2Q15 São Paulo, August 14, 2015: CESP - Companhia Energética de São Paulo (BM&FBOVESPA: CESP3, CESP5 & CESP6), releases its financial results for the second quarter of 2015 (2Q15). The statements were produced according to the International Financial Reporting Standards (IFRS) and accounting practices adopted in Brazil, compared to the same period in 2014, except as otherwise indicated in this publication. Conference Call 2Q15 with Simultaneous Translation Date: 08/19/2015 Portuguese 11h00 (Brasília Time) 10h00 (New York Time) Tel.: +55 11 2188-0155 Code: CESP Replay: +55 11 2188-0155 Password: CESP Translation to English 11h00 (Brasília Time) 10h00 (New York Time) USA: (1 646) 843 6054 Other Countries: (1866) 890 2584 Code: CESP Replay: +55 11 2188-0155 Password: CESP IR Contact: Tel.: +55 11 5613-3626 Fax: +55 11 5613-3657 ricesp@cesp.com.br www.cesp.com.br Financial and Operating Highlights 2Q15 Results (R$ thousand) 2Q15 2Q14 Chg. 1H15 1H14 Chg. Net Operating Revenue 748,069 1,256,865-40,5% 1,527,705 2,905,446-47.4% Operating Expenses (395,967) (509,995) -22.4% (780,721) (899,009) -13.2% EBIT 352,102 746,870-52.9% 746,984 2,006,437-62.8% EBITDA 501,730 885,555-43.3% 1,036,964 2,348,055-55.8% Adjusted EBITDA 565,120 1,092,330-48.3% 1,140,523 2,569,534-55.6% Adjusted EBITDA Margin 75.5% 86.9% -11.5 p.p. 74.7% 88.4% - -13,7 p.p. Financial Result 51,827 (3,883) N.A (155,250) (36,911) 320.6% Net Income (Loss) 264,975 489,423-45.9% 369,130 1,334,254-72.3% 1
GENERATION FACILITIES CESP Companhia Energética de São Paulo has the concession of five hydroelectric generation plants operating under the regime of price, with a total of 52 generating units, 6,649.82 MW of installed capacity and 3,698.5 MW averages of energy physical guarantee, corresponding to 5% of the installed capacity and of physical energy warranty of Brazil. The plants are installed in the basins of the Paraná River, in the west of the state of São Paulo, and of Paraíba do Sul River, in the east of the state, making up the following Generation Facilities: Power Plants Date of Conclusion Generating Units Installed Capacity (MW) Physical Guarantee (Average MW) End of Concessions llha Solteira 1973 20 3,444.0 1,731.5 07/07/2015 Jupiá 1969 14 1,551.2 886.0 07/07/2015 Porto Primavera 1999 14 1,540.0 1,017.0 05/21/2028 Paraibuna 1978 2 87.0 50.0 03/09/2021 Jaguari 1972 2 27.6 14.0 05/20/2020 Total 52 6,649.8 3,698.5 Ilha Solteira and Jupiá Plant On May 15, 2015, the MME - Ministry of Mines and Energy published Decree No. 218, ratified by Decree No. 300 of June 24, 2015, determining that the auction of Power Plants Ilha Solteira and Jupiá be held in September 2015. On June 11, 2015, the MME - Ministry of Mines and Energy published Decree No. 256, designating the Company as responsible for the Provision of Electricity Generation Service of the power plants of Ilha Solteira and Jupiá, from July 8, 2015, when its concession contracts were terminated, until the assumption of the winning bidders. Três Irmãos Plant CESP filed in the Federal Justice in Brasília a lawsuit against the Union requesting an indemnification for the investments made and not yet amortized, due to reversion of assets and facilities of Três Irmãos Plant. At the same time, on November 27, it was decided by the judge that CESP is entitled to receive the amount considered uncontroversial (R$ 1,717 million) in monthly installments for seven years, while discuss the total amount of compensation receivable. This decision was subject to appeal by the Union, which succeeded in suspending its effects. Thus, the monthly payments have not yet started. 2
ELECTRICITY PRODUCTION In the second quarter of 2015, CESP s electricity production reached 5,947 GWh, 15.1% lower than 2Q14. The production follows the command from the Operator of the National Electricity System Operation (ONS), and has reflected the decision to reduce power generation to protect the levels of water reservoirs, affected by hydrological condition of Southeast region. In the second quarter of 2015, CESP s production was 26.4% lower than the nominal guaranteed power output, without considering the seasonality of energy. In the same way, production in the first half was 18.5% lower. Power Plants Production MWh 2Q15 2Q14 1H15 1H14 Ilha Solteira 2,339,116 3,038,384 5,176,301 7,154,721 Jupiá 1,617,804 1,784,879 3,577,908 4,066,145 Porto Primavera 1,949,270 2,051,944 4,255,830 4,625,040 Paraibuna 38,244 122,043 69,666 245,924 Jaguari 2,159 8,725 6,716 35,297 Total 5,946,593 7,005,975 13,086,421 16,127,127 SALES Nota: Physical guarantee = 3,698.5 average MW X 24 hours X 91 days = 8,077,524 MWh/2Q15 3,698.5 average MW X 24 hours X 181 days = 16,066,284 MWh/1H15 CESP's customers are: (i) electricity distributors in the country who acquire energy in auctions in the regulated market through long-term contracts and; (ii) the trading companies and free consumers who acquire energy through public offerings in bilateral contracts of short, medium and long term. CESP sells its net physically guaranteed energy supply in the following environments: Free Contracting Market ACL: by way of Agreements for Purchase and Sale of Energy (CCVEs) for short, medium and long terms, with volumes, prices and conditions negotiated with selling companies and with free consumers. Regulated Contracting Market ACR: through power purchase auctions organized by ANEEL Electric Energy National Agency, conducted through the CCEE to serve the distributors. Electric Energy Trading Board CCEE: in which the differences between energy produced, physically guaranteed and contracted are booked and liquidated, in which the differences between energy produced, physically guaranteed and contracted are booked and liquidated, partly to meet the ERM Energy Reallocation Mechanism to regulated tariffs that only cover the variable costs of power generation, and partly as waste products and secondary energy, the prices for Settlement of Differences PLD, cleared in CCEE. 3
REVENUES In the second quarter of 2015, the Revenues from Energy Sale decreased 37.2%, recording R$ 890.1 million, highlighting the Short Term Market - PLD which decreased 68.0%. In volume, the reduction in the quarter was 15.0% compared to the same period 2014. This result reflects a reduction both in the amount and also the prices of energy transacted through the National Electricity Trading Chamber CCEE. The reduction in amount is due to the GSF Generation Scaling Factor, and the reduction in prices is determined by resolution of the National Electricity Agency ANEEL, which established a new upper limit of R$ 388.48/MWh for Brazilian Spot Prices PLD as from January this year. In 2014, this cap price stood at R$ 822.83/MWh. On the other hand, under the market rules, CESP contributed positively to the Energy Reallocation Mechanism - MRE, with prices of the Energy Optimization Rate - TEO. Energy Sales Breakdown MWh R$ thousand 2Q15 1Q14 Chg. 2Q15 1Q14 Chg. Free Market - ACL 3,473,556 4,365,247-20.4% 545,556 568,695-4.1% Regulated Market - ACR 1,394,412 2,142,328-34.9% 231,145 361,639-36.1% Spot Market - PLD 272,373 439,823-38.1% 101,444 317,650-68.1% Settlement of Prior Periods - - - - 171,481 - Spot Market - MRE 600,323 (192,319) NA 11,980 (2,555) N.A Total 5,740,664 6,755,079-15.0% 890,125 1,416,910-37.2% MWh R$ thousand Energy Sales Breakdown 1H15 1H14 Chg. 1H15 1H14 Chg. Free Market - ACL 7,442,662 8,971,312-17.0% 1,195,029 1,152,497 3.7% Regulated Market - ACR 2,918,430 4,433,368-34.2% 478,489 744,189-35.7% Spot Market - PLD 335,668 1,962,394-82.9% 125,314 1,189,079-89.5% Settlement of Prior Periods - - - 2,184 171,481-98.7% Spot Market - MRE 2,066,980 218,156 847.5% 22,256 1,5891300.6% Total 12,763,740 15,585,230-18.1% 1,823,272 3,258,835-44.1% REVENUE BREAKDOWN In 2Q15, the Free Market (ACL) ensured the highest revenue of energy, traded for the average price of R$ 157.06/MWh, 20.6% above 2Q14. The average price of the Regulated Market (ACR) was R$ 165.77/MWh and PLD was R$ 372.45/MWh. 4
17.0% REVENUE BREAKDOWN GRAPH 37.1% 45.9% 2Q15 2Q14 * * Excluding the settlement of prior periods Regulated Market - ACR Free Market - ACL Spot Energy - CCEE Free Market ACL In the second quarter of 2015, the Free Market share in the total traded energy was 61.3%, corresponding to R$ 545.5 million. The energy amount assigned to ACL corresponded to 3,473 GWh in 2Q15, representing 60.5% share in the total amount of traded energy. Regulated Market ACR The share of revenue from this market in 2Q15 was 26.0%, reporting R$ 231.1 million. The energy amount assigned to ACR totaled 1,394 GWh in 2Q15 and represented 24.3% share in the total amount of traded energy. Spot Market In 2Q15, the revenue from CCEE obtained by the company, considering the Spot Market (PLD) and Energy Reallocation Mechanism (MRE), was R$ 113.4 million, corresponding to 12.7% share, even though CESP affording its portion of GSF costs, which recorded the following ratios: April = 0.825; May = 0.796; June = 0.794. The amount traded in this market was 873 GWh, or 15.2% of the total amount traded. 5
DEDUCTIONS FROM OPERATING REVENUE The Deductions from the Operating Revenue represented 16.1% of the gross operating revenue from 2Q15, reporting R$ 143.3 million. In 2Q14, the share was 12.7% in relation to total revenue, corresponding to R$ 183.1 million. Deductions from Operating Revenues - R$ '000 2Q15 2Q14 Chg. 1H15 1H14 Chg. Global Reserve for Reversion Quota - RGR (21,181) (21,077) 0.5% (42,363) (42,154) 0.5% Research and Development (7,475) (12,984) -42.4% (15,213) (30,020) -49.3% Services tax - ISS (48) (20) 140%% - (239) (40) 497.5% COFINS tax on Operating Revenues (62,584) (87,176) -28.2% (131,908) (188,595) -30.1% PIS tax on Operating Revenues (13,221) (18,920) -30.1% (28,636) (40,927) -30.0% Compensations for Use of Water Resources (34,223) (39,217) -12.7% (75,313) (91,115) -17.3% System Services Fee (4,624) (3,725) 24.1% (9,248) (7,451) 24.1% Total (143,356) (183,119)-21.7% (302,920) (400,302) -24.3% % Gross Revenues 16.1% 12.7% 3.4 p.p. 16.5% 12.1% 4.5 p.p. OPERATING EXPENSES The Operating Expenses in 2Q15 totaled R$ 395.9 million, 22.4% lower than the same period in 2014, representing 52.9% of the net revenue. The main item contributing for this reduction was from Operational Provisions, down 66.2% YoY. The following expenses saw increases during the period: (+16.3%) in Personnel, which reflects the cost of dismissal of employees of HPP Três Irmãos and expenses with medical and dental care, and also Third Party Services (+29.5%), with more contracts in this quarter. Operating Expenses - R$ thousand 2Q15 2Q14 Chg. 1H15 1H14 Chg. Personnel (48,083) (41,353) 16.3% (87,658) (84,522) 3.7% Retirement incentive program - - - - (6,294) N.A Social Security Entity - Contribution to plan (2,178) (2,016) 8.0% (4,477) (4,123) 8.6% Social Security Entity - CPC 33 / IAS 19 (14) 1,163-94 2,418-96.1% Materials (2,677) (2,571) 4.1% (6,163) (5,443) 13.2% Outsourced Services (27,639) (21,346) 29.5% (46,728) (39,609) 18.0% Energy Purchased 940 - - (41,301) - - System Service Charges - transmission (94,753) (92,519) 2.4% (190,458) (184,125) 3.4% COFINS/PIS credits on services charges 7,810 5,777 35.2% 16,437 10,291 59.7% Depreciation (154,544) (158,687) -2.6% (312,680) (317,955) -1.7% Provision for Estimated Credit Losses (3,127) (2,328) 34.3% (3,847) (5,044) -23.7% Operating Provision (64,279) (190,246) -66.2% (91,383) (253,927) -64.0% Other Expenses (7,423) (5,869) 26.5% (12,557) (10,676) 17.6% Total (395,967) (509,995) -22.4% (780,721) (899,009) -13.2% % of Net Revenue 52,9% 40,6% 12,3 p.p. 51.1% 30.9% 20.2 p.p. 6
EBITDA The Adjusted EBITDA totaled R$ 565 million in 2Q15, 48.3% lower than in 2Q14. The Adjusted EBITDA Margin in 2Q15 was 75.5%, lower than the 86,9% reported in 2Q14. Adjusted EBITDA R$ millions EBIT / EBITDA - R$ thousand 2Q15 2Q14 Chg. 1H15 1H14 Chg. Net Income 264,975 489,423-45.9% 369,130 1,334,254-72.3% Tax and Social Contribution (Net) 133,711 233,233-42.7% 199,248 658,278-69.7% Financial Result (51,827) 3,883 N.A 155,250 36,911 320.6% EBIT 346,859 726,539-52.3% 723,628 2,029,443-64.3% Depreciation 154,871 159,016-2.6% 313,336 318,612-1.7% EBITDA 501,730 885,555-43.3% 1,036,964 2,348,055-55.8% Provision for Legal Risks 63,390 206,775-69.3% 103,559 221,479-53.2% Adjusted EBITDA 565,120 1,092,330-48.3% 1,140,523 2,569,534-55.6% Adjusted EBITDA Margin 75.5% 86.9% -11,5 p.p. 74.7% 88.4% -13,7 p.p. FINANCIAL RESULTS In 2Q15, the Financial Revenues totaled R$ 50.2 million, 2.5% lower than the R$ 51.4 million reported in 2Q14. Total Financial Expenses in 2Q15, including debt charges and other financial expenses, were R$ 19.6 million, 54.4% lower than the same period in 2014. 7
The Monetary Variations, based on inflation indicators, resulted in R$ 13.7 million negative in 2Q15, 61.7% lower than R$ 35.8 million negative reported in 2Q14. On the other hand, positive foreign exchange variations totaled, in the same period, respectively R$ 35.0 and R$23.7 million positive, reflecting the 1.6% devaluation of the US$ vs. the R$ during the period. So, the 2Q15 Financial Result was a positive R$ 51.8 million, reverting last year s loss. Breakdown of Financial Results - R$ thousand 2Q15 2Q14 Chg. 1H15 1H14 Chg. REVENUES 50,206 51,484-2.5% 98,685 252,089-60.9% Revenues from Investments 47,399 48,689-2.6% 93,439 75,387 23.9% FIDC - update 2,700 2,135 26.5% 4,832 3,887 24.3% Update escrow and tax for offset 55 44 25.0% 124 715-82.7% Other 52 616-91.6% 290 619-53.2% EXPENSES DEBT CHARGES (15,499) (36,359) -57.4% (34,190) (74,660) -54.2% Foreign Currency (12,951) (10,999) 17.7% (24,913) (23,657) 5.3% Local Currency (2,548) (25,360) -90.0% (9,277) (51,003) -81.8% OTHER (4,163) (6,842) -39.2% (67,993) (15,223) 346.6% Charges and update on taxes and social contributions - (27) - - (134) - Income tax on financial operations (26) (138) -81.2% (59) (194) -69.6% Income tax without remittances abroad (738) (3,548) -79.2% (49,642) (6,998) 609.4% Update on purchase of foreign currency - - - Financial Adjustment - TAC - (51) - - (265) - Financial Operation Expenses - FIDC (139) (188) -26.1% (291) (400) -27.3% Updating R&D - projects (2,535) (1,966) 28.9% (4,864) (3,836) 26.8% Discount on customer contracts - (766) -100.0% - (1,455) - Other charges (725) (158) 358.9% (2,857) (1,941) 47.2% TOTAL FINANCIAL EXPENSES (19,662) (43,201) -54.5% (102,183) (89,883) 13.7% GROSS INCOME 30,544 8,283 268.8% (3,498) (9,275) -62.3% MONETARY AND EXCHANGE VARIATIONS, NET 21,283 (12,166) N.A (151,752) (27,636) 449.1% Local Currency (13,750) (35,868) -61.7% (35,523) (72,875) -51.3% Foreign Currency 35,033 23,702 47.8% (116,229) 45,239 N.A FINANCIAL RESULT 51,827 (3,883) N.A (155,250) (36,911) 320.6% NET PROFIT In 2Q15, the profit before taxes was R$ 398.7 million and Income Tax and Social Contribution Expenses totaled R$ 133.7 million. Thus, the Net Profit was R$ 265 million. 8
INDICATORS The table below shows the main indicators that impacted CESP s results: Financial and Economic Indexes 2Q15 2Q14 Chg. 1H15 1H14 Chg. Average Price Contract - R$ per MWh 170.83 179.63-4.9% 168.17 200.80-16.3% Operating Margin 47.1% 59.4% -12.3 p.p. 48.9% 69.1% -20.2 p.p. Foreign Exchange Variation (USD/BRL) -3.3% -2.7% -0.6 p.p. 16.8% -6.0% 22.8 p.p. IGP-M (General Market Price Index) 2.3% -0.1% 2.4 p.p. 4.3% 2.4% 1.9 p.p. IPC-A (Extended Consumer Price Index) 2.3% 1.5% 0.8 p.p. 5.3% 3.7% 1.6 p.p. Current Ratio 1.04 1.21 * Considers only contract sales (ACR+ACL) and sales on spot market. FINANCIAL DEBT The Financial Debt on June 30, 2015 was R$ 1,626.4 million, 41.5% lower than on December 31, 2014. Considering the cash resources of R$ 1,198.5 million, net debt on June 30, 2015 was R$ 427.9 million. The debt in foreign currency was US$ 244.2 million on June 30, 2015, including debts incurred until such date (US$ 268.1 million on December 31, 2014). 9
Financial Debt Position in 06/30/2015 12/31/2014 (In R$ thousand) Charges Current Long Term Total Total Chg. Foreign Currency 2,246 151,274 603,998 757,518 712,029 6.4% BNDES 2,182 151,274 602,752 756,208 710,737 6.4% Other 64-1,246 1,310 1,292 1.4% Local Currency 7 5,154 17,632 22,792 1,043,035-97.8% Financial Institutions - - - - 39,460 - Medium Term Notes - - - - 978,205 - ELETROBRÁS 7 5,154 17,632 22,792 25,370-10.2% Other Debts 3,578 266,885 575,629 846,092 1,025,105-17.5% FIDC 3,578 266,885 167,005 437,468 559,342-21.8% Social Security Entity (a) - - 408,624 408,624 465,763-12.3% Total of Financial Debt (1) 5,831 423,313 1,197,259 1,626,402 2,780,169-41.5% Resources (2) - 1,198,519-1,198,519 2,427,852-50.6% Cash and Cash Equivalents - 1,198,519-1,198,519 2,427,852-50.6% NET DEBT (1) - (2) 5,831 (775,206) 1,197,259 427,883 352,317-21.4% (a) Debt agreements with CESP Foundation that, less R$ 333.8 million for the 33 CPC adjustment presents balance of R$ 74.7 mm in Non-Current Liabilities on 6.30.2015 CAPITAL MARKET CESP6 preferred stocks Class B, CESP s most negotiated stocks, represent 64% of the company s total capital and presented minus variation of 26.9% in the first half of 2015. In the same period, CESP5 preferred stocks Class A, which represent 3% of the company s capital, presented 22.3% reduction and CESP3 ordinary stocks, which represent 33% of the company s total capital, had 31.3% reduction. In 1H15, IBOVESPA presented 6.1% appreciation and the Electric Energy Index (IEE), had 11.4% increase. The table below shows the closing values and the market value of CESP s stocks in the last session held in December 2014 and June 2015, as well as the total IBOVESPA and IEE indexes on the same dates. Share / Index Closing June 2015 Closing December 2014 Chg. Number of Shares (thousand) Market Value (R$ thousand) June 2015 CESP3 - ON 15.40 22.40-31.2% 109,168 1,681,187 CESP5- PNA 19.58 25.20-22.3% 7,441 145,695 CESP6 - PNB 19.61 26.81-26.9% 210,894 4,135,631 TOTAL CESP 327,503 5,962,513 IBOV 53,080 50,007 6.1% IEE 30,253 27,161 11.4% The drop in share prices can be atributed to a dividend payment of R$4,85/share. Shares became ex-dividend on April 30th, 2015, as can be seen in the following graphs. 10
STOCK PERFORMANCE CESP3 - ON (Share price on 06/30/2015 R$ 15.40) CESP5 PNA (Share price on 06/30/2015 R$ 19.58) 11
CESP6 PNB (Share price on 06/30/2015 R$ 19.61) LEGAL DISCLAIMER The statements contained in this document relating to the business outlook, estimates of operating and financial results and growth prospects of CESP are merely projections, and as such based exclusively on Management s expectations regarding the future of the business. These forward looking statements depend substantially on changes in market conditions, the performance of the Brazilian economy, the industry and international markets, and therefore are subject to change without prior notice. 12
Income Statement - R$ thousand 2Q15 2Q14 Chg. 1H15 1H14 Chg. OPERATING REVENUES 891,425 1,439,984-38.1% 1,830,625 3,305,748-44.6% Electricity sales to final customers 254,516 286,562-11.2% 513,720 577,276-11.0% Electricity sales to distributors - Contracts 291,040 282,133 3.2% 681,309 575,221 18.4% Auction Energy 231,145 361,639-36.1% 478,489 744,189-35.7% Spot Market Energy 113,424 486,576-76.7% 149,754 1,362,149-89.0% Quota system - Três Irmãos - 21,747 - - 44,944 - Other Revenues 1,300 1,327-2.0% 7,353 1,969 273.4% DEDUCTIONS FROM OPERATING REVENUES (143,356) (183,119) -21.7% (302,920) (400,302) -24.3% Global Reserve for Reversion Quota - RGR (21,181) (21,077) 0.5% (42,363) (42,154) 0.5% Development and research (7,475) (12,984) -42.4% (15,213) (30,020) -49.3% Services tax - ISS (48) (20) 140.0% (239) (40) 497.5% COFINS Tax on Operating Revenues (62,584) (87,176) -28.2% (131,908) (188,595) -30.1% PIS Tax on Operating Taxes (13,221) (18,920) -30.1% (28,636) (40,927) -30.0% Compensation for Use of Water Sources (34,223) (39,217) -12.7% (75,313) (91,115) -17.3% System Services Fee (4,624) (3,725) - (9,248) (7,451) 24.1% NET OPERATING REVENUES 748,069 1,256,865-40.5% 1,527,705 2,905,446-47.4% OPERATING EXPENSES (395,967) (509,995) -22.4% (780,721) (899,009) -13.2% Personnel (48,083) (41,353) 16.3% (87,658) (84,522) 3.7% Retirement incentive program - - - - (6,294) - Social Security Entity - Contribution plan (2,178) (2,016) 8.0% (4,477) (4,123) 8.6% Social Security Entity - CPC 33 / IAS 19 (14) 1,163-94 2,418-96.1% Materials (2,677) (2,571) 4.1% (6,163) (5,443) 13.2% Outsourced Services (27,639) (21,346) 29.5% (46,728) (39,609) 18.0% Energy purchased 940 - - (41,301) - - System Services Charges - transmission (94,753) (92,519) 2.4% (190,458) (184,125) 3.4% COFINS/PIS credits on services charges 7,810 5,777 35.2% 16,437 10,291 59.7% Depreciation (154,544) (158,687) -2.6% (312,680) (317,955) -1.7% Provision for Estimated Credit Losses (3,127) (2,328) 34.3% (3,847) (5,044) -23.7% Operating Provision (64,279) (190,246) -66.2% (91,383) (253,927) -64.0% Other Expenses (7,423) (5,869) 26.5% (12,557) (10,676) 17.6% INCOME FROM OPERATIONS 352,102 746,870-52.9% 746,984 2,006,437-62.8% Other Net Revenues (expenses) (5,243) (20,331) -74.2% (23,356) 23,006 N.A OPERATING INCOME FINANCIAL RESULTS 346,859 726,539-52.3% 723,628 2,029,443-64.3% FINANCIAL RESULT 51,827 (3,883) N.A (155,250) (36,911) 320.6% INCOME BEFORE TAXES 398,686 722,656-44.8% 568,378 1,992,532-71.5% Current Income Tax (74,328) (168,445) -55.9% (146,699) (396,005) -63.0% Current Social Contribution (27,817) (61,950) -55.1% (54,587) (144,606) -62.3% Deferred Income Tax and Social Contribution (31,566) (2,838) 1012.3% 2,038 (117,667) N.A Income Tax and Social Contribution TOTAL (133,711) (233,233) -42.7% (199,248) (658,278) -69.7% NET INCOME 264,975 489,423-45.9% 369,130 1,334,254-72.3% NET INCOME per share - R$ 0.81 1.49-45.9% 1.13 4.07-72.3% 13
ASSETS 06/30/2015 12/31/2014 CURRENT ASSETS 1,661,746 2,948,585 Cash and Cash Equivalents 1,198,519 2,427,852 Accounts Receivable 368,362 423,061 Allowances for Doubtful Losses (41,733) (37,886) Recoverable Taxes 5,274 4,473 Stockroom 30,167 34,788 Other Receivables 96,785 90,103 Prepaid Expenses 4,372 6,194 LONG TERM ASSETS 11,517,495 11,739,301 Pledges and Restricted Deposits 785,895 773,555 Deferred Taxes and Social Contribution 736,724 734,686 Other Receivables 3,650 4,730 Prepaid expenses 146 4,807 Assets available for reversal 3,529,080 3,529,080 Provision contingent asset - HPP Três Irmãos (1,811,718) (1,811,718) Property 8,273,718 8,504,161 TOTAL ASSETS 13,179,241 14,687,886 14
LIABILITIES AND SHAREHOLDERS' EQUITY 06/30/2015 12/31/2014 CURRENT LIABILITIES 1,590,289 2,202,432 Suppliers 10,809 16,853 Loans and Financing 158,680 1,149,797 FIDC 270,463 290,626 Taxes and Social Contributions 72,016 50,030 Regulatory Tariffs and System Service Charges - transmission 110,128 115,413 Interest on equity and Dividends 791,060 405,385 Estimated obligations and payroll 21,894 30,194 Other obligations 155,239 144134 NON-CURRENT LIABILITIES 3,796,608 3,856,377 Loans and Financing 621,630 605,267 FIDC 167,005 268,716 Employee Pension Entity 74,752 131,891 Regulatory Tariffs and System Service Charges - transmission 70,969 70,969 Provision for Contigencies 2,745,579 2,660,866 Environmental obligations 101,192 101,192 Other obligations 15,481 17,476 SHAREHOLDERS' EQUITY 7,792,344 8,629,077 Capital Stock 5,975,433 5,975,433 Capital Reserve 1,929,098 1,929,098 Adjustment to net assets (1,059,174) (970,052) Other comprehensive income (168,003) (137,792) Income Reserve 656,738 656,738 Additional Proposed Dividends - 1,175,652 Accumulated Income 458,252 - TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 13,179,241 14,687,886 15
ANNEX I Electricity Sector Glossary ACL Free Contracting Market The segment of the market in which energy is purchased and sold through freely negotiated bilateral contracts, among generators, sellers and free consumers in accordance with specific selling rules and procedures. Distribution agents (distributors) are not allowed to purchase energy in this environment. ACR Regulated Contracting Market The segment of the market in which energy is purchased and sold among generators and distributors, preceded by auctions except in cases envisaged by the Law, in accordance with specific selling rules and procedures. Agent Agent of the Electric Energy Trading Board (CCEE) Concessionaires, authorized companies or permit holders of energy services and facilities, sellers and free consumers, members of the CCEE and subject to the obligations and rights in the Trading Agreement, Rules and Procedures. ANEEL Brazilian Electricity Regulatory Agency Regulatory body of the Brazilian energy industry. A special regime governmental agency, linked to the Ministry of Mines and Energy MME, created by Law 9,427, of December 26, 1996. The Agency has the following responsibilities: regulating and monitoring the generation, transmission, distribution and commercialization of energy, responding to complaints of agents and consumers with fairness to the benefit of society; mediating conflicts of interest between energy sector agents and between energy sector agents and consumers; granting, permitting and authorizing energy facilities and services; ensuring fair tariffs; doing everything to ensure the best possible service quality; requiring investments; encouraging competition among operators; and ensuring service universalization. Assured Energy See Physical Guarantee. Basic Network Transmission facilities of the National Interconnected System SIN, owned by public service transmission concessionaires with voltage equal to or higher than 230 kv, established pursuant to criteria set forth by Regulatory Resolution 67, of June 8, 2004. Bilateral Contract A legal document that formalizes the purchase and sale of electric energy among CCEE agents in the Free Contracting Market in order to establish prices, deadlines and supply volumes in specific time intervals. Captive Consumers Consumers that are only allowed to purchase energy from the distributor to whose network it is connected. CAR Risk Aversion Curve Mechanism that establishes the minimum water storage level in reservoirs of hydroelectric power plants needed to produce energy with a safe interconnected system. CAR was introduced in January 2002 by Resolution 109, which established criteria and rules for the energy operation policy and thermal generation dispatch executed by the ONS, as well as pricing in the energy market. CCE Energy Purchase Agreement Contract with regulated tariff that establishes the general terms and conditions regulating the sale of energy among current generators and distributors with a market lower than 500 GWh/year, to serve its market. CCEAR Energy Trading Agreement in the Regulated Market A contracted between each generator and all distributors that participate in the auction for the sale of energy from existing or future projects. 16
CCEE Electric Energy Trading Chamber Private non profit legal entity that operates under the authorization of the Granting Authority, regulated and monitored by the ANEEL, to facilitate energy purchase and sale transactions between CCEE agents, restricted to the National Interconnected System (SIN). It is in the CCEE that all agents account for their energy rights and book energy transactions on a monthly basis. CCVEE Energy Purchase and Sale Agreement Also called Bilateral Contract. It is an agreement that formalizes the sale of energy (volume, prices, conditions, etc) resulting from the free negotiation among generators, sellers, free consumers and importers in the Free Contracting Market. CNPE - National Energy Policy Council CNPE is a committee created in August 1997 that advises the President of Brazil on the development of national energy policy. The CNPE was created to optimize the use of Brazil s energy resources and to guarantee national energy supply. Concession Contract Legal document signed between the Granting Power and the concessionaire formalizing the concession, which must have the essential clauses relating to the objective, area and period, as well as the main conditions for the provision of the public service. CVM - Brazilian Securities Commission Distributors Agent holding the federal concession to provide energy distribution public services under the terms of applicable legislation, serving captive consumers in its concession area. EBIT and EBITDA Defined by the rules established by the CVM Instruction No. 527/2012. Adjusted EBITDA EBITDA is defined by CESP as Net Income (or Loss) plus Financial Results, Depreciation, Impairment, Operational Provisions, Other Net (Expenses) Revenue, Employees Pension Plan CPC 33/IAS 19, Income Tax and Social Contribution. Electric Sector General Agreement Agreement signed between generators and distributors defining the rules for compensation for the financial losses due to energy rationing in 2001/2002. The agreement, signed in December 2001, envisaged a loan provided by the Brazilian Development Bank (BNDES) to companies and the extraordinary tariff adjustment for consumers, except low income consumers, to recoup losses. Energy Auctions Bidding process for the purchase of electric energy, governed by their invitations to bid and related documents, where distributors may buy energy to serve their market. Energy from Existing Projects Energy produced by projects that were already operating by December 31, 1999, also called Old Energy. Energy from New Projects Electric energy from new plants, new projects in the bidding process and projects granted or authorized until March 16, 2004, which began commercial operations as of January 1, 2000 and whose energy was not contracted until March 16, 2004. It is also called New Energy. Energy Provision Sale of energy to large consumers. Energy Supply Sale of energy to distributors and sellers who resell it to their clients. FIDC Credit Rights Investment fund, as established by the rules of the Brazilian Securities and Exchange Commission (CVM). Receivables securitization. 17
Free Market See ACL. Generator A company that produces energy. GSF (Generation Scaling Factor, MRE Factor) is an Adjustment Factor on Assured Generated Energy that consider a reduction of assured energy of the MRE units when the total energy generated is less than the total assured energy. GSF = Hydraulic Generation in SIN / Total Generation in SIN. Then a GSF <100% indicates that the MRE plants generated less than their physical security Installed Capacity (Installed Power Capacity) Maximum amount of electricity that may be delivered by a generating unit, a hydroelectric power plant or a generating park. Installed Power Capacity See Installed Capacity. MCSD Mechanism for Compensating Surpluses and Deficits Reallocation process between Distribution Agents who participate in the Electric Energy Trading Board CCEE, of surpluses and deficits in sums of energy contracted in the Regulated Contracting Market ACR. Through this process, distributors can transfer up to 3% of those sums they maintain under purchase agreement with generators to other distributors per year. MME Ministry of Mines and Energy The MME is the Brazilian government s primary authority the power industry. Its main duties are drafting guidelines for the granting of concessions and issuing directives governing the bidding process for concessions that relate to public services and public assets. MRE Energy Reallocation Mechanism A mechanism for sharing the water source risks associated to the electric energy optimization of the National Interconnected System (SIN) relating to the centralized dispatch of the electric energy generation units. This means that eventual generation shortages by a plant under the ONS may be covered by another plant in the system, with a view to optimize the system. These compensations are remunerated by the Optimization Energy Tariff TEO. MW- Megawatt Measurement unit of mechanical or electrical energy, thermal flow and energetic radiation flow, equivalent to one million watts. MW average - Megawatt average Measurement unit related to energy in MegaWatt-hour (MWh) divided by number of hours of the period. MWh - Megawatt-hour Measurement unit equivalent to one megawatt of power supplied or demanded for one hour or a million Watts-hour. ONS National Electrical System Operator An agent instituted by Law 9,648, of 1998, based on the text contained in Law 10,848, of 2004, which is responsible for coordinating and controlling the generation and transmission of electric energy in the National Interconnected System (SIN). Physical Guarantee the amount of energy that an agent is authorized to trade under contracts, as energy supply, measured in average megawatts (average MW). It is established by ANEEL as the average amount of energy that a plant can generate and trade, on a sustainable basis, 365 days per year, with a 5% risk factor (this replaces the concept of assured energy). 18
PLD Spot price The price disclosed by CCEE, calculated a maximum of one week in advance based on the Marginal Cost of Operations, limited by minimum and maximum prices, in effect for each calculation period and each submarket, based on which the energy sold in the spot market is priced. Quotas See quota system. Quota system The mechanism used for proration of physically guaranteed energy and power from the Hydroelectric Plants, renewed in accordance with Law 12.783 (MP 579) and allocated to the National Interconnected System electric energy distribution concessionaires, as per specific ANEEL regulation, aiming to tariff moderateness Regulated Market See ACR. RGR Global Reversal Reserve a charge paid on a monthly basis (quota) by energy companies with the purpose of providing funds for the reversal and/or nationalization of energy public services. There is also the legal reserve to finance the expansion and improvement of these services, as well as alternative energy sources for inventory and feasibility studies to use new hydraulic potentials, and to develop and implement programs and projects focused on preventing waste and promoting the efficient use of energy. The annual charge to be collected is equivalent to 2.5% of the fixed assets related to the provision of energy services, limited to 3.0% of its annual revenue. RTE Extraordinary Tariff Recomposition Temporary tariff increase authorized for distributors of regions where energy was rationed in 2001 and 2002, in compliance with Law 10,438, of 2002. Part of the proceeds from this compensation was transferred to generators as a refund for the energy purchased. Seller A company that operates in the intermediation of energy purchase and sale transactions. SIN National Interconnected System Electrically interconnected installations, comprising plants and transmission facilities, responsible for providing electric energy to all regions of the country, covering 97% of the Brazilian consumption. Spot Market Segment of the Electric Energy Trading Board (CCEE) where the differences among the electric energy amounts contracted and recorded by CCEE agents and the amounts actually generated or consumed and attributed to the respective agents are traded. Spot Market Power The energy accounted for by the CCEE resulting from differences between production or consumption and the contracted amount. Positive or negative differences are settled in the spot market and calculated at the PLD (spot price). TAC Conduct Adjustment Agreement A legal instrument entered into between those responsible for certain actions or measures (CESP, in this case) and the federal, state or municipal Prosecution Office to defend the public or collective interest. It generally refers to environment preservation, mitigation or recovery initiatives through the establishment of technical obligations and conditions. 19