20-F 1 elpform20f_copel.htm FORM 20-F elpform20f_copel.htm - Generated by SEC Publisher for SEC Filing

 

As filed with the Securities and Exchange Commission on April 26, 2013

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, 2012

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)

Lindolfo Zimmer

+55 41 3222 2027 – 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

Name of Each Exchange on Which Registered

Preferred Class B Shares, without par value*

New York Stock Exchange

American Depositary Shares (as evidenced by American Depositary Receipts),

each representing one Preferred Class B Share

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, 2012:

145,031,080 Common Shares, without par value

381,793 Class A Preferred Shares, without par value

128,242,502 Class B Preferred Shares, without par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes        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

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       No ¨ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

Large accelerated filer        Accelerated filer ¨        Non-accelerated filer ¨ 

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                                     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

 


 

 

Table of Contents

 

Presentation of Financial and Other Information 2
Forward-Looking Statements 2
Item 1. Identity of Directors, Senior Management and Advisers 2
Item 2. Offer Statistics and Expected Timetable 2
Item 3. Key Information 3
  Selected Financial Data 3
  Exchange Rates 4
  Risk Factors 4
Item 4. Information on the Company 12
  The Company 12
  The Brazilian Electric Power Industry 32
Item 4A. Unresolved Staff Comments 46
Item 5. Operating and Financial Review and Prospects 46
Item 6. Directors, Senior Management and Employees 64
Item 7. Major Shareholders and Related Party Transactions 71
  Related Party Transactions 72
Item 8. Financial Information 73
  Legal Proceedings 73
  Dividend Payments 74
Item 9. The Offer and Listing 77
Item 10. Additional Information 78
  Memorandum and Articles of Association 78
  Material Contracts 81
  Exchange Controls 81
  Taxation 82
  Dividends and Paying Agents 87
  Documents on Display 87
Item 11. Quantitative and Qualitative Disclosures about Market Risk 87
Item 12. Description of Securities Other than Equity Securities 87
Item 12A. Debt Securities 87
Item 12B. Warrants and Rights 87
Item 12C. Other Securities 88
Item 12D. American Depositary Shares 88
Item 13. Defaults, Dividend Arrearages and Delinquencies 88
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 88
Item 15. Controls and Procedures 89
Item 16A. Audit Committee Financial Expert 89
Item 16B. Code of Ethics 89
Item 16C. Principal Accountant Fees and Services 90
Item 16D. Exemption from the Listing Standards for Audit Committees 90
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 90
Item 16F. Changes in Registrant’s Certifying Accountant 90
Item 16G. Corporate Governance 91
Item 17. Financial Statements 92
Item 18. Financial Statements 92
Item 19. Exhibits 93
Technical Glossary 94
Signatures   100

 

 

 

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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 consolidated financial statements as December 31, 2012 and 2011, of and for each of the three years ended December 31, 2012, have been audited, as stated in the report appearing herein, and are included in this annual report. We prepared our 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” and “Class B Shares” 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 evidenced 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 94

FORWARD-LOOKING STATEMENTS

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 the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. 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;

·               developments in other emerging market countries;

·               our ability to obtain financing;

·               lawsuits; 

·               technical and operational conditions related to the provision of electricity services;

·               changes in, or failure to comply with, governmental regulations;

·               competition; 

·               electricity shortages; 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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Item 3. Key Information

SELECTED FINANCIAL DATA

The information set forth in this section should be read in conjunction with our consolidated annual financial statements (including the notes thereto) and “Presentation of Financial and Other Data” and “Item 5. Operating and Financial Review and Prospects”.

We have included information with respect to the dividends and interest attributable to shareholders’ equity paid to holders of our common shares and preferred shares since January 1, 2009 under “Item 8. Financial Information - Dividends and Dividend Policy - Payment of Dividends”.

 

As of and for the year ended December 31,

 

2012

2011

2010

2009

 

(R$ million)

Statement of income data:

 

Operating revenues

8,532

7,776

6,901

6,250

Cost of sales and services provided

(6,579)

(5,457)

(4,976)

(4,629)

Gross profit

1,953

2,319

1,925

1,621

Operational expenses/income

(953)

(960)

(893)

(564)

Profit before financial results and taxes

1,000

1,359

1,032

1,057

Financial results

(28)

225

348

7

Profit before income tax and social contribution

972

1,584

1,380

1,064

Income tax and social contribution on profit

(246)

(407)

(370)

(252)

Net income for the year

726

1,176

1,010

812

Statement of financial position data:

 

 

 

 

Current assets

4,699

3,702

4,158

3,612

Recoverable rate deficit (CRC)(1)

1,384

1,346

1,341

1,255

Non-current assets

6,302

5,660

4,805

3,807

Property, plant and equipment, net

7,872

7,209

6,664

6,660

Total assets

21,212

18,842

17,859

16,313

Loans and financing and debentures (current)

274

116

704

136

Current liabilities

2,849

2,059

2,537

1,723

Loans and financing and debentures (non-current)

2,988

2,058

1,281

1,538

Non-current liabilities

5,866

4,714

4,027

4,065

Equity

12,497

12,070

11,296

10,524

Attributable to controlling shareholders

12,233

11,827

11,030

10,296

Attributable to non-controlling interest

265

243

266

228

Share capital

6,910

6,910

6,910

4,460

(1)     Amounts due from the State of Paraná that were included in current assets totaled R$ 75.9 million in 2012, R$ 65.9 million in 2011, R$ 58.8 million in 2010 and R$ 49.5 million in 2009. Amounts due from the State of Paraná that were included in long-term assets totaled R$ 1,308.4 million in 2012, R$ 1,280.6 million in 2011, R$ 1,282.4 million in 2010 and R$ 1,205 million in 2009. See Note 8 to our consolidated financial statements. This item includes both current and non-current CRC Account receivables.

 

2012

2011

2010

2009

 

(R$ million)

Basic and diluted earnings per share:

 

Common Shares

2.44

4.04

3.45

2.76

Class A Preferred Shares

4.17

5.33

5.20

3.70

Class B Preferred Shares

2.69

4.44

3.79

3.04

Number of shares outstanding at year end (in thousands):

 

 

 

 

Common Shares

145,031

145,031

145,031

145,031

Class A Preferred Shares

381

384

390

395

Class B Preferred Shares

128,243

128,240

128,234

128,229

Total

273,655

273,655

273,655

273,655

Dividends per share at year end:

 

 

 

 

Common Shares

0.94

1.47

0.98

0.87

Class A Preferred Shares

2.53

2.53

2.53

1.63

Class B Preferred Shares

1.03

1.62

1.08

0.96

 

 

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Exchange Rates

The following table provides information on the selling exchange rate, expressed in reais per U.S. dollar (R$/US$), for the periods indicated.

 

Exchange rate of Brazilian currency per US$1.00

Year

Low

High

Average(1)

Year-end

2008

1.5593

2.5004

1.8335

2.3370

2009

1.7024

2.4218

1.9905

1.7412

2010

1.6554

1.8811

1.7589

1.6662

2011

1.5345

1.9016

1.6709

1.8758

2012

1.7024

2.1121

1.9588

2.0435

Source: Central Bank.

(1) Represents the average of the exchange rates on the last day of each month during the relevant period.

Month

Low

High

December 2012

2.0435

2.1121

January 2013

1.9883

2.0471

February 2013

1.9570

1.9893

March 2013

1.9528

2.0185

April 2013 (until April 10, 2013)

1.9810

2.0239

Source: Central Bank.

Risk Factors

Risks Relating to Brazil

Brazilian political and economic conditions could affect our business and the market price of the ADSs and our common shares. In addition, uncertainty regarding such changes could affect our business and the market price of the ADSs and our common shares.

The Brazilian government’s economic policies have in the past involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by these economic policies in case they are reinstated. These and other measures could also affect the market price of the ADSs and our common shares.

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Frequent and significant intervention by the Brazilian government has often changed monetary, tax, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have at times involved wage and price controls, devaluation of the real in relation to the U.S. dollar, changes in tax policies as well as other interventionist measures, such as nationalization, raising interest rates, freezing bank accounts, imposing capital controls and inhibiting international trade in Brazil. Changes in policy involving tariffs, exchange controls, regulations and taxation could have an adverse effect on our business and financial results of the ADSs and our common shares.

Fluctuations in the value of the Brazilian real against foreign currencies may result in uncertainty in the Brazilian economy and the Brazilian securities market, and they could have a material adverse effect on our net income and cash flow.

In recent years, the Brazilian real has fluctuated against foreign currencies, and the value of the real may rise or decline substantially from current levels. For instance, depreciation of the real increases the cost of servicing our foreign currency-denominated debt and the cost of purchasing electricity from Itaipu, a hydroelectric facility that is one of our major suppliers and that adjusts electricity prices based in part on its U.S. dollar costs. Depreciation of the real also creates additional inflationary pressures in Brazil that may negatively affect us. 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. For additional information about historical exchange rates, see “Exchange Rates”.

 

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If Brazil experiences substantial inflation in the future, our margins and the market price of the Class B Shares and ADSs may be reduced.

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 0.82% for the three months ended March 31, 2013, 8.11% in 2012, 5.0% in 2011 and 11.3% in 2010. The Brazilian government has in the past taken measures to combat inflation, and public speculation about possible future government actions has had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual readjustments based on inflation indices, 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.

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.

Changes in Brazilian tax policies may have an adverse effect on us.

The Brazilian government has 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.

Risks Relating to 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.

The operations of the Company have had and will continue to have an important impact on the commercial and industrial development of the State of Paraná. In the past, the State of Paraná has used, and may in the future 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 political, economic or social objectives and not necessarily to meet the objective of improving our business and/or operational results.

 

 

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We are largely dependent upon the economy of the State of Paraná.

Our 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. We cannot assure you that economic conditions in Paraná will be favorable to us in the future. The GDP (gross domestic product) of both Brazil and the State of Paraná increased 0.9% in 2012.

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 actions, 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. At December 31, 2012 our provisions for probable and reasonably estimated losses were R$ 1,155.7 million. For additional information, see “Item 8. Financial Information - Legal Proceedings”.

The development of transmission and power generation projects is subject to substantial risks.

In connection with the development of transmission and generation projects, we generally must obtain feasibility studies, governmental concessions or authorizations, permits and approvals, condemnation agreements, equipment supply agreements, engineering, procurement and construction contracts, sufficient equity and debt financing and site agreements, each of which involves 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 all required permits and approvals for our projects will be obtained, that we will be able to secure private sector partners for any of our projects, that we or any of our partners will be able to 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, whether at the initial development phase or after construction has commenced, we may not be able to recover our investment in such a project, which investment may be substantial.

We are subject to limitations regarding the amount and use of public sector financing, which could prevent us from obtaining financing and implanting our investment plan.

As a State controlled company, we are subject to certain National Monetary Council (Conselho Monetário Nacional - “CMN”) and Banco Central do Brasil (“Central Bank”) limitations regarding the level of credit financial institutions may offer to public sector entities. As a result, we may have difficulty in obtaining financing from Brazilian financial institutions, which could create difficulties in the implementation of our investment plan. Brazilian legislation also establishes that a state-controlled company may generally use commercial bank debt only to refinance financial obligations. As a result of these regulations, our capacity to incur debt is limited, which could negatively affect the implementation of our investment plan.

Security breaches and other disruptions could compromise our data centers and expose us to liability, which would cause our business and reputation to suffer.

In our ordinary course of business, we collect and store personal data of our customers in our data centers. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings under Brazilian laws that protect the privacy of personal information and damage our reputation, a fact that could adversely affect our results of operations.

 

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Risks Relating to the Brazilian Electricity Sector

We are uncertain as to the renewal of certain of our concessions, some of which are due to expire in 2015.

Under 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 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. Up to now, we have decided not to renew our generation concession contracts that are set to expire by 2015 and are therefore subject to renewal pursuant to the 2013 Concession Renewal Law and we decided to renew pursuant to the 2013 Concession Renewal Law our one transmission concession contract that is set to expire by 2015. For distribution concessions, we are unsure of the conditions the Ministry of Mines and Energy, or Ministério de Minas e Energia (“MME”), and the Brazilian Electricity Regulatory Agency, or the Agência Nacional de Energia Elétrica (“ANEEL”), will require in order to renew these concession contracts, and we cannot assure you that we will be able to renew our main distribution contract, which expires on July 07, 2015, on terms that are favorable to us. If we do not renew our main distribution concession or if it is renewed under less favorable conditions, our results of operations and financial condition could be materially adversely affected. For more information, see “Item 4. Information on the Company - Concessions”.

Our operating revenues could be adversely affected if ANEEL makes decisions relating to our tariffs that are unfavorable to us.

The tariffs that we charge for sales of electricity to captive customers are determined pursuant to a concession agreement with the Brazilian government through ANEEL.ANEEL has substantial discretion to establish the tariff rates we charge our customers, which are determined pursuant to a concession agreement with ANEEL and in accordance with ANEEL’s regulatory decision-making authority.

Our distribution concession agreement and Brazilian law establish a price cap mechanism that permits three types of tariff adjustments: (i) annual readjustment (reajuste anual), (ii) periodic revision (revisão periódica), and (iii) extraordinary revision (revisão extraordinária). We are entitled to apply each year for the annual readjustment, which is designed to offset some effects of inflation on tariffs and pass through to customers certain changes in our cost structure that are beyond our control, such as the cost of electricity we purchase from certain sources and certain other regulatory charges, including charges for the use of transmission facilities. In addition, ANEEL carries out a periodic revision every four years that is aimed at identifying variations in our costs as well as setting a factor based on our operational efficiency that will be applied against the index of our ongoing annual tariff readjustments, the effect of which is to ensure that we share the benefits of improved economies of scale with our customers. At any time, we may also request an extraordinary revision of our tariffs in the case of a significant and unexpected event, including if such an event significantly alters our cost structure.

We cannot assure you that ANEEL will establish tariffs at rates that are favorable to us. To the extent that any of our requests for adjustments are not granted by ANEEL in a timely manner, our financial condition and results of operations may be adversely affected. 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.

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 establish 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.

 

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For example, the Brazilian government has taken action to reduce tariffs in recent years. In order to substantially reduce the price paid by Final Customers for electricity, the Brazilian government enacted 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, 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 certain new terms and conditions. See “Item 4. Information on the Company - Concessions”. We expect the 2013 Concession Renewal Law to adversely affect the margins of our Generation business.

In addition to the 2013 Concession Renewal Law, in recent years ANEEL has significantly reduced our transmission tariffs. See “Item 4. “Transmission and Distribution - Tariffs”.

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.

If we are required to conduct our business in a manner substantially different from our current operations as a result of regulatory changes, our results of operations and financial condition may be adversely affected.

Certain customers in our concession area may cease to use our distribution system.

Our distribution business generates a large portion of its revenues by charging customers a tariff to use our distribution system. 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, under some circumstances, is entitled to connect directly to the main national transmission network known as the Interconnected Transmission System (“Interconnected Transmission System”), in which case that Free Customer would cease to pay our distribution tariff. This loss would adversely affect our revenues and results of operations.

Our operating results depend on prevailing hydrological conditions and the availability of natural gas. The impact of an electricity shortage and related electricity rationing, as in 2001 and 2002, may have a material adverse effect on our business and results of operations.

We are dependent on the prevailing hydrological conditions in the geographic region in which we operate. According to data from ANEEL, approximately 69% of Brazil’s installed capacity currently comes from hydroelectric generation facilities. Our region is subject to unpredictable hydrological conditions because of non-cyclical deviations in average rainfall. The most recent period of low rainfall was in the years prior to 2001, when the Brazilian government instituted the Rationing Program (“Rationing Program”), a program to reduce electricity consumption that was in effect from June 1, 2001 to February 28, 2002. A recurrence of poor hydrological conditions that result in a low supply of electricity to the Brazilian market could cause, among other things, the implementation of broad electricity conservation programs, including mandated reductions in electricity consumption. We cannot assure you that periods of severe or sustained below-average rainfall will not adversely affect our future financial results.

In addition, if a shortage of natural gas were to occur, this would increase the general demand for energy in the market and therefore increase the risk that a rationing program would be instated.

The regulatory framework under which we operate is subject to legal challenge.

The Brazilian government implemented fundamental changes in the regulation of the electric power industry under the 2004 legislation known as the New Industry Model Law (Lei do Novo Modelo do Setor Elétrico). Challenges to the constitutionality of the New Industry Model Law are still pending before the Brazilian Supreme Court. If all or part of the New Industry Model Law were held to be unconstitutional, it would have uncertain consequences for the validity of existing regulation and the further development of the regulatory framework. The outcome of the legal proceedings is difficult to predict, but they could have an adverse impact on the entire energy sector, including our business and results of operations.

 

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We may be forced to purchase energy in the spot market at higher prices if our forecasts for energy demand are not accurate, and we may not be entitled to pass on any increased costs to our Final Customers.

Under the New Industry Model Law, electric energy distributors, including us, must contract to purchase, through public bids conducted by ANEEL, 100% of the forecasted electric energy demand for their respective distribution concession areas, up to five 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, 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 Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica, or “CCEE”). In addition, if our forecasts surpass actual demand by more than the allowed margin (105% of actual demand), we will not be able to pass on to our Final Customers the cost of the excess energy that we acquire.

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, 2012, we had 15 Free Customers, representing approximately 9.4% of our consolidated operating revenues and approximately 7.4% of the total volume of electricity we sold to final customers. From January 01, 2013 until March 31, 2013, we reached agreements with 14 additional Free Customers, 10 of which were our previously captive customers. Our contracts with Free Customers are typically for periods of greater than two years and less than five years.

Approximately 7.0% of the megawatts sold under contracts to such customers are set to expire in 2013. In addition, as of December 31, 2012, we had 43 customers that were eligible to purchase energy as Free Customers. These customers represented approximately 4.1% of the total volume of electricity we sold in 2012, and approximately 4.2% of our operating revenues from energy sales for that year. There can be no assurance that Free Customers will enter into contracts or extend their current contracts to purchase energy from us.

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 and revocation of licenses, which could have a material adverse effect on our financial condition or 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.

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 (in some instances, up to 2% of our revenues in the fiscal year immediately preceding the assessment) 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 ANEEL determines, through an expropriation proceeding, that terminating our concession would be in the public interest. 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 federal 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 Power Industry - Concessions”.

 

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The construction, expansion and operation of our generation, transmission and distribution facilities and equipment involve significant risks that may cause loss of revenues or increase of expenses.

The construction, expansion and operation of our generation, transmission and distribution of electricity facilities and equipment involve many risks, including the inability to obtain required governmental permits and approvals, supply interruptions, strikes, climate and hydrological interference, unexpected environmental and engineering problems, increase in losses of electricity (including technical and commercial losses), the unavailability of adequate financing and the unavailability of equipment

In the event we experience these or other problems, we might not be able to generate, transmit and distribute electricity in favorable quantities and on favorable terms, which may adversely affect our financial condition and the results of our operations.

If we are unable to conclude our investment program on schedule, the operation and development of our business could be adversely affected.

In 2013, we plan to invest approximately R$ 925.1 million in our generation and transmission activities (including Mauá HPP and Colíder HPP), R$ 986.4 million in our distribution activities and R$ 69.9 million in our telecommunications activities. Our ability to complete this investment program depends on multiple factors, including our ability to charge sufficient fees for our services and a variety of regulatory and operational contingencies. There is no assurance that we will have the financial resources to complete our proposed investment program, and our inability to do so may adversely affect the operation and development of our business leading to the imposition of fines levied by ANEEL as well as reduction in tariff levels.

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.

Risks Relating to the Class B Shares and ADSs

As a holder of ADSs you will generally not have voting rights at our shareholders’ meetings.

In accordance with Brazilian Corporate Law and our bylaws, holders of the Class B Shares, and thus of the ADSs, are not entitled to vote at our shareholders’ meetings except in limited circumstances. That means, among other things, that you, as a holder of the ADSs, are not entitled to vote on corporate transactions, including any proposed merger.

In addition, in the limited circumstances where the holders of Class B Shares are entitled to vote, holders may exercise voting rights with respect to the Class B Shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs. There are no provisions under Brazilian Corporate Law or under our bylaws that limit ADS holders’ ability to exercise their voting rights through the Depositary with respect to the underlying Class B Shares. However, the procedural steps involved create practical limitations on the ability of ADS holders to vote. For example, holders of our Class B Shares will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. 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.

 

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As a holder of ADSs you will have fewer and less well-defined shareholders’ rights in Brazil than in the United States and certain other jurisdictions.

Our corporate affairs are governed by our bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil. Under Brazilian Corporate Law you and 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. For instance, rules and policies against self-dealing and regarding the preservation of minority shareholder interests may be less developed and not as robustly enforced in Brazil as in the United States and certain other jurisdictions outside Brazil, which could potentially disadvantage you as a holder of the preferred shares and ADSs. In addition, shareholders in Brazilian companies must hold 5% of the outstanding share capital of a corporation in order to have standing to bring shareholders’ derivative suits, and shareholders in Brazilian companies ordinarily do not have standing to bring a class action suit.

You may be unable to exercise preemptive rights relating to the preferred shares.

You will not be able to exercise the preemptive rights relating to the Class B Shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended (“Securities Act”) is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Therefore, the Depositary will not offer rights to you as a holder of the ADSs unless the rights are either registered under provisions of the Securities Act or are subject to an exemption from the registration requirements. We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, 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.

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 certificate of registration from the 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 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 may only rely on the custodian’s certificate for five business days from the date of exchange. Thereafter, you must obtain your own certificate of registration or register in accordance with 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 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”.

 

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If you attempt to obtain your own certificate of 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 certificate of registration 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.

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. Reimposition 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.

Item 4. Information on the Company

The Company

We are engaged in the generation, transmission, distribution and sale of electricity mainly in the Brazilian State of Paraná, pursuant to concessions granted by the Brazilian regulatory agency for the electricity sector, ANEEL. We also provide telecommunications and other services.

At December 31, 2012, we generated electricity at eighteen (18) hydroelectric plants, one (1) wind plant and one (1) thermoelectric plant, for a total installed capacity of 4,737.1 MW, approximately 99.6% of which is derived from renewable sources. Including the installed capacity of generation companies in which we have an ownership interest, our total installed capacity is 5,343.1 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. At December 31, 2012, we owned and operated 2,023.3 km of transmission lines and 186,365.2 km of distribution lines, constituting one of the largest distribution networks in Brazil. Of the electricity volume we supplied to our Final Customers during 2012:

·         35.7% was to industrial customers;

·         26.6% to residential customers;

·         20.5% to commercial customers; and

·         17.2% to rural and other customers.

 

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Key elements of our business strategy include the following:

·         expanding our power generation, transmission, distribution, and telecommunication systems;

·         expanding our generation business’ sales to Free Customers both inside and outside the State of Paraná;

·         seeking productivity improvements in the short term and sustained growth in the long term;

·         striving to keep customers satisfied and our workforce motivated and prepared;

·         seeking cost efficiency and innovation;

·         achieving excellence in data, image, and voice transmission; and

·         researching new technologies in the energy sector in order to expand power output with renewable and non-polluting sources.

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. During the period from 1970 to 1977, we significantly expanded our transmission and distribution network 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) 3322-3535 and our website is www.copel.com.

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, 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 changed 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. We also liquidated Copel Participações S.A. and distributed the equity interests it held in our controlled companies between Copel Geração e Transmissão and our holding company. The current organization of the group as of December 31, 2012 is as described below:

Business

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

 

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implementation of the New Industry Model Law, enacted in 2004. Today, open auctions on the regulated market are the primary channel by which our generation business sells energy, and they are one of the primary channels by which our distribution business purchases energy to resell to captive customers. Our generation business only sells energy to our distribution business through auctions in the regulated market. Our distribution business, like certain other Brazilian distribution companies, is also required to purchase energy from Itaipu Binacional (“Itaipu”), a hydroelectric facility equally owned by Brazil and Paraguay, in an amount determined by the Brazilian government based on our proportionate share in the Brazilian electricity market. Itaipu has an installed capacity of 14,000 MW. Pursuant to a 1973 treaty between Brazil and Paraguay, Brazilian companies purchase the substantial majority of the electricity generated by Itaipu. For more information, see “Item 4. Information on the Company - The Brazilian Power Industry”.

 

 

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The following table sets forth the total electricity we generated and purchased in each of the last five years, by showing the total amount of electricity generated and purchased by Copel Geração e Transmissão and the total amount of electricity purchased by Copel Distribuição.

 

Year ended December 31,

 

2012

2011

2010

2009

2008

 

(GWh)

Copel Geração e Transmissão

 

 

 

 

 

Electricity generated

18,181

25,789

24,321

18,321

20,372

Electricity purchased from others(1)

3,981

952

696

4,093

1,700

Total electricity generated and purchased by Copel Geração e Transmissão

22,162

26,741

25,017

22,414

22,072

Copel Distribuição

 

 

 

 

 

Electricity purchased from Itaipu(2)

5,256

5,278

5,306

5,379

5,468

Electricity purchased from Auction – CCEAR – affiliates

1,316

1,328

1,230

1,488

1,229

Electricity purchased from Auction – CCEAR – other

17,450

16,771

15,405

14,185

12,746

Electricity purchased from other(3)

3,240

3,105

3,090

2,901

3,414

Total electricity purchased by Copel Distribuição

27,263

26,482

25,031

23,953

22,857

Total electricity generated and purchased by Copel Geração e Transmissão and Copel Distribuição

49,425

53,223

50,048

46,367

44,929

(1)       Includes capacity made available but not fully delivered (including energy from MRE and CCEE).

(2)       Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil purchase electricity generated by Itaipu.

(3)       Includes capacity made available but not fully delivered (including energy from Elejor and CCEE).

 

The following table sets forth the total electricity we sold to Free Customers, captive customers, distributors, energy traders and other utilities in the south of Brazil through the Interconnected Transmission System that links the states in the south and southeast of Brazil, by showing the total amount of electricity sold by Copel Geração e Transmissão and Copel Distribuição in the last five years.

 

Year ended December 31,

 

2012

2011

2010

2009

2008

Copel Geração e Transmissão

(GWh)

Electricity delivered to Free Customers

1,404

919

1,054

1,044

1,185

Electricity delivered to bilateral agreements

1,367

1,051

1,455

1,051

3,538

Electricity delivered to Auction – CCEAR – affiliates

1,316

1,327

1,230

1,488

1,229

Electricity delivered to Auction – CCEAR – other

13,780

14,139

13,405

13,478

11,435

Electricity delivered to the Interconnected System(1)

3,856

8,625

7,233

4,874

4,151

Total electricity delivered by Copel Geração e Transmissão

21,724

26,061

24,377

21,935

21,538

Copel Distribuição

 

Electricity delivered to captive customers

23,248

22,454

21,304

20,242

19,633

Electricity delivered to distributors in the State of Paraná

635

600

568

524

495

Spot Market – CCEE

33

341

61

266

-

Total electricity delivered by Copel Distribuição

23,916

23,395

21,933

21,032

20,128

Subtotal

45,640

49,456

46,310

42,967

41,666

Losses by Copel Geração e Transmissão and Copel Distribuição

3,785

3,767

3,738

3,400

3,263

Total electricity delivered by Copel Geração e Transmissão and Copel Distribuição , including losses

49,425

53,223

50,048

46,367

44,929

(1)        Includes capacity made available but not fully delivered.

 

 

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Generation

Generation Facilities

At December 31, 2012, we operated eighteen (18) hydroelectric plants, one (1) wind plant and one (1) thermoelectric plant, with a total installed capacity of 4,737.1 MW. If we include the installed capacity of the generation companies in which we have an ownership interest, our total installed capacity is 5,343.1 MW. We produce electricity almost exclusively through our hydroelectric plants. Our assured energy totaled 2,058.1 average MW in 2012. Our generation varies year by year as a result of hydrological conditions and other factors. We generated 18,180.9 GWh in 2012, 25,789 GWh in 2011, 24,321 GWh in 2010, 18,321 GWh in 2009 and 20,372 GWh in 2008.

The generation of electrical energy at our power plants is supervised, coordinated and operated by our Generation Operation Center in the city of Curitiba. This operation center is responsible for coordinating the operations related to approximately 99.9% of our total installed capacity, including some of the plants in which we hold only partial ownership interests.

The following table sets forth certain information relating to our main plants in operation at December 31, 2012.

Type

Plant

Installed capacity

Assured energy (1)

Placed in service

Concession expires

 

 

(MW)

(GWh/yr)

 

 

Hydroelectric

Foz do Areia

1,676

4,950.6

1980

2023

Hydroelectric

Segredo

1,260

5,949.8

1992

2029

Hydroelectric

Salto Caxias

1,240

5,693.8

1999

2030

Hydroelectric

Capivari Cachoeira

260

958.9

1970

2015

Hydroelectric

Mauá

184(2)

101.6

2012

2042

(1)        Values used to determine volumes committed for sale.

(2)        Corresponds to 51% of the installed capacity of the plant (363 MW).  

Governador Bento Munhoz da Rocha Netto (“Foz do Areia” Plant). The Foz do Areia Hydroelectric Plant is located on the Iguaçu River, approximately 350 kilometers southwest of the city of Curitiba.

Governador Ney Aminthas de Barros Braga (“Segredo” Plant). The Segredo Hydroelectric 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 Plant is the largest underground hydroelectric plant in 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.

Mauá. The Mauá Hydroelectric 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 Copel has a 51.0% interest and Eletrosul Centrais Elétricas S.A. (“Eletrosul”) holds the remaining 49.0%. It is located approximately 250 kilometers from Curitiba, in the Municipality of Telêmaco Borba.

In addition to our generation facilities, we have ownership interests in several other generation companies. 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.

 

 

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The following table sets forth information regarding the generation plants in which we had a partial ownership interest as of December 31, 2012:

Type

Plant

Installed

capacity

Assured

energy

Placed in service

Our ownership

Concession

expires

 

 

(MW)

(GWh/yr)

 

(%)

 

Thermal

Araucária

484.1

3,419.0 (1)

September 2006

80.0

2029

Hydroelectric

Elejor Facility (Santa Clara and Fundão)

246.4

1,229.0

July 2005
June 2006

70.0

2036

Hydroelectric

Dona Francisca

125.0

683.3

February 2001

23.0

2033

Hydroelectric

Foz do Chopim

29.1

188.0

October 2001

35.8

2030

Hydroelectric

Lajeado

902.5

4,613.0

December 2001

0.8

2032

(1)         The assured energy of thermal plants such as Araucária varies depending on the price of natural gas, according to criteria established by the MME.

Araucária. We have an 80.0% interest in UEG Araucária Ltda., which owns the Araucária Thermoelectric Plant. In December 2006, UEG Araucária Ltda. entered into a lease agreement under which it leased the plant to Petróleo Brasileiro S.A. - Petrobras and Petrobras entered into an operation and maintenance agreement with our subsidiary Copel Geração e Transmissão under which Copel Geração e Transmissão agreed to operate and maintain the plant. Both agreements have been extended through December 2013.

Elejor Facility. The Elejor Facility consists of the Santa Clara and Fundão Hydroelectric Plants, both of which are located on the Jordão River in the State of Paraná. The aggregate total installed capacity of the units is 246.4 MW, which includes two smaller hydroelectric generation units installed in the same location. Centrais Elétricas do Rio Jordão S.A. (“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, 2012, 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 federal government for the use of hydroelectric resources, with total annual payments of R$ 19.0 million. This amount is adjusted on an annual basis by the Brazilian General Market Price Index, Índice Geral de Preços do Mercado (“IGP-M Index”). In 2012, the aggregate amount of concession payments paid by Elejor to the federal government was R$ 44.3 million.

We have a power purchase agreement with Elejor that provides that we will purchase all of the energy produced by the Santa Clara and Fundão facilities at a set rate until 2019, to be adjusted annually in accordance with the IGP-M Index. In 2012, Elejor’s net revenues and net profits were R$ 211.7 million and R$ 33.3 million, respectively, while in 2011 its net revenues and net profits were R$ 196 million and R$ 15.6 million, respectively.

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 Desenvix 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. As of December 31, 2012, DFESA had loans and financing in the total amount of R$ 31.8 million. The debt is secured by a pledge of shares of DFESA. We have a power purchase agreement with DFESA, valued at R$ 61.2 million annually, which will expire in October 2015 and which obligates Copel Geração e Transmissão to purchase 100% of its assured energy. In 2012, DFESA’s net revenues and net profits were R$ 94.0 million and R$ 35.4 million, respectively, while in 2011 its net revenues and net profits were R$ 84.6 million and R$ 34.5 million, respectively.

Foz do Chopim. The Foz do Chopim Hydroelectric Plant is located on the Chopim River in the State of Paraná. We own 35.77% 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 64.23%. 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$ 202.56/MWh. Foz do Chopim Energética Ltda. also has the authorization to operate Bela Vista SHP, a hydroelectric power plant which is located in the same river and has similar capacity. The process for obtaining the necessary environmental license is ongoing. In 2012, Foz do Chopim’s net revenues and net profits were R$ 37.5 million and R$ 26.4 million, respectively, while in 2011 its net revenues and net profits were R$ 35.1 million and R$ 29.1 million, respectively.

 

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Expansion of Generating Capacity

We expect to spend R$ 925.1 million in 2013 to expand our generation capacity, of which R$ 449.0 million will be invested in the Colíder Hydroelectric Power Plant, R$ 58.6 million will be invested in the Mauá Hydroelectric Power Plant and R$ 8.3 million will be invested in the Cavernoso II Small Hydroelectric Power Plant. The remaining amount will be spent on equipment maintenance, the modernization of the Foz de Areia Hydroelectric power plant and feasibility studies for the Piquiri River and Tibagi River plants, among other projects.

We have interests in several generation projects. The following table sets forth information regarding our planned major generation projects.

Facility

Installed capacity

Estimated

assured energy (1)

Budgeted completion cost

Beginning of operation (expected)

Our ownership

Status

 

(MW)

(GWh/year)

(R$ million)

 

(%)

 

São Jerônimo HPP

331.0

1,560

1,131

To be determined

41.2

Concession granted

Colíder HPP

300.0

1,573

1,570

2014

100.0

Concession granted

Cavernoso II SHP

19.0

93

120

2013

100.0

Authorization granted

São Bento Energia

94.0

418.7

382.4

2013

49.9

Authorization granted

 (1)      Values used to determine volumes committed for sale.

São Jerônimo. The São Jerônimo Hydroelectric Power Plant will be located between the municipalities of Tamarana and São Jerônimo da Serra on the Tibagi River in the State of Paraná. The plant will have two generation units, with a total installed capacity of 331 MW. It is uncertain when the construction of the facility will begin. There are a number of issues that must be resolved before construction can begin, the most significant being that we must obtain permission from the Brazilian Congress to start construction because the future plant’s reservoir will be partially located in an indigenous area.

Colíder. In July 2010, we won an ANEEL auction for a 35-year concession to construct and operate the Colíder Hydroelectric Power Plant on the Teles Pires River in the State of Mato Grosso. The Colíder facility will have an installed capacity of 300.0 MW and will be located in the municipalities of Nova Canaã do Norte, Colíder, Itaúba and Cláudia. Construction began in 2011. Until December 2012 50.0% of the construction works were completed. The commercial generation is scheduled to begin in 2014. From the facility’s assured energy of 179.6 average MW, 125.0 average MW are committed under a 30-year contract to distributors at a price of R$ 103.40/MWh, as of July 01, 2010 (adjusted annually in accordance with the Índice Nacional de Preços ao Consumidor Amplo - IPCA  inflation index), with supply starting in January 2015. The remaining 54.6 average MW power not sold under this contract has yet to be contracted for and is still available for sale to large customers in the free market.

Cavernoso II. The Cavernoso II Small Hydroelectric Power Plant will be located in the municipalities of Virmond and Candói on the Cavernoso River in the State of Paraná. Construction began in 2011 and commercial generation is scheduled to begin in 2013. The plant will have 19.0 MW of installed capacity and 10.6 average MW of assured power. At an ANEEL auction on August 1, 2010, we sold 7.6 average MW of assured power from the Cavernoso II SHP to distributors, at a price of R$ 146.99/MWh (adjusted annually in accordance with the IPCA inflation index). Supply under these contracts will begin in January 2013 and will continue for 30 years. The remaining 3 average MW power not sold under these contracts has yet to be contracted for and is still available for sale to large customers in the free market.

São Bento Energia. In the last quarter of 2011, we acquired 49.9% of São Bento Energia, Investimentos e Participações, a company that owns four wind farm special purposes entities (GE Olho d’Água, GE Boa Vista, GE Farol e GE São Bento do Norte) located in the State of Rio Grande do Norte, with total installed capacity of 94 MW. In August 2010, an average of 43.7 MW of energy generated at a weighted average price of 134.49/ MW/h (annually adjusted by IPCA index) were sold in ANEEL public auctions. The energy to be generated was sold through 20-year contracts in the auction, term which will begin counting as from September 1, 2013. The wind farms are scheduled to start operating in 2013.

 

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Proposed Projects

We are involved in various initiatives to study the technical, economic and environmental feasibility of certain hydroelectric generation projects. These proposed generation projects would have a total of 343.6 MW of installed capacity. The following table sets forth information regarding our proposed generation projects.

Hydroelectric Project

Estimated Installed

Capacity

Estimated Assured

Energy

Our ownership

 

(MW)

(GWh/yr)

(%)

SHP BelaVista

29.0

157.4

36

SHP Dois Saltos

25.0

119.1

30

SHP Pinhalzinho

10.9

52.1

30

SHP Burro Branco

10.0

45.1

30

SHP Foz do Turvo

8.8

41.2

30

SHP Foz do Curucaca

29.5

142.2

15

SHP Salto Alemã

29.0

139.7

15

SHP São Luiz

26.0

125.3

15

SHP Alto Chopim

20.3

98.0

15

SHP Rancho Grande

17.7

85.3

15

WPP Cutia Empreendimentos Eólicos

137.4

718.3

49.9

In 2013, we plan to bid for concessions to construct and operate new hydroelectric power plants in power auctions in the regulated market for new generation projects. We are studying the feasibility of our participation in the hydroelectric projects planned to be listed in the A-5 Auctions of 2013. We will also conduct studies of new hydroelectric power plants.

In addition, we are also conducting studies related to future government auctions for wind farms, in which we may eventually participate. Other renewable energy projects under study or development include the use of municipal solid waste in power generation, cultivation of micro algae for energy production, wind energy, solar photovoltaic energy, energy from the crude vegetable oil and biogas production from micro algae.

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.

 

 

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The following table sets forth certain information concerning our transmission and distribution systems at the dates presented.

 

At December 31,

 

2012

2011

2010

2009

2008

Transmission lines (km):

 

 

 

 

 

230 kV and 500 kV

2,010.7

2,016.3

1,900.4

1,929.4

1,822.0

138 kV

7.2

7.2

7.2

7.2

7.8

69 kV(1)

5.4

5.4

5.4

5.4

5.4

Distribution lines (km):

 

 

 

 

 

230 kV

68.3

66.1

66.1

66.1

138 kV

4,880.1

4,705.3

4,586.3

4,578.8

4,495.7

88 kV(2)

58.2

69 kV

968.5

1,003.5

981.5

967.2

1,185.0

34.5 kV

81,253.3

80,662.2

79,496.2

78,357.4

76,903.0

13.8 kV

99,195.1

97,981.0

96,863.6

95,381.6

96,545.7

Transformer capacity (MVA):

 

 

 

 

 

Transmission and distribution substations (69 kV – 500 kV) (3)

19,454.8

19,415.3

18,398.6

18,112.8

17,855.8

Generation (step up) substations

5,006.8

5,006.8

5,006.8

5,004.1

5,004.1

Distribution substations (34.5 kV)

1,504.8

1,539.6

1,533.7

1,507.6

1,624.0

Distribution transformers

10,325.3

9,961.6

9,312.4

8,934.7

8,565.0

Total energy losses

7.7%

7.1%

7.5%

7.3%

7.3%

(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)     Reclassified to 138 kV in 2009.

(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.


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 federal government, Eletrosul and Furnas Centrais Elétricas S.A. (“Furnas”), also maintain significant transmission systems in the State of Paraná. Furnas is responsible for the transmission of electricity from Itaipu, while Eletrosul’s transmission system links the states in the south of Brazil. Copel, like the other utilities that own transmission facilities, is required to give other parties access to its transmission facilities for compensation at a level set by ANEEL.

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 June 2010, Copel won a public auction for the construction and operation of two facilities, both located in the State of São Paulo. The first concession is a 356 km transmission line of 500 kV and the second is a 230 kV substation. We expect to complete the construction work of these facilities by 2014.

In September 2011, SPE Costa Oeste, a consortium between Copel (51%) and Eletrosul (49%), won an ANEEL public auction for the construction and operation of the 143 km Cascavel Oeste - Umuarama transmission line (230 kV) and the Umuarama substation (230/138 kV), both located in the State of Paraná. The consortium is currently managing the process of obtaining all necessary licenses for the beginning of the transmission line construction.

In December 2011, we concluded the construction of 115 km of 500 kV transmission lines to connect the municipalities of Foz do Iguaçu and Cascavel.

 

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In December 2011, a consortium between Copel, Eletrosul and Elecnor won part of a large ANEEL public auction for the construction and operation of transmission assets. The concessions won by the consortium are for the construction and operation of a total of 1,327 km of new transmission lines and four new substations in the States of Paraná, Santa Catarina, Rio Grande do Sul and Maranhão.

In March 2012, Copel, together with State Grid Brazil Holding, won an ANEEL public auction for the construction and operation of 1,605 km of new transmission lines and four new substations that will transmit energy produced by five new hydroelectric plants that are planned to be constructed in Teles Pires River, in the North of Mato Grosso State, to the Southeast region of Brazil.

In June 2012, Copel won a public auction for the construction and operation of 98 km of transmission lines. The concession won by Copel is for the construction of 230 kV transmission lines that will link substations Londrina and Figueira, located in northern Paraná (88 km) and Foz do Chopim and Salto Osório power plants, both located in southwest Paraná (10 km).

In December 2012, a consortium between Copel, Furnas and State Grid Brazil Holding won a public auction for the construction and operation of 967 km of transmission lines in the States of Goiás, Minas Gerais and Bahia. In the same public auction, Copel won the right to construct and operate 37 km of transmission lines in the State of São Paulo, between the municipalities of Assis and Paraguaçu Paulista.

Distribution

Our distribution system consists of a widespread network of overhead lines and substations with voltages up to 138 kV and a small portion of our 230 kV assets. Higher voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial, commercial customers and other customers. At December 31, 2012, we provided electricity in a geographic area encompassing approximately 98% of the State of Paraná and served four (4) million customers.

Our distribution network includes 186,365.3 km of distribution lines, 376,784 distribution transformers and 233 distribution substations of 34.5 kV, 35 substations of 69 kV and 91 substations of 138 kV. During 2012, 120,636 new 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 where there is a large concentration of trees in the vicinity of the distribution grid.

We have 30 customers that are directly supplied with energy at a high voltage (69 kV and above) through connections to our distribution lines. These customers accounted for approximately 6.4% of the total volume of electricity sold by Copel Distribuição or 3.7% of our total volume of electricity sold in 2012.

We are responsible for expanding the 138 kV and 69 kV distribution grid within our concession area.

System Performance

We determine the energy losses of our distribution system separately from those of our transmission system. The total losses from our distribution system are calculated by taking the difference between the energy allocated to the system and the energy supplied to the customers.

Our energy losses totaled 7.7% of our available energy in 2012 and include losses from the basic transmission grid and Itaipu.

 

 

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Information regarding the duration and frequency of outages for our customers is set forth in the following chart for the years indicated.

 

Year ended December 31,

Quality of supply indicator

2012

2011

2010

2009

2008

DEC – Duration of outages per customer per year (in hours)

10h15min

10h38min

11h28min

12h55min

12h11min

FEC – Frequency of outages per customer per year (number of outages)

7.84

8.26

9.46

11.04

10.69

We outperformed the quality target indicators established by ANEEL for 2012, which penalize power outages (i) in excess of an average number of hours per customer and (ii) in excess of an average frequency of outages, 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 13h02min of outages per customer per year, and a total of 11.03 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 customers 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 “Distribution Tariffs”.

Purchases

The following table contains information concerning volume, costs and average tariffs for the main sources of the electricity we purchased in the last three years.

Source:

2012

2011

2010

Itaipu

 

 

 

Volume (GWh)

5,256

5,278

5,306

Cost (R$ millions)

503.3

459.6

468.3

Average tariff (R$/MWh)

95.8

87.1

88.3

Auctions in the regulated market

 

 

 

Volume (GWh)

19,003

18,344

15,418

Cost (R$ millions) (1)

1,927.9

1,585.9

1,370.3

Average tariff (R$/MWh)

101.5

86.45

88.9

(1)        These numbers do not include short-term energy purchased through the Electric Energy Trading Chamber ‒ CCEE.

Itaipu

We purchased 5,256 GWh of electricity from Itaipu in 2012, which constituted 10.6% of our total available electricity in 2012 and 19.3% of Copel Distribuição’s total available electricity in 2012. Our purchases represented approximately 5.9% 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 2013 at US$ 24.88 per kW per month.

In 2012, we paid an average tariff of R$ 95.8 per MWh for energy from Itaipu, compared to R$ 87.1 per MWh during 2011. These figures do not include the transmission tariff that distribution companies must pay for the transmission of energy from Itaipu.

Auctions in the Regulated Market

In 2012, we purchased 19,003 GWh of electricity through auctions in the regulated market. This energy represents 60.8% of the total electricity we purchased. For more information on the regulated market and the free market, see “The Brazilian Power Industry - The New Industry Model Law”.

 

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Sales to Final Customers

During 2012, we supplied approximately 86.4% of the energy distributed directly to captive customers in the State of Paraná. Our concession area includes four (4) million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, located south of the State of Paraná. We also sold energy to a total of fifteen (15) Free Customers, two (2) of which were located outside of our concession area. During 2012, the total power consumption of our captive customers and Free Customers was 24,652 GWh, a 5.4% increase as compared to 23,374 GWh during 2011. The following table sets forth information regarding our volumes of energy sold to different categories of purchasers for the periods indicated.

 

Year ended December 31,

Categories of purchaser

2012

2011

2010

2009

2008

 

(GWh)

Industrial customers

8,799

8,377

8,146

7,748

7,955

Residential

6,559

6,224

5,925

5,664

5,379

Commercial

5,058

4,778

4,466

4,200

3,967

Rural

2,025

1,872

1,774

1,680

1,606

Other(1)

2,211

2,122

2,048

1,994

1,911

Total(2)

24,652

23,373

22,359

21,286

20,818

(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.

 

The following table sets forth the number of our Final Customers in each category at December 31, 2012.

Category

Number of Final Customers

Industrial

86,731

Residential

3,196,457

Commercial

327,245

Rural

372,640

Other(1)

54,512

Total

4,037,585

 (1)      Includes street lighting, as well as electricity for municipalities and other governmental agencies, public services and own consumption.

Industrial and commercial customers accounted for approximately 30% and 23%, respectively, of our total revenues from energy sales during 2012. In 2012, 33% of our total revenues from energy sales were from sales 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 below) 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.

 

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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, generally 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 2012, 2011 and 2010.

Tariffs

2012

2011

2010

 

(R$/MWh)

Industrial

170.81

170.41

159.24

Residential

245.86

250.25

233.78

Commercial

225.01

217.78

202.68

Rural

155.29

154.29

143.04

Other customers

172.84

167.83

156.07

All Final Customers

200.81

199.83

186.09

Low Income Residential Customers. Under Brazilian law, we are required to provide discounted rates to certain low income residential customers (“Low Income Residential Customers”). In 2012, we served 372,507 low income residential customers. For servicing these customers, in 2012 we received a R$ 69.2 million grant, which was approved by ANEEL, from the Brazilian Federal Government.

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 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. A Special Customer that chooses to purchase energy from a supplier other than Copel Geração e Transmissão continues to use our distribution system 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 federal government, and therefore does not impact the revenues of our distribution business.

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 eight transmission concession contracts, four  of which are in the operational stage and four  of which are in construction. Not all of the transmission concession contracts employ the same revenue model.

Under our main transmission concession, which involves our main transmission facilities and accounted for 92% of our gross transmission revenues in 2012, 33% of the transmission revenues are updated on an annual basis by the IGP-M and the other 67% 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.

 

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In addition, we have three concession agreements for transmission lines and substations in operation, which correspond to an aggregate of 8% of our transmission revenues. The amount of revenues we are entitled to receive pursuant to one of these contracts is updated on an annual basis by the IGP-M and is not subject to the tariff review process. However, this amount will be reduced by 50% from the 16th year forward, as of 2016. The other two agreements revenues are subject to the tariff review process.

In 2012, the transmission tariffs of two of these concession contracts were readjusted by the IGP-M, resulting in an increase of 4.2% and the other two concession contracts were readjusted by the IPCA, and has increased by 5.0%.

Other Businesses

Telecommunications

Copel Telecomunicações S.A. Pursuant to an authorization from the Brazilian National Telecommunication Agency, Agência Nacional de Telecomunicações (“ANATEL”), we provide corporate telecommunication services within the State of Paraná and international long-distance services. We have been offering these services since August 1998 through the use of our fiber optics network (totaling 29.5 thousand km of fiber optic cables by the end of 2012). In 2012, we served the 399 municipalities in the State of Paraná and two additional municipalities in the State of Santa Catarina. In addition to our commercial services, we have also been involved in an educational project aimed at providing public elementary and middle schools in the State of Paraná with broadband internet access.

We provide services to most of the major Brazilian telecommunication companies that operate in the State of Paraná. In total, we have 3,141 corporate clients, which include supermarkets, universities, banks, internet service providers and television networks. We also provide a number of different telecommunication services to our subsidiaries.

Sercomtel. We own 45.0% of the stock of Sercomtel Telecomunicações S.A. (“Sercomtel Telecomunicações”) and Sercomtel Celular S.A. (“Sercomtel Celular” and, together with Sercomtel Telecomunicações S.A. “Sercomtel”). Sercomtel holds concessions to provide fixed and mobile telephone services in the municipalities of Londrina and Tamarana in the State of Paraná and has obtained ANATEL’s authorization to provide telephone services to all other cities in the State of Paraná. Currently, Sercomtel operates under an authorization regime in the cities of Cambé, Ibiporã and Arapongas. The city of Rolândia has been serviced since April 2009, and the cities of Apucarana and Maringá have been served since November 2008 and May 2010, respectively. Through an alliance with us, in force since March 2012 Sercomtel has been providing telephone services to other cities within the State of Paraná, including Curitiba. Sercomtel has concessions from ANATEL to provide cable television in São José in the State of Santa Catarina and Osasco in the State of São Paulo and radio-wave television transmission in Maringá in the State of Paraná.

In September 2012, ANATEL approved the merger of Sercomtel Celular S.A. into Sercomtel S.A. Telecomunicações and this merger is now closed.

As of December 31, 2012, Sercomtel Telecomunicações, in its concessions area for fixed telephone services, had a total of 241,526 telephone lines installed, of which 190,496 were in operation. As of December 31, 2012, Sercomtel Celular had an installed capacity of 103,991 terminals in its Global System for Mobil Communications GSM system, of which 69,507 were in operation. In December 2009, Sercomtel started providing 3G services with a capacity of 20,000 lines, of which 7,350 are currently installed. Sercomtel Telecomunicações’  2012 net revenues were R$ 126.5 million, with net loss of R$ 65.4 million. As of December 31, 2012, our investment in Sercomtel Telecomunicações was R$ 10.6 million.

 

 

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Water and Sewage

In January 2008, Copel bought the 30% stake in Dominó Holdings S.A. (“Dominó Holdings”) held by Sanedo Ltda., a wholly-owned subsidiary of Grupo Veola, for R$ 110.2 million. We now own 45.0% of the total outstanding share capital of Dominó Holdings, which in turn owns 39.7% of the voting stock or 34.7% of the total capital of Companhia de Saneamento do Paraná –  Sanepar (“Sanepar”), a public utility company that provides 345 urban and rural municipalities and approximately 10.2 million people in the State of Paraná with water distribution services and 6.3 million with sewage services. The State of Paraná owns 60.0% of the outstanding voting capital of Sanepar. Dominó Holdings’ net income in 2012 was R$ 111.9 million. The other shareholders of Dominó Holdings are Andrade Gutierrez Concessões S.A. and Daleth Participações S.A., each with 27.5%.

Gas

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 network in the State of Paraná, which covered 602 kilometers in 2012, an increase from 574 kilometers covered in 2011. In 2012, Compagas’s net revenues were R$ 359.1 million, an increase of 23.2%, compared to 2011, and its net income was R$ 20.8 million, a decrease of 35.8% compared to 2011. Compagas’s customers include thermoelectric plants, cogeneration plants, gas stations, other businesses and residences. Compagas is focusing its business strategy on increasing the volume of gas it distributes to customers by marketing the benefits of substituting gas for oil and other fuels as a means of achieving greater energy efficiency. Compagas’ customer base increased 36.4%, from 12,025 in 2011 to 16,405 in 2012.

Compagas recorded an increase of 1.4% in the average daily volume of natural gas distributed to final customers, from 1,007,324 cubic meters per day in 2011 to 1,021,690 cubic meters per day in 2012. In addition, Compagas makes available its distribution network to transport natural gas to UEG Araucária. In 2012, Petrobras S.A. delivered 439.7 million cubic meters of gas to UEG Araucária, compared to 16.0 million cubic meters in 2011.

As of December 31, 2012, we owned 51.0% of the capital stock of Compagas and accounted for this interest through consolidation, since we control this company. The minority shareholders of Compagas are Petrobras and Mitsui Gás, each of which owns 24.5% of the capital stock of Compagas.

Services

We own 40.0% of the share capital of ESCO Electric Ltda. (“ESCO”), a company that assists customers with their electricity needs through the provision of consulting services, planning and project implementation, automation services, operation, maintenance, training and technical assistance. The Instituto de Tecnologia para o Desenvolvimento – LACTEC owns the remaining 60.0% of the share capital. ESCO also markets products and services aimed at obtaining greater energy efficiency and energy conservation. During 2012, ESCO recorded a net loss of R$ 0.2 million. All operations of this company were discontinued in 2008, and we plan to liquidate ESCO in the coming years.

Concessions

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 recently, the Brazilian rules governing generation concessions gave concessionaires the right to renew for an additional 20 years concession contracts that were entered into prior to 2003. For transmission and distribution concessions granted after 1995, concessionaires had the right to renew these contracts for an additional 30 years.

 

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On September 11, 2012, the Brazilian government enacted a law (“2013 Concession Renewal Law”  which had been preceded by a provisional measure (medida provisória)), 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. The purpose of this new regime is to substantially reduce the cost of electricity paid by Final Customers and to increase the competition in the energy sector. Under the 2013 Concession Renewal Law, concessionaires must decide 60 months before the end of each concession term whether to amend and renew a concession contract or to terminate each concession contract at the end of its respective term. For concession contracts expiring within 60 months of September 12, 2012, concessionaires were required to make this decision by October 15, 2012. So far, for our contracts expiring within this period, we have decided not to renew our generation contracts, and we decided to request the renewal of our transmission and distribution contracts.

For concessionaires of existing generation facilities, the 2013 Concession Renewal Law changes the scope of these concession contracts. 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 for existing generation facilities (including generation concessions renewed pursuant to the 2013 Concession Renewal Law) will not grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions will only cover the operation and maintenance of the generation facilities. The energy generated by these facilities will be allocated by the Brazilian federal government in quotas to the regulated market, for purchase by distribution concessionaires. For new generation facilities, on the other hand, the concessionaire will still have 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. Because the 2013 Concession Renewal Law requires that ANEEL pre-approve investments made by generation concessionaires in order to receive compensation, the new law substantially increases the risk that a generation concessionaire either will not be able to make certain investments in a timely manner, or will not be able to recover the amounts invested. These changes are expected to materially reduce the margins of generation concessionaires and negatively affect their financial condition. In addition, ANEEL is expected to issue further regulations for generation concessions under the 2013 Concession Renewal Law, and it is not clear what the consequences of these regulations will be.

The 2013 Concession Renewal Law affects transmission and distribution concessions more modestly. The principal change is that amounts invested related to modernization projects, structural reforms, equipment and contingencies will be 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.

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. 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.

 

 

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Generation Concessions

                Out of our 18 generation concessions, we have 4 generation concessions (Rios dos Patos, Capivari Cachoeira, Mourão and Chopim I, with respective installed capacity of 1.8 MW, 260.0 MW, 8.2 MW and 1.8 MW) that are set to expire between 2014 and 2015. Our management determined that renewal of these generation concessions under the terms of the 2013 Concession Renewal Law would be disadvantageous to our generation business. Therefore, our management decided to allow these concession contracts to expire, and to participate in the subsequent competitive bidding process for these concessions.

Under the rules in effect prior to the enactment of the 2013 Concession Renewal Law, 13 of our generation plants have had their concessions extended by Brazilian authorities since 1999, in each case for the 20-year term allowed by previous regulation. Under the previous law, these concessions were not eligible for a second extension; however, as described above, the 2013 Concession Renewal Law now allows extension of these concessions for an addition 30 years period if we choose to accept the application of the new tariff regime.

Concessions for generation projects, granted after 2003, such as the Mauá Hydroelectric Plant, are non-renewable, meaning that upon expiration of their 35-year term, the concession will be granted subject to a competitive bidding process. The 2013 Concession Renewal Law does not impact generation concessions granted after 2003.

The following tables sets forth information relating to the terms as well as the renewals of our main generation concessions.

Hydroelectric Plants

Initial concession date

First expiration

date

Extension

Date

Final expiration

date

Rio dos Patos

February 1984

February 2014

Not subject to extension

February 2014

Capivari Cachoeira

April 1965

May 1995

June 1999

July 2015

Mourão

January 1964

January 1994

June 1999

July 2015

Chopim I

March 1964

March 1994

June 1999

July 2015

Foz do Areia

May 1973

May 2003

January 2001

May 2023

São Jorge

December 1974

December 2004

April 2003

December 2024

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

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

Cavernoso

January 1981

January 2011

September 2009

January 2031

Marumbi

March 1956

Under review by ANEEL

Under review by ANEEL

Under review by ANEEL

Melissa

May 2002

Indefinitely

-

-

Pitangui

May 2002

Indefinitely

-

-

Salto do Vau

May 2002

Indefinitely

-

-

Mauá (1)

June 2007

July 2042

Not extendable

-

Colíder(2)

January 2011

January 2046

Not extendable

-

Cavernoso II(3)

February 2011

February 2046

Not extendable

-

(1)      Mauá was constructed by Consórcio Energético Cruzeiro do Sul, of which Copel owns Copel owns 51.0% and Eletrosul owns the remaining 49.0%

(2)      Expected to begin operations in January 2015

(3)      Expected to begin operations in 2013

 

 

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Thermoelectric Plants

Initial concession date

First expiration date

Extension date

Final expiration date

Figueira

March 1969

March 1999

June 1999

March 2019

We have ownership interests in five other generation projects, through consortia established with other companies. The following table sets forth information relating to the terms of the concessions of the generation facilities in which we had an ownership interest as of December 31, 2012.

Generation Facility

Consortium

Initial concession date

Expiration date

Extension

Dona Francisca

Dona Francisca Energética SA ‒ DFESA

July 1979

August 2033

Possible

Santa Clara and Fundão

Elejor

October 2001

October 2036

Possible

Araucária

UEG Araucária Ltda.

December 1999

December 2029

Possible

Foz do Chopim

Foz do Chopim Energética

April 2000

April 2030

Possible

São Bento

São Bento Energia

August 2010

August 2030

Not Possible

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 in question. Our principal transmission concession, from which we derived 92% of our transmission revenues in 2012, has been renewed pursuant to the 2013 Concession Renewal Law, and will therefore now expire in December 2042.

In addition, we have three other concession contracts for transmission lines and substations that are currently in operation, and are set to expire in July 2031, March 2038 and November 2039, respectively. We derived an aggregate of 8% of our transmission revenues from these three contracts in 2012. 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:

Transmission

Facility

Initial concession

date

First expiration

date

Possibility of extension

Expected final expiration date

Main transmission concession

July 2001

July 2015

Extended

December 2042

Bateias – Jaguariaíva Transmission Line

August 2001

August 2031

Possible

August 2061

Bateias – Pilarzinho Transmission Line

March 2008

March 2038

Possible

March 2068

Foz do Iguaçu – Cascavel Oeste Transmission Line

November 2009

November 2039

Possible

November 2069

Araraquara 2 – Taubaté(1)

October 2010

October 2040

Possible

October 2070

Cerquilho III(1)

October 2010

October 2040

Possible

October 2070

Foz do Chopim - Salto Osorio(1)

October 2012

October 2042

Possible

October 2072

(1)      Facility under construction.

We have ownership interests in seven other transmission projects, through consortia established with other companies. The following table sets forth information relating to the terms of the concessions of the transmission facilities in which we had an ownership interest as of December 31, 2012.

 

 

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Transmission Facility

Consortium

Initial concession date

First Expiration date

Possibility of Extension

Expected final expiration date

Cascavel Oeste – Umuarama(1)

Costa Oeste Transmissora de Energia S.A

January 2012

January 2042

Possible

January 2072

Nova Santa Rita

Camaquã 3(1)

Transmissora Sul Brasileira de Energia S.A

May 2012

May 2042

Possible

May 2072

Umuarama

Guaira(1)

Caiuá Transmissora de Energia S.A

May 2012

May 2042

Possible

May 2072

Curitiba

Curitiba Leste(1)

Marumbi Transmissora de Energia S.A.

May 2012

May 2042

Possible

May 2072

Açailândia

Miranda II(1)

Integração Maranhense Transmissora de Energia S.A.

May 2012

May 2042

Possible

May 2072

Paranaíta –

Ribeirãozinho(1)

Matrinchã Transmissora de Energia S.A.

May 2012

May 2042

Possible

May 2072

Ribeirãozinho - Marimbondo II(1)

Guaraciaba Transmissora de Energia S.A

May 2012

May 2042

Possible

May 2072

Barreiras II –

Pirapora II

Paranaíba Transmissora de Energia S.A

(2)

-

-

-

(1)       Facility under construction.

(2)     Copel won the bidding process for this concession, but the concession contract has not yet been signed.

 

Distribution Concessions

We operate our distribution business pursuant to a concession contract that was signed on June 24, 1999, and is set to expire on July 7, 2015. Under the 2013 Concession Renewal Law, we have 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 federal government for the extension of our distribution concession, we decided to request the renewal of this contract. However we have not yet received the amendment to be proposed by the granting authority. Therefore, we cannot guarantee that we will be able to renew our distribution concession contract on terms that are favorable to us.

The granting authority must issue its decision on this matter no later than 18 months before the concession’s expiration date.

Competition

We have concessions to distribute electricity in substantially all of the State of Paraná, and we do not face competition from the five 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 system. 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 system. Unlike a Free Customer’s choice of another energy supplier, in which case that customer must still use our distribution network 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 network 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.

 

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Free Customers are limited to:

·

existing customers (those connected to the distribution network before July 1995) with demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 k;

·

new customers (those connected to the distribution network after July 1995) with demand of at least 3 MW at any voltage; and

·

customers 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 or biomass projects.

As of December 31, 2012, we had fifteen (15) Free Customers, representing approximately 9.4% of our consolidated operating revenue and approximately 7.4% of the total quantity of electricity sold by us. Through March 31, 2013, we have reached agreements with 14 additional Free Customers, 10 of which were our previously captive customers. Our contracts with Free Customers are typically for periods of greater than two and less than five years.

Approximately 7.0% of the megawatts sold under contracts to such customers are set to expire in 2013. In addition, as of December 31, 2012, we had 43 customers that were eligible to purchase energy as Free Customers. These customers represented approximately 4.1% of the total volume of electricity we sold in 2012, and approximately 4.2% of our total operating revenue from energy sales for that year.

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 with capacity higher than 30 MW.

In the transmission business, Brazilian law provides for competitive bidding for transmission concessions for facilities with 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.

Environment

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 are subject to our Sustainability and Corporate Citizenship Policy, which integrates corporate planning and sustainability management in order to optimize our financial, social and environmental performance.

We renew our environmental licenses in accordance with the procedures of the competent Brazilian environmental 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.

To remedy compliance issues for environmental licenses of transmission facilities predating the 1986 environmental licensing requirements, we and the environmental regulator for the State of Paraná (“Instituto Ambiental do Paraná – IAP”) executed in 2010 an agreement in which we committed to complete an environmental licensing process for several of our facilities by 2012. As of December 31, 2012, we have completed this environmental licensing process for all of our transmission facilities.

In 2012, three compulsory environmental audits (Auditorias Ambientais Compulsórias – AACs) were performed, 1 of which was of a wind plant, 1 of which was of a transmission line and 1 of which was of a transmission substation. These compulsory environmental inspections are required by law as a condition for the renewal of environmental licenses. These inspections also allow us to obtain an independent assessment of our environmental policies and compliance with laws and regulations.

 

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The construction of Cavernoso II Small Hydroelectric Plant began in April 2011. To comply with all the requirements of the environmental authorities necessary for the licensing of the project, we drafted a Basic Environmental Plan (Plano Básico Ambiental – PBA), consisting of seventeen social and environmental programs, which are in the process of implementation. Between September and October 2012, we have obtained operational licenses for this small hydroelectric plant and the transmission line related to it.

In December 2010, we received the site licenses to begin construction of the Colíder Hydroelectric Plant. These licenses were granted after we received approval of Colíder Basic Environmental Plan, which contains thirty-two programs and sub-programs designed to prevent, mitigate and offset any negative environmental and social impact of this project, while enhancing the positive effects of the project. During 2012 we have started implementing several of these programs contained in the Colíder Basic Environmental Plan.

We are involved in environmental and social programs including the “Social and Environmental Reservoirs Management Program” (Programa de Gestão Socioambiental de Reservatórios).  

The Social and Environmental Reservoirs Management Program aims to improve the quality and availability of water in Copel’s reservoirs through managing and monitoring of watersheds

To reinforce our commitment to environmental, social and economic sustainability, we are signatories to the United Nations Global Compact, and we actively seek to implement the principles of the Global Compact in our daily activities and our corporate culture.

Plant, Property and Equipment

Our principal properties consist of the generation and telecommunications facilities described in “Business - Generation and Purchasers of Energy”. Of the net book value of our total property, plant and equipment at December 31, 2012 (including construction in progress), generation facilities represented 84.3%, telecommunications represented 4.1%, Elejor represented 6.1% and Araucária Thermoelectric Plant represented 5.6%. We believe that our facilities generally are adequate for our present needs and suitable for their intended purposes.

The Expropriation Process

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. 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. At December 31, 2012, we estimated our liability related to the settlement of such disputes to be approximately R$ 35.7 million. This amount is in addition to amounts for land expropriation included in each of our hydroelectric facility budgets.

The Brazilian eLECTRIC Power Industry

General

                  In January 2013, the MME approved a ten-year expansion plan under which Brazil’s installed power generation capacity is projected to increase to 182.4 GW by 2021, of which 64% is projected to be hydroelectric, 14% is projected to be thermoelectric, 2% is projected to be nuclear and 20% is projected to be from alternative energy sources such as wind, biomass and small hydroelectric plants.
  

Approximately 35% of the installed power generating capacity of Brazil is currently owned by Eletrobras (including its wholly-owned subsidiary Eletronuclear and its 50.0% participation interest in Itaipu). Through its subsidiaries, Eletrobras is also responsible for 52% 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 São Paulo– CESP, Companhia Energética de Minas Gerais– CEMIG and us, among others.

 

 

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Principal Regulatory Authorities

Ministry of Mines and Energy – MME

The MME is the primary regulator 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”), council 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 six ministers of the Federal Government and three members chosen by the President of Brazil. 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.

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 registering the agreements resulting from market adjustments and the volume of electricity contracted in the free market, and (ii) accounting for and clearing short-term transactions. 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 four members appointed by these agents and one by the MME, who is the chairman of the board of directors.

 

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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 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, Eletrosul, Centrais Elétricas do Norte do Brasil S.A. Eletronorte, Companhia de Geração Térmica de Energia Elétrica – CGTEE and Eletrobras Termonuclear S.A. –  Eletronuclear. Eletrobras manages funds generated by some of the regulatory charges, as well as the commercialization of energy from Itaipu and from alternative energy sources, under the Proinfa Program.

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 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.

·

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 readjustment to compensate the electricity suppliers for financial losses incurred as a result of the rationing period.

 

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·

In 2004, the Brazilian government enacted the New Industry Model Law, 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.

·

In 2012, the Brazilian government enacted two Provisional Measures that brought important changes to the Brazilian electricity regulatory framework: (i) Medida Provisória no. 577, dated as of August 29, 2012 (recently converted into Law no. 12,767 dated as of December 27, 2012); and (ii) Medida Provisória no. 579, dated September 11, 2012 (recently converted into the 2013 Concession Renewal Law). Medida Provisória 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.

 

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 other things, 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 an special purpose company.

 

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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.

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.

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The New Industry Model Law

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:

·

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.

·

 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.

·

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.

·

Upholding contracts executed prior to the New Industry Model Law, in order to provide regulatory stability for transactions carried out before its enactment.

                    

The New Industry Model Law excludes Eletrobras and its subsidiaries from the National Privatization Program, which was created by the Brazilian government in 1990 to promote the privatization process of state-owned companies.

For concessionaires of existing generation facilities, the 2013 Concession Renewal Law changes the nature of these concession contracts. 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 for existing generation facilities (including those renewed pursuant to the 2013 Concession Renewal Law) will not grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions will only cover the operation and maintenance of the generation facilities. The energy generated by these facilities will be allocated by the Brazilian federal government in quotas to the regulated market, for purchase by distribution concessionaires. For new generation facilities, the concessionaire will have the right to sell the energy produced by the facility.

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 below under “Distribution Tariffs”.

Beginning January 2013, the energy generated by nuclear plants Angra 1 and 2 will be sold by Eletronuclear to the distribution concessionaires at a rate that will be 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 made through two types of bilateral agreements: Energy Agreements (Contratos de Quantidade de Energia) and Capacity Agreements (Contratos de Disponibilidade de Energia). 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 a Capacity Agreement, a generator commits to make 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.

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 amount 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 for through increases in its 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.

With respect to the granting of new concessions, the newly enacted 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 only 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 in the regulated market without imposing extra costs on the captive market.

Private generators may sell electricity directly to Free Costumers. 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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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 1 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 (i) in the fifth year before the initial delivery date of electricity (as “A-5 Auctions”), and (ii) in the third year before the commencement of commercial operation (“A-3 Auctions”). Existing power generators hold auctions (i) in the year before the initial delivery date (“A-1 Auctions”), and (ii) up to four months before the 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 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 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.

The contracts for both A-5 and A-3 Auctions have a term of between 15 and 30 years, and the contracts for A-1 Auctions have a term between 5 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 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 system (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 system. 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.

 

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Since 2004, CCEE has conducted fifteen auctions for new generation projects, ten auctions for energy from existing power generation facilities, four auctions for reserve energy in order to increase energy supply security and fifteen 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 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 Annual Reference Value

Brazilian regulation establishes a mechanism (“Annual Reference Value”) that limits the costs that can be passed through to Final Customers. The Annual Reference Value corresponds to the weighted average of the electricity prices in the A-5 and A-3 Auctions (excluding alternative energy auctions), calculated for all distribution companies.

The regulation establishes the following permanent limitations on the ability of distribution companies to pass-through costs to customers: (i) no pass-through of costs for electricity purchases that exceed 105% of actual demand; (ii) limited pass-through of costs of the acquisition of electricity in the A-3 Auctions, if the amount of purchased energy exceeds 2% of the amount of electricity contracted in the A-5 Auctions; (iii) if the volume contracted from existing generation projects decreases by over 4%, new contracts from new generation projects are afforded limited pass-through.

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) sell electric energy to Free Customers, except for those in their concession area and under the same conditions and tariffs maintained with respect to captive customers, (iii) hold, directly or indirectly, any interest in any other company, corporation or partnership, or (iv) engage in activities that are unrelated to their respective concessions, except for those permitted by law or the relevant concession agreement. A generator is not allowed to hold more than a 10% equity interest in any distributor.

 

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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 30.0% 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) tariffs for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities (“TUST”).

TUSD

Users of a distribution system 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$/kW and other related to the regulatory charges in R$/kWh. The amount paid by the users of a distribution system is calculated by multiplying the maximum contracted power for each of the customer’s points of connection to the concessionaire’s distribution system, 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.

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 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 (including the TUSD) 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, or (“Parcel A costs”), and (ii) costs that are under control of distributors (“Parcel B costs”). ANEEL’s tariff readjustment formula treats these two categories differently.

 

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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 connection to and use of the transmission and distribution systems; and

·            energy sector regulatory charges.

Parcel B costs include, among others, the following:

·               a component designed to compensate 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 for an annual readjustment (reajuste anual). In general, Parcel A costs are fully passed through to customers. Parcel B costs, however, are only adjusted for inflation in accordance with the IGP-M Index, minus the X factor.

Electricity distribution concessionaires are also entitled to periodic tariff revisions (revisão periódica) every four or five years. 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 X factor for each distribution company is calculated based on the following components:

·               P, based on the concessionaire’s productivity, which is measured in terms of increases in assets (kms of power grid), total volume of energy sold, and the number of Final Customers to which energy is sold;

·               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.

In addition, a distribution concessionaire is entitled to an extraordinary tariff review (revisão extraordinária) on a case-by-case basis, to ensure its financial stability and compensate it for unpredictable costs, including taxes, which significantly change its cost structure. 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 and (iv) in January 2013, due to the enactment of 2013 Concession Renewal Law.

Since October 2004, on the date of a subsequent tariff readjustment or tariff revision, whichever occurs earlier, distribution companies have been required to execute separate contracts for the connection and use of the distribution system and for the sale of electricity to their potentially Free Customers.

 

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Incentives

In 2000, a Federal decree created the Thermoelectric Priority Program, Programa Prioritário de Termoeletricidade (“PPT”), for 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 are: (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 shall purchase the energy generated by alternative sources for a period of 20 years. In its initial phase, the Proinfa Program is limited to a total contracted capacity of 3,300 MW. In its second phase, which will 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.

Energy Sector Regulatory Charges

State and Municipal ICMS Compensation

From January 1, 2010 to December 31, 2012, distributors were required to pay a levy in the amount of 0.3% of their annual operating revenues, which were transferred to certain states and municipalities in compensation with losses in tax revenues that these states and municipalities suffered when they became connected to the Interconnected Transmission System, due to the fact that they no longer receive energy from locally-generated sources. These funds must be used by the states and municipalities to provide increased access to electricity, to finance social and environmental projects, and to conduct research and development and support energy efficiency initiatives.

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. 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. In recent years, no concessions have been revoked or have failed to be renewed, and the RGR Fund has been used principally to finance generation and distribution projects.

According to 2013 Concession Renewal Law, as from January 01, 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

Independent Power Producers – IPPs reliant on hydrological resources (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.

 

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CCC

The Conta de Consumo de Combustível (CCC) was created in 1973 to generate financial reserves to cover fossil fuel costs in order to reduce tariffs to be paid by customers supplied by thermoelectric power plants. This regulatory charge has been extinguished in January 2013.

CDE

In 2002, the Brazilian government instituted the Electric Energy Development Account, Conta de Desenvolvimento Energético (“CDE Account”). The CDE Account is funded by (i) annual payments made by concessionaires for the use of public assets, (ii) penalties and fines 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 systems and (iv) the credits held by the federal government against Itaípu. The CDE Account was 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. The CDE will be in effect until 2027 and is regulated by the executive branch and managed by Eletrobras. This charge has been substantially reduced by the 2013 Concession Renewal Law (approximately 75% compared to its December 31, 2011 amount) in order to reduce the cost of electricity paid by Final Customers, among others.

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 6.75% of the value of the energy they generate, which for purposes of this calculation is based on a rate set by ANEEL. Beginning on January 1, 2013, ANEEL set this rate at R$ 75.45/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.

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 0.5% 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, CDE Account, or 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 readjustments 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 Account. We comply with payment obligations related to Regulatory Charges.

Energy Reallocation Mechanism

The Energy Reallocation Mechanism, or Mecanismo de Realocação de Energia (“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 criteria 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.

 

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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. 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, 2016, 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:

·           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.

Environmental Regulations

The Brazilian Federal Constitution includes environmental matters among the matters that are subject to concurrent legislative competence, meaning that the Brazilian federal 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.

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 or provide compensation to the affected party. Administrative sanctions may include substantial fines and suspension of activities, while criminal sanctions may include fines 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 environmental licensing procedures, which may include the preparation of environmental impact assessments before such facilities are constructed. Once the respective environmental licenses are obtained, their maintenance is still subject to the compliance with certain requirements. We were one of the first energy concessionaires in Brazil to provide an environmental impact assessment and report in connection with the construction of a power plant (Segredo Power Plant, 1987). Also, the Salto Caxias Power Plant (1995-1999) was constructed in accordance with one of the most comprehensive environmental impact mitigation programs ever implemented in Brazil.

 

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The Federal Environmental Crimes Act, 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.

The Brazilian Forestry Code and related regulations establish rules regarding the maintenance and acquisition 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 actions in our power plants, as established in the Forestry Code, since their construction. In addition, Paraná State law requires a mandatory environmental audit of companies whose activities may impact the environment within the state.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The information derived from our consolidated statement of income for the years ended December 31, 2012, 2011 and 2010 has been prepared in accordance with IFRS as issued by the IASB. For more information see “Presentation of Financial and Other Information” and Note 2 to our consolidated financial statements for the year ended December 31, 2012.

Overview

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 has been characterized by significant variations in economic growth rates, with very low growth from 2001 through 2003 and an economic recovery that led to consistent growth from 2004 to 2009, when the Brazilian GDP decreased due to the global financial crisis. Since then, the Brazilian GDP growth has fluctuated, from 7.5% growth in 2010, to, 2.7% in 2011 and 0.9% in 2012.

The following table shows selected economic data for the periods indicated:

 

Year ended December 31,

 

2012

2011

2010

Inflation (IGP-DI)

8.10%

5.0%

11.3%

Appreciation (depreciation) of the real vs. U.S. dollar

(8.21)%

(11.17)%

4.5%

Period-end exchange rate – US$1.00(1)

2.0435

1.8758

1.6662

Average exchange rate – US$1.00

1.9588

1.6709

1.7589

Change in real GDP  

0.9%

2.7%

7.5%

Average interbank interest rates(2)

8.24%

11.70%

9.9%

(1)     The real/U.S. dollar exchange rate at March 31, 2013 was R$ 2.0138 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.

 

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Rates and Prices

Our results of operations 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 energy in the regulated market and re-sells it to Final Customers at regulated tariffs.

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 re-sells 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. Except for possible future effects brought by the 2013 Concession Renewal Law, 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 substantially market regulated.

Sales to Final Customers (which include sales by our distribution business to captive customers and sales by our generation business to Free Customers) represented approximately 54.0% of the volume of electricity we made available in 2012, and accounted for 69.9% 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.

ANEEL modifies our Retail Tariffs annually, generally in June. Since January 2010, the adjustments have been as follows.

·

In February 2010, our distribution concession contract with ANEEL was amended. As a result, the subsequent increase in our distribution tariffs was reduced, causing a reduction of approximately 0.5% in our distribution revenues. Our Board of Directors approved the amendment in order to mitigate the possibility of a lawsuit or judicial proceeding. Nevertheless, we cannot assure you that no such action will be brought.

·

In June 2010, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 9.74%, of which 6.88% related to the tariff increase and 2.86% referred to an increase in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2010. 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 2.46%.

·

In June 2011, ANEEL approved the annual readjustment of our Retail Tariffs, increasing them by an average of 5.55%, of which 5.77% related to the tariff increase and 0.22% referred to a decrease in recovery of deferred regulatory assets (CVA). The readjustment became effective as of June 24, 2011. 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 2.99%.

·

 In June 2012, ANEEL approved the third periodic review of our Retail Tariffs and the average impact of this review in the tariffs we charge our customers was a decrease of 0.65%.

·

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%. We expect that this will cause a reduction of approximately 14.4% in our distribution revenues.

 

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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”. Our major long-term contracts or purchase obligations are described below.

·

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 2012, our electricity purchases from Itaipu amounted to R$ 503.3 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 Company -Distribution - 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 system. 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 system.

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 January 2005. 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). As of December 31, 2012, the outstanding balance of the CRC Account was R$ 1,384.3 million. The balance is adjusted for IGP-DI, bears interest at 6.65%, 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. For additional information, see Note 8 to our consolidated financial statements.

Special Obligations

The contributions received from the federal government and our customers exclusively for investment in our distribution network 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, 2012 was R$ 192.7 million as a reduction of intangible assets and R$ 1,912.0 million as a reduction of financial assets.

 

 

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Critical Accounting Policies

In preparing our financial statements, we make estimates concerning a variety of matters as referred to in Note 2.4 to our 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 addresses 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 2 to our consolidated financial statements included herein for a more detailed discussion of the application of these and other accounting policies.

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 the reporting date, and the effect of any changes in estimates is recorded prospectively.

Internal studies have shown that the balances as of January 1, 2009 of assets related to telecommunications business were compatible with their fair values and supported by impairment tests. Costs directly attributable to construction work as well as interest and financial charges on loans from third-parties during construction are recorded under property, plant, and equipment in progress.

Accounting for concession arrangements

We account for our concession agreements for transmission and distribution business in accordance with IFRIC 12 - Service Concession Agreements.

IFRIC 12 establishes that electric energy utilities should record and measure revenues according to IAS 11 - Construction Contracts and IAS 18 - Revenues, even when governed by a single concession agreement. When we make investments in the infrastructure used in the power transmission and distribution services we perform pursuant to our concession agreements, we capitalize these investments as intangible assets and financial assets, and we recognize construction revenue and construction costs in connection with these investments. Intangible assets represent the right to access and to operate infrastructure that is provided to us or that we build or acquire as part of the concession agreement. The value of intangible assets is determined based on construction fair value, reduced by the corresponding estimated financial assets, described in greater detail below, and by any accumulated amortization and impairment losses, when applicable. The amortization pattern for intangible assets reflects our estimate of our future economic benefits from these assets, limited to the term of the concession. These intangible assets are amortized according to the lesser of (i) the remaining useful life of the asset or; (ii) the time remaining until the end of the concession term.

We calculate the value of financial assets related to our distribution business based on our distribution concession arrangements. These financial assets represent our understanding of our unconditional right to receive cash payments upon expiration of the concession from the grantor, as set forth in our concession agreements. These cash payments are designed to compensate us for the investments we make in infrastructure and that are not recovered through the collection of tariffs from users.

 

 

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Financial assets related to our distribution business do not have determinable cash flows, since we operate under the assumption that the value of the cash payments we will receive from the grantor upon expiration of a concession will be based on the replacement cost of the concession assets. Since these financial assets do not fit into any other category of financial assets under IFRS, they are classified as “available for sale”. The cash flows related to these assets are determined taking into account the replacement cost of PPE, which is known as the Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), and is defined by ANEEL. The return on these financial assets is based on the regulatory weighted average cost of capital approved by ANEEL in the periodic rate review process carried out every four years.

We calculate the value of the financial assets related to our transmission business based on: (i) revenues from tariffs based on the construction of transmission infrastructure for use by system users; (ii) revenues from tariffs based on the operation and maintenance of infrastructure assets related to our concessions; and (iii) the financial return on these assets that is guaranteed by ANEEL and that is not otherwise recovered through tariffs by the end of the concession term. Because the aggregate transmission tariffs we collect are calculated entirely based on the infrastructure assets that we make available to system users as a whole, they are not subject to demand risk, and are therefore considered guaranteed revenues. These revenues, which are calculated considering the entire term of the transmission concession, are known as Annual Permitted Revenues (Receita Anual Permitida or RAP). Users of this infrastructure are billed on a monthly basis for these amounts, pursuant to reports issued by the National System Operator (ONS). Upon expiration of the concession, the grantor is required to pay any uncollected amounts related to the construction, operation, and maintenance of infrastructure, as compensation for investments made and not recovered through tariffs. Because these financial assets do not have an active market and do not have present fixed and ascertainable cash flows, they are classified as “loans and receivables”. These financial assets are initially estimated based on their fair values, and are later measured according to the amortized cost calculated under the effective interest rate method.

As described above, we booked financial assets in connection with these transmission concessions. However, we renewed certain transmission concessions pursuant to the 2013 Concession Renewal Law, which required that we accept certain amendments to these concession contracts. See “Item 4. Information on the Company – Concessions.” One of the effects of these amendments is that we no longer book financial assets for concessions renewed pursuant to the 2013 Concession Renewal Law, because the scope of the concession has been narrowed to cover only maintenance and operation of the transmission facilities. As a result, the financial assets we had previously recognized for concessions that were renewed pursuant to the 2013 Concession Renewal Law were converted into accounts receivable, since the Granting Authority has an obligation to pay these amounts. However, there is some uncertainty regarding the payment by the Granting Authority of amounts related to financial assets that were constituted before May 2000. We estimate that we will receive R$160.2 million related to financial assets that were constituted before May 2000, and we included this amount in our accounts receivable, in addition to the agreed R$893.9 million related to financial assets constituted after May 2000.

Generation concessions are deemed outside the scope of IFRIC 12 and are accounted for under other applicable IFRS.

In addition to our financial assets and intangible assets, under IFRS we also 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. As a result, under IFRS we 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. The resulting margin for our transmission business’ construction revenue was 1.65% in both 2012 and 2011, and is calculated based on a methodology that takes into account business risk.

The determination of the amortization term of our intangible assets and the fair value of our financial assets in connection with our concession contracts is subject to assumptions and estimates, and the use of different assumptions could affect the amounts we recognize. The estimated useful lives of the underlying assets, as well as the rate of return of the financial assets also require significant assumptions and estimates. Different assumptions and estimates and changes in future circumstances could have a significant impact on our results of operations. Additional information on the accounting for intangible and financial assets arising from concession agreements is contained in Notes 3.10 and 3.5 to our consolidated financial statements.

Revenue Recognition

 

We bill our 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. We read certain of our individual customers’ meters systematically throughout the month in order to estimate how much energy we have sold to individual customers as a group. At the end of each month, the amount of energy delivered to each customer 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, which have historically been insignificant, are recognized in the following month.

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Impairment of Long-Lived Assets

Long-lived assets, primarily property, plants and equipment and intangible 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.

Electric Energy Trading Chamber – CCEE

For accounting purposes, we recognize costs and revenues related to purchases and sales of energy in the spot market based on our internal estimates, which are reviewed by the CCEE.

We claimed a credit based on energy purchased from Itaipu during the energy rationing period that occurred in 2001, when there was a significant difference between the purchase price of Itaipu energy and energy sold at a loss in the spot market. However, we may be required to contribute to the amounts owed by other energy companies under similar lawsuits, and as of December 31, 2012, we had provisions of R$ 38.3 million to cover probable losses related to these other lawsuits.

Provision for Risks (Labor, Civil, Tax and Environmental Claims)

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.

We account for risks based on the determination that it is more likely than not that a future event will confirm that an asset has been impaired or a liability has been incurred at the reporting date, and the amount of loss can be reasonably estimated. 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 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. The provision for contingencies as of December 31, 2012 amounted to R$ 1,155.7 million, of which R$ 294.5 million was related to tax proceedings, R$ 576.4 million was related to civil claims, R$ 155.0 million was related to labor claims, R$ 78.7 million was related to employee benefits and R$ 50.9 million was related to regulatory proceedings and R$ 0.2 million was related to environmental claims.

 

 

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As of December 31, 2012, we estimate that the total amount of claims against us, excluding disputes involving non-monetary claims or claims that cannot be evaluated in the current stage of proceedings, classified as possible losses, was approximately R$ 2,356.3 million, of which R$ 257.4 million correspond to labor claims; R$ 41.4 million to employee benefits; R$ 19.2 million to regulatory claims; R$ 810.8 million to civil claims; and R$ 1,227.5 million to tax claims. For more information, see Note 28 to the consolidated financial statements.

Employee Retirement and Health Benefits

We sponsor a (i) defined-benefit pension plan and a (ii) defined-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. These assumptions directly affect our post employment benefits liability.

In 2012, we recorded expenses in the amount of R$ 182.9 million for our pension and health care plans. We estimate that we will incur expenses in the amount of R$ 69.3 million in 2013 (according to actuarial calculations), plus the monthly costs of these plans.

Deferred Taxes

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 and derecognize its allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. 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. The taxes balances subject to the federal taxing department inspection are those constituted over the last five years.

 

 

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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, 2012, 2011 and 2010:

 

 

Year ended December 31,

 

2012

2011

2010

Electricity Sales

 

 

 

Sales to Final Customers

 

 

 

Average price (R$/MWh):(1)

 

 

 

Industrial customers(2)

170.81

170.41

159.24

Residential customers

245.86

250.25

233.78

Commercial customers

225.01

217.78

202.68

Rural customers

155.29

154.29

143.04

Other customers(3)

172.84

167.83

156.07

All customers(2)

200.81

199.83

186.09

Volume (GWh):

 

 

 

Industrial customers(2)

8,799

8,377

8,146

Residential customers

6,559

6,224

5,925

Commercial customers

5,058

4,778

4,466

Rural customers

2,025

1,872

1,774

Other customers(3)

2,211

2,122

2,048

All customers(2)

24,652

23,373

22,359

Total revenues from sales to Final Customers (millions of R$)

4,950

4,671

4,160.8

Sales to distributors(4)

 

 

 

Average price (R$/MWh)(1)

102.07

88.13

81.64

Volume (GWh)(5)

15,910

16,339

15,777

Total revenues (millions of R$)

1,624.0

1,439.8

1,288.0

Electricity Purchases

 

 

 

Purchases from Itaipu

 

 

 

Average cost (R$/MWh)(6)

95.76

87.09

88.26

Volume (GWh)

5,256

5,278

5,306

Percentage of total Itaipu production purchased

5.9

6.3

6.2

Total cost (millions of R$)(7)

503.3

459.6

468.3

Purchases from others(4)

 

 

 

Average cost (R$/MWh)

131.46

86.09

83.50

Volume (GWh)(5)

17,529

19,664

18,011

Total cost (millions of R$)(7)

2,304.4

1,692.9

1,504.0

(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 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 inreaisand paid for on the basis of a capacity charge expressed in U.S. dollars per kW plus a “wheeling” (or transportation) charge expressed inreaisper kWh.

(7)

See “Item 4. Information on the Company - Business - Generation” and “Item 4. Information on the Company - Business Purchases” for an explanation of our expenses relating to electricity purchases.

 

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Results of Operations for the Years Ended December 31, 2012, 2011 and 2010

The following table summarizes our results of operations for the years ended December 31, 2012, 2011 and 2010.

Our financial statements present our operating costs of sales and services provided by function. However, in accordance with IFRS, Note 31 to the consolidated financial statements presents this information according to the nature of the operating cost or expense. For ease of understanding, the analysis below reflects the information presented by nature.

 

Year ended December 31,

 

2012

2011

2010

 

(R$ million)

Operating Revenues:

 

 

 

Electricity sales to Final Customers

2,625.5

2,330.8

2,213.4

Residential

782.3

771.7

723.5

Industrial

926.6

757.3

730.5

Commercial, services and other activities

573.8

498.9

467.7

Rural

149.0

134.1

126.9

Other classes

193.8

168.8

164.8

Electricity sales to distributors

1,623.5

1,439.8

1,288.0

Use of main distribution and transmission grid

2,831.1

2,762.4

2,272.4

Residential

830.3

785.9

661.7

Industrial

576.4

670.2

566.6

Commercial, services and other activities

564.3

541.6

437.5

Rural

165.6

154.7

126.9

Other classes

188.0

187.5

154.8

Other distribution and transmission revenue

506.5

422.5

325.0

Construction revenues

788.3

741.7

663.5

Revenues from telecommunications

125.6

117.1

97.9

Distribution of piped gas

325.0

273.9

237.3

Other operating revenues

213.3

110.4

128.6

 

8,532.2

7,776.1

6,901.1

Cost of sales and services provided:

 

 

 

Electricity purchased for resale

(2,807.7)

(2,152.5)

(1,972.3)

Use of main distribution and transmission grid

(772.4)

(632.5)

(592.7)

Personnel and management

(1,246.6)

(982.7)

(811.5)

Pension and healthcare plans

(182.9)

(150.9)

(124.2)

Material and supplies

(69.8)

(85.6)

(84.1)

Materials and supplies for power eletricity

(25.5)

(25.0)

(23.0)

Natural gas and supplies for gas business

(247.8)

(186.9)

(144.6)

Third-party services

(410.1)

(391.4)

(350.9)

Depreciation and amortization

(550.6)

(553.1)

(543.0)

Accruals and provisions

(218.8)

(289.7)

(362.8)

Construction cost

(771.9)

(731.4)

(662.9)

Other costs and expenses

(238.7)

(290.9)

(296.1)

 

(7,542.7)

(6,472.6)

(5,968.1)

Equity in earnings of subsidiaries

11.0

55.7

99.3

Financial results

(27.8)

224.8

348.4

Profit before income tax and social contribution

972.7

1,583.9

1,380.7

Income tax and social contribution on profit

(246.2)

(407.1)

(370.5)

Net income for the year

726.5

1,176.9

1,010.3

Net income attributable to controlling shareholders

700.7

1,157.7

987.8

Net income attributable to non-controlling interest

25.8

19.1

22.5

Other comprehensive income

(4.8)

0.9

2.0

Comprehensive income

721.7

1,177.7

1,012.3

Comprehensive income attributable to controlling shareholders

695.3

1,158.6

989.8

Comprehensive income attributable to non-controlling interest

26.5

19.1

22.5

       

 

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Results of Operations for 2012 Compared with 2011

Operating Revenues

Our operating revenues increased by 9.7%, or R$ 756.1 million, in 2012 compared to 2011 R$ 294.7 million of this increase was from an increase in electricity sales to Final Customers, R$ 183.7 million was from an increase in electricity sales to distributors, R$ 68.7 million from an increase in charges for the use of our main transmission grid and R$ 46.6 million was from an increase in construction revenues.

Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 12.6%, or R$ 294.7 million, in 2012, due to a slight increase in the average tariff paid by Final Customers and an increase in the volume of energy sold to most classes of Final Customers.  In addition, the annual tariff revision issued by ANEEL in June 2012 increased the percentage of revenues we book as electricity sales, compared to the percentage we book as charges for use of the distribution grid.  As a result of this adjustment, we recorded more of the revenue we receive from each customer as electricity sales to Final Customers, and less of this revenue as charges for use of the distribution grid, when compared to 2011. The average tariff paid by Final Customers increased by 0.5% compared to 2011. The average tariff rates for the residential class of Final Customers decreased 1.8% and industrial, commercial and rural classes of Final Customers increased by 0.2%, 3.3% and 0.7%, respectively. The variation in average price increases between different classes of customers reflects the fact that the tariffs established by ANEEL in 2012 and 2011 varied depending upon the voltage level received.

The increase in the volume of energy sold to Final Customers in 2012 compared with 2011 reflected an increase in the number of Final Customers in each category except for rural customers.

·

The volume of electricity sold to residential customers increased by 5.4% in 2012 compared to 2011. Of this increase, 3.5 percentage points was due to an increased number of customers and 1.9 percentage points was due to an increased average consumption per residential customer. This increase was principally the result of (i) above average temperatures, especially in the last quarter of 2012, which led to increased energy consumption, and (ii) sales of energy consuming products as a consequence of a greater availability of consumer credit.

·

The volume of electricity sold to industrial customers, including both captive customers and Free Customers, decreased by 0.8% in 2012 compared with 2011. This decrease was principally the result of a general decline in industrial production in the State of Paraná, and the migration of large customers to the free market.

·

The volume of electricity sold to commercial customers increased by 5.9% in 2012 compared with 2011. Of this increase, 3.4 percentage points was due to an increase in average consumption per commercial customer and 2.5 percentage points was due to an increased number of commercial customers and a general increase in retail sales in the concession area.

·

The volume of electricity sold to rural customers increased 8.2% in 2012 compared to 2011. Average consumption per rural customer increased by 8.8% in 2012 compared to 2011, offsetting a decrease of 0.6% in the number of rural customers during the same period. The increase in average consumption was mainly due to the strong performance of agriculture and cattle industries the State of Paraná in 2012.

Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 12.8%, or R$ 183.7 million, to R$ 1,623.5 million in 2012 compared with R$ 1,439.8 million in 2011. This increase was mainly caused by increased prices (i) under power purchase agreements, both in auctions in the regulated market and through agreements with Free Customers and (ii) in the spot market. Our generation business sells energy under power purchase agreements at unregulated market prices that are subject to automatic inflation adjustments, which resulted in price increases in 2012 compared to 2011. Our generation business also sells energy in the spot market, where prices were higher in 2012 principally because a larger share of energy sold in the spot market was produced by thermoelectric sources due to less favorable hydrological conditions. Thermoelectric energy is more expensive to produce due to fuel costs.

 

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Use of main distribution and transmission grid. Our revenues from the use of main distribution and transmission grid increased by 2.5% or R$ 68.7 million, to R$ 2,831.1 million in 2012 compared with R$ 2,762.4 million in 2011. This increase was principally due to: (i) market growth, (ii) an upward tariff adjustment of 3.0% applied to our distribution business on June 24, 2011, which was partially offset by a periodic downward tariff revision of 0.7% on June 24, 2012, and (iii) an increase of 31.5% in interest income from financial assets related to our transmission business, from R$ 229.3 million in 2011 to R$ 301.5 million in 2012. The overall increase in revenues from the use of the main transmission and distribution grid was also partially offset by the annual tariff revision issued by ANEEL in June 2012, which decreased the percentage of revenues we book as charges for use of the distribution grid, compared to the percentage of revenues that we book as electricity sales.  As a result of this adjustment, we recorded less of the revenue we receive from Final Customers as charges for use of the distribution grid, and more of this revenue as electricity sales to Final Customers, when compared to 2011.

Construction revenues. Our revenues from constructions increased by 6.3% or R$ 46.6 million in 2012 compared with 2011. This increase was mainly due an increase in improvements we made to our distribution and transmission infrastructure in 2012, compared with 2011.

Revenues from Telecommunications. Revenues from our telecommunications segment increased by 7.3% or R$ 8.5 million in 2012, primarily due to an increased number of customers, to 3,141 in 2012 from 1,442 in 2011. The majority of these new clients were retail clients, which generate less revenue on average than corporate clients.

Distribution of Piped Gas. Revenues from distribution of piped gas increased by 18.7%, or R$ 51.1 million, in 2012 compared to 2011, mainly due to two upward tariff adjustments: 4.5% in March 2012 and 8.0% in August 2012.

Other Operating Revenues. Other operating revenues increased by 93.2% or R$ 102.9 million, to R$ 213.3 million in 2012 compared with R$ 110.4 million in 2011, mainly attributable to higher rental income from UEG Araucária. In contrast to 2011, the UEG Araucária thermal plant generated energy in 2012, which results in additional revenue under the rental contract.

Cost of sales and services provided

Our total operating costs of sales and services provided increased by 16.5% or R$ 1,070.1 million, from R$ 6,472.6 million in 2011 to R$ 7,542.7 million in 2012, including amounts recognized as other operating expenses. The following were the principal factors in the increase of our operating costs of sales and services provided:

·

Electricity Purchased for Resale. Our costs for the energy we purchased for resale increased by 30.4%, or R$ 655.2 million, to R$ 2,807.7 million in 2012 compared with R$ 2,152.5 million in 2011. This increase was mainly due to higher acquisition costs from auctions in the regulated market, where a larger share of energy sold was produced by thermoelectric sources due to less favorable hydrological conditions. Thermoelectric energy is more expensive to produce due to fuel costs.

·

Use of Main Distribution and Transmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased by 22.1%, or R$ 139.9 million, to R$ 772.4 million in 2012 compared with R$ 632.5 million in 2011, mainly due to the operation of new assets in the electricity system and the higher incidence of charges imposed by ANEEL. This was partially offset by large customers that connected directly to the Interconnected Transmission System in 2012, for which we no longer incurred these expenses.

·

Personnel and Management. Personnel and management expenses increased by 26.9%, or R$ 263.9 million, to R$ 1,246.6 million in 2012 compared with R$ 982.7 million in 2011, mainly due to: (i) a 1.6% increase in our number of employees; (ii) wage increases of 7.4% and 5.6% applied in October 2011 and October 2012, respectively; (iii) expenses of R$ 168.8 million in 2012, compared to R$ 64.4 million in 2011, in connection with the PSDV voluntary retirement program; and (iv) a general review of career structures and compensation, which began in June 2011 and resulted in changes to our compensation policies to make these policies more aligned to the market.

 

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·

Pension and Healthcare Plans. Pension and Healthcare expenses increased 21.2%, or R$ 32.0 million, to R$ 182.9 million in 2012, compared to R$ 150.9 million in 2011. This line item reflects the accrual of liabilities pursuant to the actuarial report on our healthcare plan.

·

Materials and supplies. Materials and supplies expenses decreased by 18.5%, or R$ 15.8 million, to R$ 69.8 million in 2012 compared with R$ 85.6 million in 2011, substantially due to a decrease in the volume of electric power system materials that we acquired in 2012.

·

Material and Supplies for Power Eletricity. These expenses increased 2.0%, or R$ 0.5 million, to R$ 25.5 million in 2012, compared to R$ 25.0 million in 2011. This increase was mainly due to an increase in the unit cost of mineral coal purchased for the Figueira Thermoelectric Plant.

·

Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases increased by 32.6%, or R$ 60.9 million, to R$ 247.8 million in 2012 compared with R$ 186.9 million in 2011. This increase was caused by an increase in the purchase price of natural gas acquired by Compagas from third-party suppliers. The increase of the purchase price of natural gas was mainly attributable to the effects of the recent devaluation of the Brazilian Real and an increase in the market price of oil, which influences the price of gas.

·

Third-Party Services. Third-party services expenses increased 4.8%, or R$ 18.7 million, to R$ 410.1 million in 2012 compared with R$ 391.4 million in 2011, mainly due to contractual readjustments with third-party service providers and increased costs related to the expansion of services such as power system and facility maintenance, meter reading and bill delivery.

·

Accruals and Provisions. Accruals and provisions expenses decreased by 24.5% or R$ 70.9 million in 2012, from R$ 289.7 million in 2011 to R$ 218.8 million in 2012. In 2012, our accruals and provisions expenses were mainly related to litigation provisions, including a provision of R$ 54.5 million in connection with a lawsuit by Tradener Ltda.

·

Construction Cost. Construction costs increased 5.5%, or R$ 40.5 million, to R$ 771.9 million in 2012 from R$ 731.4 million in 2011. This increase reflects costs we incurred in connection with improvements we made to our distribution and transmission infrastructure in 2012.

·

Other Costs and Expenses. Other costs and expenses decreased by 17.9% or R$ 52.2 million, to R$ 238.7 million in 2012, compared with R$ 290.9 million in 2011. This variation was mainly due to (i) a decrease of R$ 48.1 million in losses in connection with deactivation and disposal of assets in 2012 compared to 2011 and (ii) lower payments for use of hydrological resources, which resulted from a decrease in hydroelectric generation activities

Equity earnings of subsidiaries

Equity earnings of subsidiaries was R$ 11.0 million in 2012, compared to R$ 55.7 million in 2011. Equity investment reflects the equity income or loss of our subsidiaries. In 2012, this net result was mainly due to: (i) income of R$ 53.3 million from Sanepar; (ii) income of R$ 9.4 million from Foz do Chopim; (iii) income of R$ 8.1 million from Dona Francisca Energética; and (iv) losses of R$ 59.8 million from Sercomtel Telecomunicações.

 

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Financial Results

We recognized R$ 27.8 million of net financial expense in 2012, compared to net financial income of R$ 224.8 million in 2011. Financial income increased by 12.4% or R$ 71.4 million in 2012 compared to 2011, mainly due to: (i) an increase of R$ 39.7 million in the revenue from we received from the CRC Account, since these amounts are indexed based on inflation, and inflation was relatively higher in 2012 when compared to 2011; (ii) an increase of R$ 65.2 million in revenue as a result of inflation indexation of receivables related to our concessions, since these amounts are also indexed to inflation; and (iii) a decrease in income from financial investments. Financial expenses increased by 91.9% or R$ 324.0 million in 2012 compared to 2011, totaling R$ 676.8 million. R$ 401.1 million of this amount was caused by the fair updating of Copel Distribuição’s concession-related financial assets in connection with the 3rd tariff review cycle.

Income Tax and Social Contribution

In 2012, we recognized income tax and social contribution expenses of R$ 246.2 million, reflecting an effective tax rate of 25.3% on our pretax income. In 2011, we recognized income tax and social contribution expenses of R$ 407.1 million, reflecting an effective tax rate of 25.7% on our 2011 pretax income.

Results of Operations for 2011 Compared with 2010

Operating Revenues

Our operating revenues increased by 12.7%, or R$ 875.0 million, in 2011 compared with 2010. Of this increase, R$ 117.4 million was due to electricity sales to Final Customers and R$ 490.0 million was due to charges for the use of our main transmission grid. Revenues from electricity sales to distributors increased by 11.8%, or R$ 151.8 million and construction revenue increased by 11.8% or R$ 78.2 million.

Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 5.3% or R$ 117.4 million in 2011. The average tariff for Final Customers increased by 7.4% as compared with 2010 average rate. The average tariff rates for the residential, industrial, commercial and rural classes of Final Customers increased by 7.0%, 7.0%, 7.4% and 7.9%, respectively. The variation in average price increases between different classes of customers reflects the fact that the tariffs established by ANEEL in 2011 and 2010 varied depending upon the voltage level received.

The increase in the volume of energy sold to Final Customers in 2011 compared with 2010 reflected an increase in the number of Final Customers in each category.

·

The volume of electricity sold to residential customers increased by 5.0% in 2011 compared with 2010. Of this increase, 4.2% was due to an increased number of customers and 0.8% was due to an increase in average consumption per residential customer. This increase was driven mainly due to sales of energy consuming products as a consequence of a greater availability of credit.

·

The volume of electricity sold to industrial customers, including both captive customers and Free Customers, increased by 5.3% in 2011 compared with 2010. This increase resulted principally from the improved performance in the petroleum refining and ethanol industries, as well as increased activity in the automotive, machinery and equipment industries in the State of Paraná.

·

The volume of electricity sold to commercial customers increased by 7.0% in 2011 compared with 2010. Of this 7.0% increase, 3.4 percentage points can be attributed to an increase in average consumption per commercial customer and 3.5 percentage points can be attributed an increased number of commercial customers. We attribute these increases in the commercial segment to high employment in the State of Paraná and the increase in availability of consumer credit.

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·

The volume of electricity sold to rural customers increased 5.5% in 2011 compared with 2010. Of this increase, 2.2% was due to an increased number of customers and 3.2% was due to an increase in average consumption per rural customer. This increase was mainly due to the strong performance of agriculture and cattle industries the State of Paraná in 2011.

Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 11.8%, or R$ 151.8 million, in 2011 compared with 2010. This increase was caused by: (i) increased prices under power purchase agreements, both in auctions in the regulated market and through agreements with Free Customers; and (ii) an increase in volume of energy sales in the spot market in 2011 compared to 2010. Our generation business sells energy at unregulated market prices, which generally increased in 2011 compared to 2010.

Use of main distribution and transmission grid. Our revenues from the charge for the use of main transmission grid increased by 21.6% or R$ 490.0 million, to R$ 2,762.4 million in 2011 compared with R$ 2,272.4 million in 2010. This increase was principally due to: (i) the increase in use of the grid by all classes of customers, as explained in greater detail above; (ii) the upward adjustment to our distribution tariffs, which had the effect of increasing by 3.0% the average tariff charged to our final customers; and (iii) the effect of the 18.3% upward readjustment in our transmission tariffs, which was the principal cause of the increase of R$ 100.5 million in revenue related to transmission assets (classified as interest income under IFRS), from R$ 128.8 million in 2010 to R$ 229.3 million in 2011.

Construction revenues. Our revenues from constructions increased by 11.8% or R$ 78.2 million in 2011 compared with 2010. This increase was mainly due to improvements we made to our distribution and transmission infrastructure in 2011.

Revenues from Telecommunications. Revenues from our telecommunications segment increased by 19.6% or R$ 19.2 million in 2011, primarily due to an increased number of clients, to 1,442 in 2011 from 980 in 2010. This increase in our number of clients was partially offset by reductions in the prices we charged to clients for telecommunications services, due to competitive pressures.

Distribution of Piped Gas. Revenues from distribution of piped gas increased by 15.4%, or R$ 36.6 million, in 2011 compared to 2010, mainly due to an 8.5% upward tariff adjustment in August 2011, together with a 4.9% increase in sales volume in 2011.

Other Operating Revenues. Other operating revenues decreased by 14.2% or R$ 18.2 million, in 2011. This reduction was mainly the result of decreased rent revenue from the Araucária Thermal Power Plant in the second half of 2011. Demand from the Araucária Thermal Power Plant decreased because sufficient energy was being provided by hydroelectric power plants in Brazil.

Cost of sales and services provided

Our total operating costs of sales and services provided increased by 8.5% or R$ 504.5 million, to R$ 6,472.6 million in 2011 from R$ 5,968.1 million in 2010, including amounts recognized as other operating expenses. The following were the principal factors in the increase of our operating costs of sales and services provided:

·

Electricity Purchased for Resale. Our costs for the energy we purchased for resale increased by 9.1%, or R$ 180.2 million, to R$ 2,152.5 million in 2011 compared with R$ 1,972.3 million in 2010. This increase was mainly due to higher acquisition costs from auctions in the regulated market, which increased by R$ 199.4 million in 2011 compared to 2010. Our distribution business buys energy at unregulated market prices, which generally increased in 2011 compared to 2010.

·

Use of main distribution and transmission grid. Expenses we incurred for our use of the main distribution and transmission grid increased by 6.7%, or R$ 39.8 million, to R$ 632.5 million in 2011 compared with R$ 592.7 million in 2010. This increase was mainly due to (i) new infrastructure in operation and (ii) R$ 16.5 million in reserve energy costs imposed by the Brazilian government, due to reduced rainfall affecting hydroelectric production. We did not incur reserve energy costs in 2010. This was partially offset by a 73.2% decrease in system service charges imposed by ANEEL, from R$ 41.0 million in 2010 to R$ 10.1 million in 2011.

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·

Personnel and Management. Personnel and management expenses increased by 21.1%, or R$ 171.2 million, to R$ 982.7 million in 2011 compared with R$ 811.5 million in 2010, mainly due to: (i) a 5.5% increase in our number of employees; (ii) wage increases of 6.5% and 7.4% applied to beginning in October 2010 and October 2011, respectively; (iii) the compensations from the Program Permanent Voluntary Termination and Succession - PSDV (R$ 64.4 million in 2011 compared R$ 19.7 million in 2010); and (iv) a general human resources review that began in June 2011.

·

Pension and Healthcare Plans. Pension and Health Care expenses increased 21.5%, or R$ 26.7 million, to R$ 150.9 million in 2011, compared with R$ 124.2 million in 2010. This line item reflects the accrual of liabilities pursuant to the 2011 actuarial report on our healthcare plan.

·

Materials and supplies. Materials and supplies expenses increased by 1.8%, or R$ 1.5 million, to R$ 85.6 million in 2011 compared with R$ 84.1 million in 2010, substantially due to an increase in the volume of electric power system materials that we acquired in 2011.

·

Material and Supplies for Power. These expenses increased 8.7%, or R$ 2.0 million, to R$ 25.0 million in 2011, compared with R$ 23.0 million in 2010. This increase was mainly due to an increase in the unit cost of mineral coal purchased for the Figueira Thermoelectric Plant.

·

Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases increased by 29.3%, or R$ 42.3 million, to R$ 186.9 million in 2011 compared with R$ 144.6 million in 2010. This increase was mainly caused by a 4.9% increase in volume of natural gas acquired by Compagas to supply third-parties, along with an increase in price of natural gas purchased in 2011 under supply contracts, which are subject to contractual price adjustments.

·

Third-Party Services. Third-party services expenses increased 11.5%, or R$ 40.5 million, to R$ 391.4 million in 2011 compared with R$ 350.9 million in 2010, mainly due to the increase in civil maintenance of R$ 6.7 million, equipment maintenance and furniture of R$ 4.2 million, travel of R$ 5.0 million, telephone of R$ 3.5 million, maintenance of green spaces and pruning services of R$ 4.8 million and data processing of R$ 3.0 million.

·

Depreciation and Amortization. Depreciation and amortization expenses increased 1.9%, or R$ 10.1 million, to R$ 553.1 million in 2011 from R$ 543.0 million in 2010.

·

Provisions and Reversals. Provisions and reversals expenses decreased by 20.1% or R$ 73.1 million in 2011 compared with 2010, mainly due to the non-recurring nature of the R$ 234.6 million provision that was booked for COFINS liabilities in 2010. This decrease was offset in part by the establishment of an additional R$ 118.3 million provision related to a lawsuit by Ivaí (as defined below).

·

Construction Costs. Construction costs increased 10.3%, or R$ 68.5 million, to R$ 731.4 million in 2011 from R$ 662.9 million in 2010. This increase reflects costs we incurred in connection with improvements we made to our distribution and transmission infrastructure in 2011.

·

Other Costs and Expenses. Other costs and expenses decreased by 1.8% or R$ 5.2 million to an expense of R$ 290.9 million in 2011, compared with an expense of R$ 296.1 million in 2010. This variation was mainly due by maintenance costs, partially offset by higher compensation financial resources for the use of water.

 

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Equity earnings of subsidiaries

Equity earnings of subsidiaries was R$ 55.7 million in 2011, compared to R$ 99.3 million in 2010. Equity investment reflects the equity income or loss of our affiliates. In 2011, this net result was mainly due to: (i) income of R$ 39.7 million from Sanepar; (ii) income of R$ 10.2 million from Foz do Chopim; (iii) income of R$ 7.9 million from Dona Francisca Energética; and (iv) losses of R$ 2.1 million from Sercomtel Telecomunicações.

The 43.9% decrease in results of equity of earnings of subsidiaries, from R$ 99.3 million in 2010 to R$ 55.7 million in 2011, was primarily due to: (i) the decrease of R$ 34.1 million recognized from the results of Sercomtel Telecomunicações in 2011 compared to 2010, primarily reflecting the non-recurring nature of the R$ 17.8 million reversion in 2010 of the impairment provision related to Sercomtel, which was based on Sercomtel’s improving results in 2010; and (ii) the decrease of R$ 26.0 million recognized from the results of Dona Francisca Energética in 2011 compared with 2010, primarily reflecting the non-recurring nature of the adjustment to Dona Francisca Energéticas accounting policies to align these policies with Copel, which resulted in R$ 27.2 million in additional revenue recognized by us in 2010. This decrease was partially offset by an increase of R$ 17.6 million in income recognized from the results of Sanepar, which was primarily due to an increase in the tariffs charged by Sanepar in 2011. For more details see Note 16 to our consolidated financial statements.

Financial Results

We recognized R$ 224.8 million of net financial income in 2011, compared to net financial income of R$ 348.4 million in 2010. Financial income decreased by 11.5% or R$ 74.7 million in 2011 compared to 2010, mainly due to: (i) a decrease of R$ 72.1 million in the transfer of CRC Account amounts, due to the fact that these amounts are indexed based on inflation, and inflation was relatively lower in 2011 than in 2010; (ii) a decrease of R$ 50.8 million on receivables related to our concessions, since these amounts are also indexed based on inflation; and (iii) an increase of R$ 60.8 million in income from financial investments, mainly due to an increase in capital, increased interest rates and improved portfolio profitability. Financial expenses increased by 16.1%, or R$ 49.0 million, in 2011 compared to 2010, mainly due to an increase in debt charges of R$ 36.2 million, mainly related to the industrial credit note we contracted in 2011.

Income Tax and Social Contribution

In 2011, we recognized income tax and social contribution expenses of R$ 407.1 million, reflecting an effective tax rate of 25.7% on our pretax income. In 2010, we recognized income tax and social contribution expenses of R$ 370.5 million, reflecting an effective tax rate of 26.8% on our 2010 pretax income. The decrease of 1.1 percentage points in our effective tax rate in 2011 was the net effect of a number of factors, including: (i) an increase of R$ 50.7 million in taxes related to interest on equity, which increased our effective tax rate by 3.2 percentage points; (ii) a decrease on equity in result of subsidiaries by R$ 20.0 million, which reduced our effective tax rate by 1.3 percentage points; (iii) a 2011 tax benefit we claimed relating to the reduction of penalties and interest, which reduced our effective tax rate by 0.5 percentage points; and (iv) the effects of the Transitional Tax Regime (RTT).

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. Our other principal uses of cash are to dividends payments and debt servicing. Capital expenditures were R$ 1,938.6 million in 2012 (including R$ 161.9 million investment in the Mauá Hydroelectric Plant) and R$ 1,841.1 million in 2011 (including R$ 216.4 million investment in the Mauá Hydroelectric Plant). The following table sets forth a breakdown of our capital expenditures for the periods indicated.

 

Year ended December 31,

 

2012

2011

2010

 

(R$ million)

Generation and transmission

988.2

928.9

275.6

Distribution

778.1

754.5

676.3

Telecom

79.9

81.0

75.4

Equity earnings of subsidiaries

57.3

39.2

0.2

Araucária Thermoelectric Plant

1.7

15.8

11.8

Compagas

31.1

19.0

15.7

Elejor

2.3

2.7

4.9

Total

1,938.6

1,841.1

1,059.9

 

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Our total budgeted capital expenditures for our wholly-owned subsidiaries for 2013 is R$ 2,628.8 million, of which:

·

R$ 925.1 million is for generation and transmission, including R$ 58.6 million for the construction of the Mauá Hydroelectric Plant and R$ 449.0 million for the construction of the Colíder Hydroelectric Plant;

·

R$ 986.4 million is for distribution;

·

R$ 69.9 million is for our telecommunication business; and

·

R$ 647.4 million is for new businesses. This amount includes projects we won in the ANEEL Auction 007/2012 (lots B and G), held on December 19, 2012.

Our following subsidiaries also budgeted their own capital expenditures for 2013, as described below:

·

Compagas: R$ 71.9 million;

·

Araucária: R$ 4.7 million; and

·

Elejor: R$ 8.3 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 2012 was our operating activities. Net cash provided by operating activities was R$ 1,395.2 million in 2012, compared with R$ 1,147.9 million in 2011. In 2013, we expect to finance our liquidity and capital requirements primarily with cash provided by our operations and through debt financing from BNDES and in the Brazilian capital markets.

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 capital markets.

ANEEL 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.

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.

 

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In addition, Copel Geração e Transmissão has certain financing agreements with BNDES that contain clauses requiring BNDES approval for Copel Geração e Transmissão to pay cash dividends exceeding 30% of its adjusted net income established by Brazilian Corporate Law. Since BNDES has always approved Copel Geração e Transmissão requests to pay cash dividends in excess of 30% of its adjusted net income, this restriction has not affected the ability of Copel Geração e Transmissão to pay cash dividends or our ability to meet our cash obligations. As a result, we do not expect this restriction to affect our ability to meet our cash obligations in the future.

Like other state-owned companies, we are subject to CMN restrictions on our ability to obtain financing from certain domestic and international sources. CMN restrictions could limit our ability to accept external sources of funding, specifically bank financing. CMN restrictions do not affect our ability to access the Brazilian capital markets, and do not restrict our access to international capital markets for the purpose of repaying or refinancing debt.

Our total outstanding loans and financing (including debentures) at December 31, 2012 totaled R$ 3,261.6 million. Approximately R$ 59.3 million of the total debt outstanding at December 31, 2012 was denominated in U.S. dollars. For more information on the terms of these loans and financings, see Notes 21 and 22 to our consolidated financial statements. Our major loans and financing arrangements are:

·

On October 30, 2012, Copel Distribuição issued R$ 1,000.0 million in five-year non-convertible debentures, all of which were subscribed for by Banco do Brasil S.A. These debentures have an interest rate equal to CDI + 0.99% per year, with semiannual interest payments.

·

We have R$ 233.0 million in outstanding debt with Eletrobras (i) for the Salto Caxias plant and (ii) under government programs to finance distribution projects.

·

We have R$ 1,541.9 million of outstanding debt with Banco do Brasil (not including the debentures listed above), consisting of financings we contracted to pay debentures issued in 2002, 2005 and 2006, as well as a September 2010 fixed-rate credit agreement.

·

BNDES has provided a loan to Copel of R$ 339 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, 2011 and December 31, 2012, we had an aggregate of R$ 344.4 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 a 14 years term. As of December 31, 2012, we had an aggregate of R$ 42.7 million.

·

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. This funding has not yet been drawn.

·

FINEP: in November 2010, a loan agreement in amount of R$ 52.2 million was signed by Copel Telecomunicações S.A. to partially support the BEL – Extra Broadband project. By December 31, 2012, two installments of R$ 25.8 million were drawn. As of December 31, 2012, we had an aggregate outstanding balance of R$ 25.6 million.

In addition, we have obtained approval from the CMN to apply for BNDES financing in the amount of R$ 1,610.0 million for three projects (HPP Colíder, TL Araraquara II, Taubaté and SE Cerquilho III) and additional infrastructure work related to the 2014 FIFA World Cup. These loan requests are being analyzed by BNDES.

 

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We are party to several legal proceedings that could have a material adverse impact on our liquidity if the rulings are adverse to us. In addition, we are contesting a determination by ANEEL that would require us to pay additional amounts for energy we purchased for resale during the electricity-rationing period in 2001 and the first quarter of 2002. We are also involved in several lawsuits, including challenges to the legality of certain federal taxes, which have been assessed against us, claims by industrial customers that certain increases in electricity tariffs from March through November 1986 were illegal and several labor related claims. These contingencies are described in “Item 8. Financial Information - Legal Proceedings”. If any of these claims are decided against us either individually or in the aggregate, they could have a material adverse effect on our liquidity and our financial condition.

Contractual Obligations

In the table below, we set forth certain of our contractual obligations as of December 31, 2012, and the period in which such contractual obligations come due.

 

Payments due by period

 

Total

Less than1 year

1-3 years

3-5 years

More than5 years

 

(R$ million)

Contractual obligations:

 

 

 

 

 

Loans and financing

2,850.5

356.9

1,601.9

375.9

515.8

Debentures

1,363.5

78.6

162.8

1,122.1

-

Suppliers(1)

1,072.2

971.4

65.7

35.1

-

Purchase obligations(2)

66,414.5

3,387.3

6,278.3

4,640.9

52,108.0

Concession payments(3)

2,318.3

49.0

106.5

119.4

2,043.4

Eletrobras ‒ Itaipu

7,965.3

510.7

1,314.5

1,362.7

4,777.4

Tax recovery programs(4)

247.9

247.9

-

-

-

Post employment benefits(5)

10,968.3

347.3

736.7

786.4

9,097.9

Total

93,200.5

5,949.1

10,266.4

8,442.5

68,542.5

(1)           Mainly consists of gas supplied by Petrobras to the Araucária Thermoelectric Plant.

(2)           Consists of binding power purchase commitments.

(3)           Payments to the federal government arising from Elejor, Mauá and Colíder facilities concession agreement.

(4)           For more details, see Note 13 to our consolidated financial statements.

(5)           For more details, see Note 23 to our consolidated financial statements.

We are also subject to risks with respect to tax, labor and civil claims and have provisioned R$ 1,155.7 million for accrued liabilities for legal proceedings related to these claims as of December 31, 2012. For more information, see “Item 8. Financial Information - Legal Proceedings” and Notes 13 and 28 to our consolidated financial statements.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 6. Directors, Senior Management and Employees

We are managed by:

·                     a Board of Directors, which may consist of seven to nine members and is currently composed of nine members; and

·                     a Board of Executive Officers, which consists of nine members.

 

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Board of Directors

The Board of Directors ordinarily meets once every three months and is responsible, among other things, for:

·

establishing our corporate strategy;

·

defining the general orientation of our business;

·

defining the responsibilities of members of our Board of Executive Officers; and

·

electing the members of our Board of Executive Officers.

Meetings of the Board of Directors require a quorum of a majority of the directors and decisions are made by majority vote. The members of the Board of Directors are elected to serve for two-year terms and may be reelected. Among the current nine members of the Board of Directors:

·

seven are elected by the controlling shareholders;

·

one is elected by minority shareholders; and

·

one is elected by our employees.

The member of our Board of Directors who is elected by the non-controlling shareholders has 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 State of Paraná and BNDES Participações S.A. – BNDESPAR (“BNDESPAR”), acting through the Company and Paraná Investimentos S.A., are parties to a shareholders’ agreement dated December 22, 1998, as amended on March 29, 2001 (“Shareholders’ Agreement”). BNDESPAR is a wholly-owned subsidiary of BNDES. Under the Shareholders’ Agreement, the parties agree to exercise their voting rights so that:

·

the State of Paraná appoints five members to the Board of Directors; and

·

BNDESPAR appoints two members to the Board of Directors.

According to Brazilian Corporate Law, minority shareholders are entitled to appoint and remove a member of the Board of Directors, in a separate election, where such minority shareholders (i) hold at least 15% of the company’s voting shares or (ii) hold at least 10% of the company’s outstanding non-voting shares.

The terms of the current members of the Board of Directors expire in April 2013. The current members are as follows:

Name

Position

Since

Mauricio Schulman

Chairman

2011

Lindolfo Zimmer

Director

2011

Marco Aurelio Rogeri Armelin

Director

2013

Paulo Procopiak de Aguiar

Director

2011

José Richa Filho

Director

2011

Mauricio Borges Lemos

Director

2013

Carlos Homero Giacomini

Director

2011

Natalino das Neves

Director

2013

Ney Amilton Caldas Ferreira

Director

2012

The following are brief biographies of the current members of our Board of Directors:

Maurício Schulman. Mr. Schulman is 82 years old. He received a degree in civil engineering from Universidade Federal do Paraná and a specialization degree in business administration. Mr. Schulman has also taken additional courses in electricity and economy in France. Previously, Mr. Schulman served as Chief Corporate Management Officer and Chief Executive Officer at Eletrobras; served as Chairman at Eletrobras, Light S.A. and of the Brazilian Committee at the Comissão de Integração Energética Regional - CIER; served as Chief Administrative Officer at Companhia de Desenvolvimento Econômico do Paraná – Codepar, Banco Nacional de Habitação – BNH and Federação Nacional dos Bancos - Fenaban (National Bank Federation). He also was State Secretary of the Treasury in the State of Paraná. Mr. Maurício Schulman was appointed by the State of Paraná.

 

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Lindolfo Zimmer. Mr. Zimmer is 71 years old. He received a degree in economic engineering and industrial management from Universidade Federal do Rio de Janeiro and in mechanical engineering and economics from Universidade Federal do Paraná. He has a MBA in marketing from Fundação Getúlio Vargas – FGV-PR. Previously, Mr. Zimmer served as Chief Executive Officer of Dobreve Energia S.A. – Desa, where he also was a member of its board of directors; advisor at Instituto de Engenharia do Paraná ‒ IEP (State Engineering Institute) and at Federação das Indústrias do Paraná – Fiep (Industries Federation of the State of Paraná) at the Social Responsibility Thematic Council; Chief Marketing Officer at Companhia Paranaense de Energia ‒ Copel (2000 to 2003); Chief Operation Officer at Copel (1995 to 1999); Chief Engineering and Construction Officer at Copel (1979 to 1982); Chairman of the Management Committee at Copel Telecomunicações and Copel Transmissão S.A.; member of the Management Committee at Copel Geração S.A. and Copel Distribuição S.A.; Chief Official for Special Works ‒ Foz do Areia Power Plant; manager of the Electromechanical Engineering Department at Foz do Areia Power Plant; manager of Mechanical Maintenance and Mechanical Engineering Divisions at Copel; engineer at Salto Osório Power Plant ‒ Copel; manager at Capivari-Cachoeira Power Plant; technical director at Inepar S.A.; department manager at Eletrobras S.A.; vice-president at Instituto Pró-Cidadania de Curitiba; and the Government Secretary for the Municipality of Curitiba. Mr. Zimmer was appointed by the State of Paraná.

Marco Aurélio Rogeri Armelin. Mr. Armelin is 41 years old. He received a degree in Electrical Engineering from Escola Politécnica da Universidade de São Paulo (1994). Mr. Armelin is the founding partner of Una Capital Ltda./DEC Investimentos Ltda. Previously, he was responsible for the variable income at M&Safra (2004 to 2005) and at Banco Itaú BBA S.A. (2001 to 2004). Mr. Armelin also acted as a member of the Board of Directors at Mahele Metal Leve (2009-2011) and a member of the Fiscal Council at Fosfértil (2006-2007) and at Metalúrigca Gerdau (2009-2010). Mr. Armelin has been appointed by the minority shareholders.

Paulo Procopiak de Aguiar. Mr. Aguiar is 73 years old. He received a degree in Civil Engineering from Universidade Federal do Paraná and specialization degrees in business administration for executives and theoretical and applied economics from Fundação Getúlio Vargas ‒ FGV-PR and in the economics of hydroelectric undertakings from Universidade Federal do Paraná . Mr. Aguiar also has a degree in hydrology and hydroelectric undertakings from Centro Internacional de Estudos, Paris. Previously, Mr. Aguiar served as Chief Executive Officer, Chief Technical Officer and Chief Financial Officer at Copel; Chief Financial and Economical Control Officer at Departamento Nacional de Águas e Energia Elétrica; Chief Financial Officer at Eletrobras; National Assistant Secretary of Energy; and a Member of the Board of Directors of Eletrobras  (1985 to 1989), Eletrosul  (1986 to 1989) and Light (1985 to 1989). Mr. Aguiar currently serves as Officer at Cimento Itambé Company and was appointed by the State of Paraná.

José Richa Filho. Mr. José Richa is 49 years old. He has a bachelor’s degree in civil engineering from Universidade Católica do Paraná and a graduate degree in public management from Sociedade Paranaense de Ensino e Informática. Previously, Mr. José Richa was Chief Administrative and Financial Officer at the Departamento de Estradas de Rodagem ‒ DER-PR (State Body for Roads); Chief Administrative and Financial Officer at Agência de Fomento do Paraná S.A. (State Development Agency); and Management Secretary of the Municipality of Curitiba. Mr. José Richa was appointed by the State of Paraná.

Maurício Borges Lemos. Mr. Lemos is 62 years old. He has a degree in Economics from Universidade Federal de Minas Gerais and a Doctorate and a Master’s degree in Economics from Universidade Estadual de Campinas - Unicamp. Mr. Lemos is currently a chief officer in the areas of management, finance and indirect operations at Banco Nacional de Desenvolvimento Econômico e Social - BNDES. Previously, Mr. Lemos acted as a member of Copel’s Board of Directors (2003) and as the Municipal Secretary responsible for the Coordination of the Social Politics of the city of Belo Horizonte, in Minas Gerais (2001-2002). Mr. Lemos was appointed by BNDES Participações S.A. - BNDESPAR.

Carlos Homero Giacomini. Mr. Giacomini is 59 years old. He has a master’s degree in Public Health form Universidade Estadual de Londrina – UEL; a specialization in Pediatrics, with residency at Hospital Evangélico do Paraná and a degree in Medicine from Faculdade Evangélica de Medicina do Paraná. Mr. Giacomini was Chairman of Instituto Municipal de Administração Pública - Imap; Municipal Secretary of Planning and Coordination at Curitiba Municipality; Director at Hospital Oswaldo Cruz; Director of Planning and Chief Official at Imap; Chairman at Instituto de Previdência dos Servidores do Município de Curitiba - IPMC; and Municipal Secretary of Human Resources at Curitiba Municipality. Mr. Giacomini was appointed by the State of Paraná.

 

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Natalino das Neves. Mr. das Neves is 46 years old. He has a specialization degree in Planning, Operating and Commercializing Electric Energy from Universidade Federal do Paraná and in Management Accounting from Unicentro. Mr das Neves acted as member of the Board of Directors of Companhia Paranaense de Energia – Copel in the period of 2001-2003. Mr. das Neves was elected by the Company’s employees.

Ney Amilton Caldas Ferreira. Mr. Ferreira is 59 years old. He has a post-degree in business management from Universidade Católica do Paraná and has a bachelor degree in business management and foreign trade from Faculdade Positivo. Mr. Ferreira was chairman of the Civil House of the State of Paraná and representative of the Social Security National Institute – INSS at the State of Paraná and acted in several functions in the municipality of Guarapuava, including as interim mayor of the city. In the past seven years, Mr. Ferreira acted as the CEO of Companhia de Desenvolvimento Agropecuário do Paraná – CODAPAR. Mr. Ferreira was appointed by BNDES Participações S.A. – BNDESPAR

Board of Executive Officers

Our Board of Executive Officers meets weekly and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by our bylaws.

According to our bylaws, our Board of Executive Officers consists of nine members. The Executive Officers are elected by the Board of Directors for three-year terms but may be removed by the Board of Directors at any time. Under the Shareholders’ Agreement, BNDESPAR has the right to appoint one member to the Board of Executive Officers. The terms of the current members of the Board of Executive Officers expire in April 2014. The current members are as follows:

Name

Position

Since

Lindolfo Zimmer

Chief Executive Officer

2011

Yára Christina Eisenbach

Chief Corporate Management Officer

2011

Julio Jacob Junior

Chief Legal Officer

2011

Vlademir Santo Daleffe

Chief Distribution Officer

2013

Jaime de Oliveira Kuhn

Chief Power Generation & Transmission and Telecommunications Officer

2011

Jorge Andriguetto Junior

Chief Engineering Officer

2011

Luiz Eduardo da Veiga Sebastiani

Chief Financial Officer, Investor Relations Officer and Investment Portfolio Manager

2013

Jonel Nazareno Iurk

Chief Environment and Corporate Citizenship Officer

2013

Henrique José Ternes Neto

Chief Alternative Energy Officer

2012

The following are brief biographies of the current members of our Board of Executive Officers:

Lindolfo Zimmer. Mr. Zimmer is 71 years old. Mechanical Engineer and an Economist, Lindolfo Zimmer held important positions throughout his professional career at Copel: as Chief Marketing Officer (2000 to 2003), Chief Operation Officer (1995 to 1999), Chief Engineering and Construction Officer (1979 to 1982) and Chairman of the Management Committee at Copel Telecomunicações S.A. and Copel Transmissão S.A. He had been recently working in the private sector as Chief Executive Officer of Dobreve Energia S.A. - Desa

Yára Christina Eisenbach. Ms. Eisenbach is 59 years old. Lawyer, Yára Christina Eisenbach held important positions throughout her professional career at Copel: as consultant advisor for the Ombudsman's Office (2006 to 2010). Elected by the employees, she took part of the Moral Harassment Commission (Comissão de Assédio Moral - CADAM) (2010 to 2011), also in the CENPLR Commission (2008 to 2010) and in the Company's Board of Directors (1991 to 1992). She was Chief Executive Officer at Urbanização de Curitiba S.A. - URBS (2003 to 2004), State Secretary for Planning and General Coordination (2002 to 2003), general coordinator at Centro de Coordenação de Programas do Governo do Paraná (1995 to 2002). She acted also as advisor to the World Bank and to UN International Agencies (Unesco, PNUD, IICA, among others). She was Regional Chairwoman of the Associação Nacional de Transporte Público e Trânsito - ANTP (Brazilian Public Transport and Transit Association).

 

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Julio Jacob Junior. Mr. Jacob is 38 years old. Lawyer, Julio Jacob Junior was Chief Legal Officer at Instituto Curitiba Saúde (2005 to 2007) and manager of the Legal Division at Companhia de Urbanização de Curitiba - URBS (2007). He also worked as a lawyer in Business Law, Administrative Law, Corporate Law and Electoral Law, besides being advisor at Ordem dos Advogados do Brasil in Curitiba.

Vlademir Santo Daleffe. Mr. Daleffe is 50 years old and is on Industrial Electrical Engineer, he was Chief Environment and Land Officer at Matrinchã Transmissora de Energia S.A. and Guaraciaba Transmissora de Energia S.A. (2012-2013); Chief Distribution Officer of Copel (2010-2011); Member of the Board of Directors of Companhia Paranaense de Gás - Compagas (2010-2011); Member of the Board of Directors of Instituto de Tecnologia para o Desenvolvimento - Lactec (2010-2011); –Head of Engineering of Copel Distribuição(2007 to 2009); Assistant to Copel Chief Distribution Officer (1997 to 1998).

Jaime de Oliveira Kuhn. Mr. Kuhn is 51 years old and is an Electrical Engineer. Jaime de Oliveira Kuhn held important positions throughout his professional career at Copel: as Chief Official for Transmission Works (2008 to 2010), coordinating Copel's participation in transmission auctions, Chief Official for the Operation of Power Transmission System, Planning and Engineering (2007 to 2008); assistant engineer to the Chief Technical Officer at Centrais Elétricas do Rio Jordão - Elejor (2005 to 2006); and as assistant to the Chief Official for Generation Operation and Maintenance at Copel (2003 to 2005). As Chief Official and Technician, he worked in the operation and maintenance of Foz do Areia and Segredo Power Plants from 1987 and 2002.

Jorge Andriguetto Junior. Mr. Andriguetto is 61 years old. Civil Engineer, Jorge Andriguetto Junior held important positions throughout his professional career at Copel: as Chief Official for Expansion Planning, Engineering and Construction in Power Generation, coordinating Copel's participation in several energy auctions and in undertakings of interest to the Company (2006 to 2010). He has also developed, since 1975, professional activities in various management positions in the Company's hydraulic and civil construction areas.

Luiz Eduardo da Veiga Sebastiani. Mr. Sebastiani is 52 years old. Economist, Luiz Eduardo da Veiga Sebastiani was Chief of Staff of Paraná State Government (2012-2013); Member of the Fiscal Council of Copel (2011-2012); Member of the Fiscal Council of Companhia de Saneamento do Paraná - Sanepar (Sanitation Utility Company) (2011-2012); Secretary of Administration and Pension for the State of Paraná (2011-2012); Municipal Secretary of Finance in Curitiba (2005-2010); Board member and State of Paraná representative at the Conselho Federal de Economia - Cofecon (Federal Economy Council), among other relevant activities, always within the financial management.

Jonel Nazareno Iurk. Mr. Iurk is 58 years old. Mr. Iurk has a master’s degree in Soil Science and in River Basin Management from the Universidade Federal do Paraná (2005); a specialization degree in Management and Environmental Engineering from Universidade Estadual do Paraná (1999), and bachelor’s degrees in Mathematics (1975) and in Civil Engineering (1978) from Universidade Estadual de Ponta Grossa. Mr. Iurk held the position of State Secretary of Environment and Natural Resources of the State of Paraná (2011-2013) and acted as the manager of the Environmental and Natural Resources State Policies.

Henrique José Ternes Neto. Mr. Neto is 60 years old. Mr. Neto has a master’s degree in Materials Science and Engineering from Universidade Federal de São Carlos, a specialization degree in Supply and Production from Universidade Católica do Paraná and a bachelor’s degree in chemical engineering from Universidade Federal do Paraná. Mr. Neto acted as Brazilian representative at UNESCO in relation to Concurso Mercosul de Pesquisa & Tecnologica, founder and official at Instituto de Tecnologia para o Desenvolvimento – LACTEC, member of the board of directors and advisory board of Instituto de Tecnologia do Paraná – TECPAR, member of the board of directors of Centro de Pesquisa em Energia Elétrica – Eletrobras, among others.

 

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Fiscal Council

We have a permanent Fiscal Council, which generally meets every three months. The Fiscal Council consists of five members and five alternates elected for one-year terms by the shareholders at the annual meeting. The Fiscal Council, which is independent of our management and of our external auditors, is responsible for:

·             reviewing our financial statements and reporting on them to our shareholders;

·             issuing special reports on proposed changes in capitalization, corporate budgets and proposed dividend distributions and any corporate reorganization; 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 Fiscal Council, who were appointed at the 58th annual shareholders’ meeting held on April 25, 2013, and whose terms expire in April 2014.

Name

 

Since

Joaquim Antonio Guimarães de Oliveira Portes – Chairman

 

2011

Nelson Leal Junior

 

2013

José Tavares da Silva Neto

 

2011

Gustavo Henrique Fabrício

 

2013

Carlos Eduardo Parente de Oliveira Alves

 

2012

Alternates

 

Since

Osni Ristow

 

2011

Roberto Brunner

 

2011

Gilmar Mendes Lourenço

 

2013

Bruno Cabral Bergamasco

 

2013

Flavio JarczunKac

 

2013

Audit Committee

Pursuant to Rule 10A-3 under the Exchange Act and our bylaws, our Audit Committee is composed of at least three members of our Board of Directors, each of whom serves a term of two years, and may be re-elected. Pursuant to the Audit Committee charter, the Audit Committee members are appointed by, and may be replaced by, a resolution taken by our Board of Directors. Until April 25, 2013, the members of the Audit Committee were Mrs. José Richa Filho, Carlos Homero Giacomini and Fabiano Braga Côrtes.  On April 25, 2013, Mr. Braga Côrtes ceased to be a member of our Board of Directors.  As a result, Mr. Braga Côrtes is no longer on our Audit Committee, and a new member of the Audit Committee will be elected at an Extraordinary Meeting of Copel’s Board of Directors, which is scheduled to be held on May 3, 2013. The Audit Committee is responsible for helping to prepare 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 Exchange Act, for 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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Compensation of Directors and Officers

For the year ended December 31, 2012, the aggregate amount of compensation paid by us to the members of our Board of Directors, Board of Executive Officers and Fiscal Council was R$ 12.2 million, of which 83% was for our Board of Executive Officers, 11% was for our Board of Directors, and 6% was for our Fiscal Council, as approved by our 57th annual shareholders’ meeting held on April 26, 2012.

We have no service contracts with our directors providing for benefits upon termination of employment.

Employees

At December 31, 2012, we had 9,468 employees, compared to 9,400 employees at December 31, 2011 and 8,907 employees at December 31, 2010. Including employees at Compagas, Elejor and UEG Araucária Ltda. (companies in which we have a majority stake) we had 9,629 employees by the end of 2012.

The following table sets forth the number of our employees and a breakdown of employees by category of activity as of the dates indicated in each area of our operations.

 

As of December 31,

Area

2012

2011

2010

Generation and transmission

1,188

1,138

1,438

Distribution

6,241

5,926

5,564

Telecommunications

340

346

330

Corporation staff and research and development

1,668

1,969

1,551

Other employees

31

21

24

Total employees of Copel wholly-owned subsidiaries

9,468

9,400

8,907

Compagas

143

128

117

Elejor

8

7

7

Araucária

10

10

10

Total

9,629

9,545

9,041

All of our employees are covered by collective bargaining agreements that we renegotiate annually with the unions that represent the various employee groups. In 2012, we negotiated and signed labor agreements with the unions representing our employees. These new bargaining agreements became effective in October 2012 and will be in place for a one-year term. We agreed to salary increases of 5.6% in 2012 compared to 2011 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, 2012, 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 provisioned and approved for the 2012 fiscal year (including Compagas) was R$ 29.9 million, a decrease of 37.7% when compared with the 2011 distribution, which totaled R$ 48.1 million. The amount of profit-sharing distributions accrued and approved for the 2011 fiscal year (including Compagas) was R$ 48.1 million, a decrease of 27.3% when compared with the 2010 distribution, which totaled R$ 66.2 million. The terms of the profit-sharing agreement are currently being revised and negotiated for future years.

Between March 2011 and December 2012, we had a voluntary retirement program (“PSDV”) in order to reduce costs and to prepare a retiree’s successor. Pursuant to the plan, an employee who had worked at least 20 years at Copel and was at least 50 years of age could opt to join the program by December 31, 2012, and will have up to 12 months to prepare his successor. The total cost of this program (2011 and 2012) was approximately R$ 233.3 million. During 2012, we had 790 employees join the program.

 

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Share Ownership

As of March 31, 2013, board members and executive officers held, collectively, directly or indirectly, less than 1.0% of any class of our shares.

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. At December 31, 2012, the State of Paraná directly owned 58.6% of the Common Shares, and BNDESPAR owned directly and indirectly 26.4% of the Common Shares

The following table sets forth certain information regarding the ownership of our Common Shares at December 31, 2012.

Shareholder

Common shares

 

(thousands)

(% of total)

State of Paraná

85,029

58.6

BNDESPAR

38,299

26.4

Eletrobras

1,531

1.1

Public Float – ADSs

111

0.1

Public Float – BM&FBovespa

19,510

13.4

Other

551

0.4

All directors and officers as a group(1)

0

Total

145,031

100.0

(1)        Our directors and officers hold an aggregate of 12 Common Shares.

The following table sets forth certain information regarding the ownership of our Class B Shares at December 31, 2012.

Shareholder

Class B Shares

 

(thousand)

(% of total)

State of Paraná

14

BNDESPAR

27,282

21.3

Eletrobras

Traded as ADSs

40,453

31.5

Traded in the BM&FBovespa Market

60,368

47.1

Other

124

0.1

All directors and officers as a group

2

Total

128,243

100.0

As of March 31, 2013, 1.8% of the Common Shares and 15.0% of the Class B Shares were held by 217 holders that reside in the United States and have registered with the Companhia Brasileira de Liquidação e Custódia (“CBLC”). At the same date, the ADSs represented 0.1% of the Common Shares and 31.5% of the Class B Shares, and together, approximately 14.8% of our total share capital. By March, 2013, our shareholders had voted to convert 2,383 Class A Shares into Class B shares.

Shareholders’ Agreement

Under the Shareholders’ Agreement, the State of Paraná cannot approve, without BNDESPAR’s prior authorization, the following matters:

·

amendments to our bylaws;

·

reductions or increases of our capital stock;

·

changes in our corporate purpose;

·

creation of a new class of our preferred shares;

·

issuances of securities convertible into our shares or call options for our shares;

·

reverse splits or splits of issued shares;

·

incorporation of reserves, funds or accounting provisions that affect the rights and interests of minority shareholders;

·

liquidations or voluntary corporate restructurings;

 

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·

mergers, spin-offs, transformations, transfers or acquisitions of interests in other companies;

·

incorporation of wholly-owned subsidiaries;

·

adoption of policy with respect to minority shareholders in the case of merger, amalgamation, split-off and transfer of control in Copel; and

·

reduction in mandatory dividends.

Related Party Transactions

We engage in transactions, including the sale of electric energy, with our principal shareholders and with our affiliates. The tariffs we charge on electric energy sold to our related parties are approved by ANEEL, and the amounts are not material.

Transactions with Shareholders

The following summarizes the most significant transactions with our principal shareholders:

Government of the State of Paraná

The State of Paraná owns 58.6% of our Common Shares. We had accounts receivable from the government of the State of Paraná under the CRC Account agreement in the amount of R$ 1,384.3 million at December 31, 2012. The outstanding balance bears interest of 6.65% per year and is adjusted in accordance with the IGP-DI inflation index. We recorded interest income and monetary variation receivable from the government of the State of Paraná under the CRC Account of R$ 188.7 million in 2012. For more information, see “Item 5. Operating and Financial Review and Prospects – Overview - Impact of the CRC Account”. We also had ICMS payables in the amount of R$ 209.6 million as of December 31, 2012. ICMS expenses during 2012 amounted to R$ 2.5 billion.

BNDES and BNDESPAR

BNDESPAR, a wholly-owned subsidiary of BNDES, owns 26.4% of our Common Shares and has the right to appoint two members to our Board of Directors.

BNDES has provided a loan to Copel of R$ 339 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, 2011 and December 31, 2012, we had an aggregate of R$ 344.4 million in outstanding debt with BNDES and Banco do Brasil under this facility.

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 2012, Copel made payments to Fundação Copel consisting of: (i) rental in amount of R$ 10.2 million and (ii) R$ 182.9 million for expenditure on pension and welfare plans.

Transactions with Affiliates

Dona Francisca Energética S.A.

We own 23.0% of the total issued and outstanding share capital of Dona Francisca Energética S.A. We had accounts payable in the amount of R$ 6.1 million as of December 31, 2012. We provided guaranties to Dona Francisca in connection with loans obtained from Banco Bradesco S.A., and to BNDES, in an amount proportionate to our interest in Dona Francisca. The outstanding balance of the loans and financing was R$ 5.6 million as of December 31, 2012.

 

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We have a power purchase agreement with Dona Francisca, valued at R$ 61.2 million annually, which obligates Copel Geração e Transmissão to purchase 100.0% of the energy generated at Dona Francisca until October 2015.

Item 8. Financial Information.

See pages F-1 through F-120

Legal Proceedings

We are currently subject to numerous proceedings relating to civil, administrative, labor and tax claims. Our consolidated financial statements only include provisions for probable and reasonably estimable losses and expenses we may incur in connection with pending litigation. At December 31, 2012, our provisions for such risks were R$ 1,155.7 million, which we believe to be sufficient to meet probable and reasonably estimated losses in the event of unfavorable rulings relating to the legal proceedings in which we are a party. However, we cannot assure you that these provisions will be sufficient.

As of December 31, 2012, we estimate that the total amount of claims against us, excluding disputes involving non-monetary claims or claims that cannot be evaluated in the current stage of proceedings, classified as possible losses, was approximately R$ 2,356.3 million, of which R$ 257.4 million correspond to labor claims; R$ 41.4 million to employee benefits; R$ 19.2 million to regulatory claims; R$ 810.8 million to civil claims; and R$ 1,227.5 million to tax claims. For more information, see Note 28 to the consolidated financial statements.

ANEEL Determinations

We are contesting a determination by ANEEL that would require us to recognize, in our current liabilities at December 31, 2012, approximately R$ 1,500 million in relation to energy purchased from Itaipu during the energy rationing period that occurred in 2001, when there was a significant difference between the purchase price of Itaipu energy and energy sold in the spot market. Our management believes that losses resulting from the final ruling of this claim are remote and therefore we have no provision relating to this matter. However, we may be required to contribute to the amounts owed by other energy companies under similar lawsuits, and as of December 31, 2012, we had provisions of R$ 38.3 million to cover probable losses related to these other lawsuits.

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 federal 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 periods between August 1995 and December 1996, and between October 1998 and June 2001. As of December 31, 2012, we had provisioned R$ 48.8 million and R$ 194.3 million for each period, respectively, for a total provision of R$ 243.1 million to cover probable losses related to these lawsuits.

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 value of our probable loss to be R$ 29.8 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, 2012, we have provisioned R$ 233.7 million to cover probable losses related to these lawsuits.

 

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Regulatory

We are disputing certain regulatory and legal proceedings in connection with ANEEL’s allegations that we violated regulatory standards related to the duration and frequency of power outages experienced by our Final Customers. As of December 31, 2012, we have provisioned R$ 50.9 million to cover probable losses related to these proceedings.

Additional Claims

We are a party to several lawsuits related to accidents involving equipment used in our electricity transmission and distribution systems, vehicle accidents and lawsuits for recovery of commissions by Tradener (more information see note 28.1.4 (b), of our consolidated financial statements). As of December 31, 2012, we have provisioned R$ 176.8 million to cover probable losses related to these lawsuits.

In July 2004, Rio Pedrinho Energética S.A. (“Rio Pedrinho”) and Consórcio Salto Natal Energética S.A. (“Salto Natal”) commenced arbitration proceedings against Copel Distribuição seeking approximately R$ 25.0 million each for outstanding amounts due under energy purchase agreements, and any associated penalties. In September 2005, the arbitration panel ordered Copel Distribuição to pay each company approximately R$ 27.5 million.

We filed a lawsuit in November 2005 in the local courts in Curitiba seeking to annul the decision of the arbitration panel. Subsequently, Rio Pedrinho and Salto Natal filed judicial execution proceedings seeking to require that we pay them the awards granted by the arbitration. As of December 31, 2012, we had provisions of R$ 68.6 million to cover probable losses related to this proceeding.

As the result of a November 2004 lawsuit filed by Ivaí Engenharia de Obras S.A. (“Ivaí”), we were ordered to pay R$ 180.9 million based on a claim by Ivaí that amounts paid by us were insufficient to cover Ivaí’s costs related to Ivaís construction work on the Rio Jordão project. We appealed this decision and were partially successful, avoiding the application of the SELIC interest rate in addition to the penalty interest. We were granted an injunction to suspend this payment, which also resulted in the suspension of the provisional enforcement then brought by Ivaí. As of December 31, 2012, we had provisions of R$ 233.7 million to cover probable losses related to this proceeding.

We are a party to several lawsuits brought by landowners whose land has been affected by our transmission and distributions lines. As of December 31, 2012, we have provisioned R$ 6.0 million to cover a probable losses related to these lawsuits.

Dividend Payments

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. 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 Fiscal Council, 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.

 

 

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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. 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. At December 31, 2012, our legal reserve was R$ 571.2 million, or approximately 8.3% 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;

·

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 proposal of our Board of Directors or Board of Executive Officers.

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 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;

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·

second, to the extent there are additional amounts to be distributed after all amounts allocated to the Class A Shares have been paid, 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.

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 approved by our shareholders. Any payment of interim dividends count towards the mandatory dividend for the year in which the interim dividends were paid.

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 Corporate Law), less certain deductions prescribed by Brazilian Corporate Law; 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 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.

 

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The table below sets forth the cash distributions we paid 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

2008

May 2009

261,834

0.91289

1.62979

1.00438

2009

May 2010

249,459

0.86965

1.62979

0.95679

2010

May 2011

281,460

0.98027

2.52507

1.07854

2011

May 2012

421,091

1.46833

2.52507

1.61546

2012

May 2013

268,554

0.93527

2.52507

1.02889

The table below sets forth the cash distributions we paid 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 thousand shares (US$)

 

 

 

Common

Preferred A

Preferred B

2008

May 2009

112,039

0.39062

0.69739

0.42977

2009

May 2010

143,268

0.49945

0.93602

0.54950

2010

May 2011

168,923

0.58833

1.51547

0.64731

2011

May 2012

224,486

0.78278

1.34613

0.86121

2012

May 2013

131,419

0.45768

1.23566

0.50349

           

Item 9.   The Offer and Listing

The principal trading market for the Class B Shares is the BM&FBovespa market, which is maintained by BM&FBovespa S.A. – Bolsa de Valores, Mercadorias e Futuros (“BM&FBovespa”). On March 31, 2013, we had approximately 3,134 shareholders of our Class B Shares.

The following table sets forth the reported high and low closing sale prices for the Class B Shares on the São Paulo Stock Exchange for the periods indicated.

 

Price per Class B Shares

 

High

Low

 

(R$)

2008

34.15

20.20

2009

39.00

21.10

2010

44.60

33.00

2011

46.50

31.93

1st Quarter

45.20

39.70

2nd Quarter

46.50

39.68

3rd Quarter

41.90

33.70

4th Quarter

40.09

31.93

2012

48.29

26.40

1st Quarter

45.52

37.30

2nd Quarter

48.29

39.92

3rd Quarter

44.32

32.31

4th Quarter

33.31

26.40

December

32.35

28.77

2013, up to April 10, 2013

 

 

1st Quarter

33.22

27.97

January

33.22

28.98

February

33.19

29.00

March

30.93

27.97

2nd Quarter

 

 

April

34.30

31.17

     

 

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In the United States, the Class B Shares trade in the form of ADSs, each representing one Class B Share (as a result of the reverse stock split), issued by The Bank of New York Mellon, as depositary (“Depositary”) pursuant to a Deposit Agreement (“Deposit Agreement”) between Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs. The ADSs trade under the symbols ELP and ELPVY. The following table sets forth the reported high and low closing sales prices for ADSs on the NYSE for the period indicated.

 

U.S. dollars per ADS

 

High

Low

 

(US$)

2008

21.78

8.77

2009

22.52

8.32

2010

26.28

18.07

2011

29.41

17.80

1st Quarter

27.79

24.00

2nd Quarter

29.41

25.44

3rd Quarter

27.08

18.21

4th Quarter

21.47

17.80

2012

26.03

17.25

1st Quarter

26.03

20.44

2nd Quarter

25.25

19.93

3rd Quarter

21.97

15.93

4th Quarter

16.42

12.75

December

15.77

13.54

2013, up to April 10, 2013

 

 

1st Quarter

16.77

14.05

January

16.43

14.29

February

16.77

14.91

March

15.81

14.05

2nd Quarter

 

 

April

17.28

15.63

     

On June 19, 2002, shares of the Company were listed through Latibex, which is part of the Madrid Stock Exchange (“Latibex”). Latibex is a Euro-based market for Latin American securities. The shares trade under the symbol XCOP.

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 One of our bylaws, our objectives and purposes are:

·

researching and studying, technically and economically, all energy sources;

·

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 information and technical assistance services concerning the rational use of energy by businesses, with the aim of implementing and developing economic activities deemed relevant for the development of the State of Paraná; and

·

implementing electronic data transmission, electronic communications, cellular telephone systems, and other endeavors that may be deemed relevant to the Company and the State of Paraná.

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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 Directors

Our bylaws require that each director be a shareholder of the Company and a Brazilian citizen and resident.

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 and executive officers. For more information, see “Item 6. Directors, Senior Management and Employees”.  Our bylaws do not establish any mandatory retirement age limits.

Shareholders’ Meetings

The convening of our shareholders’ meeting is made through publication of a notice to shareholders in three newspapers, which are determined at the previous shareholders’ meeting. Generally, we make such notice in Diário Oficial do Estado – PR and the Gazeta do Povo. As provided by Brazilian Corporate Law, publications have to be made in the official newspaper located in the state of our corporate headquarters, 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.

Right of Withdrawal

Brazilian Corporate Law provides that under certain circumstances a dissenting shareholder has 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:

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.

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.

 

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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 that the only permitted conversion of shares is Class A Shares are convertible into Class B Shares. 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 Central Bank pursuant to a foreign investment mechanism regulated by Resolution 2,689 of January 26, 2000 of the CMN (“Resolution 2,689”) as described under “Exchange Controls” below, the foreign investor must declare the transfer in its electronic registration.

A shareholder may choose, in its individual discretion, to hold its shares through CBLC. Shares are added to the CBLC system through Brazilian institutions that have clearing accounts with the CBLC. Our shareholder registry indicates which shares are listed on the CBLC system. Each participating shareholder is in turn registered in a register of beneficial shareholders maintained by the CBLC and is treated in the same manner as the other registered shareholders.

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 Central Bank. Any foreign investor who registers with the CVM in accordance with CMN Resolution 2,689 may buy and sell securities on Brazilian stock exchanges without obtaining a separate certificate of registration for each transaction.

Annex V to CMN Resolution 1,289 (“Annex V Regulations”) allows Brazilian companies to issue depositary receipts in foreign exchange markets. Our ADS program is duly registered with the 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

Brazilian regulations require that any person or group of persons representing the same interest that has directly or indirectly reached an interest corresponding to 5% or more of any class of shares, or any rights under such shares, of 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. Any subsequent increase or decrease of 5% or more in ownership of any class of shares must be similarly disclosed. The same reporting obligation applies to any person or group of persons with an interest of 5% or more of any class of shares of a publicly traded company ceases to hold its stake. 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.

 

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Material Contracts

For information concerning our material contracts, see “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”.

Exchange Controls

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 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 2,689, 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.                   appoint at least one representative in Brazil with powers to perform actions relating to foreign investments;

2.                   complete the appropriate foreign investor registration form;

3.                   register as a foreign investor with the CVM; and

4.                   register the foreign investment with the Central Bank.

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 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 V 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 under the Annex V Regulations by the Central Bank and the CVM. Accordingly, the proceeds from the sale of ADSs by ADS holders outside Brazil are free of Brazilian foreign investment controls and holders of the ADSs who are not resident of a tax haven will be entitled to favorable tax treatment. For more information, see “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 will be entitled to continue to rely on the Depositary’s electronic registration for five business days after such exchange, following which such holder must seek to obtain its own electronic registration with the Central Bank.

 

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Pursuant to Central Bank Resolution 3,845, the withdrawal of Class B Shares upon cancellation of ADSs requires simultaneous exchange transactions in the event the investor decides not to dispose of those Class B Shares. The simultaneous exchange transactions are required in order to obtain a certificate of registration of Class B Shares with the Central Bank. This transaction will be subject to tax in Brazil. For more information, see “Taxation - Brazilian Tax Considerations - Other Brazilian Taxes”.

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 “Taxation - Brazilian Tax Considerations”.

The federal 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 federal government froze all dividend and capital repatriations held by the 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 federal government directives. There can be no assurance that the federal government will not impose similar restrictions on foreign repatriations in the future.

Taxation

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 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.

 

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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. 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.

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 rate of 15.0% 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 2,689 of the CMN (“2,689 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 2,689 Holder, or (ii) is a 2,689 Holder and a Tax Haven Holder. In these cases, a withholding income tax of 0.005% on the sale value shall be applicable and can be offset with the eventual income tax due on the capital gain.

 

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There can be no assurance that the current preferential treatment for 2,689 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 an income tax rate of 15.0%, except for gains assessed on 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.

The deposit of Class B Shares in exchange for the ADSs may be subject to Brazilian income tax if the acquisition cost of the Class B Shares is lower than (i) the average price per Class B share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of the deposit; or (ii) if no Class B Shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of Class B Shares were sold during the 15 trading sessions immediately preceding such deposit. In this case, the difference between the acquisition cost and the average price of the Class B Shares, calculated as set forth above, shall be considered a capital gain subject to income tax at a rate of 15.0% 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 2,689 (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 is not subject to Brazilian income tax, as long as the regulatory rules are appropriately observed with respect to the registration of the investment before the 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 rate of 15.0% 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, capital gain 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.

 

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The withdrawal of Class B Shares upon cancellation of ADSs will be subject to IOF/Exchange at the rate of 0.38%, considering that a simultaneous exchange transaction is required for this operation if the investor remains with the Class B Shares, pursuant to Resolution 3,845, issued by the Brazilian Central Bank.

Also under Decree no. 6,306/07, the Tax on Bonds and Securities Transactions (“IOF/Bonds”) may be levied on transactions involving bonds and securities, including those carried out on Brazilian stock, futures or commodities exchanges. As a general rule, the rate of this tax is currently zero. The Brazilian government may, however, increase the rate to a maximum of 1.5% per day, but only in respect of future transactions. IOF/Bonds Tax is levied at a rate of 1.5% on the assignment of shares traded in the Brazilian stock market in order to permit the issuance of ADSs.

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 dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, holders of 10% or more of our shares (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, partnerships or other pass-through entities, 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.

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). 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.

 

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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 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 2012 taxable year. In addition, based on our audited 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 2013 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. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or Class B Shares and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to treat dividends as qualified for tax reporting purposes. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of ADSs and Class B Shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in the light of the considerations discussed above and their own particular circumstances.

Distributions out of earnings and profits 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 disposition of a Class B Share or ADS, a U.S. holder generally 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.

 

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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.

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.

Dividends and Paying Agents

Entitlement to dividends arises on the date of acquisition of our shares or ADS. For a description of restrictions related to payments of dividends to foreign investors, see “Memorandum and Articles of Association - Regulation of and Restrictions on Foreign Investors” and “Exchange Controls”. The Depositary will distribute dividends and other distributions to the holders of our ADSs.

Documents on Display

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. You may read and copy any materials filed with the SEC at its Public Reference Room at 100 Fifth Street, N.W., Washington, D.C. 20459. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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 web site at http://www.sec.gov.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

See Note 35.4 to our consolidated financial statements for disclosure about market risk.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

Item 12A. Debt Securities

Not applicable.

Item 12B. Warrants and Rights

Not applicable.

 

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Item 12C. Other Securities

Not applicable.

Item 12D. American Depositary Shares

The Bank of New York Mellon, serves as the depositary for our ADSs. 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.

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, 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.

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, 2012, this amount was US$ 643.9 thousand.

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

 

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Item 15. Controls and Procedures

Financial Responsibility, Disclosure Controls and Procedures, and Report on Internal Control Over Financial Reporting

(a)            Disclosure Controls and Procedures

We have carried out an evaluation under supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012. Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.

Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of December 31, 2012 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management as appropriate in order to allow timely decisions regarding required disclosure.

(b)            Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Our internal controls were 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.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective 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 decline.

Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2012. In making this assessment, it used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO. Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2012.

KPMG Auditores Independentes, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2012.

Changes in Internal Controls

The management of the Company identified no change in its internal control over financial reporting during the fiscal year ended December 31, 2012, that has materially affected or is reasonably likely to materially affect its internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our Board of Directors has reviewed the qualifications and backgrounds of the members of the Audit Committee and determined that José Richa Filho is an “audit committee financial expert” within the meaning of Item 16A. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees - Audit Committee”.

Item 16B. Code of Ethics

In November 2003, we adopted a code of ethics that also applies to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. In June 2008, we updated our code of ethics based on the corporate governance practices issued by the Global Reporting Initiative - GRI,

 

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Accountability 1000 - AA1000. We have posted copies of this code of ethics, which we refer to as our “Code of Conduct”, on our Internet website at the following address: www.copel.com/ir. Copies of our code of ethics may also be obtained without charge by writing to us at the address set forth on the front cover of this Form 20-F. We have not granted any implicit or explicit waivers from any provision of our code of ethics to the officers described above since the adoption of the code.

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

KPMG Auditores Independentes acted as our independent registered public accounting firm for the fiscal years ended December 31, 2012 and 2011, and Deloitte Touche Tohmatsu Auditores Independentes for the fiscal year ended December 31, 2010.

The table below sets forth the total amount paid to KPMG Auditores Independentes for services performed in 2012 and 2011 and the total amount paid to Deloitte Touche Tohmatsu Auditores Independentes for services performed in 2010, and breaks down these amounts by category of service :

 

Year ended December 31,

 

2012

2011

2010

 

(R$ million)

Audit fees

1.3

1.2

1.5

Audit-related fees

0.1

Tax fees

All other fees

Total  

1.3

1.2

1.6

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.

Audit Committee Pre-Approval Policies and Procedures

Neither our Board of Directors nor our Audit Committee has established pre-approval policies and procedures for the engagement of our registered public accounting firm for services. Our Board of Directors expressly approves on a case-by-case basis any engagement of our Registered Public Accounting Firm for audit and non-audit services provided to us or our subsidiaries. Our Audit Committee provides recommendations to our Board of Directors regarding such engagements. 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

None.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 16F. Changes in Registrant’s Certifying Accountant

On April 18, 2011, KPMG Auditores Independentes (“KPMG”) replaced Deloitte Touche Tohmatsu Auditores Independentes (“Deloitte”) as our independent public accountants for the fiscal years starting January 1, 2011. The change in auditors was made pursuant to a Brazilian law that limits the consecutive terms that certain service providers may serve. Because of the limitations set forth in this law, we did not seek to renew Deloitte’s contract when it expired and Deloitte did not attempt to stand for reelection. The replacement of Deloitte by KPMG was approved by our Board of Directors and Audit Committee. KPMG was engaged as our auditor for the fiscal years ended December 31, 2012 and 2011 and Deloitte was engaged as our auditor for the fiscal year ended December 31, 2010.

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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.

The majority of the members of Copel’s board of directors are “independent” as defined in the NYSE standards. As a controlled company, Copel would not be required to comply with the board of director independence requirements if it were a U.S. domestic issuer.

 

303A.03

The non-management directors of a listed company must meet at regularly scheduled executive sessions without management.

 

The non-management directors of Copel do not hold regularly scheduled executive sessions without management.

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.

 

Copel does not have a nominating/ corporate governance committee. As a controlled company, Copel would not be required to comply with the nominating/ corporate governance committee requirements if it were a U.S. domestic issuer.

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 does not have a compensation committee. As a controlled company, Copel would not be required to comply with the compensation committee requirements if it were a U.S. domestic issuer.

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 Exchange Act, with a written charter that covers certain minimum specified duties.

Our shareholders amended our bylaws to establish an Audit Committee composed of at least three board members (all of which are independent), each of who serves a term of two years, and may be re-elected. Pursuant to the Audit Committee Charter, 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 responsible for 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 efficacy of our internal control and risk management procedures and staff.

 

 

 

 

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Section

New York Stock Exchange Corporate Governance Rules for U.S. Domestic Issuers

Copel’s Approach

 

 

 

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.

Copel does not have formal governance guidelines that address all of the matters specified in the NYSE rules. However, Copel has adopted corporate governance guidelines that follow the model proposed by the Instituto Brasileiro de Governança Corporativa ? IBGC (Brazilian Institute of Corporate Governance).

 

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 the board of directors, the fiscal council, management and employees. Copel will disclose any waivers of the requirements of the code for directors or executive officers in its annual report on Form 20-F.

 

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.

 

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Reference is made to pages F-1 through F-120.

 

 

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Item 19. Exhibits

1.1

Amended and Restated By-laws of the Company dated as of April 25, 2013. (English translation).

2.1

Deposit Agreement (preferred shares) dated as of March 21, 1996, as amended and restated as of November 21, 2007, filed with the SEC on February 12, 2009 as an exhibit to our Registration Statement on Form F-6 and in incorporated herein by reference.

4.1

The Adjustment Agreement of August 4, 1994 between the State of Paraná and Companhia Paranaense de Energia ‒ Copel (“Adjustment Agreement”) (incorporated by reference to our Form F-1 333-7148, filed with the SEC on June 30, 1997) and the Deed of Amendment to the Adjustment Agreement (Quarto Termo Aditivo ao Termo de Ajuste celebrado em 21 de janeiro de 2005) (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005, filed with the SEC on June 30, 2006).

8.1

List of subsidiaries.

12.1

Certification of the Chief Executive Officer of Copel, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

12.2

Certification of the Chief Financial Officer of Copel, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

13.1

Certification of Chief Executive Officer of Copel, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2

Certification of the Chief Financial Officer of Copel, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 Technical Glossary

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.

A-1 Auctions: The denomination of electricity auctions in the regulated Brazilian market being held by existing power generators in the year before the initial delivery date.

A-3 Auctions: The denomination of electricity auctions for new generation projects being held in the regulated Brazilian market in the third year before the commencement of commercial operation.

A-5 Auctions: The denomination of electricity auctions for new generation projects being held in the regulated Brazilian market in the fifth year before the initial delivery date of electricity.

Adjustments Auction: The denomination of electricity auctions held by existing power generators in the Brazilian regulated market up to four months before the delivery date.

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

Annex V Regulations: Annex V to Resolution. 1,289.

Annual Permitted Revenues: 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, or Receita Anual Permitida– RAP.

Annual Reference Value:A mechanism established by Brazilian regulation that limits the costs that can be passed through to Final Customers. The mechanism corresponds to the weighted average of the electricity prices in the A-5 and A-3 Auctions (excluding alternative energy auctions), calculated for all distribution companies.

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.

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.

BM&FBovespa: The BM&FBovespa S.A. – Bolsa de Valores, Mercadorias e Futuros.

BNDES: The Banco Nacional de Desenvolvimento Econômico e Social.

BNDESPAR: BNDES Participações S.A. – BNDESPAR.

Capacity Agreement: Agreement under which a generator commits to make 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.

 

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Capacity Charge: A charge for sales of energy that is based on the amount of firm capacity contracted by a customer and that is independent of the amount of energy actually consumed by that customer.

CBLC: The Companhia Brasileira de Liquidação e Custódia.

CCEAR: The energy purchase agreements in the regulated market, or Contratos de Comercialização de Energia no Ambiente Regulado.

CCEE: The Electric Energy Trading Chamber, or the Câmara de Comercialização de Energia Elétrica

CDE Account: The Electric Energy Development Account, or Conta de Desenvolvimento Energético, was created by the Brazilian government in 2002 to, amongst others, promote the availability of electric energy services to all of Brazil and the competitiveness of the energy produced by alternative sources. It will be in effect until 2027 and is regulated by the executive branch and managed by Eletrobras.

Central Bank: The Brazilian Central Bank, or Banco Central do Brasil.

Class A Shares: The Company’s class A preferred shares.

Class B Shares: The Company’s class B preferred shares.

CMN: The National Monetary Council of Brazil, or Conselho Monetário Nacional.

CNPE: The National Energy Policy Council of Brazil, or Conselho Nacional de Política Energética

Code: The U.S. Internal Revenue Code of 1986, as amended.

Common Shares: The Company’s common shares.

Compagas: Companhia Paranaense de Gás.

Copel Distribuição: The Company’s entity engaged in the distribution business.

Copel Geração e Transmissão: 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.

Decree no. 6,306/07: Brazilian tax Decree no. 6,306 of December 14, 2007, which regulating 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.

 

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Dividend Threshold: A dividend threshold established by Brazilian Corporate Law, equal to the greater of adjusted net income or income reserves available for distribution.

EER: The Encargo de Energia de Reserva is a regulatory charge designed to raise funds for energy reserves that have been contracted through CCEE.

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.

Energy Charge: A charge for sales of energy to a customer that is based on the amount of energy actually consumed by that customer.

EPE: The Brazilian Energy Research Company, or Empresa de Pesquisa Energética.

Exchange Act of 1934: The United States Securities Exchange Act of 1934, as amended.

Final Customer: A party that uses electricity for its own needs.

Firm Capacity: The level of electricity that we can deliver from a specified power plant with a 95.0% degree of certainty, determined in accordance with certain prescribed statistical models.

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 network 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 network 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.

Fundação Copel: The Fundação Copel de Previdência e Assistência Social is sponsored by the Company and supplements the Brazilian government retirement and health benefits available to employees.

Furnas: Furnas Centrais Elétricas S.A

Generating Unit: An electric generator together with the turbine or other device that drives it.

Gigawatt (GW): One billion watts.

Gigawatt hour (GWh): One gigawatt of power supplied or demanded for one hour, or one billion watt hours.

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.

 

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High Voltage: A class of nominal system voltages equal to or greater than 100,000 volts and less than 230,000 volts.

HPP – 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.

Initial Supply Contracts: A requirement made to distribution and generation companies in order to ensure access to a stable electricity supply at prices that guarantee a fixed rate of return for the electricity generation companies during the transition period leading to the establishment of a free and competitive electricity market.

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.

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.

Ivaí: Ivaí Engenharia de Obras S.A.

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.

KPMG: KPMG Auditores Independentes.

Latibex: A Euro-based market for Latin American securities, which is part of the Madrid Stock Exchange.

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 federal 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.

Megavolt Ampère (MVA): One thousand volt ampères.

Megawatt (MW): One million watts.

Megawatt average (MWavg): An amount of energy in MWh divided by the time (in hours) in which such energy is produced or consumed.

 

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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).

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.

Non-U.S. Holder: Holders of Class B Shares or ADSs that are foreign corporations or nonresident alien individuals.

ONS: The National Electric System Operator, or the Operador Nacional do Sistema Elétrico.

Parcel A Costs: The costs defined by ANEEL as those that are beyond the control of the distributor. Such costs are considered for adjustment and review of distribution tariff rates to Final Customers.

Parcel B Costs: The costs defined by ANEEL as those that are under the control of the distributor. Such costs are considered for adjustment and review of distribution tariff rates to Final Customers.

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.

Resolution 2,689: Resolution. 2,689 of January 26, 2000 of the CMN.

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 readjustments 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.

Sercomtel: Sercomtel Telecomunicações S.A. and Sercomtel Celular S.A.

Sercomtel Celular: Sercomel Celular S.A.

Sercomtel Telecomunicações: Sercomtel Telecomunicações S.A.

Shareholders’ Agreement: A shareholders’ agreement dated December 22, 1998, as amended on March 29, 2001, between the State of Paraná and BNDESPAR.

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.

 

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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 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).

Thermoelectric Plant: 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 federal government’s long-term interest rate.

Transmission: The bulk transfer of electricity from generating facilities to the distribution system 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.

TUSD: The tariff established by ANEEL for network usage charges, which are charges for the use of the proprietary local grid of distribution companies.  

TUST: The tariff established by ANEEL for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities.

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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Signatures

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/ Lindolfo Zimmer          

Name: Lindolfo Zimmer

Title: Chief Executive Officer

By: /s/ Luiz Eduardo da Veiga Sebastiani 

Name: Luiz Eduardo da Veiga Sebastiani

Title: Chief Financial Officer

Date: April 26, 2013

 

 

 

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Companhia Paranaense de Energia - Copel

Consolidated Financial Statements as of

December 31, 2012, 2011 and 2010 and Reports

of Independent Registered Public

Accounting Firms

 


 

KPMG Auditores Independentes

Al. Dr. Carlos de Carvalho, 417 - 16º

80410-180 - Curitiba, PR - Brasil

Caixa Postal 13533

80420-990 - Curitiba, PR - Brasil

Central Tel              55 (41) 3544-4747

Fax                          55  (41) 3544-4750

Internet                    www.kpmg.com.br

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

The Board of Directors and Shareholders

Companhia Paranaense de Energia – COPEL

 

 

We have audited the accompanying consolidated statements of financial position of Companhia Paranaense de Energia – COPEL and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2012. We also have audited the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, 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’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

KPMG Auditores Independentes., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.

KPMG Auditores Independentes, a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

 


 

 

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.

 

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

 

Curitiba, Brazil

April 16, 2013

 

 

 

 KPMG Auditores Independentes

 


 

Deloitte Touche Tohmatsu
Rua Pasteur, 463 - 5º andar
Curitiba – PR – 80250-080
Brasil

Tel: + 55 (41) 3312-1400
Fax:+ 55 (41) 3312-1470
www.deloitte.com.br

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Shareholders of
Companhia Paranaense de Energia - COPEL
Curitiba - PR, Brazil  

 

 

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows of Companhia Paranaense de Energia - COPEL and subsidiaries (the “Company”) for the year ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Companhia Paranaense de Energia - COPEL and subsidiaries for the year ended December 31, 2010, in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

 

 

 

/s/ Deloitte Touche Tohmatsu Auditores Independentes

Curitiba, Paraná, Brazil

June 16, 2011

 

 

 

 


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Financial Position

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

ASSETS

Note

 

 

 

 

12.31.2012

12.31.2011

 

 

 

 

CURRENT ASSETS

 

 

 

Cash and cash equivalents

4

1,483,137

1,049,125

Bonds and securities

5

635,501

582,019

Collaterals and escrow accounts

6

36,812

2,668

Trade accounts receivable

7

1,489,173

1,368,366

Dividends receivable

15

9,555

17,906

CRC transferred to the State Government of Paraná

8

75,930

65,862

Accounts receivable related to the concession

9

5,319

80,626

Accounts receivable related to the concession extension

10

356,085

-

Other current receivables

11

235,281

161,313

Inventories

12

124,809

103,802

Income Tax and Social Contribution

13

193,158

215,381

Other current recoverable taxes

13

49,491

50,357

Prepaid expenses

 

5,004

4,588

 

 

4,699,255

3,702,013

NON-CURRENT ASSETS

 

 

 

Long Term Assets

 

 

 

Bonds and Securities

5

128,515

62,589

Collaterals and Escrow Accounts

6

43,246

37,553

Trade Accounts Receivable

7

26,171

32,452

CRC transferred to the State Government of Paraná

8

1,308,354

1,280,598

Judicial Deposits

14

574,473

430,817

Accounts receivable related to the concession

9

2,684,792

3,236,474

Accounts receivable related to the concession extension

10

717,805

-

Other non-current receivables

11

22,728

17,033

Income Tax and Social Contribution

13

19,995

18,714

Other non-current recoverable taxes

13

120,189

77,912

Deferred income tax and social contribution

13

647,804

465,536

Prepaid expenses

 

8,832

190

 

 

6,302,904

5,659,868

 

 

 

 

Investments

16

543,036

549,158

Property, plant and equipment, net

17

7,871,849

7,209,123

Intangible assets

18

1,794,510

1,721,857

 

 

 

 

 

 

16,512,299

15,140,006

 

 

 

 

TOTAL ASSETS

 

21,211,554

18,842,019

Notes are an integral part of these financial statements

 

F-1


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Financial Position

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

       

LIABILITIES

Note

 

 

 

 

12.31.2012

12.31.2011

 

 

 

 

CURRENT LIABILITIES

 

 

 

Payroll, social charges and accruals

19

384,150

224,095

Suppliers

20

1,136,359

747,453

Income Tax and Social Contribution Payable

13

170,189

151,790

Other taxes due

13

290,896

288,457

Loans and financing

21

261,290

116,487

Debentures

22

12,719

-

Minimum compulsory dividend payable

 

204,780

135,744

Post employment benefits

23

25,819

36,037

Customers charges due 

24

56,498

70,511

Research and Development and Energy Efficiency

25

159,599

156,915

Accounts Payable related to concession - Use of Public Property

26

48,477

44,656

Other Accounts Payable

27

97,042

86,676

 

 

2,847,818

2,058,821

NON-CURRENT LIABILITIES

 

 

 

Suppliers

20

100,996

108,462

Tax liabilities

13

-

152

Deferred income tax and social contribution

13

615,924

648,266

Loans and financing

21

1,989,588

2,057,985

Debentures

22

997,958

-

Post employment benefits

23

502,423

432,838

Research and Development and Energy Efficiency

25

104,561

94,649

Accounts Payable related to concession - Use of Public Property

26

399,080

370,442

Other Accounts Payable

27

-

53

Provision for contingencies

28

1,155,708

1,000,823

 

 

5,866,238

4,713,670

EQUITY

29

 

 

Attributable to controlling shareholder's

 

 

 

Capital

 

6,910,000

6,910,000

Equity valuation adjustments

 

1,350,002

1,457,081

Legal reserves

 

571,221

536,187

Profit retention reserve

 

3,337,295

2,838,551

Additional proposed dividends

 

64,474

84,875

 

 

12,232,992

11,826,694

 

 

 

 

Attributable to non-controlling interest

 

264,506 

242,834

 

 

 

 

 

 

12,497,498

12,069,528

 

 

 

 

TOTAL LIABILITIES

 

21,211,554

18,842,019

Notes are an integral part of these consolidated financial statements

       

 

 

F-2


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Income

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

CONTINUING OPERATIONS

Note

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

OPERATING REVENUES

30

8,532,217

7,776,165

6,901,113

COST OF SALES AND SERVICES PROVIDED

31

 

 

 

Electricity purchased for resale

31

(2,807,735)

(2,152,545)

(1,972,275)

Use of main distribution and transmission grid

31

(772,361)

(632,518)

(592,741)

Personnel and management

31

(944,913)

(753,022)

(634,277)

Pension and healthcare plans

31

(141,368)

(117,460)

(97,528)

Materials and supplies

31

(60,798)

(76,213)

(75,533)

Materials and supplies for power

31

(25,511)

(25,031)

(22,975)

Natural gas and supplies for the gas business

31

(247,770)

(186,931)

(144,648)

Third-party services

31

(291,048)

(267,603)

(245,232)

Depreciation and amortization

31

(508,887)

(519,536)

(511,491)

Construction cost

31

(771,912)

(731,443)

(662,887)

Other costs and expenses

31

(6,668)

5,287

(16,556)

 

 

(6,578,971)

(5,457,015)

(4,976,143)

GROSS PROFIT

 

1,953,246

2,319,150

1,924,970

Operational expenses / income

 

 

 

 

Selling expenses

31

(65,659)

(113,764)

(62,466)

General and administrative expenses

31

(544,828)

(461,452)

(353,626)

Other operational income

31

(353,280)

(440,440)

(575,908)

Equity in earnings of subsidiaries

16

11,040

55,654

99,337

 

 

(952,727)

(960,002)

(892,663)

PROFIT BEFORE FINANCIAL RESULTS AND TAXES

 

1,000,519

1,359,148

1,032,307

Financial results

 

 

 

 

Financial income

32

648,938

577,532

652,231

Financial expenses

32

(676,759)

(352,764)

(303,806)

 

 

(27,821)

224,768

348,425

Profit Before Income Tax and Social Contribution

 

972,698

1,583,916

1,380,732

INCOME TAX AND SOCIAL CONTRIBUTION ON PROFIT

 

 

 

 

Current  

13

(458,312)

(611,601)

(497,968)

Deferred

13

212,134

204,539

127,517

 

 

(246,178)

(407,062)

(370,451)

NET INCOME FOR THE YEAR

 

726,520

1,176,854

1,010,281

Attributed to controlling shareholders

 

700,688

1,157,690

987,807

Attributed to non-controlling interest

 

25,832

19,164

22,474

Basic and diluted net earning per share attributed

 

 

 

 

To parent company shareholders - in reais

 

 

 

 

Class "A" Preferred shares

29

4.1742

5.3315

5.2075

Class "B" Preferred shares

29

2.6879

4.4435

3.7904

Ordinary shares

29

2.4435

4.0392

3.4456

Notes are an integral part of these consolidated financial statements

 

F-3


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Comprehensive Income

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

         
         

 

Note

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

 

 

 

 

 

NET INCOME FOR THE YEAR

 

726,520

1,176,854

1,010,281

Other comprehensive income

 

 

 

 

Gains (loss) of financial assets classified as available for sale:

 

 

 

 

Financial investments

29.1.3

2,261

2,962

-

Concession

29.1.3

(13,116)

(7,282)

3,029

Investments

29.1.3

406

5,647

-

Other

29.1.3

3,164

-

-

(-) Taxes on financial asset adjustments

29.1.3

2,476

(451)

(1,030)

Other comprehensive income, net of taxes

 

(4,809)

876

1,999

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

 

721,711

1,177,730

1,012,280

 

 

 

 

 

Attributed to controlling shareholders

 

695,253

1,158,566

989,806

Attributed to non-controlling interests

 

26,458

19,164

22,474

Notes are an integral part of these consolidated financial statements

 

 

F-4


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Changes in Equity

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

 

Attributable to Parent Company

 

 

 

 

 

 

 

 

 

 

 

 

Profit reserves

 

 

 

 

Capital

Capital

Equity

valuation
Accumulated
Other
Comprehensive

Legal

Profit

retention

Additional

proposed

Accumulated

 

Attributable to
non-
controlling

Total

 

 

reserves

adjustments

Income

reserve

reserve

dividends

profit

Total

interests

consolidated

Balances as of January 1, 2010

4,460,000

838,340

1,649,170

11,464

428,912

2,908,112

-

-

10,295,998

228,365

10,524,363

Net income for the year

-  

-

-

-

-

-

-

987,807

987,807

22,474

1,010,281

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Adjustments related to financial assets classified as available for sale, net of taxes

-  

-

 

1,999

-

-

-

-

1,999

-

1,999

Total comprehensive income for the year

-  

-

 

1,999

-

-

-

987,807

989,806

22,474

1,012,280

Realization of equity valuation adjustments

-  

-

(103,117)

-

-

-

-

103,117

-

-

-

Capital increase

2,450,000

(838,340)

-

-

-

(1,611,660)

-

-

-

-

-

Reimbursement of advances for future capital increase

-  

-

-

-

-

-

-

-

-

30,813

30,813

Allocations proposed to GSM

 

 

 

 

 

 

 

 

 

 

 

Legal reserve

-

-

-

-

49,390

-

-

(49,390)

-

-

-

Interest on own capital

-

-

-

-

-

-

-

(200,000)

(200,000)

-

(200,000)

Dividends

-

-

-

-

-

-

25,779

(81,460)

(55,681)

(15,949)

(71,630)

Profit retention reserve

-

-

-

-

-

760,074

-

(760,074)

-

-

-

Balances as of December 31, 2010

6,910,000

-

1,546,053

13,463

478,302

2,056,526

25,779

-

11,030,123

265,703

11,295,826

Net income for the year

-

-

-

-

-

-

-

1,157,690

1,157,690

19,164

1,176,854

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Adjustments related to financial assets classified as available for sale, net of taxes

-

-

-

876

-

-

-

-

876

-

876

Total comprehensive income for the year

-

-

-

876

-

-

-

1,157,690

1,158,566

19,164

1,177,730

Deliberation of additional dividends proposed

-

-

-

-

-

-

(25,779)

-

(25,779)

-

(25,779)

Realization of equity valuation adjustments

-

-

(103,311)

-

-

-

-

103,311

-

-

-

Reimbursement of advances for future capital increase

-

-

-

-

-

-

-

-

-

(30,813)

(30,813)

Allocations proposed to GSM

 

 

 

 

 

 

 

 

 

 

 

Legal reserve

-

-

-

-

57,885

-

-

(57,885)

-

-

-

Interest on own capital

-

-

-

-

-

-

84,875

(421,091)

(336,216)

-

(336,216)

Dividends

-

-

-

-

-

-

-

-

-

(11,220)

(11,220)

Profit retention reserve

-

-

-

-

-

782,025

-

(782,025)

-

-

-

Balances as of December 31, 2011

6,910,000

-

1,442,742

14,339

536,187

2,838,551

84,875

-

11,826,694

242,834

12,069,528

Net income for the year

-

-

-

-

-

-

-

700,688

700,688

25,832

726,520

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

Adjustments related to financial assets classified as available for sale, net of taxes

-

-

-

(5,435)

-

-

-

-

(5,435)

626

(4,809)

Total comprehensive income for the year

-

-

-

(5,435)

-

-

-

700,688

695,253

26,458

721,711

Deliberation of additional dividends proposed

-

-

-

-

-

-

(84,875)

-

(84,875)

-

(84,875)

Realization of equity valuation adjustments

-

-

(101,644)

-

-

-

-

101,644

-

-

-

Allocations proposed to GSM

 

 

 

 

 

 

 

 

 

 

 

Legal reserve

-

-

-

-

35,034

-

-

(35,034)

-

-

-

Interest on own capital

-

-

-

-

-

-

-

(138,072)

(138,072)

-

(138,072)

Dividends

-

-

-

-

-

-

64,474

(130,482)

(66,008)

(4,786)

(70,794)

Profit retention reserve

-

-

-

-

-

498,744

-

(498,744)

-

-

-

Balances as of December 31, 2012

6,910,000

-

1,341,098

8,904

571,221

3,337,295

64,474

-

12,232,992

264,506

12,497,498

Notes are an integral part of these consolidated financial statements

 

F-5


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Changes in Cash Flows

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

Note

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

 

 

 

 

 

Cash flows from operational activities

 

 

 

 

Net income for the year

 

726,520

1,176,854

1,010,281

 

 

 

 

 

Adjustments to reconcile net income for the year with cash generated from operating activities

 

 

 

 

Depreciation

17.3

331,333

336,033

336,902

Amortization of intangible assets - concessions

18

214,022

214,515

200,992

Amortization of intangible assets - others

18

4,503

1,887

4,368

Amortization of investments - Concession rights

16.1

730

730

730

Unrealized monetary and exchange variations - net

 

(90,346)

75,630

(116,826)

Fair value adjustment of the accounts receivable related to concession

9.1

401,104

-

-

Remuneration of accounts receivable related to concession

9.1

(396,636)

(330,217)

(189,243)

Equity in earnings of subsidiaries

16.1

(11,040)

(55,654)

(99,337)

Income tax and social contribution

 

458,312

611,601

497,968

Deferred income tax and social contribution

13.2.1

(212,134)

(204,539)

(127,517)

Allowance for doubtful accounts

31.5

22,826

75,556

26,424

Provisions (reversals) for losses on taxes recoverable

31.5

(3,135)

46,802

-

Provisions for losses from devaluation of investments

31.5

-

398

2,114

Provision (reversal) for legal claims

31.5

199,105

166,899

334,238

Provision for post employment benefits

23.3

196,087

158,251

131,684

Provision for research and development and energy efficiency

25.2

74,464

68,048

61,339

Write off of accounts receivable related to concession

9.1

24,313

25,895

25,707

Write off of investiments

16.1

-

224

589

Write off of property, plant and equipment

17.3

3,873

23,091

26,641

Write off of intangible assets

18

8,322

12,762

14,871

Write off of intangible assets related to concession - goodwill

 

-  

-

44,572

 

 

 

 

 

Decrease (increase) in assets

 

 

 

 

Trade accounts receivable

 

104,421

(75,867)

84,274

Dividends and interest on own capital received

 

33,078

21,305

18,067

CRC transferred to the Government of the State of Paraná

8.2

150,864

143,683

129,095

Judicial deposits

 

(143,656)

(30,118)

(241,687)

Other receivables

 

(78,584)

(1,995)

(26,522)

Inventories

 

(21,007)

17,622

(9,322)

Income tax and social contribution

 

20,942

(63,541)

104,587

Other current taxes recoverable

 

(17,854)

(41,126)

3,630

Receivable from related parties

 

-

1,575

(1,575)

Prepaid expenses

 

(9,058)

377

1

 

 

 

 

 

Increase (decrease) in liabilities

 

 

 

 

Payroll, social charges and accruals

 

160,055

48,493

(31,373)

Suppliers

 

151,823

(105,370)

(57,915)

Income tax and social contribution paid

 

(439,913)

(613,060)

(469,224)

Other taxes

 

2,287

(124,574)

(62,932)

Loans and financing - interest due and paid

21.9

(158,309)

(125,247)

(106,408)

Debentures - interest due and paid

22.2

(2,139)

(69,251)

(71,338)

Post employment benefits

23.3

(136,720)

(97,839)

(98,702)

Customer charges due

 

(14,013)

14,406

26,582

Research and development and energy efficiency

25.2

(76,613)

(81,873)

(45,399)

Payable related to the concession - use of public property

26.1

(44,411)

(41,239)

(38,274)

Other accounts payable

 

10,939

15,287

(16,349)

Provisions for legal claims

28

(49,139)

(48,518)

(27,971)

 

 

 

 

 

Net cash generated from operating activities

 

1,395,216

1,147,896

1,247,742

(continued)

       

 

F-6


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Consolidated Statements of Changes in Cash Flows

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

(continued)

 

 

 

 

 

Note

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

 

 

 

 

 

Cash flows from investment activities

 

 

 

 

Financial investments

 

(151,287)

(38,332)

(183,880)

Additions Costa Oeste - net effect of acquired cash

 

-

(12)

-

Additions Cutia - net effect of acquired cash

 

-

(4,310)

-

Additions Caiuá - net effect of acquired cash

 

(30)

-

-

Additions Integração Maranhense - net effect of acquired cash

 

(53)

-

-

Additions Matrinchã - net effect of acquired cash

 

(313)

-

-

Additions Guaraciaba - net effect of acquired cash

 

(169)

-

-

Additions in investments

16.1

(7,889)

(39,157)

(180)

Additions to property, plant and equipment

17.3

(875,604)

(821,919)

(353,367)

Customer’s financial contributions

17.3

15

-

-

Additions to intangible assets related to the concession

18

(840,119)

(808,687)

(655,411)

Customer’s financial contributions

18

107,980

94,396

89,177

Additions to other intangible assets

18

(13,076)

(11,033)

(28,177)

Write off of intangible assets 

18

191

-

-

Net cash generated from (used in) investing activities

 

(1,780,354)

(1,629,054)

(1,131,838)

Cash flows from financing activities

 

 

 

 

Reimbursement of advances for future capital increase
in subsidiaries by non-controlling

29.2

-

(30,813)

30,813

Loans and financing obtained from third parties

21.9

81,723

816,431

552,479

Issue of debentures

22.2

1,000,000

-

-

Amortization of principal - loans and financing

21.9

(37,868)

(48,646)

(46,593)

Amortization of principal - debentures

22.2

-

(600,000)

(177,908)

Dividends and interest on own capital paid

 

(224,705)

(401,105)

(198,802)

Net cash (used in) provided by financing activities

 

819,150

(264,133)

159,989

Total effects on cash and cash equivalents

 

434,012

(745,291)

275,893

Cash and cash equivalents at the beginning of the year

4

1,049,125

1,794,416

1,518,523

Cash and cash equivalents at the end of the year

4

1,483,137

1,049,125

1,794,416

 

 

 

 

 

Change in cash and cash equivalents

 

434,012

(745,291)

275,893

Notes are an integral part of these consolidated financial statements

Additional information on cash flows

 

 

 

 

Transactions not involving cash

 

 

 

 

Acquisition of property, plant and equipment with an increase in the balance of suppliers

 

119,590

64,913

14,781

 

 

F-7


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

1.     General Information

Companhia Paranaense de Energia - Copel (Copel, the Company or the Parent Company), with headquarters at Rua Coronel Dulcídio, 800, Batel, Curitiba, State of Paraná, is a public company with shares traded on Corporate Governance Level 1 of BM&FBovespa’s Special Listings and on stock exchanges in the United States of America and Spain. Copel is a mixed capital company, controlled by the Government of the State of Paraná, engaged, through its subsidiaries, in researching, studying, planning, building, and exploiting the production, transformation, transportation, distribution, and sale of energy, in any form, but mainly electric energy. These activities are regulated by the National Eletric Energy Agency (Agência Nacional de Energia Elétrica or ANEEL), which reports to the Ministry of Mines and Energy (Ministério de Minas e Energia or MME). Additionally, Copel takes part in consortiums, private enterprises, or mixed capital companies in order to operate mostly in the areas of energy, telecommunications, natural gas, and water utility.

1.1          Direct and indirect subsidiaries and interest in consortiums

 

Percentage of share capital

Copel %

Copel GeT %

Main Activity

Subsidiaries

 

 

 

Copel Geração e Transmissão S.A. (Copel GeT)

100.00

-

Production and transmission of electricity

Copel Distribuição S.A.

100.00

-

Distribution and marketing of electricity

Copel Telecomunicações S.A.

100.00

-

Telecommunication and communication services

Companhia Paranaense de Gás - Compagas

51.00

-

Distribution of pipeline gas

Elejor - Centrais Elétricas do Rio Jordão S.A.

70.00

-

Production of electricity

UEG Araucária Ltda.

20.00

60.00

Production of electricity from natural gas

   

 

 

Jointly-controlled entities

 

 

 

Dominó Holdings S.A.

45.00

-

Interest in sewage treatment company

Cutia Empreendimentos Eólicos SPE S.A. (a)

49.90

-

Production of electricity from wind sources

Costa Oeste Transmissora de Energia S.A. (a)

-

51.00

Transmission of electricity

Marumbi Transmissora de Energia S.A. (a)

-

80.00

Transmission of electricity

Transmissora Sul Brasileira de Energia S.A. (a)

-

20.00

Transmission of electricity

Caiuá Transmissora de Energia S.A. (a)

-

49.00

Transmission of electricity

Integração Maranhense Transmissora de Energia S.A. (a)

-

49.00

Transmission of electricity

Matrinchã Transmissora de Energia (TP NORTE) S.A. (a)

-

49.00

Transmission of electricity

Guaraciaba Transmissora de Energia (TP SUL) S.A. (a)

-

49.00

Transmission of electricity

Paranaíba Transmissora de Energia S.A. (a)

-

24.50

Transmission of electricity

   

 

 

Consortiums

 

 

 

Consórcio Energético Cruzeiro do Sul

-

51.00

Exploration of Mauá hydroelectric power plant

Consórcio Tapajós

-

11.11

Environmental assessment and studies on the use of resources hydroelectric

a) Pre-operating stage

 

The maturity dates of concessions and authorizations are disclosed at Note 35.4.7.

2.     Basis of Preparation

2.1.            Statement of compliance

The consolidated financial statements prepared in accordance with International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board - IASB and also in accordance with accounting practices adopted in Brazil.

2.2.            Basis of measurement

The financial statements were prepared based on historic cost, except for certain financial instruments which were stated at fair values through profit or loss, and financial assets held for sale measured at their fair values.

2.3.            Functional currency and presentation currency

The consolidated financial statements are presented in Brazilian Reais, which is the functional currency of the Company. All financial information present in Brazilian Reais was rounded to the nearest thousand, except when otherwise indicated.

F-8


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

2.4.            Use of estimates and judgment

According to IFRS, the preparation of individual and consolidated financial statements requires that the company’s senior management make judgments, estimates and assumptions which affect the application of accounting policies and assets, liabilities, income and expenses reported values. The actual results may divert from these estimates.

Estimates and assumptions are reviewed in a continuous way. Reviews of accounting estimates are recognized in the year that those estimates are reviewed and in any future fiscal years affected.

Information about critical judgment related to accounting policies adopted that present an effect over the values recognized in the consolidated and individual financial statements are included in the following notes:

Note no. 9 - Accounts receivable related to the concession;

Note no. 10 - Accounts receivable related to the concession extension;

Note no. 13.2 - Deferred income tax and social contribution;

Note no. 18.1 - Concession - Copel Distribuição; and

Note no. 34 - Operating lease agreements.

 

Information about uncertainty over assumptions and estimates that may present a significant risk of resulting in material adjustments in the next fiscal year is included in the following notes:

Note no. 3.11 - Impairment value of assets;

Note no. 3.20.1 - Unbilled revenues;

Note no. 7 - Trade account receivable (Allowance for doubtful debts, CCEE and Unbilled revenues);

Note no. 17 - Property, plant and equipment;

Note no. 18 - Intangible assets;

Note no. 23 - Post-Employment benefits;

Note no. 28 - Provision for contingencies; and

Note no. 35 - Financial Instruments.

2.5.            Reclassification of deferred income tax and social contribution

In 2012 the Company is offsetting deferred tax assets and liabilities, reporting them net when those taxes are related to the same taxable entity and the Company intend to settle them on a net basis.

For comparison purposes, the asset and liability balances of deferred income tax and social contribution accounts as of December 31, 2011, are being restated to present them net, as shown below:

 

 

 

 

   

Published

Reclassified

Deferred income tax and social contribution

 

 

 

Non-current Assets

 

745,180

465,536

Non-current Liabilities

 

927,910

648,266

 

3.     Main Accounting Policies

3.1.            Basis for consolidation

3.1.1.      Subsidiaries and jointly-controlled entities

The consolidated financial statements include the financial statements of the Company, its subsidiaries and jointly-controlled entities.

It is considered as a jointly-controlled entity when no shareholder, bound to an agreement, exercises individually the power of financial and operating decisions, regardless of the percentage of the voting capital it holds.

 

 

F-9


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

The subsidiaries’ and jointly-controlled entities’ financial statements are included in the consolidated financial statements starting in the date that the control or shared control started until the date that they cease to exist. The asset, liability and statement of income accounts of subsidiaries are fully consolidated line by line and the accounts of jointly-controlled entities are consolidated in proportion to ownership interest.

When necessary, the financial statements of the subsidiaries are adjusted to adapt the accounting policies established by the Company. All of the transactions, balances, income and expenses between the intra-group companies are eliminated in the consolidated financial statements.

In the parent company's financial statements, the interests in subsidiaries and jointly-controlled entities are recognized in accordance with the equity accounting method.

3.1.2.      Investments in associate companies

The results, assets, and liabilities of associates are recognized in the consolidated financial statements according to the equity method. Pursuant to the equity method, investments in associates are at first recorded at cost and then adjusted for purposes of accounting of the Company’s share of comprehensive income/loss. When the Company’s share of losses in an investee exceeds its interest in it, the Company no longer recognizes these additional losses. Any additional losses are only recognized if the Company has incurred legal obligations or other liabilities or has made payments on behalf of the investee.

3.2.            Cash and cash equivalents

They comprise cash balances, bank deposits on demand and highly liquid short-term financial investments that can be redeemed within 90 days from the date of making the investment and which are readily convertible into cash. 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.

3.3.            Bonds and Securities

It comprises financial instruments classified as available for sale, held for trading and held to maturity. The accounting treatment of these financial instruments is described in item 3.23.

3.4.            Trade Accounts Receivable

Trade accounts receivable are considered financial assets classified as loans and receivables and are recorded based on an accrual basis.

The trade accounts receivable debt balances paid in instalments are discounted to present value, taking into consideration the amount to be discounted, the dates of realization, the dates of settlement and the discount rate.

The balance of trade accounts receivable is presented net of the allowance for doubtful accounts.

The allowance for doubtful accounts is recorded in amounts deemed sufficient by Copel’s senior management to cover potential losses on the realization of customer receivables and others whose recovery is considered unlikely.

The allowance for doubtful accounts is recorded considering the parameters recommended by ANEEL, based on amounts receivable from residential class customers overdue more than 90 days, from commercial class customers overdue more than 180 days and from industrial and rural customers, public authorities, public lighting and public utilities overdue more than 360 days in addition to experience with respect to the past history of actual losses. It comprises receivables billed until the balance sheet date.

3.5.            Accounts receivable related to the concession

3.5.1.      Financial assets – distribution

These refer to reimbursements set forth in the public power distribution service concession agreements, which the Company understands as an unconditional right to cash payments upon expiration of the concession from the granting authority. These reimbursements are designed to compensate the Company for the investments made in infrastructure which have not been recovered through the collection of tariffs at the end of the concession because of their useful lives being longer than the term of said concession.

Since these financial assets do not have determinable fixed cash flows – as the Company operates under the assumption that the value of the corresponding reimbursements will be based on the replacement cost of the concession assets and as they do not feature the necessary characteristics to be classified under any other category of financial assets – they are classified as “available for sale”. The cash flows related to these assets are determined taking into account the value of the tariff basis named Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by the granting authority. The methodology of the BRR is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession. This tariff basis (BRR) is reviewed every four years taking into account several factors. Its goal is to reflect the variation in the prices of physical assets, including write-offs, depreciation, and additions of assets to the concession infrastructure (physical assets).

The return on these financial assets is based on the regulatory Weighted Average Cost of Capital or WACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.

 

F-10


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

In the periods between periodic rate reviews, the balance of these financial assets must be adjusted according to Company’s management expectation of increase variations in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.

Since there is not an active market for these financial assets, the Company determines their fair value using the same components of the regulatory compensation rate set forth by ANEEL (regulatory WACC). These components, updated as of the date of the statement of financial position, determine the new interest rate used by the Company to restate to present value the  cash flows set forth in the last periodic rate review and estimated until the next review in 2016. Due to the nature of these financial assets, the Company believes this methodology is the one which better reflects their fair value in the view of market participants, since the rate of return set forth by ANEEL takes into consideration, in addition to the risk-free rates of return, all risks inherent to the sector. Adjustments arriving from the changes in fair value due to the difference between the fair value WACC and the regulatory WACC are recognized in Equity, when applicable.

3.5.2.      Financial assets - Transmission

These refer to receivables in connection with the power transmission concession agreements and include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) the financial return on these revenues guaranteed by the granting authority during the term of the concession.

Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Annual Permitted Revenues (Receita Anual Permitida or RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistema or ONS). Upon expiration of the concession, any uncollected amounts related to the construction of infrastructure shall be received directly from the granting authority, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP).

These financial assets do not have an active market, present fixed and ascertainable cash flows, and are thus classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.

3.6.            Inventories (including those under property, plant and equipment)

Materials and supplies in inventory, classified under current assets and those assigned for investments, classified under property, plant and equipment, have been recorded at their average acquisition cost. Recorded amounts do not exceed their estimated sale price (realizable value), minus all estimated costs of completion and required costs for carrying out the sale.

3.7.            Taxes and social contributions

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 the Financing of Social Security).

Credits resulting from the non-cumulative nature of PIS and COFINS charges are accounted for by deducting such from the operating cost in the statement of income.

Credits resulting from the non-cumulative nature of ICMS, PIS and COFINS related to acquisitions to fixed assets are presented by deducting the cost of their assets.

Advance payments of amounts eligible for offsetting are accounted for in current or non-current assets, according to their expected realization.

Income tax comprises corporate income tax and social contribution, which are calculated based on taxable income (adjusted income), at the applicable rates, which are: 15%, plus 10% on any amounts exceeding R$ 240 a year, for corporate income tax, and 9% for social contribution.

 

F-11


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

Deferred income tax and social contribution are recognized in their entirety on the differences between assets and liabilities recognized for tax purposes and the related amounts recognized in the financial statements. However, they are not recognized if generated in the initial recording of assets and liabilities in transactions that do not affect the tax bases, except in business combinations. Deferred taxes are calculated considering the rates prevailing on the date of preparation of the financial statements and which are expected to apply when the related income taxes and social contribution are paid.

Deferred income tax and social contribution assets are recognized only to the extent that it is likely that there will be a positive taxable base for which the temporary differences can be used and the tax losses can be offset.

Deferred tax assets and liabilities are offset if there is a legal right to offset current tax liabilities and assets, and they are related to income taxes levied by the same tax authority on the same entity subject to taxation.

Medida Provisória no. 449/08, converted into Law no. 11,941/09, created the Transitional Tax Regime (Regime Tributário de Transição or RTT), applicable to entities subject to corporate income tax (Imposto de Renda da Pessoa Jurídica or IRPJ) based on taxable income. The adoption of this regime was optional in 2008 and 2009, whereas in 2010 it became mandatory and will remain so until a new law is passed governing the tax effects of the new accounting methods and criteria, with a view to tax neutrality.

The goal of this tax regime is to neutralize the potential tax impact resulting from the changes in accounting criteria for the recognition of revenues, costs, and expenses introduced by Law no. 11,638/07.

With the adoption of this regime the changes in criteria for the recognition of revenues, costs, and expenses will not have an effect on the assessment of the basis for the calculation of taxes, both on revenues and on income. The accounting methods and criteria to be considered for tax purposes are those in effect as of December 31, 2007.

3.8.            Property, plant and equipment

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 mentioned concession, when after the legal analysis of the right to compensation over the residual assets had not be guaranteed. The estimated useful life, the residual amounts, and depreciation rates are reviewed as of the date of the statement of financial position, and the effect of any changes in estimates is recorded prospectively.

Costs directly attributable to construction work as well as interest and financial charges on loans from third-parties during construction are recorded under property, plant and equipment in progress.

3.9.            Intangible 

3.9.1.      Concession agreements – distribution

These comprise the right to access and to commercial operation of infrastructure, built or acquired by the operator or provided to be used by the operator as part of the electric energy public service concession agreement (the right to charge fees to the users of the public service provided by the operator), in compliance with IAS 38 – Intangible Assets IFRIC 12– Concession agreements.

Intangible assets are determined as the remaining portion after the assessment of the financial assets (residual amount), due to their recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by customers, subject thus to demand risk.

Intangible assets are recorded at their fair acquisition and construction value, minus accumulated amortization and impairment losses, when applicable.

 

F-12


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

The amortization of intangible assets reflects the pattern of estimated accrual of the corresponding economic benefits by Copel Distribuição, with expectation of average amortization during the term of the concession.

3.9.2.      Intangible assets acquired separately

Intangible assets with defined useful lives acquired separately are recorded at cost, minus accumulated amortization and impairment losses. Amortization is recorded linearly based on the estimated useful lives of the corresponding assets. The estimated useful lives and the amortization method are reviewed at year-end, and the effect of any changes in estimates is recorded prospectively.

3.9.3.      Write-off of intangible assets

Intangible assets are written-off upon sale or whenever there are no future economic benefits from use or sale to be received. Any gains or losses resulting from the write-off of intangible assets, measured as the difference between the net sale revenue and the asset's book value, are recorded to income or expense at the time of write-off.

3.10.        Intangible assets - concessions

Intangible assets recorded when they were acquired through the purchase of shares of companies that own the concession rights are being amortized by their respective remaining period of concession (concession right with defined life acquired).

3.11.        Impairment value of assets

Property, plant and equipment and intangible assets are assessed annually to detect evidence of unrecoverable losses or whenever significant events or changes in circumstances indicate that the book value of any such asset may not be recoverable. Whenever there is a loss resulting from situations where an asset’s book value exceeds its recoverable value, defined as the greater between the asset’s value in use and its net sale value, this loss is recorded in the statement of income.

3.12.        Dividends and interest on capital

The distribution of dividends and interest on capital are recorded as a liability in the Company’s financial statements at the end of the fiscal year, based on its by-laws. However, any amounts above the minimum mandatory dividends are only recorded under liabilities on the date they are approved and announced at the General Shareholders’ Meeting (GSM). The tax benefit of interest on capital is recorded in the statement of income in the moment of its entry in accounts payable, at the time of their recording in accounts payable.

3.13.        Post-employment benefits

The Company sponsors benefit plans to its employees, described in detail in Note 23. The amounts of these actuarial obligations (contributions, costs, liabilities, and/or assets) are calculated annually by an independent actuary on the same base date as the end of the fiscal period and are recorded pursuant to IAS 19.

The adoption of the projected credit unit method adds each year of service as the source of an additional benefit unit, adding up to the calculation of the final liability.

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, the Fundação Copel.

Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities, the larger of the two.

3.14.        Research and Development Program - R&D - and Energy Efficiency Program – EEP

These are research and development and energy efficiency programs to which electric energy licensees are required to allocate 1% of their net operating revenues as defined by ANEEL pursuant to Law no. 9,991/00 and ANEEL Resolutions no. 300/08, 316/08 and 504/12.

 

F-13


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

3.15.        Accounts payable related to concession – use of public property

This item corresponds to the amounts set forth in the concession agreement in connection with the right to explore hydraulic energy potential (onerous concession). These agreements are signed as Use of Public Property (Uso de Bem Público or UBP) agreements. A liability is recorded on the date of signature of the concession agreement, regardless of the schedule of disbursements set forth therein. The initial accrual of the liability (obligation) and the corresponding intangible asset (concession rights) corresponds to the future disbursements at present value (present value of the cash flow from future disbursements).

The financial liability is updated using the method of effective interest rate and reduced by contracted payments.

3.16.        Provision for environmental costs and obligations

Environmental liabilities are recognized under liabilities when their occurrence is likely and may be reasonably estimated.

They are recognized as the Company assumes formal obligations before regulatory agencies or becomes aware of potential risks related to socio-environmental issues, which may lead to cash disbursements that are deemed probable and that may be estimated. During the project implementation phase, the provision is recorded against property, plant, and equipment or intangible assets in progress. Once the project enters commercial operation, all costs or expenses incurred with socio-environmental programs related to the project’s operation and maintenance licenses are recorded directly to expense for the corresponding period.

3.17.        Provisions 

Provisions are recorded for current liabilities (legal or assumed) resulting from past events, whose amounts may be estimated reliably and whose settlement is likely.

The estimates of outcomes and financial effects are determined in accordance with the judgment of the Management of the entity, supplemented by experience in similar transactions and, in some cases, reports from independent experts. The evidence considered should include any additional evidence provided by events subsequent to the balance sheet date.

When some or all economic benefits required for the settlement of a provision are expected to be recouped from a third party, a corresponding assets is recorded if, and only if, this reimbursement is virtually guaranteed and its amount may be reliably ascertained.

3.18.        Earnings per share or EPS

Earnings per share are calculated based on the weighted average of the number of shares outstanding during the reporting period. For all presented periods, the Company has not had any potential instruments equivalent to common shares which could have a diluting effect. Thus the basic earnings per share are equivalent to the diluted earnings per share.

Since holders of preferred and common shares are entitled to different dividends, voting rights, and settlements, basic and diluted earnings per share have been calculated according to the “two-class method". The two-class method is a formula for allocation of earnings which determines earnings per preferred share and per common share according to the declared dividends, pursuant to the Company's by-laws and to the rights to participation in non-distributed earnings calculated in accordance with the right to dividends of each share type, as discussed in Note 29.1.4.

Basic and diluted earnings per share are shown in Note 29.1.5.

3.19.        Statement of income

Revenues, costs, and expenses are recorded under the accrual method, i.e., when products are delivered and services actually rendered, regardless of receipt or payment.

 

 

F-14


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

3.20.        Revenue recognition

Operating revenues are recognized when: (i) the amount of the revenue is reliably measurable; (ii) the costs incurred or to be incurred in the transaction are reliably measurable; (iii) it is likely that the economic benefits will be received by the Company; and (iv) the risks and benefits have been fully transferred to the respective buyer.

Revenues are valued at the fair value of the payment received or to be received, with the deduction of discounts and/or bonuses granted and charges on sales.

3.20.1.   Unbilled revenues

Unbilled revenues correspond to revenues recognition from sales of power to final customers which have been delivered but not yet billed and to revenues from the use of the distribution grid not yet billed, both of which are calculated based on estimates covering the period from the meter reading day to the last day of the month.

3.20.2.   Rendered services

Revenues under a service agreement are recognized according to the stage of completion of the agreement, determined as follows:

·

Installation fees are recognized according to the stage of completion of the installation services, determined proportionally between the total estimated time for completion of services and the time elapsed at the end of each reporting period;

·

Service fees included in the price of products sold are recognized proportionally to their total costs, based on historical trends of actual services rendered in connection with products sold previously; and

·

Revenues for services are recognized at the contractual rates according to the number of hours worked and whenever direct expenses are incurred based on time and materials used

3.20.3.   Revenues from dividends and interest

Revenues from dividends/ financial instruments are recognized when the shareholder's right to receive said dividends is established.

Interest revenues from financial assets are recognized when it is likely that the future economic benefits shall be earned by the Company and the amount of these revenues may be determined reliably. Interest revenues are recognized according to the straight-line method based on the effective time and interest rate applicable to the outstanding principal amount; the effective interest rate is the one which discount with precision the estimated future cash earnings over their estimated lives or terms with regard to the initial net book value of such financial assets.

3.20.4.   Lease revenues

The Group’s policy for recognition of operating lease revenues is described in Note 3.25.1 – Leases – The Company as a Lessee.

3.21.        Construction revenues and construction costs

IFRIC 12 establish that electric energy utilities should record and measure revenues of according to IAS 11 – Construction Contracts and IAS 18 and IFRIC 13 – Revenues and SIC 31, even when governed by a single concession agreement. The Company records construction revenues in connection with the construction services for infrastructure employed in the power transmission and distribution services, according to the stage of completion.

The respective costs are recognized when incurred in the statement of income for the corresponding period, as construction costs.

Given that the Company outsources the construction of power distribution infrastructure to non-related parties and that a large part of the work is carried out over short periods, the construction margin to the Company’s power distribution business is not significant, and may reach amounts close to zero.

 

 

F-15


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The construction margin adopted for the transmission business in 2012 and 2011 is 1.65% and results from a calculation methodology which takes into account the respective business risk.

3.22.        Power purchase and sales transactions in the Spot Market (Electric Energy Trading Chamber - CCEE)

Power purchase and sales transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or to estimates prepared by Copel’s senior management, when this information is not available on time.

3.23.        Financial instruments

Financial assets and liabilities are recorded whenever a Company entity is a party to the terms and conditions of the financial instrument at hand.

Non-derivative financial are recorded immediately on the date of transaction, i.e., when the corresponding right or liability arises, are initially recorded at fair value plus or minus any transaction costs that are directly attributable. After initial accrual, these instruments are valued as shown below:

Financial assets

3.23.1.   Instruments held to maturity

If the Company and/or its subsidiaries are interested in and capable of holding any financial assets until maturity, they are classified as held to maturity. Investments held to maturity are valued at amortized cost according to the effective interest rate method, minus any reductions in their recoverable value.

3.23.2.   Instruments available for sale

The initial assessment and subsequently of financial instruments classified as “available for sale” is made based on their fair value. The variation in the fair value resulting from the difference between the market interest rates and the effective interest rates is recorded directly to equity, net of tax effects, as an adjustment on accumulated other comprehensive income, without being recorded through profit and loss for the corresponding period. The interest portion set at the beginning of the corresponding agreement, calculated based on the effective interest rate method, as well as any changes in expected cash flows, are recorded to income for the applicable period.

At the time of settlement of a financial instrument classified as a financial asset available for sale, any gains or losses accrued under equity are recorded to income or expense for the applicable period.

3.23.3.   Financial instruments recorded at fair value through profit and loss

Financial instruments are classified and recorded at fair value by means of income for dealing or designated as such at initial accrual. Financial instruments are recorded at fair value to income if the Company and/or its subsidiaries manage these investments and make purchase or sale decisions based on their fair value in the context of an investment and risk management strategy set by the Company and/or its subsidiaries. After initial accrual, attributable transaction costs are recorded to income when incurred.

3.23.4.   Loans and receivables

This category only comprises non-derivative assets with fixed or ascertainable payments which are not quoted in any active markets. They are recognized according to the amortized cost or effective interest rate methods.

Financial liabilities and equity instruments

3.23.5.   Classification as debt or equity instruments

Debt and equity instruments issued by a Company entity are classified as financial liabilities or equity, according to the nature of the underlying agreement and the definitions of financial liability and equity instrument.

 

 

F-16


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

3.23.6.   Equity instruments

Equity instruments are contracts containing residual participation in the assets of a company after the deduction of all its liabilities. Equity instruments issued by the Company are recorded when the corresponding funds are received, net of the direct issuance costs.

The repurchase of the Company's own equity instruments is recorded and deducted directly to equity. No gains or losses are recorded to income from the purchase, sale, issue, or cancellation of the Company’s own equity instruments.

3.23.7.   Financial liabilities

Financial liabilities are classified as “financial liabilities at fair value recorded through profit or loss” or “other financial liabilities”.

3.23.8.   Financial liabilities recorded at fair value to income

Financial liabilities are classified as financial liabilities recorded at fair value through profit and loss when they are held for sale or designated at fair value recorded through profit and loss.

Net gains or losses recorded to income incorporate interest paid on the financial liabilities. Fair value is determined according to the description contained in Note 35.1.

3.23.9.   Other financial liabilities

Other financial liabilities (including loans) are valued at amortized cost according to the effective interest rate method.

The effective interest rate method is used to calculate the amortized cost of financial liabilities and to allocate their interest expenses over their respective terms. The effective interest rate is the rate that precisely deducts the estimated future cash flows (including fees paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) throughout the estimated lifespan of the liability at hand, or, when appropriate, throughout a shorter period, for the initial accrual of the net book value of the liability.

3.23.10.             Write-offs of financial liabilities

The Company writes off financial liabilities only when its obligations are eliminated and cancelled or settled. The difference between the book value of the written-off financial liability and the corresponding disbursement made or to be made is recorded to income.

3.23.11.             Financial instruments – derivatives

The Company maintains investment funds which operate with derivative financial instruments, with the sole purpose of protecting these funds' portfolios.

3.24.        Operating segments

Operating segments are defined as business activities which may yield revenues and require expenses, whose operational results are regularly reviewed by the entity’s chief decision maker to underpin the decision-making regarding resources to be allocated to the segment and to evaluate its performance, and for which there is available individualized financial statements.

3.25.        Leases 

Leases are classified as financial whenever the terms of the lease substantially transfer all risks and benefits of property ownership to the lessor. All other leases are classified as operating leases.

3.25.1.   The Company as a lessor

Lease revenues from operating leases are recognized according to the linear method during the term of each lease.

 

 

F-17


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

3.25.2.   The Company as a lessee

Payments under operating leases are recognized as expenses according to the linear method based on the duration of the lease, except when other methods are more representative of the time when the economic benefits of the leased asset are consumed or received.

3.26.        New and revised rules and interpretations which have not been adopted yet

The following new rules, alterations and interpretations of rules were issued by IASB, but are not mandatory for the fiscal year of 2012. The anticipated adoption of these rules, though encouraged by the IASB, was not permitted, in Brazil, by the Accounting Pronouncements Committee (CPC). The Company is currently evaluating the impact of these new rules in its financial statements.

§     IAS 19 - Employee Benefits

§     IAS 1 - Presentation of Financial Statements

§     IFRS 9 - Financial Instruments

§     IFRS 10 - Consolidated Financial Statements

§     IFRS 11 - Joint Arrangements

§     IFRS 12 - Disclosure of Interests in Other Entities

§     IFRS 13 - Fair Value Measurement

§     IAS 27 - Consolidated and Separate Financial Statements

§     IAS 28 - Investments in Associates

§     IFRS 7 -  Financial instruments – Disclosure; and

§     IAS 32 - Financial instruments – Presentation.

The estimated effect of the review of IAS 19, with the elimination of the deferral of actuarial gains and losses of pension and health plans (corridor method) will result in an increase in actuarial liabilities of R$ 172,807 having as an offsetting entry an increase in deferred tax assets of R$ 58,754, and a decrease of R$ 114,053 in equity.

With respect to the other amendments and new standards listed above, the Company estimates that their adoption will not have a material impact on its financial statements.

4.     Cash and Cash Equivalents

  

12.31.2012

12.31.2011

Cash and bank accounts

94,189

35,081

Financial investments with immediate liquidity

1,388,948

1,014,044

 

1,483,137

1,049,125

 

Financial investments with immediate liquidity are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. These short-term investments comprise Bank Certificates of Deposit (CDBs) issued by official banks and also financial investments in Government Bonds with repurchase agreements with the issuer banks, in which the Bank has the obligation to repurchase these bonds from Copel on request. These investments have yielded on average 100.75% of the variation of the Interbank Deposit Rate as of December 31, 2012 and 101% as of December 31, 2011.

 

F-18


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

5.     Bonds and Securities

Category

Level
Note 35.2

Index

 

 

 

 

 

12.31.2012

12.31.2011

Securities held for sale

 

 

 

 

CDB

2

CDI

39,845

98,898

Committed Operation

2

CDI

175,792

43,233

Committed Operation

2

Selic

-

4,430

Committed Operation

1

Before fixed

-

46,322

Quotas in Funds

1

CDI

86

111

NTN - F

1

CDI

-

31,451

NTN - B

1

IPCA

-

1,956

LFT

1

Selic

162,517

209,942

LTN

1

Before fixed

167,917

103,520

LFBB

2

CDI

13,661

19,296

LF Caixa

2

CDI

9,004

8,270

 

 

 

568,822

567,429

Securities held for trading

 

 

 

 

Quotas in FI

2

CDI

24,742

11,003

Committed Operation

1

Before fixed

16,373

-

CDB

2

CDI

3,147

-

LF

2

CDI

12,591

-

LFT

1

Selic

9,526

39,039

LTN

1

Selic

48,216

-

DPGE

2

CDI

61,475

9,979

Shares

1

Ibovespa

93

-

Debentures

2

CDI

3,668

-

Renda Fixa NPP

2

CDI

3,127

-

Exclusive funds

1

Before fixed

56

-

Derivatives

1

DI Futuro BMF

-

1

 

 

 

183,014

60,022

Securities held to maturity

 

 

 

 

LFT

 

Selic

-

5,920

Quotas in Funds

 

CDI

-

48

LF Caixa

 

CDI

12,180

11,189

 

 

 

12,180

17,157

 

 

 

764,016

644,608

 

 

Current

635,501

582,019

 

 

Non-Current

128,515

62,589

 

Copel holds bonds and securities with variable interest rates. The maturity of these securities varies between 1 and 48 months, as from the reporting date of this report. None of these assets was overdue or presented recovery problems or impairment losses at the end of the period.

 

F-19


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The main amounts invested include:

     

Main Invested amounts

 

 

 

12.31.2012

12.31.2011

Exclusive funds of Copel Geração e Trasmissão at Banco do Brasil

174,047

197,331

Exclusive funds of Copel Distribuição at Banco do Brasil

101,056

-

Exclusive funds of Copel Geração e Transmissão at Caixa Econômica Federal

91,807

189,358

Exclusive funds of Copel Distribuição at Caixa Econômica Federal

50,517

-

Exclusive funds of UEG Araucária at Banco do Brasil

78,021

-

Exclusive funds of UEG Araucária at BNY Mellon Serviços Financeiros DTVM S.A.

104,961

60,019

Guarantee for the ANEEL auction

21,427

34,011

Guarantee for the Contracts for the Sale of Energy in the Regulated Environment – CCEARS

71,234

27,553

Collaterals for financing facilities to build hydroelectric power plants

 

 

UHEs and transmission lines - LTs

32,144

18,764

Guarantee for the compliance with article 17 of law 11,428/2006 and possible authorization by Environmental Institute of Paraná (Instituto Ambiental do Paraná or IAP), by the Consórcio Energético Cruzeiro do Sul

31,290

-

 

6.     Collaterals and Escrow Accounts

 

 

 

 

12.31.2012

12.31.2011

Collaterals and escrow accounts STN (6.1)

43,246

37,553

Collaterals and escrow accounts - CCEAR

34,289

-

Other

2,523

2,668

 

80,058

40,221

Current

36,812

2,668

Non-Current

43,246

37,553

     

6.1.     Collateral - National Treasury Department - STN

Surety bonds and restricted deposits are offered to secure the repayment of the principal consisting of discount bonds and par bounds when these payments are required on April 11, 2024 (Note 21.1). The amounts are adjusted by applying the weighted average of the percentage variations of the prices of zero-coupon bonds issued by the U.S. Treasury, according to the participation of each series of the instrument in the composition of the collateral portfolio made up to secure the payment of the principal under the Brazilian Financing Plan – 1992.

 

 

F-20


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

7.     Trade Accounts Receivable

 

Balances

Overdue

Overdue for

 

 

 

falling due

up to 90 days

more than 90 days

 

Total

 

 

 

 

12.31.2012

12.31.2011

Customers

 

 

 

 

 

Residential

168,520

100,137

26,946

295,603

274,070

Industrial

100,447

44,619

21,116

166,182

142,118

Commercial

120,174

43,035

13,459

176,668

168,942

Rural

23,126

10,264

7,109

40,499

38,574

Public Entities

22,769

15,741

10,954

49,464

44,729

Public lighting

17,510

125

143

17,778

19,497

Public service

17,591

16,718

179

34,488

30,905

Unbilled

330,326

-

-

330,326

288,095

Energy installments plan

58,494

9,796

26,135

94,425

85,294

Low income subsidy - Eletrobras

4,694

-

-

4,694

31,734

Fines and charges on energy bills

5,293

7,882

9,962

23,137

19,623

State Government "Luz Fraterna" program

1,193

13,360

45,706

60,259

38,763

Other receivables

5,211

3,569

9,825

18,605

21,096

 

875,348

265,246

171,534

1,312,128

1,203,440

Concessionaires and Permission holder

 

 

 

 

 

Energy supplies

 

 

 

 

 

CCEAR - auction

163,515

-

14,468

177,983

189,223

Bilateral contracts

30,198

-

119

30,317

21,540

CCEE

2,054

-

119

2,173

15,632

Reimbursement to generators

-

-

1,288

1,288

1,288

 

195,767

-

15,994

211,761

227,683

Charges from using transmission grid

 

 

 

 

 

Transmission grid

20,738

403

2,364

23,505

16,995

Basic network and conection grid

23,909

360

3,748

28,017

25,833

 

44,647

763

6,112

51,522

42,828

.

 

 

 

 

 

Telecommunications

4,203

4,349

9,376

17,928

15,481

.

 

 

 

 

 

Gas distribution

32,375

1,375

1,017

34,767

27,305

.

 

 

 

 

 

Allowance for doubtful accounts (7.1)

-

-

(112,762)

(112,762)

(115,919)

 

1,152,340

271,733

91,271

1,515,344

1,400,818

Current

1,126,169

271,733

91,271

1,489,173

1,368,366

Non-current - NC

26,171

-

-

26,171

32,452

 

The average collection period for the electricity sold to customers is 12 days and 10 days for concessionaries and other entities permitted to supply electricity.

7.1.     Allowance for Doubtful Accounts

Copel’s senior management has considered the following amounts as sufficient to cover potential losses on the realization of receivables:

                     

 

 

Additions /

Reversal

 

Additions /

Reversal

 

Additions /

Reversal

 

 

Balance as of

(reversals)

of write offs

Balance as of

(reversals)

of write offs

Balance as of

(reversals)

of write offs

Balance as of

Customers, concessionaries
and permission holder

January 1, 2010

 

 

December 31, 2010

 

 

December 31, 2011

 

 

December 31, 2012

Residential

6,245

11,680

(10,271)

7,654

30,409

(9,110)

28,953

27,123

(16,847)

39,229

Industrial

40,101

5,375

(4,715)

40,761

(4,206)

(11,392)

25,163

8,568

(2,739)

30,992

Commercial

5,863

8,539

(3,522)

10,880

10,829

(2,243)

19,466

8,026

(3,480)

24,012

Rural

185

163

(279)

69

2,189

(453)

1,805

4,582

(861)

5,526

Public Entities

1,272

221

(40)

1,453

906

-

2,359

6,957

-

9,316

Public lighting

149

6

-

155

(76)

-

79

50

-

129

Public service

-

2

-

2

39

-

41

72

-

113

Concessionaries and permission holder

203

21

-

224

37,146

-

37,370

(37,146)

-

224

Telecommunications

931

233

(243)

921

(52)

(186)

683

3,550

(1,012)

3,221

 

54,949

26,240

(19,070)

62,119

77,184

(23,384)

115,919

21,782

(24,939)

112,762

 
         An allowance for doubtful accounts was set up in 2011 in the amount of R$ 37,146 for differences in the prices invoiced for the sale of energy from Mauá Hydroelectric Power Plant and was reversed in 2012, according to the Management’s decision based on order 1,611 issued by ANEEL (Brazilian Electricity Regulatory Agency) on April 17, 2012.

 

F-21


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

8.     CRC Transferred to the Government of the State of Paraná

By means of a fourth amendment dated January 21, 2005, the Company renegotiated with the Government of Paraná the outstanding CRC (Account for Compensation of Income and Losses) balance as of December 31, 2004, in the amount of R$ 1,197,404, to be paid in 244 instalments under the Price amortization system, restated according to the IGP-DI inflation index plus interest of 6.65% p.y., with the first instalment due on January 30, 2005 and the others due in subsequent and consecutive months.

The State Government has been in compliance with the payments of the renegotiated instalments according to the terms of the fourth amendment to the CRC agreement. Amortizations are secured by resources from dividends.

8.1.   Maturity of non-current instalments

  

12.31.2012

12.31.2011

2013

-

70,242

2014

80,979

74,914

2015

86,365

79,896

2016

92,109

85,209

2017

98,234

90,876

2018

104,767

96,920

2019

111,735

103,366

2020

119,166

110,240

2021

127,091

117,572

2022

135,543

125,391

2023

144,557

133,730

2024

154,171

142,624

2025

53,637

49,618

 

1,308,354

1,280,598

 

8.2.   Changes in CRC

       

 

Current

Non-current

 

Balances

assets

assets

 

Balance as of January 1, 2011

58,816

1,282,377

1,341,193

Interest and fees

84,867

-

84,867

Monetary variations

1,020

63,063

64,083

Transfers

64,842

(64,842)

-

Amortizations

(143,683)

-

(143,683)

Balance as of December 31, 2011

65,862

1,280,598

1,346,460

Interest and fees

85,001

-

85,001

Monetary variations

2,621

101,066

103,687

Transfers

73,310

(73,310)

-

Amortizations

(150,864)

-

(150,864)

Balance as of December 31, 2012

75,930

1,308,354

1,384,284

 

F-22


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

9.     Accounts receivable related to the concession

9.1.   Change in accounts receivable related to the concession

         

 

 

 

Non-current assets

 

 

Current

 

Special

 

 

assets

Assets

liabilities (1)

 

Balance as of January 1, 2011

54,700

3,849,462

(1,426,117)

2,478,045

Effect of the first consolidation of Costa Oeste

-

31

-

31

Capitalization of intangible assets

-

613,284

(93,173)

520,111

Transfers from non-current to current

222,245

(222,245)

-

-

Transfers to charges for use of main distributions and transmission grid - customers

(196,319)

-

-

(196,319)

Transfer to property, plant and equipment in servive

-

(1,004)

-

(1,004)

Adjustment to financial assets classified as available for sale

-

(7,282)

-

(7,282)

Monetary variations

-

173,402

(73,021)

100,381

Remuneration

-

330,217

-

330,217

Construction income

-

118,815

-

118,815

Write off

-

(25,895)

-

(25,895)

Balance as of December 31, 2011

80,626

4,828,785

(1,592,311)

3,317,100

Effect of the first consolidation of Caiuá

-

53

-

53

Effect of the first consolidation of Integração Maranhense

-

233

-

233

Effect of the first consolidation of Matrinchã

-

313

-

313

Effect of the first consolidation of Guaraciaba

-

169

-

169

Capitalization of intangible assets

-

405,521

(57,916)

347,605

Transfers of intangible in service - remeasurement

 

 

 

 

according to Resolution 474/2012 (Note 18)

-

136,658

(53,245)

83,413

Transfers from non-current to current

269,961

(269,961)

-

-

Transfers to charges for use of main distributions and transmission grid - customers

(225,275)

-

-

(225,275)

Transfers to accounts receivable related to the concession extension

(119,195)

(934,945)

-

(1,054,140)

Transfer from other assets

(798)

-

-

(798)

Transfer to Property, Plant and Equipment in servive

-

(713)

-

(713)

Adjustment to financial assets classified

 

 

 

 

as available for sale

-

(13,116)

-

(13,116)

Monetary variations

-

276,041

(110,467)

165,574

Remuneration

-

396,636

-

396,636

Construction income

-

98,474

-

98,474

Fair value adjustment

-

(303,084)

(98,020)

(401,104)

Write off

-

(24,313)

-

(24,313)

Balance as of December 31, 2012

5,319

4,596,751

(1,911,959)

2,690,111

(1) Note 18.6

       

9.2.   Accounts receivable related to the concession - Distribution

Based on the characteristics set forth under the power distribution concession agreement, Company management believes the conditions are met for the application of Technical Interpretation IFRIC 12 and SIC 29 – Concession Contracts, which provides guidelines for the accounting of public service concessions by private operators, so that the power distribution business is properly reflected, comprising: (a) Estimated portion of investments made and not amortized or depreciated by the end of the concession for being an unconditional right to reimbursement in cash or other financial assets directly by the granting authority; and (b) Remaining portion after the assessment of the financial asset (residual amount), classified as an intangible asset due its recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by customers. (Note 18)

The infrastructure that has been received or built for the distribution business, originally represented by property, plant, and equipment and intangible assets, is recovered through two cash flows: (a) a portion through power consumption by customers (monthly billing of energy consumed/sold) over the term of the concession; and (b) a portion as reimbursement for revertible assets at the end of the concession, to be received directly from the granting authority or from another entity to which the granting authority assigns this task.

This reimbursement is made based on the share of investments related to revertible assets which has not been amortized or depreciated yet and which have been made with the purpose of ensuring that the services rendered are continuous and up-to-date.

 

F-23


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

These financial assets, because they do not have determinable fixed cash flows, given that the Company assumes that the indemnity will be based on the cost to replace concession assets and because they don’t have the characteristics necessary to be classified into the other categories of financial assets, are recognized as “available for sale”. Cash flows linked to these assets are determined considering that the amount of the electricity rate called regulatory compensation basis defined by the Concession Authority, whose methodology is the cost of replacing distribution infrastructure goods linked to concession. This electricity rate basis (BRR) is adjusted every four years considering various factors and has the purpose of reflecting the changes in prices of physical assets, including write-offs, depreciation and additions to infrastructure goods (physical assets).

Compensation on this financial asset is based on the regulatory Weighted Average Cost of Capital (WACC) approved by ANEEL at the periodical electricity rate adjustment every four years and the amount is included in the composition of the electricity rate revenue billed to customers and monthly received.

In the intervening periods between the date of the last and the next periodical electricity rate adjustment, the balance of financial assets must be aligned with Management’s expectations about the increase or decrease in its cash flows linked to the update and movement of infrastructure goods (physical assets). The variations in cash flow estimates are directly recognized in the year’s statement of income.

The portion of interest established at the beginning of the agreement, calculated by employing the effective interest rate method, as well as any change in expected cash flows, are recorded in the year’s statement of income.

The variation in fair value, arising from the difference between market interest rate and the effective interest rate, is recorded directly in equity, net of taxes, as equity valuation adjustment, without being recognized in the year’s statement of income. When a financial asset classified as “available for sale” is settled, gains or losses accumulated in equity are recognized in the statement of income.

Considering that the current regulatory scenario does not forecast changes in the form of remuneration, the Company’s management did not identify changes between the effective interest rate and the market interest rate for the year ended December 31, 2012.

Electricity rate adjustment at Copel Distribuição  

In November 2011 ANEEL inspected the investments made by the concessionaire for the accrual period from May 2008 to December 2011, therefore starting the electricity rate adjustment. After analyzing the reports it received, Copel found various adjustments which it considered to be necessary and took several actions at ANEEL in an attempt to make the agency reconsider its initial position by presenting the reasons for its constructive model and recognizing incurred costs. The agency accepted some of these claims, which were reflected on the version approved by ANEEL. However, Copel is still arguing with ANEEL at administrative proceedings about the effects of the adjustment.

The Company understands that some procedures followed for the rate adjustment differ from the methodology proposed by the Electricity Rate Regulation Procedures – Proret of the Electricity Industry Accounting Manual – MCSE, and from the constructive model adopted by the concessionaire.

Although ANEEL has not announced its decision on the appeal filed by Copel about the compensation basis amounts and other items, the new rate was approved at a public audience and be applied as from June 24, 2012.

According to Copel’s Management, although ANEEL established a new regulatory compensation basis, administrative proceedings which are being managed at the regulatory agency remain undecided.

Considering this scenario, the Company’s Management assessed the effects arising from the electricity rate adjustment and recorded in the second quarter the write-off of R$ 152,416 for the estimated and unrealized adjustments in this asset’s cash flows which, net of tax effects, total R$ 100,595. This amount, together with the effects of the changes in prevailing depreciation rates as from January 1, 2012, recorded in the first quarter, in the amount of R$ 42,569 (R$ 28,095 net of taxes), total a write-off of R$ 194,985 recognized in the first semester’s statement of income (R$ 128,690, net of taxes).

As set forth under Electricity Rate Regulation Procedures - Proret in August 2012, the Company uploaded onto the information systems the regulatory revaluation of assets and special liabilities, resulting from the effects of the third cycle of periodic electricity rate adjustment. When the values of individual asset items were determined, an adjustment in the balance of special liabilities linked to the concession was found to be necessary, as well as the recognition of interest on this adjustment in the amount of R$ 51,006.

 

F-24


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The effects of the decision approved by ANEEL on June 19, 2012 through Resolution 1,296 on the regulatory compensation basis, which is still subject to administrative appeals filed before and after the approval above, were reviewed by the Company, due to the past history of the ratifications made by the regulatory agent referring to the 3rd cycle of tariff reviews and the policy adopted by the granting authority through Law no. 12,783 of January 11, 2013 (MP 579). Additionally, the expectation of early renewal of the concession was not confirmed in accordance with a preliminary understanding at the time of publication of MP 579/2012. Given this context, on December 31, 2012, the Company’s management reassessed its estimates for valuation of the financial assets considering the possibility of recovering the invested amounts of the unamortized or not depreciated concession assets upon termination of the concession agreement, indicating the need for a reduction in the balance of these assets in the amount of R$ 155,111 which net of taxes totals R$ 102,373.

The result of the electricity rate adjustment applied to Copel Distribuição is detailed in technical note 173/2012, available at ANEEL’s site.

9.3.   Commitments regarding transmission

9.3.1.      TL 500 kV Araraquara 2 - Taubaté

This transmission line was awarded to the Company at ANEEL auction 001/10, on June 10, 2010.

The total commitments assumed with suppliers of equipment and services related to TL 500 kV Araraquara 2 Taubaté amounted to R$ 281,963 as of December 31, 2012.

9.3.2.      Substation Cerquilho III 230 kV

This 230/138 kV (300 MVA) substation was awarded to the Company at ANEEL auction 001/10 – ANEEL, on June 10, 2010.

The total commitments assumed with suppliers of equipment and services related to Substation Cerquilho III, amounted to R$ 43,775 as of December 31, 2012.

Due to the Company’s delay in obtaining installation licenses, the deadline for Araraquara 2 - Taubaté transmission line and Cerquilho III substation to start operations was extended by 18 months and 12 months, respectively.

10.           Accounts receivable related to the concession extension

On September 12, 2012, Medida Provisória 579 (MP 579) was issued which governs the extension of the concessions for generation, transmission and distribution of electric power, granted by Law 9,074/95.

On September 14, 2012 Decree 7,805 was published to regulate MP 579. Under MP 579/12, companies whose generation, transmission and distribution of electric power agreements mature between 2015 and 2017 may extend concession terms, at the discretion of the concession authority a single time for 30 years at most, provided they accept an earlier maturity of their current agreements in December 2012. Extension depends on the concessionaire’s acceptance of certain conditions set out by the concession authority, such as: i) revenue established according to the criteria set by ANEEL (Brazilian Electricity Regulatory Agency); ii) compliance with service quality standards set by ANEEL; and, iii) agreement on the amounts calculated as indemnity for the assets linked to the concession.

On November 1, 2012 through Ordinances 578 and 579 and Interministerial Ordinance 580, the Ministry of Mines and Energy informed the values of the new Annual Permitted Revenues (RAP), applicable from January 1, 2013 for transmission agreements, described in technical note 383/12 - SRE / ANEEL, and also informed the amount of compensation that the Company is entitled to in Transmission Concession Agreement 060 of R$ 893,923 considering only the assets that entered into operation after May 2000, pursuant to technical note 396/2012 SRE / ANEEL.

 

 

F-25


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

On December 2, 2012, the Company signed an addendum to this agreement. The Return on assets ratified for the assets in operation after May 2000 will be received in 30 monthly payments calculated by the Constant Amortization System (SAC), updated by the IPCA (Amplified Customer Price Index) and remunerated by the Weighted Average Cost of Capital (WACC) of 5.59% per annum, with the first payment received in January 2013. After negotiation between the companies of the sector and the granting authority, the latter rectified the treatment to be given to the assets existing at May 31, 2000, with the publication on November 30, 2012 of MP 591/12, reconsidering the right to compensation of these assets for which there was still no definition of the amount to be compensated. The Brazilian Congress published on the Federal Gazette of March 4, 2013 the extension of Executive Act MP591, which changes Executive Act MP579, for 60 more days. With the enactment of Law 12,783 on January 11, 2013, there was the transformation of MPs 579 into law. The MP 591 is still being discussed at the Brazilian Congress.

(a)     The calculation of the value of the investments linked to reversible assets not yet amortized or depreciated, for compensation purposes, will use as a base the new replacement value methodology, according to criteria established in the regulations of the granting authority.

(b)     The granting authority is authorized to pay, in the form of the regulations, to the concessionaires who opt for the extension established in this Law, in the concessions for transmission of electricity obtained by paragraph 5 of article 17 of Law 9,074/95, the amount related to the assets considered non-depreciated existing at May 31, 2000, recognized by the concessionaire and recognized by ANEEL.

(c)     The amount of compensation will be updated until the date of actual payment to the concessionaire for a period of thirty (30) years, in accordance with the regulations.

ANEEL through Directive Release 18/2012-SRE/ANEEL supplemented by Directive Release 01/2013-SRE/ANEEL asked the transmission concessionaires for the list of assets not compensated, and on January 31, 2013, the Company reported the list of these assets.

The Company’s management evaluated these assets using the new replacement value methodology, based on the regulatory price database, approved by Ratifying Resolution 758/2009. Despite the fact that the granting authority has not yet disclosed the regulations on the form of payment of the return on assets and that there are uncertainties regarding the approval of investments made, management’s expectations regarding the compensation of these assets indicates the recoverability of the balances recorded at December 31, 2012. Therefore, considering the need for approval of the investment made and the lack of regulation in terms of the criteria for payment of the receivable related to concession, the balance at December 2012, in the amount of R$ 160,217 may be modified due to regulatory resolution of this matter.

The process for the extension of the concession for the transmission grid did not result in significant impacts in the financial statements of December 31, 2012.

The amount of the expectation of return on assets was transferred from the group of accounts receivable related to the concession (Note 9).

10.1.                   Changes in the compensation related to the concession

       

 

Current

Non-current

Consolidate

 

assets

assets

 

Balance as of January 1, 2012

-

-

-

Transfers from receivable related to concession - RBNI

-

893,923

893,923

Transfers from receivable related to concession - RBSE

-

160,217

160,217

Transfers from non-current to current

352,161

(352,161)

-

Monetary variations

3,924

15,826

19,750

Balance as of December 31, 2012

356,085

717,805

1,073,890

 

 

F-26


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

11.           Other Receivables

 

12.31.2012

12.31.2011

Current assets

 

 

Services in progress (11.1)

80,043

71,256

Advance payments to employees

29,797

11,588

Advance payments to suppliers

29,492

7,162

Partnership in consortiums

25,540

29,483

Rental plant UTE Araucária

11,894

2,730

Advance for severance estate

8,739

3,514

Other receivables

49,776

35,580

 

235,281

161,313

Non-current assets

 

 

Advance payments to suppliers

12,279

11,982

Services in progress (11.1)

8,471

-

Other receivables

1,978

5,051

 

22,728

17,033

 

11.1.                   Service in progress

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, in compliance with the applicable regulations.

12.           Inventories 

     

 

 

 

 

 

Operation / Maintenance

 

12.31.2012

12.31.2011

Copel Distribuição

84,995

69,579

Copel Geração e Transmissão

28,299

23,714

Copel Telecomunicações

10,645

9,015

Compagas

870

1,491

UEG Araucária

-

3

 

124,809

103,802

 

 

F-27


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

13.           Income Tax and Social Contribution

13.1.                   Income tax (IR) and social contribution (CSLL)

 

 

 

 

12.31.2012

12.31.2011

Current assets

 

 

IR and CSLL paid in advance

470,416

678,745

IR and CSLL to be offset against liability

(272,238)

(451,730)

IRRF on JSCP to be offset against liability

(5,020)

(11,634)

 

193,158

215,381

Non-current assets

 

 

IR and CSLL paid in advance

19,995

18,714

 

19,995

18,714

Current liabilities

 

 

IR and CSLL due

442,427

603,520

IR and CSLL to be offset against asset

(272,238)

(451,730)

 

170,189

151,790

 

Amounts recorded as corporate income tax (IRPJ) and social contribution (CSLL) paid in advance refer to amounts paid in advance and corporate tax return (DIPJ) credits, which are offset against the respective taxes payable by each company, pursuant to the Brazilian tax legislation.

13.2.                   Deferred income tax and social contribution

Company records deferred income tax, calculated at the rate of 15%, plus an additional rate of 10%, and deferred social contribution, at the rate of 9%.

 

F-28


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

13.2.1.   Changes in deferred income tax and social contribution

 

.

 

 

Recognized

Compensated

 

 

Recognized

 

   

 

in other

with installment

 

 

in other

 
 

Balance as of

Recognized

comprehensive

debt

Balance as of

Recognized

comprehensive

Balance as of

 

January 1, 2011

in income

income

Law No. 11,941

December 31, 2011

in income

income

December 31, 2012

Non-current assets

 

 

 

 

 

 

 

 

Tax losses and negative tax basis

10,966

(1,170)

-

(7,310)

2,486

-

-

2,486

Private pension and health plans

135,384

18,724

-

-

154,108

24,204

-

178,312

Transitional tax system - RTT

 

 

 

 

 

 

 

 

Effects from applying IFRIC 12

7,774

8,368

-

-

16,142

71,157

-

87,299

Other temporary additions

 

 

 

 

 

 

 

 

Provisions for legal claims

245,125

42,095

-

-

287,220

50,808

-

338,028

Voluntary termination Program/retirement

107

12,248

 

 

12,355

41,631

-

53,986

Provision of Research and Development

13,486

15,305

 

 

28,791

17,999

-

46,790

Allowance for doubtful debts

24,478

17,738

-

-

42,216

(764)

-

41,452

Amortization - concession

35,917

256

-

-

36,173

256

-

36,429

Provision for investment losses

355

-

-

-

355

-

-

355

Provision for tax losses

52

15,861

 

 

15,913

(1,066)

-

14,847

Provision for impact of grid charges

6,922

-

-

-

6,922

-

-

6,922

Provision for financing

4,726

69

-

-

4,795

-

-

4,795

Provision for energy purchases

-

99,568

-

-

99,568

(2,535)

-

97,033

Provision for profit sharing

-

15,980

-

-

15,980

(6,309)

-

9,671

Interest on own capital

17,966

(1,300)

-

-

16,666

5,043

-

21,709

Others

4,452

1,038

-

-

5,490

1,354

-

6,844

 

507,710

244,780

-

(7,310)

745,180

201,778

-

946,958

(-) Non-current liabilities

 

 

 

 

 

 

 

 

Transitional tax system - RTT

 

 

 

 

-

 

 

 

Effects from applying IAS 16

793,691

(52,496)

-

-

741,195

(52,035)

-

689,160

Effects from applying IFRIC

56,527

84,661

(2,476)

-

138,712

(134,138)

(4,459)

115

Effects from applying IAS 39

-

9,050

2,927

-

11,977

2,158

907

15,042

Other temporary exclusions

 

 

 

 

 

 

 

 

Capitalization of financial charges

4,540

817

-

-

5,357

-

-

5,357

Deferment of capital gains

-

-

-

-

-

175,450

-

175,450

Provisions for negative goodwill

25,297

-

-

-

25,297

-

-

25,297

Gas supply

7,163

(1,791)

-

-

5,372

(1,791)

-

3,581

Others

-

-

-

-

-

-

1,076

1,076

 

887,218

40,241

451

-

927,910

(10,356)

(2,476)

915,078

Net

(379,508)

204,539

(451)

(7,310)

(182,730)

212,134

2,476

31,880

Assets presented in the Statement of Financial Position

346,315

     

465,536

   

647,804

(-)Liabilities presented in the Statement of Financial Position

725,823

 

 

 

648,266

 

 

615,924

 Net

(379,508) 

(182,730) 

(31,880) 

 

 

F-29


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

13.2.2.   Realization of deferred tax credits

Tax credits related to the pension and healthcare plans are realized according the movement of the related accrual based on the actuarial valuation conducted annually by an independent actuary, pursuant to the rules set forth in CVM Resolution no. 600/2009. Deferred taxes on all other accruals will be realized as judicial rulings are issued and regulatory assets are realized.

Under current tax legislation, tax losses and negative bases for social contributions may be offset against future income, up to the limit of 30% of the taxable income for each year, without expiration period.

The Company’s Board of Directors and Fiscal Council have examined and approved the technical study prepared by the Chief Finance, Investor Relations, and Corporate Partnerships Office on future profitability projections, which points out to the realization of deferred taxes. As estimates of future taxable income, the realization of deferred taxes is presented below:

.

 

2013

161,612

2014

(44,396)

2015

(27,158)

2016

25,599

2017

(5,499)

2018 to 2020

(47,373)

2021 to 2023

(100,993)

After 2023

70,088

 

31,880

   

 

13.3.                   Other recoverable taxes and other taxes due

  

12.31.2012

12.31.2011

Current assets

 

 

Recoverable ICMS (VAT) (13.3.1)

38,311

40,845

Recoverable PIS/Pasep and Cofins taxes

54,190

60,486

PIS/Pasep and Cofins to be offset against liabilities

(43,378)

(51,411)

Other recoverable taxes

368

437

 

49,491

50,357

Non-current assets

 

 

Recoverable ICMS (VAT) (13.3.1)

71,785

76,166

PIS/Pasep and Cofins taxes

48,393

-

Recoverable income tax withheld on finance investments

-

1,735

Other taxes

11

11

 

120,189

77,912

Current liabilities

 

 

ICMS (VAT) payable

209,629

193,808

PIS/Pasep and Cofins payable

82,902

74,579

PIS/Pasep and Cofins to be offset against assets

(43,378)

(51,411)

Tax Recovery Programs (13.3.2)

-

37,221

IRRF on JSCP

39,303

31,027

IRRF on JSCP to be offset against assets

(5,020)

(11,634)

Other taxes

7,460

14,867

 

290,896

288,457

Non-current liabilities

 

 

ICMS (VAT) payable

-

152

 

-

152

13.3.1.   Recoverable ICMS (VAT)

Balances shown as recoverable ICMS refers mainly to credits from the acquisition of property, plant and equipment under Supplemental Law no. 87/96, which shall be recovered monthly at the rate of 1/48 pursuant to Supplemental Law no. 102/00.

 

F-30


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

13.3.2.   Tax recovery programs

.

 

 

 

 

 

 

Value
of debt 

Benefits

Law 11,941

Tax loss carryforward

Selic

interest

Value of
debt settled

Law 11,941/09

 

 

 

 

 

IRPJ

43,256

(8,898)

(3,123)

3,356

34,591

CSLL

5,925

(1,460)

(428)

634

4,671

Cofins

43,198

(9,633)

(3,118)

3,550

33,997

PIS/Pasep

8,893

(1,992)

(642)

395

6,654

Cofins Rescission Claim

229,933

(80,927)

-

18,754

167,760

INSS

311

(93)

-

44

262

 

331,516

(103,003)

(7,311)

26,733

247,935

 

The effect on income in the year ended December 31, 2012, recorded as financial expenses was R$ 662 on Consolidated.

Instalment Plan – Law no. 11,941/09

As a result of a rescissory action filed by the Federal Revenue Department of Brazil against an earlier decision which had declared immunity from the levying of COFINS on the billing of electricity, the Company chose to include in the payment in instalments the COFINS debts drafted in the tax assessment notice referring to the period from January 1997 to September 1998.

The amount of the debt of R$ 229,933 as a result of the success, in favour of the Union, of the rescissory action of COFINS is composed of the principal of R$ 61,872, interest of R$ 140,496 and a fine of R$ 27,565. After the consolidation of this debt, considering the benefits of a decrease in charges on arrears of R$ 80,927, the debt related to the rescissory action is now R$ 149,006.

Debts of the National Institute of Social Security (INSS) referring to the Tax Notification of Issuing of Debt no. 35.273.873-1 were also included in the consolidation in the amount of R$ 311, which when the benefits of payment in instalments were included, results in a debt of R$ 218.

Accordingly, the Company's total debt included in the payment in instalments was R$ 149,224. Considering the Selic interest on the payment in instalments, as established in paragraph 3 of article 3 of the abovementioned law in the amount of R$ 18,798, and also considering the monthly paid instalments, the balance of the debt amounts to R$ 168,022. The instalment payment was settled since April 30, 2012.

With respect to Copel Distribuição, tax debts referring to income tax (IRPJ) and social contribution on net income (CSLL) for February 2004 and to income tax for December 2007, March and April 2008, which total R$ 49,181, were included in the aforementioned payment in instalments. These taxes were settled in their respective accrual periods through Declarations of Offsetting (Dcomp), which were not ratified by the Federal Revenue Department. Furthermore, in the same scheme for payment in instalments debts related to the review of the calculation basis for PIS/Pasep and COFINS from 2005 to 2008, which after consolidation amounted to R$ 52,091, were included. The benefits of the decrease in the charges on arrears granted by Law 11,941/09, in the scheme for payment in 30 instalments, amount to R$ 21,983. In the consolidation of the debt before the Federal Revenue Department, tax loss carry forwards and the negative calculation base of CSLL were used for settlement of part of the charges on arrears  in the amount of R$ 7,311.

Accordingly, the Copel Distribuição's total debt included in the payment in instalments was R$ 71,978. Considering the Selic interest on the payment in instalments, as established in paragraph 3 of article 3 of the abovementioned law in the amount of R$ 7,935, and also considering the monthly paid instalments, the balance of the debt amounts to R$ 79,913. The instalment payment was settled since April 30, 2012.

 

F-31


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

13.4.                   Reconciliation of the provision for income tax and social contribution

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Income before IRPJ and CSLL

972,698

1,583,916

1,380,732

IRPJ and CSLL (34%)

(330,717)

(538,531)

(469,449)

Tax effects on:

 

 

 

Equity in income

52

11,054

31,023

Interest on own capital

75,802

121,023

70,319

Dividends

241

1,158

432

Financing

-

(270)

-

Non deductible expenses

(3,331)

(11,892)

(3,247)

Tax benefits Law 11,941/09

-

7,087

-

Tax incentives

11,688

9,908

4,856

Others

87

(6,599)

(4,385)

Current IRPJ and CSLL

(458,312)

(611,601)

(497,968)

Deferred IRPJ and CSLL

212,134

204,539

127,517

Effective rate - %

25.3%

25.7%

26.8%


14.
           Judicial Deposits

 

 

 

 

12.31.2012

12.31.2011

Taxes claims

347,492

226,566

Labor claims

90,480

72,873

Civil

 

 

Suppliers

95,558

92,853

Civil

26,889

24,706

Easements

7,157

6,823

Customers

2,418

2,289

 

132,022

126,671

Others

4,479

4,707

 

574,473

430,817

 

The change in the balance of judicial tax deposits manly relates to the deposit made by Copel Distribuição, in order to revoke assessment notice 6432974-0, issued by Paraná State, demanding payment of the ICMS tax on the rate subsidy afforded to low-income residential customers.

15.           Receivable from related parties

 

 

 

 

12.31.2012

12.31.2011

Associate companies

 

 

Dividends and/or interests on own capital

 

 

Dona Francisca Energética

78

2,303

Sanepar

9,477

15,603

.

9,555

17,906

Current assets - Dividends receivable

9,555

17,906

Non-current assets

-

-

15.1.                   Financing transferred - STN

The Company transferred loans and financing to its wholly owned subsidiaries at the time of constitution in 2001. However, since the contracts for the transfers to the respective subsidiaries were not formalized with the financial institutions, they also remain recognized in the parent company.

This financing is transferred and incurs the same charges assumed by the Company and is reported separately, as receivable from the wholly owned subsidiaries, and as liabilities for loans and financing in the subsidiaries (Note 21.1).

 

F-32


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

15.2.                   Loan Contract - Copel Distribuição

On February 09, 2012, ANEEL approved the loan contract agreed between the Company (lender) and Copel Distribuição (borrower), for the amount of R$ 800,000. The loan is for a period of two years, bearing interest of 109.41% of the DI rate. The allocation of resources was the discharge of the obligations of the loan agreement signed on February 27, 2007 and paid on February 23, 2012.

15.3.                   Loan Contract - Elejor

On April 7, 2004, a loan contract was signed between Copel (lender) and Elejor (borrower), for the purpose of guaranteeing the continuity of the project to construct the Fundão – Santa Clara Hydroelectric Energy Complex, approved by the regulatory agency, through dispatch ANEEL no. 2876, it started being remunerated by the TJLP interest rate plus a fixed rate of 4.5% p.y.

As deliberated on the 36th Extraordinary general meeting of December 9, 2010 of Elejor, after paying/returning the advance for future capital increase, the Company started paying the above mentioned loan contract on October, 2011.

16.           Investments 

16.1.                   Changes in investments

 

Balance as of

 

valuation

Investiment(1)/

dividends

of concession

Balance as of

 

January 1, 2012

Equity

adjustments

Afac(2)

and JCP

rights

December 31, 2012

Associates (16.4)

 

 

 

 

 

 

 

Sanepar

344,439

53,313

-

-

(12,306)

(730)

384,716

Sercomtel Telecomunicações

70,341

(59,774)

-

-

-

-

10,567

Dona Francisca

53,061

8,149

-

-

(1,457)

-

59,753

Foz do Chopim

17,402

9,434

-

-

(10,964)

-

15,872

Carbocampel

1,307

(36)

-

142(1)

-

-

1,413

Dois Saltos

300

-

-

-

-

-

300

Copel Amec

165

15

-

-

-

-

180

Escoelectric

-

(61)

-

61(2)

-

-

-

 

487,015

11,040

-

203

(24,727)

(730)

472,801

Other investments (16.5)

 

 

 

 

 

 

 

Finam (16.5.1)

2,267

-

(944)

-

-

-

1,323

Finor (16.5.1)

613

-

(301)

-

-

-

312

Investco S.A.

8,345

-

937

-

-

-

9,282

Assets for future use

4,290

-

-

-

-

-

4,290

Advance with the purpose of future investment (16.5.2)

38,945

-

-

7,686(1)

-

-

46,631

Other investments

7,683

-

714

-

-

-

8,397

 

62,143

-

406

7,686

-

-

70,235

 

549,158

11,040

406

7,889

(24,727)

(730)

543,036

(1) Contribution for purchase of investments

             

(2) Afac - Advance for future capital increase

             
 
                     
                     

 

 

 

Equity

 

Proposed

Provision

Amortization

Transfer to

 

 

 

Balance as of

 

valuation

Investiment(1)/

dividends

for

of concession

disposal and

 

Balance as of

 

January 1, 2011

Equity

adjustments

Afac(2)

and JCP

losses

rights

intangible

Write off

December 31, 2011

Associates (16.4)

 

 

 

 

 

 

 

 

 

 

Sanepar

323,814

39,711

-

-

(18,356)

-

(730)

-

-

344,439

Sercomtel Telecomunicações

72,464

(2,123)

-

-

-

-

-

-

-

70,341

Dona Francisca

50,161

7,953

-

-

(5,053)

-

-

-

-

53,061

Foz do Chopim

17,086

10,267

-

-

(9,951)

-

-

-

-

17,402

Carbocampel

1,224

(27)

-

110(2)

-

-

-

-

-

1,307

Dois Saltos

300

-

-

-

-

-

-

-

-

300

Copel Amec

156

9

-

-

-

-

-

-

-

165

Escoelectric

37

(136)

-

99(2)

-

-

-

-

-

-

 

465,242

55,654

-

209

(33,360)

-

(730)

-

-

487,015

Other investments (16.5)

 

 

 

 

 

 

 

 

 

 

Finam (16.5.1)

2,456

-

-

-

-

(189)

-

-

-

2,267

Finor (16.5.1)

769

-

-

-

-

(156)

-

-

-

613

Investco S.A.

7,903

-

442

-

-

-

-

-

-

8,345

Assets for future use

4,538

-

-

-

-

-

-

(38)

(210)

4,290

Advance with the purpose of future investment (16.5.2)

-

-

-

38,945(1)

-

-

-

-

-

38,945

Other investments

2,542

-

5,205

3(1)

-

(53)

-

-

(14)

7,683

 

18,208

-

5,647

38,948

-

(398)

-

(38)

(224)

62,143

 

483,450

55,654

5,647

39,157

(33,360)

(398)

(730)

(38)

(224)

549,158

(1) Contribution for purchase of investments

(2) Afac - Advance for future capital increase

 

F-33


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

16.2.                   Parent Company

     

Percentage of share capital

Copel (Holding)

Copel Geração e Transmissão

Parent Company

%

%

Copel Geração e Transmissão S.A. (GET)

100.00

-

Copel Distribuição S.A. (DIS)

100.00

-

Copel Telecomunicações S.A. (TEL)

100.00

-

Companhia Paranaense de Gás - Compagas (COM)

51.00

-

Elejor - Centrais Elétricas do Rio Jordão S.A. (ELE)

70.00

-

UEG Araucária Ltda. (UEG) (15.2.1)

20.00

60.00

 

16.2.1.   Centrais Eólicas do Paraná Ltda.

Limited liability company in which Copel had a 30% interest and Copel Geração e Transmissão had a 70% interest. According to the termination agreement of May 31, 2012, the assets of Centrais Eólicas do Paraná, in the amount of R$ 3,033, were divided in proportion to the interest of each of its members: i) the amount of R$ 910 was deposited in Copel’s bank account; and ii) the remaining balance, in the amount of  R$ 2,123, was fully transferred to Copel Geração e Transmissão, given that the authorization held by Central Geradora Eólica Palmas was passed on to Copel Geração e Transmissão, according to Authoritative Resolution 3,319, issued by ANEEL on January 24, 2012.

.

Centrais Eólicas

 

05.31.2012

ASSETS

3,033

Current assets

2,037

Non-current assets

996

LIABILITIES

3,033

Equity

3,033

 

F-34


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

16.2.2.   Financial statements of subsidiaries

             

ASSETS

 

 

 

 

 

 

12.31.2012

GET

DIS

TEL

COM

ELE

UEG

Total assets

9,531,370

8,812,803

428,216

289,363

763,731

672,352

Current assets

1,248,335

2,876,268

64,848

86,793

45,567

214,926

Cash and cash equivalents

197,209

1,126,361

26,689

35,993

25,282

18,219

Financial investments - bonds and securities

291,709

158,837

-

-

1,765

183,014

Financial restricted investments - collaterals and escrow accounts

1,429

34,293

-

1,086

-

-

Trade accounts receivable

265,623

1,200,251

18,649

40,092

18,127

-

CRC transferred to the State Government of Paraná

-  

75,930

-

-

-

-

Account receivable related to the concession

5,319

-

-

-

-

-

Accounts receivable related to the concession extension

356,085

-

-

-

-

-

Other receivables

92,661

126,686

2,437

716

1

12,124

Inventories

28,299

84,995

10,645

870

-

-

Income tax and social contribution

809

35,868

3,413

-

-

971

Other current recoverable taxes

6,871

31,460

2,671

7,868

11

598

Prepaid expenses

2,321

1,587

344

168

381

-

Non-current assets

8,283,035

5,936,535

363,368

202,570

718,164

457,426

Long term assets

1,154,718

4,626,774

23,253

18,022

28,383

20,244

Financial investments - bonds and securities

92,827

35,688

-

-

-

-

Financial restricted investments - collaterals and escrow accounts

-

43,246

-

-

-

-

Trade accounts receivable

-

26,172

-

5,266

-

-

CRC transferred to the State Government of Paraná

-

1,308,354

-

-

-

-

Judicial Deposits

24,315

276,541

1,036

302

70

249

Account receivable related to the concession

262,564

2,383,262

-

-

-

-

Accounts receivable related to the concession extension

717,805

-

-

-

-

-

Advances to suppliers

-

-

-

12,279

-

-

Other receivables

6,413

4,036

-

-

-

-

Income tax and social contribution

-

-

-

-

-

19,995

Other current recoverable taxes

50,794

60,663

8,732

-

-

-

Deferred income tax and social contribution

-

488,812

13,485

-

28,313

-

Prepaid expenses

-

-

-

175

-

-

Investments

448,130

4,012

-

-

-

-

Property, plant and equipment, net

6,635,206

-

319,141

-

480,439

436,967

Intangible assets

44,981

1,305,749

20,974

184,548

209,342

215

             
 

LIABILITIES

 

 

 

 

 

 

12.31.2012

GET

DIS

TEL

COM

ELE

UEG

Total liabilities

9,531,370

8,812,803

428,216

289,363

763,731

672,352

Current liabilities

1,477,882

1,970,456

53,612

60,464

83,728

6,761

Social charges and accruals

110,182

243,128

25,393

4,333

219

108

Suppliers

419,896

694,903

14,481

45,873

4,967

3,183

Income tax and social contribution payable

139,614

-

-

3,214

22,921

1,189

Other taxes

50,760

205,330

4,492

1,934

1,743

2,260

Loans and financing

71,654

164,788

53

-

-

-

Debentures

-

12,719

-

-

-

-

Minimum compulsary dividend payable

635,489

371,863

7,982

4,929

3,931

-

Post employment benefits

6,908

18,004

903

-

-

-

Custumer charges due

7,236

49,262

-

-

-

-

Research and development and energy efficiency

14,831

142,936

-

-

1,832

-

Payables related to concession - use of public property

884

-

-

-

47,593

-

Other accounts payable

20,428

67,523

308

181

522

21

Non-current liabilities

1,837,046

3,240,827

47,598

6,594

605,141

-

Associated companies and parent company

-  

851,237

-

-

232,654

-

Suppliers

106,175

-

-

-

-

-

Deferred income tax and social contribution

612,870

-

-

2,939

-

-

Loans and financing

438,396

609,941

25,559

-

-

-

Debentures

-

997,958

-

-

-

-

Post employment benefits

134,962

343,584

21,070

2,807

-

-

Research and development and energy efficiency

43,350

61,211

-

-

-

-

Payables related to concession - use of public property

27,184

-

-

-

371,896

-

Reserve for contingencies

474,109

376,896

969

848

591

-

Equity

6,216,442

3,601,520

327,006

222,305

74,862

665,591

Capital

3,505,994

2,624,841

240,398

135,943

35,503

707,440

Equity valuation adjustments

1,339,999

1,230

-

-

2,088

-

Legal reserves

247,134

135,294

6,706

17,295

2,444

-

Retaindes earnings

1,123,315

840,155

79,902

62,115

34,827

-

Unrealized revenue reserve

-

-

-

6,952

-

-

Accumulated profit (losses)

-

-

-

-

-

(41,849)

 

F-35


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

 

 

 

 

 

 

 

STATEMENT OF INCOME

 

 

 

 

 

 

 

12.31.2012

GET

DIS

TEL

COM

ELE

UEG

CEO

Income from sale of goods and/or services

2,242,665

5,892,171

172,445

359,090

211,724

86,442

54

Cost of goods and/or services sold

(1,374,149)

(5,968,827)

(139,403)

(332,128)

(59,006)

(61,350)

(118)

Equity in income of subsidiaries

16,041

-

-

-

-

-

-

Net income before financial results and taxes

884,557

(76,656)

33,042

26,962

152,718

25,092

(64)

Financial income

48,624

5,644

3,444

4,769

(102,425)

12,178

110

Operating profit (losses)

933,181

(71,012)

36,486

31,731

50,293

37,270

46

Income tax and social contribution

(263,071)

(124,691)

(13,653)

(13,155)

(30,244)

(8,902)

(74)

Deferred income tax and social contribution

30,414

152,283

5,174

2,178

13,247

-

-

Net income for the year

700,524

(43,420)

28,007

20,754

33,296

28,368

(28)

 

 

 

 

 

 

 

 

 

               

ASSETS

 

 

 

 

 

 

 

12.31.2011

GET

DIS

TEL

COM

ELE

UEG

CEO

Total assets

8,618,225

7,563,936

353,370

276,164

764,180

641,044

4,116

Current assets

1,125,305

2,150,339

44,395

77,320

37,102

151,645

3,034

Cash and cash equivalents

216,495

647,783

8,348

41,047

17,851

86,318

2,847

Financial investments - bonds and securities

487,406

33,735

-

48

616

60,049

-

Financial restricted investments - collaterals and escrow accounts

1,957

5

-

706

-

-

-

Trade accounts receivable

247,377

1,104,328

18,253

32,715

18,366

-

90

CRC transferred to the State Government of Paraná

-

65,862

-

-

-

-

-

Account receivable related to concession

80,626

-

-

-

-

-

-

Other receivables

61,855

95,030

1,098

540

1

2,944

-

Inventories

23,714

69,579

9,015

1,491

-

3

-

Income tax and social contribution

2,243

87,484

3,958

1

-

2,322

89

Other current recoverable taxes

1,544

44,871

3,369

564

-

9

-

Prepaid expenses

2,088

1,662

354

208

268

-

8

Non-current assets

7,492,920

5,413,597

308,975

198,844

727,078

489,399

1,082

Long term assets

1,097,629

4,163,071

18,403

23,008

16,237

20,699

-

Financial investments - bonds and securities

61,931

38,211

-

-

-

-

-

Trade accounts receivable

-

32,363

89

10,534

-

-

-

CRC transferred to the State Government of Paraná

-

1,280,598

-

-

-

-

-

Judicial deposits

20,349

185,994

885

301

95

249

-

Account receivable related to concession

1,011,240

2,225,203

-

-

-

-

-

Advances to suppliers

-

-

-

11,982

-

-

-

Other receivables

1,878

3,172

-

191

-

-

-

Income tax and social contribution

-

-

-

-

-

18,714

-

Other current recoverable taxes

2,231

64,827

9,118

-

-

1,736

-

Deferred income tax and social contribution

-

332,703

8,311

-

16,142

-

-

Investments

386,873

4,012

-

-

-

-

-

Property, plant and equipment, net

5,969,262

-

273,787

-

496,410

468,576

1,082

Intangible assets

39,156

1,246,514

16,785

175,836

214,431

124

-

 

F-36


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

               

LIABILITIES

 

 

 

 

 

 

 

12.31.2011

GET

DIS

TEL

COM

ELE

UEG

CEO

Total liabilities

8,618,225

7,563,936

353,370

276,164

764,180

641,044

4,116

Current liabilities

1,141,261

1,708,165

47,532

62,991

65,331

3,669

31

Social charges and accruals

56,228

151,184

13,490

2,734

181

106

-

Suppliers

211,100

531,187

7,000

43,054

3,048

3,130

2

Income tax and social contribution payable

133,348

-

-

7,526

6,987

-

-

Other taxes

21,385

214,128

4,390

1,788

4,187

411

29

Loans and financing

59,152

17,619

-

48

-

-

-

Minimum compulsary dividend payable

600,659

508,695

20,649

7,702

3,702

-

-

Post employment benefits

9,785

24,612

1,640

-

-

-

-

Customer charges due

4,047

66,464

-

-

-

-

-

Research and development and energy efficiency

13,943

140,918

-

-

2,054

-

-

Payables related to concession - use of public property

615

-

-

-

44,041

-

-

Other accounts payable

30,999

53,358

363

139

1,131

22

-

Non-current liabilities

1,737,175

2,189,936

41,098

6,693

651,464

152

-

Associated companies and parent company

-

781,031

23,000

-

305,936

-

-

Suppliers

118,530

-

-

-

-

-

-

Tax liabilities

-

-

-

-

-

152

-

Deferred income tax and social contribution

643,149

-

-

5,117

-

-

-

Loans and financing

437,549

708,607

-

-

-

-

-

Post employment benefits

117,851

295,899

17,883

1,205

-

-

-

Research and development and energy efficiency

34,523

60,126

-

-

-

-

-

Payables related to concession - use of public property

25,505

-

-

-

344,937

-

-

Other accounts payable

-

-

-

53

-

-

-

Reserve for contingencies

360,068

344,273

215

318

591

-

-

Equity

5,739,789

3,665,835

264,740

206,480

47,385

637,223

4,085

Capital

3,505,994

2,624,841

194,755

135,943

35,503

707,440

3,061

Equity valuation adjustments

1,440,745

8,657

-

-

-

-

-

Legal reserves

212,108

135,294

5,306

16,258

779

-

-

Retaindes earnings

145,364

883,575

62,685

43,851

11,103

-

1,024

Unrealized revenue reserve

-

-

-

10,428

-

-

-

Additional proposed dividends

435,578

13,468

1,994

-

-

-

-

Accumulated profit (losses)

-

-

-

-

-

(70,217)

-

 
               

STATEMENT OF INCOME

 

 

 

 

 

 

 

12.31.2011

GET

DIS

TEL

COM

ELE

UEG

CEO

Income from sale of goods and/or services

2,039,045

5,490,064

157,803

291,376

195,984

29,740

927

Cost of goods and/or services sold

(1,351,074)

(5,038,081)

(114,437)

(248,001)

(71,877)

(54,043)

(550)

Equity in income of subsidiaries

(3,487)

-

-

-

-

-

-

Net income before financial results and taxes

684,484

451,983

43,366

43,375

124,107

(24,303)

377

Financial income

101,643

256,721

2,923

6,136

(103,619)

17,297

995

Operating profit (losses)

786,127

708,704

46,289

49,511

20,488

(7,006)

1,372

Income tax and social contribution

(264,556)

(297,653)

(12,472)

(18,294)

(13,323)

-

(348)

Deferred income tax and social contribution

77,349

124,835

1,883

1,214

8,418

-

-

Net income for the year

598,920

535,886

35,700

32,431

15,583

(7,006)

1,024

 
                   

STATEMENT OF INCOME

 

 

 

 

 

 

 

CEO

DOM

12.31.2010

GET

DIS

TEL

COM

ELE

UEG

CEM

Income from sale of goods and/or services

1,721,556

4,939,328

139,153

267,829

180,957

45,374

-

912

-

Cost of goods and/or services sold

(1,094,516)

(4,577,731)

(99,047)

(212,120)

(58,751)

(65,688)

(38)

(529)

(1,279)

Equity in income of subsidiaries

(3,345)

-

-

-

-

-

(9,246)

-

22,061

Net income before financial results and taxes

623,695

361,597

40,106

55,709

122,206

(20,314)

(9,284)

383

20,782

Financial income

62,311

378,910

4,059

5,256

(102,203)

13,278

352

785

(431)

Operating profit (losses)

686,006

740,507

44,165

60,965

20,003

(7,036)

(8,932)

1,168

20,351

Income tax and social contribution

(221,956)

(193,982)

(11,287)

(20,734)

(14,336)

-

(63)

(274)

(4)

Deferred income tax and social contribution

65,072

(22,012)

(184)

307

7,724

-

-

-

-

Net income for the year

529,122

524,513

32,694

40,538

13,391

(7,036)

(8,995)

894

20,347

 

F-37


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

16.3.                   Jointly-controlled entities

     

Percentage of share capital

Copel (Holding)

Copel Geração e Transmissão

Jointly controlled

%

%

Dominó Holdings S.A.

45.00

-

Cutia Empreendimentos Eólicos SPE S.A.

49.90

-

Costa Oeste Transmissora de Energia S.A.

-

51.00

Marumbi Transmissora de Energia S.A.

-

80.00

Transmissora Sul Brasileira de Energia S.A.

-

20.00

Caiuá Transmissora de Energia S.A.

-

49.00

Integração Maranhense Transmissora de Energia S.A.

-

49.00

Matrinchã Transmissora de Energia (TP NORTE) S.A.

-

49.00

Guaraciaba Transmissora de Energia (TP SUL) S.A.

-

49.00

Paranaíba Transmissora de Energia S.A.

-

24.50

 

Shared controls result from agreements between shareholders regardless of the ownership interest percentage.

a)       Paranaíba Transmissora de Energia S.A.

A Specific Purpose Entity (SPE) in which Copel Geração e Transmissão holds 24.5% of the voting capital, established on December 21, 2012 to implement and operate the electric power business, through concession of a basic transmission network of the National Interconnected System (SIN), whose objective is the construction, operation and maintenance of transmission facilities defined in the invitation to bid of ANEEL Auction 07/2012 held on December 19, 2012 which is mainly a 500 kV transmission line with an approximate length of 244 km, originating in the Barriers II substation and terminating in the Rio Mares substation; a 500 kV transmission line with an approximate length of 373 km, originating in the Rio das Éguas substation and terminating in the Luziânia substation; a 500 kV transmission line with an approximate length of 350 km, originating in the Luziânia substation and terminating in the Pirapora 2 substation and reactive compensation of equipment and their respective connections, line entries and bus tie switchboards, located in the States of Bahia, Minas Gerais and Goiás. The concession period is 30 years counted from the date of signing the contract and at the sole discretion of the granting authority; it may be renewed for an equal period at the maximum.

16.3.1.   Main groups of assets, liabilities and results of jontly-controlled

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

Dominó

 

Costa Oeste

Marumbi

 

Sul Brasileira

 

Cutia

 

Balance adjusted (1)

Share (45%)

Original Balance

Share (51%)

Original Balance

Share (80%)

Original Balance

Share (20%)

Original Balance

Share (49.9%)

Assets

888,298

399,734

6,154

3,138

3,166

2,533

85,076

17,015

10,738

5,358

Current assets

33,137

14,912

612

312

2,192

1,754

21,776

4,355

19

9

Non-current assets

855,161

384,822

5,542

2,826

974

779

63,300

12,660

10,719

5,349

.

 

 

 

 

 

 

 

 

 

 

Liabilities

888,298

399,734

6,154

3,138

3,166

2,533

85,076

17,015

10,738

5,358

Current liabilities

44,588

20,065

3,924

2,001

365

292

37,186

7,437

47

23

Non-current liabilities

-

-

174

88

33

26

39,875

7,975

2,950

1,472

Equity

843,710

379,669

2,056

1,049

2,768

2,215

8,015

1,603

7,741

3,863

.

 

 

 

 

 

 

 

 

 

 

Statement of Income

 

 

 

 

 

 

 

 

 

 

Construction revenues

-

-

5,518

2,814

960

768

63,263

12,652

-

-

Construction cost

-

-

(5,492)

(2,801)

(948)

(758)

(62,642)

(12,528)

-

-

Operational expenses

(3,001)

(1,350)

(630)

(322)

(336)

(269)

(964)

(193)

(930)

(464)

Financial income (expense)

(3,547)

(1,597)

66

34

16

13

352

71

33

17

Equity in income of subsidiaries

118,473

53,313

-

-

-

-

-

-

-

-

Income tax and social contribution

-

-

(202)

(103)

(35)

(28)

(3)

(1)

-

-

PROFIT (LOSS) FOR THE YEAR

111,925

50,366

(740)

(378)

(343)

(274)

6

1

(897)

(447)

 

 

F-38


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

                 

Balance as of December 31, 2012

 

Caiuá

 

I. Maranhense

 

Matrinchã

 

Guaraciaba

 

Original Balance

Share (49%)

Original Balance

Share (49%)

Original Balance

Share (49%)

Original Balance

Share (49%)

Assets

18,923

9,272

20,379

9,986

21,289

10,431

14,980

7,340

Current assets

1,682

824

2,431

1,191

13,556

6,642

11,367

5,570

Non-current assets

17,241

8,448

17,948

8,795

7,733

3,789

3,613

1,770

.

 

 

 

 

 

 

 

 

Liabilities

18,923

9,272

20,379

9,986

21,289

10,431

14,980

7,340

Current liabilities

3,076

1,508

726

356

615

302

770

377

Non-current liabilities

8,740

4,282

8,773

4,299

-

-

-

-

Equity

7,107

3,482

10,880

5,331

20,674

10,129

14,210

6,963

.

 

 

 

 

 

 

 

 

Statement of Income

 

 

 

 

 

 

 

 

Construction revenues

17,163

8,410

17,942

8,792

7,733

3,789

3,552

1,740

Construction cost

(16,868)

(8,265)

(17,498)

(8,574)

(7,554)

(3,702)

(3,484)

(1,707)

Operational expenses

(773)

(379)

(658)

(322)

(170)

(83)

(535)

(262)

Financial income

120

59

134

65

164

80

176

87

Income tax and social contribution

(36)

(18)

(40)

(20)

-

-

-

-

PROFIT (LOSS) FOR THE YEAR

(394)

(193)

(120)

(59)

173

84

(291)

(142)

 

 

                     

Balance as of December 31, 2011

 

Dominó

 

Costa Oeste

 

Marumbi

 

Sul Brasileira

 

Cutia

 

Balance adjusted (1)

Share (45%)

Original Balance

Share (51%)

Original Balance

Share (80%)

Original Balance

Share (20%)

Original Balance

Share (49.9%)

Assets

802,228

361,002

437

223

10

8

10

2

9,883

4,931

Current assets

36,591

16,466

375

192

10

8

10

2

25

12

Non-current assets

765,637

344,536

62

31

-

-

-

-

9,858

4,919

.

 

 

 

 

 

 

 

 

 

 

Liabilities

802,228

361,002

437

223

10

8

10

2

9,883

4,931

Current liabilities

33,436

15,046

37

19

-

-

-

-

311

155

Non-current liabilities

7

3

-

-

-

-

-

-

934

466

Equity

768,785

345,953

400

204

10

8

10

2

8,638

4,310

.

 

 

 

 

 

 

 

 

 

 

Statement of Income

 

 

 

 

 

 

 

 

 

 

Operacional expense

(3,372)

(1,518)

-

-

-

-

-

-

(579)

(289)

Financial income (expense)

(3,543)

(1,594)

-

-

-

-

-

-

-

-

Equity in income of subsidiaries

88,247

39,711

-

-

-

-

-

-

-

-

Income tax and social contribution

-

-

-

-

-

-

-

-

-

-

PROFIT (LOSS) FOR THE YEAR

81,332

36,599

-

-

-

-

-

-

(579)

(289)

(1) Balances adjusted to accounting practices

16.4.                   Associates 

 

 

 

 

 

 

 

 

12.31.2012

 

 

 

 

 

Net

Part.

 

Main

 

 

 

 

income

Group

 

activity

Assets (1)

Liabilities (1)

Equity (1)

Revenues

(loss) (1)

%

Cia. Saneamento do Paraná - Sanepar (16.4.1)

Sanitation

2,727,370

1,622,289

1,105,081

955,528

153,430

34.75

Sercomtel S.A. Telecomunicações (16.4.2)

Telecommunications

184,592

161,115

23,477

126,480

(65,403)

45.00

Foz do Chopim Energética Ltda.

Electric Power

46,085

1,712

44,373

37,491

26,373

35.77

Dona Francisca Energética S.A.

Electric Power

312,111

52,657

259,454

93,965

35,385

23.03

Dois Saltos Empreendimentos de

 

 

 

 

 

 

 

Geração de Energia Elétrica Ltda.

Electric Power

1,350

350

1,000

-

-

30.00

Copel Amec S/C Ltda.- em liquidação

Services

382

7

375

-

32

48.00

Carbocampel S.A.

Coal exploration

3,565

681

2,884

-

(73)

49.00

Escoelectric Ltda.

Services

1,885

3,087

(1,202)

-

(201)

40.00

(1)Balances adjusted to accounting practices

 

F-39


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

12.31.2011

 

 

 

 

 

Net

Part.

 

Main

 

 

 

 

income

Group

 

activity

Assets (1)

Liabilities (1)

Equity (1)

Revenues

(loss) (1)

%

Cia. Saneamento do Paraná - Sanepar (16.4.1)

Sanitation

2,502,822

1,515,756

987,066

784,078

114,286

34.75

Sercomtel S.A. Telecomunicações (16.4.2)

Telecommunications

275,620

119,307

156,313

138,597

(4,723)

45.00

Foz do Chopim Energética Ltda.

Electric Power

51,148

2,498

48,650

35,124

29,122

35.77

Dona Francisca Energética S.A.

Electric Power

309,625

79,226

230,399

84,613

34,532

23.03

Sercomtel Celular S.A.

Telecommunications

18,903

36,073

-

27,065

2,429

45.00

Dois Saltos Empreendimentos de

 

 

 

 

 

 

 

Geração de Energia Elétrica Ltda.

Electric Power

1,350

350

1,000

-

-

30.00

Copel Amec S/C Ltda.- em liquidação

Services

348

4

344

-

19

48.00

Carbocampel S.A.

Coal exploration

3,553

1,111

2,442

-

(53)

49.00

Escoelectric Ltda.

Services

2,747

5,516

(2,769)

-

(122)

40.00

(1) Balances adjusted to accounting practices

 

16.4.1.   Sanepar 

In 1998, the acquisition of shares in Sanepar by Dominó Holdings S.A. generated the concession right for the total amount of R$ 24,316, which at December 31, 2012 reported a balance of R$ 1,621. Copel’s proportional investment (45%), in this balance corresponded to R$ 729 and is being amortized over 15 years, as from 1999, at the rate of R$ 61 per month, and the amount recognized to profit/loss ending December 31, 2012 was R$ 730 (R$ 730 in 2011).

The Company indirectly owns a 15.64% investment on Sanepar. However, due to the Company's abilty to exercise significant influence in Sanepar, Copel accounts this investment using the equity method.

16.4.2.   Sercomtel S.A. Telecomunicações

The completion of work on the recovery tests of our assets, which occurred in 2012, adopting, where applicable, the same assumptions mentioned in footnote Fixed Assets (Note 17.6) indicated with an adequate level of security that assets linked to related Sercomtel S.A. Telecomunicações presented above the recoverable amount of R$ 41,438 (R$ 12,580 in 2011), resulting in a loss recognized in the income for 2012 of R$ 28,858 (R$ 42 in 2011), recorded as equity accounting.

16.4.3.   Sercomtel Celular S.A.

The impairment testing of the Company’s assets showed that the book value of the assets belonging to the associate, Sercomtel Celular S.A., was higher than their recoverable value by R$ 6,195, causing a write-off of the investment in this associate, in which Copel has an ownership interest of 45%. The company was merged into Sercomtel S.A. – Telecomunicações in October 31, 2012.

16.5.                   Other investments

16.5.1.   Other investments classified as available for sale

 

 

Quantity

Average price

Market

of

in December 2012

Value

 

quota

(R$ per thousand shares)

Thousand R$

.

 

 

12.31.2012

Finam

18,891,053

0.07

1,323

Finor

1,114,618

0.28

312

 

 

 

1,635

 

 

F-40


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

         

 

Quantity

 

Quotation - 12.28.2012

Market

 

of

 

stock exchange

value

Company

shares

Type

R$ per share

R$ thousand

Tractebel Energia S.A.

180,888

ON

33.35

6,033

Eletrosul - Centrais Elétricas S.A.

14,195

ON

41.35

587

Telefônica Brasil S.A.

7,859

ON

42.36

333

Telefônica Brasil S.A.

675

PN

47.57

32

TIM Participações S.A.

11,804

ON

8.20

97

Cia. de Eletricidade do Estado da Bahia - Coelba

1,643

PNA

44.42

73

Centrais Elétricas do Pará S.A. - Celpa

7,464

PNA

1.09

8

Centrais Elétricas do Pará S.A. - Celpa

1,057

PNB

0.89

1

Embratel Participações S.A.

2,476,773

ON

0.0120

30

Embratel Participações S.A.

301,949

PN

0.0125

4

Telebras - Telecomunicações Brasileiras S.A.

377

ON

12.69

5

Telebras - Telecomunicações Brasileiras S.A.

30

PN

8.00

-

Empresa Brasileira de Aeronáutica S.A.

14

ON

14.45

-

 

 

 

 

7,203

 

16.5.2.   Advance for future investment

In November, 2011, the contract for purchase and sale of 49.9% of the representative shares of São Bento Energia, Investimentos e Participações S.A, which holds corporate control of companies GE Olho D’Água S.A, GE Boa Vista S.A, GE Farol S.A and GE São Bento do Norte S.A, which holds the concession grants of Centrais Geradoras Eólicas Olho D’Água, Boa Vista, Farol and São Bento do Norte, respectively, was signed. The contract will only be effective after approvals of the deal by ANEEL, by the Economic Defense Administrative Council – CADE and by the National Socio-Economic Development Bank – BNDES, which is the bank financing the funds necessary to the investment, construction and operation of the abovementioned wind power generation enterprises held by the subsidiaries. The funds provided, which amount to R$ 45,673, were classified as an advance for future investment. In case the approvals are not obtained, the seller is obliged to repay the funds adjusted by the variation of the National Prices Index – IGPM. The approvals by ANEEL and Cade were obtained, awaiting the completion of the procedure with BNDES.

 

 

F-41


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

16.6.                   Consolidated statement of income segregated by company

Aiming to enable analysis of outcome by type of expenditure, costs and expenses are presented in aggregate form.

                     

STATEMENT OF OPERATIONS

GET

DIS

TEL

COM

ELE

UEG

Others

Holding

Eliminations

Consolidated

12.31.2012

NET OPERATING INCOME

2,242,665

5,892,171

172,445

359,090

211,724

86,442

39,019

-

(471,339)

8,532,217

Electricity sales to final customers

137,990

2,490,638

-

-

-

-

-

-

(3,119)

2,625,509

Electricity sales to distributors

1,559,997

155,463

-

-

210,576

-

54

-

(302,583)

1,623,507

Charges for the use of the main transmission grid

444,653

2,500,075

-

-

-

-

468

-

(114,095)

2,831,101

Construction revenues

59,977

665,601

-

24,185

-

-

38,497

-

-

788,260

Revenues from telecommunications

-

-

166,713

-

-

-

-

-

(41,148)

125,565

Distribution of piped gas

-

-

-

325,012

-

-

-

-

-

325,012

Leases and rentals

1,136

66,661

5,689

-

-

86,442

-

-

(5,749)

154,179

Other operating revenues

38,912

13,733

43

9,893

1,148

-

-

-

(4,645)

59,084

OPERATING COSTS AND EXPENSES

(1,374,149)

(5,968,827)

(139,403)

(332,128)

(59,006)

(61,350)

(42,097)

(37,162)

471,384

(7,542,738)

Energy purchased for resale

(164,607)

(2,939,447)

-

-

(6,199)

-

-

-

302,518

(2,807,735)

Charges from use of grid system

(210,118)

(648,501)

-

-

(9,588)

(14,277)

-

-

110,123

(772,361)

Personnel and management

(317,712)

(824,102)

(70,253)

(19,891)

(2,252)

(1,289)

(948)

(10,152)

-

(1,246,599)

Private pension and health plans

(44,315)

(126,187)

(8,591)

(3,039)

-

-

-

(746)

-

(182,878)

Materials

(17,934)

(48,296)

(1,800)

(1,413)

(162)

(147)

(31)

(33)

-

(69,816)

Raw material and supplies - energy production

(22,641)

-

-

-

-

(2,870)

-

-

-

(25,511)

Natural gas and supplies - gas operations

-

-

-

(247,770)

-

-

-

-

-

(247,770)

Third parties services

(93,560)

(320,135)

(17,280)

(14,206)

(8,269)

(9,038)

(1,204)

(3,863)

57,496

(410,059)

Depreciation and amortization

(254,324)

(192,344)

(28,019)

(13,769)

(27,383)

(33,175)

(819)

(755)

-

(550,588)

Provisions and reversals

(80,212)

(118,986)

(4,316)

(1,086)

-

-

-

(14,196)

-

(218,796)

Construction cost

(43,791)

(665,601)

-

(24,185)

-

-

(38,335)

-

-

(771,912)

Compensation for use of water resources

(89,493)

-

-

-

(5,057)

-

-

-

-

(94,550)

Other costs and operational expenses

(35,442)

(85,228)

(9,144)

(6,769)

(96)

(554)

(760)

(7,417)

1,247

(144,163)

EQUITY IN EARNINGS OF SUBSIDIARIES

16,041

-

-

-

-

-

53,313

732,313

(790,627)

11,040

PROFIT BEFORE FINANCIAL RESULTS AND TAXES

884,557

(76,656)

33,042

26,962

152,718

25,092

50,235

695,151

(790,582)

1,000,519

Financial income (expense)

48,624

5,644

3,444

4,769

(102,425)

12,178

(1,061)

1,051

(45)

(27,821)

OPERATIONAL PROFIT

933,181

(71,012)

36,486

31,731

50,293

37,270

49,174

696,202

(790,627)

972,698

Income tax and social contribution

(263,071)

(124,691)

(13,653)

(13,155)

(30,244)

(8,902)

(129)

(4,467)

-

(458,312)

Deferred income tax and social income

30,414

152,283

5,174

2,178

13,247

-

(115)

8,953

-

212,134

NET INCOME (LOSS) FOR THE YEAR

700,524

(43,420)

28,007

20,754

33,296

28,368

48,930

700,688

(790,627)

726,520

 

F-42


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

                     

STATEMENT OF OPERATIONS

GET

DIS

TEL

COM

ELE

UEG

Others

Holding

Eliminations

Consolidated

12.31.2011

NET OPERATING INCOME

2,039,045

5,490,064

157,803

291,376

195,984

29,740

927

-

(428,774)

7,776,165

Electricity sales to final customers

102,934

2,233,335

-

-

-

-

-

-

(5,441)

2,330,828

Electricity sales to distributors

1,437,298

91,789

-

-

195,949

-

927

-

(286,132)

1,439,831

Charges for the use of the main transmission grid

346,255

2,505,499

-

-

-

-

-

-

(89,386)

2,762,368

Construction revenues

118,816

606,620

-

16,290

-

-

-

-

-

741,726

Revenues from telecommunications

-

-

157,803

-

-

-

-

-

(40,677)

117,126

Distribution of piped gas

-

-

-

273,933

-

-

-

-

-

273,933

Leases and rentals

1,207

56,058

-

-

-

32,804

-

-

(1,160)

88,909

Other operating revenues

32,535

(3,237)

-

1,153

35

(3,064)

-

-

(5,978)

21,444

OPERATING COSTS AND EXPENSES

(1,351,074)

(5,038,081)

(114,437)

(248,001)

(71,877)

(54,043)

(2,357)

(21,575)

428,774

(6,472,671)

Energy purchased for resale

(72,357)

(2,365,587)

-

-

(733)

-

-

-

286,132

(2,152,545)

Charges from use of grid system

(193,357)

(505,869)

-

-

(9,740)

(12,938)

-

-

89,386

(632,518)

Personnel and management

(240,858)

(657,382)

(58,341)

(15,096)

(1,913)

(998)

(26)

(8,039)

-

(982,653)

Private pension and health plans

(37,860)

(104,234)

(7,113)

(1,142)

-

-

-

(496)

-

(150,845)

Materials

(16,104)

(66,018)

(1,730)

(1,102)

(219)

(92)

(264)

(81)

-

(85,610)

Raw material and supplies - energy production

(23,047)

-

-

-

-

(1,984)

-

-

-

(25,031)

Natural gas and supplies - gas operations

-

-

-

(186,931)

-

-

-

-

-

(186,931)

Third parties services

(84,802)

(307,494)

(17,769)

(12,120)

(8,450)

(7,082)

(815)

(4,996)

52,095

(391,433)

Depreciation and amortization

(258,907)

(193,969)

(24,523)

(12,648)

(28,347)

(33,080)

(937)

(754)

-

(553,165)

Provisions and reversals

(173,119)

(122,332)

734

65

(246)

3,053

-

2,190

-

(289,655)

Construction cost

(108,533)

(606,620)

-

(16,290)

-

-

-

-

-

(731,443)

Compensation for use of water resources

(118,691)

-

-

-

(6,651)

-

-

-

-

(125,342)

Other costs and operational expenses

(23,439)

(108,576)

(5,695)

(2,737)

(15,578)

(922)

(315)

(9,399)

1,161

(165,500)

EQUITY IN EARNINGS OF SUBSIDIARIES

(3,487)

-

-

-

-

-

39,711

1,249,114

(1,229,684)

55,654

PROFIT BEFORE FINANCIAL RESULTS AND TAXES

684,484

451,983

43,366

43,375

124,107

(24,303)

38,281

1,227,539

(1,229,684)

1,359,148

Financial income (expense)

101,643

256,721

2,923

6,136

(103,619)

17,297

(599)

(55,734)

-

224,768

OPERATIONAL PROFIT

786,127

708,704

46,289

49,511

20,488

(7,006)

37,682

1,171,805

(1,229,684)

1,583,916

Income tax and social contribution

(264,556)

(297,653)

(12,472)

(18,294)

(13,323)

-

(348)

(4,955)

-

(611,601)

Deferred income tax and social income

77,349

124,835

1,883

1,214

8,418

-

-

(9,160)

-

204,539

NET INCOME (LOSS) FOR THE YEAR

598,920

535,886

35,700

32,431

15,583

(7,006)

37,334

1,157,690

(1,229,684)

1,176,854

 

F-43


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

17.           Property, Plant and Equipment

17.1.                   Changes in fixed assets by type of account

 

 

 

 

 

 

 

 

 

Balance as of

 

 

 

 

Balance as of

 

January 1, 2012

Additions

Depreciation

Write off

Transference

December 31, 2012

Land

270,096

40,795

-

-

-

310,891

Buildings, civil works and improvements

507,226

7,975

(29,690)

(517)

1

484,995

Machinery and equipment

2,483,494

178,939

(154,237)

(1,950)

34,798

2,541,044

Vehicles

10,626

7,294

(3,829)

(42)

15,786

29,835

Furniture and tools

2,774

5,999

(472)

(8)

(107)

8,186

Reservoirs, dams and aqueducts

3,082,435

86,529

(144,920)

-

-

3,024,044

Others

852,472

671,503

-

(1,356)

(49,765)

1,472,854

 

7,209,123

999,034

(333,148)

(3,873)

713

7,871,849

 
 

Balance as of

 

 

 

 

Balance as of

 

January 1, 2011

Additions

Depreciation

Write off

Transference

December 31, 2011

Land

216,640

53,458

-

-

(2)

270,096

Buildings, civil works and improvements

531,839

10,712

(28,887)

-

(6,438)

507,226

Machinery and equipment

2,436,816

212,472

(165,305)

(22,467)

21,978

2,483,494

Vehicles

6,095

7,707

(3,176)

-

-

10,626

Furniture and tools

2,807

1,231

(597)

(86)

(581)

2,774

Reservoirs, dams and aqueducts

3,186,075

47,976

(137,617)

-

(13,999)

3,082,435

Others

283,673

569,346

-

(538)

(9)

852,472

 

6,663,945

902,902

(335,582)

(23,091)

949

7,209,123

17.2.                   Fixed Asset by company

 

 

Accumulated

Net book

 

Accumulated

Net book

 

Cost

depreciation

Value

Cost

depreciation

Value

       

  

12.31.2012

   

  

12.31.2011

In service 

  

 

 

  

 

 

Copel Geração e Transmissão

11,491,186

(7,101,472)

4,389,714

11,463,046

(6,848,147)

4,614,899

Copel Telecomunicações

498,571

(294,255)

204,316

451,466

(276,901)

174,565

Elejor

591,738

(122,685)

469,053

590,092

(103,598)

486,494

UEG Araucária

666,750

(229,920)

436,830

664,878

(196,784)

468,094

Centrais Eólicas do Paraná

-

-

-

4,129

(3,047)

1,082

Dominó Holdings

4

-

4

-

-

-

Cutia

10

(6)

4

10

(4)

6

Costa Oeste

11

(1)

10

-

-

-

Marumbi

8

-

8

-

-

-

Transmissora Sul Brasileira

4

-

4

-

-

-

Guaraciaba

30

-

30

-

-

-

 

13,248,312

(7,748,339)

5,499,973

13,173,621

(7,428,481)

5,745,140

In progress

 

 

 

 

 

 

Copel Geração e Transmissão

2,245,507

-

2,245,507

1,354,363

-

1,354,363

Copel Telecomunicações

114,825

-

114,825

99,222

-

99,222

Elejor

11,386

-

11,386

9,916

-

9,916

UEG Araucária

137

-

137

482

-

482

Caiuá

34

-

34

-

-

-

Integração Maranhense

2

-

2

-

-

-

 

2,371,891

-

2,371,891

1,463,983

-

1,463,983

Special liabilities

 

 

 

 

 

 

Copel Geração e Transmissão

(15)

-

(15)

-

-

-

 

(15)

-

(15)

-

-

-

 

15,620,188

(7,748,339)

7,871,849

14,637,604

(7,428,481)

7,209,123

 

 

F-44


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

Under Articles 63 and 64 of Decree no. 41,019, dated February 26, 1957, 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. 20/99, however, regulates the release of assets from the concessions of the public Electric energy utilities, granting prior authorization to the release of assets that are deemed useless to the concession, when intended for sale, provided that the proceeds from such transaction be deposited in a special bank account assigned to investment in the concession. For concession contracts of the use of public property (UBP) type, infrastructure usage restrictions are set forth in article 19 of ANEEL Decree no. 2,003/96.

17.3.                   Changes in Property, Plant and Equipment

 

Fixed asset

 

In service

In progress

Total

Balance as of January 1, 2011

6,015,235

648,710

6,663,945

Effect of the first consolidation of Cutia

6

-

6

Investment program paid

-

821,919

821,919

Investment program to pay

-

64,913

64,913

Provision for litigation

-

16,064

16,064

Fixed assets for projects

86,606

(86,606)

-

Transfers of accounts receivable related to the concession

1,004

-

1,004

Transfer for intangible assets in service

(55)

-

(55)

Depreciation quotas to profit and loss

(336,033)

-

(336,033)

Depreciation quotas - Pasep/Cofins credits

451

-

451

Write off

(22,074)

(1,017)

(23,091)

Balance as of December 31, 2011

5,745,140

1,463,983

7,209,123

Investment program paid

-

875,604

875,604

Investment program to pay

-

119,590

119,590

Financial participation of customers

-

(15)

(15)

Provision for litigation

-

3,855

3,855

Fixed assets for projects

88,619

(88,619)

-

Transfers of accounts receivable related to the concession

713

-

713

Depreciation quotas to profit and loss

(331,333)

-

(331,333)

Depreciation quotas - Pasep/Cofins credits

(1,815)

-

(1,815)

Write off

(1,351)

(2,522)

(3,873)

Balance as of December 31, 2012

5,499,973

2,371,876

7,871,849

17.4.                   Asset by type of account – in service and in progress

             

 

 

Accumulated

Net book

 

Accumulated

Net book

 

Cost

depreciation

Value

Cost

depreciation

Value

 

 

 

12.31.2012

 

 

12.31.2011

In service

 

 

 

 

 

 

Reservoirs, dams and aqueducts

7,108,618

(4,341,971)

2,766,647

7,108,617

(4,196,870)

2,911,747

Machinery and equipment

4,509,360

(2,406,781)

2,102,579

4,457,236

(2,261,433)

2,195,803

Buildings

1,379,133

(963,086)

416,047

1,375,685

(933,593)

442,092

Land

183,023

-

183,023

182,562

-

182,562

Vehicles

57,474

(28,580)

28,894

38,721

(28,738)

9,983

Furniture and tools

10,704

(7,921)

2,783

10,800

(7,847)

2,953

 

13,248,312

(7,748,339)

5,499,973

13,173,621

(7,428,481)

5,745,140

 

 

 

 

 

 

 

In progress

2,371,891

-

2,371,891

1,463,983

-

1,463,983

 

 

 

 

 

 

 

Special liabilities

(15)

-

(15)

-

-

-

 

15,620,188

(7,748,339)

7,871,849

14,637,604

(7,428,481)

7,209,123

 

F-45


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Effects of Law 12,783/2012 on the property, plant and equipment of Copel Geração

On September 12, 2012, Medida Provisória 579 (MP 579) was published, which governs the extension of the concessions for generation, transmission and distribution of electric power, obtained by Law 9,074 of 1995. Decree 7,805 which regulates MP 579 was published on September 17, 2012. In accordance with MP 579/12, the companies which have contracts for concessions for generation, transmission and distribution of power, maturing between 2015 and 2017, have the option of extending the concession terms, at the discretion of the granting authority, once for a period of up to 30 years, provided that they accept early maturity of their existing contracts for December 2012. This extension is subject to the acceptance of certain conditions established by the granting authority, such as: i) fixed income according to criteria established by ANEEL, ii) submission to service quality standards set by ANEEL and, iii) agreement with established amounts as compensation for the assets linked to the concession.

The Company has not expressed interest in extending the concessions for generation falling due until 2017 and therefore, the occurrence of MP 579 and subsequent regulations published for these power stations, will not affect the cash flow forecast until the end of the current concessions.

This applies to the forecasts for revenue and also for the expectation of compensation at the end of the concession. Decree 7,850/12 confirms the assumption currently adopted in the tests, as it restores the condition of compensation to the new replacement value (VNR) at the discretion of the granting authority, of the residual balance of the assets recorded in each concession.

The Company's management understands it has an assured contractual right with respect to compensation of the assets linked to the end of the public service concessions, admitting, for calculation of recovery the new replacement value (VNR) methodology, as defined by Law 12,783/12.

17.5.                   Depreciation Rates

 

 

Depreciation rates (%)

 

12.31.2012

12.31.2011

Generation

 

 

General equipment

6.22

9.73

Generators

2.83

3.09

Reservoirs, dams and headrace channel

1.99

2.00

Hidraulic turbines

2.45

2.47

Gas and steam turbines

2.26

5.00

Water cooling and treatment facilities

4.40

4.40

Gas conditioning equipament

4.40

4.40

Central administration

 

 

Buildings

3.33

4.00

Office machinery and equipment

6.26

10.00

Furniture and tools

6.25

10.00

Vehicles

14.29

20.00

Telecommunications

 

 

Transmission equipment

7.70

7.70

Terminal equipment

10.50

10.50

Infrastructure

6.30

6.30

The Company, when applicable, uses the depreciation rates set by the regulatory agency, in light of the right to reimbursement at the end of the concession contract.

On January 1, 2012, depreciation rates were changed due to the review of useful lives made by the Regulatory Agency (ANEEL), according to Regulatory Resolution 474 of February 7, 2012. The effect on the statement of income was R$ 458.

The average rate for machinery and equipment is 2.94%.

 

F-46


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Depreciation of the assets which are part of the original project of Mauá and Colíder Hydroelectric Power Plants

The Company has assets from Mauá and Colíder Hydroelectric Power Plants for which the Granting Authority is not expected to provide full guarantee that it will indemnify the Company by the end of the concession period for the residual value of the assets which are part of the original project. This interpretation is grounded in Law 8,987/95 and Decree 2,003/96.

Accordingly, from the date these assets start operations they are depreciated at the rates set by ANEEL (Brazilian Electricity Regulatory Agency), limited to the concession period.

As established on concession agreements, subsequent investments not forecasted in the original project, provided that they are approved by the Granting Authority and have not yet been amortized, will be indemnified by the end of concessions. Therefore, these assets will be depreciated at the rates set by ANEEL.

17.6.                   Impairment of Assets

The Company has a policy of periodically evaluate and monitor the projected future performance of its assets. Accordingly, and in light of Technical Ruling IAS 36 – Impairment of Assets, whenever there is clear evidence that the Company has assets recorded at unrecoverable values or whenever events or changes in circumstances indicate that the book value of an asset may not be recoverable in the future the Company must immediately account for such discrepancies by means of a provision for losses.

The main principles underpinning the conclusions of Copel’s impairment tests are listed below:

·                lowest level of cash generating unit: held concessions are analyzed individually;

·                recoverable value: value in use, or an amount equivalent to the discounted cash flows (before taxes) resulting from the continuous use of an asset until the end of its useful life; and

·                assessment of value in use: based on future cash flows in constant currency, converted to current value according to a real discount rate, before income taxes.

The respective cash flows are estimated based on actual operational results, on the Company's annual corporate budget, as approved by the Board of Directors, on the resulting multi-year budget, and on future trends in the power sector.

As for the time frame for the analysis, the Company takes into account the expiration date of each concession.

As for market growth, Copel’s projections are consistent with historical data and the Brazilian economy's growth prospects.

The respective cash flows are discounted at average discount rates, obtained through a methodology commonly employed by the market, supported by the regulatory and approved by the Company’s senior management.

Management believes it has a contractually guaranteed right to compensation for the assets related to concessions upon their expiration, and it accepts, for purposes of calculation of reimbursement and until further regulation is issued on this matter, that such compensation be valued according to the fair value of replacement of the respective assets. Thus, the principle of valuation of residual assets upon expiration of concessions has been established as the book value of these assets.

Even though there was no evidence that the company’s operational assets suffered a loss in their recoverable value, the company performed an impairment test.

 

F-47


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

17.7.                   Consórcio Energético Cruzeiro do Sul - Mauá Hydroelectric Power Plant (HPP)

Consórcio Energético Cruzeiro do Sul is owned by Copel Geração e Transmissão (51%), and by Eletrosul Centrais Elétricas S.A. (49%). On October 10, 2006, at Auction of Power from New Projects 004/06, this company acquired the rights to the concession of the Mauá Hydroelectric Power Plant, which will feature 363 MW of installed capacity; the concession is valid for 35 years from the date of signature, which took place on July 3, 2007.

   Based on the assumptions above, the Company has not identified a need to set aside an impairment provision.

This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main powerhouse rated 352 MW and a secondary powerhouse rated 11 MW, for a total of 363 MW of installed capacity, which is enough to supply approximately one million people. The facility will take advantage of the hydroelectric potential discovered in the middle section of the Tibagi River, between the towns of Telêmaco Borba and Ortigueira, in mideastern Paraná.

On November 17, 2008, the board of Banco Nacional de Desenvolvimento Econômico e Social – BNDES approved the financing for the Mauá Hydroelectric Power Plant. The financed amount corresponds to approximately 70% of Copel's total expenditures in connection with that facility.

The Mauá Hydroelectric Power Plant’s power output was sold at an ANEEL auction at a price of R$ 112.96/MWh, as of November 1, 2006, restated annually according to the variation of the IPCA inflation index (R$ 156.35 /MWh as of December 31, 2012). A total of 192 average MW were sold, for supply starting in January 2011 for 30 years. The assured power of the project, established in its concession agreement, was 197.7 average MW, after full motorization.

The project has an Environmental Impact Study and an Environmental Impact Report, which have been discussed at public hearings and meetings and approved by the licensing authority, resulting in the issue of Installation License No. 6,496/08. The service order for the beginning of the construction of the Mauá Hydroelectric Power Plant was signed on July 21, 2008.

Due to a preliminary injunction in Civil Action No. 1999.7001.007514-6, which has delayed the beginning of construction work, thus delaying the beginning of commercial power generation by each generating unit, Copel will guarantee the power purchase agreements with its own power generation and with energy acquired through contracts in the Free Commercialization Environment – ACL.

On June 28, 2012, the gates of the river’s deviation structures were closed and the reservoir started to be filled. Generating units 1, 2 and 3 of the venture entered into commercial operation on last semester, and Generating Units 4 and 5 are expected to enter into operation in January 2013.

Expenditures in this project have been recorded under property, plant, and equipment, proportionally to the Company’s stake. As of December 31, 2012, Copel Geração e Transmissão’s balance related to this project was R$ 868,748

Total expenses already owed to suppliers of equipment and services in connection with the Mauá Hydroelectric Power Plant amounted to R$ 19,227 as of December 31, 2012 (R$ 31,011 as of December 31, 2011).

17.8.                   Colíder Hydroelectric Power Plant (HPP)

On July 30, 2010, at ANEEL Auction of Power from New Projects 003/10, Copel Geração e Transmissão won the rights to the concession of the Colíder Hydroelectric Power Plant, which will feature 300 MW of installed capacity; the concession is valid for 35 years from the date of signature of Concession Contract No. 001/11-MME-HPP Colíder, which took place on January 17, 2011.

This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main powerhouse rated 300 MW, which is enough to supply approximately one million people. The facility will take advantage of the hydroelectric potential discovered on the Teles Pires River, between the towns of Nova Canaã do Norte and Itaúba, in the northern region of the State of Mato Grosso. 

Copel has applied for financing from the National Economic and Social Development Bank (BNDES) for the Colíder Hydroelectric Power Plant.

The Colíder Hydroelectric Power Plant’s power output was sold at an ANEEL auction at a final price of R$ 103.40/MWh, as of July 1, 2010, restated according to the variation of the IPCA inflation index (R$ 119.73/MWh as of December 31, 2012). A total of 125 average MW were sold, for supply starting in January 2015 for 30 years. The assured power of the project, established in its concession agreement, was 179.6 average MW, after full motorization.

The service order for the beginning of the construction of the Colíder Hydroelectric Power Plant was signed on March 1, 2011.

 

F-48


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

In December 2012 the dam’s left bank was still being excavated and the right bank was still being land filled. The spillway was being concreted and the flood gates’ fixed parts was being assembled. The powerhouse was being concreted and the suction tubes and the traveler were being assembled. The substation was land filled. The excavations for the fish ladder were also under way.

The expenditures in this venture are recorded in fixed assets in progress account group. On December 31, 2012, the balance in fixed assets in progress on the project totaled R$ 1,063,149.

Total expenses already owed to suppliers of equipment and services in connection with the Colíder Hydroelectric  Power Plant amounted to R$ 434,848 as of December 31, 2012.

17.9.                   Cavernoso II Small Hydropower Plant (SHP)

On August 26, 2010 at ANEEL Auction No. 07/10, Copel Geração e Transmissão S.A. sold the power output of the Cavernoso II Small Hydropower Plant, a project with 19 MW of installed capacity located on the Cavernoso River, between the towns of Virmond and Candói, in the State of Paraná. On account of this sale, it obtained authorization to build and run the project for 35 years as of February 28, 2011, the date of publication of Ordinance no. 133 of the Ministry of Mines and Energy.

This project is included in the Federal Government’s Growth Acceleration Program (PAC) and will comprise a main power plant rated 19 MW, which is enough to supply 50 thousand people.

The Cavernoso II SHP’s power output was sold at a final price of R$ 146.99/MWh, as of August 1, 2010, restated according to the variation of the IPCA inflation index (R$ 170.14/MWh as of December 31, 2012). A total of 7.73 average MW were sold, for supply starting in November 2012 for 30 years. The project’s assured power, set forth under Ordinance No. 133 of the Ministry of Mines and Energy, dated February 25, 2011, is 10.56 average MW average.  

The service order that authorizes the commencement of the mobilization and subsequent initiation of the construction works was signed on April 18, 2011.

The expenses incurred on this venture are recorded under property, plant and equipment. As of December 31, 2012 the balance in property, plant and equipment in progress for the venture amounted to R$ 100,684.

Total expenses already owed to suppliers of equipment and services in connection with the Cavernoso Small Hydropower Plant amounted to R$ 7,749 as of December 31, 2012.

17.10.               Consórcio Tapajós

COPEL has signed a Technical Cooperation Agreement with eight other companies of the sector to conduct studies on the Tapajós and Jamanxim rivers, in the North Region of Brazil, comprising an integrated environmental assessment of the Tapajós River Basin and viability and environmental studies of five hydroelectric projects, totaling 10,682 MW of installed capacity.

The power stations that are currently under study are Jatobá, with 2,338 MW, and São Luiz do Tapajós, the larger station, with 6,133 MW, both on the Tapajós River. In the future the Cachoeira do Caí (802 MW), Cachoeira dos Patos (528 MW) and Jamanxim (881 MW) power stations on the Jamanxim river will be studied.

The expenditures on this project are recorded under Fixed Assets under Construction in proportion to the share. At December 31, 2012, the balance of Copel Geração e Transmissão with respect to the venture totaled R$ 5,302.

 

F-49


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

18.           Intangible Assets

 

 

Concession

 

Concession

 

Right to use

 

 

 

 

and autorization rights

 

contracts

 

software

 

 

   

accumulated

 

accumulated

 

accumulated

 

 

 

cost

amortization (1)

cost

amortization (1)

cost

amortization (2)

Other

Consolidated

 

 

 

 

 

 

 

 

12.31.2012

In service

 

 

 

 

 

 

 

 

Assets with finite useful life

 

 

 

 

 

 

 

 

Copel Geração e Transmissão (18.5)

-

-

12,905

(36)

15,158

(3,511)

43

24,559

Copel Distribuição (18.1)

-

-

3,713,620

(3,113,508)

-

-

-

600,112

Copel Distribuição-Special Liabilities (18.6)

-

-

(320,627)

211,651

-

-

-

(108,976)

Copel Telecomunicações

-

-

-

-

25,819

(6,319)

-

19,500

Compagas (18.2)

-

-

217,446

(86,920)

4,070

(2,906)

-

131,690

Elejor (18.3)

-

-

263,920

(60,532)

-

-

5,927

209,315

UEG Araucária

-

-

-

-

360

(145)

-

215

Costa Oeste

-

-

-

-

-

-

2

2

Marumbi

-

-

-

-

-

-

3

3

Transmissora Sul Brasileira

-

-

-

-

4

-

-

4

Concession Right - Elejor (18.3)

22,626

(5,092)

-

-

-

-

-

17,534

Concession Right - Cutia (18.4)

5,809

-

-

-

-

-

-

5,809

 

28,435

(5,092)

3,887,264

(3,049,345)

45,411

(12,881)

5,975

899,767

Assets with indefinite useful life

 

 

 

 

 

 

 

 

Copel Geração e Transmissão

-

-

-

-

-

-

18

18

Compagas

-

-

-

-

-

-

21

21

 

-

-

-

-

-

-

39

39

 

28,435

(5,092)

3,887,264

(3,049,345)

45,411

(12,881)

6,014

899,806

In progress

 

 

 

 

 

 

 

 

Copel Geração e Transmissão (18.5)

-

-

15,101

-

991

-

4,312

20,404

Copel Distribuição (18.1)

-

-

898,361

-

-

-

-

898,361

Copel Distribuição-Special Liabilities (18.6)

-

 

(83,748)

 

-

 

-

(83,748)

Copel Telecomunicações

-

-

-

-

1,467

-

7

1,474

Compagas

-

-

52,837

-

-

-

-

52,837

Elejor

-

-

-

-

-

-

27

27

Cutia

-

-

-

-

-

-

5,345

5,345

Caiuá

-

-

-

-

-

-

3

3

Integração Maranhense

-

-

-

-

-

-

1

1

 

-

-

882,551

-

2,458

-

9,695

894,704

 

 

 

 

 

 

 

 

1,794,510

(1) Amortization over the concession period

(2) Annual amortization rate: 20%


 

 

 

Concession

 

Concession

 

Right to use

 

 

 

 

and autorization rights

 

contracts

 

software

 

 

   

accumulated

 

accumulated

 

accumulated

 

 

 

cost

amortization (1)

cost

amortization (1)

cost

amortization (2)

Other

Consolidated

   

 

 

 

 

 

 

12.31.2011

In service

 

 

 

 

 

 

 

 

Assets with finite useful life

 

 

 

 

 

 

 

 

Copel Geração e Transmissão

-

-

-

-

3,140

(2,281)

43

902

Copel Distribuição (18.1)

-

-

3,783,331

(2,895,710)

-

-

-

887,621

Copel Distribuição-Special Liabilities (18.6)

-

-

(367,099)

166,655

-

-

-

(200,444)

Copel Telecomunicações

-

-

-

-

5,936

(4,256)

-

1,680

Compagas (18.2)

-

-

199,932

(74,320)

4,053

(2,526)

-

127,139

Elejor (18.3)

-

-

263,920

(52,279)

-

-

-

211,641

UEG Araucária

-

-

-

-

230

(106)

-

124

Concession Right - Elejor (18.3)

22,626

(4,337)

-

-

-

-

-

18,289

Concession Right - Cutia (18.4)

5,809

-

-

-

-

-

-

5,809

 

28,435

(4,337)

3,880,084

(2,855,654)

13,359

(9,169)

43

1,052,761

Assets with indefinite useful life

 

 

 

 

 

 

 

 

Copel Geração e Transmissão

-

-

-

-

-

-

18

18

Compagas

-

-

-

-

-

-

20

20

 

-

-

-

-

-

-

38

38

 

28,435

(4,337)

3,880,084

(2,855,654)

13,359

(9,169)

81

1,052,799

In progress

 

 

 

 

 

 

 

 

Copel Geração e Transmissão (18.5)

-

-

26,120

-

10,430

-

1,686

38,236

Copel Distribuição (18.1)

-

-

599,794

-

-

-

-

599,794

Copel Distribuição-Special Liabilities (18.6)

-

-

(40,457)

-

-

-

-

(40,457)

Copel Telecomunicações

-

-

-

-

15,100

-

5

15,105

Compagas

-

-

48,677

-

-

-

-

48,677

Elejor

-

-

-

-

-

-

2,790

2,790

Cutia

-

-

-

-

-

-

4,913

4,913

 

-

-

634,134

-

25,530

-

9,394

669,058

 

 

 

 

 

 

 

 

1,721,857

(1) Amortization over the concession period

               

(2) Annual amortization rate: 20%

               

 

 

 

F-50


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Changes in intangible assets by class of assets  

           

 

Concession

Concession

 

 

 

 

contracts

rights

Softwares

Others

Consolidated

Balance as of January 1, 2011

1,699,506

19,044

27,489

2,915

1,748,954

Additions

718,583

5,809

4,756

4,913

734,061

Transfers to accounts receivable related to the concession

(520,110)

-

-

-

(520,110)

Amortization of quotas - concession and autorization

(226,913)

(755)

(637)

-

(228,305)

Write off

(12,502)

-

-

(101)

(12,603)

Others

-

-

(140)

-

(140)

Balance as of December 31, 2011

1,658,564

24,098

31,468

7,727

1,721,857

Additions

386,420

-

7,309

7,982

401,711

Transfers to accounts receivable related to the concession

(83,413)

-

-

-

(83,413)

Amortization of quotas - concession and autorization

(224,279)

(755)

(3,724)

-

(228,758)

Write off

(8,257)

-

(65)

-

(8,322)

Others

(8,565)

-

-

-

(8,565)

Balance as of December 31, 2012

1,720,470

23,343

34,988

15,709

1,794,510

 

Changes in intangible assets

.

               

 

 

 

 

Concession contracts

Concession

 

Other

 

 

In

In

Special Liabilities

and autorization

In

In

 

 

service

progress

In service

In progress

rights

service

progress

Consolidated

Balance as of January 1, 2011

1,353,133

639,950

(229,031)

(64,546)

19,044

2,322

28,082

1,748,954

Effect of the first consolidation of Cutia

-

-

-

-

-

-

4,913

4,913

Investment program

-

808,687

-

-

5,809

-

5,224

819,720

Customers' financial participation

-

-

-

(94,396)

-

-

-

(94,396)

Aneel concession - use of public assets

-

5,457

-

-

-

-

-

5,457

Present value adjustments - grant by Aneel

-

(1,586)

-

-

-

-

-

(1,586)

Transfers to accounts receivable related to the concession 

-

(613,284)

-

93,173

-

-

-

(520,111)

Transfers to intangible assets in service

156,681

(156,681)

(25,312)

25,312

-

3,295

(3,295)

-

Amortization of quotas - concession and autorization

(265,315)

-

50,800

-

(755)

(1,132)

-

(216,402)

Amortization of quotas - Pasep/Cofins credits

(14,928)

-

3,099

-

-

(169)

-

(11,998)

Transfers of investments - assets for future use

13

-

-

-

-

-

-

13

Transfers of assets in service

-

-

-

-

-

55

-

55

Write off

(4,710)

(7,952)

-

-

-

(100)

-

(12,762)

Balance as of December 31, 2011

1,224,874

674,591

(200,444)

(40,457)

24,098

4,271

34,924

1,721,857

Investment program

-

840,119

-

-

-

-

13,076

853,195

Customers' financial participation

-

-

-

(107,980)

-

-

-

(107,980)

Aneel concession - use of public assets

-

1,886

-

-

-

-

-

1,886

Transfers to accounts receivable related to the concession - remeasurement Resolution No. 474/2012

(136,658)

-

53,245

-

-

-

-

(83,413)

Transfers to tax liabilities

(8,073)

(301)

-

-

-

-

-

(8,374)

Transfers to accounts receivable related to the concession  (Note 9.1)

-

(405,521)

-

57,916

-

-

-

(347,605)

Transfers to intangible assets in service

140,889

(140,889)

(6,773)

6,773

-

35,779

(35,779)

-

Amortization of quotas - concession and autorization

(256,731)

-

42,709

-

(755)

(3,748)

-

(218,525)

Amortization of quotas - Pasep/Cofins credits

(12,544)

-

2,287

-

-

24

-

(10,233)

Adjustments to financial assets classified as available for sale

-

-

-

-

-

2,215

-

2,215

Write off

(4,671)

(3,586)

-

-

-

3

(68)

(8,322)

Disposal

(191)

-

-

-

-

-

-

(191)

Balance as of December 31, 2012

946,895

966,299

(108,976)

(83,748)

23,343

38,544

12,153

1,794,510

18.1.                   Copel Distribuição

The intangible asset for the concession represents the right to exploit the construction services and the supply of energy services and will be recovered through consumption and consequent billing to customers.

ANEEL establishes the estimated economic useful life of each asset that makes up the energy distribution infrastructure, for purposes of tariff setting and also of assessment of the amount of compensation to be paid for revertible assets at the end of the concession's term. This estimate is reasonable and adequate for accounting and regulatory purposes and represents the best estimate of the assets’ economic useful lives accepted by the industry.

The amortization of intangible assets reflects the pattern of estimated accrual of the corresponding economic benefits by Copel Distribuição, with expectation of amortization during to the term of the concession.

The residual amount of each asset remaining over the term of the concession is allocated as accounts receivables related to the concession (Note 9).

Due to the change of life established by the Regulatory Agency (ANEEL), by Ruling No. 474/2012 of February 7, 2012, there was reduction of Intangible Assets of R$ 75,856, which was transferred to the accounts receivable related to the concession.

 

F-51


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

18.2.                   Compagas 

These intangible assets are related to the construction of infrastructure and the acquisition of the necessary assets for the operation of gas distribution services and to the right to collect from customers for gas supply. The construction of infrastructure and the acquisition of assets are deemed service rendering by the granting authority.

Amortization of intangible assets reflects the standard expectation for the future economic benefits of the asset to be consumed by Compagas, with expected average amortization of 7.1% p.y., limited to the concession period, for gas pipelines built until December 31, 2008 and 10% p.y. for other assets.

At the end of the concession, the assets related to gas distribution service shall revert to the granting authority, and Compagas shall be reimbursed for the investments made based on their amortized replacement value, assessed through an independent auditing company, based on the values to be determined then.

18.3.                   Elejor 

Concession Contract

Intangible assets related to the use of public property (UBP) under an onerous concession. These intangible assets have been amortized over the term of the concession contract, and the corresponding liability has been amortized by payments (Note 26.c).

Concession Rights

The acquisition of the Elejor shares held by Triunfo Participações S.A., on December 18, 2003, resulted in total concession intangible asset of R$ 22,626, which presents balance of R$ 17,535 as of December 31, 2012, in the Parent Company. The straight line method of amortization of the concession intangible asset was economically determined by the expected income from the commercial operation of the concession, which expires in October 2036, and its effect on the statements of income as of December 31, 2012 was R$ 754 (R$ 754 in 2011).

18.4.                   Cutia 

The acquisition resulted in concession rights amounting to R$ 5,809, which will be amortized over the concession period, from the start of commercial operation of the project, scheduled for January 1, 2015 for commitments resolutions by ANEEL. The concession period of wind farms is 30 years from the date of publication of authorizing resolutions in the Official Gazette, which occurred on January 05, 2012.

18.5.                   Copel Geração e Transmissão

Intangible assets related to the use of public property (UBP) under an onerous concession. These intangible assets have been amortized over the term of the concession contract.

On December 31, 2012, the Group had R$ 12,869 (R$ 12,341 as of December 31, 2011) recorded in connection with the Mauá Hydroelectric Power Plant Concession Contract and R$ 15,101 (R$ 13,779 as of December 31, 2011) recorded in connection with the Colíder Hydroelectric Power Plant.

18.6.                   Special liabilities

Special liabilities comprise customers’ contributions, Federal Government budget grants, federal, state, and municipal funds, and special credits assigned to the investments in facilities related to a concession.

Special obligations are not onerous liabilities and are not the shareholder’s credits.

 

F-52


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The scheduled date for settlement of these liabilities was the concession expiration date. ANEEL, by means of Regulatory Resolution no. 234/2006, as amended by Resolution No. 338/2008, established the guidelines, the applicable methodologies, and the initial procedures for the conduction of the second cycle of the periodic tariff review involving the Brazilian power distribution utilities, changing the characteristics of these liabilities. Both the outstanding balance and new additions have been amortized as of July 1, 2008, pursuant to ANEEL Ruling no. 3,073/06 and Circular Letter No. 1,314/07. Amortization is calculated based on the same average rate of distribution activity.

According to the regulations of ANEEL, special obligations should be recorded in the statement of financial position as a reducer of the total intangible and financial assets.  The balance of special obligations reported in intangible assets will be amortized over the concession period.

18.7.                   Recoverable value of intangible asset (finite useful life)

Although there is no indication of recovery loss, the Company has assessed the recoverable value of its intangible assets based on the present value of the corresponding estimated future cash flows.

The values assigned to the assumptions represent Company management’s evaluation of the energy industry’s future trends and are based both on external sources of information and on historical data.

Cash flows have been estimated based on the Company’s operating results and projections until the end of the concession, under the following main assumptions:

·           Organic growth compatible with historical data and the Brazilian economy's growth prospects; and

·           The average discount rate obtained through a methodology commonly employed on the market, taking into account the weighted average cost of capital (WACC), as discussed in Note 17.6.

The recoverable value of these assets exceeds their book value, so there are no impairment losses to record.

18.8.                   Energy Universalization and the Luz para Todos Program

ANEEL set forth the overall conditions for the Universalization of Electric Energy Supply under Law no. 10,438, dated April 26, 2002, as amended by Law no. 10,762, dated November 11, 2003, aiming to supply new customers connected at low voltage (lower than 2.3 kV), with loads of up to 50 kW. ANEEL Resolution No. 223, dated April 29, 2003, set forth the general conditions for Electric Energy Universalization Plans, and was later amended by Resolution No. 52, dated March 25, 2009. To guide the process of review of Universalization Plans, ANEEL issued Resolution no. 175, dated November 28, 2005, and amended by Resolution no. 365, dated May 19, 2009.

On November 11, 2003, Decree no. 4,873 established the National Program for the Universalization of Electric Energy Use and Access, named Luz para Todos (“Light for Everyone”), which aims to provide electricity to the share of Brazil’s rural population, focused on family agriculture, which does not yet have access to this public service. This program is coordinated by the Ministry of Mines and Energy (MME) and carried out with the participation of Eletrobras. In Paraná, the Ministry is represented by Eletrosul, and the participants are the State Government and Copel. Furthermore, the program is integrated with several social and rural development programs implemented by the Federal Government and by State Governments, to ensure that the rural electrification efforts result in increased agricultural output, in increased income and in social inclusion, providing better standards of living to the rural communities. The program has been extended until December 31, 2011, under Decree no. 7,324, dated October 5, 2010, and reissued by the Decree no. 7,520, dated July 8, 2011, with its duration set to the year of 2014. For this new edition of the Program, the Ministry of Mines and Energy has set a goal of 4000 connections for the years 2012 and 2013, whose term of commitment and financing agreement will be signed in 2013.

In 2012, 590 connections were made, and the works for attending isolated communities through special cables and photovoltaic systems that will benefit over 500 families in 2013 were also started. With this, Copel has surpassed the mark of 76,500 connections since the beginning of the program.

 

F-53


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Copel signed with Eletrobras four financing and subsidy agreements, in the amount of R$ 278,152. The first two have already been fully executed. Only two contracts are still under way: ECFS no. 206/07, under which the Company received R$ 88,501, of which R$ 75,858 came from RGR funds and R$ 12,643 from CDE funds, out of the estimated total of R$ 109,642; and ECFS no. 273/09, under which the Company received R$ 19,183, of which R$ 16,443 came from RGR funds and R$ 2,740 from CDE funds, out of the estimated total of R$ 63,930.

The total estimated investments under the contracts for the program are broken down below:

 

 

 

Source

R$

Participation

Federal Government - CDE grant

62,882

19%

State Government of Paraná

33,002

10%

Financing RGR

168,129

51%

Executive agent - Copel

66,007

20%

Total of the program

330,020

100%

As of December 31, 2012, the total amount invested in the Luz para Todosprogram was R$ 361,711.

19.           Payroll, Social Charges and Accruals

  

12.31.2012

12.31.2011

Social security liabilities

 

 

Taxes and social contribution

61,409

39,493

Social security charges on paid vacation and 13th salary

34,166

23,900

 

95,575

63,393

Labor liabilities

 

 

Payroll, net

3,039

152

Vacation

96,761

76,142

Profit sharing for the period

29,940

48,068

Voluntary redundancy

158,781

36,338

Consignments for third parties

54

2

 

288,575

160,702

 

384,150

224,095

20.           Suppliers  

 

12.31.2012

12.31.2011

Energy supplies

517,982

316,262

Materials and supplies

476,191

257,166

Charges for use of grid system

82,195

79,795

Natural gas for resale

43,681

40,698

Natural gas and supplies for the gas business - renegotiation Petrobras

117,306

161,994

 

1,237,355

855,915

Current

1,136,359

747,453

Non-current

100,996

108,462

 

F-54


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

20.1.                   Main Power purchase agreements

The power purchase agreements signed in the regulated power trading environment, shown at original value and restated annually according to the IPCA inflation index.

         

.

Supply

Energy purchased

Auction

Average purchase

 

period

(anual average MW)

date

price (R$/MWh)

Auction of power from existing facilities

 

 

 

 

1st Auction - Product 2005

2005 to 2012

933.72

12.07.2004

57.51

1st Auction - Product 2006

2006 to 2013

452.34

12.07.2004

67.33

1st Auction - Product 2007

2007 to 2014

11.55

12.07.2004

75.46

2nd Auction - Product 2008

2008 to 2015

69.02

04.02.2005

83.13

4th Auction - Product 2009

2009 to 2016

44.13

10.11.2005

94.91

5th Auction - Product 2007

2007 to 2014

157.17

12.14.2006

104.74

11th Auction Adjust. P-12M

Jan to Dec 2012

26.89

09.30.2011

73.63

 

 

1,694.82

 

 

Auction of power from new facilities

 

 

 

 

1st Auction - Product 2008 Hydro

2008 to 2037

3.61

12.16.2005

106.95

1st Auction - Product 2008 Therm

2008 to 2022

25.56

12.16.2005

132.26

1st Auction - Product 2009 Hydro

2009 to 2038

3.26

12.16.2005

114.28

1st Auction - Product 2009 Therm

2009 to 2023

41.59

12.16.2005

129.26

1st Auction - Product 2010 Hydro

2010 to 2039

66.31

12.16.2005

114.57

1st Auction - Product 2010 Therm

2010 to 2024

64.30

12.16.2005

121.81

3rd Auction - Product 2011 Hydro

2011 to 2040

57.66

10.10.2006

120.86

3rd Auction - Product 2011 Therm

2011 to 2025

54.22

10.10.2006

137.44

4th Auction - Product 2010 Therm

2010 to 2024

15.65

07.26.2007

134.64

5th Auction - Product 2012 Hydro

2012 to 2041

52.50

10.16.2007

129.14

5th Auction - Product 2012 Therm

2012 to 2026

74.77

10.16.2007

128.37

6th Auction - Product 2011 Therm

2011 to 2025

15.48

09.17.2008

128.42

7th Auction - Product 2013 Hydro

2013 to 2042

12.24

09.30.2008

98.98

7th Auction - Product 2013 Therm

2013 to 2027

303.99

09.30.2008

145.23

Santo Antonio

2012 to 2041

106.00

12.10.2007

78.87

Jirau

2013 to 2042

141.51

05.19.2008

71.37

 

 

1,038.65

 

 

21.           Loans and Financing

 

 

 

 

Current

 

Non-current

 

 

 

 

liabilities

 

liabilities

   

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

 

Principal

Charges

Total

 

 

 

Foreign currency

 

 

 

 

 

 

STN (21.1)

2,737

574

3,311

4,484

56,029

53,943

Eletrobras

6

-

6

6

5

12

 

2,743

574

3,317

4,490

56,034

53,955

Local currency

 

 

 

 

 

 

Banco do Brasil (21.2)

115,317

53,307

168,624

39,879

1,373,235

1,464,325

Eletrobras (21.3)

52,807

1,397

54,204

45,454

178,841

216,031

Finep (21.4)

1,951

63

2,014

1,962

27,511

3,904

BNDES (21.5)

15,514

2,642

18,156

12,336

196,699

159,901

Banco do Brasil

 

 

 

 

 

 

Transfer BNDES (21.6)

12,316

2,659

14,975

12,318

157,268

159,869

BNDES - Compagas

-

-

-

48

-

-

 

197,905

60,068

257,973

111,997

1,933,554

2,004,030

 

200,648

60,642

261,290

116,487

1,989,588

2,057,985

             

 

 

F-55


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

21.1.                   Department of the National Treasury - STN

 

 

 

 

 

 

 

 

 

Number of

Final

 

Annual rate p.y.

 

 

 

Type of bonus

installment

maturity

Amortization

(interest + commission)

Principal

 

 

 

 

 

 

 

 

12.31.2012

12.31.2011

Debt Conversion Bond

17

04.12.2012

Semi Annual

Libor Semi Annual+0.8750%+0.20%

14,012

-

1,412

Capitalization Bond

21

04.10.2014

Semi Annual

8.0% + 0.20%

12,225

4,180

6,392

Par Bond

1

04.11.2024

Single installment

6.0% + 0.20%

17,315

22,548

29,935

Discount Bond

1

04.11.2024

Single installment

Libor Semi Annual+0.8125%+0.20%

12,082

32,612

20,688

 

 

 

 

 

 

59,340

58,427

 

 

 

 

 

Current

3,311

4,484

 

 

 

 

 

Non-current

56,029

53,943

Issue Date: 05.20.1998
 

 

 

 

 

 

 

 

Collateral:

 

 

 

 

 

 

 

Company’s centralized revenues account. For the Discount and Par Bonds, there are collateral deposits of R$ 25,426 e R$ 17,820, as of December 31, 2012 (R$ 22,076 and R$ 15,477 as of December 31, 2011), respectively (Note 6).
 

Note:

 

 

 

 

 

 

 

The restructuring of medium and long-term debt in connection with the financing received under Law nº 4,131/62.

 

 

 

               

21.2.                   Banco do Brasil S.A.

 

 

 

 

 

 

 

 

 

Issue

Number of

Final

Annual rate p.y.

 

 

 

Contracts

Date

installment

maturity

(interest + commission)

Principal

 

 

 

 

 

 

 

 

12.31.2012

12.31.2011

Law 8,727/93 (a)

03.30.1994

240

03.01.2014

TJLP and IGP-M + 5.098%

28,178

298

487

21/02155-4 (b)

09.10.2010

3

08.15.2015

98.5% of average rate of CDI

350,000

430,932

396,295

21/02248-8 (c)

06.22.2011

1

06.01.2015

99.5% of average rate of CDI

150,000

170,142

155,925

Credit Note 330600129 (d)

01.31.2007

1

01.31.2014

106.5% of average rate of CDI

29,000

29,911

30,454

Credit Note 330600132 (e)

02.28.2007

1

02.28.2014

106.2% of average rate of CDI

231,000

236,729

240,170

Credit Note 330600151 (f)

07.31.2007

1

07.31.2014

106.5% of average rate of CDI

18,000

18,565

18,902

Credit Note 330600156 (g)

08.28.2007

1

08.28.2014

106.5% of average rate of CDI

14,348

14,705

14,919

Credit Note 330600157 (h)

08.31.2007

1

08.31.2014

106.5% of average rate of CDI

37,252

38,143

38,697

Credit Note 330600609 (i)

08.19.2011

3

07.21.2016

109.41% of average rate of CDI

600,000

602,434

608,355

 

 

 

 

 

 

1,541,859

1,504,204

 

 

 

 

 

Current

168,624

39,879

 

 

 

 

 

Non-current

1,373,235

1,464,325

Company:

 

 

 

 

 

 

 

Copel Distribuição: (a) (b) (c)

 

 

 

 

 

 

Parent Company: (d) (e) (f) (g) (h) (i)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anual installment

 

 

 

 

 

 

 

Along with the interest in proportion to the installments, the first amount of R$ 116,666, maturing on 08.25.2013 and others of R$ 116,667, maturing on 07.11.2014 and 08.15.2015: (b)

The first amount of R$ 200,000, maturing on 07.21.2014 and other on 07.21.2015 and 07.21.2016: (i)

 

 

 

 

 

 

 

 

 

 

 

Destination:

 

 

 

 

 

 

 

Private Credit Assignment Agreement with the Federal Government: (a)

 

 

 

 

Working capital: (b) (c)

 

 

 

 

 

 

 

Only purpose of paying the debts: (d) (e) (f) (g) (h) (i)

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateral:

 

 

 

 

 

 

 

Copel’s accounts receivable: (a)

 

 

 

 

 

 

Pledge until 360 days: (b) (c)

 

 

 

 

 

 

 

 

F-56


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

21.3.                   Eletrobras - Centrais Elétricas Brasileiras S.A.

 

Issue

Number of

Final

Annual rate p.y.

 

 

 

Contracts

Date

installment

maturity

(interest + commission)

Principal

 

 

 

 

 

 

 

12.31.2012

12.31.2011

1293/94 (a)

09.23.1994

180

06.30.2016

5.5% to 6.5% + 2.0%

307,713

119,038

146,412

980/95 (b)

12.22.1994

80

11.15.2018

8.0%

11

16

19

981/95 (c)

12.22.1994

80

08.15.2019

8.0%

1,169

441

506

982/95 (d)

12.22.1994

80

02.15.2020

8.0%

1,283

166

190

983/95 (e)

12.22.1994

80

11.15.2020

8.0%

11

205

230

984/95 (f)

12.22.1994

80

11.15.2020

8.0%

14

87

98

985/95 (g)

12.22.1994

80

08.15.2021

8.0%

61

53

59

002/04 (h)

06.07.2004

120

07.30.2016

8.0%

30,240

4,059

5,049

142/06 (i)

05.11.2006

120

09.30.2018

5.0% + 1.0%

74,340

21,333

24,562

206/07 (j)

03.03.2008

120

08.30.2020

5.0% + 1.0%

109,642

69,351

65,744

273/09 (k)

02.18.2010

120

12.30.2022

5.0% + 1.0%

63,944

16,525

16,443

2540/06 (l)

05.12.2009

60

10.30.2016

5.0% + 1.5%

2,844

1,771

2,173

 

 

 

 

 

 

233,045

261,485

 

       

Current

54,204

45,454

 

 

 

 

 

Non-current

178,841

216,031

Company:

             

Copel Geração e Transmissão: (a)

         

Copel Distribuição: (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)

       
               

Destination:

           

Financial cover up to 29.14% of the total project of HPP Governador José Richa Implementation and transmission system: (a)

National Program for Watering - Proni: (b) (c) (d) (e) (f) (g)

     

Rural Electricity Program - Luz para Todos: (h) (i) (j) (k)

     

National Program for Efficient Public Lighting - ReLuz: cover 75% of the total cost of the Project

   

for the City of Ponta Grossa: (l)

         
               

Collateral:

             

The guarantee is represented by the income, supported by power of attorney granted by a public instrument, and the issue of promissory notes equal to the number of installments falling due.

 

     

Note:

             

Final Grace Period: 12.30.2012 (k)

         

 

 

F-57


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

21.4.                   Finep - Financiadora de Estudos e Projetos

 

 

Issue

Number of

Final

Annual rate p.y.

 

 

 

Contracts

Date

installment

maturity

(interest + commission)

Principal

 

 

 

 

 

 

 

12.31.2012

12.31.2011

2070791-00 (a)

11.28.2007

49

12.15.2014

0.37% above TJLP

5,078

2,295

3,440

2070790-00 (b)

11.28.2007

49

12.15.2014

0.13% above TJLP

3,535

1,618

2,426

21120105-00 (c)

05.17.2012

81

10.15.2020

4.0%

35,095

15,526

-

21120105-00 (c)

05.17.2012

81

10.15.2020

3.5% + TR

17,103

10,086

-

 

 

 

 

 

 

29,525

5,866

 

       

Current

2,014

1,962

 

 

 

 

 

Non-current

27,511

3,904

Company:

             

Copel Geração e Transmissão: (a) (b)

         

Copel Telecomunicações: (c)

           
               

Destination:

             

Research and Development Project GER 2007: (a)

       

Research and Development Project TRA 2007: (b)

       

Projeto BEL - ultra wide band intranet service (Ultra Wide Band - UWB): (c)

     
               

Collateral:

             

Withhold the amounts from the checking account in which revenues are deposited : (a) (b) (c)

   
               

Notes:

             

(c) In replacement to the contract 2100567-00, signed on November 29, 2010. Credit of R$ 52,198 to be offered in six installments and divided into subcredit “A” in the amount of R$ 35,095 and subcredit “B” in the amount of R$ 17,103. In contrast, the financed commits to participate in the costs of preparation with the minimum value of R$ 8,324. During the year 2 installments were released, namely: subcredit "A" in the amount of R$ 15,645, e subcredit "B" in the amount of R$ 10,162.

The maturity of the 1st installment is February 15, 2014.

21.5.                   BNDES 

 

Issue

Number of

Maturity

Annual rate p.y.

 

 

 

Contracts

Date

installment

initial

final

(interest + commission)

Principal

 

 

 

 

 

 

 

 

12.31.2012

12.31.2011

820989.1 (a)

03.17.2009

179

03.15.2013

01.15.2028

1.63% above TJLP

169,500

172,137

172,237

1120952.1-A (b)

12.16.2011

168

05.15.2012

04.15.2026

1.82% above TJLP

42,433

39,568

-

1120952.1-B (c)

12.16.2011

168

05.15.2012

04.15.2026

1.42% above TJLP

2,290

3,150

-

 

 

 

 

 

 

 

214,855

172,237

 

         

Current

18,156

12,336

 

 

 

 

 

 

Non-current

196,699

159,901

Company:

               

Copel Geração e Transmissão: (a) (b) (c)

           
                 

Financial charges:

             

It will be paid quarterly during the grace period and monthly after the first payment of the principal amount.

   
                 

Destination:

               

Construction of the Mauá Hydroelectric Power Plant and its transmission system: (a)

     

Implementation of transmission line between substations Foz do Iguaçu and Cascavel Oeste: (b)

     

Purchase of machinery and equipment: (c)

           
                 

Collateral:

               

All the revenues from the sale of energy under Agreements for Energy Trade on the Regulated Power Market (“Contracts for the Sale of Energy in the Regulated Environment” or CCEARs) in connection with this project (a) Copel Geração e Transmissão has undertaken to assign to the BNDES the rights it holds under Concession Arrangement 027/2009-ANEEL, and to submit as a guarantee to the BNDES the credit rights deriving from the provision of energy transmission services stipulated in the Concession Arrangement (Transmission Services Agreement 09/2010, entered into on 01.19.2009 by Copel Geração e Transmissão and the National Electric System Operator (Operador Nacional do Sistema Elétrico or ONS), the transmission concession operators and the users of the transmission system, including the entire revenue deriving from the transmission services provided: (b) and (c)

 

 

F-58


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

21.6.                   Banco do Brasil - Distribution of Funds from BNDES

 

 

Issue

Number of

Maturity

Annual rate p.y.

 

 

 

Contracts

Date

installment

initial

final

(interest + commission)

Principal

Consolidated

 

 

 

 

 

 

 

12.31.2012

12.31.2011

21/02000-0

04.16.2009

179

03.15.2013

01.15.2028

2.13% above TJLP

169,500

172,243

172,187

 

 

 

 

 

 

 

172,243

172,187

 

         

Current

14,975

12,318

 

 

 

 

 

 

Non-current

157,268

159,869

Company:

               

Copel Geração e Transmissão

           
                 

Financial charges:

             

It will be paid quarterly during the grace period and monthly after the first payment of the principal amount.

   
                 

Destination:

             

Construction of the Mauá Hydroelectric Power Plant and its transmission system, in consortium with Eletrosul.

 
                 

Collateral:

               

All the revenues from the sale of energy under Agreements for Energy Trade on the Regulated Power Market (“Contracts for the Sale of Energy in the Regulated Environment” or CCEARs) in connection with this project.

21.7.                   Breakdown of loans and financing by currency and index

 

 

Index and change in foreign currencies

 

 

 

 

 

 

accumulated in the period (%)

Consolidated

 

12.31.2012

12.31.2011

12.31.2012

%

12.31.2011

%

Foreign currency

 

 

 

 

 

 

U.S. Dolar

8.94

12.56

59,351

2.64

58,445

2.69

 

 

 

59,351

2.64

58,445

2.69

Local currency

 

 

 

 

 

 

TJLP

5.75

6.00

387,111

17.20

350,302

16.11

IGP-M

7.81

5.10

284

0.01

475

0.02

Ufir

-

-

114,006

5.06

115,074

5.29

Finel

1.52

1.01

119,040

5.29

146,411

6.73

UMBND

-

-

-

-

48

-

CDI

(36.52)

2.17

1,541,561

68.49

1,503,717

69.16

TR

0.29

1.21

13,998

0.62

-

-

Without indexer

-

-

15,527

0.69

-

-

 

 

 

2,191,527

97.36

2,116,027

97.31

 

 

 

2,250,878

100.00

2,174,472

100.00

   

Current

261,290

 

116,487

 

 

 

Non-current

1,989,588

 

2,057,985

 

 

 

F-59


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

21.8.                   Maturity of non-current instalments

 

Foreign

Local

 

 

 

currency

currency

Consolidated

   

 

12.31.2012

12.31.2011

2013

-

-

-

204,084

2014

1,374

728,741

730,115

729,022

2015

-

588,300

588,300

549,593

2016

-

258,572

258,572

243,894

2017

-

46,098

46,098

34,201

2018

-

44,180

44,180

33,292

2019

-

41,435

41,435

30,544

2020

-

37,760

37,760

27,949

2021

-

28,584

28,584

22,849

2022

-

28,580

28,580

22,844

2023

-

26,936

26,936

21,200

After 2023

54,660

104,368

159,028

138,513

 

56,034

1,933,554

1,989,588

2,057,985

21.9.                   Changes in loans and financing

 

 

Foreign currency

 

Local currency

 

 

current

non-current

current

non-current

Total

Balance as of January 1, 2011

14,516

51,412

68,579

1,229,570

1,364,077

Funding

-

-

-

816,431

816,431

Charges

2,537

-

107,000

50,195

159,732

Monetary and exchange variations

617

5,912

95

1,501

8,125

Transfers

3,369

(3,369)

93,667

(93,667)

-

Amortization - principal

(7,953)

-

(40,693)

-

(48,646)

Amortization - interest and variation

(8,596)

-

(116,651)

-

(125,247)

Balance as of December 31, 2011

4,490

53,955

111,997

2,004,030

2,174,472

Funding

-

-

-

81,723

81,723

Charges

2,738

-

133,106

48,507

184,351

Monetary and exchange variations

163

4,712

174

1,460

6,509

Transfers

2,633

(2,633)

202,166

(202,166)

-

Amortization - principal

(2,302)

-

(35,566)

-

(37,868)

Amortization - interest and variation

(4,405)

-

(153,904)

-

(158,309)

Balance as of December 31, 2012

3,317

56,034

257,973

1,933,554

2,250,878

           
           

21.10.               Contracts with clauses for anticipated maturity

The Company and its subsidiaries contract loan which include clauses requiring that they maintain certain economic-financial indices within previously established parameters, as well as other conditions that have to be observed, such as: no alterations to the investment interest of the Company in the capital of subsidiaries that represents a change in control, without prior notice; specifically for Copel Geração e Transmissão, no dividend distributions or payments for interest on own capital to be made, for which the amount, individually or together, exceeds the minimum compulsory amount, without prior and express authorization. Non compliance with these terms could result in the anticipated maturity of the debts.

At December 31, 2012 all of the terms were analyzed, and it was identified that all contractual covenants had been complied with.

 

 

F-60


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

22.           Debentures 

22.1.                   Debentures - Copel Distribuição

Debentures

Issue

Number of

Final Maturity

Annual rate p.y.

 

 

1st issue

Date

installment

1st installment

2nd installment

(interest)

Principal

Consolidated

 

 

 

 

 

 

 

12.31.2012

Single series

10.30.2012

2

10.30.2016

10.30.2017

DI + Spread 0.99% p.y.

1,000,000

1,010,677

 

 

 

 

 

 

 

1,010,677

 

         

Current

12,719

 

 

 

 

 

 

Non-current

997,958

Characteristics:

           

On October 22, 2012 the first issue of simple, unconvertible, unsecured debentures, in a single batch by Copel Distribuição S/A. was approved for public offering under restricted placement efforts, pursuant to CVM Instruction number 476, in the minimum amount of R$1,000,000.

100,000 notes were issued with a unit value of R$10.

       

The debentures' unit values will not be adjusted for inflation.

       
               

Finance charges:

           

Bear interest at the rate of 100% of the daily average rates of interbank extragroup deposits as a percentage, plus a spread or surcharge of 0.99% p.a., paid half-yearly in April and October.

               

Allocation:

             

Funds raised on October 30, 2012 will be allocated as working capital or used to make investments in the issuer.

   
               

Collaterals:

           

Personal guarantee

           
               

Guarantor:

             

Companhia Paranense de Energia - Copel

         
               

 

22.2.                   Change in debentures

 

 

Local currency

 

 

Current

Non-current

Total

Balance as of January 01, 2011

621,157

-

621,157

Funding

48,094

-

48,094

Charges

(600,000)

-

(600,000)

Amortization - interest and variation

(69,251)

-

(69,251)

Balance as of December 31, 2011

-

-

-

Funding

-

1,000,000

1,000,000

Charges

14,858

(2,042)

12,816

Amortization - interest and variation

(2,139)

-

(2,139)

Balance as of December 31, 2012

12,719

997,958

1,010,677

 

22.3.                   Contracts with clauses for anticipated maturity

The Company issued debentures that contain covenants that require the maintenance of certain economic and financial indices within previously established parameters with enforceability of compliance with annual and other conditions to be observed, such as changing the shareholding of the Company in the share capital representing a change of control without the prior consent of the Debenture holders; not making without prior written consent of the Debenture holders, payments of dividends or payments of interest on equity, whose value, separately or jointly, exceeds 25% for Copel Holding and 30% for Copel Distribuição, if they are in arrears regarding compliance with any of their financial obligations or they do not meet the established financial indices. Failure to comply with these conditions may imply early maturity of the debentures.

At December 31, 2012 all of the terms were analyzed, and it was identified that all contractual covenants had been complied with.

 

 

F-61


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

23.           Post-Employment Benefits

The Company and its subsidiaries sponsor retirement and pension plans (Pension Plans I, II, and III) and a medical and dental care plan (Healthcare Plan) to both current and retired employees and their dependents.

23.1.                   Benefit Pension Plan

The pension plans I and II are defined benefit plans for which the income is previously determined based on the salary level of each individual and the Pension Plan III is a defined contribution plan (CD).

The costs assumed by the sponsors for these plans are recognized according to the actuarial evaluation prepared annually by independent actuaries in accordance with the rules established in CVM Decision 695/12, which approved and made Technical Pronouncement IAS 19 and IFRC 14, and refer to employee benefits, and correlated to IAS 19. The economic and financial assumptions for purposes of the actuarial evaluation are discussed with the independent actuaries and approved by the sponsors’ management.

23.2.                   Healthcare Plan

The Company and its subsidiaries allocate resources for the coverage of health-care expenses incurred by their employees and their dependents, within rules, limits, and conditions set in specific regulations. Coverage includes periodic medical exams and is extended to all retirees and pensioners for life.

23.3.                   Statement of financial position and statement of income

Amounts recognized in the statement of financial position, under Post-Employment Benefits, are summarized below:

 

 

12.31.2012

12.31.2011

Pension plan (23.1)

989

14,410

Healthcare plan (23.2)

527,253

454,465

 

528,242

468,875

Current

25,819

36,037

Non-current

502,423

432,838

 

The amounts recognized in the statement of income are shown below:

 

 

12.31.2012

12.31.2011

Pension plan (CD)

54,741

50,664

Pension plan (CD) - management

751

455

Healthcare plan - post employment

94,610

71,620

Healthcare plan

45,928

35,471

Healthcare plan - management

57

41

 

196,087

158,251

(-) Transfers to contruction in progress

(13,209)

(7,406)

 

182,878

150,845

 

 

F-62


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Changes in the post-employment benefits

       

 

Current

Non-current

 

 

liabilities

liabilities

Total

Balance as of January 1, 2011

24,255

384,208

408,463

Appropriation of actuarial calculation

-

71,620

71,620

Pension and healthcare contributions

86,631

-

86,631

Transfers

22,990

(22,990)

-

Amortizations

(97,839)

-

(97,839)

Balance as of December 31, 2011

36,037

432,838

468,875

Appropriation of actuarial calculation

-

94,610

94,610

Pension and healthcare contributions

101,477

-

101,477

Transfers

25,025

(25,025)

-

Amortizations

(136,720)

-

(136,720)

Balance as of December 31, 2012

25,819

502,423

528,242

 

23.4.                   Actuarial valuation pursuant to IFRS 19 and IFRIC 14

23.4.1.   Actuarial assumptions

The actuarial assumptions used to determine the amounts of liabilities and costs for 2012 and 2011 are shown below:

 

       

 

 

 

 

 

 

 

2012

 

2011

 

Actual

Nominal

Actual

Nominal

Economic

 

 

 

 

Inflation p.y.

-

5.35%

-

5.20%

Discount rate expected return on plan assets rate

 

 

 

Pension plan

3.30%

8.83%

5.39%

10.87%

Healthcare plan

3.84%

9.40%

5.39%

10.87%

Compensation increase p.y.

2.00%

7.46%

2.00%

7.30%

Demographic

 

 

 

 

Mortality table

 

AT - 2000

 

AT - 2000

Disabled mortality table

 

AT - 83

 

AT - 83

Disability table

 

Light M

 

Light M

 

23.4.2.   Number of participants and beneficiaries

 

 

 

 

 

 

 

Pension plan

 

Healthcare plan

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

Number of active participants

9,637

10,049

9,297

9,180

Number of inactive participants

6,734

6,514

5,417

5,247

Number of dependent

-

-

23,949

24,006

Total

16,371

16,563

38,663

38,433

 

F-63


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

23.4.3.   Life expectancy from the average age – Annuity Table AT-2000

     

 

 

 

 

Plan BD

Plan CD

Balance as of December 31, 2012

 

 

Retired Participants

18.00

25.30

Pensioner Participants

21.30

33.80

   

 

Balance as of December 31, 2011

 

 

Retired Participants

21.50

26.19

Pensioner Participants

23.06

31.46

 

The average age of inactive participants of the healthcare and pension plans of the Company is 64.0 years.

23.4.4.   Actuarial valuation

         

 

 

 

 

 

Benefit plan

Pension plan

Healthcare plan

 

Consolidated

 

 

12.31.2012

12.31.2011 

Defined benefit obligation

4,563,586

848,756

5,412,342

4,371,673

Fair value of plan's assets

(5,141,874)

(148,696)

(5,290,570)

(4,104,933)

Plan coverage status

(578,288)

700,060

121,772

266,740

Actuarial gains/losses

-

(172,807)

(172,807)

11,432

Not recognized asset

578,288

-

578,288

176,293

Total liabilities

-

527,253

527,253

454,465

 

By the end of this year, actuarial gains or losses arisen from changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities. As from January 1, 2013, pursuant to International Accounting Standard IAS 19 Employee Benefits (IASB - BV 2012), approved by Brazilian Securities and Exchange Commission CVM Resolution 695, actuarial gains and losses should be recognized in other comprehensive income retrospectively (see note 3.27).

The actuarial valuation assessment of defined benefit plans is calculated by the projected unit credit cost method. The net assets of the benefit plan are valued according to market values.

As of December 31, 2012, the balance of accumulated amounts in the defined contribution plan was R$ 2,207,148 (R$ 1,853,973 as of December 31, 2011).

 

 

F-64


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

23.4.5.   Changes in actuarial liabilities

     

 

 

 

 

Pension plan

Healthcare plan

Present value of liability actuarial net as of January 1, 2010

2,915,084

476,227

Service cost

15,760

6,180

Interest cost

311,160

47,277

Benefits paid

(227,651)

(45,750)

Actuarial (profits) / losses

440,273

64,990

Present value of liability actuarial net as of December 31, 2010

3,454,626

548,924

Service cost

22,616

6,507

Interest cost

383,499

62,314

Benefits paid

(243,185)

(100,235)

Actuarial (profits) / losses

190,294

46,313

Present value of liability actuarial net as of December 31, 2011

3,807,850

563,823

Service cost

330

2,341

Interest cost

342,636

83,074

Benefits paid

(264,676)

(13,278)

Benefits granted

244

-

Actuarial (profits) / losses

677,202

212,796

Present value of liability actuarial net as of December 31, 2012

4,563,586

848,756

 

23.4.6.   Changes in actuarial assets

     

 

 

 

 

Pension plan

Healthcare plan

Fair value of plan assets as of January 1, 2010

3,509,658

110,981

Expected return of plan assets

393,702

12,776

Contributions sponsor and employees

25,138

-

Benefits paid

(227,651)

(45,750)

Actuarial losses

238,759

50,553

Fair value of plan assets as of December 31, 2010

3,939,606

128,560

Expected return of plan assets

441,922

13,556

Contributions sponsor and employees

24,121

-

Benefits paid

(243,185)

(100,235)

Actuarial losses

(178,321)

78,909

Fair value of plan assets as of December 31, 2011

3,984,143

120,790

Expected return of plan assets

421,581

13,867

Contributions sponsor and employees

27,027

-

Benefits paid

(264,676)

(13,277)

Benefits granted

244

-

Actuarial gains (losses)

973,555

27,316

Fair value of plan assets as of December 31, 2012

5,141,874

148,696

 

F-65


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

23.4.7.   Estimated costs

The estimated net periodic plan costs (gains) for 2013, pursuant to CVM ruling no. 695/12, for each plan, are shown below:

       

 

 

 

 

 

Pension plan

Healthcare plan

Total

   

 

2013

Cost of current service

1,115

11,851

12,966

Cost of estimated interest

359,413

70,594

430,007

Expected return on plan assets

(438,761)

(13,122)

(451,883)

Estimated contributions of employees

(2,078)

-

(2,078)

Costs (gains)

(80,311)

69,323

(10,988)

 

23.4.8.   Sensitivity Analysis

The following tables feature a sensitivity analysis which shows the effect of a one percent increase or decrease in the assumed rates of variation of pension and healthcare costs on the aggregate service cost and interest cost components of the net periodic post-employment pension and healthcare costs and on the accumulated postemployment pension and healthcare benefit liabilities.

       

.

Projected scenario

 

Present

Increase 1%

Decrease 1%

Sensitivity of the rate of long-term interest

 

 

 

Impacts on the obligations of the pension

3.30%

-7.09%

11.95%

Impacts in thousands of reais - R$

 

(323,601)

545,214

Impacts on the obligations of health program

3.84%

-12.52%

17.95%

Impacts in thousands of reais - R$

 

(79,547)

114,034

 

 

 

 

Sensitivity of the to grow rate of medical costs

 

 

 

Impacts on the obligations of health program

1.00%

10.99%

-9.63%

Impact on cost of service the following year (R$)

 

82,561

(72,341)

 

 

 

 

Sensitivity of the service cost

 

 

 

Impacts on the obligations of the pension

1.00%

-0.18%

2.12%

Impacts in thousands of reais - R$

 

(8,397)

96,615

Impacts on the obligations of health program

1.00%

-1.22%

1.00%

Impacts in thousands of reais - R$

 

(7,736)

6,348

 

23.4.9.   Employee benefits payable

The estimated benefits to be paid by the Company in the next five years and the total benefits for the following five fiscal years are shown below:

       

 

 

 

 

 

Pension plan

Healthcare plan

Total

2013

317,020

30,326

347,346

2014

330,738

30,327

361,065

2015

345,306

30,327

375,633

2016

357,866

30,329

388,195

2017

367,908

30,331

398,239

2018 to 2045

8,517,552

580,395

9,097,947

 

F-66


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

23.4.10.             Asset allocation and investment strategy

The asset allocation for the Company’s pension and healthcare plans at the end of 2012 and the allocation goal for 2013, by asset category, are shown below:

     

 

 

 

 

Goals for 2013

2012

Fixed income

85.8%

87.4%

Variable income

10.3%

9.4%

Loans

1.5%

1.5%

Real Estate

1.7%

1.6%

Structured investments

0.7%

0.1%

 

100.0%

100.0%

 

Below are the limits set by the Fund management:

         

 

 

Plan I and II (BD)

 

Plan III (CD)

 

goal (%)(*)

Minimum (%)

goal (%)

Minimum (%)

Fixed income

93.0%

87.0%

67.2%

56.0%

Variable income

1.0%

0.0%

23.8%

10.0%

Loans

1.0%

0.0%

3.5%

2.0%

Real Estate

2.5%

1.0%

1.0%

0.0%

Structured investments

2.5%

0.0%

4.5%

0.0%

(*) Goal based on the total investment for each plan.

Administration of Copel foundation decided to keep the conservatism related to variable income, in view of the legal limit allowed that is 70%.

 

On December 31, 2012 and 2011, the pension plan assets included the following securities issued by Copel:

     

 

 

 

 

 

Defined benefit pension plan

 

12.31.2012

12.31.2011

Shares

1,909

2,334

 

1,909

2,334

 

23.4.11.             Plan assets and expected rate of return

 

The main categories of plan assets and the expected rate of return for each at the end of the period are shown below:

         

 

 

Expected return

 

Fair value of plain assets

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

Fixed income

11.0%

11.5%

5,723,032

5,290,117

Variable income

15.0%

23.0%

619,123

482,156

Loans

13.4%

11.8%

96,338

95,084

Real Estate

11.9%

11.8%

109,389

103,219

Structured investments

-10.1%

-

3,355

2,077

Others

-

11.5%

-

-

Expected weighted average return (*)

11.4%

12.4%

752,618

679,185

(*) The expected weighted average return percentage is obtained by dividing the amount of the expected return by the previous year's investment position. The amount of the expected weighted average return is obtained by multiplying the figures for each segment in the previous year by expected return percentage for the current year. The expected negative return on the segment of structured investments results from the "J Curve ", which is a characteristic of the initial stage of this kind of investment.

 

 

F-67


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The overall expected rate of return corresponds to the weighted average of the expected rates for the different categories of plan assets. The evaluation of expected rate of return conducted by Company management is based on historical trends and market analysts' projections for each asset during the term of the respective liability.

The current return on plan assets is R$ 851,450 (R$ 655,302 in 2011).

The history of experience adjustments is shown below:

             

 

 

 

Pension Plan - BD

 

 

Healthcare Plan

 

12.31.2012

12.31.2011

12.31.2010

12.31.2012

12.31.2011

12.31.2010

Present value of the defined benefits liability

(4,563,586)

(3,807,850)

(3,454,626)

(848,756)

(563,823)

(548,924)

Fair value of plan assets

5,141,874

3,984,143

3,939,606

148,696

120,790

128,560

Deficit / Surplus

578,288

176,293

484,980

(700,060)

(443,033)

(420,364)

Actuarial gains (losses)

677,202

190,294

(440,273)

212,796

46,312

(64,991)

Adjustment biometric

-

(108,012)

-

-

(1,336)

-

Adjustment in interest rate

779,152

(229,386)

-

129,174

(33,944)

-

Experience adjustments in plan liabilities

(101,950)

(147,104)

(440,273)

83,520

11,032

(64,991)

Experience adjustments in plan assets

973,555

(178,321)

238,759

27,316

78,909

50,553

 

In 2013, the Company expects to contribute R$ 69,325 to the pension plan, which includes both defined benefit plans (plans I and II) and the defined contribution plan (plan III), and R$ 75,020 to the healthcare plan.

23.4.12.             Additional information

Copel also sponsors a defined contribution plan for all its employees.

The contributions made in the years ended on December 31, 2012 and 2011 were R$ 59,742, and R$ 51,178, respectively.

24.           Regulatory Charges

 

12.31.2012

12.31.2011

Energy Development Account (CDE)

23,719

20,718

Global Reversal Reserve (RGR)

17,198

30,154

Fuel Consumption Account (CCC)

15,581

19,639

 

56,498 

70,511 

 

25.           Research and Development and Energy Efficiency

The concessionaries for public distribution, generation and transmission of electricity services are required to allocate 1% of their annual net operational income to research and development in the electrical sector and to energy efficiency programs, according to Law 9,991/00 and ANEEL Normative Resolutions 300/08, 316/08 and 504/12.

 

 

F-68


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

25.1.                   Balances recognized to invest in R&D (Research and Development) and EEP (Energy efficiency program)

 

 

 

 

 

 

.

Applied and

Balance

Balance

Balance as of

Balance as of

 

unfinished

to collect

to apply

12.31.2012

12.31.2011

Research and Development - R&D

 

 

 

 

 

FNDCT

-

3,424

-

3,424

3,018

MME

-

1,712

-

1,712

1,510

R&D

18,700

-

123,684

142,384

120,936

 

18,700

5,136

123,684

147,520

125,464

Energy efficiency program - EEP

52,634

-

64,006

116,640

126,100

 

71,334

5,136

187,690

264,160

251,564

     

Current

159,599

156,915

 

 

 

Non-current

104,561

94,649

 

25.2.                   Changes in balances for R&D and EEP

               

 

FNDCT

MME

 

R&D

 

EEP

 

 

Current

Current

Current

Non-current

Current

Non-current

Consolidated

Balance as of January 1, 2011

2,686

1,344

40,333

68,728

111,628

22,004

246,723

Additions

17,593

8,796

1,443

16,182

-

24,034

68,048

Selic interest rate

-

-

220

10,371

-

8,075

18,666

Transfers

-

-

9,254

(9,254)

45,491

(45,491)

-

Payments

(17,262)

(8,630)

-

-

-

-

(25,892)

Concluded projects

-

-

(16,340)

-

(39,641)

-

(55,981)

Balance as of December 31, 2011

3,017

1,510

34,910

86,027

117,478

8,622

251,564

Additions

19,296

9,648

842

18,454

-

26,079

74,319

Performance agreement

-

-

-

-

-

145

145

Selic interest rate

-

-

114

9,000

-

5,631

14,745

Transfers

-

-

11,420

(11,420)

37,977

(37,977)

-

Payments

(18,889)

(9,446)

-

-

-

-

(28,335)

Concluded projects

-

-

(6,963)

-

(41,315)

-

(48,278)

Balance as of December 31, 2012

3,424

1,712

40,323

102,061

114,140

2,500

264,160

 

 

 

F-69


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

26.           Accounts Payable related to concession - Use of Public Property

These refer to concession charges for use of public property (UPP) incurred as of the start of operation of each project until the final date of the concession.

 

 

Grants

Signature

Final

 

Current liabilities

 

Non-current liabilities

 

 

 

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

Copel Geração e Transmissão

 

 

 

 

 

 

 

HPP Mauá (a)

06.29.2007

07.03.2007

07.2042

884

615

12,083

11,726

HPP Colider (b)

12.29.2010

01.17.2011

01.2046

-

-

15,101

13,779

Elejor

 

 

 

 

 

 

 

Fundão – Santa Clara Hydroelectric Energy Complex (c)

10.23.2001

10.25.2001

10.2036

47,593

44,041

371,896

344,937

 

 

 

 

48,477

44,656

399,080

370,442

Discount rate applied to calculate present value:

             

Actual net discount rate, in line with the estimated long-term rate. It bears no relationship with the expected project return:

   

(a) 5,65% p.y.

             

(b) 7,74% p.y.

             

(c) 11,00% p.y.

             
               

Payment to the federal government:

             

(a) monthly installments equivalent to 1/12 of the proposed annual payment of R$ 643 (51% of R$1,262), according to clause six of Concession Agreement number 001/07.

(b) monthly installments equivalent to 1/12 of the proposed annual payment of R$ 1,256, as from the date the hydroelectric power plant starts operations, according to clause six of Concession Agreement number 001/11.

(c) monthly installments equivalent to 1/12 of the proposed annual payment of R$ 19,000, from the sixth to the thirty-fifth year of concession or while the hydroelectric resources are being explored, according to the bid approval document and clause six of Concession Agreement number 125/01.

               

Annual adjustment of installments for inflation:

             

(a) (b) Variation IPCA

             

(c) Variation IGP-M

             

 

 

Nominal value

Present value

2013

48,483

48,477

2014

48,928

41,736

2015

50,252

38,739

2016

50,252

34,968

After 2016

1,015,528

283,637

 

1,213,443

447,557

26.1.                   Change in Accounts Payable related to concession - Use of Public Property

 

Current liabilities

Non-current liabilities

Total

Balance as of January 1, 2011

40,984

340,099

381,083

ANEEL concession - use of public assets

-  

3,871

3,871

Transfers from non-current to current liabilities

41,597  

(41,597)

-

Payments

(41,239)

-

(41,239)

Monetary variation

3,314

68,069

71,383

Balance as of December 31, 2011

44,656

370,442

415,098

Aneel concession - use of public assets

-  

1,886

1,886

Transfers from non-current to current liabilities

44,680  

(44,680)

-

Payments

(44,411)

-

(44,411)

Monetary variation

3,552

71,432

74,984

Balance as of December 31, 2012

48,477

399,080

447,557

 

 

F-70


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

27.           Other Accounts Payable

 

 

 

 

12.31.2012

12.31.2011

Public lighting fee collected

17,852

14,875

Customers

15,661

17,412

Pledges in guarantee

12,131

7,688

Financial compensation for use of water resources

11,786

19,332

Reimbursements to customer contributions

7,650

7,837

Consortium partners

2,063

7,031

Other liabilities

29,899

12,554

 

97,042

86,729

Current

97,042

86,676

Non-current

-

53

 

28.           Provision for Contingencies

28.1.                   Lawsuits with Likelihood of Losses deemed as probable

The Company and the subsidiaries are a party to several labor, tax and civil claims filed before different courts. Copel’s management, based on the opinion of its legal counsel, maintains a provision for contingencies in connection with lawsuits with probable chance of an unfavorable outcome. Considering that the proceduring of the lawsuits depends on the decision of the related courts, on the instances (preceding or appeal) of the lawsuits and also on the complexity of the matter under discussion, it is not possible to determine in advance and accurately the timing for the issuance of the indemnity decision with the respective outflow of economic resources resulting from each lawsuit.

Change in provision for contingencies

               

 

 

 

 

 

Additions to

 

 

 

Balance as of

 

 

Construction

fixed assets

 

Balance as of

 

January 1, 2012

Additions

(-) reversals

cost

in progress

Discharges

December 31, 2012

Tax (28.1.1)

 

 

 

 

 

 

 

Cofins (a)

234,563

8,568

-

-

-

-

243,131

Others taxes (b)

47,374

20,551

(9,180)

-

-

(7,300)

51,445

 

281,937

29,119

(9,180)

-

-

(7,300)

294,576

Labor (28.1.2)

128,505

47,859

(1,893)

-

-

(19,481)

154,990

Employee benefits (28.1.3)

58,089

33,945

(149)

-

-

(13,215)

78,670

Civil (28.1.4)

 

 

 

 

 

 

 

Suppliers (a)

88,003

2,179

(21,552)

-

-

-

68,630

Civil and administrative law (b)

112,059

92,975

(19,132)

-

-

(9,091)

176,811

Easements (c)

4,839

1,315

(176)

-

-

(14)

5,964

Condemnation and real estate (c)

273,647

38,999

(93)

1,064

3,855

-

317,472

Customers (d)

5,493

4,490

(2,506)

-

-

-

7,477

 

484,041

139,958

(43,459)

1,064

3,855

(9,105)

576,354

Environmental claims (28.1.5)

104

89

-

-

-

-

193

Regulatory (28.1.6)

48,147

2,976

(160)

-

-

(38)

50,925

 

1,000,823

253,946

(54,841)

1,064

3,855

(49,139)

1,155,708

 

F-71


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

             

 

 

 

 

Additions to

 

 

 

Balance as of

 

 

fixed assets

 

Balance as of

 

January 1, 2011

Additions

(-) reversals

in progress

Discharges

December 31, 2011

Tax (28.1.1)

 

 

 

 

 

 

Cofins (a)

234,563

-

-

-

-

234,563

Others taxes (b)

86,916

32,616

(71,305)

-

(853)

47,374

 

321,479

32,616

(71,305)

-

(853)

281,937

Labor (28.1.2)

146,348

14,024

(11,413)

-

(20,454)

128,505

Employee benefits (28.1.3)

53,245

21,289

-

-

(16,445)

58,089

Civil (28.1.4)

 

 

 

 

 

 

Suppliers (a)

86,101

2,138

(236)

-

-

88,003

Civil and administrative law (b)

73,237

50,697

(1,622)

-

(10,253)

112,059

Easements (c)

9,065

1,993

(5,725)

-

(494)

4,839

Condemnation and real estate (c)

132,709

124,874

-

16,064

-

273,647

Customers (d)

5,305

845

(638)

-

(19)

5,493

 

306,417

180,547

(8,221)

16,064

(10,766)

484,041

Environmental claims (28.1.5)

42

62

-

-

-

104

Regulatory (28.1.6)

38,847

13,977

(4,677)

-

-

48,147

 

866,378

262,515

(95,616)

16,064

(48,518)

1,000,823

 

28.1.1.   Tax claims

a)       Contribution for the Financing of Social Security - COFINS

Lawsuit no. 10980.004398/2010-09 – Curitiba Federal Revenue Service Office

In the second half of 2010, the 4th District Federal Court’s ruling favorable to the Federal Government in lawsuit no. 2000.04.01.100266-9 became final, overturne the ruling in lawsuit no. 95.0011037-7 which had recognized the Company’s immunity from payment of COFINS tax.

As a result of this ruling, on December 7, 2010 the Federal Revenue Service Office in Curitiba issued Notice no. 9/2010 to Copel, requesting payment of COFINS tax from August 1995 to December 1996.

This charge results from the Federal Revenue Service’s understanding that Copel had declared in its corporate tax liability statement to be liable for R$ 40,678 in COFINS taxes due over the disputed period and that the Service's statute of limitations for collection of this debt had been suspensed since the ruling in lawsuit no. 95.0011037-7, which recognized the Company's immunity from the levy of COFINS, became final – this ruling was, however, overturned by the 4th District Federal Court in lawsuit no. 2000.04.01.100266-9.

This understanding by the Federal Revenue Service and the complexity and peculiarity of the facts and of the legal matter involved have led the Chief Legal Office’s to consider the principal amount of R$ 48,814 a probable loss.

On the other hand, the Company argues in its defense that the declarations contained in its tax liability statements were not acknowledgements of debt, because the liabilities at hand were already under legal dispute (lawsuit no. 95.0011037-7), and that the Federal Revenue Service’s right to collect had already lapsed.

In order to suspend the liability for this tax credit an injunction was filed, number 5005264-27.2011.404.7000, with the lower federal courts in  Curitiba, for which a sentence was given against Copel, and which recognized the right of the Superintendency of the Federal Revenue Services to examine the rejection by the Company of Tax Summons number 09/2010, without the need to be subject to the regular proceedings for the administrative rejections of the tax entries, which have a suspension effect and which are governed by the Double degree of administrative  jurisdiction. The Company strategically opted not to appeal the decision so that it could file a motion to stay execution at court, where the discovery phase is more detailed and all necessary types of evidence can be produced.

Since Summons number 09/2010 was judged as valid by the Supreme Court, with respect to the principal sum for the COFINS debt, of R$ 40,678, for the period August 1995 to December 1996, the debt has been recognized as enforceable debt under number 90 6 11 018367-09.

 

F-72


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The federal government brought tax collection proceedings for the debt included in notification 09/2010, case records number 5015930-53.2010.404.7000 at the second federal court, in the amount of R$ 48,814. Copel then posted a judicial bond for the tax debt being collected and filed a motion to stay execution (case records number 5022933-59.2012.404.7000), which caused proceedings to be suspended until the motion is decided.

The interest and fines being charged on this tax debt are the object of administrative process number 11453.720001/2011-23, which amounted to R$ 116,466 as of December 31, 2012. This amount was classified by the company’s senior management as a loss deemed as possible, since there are independent judicial defenses for the principal amount and for the charges amount, and that there are strong arguments for the defense of the values related to interest and penalties.

A recent decision was rendered under this administrative proceeding (11453-720.001/2011-23), whereby the Second Panel of the First Chamber of the Third Section of the Administrative Board of Tax Appeals – CARF granted by majority voting the administrative appeal filed by Copel. As a result, the assessment of interest and fine applicable to the COFINS debt owed for the period from 1995/1996 which is being discussed under proceeding number 10980.004398/2010-09, was considered groundless. A special appeal of the National Treasury has been filed with the Higher Chamber of Tax Appeals, which is awaiting analysis with respect to its admissibility.

Lawsuit no. 10980.720458/2011-15 – Curitiba Federal Revenue Service Office.

In the second half of 2010, the 4th District Federal Court’s ruling favorable to the Federal Government in lawsuit no. 2000.04.01.100266-9 became final, overturning the ruling in lawsuit no. 95.0011037-7 which had recognized the Company’s immunity from payment of COFINS tax.

As a result of this sentence, the Federal Revenue Services filed the assessment, through which it intends to demand payment of COFINS for the period from October 1998 to June 2001, as a result of rescission claim 2000.04.01.100266-9 being accepted as legally valid.

The Federal Revenue Services understands that the sentence for the Rescission Claim had suspended the liability period for constituting the aforementioned tax credit.

This understanding of the Federal Revenue Services, together with the complexity and peculiarity of both the facts and the legal question involved in the process, explains the Legal Director’s decision to consider the principal amount of R$ 194,317 as representing a probable loss.

Nevertheless, the Company has argued in its defense, that the Federal Government no longer has the right to constitute this tax credit, given the lack of timely constitution of the tax credit, to prevent the liability period from lapsing.

The interest and penalties related to the abovementioned tax debt amount to R$ 522,988 as of December 31, 2012, and it was classified as a loss deemed as possible by the company’s senior management, and based on the opinion of their legal advisors, since there are independent defense lines for the principal amount and for the charges amount, and that there are strong arguments for the defense related to the values of interest and penalties.

In November 27, 2012 was rendered whereby the Second Panel of the Third Section of the Administrative Board of Tax Appeals – CARF granted by majority voting the administrative appeal filed by Copel to recognize that the statute of limitations to assess COFINS run out. An appeal for a petition for clarification of this decision was brought by the National Treasury which was rejected unanimously. This lawsuit is still pending the filing of a special appeal by the National Treasury.

 

b)       Others tax claims

        

 

12.31.2012

12.31.2011

Pension contributions

29,761

31,014

ICMS - rural consumer

12,294

-

Other taxes

9,390

16,360

 

51,445

47,374

 

 

F-73


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Social Security Contributions  

Most claims filed administratively or judicially, however, involve Copel’s joint liability for the collection of social security contributions levied on services rendered by third-parties.

ICMS – Rural customer

Ordinary annulment action 0004438-79.2012.8.16.0179, aiming at annulling the enforceability of a tax assessment notice, which filed a tax claim against Copel considering the granting of deferral of ICMS applied to the consumption of electric power in the period from January 2007 to December 2009 as illegal.

28.1.2.   Labor claims

Labor claims comprise claims filed by former employees of Copel in connection with the payment of overtime, hazardous working conditions, transfer bonuses, salary equality/reclassification, and other matters, and also claims by former employees of contractors and third-parties (secondary responsibility) involving indemnity and other matters.

28.1.3.   Employee benefits

These are labor claims by retired Copel employees against the Fundação Copel, which will consequently reflect on the Company as additional contributions are required.

28.1.4.   Civil claims

a)       Suppliers 

Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A.

The companies Rio Pedrinho Energética S.A. and Consórcio Salto Natal Energética S.A. required the filing of the arbitration proceedings with the Chamber of Arbitrage of the Fundação Getúlio Vargas, through which they plead the payment of the overdue instalment values, as well as the cancellation fines, related to the electric energy purchase and sale agreements signed with Copel Distribuição. The arbitrage proceedings were judged to be valid and, consequently, Copel Distribuição was sentenced to pay the claimed amounts plus the attorney’s fees. The Company has filed for a court order at the Superior Court of Justice making the arbitration ruling void.

Given that both companies have identified the pledged amounts (R$ 35,913 on June 17, 2010, R$ 22,823 on October 1, 2009 and R$ 11,833 on February 03, 2010), the legal directors have continued to classify the action as representing a probable loss, highlighting that the same bank bond letters were presented as guarantee for the amounts identified. In addition to the legal discussion, at the end of 2011 the remaining balance of R$ 27,438 was executed and as a result a bank account was blocked. This execution was challenged by Copel Distribuição, which is the reason why management decided to record a financial provision for the legal claims, for the original value of the debts corrected to December 31, 2012, which amounts to R$ 89,025. Of this amount, R$ 20,395 has been recorded to suppliers.

Copel does not accept that there is an outstanding balance. However, the judge of the 3rd Public Finance Court ruled the amount of R$ 22,162 is outstanding, and released the amounts of R$ 12,790 and R$ 9,371 to the enforcement creditors on 04.12.2012, via a bank guarantee. The matter is still under consideration and has been subject to an appeal.

b)       Civil and administrative claims

Claims in which Copel is an active or passive party and that involves billing, unlawful procedures, administrative contracts and contractual penalties, and compensation for accidents involving Power grids and vehicles.

Tradener Ltda.

Lawsuits involving Tradener Ltda, where it is reported that it signed a contract for sale of power, with Copel on December 1, 1998 in which the plaintiff undertook to “sell” under the best conditions to Copel, all the surplus of purchase and all the surplus of assured power with the effective prices, quantities and conditions to be stipulated in the agreements for purchase and sale of electric power.

In this contract, especially in clause 17, for the services provided it would be entitled to a commission/remuneration to be calculated through a formula described in that clause and which had as essential grounds the difference between the reference price of the power fixed by the Trading Committee, and the price of the sale intermediated by the plaintiff.

 

F-74


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 Aiming at a declaration of nullity of this contract the following lawsuits were filed:

- Popular Action (case record 37879/0000 of the 1st Court of the Public Treasury of Curitiba)

- Popular Action (case record 720/2001 of the 1st Court of the Public Treasury of Curitiba)

- Popular Action (case record 421/2003 of the 2nd Court of the Public Treasury of Curitiba)

- Nullifying Declaratory Action (case record 1583/2005 of the 1st Court of the Public Treasury of Curitiba)

- Nullifying Declaratory Action (case record 0000659-69.2006.8.16.0004 of the 2nd Court of the Public Treasury of Curitiba)

In the above lawsuits values were not discussed, only the validity or otherwise of the contract of sale entered into between Tradener and Copel and of the contracts for sale of electricity in which Tradener figured as broker. The possibility of annulment of the contracts is remote considering decisions already handed down in some of the processes above.

In light of an injunction issued in case record 421/2003 of the Public Civil Action, the execution of the contract was suspended, however, recently there was the revocation of the injunction.

Accordingly, Tradener filed the following lawsuits for collection, aiming at receiving its commissions:

- case record 0005990-22.2012.8.16.0004 - 1st Court of the Treasury of Curitiba - the lawsuit was brought to collect the commissions owed by Copel to Tradener because of the intermediation by the latter in the agreements for sales of power entered into by Copel with the company Centrais Elétricas de Santa Catarina (Celesc). In this lawsuit, after the financial and commercial checking of the values, only the principal amount of R$ 36,234 was considered likely as the charging of monetary restatement in the amount of R$ 16,732 is being challenged, considering that the execution of the contract was suspended by an injunction and therefore this correction would not be charged, and it is classified as possible.

- case record 05550-26.2012.8.16.0004 - 4th Court of the Treasury of Curitiba - the lawsuit was brought to collect the commissions owed by Copel to Tradener because of the intermediation by the latter in the agreements for sale of power entered into by Copel with the companies Carbocloro S.A. Indústrias Químicas, Companhia Luz e Força Santa Cruz, Elektro Eletricidade e Serviços S.A.; Opp Polietilenos S.A, and Enron Comercializadora de Energia Ltda. In this lawsuit, after the financial and commercial checking of the values, only the principal amount of R$ 18,218 was considered likely as the charging of monetary restatement in the amount of R$ 13,886 is being challenged, considering that the execution of the contract was suspended by an injunction and therefore this correction would not be charged, and it is classified as possible.

c)       Easements, condemnation and real estate

Copel’s real estate claims comprise mostly cases of condemnation and easements, in which compensation is always mandatory pursuant to the Federal Constitution, which requires that the Federal Government pay just compensation, in cash, prior to expropriation of private property or to the imposition of restrictions on the use of property without transfer of title. Lawsuits are usually filed when parties fail to agree on the amount of compensation due and/or when the documentation of the owner is unable to present situations of registration (inventories in progress, properties without records, etc.).

Real estate claims also comprise repossession of Real Estate owned by the concessionary. Judicial action exists when retaking Real Estate invaded by third parties is required, whether in the areas owned by the Company or in areas that have been subject to rights of way.

These claims also comprise the intervention in adverse possession of third parties, when the Company is acting as defendant or even when the claim is about real estate where there are easements, in order to preserve the boundaries and fronting and abutting of the expropriated areas and public rights of way.

 

F-75


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Ivaí Engenharia de Obras S.A.

In a lawsuit filed before the 1st Fiscal Court of Curitiba, Ivaí Engenharia de Obras S.A. won the right to receive credits from Copel Geração e Transmissão in connection with the execution of contract D-01, which comprised the Jordão River diversion works. These credits were a compensation for a supposed economic and financial imbalance in the contract. Based on this ruling, Ivaí filed a separate collection lawsuit before the 4th Fiscal Court of Curitiba and obtained a ruling ordering Copel to pay the amount of R$ 180,917, as of October 31, 2005, plus restatement by the average between the INPC and IGP-DI inflation indicators, delinquent interest of 1% a month, and 3.2% as legal fees. Copel is appealing this ruling.

Copel then obtained a preliminary injunction, issued by Minister Castro Meira of the Superior Court of Justice (Tribunal Superior de Justiça or STJ) under no. 15,372-PR, suspending the collection suit and the provisional enforcement requested by Ivaí.

The appeal claim, currently in progress in the Superior Court of Justice (Superior Tribunal de Justiça or STJ), covers the absence of economic and financial imbalance in the contract, as well as the nullity of the calculation performed by the judicial expert, who used wrong parameters to obtain the value of condemnation, causing interest rates to be applied in duplicity (Selic rate + interest rate). Although the Justice Court has dismissed the duplicity in the incidence of interest from the elaboration of the expert report, it did not examine the appeal reasoning that showed that the calculation contained within the expert report was wrong.

The Company is currently waiting for the outcome of the Special Appeal it filed in the collection suit, under no. 1,096,906, whose rapporteur is Minister Castro Meira, with the resume of voting by Ministers Mauro Campbell Marques and Humberto Martins, after the unfavorable vote by the Minister who is rapporteur of the Special Appeal, published in 2011 and which awaits return of the claim to the Plenary after Minister Herman Benjamin requested to view the process.

In view of the unfavourable vote and of the analysis of previous decisions ruled by the other Ministers that participated in the trial, the Company’s senior management, through a conservative approach, proceeded to a detailed review of the process course over the last months of 2011 and decided to remeasure the value to be provisioned, from R$ 125,000, which represented the original value of the debt in question, adjusted with legal interest and restated by inflation indexes allowed by the Company, to R$ 281,699, once considered the form of adjustment of the debt, which is still under discussion, only dismissing the incidence of interest in the expert’s calculation, and maintaining the charge of Selic rate, and, from that point, restating the value to present day based on the parameters fixed on the judgment by the Justice Court of the State of Paraná – TJPR (interest + monetary restatement). Thus, the value provisioned reflects the expectation of the Company in the event of an unfavorable closure to this claim.

The accumulation of interest, in this case, Selic interest rate plus interest on arrears is a situation rejected by the Judiciary Power, and it was already denied by the Supreme Justice Court (STJ) in numerous precedents. For this reason, it is also a conservative approach to consider as a possible risk the loss of the difference in the value deemed as probable and the eventual total value of the condemnation, which is R$ 233,717, as of December 31, 2012.

In addition, an unfavourable decision was rendered on the special appeal number 1.121.458 filed according to specific court regulations, which in turn was filed in connection with the writ of certiorari filed for at the Superior Court of Justice and whose reporting judge was Justice Arnaldo Esteves Lima and aiming at a review of the action filed to revise a civil action decision.  Copel seeks the reversal of the deficiency assessment claiming that the Treasury has no right to claim the difference because accords were reached at the administrative level. In August 2012 the Company filed a motion for clarification of the judgment passed on the appeal. 

d)       Customer claims

These claims usually involve compensations for damage to electric appliances, moral damages arising from the rendering of services (such as suspension of supply), and lawsuits filed by industrial customers challenging the constitutionality of the tariff increase which became effective during the Brazilian Government’s “Cruzado Plan” and claiming refunds of the amounts involved. The company recognized a reserve to cover probable losses on those lawsuits, regarding the tariff charged to industrial customers in the period from March to November 1986, this charges on late payments. The amount is considered sufficient to cover probable losses.

 

F-76


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

28.1.5.   Environmental claims

Environmental claims involving Copel and its subsidiaries usually comprise class entity suits whose goal is to stop the environmental licensing process for new projects or the recovery of permanent protection areas around electricity plant reservoirs which have been illegally used by individuals. Copel estimates that unfavourable outcomes would result only in the cost of new environmental studies and of the recovery of Company-owned land.

28.1.6.   Regulatory claims

The Company is disputing, both administratively and judicially; notifications issued by the regulatory agency in connection with supposed regulatory violations, including the charge of R$ 38,313 in lawsuits involving Companhia Estadual de Energia Elétrica - CEEE and Dona Francisca Energética S.A., in which ANEEL Ruling no. 288/2002 is being disputed. The probable success in these lawsuits will result in changes in CCEE (Spot Market) accounting, which would require the recording of a reserve for these amounts, since Copel would be required to pay off the amounts due.

28.2.                   Main lawsuits with losses deemed as possible

 

 

 

 

12.31.2012

12.31.2011

Tax (28.2.1)

1,227,536

1,246,954

Labor

257,382

176,448

Employee benefits

41,390

37,788

Civil (28.2.2)

810,764

542,386

Regulatory

19,200

12,907

 

2,356,272

2,016,483

 

Detailing the main actions:

28.2.1.   Tax claims

·

Lawsuit no. 11453.720001/2011-23 and no. 10980720458/2011-15, arose from the result of COFINS, Rescission Claim no. 2000.04.01.100266.9 in the value of R$ 639,454 on December 31, 2012. This value is related to interest and penalties whose main debt is provisioned in the financial statements due to its classification as a probable loss; however, in view of the strong arguments for the defense over the payment of these charges, it is classified as possible. Additional information on this process is described on item 28.1.1 in this same report;

·

Fiscal requirements according to Fiscal Notification of Debt Record – NFLD no. 35.273.870-7, with approximate value of R$ 181,014 on December 31, 2012, authored by the National Institute of Social Security – INSS, against Copel, and related to the fiscal execution of social contribution;

·

Fiscal requirements according to NFLD no. 35.273.876-6, with approximate value of R$ 65,840 on December 31, 2012, authored by the INSS, against Copel, and related to the fiscal execution of social contribution levied upon labour transfer.Fiscal requirements according to NFLD no. 35.273.876-6, with approximate value of R$ 65,840 on December 31, 2012, authored by the INSS, against Copel, and related to the fiscal execution of social contribution levied upon labour transfer.

 

28.2.2.   Civil claims

·

Civil claim related to the indemnification lawsuit no. 166-53.2011.8.16.0122, authored by Mineradora Tibagiana Ltda, and whose defendant is the Consórcio Energético Cruzeiro do Sul – CECS. Copel Geração e Transmissão bears 51% of the total risk of the lawsuit, which equals to R$ 222,706, restated as of December 31, 2012. The author claims being the owner of a mining decree issued by the National Department of Mineral Production – DNPM, and defends that with the mining decree, it is the legitimate holder of ownership and control of the area around Tibagi River. The indemnification claimed refers to alleged losses in the company’s mining operations due to the construction work of the Mauá Hydroelectric Power Plant. Currently the process is awaiting publication, probably for specification of evidence.

·

Ivaí Engenharia de Obras S.A – Lawsuit which consists on the claim for compensation for an alleged imbalance in the financial economical equation in the contract signed with Copel. The company’s senior management classified as a risk of possible loss for this lawsuit the value of R$ 233,717 on December 31, 2012. Additional information of this process is described in Note no. 28.1.3, in this same report.

·

Fiscal requirements according to NFLD no. 35.273.876-6, with approximate value of R$ 65,840 on December 31, 2012, authored by the INSS, against Copel, and related to the fiscal execution of social contribution levied upon labour transfer.Fiscal requirements according to NFLD no. 35.273.876-6, with approximate value of R$ 65,840 on December 31, 2012, authored by the INSS, against Copel, and related to the fiscal execution of social contribution levied upon labour transfer.

     

F-77


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

·

Lawsuit contesting the franchise agreement with Copel and applying for recognition of the subconcession, including transfer of the services and full pass-through of rates, amongst other amounts. In case records 5017789-75.2010.404.7000, the judge of the 4th Federal Court of Curitiba partially accepted the application and ruled the franchise agreement was invalid, transferring Copel's public service concession to the plaintiff between July 2001 and September 2005 in the municipalities and locations of Faxinal, Mauá da Serra, Rosário do Ivaí, Rio Branco do Ivaí, Grandes Rios, Cruzmaltina, Nova Amoreira and São José (Municipality of Marilândia do Sul), with Copel subsequently being ordered to pay the rates during the period, including interest and monetary restatement, in addition to returning the amounts improperly charged as a franchise fee, and the amounts deposited in the advertising fund, including interest and monetary restatement. Copel appealed the sentence at the Federal Regional Court of the Fourth Region – TRF4, whose ruling was fully favourable to the Company. The author appealed special and extraordinary in processing even in Federal Regional Court of the Fourth Region - TRF4. The Company’s Management classified it as a risk of possible loss of R$ 142,457 at December 31, 2012. The plaintiff also filed a suit in the Federal Supreme Court under no. 13,592, which was denied continuance by Minister Marco Aurelio in August 2012. The plaintiff filed a special appeal, in process in the Federal Supreme Court.

29.           Equity  

29.1.                   Equity attributable to Parent Company

29.1.1.   Stock Capital

As of December 31, 2012 (and December 31, 2011), Copel’s paid-in share capital was R$ 6,910,000. The different classes of shares (with no par value) and main shareholders are detailed below:

                 

 

 

 

 

 

 

 

 

In shares

Shareholders

Common

 

 

Classe A Preferred

 

Classe B Preferred

Total

 

 

%

 

%

 

%

 

%

State fo Paraná

85,028,598

58.63

-

-

13,639

0.01

85,042,237

31.08

BNDESPAR

38,298,775

26.41

-

-

27,282,006

21.27

65,580,781

23.96

Eletrobras

1,530,774

1.06

-

-

-

-

1,530,774

0.56

Free Float:

 

 

 

 

 

 

 

 

BM&FBovespa (1)

19,509,795

13.45

129,437

33.90

60,368,071

47.07

80,007,303

29.24

NYSE (2)

111,419

0.08

-

-

40,453,406

31.54

40,564,825

14.82

Latibex (3)

-

-

-

-

84,402

0.07

84,402

0.03

Municipalities

178,393

0.12

9,326

2.44

3,471

-

191,190

0.07

Other shareholders

373,326

0.25

243,030

63.66

37,507

0.04

653,863

0.24

 

145,031,080

100.00

381,793

100.00

128,242,502

100.00

273,655,375

100.00

(1) São Paulo Stock, Commodities, and Futures Exchange

(2) New York Stock Exchange

(3) Latin American Exchange in Euros, related to the Madrid Exchange

The market value of Company stock as of December 31, 2012, is shown below:

 

 

 

 

Number of shares in units

Market Value

Common shares

145,031,080

3,654,835

Class "A" preferred shares

381,793

14,943

Class "B" preferred shares

128,242,502

4,051,814

 

273,655,375

7,721,592

 

F-78


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

Each common share entitles its holder to one vote in the general shareholders’ meetings. Preferred shares, which do not carry voting rights, are divided into classes A and B.

Class “A” preferred shares have priority in the reimbursement of capital and distribution of dividends of 10% p.y. (non cumulative), calculated proportionately to the capital represented by the shares of this class.

Class “B” preferred shares have priority in the reimbursement of capital and the right to the distribution of dividends, calculated as 25% of adjusted net income, pursuant to the corporate legislation and to the Company’s by-laws, calculated proportionately to the capital represented by the shares of this class. Class “B” shareholders have priority only over the common shareholders in the distribution of mandatory dividends, which shall only be paid out of the remaining net income after the payment of priority dividends to class “A” shareholders.

According to Article 17 and following paragraphs of Federal Law 6,404/76, dividends paid to preferred shares must be at least 10% higher than those paid to common shares.

29.1.2.   Profit reserves

 

 

 

 

12.31.2012

12.31.2011

Legal reserve

571,221

536,187

Profit retention reserve

3,337,295

2,838,551

Additional proposed dividends

64,474

84,875

 

3,972,990

3,459,613

 

The legal reserve is computed based of 5% of the net income for the fiscal year, before any distributions, limited to 20% of stock capital.

The profit retention reserve is designed to cover the Company’s expenditure program, pursuant to article 196 of the Brazilian Corporate Law. It is funded by retaining any remaining net income for the fiscal year, after the legal reserve and interest on capital are assigned.

The proposed additional dividend corresponds to the amount proposed by Copel’s senior management to the annual general meeting, exceeding the minimum mandatory dividends fixed in the Company bylaws. The value is kept in a specific reserve in the Company’s equity until definitive deliberation by the annual general meeting, when the value is then recognized as a debt and transferred to current liabilities.

29.1.3.   Equity Valuation Adjustments

The Company recognized the fair value adjustment of its property, plant and equipment of the date of the first-time adoption of the IFRSs. A counterpart entry to this adjustment, net of deferred income tax and social contribution, was recorded in the equity valuation adjustments account, under equity. The realization is accounted for in the profit retention reserve account, as depreciation and write-off of the property, plant, and equipment fair value adjustment are recorded to income.

The change in this account includes the adjustments resulting from changes in fair value of the financial assets classified as available for sale, which consist of other comprehensive income of the Company.

 

F-79


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Changes in the equity valuation adjustments

       

 

 

Accumulated

 

 

Equity

Other

 
 

Valuation

Comprehensive

 

 

Adjustments

Income

Total

Balance as of January 1, 2010

1,649,170

11,464

1,660,634

Adjustment rel. to financial assets classified as available for sale:

 

 

 

Accounts receivable related to the concession - Copel Distribuição

-

3,029

3,029

Taxes on gains on financial assets

-

(1,030)

(1,030)

Realization of equity evaluation adjustments:

 

 

-

Cost assigned - Copel Geração e Transmissão

(153,489)

-

(153,489)

Taxes on making adjustments

52,186

-

52,186

Cost assigned - Dominó Holdings

(2,748)

-

(2,748)

Taxes on making adjustments

934

-

934

Balance as of December 31, 2010

1,546,053

13,463

1,559,516

Adjustment rel. to financial assets classified as available for sale:

 

 

 

Financial Investments - Copel Geração e Transmissão

-

2,962

2,962

Taxes on gains on financial assets

-

(1,007)

(1,007)

Accounts receivable related to the concession - Copel Distribuição

-

(7,282)

(7,282)

Taxes on gains on financial assets

-

2,476

2,476

Financial Investments Held for Sale - Copel

-

5,647

5,647

Taxes on gains on financial assets

-

(1,920)

(1,920)

Realization of equity evaluation adjustments:

 

 

-

Cost assigned - Copel Geração e Transmissão

(154,400)

-

(154,400)

Taxes on making adjustments

52,496

-

52,496

Cost assigned - Dominó Holdings

(2,132)

-

(2,132)

Taxes on making adjustments

725

-

725

Balance as of December 31, 2011

1,442,742

14,339

1,457,081

Adjustment rel. to financial assets classified as available for sale:

 

 

 

Financial Investments - Copel Geração e Transmissão

-

398

398

Taxes on gains on financial assets

-

(135)

(135)

Financial Investments - Copel Distribuição

-

1,863

1,863

Taxes on gains on financial assets

-

(633)

(633)

Accounts receivable related to the concession - Copel Distribuição

-

(13,116)

(13,116)

Taxes on gains on financial assets

-

4,459

4,459

Financial Investments Held for Sale - Copel

-

406

406

Taxes on gains on financial assets

-

(139)

(139)

Other gains:

 

 

 

Other gains - Elejor

-

3,164

3,164

Taxes on gains on financial assets

-

(1,076)

(1,076)

Realization of equity valuation adjustments:

 

 

 

Cost assigned - Copel Geração e Transmissão

(153,044)

-

(153,044)

Taxes on making adjustments

52,035

-

52,035

Cost assigned - Dominó Holdings

(962)

-

(962)

Taxes on making adjustments

327

-

327

Attributable to non-controlling interest

-

(626)

(626)

Balance as of December 31, 2012

1,341,098

8,904

1,350,002

 

F-80


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

29.1.4   Proposed dividends distribution

 

 

 

 

12.31.2012

12.31.2011

Calculation of the minimum dividend (25%) - (1)

 

 

Net income

700,688

1,157,690

Legal reserves (5%)

(35,034)

(57,885)

Realization of equity valuation adjustment

101,644

103,311

Basis for calculating minimum dividend

767,298

1,203,116

 

191,824

300,779

 

 

 

Proposed dividends, net - (2)

 

 

Interest on ow n capital

138,072

421,091

IRRF tax interest on equity

(12,256)

(35,437)

 

125,816

385,654

 

 

 

Proposed dividends - (3)

130,482

-

 

 

 

Total proposed distribution - (4) (2+3)

256,298

-

 

 

 

Additional proposed dividends (4-1)

64,474

84,875

 

 

 

Gross dividend per share:

 

 

Common shares

0.9353

1.4683

Class "A" preferred shares

2.5251

2.5251

Class "B" preferred shares

1.0289

1.6155

 

 

 

Gross amount of dividends per share classes:

 

 

Common shares

135,643

212,954

Class "A" preferred shares

964

970

Class "B" preferred shares

131,947

207,167

 

The basis for calculation of dividends, which until 2009 reflected the adjusted net income for the period pursuant to the Brazilian Corporate Law, beginning in 2010 and forward is increased in the same proportion of the realization of the equity evaluation adjustments account.

In 2012, while recording net income of R$ 700,688, the Company distributed R$ 138,072 as interest on own capital. The total amount of interest on own capital was paid as minimum dividends payable.

29.1.5.   Basic and diluted earnings per share

 

     

12.31.2012

12.31.2011

12.31.2010

Basic and diluted numerator

 

 

 

 

Basic and diluted net income per share category, attributable to parent company

 

 

 

   

Class "A" preferred shares

1,600

2,064

2,050

   

Class "B" preferred shares

344,705

569,817

486,044

   

Common shares

354,383

585,809

499,713

     

700,688

1,157,690

987,807

Basic and diluted denominator

 

 

 

 

Weighted average number of shares (in thousands)

 

 

 

   

Class "A" preferred shares

383,303

387,134

393,683

   

Class "B" preferred shares

128,240,992

128,237,161

128,230,612

   

Common shares

145,031,080

145,031,080

145,031,080

     

273,655,375

273,655,375

273,655,375

Basic and diluted earning per share attibutable to Parent Company

 

 

 

   

Class "A" preferred shares

4.1742

5.3315

5.2075

   

Class "B" preferred shares

2.6879

4.4435

3.7904

 

 

Common shares

2.4435

4.0392

3.4456

The weighted average amount of common shares used in the calculation of the basic earnings per share is reconciled with the weighted average amount of common shares used in the calculation of diluted earnings per share, since there are no financial instruments with diluting potential.

 

 

F-81


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

29.2.                   Change in equity attributable to non-controlling interest

         

 

Compagas

Elejor

UEG Araucária

 

 

49%

30%

20%

 

As of January 1, 2010

91,478

6,634

130,253

228,365

Resources for Afac

-

30,813

-

30,813

Proposed dividends

(15,949)

-

-

(15,949)

Results for the year

19,864

4,017

(1,407)

22,474

Balance as of December 31, 2010

95,393

41,464

128,846

265,703

Reimbursement of advance for future capital increase - AFAC

-

(30,813)

-

(30,813)

Proposed dividends

(10,109)

(1,111)

-

(11,220)

Results for the year

15,891

4,675

(1,402)

19,164

Balance as of December 31, 2011

101,175

14,215

127,444

242,834

Proposed dividends

(2,415)

(2,371)

-

(4,786)

Equity Valuation Adjustment

-

626

-

626

Results for the year

10,170

9,989

5,673

25,832

Balance as of December 31, 2012

108,930

22,459

133,117

264,506

30.           Operating Revenue

 

 

Gross

PIS/Pasep

 

Regulatory

Service tax

Net

 

revenues

& Cofins taxes

ICMS (VAT)

charges (30.5)

(ISSQN )

revenues

 

 

 

 

 

 

12.31.2012

Electricity sales to final customers (30.1)

4,226,962

(391,587)

(1,170,153)

(39,713)

-

2,625,509

Electricity sales to distributors (30.2)

1,865,708

(178,943)

(195)

(63,063)

-

1,623,507

Use of the main distribution and transmission grid (30.3)

5,178,302

(467,475)

(1,205,203)

(674,523)

-

2,831,101

Construction revenues

788,260

-

-

-

-

788,260

Revenues from telecommunications

163,961

(8,701)

(29,244)

-

(451)

125,565

Distribution of piped gas

413,012

(37,969)

(50,031)

-

-

325,012

Other operating revenues (30.4)

240,863

(26,140)

-

-

(1,460)

213,263

 

12,877,068

(1,110,815)

(2,454,826)

(777,299)

(1,911)

8,532,217

 

 

Gross

PIS/Pasep

 

Regulatory

Service tax

Net

 

revenues

& Cofins taxes

ICMS (VAT)

charges (30.5)

(ISSQN )

revenues

 

 

 

 

 

 

12.31.2011

Electricity sales to final customers (30.1)

3,673,054

(340,261)

(972,849)

(29,116)

-

2,330,828

Electricity sales to distributors (30.2)

1,659,996

(158,771)

(399)

(60,995)

-

1,439,831

Use of the main distribution and transmission grid (30.3)

5,201,169

(472,181)

(1,278,736)

(687,884)

-

2,762,368

Construction revenues

741,726

-

-

-

-

741,726

Revenues from telecommunications

152,117

(9,144)

(25,285)

-

(562)

117,126

Distribution of piped gas

349,801

(31,934)

(43,926)

-

(8)

273,933

Other operating revenues (30.4)

133,473

(12,858)

(1)

(9,213)

(1,048)

110,353

 

11,911,336

(1,025,149)

(2,321,196)

(787,208)

(1,618)

7,776,165


 

Gross

PIS/Pasep

 

Regulatory

Service tax

Net

 

revenues

& Cofins taxes

ICMS (VAT)

charges (30.5)

(ISSQN )

revenues

 

 

 

 

 

 

12.31.2010

Electricity sales to final customers (30.1)

3,517,008

(327,156)

(948,563)

(27,886)

-

2,213,403

Electricity sales to distributors (30.2)

1,488,178

(145,462)

(392)

(54,323)

-

1,288,001

Use of the main distribution and transmission grid (30.3)

4,295,275

(395,817)

(1,057,679)

(569,358)

-

2,272,421

Construction revenues

663,534

-

-

-

-

663,534

Revenues from telecommunications

129,040

(7,385)

(22,925)

-

(848)

97,882

Distribution of piped gas

300,598

(25,341)

(37,853)

-

(132)

237,272

Other operating revenues (30.4)

152,414

(14,043)

(3)

(8,808)

(960)

128,600

 

10,546,047

(915,204)

(2,067,415)

(660,375)

(1,940)

6,901,113

 

 

F-82


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

30.1.                   Electric power sales to final customers

             

Electric power supply

                  

 

 

Gross income

 

Net income

 

12.31.2012

12.31.2011

12.31.2010

12.31.2012

12.31.2011

12.31.2010

Residential

1,302,177

1,223,657

1,156,856

782,292

771,674

723,479

Industrial

1,493,166

1,224,103

1,200,225

926,562

757,293

730,526

Commercial, services and other activities

950,689

807,489

760,206

573,831

498,948

467,657

Rural

177,083

158,644

146,606

148,869

134,124

126,876

Public agencies

114,038

104,218

102,035

79,149

73,870

72,379

Public lighting

92,450

77,049

78,226

56,242

47,062

47,798

Public services

97,359

77,894

72,854

58,564

47,857

44,688

 

4,226,962

3,673,054

3,517,008

2,625,509

2,330,828

2,213,403

 

30.2.                   Eletricity sale to distributors

 

 

 

Gross income

 

12.31.2012

12.31.2011

12.31.2010

Agreements for Power Trade on the Regulated Market - CCEAR (auction)

1,335,263

1,280,176

1,151,485

Bilateral contracts

295,049

237,279

223,788

Electric Energy Trading Chamber - CCEE

235,396

142,541

112,905

 

1,865,708

1,659,996

1,488,178

 

30.3.                   Use of the main distribution and transmission grid

             

Availability of grid

 

 

 

 

 

 

 

 

Gross income

 

Net income

 

12.31.2012

12.31.2011

12.31.2010

12.31.2012

12.31.2011

12.31.2010

Residential

1,657,936

1,606,837

1,336,081

830,282

785,887

661,684

Industrial

1,222,544

1,413,901

1,227,069

576,406

670,214

566,617

Commercial, services and other activities

1,104,355

1,106,635

892,046

564,262

541,595

437,526

Rural

230,829

217,114

170,367

165,591

154,700

126,876

Public agencies

143,238

142,898

119,089

83,875

82,594

69,181

Public lighting

110,562

110,302

91,341

53,448

53,118

44,175

Public services

102,408

106,806

85,146

50,700

51,809

41,406

Free costumers

204,768

197,789

181,323

156,469

150,725

156,278

Basic Network, BN connections, and connection grid

2,520

2,367

2,856

1,925

1,804

2,185

Operation and maintenance (O&M) revenues

52,048

44,584

42,952

46,693

40,584

37,646

Effective interest revenues

347,094

251,936

147,005

301,450

229,338

128,847

 

5,178,302

5,201,169

4,295,275

2,831,101

2,762,368

2,272,421

30.4.                   Other operating revenues

 

 

Gross income

 

12.31.2012

12.31.2011

12.31.2010

Leases and rents (Note 34.2)

162,989

88,909

103,686

Revenues from services

53,085

37,975

39,669

Charged service

8,214

5,306

7,422

Other revenues

16,575

1,283

1,637

 

240,863

133,473

152,414

       

30.5.                   Regulatory Charges

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Fuel Consumptuon Account (CCC)

289,686

348,374

281,152

Energy Development Account (CDE)

282,683

249,799

226,845

Global Reversal Reserve (RGR)

114,949

107,105

78,445

Research and Development and Energy Efficiency Programs - R&D and EEP (Note 25.2)

74,319

68,048

61,157

Other charges

15,662

13,882

12,776

 

777,299

787,208

660,375

 

F-83


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

31.           Operating Costs and Expenses

 

Costs of

 

General and

Other

 

Nature of costs and expenses

goods and/or

Sales

administrative

rev. (exp.),

Total

 

services

expenses

expenses

net

 
   

 

 

 

12.31.2012

Electricity purchased for resale (31.1)

(2,807,735)

-

-

-

(2,807,735)

Use of the main distribution and transmission grid (31.2)

(772,361) 

-

-

-

(772,361)

Personnel and management (31.3)

(944,913)

(8,910)

(292,776)

-

(1,246,599)

Pension and healthcare plans (Note 23)

(141,368) 

(996)

(40,514)

-

(182,878)

Materials and supplies

(60,798)

(716)

(8,302)

-

(69,816)

Materials and supplies for power eletricity

(25,511) 

-

-

-

(25,511)

Natural gas and supplies for the gas business

(247,770) 

-

-

-

(247,770)

Third-party services (31.4)

(291,048)

(38,614)

(80,397)

-

(410,059)

Depreciation and amortization

(508,887)

(42)

(40,176)

(1,483)

(550,588)

Accruals and provisions (31.5)

-

(22,826)

-

(195,970)

(218,796)

Construction cost (31.6)

(771,912)

-

-

-

(771,912)

Other costs and expenses (31.7)

(6,668)

6,445

(82,663)

(155,827)

(238,713)

 

(6,578,971)

(65,659)

(544,828)

(353,280)

(7,542,738)

 

 

Costs of

 

General and

Other

 

Nature of costs and expenses

goods and/or

Sales

administrative

rev. (exp.),

Total

 

services

expenses

expenses

net

 

 

 

 

 

 

12.31.2011

Electricity purchased for resale (31.1)

(2,152,545)

-

-

-

(2,152,545)

Use of the main distribution and transmission grid (31.2)

(632,518)

-

-

-

(632,518)

Personnel and management (31.3)

(753,022)

(7,747)

(221,884)

-

(982,653)

Pension and healthcare plans (Note 23)

(117,460)

(804)

(32,581)

-

(150,845)

Materials and supplies

(76,213)

(594)

(8,803)

-

(85,610)

Materials and supplies for power eletricity

(25,031)

-

-

-

(25,031)

Natural gas and supplies for the gas business

(186,931)

-

-

-

(186,931)

Third-party services (31.4)

(267,603)

(32,882)

(90,948)

-

(391,433)

Depreciation and amortization

(519,536)

(41)

(32,104)

(1,484)

(553,165)

Accruals and provisions (31.5)

-

(75,556)

-

(214,099)

(289,655)

Construction cost (31.6)

(731,443)

-

-

-

(731,443)

Other costs and expenses (31.7)

5,287

3,860

(75,132)

(224,857)

(290,842)

 

(5,457,015)

(113,764)

(461,452)

(440,440)

(6,472,671)


 

Costs of

Sales

General and

Other

 

Nature of costs and expenses

goods and/or

expenses

administrative

rev. (exp.),

 

 

services

 

expenses

net

Total

 

 

 

 

 

12.31.2010

Electricity purchased for resale (31.1)

(1,972,275)

-

-

-

(1,972,275)

Use of main distribution and transmission grid (31.2)

(592,741)

-

-

-

(592,741)

Personnel and management (31.3)

(634,277)

(5,805)

(171,432)

-

(811,514)

Pension and healthcare plans (Note 23)

(97,528)

(666)

(26,027)

-

(124,221)

Materials and supplies

(75,533)

(977)

(7,614)

-

(84,124)

Materials and supplies for power eletricity

(22,975)

-

-

-

(22,975)

Natural gas and supplies for the gas business

(144,648)

-

-

-

(144,648)

Third-party services (31.4)

(245,232)

(33,557)

(72,117)

-

(350,906)

Depreciation and amortization

(511,491)

(53)

(27,618)

(3,830)

(542,992)

Accruals and provisions (31.5)

-

(26,424)

-

(336,352)

(362,776)

Construction cost (31.6)

(662,887)

-

-

-

(662,887)

Other costs and expenses (31.7)

(16,556)

5,016

(48,818)

(235,726)

(296,084)

 

(4,976,143)

(62,466)

(353,626)

(575,908)

(5,968,143)

           

 

 

F-84


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

31.1.                   Electricity purchased for resale

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Contracts for the Sale of Energy in the Regulated Environment - CCEAR

1,927,903

1,585,932

1,370,709

Itaipu Binacional

503,335

459,649

468,296

Electric Energy Trading Chamber - CCEE

312,125

43,947

58,446

Program for incentive to alternative energy sources - Proinfa

143,587

102,638

105,972

Bilateral contracts

203,115

192,082

179,002

(-) PIS/Pasep/Cofins taxes on electricity purchased for resale

(282,330)

(231,703)

(210,150)

 

2,807,735

2,152,545

1,972,275

 

31.2.                   Use of the main distribution and transmission grid

 

 

 

 
 

12.31.2012

12.31.2011

12.31.2010

System usage charges – distribution

544,597

412,383

366,820

System usage charges – basic network and connection

145,099

221,655

211,095

System Service Charges - ESS

75,485

10,988

41,021

Charge reserve energy - EER

49,228

16,456

-

Itaipu transportation charges

45,217

42,109

39,671

(-) PIS/Pasep/Cofins taxes on charges for use of power grid

(87,265)

(71,073)

(65,866)

 

772,361

632,518

592,741

31.3.                   Personnel and Management

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Personnel

 

 

 

Wages and salaries

808,468

717,796

561,842

Social charges on payroll

271,471

221,216

186,042

 

1,079,939

939,012

747,884

Provisions for profit sharing (31.3.1)

29,940

48,068

66,151

Meal assistance and education allowance

90,498

74,998

66,511

Compensation - Voluntary termination Program/retirement (31.3.2)

168,822

64,442

19,737

 

1,369,199

1,126,520

900,283

(-) Transfers to construction in progress

(138,008)

(155,394)

(99,650)

 

1,231,191

971,126

800,633

Management

 

 

 

Wages and salaries

12,073

9,560

8,898

Social charges on payroll

3,228

1,875

1,959

Other expenses

107

92

24

 

15,408

11,527

10,881

 

1,246,599

982,653

811,514

31.3.1.   Profit sharing

The Company has carried out an employee profit sharing program, which is paid according to Federal Law – 10,101/2000, the State Decree 1,978/2007 and State Law 16,560/2010. The shared amount has been accrued as follows:

  

12.31.2012

12.31.2011

12.31.2010

Copel Geração e Transmissão

5,594

9,109

14,373

Copel Distribuição

21,389

35,162

46,950

Copel Telecomunicações

1,464

2,729

3,900

Compagas

1,493

1,068

928

 

29,940

48,068

66,151

 

 

F-85


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

31.3.2.   Provision for compensation for voluntary redundancy and retirement

Copel established the program for succession and voluntary redundancy (PSDV) on March 29, 2011 as well as the program for training potential leaders (MBA) as a way of establishing procedures to ensure the retention of the company’s knowledge in a planned and structured way, to encourage the preparation of its staff for exercising leadership.

However, given the changes that have occurred in the the Brazilian scenario, especially with MP 579/2012, and its developments, which have  greatly affected the Company’s finances, Management demanded, among other measures, the extinction of the program for succession and voluntary redundancy (PSDV), from January 01, 2013. This decision by Management was communicated in advance to the employees, permitting adherence until the end of December 2012.

31.4.                   Third-party services

 

 

 

 
 

12.31.2012

12.31.2011

12.31.2010

Maintenance of electrical system

104,966

90,536

91,053

Maintenance of facilities

73,841

67,326

56,513

Communication, processing and transmission of data

48,948

55,274

49,845

Meter reading and bill delivery

35,744

29,898

28,168

Authorized and registered agents

32,201

27,108

24,359

Consulting and audit

26,848

24,732

27,360

Other services

87,511

96,559

73,609

 

410,059

391,433

350,907

 

31.5.                   Accruals and provisions

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Provisions (reversals) for doubtful accounts

 

 

 

Trade account receivable

21,782

77,184

26,240

Other receivables

1,044

(1,628)

184

 

22,826

75,556

26,424

.

 

 

 

Provisions (reversals) for losses on taxes recoverable

(3,135)

46,802

-

Provision for devaluation of ownership interest

-

398

2,114

 

 

 

 

Reserve (reversals) for risks (Note 28)

 

 

 

Cofins

8,568

-

234,563

Tax

11,371

(38,689)

3,397

Labor

45,966

2,611

33,915

Employee benefits

33,796

21,289

28,053

Suppliers

(19,373)

1,902

2,077

Civil and administrative claims

73,843

49,075

22,175

Easement of necessity

1,139

(3,732)

(5,667)

Expropriation and equity

38,906

124,874

7,440

Customers

1,984

207

136

Environmental

89

62

32

Regulatory

2,816

9,300

8,117

 

199,105

166,899

334,238

 

218,796

289,655

362,776

 

F-86


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

31.6.                   Construction cost

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Materials and supplies

378,523

415,098

390,478

Third-party services

268,747

205,757

161,880

Personnel and management

82,967

80,825

59,305

Other

41,675

29,763

51,224

 

771,912

731,443

662,887

 

31.7.                   Other operating costs and expenses

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Financial compensation for use of water resources

94,550

125,343

112,210

Taxes

27,802

18,103

16,548

Indemnities

28,001

35,880

17,917

Leases and rents (Note 34.1)

27,368

18,380

16,670

ANEEL inspection fee

21,938

20,125

19,988

Other maintenance county

13,650

1,420

21,333

Sports incentives, Rouanet Law and fund for the rights of children and teenagers - FIA

12,081

15,420

7,083

Advertising

9,853

4,767

4,340

Losses in the decommissioning and disposal of assets

6,147

54,285

50,203

Recovery of costs and expenses

(61,902)

(40,175)

(42,209)

Other costs and expenses, net

59,225

37,294

72,001

 

238,713

290,842

296,084

32.           Financial Results

 

 

 

 
 

12.31.2012

12.31.2011

12.31.2010

Financial income

 

 

 

Monetary variation and return of CRC transfer (Note 8)

188,688

148,950

215,714

Monetary variation of receivables related to concession

165,574

100,381

151,187

Penalties on overdue bills

127,041

63,652

70,985

Return on financial investments held for trading

75,027

210,253

153,870

Return on financial investments held for sale

38,938

15,660

8,942

Return on financial investments held until maturity

109

2,808

5,104

Interest and commissions on loan agreements

-

-

-

Other financial income

53,561

35,828

46,429

 

648,938

577,532

652,231

(-) Financial expenses

 

 

 

Fair value update of accounts receivable related to the concession (Note 9.2)

401,104

-

 

Debt charges

133,396

141,327

105,118

Monetary variation of payables related to concession - use of public property

74,984

71,383

55,501

PIS/Pasep/Cofins taxes on interest on capital

24,581

43,740

32,506

Interest on R&D and EEP

14,745

18,666

19,285

Monetary and exchange variations

13,819

17,821

23,193

Other financial expenses

14,130

59,827

68,203

 

676,759

352,764

303,806

 

(27,821)

224,768

348,425

 

 

F-87


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

The costs of loans and financing capitalized during the year of 2012 amounted to R$ 70,304, at an average rate of 10.22% p.y.

33.           Operating Segments

33.1.                   Products and services which generate revenues for the reportable segments

The Company operates in five reportable segments identified by management, through the chief offices 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 requires different technologies and strategies.

In the periods of 2012 and 2011 all sales were made within Brazilian territory.

We have not identified any customer who individually accounts for more than 10% of total net revenues during the year ended December 31, 2012.

The Company evaluates the performance of each segment based on information derived from accounting records.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies and record transactions between segments as transactions with third-parties, i.e., at current market prices.

33.2.                   The Company’s reporting segments

Power generation and transmission (GeT) - this segment comprises the generation of electric energy from hydraulic, wind, and thermal projects, the transport and transformation of the power generated by the Company, and the construction, operation, and maintenance of all power transmission substations and lines. This segment operates through Copel Geração e Transmissão, Elejor, UEG Araucária, Centrais Eólicas do Paraná, Costa Oeste, Marumbi, Sul Brasileira, Cutia, Integração Maranhense, Matrinchã and Guaraciaba;

Power distribution and sales (DIS) - this segment comprises the distribution and sale of electric energy, the operation and maintenance of the distribution infrastructure, and related services. It operates through Copel Distribuição;

Telecommunications (TEL) - this segment comprises telecommunications and general communications services. It operates through Copel Telecomunicações;

Gas - this segment comprises the public service of piped natural gas distribution. It operates through Compagas; and

Holding Company (HOL) - this segment comprises participation in other companies. It operates through Copel and Dominó Holdings.

 

F-88


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

33.3.                   Assets per reporting segment

ASSETS

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

12.31.2012

ASSETS

11,032,526

8,812,803

428,216

289,363

14,164,442

(13,515,796)

21,211,554

CURRENT ASSETS

1,529,485

2,876,268

64,848

86,793

1,233,713

(1,091,852)

4,699,255

Cash and cash equivalents

260,774

1,126,361

26,689

35,993

33,320

-

1,483,137

Financial investments - securities and bonds

476,488

158,837

-

-

176

-

635,501

Collaterals and escrow accounts

1,433

34,293

-

1,086

-

-

36,812

Trade accounts receivable

283,750

1,200,251

18,649

40,092

-

(53,569)

1,489,173

Dividends to receive

-

-

-

-

1,048,142

(1,038,587)

9,555

CRC tranferred to State Government of Paraná

-

75,930

-

-

-

-

75,930

Receivable related to concession

5,319

-

-

-

-

-

5,319

Receivable related to the concession extension

356,085

-

-

-

-

-

356,085

Other receivables

105,123

126,686

2,437

716

15

304

235,281

Inventories

28,299

84,995

10,645

870

-

-

124,809

Income tax and social contribution

1,828

35,868

3,413

-

152,049

-

193,158

Other current recoverable taxes

7,481

31,460

2,671

7,868

11

-

49,491

Prepaid expenses

2,905

1,587

344

168

-

-

5,004

NON-CURRENT ASSETS

9,503,041

5,936,535

363,368

202,570

12,930,729

(12,423,944)

16,512,299

Long term assets

1,242,311

4,626,774

23,253

18,022

1,541,042

(1,148,498)

6,302,904

Financial investments - securities and bonds

92,827

35,688

-

-

-

-

128,515

Collaterals and escrow accounts

-

43,246

-

-

-

-

43,246

Trade accounts receivable

-

26,172

-

5,266

-

(5,267)

26,171

CRC tranferred to State Government of Paraná

-

1,308,354

-

-

-

-

1,308,354

Judicial deposits

24,634

276,541

1,036

302

271,960

-

574,473

Receivable related to concession

301,530

2,383,262

-

-

-

-

2,684,792

Receivable related to the concession extension

717,805

-

-

-

-

-

717,805

Advances to suppliers

-

-

-

12,279

-

-

12,279

Other non-currentreceivables

6,413

4,036

-

-

-

-

10,449

Income tax and social contribution

19,995

-

-

-

-

-

19,995

Other non-currentrecoverable taxes

50,794

60,663

8,732

-

-

-

120,189

Deferred Income tax and social contribution

28,313

488,812

13,485

-

117,194

-

647,804

Prepaid expenses

-

-

-

175

-

8,657

8,832

Receivable from other related parties

-

-

-

-

1,151,888

(1,151,888)

-

Investments

448,130

4,012

-

-

11,389,683

(11,298,789)

543,036

Property, plant and equipment, net

7,552,704

-

319,141

-

4

-

7,871,849

Intangible assets

259,896

1,305,749

20,974

184,548

-

23,343

1,794,510

 

 

 

 

 

 

 

 

 

 

 

F-89


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

ASSETS

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

12.31.2011

ASSETS

10,032,729

7,563,936

353,370

276,164

13,671,896

(13,056,076)

18,842,019

CURRENT ASSETS

1,317,300

2,150,339

44,395

77,320

1,316,627

(1,203,968)

3,702,013

Cash and cash equivalents

323,713

647,783

8,348

41,047

28,234

-

1,049,125

Financial investments - securities and bonds

548,071

33,735

-

48

165

-

582,019

Collaterals and escrow accounts

1,957

5

-

706

-

-

2,668

Trade accounts receivable

265,833

1,104,328

18,253

32,715

-

(52,763)

1,368,366

Dividends to receive

-

-

-

-

1,168,612

(1,150,706)

17,906

CRC tranferred to State Government of Paraná

-

65,862

-

-

-

-

65,862

Receivable related to concession

80,626

-

-

-

-

-

80,626

Other receivables

64,812

95,030

1,098

540

332

(499)

161,313

Inventories

23,717

69,579

9,015

1,491

-

-

103,802

Income tax and social contribution

4,654

87,484

3,958

1

119,284

-

215,381

Other current recoverable taxes

1,553

44,871

3,369

564

-

-

50,357

Prepaid expenses

2,364

1,662

354

208

-

-

4,588

NON-CURRENT ASSETS

8,715,429

5,413,597

308,975

198,844

12,355,269

(11,852,108)

15,140,006

Long term assets

1,134,596

4,163,071

18,403

23,008

1,476,718

(1,155,928)

5,659,868

Financial investments - securities and bonds

61,931

658

-

-

-

-

62,589

Collaterals and escrow accounts

-

37,553

-

-

-

-

37,553

Trade accounts receivable

-

32,363

89

10,534

-

(10,534)

32,452

CRC tranferred to State Government of Paraná

-

1,280,598

-

-

-

-

1,280,598

Judicial deposits

20,693

185,994

885

301

222,944

-

430,817

Receivable related to concession

1,011,271

2,225,203

-

-

-

-

3,236,474

Advances to suppliers

-

-

-

11,982

-

-

11,982

Other non-current receivables

1,878

3,172

-

191

-

-

5,241

Income tax and social contribution

18,714

-

-

-

-

-

18,714

Other non-current recoverable taxes

3,967

64,827

9,118

-

-

-

77,912

Deferred Income tax and social contribution

16,142

332,703

8,311

-

108,380

-

465,536

Receivable from other related parties

-

-

-

-

1,145,394

(1,145,394)

-

Investments

386,873

4,012

-

-

10,878,551

(10,720,278)

549,158

Property, plant and equipment, net

6,935,336

-

273,787

-

-

-

7,209,123

Intangible assets

258,624

1,246,514

16,785

175,836

-

24,098

1,721,857

 

 

F-90


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

33.4.                   Liabilities per reporting segment

LIABILITIES

12.31.2012

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

TOTAL LIABILITIES

11,032,526

8,812,803

428,216

289,363

14,164,442

(13,515,796)

21,211,554

CURRENT LIABILITIES

1,580,667

1,970,456

53,612

60,464

277,765

(1,095,146)

2,847,818

Payroll and labor provisions

110,650

243,128

25,393

4,333

646

-

384,150

Suppliers

432,595

694,903

14,481

45,873

1,644

(53,137)

1,136,359

Income tax and social contribution

163,724

-

-

3,214

3,251

-

170,189

Other taxes

55,130

205,330

4,492

1,934

24,121

(111)

290,896

Loans and financing

71,654

164,788

53

-

28,106

(3,311)

261,290

Debentures

-

12,719

-

-

-

-

12,719

Dividends payable

639,420

371,863

7,982

4,929

219,173

(1,038,587)

204,780

Post employment benefits

6,908

18,004

903

-

4

-

25,819

Customer charges payable

7,236

49,262

-

-

-

-

56,498

Research and development and energy efficiency

16,663

142,936

-

-

-

-

159,599

Payable related to concession - use of public property

48,477

-

-

-

-

-

48,477

Other accounts payable

28,210

67,523

308

181

820

-

97,042

NON-CURRENT LIABILITIES

2,460,329

3,240,827

47,598

6,594

1,274,016

(1,163,126)

5,866,238

Associated and subsidiary companies

250,593

851,237

-

-

-

(1,101,830)

-

Suppliers

106,263

-

-

-

-

(5,267)

100,996

Deferred Income tax and social contribution

612,985

-

-

2,939

-

-

615,924

Loans and financing

438,396

609,941

25,559

-

971,721

(56,029)

1,989,588

Debentures

-

997,958

-

-

-

-

997,958

Post employment benefits

134,962

343,584

21,070

2,807

-

-

502,423

Research and development and energy efficiency

43,350

61,211

-

-

-

-

104,561

Payable related to concession - use of public property

399,080

-

-

-

-

-

399,080

Other accounts payable

-

-

-

-

-

-

-

Provisions for legal claims

474,700

376,896

969

848

302,295

-

1,155,708

EQUITY

6,991,530

3,601,520

327,006

222,305

12,612,661

(11,257,524)

12,497,498

Capital

4,285,317

2,624,841

240,398

135,943

7,023,368

(7,399,867)

6,910,000

Equity valuation adjustments

1,342,087

1,230

-

-

1,353,318

(1,346,633)

1,350,002

Legal reserve

249,582

135,294

6,706

17,295

590,286

(427,942)

571,221

Profit retention reserve

1,158,223

840,155

79,902

62,115

3,369,128

(2,391,267)

3,118,256

Unrealized income reserve

-

-

-

6,952

212,087

-

219,039

Accumulated income (losses)

(43,679)

-

-

-

-

43,679

-

Attributable to non controlling interest

 

 

 

 

 

264,506

264,506

 

 

 

 

 

 

 

 

 

 

F-91


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

 

 

 

 

 

 

 

LIABILITIES

12.31.2011

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

10,032,729

7,563,936

353,370

276,164

13,671,896

(13,056,076)

18,842,019

CURRENT LIABILITIES

1,210,466

1,708,165

47,532

62,991

238,119

(1,208,452)

2,058,821

Payroll and labor provisions

56,533

151,184

13,490

2,734

154

-

224,095

Suppliers

217,291

531,187

7,000

43,054

2,073

(53,152)

747,453

Income tax and social contribution

140,335

-

-

7,526

3,929

-

151,790

Other taxes

26,023

214,128

4,390

1,788

42,238

(110)

288,457

Loans and financing

59,152

17,619

-

48

44,152

(4,484)

116,487

Debentures

-

-

-

-

-

-

-

Dividends payable

-

-

-

-

-

-

-

Minimum dividends payable

604,361

508,695

20,649

7,702

145,043

(1,150,706)

135,744

Post employment benefits

9,785

24,612

1,640

-

-

-

36,037

Customer charges payable

4,047

66,464

-

-

-

-

70,511

Research and development and energy efficiency

15,997

140,918

-

-

-

-

156,915

Payable related to concession - use of public property

44,656

-

-

-

-

-

44,656

Other accounts payable

32,286

53,358

363

139

530

-

86,676

NON-CURRENT LIABILITIES

2,389,257

2,189,936

41,098

6,693

1,261,130

(1,174,444)

4,713,670

Associated and subsidiary companies

305,936

781,031

23,000

-

-

(1,109,967)

-

Suppliers

118,996

-

-

-

-

(10,534)

108,462

Taxes

152

-

-

-

-

-

152

Deferred Income tax and social contribution

643,149

-

-

5,117

-

-

648,266

Loans and financing

437,549

708,607

-

-

965,772

(53,943)

2,057,985

Post employment benefits

117,851

295,899

17,883

1,205

-

-

432,838

Research and development and energy efficiency

34,523

60,126

-

-

-

-

94,649

Payable related to concession - use of public property

370,442

-

-

-

-

-

370,442

Other accounts payable

-

-

-

53

-

-

53

Provisions for legal claims

360,659

344,273

215

318

295,358

-

1,000,823

EQUITY

6,433,006

3,665,835

264,740

206,480

12,172,647

(10,673,180)

12,069,528

Capital

4,256,839

2,624,841

194,755

135,943

7,023,368

(7,325,746)

6,910,000

Equity valuation adjustments

1,440,745

8,657

-

-

1,461,032

(1,453,353)

1,457,081

Legal reserve

212,887

135,294

5,306

16,258

552,734

(386,292)

536,187

Profit retention reserve

157,491

883,575

62,685

54,279

2,858,739

(1,178,218)

2,838,551

Unrealized income reserve

 

 

 

 

191,899

(191,899)

-

Accumulated income (losses)

(70,534)

-

-

-

-

70,534

-

Attributable to non controlling interest

-

-

-

-

-

242,834

242,834

 

F-92


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

33.5.                   Statement of income per reporting segment

STATEMENT OF INCOME

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

12.31.2012

OPERATING REVENUES 

2,579,850

5,892,171

172,445

359,090

-

(471,339)

8,532,217

Electricity sales to final customers - third-parties

137,990  

2,487,519

-

-

-

-

2,625,509

Electricity sales to final customers - between segments

-

3,119

-

-

-

(3,119)

-

Electricity sales to distributors - third-parties

1,468,044

155,463

-

-

-

-

1,623,507

Electricity sales to distributors - between segments

302,583

-

-

-

-

(302,583)

-

Use of the main distribution and transmission grid - third-parties

348,142

2,482,959

-

-

-

-

2,831,101

Use of the main distribution and transmission grid - between segments

96,979

17,116

-

-

-

(114,095)

-

Construction revenues

98,474

665,601

-

24,185

-

-

788,260

Telecommunications services to third-parties

-

-

125,565

-

-

-

125,565

Telecommunications services between segments

-

-

41,148

-

-

(41,148)

-

Distribution of piped gas

-

-

-

325,012

-

-

325,012

Other operating revenues from third-parties

121,675

80,394

1,301

9,893

-

-

213,263

Other operating revenues between segments

5,963

-

4,431

-

-

(10,394)

-

OPERATIONAL COST AND EXPENSES

(1,535,252)

(5,968,827)

(139,403)

(332,128)

(38,512)

471,384

(7,542,738)

Electricity purchased for resale

(170,806)

(2,939,447)

-

-

-

302,518

(2,807,735)

Charges for the use of the powergrid

(233,983)

(648,501)

-

-

-

110,123

(772,361)

Personnel and management

(322,164)

(824,102)

(70,253)

(19,891)

(10,189)

-

(1,246,599)

Pension and healthcare plans

(44,315)

(126,187)

(8,591)

(3,039)

(746)

-

(182,878)

Materials and supplies

(18,274)

(48,296)

(1,800)

(1,413)

(33)

-

(69,816)

Raw materials and supplies for generation

(25,511) 

-

-

-

-

-

(25,511)

Natural gas and supplies for gas business

-

-

-

(247,770)

-

-

(247,770)

Third party services

(111,530)

(320,135)

(17,280)

(14,206)

(4,404)

57,496

(410,059)

Depreciation and amortization

(314,971)

(192,344)

(28,019)

(13,769)

(1,485)

-

(550,588)

Provisions and reversals

(80,212)

(118,986)

(4,316)

(1,086)

(14,196)

-

(218,796)

Construction cost

(82,126)

(665,601)

-

(24,185)

-

-

(771,912)

Other operating costs and expenses

(131,360)

(85,228)

(9,144)

(6,769)

(7,459)

1,247

(238,713)

EQUITY IN RESULTS SUBSIDIARIES

16,041

-

-

-

785,626

(790,627)

11,040

PROFIT BEFORE FINACIAL RESULTS AND TAXES

1,060,639

(76,656)

33,042

26,962

747,114

(790,582)

1,000,519

Financial income (expenses)

(41,087)

5,644

3,444

4,769

(546)

(45)

(27,821)

OPERATING INCOME (LOSSES)

1,019,552

(71,012)

36,486

31,731

746,568

(790,627)

972,698

Income tax and social contribution

(302,346)

(124,691)

(13,653)

(13,155)

(4,467)

-

(458,312)

Deferred income tax and social contribution

43,546

152,283

5,174

2,178

8,953

-

212,134

NET INCOME (LOSSES) FOR THE YEAR

760,752

(43,420)

28,007

20,754

751,054

(790,627)

726,520

 

 

 

 

 

 

 

 

 

 

F-93


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

STATEMENT OF INCOME

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

12.31.2011

OPERATING REVENUES

2,265,696

5,490,064

157,803

291,376

-

(428,774)

7,776,165

Electricity sales to final customers - third-parties

102,934

2,227,894

-

-

-

-

2,330,828

Electricity sales to final customers - between segments

-

5,441

-

-

-

(5,441)

-

Electricity sales to distributors - third-parties

1,348,042

91,789

-

-

-

-

1,439,831

Electricity sales to distributors - between segments

286,132

-

-

-

-

(286,132)

-

Use of the main distribution and transmission grid - third-parties

269,924

2,492,444

-

-

-

-

2,762,368

Use of the main distribution and transmission grid - between segments

76,331

13,055

-

-

 

(89,386)

-

Construction revenues

118,816

606,620

-

16,290

-

-

741,726

Telecommunications services to third-parties

-

-

117,126

-

-

-

117,126

Telecommunications services between segments

-

-

40,677

-

 

(40,677)

-

Distribution of piped gas

-

-

-

273,933

-

-

273,933

Other operating revenues from third-parties

57,600

51,600

-

1,153

-

-

110,353

Other operating revenues between segments

5,917

1,221

-

-

-

(7,138)

-

OPERATIONAL COST AND EXPENSES

(1,477,833)

(5,038,081)

(114,437)

(248,001)

(23,093)

428,774

(6,472,671)

Electricity purchased for resale

(73,090)

(2,365,587)

-

-

-

286,132

(2,152,545)

Charges for the use of the powergrid

(216,035)

(505,869)

-

-

-

89,386

(632,518)

Personnel and management

(243,769)

(657,382)

(58,341)

(15,096)

(8,065)

-

(982,653)

Pension and healthcare plans

(37,860)

(104,234)

(7,113)

(1,142)

(496)

-

(150,845)

Materials and supplies

(16,678)

(66,018)

(1,730)

(1,102)

(82)

-

(85,610)

Raw materials and supplies for generation

(25,031)

-

-

-

-

-

(25,031)

Natural gas and supplies for gas business

-

-

-

(186,931)

-

-

(186,931)

Third party services

(100,423)

(307,494)

(17,769)

(12,120)

(5,722)

52,095

(391,433)

Depreciation and amortization

(320,541)

(193,969)

(24,523)

(12,648)

(1,484)

-

(553,165)

Provisions and reversals

(170,312)

(122,332)

734

65

2,190

-

(289,655)

Construction cost

(108,533)

(606,620)

-

(16,290)

-

-

(731,443)

Other operating costs and expenses

(165,561)

(108,576)

(5,695)

(2,737)

(9,434)

1,161

(290,842)

EQUITY IN RESULTS SUBSIDIARIES

(3,487)

-

-

-

1,288,825

(1,229,684)

55,654

PROFIT BEFORE FINACIAL RESULTS AND TAXES

784,376

451,983

43,366

43,375

1,265,732

(1,229,684)

1,359,148

Financial income (expenses)

16,316

256,721

2,923

6,136

(57,328)

-

224,768

OPERATING INCOME (LOSSES)

800,692

708,704

46,289

49,511

1,208,404

(1,229,684)

1,583,916

Income tax and social contribution

(278,227)

(297,653)

(12,472)

(18,294)

(4,955)

-

(611,601)

Deferred income tax and social contribution

85,767

124,835

1,883

1,214

(9,160)

-

204,539

NET INCOME (LOSSES) FOR THE YEAR

608,232

535,886

35,700

32,431

1,194,289

(1,229,684)

1,176,854

 

 

 

 

 

 

 

 

 

 

F-94


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

STATEMENT OF INCOME

GET

DIS

TEL

GÁS

HOL

Eliminations

Consolidated

12.31.2010

OPERATING REVENUES

1,948,799

4,939,328

139,153

267,829

-

(393,996)

6,901,113

Electricity sales to final customers - third-parties

113,102

2,100,301

-

-

-

-

2,213,403

Electricity sales to final customers - between segments

-

4,649

-

-

-

(4,649)

-

Electricity sales to distributors - third-parties

1,223,530

64,471

-

-

-

-

1,288,001

Electricity sales to distributors - between segments

258,952

-

-

-

-

(258,952)

-

Use of the main distribution and transmission grid - third-parties

166,600

2,105,821

-

-

-

-

2,272,421

Use of the main distribution and transmission grid - between segments

70,098

11,633

-

-

 

(81,731)

-

Construction revenues

41,019

599,634

-

22,881

-

-

663,534

Telecommunications services to third-parties

-

-

97,882

-

-

-

97,882

Telecommunications services between segments

-

-

41,271

-

 

(41,271)

-

Distribution of piped gas

-

-

-

237,272

-

-

237,272

Other operating revenues from third-parties

69,659

51,265

-

7,676

-

-

128,600

Other operating revenues between segments

5,839

1,554

-

-

-

(7,393)

-

OPERATIONAL COSTS AND EXPENSES

(1,219,484)

(4,577,731)

(99,047)

(212,120)

(253,757)

393,996

(5,968,143)

Electricity purchased for resale

(60,352)

(2,170,875)

-

-

-

258,952

(1,972,275)

Charges for the use of the powergrid

(205,749)

(468,723)

-

-

-

81,731

(592,741)

Personnel and management

(200,659)

(546,834)

(43,920)

(12,796)

(7,305)

-

(811,514)

Pension and healthcare plans

(30,535)

(86,359)

(5,655)

(1,239)

(433)

-

(124,221)

Materials and supplies

(21,752)

(60,132)

(1,517)

(709)

(14)

-

(84,124)

Raw materials and supplies for generation

(22,975)

-

-

-

-

-

(22,975)

Natural gas and supplies for gas business

-

-

-

(144,648)

-

-

(144,648)

Third party services

(89,806)

(277,437)

(16,747)

(14,283)

(4,746)

52,113

(350,906)

Depreciation and amortization

(320,759)

(180,701)

(28,540)

(11,508)

(1,484)

-

(542,992)

Provisions and reversals

(17,630)

(106,913)

903

(39)

(239,097)

-

(362,776)

Construction cost

(40,372)

(599,634)

-

(22,881)

-

-

(662,887)

Other operating costs and expenses

(208,895)

(80,123)

(3,571)

(4,017)

(678)

1,200

(296,084)

EQUITY IN RESULTS SUBSIDIARIES

(3,345)

-

-

-

1,225,676

(1,122,994)

99,337

PROFIT BEFORE FINANCIAL RESULTS AND TAXES

725,970

361,597

40,106

55,709

971,919

(1,122,994)

1,032,307

Financial income (expenses)

(25,829)

378,910

4,059

5,256

(13,971)

-

348,425

OPERATING INCOME (LOSSES)

700,141

740,507

44,165

60,965

957,948

(1,122,994)

1,380,732

Income tax and social contribution

(236,566)

(193,982)

(11,287)

(20,734)

(35,399)

-

(497,968)

Deferred income tax and social contribution

72,796

(22,012)

(184)

307

76,610

-

127,517

NET INCOME (LOSSES) FOR THE YEAR

536,371

524,513

32,694

40,538

999,159

(1,122,994)

1,010,281

 

F-95


 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

34.           Operating Lease Agreements

34.1.                   The Company as a lessee

 

 

 

 

Lease and rental costs and expenses

12.31.2012

12.31.2011

12.31.2010

Real estate (a)

21,920

17,704

13,988

Photocopiers

1,082

1,521

2,872

Others

5,900

719

1,190

(-) Pis and Cofins tax credits

(1,534)

(1,564)

(1,380)

 

27,368

18,380

16,670

 

Copel’s estimate for expenses for the next fiscal years is basically the same as 2012, plus contractual monetary restatement rates, and there are no risks in connection with contract rescission.

    a)

Out of the total R$ 21,920 spent in rental properties, R$ 10,183 refer to the rental of the Km 3 Center facilities, signed by Copel and the Fundação Copel, and which is the most significant rental agreement held by the Company. In future periods, this amount will be restated according to a real estate appraisal of the property.

             The Company has not identified any operating lease commitments which are non cancellable.

34.2.                   The Group as a lessor

 

 

 

 

Lease and rental income

12.31.2012

12.31.2011

12.31.2010

Equipment and facilities (a)

66,177

54,442

52,134

Araucária Thermal Power Plant (b)

95,253

32,804

50,000

Real estate

714

862

816

Facilities sharing

845

801

736

 

162,989

88,909

103,686

 

Operating leases refer to revenues from rental of Copel property; lessees do not hold an option to purchase these assets upon expiration of the lease.

The Company has not identified any operating lease receivables which are non cancellable.

a)

The leases of equipment and structures refer to operating leases of predetermined attachment points in utility poles for the installation of cabling, accessories, and telecommunications equipment, with monthly payment, pursuant to article 73 of Law no. 9,472/1997 (General Telecommunications Law), to ANEEL/ANATEL/ANP Joint Resolution no. 001/1999, and to ANEEL Resolution no. 581/2002. They are also aimed at lowering costs of implementation of infrastructure to the power and telecommunications sector operators, optimizing the use of poles, and obtaining margins which contribute to more competitive tariffs (lower electric energy tariffs).

 b)

On December 28, 2012, UEG Araucária signed an agreement with Petróleo Brasileiro S.A. - Petrobras, a minority shareholder, leasing the Araucária Thermal Power Plant for a period of one year, ended on December 31, 2013, and may be extended for one more year, subject to early termination by the Organization successfully participate at ANEEL - sponsored power auctions. The lease provides for the use of the Araucária Power Plant for power generation by Petrobras, at its own expense; UEG Araucária is entitled to lease payments comprising a fixed and a variable portion, pursuant to the lease agreement.

              

F-96


 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

35.           Financial Instruments

35.1.                   Category and value of financial instruments

           

 

 

 

 

 

 

 

Note

 

12.31.2012

 

12.31.2011

 

 

Book value

Fair value

Book value

Fair value

Financial assets

 

 

 

 

 

Held for trading

 

 

 

 

 

Cash and cash equivalent (a)

4

94,189

94,189

35,081

35,081

Cash equivalents - open market investments (a)

4

1,388,948

1,388,948

1,014,044

1,014,044

Bonds and securities (b)

5

183,014

183,014

60,021

60,021

Bonds and securities - derivatives (i)

5

-

-

1

1

 

 

1,666,151

1,666,151

1,109,147

1,109,147

Loans and receivables

 

 

 

 

 

Collaterals and escrow accounts STN (c)

6

43,246

42,627

37,553

29,413

Collaterals and escrow accounts (a)

6

36,812

36,812

2,668

2,668

Trade accounts receivable (a)

7

1,515,344

1,515,344

1,400,818

1,400,818

CRC transferred to state of Paraná (d)

8

1,384,284

1,633,076

1,346,460

1,434,565

Receivables related to concession (e)

9

306,849

306,849

1,091,897

1,091,897

Receivables related to the concession extension (f)

10

913,673

960,436

-

-

 

 

4,200,208

4,495,144

3,879,396

3,959,361

Available for sale

 

 

 

 

 

Receivables related to concession (e)

9

2,383,262

2,383,262

2,225,203

2,225,203

Receivables related to the concession extension (g)

10

160,217

160,217

-

-

Securities (b)

5

568,822

568,822

567,429

567,429

Other investments (h)

16

18,127

18,127

17,721

17,721

 

 

3,130,428

3,130,428

2,810,353

2,810,353

Held to maturity

 

 

 

 

 

Securities (b)

5

12,180

12,180

17,157

17,157

 

 

12,180

12,180

17,157

17,157

Financial assets total

 

9,008,967

9,303,903

7,816,053

7,896,018

Financial liabilities

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

Held for trading

 

 

 

 

 

Other liabilities - derivatives (i)

 

40

40

39

39

 

 

40

40

39

39

Other financial liabilities

 

 

 

 

 

Loans and financing (j)

21

2,250,878

2,233,244

2,174,472

2,129,257

Debentures (k)

22

1,010,677

1,010,677

-

-

Payable related to concession - use of public property (l)

26

447,557

554,408

415,098

524,484

Suppliers (m)

20

1,237,355

1,237,355

855,915

855,915

 

 

4,946,467

5,035,684

3,445,485

3,509,656

Financial liabilities total

 

4,946,507

5,035,724

3,445,524

3,509,695

Fair value is calculated considering the market value to all financial instruments with an active market. For other instruments whose market values are not available, their fair values calculated according to the present value of their future cash flows expected.

 

a)

Financial assets that have fair values equivalent to their respective carrying values due to their nature and terms of realization.

 b)

The fair values of Bonds and Securities have been calculated according to information made available by the financial agents for each security and to the market values of the bonds issued by the Brazilian government.

c)

The fair values of Collaterals and escrow accounts – STN have been calculated based on the cost of the last issue by the Company, of the CDI variation plus 0.99% p.y.

d)

For the fair values of CRC transferred to the State of Paraná, the Company based its calculation on the comparison with a non-current, variable interest rate National Treasury bond (NTN-B), which yields approximately 3.54% p.y. plus the IPCA inflation index.

e)

Accounts receivable related to the concession have their detailed composition in Note 9, including: (i) A table reconciling initial and final balances, with a separate breakdown of additions, disposals, transfers, losses, monetary variation, and fair value adjustments; (ii) Criteria for identification and measurement; and (iii) Assumptions adopted by Company management to restate the recoverable amount.

 

F-97


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

f)

The accounts receivable related to the concession extension, related to the assets which started operations after May 2000, the expected flow of cash entries was discounted at the Selic rate, the best short-term rate available for comparison for determination of its market value.  

   g)

Management decided to consider the fair value of accounts receivable equivalent to their book values, considering that amounts, collection periods and rates remain undefined. These accounts receivable are related to assets existing as of May 31, 2000 and originate from an extension of the concession period.

 h)

The other investments have a fair value of R$ 18,127. The fair value of the investment in Investco S.A., of R$ 9,282, was calculated by applying the ownership percentage to its equity. The fair value of the investments in Finam (Amazon Investment Fund) and Finor (Northeast investment Fund), of R$ 1,635 was adjusted according to the average price quoted at the trading sessions of the São Paulo Stock Exchange (BM&FBovespa) in December 2012 and 2011. Investments in public companies had their fair value of R$ 7,203 measured according to the value of those shares on December 28, 2012. The other investments were kept at historical cost, due to the impossibility of fair values being reliably measured.

 i)

The derivative financial asset - exclusive funds - Assets comprises Marketable Securities and the derivative financial liability refers to the DI (Interbank Deposit) future adjustment, which comprises Other liabilities. The derivative financial assets and liabilities have their fair values calculated according to the information provided by financial agents.

j)

Loans and financing have their fair value considering as a basic premise the cost of the last raising of funds made by the Company, of the variation of the interbank deposit certificate (CDI) plus 0.99% p.y.

k)

The fair value of debentures was calculated according to the Unit Price Quotation (PU) as of December 31, 2012, obtained from the National Association of Financial Market Institutions (Anbima), net of the financial cost of R$ 2,042.

 l)

Accounts payable related to the concession - use of public assets - have their fair value considering as a premise for the calculation the rate of return for the last venture sold at auction by ANEEL, won by the Company.

 m)

Financial liabilities that have fair values equivalent to their respective carrying values, due to their nature and settlement terms.

 

35.2.                   Rating level for assessment of fair value of financial instruments

The financial instruments were classified based on the three levels of the fair value hierarchy.

 

 

 

 

 

 

 

 

 

 

 

 

 

12.31.2012

 

 

 

12.31.2011

 

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Financial assets

 

 

 

 

 

 

 

 

Bonds and securities

404,784

347,052

-

751,836

432,342

195,109

-

627,451

Receivables related to concession

-

-

2,383,262

2,383,262

-

-

2,225,203

2,225,203

Receivables related to the concession extension

-

-

160,217

160,217

-

-

-

-

Other investments

18,127

-

-

18,127

17,721

-

-

17,721

Financial liabilities

 

 

 

 

 

 

 

 

Other liabilities - derivatives

40

-

-

40

39

-

-

39

Level 1: obtained from prices quoted (not adjusted) on active markets for identical assets or liabilities

Level 2: obtained from other variables other than prices quoted included in level 1, which can be observed for assets or liabilities

Level 3: obtained through evaluation techniques that include variables for the asset or liability, but are not based on observable market data

 

 

 

F-98


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

35.3.                   Summary of bonds and securities held to maturity

                 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

Fair value

 

book value

Description

Rate p.y.

Issue date

Maturity

Type

12.31.2012

12.31.2011

12.31.2012

12.31.2011

LFT

SELIC

07.14.2009

03.07.2012

Amortized cost

-

5,919

-

5,920

LF Caixa

CDI

11.03.2011

11.07.2013

Amortized cost

5,540

5,089

5,540

5,089

LF Caixa

CDI

11.07.2011

11.08.2013

Amortized cost

6,640

6,101

6,640

6,100

 

 

 

 

 

 

 

 

 

35.4.                   Risk Factors

The Company holds mechanisms aiming to manage risk in the corporate areas and the company subsidiaries. The risks are classified as critical, high, moderate, low or minimum according to their final exposure, which considers the following impacts: financial, operational and image; and also the frequency and occurrence of the risk.

Main risk factors inherent to the Company’s activities are identified and measured to their potential negative impacts, in range of the strategic, process and projects goals.

35.4.1.   Credit risk

Credit risk is defined as the possibility of the occurrence of losses related to non-compliance by a client or counterpart to a financial instrument with their respective obligations under the terms agreed on. Risk basically arises from trade accounts receivable and financial instruments as shown below:

     

 

 

Book

 

 

value

 

12.31.2012

12.31.2011

Financial Assets

 

 

Cash and equivalents (a)

1,483,137

1,049,125

Bonds and securities (a)

764,016

644,608

Collaterals and escrow accounts (a)

80,058

40,221

Customers (b)

1,515,344

1,400,818

CRC transferred to the State of Paraná (c)

1,384,284

1,346,460

Receivables related to concession (d)

2,690,111

3,317,100

Receivables related to the concession extension

1,073,890

-

Total

8,990,840

7,798,332

 

a) Cash and cash equivalents and short-term investments

Company management manages the credit risk of its assets recorded as cash, cash equivalents and short-term investments in accordance with the Group'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) Trade accounts receivable

The risk arises from the possibility of the Company incurring losses resulting from problems in receiving amounts invoiced to its clients, customers, concession operators and licensees. This risk is closely related to internal and external factors of Copel. To mitigate this type of risk the Company manages its accounts receivable, detecting customer groups that pose the greatest risk of default, cutting off energy supplies and implementing specific collection policies, supported by guarantees whenever possible.

Doubtful accounts are adequately covered by an allowance to cover any realization losses.

c) CRC pass-through to the Paraná State government

Company management believes the CRC poses a minimal credit risk, as the amortizations are guaranteed by dividends, and the State Government is paying the renegotiated amounts in accordance with the fourth amendment.

 

F-99


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

d) Accounts receivable linked to the concession

Consists of indemnification stipulated in the public energy transmission and distribution concession agreements and accounts receivable under the transmission concession agreements to be realized as Annual Permitted Revenue - RAP.

Based on the Company's understanding that the signed agreements establish the unconditional right to receive cash at the end of the concession, from the concession authority, for the investments made in assets that have not been recovered through rates by the end of the concession and specifically regarding energy transmission, as RAP is guaranteed revenue, and therefore not subject to the risk of demand.

e) Accounts receivable originated from an extension of the concession

e.1) Management considers the credit risk on the indemnity of R$ 913,673 approved for the assets which started operations after May 2000 to be reduced, given that the realization and compensation rules have already been established by the Granting Authority.

e.2) Management considered the regulations in effect on December 31, 2012 to value the assets existing as of May 31, 2000 in the amount of R$ 160,217. It did so despite the fact that the Granting Authority has not yet disclosed regulations on the manner of compensation and the payment of indemnity and that the investments made by the Company may be adjusted when the regulatory agency and the Granting Authority approve the investments.

35.4.2.   Foreign currency risk (US Dolar)

       

.

 

 

Net

 

Asset

Liability

exposure

 

 

 

12.31.2012

Collaterals and escrow accounts (STN)

43,245

-

43,245

Loans and financing

-

(59,351)

(59,351)

Suppliers

 

 

 

Eletrobras (Itaipu)

-

(106,806)

(106,806)

Petrobras (acquisiton of gas by Compagas)

-

(43,681)

(43,681)

 

43,245

(209,838)

(166,593)

 

This risk comprises the possibility of losses due to fluctuations in 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 exchange rates.

The effect of the exchange rate variation resulting from the power purchase agreement with Eletrobras (Itaipu) is passed on to customers in Copel Distribuição's next rate rewiew.

The exchange rate variation resulting from the purchase of gas from Petrobras by Compagas has a direct impact on the Company's results; Compagas continually negotiates with its customers, trying whenever possible to pass these costs on to them.

Sensitivity analysis

The Company has developed a sensitivity analysis in order to measure the impact of the devaluation of the U.S. dollar on its loans and financing subject to exchange risk.

The baseline takes into account the existing balances in each account as of December 31, 2012 and the likely scenario takes into account the balances subject to the exchange rate variations – end of period (R$/US$ 2.09) estimated as market average projections for 2013 according to the Focus Report issued by the Brazilian Central Bank as of December 28, 2012. For the adverse and remote scenarios, deteriorations of 25% and 50%, respectively, were considered for the main risk factor for financial instruments compared to the rate used for the likely scenario.

F-100


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

           

.

 

Baseline

Projected scenarios - Dec.2013

Foreign currency risks

Risk

12.31.2012

Probable

Adverse

Remote

Financial assets

 

 

 

 

 

Collaterals and escrow accounts

USD depreciation

43,246

983

12,040

23,098

.

 

43,246

983

12,040

23,098

Financial liabilities

 

 

 

 

 

Loans and financing

 

 

 

 

 

STN

USD appreciation

59,340

1,350

16,523

31,695

Eletrobras

USD appreciation

11

-

3

6

 

 

59,351

1,350

16,526

31,701

Suppliers

 

 

 

 

 

Eletrobras (Itaipu)

USD appreciation

106,806

2,430

29,739

57,049

Petrobras (acquisiton of gas by Compagas)

USD appreciation

43,681

994

12,163

23,331

 

 

150,487

3,424

41,902

80,380

Expected effect in the result

 

 

(3,791)

(46,388)

(88,983)

 

In addition to the sensitivity analysis, the Company evaluates its financial instruments considering the possible effects on profit and loss and equity of the risks evaluated by Company management on the reporting date for the financial instruments, as recommended by IFRS 7. Based on the equity position and the notional value of the financial instruments held as of December 31, 2012, 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.

35.4.3.   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 revenues or increase financial expenses in connection with assets and liabilities on the market.

The Company has not engaged in transactions with derivatives to cover this risk, except for the exclusive investment funds (35.4.9), but it has continually monitored interest rates and market indicators, in order to assess the potential need for such transactions for protection for interest rate risks.

The Company’s exposure to interest rate and monetary variation risks is shown below:

       

.

 

 

Net

 

Asset

Liability

exposure

 

 

 

12.31.2012

Financial investments - cash equivalents

1,388,948

-

1,388,948

Bonds and securities

764,016

-

764,016

Collaterals and escrow accounts

36,812

-

36,812

CRC transferred to the State of Paraná

1,384,284

-

1,384,284

Receivables related to concession

2,690,111

-

2,690,111

Receivables related to the concession extension

1,073,890

-

1,073,890

Loans and financing

-

(2,191,527)

(2,191,527)

Debentures

 

(1,010,677)

(1,010,677)

 

7,338,061

(3,202,204)

4,135,857

 

Sensitivity analysis

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 baseline takes into account the existing balances in each account as of December 31, 2012 and the likely scenario takes into account the indicators (CDI/Selic of 7.25%, IGP-DI of 5.34%,   IGP-M of 5.31% e TJLP of 5.50%) estimated as market average projections for 2012 according to the Focus Report issued by the Brazilian Central Bank as of December 28, 2012. For the adverse and remote scenarios, deteriorations of 25% and 50%, respectively, were considered for the main risk factor for the financial instrument compared to the rate used in the likely scenario.

F-101


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

           

.

 

Baseline

Projected scenarios - December 2013

Operation

Risk

12.31.2012

Probable

Adverse

Remote

Financial assets

 

 

 

 

 

Financial investments - cash equivalents

Low CDI/SELIC

1,388,948

99,447

74,586

49,725

Bonds and securities

Low CDI/SELIC

764,016

54,704

41,028

27,351

Collaterals and escrow accounts

Low CDI/SELIC

36,812

2,635

1,977

1,318

CRC transferred to the State of Paraná

Low IGP-DI

1,384,284

73,922

55,442

36,961

Receivables related to concession

Low IGP-M

2,690,111

142,846

107,135

71,423

Receivables related to the concession extension - RBNI

Low IPCA

913,672

49,978

37,484

24,989

Receivables related to the concession extension

Undefined (1)

160,218

-

-

-

 

 

7,338,061

423,532

317,652

211,767

Financial liabilities

 

 

 

 

 

Loans and financing

 

 

 

 

 

Banco do Brasil

High CDI

1,541,859

111,785

139,731

167,677

Eletrobras - Finel

High IGP-M

119,039

1,264

1,580

1,896

Eletrobras - RGR

No Risk (2)

114,006

-

-

-

Finep

High TJLP

29,525

1,476

1,845

2,214

BNDES - Copel Geração e Transmissão

High TJLP

214,855

10,743

13,428

16,114

Banco do Brasil – Transfer BNDES funds

High TJLP

172,243

8,612

10,765

12,918

Debentures

High CDI

1,010,677

73,274

91,593

109,911

.

 

3,202,204

207,154

258,942

310,730

Expected effect in the result

 

 

216,378

58,710

(98,963)

(1) Risk assessment still requires ruling by the Granting Authority.

         

(2) Loan indexed to UFIR

         

In addition to the sensitivity analysis required by CVM Resolution 475/08, the Company evaluates its financial instruments considering the possible effects on profit and loss and equity of the risks evaluated by Company management on the reporting date for the financial instruments, as recommended by IFRS 7. Based on the equity position and the notional value of the financial instruments held as of December 31, 2012, 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.

35.4.4.   Accelerated maturity risk

This risk results from the potential noncompliance with contract covenants, such as those contained in the loan, financing, and debenture agreements of the Company, which usually require that certain economic and financial indicators, which are calculated and analyzed periodically for compliance, be kept at determined levels (financial covenants).

As of December 31, 2012 all of the conditions were analyzed and it was identified that all of the levels provided in the contracts had been complied with.

35.4.5.   Environmental Risks

The activities of the energy sector could have significant negative impacts and damage on the environment. The applicable legislation imposes on those who directly or indirectly cause environmental harm the duty to repair or compensate for the damages to the environment and to affected third-parties, regardless of culpability (strict liability). The costs of environmental recovery of compensation may force the Company to delay or redirect investments in other areas and may have an adverse effect on the Company. The Company ensures the balance between environmental conservation and the operation of its business by establishing guidelines and practices to be observed in all operations, in order to reduce environmental impact, focusing on the sustainable development of its business.

35.4.6.   Power shortage risk

This risk results from the possibility of periods with low levels of rainfall, since Brazil relies heavily on hydroelectric sources, which depend on the water levels in their reservoirs to operate.

A long period of drought may reduce the water levels in power plant reservoirs and result in losses due to reduced revenues if a new rationing program is implemented.

F-102


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

According to the Annual Plan for Electricity Operation - PEN 2012, published annually on the website: www.ons.org.br, the conditions for attending the electricity load are considered satisfactory for the time horizon 2013/2016,  and also considering that there is excess electricity guaranteed with SIN during this period, the sensitivity analysis in relation to market growth under the structural aspect, can be concluded that the planned expansion until 2016, retaining the timetables programmed in PEN 2012, average annual growth in the electricity load of up to 6.1 % p.y., approximately 77 GWmed in 2016 can be tolerated, compared to the 4.6% p.y. from the Reference Scenario, approximately 72 GWmed in the same year.  This means that even with anticipation of a little more than one year in the increase in the electricity load, as from 2014, it will still be possible to maintain the conditions to attend the market within the guarantee criteria postulated by Conselho Nacional de Política Energética - CNPE (risk of deficit not higher than 5%).

35.4.7.   Risk of non-renewal of concessions

Copel holds concessions for power generation, transmission, and distribution services, with the expectation that the conditions for extension presented by the Ministry of Mines and Energy (MME), which represents the Granting Authority, were adequate in order to make the continuity of business within the standards required by ANEEL viable.

Copel Geração e Transmissão, after becoming aware of the conditions for renewal conducted the analyses of possible outcomes. In light of the scarcity of information provided by the Granting Authority and using the valuations obtained, it concluded that the renewal of the concessions of generation of its four power stations maturing between 2014 and 2015 was not viable: Rio dos Patos with 1.8 MW of installed capacity, Usina Governador Pedro Viriato Parigot de Souza with 260.0 MW of installed capacity, Mourão with 8.2 MW of installed capacity and Chopim with 1.8 MW of installed capacity. This decision aims at maintaining the Company’s current levels of profitability.

For the Transmission concessions, the conditions were maintained for the realization of investments arising from contingencies, upgrades, updates and renovations of structures and equipment that will occur upon recognition by ANEEL, and its authorization. The guarantee of reimbursement is given pursuant to REN 158 of May 23, 2008, not causing financial losses to the concessionaire.

Copel Geração e Transmissão, after becoming aware of the conditions for renewal conducted analyses and valuations opting for renewal for another 30 years, and thus contributed to the decrease in tariffs and to the making of tariffs more reasonable, preserving the current levels of the Company’s profitability.

Pursuant to the Law, the distribution concession may be extended for another 30 years. The extension is offered to the concessionaire and its adhesion depends on the explicit acceptance of the following conditions: i) fixed income according to criteria established by ANEEL; and ii) submission to service quality standards set by ANEEL.

The request for extension of the distribution concession of Copel Distribuição was submitted to ANEEL on May 31, 2012, and ratified under Medida Provisória no.579 on October 11, 2012. For compliance with the next expected steps, it now follows the calendar of events defined by the Granting authority.

F-103


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

Concession contracts with maturity dates

 

Maturty date

 

of concessions/authorizations

Concessions - Copel Geração e Transmissão

 

Hydroelectric Power Plants

 

Generation Concession - 045/1999

 

Governador Bento Munhoz da Rocha Netto (Foz do Areia)

05.23.2023

Governador Ney Aminthas de Barros Braga (Segredo)

11.15.2029

Governador José Richa (Caxias)

05.04.2030

Governador Pedro Viriato Parigot de Souza (a) (b)

07.07.2015

Guaricana

08.16.2026

Chaminé

08.16.2026

Apucaraninha

10.12.2025

Mourão (a) (b)

07.07.2015

Derivação do Rio Jordão

11.15.2029

Marumbi (c)

-

São Jorge

12.03.2024

Chopim I (a) (b)

07.07.2015

Rio dos Patos (a) (b)

02.14.2014

Cavernoso

01.07.2031

Melissa (d)

-

Salto do Vau (d)

-

Pitangui (d)

-

Generation Concession - 001/2007 - Mauá - 51% of Copel

07.02.2042

Generation Concession - 001/2007 - Colíder (e)

01.16.2046

Authorization - Cavernoso II (e)

02.27.2046

Thermal Power Plant

 

Generation Concession - 045/1999 - Figueira

03.26.2019

Authorization - UEG Araucaria

12.22.2029

Wind Power Plant

 

Authorization - Palmas

09.28.2029

Transmission Lines and Substations

 

Contract 060/01 - Transmission facilities (f)

12.05.2042

Contract 075/01 - Transmission line Bateias - Jaguariaíva

08.16.2031

Contract 006/08 - Transmission line Bateias - Pilarzinho

03.16.2038

Contract 027/09 - Transmission line Foz do Iguaçu - Cascavel Oeste

11.18.2039

Contract 010/10 - Transmission line Araraquara 2 - Taubaté (e)

10.05.2040

Contract 015/10 - Sub-station Cerquilho III (e)

10.05.2040

Contract 001/12 - Transmission line Cascavel Oeste - Umuarama - 51% Copel GeT (e)

01.11.2042

Contract 004/12 - Transmission line Nova Santa Rita - Camaquã 3 - 20% Copel GeT (e)

05.09.2042

Contract 007/12 - Transmission line Umuarama - Guaira - 49% Copel GeT (e)

05.09.2042

Contract 008/12 - Transmission line Curitiba - Curitiba Leste - 80% Copel GeT (e)

05.09.2042

Contract 011/12 - Transmission line Açailândia - Miranda II - 49% Copel GeT (e)

05.09.2042

Contract 012/12 - Transmission line Paranaíta - Ribeirãozinho - 49% Copel GeT (e)

05.09.2042

Contract 013/12 - Transmission line Ribeirãozinho - Marimbondo II - 49% Copel GeT (e)

05.09.2042

Contract 022/12 - Transmission line - Foz do Chopim - Salto Osorio C2 (e)

08.26.2042

(a) Plant not renewed pursuant to Executive Act 579/2012 - Concessionaire's prerogative
(b) By the end of the concession the project will be offered for competitive bidding
(c) In progress for homologation from ANEEL
(d) at plants with capacity of less than 1 MW, only register with ANEEL
(e) Enterprise under construction
(f) Concession renewed pursuant to Executive Act 579/2012

 

 

F-104


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

 

Maturity date

 

of concessions/authorizations

Concession - Copel Distribuição

 

Contract 046/99 - Distribution Facilities (a) (b)

07.07.2015

Concession - Elejor

 

Contract 125/2001 - HPP Fundão e Santa Clara

10.24.2036

Authorization - Elejor

 

SHP Fundão I e SHP Santa Clara I

12.18.2032

Concession - Dona Francisca Energética

 

Contract 188/1998 - HPP Dona Francisca

08.27.2033

Concession - Compagas

07.06.2024

 

 

(a) Sent on May 31, 2012 requesting extension of concession

 

(b) Sent on September 11, 2012 ratification of the requesting extension of concession (MP 579/2012)

   

 

As far as potential reimbursements at the end of the concession, there is uncertainty regarding how to measure the amounts to be paid for reversal of concession assets to the granting authority.

35.4.8 Gas shortage risk

This risk involves potential periods of shortage of natural gas supply to meet the Company’s gas distribution and thermal generation business requirements.

Long periods of gas shortage could result in losses due to lower revenues by subsidiaries Compagas and UEG Araucária.

35.4.9 Derivative financial instruments

The Company employs derivative financial instruments with the sole purpose of protecting itself against variable interest rate volatility.

 

Derivative Financial Instruments

12.31.2012

12.31.2011

Future DI Daily Adjustments - assets

-  

1

Future DI Daily Adjustments - liabilities

(40) 

(39)

Current portion

(40)

(38)

 

In order to protect against the effects of volatility on long exposures (DI interest rates) of bonds and securities, the Company hired future DI rate operations, negotiated at BM&FBovespa and registered at CETIP, whose nominal balances and conditions are as follows:

For the year ended December 31, 2012, the result of operations with derivative financial instruments on the futures market was a loss of R$ 5,884 (loss of R$ 2,726 on 2011).

Contracts are adjusted daily in accordance with the future DI rates published by BM&FBovespa. The reference (notional) values of these outstanding contracts as on December 31, 2012 corresponded to R$ 192,900 (R$ 88,135 as of December 31, 2011).

On December 31, 2012, a share of the Company’s federal bonds in the amount of R$ 9,560 (R$ 5,930 as of December 31, 2011), was deposited as collateral for transactions at BM&FBovespa S.A.

In order to measure the effects of the variations in the indices and rates tied to the derivative operations, the following sensitivity analysis table was prepared in accordance with the terms provided by CVM Resolution 475/08, which includes a scenario considered probable by Company management, a situation considered adverse of at least a 25% deterioration in the variables used and a situation considered remote, with a deterioration of at least 50% in the risk variables. The base scenario took into account the existing balances as of December 31, 2012 and the probable scenario for balances with changes in the BM&FBovespa preferential rate for LTN (National Treasury Bills) maturing on January 01, 2013.

F-105


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

           

.

 

Baseline

Projected scenarios - December 2013

Risk of derivative

Risk

12.31.2012

Probable

Adverse

Remote

Financial assets (liabilities)

 

 

 

 

 

Derivative – liabilities

Decrease in DI rate

(40)

(1,068)

(4,565)

(8,061)

 

 

(40)

(1,068)

(4,565)

(8,061)

Expected effect in the result

 

 

(1,028)

(4,525)

(8,021)

35.5.                   Management of capital

The Company always seeks to maintain a strong capital base to maintain the trust of investors, creditors and market and ensure the future development of the business. It seeks to maintain a balance between the highest possible returns with more adequate levels of loans and the advantages and security provided by a healthy capital position. Thus, it maximizes the return for all interested parties in its operations, optimizing the balance of debts and equity.

The Group’s capital structure is composed of:

a)Net indebtedness, defined as total loans, financing and debentures, net of cash and cash equivalents and short term bonds and securities;

b)Own capital, defined as total equity.

     

Debt

 

 

 

12.31.2012

12.31.2011

Loans and financing

2,250,878

2,174,472

Debentures

1,010,677

-

(-) Cash and cash equivalents and financial investments

1,483,137

1,049,125

(-) Bonds and securities

635,501

582,019

Net indebtedness

1,142,917

543,328

Shareholder's

12,497,498

12,069,528

Net indebtedness ratio

0.09

0.05

 

 

 

 

35.6.                   Financing lines

Copel does not employ financing lines such as: non-guaranteed overdraft accounts; non-guaranteed bills of exchange; guaranteed overdraft accounts; and guaranteed bank credit lines.

35.7.                   Liquidity and interest table

The tables below denote the expected settlement amounts for each time period. The projections were made based on financial indicators underlying the respective financial instruments, as forecast by Brazilian Central Bank's Focus Report, which provides market analysts' average expectations for such indicators in the current year and next year. The indicators for 2014 were used from 2013 to the end of the projection period, except for the dollar, which is determined by US inflation.

F-106


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Interest (1)

Less than

1 to 3

3 month

1 to 5

More than

 

 

 

1 month

month

to 1 year

years

5 years

Total

12.31.2012

 

 

 

 

 

 

 

Cash and cash equivalent

-

1,483,137

-

-

-

-

1,483,137

Customers

0.82%

43,067

9,545

27,196

26,929

242

106,979

CRC transferred to the State of Paraná

6.65% p.y. + IGP-DI

13,590

27,180

122,309

741,098

1,816,788

2,720,965

Bonds and securities + exclusive funds

99.9% of CDI

418,397

6,475

55,263

228,648

99,768

808,551

Collaterals and escrow accounts

TR and Dolar(3)

-

-

-

-

111,120

111,120

Receivables related to concession

Note 9

16,894

33,813

155,717

3,124,323

2,606,367

5,937,114

Receivables related to the concession extension - RBNI

Note 10

44,775

76,713

317,723

608,838

-

1,048,049

 

 

 

 

 

 

 

 

Receivables related to the concession extension

Note 10

-

-

-

-

160,218

160,218

 

 

2,019,860

153,726

678,208

4,729,836

4,794,503

12,376,133

12.31.2011

 

 

 

 

 

 

 

Cash and cash equivalent

-

1,049,125

-

-

-

-

1,049,125

Derivatives

Future DI

1

-

-

-

-

1

Customers

0.75%

33,536

9,400

28,577

40,847

417

112,777

CRC transferred to the State of Paraná 

6.65% p.y. + IGP-DI

12,572

25,144

113,148

685,922

1,965,058

2,801,844

Bonds and securities + exclusive funds

99.9% of CDI

2,645

11,580

106,718

110,318

-

231,261

Collaterals and escrow accounts

TR and Dolar(3)

-

-

-

-

100,387

100,387

Receivables related to concession

WACC+Rate of return(2)

35,689

72,430

305,980

5,383,147

1,948,720

7,745,966

 

 

1,133,568

118,554

554,423

6,220,234

4,014,582

12,041,361

(1)Effective interest rate - weighted average

(2) WACC regulatory + rate of return from enterprise

(3) National currency TR; Foreign currency: see Note 20

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Interest (1)

Less than

1 to 3

3 month

1 to 5

More than

 

 

 

1 month

month

to 1 year

years

5 years

Total

12.31.2012

 

 

 

 

 

 

 

Loans and financing

Note 21

17,022

50,158

289,708

1,977,774

515,760

2,850,422

Debentures

Note 22

-

-

78,618

1,284,897

-

1,363,515

Derivatives

Future DI

40

-

-

-

-

40

Payables related to concession - use of public asset

Rate of return +

IGP-M and IPCA

4,040

8,080

36,858

225,955

2,043,351

2,318,284

Eletrobras - Itaipu

Dolar

-

92,864

417,886

2,677,260

4,777,443

7,965,453

Petrobras - Compagas

100% of CDI

4,892

9,874

45,969

65,690

-

126,425

Other suppliers

-

756,890

152,854

875

35,126

-

945,745

Post employment benefits

7.46%

28,945

57,891

260,509

1,523,133

9,097,947

10,968,425

Purchase liabilities

IGP-M and IPCA

-

452,633

2,188,186

8,865,291

46,201,543

57,707,653

 

 

811,829

824,354

3,318,609

16,655,126

62,636,044

84,245,962

12.31.2011

 

 

 

 

 

 

 

Loans and financing

Note 21

15,895

55,795

143,838

2,312,045

524,717

3,052,290

Derivatives

Future DI

39

-

-

-

-

39

Payables related to concession - use of public asset

Rate of return +
IGP-M and IPCA

3,741

7,481

34,129

207,996

2,040,876

2,294,223

Eletrobras - Itaipu

Dolar

-

164,062

350,491

2,426,301

6,338,176

9,279,030

Petrobras - Compagas

100% of CDI

4,499

9,117

42,928

131,262

-

187,806

Other suppliers

-

555,708

116,041

44,494

140,059

-

856,302

Post employment benefits

7.30%

28,485

56,969

256,361

1,281,669

2,109,550

3,733,034

Purchase liabilities

IGP-M and IPCA

-

994,393

2,646,662

11,395,780

50,070,240

65,107,075

 

 

608,367

1,403,858

3,518,903

17,895,112

61,083,559

84,509,799

  (1) Effective interest rate - weighted average

 

F-107


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

35.8. Guarantees

The main guarantees put up for maintaining business and investing activities are invested in securities:

     

Guarantees

 

 

 

12.31.2012

12.31.2011

Guarantee for the ANEEL auction

21,427

34,011

Guarantee for the Contracts for the Sale of Energy in the Regulated Environment – CCEARS

71,234

27,553

Guarantee for financing facilities to build hydroelectric power plants

 

 

HPPs and transmission lines - TLs

32,144

18,764

Guarantee for the compliance with article 17 of law 11,428/2006 and possible authorization by Environmental Institute of Paraná (Instituto Ambiental do Paraná or IAP), by the 

Consórcio Energético Cruzeiro do Sul

31,290

-

Total

156,095

80,328

 

36.           Related Party Transactions

The balances of transactions between the Company and its associates and subsidiaries are shown in Note 15 and Note 16.

In 2002, the Company became guarantor of the loans signed by its investee Dona Francisca Energética S.A. with the National Economic and Social Development Bank (BNDES) (joint debtor), and with Bradesco (joint debtor). As of December 31, 2012, the outstanding debt was R$ 15,249 and R$ 9,001, respectively.

The amounts resulting from the operating activities of Copel Distribuição involving related parties are billed at the rates approved by ANEEL.

 

F-108


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

                     

Related parties / Nature of operation

 

Assets

 

Liabilities

 

Transactions

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

12.31.2012

12.31.2011

Controlling shareholders

 

 

 

 

 

 

State of Paraná

 

 

 

 

 

 

Dividends payable (a)

-

-

79,539

57,855

-

-

"Luz Fraterna" program (b)

60,259

38,763

-

-

-

-

Remuneration and employ social security charges assigned (c)

1,640

2,062

-

-

-

-

CRC (Note 8)

1,384,284

1,346,460

-

-

188,688

148,950

ICMS (Note 13.3)

110,096

117,011

209,629

193,960

-

-

Entities with significant influence

 

 

 

 

 

 

BNDES e BNDESPAR (d)

 

 

 

 

 

 

Financing (Note 21.5)

-

-

214,855

172,285

(2,525)

(313)

Dividends payable (4)

-

-

63,890

46,473

-

-

Petrobras (e)

 

 

 

 

 

 

Rental plant UTE Araucária (Note 34.2.b)

11,894

2,730

-

-

95,253

32,804

Supply and transport of gas (f)

293

283

-

-

18,494

5,742

Acquisition of gas for resale (f)

-

-

43,681

40,698

(247,673)

(186,833)

Advances to suppliers (g)

12,666

11,982

-

-

-

-

Dividends payable by Compagas

-

-

1,208

1,887

-

-

Mitsui Gás e Energia do Brasil Ltda. (h)

-

-

1,208

1,887

-

-

Paineira Participações S.A. (i)

-

-

1,179

1,110

-

-

Associates

 

 

 

 

 

 

Dona Francisca Energética S.A.

 

 

 

 

 

 

Purchase of energy (j)

-

-

6,045

5,600

(67,354)

(63,045)

Dividends receivable by Copel

78

2,303

-

-

-

-

Companhia de Saneamento do Paraná - Sanepar

 

 

 

 

 

 

Dividends receivable by Dominó Holdings

9,477

15,603

-

-

-

-

Foz do Chopim Energética Ltda. (k)

135

131

-

-

1,602

1,390

Sercomtel S.A. Telecomunicações (l)

179

169

-

-

2,142

2,031

Key management personnel

 

 

 

 

 

 

Fees and related charges (Note 31.3)

-

-

-

-

(15,408)

(11,527)

Pension plans and health care (Note 23)

-

-

-

-

(808)

(496)

Other related parties

 

 

 

 

 

 

Fundação Copel

 

 

 

 

 

 

Rental of administrative real estate

-

-

-

-

(10,694)

(9,073)

Private pension and health plans (Note 23)

-

-

528,242

468,875

-

-

Lactec (m)

18,742

15,400

303

371

(5,896)

(8,086)

Dreen Brasil Investimentos e Participações S.A. (n)

-

-

38

466

(368)

(265)

 

 

 

 

 

 

 

a)

In 2012, out of the total dividends proposed to the Government for the State of Paraná for the amounts of R$ 79,539, there was no advance on the period. R$ 67,017 was advanced in 2011 as dividends from the total proposed for 2011 in the amount of R$ 124,872. The remaining portion was settled in 2012.

b)

The Luz Fraterna Program, created under Law no. 491, dated September 11, 2003, allows the State Government to pay for the electricity bills of low income families in Paraná – which have duly applied for the program – provided their consumption does not exceed 100 kWh a month. This benefit is available to residential customers with single phase connections, rural customers with single phase connections or two phase connections with circuit breakers of up to 50 ampères. Applicants must not have more than one electricity bill under their names and must not have any pending debts to Copel.

c)

Reimbursement of wages and social charges for employees transferred to the Paraná State Government. The Company recognized an impairment allowance in the amount of R$ 1,466 as of December 31, 2012 and R$ 1,307 as of December 31, 2011.

d)

BNDES is the parent company of BNDES Participações SA (BNDESPAR) that holds 23.96% of the share capital of the Company (26.41% of the common shares and 21.27% of preferred shares). Of the total proposed dividends to BNDESPAR, for fiscal year 2012, in the amount of R$ 63,890, was paid in advance during January 2013 the amount of R$ 32,736 (R$ 27,826 net of IRRF). Of the total proposed dividend for fiscal year 2011, amounting to R$ 100,309, was anticipated during the year 2011 the amount of R$ 53,836 and the remainder paid off in 2012.

e)

Petrobras holds 20% of the share capital of UEG Araucária and 24.5% of the share capital of Compagas.

f)

The supply and transport of piped gas and the purchase of gas for resale by Compagas.

 

F-109


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

g)

Advance payments to suppliers of Compagas refer to the gas purchase contract covering guaranteed volumes and transport capacity, higher than those actually consumed and used, which contains a future compensation clause. Compagas has the right to receive unused gas in subsequent months, and it may offset amounts under contract but not consumed over a period of up to 10 years. In light of the prospects of increased consumption by the market, Compagas management believes it will consume the accumulated gas volumes as of December 31, 2012 in the next fiscal years.

h)

Mitsui Gás e Energia do Brasil Ltda. holds 24.5% of Compagas’share capital. The balances refer to dividends payable.

i)

Paineira Participações S.A. holds 30% of Elejor share capital. The balances refer to dividends payable by Elejor.

j) 

Power purchase and sale agreement signed by Dona Francisca Energética and Copel Geração e Transmissão, expiring on October 6, 2015.

k)

Operation and maintenance services agreement, signed between Foz do Chopim Energética Ltda. and Copel Geração e Transmissão, expiring on May 24, 2015.

l)  

Light pole sharing agreement, signed between Sercomtel S.A Telecomunicações and Copel Distribuição, expiring on August 20, 2013.

m)

The Institute of Technology for Development (Lactec) was constituted on February 6, 1997 as a not for profit organization whose goal is to promote economic, scientific, technological, and social development and the sustainable conservation of the environment. In 2000, it was qualified by the Ministry of Justice, based on Law no. 9,790, as a Public Interest Civil Society Organization (OSCIP), which allows it, among other things, to enter partnerships with government agencies with no need for competitive bidding. Its members are: Copel, the Universidade Federal do Paraná (UFPR), the Engineering Institute of Paraná (IEP), the Paraná Federation of Industries (FIEP), and the Commercial Association of Paraná (ACP).

The asset balances refer to Energy Efficiency and R&D programs, recorded under current assets, in service in progress, until the respective projects are concluded, pursuant to ANEEL.

Lactec has service and R&D contracts with Copel Geração e Transmissão and Copel Distribuição, which are subject to prior or later control and approval by ANEEL.

n)

Dreen Brasil Investimentos e Participações S.Ais a joint venturer of Cutia Empreendimentos Eólicos SPE S.A. holding 50.1% of its shares. Balances consist of the transfer of expenses on shared services, recognized as administrative expenses in the statement of operarions.

 

F-110


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

37.           Insurance (unaudited)

The specifications by type of risk and maturity dates for the Company’s main insurance policies are reported below:

 

 

 

 

End of

 

Policy

Term

Insured

Specified risks (37.1)

08.24.2013

1,698,296

Fire - Company-owned and rented facilities (37.2)

08.24.2013

464,713

Civil liability - COPEL (37.3)

08.24.2013

12,000

Civil liability - Compagas (37.3)

09.30.2013

4,200

Engineering risks - COPEL (37.4)

08.24.2013

dependant on each event

Domestic and international transport - export and import (37.5)

08.24.2013

dependant on each event

Multi-risk (37.6) - Compagas

10.17.2013

5,053

Multi-risk (37.6) - Elejor

06.05.2013

974

Vehicles (37.7)

08.20.2013

market value

Miscellaneous risks (37.8)

08.24.2013

992

Operational risks (37.9) - Elejor

09.25.2013

446,691

Operational risks (37.10) - UEG Araucária *

11.30.2013

551,559

Court guarantee - (37.11) - Compagas

02.03.2013

56,938

Performance bond (37.12) - Copel

07.14.2014

12,500

Performance bond (37.12) - Copel

01.15.2014

2,200

Performance bond (37.12) - Copel

04.01.2013

3,049

Performance bond (37.12) - Copel

07.30.2015

44,319

Performance bond (37.12) - Copel

05.02.2013

46,000

Performance bond (37.12) - Copel

12.27.2014

1,850

Engineering risks - HPP Mauá - Consórcio Energético Cruzeiro do Sul (37.13) 

01.30.2013

741,403

Civil liability - HPP Mauá - Consórcio Energético Cruzeiro do Sul (37.14) 

01.30.2013

44,000

Operational risks - HPP Mauá - Consórcio Energético Cruzeiro do Sul (37.15) 

11.23.2013

799,290

Liability for directors and administrators - D&O (37.16) *

06.30.2013

51,088

* The values of the sums insured Operational Risk - UEG Araucaria and liability for directors and officers have been converted to real U.S. dollars with the rate of the day 12.30.2012, R$ 2.0435.

 

 

37.1.                   Insurance against specified risks

This policy covers substations and power plants, listing their main equipment and respective insured amounts. It provides basic coverage against fire, lightning strikes, explosions of any kind, and additional coverage against potential electrical damage, miscellaneous risks, and risk to electronics and computers.

37.2.                   Fire insurance

This policy covers both Company-owned and rented facilities and part of their contents. It ensures payment of reparations to the insurance holder or property owner for the damages resulting from basic fire hazards, lightning strikes, and explosions of any kind, plus additional coverage against windstorms, hurricane, cyclone, tornado, hail and smoke.

F-111


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

37.3.                   Civil liability insurance

This insurance provides coverage against liability for involuntary damages, bodily and/or material and/or moral, caused to third-parties as a result of the Company’s commercial and/or industrial operations.

37.4.                   Insurance against engineering risks - Copel

This insurance provides coverage against risks of installation, assembly, disassembly, and testing of new equipment, particularly at substations and power plants. Policies are purchased before each risk event, according to the occurrence and need for coverage against risks of carrying out engineering services.

37.5.                   Transport insurance

This insurance provides coverage against losses and damages caused to products transported by any appropriate means within both the domestic and foreign market and during import and export operations to and from foreign markets. Policies are purchased before each risk event, and are basically used to cover the transport of electrical, electronic, and telecommunications equipment.

37.6.                   Multi-risk insurance

This policy comprises the assets of the Company and provides coverage against potential damages caused by fire, lighting strikes, explosions, electrical malfunctions, risks to electronic equipment, recovery of records and documents, windstorms, smoke, and theft or aggravated larceny.

37.7.                   Vehicle insurance

This insurance covers the payment of reparations of damage suffered and expenses incurred as a result of risks to which Compagas’ 33 insured vehicles are subject. It provides basic coverage for the vehicles and additional and optional civil liability coverage against material, bodily, and moral damages caused to third-parties. Coverage limits for damages to third-parties are R$ 150 for material damages and R$ 300 for bodily damages, for each vehicle.

37.8.                   Insurance against miscellaneous risks – Copel

This insurance covers losses and material damage caused to the assets listed in the policy by any accidents with an external cause, including transport risks.

This type of insurance covers mobile and/or stationary electric equipment, computers, and electronics, whether in use at the Company's facilities or leased or loaned to third-parties.

37.9.                   Insurance against operational risks - Elejor

This insurance covers sudden, unforeseen, and accidental losses and material damage to Elejor buildings, merchandise, raw materials, unfinished and finished products, packages, machinery, tools, furniture, and other devices and facilities which are part of the insured establishment, in addition to loss of profits.

37.10.               Insurance against operational risks – UEG Araucária

This policy provides coverage against all risks (all legally insurable risks), including machinery failure, for all the facilities of the Araucária Thermal Power Plant.

37.11.               Court guarantee

This insurance covers the settlement of final rulings in lawsuits against Compagas. It has the same standing as a judicial bond, replacing judicial deposits in cash, attachment of assets, and bank guarantees.

F-112


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

37.12.               Contract Performance Bond

It guarantees the liabilities assumed by Copel in the concession agreements signed with ANEEL. This performance bond is aimed at companies which, being under contract, are bound to guarantee to its customers that such contracts, as far as pricing, deadlines and other specifications, will be performed in full. Public agencies within the direct or indirect public administration may also, pursuant to Law no. 8,666/93 and to Law no. 8,883/94, receive insurance policies as guarantee from its suppliers of goods and services, contractors, and public tender participants.

This type of insurance is designed to guarantee full performance of a contract. It does not cover damages but rather liabilities for breach of contract, and it is a form of contractual guarantee provided by Brazilian law, which may replace bank guarantees, cash bonds, or government bonds.

37.13.               Engineering risks - Consórcio Energético Cruzeiro do Sul

This insurance provides basic coverage of civil construction and/or installation and assembly services, and additional coverage of extraordinary expenses, riots, workers strike, civil commotion and malicious acts, wide maintenance for 24 months, emptying expenses, concluded construction and manufacturer risk for the execution of construction work and services necessary to the operation of the Mauá Hydroelectric Power Plant.

37.14.               Civil Responsibilities – Consórcio Energético Cruzeiro do Sul

This insurance provides coverage to involuntary, bodily injury and/or material and/or moral damage to third parties repairs, during the execution of construction work and/or installation and assembly of the Mauá Hydroelectric Power Plant. It also provides additional coverage of crossed civil responsibility and damage caused by the foundation services.

37.15.               Operating risks - Consórcio Energético Cruzeiro do Sul

It is defined by the "All Risks" type coverage, covering all losses or material damage caused to the insured assets, except those formally considered as excluded in its conditions.

The generating units, substations, power houses, dams, spillways and tunnels are covered by the policy.

As well as coverage for material damage, there is the additional coverage for rescue and containment of accidents, floods and flooding, removal of debris, minor engineering works, theft, strikes and rioting, expert fees and extraordinary expenses. It does not include coverage for lost profits.

37.16.               Civil Responsibilities for Senior Management and Officers (D&O)

Insurance of civil responsibility of commercial companies to advisors, officers and management D&O – Directors & Officers, with coverage for all National territory and abroad as hired by the Company.

This insurance has a goal to cover for payment of financial losses and legal fees resulting from judicial claims against insured personnel related to their activities in the company’s management.

The personnel covered by this insurance are advisors, officers and senior management of Copel and also other personnel appointed by Copel to hold equivalent positions in the subsidiaries.

38.           Compensation Account for “Part A”

As a result of adopting IFRS, the Company no longer recognizes regulatory assets and liabilities, and unrecognized the existing balances.

These assets and liabilities continue to be recognized in the regulatory records, introduced by ANEEL Normative Resolution 396.

F-113


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

The Compensation Account for Variations in Items from “Part A” - CVA accompanies the variations reported between the amounts homologated for tariff adjustments, and the amounts actually incurred during the tariff period, from the following cost components of “Part A”: Purchase of electric power (Bilateral, Itaipu and Auctions), Energy Transmission Cost (Transmission from Itaipu and the Basic Grid) and Sector Charges (Fuel Consumption Account - CCC; Energy Development Account - CDE; System Service Charges - ESS and Incentive Program for Alternative Energy Sources - Proinfa).

ANEEL authorized Copel Distribuição, through Homologatory Resolution 1,296, of June 19, 2012, to adjust its supply tariffs as from June 24, 2012, by an average rate of -0.81%, with -0.11% that refers to the tariff adjustment index and -0.70% for the pertinent financial components, of which, CVA, represents a total of R$ (41,622), consisting of 2 parts: CVA being processed, for the tariff year 2011-2012, for the amount of R$ (42,525), and the balance to compensate for CVA from prior years for the amount of R$ 903. After the withdrawal of regulatory assets (CVA) granted in the previous year, the effect of this adjustment was an average decrease of 0.65% in customer tariffs.

If the regulatory assets and liabilities had been recognized, the Company would have reported the following balances in its financial statements:

Composition of balances for CVA

 

 

Current

Non-current

 

Assets

Assets

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

CVA recoverable tariff adjustment 2011

 

 

 

 

CCC

-

6,588

-

-

CDE

-

4,023

-

-

Transport of energy purchased (Itaipu)

-

1,111

-

-

 

-

11,722

-

-

CVA recoverable tariff adjustment 2012

 

 

 

 

CCC

-

75

-

75

Charges for use of transmission system (basic grid)

14,181

18,081

-

18,081

CDE

5,856

3,074

-

3,074

Proinfa

5,565

-

-

-

Transport of energy purchased (Itaipu)

1,356

1,106

-

1,106

 

26,958

22,336

-

22,336

CVA recoverable tariff adjustment 2013

 

 

 

 

CCC

1,626

-

1,626

-

Charges for use of transmission system (basic grid)

22,047

-

22,047

-

ESS

35,860

 

35,860

-

CDE

3,261

-

3,261

-

Proinfa

1,037

-

1,037

-

Transport of energy purchased (Itaipu)

1,297

-

1,297

-

 

65,128

-

65,128

-

 

92,086

34,058

65,128

22,336

 

 

F-114


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

 

 

 

 

 

 

Current

Non-current

 

liabilities

liabilities

 

12.31.2012

12.31.2011

12.31.2012

12.31.2011

CVA compensable tariff adjustment 2011

 

 

 

 

Charges for use of transmission system (basic grid)

-

4,235

-

-

Energy purchased for resale (Itaipu)

-

10,414

-

-

ESS

-

12,896

-

-

Proinfa

-

649

-

-

Energy purchased for resale (CVA Energ)

-

23,828

-

-

 

-

52,022

-

-

   

 

 

 

CVA compensable tariff adjustment 2012

 

 

 

 

CCC

363

-

-

-

Energy purchased for resale (Itaipu)

17,871

17,273

-

17,273

ESS

18,982

16,696

-

16,696

Proinfa

-

166

-

166

Energy purchased for resale (CVA Energ)

9,679

27,350

-

27,350

 

46,895

61,485

-

61,485

CVA compensable tariff adjustment 2013

 

 

 

 

Energy purchased for resale (Itaipu)

10,062

-

10,062

-

Energy purchased for resale (CVA Energ)

41,828

-

41,828

-

 

51,890

-

51,890

-

 

98,785

113,507

51,890

61,485

 

Changes in CVA

 

 

 

 

 

 

 

 

Balance as of

 

 

 

 

Balance as of

 

01.01.2012

Differ.

Amortiz.

Correction

Transf.

12.31.2012

Assets

 

 

 

 

 

 

CCC

6,738

2,960

(6,958)

512

-

3,252

Charges for use of transmission system (basic grid)

36,162

36,238

(14,787)

662

-

58,275

ESS

-

71,165

-

555

-

71,720

CDE

10,171

12,170

(10,375)

412

-

12,378

Proinfa

-

13,116

(5,804)

327

-

7,639

Transport of energy purchased (Itaipu)

3,323

3,097

(2,594)

124

-

3,950

 

56,394

138,746

(40,518)

2,592

-

157,214

Current

34,058

37,743

(40,518)

693

60,110

92,086

Non-current - NC

22,336

101,003

-

1,899

(60,110)

65,128

Liabilities

 

 

 

 

 

 

CCC

-

726

(376)

13

-

363

Charges for use of transmission system (basic grid)

4,235

-

(4,525)

290

-

-

Transport of energy purchased (Itaipu)

44,960

22,569

(29,729)

195

-

37,995

ESS

46,288

5,538

(33,447)

603

-

18,982

Proinfa

981

(316)

(695)

30

-

-

Energy purchased for resale (CVA Energ)

78,528

50,260

(35,390)

(63)

-

93,335

 

174,992

78,777

(104,162)

1,068

-

150,675

Current

113,507

(5,990)

(104,162)

(369)

95,799

98,785

Non-current - NC

61,485

84,767

-

1,437

(95,799)

51,890

 

39.           Subsequent Events

39.1.                   New Investments

39.1.1.   TL 230 kV Assis – Paraguaçu Paulista II

National Interconnected System (SIN) basic network transmission concession, which has as an object the construction, operation and maintenance of transmission facilities for a 230 kV dual circuit transmission line, with an approximate length of 37 km, originating at the Assis substation and ending at the Paraguaçu Paulista II substation, respective transformer connections, busboard interconnections and a general 230 kV module as defined in the invitation to bid of ANEEL Auction 07/2012 held on December 19, 2012. All located in the State of São Paulo. The concession term is 30 years counted from the date of signing the contract, February 25, 2013, and at the sole discretion of the granting authority, it may be renewed for a maximum equal period.

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COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

39.2.                   Electricity rate adjustment by Copel Distribuição

According to ANEEL’s Resolution 1,431/13 electricity rates charged by Copel Distribuição were adjusted on January 24, 2013. The concessionaire’s rate was reduced by 19.28% on average. This percentage consists of a decrease in the cost of energy purchases, transmission expenses, a reduction in industry charges and the withdrawal of electricity rate subsidies which used to be paid for by customers. Clients will start enjoying partial benefits from the rate reduction on January 24, 2013 and full benefits on February 25, 2013.

40.           Condensed unconsolidated financial information of Companhia Paranaense de Energia – Copel

Since the condensed unconsolidated financial information required by Rule 12-04 of Regulation S-X is not required under IFRS issued by the International Accounting Standards Board - IASB, such information was not included in the original financial statements filed with the Brazilian Securities and Exchange Commissions – CVM in March, 25, 2013. In order to attend the specific requirements of the Securities and Exchange Commission (“SEC”), Management has incorporated the condensed unconsolidated information in these financial statements as part of the Form 20-F. The condensed unconsolidated financial information of Companhia Paranaense de Energia - Copel, as of December 31, 2012 and 2011 and for each of the two years in the period ending on December 31, 2012, presented herein were prepared considering the same accounting policies as described in Note 2 and 3 to Company’s consolidated financial statements, except for the fact that the investment caption presented in Company’s unconsolidaded condensed balance sheet were measured under the equity method, instead of being measured at fair value or at cost, as required by International Financial Reporting Standards - IFRSs issued by the IASB.

(a) Condensed statements of financial position

 

Assets

12.31.2012

12.31.2011

Current assets

 

 

Cash and cash equivalents

29,464

27,757

Bonds and securities

176

165

Dividends receivable

1,038,664

1,153,009

Income tax and social contribution

150,483

118,908

Other current receivables

14

322

1,218,801

1,300,161

Non-current assets

 

 

Judicial deposits

271,858

222,847

Deferred tax assets

117,194

108,380

Receivables from related parties

1,151,888

1,145,394

 

1,540,940

1,476,621

Investments

11,004,967

10,534,112

 

12,545,907

12,010,733

Total assets

13,764,708

13,310,894

 

 

F-116


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL
Notes to the Consolidated Financial Statements
All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

Liabilities and equity

12.31.2012

12.31.2011

Current liabilities

 

 

Income tax and social contribution

3,251  

3,929

Other taxes payable

22,072

41,385

Loans and financing

28,106

44,152

Debentures

-

-

Dividends payable

201,186

130,859

Other

3,085

2,748

 

257,700

223,073

Non-current liabilities

 

 

Loans and financing

971,721

965,772

Tax, social security, labor and civil provisions

302,295

295,355

Equity

 

 

Capital

6,910,000

6,910,000

Equity valuation adjustments

1,350,002

1,457,081

Legal reserve

571,221

536,187

Profit retention reserve

3,337,295

2,838,551

Additional proposed dividends

64,474

84,875

 

12,232,992

11,826,694

Total liabilities and equity

13,764,708

13,310,894

 

 (b) Condensed statement of income

 

 

12.31.2012

12.31.2011

12.31.2010

 

 

 

 

Gross profit

 

 

 

Other operating revenues (expenses)

 

 

 

General and administrative expenses

(23,235)

(23,675)

(13,272)

Other revenues (expenses), net

(13,927)

2,100

(239,168)

Result of equity in investees

732,313

1,249,114

1,212,861

 

695,151

1,227,539

960,421

Operating income before financial results

695,151

1,227,539

960,421

Financial income (expenses)

 

 

 

Financial revenues

110,317

121,459

120,501

Financial expenses

(109,266)

(177,193)

(134,393)

 

1,051

(55,734)

(13,892)

Operating income

696,202

1,171,805

946,529

Income tax and social contribution

 

 

 

Income tax and social contribution

(4,467)

(4,955)

(35,332)

Deferred income tax and social contribution

8,953

(9,160)

76,610

 

4,486

(14,115)

41,278

Net income for the period

700,688

1,157,690

987,807

Basic and diluted net earning per share attributed do parent company shareholders - in reais

   

 

Class A preferred shares

4.1742

5.3315

5.2075

Class B preferred shares

2.6879

4.4435

3.7904

Common shares

2.4435

4.0392

3.4456

       

 

 

F-117


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

(c) Condensed statements of cash flows

 

 

 

 

 

12.31.2012

12.31.2011

12.31.2010

Net cash generated (used) by operating activities

116,845

298,735

(214,706)

Cash flow from investing activities

 

 

 

Financing investments

(11)

10

78,957

Loans to related parties

(808,972)

-

-

Reimbursement of loans to related parties

920,836

29,906

-

Redemption of investment in Ceolpar

910

-

-

Additions to investments

(9,273)

(664)

(72,078)

   

 

 

Net cash generated by investing activities

103,490

29,252

6,879

   

 

 

Cash flow from financing activities

 

 

 

Payment of the principal amount of debentures

-

(600,000)

-

Dividends and interest on capital paid

(218,628)

(390,052)

(181,395)

Loans and financing with third parties

-

600,000

-

   

 

 

Net cash used in financing activities

(218,628)

(390,052)

(181,395)

   

 

 

Decrease in cash and cash equivalents

1,707

(62,065)

(389,222)

   

 

 

Cash and cash equivalents at the beginning of the period

27,757

89,822

479,044

Cash and cash equivalents at the end of the period

29,464

27,757

89,822

   

 

 

Variation in cash and cash equivalents

1,707

(62,065)

(389,222)

                                                       

                  During the years ended December 31, 2012 and 2011, we received R$ 378,115 and R$ 562,733, respectively, from dividends and interest on own capital paid by our investees. Additional disclosures relating to Companhia Paranaense de Energia - Copel unconsolidated condensed financial information presented above are as follows:

Recoverable Taxes - As of December 31, 2012 and 2011, Companhia Paranaense de Energia – Copel recorded part of the tax credits referring to tax loss carryforwards, based on expectations of future taxable income for income tax and social contribution up to a period of 10 years.

Related Parties: The Company has the following balances outstanding with related parties:

 

 

 

 

12.31.2012

12.31.2011

Non-current assets

 

 

Copel Distribuição

919,234

839,458

Elejor

232,654

305,936

Total

1,151,888

1,145,394

     

• Investments - As of December 31, 2012 and 2011, investments in subsidiaries are comprised as follows:

 

12.31.2012

12.31.2011

Copel Geração e Transmissão

6,216,442

5,739,789

Copel Distribuição

3,601,520

3,665,835

Dominó Holdings

379,669

345,953

Copel Telecomunicações

327,006

287,740

Other Investments

327,487

295,553

 

10,852,124

10,334,870

 

F-118


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

• Dividends receivable - The dividends receivable are comprised as follows:

 

12.31.2012

12.31.2011

Investees and subsidiaries

 

 

Copel Geração e Transmissão

635,489

600,659

Copel Distribuição

371,863

508,695

Copel Telecomunicações

7,982

20,649

Compagas

2,514

3,927

Dominó Holdings

17,987

14,184

Elejor

2,751

2,592

Centrais Eólicas do Paraná

-

-

Associated

 

 

Dona Francisca Energética

78

2,303

 

1,038,664

1,153,009

 

Provision for contingencies - Companhia Paranaense de Energia - Copel recorded reserves for risks mainly related to Cofins and PIS/PASEP. The provisions for risks are shown below:

 

 

12.31.2012 

12.31.2011 

 Regulatory

11,667 

10,821 

 Civil

17,694 

9,929 

 Tax Claim

272,934 

274,605 

 

302,295 

295,355 

 

F-119


 
 

COMPANHIA PARANAENSE DE ENERGIA – COPEL

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated 

 

              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.

              In addition, Copel GeT has certain financing agreements with the Brazilian National Development Bank (“BNDES”) under which BNDES approval is required for Copel GeT to pay cash dividends exceeding 30% of its net profit. Since BNDES has always approved Copel GeT’s requests to pay cash dividends in excess of 30% of its net profit and this restriction has not affected Copel GeT’s ability to pay cash dividends or parent company’s ability to meet its cash obligations, management deemed it to be a perfunctory clause.

              As of December 31, 2012, total restricted subsidiaries net assets amount to R$10,558,415 composed as follows:

 

 

 

12.31.2012

Copel Geração e Transmissão S.A.

6,216,442

Copel Distribuição S.A.

3,601,520

UEG Araucária Ltda.

665,591

Centrais Elétricas Rio Jordão - Elejor

74,862

Total

10,558,415

 

F-120