitating the monitoring of Management s actions. The Company integrates the Corporate Governance Index (IGC) and the Electric Power Index (IEE). 19

20 1.2 Concessions The Company is authorized to directly or indirectly operate the following concession arrangements relating to the electric power transmission services: Periodic Tariff Review Allowed Annual Revenue - RAP Concessionaire Contract Interest (%) Term (years) Maturity Term Next Phased RAP Adjustment R$ Thousand Base month CTEEP 059/ years 2018 No IPCA 640,694 06/14 CTEEP (**) 143/ n/a n/a Yes IGPM 19,218 06/14 IEMG 004/ years 2017 Yes IPCA 14,314 06/14 Pinheiros 012/ years 2019 No IPCA 9,479 06/14 Pinheiros 015/ years 2019 No IPCA 24,921 06/14 Pinheiros 018/ years 2019 No IPCA 5,089 06/14 Pinheiros 021/ years 2017 No IPCA 4,043 06/14 Serra do Japi 026/ years 2015 No IPCA 32,623 06/14 Evrecy 020/ years 2017 No IGPM 12,506 06/14 IENNE 001/ years 2018 No IPCA 37,899 06/14 IESul 013/ years 2019 No IPCA 5,180 06/14 IESul 016/ years 2019 No IPCA 9,587 06/14 IEMadeira 013/ years 2019 No IPCA 251,184 06/14 IEMadeira 015/ years 2019 No IPCA 213,614 06/14 IEGaranhuns (*) 022/ years 2017 No IPCA 81,399 06/14 (*) Subsidiary IE Garanhuns is in the pre-operating phase. (**) The meeting of the Board of Directors held on April 7, 2014 approved the transfer of the Power Transmission Concession arrangement No. 143/2001, through contributions of its assets and related operations, to the subsidiary Serra do Japi, via capital increase, to be confirmed in an accounting appraisal report prepared by a specialist firm. On January 20, 2015, ANEEL approved the transfer through Resolution (Note 35 (b)), and the Company has up to 120 days to implement the operation. All concession arrangements above provide for indemnification right on assets related to the concession upon their termination. The concession arrangements with tariff review provide for the right to compensation for investments in expansion, upgrade and improvements. Law /2013 On September 12, 2012, Provisional Act 579/2012 (MP 579) was published, regulating the extension of power generation, transmission and distribution concessions granted before the enactment of Law of 1995, and addressed by Law of On September 14, 2012, Decree was published to regulate Provisional Act 579. Under Provisional Act 579, the power generation, transmission and distribution concessions expired or expiring within 60 months after the enactment of the aforesaid Provisional Act could have their expiration date advanced to December 2012, with extension, at the discretion of the Concession Grantor, one single time for a period of up to 30 years; however, for the transmission activity, the extension would be contingent on the express acceptance of the following main conditions: i) revenue fixed based on the criteria set by ANEEL; ii) amounts determined by the return of assets; and iii) fulfillment of the service quality standards set by ANEEL. 20

21 On November 1, 2012, the Ministry of Mines and Energy published: (i) (ii) Interministerial Rule 580, which established the indemnification amounts for power facilities beginning June 1, 2000 (New Investments - NI), based on prices in October 2012 for power transmission concessions, with the amount of R$ 2,891,291 being related to concession arrangement 059/2001 (single arrangement covered by the aforesaid Provisional Act), according to Exhibit II of the aforementioned Rule; Interministerial Rule 579, which established the RAP amount beginning January 1, 2013, based on prices in October 2012, in the amount of R$ 515,621 (net of PIS and COFINS) relating to concession arrangement 059/2001, according to Exhibit of the aforementioned Rule. On November 29, 2012, Provisional Act 591 (MP 591) was published, changing Provisional Act 579 so as to authorize the Concession Grantor to pay the amount relating to non-depreciated assets as at May 31, 2000 (SE), within a period of 30 years. On August 13, 2014, the Company filed the independent appraisal report. On January 08, 2015, the Company received the oversight report from SFF, ANEEL s internal agency, which presented its understanding regarding the amount of compensation (Note 7). The Company awaits the approval by ANEEL s Board and the definition of payment by the Ministries of Mines and Energy and Finance At the Extraordinary General Meeting (EGM) held on December 3, 2012 the Company s shareholders unanimously approved the extension of Concession Arrangement 059/2001. On December 4, 2012, the Company entered into an addendum to concession arrangement 059/2001, with an option to receive the indemnification, in the amount of R$ 2,891,291, relating to the New Investments (NI), as set forth in Interministerial Rule 580 as follows: 50% on cash, payable within 45 days from the execution date of the addendum to the concession arrangement, adjusted based on the IPCA. On January 18, 2013 the Company received R$ 1,477,987; 50% in monthly installments, payable up to the expiration of the concession arrangement prevailing on the date of publication of such Rule, i.e., up to July 7, 2015, adjusted based on the IPCA, plus a compensation based on the real Weighted Average Cost of Capital (WACC) of 5.59% per year from the first day of the month of execution of the addendum to the concession arrangement. The remaining balance receivable as of December 31, 2014 totals: R$ 486,850. On January 11, 2013, Provisional Acts 579 and 591 were converted into Law /2013. On April 4, 2013, Provisional Act 612 was published to reduce to zero the PIS/PASEP and COFINS rates levied on indemnities referred to in Law /2013. Participation in consortium (i) Extremoz Transmissora do Nordeste - ETN On June 10, 2011, consortium Extremoz, comprised of CTEEP (51%) and Companhia Hidro Elétrica do São Francisco Chesf (49%), acquired in a public session conducted at BM&FBovespa batch A of ANEEL auction 001/2011, consisting of LT Ceará-Mirim João Câmara II, with 500 kv and 64 km; LT Ceará-Mirim Campina Grande III, with 500 kv and 201 km; LT Ceará-Mirim Extremoz II, with 230 kv and 26 km; LT Campina Grande III Campina Grande II, with 8.5 km; SE João Câmara II 500 kv, SE Campina Grande III 500/230 kv and SE Ceará-Mirim 500/230 kv. On July 7, 2011, Extremoz Transmissora do Nordeste ETN S.A. was established, based on the same ownership interests, in order to operate the service granted. The estimated investment in this project is R$ million and RAP of R$ 31.9 million in June The Company s stake in the project is 51%. The Company has expressed its intent to withdraw from the consortium, which was accepted by the other shareholders; the withdrawal will be consummated only after ANEEL s approval. 21

22 2 Presentation of the financial statements 2.1 Preparation and presentation basis The individual financial statements, identified as Parent company and the consolidated financial statements, identified as Consolidated, were prepared and are being presented in accordance with the accounting practices adopted in Brazil, which comprise which comprise the provisions set out in the Brazilian Corporate Law, the standards, interpretations and guidelines issued by the Brazilian Accounting Standards Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM), which are in conformity with the IFRS issued by the International Accounting Standards Board (IASB). Since there is no difference between the consolidated equity and consolidated profit (loss) attributable to the equity holders of the parent, in the consolidated financial statements under IFRS and Brazilian accounting practices, and the Company s equity and Company s profit (loss) in the individual financial statements under Brazilian accounting practices, the Company elected to present the accompanying individual and consolidated financial statements in a single set of information, side by side. Except for profit for the year, the Company does not have other comprehensive income. The individual and consolidated interim financial statements were prepared based on historical cost, except for where otherwise indicated, as described in the accounting practices, as follows. The historical cost is generally based on the fair value of the consideration paid in exchange for an asset. The non-financial information included in these financial statements, such as electric power volume and capacity, contractual data, economic projections, insurance and environment was not audited. The financial statements were approved and authorized by the Board of Directors on February 24, These financial statements, as well as the regulatory financial statements, mentioned in note 2.5, will be available in the Company s website as of February 26 and April 30, 2015, respectively. 2.2 Functional and presentation currency The financial statements of the Company and its subsidiaries included in the consolidated financial statements are presented in Brazilian Reais, the currency of the main economic environment where the companies operate (functional currency). 2.3 Significant accounting judgments, estimates and assumptions The preparation of the individual and consolidated financial statements requires that the Management to judge, using estimates and assumptions based on objective and subjective factors and on the opinion of legal advisors, in order to determine the adequate amounts for the record of certain transactions which may affect assets, liabilities, revenues and expenses. Actual results may differ from these estimates. These judgments, estimates and assumptions are reviewed at least once a year and eventual adjustments are recognized in the year in which estimates are reviewed. Judgments, estimates and assumptions considered critical are related to the following aspects: accounting of concession contracts, moment of recognition of financial asset, determination of revenues of construction and O&M, definition of financial assets effective interest rate, deferred tax assets and liabilities set up, analysis of credit risk and other risks for the determination of provisions, including provision for tax, civil and labor risks. Accounting of concession contracts (ICPC 01 and OCPC 05) 22