As filed with the Securities and Exchange Commission on April 19, 2021
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number: 001-14668
COMPANHIA PARANAENSE DE ENERGIA – COPEL
(Exact Name of Registrant as Specified in its Charter)
|
Energy Company of Paraná (Translation of Registrant’s Name into English) |
The Federative Republic of Brazil (Jurisdiction of Incorporation or Organization) |
Rua Coronel Dulcídio, 800
80420-170 Curitiba, Paraná, Brazil
(Address of Principal Executive Offices)
Daniel Pimentel Slaviero
+55 41 3331 4011 – ri@copel.com
Rua Coronel Dulcídio, 800, 3rd floor – 80420.170 Curitiba, Paraná, Brazil
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered | |
| Preferred Class B Shares, without par value* | N/A | New York Stock Exchange | |
|
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Preferred Class B Share |
ELP |
New York Stock Exchange
| |
* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of December 31, 2020:
1,450,310,800 Common Shares, without par value*
3,267,520 Class A Preferred Shares, without par value*
1,282,975,430 Class B Preferred Shares, without par value*
* Does reflect the share split that occurred on March 11, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No [_]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes [_] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
N/A
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and ”emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Large accelerated filer [X] Accelerated filer [_]
Non-accelerated filer [_] Emerging growth company [_]
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5,2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [_] IFRS [X] Other [_]
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
N/A
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [_] No [X]
Table of Contents
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this annual report, we refer to Companhia Paranaense de Energia ‒ Copel, and, unless the context otherwise requires, its consolidated subsidiaries as “Copel”, the “Company”, “we” or “us”.
References to (i) the “real”, “reais” or “R$” are to Brazilian reais (plural) and the Brazilian real (singular) and (ii) “U.S. dollars”, “dollars” or “US$” are to United States dollars. We maintain our books and records in reais. Certain figures included in this annual report have been subject to rounding adjustments.
Our audited consolidated financial statements as of December 31, 2020 and 2019, and for each of the years ended December 31, 2020, 2019 and 2018, are included in this annual report. We prepared our audited consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
References in this annual report to the “Common Shares”, “Class A Shares” (or “Class A”) and “Class B Shares” (or “Class B”) are to our common shares, class A preferred shares and class B preferred shares, respectively. References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing one Class B Share. The ADSs are represented by American Depositary Receipts (“ADRs”).
Certain terms are defined the first time they are used in this annual report. As used herein, all references to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively, references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively, references to “MW” and “MWh” are to megawatts and megawatt hours, respectively, and references to “kV” are to kilovolts. These and other technical terms are defined in the “Technical Glossary” that begins on page 149.
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This annual report contains forward-looking statements. We may also make written or oral forward-looking statements in our annual report to shareholders, in our offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees. These statements are not historical facts and are based on management’s current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “anticipates”, “believes”, “estimates”, “expects”, “plans” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting the financial condition, liquidity or results of operations are examples of forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve only the current view of management and are subject to a number of inherent risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to:
| · | Brazilian political and economic conditions; |
| · | economic conditions in the State of Paraná; |
| · | technical and operational conditions related to the provision of electricity services; |
| · | lawsuits; |
| · | our ability to obtain financing; |
| · | developments in other emerging market countries; |
| · | changes in, or failure to comply with, governmental regulations; |
| · | competition; |
| · | electricity shortages; |
| · | impacts of the coronavirus (COVID-19) pandemic; and |
| · | other factors discussed below under “Item 3. Key Information―Risk Factors”. |
All forward-looking statements are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement contained in this annual report.
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
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Risks Relating to Our Company and our Operations
We are controlled by the State of Paraná, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors.
We are controlled by the State of Paraná, which holds 58.6 % of our outstanding common voting shares as of the date of this annual report, and whose interests may differ from other shareholders. As a major shareholder, the State of Paraná has the power to control all of our operations, including the power to elect a majority of the members of our Board of Directors and determine the outcome of any action requiring common shareholder approval, including transactions with related parties and corporate reorganizations.
As our operations have an important impact on the commercial and industrial development of the State of Paraná, the State of Paraná may use its status as our controlling shareholder to decide whether we should engage in certain activities and make certain investments aimed, principally, to promote its public policies or social objectives and not necessarily to meet the objective of improving our business and/or operational results. Further, proceedings involving the State of Paraná may affect its controlling shareholder position and, therefore, may impact our capital structure.
We are involved in several lawsuits that could have a material adverse effect on our business if their outcome is unfavorable to us.
We are the defendant in several legal proceedings, mainly relating to civil, administrative, labor and tax claims. The outcome of these proceedings is uncertain and, if determined against us, may result in obligations that could materially affect our results of operations. On December 31, 2020, our provisions for probable (more likely than not) and reasonably estimated losses were R$1,555.7 million. For additional information, see “Item 8. Financial Information–A. Consolidated Financial Information–Legal Proceedings”.
We are subject to limitations regarding the amount and use of public sector financing, which could prevent us from obtaining financing and implementing our investment program.
Our current budget anticipates capital expenditures for expansion, modernization, research, infrastructure and environmental projects of approximately R$1,902.7 million in 2021. As a state-controlled company, we are subject to Brazilian Central Bank Resolution no. 4,589/2017(Resolução nº 4,589/2017 do Banco Central do Brasil), which defines the limit of exposure and the annual global limit of credit to public sector entities to be observed by financial institutions and other institutions authorized to operate by the Brazilian Central Bank. The annual global limit that can be contracted in credit operations, with and without guarantee of the Union, by the bodies and entities of the public sector with the financial institutions and other institutions authorized to operate by the Brazilian Central Bank is defined by the National Monetary Council by means of inclusion of an annex to Brazilian Central Bank Resolution no. 4,589/2017, establishing, until the end of each fiscal year, the limit for the following year. The maximum amounts defined for the 2021 financial year are up to R$9.0 billion for Union guaranteed operations and up to R$11.0 billion for operations without Union guarantee. Although theses limits have recently increased, as a result of these limits, we may have difficulty in obtaining financing from financial institutions and other institutions authorized to operate by the Brazilian Central Bank, which could create difficulties in the implementation of our investment program. Additionally, some of our concession contracts have provisions that limit our permitted level of indebtedness, which could also affect our ability to obtain necessary financing. Furthermore, the requirements and other criteria adopted by financial institutions when approving new financing transactions may be related to certain Brazilian macroeconomic scenarios, as well as to our financial indicators, such as our indebtedness levels and other indicators usually considered by financial institutions in their credit risk assessments. We cannot ensure you that these requirements and criteria will be met. As a result of these regulations and provisions, our capacity to incur debt from certain sources is limited, which could negatively affect the implementation of our investment program.
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Failures in our cybersecurity controls or unauthorized disclosure of information, as well as failure to comply with existing data privacy and data security laws may adversely affect our business and reputation. We have suffered cyber-attacks in the past leading to the unavailability of part of our systems.
We collect, store, process and use various confidential information related to our business and operations. In our ordinary course of business, we also collect and store personal data of our customers in our data centers located at our own premises.
Despite our cybersecurity controls, information technology and infrastructure (solarwinds), in the past we have been and in the future we may be vulnerable to failures whether caused by technical failures, negligence, accident or cyber-attacks. Those failures may result in disclosure or theft of sensitive information, loss of data integrity, misappropriation of funds and disruptions to or interruption in our business operations. For more information on cyber-attacks we suffered, see “Item 4. Information on the Company – Recent Developments.”
We are subject to the Brazilian Federal Law No. 13,709/2018 (Lei Geral de Proteção de Dados Pessoais, or the “LGPD”) that sets forth the legal framework to be observed by companies in the processing of personal data, which entered into effect on September 18, 2020, but its government penalties will only be enforceable from August 1, 2021, pursuant to Law No. 14,010/2020. As a result of any violations of this statute, including any leakage of personal data, beginning in August 2021, we may be subject to penalties, such as (i) a warning, with a deadline for taking corrective measures; (ii) a simple fine of up to 2% of our revenue in Brazil, limited to R$50 million for an infraction; (iii) a daily fine, limited to R$50 million for an infraction; (iv) disclosure of the infraction after duly proven; and (v) elimination of the personal data to which the violation refers. Also, any security incident involving personal data could damage our reputation, which could have an adverse effect on us, our business and our results of operations. Although the government sanctions are not yet in force, civil and criminal legal sanctions can be applied in case of violation of the LGPD’s provisions.
We have engaged an external consulting firm to assist us in adapting our internal controls to the new rules on data protection (especially the LGPD). As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities that are discovered in the future.
The construction and expansion of our transmission and power generation projects involve significant risks that may have an adverse effect on us
Our activities related to the development of transmission and generation projects depend on the consent of third parties over which we have no control. In addition, project development is subject to environmental, engineering and construction risks that can lead to cost overruns, delays and other impediments to timely complete within a project’s budget. We cannot assure you that we will (i) obtain all required permits and approvals for our projects, (ii) secure private sector partners for any of our projects, or (iii) obtain adequate financing for our projects or that financing will be available on a non-recourse basis to us. If we are unable to complete a project or such project is delayed, this may decrease our expected financial return from the project, which may lead to impairment. As a consequence, our costs may increase or we may fail to achieve the revenues planned in connection with such expansion projects, which may have an adverse effect on our financial condition and results of operations.
We are largely dependent upon the economy of the State of Paraná.
The distribution market for the majority of our sales of electricity is located in the State of Paraná. Although a more competitive market involving possible sales to customers outside Paraná might develop in the future, our business depends and is expected to continue to depend to a very large extent on the economic conditions of Paraná.
The weak economic growth of Brazil in recent years led to the reduction of energy consumption in the State of Paraná and in Brazil as a whole, resulting in leftover energy in the interconnected system, consequently reducing (i) short-term prices and (ii) prices negotiated in the Free Market. At the same time, prices in the regulated market have risen steadily as a result of supply deficiencies on the part of contracted energy by distributors and high prices in the short-term market in previous years. As a result, consumers consistently migrated into the Free Market and, therefore, the distributors’ captive market suffered a reduction since 2018. We cannot assure you that economic conditions in Paraná will be favorable to us in the future.
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Further, an increase in electricity prices, combined with poor economic performance in the State of Paraná, would affect the ability of some of our distributions customers to pay amounts owed to us. As of December 31, 2020, our past due receivables with Final Customers were approximately R$643.1 million in the aggregate and our allowance for doubtful accounts related to these receivables was R$212.3 million. See Note 7 to our audited consolidated financial statements.
In addition, in the event of an economic recession combined with high energy prices, the number of our distribution customers connecting illegally to our distribution grid may increase, which would then reduce our revenue from electricity sales to Final Customers. Energy we lose as a result of these illegal connections is considered a commercial loss (non-technical), and we may incur regulatory penalties if our commercial losses exceed certain established regulatory thresholds calculated by ANEEL. If ANEEL determines that we were not efficient in inspecting and controlling the non-technical losses in the distribution grid, the agency may limit the transfer of such losses to the Final Customers.
Disruptions in the operation of, or deterioration of the quality of, our services, or those of our subsidiaries, could have an adverse effect on our business, financial condition and results of operations.
The operation of complex electricity generation, transmission and distribution systems and networks involves various risks, such as operational setbacks and unexpected interruptions, caused by accidents, breakdown or failure of equipment or processes, performance below expected levels of availability and efficiency of assets, or disasters (such as explosions, fires, natural phenomena, landslides, sabotage, vandalism, and similar events). In addition, operational decisions by authorities responsible for the electricity network, environment matters, operations and other issues affecting the electricity generation, transmission or distribution could have an adverse effect on the performance and profitability of the operations of our generation, transmission and distribution systems. If these issues occurred, our insurance may be insufficient to wholly account for the costs and losses that we may incur as a result of the damages caused to our assets, or due to outages.
Further, the revenues that our subsidiaries generate from establishing, operating and maintaining their facilities are related to the availability of equipment and assets, and to the quality of the services (continuity and service in accordance with levels demanded by regulations). Under the related concession contracts, we and our subsidiaries are subject to: (i) a reduction of the distributor revenue as a result of the reduction of the so-called “Portion B” allocation in the revenue calculation formula; (ii) a reduction of the Permitted Annual Revenue - APR (Receita Anual Permitida, or RAP), for the transmission companies; (iii) the effects of the Availability Factor (Fator de Disponibilidade, or FID) and the offtake guarantee levels for the generation facilities; and (iv) the application of penalties and payment of compensation amounts, depending on the scope, severity and duration of non-availability of the services and equipment. Under Brazilian Law, we are strictly liable for direct and indirect damages resulting from the inadequate supply of electricity such as abrupt interruptions arising from the generation, transmission or distribution systems. Therefore, outages or stoppages in our generation, transmission and distribution facilities, or in substations or networks, may cause a material adverse effect on our business, financial situation and results of operations.
We are subject to risks related to social and environmental impacts of our projects.
The construction and operation of our assets may modify the ecosystem, particularly the natural state of the water resources and of the vegetation of the flooded river basin in the case of Hydroelectric Power Plants. Our projects may cause direct and indirect impacts in the local communities, such as housing displacement. Moreover, they may affect the economic outputs of the local communities, lead to the loss of cultural identity or increase the demand for government services. In these eventualities, we may implement specific plans in order to minimize and mitigate those impacts.
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Failures in dams under our responsibility may cause serious damages to the affected communities, to our results and to our reputation.
Dams are important infrastructures to our business, and are fundamental components of our Hydroelectric Power Plants for the purposes of diking and storing water, accounting for the majority of our energy generation capacity. However, in any dam, there is an intrinsic risk of ruptures caused by different internal or external factors. Therefore, we are subject to the risk of a dam failure that could have repercussions much greater than just the loss of hydroelectric power generation capacity. A dam failure may result in economic, social, regulatory and environmental damages and potential loss of human life in the communities downstream from the dams, which may have a material adverse effect in the image, business, operational results and financial conditions of the Company.
Our governance, compliance and internal controls may fail to prevent breaches of legal, regulatory, ethical or governance standards.
We are required to comply with a wide range of laws and regulations, including anti-corruption , anti-money laundering and related laws and regulations. Although we have a range of internal policies and controls, we may be subject to breaches of those internal policies and controls and to instances of fraudulent behavior, corrupt practices and dishonesty by our directors, officers, employees, contractors or other agents that we may not timely identify or prevent.
Further, we have a large number contracts with suppliers with wide distribution and outsourcing of the production chains and we are not able to control all possible irregularities or to ensure that our selection processes will be sufficient to avoid situations where our suppliers have problems related to compliance with applicable law, sustainability or outsourcing of the production chain under inadequate safety conditions.
These risks are increased by the fact that our portfolio includes affiliated companies, such as special purpose companies, some of which we do not hold a controlling interest in.
Although we have an integrity program with timely updates and a robust process for investigating complaints, our systems may not be effective in all circumstances. Any failure in our capacity to prevent or detect noncompliance with the applicable governance rules or regulatory obligations may cause damages to our reputation or other material adverse effects to our results of operation or financial condition.
The rules for electricity trading and market conditions may affect the sale prices of electricity.
We perform trading activities through power purchase and sale agreements, mainly in the Free Market, through our generation and trading companies.
Energy trading is affected by changes in the methodology used to calculate energy price in the short-term (Preço de Liquidação de Diferenças, or PLD). PLD is currently determined by the results of optimization models of operation of the interconnected systems used by the ONS (Operador Nacional do Sistema Elétrico) and by CCEE (Câmara de Comercialização de Energia Elétrica). In such determination, there may be data entry errors or errors in the model, which may lead to an unexpected change of the PLD and possible future republications of the PLD. Thus, there is a risk for the commercial business with respect to the alteration of these models, data entry errors and republishing of the PLD, which may cause market uncertainty, reduction of liquidity, and financial losses with unexpected price variation. As of January 1, 2021, the PLD is officially calculated for each submarket on an hourly basis, as proposed by the Standing Committee for Analysis of Methodologies and Programs (Comissão Permanente para Análise de Metodologias e programas Computacionais do Setor Elétrico or CPAMP), in accordance with the implementation schedule defined by MME (Ministério de Minas e Energia) Ordinance No. 301/2019.
Additionally, any change in the energy trading rules related to the increase of restrictions for the entry of new consumers in the Free Market may affect our energy trading business.
Our business could be adversely affected by the performance of our suppliers, contractors or other third parties we do not control.
Suppliers, contractors and other third parties may fail to perform existing contracts and obligations, which may unfavorably impact our operations and financial results.
Further, being a mixed capital publicly-held company, we are legally obliged to engage a bidding process for the acquisition of equipment, materials and services, which may not guarantee the best quality of services, equipment and materials.
We are subject to climate factors and to uncertainties that may adversely impact our operation and results.
Our energy generation, transmission and distribution operations are subject to climatic factors and uncertainties related to severe weather events, mainly cyclones, hurricanes, floods, droughts and fires. These events can affect minimum water storage levels in hydroelectric plant reservoirs and lead to the unavailability of our electricity supply systems, impacting penalties by regulatory bodies, consumer complaints, lawsuits, costs for the restoration of systems, in addition to negatively affecting our results.
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Further our wind farms’ operations are subject to climate factors and to uncertainties related to the speed of wind. The authorizations that govern our power generation activities in wind farms set forth certain performance covenants, which require us to generate minimum amounts of energy on annual and four-year bases in accordance with the energy amounts sold in the correspondent auctions. Non-compliance with such covenants may adversely impact our results.
We may acquire other companies in the electric sector or new energy concessions, as we already did in the past, which may increase our financial leverage and adversely affect our consolidated performance.
We constantly prospect for businesses that are related to our corporate purpose and aligned with our strategic plan. To expand our business, we may participate in auctions for the construction and operation of new power generation and transmission ventures, as well as invest in other companies from the energy sector, as we have done in the past. These acquisitions can increase our financial leverage or reduce our profits. In addition, the integration of the new businesses may not result in the synergy we expect in terms of efficiency gains and economies of scale for our operations, which may adversely affect our operational and financial performance.
Labor disputes may disrupt our operations from time to time.
Our employees are represented by unions. Disagreements regarding issues related to divestitures, changes to our business strategy, and reductions in the professional staff may lead to employee reactions. Strikes, work interruptions, or other forms of protests in any of our major suppliers or contractors or at their facilities may undermine our ability to complete relevant projects on time, negatively impacting our results of operations, and affect our ability to achieve long-term strategic goals.
Risks Relating to the Brazilian Electricity Sector and Other Sectors that We Operate
We are uncertain as to the renewal of certain of our generation and transmission concessions.
Under Federal Law No. 12,783/2013, or the 2013 Concession Renewal Law, we may only renew our concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional 30-year period (or an additional 20-year period in the case of thermal plants), if we agree to amend the terms of the concession contract that is up for renewal to reflect certain new terms and conditions imposed by the 2013 Concession Renewal Law, which vary depending on whether the concession is for generation, transmission or distribution. If we do not agree to amend the concession contract to reflect these new conditions, the concession contract cannot be renewed and will be subject to a competitive bidding process upon its expiration, which we might not win. If we do not renew our generation and transmission concessions or if they are renewed under less favorable conditions, our financial condition and results of operations could be materially adversely affected. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry—Concessions”.
The concession agreement of our controlled company Compagas is under discussion with the granting authority
Compagas has entered into a concession agreement with the State of Paraná, as authority, pursuant to which the concession shall expire on July 6, 2024. The purpose of this concession is to provide piped gas distribution services and other related activities, to all segments of the consumer market, either as raw material or for the purpose of power generation or other uses made possible by technological advances.
The gas concession agreement is part of the so called “bifurcated model”, where part of the investments made by the concessionaire is paid by the users of the public service and the remaining part is indemnified by the granting authority, the State of Paraná, at the end of the concession.
On December 7, 2017, the State of Paraná enacted Complementary Law No. 205/2017, setting forth a new interpretation regarding the expiration date of the concession, leading to the understanding that the new expiration date was January 20, 2019. Notwithstanding the new expiration date provided by the state law, this concession has not been subject to neither an extension nor a new bidding process. Pursuant to applicable law, Compagas, as the current concessionaire, may continue to operate the concession until a new concessionaire is appointed.
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Further, Complementary Law No. 227/2020, amended Complementary Law No. 205/2017 to revoke the provision on the expiration date of the concession as January 20, 2019.
Although the current Complementary Law 227/2020 ensures the concession expires on July 6, 2024, as originally foreseen in the concession agreement, and with which we agree, there is no guarantee that a future legislative change will change this scenario again, forcing us to to again discuss this issue in court.
In the event of non-extension of the concession, even if Compagas is entitled to compensation for the investments made in the last 10 years prior to the end of the concession, the financial condition and results of operations of our controlled company may be adversely affected. For more information see Note 2.1.1 to our audited consolidated financial statements.
Our operating results depend on prevailing hydrological conditions, which have been volatile recently. The impact of water shortages and resulting measures taken by the government to conserve energy may have a material adverse effect on our business, financial condition and results of operations.
We are dependent on the prevailing hydrological conditions throughout Brazil and in the geographic region in which we operate. According to data from ANEEL, approximately 64.0% of Brazil’s installed capacity currently comes from hydroelectric generation facilities. Hydrological conditions in our region, and Brazil in general, are frequently subject to changes because of non-cyclical deviations in average rainfall.
In previous periods of low rainfall, the Brazilian government reacted to poor hydrological conditions by seeking to reduce the consumption of electricity by Final Customers by several means, from general conservation campaigns to raise public awareness to rationing programs. The effect of conservation campaigns is not very predictable, making it difficult for our distribution business to accurately estimate the volume of energy it needs to purchase for sale to Final Customers. In case of mandatory rationing program, our distribution business would be adversely affected because its revenues are partially based on the volume of electricity it provides through our distribution grid to Final Customers.
With respect to our generation business, in order to compensate for poor hydrological conditions and to maintain adequate water levels in reservoirs, the ONS may order the reduction of generation from Hydroelectric Power Plants, which would be partially compensated by increased generation by Thermoelectric Plants. This mechanism for replacing hydroelectric production with thermoelectric production may not provide all of the energy we need to fulfill our obligations under existing energy supply contracts. To compensate for this deficit, our generation business can be required to purchase energy in the Spot Market, typically at higher prices, and we would not be able to pass on these increased costs. This mechanism impacts all generation companies in Brazil regardless of whether the geographical region in which a specific generator is located is experiencing low rainfall and could have a material adverse effect on our generation business. For more information, see Note 14.1 to our audited consolidated financial statements.
In addition, in an extreme scenario, given the increased presence of thermal generation in the national electric matrix, if a shortage of natural gas were to occur, this would increase the general demand for hydroelectric energy in the market and therefore increase the risk that a rationing program would be instated.
Regarding our energy trading business, the effect of volatility in hydrological conditions is the increase of the variation of energy price, which in turn increases the Spot Market volatility, thus affecting our operating results. Spot price (PLD) is determined by the results of optimization models of operation of the interconnected systems used by the ONS (Operador Nacional do Sistema Elétrico) and by CCEE. The energy average prices in the short term ("spot") are calculated by CCEE every hour and are set for each region.
When there is great availability of hydrological resources, the spot price tends to remain at lower levels, which may not be enough to (i) cover the generation costs of this very same energy (when related to our generation business) and (ii) cover the cost of the power purchase and sale agreement in our energy trading business.
Conversely, if hydrological availability is affected, spot prices tend to increase significantly, in addition to occasionally impacting the GSF, which may adversely impact our costs of energy purchases, as the price set forth in power purchase and sale agreements may not be sufficient.
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ANEEL could penalize us for failing to comply with the terms of our concessions or with applicable laws and regulations, and we may not recover the full value of our investment in the event that any of our concessions are terminated.
Our concessions are for terms of 20 to 35 years and may be extended if certain conditions are met. In the event that we fail to comply with any term of our concessions or applicable law or regulation, ANEEL may impose penalties on us, which may include warnings, the imposition of potentially substantial fines and restrictions on our operations, among others. ANEEL may also terminate our concessions prior to the expiration of their terms if we fail to comply with their provisions or if they determine that terminating our concessions would be in the public interest, through a forfeiture or expropriation proceeding. In particular, our renewed distribution concession agreement contains both quality and financial metrics that become more restrictive over time, and that we must meet to ensure that our distribution concession agreement is not terminated. If ANEEL terminates any of our concessions before its expiration, we would not be able to operate the segment(s) of our business that had been authorized by the concession. Furthermore, any compensation that we may receive from the Brazilian government for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment. The early termination or non-renewal of any of our concessions or the imposition of severe fines or penalties by ANEEL could have a material adverse effect on our financial condition and results of operations. See “Item 4. Information on the Company—The Brazilian Electric Power Industry—Concessions”.
We are subject to comprehensive regulation of our business, which fundamentally affects our financial performance.
Our business is subject to extensive regulation by various Brazilian legal and regulatory authorities, particularly the MME and ANEEL, which regulate and oversee various aspects of our business and approve our tariffs. Changes to the laws and regulations governing our operations, which have occurred in the past, could adversely affect our financial condition and results of operations.
For example, the tariffs that we charge for sale of electricity to Captive Customers are determined pursuant to a concession agreement with the Brazilian government through ANEEL. The tariff rates we charge our customers are determined pursuant to a concession agreement and in accordance with ANEEL’s regulation. In addition, ANEEL’s decisions relating to our tariffs may be contested by public authorities or by our customers. Administrative and judicial decisions resulting from these challenges may modify ANEEL’s decisions in a manner that is unfavorable to us, which may adversely affect our financial condition and results of operations.
If any further regulations or new laws are passed by the Brazilian government to lower electricity prices, these new laws and regulations could have a material adverse effect on our results of operations.
Certain customers in our distribution concession area may cease to purchase energy from our distribution business.
Our distribution business generates a large portion of its revenues by selling energy that it purchases from generation companies. Large electricity customers within the geographic area of our concession that meet certain regulatory requirements may qualify as free customers (“Free Customers”). A Free Customer in our distribution concession area is entitled to purchase energy directly from generation and energy trading companies rather than through our distribution business, in which case that Free Customer would cease to pay our distribution business for that energy that we previously supplied.
In addition, ANEEL has issued regulations related to micro and mini distributed generation, which has been facilitating the purchase or lease of power generation equipment by customers, especially solar photovoltaic modules, to produce energy for their own consumption. Such regulation is currently under review and its outcome is difficult to predict. If the number of customers with micro and mini distributed generation within the geographic area of our concession increases, our revenues and results of operations could also be adversely affected.
We generate a portion of our operating revenues from Free Customers who may seek other energy suppliers upon the expiration of their contracts with us.
As of December 31, 2020, we had 912 Free Customers, representing approximately 8.0% of our consolidated operating revenues and approximately 14.9% of the total volume of electricity sold by us.
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Regarding our energy trading company, as of December 31, 2020, our energy trading company had 877 Free Customers, representing approximately 4.8% of our consolidated operating revenues and approximately 8.6% of the total volume of electricity we sold in 2020.
Copel GeT has 35 Free Custumers on December 31, 2020. Approximately 55.2% of the megawatts-hours sold under contracts to such customers by Copel GeT expired in 2020. These customers represented approximately 6.3% of the total volume of electricity we sold in 2020, and approximately 3.2% of our consolidated operating revenues. Our contracts with Free Customers are typically for periods ranging between two years and five years in our generation business. There can be no assurance that Free Customers will enter into contracts or extend their current contracts to purchase energy from us.
Additionally, it is possible that our large industrial clients could be authorized by ANEEL to generate electric energy for their own consumption or sale to other parties, in which case they may obtain an authorization or concession for the generation of electric power in a given area, which could adversely affect our results of operations.
We may be forced to purchase or sell energy in the Spot Market at higher or lower prices and we may not be entitled to pass on any increased costs or incurred losses to our Final Customers in a timely manner, or at all.
Under the New Industry Model Law, electric energy distributors, including us, must contract, through public bids conducted by ANEEL, 100% of the forecasted electric energy demand for their respective distribution concession areas. The auctions in which the distributors are allowed to purchase energy are held up to seven years prior to the actual delivery of electric energy. We cannot guarantee that our forecasts for energy demand in our distribution concession area will be accurate. If our forecasts fall short of actual electricity demand, or if we are unable to purchase energy through the regulated market due to lack of energy supply in the market, or if a generation company fails to deliver energy that was previously contracted, we may be forced to make up for the shortfall by entering into short-term agreements to purchase electricity in the Spot Market where we may pay significantly more for energy without being able to pass on these increased costs to our Final Customers. In addition, if we underestimate our distribution energy needs, we may be subject to penalties imposed by the CCEE. Moreover, if our forecasts surpass actual demand by more than the allowed margin (105% of actual demand), including where demand is depressed due to government campaigns in response to poor hydrological conditions or due to reduced economic activity, we will not be able to pass on to our Final Customers the cost of the excess energy that we acquire.
We are subject to a counterparty’s credit risk in agreements entered into with Copel Comercialização (Copel Mercado Livre) and in case of default, we may have to sell or purchase energy at a different base price.
Copel Comercialização is subject to a counterparty’s credit risk. When Copel Comercialização sells energy, the counterparties to power purchase agreements may default on their contractual obligations, which may cause Copel Comercialização to sell energy at a different base price. In cases where Copel purchases energy, whether from energy generation projects, in operation or under construction, or even from energy trading, the selling counterparties may also default on the relevant contracts, and, consequently, Copel Comercialização may have to buy energy at a different base price and be subject to regulatory penalties imposed by CCEE due to insufficient contractual guarantees. Even though the Company performs credit analyses in accordance with market standards and requires its counterparties to provide guarantees in connection with the power purchase and sale agreements, we cannot guarantee that our counterparties will not fail to comply with their payment obligation or with their obligation to deliver energy to Copel, as the case may be, which may adversely affect our results.
We are subject to the risk of exchange rate variation if we start to perform energy import business, as well as if we perform business involving natural gas
Our subsidiary Copel Comercialização (Copel Mercado Livre) obtained authorization from the Ministry of Mines and Energy to import energy from neighboring countries, Argentina and Uruguay, and if we start doing business in this regard, we will be subject to the risk of exchange rate fluctuation. This subsidiary was also authorized by the National Agency of Petroleum, Natural Gas and Biofuels to operate in the sale of natural gas within Brazil. Although the natural gas business still has an incipient market in Brazil, if we do business in this area, we will be subject to the risk of exchange rate variation, considering that these transactions are carried out in foreign currencies.
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We are subject to unrealized losses or net gains arising out from the mark-to-market of the purchase and sale of energy contracts, which may expose the Company to the risk of future energy prices
Our subsidiary Copel Comercialização (Copel Mercado Livre) negotiates energy purchase and sale transactions, and part of its agreements are classified as derivative financial instruments measured at fair value through its results. Unrealized net losses or gains resulting from the mark-to-market of these contracts (difference between contracted prices and market prices) are recognized in the results of the fiscal year. This activity may expose the Company to the risk of future energy prices.
Our equipment, facilities and operations are subject to numerous environmental and health regulations, which may become more stringent in the future and may result in increased liabilities and increased capital expenditures.
Our distribution, transmission and generation activities are subject to comprehensive federal, state and local legislation, as well as supervision by Brazilian governmental agencies that are responsible for the implementation of environmental and health laws and policies. These agencies could take enforcement action against us for our failure to comply with their regulations and with requirements established for the maintenance of our environmental licenses. These actions could result in, among other things, the imposition of fines, embargoes and revocation of licenses, which could have a material adverse effect on our financial condition and results of operations. It is also possible that enhanced environmental and health regulations will force us to allocate capital towards compliance, and consequently, divert funds away from planned investments. Such a diversion could have a material adverse effect on our financial condition and results of operations.
We are strictly liable for any damages resulting from inadequate provision of electricity services and our insurance policies may not fully cover such damages.
We are strictly liable under Brazilian law for damages resulting from the inadequate provision of electricity distribution services. In addition, our distribution, transmission and generation utilities may be held liable for damages caused to others as a result of interruptions or disturbances arising from the Brazilian generation, transmission or distribution systems, whenever these interruptions or disturbances are not attributed to an identifiable member of the National Electric System Operator, the Operador Nacional do Sistema Elétrico (“ONS”). We cannot assure you that our insurance policies will fully cover damages resulting from inadequate rendering of electricity services, which may have an adverse effect on us.
We are the controlling shareholders of a company that operates a gas distribution business (Compagas) and we are consequently exposed to risks inherent to this sector.
We control a business in the gas distribution sector, which is operated by Companhia Paranaense de Gas – Compagas. This company is entitled to exclusive rights with respect to the supply of piped gas in the State of Paraná. The clients of this business are Thermoelectric Plants, cogeneration plants, gas stations, other companies and residences.
Businesses in the gas distribution sector are subject to a broad set of risks inherent to its operation, including among the main ones:
• Regulatory instability,
• Shortage of natural gas,
• Depending on a single supplier in Brazil,
• Capacity of financing expansion,
• Operational failures and accidents in distribution,
• Performance of outsourced service providers,
• Alternative energy sources,
• Quality in service.
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As a result of these uncertainties, there is no guarantee that the purposes of our gas distribution business will be achieved, which may have an adverse effect on our results of operations and our business.
We are still the controlling shareholders of a company that operates a telecommunications business (Copel Telecomunicações S.A.) and we are consequently exposed to the risks inherent to this sector.
We control a business in the telecommunications sector under an authorization granted by the National Telecommunications Agency (Agência Nacional de Telecomunicações – “ANATEL”). This business provides telecommunications services through the use of fiber optics. It also provides a number of telecommunications services to other companies of the Copel group.
On November 9, 2020, Copel Telecom's divestment auction was held at B3 S.A. – Brasil , Bolsa, Balcão. The winning bid was R$ 2.4 billion (equity value). On January 14, 2021, a Share Purchase Agreement for the sale of 100% of Copel Telecom was entered into with Bordeaux Multi-Strategic Investment Fund – Bordeaux Fundo de Investimentos em Participações Multiestratégia, the winning bidder of the auction. Certain conditions precedent, such as approval by ANATEL and the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica – “CADE”) have not yet been concluded. Thus, the process of divestment in the control of the subsidiary Copel Telecomunicações SA is still ongoing, and, if the conditions precedent are not completed, the transaction may not close. Failure to complete such sale may force us to keep the operations in the telecommunications sector longer than expected.
Businesses in the telecommunications sector are subject to a broad set of risks inherent to its operation, such as:
• Regulatory instability,
• Increase in competition,
• Technological changes,
• Capacity of financing our expansion,
• Failures in technological systems and information security,
• Performance of outsourced service providers,
• Exchange rate fluctuations,
• Variation in operating costs,
• Operational failures,
• Quality in service.
If it is not possible to implement our proposal to divest control of Copel Telecomunicações S.A., we will need to reevaluate our strategy in the telecommunications sector
Considering that the process of potential divestment in the control of the subsidiary Copel Telecomunicações SA is in progress, as approved by the Board of Directors, this process may not be materialized, judicial decisions or restrictions imposed by regulatory bodies or other governmental entities or other unknown factors. Failure to complete such sale may force us to reevaluate our divestment strategy in the telecommunications sector.
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We cannot assure the speed of our innovation capacity and our responses in view of the changes the energy sector has been going through as a result of technology advances.
The electric energy sector has been going through changes driven by (i) the decentralization of the power generation systems; (ii) advances in energy storage technologies; (iii) dissemination of digital technologies that improve the efficiency of energy generation, transmission and consumption; (iv) increase of renewable energy sources, such as wind and solar energy; and (v) a tendency of reducing carbon footprints in the energy system, as part of the global efforts to mitigate the effects of climate change. These changes present many challenges and we may not be able to keep up with the effects of the increasing adoption of digital technologies in the electric energy sector and the significant potential of new technology solutions (both with respect to the improvement of processes and services provided to consumers and with respect to the development of new products that may lead to higher productivity gains, more affordable prices, higher competition and the creation of new markets). Investments in research and development may contribute to mitigate the risks related to the transformations of the energy sector and create new opportunities.
Risks Relating to Brazil
The Brazilian Government has significant influence over the Brazilian economy. Brazilian economic and political conditions— and investor perception of these conditions— have a direct impact on our operation.
Historically, the country’s political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration, the downgrading of credit ratings of the Brazilian government and Brazilian issuers, and heightened volatility in the securities issued abroad by Brazilian companies.
Additionally, the Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy and often changes monetary, credit, exchange and other policies to influence Brazil’s economy. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies, as well as other factors including, without limitation:
• exchange rate movements and volatility;
• inflation and changes in interest rates;
• exchange control policies;
• fiscal policy and changes in tax laws;
• other political, diplomatic, social and economic developments that may affect Brazil or the international markets;
• controls on capital flows; and/or
• limits on foreign trade.
In the last few years, Brazil faced adverse fiscal developments and political instability. Brazilian GDP decreased by 4.1% in 2020, grew by 1.1% in 2019 and grew by 1.3% in 2018. Unemployment rate was 13.5% in 2020, 11.9% in 2019 and 11.6% in 2018. Inflation, as reported by the consumer price index (IPCA), was 4.52% in 2020, 4.31% in 2019 and 3.75% in 2018. The Brazilian Central Bank’s base interest rate (SELIC) was 2.0% on December 31, 2020, 4.5% on December 31, 2019 and 6.5% on December 31, 2018. Future economic, social and political developments in Brazil may impair our business, financial condition or results of operations, or cause the market value of our securities to decline.
Changes in, or uncertainties regarding the implementation of, the policies above, might generate or contribute to uncertainties in the Brazilian economy. This would increase the volatility of the domestic capital market and the value of Brazilian securities traded abroad, and adversely affect our business, results of operations and financial condition.
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Moreover, taking into account the Brazilian presidential system of government, and the considerable influence of the executive power, it is not possible to predict whether the present government or any successive governments will have an adverse effect on the Brazilian economy, and consequently on our business.
The effects of the COVID-19 pandemic of the coronavirus may have a material adverse impact on our operations and results
In December 2019, the outbreak of the Coronavirus Disease 2019 (COVID-19), spread throughout the world, being declared by the World Health Organization (WHO) as the COVID-19 outbreak pandemic, in March 2020. The impact on the global economy and financial markets has been significant and the overall consequences are still uncertain.
As a result, ANEEL, the Federal and the State Governments, particularly the State of Paraná, enacted a number of measures and regulations in response to the COVID-19 outbreak pandemic, aiming at protecting certain consumers, such as low income consumers and essential services and activities, while preserving public electricity distribution services during the COVID-19 outbreak pandemic.
With regards to the captive distribution market, Copel may experience in the short term (i) a significant reduction in revenue and collection from energy supply chains, (ii) defaults of large high voltage customers, and (iii) defaults of commercial class clients. In the medium term, Copel negative impacts may extend to other customer classes, especially residential ones.
A possible increase in payment defaults by residential consumers, coupled with the decrease in collection and the standstill of several commercial and industrial activities, resulting from social isolation measures, can adversely affect the financial and economic results involving the activities of the electricity sector, mainly the electricity distributors. Eventually, with the decrease in energy consumption, the Company may be in a position above the permitted regulatory limit for over contracting electricity.
Copel has followed the load projections issued by official bodies in the electricity sector strongly impacted by the drop in consumption in the commercial and industrial segments. This fall has caused notifications by energy buyers, under the perspective and allegation of unforeseeable circumstances and force majeure generated by the COVID-19 outbreak pandemic, requiring a reduction in the amounts of energy contracts and/or installments of defaulted bills.
Adverse impacts of the COVID-19 outbreak pandemic can also be felt on the implementation of generation and transmission projects, or on the availability of existing assets resulting from local actions, preventing access to facilities or problems with suppliers in the sector, also affected by the COVID-19 outbreak pandemic .
To the extent the government does not adopt a joint solution for the energy sector as a means to control or remove risk for the sector as a whole, the Company may suffer, among other impacts, cash damages, decreases in its profitability and the impossibility of performing certain operational activities.
We have established a Contingency Committee in light of the COVID-19 outbreak pandemic with the objective of monitoring and mitigating current and futures impacts and consequences in our activities. The Contingency Committee has four main focus objectives: (i) people’s safety, (ii) continuation of essential activities of the Company, (iii) monitoring guidelines and requirements of regulatory bodies, and (iv) preservation of adequate financial conditions to support the crisis. The Company has also continuously been (A) monitoring the impacts of the COVID-19 pandemic on (i) its contracts, (ii) suppliers and (ii) the liquidity of the energy market and its short-term pricing, as well as (B) involved and negotiating with the relevant authorities for the implementation of guidelines that guarantee the maintenance of the economic and financial sustainability of Brazil’s electricity power generation, transmission, commercialization and distribution chain.
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Fluctuations in currency exchange rates and the devaluation of the real may adversely affect our net income and cash flow.
The Brazilian currency has been devalued periodically in the past in relation to the U.S. dollar and other foreign currencies. At the end of 2018, the exchange rate between the real and the U.S. Dollar was of R$3.87 per US$1.00. As of December 31, 2019, the exchange rate between the real and the U.S. Dollar was of R$4.03 per US$1.00, depreciating 4.0% against the U.S. Dollar. As of December 31, 2020, the real vs. U.S. dollar exchange rate recorded was R$5.19 to US$1.00, depreciating 28.8% against the U.S. Dollar, compared to the exchange rate recorded on December 31, 2019. Depreciation of the real increases the cost of servicing our foreign currency-denominated debt and the cost of purchasing electricity from the Itaipu – a hydroelectric facility, one of our major suppliers, which adjusts its electricity prices based in part on its U.S. dollar costs. Indeed, depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. dollar value of our dividends and the U.S. dollar equivalent of the market price of our common shares and the ADSs.
Inflation and governmental measures to curb inflation may contribute to economic uncertainty in Brazil, and could reduce our margins and the market price of the Class B Shares and ADSs.
Brazil has in the past experienced extremely high rates of inflation. More recently, Brazil’s annual rates of inflation, measured in accordance with the variation of the Índice Geral de Preços - Disponibilidade Interna (“IGP-DI”) index, were 8.26% for the three-month period ended March 31, 2021, 23.7% in the year 2020, 7.7% in the year 2019, 7.1% in the year 2018 and (0.4)% in 2017. The Brazilian government has in the past taken measures to combat inflation, such as raising the basic Selic interest rate to elevated levels, and public speculation about possible future government actions has had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual adjustments based on inflation indexes, if Brazil experiences substantial inflation in the future, and the Brazilian government adopts inflation control policies similar to those adopted in the past, our costs may increase faster than our revenues, our operating and net margins may decrease and, if investor confidence lags, the price of the Class B Shares and ADSs may fall. Inflationary pressures may also curtail our ability to access foreign financial markets and could lead to further government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy.
Allegations of political corruption against the Brazilian government and the Brazilian legislative branch could create economic and political instability.
Currently, several former and current members of the Brazilian executive and legislative branches of government are being investigated as a result of allegations of unethical and illegal conduct identified by the Operation Car Wash (Operação Lava-Jato) being conducted by the Office of the Brazilian Federal Prosecutor, and a number of politicians and businessmen have been arrested. The potential outcome of these investigations is unknown, but they have already had an adverse impact on the image and reputation of the investigated companies, in addition to adversely impacting general market perception of the Brazilian economy, including our business, financial condition and results of operations, as well as the trading price of our common shares and ADSs. Moreover, the conclusion of these proceedings or further allegations of illicit conduct could have additional adverse effects on the Brazilian economy. We cannot predict whether such allegations will lead to further instability or whether new allegations against key Brazilian government officials will arise in the future. In addition, we cannot predict the outcome of any such allegations and their effect on the Brazilian economy.
Changes in Brazilian tax policies may have an adverse effect on us and our shareholders.
The Brazilian government has in the past changed its tax policies in ways that affect the electricity sector, and it may do so again in the future. These changes include increases in the tax rates affecting energy companies and, occasionally, the collection of temporary taxes related to specific governmental purposes. If we are unable to adjust our tariffs accordingly, we may be adversely affected.
Considering the Brazilian Government's intention to replace Contributions to PIS / PASEP and Cofins with Contribution on Goods and Services (Contribuição sobre Bens e Serviços) – CBS (Bill No. 3887/2020), we formalized a group of work to assess the impacts and risks that this change may have on our results. Taking into account the market in which we operate, with regulated tariffs and bilateral contracts, which are expected to rebalance prices in the event of new taxes, our working group concluded that the impacts for us will likely be low. However, for the final consumers of our distribution concession area, we estimate that the impacts will be medium, in view of the possible tariff increase due to the increase in the rate of the new tax.
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There are also bills under discussion at the National Congress of Brazil that may change the way in which taxes are collected in Brazil, including the collection of income tax on dividends, which may adversely affect our shareholders.
Negative developments in other national economies, especially those in developing countries, may negatively impact foreign investment in Brazil and the country’s economic growth.
International investors generally consider Brazil to be an emerging market. Historically, adverse developments in the economies of emerging markets have resulted in investors’ perception of greater risk from investments in such markets. Such perceptions regarding emerging market countries have significantly affected the market value of securities of Brazilian issuers. Furthermore, although economic conditions are different in each country, investors’ reactions to developments in one country can impact the prices of securities in other countries, including those in Brazil, and this may diminish investors’ interest in securities of Brazilian issuers, including ours.
Risks Relating to the Class B Shares and ADSs
ADSs holders may not have all the rights of our shareholders, and may be unable to exercise voting rights or preemptive rights relating to the shares underlying their ADSs.
Holders of the Class B Shares, and thus of the ADSs may not have the same rights that are attributed to our shareholders by Brazilian law or our bylaws, and the rights of ADS holders may be subject to certain limitations provided in the deposit agreement or by the securities intermediaries through which ADS holders hold their securities.
| – | Although ADS holders are permitted to vote at shareholders’ meetings, there are procedural steps involved in the process that create practical limitations on the ability of ADS holders to vote. In accordance with the Deposit Agreement, we will provide the notice to the Depositary, which will in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the Depositary how to vote their shares. Because of this extra procedural step involving the Depositary, the process for exercising voting rights will take longer for ADS holders than for direct holders of Class B Shares. ADSs for which the Depositary does not receive timely voting instructions will not be voted. |
| – | The holders of the Class B Shares may have fewer and less well-defined rights to protect your interests in connection with actions taken by our Board of Directors or the holders of Common Shares than under the laws of the United States and certain other jurisdictions outside Brazil. Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly supervised as the United States securities markets or markets in certain other jurisdictions outside Brazil. |
| – | The ability of ADS holders to exercise preemptive rights is not assured, particularly if the applicable law in the holder’s jurisdiction (for example, the Securities Act in the United States) requires that either a registration statement be effective or an exemption from registration be available with respect to those rights, as is in the case in the United States. We are not obligated to extend the offer of preemptive rights to holders of ADSs, to file a registration statement in the United States, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale of your preemptive rights by the Depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. If you are unable to participate in rights offerings, your holdings may also be diluted. |
| – | ADS holders may not receive dividend payments if we incur net losses or our net profit does not reach certain levels. Under Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net profit for the preceding fiscal year, with holders of preferred shares having priority of payment. According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least 10% higher than the dividends per share paid to the holders of the Common Shares. Class A Shares have a dividend priority over the Class B Shares to receive a minimum dividend equal to 10% of the total share capital represented by the Class A Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared, and Class B Shares have a dividend priority over the Common Shares. In the event that we are unable to declare dividends, our management may nevertheless decide to defer payment of dividends or, in limited circumstances, not to declare dividends at all. We cannot make dividend payments from our legal reserve and capital reserve accounts. |
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Sales of a substantial number of shares, or the perception that such sales might take place, could adversely affect the prevailing market price of our shares or ADSs.
As a consequence of the issuance of new shares, sales of shares by existing share investors, or the perception that such a sale might occur, the market price of our shares and, by extension, of the ADSs may decrease significantly.
Future equity issuances may dilute the holdings of current holders of our shares or ADSs and could materially affect the market price for those securities.
We may in the future decide to offer additional equity to raise capital or for other purposes. Any such future equity offering could reduce the proportionate ownership and interests of holders of our shares and ADSs, as well as our earnings and net equity value per share or ADS. Any offering of shares and ADSs by us or our main shareholders, or a perception that any such offering is imminent, could have an adverse effect on the market price of these securities.
Holders of our ADSs may be unable to enforce judgments against our directors or officers.
All of our directors and officers named in this annual report reside in Brazil. Substantially all of our assets, as well as the assets of these persons, are located in Brazil. As a result, it may not be possible for holders of our ADSs to effect service of process upon us or our directors and officers within the United States or other jurisdictions outside Brazil, attach their assets or enforce against us or our directors and officers judgments obtained in the United States or other jurisdictions outside of Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain requirements are met, holders of ADSs may face greater difficulties in protecting their interest in actions against us or our directors and officers than would shareholders of a corporation incorporated in a state or other jurisdiction of the United States.
Judgments of Brazilian courts with respect to our shares will be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our shares, we will not be required to discharge any such obligations in a currency other than reais (R$). Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais (R$) may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and any such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non Brazilian investors with full compensation for any claim arising out of, or related to, our obligations under our shares.
If you exchange your ADSs for Class B Shares, you risk increased taxes and the inability to remit foreign currency abroad.
Brazilian law requires that parties obtain a registration before the Brazilian Central Bank in order to be allowed to remit foreign currencies, including U.S. dollars, abroad. For the ADSs, the Brazilian custodian for the Class B Shares has obtained the necessary certificate from the Brazilian Central Bank for the payment of dividends or other cash distributions relating to the preferred shares or upon the disposition of the preferred shares. If you exchange your ADSs for the underlying Class B Shares, however, you must obtain your own certificate of registration or register in accordance with Brazilian Central Bank and CVM rules in order to obtain and remit U.S. dollars abroad upon the disposition of the Class B Shares or distributions relating to the preferred shares. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the preferred shares. Pursuant to Brazilian Central Bank rules, obtaining this registration requires exchange transactions, which are subject to taxes in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Other Brazilian Taxes”. If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to the preferred shares or the return of your capital in a timely manner. The custodian’s registration before the Brazilian Central Bank and any certificate of foreign capital registration you obtain may be affected by future legislative changes. Additional restrictions may be imposed in the future on the disposition of the underlying Class B Shares or the repatriation of the proceeds from disposition.
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The Brazilian government may impose exchange controls and restrictions on remittances abroad which may adversely affect your ability to convert funds in reais into other currencies and to remit other currencies abroad.
In the past, the Brazilian government has imposed restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion of Brazilian currency into foreign currencies. The Brazilian government could again choose to impose this type of restriction if, among other things, there is deterioration in Brazilian foreign currency reserves or a shift in Brazil’s exchange rate policy. Reintroduction of these restrictions would hinder or prevent your ability to convert dividends, distributions or the proceeds from any sale of Class B Shares, as the case may be, from reais into U.S. dollars or other currencies and to remit those funds abroad. We cannot assure you that the Brazilian government will not take similar measures in the future.
The relative volatility and illiquidity of the Brazilian securities markets may impair your ability to sell the Class B Shares underlying the ADSs.
The Brazilian securities markets are substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and certain other jurisdictions outside Brazil, and are not as highly regulated or supervised as some of these other markets. The illiquidity and relatively small market capitalization of the Brazilian equity markets may cause the market price of securities of Brazilian companies, including our ADSs and Class B Shares, to fluctuate in both the domestic and international markets, and may substantially limit your ability to sell the Class B Shares underlying your ADSs at a price and time at which you wish to do so.
Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our shares or ADS.
Law No. 10,833 of December 29, 2003, provides that the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common or preferred shares by a nonresident of Brazil to another non-resident of Brazil. There is no judicial guidance as to the application of Law No. 10,833 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADS between nonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADS, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADS by a non-resident of Brazil to another non-resident of Brazil.
There is no guarantee that the Conversion Offers will be successful.
As described in “Item 4. Information on the Company – Recent Developments”, on March 22, 2021, Copel offered to the holders of Class B Shares, including Class B Shares represented by ADSs, the ability to convert five Class B Shares into one unit, consisting of four Class B Shares and one common share of Copel. The conversion of shares and formation of Units will only occur if there is a minimum adhesion of approximately 60% (sixty percent) of the shares issued and outstanding. We cannot assure you that the Coversion Offers (as defined below) will be successful or, if successful, how the conversion will impact the pricing and liquidity of our shares.
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Item 4. Information on the Company
We engage in the generation, transmission, distribution and sale of electricity mainly in the Brazilian State of Paraná, pursuant to concessions granted by ANEEL, the Brazilian regulatory agency for the electricity sector. We also provide telecommunications and other services. While our activities are more concentrated in the Brazilian State of Paraná, we also operate in 10 different Brazilian states through our generation and transmission businesses.
As of December 31, 2020, we generated electricity from nineteen (19) hydroelectric plants, twenty five (25) wind plants and one (1) Thermoelectric Plant, for a total installed capacity of 5,742.0 MW, of which, approximately 99.7% is derived from renewable sources. Including the installed capacity of generation companies in which we have an equity interest, our total installed capacity is 6,397.8 MW. Our electric power business is subject to comprehensive regulation by ANEEL.
We hold concessions to distribute electricity in 394 of the 399 municipalities in the State of Paraná and in the municipality of Porto União in the State of Santa Catarina. As of December 31, 2020, we owned and operated 3,135 km of transmission lines and 202,085 km of distribution lines, constituting one of the largest distribution networks in Brazil. Of the electricity volume we supplied in 2020 to our Final Customers:
| · | 37.0% was to industrial customers; |
| · | 27.1% was to residential customers; |
| · | 19.2% was to commercial customers; and |
| · | 16.7% was to rural and other customers. |
Key elements of our business strategy include the following:
| · | bringing together sustainable growth, profitability, adequate indebtedness levels and allocation of profits; |
| · | preparing the Company to go from consumer to client; |
| · | seeking profitable opportunities related to new businesses and services in the energy sector; |
| · | managing an integrated and strategic energy portfolio, including strategic partnerships and maximizing synergies and profitability; |
| · | divesting from non-strategic assets; |
| · | maintaining discipline in allocating capital and technical rigor in planning and implementing projects; |
| · | achieving the same efficiency standards as the best companies from the energy sector, promoting innovation, investment in technology and optimization of the workforce; |
| · | ensuring and raising levels of corporate sustainability, environmental, governance, risk management and compliance; |
| · | developing and implementing a culture based on meritocracy and consequence management towards building high performance teams; |
| · | seeking greater protagonism in our interaction with regulators and institutions; |
| · | consolidating a culture focused on safety, health and quality of life. |
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Our revenues for each of the last three (3) financial years by activity are described in “Item 5. Operating and Financial Review and Prospects —Results of operations for the years ended December 31, 2020, 2019 and 2018”.
Historical Background
We were formed in 1954 by the State of Paraná to engage in the generation, transmission and distribution of electricity, as part of a plan to bring the electric energy sector under state control. We acquired the principal private power companies located in the State of Paraná in the early 1970s. From 1970 to 1977, we significantly expanded our transmission and distribution grid and worked to increase the connectivity of our network to networks in other Brazilian states. In 1979, a change in state law permitted us to extend our generating activities to include production from sources other than hydroelectric and thermal power plants.
Currently, we are the largest energy company in the State of Paraná. We are a corporation incorporated and existing under the laws of Brazil, with the legal name Companhia Paranaense de Energia – Copel. Our head offices are located at Rua Coronel Dulcídio, 800, CEP 80420-170 Curitiba, Paraná, Brazil. Our telephone number at the head office is +55 (41) 3331-4011. Our website is www.copel.com and any filings we make electronically with the SEC will be available to the public over the Internet at the SEC’s website. The commercial name of each of our businesses is provided as follows.
Relationship with the State of Paraná
The State of Paraná owns 58.6% of our Common Shares and, consequently, has the ability to control the election of the majority of the members of our Board of Directors, members of our Supervisory Board, the appointment of senior management and our direction, future operations and business strategy.
Corporate Structure
Prior to 2001, we operated as a single corporation engaged in the generation, transmission and distribution of electricity and in certain related activities. In compliance with the new regulatory regime, we transferred our operations to four wholly-owned subsidiaries (one each for generation, transmission, distribution and telecommunications) and our investments in other companies to a fifth wholly-owned subsidiary. This corporate restructuring was completed in July 2001.
In 2007, to comply with energy sector legislation, we divided the assets of our transmission business (“Copel Transmissão S.A.”) between our distribution business (“Copel Distribuição S.A.”) and our generation business, (“Copel Geração S.A.”). As a result, we changed the name of the latter entity to Copel Geração e Transmissão S.A.
In 2013, the Company was restructured in order to enhance the efficiency of our corporate structure and reduce our operating costs.
On January 28, 2016, our board of directors approved the amendment of the bylaws of Copel Participações S.A., in order to change its corporate purpose and denomination to Copel Comercialização S.A. The corporate purpose of this company is the sale of energy and rendering of related services. The restructuring that created Copel Comercialização S.A. (Copel Mercado Livre) is aimed at strengthening Copel’s positioning in the energy trading market and to improve its efficiency, allowing for greater agility and flexibility in the sale of energy.
In September 2017, in order to optimize the management of operating activities, the Company carried out an organizational restructuring of its wholly-owned subsidiary Copel Renováveis S.A., whose activities were absorbed by Copel Geração e Transmissão S.A,
On August 30, 2018, Copel GeT signed a Share Exchange Agreement with Eletrosul with respect to the joint ventures Costa Oeste Transmissora de Energia S.A. (51% - Copel GeT and 49% - Eletrosul), Marumbi Transmissora de Energia S.A. (80% - Copel GeT and 20%- Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% - Copel GeT and 80% - Eletrosul). Under this agreement, Copel GeT started holding share of interest of 100% in the joint ventures Costa Oeste and Marumbi, in addition Eletrosul started to hold share of interest of 100% in Transmissora Sul Brasileira. The business combinations occurred on August 31, 2018, date of transfer of the shares.
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In March 2019, Copel GeT signed a purchase and sale agreement with Centrais Elétricas Brasileiras S.A. and Fundação Eletrosul de Previdência e Assistencial Social - Elos to transfer 100% of the shares issued by SPE Uirapuru Transmissora de Energia SA. In June 2019, Copel GeT took over control of the company.
On October 18, 2019, Copel GeT, through a consortium with its subsidiary Cutia Empreendimentos Eólicos, participated in the A-6 new energy generation auction, having sold 14.4 average MW of the Jandaíra Wind Complex. The Jandaíra Wind Complex, which has 90.1 MW of installed capacity and 47.6 average MW of assured power, will be built in the northeastern state of Rio Grande do Norte, a region where Copel has other wind generation assets.
In order to renew the concession of HPP Gov. Bento Munhoz (or HPP Foz do Areia) for another 30 years, Copel incorporated the special purpose company F.D.A. Geração de Energia Elétrica S.A. (“FDA”) and, on March 03, 2020, requested the Ministry of Mines and Energy to apply Federal Decree no. 9,271/2018 (as amended by Federal Decree no. 10,135/2019), which conditions the renewal to the sale of the concession's corporate control in up to 18 months before the end of the current concession. On the same date, FDA signed with ANEEL the Brazilian Electricity Regulatory Agency, the Concession Contract that transfers the concession of the HPP Foz do Areia from Copel GeT to FDA, for the exploration of the plant until the end of the current concession, on September 17, 2023.
On November 9, 2020, Copel Telecom's divestment auction was held at B3 S.A. - Brasil, Bolsa, Balcão. The winning bid was R$ 2.4 billion (equity value). On January 14, 2021, a Share Purchase Agreement for 100% of Copel Telecom was entered into with Bordeaux Multi-Strategic Investment Fund – Bordeaux Fundo de Investimentos em Participações Multiestratégia, the winning bidder of the auction. We estimate that the transaction will close between the second or third quarter of 2021.
Copel currently has five wholly-owned subsidiaries, which are Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Telecom, Copel Comercialização S.A. (Copel Mercado Livre) and Copel Serviços S.A.
Copel also holds 100% shareholding stake in several Special Purpose Companies (SPC).
The current organization of the group is as described as follows. All of our subsidiaries are incorporated in the Federative Republic of Brazil and subject to the Brazilian law.
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In the past, our generation and distribution businesses were integrated, and we sold most of the electricity we generated to the customers of our distribution business. This changed as a result of the implementation of the New Industry Model Law, enacted in 2004. Today, open auctions on the regulated market are still one of the primary channels by which our distribution business purchases energy to resell to Captive Customers and one of the channels by which our generation business generates revenues. Our generation business only sells energy to our distribution business through auctions in the regulated market. Moreover, our distribution business, like other certain Brazilian distribution companies, is also required to purchase energy from Itaipu, in an amount determined by the Brazilian government based on our proportionate share in the Brazilian electricity market. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”.
The following table shows the total electricity we (i) generated through entities in which we hold a 100.0% shareholding stake and the 51.0% and 30.0% of energy generated by Mauá and Baixo Iguaçu Hydroelectric Plants respectively (corresponding to the interest we hold in each of these assets) and (ii) purchased in the last five years, broken down by the total amount of electricity generated and purchased by Copel Geração e Transmissão and our wind farm generation facilities described below (“Wind Farms”) and the total amount of electricity purchased by Copel Distribuição and Copel Comercialização (Copel Mercado Livre).
|
Year ended December 31, | |||||
|
2020 |
2019 |
2018 |
2017 |
2016 | |
| (GWh) | |||||
| Copel Geração e Transmissão(1) | |||||
| Electricity generated(2) | 10,115 | 17,199 | 18,029 | 19,583 | 25,319 |
| Electricity purchased from Copel Comercialização | 487 | 155 | 180 | 627 | - |
| Electricity purchased from others | 147 | 141 | 141 | 428 | 141 |
| Electricity received from the Interconnected System | 5,878 | 445 | 142 | 425 | 2 |
| Total electricity generated and purchased by Copel Geração e Transmissão | 16,627 | 17,940 | 18,492 | 21,063 | 25,462 |
| Wind Farms(1) (3) | |||||
| Electricity generated(2) | 2,116 | 1,909 | 1,067 | 989 | 1,175 |
| Electricity purchased from others | 39 | 61 | - | - | - |
| Total electricity generated and purchased by Wind Farms | 2,145 | 1,970 | 1,067 | 989 | 1,175 |
| Copel Distribuição | |||||
| Electricity purchased from Itaipu(4) | 5,498 | 5,533 | 5,727 | 5,934 | 5,958 |
| Electricity purchased from Auction – CCEAR – affiliates | 154 | 153 | 92 | 87 | 157 |
| Electricity purchased from Auction – CCEAR – other | 11,579 | 12,361 | 10,691 | 9,860 | 13,387 |
| Electricity purchased from Mechanism for Compensation of Surpluses and Deficits of New Energy (MCSD-EN)) | 785 | - | - | - | - |
| Electricity purchased from Spot Market – CCEE | 536 | 23 | 34 | 215 | - |
| Electricity purchased from others | 7,571 | 8,093 | 9,208 | 9,994 | 10,361 |
| Total electricity purchased by Copel Distribuição(5) | 26,162 | 26,139 | 25,751 | 26,090 | 29,863 |
| Copel Comercialização | |||||
| Electricity purchased from Copel Geração e Transmissão | 7,275 | 5,125 | 2,422 | 27 | - |
| Electricity purchased from others | 5,077 | 3,330 | 4,101 | 2,644 | 59 |
| Electricity purchased from Spot Market – CCEE | 97 | 34 | 2 | ||
| Total electricity purchased by Copel Comercialização | 12,449 | 8,489 | 6,525 | 2,671 | 59 |
| Total electricity generated and purchased by Copel Geração e Transmissão, Copel Distribuição, Wind Farms and Copel Comercialização | 57,383 | 54,538 | 51,835 | 50,813 | 56,559 |
(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, even with respect to past years, were calculated in accordance with the criteria adopted by the CCEE.
(2) Includes the electrical losses of wiring and interconnecting station and technical losses by delivering energy to the Interconnected System.
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.
(4) Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil purchase electricity generated by Itaipu.
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The following table shows the total electricity we sold to Free Customers, Captive Customers, distributors, energy traders and other utilities service providers in the south of Brazil through the Interconnected Transmission System in the last five years.
|
Year ended December 31, | |||||
|
2020 |
2019 |
2018 |
2017 |
2016 | |
| (GWh) | |||||
| Copel Geração e Transmissão(1) | |||||
| Electricity delivered to Free Customers | 3,364 | 4,146 | 3,960 | 3,860 | 3,600 |
| Electricity delivered to Bilateral Agreements (Copel Comercialização) | 7,238 | 5,123 | 2,969 | 27 | - |
| Electricity delivered to Bilateral Agreements | 2,786 | 3,724 | 5,826 | 8,477 | 7,908 |
| Electricity delivered under auction – CCEAR – affiliates(2) | 123 | 122 | 92 | 86 | 157 |
| Electricity delivered under auction – CCEAR – other(2 | 2,221 | 2,215 | 876 | 838 | 3,154 |
| Electricity delivered to Spot Market – CCEE(2) | (203) | (594) | 213 | 1,246 | (252) |
| Electricity delivered to the Interconnected System | 939 | 3,203 | 4,556 | 6,529 | 10,895 |
| Total electricity delivered by Copel Geração e Transmissão | 16,627 | 17,940 | 18,492 | 21,063 | 25,462 |
| Wind Farms(1) (3) | |||||
| Electricity delivered under auction – CCEAR – affiliates | 31 | 31 | - | - | - |
| Electricity delivered to Bilateral Agreements (Copel Com) | 37 |
- |
- |
- |
- |
| Electricity delivered under auction – CCEAR – other | 1,291 | 1,288 | 840 | 840 | 842 |
| Electricity delivered under auction – CER – other | 917 | 914 | 334 | 357 | 358 |
| Total electricity delivered by Wind Farms | 2,276 | 2,233 | 1,174 | 1,197 | 1,200 |
| Copel Distribuição | |||||
| Electricity delivered to Captive Customers | 19,180 | 19,784 | 19,594 | 19,743 | 22,328 |
| Electricity delivered to distributors in the State of Paraná | 76 | 164 | 279 | 521 | 614 |
| Spot Market – CCEE(4) | 3,787 | 3,143 | 2,401 | 2,510 | 3,611 |
| Total electricity delivered by Copel Distribuição | 23,043 | 23,091 | 22,274 | 22,774 | 26,553 |
| Copel Comercialização | |||||
| Electricity delivered to Free Customers | 4,620 | 2,715 | 2,096 | 771 | 58 |
| Electricity delivered to Bilateral Agreements (Copel GeT) | 516 | 216 | 180 | 628 | - |
| Electricity delivered to Bilateral Agreements | 6,984 | 5,506 | 4,223 | 1,254 | - |
| Electricity delivered to Spot Market – CCEE | 329 | 52 | 26 | 18 | 1 |
| Total electricity delivered by Copel Comercialização | 12,449 | 8,489 | 6,525 | 2,671 | 59 |
| Subtotal | 54,395 | 49,930 | 48,465 | 47,705 | 53,274 |
| Losses by Copel Distribuição and Wind Farms5) | 3,211 | 2,808 | 3,370 | 3,108 | 3,285 |
| Total electricity delivered by Copel Geração e Transmissão, Copel Renováveis, Copel Distribuição and Copel Comercialização, including losses | 57,606 | 52,738 | 51,835 | 50,813 | 56,559 |
(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, even with respect to past years, were calculated in accordance with the criteria adopted by the CCEE. (2) Amounts indicated as less than zero (negative numbers) refer to the consolidated purchase of electricity from the Spot Market along the year.
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.(4) Includes the MCSD and MVE.(5) Includes Technical, Non-technical and Basic network losses of Copel Distribuição and losses related to the Wind Farms.
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Generation
As of December 31, 2020, considering only the entities in which we hold a 100.0% shareholding stake and 51.0% and 30.0% of the energy generated by Mauá and Baixo Iguaçu Hydroelectric Plants, respectively (corresponding to the interest we hold in each of these assets), we operated and sold energy through nineteen (19) hydroelectric plants, twenty five (25) wind plants and one (1) Thermoelectric Plant, with a total installed capacity of 5,742 MW. Our assured energy totaled an average of 2,571 MW in 2020. Our generation varies yearly as a result of hydrological conditions and other factors. We generated 12,665GWh in 2020, 19,812 GWh in 2019, 19,935 GWh in 2018, 21,469 GWh in 2017 and 27,944 GWh in 2016.
Considering the installed capacity of all of the generation companies in which we have an interest (equity or otherwise), our total installed capacity as of December 31, 2020, was 6,399.6 MW.
The generation of electrical energy at our power plants is supervised, coordinated and operated by our Generation and Transmission Operation Center in the city of Curitiba. This operation center is responsible for coordinating the operations related to major part of our total installed capacity, including some of the plants in which we hold only partial ownership interests.
Hydroelectric Generation Facilities
The following table sets forth certain information related to our main hydroelectric plants in operation during 2020:
|
Plant |
Installed capacity |
Assured energy (1) |
Placed in service |
Concession expires |
| (MW) | (GWh/yr) | |||
| Foz do Areia | 1,676.0 | 5,299.39 | 1980 | September, 2023 |
| Segredo | 1,260.0 | 5,081.54 | 1992 | November, 2029 |
| Salto Caxias | 1,240.0 | 5,319.59 | 1999 | May, 2030 |
| Capivari Cachoeira(2) | 260.0 | 957.46 | 1970 | January, 2046 |
| Mauá | 185.2(3) | 885.43 | 2012 | July, 2042 |
| Baixo Iguaçu | 105,06(4) | 454.13 | 2019 | October, 2049 |
| Colíder | 300 | 1,564.43 | 2019 | January, 2046 |
| Others | 102.7 | 513.86 | N/A | N/A |
(1) Values used to determine volumes committed for sale.
(2) On January 5, 2016, Copel Geração e Transmissão executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2046.
(3) Corresponds to 51.0% of the installed capacity of the plant (363.1 MW), corresponding to the interest we hold in this plant, as we operate this plant through a consortium.
(4) Corresponds to 30.0% of the installed capacity of the plant (350.2 MW), corresponding to the interest we hold in this plant, as we operate this plant through a consortium.
Governador Bento Munhoz da Rocha Netto (“Foz do Areia” Plant). The Foz do Areia Hydroelectric Power Plant is located on the Iguaçu River, approximately 350 kilometers southwest of the city of Curitiba.
Copel Geração e Transmissão SA (“Copel GeT”) held the concession for the exploration rights of the Governador Bento Munhoz da Rocha Netto Hydroelectric Power Plant (“UHE GBM”), in accordance with the Concession Agreement No. 045/1999, with the term of such concession until September, 2023. On the occasion of the termination of such concession, it is the Brazilian government’s responsibility to launch a new competitive bidding process for UHE GBM 's exploration rights, with wide competition between agents in the sector. Decree 9.271/18 allows the Brazilian government to grant a new concession contract for a period of up to 30 years to the winning legal entity of the privatization bidding of a public electricity generation service concessionaire under the control of the States.
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The Company carried out studies to analyze the feasibility of becoming the winner in the future bidding process, and in the administrators’ assessment, the appetite of foreign investors represents a high risk for Copel, which may not be sufficiently competitive in the event of more efficient agents, or with lower financial cost for investments.
In this context, Copel GeT incorporated FDA and requested ANEEL for the transfer of the public electricity generation service for the plant in question. The transfer of the concession rights of UHE GBM to FDA took place under the terms of ANEEL Authorization Resolution No. 8,578, of February 11, 2020 and the Concession Contract for Generation of Electricity destined to the Public Service between FDA No. 002/2020.
On March 3, 2020, for the purposes of the provisions of Article 1st §2nd, item II of Decree No. 9.271/2018 (as amended by Decree No. 10.135/2019), Companhia Paranaense de Energia - Copel and Copel Geração e Transmissão S.A. filed a petition with the Ministry of Mines and Energy, through which they expressed their intention to privatize, by means of the sale of FDA’s control, associated with obtaining a Concession Agreement for 30 (thirty) years, counted as from its signing date, for the Governador Bento Munhoz da Rocha Netto Hydroelectric Plant. The petition provided that the privatization bidding, by means of the sale of FDA’s control, will be effected only after the acknowledgement and evaluation of the conditions involved in obtaining the concession rights, especially those related to the payment of the concession rights, in addition to the respective procedures and governance therefore.
In relation to the new concession agreement, the Ministry of Mines and Energy is responsible for defining the physical guarantee of energy, which should be included in the concession contract, as per §2º of art. 2 of Decree No. 5.163/2004.
On February 4, 2021, the Ministry of Mines and Energy published Directive (Portaria) No. 516/2021, which sets the physical guarantee of UHE GBM at 596.0 MWm (assured energy at 5,220.96 GWh/yr). The value is conditioned to the execution of the new concession agreement to be entered into by the company resulting from the privatization process, according to Decree No. 9,271/2018. The original value defined by the Ministry of Mines and Energy was 593.8 MWm (assured energy of 5,201.69 GWh/yr), however the value was revised after the approval of new parameters resulting from the modernization process of Generating Units 1, 2, and 4, approved by ANEEL through Order No. 3,245/2020. After reviewing the calculation of the physical guarantee of UHE GBM, the defined value is 596.0 MWm (assured energy at 5,220.96 GWh/yr).
Governador Ney Aminthas de Barros Braga (“Segredo” Plant). The Segredo Hydroelectric Power Plant is located on the Iguaçu River, approximately 370 kilometers southwest of the city of Curitiba.
Governador José Richa (“Salto Caxias” Plant). The Salto Caxias Hydroelectric Power Plant is located on the Iguaçu River, approximately 600 kilometers southwest of the city of Curitiba.
Governador Pedro Viriato Parigot de Souza (“Capivari Cachoeira” Plant). The Capivari Cachoeira Hydroelectric Power Plant is the largest underground hydroelectric plant in Southern Brazil. The reservoir is located on the Capivari River, approximately 50 kilometers north of the city of Curitiba, and the power station is located on the Cachoeira River, approximately 15 kilometers from the reservoir.
Our former concession agreement for the Capivari Cachoeira Plant expired on July 7, 2015. Although Copel Geração e Transmissão did not elect to renew the original concession pursuant the 2013 Concession Renewal Law, it participated in the new competitive bidding process and won. On January 5, 2016, Copel GeT executed a concession agreement with ANEEL, allowing it to continue to operate this plant under an operation and maintenance regime until January 5, 2046. We paid a total of R$574.8 million as the signing bonus for this concession and we received an annual generation revenue (AGR) of R$144.1 million from January 5, 2016 to December 31, 2016. This AGR is subject to an annual tariff adjustment. In July 2017, the AGR was adjusted to R$114.1 million for the period from July 2017 to June 2018 pursuant to the ANEEL Resolution No. 2,265/2017, and in 2018 the AGR was adjusted to R$119.2 million for the period from July 2018 to June 2019 pursuant ANEEL Resolution No. 2,421/2018. In 2019 the AGR was adjusted to R$123,7 million for the period from July 2019 to June 2020 pursuant ANEEL Resolution No. 2,587/2019. In 2020 the AGR was adjusted to R$127.9 million for the period from July 2020 to June 2021 pursuant to ANEEL Resolution No. 2,746/2020.
The Capivari Cachoeira Plant has 260.0MW of installed capacity and assured energy of 957.5 GWh/year. Since January 1, 2017, 70.0% of the energy generated by this plant has been allocated in quotas to the regulated market. Copel GeT will no longer bear the hydrological risk for the energy allocated in quotas under the MRE associated with the Capivari Cachoeira Plant.
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Mauá. The Jayme Canet Júnior Hydroelectric Power Plant (Mauá Plant) is located on the Tibagi River, in the State of Paraná. It was constructed between 2008 and 2012 by Consórcio Energético Cruzeiro do Sul, in which we hold a 51.0% interest and CGT Eletrosul holds the remaining 49.0%. The facility is located approximately 250 kilometers from Curitiba, in the Municipality of Telêmaco Borba.
Colíder Hydroelectric Power Plant has an installed capacity of 300.0 MW and it is located on the Teles Pires River, in the State of Mato Grosso, between the municipalities of Nova Canaã do Norte and Itaúba, with the municipalities of Colíder and Cláudia are also affected by the reservoir. The construction of the plant began in 2011 and the work was totally concluded in 2019. The first Generating Unit entered commercial operation on March 9, 2019 and the last unit started operating on December 21, 2019.
Baixo Iguaçu Hydroelectric Power Plant has an installed capacity of 350.2 MW and it is located on the Iguaçu River, in the municipalities of Capanema, Capitão Leonidas Marques, Planalto, Realeza and Nova Prata do Iguaçu, State of Paraná. Baixo Iguaçu HPP is the last large energy project planned for the main Iguaçu and it is located around 30 km downstream from Governador José Richa HPP - the Salto Caxias Hydroelectric Power Plant, which is 100.0% owned by Copel. It was constructed by a consortium in which Copel GeT holds a 30% interest and Geração Céu Azul S.A. holds the remaining 70.0%. This power plant became fully operational on April 10, 2019. In addition to our generation facilities, we have ownership interests in several other hydroelectric generation companies as detailed below.
Between 2004 and 2010, we were required by law to retain a majority of the voting shares of any company in which we obtained an ownership interest. Starting in 2010, it became possible for us to hold non-controlling interests in companies.
The following table sets forth information regarding the hydroelectric generation plants in which we had a partial equity interest as of December 31, 2020:
|
Plant |
Installed capacity |
Assured energy |
Placed in service |
Our ownership |
Concession Expires | |||||
| (MW) | (GWh/yr) | (%) | ||||||||
| Elejor Facility (Santa Clara, Santa Clara I, Fundão and Fundão I) |
246.5 | 1,211.3 | July, 2005 June, 2006 |
70.0 | May, 2037(1) December, 2032 | |||||
| Dona Francisca | 125.0 | 664.1 | February, 2001 | 23.0 | August, 2033 | |||||
| SHP Arturo Andreoli (Foz do Chopim) |
29.1 | 179.2 | October, 2001 | 35.8 | April, 2030 | |||||
| UHE Baixo Iguaçu | 350.2 | 1,514.4 | April, 2019 | 30.0 | August, 2047 |
___________________
(1) Elejor Facility adhered on January 14, 2015, with the renegotiation of the hydrological risks, which caused the expiration date to be extended from 2036 to 2037.
Elejor Facility. The Elejor Facility consists of the Santa Clara and Fundão Hydroelectric Power Plants, both of which are located on the Jordão River in the State of Paraná. The aggregate total installed capacity of the units is 246.5 MW, which includes two smaller hydroelectric generation units installed in the same location. Elejor signed a concession agreement with a term of 35 years for the Santa Clara and Fundão plants in October 2001. As of December 31, 2020, we own 70.0% of the common shares of Elejor, and Paineira Participações owns the remaining 30.0 %.
Elejor is required to make monthly payments to the Brazilian government for the use of hydroelectric resources, which in 2001 totaled R$19.0 million. This amount is adjusted on an annual basis by the IGP-M Index.
We had a power purchase agreement with Elejor, which provides that we will purchase all of the energy produced by the Santa Clara and Fundão facilities at a set rate until April 2019, to be adjusted annually in accordance with the IGP-M Index. This agreement was terminated, there was no renewal and Elejor is selling the energy in the Free Market. In 2020, Elejor’s net revenues and loss were R$194.8 million and R$29.4 million, respectively, while in 2019 its net revenues and net profits were R$218.4 million and R$26.1 million, respectively.
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Dona Francisca. We own 23.03 % of the common shares of Dona Francisca Energética S.A. (“DFESA”). The other shareholders are Gerdau S.A. with a 51.82% interest, Celesc S.A. with a 23.03% interest and Statkraft S.A. with a 2.12% interest. DFESA Hydroelectric Power Plant is located on the Jacuí River in the State of Rio Grande do Sul. The plant began full operations in 2001. In April 2015, we signed a new ten year power purchase agreement with DFESA, valued at R$17.0 million annually, under which Copel purchases 23.03% of DFESA’s assured energy (proportional to Copel’s stake).
In 2020, DFESA’s net revenues and net profits were R$70.3million and R$42.0million, respectively, while in 2019 its net revenues and net profits were R$70.7 million and R$42.8 million, respectively.
SHP Arturo Andreoli (“Foz do Chopim” Hydroelectric Plant). The Foz do Chopim Hydroelectric Plant is located on the Chopim River in the State of Paraná. We own 35.8% of the common shares of Foz do Chopim Energética Ltda., the entity that owns the Foz do Chopim Hydroelectric Plant. Silea Participações Ltda. owns the remaining 64.2%. The operation and maintenance of Foz do Chopim Hydroelectric Plant is performed by Copel Geração e Transmissão S.A. Energy supply agreements were executed at an Average Tariff of R$220.07/MWh. Foz do Chopim Energética Ltda. also had the authorization to operate Bela Vista SHP, a hydroelectric power plant that is located on the same river and has similar capacity, which was transferred to Bela Vista Geração de Energia S.A. (“Bela Vista Geração”), through the ANEEL’s Authorizing Resolution no. 7.802/2019. In 2020, Foz do Chopim’s net revenues and net profits were R$55.7million and R$26.9million, respectively, while in 2019 its net revenues and net profits were R$56.9 million and R$38.9 million, respectively.
Wind Farm Generation Facilities
Since 2013 we have been expanding our energy generation capacity and diversifying our energy matrix through the development of renewable energy sources, like the construction and acquisition of wind farms in the State of Rio Grande do Norte. The following table sets forth certain information relating to our wind farm plants in operation as of December 31, 2020:
|
Plant |
Installed capacity |
Assured Power |
Placed in Service |
Concession Expires |
| (MW) | (Average MW) | |||
| São Bento Energia(1) | 94.0 | 46.3 | ||
| Boa Vista | 14.0 | 6.3 | February, 2015 | April, 2046 |
| Olho d'Água | 30.0 | 15.3 | February, 2015 | May, 2046 |
| São Bento do Norte | 30.0 | 14.6 | February, 2015 | May, 2046 |
| Farol | 20.0 | 10.1 | February, 2015 | April, 2046 |
| Palmas | 2.5 | 0.4 | November, 1999 | September, 2029 |
| Copel Brisa Potiguar Wind Complex (2) | 183.6 | 98.4 | ||
| Asa Branca I | 27.0 | 14.2 | August, 2015 | April, 2046 |
| Asa Branca II | 27.0 | 14.3 | September, 2015 | May, 2046 |
| Asa Branca III | 27.0 | 14.5 | September, 2015 | May, 2046 |
| Eurus IV | 27.0 | 14.7 | August, 2015 | April, 2046 |
| Santa Maria | 29.7 | 15.7 | April, 2015 | May, 2047 |
| Santa Helena | 29.7 | 16.0 | May, 2015 | April, 2047 |
| Ventos de Santo Uriel | 16.2 | 9.0 | May, 2015 | April, 2047 |
| Voltália São Miguel do Gostoso I(3) | 108.0 | 57.1 | ||
| Carnaúbas | 27.0 | 13.1 | June, 2017 | April, 2047 |
| Reduto | 27.0 | 14.4 | June, 2017 | April, 2047 |
| Santo Cristo | 27.0 | 15.3 | June, 2017 | April, 2047 |
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| São João | 27.0 | 14.3 | June, 2017 | March, 2047 |
| Cutia Empreendimentos Eólicos(4) | 312.9 | 130.1 | ||
| Dreen Cutia | 23.1 | 9.6 | December, 2018 | January, 2042 |
| Dreen Guajiru | 21.0 | 8.3 | December, 2018 | January, 2042 |
| Esperança do Nordeste | 27.3 | 9.1 | December, 2018 | May, 2050 |
| GE Jangada | 27.3 | 10.3 | December, 2018 | January, 2042 |
| GE Maria Helena | 27.3 | 12.0 | December, 2018 | January, 2042 |
| GE Paraíso dos Ventos do Nordeste | 27.3 | 10.6 | January, 2019 | May, 2050 |
| Potiguar | 27.3 | 11.5 | December, 2018 | May, 2050 |
| Bento Miguel | ||||
| São Bento do Norte I | 23.1 | 10.1 | January, 2019 | August, 2050 |
| São Bento do Norte II | 23.1 | 10.8 | January, 2019 | August, 2050 |
| São Bento do Norte III | 23.1 | 10.2 | April, 2019 | August, 2050 |
| São Miguel I | 21.0 | 9.3 | February, 2019 | August, 2050 |
| São Miguel II | 21.0 | 9.1 | February, 2019 | August, 2050 |
| São Miguel III | 21.0 | 9.2 | February, 2019 | August, 2050 |
___________________
(1) Pursuant to Directive (Portaria) No. 360 of September 30, 2020, the projects that are part of the São Bento Energia wind complex had their physical guarantees altered as of January 1, 2021, as follows: Boa Vista (from 6.3 MW to 5.2MW), Olho d'Água (from 15.3 MW to 12.8MW), São Bento do Norte (from 14.6MW to 11.3MW) and Farol (from 10.1MW to 8.8MW).
(2) Pursuant to Directive (Portaria) No. 360 of September 30, 2020, certain the projects that are part of the Copel Brisa Potiguar wind complex had their physical guarantees altered as of January 1, 2021, as follows: Asa Branca I (from 14.2MW to 12.1MW), Asa Branca II (from 14.3 MW to 11.9MW), Asa Branca III (from 14.5MW to 12.3MW) and Eurus IV (from 14.7MW to 12.4MW).
(3) Copel has a 49.0% interest in Voltália São Miguel do Gostoso .
(4) In January 2019, São Bento do Norte I, II and III began their commercial operations with 100% of their installed capacity, while the São Miguel I,II and III began their operation with 100% of their installed capacity in February 2019.
São Bento Energia. On February 25, 2015, the four wind farms (Boa Vista, Olho d’Água, São Bento do Norte and Farol) which are part of the São Bento Wind Farm Complex, located in the State of Rio Grande do Norte, began operations. With an installed capacity of 94 MW and assured energy of 46.3 average-MW. In August 2010, 43.7 average-MW of the energy generated at a weighted average price of R$134.40/MWh (annually adjusted by IPCA index) was sold to fifteen distribution concessionaires in ANEEL public auctions. The energy generated by these wind farms is sold through 20-year term contracts.
Copel Brisa Potiguar Wind Complex. On September 15, 2015, Copel concluded the installation of the Brisa Potiguar Wind Complex with an installed capacity 183.6 MW and assured energy of 98,4 average-MW. An assured energy of 57.7 average-MW (from Asa Branca I, Asa Branca II, Asa Branca III and Eurus IV wind farms) was committed under contract to electric power distributors in the alternative energy auction in August 2010 at a weighted average price of R$135.40/MWh (adjusted annually by IPCA inflation index) and an average of 40.7 MW (from WPPs Santa Helena, Santa Maria and Ventos de Santo Uriel) was committed under contract in the 6th Reserve Energy Auction held in August 2011 at a weighted average price of R$101.98/MWh (annually adjusted by the IPCA inflation index). The energy to be generated was sold through 20-year term contracts with payments beginning in April 2015.
Voltália São Miguel do Gostoso I. In June 2014, we negotiated with Voltalia Energia do Brasil Ltda. (Voltalia) the acquisition of a 49.0% interest in the São Miguel do Gostoso I Wind Farm Complex, in the State of Rio Grande do Norte. The São Miguel do Gostoso wind farm complex has 108.0 MW of installed capacity and assured energy of 57.1 average-MW, and its energy was sold in the 4th Reserve Energy Auction at an average price of R$98.92/MWh through 20-year term contracts. In April 2015, we concluded the construction of this wind farm complex and ANEEL, in July and August 2015, classified it as ready for commercial operation. This wind farm complex began production in June 2017 after completion of the necessary transmission lines.
Cutia. Cutia Empreendimentos Eólicos, which is Copel’s largest wind farm business, is divided into two large complexes totaling 312.9 MW of installed capacity: (a) Cutia Complex, composed of seven wind farms (Guajiru, Jangada, Potiguar, Cutia, Maria Helena, Esperança do Nordeste and Paraíso dos Ventos do Nordeste), with a total installed capacity of 180.6 MW, 71.4 average MW of physical guarantee and located in the State of Rio Grande do Norte; and (b) Bento Miguel Complex, composed of six wind farms (São Bento do Norte I, São Bento do Norte II, São Bento do Norte III, São Miguel I, São Miguel II and São Miguel III) with 132.3 MW of total installed capacity, 58.7 average MW of physical guarantee and located in the State of Rio Grande do Norte, in the same region of other wind farm complexes that belong to us. On October 31, 2014, at the 6th Reserve Energy Auction, we sold 71.2 average MW from the Cutia Complex for R$144.00/MWh (maximum auction price). In addition, at the 20th New Energy Auction (A-5), held on November 28, 2014, we sold 54.8 average MW from the six Bento Miguel wind farms for R$136.97/MWh, through Availability Agreements with a 20-year term.
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In December 2018, the wind farms of Cutia, Guajiru and Esperança do Nordeste, all part of the Cutia Complex, began their operations with 100% of their installed capacity. The parks of Jangada, Maria Helena and Potiguar, also part of the Cutia Complex, began their commercial operations in December 2018 with 85%, 54% and 77% of their installed capacity, respectively. On September 20, 2019, according to ANEEL Order No. 2,593 / 2019, the last three Generating Units of the Maria Helena Wind Power Plant were released. With this, the Cutia Wind Complex became fully operational in 2019.
In January 2019, São Bento do Norte I, São Bento do Norte II began their operations, while in February 2019, São Miguel I, São Miguel II e São Miguel III began theirs. In April 2019, São Bento do Norte III began their operations. With this, the Bento Miguel Complex became fully operational.
Thermoelectric Generation Facilities
The following table sets forth certain information about our Thermoelectric Plants in operation as of December 31, 2020:
|
Plant |
Installed capacity |
Assured energy |
Placed in service |
Our ownership |
Concession/
authorization |
| (MW) | (GWh/yr) | (%) | |||
| TPP Araucária | 484.2 | 2,604.5(1) | September, 2002 | 81.2 (2) | December, 2029 |
| TPP Figueira | 20.0 | 90.5 | April, 1963 | 100.0 | March, 2019(3) |
___________________
(1) The annual assured energy of thermal plants such as Araucária varies depending on the price of natural gas, according to criteria established by the MME.
(2) Held 20,3% by Copel and 60,9% by Copel GeT.
(3) We are currently waiting for the granting authority to amend our concession agreement with respect to TPP Figueira, extending the concession of the Thermoelectric Plant for another 20 years, pursuant to the Concession Extension Law of 2013
Araucária. We have an 81.2 % interest in UEG Araucária Ltda., which owns the Araucária Thermoelectric Plant, a natural gas thermoelectric power plant, located in the state of Paraná. The Araucária Thermoelectric Plant has 484.2 MW of installed capacity, does not have Availability Agreements currently in force and operates under a business model in which revenue depends on the plant’s operation. When produced, energy will be sold in the Spot Market as directed by the ONS.
As of November 2019, the plant may also have the possibility of being activated in the form of an assignment of energy credits, in accordance with the agreement signed with Petróleo Brasileiro S.A. - Petrobrás and in accordance with Normative Resolution No. 614/2014 from ANEEL. Based on this agreement, in force until December 31, 2020, the plant may be dispatched outside of out-of-merit-order, and the UTE Araucária gas supplier will inform, weekly, if it will activate the plant. In this scenario, the order will not be at the price of the CVU approved by ANEEL, but at a price agreed between the parties, considering, among other factors, market opportunities and margins considered adequate for the plant's operation, thus enabling recovery fixed cost for the order period.
A gas supply agreement was signed between Petróleo Brasileiro S.A - Petrobras and UEG Araucária Ltda - UEGA. The agreement is valid from January 01th to December 31th, 2021 and it provides for the delivery of up to 2,150,000 cubic meters of natural gas per day, without take-or-pay clauses. As a result, TPP Araucária will remain available to the National Interconnected System - SIN and can therefore be dispatched at the discretion of ONS. However, UEG Araucária signed an amendment to the Transfer of Energy Credits agreement with Petróleo Brasileiro S.A. - Petrobras, in accordance with ANEEL's Normative Resolution No. 614/2014, for the same duration as the gas supply agreement. The amendment will allow the plant to be dispatched out-of-merit-order, and the gas supplier will inform TPP Araucária weekly whether it will activate the plant. In this context, dispatch will not be charged at the CVU approved by ANEEL but at the value agreed by the parties, taking into account, among other factors, market opportunities and margins considered adequate for the operation of the plant, thus enabling the recovery of the fixed cost related to the dispatch period. With an installed capacity of 484.2 MW, the combined cycle power plant is one of the most efficient in Brazil.
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TPP Araucária was activated on March 8, 2020, according to the schedule for the operational week of ONS. The dispatch order is part of the exceptional measures adopted at the meeting of March 4, 2020 by the Electric Sector Monitoring Committee (“CMSE”) for the recovery of hydroelectric reservoirs in the southern region of the country. The plant's remuneration, therefore, will be based on the Variable Cost per Unit - CVU approved by ANEEL, in the amount of R$681.79/MWh.
Figueira. The Figueira plant is located in the city of Figueira, in the northeast of the state of Paraná (where the main coal basin of Paraná is located). This plant is currently in a modernization process, which consists of replacing the old equipment for new equipment. This process aims to make this plant more efficient, reduce emissions of gases and particles resulting from the burning of coal and comply with applicable environmental legislation.
After the modernization, the plant will have the installed capacity of 20.0 MW with only one Generating Unit and the physical guarantee of 17.7 MW, so that it is in compliance with Normative Resolution No. 801/2017, which defines a minimum efficiency of 25% for installations with installed capacity up to 50.0 MW.
Expansion and Maintenance of Generating Capacity
We expect to spend R$429.8 million in 2021 to expand and maintain our generation capacity, including participation in new businesses, of which R$270.2 million will be invested in Jandaíra wind farm, R$35.6 million will be invested in Figueira Thermal Power Plant and R$22.0 million will be invested in the Cutia wind farm. The remaining amount will be spent on equipment maintenance, the modernization of the HPP Foz do Areia, SHP Bela Vista, Brisa Potiguar and São Bento Wind Farm Complex and other projects.
Hydroelectric Power Plant Projects
We have interests in several hydroelectric generation projects. The following table sets forth information regarding our major hydroelectric generation projects under construction.
|
Facility |
Installed capacity |
Estimated assured energy (1) |
Budgeted completion cost |
Beginning of operation |
Our ownership |
Status |
| (MW) | (GWh/year) | (R$million) | (%) | |||
| SHP Bela Vista | 29 | 145 | 200 | January, 2024 | 100.0 | Concession granted |
___________________
(1) Values used to determine volumes committed for sale.
Bela Vista. In August 2018, we participated in the A-6 auction as a member of the Consórcio Bela Vista Geração and sold 14.7 MW of the SHP Bela Vista, at a price of R$195.70 / MWh. With an estimated investment of R$200.0 million, the Bela Vista SHP has 29 MW of installed capacity and 16.6 MW of assured power and is under construction in the Chopim river, in the São João and Verê Municipalities, located in the southwest of the State of Paraná. The energy sales agreement will be in force as of January 1, 2024, for a 30-year term and will be subject to an annual readjustment by the IPCA. The construction of this facility began in the first semester of 2019.
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Wind Farm Projects
The following table sets forth information regarding our wind farm projects, all of which currently refer to the Jandaíra wind farm (Complexo Eólico Jandaíra). In October 2019, Copel GeT and its subsidiary Cutia wind farm (Cutia Empreendimentos Eólicos) joined the Auction ANEEL A-6 for new energy generation and sold an average of 14.4 MW from the Jandaíra wind farm for R$98.00 MW/h. We expect to invest R$411.6 million in this new wind farm, which has an installed capacity equivalent to 90.1 MW and a physical guarantee equivalent to 47.6 MW. The Jandaíra wind farm will be built in the state of Rio Grande do Norte, and, as other wind farm assets of Copel are located in the same region, we believe that this project may benefit from operational synergies related to our projects that are already operating.
The amount of energy sold in October 2019 corresponds to 30% of the project’s physical guarantee. Pursuant to the power purchase agreement executed in connection with the above, such amount of energy shall be supplied as from January 1, 2025, this agreement will be in force for 20 years and prices will be adjusted pursuant to the IPCA index. Any additional energy generated by the Jandaíra wind farm will be negotiated in the Free Market.
|
Wind Farm |
Installed capacity |
Estimated Assured Power |
Budgeted completion cost |
Beginning of commercial operation(1) |
Our ownership |
Concession expires |
| (MW) | (Average MW) | (R$million) | (%) | |||
| Jandaíra | 90.1 | 47.6 | 411.6 | May, 2022 | 100.0 | April 2055 |
| Jandaíra I | 10,4 | 5.3 | - | - | 100 | April 2055 |
| Jandaíra II | 24,3 | 13.5 | - | - | 100 | April 2055 |
| Jandaíra III | 27.7 | 14.6 | - | - | 100 | April 2055 |
| Jandaíra IV | 27.7 | 14.2 | - | - | 100 | April 2055 |
___________________
| (1) | The beginning of commercial operation of each wind farm will occur as of May 2022, in a staggered manner. On January 1, 2025, the beginning of supply of the regulated environment contracts will take place. |
Development Projects
We are involved in various initiatives to study the technical, economic and environmental feasibility of certain hydroelectric, wind, solar photovoltaic and thermoelectric generation projects. The following table sets forth information regarding our proposed generation projects that are considered feasible under a technical, economic, social, environmental and land-related perspective pursuant to the above-mentioned studies.
Proposed Projects(1) |
Estimated Installed Capacity |
Estimated Assured Energy |
Our Ownership |
| (MW) | (GWh/yr) |
(%) | |
| HPP São Jerônimo | 330.0 | 1,560.2 | 41.2 |
| WPP Complexo Alto Oriente | 62.4 | 262.2 | 100.0 |
| HPP Salto Grande | 49.0 | 221.3 | 100.0 |
| SHP Salto Alemã | 29.8 | 160.8 | 19.0 |
| TOTAL | 471.2 | 2,204.5 | - |
___________________
| (1) | Do not include other proposed projects of Copel whose technical, economic, social, environmental and land-related feasibility is still under analysis. |
Copel is also a member of Consortium Geração Luz Paranaense – CGLP, which was granted with exploration rights related to the following projects: (i) SHP Foz do Curucaca, (ii) SHP Salto Alemã, (iii) SHP Alto Chopim and (iv) SHP Rancho Grande. After obtaining the applicable authorization from ANEEL and evaluating the hydraulic potential of each project, the consortium decided to carry out the studies only with respect to SHP Salto Alemã and SHP Foz do Curucaca and to return the exploration rights for SHP Alto Chopim and SHP Rancho Grande projects to ANEEL. The basic designs of SHP Salto Alemã and of SHP Foz do Curucaca had already been approved by ANEEL and the environmental studies related to this project were registered in the competent entity (IAT – Instituto Água e Terra do Paraná or “IAT”) for analysis.
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Since 2018, COPEL has held the rights of the HPP Salto Grande, located in the Chopim River in the state of Paraná. The environmental studies related to this project were registered with IAT for analysis in February 2020 and the basic design was approved by ANEEL in November 2020.
Taking into account that four energy auctions are planned in 2021, we intend to bid for concessions to construct and operate new hydroelectric and solar photovoltaic plants or wind farms in power auctions in the regulated market for new generation projects. We are studying the feasibility of our participation in the hydroelectric, wind farms and solar photovoltaic projects planned to be listed in the auctions of 2021 or sell the energy in the unregulated electricity market (Free Market). We will also conduct studies of new hydroelectric power plants. For instance, we have partnered with BE - Empresa de Estudos Energéticos S.A., Minas PCH S.A. and SILEA Participações Ltda. to develop studies in the lower region of the Chopim River, which may lead to the development of another four (4) hydroelectric projects. We are also conducting studies related to future government auctions for wind farms, solar photovoltaic and hydropower plants, small hydroelectric plants and thermoelectric power plants in which we may eventually participate. Other renewable energy projects under study or development include the use of municipal solid waste in power generation, and thermosolar energy. For instance, since 2017, Copel has conducted solarimetric measurements in two solarimetric stations located in areas leased by Copel Brisa Potiguar. The development of solar energy projects in such areas is still under analysis and the corresponding studies are expected to be concluded as to be able to submit such projects to energy auctions in 2021.
We are also developing studies for the implementation / acquisition of projects related to Generation Distribution, Biomass (sugar cane and forest residues), Biogas and Natural Gas. In addition to energy generation projects, investment opportunities in new energy transmission assets whose concession will be auctioned by the Brazilian government or existing assets that have synergy with our current portfolio are also being studied.
Transmission and Distribution
General
Electricity is transferred from power plants to customers through transmission and distribution systems. Transmission is the bulk transfer of electricity from generating facilities to the distribution system by means of the Interconnected Transmission System, in tension greater than or equal to 230 kV. Distribution is the transfer of electricity to Final Customers, in tension lesser or equal to 138 kV.
The following table sets forth certain information concerning our transmission and distribution grids on the dates presented.
|
As of December 31, | |||||
|
2020 |
2019 |
2018 |
2017 |
2016 | |
| Transmission lines (km): | |||||
| 230 kV and 500 kV | 3,127.6 | 3,127.6 | 3,025.4 | 2,691. 8 | 2,514.0 |
| 138 kV | 7.2 | 7.2 | 7.2 | 7.2 | 7.2 |
| 69 kV(1) | - | - | - | - | - |
| Distribution lines (km): | |||||
| 230 kV(2) | - | - | - | - | 165.5 |
| 138 kV | 6,547 | 6,506.7 | 6,264.8 | 5,935.0 | 5,970.3 |
| 69 kV | 755 | 755.6 | 751.2 | 866.4 | 695.4 |
| 34.5 kV | 86,489 | 85,734.5 | 85,185.2 | 84,639.2 | 84,071.3 |
| 13.8 kV | 108,384 | 106,955.7 | 106,172.4 | 105,510.6 | 104,556.0 |
| Transformer capacity (MVA): | |||||
| Transmission and distribution substations (69 kV – 500 kV)(3) | 23,918.2 | 23,860.2 | 22,825.1 | 22,849.3 | 22,535.4 |
| Generation (step up) substations | 6,691.0 | 6,691.0 | 6,355.0 | 6,335.0 | 6,335.0 |
| Distribution substations (34.5 kV) | 1,594.2 | 1,545.8 | 1,502.3 | 1,537.9 | 1,488.5 |
| Distribution transformers | 14,180.8 | 13,800.9 | 13,404.6 | 12,956.9 | 12,548.2 |
| Total energy losses(4) (5) | 7.8% | 7.0% | 8.3% | 7.8% | 8.1% |
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___________________
(1) As approved by ANEEL in 2008, these 69 kV transmission lines held by Copel Distribuição were transferred to Copel Geração e Transmissão, since they were part of our transmission business segment.
(2) Due to improvements to registration and control systems used by Copel Distribuição to classify and register its transmission lines, lines were classified pursuant to its insulation voltage, and not according to its structure and isolate components. Consequently, all lines previously registered by Copel Distribuição were reclassified and there are no lines classified as 230 kV anymore.
(3) This figure includes transformers with primary tensions of 69 kV and 138 kV which belong to Copel Distribuição but are implemented in 230 kV and 525 kV substations, which belong to Copel Geração e Transmissão.
(4) Percentage of losses on the energy injected in the distributor (technical and non-technical losses on injected energy). Does not consider losses in the basic network.
(5) We note that percentages measured until 2016 and reported in previous reports of the Company reflected the amounts of physical losses (Technical), commercial losses (Non-Technical) and losses on the basic network (allocation of agreements on the gravity center of the submarket) of Copel Distribuição, as well as the losses related to the allocation of agreements of Copel GeT. Those percentages were calculated taking into account the total of power purchased and sale agreements entered into by both Copel Distribuição and Copel GeT. For a better representation and comparison of the percentage of losses, we considered the percentage obtained by dividing the total amount of technical and non-technical losses by the energy injected into the network of Copel Distribuição. This percentage may be compared to other companies and has a more accurate physical meaning as it utilizes the database of measured data and not information taken from agreements of the period being analyzed.
Transmission
Our transmission system consists of all our assets of 230 kV and greater and a small portion of our 69 kV and 138 kV assets, which are used to transmit the electricity we generate and the energy we receive from other sources. In addition to using our transmission lines to provide energy to customers in the State of Paraná, we also transmit energy through the Interconnected Transmission System. Two companies owned by the Brazilian government, Companhia de Geração e Transmissão de Energia Elétrica do Sul do Brasil – CGT Eletrosul and Furnas, also maintain significant transmission systems in the State of Paraná. Furnas is responsible for the transmission of electricity from Itaipu, while CGT Eletrosul’s transmission system links the states in the south of Brazil. Copel, like all other companies that own transmission facilities, is required to allow third party access to its transmission facilities in exchange for compensation at a level set by ANEEL.
Currently, we carry out the operation and maintenance of 3,524 km of transmission lines, forty one (41) substations in the State of Paraná and two (2) substations in the State of São Paulo. In addition, we have partnerships with other companies to operate 4,028 km of transmission lines and seven (7) substations through special purpose companies (SPCs).
The table below sets forth information regarding our transmission assets in operation:
|
Subsidiary / SPC |
Transmission Lines |
TL Extension (km)4 |
Number of Substations |
Concession Expiration Date |
Our Ownership |
APR
¹ |
| COPEL GeT | Main Transmission Concession(1) | 2,026 | 34 | December, 2042 | 100.0% | 505.4 |
| COPEL GeT | TL Bateias - Jaguariaiva | 137 | - | August, 2031 | 100.0% | 11.6 |
| COPEL GeT | TL Bateias - Pilarzinho | 32 | - | March, 2038 | 100.0% | 1.1 |
| COPEL GeT | TL Foz - Cascavel Oeste | 116 | - | November, 2039 | 100.0% | 12.7 |
| COPEL GeT | Cerquilho III Substation | - | 1 | October, 2040 | 100.0% | 5.2 |
| COPEL GeT |
TL Londrina – Figueira Foz do Chopim – Salto Osório |
102 | - | August, 2042 | 100.0% | 6.2 |
| COPEL GeT |
TL Assis – Paraguaçu Paulista Paraguaçu Paulista II Substation |
83 | 1 | February, 2043 | 100.0% | 9.7 |
| COPEL GeT |
Curitiba Norte Substation TL Bateias – Curitiba Norte |
31 | 1 | January, 2044 | 100.0% | 10.2 |
| COPEL GeT |
Realeza Sul Substation TL Foz do Chopim- Realeza Sul |
52 | 1 | September, 2044 | 100.0% | 8.0 |
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| COPEL GeT | TL Assis – Londrina | 122 | - | September, 2044 | 100.0% | 20.8 |
| COPEL GeT | TL Araraquara II – Taubaté | 334 | - | October, 2040 | 100.0% | 32.0 |
| COPEL GeT |
TL Baixo Iguaçu – Realeza TL Curitiba Centro – Uberaba TL Curitiba Leste - Blumenau |
188 | 3 | April, 2046 | 100% | 119.1 |
| Uirapuru (Copel GeT – 100%)(2) | TL Ivaiporã - Londrina | 120 | - | March, 2035 | 100% | 37.1 |
| Costa Oeste (Copel GeT – 100%) | LT Cascavel Oeste - Cascavel Norte TL Cascavel Norte - Umuarama Sul |
152 | 1 | January, 2042 | 100% | 12.8 |
| Marumbi (Copel GeT – 100%) | TL Curitiba – Curitiba Leste | 29 | 1 | May, 2042 | 100% | 19.9 |
| Subtotal Copel GeT | 3,524 | 43 | 811.7 | |||
| Caiuá Transmissora | TL Guaíra - Umuarama Sul TL Cascavel Norte - Cascavel Oeste Santa Quitéria Substation / Cascavel Norte Substation |
142 | 2 | May, 2042 | 49.0%(3) | 11.8 |
| Integração Maranhense | LT Açailandia-Miranda II | 365 | - | May, 2042 | 49.0%(3) | 17.8 |
| Matrinchã | TL Paranaíta - Ribeirãozinho | 1,005 | 3 | May, 2042 | 49.0%(3) | 97.7 |
| Guaraciaba | TL Ribeirãozinho - Marimbondo | 600 | 1 | May, 2042 | 49.0%(3) | 48.4 |
| Paranaíba | TL Barreiras II - Pirapora II | 953 | - | May, 2043 | 24.5%(3) | 35.4 |
| Cantareira | TL Estreito – Fernão Dias | 342 | - | September, 2044 | 49.0%(3) | 52.2 |
| Mata de Santa Genebra | TL Araraquara II - Atatiba TL Bateias - Atatiba |
621 | 1 | May, 2044 | 50.1%(3) | 124.6 |
| Subtotal SPCs | 4,028 | 7 | 388.0 | |||
| Total | 7,552 | 50 | 1,199.7 | |||
___________________
(1) Our main transmission concessions encompasses several transmission lines.
(2) In March 2019, Copel GeT signed a purchase and sale agreement with Centrais Elétricas Brasileiras SA and Fundação Eletrosul de Previdência e Assistencial Social - Elos to transfer 100% of shares issued by SPE Uirapuru Transmissora de Energia S.A.. In June, 2019 Copel GeT took over the stake control of the company.
(3) Refers to the equity interest held by Copel Geração e Transmissão.
(4) Considers double circuits as a single extension.
Expansion and Maintenance of Transmission Facilities
The construction of new transmission facilities of 230 kV and higher must be awarded in a bidding process or otherwise authorized by ANEEL. We are permitted by ANEEL to make minor improvements to some of the existing 230 kV and 500 kV facilities.
In November 2013, SPC Mata de Santa Genebra Transmissora, a strategic partnership between Copel (50.1%) and Furnas (49.9%), won the right to build and operate 847 km of transmission lines and three substations in the States of Paraná and São Paulo. The construction schedule of the Mata de Santa Genebra project was affected by successive vandalism events, which resulted in the collapse of towers and theft of aluminum cables in transmission lines already installed and commissioned, in different sections of the project. On November 11, 2020, the LT 440 kV Fernão Dias / Taubaté, the last asset of the SPC Mata de Santa Genebra project, began its commercial operation. With the completion of these steps, the SPC Mata de Santa Genebra became fully operational. The project an APR of R$ 248.7 million, of which R$ 124.6 million are related to COPEL's stake.
In November 2015, Copel GeT won ANEEL’s public auction No. 005/2015 for the construction and operation of 188 km of transmission lines in the States of Paraná and Santa Catarina, and three (3) substations in the State of Paraná, with a total capacity of 900 MVA. With an APR of R$119.1 million, the corresponding concession agreement was signed in April 2016, and, the remaining facility which was still under construction, the transmission line Curitiba Leste - Blumenau, become operational in April 1, 2021. This facility had an auction APR of R$ 24.9 million and in current values, it has an APR of R$ 38.6 million, approved for 2020-2021 tariff adjustment cycle.
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Distribution
Our distribution system consists of a widespread network of overhead lines and substations with voltages up to 138 kV assets. Higher Voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial, and commercial customers in addition to other customers. As of December 31, 2020, we provided electricity in a geographic area encompassing approximately 97% of the State of Paraná and served 4.8 million customers.
Our distribution grid includes 202,085 km of distribution lines, 446,549 distribution transformers and 230 distribution substations of 34.5 kV, 36substations of 69 kV and 112 substations of 138 kV. During 2020, 122,612 new captive customers were connected to our network, including customers connected through the rural and urban electrification programs. We are continuing to implement compact grid design distribution lines in urban areas with large concentration of trees in the vicinity of the distribution grid.
We have five (5) captive customers that are directly supplied with energy at a high voltage (69 kV and above) through connections to our distribution lines. The volume of energy commercialized for these customers was 25.272MWh in 2020.
We are also responsible for expanding the 138 kV and 69 kV distribution grid within our concession area to meet any future demand growth.
On October 16, 2019 Copel Distribuição launched a program to modernize its distribution grid called “Transformation Program” (Programa Transformação). The Transformation Program is comprised of three projects: “Total Reliability” (Confiabilidade Total), “Three-phase Paraná” (Paraná Trifásico) and “Smart Grid Copel”. The goal is to improve infrastructure, particularly in rural areas, in order to enhance quality of energy supply and reduce supply restoration period in case of power outages. With investments of up to R$2.9 billion until 2025, which shall compose the Regulatory Remuneration Base, the Transformation Program involves the construction of approximately twenty-five 25,000 kilometers of power grids, 15,000 new automated power connections and the setting up of smart grid technology in the State of Paraná. The Smart Grid Project deals with the implementation of a communication network for distribution automation equipment and for smart meters. In addition, computer systems for efficient management of this communication network are included in this project.
Performance of the Distribution System
Total losses are commonly divided into a technical and non-technical component. Technical losses are inherent to the transportation of electricity and consist mainly of power dissipation in the line network. Non-technical (or commercial) losses are caused by actions external to the power system (for instance, electricity theft). Since total losses are comprised of both technical and non-technical parcels, the latter is easily calculated as the difference between total losses and the estimated technical losses inherent to the system.
Total losses in our distribution system are segmented between (i) losses in the basic network (tension equal to or greater than 230kV), which are external to our distribution grid and have a technical cause, and (ii) losses in the distribution network (internal to our distribution grid), which are usually caused by both technical and non-technical reasons.
Losses in the basic network are calculated monthly by the CCEE as the difference between the total generation and the energy effectively delivered to the distribution networks. The total losses from our distribution grid are calculated as the difference between the energy allocated to the system and the energy supplied to the customers.
Our total energy distribution losses (including transmission system, technical and commercial losses) totaled 9.4% of the total energy amount available in 2020, being (i) 1.6% related to losses in the basic network, (ii) 6.0% of technical losses and (iii) 1.8% of non-technical losses.
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ANEEL grants the transfer of all energy losses to the final consumers when the real losses are less than regulatory losses. The calculation is made within the regulatory period, that is different from a civil year, and thereby we will know the result just in the next tariff adjustment, in June 2021. But our simulation indicates that in the civil year, from January through December 2021, we will have all losses transferred to the final consumers.
Furthermore, ANEEL requires distributors to observe certain standards for “energy supply continuity”, namely (i) duration of outages per customer per year or DEC – Duração Equivalente de Interrupção por Unidade Consumidora and (ii) frequency of outages per customer per year or FEC – Frequência Equivalente de Interrupção por Unidade Consumidora. Information regarding the duration and frequency of outages for our customers is set forth in the following chart for the years indicated.
|
Quality of supply indicator |
2020 |
2019 |
2018 |
2017 |
2016 |
|
DEC – Duration of outages per customer per year (in hours) |
7h50min | 09h07min | 10h19min | 10h28min | 10h49min |
| FEC – Frequency of outages per customer per year (number of outages) | 5.61 | 6.02 | 6.22 | 6.83 | 7.23 |
We comply with the quality indicators defined by ANEEL for 2020, which penalizes power outages in excess of an average number of hours per customer, in each case calculated on an annual basis. These limits vary depending on the geographic region, and the average limit established by ANEEL for our distribution company was 9 hours and 47 minutes of outages per customer per year, and a total of 7.38 outages per customer per year. Failure to comply with these predetermined standards with a Final Customer results in a reduction of the amount we can charge such Final Customer in future periods.
In addition, quality target indicators are taken into consideration by ANEEL during distribution concession renewal proceedings, and also influence ANEEL’s calculation of our tariff adjustments. For more information, see “–Concessions–Distribution Concessions” and “–The Brazilian Electric Power Industry–Distribution Tariffs”.
Purchases for the captive market
The following table contains information concerning volume, cost and Average Tariff for the main sources of the electricity we purchased for the captive market in the last three years.
|
Source |
2020 |
2019 |
2018 |
| Itaipu | |||
| Volume (GWh) | 5,498 | 5,533 | 5,726 |
| Cost (R$millions) | 1,766.1 | 1,317 | 1,272.2 |
| Average Tariff (R$/MWh) | 327.09 | 238 | 222.18 |
| Angra | |||
| Volume (GWh) | 968 | 979 | 1,009 |
| Cost (R$millions) | 269 | 248 | 250.3 |
| Average Tariff (R$/MWh) | 277.73 | 253 | 248.07 |
| CCGF | |||
| Volume (GWh) | 6,136 | 6,274 | 6,520 |
| Cost (R$millions) | 673 | 642 | 593.0 |
| Average Tariff (R$/MWh) | 109.68 | 102.32 | 90.95 |
| Auctions in the regulated market | |||
| Volume (GWh)(1) | 11,733 | 12,515 | 10,783 |
| Cost (R$millions)(2) | 2,207 | 2,257 | 2,080.8 |
| Average Tariff (R$/MWh) | 188.08 | 180.34 | 192.97 |
___________________
(1) These numbers do not include assignments related to MCSD-EN and MVE.
(2) These numbers do not include short-term energy purchased through the CCEE.
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Itaipu
We purchased 5,498 GWh of electricity from Itaipu in 2020, which constituted 9.8%% of our total available electricity in 2020 and 22.1% of Copel Distribuição’s total available electricity in 2020. Our purchases represented approximately 7.2% of Itaipu’s total production. Distribution companies operating under concessions in the midwest, south and southeast regions of Brazil are required by law to purchase Brazil’s portion of the energy generated by Itaipu in a proportion that correlates with the volume of electricity that they provide to customers. The rates at which these companies are required to purchase Itaipu’s energy are fixed to cover Itaipu’s operating expenses and payments of principal and interest on Itaipu’s U.S. dollar-denominated borrowings, as well as the cost of transmitting the power to their concession areas. These rates are denominated in U.S. dollars, and have been set for 2021 at US$ 28.07 per kW per month.
In 2020, we paid an Average Tariff of R$ 327.09/MWh for energy from Itaipu, compared to R$237.94/MWh in 2019. These figures do not include the transmission tariff that distribution companies must pay for the transmission of energy from Itaipu.
ANGRA
Because Eletronuclear renewed the generation concession of Angra under the 2013 Concession Renewal Law, the energy generated by Angra is no longer sold in auctions in the regulated market. Rather, under the 2013 Concession Renewal Law, this energy is sold to distributors in accordance with the quota system established by said law. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”. As a result, Copel Distribuição was legally required to purchase 968 GWh from Angra in 2020, 979GWh from Angra in 2019 and 1,009 GWh in 2018.
Assured Power Quota Contract – CCGF
Under the 2013 Concession Renewal Law, certain generation concessionaires renewed their concession contracts, and therefore these concessionaires no longer sell the energy produced by these generation facilities at auctions in the regulated market. Rather, this energy is sold to distribution companies in accordance with the quota system established by the 2013 Concession Renewal Law. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”. Copel Distribuição is obligated to purchase energy from these generation concessionaires that have renewed generation concessions under this quota system. Copel Distribução was legally required to purchase 6,136 GWh in CCGF contracts in 2020, 6,274 GWh in CCGF contracts in 2019 and 6,520 GWh in CCGF contracts in 2018.
Auctions in the Regulated Market
In 2020, we purchased 11,733 GWh of thermoelectric and hydroelectric energy through auctions in the regulated market. This energy represents 47.3% of the total electricity purchased by the Copel Distribuição. For more information on the regulated market and the Free Market, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”.
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Sales to Captive Customers
During 2020, we supplied approximately 97% of the energy distributed directly to Captive Customers in the State of Paraná. Our concession area includes nearly 4.8 million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, located in the south of the State of Paraná. During 2020, the total power consumption of our Captive Customers was 19,180 GWh, a 3.1% decrease as compared to 19,784 GWh during 2019.
|
Year ended December 31, | |||||
|
Categories of purchaser |
2020 |
2019 |
2018 |
2017 |
2016 |
| (GWh) | |||||
| Industrial customers | 2,314 | 2,648 | 2,935 | 3,254 | 5,753 |
| Residential | 7,910 | 7,499 | 7,238 | 7,126 | 6,932 |
| Commercial | 4,172 | 4,730 | 4,652 | 4,651 | 5,059 |
| Rural | 2,451 | 2,361 | 2,288 | 2,257 | 2,180 |
| Other(1) | 2,333 | 2,546 | 2,481 | 2,455 | 2,404 |
| Total(2) | 19,180 | 19,784 | 19,594 | 19,743 | 22,327 |
___________________
(1) Includes public services such as street lighting, electricity supply for municipalities and other governmental agencies, as well as our own consumption.
(2) Total GWh does not include our energy losses.
Sales to Free Customers
We operate in the ACL through our wholly owned subsidiaries Copel Geração e Transmissão and Copel Comercialização (Copel Mercado Livre). As of December 31, 2020, we had 912 Free Customers (of which 877 were customers of our energy trading company and 35 of Copel GeT), representing approximately 8.0% of our consolidated operating revenue and approximately 14.9% of the total quantity of electricity sold by us. During 2020, the total power consumption of our Free Customers was 7,988GWh, a 16.4% increase as compared to 6,860 GWh during 2019.
|
Year ended December 31, | |||||
|
Categories of purchaser |
2020 |
2019 |
2018 |
2017 |
2016 |
| (GWh) | |||||
| Industrial customers | 7,308 | 6,352 | 5,728 | 4,435 | 3,821 |
| Commercial | 680 | 508 | 327 | 196 | 2 |
| Total | 7,988 | 6,860 | 6,055 | 4,631 | 3,823 |
The following table sets forth the number of our Final Customers, considering both Captive and Free Customers, in each category as of December 31, 2020.
|
Category |
Number of Final Customers |
| Industrial | 71,904 |
| Residential | 3,944,556 |
| Commercial | 413,599 |
| Rural | 347,592 |
| Other(1) | 60,072 |
| Total | 4,837,723 |
___________________
(1) Includes street lighting, as well as electricity for municipalities and other governmental agencies, public services and own consumption.
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Industrial and commercial customers accounted for approximately 10.2% and 17.9%, respectively, of our total revenues from sales to Final Customers of Captive Market during 2020. In 2020, 32.5%of our total revenues from energy sales were from to residential customers.
Tariffs
Retail Tariffs. We classify our customers in two groups (“Group A Customers” and “Group B Customers”), based on the voltage level at which electricity is supplied to them and on whether they are considered as industrial, commercial, residential or rural customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Under Brazilian regulation, low voltage customers such as residential customers (other than Low-income Residential Customers, as defined as follows) pay the highest tariff rates, followed by 13.8 kV and 34.5 kV voltage customers (usually commercial customers), and 69 kV and 138 kV voltage customers (usually industrial customers).
Group A Customers receive electricity at 2.3 kV or higher and the tariffs applied to them are based on the actual voltage level at which energy is supplied and the time of day the energy is supplied. Tariffs are comprised of two components: a “capacity charge” and an “energy charge”. The capacity charge, expressed in reais per kW, is based on the higher of (i) contracted firm capacity and (ii) power capacity actually used. The energy charge, expressed in reais per MWh, is based on the amount of electricity actually consumed as evidenced by our metering.
Group B Customers receive electricity at less than 2.3 kV, and the tariffs applied to them are comprised solely of an energy charge and are based on the classification of the customer.
ANEEL restates our tariffs annually, usually in June. For more information about the distribution tariff adjustments that have been made by ANEEL in recent years, see “Item 5. Operating and Financial Review and Prospects—Overview—Rates and Prices”.
The following table sets forth the Average Tariffs for each category of Final Customer in effect in 2020, 2019 and 2018.
|
Tariffs |
2020 |
2019 |
2018 |
| (R$/MWh) | |||
| Industrial | 487.41 | 488.78 | 767.87 |
| Residential | 498.82 | 504.36 | 505.08 |
| Commercial | 574.57 | 574.41 | 527.31 |
| Rural | 489.57 | 466.9 | 345.80 |
| Other customers | 356.03 | 364.49 | 375.99 |
| All Final Customers | 537.81 | 534.32 | 514.94 |
Low-income Residential Customers. Under Brazilian law, we are required to provide low level rates to certain low-income residential customers (“Low-income Residential Customers”). In December 2020, we served approximately 331,061 low-income residential customers. For servicing these customers, in 2020 we received an approximately R$101.8 million contribution from the Brazilian government, which was approved by ANEEL.
The following table sets forth the current minimum discount rates approved by ANEEL for each category of Low-income Residential Customer.
|
Consumption |
Discount from base tariff |
| Up to 30 kWh per month | 65% |
| From 31 to 100 kWh per month | 40% |
| From 101 to 220 kWh per month | 10% |
Special Customers. A customer of our distribution business that consumes at least 500 kW (a “Special Customer”) may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants. A Special Customer that chooses to purchase energy from a supplier other than Copel Geração e Transmissão continues to use our distribution grid and pay our distribution tariff. However, as an incentive for Special Customers to purchase from alternative sources, we are required to reduce the tariff paid by Special Customers by 50%. This discount is subsidized by the Brazilian government, and therefore does not impact the revenues of our distribution business.
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Transmission Tariffs. A transmission concessionaire is entitled to annual revenues based on the transmission network it owns and operates. These revenues are annually readjusted according to criteria stipulated in the concession contract. We are directly a party to twelve (12) transmission concession contracts, eleven (11) of which are in the operational stage and one (1) of which includes a transmission line that is still under construction. Not all of the transmission concession contracts employ the same revenue model. 1.5% of our transmission revenues are updated on an annual basis by the IGP-M and the other 98.5% are subject to the tariff review process.
The first periodic revision related to our Main Transmission Concession scheduled for 2005 was only carried out in 2007, at which point ANEEL reduced the tariffs by 15.08%. This adjustment was applied retroactively to July 2005, and was passed on to our Final Customers until June 2009. In addition, in July 2010 pursuant to a second periodic revision of our principal concession, ANEEL granted provisional approval of a reduction in our transmission tariff by 22.88%, applied to the revenues of new installations in the Interconnected Transmission System, and applied retroactively from July 1, 2009 onward. In June 2011, ANEEL reviewed the figures of the second periodic revision and reduced the annual revenues by 19.94%. The remainder of our annual revenues was subject to adjustment by IGP-M or IPCA, as applicable.
By late 2012, Copel decided to anticipate the extension of its main transmission concession agreement (corresponding to 78% of our transmission lines then in operation) that would expire in 2015, pursuant to the new rules of the 2013 Concession Renewal Law. In December 2012, Copel executed the Third Addendum to the Concession Agreement 060/2001, extending this transmission concession agreement until December 31, 2042. In order to adjust these assets’ annual permitted revenue to the new rules of 2013 Concession Renewal Law, ANEEL reduced the transmission tariffs we charged by 61.9%.
Of all our transmission concessions in operational stage, our main transmission concession (which involves our main transmission facilities) accounted for about 71% of our gross transmission revenues in 2019. In addition, we have ten (10) concession agreements for transmission lines and substations in operation and one (1) partially in operation, which correspond to an aggregate of 29% of our transmission revenues. The amount of revenues we are entitled to receive pursuant to one (1) of these contracts is updated on an annual basis by the IGP-M and is not subject to the tariff review process, but, pursuant to the terms set forth in this agreement, our revenues were reduced by 50% starting in June 2018. Other ten (10) agreements revenues are subject to the tariff review process and adjustments by the IPCA.
In relation to our main concession agreement, on April 22, 2016, Ordinance No. 120/2016 of the Ministry of Mines and Energy determined that the amounts ratified by ANEEL related to the non-depreciated transmission assets existing on May 31, 2000 (Existing Basic Network System “RBSE”) should be incorporated to the Regulatory Remuneration Base, and that their cost of capital should be added to APR. The Ordinance also determined that the cost of capital would be composed of compensation and depreciation installments, plus related taxes, and recognized as of the 2017 tariff revision process, with adjustments and revisions in accordance with contractual conditions.
Also pursuant to the above mentioned Ordinance, the cost of capital not incorporated between the concessions’ extensions and the 2017 tariff revision process should be restated at the real cost of own capital of the transmission segment defined by ANEEL (10.4%) and, after the tariff revision process, it should be remunerated at the Weighted Average Cost of Capital (WACC) of 6.6%, also defined by that agency.
On May 9, 2017, ANEEL approved the result of the inspection of the appraisal report of the transmission assets existing on May 31, 2000 (RBSE and Other Transmission Facilities - RPC) related to our main transmission concession agreement. The Agency recognized the amount of R$667.6 million as the net value of the assets for the purposes of indemnification as of December 31, 2012. As of December 31, 2017, the net value of those assets for the purposes of indemnification amounted to R$1,418.4 million.
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On June 27, 2017, ANEEL approved the Annual Permitted Revenue (Receita Anual Permitida, or APR) of the transmission assets of Copel GeT for the 2017/2018 cycle, including the commencement of receipt of the RBSE indemnification of our main transmission concession agreement.
In 2017(i) our main transmission concession agreement was adjusted by the IPCA and by the portion related the commencement of receipt of the RBSE indemnification (average increase of 151.3%) (ii) one of our transmission concession agreements was adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 3.7%), (iii) six transmission concession agreements were adjusted by the IPCA (3.6%), (iv) one transmission concession agreement was adjusted by the IGP-M (1.6%), and (v) one transmission agreement became operational in August 2017, adding R$18.9 million of annual permitted revenues. As a result, the annual permitted revenues for the 2017/2018 cycle for our transmission assets reflected an increase of 121.2% over our annual permitted revenues for the 2016/2017 cycle.
In June 2018, ANEEL approved the APR for the 2018/2019 cycle, considering (i) an adjustment of relevant amounts by the IGP-M and IPCA indexes, and (ii) the expansion of our transmission system with strengthening works and revenues from other works classified as improvement measures.
Compared to our total APR for the 2017/2018 cycle, the APR of our main concession for the 2018/2019 cycle was reduced by 8.1%, as a result of the correction of a prior calculation made by ANEEL, which take into account certain financial and economic portions of unamortized and unrepaired assets related to the RBSE when determining the assets of the Regulatory Remuneration Base in the prior cycle.
The APR of concession No. 075/2001 was reduced by approximately 30.5%, as a result of a 50% reduction of the APR starting at the 16th anniversary of commercial operation, which occurred during the 2018/2019 cycle. Two of our concession agreements (022/2012 and 002/2013) were subject to a periodic review, which resulted in a lower APR in connection with increasing revenues related to strengthening works.
In June 2019, ANEEL approved the APR for the 2019/2020 cycle, considering (i) an adjustment of relevant amounts by the IGP-M and IPCA indexes, and (ii) the expansion of our transmission system with strengthening works and revenues from other works classified as improvement measures.
In 2020, in the scope of the tariff review process for the contracts extended under Law No. 12,783/2013, holders of assets belonging to RBSE had their review ratified in June 2020 despite originally being scheduled for 2018, due to a two-year delay and the retroactive effects of REN 880/2020 on the 2018 tariff year. For Copel, this process was ratified through Homologation Resolution No. 2,715/2020 for concession agreement No. 060/2001, granted to Copel GeT. During review process, by ANEEL’s deliberation it was decided that as of the 2020/2021 cycle, the renumeration portion of the RBSE would be calculated by the cost of equity (“KE”) as provided for in Ordinance MME No. 120/2016. The value not received during the three previous cycles (2017-2020) will be incorporated into the next three cycles (2020-2023) by the means of an Adjustment Installment (Parcela de Ajuste).
Additionally, by means of Homologation Resolution No. 2,725/2020, ANEEL established the readjustment of RAPs for electric energy transmission assets for the 2020-2021 cycle, effective from July 1, 2020 until June 30, 2021. According to the aforementioned resolution, Copel GeT’s transmission asset RAPs for the 2020-2021 cycle were R$777.2 million, of which R$703.4 million correspond to the revenue of operational assets. Considering the homologated RAPs for the Special Purpose Companies (Sociedades de Propósito Específicos) in which Copel GeT has equity ownership, the total consolidated value for Copel GeT is R$1,146.0 million. Along with beginning of commercial operations of Mata de Santa Genebra assets in its totality in 2020, GeT’s total consolidated value is R$1,161.2 million.
The table below shows our APR (R$ million) for the last four cycles of transmission lines over which we hold a 100% ownership:
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|
Contract |
Transmission Line / Substation |
Jul. 2020 Jun.2021 |
Jul. 2019 Jun. 2020 |
Jul. 2018 Jun. 2019 |
Jul.2017 Jun.2018 | |||||
| APR (R$ million) | ||||||||||
| 060/2001 | Main Transmission Concession(1) | 505.4 | 469.5 | 450.4 | 482.7 | |||||
| 075/2001 | Bateias – Jaguariaiva | 11.6 | 10.9 | 13.5 | 19.4 | |||||
| 006/2008 | Bateias – Pilarzinho | 1.1 | 1.1 | 1.1 | 1.0 | |||||
| 027/2009 | Foz do Iguaçu - Cascavel Oeste | 12.7 | 12.5 | 11.9 | 11.6 | |||||
| 015/2010 | Cerquilho III | 5.2 | 5.1 | 4.8 | 4.7 | |||||
| 022/2012 | Foz do Chopim – Salto Osório | 6.2 | 6.1 | 5.8 | 5.8 | |||||
| 002/2013 |
Assis-Paraguaçu Paulista II SE Paraguaçu Paulista II |
9.7 | 8.2 | 7.9 | 7.7 | |||||
| 005/2014 | Bateias – Curitiba Norte | 10.2 | 9.9 | 9.5 | 8.7 | |||||
| 021/2014 | Foz do Chopim - Realeza(2) | 8.0 | 7.8 | 7.5 | 7.3 | |||||
| 022/2014 | Assis – Londrina(3) | 20.8 | 20.4 | 19.5 | 18.9 | |||||
| 010/2010 | Araraquara 2 – Taubaté(4) | 32.0 | 31.4 | 30.0 | - | |||||
| 006/2016 |
Baixo Iguaçu – Realeza Curitiba Centro - Uberaba |
80.5 | 79.0 | - | - | |||||
| 002/2005 | Uirapuru(5) | 37.1 | 32.4 | - | - | |||||
| 001/2012 | Costa Oeste(6) | 13.7 | 12.5 | 9.1 | - | |||||
| 008/2012 | Marumbi(6) | 19.9 | 19.5 | 18.1 | - | |||||
| Total | 774.1 | 661.9 | 561.9 | 567.8 | ||||||
___________________
(1) Our main transmission concessions encompass several transmission lines.
(2) This transmission line became operational in January 2017.
(3) This transmission line became operational in August 2017.
(4) This transmission line became operational in July 2018.
(5) In June 2019, Copel Geração e Transmissão S.A. became the owner of 100% of the project.
(6) In August 2018, Copel Geração e Transmissão S.A. became the owner of 100% of the project.
Other Businesses
Telecommunications
Copel Telecomunicações S.A. Pursuant to an authorization from the Brazilian National Telecommunication Agency (Agência Nacional de Telecomunicações – “ANATEL”), we provide telecommunication services within the States of Paraná and Santa Catarina. We have been offering these services since August 1998 through the use of our fiber optics network (totaling 36.2 thousand km of fiber optic cables by the end of 2020). In addition, we have been involved in an educational project aimed at providing broadband internet access to public elementary and middle schools in the State of Paraná.
COPEL currently serves 399 municipalities in the State of Paraná. All of these municipalities are connected to COPEL’s optical backbone.
In addition to the high transmission capacity in its backbone, Copel Telecom serves 85municipalities in the State of Paraná, with GPON (Gigabit-Capable Passive Optical Networks) access technology, providing several network services with symmetry rates, in different types of Fts services.
We provide services to most of the major Brazilian telecommunication companies that operate in the State of Paraná. In total, we have corporate clients that include supermarkets, universities, banks, internet service providers and television networks in addition to retail clients. We also provide a number of different telecommunication services to our subsidiaries.
On November 9, 2020, Copel Telecom's divestment auction was held at B3 S.A. - Brasil, Bolsa, Balcão. The winning bid was R$ 2.4 billion (equity value). On January 14, 2021, a Share Purchase Agreement for 100% of Copel Telecom was entered into with Bordeaux Multi-Strategic Investment Fund – Bordeaux Fundo de Investimentos em Participações Multiestratégia, the winning bidder of the auction. We estimate that the transaction will close between the second or third quarter of 2021.
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Sercomtel. Sercomtel S.A. (“Sercomtel”) holds a concession to provide fixed telephony services and an authorization to provide mobile services in the municipalities of Londrina and Tamarana, located in the State of Paraná. In addition, Sercomtel has two (2) other authorizations from ANATEL that allow it to provide fixed telephony and broadband internet services in all other municipalities of the State of Paraná. Currently, Sercomtel operates with its own network in fifteen (15) municipalities of the State of Paraná, providing voice services and fixed broadband. Pursuant to a commercial agreement between COPEL and Sercomtel in force since March 2012, Sercomtel can provide voice services over Copel Telecom’s network in one hundred and eighty three (183) cities within the State of Paraná, including Curitiba. .
In addition to the telecommunications business, Sercomtel S.A. – Telecomunicações currently holds the following equity interest: (i) 100% of the capital stock of Sercomtel Participações S.A., a company whose purpose is to provide added value services, design, deploy and maintain internet service providers, operate a service center for users of telecommunications services, offer integrated IT solutions, among other activities. In September 2017, pursuant to Decision (Acórdão) no. 366, ANATEL determined that Sercomtel was not in compliance with certain financial indicators set forth by the agency in connection with the concessions granted to Sercomtel and required for the company’s operations to continue. As a consequence, ANATEL brought an administrative proceeding against Sercomtel to assess whether the concession and the authorizations granted to this company should be terminated. In March 2019, ANATEL decided to suspend the above mentioned proceeding, so that Sercomtel could present to the agency alternative plans for meeting the relevant regulatory indicators. ANATEL published a bidding notice proposal in September 2019 with respect to the licenses held by Sercomtel. ANATEL’s proposal is subject to review by the Federal Audit Court (Tribunal de Contas da União). No bidding process has been carried out by ANATEL, as of the date hereof. If a bidding process is indeed carried out by ANATEL, Sercomtel’s licenses could be forfeited and terminated.
Sercomtel had losses in previous years and faced financial difficulties in carrying out its operations. Given the accumulated losses and the uncertainties regarding its operational viability, we carried out in 2013 the write-off of this investment in our financial statements.
In June 2019, the municipal legislature of Londrina approved the sale of the stake held by the Londrina City Hall as the controlling shareholder of Sercomtel (Municipal Law No 12.871, dated June 12, 2019). In November 2019, the City Hall published the bidding notice for the privatization process of Sercomtel, which provided for the assignment of the City Hall’s preemptive right to subscribe shares in a future capital increase of Sercomtel. This process would result in the dilution of the stake held by the City Hall and Copel in Sercomtel. However, given that no bidders attended the February 5, 2020 auction, a new date was scheduled for July 9, 2020.
On August 18, 2020, Sercomtel’s privatization auction was held at B3 S.A. - Brasil, Bolsa, Balcão.
The winner of the auction pledged to make an investment of R$130 million in Sercomtel, in order to meet Anatel's minimum indicators and end the process of forfeiture of its concession and forfeiture of its authorization grants.
On December 23, 2020, the operation was closed, and Copel received R$1.5 million for its share.
Gas
Gas Distribution
We are engaged in the distribution of natural gas through Companhia Paranaense de Gás (“Compagas”), the company that holds the exclusive rights to supply piped gas in the State of Paraná. Compagas operates the gas distribution grid in the State of Paraná under a concession agreement with a term of 30 years, with expiry on July 6, 2024. Such date has always been announced and considered for assessment of the balances of the prior-year financial statements. The concession agreement may be extended for an equal 30-year period upon request of the concessionaire.
On December 7, 2017, however, the State of Paraná published Supplementary Law 205, introducing a new interpretation of the expiry of the concession, which should have occurred on January 20, 2019. Notwithstanding the new expiration date provided by the state law, this concession has not been subject to neither an extension nor a new bidding process. Pursuant to applicable law, Compagas, as the current concessionaire, may continue to operate the concession until a new concessionaire is appointed.
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In addition, the management of Compagas, we and other shareholders are challenging the effects of the aforesaid law, understanding that it conflicts with the provisions of the concession agreement currently in force. Compagas filed a lawsuit challenging the anticipating of the expiration date of such concession and was granted with a provisional remedy on October 30, 2018, which granted a preliminary injunction in our favor to recognize the validity of clause 1.1 of the Concession Agreement, which establishes a contractual term of 30 years as of July 6, 1994, ending on July 6, 2024. We await a decision in the judicial process.
Furthermore, Supplementary Law No. 227/2020 was published on December 4, 2020, which amended Supplementary Law No. 205/2017, revoking its article 15, which provided for the end of the concession term on January 20, 2019. Despite the revocation, the lawsuit remains in progress to have the validity of clause 1.1 of the Concession Agreement judicially declared. Compagas covered 842 kilometers in 2020, increase of 1.1% compared to 833 kilometers covered in 2019. Compagas’s net revenues were R$524.2 million, a decrease of 30.7%, compared to 2019 (R$756.6 million), and its net income was R$59.6 million, a decrease of R$126.4 million or 68% compared to 2019. Compagas’ customers include industries, gas stations, other businesses and residences and Araucária Thermoelectric plan. Compagas is focusing its business strategy on increasing the volume of gas it distributes to customers by marketing the benefits of substituting oil and other fuels by gas as a mean of achieving greater energy efficiency. Compagas’ customer base increased 4.4%, to 49,335 customers in 2020 from 47,238 in 2019.
Compagas registered an decrease of 35.6% in the average daily volume of natural gas distributed to Final Customers, to 881,745 cubic meters per day in 2020 (not including the volume of gas supplied to Araucária Thermoelectric Plant) compared to 1,368,915 cubic meters per day in 2019 (not including the volume of gas supplied to Araucária Thermoelectric Plant). In addition, Compagas makes its distribution grid available to transport natural gas to Araucária TPP. The volume of natural gas supplied from Petrobras and distributed by Compagas to Araucária TPP, was 676,113 cubic meters per day in 2020, compared to 68,050 cubic meters per day in 2019.
As of December 31, 2020, we held a controlling stake (51%) of the capital stock of Compagas and consolidated this equity interest in our financial statements. The minority shareholders of Compagas are Petrobras, through its subsidiary Gaspetro, and Mitsui Gás, each of which owns 24.5% of the capital stock of Compagas.
Gas Exploration
In the 12th bidding round of National Petroleum Agency (Agência Nacional do Petróleo “ANP”), held at the end of 2013, the consortium formed by us (30%), Bayar Participações (30%), Tucumann Engenharia (10%) and Petra Energia (30%), the latter acting as operating company, won the right to explore, research, develop and produce oil and natural gas in four blocks located in the central southern region of the State of Paraná, in a 11,327 km² area. The minimum investment in the first phase of the research is approximately R$78.1 million for a 4-year term. We and our partners have signed the concession contracts for 2 blocks in May 2014. However, because of a public civil action, the first phase of exploration for these two blocks was halted and the signing of the other two concession contracts was prohibited. On June 7th, 2017, a court decision held that all the bidding round and the agreements related thereto should be deemed null and void. Moreover, the Government of the State of Paraná enacted Law No. 19,878 (July 3, 2019), forbidding the exploration of shale gas through the drilling / fracking method.
As a result of the above-mentioned events, our consortium requested ANP to release it from its contractual obligations, with no liabilities and with reimbursement of the signing bonuses, reimbursement of all costs incurred in connection with guarantees and release of such guarantees for the four blocks. Even though this request was submitted to ANP on September 6th, 2017, it is still subject to analysis. All the activities for the four blocks were interrupted due to the suspension of the effects of the12th bidding round of ANP because of an injunction granted in connection with the above mentioned public civil action, which awaits a decision from the Federal Court of Appeals of the 4th Region. For this reason, in October 2018, the consortium approved the establishment of an institutional arbitration procedure with the ANP for the four blocks awarded in the 12th bidding round of ANP, asking for the refund of the contributions made. Arbitral proceedings have already been initiated.
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Gas Natural Power Plants
On January 14, 2020, Copel and Shell Brasil Petróleo formed the "Copel Energia a Gás Natural" Consortium with the objective of developing feasibility studies for natural gas power plants in the state of Paraná. The consortium hired a consulting firm to provide specialized technical services to carry out studies to identify the best location for the implementation of natural gas thermoelectric projects in the State. The study is ongoing.
We operate under concessions granted by the Brazilian government for our generation, transmission and distribution businesses. Under Brazilian law, concessions are subject to competitive bidding processes at the end of their respective terms.
2013 Concession Renewal Law
Until 2013, the Brazilian rules governing generation concessions gave concessionaires the right to renew for additional 20 year concession contracts that were entered into prior to December 11, 2003. For transmission and distribution concessions granted after 1995, concessionaires had the right to renew these contracts for an additional 30-year period.
On September 11, 2012, the Brazilian government enacted the Provisional Measure No. 579, subsequently converted into the 2013 Concession Renewal Law, which significantly changed the conditions under which concessionaires are able to renew concession contracts. Under the 2013 Concession Renewal Law, generation, transmission and distribution concessionaires may renew the concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional period of 30 years (or an additional 20-year period in the case thermal plants), provided that the concessionaire agrees to amend the concession contract to reflect a series of new conditions that aim to ensure that services are provided in a continuous and efficient fashion and subject to low tariffs. Under the 2013 Concession Renewal Law, concessionaires must decide 60 months before the end of each concession term (or 24 months with respect to thermal plant concessions that it is 24 months) whether to amend and renew a concession contract or to terminate each concession contract at the end of its respective term.
For concessionaires of generation facilities existing at that time, the 2013 Concession Renewal Law changed the scope of the concession contracts at the moment they were renewed. Previously, a generation concessionaire had the right to sell the energy generated by the facilities subject to its concession for profit. In contrast, generation concessions renewed pursuant to the 2013 Concession Renewal Law do not grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions only cover the operation and maintenance of the generation facilities, subject to quality standards determined by Brazilian authorities. The energy generated by these facilities are allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. For new generation facilities (i.e., generation facilities operated after the 2013 Concession Renewal Law), on the other hand, the concessionaire still has the right to sell the energy produced by the generation facility.
In addition to changing the scope of generation concessions, the 2013 Concession Renewal Law establishes a new tariff regime that significantly affects the treatment of amounts to be invested by concessionaires to improve and maintain generation plants. To this effect, several regulations were issued by MME and ANEEL to regulate the compensation due to concessionaires as a result of their investments to improve and maintain generation plants.
The 2013 Concession Renewal Law affects transmission and distribution concessions differently. The principal change is that amounts invested in modernization projects, structural reforms, equipment and contingencies are subject to prior ANEEL approval. However, the 2013 Concession Renewal Law does not affect the manner in which distribution and transmission concessionaires may recover amounts invested in transmission infrastructure.
With respect to the transmission agreements, the conditions for renewal set forth in the 2013 Concession Renewal Law are the acceptance of a fixed income as determined by ANEEL and compliance with quality standards set forth in applicable regulation. With respect to distribution agreements, the conditions are set forth in the amendment to the concession agreement and are related to compliance with quality standards, economic-financial sustainability indicators and corporate governance as set forth in the amendment to the concession agreement according to the parameters provided in the 2013 Concession Renewal Law.
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The 2013 Concession Renewal Law applies to all generation, transmission and distribution contracts that were in effect as of 1995 (and, in the case of generation concessions, entered into prior to 2003), regardless of whether a contract grants to the concessionaire the right to renew a concession on its original terms. For example, several of our concession contracts contain provisions allowing us to renew these concessions for a period of 20 years. Under the 2013 Concession Renewal Law, in order to renew these contracts, we nonetheless would be required to accept the application of the conditions imposed by the 2013 Concession Renewal Law to the contract, and the concession contract would then be renewed for 30 years, rather than 20 years. If we choose to renew a concession contract that contains a renewal provision, we would be indemnified by the Brazilian government using funds from the RGR Fund (see Energy Sector Regulatory Charges) in an amount equal to the portion of our investments related to the concession that have not yet been amortized or depreciated, as calculated by ANEEL.
If a concessionaire decides not to accept the new tariff regime with respect to a concession contract and therefore decides not to renew the contract, the concession will terminate at the end of its original term, and the Brazilian government will conduct a new competitive bidding process for the concession. The original concessionaire may participate in the new competitive bidding process.
In the case of hydroelectric generation concessions with an installed capacity of more than 5,000 kW, upon the expiration of their original term and provided that the concessionaire does not request the extension of such term, the granting authority may submit the concession to a new bidding process. In the case of concessions for hydroelectric generation units with an installed capacity of 5,000 kW or less, upon the expiration of their original term, the concessions may be granted to the current concessionaire in the form of registration, for an indefinite term.
Generation Concessions
Of the nineteen (19) hydroelectric plants we operated in 2020, fourteen (14) were operated under the generation concession contracts that were in force prior to the 2013 Concession Renewal Law, and five (5) were operated in accordance with the 2013 Concession Renewal Law (Capivari Cachoeira HPP, Chopim I HPP, Marumbi HPP, Baixo Iguaçu HPP and Colíder HPP). In 2013, 12 of the 13 hydro and thermoelectric generation concessions operated by the Company in 2013 (exception made only to Rio dos Patos HPP) were extended pursuant to the old regime and could be renewed again under the 2013 Concession Renewal Law.
However, at the time the 2013 Concession Renewal Law was enacted, the Company elected not to renew the following generation concessions: Rio dos Patos (2014), Mourão I (2015), Chopim I (2015) and Capivari Cachoeira (2015), all of which had remaining terms of 60 months or less. Please see below for further information on each of these concessions.
Foz do Areia HPP. Copel Geração e Transmissão did not elect to renew the original concession pursuant the 2013 Concession Renewal Law for the Foz do Areia HPP (Governador Bento Munhoz da Rocha Netto). However, in order to obtain a new concession for the Foz do Areia HPP for another 30 years, Copel GeT transferred the ownership of this HPP to its subsidiary, the SPC F.D.A. Geração de Energia Elétrica S.A (F.D.A) on March 3, 2020, and, on the same date, requested a new concession from the Ministry of Mines and Energy pursuant to Federal Decree no. 9,271/2018 (as amended by Federal Decree no. 10,135/2019), which conditions that, to obtain a new concession, the sale of the concession's corporate control (F.D.A) must occur. On the same date, F.D.A. signed with ANEEL the Concession Contract that transfers the concession of the HPP Foz do Areia from Copel GeT to the F.D.A., for the exploration of the plant until the end of the current concession, on September 17, 2023.
Rio dos Patos HPP. The concession of Rio dos Patos HPP was terminated and not submitted to a further bidding process due to the lack operational conditions.
Mourão I and Capivari Cachoeira HPP. The granting authority submitted the concessions for HPP Capivari Cachoeira and Mourão I to new bidding processes, pursuant to which new agreements should be in force for a 30-year period. Copel GeT was the winner in the bidding process related to HPP Capivari Cachoeira. With respect to Capivari Cachoeira, although Copel GeT did not elect to renew the original concession for the Capivari Cachoeira HPP, it participated in the new competitive bidding process and won. On January 5, 2016, Copel GeT executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2046. We paid a total amount of R$574.8 million as signing bonus for this concession agreement. 100.0% of the energy generated by this plant in 2016 was allocated in quotas to the regulated market, and reduced to 70.0% on January 1, 2017. Copel GeT can sell remaining amount of energy generated by this plant on the Free Market or Spot Market.
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Chopin I HPP. As the installed capacity of Chopin I HPP also does not exceed 5,000 kW, the concession regime of this plant has been changed to a registration in favor of the Company, valid for an indefinite term. In addition, pursuant to the same statute, we may notify the granting authority of its intention to extend: (i) in 2020, the concession of Apucaraninha HPP; and (ii) in 2021, the concessions of Guaricana and Chaminé HPPs. In the event we do not request the extension of these concessions, they will be subject to new bidding processes conducted by the granting authority.
Figueira TPP. Our concession for the Figueira TPP expired on March 26, 2019. We had filed an extension request with respect to this plant on May 24, 2017, but we are still waiting for the granting authority to amnd our concession agreement, extending its term for an additional 20-year period in accordance with the 2013 Concession Renewal Law. This plant has an installed capacity equivalent to 20 MW and subject to a modernization process.
With respect to the concessions granted between 2011 and 2017 with no renewal right attached, we acquired the right to renew only one of the hydroelectric plants (HPP Cavernoso II) for a 30-year period, as a result of an amendment to the 2013 Concession Renewal Law by Law No. 13,360, of November 17, 2016.
In accordance with the 2013 Concession Renewal Law, Copel could have flagged to the granting authority by 2019 its intention to renew the concession of HPP São Jorge. However, Copel elected not to renew such concession and, consequently, it will be able to operate such HPP until December 2024 and request the conversion of this operating regime into a registration regime, as the installed capacity does not exceed 5,000 kW.
Concessions for generation projects granted after December 11, 2003 were not affected by the 2013 Concession Renewal Law and are non-renewable, meaning that upon expiration of their 35-year term, the concession will be granted subject to a new competitive bidding process. In 2019, we had three (3) hydroelectric plants operating in this condition (HPP Mauá, HPP Colíder and HPP Baixo Iguaçu).
In September 2020, the GSF Law was passed, which established new conditions for the renegotiation of hydrological risk of electricity generation, amending Article 2 of Law No. 13,203/2015, among other measures. This procedure was regulated through Normative Resolution No. 895/2020, in which ANEEL established the methodology for calculating compensation to the owners of hydroelectric plants participating in the MRE. It also regulated the repatriation of hydrological risk to equate the issue of GSF and open debts in CCEE to allow for the return of normalcy and greater liquidity in the short-term electricity market, in exchange for the extension of the terms of grants given to hydroelectric plants to up to seven years.
On March 2, 2021, CCEE released the calculations of the renegotiation of the hydrological risk and the results, which total approximately R$ 1,366.3 million for the 15 eligible plants of the Company, were sent to Aneel to be submitted to the approval analysis. To date, the Company has not yet adhered to the renegotiation of the hydrological risk, as the Management is awaiting approval by Aneel of the approximately 510 days of average extension of the granting of its plants to assess the possible adherence to the terms of the renegotiation and waiver of future questions or lawsuits in relation to the hydrological risks in question. More information is detailed as described in notes 1-b to our audited consolidated financial statements.
The following tables sets forth information relating to the actual terms as well as the renewals of our main generation hydroelectric, thermoelectric and wind farm plants and all of which we hold a direct ownership interest in:
|
Hydroelectric Plants |
Initial concession date |
First expiration date |
Extension Date |
Final expiration date |
| Foz do Areia (1) | May, 1973 | May, 2003 | January, 2001 | September, 2023 |
| Apucaraninha | October, 1975 | October, 2005 | April, 2003 | October, 2025 |
| Guaricana | August, 1976 | August, 2006 | August, 2005 | August, 2026 |
| Chaminé | August, 1976 | August, 2006 | August, 2005 | August, 2026 |
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| Segredo | November, 1979 | November, 2009 | September, 2009 | November, 2029 |
| Derivação do Rio Jordão | November, 1979 | November, 2009 | September, 2009 | November, 2029 |
| Salto Caxias | May, 1980 | May, 2010 | September, 2009 | May, 2030 |
| Mauá (2) | June, 2007 | July, 2042 | Not extendable | July, 2042 |
| Colíder(3) | January, 2011 | January, 2046 | Not extendable | January, 2046 |
| Cavernoso II | February, 2011 | February, 2046 | Not extendable | February, 2046 |
| Baixo Iguaçu(4) | August, 2012 | August, 2047 | Not extendable | October, 2049 |
| SHP Bela Vista (5) | May, 2007 | January, 2041 | Extendable | January, 2071 |
___________________
(1) In March 3, 2020, the concession of Foz do Areia was transferred from Copel GeT to FDA pursuant to ANEEL Authorizing Resolution no. 8.578/2020. Copel GeT owns 100% of FDA Geração de Energia S.A.
(2) Mauá was constructed by Consórcio Energético Cruzeiro do Sul, of which Copel owns 51.0% and Eletrosul owns the remaining 49.0%.
(3) The commercial operations of generation units 1, 2 and 3 of Colíder’s began in March 2019, May 2019 and December 2019, respectively.
(4) Baixo Iguaçu was constructed by Consórcio Empreendedor Baixo Iguaçu, of which Copel owns 30% and Geração Céu Azul the remaining 70%. The commercial operations of generation units 1, 2 and 3 of Baixo Iguaçu’s began in February 2019, Feburary 2019 and April 2019, respectively.
(5) The consortium CBVG, formed by Copel GeT and Foz do Chopim Energética Ltda., won ANEEL Auction No. 003/2018 for SHP Bela Vista. In April 2019, the authorization to operate SHP Bela Vista was transferred from Foz do Chopim Energética Ltda. to Bela Vista Geração de Energia S.A through the ANEEL’s Authorizing Resolution no. 7.802/2019. In December 2019, Copel GeT became the owner of 100% of Bela Vista Geração de Energia. This power plant is still under construction. .
|
Thermoelectric Plants |
Initial concession date |
First expiration date |
Extension date |
Final expiration date |
| Figueira | March 1969 | March 1999 | June 1999 | March 2019 |
|
Wind Plants |
Initial concession date |
First expiration date |
| Asa Branca I | April, 2011 | April, 2046 |
| Asa Branca II | May, 2011 | May, 2046 |
| Asa Branca III | May, 2011 | May, 2046 |
| Nova Eurus IV | April, 2011 | April, 2046 |
| Santa Maria | May, 2012 | May, 2047 |
| Santa Helena | April, 2012 | April, 2047 |
| Ventos de Santo Uriel | April, 2012 | April, 2047 |
| Boa Vista | April, 2011 | April, 2046 |
| Farol | April, 2011 | April, 2046 |
| Olho D'Água | June, 2011 | June, 2046 |
| São Bento do Norte | May, 2011 | May, 2046 |
| Cutia(1) | January, 2012 | January, 2042 |
| Guariju(1) | January, 2012 | January, 2042 |
| Jangada(1) | January, 2012 | January, 2042 |
| Maria Helena(1) | January, 2012 | January, 2042 |
| Palmas | September, 1999 | September, 2029 |
| Potiguar(1) | May, 2015 | May, 2050 |
| Esperança do Nordeste(1) | May, 2015 | May, 2050 |
| Paraíso dos Ventos do Nordeste(1) | May, 2015 | May, 2050 |
| São Bento do Norte I(1) | August, 2015 | August, 2050 |
| São Bento do Norte II(1) | August, 2015 | August, 2050 |
| São Bento do Norte III(1) | August, 2015 | August, 2050 |
| São Miguel I(1) | August, 2015 | August, 2050 |
| São Miguel II(1) | August, 2015 | August, 2050 |
| São Miguel III(1) | August, 2015 | August, 2050 |
| Jandaíra I(2) | April, 2020 | April, 2055 |
| Jandaíra II(2) | April, 2020 | April, 2055 |
| Jandaíra III(2) | April, 2020 | April, 2055 |
| Jandaíra IV(2) | April, 2020 | April, 2055 |
(1) Wind plants located at Copel’s Cutia wind farm complex.
(2) The consortium formed by Copel GeT and Cutia Empreendimentos Eólicos S.A.., won ANEEL Auction no. 004/2019 for Jandaíra Wind Complex (I, II, III and IV) and granting process is still ongoing.
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The following table sets forth information relating to the terms of our generation hydroelectric plant, whose concession agreement has been executed under the terms and conditions of the 2013 Concession Renewal Law:
|
Hydroelectric Plants |
Initial concession date |
First expiration date |
Extension Date |
Final expiration date |
| Capivari Cachoeira (Gov Parigot de Souza) | January, 2016 | January, 2046 | Not subject to extension | January, 2046 |
The following table sets forth information relating to the terms of our generation hydroelectric plants which, once respective original concession period expires, will no longer be subject to a concession regime but rather to a registration proceeding with the ANEEL:
|
Hydroelectric Plants(1) |
Initial concession date |
Concession expiration date |
Final expiration date |
| Chopim I | March, 1964 | July, 2015 | Indefinitely |
| São Jorge | December, 1974 | December, 2024 | - |
| Cavernoso | January, 1981 | January, 2031 | - |
| Melissa | May, 2002 | Indefinitely | - |
| Pitangui | May, 2002 | Indefinitely | - |
| Salto do Vau | May, 2002 | Indefinitely | - |
| Marumbi | March, 1956 | May, 2018 | Indefinitely |
(1) Upon the expiration of concessions or authorizations for hydroelectric energy generation with installed capacity equal to or less than 5,000 KW, the relevant projects are subject to a registration regime in accordance with Brazilian Federal Law No. 9,074/1995, as amended by Brazilian Federal Law No. 13,360/2016. The operation of hydroelectric and thermoelectric plans with installed capacity of up to 5,000 KW are not subject to any concession, permission or authorization and require solely the registration with the granting authority.
We also have ownership interests in eleven (11) other generation projects. The following table sets forth information relating to the terms of the concessions of the generation facilities in which we had such partial ownership interest as of December 31, 2020.
|
Generation Facility |
Company |
Initial concession date |
Expiration date |
Extension |
| HPP Dona Francisca | Dona Francisca Energética SA ‒ DFESA | July, 1979 | August, 2033 | Possible |
| HPP Santa Clara | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | October, 2001 | May, 2037 | Possible |
| HPP Fundão | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | October, 2001 | May, 2037 | Possible |
| SHP Santa Clara I | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | December, 2002 | December, 2032 | Possible |
| SHP Fundão I | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | December, 2002 | December, 2032 | Possible |
| TPP Araucária | UEG Araucária Ltda. | December, 1999 | December, 2029 | Possible |
| HPP Arturo Andreoli | Foz do Chopim Energética | April, 2000 | April, 2030 | Possible |
| WPP Carnaúbas | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP Reduto | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP Santo Cristo | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP São João | São Miguel do Gostoso I | March, 2012 | March, 2047 | Not possible |
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Transmission Concessions
Pursuant to the 2013 Concession Renewal Law and the terms of our transmission concessions, we have the right to request 30-year extensions of the concessions from ANEEL, provided that such request is delivered within 60 months prior to the expiration of the contract. Our principal transmission concession, from which 72% of our transmission revenues in 2020 derived, has been renewed pursuant to the 2013 Concession Renewal Law, and will therefore now expire in December 2042.
In addition, in 2020, an aggregate of 28% of our transmission revenues derived from eleven (11) other concession contracts for transmission lines and substations that are currently in operation and whose terms and extensions are set forth in the next table. In accordance with the 2013 Concession Renewal Law, each of these contracts can be extended for an additional 30-year period.
We intend to continue requesting extensions for all of our transmission concessions.
The following table sets forth certain information relating to the terms and extension terms of our main transmission concessions (all of which we hold a direct ownership interest), including the concession contracts for transmission lines and substations both in operation or under construction:
|
Transmission Facility |
Initial concession Date |
First expiration Date |
Possibility of extension |
Expected (or final) expiration date |
| Main transmission concession | July, 2001 | July, 2015 | Extended | December, 2042 |
| Bateias – Jaguariaíva | August, 2001 | August, 2031 | Possible | August, 2061 |
| Bateias – Pilarzinho | March, 2008 | March, 2038 | Possible | March, 2068 |
| Foz do Iguaçu – Cascavel Oeste | November, 2009 | November, 2039 | Possible | November, 2069 |
| Substation Cerquilho III | October, 2010 | October, 2040 | Possible | October, 2070 |
| Araraquara 2 – Taubaté | October, 2010 | October, 2040 | Possible | October, 2070 |
| Foz do Chopim - Salto Osorio | August, 2012 | August, 2042 | Possible | August, 2072 |
| Assis – Paraguaçu Paulista II | February, 2013 | February, 2043 | Possible | February, 2073 |
| Bateias – Curitiba Norte | January, 2014 | January, 2044 | Possible | January, 2074 |
| Realeza Sul – Foz do Chopim | September, 2014 | September, 2044 | Possible | September, 2074 |
| Assis - Londrina | September, 2014 | September, 2044 | Possible | September, 2074 |
| Curitiba Leste – Blumenau(1) | April, 2016 | April, 2046 | Possible | April, 2076 |
(1) Facility under construction.
We have ownership interests in ten (10) other transmission projects, through special purpose companies. The following table sets forth information relating to the terms of the concessions of the transmission facilities in which we had such partial ownership interest as of December 31, 2020:
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|
Transmission Facility |
Special Purpose Company (SPC) |
Initial concession date |
First Expiration date |
Possibility of Extension |
Expected (or final) expiration date |
| Cascavel Oeste – Umuarama | Costa Oeste Transmissora de Energia S.A | January, 2012 | January, 2042 | Possible | January, 2072 |
| Umuarama - Guaira | Caiuá Transmissora de Energia S.A | May, 2012 | May, 2042 | Possible | May, 2072 |
| Açailândia Miranda II |
Integração Maranhense Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
|
Curitiba - Curitiba Leste |
Marumbi Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
|
Paranaíta – Ribeirãozinho |
Matrinchã Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
| Ribeirãozinho – Marimbondo II | Guaraciaba Transmissora de Energia S.A | May, 2012 | May, 2042 | Possible | May, 2072 |
| Barreiras II – Pirapora II | Paranaíba Transmissora de Energia S.A | May, 2013 | May, 2043 | Possible | May, 2073 |
| Itatiba – Bateias | Mata de Santa Genebra Transmissora S.A | May, 2014 | May, 2044 | Possible | May, 2074 |
| Estreito – Fernão Dias | Cantareira Transmissora de Energia S.A. | September, 2014 | September, 2044 | Possible | September, 2074 |
| Ivaiporã – Londrina | Uirapuru Transmissora de Energia S.A. | March, 2005 | March, 2035 | Possible | March 2065 |
Distribution Concessions
We originally operated our distribution business pursuant to a concession contract that was signed on June 24, 1999 (retroactive to July 7, 1995), and was set to expire on July 7, 2015. Under the 2013 Concession Renewal Law, we had the right to renew this concession for an additional 30-year period by accepting an amendment to the concession contract. Notwithstanding the changes introduced by the 2013 Concession Renewal Law, we concluded that the renewal of our distribution concession in accordance with the 2013 Concession Renewal Law would not materially affect our results of operations. Accordingly, after a careful evaluation of the conditions imposed by the Brazilian government for the extension of our distribution concession, we decided to request the renewal of this contract and our renewal request was approved by the MME on November 11, 2015. On December 9, 2015, we have executed the fifth amendment to the public Electricity Distribution Service Concession Agreement No. 46/1999 of Copel Distribuição S.A.
This amendment imposes efficiency conditions to Copel Distribuição that are measured through two different metrics: quality of the service and economic-financial sustainability of the company. Failure to comply with any of these metrics (i) for two consecutive years within the first four years of this renewed concession or (ii) in the fifth year of this concession, may, in each case, result in the termination of our distribution concession. From January 1, 2021 on, failure to comply with the quality indicator for three consecutive years or the economic-financial sustainability indicator for two consecutive years may also result in the termination of the distribution concession.
Additionally, non-compliance with quality indicator targets for two consecutive years or three times in five years may lead to restrictions in the payment of dividends and interest on equity to the controlling shareholders of Copel Distribuição, while non-compliance with the economic-financial sustainability indicators may require capital contributions from Copel Distribuição controlling shareholders.
The table below presents the economic and financial and quality indicators established for the first five (5) years after the execution of this amendment.
|
Economic and Financial Indicators |
Quality Indicators (1) | ||
|
Year |
DECi(2) |
FECi(2) | |
| 2016 | N/A |
13.61 |
9.24 |
| 2017 | EBITDA(3) ≥ 0 | 12.54 | 8.74 |
| 2018 | [EBITDA (-) QRR (4)] ≥ 0 | 11.23 | 8.24 |
| 2019 | {Net Debt(5)/[EBITDA(3) (-) QRR(4)]} ≤ 1/(0.8*SELIC(6)) | 10.12 | 7.74 |
| 2020 | {Net Debt(5)/[EBITDA(3) (-) QRR(4)]} ≤ 1/(0.8*SELIC(6) 1/(1.11*SELIC(6)) | 9.83 | 7.24 |
___________________
(1) According to ANEEL’s Technical Note No. 0335/2015.
(2) DECi – Duration of outages per customer per year (in hours); and FECi – Frequency of outages per customer per year (number of outages).
(3) Earnings before interest, tax depreciation and amortization, as calculated according to ANEEL regulations.
(4) QRR: Regulatory Reintegration Quota or Regulatory Depreciation Expense. This is the value defined in the most recent Periodic Tariff Review (RTP), plus the General Market Price inflation index (IGP-M) between the month preceding the Periodic Tariff Review and the month preceding the twelve-month period of the economic and financial sustainability measurement.
(5) As calculated according to ANEEL regulations.
(6) Selic base rate: limited to 12.87% per year.
We have complied with the quality indicators for 2019 both with respect to DECi totaling 9.10 in 2019) and FECi (totaling 6.0 in 2019).
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We have concessions to distribute electricity in substantially all of the State of Paraná, and we do not face competition from the four utilities that have been granted concessions for the remainder of the state. As a result of legislation passed in 2004, however, other suppliers are able to offer electricity to our existing Free Customers at prices lower than those we currently charge. However, when a Captive Customer becomes a Free Customer, it is still required to pay to use our distribution grid. The reduction in net revenue of our distribution business is therefore compensated with a reduction in our costs for energy that we would otherwise acquire to sell to these customers.
Furthermore, under certain circumstances, Free Customers may be entitled to connect directly to the Interconnected Transmission System rather than our distribution grid. Unlike a Free Customer’s choice of another energy supplier, in which case that customer must still use our distribution grid and thus pay us the appropriate tariff, our distribution business ceases to collect tariffs from a customer that connects directly to the Interconnected Transmission System. The migration of customers from the distribution grid to the transmission network therefore results in the loss of revenues for our distribution business.
Distribution and transmission companies are required to permit the use of their lines and ancillary facilities for the distribution and transmission of electricity by other parties upon payment of a tariff.
Free Customers are limited to, as from January 1, 2021, with demand of at least 1.5 MW; after January 1, 2022, customers with demand of at least 1.0 MW at any voltage; and, after January 1, 2023, with demand of at least 500 kW at any voltage.
Special customers are costumers with demand of at least 500 kW that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants, biomass projects, solar plants and others.
As of December 31, 2020, we had 912 Free Customers (of which of 877 were customers of our energy trading company and 35 of Copel GeT), representing approximately 8.0% of our consolidated operating revenue and approximately 14.9% of the total quantity of electricity sold by us.
Copel GeT has 35 Free Costumers as of December 31, 2020. Approximately 55.2% of the megawatts-hours sold under contracts to such customers by Copel GeT expired in 2020. These customers represented approximately 6.3% of the total volume of electricity we sold in 2020, and approximately 3.2% of our consolidated operating revenues.
In the generation business, any producer may be granted a concession to build or manage thermoelectric and small hydroelectric generating facilities in the State of Paraná. Brazilian law provides for competitive bidding for generation concessions for hydroelectric facilities and, since 2017, this requirement applies only to facilities with capacity higher than 50 MW.
In the transmission business, Brazilian law provides for competitive bidding for transmission concessions for facilities with a voltage of 230 kV or greater that will form part of the Interconnected Transmission System.
Brazilian law requires that all of our generation, transmission and distribution concessions be subject to a competitive bidding process upon their expiration. We may face significant competition from third parties in bidding for renewal of such concessions or for any new concessions. The loss of certain concessions could adversely affect our results of operations
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Our construction and operation activities for the generation, transmission and distribution of electric energy, distribution of natural gas and our telecommunications operations are subject to federal, state and municipal environmental regulations.
All of our activities follow our Sustainability Policy, which integrates corporate planning and sustainability management in order to optimize our financial, social and environmental performance. Also, our activities follow our Climate Change Policy, which establishes guidelines for the mitigation of greenhouse gas emission and changes in our business, evaluating risks and opportunities related to climate change.
We request and renew our environmental licenses in accordance with the environmental regulation issued by applicable federal, state and municipal level authorities. We are in compliance with all material environmental regulations and our more recent (post-1986) generation, transmission and distribution projects are in compliance with federal, state and municipal regulations.
Being a signatory to the Global Compact since 2000, we are committed to sustainability. As a founding member of the Brazilian Global Compact Network Committee, created in 2003, we support the movement to disseminate the principles of the Global Compact in promoting effective and consistent articulations between governments, companies and social organizations in favor of social, environmental and economic challenges for sustainability, as well as raising awareness among other Brazilian companies to engage and adopt corporate citizenship as a standard for managing their businesses.
We adopt best market practices to guide and evaluate our performance, and compare practices with global and local references: B3 Corporate Sustainability Index - ISE, Ethos Indicators for Sustainable and Responsible Business Models, and other evaluations and classifications related to ESG (Environmental, Social and Governance) matters.
Through an annual report, we reinforce our commitment to sustainable development and are accountable for our performance related to economic, social, environmental and governance aspects (Integrated Report Copel). This report follows the international guidelines of the Standards model of the Global Reporting Initiative (GRI), and the International Integrated Reporting Initiative (IIRC), and is submitted to independent assurance, to ensure the reliability of the information disclosed.
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Our principal properties consist of the generation and telecommunications facilities described in “Business”. Of the net book value of our total property, plant and equipment as of December 31, 2020 (including construction in progress), generation facilities represented 64.4%, wind farms represented 30.1%, telecommunications represented 0.5%, Elejor represented 3.7%, and Araucária Thermoelectric Plant represented 1.3%. We believe that our facilities generally are adequate for our present needs and suitable for their intended purposes.
In addition, the infrastructure used by the transmission and distribution business is classified as accounts receivable related to the concession, contract assets and intangible assets as described in Notes 4.4, 4.5 and 4.9 to our audited consolidated financial statements.
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Although we receive concessions from the Brazilian government to construct hydroelectric facilities, we do not receive title to the land on which the facilities are to be located. In order for us to construct, the land must be expropriated. The land required for the implementation of a hydroelectric facility may only be expropriated pursuant to specific legislation, after proving its public interest. We generally negotiate with communities and individual owners occupying the land so as to resettle such communities in other areas and to compensate individual owners. Our policy of resettlement and compensation generally has resulted in the settlement of expropriation disputes, with friendly settlements for most of them. As of December 31, 2020, we estimated our liability related to the settlement of such disputes to be approximately R$ 133.9 million. This amount is in addition to amounts for land expropriation included in each of our hydroelectric facility budgets.
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The Brazilian eLECTRIC Power Industry
General
In February 2021, according to Ordinance No. 002/2021, MME approved the Decennial Energy Plan - PDE 2030, which projects that the installed capacity of electricity generation in Brazil will be 196 in GW in 2030 (not including distributed generation and self-production). It is projected in the 2021 PDE that 87% of this total will be renewable (54% is projected to be hydroelectric and 29% will be alternative sources of energy, such as wind, biomass and small hydroelectric plants), 11% will be thermoelectric, 4% will be solar, and 2% will be nuclear.
As of 2020, approximately 30% of the installed power generating capacity of Brazil is currently owned by Eletrobras (including its wholly-owned subsidiary Eletronuclear and its 50% participation interest in Itaipu). Through its subsidiaries, Eletrobras is also responsible for approximately 44% of the installed transmission capacity equal or above 230 kV within Brazil. In addition, some Brazilian states control entities involved in the generation, transmission and distribution of electricity. They include Companhia Energética de Minas Gerais – CEMIG and us, among others.
Principal Regulatory Authorities
Ministry of Mines and Energy – MME
The MME is the primary regulatory institution of the power industry and acts as the Brazilian governmental authority empowered with policymaking, regulatory and supervisory powers.
National Energy Policy Council – CNPE
The National Energy Policy Council (Conselho Nacional de Política Energética - “CNPE”), created in August 1997, provides advice to the President of the Republic of Brazil regarding the development and creation of a national energy policy. The CNPE is chaired by the MME and is composed of ten ministers of the Brazilian government and five members designated by the President of CNPE. The CNPE was created in order to optimize the use of energy resources in Brazil and ensure the national supply of electricity.
National Electric Energy Agency – ANEEL
The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. ANEEL’s primary responsibility is to regulate and supervise the power industry in accordance with the policies set forth by the MME and to respond to matters which are delegated to it by the Brazilian government and the MME. ANEEL’s current responsibilities include, among others, (i) administering concessions for electric energy generation, transmission and distribution, including the approval of electricity tariffs, (ii) enacting regulations for the electric energy industry, (iii) implementing and regulating the utilization of energy sources, including the use of hydroelectric power, (iv) promoting, monitoring and managing the public bidding process for new concessions, (v) settling administrative disputes among electricity sector entities and electricity purchasers, and (vi) defining the criteria and methodology for the determination of transmission and distribution tariffs.
National Electric System Operator – ONS
The ONS (Operador Nacional do Sistema Elétrico) is a non-profit private entity comprised of electric utilities engaged in the generation, transmission and distribution of electric energy, in addition to other private participants such as importers, exporters and Free Customers. The primary role of the ONS is to coordinate and regulate the generation and transmission operations in the Interconnected Transmission System, subject to the ANEEL’s regulation and supervision. The objectives and principal responsibilities of the ONS include, among others, operational planning for the generation industry, organizing the use of the domestic Interconnected Transmission System and international interconnections, ensuring that industry participants have access to the transmission network in a non-discriminatory manner, assisting in the expansion of the electric energy system, proposing plans to the MME for extensions of the Interconnected Transmission System, and formulating regulations regarding the operation of the transmission system for ANEEL’s approval.
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Electric Energy Trading Chamber – CCEE
The CCEE (Câmara de Comercialização de Energia Elétrica) is a non-profit private entity subject to authorization, inspection and regulation by ANEEL. The CCEE is responsible for, among other things, (i) registering all energy purchase agreements in the regulated market, Contratos de Comercialização de Energia no Ambiente Regulado (“CCEAR”) and in the Free Market, (ii) accounting for and clearing short-term transactions and (iii) managing funds generated by some of the regulatory charges. The CCEE is composed of holders of concessions, permissions and authorizations in the electricity industry and Free Customers, and its board of directors is composed of five members, out of which four are appointed by these agents and one by the MME, who is the chairman of the board of directors.
Energy Sector Monitoring Committee – CMSE
The CMSE (Comitê de Monitoramento do Setor Elétrico) was created by the New Industry Model Law to monitor service conditions and to recommend preventative measures to ensure energy supply adequacy, including demand-side action and contracting of energy reserves.
Energy Research Company – EPE
In August 2004, the Brazilian government created the Energy Research Company (Empresa de Pesquisa Energética - “EPE”), a federal public company responsible for conducting strategic studies and research in the energy sector, including the industries of electric power, petroleum, natural gas, coal and renewable energy sources. The studies and research conducted by the EPE subsidize the formulation of energy policy by the MME.
Eletrobras
Eletrobras serves as a holding company for the following federally-owned energy companies: Companhia Hidro Elétrica do São Francisco – CHESF, Furnas Centrais Elétricas S.A., CGT Eletrosul, Centrais Elétricas do Norte do Brasil S.A. – Eletronorte, Companhia de Geração Térmica de Energia Elétrica – CGTEE and Eletrobras Termonuclear S.A. – Eletronuclear, Centro de Pesquisas de Energia Elétrica – Cepel and Itaipu Binacional. Eletrobras manages the commercialization of energy from Itaipu and from alternative energy sources, under the Program for incentive to alternative energy sources (Programa de Incentivo às Fontes Alternativas de Energia – “Proinfa”).
Historical Background of Industry Legislation
The Brazilian constitution provides that the development, use and sale of electric energy may be undertaken directly by the Brazilian government or indirectly through the granting of concessions, permissions or authorizations. Historically, the Brazilian electric energy industry has been dominated by generation, transmission and distribution concessionaires controlled by the federal or state governments. Since 1995, the Brazilian government has taken a number of measures to reform the Brazilian electric energy industry. in general, these measures were aimed at increasing the role of private investment and eliminating foreign investment restrictions in order to increase overall competition and productivity in the industry.
The following is a summary of the principal developments in the regulatory and legal framework of the Brazilian electricity sector:
| · | In 1995, (i) the Brazilian constitution was amended to authorize foreign investment in power generation; (ii) the Concessions Law was enacted, requiring that all concessions for energy-related services be granted through public bidding processes, providing for the creation of independent producers and Free Customers and granting electricity suppliers and Free Customers open access to all distribution and transmission systems; and (iii) a portion of the controlling interests held by Eletrobras and various Brazilian states in generation and distribution companies were sold to private investors. |
| · | In 1998, the Power Industry Law was enacted, providing for, among other things, the creation of the ONS and the appointment of National Bank for Economic and Social Development, or Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), a development bank wholly owned by the Brazilian government, as the financing agent of the power industry, especially to support new generation projects. |
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| · | In 2001, Brazil faced a serious energy crisis that lasted through February 2002. During this period, the Brazilian government implemented an energy-rationing program in the most adversely affected regions, namely the southeast, central-west and northeast regions of Brazil. In April 2002, the Brazilian government for the first time implemented the extraordinary tariff adjustment to compensate the electricity suppliers for financial losses incurred as a result of the rationing period. |
| · | In 2004, the Brazilian government enacted the New Industry Model Law (Law No. 10,848), in an effort to further restructure the power industry with the ultimate goal of providing customers with a stable supply of electricity at reasonable prices. The New Industry Model Law introduced material changes to the regulation of the electric energy industry, in order to (i) provide incentives to private and public entities to build and maintain generation capacity, and (ii) ensure the supply of electricity in Brazil at low tariffs through a competitive electricity public bidding process. The key elements of the New Industry Model Law include: |
| o | Ensuring the existence of two markets: (i) the regulated market, a more stable market in terms of supply of electricity, and (ii) a market specifically addressed to certain participants (i.e., Free Customers and energy-trading companies), called the Free Market, that permits a certain degree of competition vis-à-vis the regulated market. |
| o | Restrictions on certain distribution activities, including requiring distributors to focus on their core business of distribution activities in order to promote more efficient and reliable services to Captive Customers. |
| o | Elimination of self-dealing by providing an incentive for distributors to purchase electricity at the lowest available prices rather than buying electricity from related parties. |
| o | Upholding contracts executed prior to the New Industry Model Law, in order to provide regulatory stability for transactions carried out before its enactment. |
| · | In 2004, Decree No. 5,163 was enacted to governor the purchase and sale of electricity in the regulated market and the Free Market, as well as the granting of authorizations and concessions for electricity generation projects. This decree includes, among other items, rules relating to auction procedures, the form of power purchase agreements and the mechanism for passing costs through to Final Customers. Among other matters, this decree: |
| o | provides for the guidelines under which electricity-purchasing agents must contract their electricity demand. Electricity-selling agents must show that the energy to be sold comes from existing or planned power generation facilities. Agents that do not comply with such requirements are subject to penalties imposed by ANEEL. |
| o | requires electricity distribution companies to contract for 100% of their energy needs primarily through public auctions. In addition to these auctions, distribution companies can purchase limited amounts (up to 10% of their demand) from: (i) generation companies that are connected directly to a distribution company (except for hydroelectric power plants with capacity higher than 30 MW and certain thermoelectric power plants) (ii) electricity generation projects participating in the initial phase of the Proinfa Program, (iii) the Itaipu Power Plant and (iv) quotas from those generation concession contracts extended or subject to a new competitive bidding process in accordance with the 2013 Concession Renewal Law. |
| o | provides that the MME shall establish the total amount of energy that will be contracted in the regulated market, including the number and the type of generation projects that will be auctioned each year. |
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| o | requires all electricity generation, distribution and trading companies, independent producers and Free Customers to notify MME, by August 1st of each year, of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. In advance of each electricity auction, each distribution company is also required to inform MME of the amount of electricity that it intends to contract in the auction. In addition, distribution companies are required to specify the portion of the contracted amount they intend to use to supply potentially Free Customers. |
| · | In 2012, the Brazilian government enacted two Provisional Measures that brought important changes to the Brazilian electricity regulatory framework: (i) Provisional Measure No. 577, dated as of August 29, 2012 (converted into Law No. 12,767 dated as of December 27, 2012); and (ii) Provisional Measure No. 579, dated September 11, 2012 (converted into the 2013 Concession Renewal Law). Provisional Measure No. 577 established the obligation of the granting authority to render electricity services in the event of termination of an electricity concession, as well as new rules related to the intervention by the granting authority in electricity concessions to ensure adequate performance of Utility services. The 2013 Concession Renewal Law established new rules that changed concessionaires’ ability to renew concession contracts. Under this Law, generation and distribution concessionaires may renew their concession contracts that were in effect as of 1995 and transmission concessionaires may renew their concession contracts that were in effect prior to and as of 1995 for an additional period of 30 years, provided that the concessionaires agree to amend the concession contracts to reflect a new tariff regime to be established by ANEEL. See “—Concessions”. |
| · | In 2013, the 2013 Concession Renewal Law was enacted. This statute changed the nature of the concession agreements for generation facilities existing at the time. Prior to 2013, a generation concessionaire had the right to sell the energy generated by the facilities subject to its concession for profit. In contrast, generation concessions for existing generation facilities (including those renewed pursuant to the 2013 Concession Renewal Law) could no longer grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions started to cover the operation and maintenance of the generation facilities. The energy generated by these facilities was then allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. In case of generation facilities created after the 2013 Concession Renewal Law, the concessionaire has the right to sell the energy produced by the facility. For further information, see “—Concessions—2013 Concession Renewal Law.” |
| · | In 2015, the Brazilian government enacted Provisional Measure No. 688, dated as of August 18, 2015, converted into Federal Law No. 13,203, dated as of December 8, 2015, to revise the allocation of the hydrological risks borne by hydroelectric power plants that share hydrological risks under Energy Reallocation Mechanism. In 2014 and 2015, given poor hydrological conditions, the MRE participants generated less electricity than their assured energies, which was confirmed by a significant decrease of the Generating Scaling Factor (“GSF”), a measurement of the proportion between the electricity generated by the MRE participants and their respective assured energy. These generation deficits resulted in losses for the MRE participants given their exposure to hydrological risks. As a consequence, Federal Law No. 13,203 established an optional mechanism that allows each generation plant to transfer these risks to Final Customers upon payment of a risk premium to the Brazilian government, as well as certain temporary extensions of generation concessions to compensate for losses in 2015. We decided to opt-in with respect to all of Copel GeT´s and Elejor´s eligible Energy Agreements under this new hydrological risk allocation mechanism, which represented approximately 16% of Copel GeT´s total assured energy. |
| · | In 2016, the Brazilian government enacted Provisional Measure No. 735, dated as of June 22, 2016, converted into Federal Law No. 13,360, dated as of November 17, 2016, which changed several federal laws mainly to: (i) revise certain rules related to regulatory charges (CDE, CCC and RGE) and appoint CCEE as the new manager of such charges in lieu of Eletrobras; (ii) facilitate the privatization of generation, transmission and distribution companies, (iii) change certain requirements of the generation concession and authorization regimes; (iv) change rules related to the MRE; (v) allow distribution companies to sell energy excess in the Free Market; (vi) extension of terms for commencement of the supply under energy auctions in the regulated market; and (vii) transfer back from MME to ANEEL the authority to decide about generation and transmission companies’ requests for extension of their facilities construction schedules. |
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| · | In July 2017, the MME released the Public Consultation No. 033/2017, named “Proposal for improvement of the legal framework of the electricity sector”. This public consultation marks an important step to guide the MME in preparation of specific legislative proposals capable of providing measures of economic rationalization and modernization of the electricity sector. |
| · | In August 2017, Decree No. 9,143/2017 changed the frequency of the auctions for new energy and authorized the distribution companies to negotiate contracts for the sale of energy in the Free Market to Free Consumers and other agents (generators, marketers, and self-producers), provided that these contracts are linked to excess in energy contracted in auctions. |
| · | In January 2018, Decree No 9,271/2018 regulated the granting of a new energy concession in the event of privatization of an energy generation concession holder that provides public services, in accordance with Law No 9.074, dated July 7, 1995. Pursuant to this decree, the Brazilian government may grant a new concession contract for a period of up to 30 years to the entity that results from a bidding process for the privatization of a concessionaire previously controlled directly or indirectly by a federal, state or municipal governmental entity. This decree determined that the concessionaire shall request a new concession contract during the remaining period of its concession (up to 60 months counted from the end of the concession) This decree was amended in November 2019 pursuant to Decree No 10,135 in order to reduce the deadline for the concessionaire to request the granting of a new agreement, from 60 months to 42 months counted from the end of the concession and required the privatization process to be concluded no later than 18 months prior to the termination of the prior concession. |
| · | During 2018, the Brazilian government concluded the privatization of Eletrobras’ distribution companies Companhia Energética do Piauí - Cepisa, Companhia Energética de Rondônia S.A. - Ceron, Companhia de Eletricidade do Acre - Eletroacre, Boa Vista Energia S.A. - Boa Vista Energia, Companhia Energética de Alagoas - Ceal and Amazonas Distribuidora de Energia S.A. - Amazonas Distribuidora. |
| · | In June 2019, the National Energy Policy Council (Conselho Nacional de Política Energética – CNPE) launched a program pursuant to its Resolution No. 16 to boost the natural gas market and foster competition by promoting free competition and using Thermoelectric Plants as a vehicle for creating demand for the better use of natural gas from the Pre-Salt layer. |
| · | In December 2019, MME published the Ordinance No. 465/2019, determining that MME will gradually decrease, over the next years, the power limits to contract electric power by consumers served at any voltage, allowing them to purchase energy from conventional sources, considering the following schedule: (i) from January 1, 2021: consumers with demand equal to or greater than 1,500 kW; (ii) from January 1, 2022: consumers with demand equal to or greater than 1,000 kW; and (iii) January 1, 2023: consumers with demand of 500 kW or more. Furthermore, by January 31, 2022, ANEEL and CCEE shall present studies on the regulatory measures necessary to allow the opening of the Free Market for consumers with electric load below 500 kW. |
| · | In January 2020, the ONS implemented the Short Term Hydrothermal Dispatch Model (Modelo de Despacho Hidrotérmico de Curtíssimo Prazo - DESSEM), in order to optimize the operations of National Interconnected System (Sistema Interligado Nacional – SIN), and to reduce the difference between the planned dispatch and the one that is actually carried out by taking into account factors related to the electric grid, the operation of hydroelectric power plants, Thermoelectric Plants and other sector components. The execution of DESSEM meets the schedule set forth in Ordinance MME nº 301, dated July 31, 2019. |
| · | In September 2020, Law No. 14,052 (the “GSF Law”) was passed, which established new conditions for the renegotiation of hydrological risk of electricity generation, amending Article 2 of Law No. 13,203/2015, among other measures. This procedure was regulated through Normative Resolution No. 895/2020, in which ANEEL established the methodology for calculating compensation to the owners of hydroelectric plants participating in the MRE. It also regulated the repatriation of hydrological risk to equate the issue of GSF and open debts in CCEE to allow for the return of normalcy and greater liquidity in the short-term electricity market, in exchange for the extension of the terms of grants given to hydroelectric plants to up to seven years. |
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| · | In December 2020, through Normative Resolution No. 905/2020, ANEEL consolidated the rules for Electric Energy Transmission Services in the National Electric System, effective January 1, 2021. |
| · | In January 2021, the CCEE adopted an hourly pricing model for the accounting and settlement of the short-term market. Thus, since January 1, 2021, the PLD is officially calculated for each submarket on an hourly basis, per the implementation schedule defined by MME Directive 301/2019. |
| · | Additionally, 2020 was atypical due to the COVID-19 pandemic, which required the introduction of various legal and regulatory measures, as highlighted below: |
| o | In March 2020, Decree No. 6 officially declared a state of emergency in Brazil, effective until December 31, 2020. On the same date, Decree no. 10,282 was released (complemented by Decree No. 10,288/2020), which regulated Law No. 13,979/2020 and dealt with the new COVID-19 measures, including directives regarding the operation of public services and essential activities, specifically the electricity sector and electricity generation, transmission and distribution. By means of Decree No. 117/2020, the MME also established a Crisis Committee within the Ministory’s scope to articulate, coordinate, monitor, guide and supervise the measures and actions taken against COVID-19 for the duration of the public health crisis. In line with the guidelines established by this decree, ANEEL issued Decree No. 6,335/2020, the Office of Monitoring the Electrical Situation (Gabinete de Monitoramento da Situação Elétrica), with the objective of identifying the effects of the COVID-19 pandemic on the electrical energy market and monitoring the economic-financial situation in relation to supply and demand, as well as coordinating studies of proposals to preserve equilibrium between different entities within the sector. |
| o | In March 2020, to ensure the continuity of electricity distribution services, ANEEL issued Normative Resolution No. 878/2020, solidifying the Agency's first measures in order to guarantee the supply of electricity to certain consumer units that have lost the ability to remain compliant as a result of the COVID-19 pandemic. This especially concerns consumer units related to the supply of energy to services and activities considered essential, as defined by Federal Decrees No. 10,282/2020 and No. 10,288/2020. |
| o | On April 8, 2020, the Brazilian government issued Provisional Measure No. 950, which specified temporary emergency measures for the electricity sector to cope with the state of emergency by establishing an exemption in energy tariffs funded by the CDE for low-income consumers for up to 220 kWh/month, for the period of April 1 to June 30, 2020. For this purpose, resources were provisioned by means of a credit operation aimed at providing financial relief to electricity distributors. On the same date, ANEEL published Order No. 986, authorizing the CCEE to transfer the surplus financial resources available in the reserve fund for future relief to the sector's agents, based on consumption, with the aim of reinforcing the sector's liquidity in the midst of the COVID-19 pandemic. |
| o | On May 18, 2020, Decree No. 10,350 was issued by the Brazilian government, which regulated Provisional Measure No. 950/2020 and provided for the creation of the COVID-19 Fund. This fund was to receive resources to cover potential deficits or anticipate distributors' revenues and regulate the use of tariffs by the CDE for the purpose of payments and receipts of amounts to cover or defer costs arising from the COVID-19 pandemic. Through Resolution No. 885/2020, ANEEL established criteria and procedures for the management of the COVID-19 Fund. The value of the resources of the COVID-19 Fund given to concessionaires were made operational by the CCEE throughout 2020, considering, for this purpose, the existence of a positive balance in the fund. |
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| o | In May 2020, by means of Order No. 1,511/2020, ANEEL, suspended the systematic application of the system for activating the Tariff Flags (Bandeiras Tarifárias), under exceptional and temporary circumstances, as provided for in Submodule 6.8 of the Procedures for Tariff Regulation. This added a “green flag” through December 31, 2020 in accordance with the time period stipulated in Federal Decree No. 10,350/2020 to cover the electric sector’s costs with resources from the COVID-19 Fund. This was in effect until November 30, 2020, when it was revoked by ANEEL with the same-day issuance of Order No. 3,364/2020. |
| o | Finally, in September 2020, Provisional Measure No. 998/2020 was issued, due to important changes in the electricity sector rules to mitigate the effects on the consumer due to aid granted to companies as a result of the COVID-19 pandemic, such as transferring 30% of the funds that concessionaires are required to invest in research and development and energy efficiency programs between 2021 and 2025. Notwithstanding these points, this measure also sought to address the withdrawal of incentives for renewable sources, removing the discount on the tariffs for the use of the transmission (TUST) and distribution (TUSD) systems for projects such as small hydroelectric plants and plants based on solar sources, wind power, biomass and qualified cogeneration. These incentives are only being maintained for projects that apply for the concession within twelve months of September 1, 2020 and the start of operations of all its Generating Units within 48 months from the date of concession. In addition, Provisional Measure No. 998 contemplated several other changes in the regulation of the sector, such as the reallocation of resources to reduce energy tariffs for consumers in northern Brazil. Regarding the measure’s effectiveness, it is important to highlight that after being approved by the House of Representatives on December 17, 2020 and by the Federal Senate on February 4, 2021, being sanctioned in March 2021 by the President of the Republic, through Law 14.120, of March 1, 2021. |
Potential New Regulatory Framework
The following potential changes to the Brazilian regulatory framework may have a direct impact in our operations, as our business is subject to comprehensive regulation by various Brazilian legal and regulatory bodies, especially the MME (which proposes sector policies) and ANEEL (which regulates, supervises and inspects various aspects of our business, including our tariff rates).
| · | In February 2018, the MME published on its website a report of the public hearing, reflecting the final proposal for improvements to the energy regulatory framework, which were especially motivated by technological, social and environmental matters, as well as difficulties arising from the current business models. Among the discussed topics, the following stand out: |
| o | Termination of the quota system applicable to hydropower plants (HPP) concessions that have been extended or granted through competitive biddings, in accordance with Federal Law No. 12,783/2013, and allocation of part of the economic benefit of grants to the CDEin order to reduce what is charged to the population; |
| o | Lowering the minimum thresholds for accessing the Free Market; |
| o | Approach between the short-term price formation and the operating cost of the system; |
| o | Whether energy and ballast (currently combined for commercialization purposes) should be segregated; |
| o | Effects of the migration of consumers to the Free Market; |
| o | Market for environmental attributes; |
| o | Attraction of foreign capital for investments in the Brazilian energy sector; |
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| o | More efficient tariff discounts; |
| o | Allocation of resources from the global reversion reserve to the transmission segment; |
| o | Guidelines for the use of research and development resources; |
| o | Modernization of the regulated market; and |
| o | Reduction of judicial disputes regarding the hydrological risk. |
| · | In May 2018, most of the improvements proposed by the MME with respect to the regulatory framework applicable to the energy sector were included in Bill No. 1,917/2015 of the House of Representatives, known as the bill for the energy bill portability (Projeto de Lei da Portabilidade da Conta de Luz). This bill is still subject to analysis in the House of Representatives and, if approved, will depend on further approval by the Senate and the President of Brazil. |
| · | Also, there are initiatives in order to promote the modernization of the energy sector. Ordinance MME No. 187/2019 established a working group in order to develop proposals for the modernization of the energy sector, which released a report in October, 2019 with measures that should be adopted or studied, including topics such as (i) opening of the consumer market; (ii) pricing mechanism for the short-market; (iii) expansion of the Free Market accommodating new technologies and new business models; (iv) Energy Reallocation Mechanism; (v) cost and risk allocation; (vi) introduction of new technologies; and (vii) sustainable distribution services. This working group has been appointed for a 2-year term, which may be extended for 1 additional year. |
| · | In November 2019, the Brazilian government submitted to Brazilian Congress Bill No. 5,877, which, among other matters, address the privatization of Centrais Elétricas Brasileiras S.A. - Eletrobras. Such bill determines the privatization of Eletrobras pursuant to a capital increase and public offering of new common shares (that entitle their holders to voting rights), resulting in the dilution of the stake held by the Brazilian government in Eletrobras (the “Eletrobras Privatization”). In February 2021, Provisional Measure No. 1,031/2021 on the Eletrobras Privatization was issued. |
| · | In November 2019, ANEEL submitted a proposed amendment to Resolution No. 482/2012 to a public hearing. This resolution refers to the distribution of micro and mini energy generation. The update of such rules was required in 2015 by Resolution 687/2015 and suggests improvements to the credit compensation system in view of changes to distributed generation in recent years. |
| · | In December 2019, CNPE approved its Resolution No. 29, pursuant to which (i) it reviewed the general criteria adopted with respect to supply guarantee in studies on offer expansion, planning of the SIN operations, and calculations of energy physical guarantees and power of a generation project. However, MME shall determine the specific thresholds for such criteria, which is used in the calculation of physical guarantees and plans for expansion. |
| · | In 2020, due to the COVID-19 pandemic, discussions beginning in 2017 between the MME and the electric sector with regards to proposals for the industry’s improvement of the legal and regulatory framework were interrupted. This meant limited progress on measures such as PL No. 1.917/2015 and PLS No. 232/2016, which address issues such as the commercial model of the electric sector, the portability of electricity bills and concessions for electric energy generation. The COVID-19 pandemic also allowed for compromise within Special Commission of the House of Representatives, established in August 2019, regarding the Brazilian Electric Energy Code, which aims to consolidate electricity legislation that is currently scattered between ordinances issued by various government agencies. |
These potential changes to the regulatory framework applicable to the Brazilian Energy Sector may impact our operations in the coming years.
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Concessions
The companies or consortia that wish to build or operate facilities for generation, transmission or distribution of electricity in Brazil must participate in a competitive bidding process or must apply to the MME or to ANEEL for a concession, permission or authorization, as the case may be. Concessions grant rights to generate, transmit or distribute electricity in a specific concession area for a specified period. This period is 35 years for generation concessions granted after 2003, and 30 years for new transmission or distribution concessions. In accordance with the 2013 Concession Renewal Law, generation and distribution concessionaires may renew their concession contracts that were in effect as of 1995 and transmission concessionaires may renew their concession contracts that were in effect prior to and as of 1995 for an additional period of 30 years, provided that the concessionaires agree to amend the concession contracts to reflect certain new terms and conditions established by the law. The 2013 Concession Renewal Law does not impact generation concessions granted after 2003, as they are non-renewable.
The Concessions Law establishes, among others, the conditions that the concessionaire must comply with when providing electricity services, customers’ rights and the respective rights and obligations of the concessionaire and the granting authority. In addition to the Concessions Law, the concessionaire must also comply with the general regulations governing the electricity sector. The main provisions of the Concessions Law and related ANEEL regulations are summarized as follows:
Adequate service. The concessionaire must render adequate service to all customers in its concession and must maintain certain standards with respect to regularity, continuity, efficiency, safety and accessibility.
Use of land. The concessionaire may use public land or request that the granting authority expropriate necessary private land for the benefit of the concessionaire. In the latter case, the concessionaire must compensate the affected private landowners.
Strict liability. The concessionaire is strictly liable for all damages arising from the provision of its services.
Changes in controlling interest. The granting authority must approve any direct or indirect change in the concessionaire’s controlling interest.
Intervention by the granting authority. The granting authority may intervene in the concession, through ANEEL, to ensure the adequate performance of services, as well as the full compliance with applicable contractual and regulatory provisions. Once ANEEL determines the intervention, limited to one year, but extendable for additional two years, it must designate a third party to manage the concession. Within 30 days of the determination of the intervention, the granting authority’s representative must commence an administrative proceeding in which the concessionaire is entitled to contest the intervention. The administrative proceeding must be completed within 1 year. The shareholders of the concessionaire under intervention must submit to ANEEL, within 60 days of the determination of the intervention, a recovery and correction plan. If ANEEL approves such plan, the intervention is terminated. In the event ANEEL does not approve the plan, the granting authority may: (i) declare forfeiture of the concession; (ii) determine the spin-off, incorporation, merger or transformation of the concessionaire, incorporation of a subsidiary or assignment of quotas/shares to a third party; (iii) determine the change of control of the concessionaire; (iv) determine a capital increase of the concessionaire; or (v) determine the incorporation of a special purpose company.
Termination of the concession. The termination of the concession agreement may occur by means of expropriation and/or forfeiture. Expropriation is the early termination of a concession for reasons related to the public interest. An expropriation must be specifically approved by law or decree. Forfeiture must be declared by the granting authority after ANEEL or the MME has made a final administrative ruling that the concessionaire, among other things, (i) has failed to render adequate service or comply with an applicable law or regulation, (ii) no longer has the technical, financial or economic capacity to provide adequate service, or (iii) has not complied with penalties assessed by the granting authority. The concessionaire may contest any expropriation or forfeiture in the courts.
A concession agreement may also be terminated (i) through the mutual agreement of the parties, (ii) upon the bankruptcy or dissolution of the concessionaire, or (iii) following a final, non-appealable judicial decision rendered in a proceeding filed by the concessionaire.
When a concession agreement is terminated, all assets, rights and privileges that are materially related to the rendering of electricity services revert to the Brazilian government. Following termination, the concessionaire is entitled to indemnification for its investments in assets that have not been fully amortized or depreciated, after deduction of any amounts due by the concessionaire related to fines and damages.
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Expiration. When the concession expires, all assets, rights and privileges that are materially related to the rendering of the electricity services revert to the Brazilian government. Following the expiration, the concessionaire is entitled to indemnification for its investments in assets that have not been fully amortized or depreciated as of the expiration.
Penalties. ANEEL regulations govern the imposition of sanctions against electricity sector participants and determine the appropriate penalties based on the nature and importance of the breach (including warnings, fines, temporary suspension from the right to participate in bidding procedures for new concessions, licenses or authorizations and forfeiture). For each infraction, the fines can be up to 2% of the revenue (net of value-added tax and services tax) of the concessionaire in the 12-month period preceding any penalty notice. Some infractions that may result in fines relate to the failure to request ANEEL’s approval to, among other things: (i) execute certain contracts between related parties; (ii) sell or assign the assets related to services rendered as well as impose any encumbrance (including any security, bond, guaranty, pledge and mortgage) on these or any other assets related to the concession or the revenues from electricity services; (iii) effect a change in the controlling interest of the holder of the authorization or concession; and (iv) make certain changes to the bylaws. In the case of contracts executed between related parties that are submitted for ANEEL’s approval, ANEEL may seek to impose restrictions on the terms and conditions of these contracts and, in extreme circumstances, require that the contract be rescinded.
Parallel Environment for the Trading of Electric Energy
Under the New Industry Model Law, the purchase and sale of electricity is carried out in two different segments: (i) the regulated market, which contemplates that distribution companies will purchase by public auction all the electricity they need to supply their customers; and (ii) the Free Market, which provides for the purchase of electricity by non-regulated entities (such as the Free Customers and energy traders).
However, the electricity arising from the following is subject to specific rules different from the rules applicable to the regulated market and to the Free Market: (i) low capacity generation projects located near consumption points (such as certain co-generation plants and small hydroelectric power plants), (ii) plants qualified under the Proinfa Program, an initiative established by the Brazilian government to create incentives for the development of alternative energy sources, such as wind power projects, small hydroelectric power plants and biomass projects, (iii) Itaipu, (iv) Angra 1 and 2 as from 2013 and (v) those generation concession contracts extended or subject to a new bidding process in accordance with the 2013 Concession Renewal Law.
The electricity generated by Itaipu will continue to be sold by Eletrobras to the distribution concessionaires operating in the South, Southeast and Midwest portions of the Interconnected Transmission System. The rates at which Itaipu-generated electricity is traded are denominated in U.S. dollars and established pursuant to a treaty between Brazil and Paraguay. As a consequence, Itaipu rates rise or fall in accordance with the variation of the real/U.S. dollar exchange rate. Changes in the price of Itaipu-generated electricity are, however, subject to the Parcel A cost recovery mechanism discussed as follows under “–Distribution Tariffs”.
Beginning January 2013, the energy generated by nuclear plants Angra 1 and 2 started to be sold by Eletronuclear to the distribution concessionaires at a rate calculated by ANEEL.
The New Industry Model Law does not affect Bilateral Agreements entered into before 2004.
The Regulated Market
In the regulated market, distribution companies must purchase their expected electricity requirements for their Captive Customers in the regulated market through a public auction process. The auction process is administered by ANEEL, either directly or through the CCEE, under certain guidelines provided by the MME.
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Electricity purchases are generally made through three types of Bilateral Agreements: (i) Energy Agreements (Contratos de Quantidade de Energia), (ii) Availability Agreements (Contratos de Disponibilidade de Energia) and (iii) allocation of energy quotas, as defined by the ANEEL. Under an Energy Agreement, a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, among other conditions, which could interrupt the supply of electricity. In such case, the generator would be required to purchase electricity elsewhere in order to comply with its supply commitments. Under an Availability Agreement, a generator commits to making a certain amount of capacity available to the regulated market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage. With respect to the third method (introduced by the 2013 Concession Renewal Law), the plants that have had their concession renewed under the 2013 Concession Renewal Law lost the right to sell their energy, and from now on will only receive compensation under the energy quota system as a result of the operation and maintenance of such facilities. As a result, energy generated by these generation concessionaires are passed on to distributors at a lower cost through quotas that match the size of the markets served.
With respect to the generation plants with expired concessions, which are subject to a new competitive bidding process, the winner of the competitive bidding process may be required to allocate up to 100% of the energy generated by this plant in quotas to the regulated Market depending on the criteria adopted in the relevant auction process.
The estimate of demand from distributors is the principal factor in determining how much electricity the system as a whole will contract. A distributor is obligated to contract all of its projected electricity needs. A deviation in actual demand from projected demand could result in penalties to distributors. In the event of under-contracting, the distributor is penalized directly in an amount that increases as the difference between the amounts of energy contracted for and actual demand increases. An under-contracting distributor must also pay to meet its demand by purchasing energy in the Spot Market.
In the event of over-contracting, where the contracted volume falls between 100% and 105% of actual demand, the distributor is not penalized and the additional costs are compensated customers’ tariffs. Where the contracted volume is over 105% of actual demand, the distributor must sell energy in the Spot Market. If the contract price proves lower than the current Spot Market price, the distributor sells its excess energy for a profit. On the other hand, if the contract price is higher than the Spot Market price, the distributor sells its excess energy at a loss. The Federal Law No. 13,360, dated November 17, 2016, also permitted the sale of excess energy by distribution companies in the Free Market. Resolutions No. 833, dated December 4, 2018 and 904, dated December 8, 2020, have recently provided additional rules on the methodology to be adopted by distribution companies with respect to the Mechanism of Surplus Sales (Mecanismo de Venda de Excedentes, or MVE).
With respect to the granting of new concessions, regulations provide that bids for new hydroelectric generation facilities may include, among other things, the minimum percentage of electricity to be supplied in auctions in the regulated market. Concessions for new generation projects, such as Mauá and Colíder in our case, are non-renewable, meaning that upon expiration, the concessionaire must again complete a competitive bidding process.
The Free Market
The Free Market covers transactions between generation concessionaires, Independent Power Producers – IPPs, self-generators, energy traders, exporters and importers of electric energy and Free Customers. The Free Market also covers bilateral agreements between generators and distributors signed under the old model, until they expire. Upon expiration, such contracts must be executed under the New Industry Model Law guidelines.
A consumer that is eligible to choose its supplier may only do so upon the expiration of its contract with the local distributor and with advance notice or, in the case of a contract with no expiration date, upon 15 days’ notice in advance of the date on which the distributor must provide MME with its estimated electricity demand for the year. In the latter case, the contract will only be terminated in the following year. Once a consumer has chosen the Free Market, it may only return to the regulated system with five years prior notice to its regional distributor, provided that the distributor may reduce such term at its discretion. This extended period of notice seeks to assure that, if necessary, the distributor can buy additional energy in auctions on the regulated market without imposing extra costs on the captive market.
Private generators may sell electricity directly to Free Customers. State-owned generators may sell electricity directly to Free Customers but are obligated to do so only through private auctions carried out by the state-owned generators exclusively to Free Customers or by the Free Customers.
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As mentioned above, recently, Federal Law No. 13,360, dated November 17, 2016, also permitted the sale of excess energy by distribution companies in the Free Market, but the effectiveness of the rule is still subject to further regulation by ANEEL.
Focusing on the future of the electricity sector, the Ministry of Mines and Energy launched Public Consultation No. 33/2017 with the purpose of obtaining the view of different participants around improvements in the business model of the sector. Issues such as the expansion of the Free Market and removal of barriers to the entry of its participants, hourly energy price, adequate allocation of risks, security of supply and socio-environmental sustainability were discussed. Further regulation is expected for the years to come with bills being discussed in the Brazilian Congress in order to implement reforms in the power sector. For more information see “–Potential New Regulatory Framework”.
Regulation under the New Industry Model Law and further rules enacted
A July 2004 decree governs the purchase and sale of electricity in the regulated market and the Free Market, as well as the granting of authorizations and concessions for electricity generation projects. This decree includes, among other items, regulations relating to auction procedures, the form of power purchase agreements and the mechanism for passing costs through to Final Customers.
These regulations establish the guidelines under which electricity-purchasing agents must contract their electricity demand. Electricity-selling agents must show that the energy to be sold comes from existing or planned power generation facilities. Agents that do not comply with such requirements are subject to penalties imposed by ANEEL.
These regulations also require electricity distribution companies to contract for 100% of their energy needs primarily through public auctions. In addition to these auctions, distribution companies can purchase limited amounts (up to 10% of their demand) from: (i) generation companies that are connected directly to the distribution company (except for hydroelectric power plants with capacity higher than 30 MW and certain thermoelectric power plants) (ii) electricity generation projects participating in the initial phase of the Proinfa Program, (iii) the Itaipu Power Plant and (iv) quotas from those generation concession contracts extended or subject to a new competitive bidding process in accordance with the 2013 Concession Renewal Law.
The MME establishes the total amount of energy that will be contracted in the regulated market, the number and the type of generation projects that will be auctioned each year.
All electricity generation, distribution and trading companies, independent producers and Free Customers are required to notify MME, by August 1st of each year of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. In advance of each electricity auction, each distribution company is also required to inform MME of the amount of electricity that it intends to contract in the auction. In addition, distribution companies are required to specify the portion of the contracted amount they intend to use to supply potentially Free Customers.
Auctions in the Regulated Market
Electricity auctions for new generation projects are held from the third to the seventh year before the initial delivery date of electricity. Electricity auctions for existing generation projects are held (i) from the first to the fifth year before the initial delivery date, and (ii) up to four months before the initial delivery date (“Adjustment Auctions”).
New and existing power generators may participate in the Reserve Energy Auctions as long as these generators increase the power system capacity or if they did not achieve commercial operation by January 2008. Invitations to bid in the auctions are prepared by ANEEL in accordance with guidelines established by the MME, including the requirement that the lowest bid wins the auction. Each generation company that participates in the auction executes a contract for the purchase and sale of electricity with each distribution company, in proportion to the distribution companies’ respective estimated demand for electricity, except for the market adjustment and Reserve Energy Auctions.
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The contracts for new generation projects have a term between 15 and 35 years, and the contracts for existing generation projects have a term between 1 and 15 years. Contracts arising from market Adjustment Auctions are limited to a two-year term. The reserve energy contracts are limited to a 35-year term.
The quantity of energy contracted from existing generation facilities may be reduced for three reasons: (i) to compensate for Captive Customers that become Free Customers; (ii) to compensate for market deviations from the estimated market projections (up to 4% per year of the annual contracted amount, beginning two years after the initial electricity demand is estimated); and (iii) to adjust the quantity of contracted energy in bilateral agreements entered into prior to the enactment of the New Industry Model Law.
With regard to (i) above, the reduction in net revenue caused when a Captive Customer becomes a Free Customer is partially compensated by the increased amounts that Free Customers are required to pay to use our distribution system. However, a Free Customer may disconnect from our distribution grid (and therefore cease to pay us a distribution tariff) if it chooses to connect directly to the Interconnected Transmission System or if it generates energy for self-consumption and transports this energy without using our distribution grid. Because a Free Customer that connects directly to the Interconnected Transmission System no longer pays us a distribution tariff, we might not be able to fully recover this loss in revenues.
Since 2004, CCEE has conducted thirty (30) auctions for new generation projects, twenty two (22) auctions for energy from existing power generation facilities, ten (10) auctions for reserve energy in order to increase energy supply security, three (3) auctions from alternative energy sources and seventeen (17) auctions for market adjustments. No later than August 1 of each year, the generators and distributors provide their estimated electricity generation or estimated electricity demand for the five subsequent years. Based on this information, MME establishes the total amount of electricity to be traded in the auction and determines which generation companies will participate in the auction. The auction is carried out electronically in two phases.
After the completion of the auction (except in the case of Reserve Energy Auction), generators and distributors execute the CCEAR, in which the parties establish the price and amount of the energy contracted in the auction. The price is adjusted annually based on price variations published by the IPCA. The distributors grant financial guarantees to the generators (mainly receivables from the distribution service) to secure their payment obligations under the CCEAR.
Also, after completion of the Reserve Energy Auction, the generation concessionaire and the CCEE execute the Contrato de Energia de Reserva, in which the parties establish the price and amount of the energy contracted for in the auction. The distributors, Free Customers and self-producing customers then execute the Contrato de Uso da Energia de Reserva (“CONUER”) with CCEE, in order to provide for the terms of the use of the reserve energy. The reserve energy customers grant financial guarantees to CCEE to secure their payment obligations under CONUER.
The 2013 Concession Renewal Law established that generation concessions entered into prior to 2003 that were not renewed would be subject to a new competitive bidding process and that the energy generated by these facilities will be allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. On November 25, 2015, ANEEL carried out a competitive bidding process for the grant of new 30-year concessions of 29 hydroelectric plants in accordance with the 2013 Concession Renewal Law. Until December 31, 2016, 100% of the electricity generated by such 29 hydroelectric plants must be destined to the regulated market and, as of January 1, 2017, the percentage was reduced to 70%. On September 27, 2017, the ANEEL carried another competitive bidding process for the grant of new 30-year concessions of 4 hydroelectric plants in accordance with the 2013 Concession Renewal Law. In this auction, the percentage destined to the regulate market was 70% since the beginning of the concession.
The Annual Reference Value
Brazilian regulation establishes a mechanism (“Annual Reference Value”) that limits the costs that can be passed through to Final Customers.
The regulation establishes certain limitations on the ability of distribution companies to pass-through costs to customers, such as no pass-through of costs for electricity purchases that exceed 105% of actual demand.
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The MME establishes the maximum acquisition price for electricity generated by existing projects. If distributors do not comply with the obligation to fully contract their demand, the pass-through of costs from energy acquired in the short-term market is the lower of the Spot Market price and the Annual Reference Value.
Electric Energy Trading Convention
The Electric Energy Trading Convention (Convenção de Comercialização de Energia Elétrica) regulates the organization and functioning of the CCEE and defines, among other things, (i) the rights and obligations of CCEE participants, (ii) the penalties to be imposed on defaulting agents, (iii) the means of dispute resolution, (iv) trading rules in the regulated and Free Markets, and (v) the accounting and clearing process for short-term transactions.
Restricted Activities of Distributors
Distributors in the Interconnected Transmission System are not permitted to (i) engage in activities related to the generation or transmission of electric energy, (ii) hold, directly or indirectly, any interest in any other company, corporation or strategic agreement, or (iii) engage in activities that are unrelated to their respective concessions, except for those permitted by law or the relevant concession agreement. According to Law No. 13,360/2016, distributors are allowed to sell energy to Free Customers. This possibility is regulated by ANEEL through REH No. 904/2020, with the application of the MVE.
Elimination of Self-Dealing
Since the purchase of electricity for Captive Customers is now performed through auctions in the regulated market, “self-dealing” (under which distributors were permitted to meet up to 30% of their energy needs using energy that was either self-produced or acquired from affiliated companies) is no longer permitted.
Challenges to the Constitutionality of the New Industry Model Law
The New Industry Model Law is currently being challenged on constitutional grounds before the Brazilian Supreme Court. The Brazilian government moved to dismiss the actions, arguing that the constitutional challenges were moot because they related to a provisional measure that had already been converted into law. To date, the Supreme Court has not reached a final decision and we do not know when such a decision may be reached. While the Supreme Court is reviewing the law, its provisions have remained in effect. Regardless of the Supreme Court’s final decision, certain portions of the New Industry Model Law relating to restrictions on distributors performing activities unrelated to the distribution of electricity, including sales of energy by distributors to Free Customers and the elimination of self-dealing, are expected to remain in full force and effect.
Tariffs for the Use of the Distribution and Transmission Systems
ANEEL regulates access to the distribution and transmission systems and establishes tariffs for the use of these systems. The tariffs are (i) network usage charges, which are charges for the use of the proprietary local grid of distribution companies (“TUSD”) and (ii) for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities (“TUST”).
TUSD
Users of a distribution grid pay the distribution concessionaire a tariff known as the TUSD (Tarifa de Uso dos Sistemas Elétricos de Distribuição). The TUSD is divided into two parts: one related to the contracted power in R$/kW and another related to the regulatory charges in R$/kWh. The amount paid by the users of a distribution grid is calculated by multiplying the maximum contracted power for each of the customer’s points of connection to the concessionaire’s distribution grid, by the tariff in R$/kW, plus the product of the power consumption by the tariff in R$/kWh, per month.
In relation to the Captive Customers, the TUSD is part of the supply tariff that is calculated based on the voltage used by each customer.
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TUST
The TUST (Tarifa de Uso do Sistema de Transmissão) is paid by distribution companies, generators and Free Customers to transmission companies for the use of the Interconnected Transmission System (electrical transmission system with a voltage equal or higher than 230 kV). This tariff is revised annually according to (i) the location of the user of the Interconnected Transmission System and (ii) the annual revenues that a transmission company is permitted to collect for the use of its assets in the Interconnected Transmission System. The ONS, an entity that represents all transmission companies that own assets in the Interconnected Transmission System, coordinates the payment of transmission tariffs to these transmission companies. Users of the Interconnected Transmission System sign contracts with the ONS, which allows them to use the transmission grid in return for paying TUST.
Distribution Tariffs
Distribution tariff rates to Final Customers are subject to review by ANEEL, which has the authority to adjust and review these tariffs in response to changes in energy purchase costs and market conditions. When adjusting distribution tariffs, ANEEL divides the costs of distribution companies into (i) costs that are beyond the control of the distributor, (“Parcel A costs”), and (ii) costs that are under control of distributors (“Parcel B costs”). ANEEL’s tariff adjustment formula treats these two categories differently.
Parcel A costs include, among others, the following:
| · | costs of electricity purchased by the concessionaire to attend Captive Customers, in accordance to the regulatory model in force; |
| · | charges for the connection to and use of the transmission and distribution grids; and |
| · | energy sector regulatory charges. |
Parcel B costs include, among others, the following:
| · | a component designed to pay the distributor for the investments made by the distributor on the concession assets; |
| · | depreciation costs; and |
| · | a component designed to compensate the distributor for its operating and maintenance costs. |
Each distribution company’s concession agreement provides annual readjustments. In general, Parcel A costs are fully passed through to customers. Parcel B costs, however, are adjusted for inflation in accordance with the IPCA Index, minus the X factor.
Electricity distribution concessionaires are also entitled to periodic tariff revisions (revisão periódica) every four or five years. In these processes, Parcel B is recalculated, taking into account incentives for efficiency, quality improvement and reasonable tariff. These revisions are aimed at (i) assuring necessary revenues to cover efficient Parcel B operational costs and adequate compensation for investments deemed essential for services provided within the scope of each such company’s concession and (ii) determining the “X factor”. The fifth amendment to our concession agreement, which establishes the renewal of our concession agreement, determines the Periodic Tariff Review every five years.
The X factor for each distribution company is calculated based on the following components:
| · | P, based on the concessionaire’s productivity, which is calculated through the productivity of the distribution segment (PTF), determined by the relation between the variation of the billed market and the operating and capital costs, plus the average growth of the billed market and the consumer units of the concessionaire itself; |
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| · | T, based on the trajectory of the concessionaire’s operating costs, measured as the difference between the cost benchmarks established by ANEEL and the concessionaire’s actual operating costs; and |
| · | Q, based on quality target indicators that measure the interruption of energy supply to Final Customers, and other quality indicators. |
In addition, a distribution concessionaire may request an Extraordinary Tariff Review of its tariffs in case of evident economic-financial imbalance, according to the admissibility criteria established through the Tariff Regulation Procedures (PRORET), sub-module 2.9. Extraordinary tariff adjustments were granted (i) in June 1999 to compensate for increased costs of electricity purchased from Itaipu as a result of the devaluation of the real against the dollar; (ii) in 2000 to compensate for the increase in Social Security Financing Contribution (Contribuição para o Financiamento da Seguridade Social - COFINS) from 2% to 3%; (iii) in December 2001 to compensate for losses caused by the Rationing Program; (iv) in January 2013, due to the enactment of 2013 Concession Renewal Law; (v) in March 2015, to compensate the costs related to the quotas of the CDE and increased costs with the purchase of energy, and (vi) in March 2017, to compensate the amount unduly included in the tariffs for captive consumers in 2016, referring to the Angra III plant.
Since October 2004, on the date of a subsequent tariff adjustment or tariff revision, whichever occurs earlier, distribution companies have been required to execute separate contracts for the connection and use of the distribution grid and for the sale of electricity to their potentially Free Customers.
Tariff Flags (Bandeiras Tarifárias)
Effective as of January 1, 2015, a new system has been introduced by the ANEEL to permit distribution concessionaires to pass on to their Final Customer certain variable cost increases attributable to changes in hydrological conditions in Brazil, prior to the formal tariffs periodic revisions made by ANEEL.
In accordance with this model, a green, yellow or red flag, as determined by ANEEL, is included in invoices sent to Final Customers, reflecting nationwide hydrological conditions (except for the State of Roraima). If a green flag is added to Final Customers’ invoices due to satisfactory hydrological conditions, no additional charges are added. On the other hand, if these invoices contain yellow or red flags, this indicates that distribution concessionaires are facing higher variable costs from the acquisition of electricity and will pass these costs on to Final Customers.
Incentives
In 2000, a Federal decree created the Thermoelectric Priority Program, (Programa Prioritário de Termoeletricidade, or “PPT”), for the purposes of diversifying the Brazilian energy matrix and decreasing Brazil’s strong dependence on hydroelectric plants. The incentives granted to the Thermoelectric Plants included in the PPT were: (i) guarantee of gas supply for 20 years, as per a MME regulation, (ii) assurance that the costs related to the acquisition of the electric energy produced by Thermoelectric Plants will be passed on to customers through tariffs up to the normative value established by ANEEL, and (iii) guarantee of access to a special BNDES financing program for the electric energy industry.
In 2002, the Brazilian government established the Proinfa Program to encourage the generation of alternative energy sources. Under the Proinfa Program, Eletrobras would purchase the energy generated by alternative sources for a period of 20 years. In its initial phase, the Proinfa Program was limited to a total contracted capacity of 3,300 MW. In its second phase, which should start after the 3,300 MW cap has been reached, the Proinfa Program intends to purchase up to 10% of Brazil’s annual electric energy consumption from alternative sources. The first phase of the Proinfa program commenced in 2004 and it so far has supported the construction of 131 alternative energy plants which is expected to reach the production of 11.2 million MWh. According to a decision of ANEEL, the total investment to the Proinfa Program in 2021 will be R$4.0billion.
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Energy Sector Regulatory Charges
EER
The Encargo de Energia de Reserva (“EER”) is a regulatory charge designed to raise funds for energy reserves that have been contracted through CCEE and which are deposited in the Reserve Energy Account (Conta de Energia de Reserva – CONER). These energy reserves, which are mandatory, were created in order to attempt to ensure a sufficient supply of energy in the Interconnected Transmission System. The EER shall be collected from Final Customers of the Interconnected Transmission System. Beginning in 2010, this charge has been collected on a monthly basis.
RGR Fund
In certain circumstances, electric energy companies are compensated for certain assets used in connection with a concession if the concession is revoked or is not renewed. In 1971, the Brazilian Congress created a reserve fund designed to provide these compensatory payments (“RGR Fund”). In February 1999, ANEEL established a fee requiring public-industry electric companies to make monthly contributions to the RGR Fund at an annual rate equal to 2.5% of the company’s fixed assets in service, not to exceed 3% of total operating revenues in any year. Since the enactment of the 2013 Concession Renewal Law, the RGR Fund has been used to fund the compensations arising from the termination of non-renewed concessions. The 2013 Concession Renewal Law also allowed the funds from the RGR Fund to be transferred to the CDE.
According to 2013 Concession Renewal Law, as from January 1, 2013, the concession contracts from concessionaires of (i) distribution; (ii) transmission which competitive bidding process occurred after September 12, 2012; and (iii) transmission and generation which had their concession contract renewed or had their underlying facilities subject to a new competitive bidding process are no longer obliged to pay the annual RGR fee.
UBP
Some hydroelectric generation enterprises (except small hydroelectric power plants) are required to make contributions for using a public asset, Uso de Bem Público (“UBP”) according to the rules of the corresponding public bidding process for the granting of concessions. Eletrobras receives the UBP payments in a specific account. See Note 26 to our audited consolidated financial statements.
ESS
The costs related to maintaining system reliability and stability when Thermoelectric Plants generate energy to meet demand in the National Connection System (SIN) are called System Service Charges, or Encargos de Serviços de Sistema (ESS). These amounts are paid by each entity that purchases energy in the Spot Market (CCEE), proportional to each such entity’s consumption.
ESS is expressed in R$/MWh and paid only to Thermoelectric Plants that generate energy in response to requests by the Electricity System National Operator (ONS).
CDE
In 2002, the Brazilian government instituted the Electric Energy Development Account, Conta de Desenvolvimento Energético (“CDE”). The CDE is funded by (i) annual payments made by concessionaires for the use of public assets, (ii) penalties imposed by ANEEL, (iii) the annual fees paid by agents offering electric energy to Final Customers, by means of an additional charge added to the tariffs for the use of the transmission and distribution grids and (iv) transfer of resources from the Federal General Budget. The CDE was originally created, amongst others, to promote the availability of electric energy services to all of Brazil and the competitiveness of the energy produced by alternative sources.
Currently, CDE aims to fund several public policies in the Brazilian electricity sector, such as: universalization of the electricity service throughout the national territory; granting of tariff discounts to various users of the service (low income; rural; Irrigating; public water, sewage and sanitation services; incentive energy generation and consumption, etc.); low tariff on isolated electricity systems (Fuel Consumption Account - CCC); competitiveness of electricity generation from the national coal source; among others. The CDE is managed by CCEE since May, 2017, pursuant to Federal Law No. 13,360/2016. This charge had been substantially reduced by the 2013 Concession Renewal Law (approximately 75% compared to its December 31, 2011 amount) in an attempt to reduce the cost of electricity paid by Final Customers. The 2013 Concession Renewal Law also allowed the funds from the RGR Fund to be transferred to the CDE, provided that the Federal Treasury would also contribute with the CDE and permit the funds deposited in the CDE to be used in support of the electricity generation program in non-integrated electric grids (sistemas elétricos isolados) as well as to partially offset the increased costs borne by distribution concessionaires for the purchase of energy in the Spot Market as a result of the non-renewal of generation concessions due to the 2013 Concession Renewal Law.
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On March 7, 2014, the Brazilian government also permitted the transfer to distribution concessionaires of funds deposited in the CDE to cover their respective costs arising from involuntary exposure to the Spot Market in January 2014 as a result of poor hydrological conditions in 2013 and 2014, which mandated the acquisition of thermoelectric energy at higher prices in the Spot Market, costs which distribution concessionaires were not able to pass on to Final Customers through regular Retail Tariffs prior to annual readjustments or formal tariffs periodic revisions made by ANEEL.
Distribution concessionaires will be able to pass on to its Final Customer a CDE charge, to the extent necessary to repay their respective financing obligations contracted by the CCEE through the ACR Account. See “—Regulated Market Account–ACR Account.”
On February 27, 2015, ANEEL approved a significant increase of the CDE fee charged to cover all of these additional costs supported by the CDE. ABRACE, an association of Free Customers filed lawsuits to contest the increase of the CDE fee. Since July 2015, the Free Customers associated with ABRACE benefit from an injunction suspending the increase of the CDE fee. Associations of distributors of energy (ABRADEE, with whom Copel Distribuição is associated) also obtained injunctions suspending its obligation to withhold such CDE fees while ABRACE´s and other consumers’ injunction remains in force.
Federal Law No. 13,360/2016 established that the Brazilian government must prepare a plan for a structural reduction of the CDE charge until December 31, 2017, and it also provided that the revenues, expenses and beneficiaries of the CDE must be published monthly by CCEE, among other changes. As a result, Decree nº 9,642/2018 was published, which determined the gradual reduction, in 5 years, of discounts granted to consumer units classified as Rural and Public Service of Water, Sewage and Sanitation, in Groups A (high voltage) and B (low voltage).
Regulated Market Account – ACR Account.
On April 2014, the Brazilian government created the Regulated Market Account, Conta no Ambiente de Contratação Regulada – Conta-ACR (“ACR Account”), to assist distribution concessionaires to cover their respective costs for the acquisition of thermoelectric energy for the period from February 2014 to December 2014, incurred as a result of poor hydrological conditions. Distributors incurred higher costs as a result of adverse hydrological conditions because they were required to buy thermoelectric energy at higher prices in the Spot Market, and were unable to pass all these costs on to Final Customers prior to a formal tariff periodic revision made by ANEEL. To fund the ACR Account, the Brazilian government authorized the CCEE to enter into credit agreements with certain Brazilian financial institutions. An aggregate of R$21.7 billion, composed of nine tranches, was deposited in the ACR Account. Distribution concessionaires have been repaying this loan since 2015 by charging its Final Customers with additional CDE amounts on a monthly basis. At first, the amount deposited in the ACR Account should be repaid by 2020. However, in March 2019, ANEEL authorized CCEE to negotiate with the creditor financial institutions and seek early termination of the corresponding loans, which occurred in September 2019.
Itaipu Transmission Fee
The Itaipu Hydroelectric Plant has an exclusive transmission grid and is not part of the Interconnected Transmission System. Companies that are entitled to receive electricity from Itaipu pay a transmission fee in an amount equal to their proportional share of the Itaipu generated electricity.
Use of Water Resources Tax
Holders of concessions and authorizations that allow for the exploitation of water resources must pay a total tax of 7.00% of the value of the energy they generate, which for the purposes of this calculation is based on a rate set by ANEEL. Beginning on January 1, 2021, ANEEL set this rate at R$76.00/MWh. The proceeds of this tax are shared among the states and municipalities where the plant or the plant’s reservoir is located, as well as with certain federal agencies.
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ANEEL Inspection Fee (TFSEE)
The ANEEL Inspection Fee is an annual fee due by the holders of concessions, permissions or authorizations equal to an ANEEL determined percentage of their revenues. The ANEEL Inspection Fee requires these holders to pay up to 0.4% of their annual revenue to ANEEL in 12 monthly installments.
Default on the Payment of Regulatory Charges
The failure to pay required contributions to the RGR Fund, Proinfa Program or CDE or to make certain payments, such as those due from the purchase of electric energy in the regulated market or from Itaipu, will prevent the defaulting party from receiving adjustments or reviews of their tariffs (except for an extraordinary review) and will also prevent the defaulting party from receiving funds from the RGR Fund or CDE. We comply with payment obligations related to Regulatory Charges.
Energy Reallocation Mechanism
The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia, or MRE) attempts to mitigate the risks borne by hydroelectric generators due to variations in river flows (hydrological risk).
Under Brazilian law, each hydroelectric plant is assigned a determined amount of “assured energy”, according to an energy supply risk criterion defined by MME, based on historical river flow records. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
The MRE tries to guarantee that all participating plants receive the revenue corresponding to their assured energy, irrespective of the volume of electricity generated by them. In other words, the MRE effectively reallocates the electricity, transferring the surplus from those who have produced in excess of their assured energy to those that have produced less than their assured energy. The relocation, which occurs in the Interconnected Transmission System, is determined by the ONS, considering the nationwide electricity demand and hydrological conditions, regardless of the power purchase agreement of each individual generator. The volume of electricity actually generated by the plant, whether more or less than their assigned assured energy quotient, is priced pursuant to a tariff known as the “Energy Optimization Tariff”, designed to cover only the variable operation and maintenance costs of the plant, so that generators are largely unaffected by the actual dispatch of their plants.
Each hydroelectric plant which has its concession contract renewed in accordance to 2013 Concession Renewal Law will no longer participate in the MRE, and the hydrological risk from those plants will be borne by the distribution concessionaires under the National Interconnected Power Grid. For the generation plants with expired concessions, which were subject to a new competitive bidding process under the 2013 Concession Renewal Law, 30% of the generated energy available for the generation concessionaire to sell in the market is also subject to the MRE hydrological risk allocation mechanism. This risk does not impact our distribution business, since we are allowed to increase the tariffs of our distribution customers to compensate any costs arising from this hydrological risk.
Research and Development
The companies holding concessions and permissions for distribution of electricity must invest a minimum of 0.50% of their annual net operational revenues in research and development and 0.50% in energy efficiency programs. Beginning on January 1, 2023, these percentages will become 0.75% and 0.25%, respectively.
A company holding concessions and authorizations for generation and transmission of electricity must invest a minimum of 1% of its annual net operational revenues in research and development. A company that generates electricity exclusively from small hydroelectric power plants, cogeneration or alternative energy projects is not subject to this requirement.
The amount to be invested in research and development must be distributed as follows:
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| · | 40% to the company research and development projects, under the supervision of ANEEL; |
| · | 40% to the Ministry of Sciences and Technology, to be invested in national research and development projects; and |
| · | 20% to the MME, to defray EPE. |
In March 2021, Law 14,120/2021 and ANEEL Resolution 929/2021 changed the allocation of research and development resources.
The amount not yet committed to the research and development program until September 2020 will be transferred to CDE as a way to promote tariff moderateness. In the same way, until December 2025, a minimum of 70% of the percentages defined by law must continue to be invested in research and development programs while the difference will be transferred to CDE.
| · | These measures do not impact the amounts to be invested by the concessionaires, but rather their destination. |
Environmental Regulations
The Brazilian Federal Constitution includes environmental matters among the ones that are subject to concurrent legislative competence, meaning that the Brazilian government enacts general rules, which are supplemented by rules passed by states; municipalities, in turn, enact local rules or supplement federal and/or state legislation.
In 1981, the National Environmental Policy was enacted in Brazil (Federal Law No. 6,938/1981). The Federal Environmental Crimes Act (Federal Law No. 9,605/1998), which took effect in 1998, establishes a general framework of liability for environmental crimes. Federal laws and statutes have established the National System for Management of Water Resources and the National Council of Water Resources to address the major environmental issues facing the hydroelectric sector and users of water resources. In 2000, the Brazilian government created an independent agency, the National Water Agency, to regulate and supervise the use of water resources. In 2008, the Federal Decree No. 6,514/2008 was enacted to prescribe the administrative liability due for environmental infractions.
The Brazilian Forestry Code (Federal Law No. 12,651/2012) and related regulations establish rules regarding the maintenance of areas affected by hydroelectric plant reservoirs. These regulations may result in increased maintenance, reforestation and expropriation costs to energy industry concessionaires. We have been developing conservation measures in our power plants, as established in the Brazilian Forestry Code, since their construction.
Under Brazilian environmental Law, one single action that causes risk to the environment can trigger three types of liability: civil, administrative and criminal.
Thus, a violator of an environmental law may be subject to administrative and criminal sanctions and, in case environmental damage occurs, will have an obligation to repair and provide compensation to the affected party. Administrative sanctions may apply to both the company and the individual representatives of the company concomitantly and may include substantial fines of up to BRL 50 million and the suspension of activities. Criminal sanctions may also apply to both company and the individual representatives and include sanctions such as fines for the company and, for individuals including for directors and employees of companies that commit environmental crimes, possible imprisonment.
Our energy generation, distribution and transmission facilities are subject to prior environmental licensing procedures, which may include the preparation of environmental impact assessments before such facilities are constructed, as well as proposing and implementing mitigation and compensation actions for the identified impacts. As a condition for the regularity of these procedures, we must also request authorization from certain regulatory entities, such as Brazilian Institute of National Historic and Artistic Heritage (Instituto do Patrimônio Histórico e Artístico Nacional – IPHAN), an oversight body that is in charge of the protection and preservation of Brazilian cultural heritage (archeological, material and immaterial). Once the respective environmental licenses are obtained, their maintenance is still subject to compliance with certain requirements.
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Unitization
On March 11, 2021, acting at an Extraordinary Shareholders’ Meeting, the shareholders of Copel approved the Unitization (as defined below) and amendments to Copel’s bylaws to facilitate the Unitization, including the opening of the period for the Conversion Offers (as defined below) and the terms and conditions of the Conversion Offers. With the Units Program (as defined below), we seek to improve the liquidity of the trading market for our securities by establishing units, each consisting of four Class B Shares and one Common Share (“Units”). The steps to establish the Units, taken as a whole, are referred to as the “Unitization”.
Our bylaws were amended at the shareholders meeting of March 11, 2021 to provide for certain changes in our corporate governance necessary to permit our shares or the Units to be listed in the B3 listing segment known as Level 2. These amendments had previously been approved by the Board of Directors at its meeting on January 20, 2021. The effectiveness of these amendments is conditional on the completion of a public offering by the State of shares or Units owned by it and the listing of Copel on Level 2. When they take effect, these amendments will, among other things, (1) provide for a mandatory tender offer to all shareholders upon specified events, including a change of control, removal from the Level 2 with the exception of a removal for the purpose of Copel’s being listed in Novo Mercado, a special listing segment of B3 listing segment, or termination of registration as a public company under Brazilian law, and (2) provide voting rights for the holders of Preferred Shares (Class A Shares and Class B Shares) on matters involving the transformation, merger or spin-off of Copel.
On March 17, 2021, our Board of Directors approved the 1st Share Conversion and Share Depositary Receipt Formation Program (the “Units Program”).
The Unitization includes the following steps, among others:
| · | From March 22, 2021 to April 20, 2021, of one Common Share and four Class B Shares will be permitted to convert those shares into one Unit (“Standard Conversion Offer”). |
| · | For a concurrent period: |
| o | A holder of five Class A Shares will be permitted to convert all of them into Class B Shares, subsequently one into a Common Share and those shares to one Unit (the “Class A Share Conversion Offer”). |
| o | A holder of five Class B Shares will be permitted to convert one of those shares into a Common Share and then to one Unit (the “Class B Share Conversion Offer”). |
| o | Provided that the number of Copel’s Preferred Shares (including Class A Shares) is bellow 2/3 of the total amount of shares, a holder of five Common Shares will be permitted to convert four of those shares into four Class B Shares and then to one Unit (the “Common Share Conversion Offer,” and together with the Standard Conversion Offer, Class A Share Conversion Offer and Class B Share Offer, the “Conversion Offers”). |
| · | The Conversion Offers will be conditioned on the aggregate number of Units issuable as a result of the Conversion Offers (taken together) attaining 229.172.878 Units (the “Minimum Participation Condition”), calculated so as to represent approximately 60% of the shares in the free float (excluding shares owned by the State). There is no minimum participation condition that applies separately to any of the Conversion Offer. |
| · | The Deposit Agreement governing the Class B ADSs, and the Deposit Agreement governing the American Depositary Shares, each representing one Common Share (the “Common ADSs”), will each be amended to provide that, effective upon completion of the Conversion Offers, there will be a single Deposit Agreement, and each American Depositary Share will represent one Unit (“Unit ADSs”). |
If the Conversion Offers are consummated, Unit ADSs will trade on the NYSE, and Class B ADSs will no longer trade on the NYSE. A holder of Class B ADSs or Common ADSs will be able to cancel its ADSs and take delivery of the underlying shares, and it will then be able to hold those shares or tender them into the applicable Brazilian Conversion Offer. Any shares that are not converted will remain outstanding. If a holder has a number of Class B ADSs or Common ADSs that is not an integral multiple of five, the Depositary will sell the excess shares necessary to reduce that number to an integral multiple of five and distribute the cash proceeds to that holder.
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Share Split
On March 11, 2021, acting at an Extraordinary Shareholders’Meeting, the shareholders of Copel approved the splitting of our shares, pursuant the Brazilian Corporate Law, in the proportion of one share to ten shares, so that for each one share issued by the Company, nine new shares of the same class and type would be credited (the "Share Split"). The shares were traded ex-Share Split as of March 12, 2021 (inclusive), and the shares resulting from the Share Split were credited to the shareholders on March 16, 2021. Considering that the Share Split was carried out in such a way that each share we issued was split into ten shares of the same type and class, there was no surplus resulting from fractions of shares.
The Share Split did not affect our capital stock, which remains at R$10,800,000,000.00 as of March 12, 2021 or impacted any rights of holders of Copel shares. After the Share Split, our capital stock is represented by 2,736,553,750 shares with no par value, of which 1,450,310,800 Common Shares and 1,286,242,950 Preferred Shares and, of these, 3,267,520 are Class A Shares and 1,282,975,430 are Class B Shares. Our management took the necessary measures to implement the Share Split of the ADRs.
Cyber-attacks
On February 1, 2021, a number of our servers suffered cyber-attacks leading to the unavailability of part of our systems. Our systems (Solarwinds) detected the attacks and we immediately followed the security protocols, including suspending the operation of our computerized environment to protect the integrity of the information. Immediately after the event, the Company implemented the Business Crisis Management and Contingency Plan – Cyber-Attack (the “Contingency Cyber Plan”), containing immediate actions to be taken within the scope of a crisis management, and formed an internal Committee to monitor the actions planned. During the assessment of the incident, it was found that the cyber-attack did not have a significant impact on the revenue performance of our business for the year ended December 31, 2020, although it resulted in a small delay in billing in the first days of February 2021 arising from preventive measures to identify the extent of the incident. The incremental expense incurred as a result of the cyber incident was not material, and no provision to be recognized as of December 31, 2020 was identified. It was also found that there was no evidence of destruction, loss, alteration, communication and dissemination of personal data, which rules out any implications for the LGPD.
Although there is no indication that the accuracy and integrity of any financial information and personal data have been affected as a result of the cyber attack incident, we have performed extensive procedures to validate the accuracy and integrity of the information and no access was identified to the computing environment that concentrates our Enterprise Resource Planning (ERP) and billing systems, including in folders and/or files with sensitive personal data. Among the actions set in the Contingency Cyber Plan is the implementation and improvement of policies and internal controls, contributing to the improvement of our information security environment. The competent authorities have been informed about the incident. For more information on our cybersecurity controls, see “Item 3. Key Information―Risk Factors.”
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The information presented in this section should be read together with our audited consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 that have been prepared in accordance with IFRS as issued by the IASB. For more information see “Presentation of Financial and Other Information” and Note 3 to our audited consolidated financial statements for the year ended December 31, 2020.
The information presented in this section focuses on material events and uncertainties known to our management that could result in reported financial information not being indicative of future operating results or future financial condition, including a quantitative and qualitative description of the reasons underlying material changes. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those discussed in the forward-looking statements for several reasons, including, without limitation, the risks described in “Forward-Looking Statements” and “Item 3. Key Information―Risk Factors.”
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Brazilian Economic Conditions
All of our operations are in Brazil, and we are affected by general Brazilian economic conditions. In particular, the general performance of the Brazilian economy affects demand for electricity, and inflation affects our costs and our margins. The Brazilian economic environment faced periods of instability in recent years, impacting the performance of the Brazilian GDP growth rates, with an increase of 2.3% in 2013 and 0.1% in 2014 and a decrease of 3.8% in 2015. The growth rate was equally negative in 2016, with a decrease of 3.3%. The economic environment showed signs of recovery in 2017, with an increase of 1.0% in growth rate. In 2018 and 2019, the economic environment continued to recover, with an increase of 1.3% and 1.1%, respectively, in growth rate. In 2020, the growth rate decreased by 4.1%.
The following table shows selected economic data for the periods indicated:
|
Year ended December 31, |
|||
|
2020 |
2019 |
2018 |
|
| Inflation (IPCA) | 4.52% | 4.31% | 3.75% |
| Inflation (IGP-DI) | 23.7% | 7.70% | 7.10% |
| Appreciation (depreciation) of the real vs. U.S. dollar | (28.8)% | (4.0%) | (17.13)% |
| Period-end exchange rate – US$1.00(1) | 5.1967 | 4.0307 | 3.8748 |
| Average exchange rate – US$1.00 | 5.1558 | 3.9461 | 3.6558 |
| Change in real GDP | (4.1)% | 1.1 | 1.3% |
| Average interbank interest rates(2) | 2.77% | 4.40% | 6.40% |
___________________
(1) The real/U.S. dollar exchange rate at December 31, 2020 was R$5.19 per US$1.00.
(2) Calculated in accordance with Central Clearing and Custody House, or Central de Custódia e Liquidação Financeira de Títulos (“CETIP”), methodology (based on nominal rates).
Sources: FGV ‒ Fundação Getúlio Vargas, the Brazilian Central Bank, the Brazilian Geography and Statistics Institute IBGE and CETIP.
Rates and Prices
Our operational results are significantly affected by changes in the prices at which our generation business sells energy, and by the prices at which our distribution business buys and resells energy.
Our generation business sells energy at unregulated prices in the regulated market, in the Free Market and in the Spot Market. Our generation business allocates the amount of energy that it sells in each of these markets seeking to maximize returns, based on factors such as: (i) the requirements of its concession contracts, many of which set a minimum percentage of energy generated in a particular concession that must be sold in the regulated market; (ii) the volume of energy that we plan to sell to Free Customers for a given year; and (iii) the outlook of the short-term, medium-term and long-term for energy prices generally. Although sales in the Free Market and the Spot Market are not directly regulated, they are influenced by energy regulatory policy. The prices at which our generation business sells energy are not regulated.
Our distribution business purchases enough energy to meet 100% of the demand we forecast for our Final Customers in auctions at unregulated prices in the regulated market. Our distribution business resells that energy to Final Customers at regulated tariffs that take into consideration the price at which the energy was purchased. If our forecasts fall short of the actual electricity demand of our Final Customers, we may be forced to make up for the shortfall by entering into short-term agreements to purchase electricity in the Spot Market. If our forecasts exceed the actual demand of our Final Customers, our distribution business sells the excess energy in the Spot Market. The margins in our distribution business tend to be relatively stable due to the regulated nature of the distribution business, while the margins in our generation business are typically larger but less stable, since they are not substantially market regulated.
Sales to Final Customers (which include sales by our distribution business to Captive Customers, sales by our generation business and sales by our trading business to Free Customers) represented approximately 50.7%of the volume of electricity we made available in 2020, and accounted for 68.7%of our energy sales revenues. Almost all of such sales were to Captive Customers. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry—Distribution Tariffs”. In general, if our costs for energy increase, the tariff process permits us to recover these costs from our customers through higher rates in future periods. However, if we do not receive tariff increases to cover our costs, if the recovery of these costs is delayed, or if our Board of Directors elects to reduce the tariff increase awarded by ANEEL, our profits and cash flows may be adversely affected.
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ANEEL modifies our Retail Tariffs annually, generally in June. Since January 2013, the adjustments have been as follows.
| · | In January 2013, due to the enactment of 2013 Concession Renewal Law, we were subject to an extraordinary revision that has been approved by ANEEL. The average impact of this extraordinary review in the tariffs we charge our customers was a decrease of 19.28%. |
| · | In June 2013, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 13.08%, of which 11.40% related to the tariff increase and 1.68% referred to an increase in recovery of deferred regulatory accounts (CVA). After giving effect to the recovery of Parcel A costs, the average effect of this tariff readjustment on our Captive Customers was an increase of 14.61%. However, Copel Distribuição requested a partial deferral of this adjustment, which was authorized by ANEEL and approved on July 9, 2013. The amount of R$255.9 million was therefore deferred, and included as a financial component in the 2014 annual revision. This deferral reduced the average effect of the tariff adjustment to 9.55%. |
| · | In June 2014, ANEEL approved the annual adjustment of our Retail Tariffs, increasing them by an average of 35.38%, of which 25.05% related to the tariff increase and 10.34% related to an increase in recovery of deferred regulatory accounts (CVA). After giving effect to the recovery of Parcel A costs, the average effect of this tariff adjustment on our Captive Customers was an increase of 39.71%. However, Copel Distribuição requested a partial deferral of this adjustment, which was authorized by ANEEL and approved on July 22, 2014. The amount of R$898.3 million was therefore deferred and included as a financial component in the 2015 annual readjustment. This deferral reduced the average effect of the tariff revision to 24.86%. |
| · | In March 2015, ANEEL approved an extraordinary revision due to a series of events that significantly impacted the distribution concessionaires’ costs, which were not originally foreseen in the 2014 Retail Tariff increase, such as the increase of Itaipu tariffs (46.14%) and higher prices to purchase energy in recent energy auctions. Copel Distribuição’s Average Tariff revision approved by ANEEL was 36.79% starting from March 2, 2015. Of this total, 22.14% related to CDE charges that have been passed to customers and 14.65% relates to (i) Itaipu’s tariff increase and (ii) the higher prices paid by us to purchase energy in recent energy auctions that have been passed to customers. |
| · | In June 2015, ANEEL authorized the annual revision of Copel Distribuição’s tariff to Final Customers, increasing them by an average of 15.32%, of which (i) 20.58% related to the inclusion of the financial components, which will be recovered in the 12 months subsequent to the adjustment (including the amount of R$935.3 million corresponding to the deferrals in 2013 and 2014), (ii) 0.34% related to the restatement of Portion B, (iii) (3.25)% related to the adjustment of Portion A, and (iv) (2.35)% reflected the removal of the financial components from the previous process. The adjustment was fully applied to Copel Distribuição’s tariffs as of June 24, 2015. |
| · | In June 2016, ANEEL approved the fourth periodic review of our Retail Tariffs, decreasing them by 12.87%, of which: (1.73)% related to the inclusion of financial components; 4.48% due to the update of Portion B; (2.57)% related to the update of Portion A; and (13.05)% reflecting the removal of the financial components of the previous tariff process. |
| · | In March 2017, ANEEL approved an extraordinary tariff revision to correct the amount unduly included in the tariffs for captive consumers in 2016. The return corresponded to the energy that was to be generated by the Angra III power plant; however, the plant was not yet in commercial operation. The refund of the amount charged the most was made in a single installment during the month of April 2017, and, as of May 2017, the tariffs were adjusted to disregard the amount that was being charged. The decision, of extraordinary character, affected 90 distributors of electric power of the country. Copel’s retail tariff was reduced by an average of 11.8% during April 2017, and in May 2017, the tariff was close to its previous value, retaining an average discount of 1.27% until June 2017. |
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| · | In June 2017, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 3.13%, of which 3.86% related to the tariff increase and (0.73)% related to the inclusion of financial components. After the removal of the financial components of the previous tariff process, the average effect of this tariff adjustment on our Customers was an increase of 5.85%. |
| · | In June 2018, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 14.32%, of which 7.80% related to the tariff increase and 6.52% related to the inclusion of financial components. After the removal of the financial components of the previous tariff process, the average effect of this tariff adjustment on our Customers was an increase of 15.99%. |
| · | In June 2019, ANEEL approved the annual readjustment of our Tariffs, increasing them on average by 8.57%, with -1.96% related to the variation in economic revenue and 10.54% related to the inclusion of financial components. After removing the financial components from the previous tariff process, the average effect of the tariff adjustment on our consumers was an increase by 3.41%. |
| · | In June 2020, ANEEL approved the annual readjustment of our supply tariffs, which represented a tariff repositioning index of 15.84%, comprised of a variation of 8.68% in the economic components and 7.16% in the financial components. After removing the effect of the financial variables from the previous tariff process, the average effect perceived by the customers would be 5.39%. However, in an aim to reduce the impact on electric bills due to the financial consequences of the COVID-19 pandemic, ANEEL created the COVID-19 Fund, a loan operation between various banks contracted by the CCEE in order to dilute tariff increases in the next five years. Thus, Copel Distribution asked that the effects the COVID-19 Fund be applied to our annual tariff readjustment in the amount of R$536 million, equivalent to the accumulated total of the Compensation Account for the Variation of Items of Parcel A (CVA), considered a negative financial component, ultimately reducing the effect on the consumer. With the removal of the previous year’s financial components, the final average effect perceived by the consumer was 0.41%. |
Purchase and Resale of Energy
Our distribution business purchases energy from generation companies and resells this energy to Final Customers at regulated rates. For more information, see “Item 4. Information on the Company— Business—Generation” and “Item 4. Information on the Company—Business—Purchases for the captive market”. Our major long-term contracts or purchase obligations are described as follows.
| · | We purchase energy from Itaipu at prices that are determined based on the Itaipu project’s costs, including servicing its U.S. dollar-denominated debt. In 2020, our electricity purchases from Itaipu amounted to R$1,766.0 million; |
| · | Our distribution business is required to purchase a large portion of its energy needs from the regulated market. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power—Industry—Concessions—Auctions in the Regulated Market”. |
Under current legislation, the amount that our distribution business charges Final Customers is composed of two fees: a fee for the actual energy consumed and a fee for the use of our distribution grid. Since the regulated rates at which our distribution business sells energy to Final Customers are substantially the same as the rates at which it purchases energy (after accounting for deductions and the cost of energy purchased for resale), our distribution business does not generate operating profit from the sale of electricity to Final Customers. Rather, our distribution business generates operating profit principally by collecting tariffs for the use of our distribution grid.
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Impact of the CRC Account
One of our most significant assets consists of the obligations of the State of Paraná under an agreement that was last amended in October 2017. These obligations derive from amounts we were entitled to recover under a prior regulatory regime, and as a result they are referred to as the recoverable rate deficit account or “CRC Account” (Conta de Resultados a Compensar). The balance is adjusted for IGP-DI, plus interest at 6.65% per year, and is payable in monthly installments until April 2025. If the State of Paraná fails to make payments on a timely basis, we may apply dividends we owe to the State of Paraná in its capacity as our shareholder against amounts it owes us under the CRC Account agreement.
In June 2016, as per the request of the Paraná State Government, our Board of Directors approved an amendment to the CRC Agreement, contingent upon the approval of the Brazilian Department of Treasury, comprising: (i) a grace period from April 2016 to December 2016, in which no principal and interest amounts were paid under the CRC Agreement; and (ii) a grace period from January 2017 to December 2017, in which amounts corresponding exclusively to the interest were paid monthly, but no principal amounts were paid. All other provisions of the CRC Agreement were maintained as they were, including the maintenance of the current correction and interest rates, thus not affecting the global net present value of such agreement.
The Company and the State of Paraná formalized the above-mentioned amendment on October 31, 2017, after the consent from the Brazilian Department of Treasury. The State of Paraná complied with the agreed terms of such amendment and made monthly interest payments until December 2018. As of December 31, 2020, the outstanding balance of the CRC Account was R$1,392.6 million.
As of January 1, 2021, there were 52 monthly installments left. For additional information, see Note 8 to our audited consolidated financial statements.
Special Obligations
The contributions received from the Brazilian government and our customers exclusively for investment in our generation assets, transmission and distribution grid are named as special obligations. We record the amount of these contributions on our statement of financial position as a reduction of our intangible and financial assets, under the caption “special obligations”, and, upon the conclusion or termination of the operating concession granted to us, the amount of these contributions is offset against intangible and financial assets. The amount we recorded as special obligations as of December 31, 2020 was R$2,750.1 million as a reduction of intangible assets and R$29.8million as a reduction of contract assets.
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In preparing our financial statements, we make estimates concerning a variety of matters as referred to in Note 3.4 to our audited consolidated financial statements. Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us. We have discussed in “Overview” above certain accounting policies relating to regulatory matters. In the discussion below, we have identified several other matters for which our financial information would be materially affected if either (i) we reasonably used different estimates or (ii) in the future we change our estimates in response to changes that are reasonably likely to occur.
The discussion below addresse only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation. Please see Note 3.4 to our audited consolidated financial statements included herein for a more detailed discussion of the application of these and other accounting policies.
Basis of consolidation
Investments in joint ventures and associations are recognized in the consolidated financial statements based on the equity method and the financial statements of the subsidiaries are included in the consolidated financial statements as from the date they start to be controlled by us until the date such control ceases. Noncontrolling interests are presented in equity, separately from the equity attributable to our shareholders. When required, for calculation of equity in earnings, the investees' financial statements are adjusted to align their policies with our accounting policies.
The analysis of the acquisition of new equity interests is done on a case-by-case basis to determine whether the transaction represents a business combination or an asset purchase and the values of the business combination are recorded using estimates mainly in the definition of the fair value of the acquired equity interest. Transactions between companies under common control do not constitute a business combination. There was no relevant business combination this year.
Financial Instruments
Financial instruments are recognized immediately when the obligation or right arises, at fair value, unless it is a trade receivable without a significant financing component, plus, for an item not measured at fair value through profit or loss, any directly attributable transaction costs. Fair values are determined based on market prices for financial instruments with active market, and by the present value method of expected cash flows, for those that have no quotation available in the market. Please see Notes 4.2 and 35 to our audited consolidated financial statements for more detail about our financial instruments.
Net Sectorial Financial Assets and Liabilities
The amendment to our distribution concession agreement, executed on 2014, provides that, in the event of termination of the concession for any reason, the residual values of Portion A items and other financial components not recovered or returned through tariff are incorporated in the calculation of compensation or deducted from unamortized assets indemnity values. Therefore, we recognize sectorial financial assets and liabilities, considering that the contract protects the concessionaire's right or obligation with the Granting Authority regarding these assets and liabilities.
The balances of the net sectorial financial assets and liabilities, evaluated based on the Company's estimates, comprise: a) Portion A Variation Compensation Account - CVA, which records the variation between estimated and actual energy purchase and transmission costs and sector charges, and b) financial items, which correspond to energy over-contracting, neutrality of charges and other rights and obligations included in the tariff. The final values, included in the tariff, are defined by Aneel. During the year this group of accounts had an impact due to the effects of the Covid Account, as presented in Notes 1 (a) and 9 of our consolidated financial statements.
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Accounting for Concession Arrangements – Accounts receivable related to the concession, Contract Assets, Intangible Assets and Accounts payable related to the concession
We account for our concession contracts segregated in: Accounts receivable related to the concession, Contract Assets and Intangible Assets, as presented in Notes 4.4, 4.5 and 4.9 to our audited consolidated financial statements. In addition, accounts payable related to the concession are recorded, as presented in Note 4.6 to our audited consolidated financial statements. Estimates and judgments in the valuation of these items are relevant and may cause significant impacts, in view of the representativeness of these balances in our consolidated financial statements.
Concession of electric power distribution
The portion that we recognize as a financial asset refers to the indemnification provided for in the concession agreement for public electricity distribution services that guarantees the unconditional right to receive cash at the end of the concession, to be paid by the granting authority. This indemnification aims to reimburse the Company for investments made in infrastructure, without recovery, through the tariff. We calculate the cash flows linked to these assets considering the value of the tariff base called the Regulatory Remuneration Base - BRR, defined by the granting authority, using the methodology of replacement cost of the assets that are part of the distribution infrastructure linked to the concession.
The portion that we recognize as contract asset represents the contractual right of the concessionaire related to the works under construction to meet the needs of the distribution concession, accounted for at cost plus financial charges, when applicable. When these assets are put into operation, we transfer to the intangible asset the amount equivalent to what will be remunerated by the user through payment of the fee for the use of the services, and for the receivables linked to the concession, the amount equivalent to the residual portion of the assets not amortized which will be reverted to the granting authority through indemnification at the end of the concession.
The portion that we recognize as an intangible asset comprises the right to exploit the infrastructure, built or acquired under the concession regime for the public electric power service, and to charge users for the public service rendered. We record at acquisition cost, including borrowing costs, less accumulated amortization and impairment losses, when applicable. The amortization of this intangible asset reflects the pattern in which we expect the future economic benefits of the asset to be consumed, with amortization expected during the concession term.
Concession of electric power transmission
The portion that we recognize as a contract asset represents the balance of the public electricity transmission service contracts signed with the granting authority to build, operate and maintain the high voltage lines and substations of the generation centers up to the distribution points. During the term of the agreement, we receive, subject to performance, a remuneration denominated Annual Revenue Allowance (RAP) that amortizes the investments made in the construction of the infrastructure and covers the costs of operation and maintenance incurred. After the start of the commercial operation and to the extent that the operation and maintenance service - O&M is provided, the portion of RAP referring to O&M revenue is recognized in profit or loss at fair value, on a monthly basis, and billed together with the revenue part recognized in the construction phase, referring to the remuneration of the built-up assets. This amount billed after complying with the O&M performance is reclassified to the financial asset under Customers until its effective receipt. The revenue in the construction phase is estimated at fair value based on the budgeted cost of the work and used by management as a parameter for bidding on the concession auction. Fair value revenue comprises the budgeted cost for the entire construction period plus the construction margin, which represents sufficient profit to cover the costs of managing and monitoring the work. The remuneration rate of each concession is determined by the projection of the expected cost, of the profit margin on the cost in the construction phase and also of the projection of the RAP to be received in the operational stage, already net of the variable consideration estimate (PV) and the RAP part of the O&M performance. This fair value valuation technique using the income approach discounts cash flow for the entire concession period, determining at initial recognition the implied rate that zeroes the flow over time. This remuneration rate is fixed at the initial period and does not change during the performance of the contract and represents the market rate in effect at the time under the conditions of the negotiation between parties.
The assets arising from the construction of the transmission infrastructure are formed by the recognition of the construction revenue and its financial remuneration. We recognize gains and losses due to efficiency or inefficiency in the construction of the infrastructure and due to periodic tariff review (RTP), when incurred, directly in the statement of income for the year. Upon expiration of the concession, if there is a remaining balance not yet received related to the construction of the infrastructure, it will be received directly from the granting authority, as provided in the concession agreement, as compensation for the investments made and not recovered through RAP.
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We have not recognized intangible assets for energy transmission concession contracts.
Concession of electric power generation
We recognize as a financial asset the concession agreement for quota generation that provides for the payment of a bonus for the grant, considering that this bonus represents an unconditional right to receive cash, guaranteed by the granting authority during the term of the concession and without risk of demand. The remuneration of this financial asset is based on the weighted average cost of capital (WACC).
We also recognize as financial assets the electricity generation concession contracts that contain clauses for indemnification of the infrastructure not depreciated, amortized and / or received during the term of the concession. At the end of each reporting period, we evaluate the recoverability of the asset, remeasuring its cash flow based on our best estimate.
In intangible assets, we record the onerous concession contract for the generation of electric energy, which corresponds to the acquisition of the right to exploit the hydroelectric power generation potential whose contract provides for payments to the Brazilian government as Use of Public Property - UBP. During the construction of the project, we recognize the amount at the present value of the future cash outflows during the period of validity of the concession agreement. On the date of commencement of the commercial operation of the enterprise, the amount presented is fixed and amortized during the concession period.
We also recognize as an intangible asset the asset constituted by the Generation Scaling Factor (GSF), derived from the excess amount between the amount recovered from the cost and the MRE (GSF) adjustment factor, subtracted from the total cost of the risk premium to be amortized over the period of energy supply in the regulated environment. The amount was transformed by ANEEL into an extension of the grant period, which we amortized on a straight-line basis as from January 1, 2016 until the end of the new concession term.
We did not recognize a contract asset for the power generation concession contracts
Distribution of piped gas
The portion that we recognize as a financial asset is the one that will be indemnified by the granting authority corresponding to the investments made in the ten years prior to the end of the concession provided for in the agreement and which, in Management's opinion, guarantees the unconditional right to receive cash at the end of the concession. We use the indemnification premise based on the replacement cost of the concession assets.
The portion that we recognize as a contract asset comprises the works in progress for the distribution of piped gas which will be transferred to the intangible asset upon its entry into operation and to the extent that the right (authorization) to receive the users is received and the portion that we recognize as an intangible asset corresponds to the users' right to charge for the gas supply. We initially valued this asset at acquisition cost, including interest and other capitalized financial charges. We apply the linear depreciation method based on the estimated useful life of each asset, considering the standard of economic benefit generated by the intangible assets.
Accounts payable related to the concession
We record the amounts set forth in the concession agreement in connection with the right to explore hydraulic power generation potential (onerous concession), whose agreement is signed as Use of Public Property agreements. The obligation is recognized on the date of signature of the concession agreement corresponding to the present value of future cash payments for the concession and, from the on, we remeasure the liability using the effective interest rate and reduced by contractual payments.
Inventories (including property, plant and equipment and contract assets)
We recognize materials and supplies in inventory, classified under current assets, and those assigned for investments, classified under property, plant and equipment, and contract assets, at their average acquisition cost and the amounts do not exceed their net realizable value. We have no impairment recorded in the inventory.
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Property, Plant and Equipment
We have adopted the deemed cost methodology to determine the fair value of Copel Geração e Transmissão’s property, plant and equipment, specifically for the generation business as of the date of transition of our financial statements to IFRS (January 1, 2009). These assets are depreciated according to the linear method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful life of the assets related to concession’s infrastructure, limited to the term of said concession, when applicable. The estimated useful life, the residual amounts, and depreciation are reviewed as of each reporting date, and the effect of any changes in estimates is recorded prospectively, which may have a material impact.to our consolidated financial statements, considering the representativeness of the balance of Property, Plant and Equipment in the total assets of the Company. The assumptions and estimates of impairment of these assets are dealt with in the next item.
Impairment of Assets
Financial assets
Our provisions for losses on financial assets are based on assumptions about default risk, existing market conditions and future estimates at the end of each year.
We estimate the expected credit losses in amounts deemed sufficient to cover potential losses on the realization of customer receivables and others whose recovery is considered unlikely. We account for the balance of expected credit losses based on the credit risk analysis, taking into account specific payment history criteria, recovery actions for credit recovery and the relevance of the amount due in the receivables portfolio. See Notes 4.10.1 and 7.3 to our consolidated financial statements for further details. During this year, this account had impacts due to the coronavirus pandemic, as described in note 1 (a) of our consolidated financial statements.
Non-financial assets
Non-financial assets, primarily property, plants and equipment assets, comprise a significant amount of our total assets. We evaluate our long-lived assets and make judgments and estimates concerning the carrying value of these assets, including the amounts to be capitalized, the depreciation/ amortization rates and useful lives of these long-lived assets. The carrying values of these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This requires us to make long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts require assumptions about the demand for our products and services, future market conditions and regulatory developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. Please see Notes 4.10.2 and 17.5 to our audited consolidated financial statements for more detail.
Provisions
Our subsidiaries and we are party to certain legal proceedings in Brazil arising in the normal course of business regarding tax, labor, civil and environmental claims.
Provisions are recognized when, and only when: (i) the Company has a present obligation (legal or constructive) resulting from a past event, (ii) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount to settle the obligation. By their nature, risks will only be resolved when a future event or events occur or fail to occur. Typically, such events will occur a number of years in the future. The evaluation of these risks is performed by our internal and external legal counsel. Accounting for risks requires significant judgment by management concerning the estimated probabilities, including classification as probable or possible losses and ranges of exposure to potential liability. Management’s assessment of our exposure to risks could change as new developments occur or more information becomes available. The outcome of the risks could vary significantly and could materially impact our consolidated results of operations, cash flows and financial position. For more information, see Note 29 to our audited consolidated financial statements.
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Revenue Recognition
Revenue from contracts with customers is measured based on the consideration that we expect to receive in a contract with the customer, net of any variable consideration. We recognize revenues when we transfer control of the product or service to the customer and when it is probable to receive the consideration considering the client's ability and intention to pay the consideration when due. We record unbilled revenue, by estimate, when there is no information on the effective revenue incurred.
Interest income is recognized on a straight-line basis and based on time and the effective interest rate on outstanding principal amounts, when it is probable that future economic benefits will flow to us and its amount can be reliably measured.
Revenue related to construction services for infrastructure in the power transmission and distribution services, and gas distribution, are recognized using the percentage of completion method.
Significant changes in the assumptions used for valuing revenue may have a material impact on the Company's results. Additional information is contained in Notes 4.12 and 4.13 to our audited consolidated financial statements.
Construction revenues and costs
We recognize construction revenues and construction costs for construction activities we perform in connection with our distribution and transmission concessions. Our distribution business outsources power distribution infrastructure construction and recognize construction costs and revenues in roughly the same amounts. In contrast, since our transmission business performs much of our transmission infrastructure construction, we recognize construction revenue in amounts that exceed construction costs, resulting in a margin that is calculated based on a methodology that takes into account business risk. Changes in the assumptions to define the construction margin may cause impacts to the consolidated financial statements.
Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamber - CCEE
We record power purchase and sale transactions in CCEE on the accrual basis of accounting, based on data released by CCEE, which are calculated by the product of the Differences Settlement Prices - PLD multiplied by the energy surplus declared with CCEE, or, when such information is not available in a timely manner, by an estimate prepared by our Management.
Derivative Financial Instruments
We negotiate energy purchase and sale operations and part of our contracts are classified as derivative financial instruments measured at fair value through profit or loss. We recognize in the income for the period unrealized net gains or losses arising from the mark-to-market of these contracts, based on the difference between contracted and market prices.
In addition, we enter into non-deliverable forward contracts, which aim exclusively at providing hedge against exchange rate risks associated with cash flows from capital contributions to subsidiaries, when they reflect foreign-currency denominated purchases of projected equipment. They are measured at their fair value, with changes recorded in the statement of income for the year. The fair value is calculated based on the information of each contracted operation and the respective market information on the closing dates of the financial statements.
Changes in the energy futures price curve and and foreign currency, as well changes in the assumptions for calculating the fair value of these derivatives may have a material impact to the Company’s results. For more information, see Notes 35.2.3 (b) and 35.2.12 to our audited consolidated financial statements.
Taxes
We record Income Tax and Social Contribution and other taxes recoverable and other tax obligations based on applicable law, as described in Note 4.16 to our audited consolidated financial statements.
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We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using prevailing rates. We regularly review our deferred tax assets for recoverability based on its profitability history and the expectation of generating future taxable profits, based on its internal projections prepared for reasonable periods for its business. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to derecognize all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results. Additional information is contained in Notes 4.16.2 and 13.1 to our consolidated financial statements.
Post-employment benefits
We sponsor a (i) defined-benefit pension plan and a (ii) variable contribution pension plan covering substantially all of our employees. We have also established a health care plan for current and retired employees. We determine our obligations for these plans based on calculations performed by independent actuaries using assumptions that we provide about interest rates, investment returns, rates of inflation, mortality rates and future employment levels (see the assumptions and other information about de actuarial valuation in Note 23.5 of our consolidated financial statements). These assumptions directly affect our post-employment benefits liability and any changes may have a significant impact, considering the relevance of the Post-employment benefits amounts in the Company's liabilities.
Leases
We recognize leases at present
value as a right-of-use asset and lease liability and, from the initial registration, we record the amortization of the asset and interest
on the liability for separately in profit or loss. We use judgments in adopting exemptions from recognition provided for short-term leases
(lease term of up to 12 months) and leases of low value assets, so that we record these contracts as operating costs or operating expenses
on a straight-line basis during the term of the contract. To estimate the interest rate, we consider the cost of the last fundraising
carried out via debentures, disregarding incentivized or subsidized funding. For more information, see Notes 4.18 and 27 to our consolidated
financial statements.
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ANALYSIS OF ELECTRICITY SALES AND COST OF ELECTRICITY PURCHASED
The following table sets forth the volume and Average Rate components of electricity sales and purchases for the years ended December 31, 2020, 2019 and 2018:
|
Year ended December 31, | |||
|
2020 |
2019 |
2018 | |
| Electricity Sales | |||
| Sales to Final Customers | |||
| Average price (R$/MWh):(1) | |||
| Industrial customers(2) | 233.19 | 284.03 | 292.71 |
| Residential customers | 744.34 | 789.75 | 745.77 |
| Commercial customers | 686.18 | 743.25 | 711.64 |
| Rural customers | 474.13 | 465.30 | 408.71 |
| Other customers(3) | 557.91 | 582.91 | 551.84 |
| All customers(2) | 512.52 | 561.27 | 537.51 |
| Volume (GWh): | |||
| Industrial customers(2) | 9,623 | 9,000 | 8,641 |
| Residential customers | 7,910 | 7,499 | 7,238 |
| Commercial customers | 4,852 | 5,238 | 4,979 |
| Rural customers | 2,451 | 2,361 | 2,288 |
| Other customers(3) | 2,333 | 2,546 | 2,481 |
| All customers(2) | 27,169 | 26,644 | 25,627 |
| Total revenues from sales to Final Customers (millions of R$) | 13,925 | 14,954 | 13,775 |
| Sales to distributors(4) | |||
| Average price (R$/MWh)(1) | 258,34 | 213,57 | 241,62 |
| Volume (GWh) (5) | 16,765 | 15,456 | 12,979 |
| Total revenues (millions of R$) | 4,331 | 3,301 | 3,136 |
| Electricity Purchases | |||
| Purchases from Itaipu | |||
| Average cost (R$/MWh)(6) | 321.23 | 237.4 | 222.18 |
| Volume (GWh) | 5,498 | 5,533 | 5,726 |
| Percentage of total Itaipu production purchased | 9.2 | 8.7 | 7.1 |
| Total cost (millions of R$)(7) | 1,766.1 | 1,316.5 | 1,272.2 |
| Purchases from Angra | |||
| Average cost (R$/MWh) | 277,69 | 253,58 | 248.07 |
| Volume (GWh) | 0,968 | 0,978 | 1,009 |
| Total cost (millions of R$)(7) | 268.8 | 248.0 | 250.3 |
| Purchases from CCGF | |||
| Average cost (R$/MWh) | 109.18 | 102.28 | 90.92 |
| Volume (GWh) | 6,136 | 6,274 | 6,520 |
| Total cost (millions of R$)(7) | 669.9 | 641.7 | 592.8 |
| Purchases from others(4) | |||
| Average cost (R$/MWh) | 213.77 | 185.27 | 237.41 |
| Volume (GWh) | 19,295 | 21,045 | 17,884 |
| Total cost (millions of R$)(7) | 4,125 | 3,899 | 4,246 |
___________________
(1) Average prices or costs have been computed by dividing (i) the corresponding revenues or expenses by (ii) MWh of electricity sold or purchased.
(2) Includes Free Customers outside Paraná.
(3) Includes public services such as street lighting, as well as the supply of electricity to government agencies, and our own consumption.
(4) Energy traded between Copel’s subsidiaries not included.
(5) Energy Reallocation Mechanism not included.
(6) Our purchases of electricity generated by Itaipu are stated in reais and paid for on the basis of a capacity charge expressed in U.S. dollars per kW plus a “wheeling” (or transportation) charge expressed in reais per kWh.
(7) See “Item 4. Information on the Company—Business—Generation” and “Item 4. Information on the Company—Business— Purchases for the captive market” for an explanation of our expenses relating to electricity purchases.
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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
The following table summarizes our results of operations for the years ended December 31, 2020, 2019 and 2018.
Our consolidated financial statements present our revenue at net value and our operating costs of sales and services provided by function. However, in accordance with IFRS, Note 31 and 32 of our audited consolidated financial statements presents this information according to the nature of the revenue, operating cost or expense. For ease of understanding, the analysis below reflects the information presented by nature.
We highlight that, with the Copel Telecom divestment process approved during the year 2020, we classified the results of this subsidiary as discontinued operations and, for comparability, we restated the balances for 2019 and 2018. Additional information on the divestment process and about the amounts considered as a discontinued operation can be found in Note 40 to our consolidated financial statements.
Besides, in 2020, the economy and our business were affected by COVID-19. Therefore, there was a reduction in electric energy demand in the regulated market, which was affected more intensely in the industrial and commercial consumption classes in the Distribution Company. However, the residential class registered a growth of 5.5% in the year, mainly influenced by measures of social distancing and isolation.
The effects of the pandemic impacted the expected credit losses at Copel, especially in the first semester, due to imposed restrictions, such as the prohibition to cut the energy supply from those defaulter customers. On the other hand, in the second semester, there were lower impacts, due to less restrictions, the recovery of economic activity and the possibility of cutting the energy supply from non-paying customers.
Economic effects of the pandemic on the assumptions of the Company's relevant non-financial assets were individually assessed and concluded, by Management, that it was necessary to adjust the impairment value for some assets. The most significant adjustment occurred at UEG Araucária, considering that its cash flow estimates are affected by the decrease in energy demand in the country, whereas on the other projects there were impairment reversals.
But, despite of the impacts of energy consumption, credit losses and impairmnets, the results of our operation were not materially affected. Further information in Notes 1(a) of our consolidated financial statements,
|
Year ended December 31, | |||
|
2020 |
2019 restated |
2018 restated | |
| (R$ million) | |||
| Net Operating Revenues: | |||
| Electricity sales to Final Customers: | 9,524.9 | 10,481.7 | 10,104.0 |
| Residential | 3,098.9 | 3,336.4 | 3,175.3 |
| Industrial | 970.6 | 1,276.1 | 1,419.2 |
| Commercial, services and other activities | 1,701.2 | 2,179.5 | 2,136.1 |
| Rural | 613.4 | 631.5 | 572.3 |
| Other classes | 3,140.7 | 3,058.2 | 2,801.1 |
| Electricity sales to distributors | 4,331.0 | 3,301.3 | 3,136.2 |
| Use of main distribution and transmission grid | 8,780.6 | 8,271.0 | 6,867.3 |
| Residential | 2,788.7 | 2,585.9 | 2,222.6 |
| Industrial | 1,273.3 | 1,280.2 | 1,110.1 |
| Commercial, services and other activities | 1,628.1 | 1,713.6 | 1,407.2 |
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| Rural | 548.7 | 467.0 | 362.8 |
| Other classes | 582.3 | 597.9 | 511.5 |
| Free consumers | 1,164.0 | 1,052.5 | 795.1 |
| Concessionaires and generators | 61.7 | 62.4 | 80.3 |
| Operating and maintenance income - O&M and interest income | 733.7 | 511.4 | 377.7 |
| Construction revenues | 1,414.1 | 1,132.9 | 1,097.3 |
| Revenues from telecommunications | - | - | - |
| Distribution of piped gas | 679.3 | 1,003.8 | 753.2 |
| Sectorial financial assets and liabilities result | 746.1 | 25.1 | 985.3 |
| Other operating revenues | 406.5 | 438.9 | 199.8 |
| Fair value of assets from the indemnity for the concession | 57.3 | 36.6 | 47.5 |
| (-) Revenue deductions | (7,306.5) | (8,822.1) | (8,640.3) |
| 18,633.2 | 15,869.2 | 14,550.5 | |
| Cost of sales and services provided: | |||
| Electricity purchased for resale | (6,829.5) | (6,105.3) | (6,361.2) |
| Charge of main distribution and transmission grid | (1,525.6) | (1,249.3) | (1,176.8) |
| Personnel and management | (1,601.9) | (1,325.4) | (1,357.8) |
| Pension and healthcare plans | (228.6) | (238.3) | (243.8) |
| Material and supplies | (72.7) | (80.2) | (80.0) |
| Materials and supplies for power electricity | (404.5) | (49.4) | (19.7) |
| Natural gas and supplies for gas business | (354.7) | (585.2) | (412.6) |
| Third-party services | (558.0) | (526.0) | (481.1) |
| Depreciation and amortization | (1,009.9) | (950.7) | (696.3) |
| Accruals and provisions | (237.3) | (260.1) | (281.1) |
| Construction cost | (1,417.5) | (1,091.4) | (1,052.2) |
| Other costs and expenses | (333.3) | (212.5) | (272.6) |
| (14,573.5) | (12,673.7) | (12,435.1) | |
| Equity in earnings of associates and joint ventures | 193.5 | 106.8 | 135.9 |
| Financial results | 866.3 | (455.4) | (413.1) |
| Profit before income tax and social contribution | 5,119.5 | 2,846.9 | 1,838.0 |
| Income tax and social contribution on profit | (1,285.4) | (675.6) | (471.2) |
| Net income from continuing operations | 3,834.2 | 2,171.3 | 1,366.9 |
| Net income (loss) from discontinued operations | 75.6 | (108.4) | 77.1 |
| Net income for the year | 3,909.7 | 2,062.9 | 1,444.0 |
| Net income attributable to controlling shareholders | 3,904.2 | 1,989.9 | 1,407.1 |
| Net income attributable to non-controlling interest | 5.5 | 72.9 | 36.9 |
| Other comprehensive income | (179.2) | 123.2 | 38.4 |
| Comprehensive income | 3,730.6 | 1,939.7 | 1,405.6 |
| Comprehensive income attributable to controlling shareholders | 3,725.2 | 1,862.5 | 1,368.5 |
| Comprehensive income attributable to non-controlling interest | 5.3 | 77.2 | 37.0 |
Results of Operations for 2020 Compared with 2019
Operating Revenues
Our consolidated net operating revenues increased by 17.4% or R$2,764.0 million in 2020 compared to 2019. This result reflected, mainly, an increase of R$1,029.7 million in electricity sales to distributors and of R$721.0 million in sectorial financial assets and liabilities, partially offset by a decrease of R$956.8 million in electricity sales to Final Customers. In addition, there was an increase in the amount of recovery of Pis/Pasep and Cofins on ICMS, recorded within the revenue deductions. Below are the main reasons for variations in revenue accounts:
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Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers decreased by 9.1%, or R$956.8 million, , mainly due to a decrease of the average price per kilowatt hour sold to the final customers by Copel Distribuição and the effects of the economic downturn caused by the coronavirus pandemic, as follows:
| · | The revenue from electricity sold to residential customers decreased R$237.5 million in 2020 compared to 2019, also considering a reduction of 5.75% on the average price (R$/MWh) of the electricity sold during the same period, despite the increased volume compared to 2019. |
| · | The revenue from electricity sold to industrial customers decreased by 23.9%, or R$305.5 million, in 2020 compared to 2019, considering a reduction of 17.9% on the average price (R$/MWh)) and a decrease in volume (GWh) of electricity sold during the same period. |
| · | The revenue from electricity sold to commercial customers decreased by 21.9%, or R$478.3 million, in 2020 compared to 2019, considering a reduction of 7.7% on the average price (R$/MWh) and a decrease in volume (GWh) of electricity sold during the same period. |
| · | The revenue from electricity sold to rural customers decreased by 2.9%, or R$18.1 million, in 2020 compared to 2019. This decrease is mainly due to the reduction of consumers compared to 2019 and agribusiness performance in the State of Paraná during the COVID-19 pandemic. |
Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 31.2%, or R$1,029.7 million. This increase was mainly due to the increase in our revenues from energy sold through bilateral contracts by Copel Mercado Livre and contracts in the regulated environment, reflection of the TPP Araucária dispatch, which had not operated in 2019.
Use of main distribution and transmission grid. Our revenues from the use of main distribution and transmission grid increased by 6.2%, or R$509.6 million, mainly due the positive result of the periodic tariff review of the transmission contract 060/2001, the increase in remuneration on transmission assets, due to the growth of the IGPM / IPCA indexers, the growth in the grid market and the tariff readjustment of Copel Distribuição which corresponded to the Average Tariff effect being 1.13% for consumers connected in high voltage and 0.05% for consumers connected in low voltage. Besides that, there was an increase of 2.6% on the number of consumers compared to 2019.
Construction revenues. Our revenues from construction increased by 24.8%, or R$281.2 million, mainly due an intensification of construction efforts and improvement of the infrastructure of the distribution businesses.
Fair value of assets from the indemnity for the concession. The fair value of the assets from the indemnity for the concession increased by 56.6%, or R$20.7 million, mainly due to higher variation in the distribution concession agreement’s assets fair value.
Distribution of Piped Gas. Revenues from the distribution of piped gas decreased by 32.3%, or R$324.5 million, considering the impacts by the reduction in gas volume due to the Covid-19 pandemic, mainly in the industrial, commercial and vehicular segments.
Sectorial Financial Assets and Liabilities.. Increased by 2,877.4%, or R$721.0 million due to the higher value of net assets constituted in 2020, mainly due to the purchasing energy and charges for use of the network costs being higher than those considered in the calculation of the electricity tariff approved by Aneel for the annual tariff cycle ending in June 2021.
Other Operating Revenues. Other operating revenues decreased by 7.4%, or R$32.4 million, mainly reflecting the recognition of the fair value of the portfolio of energy purchase and sale contracts of Copel Mercado Livre referring to the variation of the contracted price in relation to the market price in an amount lower than that recorded in 2019.
Cost of sales and services provided
Our consolidated costs of sales and services provided increased by 15.0% or R$1,899.8 million. The main factors leading to such increase in our cost of sales and services provided are as follows:
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| · | Electricity Purchased for Resale. Our purchased energy costs for resale increased by 11.8%, or R$724.2 million, mainly due to an increase in the purchase of Energy in the Regulated Environment – CCEAR of energy from Itaipu Binacional by Copel Distribuição and from bilateral contracts to face the higher volume of energy sold on the free market in the period by Copel Mercado Livre. |
| · | Charge of Main Distribution and Transmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased 22.1%, or R$276.3 million mainly as a result of the increase in tariffs and charges for transmission infrastructure made available from 2020, in addition to the effect of the variation in costs related to dispatching thermal plants, with an impact on system service fees – ESS and increase in charges for the use of the system and in the reserve energy charge - EER, partially offset by the reduction in Itaipu's transportation charges. |
| · | Personnel and administrative expenses increased by 20.8%, or R$276.5 million, reflecting the increase in provision for performance and profit sharing and the salary readjustment in October 2020, higher than in 2019, partially offset by the reduction in the number of employees and cost reduction policy. |
| · | Material and Supplies for Power Electricity increased 719.6% or R$355.1 million as a result of Araucaria TPP dispatch in 2020. |
| · | Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases decreased 39.4%, or R$230.5 million, mainly due to lower acquisition volume for resale. |
| · | Third-Party Services. Expenses related to third party services increased by 6.1%, or R$32.0 million, , mainly due to increase in maintenance of the electrical system in Copel Distribuição, consulting and auditing and customer service. |
| · | Depreciation and Amortization. Depreciation and amortization increased by 6.2%, or R$59.2 million, as a result of the start of commercial operations during 2019 of the Colíder, Cutia and Baixo Iguaçu plants. In 2020, all plants depreciated a full year of use compared to prior period. |
| · | Accruals and Provisions. Accrual and provisions decreased by 8.8%, or R$22.8 million, mainly due a decrease of R$ 93.6 million in provisions for litigations, partially offset by an increase of R$ 72.6 million referred to generation segment impairment. |
| · | Construction Cost. Costs related to construction increased by 29.9%, or R$326.1 million, reflecting the investments made in the transmission, energy distribution and piped gas infrastructure. |
| · | Other Costs and Expenses.Other costs and expenses increased 56.8%, or R$120.8 million, mainly due to the repeal of the state law and, consequently, the registration of the water rate reversal in 2019, which is not recurring in 2020. |
Equity earnings of associates and joint ventures
Equity earnings of associates and joint ventures was R$193.5 million in 2020, an increase of 81.2%, compared to R$106.8 million in 2019. This variation is a result of an increase by 111.7% in equity earnings of joint ventures, mainly Mata de Santa Genebra, offset by a decrease of 21.4% in equity earnings of associates, mainly Foz do Chopim.
Financial Results
We recognized an increase of financial gains of 290.2%, or R$1,321.7 million mainly due to: (i) increase of R$906.1 million of recognition of tax credit; (ii) increase of R$149.2 million of interest and monetary variation of CRC transfer; (iii) increase of R$ 56.4 million of arrears charges on bills; and, (iv) decrease of R$246.3 of monetary and exchange variation and debt charges.
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Income Tax and Social Contribution Expenses
In 2020, our income tax and social contribution expenses was R$1,285.4 million, reflecting an effective tax rate of 25.1% in our pretax income, compared to R$675.6 million and an effective tax rate of 23.7% in our pretax profit in 2019.
Net income (loss) from discontinued operations
Due to the ongoing divestment process, as described in Note 40 to our Consolidated Financial Statements, the results of Copel Telecom operations were classified as discontinued operations. The R$183.9 increase in the results of discontinued operations is due to the fact that, in 2019, there was a process of revision of Copel Telecom's property, plant and equipament assets that resulted in significant amounts of impairment and write-offs recorded that year, not recurring in 2020.
Results of Operations for 2019 Compared with 2018
Operating Revenues
Our consolidated operating revenues increased by 9.1% or R$1,318.8 million in 2019 compared to 2018. This result reflected, mainly, an increase of R$1,403.7 million in the use of our main transmission grid, of R$377.7 million in electricity sales to Final Customers; of R$250.6 million in the distribution of piped gas; and of R$165.1 million in electricity sales to distributors, partially offset by a reduction of R$960.3 million in sectorial financial assets and liabilities. Below are the main reasons for variations in revenue accounts.
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 3.7%, or R$377.7 million, mainly due to an increase of 3.96% of total power consumption of our Final Customers mainly in Copel Distribuição, from 25,627 GWh in 2018 to 26,644 GWh in 2019, as follows:
| · | The volume of electricity sold to residential customers increased by 3.6% in 2019 compared to 2018, while there was an increase in the number of customers by 1.9%. |
| · | The volume of electricity sold to industrial customers, including both Captive Customers and Free Customers, increased by 3.9% in 2019 compared to 2018, mainly due to the growth of energy consumption of industrial customers in the Free Market, partially offset by the reduction of 1.5% in the number industrial customers in the captive market. |
| · | The volume of electricity sold to commercial customers, including both Captive Customers and Free Customers, increased by 5.2% in 2019 compared to 2018. The number of Captive customers increase by 1.6%, in 2019 compared to 2018. |
| · | The volume of electricity sold to rural customers increased by 3.2% in 2019 compared to 2018. This increase is mainly due to the performance of agribusiness in the State of Paraná. |
Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 5.3%, or R$165.1 million, mainly due to the increase in our revenues from electricity sold in regulated contracts, which increased by 121.8%, or R$469.1 million, to R$854.2 million in 2019 compared to R$385.1 million in 2018.
Use of main distribution and transmission grid. Our revenues from the use of main distribution and transmission grid increased by 20.4%, or R$1,403.8 million, mainly due the 3.3% growth in the grid market and the tariff readjustment of Copel Distribuição (with an increase of 16.42% and 11.63% in TUSD as of June 24, 2018 and June 24, 2019, respectively), and the entry into operation of new transmission assets that increased.
Construction revenues. Our revenues construction increased by 3.2%, or R$35.6 million, mainly due to the intensification of construction efforts in 2019 with the objective of improving our distribution and transmission infrastructure.
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Fair value of assets from the indemnity for the concession. The fair value of the assets from the indemnity for the concession decreased by 22.9%, or R$10.9 million, mainly due to lower variation in the distribution concession agreement’s assets.
Distribution of Piped Gas. Revenues from the distribution of piped gas increased by 33.2%, or R$250.6 million, due to the tariff adjustment and improvement in the gas market.
Sectorial Financial Assets and Liabilities. Sectoral financial assets and liabilities decreased by 97.4%, or R$960.2 million, mainly due to the amortization of the amounts considered in the electricity sales to Final Customers after the Copel Distribuição’s tariff adjustment in June 2018 and the lower variation of balances created for the adjustment applied as of June 2019.
Other Operating Revenues. Other operating revenues increased by 119.7%, or R$239.1 million, mainly due to fair value in the purchases and sale of power revenues, and higher revenues from leases and rents.
Cost of sales and services provided
Our consolidated costs of sales and services provided increased by 1.9% or R$238.5 million. The main factors leading to such increase in our cost of sales and services provided are as follows:
| · | Electricity Purchased for Resale. Our purchased energy costs for resale decreased by 4%, or R$255.9 million, mainly due to a decrease in the cost of "electricity purchased for resale", due to the higher average settlement price (PLD). |
| · | Charge of Main Distribution and Transmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased 6.2%, or R$72.5 million, mainly as a result of the increase in tariffs and charges for transmission infrastructure made available for new generation projects from 2019, in addition to the effect of the variation in costs related to dispatching thermal plants, with an impact on system service fees - ESS. |
| · | Personnel and Management. Expenses decreased by 2.4%, or R$32.4 million, mainly due the decrease in costs reflects on employee reduction occurred in 2019, despite the increase in the provision for profit sharing (PLR) due to the improvement in our results. |
| · | Material and Supplies for Power Electricity. These expenses increased 150.1% or R$29.7 million, mainly as a result of the completion of Araucária TPP in 2019. |
| · | Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases increased 41.8%, or R$172.6 million, mainly due to growth in the market of Compagas and exchange variation. |
| · | Third-Party Services. Expenses increased by 9.3%, or R$44.9 million due to the variation of maintenance value of the electric system, communication, data processing and transmission and advisory and auditing services. |
| · | Depreciation and Amortization. Increased by 36.5%, or R$254.4 million, mainly due the costs with depreciation and amortization resulting from the start of commercial operation in 2019 at the Colíder, Cutia and Baixo Iguaçu plants. |
| · | Accruals and Provisions. Decreased by 7.5%, or R$21.1 million, mainly due to a reversal of generation segment impairment, partially offset by an increase in expected credit losses. |
| · | Construction Cost. Increased by 3.7%, or R$39.2 million, mainly reflecting investments in transmission, distribution and Compagas assets. |
| · | Other Costs and Expenses. Decreased 22.1%, or R$60.1 million, mainly due to lower losses in the decommissioning and disposal of assets in Copel Distribuição. |
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Equity earnings of associates and joint ventures
Equity earnings of associates and joint ventures was R$106.8 million in 2019, a decrease of 21.4%, compared to R$135.9 million in 2018, mainly due to a decrease in the profits of our associate entities and joint ventures.
Financial Results
We recognized an increase of financial losses of 10.2%, or R$42.2 million, mainly due a decrease by 8.5% in financial revenues (monetary variation on CRC onlendings, recognition of tax credits and other financial income).
Income Tax and Social Contribution Expenses
In 2019, our income tax and social contribution expenses was R$675.6 million, reflecting an effective tax rate of 23.7% in our pretax income, compared to R$471.2 million and an effective tax rate of 525.6% in our pretax profit in 2018.
Net income (loss) from discontinued operations
Due to the ongoing divestment process, as described in Note 40 to our Consolidated Financial Statements, the results of Copel Telecom operations were classified as discontinued operations. The R$185.5 decrease in the results of discontinued operations is due, mainly, to the process of revision of Copel Telecom's property, plant and equipament assets that resulted in significant amounts of impairment and write-offs recorded in 2019
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LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity and capital requirements are to finance the expansion and improvement of our distribution and transmission infrastructure and to finance the expansion of our generation facilities.
We believe our working capital is sufficient for our present requirements and the next 12 months. We expect to finance our liquidity and capital requirements primarily with own resources, arising from retained earnings and cash generation from our operations and third party resources (BNDES, Other Financial Institutions and Capital Markets). However, the expectation of the economic impacts resulting from the shutdown caused by the outbreak of the coronavirus (COVID-19), with subsequent effects on Copel's operations, may affect Company's financial results. In December 2020, our Current Liquidity, an index ratio that measures our current assets over our current liabilities reached 1.2x (1.5x in 2019) with a cash balance, equivalent to cash and marketable securities of R$ 3,545.9 million (R$3,223.8 million in 2019 and R$ 2,292.7 million in 2018).
With respect to long term capital needs, we use a model of five years to monitor our needs in a series of scenarios and variables, including Net Debt/ EBITDA and minimum cash balance with the intention to preserve the liquidity and improve the capital structure. In this context, we work to anticipate exercises of liability management to improve liquidity or if conditions are favorable.5
All of our future liquidity conditions rely on a series of scenarios and may be adversely affected depending on market and other conditions. Actual liquidity may differ significantly for several reasons, including, without limitation, the risks described in “Forward-Looking Statements” and “Item 3. Key Information―Risk Factors”.
We have not engaged in any off-balance sheet arrangements that have, or are reasonably likely to have a current or future effect on the registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.7F
We monitors our financial liquidity continuously and, for that that purpose, we consider (i) on the external side, the possibility of raising funds and the prospect of preserving cash through the assistance of structural measures by the Brazilian government and other Sectoral Institutions, and (b) on the internal side, taking the necessary actions in our operations by reducing expenses or postponing investments in order to guarantee the timely fulfillment of financial obligations. Accordingly, we expect to preserve the working capital required for our operations throughout the period.
In addition to working capital, our other principal uses of cash are capital expenditures, dividend payments and debt servicing. Capital expenditures were R$1,904.7 million in 2020 and R$2,055.6 million in 2019. The following table sets forth a breakdown of our capital expenditures for the periods indicated. Our capital expenditures are focused on projects located in Brazil.
|
Year ended December 31, | |||
|
2020 |
2019 |
2018 | |
| (R$ million) | |||
| Generation and transmission¹ | 431.9 | 691.9 | 1,423.1 |
| Distribution | 1,279.6 | 919.9 | 696.0 |
| Telecom | 103.4 | 146.3 | 309.4 |
| Investment of associates and joint ventures | 72.4 | 267.5 | 87.5 |
| Araucária Thermoelectric Plant | 0.4 | 0.4 | 2.8 |
| Compagas | 15.2 | 17.6 | 15.6 |
| Elejor | 0.2 | 0.2 | 2.7 |
| Others | 1.6 | 11.8 | 53 |
| Total | 1,904.7 | 2,055.6 | 2,590.8 |
___________________
¹ Considers investment in projects held 100% by Copel GeT.
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As in previous years, our capital requirement will be financed by cash from our operations and/or by external financing, which may serve to offset commitments arising from the maturity of previous external financing.
Our total budgeted capital expenditures for our wholly-owned subsidiaries for 2021 is R$1,902.7 million, of which:
| · | R$320.0 million are for generation and transmission; |
| · | R$1,217.6 million are for our distribution business; |
| · | R$50.0 million are for our telecommunication business; |
| · | R$292.2 million for the construction of the Cutia Wind Farm Complex and Jandaíra Wind Farm Complex; and |
| · | R$22.9 million are for other investments. |
Our following subsidiaries also budgeted their own capital expenditures for 2021, as described as follows:
| · | Compagas: R$18.8 million; |
| · | Araucária: R$1.2 million; and |
| · | Elejor: R$18.3 million. |
Historically, we have financed our liquidity and capital requirements primarily with cash provided by our operations and through external financing. Our principal source of funds in 2020 was our operating activities. Net cash used by financing activities was R$1,791.5 million in 2020, compared with R$288.0 million in 2019. . Net cash provided by operating activities was R$3,940.8 million in 2020, compared with R$2,945.0 million in 2019 and R$1,771.0 in 2018. The increase is mainly explained by the fully operation of new power plants, as HPP Colider and Cutia Wind Farm, which started up their operation during 2019, the adjustments in transmission and distribution tariffs, the start up of new transmission assets and cost savings measures. In 2020, we also received the proceeds from the Covid Account in the Distribution Company. In 2021, we expect to finance our liquidity and capital requirements primarily with own Resources, arising from retained earnings and cash generation from our operations and Third Party Resources (BNDES, Other Financial Institutions and Capital Markets).
Long-term debt have generally been used to finance our major capital expenditure projects, or capital expenditures acquisition financing programs offered by Federal Development Bank, as BNDES. The scheduled maturities of these long-term loans have been structured to match the expected cash flow from the conclusion of the related capital expenditure projects and, as a result, reduce the risk of any significant deterioration of our liquidity position.
As in prior years, we plan to make significant investments in future periods to expand and upgrade our generation, transmission and distribution businesses. In addition, we may seek to invest in other existing electric utilities, in communications services or in other areas, each of which may require additional domestic and international financing. Our ability to generate cash sufficient to meet our planned expenditures is dependent upon a variety of factors, including our ability to maintain adequate tariff levels, to obtain the required regulatory and environmental authorizations, to access domestic and international capital markets, and a variety of operating and other contingencies. We anticipate that our cash provided by operations may be insufficient to meet these planned capital expenditures, and that we may require additional financing from sources such as BNDES and the Brazilian and international capital markets.
ANEEL’s regulations require prior approval from ANEEL for any transfer of funds from our subsidiaries to us in the form of loans or advances. ANEEL approval is not required for cash dividends, as long as cash dividends do not exceed a dividend threshold (“Dividend Threshold”) equal to the greater of adjusted net income or income reserves available for distribution. The Dividend Threshold is established by Brazilian Corporate Law.
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The cash dividends we have received from our subsidiaries have been historically sufficient to meet our cash flow requirements without exceeding the Dividend Threshold. As a result, we have not sought approval from ANEEL to receive either loans or advances from our subsidiaries or cash dividends from our subsidiaries in excess of the Dividend Threshold. We do not expect these restrictions on loans and advances and on cash dividends exceeding the Dividend Threshold to impact our ability to meet our cash obligations, since we expect cash dividends below the Dividend Threshold to be sufficient in the future.
Like other state-owned companies, we are subject to certain CMN restrictions on our ability to obtain financing from domestic and international financial institutions. CMN restrictions could limit our ability to obtain bank financing but do not affect our ability to access the Brazilian and international capital markets, and do not restrict our access to banking financing for the purpose of repaying or refinancing debt.
Our total outstanding loans and financing (including debentures) as of December 31, 2020 totaled R$9,946.0 million. Approximately R$140.3 million of the total debt outstanding as of December 31, 2020 was denominated in U.S. dollars. For more information on the terms of these loans and financingsincluding reference to their specific maturity dates and interest rate structure, see Notes 21 and 22 to our audited consolidated financial statements. We are not subject to seasonality with respect to our borrowing requirements. Our major loans and financing arrangements are:
Banco do Brasil:
| · | We have R$640.1 million of outstanding debt with Banco do Brasil (not including the debentures listed below), consisting of financings we contracted to increase our working capital. |
Debentures:
| · | In October 2015, Copel Telecom issued R$160.0 million in simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 7.9633% per year, a five-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate balance of R$193.8 million of outstanding debt under these debentures; |
| · | In March 2016, Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus IV and Ventos de Santo Uriel Wind Farms issued R$300.8 million in non-convertible debentures, with sixteen-year maturity and payment of interest on monthly basis. The interest rate of TJLP index + 2.02% per year is applicable to R$147.6 million and IPCA index + 9.87% per year is applicable to R$153.2 million. As of December 31, 2020, we had an aggregate balance of R$240.1 million of outstanding debt under these debentures; |
| · | In April 2016, Compagas privately issued R$33.6 million in simple non-convertible debentures, single series, with floating charge, with an interest rate equal to TJLP index + 2.17% per year, with a five-year maturity and payment of interest on a quarterly basis. As of December 31, 2020, we had an aggregate balance of R$5.8 million of outstanding debt under these debentures; |
| · | In July 2017, Copel Telecom issued R$220.0 million in five-year simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 5.4329% per year, a five-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$257.1 million under these debentures; |
| · | In October 2017, Copel Distribuição issued R$500.0 million in simple, non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five years maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$502.3million under these debentures; |
| · | In October 2017, Copel GeT issued R$1.0 billion in simple non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five years maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$669.8 million under these debentures; |
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| · | In January 2018, Copel Holding issued R$600.0 million in simple, non-convertible debentures, with an interest rate of 119% of the CDI index per year, with a three-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$303.1 million under these debentures; |
| · | In July 2018, Copel GeT issued R$1.0 billion in simple, non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$1,010.6 million under these debentures; |
| · | In September 2018, Copel GeT issued R$290.0 million in simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 7.6475% per year, with a seven-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$322.1 million under these debentures; |
| · | In September 2018, Copel Distribuição issued R$1.0 billion in simple, non-convertible debentures with an interest rate of CDI index + 2.70% per year, with a five-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$1,011.7 million under these debentures; |
| · | In March 2019, Cutia Empreendimentos issued R$360.0 million in simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 5.8813% per year, with a thirteen-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$353.1 million under these debentures; |
| · | In May 2019, Copel Telecom issued R$210 million in simple, non-convertible debentures, with an interest rate of 117% of the CDI index per year, with a five-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$210.5 million under these debentures; |
| · | In June 2019, Copel Holding issued R$500 million in simple, non-convertible debentures, with an interest rate of 106% of the CDI index per year, with a three-year maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$500.4 million under these debentures; |
| · | In July 2019, Copel GeT issued R$1 billion in simple, non-convertible debentures, in two series, with an interest rate of 109% of the CDI index per year and IPCA index + 3.90% with a five-years and six-years maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$1,023.1 million under these debentures; |
| · | In November 2019, Copel Distribuição issued R$850 million in simple, non-convertible debentures, in two series, with an interest rate of IPCA index + 4.20% per year and CDI index + 1,45% per year with an eight-years and three-years maturity and payment of interest on a semester basis. As of December 31, 2020, we had an aggregate outstanding balance of R$880.8 million under these debentures; and |
| · | In December 2019, Compagas privately issued R$43 million in simple non-convertible debentures, single series, with an interest rate equal to CDI index + 0.88% per year, with a two-year maturity and payment of interest on a monthly basis. As of December 31, 2020, we had an aggregate balance of R$14.4 million of outstanding debt under these debentures. |
BNDES
| · | In December 2013, we received approval for the BNDES financing of HPP Colíder in an aggregate amount of R$1,041.2 million, maturing in October 2031. As of December 31, 2013, we had received R$840.1 million of this amount, with the remaining disbursements to be made in accordance with the construction schedule of HPP Colíder. Additionally, BNDES approved the finance of the Cerquilho III transmission substation in the amount of R$17.6 million, which was disbursed in a single installment. As of December 31, 2020, the aggregate outstanding balance of these two contracts totaled R$758.2 million; |
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| · | BNDES has provided a loan to Copel of R$339.0 million to finance the construction of the Mauá Hydroelectric Plant. Mauá is owned by Consórcio Energético Cruzeiro do Sul, in which Copel has a 51.0% interest and Eletrosul has a 49.0% interest. BNDES is providing 50.0% of the loan amount, and Banco do Brasil S.A. is providing the remaining 50.0%. All the receivables arising from this plant were pledged in favor of BNDES and Banco do Brasil until full repayment of the loan. As of December 31, 2020, we had an aggregate of R$167.8 million in outstanding debt with BNDES and Banco do Brasil under this facility; |
| · | In December 2011, we entered into a financing contract with BNDES in the total value of R$44.7 million for the construction of Transmission Line Foz do Iguacu - Cascavel Oeste, with maturity in 14 years. As of December 31, 2020, we had an aggregate of R$17.7 million in outstanding debt under this financing contract; |
| · | In March 2012, we entered into a financing contract with BNDES in the total value of R$282.1 million for the construction of GE Farol, Ge Boa Vista, GE São Bento do Norte and GE Olho D’Água Wind Farms with maturity in 16 years. As of December 31, 2020, we had an aggregate of R$195.1 million in outstanding debt under this financing contract; |
| · | In September 2012, we entered into a financing contract with BNDES in the total value of R$73.1 million for the construction of SHP Cavernoso II, with maturity in 16 years. As of December 31, 2020, we had an aggregate balance of R$41.4million of outstanding debt under this financing contract; |
| · | In December 2014, we entered into a financing contract with BNDES to finance the improvement of the distribution system of the greater Curitiba area, with maturity in 9.4 years. We have obtained a R$139.1 million funding on December 2014 and as of December 31, 2020, we had an aggregate outstanding balance of R$32.3 million under this financing contract; |
| · | In June 2015, we entered into a financing contract with BNDES in the total value of R$124.0 million for the construction Santa Helena and Santa Maria Wind Farm, with maturity in 16 years. As of December 31, 2020, we had an aggregate balance of R$86.8 million of outstanding debt under this financing contract; |
| · | In December 2015, we entered into a financing contract with BNDES in the total value of R$55.8 million for the construction of Transmission Line Assis - Paraguaçu Paulista II and Londrina - Figueira e Salto Osório - Foz do Chopim C2, with maturity in 15 years. As of December 31, 2020, we had an aggregate balance of R$32.4 million of outstanding debt under this financing contract; |
| · | In October 2018, we entered into a financing contract with BNDES in the total value of R$194.0 million for the implementing Baixo Iguaçu Hydroelectric Power Plant as well as its associated transmission system, with maturity in 17 years. As of December 31, 2020, we had an aggregate balance of R$184.1 million of outstanding debt under this financing contract; |
| · | In October 2018, we entered into a financing contract with BNDES in the total value of R$619.4 million for the construction and implementing Cutia Empreendimentos Eólicos Wind Farms, with maturity in 17 years. As of December 31, 2020, we had an aggregate balance of R$588.2 million of outstanding debt under this financing contract. |
| · | In August 2018, Copel GeT signed a share exchange agreement with Eletrosul in the controlled ventures Costa Oeste Transmissora de Energia S.A. (51% Copel GeT and 49% Eletrosul), Marumbi Transmissora de Energia S.A. (80% Copel GeT and 20% Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% Copel GeT and 80% Eletrosul). With this contract, Copel GeT starts to hold 100% interest in the Costa Oeste and Marumbi undertakings and Eletrosul now holds 100% stake in Transmissora Sul Brasileira. |
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| · | Marumbi has an agreement signed with BNDES in 2014, in the amount of R$55 million, for the Implementation of the 525 kV Transmission Line between SE Curitiba and SE Curitiba Leste and the implementation of SE Curitiba, with maturity in 14 years. It has a balance on December 31, 2020 of R$29.6 million. |
| · | Costa Oeste has an agreement signed with BNDES in 2013, in the amount of R$36.7 million, for the implementation of the 230 kV Transmission Line between SE Cascavel Oeste and SE Umuarama Sul and the implementation of the SE, with maturity in 14 years. It has a balance on December 31, 2020 of R$19.2 million. |
| · | In June 2020, we entered into a financing contract with BNDES in the total value of R$432.1 million for the implementing of the Transmission Line SE Medianeira, SE Curitiba Centro, SE Curitiba Uberaba, SE Andirá Leste, Curitiba Leste-Blumenau and Baixo Iguaçu Realeza as well as its associated transmission system, with maturity in 23 years. As of December 31, 2020, we had an aggregate balance of R$269.1 million of outstanding debt under this financing contract. |
| · | On December 8, 2020, BNDES announced the selection of investment bank Banco BTG Pactual SA to coordinate a secondary offering of its holdings in our share capital. There is no contractual or regulatory condition linking the BNDES Secondary Offering to the Conversion Offers described in “Item 4. Information on the Company – Recent Developments”. |
CAIXA ECONÔMICA FEDERAL (CEF)
| · | We have R$11.5 million in outstanding debt related to government programs to finance distribution projects; and |
| · | Copel Distribuição entered into an agreement in 2016, in the amount of R$1.2 million, for the purchase of machinery and/or equipment and also computer and automation goods. It has a balance on December 31, 2020 of R$0.2 million. |
We are party to several legal proceedings that could have a material adverse impact on our liquidity if the rulings are unfavorable to us. These contingencies are described in “Item 8. Financial Information—Legal Proceedings”.
In addition, we have commitments not yet incurred related to long-term contracts, and therefore not recognized in the financial statements, as presented in Note 37 to our consolidated financial statements. The main amount refers to energy purchase and transportation contracts commitments, totaling R$132,879 million on December 31,2020. These commitments are expected to be settled as follows: R$6,444 million in less than a year, R$26,117 million from one to 5 years and R$ 100,318 million after 5 years.
In Note 35.2.2 to our consolidated financial statements we present the expected values for settlement of contractual obligations undiscounted in each time range. Our projections are based on financial indicators linked to the related financial instruments and forecast according to average market expectations as disclosed in the Brazilian Central Bank's Focus Report.
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Item 6. Directors, Senior Management and Employees
We are managed by:
| · | a Board of Directors, which may be composed of up to nine (9) members and is currently composed of nine (9) members; and |
| · | a Board of Executive Officers, which is currently composed of seven (7) members. |
The Board of Directors ordinarily meets monthly. A majority of the members of the Board of Directors is required for the meeting to be held, and decisions are taken by a majority vote of those present at the meeting. For additional information, see “Item 10. Additional Information—Memorandum and Articles of Association”. The members of the Board of Directors are elected to serve for two-year terms and may be reelected up to another three consecutive terms. Among the current nine members of the Board of Directors:
| · | six were elected by the controlling shareholders; |
| · | one was elected by minority shareholders (holding voting shares); |
| · | one was elected by minority shareholders (holding outstanding non-voting shares); and |
| · | one was elected by our employees. |
According to Brazilian Corporate Law, minority shareholders are entitled to appoint and remove at least one member of the Board of Directors, in a separate election, without the participation of the controlling shareholder, if such minority shareholders hold (i) at least 15% of our voting shares or (ii) at least 10% of the company’s outstanding non-voting shares. Minority shareholders holding at least 10% of our voting shares are entitled to request that a multiple voting procedure be adopted, a proceeding that grants each voting share as many votes as there are members of the Board of Directors and the right for all the voting shareholders to vote for only one candidate or to distribute his votes among several candidates, also in accordance with the Brazilian Corporate Law.
Our bylaws entitle minority shareholders that hold voting shares the right to appoint and remove two members of the Board of Directors, in a separate election, regardless of the voting shares which are held by them as a class, if they haven’t appointed a higher number through a Multiple Vote proceeding in the general shareholders’ meeting. Moreover, our employees are also entitled to appoint and remove one member of the Board of Directors. However, if a multiple vote proceeding is adopted and, also, the minority shareholders appoint members of the Board of Directors through a separate election, the controlling shareholder is entitled to appoint and remove the same number of members appointed and elected by the minority shareholders and employees.
Also according to Brazilian Corporate law, members of our Board of Directors who are elected by the non-controlling shareholders have the right to veto (provided it is duly justified) the appointment of the independent accountant made by the majority of the members of our Board of Directors.
The terms of the current members of the Board of Directors expire in April 29th, 2021. The current members of our Board of Directors are:
|
Name |
Position |
Since |
| Marcel Martins Malczewski | Chairman | 2019 |
| Leila Abraham Loria | Director | 2017 |
| Olga Stankevicius Colpo | Director | 2017 |
| Carlos Biedermann | Director | 2019 |
| Adriana Angela Antoniolli | Director | 2017 |
| Marco Antônio Barbosa Cândido | Director | 2018 |
| Gustavo Bonini Guedes | Director | 2019 |
| Luiz Claudio Maia Vieira | Director | 2019 |
| Daniel Pimentel Slaviero | Director | 2019 |
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The following are brief biographies of the current members of our Board of Directors:
Marcel Martins Malczewski. Mr. Malczewski was born on December 8, 1964. He holds a Master's degree in Industrial Sciences and Computing from Universidade Tecnológica Federal do Paraná (1989); and a Bachelor's degree in Electrical Engineering from Universidade Federal do Paraná (1987). Mr. Malczewski also attended the Owner/President Management Program at Harvard Business School (2004). He is currently the Chairman of the Board of Directors of Companhia Paranaense de Energia - Copel. Additionally, Mr. Malczewski is a partner at M3 Investimentos Ltda. and at Trivella M3 Investimentos S.A. Previously, he was co-founder (1990), CEO (2001-2009), Chairman (2010-2011) and member of the Board of Directors (2012-2015) at Bematech S.A. He was also a Professor (1989-1994) and coordinator (1991-1994) of the Computer Engineering undergraduate course at Pontifícia Universidade Católica do Paraná.
Leila Abraham Loria. Ms. Loria was born on January 26, 1954. Ms. Loria took an advanced Governance, Risk and Compliance training course at Risk University - KPMG (2018) and a Corporate Governance and Innovation course at Nova School of Business and Economics, in Lisbon, Portugal (2016). She holds a Post-MBA in Corporate Governance and Capital Markets for executives from B.I. International (2015) and an International Executive MBA from APG-Amana (1994). Ms. Loria also has a Taught Master’s Degree in Business Administration from COPPEAD-UFRJ Business School (1978) and a Bachelor’s Degree in Business Administration from Fundação Getúlio Vargas (1976). Ms. Loria is currently a member of the Board of Directors and of the Statutory Audit Committee of Companhia Paranaense de Energia - Copel. Additionally, she sits on the Board of the Brazilian Institute of Corporate Governance - IBGC, and of the Board of Directors of Madeira Energia - MESA. She is also a member of the Advisory Board on Casas Pernambucanas, INPLAC Indústria de Plástico and Costão do Santinho Resort. Previously, she was an Executive Officer at Telefonica Brasil and Member of the Board of Directors of Telefonica Vivo (2010-2015); Chairman and General Officer at TVA (Abril Group) and Member of the Board of Directors at Tevecap (1997-2006) and Canbras, a joint venture between Abril and Bell Canada (1998-2002); General Officer and Member of the Board of Directors at Direct TV (1997-1999); Chief Business Officer at Walmart (1994-1997); and Chief Officer for Marketing, Sales, Business, Acquisitions and Human Resources at Mesbla (1978-1994).
Olga Stankevicius Colpo. Ms. Colpo was born on May 26, 1952. Ms. Colpo received a post-graduate degree from the Executive Program of Singularity University (2018) and, an international executive MBA degree from FIA/USP (2000); she took a specialization course in International Business at Harvard University (1996), a specialization course in Managing Managers at Michigan University (1986); a Continued Education Program in Human Resources Management from Fundação Getúlio Vargas (1984); Ms. Colpo has a Bachelor’s degree in Psychology from Universidade de Mogi das Cruzes - UMC (1975). Ms. Colpo is currently a member of the Board of Directors and of the Statutory Audit Committee of Companhia Paranaense de Energia - Copel. She is also a member of the Board of Directors of Solvi S.A., member of the Board of Directors and Audit Committee at Banco BMG S.A.; member of the Consulting Board of the International Executive MBA at FIA; counselor and member of the Executive Board at Childhood Brasil; Visiting Professor at the International Executive MBA program at FIA/USP; and instructor of the Board of Directors Training Course at IBGC. Previously, she was Chief Executive Officer at Participações Morro Vermelho S.A. (2009-2016); a partner at PwC - PricewaterhouseCoopers (1999-2009); and partner at Coopers & Lybrand (1974-1999).
Adriana Angela Antoniolli. Ms. Antoniolli was born on November 19, 1966. Ms. Antoniolli received a post-graduate degree in Applied Law from Escola da Magistratura do Paraná (2011) and a post-graduate degree in Marketing and Advertising from Instituto Superior de Pós-graduação - ISPG (2000). Ms. Antoniolli holds a degree in Law from Universidade Tuiuti do Paraná (2008) and a degree in Accounting from Faculdade de Educação, Ciências e Letras de Cascavel (1988). She is currently a Regulatory Analyst at Copel. Previously, she acted as Services Department Manager at Copel (2013-2015); East Revenue Department Manager at Copel (2009-2013); and Business Procedures Department Manager at Copel (2008). Ms. Antoniolli was appointed as a member of our Board of Directors as a representative of our employees.
Marco Antônio Barbosa Cândido. Mr. Cândido was born on March 6, 1969. Mr. Cândido holds a Ph.D. degree in Production Engineering from Universidade Federal de Santa Catarina - UFSC (1997), a Master’s degree in Production Engineering from Universidade Federal de Santa Catarina - UFSC (1994) and a degree in Aeronautical Mechanics Engineering from Instituto Tecnológico de Aeronáutica - ITA (1991). Mr. Cândido is currently a member of the Board of Directors and of the Statutory Audit Committee of Companhia Paranaense de Energia – Copel, Chief Executive Officer and Founding Partner at MBC Consultoria, member of the Board of Directors of the hotel group Rafain, in the city of Foz do Iguaçu–PR, of Athena Saúde S.A., of Expresso Princesa dos Campos and of AEBEL. Previously, he was a member of the Board of Directors of Hospital Santa Rita and Santa Rita Saúde health care provider in the city of Maringá–PR (2015-2019), a professor and researcher at Pontifícia Universidade Católica do Paraná - PUCPR (1995-2013); Chief Executive Officer at Associação Paranaense de Cultura – APC, a parent company of Pontifícia Universidade Católica do Paraná – PUCPR (2005-2012); Chief Executive Officer at Grupo Marista (2012-2013); Chief Executive Officer at Grupo Paysage (2013-2015); member of the Board of Directors at Sistema de Saúde Mãe de Deus, health care provider in the state of Rio Grande do Sul (2014-2015); and member of the Board of Directors at Grupo Positivo (2014-2016).
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Carlos Biedermann. Mr. Biedermann was born on August 18, 1953. Mr. Biedermann attended the Executive Program of the Singularity University (2019) and the International Business Programme at INSEAD in France (1995). He holds a post-graduate degree in Financial Markets from Fundação Getúlio Vargas - FGV (1979) and Bachelors’ degrees in Accounting, from Unisinos (1977), and in Business Management and Public Management, from Universidade Federal do Rio Grande do Sul (1975). He is currently a member of the Board of Directors and of the Statutory Audit Committee of Companhia Paranaense de Energia - Copel. Mr. Biedermann has considerable experience as a board member in several sectors, including organizations such as Amcham/RS and the Association of Marketing and Sales Directors of Brazil - ADVB/RS. At present, he also has seats in the Board of Directors of Lojas Lebes and Maiojama Empreendimentos Imobiliários; in the Audit Committee of Suzano Papel e Celulose, Grupo Algar, Grupo Solar and Grupo Cornélio Brennand; and as Chairman of the Deliberative Council of Grêmio Foot-Ball Porto Alegrense. Additionally, he is an instructor at the Brazilian Institute of Corporate Governance - IBGC and a partner at Biedermann Consulting. Previously, he was senior partner for the southern region and senior partner of Capital and Infrastructure Projects (CP&I) for Brazil at PricewaterhouseCoopers (2002 - 2015); Chairman of the Audit Committee of IBGC (2009 - 2014), Chairman (2013 - 2014) and member (2009 - 2017) of the Board of the Young Presidents Organization - YPO, and a guest lecturer in the Post-MBA Corporate Governance Program at Unisinos (2017 - 2019).
Gustavo Bonini Guedes. Mr. Guedes was born on April 10, 1982. He holds a post-graduate degree in Election Law from Centro Universitário Curitiba (2009) and a Bachelor's degree in Law from Centro Universitário Autônomo do Brasil (2005). Mr. Guedes is currently a member of the Board of Directors of Companhia Paranaense de Energia - Copel. Additionally, he is a member of the Brazilian Academy of Election and Political Law - Abradep and a founding partner at Bonini Guedes Advocacia. Previously, he was President of the Election Law Institute of Paraná; a Professor at Escola Superior de Advocacia - ESA/PR; advisory member of the Election Law Commission of the Federal Council of the Brazilian Bar Association - OAB; and coordinator of the Election Law Department of Vernalha Guimarães e Pereira Advogados.
Luiz Claudio Maia Vieira. Mr. Vieira was born on October 7, 1969. Mr. Vieira attended an Advanced Management Program at Fundação Dom Cabral/INSEAD Fontainebleau (2013) and an Advanced Management Program at IESE Business School in Barcelona (2009). He holds an MBA in Finance from Columbia University (1998) and a Bachelor’s degree in Business Management from Fundação Getúlio Vargas - FGV (1992). Mr. Vieira is currently a member of the Board of Directors and of the Statutory Audit Committee of Companhia Paranaense de Energia - Copel. Additionally, he is a member of the Board of Directors of Grupo Aviva (Rio Quente and Costa do Sauípe Resorts) and a Partner at Partilha Empreendiemtos. Previously, he was Chief Consumer Goods Officer and Chief Financial Officer of Nutrimental Indústria e Comércio de Alimentos S.A. (2017 - 2018); Executive Director of Planning and Finance at Infoglobo Comunicação e Participações S.A. (2011 - 2014); CEO of Rede Paranaense de Comunicação - RPCTV (2001 - 2011); and Vice President of Corporate Finance at BNP Paribas Bank (1998 - 2001).
Daniel
Pimentel Slaviero. Mr. Slaviero was born on November 22, 1980. Mr. Slaviero attended the Owner/President Management - OPM program
(2015) and the YPO Harvard President Seminar (2010), both from Harvard Business School. Mr. Slaviero also completed the Executive Business
Program (STC) from Kellog School of Management/Fundação Dom Cabral (2009); and holds a degree in Business Administration
from Universidade Positivo - UP (2001). He is currently Copel’s Chief Executive Officer and Chairman of the Board of Directors
of Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Comercialização
S.A., Copel Telecomunicações S.A. and Copel Renováveis S.A.. Previously he acted
as the Chief Executive Officer at Sistema Brasileiro de Televisão - SBT (2017-2018); Chief Business Officer at Sistema Brasileiro
de Televisão - SBT (2017-2018); Chief Institutional Officer at Grupo Silvio Santos (2010-2017); General Director at Sistema Brasileiro
de Televisão - SBT Brasília (2010-2017); Chairman at the Brazilian Association of Radio and Television Broadcasters - ABERT
(2006-2016); Executive Officer at Grupo Paulo Pimentel (2001-2010); and Programming
and Production Manager at Grupo Paulo Pimentel (2000-2001).
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Our Board of Executive Officers meets fortnightly and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by the Board’s rules of procedure.
According to our bylaws, our Board of Executive Officers consists of six (6) to seven (7) members. The Executive Officers are elected by the Board of Directors for two-year terms but may be removed by the Board of Directors at any time. The terms of the current members of the Board of Executive Officers expire in December 2021. The current members are as follows:
|
Name |
Position |
Since |
| Daniel Pimentel Slaviero | Chief Executive Officer | 2019 |
| Ana Letícia Feller | Chief Business Management Officer | 2018 |
| Adriano Rudek de Moura | Chief Financial and Investor Relations Officer | 2017 |
| Cassio Santana da Silva | Chief Business Development Officer | 2019 |
| Eduardo Vieira de Souza Barbosa | Chief Legal and Institutional Relations Officer | 2019 |
| Vicente Loiácono Neto | Chief Governance, Risk and Compliance Officer | 2018 |
| David Campos | Chief Assistant Officer. | 2019 |
The following are brief biographies of the current members of our Board of Executive Officers:
Daniel Pimentel Slaviero. Mr. Slaviero has been our Chief Executive Officer since January 8, 2019. For biographical information regarding Mr. Slaviero, see “—Board of Directors”.
Ana Letícia Feller. Ms. Feller was born on October 15, 1977. She received an MBA degree in Leadership with emphasis in Management, from Estação Business School (2015); a Post-graduate degree in Management with emphasis in Strategic People Management, from FAE Centro Universitário (2009); and a Post-graduate degree in Labor Law, from Unibrasil (2005). She holds a Bachelor’s degree in Law from Pontifícia Universidade Católica do Paraná (2000). Ms. Feller has been a Lawyer at Companhia Paranaense de Energia - Copel since 2000, where she also served as Assistant to the Chief Corporate Management Officer (2017-2018); Chair of the Permanent Compensation Committee (2017-2018); Chair of the Management Committee (2017-2018); Human Resources Chief Official (2007-2010 e 2013-2017); and member of the Ethical Guidance Council (2006-2008 and 2010-2012). Additionally, she was an alternate member of the Deliberative Council of Fundação Copel de Previdência e Assistência Social (2014-2018). She is currently Copel’s Chief Corporate Management Officer, as well as a member of the Board of Directors of Copel Distribuição S.A., Copel Comercialização S.A., Copel Telecomunicações S.A. and Copel Renováveis S.A.
Adriano Rudek de Moura. Mr. Moura was born on September 25, 1962. Mr. Moura took a professional development course at Instituto Brasileiro de Governança Corporativa - IBGC (2020 and 2018), at Fundação Dom Cabral (2019), at Duke’s Fuqua School of Business (2010) and at Harvard Business School (2007). He received a post-graduate degree in Finance and Controllership from Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras - FIPECAFI/USP (1997). Mr. Moura holds a degree in Accounting from Centro Universitário Ítalo Brasileiro – Unítalo (1985). Mr. Moura is currently Copel’s Chief Financial and Investor Relations Officer. He is also Chief Financial and Investor Relations Officer of Copel Geração e Transmissão S.A.; Chief Financial Officer of Copel Distribuição S.A.; Chief Financial Officer of Copel Comercialização S.A.; and Chief Financial Officer of Copel Renováveis S.A.. Previously, he was Vice-president and Chief Management, Financial and Investor Relations Officer at Elecrolux for Latin America (2003-2017); Chief Management, Financial and Investor Relations Officer at Electrolux do Brasil (1999-2003); Controller at Electrolux do Brasil (1997-1999); Vice-president at Associação Nacional de Fabricantes de Produtos Eletroeletrônicos (National Association of Home Appliance Manufacturers)(2013-2015); member of the Board of Directors at CTI (2011-2017); at Eletros (2013-2015); member of the Supervisory Board at Gafisa (2009-2014); member of the Supervisory Board at Tenda (2009-2014); at Alphaville (2012-2013); graduate school Professor at Fundação Armando Alvares Penteado - FAAP (1999); Professor at Faculdade de Administração de Empresas e Economia do Paraná – FAE (1995); and auditor and consultant at Arthur Andersen (1982-1997).
Cassio Santana da Silva. Mr. da Silva was born on August 14, 1978. He holds a Bachelor’s degree in Business Administration from Universidade Federal do Paraná - UFPR (2002); and an Executive MBA from Fundação Getúlio Vargas - Rio de Janeiro (2003). He is currently Copel’s Chief Business Development Officer. Previously, he held leading positions in many multinational companies, such as Business Unit Manager at Telefônica Brasil S.A. (2014-2019); Senior Brand and Trade Manager at Kimberly Clark (2011-2013); Marketing and Trade Marketing Manager at Danone Northeastern Business Unit (2009-2011); National Trade Marketing Manager at Danone (2008-2009); Trade Marketing Manager at Philip Morris (2007-2008); Regional Sales Manager at Ambev in the Dominican Republic (2006-2007); Trade Marketing Manager (2005-2006) and Sales Manager (2002-2005) at AmBev.
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Eduardo Vieira de Souza Barbosa. Mr. Barbosa was born on October 3, 1982. Mr. Barbosa holds a post-graduate degree in Constitutional Law from Academia Brasileira de Direito Constitucional - ABDConst. Mr. Barbosa holds a Bachelor’s degree in Law from Universidade Tuiuti do Paraná - UTP. He is currently Copel’s Chief Legal and Institutional Relations Officer, as well as the Chief Legal and Institutional Relations Officer of Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Comercialização S.A. and Copel Renováveis S.A.. Previously he acted as Visiting Professor of Corporative Law for the first graduate studies module at Pontifícia Universidade Católica do Paraná - PUC/PR (2018); Vice President of the Câmara de Arbitragem, Mediação e Conciliação Societária do Brasil - Cambra (1st Brazilian Corporate Chamber of Arbitration, Mediation and Conciliation) (2017-2018); Chief Legal Officer of the Conselho de Jovens Empresários - CJE (Young Entrepreneurs Committee) at the State of Paraná Trade Association (2011-2016); Member of the Political Council of the State of Paraná Trade Association (2013-2016); Strategic Consultant of Companhia Paranaense de Saneamento do Paraná - Sanepar, Assistant to the Chief Legal Officer for CS Bioenergia S.A. (2015); Chief Prosecutor of the Commercial Registry of the State of Paraná (2011-2015); and Legal adviser and referee to legal and individual entities directly and indirectly connected to the Public Administration.
Vicente Loiácono Neto. Mr. Loiácono was born on June 4, 1983. He received a post-graduate degree in Civil Procedure Law from Universidade do Sul de Santa Catarina (2010). He holds a Bachelor’s degree in Law from Faculdades Integradas Curitiba (2007). He is currently attending the Master’s program on Business Law and Citizenship from Centro Universitário Curitiba (2019-2021). Mr. Loiácono is currently Copel’s Chief Governance, Risk and Compliance Officer. Mr. Loiácono has been a lawyer at the company since 2011, where he also served as Advisor to the Chief Executive Office (2017-2018) and Advisor to the Chief Legal Office (2013); He also was Coordinator of the Risk and Compliance Committee of Instituto Brasileiro de Executivos de Finanças no Paraná - IBEF-PR (2020-2021); member of the Comission on Corporate Compliance and Anti-corruption of the Brazilian Bar Association - OAB-PR (2019-2021); member of the Comission of Employee Lawyers of the Brazilian Bar Association – OAB-PR (20219-2021); member of the Supervisory Board of Fundação Copel de Previdência e Assistência Social (2015); and member of the Ethical Guidance Council (2014). Previously, Mr. Loiácono had served as deputy coordinator of the Conselho de Jovens Empresários - CJE (Young Entrepreneurs Committee) at the State of Paraná Trade Association.
David Campos. Mr. Campos was born on November 05, 1969. Mr. Campos received a Bachelor’s degree in Social Communication - Journalism from Universidade Estadual de Ponta Grossa - UEPG (1990). He is currently Chief Assistant Officer at Companhia Paranaense de Energia - Copel. Previously he acted as Chief Communication Official at Itaipu Binacional (2017); Municipal Secretary of Social Communication at Curitiba Municipality (2011-2012); Head of the Mayor’s Office in Curitiba (2010); Chief Journalist at the State of Paraná Legislative Assembly (2001-2009); Secretary of Social Communication for the State of Paraná (1999-2000); and Municipal Secretary of Social Communication at Curitiba Municipality (1997-1998).
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We have a permanent Supervisory Board (Conselho Fiscal), which meets monthly. The Supervisory Board consists of five (5) members and five (5) alternates elected for two-year terms by the shareholders at the annual meeting, and may be re-elected up to two (2) consecutive times. The Supervisory Board, which is independent of our management and of our external auditors, has the responsibilities provided in Federal Law No. 6,404/1976 and Federal Law No. 13,303/2016, which include, among others:
| · | reviewing our financial statements and reporting on them to our shareholders; |
| · | issuing reports on proposed changes in capitalization, corporate budgets and proposed dividend distributions and any corporate reorganization to be submitted to the shareholders; and |
| · | in general, supervising the activities of management and reporting on them to our shareholders. |
The following table lists the current and alternate members of the Supervisory Board, who were appointed at the 63rd annual shareholders’ meeting held on April 29, 2019 and at the 200th extraordinary shareholders’ meeting held on December 2, 2019. The term of all members of the Supervisory Board indicated below will expire in April 29th, 2021.
|
Name |
Since |
| Demetrius Nichele Macei | 2019 |
| Harry Françóia Júnior | 2019 |
| José Paulo da Silva Filho | 2019 |
| Roberto Lamb | 2017 |
| Letícia Pedercini Issa Maia(1) | 2017 |
| Alternates | |
| Emir Calluf Filho(2) | 2019 |
| João Luiz Giona Junior | 2018 |
| Otamir Cesar Martins | 2018 |
| Estevão de Almeida Accioly | 2019 |
| Gilberto Pereira Issa(1) | 2018 |
(1) Letícia Pedercini Issa Maia, member of our Supervisory Board, is the daughter of Gilberto Pereira Issa, an alternate member of our Supervisory Board.
(2)Emir Calluf Filho resigned on July 24, 2020.
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Pursuant to Rule 10A-3 under the Securities Exchange Act and our bylaws, our Audit Committee consists of three (3) to five (5) members, each of whom serves a term of two years, and may be re-elected up to two consecutive times. Pursuant to the rules of procedure of the Audit Committee, the members of this committee are appointed by, and may be replaced by, a resolution taken by our Board of Directors. The members of the Audit Committee are Mr. Marco Antônio Barbosa Cândido (chairman), Ms. Leila Abraham Loria, Ms. Olga Stankevicius Colpo, Mr. Luiz Claudio Maia Vieira and Mr. Carlos Biedermann. The Audit Committee is responsible for auditing and supervising the processes related to the preparation of our financial statements, ensuring that we are in compliance with all legal requirements related to our reporting obligations, monitoring the work of the independent auditors and our staff who are responsible for internal auditing of the Company and reviewing the effectiveness of our internal control and risk management procedures and staff.
Under Brazilian Corporate Law, the function of hiring independent auditors is reserved for the board of directors of a company. As a result, our Board of Directors acts as our Audit Committee, as specified in Section 3(a)(58) of the Securities Exchange Act, for the purposes of approving, on a case-by-case basis, any engagement of our independent auditors for audit and non-audit services provided to us or our subsidiaries. Except in these respects, our Audit Committee is comparable to and performs the functions of audit committees of U.S. companies.
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APPOINTMENT AND EVALUATION COMMITTEE (“CIA”)
The CIA is a permanent statutory body of Copel which provides support to Copel’s shareholders. The CIA’s purpose is to verify the compliance of the process of appointment and evaluation of statutory body members of Copel (i.e. Board of Directors, Fiscal Council, Executive Board and relevant statutory committees), in each case in accordance with (i) the Appointment Policy; (ii) the Internal Rules of Appointment of Statutory Bodies Members; (iii) other internal rules; and (iv) applicable law. The CIA works closely with Copel (Holding) and its wholly-owned subsidiaries and its scope may be extended to controlled companies, affiliates and other companies in which Copel and its wholly-owned subsidiaries hold equity interests.
|
Member |
Position |
Date of Appointment |
| Marcos Leandro Pereira | President | 12.02.2019 |
| Robson Augusto Pascoalini | Member | 12.02.2019 |
| Claudio Nogas | Member | 04.29.2019 |
| Ana Silvia Corso Matte | Member | 04.29.2019 |
| Durval Jose Soledade Santos | Member | 04.29.2019 |
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INVESTMENT AND INNOVATION COMMITTEE (“CII”)
The CII is a permanent statutory body of Copel which provides support to Copel’s Board of Directors. The CII’s purpose is to analyze and issue recommendations regarding Copel’s investment plans, in order to facilitate robust oversight of our investments by the Board of Directs. The CII works closely with Copel (Holding) and its wholly-owned subsidiaries and its scope may be extended to controlled companies, affiliates and other companies in which Copel and its wholly-owned subsidiaries hold equity interests.
|
Member |
Position |
Date of Appointment |
| Daniel Pimenta Slaviero | Member | 03.12.2021 |
| Marco Antônio Barbosa Cândido | Member | 03.12.2021 |
| Olga Stankecicius Colpo | Member | 03.12.2021 |
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COMPENSATION OF DIRECTORS, OFFICERS, SUPERVISORY BOARD MEMBERS AND AUDIT COMMITTEE MEMBERS
Under Brazilian Corporate law, the total compensation of the Board of Directors, Executive Board and Supervisory Board is established annually by our general shareholders meeting. Under paragraph 3 of section 162 of the Brazilian Corporate Law, the compensation of the members of our Supervisory Board must be equal to, or greater than, 10% of the average compensation paid to the members of our Executive Board (excluding benefits, representation funds and profit-sharing plans, if applicable). The members of our Supervisory Board received in 2019 15% of the monthly compensation of the Chief Executive Officer. Finally, the members of our Audit Committee (who are also members of our Board of Directors) received the monthly compensation paid to the members of the Supervisory Board plus R$5,000.00.
For the year ended December 31, 2020, the aggregate amount of compensation paid by us to the members of our Board of Directors, Board of Executive Officers and Supervisory Board was R$ 12.44 million, of which 75% was for our Board of Executive Officers, 18% was for our Board of Directors, and 7% was for our Supervisory Board, as approved by our 65th annual shareholders’ meeting held on April 28, 2020.
The following table shows additional details about the compensation paid to the members of our Board of Directors, Executive Board and Supervisory Board for the periods indicated.
|
Compensation (R$’000) in the years ended December 31, | |||||||||
|
Board of Directors |
Executive Officers |
Supervisory Board | |||||||
|
Area |
2020 |
2019 |
2018 |
2020 |
2019 |
2018 |
2020 |
2019 |
2018 |
| Number of members(1) | 9.00 | 8.33 | 8.58 | 7.00 | 7.00 | 7.00 | 5.00 | 5.00 | 5.00 |
| Total Salary | 641,1 | 514.7 | 854.4 | 4,995,0 | 4,976.8 | 6,562.1 | 659,4 | 659.2 | 628.2 |
| Largest Salary | 227,80 | 230.3 | 268.8 | 879,2 | 1,731.4 | 1,404.2 | 131,9 | 171.4 | 169.8 |
| Smallest Salary | 131,9 | 158.3 | 156.0 | 389,9 | 805,6 | 867.2 | 131,9 | 158.3 | 90.2 |
| Average Salary | 181,4 | 224.6 | 206.3 | 713,6 | 1,409.7 | 1,375.1 | 131,9 | 161.8 | 159.2 |
| Compensation for attending committees(2) | 1183,6 | 1,005.2 | 508.5 | - | - | - | - | - | - |
| Others(3) | 451,9 | 340.0 | 322.3 | 2,106.0 | 2,059.5 | 2,719.6 | 145,8 | 147.5 | 154.9 |
| Total | 2,276.6 | 1,871.9 | 1,685.2 | 9,360.0 | 9,868.0 | 9,281.7 | 805,2 | 809.1 | 783.1 |
___________________
(1) This figure corresponds to the average number of members per year.
(2) Refers to Statutory Audit Committee.
(3) Refers to Private Pension Contribution, Assistance Plan for all members and Representation Grant for Executive Officers.
We have no service
contracts with our directors providing for benefits upon termination of employment. We do not have a stock option plan for our directors,
officers or employees.
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On December 31, 2020, we had 6,667 employees, compared to 7,095 employees on December 31, 2019 and 7,611 employees on December 31, 2018. Including employees at Compagas, Elejor and UEG Araucária Ltda. (companies in which we have a majority stake) we had 6,832 employees as of December 31, 2020.
The following table sets forth the number of our employees and a breakdown of employees by area of activity as of the dates indicated in each area of our operations.
|
As of December 31, | |||
|
Area |
2020 |
2019 |
2018 |
| Generation and transmission | 1,533 | 1,620 | 1,660 |
| Distribution | 4,641 | 4,964 | 5,364 |
| Telecommunications | 355 | 412 | 478 |
| Corporation staff and research and development | 96 | 61 | 75 |
| Other employees | 42 | 38 | 34 |
| Total employees of Copel wholly-owned subsidiaries | 6,667 | 7,095 | 7,611 |
| Compagas | 142 | 148 | 159 |
| Elejor | 7 | 7 | 7 |
| Araucária | 16 | 16 | 17 |
| Total | 6,832 | 7,266 | 7,794 |
All of our employees are covered by collective bargaining agreements that we renegotiate annually with the unions that represent the various employee groups. In 2020, we negotiated and signed labor agreements with the unions representing our employees. These new bargaining agreements became effective in October and will be in place for a period of two years. We agreed to salary increases of 3.89% in 2020 compared to 2019 salaries.
We provide a number of benefits to our employees. The most significant is our sponsorship of Fundação Copel de Previdência e Assistência Social (“Fundação Copel”), which supplements the Brazilian government retirement and health benefits available to our employees. As of December 31, 2020, approximately 99% of our employees had elected to participate in a defined contribution plan.
In accordance with federal law and our compensation policy, our employees participate in a profit-sharing plan. The Board of Directors and the shareholders must approve the amount of such compensation, which is determined in accordance with an agreement between an employee committee and us. An employee’s receipt of compensation is conditioned on the company meeting certain benchmarks described in the above-mentioned agreement, as confirmed in our published year-end financial statements. The amount of profit-sharing distributions reserved and approved for the 2020 fiscal year (including Compagas) was R$ 416.9 million. The amount of profit-sharing distributions accrued and approved for the 2019 fiscal year (including Compagas) was R$155.5 million. The terms of the profit-sharing agreement are currently being revised and negotiated for future years.
In 2020, we had two Voluntary Redundancy Programs (“PDI” in Portuguese). The first was launched on October 1, 2020 in two stages:
| · | Phase 1: Eigibility for employees in the technical and operational departments as long as they have a retirement benefit granted or a benefit request filed with the INSS, or have been employed by Copel for at least 25 years and are 55 years old. The accessions for this phase occurred between October 1 and October 15, 2020, and the dismissals of employees who adhered to the PDI in this Phase 1 ocurred on November 15, 2020; and |
| · | Phase 2: Eligibility for employees in the other areas, positions and functions, provided that they have a retirement benefit granted or a benefit request filed with the INSS or have been employed by Copel for at least 25 years and are 55 years old. The accessions for this phase occurred between November 1 and November 15, 2020, and the dismissals of employees who adhered to the PDI in this Phase 2 ocurred on December 1, 2020. |
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Under the entire program, 311 terminations occurred in 2020 for a total of R$35.4 million in severance payments.
The second program was aimed at employees assigned to Copel Distribuição's Call Center, who work in the functions of Call Center Monitor, Call Center Support Monitor and call center.
Of the 375 eligible employees, 169 employees adhered to the PDI, which represents an estimated cost of R$25.3 million with severance pay and a potential reduction of R$9 million in annual costs as of 2022, since the dismissals must occur between July 15, 2021 and September 15, 2021, according to program rules.
With the completion of this program and considering the results of the penultimate PDI, concluded on December 1, 2020 with the termination of 311 employees, the Company ends 2020 with the adhesion of 480 employees to the incentive dismissal programs, equivalent to a reduction of 6.9% in the staff of September 2020 (7,006 employees). The indemnities are estimated at R$61.9 million, while the potential cost reduction is estimated at R$68.1 million from 2021, an amount that rises to R$77.1 million from 2022, when the effects of the Call Center PDI are now perceived.Additionally, the PDI balance recognized in 2020 is R$66,9 million (according to NE 32.2).
On February 12, 2020 the Board of Directors approved the implementation, within Copel and its wholly-owned subsidiaries, of a short-term incentive program called Performance Incentive Program, or Prêmio Por Desempenho (“PPD”) directed at aligning efforts throughout different organizational levels to the company's strategic objectives.
The program prizes technical consistency and takes the best market practices into account. It was developed with the support of Fundação Instituto de Administração – FIA, a consultancy that specializes in people management modernization projects for the private sector as well as state-owned companies.
As a result, Copel improves its target-based management strategy and enhances its merit-based culture, thus aligning with the achievement of its strategic plan. Upholding the company's values, the implementation of the program reflects the commitment of Copel's management to the improvement of the group's operational efficiency, and to the highest corporate governance standards, strengthening the pillars that support the business' sustainable growth and longevity.
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As of March 31, 2021, board members and executive officers held, collectively, directly or indirectly, less than 0,01% of any class of our shares.
The following table indicates the board members, executive officers and members of the Supervisory Board who held shares as of March 31, 2021, and their respective share ownership as of such date. No other board member, executive officer, members or alternate members of the Supervisory Board held shares issued by the Company on March 31, 2021.
| Number of shares(1) | |||
| Common | Class A | Class B | |
| Board of Directors | |||
| Marcel Martins Malczewski | |||
| Daniel Pimentel Slaviero | - | - | - |
| Marco Antônio Barbosa Cândido | - | - | - |
| Carlos Biedermann | - | - | - |
| Gustavo Bonini Guedes | - | - | - |
| Luiz Claudio Maia Vieira | - | - | - |
| Leila Abraham Loria | - | - | - |
| Olga Stankevicius Colpo | - | - | - |
| Adriana Angela Antoniolli | |||
| Executive Officers | |||
| Daniel Pimentel Slaviero | - | - | - |
| Ana Letícia Feller | - | - | - |
| Adriano Rudek de Moura | - | - | - |
| Cassio Santana da Silva | - | - | - |
| Eduardo Vieira de Souza Barbosa | - | - | - |
| Vicente Loiácono Neto | - | - | - |
| David Campos | - | - | - |
| Supervisory Board – Members | |||
| Demetrius Nichele Macei | - | - | |
| Harry Françóia Júnior | - | - | - |
| José Paulo da Silva Filho | - | - | - |
| Roberto Lamb | - | - | - |
| Letícia Pedercini Issa Maia | 20 | - | 20 |
| Supervisory Board – Alternates | |||
| Emir Calluf Filho(2) | |||
| João Luiz Giona Junior | - | - | - |
| Otamir Cesar Martins | - | - | - |
| Estevão de Almeida Accioly | - | - | - |
| Gilberto Pereira Issa | - | - | - |
(1) Considers the share split.
(2)Emir Calluf Filho resigned on July 24, 2020.
We have no share-based incentive plan for employees.
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Item 7. Major Shareholders and Related Party Transactions.
Since 1954, the State of Paraná has owned the majority of our Common Shares and has exercised control over us. On December 31, 2020, the State of Paraná directly owned 58.63% of the Common Shares. The State of Paraná does not have any different voting rights, but as long as it holds a majority of our Common Shares, it will have the right to elect a majority of our directors.
On December 31, 2020, BNDESPAR owned directly 26.41% of our Common Shares. The shareholders’ agreement entered into by and between the State of Paraná and BNDESPAR on December 22, 1998, and amended on March 29, 2001, was terminated on December 21, 2018.
On March 11, 2021, acting at an Extraordinary Shareholders’Meeting, the shareholders of Copel approved the splitting of our shares, pursuant the Brazilian Corporate Law, in the proportion of one share to ten shares, so that for each one share issued by the Company, nine new shares of the same class and type would be credited (the "Share Split").
The following table, which considers the Share Split, sets forth certain information regarding the ownership of our Common Shares on December 31, 2020:
|
Shareholder |
Common shares | |
| (thousands) | (% of total) | |
| State of Paraná | 850.286 | 58.6 |
| BNDESPAR | 382.988 | 26.4 |
| Eletrobras | 15.308 | 1.1 |
| Public Float – ADRs | 1.163 | 0.1 |
| Public Float – B3 (Brasil, Bolsa, Balcão) | 197.201 | 13.6 |
| Other | 3.364 | 0.2 |
| All directors and officers as a group(1) |
- |
- |
| Total | 1.450.310 | 100.0 |
___________________
(1) On December 31, 2020, our directors and officers held an aggregate of 20 Common Shares.
The following table, which considers the Share Split, sets forth certain information regarding the ownership of our Class B Shares on December 31, 2020:
|
Shareholder |
Class B Shares | |
| (thousand) | (% of total) | |
| State of Paraná | - | – |
| BNDESPAR | 272.820 | 21.3 |
| Eletrobras | - | – |
| Traded as ADSs | 233.148 | 18.1 |
| Traded in the B3 (Brasil, Bolsa, Balcão) | 774.780 | 60.4 |
| Other | 2.227 | 0.2 |
| All directors and officers as a group | - | – |
| Total | 1.282.975 | 100.0 |
As of March 31, 2021, 0.84% of the Common Shares and 20.04% of the Class B Shares were held by 274 holders that reside in the United States and have registered with the B3 (Brasil, Bolsa, Balcão) market. At the same date, the ADSs represented 0.08% of the Common Shares and 22.14% of the Class B Shares, and together, approximately 10.42% of our total share capital. For the last three fiscal years, we had no changes in the amount of our issued corporate capital or in the voting rights of our shares.
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We engage in transactions, including the sale of electric energy and charges for use of the transmission system, with our principal shareholders and with our joint ventures and affiliates. The tariffs we charge on electric energy sold to our related parties are approved by ANEEL, and the amounts are not material. We also provide guarantees in the context of financing transactions and power purchase agreements entered into by our subsidiaries in the ordinary course of business. For more information, see Note 37 to our audited consolidated financial statements.
Transactions with Shareholders
The following summarizes the most significant transactions with our principal shareholders:
Government of the State of Paraná
The Company's management and the Paraná State Government formalized on October 31, 2017 the fifth amendment to the agreement for renegotiation of the Account for Compensation of Income and Losses - CRC. The State of Paraná complied with the agreed terms and made the payments of the monthly interest until December 2017. With the end of the grace period, the State of Paraná has complied with the payments under the agreed terms, with 52 monthly installments remaining to be paid. The contract balance is updated by the IGP-DI variation and interest of 6.65% p.a.
BNDES and BNDESPAR
BNDESPAR, a wholly-owned subsidiary of BNDES, owns 26.4% of our Common Shares. BNDES has granted us loans to finance the construction of generation and transmission facilities and both BNDES and BNDESPAR have purchased debentures issued by Compagas, Cutia and all debentures issued by Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus IV and Ventos de Santo Uriel Wind Farms, which are our subsidiaries.
As of December 31, 2020, we had an aggregate of R$2,559.3 million in outstanding debt with BNDES and BNDESPAR under these financing transactions. For additional information, please see Notes 21, 22 and 36 to our audited consolidated financial statements, as well as “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Transactions with Joint Ventures and Affiliates
We have operation and maintenance services agreements, transmission system connection agreements and contracts for the use of transmission system with our Joint Ventures and, also, operation and maintenance services agreements, connection to the transmission system contracts and power purchase and sale agreements signed with our Affiliates, as described on Note 36 to our audited consolidated financial statements. We also have dividend amounts receivable from these investees, as presented in the same note.
Transactions with Other related parties
Fundação Copel
Fundação Copel is a closed pension fund sponsored by Copel, Compagas and other entities that runs and operates benefit plans, welfare and social assistance. In 2020, Copel made payments to Fundação Copel consisting of rental and for expenditure on pension and welfare plans. For more information, see Notes 23 and 36 to our audited consolidated financial statements.
Transactions with Key management staff
The fees and social security charges and the pension and healthcare plans expenses with the Management are presents at Notes 32.2 and 23.3 to our audited consolidated financial statements.
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See pages F-1 through F-146.
A. Consolidated Financial Information
See “Item 5. Operating and Financial Review and Prospects—Overview” and “Item 18. Financial Statements.”
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We are currently subject to numerous proceedings relating to civil, administrative, labor and tax claims. Our audited consolidated financial statements only include provisions when the Company has a present obligation (legal or constructive) resulting from a past event; it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount necessary to settle the obligation. As of December 31, 2020, our provisions for such risks were R$ 1,555.7 million. However, it is possible that some amounts actually paid are different from the estimates made in recognizing these provisions because of determinations of final judgments and/or liquidations of the award.
As of December 31, 2020, we estimate that the total amount of claims against us, excluding disputes involving non-monetary claims or claims whose potential losses cannot be reasonably estimated due to the current early stages of proceedings, for which no provisions have been made, was approximately R$ 5,206.8 million, of which R$ 345.1 million correspond to labor claims; R$ 9.2 million to employee benefits; R$ 1,159.0 million to regulatory claims; R$ 3,116.9 million to civil claims; and R$ 576.6 million to tax claims. For more information, see Note 29 to our audited consolidated financial statements.
Tax and Social Contribution Claims
During the second half of 2010, two lawsuits were decided before the Federal Regional Court (Tribunal Regional Federal) in favor of the Brazilian government, reversing the prior judgment that recognized our immunity regarding the payment of COFINS tax. As a result, the Federal Internal Revenue Service (Receita Federal) issued an infraction notice demanding the payment of COFINS tax from the period between August 1995 and December 1996. As of December 31, 2020, we had provisioned R$ 107.1 million to cover expected losses related to these lawsuits.
Additionally, we are party to administrative and judicial proceedings pursuant to which we are challenging claims of the Brazilian Social Security authorities to pay additional security contributions for the period between 2000 and 2006. In these proceedings, we estimate the amount of our expected loss to be R$ 29.4 million.
Labor-related Claims
We are the defendant in several lawsuits filed by either current or past employees of ours, related to overtime claims, dangerous work conditions, relocation, and other matters. As of December 31, 2020, we have provisions totaling R$ 596.2 million reflecting the expected losses related to these lawsuits.
Regulatory
We are disputing certain regulatory and legal proceedings in connection with ANEEL’s allegations that we violated regulatory standards. As of December 31, 2020, we have provisions totaling R$ 88.7 million reflecting the expected losses related to these proceedings.
Additional Claims
We are party to several lawsuits related to accidents involving equipment used in our electricity transmission and distribution grids and vehicle accidents (see Note 29.1 to our audited consolidated financial statements). As of December 31, 2020, we have provisions totaling R$387.9 million reflecting the expected losses related to these lawsuits.
We are also party to several lawsuits brought by landowners whose land has been affected by our transmission and distributions lines. As of December 31, 2020, we have provisions totaling R$245.4 million reflecting the expected losses related to these lawsuits.
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In accordance with our bylaws and Brazilian Corporate Law, we regularly pay annual dividends for each fiscal year within sixty days of the declaration of the dividends at the annual shareholders’ meeting or by the Board of Directors. To the extent amounts are available for distribution, we are required to distribute as a mandatory dividend an aggregate amount equal to at least 25.0% of our adjusted net profit. Dividends are allocated pursuant to the formula described in “Dividend Priority of Class A Shares and Class B Shares” below. Under Brazilian Corporate Law, we are not permitted to suspend the mandatory dividend payable with respect to the Common Shares, Class A Shares and Class B Shares for any year. Brazilian Corporate Law permits, however, a company to suspend the payment of all dividends if the Board of Directors, with the approval of the Supervisory Board, reports at the shareholders’ meeting that the distribution would be detrimental to the Company given its financial circumstances. In such a case, companies with publicly traded securities must submit a report to the CVM providing the reasons for the suspension of dividend payments. Notwithstanding the above, Brazilian Corporate Law and our bylaws provide that Class A Shares and Class B Shares shall acquire voting rights if we suspend the mandatory dividend payments for more than three consecutive fiscal years, and such voting rights will continue until all dividend payments, including back payments, have been made. We are not subject to any contractual limitations on our ability to pay dividends.
In accordance with our dividends policy, we may distribute yearly regular dividends higher than the mandatory minimum of 25% following certain guidelines related to our Financial Leverage Ratio, defined as the ratio between net debt and interest, taxes, depreciation, and amortization:
| · | If our Financial Leverage Ratio is below 1.5x, we shall distribute 65% of our adjusted net profits. |
| · | If our Financial Leverage Ratio is in between 1.5x and 2.7x, we shall distribute 50% of our adjusted net profits. |
| · | If our Financial Leverage Ratio is higher than 2.7x, we shall distribute the mandatory minimum of 25% of our adjusted net profits. |
Any distribution of dividends higher than the minimum amount of 25% of our adjusted net profits is constrained to the Available Cash Flow of the same year, defined as the operating cash flow minus net cash flow used for investment.
Calculation of Adjusted Net Profit
Annual dividends are payable from our adjusted net profit for such period. Brazilian Corporate Law defines “net profit” for any fiscal year as the result of a fiscal year after the deduction of income and social contribution taxes for that fiscal year and after the deduction of any amounts allocated to employees’ and management’s participation in our results in such fiscal year. The “net profit” for a relevant fiscal year is subject to adjustment by the addition or subtraction of amounts allocated to legal and other reserves, the result of which is known as our adjusted net profit.
In accordance with Brazilian Corporate Law, we must maintain a legal reserve, to which we must allocate a minimum of 5% of our net profits for each fiscal year until such reserve reaches an amount equal to 20.0% of our capital stock (calculated in accordance with Brazilian Corporate Law). However, we are not required to make any allocations to our legal reserve in a fiscal year in which the legal reserve, when added to our other established capital reserves, exceeds 30.0% of our total capital stock. The amounts to be allocated to such reserve must be approved by our shareholders in a shareholders’ meeting and may be used only for the increase of our capital stock or compensation of losses.
On December 31, 2020, our legal reserve was R$1,209.5 million, or approximately 11.2% of our capital stock at that date.
In addition to deducting amounts for the legal reserve, under Brazilian Corporate Law net profit may also be adjusted by deducting amounts allocated to:
| · | the contingency reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits to a contingency reserve for anticipated losses that are deemed probable in future years, which amount may be estimated; |
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| · | the tax incentives reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits resulting from government donations or subsidies for investment purposes. |
On the other hand, net profits may also be increased by:
| · | the reversal of any amounts previously allocated to a contingency reserve in the fiscal year in which the loss that had been anticipated does not occur as projected or in which the anticipated loss occurs but is lower than the contingency allocated to it; and |
| · | any amounts included in the unrealized profits reserve that have been realized in the relevant fiscal year and have not been used to offset losses, as approved by our shareholders’ meeting, upon the proposal of our Board of Directors or Board of Executive Officers. |
Moreover, our net profits are also adjusted by adding the realization of amounts registered under “Equity Value Adjustments”. The account “Equity Value Adjustments” was created as a result of the first-time adoption of IFRS by Copel in 2010, which caused a fair value revaluation of certain fixed assets and the adoption of the fair value as its “deemed cost” at that date. The increase of the deemed cost of fixed assets led to an increase in depreciation costs. Thus, our management has decided to add to the adjusted net profits the realization of the “Equity Value Adjustments” in order to compensate for effects of the increased depreciation costs. In 2020, our adjusted net profits used to calculate our dividends was increased by R$59.6 million as a result of said realization.
The amounts available for distribution are determined on the basis of the Statutory Financial Statements prepared using the method required by Brazilian Corporate Law, which differ from our audited consolidated financial statements included herein.
Dividend Priority of Class A Shares and Class B Shares
According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least 10% higher than the dividends per share paid to the holders of the Common Shares. Class A Shares have a dividend priority over the Class B Shares, and Class B Shares have a dividend priority over the Common Shares. To the extent that dividends are paid, they are to be paid in the following order:
| · | first, the holders of Class A Shares have the right to receive a minimum dividend equal to 10% of the total share capital represented by the Class A Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared; |
| · | second, to the extent there are additional amounts to be distributed after all amounts allocated to the Class A Shares have been paid in accordance with the first bullet point above, the holders of Class B Shares have the right to receive a minimum dividend per share equal to (i) the mandatory dividend divided by (ii) the total number of Class B Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared; and |
| · | third, to the extent that there are additional amounts to be distributed after all amounts allocated to the Class A Shares and the Class B Shares have been paid, the holders of Common Shares have the right to receive an amount per share equal to (i) the mandatory dividend divided by (ii) the total number of Common Shares outstanding at the end of the fiscal year in respect of which dividends have been declared, provided that the Class A Shares and Class B Shares receive dividends per share at least 10% higher than the dividends per share paid to the Common Shares. |
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To the extent that there are additional amounts to be distributed after all amounts described in the preceding items have been paid and in the form therein described, any such additional amount will be divided equally among all our shareholders.
Payment of Dividends
We are required to hold an annual shareholders’ meeting by April 30th of each year at which, among other things, an annual dividend may be declared by decision of the shareholders on the recommendation of the management, as approved by the Board of Directors. The payment of annual dividends is based on the financial statements prepared for the fiscal year ending December 31. Under Brazilian Corporate Law, we must pay dividends to shareholders of record within 60 days of the date of the shareholders meeting that declared the dividends. A shareholders’ resolution may set forth another date of payment, which must occur prior to the end of the fiscal year in which such dividend was declared. We are not required to adjust the amount of paid-in capital for inflation for the period from the end of the last fiscal year to the date of declaration or to adjust the amount of the dividend for inflation for the period from the end of the relevant fiscal year to the payment date. Consequently, the amount of dividends paid to holders of Class B Shares may be substantially reduced due to inflation.
Pursuant to our bylaws, our management may declare interim dividends to be paid from profits in our semi-annual financial statements, in accordance with the Company's dividend policy and subject to further endorsement by the Shareholders’ Meeting. Any payment of interim dividends counts towards the mandatory dividend for the year in which the interim dividends were paid. In accordance with our dividends policy, our management should approve interim dividends and annual dividends every year.
Pursuant to Brazilian Corporate Law, we may pay interest on equity in lieu of dividends as an alternative form of making distributions to shareholders. We may treat a payment of interest on equity as a deductible expense for tax purposes, provided that it does not exceed the lesser of:
| · | the total amount resulting from (i) Long-Term Interest Rate (Taxa de Juros a Longo Prazo, or “TJLP”) multiplied by (ii) the total shareholders’ equity (determined in accordance with Brazilian tax legislation), less certain deductions prescribed by Brazilian tax legislation; and |
| · | the greater of (i) 50.0% of current net income (after the deduction of social contribution on profits (CSLL ‒ Contribuição Social sobre o Lucro Líquido) and before taking such distributions and any deductions for corporate income tax) for the year in respect of which the payment is made or (ii) 50.0% of retained earnings and profit reserves for the year prior to the year in respect of which the payment is made. |
In order to be eligible to receive amounts remitted in foreign currency outside of Brazil, shareholders who are not residents of Brazil must register with the Brazilian Central Bank in order to receive dividends, sales proceeds or other amounts with respect to their shares. The Class B Shares underlying the ADSs are held in Brazil by the Custodian, as agent for the Depositary, which is the registered owner of our shares.
Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the Custodian on behalf of the Depositary, which will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be delivered to the Depositary for distribution to holders of ADSs. In the event that the Custodian is unable to immediately convert the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before such dividends are converted and remitted. In the event the holder of an ADS fails to collect its dividends from the Custodian within three (3) years, counted as of the date when such dividend was made available, Brazilian corporate law states that such dividends may be returned to us. In this case, the ADS holder shall lose its right to receive the dividends.
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The table below, which considers the Share Split, sets forth the cash distributions we paid/will pay as dividends and as interest on equity for the periods indicated.
|
Year |
Payment date |
Distribution (R$ thousands) |
Payment per share (R$) | ||
| Common | Preferred A | Preferred B | |||
| 2014 | Jun 2015 | 622.523 | 0,21723600 | 0,25250700 | 0,23900000 |
| 2015 | Jun 2016 | 326.795 | 0,11371600 | 0,25250700 | 0,12547300 |
| 2016 | Jun 2017 | 282.947 | 0,09853900 | 0,28905000 | 0,10841000 |
| 2016 | Dec 2017 | 223.266 | 0,07792700 | - | 0,08593200 |
| 2017 | Aug 2018 | 266.000 | 0,09262400 | 0,28905000 | 0,10188700 |
| 2017 | Aug 2018 | 23.401 | 0,00817700 | - | 0,00899600 |
| 2018 | Jun 2019 | 280.000 | 0,09751500 | 0,28905000 | 0,10727000 |
| 2018 | Jun 2019 | 98.542 | 0,03443500 | - | 0,03788100 |
| 2019 | Jun 2020 | 321.500 | 0,11211739 | 0,19732848 | 0,12334596 |
| 2019 | Sep 2020 | 321.500 | 0,11211739 | 0,19732848 | 0,12334596 |
| 2020 | to be defined | 807.500 | 0,28183240 | 0,31001564 | 0,31001564 |
| 2020 | to be defined | 210.276 | 0,07331799 | 0,14383991 | 0,08064979 |
| profit reserves | Apr 2021 | 1.250.000 | 0,43627306 | 0,47990038 | 0,47990038 |
| profit reserves | to be defined | 123.257 | 0,04301883 | 0,04732072 | 0,04732072 |
| profit reserves | to be defined | 134.192 | 0,04683557 | 0,05151910 | 0,05151910 |
The table below, which considers the Share Split, sets forth the cash distributions we paid/will pay as dividends and as interest on equity, translated into US$ based on the exchange rate at year-end, for the periods indicated.
|
Year |
Payment date |
Distribution (US$ thousands) |
Payment per shares (US$) | ||
|
Common |
Preferred A |
Preferred B | |||
| 2014 | Jun 2015 | 234.366 | 0,08178450 | 0,09506325 | 0,08997816 |
| 2015 | Jun 2016 | 83.691 | 0,02912211 | 0,06466580 | 0,03213302 |
| 2016 | Jun 2017 | 86.818 | 0,03023503 | 0,08869013 | 0,03326378 |
| 2016 | Dec 2017 | 68.505 | 0,02391059 | - | 0,02636679 |
| 2017 | Aug 2018 | 81.618 | 0,02800000 | 0,08737908 | 0,03080018 |
| 2017 | Aug 2018 | 7.074 | 0,00247189 | - | 0,00271947 |
| 2018 | Jun 2019 | 72.262 | 0,02516646 | 0,07459740 | 0,02768401 |
| 2018 | Jun 2019 | 25.431 | 0,00888691 | - | 0,00977625 |
| 2019 | Jun 2020 | 79.763 | 0,02781586 | 0,04895638 | 0,03060162 |
| 2019 | Sep 2020 | 79.763 | 0,02781586 | 0,04895638 | 0,03060162 |
| 2020 | to be defined | 155.387 | 0,05423296 | 0,05965625 | 0,05965625 |
| 2020 | to be defined | 40.463 | 0,01410857 | 0,02767909 | 0,01551942 |
| profit reserves (*) | Apr 2021 | 219.402 | 0,07657541 | 0,08423295 | 0,08423295 |
| profit reserves (*) | to be defined | 21.634 | 0,00755074 | 0,00830582 | 0,00830582 |
| profit reserves (*) | to be defined | 23.554 | 0,00822066 | 0,00904272 | 0,00904272 |
(*) US$ based on the exchange rate of 3/31/2021
| Item 9. | The Offer and Listing |
The principal trading market for our shares (including our Class B Shares) is the B3 (Brasil, Bolsa, and Balcão) market. Our Common Shares trade on B3 under the symbol “CPLE3” and our Class B Shares trade under the symbol “CPLE6”. On March 31, 2021, approximately 46,240 shareholders owned our Class B Shares.
In the United States, our Class B Shares in the form of ADSs, each representing one Class B Share (as a result of the reverse Share split), issued by the Depositary pursuant to the Deposit Agreement by and between Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs. The ADSs trade on the NYSE under the symbols “ELP” and “ELPVY”.
On June 19, 2002, our shares were listed on Latibex, an Euro-based market for Latin American securities. The shares trade under the symbol “XCOP”.
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Item 10. Additional Information
Memorandum and Articles of Association
Organization
We are a publicly traded company duly registered with the CVM under No. 1431-1. According to Article Four of our bylaws, we are authorized to pursue, directly or through consortia or in partnership with private companies, the following objectives and purposes:
| · | researching and studying, technically and economically, all energy sources, providing solutions for a sustainable development; |
| · | researching, studying, planning, constructing and developing the production, transformation, transportation, storage, distribution and trade of energy in any of its forms, chiefly electric power, as well as fuels and energy raw materials; |
| · | studying, planning, designing, constructing and operating dams and their reservoirs, as well as other undertakings for multiple uses of water resources; |
| · | providing services in energy trading, energy infrastructure, information and technical assistance concerning the rational use of energy to business undertakings with the aim of implementing and developing economic activities deemed relevant for the development of the State of Paraná, upon approval by the Board of Directors; and |
| · | developing activities in the areas of energy generation, electronic data transmission, electronic communications and control, cellular telephone systems, and other endeavors that may be deemed relevant to the Company and the State of Paraná, being authorized, for such aims, upon approval by the Board of Directors, and for the aims set forth in the second and third sub-items above, to join, preferably holding major stakes or controlling interest, consortia or concerns with private companies, pension funds or other private entities, to participate in bidding processes of new concessions and/or already established special purpose companies to exploit already existing concessions, having taken into consideration, besides the projects' general features, their respective social and environmental impacts. |
Except as described in this section, our bylaws do not contain provisions addressing the duties, authority, or liabilities of directors and management, which are instead established by Brazilian Corporate Law.
Qualification of Board of Directors
The appointed directors must comply with the legal requirements set forth in Federal Law No. 13,303/2016, particularly the ones mentioned in its article 17, and Federal Law No. 6,404/1976. Moreover, pursuant to Federal Law No. 13,303/2016 and to our bylaws, our Board of Directors will mandatorily comprise, at least, (i) three independent members or no less than 25% of the members of our Board of Directors, (ii) three to five members that meet the requirements for members of the Statutory Audit Committee, (iii) two members appointed by minority shareholders which held voting shares, if they do not elect a higher number through multiple vote, (iv) one member appointed by shareholders holding preferred shares, representing, at least, 10% of Copel’s total capital stock, and (v) one member appointed by the employees. Among the members described in item (ii) above, at least one shall compulsorily have recognized professional experience in matters of corporate accounting in order to sit on the Statutory Audit Committee.
Limitations on Directors’ Powers
Under Brazilian Corporate Law, if a director or an executive officer has a conflict of interest with the company in connection with any proposed transaction, the director or executive officer may not vote in any decision of the board of directors or of the board of executive officers related to that transaction, and must disclose the nature and extent of the conflict of interest for transcription in the minutes of the meeting. A director or an executive officer may not transact any business with a company, including accepting any loans, except on reasonable and fair terms for the Company and conditions that are identical to the terms and conditions prevailing in the market or offered by third parties. According to our bylaws, shareholders set the aggregate compensation payable to directors, executive officers, and members of the Supervisory Board. For more information, see “Item 6. Directors, Senior Management and Employees”. Our bylaws do not establish any mandatory retirement age limits.
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Board of Directors and Board of Executive Officers
According to our bylaws, we are managed by a Board of Directors, composed of nine members and a Board of Executive Officers, composed of six to seven members.
Our Board of Directors ordinarily meets monthly and is responsible, among other things, for: (i) establishing our corporate strategy; (ii) defining the general orientation of our business; (iii) defining the responsibilities of members of our Board of Executive Officers; and (iv) electing the members of our Board of Executive Officers.
Our Board of Executive Officers meets every two weeks and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by our bylaws.
The members of our Board of Directors, of our Board of Executive Officers, our Supervisory Board and of our statutory committees shall be liable for any loss or damages resulting from the performance of their duties, in compliance with the applicable law. Notwithstanding, we shall ensure, provided no conflict with our own interests arises, legal assistance for members or former members of statutory bodies in judicial and administrative proceedings brought by third parties, during or after their term of office, for the performance of the duties of their office, in accordance to the terms and provisions of our bylaws.
For further information, see Items 6 – “Directors, Senior Management and Employees - Board of Directors” and “Directors, Senior Management and Employees - Board of Executive Officers”.
Shareholders’ Meetings
The convening of our shareholders’ meeting is made through publication of a notice to shareholders in two newspapers, which are determined at the previous shareholders’ meeting. Generally, we make such notice in Diário Oficial do Estado – PR and the Folha de Londrina. As provided by Brazilian Corporate Law, publications have to be made in the official newspaper located in the state of our corporate headquarters, and in a newspaper with wide circulation in the same city as our corporate headquarters. The notice must be published no fewer than three times, beginning at least 30 calendar days prior to the scheduled meeting date.
In order for a shareholders’ meeting to be held on first call, shareholders representing at least one- quarter of the voting capital have to be present, except as otherwise provided for under Brazilian law. If no such quorum is verified, a second meeting may be called by notice given at least 8 calendar days prior to such meeting and in accordance with the same rules of publication previously described. The quorum requirements will not apply to a second meeting, subject to the minimum quorum and voting requirements for certain matters, as discussed as follows. A shareholder without a right to vote may attend a general shareholders’ meeting and take part in the discussion of matters submitted for consideration.
A shareholder may be represented at a general shareholders' meeting by a proxy appointed in accordance with applicable Brazilian law not more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial institution.
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Right of Withdrawal
Our common shares and preferred shares are not redeemable, with the exception that a dissenting shareholder has, under certain circumstances provided for in Brazilian Corporate Law, the right to withdraw its equity interest from a company and to receive a payment for the portion of shareholder’s equity attributable to his or her equity interest.
Preferred Shares Rights
Pursuant to Brazilian Corporate Law, each preferred share of a class that is admitted to trading on a Brazilian stock exchange must have the certain rights under the Company’s bylaws.
Our bylaws comply with the directives provided by Brazilian Corporate Law as follows: (i) our Class A Shares shall have priority in the distribution of minimum dividends of 10% per year, pro rata, calculated as a percentage of the paid-in capital stock represented by such shares on December 31 of the previous fiscal year; (ii) our Class B Shares shall have priority in the distribution of minimum dividends, pro rata, in the amount equivalent to 25.0% of our net profits, as adjusted in accordance with Section 202 of Law No. 6,404/76, calculated as a proportion of the paid-in capital stock represented by such shares on December 31st of the previous fiscal year; (iii) the dividends paid on Class B Shares pursuant to item (ii) above shall be paid only from any remaining profits after the payment of priority dividends to Class A Shares; and (iv) the dividends to be paid per preferred share, regardless of the class, shall be at least 10% higher than the dividends to be paid per Common Share; and (v) the preferred shares will acquire voting rights if, during three consecutive fiscal years, we fail to pay a fixed or minimum dividend to which the preferred shares are entitled. For more information on our dividend policy, see “Item 8. Financial Information – Dividend Payment.”
Voting Rights
As a general rule, only our Common Shares are entitled to vote and each Common Share corresponds to one vote. Holders of preferred shares acquire voting rights if, during three consecutive fiscal years, we fail to pay a fixed or minimum dividend to which the preferred shares are entitled. If a holder of preferred shares acquires voting rights in this manner, such rights will be identical to the voting rights of a holder of Common Shares and will continue until the dividend is paid.
Furthermore, in accordance with our bylaws holders of preferred shares are entitled to voting rights in regards of specific matter discussed in a shareholders’ meeting:
| · | Change in Copel’s corporate type into another, as well as incorporation, merger or spin-off. |
| · | Agreements between Copel and its controlling shareholder, directly or through a third party, or an entity influenced by the controlling shareholder, when such agreements shall be discussed in a shareholders’ meeting by force of statute or our bylaws. |
| · | Appraisal of assets for paying in Copel’s capital increase. |
| · | Choice of an entity to be hired for the assessment of the economic value of Copel. |
| · | Change or revocation of articles in our bylaws that alter or modify any of the requirements set forth in item 4.1. of the regulation of the Level 2 of B3, while the Level 2 participation contract is still in effect. |
Exclusion or change in our bylaws aimed to suppress the right set forth in article 28, XXIX of our bylaws, which provides for the adoption of the full tariff set by a granting authority, requires the approval of most of the preferred shares.
Preemptive Rights
Our shareholders have a general preemptive right to subscribe for shares in any capital increase, in proportion to his or her ownership, as provided for in the Brazilian Corporate Law. A minimum period of 30 days following the publication of notice of a capital increase is assured for the exercise of the right, and the right is transferable. We may issue shares up to the limit of the authorized capital, excluding right of first refusal to the shareholders, as provided for in the Brazilian Corporate Law and in our bylaws.
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Liquidation
In the event of liquidation of the Company, after all creditors have been paid, all shareholders will participate equally and ratably in any remaining residual assets.
Liability of the Shareholders for Further Capital Calls
Neither Brazilian Corporate Law nor our bylaws provide for capital calls. The shareholders’ liability is limited to the payment of the issue price of the shares subscribed or acquired.
Conversion Rights
Our bylaws provide, as a general rule, that the only permitted conversion of shares is Class A Shares are convertible into Class B Shares. As an exception, Class B Shares can be converted into Common Shares, and vice-versa, strictly for the formation of Units made of four Class B Shares and one Common Share under Copel’s unitization programs set by the Board of Directors. Our shares are not otherwise convertible.
Form and Transfer
Our shares are maintained in book-entry form with a transfer agent (“Transfer Agent”). To make a transfer of shares, the Transfer Agent makes an entry in the register, debits the share account of the transferor and credits the share account of the transferee.
Transfers of shares by foreign investors are made in the manner described above and are executed by the investor’s local agent on the investor’s behalf. However, if the original investment was registered with the Brazilian Central Bank pursuant to a foreign investment mechanism regulated by Resolution No. 4,373 of September 29, 2014 of the CMN (“Resolution No. 4,373”) as described under “Exchange Controls” as follows, the foreign investor must declare the transfer in its electronic registration.
A shareholder may choose, in its individual discretion, to hold its shares through B3. Shares are added to the B3 system through Brazilian institutions that have clearing accounts with the B3. Our shareholder registry indicates which shares are listed on the B3 system. Each participating shareholder is in turn registered in a register of beneficial shareholders maintained by the B3 and is treated in the same manner as the other registered shareholders.
Changes in Rights of Shareholders
A General Meeting of Shareholders must be held whenever the Company intends to change the rights of holders of our common shares or preferred shares. Under Brazilian Corporate Law the proposed changes must be approved by a majority of the class of shareholders that would be affected. Certain changes related to the rights of preferred shares, such as changes in preferences, advantages or conditions of redemption or amortization, may result in the exercise of rights to withdraw by the holders of the shares affected.
Regulation of and Restrictions on Foreign Investors
Foreign investors face no legal restrictions barring them from holding Common Shares, Class A Shares, Class B Shares or ADSs.
The ability to convert into foreign currency dividend payments and proceeds from the sale of Class B Shares or preemptive rights, and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the registration of the relevant investment with the Brazilian Central Bank. Any foreign investor who registers with the CVM in accordance with CMN Resolution No. 4,373 may buy and sell securities on Brazilian stock exchanges without obtaining a separate certificate of registration for each transaction.
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Annex II to CMN Resolution No. 4,373 (“Annex II Regulations”) allows Brazilian companies to issue depositary receipts in foreign exchange markets. Our ADS program is duly registered with the Brazilian Central Bank and the CVM.
Our bylaws do not impose any limitation on the rights of Brazilian residents or non-residents to hold our shares and exercise the rights in connection therewith.
Disclosure of Shareholder Ownership
Under Brazilian regulations any person or group of persons representing the same interest that carries out a relevant trading involving shares or securities issued by a publicly traded company must disclose its share ownership to the investor relations officer of such company, which, in turn, must disclose such information to the CVM and to any relevant stock exchange. A relevant trading is defined as a transaction by which the direct or indirect equity stake of the persons referred above reaches an equity interest corresponding to 5% or its multiples (10%, 15%, and so on), of a type or class of shares representing the company’s capital stock. Any subsequent increase or decrease of 5% or its multiples in ownership of any class of shares must be similarly disclosed. The same reporting obligation applies to the acquisition of any rights over the shares and other securities mentioned in applicable regulation and to the execution of any derivative financial instruments referenced in shares. If such increase results in change of corporate control or administrative structure, or if the increase imposes a public offering, in addition to informing the investor relations officer, a statement containing certain required information must be published in newspapers that are widely circulated in Brazil.
Change of Controlling Shareholder
Under the Brazilian constitution and our bylaws, a change of the controlling shareholder, the State of Paraná, is only permitted with legislative authorization. If such approval is granted to the State of Paraná, and the change in the control over us would happen by a private sale of shares held by the current controlling shareholder or sale of preemptive rights from such controlling shareholder, such transaction shall be subject to the buyer launch a tender offer for the shares held by the minority shareholders.
Arbitration
As provided for in our bylaws, we, our shareholders, directors, officers and members of the supervisory board shall resolve through arbitration any dispute or conflict that may arise between them, regarding, among others, the application, validity, effectiveness, interpretation, violation and corresponding effects of the provisions of our bylaws, of the current applicable law, of the rules applicable to the capital markets in general, as well as those of the regulation of the level 1 of corporate governance of B3 (Brasil, Bolsa, Balcão) (“Level 1”), of the Level 1 participation contract, and of the Sanctions and the Arbitration Regulations of the B3 Market Arbitration Chamber.
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For information concerning our material contracts, see “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”.
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The ownership of Class A Shares, Class B Shares or Common Shares of the Company by individuals or legal entities domiciled outside Brazil is subject to certain conditions established under Brazilian law, as described below.
The right to convert dividend payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under Brazilian foreign investment legislation, which generally requires, among other things, that the relevant investments have been registered with the Brazilian Central Bank. Such restrictions on the remittance of foreign capital abroad may hinder or prevent Itaú Unibanco S.A., as custodian for the Class B Shares represented by ADSs (“Custodian”), or holders who have exchanged ADSs for Class B Shares from converting dividends, distributions or the proceeds from any sale of such Class B Shares, as the case may be, into U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs could be adversely affected by delays in, or refusal to grant any, required government approval for conversions of Brazilian currency payments and remittances abroad of the Class B Shares underlying the ADSs.
Under Resolution No. 4,373/2014, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. The definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad.
To be eligible to invest in the Brazilian financial and capital markets, foreign investors must:
| 1. | point at least one representative in Brazil with powers to perform actions relating to foreign investments; |
| 2. | register as a foreign investor with the CVM, pursuant to CVM Rule No. 13/2020; |
| 3. | register the foreign investment with the Brazilian Central Bank; and |
| 4. | constitute at least one custodian institution authorized by CVM, provided that this provision is not applicable to foreign investors who are individuals. |
Securities and other financial assets held by foreign investors must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM.
The Annex II Regulations provide for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. Prior to the issuance of the ADSs, the ADS program was approved by the Brazilian Central Bank and the CVM under the Annex V to CMN Resolution No. 2,689, which allowed Brazilian companies to issue depositary receipts in foreign exchange markets and was in force by the time the ADSs were issued. Depositary receipts are currently governed by Resolution No. 4,373. The proceeds from the sale of ADSs by ADS holders outside Brazil are free of Brazilian foreign investment controls and should not be subject to taxation in Brazil. The withdrawal and the disposal of Class B Shares upon cancellation of ADS will be subject to taxation in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Taxation of Gains Outside Brazil”.
An electronic registration has been issued in the name of the Depositary with respect to the ADSs and is maintained by the Custodian on behalf of the Depositary. Pursuant to this electronic registration, the Custodian and the Depositary are able to convert dividends and other distributions with respect to the Class B Shares represented by ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for Class B Shares, such holder must seek to obtain its own electronic registration with the Brazilian Central Bank.
Pursuant to Brazilian Central Bank Resolution No. 4,373/2014, the withdrawal of Class B Shares upon cancellation of ADSs may require simultaneous exchange transactions in the event the investor decides not to dispose of those Class B Shares. The simultaneous exchange transactions may be required in order to obtain a certificate of registration of Class B Shares with the Brazilian Central Bank. This transaction will be subject to tax in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Other Brazilian Taxes”.
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Thereafter, any holder of Class B Shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such Class B Shares, unless such holder obtains his own electronic registration. A holder that obtains an electronic registration may be subject to less favorable Brazilian tax treatment than a holder of ADSs. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations”.
The Brazilian government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Brazilian Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian government directives. There can be no assurance that the Brazilian government will not impose similar restrictions on foreign repatriations in the future.
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The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Class B Shares or ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change. Prospective purchasers of Class B Shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs.
Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of Class B Shares or ADSs. Prospective holders of Class B Shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs in their particular circumstances.
Brazilian Tax Considerations
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of Class B Shares or ADSs by an individual, entity, trust or organization resident or domiciled outside Brazil for purposes of Brazilian taxation (“Non-Brazilian Holder”). It is based on Brazilian law currently in effect, which is subject to differing interpretations and changes that may apply retroactively. This discussion does not address all the Brazilian tax considerations that may be applicable to any particular Non-Brazilian Holder, and each Non-Brazilian Holder should consult its own tax advisor about the Brazilian tax consequences of investing in Class B Shares or ADSs.
Taxation of Dividends
Dividends paid by the Company in cash or in kind from profits of periods beginning on or after January 1, 1996 (i) to the Depositary in respect of Class B Shares underlying ADSs or (ii) to a Non-Brazilian Holder in respect of Class B Shares generally will not be subject to Brazilian withholding income tax. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates depending upon the year in which the profits have been obtained.
Distributions of Interest on Equity
In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on the equity of the company as an alternative form of making dividend distributions. The rate of interest may not be higher than TJLP, as determined by the Brazilian Central Bank from time to time. The total amount distributed as interest on equity may not exceed, for tax purposes, the greater of (i) 50.0% of net income (after the deduction of the social contribution on net profits and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on equity) related to the period in respect of which the payment is made and (ii) 50.0% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.
Distributions of interest on equity paid to Brazilian and Non-Brazilian Holders of Class B Shares, including payments to the Depositary in respect of Class B Shares underlying ADSs, are deductible by the Company for Brazilian corporate income tax and social contribution on net profits purposes as far as the limits above described are observed. Such payments to shareholders are subject to Brazilian withholding income tax at the rate of 15.0%, except for payments to shareholders situated in tax haven jurisdictions (that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the beneficial owner of the income derived from transactions carried out and attributable to a Non-Brazilian Holder – “Tax Haven Holder”), which payments are subject to withholding income tax at a 25.0% rate. A regulation issued by the Brazilian tax authorities on November 28, 2014 (Ordinance 488, of 2014) decreased, from 20% to 17%, the minimum threshold for certain specific cases. The reduced 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities in Normative Ruling 1,530 dated December 19, 2014. The list of tax haven jurisdictions is currently provided in Normative Ruling No. 1,037. These payments may be included, at their net value, as part of any mandatory dividend. To the extent that payment of interest on net equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax, plus the amount of declared dividends, is at least equal to the mandatory dividend.
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Taxation of Gains Outside Brazil
According to Law No. 10,833 of December 29, 2003 (“Law No. 10,833/03”), capital gains realized on the disposition of assets located in Brazil by a Non-Brazilian Holder, whether to another non-Brazilian resident or to Brazilian residents, are subject to taxation in Brazil. In this sense, if the Class B Shares are disposed of by a Non-Brazilian Holder, as they are defined as assets located in Brazil, such holder will be subject to income tax on the gains assessed, following the rules described below, whether the disposition is conducted in Brazil or abroad and with a Brazilian resident or not.
A disposition of Class B Shares can occur abroad if an investor decides to cancel its investment in ADSs and register the underlying Class B Shares as a direct foreign investment under Law No. 4,131. Any capital gain arising from sales or other dispositions of Class B Shares outside Brazil would be subject to Brazilian income tax at the rates that range from 15% to 22.5% depending on the amount of the gain, as follows: (i) 15% on gains not exceeding R$5,000,000.00; (ii) 17.5% on gains that exceed R$5,000,000.00 and do not exceed R$10,000,000.00; (iii) 20% on gains that exceed R$10,000,000.00 and do not exceed R$30,000,000.00; and (iv) 22.5% on gains exceeding R$30,000,000.00 or, if the investor is a Tax Haven Holder, 25.0%, which should be withheld by the purchaser of the Class B Shares outside Brazil or its attorney-in-fact in Brazil.
Regarding ADSs, although the matter is not free from doubt, the gains realized by a Non-Brazilian Holder on the disposition of ADSs to another Non-Brazilian Holder should not be taxed in Brazil, based on the theory that ADSs do not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you that Brazilian courts would adopt this theory. Thus, the gain on a disposition of ADSs by a Non-Brazilian Holder to a resident in Brazil (or possibly even to a Non-Brazilian Holder in the event that courts determine that ADSs would constitute assets located in Brazil) may be subject to income tax in Brazil.
Taxation of Gains in Brazil
For purposes of Brazilian taxation, the income tax rules on gains related to disposition of Class B Shares vary depending on the domicile of the Non-Brazilian Holder, the form by which such Non-Brazilian Holder has registered its investment before the Brazilian Central Bank and/or how the disposition is carried out, as described below.
Generally, gains are defined as the positive difference between the amount realized on the sale or exchange of a security and its acquisition cost. Gains assessed on the disposition of the Class B Shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:
| 1. | exempt from income tax when assessed by a Non-Brazilian Holder registered under Resolution No. 4,373 of the CMN (“4,373 Holder”) that is not a Tax Haven Holder; or |
| 2. | subject to income tax at a rate of 15.0% in any other case, including the gains assessed by a Non-Brazilian Holder that (i) is not a 4,373 Holder, or (ii) is a 4,373 Holder and is a Tax Haven Holder. |
There can be no assurance that the current preferential treatment for 4,373 Holders will continue in the future.
Any other gains assessed on a disposition of the Class B Shares that is not carried out on the Brazilian stock exchange is subject to income tax at the progressive rates ranging from 15% to 22.5%, except for gains assessed by Tax Haven Holders who are subject to an income tax rate of 25.0%.
If these gains are related to transactions conducted on the Brazilian non-organized, over-the-counter market, through an intermediary, the withholding income tax of 0.005% on the sale value shall also be applicable and can be offset with the eventual income tax due on the capital gain.
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The deposit of Class B Shares in exchange for the ADSs may be subject to Brazilian income tax. In this case, the difference between the acquisition cost and the market price of the Class B Shares would be subject to income tax at the progressive rates ranging from 15% to 22.5% or 25.0% in the case of investors that are Tax Haven Holders. There may be arguments to claim that this taxation is not applicable in the case of a Non-Brazilian Holder that is registered under Resolution 4,373 (other than Tax Haven Holders), which should not be subject to income tax in such a transaction.
The withdrawal of Class B Shares upon cancellation of ADSs should not be subject to Brazilian income tax, as long as the regulatory rules are appropriately observed with respect to the registration of the investment before the Brazilian Central Bank.
In the case of redemption of the Class B Shares or ADSs or capital reduction by a Brazilian corporation, with subsequent withdrawal of the ADSs, such as our company, the positive difference between the amount effectively received by the Non-Brazilian Holder and the acquisition cost of the securities redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the progressive rates ranging from 15.0% to 22.5% or 25.0%, as the case may be.
Any exercise of preemptive rights relating to the Class B Shares or ADSs will not be subject to Brazilian taxation. Gains on the sale or assignment of preemptive rights will be subject to the same tax treatment applicable to disposition of Class B Shares.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of Class B Shares or ADSs by a Non-Brazilian Holder except for gift and inheritance taxes levied by some states in Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or in the relevant State to individuals or entities that are resident or domiciled within such State in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of Class B Shares or ADSs.
Pursuant to Decree No. 6,306 of December 14, 2007 (“Decree No. 6,306/07”), a tax on foreign exchange transactions (“IOF/Exchange”) may be imposed on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) or vice-versa. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%, except for: (i) foreign exchange transactions for the inflow of funds related to investments in variable income effectuated by a Non-Brazilian Holder in the Brazilian financial and capital market, in which case the rate is 0%, and (ii) payment of dividends, and interest on shareholders’ equity related to the investment mentioned under item (i) above, in which case the rate is zero. Nonetheless, the Brazilian government may increase the rate to a maximum of 25.0%. Any such increase will be applicable only prospectively.
Pursuant to Decree No 6,306/07, the Tax on Bonds and Securities Transactions (“IOF/Bonds”) may be imposed on any transactions involving bonds and securities, including those carried out on Brazilian stock, futures and commodities exchanges. The rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero if the redemption, transfer or renegotiation occurs after 30 days of their acquisition. As from December 24, 2013, the IOF/Bonds levies at a rate of zero percent on the transfer (cessão) of shares traded in a Brazilian stock exchange environment with the specific purpose of enabling the issuance of depositary receipts to be traded outside Brazil. The Brazilian government is permitted to increase such rate at any time up to 1.5% per day, but only in respect of future transactions.
U.S. Federal Income Tax Considerations
The statements regarding U.S. tax law set forth below are based on U.S. law as in force on the date of this annual report, and changes to such law subsequent to the date of this annual report may affect the tax consequences described herein (possibly with retroactive effect). This summary describes the principal U.S. federal income tax consequences of the ownership and disposition of Class B Shares or ADSs, but it does not purport to be a comprehensive description of all of the U.S. tax consequences that may be relevant to a decision to hold or dispose of Class B Shares or ADSs. This summary applies only to purchasers of Class B Shares or ADSs who will hold the Class B Shares or ADSs as capital assets and does not apply to special classes of holders such as brokers or dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, holders of 10% or more of our shares by vote or value (taking into account shares held directly or through depositary arrangements), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders who elect to account for their investment in Class B Shares or ADSs on a mark-to-market basis, regulated investment companies, partnerships or other pass-through entities (or partners or members therein), insurance companies, U.S. expatriates, and persons holding Class B Shares or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction for U.S. federal income tax purposes. Moreover, this summary does not address the Medicare tax on net investment income or the tax consequences to U.S. holders of acquiring, owning or disposing of Class B Shares or ADSs under any U.S. federal estate or gift, state, local or foreign taxes.
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Each holder is encouraged to consult such holder’s tax advisor concerning the overall tax consequences to it, including the consequences under laws other than U.S. federal income tax laws, of an investment in Class B Shares or ADSs.
In this discussion, references to a “U.S. holder” are to a beneficial holder of a Class B Share or an ADS that is (i) an individual citizen or resident of the United States of America, (ii) a corporation, or any other entity taxable as a corporation, organized under the laws of the United States of America, any state thereof, or the District of Columbia, or (iii) otherwise subject to U.S. federal income taxation on a net basis with respect to the Class B Share or ADS.
For purposes of the U.S. Internal Revenue Code of 1986, as amended, which we call the “Code”, holders of ADSs will generally be treated as owners of the Class B Shares represented by such ADSs.
Taxation of Distributions
A U.S. holder will recognize dividend income for U.S. federal income tax purposes in an amount equal to the amount of any cash and the value of any property distributed by us as a dividend to the extent that such distribution is paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, when such distribution is received by the custodian (or by the U.S. holder in the case of a holder of Class B Shares).
We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. U.S. holders therefore should expect that distributions generally will be treated as dividends for U.S. federal income tax purpose.
If you are a U.S. holder, the amount of any distribution will include the amount of Brazilian tax withheld on the amount distributed, and the amount of a distribution paid in reais will be measured by reference to the exchange rate for converting reais into U.S. dollars in effect on the date the distribution is received by the custodian (or by a U.S. holder in the case of a holder of Class B Shares). If the custodian (or U.S. holder in the case of a holder of Class B Shares) does not convert such reais into U.S. dollars on the date it receives them, it is possible that the U.S. holder will recognize foreign currency loss or gain, which would be ordinary loss or gain, when the reais are converted into U.S. dollars. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations under the Code.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual, with respect to the ADSs, will be subject to taxation at preferential rates if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2019 and 2020 taxable years. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 2021 taxable year. Based on existing guidance, it is not clear whether dividends received with respect to the Class B Shares will be treated as qualified dividends, because the Class B Shares themselves are not listed on a U.S. exchange. Holders of ADSs and Class B Shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances.
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Distributions with respect to the Class B Shares or ADSs generally will be treated as dividend income from sources outside of the United States and generally will be treated separately along with other items of “passive” income for purposes of determining the credit for foreign income taxes allowed under the Code. Subject to certain limitations, Brazilian income tax withheld in connection with any distribution, with respect to the Class B Shares or ADSs may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder if such U.S. holder elects for that year to credit all foreign income taxes. Alternatively, such Brazilian withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit, after non-U.S. taxes, is insubstantial. U.S. holders should consult their own tax advisors concerning the implications of these rules in light of their particular circumstances.
Distributions of additional shares to holders with respect to their Class B Shares or ADSs that are made as part of a pro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax.
Holders of Class B Shares or ADSs that are foreign corporations or nonresident alien individuals, which we call “non-U.S. Holders”, generally will not be subject to U.S. federal income tax or withholding tax on distributions with respect to Class B Shares or ADSs that are treated as dividend income for U.S. federal income tax purposes unless such dividends are effectively connected with the conduct by the holder of a trade or business in the United States.
Taxation of Capital Gains
Upon the sale or other taxable disposition of a Class B Share or ADS, a U.S. holder will recognize gain or loss for U.S. federal income tax purposes. The amount of the gain or loss will be equal to the difference between the amount realized in consideration for the disposition of the Class B Share or ADS (including the gross amount of the proceeds before the deduction of any Brazilian tax) and the U.S. holder’s tax basis in the Class B Share or ADS. Such gain or loss generally will be subject to U.S. federal income tax as capital gain or loss and will be long-term capital gain or loss if the Class B Share or ADS has been held for more than one year on the date of the disposition. The net amount of long-term capital gain recognized by an individual holder generally is subject to taxation at preferential rates. Capital losses may be deducted from taxable income, subject to certain limitations. Gain realized by a U.S. holder on a sale or disposition of Class B Shares or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if Brazilian tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign source income of the appropriate type in respect of which the credit may be used. Alternatively, such Brazilian tax may be taken as a deduction against taxable income if the U.S. holder does not take a credit for any foreign income tax during the taxable year.
A non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax on gain realized on the sale or other disposition of a Class B Share or ADS unless (i) such gain is effectively connected with the conduct by the holder of a trade or business in the United States, or (ii) such holder is an individual who is present in the United States of America for 183 days or more in the taxable year of the sale and certain other conditions are met.
Foreign Financial Asset Reporting
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of US$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.
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Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the ADSs or Class B Shares to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is furnished to the Internal Revenue Service.
A non-U.S. Holder generally will be exempt from these information reporting requirements and backup withholding tax, but may be required to comply with certain certification and identification procedures in order to establish its eligibility for such exemption in connection with payments received within the United States or through certain U.S.-related intermediaries.
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We file reports, including annual reports on Form 20-F and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. We are required to make filings with the SEC by electronic means. Any filings we make electronically will be available to the public over the Internet at the SEC’s website.
For more information about our securities, see Exhibit 2.4 to this annual report.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
See Note 36.2.3 to our audited consolidated financial statements for disclosure about market risk.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Item 12D. American Depositary Shares
In the United States, the Class B Shares trade in the form of ADSs, each representing one Class B Share, issued by The Bank of New York Mellon (or the Depositary) pursuant to the Deposit Agreement. The ADSs trade under the symbols ELP and ELPVY. ADS holders are required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The Depositary is located at 240 Greenwich Street, New York, NY 10286.
ADS holders are required to pay the Depositary: (i) an annual fee of up to US$0.02 per ADS (or portion thereof) for administering the ADS program, and (ii) amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, cable, telex and facsimile transmission, or conversion of foreign currency into U.S. dollars. In both cases, the Depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
ADS holders are also required to pay additional fees for certain services provided by the Depositary, as set forth in the table below.
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|
Depositary service |
Fee payable by ADS holders |
| Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | US$5.00 or less per 100 ADSs (or portion thereof) |
| Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | US$5.00 or less per 100 ADSs (or portion thereof) |
| Distribution of cash dividends | US$0.02 or less per ADS |
| Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | A fee equivalent to the fee that would be payable if securities distributed to the holder had been shares and the shares had been deposited for issuance of ADSs |
| Depositary services | US$0.02 (or less) per ADSs per calendar year |
| Transfer and registration of shares on the Depositary’s share register to or from the name of the depositary or its agent when the holder deposits or withdraws shares | Registration or transfer fees |
| Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | Expenses of the Depositary |
| Converting foreign currency to U.S. dollars | Expenses of the Depositary |
| Taxes and other governmental charges the Depositary or the custodian are required to pay on any ADS or share underlying an ADS (e.g., stock transfer taxes, stamp duty or withholding taxes) | As necessary |
| Any charges incurred by the Depositary or its agents for servicing the deposited securities | As necessary |
Payments by the Depositary
The Depositary pays us an agreed amount, which includes reimbursements for certain expenses we incur in connection with the ADS program. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the year ended December 31, 2020, this amount was US$ 618,705.71.
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Control and Procedures
2020 Fiscal Year
Disclosure Controls and Procedures, and Report on Internal Control over Financial Reporting
(a) Disclosure Control and Procedures
We evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020 with the participation of our Chief Executive Officer and Chief Financial Officer. Based on our assessment, we concluded that, as of December 31, 2020, our disclosure controls and procedures were effective in providing reasonable assurance that information that we are required to disclose in the reports we present or submit under the Exchange Act is recorded, processed, summarized and reported, within the deadlines specified in the applicable rules and forms, and are accumulated and reported to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding any required disclosure.
(b) Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating the effectiveness of internal control over financial reporting. The process of internal controls over financial reporting is designed by our Chief Executive Officer and our Chief Financial Officer, under the supervision of our Board of Directors, and is carried out by our management and other employees as a means to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS, issued by the IASB.
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Rules 13a-15(f) and 15d-15(f) under the Exchange Act define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes policies and procedures that (1) refer to record keeping that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to enable the preparation of financial statements in accordance with generally accepted accounting principles, and that Company’s receipts and expenses are being made only with authorization from Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company's assets that could have a material effect on the audited consolidated financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any assessment of effectiveness for future periods are subject to numerous risks, including that controls may become inadequate due to changes in conditions.
Our management has assessed the effectiveness of our internal controls over financial reporting as of December 31, 2020, was based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment and criteria applied, our management has concluded that, as of December 31, 2020, the Company's internal control over financial reporting is effective.
Our independent registered public accounting firm has examined the effectiveness of our internal control over financial reporting, as indicated in the report included in this document.
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(c) Attestation Report of the Registered Public Accounting Firm
 |
Deloitte Touche Tohmatsu Rua Nunes Machado, 68, 80250-000 - Curitiba - PR Brasil
Tel.: + 55 (41) 3312-1400 Fax: + 55 (41) 3312-1470 www.deloitte.com.br |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Paranaense de Energia - Copel
Curitiba - PR, Brazil
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Companhia Paranaense de Energia - Copel and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013), issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020 of the Company and our report, dated April 19, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes
Curitiba, Brazil
April 19, 2021
© 2021. For information, contact Deloitte Touche Tohmatsu Limited.
(d) Changes in Internal Control on Financial Reporting
The Company's management implemented changes to its internal control over financial reporting during the year ended December 31, 2020 related to coping with the COVID-19 pandemic, in which a portion of our employees began working remotely, as highlighted below:
| · | Improvements in information security procedures related to the home office, with the implementation of VPN tools, release of remote accesses securely and tested according to the 'Safe Home office' (‘Homeoffice Seguro’) and pentest (Cyber Penetration Test) initiatives, carried out periodically; |
| · | Conducting awareness campaigns for employees regarding cybersecurity, home office, LGPD, and access control; |
| · | Improvement in the procedures and controls that were reviewed in order to mitigate the risks related to the performance of remote activities; |
| · | Implementation of a second authentication factor for some areas of the company considered critical. |
The Company's management has not identified any other changes in its internal control over financial disclosure reporting during the year ended December 31, 2020 that has significantly affected, or is reasonably likely to materially affect, its internal control over financial reporting, except with respect to the remediation listed below.
Material weakness identified as of December 31, 2019
As of December 31, 2019, we reported a material weakness related to internal control deficiencies over the review of assumptions and the calculation of the impairment loss of fixed assets of Copel Telecomunicações, a wholly owned subsidiary of the Company, and of UEGA, a non-wholly owned subsidiary of the Company.
This material weakness arose from difficulties in the operational effectiveness of the control related to the review of assumptions and the calculation of the impairment loss of fixed assets of Copel Telecomunicações and UEGA.
In response to this material weakness, the Company adopted measures to mitigate the risks through a series of actions involving changes in procedures and creation of controls, which were implemented throughout 2020.
Among the main actions and internal controls that have been improved and implemented by the Company, the following stand out:
| · | Intensification of training and communication procedures to all employees involved in these processes, including concepts of internal controls, as well as the operational aspects of calculating the impairment loss; |
| · | Improvement in procedures and controls so that all impairment reduction tests are duly reviewed by another qualified Company employee, by means of a checklist created for this purpose; |
| · | Improvement in the existing controls and procedures for internal evaluation of all possible impacts of the impairment indicators; |
| · | Improvement in the controls to ensure the correct analysis of asset recoverability, including meetings to define the assumptions, calculations for the Company's assets formally reviewed and approved by the competent technical area in the Company, as well as the issuance of an impairment memorandum signed by the Officer. |
Remediation of material weakness reported as of December 31, 2019
In order to remedy the material deficiency identified in fiscal year of 2019, the Company's management relied on the support of the Internal Controls Coordinator and specialists representing each department to analyze and establish immediate actions to remedy these notes. The actions taken were reported periodically to the Statutory Audit Committee, the Fiscal Council and the Board of Directors throughout 2020.
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We emphasize that the Company has been working continuously to improve its internal control environment. With the support of a consulting company engaged to provide advisory services for work related to Internal Controls, we have established action plans to mitigate the risks and periodically communicate them to the governance bodies.
As a result of the work carried out by the management, the Company has successfully remedied the material weakness that had been reported in our previous year's report.
Item 16A. Audit Committee Financial Expert
On May 3, 2019, our Board of Directors reviewed the qualifications and backgrounds of the members of the Audit Committee and determined that Mr. Carlos Biedermann an “audit committee financial expert” within the meaning of Item 16A of Form 20-F and satisfied the requirements of independence of Rule 10A-3 under the Securities Exchange Act.. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Audit Committee”.
Our code of ethics, called the "Code of Conduct", was first adopted in 2003. Over the years there have been reviews to the document to adequate it to the Company's reality. We highlight the review carried out in 2015, when a public consultation to stakeholders took place, and the 2017 review that started to reflect the new Brazilian regulations on conflict of interests and periodic training. The current version of the Code of Conduct was approved on March 13, 2018 by the Board of Directors. In 2019, we began a new process of reviewing our Code through public consultation, which is expected to be completed in early 2021.
The Code of Conduct applies to all of our employees, interns, suppliers, service providers, contractors, directors and officers (including our Chief Executive Officer, our Chief Financial Officer and the officer in charge of our accounting department), as well as of our wholly-owned subsidiaries. Since the adoption of our Code of Conduct, we have not granted any express or implied waiver of any section of our code to the persons to whom it applies.
Our Code is available on our website (ir.copel.com) and copies may also be delivered by mail upon written request to the address provided on the cover page.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
Deloitte Touche Tohmatsu Auditores Independentes acted as our independent registered public accounting firm for the fiscal years ended December 31, 2020, 2019 and 2018.
The table next sets forth the total amount billed to Deloitte Touche Tohmatsu Auditores Independentes for services performed in 2020, 2019 and 2018, and breaks down these amounts by category of service.
|
Year ended December 31, | |||
| Billed |
2020 |
2019 |
2018 |
| (R$ million) | |||
| Audit fees | 4.3 | 3.0 | 3.9 |
| Audit-related fees | - | - | - |
| Tax fees | 0.2 | 0.2 | 0.2 |
| All other fees | 0.1 | - | 1.0 |
| Total | 4.6 | 3.2 | 5.1 |
Audit Fees
Audit fees are fees billed for the audit of our annual financial statements and for the reviews of our quarterly financial information in connection with statutory and regulatory filings or engagements.
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Tax Fees
Tax fees are fees billed for the review of fiscal and tax procedures, including the examination of the procedures in force for the calculation, retention, registration, control, collection, recovery and accounting of taxes, including ancillary obligations.
All Other Fees
The services comprising the fees disclosed under “All Other Fees” refer to (i) fact finding consultive services in connection with the discussion with the Colíder Consortium, with respect to the “Agreement for the Supply of Goods and Services” for the Implementation of the Colíder HPP, and (ii) fact finding consultive services in connection with the discussion to reestablishing the economic and financial balance of said Agreement.
Audit Committee Pre-Approval Policies and Procedures
When hiring other services from its external auditors, the Company's practice provides for prior analysis by the Audit Committee of the Board of Directors, which must consider in this assessment whether a relationship or service provided by an independent auditor: (i) creates conflicting interests with your audit client; (ii) puts them in a position to audit their own work; (iii) results in acting as a manager or as an employee of the audit client; or (iv) puts them in a position of attorney for the audit client.
The Audit Committee also considers, in this type of assessment, whether any service provided by the independent auditing company may impair, in fact or apparently, the firm's independence. Whenever necessary, the Audit Committee can count on the technical support of the Internal Audit, or of an independent consultancy, for technical evaluation that may be required in each specific case, with discussions on the contracting of other services being recorded in the minutes of this collegiate meeting independent auditor.
For more information regarding our Board of Directors and Audit Committee, see “Item 6. Directors, Senior Management and Employees”.
Item 16D. Exemption from the Listing Standards for Audit Committees
Under the listed company audit committee rules of the NYSE and the SEC, we must comply with Securities Exchange Act Rule 10A-3, which requires that we establish an audit committee composed of members of the board of directors that meets specified requirements. All five members of our Audit Committee rely on the exemption in Rule 10A-3(b)(iv)(E): (i) Mr. Carlos Biedermann, Mr. Marco Antônio Barbosa Cândido and Luiz Claudio Maia Vieira, who are designees of the State of Paraná, and (ii) Ms. Leila Abraham Loria and Ms. Olga Stankevicius Colpo, who are designees of minority shareholders. In our assessment, each of these members acts independently in performing the responsibilities of an audit committee member under the Sarbanes-Oxley Act and satisfies the other requirements of Securities Exchange Act Rule 10A-3. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Audit Committee”.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Changes in Registrant’s Certifying Accountant
Not applicable.
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Item 16G. Corporate Governance
|
Section |
New York Stock Exchange Corporate Governance Rules for U.S. Domestic Issuers |
Copel’s Approach |
|
Director Independence | ||
| 303A.01 | A company listed on the New York Stock Exchange (a “listed company”) must have a majority of independent directors on its Board of Directors. “Controlled companies” are not required to comply with this requirement. |
Copel fits the definition of a “controlled company” since the majority of its voting shares are held by the State of Paraná. As such, Copel would not be required to comply with the majority of independent directors requirement. However, Brazilian Law 13,303/2016 requires that at least 25% of our board members be independent members and according to Copel’s bylaws, meeting the requirements of B3's State-Owned Enterprises Governance Program, we are required to have a minimum of 30% of independent directors on Board of Directors.
|
| 303A.03 | The non-management directors of a listed company must meet at regularly scheduled executive sessions without management. |
Copel's non-managing directors regularly hold executive sessions without management, which are usually scheduled to occur at the end of board meetings Our Chief Executive Officer is also a member of our board of directors. Pursuant to the internal regulations of our board of directors, in the event a conflict of interest or particular interest of any board member is identified in relation to a matter to be decided to be decided by the board, such board member must recuse himself from the meeting, which will continue without his presence.
|
|
Nominating/Corporate Governance Committee | ||
| 303A.04 | A listed company must have a Nominating/ Corporate Governance Committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. “Controlled companies” are not required to comply with this requirement. |
As a controlled company, Copel would not be required to comply with the nominating/ corporate governance committee requirements. However, Brazilian Law 13,303 / 2016 requires Copel to keep a permanent statutory committee, advisory to the shareholders, and responsible for monitoring the nomination and evaluation processes applicable to our management, members of our board of directors, Supervisory Board and board committees. This committee is composed of members nominated by the shareholders.
|
|
Compensation Committee | ||
| 303A.05 | A listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. “Controlled companies” are not required to comply with this requirement. | Copel fits the definition of “controlled company”, as the majority of its voting shares are held by the State of Paraná. As a controlled company, Copel would not be required to comply with the compensation committee requirements if it were a U.S. domestic issuer. |
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|
Audit Committee | ||
|
303A.06 303A.07 |
A listed company must have an audit committee with a minimum of three (3) independent directors who satisfy the independence requirements of Rule 10A-3 under the Securities Exchange Act, with a written charter that covers certain minimum specified duties. |
COPEL has a statutory Audit Committee composed of three to five board members (of whom three must satisfy the requirements set forth in Rule 10A-3 under the Securities Exchange Act and one must have professional experience in corporate accounting), each of whom serves a term of two years, and may be re-elected up to three consecutive times. One of the positions in our Audit Committee is currently vacant. Pursuant to the Audit Committee internal rules, the Audit Committee members are appointed by, and may be replaced by, the Board of Directors. All of the members of the Audit Committee are members of our Board of Directors. The Audit Committee is an advisory committee responsible for assisting our Board of Directors and giving its opinion on matters related to our financial and accounting management, risks, internal controls and audit, including, but not limited to, the quality, transparency and integrity of our financial statements, effectiveness of our internal controls with respect to the preparation of financial reports, as well as the activities, independence and quality of the work of our external and internal auditors. |
|
Equity Compensation Plans | ||
| 303A.08 | Shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. |
Under Brazilian Corporate Law, shareholder pre-approval is required for the adoption of any equity compensation plans and material revisions thereto.
|
|
Corporate Governance Guidelines | ||
| 303A.09 | A listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. | Although the corporate governance practices adopted by Copel do not comply with all the terms specified in the rules of the NYSE, they fulfill the requirements established for companies listed on level 2 of corporate governance of B3 (Brasil, Bolsa, Balcão). The Company also adopts the Code of Better Corporate Governance Practices of the Brazilian Institute for Corporate Governance (”IBGC”) and was granted with a certification under the State-Owned Enterprise Governance Program of B3 (Brasil, Bolsa, Balcão) with the maximum score, being the only company in Brazil to obtain this result. |
| Code of Ethics for Directors, Officers and Employees | ||
| 303A.10 | A listed company must adopt and disclose a code of business conduct and ethics for its directors, officers and employees, and must promptly disclose any waivers of the code for directors or executive officers. |
Copel has adopted a code of ethics that applies to all members of the board of directors, the Supervisory Board, the executive board and employees.
|
|
Certification Requirements | ||
| 303A.12 | A CEO of a listed company must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of Section 303A and certify he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. |
Copel’s CEO will promptly notify the NYSE in writing after any executive officer of Copel becomes aware of any material non-compliance with any applicable provisions of the NYSE corporate governance rules and will also certify if he is not aware of any violation by the listed company of NYSE corporate governance listing standards. Copel submits every year an Annual Written Affirmation to the NYSE and will submit an interim Written Affirmation when required. |
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Not applicable.
Reference is made to pages F-1 through F-146.
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| 101. DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
We omitted from the exhibits filed with or incorporated by reference into this annual report certain promissory notes and other instruments and agreements with respect to our long-term debt, none of which authorizes securities in a total amount that exceeds 10% of our total assets. We hereby agree to furnish to the Securities and Exchange Commission copies of any such omitted promissory notes or other instruments or agreements as the Commission requests.
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2013 Concession Renewal Law: Brazilian Law No. 12,783 enacted on January 11, 2013, under which most generation, transmission and distribution concessionaires may be renewed at the request of the concessionaire for an additional period of 30 years, but only if the concessionaire agrees to amend the terms of the concession contract to reflect a new tariff regime to be established by ANEEL.
ADRs: American Depositary Receipts.
ADSs: American Depositary Shares, each representing one Class B Share.
ANATEL: The Brazilian National Telecommunication Agency, or the Agência Nacional de Telecomunicações.
ANEEL: The Brazilian Electricity Regulatory Agency, or the Agência Nacional de Energia Elétrica.
Assured Energy: Determined amount assigned to each hydroelectric plant according to the energy supply risk criteria defined by MME. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
Availability Agreement: Agreement under which a generator commits to making a certain amount of electrical capacity available to the Regulated Market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage.
Average Tariff or Rate: Total sales revenue divided by total megawatt hours (MWh) sold for each relevant period, including in the case of the Company, unbilled electricity, or electricity which has been delivered to a customer, but for which the utility has yet to deliver a bill. Total sales revenue, for the purpose of computing average tariff or rate, includes both gross billings before deducting value-added tax and unbilled electricity sales upon which such taxes have not yet accrued.
Bilateral Agreement: Legal instrument that formalizes the purchase and sale of electric energy between Agents of the Chamber of Commercialization of Electric Energy - CCEE, with the purpose of establishing prices, terms and amounts of supply at determined time intervals.
BNDES: the National Bank for Economic and Social Development, or Banco Nacional de Desenvolvimento Econômico e Social.
Brazilian Central Bank: The Brazilian Central Bank, or Banco Central do Brasil. Brazilian Forestry Code: Federal Law No. 12,651/2012.
B3 (Brasil, Bolsa, Balcão): B3 S.A. - Brasil, Bolsa, Balcão, the securities, commodities and futures exchange, headquartered in São Paulo, Brazil, incoporated as a result of the merger of BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros and CETIP S.A. – Mercados Organizados.
Captive Customers: customers whose energy is supplied by the distributor in which the consumer unit is connected, such as that the amount paid already includes the energy cost and service cost for use of transmission and distribution - wire service. The consumer is not free to negotiate the conditions and the flexibility of energy supplied to meet the needs of its business, instead having to follow the determinations set forth by the distributor. The consumer is subject to the unpredictability of the annual variation of the value of the distributors’ tariffs.
CCEE (Câmara de Comercialização de Energia Elétrica): Chamber of Commercialization of Electric Energy.
CDE: the Electric Energy Development Account, or Conta de Desenvolvimento Energético.
CER: Reserve Energy Contract (Contrato de Energia Reserva).
Class A Shares: The Company’s class A preferred shares.
Class B Shares: The Company’s class B preferred shares.
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CMN: The National Monetary Council of Brazil, or Conselho Monetário Nacional.
Code: The U.S. Internal Revenue Code of 1986, as amended.
Common Shares: The Company’s common shares.
Compagas: Companhia Paranaense de Gás – Compagas
Copel Distribuição: Copel Distribuição S.A., the Company’s entity engaged in the distribution business.
Copel Geração e Transmissão S.A. or Copel GeT: The Company’s entity engaged in the generation and transmission business.
CRC Account: The recoverable rate deficit account, or Conta de Resultados a Compensar.
Custodian: Itaú Unibanco S.A., as custodian for the Class B Shares represented by ADSs.
CVM (Comissão de Valores Mobiliários): Securities and Exchange Commission
Decree No. 6,306/07: Brazilian tax Decree No. 6,306 dated December 14, 2007, which regulates tax on credit, exchange and insurance, or relating to securities – IOF.
Deloitte: Deloitte Touche Tohmatsu Auditores Independentes.
Deposit Agreement: A Deposit Agreement between Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs.
Depositary: The Bank of New York Mellon, as depositary.
Distribution: The transfer of electricity from the transmission lines at grid supply points and its delivery to customers through distribution lines at voltages between 13.8 kV and 44 kV.
Distributor: An entity supplying electrical energy to a group of customers by means of a distribution network.
Elejor: Centrais Elétricas do Rio Jordão S.A.
Eletrosul: Eletrosul Centrais Elétricas S.A.
Energy Agreement: Agreement under which a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, which could interrupt the supply of electricity. In such case, the generator would be required to purchase electricity elsewhere in order to comply with its supply commitments.
Final Customer: A party that uses electricity for its own needs.
Free Customers: Electricity customers that are able to choose their own power suppliers since they meet the following requirements: (i) demand of at least 3 MW at any voltage for new customers (those connected to the distribution grid after July 1995); (ii) demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 kV for existing customers (those connected to the distribution grid before July 1995); and (iii) demand of at least 500 kW and that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants or biomass projects (also known as Special Customers).
Free Market: Market segment that permits a certain degree of competition. The Free Market specifically contemplates purchase of electricity by non-regulated entities such as Free Customers and energy traders.
Furnas: Furnas Centrais Elétricas S.A
Generating Unit: An electric generator together with the turbine or other device that drives it.
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Gigawatt (GW): One billion watts.
Gigawatt hour (GWh): One gigawatt of power supplied or demanded for one hour, or one billionwatt hours.
GPON: Gigabit-Capable Passive Optical Networks - A passive optical network (PON) is a system that brings optical fiber cabling and signals all or most of the way to the end user. Depending on where the PON terminates, the system can be described as fiber-to-the-curb (FTTC), fiber-to-the-building (FTTB), or fiber-to-the-home (FTTH). Passive Optical Network: A point-to-multipoint, passive fiber network architecture in which a single fiber utilizes optical splitters to serve multiple premises. Gigabit PON: Based on the previous PON types, GPON supports higher data rates and increased security, and has been deployed around the world by major telecom operators.
Group A Customers: A group of customers that uses electricity at 2.3 kV or higher. Tariffs applied to this group are based on the actual voltage level at which energy is supplied and the time of day and year the energy is supplied.
Group B Customers: A group of customers that uses electricity at less than 2.3 kV. Tariffs applied to this group are comprised solely of an energy charge and are based on the classification of the customer.
GSF: Generation Scaling Factor.
High Voltage: A class of nominal system voltages equal to or greater than 69,000 volts and less than 230,000 volts.
HPP or Hydroelectric Power Plant: A generating unit that uses water power to drive the electric generator.
IASB: International Accounting Standards Board.
IFRS: International Financial Reporting Standards.
IGP-DI: The Índice Geral de Preços—Disponibilidade Interna inflation index.
IGP-M Index: The Brazilian General Market Price inflation index, or the Índice Geral de Preços do Mercado.
Installed Capacity: The level of electricity that can be delivered from a particular generating unit on a full-load continuous basis under specified conditions as designated by the manufacturer.
Interconnected Transmission System: Systems or networks for the transmission of energy, connected together by means of one or more lines and transformers.
IPCA: Índice Nacional de Preços ao Consumidor Amplo - IPCA inflation index.
IPP: Independent Power Producer, a legal entity or consortium holding a concession or authorization for power generation for sale for its own account to public Utility concessionaires or Free Customers.
Itaipu: Itaipu Binacional, a hydroelectric facility equally owned by Brazil and Paraguay, with an installed capacity of 14,000 MW.
Kilovolt (kV): One thousand volts.
Kilowatt (kW): One thousand watts.
Kilowatt hour (kWh): One kilowatt of power supplied or demanded for one hour, or one thousand watt hours.
Latibex: A Euro-based market for Latin American securities, which is part of the Madrid Stock Exchange.
LGPD: Brazilian Federal Law No. 13,709/2018, or Lei Geral de Proteção de Dados Pessoais.
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Low-income Residential Customers: A group of customers that consumes less than 220 kWh per month and has filed an application to receive benefits under any of the Brazilian government’s social programs. Low-income residential customers are considered a subgroup of residential customers and are not subject to payment of emergency capacity and emergency acquisition charges or any extraordinary tariff approved by ANEEL.
Main Transmission Concession: transmission concession contract No. 060/2001 comprised of different transmission assets that were in operation in the year of 2001 (date of execution of the concession agreement).
MCSD: The Mechanism for Compensation of Surpluses and Deficits (Mecanismo de Compensação de Sobras e Déficits), which corresponds to the process of reallocation of energy surpluses and deficits undertaken in accordance with the Regulated Contracting Environment – ACR among the distribution agents that participate in CCEE.
MCSD-EN: The Mechanism for Compensation of Surpluses and Deficits of New Energy (Mecanismo de Compensação de Sobras e Déficits de Energia Nova), which allows distribution agents to offset amounts of electric energy and power acquired in auctions of new generation projects, and allows the reduction of amounts contracted with generating agents bound to new generation ventures.
Megawatt (MW): One million watts.
Megawatt hour (MWh): One megawatt of power supplied or demanded for one hour, or one million watt hours.
MME: The Brazilian Ministry of Mines and Energy, or the Ministério de Minas e Energia.
MRE: The Energy Reallocation Mechanism is a mechanism which attempts to mitigate the risks borne by hydroelectric generators due to variations in river flows (hydrological risk).
MVE: The Mechanism of Surplus Sales, or the Mecanismo de Venda de Excedentes, which allows distribution companies to sell energy surpluses and, in the case of sales related to amounts within the regulatory limits or involuntary overcontracting, allows distribution companies to revert the acquired benefit to consumers through tariff adjustments.
Non-Brazilian Holder: An individual, entity, trust or organization resident or domiciled outside Brazil for purposes of Brazilian taxation that acquires, owns and disposes of Class B Shares or ADSs.
PLD: Difference Settlement Price or, Preço de Liquidação de Diferenças.
PPD: Performance Incentive Program, or Prêmio Por Desempenho.
ONS: The National Electric System Operator, or the Operador Nacional do Sistema Elétrico.
RAP or APR: Annual Permitted Revenues, or Receita Anual Permitida, the annual revenue established by ANEEL to be charged by a transmission concessionaire for the use of its transmission lines by third parties, which include Free Customers, generators and distributors.
Rationing Program: A program instituted by the Brazilian government to reduce electricity consumption, in effect from June 1, 2001 to February 28, 2002, given it was a period of low rainfall in Brazil.
Real, Reais or R$: Brazilian reais (plural) and the Brazilian real (singular).
Regulated Market: Market segment in which distribution companies purchase all the electricity needed to supply customers through public auctions. The auction process is administered by ANEEL, either directly or through CCEE, under certain guidelines provided by the MME. The regulated market is generally considered to be more stable in terms of supply of electricity.
Regulatory Remuneration Base: The aggregate amount of investments made by the distribution companies in connection with the services compensated by tariffs charged to consumers (Base de Remuneração Regulatória).
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Reserve Energy Auction: mechanism for the contracting of reserve energy created to increase the security in the supplied of energy by the National Interconnected System (SIN). The reserve auction acts as an insurance contracted by distributors to be used when there is a mismatch between forecasted demand and supply. This modality of contracting is formalized through the conclusion of the CER between the selling agents in the auctions and the CCEE.
Retail Tariff: Revenue charged by distribution companies to its customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Retails tariffs are subject to annual revision by ANEEL.
RGR Fund: A reserve fund designed to provide compensatory payments to energy companies for certain assets used in connection with a concession if the concession is revoked or is not renewed.
Sanepar: Companhia de Saneamento do Paraná – Sanepar.
Securities Act: The United States Securities Act of 1933, as amended.
Securities Exchange Act: The United States Securities Exchange Act of 1934, as amended.
Sercomtel: Sercomtel Telecomunicações S.A.
SHP ‒ Small Hydroelectric Plant: Hydroelectric plants with generating capacity between 1,000 kW and 30,000 kW with a reservoir covering an area equal to or less than 3.0 km2.
SPC: Special Purpose Company, or Sociedade de Propósito Específico.
Special Customers: A group of customers that uses at least 500 kV. A Special Customer may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants.
Spot Market: Deregulated market segment in which electricity is bought or sold for immediate delivery. In general, prices of spot market energy purchases tend to be substantially higher than the price of energy under long-term energy purchase agreements.
Substation: An assemblage of equipment, which switches and/or changes or regulates the voltage of electricity in a transmission and distribution system.
Tax Haven Holder: A shareholder situated in tax haven jurisdictions (that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% (or 17%, as the case may be) or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the beneficial owner of the income derived from transactions carried out and attributable to a Non-Brazilian Holder). The list of tax haven jurisdictions is currently provided in Normative Ruling No. 1,037.
Thermoelectric Plant or TPP: A generating unit which uses combustible fuel, such as coal, oil, diesel natural gas or other hydrocarbon as the source of energy to drive the electric generator.
TJLP: The Long-Term Interest Rate, or the Taxa de Juros a Longo Prazo, the Brazilian government’s long-term interest rate.
Transmission: The bulk transfer of electricity from generating facilities to the distribution grid at load center station by means of the transmission grid (in lines with capacity between 69 kV and 525 kV).
Transmission Tariff: Revenue charged by a transmission concessionaire based on the transmission network it owns and operates. Transmission tariffs are subject to periodic revisions by ANEEL.
TUST: The tariff established by ANEEL for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities.
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UHE GBM: Governador Bento Munhoz da Rocha Netto Hydroelectric Power Plant.
U.S. Dollars, dollars, or US$: United States dollars.
U.S. Holder: A beneficial holder of a Class B Share or an ADS that is (i) an individual citizen or resident of the United States of America, (ii) a corporation, or any other entity taxable as a corporation, organized under the laws of the United States of America, any state thereof, or the District of Columbia, or (iii) otherwise subject to U.S. federal income taxation on a net basis with respect to the Class B Share or ADS.
Utility: An entity that is the holder of a concession or authorization to engage in the generation, transmission or distribution of electric energy in Brazil.
Volt: The basic unit of electric force analogous to water pressure in pounds per square inch.
Watt: The basic unit of electrical power.
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The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Companhia Paranaense De Energia – Copel
By: /s/ Daniel Pimentel Slaviero
Name: Daniel Pimentel Slaviero
Title: Chief Executive Officer
By: /s/ Adriano Rudek de Moura
Name: Adriano Rudek de Moura
Title: Chief Financial and Investor Relations Officer
Date: April 19, 2021
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| |
Deloitte Touche Tohmatsu Rua Nunes Machado, 68, 80250-000 - Curitiba - PR Brasil
Tel.: + 55 (41) 3312-1400 Fax: + 55 (41) 3312-1470 www.deloitte.com.br |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Companhia Paranaense de Energia - Copel
Curitiba - PR, Brazil
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Companhia Paranaense de Energia - Copel and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 19, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission - SEC and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Emphasis of Matter
COVID-19-Related Matters
As discussed in Note 1 to the financial statements, the Company has described the impacts of the coronavirus disease (COVID-19) on the operations of the business and the uncertainties of related future impacts on the business, as well as the measures, both taken and planned, to deal with these events and circumstances. Our opinion is not modified in respect of this matter.
Reclassification of RBSE Asset from Accounts Receivable - Concessions to Contract Assets
As discussed in Note 3.6.1, the accompanying financial statements for the year ended December 31, 2019 have been restated for the reclassification of the RBSE Asset from Accounts receivable - Concessions to contract assets. Our opinion is not modified in respect of this matter.
Assets Held for Sale and Discontinued Operations
As discussed in Notes 40 and 3.6.2, effective September 16, 2020, Copel Telecomunicações S.A. has been designated as a discontinued operation and is reflected as such in the accompanying financial statements. Our opinion is not modified in respect of this matter.
Share Split
As discussed in Note 3.6.3, earnings per share and per share amounts of dividends reflect the effects of the share split on March 11, 2021. Our opinion is not modified in respect of this matter.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Refer to Notes 4.12 and 31 to the Financial Statements
Critical Audit Matter Description
The Company bills its residential, industrial and commercial customers monthly. Unbilled revenues from the billing date to month-end are estimated based on the prior month’s billing and recognized as revenue at the end of the month in which the service was provided. At the end of each month, the amount of energy delivered to the customers since their last meter reading date is estimated and the corresponding unbilled revenue is determined based upon a customer’s daily estimated usage by class and applicable customer rates reflecting significant historical trends and experience. Differences between estimated and actual unbilled revenues are recognized in the following month.
We identified revenue recognition as a critical audit matter because of the judgments necessary to audit the revenue recognition, including the methods and assumptions used to estimate unbilled revenue, as well as the use of automated systems to process and record revenue. Performing procedures to audit revenue required a high degree of auditor judgment and extensive audit effort, including involvement of our Information Technology - IT specialists.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures on revenue recognition included the following, among others:
| · | We tested the effectiveness of controls over revenue recognition, including Management’s controls over the measurement of energy volumes and pricing, as well as controls over estimates of unbilled revenue. |
| · | With the assistance of our IT specialists, we: |
| - | Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change Management controls, and IT operations controls. |
| – | Performed testing of system interface controls and automated controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenue. |
| · | With respect to unbilled revenue, we: |
| - | Evaluated the appropriateness and consistency of the methods and assumptions used by Management to develop the estimates of unbilled revenue. |
| - | Tested the mathematical accuracy of Management’s estimates of unbilled revenue. |
| - | We evaluated Management’s ability to estimate unbilled revenue accurately by comparing actual subsequent revenue with Management’s historical estimates for the related revenue streams. |
| · | For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to source documents, testing the mathematical accuracy of the recorded revenue, and verifying subsequent cash receipts. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
Impairment of Long-lived Assets - Refer to Notes 4.10 and 17.5 to the Financial Statements
Critical Audit Matter Description
Long-lived assets, primarily property, plant and equipment and intangible assets, comprise a significant amount of Company’s total assets. Management evaluates the long-lived assets and makes judgments and estimates concerning the carrying value of these assets, including the amounts to be capitalized, the depreciation/amortization rates and useful lives of these long-lived assets. The carrying values of these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This requires Management to make long-term forecasts of future revenues and costs related to the assets subject for review. These forecasts require assumptions about the demand for its products and services, future market conditions and regulatory developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period.
We identified impairment of long-lived assets, specifically property, plant and equipment, as a critical audit matter because of the significant estimates and assumptions Management makes to estimate the recoverable amount of property, plant and equipment. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of Management’s estimates and assumptions related to forecasts of future revenues, operating margins and selection of the discount rates.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to impairment of long-lived assets included the following, among others:
| · | We tested the effectiveness of controls over Management’s impairment evaluation of property, plant and equipment, including those over the identification of impairment indicators and the determination of the recoverable amount, such as controls related to Management’s forecasts, the selection of discount rates and mathematical accuracy of the models used by Management. |
| · | We evaluated the reasonableness of Management’s forecasts and challenged the assumptions and critical judgments, by considering (1) historical results, (2) contractual and market conditions, including price and energy quantities, and (3) impact of changes in the regulatory environment, also considering the potential effects arising from the COVID-19 pandemic. |
| · | With the assistance of our fair value specialists, we evaluated the discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by Management. |
| · | With the assistance of our technical standard and accounting professionals’ specialists to assess the concepts used in the long-lived assets impairment test, we assessed whether the disclosures made by Management in the financial statements are appropriate. |
Provisions for Legal Claims and Contingent Liabilities - Refer to Notes
4.11 and 29
to the Financial Statements
Critical Audit Matter Description
The Company is part in several judicial and administrative proceedings before different courts. Based on assessments made by the Company’s legal counsel, Management makes provisions for legal claims in which losses are rated probable, thus meeting the criteria for recognition of provisioning. The Company’s Management believes that it is not practicable to provide information regarding the expected timing of any cash outflows resulting from these lawsuits in which the Company and its subsidiaries are involved, due to the slow pace and unpredictability of Brazilian legal, tax and regulatory systems, and since final resolution of the proceedings for which a provision has been registered depends on the conclusions of court proceedings.
We identified provisions for legal claims and contingent liabilities as a critical audit matter because of the large number of cases and the subjectivity of estimating the likelihood and amount of potential losses, performing audit procedures to evaluate whether legal claim provisions were appropriately recorded and disclosed, requiring a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to provision for loss on legal claims included the following, among others:
| · | We tested the effectiveness of controls related to provisions for legal claims and contingent liabilities, including those over the completeness and review of new and outstanding legal matters, as well as controls over the measurement of potential losses. |
| · | With the assistance of our IT specialists, we tested the effectiveness of controls related to the computerized systems used by Management to manage outstanding cases. |
| · | We tested the integrity and accuracy of the database used by Management to manage outstanding cases and used to determine loss probabilities and measure potential losses. |
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| · | We inquired internal and external legal counsel to understand developments in legal matters and progression in potential settlement discussions. |
| · | We requested and received a written response from internal and external legal counsel as it relates to lawsuits. |
| · | We read Board of Directors and Executive meeting minutes for evidence of unrecorded contingencies. |
| · | We evaluated the assumptions and judgments used by Management to estimate legal and other provisions, including corroborating the assumptions with internal legal counsel, with the assistance of our tax and environmental specialists. |
| · | We evaluated the Company’s disclosures for consistency with our knowledge of the Company’s legal matters. |
Assets Held for Sale and Discontinued Operations - Refer to Note 40 to
the
Financial Statements
Critical Audit Matter Description
After announcing the Board of Directors approval for the divestment of 100% of the Company’s interest held in Copel Telecomunicações S.A. on July 15, 2020 and after obtaining additional required approvals for the planned public auction, Copel Telecomunicações S.A. was classified as available for sale and reported as a discontinued operation effective September 16, 2020 under IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. After conclusion of the public auction in November 2020, a Share Purchase and Sale Agreement (CCVA) was signed with the winning bidder in January 2021.
We identified assets held for sale and discontinued operations as a critical audit matter because of the size of the transaction and high degree of judgment and subjectivity necessary to determine when the assets held for sale and discontinued operations criteria according to IFRS 5 were met, requiring the use of technical knowledge and interpretation of the accounting standard, as well as the high degree of auditor judgment and effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to provision for assets held for sale and discontinued operations included the following, among others:
| · | We tested the effectiveness of controls relating to Management’s process over disclosures of held-for-sale assets and liabilities/discontinued operations in the financial statements. |
| · | We tested the completeness and accuracy of the disclosures regarding held-for-sale assets and liabilities/discontinued operations, including its measurements and timing. |
| · | We compared the selling price for the Copel Telecomunicações business to the carrying value of the businesses. |
| · | We read the minutes of the Board of Directors which evidenced authorization and approval of the transaction. |
| · | With the assistance of our technical standard and accounting professionals’ specialists, we evaluated Management’s application of IFRS 5 for classification of held-for-sale assets and liabilities/discontinued operations. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
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Recognition of PIS and Cofins Liability to Be Refunded to Consumers - Refer
to Note 13.2.1
to the Financial Statements
Critical Audit Matter Description
On June 16, 2020, a final unappealable ruling court decision acknowledged Copel Distribuição’s right to exclude from the PIS and Cofins tax basis the full ICMS amount included in its energy supply and distribution invoices, as well as authorizing Copel to use the tax credit to pay current taxes, related to the period from August 2004 to June 2020. Considering the favorable ruling, Copel Distribuição recognized the updated tax credit in assets. Also, based on the opinion of its legal counsel, the Company recorded the estimated liability to be refunded to consumers for the past ten years of the credit, as from the date of the unappealable decision, considering the current legislation, the statute of limitations period defined in the civil code and jurisprudence.
We identified the recognition of PIS and Cofins liability to be refunded to consumers as a critical audit matter because of the size and complexity of the transaction and high degree of judgment and subjectivity necessary to estimate the Company’s estimated liability amount to be refunded, requiring use of technical knowledge and interpretation of applicable legislation. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax and tax legal specialists, when performing audit procedures to evaluate the rationale and challenge Management’s assumptions and judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the provision for recognition of PIS and Cofins liability to be refunded to consumers included the following, among others:
| · | We tested the effectiveness of controls related to Management’s process to recognize transactions of such nature. |
| · | With the assistance of our tax specialists, we tested the reasonableness of Management’s methodology used and measurement of the tax credit, including its original amount and monetary correction, which are also the basis for the liability recognized. |
| · | We tested the completeness and accuracy of the database used by Management to calculate the tax credits and liability. |
| · | With the assistance of technical standard and accounting professionals’ specialists and our tax legal specialists, we analyzed the legal opinions prepared by the Company’s legal specialists (in-house and outside legal counsel) with respect to the evaluation of the liability recognition and understanding its rationale, as well as challenged the Company’s assumptions and judgment. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
Cyber-attack - Refer to Note 41.2 to the Financial Statements
Critical Audit Matter Description
In January 2021, Copel became aware that it was exposed to a cyber incident in its IT environment that interrupted some systems, partially affected the Company’s administrative operations and caused a possible data breach. Management has been conducting a comprehensive containment and remediation effort with respect to the vulnerabilities, extent and consequences of the cyber-attack, involving external cybersecurity and IT general control specialists, to contain and mitigate the incident, such as data breach, among others. The Company has no indication that the accuracy and completeness of the financial information have been affected as a result of the incident.
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We identified the cyber incident as a critical audit matter since Copel depends on its IT structure for operation processing and preparation of its financial statements. The potential non-adequacy of the IT general control environment and its IT-dependent controls could give rise to the incorrect processing of critical information used in preparing the financial statements, as well as modify information and cyber security-related risks. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve IT and cyber incident response specialists, when performing audit procedures to evaluate the extent of possible consequences to the IT environment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the cyber-attack included the following, among others:
| · | We assessed the effects of the cyber-attack on the effectiveness of the Company’s and its subsidiaries’ internal control activities, IT environment and data security. |
| · | With the assistance of our IT and cyber incident response specialists, we analyzed the extent of the possible consequences to the IT environment and the actions taken by Management to improve the IT security control environment. |
| · | For a sample of transactions, we performed additional detail testing on accounting journal entries recorded during the incident period, in order to assess whether there were impacts to the Company’s financial statement information. |
| · | We evaluated the impacts of the cyber-attack arising from a possible breach of sensitive data and information, considering Brazilian legislation, as well as other applicable laws. |
| · | With the assistance of our technical standard and accounting professionals’ specialists, we evaluated the impacts arising from the cyber-attack on the Company’s financial statements and internal control environment. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
Transmission Contract Assets - Refer to Note 3.6.1 to the Financial Statements
Critical Audit Matter Description
On December 1, 2020, the Brazilian Securities and Exchange Commission (CVM) published Circular Letter/CVM/SNC/SEP/04/2020 (Circular Letter 04/2020), which provided complementary interpretative guidance on aspects of IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments to be observed when preparing the financial statements by electric transmission companies.
We identified transmission contract assets as a critical audit matter because of judgments necessary to assess the effects of Circular Letter 04/2020, which required the use of technical knowledge and the interpretation of the context applicable to the matter as well as the high degree of auditor judgment and increased extent of effort involved.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to transmission contract assets included the following, among others:
| · | We tested the effectiveness of controls related to Management’s process to measure, classify and disclose transmission contract assets in the financial statements. |
| · | We assessed the criteria used by Management to measure, classify and disclose transmission contract assets, including the effects arising from Circular Letter 04/2020. |
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| · | We tested the completeness and accuracy, on a sample basis, of the transmission contract assets. |
| · | With the assistance of our technical standard and accounting professionals’ specialists, we evaluated the Company’s adequacy with respect to the concepts used to measure, classify and disclose transmission contract assets, including the effects arising from Circular Letter 04/2020, in the Company’s financial statements. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes
Curitiba, Brazil
April 19, 2021
We have served as the Company’s auditor since 2016.
© 2021. For information, contact Deloitte Touche Tohmatsu Limited.
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Companhia Paranaense de Energia – Copel and Subsidiaries
Consolidated Financial Statements as of December 31, 2020 and 2019
and for the years ended December 31, 2020, 2019 and 2018 and Report of
Independent Registered Public Accounting Firm
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| ASSETS | Note | Restated | Restated | |
| 12.31.2020 | 12.31.2019 | 01.01.2019 | ||
| CURRENT ASSETS | ||||
| Cash and cash equivalents | 5 | 3,222,768 | 2,941,727 | 1,948,409 |
| Bonds and securities | 6 | 1,465 | 3,112 | 124,862 |
| Collaterals and escrow accounts | 197 | 147 | 203 | |
| Trade accounts receivable | 7 | 3,768,242 | 3,120,168 | 2,944,091 |
| Dividends receivable | 67,066 | 70,092 | 76,672 | |
| CRC transferred to the Paraná State Government | 8 | 287,789 | 219,236 | 190,876 |
| Sectorial financial assets | 9 | 173,465 | 355,570 | 421,184 |
| Accounts receivable - concessions | 10 | 4,515 | 4,545 | 4,180 |
| Contract assets | 11 | 285,682 | 161,740 | 134,016 |
| Other current receivables | 12 | 514,185 | 426,865 | 363,250 |
| Inventories | 162,791 | 130,442 | 116,285 | |
| Income tax and social contribution receivable | 86,410 | 236,929 | 152,157 | |
| Other current recoverable taxes | 13.2 | 1,565,323 | 205,060 | 160,842 |
| Prepaid expenses | 14 | 36,987 | 33,563 | 40,819 |
| 10,176,885 | 7,909,196 | 6,677,846 | ||
| Assets held for sale | 40 | 1,230,546 | - | - |
| 11,407,431 | 7,909,196 | 6,677,846 | ||
| NONCURRENT ASSETS | ||||
| Long Term Assets | ||||
| Bonds and securities | 6 | 299,065 | 278,969 | 219,434 |
| Other temporary investments | 22,385 | 27,734 | 19,511 | |
| Collaterals and escrow accounts | 21.1 | 133,521 | 98,433 | 89,555 |
| Trade accounts receivable | 7 | 51,438 | 62,399 | 162,915 |
| CRC transferred to the Paraná State Government | 8 | 1,104,835 | 1,131,449 | 1,254,166 |
| Judicial deposits | 15 | 486,746 | 504,190 | 528,290 |
| Sectorial financial assets | 9 | 173,465 | 118,419 | 257,635 |
| Accounts receivable - concessions | 10 | 1,897,825 | 1,873,824 | 1,792,685 |
| Contract assets | 11 | 5,207,115 | 4,628,913 | 4,053,040 |
| Other noncurrent receivables | 12 | 845,460 | 661,759 | 228,894 |
| Income tax and social contribution receivable | 137,778 | 142,532 | 166,384 | |
| Deferred income tax and social contribution | 13.1 | 1,191,104 | 1,011,866 | 1,007,061 |
| Other noncurrent recoverable taxes | 13.2 | 4,539,498 | 322,011 | 231,400 |
| Prepaid expenses | 14 | 44 | 132 | 3,290 |
| 16,090,279 | 10,862,630 | 10,014,260 | ||
| Investments | 16 | 2,729,517 | 2,523,179 | 2,368,234 |
| Property, plant and equipment | 17 | 9,495,460 | 10,592,103 | 10,840,663 |
| Intangible assets | 18 | 6,929,456 | 6,332,611 | 6,029,097 |
| Right-of-use asset | 27 | 132,521 | 92,831 | 118,022 |
| 35,377,233 | 30,403,354 | 29,370,276 | ||
| TOTAL ASSETS | 46,784,664 | 38,312,550 | 36,048,122 | |
| Notes are an integral part of these financial statements | ||||
| F-1 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| LIABILITIES | Note | 12.31.2020 | 12.31.2019 | 01.01.2019 |
| CURRENT LIABILITIES | ||||
| Payroll, social charges and accruals | 19 | 684,046 | 337,044 | 284,179 |
| Accounts payable to suppliers | 20 | 2,291,307 | 1,685,280 | 1,419,243 |
| Income tax and social contribution payable | 13 | 681,831 | 60,132 | 197,949 |
| Other taxes due | 13.2 | 490,608 | 501,068 | 451,433 |
| Loans and financing | 21 | 717,677 | 255,521 | 1,113,047 |
| Debentures | 22 | 1,881,411 | 1,164,301 | 2,184,881 |
| Dividend payable | 991,887 | 616,356 | 375,675 | |
| Post-employment benefits | 23 | 69,231 | 66,004 | 58,478 |
| Sectorial charges payable | 24 | 33,712 | 28,508 | 79,872 |
| Research and development and Energy efficiency | 25 | 380,186 | 375,395 | 270,429 |
| Accounts payable related to concession | 26 | 88,951 | 73,032 | 67,858 |
| Sectorial financial liabilities | 9 | 188,709 | - | - |
| Lease liability | 27 | 41,193 | 33,573 | 27,956 |
| Other accounts payable | 28 | 235,400 | 149,407 | 192,070 |
| PIS and Cofins to be refunded to consumers | 13.2.1 | 121,838 | - | - |
| 8,897,987 | 5,345,621 | 6,723,070 | ||
| Liabilities associated with assets held for sale | 40 | 756,405 | - | - |
| 9,654,392 | 5,345,621 | 6,723,070 | ||
| NONCURRENT LIABILITIES | ||||
| Accounts payable to suppliers | 20 | 145,145 | 187,913 | 49,956 |
| Deferred income tax and social contribution | 13.1 | 484,338 | 293,666 | 157,420 |
| Other taxes due | 13.2 | 622,483 | 662,114 | 796,732 |
| Loans and financing | 21 | 2,470,854 | 2,886,862 | 2,934,260 |
| Debentures | 22 | 4,876,070 | 7,265,409 | 5,333,250 |
| Post-employment benefits | 23 | 1,424,383 | 1,128,932 | 910,285 |
| Research and development and Energy efficiency | 25 | 284,825 | 282,776 | 322,306 |
| Accounts payable related to concession | 26 | 642,913 | 539,555 | 516,305 |
| Sectorial financial liabilities | 9 | - | 102,284 | 96,531 |
| Lease liability | 27 | 97,168 | 63,031 | 90,066 |
| Other accounts payable | 28 | 469,886 | 349,462 | 116,954 |
| PIS and Cofins to be refunded to consumers | 13.2.1 | 3,805,985 | - | - |
| Provisions for legal claims | 29 | 1,555,704 | 1,606,713 | 1,664,773 |
| 16,879,754 | 15,368,717 | 12,988,838 | ||
| EQUITY | ||||
| Attributable to controlling shareholders | ||||
| Capital | 30.1 | 10,800,000 | 10,800,000 | 7,910,000 |
| Equity valuation adjustments | 30.2 | 353,349 | 591,927 | 785,610 |
| Legal reserve | 30.3 | 1,209,458 | 1,014,248 | 914,751 |
| Profit retention reserve | 30.3 | 6,088,855 | 4,846,239 | 6,422,564 |
| Additional dividends proposed from the non-capitalized earning reserve | 30.4 | 1,507,449 | - | - |
| 19,959,111 | 17,252,414 | 16,032,925 | ||
| Attributable to non-controlling interests | 16.2.2 | 291,407 | 345,798 | 303,289 |
| 20,250,518 | 17,598,212 | 16,336,214 | ||
| TOTAL LIABILITIES & EQUITY | 46,784,664 | 38,312,550 | 36,048,122 | |
| Notes are an integral part of these financial statements | ||||
| F-2 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2020, 2019 and 2018
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | ||
| CONTINUING OPERATIONS | ||||
| NET OPERATING REVENUE | 31 | 18,633,249 | 15,869,245 | 14,550,464 |
| Operating costs | 32 | (13,347,822) | (11,464,148) | (11,372,908) |
| GROSS PROFIT | 5,285,427 | 4,405,097 | 3,177,556 | |
| Operational expenses / income | ||||
| Selling expenses | 32 | (159,825) | (175,772) | (105,414) |
| General and administrative expenses | 32 | (809,408) | (711,289) | (706,844) |
| Other operational income (expenses) | 32 | (256,475) | (322,506) | (250,004) |
| Equity in earnings of investees | 16 | 193,547 | 106,757 | 135,888 |
| (1,032,161) | (1,102,810) | (926,374) | ||
| PROFIT BEFORE FINANCIAL RESULTS AND TAXES | 4,253,266 | 3,302,287 | 2,251,182 | |
| Financial results | 33 | |||
| Financial income | 1,839,668 | 729,506 | 797,107 | |
| Financial expenses | (973,397) | (1,184,870) | (1,210,252) | |
| 866,271 | (455,364) | (413,145) | ||
| OPERATING PROFIT | 5,119,537 | 2,846,923 | 1,838,037 | |
| INCOME TAX AND SOCIAL CONTRIBUTION | 13.3 | |||
| Current | (1,260,469) | (416,687) | (522,550) | |
| Deferred | (24,896) | (258,974) | 51,384 | |
| (1,285,365) | (675,661) | (471,166) | ||
| NET INCOME FROM CONTINUING OPERATIONS | 3,834,172 | 2,171,262 | 1,366,871 | |
| DISCONTINUED OPERATIONS | ||||
| Net income (loss) from discontinued operations | 75,578 | (108,393) | 77,133 | |
| NET INCOME | 3,909,750 | 2,062,869 | 1,444,004 | |
| Attributed to shareholders of the parent company arising from continuing operations | 3,823,981 | 2,078,267 | 1,308,901 | |
| Attributed to shareholders of the parent company due to discontinued operations | 80,221 | (88,321) | 98,162 | |
| Attributed to non-controlling shareholders resulting from continuing operations | 16.2.2 | 5,548 | 72,923 | 36,941 |
| BASIC AND DILUTED EARNING PER SHARE ATTRIBUTED TO CONTROLLING | ||||
| SHAREHOLDERS - CONTINUING OPERATIONS - Expressed in Brazilian Reais | 30.5 | |||
| Common shares | 1.33430 | 0.72523 | 0.45683 | |
| Class "A" Preferred shares | 1.76982 | 0.89086 | 0.50251 | |
| Class "B" Preferred shares | 1.46773 | 0.79778 | 0.50251 | |
| BASIC AND DILUTED EARNING PER SHARE | ||||
| ATTRIBUTED TO CONTROLLING SHAREHOLDERS - Expressed in Brazilian Reais | 30.5 | |||
| Common shares | 1.36229 | 0.69440 | 0.49109 | |
| Class "A" Preferred shares | 1.80062 | 0.85790 | 0.54020 | |
| Class "B" Preferred shares | 1.49852 | 0.76388 | 0.54020 | |
| Notes are an integral part of these financial statements | ||||
| F-3 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2020, 2019 and 2018
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | ||
| NET INCOME | 3,909,750 | 2,062,869 | 1,444,004 | |
| Other comprehensive income | ||||
| Items that will never be reclassified to profit or loss | 30.2 | |||
| Gain (losses) on actuarial liabilities | ||||
| Post employment benefits | (271,345) | (186,628) | (58,354) | |
| Taxes on other comprehensive income | 92,190 | 63,444 | 19,994 | |
| Total other comprehensive income, net of taxes | (179,155) | (123,184) | (38,360) | |
| TOTAL COMPREHENSIVE INCOME | 3,730,595 | 1,939,685 | 1,405,644 | |
| Attributable to controlling shareholders – continuing operations | 3,645,033 | 1,950,810 | 1,270,387 | |
| Attributable to controlling shareholders – discontinued operations | 80,221 | (88,321) | 98,162 | |
| Attributed to non-controlling shareholders - continuing operations | 5,341 | 77,196 | 37,095 | |
| Notes are an integral part of these financial statements | ||||
| F-4 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2020, 2019 and 2018
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Attributable to controlling shareholders | |||||||||||
| Equity valuation adjustments | Profit reserves | ||||||||||
| Additional dividends proposed from the non-capitalized earning reserve | Attributable | ||||||||||
| Profit | to non - | ||||||||||
| Deemed | Other comprehensive | Legal | retention | Accumulated | Shareholders’ | controlling | |||||
| Note | Capital | cost | income | reserve | reserve | profit | equity | interests | Equity | ||
| Balance as of January 1, 2018 | 7,910,000 | 873,306 | 17,904 | 844,398 | 5,397,310 | - | - | 15,042,918 | 302,661 | 15,345,579 | |
| Net Income | - | - | - | - | - | - | 1,407,063 | 1,407,063 | 36,941 | 1,444,004 | |
| Other comprehensive income | |||||||||||
| Actuarial gain (losses), net of taxes | 30.2 | - | - | (38,514) | - | - | - | - | (38,514) | 154 | (38,360) |
| Total comprehensive income | - | - | (38,514) | - | - | - | 1,407,063 | 1,368,549 | 37,095 | 1,405,644 | |
| Realization - deemed cost, net of taxes | 30.2 | - | (67,086) | - | - | - | - | 67,086 | - | - | - |
| Allocation proposed to GSM: | |||||||||||
| Legal reserve | - | - | - | 70,353 | - | - | (70,353) | - | - | - | |
| Interest on ow n capital | 30.4 | - | - | - | - | - | - | (280,000) | (280,000) | - | (280,000) |
| Dividends | 30.4 | - | - | - | - | - | - | (98,542) | (98,542) | (36,467) | (135,009) |
| Profit retention reserve | - | - | - | - | 1,025,254 | - | (1,025,254) | - | - | - | |
| Balance as of December 31, 2018 | 7,910,000 | 806,220 | (20,610) | 914,751 | 6,422,564 | - | - | 16,032,925 | 303,289 | 16,336,214 | |
| Net Income | - | - | - | - | - | - | 1,989,946 | 1,989,946 | 72,923 | 2,062,869 | |
| Other comprehensive income | |||||||||||
| Actuarial losses, net of taxes | 30.2 | - | - | (122,583) | - | - | - | - | (122,583) | (601) | (123,184) |
| Gain (losses) on Subsidiary with interest variation | 30.2 | - | - | (4,874) | - | - | - | - | (4,874) | 4,874 | - |
| Total comprehensive income | - | - | (127,457) | - | - | - | 1,989,946 | 1,862,489 | 77,196 | 1,939,685 | |
| Realization - deemed cost, net of taxes | 30.2 | - | (66,226) | - | - | - | - | 66,226 | - | - | - |
| Capital increase | 2,890,000 | - | - | - | (2,890,000) | - | - | - | - | - | |
| Deliberation of additional dividends proposed | 16.2.2 | - | - | - | - | - | - | - | - | (3,335) | (3,335) |
| Dividends | - | - | - | - | - | - | - | - | (7,838) | (7,838) | |
| Allocation proposed to GSM: | |||||||||||
| Legal reserve | - | - | - | 99,497 | - | - | (99,497) | - | - | - | |
| Interest on ow n capital | 30.4 | - | - | - | - | - | - | (643,000) | (643,000) | - | (643,000) |
| Dividends | 30.4 | - | - | - | - | - | - | - | - | (23,514) | (23,514) |
| Profit retention reserve | - | - | - | - | 1,313,675 | - | (1,313,675) | - | - | - | |
| Balance as of December 31, 2019 | 10,800,000 | 739,994 | (148,067) | 1,014,248 | 4,846,239 | - | - | 17,252,414 | 345,798 | 17,598,212 | |
| Net Income | - | - | - | - | - | - | 3,904,202 | 3,904,202 | 5,548 | 3,909,750 | |
| Other comprehensive income | |||||||||||
| Actuarial losses, net of taxes | 30.2 | - | - | (178,948) | - | - | - | - | (178,948) | (207) | (179,155) |
| Total comprehensive income | - | - | (178,948) | - | - | - | 3,904,202 | 3,725,254 | 5,341 | 3,730,595 | |
| Realization - deemed cost, net of taxes | 30.2 | - | (59,630) | - | - | - | - | 59,630 | - | - | - |
| Deliberation of additional dividends proposed | 16.2.2 | - | - | - | - | - | - | - | - | (51,799) | (51,799) |
| Allocation proposed to GSM: | |||||||||||
| Legal reserve | - | - | - | 195,210 | - | - | (195,210) | - | - | - | |
| Interest on ow n capital | 30.4 | - | - | - | - | - | - | (807,500) | (807,500) | - | (807,500) |
| Additional dividends proposed from the non-capitalized earning reserve | - | - | - | - | (1,507,449) | 1,507,449 | - | - | - | - | |
| Dividends | 30.4 | - | - | - | - | - | - | (211,057) | (211,057) | (7,933) | (218,990) |
| Profit retention reserve | - | - | - | - | 2,750,065 | - | (2,750,065) | - | - | - | |
| Balance as of December 31, 2020 | 10,800,000 | 680,364 | (327,015) | 1,209,458 | 6,088,855 | 1,507,449 | - | 19,959,111 | 291,407 | 20,250,518 | |
| Notes are an integral part of this quarterly information | |||||||||||
| F-5 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2020, 2019 and 2018
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | ||
| CASH FLOWS FROM OPERATIONAL ACTIVITIES | ||||
| Net income from continuing operations | 3,834,172 | 2,171,262 | 1,366,871 | |
| Net income (loss) from discontinued operations | 75,578 | (108,393) | 77,133 | |
| Net income | 3,909,750 | 2,062,869 | 1,444,004 | |
| Adjustments to reconcile net income for the period with cash | ||||
| Unrealized monetary and cambial variation and debt charges - net | 456,456 | 760,727 | 723,951 | |
| Interest - bonus from the grant of concession agreements under the quota system | 10.3 | (94,307) | (91,404) | (85,986) |
| Remuneration of transmission concession contracts | 11.3 | (777,670) | (501,566) | (351,544) |
| Recovery of PIS / Pasep and Cofins on ICMS | 13.2.1 | (1,755,112) | (105,184) | - |
| Income tax and social contribution | 13.3 | 1,260,469 | 416,687 | 522,550 |
| Deferred income tax and social contribution | 13.3 | 24,896 | 258,972 | (51,657) |
| Equity in earnings of investees | 16.1 | (193,547) | (106,757) | (135,888) |
| Appropriation of acturial calculation of post-employment benefits | 23.4 | 94,349 | 99,578 | 97,900 |
| Appropriation of pension and healthcare contributions | 23.4 | 130,129 | 138,974 | 151,215 |
| Creation for research and development and energy efficiency programs | 25.2 | 148,019 | 130,678 | 125,369 |
| Recognition of fair value of assets related to concession compensation | 31 | (57,341) | (36,646) | (47,499) |
| Sectorial financial assets and liabilities result | 31 | (746,052) | (25,057) | (985,344) |
| Depreciation and amortization | 32 | 1,009,912 | 950,726 | 696,933 |
| Net operating estimated losses, provisions and reversals | 32.4 | 237,294 | 260,051 | 281,104 |
| Result of business combination carried out with asset swap - gain | - | 1,414 | 3,769 | |
| Realization of added value in business combinations | (722) | 1,536 | - | |
| Result of disposal of investment | - | - | (8,174) | |
| Fair value in energy purchase and sale operations | 31.1 | (137,463) | (204,876) | (3,786) |
| Derivatives fair value | 33 | (24,511) | - | - |
| Loss on disposal of accounts receivable related to concession | 10.1 and 10.2 | 144 | 146 | 1,536 |
| Loss on disposal of contract assets | 11.1 and 11.3 | 35,590 | 7,949 | 9,762 |
| Loss on disposal of property, plant and equipment | 5,195 | 15,287 | 22,293 | |
| Loss on disposal of intangible assets | 18.1 and 18.4 | 52,811 | 26,368 | 28,421 |
| Result of write-offs of use rights of assets and liabilities of leases - net | 27.1 and 27.2 | (314) | (31) | - |
| 3,577,975 | 4,060,441 | 2,438,929 | ||
| Decrease (increase) in assets | ||||
| Trade accounts receivable | (175,049) | 243,617 | 193,466 | |
| Dividends and interest on own capital received | 53,952 | 36,732 | 50,858 | |
| CRC transferred to the Government of the State of Paraná | 8.1 | 300,025 | 278,586 | 260,117 |
| Judicial deposits | 16,729 | 45,482 | 89,527 | |
| Sectorial financial assets | 9.2 | 979,642 | 277,265 | 482,974 |
| Other receivables | (13,898) | (59,793) | 21,556 | |
| Inventories | (40,035) | (13,662) | (5,281) | |
| Income tax and social contribution | 123,582 | (37,226) | 360,714 | |
| Other current taxes recoverable | 74,125 | (20,350) | (67,902) | |
| Prepaid expenses | (3,473) | 10,450 | 8,560 | |
| Related parties | - | (602) | - | |
| 1,315,600 | 760,499 | 1,394,589 | ||
| Increase (decrease) in liabilities | ||||
| Payroll, social charges and accruals | 347,002 | 52,792 | (29,845) | |
| Related parties | - | - | (59) | |
| Suppliers | 292,108 | 263,346 | (575,722) | |
| Other taxes | (79,053) | (132,423) | 75,351 | |
| Post-employment benefits | 23.4 | (197,143) | (199,007) | (204,809) |
| Sectorial charges due | 5,204 | (51,442) | (70,507) | |
| Research and development and energy efficiency | 25.2 | (153,729) | (91,306) | (91,015) |
| Payable related to the concession | 26.1 | (74,931) | (70,569) | (64,365) |
| Other accounts payable | 117,610 | (51,095) | 103,198 | |
| Provisions for legal claims | (167,316) | (366,066) | (143,864) | |
| 89,752 | (645,770) | (1,001,637) | ||
| CASH GENERATED FROM OPERATING ACTIVITIES | 4,983,327 | 4,175,170 | 2,831,881 | |
| Income tax and social contribution paid | (636,420) | (560,692) | (411,037) | |
| Loans and financing - interest due and paid | (183,391) | (325,677) | (288,577) | |
| Debentures - interest due and paid | (386,281) | (664,247) | (475,547) | |
| Charges for lease liabilities paid | (6,679) | (8,356) | - | |
| NET CASH GENERATED BY OPERATING ACTIVITIES FROM | ||||
| CONTINUING OPERATIONS | 3,770,556 | 2,616,198 | 1,656,720 | |
| NET CASH GENERATED BY OPERATING ACTIVITIES FROM | ||||
| DISCONTINUED OPERATIONS | 40 | 170,288 | 328,808 | 114,251 |
| NET CASH GENERATED FROM OPERATING ACTIVITIES | 3,940,844 | 2,945,006 | 1,770,971 | |
| (continued) |
| F-6 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Cash Flows, continued
For the years ended December 31, 2020, 2019 and 2018
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | ||
| CASH FLOWS FROM INVESTMENT ACTIVITIES | ||||
| Financial investments | (48,238) | 45,170 | (75,804) | |
| Receipt of loans and financing granted to related parties | - | - | 117,645 | |
| Additions to contract assets | (1,349,688) | (1,042,093) | (792,835) | |
| Customers contributions - contract assets | 112,689 | 104,067 | 106,764 | |
| Acquisitions of subsidiaries - effect on cash | - | (123,794) | 7,998 | |
| Additions in investments | 16.1 | (72,439) | (133,874) | (51,557) |
| Capital reduction of investees | 16.1 | 228 | 35,035 | 35,280 |
| Additions to property, plant and equipment | (226,325) | (367,883) | (1,208,953) | |
| Customers contributions - property, plant and equipment | - | - | 12 | |
| Additions to intangible assets | (10,225) | (4,711) | (7,161) | |
| NET CASH USED BY INVESTMENT ACTIVITIES | ||||
| FROM CONTINUING OPERATIONS | (1,593,998) | (1,488,083) | (1,868,611) | |
| NET CASH USED BY INVESTMENT ACTIVITIES | ||||
| FROM DISCONTINUED OPERATIONS | 40 | (73,573) | (175,568) | (280,542) |
| NET CASH USED FROM INVESTING ACTIVITIES | (1,667,571) | (1,663,651) | (2,149,153) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Loans and financing obtained from third parties | 21.4 | 263,000 | 796,296 | 1,314,766 |
| Issue of Debentures | - | 2,755,028 | 2,890,283 | |
| Payments of principal - loans and financing | (248,863) | (1,655,065) | (1,120,340) | |
| Payments of principal - debentures | (1,036,490) | (1,977,125) | (1,491,667) | |
| Amortization of principal of lease liabilities | (46,365) | (27,490) | - | |
| Dividends and interest on own capital paid | (626,357) | (380,421) | (300,722) | |
| NET CASH (USED) GENERATED BY FINANCING ACTIVITIES | ||||
| FROM CONTINUING OPERATIONS | (1,695,075) | (488,777) | 1,292,320 | |
| NET CASH (USED) GENERATED BY FINANCING ACTIVITIES | ||||
| FROM DISCONTINUED OPERATIONS | 40 | (20,038) | 200,740 | (5,804) |
| NET CASH (USED) GENERATED BY FINANCING ACTIVITIES | (1,715,113) | (288,037) | 1,286,516 | |
| TOTAL EFFECTS ON CASH AND CASH EQUIVALENTS | 558,160 | 993,318 | 908,334 | |
| Cash and cash equivalents at the beginning of the period | 5 | 2,941,727 | 1,948,409 | 1,040,075 |
| Cash and cash equivalents at the end of the period | 5 | 3,222,768 | 2,515,179 | 1,929,201 |
| Cash and cash equivalents from discontinued operations | 277,119 | 426,548 | 19,208 | |
| CHANGE IN CASH AND CASH EQUIVALENTS | 558,160 | 993,318 | 908,334 | |
| Notes are an integral part of these financial statements | ||||
| F-7 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1 | Operations |
Companhia Paranaense de Energia (Copel or Company), with its head office located at Rua Coronel Dulcídio, 800, Curitiba - State of Paraná, is a publicly-held mixed capital company controlled by the State of Paraná and its shares are traded at Corporate Governance Level 1 of the Special Listing Segments of B3 S.A. - Brasil, Bolsa Balcão Stock Exchange and also on the New York Stock Exchange (NYSE) and on the Madrid Stock Exchange, in the Latin American segment (Latibex).
The core activities of Copel, which are regulated by the Brazilian Electricity Regulatory Agency (ANEEL), linked to the Brazilian Ministry of Mines and Energy (MME), are to carry out research, study, planning, and asset building activities related to the generation, transformation, distribution and trading of energy in any of its forms, primarily electricity. Furthermore, Copel participates in consortiums and in private sector and mixed-capital companies for the purpose of engaging in activities, primarily in the fields of energy, telecommunications and natural gas.
| a) | Coronavirus pandemic (Covid-19) and its impacts |
Coronavirus is a family of viruses was discovered in 2019 after cases registered in China and causes the disease called Covid-19, which has clinical symptoms ranging from asymptomatic infections to severe respiratory conditions.
On February 26, 2020 the first case of infection was identified in Brazil, in the city of São Paulo and on March 11, 2020, who attributed the status of pandemic to coronavirus, in view of the spread of contamination throughout the world. In Brazil, federal, state and municipal governments have implemented several measures to deal with the public health emergency. In the state of Paraná, measures included social isolation and restrictions on the operation of non-essential activities as means to slow the spread of the disease. These measures were relaxed from September 2020 with the reduction of social isolation and the increase in economic activity; however, in mid-February and early March 2021 the stricter restrictions returned due to the worsening of the pandemic.
As of March 2020, Copel's Management issued rules that aim to ensure compliance with the measures to contain the spread of the disease in the Company and minimize its impacts and potential impacts on the administrative, operations and economic-financial areas.
Accordingly, Copel established a Contingency Commission, whose objective is to monitor and mitigate the impacts and consequences in the main activities of the Company, The 4 pillars defined are: (i) safety of personnel, (ii) continuity of essential activities, (iii) monitoring of the guidelines and requirements of regulatory bodies, and (iv) preservation of adequate financial conditions to withstand the crisis.
Among the main initiatives implemented by the Company, there are actions to prevent and mitigate the effects of contagion in the workplace, such as: adoption of home office in areas where it is possible to adopt this format, travel restrictions, meetings by video conference, daily monitoring of the health and well-being of employees and contingency protocols in order to fully maintain the operations of the electric power,
| F-8 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
telecommunications and piped gas infrastructure, preserving the health of its professionals, their safe access to locations, an environment that preserves distance between individuals, hygiene and access to personal protective equipment.
Likewise, Copel has adopted several activities in favor of its customers, maintaining the reliability and availability of its plants, the transmission and distribution systems of electric power and gas and telecommunications, so that they can remain connected and take advantage of Company services in this critical moment of pandemic and social distancing. Copel and its employees go to great lengths to ensure that their customers and family members have healthy and safe in their homes, maintaining all the services that contribute to providing comfort and connectivity for everyone.
Effects from coronavirus (Covid-19) on the financial statements
The drop in growth and the downturn in certain business segments, resulting from the suspension of certain businesses and activities caused by the coronavirus outbreak, have been affecting performance of the Brazilian economy, with effects on Copel's operations, mainly due to the reduction in electric energy demand in the regulated market, which was affected more intensely in the industrial and commercial consumption classes, which registered a decrease of 12.6% and 11.8% in the year, respectively, in relation to the previous year. However, the residential class registered a growth of 5.5% in the year, mainly influenced by measures of social isolation.
On April 8, 2020, valid until August 5, 2020, Provisional Measure 950 was enacted by the Federal Government, which provides for temporary emergency measures for the energy sector due to the declared state of public calamity, establishing an exemption in energy tariffs, funded by the energy sector charge called Energy Development Account - CDE, for low-income consumers with consumption of up to 220 kWh/month, for a period of three months, and providing funds through a credit operation aimed at providing financial relief to energy distributors. On the same date, Aneel published Normative Act 986, authorizing the Electric Energy Trading Chamber - CCEE during 2020, to pass on to the sector agents, with consumption characteristics, the surplus funds available in the reserve fund for future burden relief, with the objective of strengthening the sector's liquidity during the virus pandemic.
On April 8, 2020 and May 13, 2020, the Company obtained access to funds amounting to R$ 84,881 and R$ 8,666, respectively, which were recorded as sector financial liabilities.
On May 18, 2020, Decree 10,350 was enacted, which provided for the creation of the Covid Account, intended for the electric sector to deal with the state of public calamity recognized by Legislative Decree 6, of March 20, 2020, and which regulated the Provisional Measure 950 valid until August 5, 2020. On June 23, 2020, Aneel issued Resolution 885, which provides for the Covid Account, financial operations, the use of the CDE for these purposes and the corresponding procedures.
| F-9 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
These measures are intended to balance cash of energy distribution companies and prevent the effects from default and reduced energy consumption during the coronavirus pandemic from affecting the entire sector, as well as easing tariff pressure on consumers, in 2020, due to the windfall costs arisen in the context of the Covid-19 pandemic.
Copel has filed the Statement of Acceptance of the Provisions of Decree 10,350/2020. The total amount requested was R$ 869,516, and on June 25, 2020, had already expressed its position about the advance of R$ 536,359 referring to the recognized CVA, which was part of its annual tariff adjustment. The total amount requested was fully received on July 31, 2020.
It should be noted that the provisional measure did not reach energy contracts entered into in the free market. To reduce the impact on revenue from this market and to avoid future legal disputes, Copel renegociated with its customers, with difficulty in fulfilling contracts, proposing payments in installments and postponing maturity of energy bills.
In relation to the captive distribution market, Copel has been posting decrease in revenue, mainly in the commercial and industrial classes, which reduced consumption by 11.8% and 12.6%, respectively, reflecting the fall in economic activities, mainly when stricter restrictions are implemented in an attempt to reduce the level of contagion among the population. On the other hand, there has been an increase in revenue in the residential class, due to the social distancing measures, and in the rural class, reflecting the good performance of agribusiness in the Paraná state. With regard to collection, the Company has been in contact with its main customers and has made the collection policy more flexible during the pandemic period, as such, there has been an increase in number of payments in installments.
Due to the measures applied by Aneel in the context of Covid-19, the Company has not suspended energy supply to residential customers and to essential services and activities until July 31, 2020. In this respect, with the health crisis there has been an increase of R$ 35,800 in estimated expected credit losses recorded by Copel DIS no 1st semester de 2020, due to the increase in consumers' default, coupled with the drop in collection and the stoppage of several commercial and industrial activities resulting from the social distancing measures, this reducing Copel DIS's financial and economic results. With the 3.1% drop in consumption of the captive energy market for the year, due to the pandemic scenario, the Company estimates over-contracting of 105.5% of electricity in 2020 at Copel DIS. However, as described in Note 35.2.9, the Company understands that this overcontracting will be considered involuntary.
Copel has been monitoring energy load projections and has not seen any signs of significant retraction in the beginning of 2021, which may occur if restrictions have a long-term impact on non-essential industrial and commercial activities.
| F-10 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Another point for attention are the possible impacts on the implementation schedule of energy generation and transmission projects, or even on the availability of existing assets resulting from local actions that prevent access to facilities or problems with suppliers in the sector, also affected by the downturn. Management, diligently, continues to monitor the deadlines for construction works in progress and has maintained continuous communication with the concession regulator regarding any delays that may occur until the normalization of commercial activities in the overall market. The Company's construction in progress to date have not had any significant delays.
With the objective of mitigating the impacts and consequences on its main activities, Copel has been continuously monitoring its contracts, liquidity in the energy market and the short-term energy price, as well as the negotiations with the Regulatory Body of the Brazilian energy sector for the implementation of guidelines ensuring maintenance of economic and financial sustainability of the entire chain of energy generation, transmission, sale and distribution.
In this scenario, for the purposes of preparing and disclosing the financial statements for the year ended December 31, 2020, the Company's management evaluated its estimates in order to identify the possible impacts of Covid-19 on the Company's business, as follows:
a.1) Expected credit losses
A potentially relevant risk in the emergence of Covid-19 is related to customer default. In this scenario, the Company maintains regular contact with its main customers, adding flexibility to the collection policy during the pandemic period and increasing the level of digitalization in the relationship with Copel.
The Company's accounts receivable position as of December 30, 2020, as well as the estimates of expected credit losses reflect in a timely manner the best analysis by Management at this time on the quality and recoverability of this financial asset.
Although the loss indicator has not significantly deteriorated, the Company may face pressure on this indicator if the pandemic lasts longer and stricter restrictions on social distancing are implemented as an attempt to reduce the level of transmission among the population.
In 2020, Copel’s expected credit loss estimates were more impacted in the first half-year, mainly due to regulatory restrictions that prevented, until July 31, 2020, cuts in the supply of energy to defaulting customers, as well as the greater restriction in social isolation in that period. In the second half of 2020, the loss estimates were less impacted due to the easing of social isolation that led to a resumption of economic activity, the continuity of cuts in the supply of energy and the renegotiation with defaulting customers.
On March 26, 2021, Aneel Resolution No. 928 was issued, which prevents the suspension of energy supply to low-income consumers and some other groups of consumers, with no material impact for the Company, given that these consumers are already covered by the State Law No. 20,187 / 2020, which also deals with the prohibition on cutting the power supply.
Despite the worsening of the pandemic at the beginning of 2021, Copel resumed collection actions with defaulting consumers and created special conditions for payment of debts, giving conditions to consumers affected by the restrictions of social distance, necessary to prevent the spread of the virus, in keeping up with their obligations to the Company.
a.2) Impairment of non-financial assets - impairment
The assumptions for all non-financial assets were assessed individually and the conclusion is that the net carrying amount of the assets is recoverable.
| F-11 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The assumptions in connection with the Company's material non-financial assets were assessed individually and Management concluded that it is necessary to adjust the amount of impairment for some assets, as shown in Note 17.
Despite the hydrological scenario in southern Brazil in 2020 benefiting the dispatch of the thermoelectric plant, the most significant impairment adjustment occurred at UEG Araucária, in view of the more gradual expectation of a resumption of energy demand, which affected its long term cash flow estimates, which makes the plant's consumption assumptions occur in a shorter period than the previous projections.
For the other projects, there was an impairment reversal, as presented in Note 17.5. In relation to the projections, the main assumptions applied in the preparation of cash flow models did not have a significant impact in the short term, given that most of the energy is already contracted and the amount of energy exposed to Settlement Price of the Differences (PLD) is not significant. In the medium term, there was impact on the prices negotiated in the free market on the portion of non-contracted energy, but with no significant impact for the Company. Finally, in the long term, the main assumptions used to calculate the impairment (future energy prices and Generation Scaling Factor - GSF levels) did not change significantly, accordingly evidencing the recoverability of assets.
| F-12 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
a.3) Recovery of deferred tax assets
The Company has a balance of R$ 1,191,104 related to deferred tax assets on income tax and social contribution losses and temporary differences recorded at December 31, 2020. The Company assessed its estimates of expected future taxable income and did not identify the need for a provision for loss.
a.4) Fair value of future energy purchase and sale operations
The effects of pandemic on the mark-to-market of electric power purchase and sale agreements occurred mainly in the variation of short-term future prices due to more favorable hydrology and load reduction. In the long-term, future electric power prices did not change significantly. Therefore, at this time, the effects of the pandemic did not have a significant impact on the fair value of the Company's future energy purchase and sale operations.
a.5) Fair value of other assets and liabilities
At the present time, the effects of the pandemic did not have a significant impact on the fair value of the Company's assets and liabilities, mainly on assets originating from concession agreements that are made in the long-term and are contractually guaranteed to receive residual balance at the end of the concession and/ or right to receive cash during the concession. Accordingly, considering that there were no changes in long-term estimates and assumptions, and that the Company's assets are essential and indicate continuity of operations and cash flows in the medium and long term, up to the present date, despite the fact that the pandemic effects remain uncertain, its effects did not have a significant impact on the fair value of the Company's assets and liabilities.
a.6) Post-employment benefits
The Company's management has constantly monitored the fair value of the actuarial asset of the post-employment benefit plans due to the instability of the interest rate, which is determined based on market data. Although to the economic instability in this pandemic period, the fair value of the plan assets didn’t fall at December 31, 2020 in relation to the fair value at December 31, 2019. Therefore, the pension plan did not generate additional obligations due to the existence of a surplus, as for the actuarial liabilities of the assistance plan, an increase was recognized in an amount sufficient to cover the actuarial deficit in view of the current assessment, as shown in Note 23.
a.7) Liquidity
The Company has met its expected liquidity ratios and Management believes the financial situation and working capital are within its sufficient requirements.
At December 31, 2020, the Company's consolidated net working capital totals R$ 1,753,039 (R$ 2,563,575, at December 31, 2019) with a balance of cash and cash equivalents of R$ 3,222,768, compared to the balance of R$ 2,941,727 at December 31, 2019.
| F-13 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The Company has been monitoring its financial liquidity, considering the possibility of raising funds and the prospect of cash retention, already implemented and under preparation, and taking necessary actions in our operations such as cost reduction and postponement of investments with the objective of guaranteeing compliance with financial obligations in due time.
a.8) Other assets
The Company has not identified any changes in circumstances that indicate impairment of other assets. It should be noted that the Company records changes in sectorial financial assets and liabilities, updated up to the date of the tariff adjustment/review when, the Granting Authority ratifies the transfer on the tariff base and the Company transfers it to the consumer during the next annual cycle, which at Copel occurs as of June 24 of each year. With the emergency measures for the electric power sector provided for in Provisional Act No. 950 dated April 8, 2020 and in Decree 10,350 of May 18, 2020, Management understands that realization of sector financial assets and liabilities recorded as at December 31, 2020 is sustained. On July 31, 2020, Copel DIS had already had access to the total amount of funds requested from the Covid Account.
In view of all of the above, it should be noted that there was no significant or material impact on the Company's business that could change the measurement of its assets and liabilities presented in the financial statements at December 31, 2020, and until the date of this publication. However, considering that, like all companies, Copel is exposed to risks arising from any legal and market restrictions that may be imposed, it is not possible to ensure that there will be no impact on operations or that the result will not be affected by the future consequences of the pandemic.
| b) | Renegotiation of the Hydrological Risk (Generation Scaling Factor-GSF) |
On September 9, 2020, Law No. 14,052 was published, which amended Law No. 13,203/2015, establishing new conditions for renegotiating the hydrological risk related to the portion of the costs incurred with the GSF, assumed by the holders of the hydroelectric plants participating in the Energy Reallocation Mechanism (MRE) since 2012, with the worsening of the water crisis.
The purpose of the legal amendment was to compensate the owners of the hydroelectric power plants participating in the MRE for non-hydrological risks caused: (i) for generation projects called structuring, related to the anticipation of the physical guarantee, (ii) for the restrictions on the start-up of transmission facilities necessary for the flow of the generation of structuring and (iii) for generation outside the order of merit and import. Said compensation will be occur upon the extension of the grant, limited to seven years, calculated based on the values of the standards applied by Aneel.
On December 1, 2020, Aneel Normative Resolution No. 895 was issued, which establishes the methodology for calculating the compensation and the procedures for renegotiating the hydrological risk. To be eligible for the compensation provided for in Law No. 14,052, holders of hydroelectric power plants participating in the MRE must: (i) abandon any lawsuits whose purpose is the exemption or mitigation of hydrological risks related to the MRE, (ii) waive any allegation and/or new actions in relation to the exemption or mitigation of the hydrological risks related to the MRE, (iii) not having renegotiated the hydrological risk.
| F-14 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In the renegotiation of the hydrological risk, Management will exercise its judgment in the development and application of the accounting policy, as provided for in IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, using the precepts of IAS 38 by analogy, in order to deal with it is essentially an intangible asset related to the concession right resulting from compensation for costs incurred in previous years. Additionally, considering also by analogy of the referred IAS 38, the asset to be constituted , in case of renegotiation of the non-hydrological risk, will be recognized at fair value, considering the best estimate of the Company, based on the parameters determined by Aneel's regulation, considering the expected future flows in this new concession period, as well as the compensation values calculated by the Electric Energy Trading Chamber (CCEE). The amount will be transformed by Aneel in extending the term of concession.
The compensation to hydroelectric generators, which will occur through the extension of the concession period for concessions of generation, will be recognized, in case of renegotiation, as intangible asset in exchange for the compensation of electricity costs.
On March 2, 2021, CCEE released the calculations of the renegotiation of the hydrological risk and the results, which total R$ 1,366,343 for the 15 eligible plants of the Company, to be sent to Aneel and submitted for approval analysis. As of the date of publication of these Financial Statements, the Company has not yet adhered to the renegotiation of the hydrological risk, as the Management awaits the approval by Aneel of the approximately 510 days of average extension of the concession of its plants to assess the possible adherence to the terms of the renegotiation, and waiver of future questioning or lawsuits in relation to the hydrological risks at issue.
| 1.1 | Copel’s equity interests |
Copel has direct and indirect interests in subsidiaries (1.1.1), joint ventures (1.1.2), associates (1.1.3) and joint operations (1.1.4).
| F-15 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1.1.1 | Subsidiaries |
| Headquarters | Main activity | Interest | ||
| Subsidiaries | % | Investor | ||
| Copel Geração e Transmissão S.A. (Copel GeT) | Curitiba/PR | Production and transmission of electricity | 100.0 | Copel |
| Copel Distribuição S.A. (Copel DIS) | Curitiba/PR | Distribution and marketing of electricity | 100.0 | Copel |
| Copel Telecomunicações S.A. (Copel TEL) (Note 40) | Curitiba/PR | Telecommunication and communication | 100.0 | Copel |
| Copel Serviços S.A. (Copel SER) (a) | Curitiba/PR | Production of electricity | 100.0 | Copel |
| Copel Comercialização S.A. (Copel COM) | Curitiba/PR | Commercialization of electricity | 100.0 | Copel |
| Companhia Paranaense de Gás - Compagás | Curitiba/PR | Distribution of pipeline gas | 51.0 | Copel |
| Elejor - Centrais Elétricas do Rio Jordão S.A. | Curitiba/PR | Production of electricity | 70.0 | Copel |
| UEG Araucária Ltda. (UEGA) | Curitiba/PR | Production of electricity from natural gas | 20.3 | Copel |
| 60.9 | Copel GeT | |||
| São Bento Energia, Investimentos e | ||||
| Participações S.A. (São Bento) | Curitiba/PR | Control and management of interests | 100.0 | Copel GeT |
| Nova Asa Branca I Energias Renováveis S.A. | S. Miguel do Gostoso/RN | Production of electricity from wind sources | 100.0 | Copel GeT |
| Nova Asa Branca II Energias Renováveis S.A. | Parazinho/RN | Production of electricity from wind sources | 100.0 | Copel GeT |
| Nova Asa Branca III Energias Renováveis S.A. | Parazinho/RN | Production of electricity from wind sources | 100.0 | Copel GeT |
| Nova Eurus IV Energias Renováveis S.A. | Touros/RN | Production of electricity from wind sources | 100.0 | Copel GeT |
| Santa Maria Energias Renováveis S.A. | Maracanaú/CE | Production of electricity from wind sources | 100.0 | Copel GeT |
| Santa Helena Energias Renováveis S.A. | Maracanaú/CE | Production of electricity from wind sources | 100.0 | Copel GeT |
| Ventos de Santo Uriel S.A. | João Câmara/RN | Production of electricity from wind sources | 100.0 | Copel GeT |
| Cutia Empreendimentos Eólicos S.A. (Cutia) | Curitiba/PR | Control and management of interests | 100.0 | Copel GeT |
| Costa Oeste Transmissora de Energia S.A. | Curitiba/PR | Transmission of electricity | 100.0 | Copel GeT |
| Marumbi Transmissora de Energia S.A. | Curitiba/PR | Transmission of electricity | 100.0 | Copel GeT |
| Uirapuru Transmissora de Energia S.A | Curitiba/PR | Transmission of electricity | 100.0 | Copel GeT |
| Bela Vista Geração de Energia S.A. (b) | Curitiba/PR | Production of electricity | 100.0 | Copel GeT |
| F.D.A. Geração de Energia Elétrica S.A. (FDA) | Curitiba/PR | Production of electricity | 100.0 | Copel GeT |
| Jandaíra I Energias Renováveis S.A. (b) (c) | Curitiba/PR | Production of electricity from wind sources | 100.0 | Copel GeT |
| Jandaíra II Energias Renováveis S.A. (b) (c) | Curitiba/PR | Production of electricity from wind sources | 100.0 | Copel GeT |
| Jandaíra III Energias Renováveis S.A. (b) (c) | Curitiba/PR | Production of electricity from wind sources | 100.0 | Copel GeT |
| Jandaíra IV Energias Renováveis S.A. (b) (c) | Curitiba/PR | Production of electricity from wind sources | 100.0 | Copel GeT |
| GE Olho D’Água S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | São Bento |
| GE Boa Vista S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | São Bento |
| GE Farol S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | São Bento |
| GE São Bento do Norte S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | São Bento |
| Central Geradora Eólica São Bento do Norte I S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Central Geradora Eólica São Bento do Norte II S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Central Geradora Eólica São Bento do Norte III S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Central Geradora Eólica São Miguel I S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Central Geradora Eólica São Miguel II S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Central Geradora Eólica São Miguel III S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Guajiru S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Jangada S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Potiguar S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Cutia S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Maria Helena S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Esperança do Nordeste S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| Usina de Energia Eólica Paraíso dos Ventos do Nordeste S.A. | São Bento do Norte/RN | Production of electricity from wind sources | 100.0 | Cutia |
| (a) In October 2020 there was a change in the bylaws of Copel Renováveis S.A. which included the change of the corporate name to Copel Serviços S.A. | ||||
| (b) Pre-operating stage. | ||||
| (c) SPEs established with a 99.99% interest in Copel GeT and 0.1% in Cutia. The transfer of all shares to Copel GeT is in progress. | ||||
| Commercialization Contracts in the Regulated Environment - CCEARs. | ||||
| F-16 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
UEG Araucária
On November 10, 2020, at the Meeting of Shareholders, the reduction of the share capital of UEG Araucária Ltda., through the absorption of accumulated losses, as well as the transformation of the corporate type of UEGA, from limited company to public limited company was aprroved.
| 1.1.2 | Joint Ventures |
| Joint ventures | Headquarters | Main activity | Interest | |
| % | Investor | |||
| Voltalia São Miguel do Gostoso I Participações S.A. | São Paulo/SP | Interests in companies | 49.0 | Copel |
| Solar Paraná GD Participções S.A. | Curitiba/PR | Interests in companies | 49.0 | Copel |
| Paraná Gás Exploração e Produção S.A. (a) | Curitiba/PR | Extraction of oil and natural gas | 30.0 | Copel |
| Caiuá Transmissora de Energia S.A. | Rio de Janeiro/RJ | Transmission of electricity | 49.0 | Copel GeT |
| Integração Maranhense Transmissora de Energia S.A. | Rio de Janeiro/RJ | Transmission of electricity | 49.0 | Copel GeT |
| Matrinchã Transmissora de Energia (TP NORTE) S.A. | Rio de Janeiro/RJ | Transmission of electricity | 49.0 | Copel GeT |
| Guaraciaba Transmissora de Energia (TP SUL) S.A. | Rio de Janeiro/RJ | Transmission of electricity | 49.0 | Copel GeT |
| Paranaíba Transmissora de Energia S.A. | Rio de Janeiro/RJ | Transmission of electricity | 24.5 | Copel GeT |
| Mata de Santa Genebra Transmissão S.A. (b) | Jundiaí/SP | Transmission of electricity | 50.1 | Copel GeT |
| Cantareira Transmissora de Energia S.A. | Rio de Janeiro/RJ | Transmission of electricity | 49.0 | Copel GeT |
| (a) Project with halted activities due to a Public Civil Action pending judgment by Federal Court. An arbitration proceeding will be started to decide about relief ofcontractual obligations with no burden for bidders, with consequent return of signing up bonus, refund of incurred costs with collateral and relief of collateral provided. | ||||
| (b) On November 11, 2020, the last asset of the project entered into commercial operation, so that the transmission line is 100% operational. | ||||
Solar Paraná GD Participações S.A. – in pre-operating phase
In May 2020, Copel acquired a 49% interest in Solar Paraná GD Participações S.A., which is a holding company of six Special Purpose Entities (SPE), operating in the distributed generation sector: Pharma Solar II, Pharma Solar III, Pharma Solar IV, Bandeirantes Solar I, Bandeirantes Solar II, and Bandeirantes Solar III.
In the acquisition process, the fair values of the net assets acquired were identified and Copel recorded a bargain purchase in profit or loss for the year, as shown in the table below:
| Fair value on net assets acquired | 1,106 |
| Percentage of interest transferred | 49% |
| Fair value on net assets acquired by Copel | 542 |
| Transferred consideration amount | 294 |
| Bargain purchase (negative goodwill) | 248 |
On March 1, 2021, commercial operation began with 3 MWp (megawatt-peak, photovoltaic power unit) out of a total of 5.36 MWp of installed power, enough to already serve the energy consumption of approximately 2,500 homes.
| F-17 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1.1.3 | Associates |
| Associated companies | Headquarters | Main activity | Interest | |
| % | Investor | |||
| Dona Francisca Energética S.A. | Agudo/RS | Production of electricity | 23.0303 | Copel |
| Foz do Chopim Energética Ltda. | Curitiba/PR | Production of electricity | 35.77 | Copel GeT |
| Carbocampel S.A. | Figueira/PR | Coal exploration | 49.0 | Copel |
Sercomtel S.A. Telecomunicações
On August 18, 2020, the auction for the sale of the shares of Sercomtel S.A. Telecomunicações was successfully held. In October 2020, the Share Purchase and Sale Agreement (CCVA) was signed by Copel and the buyer, Bordeaux Fundo de Investimento em Participações Multiestratégia. On October 27, 2020 and December 7, 2020, the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica - CADE) and the National Telecommunications Agency (Agência Nacional de Telecomunicações - Anatel), respectively, approved the transaction, without restrictions.
On December 23, 2020, Copel received the amount of R$ 1,536 for the sale of the asset and this amount was fully recorded as a gain in 2020 profit, considering that Copel's investment was reduced to zero due to the tests of recovery of this asset.
Dominó Holdings Ltda.
On December 10, 2020, in common and reciprocal agreement, the partners Copel Comercialização S.A. and Andrade Gutierrez Participações S.A. signed a Company Dissolution Term to dissolve the commercial company incorporated under the corporate name of Dominó Holdings Ltda. At Copel Comercialização S.A., the investment balance adjusted this date, amounting to R$ 153, was fully transferred to “Other receivables”.
| 1.1.4 | Joint Operations (consortiums) |
| Joint operations - Consortiums | Consortium members | Interest (%) |
| Consórcio Energético Cruzeiro do Sul (Note 17.4) | Copel GeT | 51.0 |
| Eletrosul Centrais Elétricas S.A. | 49.0 | |
| Consórcio Empreendedor Baixo Iguaçu (Note 17.4) | Copel GeT | 30.0 |
| Geração Céu Azul S.A (subsidiary of Neoenergia S.A.) | 70.0 | |
| Consórcio Copel Energia a Gás Natural (a) | Copel | 49.0 |
| Shell Brasil Petróleo Ltda. | 51.0 | |
| Consórcio Paraná IP (b) | Copel | 49.0 |
| Consórcio BRC | 51.0 |
| a) | Consórcio Copel Energia a Gás Natural |
With the intention of structuring a strategic natural gas plan for the State of Paraná, aiming to develop viable solutions in the area of natural gas to serve the thermoelectric and non-thermoelectric markets of Paraná, in July 2020 the Consórcio Copel Energia a Gás Natural was founded, which aims to develop technical, economic-financial and socio-environmental feasibility studies for the project, in addition to preparing basic projects and obtaining a prior environmental license for the projects.
| F-18 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| b) | Consórcio Paraná IP |
In September 2020, the Consórcio Paraná IP was created, with the objective of participating in studies and tenders aimed at obtaining municipal concessions and establishing Public-Private Partnerships with municipalities or consortia of municipalities interested in the modernization of their public lighting systems and in the development of smart cities solutions. However, the Company deepened the prospecting of business opportunities and the analysis of attractiveness to operate in the segment, considering the recent concessions made by municipalities to establish Public-Private Partnerships and the discount levels presented by potential competitors and decided to not prioritize its performance in this service currently.
| 2 | Concessions and Authorizations |
| 2.1 | Concession contracts or authorizations obtained by Copel |
| Copel | Interest % | Maturity | |
| Concession agreement / authorization of the equity | |||
| Copel DIS | Contract 046/1999, extended by 5th addendum to the contract | 100 | 07.07.2045 |
| Copel TEL (Note 40) | Authorization term 54/2003 - Anatel/SVP/PVST | 100 | Indeterminate |
| Authorization term 305/2012 - Anatel/SVP/PVST | 100 | Indeterminate | |
| Elejor | Contract 125/2001 - HPP Fundão and Santa Clara | 70 | 05.28.2037 |
| Authorization - SHP Fundão I and SHP Santa Clara I - 753/2002 and 757/2002 | 70 | 12.19.2032 | |
| Dona Francisca Energética | Contract 188/1998 - HPP Dona Francisca | 23 | 08.28.2033 |
| UEG Araucária | Authorization 351/1999 - TPP Araucária (60.9% Copel GET) | 20.3 | 12.23.2029 |
| Compagás (2.1.1) | Concession gas distribution contract | 51 | 01.20.2019 |
| Paraná Gás (1.1.2 - a) | PART-T-300_R12 4861-.0000.99/2014-00 - ANP | 30 | 05.15.2045 |
| Usina de Energia Eólica São João S.A. (a) | MME Ordinance 173 /2012 - WPP São João | 49 | 03.26.2047 |
| Usina de Energia Eólica Carnaúba S.A. (a) | MME Ordinance 204 /2012 - WPP Carnaúbas | 49 | 04.09.2047 |
| Usina de Energia Eólica Reduto S.A. (a) | MME Ordinance 230 /2012 - WPP Reduto | 49 | 04.16.2047 |
| Usina de Energia Eólica Santo Cristo S.A. (a) | MME Ordinance 233/2012 - WPP Santo Cristo | 49 | 04.18.2047 |
| (a) Subsidiaries of Voltalia São Miguel do Gostoso I Participações S.A. | |||
| Hydroelectric Power Plant - HPP | |||
| Small Hydroelectric Plant - SHP | |||
| Thermal Power Plant - TPP | |||
| Wind Power Plant - WPP | |||
| 2.1.1 | Compagás |
Compagás is a party to a concession agreement entered into with the Concession Grantor, the State of Paraná, which determines the date of July 6, 2024 as the concession's expiration date.
On December 7, 2017, the State of Paraná published Complementary Law 205, introducing a new interpretation to the end of the concession, understanding that expiration occurred on January 20, 2019. There was an understanding among the shareholders that the law could be challenged and Compagás filed a lawsuit, considering the unconstitutionality of the Law. Provisional protection was granted to Compagás recognizing the validity of the maturity clause provided for in the contract.
In view of the above, however, there was no consensus between Copel's and Compagás' understanding of which document should be used for accounting recognition, so that Copel considered the Supplementary Law as a document for accounting purposes while the Compagás maintained its accounting records considering the expiration date provided for in the concession contract.
| F-19 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
On December 1, 2020, Supplementary Law No. 227 was issued, revoking article 15 of Supplementary Law No. 205/17, which determined the expiration of the concession for the exploitation of gas services channeled by Compagás on January 20, 2019. Therefore, Copel reassessed the balances of Compagás' financial assets and intangible assets within its consolidated balance sheet, so that, as of December 2020, the balance of the financial assets, to be received for the indemnity provided for in the concession contract, is the same balance recorded in the balance sheet of its investee and the difference generated by the practice adjustment made since December 2017, recorded in intangible assets, will be amortized until the end of the concession. The impacts recorded are as follows:
| 12.31.2020 | Compagás balances | Adjustments | Copel balances |
| STATEMENTS OF FINANCIAL POSITION | |||
| Noncurrent assets | |||
| Accounts receivable related to the concession | 189,416 | - | 189,416 |
| Intangible assets | 102,627 | 29,739 | 132,366 |
| STATEMENTS OF INCOME | |||
| Net operating revenue | |||
| Fair value of assets from the indemnity for the concession | 34,591 | (22,437) | 12,154 |
| Operating Costs | |||
| Amortization | (29,442) | 199 | (29,243) |
| 12.31.2019 | Compagás balances | Adjustments | Copel balances |
| STATEMENTS OF FINANCIAL POSITION | |||
| Noncurrent assets | |||
| Accounts receivable related to the concession | 144,813 | 179,572 | 324,385 |
| Intangible assets | 127,598 | (127,598) | - |
| STATEMENTS OF INCOME | |||
| Net operating revenue | |||
| Fair value of assets from the indemnity for the concession | 9,181 | 1,234 | 10,415 |
| Operating Costs | |||
| Amortization | (28,854) | 400 | (28,454) |
| 12.31.2018 | Compagás balances | Adjustments | Copel balances |
| STATEMENTS OF FINANCIAL POSITION | |||
| Noncurrent assets | |||
| Accounts receivable related to the concession | 148,720 | 199,257 | 347,977 |
| Intangible assets | 152,538 | (148,919) | 3,619 |
| STATEMENTS OF INCOME | |||
| Net operating revenue | |||
| Fair value of assets from the indemnity for the concession | 9,184 | 3,009 | 12,193 |
| Operating Costs | |||
| Amortization | (29,012) | 6,253 | (22,759) |
| F-20 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 2.2 | Concession contracts or authorizations obtained by Copel Get and its investees |
| Copel GeT | Interest % | Maturity | |
| ONEROUS CONCESSION BY THE USE OF PUBLIC PROPERTY - UBP | |||
| Generation Concession 001/2007 - HPP Gov. Jayme Canet Júnior (Mauá) | 51 | 07.02.2042 | |
| Generation concession 001/2011 - HPP Colíder | 100 | 01.17.2046 | |
| Ordinance 133/2011 - SHP Cavernoso II | 100 | 02.28.2046 | |
| Generation Concession 002/2012 - HPP Baixo Iguaçu | 30 | 10.30.2049 | |
| Generation Concession 007/2013 | |||
| HPP Apucaraninha | 100 | 10.12.2025 | |
| HPP Chaminé | 100 | 08.16.2026 | |
| HPP Derivação do Rio Jordão | 100 | 11.15.2029 | |
| HPP Cavernoso | 100 | 01.07.2031 | |
| PUBLIC SERVICE CONCESSIONS | |||
| Generation concession 045/1999 | |||
| TPP Figueira (Note 35.2.6) | 100 | 03.27.2019 | |
| HPP São Jorge (Note 35.2.6) | 100 | 12.05.2024 | |
| HPP Gov. Ney Aminthas de Barros Braga (Segredo) | 100 | 11.16.2029 | |
| HPP Gov. José Richa (Salto Caxias) | 100 | 05.05.2030 | |
| Generation concession 001/2020 | |||
| UHE Guaricana | 100 | 08.16.2026 | |
| Authorization 278/1999 - WPP Palmas | 100 | 09.29.2029 | |
| Dispatch 182/2002 - Hydroeletric Generating Plant - HGP Melissa, HGP Pitangui and | |||
| HGP Salto do Vau (only register with ANEEL) | 100 | - | |
| Generation concession 003/2016 - HPP Gov. Pedro Viriato Parigot de Souza (GPS) | 100 | 01.05.2046 | |
| HPP Marumbi - Power generating plant registration: CGH. PH. PR. 001501-6.02 | 100 | - | |
| Authorization Aneel 5,373/2015 - HGP Chopim I (only register with ANEEL) | 100 | - | |
| Concession agreement / authorization of the equity | |||
| UEG Araucária | Authorization 351/1999 - TPP Araucária (20,3% - Copel) | 60.9 | 12.23.2029 |
| Nova Asa Branca I | MME Ordinance 267/2011 - WPP Asa Branca I | 100 | 04.25.2046 |
| Nova Asa Branca II | MME Ordinance 333/2011 - WPP Asa Branca II | 100 | 05.31.2046 |
| Nova Asa Branca III | MME Ordinance 334/2011 - WPP Asa Branca III | 100 | 05.31.2046 |
| Nova Eurus IV | MME Ordinance 273/2011 -WPP Eurus IV | 100 | 04.27.2046 |
| Santa Maria | MME Ordinance 274/2012 - WPP SM | 100 | 05.08.2047 |
| Santa Helena | MME Ordinance 207/2012 - WPP Santa Helena | 100 | 04.09.2047 |
| Ventos de Santo Uriel | MME Ordinance 201/2012 - WPP Santo Uriel | 100 | 04.09.2047 |
| GE Boa Vista | MME Ordinance 276 /2011 - WPP Dreen Boa Vista | 100 | 04.28.2046 |
| GE Farol | MME Ordinance 263 /2011 - WPP Farol | 100 | 04.20.2046 |
| GE Olho D’Água | MME Ordinance 343 /2011 - WPP Dreen Olho D'Água | 100 | 06.01.2046 |
| GE São Bento do Norte | MME Ordinance 310 /2011 - WPP Dreen São Bento do Norte | 100 | 05.19.2046 |
| Esperança do Nordeste | MME Ordinance 183/2015 - WPP Esperança do Nordeste | 100 | 05.11.2050 |
| Paraíso dos Ventos do Nordeste | MME Ordinance 182/2015 - WPP Paraíso dos Ventos do Nordeste | 100 | 05.11.2050 |
| Usina de Energia Eólica Jangada | Resolution 3,257/2011 - WPP GE Jangada | 100 | 01.05.2042 |
| Maria Helena | Resolution 3,259/2011 - WPP GE Maria Helena | 100 | 01.05.2042 |
| Usina de Energia Eólica Potiguar | MME Ordinance 179/2015 - WPP Potiguar | 100 | 05.11.2050 |
| Usina de Energia Eólica Guajiru | Resolution 3,256/2011 - WPP Dreen Guajiru | 100 | 01.05.2042 |
| Usina de Energia Eólica Cutia | Resolution 3,258/2011 - WPP Dreen Cutia | 100 | 01.05.2042 |
| São Bento do Norte I | Ordinance 349/2015 - WPP São Bento do Norte I | 100 | 08.04.2050 |
| São Bento do Norte II | Ordinance 348/2015 - WPP São Bento do Norte II | 100 | 08.04.2050 |
| São Bento do Norte III | Ordinance 347/2015 - WPP São Bento do Norte III | 100 | 08.04.2050 |
| São Miguel I | Ordinance 352/2015 - WPP São Miguel I | 100 | 08.04.2050 |
| São MigueI lI | Ordinance 351/2015 - WPP São Miguel II | 100 | 08.04.2050 |
| São Miguel III | Ordinance 350/2015 - WPP São Miguel III | 100 | 08.04.2050 |
| Foz do Chopim | Authorization 114/2000 - SHP Arturo Andreoli | 35.77 | 04.24.2030 |
| SHP Bela Vista (a) | Resolution 913/2017 - transfer of title under | ||
| Resolution 7,802/2019 | 100 | 01.02.2041 | |
| F.D.A. Geração de Energia Elétrica | Generation concession contract 002/2020 | 100 | 09.17.2023 |
| Jandaíra I Energias Renováveis (a) | Ordinance 140/2020 - WPP Jandaíra I | 100 | 04.02.2055 |
| Jandaíra II Energias Renováveis (a) | Ordinance 141/2020 - WPP Jandaíra II | 100 | 04.02.2055 |
| Jandaíra III Energias Renováveis (a) | Ordinance 142/2020 - WPP Jandaíra III | 100 | 04.02.2055 |
| Jandaíra IV Energias Renováveis (a) | Ordinance 139/2020 - WPP Jandaíra IV | 100 | 04.02.2055 |
| (a) Building under construction. | |||
| F-21 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Copel GeT | Interest % | Maturity | Next tariff review | |
| Transmission lines and substations concession agreements | ||||
| Contract 060/2001 - Transmission facilities (sundry Transmission lines and Substations) - Extended by the 3rd addendum | 100 | 01.01.2043 | 2023 | |
| Contract 075/2001 - Transmission line 230 kV Bateias - Jaguariaíva | 100 | 08.17.2031 | (b) | |
| Contract 006/2008 - Transmission line 230 kV Bateias - Pilarzinho | 100 | 03.17.2038 | 2023 | |
| Contract 027/2009 - Transmission line 525 kV Foz do Iguaçu - Cascavel Oeste | 100 | 11.19.2039 | 2025 | |
| Contract 010/2010 - Transmission line 500 kV Araraquara II - Taubaté | 100 | 10.06.2040 | 2021 | |
| Contract 015/2010 - Substation Cerquilho III 230/138 kV | 100 | 10.06.2040 | 2021 | |
| Contract 022/2012 - Transmission line 230 kV Londrina - Figueira and Transmission line 230 kV Foz do Chopim - Salto Osório | 100 | 08.27.2042 | 2023 | |
| Contract 002/2013 - Transmission line 230 kV Assis - Paraguaçu Paulista II e Substation Paraguaçu Paulista II 230 kV | 100 | 02.25.2043 | 2023 | |
| Contract 005/2014 - Transmission line 230 kV Bateias - Curitiba Norte e Substation Curitiba Norte 230/138 kV | 100 | 01.29.2044 | 2024 | |
| Contract 021/2014 - Transmission line 230 kV Foz do Chopim - Realeza e Substation Realeza 230/138 kV | 100 | 09.05.2044 | 2025 | |
| Contract 022/2014 - Transmission line 500 kV Assis - Londrina | 100 | 09.05.2044 | 2025 | |
| Contract 006/2016 - Transmission line 525 kV Curitiba Leste - Blumenau (a) | 100 | 04.07.2046 | 2021 | |
| Contract 006/2016 - Transmission line 230 kV Baixo Iguaçu - Realeza | ||||
| Contract 006/2016 - Transmission line 230 kV Curitiba Centro - Uberaba | ||||
| Contract 006/2016 - Substation Medianeira 230/138 kV | ||||
| Contract 006/2016 - Substation Curitiba Centro 230/138 kV | ||||
| Contract 006/2016 - Substation Andirá Leste 230/138 kV | ||||
| Concession agreement / authorization of the equity | ||||
| Costa Oeste Transmissora | Contract 001/2012: | 100 | 01.12.2042 | 2022 |
| Transmission line 230 kV Cascavel Oeste - Umuarama | ||||
| Substation Umuarama 230/138 kV | ||||
| Caiuá Transmissora | Contract 007/2012: | 49 | 05.10.2042 | 2022 |
| Transmission line 230 kV Umuarama - Guaíra | ||||
| Transmission line 230 kV Cascavel Oeste - Cascavel Norte | ||||
| Substation Santa Quitéria 230/138/13,8 kV | ||||
| Substation Cascavel Norte 230/138/13,8 kV | ||||
| Marumbi Transmissora | Contract 008/2012: | 100 | 05.10.2042 | 2022 |
| Transmission line 525 kV Curitiba - Curitiba Leste | ||||
| Substation Curitiba Leste 525/230 kV | ||||
| Integração Maranhense | Contract 011/2012: Transmission line 500 Kv Açailândia - Miranda II | 49 | 05.10.2042 | 2022 |
| Matrinchã Transmissora | Contract 012/2012: | 49 | 05.10.2042 | 2022 |
| Transmission line 500 kV Paranaíta - Cláudia | ||||
| Transmission line 500 kV Cláudia - Paranatinga | ||||
| Transmission line 500 kV Paranatinga - Ribeirãozinho | ||||
| Substation Paranaíta 500 kV | ||||
| Substation Cláudia 500 kV | ||||
| Substation Paranatinga 500 kV | ||||
| Guaraciaba Transmissora | Contract 013/2012: | 49 | 05.10.2042 | 2022 |
| Transmission line 500 kV Ribeirãozinho - Rio Verde Norte | ||||
| Transmission line 500 kV Rio Verde Norte - Marimbondo II | ||||
| Substation Marimbondo II 500 kV | ||||
| Paranaíba Transmissora | Contract 007/2013: | 24.5 | 05.02.2043 | 2023 |
| Transmission line 500 kV Barreiras II - Rio das Éguas | ||||
| Transmission line 500 kV Rio das Éguas - Luziânia | ||||
| Transmission line 500 kV Luziânia - Pirapora 2 | ||||
| Mata de Santa Genebra | Contract 001/2014: | 50.1 | 05.14.2044 | 2024 |
| Transmission line 500 kV Itatiba - Bateias | ||||
| Transmission line 500 kV Araraquara 2 - Itatiba | ||||
| Transmission line 500 kV Araraquara 2 - Fernão Dias | ||||
| Substation Santa Bárbara D ́Oeste 440 kV | ||||
| Substation Itatiba 500 kV | ||||
| Substation Fernão Dias 500/440 kV (a) | ||||
| Cantareira Transmissora | Contract 019/2014: Transmission line Estreito - Fernão Dias | 49 | 09.05.2044 | 2025 |
| Uirapuru Transmissora | Contract 002/2005: Transmission line 525 kV Ivaiporã - Londrina | 100 | 03.04.2035 | (b) |
| (a) Beginning of commercial operation on April 1, 2021 | ||||
| (b) Do not undergo tariff review and RAP reduces to 50% in the 16th year | ||||
During 2019, three important enterprises started their commercial operations:
- UHE Colíder: in March, May and December 2019, the three generating units of the plant entered into commercial operation, respectively, totalizing 300 MW of installed power.
| F-22 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
- UHE Baixo Iguaçu: Commercial operation of units 1 and 2 began in February 2019, with unit 3 starting in April 2019, with a total installed capacity of 350.2 MW.
- Cutia and Bento Miguel Wind Complexes: From the last two week of December 2018 to March 2019, all wind farms went into commercial operation, with a total installed capacity of 312.9 MW.
As of December 31, 2020, the main projects under construction are still in progress.
| 3 | Basis of Preparation |
| 3.1 | Statements of compliance |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board – IASB.
The Company's Management believes that all the relevant information used in its management is evidenced in the consolidated financial statements, and that it corresponds to that used by Management in administering the Company.
The issuance of these consolidated financial statements was approved by Management on April 19,2021.
| 3.2 | Functional and presentation currency |
The financial statements are presented in Brazilian Reais, which is the functional and presentation currency of the Company. Balances herein have been rounded to the nearest thousand, unless otherwise indicated.
| 3.3 | Basis of measurement |
The financial statements were prepared based on the historical cost, except for certain financial instruments and investments measured at fair value, as described in the respective accounting policies and notes.
| 3.4 | Use of estimates and judgments |
In the preparation of these financial statements, Management used judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses of the Company. Actual results may differ from those estimates.
Estimates and assumptions are reviewed on a continuous basis. Changes in estimates are recognized prospectively.
| 3.4.1 | Judgments |
Information about judgment referring to the adoption of accounting policies which significantly impacts the amounts recognized in the consolidated financial statements, except those involving estimates, is included in the following notes:
| · | Note 4.1 - Basis of consolidation and |
| · | Note 4.2 - Financial instruments |
| F-23 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 3.4.2 | Uncertainties over assumptions and estimates |
Information on uncertainties related to assumptions and estimates that pose a chance of resulting in a material change within the next financial year is included in the following notes:
| · | Notes 4.3 and 9 - Sectorial financial assets and liabilities; |
| · | Notes 4.4 and 10 - Accounts receivable related to the concession |
| · | Notes 4.5 and 11 - Contract assets; |
| · | Notes 4.8 and 17 - Property, plant and equipment; |
| · | Notes 4.9 and 18 - Intangible assets; |
| · | Notes 4.10.1 and 7.3 - Expected credit losses |
| · | Notes 4.10.2, 17.5 and 17.6 - Impairment of assets; |
| · | Notes 4.11 and 29 - Provisions for litigation and contingent liabilities; |
| · | Note 4.12 - Revenue recognition; |
| · | Note 4.14 - Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamber – CCEE); |
| · | Note 4.15 - Derivative financial instruments; |
| · | Note 4.16 and 13.1- Deferred income tax and social contribution; and |
| · | Note 4.17 and 23 - Post-employment benefits. |
| 3.5 | Management’s judgment on going concern |
Management has concluded that there are no material uncertainties that cast doubt on the Company's ability to continue as a going concern. No events or conditions were identified that, individually or in the aggregate, may raise significant doubts on its ability to continue as a going concern.
The main bases of judgment used for such conclusion are: (i) main activities resulting from long-term concessions; (ii) robust equity; (iii) strong operating cash generation, including financial capacity to settle commitments entered into with financial institutions; (iv) historical profitability; and (v) fulfillment of the objectives and targets set forth in the Company's Strategic Planning, which is approved by Management, monitored and reviewed periodically, seeking the continuity of its activities.
| 3.6 | Restatement of comparative balances |
| 3.6.1 | Reclassification of the assets of the Existing System Basic Network - RBSE |
After the initial adoption in 2018 of IFRS 15 and IFRS 9, the Brazilian Securities and Exchange Commission (CVM) published on December 1, 2020 complementary interpretive guidance on the adoption of these standards to be observed in the preparation of the Financial Statements of the Electricity Transmitting Companies for the Financial Statements at December 31, 2020.
| F-24 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
With regard to the treatment of the assets of the Existing System Basic Network (RBSE), Technical Note No. 336/2016 of Aneel regulated the calculation method for calculating the cost of capital and calculating the Annual Permitted Revenue (RAP) regarding the value of the installations of the RBSE assets and determined payment amounts and terms for the concessionaires. The RAP calculation was divided into two components: economic, referring to the cost of capital of non-depreciated assets in July 2017, and financial, referring to the unpaid cost of capital between January 2013 and June 2017, with annual payment for an 8-year term.
Copel's interpretation, when implementing Technical Pronouncements IFRS 15 and IFRS 9, was to classify the financial portion as a financial asset at amortized cost by understanding, at the time, that: Aneel separated the receipt flows with specific contractual terms, that assets are maintained in the business model to receive contractual cash flow; and that the application of the Variable Portion (PV) would not significantly change the economic nature of the financial portion.
However, CVM's understanding, presented in Circular Letter/CVM/SNC/ SEP/No. 04/2020, is that there is the same category of RBSE asset, subject to the same regulation and the same tariff and regulation mechanism, in a way that the entire transmission infrastructure should be classified as a contract asset.
Accordingly, at December 31, 2020, Copel reclassified the balances of RBSE assets that were recorded in line item Accounts receivable linked to concession to Contract assets. Additionally, the balances of these line items, in the Balance Sheets as of December 31, 2019 and January 1, 2019, are being restated to reflect the reclassification, for comparative purposes, with no effect on the total current assets and non-current assets, in the statements of income, comprehensive income and cash flows of previous years. The reclassification also had no impact the covenants of borrowing and debenture agreements. The following tables show the effects only between the asset line items:
| 12.31.2019 | As previously stated | Adjustments | Restated |
| STATEMENT OF FINANCIAL POSITION | |||
| ASSETS | 38,312,550 | - | 38,312,550 |
| CURRENT ASSETS | 7,909,196 | - | 7,909,196 |
| Accounts receivable - concessions | 58,842 | (54,297) | 4,545 |
| Contract assets | 107,443 | 54,297 | 161,740 |
| NONCURRENT ASSETS | 30,403,354 | - | 30,403,354 |
| Accounts receivable - concessions | 2,558,796 | (684,972) | 1,873,824 |
| Contract assets | 3,943,941 | 684,972 | 4,628,913 |
| 01.01.2019 | As previously stated (a) | Adjustments | Restated |
| STATEMENT OF FINANCIAL POSITION | |||
| ASSETS | 36,048,122 | - | 36,048,122 |
| CURRENT ASSETS | 6,677,846 | - | 6,677,846 |
| Accounts receivable - concessions | 53,177 | (48,997) | 4,180 |
| Contract assets | 85,019 | 48,997 | 134,016 |
| NONCURRENT ASSETS | 29,370,276 | - | 29,370,276 |
| Accounts receivable - concessions | 2,497,514 | (704,829) | 1,792,685 |
| Contract assets | 3,348,211 | 704,829 | 4,053,040 |
| (a) The balance considers the adjustments of 01.01.2019 resulting from the initial application of IFRS 16, as shown in Note 4.16 of the Consolidated Financial Statements of December 31, 2019. | |||
| F-25 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 3.6.2 | Discontinued operation |
As result of the divestment process of Copel Telecomunicações S.A., described in Note 40, the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows are being restated for comparison purposes, according to paragraph 34 of IFRS 5, as follows :
| F-26 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2019 | As previously stated | Discontinued operations | Restated |
| STATEMENTS OF INCOME | |||
| NET OPERATING REVENUE | 16,244,274 | (375,029) | 15,869,245 |
| Operating costs | (11,760,176) | 296,028 | (11,464,148) |
| GROSS PROFIT | 4,484,098 | (79,001) | 4,405,097 |
| Selling expenses | (207,059) | 31,287 | (175,772) |
| General and administrative expenses | (734,300) | 23,011 | (711,289) |
| Other operational income (expenses) | (458,815) | 136,309 | (322,506) |
| Equity in earnings of investees | 106,757 | - | 106,757 |
| Profit before financial results and taxes | 3,190,681 | 111,606 | 3,302,287 |
| Financial results | (488,486) | 33,122 | (455,364) |
| Operating profit | 2,702,195 | 144,728 | 2,846,923 |
| Income tax and social contribution | (639,326) | (36,335) | (675,661) |
| Net income for the period - continuing operations | 2,062,869 | 108,393 | 2,171,262 |
| Result of discontinued operations | - | (108,393) | (108,393) |
| Net income | 2,062,869 | - | 2,062,869 |
| Attributed to controlling shareholders | 1,989,946 | - | 1,989,946 |
| Attributed to non-controlling interest | 72,923 | - | 72,923 |
| STATEMENTS OF COMPREHENSIVE INCOME | |||
| Total comprehensive income, net of taxes | (123,184) | - | (123,184) |
| Total comprehensive income | 1,939,685 | - | 1,939,685 |
| Attributed to controlling shareholders | 1,862,489 | - | 1,862,489 |
| Attributed to non-controlling interest | 77,196 | - | 77,196 |
| STATEMENTS OF CASH FLOWS | |||
| Cash flow from opertional activities | 2,945,006 | - | 2,945,006 |
| Net income | 2,062,869 | - | 2,062,869 |
| Profit adjustments | 2,416,665 | (419,093) | 1,997,572 |
| Changes in assets and liabilities | 75,908 | 38,821 | 114,729 |
| Taxes and charges paid | (1,610,436) | 51,464 | (1,558,972) |
| Result of discontinued operations | - | 328,808 | 328,808 |
| Cash flow from investment activities | (1,663,651) | - | (1,663,651) |
| Property, plant and equipment and intangible assets | (548,162) | 175,568 | (372,594) |
| Other activities | (1,115,489) | - | (1,115,489) |
| Discontinued operations | - | (175,568) | (175,568) |
| Cash flow from financing activities | (288,037) | - | (288,037) |
| Issue of Loans and Debentures | 3,761,324 | (210,000) | 3,551,324 |
| Loan, debentures and lease payments | (3,668,940) | 9,260 | (3,659,680) |
| Other activities | (380,421) | - | (380,421) |
| Discontinued operations | - | 200,740 | 200,740 |
| Total effects on cash and cash equivalents | 993,318 | - | 993,318 |
| F-27 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2018 | As previously stated | Discontinued operations | Restated |
| STATEMENTS OF INCOME | |||
| NET OPERATING REVENUE | 14,934,780 | (384,316) | 14,550,464 |
| Operating costs | (11,501,688) | 128,780 | (11,372,908) |
| GROSS PROFIT | 3,433,092 | (255,536) | 3,177,556 |
| Selling expenses | (148,709) | 43,295 | (105,414) |
| General and administrative expenses | (723,534) | 16,690 | (706,844) |
| Other operational income (expenses) | (302,690) | 52,686 | (250,004) |
| Equity in earnings of investees | 135,888 | - | 135,888 |
| Profit before financial results and taxes | 2,394,047 | (142,865) | 2,251,182 |
| Financial results | (438,050) | 24,905 | (413,145) |
| Operating profit | 1,955,997 | (117,960) | 1,838,037 |
| Income tax and social contribution | (511,993) | 40,827 | (471,166) |
| Net income for the period - continuing operations | 1,444,004 | (77,133) | 1,366,871 |
| Result of discontinued operations | - | 77,133 | 77,133 |
| Net income | 1,444,004 | - | 1,444,004 |
| Attributed to controlling shareholders | 1,407,063 | - | 1,407,063 |
| Attributed to non-controlling interest | 36,941 | - | 36,941 |
| STATEMENTS OF COMPREHENSIVE INCOME | |||
| Total comprehensive income, net of taxes | (38,360) | - | (38,360) |
| Total comprehensive income | 1,405,644 | - | 1,405,644 |
| Attributed to controlling shareholders | 1,368,549 | - | 1,368,549 |
| Attributed to non-controlling interest | 37,095 | - | 37,095 |
| STATEMENTS OF CASH FLOWS | |||
| Cash flow from opertional activities | 1,770,971 | - | 1,770,971 |
| Net income | 1,444,004 | - | 1,444,004 |
| Profit adjustments | 1,204,142 | (209,217) | 994,925 |
| Changes in assets and liabilities | 381,474 | 11,478 | 392,952 |
| Taxes and charges paid | (1,258,649) | 83,488 | (1,175,161) |
| Result of discontinued operations | - | 114,251 | 114,251 |
| Cash flow from investment activities | (2,149,153) | - | (2,149,153) |
| Property, plant and equipment and intangible assets | (1,496,644) | 280,542 | (1,216,102) |
| Other activities | (652,509) | - | (652,509) |
| Discontinued operations | - | (280,542) | (280,542) |
| Cash flow from financing activities | 1,286,516 | - | 1,286,516 |
| Issue of Loans and Debentures | 4,205,049 | - | 4,205,049 |
| Loan and debentures payments | (2,617,811) | 5,804 | (2,612,007) |
| Other activities | (300,722) | - | (300,722) |
| Discontinued operations | - | (5,804) | (5,804) |
| Total effects on cash and cash equivalents | 908,334 | - | 908,334 |
| 3.6.3 | Earnings and dividends per share |
On March 11, 2021, the General Meeting approved the submission of the proposal for comprehensive amendment and consolidation of the Company's bylaws, including, among other changes, the share split of the Company, in the proportion of one share for ten shares, so that, for every one share issued by the Company, nine new shares of the same class and type will be credited.
Considering IAS 33, these Financial Statements present the values of basic and diluted net profit per share and dividends per share for 2019 and 2018 adjusted, considering the new number of shares, after the split.
| F-28 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The table shows the values of earnings per share presented in the Financial Statements as of December 31, 2019 and 2018 and the values that are being restated, equivalent to the value already disclosed divided by 10:
| 12.31.2019 | As previously stated | Restated |
| Basic and diluted net earning per share attributed | ||
| to controlling shareholders | ||
| Common shares | 6.94344 | 0.69440 |
| Class "A" Preferred shares | 9.11525 | 0.85790 |
| Class "B" Preferred shares | 7.63812 | 0.76388 |
| Gross value of dividends per share | ||
| Common shares | 2.24235 | 0.22423 |
| Class "A" Preferred shares | 3.94657 | 0.39466 |
| Class "B" Preferred shares | 2.46692 | 0.24669 |
| 12.31.2018 | As previously stated | Restated |
| Basic and diluted net earning per share attributed | ||
| to controlling shareholders | ||
| Common shares | 4.91091 | 0.49109 |
| Class "A" Preferred shares | 5.40201 | 0.54020 |
| Class "B" Preferred shares | 5.40201 | 0.54020 |
| Gross value of dividends per share | ||
| Common shares | 1.31950 | 0.13195 |
| Class "A" Preferred shares | 2.89050 | 0.28905 |
| Class "B" Preferred shares | 1.45151 | 0.14515 |
| 4 | Significant Accounting Policies |
| 4.1 | Basis of consolidation |
| 4.1.1 | Calculation of equity in earnings of investees |
Investments in joint ventures and associate are recognized in the consolidated financial statements based on the equity method. Under this method, investments are initially recorded at cost and their carrying amount is increased or decreased by the recognition of the investor's interest in profit, loss and other comprehensive income generated by investees after acquisition. This method must be discontinued from the date the investment ceases to qualify as a jointly controlled or associated company.
Payment of dividends decreases the carrying value of investments.
When required, for calculation of equity in earnings of investees, the investees' financial statements are adjusted to align their policies with the Company's accounting policies.
| F-29 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.1.2 | Subsidiaries |
The subsidiaries are entities to which the Company is exposed to or has a right over the variable returns arising from its involvement with them and has the ability to affect those returns exerting its power over the entities.
The financial statements of the subsidiaries are included in the consolidated financial statements as from the date they start to be controlled by the Company until the date such control ceases.
The balances of the subsidiaries’ assets and liabilities, and profit or loss, are consolidated and transactions between consolidated companies are eliminated. The balances of transactions between continuing operations and discontinued operations are also fully eliminated in the consolidated balance sheet.
| 4.1.3 | Noncontrolling interests |
Noncontrolling interests are presented in equity, separately from the equity attributable to the Company's shareholders. Profits, losses and other comprehensive income are also allocated separately from the ones allocated to the Company's shareholders, even if this procedure results in negative noncontrolling interest balance.
| 4.1.4 | Joint ventures and associates |
Joint ventures are entities over which the Company, subject to an agreement, has the ability to affect returns exerting its power in conjunction with other parties, irrespective of the percentage of interest in the voting capital.
Associates are entities over which the Company exerts significant influence regarding financial and operational decisions, without control.
When the share in losses of a joint venture or associate equals or exceeds the accounting balance of the investor’s equity interest in the investee, the investor should discontinue the recognition of its share in future losses. Additional losses will be considered, and a liability will be recognized, only if the investor incurs legal or constructive obligations, or performs payments on behalf of the investee. Should the investee subsequently post profits, the investor should resume the recognition of its interest in these profits only subsequent to the point at which the portion to which it is entitled to in these subsequent profits equals its share in unrecognized losses.
| 4.1.5 | Joint operations (consortiums) |
Joint operation is a joint business according to which parties that jointly control the business have rights on assets and obligations regarding liabilities related to the business.
Joint operations are recorded in proportion to the share of interest held in their assets, liabilities and profit or loss.
| F-30 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.1.6 | Business combination |
The acquisition analysis is done on a case-by-case basis to determine whether the transaction represents a business combination or an asset purchase. Transactions between companies under common control do not constitute a business combination.
Assets and liabilities acquired in a business combination are accounted for using the acquisition method and are recognized at their fair value at the acquisition date.
The excess of the acquisition cost over the fair value of the net assets acquired (identifiable assets acquired, net of assumed liabilities) is recognized as goodwill in intangible assets. When the amount generated is negative, the bargain purchase gain is recognized directly in profit or loss.
The amount paid that refers specifically to the concession right acquired in a business combination where the acquired entity is a concession operator, whose right to the concession has a known and defined term, is not characterized as goodwill.
In acquisitions of interests in affiliates and in joint ventures, although they do not constitute a business combination, the net assets acquired are also recognized at fair value. Goodwill is presented in the investment.
| 4.2 | Financial Instruments |
Financial instruments are recognized immediately on the trade date, that is, when the obligation or right arises. They are initially recorded at fair value, unless it is a trade receivable without a significant financing component, plus, for an item not measured at fair value through profit or loss, any directly attributable transaction costs. An accounts receivable from customers without a significant component of financing is initially measured at the price of the transaction.
Fair values are determined based on market prices for financial instruments with active market, and by the present value method of expected cash flows, for those that have no quotation available in the market.
The Company does not have financial instruments measured at fair value through other comprehensive income. The Company operates with derivative financial instruments as described in Note 4.15.
Financial assets are not reclassified subsequent to initial recognition, unless the Company changes the business model for the management of financial assets, in which case all affected financial assets are reclassified on the first day of the reporting period subsequent to the change in business model.
The Company's financial instruments are classified and measured as described below.
| F-31 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.2.1 | Financial assets recorded at fair value through profit or loss |
Financial assets recorded at fair value through profit or loss include assets classified as held for trading, financial assets designated upon initial recognition as at fair value through profit or loss or financial assets required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of being sold or repurchased in the near term. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. After initial recognition, transaction costs and attributable interest expenses, when incurred, are recognized through profit or loss.
| 4.2.2 | Financial assets measured at amortized cost |
These are so classified and measured when: (i) the financial asset is maintained within a business model whose objective is to maintain financial assets in order to receive contractual cash flows; and (ii) the contractual terms of the financial asset give rise, on specified dates, to cash flows that exclusively comprise payments of principal and interest on the principal amount outstanding.
| 4.2.3 | Financial liabilities measured at amortized cost |
Financial liabilities are measured at amortized cost using the effective interest method. This method is also used to allocate interest expense of these liabilities for the period. The effective interest rate is the rate that discounts estimated future cash flows (including fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the financial liability or, when appropriate, over a shorter period, for the initial recognition of the net carrying amount.
| 4.2.4 | Financial liabilities measured at fair value through Profit or Loss |
These are liabilities designated upon initial recognition as at fair value through profit or loss and those classified as held for trading. Financial liabilities designated fair value through profit or loss are stated at fair value with the respective gains or losses in fair value recognized in the statement of income. Net gains or losses recognized in profit or loss include the interest paid on the financial liability.
| 4.2.5 | Derecognition of financial assets and liabilities |
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Company derecognizes financial liabilities only when its obligations are discharged, cancelled or settled. The difference between the carrying amount of the derecognized financial liability and the corresponding disbursement made, or to be made, is recorded to profit or loss.
| F-32 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.3 | Net sectorial financial assets and liabilities |
According to the amendment to the concession agreement of distribution companies, the Company records changes in sectorial financial assets and liabilities, until the next tariff adjustment/review process, when the Concession Grantor approves the transfer as components of the power tariff and thus, it passes the adjustment on to consumers in the next tariff cycle, which occurs on June 24 of each year.
The balances of the net sectorial financial assets and liabilities comprise: a) Parcel A Variation Compensation Account - CVA, which records the variation between estimated and actual energy purchase and transmission costs and sector charges, and b) financial items, which correspond to energy over-contracting, neutrality of charges and other rights and obligations included in the tariff.
After approval of the Annual Tariff Adjustment and Periodic Tariff Review, the new tariff applied for the tariff year provides for the collection or return of the constituted assets and liabilities.
In the event of termination of the concession for any reason, the residual values of Part A items and other financial components not recovered or returned through tariff are incorporated in the calculation of compensation or deducted from unamortized assets indemnity values, thus protecting rights or obligations of the distribution company to the Concession Grantor.
| 4.4 | Accounts receivable related to the concession |
Refer to financial assets of the concessions with unconditional right to receive cash by the Company, guaranteed by the Concession Grantor by contractual clause and specific legislation.
| 4.4.1 | Power distribution service concession |
The concession agreement for electricity distribution provides that the users of the public service remunerate part of the investments made by the concessionaire and the Concession Grantor at the end of the concession indemnifies the other party. This model provides for the recognition of financial assets, contract assets in the construction period and intangible assets.
The portion recognized as financial asset refers to the indemnity set forth in the public power distribution service concession agreements, which the Company understands as an unconditional right to cash payments from the Concession Grantor upon expiration of the concession. This indemnification aims to reimburse the Company for investments made in infrastructure, without recovery, through the tariff.
The cash flows related to these assets are determined taking into account the Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by the Concession Grantor, and the fair value is recorded based on the replacement cost methodology of the assets included in the distribution infrastructure linked to the concession.
| F-33 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.4.2 | Piped gas distribution service concession |
Gas concession agreement follows the bifurcated model, whereby part of the investments made by the concession operator is paid by users of the public service and the other part is indemnified by the Concession Grantor, the State of Paraná, at the end of the concession. This model provides for recognition of a financial asset, a contract asset in the construction period and an intangible asset.
The amount recognized as a financial asset is the amount that will be indemnified by the Concession Grantor corresponding to the investments made in the last ten years prior to the end of the concession as foreseen in the agreement and that, according to Management, assures the unconditional right to receive cash at the end of the concession. The indemnity assumption is based on the replacement cost of the concession assets.
| 4.4.3 | Bonus for the grant of quota system generation concession agreement |
The quota system generation concession agreement provides for the payment of a bonus for the grant to the Concession Grantor, pursuant to paragraph 7 of article 8 of Law 12,783/2013.
This bonus is recognized as a financial asset because it represents an unconditional right to receive cash, guaranteed by the Concession Grantor during the term of the concession and without risk of demand.
The remuneration of this financial asset is based on the Weighted Average Cost of Capital - WACC defined by the National Energy Policy Council (CNPE) in Resolution 2/2015, which is being presented in the statement of income as operating revenue in accordance with the Company's business model.
| 4.4.4 | Concession of power generation |
The Company has operated and operates concession agreements for power generation that contain indemnification clauses for the infrastructure not depreciated, amortized and/or received during the concession term. After maturity, the residual balance of the assets is transferred to Accounts receivable related to the concession. At the end of each reporting period, Management evaluates the recoverability of the asset, remeasuring its cash flow based on its best estimate.
| 4.5 | Contract assets |
Represented by the construction in progress or in service of the infrastructure delegated by the Concession Grantor, conditional upon the receipt of revenue not only by the passage of time, but after fulfilling the performance obligation to maintain and operate the infrastructure.
| F-34 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.5.1 | Power distribution service concession |
Represents the concessionaire's contractual right related to the works under construction to meet the needs of the concession, accounted for at cost plus financial charges, when applicable.
When the assets are put into operation, the assets are transferred to the intangible asset, in the amount equivalent to what will be remunerated by the user through payment of the fee for the use of the services, or to the accounts receivable associated to the concession, in the amount equivalent to the residual portion of the assets not amortized, which will be reverted to the Concession Grantor through indemnification at the end of the concession.
| 4.5.2 | Power gas distribution service concession |
Construction in progress for the distribution of piped gas which will be transferred to intangible assets upon their entry in operation and to the extent that the right (authorization) is received to charge the users of the public service. The amount that will not be amortized within the term of the concession is presented in financial assets, indemnified at the end of the concession by the Concession Grantor according to contractual definition.
| 4.5.3 | Power transmission concession |
Represents the balance of public electricity transmission contracts signed with the Concession Grantor to build, operate and maintain the high voltage lines and substations of the generation centers up to the distribution points.
During the term of the concession agreement, the Company receives, subject to its performance, a remuneration denominated Annual Revenue Allowance (RAP) that remunerates the investments made in the construction of the infrastructure and covers also, the costs of operation and maintenance incurred.
After the beginning of the commercial operation and insofar as the operation and maintenance service - O&M is provided, the portion of RAP referring to O&M revenue is recognized in profit or loss at fair value, on a monthly basis, and billed together with the revenue part recognized in the construction phase, referring to the remuneration of the built-up assets. This amount billed after complying with the O&M performance is reclassified to the financial asset under Customers until its effective receipt.
The Company estimates its revenue in the construction phase at fair value based on the budgeted cost of the work and used by management as a parameter for bidding on the concession auction. Fair value revenue comprises the budgeted cost for the entire construction period plus the construction margin, which represents sufficient profit to cover the costs of managing and monitoring the work.
| F-35 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The remuneration rate of each concession is determined by the projection of the expected cost, of the profit margin on the cost in the construction phase and also of the projection of the RAP to be received in the operational stage, already net of the variable consideration estimate (PV) and the RAP part of the O&M performance. This fair value valuation technique using the income approach discounts cash flow for the entire concession period, determining at initial recognition the implied rate that zeroes the flow over time. This remuneration rate is fixed at the initial period and does not change during the performance of the contract and represents the market rate in effect at the time under the conditions of the negotiation between parties.
The assets arising from the construction of the transmission infrastructure are formed by the recognition of construction revenue, according to the percentage of completion of the construction (Note 4.13), and by their financial remuneration (Note 4.12.2).
The Company recognizes gains and losses due to efficiency or inefficiency in the construction of the infrastructure and due to periodic tariff review (RTP), when incurred, directly in the statement of income for the year.
Upon expiration of the concession, any uncollected amounts related to the construction of infrastructure shall be received directly from the Concession Grantor, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP).
The assets that compose the Existing System Basic Network - RBSE include one economic tariff component, referring to the cost of capital of the assets not depreciated in July 2017, and one financial tariff component , resulting from the right for the Annual Permitted Revenue (RAP) of the Concession Agreement No. 060/2001, not received in the period from January 2013 to June 2017, plus monetary adjustment and remuneration interest.
| 4.6 | Accounts payable related to the concession |
These refer to the amounts set forth in the concession agreement in connection with the right to explore hydraulic power generation potential (onerous concession), whose agreement is signed as Use of Public Property (Uso do Bem Público or UBP) agreements. The obligation is recognized on the date of signature of the concession agreement corresponding to the present value of future cash payments for the concession. The liability is then remeasured using the effective interest rate and reduced by contractual payments.
| 4.7 | Inventories (including property, plant and equipment and contract assets) |
Materials and supplies in inventory, classified under current assets, and those assigned for investments, classified under property, plant and equipment, and contract assets, have been recorded at their average acquisition cost. Recorded amounts do not exceed their net realizable value.
| F-36 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.8 | Property, Plant and Equipment |
The property, plant and equipment related to the public service concession agreement are depreciated according to the straight-line method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful lives of the assets related to concession's infrastructure. Property, plant and equipment related to contracts for the use of public property under the independent electricity producer scheme are depreciated based on annual rates established by ANEEL limited to the concession period. All other property, plant and equipment are depreciated using the straight-line method based on estimates of their useful lives, which is reviewed annually and adjusted if necessary.
Costs directly attributable to construction works as well as interest and financial charges on borrowings from third parties during construction are recorded under property, plant and equipment in progress, if it is probable that they will result in future economic benefits for the Company.
| 4.9 | Intangible Assets |
These comprise software acquired from third parties and software developed in-house and are measured at acquisition cost and amortized over five years, besides Intangible assets from Concession Agreements below.
| 4.9.1 | Onerous concession of electric power generation |
Corresponds to acquisition of exploration rights on hydropower potential whose onerous concession contract is signed as Use of Public Property - UBP.
During construction work, this asset is recognized at the present value of future cash disbursements during the Concession Agreement term. When commercial operation starts, the amount starts to be amortized over the concession period.
| 4.9.2 | Hydrological risk renegotiation (Generation Scaling Factor - GSF) |
Asset consisting of the renegotiation of the hydrological risk under the terms of Law No. 13,203/2015 and subsequent changes, arising from the amounts recovered from the cost with the adjustment of the Energy Reallocation Mechanism - MRE (GSF). The amount was transformed by ANEEL into an extension of the concession period, which is amortized on a straight-line basis until the end of the new concession period, according to note 14.1.
| 4.9.3 | Power distribution service concession |
This comprises the right to control infrastructure, built or acquired as part of the electric energy public service concession, and the right to charge fees to the users of the public service.
Intangible assets are recorded at their fair acquisition and construction value, less accumulated amortization and impairment losses, when applicable. The amortization of intangible assets reflects the pattern in which it is expected that future economic benefits will flow to the Company during the concession period.
During the infrastructure construction phase costs are classified as contract assets (Note 4.5).
| F-37 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.9.4 | Piped gas distribution service concession |
Intangible assets for piped gas distribution services, which correspond to the right to charge users for the gas supply.
This intangible asset was initially recognized at acquisition or construction cost, plus interest and other capitalized finance charges. This asset is amortized using the straight-line basis over its estimated useful life, considering the economic benefits generated by intangible assets.
During the infrastructure construction phase, costs are classified as contract assets (Note 4.5).
| 4.9.5 | Intangible assets acquired separately |
Intangible assets with a finite useful life, acquired separately, are recorded at cost, less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method based on the estimated useful lives of the corresponding assets. The estimated useful lives and the amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
| 4.9.6 | Derecognition of intangible assets |
An intangible asset is derecognized when no future economic benefits are expected from use or disposal. Gains or losses arising from disposal of an intangible asset are recognized in profit or loss, measured as the difference between net disposal proceeds and the carrying amount of the asset.
| 4.10 | Impairment of assets |
Assets are assessed to detect evidence of impairment.
| 4.10.1 | Financial assets |
Provisions for losses on financial assets are based on assumptions about default risk, existing market conditions and future estimates at the end of each year.
The Company applies the simplified approach of IFRS 9 to the measurement of expected credit losses for the entire existence of financial assets that do not have significant financing components, by considering a provision for expected loss over a useful life for all trade accounts receivable. To measure expected credit losses, trade accounts receivable is grouped based on shared credit risk characteristics, numbers of days late, in the amount considered enough to cover losses on the realization of these assets, based on specific criteria of the payment history, collection actions carried out for the credit recovery and relevance of the amount due in the receivables portfolio.
| 4.10.2 | Non-financial assets |
Assets under formation arising from onerous concession and concession rights and/or authorization to generate electricity are classified as intangible assets. Impairment is tested along with the other assets of that cash-generating unit.
| F-38 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Whenever there is a loss resulting from situations where an asset’s carrying value exceeds its recoverable value, defined as the higher of the asset’s value in use or its net selling price, this loss is recognized in profit or loss for the year.
For impairment testing purposes, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating Units - CGU).
The amount of the impairment of non-financial assets is reviewed at the reporting date. In case of reversal of impairment losses which had been recorded in prior years, this reversal is recognized in current year's profit or loss.
The Impairment of contract assets in their construction phase are tested immediately, mainly considering the use of the effective interest rate fixed at the beginning of the project and carried to the end of the concession cash flow. After the beginning of the commercial operation, the portion of revenue recognized is tested for impairment in the accounts receivable from customers. For the receivable part conditioned to fulfill the performance obligation to maintain and operate the infrastructure, the Company has no history and no expectation of losses, since amount are subject to guarantee structures, via shared apportionment of eventual default losses among the other members of the national interconnected system managed by the “Operador Nacional do Sistema” (ONS) and by jurisdiction of the sector.
| 4.11 | Provisions |
Provisions are recognized when: i) the Company has a present obligation (legal, formalized or non-formalized) resulting from a past event, ii) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and iii) a reliable estimate can be made of the amount to settle the obligation.
The estimates of outcomes and financial impacts are determined by the Company, which requires use of judgment by Management, supplemented by the experience of similar past transactions and, in some cases, by independent expert reports.
Environmental liabilities are recognized as the Company assumes formal obligations before regulatory agencies or becomes aware of potential risks related to environmental issues, which may lead to cash disbursements that are deemed probable and that may be estimated. During the project implementation phase, the accrued amounts are included in property, plant and equipment (generation), construction cost (transmission) or contract assets (distribution). At the start of operations, all costs included in the Operating License, whose programs will be executed during the concession and the respective disbursement has not yet occurred, are measured and adjusted to present value according to the estimated cash flow of disbursements and recorded as environmental provisions matched against the assets related to the project, being adjusted periodically.
Once the project enters commercial operation, all costs or expenses incurred with environmental programs related to the project’s operation and maintenance licenses are analyzed according to their nature and included in profit or loss for the period.
| F-39 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.12 | Revenue recognition |
| 4.12.1 | Revenue from contracts with customers |
Revenue is measured based on the consideration that the Company expects to receive in a contract with the customer, net of any variable consideration. The Company recognizes revenues when it transfers control of the product or service to the customer and when it is probable to receive the consideration considering the client's ability and intention to pay the consideration when due. The Company's operating revenue comes mainly from the electricity supply and from the electric network availability.
The revenue from electricity supply is recognized monthly based on the data for billing that are determined by the average MW of contracted electricity and declared with the CCEE. When the information is not available, the Company estimates the revenue considering the contracts’ rules, the price estimate and the volume provided.
For wind power generation companies subject to minimum generation amounts, the Company understands that it is subject to variable consideration, and for this reason, includes a provision for non-performance based on the annual generation estimates, reducing revenue.
Revenue from electric power supply and network availability is recognized monthly based on measured and effectively billed energy. In addition, the Company records unbilled revenue, calculated from the period between the last billing and the end of each month, by estimate based on the last measurement taken. In the concession contract for the public electricity distribution service, non-performance compensations are provided for quality indicators that, when incurred, reduce electricity availability revenue.
| 4.12.2 | Interest income |
Interest income is recognized when it is probable that future economic benefits will flow to the Company and its amount can be reliably measured. Interest income is recognized on a straight-line basis and based on time and the effective interest rate on outstanding principal amounts. The effective interest rate is the one that discounts the estimated future cash receipts calculated during the estimated life of the financial asset in relation to initial net carrying amount of that asset.
Regarding the contract assets of the power transmission concession, financial compensation revenue is recognized using the implicit remuneration rate established at the beginning of each project, which is presented in the statement of income as operating income in accordance with the Company's business model.
| 4.13 | Construction revenues and costs |
Revenue related to construction services for infrastructure in the power transmission and distribution services, and gas distribution, are recognized over time based on the stage of completion of the work.
Related costs are recognized in the statement of income as construction cost.
| F-40 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Given that Copel DIS and Compagás outsource the construction of distribution infrastructure to unrelated parties through works carried out in the short term, the construction margin to the power and gas distribution activities result in no significant amounts, resulting in the non-recognition of such margin.
The construction margin adopted for the transmission activity for the years 2020, 2019 and 2018 was 1.65%, and results from a calculation methodology which considers the respective business risk.
| 4.14 | Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamber - CCEE |
Power purchase and sale transactions in CCEE are recorded on the accrual basis of accounting, based on data released by CCEE, which are calculated by the product of the Differences settlement prices - PLD multiplied by the energy surplus declared with CCEE, or, when such information is not available in a timely manner, by an estimate prepared by Management.
| 4.15 | Derivative Financial Instruments |
| 4.15.1 | Power purchase and sale transactions |
The Company negotiates energy purchase and sale agreements and part of its contracts are designated and classified as derivative financial instruments measured at fair value through profit or loss.
Unrealized net gains or losses arising from the mark-to-market of these contracts (the difference between contractual and market prices) are recognized in the statement of income.
| 4.15.2 | Non-Deliverable Forward (NDF) contracts |
The Company operates with Non-Deliverable Forward – NDF contracts, which aim exclusively at providing hedge against exchange rate risks associated with cash flows from capital contributions to subsidiaries, when they reflect foreign-currency denominated purchases of projected equipment. They are measured at their fair value, with changes recorded in the statement of income for the year. The fair value is calculated based on the information of each contracted operation and the respective market information on the closing dates of the financial statements.
| 4.16 | Taxes |
| 4.16.1 | Income Tax and Social Contribution |
The taxation on profit comprises income tax and social contribution calculated based on the taxable profits (adjusted profit) of each taxable entity at the applicable tax rates according to prevailing legislation, namely, at 15%, plus 10% surtax on the amount exceeding R$ 240 per year, for income tax and at 9% for social contribution.
Income tax and social contribution losses can be offset against future taxable profits, considering the limit of 30% of the taxable profit for the period, and can be carried forward indefinitely.
| 4.16.2 | Deferred income tax and social contribution |
The Company, based on its profitability history and the expectation of generating future taxable profits, based on its internal projections prepared for reasonable periods for its business, sets up a deferred tax asset on temporary differences between the tax bases and on tax losses and negative tax basis.
| F-41 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The deferred income tax and social contribution are recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used for tax calculation purposes, to the extent that it is probable that there will be sufficient taxable profits against which the temporary differences can be utilized and the tax losses can be offset.
Deferred tax assets and liabilities may be offset if there is a legal right to offset the current tax assets and liabilities and they relate to the same taxing authority.
| 4.16.3 | Other taxes recoverable and other tax obligations |
Sales and services revenues are subject to value-added tax (Imposto sobre Circulação de Mercadorias e Serviços or ICMS) and service tax (Imposto sobre Serviços or ISS), at the applicable rates, and to the PIS (Social Integration Program) and COFINS (Contribution for Social Security Funding).
Credits resulting from non-cumulative PIS and COFINS charges are accounted for as reductions to operating costs in the statement of income.
Credits arising from non-cumulative ICMS, PIS and COFINS related to the purchase of assets are presented as reductions to the acquisition cost of these assets.
Prepayments or amounts that can be offset are presented in current and non-current assets, according to their expected realization.
| 4.17 | Post-employment benefits |
The Company and its subsidiaries sponsor pension plans to supplement retirement and pension plans and the Assistance Plan (medical and dental assistance) for their active employees and their legal dependents. The amounts of these actuarial commitments (contributions, costs, liabilities and/or assets) are calculated annually by an independent actuary, with the base date that coincides with the end of the year. The economic and financial assumptions for the purposes of the actuarial valuation are discussed with the independent actuary and approved by the Parent Company’s Management.
The assets of the benefit plans are valued at market value (marked-to-market). The value of the net plan liability is recognized at the present value of the actuarial obligation, less the fair value of the plan assets. The adoption of the projected credit unit method adds each year of service as a triggering event for an additional benefit unit, adding up to the calculation of the final obligation.
Other actuarial assumptions are used, which take into account biometric and economic tables in addition to historical data from the benefits plans, obtained from the manager of these plans, Fundação Copel de Previdência e Assistência Social.
Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized in other comprehensive income.
| 4.18 | Leases |
Leases are recognized at present value as a right-of-use asset and lease liability and, from the initial registration, the amortization of the asset and interest on the liability are accounted for separately in profit or loss. The Company adopts exemptions from recognition provided for short-term leases (lease term of up to 12 months) and leases of low value assets, so that these contracts are recognized as operating costs and / or operating expenses on a straight-line basis during the term of the contract.
In addition, the Company has land lease agreements for the development of wind power generation projects that provide for minimum payment during the study/construction period and payment based on variable remuneration during the period of commercial operation. For contracts that are subject to minimum payment, the Company recognized right-of-use assets and lease liabilities. While for contracts that are in commercial operation, the amounts are recorded in the income statement, in operating costs and / or expenses, when the event or condition is satisfied.
To define the interest rate, the cost of the last fundraising carried out via debentures is considered, disregarding incentivized or subsidized funding, considering that this is the way the Company is used to finance cash flow.
| 4.19 | Standards applicable to the Company effective January 1, 2020 |
From January 1, 2020, changes in the following pronouncements are in effect, without significant impacts on the Company's financial statements:
| F-42 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| (i) | IAS 1 Conceptual framework; |
| (ii) | Amendment to definition of business in IFRS 3 and amendment to definition of materiality in IAS 1 and IAS 8. |
| 4.20 | New standards that are not yet in effect |
As of the 2021 financial year, changes in the following pronouncements will be in effect:
| (i) | IAS 37: specification on costs to comply with onerous contract; |
| (ii) | IFRS 3: update of the standard, in view of the changes to the Conceptual Framework; |
| (iii) | IAS 16: definitions of resources before intended use; |
| (iv) | Annual improvements to the 2018–2020 IFRS cycle with changes in pronouncements: IFRS 1 - Initial Adoption of International Accounting Standards; IFRS 9 - Financial Instruments; IFRS 16 - Leases; IAS 41 - Agriculture; |
| (v) | Changes in IAS 1: classification of liabilities as current or non-current. |
| (vi) | IFRS 17: new pronouncement for insurance contracts, replacing IFRS 4. |
The Company does not expect significant impacts on the Company's financial statements resulting from these changes in standards.
| 5 | Cash and Cash Equivalents |
| 12.31.2020 | 12.31.2019 | |
| Cash and bank accounts | 228,711 | 263,188 |
| Financial investments with immediate liquidity | 2,994,057 | 2,678,539 |
| 3,222,768 | 2,941,727 |
These comprise cash on hand, deposits with banks and short-term highly liquid investments, which can be redeemed in cash within 90 days from the investment date. Temporary short-term investments are recorded at cost at the reporting date, plus earnings accrued. Cash and cash equivalents are subject to an insignificant risk of change in value.
Financial investments of the Company refer to Bank Deposit Certificates - CDBs and Repurchase Agreements, which are the sale of a security with the commitment of the seller (Bank) to repurchase it, and of the purchaser to resell it in the future. Investments have post-fixed interest rates between 85% and 101.5% of Interbank Deposit Certificate (“CDI”).
| 6 | Bonds and Securities |
The Company hold securities that yield variable interest rates. The term of these securities ranges from 4 to 51 months from the end of the reporting period.
| F-43 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Category | Index | 12.31.2020 | 12.31.2019 |
| Quotas in Funds (a) | CDI | 237,141 | 225,804 |
| Bank Deposit Certificates - CDB | 90% to 101% of CDI | 62,638 | 50,216 |
| Financial Treasury Bonds - LFT | Selic | 751 | 733 |
| Committed Operation | 96.5% of CDI | - | 3,632 |
| National Treasury Bills- LTN | CDI | - | 1,696 |
| 300,530 | 282,081 | ||
| Current | 1,465 | 3,112 | |
| Noncurrent | 299,065 | 278,969 | |
| Interbank Deposit Certificate - CDI | |||
| Interest rate equivalent to the reference rate of the Special System for Settlement and Custody - Selic | |||
| (a) These are fixed income funds in the Parent Company and reserve accounts intended to comply with contracts with BNDES, in other companies. | |||
| 7 | Trade Accounts Receivable |
| Balances | Overdue | Overdue for | Total | Total | |
| falling due | up to 90 days | more than 90 days |
12.31.2020 | 12.31.2019 | |
| Customers | |||||
| Residential | 388,190 | 211,050 | 40,184 | 639,424 | 579,715 |
| Industrial | 213,229 | 21,048 | 78,025 | 312,302 | 298,719 |
| Commercial | 255,691 | 51,502 | 28,246 | 335,439 | 363,986 |
| Rural | 87,666 | 21,676 | 309 | 109,651 | 103,271 |
| Public Entities | 32,687 | 1,646 | 3,037 | 37,370 | 55,847 |
| Public lighting | 42,319 | 4,296 | - | 46,615 | 38,523 |
| Public service | 40,856 | 658 | 298 | 41,812 | 44,983 |
| Unbilled - captives | 583,209 | - | - | 583,209 | 516,203 |
| Energy installments plan - captives (7.1) | 206,170 | 20,011 | 65,666 | 291,847 | 204,192 |
| Low income subsidy - Eletrobras | 13,783 | - | - | 13,783 | 12,174 |
| Free consumers | 161,273 | 1,613 | 900 | 163,786 | 132,756 |
| Other receivables | 62,362 | 23,105 | 82,803 | 168,270 | 148,375 |
| 2,087,435 | 356,605 | 299,468 | 2,743,508 | 2,498,744 | |
| Concessionaires, Permission holder and Trading Companies | |||||
| Bilateral contracts | 265,432 | - | - | 265,432 | 191,463 |
| Regulated contracts | 162,290 | 1,792 | 6,869 | 170,951 | 159,492 |
| CCEE (7.2) | 533,223 | 16 | 119,665 | 652,904 | 315,712 |
| Energy suplies | 960,945 | 1,808 | 126,534 | 1,089,287 | 666,667 |
| Charges from using transmission grid | 271,008 | 1,396 | 9,104 | 281,508 | 215,582 |
| . | |||||
| Telecommunications | - | - | - | - | 67,304 |
| Gas distribution | 56,862 | 1,342 | 12,724 | 70,928 | 111,026 |
| Expected credit losses (7.3) | (7,610) | (11,964) | (345,977) | (365,551) | (376,756) |
| 3,368,640 | 349,187 | 101,853 | 3,819,680 | 3,182,567 | |
| Current | 3,768,242 | 3,120,168 | |||
| Noncurrent | 51,438 | 62,399 |
| 7.1 | Energy installments plan |
The trade accounts receivable renegotiated are discounted to present value as of December 31, 2020, taking into consideration the future value, the maturity dates, the dates of settlement and the discount rate ranging from 0.49% to 2.89% p.m.
| F-44 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 7.2 | Electricity Trading Chamber - CCEE |
Balance receivable deriving from the positive position in the monthly settlement of the spot market centralized by CCEE. Amounts are received in the second month following the recognition of revenue or offset against future settlements when the result is negative for the subsidiary.
Of the total presented, R$119,665 refer to the controversial portion resulting from the effects of the injunction for exclusion of responsibility of Colíder HPP. As a result of unforeseeable circumstances and force majeure, the power plant had its commercial start-up delayed, which was initially scheduled for January 2015. The Company is contesting in court, filing a request for exclusion of liability so that the mandatory supply of energy contracted by the plant, in the period in delay, is postponed. Expected credit losses were recorded in the same amount as the receivable balance, as presented in Note 7.3 .
Copel GeT filed an administrative request for the exclusion of liability at ANEEL, which was denied, and subsequently, at 12.18.2017, it filed an ordinary lawsuit with request for advance protection with the Court, requesting the reversal of the agency's decision. On April 6, 2018, the Federal Court of the 1st Region fully granted the preliminary injunction applied for in the interlocutory appeal to suspend the enforcement of any burden or penalty to Copel as a result of noncompliance with the deadlines originally provided for in the Concession Agreement until a final unappelable ruling is rendered. The main action is pending judgment on merits.
The contracted energy of the plant is 125 MW mean. For overdue periods the contract was fulfilled as described below:
- From January 2015 to May 2016, with suspension of energy delivery by operation because of the injunction obtained by Management;
- In June 2016, with partial reduction through a bilateral agreement and suspended remaining balance due to the court injunction;
- From July 2016 to December 2018, with reduction of all supply contracts of the CCEARs - Energy Trading Agreement in the Regulated Environment, through a bilateral agreement and participation in the New Energy and Decrease Clearing Facility ("Mecanismo de Compensação de Sobras e Déficits de Energia Nova - MCSD-EN"); and
- From January to March 2019, the firmed contracts in the regulated environment became effective again, however, energy supply continued suspended, in light of the injunction obtained. As of March 9, 2019, the plant started commercial production of its first generating unit.
Due to the fact it is awaiting a decision on the merits of the lawsuit, in the period in delay of the plant, the Company recognized in the income for the years revenue limited to the financial covenants of the agreement and the regulatory rules, as well as the cost of energy to cover the contractual guarantee.
| F-45 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 7.3 | Expected credit losses |
| Balance as of | Additions / | Reversal | Balance as of | Additions / | Reversal | Reclassi- | Balance as of | |
| January 1, 2019 | (Reversals) | of write offs | December 31, 2019 | (Reversals) | of write offs | fication (a) | December 31, 2020 | |
| Customers | ||||||||
| Residential | 21,722 | 71,794 | (51,692) | 41,824 | 65,937 | (60,365) | - | 47,396 |
| Industrial | 87,197 | 33,772 | (23,015) | 97,954 | 22,487 | (31,575) | - | 88,866 |
| Commercial | 69,717 | 27,866 | (26,658) | 70,925 | 29,092 | (31,294) | - | 68,723 |
| Rural | 3,810 | 1,499 | (1,920) | 3,389 | 4,788 | (4,240) | - | 3,937 |
| Public Entities | 4,874 | 435 | (419) | 4,890 | 9 | (1,815) | - | 3,084 |
| Public lighting | 120 | (117) | - | 3 | 20 | (15) | - | 8 |
| Public service | 199 | 145 | (79) | 265 | 124 | (246) | - | 143 |
| Unbilled | 1,502 | (322) | - | 1,180 | 409 | - | - | 1,589 |
| Adjustment to present value | (2,883) | 1,442 | - | (1,441) | 791 | - | - | (650) |
| 186,258 | 136,514 | (103,783) | 218,989 | 123,657 | (129,550) | - | 213,096 | |
| Concessionaires, Permission holder and Trading Companies | ||||||||
| CCEE (7.2) | 119,665 | - | - | 119,665 | - | - | - | 119,665 |
| Concessionaries and permission holder | 9,474 | 11,608 | (657) | 20,425 | 392 | (284) | - | 20,533 |
| 129,139 | 11,608 | (657) | 140,090 | 392 | (284) | - | 140,198 | |
| Telecommunications | 3,879 | 13,292 | (12,022) | 5,149 | 3,609 | (6,260) | (2,498) | - |
| Gas distribution | 12,112 | 1,063 | (647) | 12,528 | 238 | (509) | - | 12,257 |
| 331,388 | 162,477 | (117,109) | 376,756 | 127,896 | (136,603) | (2,498) | 365,551 |
(a) Reclassification to Assets classified as held for sale (Note 40).
| 8 | CRC Transferred to the Paraná State Government |
The Company's Management and the Paraná State Government formalized on October 31, 2017 the fifth amendment to the agreement for renegotiation of the Account for Compensation of Income and Losses - CRC. The State of Paraná complied with the agreed terms and made the payments of the monthly interest until December 2017. With the end of the grace period, the State of Paraná has complied with the payments under the agreed terms, remaining 64 monthly installments to be paid. The contract balance is updated by the IGP-DI variation and interest of 6.65% p.a.
| 8.1 | Changes in CRC |
| Balance as of | Monetary | Balance as of | Monetary | Balance as of | ||||
| January 1, 2019 | Interest | variations | Amortizations | December 31, 2019 | Interest | variations | Amortizations | December 31, 2020 |
| 1,445,042 | 87,710 | 96,519 | (278,586) | 1,350,685 | 80,788 | 261,176 | (300,025) | 1,392,624 |
| Current | 219,236 | 287,789 | ||||||
| Noncurrent | 1,131,449 | 1,104,835 |
| 8.2 | Maturity of noncurrent installments |
| 2022 | 306,928 |
| 2023 | 327,341 |
| 2024 | 349,111 |
| 2025 | 121,455 |
| 1,104,835 |
| F-46 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 9 | Net Sectorial Financial Assets and Liabilities |
| 9.1 | Compositions of net sectorial financial assets and liabilities balances per tariff cycle |
| 12.31.2020 | 12.31.2019 | |||
| Current | Noncurrent | Current | Noncurrent | |
| Sectorial financial assets - Electricity rate adjustment recoverable 2019 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | - | - | 235,192 | - |
| Electricity purchased for resale - Itaipu | - | - | 342,647 | - |
| Transport of energy using the transmission system - basic grid | - | - | (47,214) | - |
| Transport of energy purchased from Itaipu | - | - | 9,937 | - |
| System Service Charges - ESS | - | - | (160,277) | - |
| Energy Development Account - CDE | - | - | 98,722 | - |
| Proinfa | - | - | 8,528 | - |
| Neutrality | - | - | 29,690 | - |
| Overcontracting | - | - | (116,673) | - |
| Hydrological risk | - | - | (119,416) | - |
| Tariff refunds | - | - | (43,538) | - |
| Other | - | - | (448) | - |
| - | - | 237,150 | - | |
| Sectorial financial assets - Electricity rate adjustment recoverable 2020 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | - | - | 15,298 | 15,298 |
| Electricity purchased for resale - Itaipu | - | - | 225,340 | 225,340 |
| Transport of energy using the transmission system - basic grid | - | - | 30,126 | 30,126 |
| Transport of energy purchased from Itaipu | - | - | 7,227 | 7,227 |
| System Service Charges - ESS | - | - | (52,336) | (52,336) |
| Energy Development Account - CDE | - | - | 27,103 | 27,103 |
| Proinfa | - | - | (30) | (30) |
| Neutrality | - | - | 9,408 | 9,408 |
| Offset of energy surplus/deficit under CCEAR bilateral contracts | - | - | 20,096 | 20,096 |
| Overcontracting | - | - | (25,725) | (25,725) |
| Hydrological risk | - | - | (113,872) | (113,872) |
| Tariff refunds | - | - | (24,215) | (24,216) |
| - | - | 118,420 | 118,419 | |
| Sectorial financial assets - Electricity rate adjustment recoverable 2021 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | (54,864) | (54,864) | - | - |
| Electricity purchased for resale - Itaipu | 231,588 | 231,588 | - | - |
| Transport of energy using the transmission system - basic grid | 88,137 | 88,137 | - | - |
| Transport of energy purchased from Itaipu | 9,766 | 9,766 | - | - |
| System Service Charges - ESS | 11,266 | 11,266 | - | - |
| Energy Development Account - CDE | (903) | (903) | - | - |
| Proinfa | (89) | (89) | - | - |
| Neutrality | 27,923 | 27,923 | - | - |
| Overcontracting | 78,836 | 78,836 | - | - |
| Hydrological risk | (143,147) | (143,147) | - | - |
| Tariff refunds | (76,144) | (76,144) | - | - |
| Other | 1,096 | 1,096 | - | - |
| 173,465 | 173,465 | - | - | |
| 173,465 | 173,465 | 355,570 | 118,419 |
| F-47 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2020 | 12.31.2019 | |||
| Current | Noncurrent | Current | Noncurrent | |
| Sectorial financial liabilities - Electricity rate adjustment recoverable 2020 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | 9,675 | - | - | - |
| ESS | (3,401) | - | - | - |
| CDE | (66) | - | - | - |
| Proinfa | 33 | - | - | - |
| Transport of energy using the transmission system - basic grid | 603 | - | - | - |
| Transport of energy purchased from Itaipu | 214 | - | - | - |
| Offset of energy surplus/deficit under CCEAR bilateral contracts | 36,395 | - | - | - |
| Hydrological risk | (187,817) | - | - | - |
| Tariff refunds | (41,381) | - | - | - |
| Overcontracting | (26,995) | - | - | - |
| Neutrality | 21,419 | - | - | - |
| Other | 2,612 | - | - | - |
| (188,709) | - | - | - | |
| Sectorial financial liabilities - Tariff Review 2021 | ||||
| Financial components | ||||
| Tariff refunds | - | - | - | (102,284) |
| - | - | - | (102,284) | |
| (188,709) | - | - | (102,284) |
| 9.2 | Changes in net sectorial financial assets and liabilities |
| Balance as of | Operating revenues | Financial results | Write-offs Covid Account | Rate | Balance as of | ||
| 1-Jan-20 | Constitution | Amortization | Updating | flags | 31-Dec-20 | ||
| Portion A | |||||||
| Electricity purchased for resale - Itaipu | 793,327 | 893,581 | (354,300) | 28,197 | (897,629) | - | 463,176 |
| Electricity purchased for resale - CVA Energ | 265,788 | (242,246) | (253,482) | 1,076 | 164,804 | (35,993) | (100,053) |
| Transport of energy using the transmission system - basic grid | 13,038 | 265,030 | 48,154 | 1,715 | (151,060) | - | 176,877 |
| Transport of energy purchased from Itaipu | 24,391 | 31,762 | (10,503) | 801 | (26,705) | - | 19,746 |
| ESS | (264,949) | (72,032) | 169,396 | (8,854) | 249,724 | (54,154) | 19,131 |
| CDE | 152,928 | 56,608 | (102,027) | 5,065 | (114,446) | - | (1,872) |
| Proinfa | 8,468 | (21,615) | (8,856) | (181) | 22,039 | - | (145) |
| Other financial components | |||||||
| Neutrality | 48,506 | 95,870 | (52,843) | 187 | (14,455) | - | 77,265 |
| Offset of energy surplus/deficit under CCEAR bilateral contracts | 40,192 | 75,917 | (79,714) | - | - | - | 36,395 |
| Hydrological risk | (347,160) | (444,291) | 322,432 | (5,092) | - | - | (474,111) |
| Tariff refunds | (194,253) | (83,514) | 88,269 | (4,171) | - | - | (193,669) |
| Overcontracting | (168,123) | 274,051 | 145,853 | 663 | (101,788) | (19,979) | 130,677 |
| Others | (448) | 6,927 | (2,375) | 700 | - | - | 4,804 |
| 371,705 | 836,048 | (89,996) | 20,106 | (869,516) | (110,126) | 158,221 | |
| Current assets | 355,570 | 173,465 | |||||
| Noncurrent assets | 118,419 | 173,465 | |||||
| Current liabilities | - | (188,709) | |||||
| Noncurrent liabilities | (102,284) | - | |||||
The balance of Covid Account was received in full on July 31, 2020, as described in Note 1, item “a”.
| F-48 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Balance as of | Operating revenues | Financial results | Rate | Balance as of | ||
| January 1, 2019 | Constitution | Amortization | Updating | flags | December 31, 2019 | |
| Portion A | ||||||
| Electricity purchased for resale - Itaipu | 886,243 | 533,057 | (670,501) | 44,528 | - | 793,327 |
| Electricity purchased for resale - CVA Energ | 626,891 | 358,200 | (546,801) | 29,909 | (202,411) | 265,788 |
| Transport of energy using the transmission system - basic grid | (30,514) | 22,917 | 23,688 | (3,053) | - | 13,038 |
| Transport of energy purchased from Itaipu | 23,250 | 19,531 | (19,692) | 1,302 | - | 24,391 |
| ESS | (481,972) | (188,280) | 427,177 | (21,874) | - | (264,949) |
| CDE | 159,084 | 110,752 | (127,190) | 10,282 | - | 152,928 |
| Proinfa | 2,989 | 17,396 | (12,636) | 719 | - | 8,468 |
| Other financial components | ||||||
| Neutrality | 123,028 | (1,122) | (74,698) | 1,298 | - | 48,506 |
| Offset of energy surplus/deficit under CCEAR bilateral contracts | 5,237 | 80,385 | (45,430) | - | - | 40,192 |
| CVA Angra III Adjustment | 6,272 | - | (6,272) | - | - | - |
| Hydrological risk | (319,033) | (324,504) | 304,197 | (7,820) | - | (347,160) |
| Tariff refunds | (180,963) | (89,327) | 83,900 | (7,863) | - | (194,253) |
| Overcontracting | (238,416) | (22,166) | 173,087 | (5,774) | (74,854) | (168,123) |
| Others | 192 | (905) | 294 | (29) | - | (448) |
| 582,288 | 515,934 | (490,877) | 41,625 | (277,265) | 371,705 | |
| Current assets | 421,184 | 355,570 | ||||
| Noncurrent assets | 257,635 | 118,419 | ||||
| Noncurrent liabilities | (96,531) | (102,284) | ||||
| 10 | Accounts Receivables - Concessions |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 01.01.2019 | |
| Power distribution service concession (10.1) | 960,518 | 836,818 | 783,023 |
| Piped gas distribution service concession (10.2) | 189,416 | 324,385 | 322,259 |
| Bonus from the grant of concession agreements under the quota system (10.3) | 671,204 | 647,984 | 625,772 |
| Generation concession agreements (10.4) | 81,202 | 69,182 | 65,811 |
| 1,902,340 | 1,878,369 | 1,796,865 | |
| Current | 4,515 | 4,545 | 4,180 |
| Noncurrent | 1,897,825 | 1,873,824 | 1,792,685 |
| 10.1 | Power distribution service concession |
| Balance as of January 1, 2019 | 783,023 |
| Transfers from contract assets (Note 11.1) | 28,987 |
| Transfers from investments | 348 |
| Transfers to other receivables (assets held for disposal) | (1,578) |
| Fair value recognition | 26,231 |
| Incorporations | (75) |
| Loss on disposal | (118) |
| Balance as of December 31, 2019 | 836,818 |
| Transfers from contract assets (Note 11.1) | 86,154 |
| Transfers to intangible assets (Note 18.1) | (99) |
| Transfers to other receivables (assets held for disposal) | (7,428) |
| Fair value recognition | 45,187 |
| Loss on disposal | (114) |
| Balance as of December 31, 2020 | 960,518 |
| F-49 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The distribution concession agreement amount is measured at fair value and its collection is assured by the Concession Grantor through an indemnity upon the return of these assets at the end of the concession period.
| 10.2 | Piped gas distribution service concession |
| Balance as of January 1, 2019 | 322,259 |
| Transfers from contract assets (Note 11.2) | 16,574 |
| Transfers to intangible assets (Note 18.3) | (24,835) |
| Fair value recognition | 10,415 |
| Loss on disposal | (28) |
| Balance as of December 31, 2019 | 324,385 |
| Transfers from contract assets (Note 11.2) | 7,390 |
| Transfers to intangible assets (Note 18.3) | (154,483) |
| Fair value recognition | 12,154 |
| Loss on disposal | (30) |
| Balance as of December 31, 2020 | 189,416 |
| 10.3 | Bonus from the grant of concession agreements under the quota system |
| Balance as of January 1, 2019 | 625,772 |
| Transfers to electricity grid use charges - customers | (69,192) |
| Interest (Note 31) | 91,404 |
| Balance as of December 31, 2019 | 647,984 |
| Transfers to electricity grid use charges - customers | (71,087) |
| Interest (Note 31) | 94,307 |
| Balance as of December 31, 2020 | 671,204 |
On January 5, 2016, Copel GeT entered into a 30-year concession agreement of HPP GPS, in accordance with Law No. 12,783/2013, with payment of the Bonus from the Grant - BO to the Concession Grantor, amounting to R$ 574,827, as per ANEEL Invitation to Bid 12/2015.
The electric energy in 2016 was fully sold to the Regulated Contracting Environment - ACR under the Assured Power Quota System - CGF or “quota regime” and, as from 2017 to the end of the concession, in the proportion of 70% of the power in the ACR and 30% in the free environment - ACL.
The amount of the bonus for the grant was recognized as a financial asset due to the Copel GeT’s unconditional right to receive the amount paid with inflation adjustment based on IPCA and interest during the concession period.
| F-50 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 10.4 | Power generation concession contract |
| Balance as of January 1, 2019 | 65,811 |
| Gain on remeasurement of the cash flow | 426 |
| Reversal of impairment (Note 32.4) | 2,945 |
| Balance as of December 31, 2019 | 69,182 |
| Gain on remeasurement of the cash flow | 1,518 |
| Reversal of impairment (Note 32.4) | 10,502 |
| Balance as of December 31, 2020 | 81,202 |
Residual balance refers to the electricity generation assets of HPP GPS and HPP Mourão I. Copel GeT depreciated the plants until 2015, the expiration date of the concessions, and the remaining balances were reclassified to accounts receivable linked to the concession. Although the Granting Authority has not yet disclosed the form of payment of remuneration of the assets, Management's expectation about indemnification for these assets indicates the recoverability of the recorded balance, based on the remuneration methodology established by ANEEL.
Copel GeT timely manifested to ANEEL its interest in receiving the indemnifiable amount. Formalization of proof of realization of the respective investments to ANEEL occurred on December 17, 2015. To prepare the information, the new replacement value methodology was used, as defined by ANEEL Normative Resolution No. 596/2013.
| 11 | Contract assets |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 01.01.2019 | |
| Power distribution service concession (11.1) | 1,114,961 | 844,284 | 640,500 |
| Piped gas distribution service concession (11.2) | 27,254 | 26,734 | 25,718 |
| Power transmission concession (11.3) | 4,350,582 | 3,919,635 | 3,520,838 |
| 5,492,797 | 4,790,653 | 4,187,056 | |
| Current | 285,682 | 161,740 | 134,016 |
| Noncurrent | 5,207,115 | 4,628,913 | 4,053,040 |
| F-51 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 11.1 | Power distribution service concession contract |
| Assets | Special liabilities | Total | |
| Balance as of January 1, 2019 | 664,755 | (24,255) | 640,500 |
| Acquisitions | 1,021,644 | - | 1,021,644 |
| Customers contributions | - | (104,067) | (104,067) |
| Provision for legal claims added to the cost of the works | 1,823 | - | 1,823 |
| Transfers to intangible assets (Note 18.1) | (771,844) | 93,164 | (678,680) |
| Transfers to accounts receivable - concessions (Note 10.1) | (33,075) | 4,088 | (28,987) |
| Loss on disposal | (7,949) | - | (7,949) |
| Balance as of December 31, 2019 | 875,354 | (31,070) | 844,284 |
| Acquisitions | 1,391,267 | - | 1,391,267 |
| Customers contributions | - | (112,689) | (112,689) |
| Provision for legal claims added to the cost of the works | 1,522 | - | 1,522 |
| Transfers to intangible assets (Note 18.1) | (1,016,482) | 105,116 | (911,366) |
| Transfers to accounts receivable - concessions (Note 10.1) | (94,978) | 8,824 | (86,154) |
| Loss on disposal | (11,903) | - | (11,903) |
| Balance as of December 31, 2020 | 1,144,780 | (29,819) | 1,114,961 |
Balance referring to the concessionaire's contractual right related to construction in progress to meet the needs of the concession. The costs of borrowings, financing and debentures capitalized in the year ended in December 31, 2020 totaled R$9,537, at average rate of 0.38% p.a. (R$ 6,838, at average rate of 0.28% p.a. in December 31, 2019, and R$ 5,435, at average rate of 0.26% p.a. in December 31, 2018 ).
| 11.2 | Piped gas distribution service concession contract |
| Balance as of January 1, 2019 | 25,718 |
| Acquisitions | 17,590 |
| Transfers from/to accounts receivable - concessions (Note 10.2) | (16,574) |
| Balance as of December 31, 2019 | 26,734 |
| Acquisitions | 15,187 |
| Transfers to intangible assets (Note 18.3) | (7,277) |
| Transfers to accounts receivable - concessions (Note 10.2) | (7,390) |
| Balance as of December 31, 2020 | 27,254 |
| F-52 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 11.3 | Transmission service concession contract |
| Concession assets | RBSE assets | Total Restated | |
| Balance as of January 1, 2019 | 2,166,757 | 1,354,081 | 3,520,838 |
| Business combinations efects | 117,942 | - | 117,942 |
| Realization of gains/losses in business combinations | 282 | - | 282 |
| Transfers to electricity grid use charges - customers | (176,724) | (214,336) | (391,060) |
| Transfers to property, plant and equipment | (3,353) | - | (3,353) |
| Transfer of judicial deposits and litigation | (313) | - | (313) |
| Remuneration | 280,630 | 177,961 | 458,591 |
| Construction revenue | 175,219 | - | 175,219 |
| Construction income | 2,892 | - | 2,892 |
| Efficiency gain (11.3.1) | 38,597 | - | 38,597 |
| Balance as of December 31, 2019 | 2,601,929 | 1,317,706 | 3,919,635 |
| Realization of gains/losses in business combinations | 722 | - | 722 |
| Transfers to electricity grid use charges - customers | (312,120) | (266,027) | (578,147) |
| Transfers to property, plant and equipment | (613) | - | (613) |
| Transfers from litigations | (576) | - | (576) |
| Remuneration | 489,438 | 291,669 | 781,107 |
| Construction revenue | 255,578 | - | 255,578 |
| Construction income | 4,217 | - | 4,217 |
| Loss from inefficiency (11.3.1) | (7,654) | - | (7,654) |
| Write-offs | (23,687) | - | (23,687) |
| Balance as of December 31, 2020 | 3,007,234 | 1,343,348 | 4,350,582 |
On June 30, 2020, Aneel published Homologatory Resolution 2,715, in which it ratified the result of the periodic review of the RAP of contract No. 060/2001 and on July 14, 2020 it issued Homologatory Resolution 2,725, which establishes the RAP for making available the facilities under the responsibility of the Company. In the process of the first tariff review of contract No. 060/2001, referring to the tariff cycles of 2018/2023 and which takes place every five years, operating costs, the cost of capital (WACC) and the remuneration base were reassessed, which resulted in a 10.16% RAP repositioning rate in relation to the previous cycle.
Additionally, in relation to RBSE assets, Ratifying Resolution No. 2,715 set the tariff repositioning and included the “remuneration” in the portion of RAP, which had previously been provisionally excluded due to a judicial decision now overturned. Such amounts will be received from the fourth tariff cycle started in July 2020 until June 2025, including the addition of amounts not timely received due to the provisional effects of the injunction, which will be added in the next three RAP cycles beginning in July 2020 until June 2023. The impact of the tariff review on RBSE assets totaled R$ 122,027, recorded in 2020 operating revenue.
| F-53 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 11.3.1 | Gain (loss) due to efficiency or inefficiency in the implementation and operation of transmission infrastructure |
In the construction and operation of the transmission infrastructure, possible positive or negative impacts are expected due to delays and additional costs due to environmental issues, variation in costs, mainly with cables and structures when indexed to foreign currency, additional easement costs and land negotiations, potential earthworks for unforeseen events, early maturity of commercial transactions and RAP revision/readjustment according to the regulatory standards and contractual provisions. Changes in the original project that affect its profitability are recognized directly in the statement of income when incurred, except for the part of RAP related to the operation and maintenance performance of the assets that is recognized as the services are performed.
| 11.3.2 | Assumptions adopted for the calculation of contract assets |
| Concession assets | RBSE assets | |
| Construction income | 1.65% | N/A |
| Operating and maintenance margin | 1.65% | N/A |
| Remuneration rate (a) | 9,58% p.y. | 9,54% p.y. |
| Contract correction index | IPCA (b) | IPCA |
| Annual RAP, according to Homologatory Resolution | 415,455 | 279,406 |
| Construction cost incurred up to 12.31.2020 of works in progress | ||
| Contract 006/2016 - TL 525 kV Curitiba Leste - Blumenau | 238,233 | N/A |
| (a)Average rate of contracts | ||
| (b) Contract 075/2001 - LT 230 kV Bateias - Jaguariaíva, from Copel GET, and contract 002/2005 - LT 525 kV Ivaiporã - Londrina, from Uirapuru, are adjusted by the IGPM. | ||
| 12 | Other Receivables |
| 12.31.2020 | 12.31.2019 | |
| Fair value in the purchase and sale of power (Note 35.2.12) | 689,531 | 460,635 |
| Services in progress (a) | 260,348 | 228,593 |
| Credits on purchases of gas (12.1) | 120,515 | 142,941 |
| CDE Transfer (12.2) | 60,433 | 61,898 |
| Advance payments to suppliers (b) | 36,609 | 24,073 |
| Advance payments to employees | 17,785 | 20,427 |
| Derivatives fair value - forward contract (Note 35.2.3 - b) | 23,308 | - |
| Decommissioning in progress | 36,855 | 21,238 |
| Advance for severance estate | 14,484 | 15,597 |
| Tariff flag - CCRTB | 7,194 | 19,545 |
| Insurance entities | - | 24,574 |
| Other receivables | 92,583 | 69,103 |
| 1,359,645 | 1,088,624 | |
| Current | 514,185 | 426,865 |
| Noncurrent | 845,460 | 661,759 |
| CCRTB - Centralizing account of Tariff Flag Resources. | ||
| (a) This item refers to services currently in progress within the Company, most of which are related to the Research and Development and Energy Efficiency programs, which upon conclusion are offset against the respective liability recorded for this purpose. | ||
| (b) Advances to suppliers provided on contractual clauses. | ||
| F-54 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.1 | Credits on purchases of gas - Compagás |
This balance refers to the gas acquisition of contracted and guaranteed volumes, higher than those actually withdrawn and used, and contains a future compensation clause. Compagás has the right to use and offset this gas over the term of the contract up to one year after the closure, currently established in December 2023. According to the contractual provisions and consumption perspectives, derived from the review of the projects and scenarios for the next years, Compagás estimates to fully offset the contracted volumes in the course of its operation. Contracts with Petrobras provide for the right to assign this asset.
| 12.2 | CDE Transfer |
Balance in December 31, 2020 to be transferred by the CDE referring to tariff discounts on the tariffs applicable to users defined in accordance with article 13, item VII, of Law 10,438/2002 and Decree 7,891/2013. The amount transferred to Copel DIS for the period from June 2019 to May 2020, in accordance with Resolution 2,402/2018, was R$ 51,200 per month. As from June 2020, this amount was changed to R$ 47,005 per month, by Resolution 2,704, dated June 23, 2020, which approved the result of the last Annual Tariff Adjustment.
| 13 | Taxes |
| 13.1 | Deferred income tax and social contribution |
| Business | Recognized | Recognized | |||||||
| Balance as of | Recognized | combination | comprehensive | Balance as of | Recognized | Reclassi- | comprehensive | Balance as of | |
| January 1, 2019 | in income | effect | income | December 31, 2019 | in income | fication (a) | income | December 31, 2020 | |
| Noncurrent assets | |||||||||
| Provisions for legal claims | 573,177 | (62,662) | 6,237 | - | 516,752 | (6,072) | - | - | 510,680 |
| Post-employment benefits | 328,685 | 13,285 | - | 63,444 | 405,414 | 9,433 | - | 92,190 | 507,037 |
| Impairment of assets | 328,011 | 57,456 | - | - | 385,467 | (63,827) | - | - | 321,640 |
| Research and development and energy efficiency programs | 154,491 | 10,840 | - | - | 165,331 | (12,833) | - | - | 152,498 |
| Expected credit losses | 114,010 | 17,811 | - | - | 131,821 | (2,868) | - | - | 128,953 |
| Tax losses and negative tax basis | 71,140 | 27,102 | - | - | 98,242 | 144,493 | - | - | 242,735 |
| Social security contributions - injunction on judicial deposit | 67,010 | 4,190 | - | - | 71,200 | 3,340 | - | - | 74,540 |
| Provisons by performance andprofit sharing | 30,548 | 21,567 | - | - | 52,115 | 109,622 | - | - | 161,737 |
| Amortization - concession | 53,339 | 5,005 | - | - | 58,344 | (11,135) | - | - | 47,209 |
| Concession contracts | 23,606 | (1,253) | - | - | 22,353 | (1,292) | - | - | 21,061 |
| Provision for energy purchases | 155,570 | (137,531) | - | - | 18,039 | - | - | - | 18,039 |
| (-) Reclassification (a) | - | (1,771) | (81,971) | - | (83,742) | ||||
| Others | 147,771 | (4,512) | - | - | 143,259 | 22,634 | - | - | 165,893 |
| 2,047,358 | (48,702) | 6,237 | 63,444 | 2,068,337 | 189,724 | (81,971) | 92,190 | 2,268,280 | |
| (-) Noncurrent liabilities | |||||||||
| Concession contracts | 613,658 | 99,199 | (1,026) | - | 711,831 | 188,674 | - | - | 900,505 |
| Deemed cost | 415,325 | (34,116) | - | - | 381,209 | (30,718) | - | - | 350,491 |
| Derivative financial instruments | 5,030 | 65,915 | - | - | 70,945 | 46,737 | - | - | 117,682 |
| Escrow deposits monetary variation | 64,167 | (3,022) | - | - | 61,145 | 1,981 | - | - | 63,126 |
| Accelerated depreciation | 32,682 | 17,640 | - | - | 50,322 | 25,633 | - | - | 75,955 |
| Transaction cost on borrowings and debentures | 31,127 | 981 | - | - | 32,108 | (7,539) | - | - | 24,569 |
| (-) Reclassification (a) | - | 478 | (3,243) | - | (2,765) | ||||
| Others | 35,728 | 6,849 | - | - | 42,577 | (10,626) | - | - | 31,951 |
| 1,197,717 | 153,446 | (1,026) | - | 1,350,137 | 214,620 | (3,243) | - | 1,561,514 | |
| Net | 849,641 | (202,148) | 7,263 | 63,444 | 718,200 | (24,896) | (78,728) | 92,190 | 706,766 |
| Assets presented in the Statement of Financial Position | 1,007,061 | 1,011,866 | 1,191,104 | ||||||
| (-) Liabilities presented in the Statement of Financial Position | (157,420) | (293,666) | (484,338) | ||||||
(a) Reclassification to Assets classified as held for sale (Note 40). | |||||||||
| 13.1.1 | Projection for realization of deferred income tax and social contribution: |
The projection of deferred tax credits realization recorded in noncurrent assets and liabilities is based on the realization period of each item of deferred assets and liabilities and tax losses, also based on projections of future results. These projections were evaluated by the Supervisory Board and approved by the Board of Directors on March 17, 2021.
| F-55 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The criteria used for the realization of each item are related to the predictability of realization of the main value that gave rise to the temporary difference. When the expectation of realization of the item is difficult to predict, mainly because it is not under the control of the Company, such as provisions for litigation, the Company adopts history of realization to project its future realization. The realization of the amounts of income tax and social contribution losses follow the potential compensation considering future profits and the limit defined by the legislation.
Following are the items that were the basis for the setup of the main credits, as well as their form of realization:
- Provisions for post-employment benefits: realized as the payments are made to the Copel Foundation or reversed according to new actuarial estimates;
- Provisions for legal claims: realized according to court decisions or by the reversal when the possible risk of the shares is reviewed;
- Impairment of assets: realized through the amortization and/or depreciation of the impaired asset;
- Provision for purchase of energy and charges of the main distribution and transmission grid: realized upon the effective obligation of the amounts provisioned or by the reversal of the provision;
- Provisions for R&D and PEE: realized through the expenses incurred in the projects carried out;
- Deemed cost: realized through the amortization and/or depreciation of the valued asset;
- Amounts related to the concession agreement: realized over the term of the agreement;
- Amounts related to tax losses and negative tax basis: recovered by offsetting against future taxable income;
- Other amounts: realized when they meet the deductibility criteria provided for in tax legislation, or upon reversal of the recorded amounts.
The projected realization of the deferred taxes is shown below:
| Assets | Liabilities | |
| 2021 | 618,750 | (108,316) |
| 2022 | 223,243 | (94,626) |
| 2023 | 117,380 | (110,243) |
| 2024 | 80,174 | (121,232) |
| 2025 | 80,408 | (92,592) |
| 2026 to 2028 | 179,810 | (257,513) |
| 2029 to 2030 | 968,515 | (776,992) |
| 2,268,280 | (1,561,514) |
| F-56 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 13.1.2 | Unrecognized tax credits |
As of December 31, 2020, UEG Araucária did not recognize income tax and social contribution credits on income tax and social contribution tax losses in the amount of R$ 131,655 (R$ 34,567, as of December 31, 2019) for not having, at that moment, reasonable assurance of generation of future taxable profits sufficient to allow the utilization of these tax credits.
| 13.2 | Other taxes recoverable and other tax obligations |
| 12.31.2020 | 12.31.2019 | |
| Current assets | ||
| Recoverable ICMS (VAT) | 89,942 | 103,977 |
| Recoverable PIS/Pasep and Cofins taxes (13.2.1) | 1,474,119 | 98,942 |
| Other recoverable taxes | 1,262 | 2,141 |
| 1,565,323 | 205,060 | |
| Noncurrent assets | ||
| Recoverable ICMS (VAT) | 84,376 | 74,568 |
| Recoverable PIS/Pasep and Cofins taxes (13.2.1) | 4,421,403 | 213,667 |
| Other recoverable taxes | 33,719 | 33,776 |
| 4,539,498 | 322,011 | |
| Current liabilities | ||
| ICMS (VAT) payable | 201,138 | 179,662 |
| PIS/Pasep and Cofins payable | 179,133 | 125,197 |
| IRRF on JSCP | 43,950 | 117,807 |
| Special Tax Regularization Program - Pert | 50,565 | 49,310 |
| Ordinary financing of taxes with the federal tax authorities | - | 18,063 |
| Other taxes | 15,822 | 11,029 |
| 490,608 | 501,068 | |
| Noncurrent liabilities | ||
| Social security contributions - injunction on judicial deposit | 209,145 | 209,747 |
| Special Tax Regularization Program - Pert | 408,738 | 447,897 |
| Other taxes | 4,600 | 4,470 |
| 622,483 | 662,114 |
| 13.2.1 | Pis/Pasep and Cofins credit on ICMS |
On August 12, 2009, Copel DIS filed for writ of mandamus No. 5032406-35.2013.404.7000 with the 3rd Federal Court of Curitiba applying for the granting of an order to stop including ICMS in the PIS and COFINS tax base, as well as to authorize it to proceed with the administrative offsetting of the amounts collected more than due for such social contributions in the last five years.
On June 16, 2020, a final unappealable ruling was handed down by the 2nd Panel of the Federal Regional Court of the 4th Region recognizing Copel DIS's right to exclude from the PIS and COFINS tax base the full amount of ICMS included in the energy supply and distribution invoices. The ruling also recognized that the limitation period, in this case, is of five years and that, therefore, Copel has the right to recover the amounts that have been paid during the five years preceding the filing of the writ of mandamus until the date of the final unappealable ruling.
| F-57 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Considering the final and unappealable ruling, with a favorable decision for the company, the entry of economic benefits became probable and, therefore, the asset became realizable. In view of these, Copel DIS recognized the updated tax credit in assets, which will be recovered using the following expedients: by offsetting against taxes payable within the 5-year statute of limitations period, and, if necessary, by receiving securities issued in connection with Federal Government debts (“precatórios”).
Additionally, with the assistance of the opinion of its legal counsel, the Company concluded to record the liability to be refunded to consumers for the last 10 years of the credit, as from the date of the unappealable ruling, considering the current legislation, the statute of limitations period defined in the civil code and the jurisprudence of the courts. The refund of PIS and Cofins credits to consumers awaits the conclusion of discussions with Aneel regarding compensation mechanisms and criteria, based on the effective compensation of tax credits, which currently are under analysis by the Federal Revenue of Brazil
On February 9, 2021, Aneel held a public consultation aimed at discussing how to return tax credits to consumers, as described in Note 29.2. Aneel's proposal, which is being discussed, provides for the return of the amounts through a rebate in the next tariff adjustments, within a period of up to five years. Aneel did not comment on the statutory period for returning credit to the consumer.
Also, in relation to the potential future impacts of the adjustment of the effects, to be judged by the STF under RE No. 574,706/PR, the understanding of the Company, based on the opinion of its legal advisors, is that it is highly likely that the final decisions to the benefit of the taxpayers be maintained.
The table below shows the impacts of these records on Copel's balance sheet and statement of income:
| 12.31.2020 | |
| Tax credit - principal | 3,620,118 |
| Tax credit - monetary update | 2,035,636 |
| Effect on assets | 5,655,754 |
| Pis and Cofins to be refunded to consumers | (3,805,985) |
| Tax liabilities - Pis/Pasep and Cofins payable on financial income | (94,657) |
| Income tax and social contribution | (596,738) |
| Effect on liabilities | (4,497,380) |
| EFFECT ON BALANCE SHEET | 1,158,374 |
| Net operating revenue | 810,563 |
| Financial income, net of pis and cofins | 944,549 |
| Income tax and social contribution | (596,738) |
| EFFECT ON THE INCOME STATEMENT | 1,158,374 |
| F-58 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The amounts of Pis and Cofins of Copel DIS for the months of March to June 2020, which have not yet been paid when the action was concluded were remeasured with the effects from the court decision and reclassified to the liability account to be refunded to consumers.The table below shows, therefore, the total balance to be returned to consumers recorded in balance sheet:
| Pis and Cofins to be refunded to consumers | 12.31.2020 |
| Calculated until February 2020 | 3,805,985 |
| Calculated from March to June 2020 | 121,838 |
| 3,927,823 | |
| Current | 121,838 |
| Noncurrent | 3,805,985 |
The balance also contains the final and unappealable decision of the lawsuit records in which Compagás discussed the exclusion of ICMS from the PIS/Pasep and Cofins calculation basis. Due to this favorable ruling, Compagás recorded, on September 2019, the credit right of R$ 107,453 under Other Taxes Recoverable with corresponding entry of R$ 100,931 in operating revenue and R$ 6,522 in financial income. Part of these credits has already been recovered in 2020, so that the adjusted balance at December 31, 2020 is R$ 83,716.
| 13.2.2 | Pis and Cofins under suspended enforceability |
On May 15, 2020, Copel Telecomunicações S.A. obtained a preliminary injunction favorable to the Company, suspending enforceability of a portion of Pis and Cofins, recognizing that ICMS should not be included in the tax base of these contributions. Accordingly, the Company has been suspending the payment of this complementary amount and provisioning the amounts until a final decision on the merits of the action is rendered. The balances of this liability, in the amount of R$2,965, are recorded in the Liabilities line associated with assets classified as held for sale.
| F-59 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 13.3 | Reconciliation of provision for income tax (IRPJ) and social contribution (CSLL) |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Income before IRPJ and CSLL | 5,119,537 | 2,846,923 | 1,838,037 |
| IRPJ and CSLL (34%) | (1,740,643) | (967,954) | (624,933) |
| Tax effects on: | |||
| Equity in income | 65,806 | 36,297 | 36,555 |
| Interest on own capital | 276,808 | 222,848 | 90,440 |
| Dividends | 243 | 192 | 497 |
| Non deductible expenses | (17,133) | (15,274) | (26,291) |
| Tax incentives | 28,572 | 17,804 | 13,860 |
| Unrecognized income and social contribution tax loss carry-forwards | (39,421) | (48,892) | (5,645) |
| Difference between the calculation bases of deemed profit and taxable profit | 121,242 | 72,175 | (19,680) |
| Others | 19,161 | 7,143 | 17,486 |
| Current IRPJ and CSLL | (1,260,469) | (416,687) | (522,550) |
| Deferred IRPJ and CSLL | (24,896) | (258,974) | 51,384 |
| Effective rate - % | 25.1% | 23.7% | 25.6% |
| 14 | Prepaid Expenses |
| 12.31.2020 | 12.31.2019 | |
| Program for incentive to alternative energy sources - Proinfa | 22,408 | 18,504 |
| Insurance premiums | 14,453 | 11,693 |
| Risk premium - GSF renegotiation (14.1) | - | 3,180 |
| Others | 170 | 318 |
| 37,031 | 33,695 | |
| Current | 36,987 | 33,563 |
| Noncurrent | 44 | 132 |
| 14.1 | Hydrological risk renegotiation (GSF) |
In accordance with Hydrological Risk Renegotiation Term and previously mentioned regulations, the companies acquired the right to partially recover the cost with MRE (GSF) in 2015, in the amount of R$ 33.55 per average MW of electricity for SP100 product class, based on the risk premium contracted by them (Note 4.9.2).
The amounts originally recognized on the renegotiation of the hydrological risk were as follows:
| Power Plant | Physical guarantee (Average MW) | Eligible amount of energy (Average MW) | Amortization period of prepaid expenses |
Grant extension period (intangible asset) | Asset value to recover as renegotiation of GSF | Value of prepaid expenses to amortize with future risk premium | Value of intangible assets amortization over the concession period |
| Mauá | 100,827 | 97,391 | 01.01.2016 to 06.30.2020 | not applicable | 28,623 | 28,623 | - |
| Foz do Areia | 576,000 | 226,705 | 01.01.2016 to 12.31.2016 | 05.24.2023 to 09.17.2023 | 66,628 | 17,222 | 49,406 |
| Santa Clara and Fundão | 135,400 | 134,323 | 01.01.2016 to 04.22.2019 | 10.25.2036 to 05.28.2037 | 39,369 | 30,326 | 9,043 |
| 458,419 | 134,620 | 76,171 | 58,449 |
A breakdown of these items as at December 31, 2020 and 2019 is presented below:
| F-60 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Balance as of | Balance as of | Balance as of | ||||
| January 1, 2019 | Amortization | Transfers | December 31, 2019 | Amortization | December 31, 2020 | |
| Risk premium - current asset | 9,394 | (9,394) | 3,180 | 3,180 | (3,180) | - |
| Risk premium - noncurrent asset | 3,180 | - | (3,180) | - | - | - |
| Intangible | 38,707 | (7,040) | - | 31,667 | (7,039) | 24,628 |
| 51,281 | (16,434) | - | 34,847 | (10,219) | 24,628 | |
| Risk premium to be amortized - prepaid expenses | 12,574 | 3,180 | - | |||
| Grant extension period - intangible | 38,707 | 31,667 | 24,628 |
| 15 | Judicial Deposits |
| 12.31.2020 | 12.31.2019 | |
| Taxes claims | 346,659 | 351,402 |
| Labor claims | 72,263 | 85,187 |
| Civil | ||
| Civil | 57,006 | 53,260 |
| Easements | 7,156 | 5,076 |
| Customers | 3,479 | 1,897 |
| 67,641 | 60,233 | |
| . | ||
| Others | 183 | 7,368 |
| 486,746 | 504,190 |
| F-61 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 16 | Investments |
| 16.1 | Changes in investments |
| Balance as of | Investment/ | Capital | Amorti- | Dividends | Other | Balance as of | ||
| January 1, 2020 | Equity | AFAC | decrease | zation | and JSCP | (a) | December 31, 2020 | |
| Joint Ventures (16.3) | ||||||||
| Voltalia São Miguel do Gostoso I | 110,099 | (2,378) | - | - | - | - | - | 107,721 |
| Voltalia São Miguel do Gostoso - direito de autorização | 10,038 | - | - | - | (367) | - | - | 9,671 |
| Caiuá | 78,312 | (8,964) | 26,014 | - | - | - | - | 95,362 |
| Integração Maranhense | 138,716 | 13,672 | - | - | - | (3,807) | - | 148,581 |
| Matrinchã | 711,527 | 25,644 | - | - | - | (2,668) | - | 734,503 |
| Guaraciaba | 337,077 | 25,528 | - | - | - | (1,435) | - | 361,170 |
| Paranaíba | 173,973 | 29,708 | - | - | - | - | - | 203,681 |
| Mata de Santa Genebra | 573,357 | 48,594 | 39,479 | - | - | - | - | 661,430 |
| Cantareira | 338,268 | 42,666 | - | - | - | (21,248) | - | 359,686 |
| Solar Paraná | - | (115) | 6,946 | - | - | - | - | 6,831 |
| 2,471,367 | 174,355 | 72,439 | - | (367) | (29,158) | - | 2,688,636 | |
| Associates | ||||||||
| Dona Francisca Energética (16.4) | 28,423 | 9,674 | - | - | - | (9,950) | - | 28,147 |
| Foz do Chopim Energética (16.4) | 12,175 | 9,629 | - | - | - | (11,818) | - | 9,986 |
| Dominó Holdings | 246 | (93) | - | - | - | - | (153) | - |
| Other | 10,155 | (18) | - | (228) | - | - | (7,969) | 1,940 |
| 50,999 | 19,192 | - | (228) | - | (21,768) | (8,122) | 40,073 | |
| Investment property | 813 | - | - | - | (5) | - | - | 808 |
| 2,523,179 | 193,547 | 72,439 | (228) | (372) | (50,926) | (8,122) | 2,729,517 | |
| (a) R$ 7,969 of Impairment of Estação Osasco Desenvolvimento Imobiliário SA, an associate of UEG Araucária, and R$ 153 of liquidation of Dominó. | ||||||||
| Investment/ | ||||||||
| Balance as of | Advance for future | Capital | Amorti- | Dividends | Balance as of | |||
| January 1, 2019 | Equity | capital increase | decrease | zation | and JSCP | Transfers | December 31, 2019 | |
| Joint Ventures (16.3) | ||||||||
| Voltalia São Miguel do Gostoso I | 110,568 | (3,409) | 2,940 | - | - | - | - | 110,099 |
| Voltalia São Miguel do Gostoso - direito de autorização | 10,405 | - | - | - | (367) | - | - | 10,038 |
| Caiuá | 74,639 | 4,800 | - | - | - | (1,127) | - | 78,312 |
| Integração Maranhense | 129,684 | 11,316 | - | - | - | (2,284) | - | 138,716 |
| Matrinchã | 673,216 | 48,634 | - | - | - | (10,323) | - | 711,527 |
| Guaraciaba | 356,941 | 18,312 | - | (34,300) | - | (3,876) | - | 337,077 |
| Paranaíba | 160,584 | 16,375 | - | - | - | (2,986) | - | 173,973 |
| Mata de Santa Genebra | 484,262 | (41,716) | 130,811 | - | - | - | - | 573,357 |
| Cantareira | 317,523 | 28,031 | - | - | - | (7,286) | - | 338,268 |
| 2,317,822 | 82,343 | 133,751 | (34,300) | (367) | (27,882) | - | 2,471,367 | |
| Associates | ||||||||
| Dona Francisca Energética (16.4) | 29,144 | 9,853 | - | - | - | (10,574) | - | 28,423 |
| Foz do Chopim Energética (16.4) | 8,227 | 13,924 | - | - | - | (9,976) | - | 12,175 |
| Dominó Holdings | 2,442 | (280) | - | (735) | - | (1,181) | - | 246 |
| Other | 9,115 | 917 | 123 | - | - | - | - | 10,155 |
| 48,928 | 24,414 | 123 | (735) | - | (21,731) | - | 50,999 | |
| Investment property | 1,342 | - | - | - | (5) | - | (524) | 813 |
| Advance for future capital future capital increase | 142 | - | 133,597 | - | - | - | (133,739) | - |
| 2,368,234 | 106,757 | 267,471 | (35,035) | (372) | (49,613) | (134,263) | 2,523,179 |
| F-62 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 16.2 | Subsidiaries with non-controlling interests |
| 16.2.1 | Summarized financial information |
| Compagás | Elejor | UEG Araucária | |||||||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | 12.31.2020 | 12.31.2019 | 12.31.2018 | 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| ASSETS | 749,434 | 904,993 | 675,286 | 705,233 | 625,154 | 652,175 | 554,079 | 421,533 | 436,137 |
| Current assets | 245,028 | 313,896 | 204,725 | 165,150 | 80,079 | 80,990 | 392,775 | 80,788 | 33,573 |
| Noncurrent assets | 504,406 | 591,097 | 470,561 | 540,083 | 545,075 | 571,185 | 161,304 | 340,745 | 402,564 |
| LIABILITIES | 749,434 | 904,993 | 675,286 | 705,233 | 625,154 | 652,175 | 554,079 | 421,533 | 436,137 |
| Current liabilities | 173,144 | 236,190 | 133,769 | 95,465 | 85,647 | 124,880 | 309,265 | 91,066 | 42,185 |
| Noncurrent liabilities | 81,230 | 110,475 | 106,900 | 596,278 | 496,648 | 473,318 | 6,603 | 14,727 | 23,290 |
| Equity | 495,060 | 558,328 | 434,617 | 13,490 | 42,859 | 53,977 | 238,211 | 315,740 | 370,662 |
| STATEMENT OF INCOME | |||||||||
| Operating revenues | 535,206 | 866,884 | 588,532 | 194,849 | 218,421 | 293,942 | 589,909 | 52,216 | 524 |
| Operating costs and expenses | (452,495) | (662,306) | (515,594) | (67,323) | (86,237) | (89,931) | (647,516) | (131,596) | (94,970) |
| Financial results | (764) | 43,186 | (2,411) | (172,049) | (92,728) | (89,301) | 203 | 832 | 2,275 |
| Equity in earnings of investees | - | - | - | - | - | - | - | 916 | - |
| Income tax and social contribution | (22,967) | (74,791) | (10,909) | 15,154 | (13,331) | (38,379) | (19,920) | (22,703) | 16,316 |
| Net income (loss) | 58,980 | 172,973 | 59,618 | (29,369) | 26,125 | 76,331 | (77,324) | (100,335) | (75,855) |
| Other comprehensive income | (343) | (1,277) | 187 | - | - | - | (205) | 132 | - |
| Total comprehensive income | 58,637 | 171,696 | 59,805 | (29,369) | 26,125 | 76,331 | (77,529) | (100,203) | (75,855) |
| STATEMENTS OF CASH FLOWS | |||||||||
| Cash flows from operational activities | 101,708 | 54,760 | 66,017 | 22,097 | 51,839 | 127,108 | 23,491 | (57,585) | (26,980) |
| Cash flows from investment activities | (17,120) | (17,531) | (15,961) | (208) | (314) | (2,659) | 1,317 | (1,945) | (2,768) |
| Cash flows from financing activities | (115,625) | 14,312 | (43,980) | (8,151) | (56,533) | (119,468) | 32,879 | 45,133 | - |
| TOTAL EFFECTS ON CASH AND CASH EQUIVALENTS | (31,037) | 51,541 | 6,076 | 13,738 | (5,008) | 4,981 | 57,687 | (14,397) | (29,748) |
| Cash and cash equivalents at the beginning of the year | 141,696 | 90,155 | 84,079 | 37,878 | 42,886 | 37,905 | 7,119 | 21,516 | 51,264 |
| Cash and cash equivalents at the end of the year | 110,659 | 141,696 | 90,155 | 51,616 | 37,878 | 42,886 | 64,806 | 7,119 | 21,516 |
| CHANGE IN CASH AND CASH EQUIVALENTS | (31,037) | 51,541 | 6,076 | 13,738 | (5,008) | 4,981 | 57,687 | (14,397) | (29,748) |
The loss recorded at Elejor is due to the monetary update on Accounts payable linked to the concession, which increased significantly as a result of the IGPM increase, as shown in Note 26.
| 16.2.2 | Changes in equity attributable to non-controlling shareholders |
| Participation in capital stock | Compagás 49% |
Elejor 30% |
UEG Araucária 18,8% | Total |
| Balance as of January 1, 2018 | 194,901 | 18,518 | 89,242 | 302,661 |
| Net income (loss) | 29,213 | 22,899 | (15,171) | 36,941 |
| Other comprehensive income | 91 | - | 63 | 154 |
| Dividends | (11,243) | (25,224) | - | (36,467) |
| Balance as of December 31, 2018 | 212,962 | 16,193 | 74,134 | 303,289 |
| Net income (loss) | 84,758 | 7,838 | (19,673) | 72,923 |
| Other comprehensive income | (626) | - | 25 | (601) |
| Additional dividends proposed | - | (3,335) | - | (3,335) |
| Dividends | (23,514) | (7,838) | - | (31,352) |
| Gain with interest variation in Subsidiary | - | - | 4,874 | 4,874 |
| Balance as of December 31, 2019 | 273,580 | 12,858 | 59,360 | 345,798 |
| Net income (loss) | 28,898 | (8,812) | (14,538) | 5,548 |
| Other comprehensive income | (168) | - | (39) | (207) |
| Additional dividends proposed | (51,799) | - | - | (51,799) |
| Dividends | (7,933) | - | - | (7,933) |
| Balance as of December 31, 2020 | 242,578 | 4,046 | 44,783 | 291,407 |
| F-63 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 16.3 | Summarized information on the main joint ventures |
| Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira | |
| Balance as of December 31, 2020 | ||||||||
| ASSETS | 222,038 | 267,425 | 475,734 | 2,357,028 | 1,269,378 | 1,687,613 | 2,712,737 | 1,567,577 |
| Current assets | 3,623 | 31,048 | 59,709 | 261,168 | 165,063 | 179,229 | 340,382 | 165,816 |
| Cash and cash equivalents | 3,579 | 6,871 | 12,696 | 46,198 | 25,565 | 20,820 | 61,171 | 34,435 |
| Other current assets | 44 | 24,177 | 47,013 | 214,970 | 139,498 | 158,409 | 279,211 | 131,381 |
| Noncurrent assets | 218,415 | 236,377 | 416,025 | 2,095,860 | 1,104,315 | 1,508,384 | 2,372,355 | 1,401,761 |
| . | ||||||||
| LIABILITIES | 222,038 | 267,425 | 475,734 | 2,357,028 | 1,269,378 | 1,687,613 | 2,712,737 | 1,567,577 |
| Current liabilities | 2,199 | 18,995 | 51,926 | 192,512 | 86,163 | 78,981 | 158,350 | 63,206 |
| Financial liabilities | - | 7,392 | 13,180 | 80,141 | 28,741 | 62,143 | 104,308 | 41,314 |
| Other current liabilities | 2,199 | 11,603 | 38,746 | 112,371 | 57,422 | 16,838 | 54,042 | 21,892 |
| Noncurrent liabilities | - | 53,816 | 120,579 | 665,528 | 446,133 | 777,279 | 1,234,165 | 770,317 |
| Financial liabilities | - | 42,864 | 65,624 | 612,413 | 446,801 | 545,200 | 1,215,988 | 489,784 |
| Other noncurrent liabilities | - | 10,952 | 54,955 | 53,115 | (668) | 232,079 | 18,177 | 280,533 |
| Equity | 219,839 | 194,614 | 303,229 | 1,498,988 | 737,082 | 831,353 | 1,320,222 | 734,054 |
| . | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating income | - | 17,927 | 31,418 | 328,171 | 109,978 | 478,147 | 364,070 | 196,039 |
| Operating costs and expenses | (66) | (34,584) | 11,706 | (160,795) | (8,317) | (18,801) | (125,569) | (23,533) |
| Financial results | 32 | (3,389) | (5,229) | (71,164) | (38,883) | (48,184) | (91,947) | (40,630) |
| Equity in income of subsidiaries | (4,893) | - | - | - | - | - | - | - |
| Income tax and social contribution | - | 1,752 | (9,991) | (30,178) | (22,084) | (125,646) | (49,560) | (44,805) |
| Net income (loss) | (4,927) | (18,294) | 27,904 | 66,034 | 40,694 | 285,516 | 96,994 | 87,071 |
| Other comprehensive income | - | - | - | - | - | - | - | - |
| Total comprehensive income | (4,927) | (18,294) | 27,904 | 66,034 | 40,694 | 285,516 | 96,994 | 87,071 |
| Investment interest - % | 49.0 | 49.0 | 49.0 | 49.0 | 49.0 | 24.5 | 50.1 | 49.0 |
| Investment book value | 107,721 | 95,362 | 148,581 | 734,503 | 361,170 | 203,681 | 661,430 | 359,686 |
| Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira | |
| Balance as of December 31, 2019 | ||||||||
| ASSETS | 226,898 | 271,409 | 486,305 | 2,295,925 | 1,318,517 | 1,625,008 | 2,482,326 | 1,496,577 |
| Current assets | 3,664 | 30,472 | 59,466 | 301,722 | 150,875 | 178,558 | 268,381 | 182,971 |
| Cash and cash equivalents | 1,494 | 3,968 | 6,570 | 85,293 | 44,805 | 20,338 | 48,395 | 60,252 |
| Other current assets | 2,170 | 26,504 | 52,896 | 216,429 | 106,070 | 158,220 | 219,986 | 122,719 |
| Noncurrent assets | 223,234 | 240,937 | 426,839 | 1,994,203 | 1,167,642 | 1,446,450 | 2,213,945 | 1,313,606 |
| . | ||||||||
| LIABILITIES | 226,898 | 271,409 | 486,305 | 2,295,925 | 1,318,517 | 1,625,008 | 2,482,326 | 1,496,577 |
| Current liabilities | 2,206 | 28,892 | 77,116 | 166,430 | 84,863 | 104,065 | 129,810 | 72,907 |
| Financial liabilities | - | 7,584 | 13,468 | 82,665 | 33,102 | 60,399 | 93,643 | 48,619 |
| Other current liabilities | 2,206 | 21,308 | 63,648 | 83,765 | 51,761 | 43,666 | 36,167 | 24,288 |
| Noncurrent liabilities | - | 82,699 | 126,095 | 677,398 | 545,742 | 810,847 | 1,208,089 | 733,326 |
| Financial liabilities | - | 49,958 | 78,350 | 624,779 | 461,353 | 580,451 | 1,208,089 | 507,775 |
| Other noncurrent liabilities | - | 32,741 | 47,745 | 52,619 | 84,389 | 230,396 | - | 225,551 |
| Equity | 224,692 | 159,818 | 283,094 | 1,452,097 | 687,912 | 710,096 | 1,144,427 | 690,344 |
| . | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating income | - | 25,180 | 44,264 | 250,188 | 111,912 | 198,573 | 357,522 | 138,259 |
| Operating costs and expenses | (111) | (5,481) | (5,672) | (70,886) | (29,067) | (30,560) | (384,228) | (5,360) |
| Financial results | 146 | (4,557) | (6,594) | (59,794) | (42,548) | (54,154) | (99,186) | (46,190) |
| Equity in income of subsidiaries | (7,080) | - | - | - | - | - | - | - |
| Income tax and social contribution | (5) | (5,348) | (8,904) | (33,103) | (2,926) | (47,024) | 42,627 | (29,498) |
| Net income (loss) | (7,050) | 9,794 | 23,094 | 86,405 | 37,371 | 66,835 | (83,265) | 57,211 |
| Other comprehensive income | - | - | - | - | - | - | - | - |
| Total comprehensive income | (7,050) | 9,794 | 23,094 | 86,405 | 37,371 | 66,835 | (83,265) | 57,211 |
| Investment interest - % | 49.0 | 49.0 | 49.0 | 49.0 | 49.0 | 24.5 | 50.1 | 49.0 |
| Investment book value | 110,099 | 78,312 | 138,716 | 711,527 | 337,077 | 173,973 | 573,357 | 338,268 |
| F-64 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira | |
| Balance as of December 31, 2018 | ||||||||
| ASSETS | 227,867 | 261,951 | 465,801 | 2,199,434 | 1,295,670 | 1,574,846 | 2,365,160 | 1,443,693 |
| Current assets | 2,344 | 26,471 | 47,347 | 326,557 | 229,693 | 165,072 | 202,253 | 161,328 |
| Cash and cash equivalents | 205 | 1,128 | 1 | 116,634 | 136,191 | 13,931 | 19,568 | 301 |
| Other current assets | 2,139 | 25,343 | 47,346 | 209,923 | 93,502 | 151,141 | 182,685 | 161,027 |
| Noncurrent assets | 225,523 | 235,480 | 418,454 | 1,872,877 | 1,065,977 | 1,409,774 | 2,162,907 | 1,282,365 |
| . | ||||||||
| LIABILITIES | 227,867 | 261,951 | 465,801 | 2,199,434 | 1,295,670 | 1,574,846 | 2,365,160 | 1,443,693 |
| Current liabilities | 2,216 | 24,955 | 73,856 | 137,627 | 79,701 | 104,599 | 124,606 | 60,964 |
| Financial liabilities | - | 7,615 | 13,228 | 70,192 | 27,950 | 55,968 | 33,964 | 46,329 |
| Other current liabilities | 2,216 | 17,340 | 60,628 | 67,435 | 51,751 | 48,631 | 90,642 | 14,635 |
| Noncurrent liabilities | - | 84,672 | 127,284 | 687,897 | 487,520 | 814,798 | 1,273,962 | 734,724 |
| Financial liabilities | - | 57,028 | 91,342 | 683,316 | 482,125 | 612,854 | 934,650 | 532,179 |
| Other noncurrent liabilities | - | 27,644 | 35,942 | 4,581 | 5,395 | 201,944 | 339,312 | 202,545 |
| Equity | 225,651 | 152,324 | 264,661 | 1,373,910 | 728,449 | 655,449 | 966,592 | 648,005 |
| . | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating income | - | 25,129 | 42,379 | 272,103 | 181,665 | (14,331) | 514,591 | 195,441 |
| Operating costs and expenses | (103) | (4,785) | (7,732) | (47,771) | (27,273) | (23,244) | (462,839) | (60,529) |
| Financial results | (170) | (5,017) | (7,817) | (61,910) | (35,036) | (57,977) | (59,507) | (58,402) |
| Equity in income of subsidiaries | (7,815) | - | - | - | - | - | - | - |
| Income tax and social contribution | - | (5,053) | (7,974) | (59,544) | (47,273) | 28,163 | 2,685 | (26,379) |
| Net income (loss) | (8,088) | 10,274 | 18,856 | 102,878 | 72,083 | (67,389) | (5,070) | 50,131 |
| Other comprehensive income | - | - | - | - | - | - | - | - |
| Total comprehensive income | (8,088) | 10,274 | 18,856 | 102,878 | 72,083 | (67,389) | (5,070) | 50,131 |
| Investment interest - % | 49.0 | 49.0 | 49.0 | 49.0 | 49.0 | 24.5 | 50.1 | 49.0 |
| Investment book value | 110,568 | 74,639 | 129,684 | 673,216 | 356,941 | 160,584 | 484,262 | 317,523 |
As of December 31, 2020, Copel's share of commitments assumed relating to its joint ventures is equivalent to R$ 632 (R$ 5,936 as of December 31, 2019 and R$ 81,263 as of December 31, 2018 ) and of contingent liabilities is equivalent to R$ 227,467 (R$ 89,688 as of December 31, 2019 and R$ 40,324 as of December 31, 2018).
The loss assessed at Caiuá in 2020 is mainly due to the recording of a provision for contingencies, in the amount of R$ 28,891, resulting from an arbitration proceeding in which the controversial amount of economic and financial rebalancing of the construction contract is discussed.
| F-65 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 16.4 | Summarized information of the main associates |
| Dona Francisca | Foz do Chopim | |||||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| ASSETS | 128,798 | 130,883 | 134,141 | 62,635 | 61,635 | 106,736 |
| Current assets | 14,562 | 13,406 | 12,493 | 33,378 | 31,054 | 73,786 |
| Noncurrent assets | 114,236 | 117,477 | 121,648 | 29,257 | 30,581 | 32,950 |
| . | ||||||
| LIABILITIES | 128,798 | 130,883 | 134,141 | 62,635 | 61,635 | 106,736 |
| Current liabilities | 4,452 | 4,344 | 4,231 | 34,723 | 2,354 | 57,603 |
| Noncurrent liabilities | 2,119 | 3,118 | 3,361 | - | 25,243 | 26,133 |
| Equity | 122,227 | 123,421 | 126,549 | 27,912 | 34,038 | 23,000 |
| . | ||||||
| STATEMENT OF INCOME | ||||||
| Net operating income | 70,314 | 70,717 | 70,716 | 55,740 | 56,929 | 46,479 |
| Operating costs and expenses | (26,171) | (25,957) | (25,268) | (21,260) | (16,278) | (2,020) |
| Financial income (expense) | 208 | 475 | 366 | (5,527) | 621 | (638) |
| Income tax and social contribution | (2,343) | (2,454) | (2,446) | (2,035) | (2,346) | (6,880) |
| Net income | 42,008 | 42,781 | 43,368 | 26,918 | 38,926 | 36,941 |
| Other comprehensive income | - | - | - | - | - | - |
| Total comprehensive income | 42,008 | 42,781 | 43,368 | 26,918 | 38,926 | 36,941 |
| Investment interest - % | 23.0303 | 23.0303 | 23.0303 | 35.77 | 35.77 | 35.77 |
| Investment book value | 28,147 | 28,423 | 29,144 | 9,986 | 12,175 | 8,227 |
| 29144 | 8227 | |||||
As of December 31, 2020, Copel's interest in the contingent liabilities of its associates is equivalent to R$ 1,428 (R$ 78,793 as of December 31, 2019 and R$ 61,341 as of December 31, 2018).
| 17 | Property, Plant and Equipment |
The Company records assets used in administrative and commercial facilities for generation of electric power and telecommunication services in property, plant and equipment account. Investments in electric power transmission and distribution and in piped gas distribution are recorded in contract assets, financial assets and/or intangible assets accounts as per IAS 38, IFRS 15 and IFRIC 12. (Notes 4.4, 4.5 and 4.9).
Upon initial adoption of IFRS, property, plant and equipment were measured at fair value with recognition of their deemed cost.
Under the regulation relating to the concession of public electric energy services, the assets and facilities used mostly in the generation of power are attached to these services and cannot be withdrawn, sold, assigned, or mortgaged without the prior written consent of the regulatory agency. ANEEL Resolution No. 691/2015, however, regulates the release of assets from the concessions of the Public Electric Power Service, granting prior authorization to release the property and other fixed assets not usable by the concession when they are destined for sale, and also determining that the sales proceeds less respective charges be deposited in a restricted bank account to be invested in the concession.
| F-66 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.1 | Property, plant and equipment by asset class |
| Accumulated | Accumulated | |||||
| Cost | depreciation | 12.31.2020 | Cost | depreciation | 12.31.2019 | |
| In service | ||||||
| Reservoirs, dams and aqueducts | 8,081,989 | (4,600,598) | 3,481,391 | 8,082,238 | (4,405,546) | 3,676,692 |
| Machinery and equipment | 7,644,171 | (2,619,939) | 5,024,232 | 8,875,458 | (2,871,568) | 6,003,890 |
| Buildings | 1,968,591 | (1,096,016) | 872,575 | 1,962,033 | (1,054,009) | 908,024 |
| Land | 490,177 | (38,269) | 451,908 | 490,071 | (27,651) | 462,420 |
| Vehicles and aircraft | 44,617 | (42,725) | 1,892 | 47,960 | (44,876) | 3,084 |
| Furniture and tools | 22,314 | (15,498) | 6,816 | 22,415 | (14,466) | 7,949 |
| (-) Impairment (17.5) | (925,521) | - | (925,521) | (961,177) | - | (961,177) |
| (-) Impairment (17.6) | (27,928) | - | (27,928) | (81,322) | - | (81,322) |
| (-) Special Obligations | (332) | 81 | (251) | (78) | 35 | (43) |
| 17,298,078 | (8,412,964) | 8,885,114 | 18,437,598 | (8,418,081) | 10,019,517 | |
| In progress | ||||||
| Cost | 734,507 | - | 734,507 | 700,172 | - | 700,172 |
| (-) Impairment (17.5) | (120,308) | - | (120,308) | (122,261) | - | (122,261) |
| (-) Impairment (17.6) | (3,853) | - | (3,853) | (5,325) | - | (5,325) |
| 610,346 | - | 610,346 | 572,586 | - | 572,586 | |
| 17,908,424 | (8,412,964) | 9,495,460 | 19,010,184 | (8,418,081) | 10,592,103 |
| 17.2 | Changes in property, plant and equipment |
| Balance as of | Additions / Impairment |
Loss on | Balance as of | |||
| January 1, 2020 | Depreciation | disposal | Transfers | December 31, 2020 | ||
| In service | ||||||
| Reservoirs, dams and aqueducts | 3,676,692 | - | (195,062) | - | (239) | 3,481,391 |
| Machinery and equipment | 6,003,890 | - | (431,088) | (86,550) | 160,968 | 5,647,220 |
| Buildings | 908,024 | - | (42,593) | (83) | 7,227 | 872,575 |
| Land | 462,420 | - | (10,617) | (2) | 107 | 451,908 |
| Vehicles and aircraft | 3,084 | - | (1,171) | (123) | 102 | 1,892 |
| Furniture and tools | 7,949 | - | (1,559) | (238) | 664 | 6,816 |
| (-) Impairment (17.5) | (961,177) | 35,656 | - | - | - | (925,521) |
| (-) Impairment (17.6) | (81,322) | 53,394 | - | - | - | (27,928) |
| (-) Special Obligations | (43) | - | 46 | - | (254) | (251) |
| (-) Reclassification (a) | - | - | - | - | (622,988) | (622,988) |
| 10,019,517 | 89,050 | (682,044) | (86,996) | (454,413) | 8,885,114 | |
| In progress | ||||||
| Cost | 700,172 | 273,823 | - | (8,126) | (170,053) | 795,816 |
| (-) Impairment (17.5) | (122,261) | 1,953 | - | - | - | (120,308) |
| (-) Impairment (17.6) | (5,325) | 1,472 | - | - | - | (3,853) |
| (-) Reclassification (a) | - | - | - | - | (61,309) | (61,309) |
| 572,586 | 277,248 | - | (8,126) | (231,362) | 610,346 | |
| 10,592,103 | 366,298 | (682,044) | (95,122) | (685,775) | 9,495,460 | |
| (a) Reclassification to Assets classified as held for sale (Note 40). | ||||||
| F-67 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Balance as of | Additions / Impairment |
Loss on | Balance as of | |||
| January 1, 2019 | Depreciation | disposal | Transfers | December 31, 2019 | ||
| In service | ||||||
| Reservoirs, dams and aqueducts | 2,426,474 | - | (188,334) | (42) | 1,438,594 | 3,676,692 |
| Machinery and equipment | 2,974,142 | - | (409,571) | (141,902) | 3,581,221 | 6,003,890 |
| Buildings | 479,207 | - | (52,330) | - | 481,147 | 908,024 |
| Land | 357,102 | - | (9,466) | (463) | 115,247 | 462,420 |
| Vehicles and aircraft | 5,766 | - | (3,482) | (128) | 928 | 3,084 |
| Furniture and tools | 9,415 | - | (2,007) | (9) | 550 | 7,949 |
| (-) Impairment | (3,489) | 61,112 | - | - | (1,100,122) | (1,042,499) |
| (-) Special Obligations | (41) | - | 8 | - | (10) | (43) |
| 6,248,576 | 61,112 | (665,182) | (142,544) | 4,517,555 | 10,019,517 | |
| In progress | ||||||
| Cost | 5,789,780 | 551,162 | - | (15,540) | (5,625,230) | 700,172 |
| (-) Impairment | (1,197,693) | (30,015) | - | - | 1,100,122 | (127,586) |
| 4,592,087 | 521,147 | - | (15,540) | (4,525,108) | 572,586 | |
| 10,840,663 | 582,259 | (665,182) | (158,084) | (7,553) | 10,592,103 |
Due to the startup of HPP Colíder, HPP Baixo Iguaçu and Cutia and Bento Miguel Wind Complexes in 2019, the assets and impairment recorded for these projects were transferred from assets in progress to assets in service.
| 17.3 | Costs of loans, financing and debentures capitalized |
The costs of loans and financing and debentures capitalized in fixed assets during the year ended in December 31, 2020 of R$ 1,046, at an average rate of 0.04% p.a. (R$ 4,295, at an average rate of 0.11% p.a. in December 31, 2019, and R$ 4,229, at an average rate of 0.11% p.a. in December 31, 2018 ).
| 17.4 | Joint operations - consortiums |
The amounts recorded under property, plant and equipment referring to the share of interest of Copel GeT in consortiums are shown below:
| Joint operations | Share Copel GeT (%) | Annual
average depreciation rate (%) |
12.31.2020 | 12.31.2019 |
| HPP Gov. Jayme Canet Júnior (Mauá) - Consórcio | ||||
| Energético Cruzeiro do Sul | 51.0 | |||
| In service | 859,917 | 859,917 | ||
| (-) Accumulated depreciation | 3.43 | (235,454) | (206,000) | |
| In progress | 24,827 | 16,789 | ||
| 649,290 | 670,706 | |||
| HPP Baixo Iguaçu | 30.0 | |||
| In service | 691,833 | 692,593 | ||
| (-) Accumulated depreciation | 3.29 | (41,803) | (19,038) | |
| In progress | 50,114 | 49,240 | ||
| 700,144 | 722,795 | |||
| 1,349,434 | 1,393,501 |
| F-68 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.5 | Impairment of generation segment assets |
Cash-generating units of the generation segment were tested for impairment based on previous evidence of impairment, assumptions representing the best estimates of the Company's management, the methodology provided for in Technical Pronouncement IAS 36 and measurement of value in use.
The calculation of the value in use was based on discounted operating cash flows over the time of concessions, maintaining the Company’s current commercial conditions. The rate used to discount the cash flows was set considering the WACC (Weighted Average Cost of Capital) methodology and CAPM (Capital Asset Pricing Model) methodology for the generation business, considering usual market parameters.
Internal references such as the budget approved by the Company, historical or past data, updating of the timeframe of work and amount of investments for projects in course support the design of key assumptions by Company Management. In the same framework, external references such as level of consumption of electric power and the availability of water resources support the key information about estimated cash flows. In particular, 2020 proved to be an atypical year in terms of growth of the economic activity in the country, as well as in the world, due to the Covid-19 pandemic and, consequently, due to measures to contain it, which directly had an impact on trade, industry and services.
A number of assumptions used by Company Management when determining future cash flows can be affected by uncertain events, which, in turn, may give rise to variation in results. Changes in the political and economic model, for example, may lead to upward trend when projecting country risk-rating, increasing the discount rates used in tests.
The tests considered the following key assumptions:
| · | Growth compatible with historical data and perspective for the Brazilian economy growth; |
| · | Updating specific after-tax discount rates for the segment tested, obtained through the methodology usually applied by the market, taking into consideration the weighted average cost of capital; |
| · | Projected revenue in accordance with the agreements in force and future market expectations, without any expectation for renewal of concession/authorization; and |
| · | Expenses broken into cash generating units, projected in view of the budget approved by the Company. |
| F-69 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The Company considered all its generation projects as independent cash generating units.
The projects with impairment balances recorded at December 31, 2020 are the following:
| Property, Plant and Equipment | Value in use | |||
| Cost | Depreciation | Impairment | ||
| HPP Colíder | 2,477,374 | (167,432) | (683,193) | 1,626,749 |
| UEGA | 701,736 | (441,827) | (138,777) | 121,132 |
| Consórcio Tapajós (a) | 14,464 | - | (14,464) | - |
| Power plants in Paraná | 984,823 | (85,790) | (209,395) | 689,638 |
| 4,178,397 | (695,049) | (1,045,829) | 2,437,519 | |
| (a) Project under development |
The table below shows the changes in the impairment for the years:
| Balance as of | Impairment | Transfer | Balance as of | Impairment | Balance as of | |
| January 1, 2019 | December 31, 2019 | December 31, 2020 | ||||
| In service | ||||||
| UHE Colíder | - | (45,547) | (731,747) | (777,294) | 94,101 | (683,193) |
| Wind power complex Cutia | - | 114,144 | (168,248) | (54,104) | 54,104 | - |
| Wind power complex Bento Miguel | - | 87,370 | (87,370) | - | - | - |
| UEGA | - | - | - | - | (138,777) | (138,777) |
| Power plants in Paraná | (3,489) | (13,534) | (112,756) | (129,779) | 26,228 | (103,551) |
| (3,489) | 142,433 | (1,100,121) | (961,177) | 35,656 | (925,521) | |
| In progress | ||||||
| HPP Colíder | (731,265) | (482) | 731,747 | - | - | - |
| Wind power complex Cutia | (167,875) | (373) | 168,248 | - | - | - |
| Wind power complex Bento Miguel | (84,621) | (2,749) | 87,370 | - | - | - |
| Consórcio Tapajós | (14,464) | - | - | (14,464) | - | (14,464) |
| Power plants in Paraná | (199,468) | (21,085) | 112,756 | (107,797) | 1,953 | (105,844) |
| (1,197,693) | (24,689) | 1,100,121 | (122,261) | 1,953 | (120,308) | |
| (1,201,182) | 117,744 | - | (1,083,438) | 37,609 | (1,045,829) |
| 17.5.1 | UHE Colíder |
In December 2020, the calculation of value in use took into account the Company's assumptions and budgets and the update of the discount rate after taxes in constant currency of 5,70% p.a. (in 2019, 5.45% p.a.), which derives from the WACC methodology for the electricity generation segment. Depreciating since its entry into commercial operation in March 2019, the reduction in the balance of net assets enabled partial reversal of the balance provisioned for losses.
| 17.5.2 | Cutia Complex and Bento Miguel Complex |
In December 2020, the calculation of value in use took into account the Company's assumptions and budgets and the update of the discount rate after taxes in constant currency of 7.08% p.a. (in 2019, 7.24% p.a.) which derives from the WACC methodology for the electric power generation segment, adjusted for the specific taxation condition of each project. Due to the revision of the discount rate, operating costs and future investments, the entire balance provisioned for losses was reversed.
| F-70 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.5.3 | UEG Araucária |
In December 2020, the calculation of the value in use considered: i) the Company's assumptions and budgets; ii) assumptions for generation, delivery and variable costs; and iii) adjustment of discount rate after taxes in constant currency by 7.87% p.a. (in 2019, 7.76 p.a.), which derive from the WACC methodology for the electric power generation segment, plus additional risk associated with the variation in revenue. By reviewing the assumptions, the budget and the discount rate, the provision for losses was recognized.
| 17.5.4 | Plants in the Paraná state |
Figueira Thermoelectric Plant: in December 2020, the calculation of the value in use of generation assets in the State of Paraná considered: (i) the Company's assumptions and budgets; and (ii) adjustment to the discount rate after taxes in constant currency by 5.70% p.a. (in 2019, 5.45% p.a.), which derive from the WACC methodology for the electricity generation segment. Despite the postponement of the start of the operation to July 2021 (in 2019 it was considered November 2020) and changes in the plant's operating costs and CAPEX, the revision of the coal contract enabled the partial reversal of the impairment recorded for this project.
Other plants: in December 2020, the calculation of the value in use of generation assets in the State of Paraná considered: i) the Company's assumptions and budgets; ii) adjustment to the discount rate after taxes by 5.70% p.a. (in 2019, 5.45% p.a.), which derive from the WACC methodology for the electricity generation segment; and iii) review of operating costs, resulting in the partial reversal of the provisioned balance for losses.
| 17.5.5 | Cash-generating units that have suffered no impairment |
Plants that have suffered no impairment have recoverable amount higher than the carrying amount of property, plant and equipment. The following table shows the percentage by which the recoverable amount (“RA”) exceeds the carrying amount (“CA”) of fixed assets. In addition, the Company carried out a sensitivity analysis, increasing the discount rate shown below by 5% and 10% to assess the risk of impairment of each plant.
| F-71 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Unidade geradora de caixa | Discount | VR/VC-1 | VR/VC-1 | Impairment Risk | |
| rate | VR/VC-1 | (5% Variation) | (10% Variation) | ||
| Wind power Assets | |||||
| São Bento Complex (a) | 7.08% | 56.04% | 51.92% | 47.97% | - |
| Brisa I Complex(b) | 7.08% | 46.29% | 42.44% | 38.76% | - |
| Brisa II Complex(c) | 7.08% | 50.09% | 45.45% | 41.03% | - |
| Bento Miguel Complex (d) | 7.08% | 5.79% | 2.35% | -0.91% | 7,254 |
| Hydric Assets | |||||
| Foz do Areia | 5.70% | 153.23% | 152.06% | 150.91% | - |
| Segredo | 5.70% | 189.54% | 185.33% | 181.21% | - |
| Caxias | 5.70% | 138.68% | 134.97% | 131.33% | - |
| Guaricana | 5.70% | 27.44% | 26.28% | 25.14% | - |
| Chaminé | 5.70% | 68.26% | 66.71% | 65.17% | - |
| Apucaraninha | 5.70% | 38.39% | 37.10% | 35.82% | - |
| Chopim I | 5.70% | 158.47% | 152.77% | 147.25% | - |
| Mauá | 5.70% | 88.81% | 84.52% | 80.38% | - |
| Cavernoso | 5.70% | 754.19% | 740.28% | 726.70% | - |
| Cavernoso II | 5.70% | 13.53% | 10.72% | 8.01% | - |
| Bela Vista | 5.70% | 44.01% | 38.29% | 32.89% | - |
| Elejor | 5.00% | 67.71% | 65.01% | 59.54% | - |
| (a) Contemplates the GE Boa Vista, GE Farol, GE Olho D’Água e GE São Bento do Norte wind farms. | |||||
| (b) Contemplates theNova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III e Nova Eurus IV wind farms. | |||||
| (c) Contemplates theSanta Maria, Santa Helena e Ventos de Santo Uriel wind farms. | |||||
| (d) Contemplates São Bento do Norte I, São Bento do Norte II, São Bento do Norte III, São Miguel I, São Miguel II andGE São Miguel III wind farms. | |||||
| 17.6 | Property, Plant and Equipment of Copel Telecomunicações |
The Company's Management continuously monitors the business environment of the telecommunications segment, paying particular attention to factors such as the increased competitiveness of the sector, the high degree of investment required to maintain its customer base and the expected return from this segment. The reversal of impairment in the period occurred due to depreciation, write-offs and recovery of provisioned equipment, referring to assets for which estimated losses were recorded. However, both the reversal of impairment and the write-offs are shown within the line of net income from discontinued operations, as a result of the divestment process of Copel Telecomunicações and the reclassifications carried out in compliance with accounting standards, as described in Note 40.
| 17.7 | New plants under construction |
| 17.7.1 | SHPP Bela Vista |
With estimated investment of R$ 220,000, this small hydroelectric power plant (SHPP), with installed capacity of 29.81 MW and physical guarantee of 18.4 MW mean, will be built on the Chopim River, in the municipalities of São João and Verê, located in the southwest region of the state of Paraná.
The participation in the A-6 auction held on August 31, 2018 led to sale of 14.7 MW mean in regulated contracts at the original price of R$ 195.70/MWh. The energy sale contracts provide for beginning of energy supply on January 1, 2024, with a 30-year term and annual adjustment by reference to IPCA variation.
| F-72 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The works started in August 2019, and the three-generating units are expected to start operating in the first half of 2021.
| 17.7.2 | Jandaíra Wind Complex |
With estimated investment of R$ 411,610 this wind farm, with installed capacity of 90.1 MW and physical guarantee of 47.6 MW mean, will be built in the municipalities of Pedra Preta and Jandaíra, in the state of Rio Grande do Norte.
The participation in the new power generation auction A-6, held on October 18, 2019, led to sale of 14.4 MW mean in regulated contracts at the original price of R$ 98.00/MWh. The energy sale contracts provided for beginning of energy supply on January 1, 2025, with a 20-year term and annual adjustment by reference to IPCA variation.
In all, 26 wind turbines will be installed, divided into four wind farms, and a substation and a 16 km transmission line will also be built next to the farms to drain the electricity to be generated for the National Interconnected System (SIN).
With all the necessary licenses in place, civil works began in the first week of January 2021, and the wind farm is expected to start operating between May 2022 and July 2022, on a phased basis, by wind turbine.
| 17.8 | Depreciation rates |
| Depreciation rates (%) | 12.31.2020 | 12.31.2019 | 12.31.2018 |
| Average generation segment rates (Note 17.8.1) | |||
| General equipment | 6.26 | 6.33 | 6.25 |
| Machinery and equipment | 3.39 | 3.67 | 3.56 |
| Generations | 3.73 | 3.38 | 3.34 |
| Reservoirs, dams and ducts | 2.68 | 2.50 | 2.21 |
| Hydraulic turbines | 2.93 | 2.89 | 2.60 |
| Gas and steam turbines | 2.00 | 2.00 | 2.00 |
| Water cooling and treatment | 4.00 | 4.00 | 4.00 |
| Gas conditioner | 4.00 | 4.00 | 4.00 |
| Wind power plant unit | 4.94 | 5.49 | 3.71 |
| Average rates for central government assets | |||
| Buildings | 3.35 | 3.35 | 3.35 |
| Machinery and office equipment | 6.25 | 6.25 | 6.25 |
| Furniture and fixtures | 6.25 | 6.25 | 6.25 |
| Vehicles | 14.29 | 14.29 | 14.29 |
| Telecommunications segment rates | |||
| Infrastructure backbone | 3% to 5% | 3% to 5% | 3% to 5% |
| Infrastructure last mile | 17% and 25% | 17% and 25% | 3% to 17% |
| Other infrastructure equipment | 7% to 20% | 7% to 20% | 7% to 20% |
| F-73 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.8.1 | Assets with depreciation rates limited to the concession term |
The assets of the original project of the Mauá, Colíder, Baixo Iguaçu, Cavernoso II and SHPP Bela Vista plants, of Copel GeT, and of the Santa Clara and Fundão plants, of Elejor, are considered by the Granting Authority, without full guarantee of indemnification for their residual value at the end of the concession term. This interpretation is based on the Concessions Law No. 8,987/1995 and Decree No. 2,003/1996, which regulate the generation of electricity by independent generators.
Accordingly, from the entry into operation of these assets, including land, depreciation is recognized at the highest rate among that determined by ANEEL or the rate calculated based on the concession period.
As provided for in the concession contracts, subsequent investments not foreseen in the original project, as long as approved by the Granting Authority and not yet amortized, will be indemnified at the end of the concession period and depreciated at the rates established by ANEEL, as from the date of their entry in operation.
| 18 | Intangible assets |
| 12.31.2020 | 12.31.2019 | |
| Concession agreement - distribution of electricity (18.1) | 6,203,387 | 5,703,686 |
| Generation concession agreements/ authorization (18.2) | 553,840 | 582,671 |
| Concession agreement - piped gas distribution (18.3) | 132,366 | - |
| Others (18.4) | 39,863 | 46,254 |
| 6,929,456 | 6,332,611 |
| F-74 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18.1 | Power distribution service concession |
| . | |||
| Intangible asset | Special liabilities | ||
| in service | in service | Total | |
| Balance as of January 1, 2019 | 8,212,792 | (2,822,729) | 5,390,063 |
| Incorporations (Note 10.1) | 2,625 | (2,550) | 75 |
| Transfers from contract assets (Note 11.1) | 771,844 | (93,164) | 678,680 |
| Transfers to investments | (7) | - | (7) |
| Transfers to other receivables | (1,520) | - | (1,520) |
| Amortization of quotas - concession (a) | (461,370) | 134,864 | (326,506) |
| Amortization of quotas - PIS/Pasep and Cofins credits | (10,740) | - | (10,740) |
| Loss on disposal | (26,359) | - | (26,359) |
| Balance as of December 31, 2019 | 8,487,265 | (2,783,579) | 5,703,686 |
| Transfers from accounts receivable - concessions (Note 10.1) | 99 | - | 99 |
| Transfers from contract assets (Note 11.1) | 1,016,482 | (105,116) | 911,366 |
| Transfers to other receivables | (1,372) | - | (1,372) |
| Amortization of quotas - concession (a) | (485,677) | 138,596 | (347,081) |
| Amortization of quotas - PIS/Pasep and Cofins credits | (10,655) | - | (10,655) |
| Loss on disposal | (52,656) | - | (52,656) |
| Balance as of December 31, 2020 | 8,953,486 | (2,750,099) | 6,203,387 |
| (a) Amortization during the concession as of the start of commercial operations of the enterprises or based on the useful life of the assets, of the two the shortest. | |||
The balance refers to the portion of infrastructure that will be used during concession, net of special obligations. The Special Obligations represent the resources related to the financial participation of consumers, the Federal, State and Municipal Governments, destined to investments in projects related to the concession, and are not onerous liabilities or shareholder credits.
| 18.2 | Generation concession agreements |
| . | ||||
| Concession contract (a) | Concession and | |||
| in service | in progress | authorization rights | Total | |
| Balance as of January 1, 2019 | 226,411 | - | 367,441 | 593,852 |
| Business combination effects | - | - | 20,113 | 20,113 |
| Amortization of quotas - concession and authorization (b) | (16,944) | - | (14,350) | (31,294) |
| Balance as of December 31, 2019 | 209,467 | - | 373,204 | 582,671 |
| ANEEL grant - use of public property | - | 3,682 | - | 3,682 |
| Amortization of quotas - concession and authorization (b) | (17,527) | - | (14,986) | (32,513) |
| Capitalizations for intangible in service | 3,682 | (3,682) | - | - |
| Balance as of December 31, 2020 | 195,622 | - | 358,218 | 553,840 |
| (a) Includes the balances of use of public asset and hydrological risk renegotiation | ||||
| (b) Amortization during the concession/authorization as of the start of commercial operations of the enterprises. | ||||
| F-75 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18.3 | Piped gas distribution service concession |
| . | |
| Total | |
| Balance as of January 1, 2019 | 3,619 |
| Transfers from accounts receivable - concessions (Note 10.2) | 24,835 |
| Amortization of quotas - concession | (28,454) |
| Balance as of December 31, 2019 | - |
| Transfers from contract assets (Note 11.2) | 7,277 |
| Transfers from accounts receivable - concessions (Note 10.2) | 154,483 |
| Amortization of quotas - concession | (29,243) |
| Loss on disposal | (151) |
| Balance as of December 31, 2020 | 132,366 |
| 18.4 | Other intangible assets |
| . | |||
| in service | in progress | Total | |
| Balance as of January 1, 2019 | 25,630 | 15,933 | 41,563 |
| Acquisitions | - | 5,032 | 5,032 |
| Transfers from property, plant and equipment | (1,471) | 10,217 | 8,746 |
| Capitalizations for intangible in service | 16,118 | (16,118) | - |
| Amortization of quotas (a) | (8,646) | - | (8,646) |
| Amortization of quotas - PIS/Pasep and Cofins credits | (11) | - | (11) |
| Loss on disposal | - | (430) | (430) |
| Balance as of December 31, 2019 | 31,620 | 14,634 | 46,254 |
| Acquisitions | 128 | 10,863 | 10,991 |
| Transfers from property, plant and equipment | 229 | 2,932 | 3,161 |
| Capitalizations for intangible in service | 7,136 | (7,136) | - |
| Amortization of quotas (a) | (11,584) | - | (11,584) |
| Amortization of quotas - PIS/Pasep and Cofins credits | (13) | - | (13) |
| Loss on disposal | - | (4) | (4) |
| (-) Reclassification (b) | (8,307) | (635) | (8,942) |
| Balance as of December 31, 2020 | 19,209 | 20,654 | 39,863 |
| (a) Annual amortization rate: 20%. | |||
| (b) Reclassification to Assets classified as held for sale (Note 40). | |||
| F-76 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 19 | Payroll, Social Charges and Accruals |
| 12.31.2020 | 12.31.2019 | |
| Social security liabilities | ||
| Taxes and social contribution | 42,748 | 47,022 |
| Social security charges on paid vacation and 13th salary | 29,742 | 29,182 |
| 72,490 | 76,204 | |
| Labor liabilities | ||
| Payroll, net | - | 3,330 |
| Vacation and 13th salary | 100,175 | 98,648 |
| Provisons by performance andprofit sharing | 483,110 | 156,040 |
| Voluntary retirement program | 28,071 | 2,820 |
| Other liabilities | 200 | 2 |
| 611,556 | 260,840 | |
| 684,046 | 337,044 |
| 20 | Accounts Payable to Suppliers |
| 12.31.2020 | 12.31.2019 | |
| Energy supplies | 1,393,899 | 1,085,777 |
| Materials and supplies | 671,458 | 520,647 |
| Natural gas for resale | 38,574 | 79,174 |
| Charges for use of grid system | 332,521 | 187,595 |
| 2,436,452 | 1,873,193 | |
| Current | 2,291,307 | 1,685,280 |
| Noncurrent | 145,145 | 187,913 |
| F-77 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 21 | Loans and Financing |
| Contractual | Effective | 12.31.2020 | 12.31.2019 | |||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | ||||||
| Contracts | Company | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| FOREIGN CURRENCY | ||||||||||||
| National Treasury Department (STN - Secretaria do Tesouro Nacional) | ||||||||||||
| Par Bond | Copel | Debt negotiation | Guarantees deposited(21.1). | 05.20.1998 | 1 | 04.11.2024 | Half-yearly | 6.0% + 0.20% | 6.0% + 0.20% | 17,315 | 82,933 | 64,325 |
| Discount Bond | 05.20.1998 | 1 | 04.11.2024 | Half-yearly | 2.8125% + 0,20% | 2.8125% + 0,20% | 12,082 | 57,404 | 44,658 | |||
| Total foreign currency | 140,337 | 108,983 | ||||||||||
| LOCAL CURRENCY | ||||||||||||
| Banco do Brasil | ||||||||||||
| CCB 306.401.381 (a) | Copel HOL | Working Capital | Credit assignment | 12.19.2019 | 5 | 03.25.2022 | Quarterly | 120.00% of DI | 126.99% of DI | 640,005 | 640,177 | 640,530 |
| NCI 306.401.445 | Copel HOL | 02.24.2017 | 2 | 02.15.2020 | Half-yearly | 124.5% of DI | 136.15% of DI | 77,000 | - | 39,446 | ||
| 640,177 | 679,976 | |||||||||||
| Eletrobras | ||||||||||||
| 983/95 | National Program for Watering - Proni. | Own revenue; issue of promissory notes and commercial duplicates. | 12.22.1994 | 80 | 11.15.2020 | Quarterly | 8.0% | 8.0% | 11 | - | 26 | |
| 984/95 | 12.22.1994 | 80 | 11.15.2020 | Quarterly | 8.0% | 8.0% | 14 | - | 11 | |||
| 985/95 | 12.22.1994 | 80 | 08.15.2021 | Quarterly | 8.0% | 8.0% | 61 | - | 11 | |||
| 206/07 | Rural Electricity Program - Luz para Todos. | 03.03.2008 | 120 | 08.30.2020 | Monthly | 5.0%+ 1.0% | 5.05% | 109,642 | - | 5,953 | ||
| 273/09 | 02.18.2010 | 120 | 12.30.2022 | Monthly | 5.0%+ 1.0% | 5.0%+ 1.0% | 63,944 | - | 4,933 | |||
| - | 10,934 | |||||||||||
| Caixa Econômica Federal | ||||||||||||
| 415.855-22/14 | Copel DIS | Rural Electricity Program - Luz para Todos. | Own revenue; issue of promissory notes and commercial duplicates. | 03.31.2015 | 120 | 12.08.2026 | Monthly | 6.0% | 6.0% | 16,984 | 11,496 | 13,410 |
| 3153-352 | Acquisition of machinery, equipment and IT and automation equipment. | Assignment of trade notes receivable. | 11.01.2016 | 36 | 12.15.2021 | Monthly | 5.5 % above TJLP | 5.5 % above TJLP | 1,156 | 165 | 331 | |
| 11,661 | 13,741 | |||||||||||
| Finep | ||||||||||||
| 21120105-00 | Copel Tel | BEL project - ultra wide band intranet service (Ultra Wide Band - UWB). | Lock of proceeds received in current account. | 07.17.2012 | 81 | 10.15.2020 | Monthly | 4.0% | 4.39% | - | - | 2,626 |
| 21120105-00 | 07.17.2012 | 81 | 10.15.2020 | Monthly | 3.5% + TR | 3.88% + TR | - | - | 2,219 | |||
| - | 4,845 | |||||||||||
| Banco do Brasil - BNDES Transfer | ||||||||||||
| 21/02000-0 | Copel GeT | Implementation of Mauá HPP. | Revenue from energy sales from the plant. | 04.16.2009 | 179 | 01.15.2028 | Monthly | 2.13% above TJLP | 2.13% above TJLP | 169,500 | 83,936 | 95,807 |
| 83,936 | 95,807 | |||||||||||
(a) On March 25, 2021, the debt was renegotiated, with the final maturity date being changed to March 25, 2023 and the amount of financial charges to 135% of the DI p.y. (continued) | ||||||||||||
| F-78 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Contractual | Effective | 12.31.2020 | 12.31.2019 | |||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | ||||||
| Contracts | Company | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| BNDES | ||||||||||||
| 820989.1 | Copel GeT | Implementation of Mauá HPP. | Revenue from energy sales from the plant. | 03.17.2009 | 179 | 01.15.2028 | Monthly | 1.63% above TJLP | 1.63% above TJLP | 169,500 | 83,935 | 95,807 |
| 1120952.1 | Implementation of transmission line between Foz do Iguaçu and Cascavel Oeste substations. | Assignment of receivables; revenue from energy transmission services. | 12.16.2011 | 168 | 04.15.2026 | Monthly | 1.82% and 1.42% above TJLP | 1.82% and 1.42% above TJLP | 44,723 | 17,756 | 21,090 | |
| 1220768.1 | Implementation of Cavernoso II SHP. | Revenue from energy sales from the plant. | 09.28.2012 | 192 | 07.15.2029 | Monthly | 1.36% above TJLP | 1.36% above TJLP | 73,122 | 41,405 | 46,240 | |
| 13211061 | Implementation of Colíder HPP. | Assignment of receivables | 12.04.2013 | 192 | 10.15.2031 | Monthly | 0% and 1.49% above TJLP | 6.43% and 7.68% | 1,041,155 | 748,083 | 817,329 | |
| 13210331 | Implementation of Cerquilho III substation. | 12.03.2013 | 168 | 08.15.2028 | Monthly | 1.49% and 1.89% above TJLP | 1.49% and 1.89% above TJLP | 17,644 | 10,069 | 11,385 | ||
| 15206041 | Implementation of transmission line Assis - Paraguaçu Paulista II. | 12.28.2015 | 168 | 06.15.2030 | Monthly | 2.42% above TJLP | 9.04% | 34,265 | 20,280 | 22,419 | ||
| 15205921 | Implementation of transmission lines Londrina - Figueira and Salto Osório - Foz do Chopim. | 12.28.2015 | 168 | 12.15.2029 | Monthly | 2.32% above TJLP | 8.93% | 21,584 | 12,171 | 13,526 | ||
| 18205101 | Implementation of Baixo Iguaçu HPP. | 11.22.2018 | 192 | 06.15.2035 | Monthly | 1.94% above TJLP | 8.5% | 194,000 | 184,087 | 196,827 | ||
| 19207901- A+B+E+F+G+H | Implementation of transmission facilities for the line: substation Medianeira; substation Curitiba Centro and Curitiba Uberaba and substation Andirá Leste. | 06.03.2020 | 279 | 12.15.2043 | Monthly | IPCA + 4.8165% | IPCA + 4.8570% | 206,882 | 158,351 | - | ||
| 19207901- C+D+I+J | Implementation of transmission facilities for the line: transmission line Curitiba Leste - Blumenal and Baixo Iguaçu - Realeza. | 06.03.2020 | 267 | 12.15.2043 | Monthly | IPCA + 4.8165% | IPCA + 4.8570% | 225,230 | 110,699 | - | ||
| 14205611-A | Copel DIS | Preservation of business, improvements, operating support and general investments in the expansion and consolidation of projects and social investment programs of companies (ISE). | Surety of Copel; assignment of revenues and indemnity rights under the concession. | 12.15.2014 | 72 | 01.15.2021 | Monthly | 2.09% above TJLP | 8.37% | 41,583 | 585 | 7,611 |
| 14205611-B | 12.15.2014 | 6 | 02.15.2021 | Annual | 2.09 above TR BNDES | 2.09 above TR BNDES | 17,821 | 4,329 | 8,288 | |||
| 14205611-C | 12.15.2014 | 113 | 06.15.2024 | Monthly | 6.0% | 6.0% | 78,921 | 27,434 | 35,267 | |||
| 14205611-D | 12.15.2014 | 57 | 02.15.2021 | Monthly | TJLP | TJLP | 750 | 2 | 11 | |||
| 14.2.1271.1 | Santa Maria | Construction and implementation of wind generating plants. | Surety of Copel; pledge of shares; assignment of receivables and revenues. | 06.01.2015 | 192 | 08.15.2031 | Monthly | 1.66% above TJLP | 8.26% | 71,676 | 41,665 | 45,582 |
| 14.2.1272.1 | Santa Helena | 06.01.2015 | 192 | 08.15.2031 | Monthly | 1.66% above TJLP | 8.26% | 82,973 | 45,208 | 49,458 | ||
| 11211521 | GE Farol | Pledge of shares; assignment of receivables from energy sales from the project; assignment of machinery and equipment. |
03.19.2012 | 192 | 06.15.2030 | Monthly | 2.34% above TJLP | 2.34% above TJLP | 54,100 | 37,470 | 41,388 | |
| 11211531 | GE Boa Vista | 03.19.2012 | 192 | 06.15.2030 | Monthly | 2.34% above TJLP | 2.34% above TJLP | 40,050 | 27,701 | 30,598 | ||
| 11211541 | GE S.B. do Norte | 03.19.2012 | 192 | 06.15.2030 | Monthly | 2.34% above TJLP | 2.34% above TJLP | 90,900 | 62,824 | 69,394 | ||
| 11211551 | GE Olho D'Água | 03.19.2012 | 192 | 06.15.2030 | Monthly | 2.34% above TJLP | 2.34% above TJLP | 97,000 | 67,096 | 74,112 | ||
| 18204611 | Cutia | Pledge of shares; assignment of receivables. | 10.25.2018 | 192 | 07.15.2035 | Monthly | 2.04% above TJLP | 8.37% | 619,405 | 588,169 | 611,457 | |
| 13212221 - A | Costa Oeste | Implementation of transmission line between Cascavel Oeste and Umuarama Sul substations and implementation of Umuarama Sul substation. | Assignment of receivables; 100% of pledged shares. | 12.03.2013 | 168 | 11.30.2028 | Monthly | 1.95% + TJLP | 1.95% + TJLP | 27,634 | 17,046 | 19,203 |
| 13212221 - B | 12.03.2013 | 106 | 09.30.2023 | Monthly | 3.5% | 3.5% | 9,086 | 2,194 | 2,992 | |||
| 14205851 - A | Marumbi | Implementation of transmission line between Curitiba and Curitiba Leste and implementation of Curitiba Leste substation. | 07.08.2014 | 168 | 06.30.2029 | Monthly | 2.00% + TJLP | 2.00% + TJLP | 33,460 | 22,029 | 24,627 | |
| 14205851 - B | 07.08.2014 | 106 | 04.30.2024 | Monthly | 6.0% | 6.0% | 21,577 | 7,550 | 9,813 | |||
| 2,338,138 | 2,254,424 | |||||||||||
| Total local currency | 3,073,912 | 3,059,727 | ||||||||||
| Gross debt | 3,214,249 | 3,168,710 | ||||||||||
| (-) Transaction cost | (25,718) | (26,327) | ||||||||||
| Net debt | 3,188,531 | 3,142,383 | ||||||||||
| Current | 717,677 | 255,521 | ||||||||||
| Noncurrent | 2,470,854 | 2,886,862 | ||||||||||
| DI - Interbank Deposit Rate | ||||||||||||
| IPCA - Inflation Index (Índice Nacional de Preços ao Consumidor Amplo, in Portuguese) | ||||||||||||
| TJLP - Long-term interest rate | ||||||||||||
| TR - Referential Rate | ||||||||||||
| F-79 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 21.1 | Collateral and Escrow deposits– STN |
Constitution of guarantees, in the form of a cash guarantee, Par Bond, in the amount of R$ 78,764 (R$ 57,968 at December 31, 2019), and Discount Bond, in the amount of R$ 54,757 (R$ 40,465 at December 31, 2019) intended to the repayment of the amount of principal related to the STN contracts, upon maturity on April 11, 2024. The amounts are adjusted by applying the weighted average of the percentage changes of the Zero Coupon Bond prices of the United States of America Treasury, by the percentage share of each series of the instrument in the portfolio of collateral for repayment of principal, constituted pursuant to the Brazilian Financing Plan of 1992.
| 21.2 | Breakdown of loans and financing by currency and index |
| 12.31.2020 | % | 12.31.2019 | % | ||
| Foreign currency - change in currencies in the period (%) | |||||
| U.S. Dollar | 28.93 | 140,337 | 4.40 | 108,983 | 3.47 |
| 140,337 | 4.40 | 108,983 | 3.47 | ||
| Local currency - indexes at period end (%) | |||||
| TJLP | 4.55 | 2,090,340 | 65.58 | 2,271,187 | 72.30 |
| CDI | 1.90 | 638,431 | 20.02 | 676,720 | 21.54 |
| TR | 0.00 | - | - | 2,202 | 0.07 |
| IPCA | 4.52 | 270,749 | 8.49 | 8,288 | 0.26 |
| Without indexer (annual fixed rate) | - | 48,674 | 1.51 | 75,003 | 2.36 |
| 3,048,194 | 95.60 | 3,033,400 | 96.53 | ||
| 3,188,531 | 100.00 | 3,142,383 | 100.00 |
| 21.3 | Maturity of noncurrent installments |
| 12.31.2020 | Gross debt | (-) Transaction cost | Net debt |
| 2022 | 328,538 | (2,054) | 326,484 |
| 2023 | 202,249 | (1,732) | 200,517 |
| 2024 | 337,272 | (1,738) | 335,534 |
| 2025 | 195,764 | (1,735) | 194,029 |
| 2026 | 195,846 | (1,738) | 194,108 |
| After 2026 | 1,233,752 | (13,570) | 1,220,182 |
| 2,493,421 | (22,567) | 2,470,854 |
| F-80 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 21.4 | Changes in loans and financing |
| Foreign currency | Local currency | Total | |
| Balance as of January 1, 2019 | 104,751 | 3,942,556 | 4,047,307 |
| Funding | - | 796,296 | 796,296 |
| Charges | 5,599 | 268,950 | 274,549 |
| Monetary and exchange variations | 4,170 | 6,907 | 11,077 |
| Amortization - principal | - | (1,660,869) | (1,660,869) |
| Payment - charges | (5,537) | (320,440) | (325,977) |
| Balance as of December 31, 2019 | 108,983 | 3,033,400 | 3,142,383 |
| Funding | - | 263,000 | 263,000 |
| Charges | 6,928 | 176,337 | 183,265 |
| Monetary and exchange variations | 31,189 | 5,869 | 37,058 |
| Amortization - principal | - | (253,700) | (253,700) |
| Payment - charges | (6,763) | (176,712) | (183,475) |
| Balance as of December 31, 2020 | 140,337 | 3,048,194 | 3,188,531 |
| (a) Reclassification to Assets classified as held for sale (Note 40). |
| 21.5 | Covenants |
The Company signed loans and financing agreements containing covenants that require economic and financial ratios to be maintained within pre-determined parameters, requiring annual fulfillment and other conditions to be complied with, such as not changing the Company's interest in the capital stock of subsidiaries that would represent change of control without prior consent. Failing to fulfill these conditions may lead to accelerated debt repayment and/or fines.
At December 31, 2020, all financial indicators measured annually and agreed commitments have been fully met.
The financial covenants contained in the agreements are presented below:
| Company | Contract | Annual financial index | Limit |
| Copel GeT | BNDES Finem No. 820989.1 - Mauá | EBITDA / Net financial results | ≥ 1,3 |
| Banco do Brasil No. 21/02000-0 - Mauá | |||
| Copel DIS | BNDES Finem No. 14205611 | Financial indebtedness / adjusted EBITIDA | ≤ 4,0 |
| Santa Maria | BNDES Finem No. 14212711 | Debt service coverage ratio | ≥ 1,3 |
| Santa Helena | BNDES Finem No. 14212721 | ||
| São Bento Energia, Investimento e Participações | BNDES Assignment Agreement | Debt service coverage ratio | ≥ 1,3 |
| GE Boa Vista S.A. | BNDES Finem No. 11211531 | ||
| GE Farol S.A. | BNDES Finem No. 11211521 | ||
| GE Olho D´Água S.A. | BNDES Finem No. 11211551 | ||
| GE São Bento do Norte S.A. | BNDES Finem No. 11211541 | ||
| Cutia | BNDES Finem No. 18204611 | Debt service coverage ratio (a) | ≥ 1,2 |
| Costa Oeste | BNDES Finem No. 13212221 | Debt service coverage ratio | ≥ 1,3 |
| Marumbi | BNDES Finem No. 14205851 | Debt service coverage ratio | ≥ 1,3 |
| Financing for businesses - Finem | |||
| (a) financial ratio calculated based on the amounts of the consolidated financial statements of Cutia Empreendimentos Eólicos S.A. | |||
| F-81 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 22 | Debentures |
| Contractual | Effective | 12.31.2020 | 12.31.2019 | ||||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | |||||||
| Company | Issue | Characteristics | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| Copel | 7th | (a) | Working capital or used to make investments in the issuer. | Personal guarantee | 01.19.2018 | 2 | 01.19.2021 | Half-yearly | 119.0% of DI | 125.18% of DI | 600,000 | 303,101 | 617,378 |
| 8th | Payment of the 6th issue of debentures and working capital increase | 06.14.2019 | 1 | 06.14.2022 | Half-yearly | 106.0% of DI | 110.93% of DI | 500,000 | 500,475 | 500,906 | |||
| Copel GeT | 1st | (a) | Working capital or used to make investments in the issuer. | Personal guarantee | 05.15.2015 | 3 | 05.15.2020 | Annual | 113.0% of DI | 114.29% of DI | 1,000,000 | - | 346,906 |
| 3rd | 10.20.2017 | 3 | 10.20.2022 | Half-yearly | 126.0% ofDI | 131.21% of DI | 1,000,000 | 669,811 | 1,011,691 | ||||
| 4th | Full early redemption of the 4th issue of the Company’s trade promissory notes and partial payment of the 1st amortization installment of the 2nd issue of debentures. | 07.23.2018 | 3 | 07.23.2023 | Half-yearly | 126.0% ofDI | 133.77% of DI | 1,000,000 | 1,010,625 | 1,030,054 | |||
| 5th | (b) | Reimbursement of expenses related to the construction of the Transmission Lines Araraquara II - Taubaté, Assis - Londrina and Foz do Chopim. | 09.25.2018 | 5 | 09.15.2025 | Half-yearly | IPCA + 7.6475% | IPCA+ 8.3295% | 290,000 | 322,110 | 308,464 | ||
| 6th (1st serie) | (c) | Full early redemption of the 5th issue of the Company’s trade promissory notes and partial payment of the 2nd amortization installment of the 2nd issue of debentures. | 07.15.2019 | 2 | 07.15.2024 | Half-yearly | 109.0% of DI | 111.25% of DI | 800,000 | 807,793 | 818,406 | ||
| 6th (2nd serie) | Reimbursement of expenses related to the Colíder HPP and Baixo Iguaçu HPP projects | 07.15.2019 | 1 | 07.15.2025 | Half-yearly | IPCA + 3.90% | IPCA+ 4.46% | 200,000 | 215,265 | 205,677 | |||
| Copel DIS | 3rd | (a) | Working capital or used to make investments in the issuer. | Personal guarantee | 10.20.2017 | 2 | 10.20.2022 | Half-yearly | 126.0% of DI | 130.85% of DI | 500,000 | 502,358 | 505,846 |
| 4th | Working capital and payment of the 1st installment of amortization of the 2nd issue of debentures. | 09.27.2018 | 3 | 09.27.2023 | Half-yearly | DI + spread 2.70% | CDI + 3.96% | 1,000,000 | 1,011,796 | 1,019,626 | |||
| 5th (1st serie) | (c) | Investment for expansion, renovation or improvement and reimbursement of expenses of the Issuer's electricity distribution network linked to concession contract No. 46/1999 of ANEEL. | 11.15.2019 | 3 | 11.15.2027 | Half-yearly | IPCA + 4.20% | IPCA+ 4.61% | 500,000 | 529,349 | 506,180 | ||
| 5th (2nd serie) | Reinforcement of working capital and recomposition of cash by the final amortization of the 2nd issue of debentures. | 11.15.2019 | 2 | 11.15.2022 | Half-yearly | DI + spread 1.45% | CDI + 1.65% | 350,000 | 351,479 | 351,914 | |||
| Copel CTE | 1st | (a) | Deployment, expansion and modernization of the telecommunication network. | Personal guarantee | 10.15.2015 | 5 | 10.15.2024 | Half-yearly | IPCA +7.9633% | IPCA+ 8.1073% | 160,000 | - | 195,429 |
| 2nd | 07.15.2017 | 1 | 07.15.2022 | Half-yearly | IPCA + 5.4329% | IPCA+ 6.1036% | 220,000 | - | 246,355 | ||||
| 3rd | Investments in the issuer. | 05.15.2019 | 3 | 05.15.2024 | Half-yearly | 117.0% of DI | 119.58% of DI | 210,000 | - | 211,348 | |||
| Brisa Potiguar | 2nd (1st serie) | (d) | Implementation of wind generating plants. | Real and personal guarantee and pledge of Copel GeT shares. | 03.24.2016 | 192 | 07.15.2032 | Monthly | TJLP + 2.02% | TJLP + 2.02% | 147,575 | 109,677 | 119,171 |
| 2nd (2nd serie) | 03.24.2016 | 192 | 07.15.2032 | Monthly | IPCA + 9.87% | IPCA+ 10.92% | 153,258 | 130,449 | 135,657 | ||||
| Cutia | 1st | (b) | Construction and implementation of wind generating plants. | Personal guarantee | 03.20.2019 | 26 | 12.15.2031 | Half-yearly | IPCA +5.8813% | IPCA+ 6.83% | 360,000 | 353,166 | 352,829 |
| Compagás | 2nd | (e) | Fund investment plan of the issuer. | Floating | 04.15.2016 | 54 | 12.15.2021 | Quarterly | TJLP + 2.17% | TJLP + 2.17% | 33,620 | 3,000 | 6,001 |
| 0 | SELIC + 2.17% | SELIC + 2.17% | - | 2,890 | 5,782 | ||||||||
| 3rd | (f) | Issuer's investment plan fund. | Real | 12.17.2019 | 18 | 06.28.2021 | Monthly | DI + spread 0.88 | 5.68% | 43,000 | 14,475 | 44,746 | |
| Gross debt | 6,837,819 | 8,540,366 | |||||||||||
| (-) Transaction cost | (80,338) | (110,656) | |||||||||||
| Net debt | 6,757,481 | 8,429,710 | |||||||||||
| Current | 1,881,411 | 1,164,301 | |||||||||||
| Noncurrent | 4,876,070 | 7,265,409 | |||||||||||
| (a) Simple debentures, single series, not convertible into shares, unsecured, for public distribution with restricted placement efforts, according to CVM No. 476. Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (b) Simple debentures, single series, not convertible into shares, with security interest and additional personal guarantee, for public distribution with restricted efforts, pursuant to CVM Instruction No. 476. | |||||||||||||
| Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (c) Simple debentures, two series, not convertible into shares, unsecured, for public distribution with restricted placement efforts, according to CVM No. 476. Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (d) Simple debentures, two series, not convertible into shares, issued privately. Companies: Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus e Ventos de Santo Uriel. Guarantor: Copel. They have no trustee. | |||||||||||||
| (e) Simple registered debentures, single series, with private issue and exclusive placement by BNDESPAR. Guarantor: Compagás. Trustee: BNDES Participações S.A. BNDESPAR. | |||||||||||||
| (f) Simple and registered debentures, with a single series, in private issue, with public distribution of restricted efforts. Guarantor: Compagás. Trustee: Simplific Pavarini DTVM Ltda. | |||||||||||||
| F-82 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 22.1 | Maturity of noncurrent installments |
| 12.31.2020 | Gross debt | (-) Transaction cost | Net debt |
| 2022 | 2,035,503 | (18,969) | 2,016,534 |
| 2023 | 1,173,340 | (12,064) | 1,161,276 |
| 2024 | 504,759 | (6,982) | 497,777 |
| 2025 | 499,422 | (5,298) | 494,124 |
| 2026 | 234,477 | (3,756) | 230,721 |
| After 2026 | 488,057 | (12,419) | 475,638 |
| 4,935,558 | (59,488) | 4,876,070 |
| 22.2 | Changes in debentures |
| Total | |
| Balance as of January 1, 2019 | 7,518,131 |
| Funding | 2,965,028 |
| Charges and monetary variations | 623,795 |
| Amortization - principal | (1,977,125) |
| Payment - charges | (700,119) |
| Balance as of December 31, 2019 | 8,429,710 |
| Charges and monetary variations | 453,951 |
| Amortization - principal | (1,046,295) |
| Payment - charges | (422,295) |
| Reclassification (a) | (657,590) |
| Balance as of December 31, 2020 | 6,757,481 |
| (a) Reclassification to Assets classified as held for sale (Note 40). |
| 22.3 | Covenants |
Copel issued debentures containing covenants that require the maintenance of certain economic and financial ratios within pre-determined parameters, requiring annual fulfillment and other conditions to be complied with, such as not changing the Company's interest in the capital stock that would represent change of control without prior consent from the debenture holders; not paying out dividends or interest on capital if it is in arrears in relation to honoring any of its financial obligations or not maintaining the financial ratios as determined without prior written consent of the debenture holders. Failing to fulfill these conditions may lead to accelerated redemption of debentures and regulatory penalties.
At December 31, 2020, all financial indicators measured annually and agreed commitments were fully met, except the subsidiary Ventos de Santo Uriel, which did not meet the Debt Service Coverage Ratio (ICSD) of 1.3. However, the Company preventively requested and received, at December 31, 2020, according to a letter from BNDES, with reference AE/DEENE2 No. 186/2020, the commitment of the banking institution not to declare the early maturity of the debenture deed, based on the performance of this ratio in 2020.
| F-83 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The financial covenants contained in the agreements are presented as follows:
| Company | Contract | Annual financial index | Limit |
| Copel | 7th issue of Debentures | Consolidated net debt / Consolidated EBITDA Debt service coverage ratio |
≤ 3,5 ≥ 1,5 |
| 8th issue of Debentures | |||
| Copel GeT | 3rd issue of Debentures | ||
| 4th issue of Debentures | |||
| 5th issue of Debentures | |||
| 6th issue of Debentures | |||
| Copel DIS | 3rd issue of Debentures | ||
| 4th issue of Debentures | |||
| 5th issue of Debentures | |||
| Copel TEL | 1st issue of Debentures | ||
| 2nd issue of Debentures | |||
| 3rd issue of Debentures | |||
| Compagás | 2nd issue of Debentures | Net debt / EBTIDA | ≤ 3,5 |
| General Indebtedness | ≤ 0,7 | ||
| 3rd issue of Debentures | Net debt / EBTIDA | ≤ 3,5 | |
| Nova Asa Branca I | Debt service coverage ratio | ≥ 1,3 | |
| Nova Asa Branca II | |||
| Nova Asa Branca III | 2nd issue of Debentures | ||
| Nova Eurus IV | |||
| Ventos de Santo Uriel | |||
| Cutia | 1st issue of Debentures | Debt service coverage ratio (a) | ≥ 1,2 |
| (a) financial ratio calculated based on the amounts of the consolidated financial statements of Cutia Empreendimentos Eólicos S.A. | |||
| 23 | Post-employment Benefits |
The Company sponsors private retirement and pension plans (Unified Plan and Plan III) and Healthcare Plan for medical and dental care ("ProSaúde II" and "ProSaúde III" Plans) for their active employees and their legal dependents. The lifetime sponsorship of the Healthcare Plan for retirees, pensioners and legal dependents is only applied to "Prosaúde II" plan participants. Fundação Copel de Previdência e Assistência is the entity that manages these plans.
On March 17, 2021, the Board of Directors approved the signing of assistance agreements for maintaining the Prosaúde II and Prosaúde III plans, managed by Fundação Copel.
| 23.1 | Pension plan |
The Unified Plan is a Defined Benefit plan - BD in which the income is predetermined, according to each individual's salary. This plan is closed for new participants since 1998.
The Plan III is a Variable Contribution plan - CV, being the only plan available for new participants.
| 23.2 | Healthcare Plan |
The Company allocate resources for the coverage of healthcare expenses incurred by their employees and their dependents, within rules, limits and conditions set in "ProSaúde II" and "ProSaúde III" Plans' regulations. Coverage includes periodic medical exams in both plans and is extended to all retirees and pensioners for life only in the "ProSaúde II" plan.
| F-84 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23.3 | Balance sheet and statement of income |
Amounts recognized in liabilities, under Post-employment benefits, are summarized below:
| 12.31.2020 | 12.31.2019 | |
| Pension plans | 1,124 | 1,537 |
| Healthcare plans | 1,492,490 | 1,193,399 |
| 1,493,614 | 1,194,936 | |
| Current | 69,231 | 66,004 |
| Noncurrent | 1,424,383 | 1,128,932 |
The increase in the balance is due to the actuarial assessment of the future benefits of the Health Plan II due to the increase in the projected medical costs, impact of the discount rate and inflation, as well as an increase in the Aging Factor between the retirement age and the last range of participants above 80 years old.
Amounts recognized in the statement of income are shown below:
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Employees | |||
| Pension plans | 57,977 | 60,754 | 67,457 |
| Healthcare plan - post employment | 94,349 | 99,577 | 97,866 |
| Healthcare plan - active employees | 75,192 | 76,454 | 76,702 |
| 227,518 | 236,785 | 242,025 | |
| Management | |||
| Pension plans | 977 | 1,450 | 1,598 |
| Healthcare plan | 139 | 91 | 127 |
| 1,116 | 1,541 | 1,725 | |
| 228,634 | 238,326 | 243,750 |
| 23.4 | Changes in post-employment benefits |
| Balance as of January 1, 2019 | 968,763 |
| Appropriation of actuarial calculation | 99,578 |
| Appropriation of pension and healthcare contributions | 138,974 |
| Adjustment related to actuarial gains (loss) | 186,628 |
| Amortizations | (199,007) |
| Balance as of December 31, 2019 | 1,194,936 |
| Appropriation of actuarial calculation | 94,349 |
| Appropriation of pension and healthcare contributions | 130,129 |
| Adjustment related to actuarial gains | 271,343 |
| Amortizations | (197,143) |
| Balance as of December 31, 2020 | 1,493,614 |
| F-85 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23.5 | Actuarial valuation in accordance with IAS 19 |
| 23.5.1 | Actuarial assumptions |
The actuarial assumptions used to determine the amounts of liabilities and costs for 2020 and 2019 are shown below:
| 2020 | 2019 | |||
| Real | Nominal | Real | Nominal | |
| Economic | ||||
| Inflation p.y. | - | 4.00% | - | 2.90% |
| Expected rate of discount/return p.y. | ||||
| Unified Plan - Defined Benefit | 2.85% | 6.96% | 3.05% | 6.04% |
| Unified Plan - Balance | 3.20% | 7.33% | 3.20% | 6.19% |
| Plan III | 3.40% | 7.54% | 3.20% | 6.19% |
| Assistance Plan | 3.20% | 7.33% | 3.30% | 6.30% |
| Salary growth | ||||
| Unified Plan p.y. | 0.00% | 4.00% | 1.00% | 3.93% |
| Plan III p.y. | 1.00% | 5.04% | 1.00% | 3.93% |
| Demographic | ||||
| Mortality Table | AT - 2000 | AT - 2000 | ||
| Mortality table of individuals with permanent disability | WINKLEVOSS | WINKLEVOSS | ||
| Table of new disability benef it vested | TASA 1927 | TASA 1927 |
| 23.5.2 | Number of participants and beneficiaries |
| Social Security Plans | ||||||
| Unified Plan | Plan III | Assistance Plan | ||||
| 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 | |
| Number of active participants | 22 | 27 | 7,401 | 7,647 | 6,546 | 6,963 |
| Number of Inactive participants | 4,274 | 4,337 | 4,633 | 4,324 | 9,032 | 8,433 |
| Number of dependent people | - | - | - | - | 21,716 | 22,183 |
| Total | 4,296 | 4,364 | 12,034 | 11,971 | 37,294 | 37,579 |
| 23.5.3 | Life expectancy after the average age of participants - Annuity Table AT-2000 (in years) |
| Unified Plan | Plan III | |
| As of 12.31.2020 | ||
| Retired participants | 12.38 | 23.16 |
| Pensioner participants | 14.07 | 24.98 |
| As of 12.31.2019 | ||
| Retired participants | 13.13 | 25.84 |
| Pensioner participants | 8.40 | 25.84 |
The average age of inactive participants of the healthcare and pension plans of the Company is 68.1 and 67.2 years, respectively.
| 23.5.4 | Actuarial evaluation |
Based on the revision of the assumptions, the amounts of the Unified Plan and Plan III as of December 31, 2020 totaled surplus of R$ 807,444 and R$ 285,057, respectively and surplus of R$ 908,294 and R$ 91,218,
| F-86 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
respectively as of December 31, 2019. Applicable ruling legislation does not allow any significant reduction in contributions or refunds to the Company based on the current surplus of these plans. For this reason, the Company did not record assets in its balance sheet as of December 31, 2020, reflecting any right to reduce contributions, refund of surplus or other amounts.
| Unified Plan |
Plan III |
Assistance Plan |
12.31.2020 | 12.31.2019 | |
| Total liabilities or partially covered | 6,760,824 | 3,344,723 | 1,714,638 | 11,820,185 | 11,074,608 |
| Fair value of the plan assets | (7,568,268) | (3,629,780) | (222,148) | (11,420,196) | (10,880,721) |
| Plan coverage status | (807,444) | (285,057) | 1,492,490 | 399,989 | 193,887 |
| Unrecognized asset | 807,444 | 285,057 | - | 1,092,501 | 999,512 |
| - | - | 1,492,490 | 1,492,490 | 1,193,399 |
The Company adjusted their assistance liabilities through the actuarial report issued on December 31, 2020, as presented in the Statements of Comprehensive Income.
| 23.5.5 | Changes in actuarial liabilities |
| Unified Plan | Plan III | Assistance Plan | |
| Present value of net actuarial obligations as of January 1, 2018 | 5,352,894 | 1,734,568 | 1,035,957 |
| Cost of services | 589 | 9,604 | 11,633 |
| Cost of interest | 533,201 | 195,991 | 102,916 |
| Benefits paid | (414,256) | (133,281) | (7) |
| Actuarial (gain) losses | 442,336 | 338,779 | (9,894) |
| Present value of net actuarial obligations as of December 31, 2018 | 5,914,764 | 2,145,661 | 1,140,605 |
| Cost of services | 560 | 4,098 | 14,306 |
| Cost of interest | 477,732 | 128,075 | 106,004 |
| Benefits paid | (435,454) | (174,427) | (30) |
| Actuarial (gain) losses | 680,860 | 943,129 | 128,725 |
| Present value of net actuarial obligations as of December 31, 2019 | 6,638,462 | 3,046,536 | 1,389,610 |
| Cost of services | 578 | 2,018 | 20,854 |
| Cost of interest | 405,371 | 183,866 | 85,561 |
| Benefits paid | (456,151) | (203,342) | (74) |
| Actuarial (gain) losses | 172,564 | 315,645 | 218,687 |
| Present value of net actuarial obligations as of December 31, 2020 | 6,760,824 | 3,344,723 | 1,714,638 |
| F-87 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23.5.6 | Changes in actuarial assets |
| Unified Plan | Plan III | Assistance Plan | |
| Fair value of the Plan's assets as of January 1, 2018 | 5,834,572 | 1,821,055 | 170,923 |
| Return estimated for assets | 593,572 | 230,703 | 16,579 |
| Contributions and distributions | 24,011 | 9,184 | - |
| Benefits paid | (414,256) | (133,281) | - |
| Actuarial gain (losses) | 252,942 | 250,575 | (14,511) |
| Fair value of the Plan's assets as of December 31, 2018 | 6,290,841 | 2,178,236 | 172,991 |
| Return estimated for assets | 685,685 | 337,476 | 51,541 |
| Contributions and distributions | 23,851 | 4,185 | - |
| Benefits paid | (435,454) | (174,427) | - |
| Actuarial gain (losses) | 981,833 | 792,284 | (28,321) |
| Fair value of the Plan's assets as of December 31, 2019 | 7,546,756 | 3,137,754 | 196,211 |
| Return estimated for assets | 607,252 | 224,591 | 16,474 |
| Contributions and distributions | 23,919 | 136,708 | - |
| Benefits paid | (456,151) | (203,341) | - |
| Actuarial gain (losses) | (153,508) | 334,068 | 9,463 |
| Fair value of the Plan's assets as of December 31, 2020 | 7,568,268 | 3,629,780 | 222,148 |
| 23.5.7 | Estimated costs |
The estimated net periodic plan costs (gains) for 2021 for each plan are shown below:
| Unified Plan | Plan III | Assistance Plan | |
| Cost of current service | 388 | 4,010 | 7,368 |
| Estimated cost of interest | 481,656 | 246,255 | 125,133 |
| Expected return on plan assets | (530,144) | (245,291) | (15,994) |
| Expected employee contributions | (136) | (2,003) | - |
| Costs (income or loss) | (48,236) | 2,971 | 116,507 |
| F-88 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23.5.8 | Sensitivity Analysis |
The following tables set out a sensitivity analysis, which shows the effect of a one percent increase or decrease in the assumed care costs, in the aggregate of the cost of service and cost of interest components and the accumulated post-employment benefit obligation.
| Projected scenarios | ||
| Increase by 1% | Decrease in 1% | |
| Sensitivity of long-term interest rate | ||
| Impacts on the obligations of the pension | (514,571) | 521,397 |
| Impacts on the obligations of healthcare program | (130,084) | 138,601 |
| Sensitivity of growth rate of the medical costs | ||
| Impacts on the obligations of healthcare program | 116,165 | (112,757) |
| Impact on cost of service for the following financial year of healthcare program | 492 | (478) |
| Sensitivity of the service cost | ||
| Impacts on the obligations of the pension | 29 | (30) |
| Impacts on the obligations of healthcare program | 572 | (586) |
| 23.5.9 | Benefits payable |
The estimated benefits to be paid by the Company in the next five years and the total benefits for the following fiscal years are shown below:
| Unified Plan | Plan III | Assistance Plan | Total | |
| 2021 | 589,819 | 179,251 | 89,842 | 858,912 |
| 2022 | 572,875 | 173,696 | 92,409 | 838,980 |
| 2023 | 555,705 | 167,961 | 91,572 | 815,238 |
| 2024 | 538,812 | 162,277 | 89,509 | 790,598 |
| 2025 | 522,208 | 156,810 | 87,372 | 766,390 |
| 2026 a 2050 | 5,119,047 | 2,119,296 | 1,010,411 | 8,248,754 |
| 23.5.10 | Asset allocation and investment strategy |
The asset allocation for the Company pension and healthcare plans at the end of 2020 and the allocation goal for 2021, by asset category, are shown below:
| Goal for 2021 (*) | 2020 | |
| Fixed income | 69.6% | 70.4% |
| Variable income | 7.2% | 9.1% |
| Loans | 1.6% | 1.6% |
| Real estate | 5.8% | 7.2% |
| Investment structuring | 10.5% | 8.9% |
| Investments abroad | 5.3% | 2.8% |
| 100.0% | 100.0% | |
| (*) Target based on the total investment of each plan. | ||
| F-89 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In addition, information on the allocation of assets of pension plans sponsored by the Company:
| Unified Plan | Plan III | |||
| target (%)(*) | minimum (%) | target (%) | minimum (%) | |
| Fixed income | 86.5% | 55.0% | 51.0% | 23.0% |
| Variable income | 5.0% | 1.0% | 14.0% | 8.0% |
| Loans | 0.5% | 0.0% | 3.0% | 1.0% |
| Real estate | 5.0% | 1.0% | 10.0% | 0.0% |
| Investment structuring | 3.0% | 0.0% | 16.0% | 0.0% |
| Investments abroad | 0.0% | 0.0% | 6.0% | 0.0% |
| (*) Target 2020. | ||||
| Management of Fundação Copel decided to keep a more conservative approach investing in variable income in relation to the allowed legal limit, which is 70%. | ||||
| 23.5.11 | Additional information |
The Company made contributions to Plan III (variable contribution plan) for all active employees at December 31, 2020 and 2019, in the amounts of R$ 67,515 and R$70,564, respectively.
| 24 | Sectorial Charges Payable |
| 12.31.2020 | 12.31.2019 | |
| Energy Development Account - CDE | 5,700 | 4,104 |
| Global Reversal Reserve - RGR | 12,446 | 12,068 |
| Tariff flags | 15,566 | 12,336 |
| 33,712 | 28,508 |
| 25 | Research and Development and Energy Efficiency |
In accordance with Law No. 9,991/2000 and supplementary regulations, concession operators and licensees of electric power generation and transmission are required to allocate annually the percentage of 1% of their net operating regulatory revenue to research and development of the electricity sector activities, and the electric power distribution concession operators must segregate this same percentage into the research and development and energy efficiency programs of the electricity sector.
Provisional Measure No. 998 of September 2020, converted into Law No. 14120, on March 1, 2020, amends Law No. 9,991/2000 and provides for the allocation of unused resources from Research and Development (R&D) and Energy Efficiency (PEE) to the Energy Development Account (CDE), aiming at low tariffs until 2025, as a measure to mitigate the economic impacts arising from the Covid-19 pandemic. The regulation of the referred rule is in Aneel Public Consultation.
| F-90 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 25.1 | Balances recognized for investment in Research and Development (R&D) activities and the Energy Efficiency Program (EEP) |
| Amounts payable, before any related prepayments | Amounts payable to regulatory agencies | Other amounts payable | Balance as of | Balance as of | |
| 12.31.2020 | 12.31.2019 | ||||
| Research and Development - R&D | |||||
| FNDCT | - | 8,085 | - | 8,085 | 4,046 |
| MME | - | 4,041 | - | 4,041 | 2,023 |
| R&D | 221,977 | - | 110,769 | 332,746 | 341,658 |
| 221,977 | 12,126 | 110,769 | 344,872 | 347,727 | |
| Energy efficiency program- EEP | |||||
| Procel | - | 5,855 | - | 5,855 | 16,410 |
| EEP | 36,756 | - | 277,528 | 314,284 | 294,034 |
| 36,756 | 5,855 | 277,528 | 320,139 | 310,444 | |
| 258,733 | 17,981 | 388,297 | 665,011 | 658,171 | |
| Circulante | 380,186 | 375,395 | |||
| Não circulante | 284,825 | 282,776 | |||
| National Fund for Scientific and Technological Development - FNDCT | |||||
| National Program of Electricity Conservation - Procel | |||||
| 25.2 | Changes in R&D and EEP balances |
| FNDCT | MME | R&D | Procel | EEP | Total | |
| Balance as of January 1, 2019 | 4,725 | 2,361 | 327,626 | 15,792 | 242,231 | 592,735 |
| Business combination effects | 20 | 10 | 1,464 | - | - | 1,494 |
| Additions | 32,311 | 16,155 | 32,312 | 9,333 | 37,321 | 127,432 |
| Performance agreement | - | - | - | - | 3,246 | 3,246 |
| Interest rate (Note 33) | - | - | 10,627 | 51 | 13,892 | 24,570 |
| Transfers | - | - | - | (3,123) | 3,123 | - |
| Payments | (33,010) | (16,503) | - | (5,643) | 990 | (54,166) |
| Concluded projects | - | - | (30,371) | - | (6,769) | (37,140) |
| Balance as of December 31, 2019 | 4,046 | 2,023 | 341,658 | 16,410 | 294,034 | 658,171 |
| Additions | 37,427 | 18,716 | 37,426 | 10,181 | 40,724 | 144,474 |
| Performance agreement | - | - | - | - | 3,545 | 3,545 |
| Interest rate (Note 33) | - | - | 4,253 | 1,469 | 6,828 | 12,550 |
| Transfers | - | - | - | (616) | 616 | - |
| Payments | (33,388) | (16,698) | - | (21,589) | - | (71,675) |
| Concluded projects | - | - | (50,591) | - | (31,463) | (82,054) |
| Balance as of December 31, 2020 | 8,085 | 4,041 | 332,746 | 5,855 | 314,284 | 665,011 |
| F-91 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 26 | Accounts Payable Related to Concessions |
| Discount | Annual | |||||||
| Company | Grant | Signature | Closing | rate | Adjustment | 12.31.2020 | 12.31.2019 | |
| HPP Mauá | Copel GeT | 06.29.2007 | 07.03.2007 | 07.2042 | 5.65% p.y. | IPCA | 17,213 | 16,890 |
| HPP Colider | Copel GeT | 12.29.2010 | 01.17.2011 | 01.2046 | 7.74% p.y. | IPCA | 25,075 | 24,353 |
| HPP Baixo Iguaçu | Copel GeT | 07.19.2012 | 08.20.2012 | 01.2047 | 7.74% p.y. | IPCA | 7,841 | 7,588 |
| HPP Guaricana | Copel GeT | 03.03.2020 | 03.03.2020 | 03.2025 | 7.74% p.y. | IPCA | 3,299 | - |
| HPP Fundão e HPP Santa Clara | Elejor | 10.23.2001 | 10.25.2001 | 10.2036 | 11.00% p.y. | IGPM | 678,436 | 563,756 |
| 731,864 | 612,587 | |||||||
| Current | 88,951 | 73,032 | ||||||
| Noncurrent | 642,913 | 539,555 | ||||||
| Discount rate applied to calculate present value | ||||||||
| Real and net discount rate, compatible with the estimated long-term rate, not being linked to the expectation of return from the project. | ||||||||
| Payment to the federal government | ||||||||
| Monthly installments equivalent to 1/12 of the annual payment restated, as defined in the concession agreement. | ||||||||
| 26.1 | Changes in accounts payable related to concessions |
| Balance as of January 1, 2019 | 584,163 |
| Adjust to present value | (668) |
| Monetary variations | 99,661 |
| Payments | (70,569) |
| Balance as of December 31, 2019 | 612,587 |
| Additions | 3,682 |
| Adjust to present value | (1,112) |
| Monetary variations | 191,638 |
| Payments | (74,931) |
| Balance as of December 31, 2020 | 731,864 |
| 26.2 | Nominal value and present value of accounts payable related to concession |
| Nominal value | Present value | |
| 2021 | 87,432 | 88,951 |
| 2022 | 87,432 | 78,757 |
| 2023 | 87,432 | 71,101 |
| 2024 | 87,432 | 64,195 |
| After 2024 | 1,155,565 | 428,860 |
| 1,505,293 | 731,864 |
| F-92 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 27 | Right-of-use asset and lease liability |
With the adoption of IFRS 16, the Company recognized right-of-use asset and lease liability as follows:
| 27.1 | Right-of-use asset |
| Balance as of | Additions | Remeasurement adjustment | Loss on | Reclassi- | Balance as of | ||
| January 1, 2020 | Amortization | disposal | fication (a) | December 31, 2020 | |||
| Real estate | 40,155 | 5,319 | 75 | (18,433) | (2,551) | (1,181) | 23,384 |
| Vehicles | 46,400 | 79,455 | 1,331 | (28,176) | - | (8,694) | 90,316 |
| Equipment | 6,276 | 18,797 | - | (4,880) | - | (1,372) | 18,821 |
| 92,831 | 103,571 | 1,406 | (51,489) | (2,551) | (11,247) | 132,521 | |
| (a) Reclassification to Assets classified as held for sale (Note 40). | |||||||
| Initial adoption on | Additions | Remeasurement adjustment | Loss on | Balance as of | ||
| January 1, 2019 | Amortization | disposal | 31-Dec-19 | |||
| Real estate | 57,461 | 2,484 | 914 | (17,705) | (2,999) | 40,155 |
| Vehicles | 57,564 | 2,295 | 2,970 | (15,205) | (1,224) | 46,400 |
| Equipment | 2,997 | 4,574 | - | (1,295) | - | 6,276 |
| 118,022 | 9,353 | 3,884 | (34,205) | (4,223) | 92,831 |
| 27.2 | Lease liability |
| 27.2.1 | Changes in lease liability |
| Initial adoption on January 1, 2019 | 118,022 |
| Additions | 9,353 |
| Remeasurement adjustment | 3,884 |
| Charges | 9,675 |
| Amortization - principal | (30,946) |
| Payment - charges | (9,130) |
| Baixas | (4,254) |
| Balance as of December 31, 2019 | 96,604 |
| Additions | 103,571 |
| Remeasurement adjustment | 1,406 |
| Charges | 10,528 |
| Amortization - principal | (51,761) |
| Payment - charges | (7,577) |
| Write-offs | (2,670) |
| Reclassification (a) | (11,740) |
| Balance as of December 31, 2020 | 138,361 |
| Current | 41,193 |
| Noncurrent | 97,168 |
| (a) Reclassification to Assets classified as held for sale (Note 40). |
The Company defines the discount rate based on the interest rate applied to the last debentures fundraising, disregarding subsidized or incentivized funding.
| F-93 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 27.2.2 | Maturity of noncurrent installments |
| 2022 | 41,948 |
| 2023 | 27,625 |
| 2024 | 19,656 |
| 2025 | 8,953 |
| 2026 | 51 |
| After 2026 | 889 |
| Undiscounted amounts | 99,122 |
| Embedded interest | (1,954) |
| Lease liabilities balance | 97,168 |
| 27.2.3 | Potential right to Pis/Cofins recoverable |
The table below shows the potential right to Pis/Cofins recoverable for Pis/Cofins computed in lease consideration payable in the foreseen periods.
| Cash Flows | Nominal value | Present value |
| Lease consideration | 156,287 | 138,361 |
| Potencial Pis/Cofins | 12,498 | 11,333 |
| 27.3 | Impact of forecast inflation on discounted cash flows |
In accordance with IFRS 16, in measuring and remeasuring lease liabilities and right-of-use assets, the Company used the discounted cash flow method without considering forecast future inflation, according to the prohibition imposed by the standard.
However, given the current reality of long-term interest rates in the Brazilian economic environment, the table below shows the comparative balances between the information recorded in accordance with IFRS 16 and the amount that would be recorded considering forecast inflation:
| Balance in accordance with IFRS 16 | Inflation projected balance | % | |
| Lease liabilities | 138,361 | 155,015 | 12.04% |
| Right to use assets | 132,521 | 144,842 | 9.30% |
| Financial expense | 9,510 | 10,716 | 12.68% |
| Amortization expense | 45,090 | 48,883 | 8.41% |
| 27.4 | Commitments from leases and rentals |
For leases of low value assets, such as computers, printers and furniture, short-term leases, as well as for leases of land for development of wind power generation projects, whose payment is made based on variable remuneration, the amounts are recognized in the statement of income as operating costs and/or expenses (Note 32.6). The balance of commitments from leases and rentals is shown below:
| F-94 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Less than | Over | |||
| 1 year | 1 to 5 years | 5 years | 12.31.2020 | |
| Commitments from leases and rents | 7,328 | 31,843 | 164,149 | 203,320 |
| 28 | Other Accounts Payable |
| 12.31.2020 | 12.31.2019 | |
| Fair value in the purchase and sale of power (Note 35.2.12) | 343,406 | 251,973 |
| Generation deviation - wind projects (Note 35.2.11) | 94,089 | - |
| Public lighting rate collected | 48,188 | 38,805 |
| Customers | 44,508 | 43,024 |
| Obligations to customers in gas sales operations (a) | 29,508 | 39,665 |
| Aneel Order No. 084/2017 provision | 29,174 | 26,008 |
| Pledges in guarantee | 16,409 | 9,257 |
| Investment acquisition | 14,169 | 13,294 |
| Financial offset for the use of water resources | 9,799 | 12,535 |
| Reimbursements to customer contributions | 4,893 | 4,887 |
| Derivatives fair value - forward contract (Note 35.2.3 - b) | - | 1,203 |
| Other liabilities | 71,143 | 58,218 |
| 705,286 | 498,869 | |
| Current | 235,400 | 149,407 |
| Noncurrent | 469,886 | 349,462 |
| (a) Refers to amounts paid for the purchase of contracted gas volumes not yet taken by customers. | ||
| 29 | Provisions for Legal Claims and Contingent Liabilities |
The Company are responsible for several legal and administrative proceedings before different courts. Based on assessments made by the Company's legal counsel, Management makes provisions for legal claims in which the losses are rated probable, when the criteria for recognition of provisioning described in Note 4.11 of these financial statements are met.
The Company's management believes it is impracticable to provide information regarding the timing of any cash outflows related to the lawsuits for which the Company are responsible on the date of preparation of the financial statements, in view of the unpredictability and dynamics of the Brazilian judicial, tax and regulatory systems, and that the final resolution depends on the conclusions of the lawsuits. For this reason, this information is not provided.
| F-95 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 29.1 | Change in provision for legal claims |
| Income | ||||||||
| Provision | Construction | Transfers/ | Balances as of | |||||
| Balances as of | for litigations | cost | Additions | Others | December 31, | |||
| January 1, 2020 | Additions | Reversals | Additions (Rev.) | to assets | Discharges | (a) | 2020 | |
| Tax | ||||||||
| Cofins | 104,284 | 2,864 | - | - | - | - | - | 107,148 |
| Others | 71,506 | 47,949 | (49,381) | - | - | (244) | (3,105) | 66,725 |
| 175,790 | 50,813 | (49,381) | - | - | (244) | (3,105) | 173,873 | |
| Labors | 673,062 | 102,315 | (4,297) | - | - | (145,228) | (29,604) | 596,248 |
| Employee benefits | 86,297 | 11,439 | (43,524) | - | - | (783) | (1,028) | 52,401 |
| Civil | ||||||||
| Civil and administrative claims | 336,962 | 94,500 | (20,581) | - | - | (22,452) | (534) | 387,895 |
| Easements | 127,010 | 286 | (543) | (13,748) | 667 | (2,119) | - | 111,553 |
| Expropriations and property | 118,757 | 4,634 | (1,217) | 6,673 | 5,202 | (161) | - | 133,888 |
| Customers | 4,956 | 299 | (1,275) | - | - | (7) | - | 3,973 |
| Environmental | 4,071 | 3,108 | (5) | - | - | - | - | 7,174 |
| 591,756 | 102,827 | (23,621) | (7,075) | 5,869 | (24,739) | (534) | 644,483 | |
| Regulatory | 79,808 | 10,955 | (1,033) | - | - | (1,031) | - | 88,699 |
| 1,606,713 | 278,349 | (121,856) | (7,075) | 5,869 | (172,025) | (34,271) | 1,555,704 | |
| (a) Reclassification mainly to Liabilities associated with assets classified as held for sale (Note 40). | ||||||||
| Income | ||||||||
| Balances as of | Provision for litigations | Construction cost | Additions | Transfers/ | Balances as of | |||
| January 1, 2019 | Additions | Reversals | Additions/(Rev.) | to assets | Discharges | Others | December 31, 2019 | |
| Tax | ||||||||
| Cofins | 102,603 | 4,307 | (2,626) | - | - | - | - | 104,284 |
| Others | 54,494 | 4,841 | (14,258) | - | - | (1,258) | 27,687 | 71,506 |
| 157,097 | 9,148 | (16,884) | - | - | (1,258) | 27,687 | 175,790 | |
| Labors | 612,782 | 194,550 | (23) | - | - | (134,247) | - | 673,062 |
| Employee benefits | 85,199 | 27,426 | (18,747) | - | - | (7,581) | - | 86,297 |
| Civil | ||||||||
| Civil and administrative claims | 492,934 | 101,438 | (36,271) | - | - | (221,139) | - | 336,962 |
| Easements | 118,147 | 711 | (3,470) | 12,456 | 1,012 | (1,891) | 45 | 127,010 |
| Expropriations and property | 116,401 | 2,844 | (4,501) | (2,935) | 7,109 | (161) | - | 118,757 |
| Customers | 5,209 | 390 | (643) | - | - | - | - | 4,956 |
| Environmental | 3,531 | 1,332 | (566) | - | - | (226) | - | 4,071 |
| 736,222 | 106,715 | (45,451) | 9,521 | 8,121 | (223,417) | 45 | 591,756 | |
| Regulatory | 73,473 | 7,926 | (546) | - | - | (1,045) | - | 79,808 |
| 1,664,773 | 345,765 | (81,651) | 9,521 | 8,121 | (367,548) | 27,732 | 1,606,713 | |
| 29.2 | Details of provisions for legal claims and contingent liabilities |
The table below shows the details of the provisions for registered litigation and, in addition, the amounts of contingent liabilities that are present obligations arising from past events for which no provisions are recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
| F-96 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Provisions | Contingent liabilities | ||||
| Extent | Description | 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 |
| Tax | |||||
| Cofins | Requirement of the Federal Revenue Service for the period from August 1995 to December 1996, due to the termination of a judicial decision that has recognized the Company's exemption from Cofins. | 107,148 | 104,284 | 6,554 | 6,415 |
| INSS | Tax requirements related to the social security contribution. | 29,405 | 30,744 | 100,165 | 117,018 |
| Federal taxes | Administrative requirements and questions from the Federal Revenue of Brazil. | - | - | 84,027 | 105,800 |
| ICMS | Copel Distribution received tax deficiency notice 6.587.156-4 from the State of Paraná for allegedly failing to pay ICMS (VAT) tax on the 'metered demand' highlighted in the electricity bills issued to a major consumer between May 2011 and December 2013. The Company maintains its illegitimacy to appear in the taxable position of this tax assessment, since it was not included in the judicial proceeding, thus it cannot suffer the effects of the ruling rendered thereon, which would entail its illegitimacy to appear as liable taxpayer in tax deficiency notice issued. The Company filed a writ of mandamus at 07.16.2019, having obtained an injunction to suspend the enforceability of the tax credit. |
- | - | 97,404 | 87,657 |
| IPTU | Tax Requirement on Urban Territorial Property on properties affected by the public electricity service. | - | - | 98,459 | 87,006 |
| ISS | City halls tax requirement as ISS on construction services provided by third parties. | - | - | 73,094 | 65,443 |
| Others | Taxes, fees and other federal, state and municipal taxes in which the Company discusses the levy or not, as well as its bases and amounts for payment | 37,320 | 40,762 | 116,920 | 159,207 |
| 173,873 | 175,790 | 576,623 | 628,546 | ||
| Labors | Charging of overtime, hazardous work, transfer surcharge, equalization / salary adjustment, among others, by employees and former employees of Copel; collection of indemnity installments and others, by ex-employees of contractors and outsourced companies (subsidiary responsibility). | 596,248 | 673,062 | 345,080 | 419,917 |
| Employee benefits | Labor claims filed by former retired employees against Fundação Copel, which will consequently cause repercussions for the Company and its wholly-owned subsidiaries, to the extent that additional contributions are required. | 52,401 | 86,297 | 9,210 | 21,338 |
| Regulatory | |||||
| Dispatch Aneel nº 288/2002 | Legal actions against Aneel Dispatch No. 288/2002 involving the companies Companhia Estadual de Energia Elétrica - CEEE and Dona Francisca Energética S.A. | 70,188 | 57,000 | - | - |
| ESBR | ESBR filed Ordinary Lawsuit No. 10426-71.2013.4.01.4100 against ANEEL in the Federal Court of Rondônia, whose ruling: (i) acknowledged the exclusion of liability for the 535-day schedule overrun in the construction of the Jirau Hydropower Station; (ii) declares any obligations, penalties and costs imposed on ESBR as a result of the schedule overrun to be unenforceable, and (iii) annuls ANEEL Resolution 1,732/2013, which had recognized a schedule overrun of only 52 days. An appeal has been brought by ANEEL, pending judgment by the Federal Court of the 1st Region. The practical consequence of the ruling was, at the time it exempted ESBR, to expose the distributors with whom it entered into power trading contracts (CCEARs) to the Short-Term Market and to the high value of the Settlement Price of the Differences (Preço de Liquidação das Diferenças - PLD, in Portuguese) in the period, including Copel DIS. This occurred because the rules for the sale of electricity require that all energy consumed should have a corresponding contractual coverage. If the lawsuits are judged unfavorably against Copel, the amount will be classified as Sectorial Financial Asset to be recovered through tariff rates. |
- | - | 942,640 | 1,034,593 |
| Colíder Exclusion of Liability |
Discussion on the value of the Tariff for use of the transmission system - TUST and monetary adjustment on energy values referring to the exclusion of liability period. As a result of the court injunction that excluded the delay period for the Colíder HPP from being responsible for the delivery of energy contracted in the Regulated Contracting Environment - ACR, CCEE proceeded to credit, valued to PLD, the energy previously backed to comply with ACR. However, in the event of failure in the lawsuit, the Company must return the amounts credited, updated by the IGPM. |
- | - | 216,353 | 98,723 |
| Others | Aneel's notifications about possible breaches of regulatory standards | 18,511 | 22,808 | - | 8,104 |
| 88,699 | 79,808 | 1,158,993 | 1,141,420 | ||
| (to be continued) | |||||
| F-97 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Provisions | Contingent liabilities | ||||
| Extent | Description | 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 |
| Civil | |||||
| Tobacco growers | Actions whose main cause is the lack of electricity causing loss of production. | 50,330 | 48,977 | 41,258 | 34,792 |
| Department of Roads and Roadworks | The Department of Roads and Roadworks (Departamento de Estradas e Rodagens - DER, in Portuguese) - issued a tax assessment notice to Copel Distribuição which, in turn, filed a lawsuit challenging DER's Charge for Use or Occupancy of Highway Domain Range, since the Company understands that this charge is unconstitutional because it has a confiscatory nature. | - | - | 95,669 | 85,277 |
| Arbitration | Discussion by arbitration under secrecy and confidentiality, in the discovery phase, with no decision having been handed down to date. | 125,719 | 119,579 | 510,543 | 485,607 |
| PIS / COFINS credit on ICMS | Referring to estimated contingent liability, as per Management’s judgment and the opinion of its legal counsel, regarding the adventitious filing of claims by consumers in connection with the recognized tax credit, as detailed in Note 13.2.1, referring to the period infringing the tax neutrality rule, between the 11th and the 16th years, of a total of 16 years considered in the action. On February 9, 2021, Aneel opened Public Consultation 005/2021 to obtain subsidies until March 29, 2020, in order to improve the proposal to return these tax credits to consumers. Aneel's technical areas prepared a technical note to the aforementioned Public Consultation, delimiting its scope for economic and financial analysis, but without discussing the legal aspects brought up in the scope of Grant 005/2020 and that permeate the theme. The Company and its legal advisors evaluated the documents made available at Public Consultation 005/2021 and are working on preparing their contributions in order to solidify their understanding and safeguard their rights. | - | - | 1,755,112 | - |
| Civil and administrative law | Other actions involving billing, supposed irregular procedures, administrative contracts and contractual fines, indemnity for accidents with the electric power network and accident with vehicles. | 133,560 | 139,893 | 282,794 | 300,061 |
| Indemnification to third parties (civil) | Actions for indemnity for resulting from damages caused during the construction of power plants | 82,146 | 28,513 | 38,127 | 26,104 |
| Easements | Discussion between the amount determined by Copel for payment and the amount claimed by the property owner and/or when when the owner's documentation supporting title to the property may not be registered (when probate proceedings are still in progress, properties have no registry number with the land registry, etc.), intervention in third-party adverse possession, either as a confronter, or in case of a property where there are areas of easement of passage, in order to preserve the limits and boundaries of expropriated areas. | 110,652 | 127,010 | 26,001 | 24,635 |
| Expropriations and property | Discussion between the amount assessed by Copel for payment and the amount claimed by the owner, and / or when the owner's documentation does not present conditions for registration (inventories in progress, properties without registration, among others); actions for repossession of real estate owned by the concessionaire; intervention in the adverse possession of third parties, as a confrontant, in order to preserve the limits and confrontations of the expropriated areas. | 86,207 | 80,079 | 138,341 | 120,760 |
| Indemnification to third parties (expropriations) | Expropriation lawsuit for construction of electric substation and expropriation of property flooded of power plant. | 44,775 | 38,678 | 45,196 | 36,807 |
| Consumers | Lawsuits seeking compensation for damages caused in household appliances, industrial and commercial machines, lawsuits claiming damages for pain and suffering caused by service interruption and lawsuits filed by industrial consumers, challenging the lawfulness of the increase in electricity prices while Plano Cruzado (anti-inflation economic plan) was in effect and claiming reimbursement for the amounts paid by the Company. | 3,920 | 4,956 | 3,768 | - |
| Environmental | Public civil and class actions whose purpose is to obstruct the progress of environmental licensing for new projects or to recover permanent preservation areas located around the hydroelectric power plant dams unlawfully used by private individuals. If the outcome of the lawsuits is unfavorable to the Company, Management estimates only the cost to prepare new environmental studies and to recover the areas owned by Copel GeT. They also include the Commitment Agreements (Termos de Ajuste de Conduta - TAC, in Portuguese), which refer to the commitments agreed-upon and approved between the Company and the relevant bodies, for noncompliance with any condition provided for by the Installation and Operating Licenses. | 7,174 | 4,071 | 180,068 | 159,885 |
| 644,483 | 591,756 | 3,116,877 | 1,273,928 | ||
| 1,555,704 | 1,606,713 | 5,206,783 | 3,485,149 | ||
| F-98 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 30 | Equity |
| 30.1 | Capital |
Capital consists of common and preferred shares. Each common share entitles its holder to one vote in the general shareholders’ meetings. Preferred shares do not have voting rights and have two classes “A” and “B”.
According to Article 17 and following paragraphs of Federal Law No. 6,404/76, dividends paid to preferred shares must be at least 10% higher than those paid to common shares.
Class “A” preferred shares have priority in the reimbursement of capital and in the distribution of minimum dividends of 10% p.a. (non-cumulative), calculated based on the capital represented by this class of shares.
Class “B” preferred shares have priority in the reimbursement of capital and the right to the distribution of dividends, calculated as 25% of adjusted profit or loss for the year, pursuant to the corporate legislation and to the Company’s by-laws, calculated proportionately to the capital represented by the shares of this class. Dividends for Class “B” have priority only over the common shares and are only paid out of the remaining profits payment of priority dividends of class “A” shares.
On March 11, 2021, the General Meeting approved the submission of the proposal for comprehensive amendment and consolidation of the Company's bylaws, including, among other changes, the share split of the Company, in the proportion of one share for ten shares, so that, for every one share issued by the Company, nine new shares of the same class and type will be credited.
At December 31, 2020, paid-in capital is R$ 10,800,000 (R$ 10,800,000 as at December 31, 2019). It includes shares (with no par value) and the main shareholders are presented below, already considering the adjusted number of shares after the split approved by Management:
| Number of shares in units | ||||||||
| Shareholders | Common | Class "A” Preferred | Class “B” preferred | Total | ||||
| in share | % | in share | % | in share | % | in share | % | |
| State of Paraná | 850,285,980 | 58.63 | - | - | - | - | 850,285,980 | 31.07 |
| BNDES | 382,987,750 | 26.41 | - | - | 272,820,060 | 21.26 | 655,807,810 | 23.96 |
| Eletrobras | 15,307,740 | 1.06 | - | - | - | - | 15,307,740 | 0.56 |
| Free float: | ||||||||
| B3 | 197,200,880 | 13.59 | 767,830 | 23.50 | 774,780,030 | 60.40 | 972,748,740 | 35.56 |
| NYSE | 1,163,450 | 0.08 | - | - | 233,148,470 | 18.17 | 234,311,920 | 8.56 |
| Latibex | - | - | - | - | 1,721,110 | 0.13 | 1,721,110 | 0.06 |
| City Halls | 1,783,930 | 0.12 | 93,260 | 2.85 | 34,710 | - | 1,911,900 | 0.07 |
| Other shareholders | 1,581,070 | 0.11 | 2,406,430 | 73.65 | 471,050 | 0.04 | 4,458,550 | 0.16 |
| 1,450,310,800 | 100.00 | 3,267,520 | 100.00 | 1,282,975,430 | 100.00 | 2,736,553,750 | 100.00 | |
| 30.2 | Equity valuation adjustments |
Fair values of fixed assets – deemed costs – were recognized on the first-time adoption of IFRS. The line item “Equity value adjustments” was the balancing item of this adjustment, net of deferred income tax and social contribution. The realization of such adjustments is recorded in the retained earnings line item, to the extent of the depreciation or possible disposal of the measured fixed assets.
| F-99 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Adjustments arising from the changes in fair value involving financial assets, as well as actuarial gains and losses, are also recorded in this line item.
| Balance as of January 1, 2019 | 785,610 |
| Actuarial liabilities | |
| Post employment benefits | (186,628) |
| Taxes on adjustments | 63,444 |
| Realization of equity evaluation adjustment | |
| Deemed cost of fixed assets | (100,342) |
| Taxes on adjustments | 34,116 |
| Attributed to non-controlling interest | (4,273) |
| Balance as of December 31, 2019 | 591,927 |
| Adjusts to actuarial liabilities | |
| Post employment benefits | (271,345) |
| Taxes on adjustments | 92,190 |
| Realization of equity evaluation adjustment | |
| Deemed cost of fixed assets | (90,347) |
| Taxes on adjustments | 30,717 |
| Attributed to non-controlling interest | 207 |
| Balance as of December 31, 2020 | 353,349 |
| 30.3 | Legal reserve and profit retention reserve |
The amount of 5% of profit for the year is allocated to the legal reserve, before any other allocation, limited to 20% of capital.
The profit retention reserve is earmarked for covering the Company's investment program, according to Article 196 of Law No. 6,404/1976. It is funded by retaining the remaining profit or loss after setting up the legal reserve, interest on capital and dividends proposed.
| F-100 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 30.4 | Proposed dividend distribution |
| Parent Company | Restated | Restated | |
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Calculation of minimum mandatory dividend (25%) | |||
| Net income for the year | 3,904,202 | 1,989,946 | 1,407,063 |
| Legal Reserve (5%) | (195,210) | (99,497) | (70,353) |
| Realization of equity evaluation adjustment | 59,630 | 66,226 | 67,086 |
| Calculation basis for minimum mandatory dividends | 3,768,622 | 1,956,675 | 1,403,796 |
| (1) Minimum mandatory dividend | 942,156 | 489,169 | 350,949 |
| (2) Interest on own capital - gross value | 807,500 | 643,000 | 280,000 |
| Tax on interest on own capital | (76,401) | (56,584) | (27,593) |
| (3) Interest on own capital, net | 731,099 | 586,416 | 252,407 |
| (4)Complement to reach the mandatory minimum | 211,057 | - | 98,542 |
| (5) Proposed additional dividend from non-capitalized earnings reserve (30.4.1) | 1,507,449 | - | - |
| (6) Total proposed distribution, net | 2,435,463 | 586,416 | 350,949 |
| (7) Total proposed distribution | 2,526,006 | 643,000 | 378,542 |
| Gross value of dividends per share: | |||
| Ordinary shares | 0.88128 | 0.22423 | 0.13195 |
| Class “A” preferred shares | 1.27172 | 0.39466 | 0.28905 |
| Class “B” preferred shares | 0.96941 | 0.24669 | 0.14515 |
| Gross value of dividends per class of shares: | |||
| Ordinary shares | 1,278,126 | 325,210 | 191,369 |
| Class “A” preferred shares | 4,155 | 1,291 | 950 |
| Class “B” preferred shares | 1,243,725 | 316,499 | 186,223 |
The gross value per share presented were calculated based on the new number of shares, after the share split approved at the General Meeting, as described in Note 30.1.
In accordance with the legal and statutory provisions in effect, the basis for calculating mandatory dividends is obtained from net income, less the quota allocated to the legal reserve. However, Management decided to add to the calculation basis the realization of the equity valuation adjustments, which is dealt with in IAS 16, 40 and IFRS 1, in order to void the effect of the increase in depreciation expense arising from the adoption accounting standards, as well as IAS 16 - Property, Plant and Equipment. This procedure reflects the Company's shareholder remuneration policy, which will be practiced during the realization of the entire reserve for equity valuation adjustments.
| 30.4.1 | Additional proposed dividend from non-capitalized revenue reserve |
Considering that Copel has profit retention reserves corresponding to the allocation of prior-year profits that have not yet been capitalized, that a relevant portion of the profit for 2020 has not yet been realized financially (reflecting the final and unappealable decision for the lawsuit that recognized the right of Copel DIS to exclude from the PIS and COFINS calculation basis the full amount of ICMS separately stated in the sales invoices) and, finally, the need to allocate part of the profit for 2020 to the investment program expected for 2021, the payment of the proposed additional dividend will be made with a balance of profit reserves from previous non-capitalized periods.
| F-101 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 30.5 | Earnings per share – basic and diluted |
| Parent Company | Continuing | Discontinued | Continuing | Discontinued | Restated | Continuing | Discontinued | Restated | |
| operations | operations | 12.31.2020 | operations | operations | 12.31.2019 | operations | operations | 12.31.2018 | |
| Basic and diluted numerator | |||||||||
| Basic and diluted earnings allocated by classes of shares, allocated to controlling shareholders: | |||||||||
| Common shares | 1,935,144 | 40,607 | 1,975,751 | 1,051,809 | (44,707) | 1,007,102 | 662,546 | 49,688 | 712,234 |
| Class “A” preferred shares | 5,783 | 100 | 5,883 | 2,920 | (111) | 2,809 | 1,652 | 124 | 1,776 |
| Class “B” preferred shares | 1,883,054 | 39,514 | 1,922,568 | 1,023,538 | (43,503) | 980,035 | 644,703 | 48,350 | 693,053 |
| 3,823,981 | 80,221 | 3,904,202 | 2,078,267 | (88,321) | 1,989,946 | 1,308,901 | 98,162 | 1,407,063 | |
| Basic and diluted denominator | |||||||||
| Weighted average of shares (in thousands): | |||||||||
| Common shares | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 | 1,450,310,800 |
| Class “A” preferred shares | 3,268,067 | 3,268,067 | 3,268,067 | 3,273,682 | 3,273,682 | 3,273,682 | 3,286,270 | 3,286,270 | 3,286,270 |
| Class “B” preferred shares | 1,282,974,883 | 1,282,974,883 | 1,282,974,883 | 1,282,969,268 | 1,282,969,268 | 1,282,969,268 | 1,282,956,680 | 1,282,956,680 | 1,282,956,680 |
| 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | 2,736,553,750 | |
| Basic and diluted earnings per share attributable to controlling shareholders | |||||||||
| Common shares | 1.33430 | 0.02800 | 1.36229 | 0.72523 | (0.03083) | 0.69440 | 0.45683 | 0.03426 | 0.49109 |
| Class “A” preferred shares | 1.76982 | 0.03080 | 1.80062 | 0.89086 | (0.03391) | 0.85790 | 0.50251 | 0.03769 | 0.54020 |
| Class “B” preferred shares | 1.46773 | 0.03080 | 1.49852 | 0.79778 | (0.03391) | 0.76388 | 0.50251 | 0.03769 | 0.54020 |
The results presented were calculated based on the new number of shares, after the share split approved at the General Meeting, as described in Note 30.1.
| 31 | Net Operating Revenue |
| Net revenues | ||||||||
| Gross | PIS/Pasep | Sectorial | Service tax | Restated | Restated | |||
| revenues | and Cofins | ICMS (VAT) | charges | (ISSQN) | 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Electricity sales to final customers | 9,524,897 | (737,647) | (1,960,998) | (173,428) | - | 6,652,824 | 6,426,016 | 5,548,584 |
| Electricity sales to distributors | 4,330,982 | (467,817) | (21,637) | (61,698) | - | 3,779,830 | 2,865,866 | 2,765,916 |
| Use of the main distribution and transmission grid | 8,780,612 | (667,419) | (2,118,380) | (1,622,217) | - | 4,372,596 | 4,138,771 | 3,469,060 |
| Construction income | 1,414,067 | - | - | - | - | 1,414,067 | 1,132,884 | 1,097,313 |
| Fair value of assets from the indemnity for the concession | 57,341 | - | - | - | - | 57,341 | 36,646 | 47,499 |
| Distribution of piped gas | 679,304 | (60,774) | (115,640) | - | (235) | 502,655 | 843,183 | 557,186 |
| Sectorial financial assets and liabilities result | 746,052 | (69,113) | - | - | - | 676,939 | 18,631 | 893,688 |
| Other operating revenue | 406,539 | (35,771) | (65) | - | (4,269) | 366,434 | 407,248 | 171,218 |
| Recovery of Pis/Pasep and Cofins on ICMS | - | 810,563 | - | - | - | 810,563 | - | - |
| 25,939,794 | (1,227,978) | (4,216,720) | (1,857,343) | (4,504) | 18,633,249 | 15,869,245 | 14,550,464 | |
| F-102 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.1 | Revenue by type and/or class of customers |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Electricity sales to final customers | 9,524,897 | 10,481,794 | 10,104,045 |
| Residential | 3,098,969 | 3,336,432 | 3,175,290 |
| Industrial | 970,638 | 1,276,105 | 1,419,240 |
| Trade, services and other activities | 1,701,260 | 2,179,510 | 2,136,087 |
| Rural | 613,419 | 631,527 | 572,361 |
| Public entities | 195,259 | 279,495 | 262,705 |
| Public lighting | 233,558 | 274,250 | 278,645 |
| Public service | 290,482 | 332,414 | 316,307 |
| Free consumers | 1,729,603 | 1,431,274 | 1,179,314 |
| Donations and grants | 691,709 | 740,787 | 764,096 |
| Electricity sales to distributors | 4,330,982 | 3,301,336 | 3,136,244 |
| Bilateral contracts | 2,386,929 | 1,998,617 | 2,002,077 |
| Regulated contracts | 916,377 | 854,239 | 385,157 |
| Electric Energy Trade Chamber - CCEE | 933,369 | 357,076 | 663,024 |
| Interest (Note 10.3) | 94,307 | 91,404 | 85,986 |
| Use of the main distribution and transmission grid | 8,780,612 | 8,270,996 | 6,867,274 |
| Residential | 2,788,725 | 2,585,892 | 2,222,621 |
| Industrial | 1,273,320 | 1,280,168 | 1,110,089 |
| Trade, services and other activities | 1,628,098 | 1,713,632 | 1,407,156 |
| Rural | 548,682 | 467,044 | 362,778 |
| Public entities | 180,814 | 217,027 | 185,383 |
| Public lighting | 205,904 | 206,492 | 184,530 |
| Public service | 195,597 | 174,414 | 141,556 |
| Free consumers | 1,164,020 | 1,052,535 | 795,105 |
| Concessionaires and generators | 61,720 | 62,414 | 80,329 |
| Operating and maintenance income - O&M and interest income | 733,732 | 511,378 | 377,727 |
| Construction income | 1,414,067 | 1,132,884 | 1,097,313 |
| Power distribution service concession | 1,154,488 | 904,023 | 741,855 |
| Power gas distribution service concession | 7,438 | 12,153 | 13,478 |
| Power transmission concession(a) | 252,141 | 216,708 | 341,980 |
| Fair value of assets from the indemnity for the concession | 57,341 | 36,646 | 47,499 |
| Distribution of piped gas | 679,304 | 1,003,790 | 753,222 |
| Sectorial financial assets and liabilities result | 746,052 | 25,057 | 985,344 |
| Other operating revenue | 406,539 | 438,876 | 199,788 |
| Leasing and rent (31.2) | 176,452 | 141,315 | 130,007 |
| Fair value in the purchase and sale of power in the active market | 137,463 | 204,876 | - |
| Income from rendering of services | 44,182 | 51,780 | 39,705 |
| Other income | 48,442 | 40,905 | 30,076 |
| GROSS OPERATING REVENUE | 25,939,794 | 24,691,379 | 23,190,729 |
| (-) Pis/Pasep and Cofins | (2,038,541) | (2,243,383) | (2,094,148) |
| Recovery of Pis/Pasep and Cofins on ICMS (Note 13.2.1) | 810,563 | 105,184 | - |
| (-) ICMS (VAT) | (4,216,720) | (4,518,791) | (4,085,153) |
| (-) Service tax (ISSQN) | (4,504) | (3,333) | (3,402) |
| (-) Regulatory charges (31.3) | (1,857,343) | (2,161,811) | (2,457,562) |
| NET OPERATING REVENUE | 18,633,249 | 15,869,245 | 14,550,464 |
| (a) The balance contains the amount of construction revenue, the construction margin and the efficiency gain or loss as detailed in Note 11.3 | |||
| F-103 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.2 | Leases and rentals |
| 31.2.1 | Revenue from leases and rentals |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Equipment and framework | 175,673 | 140,053 | 128,734 |
| Facilities sharing | 415 | 1,046 | 1,003 |
| Real estate | 364 | 216 | 270 |
| 176,452 | 141,315 | 130,007 |
| 31.2.2 | Receivables from leases |
| Less than | Over | Total | ||
| 1 year | 1 to 5 years | 5 years | 12.31.2020 | |
| Facilities sharing | 1,410 | 5,640 | 19,462 | 26,512 |
| 31.3 | Regulatory charges |
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Energy Development Account - "CDE " - Power distribution service concession (31.3.1) | 1,530,998 | 1,654,157 | 1,840,283 |
| Other charges - rate flags | 81,159 | 280,286 | 423,098 |
| Research and development and energy efficiency - R&D and EEP | 144,474 | 127,432 | 123,306 |
| Global Reversion Reserve - RGR quota | 62,057 | 63,918 | 48,512 |
| Energy Development Account - "CDE "- Power transmission concession | 27,315 | 25,271 | 12,211 |
| Inspection fee | 11,340 | 10,747 | 10,152 |
| 1,857,343 | 2,161,811 | 2,457,562 |
| 31.3.1 | Energy Development Account - CDE - power distribution concession |
The CDE was created by Law 10,438/2002, amended by Law 12,783/2013 and, in order to meet its objectives, it has among its sources of funds, quotas paid by agents that negotiate energy with end consumers, at a charge included in the tariffs.
Currently, the Company makes payments for the “CDE USO” charge, intended to cover the CDE's objectives set forth by law.
The annual quotas for each distributor are defined by ANEEL through resolutions enacted by it. The balance is as follows:
| F-104 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Resolutions | Period | 12.31.2020 |
| CDE USO | ||
| Resolution No. 2,664/2019 | January to December | 1,531,713 |
| (-) Preliminary injunctions | January to December | (715) |
| 1,530,998 |
| Resolutions | Period | 12.31.2019 |
| CDE USO | ||
| Resolution No. 2,510/2018 | January to June | 1,269,498 |
| (-) Preliminary injunctions | January to June | (3,346) |
| 1,266,152 | ||
| CONTA ACR | ||
| Resolution No.2,231/2017 | January to February | 98,725 |
| Resolution No.2,521/2019 | March to August | 296,174 |
| Return - Order No. 2,755 / 2019 | (46,722) | |
| 348,177 | ||
| CDE ENERGIA | ||
| Resolution No. 2,510/2018 | January to March | 41,431 |
| (-) Preliminary injunctions | January to March | (1,603) |
| 39,828 | ||
| 1,654,157 |
| Resolutions | Period | 12.31.2018 |
| CDE USO | ||
| Resolution No. 2,368/2018 | January to August | 594,972 |
| Resolution No. 2,446/2018 | September to December | 445,075 |
| (-) Preliminary injunctions | January to December | (2) |
| 1,040,045 | ||
| CONTA ACR | ||
| Resolution No.2,231/2017 | January to December | 557,981 |
| 557,981 | ||
| CDE ENERGIA | ||
| Resolution No. 2,202/2017 | January to May | 100,692 |
| Resolution No. 2,358/2017 | June to December | 145,007 |
| (-) Preliminary injunctions | January to December | (3,442) |
| 242,257 | ||
| 1,840,283 |
Injunctions
As a result of preliminary decisions in favor of the Brazilian Association of Large Industrial Energy Consumers and Free Consumers - Abrace, the National Association of Energy Consumers - Anace and other consumers, which are challenging in court the tariff components of CDE Uso and CDE Energia quotas, ANEEL ratified the tariff calculation, deducting these charges of these consumers' tariffs, while the injunctions granted remained effective.
| F-105 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.4 | Copel DIS anual tariff adjustment |
ANEEL approved the result of Copel DIS's Annual Tariff Adjustment through Homologatory Resolution No. 2,704, dated June 23, 2020, authorizing average adjustment of 0.41 (3.41% in 2019) applied to consumers and whose application occurred in full to tariffs as from June 24, 2020.
The tariff recomposition includes: 0.79% resulting from the update of Parcel B (operating costs, depreciation and remuneration); 7.82% related to the updating of Parcel A (energy, transmission, charges and sunk revenue); 1.81% related to the inclusion of financial components; and -10,01% that reflect the withdrawal of financial components from the previous tariff process.
There was a reduction for the categories of customers: residential, 0.95%; commerce and services at low voltage, of 0.83%; and for public lighting, 0.93%. High voltage customers had an average increase of 1.13%.
This readjustment already considers the impacts of Covid Account, according to Decree 10,350/2020 and Aneel Normative Resolution 885/2020, in the amount of R$ 536,359, whose funds were received on July 31, 2020.
| 32 | Operating Costs and Expense |
| General and | Other | ||||
| Operational | Selling | administrative | operating | ||
| costs | expenses | expenses | expenses, net | 12.31.2020 | |
| Electricity purchased for resale (32.1) | (6,829,530) | - | - | - | (6,829,530) |
| Charge of the main distribution and transmission grid | (1,525,567) | - | - | - | (1,525,567) |
| Personnel and management (32.2) | (1,143,323) | (12,567) | (446,005) | - | (1,601,895) |
| Pension and healthcare plans (Note 23.3) | (161,257) | (1,615) | (65,762) | - | (228,634) |
| Materials and supplies | (65,357) | (95) | (7,228) | - | (72,680) |
| Materials and supplies for power electricity | (404,496) | - | - | - | (404,496) |
| Natural gas and supplies for gas business | (354,701) | - | - | - | (354,701) |
| Third-party services (32.3) | (406,109) | (4,913) | (147,019) | - | (558,041) |
| Depreciation and amortization | (945,595) | - | (48,963) | (15,355) | (1,009,913) |
| Credit losses, provisions and reversals(32.4) | 40,143 | (128,466) | - | (148,971) | (237,294) |
| Construction cost (32.5) | (1,417,504) | - | - | - | (1,417,504) |
| Other operating costs and expenses, net (32.6) | (134,526) | (12,169) | (94,431) | (92,149) | (333,275) |
| (13,347,822) | (159,825) | (809,408) | (256,475) | (14,573,530) |
| General and | Other | ||||
| Operational | Selling | administrative | operating | Restated | |
| costs | expenses | expenses | expenses, net | 12.31.2019 | |
| Electricity purchased for resale (32.1) | (6,105,274) | - | - | - | (6,105,274) |
| Charge of the main distribution and transmission grid | (1,249,275) | - | - | - | (1,249,275) |
| Personnel and management (32.2) | (945,312) | (13,937) | (366,133) | - | (1,325,382) |
| Pension and healthcare plans (Note 23.3) | (169,476) | (1,914) | (66,936) | - | (238,326) |
| Materials and supplies | (74,071) | (253) | (5,873) | - | (80,197) |
| Materials and supplies for power electricity | (49,352) | - | - | - | (49,352) |
| Natural gas and supplies for gas business | (585,233) | - | - | - | (585,233) |
| Third-party services (32.3) | (371,835) | (7,711) | (146,462) | - | (526,008) |
| Depreciation and amortization | (892,813) | (3) | (43,190) | (14,720) | (950,726) |
| Credit losses, provisions and reversals(32.4) | 120,689 | (140,348) | - | (240,392) | (260,051) |
| Construction cost (32.5) | (1,091,396) | - | - | - | (1,091,396) |
| Other operating costs and expenses, net (32.6) | (50,800) | (11,606) | (82,695) | (67,394) | (212,495) |
| (11,464,148) | (175,772) | (711,289) | (322,506) | (12,673,715) |
| F-106 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| General and | Other | ||||
| Operational | Selling | administrative | operating | Restated | |
| costs | expenses | expenses | expenses, net | 12.31.2018 | |
| Electricity purchased for resale (32.1) | (6,361,178) | - | - | - | (6,361,178) |
| Charge of the main distribution and transmission grid | (1,176,780) | - | - | - | (1,176,780) |
| Personnel and management (32.2) | (978,878) | (18,460) | (360,447) | - | (1,357,785) |
| Pension and healthcare plans (Note 23.3) | (176,102) | (2,447) | (65,201) | - | (243,750) |
| Materials and supplies | (67,494) | (613) | (11,887) | - | (79,994) |
| Materials and supplies for power electricity | (19,729) | - | - | - | (19,729) |
| Natural gas and supplies for gas business | (412,618) | - | - | - | (412,618) |
| Third-party services (32.3) | (325,091) | (7,607) | (148,403) | - | (481,101) |
| Depreciation and amortization | (657,445) | (5) | (25,268) | (13,574) | (696,292) |
| Credit losses, provisions and reversals (32.4) | 18,920 | (69,187) | - | (230,837) | (281,104) |
| Construction cost (32.5) | (1,052,208) | - | - | - | (1,052,208) |
| Other operating costs and expenses, net (32.6) | (164,305) | (7,095) | (95,638) | (5,593) | (272,631) |
| (11,372,908) | (105,414) | (706,844) | (250,004) | (12,435,170) |
| 32.1 | Electricity purchased for resale |
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Purchase of Energy in the Regulated Environment - CCEAR | 3,107,956 | 2,880,115 | 2,599,345 |
| Itaipu Binacional | 1,766,058 | 1,316,524 | 1,850,021 |
| Electric Energy Trade Chamber - CCEE | 1,176,798 | 1,405,497 | 1,272,177 |
| Bilateral contracts | 1,087,439 | 754,070 | 928,741 |
| Program for incentive to alternative energy sources - Proinfa | 221,406 | 268,063 | 228,295 |
| Micro and mini generators and repurchase of customers | 161,324 | 52,871 | 12,373 |
| (-) PIS/Pasep/Cofins taxes on electricity purchased for resale | (691,451) | (571,866) | (529,774) |
| 6,829,530 | 6,105,274 | 6,361,178 |
| 32.2 | Personnel and management |
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Personnel | |||
| Salaries and management fees | 696,837 | 746,415 | 794,966 |
| Social charges on payroll | 227,485 | 241,025 | 261,459 |
| Meal and education allowance | 107,052 | 113,021 | 113,177 |
| Voluntary retirement program | 66,905 | 43,517 | 69,289 |
| 1,098,279 | 1,143,978 | 1,238,891 | |
| Management | |||
| Salaries and management fees | 18,465 | 19,867 | 21,422 |
| Social charges on payroll | 3,233 | 5,745 | 5,695 |
| Other expenses | 237 | 248 | 251 |
| 21,935 | 25,860 | 27,368 | |
| Provisions for performance and profit sharing | |||
| of employees and administrators | 481,681 | 155,544 | 91,526 |
| 1,601,895 | 1,325,382 | 1,357,785 |
| F-107 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 32.3 | Third party services |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Maintenance of electrical system | 206,688 | 164,510 | 144,163 |
| Maintenance of facilities | 97,889 | 102,295 | 88,186 |
| Consumer service | 54,713 | 35,548 | 15,470 |
| Meter reading and bill delivery | 48,895 | 45,515 | 43,968 |
| Communication, processing and transmission of data | 42,244 | 51,919 | 47,954 |
| Consulting and audit | 41,043 | 20,456 | 40,694 |
| Other services | 66,569 | 105,765 | 100,666 |
| 558,041 | 526,008 | 481,101 |
| 32.4 | Credit losses, provisions and reversals |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Provision for litigations (a) | 150,269 | 243,848 | 206,792 |
| Impairment of assets | |||
| Power generation concession contract (Note 10.5) | (10,502) | (2,945) | (4,758) |
| Property, plant and equipment - generation segment (Note 17.5) | (37,609) | (117,744) | (14,162) |
| Expected credit losses (Trade accounts and Other receivables) | 128,466 | 140,348 | 83,453 |
| Tax credits estimated losses | (1,298) | (3,456) | 9,779 |
| Provision for losses on equity interests (Note 16.1) | 7,968 | - | - |
| 237,294 | 260,051 | 281,104 |
a) The main variations in provisions for litigations occurred due to the review of the assessment of the Company's legal advisors, mainly in labor claims and civil action for compensation to third parties. The details of the actions are shown in Note 29.
| 32.5 | Construction costs |
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Materials and supplies | 781,807 | 548,336 | 507,899 |
| Third party services | 460,952 | 395,607 | 400,680 |
| Personnel | 140,108 | 125,777 | 124,469 |
| Others | 34,637 | 21,676 | 19,160 |
| 1,417,504 | 1,091,396 | 1,052,208 |
| F-108 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 32.6 | Other operating costs and expenses, net |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Financial offset for the use of water resources | 63,841 | 103,737 | 105,310 |
| Collection charge | 49,903 | 51,156 | 44,682 |
| Net losses in the decommissioning and disposal of assets | 44,020 | 38,151 | 70,640 |
| Compensation | 38,423 | 63,628 | 31,045 |
| Taxes | 37,847 | 28,651 | 78,323 |
| Donations, contributions, grants, tax incentives (a) | 22,136 | 12,829 | 12,314 |
| Leasing and rent | 9,705 | 8,536 | 34,226 |
| Advertising and publicity | |||
| Associação das Emissoras de Radiodifusão do Paraná - AERP | 11,455 | 10,862 | 10,753 |
| Publicity | 9,598 | 7,206 | 6,127 |
| Talento Olímpico Paranaense - TOP | 4,750 | 4,719 | 4,537 |
| Sponsorship | 1,126 | 2,460 | 2,685 |
| Other net income, costs and expenses (b) | 40,471 | (119,440) | (128,011) |
| 333,275 | 212,495 | 272,631 | |
| (a) The balance includes the Company's social investments in education, culture, health, sports, among others, including incentive donations used as a tax benefit. | |||
| (b) The 2019 balance includes R$ 97,664 of water rate reversal (TCFRH). | |||
| F-109 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 33 | Financial Results |
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Financial income | |||
| Recognition of tax credit (Note 13.2.1) | 944,549 | 38,434 | 55,096 |
| Interest and monetary variation of CRC transfer (Note 8.1) | 341,964 | 192,724 | 214,627 |
| Arrears charges on bills | 271,966 | 215,522 | 210,466 |
| Return on financial investments | 80,704 | 119,622 | 98,424 |
| Exchange variation on loan collateral | 35,089 | - | - |
| Derivatives fair value - forward contract (Note 35.2.3 - b) | 24,511 | - | - |
| Remuneration of net sectorial assets and liabilities (Note 9.2) | 20,168 | 47,378 | 43,966 |
| Monetary variation over the Itaipu power purchase | 42,729 | 26,332 | 24,658 |
| Monetary variation and adjust to present value of accounts | |||
| payable related to the concession (Note 26.1) | 2,322 | 1,462 | 1,047 |
| Other financial income | 75,666 | 88,032 | 148,823 |
| 1,839,668 | 729,506 | 797,107 | |
| ( - ) Financial expenses | |||
| Monetary and exchange variation and debt charges | 607,569 | 853,880 | 829,728 |
| Monetary variation and adjust to present value of accounts | |||
| payable related to the concession (Note 26.1) | 192,848 | 100,455 | 94,319 |
| Monetary variation over the Itaipu power purchase | 75,478 | 29,547 | 50,203 |
| Interest on R&D and EEP (Note 25.2) | 12,550 | 24,570 | 25,407 |
| Remuneration of net sectorial assets and liabilities (Note 9.2) | 62 | 5,753 | 23,747 |
| Interest and monetary variation of CRC transfer (Note 8.1) | - | 8,495 | 25,830 |
| PIS/Pasep/Cofins taxes on interest on capital | 27,748 | 71,549 | 13,636 |
| Other financial expenses | 57,142 | 90,621 | 147,382 |
| 973,397 | 1,184,870 | 1,210,252 | |
| Net | 866,271 | (455,364) | (413,145) |
| 34 | Operating Segments |
Operating segments are business activities that generate revenues and incur expenses, whose operating results are regularly reviewed by the executive boards of the Company and subsidiaries and by key strategic decision-makers responsible for allocating funds and assessing performance.
| 34.1 | Products and services from which the reportable segments have their revenues generated |
The Company operates in reportable segments identified by Management, through the chief officers of each business area, taking into consideration the regulatory environments, the strategic business units and the different products and services. These segments are managed separately, since each business and each company require different technologies and strategies.
Until December 31, 2020, all sales have been to customers within the Brazilian territory, in addition, all noncurrent assets are also located in the national territory.
| F-110 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The Company did not identify any customer who individually accounts for more than 10% of their total net revenue until December 31, 2020.
The Company evaluates the performance of each segment, based on information derived from the accounting records.
The accounting policies of the operating segments are the same as those described in Note 4 of these financial statements.
| 34.2 | Company’s reportable segments |
The reportable segments of the Company, in accordance with IFRS 8, are:
Power generation and transmission (GET) - its attribution is to produce electricity from hydraulic, wind, and thermal projects (GER) and to provide services of transmission and transformation of electric power, being responsible for the construction, operation and maintenance of substations, as well for the energy transmission lines (TRA); for managers, the assets and liabilities of the generation and transmission segments are shown on an aggregate basis while their result is presented separately;
Power distribution (DIS) - its attribution is to provide public electricity distribution services, being responsible for the operation and maintenance of the distribution infrastructure, as well as providing related services;
Telecommunications (TEL) - its attribution is to provide telecommunications and general communication services. The segment will be discontinued after the completion of the divestment process of Copel Telecomunicações, detailed in Note 40;
GAS - its attribution is to provide public service of piped natural gas distribution;
Power sale (COM) - its attribution is to trade energy and related services; and
Holding Company (HOL) - its attribution is to participate in other companies.
| F-111 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 34.3 | Assets by reportable segment |
| ASSETS | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 40 |
Intersegment operations | Total | ||
| 12.31.2020 | GET | DIS | COM | ||||||
| TOTAL ASSETS | 20,945,910 | 20,407,088 | 1,053,099 | 1,565,593 | 749,434 | 4,733,847 | (1,230,546) | (1,439,761) | 46,784,664 |
| CURRENT ASSETS | 3,137,219 | 6,198,414 | 390,695 | 666,654 | 245,028 | 2,543,995 | (380,954) | (1,393,620) | 11,407,431 |
| NON-CURRENT ASSETS | 17,808,691 | 14,208,674 | 662,404 | 898,939 | 504,406 | 2,189,852 | (849,592) | (46,141) | 35,377,233 |
| Long term assets | 5,561,545 | 7,915,662 | 660,229 | 136,527 | 358,719 | 2,007,064 | (110,834) | (438,633) | 16,090,279 |
| Investments | 2,574,402 | 808 | - | - | - | 154,307 | - | - | 2,729,517 |
| Property, plant and equipment | 9,420,859 | - | 224 | 734,172 | - | 24,500 | (716,924) | 32,629 | 9,495,460 |
| Intangible assets | 223,222 | 6,203,387 | 1,833 | 16,993 | 132,366 | 2,379 | (10,587) | 359,863 | 6,929,456 |
| Right-of-use asset | 28,663 | 88,817 | 118 | 11,247 | 13,321 | 1,602 | (11,247) | - | 132,521 |
| ASSETS | Electric Energy | TEL | GAS | HOL | Intersegment operations | Total | ||
| 12.31.2019 | GET | DIS | COM | |||||
| TOTAL ASSETS | 19,457,551 | 13,434,522 | 690,372 | 1,527,098 | 904,993 | 3,183,677 | (885,662) | 38,312,550 |
| CURRENT ASSETS | 2,039,443 | 4,631,991 | 229,630 | 528,754 | 313,896 | 1,127,469 | (961,987) | 7,909,196 |
| NON-CURRENT ASSETS | 17,418,108 | 8,802,531 | 460,742 | 998,344 | 591,097 | 2,056,208 | 76,325 | 30,403,354 |
| Long term assets | 5,054,560 | 3,051,058 | 460,312 | 137,770 | 576,190 | 1,879,619 | (296,879) | 10,862,630 |
| Investments | 2,371,374 | 813 | 247 | - | - | 150,746 | - | 2,523,179 |
| Property, plant and equipment | 9,735,093 | - | 53 | 833,974 | - | 22,983 | - | 10,592,103 |
| Intangible assets | 233,973 | 5,703,686 | 123 | 19,844 | - | 1,781 | 373,204 | 6,332,611 |
| Right-of-use asset | 23,108 | 46,974 | 7 | 6,756 | 14,907 | 1,079 | - | 92,831 |
| F-112 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 34.4 | Statement of income by reportable segment |
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 40 |
Intersegment operations | Total | |||
| GET | ||||||||||
| 12.31.2020 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | 4,030,979 | 1,186,215 | 12,363,459 | 2,420,657 | 386,634 | 535,206 | - | (355,843) | (1,934,058) | 18,633,249 |
| Net operating revenues - third-parties | 2,599,807 | 875,240 | 12,312,047 | 2,323,825 | 355,845 | 522,328 | - | (355,843) | - | 18,633,249 |
| Net operating revenues - between segments | 1,431,172 | 310,975 | 51,412 | 96,832 | 30,789 | 12,878 | - | - | (1,934,058) | - |
| OPERATING COSTS AND EXPENSES | (2,348,409) | (536,968) | (10,674,981) | (2,262,053) | (363,673) | (452,495) | (107,059) | 203,779 | 1,968,329 | (14,573,530) |
| Energy purchased for resale | (260,650) | - | (5,856,372) | (2,239,388) | - | - | - | - | 1,526,880 | (6,829,530) |
| Charges for use of the main transmission grid | (489,921) | - | (1,370,814) | - | - | - | - | - | 335,168 | (1,525,567) |
| Personnel and management | (277,905) | (168,828) | (994,037) | (15,007) | (82,817) | (35,998) | (27,303) | - | - | (1,601,895) |
| Pension and healthcare plans | (38,196) | (23,972) | (146,422) | (1,493) | (11,207) | (4,663) | (2,681) | - | - | (228,634) |
| Materials and supplies | (9,695) | (3,466) | (58,196) | (28) | (1,364) | (580) | (715) | 1,364 | - | (72,680) |
| Raw materials and supplies for generation | (415,405) | - | - | - | - | - | - | - | 10,909 | (404,496) |
| Natural gas and supplies for gas business | - | - | - | - | - | (354,701) | - | - | - | (354,701) |
| Third party services | (118,562) | (24,863) | (405,854) | (1,493) | (66,426) | (11,633) | (32,025) | 66,426 | 36,389 | (558,041) |
| Depreciation and amortization | (583,958) | (11,812) | (374,851) | (75) | (147,190) | (31,452) | (2,345) | 107,497 | 34,273 | (1,009,913) |
| Provision (reversal) for litigations | (53,216) | (24,529) | (55,118) | (62) | 336 | (85) | (17,259) | (336) | - | (150,269) |
| Impairment of assets | 48,111 | - | - | - | 54,945 | - | - | (54,945) | - | 48,111 |
| Other estimated losses, provisions and reversals | (5,930) | (4,149) | (123,980) | (839) | (18,088) | (238) | - | 18,088 | - | (135,136) |
| Construction cost | - | (255,578) | (1,154,488) | - | - | (7,438) | - | - | - | (1,417,504) |
| Other operating costs and expenses, net | (143,082) | (19,771) | (134,849) | (3,668) | (91,862) | (5,707) | (24,731) | 65,685 | 24,710 | (333,275) |
| EQUITY IN EARNINGS OF INVESTEES | 9,629 | 176,848 | - | (93) | - | - | 7,163 | - | - | 193,547 |
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | 1,692,199 | 826,095 | 1,688,478 | 158,511 | 22,961 | 82,711 | (99,896) | (152,064) | 34,271 | 4,253,266 |
| Financial income | 121,129 | 21,977 | 1,334,983 | 11,469 | 24,968 | 13,599 | 340,404 | (24,939) | (3,922) | 1,839,668 |
| Financial expenses | (408,795) | (97,417) | (291,002) | (96) | (58,317) | (14,363) | (165,647) | 58,317 | 3,923 | (973,397) |
| OPERATING PROFIT (LOSS) | 1,404,533 | 750,655 | 2,732,459 | 169,884 | (10,388) | 81,947 | 74,861 | (118,686) | 34,272 | 5,119,537 |
| Income tax and social contribution | (337,564) | (149,962) | (878,278) | (57,947) | 2,357 | (22,967) | 125,293 | 43,108 | (9,405) | (1,285,365) |
| NET INCOME(LOSS) FROM CONTINUING OPERATIONS | 1,066,969 | 600,693 | 1,854,181 | 111,937 | (8,031) | 58,980 | 200,154 | (75,578) | 24,867 | 3,834,172 |
| Result of discontinued operations | - | - | - | - | - | - | - | 75,578 | - | 75,578 |
| NET INCOME (LOSS) | 1,066,969 | 600,693 | 1,854,181 | 111,937 | (8,031) | 58,980 | 200,154 | - | 24,867 | 3,909,750 |
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 40 |
Intersegment operations | Total | |||
| Restated | GET | |||||||||
| 12.31.2019 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | 3,368,375 | 871,510 | 10,401,301 | 1,810,901 | 418,030 | 866,884 | - | (375,028) | (1,492,727) | 15,869,246 |
| Net operating revenues - third-parties | 2,233,367 | 643,596 | 10,352,690 | 1,773,765 | 375,030 | 865,826 | - | (375,028) | - | 15,869,246 |
| Net operating revenues - between segments | 1,135,008 | 227,914 | 48,611 | 37,136 | 43,000 | 1,058 | - | - | (1,492,727) | - |
| OPERATING COSTS AND EXPENSES | (1,659,225) | (479,538) | (9,579,915) | (1,608,245) | (604,616) | (662,306) | (59,232) | 486,633 | 1,492,727 | (12,673,717) |
| Energy purchased for resale | (262,288) | - | (5,424,207) | (1,590,272) | - | - | - | - | 1,171,493 | (6,105,274) |
| Charges for use of the main transmission grid | (451,107) | - | (1,044,135) | - | - | - | - | - | 245,967 | (1,249,275) |
| Personnel and management | (217,792) | (139,662) | (822,772) | (13,041) | (73,890) | (36,932) | (21,293) | - | - | (1,325,382) |
| Pension and healthcare plans | (37,955) | (25,027) | (155,784) | (1,481) | (11,384) | (4,122) | (2,573) | - | - | (238,326) |
| Materials and supplies | (10,987) | (3,766) | (64,419) | (15) | (1,955) | (217) | (793) | 1,955 | - | (80,197) |
| Raw materials and supplies for generation | (50,388) | - | - | - | - | - | - | - | 1,036 | (49,352) |
| Natural gas and supplies for gas business | - | - | - | - | - | (585,233) | - | - | - | (585,233) |
| Third party services | (108,309) | (38,092) | (397,390) | (1,718) | (87,113) | (12,971) | (16,734) | 87,113 | 49,206 | (526,008) |
| Depreciation and amortization | (551,576) | (12,987) | (343,597) | (44) | (152,863) | (30,480) | (2,289) | 143,108 | - | (950,728) |
| Provision (reversal) for litigations | (45,212) | (24,398) | (164,705) | (156) | (14,072) | (292) | (9,086) | 14,072 | - | (243,849) |
| Impairment of assets | 117,648 | - | - | - | - | - | 3,041 | - | - | 120,689 |
| Other estimated losses, provisions and reversals | 43,207 | (41,350) | (137,680) | (4) | (100,691) | (1,063) | (2) | 100,691 | - | (136,892) |
| Construction cost | - | (175,220) | (904,023) | - | - | (12,153) | - | - | - | (1,091,396) |
| Other operating costs and expenses, net | (84,466) | (19,036) | (121,203) | (1,514) | (162,648) | 21,157 | (9,503) | 139,694 | 25,025 | (212,494) |
| EQUITY IN EARNINGS OF INVESTEES | 14,840 | 85,752 | - | (280) | - | - | 6,445 | - | - | 106,757 |
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | 1,723,990 | 477,724 | 821,386 | 202,376 | (186,586) | 204,578 | (52,787) | 111,605 | - | 3,302,286 |
| Financial income | 80,632 | 20,637 | 355,152 | 3,004 | 20,760 | 53,625 | 217,057 | (20,735) | (626) | 729,506 |
| Financial expenses | (457,528) | (138,947) | (273,909) | (220) | (53,857) | (10,439) | (304,453) | 53,857 | 626 | (1,184,870) |
| OPERATING PROFIT (LOSS) | 1,347,094 | 359,414 | 902,629 | 205,160 | (219,683) | 247,764 | (140,183) | 144,727 | - | 2,846,922 |
| Income tax and social contribution | (289,831) | (54,695) | (201,236) | (69,854) | 68,644 | (74,791) | (17,563) | (36,334) | - | (675,660) |
| NET INCOME(LOSS) FROM CONTINUING OPERATIONS | 1,057,263 | 304,719 | 701,393 | 135,306 | (151,039) | 172,973 | (157,746) | 108,393 | - | 2,171,262 |
| Result of discontinued operations | - | - | - | - | - | - | - | (108,393) | - | (108,393) |
| NET INCOME (LOSS) | 1,057,263 | 304,719 | 701,393 | 135,306 | (151,039) | 172,973 | (157,746) | - | - | 2,062,869 |
| F-113 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 40 |
Intersegment operations | Total | |||
| Restated | GET | |||||||||
| 12.31.2018 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | 3,007,565 | 904,826 | 9,972,442 | 1,341,162 | 421,408 | 588,532 | - | (384,316) | (1,301,155) | 14,550,464 |
| Net operating revenues - third-parties | 2,116,875 | 680,567 | 9,932,267 | 1,341,162 | 364,741 | 582,895 | - | (384,316) | (83,727) | 14,550,464 |
| Net operating revenues - between segments | 890,690 | 224,259 | 40,175 | - | 56,667 | 5,637 | - | - | (1,217,428) | - |
| OPERATING COSTS AND EXPENSES | (1,619,431) | (561,850) | (9,474,473) | (1,354,578) | (369,201) | (515,594) | (57,993) | 241,451 | 1,276,499 | (12,435,170) |
| Energy purchased for resale | (417,918) | - | (5,577,719) | (1,338,473) | - | - | - | - | 972,932 | (6,361,178) |
| Charges for use of the main transmission grid | (408,347) | - | (1,012,062) | - | - | - | - | - | 243,629 | (1,176,780) |
| Personnel and management | (214,855) | (147,139) | (837,728) | (13,734) | (92,472) | (34,896) | (16,961) | - | - | (1,357,785) |
| Pension and healthcare plans | (36,379) | (25,884) | (159,842) | (1,507) | (13,892) | (3,881) | (2,365) | - | - | (243,750) |
| Materials and supplies | (11,637) | (5,054) | (60,379) | (65) | (1,763) | (2,110) | (749) | 1,763 | - | (79,994) |
| Raw materials and supplies for generation | (25,367) | - | - | - | - | - | - | - | 5,638 | (19,729) |
| Natural gas and supplies for gas business | - | - | - | - | - | (412,618) | - | - | - | (412,618) |
| Third party services | (119,668) | (33,489) | (339,399) | (1,700) | (91,127) | (17,034) | (32,311) | 91,127 | 62,500 | (481,101) |
| Depreciation and amortization | (353,916) | (11,386) | (301,581) | (16) | (58,209) | (22,759) | (1,312) | 52,887 | - | (696,292) |
| Provision (reversal) for litigations | 18,059 | 7,879 | (222,057) | 9 | (12,844) | (154) | (10,528) | 12,844 | - | (206,792) |
| Impairment of assets | 22,312 | - | - | - | - | - | 1,648 | - | (5,040) | 18,920 |
| Other estimated losses, provisions and reversals | 55,457 | (49,486) | (77,985) | (935) | (12,749) | (6,017) | (14,266) | 12,749 | - | (93,232) |
| Construction cost | - | (277,259) | (741,855) | - | - | (13,478) | - | - | (19,616) | (1,052,208) |
| Other operating costs and expenses, net | (127,172) | (20,032) | (143,866) | 1,843 | (86,145) | (2,647) | 18,851 | 70,081 | 16,456 | (272,631) |
| EQUITY IN EARNINGS OF INVESTEES | 5,514 | 123,676 | - | (15) | - | - | 6,713 | - | - | 135,888 |
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | 1,393,648 | 466,652 | 497,969 | (13,431) | 52,207 | 72,938 | (51,280) | (142,865) | (24,656) | 2,251,182 |
| Financial income | 119,196 | 29,163 | 335,377 | 6,065 | 16,808 | 29,454 | 305,344 | (16,808) | (27,492) | 797,107 |
| Financial expenses | (517,832) | (136,455) | (308,319) | (104) | (41,713) | (31,865) | (243,169) | 41,713 | 27,492 | (1,210,252) |
| OPERATING PROFIT (LOSS) | 995,012 | 359,360 | 525,027 | (7,470) | 27,302 | 70,527 | 10,895 | (117,960) | (24,656) | 1,838,037 |
| Income tax and social contribution | (327,598) | (75,361) | (148,244) | 2,632 | (2,853) | (10,909) | 41,957 | 40,827 | 8,383 | (471,166) |
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | 667,414 | 283,999 | 376,783 | (4,838) | 24,449 | 59,618 | 52,852 | (77,133) | (16,273) | 1,366,871 |
| Result of discontinued operations | - | - | - | - | - | - | - | 77,133 | - | 77,133 |
| NET INCOME (LOSS) | 667,414 | 283,999 | 376,783 | (4,838) | 24,449 | 59,618 | 52,852 | - | (16,273) | 1,444,004 |
| 34.5 | Additions to noncurrent assets by reportable segment |
| Electric Energy | TEL | GAS | HOL | Total | |||
| 12.31.2020 | GET | DIS | COM | ||||
| Contract assets | - | 1,278,578 | - | - | 15,187 | - | 1,293,765 |
| Property, plant and equipment | 236,914 | - | 203 | 127,381 | - | 1,800 | 366,298 |
| Intangible assets | 7,397 | - | 1,741 | 808 | - | 1,045 | 10,991 |
| Right-of-use asset | 19,231 | 72,421 | 135 | 10,135 | 623 | 1,026 | 103,571 |
| Electric Energy | TEL | GAS | HOL | Total | |||
| 12.31.2019 | GET | DIS | COM | ||||
| Contract assets | - | 917,577 | - | - | 17,590 | - | 935,167 |
| Property, plant and equipment | 522,744 | - | 14 | 59,216 | - | 285 | 582,259 |
| Intangible assets | 4,272 | - | 3 | 486 | - | 271 | 5,032 |
| Right-of-use asset | 33,461 | 66,621 | 8 | 9,950 | 16,933 | 402 | 127,375 |
| IFRS 16 Initial adoption | 32,919 | 60,494 | - | 9,868 | 14,356 | 385 | 118,022 |
| Additions for the period | 542 | 6,127 | 8 | 82 | 2,577 | 17 | 9,353 |
| Electric Energy | TEL | GAS | HOL | Total | |||
| 12.31.2018 | GET | DIS | COM | ||||
| Contract assets | - | 797,832 | - | - | 15,618 | - | 813,450 |
| Property, plant and equipment | 1,160,967 | - | 4 | 308,242 | - | 267 | 1,469,480 |
| Intangible assets | 6,351 | - | - | 1,235 | - | 3 | 7,589 |
| F-114 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35 | Financial Instruments |
| 35.1 | Categories and determination of fair value of financial instruments |
| 12.31.2020 | 12.31.2019 | Restated | ||||
| Note | Level | Book value | Fair value | Book value | Fair value | |
| Financial assets | ||||||
| Fair value through profit or loss | ||||||
| Cash and cash equivalents (a) | 5 | 1 | 3,222,768 | 3,222,768 | 2,941,727 | 2,941,727 |
| Bonds and securities (b) | 6 | 1 | 751 | 751 | 2,429 | 2,429 |
| Bonds and securities (b) | 6 | 2 | 299,779 | 299,779 | 279,652 | 279,652 |
| Accounts receivable - distribution concession (c) | 10.1 and 10.2 | 3 | 1,149,934 | 1,149,934 | 1,161,203 | 1,161,203 |
| Accounts receivable - generation concession (d) | 10.4 | 3 | 81,202 | 81,202 | 69,182 | 69,182 |
| Derivatives fair value - forward contracts (e) | 12 | 3 | 23,308 | 23,308 | - | - |
| Fair value in the purchase and sale of power (e) | 12 | 3 | 689,531 | 689,531 | 460,635 | 460,635 |
| Other temporary investments (f) | 1 | 14,910 | 14,910 | 15,566 | 15,566 | |
| Other temporary investments (f) | 2 | 7,475 | 7,475 | 12,168 | 12,168 | |
| 5,489,658 | 5,489,658 | 4,942,562 | 4,942,562 | |||
| Amortized cost | ||||||
| Collaterals and escrow accounts (a) | 197 | 197 | 147 | 147 | ||
| Collateral and escrow deposits - STN (g) | 21.1 | 133,521 | 113,477 | 98,433 | 94,671 | |
| Trade accounts receivable (a) | 7 | 3,819,680 | 3,819,680 | 3,182,567 | 3,182,567 | |
| CRC Transferred to the Paraná State Government (h) | 8 | 1,392,624 | 1,496,016 | 1,350,685 | 1,488,456 | |
| Sectorial financial assets (a) | 9 | 346,930 | 346,930 | 473,989 | 473,989 | |
| Accounts receivable - concessions - bonus from | ||||||
| the grant (i) | 10.3 | 671,204 | 763,070 | 647,984 | 738,483 | |
| 6,364,156 | 6,539,370 | 5,753,805 | 5,978,313 | |||
| Total financial assets | 11,853,814 | 12,029,028 | 10,696,367 | 10,920,875 | ||
| Financial liabilities | ||||||
| Fair value through profit or loss | ||||||
| Fair value in the purchase and sale of power (e) | 28 | 3 | 343,406 | 343,406 | 251,973 | 251,973 |
| Derivatives fair value - forward contracts (e) | 28 | 3 | - | - | 1,203 | 1,203 |
| 343,406 | 343,406 | 253,176 | 253,176 | |||
| Amortized cost | ||||||
| Sectorial financial liabilities (a) | 9 | 188,709 | 188,709 | 102,284 | 102,284 | |
| Ordinary financing of taxes with the federal tax authorities (g) | 13.2 | - | - | 18,063 | 18,001 | |
| Special Tax Regularization Program - Pert (g) | 13.2 | 459,303 | 377,375 | 497,207 | 439,519 | |
| PIS and Cofins to be refunded to consumers (a) | 13.2.1 | 3,927,823 | 3,927,823 | - | - | |
| Accounts payable to suppliers (a) | 20 | 2,436,452 | 2,436,452 | 1,873,193 | 1,873,193 | |
| Loans and financing (g) | 21 | 3,214,249 | 2,956,696 | 3,168,710 | 3,110,104 | |
| Debentures (j) | 22 | 6,837,819 | 6,837,819 | 8,540,366 | 8,540,366 | |
| Accounts payable related to concession (k) | 26 | 731,864 | 811,329 | 612,587 | 690,326 | |
| 17,796,219 | 17,536,203 | 14,812,410 | 14,773,793 | |||
| Total financial liabilities | 18,139,625 | 17,879,609 | 15,065,586 | 15,026,969 | ||
| Different levels are defined as follows: | ||||||
| Level 1: Obtained from quoted prices (not adjusted) in active markets for identical assets and liabilities; | ||||||
| Level 2: obtained through other variables in addition to quoted prices included in Level 1, which are observable for the assets or liabilities; | ||||||
| Level 3: obtained through assessment techniques which include variables for the assets or liabilities, which however are not based on observable market data. | ||||||
| F-115 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Determining fair values
| a) | Equivalent to their respective carrying values due to their nature and terms of realization. |
| b) | Fair value is calculated based on information made available by the financial agents and the market values of the bonds issued by the Brazilian government |
| c) | The criteria are disclosed in Note 4.4 to the financial statements. |
| d) | The fair values of generation assets approximate their carrying amounts, according to Note 4.4 of these Financial Statements. |
| e) | The fair values of assets and liabilities are equivalent to their carrying amounts according to Note 4.15 of these Financial Statements. |
| f) | Investments in other companies, stated at fair value, which is calculated according to the price quotations published in an active market, for assets classified as level 1 and determined in view of the comparative assessment model for assets classified as level 2. |
| g) | The cost of the last borrowing taken out by the Company is used as a basic assumption IPCA + Spread de 4.8165%, for discount of the expected payment flows. |
| h) | The Company based its calculation on the comparison with a long-term and post-fixed National Treasury Bond (NTN-B) maturing on August 15, 2026, which yields approximately 3.09% p.a. plus the IPCA inflation index. |
| i) | Receivables related to the concession agreement for providing electricity generation services under quota arrangements, having their fair value calculated by expected cash inflows, discounted at the rate established by ANEEL auction notice 12/2015 (9.04%). |
| j) | Calculated from the Unit Price quotation (PU) for December 31, 2020, obtained from the Brazilian Association of Financial and Capital Markets (ANBIMA), net of unamortized financial cost. |
| k) | Actual net discount rate of 8.64% p.a., in line with the Company's estimated rate for long-term projects. |
| 35.2 | Financial risk management |
The Company's business activities are exposed to the following risks arising from financial instruments:
| 35.2.1 | Credit risk |
Credit risk is the risk of the Company incurring losses due to a customer or counterparty in a financial instrument, resulting from failure in complying with their contractual obligations.
| F-116 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Exposure to credit risk | 12.31.2020 | 12.31.2019 Restated |
| Cash and cash equivalents (a) | 3,222,768 | 2,941,727 |
| Bonds and securities (a) | 300,530 | 282,081 |
| Pledges and restricted deposits linked (a) | 133,718 | 98,580 |
| Trade accounts receivable (b) | 3,819,680 | 3,182,567 |
| CRC Transferred to the Paraná State Government (c) | 1,392,624 | 1,350,685 |
| Sectorial financial assets (d) | 346,930 | 473,989 |
| Accounts receivable - distribution concession (e) | 1,149,934 | 1,161,203 |
| Accounts receivable - concessions - Bonus from the grant (f) | 671,204 | 647,984 |
| Accounts receivable - generation concessions (g) | 81,202 | 69,182 |
| Other temporary investments (h) | 22,385 | 27,734 |
| 11,140,975 | 10,235,732 |
| a) | The Company manages the credit risk of its assets in accordance with the Management’s policy of investing virtually all of its funds in federal banking institutions. As a result of legal and/or regulatory requirements, in exceptional circumstances the Company may invest funds in prime private banks. |
| b) | The risk arises from the possibility that the Company might incur losses resulting from difficulties to receive its billings to customers. This risk is directly related to internal and external factors to Copel. To mitigate this type of risk, the Company manages its accounts receivable, detecting the classes of consumers most likely to default, implementing specific collection policies and suspending the supply and/or recording of energy and the provision of service, as established in contract and regulatory standards. |
| c) | Management believes this credit risk is low because repayments are secured by resources from dividends. |
| d) | Management considers the risk of this credit to be reduced, since the agreements signed guarantee the unconditional right to receive cash at the end of the concession to be paid by the Concession Grantor, corresponding to the costs not recovered through the tariff. |
| e) | Management considers the risk of this credit to be reduced, since the agreements signed guarantee the unconditional right to receive cash at the end of the concession to be paid by the Concession Grantor, referring to investments in infrastructure not recovered through the tariff. |
| f) | Management considers the risk of such credit to be low, as the contract for the sale of energy by quotas guarantees the receipt of an Annual Generation Revenue - RAG, which includes the annual amortization of this amount during the concession term. |
| g) | For the generation concession assets, ANEEL published Normative Resolution 596/2013, which deals with the definition of criteria for calculating the New replacement value (Valor novo de reposição – VNR), for the purposes of indemnification. Management's expectation of indemnification for these assets supports recoverability of the balances recorded. |
| F-117 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| h) | This risk arises from the possibility that the Company might incur losses resulting from the volatility on the stock market. This type of risk involves external factors and has been managed through periodic assessment of the variations occurred in the market. |
| 35.2.2 | Liquidity risk |
The Company's liquidity risk consists of the possibility of having insufficient funds, cash or other financial assets, to settle obligations on their scheduled maturity dates.
The Company manages liquidity risk relying on a set of methodologies, procedures and instruments applied to secure ongoing control over financial processes to ensure proper management of risks.
Investments are financed by incurring medium and long-term debt with financial institutions and capital markets.
Short, medium and long-term business projections are made and submitted to Management bodies for evaluation. The budget for the next fiscal year is annually approved.
Medium and long-term business projections cover monthly periods over the next five years. Short-term projections consider daily periods covering only the next 90 days.
The Company permanently monitors the volume of funds to be settled by controlling cash flows to reduce funding costs, the risk involved in the renewal of loan agreements and compliance with the financial investment policy, while concurrently keeping minimum cash levels.
The following table shows the expected undiscounted settlement amounts in each time range. Projections were based on financial indicators linked to the related financial instruments and forecast according to average market expectations as disclosed in the Central Bank of Brazil's Focus Report, which provides the average expectations of market analysts for these indicators for the current year and for the next 3 years. As from 2024, 2023 indicators are repeated on an unaltered basis throughout the forecast period.
| Less than | 1 to 3 | 3 months | 1 to 5 | Over | |||
| Interest (a) | 1 month | months | to 1 year | years | 5 years | Total | |
| 12.31.2020 | |||||||
| Loans and financing | Note 21 | 29,274 | 197,056 | 669,153 | 1,570,564 | 1,868,504 | 4,334,551 |
| Debentures | Note 22 | 335,121 | 47,686 | 1,723,107 | 4,953,679 | 1,020,581 | 8,080,174 |
| Accounts payable related | Rate of return + | ||||||
| to concession | IGP-M and IPCA | 7,220 | 14,444 | 68,504 | 429,573 | 1,570,984 | 2,090,725 |
| Accounts payable to suppliers | - | 2,034,872 | 309,329 | 26,248 | 66,003 | - | 2,436,452 |
| PIS and Cofins to be refunded | |||||||
| to consumers | - | - | - | 121,838 | 3,805,985 | - | 3,927,823 |
| Special Tax Regularization Program - Pert | Selic | 4,220 | 8,456 | 38,426 | 225,206 | 270,982 | 547,290 |
| Sectorial financial liabilities | Selic | 15,752 | 31,585 | 143,906 | - | - | 191,243 |
| 2,426,459 | 608,556 | 2,791,182 | 11,051,010 | 4,731,051 | 21,608,258 | ||
| (a) Effective interest rate - weighted average. | |||||||
As disclosed in Notes 21.5 and 22.3, the Company have loans and financing agreements and debentures with covenants that if breached may have their payment accelerated.
| F-118 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.2.3 | Market risk |
Market risk is the risk that the fair value or the future cash flows of a financial instrument shall oscillate due to changes in market prices, such as currency rates, interest rates and stock price. The purpose of managing this risk is to control exposures within acceptable limits, while optimizing return.
| a) | Foreign currency risk (US Dollar) |
This risk comprises the possibility of losses due to fluctuations in foreign exchange rates, which may reduce assets or increase liabilities denominated in foreign currencies.
The Company's foreign currency indebtedness is not significant, and it is not exposed to foreign exchange derivatives. The Company monitors all relevant foreign exchange rates.
The effect of the exchange rate variation resulting from the power purchase agreement with Eletrobras (Itaipu) is transferred to customers in Copel DIS's next tariff adjustment.
The exchange rate risk posed by the purchase of gas arises from the possibility of Compagás reporting losses on the fluctuations in foreign exchange rates, increasing the amount in Reais of the accounts payable related to the gas acquired from Petrobras. This risk is mitigated by the monitoring and transfer of the price fluctuation through tariff, when possible. The Company monitors these fluctuations on an ongoing basis.
Sensitivity analysis of foreign currency risk
The Company has developed a sensitivity analysis in order to measure the impact of the devaluation of the US dollar on its loans and financing subject to currency risk.
The valuation of the financial instruments considers the possible effects on profit and loss and equity of the risks evaluated by the Company's Management on the reporting date for the financial instruments, as recommended by IFRS 7 - Financial Instruments: Disclosure. Based on the equity position and the notional value of the financial instruments held as of December 31, 2020, it is estimated that these effects will approximate the amounts stated in the above table in the column for the forecast probable scenario, since the assumptions used by the Company are similar to those previously described.
The baseline scenario takes into account the existing balances on the date of these financial statements and the probable scenario assumes a variation in the foreign exchange rate - prevailing at the end of the period (R$/US$ 5.15) based on the median market expectation for 2021 according to the Focus Report issued by the Central Bank of Brazil. Additionally, the Company continues to monitor scenarios 1 and 2, which consider a deterioration of 25% and 50%, respectively, in the main risk factor of the financial instrument in relation to the level used in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| F-119 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| . | Baseline | Projected scenarios - Dec.2020 | |||
| Foreign exchange risk | Risk | 12.31.2020 | Probable | Scenario 1 | Scenario 2 |
| . | |||||
| Financial assets | |||||
| Collaterals and escrow accounts - STN | USD depreciation | 133,521 | (1,200) | (34,280) | (67,360) |
| . | 133,521 | (1,200) | (34,280) | (67,360) | |
| Financial liabilities | |||||
| Loans and financing - STN | USD appreciation | (140,337) | 1,261 | (33,508) | (68,277) |
| Suppliers | |||||
| Eletrobras (Itaipu) | USD appreciation | (288,640) | 2,594 | (68,918) | (140,429) |
| Acquisition of gas | USD appreciation | (38,574) | 347 | (9,210) | (18,767) |
| (467,551) | 4,202 | (111,636) | (227,473) | ||
| b) | Foreign exchange risk - euro |
This risk arises from the possibility of loss due to fluctuations in exchange rates affecting fair value of Non-Deliverable Forward (NDF) transactions. These derivatives were contracted considering that in the supply contracts for wind turbines of companies in the Jandaíra wind complex, controlled by Copel GeT, disbursement installments in Euro are foreseen. Sporadic gains and losses are recognized in the Company's statement of income.
Based on the notional amount of 15,5 million euros outstanding as of December 30, 2020, the fair value was estimated by the difference between the amounts contracted under the respective terms and the forward currency quotations (B3 reference rates), discounted to present value at the fixed rate as of the same date. The active balance, recorded as of December 30, 2020, is shown in Note 12. The liability balance, as of December 31, 2019, is presented in Note 28.
Sensitivity analysis of operations with derivative financial instruments
The Company developed a sensitivity analysis in order to measure the impact from exposure to fluctuation in exchange rate to Euro (€).
For the base scenario, the accounting balances recorded on the date of these financial statements were considered and for the probable scenario, the balances updated with the future currency quotations (B3 reference rates on February 26, 2021) were considered and adjusted to present value by the pre-tax rate at same date. Additionally, the Company continues to monitor scenarios 1 and 2, which consider the 25% and 50% rise or fall in future quotes applied on the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| F-120 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Exchange | Baseline | Projected scenarios | |||
| rate variation | 12.31.2020 | Probable | Scenario 1 | Scenario 2 | |
| Gains (losses) on operations with derivative financial instruments | Increase | 23,308 | 29,230 | 56,504 | 83,186 |
| Decrease | 23,308 | 29,230 | 3,140 | (23,541) | |
| c) | Interest rate and monetary variation risk |
This risk comprises the possibility of losses due to fluctuations in interest rates or other indicators, which may reduce financial income or financial expenses or increase the financial expenses related to the assets and liabilities raised in the market.
The Company has not entered into derivative contracts to cover this risk but has been continuously monitoring interest rates and market indexes in order to observe any need for contracting.
Sensitivity analysis of interest rate and monetary variation risk
The Company has developed a sensitivity analysis in order to measure the impact of variable interest rates and monetary variations on its financial assets and liabilities subject to these risks.
The valuation of the financial instruments considers the possible effects on profit and loss and equity of the risks evaluated by the Company's Management on the reporting date for the financial instruments, as recommended by IFRS 7 - Financial Instruments: Disclosure. Based on the equity position and the notional value of the financial instruments held as of December 31, 2020, it is estimated that these effects will approximate the amounts stated in the above table in the column for the forecast probable scenario, since the assumptions used by the Company are similar to those previously described.
The baseline scenario takes into account the existing balances in each account as of December 31, 2019 2020 on the date of these financial statements and the probable scenario assumes balances reflecting varying indicators CDI/Selic – 4.00%, IPCA – 3.98%, IGP-DI – 6.85%, IGP-M - 8,98% and TJLP – 4.98%, estimated as market average projections for 2021 according to the Focus Report issued by the Central Bank of Brazil, except TJLP that considers the Company's internal projection. Additionally, the Company continues to monitor scenarios 1 and 2, which consider a deterioration of 25% and 50%, respectively, in the main risk factor of the financial instrument in relation to the level used in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| F-121 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| . | Baseline | Projected scenarios - Dec.2020 | |||
| Interest rate risk and monetary variation | Risk | 12.31.2020 | Probable | Scenario 1 | Scenario 2 |
| Financial assets | |||||
| Bonds and securities | Low CDI/SELIC | 300,530 | 12,023 | 9,014 | 6,011 |
| Collaterals and escrow accounts | Low CDI/SELIC | 197 | 8 | 6 | 4 |
| CRC Transferred to the Paraná State Government | Low IGP-DI | 1,392,624 | 95,395 | 71,546 | 47,697 |
| Sectorial financial assets | Low Selic | 346,930 | 13,877 | 10,408 | 6,939 |
| Accounts receivable - concessions | Low IPCA | 1,821,138 | 72,481 | 54,361 | 36,241 |
| Accounts receivable - generation concessions | Undefined (a) | 81,202 | - | - | - |
| 3,942,621 | 193,784 | 145,335 | 96,892 | ||
| Financial liabilities | |||||
| Loans and financing | |||||
| Banco do Brasil | High CDI | (640,177) | (25,607) | (32,009) | (38,411) |
| BNDES | High TJLP | (2,027,581) | (100,974) | (126,217) | (151,460) |
| BNDES | High IPCA | (273,379) | (10,880) | (13,601) | (16,321) |
| Banco do Brasil - BNDES Transfer | High TJLP | (83,936) | (4,180) | (5,225) | (6,270) |
| Caixa Econômica Federal | High TJLP | (165) | (8) | (10) | (12) |
| Other | No risk | (48,674) | - | - | - |
| Debentures | High CDI/SELIC | (5,174,803) | (206,992) | (258,740) | (310,488) |
| Debentures | High IPCA | (1,550,339) | (61,703) | (77,129) | (92,555) |
| Debentures | High TJLP | (112,677) | (5,611) | (7,014) | (8,417) |
| Sectorial financial liabilities | High Selic | (188,709) | (7,548) | (9,435) | (11,323) |
| Special Tax Regularization Program - Pert | High Selic | (459,303) | (18,372) | (22,965) | (27,558) |
| Accounts payable related to concession | High IGP-M | (678,436) | (60,924) | (76,154) | (91,385) |
| Accounts payable related to concession | High IPCA | (53,428) | (2,126) | (2,658) | (3,190) |
| . | (11,291,607) | (504,925) | (631,157) | (757,390) | |
| (a) Risk assessment still requires ruling by the Granting Authority. | |||||
| 35.2.4 | Electricity shortage risk |
Approximately 64% of installed capacity in Brazil currently comes from hydroelectric generation, as informed by the Generation Information Bank of ANEEL, which makes Brazil and the geographic region in which we operate subject to unpredictable hydrological conditions, due to non-cyclical deviations of mean precipitation. Unsatisfactory hydrological conditions may cause, among other things, the implementation of comprehensive programs of electricity savings, such as rationalization or even a mandatory reduction of consumption, which is the case of rationing.
Since 2014, the reservoirs of the Southeast/Midwest, North and Northeast Brazilian regions have been subject to adverse climate situations, leading agencies responsible for this industry to adopt water resources optimization measures to guarantee fully meeting electricity demand. In the first quarter of 2020, the reservoirs in the Northeast and North recovered their levels, which practically reduces the risk of rationing in these subsystems to zero. As the system is interconnected, the South and Southeast/Midwest subsystems, despite being at lower storage levels, results in having a low risk of energy shortage since they can make use of the energy stored in the other two subsystems.
The Electric Sector Monitoring Committee (CMSE) has maintained the energy deficit risk indicators within the safety margin in short-term projections. The same position is adopted by ONS regarding the risk of deficit in the medium term, as stated in the 2020-2024 Energy Operation Plan - PEN 2020.
| F-122 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Although dam storage levels are not ideal, from the standpoint of regulatory agencies, when combined with other variables, such as a slower consumption growth, they are sufficient to keep the risk of deficit within the safety margin established by the National Energy Policy Council (Conselho Nacional de Política Energética - CNPE, in Portuguese) (maximum risk of 5%) in all subsystems.
| 35.2.5 | Risk of GSF impacts |
The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia - MRE, in Portuguese) is a system of redistribution of electric power generated, characteristic of the Brazilian electric sector, which has its existence by the understanding, at the time, that there is a need for a centralized operation associated with a centrally calculated optimal price known as PLD. Since generators have no control over their production, each plant receives a certain amount of virtual energy which can be compromised through contracts. This value, which enables the registration of bilateral contracts, is known as Physical Guarantee (Garantia Física - GF, in Portuguese) and is also calculated centrally. Unlike PLD, which is calculated on a weekly basis, GF, as required by Law, is recalculated every five years, with a limit of increase or decrease, restricted to 5% by revision or 10% in the concession period.
The contracts need to have an energy physical guarantee basis. This is done, especially, through the allocation of power generated received from the MRE or purchase. The GSF is the ratio of the entire hydroelectric generation of the MRE participants to the GF sum of all the MRE plants. Basically, the GSF is used to calculate how much each plant will receive from generation to back up its GF. Thus, knowing the GSF of a given month the company will be able to know if it will need to back up its contracts through purchases.
Whenever GSF multiplied by GF is less than the sum of contracts, the company will need to buy the difference in the spot market. However, whenever GSF multiplied by GF is greater than the total contracts, the company will receive the difference to the PLD.
The low inflows that have been recorded since 2014, as well as problems with delays in the expansion of the transmission system have resulted in low GSF values, resulting in heavy losses for the companies holding MRE participating hydroelectric projects.
For plants with contracts in the Free Contracting Environment - ACL, the main way to manage the low GSF risk is not to compromise the entire GF with contracts, approach currently adopted by the Company.
For the contracts in the ACR, Law 13,203/2015 allowed the generators to contract insurance for electricity demand (load), by means of payment of a risk premium. Copel adopted this approach to protect contracts related to energy generated by the Mauá, Santa Clara, Fundão, Baixo Iguaçu and Colíder Thermoelectric Plants and Cavernoso II Small HPP.
For the distribution segment, the effects of the GSF are perceived in the costs associated with quotas of Itaipu, of Angra and the plants whose concessions were renewed in accordance with Law 12,783/2013, as well as in the costs of the contracts for power availability with thermoelectric plants. This is a financial risk, since there is guarantee of neutrality of expenses with energy purchases through a tariff transfer.
| F-123 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.2.6 | Risk of non-renewal of concessions - generation and transmission |
The extension of energy generation and transmission concessions, achieved by Law No. 9,074/1995, is regulated by Law No. 12,783/2013, which was amended by Law No. 14,052 of September 8, 2020, regarding the deadline for requesting an extension of concessions.
According to the new law, the concession operator should request extension of concession at least 36 months before the final contract date or after granting of concessions to hydroelectric power generation and electric power transmission and distribution plants, and of up to 24 months for thermoelectric plants. The Concession Grantor may advance effects of extension by up to 60 months counted as of contract or grant date and may also define initial tariff or revenue, which includes the definition of the tariff or initial revenues for the generation and transmission ventures (RAG - Annual Generation Revenue and RAP - Permitted Annual Revenue, respectively).
Concessions for hydroelectric power generation and electric power transmission may be extended, at the discretion of the granting authority, only once, for a period of up to 30 years. Thermoelectric power generation concessions have an extension term limited to 20 years.
In 2019, Decree No. 10,135/2019 was published, which regulated the granting of concession contracts in the electricity sector associated with privatization through sale of control by holder of a public service concession for electricity generation, having as one of the conditioning factors the alteration of the exploration regime to Independent Power Producer (IPP). According to the Decree, the manifestation of sale of the concession must take place within up to 42 months from the date of the related formal agreement, and any sale must take place within up to 18 months from the concession end date. If sale of control of the venture does not occur within the specified period, the plant must be subject to auction by the granting authority and the same concessionaire can participate in the auction, if it meets the qualification conditions.
Copel has 2 plants whose concession ends in the next 5 years.
For HPP Governador Bento Munhoz da Rocha Netto (HPP GBM) (1,676 MW), whose concession will end in 2023, the Company has not expressed any interest in extending the concession, as internal studies have shown that the extension through early change of the exploration regime would be economically and financially disadvantageous in relation to exploration of the plant under the current regime until concession end. On March 3, 2020, Copel GeT transferred the concession of HPP GBM to subsidiary F.D.A. Geração de Energia Elétrica S.A. with the purpose of, if the studies carried out by Copel GeT point to the advantage of the operation, divesting the control of this concessionaire and, thus, allow a new concession grant for 30 years.
With respect to HPP São Jorge, whose concession ends in 2024, Copel did not express interest in the renewal and intends, at the end of the concession, to request ANEEL to convert the granting of concession into granting of registration.
| F-124 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Regarding the Figueira HPP concession, expired in March 2019, the Company awaits the conclusion of the related ANEEL and MME procedural steps to execute any amendment to the Concession Agreement. The plant is undergoing a modernization process and will have as direct benefits the improvement in energy efficiency and the reduction of pollutant emissions in the atmosphere, in comparison with the old plant.
According to the new law, the Company may express its intention to extend the concession of the Apucaraninha HPP until October 2022, and the Guaricana and Chaminé HPPs until August, 2023. If the Company does not express an interest in the extension of the current regime at its final term, be granted to the Company in the condition of registration, and the other concessions, at their final term, must be returned to the Concession Grantor.
Copel GeT does not have any transmission concession ending in the next ten years.
| 35.2.7 | Risk on non-renewal of concessions – distributions of electricity |
The fifth amendment to Copel DIS's concession contract No. 46/1999 imposes economic and financial efficiency covenants and indicators that consider the duration and frequency of service interruptions (DECi and FECi). Failure to comply with the conditions will result in termination of the concession (clause eighteen, subclause one), with due regard for the provisions of the contract, particularly the right to full defense and adversary system.
Indicators and penalties
| Year | Indicator | Criteria | Penalties |
| Until 2020 | Economic - financial efficiency and quality | 2 consecutive years or at the | Concession termination |
| end of the 5-year period (2020) | |||
| Quality Indicators | 2 consecutive years or | Limitation of dividend and interest on equity distribution | |
| 3 times in 5 years | |||
| Economic - financial efficiency | in the base year | Capital Increase (a) | |
| Limitation of dividend and interest on equity distribution | |||
| Restrictive regime for contracts with related parties | |||
| From the 6th year of (2021) | Economic - financial efficiency | 2 consecutive years | Concession termination |
| Quality Indicators | 3 consecutive years | ||
| (a) Within 180 days from the end of each fiscal year, in the totality of the insufficiency that occurs to reach the Minimum Economic and Financial Sustainability Parameter. | |||
| F-125 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Targets defined for Copel Distribuição in the first five years after extension of the concession agreement
| Quality - limits (a) | Quality (Performed) | |||||
| Year | Economic and Financial Management | Realized | DECi (b) | FECi (b) | DECi | FECi |
| 2016 | 13.61 | 9.24 | 10.80 | 7.14 | ||
| 2017 | EBITDA ≥ 0 (c) | 661,391 | 12.54 | 8.74 | 10.41 | 6.79 |
| 2018 | EBITDA (-) QRR ≥ 0 (d) | 550,675 | 11.23 | 8.24 | 10,29 | 6,20 |
| 2019 | {Net Debt / [EBITDA (-) QRR]} ≤ 1 / (0.8 * SELIC) (e) | 822,386 | 10.12 | 7.74 | 9,10 | 6,00 |
| 2020 | {Net Debt / [EBITDA (-) QRR]} ≤ 1 / (1.11 * SELIC) (e) | 9.83 | 7.24 | 7.81 | 5.55 | |
| (a) According to Aneel’s Technical Note No. 0335/2015. | ||||||
| (b) DECi - Equivalent Time of Interruption Caused by Internal Source per Consumer Unit; and FECi - Equivalent Frequency of Interruption Caused by Internal Source per Consumer Unit. | ||||||
| (c) Regulatory EBTIDA adjusted for non-recurring events (Voluntary retirement program, post-employment benefit, provisions and reversals) according to sub-clause six, of the Fifth Amendment to the Concession Agreement. | ||||||
| (d) QRR: Regulatory Reintegration Quota or Regulatory Depreciation Expense. This is the value defined in the most recent Periodical Tariff Review (RTP), plus General Market Price Index (IGPM) variation between the month preceding the RTP and the month preceding the twelve-month period of the economic and financial sustainability measurement. | ||||||
| (e) Selic: limited to 12.87% p.y. | ||||||
| 35.2.8 | Risk of non-extension of the gas distribution concession |
In the event of termination of the concession at the end of the contractual term, Compagás will be entitled to compensation for investments made in the last 10 years prior to the end of the concession at their depreciated replacement value, according to the contractual clause.
| 35.2.9 | Risk of overcontracting and undercontracting of electricity |
Under the current regulatory model, the agreement for purchase of electric power by distributors is regulated by Law 10,484/2014 and Decree 5,163/2004, which determine that the purchase of energy must be in the volume necessary to serve 100% of the distributor's market.
The difference between the costs remunerated by the tariff and those actually incurred in the power purchases are fully passed on to captive consumers, as long as the distributor presents a contracting level between 100% and 105% of its market. However, if distributors determine contracting levels lower or higher than the regulatory limits, there is the assurance of neutrality if it is identified that such violation derives from extraordinary and unforeseen events that are not manageable by the buyer.
In the last years, the distribution segment has been exposed to a general overcontracting scenario, as most companies determined contracting levels higher than 105%. Considering that several factors that have contributed to this situation are extraordinary and unavoidable by the distributors, such as the involuntary allocation of physical guarantee quotas and the broad migration of consumers to the free market and more recently, in 2020, the effects on the market of the governmental measures of social isolation implemented in the fight against the pandemic of the coronavirus Sars-CoV-2 (Covid-19), which caused a significant retraction in the market of distribution concessionaires, ANEEL and MME implemented a series of measures aiming at the mitigation of overcontracting.
| F-126 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In relation to the contracting of, the scenarios of supply and demand indicate the occurrence of over contracting 105.8% by Copel DIS. Nevertheless, considering that this situation arises mainly from the migration of consumers to the free market and load reduction by the Covid-19 pandemic, it is considered that the Company maintains the guarantee of neutrality preserved, since this factors are subject to the recognition of involuntary over contracting.
| 35.2.10 | Gas shortage risk |
The natural gas market in Paraná is composed of Compagás consumers (non-thermal market) and the Araucária Thermoelectric Plant (UEG Araucária). This market, at the moment, is supplied by contracts with Petrobras that uses the transportation infrastructure of the Brazil-Bolivia gas pipeline (Gasbol). Compagás has a contract for the supply of natural gas from Bolivia until December 2023 and will make a new public bidding for the supply of natural gas as from January 2022. UEG Araucária, on the other hand, negotiates short-term natural gas contracts for not having electricity generated contracted in the regulated environment.
In the current situation of the natural gas sector in Brazil, the New Gas Market program is coordinated by the Ministry of Mines and Energy together with the Civil House of the Presidency of the Republic, the Ministry of Economy, the Administrative Council for Economic Defense, the National Petroleum Agency and the Energy Research Company - EPE, whose purpose is to open the natural gas market in order to make it dynamic, competitive, integrated with the electric and industrial sector, with an improved regulation.
Within the scope of the New Gas Market, the offer of natural gas already demonstrates growth and diversification, having as alternatives the import of gas from Bolivia, import of liquefied natural gas (LNG) that has a large world offer, use of natural gas from onshore basins and greater use of natural gas from the pre-salt which has large volumes to be extracted.
In relation to the transportation network, the changes in regulation to allow access to new agents, the public call of TBG (Gasbol transporter) that establishes a new capacity contracting regime in the gas pipeline and the Gas Pipeline Indicative Plan (PIG) coordinated by EPE, give a vision of better structuring of the sector and adequate planning to meet current and future demands, even though investments are needed for the latter.
A possible shortage in gas supply could result in losses to Copel due to a reduction in revenue from the natural gas distribution service provided by Compagás, as well as any penalty resulting from non-compliance with the obligations contained in the concession contract. In addition, in this scenario, UEG Araucária would probably be kept out of operation. However, this risk is considered low in view of the situation of the New Gas Market.
| F-127 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.2.11 | Risk of non-performance of windfarms |
The power generation purchase and sale contracts for wind power are subject to performance clauses, which provide for a minimum annual and four-year generation of the physical guarantee committed in the auction. Ventures are subject to climatic factors associated with wind velocity uncertainties. Non-compliance with what is stated in the agreement may jeopardize future revenues of the Company. At December 31, 2020, the consolidated balance recorded in liabilities referring to the non-performance is demonstrated in note 28.
| 35.2.12 | Risk related to price of power purchase and sale transactions |
The Company operates in the electricity purchase and sale market with the objective of achieving results with variations in the price of electricity, respecting the risk limits pre-established by Management. This activity, therefore, exposes the Company to the risk of future electricity prices.
Future electricity purchase and sale transactions are recognized at fair value through profit or loss, based on the difference between the contracted price and the market price of operations on the balance sheet date.
Based on the notional amounts of R$ 6,065,065 for purchase contracts and R$ 6,634,477 for electricity sales contracts open on December 31, 2020, the fair value was estimated using the prices defined internally by the Company in the last week of December 2020, which represented the best estimate of the future market price. The discount rate used is based on the NTN-B rate of return disclosed by ANBIMA, on December 31, 2020, adjusted for credit risk and additional project risk.
The balances referring to these outstanding transactions as of December 31, 2020 are shown below.
| Assets | Liabilities | Net | |
| Current | 51,359 | (35,298) | 16,061 |
| Noncurrent | 638,172 | (308,108) | 330,064 |
| 689,531 | (343,406) | 346,125 |
Sensitivity analysis on the power purchase and sale transactions
The Company developed a sensitivity analysis in order to measure the impact of changes in future prices. For the base scenario, the accounting balances recorded on the date of these financial statements were considered and for the probable scenario, the balances updated with the market price curve and NTN-B rate were considered. Additionally, the Company continues to monitor scenarios 1 and 2, which consider the 25% and 50% rise or fall applied to future prices considered in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| Price | Baseline | Projected scenarios | |||
| variation | 12.31.2020 | Probable | Scenario 1 | Scenario 2 | |
| Unrealized gains (losses) on purchase and sale of energy | Increase | 346,125 | 332,741 | 356,496 | 380,117 |
| Decrease | 346,125 | 332,741 | 309,255 | 285,635 | |
| F-128 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.2.13 | Counterparty risk in the energy market |
Since free energy market still does not have a counterparty acting as guarantor of all agreements (clearing house), there is a bilateral risk of default. Thus, the Company is exposed to the risk of failure in the supply of energy contracted by the seller. In the event of such failure, the Company must buy energy at the spot market price, being further subject to regulatory penalties and loss of amounts paid.
The Company follows a policy that establishes limits for possible operations with each counterparty, after analyzing its credit worthiness, maturity and history.
In addition, even if our policy is more restrictive, and the counterparties present good financial condition, the Company is exposed to systemic events in which the default of one agent ends up affecting other energy trading companies in a "domino effect" until reaching the Company's counterparties.
| 35.3 | Capital management |
The Company seeks to keep a strong capital base to maintain the trust of investors, creditors and market and ensure the future development of the business. Management also strives to maintain a balance between the highest possible returns with more adequate levels of borrowings and the advantages and the assurance afforded by a healthy capital position. Thus, it maximizes the return for all stakeholders in its operations, optimizing the balance of debts and equity.
The Company monitors capital by using an index represented by adjusted consolidated net debt divided by adjusted consolidated EBITDA (Earnings before interest, taxes, depreciation and amortization), for the last twelve months. The corporate limit established in the debt indentures provides for maintenance of ratio below 3.5 while any expectation of failing to meet this target will prompt Management to take steps to correct its course by the end of each reporting period.
As of December 31, 2020, the ratio attained is shown below:
| 12.31.2020 | 12.31.2019 | |
| Loans and financing | 3,188,531 | 3,142,383 |
| Debentures | 6,757,481 | 8,429,710 |
| (-) Cash and cash equivalents | (3,222,768) | (2,941,727) |
| (-) Bonds and securities (current) | (1,465) | (3,112) |
| (-) Bonds and securities (noncurrent) - debt contract guarantees | (175,901) | (121,617) |
| (-) Collaterals and escrow accounts STN | (133,521) | (98,433) |
| Adjusted net debt | 6,412,357 | 8,407,204 |
| Net income | 3,834,172 | 2,062,869 |
| Equity in earnings of investees | (193,547) | (106,757) |
| Deferred IRPJ and CSLL | 24,896 | 205,771 |
| Provision for IRPJ and CSLL | 1,260,469 | 433,555 |
| Financial expenses (income), net | (866,271) | 488,486 |
| Depreciation and amortization | 1,009,913 | 1,093,836 |
| Adjusted ebitda | 5,069,632 | 4,177,760 |
| Adjusted net debt/Adjusted ebitda | 1.26 | 2.01 |
| F-129 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.3.1 | The debt to equity ratio is shown below: |
| Indebtedness | 12.31.2020 | 12.31.2019 |
| Loans and financing | 3,214,249 | 3,168,710 |
| Debentures | 6,837,819 | 8,540,366 |
| (-) Cash and cash equivalents | 3,222,768 | 2,941,727 |
| (-) Bonds and securities | 300,530 | 282,081 |
| Net debt | 6,528,770 | 8,485,268 |
| Equity | 20,250,518 | 17,598,212 |
| Debit to equity ratio | 0.32 | 0.48 |
| F-130 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 36 | Related Party Transactions |
| Assets | Liabilities | Revenue | Cost / Expense | |||||||
| Related parties / Nature of operation | 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 | 12.31.2020 | 12.31.2019 | 12.31.2018 | 12.31.2020 | 12.31.2019 | 12.31.2018 |
| Controlling shareholder | ||||||||||
| State of Paraná - dividends payable | - | - | 749,338 | 190,664 | - | - | - | - | - | - |
| CRC Transfer (Note 8) | 1,392,624 | 1,350,685 | - | - | 341,964 | 184,229 | 188,797 | - | - | - |
| Luz Fraterna Program (a) | 6,682 | 7,478 | - | - | - | - | - | - | - | - |
| Tarifa Rural Noturna Program (a) | 8,168 | 7,639 | - | - | - | - | - | - | - | - |
| Morar Bem Paraná Program (a) | 1,057 | - | - | - | - | - | - | - | - | - |
| Employees transferred (b) | 87 | 33 | - | - | - | - | - | - | - | - |
| Telecommunication services (c) | 13,686 | 16,278 | - | - | 43,248 | 43,011 | 41,375 | - | - | - |
| Meteorological System of Paraná - Simepar (c) (d) | 2 | 10 | 855 | 705 | 48 | 58 | 54 | (8,573) | (7,087) | (1,559) |
| Entities with significant influence | ||||||||||
| BNDES and BNDESPAR - dividends payable (e) | - | - | 568,315 | 130,204 | - | - | - | - | - | - |
| Financing (Note 21) | - | - | 2,314,166 | 2,231,409 | - | - | - | (151,850) | (175,461) | (131,379) |
| Debentures - Compagás (Note 22) | - | - | 5,890 | 11,783 | - | - | - | (1,681) | (1,194) | (2,625) |
| Debentures - wind farms (Note 22) (f) | - | - | 239,249 | 253,877 | - | - | - | (25,891) | (28,240) | (30,316) |
| State of Paraná investee | ||||||||||
| Sanepar (c) (g) | 223 | 294 | 582 | 311 | 4,956 | 4,710 | 4,200 | (6,598) | (5,852) | (5,227) |
| Use of water withdrawn from plants’ reservoirs | - | - | - | - | 620 | 480 | - | - | - | - |
| Joint ventures | ||||||||||
| Voltalia São Miguel do Gostoso -mutual | - | - | - | - | - | - | 294 | - | - | - |
| Dividends | 1,032 | 1,032 | - | - | - | - | - | - | - | - |
| Caiuá Transmissora de Energia(c) (h) (i) (j) | 261 | 256 | 1,401 | 1,512 | 3,114 | 2,792 | 4,250 | (16,267) | (14,233) | (14,869) |
| Dividends | 4,443 | 4,443 | - | - | - | - | - | - | - | - |
| Integração Maranhense Transmissora (i) (j) | - | - | 160 | 161 | - | - | - | (2,029) | (1,938) | (1,797) |
| Dividends | 3,806 | 4,306 | - | - | - | - | - | - | - | - |
| Matrinchã Transmissora de Energia (i) (j) | - | - | 959 | 829 | - | - | - | (11,259) | (10,137) | (9,514) |
| Dividends | 34,460 | 31,793 | - | - | - | - | - | - | - | - |
| Guaraciaba Transmissora de Energia (i) (j) | - | - | 436 | 383 | - | - | - | (5,348) | (4,853) | (4,475) |
| Dividends | 16,281 | 14,846 | - | - | - | - | - | - | - | - |
| Paranaíba Transmissora de Energia (i) (j) | - | - | 649 | 638 | - | - | - | (8,141) | (6,514) | (6,595) |
| Dividends | - | 5,962 | - | - | - | - | - | - | - | - |
| Cantareira Transmissora de Energia (i) (j) | - | - | 468 | 467 | - | - | - | (5,912) | (5,403) | (1,618) |
| Dividends | 6,547 | 7,286 | - | - | - | - | - | - | - | - |
| Mata de Santa Genebra Transmissão (i) (j) (k) | 4,034 | 2,035 | 990 | 10 | 17,636 | 16,449 | 6,600 | (7,636) | (340) | - |
| Associates | ||||||||||
| Dona Francisca Energética S.A. (l) | 13 | 40 | 1,436 | 1,436 | 162 | 145 | - | (17,078) | (16,905) | (16,903) |
| Dividends | 97 | - | - | - | - | - | - | - | - | - |
| Foz do Chopim Energética Ltda. (c) (m) | 216 | 209 | - | - | 2,675 | 2,538 | 2,668 | - | - | - |
| Sercomtel S.A. Telecomunicações(n) | - | 4,436 | - | - | 8,299 | 8,354 | 8,051 | (4) | (21) | (4) |
| Key management staff | ||||||||||
| Fees and social security charges (Note 32.2) | - | - | - | - | - | - | - | (21,935) | (25,860) | (27,368) |
| Pension and healthcare plans (Note 23.3) | - | - | - | - | - | - | - | (1,116) | (1,560) | (1,725) |
| Other related parties | ||||||||||
| Fundação Copel(c) | 40 | 9 | - | - | 315 | 285 | 299 | - | - | - |
| Administrative property rental | - | - | 1,836 | 14,662 | - | - | - | (1,285) | (2,520) | (15,396) |
| Pension and healthcare plans (Note 23.3) | - | - | 1,493,614 | 1,194,936 | - | - | - | - | - | - |
| Lactec (c) (o) | 5 | 4 | 2,747 | 1,507 | 771 | 746 | - | (2,702) | (2,787) | (4,026) |
| Tecpar (c) (p) | 11 | 9 | - | - | 862 | 81 | 68 | - | - | - |
| Celepar (c) (q) | 4 | 15 | 2 | 21 | 51 | 112 | 85 | (50) | (5) | - |
| a) | The Luz Fraterna Program created under Law 491/2013 and 17,639/2013 establishes the payment of electricity consumption to benefit low-income families, residing in the State of Paraná, whose properties - consumer units - are used exclusively for residential purposes, whether in urban or rural areas, and fulfill the requirements established in articles 3 and 4 of this law. |
In March 2018, the amount of R$ 159,274 was settled. The principal interest, fine and monetary restatement totaled R$ 158,849. For these charges on electricity bills for the period of September 2010 to June 2015, a lawsuit was filed against the State of Paraná on November 5, 2018, relating to the payment of invoices pursuant to State Law 14,087/2003. We highlight that despite the negotiations maintained by Management, seeking to settle this debt, uncertainties still exist regarding the realization
| F-131 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
of this asset and therefore, this asset was not recognized, therefore, in accordance with the current accounting standards. For the tax treatment, as determined by the Federal Revenue of Brazil in the Normative Instruction 1,753/2017, the Company has taxed this revenue.
Management further emphasizes that it is making all necessary efforts and taking all necessary measures to preserve the Company's interests.
The Tarifa Rural Noturna Program of the Paraná State Government is regulated by Decree 1,288, of April 30, 2019. This program provides for the payment by the State Government, to Copel Distribuição, of the amount corresponding to 60% of the active electricity tariff and of the charges resulting from this service, including an additional tariff flag, owned by the beneficiary consumers, included in the denominated night period consumption.
The Morar Bem Paraná Program was established by Decree 2,845/2011, and is an agreement between the State Government, the Companhia de Habitação do Paraná - Cohapar and Copel, which is managed by Cohapar. Copel's main assignment in this agreement is the construction of electricity distribution networks and service entrances for consumer units of housing estates.
| b) | Reimbursement of wages and social charges for employees transferred to the Paraná State Government. Balances presented are net of expected credit loss. |
| c) | Revenue of Copel TEL from telecommunications services and lease of equipment and infrastructure. The balances presented are net of expected credit losses. |
| d) | The Sistema Meteorológico do Paraná - Simepar is a supplementary unit of the Independent Social Service Paraná Technology, linked to the State Department of Science, Technology and Higher Education. Simepar has contracts with Copel for services of weather forecast, meteorological reports, ampacity analysis, mapping and analyses of winds and atmospheric discharges. |
| e) | BNDES is the parent company of BNDES Participações S.A. - BNDESPAR, which owns Copel shares (Note 30.1). On December 22, 2018, the shareholder agreement between the State of Paraná and BNDESPAR, signed on December 22, 1998, was ended. |
| f) | BNDES and BNDESPAR acquired all the debentures issued by the subsidiaries Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus IV and Ventos de Santo Uriel. |
| g) | Basic sanitation provided by Sanepar. |
| h) | Operation and maintenance services agreement provided by Copel GeT, maturing on May 9, 2021. Transmission System Connection Agreement - CCT executed by Copel DIS, expiring by the end of the concession agreement of the distribution or transmission company, whichever takes place first. |
| i) | Charges for use of the transmission system due by Copel GeT, UEG Araucária and wind farms. |
| F-132 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| j) | Copel DIS maintains a Contract for the Use of Transmission System (Cust) with ONS and power transmission concession operators whose subject matter is the contracting of Transmission System Use Amount (Must). Contracting is permanent and is regulated by ANEEL Normative Resolution 666/2015. Amounts are defined for four subsequent years, with annual reviews. |
| k) | Agreements entered by Copel GeT: for operation and maintenance services, maturing on February 1, 2023, rendering of owner's engineering services, advisory and consulting services, expired on November 2020, and facility sharing, maturing on January 1, 2043. |
| l) | Connection to the transmission system contracts entered by Copel GeT, Costa Oeste and Marumbi, maturing on August 17, 2031 until July 21, 2048. Power purchase and sale agreement made by Copel GeT, maturing on March 31, 2025. |
| m) | Contracts entered into by Copel GeT: for operation and maintenance, maturing on May 23, 2025, and connection to the transmission system, maturing on January 1, 2043. |
| n) | The balances include the amount of income and expense for telecommunications services, resulting from contracts between Sercomtel S.A. Telecomunicações and Copel TEL, as well as revenue from a pole-sharing contract between Sercomtel S.A. Telecomunicações and Copel DIS. In December 2020, Sercomtel was sold, as detailed in Note 1.1.3, and, since then, it is no longer a related party to the Company. |
| o) | The Institute of Technology for Development (Lactec) is a Public Interest Civil Society Organization (OSCIP), in which Copel is an associate. Lactec has service and R&D contracts with Copel GeT, UEGA and Copel DIS, which are subject to prior or later control and approval by ANEEL. Copel COM provides services and sells energy to the institute. |
| p) | Energy sale agreement signed between Copel COM and the Paraná Institute of Technology (Tecpar), a public company of the State Government that supports innovation and economic and social development in Paraná and Brazil. |
| q) | Service agreements entered into with the Paraná Information Technology Company (Celepar), a mixed capital company that is part of the indirect administration of the State Government. |
The relevant transactions with related parties are shown above. Transactions arising from operations in a regulated environment are billed according to the criteria and definitions established by the regulatory agents and other transactions are recorded according to the market prices practiced by the Company.
Copel's direct and indirect subsidiaries have short and long-term energy purchase and sale agreements entered into with each other, carried out in accordance with the criteria and definitions of the regulated environment. Both the balances of the transactions existing on December 31, 2020 and the balances of the commitments are eliminated between themselves when preparing the consolidated Financial Statements of the Company.
Additionally, Copel COM has energy sale contracts signed with the State Legislature of the State of Paraná, Tecpar and Lactec, which total R$ 9,232 in sales commitments.
| F-133 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 36.1 | Guarantees awarded to related parties |
Sureties and guarantees granted by Copel to its subsidiaries for financing and debentures are informed in Notes 21 and 22.
Copel provided financial guarantees, in the form of corporate guarantee letter, for power purchase and transport agreements made by Copel GeT and its subsidiaries, in the total amount of R$ 4,307 (R$ 4,005 at December 31, 2019) and made by Copel Mercado Livre, in the amount of R$ 112,069 (R$ 21,846 at December 31, 2019).
Sureties and guarantees granted by Copel and Copel GeT for financing, debentures and insurance contracts of joint ventures are shown below:
| Date | Final | Amount | Balance | Interest | Amount | |||
| Company | Operation | issued | maturity | approved | 12.31.2020 | % | guarantees | |
| (1) | Caiuá Transmissora (a) | Financing | 12.23.2013 | 02.15.2029 | 84,600 | 50,256 | 49.0 | 5,956 |
| (2) | Guaraciaba Transmissora | Financing | 09.28.2016 | 01.15.2031 | 440,000 | 351,596 | 49.0 | 172,282 |
| (3) | Guaraciaba Transmissora | Debentures | 07.15.2018 | 12.15.2030 | 118,000 | 123,946 | 49.0 | 60,734 |
| (4) | Mata de Santa Genebra | Financing | 11.30.2017 | 07.15.2033 | 1,018,500 | 1,112,282 | 50.1 | 557,253 |
| (5) | Mata de Santa Genebra | Debentures | 04.15.2019 | 11.15.2030 | 210,000 | 208,014 | 50.1 | 104,215 |
| (6) | Cantareira Transmissora de Energia (a) | Financing | 12.28.2016 | 09.15.2032 | 426,834 | 431,366 | 49.0 | 28,175 |
| (7) | Cantareira Transmissora de Energia | Debentures | 01.09.2018 | 08.15.2032 | 100,000 | 99,732 | 49.0 | 48,869 |
| 977,484 | ||||||||
| (a) Guarantee awarded of fixed amount pursuant to the contractual provisions and formal requirements of the financial institution | ||||||||
| Financial institution (fund provider): BNDES: (1) (2) (4) (6) | ||||||||
| Allocation: Investment program | ||||||||
| Guarantees: provided by Copel GeT: (1); provided by Copel: (2) (3) (4) (5) (6) (7). | ||||||||
| Operation guarantee: pledge of shares held by Copel Get in the ventures. | ||||||||
| Performance bond | Final | Amount | % endorsement | Amount |
| Company | maturity | Insured | Copel GeT | endorsement |
| Matrinchã Transmissora | 02.15.2029 | 90,000 | 49.0 | 44,100 |
| Mata de Santa Genebra | 02.28.2022 | 78,300 | 50.1 | 39,228 |
| 83,328 |
| 37 | Commitments |
The main commitments related to long-term contracts not yet incurred, and therefore not recognized in the financial statements, are as follows:
| F-134 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2020 | 12.31.2019 | |
| Energy purchase and transportation contracts | 132,879,053 | 137,279,155 |
| Additions to property, plant and equipment | ||
| Construction of transmission lines and substations | 12,062 | 115,732 |
| Construction of Jandaíra wind farm complex | 330,257 | - |
| Construction of SHP Bela Vista | 23,717 | 111,481 |
| Telecommunications works | 132,430 | 90,769 |
| Acquisition of assets for electricity distribution | 978,189 | 428,441 |
| Gas purchase contracts | 655,422 | 859,211 |
| 38 | Insurance |
Details by peril type and effective date of the main insurance policies can be seen below:
| End | Insured | |
| Policy | of term | amount |
| Operational risks - HPP Baixo Iguaçu | 05.30.2021 | 2,250,207 |
| Operational risks - HPP Colíder | 11.10.2021 | 2,166,984 |
| Operational risks - Cutia and Bento Miguel | 03.29.2022 | 2,016,287 |
| Nominated Risks | 08.24.2021 | 2,005,408 |
| Operational risks - Brisa Potiguar | 06.27.2021 | 914,610 |
| Operational risks - UEG Araucária (a) | 05.31.2021 | 882,035 |
| Fire - owned and rented facilities | 08.24.2021 | 800,636 |
| Operational risks - HPP Governador Jayme Canet Junior | 11.23.2021 | 799,290 |
| Operational risks - Elejor | 03.11.2022 | 763,007 |
| Operational risks - São Bento | 06.27.2021 | 571,848 |
| (a)The values of the insured of operating risks - UEG Araucária have been translated from USD into BRL, with the current rate R$5.1967 as of December 31, 2020. | ||
In addition to the insurance policies listed above, the Company take out other insurance policies with lower values, such as: Directors and Officers liability (D&O), general civil liability, court award payment guarantee, sundry perils, national and international transportation, life, aircraft and vehicles.
The guarantee insurance taken out by the subsidiaries, joint ventures and associates have Copel and/or Copel GeT as guarantor, within the limits of their share of interest in each project.
| 39 | Additional information to the Statement of Cash Flows |
| 39.1 | Transactions not involving cash |
Among the transactions carried out in the line item Contract assets, specified in Notes 11.1 and 11.2, the acquisitions totaled R$ 1,406,454 (1,039,234 on December 31, 2019 and R$ 813,450 on December 31, 2018). Of this amount, R$ 104,834 (R$ 48,068 on December 31, 2019 and R$ 50,927 on December 31, 2018) represent the amount of purchases made in installments and not settled through the end of the reporting period.
| F-135 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
According to information in Note 17.2, Property, plant and equipment acquisitions totaled R$ 273,823 (R$ 551,162 on December 31, 2019 and R$ 1,455,318 on December 31, 2018). Of this amount, R$ 21,773 (R$ 52,446 on December 31, 2019 and R$ 71,454 on December 31, 2018) represent the amount of purchases made in installments and not settled through the end of the reporting period.
As described in note 27.1, the additions and remeasurement adjustment occurred in right-of-use assets totaled R$ 104,977 (R$ 13,237 on December 31, 2019), which were recognized matched against lease liabilities.
In December 2018, there was acquisition in installments of the studies and projects denominated PCH Bela Vista and UHE Salto Grande, for the amount of R$ 19,461, with the company Foz do Chopim Energética Ltda., such liability being recorded in accounts payable to suppliers. In 2019, this acquisition was settled through a matching of accounts with the dividend’s receivable from that supplier, which is part of the Company's consolidated investments as associate.
The mentioned transactions did not involve cash and, for this reason, are not being presented in the statement of cash flows.
| 40 | Assets held for sale and discontinued operations |
On July 15, 2020, through Relevant Event 07/2020, Copel communicated the approval of the divestment of 100% of the interest in Copel Telecomunicações by the Board of Directors. On this occasion, the beginning of the external phase was also approved, which included: (i) the opening of a Virtual Data-Room (“VDR”) with detailed information on the divestment; (ii) sending Paraná State Court of Auditors - TCE-PR the complete file for analysis; and (iii) the scheduling and holding of a virtual public hearing on the divestment, to be operated jointly with B3 SA - Brasil, Bolsa, Balcão.
On September 16, 2020, Relevant Event 10/2020 announced that the Company's Board of Directors authorized the publication of the Copel Telecomunicações Divestment Auction Notice with the minimum divestment price of R$ 1,401,090 for Equity Value. On this date, Management understood that the criteria determined by IFRS 5 were met to classify the asset as held for sale and for the disclosure of a discontinued operation.
On November 9, 2020, there was a public auction session related to the sale of 100% of the shares issued by Copel Telecomunicações owned by the Company. The Bordeaux Investment Fund in Multi-Strategic Participations was declared the winner of the event, after presenting the highest offer, in the amount of R$ 2,395,000, representing a goodwill of 70.94% in relation to the minimum bid amount.
On January 14, 2021, the Share Purchase and Sale Agreement (CCVA) was signed with Bordeaux Participações S.A., a company belonging to Bordeaux Fundo de Investimento em Participações Multiestratégia, the winner of the auction. As disclosed in Material Fact 02/21, the conclusion of the disposal transaction is subject to compliance with the conditions defined in the Bid Notice and in the CCVA, which include, among others, the approvals of the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica - CADE) and the National Telecommunications Agency (Agência Nacional de Telecomunicações - Anatel), these processes are in progress.
| F-136 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
We highlight that during the studies for the sale of Copel Telecomunicações some assets were considered strategic for Copel Distribuição, Copel Geração e Transmissão, wholly owned subsidiaries of Copel, and some other administrative assets that will be maintained within Copel itself or other subsidiaries. In addition, in the divestment process, Management defined that all employees registered with Copel Telecom will be reallocated to other Copel subsidiaries. In view of these definitions, both the balances of assets that will be maintained in the Company and the total obligations with employees and managers, including post-employment benefit obligations and associated deferred taxes, were not reclassified to the asset accounts and associated liabilities were classified as held for sale.
The balances of other assets and liabilities that were reclassified, which are presented in a specific line in the balance sheet are presented below. In compliance with the accounting standard, balances are measured at book values, since they are less than fair values fewer selling expenses.
| Assets classified as held for sale | |
| Cash and cash equivalents | 277,119 |
| Trade accounts receivable | 60,543 |
| Inventories | 6,741 |
| Current recoverable taxes and Deferred taxes | 124,262 |
| Escrow accounts | 16,086 |
| Property, plant and equipment | 716,924 |
| Intangible assets | 10,587 |
| Right-of-use asset | 11,247 |
| Other receivables | 7,037 |
| 1,230,546 | |
| Liabilities associated with assets classified as held for sale | |
| Accounts payable to suppliers | 16,916 |
| Taxes due | 35,426 |
| Debentures | 657,590 |
| Lease liability | 11,740 |
| Provisions for legal claims | 33,147 |
| Other accounts payable | 1,586 |
| 756,405 |
Reclassified assets and liabilities are part of the telecommunications segment which, with the divestment of Copel Telecomunicações, will be discontinued at Copel .
In addition, the total of R$ 74,437 related to Copel Telecomunicações contingent liabilities (not recorded in the balance sheet) was disregarded in Note 29.2.
Therefore, the revenues, costs and expenses as well as the cash flow movement resulting from these reclassified assets and liabilities were presented in separate lines, as a discontinued operation, both in the Income Statement and in the Cash Flow Statement.
It should also be noted that as of October 1, 2020, the depreciation and amortization of assets that will be sold ceased, after their reclassification to current assets, in the line item Assets held for sale, in compliance with what determines item 25 of IFRS 5.
| F-137 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The amounts from discontinued operations are presented in the following tables:
| Statements of Income from discontinued operations | 12.31.2020 | 12.31.2019 | 12.31.2018 |
| Net Operating Revenue | 355,843 | 375,028 | 384,316 |
| Operating Costs | (100,684) | (296,028) | (128,780) |
| Gross Profit | 255,159 | 79,000 | 255,536 |
| Selling expenses | (31,244) | (31,286) | (43,295) |
| General and administrative expenses | (21,333) | (23,010) | (16,691) |
| Other operational income (expenses) | (50,518) | (136,310) | (52,686) |
| (103,095) | (190,606) | (112,672) | |
| Profit (Loss) before financial results and taxes | 152,064 | (111,606) | 142,864 |
| Financial results | (33,378) | (33,122) | (24,905) |
| Operating Profit (Loss) | 118,686 | (144,728) | 117,959 |
| Income tax and social contribution | (43,108) | 36,335 | (40,826) |
| Net income (Loss) | 75,578 | (108,393) | 77,133 |
| Statements of Cash Flows from discontinued operations | 12.31.2020 | 12.31.2019 | 12.31.2018 |
| Net income | 75,578 | (108,393) | 77,133 |
| Adjustments to reconcile net income | 282,914 | 419,093 | 209,218 |
| Changes in assets and liabilities | (16,958) | (38,821) | (11,478) |
| Taxes and charges paid | (73,050) | (51,464) | (83,488) |
| Cash flows from operational activities | 268,484 | 220,415 | 191,385 |
| Additions to property, plant and equipment and intangible assets | (73,573) | (175,569) | (280,542) |
| Cash flows from investment activities | (73,573) | (175,569) | (280,542) |
| Issue of Debentures | - | 210,000 | - |
| Payment of loans and financing and lease | (20,038) | (9,260) | (5,804) |
| Cash flows from financing activities | (20,038) | 200,740 | (5,804) |
| Changes in cash and cash equivalents | 174,873 | 245,586 | (94,961) |
| 41 | Subsequent events |
| 41.1 | Lease agreement with Fundação Copel de Previdência e Assistência Social |
On February 22, 2021, Fundação Copel de Previdência e Assistência Social and Copel signed a new lease agreement, by Copel, for the property located at Rua José Izidoro Biazetto, 158, for a period of 20 years. The objective of the agreement is to lease the property and make investment in improvements to adapt it to the new needs of the Company. The initial value of the agreement is R$ 9,540 per year and the total estimated value for the term of the agreement is R$ 224,513. The agreement will be of corporate nature and its costs apportioned between the following companies: Companhia Paranaense de Energia - Copel, Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Telecomunicações S.A, Copel Comercialização S.A., and Copel Serviços S.A. The validity and effectiveness of the contract, for all legal effects, will be subject to prior approval of Aneel, under the terms of Normative Resolution 699/2016.
| F-138 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 41.2 | Cyber attack |
In January 2021, Copel became aware that it was exposed to a cyber incident in its information technology (“IT”) environment that interrupted some systems and partially affected the Company's administrative operations. Copel involved leading experts, including external experts, in cybersecurity and general IT controls, launched a comprehensive containment and remediation effort, informed the competent authorities and initiated a forensic investigation. In the first weeks of February 2021, Copel had reestablished all of its administrative systems and resumed operations in all of its businesses.
The cyber incident did not have a significant impact on the revenue performance of the Company's business for the year ended December 31, 2020, despite having resulted in a slight delay in billings in the first days of February 2021 resulting from the preventive measures to identify the scope of the incident. The incremental expense incurred as a result of the cyber incident was not material, and no provision was identified to be recognized at December 31, 2020.
On February 1, 2021, understanding better the event that occurred, Copel issued Notice to the Market 07/21 informing that part of its systems were temporarily unavailable, except for the operating systems, which provide energy supply and telecommunication services, which continued to operate without interruption.
Copel performed extensive procedures to validate the accuracy and integrity of the information and no access to the computing environment that concentrates the Company's ERP and billing systems, as well as folders and/or files with the presence of sensitive personal data, was identified, so there is no indication that the accuracy and completeness of the financial information has been affected as a result of the incident.
| 41.3 | Additional proposed dividend from non-capitalized revenue reserve |
On March 11, 2021, the General Meeting approved the revision of the Company's Articles of Incorporation, which includes, among other changes, the possibility for the Board of Directors to decide on the distribution of interim dividends, interim dividends or interest on capital based on retained earnings, in the revenue reserves and in the profit for the current year, recorded in the semi-annual or quarterly interim financial statements, provided that in conformity with the dividend policy and without prejudice to the subsequent ratification of the General Meeting.
On March 17, 2021, the Board of Directors approved the management's proposal for the payment of interim dividends based on the profit retention reserve, as pointed out in Note 30.4.1.
| 41.4 | Amendment to the Articles of Incorporation |
On March 11, 2021, the General Meeting approved the amendment to the Company's Articles of Incorporation, as per Notice to the Market 08/21. In addition to the change already mentioned in Note 41.3 above, the amendment also included other changes that represent advances in corporate governance and, among them, the approval of the Company's Units program, which includes the share split described in Note 30.1.
| F-139 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 42 | Condensed individual financial information of Companhia Paranaense de Energia - Copel |
In order to attend Rule 12-04 of Regulation S-X of the Securities and Exchange Commission (the “SEC”), Management has incorporated the condensed individual financial information of Companhia Paranaense de Energia - Copel in these financial statements, as part of the Form 20-F. These information were prepared considering the same accounting policies as described in Note 3 and 4 to Company’s consolidated financial statements .
(a) Condensed statements of financial position as of December 31, 2020 and 2019
| ASSETS | 12.31.2020 | 12.31.2019 |
| Current assets | ||
| Cash and cash equivalents | 42,700 | 25,304 |
| Bonds and securities | 90 | 90 |
| Dividends receivables | 1,290,114 | 760,719 |
| CRC transferred to the State Government of Paraná | 287,789 | 219,236 |
| Other current receivables | 1,025 | 1,068 |
| Income tax and social contribution | 12,171 | 5,876 |
| Prepaid expenses | 150 | 95 |
| Receivable from related parties | 40,298 | 6,039 |
| 1,674,337 | 1,018,427 | |
| Assets classified as held for sale | 758,742 | - |
| 2,433,079 | 1,018,427 | |
| Noncurrent assets | ||
| Other temporary investments | 22,385 | 27,734 |
| CRC transferred to the State Government of Paraná | 1,104,835 | 1,131,449 |
| Judicial deposits | 125,738 | 124,219 |
| Other current receivables | 7,443 | 7,444 |
| Income Tax and Social Contribution | 117,682 | 123,951 |
| Deferred tax assets | 282,132 | 154,364 |
| Other noncurrent recoverable taxes | 88,331 | 87,597 |
| Receivables from related parties | 140,337 | 108,983 |
| 1,888,883 | 1,765,741 | |
| Investments | 18,807,102 | 17,286,220 |
| Property, Plant and Equipment, net | 2,725 | 1,143 |
| Intangible Assets | 2,041 | 1,321 |
| Right-of-use asset | 962 | 271 |
| 20,701,713 | 19,054,696 | |
| Total assets | 23,134,792 | 20,073,123 |
| F-140 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| LIABILITIES | 12.31.2020 | 12.31.2019 |
| Current liabilities | ||
| Payroll, social charges and accruals | 16,759 | 8,437 |
| Related parties | 283,650 | 696 |
| Suppliers | 3,184 | 3,956 |
| Income tax and social contribution | - | 1,811 |
| Other taxes payable | 952 | 120 |
| Loans and financing | 512,086 | 39,628 |
| Debentures | 301,972 | 315,008 |
| Dividends payable | 944,274 | 588,563 |
| Post employment benefits | 226 | 378 |
| Lease liability | 279 | 158 |
| Other accounts payable | 567 | 116 |
| 2,063,949 | 958,871 | |
| Noncurrent liabilities | ||
| Related parties | 5,851 | 145 |
| Other taxes due | 2,978 | 2,817 |
| Loans and financing | 266,682 | 746,075 |
| Debentures | 499,317 | 797,713 |
| Post employment benefits | 9,929 | 8,658 |
| Lease liability | 707 | 125 |
| Other accounts payable | 1,936 | 1,434 |
| Provisions for legal claims | 324,332 | 304,871 |
| 1,111,732 | 1,861,838 | |
| Equity | ||
| Share capital | 10,800,000 | 10,800,000 |
| Equity valuation adjustments | 353,349 | 591,927 |
| Legal reserves | 1,209,458 | 1,014,248 |
| Retained earnings | 6,088,855 | 4,846,239 |
| Additional dividend from non-capitalized earnings reserve | 1,507,449 | - |
| 19,959,111 | 17,252,414 | |
| Total liabilities and equity | 23,134,792 | 20,073,123 |
| F-141 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(b) Condensed statements of income for the years ended December 31, 2020, 2019 and 2018
| Restated | Restated | ||
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Operating revenues (expenses) | |||
| General and administrative expenses | (79,762) | (59,907) | (67,292) |
| Other revenues (expenses), net | (24,423) | 1,244 | 11,696 |
| Result of equity in investees | 3,551,254 | 2,177,629 | 1,258,213 |
| 3,447,069 | 2,118,966 | 1,202,617 | |
| Operating income before financial results | 3,447,069 | 2,118,966 | 1,202,617 |
| Financial income (expenses) | |||
| Financial revenues | 335,485 | 209,679 | 301,729 |
| Financial expenses | (86,076) | (235,033) | (238,355) |
| 249,409 | (25,354) | 63,374 | |
| Operating income | 3,696,478 | 2,093,612 | 1,265,991 |
| Income tax and social contribution | |||
| Income tax and social contribution | - | (21,195) | (2,083) |
| Deferred income tax and social contribution | 127,503 | 5,850 | 44,993 |
| 127,503 | (15,345) | 42,910 | |
| Net income from continuing operations | 3,823,981 | 2,078,267 | 1,308,901 |
| Discontinued operations | |||
| Net income (loss) from discontinued operations | 80,221 | (88,321) | 98,162 |
| Net income | 3,904,202 | 1,989,946 | 1,407,063 |
Basic and diluted net earning per share attributed to controlling shareholders - continuing operations - expressed in Brazilian Reais |
|||
| Common shares | 1.33430 | 0.72523 | 0.45683 |
| Class A preferred shares | 1.76982 | 0.89086 | 0.50251 |
| Class B preferred shares | 1.46773 | 0.79778 | 0.50251 |
Basic and diluted net earning per share attributed to controlling shareholders - expressed in Brazilian Reais |
|||
| Common shares | 1.36229 | 0.69440 | 0.49109 |
| Class A preferred shares | 1.80062 | 0.85790 | 0.54020 |
| Class B preferred shares | 1.49852 | 0.76388 | 0.54020 |
As described in Note 30.1, on March 11, 2021, the General Meeting approved the share split of the Company, in the proportion of one share for ten shares, so that, for every one share issued by the Company, nine new shares of the same class and type will be credited. The values of basic and diluted net profit per share in the table above already consider the new number of shares, after the split.
| F-142 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(c) Condensed statement of comprehensive income for the years ended December 31, 2020, 2019 e 2018
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| NET INCOME | 3,904,202 | 1,989,946 | 1,407,063 |
| Other comprehensive income | |||
| Items that will never be reclassified to profit or loss | |||
| Gain (losses) on actuarial liabilities | |||
| Post employment benefits | (779) | (3,371) | (408) |
| Post employment benefits - equity | (178,434) | (120,358) | (38,245) |
| Taxes on other comprehensive income | 265 | 1,146 | 139 |
| Items that are or maybe reclassified to profit or loss | |||
| Subsidiary loss with interest variation | - | (4,874) | - |
| Total comprehensive income, net of taxes | (178,948) | (127,457) | (38,514) |
| TOTAL COMPREHENSIVE INCOME | 3,725,254 | 1,862,489 | 1,368,549 |
| F-143 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(d) Condensed statements of cash flows for the years ended December 31, 2020, 2019 and 2018
| 12.31.2020 | 12.31.2019 | 12.31.2018 | |
| Net cash generated from operating activities | 761,050 | 688,443 | 653,230 |
| Cash flow from investing activities | |||
| Financial investments | 5,349 | 115,376 | (124,254) |
| Loans and financing granted to related parties | (40,000) | (24,410) | (192,445) |
| Receipt of loans and financing granted to related parties | 7,015 | 24,512 | 560,877 |
| Additions in investments | (68,127) | (271,968) | (608,934) |
| Capital reduction of investees. | 228 | - | 45,000 |
| Additions to property, plant and equipment | (1,800) | (285) | (267) |
| Additions to intangible | (1,045) | (271) | (3) |
| Net cash used in investing activities | (98,380) | (157,046) | (320,026) |
| Cash flow from financing activities | |||
| Issue of Debentures | - | 500,000 | 600,000 |
| Issue of loans with related parties | 280,000 | 48,000 | - |
| Amortization of principal - loans and financing | (38,500) | (115,500) | (77,000) |
| Amortization of principal - debentures | (300,000) | (853,400) | (333,300) |
| Amortization of loans obtained from related parties | - | (48,000) | - |
| Amortization of principal - Lease liabilities | (329) | (141) | - |
| Dividends and interest on capital paid | (586,445) | (352,055) | (264,734) |
| Net cash used in financing activities | (645,274) | (821,096) | (75,034) |
| Total effects on cash and cash equivalents | 17,396 | (289,699) | 258,170 |
| Cash and cash equivalents at the beginning of the period | 25,304 | 315,003 | 56,833 |
| Cash and cash equivalents at the end of the period | 42,700 | 25,304 | 315,003 |
| Change in cash and cash equivalents | 17,396 | (289,699) | 258,170 |
During the years ended December 31, 2020, 2019 and 2018, we received R$710,798 (of which R$661,639 by consolidated subsidiaries and R$49,159 of unconsolidated investees), R$777,651 (of which R$650.830 by consolidated subsidiaries and R$126,821 of unconsolidated investees), and R$609,219 (of which R$588,540 by consolidated subsidiaries and R$20,679 of unconsolidated investees), respectively, from dividends and interest on own capital paid by our investees.
Additional individual information related to Companhia Paranaense de Energia - Copel are presented above :
· Related Parties: Copel has the following balances outstanding with related parties:
| 12.31.2020 | 12.31.2019 | |
| Assets | ||
| Copel Distribuição (a) | 140,337 | 108,983 |
| UEG Araucária - mutual | 33,572 | - |
| Investees and Subsidiaries - Structure sharing | 6,726 | 6,039 |
| 180,635 | 115,022 | |
| Liabilities | ||
| Copel CTE - mutual | 282,817 | - |
| Investees and Subsidiaries - Structure sharing | 833 | 696 |
| Elejor advance | 5,851 | 145 |
| 289,501 | 841 | |
| F-144 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(a) Copel DIS - Financing transferred - STN
Copel transferred loans and financing to its wholly-owned subsidiaries at the time of its establishment in 2001. However, since the contracts for the transfers to the subsidiaries were not subject to formalization with the financial institutions, these commitments are also recorded in the Parent company.
The balance with Copel DIS refers to the National Treasury Department - STN financing, transferred with the same levy of charges assumed by the Company (Note 21) and shown as obligations for loans and financing at Copel DIS.
· Investments - As of December 31, 2020 and 2019, investments in subsidiaries are comprised as follows:
| 12.31.2020 | 12.31.2019 | |
| Copel Geração e Transmissão | 10,732,734 | 9,749,705 |
| Copel Distribuição | 7,212,915 | 6,012,246 |
| Copel Telecomunicações | 757,799 | 710,128 |
| Copel TEL - Reclassification (a) | (758,742) | - |
| Copel Energia | 356,922 | 243,123 |
| Compagas | 252,481 | 284,747 |
| UEG Araucária | 48,355 | 64,094 |
| Other investments | 50,328 | 71,431 |
| 18,652,792 | 17,135,474 | |
| (a)Reclassification to Assets classified as held for sale. | ||
The information regarding joint ventures, associates and other investments are presented in note 16.1 – Changes in investments.
· Dividends receivable - The dividends receivable is comprised as follows:
| 12.31.2020 | 12.31.2019 | |
| Investees and subsidiaries | ||
| Copel Geração e Transmissão | 769,108 | 464,450 |
| Copel Distribuição | 440,368 | 266,050 |
| Copel Comercialização | 29,803 | 88 |
| Compagas | 43,164 | 22,531 |
| UEG Araucária | 6,143 | 6,143 |
| Joint Ventures and Associates | ||
| Voltália | 1,032 | 1,032 |
| Dona Francisca | 97 | - |
| Other investments | 399 | 425 |
| 1,290,114 | 760,719 |
· Provisions for Legal Claims - Copel recorded provisions for Legal Claims, as follows:
| F-145 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements, continued For the years ended December 31, 2020, 2019 and 2018 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2020 | 12.31.2019 | |
| Regulatory | 21,373 | 17,357 |
| Labor | 2,466 | 1,957 |
| Civil | 163,940 | 150,529 |
| Tax Claim | 136,553 | 135,028 |
| 324,332 | 304,871 |
· Restriction of transfer of funds from subsidiaries - The subsidiaries described below qualify as either concessionaires of public services or independent power producers. As such, any transfer of funds to the respective parent company, in the form of loans or advances, requires approval by Aneel. This regulatory restriction does not apply to cash dividends determined in accordance with the Brazilian Corporate Law.
As of December 31, 2020, total restricted subsidiaries net assets amount to R$ 18,197,350 composed as follows:
| 12.31.2020 | 12.31.2019 | |
| Copel Geração e Transmissão S.A. | 10,732,735 | 9,749,705 |
| Copel Distribuição S.A. | 7,212,914 | 6,012,244 |
| UEG Araucária Ltda. | 238,211 | 315,740 |
| Centrais Elétricas Rio Jordão - Elejor | 13,490 | 42,859 |
| 18,197,350 | 16,120,548 |
The following table shows the expected undiscounted settlement values of the Copel liabilities, in each time range:
| Interest (a) | Less than 1 month |
1 to 3 months | 3 months to 1 year | 1 to 5 years | Over 5 years |
Total | |
| 12.31.2020 | |||||||
| Loans and financing | Note 21 | - | 131,547 | 400,876 | 279,030 | - | 811,453 |
| Debentures | Note 22 | 303,640 | - | 15,199 | 511,799 | - | 830,638 |
| Suppliers | - | 3,183 | 1 | - | - | - | 3,184 |
| 306,823 | 131,548 | 416,075 | 790,829 | - | 1,645,275 | ||
| (a) Effective interest rate - weighted average. | |||||||
F-146
