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As filed with the Securities and Exchange Commission on April 27, 2022
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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Energy Company of Paraná (Translation of Registrant’s Name into English) |
The Federative Republic of Brazil (Jurisdiction of Incorporation or Organization) |
(Address of Principal Executive Offices)
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(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:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered | |
| N/A | |||
| Preferred Class B Shares, without par value | N/A | New York Stock Exchange* | |
| American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Unit consisting of one Common Share and four Preferred Class B Shares of Companhia Paranaense de Energia - COPEL |
New York Stock Exchange
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* 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, 2021:F1
Common Shares, without par value*
Class A Preferred Shares, without par value*
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.
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
[_]
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
N/A
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Non-accelerated
filer [_] Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5,2012.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [_] [X] Other [_]
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
N/A
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes
[_]
Table of Contents
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this annual report, we refer to Companhia Paranaense de Energia ‒ Copel, and, unless the context otherwise requires, its consolidated subsidiaries as “Copel,” the “Company,” “we” or “us”.
References to (i) the “real,” “reais” or “R$” are to Brazilian reais (plural) and the Brazilian real (singular) and (ii) “U.S. dollars,” “dollars” or “US$” are to United States dollars. We maintain our books and records in reais. Certain figures included in this annual report have been subject to rounding adjustments.
Our audited consolidated financial statements as of December 31, 2021 and 2020, and for each of the years ended December 31, 2021, 2020 and 2019, are included in this annual report. We prepared our audited consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or “IFRS”, as issued by the International Accounting Standards Board, or IASB.
References in this annual report to the “Common Shares,” “Class A Shares” and “Class B Shares” are to our common shares, class A preferred shares, class B preferred shares, respectively. References to “Units” are to our units each composed of 1 Common Share and 4 Class B Shares. References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing one Unit. Units are listed on “B3” (the São Paulo Stock Exchange or B3 S.A. – Brasil, Bolsa, Balcão) and “Latibex” (Mercado de Valores Latinoamericanos en Euros). Units ADSs are listed on “NYSE” (the New York Stock Exchange).
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 151.
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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 us, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting the financial condition, liquidity or results of operations are examples of forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve only the current view of management and are subject to a number of inherent risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to:
| · | Brazilian political and economic conditions; |
| · | economic conditions in the State of Paraná; |
| · | technical and operational conditions related to the provision of electricity services; |
| · | lawsuits; |
| · | our ability to obtain financing; |
| · | developments in other emerging market countries; |
| · | changes in, or failure to comply with, governmental regulations; |
| · | competition; |
| · | electricity shortages; |
| · | unfavorable hydrological conditions; |
| · | international economic and political developments; |
| · | impacts of the coronavirus (COVID-19) pandemic; |
| · | the impact of the ongoing conflict in Ukraine and the trade and monetary sanctions that have been imposed in connection with those developments; 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
RISK FACTORS
Risks Relating to Our Company and our Operations
We are controlled by the State of Paraná, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors.
We are controlled by the State of Paraná, which owns 69.7% of our outstanding common voting shares as of the date of this annual report, and whose interests may differ from other shareholders. As a result, the State of Paraná has the power to control all of our operations, including the power to elect the majority of the members of our Board of Directors and to determine the outcome of actions that require the approval of common shareholders, including transactions with related parties and corporate reorganizations. We recognize that the State of Paraná may use its status as our controlling shareholder to promote its public policies or social objectives and not necessarily to meet the objective of improving our business and/or operating results. In addition, lawsuits involving the State of Paraná may affect its position as a controlling shareholder and, therefore, may affect our capital structure. We can not guarantee that our corporate governance policies and structures in place for protection of minority shareholders will be sufficient to fully or effectively address any or all the related risks.
We are involved in several lawsuits that could have a material adverse effect on our business if their outcome is unfavorable to us.
We are the defendant in several legal proceedings, mainly relating to civil, administrative, labor and tax claims. The outcome of these proceedings is uncertain and, if determined against us, may result in obligations that could materially affect our results of operations. On December 31, 2021, our provisions for probable (more likely than not) and reasonably estimated losses were R$1,597.4 million. For additional information, see “Item 8. Financial Information–A. Consolidated Financial Information–Legal Proceedings”.
We are subject to limitations regarding the amount and use of public sector financing, which could prevent us from obtaining financing and implementing our investment program.
Our current budget anticipates capital expenditures for expansion, modernization, research, infrastructure and environmental projects of approximately R$2,067.1 million in 2022. As a state-controlled company, we are subject to Brazilian Central Bank Resolution no. 4,589/2017 (Resolução nº 4,589/2017 do Banco Central do Brasil), which defines the limit of exposure and the annual global limit of credit to public sector entities to be observed by financial institutions and other institutions authorized to operate by the Brazilian Central Bank. The annual global limit that can be obtained in credit transactions, with and without guarantee of the Federal Government, by the bodies and entities of the public sector with the financial institutions and other institutions authorized to operate by the Brazilian Central Bank is defined by the National Monetary Council by means of inclusion of an annex to Brazilian Central Bank Resolution no. 4,589/2017, establishing, until the end of each fiscal year, the limit for the following year. The maximum amounts defined for the 2022 fiscal year are R$6.5 billion for Federal Government guaranteed transactions and up to R$ 12.1 billion for transactions without Federal Government guarantee. Although theses limits have recently increased, as a result of these limits, we may have difficulty in obtaining financing from financial institutions and other institutions authorized to operate by the Brazilian Central Bank, which could create difficulties in the implementation of our investment program. Additionally, some of our concession contracts have provisions that limit our permitted level of indebtedness, which could also affect our ability to obtain necessary financing. Furthermore, the requirements and other criteria adopted by financial institutions when approving new financing transactions may be related to certain Brazilian macroeconomic scenarios, as well as to our financial indicators, such as our indebtedness levels and other indicators usually considered by financial institutions in their credit risk assessments. We cannot ensure you that these requirements and criteria will be met. As a result of these regulations and provisions, our capacity to incur debt from certain sources is limited, which could negatively affect the implementation of our investment program.
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Failures in our cybersecurity controls or unauthorized disclosure of information, as well as failure to comply with existing data privacy and data security laws may adversely affect our business and reputation.
We collect, store, process and use various confidential information related to our business and operations. In our ordinary course of business, we also collect and store personal data of our customers in our data centers located at our own premises. We have suffered cyber-attacks in the past leading to the temporary unavailability of part of our systems.
Despite our cybersecurity controls, information technology and infrastructure (solarwinds), we may be vulnerable to failures whether caused by technical failures, negligence, accident or cyber-attacks. Those failures may result in disclosure or theft of sensitive information, loss of data integrity, misappropriation of funds and disruptions to or interruption in our business operations.
We are subject to Brazilian laws and regulations relating to data protection and data privacy, mainly the Brazilian Federal Law No. 13,709/2018 (“Brazilian Data Protection Law,” or “LGPD”) that sets forth the legal framework for the processing of personal data. LGPD entered into effect on September 2020 and administrative penalties applicable for non-compliance with LGPD entered into effect later on, on August 2021.
Violations of this statute and related regulations, including leakage of personal data, could result in individual or collective lawsuits against us, the imposition of fines, among other civil, administrative and criminal penalties, as well as damage to our reputation, which could have an adverse effect on us and our business, reputation and results of operations.
The construction and expansion of our transmission and power generation projects involve significant risks that may have an adverse effect on us.
Our activities related to the development of transmission and generation projects depend on the consent of third parties over which we have no control. In addition, project development is subject to environmental, engineering and construction risks that can lead to cost overruns, delays and other impediments to timely complete a project within the budget. We cannot assure you that we will (i) obtain all required permits and approvals for our projects, (ii) secure private sector partners for any of our projects, or (iii) obtain adequate financing for our projects or that financing will be available on a non-recourse basis to us. If we are unable to complete a project or such project is delayed, this may decrease our expected financial return from the project, which may lead to impairment. As a consequence, our costs may increase or we may fail to achieve the revenues planned in connection with such expansion projects, which may have an adverse effect on our financial condition and results of operations.
We are largely dependent upon the economy of the State of Paraná.
The distribution market for the majority of our sales of electricity is located in the State of Paraná. Although a more competitive market involving possible sales to customers outside Paraná might develop in the future, our business depends and is expected to continue to depend to a very large extent on the economic conditions of Paraná.
Further, an increase in electricity prices, combined with poor economic performance in the State of Paraná, could affect the ability of some of our distributions customers to pay amounts owed to us. As of December 31, 2021, our overdue receivables in the distribuition concession area with Final Customers were approximately R$ 711.0 million in the aggregate and our allowance for doubtful accounts related to these receivables was R$155.3 million. See Note 7 to our audited consolidated financial statements.
In addition, in the event of an economic recession combined with high energy prices, the number of our distribution customers connecting illegally to our distribution grid may increase, which would then reduce our revenue from electricity sales to Final Customers. Energy we lose as a result of these illegal connections is considered a commercial loss (non-technical), and we may incur regulatory penalties if our commercial losses exceed certain established regulatory thresholds calculated by ANEEL. If ANEEL determines that we were not efficient in inspecting and controlling the non-technical losses in the distribution grid, the agency may limit the transfer of such losses to the Final Customers.
Disruptions in the operation of, or deterioration of the quality of, our services could have an adverse effect on our business, financial condition and results of operations.
The operation of complex electricity generation, transmission and distribution systems and grids involves various risks, such as operational setbacks and unexpected interruptions, caused by accidents, breakdown or failure of equipment or processes, performance below expected levels of availability and efficiency of assets, or disasters (such as explosions, fires, natural phenomena, landslides, sabotage, vandalism, and similar events). In addition, operational decisions by authorities responsible for the electricity grid, environment matters, operations and other issues affecting the electricity generation, transmission or distribution could have an adverse effect on the performance and profitability of the operations of our generation, transmission and distribution systems. If these issues occurred, our insurance could be insufficient to wholly account for the costs and losses that we may incur as a result of the damages caused to our assets, or due to outages.
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Further, the revenues that our subsidiaries generate from establishing, operating and maintaining their facilities are related to the availability of equipment and assets, and to the quality of the services (continuity and service in accordance with levels demanded by regulations). Under the related concession contracts, we and our subsidiaries are subject to: (i) a reduction of the distributor revenue as a result of the reduction of the so-called “Portion B” allocation in the revenue calculation formula; (ii) a reduction of the Permitted Annual Revenue - APR (Receita Anual Permitida, or RAP), for the transmission companies; (iii) the effects of the Availability Factor (Fator de Disponibilidade, or FID) and the offtake guarantee levels for the generation facilities; and (iv) the application of penalties and payment of compensation amounts, depending on the scope, severity and duration of non-availability of the services and equipment. Under Brazilian Law, we are strictly liable for direct and indirect damages resulting from the inadequate supply of electricity such as abrupt interruptions arising from the generation, transmission or distribution systems. Therefore, outages or stoppages in our generation, transmission and distribution facilities, or in substations or grids, may cause a material adverse effect on our business, financial situation and results of operations.
We are subject to risks related to social and environmental impacts of our projects.
The construction and operation of our assets may modify the ecosystem, particularly the natural state of the water resources and of the vegetation of the flooded river basin in the case of Hydroelectric Power Plants. Our projects may cause direct and indirect impacts in the local communities, such as housing displacement. Moreover, they may affect the economic outputs of the local communities, lead to the loss of cultural identity or increase the demand for government services. In these cases, we may be required to implement specific plans in order to minimize and mitigate those impacts.
Failures in dams under our responsibility may cause serious damages to the affected communities, to our results and to our reputation.
Dams are important infrastructures to our business, and are fundamental components of our Hydroelectric Power Plants for the purposes of diking and storing water, accounting for the majority of our energy generation capacity. However, in any dam, there is an intrinsic risk of ruptures caused by different internal or external factors. Therefore, we are subject to the risk of a dam failure that could have repercussions much greater than just the loss of hydroelectric power generation capacity. A dam failure may result in economic, social, regulatory and environmental damages and potential loss of human life in the communities downstream from the dams, which may have a material adverse effect on our reputation, business, operational results and financial conditions.
Our governance, compliance and internal controls may fail to prevent breaches of legal, regulatory, ethical or governance standards.
We are required to comply with a wide range of laws and regulations, including anti-corruption, anti-money laundering and related laws and regulations. Although we have internal policies and controls, we may be subject to breaches of those internal policies and controls and to instances of fraudulent behavior, corrupt practices and dishonesty by our directors, officers, employees, contractors or other agents that we may not timely identify or prevent.
Further, we have a large number of contracts with suppliers, with wide distribution and outsourcing of the production chains, and we are not able to control all possible irregularities or to ensure that our selection processes will be sufficient to avoid situations where our suppliers have problems related to compliance with applicable law, sustainability or outsourcing of the production chain under inadequate safety conditions.
These risks are increased by the fact that our portfolio includes affiliated companies, such as special purpose companies, some of which we do not hold a controlling interest in.
Although we have an integrity program with timely updates and a robust process for investigating complaints, our systems may not be effective in all circumstances. Any failure in our capacity to prevent or detect noncompliance with the applicable governance rules or regulatory obligations may cause damages to our reputation or other material adverse effects to our results of operation or financial condition.
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The rules for electricity trading and market conditions may affect the sale prices of electricity.
We perform trading activities through power purchase and sale agreements, mainly in the unregulated electricity market (Free Market), through our generation and trading companies.
Energy trading is affected by changes in the methodology used to calculate energy price in the short-term (Preço de Liquidação de Diferenças, or PLD). PLD is currently determined by the results of optimization models of operation of the interconnected systems used by the ONS and by CCEE (Câmara de Comercialização de Energia Elétrica). In such determination, there may be data entry errors or errors in the model, which may lead to an unexpected change of the PLD and possible future republications of the PLD. Thus, there is a risk for the commercial business with respect to the alteration of these models, data entry errors and republishing of the PLD, which may cause market uncertainty, reduction of liquidity, and financial losses with unexpected price variation. As of January 1, 2021, the PLD is officially calculated for each submarket on an hourly basis, as proposed by the Standing Committee for Analysis of Methodologies and Programs (Comissão Permanente para Análise de Metodologias e programas Computacionais do Setor Elétrico or CPAMP), in accordance with the implementation schedule defined by MME (Ministério de Minas e Energia) Ordinance No. 301/2019.
Any change in the energy trading rules related to the increase of restrictions for the entry of new consumers in the Free Market may affect our energy trading business. Also, excess supply of energy in the market, particularly as a result of new energy projects and incentivized renewable energy projects, may cause a decrease in the energy prices and adversely impact our energy trading business.
Our business could be adversely affected by the performance of our suppliers, contractors or other third parties we do not control.
Suppliers, contractors and other third parties may fail to perform existing contracts and obligations, which may unfavorably impact our operations and financial results.
Further, being a state-controlled company, we are legally obliged to engage a bidding process for the acquisition of equipment, materials and services, which may not result in the best quality of services, equipment and materials.
Our business is subject to risks related to our supply chain which may be substantially and adversely affected by internal or external economic, political, social and natural events, such as pandemics, terrorism acts, border disputes and armed conflicts, among others.
The operations of our supply centers and of our suppliers and service providers could be substantially and adversely affected by factors and events beyond our control, such as fires, natural disasters, spread of diseases, pandemics, strikes, system failure, terrorrist attacks, deforestation, and political or armed conflicts, including the ongoing conflict between Russia and Ukraine, trade sanctions and other similar events, and the developments therein, such as high inflation, volatility in the commodities markets and financial markets, changes in currencies, lack of liquidity in the capital markets, among others. In such a scenario, if the impacted services cannot be replaced or reinstated in the affected region, the supply of electricity to our customers could be impacted or disrupted and our results could be adversely impacted.
We are subject to climate factors and to uncertainties that may adversely impact our operation and results
Our energy generation, transmission and distribution operations are subject to climatic factors and uncertainties related to severe weather events, mainly cyclones, hurricanes, floods, droughts and fires. These events can affect minimum water storage levels in hydroelectric plant reservoirs and lead to the unavailability of our electricity supply systems, impacting penalties by regulatory bodies, consumer complaints, lawsuits, costs for the restoration of systems, in addition to negatively affecting our results.
Further our wind farms operations are subject to climate factors and to uncertainties related to the speed of wind. The authorizations that govern our power generation activities in wind farms set forth certain performance covenants, which require us to generate minimum amounts of energy on annual and four-year bases in accordance with the energy amounts sold in the correspondent auctions. Non-compliance with such covenants may adversely impact our results.
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Failure to comply with ESG guidelines can adversely affect our operations, results and reputation
Our ESG-related practices are evolving and may include commitments to meet standards or deadlines of enhanced social, governance and sustainable practices, as well as to incorporate sustainability into our business. Failure to meet corporate ESG guidelines or commitments could cause us financial and operational losses, and reputational damage.
We may acquire other companies in the electric sector or new energy concessions, as we already did in the past, which may increase our financial leverage and adversely affect our consolidated performance
We constantly prospect for businesses that are related to our corporate purpose and aligned with our strategic plan. To expand our business, we may participate in auctions for the construction and operation of new power generation and transmission ventures, as well as invest in other companies from the energy sector, as we have done in the past. These acquisitions can increase our financial leverage or reduce our profits. In addition, the integration of the new businesses may not result in the synergy we expect in terms of efficiency gains and economies of scale for our operations, which may adversely affect our operational and financial performance.
Labor disputes may disrupt our operations from time to time
Our employees are represented by unions. Disagreements regarding issues related to divestitures, changes to our business strategy, and reductions in the professional staff may lead to employee reactions. Strikes, work interruptions, or other forms of protests in any of our major suppliers or contractors or at their facilities may undermine our ability to complete relevant projects on time, negatively impacting our results of operations, and affect our ability to achieve long-term strategic goals.
The State of Paraná is party to a lawsuit under which an unfavorable decision could result in the sale of its shares in our company to third parties. A change in our capital structure may expose our business to uncertainties and additional or different risks.
The State of Paraná is party to a lawsuit (Ação Judicial No. 0021271-74.2005.8.16.0000) filed by Itaú Unibanco S.A, which is currently under review by the Brazilian Supreme Court. Itau claims that it has the right to enforce a collateral security over the shares in our company held by the State of Paraná due to the alleged default by the State of Paraná in a transaction involving the acquisition of a public bank (Banestado) that took place in the 1990s. A favorable decision to Itaú could result in the transfer of the shares in our company owned by the State of Paraná that were pledged as security to third parties or to Itaú. In that scenario, the State of Paraná may no longer hold over 50% of our voting capital, possibly resulting in a new controlling shareholder or a group of private shareholders acting jointly, that could hold the decision-making power and influence our business. That may expose our business to significant uncertainties, which may adversely impact our financial and operational results.
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Risks Relating to the Brazilian Electricity Sector and Other Sectors that We Operate
We are uncertain as to the renewal of certain of our generation and transmission concessions.
Under Federal Law No. 12,783/2013, or the 2013 Concession Renewal Law, we may only renew our concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional 30-year period (or an additional 20-year period in the case of thermal plants), if we agree to amend the terms of the concession contract that is up for renewal to reflect certain new terms and conditions imposed by the 2013 Concession Renewal Law, which vary depending on whether the concession is for generation, transmission or distribution. If we do not agree to amend the concession contract to reflect these new conditions, the concession contract cannot be renewed and will be subject to a competitive bidding process upon its expiration, which we might not win. If we do not renew our generation and transmission concessions or if they are renewed under less favorable conditions, our financial condition and results of operations could be materially adversely affected. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry—Concessions”.
The extension of the concession agreement of our controlled company Compagas is under review of the granting authority.
Compagas entered into a concession agreement with the State of Paraná which, pursuant to Complementary Law 227/2020, expires on July 6, 2024. The purpose of this concession is to provide piped gas distribution services and other related activities to all segments of the consumer market, either as a raw material, or for the purpose of power generation or other uses made possible by technological advances.
The gas concession agreement provides that part of the investments made by Compagas were to be recovered through the collection of tariffs paid by the end users of the public service and the remaining part should be indemnified by the granting authority, the State of Paraná, at the end of the concession.
On July 23, 2021, the State of Paraná submitted to public consultation a proposal to extend Compagás' concession for thirty years from July 6, 2024 and, on February 22, 2022, a public hearing was held to receive comments and input. The proposed extension of the concession contract includes the execution of a new concession contract, which would change the tariff structure of the concession from a tariff based on production cost to tariff defined based on a price cap. The methodology to calculate the tariffs under the new method will be developed by the State Regulatory Agency for Public Services - AGEPAR.
However, if this extension of the concession does not occur, even if Compagas is entitled to compensation for the investments made in the last 10 years prior to the end of the concession, the financial condition and results of operations of our controlled company may be adversely affected. For more information see Note 2.1.1 to our audited consolidated financial statements.
Our operating results depend on prevailing hydrological conditions, which have been volatile recently. The impact of water shortages and resulting measures taken by the government to conserve energy may have a material adverse effect on our business, financial condition and results of operations.
We are dependent on the prevailing hydrological conditions throughout Brazil and in the geographic region in which we operate. According to data from ANEEL, approximately 62% of Brazil’s installed capacity currently comes from hydroelectric generation facilities. Hydrological conditions in our region, and Brazil in general, are frequently subject to changes because of non-cyclical deviations in average rainfall.
In previous periods of low rainfall, the Brazilian government reacted to poor hydrological conditions by seeking to reduce the consumption of electricity by Final Customers by several means, from general campaigns to reduce energy consumption to rationing programs. The effect of campaigns to reduce energy consumption is not predictable, making it difficult for our distribution business to accurately estimate the volume of energy it needs to purchase for sale to Final Customers. In case of mandatory rationing program, our distribution business would be adversely affected because its revenues are partially based on the volume of electricity it provides through our distribution grid to Final Customers.
With respect to our generation business, in order to compensate for poor hydrological conditions and to maintain adequate water levels in reservoirs, the ONS may order the reduction of generation from Hydroelectric Power Plants, which would be partially compensated by increased generation by Thermoelectric Plants. This mechanism for replacing hydroelectric production with thermoelectric production may not provide all of the energy we need to fulfill our obligations under existing energy supply contracts. To compensate for this deficit, our generation business can be required to purchase energy in the Spot Market, typically at higher prices, and we would not be able to pass on these increased costs. This mechanism impacts all generation companies in Brazil regardless of whether the geographical region in which a specific generator is located is experiencing low rainfall and could have a material adverse effect on our generation business.
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In addition, in an extreme scenario, given the increased presence of thermal generation in the national electric matrix, if a shortage of natural gas were to occur, this would increase the general demand for hydroelectric energy in the market and therefore increase the risk that a rationing program would be instated.
Regarding our energy trading business, the effect of volatility in hydrological conditions is the increase of the variation of energy price, which in turn increases the Spot Market volatility, thus affecting our operating results. Spot price (PLD) is determined by the results of optimization models of operation of the interconnected systems used by the ONS and by CCEE. The energy average prices in the short term ("spot") are calculated by CCEE every hour and are set for each region.
When there is great availability of hydrological resources, the spot price tends to remain at lower levels, which may not be enough to (i) cover the generation costs of this very same energy (when related to our generation business) and (ii) cover the cost of the power purchase and sale agreement in our energy trading business.
Conversely, if hydrological availability is affected, spot prices tend to increase significantly, in addition to occasionally impacting the GSF, which may adversely impact our costs of energy purchases, as the price set forth in power purchase and sale agreements may not be sufficient.
ANEEL could penalize us for failing to comply with the terms of our concessions or with applicable laws and regulations, and we may not recover the full value of our investment in the event that any of our concessions are terminated.
Our concessions are for terms of 20 to 35 years and may be extended if certain conditions are met. In the event that we fail to comply with any term of our concessions or applicable law or regulation, ANEEL may impose penalties on us, which may include warnings, the imposition of potentially substantial fines and restrictions on our operations, among others. ANEEL may also terminate our concessions prior to the expiration of their terms if we fail to comply with their provisions or if they determine that terminating our concessions would be in the public interest, through a forfeiture or expropriation proceeding. In particular, our renewed distribution concession agreement contains both quality and financial metrics that become more restrictive over time, and that we must meet to ensure that our distribution concession agreement is not terminated. If ANEEL terminates any of our concessions before its expiration, we would not be able to operate the segment(s) of our business that had been authorized by the concession. Furthermore, any compensation that we may receive from the Brazilian government for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment. The early termination or non-renewal of any of our concessions or the imposition of severe fines or penalties by ANEEL could have a material adverse effect on our financial condition and results of operations. See “Item 4. Information on the Company—The Brazilian Electric Power Industry—Concessions”.
We are subject to comprehensive regulation of our business, which fundamentally affects our financial performance.
Our business is subject to extensive regulation by various Brazilian legal and regulatory authorities, particularly the MME and ANEEL, which regulate and oversee various aspects of our business and approve our tariffs. Changes to the laws and regulations governing our operations, which have occurred in the past, could adversely affect our financial condition and results of operations.
For example, the tariffs that we charge for sale of electricity to Captive Customers are determined pursuant to a concession agreement with the Brazilian government through ANEEL. The tariff rates we charge our customers are determined pursuant to a concession agreement and in accordance with ANEEL’s regulation. In addition, ANEEL’s decisions relating to our tariffs may be contested by public authorities or by our customers. Administrative and judicial decisions resulting from these challenges may modify ANEEL’s decisions in a manner that is unfavorable to us, which may adversely affect our financial condition and results of operations.
If any further regulations or new laws are passed by the Brazilian government to lower electricity prices, these new laws and regulations could have a material adverse effect on our results of operations.
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Certain customers in our distribution concession area may cease to purchase energy from our distribution business.
Our distribution business generates a large portion of its revenues by selling energy that it purchases from generation companies. Large electricity customers within the geographic area of our concession that meet certain regulatory requirements may qualify as free customers (“Free Customers”). A Free Customer in our distribution concession area is entitled to purchase energy directly from generation and energy trading companies rather than through our distribution business, in which case that Free Customer would cease to pay our distribution business for that energy that we previously supplied.
In addition, ANEEL has issued regulations related to micro and mini distributed generation, which has been facilitating the purchase or lease of power generation equipment by customers, especially solar photovoltaic modules, to produce energy for their own consumption. Such regulation is expected to be revised following the adoption of a new legal framework for distributed generation in Brazil (Federal Law No. 14,300/2022) and we cannot anticipate how eventual changes in regulation will affect us. If the number of customers with micro and mini distributed generation within the geographic area of our concession increases, our revenues and results of operations could also be adversely affected.
We generate a portion of our operating revenues from Free Customers who may seek other energy suppliers upon the expiration of their contracts with us.
As of December 31, 2021, we had 1,380 Free Customers, representing approximately 8.0% of our consolidated operating revenues and approximately 14.6% of the total volume of electricity sold by us. As of December 31, 2021, our energy trading company had 1,363 Free Customers, representing approximately 7.1% of our consolidated operating revenues and approximately 12.6% of the total volume of electricity we sold in 2021. Copel GeT had 17 Free Costumers on December 31, 2021. Approximately 99.99% of the megawatts-hours sold under contracts to such customers by Copel GeT expired in 2021. These customers represented approximately 2.0% of the total volume of electricity we sold in 2021, and approximately 0.9% of our consolidated operating revenues. Such Free Customers may seek other energy suppliers upon the expiration of their contracts with us. Additionally, it is possible that our large industrial clients could be authorized by ANEEL to generate electric energy for their own consumption or sale to other parties, in which case they may obtain an authorization or concession for the generation of electric power in a given area, which could adversely affect our results of operations.
We may be forced to purchase or sell energy in the Spot Market at higher or lower prices and we may not be entitled to pass on any increased costs or incurred losses to our Final Customers in a timely manner, or at all.
Under the New Industry Model Law, electric energy distributors, including us, must contract, through public bids conducted by ANEEL, 100% of the forecasted electric energy demand for their respective distribution concession areas. The auctions in which the distributors are allowed to purchase energy are held up to seven years prior to the actual delivery of electric energy. We cannot guarantee that our forecasts for energy demand in our distribution concession area will be accurate. If our forecasts fall short of actual electricity demand, or if we are unable to purchase energy through the regulated market due to lack of energy supply in the market, or if a generation company fails to deliver energy that was previously contracted, we may be forced to make up for the shortfall by entering into short-term agreements to purchase electricity in the Spot Market where we may pay significantly more for energy without being able to pass on these increased costs to our Final Customers. In addition, if we underestimate our distribution energy needs, we may be subject to penalties imposed by the CCEE. Moreover, if our forecasts surpass actual demand by more than the allowed margin (105% of actual demand), including where demand is depressed due to government campaigns in response to poor hydrological conditions or due to reduced economic activity, we will not be able to pass on to our Final Customers the cost of the excess energy that we acquire.
We are subject to a counterparty’s credit risk in agreements entered into with Copel Comercialização (Copel Mercado Livre) and in case of default, we may have to sell or purchase energy at a different base price.
Copel Comercialização is subject to a counterparty’s credit risk. When Copel Comercialização sells energy, the counterparties to power purchase agreements may default on their contractual obligations, which may cause Copel Comercialização to sell energy at a different base price. In cases where Copel purchases energy, whether from energy generation projects, in operation or under construction, or even from energy trading, the selling counterparties may also default on the relevant contracts, and, consequently, Copel Comercialização may have to buy energy at a different base price and be subject to regulatory penalties imposed by CCEE due to insufficient contractual guarantees. Even though we perform credit analyses in accordance with market standards and require our counterparties to provide guarantees in connection with the power purchase and sale agreements, we cannot guarantee that our counterparties will not fail to comply with their payment obligation or with their obligation to deliver energy, as the case may be, which may adversely affect our results.
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We are subject to the risk of exchange rate variation if we start to perform energy import business, as well as if we perform business involving natural gas.
Our subsidiary Copel Comercialização (Copel Mercado Livre) obtained authorization from the Ministry of Mines and Energy to import energy from neighboring countries, Argentina and Uruguay, and if we start doing business in this regard, we will be subject to the risk of exchange rate fluctuation. This subsidiary was also authorized by the National Agency of Petroleum, Natural Gas and Biofuels to operate in the sale of natural gas within Brazil. Although the natural gas business still has an incipient market in Brazil, if we do business in this area, we will be subject to the risk of exchange rate variation, considering that part of these transactions may be carried out in foreign currencies.
We are subject to unrealized losses or net gains arising out from the mark-to-market of the purchase and sale of energy contracts, which may expose us to the risk of future energy prices.
Our subsidiary Copel Comercialização (Copel Mercado Livre) negotiates energy purchase and sale transactions, and part of its agreements are classified as derivative financial instruments measured at fair value through its results. Unrealized net losses or gains resulting from the mark-to-market of these contracts (difference between contracted prices and market prices) are recognized in the results of the fiscal year. This activity may expose us to the risk of future energy prices.
Our equipment, facilities and operations are subject to numerous environmental and health regulations, which may become more stringent in the future and may result in increased liabilities and increased capital expenditures.
Our distribution, transmission and generation activities are subject to comprehensive federal, state and local legislation, as well as supervision by Brazilian governmental agencies that are responsible for the implementation of environmental and health laws and policies. These agencies could take enforcement action against us for our failure to comply with their regulations and with requirements established for the maintenance of our environmental licenses. These actions could result in, among other things, the imposition of fines, embargoes and revocation of licenses, which could have a material adverse effect on our financial condition and results of operations. It is also possible that enhanced environmental and health regulations will force us to allocate capital towards compliance, and consequently, divert funds away from planned investments. Such a diversion could have a material adverse effect on our financial condition and results of operations.
We are strictly liable for any damages resulting from inadequate provision of electricity services and our insurance policies may not fully cover such damages.
We are strictly liable under Brazilian law for damages resulting from the inadequate provision of electricity distribution services. In addition, our distribution, transmission and generation utilities may be held liable for damages caused to others as a result of interruptions or disturbances arising from the Brazilian generation, transmission or distribution systems, whenever these interruptions or disturbances are not attributed to an identifiable member of ONS. We cannot assure you that our insurance policies will fully cover damages resulting from inadequate rendering of electricity services, which may have an adverse effect on us.
We are the controlling shareholder of a company that operates a gas distribution business (Compagas) and we are consequently exposed to risks inherent to this sector.
We control a business in the gas distribution sector, which is operated by Companhia Paranaense de Gas – Compagas. This company is entitled to exclusive rights to distribute piped gas in the State of Paraná. The users are Thermoelectric Plants, cogeneration plants, gas stations, among other companies and residences.
Businesses in the gas distribution sector are subject to a broad set of risks inherent to its operation, including among the main ones:
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| · | Regulatory instability, |
| · | Shortage of natural gas, |
| · | Depending on a single supplier in Brazil, |
| · | Operational failures and accidents in distribution, |
| · | Performance of outsourced service providers, and |
| · | Alternative energy sources. |
As a result of these uncertainties, there is no guarantee that the purposes of our gas distribution business will be achieved, which may have an adverse effect on our results of operations and our business.
We cannot assure the speed of our innovation capacity and our responses in view of the changes the energy sector has been going through as a result of technology advances.
The electric energy sector has been going through changes driven by (i) the decentralization of the power generation systems; (ii) advances in energy storage technologies; (iii) dissemination of digital technologies that improve the efficiency of energy generation, transmission and consumption; (iv) increase of renewable energy sources, such as wind and solar energy; and (v) a tendency of reducing carbon footprints in the energy system, as part of the global efforts to mitigate the effects of climate change. These changes present many challenges and we may not be able to keep up with the effects of the increasing adoption of digital technologies in the electric energy sector and the significant potential of new technology solutions (both with respect to the improvement of processes and services provided to consumers and with respect to the development of new products that may lead to higher productivity gains, more affordable prices, higher competition and the creation of new markets). Investments in research and development may contribute to mitigate the risks related to the transformations of the energy sector and create new opportunities.
Risks Relating to Brazil
The Brazilian Government has significant influence over the Brazilian economy. Brazilian economic and political conditions— and investor perception of these conditions— have a direct impact on our operation.
Historically, the country’s political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration, the downgrading of credit ratings of the Brazilian government and Brazilian issuers, and heightened volatility in the securities issued abroad by Brazilian companies.
Additionally, the Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy and often changes monetary, credit, exchange and other policies to influence Brazil’s economy. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies, as well as other factors including, without limitation:
| · | exchange rate movements and volatility; |
| · | inflation and changes in interest rates; |
| · | exchange control policies; |
| · | fiscal policy and changes in tax laws; |
| · | other political, diplomatic, social and economic developments that may affect Brazil or the international markets; |
| · | controls on capital flows; and/or |
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| · | limits on foreign trade. |
In the last few years, Brazil faced adverse fiscal developments and political instability. Brazilian GDP grew by 4.6% in 2021, decreased by 4.1% in 2020 and grew by 1.1% in 2019. Unemployment rate was 11.1% in 2021, 13.5% in 2020 and 11.9% in 2019. Inflation, as reported by the consumer price index (IPCA), was 10.06% in 2021, 4.52% in 2020 and 4.31% in 2019. The Brazilian Central Bank’s base interest rate (SELIC) was 9.25% on December 31, 2021, 2.0% on December 31, 2020 and 4.5% on December 31, 2019. Considering the accumulated amount for the first three months of 2022, the SELIC rate was 2.42%. Future economic, social and political developments in Brazil may impair our business, financial condition or results of operations, or cause the market value of our securities to decline.
Changes in, or uncertainties regarding the implementation of, the policies above, might generate or contribute to uncertainties in the Brazilian economy. This would increase the volatility of the domestic capital market and the value of Brazilian securities traded abroad, and adversely affect our business, results of operations and financial condition.
Moreover, taking into account the Brazilian presidential system of government, and the considerable influence of the executive power, it is not possible to predict whether the present government or any successive governments will have an adverse effect on the Brazilian economy, and consequently on our business.
The effects of the COVID-19 pandemic of the coronavirus may have a material adverse impact on our operations and results.
As COVID-19 continues to impact the global and local economies and financial markets, Copel has followed the load projections issued by official bodies in the electricity sector strongly impacted by the drop in consumption in the commercial and industrial segments. This fall has caused notifications by energy buyers, alleging unforeseeable circumstances and force majeure due to the COVID-19 outbreak pandemic, and requiring a reduction in the amounts of energy contracts and/or installments of defaulted bills.
Adverse impacts of the COVID-19 outbreak pandemic can also be felt on the implementation of generation and transmission projects, or on the availability of existing assets resulting from local actions, preventing access to facilities or problems with suppliers in the sector, also affected by the COVID-19 outbreak pandemic.
We have established a Contingency Committee in light of the COVID-19 outbreak pandemic with the objective of monitoring and mitigating current and futures impacts and consequences in our activities. The Contingency Committee has four main focus objectives: (i) people’s safety, (ii) continuation of our essential activities, (iii) monitoring guidelines and requirements of regulatory bodies, and (iv) preservation of adequate financial conditions to support the crisis. We have also continuously been (A) monitoring the impacts of the COVID-19 pandemic on (i) our contracts, (ii) suppliers and (ii) the liquidity of the energy market and our short-term pricing, as well as (B) involved and negotiating with the relevant authorities for the implementation of guidelines that guarantee the maintenance of the economic and financial sustainability of Brazil’s electricity power generation, transmission, commercialization and distribution chain.
Fluctuations in currency exchange rates and the devaluation of the real may adversely affect our net income and cash flow.
The Brazilian currency has been devalued periodically in the past in relation to the U.S. dollar and other foreign currencies. As of December 31, 2020, the exchange rate between the Real and the U.S. Dollar was of R$5.19 per US$1.00, depreciating 28.8% against the U.S. Dollar compared to 2019. As of December 31, 2021, the Real vs. U.S. dollar exchange rate was R$5.58 to US$1.00, depreciating 7.51% against the U.S. Dollar, compared to December 31, 2020. As of April 18, 2022, the Real vs. U.S. dollar exchange rate was R$4.67 to US$1.00, which represents a 16.31% decrease as compared to the selling rate of R$5.58 to US$1.00 on December 31, 2021. Depreciation of the Real increases the cost of servicing our foreign currency-denominated debt and the cost of purchasing electricity from the Itaipu – a hydroelectric facility, one of our major suppliers, which adjusts its electricity prices based in part on its U.S. dollar costs. Indeed, depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. dollar value of our dividends and the U.S. dollar equivalent of the market price of our ADSs.
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Inflation and governmental measures to curb inflation may contribute to economic uncertainty in Brazil, and could reduce our margins and the market price of the ADSs.
Brazil has in the past experienced extremely high rates of inflation. Brazil’s annual rates of inflation, measured in accordance with the variation of the Índice Geral de Preços - Disponibilidade Interna (“IGP-DI”) index, were 6.0% for the three-month period ended March 31, 2022, 17.7% in the year 2021, 23.1% in the year 2020 and 7.7% in the year 2019. The Brazilian government has in the past taken measures to combat inflation, such as raising the basic Selic interest rate to elevated levels, and public speculation about possible future government actions has had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual adjustments based on inflation indexes, if Brazil experiences substantial inflation in the future, and the Brazilian government adopts inflation control policies similar to those adopted in the past, our costs may increase faster than our revenues, our operating and net margins may decrease and, if investor confidence lags, the price of the 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.
Changes in Brazilian tax policies may have an adverse effect on us and our shareholders.
The Brazilian government has in the past changed its tax policies in ways that affected 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.
The Brazilian Government is discussing a bill (Bill No. 3887/2020) that changes the rules of Income Tax and Social Contribution, by replacing Contributions to PIS / PASEP and Cofins by Contribution on Goods and Services (Contribuição sobre Bens e Serviços – CBS). We formalized a work group to assess the impacts and risks that this change may have on our financial results. The group concluded that the impacts for us will likely be low, considering that the market in which we operate has regulated tariffs and bilateral contracts, which are expected to rebalance prices in the event of new taxes. However, we estimate CBS could lead to a tariff increase for the Final Customers of our distribution concession, due to the increase in the tax rate. Our shareholders could also be affected, in case of higher taxation of dividends.
Negative developments in other national economies, especially those in developing countries, may negatively impact foreign investment in Brazil and the country’s economic growth.
International investors generally consider Brazil to be an emerging market. Historically, adverse developments in the economies of emerging markets have resulted in investors’ perception of greater risk from investments in such markets. Such perceptions regarding emerging market countries have significantly affected the market value of securities of Brazilian issuers. Furthermore, although economic conditions are different in each country, investors’ reactions to developments in one country can impact the prices of securities in other countries, including those in Brazil, and this may diminish investors’ interest in securities of Brazilian issuers, including ours.
Risks Relating to the Units ADSs
ADSs holders may not have all the rights of our shareholders, and may be unable to exercise voting rights or preemptive rights relating to the shares underlying their Units.
Our bylaws provide for the issuance of Units, each consisting of four Preferred Class B Shares and one Common Share. A holder of Units has the right to request, at any time, the cancellation of the Units and the consequent delivery of the respective deposited shares to the depositary financial institution, in compliance with the terms, rules and procedures established by our Board of Directors.
Holders of Preferred Shares do not have the same voting rights attributed to holders of Common Shares by Brazilian law or our bylaws, and thus only the 1 Common Share in each Unit that underlie ADSs has full voting rights. Moreover, the rights of ADS holders may be subject to certain limitations provided in the deposit agreement or by the securities intermediaries through which ADS holders hold their securities.
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| – | Although ADS holders are permitted to vote at shareholders’ meetings, there are procedural steps involved in the process that create practical limitations on the ability of ADS holders to vote. In accordance with the Deposit Agreement, we will provide the notice to the Depositary, which will in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the Depositary how to vote their shares. Because of this extra procedural step involving the Depositary, the process for exercising voting rights will take longer for ADS holders than for direct holders of Class B Shares or Common Shares. ADSs for which the Depositary does not receive timely voting instructions will not be voted. |
| – | The holders of the Common Shares, Class B Shares or Units may have fewer and less well-defined rights to protect your interests in connection with actions taken by our Board of Directors or the controlling shareholder than under the laws of the United States and certain other jurisdictions outside Brazil. Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly supervised as the United States securities markets or markets in certain other jurisdictions outside Brazil. |
| – | The ability of ADS holders to exercise preemptive rights is not assured, particularly if the applicable law in the holder’s jurisdiction (for example, the Securities Act in the United States) requires that either a registration statement be effective or an exemption from registration be available with respect to those rights, as is in the case in the United States. We are not obligated to extend the offer of preemptive rights to holders of ADSs, to file a registration statement in the United States, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale of your preemptive rights by the Depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. If you are unable to participate in rights offerings, your holdings may also be diluted. |
| – | ADS holders may not receive dividend payments if we incur net losses or our net profit does not reach certain levels. Under Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net profit for the preceding fiscal year, with holders of preferred shares having priority of payment. According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least 10% higher than the dividends per share paid to the holders of the Common Shares. Class A Shares have a dividend priority over the Class B Shares to receive a minimum dividend equal to 10% of the total share capital represented by the Class A Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared, and Class B Shares have a dividend priority over the Common Shares. Units are entitled to dividends equal to their underlying shares. In the event that we are unable to declare dividends, our management may nevertheless decide to defer payment of dividends or, in limited circumstances, not to declare dividends at all. We cannot make dividend payments from our legal reserve and capital reserve accounts. |
Sales of a substantial number of shares, Units or ADSs, or the perception that such sales might take place, could adversely affect the prevailing market price of our shares or Units and ADSs.
As a consequence of the issuance of new shares, Units or ADSs, sales of shares, Units or ADSs by existing investors, or the perception that such a sale might occur, the market price of our shares, Units and ADSs may decrease significantly.
Future equity issuances may dilute the holdings of current holders of our shares, Units or ADSs and could materially affect the market price for those securities.
We may in the future decide to offer additional equity to raise capital or for other purposes. Any such future equity offering could reduce the proportionate ownership and interests of holders of our shares, Units and ADSs, as well as our earnings and net equity value per share, Unit or ADS. Any offering of shares, Unit and ADSs by us or our main shareholders, or a perception that any such offering is imminent, could have an adverse effect on the market price of these securities.
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Holders of our ADSs may be unable to enforce judgments against our directors or officers.
All of our directors and officers named in this annual report reside in Brazil. Substantially all of our assets, as well as the assets of these persons, are located in Brazil. As a result, it may not be possible for holders of our ADSs to effect service of process upon us or our directors and officers within the United States or other jurisdictions outside Brazil, attach their assets or enforce against us or our directors and officers judgments obtained in the United States or other jurisdictions outside of Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain requirements are met, holders of ADSs may face greater difficulties in protecting their interest in actions against us or our directors and officers than would shareholders of a corporation incorporated in a state or other jurisdiction of the United States.
Judgments of Brazilian courts with respect to our shares or Units will be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our shares or Units, we will not be required to discharge any such obligations in a currency other than reais (R$). Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais (R$) may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and any such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non Brazilian investors with full compensation for any claim arising out of, or related to, our obligations under our shares or Units.
If you exchange your ADSs for Units, you risk increased taxes and the inability to remit foreign currency abroad.
Brazilian law requires that parties obtain a registration before the Brazilian Central Bank in order to be allowed to remit foreign currencies, including U.S. dollars, abroad. For the ADSs, the Brazilian custodian for the Units has obtained the necessary certificate from the Brazilian Central Bank for the payment of dividends or other cash distributions relating to the preferred shares and Units or upon the disposition of the preferred shares or Units. If you exchange your ADSs for the underlying Units, however, you must obtain your own certificate of registration or register in accordance with Brazilian Central Bank and CVM rules in order to obtain and remit U.S. dollars abroad upon the disposition of the Units or distributions relating to their underlying 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 Units. Pursuant to Brazilian Central Bank rules, obtaining this registration requires exchange transactions, which are subject to taxes in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Other Brazilian Taxes”. If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to the shares underlying the Units or the return of your capital in a timely manner. The custodian’s registration before the Brazilian Central Bank and any certificate of foreign capital registration you obtain may be affected by future legislative changes. Additional restrictions may be imposed in the future on the disposition of the underlying Units 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. Reintroduction of these restrictions would hinder or prevent your ability to convert dividends, distributions or the proceeds from any sale of Units, 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 Units 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, Units, Common Shares and Class B Shares, to fluctuate in both the domestic and international markets, and may substantially limit your ability to sell the Units underlying your ADSs at a price and time at which you wish to do so.
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Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our shares, Units or ADS.
Law No. 10,833 of December 29, 2003, provides that the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common or preferred shares by a nonresident of Brazil to another non-resident of Brazil. There is no judicial guidance as to the application of Law No. 10,833 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADS between nonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADS, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADS by a non-resident of Brazil to another non-resident of Brazil.
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Item 4. Information on the Company
The Company
We engage in the generation, transmission, distribution and sale of electricity mainly in the Brazilian State of Paraná, pursuant to concessions granted by ANEEL, the Brazilian regulatory agency for the electricity sector. While our activities are more concentrated in the Brazilian State of Paraná, we also operate in 10 different Brazilian states through our generation and transmission businesses.
As of December 31, 2021, we generated electricity from twenty (20) hydroelectric plants, thirty (30) wind plants and one (1) Thermoelectric Plant, for a total installed capacity of 5,957 MW, of which approximately 99.7% was derived from renewable sources. Including the installed capacity of generation companies in which we have an equity interest, our total installed capacity is 6,615 MW. Our electric power business is subject to comprehensive regulation by ANEEL.
We hold concessions to distribute electricity in 394 of the 399 municipalities in the State of Paraná and in the municipality of Porto União in the State of Santa Catarina. As of December 31, 2021, we owned and operated 3,638 km of transmission lines and 204,957 km of distribution lines, constituting one of the largest distribution grids in Brazil. Of the electricity volume we supplied in 2021 to our Final Customers:
| · | 38.8% was to industrial customers; |
| · | 26.1% was to residential customers; |
| · | 19.1% was to commercial customers; and |
| · | 16.0% was to rural and other customers. |
Key elements of our business strategy include the following:
| · | maximize company value through sustainable growth, profitability, adequate indebtedness levels and shareholder remuneration; |
| · | seek to be a reference in customer satisfaction; |
| · | seek profitable opportunities related to new businesses and services in the energy sector; |
| · | promote and ensure adherence to best ESG, risk management and compliance practices; |
| · | manage an integrated and strategic energy portfolio, including strategic partnerships and maximizing synergies and profitability; |
| · | divest from non-strategic assets; |
| · | pursue excellence in business processes; |
| · | promote people-focused management, strengthening team engagement and reinforcing the culture of meritocracy; |
| · | seek greater protagonism in our interaction with regulators and institutions; |
| · | consolidate a culture focused on safety, health and quality of life; |
| · | adopt new technologies to optimize our business and continually raise cybersecurity levels; |
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| · | encourage innovation as a lever for growth, increased customer satisfaction and loyalty, and process improvement. |
Our revenues for each of the last three (3) fiscal years by activity are described in “Item 5. Operating and Financial Review and Prospects —Results of operations for the years ended December 31, 2021, 2020 and 2019”.
Historical Background
We were formed in 1954 by the State of Paraná to engage in the generation, transmission and distribution of electricity, as part of a plan to bring the electric energy sector under state control. We acquired the principal private power companies located in the State of Paraná in the early 1970s. From 1970 to 1977, we significantly expanded our transmission and distribution grid and worked to increase the connectivity of our grid to grids 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 José Izidoro Biazetto, 158 – Bloco A =CEP 81200-240, Curitiba, Paraná, Brazil. Our telephone number at the head office is +55 (41) 3331-4011. Our website is www.copel.com and any filings we make electronically with the SEC will be available to the public over the Internet at the SEC’s website. The commercial name of each of our businesses is provided as follows.
Relationship with the State of Paraná
As of December 31, 2021, the State of Paraná owns 69.7% of our Common Shares and, consequently, has the ability to control the election of the majority of the members of our Board of Directors, members of our Supervisory Board, the appointment of senior management and our direction, future operations and business strategy.
Corporate Structure
Prior to 2001, we operated as a single corporation engaged in the generation, transmission and distribution of electricity and in certain related activities. In compliance with the new regulatory regime, we transferred our operations to four wholly-owned subsidiaries (one each for generation, transmission, distribution and telecommunications) and our investments in other companies to a fifth wholly-owned subsidiary. This corporate restructuring was completed in July 2001.
In 2007, 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.,” renamed to “Copel Geração e Transmissão S.A.”).
In 2013, the Company was restructured in order to enhance the efficiency of our corporate structure and reduce our operating costs.
On January 28, 2016, we changed the corporate name of Copel Participações S.A. to Copel Comercialização S.A. and its corporate purpose to the sale of energy and rendering of related services in order to strength Copel’s positioning in the energy trading market and to allow greater efficiency in the sale of energy.
In September 2017, in order to optimize the management of operating activities, the Company carried out an organizational restructuring of its wholly-owned subsidiary Copel Renováveis S.A., whose activities were absorbed by Copel Geração e Transmissão S.A.
In August, 2018, Copel GeT signed a Share Exchange Agreement with Eletrosul with respect to the joint ventures Costa Oeste Transmissora de Energia S.A. (51% - Copel GeT and 49% - Eletrosul), Marumbi Transmissora de Energia S.A. (80% - Copel GeT and 20%- Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% - Copel GeT and 80% - Eletrosul). As a result, Copel GeT acquired 100% in the joint ventures Costa Oeste and Marumbi, and Eletrosul acquired 100% in Transmissora Sul Brasileira.
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In June 2019, Copel GeT took over 100% of SPE Uirapuru Transmissora de Energia S.A. acquired from Centrais Elétricas Brasileiras S.A. and Fundação Eletrosul de Previdência e Assistencial Social - Elos.
In October, 2019, Copel GeT, through a consortium with its subsidiary Cutia Empreendimentos Eólicos, participated in the A-6 new energy generation auction, having sold 14.4 average MW of the Jandaíra Wind Complex. The Jandaíra Wind Complex, which has 90.1 MW of installed capacity and 46.9 average MW of assured energy, will be built in the northeastern state of Rio Grande do Norte, a region where Copel has other wind generation assets. The project is scheduled to come into operation, in a staggered manner, from April 2022.
In March, 2020, Copel GeT, with the objective of renewing for another 30 (thirty) years the concession of HPP Bento Munhoz (or HPP Foz do Areia), whose term, considering the GSF renegotiation, expires on December 21, 2024, filed with the Ministry of Mines and Energy its request for the classification of its special purpose company SPC FDA Geração de Energia Elétrica SA, holder of the concession, under the terms of Federal Decree no. 9,271/2018 (amended by Federal Decree No. 10,135/2019), which allows this renewal associated with the privatization of the concession holder, within 12 months of the end of the term. On March 8, 2022, ANEEL approved the draft of the new concession agreement. Copel awaits the final regulatory definition of the process for the sale of control of SPC FDA.
On November 9, 2020, an auction for the divestiment of Copel Telecomunicações S.A. (Copel Telecom), responsible for our telecommunication activities, was held at B3. The winning bid was R$2.4 billion (equity value). On January 14, 2021, a Share Purchase Agreement for the transfer of 100% of the shares of Copel Telecom was entered into with Bordeaux Multi-Strategic Investment Fund – Bordeaux Fundo de Investimentos em Participações Multiestratégia, the winning bidder of the auction. On July 9, 2021, the sale was approved by the Brazilian antitrust authority, and on August 3, 2021 Copel completed the divestment of Copel Telecom. The final restated transaction amount was R$2.5 billion, based on the SELIC rate as of August 3, 2021, and has already been transferred in full to Copel.
On November 30, 2021, we completed the acquisition of the Vilas Wind Power Complex (or “Vilas Complex”) with an enterprise value of R$1,1 billion. As the project is partially financed by Banco do Nordeste (“BNB”), under a long-term loan agreement with final maturity in 2040, the total amount paid by Copel in the acquisition was R$ 597.7 million.
Copel currently has four wholly-owned subsidiaries: Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Comercialização S.A. (Copel Mercado Livre) and Copel Serviços S.A.
Copel also holds 100% shareholding stake in several Special Purpose Companies (SPC).
The current organization of the group is as described as follows. All of our subsidiaries are incorporated in the Federative Republic of Brazil and subject to the Brazilian law.
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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 implementation of the New Industry Model Law, enacted in 2004. Today, open auctions on the regulated market are one of the primary channels by which our distribution business purchases energy to resell to Captive Customers and one of the channels by which our generation business generates revenues. Our generation business sells energy to our distribution business only through auctions in the regulated market. Moreover, our distribution business, like other certain Brazilian distribution companies, is also required to purchase energy from the hydroelectric facility of Itaipu, in an amount determined by the Brazilian government based on our proportionate share in the Brazilian electricity market. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”.
The following table shows the total electricity (i) we generated through entities in which we hold a 100.0% shareholding stake and the 51.0% and 30.0% of energy generated by Mauá and Baixo Iguaçu Hydroelectric Plants respectively (corresponding to the interest we hold in each of these assets), (ii) we purchased in the last three years, broken down by the total amount of electricity generated and purchased by Copel Geração e Transmissão and our wind farm generation facilities described below (“Wind Farms”) and (iii) the total amount of electricity purchased by Copel Distribuição and Copel Comercialização (Copel Mercado Livre).
|
Year ended December 31, |
|||||
|
2021 |
2020 |
2019 | |||
| (GWh) | |||||
| Copel Geração e Transmissão(1) | |||||
| Electricity generated(2) | 14,587 | 10,115 | 17,199 | ||
| Electricity purchased from Copel Comercialização | 3,423 | 487 | 155 | ||
| Electricity purchased from others | 183 | 147 | 141 | ||
| Electricity received from the Interconnected System | 1,200 | 5,878 | 445 | ||
| Total electricity generated and purchased by Copel Geração e Transmissão | 19,393 | 16,627 | 17,940 | ||
| Wind Farms(1) (3) | |||||
| Electricity generated(2) | 2459 | 2,116 | 1,909 | ||
| Electricity purchased from others | 110 | 29 | 61 | ||
| Total electricity generated and purchased by Wind Farms | 2569 | 2,145 | 1,970 | ||
| Copel Distribuição | |||||
| Electricity purchased from Itaipu(4) | 5,435 | 5,498 | 5,533 | ||
| Electricity purchased from Auction – CCEAR – affiliates | 153 | 154 | 153 | ||
| Electricity purchased from Auction – CCEAR – other | 12,216 | 11,579 | 12,361 | ||
| Electricity purchased from Mechanism for Compensation of Surpluses and Deficits of New Energy (MCSD-EN)) | 178 | 785 | - | ||
| Electricity purchased from Spot Market – CCEE | - | 536 | 23 | ||
| Electricity purchased from others | 7,355 | 7,571 | 8,092 | ||
| Total electricity purchased by Copel Distribuição | 25,337 | 26,123 | 26,162 | ||
| Copel Comercialização | |||||
| Electricity purchased from Copel Geração e Transmissão | 13,119 | 7,275 | 5,125 | ||
| Electricity purchased from others | 10,062 | 5,077 | 3,330 | ||
| Electricity purchased from Spot Market – CCEE | 12 | 97 | 34 | ||
| Total electricity purchased by Copel Comercialização | 23,192 | 12,449 | 8,489 | ||
| Total electricity generated and purchased by Copel Geração e Transmissão, Copel Distribuição, Wind Farms and Copel Comercialização | 53,774 | 49,399 | 54,561 | ||
(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, including those with respect to past years, were calculated in accordance with the criteria adopted by the CCEE.
| (2) | Includes the electrical losses of wiring and interconnecting station and technical losses by delivering energy to the Interconnected System. |
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.
(4) Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil purchase electricity generated by Itaipu.
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The following table shows the total electricity we sold to Free Customers, Captive Customers, distributors, energy traders and other utilities service providers in the south of Brazil through the Interconnected Transmission System in the last three years.
|
Year ended December 31, | |||
|
2021 |
2020 |
2019 | |
| (GWh) | |||
| Copel Geração e Transmissão(1) | |||
| Electricity delivered to Free Customers | 1,298 | 3,369 | 4,146 |
| Electricity delivered to Bilateral Agreements (Copel Comercialização) | 12,978 | 7,238 | 5,124 |
| Electricity delivered to Bilateral Agreements | 715 | 2,946 | 3,723 |
| Electricity delivered under auction – CCEAR affiliates(2) | 122 | 123 | 122 |
| Electricity delivered under auction – CCEAR – other(2 | 2,215 | 2,221 | 2,215 |
| Electricity delivered to Spot Market – CCEE(2) | 483 | ||
| Total electricity delivered by Copel Geração e Transmissão | 17,328 | 15,897 | 15,814 |
| Wind Farms(1) (3) | |||
| Electricity delivered under auction – CCEAR – affiliates | 31 | 31 | 32 |
| Electricity delivered to Bilateral Agreements | 90 | 37 |
-
|
| Electricity delivered under auction – CCEAR – other | 1,289 | 1,292 | 1,285 |
| Electricity delivered under auction – CER – other | 915 | 918 | 914 |
| Electricity delivered to Spot Market – CCEE(2) | 29 | 9 | 0 |
| Total electricity delivered by Wind Farms | 2,354 | 2,887 | 2,231 |
| Copel Distribuição | |||
| Electricity delivered to Captive Customers | 19,312 | 19,180 | 19,784 |
| Electricity delivered to distributors in the State of Paraná | 86 | 76 | 164 |
| CCEE(4) | 3,157 | 3,787 | 3,153 |
| Total electricity delivered by Copel Distribuição | 22,555 | 23,043 | 23,11 |
| Copel Comercialização | |||
| Electricity delivered to Free Customers | 8,239 | 4,620 | 2,715 |
| Electricity delivered to Bilateral Agreements (Copel GeT) | 3,535 | 516 | 216 |
| Electricity delivered to Bilateral Agreements | 11,337 | 6,984 | 5,506 |
| Electricity delivered to Spot Market – CCEE | 81 | 330 | 52 |
| Total electricity delivered by Copel Comercialização | 23,192 | 12,450 | 8,489 |
| Total | 65,428 | 53,668 | 49,635 |
(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, including the amounts with respect to past years, were calculated in accordance with the criteria adopted by the CCEE.
(2) Amounts from the Spot Market indicated as less than zero (negative numbers) are not considered as electricity sold nor as electricity delivered in the MRE.
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.
(4) Includes the Spot Market, MCSD EN and MVE.
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Generation
As of December 31, 2021, the total installed capacity of all of the generation assets in which we hold equity or the rights under concessions was 6,615 MW.
During the same period, considering only the entities which we operate (solely or under consortium), including 100% of the energy produced by those in which we hold a 100.0% shareholding stake and 51.0% and 30.0% of the energy generated by Mauá and Baixo Iguaçu Hydroelectric Plants, respectively (corresponding to the interest we hold in each of these assets), we operated and sold energy through twenty (20) hydroelectric plants, thirty (30) wind plants and one (1) Thermoelectric Plant, with a total installed capacity of 5,957 MW. Our assured energy totaled 2,671 average MW in 2021. Our generation varies yearly as a result of hydrological conditions and other factors. We generated, no discount for internal losses and basic grid, 17,606 GWh in 2021, 12,665 GWh in 2020, 19,812 GWh in 2019, 19,935 GWh in 2018 and 21,469 GWh in 2017.
The generation of electrical energy at our power plants is supervised, coordinated and operated by our Generation and Transmission Operation Center in the city of Curitiba. This operation center is responsible for coordinating the operations related to major part of our total installed capacity, including some of the plants in which we hold only partial ownership interests.
In 2021 ANEEL granted us the extension of concession of the following power plants to compensate for the assumption of non-hydrological risks (provided in the Energy Reallocation Mechanism or MRE adopted by the government under Law nº 14.052/2020):
| Power Plant | Concession extension (days) |
| Apucaraninha | 472 |
| Capivari Cachoeira | 2.555 |
| Cavernoso | 898 |
| Cavernoso 2 | 1.742 |
| Chamine | 717 |
| Colíder | 13 |
| Derivação Do Rio Jordão | 949 |
| Foz do Areia | 461 |
| Guaricana | 705 |
| Mauá | 1.789 |
| Salto Caxias | 1.051 |
| Sao Jorge | 598 |
| Segredo | 1.045 |
| Uhe Baixo Iguaçu | 34 |
| Fundão | 1.110 |
| Santa Clara | 1.078 |
| Dona Francisca* | 1.485 |
| Arturo Andreoli* | 844 |
| * Associates |
Hydroelectric Generation Facilities
The following table sets forth certain information related to our main hydroelectric plants in operation during 2021:
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|
Plant |
Installed capacity |
Assured energy (1) |
Placed in service |
Concession expires |
| (MW) | (Average MW) | |||
| Foz do Areia | 1,676.0 | 603.3 | 1980 | December, 2024 |
| Segredo | 1,260.0 | 578.5 | 1992 | September, 2032 |
| Salto Caxias | 1,240.0 | 605.6 | 1999 | March, 2033 |
| Capivari Cachoeira(2) | 260.0 | 109.0 | 1970 | January, 2053 |
| Mauá | 185.2(3) | 100.8 | 2012 | May, 2047 |
| Baixo Iguaçu | 105.06(4) | 51.2 | 2019 | December, 2049 |
| Colíder | 300.0 | 178.1 | 2019 | January, 2046 |
| Others | 132.5 | 77.1 | N/A | N/A |
(1) Values used to determine volumes committed for sale.
(2) On January 5, 2016, Copel Geração e Transmissão executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2053.
(3) Corresponds to 51.0% of the installed capacity of the plant (363.1 MW), corresponding to the interest we hold in this plant, as we operate this plant through a consortium.
(4) Corresponds to 30.0% of the installed capacity of the plant (350.2 MW), corresponding to the interest we hold in this plant, as we operate this plant through a consortium.
Governador Bento Munhoz da Rocha Netto (“Foz do Areia” Plant). The Foz do Areia Hydroelectric Power Plant is located on the Iguaçu River, approximately 350 kilometers southwest of the city of Curitiba.
The concession of this plant, originally granted to Copel GeT under the terms of Concession Agreement No. 045/1999, would expire in May 2023. The concession term was later altered to December 21, 2024, as a result of the GSF reconciliations referring to the regulated market and to the Free Market. After that, Copel Get could request the renewal of the concession for another 30 years, either (i) through the amendment of certain concession terms and inclusion under the quota regime (Law No. 12,783/2013) or (ii) by means of the privatization of the concessionaire, through a bidding process for the sale of the concessionaire's shareholding control, within 12 months from the end of the concession term (Federal Decree No. 9,271/2018, amended by Federal Decree No. 10,893/2021.
Through an internal assessment, we concluded that the sale of the concessionaire’s shareholding control was more advantageous to us than the renewal upon inclusion in the quota regime. It was also more beneficial than the alternative of not expressing interest in the renewal at all, case in which the government would carry out a bidding process for a new concession and we would face the risk of loss of the concession at no additional consideration.
In this context, in 2020, Copel GeT transferred the concession and plant’s assets to a special purpose company, SPC F.D.A. Geração de Energia Elétrica S.A. (as approved by ANEEL Resolution No. 8,578/2020), and formally manifested the intention of selling the shares of SPC F.D.A. filed with the Ministry of Mines and Energy its manifestation of intention to obtain a new Concession grant, for 30 (thirty) years from its execution, associated with the sale of FDA control, pursuant to Decree No. 9,271/2018 (amended by Decree No. 10,893/2021). This statement contains the reservation that the execution of the privatization auction of SPC FDA will only occur after the Company has knowledge and assessment of the conditions involved in obtaining the grant, especially those related to the amounts and payment conditions of the concession grant bonus.
On February 4, 2021, the Ministry of Mines and Energy published Ordinance No. 516/2021, which establishes the assured energy of HPP Foz do Areia at 596.0 average MW to be in force for the new concession agreement to be granted. On March 8, 2022, the ANEEL approved the draft of the new concession agreement. Copel awaits the final regulatory definitions of the process for the sale of control of SPC FDA.
Governador Ney Aminthas de Barros Braga (“Segredo” Plant). The Segredo Hydroelectric Power Plant is located on the Iguaçu River, approximately 370 kilometers southwest of the city of Curitiba.
Governador José Richa (“Salto Caxias” Plant). The Salto Caxias Hydroelectric Power Plant is located on the Iguaçu River, approximately 600 kilometers southwest of the city of Curitiba.
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Governador Pedro Viriato Parigot de Souza (“Capivari Cachoeira” Plant). The Capivari Cachoeira Hydroelectric Power Plant is the largest underground hydroelectric plant in Southern Brazil. The reservoir is located on the Capivari River, approximately 50 kilometers north of the city of Curitiba, and the power station is located on the Cachoeira River, approximately 15 kilometers from the reservoir.
Our former concession agreement for the Capivari Cachoeira Plant expired on July 7, 2015. As a result of new auction in which we were the winning bidder, on January 5, 2016, Copel GeT executed a new concession agreement with ANEEL to continue to operate this plant under an operation and maintenance regime until January 5, 2046. We paid R$574.8 million as signing bonus for this concession and we received an annual generation revenue (AGR) of R$144.1 million from January 5, 2016 to December 31, 2016. This AGR is subject to an annual tariff adjustment. In July 2017, the AGR was adjusted to R$114.1 million for the period from July 2017 to June 2018, and in 2018 the AGR was adjusted to R$119.2 million for the period from July 2018 to June 2019. In 2019 the AGR was adjusted to R$123,7 million for the period from July 2019 to June 2020. In 2020 the AGR was adjusted to R$127.9 million for the period from July 2020 to June 2021. In 2021, the AGR was adjusted to R$139.7 million for the period from July 2021 to July 2022 under the terms of ANEEL Resolution No. 2,902/2021.
The Capivari Cachoeira Plant has 260.0MW of installed capacity and assured energy of 957.5 GWh/year. Since January 1, 2017, 70.0% of the energy generated by this plant has been allocated in quotas to the regulated market. Copel GeT will no longer bear the hydrological risk for the energy allocated in quotas under the MRE associated with the Capivari Cachoeira Plant until January 5th, 2046. From this date until January 3rd, 2053, the power plant will operate entirely in the Free Market.
Mauá. The Jayme Canet Júnior Hydroelectric Power Plant (Mauá Plant) is located on the Tibagi River, in the State of Paraná. It was constructed between 2008 and 2012 by Consórcio Energético Cruzeiro do Sul, in which we hold a 51.0% interest and CGT Eletrosul holds the remaining 49.0%. The facility is located approximately 250 kilometers from Curitiba, in the Municipality of Telêmaco Borba.
Colíder Hydroelectric Power Plant has an installed capacity of 300.0 MW and it is located on the Teles Pires River, in the State of Mato Grosso, between the municipalities of Nova Canaã do Norte and Itaúba, with the municipalities of Colíder and Cláudia are also affected by the reservoir. The construction of the plant began in 2011 and the work was totally concluded in 2019. The first Generating Unit entered commercial operation on March 9, 2019 and the last unit started operating on December 21, 2019.
Baixo Iguaçu Hydroelectric Power Plant has an installed capacity of 350.2 MW and it is located on the Iguaçu River, in the municipalities of Capanema, Capitão Leonidas Marques, Planalto, Realeza and Nova Prata do Iguaçu, State of Paraná. Baixo Iguaçu HPP is the last large energy project planned for the main Iguaçu and it is located around 30 km downstream from Governador José Richa HPP - the Salto Caxias Hydroelectric Power Plant, which is 100.0% owned by Copel. It was constructed by a consortium in which Copel GeT holds a 30% interest and Geração Céu Azul S.A. holds the remaining 70.0%. This power plant became fully operational on April 10, 2019. In addition to our generation facilities, we have ownership interests in several other hydroelectric generation companies as detailed below.
Bela Vista. The SHP Bela Vista has 29.8 MW of installed capacity and 16.6 average MW of assured energy and is under construction in the Chopim river, in the São João and Verê municipalities, located in the southwest of the State of Paraná. The energy sales agreement will be effective as of January 1, 2024, for a 30-year term and will be subject to an annual adjustment by the IPCA. The construction of this unit started in the first half of 2019 and the third power generation unit began operations on August 12, 2021, totalling 29.3 MW in commercial operation (corresponding to 98.3% of the plant’s total capacity). The remaining unit with complementary capacity of 0.5 MW is expected to be fully implemented in 2022. Copel anticipated the commercial operation of the project by almost two and a half years in relation to the beginning of the contracted supply term, thus allowing all the energy produced by SHP Bela Vista until December 2023 to be sold in the Free Market (“ACL”).
Between 2004 and 2010, we were required by law to retain a majority of the voting shares of any company in which we obtained an ownership interest. Starting in 2010, it became possible for us to hold non-controlling interests in companies.
The following table sets forth information regarding the hydroelectric generation plants in which we had a partial equity interest as of December 31, 2021:
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|
Plant |
Installed capacity |
Assured energy |
Placed in service |
Our ownership |
Concession Expires |
| (MW) | (Average MW) | (%) | |||
| Elejor Facility (Santa Clara, Santa Clara I, Fundão and Fundão I) |
246.41 | 137.9 | July, 2005 June, 2006 |
70.0 | May and June 2040 December, 2032 |
| Dona Francisca | 125.0 | 75.9 | February, 2001 | 23.0 | September, 2037 |
| SHP Arturo Andreoli (Foz do Chopim) |
29.1 | 20.4 | October, 2001 | 35.8 | August, 2032 |
| UHE Baixo Iguaçu | 350.2 | 172.4 | April, 2019 | 30.0 | November, 2049 |
Elejor Facility. The Elejor Facility consists of the Santa Clara and Fundão Hydroelectric Power Plants, both of which are located on the Jordão River in the State of Paraná. The aggregate total installed capacity of the units is 246.41 MW, which includes two smaller hydroelectric generation units installed in the same location. Elejor signed a concession agreement with a term of 35 years for the Santa Clara and Fundão plants in October 2001. As of December 31, 2021, we own 70.0% of the common shares of Elejor, and Paineira Participações owns the remaining 30.0 %.
Elejor is required to make monthly payments to the Brazilian government for the use of hydroelectric resources, which in 2001 totaled R$19.0 million. This amount is adjusted on an annual basis by the IGP-M Index.
We had a power purchase agreement with Elejor, which provides that we will purchase all of the energy produced by the Santa Clara and Fundão facilities at a set rate until April 2019, to be adjusted annually in accordance with the IGP-M Index. This agreement was terminated, there was no renewal and Elejor is selling the energy in the Free Market. In 2021, Elejor’s net revenues and loss were R$171.3 million and R$54.4 million, respectively, while in 2020 its net revenues and losses were R$194.8 million and R$29.4 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 Statkraft S.A. with a 2.12% interest. DFESA Hydroelectric Power Plant is located on the Jacuí River in the State of Rio Grande do Sul. The plant began full operations in 2001. In April 2015, we signed a new ten year power purchase agreement with DFESA, valued at R$17.0 million annually, under which Copel purchases 23.03% of DFESA’s assured energy (proportional to Copel’s stake).
In 2021, DFESA’s net revenues and net profits were R$66.8 million and R$37.2 million, respectively, while in 2020 its net revenues and net profits were R$70.3 million and R$42.0 million, respectively.
SHP Arturo Andreoli (“Foz do Chopim” Hydroelectric Plant). The Foz do Chopim Hydroelectric Plant is located on the Chopim River in the State of Paraná. We own 35.8% of the common shares of Foz do Chopim Energética Ltda., the entity that owns the Foz do Chopim Hydroelectric Plant. Silea Participações Ltda. owns the remaining 64.2%. The operation and maintenance of Foz do Chopim Hydroelectric Plant is performed by Copel Geração e Transmissão S.A. Energy supply agreements were executed at an Average Tariff of R$220.07/MWh. Foz do Chopim Energética Ltda. also had the authorization to operate Bela Vista SHP, a hydroelectric power plant that is located on the same river and has similar capacity, which was transferred to Bela Vista Geração de Energia S.A. (“Bela Vista Geração”), through the ANEEL’s Authorizing Resolution no. 7.802/2019. In 2021, Foz do Chopim’s net revenues and net profits were R$60.9 million and R$46.4 million, respectively, while in 2020 its net revenues and net profits were R$55.7 million and R$26.9 million, respectively.
Wind Farm Generation Facilities
Since 2013 we have been expanding our energy generation capacity and diversifying our energy matrix through the development of renewable energy sources, like the construction and acquisition of wind farms in the State of Rio Grande do Norte. The following table sets forth certain information relating to our wind farm plants in operation as of December 31, 2021:
| 28 |
|
Plant |
Installed capacity |
Assured Energy |
Placed in Service |
Concession Expires |
| (MW) | (Average MW) | |||
| São Bento Energia(1) | 94.0 | 38.1 | ||
| Boa Vista | 14.0 | 5.2 | February, 2015 | April, 2046 |
| Olho d'Água | 30.0 | 12.8 | February, 2015 | May, 2046 |
| São Bento do Norte | 30.0 | 11.3 | February, 2015 | May, 2046 |
| Farol | 20.0 | 8.8 | February, 2015 | April, 2046 |
| Palmas | 2.5 | 0.4 | November, 1999 | September, 2029 |
| Copel Brisa Potiguar Wind Complex (2) | 183.6 | 89.4 | ||
| Asa Branca I | 27.0 | 12.1 | August, 2015 | April, 2046 |
| Asa Branca II | 27.0 | 11.9 | September, 2015 | May, 2046 |
| Asa Branca III | 27.0 | 12.3 | September, 2015 | May, 2046 |
| Eurus IV | 27.0 | 12.4 | August, 2015 | April, 2046 |
| Santa Maria | 29.7 | 15.7 | April, 2015 | May, 2047 |
| Santa Helena | 29.7 | 16.0 | May, 2015 | April, 2047 |
| Ventos de Santo Uriel | 16.2 | 9.0 | May, 2015 | April, 2047 |
| Voltália São Miguel do Gostoso I(3) | 108.0 | 57.1 | ||
| Carnaúbas | 27.0 | 13.1 | June, 2017 | April, 2047 |
| Reduto | 27.0 | 14.4 | June, 2017 | April, 2047 |
| Santo Cristo | 27.0 | 15.3 | June, 2017 | April, 2047 |
| São João | 27.0 | 14.3 | June, 2017 | March, 2047 |
| Cutia Empreendimentos Eólicos(4) | 312.9 | 130.1 | ||
| Dreen Cutia | 23.1 | 9.6 | December, 2018 | January, 2042 |
| Dreen Guajiru | 21.0 | 8.3 | December, 2018 | January, 2042 |
| Esperança do Nordeste | 27.3 | 9.1 | December, 2018 | May, 2050 |
| GE Jangada | 27.3 | 10.3 | December, 2018 | January, 2042 |
| GE Maria Helena | 27.3 | 12.0 | December, 2018 | January, 2042 |
| GE Paraíso dos Ventos do Nordeste | 27.3 | 10.6 | January, 2019 | May, 2050 |
| Potiguar | 27.3 | 11.5 | December, 2018 | May, 2050 |
| Bento Miguel | ||||
| São Bento do Norte I | 23.1 | 10.1 | January, 2019 | August, 2050 |
| São Bento do Norte II | 23.1 | 10.8 | January, 2019 | August, 2050 |
| São Bento do Norte III | 23.1 | 10.2 | April, 2019 | August, 2050 |
| São Miguel I | 21.0 | 9.3 | February, 2019 | August, 2050 |
| São Miguel II | 21.0 | 9.1 | February, 2019 | August, 2050 |
| São Miguel III | 21.0 | 9.2 | February, 2019 | August, 2050 |
| Vilas Complex(4) | 186.7 | 98.6 | ||
| Vila Maranhão I | 31.95 | 17.8 | February, 2021 | January, 2054 |
| Vila Maranhão II | 31.95 | 17.8 | March, 2021 | January, 2054 |
| Vila Maranhão III | 31.95 | 16.6 | September, 2020 | January, 2054 |
| Vila Ceará I | 31.95 | 17.8 | December, 2020 | January, 2054 |
| Ventos de Vila Mato Grosso I | 58.9 | 28.6 | June, 2021 | December, 2054 |
(1) Pursuant to Directive (Portaria) No. 360 of September 30, 2020, the projects that are part of the São Bento Energia wind complex had their assured energy altered as of January 1, 2021, as follows: Boa Vista (from 6.3 MW to 5.2MW), Olho d'Água (from 15.3 MW to 12.8MW), São Bento do Norte (from 14.6MW to 11.3MW) and Farol (from 10.1MW to 8.8MW).
(2) Pursuant to Directive (Portaria) No. 360 of September 30, 2020, certain the projects that are part of the Copel Brisa Potiguar wind complex had their assured energy altered as of January 1, 2021, as follows: Asa Branca I (from 14.2MW to 12.1MW), Asa Branca II (from 14.3 MW to 11.9MW), Asa Branca III (from 14.5MW to 12.3MW) and Eurus IV (from 14.7MW to 12.4MW).
(3) Copel has a 49.0% interest in Voltália São Miguel do Gostoso.
(4) In November 2021, Copel acquired the Operations of the Vilas Complex.
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São Bento Energia. On February 25, 2015, the four wind farms (Boa Vista, Olho d’Água, São Bento do Norte and Farol) which are part of the São Bento Wind Farm Complex, located in the State of Rio Grande do Norte, began operations. With an installed capacity of 94 MW and assured energy of 38.1 average MW. In August 2010, 43.7 average MW was sold to fifteen distribution concessionaires in ANEEL public auctions at a weighted average price of R$134.40/MWh (annually adjusted by IPCA index). The energy generated by these wind farms is sold through 20-year term contracts.
Copel Brisa Potiguar Wind Complex. On September 15, 2015, Copel concluded the installation of the Brisa Potiguar Wind Complex with an installed capacity 183.6 MW and assured energy of 89.4 average MW. An assured energy of 57.7 average MW (from Asa Branca I, Asa Branca II, Asa Branca III and Eurus IV wind farms) was committed under contract to electric power distributors in the alternative energy auction in August 2010 at a weighted average price of R$135.40/MWh (adjusted annually by IPCA inflation index) and an assured energy of 40.7 average MW (from WPPs Santa Helena, Santa Maria and Ventos de Santo Uriel) was committed under contract in the 6th Reserve Energy Auction held in August 2011 at a weighted average price of R$101.98/MWh (annually adjusted by the IPCA inflation index). The energy to be generated was sold through 20-year term contracts with payments beginning in April 2015.
Voltália São Miguel do Gostoso I. In June 2014, we negotiated with Voltalia Energia do Brasil Ltda. (Voltalia) the acquisition of a 49.0% interest in the São Miguel do Gostoso I Wind Farm Complex, in the State of Rio Grande do Norte. The São Miguel do Gostoso wind farm complex has 108.0 MW of installed capacity and assured energy of 57.1 average MW, and its energy was sold in the 4th Reserve Energy Auction at an average price of R$98.92/MWh through 20-year term contracts. In April 2015, we concluded the construction of this wind farm complex and ANEEL, in July and August 2015, classified it as ready for commercial operation. This wind farm complex began production in June 2017 after completion of the necessary transmission lines.
Cutia. Cutia Empreendimentos Eólicos, which is Copel’s largest wind farm business, is divided into two large complexes totaling 312.9 MW of installed capacity: (a) Cutia Complex, composed of seven wind farms (Guajiru, Jangada, Potiguar, Cutia, Maria Helena, Esperança do Nordeste and Paraíso dos Ventos do Nordeste), with a total installed capacity of 180.6 MW, 71.4 average MW of assured energy and located in the State of Rio Grande do Norte; and (b) Bento Miguel Complex, composed of six wind farms (São Bento do Norte I, São Bento do Norte II, São Bento do Norte III, São Miguel I, São Miguel II and São Miguel III) with 132.3 MW of total installed capacity, 58.7 average MW of assured energy and located in the State of Rio Grande do Norte, in the same region of other wind farm complexes that belong to us. On October 31, 2014, at the 6th Reserve Energy Auction, we sold 71.2 average MW from the Cutia Complex for R$144.00/MWh (maximum auction price). In addition, at the 20th New Energy Auction (A-5), held on November 28, 2014, we sold 54.8 average MW from the six Bento Miguel wind farms for R$136.97/MWh, through Availability Agreements with a 20-year term.
Vilas Complex. In November 2021, Copel acquired 100% of the Vilas Complex, located in the state of Rio Grande do Norte, from Voltalia Energia do Brasil Ltda (“Voltalia”). The Vilas Complex has 186.7 MW of installed capacity and 98.6 average MWm of assured energy. The Vilas Complex sold 32.7 average MW at the 28th New Energy Auction at the price of R$93.00/MWh, with supply beginning in 2024, and 3.3 average MW at the 29th New Energy Auction at the price of R$79.92/MWh, with supply beginning in 2023. The energy contracts are valid for 20 years. The Vilas Complex is fully operational.
Thermoelectric Generation Facilities
The following table sets forth certain information about our Thermoelectric Plants in operation as of December 31, 2021:
|
Plant |
Installed capacity |
Assured energy |
Placed in service |
Our ownership |
Concession/
authorization |
| (MW) | (Average MW) | (%) | |||
| TPP Araucária | 484.2 | 267.0(1) | September, 2002 | 81.2 (2) | December, 2029 |
| TPP Figueira | 20.0 | 10.3 | April, 1963 | 100.0 | March, 2019(3) |
(1) The annual assured energy of thermal plants such as Araucária varies depending on the price of natural gas, according to criteria established by the MME.
(2) Held 20.3% by Copel and 60.9% by Copel GeT.
(3) We are currently waiting for the granting authority to amend our concession agreement with respect to TPP Figueira, extending the concession of the Thermoelectric Plant for another 20 years, pursuant to the applicable law.
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Araucária. We have an 81.2% interest in UEG Araucária Ltda., which owns the Araucária Thermoeletric Plant, a combined cycle natural gas thermoelectric plant, one of the most efficient in Brazil, with 484.2 MW of installed capacity, located in the state of Paraná.
UEG Araucária has a gas supply contract with Petróleo Brasileiro S.A - Petrobras, valid until December 31, 2022, which provides for the delivery of up to 2,150,000 cubic meters of natural gas per day, without take-or-pay clauses. As a result, TPP Araucária will remain available to the National Interconnected System - SIN and, therefore, may be dispatched at the discretion of ONS. Since UEG Araucária does not have any Energy Sale Contracts in force, the energy produced by the plant, when dispatched by the ONS, is paid out on the CCEE Spot Market.
Since March 8, 2020, as part of the exceptional measures adopted by the Electric Sector Monitoring Committee (“CMSE”) for the recovery of hydroelectric reservoirs in the southern region of the country, TPP Araucária may be dispatched by the ONS with energy priced based on the Unit Variable Cost - CVU, approved by ANEEL. During 2020 and 2021, MME Ordinances authorized, on an exceptional and temporary basis, the inclusion of fixed costs in the plant's CVU. Thus, TPP Araucária ended those years with its annual fixed costs duly remunerated.
UEG Araucária also signed an amendment to the Tranfer of Energy Credits agreement with Petrobras, with the same duration as the gas supply contract, which allows the plant to be activated at the request of the gas supplier, on a weekly basis. In this context, the energy produced is not priced by the CVU, but by the amount agreed between the parties, taking into account, among other factors, market opportunities and margins considered adequate for the operation of the plant to recover part of its fixed costs.
Figueira. The Figueira plant is located in the city of Figueira, in the northeast of the state of Paraná (where the main coal basin of Paraná is located). This plant is currently in a modernization process, which consists of replacing the old equipment for new equipment. This process aims to make this plant more efficient, reduce emissions of gases and particles resulting from the burning of coal and comply with applicable environmental legislation.
After the modernization, the plant will have the installed capacity of 20.0 MW with only one Generating Unit and the assured energy of 17.7 average MW, so that it is in compliance with Normative Resolution No. 801/2017, which defines a minimum efficiency of 25% for installations with installed capacity up to 50.0 MW.
Expansion and Maintenance of Generating Capacity
We expect to spend R$237.3 million in 2022 to expand and maintain our generation capacity, including participation in new businesses, of which R$156.4 million will be invested in Jandaíra wind farm, R$27.9 million will be invested in hydroelectric plants and R$22.6 million will be invested in our wind farms. The remaining amount will be spent on small hydroelectric power plants and other projects.
Wind Farm Projects
The following table sets forth information regarding our wind farm projects, all of which currently refer to the Jandaíra wind farm (Complexo Eólico Jandaíra). In October 2019, Copel GeT and its subsidiary Cutia wind farm (Cutia Empreendimentos Eólicos) joined the Auction ANEEL A-6 for new energy generation and sold 14.4 average MW from the Jandaíra wind farm for R$98.00 MW/h. We expect to invest R$411.6 million in this new wind farm, which has an installed capacity equivalent to 90.1 MW and an assured energy of 46.9 average MW. The Jandaíra wind farm will be built in the state of Rio Grande do Norte, and as other wind farm assets of Copel are located in the same region, we believe that this project may benefit from operational synergies related to our projects that are already operating.
The amount of energy sold in October 2019 corresponds to 30% of the project’s assured energy. Pursuant to the power purchase agreement executed in connection with the above, such amount of energy shall be supplied as from January 1, 2025, this agreement will be in force for 20 years and prices will be adjusted pursuant to the IPCA index. Any additional energy generated by the Jandaíra wind farm will be negotiated in the Free Market.
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|
Wind Farm |
Installed capacity |
Assured Energy |
Budgeted completion cost |
Beginning of commercial operation(1) |
Our ownership |
Concession expires |
| (MW) | (Average MW) | (R$million) | (%) | |||
| Jandaíra | 90.1 | 46.9 | 411.6 | May, 2022 | 100.0 | April 2055 |
| Jandaíra I | 10.4 | 5.6 | - | - | 100 | April 2055 |
| Jandaíra II | 24.3 | 12.3 | - | - | 100 | April 2055 |
| Jandaíra III | 27.7 | 14.8 | - | - | 100 | April 2055 |
| Jandaíra IV | 27.7 | 14.2 | - | - | 100 | April 2055 |
| (1) | Commercial operation of each wind farm will begin as of April 2022, in a staggered manner. We expect supply of the regulated environment contracts to begin on January 1, 2025. |
On November 30, 2021, the acquisition of the Vilas Complex was completed. Vilas Complex has 186.7 MW of installed capacity and is located in the municipality of Serra do Mel, Rio Grande do Norte:
| Wind Farm | Installed capacity | Assured Energy | Budgeted completion cost | Beginning of commercial operation | Our ownership |
Concession expires |
| (MW) | (Average MW) | (R$million) | (%) | |||
| Vilas Complex | 186.7 | 98.6 | 1049 | 100.0 | ||
| Vila Maranhão I | 31.95 | 17.8 | - | Feb, 2021 | 100 | Jan 2054 |
| Vila Maranhão II | 31.95 | 17.8 | - | Mar, 2021 | 100 | Jan 2054 |
| Vila Maranhão III | 31.95 | 16.8 | - | Sep 2020 | 100 | Jan 2054 |
| Vila Ceará I | 31.95 | 17.8 | - | Dec, 2020 | 100 | Jan 2054 |
| Ventos de Vila Mato Grosso I | 58.9 | 28.4 | - | Jun, 2021 | 100 | Dec 2054 |
Development Projects
We are involved in various initiatives to study the technical, economic and environmental feasibility of certain hydroelectric, wind, solar photovoltaic and thermoelectric generation projects.
In 2021, we improved out governance in relation to the development of projects by introducing an Investment and Innovation Committee, as an advisory body to the Board of Directors, and approving our Investment Policy, which establishes the criteria for the selection, prioritization, evaluation, approval and monitoring of investments.
The following table sets forth information regarding our proposed generation projects that are considered feasible under a technical, economic, social, environmental and land-related perspective pursuant to the above-mentioned studies.
Proposed Projects(1) |
Estimated Installed Capacity |
Estimated Assured Energy |
Our Ownership |
| (MW) | (Average MW) |
(%) | |
| HPP São Jerônimo | 330.0 | 178.1 | 41.2 |
| WPP Complexo Alto Oriente | 62.4 | 29.9 | 100.0 |
| HPP Salto Grande | 49.0 | 25.3 | 100.0 |
| SHP Salto Alemã | 29.8 | 18.4 | 19.0 |
| TOTAL | 471.2 | 251.7 | - |
| (1) | Does not include other proposed projects of Copel whose technical, economic, social, environmental and land-related feasibility is still under analysis. |
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Copel is also a member of Consortium Geração Luz Paranaense – CGLP, which was granted with exploration rights related to the following projects: (i) SHP Foz do Curucaca, (ii) SHP Salto Alemã, (iii) SHP Alto Chopim and (iv) SHP Rancho Grande. After obtaining the applicable authorization from ANEEL and evaluating the hydraulic potential of each project, the consortium decided to carry out the studies only with respect to SHP Salto Alemã and SHP Foz do Curucaca and to return the exploration rights for SHP Alto Chopim and SHP Rancho Grande projects to ANEEL. The basic designs of SHP Salto Alemã and of SHP Foz do Curucaca had already been approved by ANEEL and the environmental studies related to this project were registered in the competent entity (IAT – Instituto Água e Terra do Paraná or “IAT”) for analysis.
Since 2018, COPEL has held the rights of the HPP Salto Grande, located in the Chopim River in the state of Paraná. The environmental studies related to this project were registered with IAT for analysis in February 2020 and the basic design was approved by ANEEL in November 2020.
As for the energy auctions planned for 2022 in Brazil, we intend to bid for concessions to construct and operate new hydroelectric and solar photovoltaic plants or wind farms in power auctions in the regulated market for new generation projects. We are studying the feasibility of our participation in the hydroelectric, wind farms and solar photovoltaic projects planned to be listed in the auctions of 2022 or sell the energy in the unregulated electricity market (Free Market). We will also conduct studies of new hydroelectric power plants. For instance, we have partnered with BE - Empresa de Estudos Energéticos S.A., Minas PCH S.A. and SILEA Participações Ltda. to develop studies in the lower region of the Chopim River, which may lead to the development of another four (4) hydroelectric projects. We are also conducting studies related to future government auctions for wind farms, solar photovoltaic and hydropower plants, small hydroelectric plants and thermoelectric power plants (gas) in which we may eventually participate.
Other renewable energy projects under study or development include the use of municipal solid waste in power generation and biometanoand thermosolar energy. For instance, since 2017, Copel has conducted solarimetric measurements in two solarimetric stations located in areas leased by Copel Brisa Potiguar. The development of this solar project is ready to advance to the next phase (implementation), subject to the opening of availability for connection with our transmission system.
We are also developing studies for the implementation / acquisition of projects related to Generation Distribution, Energy Efficiency Biomass, Biogas and Natural Gas. In addition to energy generation projects, investment opportunities in new energy transmission assets whose concession will be auctioned by the Brazilian government or existing assets that have synergy with our current portfolio are also being studied.
With regards to innovation, in 2021, we launched our Open Innovation program ("Copel Volt"). Copel Voltt adds a business component to our strategic vision with the goal to bring us closer to the startup ecosystem, upon the improval of internal processes and the development of new businesses and services. We are currently developing five prototype initiatives.
Transmission and Distribution
General
Electricity is transferred from power plants to customers through transmission and distribution systems. Transmission is the bulk transfer of electricity from generating facilities to the distribution system by means of the Interconnected Transmission System, in tension greater than or equal to 230 kV. Distribution is the transfer of electricity to Final Customers, in tension lesser or equal to 138 kV.
The following table sets forth certain information concerning our transmission and distribution grids on the dates presented.
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|
2021 |
2020 |
2019 | |
| Transmission lines (km): | |||
| 230 kV and 500 kV | 3,630.8 | 3,443.0 | 3,127.6 |
| 138 kV | 7.2 | 7.2 | 7.2 |
| Distribution lines (km): | |||
| 230 kV(1) | - | - | - |
| 138 kV | 6,513.5 | 6,457 | 6,506.7 |
| 69 kV | 755.4 | 755 | 755.6 |
| 34.5 kV | 87,744.0 | 86,489 | 85,734.5 |
| 13.8 kV | 109,943.8 | 108,384 | 106,955.7 |
| Transformer capacity (MVA): | |||
| Transmission and distribution substations (69 kV – 500 kV)(2) | 25,032.1 | 24,518.0 | 23,860.2 |
| Generation (step up) substations | 6,691.0 | 6,691.0 | 6,691.0 |
| Distribution substations (34.5 kV) | 1,624.5 | 1,594.2 | 1,545.8 |
| Distribution transformers | 14,621.8 | 14,180.8 | 13,800.9 |
| Total energy losses(3) (4) | 7.7% | 7.8% | 7.0% |
(1) Due to improvements to registration and control systems used by Copel Distribuição to classify and register its transmission lines, lines were classified pursuant to its insulation voltage, and not according to its structure and isolate components. Consequently, all lines previously registered by Copel Distribuição were reclassified and there are no lines classified as 230 kV anymore.
(2) 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.
(3) Percentage of losses on the energy injected in the distributor (technical and non-technical losses on injected energy). Does not consider losses in the basic grid.
(4) We note that percentages measured until 2016 and reported in previous reports of the Company reflected the amounts of physical losses (Technical), commercial losses (Non-Technical) and losses on the basic grid (allocation of agreements on the gravity center of the submarket) of Copel Distribuição, as well as the losses related to the allocation of agreements of Copel GeT. Those percentages were calculated taking into account the total of power purchased and sale agreements entered into by both Copel Distribuição and Copel GeT. For a better representation and comparison of the percentage of losses, we considered the percentage obtained by dividing the total amount of technical and non-technical losses by the energy injected into the Copel Distribuição´s grid. This percentage may be compared to other companies and has a more accurate physical meaning as it utilizes the database of measured data and not information taken from agreements of the period being analyzed.
Transmission
Our transmission system consists of all our assets of 230 kV and greater and a small portion of our 138 kV assets, which are used to transmit the electricity we generate and the energy we receive from other sources. In addition to using our transmission lines to provide energy to customers in the State of Paraná, we also transmit energy through the Interconnected Transmission System. Two companies owned by the Brazilian government, Companhia de Geração e Transmissão de Energia Elétrica do Sul do Brasil – CGT Eletrosul and Furnas, also maintain significant transmission systems in the State of Paraná. Furnas is responsible for the transmission of electricity from Itaipu, while CGT Eletrosul’s transmission system links the states in the south of Brazil. Copel, like all other companies that own transmission facilities, is required to allow third party access to its transmission facilities in exchange for compensation at a level set by ANEEL.
Currently, we carry out the operation and maintenance of 3,638 km of transmission lines, forty three (43) substations in the State of Paraná and two (2) substations in the State of São Paulo. In addition, we have partnerships with other companies to operate 5,978 km of transmission lines and eight (8) substations through special purpose companies (SPCs).
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The table below sets forth information regarding our transmission assets in operation:
|
Subsidiary / SPC |
Transmission Lines |
TL Extension (km)4 |
Number of Substations |
Concession Expiration Date |
Our Ownership |
APR
¹ |
| COPEL GeT | Main Transmission Concession(1) | 2,063 | 35 | January, 2043 | 100.0% | 459.4 |
| COPEL GeT | TL Bateias - Jaguariaiva | 138 | - | August, 2031 | 100.0% | 15.9 |
| COPEL GeT | TL Bateias - Pilarzinho | 32 | - | March, 2038 | 100.0% | 1.2 |
| COPEL GeT | TL Foz - Cascavel Oeste | 117 | - | November, 2039 | 100.0% | 13.8 |
| COPEL GeT | Cerquilho III Substation | - | 1 | October, 2040 | 100.0% | 6.0 |
| COPEL GeT |
TL Londrina – Figueira C2 Foz do Chopim – Salto Osório |
102 | - | August, 2042 | 100.0% | 6.7 |
| COPEL GeT |
TL Assis – Paraguaçu Paulista C1 and C2 Paraguaçu Paulista II Substation |
83 | 1 | February, 2043 | 100.0% | 10.5 |
| COPEL GeT |
Curitiba Norte Substation TL Bateias – Curitiba Norte |
31 | 1 | January, 2044 | 100.0% | 11.1 |
| COPEL GeT |
Realeza Sul Substation TL Foz do Chopim- Realeza Sul |
52 | 1 | September, 2044 | 100.0% | 11.2 |
| COPEL GeT | TL Assis – Londrina | 122 | - | September, 2044 | 100.0% | 23.3 |
| COPEL GeT | TL Araraquara II – Taubaté | 334 | - | October, 2040 | 100.0% | 37.5 |
| COPEL GeT |
TL Baixo Iguaçu – Realeza TL Baixo Iguaçu – Cascavel Oeste TL Curitiba Centro – Uberaba TL Curitiba Leste – Blumenau Medianeira Norte Substation Curitiba Centro Substation Andirá Leste Substation Baixo Iguaçu Substation |
254 | 4 | April, 2046 | 100% | 133.3 |
| Uirapuru (Copel GeT – 100%)(2) | TL Ivaiporã - Londrina | 122 | - | March, 2035 | 100% | 26.0 |
| Costa Oeste (Copel GeT – 100%) |
LT Cascavel
Oeste - Cascavel Norte Umuarama Sul Substation |
159 | 1 | January, 2042 | 100% | 14.8 |
| Marumbi (Copel GeT – 100%) |
TL Curitiba – Curitiba Leste Curitiba Leste Substation |
29 | 1 | May, 2042 | 100% | 21.5 |
| Subtotal Copel GeT | 3,638 | 45 | 792.2 | |||
| Caiuá Transmissora | TL Guaíra - Umuarama Sul TL Cascavel Norte - Cascavel Oeste Santa Quitéria Substation / Cascavel Norte Substation |
142 | 2 | May, 2042 | 49.0%(3) | 12.8 |
| Integração Maranhense | TL Açailandia-Miranda II | 365 | - | May, 2042 | 49.0%(3) | 19.3 |
| Matrinchã | TL Paranaíta - Ribeirãozinho | 2,033 | 4 | May, 2042 | 49.0%(3) | 115.4 |
| Guaraciaba | TL Ribeirãozinho - Marimbondo | 930 | 1 | May, 2042 | 49.0%(3) | 52.3 |
| Paranaíba | TL Barreiras II - Pirapora II | 967 | - | May, 2043 | 24.5%(3) | 38.3 |
| Cantareira | TL Estreito – Fernão Dias | 656 | - | September, 2044 | 49.0%(3) | 58.6 |
| Mata de Santa Genebra |
TL Araraquara
II - - Itatiba TL Bateias - Itatiba |
885 | 1 | May, 2044 | 50.1%(3) | 131.3 |
| Subtotal SPCs | 5,978 | 8 | 427.9 | |||
| Total | 9,616 | 53 | 1,220.1 | |||
(1) Our main transmission concessions encompasses several transmission lines.
(2) In March 2019, Copel GeT signed a purchase and sale agreement with Centrais Elétricas Brasileiras SA and Fundação Eletrosul de Previdência e Assistencial Social - Elos to transfer 100% of shares issued by SPE Uirapuru Transmissora de Energia S.A. In June, 2019 Copel GeT took over the stake control of the company.
(3) Refers to the equity interest held by Copel Geração e Transmissão.
(4) Considers double circuits.
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Expansion and Maintenance of Transmission Facilities
The construction of new transmission facilities of 230 kV and higher must be awarded in a bidding process or otherwise authorized by ANEEL. We are permitted by ANEEL to make minor improvements to some of the existing 230 kV and 500 kV facilities.
In November 2013, SPC Mata de Santa Genebra Transmissora, a strategic partnership between Copel (50.1%) and Furnas (49.9%), won the right to build and operate 847 km of transmission lines and three substations in the States of Paraná and São Paulo. The construction schedule of the Mata de Santa Genebra project was affected by successive vandalism events, which resulted in the collapse of towers and theft of aluminum cables in transmission lines already installed and commissioned, in different sections of the project. On November 11, 2020, the LT 440 kV Fernão Dias / Taubaté, the last asset of the SPC Mata de Santa Genebra project, began its commercial operation. With the completion of these steps, the SPC Mata de Santa Genebra became fully operational. The project an APR of R$262.0 million, of which R$131.2 million are related to COPEL's stake.
In November 2015, Copel GeT won ANEEL’s public auction No. 005/2015 for the construction and operation of 188 km of transmission lines in the States of Paraná and Santa Catarina, and three (3) substations in the State of Paraná, with a total capacity of 900 MVA. With an APR of R$133.3 million, the corresponding concession agreement was signed in April 2016, and the remaining facility which was still under construction, the transmission line Curitiba Leste - Blumenau, become operational in April 1, 2021. This facility has an APR of R$42.6 million, approved for 2021-2022 tariff adjustment cycle.
Distribution
Our distribution system consists of a widespread grid of overhead lines and substations with voltages up to 138 kV assets. Higher Voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial, and commercial customers in addition to other customers. As of December 31, 2021, we provided electricity in a geographic area encompassing approximately 97% of the State of Paraná and served 4.9 million customers.
Our distribution grid includes 204,957 km of distribution lines, 54,124 distribution transformers and 235 distribution substations of 34.5 kV, 36 substations of 69 kV and 113 substations of 138 kV. During 2021, 90,756 new captive customers were connected to our grid, including customers connected through the rural and urban electrification programs. We are continuing to implement compact grid design distribution lines in urban areas with large concentration of trees in the vicinity of the distribution grid.
We have four (4) captive customers that are directly supplied with energy at a high voltage (69 kV and above) through connections to our distribution lines. The volume of energy commercialized for these customers was 35,139MWh in 2021.
We are also responsible for expanding the 138 kV and 69 kV distribution grid within our concession area to meet any future demand growth.
On October 16, 2019 Copel Distribuição launched a program to modernize its distribution grid called “Transformation Program” (Programa Transformação). The Transformation Program is comprised of three projects: “Total Reliability” (Confiabilidade Total), “Three-phase Paraná” (Paraná Trifásico) and “Smart Grid Copel”. The goal is to improve infrastructure, particularly in rural areas, in order to enhance quality of energy supply and reduce supply restoration period in case of power outages. With investments of up to R$3.9 billion until 2025, which shall compose the Regulatory Remuneration Base, the Transformation Program involves the construction of approximately twenty-five 25,000 kilometers of power grids, 15,000 new automated power connections and the setting up of smart grid technology in the State of Paraná. The Smart Grid Project deals with the implementation of a communication network for distribution automation equipment and for smart meters. In addition, computer systems for efficient management of this communication network are included in this project.
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Performance of the Distribution System
Total losses are commonly divided into a technical and non-technical component. Technical losses are inherent to the transportation of electricity and consist mainly of power dissipation in the line grid. Non-technical (or commercial) losses are caused by actions external to the power system (for instance, electricity theft). Since total losses are comprised of both technical and non-technical parcels, the latter is easily calculated as the difference between total losses and the estimated technical losses inherent to the system.
Total losses in our distribution system are segmented between (i) losses in the basic grid (tension equal to or greater than 230kV), which are external to our distribution grid and have a technical cause, and (ii) losses in the distribution grid (internal to our distribution grid), which are usually caused by both technical and non-technical reasons.
Losses in the basic grid are calculated monthly by the CCEE as the difference between the total generation and the energy effectively delivered to the distribution grids. The total losses from our distribution grid are calculated as the difference between the energy allocated to the system and the energy supplied to the customers.
Our total energy distribution losses (including transmission system, technical and commercial losses) totaled 9.2% of the total energy amount available in 2021, being (i) 1.5% related to losses in the basic grid, (ii) 5.8% of technical losses and (iii) 1.9% of non-technical losses.
ANEEL grants the transfer of all energy losses to the Final Customers when the real losses are less than regulatory losses. The calculation is made within the regulatory period, that is different from a civil year, and thereby we will know the result just in the next tariff adjustment, in June 2022. But our simulation indicates that in the civil year, from January through December 2022, we will have all losses transferred to the Final Customers.
Furthermore, ANEEL requires distributors to observe certain standards for “energy supply continuity,” namely (i) duration of outages per customer per year or DEC – Duração Equivalente de Interrupção por Unidade Consumidora and (ii) frequency of outages per customer per year or FEC – Frequência Equivalente de Interrupção por Unidade Consumidora. Information regarding the duration and frequency of outages for our customers is set forth in the following chart for the years indicated.
|
Quality of supply indicator |
2021 |
2020 |
2019 |
2018 |
2017 |
|
DEC – Duration of outages per customer per year (in hours) |
7h13min | 7h50min | 09h07min | 10h19min | 10h28min |
| FEC – Frequency of outages per customer per year (number of outages) | 4.83 | 5.61 | 6.02 | 6.22 | 6.83 |
We comply with the quality indicators defined by ANEEL for 2021, which penalizes power outages in excess of an average number of hours per customer, in each case calculated on an annual basis. These limits vary depending on the geographic region, and the average limit established by ANEEL for our distribution company was 9 hours and 17 minutes of outages per customer per year, and a total of 6.84 outages per customer per year. Failure to comply with these predetermined standards with a Final Customer results in a reduction of the amount we can charge such Final Customer in future periods.
In addition, quality target indicators are taken into consideration by ANEEL during distribution concession renewal proceedings, and also influence ANEEL’s calculation of our tariff adjustments. For more information, see “–Concessions–Distribution Concessions” and “–The Brazilian Electric Power Industry–Distribution Tariffs”.
Purchases for the captive market
The following table contains information concerning volume, cost and Average Tariff for the main sources of the electricity we purchased for the captive market in the last three years.
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|
Source |
2021 |
2020 |
2019 |
| Itaipu | |||
| Volume (GWh) | 5,435 | 5,498 | 5,533 |
| Cost (R$millions) | 1,787.7 | 1,766.1 | 1,317.0 |
| Average Tariff (R$/MWh) | 328.81 | 321.23 | 238.00 |
| Angra | |||
| Volume (GWh) | 976 | 968 | 979 |
| Cost (R$millions) | 224.7 | 269.0 | 248.0 |
| Average Tariff (R$/MWh) | 230.23 | 277.89 | 253.00 |
| CCGF | |||
| Volume (GWh) | 5,916 | 6,136 | 6,274 |
| Cost (R$millions) | 686.3 | 673.0 | 642.0 |
| Average Tariff (R$/MWh) | 116.01 | 109.68 | 102.32 |
| Auctions in the regulated market | |||
| Volume (GWh)(1) | 12,369 | 11,733 | 12,515 |
| Cost (R$millions)(2) | 3,194.0 | 2,207.0 | 2,257.0 |
| Average Tariff (R$/MWh) | 258.24 | 188.08 | 180.34 |
(1) These numbers do not include assignments related to MCSD-EN and MVE.
(2) These numbers do not include short-term energy purchased through the CCEE.
Itaipu
We purchased 5,435 GWh of electricity from Itaipu in 2021, which constituted 10.1% of our total available electricity in 2021 and 21.4% of Copel Distribuição’s total available electricity in 2021. Our purchases represented approximately 8.2% of Itaipu’s total production. Distribution companies operating under concessions in the midwest, south and southeast regions of Brazil are required by law to purchase Brazil’s portion of the energy generated by Itaipu in a proportion that correlates with the volume of electricity that they provide to customers. The rates at which these companies are required to purchase Itaipu’s energy are fixed to cover Itaipu’s operating expenses and payments of principal and interest on Itaipu’s U.S. dollar-denominated borrowings, as well as the cost of transmitting the power to their concession areas. These rates are denominated in U.S. dollars and have been set for 2022 at US$24.73 per kW.
In 2021, we paid an Average Tariff of R$328.81/MWh for energy from Itaipu, compared to R$321.23/MWh in 2020. These figures do not include the transmission tariff that distribution companies must pay for the transmission of energy from Itaipu.
ANGRA
Because Eletronuclear renewed the generation concession of Angra under the 2013 Concession Renewal Law, the energy generated by Angra is no longer sold in auctions in the regulated market. Rather, under the 2013 Concession Renewal Law, this energy is sold to distributors in accordance with the quota system established by said law. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”. As a result, Copel Distribuição was legally required to purchase 976 GWh from Angra in 2021, 968 GWh in 2020 and 979 GWh in 2019.
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Assured Energy Quota Contract – CCGF
Under the 2013 Concession Renewal Law, certain generation concessionaires renewed their concession contracts, and therefore these concessionaires no longer sell the energy produced by these generation facilities at auctions in the regulated market. Rather, this energy is sold to distribution companies in accordance with the quota system established by the 2013 Concession Renewal Law. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”. Copel Distribuição is obligated to purchase energy from these generation concessionaires that have renewed generation concessions under this quota system. Copel Distribução was legally required to purchase 5,916 GWh in CCGF contracts in 2021, 6,136 GWh in 2020 and 6,274 GWh in 2019.
Auctions in the Regulated Market
In 2021, we purchased 12,369 GWh of thermoelectric and hydroelectric energy through auctions in the regulated market. This energy represents 48.8% of the total electricity purchased by the Copel Distribuição. For more information on the regulated market and the Free Market, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”.
Sales to Captive Customers
During 2021, we supplied approximately 95.8% of the energy distributed directly to Captive Customers in the State of Paraná. Our concession area includes nearly 4.9 million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, located in the south of the State of Paraná. During 2021, the total power consumption of our Captive Customers was 19,312 GWh, a 0.7% increase as compared to 19,180 GWh during 2020.
|
Categories of purchaser |
2021 |
2020 |
2019 |
| (GWh) | |||
| Industrial customers | 2,275 | 2,314 | 2,648 |
| Residential | 8,068 | 7,910 | 7,499 |
| Commercial | 4,149 | 4,172 | 4,730 |
| Rural | 2,461 | 2,451 | 2,361 |
| Other(1) | 2,359 | 2,333 | 2,546 |
| Total(2) | 19,312 | 19,180 | 19,784 |
(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.
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Sales to Free Customers
We operate in the ACL through our wholly owned subsidiaries Copel Geração e Transmissão and Copel Comercialização (Copel Mercado Livre). As of December 31, 2021, we had 1,380 Free Customers (of which 1,363 were customers of our energy trading company and 17 of Copel GeT), representing approximately 8.0% of our consolidated operating revenue and approximately 14.6% of the total quantity of electricity sold by us. During 2021, the total power consumption of our Free Customers was 9,537 GWh, a 19.4% increase as compared to 7,989 GWh during 2020.
|
Categories of purchaser |
2021 |
2020 |
2019 | |
| (GWh) | ||||
| Industrial customers | 8,176 | 7,308 | 6,352 | |
| Commercial | 1,360 | 680 | 508 | |
| Total | 9,537 | 7,989 | 6,860 | |
The following table sets forth the number of our Final Customers, considering both Captive and Free Customers, in each category as of December 31, 2021.
|
Category |
Number of Final Customers |
| Industrial | 71,651 |
| Residential | 4,038,454 |
| Commercial | 423,812 |
| Rural | 342,465 |
| Other(1) | 52,544 |
| Total | 4,928,926 |
(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 10.0%and 17.9%, respectively, of our total revenues from energy sales to Final Customers of Captive Market during 2021. In 2021, 33.3% of our total revenues from energy sales were from to residential customers.
Tariffs
Retail Tariffs. We classify our customers in two groups (“Group A Customers” and “Group B Customers”), based on the voltage level at which electricity is supplied to them and on whether they are considered as industrial, commercial, residential or rural customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Under Brazilian regulation, low voltage customers such as residential customers (other than Low-income Residential Customers, as defined as follows) pay the highest tariff rates, followed by 13.8 kV and 34.5 kV voltage customers (usually commercial customers), and 69 kV and 138 kV voltage customers (usually industrial customers).
Group A Customers receive electricity at 2.3 kV or higher and the tariffs applied to them are based on the actual voltage level at which energy is supplied and the time of day the energy is supplied. Tariffs are comprised of two components: a “capacity charge” and an “energy charge”. The capacity charge, expressed in reais per kW, is based on the higher of (i) contracted firm capacity and (ii) power capacity actually used. The energy charge, expressed in reais per MWh, is based on the amount of electricity actually consumed as evidenced by our metering.
Group B Customers receive electricity at less than 2.3 kV, and the tariffs applied to them are comprised solely of an energy charge and are based on the classification of the customer.
ANEEL restates our tariffs annually, usually in June. For more information about the distribution tariff adjustments that have been made by ANEEL in recent years, see “Item 5. Operating and Financial Review and Prospects—Overview—Rates and Prices”.
The following table sets forth the Average Tariffs for each category of Final Customer.
|
Tariffs |
2021 |
2020 |
2019 |
| (R$/MWh) | |||
| Industrial | 540.97 | 487.41 | 488.78 |
| Residential | 530.98 | 498.82 | 504.36 |
| Commercial | 629.62 | 574.57 | 574.41 |
| Rural | 589.41 | 489.57 | 466.9 |
| Other customers | 401.34 | 356.03 | 364.49 |
| All Final Customers | 592.17 | 537.81 | 534.32 |
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Low-income Residential Customers. Under Brazilian law, we are required to provide low level rates to certain low-income residential customers (“Low-income Residential Customers”). In December 2021, we served approximately 388,874 low-income residential customers. For servicing these customers, in 2021 we received an approximately R$95.5 million compensation from the Brazilian government, which was approved by ANEEL.
The following table sets forth the current minimum discount rates approved by ANEEL for each category of Low-income Residential Customer.
|
Consumption |
Discount from base tariff |
| Up to 30 kWh per month | 65% |
| From 31 to 100 kWh per month | 40% |
| From 101 to 220 kWh per month | 10% |
Special Customers. A customer of our distribution business that consumes at least 500 kW (a “Special Customer”) may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants. A Special Customer that chooses to purchase energy from a supplier other than Copel Geração e Transmissão continues to use our distribution grid and to pay our distribution tariff. However, as an incentive for Special Customers to purchase from alternative sources, we are required to reduce the tariff paid by Special Customers by 50%. This discount is subsidized by the Brazilian government, and therefore does not impact the revenues of our distribution business.
Transmission Tariffs. A transmission concessionaire is entitled to annual revenues based on the transmission grid it owns and operates. These revenues are annually readjusted according to criteria stipulated in the concession contract. We are directly a party to twelve (12) transmission concession contracts in operation. Not all of the transmission concession contracts employ the same revenue model, 2.2% of our transmission revenues are updated on an annual basis by the IGP-M and the other 97.8% are subject to the tariff review process.
The first periodic revision related to our Main Transmission Concession scheduled for 2005 was only carried out in 2007, at which point ANEEL reduced the tariffs by 15.08%. This adjustment was applied retroactively to July 2005, and was passed on to our Final Customers until June 2009. In addition, in July 2010 pursuant to a second periodic revision of our principal concession, ANEEL granted provisional approval of a reduction in our transmission tariff by 22.88%, applied to the revenues of new installations in the Interconnected Transmission System, and applied retroactively from July 1, 2009 onward. In June 2011, ANEEL reviewed the figures of the second periodic revision and reduced the annual revenues by 19.94%. The remainder of our annual revenues was subject to adjustment by IGP-M or IPCA, as applicable.
By late 2012, Copel decided to anticipate the extension of its main transmission concession agreement (corresponding to 78% of our transmission lines then in operation) that would expire in 2015, pursuant to the new rules of the 2013 Concession Renewal Law. In December 2012, Copel executed the Third Addendum to the Concession Agreement 060/2001, extending this transmission concession agreement until December 31, 2042. In order to adjust these assets’ annual permitted revenue to the new rules of 2013 Concession Renewal Law, ANEEL reduced the transmission tariffs we charged by 61.9%.
Of all our transmission concessions in operational stage, our main transmission concession (which involves our main transmission facilities) accounted for about 71% of our gross transmission revenues in 2019. In addition, we have ten (10) concession agreements for transmission lines and substations in operation and one (1) partially in operation, which correspond to an aggregate of 29% of our transmission revenues. The amount of revenues we are entitled to receive pursuant to one (1) of these contracts is updated on an annual basis by the IGP-M and is not subject to the tariff review process, but, pursuant to the terms set forth in this agreement, our revenues were reduced by 50% starting in June 2018. Other ten (10) agreements revenues are subject to the tariff review process and adjustments by the IPCA.
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In relation to our main concession agreement, on April 22, 2016, Ordinance No. 120/2016 of the Ministry of Mines and Energy determined that the amounts ratified by ANEEL related to the non-depreciated transmission assets existing on May 31, 2000 (Basic Grid Existing System “RBSE”) should be incorporated to the Regulatory Remuneration Base, and that their cost of capital should be added to APR. The Ordinance also determined that the cost of capital would be composed of compensation and depreciation installments, plus related taxes, and recognized as of the 2017 tariff revision process, with adjustments and revisions in accordance with contractual conditions.
Also pursuant to the above mentioned Ordinance, the cost of capital not incorporated between the concessions’ extensions and the 2017 tariff revision process should be restated at the real cost of own capital of the transmission segment defined by ANEEL (10.4%) and, after the tariff revision process, it should be remunerated at the Weighted Average Cost of Capital (WACC) of 6.6%, also defined by that agency.
On May 9, 2017, ANEEL approved the result of the inspection of the appraisal report of the transmission assets existing on May 31, 2000 (RBSE and Other Transmission Facilities - RPC) related to our main transmission concession agreement. The Agency recognized the amount of R$667.6 million as the net value of the assets for the purposes of indemnification as of December 31, 2012. As of December 31, 2017, the net value of those assets for the purposes of indemnification amounted to R$1,418.4 million.
On June 27, 2017, ANEEL approved the Annual Permitted Revenue (Receita Anual Permitida, or APR) of the transmission assets of Copel GeT for the 2017/2018 cycle, including the commencement of receipt of the RBSE indemnification of our main transmission concession agreement.
In 2017(i) our main transmission concession agreement was adjusted by the IPCA and by the portion related the commencement of receipt of the RBSE indemnification (average increase of 151.3%) (ii) one of our transmission concession agreements was adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 3.7%), (iii) six transmission concession agreements were adjusted by the IPCA (3.6%), (iv) one transmission concession agreement was adjusted by the IGP-M (1.6%), and (v) one transmission agreement became operational in August 2017, adding R$18.9 million of annual permitted revenues. As a result, the annual permitted revenues for the 2017/2018 cycle for our transmission assets reflected an increase of 121.2% over our annual permitted revenues for the 2016/2017 cycle.
In June 2018, ANEEL approved the APR for the 2018/2019 cycle, considering (i) an adjustment of relevant amounts by the IGP-M and IPCA indexes, and (ii) the expansion of our transmission system with upgrades and revenues from other works classified as improvement measures.
Compared to our total APR for the 2017/2018 cycle, the APR of our main concession for the 2018/2019 cycle was reduced by 8.1%, as a result of the correction of a prior calculation made by ANEEL, which take into account certain financial and economic portions of unamortized and unrepaired assets related to the RBSE when determining the assets of the Regulatory Remuneration Base in the prior cycle.
The APR of concession No. 075/2001 was reduced by approximately 30.5%, as a result of a 50% reduction of the APR starting at the 16th anniversary of commercial operation, which occurred during the 2018/2019 cycle. Two of our concession agreements (022/2012 and 002/2013) were subject to a periodic review, which resulted in a lower APR in connection with increasing revenues related to upgrade works.
In June 2019, ANEEL approved the APR for the 2019/2020 cycle, considering (i) an adjustment of relevant amounts by the IGP-M and IPCA indexes, and (ii) the expansion of our transmission system with upgrade works and revenues from other works classified as improvement measures.
In 2020, in the scope of the tariff review process for the contracts extended under Law No. 12,783/2013, holders of assets belonging to RBSE had their review ratified in June 2020 despite originally being scheduled for 2018, due to a two-year delay and the retroactive effects of REN 880/2020 on the 2018 tariff year. For Copel, this process was ratified through Homologation Resolution No. 2,715/2020 for concession agreement No. 060/2001, granted to Copel GeT. During review process, ANEEL decided that starting on the 2020/2021 cycle, the renumeration portion of the RBSE would be calculated by the cost of equity (“KE”) as provided for in Ordinance MME No. 120/2016. The value not received during the three previous cycles (2017-2020) will be incorporated into the next three cycles (2020-2023) by the means of an Adjustment Installment (Parcela de Ajuste).
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In view of the strong tariff impact of the increased risk of default in the electricity sector caused by the COVID-19 pandemic, on April 22, 2021, ANEEL changed the timeline for the payment of the financial component of the RBSE/RPC for 8 years and gradually for all the transmission concession agreements renewed under the terms of Law No. 12,783/2013. The new rule was approved by Resolution No. 2,847, of 04.22.2021, which changed the result of the periodic review of the APR, ratified in 2020, associated with Concession Agreement No. 060/2001.
Additionally, by means of Homologation Resolution No. 2,725/2020, ANEEL established the adjustment of APRs for electric energy transmission assets for the 2020-2021 cycle, effective from July 1, 2020 until June 30, 2021. According to the aforementioned resolution, Copel GeT’s transmission asset APRs for the 2020-2021 cycle were R$811.8 million. Considering the homologated APRs for the Special Purpose Companies (Sociedades de Propósito Específicos) in which Copel GeT has equity ownership, the total consolidated value for Copel GeT is R$1,199.8 million.
On July 13, 2021, ANEEL readjusted the APRs for electric energy transmission assets for the cycle from July 1, 2021 to June 30, 2022 through Resolutions 2,895/2021 and 2,959/2021. Copel GeT’s transmission assets APR was set at R$792.2 of assets in operation. Considering the APRs approved for the Specific Purpose Vehicles 100% owened by Copel Geração e Transmissão, the total consolidated amount reached R$1,220.1 million.
The table below shows our APR (R$million) for the last three cycles of transmission lines over which we hold a 100% ownership:
|
Contract |
Transmission Line / Substation |
Jul. 2021 Jun.2022 |
Jul. 2020 Jun. 2021 |
Jul. 2019 Jun. 2020 |
| APR (R$million) | ||||
| 060/2001 | Main Transmission Concession(1) | 459.4 | 505.4 | 469.5 |
| 075/2001 | Bateias – Jaguariaiva | 15.9 | 11.6 | 10.9 |
| 006/2008 | Bateias – Pilarzinho | 1.2 | 1.1 | 1.1 |
| 027/2009 | Foz do Iguaçu - Cascavel Oeste | 13.8 | 12.7 | 12.5 |
| 015/2010 | Cerquilho III | 6.0 | 5.2 | 5.1 |
| 022/2012 |
Foz do Chopim – Salto Osório Londrina – Figueira C2 |
6.7 | 6.2 | 6.1 |
| 002/2013 |
Assis — Paraguaçu Paulista II C1 and C2 SE Paraguaçu Paulista II |
10.5 | 9.7 | 8.2 |
| 005/2014 |
Bateias - Curitiba Norte SE Curitiba Norte |
11.1 | 10.2 | 9.9 |
| 021/2014 | Foz do Chopim - Realeza(2) | 11.2 | 8.0 | 7.8 |
| 022/2014 | Assis – Londrina(3) | 23.3 | 20.8 | 20.4 |
| 010/2010 | Araraquara 2 – Taubaté(4) | 37.5 | 32.0 | 31.4 |
| 006/2016 |
TL Baixo Iguaçu - Realeza; TL Baixo Iguaçu - Cascavel Oeste; TL Uberaba - Curitiba Centro; TL Curitiba Leste - Blumenau; SE Medianeira; SE Curitiba Centro; SE Andirá leste; SE Baixo Iguaçu; Demais Seccionamentos |
133.3 | 119.1 | 79.0 |
| 002/2005 | Uirapuru(5) | 26.0 | 37.1 | 34.8 |
| 001/2012 | Costa Oeste(6) | 14.8 | 12.8 | 12.5 |
| 008/2012 | Marumbi(6) | 21.5 | 19.9 | 19.5 |
| Total | 792.2 | 811.8 | 728.7 | |
(1) Our main transmission concessions encompass several transmission lines.
(2) This transmission line became operational in January 2017.
(3) This transmission line became operational in August 2017.
(4) This transmission line became operational in July 2018.
(5) In June 2019, Copel Geração e Transmissão S.A. became the owner of 100% of the project.
(6) In August 2018, Copel Geração e Transmissão S.A. became the owner of 100% of the project.
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Other Businesses
Gas
Gas Distribution
Compagas entered into a concession agreement with the State of Paraná which expires on July 6, 2024. The scope of this concession is to provide piped gas distribution services and other related activities to all segments of the consumer market, either as a raw material, or for the purposes of power generation or other uses made possible by technological advances.
The gas concession agreement provides that part of the investments made by Compagas were to be recovered through the collection of tariffs paid by the end users of the public service and the remaining part should be indemnified by the granting authority, the State of Paraná, at the end of the concession.
On July 23, 2021, the State of Paraná submitted to public consultation a proposal to extend Compagás' concession for thirty years as of July 7, 2024. The proposed extension includes the execution of a new concession contract, which would change the tariff structure of the concession from a tariff based on production cost to a tariff defined based on a price cap. The methodology to calculate the tariffs under the new contract will be determined by the State Regulatory Agency for Public Services AGEPAR.
On February 22, 2022, a public hearing was held in order to make the State Plan and concession extension proposal public and collect input from the private sector (as provided under Complementary Law No. 205/2017). The collected comments and input are now under analysis of the State Secretary for Planning and Projects (Secretaria do Planejamento e Projetos Estruturantes do Estado do Paraná).
If the extension of the concession does not occur, even if Compagas is entitled to compensation for the investments made in the last 10 years prior to the end of the concession, the financial condition and results of operations of our controlled company may be adversely affected. For more information see Note 2.1.1 to our audited consolidated financial statements.
Additionally, a federal law of April 8, 2021 (Law No. 14,134/2021, later regulated by Federal Decree No. 10,712/2021) established a new milestone for the gas producing sector in Brazil. The purpose is to increase competition in the Natural Gas and Biofuels market, attracting new investors, consequently reducing production costs and the final price of gas for the consumer.
Compagas covered 852 kilometers in 2021, an increase of 1.2% compared to 842 kilometers covered in 2020. Compagas’s net revenues were R$738.05 million, an increase of 40.7%, compared to 2020 (R$524.23 million), and its net income was R$125.65 million, an increase of 110.7% compared to 2020. Compagas’ customers include industries, gas stations, other businesses, residences and Araucária Thermoelectric plan. Compagas is focusing its business strategy on increasing the volume of gas it distributes to customers by marketing the benefits of substituting oil and other fuels by gas as a mean of achieving greater energy efficiency. Compagas’ customer base increased 3.4%, to 51,000 customers in 2021 from 49,335 in 2020. Compagas registered an increase of 1.3% in the average daily volume of natural gas distributed to Final Customers, to 893,203 cubic meters per day in 2021 compared to 881,745 cubic meters per day in 2020 (not including the volume of gas supplied to Araucária Thermoelectric Plant). In addition, Compagas makes its distribution grid available to transport natural gas to Araucária TPP. The volume of natural gas supplied from Petrobras and distributed by Compagas to Araucária TPP, was 1,212,597 cubic meters per day in 2021, compared to 676,113 cubic meters per day in 2020.
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As of December 31, 2021, we held a controlling stake (51%) of the capital stock of Compagas and consolidated this equity interest in our financial statements. The minority shareholders of Compagas are Petrobras, through its subsidiary Gaspetro, and Mitsui Gás, each of which owns 24.5% of the capital stock of Compagas.
Gas Exploration
In the 12th bidding round of National Petroleum Agency (Agência Nacional do Petróleo “ANP”), held at the end of 2013, the consortium formed by us (30%), Bayar Participações (30%), Tucumann Engenharia (10%) and Petra Energia (30%), the latter acting as operating company, won the right to explore, research, develop and produce natural gas in four blocks located in the central southern region of the State of Paraná, in a 11,327 km² area. The minimum investment in the first phase of the research is approximately R$78.1 million for a 4-year term. We and our partners have signed the concession contracts for 2 blocks in May 2014. However, because of a public civil action the first phase of exploration for these two blocks was halted and the signing of the other two concession contracts was prohibited. On June 7th, 2017, a court decision held that all the bidding round and the agreements related thereto should be deemed null and void. Moreover, the Government of the State of Paraná enacted Law No. 19,878 (July 3, 2019), forbidding the exploration of shale gas through the drilling/fracking method.
As a result of the above-mentioned events, our consortium requested ANP to release it from its contractual obligations, with no liabilities and with reimbursement of the signing bonuses, reimbursement of all costs incurred in connection with guarantees and release of such guarantees for the four blocks. Even though this request was submitted to ANP on September 6th, 2017, it is still under analysis. All the activities for the four blocks were interrupted due to the suspension of the effects of the12th bidding round of ANP because of an injunction granted in connection with the above mentioned public civil action, which awaits a decision from the Federal Court of Appeals of the 4th Region. For this reason, in October 2018, the consortium approved the establishment of an institutional arbitration procedure with the ANP for the two blocks whose concession contracts were signed, asking for the refund of the contributions made. Arbitral proceedings are ongoing. In relation to the other two blocks, there is an administrative process in which the consortium requests the reimbursement of bonuses and other costs.
Gas Natural Power Plants
On January 14, 2020, Copel and Shell Brasil Petróleo formed the "Copel Energia a Gás Natural" Consortium with the objective of developing feasibility studies for natural gas power plants in the state of Paraná. The consortium hired consultantsto provide specialized technical services to carry out studies to identify the best location for the implementation of natural gas thermoelectric projects in the State. The studies have been completed and the consortium is planning the next project’s activities.
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 2013, the Brazilian rules governing generation concessions gave concessionaires the right to renew for additional 20 year concession contracts that were entered into prior to December 11, 2003. For transmission and distribution concessions granted after 1995, concessionaires had the right to renew these contracts for an additional 30-year period.
On September 11, 2012, the Brazilian government enacted the Provisional Measure No. 579, subsequently converted into the 2013 Concession Renewal Law, which significantly changed the conditions under which concessionaires are able to renew concession contracts. Under the 2013 Concession Renewal Law, generation, transmission and distribution concessionaires may renew the concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional period of 30 years (or an additional 20-year period in the case thermal plants), provided that the concessionaire agrees to amend the concession contract to reflect a series of new conditions that aim to ensure that services are provided in a continuous and efficient fashion and subject to low tariffs. Under the 2013 Concession Renewal Law, concessionaires must decide 60 months before the end of each concession term (or 24 months with respect to thermal plant concessions that it is 24 months) whether to amend and renew a concession contract or to terminate each concession contract at the end of its respective term.
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For concessionaires of generation facilities existing at that time, the 2013 Concession Renewal Law changed the scope of the concession contracts at the moment they were renewed. Previously, a generation concessionaire had the right to sell the energy generated by the facilities subject to its concession for profit. In contrast, generation concessions renewed pursuant to the 2013 Concession Renewal Law do not grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions only cover the operation and maintenance of the generation facilities, subject to quality standards determined by Brazilian authorities. The energy generated by these facilities are allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. For new generation facilities (i.e., generation facilities operated after the 2013 Concession Renewal Law), on the other hand, the concessionaire still has the right to sell the energy produced by the generation facility.
In addition to changing the scope of generation concessions, the 2013 Concession Renewal Law establishes a new tariff regime that significantly affects the treatment of amounts to be invested by concessionaires to improve and maintain generation plants. To this effect, several regulations were issued by MME and ANEEL to regulate the compensation due to concessionaires as a result of their investments to improve and maintain generation plants.
The 2013 Concession Renewal Law affects transmission and distribution concessions differently. The principal change is that amounts invested in modernization projects, structural reforms, equipment and contingencies are subject to prior ANEEL approval. However, the 2013 Concession Renewal Law does not affect the manner in which distribution and transmission concessionaires may recover amounts invested in transmission infrastructure.
With respect to the transmission agreements, the conditions for renewal set forth in the 2013 Concession Renewal Law are the acceptance of a fixed income as determined by ANEEL and compliance with quality standards set forth in applicable regulation. With respect to distribution agreements, the conditions are set forth in the amendment to the concession agreement and are related to compliance with quality standards, economic-financial sustainability indicators and corporate governance as set forth in the amendment to the concession agreement according to the parameters provided in the 2013 Concession Renewal Law.
The 2013 Concession Renewal Law applies to all generation, transmission and distribution contracts that were in effect as of 1995 (and, in the case of generation concessions, entered into prior to 2003), regardless of whether a contract grants to the concessionaire the right to renew a concession on its original terms. For example, several of our concession contracts contain provisions allowing us to renew these concessions for a period of 20 years. Under the 2013 Concession Renewal Law, in order to renew these contracts, we nonetheless would be required to accept the application of the conditions imposed by the 2013 Concession Renewal Law to the contract, and the concession contract would then be renewed for 30 years, rather than 20 years. If we choose to renew a concession contract that contains a renewal provision, we would be indemnified by the Brazilian government using funds from the RGR Fund (see Energy Sector Regulatory Charges) in an amount equal to the portion of our investments related to the concession that have not yet been amortized or depreciated, as calculated by ANEEL.
If a concessionaire decides not to accept the new tariff regime with respect to a concession contract and therefore decides not to renew the contract, the concession will terminate at the end of its original term, and the Brazilian government will conduct a new competitive bidding process for the concession. The original concessionaire may participate in the new competitive bidding process.
In the case of hydroelectric generation concessions with an installed capacity of more than 5,000 kW, upon the expiration of their original term and provided that the concessionaire does not request the extension of such term, the granting authority may submit the concession to a new bidding process. In the case of concessions for hydroelectric generation units with an installed capacity of 5,000 kW or less, upon the expiration of their original term, the concessions may be granted to the current concessionaire in the form of registration, for an indefinite term.
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Generation Concessions
Of the nineteen (19) hydroelectric plants we operated in 2021, fourteen (14) were operated under the generation concession contracts that were in force prior to the 2013 Concession Renewal Law, and five (5) were operated in accordance with the 2013 Concession Renewal Law (Capivari Cachoeira HPP, Chopim I HPP, Marumbi HPP, Baixo Iguaçu HPP and Colíder HPP). In 2013, 12 of the 13 hydro and thermoelectric generation concessions operated by the Company in 2013 (exception made only to Rio dos Patos HPP) were extended pursuant to the old regime and could be renewed again under the 2013 Concession Renewal Law.
However, at the time the 2013 Concession Renewal Law was enacted, the Company elected not to renew the following generation concessions: Rio dos Patos (2014), Mourão I (2015), Chopim I (2015) and Capivari Cachoeira (2015), all of which had remaining terms of 60 months or less. Please see below for further information on each of these concessions.
Foz do Areia HPP. Copel Geração e Transmissão did not elect to renew the original concession pursuant the 2013 Concession Renewal Law for the Foz do Areia HPP (Governador Bento Munhoz da Rocha Netto). However, in order to obtain a new concession for the Foz do Areia HPP for another 30 years, Copel GeT transferred the ownership of this HPP to its subsidiary, the SPC F.D.A. Geração de Energia Elétrica S.A (F.D.A) on March 3, 2020, and, on the same date, requested a new concession from the Ministry of Mines and Energy pursuant to Federal Decree no. 9,271/2018 (as amended by Federal Decree No. 10,135/2019 and Federal Decree No. 10,893/2021), which conditions that, to obtain a new concession, the sale of the concession's corporate control (F.D.A) must occur. On the same date, F.D.A. signed with ANEEL the Concession Contract that transfers the concession of the HPP Foz do Areia from Copel GeT to the F.D.A., for the exploration of the plant until the end of the current concession, on December 21, 2024.
Rio dos Patos HPP. The concession of Rio dos Patos HPP was terminated and not submitted to a further bidding process due to the lack operational conditions.
Mourão I and Capivari Cachoeira HPP. The granting authority submitted the concessions for HPP Capivari Cachoeira and Mourão I to new bidding processes, pursuant to which new agreements should be in force for a 30-year period. Copel GeT was the winner in the bidding process related to HPP Capivari Cachoeira. With respect to Capivari Cachoeira, although Copel GeT did not elect to renew the original concession for the Capivari Cachoeira HPP, it participated in the new competitive bidding process and won. On January 5, 2016, Copel GeT executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2046. We paid a total amount of R$574.8 million as signing bonus for this concession agreement. 100.0% of the energy generated by this plant in 2016 was allocated in quotas to the regulated market, and reduced to 70.0% on January 1, 2017. Copel GeT can sell remaining amount of energy generated by this plant on the Free Market or Spot Market.
Chopin I HPP. As the installed capacity of Chopin I HPP also does not exceed 5,000 kW, the concession regime of this plant has been changed to a registration in favor of the Company, valid for an indefinite term. In addition, pursuant to the same statute, we may notify the granting authority of its intention to extend: (i) in 2024, the concession of Apucaraninha HPP; and (ii) in 2025, the concessions of Guaricana and Chaminé HPPs. In the event we do not request the extension of these concessions, they will be subject to new bidding processes conducted by the granting authority.
Figueira TPP. Our concession for the Figueira TPP expired on March 26, 2019. We had filed an extension request with respect to this plant on May 24, 2017, but we are still waiting for the granting authority to amnd our concession agreement, extending its term for an additional 20-year period in accordance with the 2013 Concession Renewal Law. This plant has an installed capacity equivalent to 20 MW and subject to a modernization process.
With respect to the concessions granted between 2011 and 2017 with no renewal right attached, we acquired the right to renew only one of the hydroelectric plants (HPP Cavernoso II) for a 30-year period, as a result of an amendment to the 2013 Concession Renewal Law by Law No. 13,360, of November 17, 2016.
In accordance with the 2013 Concession Renewal Law, Copel could have flagged to the granting authority by 2019 its intention to renew the concession of HPP São Jorge. However, Copel elected not to renew such concession and, consequently, it will be able to operate such HPP until July 2026 and request the conversion of this operating regime into a registration regime, as the installed capacity does not exceed 5,000 kW.
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Concessions for generation projects granted after December 11, 2003 were not affected by the 2013 Concession Renewal Law and are non-renewable, meaning that upon expiration of their 35-year term, the concession will be granted subject to a new competitive bidding process. In 2019, we had three (3) hydroelectric plants operating in this condition (HPP Mauá, HPP Colíder and HPP Baixo Iguaçu).
In September 2020, the GSF Law was passed, which established new conditions for the renegotiation of hydrological risk of electricity generation, amending Article 2 of Law No. 13,203/2015, among other measures. This procedure was regulated through Normative Resolution No. 895/2020, in which ANEEL established the methodology for calculating compensation to the owners of hydroelectric plants participating in the MRE. It also regulated the repatriation of hydrological risk to equate the issue of GSF and open debts in CCEE to allow for the return of normalcy and greater liquidity in the short-term electricity market, in exchange for the extension of the terms of grants given to hydroelectric plants to up to seven years.
In 2021, the government issued new legislation that changed the calculation method applied by CCEE for the financial compensation to plants participating in the MRE. For our plants 16 plants that adhered to the method, the compensation amount was R$1,570.5 million. ANEEL extended the terms of our grantings that adhered to new method to a total of 15,217 days (Resolutions No. 2919 and No. 2932).
The following tables sets forth information relating to the actual terms as well as the renewals of our main generation hydroelectric, thermoelectric and wind farm plants and all of which we hold a direct ownership interest in:
|
Hydroelectric Plants |
Initial concession date |
First expiration date |
Extension Date |
Final expiration date(5) |
| Foz do Areia (1) | May, 1973 | May, 2003 | January, 2001 | December, 2024 |
| Apucaraninha | October, 1975 | October, 2005 | April, 2003 | January, 2027 |
| Guaricana | August, 1976 | August, 2006 | August, 2005 | July, 2028 |
| Chaminé | August, 1976 | August, 2006 | August, 2005 | August, 2028 |
| Segredo | November, 1979 | November, 2009 | September, 2009 | September, 2032 |
| Derivação do Rio Jordão | November, 1979 | November, 2009 | September, 2009 | June, 2032 |
| Salto Caxias | May, 1980 | May, 2010 | September, 2009 | March, 2033 |
| Mauá (2) | June, 2007 | July, 2042 | Not extendable | May, 2047 |
| Colíder | January, 2011 | January, 2046 | Not extendable | January, 2046 |
| Cavernoso II | February, 2011 | February, 2046 | Not extendable | December, 2050 |
| Baixo Iguaçu(3) | August, 2012 | August, 2047 | Not extendable | December, 2049 |
| SHP Bela Vista (4) | May, 2007 | January, 2041 | Extendable | January, 2041 |
(1) In March 3, 2020, the concession of Foz do Areia was transferred from Copel GeT to FDA pursuant to ANEEL Authorizing Resolution no. 8.578/2020. Copel GeT owns 100% of FDA Geração de Energia S.A.
(2) Mauá was constructed by Consórcio Energético Cruzeiro do Sul, of which Copel owns 51.0% and Eletrosul owns the remaining 49.0%.
(3) Baixo Iguaçu was constructed by Consórcio Empreendedor Baixo Iguaçu, of which Copel owns 30% and Geração Céu Azul the remaining 70%. The commercial operations of generation units 1, 2 and 3 of Baixo Iguaçu’s began in February 2019, Feburary 2019 and April 2019, respectively.
(4) The consortium CBVG, formed by Copel GeT and Foz do Chopim Energética Ltda., won ANEEL Auction No. 003/2018 for SHP Bela Vista. In April 2019, the authorization to operate SHP Bela Vista was transferred from Foz do Chopim Energética Ltda. to Bela Vista Geração de Energia S.A through the ANEEL’s Authorizing Resolution no. 7.802/2019. In December 2019, Copel GeT became the owner of 100% of Bela Vista Geração de Energia. This power plant is still under construction.
(5) Tems in this collum consider the extended term of the grantings.
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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 |
|
Wind Plants |
Initial concession date |
First expiration date |
| Asa Branca I | April, 2011 | April, 2046 |
| Asa Branca II | May, 2011 | May, 2046 |
| Asa Branca III | May, 2011 | May, 2046 |
| Nova Eurus IV | April, 2011 | April, 2046 |
| Santa Maria | May, 2012 | May, 2047 |
| Santa Helena | April, 2012 | April, 2047 |
| Ventos de Santo Uriel | April, 2012 | April, 2047 |
| Boa Vista | April, 2011 | April, 2046 |
| Farol | April, 2011 | April, 2046 |
| Olho D'Água | June, 2011 | June, 2046 |
| São Bento do Norte | May, 2011 | May, 2046 |
| Cutia(1) | January, 2012 | January, 2042 |
| Guariju(1) | January, 2012 | January, 2042 |
| Jangada(1) | January, 2012 | January, 2042 |
| Maria Helena(1) | January, 2012 | January, 2042 |
| Palmas | September, 1999 | September, 2029 |
| Potiguar(1) | May, 2015 | May, 2050 |
| Esperança do Nordeste(1) | May, 2015 | May, 2050 |
| Paraíso dos Ventos do Nordeste(1) | May, 2015 | May, 2050 |
| São Bento do Norte I(1) | August, 2015 | August, 2050 |
| São Bento do Norte II(1) | August, 2015 | August, 2050 |
| São Bento do Norte III(1) | August, 2015 | August, 2050 |
| São Miguel I(1) | August, 2015 | August, 2050 |
| São Miguel II(1) | August, 2015 | August, 2050 |
| São Miguel III(1) | August, 2015 | August, 2050 |
| Jandaíra I(2) | April, 2020 | April, 2055 |
| Jandaíra II(2) | April, 2020 | April, 2055 |
| Jandaíra III(2) | April, 2020 | April, 2055 |
| Jandaíra IV(2) | April, 2020 | April, 2055 |
| Vila Maranhão I(3) | January, 2019 | January, 2054 |
| Vila Maranhão II(3) | January, 2019 | January, 2054 |
| Vila Maranhão III(3) | January, 2019 | January, 2054 |
| Vila Ceará I(3) | January, 2019 | January, 2054 |
| Ventos de Vila Mato Grosso I(3) | December, 2019 | December, 2054 |
(1) Wind plants located at Copel’s Cutia wind farm complex.
(2) The consortium formed by Copel GeT and Cutia Empreendimentos Eólicos S.A., won ANEEL Auction no. 004/2019 for Jandaíra Wind Complex (I, II, III and IV).
(3) Vilas Complex, located in the State of Rio Grande do Norte, which we acquired in November 2021.
The following table sets forth information relating to the terms of our generation hydroelectric plant, whose concession agreement has been executed under the terms and conditions of the 2013 Concession Renewal Law:
|
Hydroelectric Plants |
Initial concession date |
First expiration date |
Extension Date |
Final expiration date |
| Capivari Cachoeira (Gov Parigot de Souza) | January, 2016 | January, 2046 | Not subject to extension | January, 2053 |
The following table sets forth information relating to the terms of our generation hydroelectric plants which, once respective original concession period expires, will no longer be subject to a concession regime but rather to a registration proceeding with the ANEEL:
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|
Hydroelectric Plants(1) |
Initial concession date |
Concession expiration date |
Final expiration date |
| Chopim I | March, 1964 | July, 2015 | Indefinitely |
| São Jorge | December, 1974 | July, 2026 | - |
| Cavernoso | January, 1981 | June, 2033 | - |
| Melissa | May, 2002 | Indefinitely | - |
| Pitangui | May, 2002 | Indefinitely | - |
| Salto do Vau | May, 2002 | Indefinitely | - |
| Marumbi | March, 1956 | May, 2018 | Indefinitely |
(1) Upon the expiration of concessions or authorizations for hydroelectric energy generation with installed capacity equal to or less than 5,000 KW, the relevant projects are subject to a registration regime in accordance with Brazilian Federal Law No. 9,074/1995, as amended by Brazilian Federal Law No. 13,360/2016. The operation of hydroelectric and thermoelectric plans with installed capacity of up to 5,000 KW are not subject to any concession, permission or authorization and require solely the registration with the granting authority.
We also have ownership interests in eleven (11) other generation projects. The following table sets forth information relating to the terms of the concessions of the generation facilities in which we had such partial ownership interest as of December 31, 2021.
|
Generation Facility |
Company |
Initial concession date |
Expiration date |
Extension |
| HPP Dona Francisca | Dona Francisca Energética SA ‒ DFESA | July, 1979 | September, 2037 | Possible |
| HPP Santa Clara | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | October, 2001 | April, 2041 | Possible |
| HPP Fundão | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | October, 2001 | June, 2040 | Possible |
| SHP Santa Clara I | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | December, 2002 | December, 2032 | Possible |
| SHP Fundão I | Centrais Elétricas do Rio Jordão S.A. - ELEJOR | December, 2002 | December, 2032 | Possible |
| TPP Araucária | UEG Araucária Ltda. | December, 1999 | December, 2029 | Possible |
| HPP Arturo Andreoli | Foz do Chopim Energética | April, 2000 | August,2032 | Possible |
| WPP Carnaúbas | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP Reduto | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP Santo Cristo | São Miguel do Gostoso I | April, 2012 | April, 2047 | Not possible |
| WPP São João | São Miguel do Gostoso I | March, 2012 | March, 2047 | Not possible |
Transmission Concessions
Pursuant to the 2013 Concession Renewal Law and the terms of our transmission concessions, we have the right to request 30-year extensions of the concessions from ANEEL, provided that such request is delivered within 60 months prior to the expiration of the contract. Our principal transmission concession, from which 62.2% of our transmission revenues in 2021 derived, has been renewed pursuant to the 2013 Concession Renewal Law, and will therefore now expire in January 2043.
In addition, in 2021, an aggregate of 37.8% of our transmission revenues derived from eleven (11) other concession contracts for transmission lines and substations that are currently in operation and whose terms and extensions are set forth in the next table. In accordance with the 2013 Concession Renewal Law, each of these contracts can be extended for an additional 30-year period.
We intend to continue requesting extensions for all of our transmission concessions.
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The following table sets forth certain information relating to the terms and extension terms of our main transmission concessions (all of which we hold a direct ownership interest), including the concession contracts for transmission lines and substations both in operation or under construction:
|
Transmission Facility |
Initial concession Date |
First expiration Date |
Possibility of extension |
Expected (or final) expiration date |
| Main transmission concession | July, 2001 | July, 2015 | Extended | January, 2043 |
| Bateias – Jaguariaíva | August, 2001 | August, 2031 | Possible | August, 2061 |
| Bateias – Pilarzinho | March, 2008 | March, 2038 | Possible | March, 2068 |
| Foz do Iguaçu – Cascavel Oeste | November, 2009 | November, 2039 | Possible | November, 2069 |
| Substation Cerquilho III | October, 2010 | October, 2040 | Possible | October, 2070 |
| Araraquara 2 – Taubaté | October, 2010 | October, 2040 | Possible | October, 2070 |
| Foz do Chopim - Salto Osorio | August, 2012 | August, 2042 | Possible | August, 2072 |
| Assis – Paraguaçu Paulista II | February, 2013 | February, 2043 | Possible | February, 2073 |
| Bateias – Curitiba Norte | January, 2014 | January, 2044 | Possible | January, 2074 |
| Realeza Sul – Foz do Chopim | September, 2014 | September, 2044 | Possible | September, 2074 |
| Assis - Londrina | September, 2014 | September, 2044 | Possible | September, 2074 |
| Curitiba Leste – Blumenau | April, 2016 | April, 2046 | Possible | April, 2076 |
We have ownership interests in ten (10) other transmission projects, through special purpose companies. The following table sets forth information relating to the terms of the concessions of the transmission facilities in which we had such partial ownership interest as of December 31, 2021:
|
Transmission Facility |
Special Purpose Company (SPC) |
Initial concession date |
First Expiration date |
Possibility of Extension |
Expected (or final) expiration date |
| Cascavel Oeste – Umuarama | Costa Oeste Transmissora de Energia S.A | January, 2012 | January, 2042 | Possible | January, 2072 |
| Umuarama - Guaira | Caiuá Transmissora de Energia S.A | May, 2012 | May, 2042 | Possible | May, 2072 |
| Açailândia Miranda II |
Integração Maranhense Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
|
Curitiba - Curitiba Leste |
Marumbi Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
|
Paranaíta – Ribeirãozinho |
Matrinchã Transmissora de Energia S.A. | May, 2012 | May, 2042 | Possible | May, 2072 |
| Ribeirãozinho – Marimbondo II | Guaraciaba Transmissora de Energia S.A | May, 2012 | May, 2042 | Possible | May, 2072 |
| Barreiras II – Pirapora II | Paranaíba Transmissora de Energia S.A | May, 2013 | May, 2043 | Possible | May, 2073 |
| Itatiba – Bateias | Mata de Santa Genebra Transmissora S.A | May, 2014 | May, 2044 | Possible | May, 2074 |
| Estreito – Fernão Dias | Cantareira Transmissora de Energia S.A. | September, 2014 | September, 2044 | Possible | September, 2074 |
| Ivaiporã – Londrina | Uirapuru Transmissora de Energia S.A. | March, 2005 | March, 2035 | Possible | March 2065 |
Distribution Concessions
We originally operated our distribution business pursuant to a concession contract that was signed on June 24, 1999 (retroactive to July 7, 1995) and was set to expire on July 7, 2015. Under the 2013 Concession Renewal Law, we had the right to renew this concession for an additional 30-year period by accepting an amendment to the concession contract. In 2013, after a careful evaluation of the conditions imposed by the Brazilian government for the extension of our distribution concession, we decided to request the renewal of this contract and our renewal request was approved by the MME on November 11, 2015. On December 9, 2015, we executed the fifth amendment to the public Electricity Distribution Service Concession Agreement No. 46/1999 of Copel Distribuição S.A.
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This amendment imposes efficiency conditions to Copel Distribuição that are measured through two different metrics: quality of the service and economic-financial sustainability of the company. Failure to comply with either of these metrics (i) for two consecutive years within the first four years of this renewed concession or (ii) in the fifth year of this concession, may, in each case, result in the termination of our distribution concession.
On November 17, 2020, ANEEL detailed the performance and efficiency indicators applicable to the electricity distribution services starting in 2021 with respect to no-interruption in supply and economic-financial management (pursuant to Resolutions 896/2020 and 948/2021). ANEEL also changed the parameters for the calculation of some variables of the Economic-Financial Management indicator.
The economic-financial management indicator is breached when the cash flow generation, after deduction of the Regulatory Reintegration Quota (cota de reintegração regulatória) is below 111% of SELIC, which it is considered insufficient to comply with debt interest, or when the EBITDA is lower than the Regulatory Reintegration Quota or Regulatory Depreciation Expense (“QRR’). Non-compliance for one year obliges the concessionaire to limit the payment of dividends and interest on equity capital and prohibits new legal action and business deals between the concessionaire and its related parties. Non-compliance for two consecutive years allows ANEEL to terminate the concession.
The breach of indicators of no-interruption in supply for one year imposes the obligation to create a plan to improve results. Non-compliance for two consecutive years or three years within a five-year period, may lead to limitation on the distribution of dividends, and for a consecutive period of three years, may result in the termination of the concession.
Performance evaluation occurs at the end of each calendar year, when the results are disclosed in Regulatory Accounting Statements (Demonstrações Contábeis Regulatórias – DCR).
The table below presents the economic and financial and quality indicators established for the last six (6) years.
|
|
Economic and Financial Indicators |
Quality Indicators (1) |
Quality Performed | ||
|
Year |
Indicator |
DECi(2) |
FECi(2) |
DECi(2) |
FECi(2) |
| 2016 | N/A |
13.61
|
9.24
|
10.80 | 7.14 |
| 2017 | EBITDA(3) ≥ 0 | 12.54 | 8.74 | 10.41 | 6.79 |
| 2018 | [EBITDA (-) QRR (4)] ≥ 0 | 11.23 | 8.24 | 10.29 | 6.20 |
| 2019 | {Net Debt(5)/[EBITDA(3) (-) QRR(4)]} ≤ 1/(0.8*SELIC(6)) | 10.12 | 7.74 | 9.10 | 6.00 |
| 2020 | {Net Debt(5)/[EBITDA(3) (-) QRR(4)]} ≤ 1/(1.11*SELIC(6) 1/(1.11*SELIC(6)) | 9.83 | 7.24 | 7.81 | 5.55 |
| 2021 | {Net Debt(5)/[EBITDA(3) (-) QRR(4) ≥ 0]} ≤ 1/(1.11*SELIC(7) | 9.29 | 6.84 | 7.20 | 4.76 |
| 2022 | {Net Debt(5)/[EBITDA(3) (-) QRR(4) ≥ 0]} ≤ 1/(1.11*SELIC(7) | 9.19 | 6.80 | - | - |
(1) According to ANEEL’s Technical Note No. 0335/2015.
(2) DECi – Duration of outages per customer per year (in hours); and FECi – Frequency of outages per customer per year (number of outages).
(3) Earnings before interest, tax depreciation and amortization, as calculated according to ANEEL regulations.
(4) QRR: Regulatory Reintegration Quota or Regulatory Depreciation Expense. Untill 2020, this value corresponds to the most recent Periodic Tariff Review (RTP), plus the General Market Price inflation index (IGP-M) between the month preceding the Periodic Tariff Review and the month preceding the twelve-month period of the economic and financial sustainability measurement. As of 2021, it reflects the defined value in the last periodic tariff review and updated by the Regulatory B Parcel, is calculated pro rata.
(5) As calculated according to ANEEL regulations.
(6) Selic base rate: limited to 12.87% per year.
(7) Limited to 9,009 % per year if it exceeds this percentage, and to 6,006 % if it fall under said percentage.
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COMPETITION
We have concessions to distribute electricity in substantially all of the State of Paraná, and we do not face competition from the four utilities that have been granted concessions for the remainder of the state. As a result of legislation passed in 2004, however, other suppliers are able to offer electricity to our existing Free Customers at prices lower than those we currently charge. However, when a Captive Customer becomes a Free Customer, it is still required to pay to use our distribution grid. The reduction in net revenue of our distribution business is therefore compensated with a reduction in our costs for energy that we would otherwise acquire to sell to these customers.
Furthermore, under certain circumstances, Free Customers may be entitled to connect directly to the Interconnected Transmission System rather than our distribution grid. Unlike a Free Customer’s choice of another energy supplier, in which case that customer must still use our distribution grid and thus pay us the appropriate tariff, our distribution business ceases to collect tariffs from a customer that connects directly to the Interconnected Transmission System. The migration of customers from the distribution grid to the transmission grid therefore results in the loss of revenues for our distribution business.
Distribution and transmission companies are required to permit the use of their lines and ancillary facilities for the distribution and transmission of electricity by other parties upon payment of a tariff.
Free Customers are limited to, as from January 1, 2022, with demand of at least 1.0 MW at any voltage; and, after January 1, 2023, with demand of at least 500 kW at any voltage.
Special customers are costumers with demand of at least 500 kW that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants, biomass projects, solar plants and others.
As of December 31, 2021, we had 1,380 Free Customers (of which of 1,363 were customers of our energy trading company and 17 of Copel GeT), representing approximately 8.0% of our consolidated operating revenue and approximately 14.6% of the total quantity of electricity sold by us.
Copel GeT has 17 Free Costumers as of December 31, 2021. Approximately 99.99% of the megawatts-hours sold under contracts to such customers by Copel GeT expired in 2021. These customers represented approximately 2.0% of the total volume of electricity we sold in 2021, and approximately 0.9% of our consolidated operating revenues.
In the generation business, any producer may be granted a concession to build or manage thermoelectric and small hydroelectric generating facilities in the State of Paraná. Brazilian law provides for competitive bidding for generation concessions for hydroelectric facilities and, since 2017, this requirement applies only to facilities with capacity higher than 50 MW.
In the transmission business, Brazilian law provides for competitive bidding for transmission concessions for facilities with a voltage of 230 kV or greater that will form part of the Interconnected Transmission System.
Brazilian law requires that all of our generation, transmission and distribution concessions be subject to a competitive bidding process upon their expiration. We may face significant competition from third parties in bidding for renewal of such concessions or for any new concessions. The loss of certain concessions could adversely affect our results of operations.
On June 2021, a study
was published by the Empresa de Pesquisa Energética - EPE) projecting a 30 GW growth on Generation Distribution in the
next 10 years. Generation Distribution refers to the generation of eletricity close to or within the consumer site, and can involve any
power, technology or energy source. In early 2022, the government adopted a new legal framework for distributed
generation in Brazil (Federal Law No. 14,300/2022), which esblished diferent categories
of energy distribution, the creation of the Electric Energy Compensation System (Sistema de Compensação de Energia Elétrica
- SCEE) and the Social Renewable Energy Program (Programa de Energia Renovável Social - PERS). The expansion ofGeneration
Distribution services can adversely affect the demand of electricity and therefore impact the eletricity sector and the distribution
concessionaires as a whole in the long-term.
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ENVIRONMENT
Our construction and operation activities for the generation, transmission and distribution of electric energy and distribution of natural gas are subject to federal, state and municipal environmental regulations.
All of our activities follow Copel’s Sustainability and Environmental Policies, which integrates corporate planning and sustainability management in order to optimize our financial, social and environmental performance. Also, our activities follow our Climate Change Policy, which establishes guidelines for the mitigation of greenhouse gas emission and changes in our business, evaluating risks and opportunities related to climate change. Following the implementation of our Climate Change Policy, we annually disclose our greenhouse gas inventory.
We request and renew our environmental licenses in accordance with the environmental regulation issued by applicable federal, state and municipal level authorities. We are in compliance with all material environmental regulations and our more recent (post-1986) generation, transmission and distribution projects are in compliance with federal, state and municipal regulations.
Being a signatory to the Global Compact since 2000, we are committed to sustainability. As a founding member of the Brazilian Global Compact Network Committee, created in 2003, we support the movement to disseminate the principles of the Global Compact in promoting effective and consistent articulations between governments, companies and social organizations in favor of social, environmental and economic challenges for sustainability, as well as raising awareness among other Brazilian companies to engage and adopt corporate citizenship as a standard for managing their businesses.
We have been working to improve our environmental and governance practices, and to integrate sustainability into our business through a comprehensive approach based on systemic planning and execution, prioritizing the management of risks and impacts and establishing a positive social, economic and environmental legacy in the locations where we operate. We are also working to add value to our businesses by engaging with sustainable companies, which we believe to be better prepared to manage economic, social and environmental risks.
In 2020, we launched our Human Rights Policy, to establish a clear guide for employees and other stakeholders on how we should act. We also promote the social inclusion of immigrants by translating information into refugee languages, such as Spanish and Haitian Creole. In the environmental sphere, in 2021 we approved the Environmental Policy and replaced risk areas with green and productive areas by enabling community gardens under the company's transmission lines in the Cultivar Energia Program. For the 16th time we were mentioned in the Corporate Sustainability Index - ISE B3, and we once again were pre-selected by the Dow Jones Sustainability Index.
We work hard so that our operations are aligned with a low carbon economy. Our shares became part of B3's Carbon Efficient Index (ICO2) portfolio, demonstrating our commitment to the transparency of our emissions. We made progress in Climate Change Management, where we hold Concept B of the CDP (Carbon Disclosure Program), one of the main initiatives in the financial sector that aims to reduce companies' greenhouse gas emissions. Our Board of Directors also approved the Carbon Neutrality Plan, comprising initiatives aiming at neutralizing our emissions by 2030.
In 2021, we approved new bylaws, under which we created the Sustainable Development Committee, with the objective of keeping Copel among the companies with the best governance practices and actions on ESG and guiding the company's sustainability strategy. We also implemented initiatives under the scope of the Carbon Neutrality Plan.
We adopt best market practices to guide and evaluate our performance and compare practices with global and local references: B3 Corporate Sustainability Index - ISE, Ethos Indicators for Sustainable and Responsible Business Models, and other evaluations and classifications related to ESG (Environmental, Social and Governance) matters.
Through an annual report, we reinforce our commitment to sustainable development and are accountable for our performance related to economic, social, environmental and governance aspects (Integrated Report Copel). This report follows the international guidelines of the Standards model of the Global Reporting Initiative (GRI), and the International Integrated Reporting Initiative (IIRC), and is submitted to independent assurance, to ensure the reliability of the information disclosed.
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PLANT, PROPERTY AND EQUIPMENT
Our principal properties consist of the generation facilities described in “Business”. Of the net book value of our total property, plant and equipment as of December 31, 2021 (including construction in progress), generation facilities represented 58.3%, wind farms represented 36.1%, Elejor represented 3.5%, and Araucária Thermoelectric Plant represented 2.1%. We believe that our facilities generally are adequate for our present needs and suitable for their intended purposes.
In addition, the infrastructure used by the transmission and distribution business is classified as accounts receivable related to the concession, contract assets and intangible assets as described in Notes 4.4, 4.5 and 4.9 to our audited consolidated financial statements.
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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, after proving its public interest. We generally negotiate with communities and individual owners occupying the land so as to resettle such communities in other areas and to compensate individual owners. Our policy of resettlement and compensation generally has resulted in the settlement of expropriation disputes, with friendly settlements for most of them. As of December 31, 2021, we estimated our liability related to the settlement of such disputes to be approximately R$125.0 million. This amount is in addition to amounts for land expropriation included in each of our hydroelectric facility budgets.
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The Brazilian eLECTRIC Power Industry
General
In April 2021, according to Ordinance No. 40/2022, MME approved the Decennial Energy Plan - PDE 2031, which projects that the installed capacity of electricity generation in Brazil will be 945 TWh in 2031. It is projected in the 2022 PDE that 83% of this total will be renewable (53% is projected to be hydroelectric, 15% self-production and distributed generation, 14% wind and solar generation, 8% will be thermoelectric and 10% other generation sources).
As of 2021, approximately 28% of the installed power generating capacity of Brazil is currently owned by Eletrobras (including its wholly-owned subsidiary Eletronuclear and its 50% participation interest in Itaipu). Through its subsidiaries, Eletrobras is also responsible for approximately 45% of the installed transmission capacity equal or above 230 kV within Brazil. In addition, some Brazilian states control entities involved in the generation, transmission and distribution of electricity. They include Companhia Energética de Minas Gerais – CEMIG and us, among others.
Principal Regulatory Authorities
Ministry of Mines and Energy – MME
The MME is the primary regulatory institution of the power industry and acts as the Brazilian governmental authority empowered with policymaking, regulatory and supervisory powers.
National Energy Policy Council – CNPE
The National Energy Policy Council (Conselho Nacional de Política Energética - “CNPE”), created in August 1997, provides advice to the President of the Republic of Brazil regarding the development and creation of a national energy policy. The CNPE is chaired by the MME and is composed of ten ministers of the Brazilian government and five members designated by the President of CNPE. The CNPE was created in order to optimize the use of energy resources in Brazil and ensure the national supply of electricity.
National Electric Energy Agency – ANEEL
The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. ANEEL’s primary responsibility is to regulate and supervise the power industry in accordance with the policies set forth by the MME and to respond to matters which are delegated to it by the Brazilian government and the MME. ANEEL’s current responsibilities include, among others, (i) administering concessions for electric energy generation, transmission and distribution, including the approval of electricity tariffs, (ii) enacting regulations for the electric energy industry, (iii) implementing and regulating the utilization of energy sources, including the use of hydroelectric power, (iv) promoting, monitoring and managing the public bidding process for new concessions, (v) settling administrative disputes among electricity sector entities and electricity purchasers, and (vi) defining the criteria and methodology for the determination of transmission and distribution tariffs.
National Electric System Operator – ONS
The ONS 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 grid in a non-discriminatory manner, assisting in the expansion of the electric energy system, proposing plans to the MME for extensions of the Interconnected Transmission System, and formulating regulations regarding the operation of the transmission system for ANEEL’s approval.
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Electric Energy Trading Chamber – CCEE
The CCEE (Câmara de Comercialização de Energia Elétrica) is a non-profit private entity subject to authorization, inspection and regulation by ANEEL. The CCEE is responsible for, among other things, (i) registering all energy purchase agreements in the regulated market, Contratos de Comercialização de Energia no Ambiente Regulado (“CCEAR”) and in the Free Market, (ii) accounting for and clearing short-term transactions and (iii) managing funds generated by some of the regulatory charges. The CCEE is composed of holders of concessions, permissions and authorizations in the electricity industry and Free Customers, and its board of directors is composed of five members, out of which four are appointed by these agents and one by the MME, who is the chairman of the board of directors.
Energy Sector Monitoring Committee – CMSE
The CMSE (Comitê de Monitoramento do Setor Elétrico) was created by the New Industry Model Law to monitor service conditions and to recommend preventative measures to ensure energy supply adequacy, including demand-side action and contracting of energy reserves.
Energy Research Company – EPE
In August 2004, the Brazilian government created the Energy Research Company (Empresa de Pesquisa Energética - “EPE”), a federal public company responsible for conducting strategic studies and research in the energy sector, including the industries of electric power, petroleum, natural gas, coal and renewable energy sources. The studies and research conducted by the EPE subsidize the formulation of energy policy by the MME.
Eletrobras
Eletrobras serves as a holding company for the following federally-owned energy companies: Companhia Hidro Elétrica do São Francisco – CHESF, Furnas Centrais Elétricas S.A., CGT Eletrosul, Centrais Elétricas do Norte do Brasil S.A. – Eletronorte, Companhia de Geração Térmica de Energia Elétrica – CGTEE and Eletrobras Termonuclear S.A. – Eletronuclear, Centro de Pesquisas de Energia Elétrica – Cepel and Itaipu Binacional. Eletrobras manages the commercialization of energy from Itaipu and from alternative energy sources, under the Program for incentive to alternative energy sources (Programa de Incentivo às Fontes Alternativas de Energia – “Proinfa”).
Historical Background of Industry Legislation
The Brazilian constitution provides that the development, use and sale of electric energy may be undertaken directly by the Brazilian government or indirectly through the granting of concessions, permissions or authorizations. Historically, the Brazilian electric energy industry has been dominated by generation, transmission and distribution concessionaires controlled by the federal or state governments. Since 1995, the Brazilian government has taken a number of measures to reform the Brazilian electric energy industry. in general, these measures were aimed at increasing the role of private investment and eliminating foreign investment restrictions in order to increase overall competition and productivity in the industry.
The following is a summary of the principal developments in the regulatory and legal framework of the Brazilian electricity sector:
| · | In 1995, (i) the Brazilian constitution was amended to authorize foreign investment in power generation; (ii) the Concessions Law was enacted, requiring that all concessions for energy-related services be granted through public bidding processes, providing for the creation of independent producers and Free Customers and granting electricity suppliers and Free Customers open access to all distribution and transmission systems; and (iii) a portion of the controlling interests held by Eletrobras and various Brazilian states in generation and distribution companies were sold to private investors. |
| · | In 1998, the Power Industry Law was enacted, providing for, among other things, the creation of the ONS and the appointment of National Bank for Economic and Social Development, or Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), a development bank wholly owned by the Brazilian government, as the financing agent of the power industry, especially to support new generation projects. |
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| · | In 2001, Brazil faced a serious energy crisis that lasted through February 2002. During this period, the Brazilian government implemented an energy-rationing program in the most adversely affected regions, namely the southeast, central-west and northeast regions of Brazil. In April 2002, the Brazilian government for the first time implemented the extraordinary tariff adjustment to compensate the electricity suppliers for financial losses incurred as a result of the rationing period. |
| · | In 2004, the Brazilian government enacted the New Industry Model Law (Law No. 10,848), in an effort to further restructure the power industry with the ultimate goal of providing customers with a stable supply of electricity at reasonable prices. The New Industry Model Law introduced material changes to the regulation of the electric energy industry, in order to (i) provide incentives to private and public entities to build and maintain generation capacity, and (ii) ensure the supply of electricity in Brazil at low tariffs through a competitive electricity public bidding process. The key elements of the New Industry Model Law include: |
| o | Ensuring the existence of two markets: (i) the regulated market, a more stable market in terms of supply of electricity, and (ii) a market specifically addressed to certain participants (i.e., Free Customers and energy-trading companies), called the Free Market, that permits a certain degree of competition vis-à-vis the regulated market. |
| o | Restrictions on certain distribution activities, including requiring distributors to focus on their core business of distribution activities in order to promote more efficient and reliable services to Captive Customers. |
| o | Elimination of self-dealing by providing an incentive for distributors to purchase electricity at the lowest available prices rather than buying electricity from related parties. |
| o | Upholding contracts executed prior to the New Industry Model Law, in order to provide regulatory stability for transactions carried out before its enactment. |
| · | In 2004, Decree No. 5,163 was enacted to governor the purchase and sale of electricity in the regulated market and the Free Market, as well as the granting of authorizations and concessions for electricity generation projects. This decree includes, among other items, rules relating to auction procedures, the form of power purchase agreements and the mechanism for passing costs through to Final Customers. Among other matters, this decree: |
| o | provides for the guidelines under which electricity-purchasing agents must contract their electricity demand. Electricity-selling agents must show that the energy to be sold comes from existing or planned power generation facilities. Agents that do not comply with such requirements are subject to penalties imposed by ANEEL. |
| o | requires electricity distribution companies to contract for 100% of their energy needs primarily through public auctions. In addition to these auctions, distribution companies can purchase limited amounts (up to 10% of their demand) from: (i) generation companies that are connected directly to a distribution company (except for hydroelectric power plants with capacity higher than 30 MW and certain thermoelectric power plants) (ii) electricity generation projects participating in the initial phase of the Proinfa Program, (iii) the Itaipu Power Plant and (iv) quotas from those generation concession contracts extended or subject to a new competitive bidding process in accordance with the 2013 Concession Renewal Law. |
| o | provides that the MME shall establish the total amount of energy that will be contracted in the regulated market, including the number and the type of generation projects that will be auctioned each year. |
| o | requires all electricity generation, distribution and trading companies, independent producers and Free Customers to notify MME, by August 1st of each year, of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. In advance of each electricity auction, each distribution company is also required to inform MME of the amount of electricity that it intends to contract in the auction. In addition, distribution companies are required to specify the portion of the contracted amount they intend to use to supply potentially Free Customers. |
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| · | In 2012, the Brazilian government enacted two Provisional Measures that brought important changes to the Brazilian electricity regulatory framework: (i) Provisional Measure No. 577, dated as of August 29, 2012 (converted into Law No. 12,767 dated as of December 27, 2012); and (ii) Provisional Measure No. 579, dated September 11, 2012 (converted into the 2013 Concession Renewal Law). Provisional Measure No. 577 established the obligation of the granting authority to render electricity services in the event of termination of an electricity concession, as well as new rules related to the intervention by the granting authority in electricity concessions to ensure adequate performance of Utility services. The 2013 Concession Renewal Law established new rules that changed concessionaires’ ability to renew concession contracts. Under this Law, generation and distribution concessionaires may renew their concession contracts that were in effect as of 1995 and transmission concessionaires may renew their concession contracts that were in effect prior to and as of 1995 for an additional period of 30 years, provided that the concessionaires agree to amend the concession contracts to reflect a new tariff regime to be established by ANEEL. See “—Concessions”. |
| · | In 2013, the 2013 Concession Renewal Law was enacted. This statute changed the nature of the concession agreements for generation facilities existing at the time. Prior to 2013, a generation concessionaire had the right to sell the energy generated by the facilities subject to its concession for profit. In contrast, generation concessions for existing generation facilities (including those renewed pursuant to the 2013 Concession Renewal Law) could no longer grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions started to cover the operation and maintenance of the generation facilities. The energy generated by these facilities was then allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. In case of generation facilities created after the 2013 Concession Renewal Law, the concessionaire has the right to sell the energy produced by the facility. For further information, see “—Concessions—2013 Concession Renewal Law.” |
| · | In 2015, the Brazilian government enacted Provisional Measure No. 688, dated as of August 18, 2015, converted into Federal Law No. 13,203, dated as of December 8, 2015, to revise the allocation of the hydrological risks borne by hydroelectric power plants that share hydrological risks under Energy Reallocation Mechanism. In 2014 and 2015, given poor hydrological conditions, the MRE participants generated less electricity than their assured energies, which was confirmed by a significant decrease of the Generating Scaling Factor (“GSF”), a measurement of the proportion between the electricity generated by the MRE participants and their respective assured energy. These generation deficits resulted in losses for the MRE participants given their exposure to hydrological risks. As a consequence, Federal Law No. 13,203 established an optional mechanism that allows each generation plant to transfer these risks to Final Customers upon payment of a risk premium to the Brazilian government, as well as certain temporary extensions of generation concessions to compensate for losses in 2015. We decided to opt-in with respect to all of Copel GeT´s and Elejor´s eligible Energy Agreements under this new hydrological risk allocation mechanism, which represented approximately 16% of Copel GeT´s total assured energy. |
| · | In 2016, the Brazilian government enacted Provisional Measure No. 735, dated as of June 22, 2016, converted into Federal Law No. 13,360, dated as of November 17, 2016, which changed several federal laws mainly to: (i) revise certain rules related to regulatory charges (CDE, CCC and RGE) and appoint CCEE as the new manager of such charges in lieu of Eletrobras; (ii) facilitate the privatization of generation, transmission and distribution companies, (iii) change certain requirements of the generation concession and authorization regimes; (iv) change rules related to the MRE; (v) allow distribution companies to sell energy excess in the Free Market; (vi) extension of terms for commencement of the supply under energy auctions in the regulated market; and (vii) transfer back from MME to ANEEL the authority to decide about generation and transmission companies’ requests for extension of their facilities construction schedules. |
| · | In July 2017, the MME released the Public Consultation No. 033/2017, named “Proposal for improvement of the legal framework of the electricity sector”. This public consultation marks an important step to guide the MME in preparation of specific legislative proposals capable of providing measures of economic rationalization and modernization of the electricity sector. |
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| · | In August 2017, Decree No. 9,143/2017 changed the frequency of the auctions for new energy and authorized the distribution companies to negotiate contracts for the sale of energy in the Free Market to Free Consumers and other agents (generators, marketers, and self-producers), provided that these contracts are linked to excess in energy contracted in auctions. |
| · | In January 2018, Decree No 9,271/2018 regulated the granting of a new energy concession in the event of privatization of an energy generation concession holder that provides public services, in accordance with Law No 9.074, dated July 7, 1995. Pursuant to this decree, the Brazilian government may grant a new concession contract for a period of up to 30 years to the entity that results from a bidding process for the privatization of a concessionaire previously controlled directly or indirectly by a federal, state or municipal governmental entity. This decree determined that the concessionaire shall request a new concession contract during the remaining period of its concession (up to 60 months counted from the end of the concession) This decree was amended in November 2019 pursuant to Decree No 10,135 in order to reduce the deadline for the concessionaire to request the granting of a new agreement, from 60 months to 42 months counted from the end of the concession and required the privatization process to be concluded no later than 18 months prior to the termination of the prior concession. |
| · | During 2018, the Brazilian government concluded the privatization of Eletrobras’ distribution companies Companhia Energética do Piauí - Cepisa, Companhia Energética de Rondônia S.A. - Ceron, Companhia de Eletricidade do Acre - Eletroacre, Boa Vista Energia S.A. - Boa Vista Energia, Companhia Energética de Alagoas - Ceal and Amazonas Distribuidora de Energia S.A. - Amazonas Distribuidora. |
| · | In June 2019, the National Energy Policy Council (Conselho Nacional de Política Energética – CNPE) launched a program pursuant to its Resolution No. 16 to boost the natural gas market and foster competition by promoting free competition and using Thermoelectric Plants as a vehicle for creating demand for the better use of natural gas from the Pre-Salt layer. |
| · | In December 2019, MME published the Ordinance No. 465/2019, determining that MME will gradually decrease, over the next years, the power limits to contract electric power by consumers served at any voltage, allowing them to purchase energy from conventional sources, considering the following schedule: (i) from January 1, 2021: consumers with demand equal to or greater than 1,500 kW; (ii) from January 1, 2022: consumers with demand equal to or greater than 1,000 kW; and (iii) January 1, 2023: consumers with demand of 500 kW or more. Furthermore, by January 31, 2022, ANEEL and CCEE shall present studies on the regulatory measures necessary to allow the opening of the Free Market for consumers with electric load below 500 kW. |
| · | In January 2020, the ONS implemented the Short Term Hydrothermal Dispatch Model (Modelo de Despacho Hidrotérmico de Curtíssimo Prazo - DESSEM), in order to optimize the operations of National Interconnected System (Sistema Interligado Nacional – SIN), and to reduce the difference between the planned dispatch and the one that is actually carried out by taking into account factors related to the electric grid, the operation of hydroelectric power plants, Thermoelectric Plants and other sector components. The execution of DESSEM meets the schedule set forth in Ordinance MME nº 301, dated July 31, 2019. |
| · | In September 2020, Law No. 14,052 (the “GSF Law”) was passed, which established new conditions for the renegotiation of hydrological risk of electricity generation, amending Article 2 of Law No. 13,203/2015, among other measures. This procedure was regulated through Normative Resolution No. 895/2020, in which ANEEL established the methodology for calculating compensation to the owners of hydroelectric plants participating in the MRE. It also regulated the repatriation of hydrological risk to equate the issue of GSF and open debts in CCEE to allow for the return of normalcy and greater liquidity in the short-term electricity market, in exchange for the extension of the terms of grants given to hydroelectric plants to up to seven years. The resolution was amended by Normative Resolution No. 945/2021, changing the compensation methodology for plants that renegotiated the hydrological risk under Normative Resolution No. 684/2015. ANEEL later approved the deadlines for the extension of the grant of the plants participating in the MRE through Homologatory Resolutions No. 2,919/2021 and No. 2,932/2021. Those interested in adhering to new mechanism must withdraw from lawsuits related to the mitigation of hydrological risks of the MRE and execute a term of acceptance of such conditions. |
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| · | In December 2020, through Normative Resolution No. 905/2020, ANEEL consolidated the rules for Electric Energy Transmission Services in the National Electric System, effective January 1, 2021. |
| · | In January 2021, the CCEE adopted an hourly pricing model for the accounting and settlement of the short-term market. Thus, since January 1, 2021, the PLD is officially calculated for each submarket on an hourly basis, per the implementation schedule defined by MME Directive 301/2019. |
| · | Additionally, 2020 and 2021 were atypical years due to the COVID-19 pandemic, which required the introduction of various legal and regulatory measures, as highlighted below: |
| o | In March 2020, Decree No. 6 officially declared a state of emergency in Brazil, effective until December 31, 2020. On the same date, Decree no. 10,282 was released (complemented by Decree No. 10,288/2020), which regulated Law No. 13,979/2020 and dealt with the new COVID-19 measures, including directives regarding the operation of public services and essential activities, specifically the electricity sector and electricity generation, transmission and distribution. By means of Decree No. 117/2020, the MME also established a Crisis Committee within the Ministry’s scope to articulate, coordinate, monitor, guide and supervise the measures and actions taken against COVID-19 for the duration of the public health crisis. In line with the guidelines established by this decree, ANEEL issued Decree No. 6,335/2020, the Office of Monitoring the Electrical Situation (Gabinete de Monitoramento da Situação Elétrica), with the objective of identifying the effects of the COVID-19 pandemic on the electrical energy market and monitoring the economic-financial situation in relation to supply and demand, as well as coordinating studies of proposals to preserve equilibrium between different entities within the sector. |
| o | In March 2020, to ensure the continuity of electricity distribution services, ANEEL issued Normative Resolution No. 878/2020, solidifying the Agency's first measures in order to guarantee the supply of electricity to certain consumer units that have lost the ability to remain compliant as a result of the COVID-19 pandemic. This especially concerns consumer units related to the supply of energy to services and activities considered essential, as defined by Federal Decrees No. 10,282/2020 and No. 10,288/2020. |
| o | On April 8, 2020, the Brazilian government issued Provisional Measure No. 950, which specified temporary emergency measures for the electricity sector to cope with the state of emergency by establishing an exemption in energy tariffs funded by the CDE for low-income consumers for up to 220 kWh/month, for the period of April 1 to June 30, 2020. For this purpose, resources were provisioned by means of a credit operation aimed at providing financial relief to electricity distributors. On the same date, ANEEL published Order No. 986, authorizing the CCEE to transfer the surplus financial resources available in the reserve fund for future relief to the sector's agents, based on consumption, with the aim of reinforcing the sector's liquidity in the midst of the COVID-19 pandemic. |
| o | On May 18, 2020, Decree No. 10,350 was issued by the Brazilian government, which regulated Provisional Measure No. 950/2020 and provided for the creation of the COVID-19 Fund. This fund was to receive resources to cover potential deficits or anticipate distributors' revenues and regulate the use of tariffs by the CDE for the purpose of payments and receipts of amounts to cover or defer costs arising from the COVID-19 pandemic. Through Resolution No. 885/2020, ANEEL established criteria and procedures for the management of the COVID-19 Fund. The value of the resources of the COVID-19 Fund given to concessionaires were made operational by the CCEE throughout 2020, considering, for this purpose, the existence of a positive balance in the fund. |
| o | In May 2020, by means of Order No. 1,511/2020, ANEEL, suspended the systematic application of the system for activating the Tariff Flags (Bandeiras Tarifárias), under exceptional and temporary circumstances, as provided for in Submodule 6.8 of the Procedures for Tariff Regulation. This added a “green flag” through December 31, 2020 to cover the electric sector’s costs with resources from the COVID-19 Fund. This was in effect until November 30, 2020, when it was revoked by ANEEL with the same-day issuance of Order No. 3,364/2020. |
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| o | In September 2020, Provisional Measure No. 998/2020 was issued, due to important changes in the electricity sector rules to mitigate the effects on the consumer due to aid granted to companies as a result of the COVID-19 pandemic. After being approved by the House of Representatives on December 17, 2020 and by the Federal Senate on February 4, 2021, being sanctioned in March 2021 by the President of the Republic, through Law 14.120, of March 1, 2021. With the same purpose, Law No. 14,120 allowed the reallocation of certain P&D and energetic efficiency (EE) resources to the CDE account between 2021 and 2025 for certain projects. New enterprises for renewable energy among others are excluded from this benefit. New projects for hydrological energy with more than 30 MW capacity will be entitled to a discount in tariffs of 50% for 5 years counted a March 2, 2021 and 25% for the subsequent 5 years. |
| o | Law 14,120/2021 also set a deadline for the definition of guidelines for the government for the granting of certain environmental benefits, aligned with certain efficiency, safety and competitiveness parameters, in connection with the efforts to modernize the electricity sector. |
| o | In January 2021, the CCEE adopted an hourly pricing model for the accounting and settlement of the short-term market. Thus, since January 1, 2021, the PLD is officially calculated for each submarket on an hourly basis, and implemented pursuant to a schedule defined by MME Directive 301/2019. |
| o | In April 2021, CNPE Resolution 24/2021 approved the Guidelines on Cybersecurity for the Electricity Sector, as established in CNPE Resolution 1 of February 10, 2021, which created a working group with consideration for prevention, treatment, response and systemic resilience. |
| o | In April 2021, Law No. 14,134/2021 was approved, establishing the new regulatory framework for the natural gas market in Brazil. This law sets rules for the economic activities of transportation of natural gas through pipelines, and changed the regime for economic exploration of such activity from concession to authorization to be granted by ANP. It also regulated the import, export, treatment, processing, storage and commercialization of natural gas, among other related activities. |
| o | In May 2021, Decree No. 10,707 was passed to regulate the legal provisions for the suspension of electricity supply to consumers in the Free Market and reserve capacity contracts, with the goal of assuring the continuous supply of electricity. |
| o | In June 2021, several measures were adopted by the Federal Government to address the scarcity of hydroelectric power. Provisional Measure 1,055/2021 created the Chamber of Exceptional Rules for Hydroelectric Management (“CREG”) to establish emergency measures for the optimization of the use of hydroelectric resources and to combat water shortage, in order to preserve the continuity and security of the electro energetic supply in Brazil. The CREG was entitled to approve urgent measures proposed by the Comitê de Monitoramento do Setor Elétrico (CMSE) and if approved, compliance was mandatory by other regulatory agencies and entities in the sector. Among the measures adopted by CREG, the following stand out: (i) creation of an incentive program for the voluntary reduction of consumption by consumers of Groups A and B in the regulated market; (ii) the regulation of Tariffs Flags, (associating the tarrifs to level of scarcity of water and hydrological shortages); and (iii) the adoption of a simplified procedure to demand reserved capacity from 2022 to 2025. |
| o | In July 2021, Law No. 14,182 approved the privatization model of Eletrobrás and also set new rules for the purchase of reserve capacity from natural gas thermoelectric plants in several regions of Brazil and the allocation of at least 50% of the demand declared by distributors to hydroelectric plants up to 50 MW in the A-5 and A-6 auctions. |
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| o | In December 2021, the Brazilian government published Provisional Measure No. 1,078/2021, which allows the structuring of credit operations using the Energy Development Account (“CDE”) for amortization, the same structure used for Conta-Covid. This measure mitigates the mismatch between revenues collected from the tariff and the costs of generating energy through loans to distributors to equalize these costs. Decree 10,939/2022 further regulated the matter. Additionally, the measure also provides for the institution of extraordinary tariff flags when necessary. |
| o | In December 2021, ANEEL published Normative Resolution No. 964/2021, that regulates provides guidelines for cybersecurity policies and activities for the sector. |
| o | In December 2021, Decree No. 10,893/2021 was published, easing the requirements for the issuance of authorizations to implementation and operation of power plants. It lifted the requirements relating to proof of feasibility to connect to the transmission and/or distribution system for generation projects based on solar, wind, biomass or qualified cogeneration until March 2, 2022. |
| o | In December 2021, ANEEL published REN No. 1,000/2021, which defines in a simpler and more objective manner the responsibilities of the agents and the procedures to be followed by consumers so that universal access to the electric power service is available in an efficient and valuable manner. |
Potential New Regulatory Framework
The following potential changes to the Brazilian regulatory framework may have a direct impact in our operations, as our business is subject to comprehensive regulation by various Brazilian legal and regulatory bodies, especially the MME (which proposes sector policies) and ANEEL (which regulates, supervises and inspects various aspects of our business, including our tariff rates).
| · | In February 2018, the MME published on its website a report of the public hearing, reflecting the final proposal for improvements to the energy regulatory framework, which were especially motivated by technological, social and environmental matters, as well as difficulties arising from the current business models. Among the discussed topics, the following stand out: |
| o | Termination of the quota system applicable to hydropower plants (HPP) concessions that have been extended or granted through competitive biddings, in accordance with Federal Law No. 12,783/2013, and allocation of part of the economic benefit of grants to the CDE in order to reduce what is charged to the population; |
| o | Lowering the minimum thresholds for accessing the Free Market; |
| o | Approach between the short-term price formation and the operating cost of the system; |
| o | Whether energy and ballast (currently combined for commercialization purposes) should be segregated; |
| o | Effects of the migration of consumers to the Free Market; |
| o | Market for environmental attributes; |
| o | Attraction of foreign capital for investments in the Brazilian energy sector; |
| o | More efficient tariff discounts; |
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| o | Allocation of resources from the global reversion reserve to the transmission segment; |
| o | Guidelines for the use of research and development resources; |
| o | Modernization of the regulated market; and |
| o | Reduction of judicial disputes regarding the hydrological risk. |
| · | In May 2018, most of the improvements proposed by the MME with respect to the regulatory framework applicable to the energy sector were included in Bill No. 1,917/2015 of the House of Representatives, known as the bill for the energy bill portability (Projeto de Lei da Portabilidade da Conta de Luz). This bill is still subject to analysis in the House of Representatives and, if approved, will depend on further approval by the Senate and the President of Brazil. |
| · | Also, there are initiatives in order to promote the modernization of the energy sector. Ordinance MME No. 187/2019 established a working group in order to develop proposals for the modernization of the energy sector, which released a report in October, 2019 with measures that should be adopted or studied, including topics such as (i) opening of the consumer market; (ii) pricing mechanism for the short-market; (iii) expansion of the Free Market accommodating new technologies and new business models; (iv) Energy Reallocation Mechanism; (v) cost and risk allocation; (vi) introduction of new technologies; and (vii) sustainable distribution services. This working group has been appointed for a 2-year term, which may be extended for 1 additional year. |
| · | In November 2019, the Brazilian government submitted to Brazilian Congress Bill No. 5,877, which, among other matters, address the privatization of Centrais Elétricas Brasileiras S.A. - Eletrobras. Such bill determines the privatization of Eletrobras pursuant to a capital increase and public offering of new common shares (that entitle their holders to voting rights), resulting in the dilution of the stake held by the Brazilian government in Eletrobras (the “Eletrobras Privatization”). In February 2021, Provisional Measure No. 1,031/2021 on the Eletrobras Privatization was issued. |
| · | In November 2019, ANEEL submitted a proposed amendment to Resolution No. 482/2012 to a public hearing. This resolution refers to the distribution of micro and mini energy generation. The update of such rules was required in 2015 by Resolution 687/2015 and suggests improvements to the credit compensation system in view of changes to distributed generation in recent years. |
| · | In December 2019, CNPE approved its Resolution No. 29, pursuant to which (i) it reviewed the general criteria adopted with respect to supply guarantee in studies on offer expansion, planning of the SIN operations, and calculations of assured energy and power of a generation project. However, MME shall determine the specific thresholds for such criteria, which is used in the calculation of assured energy and plans for expansion. |
| · | In 2020, due to the COVID-19 pandemic, discussions beginning in 2017 between the MME and the electric sector with regards to proposals for the industry’s improvement of the legal and regulatory framework were interrupted. This meant limited progress on measures such as PL No. 1,917/2015 and PLS No. 232/2016, which address issues such as the commercial model of the electric sector, the portability of electricity bills and concessions for electric energy generation. The COVID-19 pandemic also allowed for compromise within Special Commission of the House of Representatives, established in August 2019, regarding the Brazilian Electric Energy Code, which aims to consolidate electricity legislation that is currently scattered between ordinances issued by various government agencies. In 2021, the Congress reinitiated the discussions towards PL Nos. 1,917/2015 and PLS No. 232/2016 (now PL No. 414), the later now being labeled a priority bill under consideration of the Congress. |
| · | Nonetheless, there were important legislative developments in 2021 and 2022 in relation to distributed generation, including the approval of legal framework for micro and mini distributed generation, and the creation of the Electric Energy Compensation System (Sistema de Compensação de Energia Elétrica - SCEE) and the Social Renewable Energy Program (Programa de Energia Renovável Social - PERS). |
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| · | Additionally, CCEE published two relevant Technical Notes. The first suggests mechanisms to improve the monitoring of the electricity energy market, as well as the regulation of the commercialization of electricity, by the adoption of new procedures to identify market risks and anomalous conduct, supported by the practices and principles adopted in the financial market. The second one proposes improvements to the models of financial safeguards and mechanisms to mitigate losses arising from defaults in the Spot Market. ANEEL will deliberate on whether to submit the proposals to public hearing. |
These potential changes to the regulatory framework applicable to the Brazilian Energy Sector may impact our operations in the coming years.
Concessions
The companies or consortia that wish to build or operate facilities for generation, transmission or distribution of electricity in Brazil must participate in a competitive bidding process or must apply to the MME or to ANEEL for a concession, permission or authorization, as the case may be. Concessions grant rights to generate, transmit or distribute electricity in a specific concession area for a specified period. This period is 35 years for generation concessions granted after 2003, and 30 years for new transmission or distribution concessions. In accordance with the 2013 Concession Renewal Law, generation and distribution concessionaires may renew their concession contracts that were in effect as of 1995 and transmission concessionaires may renew their concession contracts that were in effect prior to and as of 1995 for an additional period of 30 years, provided that the concessionaires agree to amend the concession contracts to reflect certain new terms and conditions established by the law. The 2013 Concession Renewal Law does not impact generation concessions granted after 2003, as they are non-renewable.
The Concessions Law establishes, among others, the conditions that the concessionaire must comply with when providing electricity services, customers’ rights and the respective rights and obligations of the concessionaire and the granting authority. In addition to the Concessions Law, the concessionaire must also comply with the general regulations governing the electricity sector. The main provisions of the Concessions Law and related ANEEL regulations are summarized as follows:
Adequate service. The concessionaire must render adequate service to all customers in its concession and must maintain certain standards with respect to regularity, continuity, efficiency, safety and accessibility.
Use of land. The concessionaire may use public land or request that the granting authority expropriate necessary private land for the benefit of the concessionaire. In the latter case, the concessionaire must compensate the affected private landowners.
Strict liability. The concessionaire is strictly liable for all damages arising from the provision of its services.
Changes in controlling interest. The granting authority must approve any direct or indirect change in the concessionaire’s controlling interest.
Intervention by the granting authority. The granting authority may intervene in the concession, through ANEEL, to ensure the adequate performance of services, as well as the full compliance with applicable contractual and regulatory provisions. Once ANEEL determines the intervention, limited to one year, but extendable for additional two years, it must designate a third party to manage the concession. Within 30 days of the determination of the intervention, the granting authority’s representative must commence an administrative proceeding in which the concessionaire is entitled to contest the intervention. The administrative proceeding must be completed within 1 year. The shareholders of the concessionaire under intervention must submit to ANEEL, within 60 days of the determination of the intervention, a recovery and correction plan. If ANEEL approves such plan, the intervention is terminated. In the event ANEEL does not approve the plan, the granting authority may: (i) declare forfeiture of the concession; (ii) determine the spin-off, incorporation, merger or transformation of the concessionaire, incorporation of a subsidiary or assignment of quotas/shares to a third party; (iii) determine the change of control of the concessionaire; (iv) determine a capital increase of the concessionaire; or (v) determine the incorporation of a special purpose company.
Termination of the concession. The termination of the concession agreement may occur by means of expropriation and/or forfeiture. Expropriation is the early termination of a concession for reasons related to the public interest. An expropriation must be specifically approved by law or decree. Forfeiture must be declared by the granting authority after ANEEL or the MME has made a final administrative ruling that the concessionaire, among other things, (i) has failed to render adequate service or comply with an applicable law or regulation, (ii) no longer has the technical, financial or economic capacity to provide adequate service, or (iii) has not complied with penalties assessed by the granting authority. The concessionaire may contest any expropriation or forfeiture in the courts.
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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.
Parallel Environment for the Trading of Electric Energy
Under the New Industry Model Law, the purchase and sale of electricity is carried out in two different segments: (i) the regulated market, which contemplates that distribution companies will purchase by public auction all the electricity they need to supply their customers; and (ii) the Free Market, which provides for the purchase of electricity by non-regulated entities (such as the Free Customers and energy traders).
However, the electricity arising from the following is subject to specific rules different from the rules applicable to the regulated market and to the Free Market: (i) low capacity generation projects located near consumption points (such as certain co-generation plants and small hydroelectric power plants), (ii) plants qualified under the Proinfa Program, an initiative established by the Brazilian government to create incentives for the development of alternative energy sources, such as wind power projects, small hydroelectric power plants and biomass projects, (iii) Itaipu, (iv) Angra 1 and 2 as from 2013 and (v) those generation concession contracts extended or subject to a new bidding process in accordance with the 2013 Concession Renewal Law.
The electricity generated by Itaipu will continue to be sold by Eletrobras to the distribution concessionaires operating in the South, Southeast and Midwest portions of the Interconnected Transmission System. The rates at which Itaipu-generated electricity is traded are denominated in U.S. dollars and established pursuant to a treaty between Brazil and Paraguay. As a consequence, Itaipu rates rise or fall in accordance with the variation of the real/U.S. dollar exchange rate. Changes in the price of Itaipu-generated electricity are, however, subject to the Parcel A cost recovery mechanism discussed as follows under “–Distribution Tariffs”.
Beginning January 2013, the energy generated by nuclear plants Angra 1 and 2 started to be sold by Eletronuclear to the distribution concessionaires at a rate calculated by ANEEL.
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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.
Electricity purchases are generally made through three types of Bilateral Agreements: (i) Energy Agreements (Contratos de Quantidade de Energia), (ii) Availability Agreements (Contratos de Disponibilidade de Energia) and (iii) allocation of energy quotas, as defined by the ANEEL. Under an Energy Agreement, a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, among other conditions, which could interrupt the supply of electricity. In such case, the generator would be required to purchase electricity elsewhere in order to comply with its supply commitments. Under an Availability Agreement, a generator commits to making a certain amount of capacity available to the regulated market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage. With respect to the third method (introduced by the 2013 Concession Renewal Law), the plants that have had their concession renewed under the 2013 Concession Renewal Law lost the right to sell their energy, and from now on will only receive compensation under the energy quota system as a result of the operation and maintenance of such facilities. As a result, energy generated by these generation concessionaires are passed on to distributors at a lower cost through quotas that match the size of the markets served.
With respect to the generation plants with expired concessions, which are subject to a new competitive bidding process, the winner of the competitive bidding process may be required to allocate up to 100% of the energy generated by this plant in quotas to the regulated Market depending on the criteria adopted in the relevant auction process.
The estimate of demand from distributors is the principal factor in determining how much electricity the system as a whole will contract. A distributor is obligated to contract all of its projected electricity needs. A deviation in actual demand from projected demand could result in penalties to distributors. In the event of under-contracting, the distributor is penalized directly in an amount that increases as the difference between the amounts of energy contracted for and actual demand increases. An under-contracting distributor must also pay to meet its demand by purchasing energy in the Spot Market.
In the event of over-contracting, where the contracted volume falls between 100% and 105% of actual demand, the distributor is not penalized and the additional costs are compensated customers’ tariffs. Where the contracted volume is over 105% of actual demand, the distributor must sell energy in the Spot Market. If the contract price proves lower than the current Spot Market price, the distributor sells its excess energy for a profit. On the other hand, if the contract price is higher than the Spot Market price, the distributor sells its excess energy at a loss. The Federal Law No. 13,360, dated November 17, 2016, also permitted the sale of excess energy by distribution companies in the Free Market. Resolutions No. 833, dated December 4, 2018 and 904, dated December 8, 2020, have recently provided additional rules on the methodology to be adopted by distribution companies with respect to the Mechanism of Surplus Sales (Mecanismo de Venda de Excedentes, or MVE).
With respect to the granting of new concessions, regulations provide that bids for new hydroelectric generation facilities may include, among other things, the minimum percentage of electricity to be supplied in auctions in the regulated market. Concessions for new generation projects, such as Mauá and Colíder in our case, are non-renewable, meaning that upon expiration, the concessionaire must again complete a competitive bidding process.
The Free Market
The Free Market covers transactions between generation concessionaires, Independent Power Producers – IPPs, self-generators, energy traders, exporters and importers of electric energy and Free Customers. The Free Market also covers bilateral agreements between generators and distributors signed under the old model, until they expire. Upon expiration, such contracts must be executed under the New Industry Model Law guidelines.
A consumer that is eligible to choose its supplier may only do so upon the expiration of its contract with the local distributor and with advance notice or, in the case of a contract with no expiration date, upon 15 days’ notice in advance of the date on which the distributor must provide MME with its estimated electricity demand for the year. In the latter case, the contract will only be terminated in the following year. Once a consumer has chosen the Free Market, it may only return to the regulated system with five years prior notice to its regional distributor, provided that the distributor may reduce such term at its discretion. This extended period of notice seeks to assure that, if necessary, the distributor can buy additional energy in auctions on the regulated market without imposing extra costs on the captive market.
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Private generators may sell electricity directly to Free Customers. State-owned generators may sell electricity directly to Free Customers but are obligated to do so only through private auctions carried out by the state-owned generators exclusively to Free Customers or by the Free Customers.
As mentioned above, recently, Federal Law No. 13,360, dated November 17, 2016, also permitted the sale of excess energy by distribution companies in the Free Market, but the effectiveness of the rule is still subject to further regulation by ANEEL.
Focusing on the future of the electricity sector, the Ministry of Mines and Energy launched Public Consultation No. 33/2017 with the purpose of obtaining the view of different participants around improvements in the business model of the sector. Issues such as the expansion of the Free Market and removal of barriers to the entry of its participants, hourly energy price, adequate allocation of risks, security of supply and socio-environmental sustainability were discussed. Further regulation is expected for the years to come with bills being discussed in the Brazilian Congress in order to implement reforms in the power sector. For more information see “–Potential New Regulatory Framework”.
Regulation under the New Industry Model Law and further rules enacted
A July 2004 decree governs the purchase and sale of electricity in the regulated market and the Free Market, as well as the granting of authorizations and concessions for electricity generation projects. This decree includes, among other items, regulations relating to auction procedures, the form of power purchase agreements and the mechanism for passing costs through to Final Customers.
These regulations establish the guidelines under which electricity-purchasing agents must contract their electricity demand. Electricity-selling agents must show that the energy to be sold comes from existing or planned power generation facilities. Agents that do not comply with such requirements are subject to penalties imposed by ANEEL.
These regulations also require electricity distribution companies to contract for 100% of their energy needs primarily through public auctions. In addition to these auctions, distribution companies can purchase limited amounts (up to 10% of their demand) from: (i) generation companies that are connected directly to the distribution company (except for hydroelectric power plants with capacity higher than 30 MW and certain thermoelectric power plants) (ii) electricity generation projects participating in the initial phase of the Proinfa Program, (iii) the Itaipu Power Plant and (iv) quotas from those generation concession contracts extended or subject to a new competitive bidding process in accordance with the 2013 Concession Renewal Law.
The MME establishes the total amount of energy that will be contracted in the regulated market, the number and the type of generation projects that will be auctioned each year.
All electricity generation, distribution and trading companies, independent producers and Free Customers are required to notify MME, by August 1st of each year of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. In advance of each electricity auction, each distribution company is also required to inform MME of the amount of electricity that it intends to contract in the auction. In addition, distribution companies are required to specify the portion of the contracted amount they intend to use to supply potentially Free Customers.
Auctions in the Regulated Market
Electricity auctions for new generation projects are held from the third to the seventh year before the initial delivery date of electricity. Electricity auctions for existing generation projects are held (i) from the first to the fifth year before the initial delivery date, and (ii) up to four months before the initial delivery date (“Adjustment Auctions”).
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New and existing power generators may participate in the Reserve Energy Auctions as long as these generators increase the power system capacity or if they did not achieve commercial operation by January 2008. Invitations to bid in the auctions are prepared by ANEEL in accordance with guidelines established by the MME, including the requirement that the lowest bid wins the auction. Each generation company that participates in the auction executes a contract for the purchase and sale of electricity with each distribution company, in proportion to the distribution companies’ respective estimated demand for electricity, except for the market adjustment and Reserve Energy Auctions.
The contracts for new generation projects have a term between 15 and 35 years, and the contracts for existing generation projects have a term between 1 and 15 years. Contracts arising from market Adjustment Auctions are limited to a two-year term. The reserve energy contracts are limited to a 35-year term.
The quantity of energy contracted from existing generation facilities may be reduced for three reasons: (i) to compensate for Captive Customers that become Free Customers; (ii) to compensate for market deviations from the estimated market projections (up to 4% per year of the annual contracted amount, beginning two years after the initial electricity demand is estimated); and (iii) to adjust the quantity of contracted energy in bilateral agreements entered into prior to the enactment of the New Industry Model Law.
With regard to (i) above, the reduction in net revenue caused when a Captive Customer becomes a Free Customer is partially compensated by the increased amounts that Free Customers are required to pay to use our distribution system. However, a Free Customer may disconnect from our distribution grid (and therefore cease to pay us a distribution tariff) if it chooses to connect directly to the Interconnected Transmission System or if it generates energy for self-consumption and transports this energy without using our distribution grid. Because a Free Customer that connects directly to the Interconnected Transmission System no longer pays us a distribution tariff, we might not be able to fully recover this loss in revenues.
Since 2004, CCEE has conducted thirty three (33) auctions for new generation projects, twenty five (25) auctions for energy from existing power generation facilities, ten (10) auctions for reserve energy in order to increase energy supply security, three (3) auctions from alternative energy sources, seventeen (17) auctions for market adjustments, one (1) simplified competitive procedures and one (1) capacity reserve auction. No later than August 1 of each year, the generators and distributors provide their estimated electricity generation or estimated electricity demand for the five subsequent years. Based on this information, MME establishes the total amount of electricity to be traded in the auction and determines which generation companies will participate in the auction. The auction is carried out electronically in two phases.
After the completion of the auction (except in the case of Reserve Energy Auction), generators and distributors execute the CCEAR, in which the parties establish the price and amount of the energy contracted in the auction. The price is adjusted annually based on price variations published by the IPCA. The distributors grant financial guarantees to the generators (mainly receivables from the distribution service) to secure their payment obligations under the CCEAR.
Also, after completion of the Reserve Energy Auction, the generation concessionaire and the CCEE execute the Contrato de Energia de Reserva, in which the parties establish the price and amount of the energy contracted for in the auction. The distributors, Free Customers and self-producing customers then execute the Contrato de Uso da Energia de Reserva (“CONUER”) with CCEE, in order to provide for the terms of the use of the reserve energy. The reserve energy customers grant financial guarantees to CCEE to secure their payment obligations under CONUER.
The 2013 Concession Renewal Law established that generation concessions entered into prior to 2003 that were not renewed would be subject to a new competitive bidding process and that the energy generated by these facilities will be allocated by the Brazilian government in quotas to the regulated market, for purchase by distribution concessionaires. On November 25, 2015, ANEEL carried out a competitive bidding process for the grant of new 30-year concessions of 29 hydroelectric plants in accordance with the 2013 Concession Renewal Law. Until December 31, 2016, 100% of the electricity generated by such 29 hydroelectric plants must be destined to the regulated market and, as of January 1, 2017, the percentage was reduced to 70%. On September 27, 2017, the ANEEL carried another competitive bidding process for the grant of new 30-year concessions of 4 hydroelectric plants in accordance with the 2013 Concession Renewal Law. In this auction, the percentage destined to the regulate market was 70% since the beginning of the concession.
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The Annual Reference Value
Brazilian regulation establishes a mechanism (“Annual Reference Value”) that limits the costs that can be passed through to Final Customers.
The regulation establishes certain limitations on the ability of distribution companies to pass-through costs to customers, such as no pass-through of costs for electricity purchases that exceed 105% of actual demand.
The MME establishes the maximum acquisition price for electricity generated by existing projects. If distributors do not comply with the obligation to fully contract their demand, the pass-through of costs from energy acquired in the short-term market is the lower of the Spot Market price and the Annual Reference Value.
Electric Energy Trading Convention
The Electric Energy Trading Convention (Convenção de Comercialização de Energia Elétrica) regulates the organization and functioning of the CCEE and defines, among other things, (i) the rights and obligations of CCEE participants, (ii) the penalties to be imposed on defaulting agents, (iii) the means of dispute resolution, (iv) trading rules in the regulated and Free Markets, and (v) the accounting and clearing process for short-term transactions.
Restricted Activities of Distributors
Distributors in the Interconnected Transmission System are not permitted to (i) engage in activities related to the generation or transmission of electric energy, (ii) hold, directly or indirectly, any interest in any other company, corporation or strategic agreement, or (iii) engage in activities that are unrelated to their respective concessions, except for those permitted by law or the relevant concession agreement. According to Law No. 13,360/2016, distributors are allowed to sell energy to Free Customers. This possibility is regulated by ANEEL through REH No. 904/2020, with the application of the MVE.
Elimination of Self-Dealing
Since the purchase of electricity for Captive Customers is now performed through auctions in the regulated market, “self-dealing” (under which distributors were permitted to meet up to 30% of their energy needs using energy that was either self-produced or acquired from affiliated companies) is no longer permitted.
Challenges to the Constitutionality of the New Industry Model Law
The New Industry Model Law is currently being challenged on constitutional grounds before the Brazilian Supreme Court. The Brazilian government moved to dismiss the actions, arguing that the constitutional challenges were moot because they related to a provisional measure that had already been converted into law. To date, the Supreme Court has not reached a final decision and we do not know when such a decision may be reached. While the Supreme Court is reviewing the law, its provisions have remained in effect. Regardless of the Supreme Court’s final decision, certain portions of the New Industry Model Law relating to restrictions on distributors performing activities unrelated to the distribution of electricity, including sales of energy by distributors to Free Customers and the elimination of self-dealing, are expected to remain in full force and effect.
Tariffs for the Use of the Distribution and Transmission Systems
ANEEL regulates access to the distribution and transmission systems and establishes tariffs for the use of these systems. The tariffs are (i) distribution system usage charges, which are charges for the use of the proprietary local grid of distribution companies (“TUSD”) and (ii) for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities (“TUST”).
TUSD
Users of a distribution grid pay the distribution concessionaire a tariff known as the TUSD (Tarifa de Uso dos Sistemas Elétricos de Distribuição). The TUSD is divided into two parts: one related to the contracted power in R$/kW and another related to the regulatory charges in R$/kWh. The amount paid by the users of a distribution grid is calculated by multiplying the maximum contracted power for each of the customer’s points of connection to the concessionaire’s distribution grid, by the tariff in R$/kW, plus the product of the power consumption by the tariff in R$/kWh, per month.
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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 a voltage equal or higher than 230 kV). This tariff is revised annually according to (i) the location of the user of the Interconnected Transmission System and (ii) the annual revenues that a transmission company is permitted to collect for the use of its assets in the Interconnected Transmission System. The ONS, an entity that represents all transmission companies that own assets in the Interconnected Transmission System, coordinates the payment of transmission tariffs to these transmission companies. Users of the Interconnected Transmission System sign contracts with the ONS, which allows them to use the transmission grid in return for paying TUST.
Distribution Tariffs
Distribution tariff rates to Final Customers are subject to review by ANEEL, which has the authority to adjust and review these tariffs in response to changes in energy purchase costs and market conditions. When adjusting distribution tariffs, ANEEL divides the costs of distribution companies into (i) costs that are beyond the control of the distributor, (“Parcel A costs”), and (ii) costs that are under control of distributors (“Parcel B costs”). ANEEL’s tariff adjustment formula treats these two categories differently.
Parcel A costs include, among others, the following:
| · | costs of electricity purchased by the concessionaire to attend Captive Customers, in accordance to the regulatory model in force; |
| · | charges for the connection to and use of the transmission and distribution grids; and |
| · | energy sector regulatory charges. |
Parcel B costs include, among others, the following:
| · | a component designed to pay the distributor for the investments made by the distributor on the concession assets; |
| · | depreciation costs; and |
| · | a component designed to compensate the distributor for its operating and maintenance costs. |
Each distribution company’s concession agreement provides annual adjustments. In general, Parcel A costs are fully passed through to customers. Parcel B costs, however, are adjusted for inflation in accordance with the IPCA Index, minus the X factor.
Electricity distribution concessionaires are also entitled to periodic tariff revisions (revisão periódica) every four or five years. In these processes, Parcel B is recalculated, taking into account incentives for efficiency, quality improvement and reasonable tariff. These revisions are aimed at (i) assuring necessary revenues to cover efficient Parcel B operational costs and adequate compensation for investments deemed essential for services provided within the scope of each such company’s concession and (ii) determining the “X factor”. The fifth amendment to our concession agreement, which establishes the renewal of our concession agreement, determines the Periodic Tariff Review every five years.
The X factor for each distribution company is calculated based on the following components:
| · | P, based on the concessionaire’s productivity, which is calculated through the productivity of the distribution segment (PTF), determined by the relation between the variation of the billed market and the operating and capital costs, plus the average growth of the billed market and the consumer units of the concessionaire itself; |
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| · | T, based on the trajectory of the concessionaire’s operating costs, measured as the difference between the cost benchmarks established by ANEEL and the concessionaire’s actual operating costs; and |
| · | Q, based on quality target indicators that measure the interruption of energy supply to Final Customers, and other quality indicators. |
In addition, a distribution concessionaire may request an Extraordinary Tariff Review of its tariffs in case of evident economic-financial imbalance, according to the admissibility criteria established through the Tariff Regulation Procedures (PRORET), sub-module 2.9. Extraordinary tariff adjustments were granted (i) in June 1999 to compensate for increased costs of electricity purchased from Itaipu as a result of the devaluation of the real against the dollar; (ii) in 2000 to compensate for the increase in Social Security Financing Contribution (Contribuição para o Financiamento da Seguridade Social - COFINS) from 2% to 3%; (iii) in December 2001 to compensate for losses caused by the Rationing Program; (iv) in January 2013, due to the enactment of 2013 Concession Renewal Law; (v) in March 2015, to compensate the costs related to the quotas of the CDE and increased costs with the purchase of energy, and (vi) in March 2017, to compensate the amount unduly included in the tariffs for captive consumers in 2016, referring to the Angra III plant.
Since October 2004, on the date of a subsequent tariff adjustment or tariff revision, whichever occurs earlier, distribution companies have been required to execute separate contracts for the connection and use of the distribution grid and for the sale of electricity to their potentially Free Customers.
Tariff Flags (Bandeiras Tarifárias)
Effective as of January 1, 2015, a new system has been introduced by the ANEEL to permit distribution concessionaires to pass on to their Final Customer certain variable cost increases attributable to changes in hydrological conditions in Brazil, prior to the formal tariffs periodic revisions made by ANEEL.
In accordance with this model, a green, yellow or red flag, as determined by ANEEL, is included in invoices sent to Final Customers, reflecting nationwide hydrological conditions (except for the State of Roraima). If a green flag is added to Final Customers’ invoices due to satisfactory hydrological conditions, no additional charges are added. On the other hand, if these invoices contain yellow or red flags, this indicates that distribution concessionaires are facing higher variable costs from the acquisition of electricity and will pass these costs on to Final Customers.
Incentives
In 2000, a Federal decree created the Thermoelectric Priority Program, (Programa Prioritário de Termoeletricidade, or “PPT”), for the purposes of diversifying the Brazilian energy matrix and decreasing Brazil’s strong dependence on hydroelectric plants. The incentives granted to the Thermoelectric Plants included in the PPT were: (i) guarantee of gas supply for 20 years, as per a MME regulation, (ii) assurance that the costs related to the acquisition of the electric energy produced by Thermoelectric Plants will be passed on to customers through tariffs up to the normative value established by ANEEL, and (iii) guarantee of access to a special BNDES financing program for the electric energy industry.
In 2002, the Brazilian government established the Proinfa Program to encourage the generation of alternative energy sources. Under the Proinfa Program, Eletrobras would purchase the energy generated by alternative sources for a period of 20 years. In its initial phase, the Proinfa Program was limited to a total contracted capacity of 3,300 MW. In its second phase, which should start after the 3,300 MW cap has been reached, the Proinfa Program intends to purchase up to 10% of Brazil’s annual electric energy consumption from alternative sources. The first phase of the Proinfa program commenced in 2004 and it so far has supported the construction of 131 alternative energy plants which is expected to reach the production of 11.2 million MWh. According to a decision of ANEEL, the total investment to the Proinfa Program in 2022 will be R$ 6.38billion.
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Energy Sector Regulatory Charges
EER
The Encargo de Energia de Reserva (“EER”) is a regulatory charge designed to raise funds for energy reserves that have been contracted through CCEE and which are deposited in the Reserve Energy Account (Conta de Energia de Reserva – CONER). These energy reserves, which are mandatory, were created in order to attempt to ensure a sufficient supply of energy in the Interconnected Transmission System. The EER shall be collected from Final Customers of the Interconnected Transmission System. Beginning in 2010, this charge has been collected on a monthly basis.
RGR Fund
In certain circumstances, electric energy companies are compensated for certain assets used in connection with a concession if the concession is revoked or is not renewed. In 1971, the Brazilian Congress created a reserve fund designed to provide these compensatory payments (“RGR Fund”). In February 1999, ANEEL established a fee requiring public-industry electric companies to make monthly contributions to the RGR Fund at an annual rate equal to 2.5% of the company’s fixed assets in service, not to exceed 3% of total operating revenues in any year. Since the enactment of the 2013 Concession Renewal Law, the RGR Fund has been used to fund the compensations arising from the termination of non-renewed concessions. The 2013 Concession Renewal Law also allowed the funds from the RGR Fund to be transferred to the CDE.
According to 2013 Concession Renewal Law, as from January 1, 2013, the concession contracts from concessionaires of (i) distribution; (ii) transmission which competitive bidding process occurred after September 12, 2012; and (iii) transmission and generation which had their concession contract renewed or had their underlying facilities subject to a new competitive bidding process are no longer obliged to pay the annual RGR fee.
UBP
Some hydroelectric generation enterprises (except small hydroelectric power plants) are required to make contributions for using a public asset, Uso de Bem Público (“UBP”) according to the rules of the corresponding public bidding process for the granting of concessions. Eletrobras receives the UBP payments in a specific account. See Note 26 to our audited consolidated financial statements.
ESS
The costs related to maintaining system reliability and stability when Thermoelectric Plants generate energy to meet demand in the National Connection System (SIN) are called System Service Charges, or Encargos de Serviços de Sistema (ESS). These amounts are paid by each entity that purchases energy in the Spot Market (CCEE), proportional to each such entity’s consumption.
ESS is expressed in R$/MWh and paid only to Thermoelectric Plants that generate energy in response to requests by the ONS.
CDE
In 2002, the Brazilian government instituted the Electric Energy Development Account, Conta de Desenvolvimento Energético (“CDE”). The CDE is funded by (i) annual payments made by concessionaires for the use of public assets, (ii) penalties imposed by ANEEL, (iii) the annual fees paid by agents offering electric energy to Final Customers, by means of an additional charge added to the tariffs for the use of the transmission and distribution grids and (iv) transfer of resources from the Federal General Budget. The CDE was originally created, amongst others, to promote the availability of electric energy services to all of Brazil and the competitiveness of the energy produced by alternative sources.
Currently, CDE aims to fund several public policies in the Brazilian electricity sector, such as: universalization of the electricity service throughout the national territory; granting of tariff discounts to various users of the service (low income; rural; Irrigating; public water, sewage and sanitation services; incentive energy generation and consumption, etc.); low tariff on isolated electricity systems (Fuel Consumption Account - CCC); competitiveness of electricity generation from the national coal source; among others. The CDE is managed by CCEE since May, 2017, pursuant to Federal Law No. 13,360/2016. This charge had been substantially reduced by the 2013 Concession Renewal Law (approximately 75% compared to its December 31, 2011 amount) in an attempt to reduce the cost of electricity paid by Final Customers. The 2013 Concession Renewal Law also allowed the funds from the RGR Fund to be transferred to the CDE, provided that the Federal Treasury would also contribute with the CDE and permit the funds deposited in the CDE to be used in support of the electricity generation program in non-integrated electric grids (sistemas elétricos isolados) as well as to partially offset the increased costs borne by distribution concessionaires for the purchase of energy in the Spot Market as a result of the non-renewal of generation concessions due to the 2013 Concession Renewal Law.
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On March 7, 2014, the Brazilian government also permitted the transfer to distribution concessionaires of funds deposited in the CDE to cover their respective costs arising from involuntary exposure to the Spot Market in January 2014 as a result of poor hydrological conditions in 2013 and 2014, which mandated the acquisition of thermoelectric energy at higher prices in the Spot Market, costs which distribution concessionaires were not able to pass on to Final Customers through regular Retail Tariffs prior to annual adjustments or formal tariffs periodic revisions made by ANEEL.
Distribution concessionaires will be able to pass on to its Final Customer a CDE charge, to the extent necessary to repay their respective financing obligations contracted by the CCEE through the ACR Account. See “—Regulated Market Account–ACR Account.”
On February 27, 2015, ANEEL approved a significant increase of the CDE fee charged to cover all of these additional costs supported by the CDE. ABRACE, an association of Free Customers filed lawsuits to contest the increase of the CDE fee. Since July 2015, the Free Customers associated with ABRACE benefit from an injunction suspending the increase of the CDE fee. Associations of distributors of energy (ABRADEE, with whom Copel Distribuição is associated) also obtained injunctions suspending its obligation to withhold such CDE fees while ABRACE´s and other consumers’ injunction remains in force.
Federal Law No. 13,360/2016 established that the Brazilian government must prepare a plan for a structural reduction of the CDE charge until December 31, 2017, and it also provided that the revenues, expenses and beneficiaries of the CDE must be published monthly by CCEE, among other changes. As a result, Decree nº 9,642/2018 was published, which determined the gradual reduction, in 5 years, of discounts granted to consumer units classified as Rural and Public Service of Water, Sewage and Sanitation, in Groups A (high voltage) and B (low voltage).
Regulated Market Account – ACR Account.
On April 2014, the Brazilian government created the Regulated Market Account, Conta no Ambiente de Contratação Regulada – Conta-ACR (“ACR Account”), to assist distribution concessionaires to cover their respective costs for the acquisition of thermoelectric energy for the period from February 2014 to December 2014, incurred as a result of poor hydrological conditions. Distributors incurred higher costs as a result of adverse hydrological conditions because they were required to buy thermoelectric energy at higher prices in the Spot Market, and were unable to pass all these costs on to Final Customers prior to a formal tariff periodic revision made by ANEEL. To fund the ACR Account, the Brazilian government authorized the CCEE to enter into credit agreements with certain Brazilian financial institutions. An aggregate of R$21.7 billion, composed of nine tranches, was deposited in the ACR Account. Distribution concessionaires have been repaying this loan since 2015 by charging its Final Customers with additional CDE amounts on a monthly basis. At first, the amount deposited in the ACR Account should be repaid by 2020. However, in March 2019, ANEEL authorized CCEE to negotiate with the creditor financial institutions and seek early termination of the corresponding loans, which occurred in September 2019.
Itaipu Transmission Fee
The Itaipu Hydroelectric Plant has an exclusive transmission grid and is not part of the Interconnected Transmission System. Companies that are entitled to receive electricity from Itaipu pay a transmission fee in an amount equal to their proportional share of the Itaipu generated electricity.
Use of Water Resources Tax
Holders of concessions and authorizations that allow for the exploitation of water resources must pay a total tax of 7.00% of the value of the energy they generate, which for the purposes of this calculation is based on a rate set by ANEEL. Beginning on January 1, 2021, ANEEL set this rate at R$76.00/MWh. The proceeds of this tax are shared among the states and municipalities where the plant or the plant’s reservoir is located, as well as with certain federal agencies.
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ANEEL Inspection Fee (TFSEE)
The ANEEL Inspection Fee is an annual fee due by the holders of concessions, permissions or authorizations equal to an ANEEL determined percentage of their revenues. The ANEEL Inspection Fee requires these holders to pay up to 0.4% of their annual revenue to ANEEL in 12 monthly installments.
Default on the Payment of Regulatory Charges
The failure to pay required contributions to the RGR Fund, Proinfa Program or CDE or to make certain payments, such as those due from the purchase of electric energy in the regulated market or from Itaipu, will prevent the defaulting party from receiving adjustments or reviews of their tariffs (except for an extraordinary review) and will also prevent the defaulting party from receiving funds from the RGR Fund or CDE. We comply with payment obligations related to Regulatory Charges.
Energy Reallocation Mechanism
The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia, or MRE) attempts to mitigate the risks borne by hydroelectric generators due to variations in river flows (hydrological risk).
Under Brazilian law, each hydroelectric plant is assigned a determined amount of “assured energy,” according to an energy supply risk criterion defined by MME, based on historical river flow records. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
The MRE tries to guarantee that all participating plants receive the revenue corresponding to their assured energy, irrespective of the volume of electricity generated by them. In other words, the MRE effectively reallocates the electricity, transferring the surplus from those who have produced in excess of their assured energy to those that have produced less than their assured energy. The relocation, which occurs in the Interconnected Transmission System, is determined by the ONS, considering the nationwide electricity demand and hydrological conditions, regardless of the power purchase agreement of each individual generator. The volume of electricity actually generated by the plant, whether more or less than their assigned assured energy quotient, is priced pursuant to a tariff known as the “Energy Optimization Tariff,” designed to cover only the variable operation and maintenance costs of the plant, so that generators are largely unaffected by the actual dispatch of their plants.
Each hydroelectric plant which has its concession contract renewed in accordance to 2013 Concession Renewal Law will no longer participate in the MRE, and the hydrological risk from those plants will be borne by the distribution concessionaires under the National Interconnected Power Grid. For the generation plants with expired concessions, which were subject to a new competitive bidding process under the 2013 Concession Renewal Law, 30% of the generated energy available for the generation concessionaire to sell in the market is also subject to the MRE hydrological risk allocation mechanism. This risk does not impact our distribution business, since we are allowed to increase the tariffs of our distribution customers to compensate any costs arising from this hydrological risk.
Research and Development
The companies holding concessions and permissions for distribution of electricity must invest a minimum of 0.50% of their annual net operational revenues in research and development and 0.50% in energy efficiency programs. Beginning on January 1, 2023, these percentages will become 0.75% and 0.25%, respectively.
A company holding concessions and authorizations for generation and transmission of electricity must invest a minimum of 1% of its annual net operational revenues in research and development. A company that generates electricity exclusively from small hydroelectric power plants, cogeneration or alternative energy projects is not subject to this requirement.
The amount to be invested in research and development must be distributed as follows:
| · | 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 |
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| · | 20% to the MME, to defray EPE. |
In March 2021, Law 14,120/2021 and ANEEL Resolution 929/2021 changed the allocation of research and development resources.
The amount not yet committed to the research and development program until September 2020 will be transferred to CDE as a way to promote tariff moderateness. In the same way, until December 2025, a minimum of 70% of the percentages defined by law must continue to be invested in research and development programs while the difference will be transferred to CDE.
| · | These measures do not impact the amounts to be invested by the concessionaires, but rather their destination. |
Environmental Regulations
The Brazilian Federal Constitution includes environmental matters among the ones that are subject to concurrent legislative competence. This means that the Brazilian Federal Government announces general rules that can be then complemented by rules approved by states and municipalities. The system aims to integrate environmental policies, which are always guided by a national directive, while still granting some power to the states and municipalities to regulate and act locally.
In 1981, the National Environmental Policy was enacted in Brazil (Federal Law 6,938/1981), with an aim to preserve, improve, and recover the environment in Brazil by the establishing several principles to be met by different parties. This culminated in an extensive regulatory framework towards mindful use, conservation, and effective protection of natural resources.
For example, in 1988, Article 225 of the Federal Constitution alluded to environmental issues, advocating for the right of all citizens to an ecologically balanced environment and the duty of the collective to defend and preserve the environment for future generations. In 1998, the Federal Environmental Crimes Law (Law 9,605/1998) was published, providing for criminal and administrative penalties for conduct and activity deemed harmful to the environment.
The entities that make up the National Environmental System and the publications of the National Environmental Council (Conselho Nacional de Meio Ambiente), which regulate numerous issues, especially those related to the process of environmental licensing of enterprises, are also relevant to Brazil’s efforts towards environmental protection.
Additional federal laws and statutes established the National System of Water Resources Administration and the National Council of Water Resources in order to deal with main environmental issues associated with the hydroelectric sector and water usage. In 2000, the Federal Government created an independent agency, the National Water Resources Agency, to regulate and supervise the usage of water resources. In 2008, Federal Decree 6,514/2008 was enacted to further define administrative responsibility for environmental violations.
Also noteworthy is the Brazilian Forest Code (Federal Law 12,651/2012) and related regulations that established norms in relation to vegetation that may suffer from the impacts resulting from the implementation of enterprises associated with hydroelectric reservoirs.
In addition to the applicable legislation mentioned above, it is also necessary to consider the actions of the so-called Intervening Bodies, which are entities related to the environmental licensing process. However, the Intervening Bodies also act on more specific issues, the most frequent being related to the National Indian Foundation (Funai), the Institute of National Historical and Artistic Heritage (Iphan), the Palmares Foundation, the Chico Mendes Institute for Biodiversity Conservation (ICMBio), among others.
All these regulations can increase the costs associated with the implementation of energy generation and transmission projects, since concessionaires need to fully adhere to all environmental laws and regulations.
Thus, according to Brazilian environmental legislation, any action that represents environmental risk can result in up to three types of liability: civil, administrative and criminal. Thus, those who violate an environmental law may be subject to administrative and criminal sanctions, and in cases of environmental damage, will have the obligation to repair or compensate the affected party. Administrative sanctions may apply to the company and to individual company representatives simultaneously and may include significant fines and suspension of activities. Criminal sanctions may include fines, and for individuals, including directors and employees of companies that have committed environmental crimes, possible imprisonment.
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All of the Company's power generation, distribution and transmission facilities are subject to environmental licensing procedures and environmental licenses obtained by such facilities may establish several criteria. The maintenance of these licenses will still be subject to compliance with certain requirements, hence why the Company consistently acts in full compliance of applicable environmental legislation.
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recent developments
Divestment of Copel Telecomunicações S.A.
On November 9, 2020, an auction for the divestiment of Copel Telecomunicações S.A. (Copel Telecom), responsible for our telecommunication activities, was held at B3. The winning bid was R$2.4 billion (equity value). On January 14, 2021, a Share Purchase Agreement for the transfer of 100% of the shares of Copel Telecom was entered into with Bordeaux Multi-Strategic Investment Fund – Bordeaux Fundo de Investimentos em Participações Multiestratégia, the winning bidder of the auction. On July 9, 2021, the sale was approved by the Brazilian antitrust authority, and on August 3, 2021 Copel completed the divestment of Copel Telecom. The final restated transaction amount was R$2.5 billion, based on the SELIC rate as of August 3, 2021, and has already been transferred in full to Copel.
Therefore, from August 3, 2021, Copel no longer controls Copel Telecomunicações S.A., nor does it hold or control any of its assets, liabilities or business.
Migration to Level 2 of Corporate Governance of B3 (Brasil, Bolsa, Balcão - bolsa de valores de São Paulo)
Our bylaws were amended at the shareholders meeting of November 26, 2021 to provide for certain changes in our corporate governance necessary to permit our shares and Units to be listed on B3 listing segment known as Level 2. These amendments had previously been approved by the sharholders meeting of March 11, 2021, subject to certain conditions that were later fulfilled. As a result, we migrated to Level 2 of Corporate Governance of B3. Level 2 includes enhanced levels of corporate governance, including providing for (1) 100% tag along for Common Shares and Preferred Shares, granting equal treatment to our shareholders; (2) voting rights for the holders of Preferred Shares (Class A Shares and Class B Shares) on matters involving the transformation, merger or spin-off of Copel; (3) a mandatory tender offer to all shareholders upon specified events, including a change of control, removal from the Level 2 with the exception of a removal for the purpose of Copel’s being listed in Novo Mercado, a special listing segment of B3 listing segment, or termination of registration as a public company under Brazilian law; (4) additional protections for minority shareholders.
Unitization
In March 2021, we sought to improve the liquidity of the trading market for our securities by establishing Units (the steps to establish the Units, taken as a whole, are referred to as the “Unitization”). The Unitization and related amendments to our bylaws to facilitate necessary changes in our corporate governance to permit the Unitization were approved by our shareholders on March 11, 2021.
The Unitization included, among other steps, the Conversion Offers (as defined in the 2020 Form 20-F), which were conditioned on the aggregate number of Units issuable as a result of the Conversion Offers (taken together) attaining 229, 172, 878 Units (the “Minimum Participation Condition”). We announced on April 23, 2021 that the requirements of the Minimum Participation Condition had been met, and all Preferred Class B Shares, the holders of which elected to convert their Preferred Class B Shares (and had not withdrawn such election), including Preferred Class B Shares then represented by Preferred ADSs, were accepted for conversion.
On April 26, 2021, Our Board of Directors approved the conversion of 478,550,731 Common Shares into Preferred Class B Shares, the conversion of 139,520 Preferred Class A Shares into Preferred Class B Shares, the conversion of 82,330,391 Preferred Class B Shares into Common Shares and the formation of 277,126,554 Units. The Units began trading on B3 under the symbol “CPLE11” and on the NYSE under the symbol “ELP” on April 26, 2021 and April 28, 2021, respectively.
Vilas Wind Power Complex Acquisition
On May 17, 2021, Copel Geração e Transmissão (“Copel GeT”) entered into a contract for the acquisition of 100% of Vilas Complex, comprising of 5 fully operational wind farms and a total installed capacity of 186.7 MW located in the Municipality of Serra do Mel - RN. On November 30, 2021, Copel GeT completed the acquisition of 100% of Vilas Complex with an enterprise value of R$1.1 billion as part of the company's strategy of sustainable growth in renewable energy, expanding the diversification of the aligned generation matrix to the Investment Policy. The project is partially financed by Banco do Nordeste (“BNB”), under a long-term loan agreement with final maturity in 2040. The total amount paid by Copel in the acquisition was R$ 597.7 million.
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Item 4A. Unresolved Staff Comments
None.
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Item 5. Operating and Financial Review and Prospects
The information presented in this section should be read together with our audited consolidated financial statements for the years ended December 31, 2021, 2020 and 2019 that have been prepared in accordance with IFRS as issued by the IASB. For more information see “Presentation of Financial and Other Information” and Note 3 to our audited consolidated financial statements for the year ended December 31, 2021.
The information presented in this section focuses on material events and uncertainties known to our management that could result in reported financial information not being indicative of future operating results or future financial condition, including a quantitative and qualitative description of the reasons underlying material changes. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those discussed in the forward-looking statements for several reasons, including, without limitation, the risks described in “Forward-Looking Statements” and “Item 3. Key Information―Risk Factors.”
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 faced periods of instability in recent years, impacting the performance of the Brazilian GDP growth rates, with an increase of 2.3% in 2013 and 0.1% in 2014 and a decrease of 3.8% in 2015. The growth rate was equally negative in 2016, with a decrease of 3.3%. The economic environment showed signs of recovery in 2017, with an increase of 1.0% in growth rate. In 2018 and 2019, the economic environment continued to recover, with an increase of 1.3% and 1.1%, respectively, in growth rate. In 2020, the growth rate decreased by 4.1%. In 2021, the growth rate increased by 4.6%.
The following table shows selected economic data for the periods indicated:
|
Year ended December 31, |
|||
|
2021 |
2020 |
2019 |
|
| Inflation (IPCA) | 10.06% | 4.52% | 4.31% |
| Inflation (IGP-DI) | 17.74% | 23.7% | 7.70% |
| Appreciation (depreciation) of the real vs. U.S. dollar | 7.5% | (28.8)% | (4.0%) |
| Period-end exchange rate – US$1.00(1) | 5.5799 | 5.1967 | 4.0307 |
| Average exchange rate – US$1.00 | 5.3949 | 5.1558 | 3.9461 |
| Change in real GDP | 4.6% | (4.1)% | 1.1% |
| Average interbank interest rates(2) | 5.94% | 2.77% | 4.40% |
(1) The real/U.S. dollar exchange rate at December 31, 2021 was R$5.5799 per US$1.00.
(2) Calculated in accordance with Central Clearing and Custody House, or Central de Custódia e Liquidação Financeira de Títulos (“CETIP”), methodology (based on nominal rates).
Sources: FGV ‒ Fundação Getúlio Vargas, the Brazilian Central Bank, the Brazilian Geography and Statistics Institute IBGE and CETIP.
Rates and Prices
Our operational results are significantly affected by changes in the prices at which our generation business sells energy, and by the prices at which our distribution and trading business buys and resells energy.
Our generation business sells energy at unregulated prices in the regulated market, in the Free Market and in the Spot Market. Our generation business allocates the amount of energy that it sells in each of these markets seeking to maximize returns and subject to applicable restrictions, 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.
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Our distribution business purchases enough energy to meet 100% of the demand we forecast for our Final Customers in auctions at unregulated prices in the regulated market. Our distribution business resells that energy to Final Customers at regulated tariffs that take into consideration the price at which the energy was purchased. If our forecasts fall short of the actual electricity demand of our Final Customers, we may be required to enter into short-term agreements to purchase electricity in the Spot Market. If our forecasts exceed the actual demand of our Final Customers, our distribution business sells the excess energy in the Spot Market. The margins in our distribution business tend to be relatively stable due to the regulated nature of the distribution business, while the margins in our generation business are typically larger but less stable, since they are not substantially market regulated.
Sales to Final Customers (which include sales by our distribution business to Captive Customers, sales by our generation business and sales by our trading business to Free Customers) represented approximately 44.1% of the volume of electricity we made available in 2021, and accounted for 63.6% 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 2013, the adjustments have been as follows.
| · | In January 2013, due to the enactment of 2013 Concession Renewal Law, we were subject to an extraordinary revision approved by ANEEL. The average impact of this extraordinary review in the tariffs we charge our customers was a decrease of 19.28%. |
| · | In June 2013, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 13.08%, of which 11.40% related to the tariff increase and 1.68% referred to an increase in recovery of deferred regulatory accounts (CVA). After giving effect to the recovery of Parcel A costs, the average effect of this tariff adjustment on our Captive Customers was an increase of 14.61%. However, Copel Distribuição requested a partial deferral of this adjustment, which was authorized by ANEEL and approved on July 9, 2013. The amount of R$255.9 million was therefore deferred and included as a financial component in the 2014 annual revision. This deferral reduced the average effect of the tariff adjustment to 9.55%. |
| · | In June 2014, ANEEL approved the annual adjustment of our Retail Tariffs, increasing them by an average of 35.38%, of which 25.05% related to the tariff increase and 10.34% related to an increase in recovery of deferred regulatory accounts (CVA). After giving effect to the recovery of Parcel A costs, the average effect of this tariff adjustment on our Captive Customers was an increase of 39.71%. However, Copel Distribuição requested a partial deferral of this adjustment, which was authorized by ANEEL and approved on July 22, 2014. The amount of R$898.3 million was therefore deferred and included as a financial component in the 2015 annual adjustment. This deferral reduced the average effect of the tariff revision to 24.86%. |
| · | In March 2015, ANEEL approved an extraordinary revision due to a series of events that significantly impacted the distribution concessionaires’ costs, which were not originally foreseen in the 2014 Retail Tariff increase, such as the increase of Itaipu tariffs (46.14%) and higher prices to purchase energy in recent energy auctions. Copel Distribuição’s Average Tariff revision approved by ANEEL was 36.79% starting from March 2, 2015. Of this total, 22.14% related to CDE charges that have been passed to customers and 14.65% relates to (i) Itaipu’s tariff increase and (ii) the higher prices paid by us to purchase energy in recent energy auctions that have been passed to customers. |
| · | In June 2015, ANEEL authorized the annual revision of Copel Distribuição’s tariff to Final Customers, increasing them by an average of 15.32%, of which (i) 20.58% related to the inclusion of the financial components, which will be recovered in the 12 months subsequent to the adjustment (including the amount of R$935.3 million corresponding to the deferrals in 2013 and 2014), (ii) 0.34% related to the restatement of Portion B, (iii) (3.25)% related to the adjustment of Portion A, and (iv) (2.35)% reflected the removal of the financial components from the previous process. The adjustment was fully applied to Copel Distribuição’s tariffs as of June 24, 2015. |
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| · | In June 2016, ANEEL approved the fourth periodic review of our Retail Tariffs, decreasing them by 12.87%, of which: (1.73)% related to the inclusion of financial components; 4.48% due to the update of Portion B; (2.57)% related to the update of Portion A; and (13.05)% reflecting the removal of the financial components of the previous tariff process. |
| · | In March 2017, ANEEL approved an extraordinary tariff revision to correct the amount unduly included in the tariffs for captive consumers in 2016. The return corresponded to the energy that was to be generated by the Angra III power plant; however, the plant was not yet in commercial operation. The refund of the amount charged the most was made in a single installment during the month of April 2017, and, as of May 2017, the tariffs were adjusted to disregard the amount that was being charged. The decision, of extraordinary character, affected 90 distributors of electric power of the country. Copel's retail tariff (residential B1) was reduced by an average of 11.8% during April 2017 due to the adjustment resulting from the removal of the Reserve Energy Charge (EER) tariff coverage of the Angra III plant, retroactive to the last Periodic Tariff Review, held in June/2016. As of May 2017, the tariff was reset, disregarding the effect arising from the retroactive adjustment, but maintaining the exclusion of the EER (Reserve Energy Charge) component of Angra III for the coming months, until June 2017, the month of the adjustment annual tariff. |
| · | In June 2017, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 3.13%, of which 3.86% related to the tariff increase and (0.73)% related to the inclusion of financial components. After the removal of the financial components of the previous tariff process, the average effect of this tariff adjustment on our Customers was an increase of 5.85%. |
| · | In June 2018, ANEEL approved the annual revision of our Retail Tariffs, increasing them by an average of 14.32%, of which 7.80% related to the tariff increase and 6.52% related to the inclusion of financial components. After the removal of the financial components of the previous tariff process, the average effect of this tariff adjustment on our Customers was an increase of 15.99%. |
| · | In June 2019, ANEEL approved the annual adjustment of our Tariffs, increasing them on average by 8.57%, with 1.96% related to the variation in economic revenue and 10.54% related to the inclusion of financial components. After removing the financial components from the previous tariff process, the average effect of the tariff adjustment on our consumers was an increase by 3.41%. |
| · | In June 2020, ANEEL approved the annual adjustment of our supply tariffs, which represented a tariff repositioning index of 15.84%, comprised of a variation of 8.68% in the economic components and 7.16% in the financial components. After removing the effect of the financial variables from the previous tariff process, the average effect perceived by the customers would be 5.39%. However, in an aim to reduce the impact on electric bills due to the financial consequences of the COVID-19 pandemic, ANEEL created the COVID-19 Fund, a loan operation between various banks contracted by the CCEE in order to dilute tariff increases in the next five years. Thus, Copel Distribution asked that the effects the COVID-19 Fund be applied to our annual tariff adjustment in the amount of R$536 million, equivalent to the accumulated total of the Compensation Account for the Variation of Items of Parcel A (CVA), considered a negative financial component, ultimately reducing the effect on the consumer. With the removal of the previous year’s financial components, the final average effect perceived by the consumer was 0.41%. |
| · | In June 2021, ANEEL approved the fifth periodic review of our Retail Tariffs, increasing them by 9.89% in average, of which: 1.19% related to the inclusion of financial components; 1.05% due to the update of Portion B; 8.62% related to the update of Portion A; and (0.98)% reflecting the removal of the financial components of the previous tariff process. |
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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 for the captive market”. Our major long-term contracts or purchase obligations are described as follows.
| · | We purchase energy from Itaipu at prices that are determined based on the Itaipu project’s costs, including servicing its U.S. dollar-denominated debt. In 2021, our electricity purchases from Itaipu amounted to R$1,787 million; |
| · | Our distribution business is required to purchase a large portion of its energy needs from the regulated market. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power—Industry—Concessions—Auctions in the Regulated Market”. |
Under current legislation, the amount that our distribution business charges Final Customers is composed of two fees: a fee for the actual energy consumed and a fee for the use of our distribution grid. Since the regulated rates at which our distribution business sells energy to Final Customers are substantially the same as the rates at which it purchases energy (after accounting for deductions and the cost of energy purchased for resale), our distribution business does not generate operating profit from the sale of electricity to Final Customers. Rather, our distribution business generates operating profit principally by collecting tariffs for the use of our distribution grid.
Impact of the CRC Account
One of our most significant assets consisted of the obligations of the State of Paraná derived 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). On August 10, 2021, the State of Paraná offset the updated outstanding amount under CRC Account in the total of R$1,431.2 million and fulfilled all outstanding obligations under the CRC Agreement.
For additional information, see Note 8 to our audited consolidated financial statements.
Special Obligations
The contributions received from the Brazilian government and our customers exclusively for investment in our generation assets, transmission and distribution grid are named as special obligations. We record the amount of these contributions on our statement of financial position as a reduction of 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 the assets. The highest amount we recorded as special obligations as of December 31, 2021, from the distribution segment, was R$2,734.1 million as a reduction of intangible assets and R$53.7 million as a reduction of contract assets.
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ANALYSIS OF ELECTRICITY SALES AND COST OF ELECTRICITY PURCHASED
The following table sets forth the volume and Average Rate components of electricity sales and purchases for the years ended December 31, 2021, 2020 and 2019:
|
Year ended December 31, | |||
|
2021 |
2020 |
2019 | |
| Electricity Sales | |||
| Electricity sales to Final Customers | |||
| Average price (R$/MWh):(1) | |||
| Industrial customers | 541.07 | 419.46 | 481.91 |
| Residential customers | 507.95 | 391.78 | 444.92 |
| Commercial customers | 530.84 | 407.78 | 460.78 |
| Rural customers | 354.96 | 250.27 | 267.48 |
| Other customers(3) | 715.58 | 604.80 | 639.02 |
| Free Customers(2) | 231.00 | 216.50 | 208.64 |
| All customers | 426.23 | 350.58 | 393.40 |
| Volume (GWh): | |||
| Industrial customers | 2,275 | 2,314 | 2,648 |
| Residential customers | 8,068 | 7,910 | 7,499 |
| Commercial customers | 4,149 | 4,172 | 4,730 |
| Rural customers | 2,461 | 2,451 | 2,361 |
| Other customers(3) | 2,359 | 2,333 | 2,546 |
| Free Customers(2) | 9,538 | 7,989 | 6,860 |
| All customers | 28,849 | 27,169 | 26,644 |
| Total revenues from sales to Final Customers (millions of R$) | 12,296 | 9,525 | 10,482 |
| Electricity sales to distributors(4) | |||
| Average price (R$/MWh)(1) | 320.83 | 224,55 | 168.31 |
| Volume (GWh) | 21,925 | 19,287 | 19,615 |
| Total revenues (millions of R$) | 7,034 | 4,331 | 3,301 |
| Electricity Purchases | |||
| Purchases from Itaipu | |||
| Average cost (R$/MWh)(5) | 328,92 | 321.23 | 237.4 |
| Volume (GWh) | 5,435 | 5,498 | 5,533 |
| Percentage of total Itaipu production purchased | 8.2 | 9.2 | 8.7 |
| Total cost (millions of R$)(6) | 1,787.7 | 1,766.1 | 1,316.5 |
| Purchases from Angra | |||
| Average cost (R$/MWh) | 230,23 | 277,69 | 253,58 |
| Volume (GWh) | 0,976 | 0,968 | 0,978 |
| Total cost (millions of R$)(6) | 224.7 | 268.8 | 248.0 |
| Purchases from CCGF | |||
| Average cost (R$/MWh) | 116.1 | 109.18 | 102.28 |
| Volume (GWh) | 5,916 | 6,136 | 6,274 |
| Total cost (millions of R$)(6) | 686.3 | 669.9 | 641.7 |
| Purchases from others(4) | |||
| Average cost (R$/MWh) | 196.00 | 213.77 | 185.27 |
| Volume (GWh) | 34,719 | 19,295 | 21,045 |
| Total cost (millions of R$)(6) | 6,805 | 4,125 | 3,899 |
(1) Average prices or costs do not consider “use of main distribution and transmission grid” revenue and were calculated by dividing (i) the corresponding revenues or expenses by (ii) MWh of electricity sold or purchased.
(2) Includes Free Customers of Copel GeT and Copel Mercado Livre.
(3) Includes public services such as street lighting, as well as the supply of electricity to government agencies, and Donations and grants.
(4) Energy traded between Copel’s subsidiaries not included.
(5) Our purchases of electricity generated by Itaipu are stated in reais and paid for on the basis of a capacity charge expressed in U.S. dollars per kW plus a “wheeling” (or transportation) charge expressed in reais per kWh.
(6) See “Item 4. Information on the Company—Business—Generation” and “Item 4. Information on the Company—Business— Purchases for the captive market” for an explanation of our expenses relating to electricity purchases.
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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019
The following table summarizes our results of operations for the years ended December 31, 2021, 2020 and 2019.
As a result of the approval of the divestment of Copel Telecom divestment during the year 2020, we have classified the results of this subsidiary as discontinued operations for the years 2021, 2020 and 2019. Additional information on the divestment process and about the amounts considered as a discontinued operation can be found in Note 41 to our consolidated financial statements.
In 2021, our result was positively impacted by, among other factors, the sale of 2,195 GWh energy produced by TPP Araucária, the 5.6% increase in the grid market of Copel Copel Distribuição and the 5th tariff review cycle, by the increase on transmission assets remuneration and by the increase in energy volume sold by Copel Mercado Livre in comparison to the prior year. The revenue increase was partially offset by a 29.7% increase in our expenses mainly due to the 39.2% increase in electricity purchased for resale due to the need to purchase of energy to comply with existing contracts in view of the hydrological deficit in the period. There was a slight increase in demand of energy in the captive market of 0.7% in relation to 2020. Our net income increased 29% in 2021 in relation to 2020.
Economic effects of the pandemic on the assumptions of the Company's relevant non-financial assets were individually assessed and management concluded it was necessary to adjust the impairment value for some assets. The most significant adjustment occurred at UEG Araucária, as its cash flow estimates were affected by the decrease in energy demand in the country, whereas on the other projects there were impairment reversals.
Despite of the impacts of energy consumption and credit losses, the results of our operation were not materially affected. Further information in Notes 1(a) of our consolidated financial statements,
|
Year ended December 31, | |||||
|
2021 |
2020 |
2019 | |||
| (R$ million) | |||||
| Net Operating Revenues: | |||||
| Electricity sales to Final Customers: | 12,296.5 | 9,524.9 | 10,481.7 | ||
| Residential | 4,098.2 | 3,098.9 | 3,336.4 | ||
| Industrial | 1,230.9 | 970.6 | 1,276.1 | ||
| Commercial, services and other activities | 2,202.5 | 1,701.2 | 2,179.5 | ||
| Rural | 873.6 | 613.4 | 631.5 | ||
| Other classes | 3,891.3 | 3,140.7 | 3,058.2 | ||
| Electricity sales to distributors | 7,034.2 | 4,331.0 | 3,301.3 | ||
| Use of main distribution and transmission grid | 10,088.2 | 8,780.6 | 8,271.0 | ||
| Residential | 3,011.5 | 2,788.7 | 2,585.9 | ||
| Industrial | 1,456.4 | 1,273.3 | 1,280.2 | ||
| Commercial, services and other activities | 1,771.5 | 1,628.1 | 1,713.6 | ||
| Rural | 623.3 | 548.7 | 467.0 | ||
| Other classes | 633.2 | 582.3 | 597.9 | ||
| Free consumers | 1,440.9 | 1,164.0 | 1,052.5 | ||
| Concessionaires and generators | 79.5 | 61.7 | 62.4 | ||
| Operating and maintenance income - O&M and interest income | 1,072.0 | 733.7 | 511.4 | ||
| Construction revenues | 1,951.6 | 1,414.1 | 1,132.9 | ||
| Revenues from telecommunications | - | - | - | ||
| Distribution of piped gas | 950.9 | 679.3 | 1,003.8 | ||
| Sectorial financial assets and liabilities result | 2,502.3 | 746.1 | 25.1 | ||
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| Other operating revenues | 359.0 | 406.5 | 438.9 |
| Fair value of assets from the indemnity for the concession | 142.6 | 57.3 | 36.6 |
| (-) Revenue deductions | (11,340.9) | (7,306.5) | (8,822.1) |
| 23,984.3 | 18,633.2 | 15,869.2 | |
| Cost of sales and services provided: | |||
| Electricity purchased for resale | (9,503.7) | (6,829.5) | (6,105.3) |
| Charge of main distribution and transmission grid | (2,501.6) | (1,525.6) | (1,249.3) |
| Personnel and management | (1,550.9) | (1,601.9) | (1,325.4) |
| Pension and healthcare plans | (248.8) | (228.6) | (238.3) |
| Material and supplies | (69.8) | (72.7) | (80.2) |
| Materials and supplies for power electricity | (1,854.9) | (404.5) | (49.4) |
| Natural gas and supplies for gas business | (506.1) | (354.7) | (585.2) |
| Third-party services | (706.6) | (558.0) | (526.0) |
| Depreciation and amortization | (1,082.5) | (1,009.9) | (950.7) |
| Accruals and provisions | (240.8) | (237.3) | (260.1) |
| Construction cost | (1,899.8) | (1,417.5) | (1,091.4) |
| Hydrological risk renegotiation - GSF | 1,570.5 | - | - |
| Other costs and expenses | (309.5) | (333.3) | (212.5) |
| (18,904.6) | (14,573.5) | (12,673.7) | |
| Equity in earnings of associates and joint ventures | 366.3 | 193.5 | 106.8 |
| Financial results | (327.4) | 866.3 | (455.4) |
| Profit before income tax and social contribution | 5,118.7 | 5,119.5 | 2,846.9 |
| Income tax and social contribution on profit | (1,259.6) | (1,285.4) | (675.6) |
| Net income from continuing operations | 3,859.0 | 3,834.2 | 2,171.3 |
| Net income (loss) from discontinued operations | 1,189.6 | 75.6 | (108.4) |
| Net income for the year | 5,048.6 | 3,909.7 | 2,062.9 |
| Net income attributable to controlling shareholders | 4,952.6 | 3,904.2 | 1,989.9 |
| Net income attributable to non-controlling interest | 96.0 | 5.5 | 72.9 |
| Other comprehensive income | 152.7 | (179.2) | (123.2) |
| Comprehensive income | 5,201.3 | 3,730.6 | 1,939.7 |
| Comprehensive income attributable to controlling shareholders | 5,105.2 | 3,725.2 | 1,862.5 |
| Comprehensive income attributable to non-controlling interest | 96.2 | 5.3 | 77.2 |
Results of Operations for 2021 Compared with 2020
Operating Revenues
Our consolidated net operating revenues increased by 28.7%, or R$5,351.1 million, in 2021 compared to 2020. This result reflected, an increase of R$9,385.4 million in gross operating revenue offset by an increase of R$4,034.4 million in revenue deductions (Pis/Pasep and Cofins, ICMS, ISSQN and sectorial charges). Below are the main reasons for variations in revenue accounts:
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers increased by 29.1%, or R$2,771.6 million, mainly due to the increase in the average price and volume sold, as follows:
| · | The revenue from electricity sold to residential customers increased R$999.3 million in 2021 compared to 2020, also considering a growth of 29.7% on the average price (R$/MWh) of the electricity sold during the same period, and the increase in volume sold compared to 2020. |
| · | The revenue from electricity sold to industrial customers increased by 26.8%, or R$260.3 million, in 2021 compared to 2020, considering a increase of 29.0% on the average price (R$/MWh). |
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| · | The revenue from electricity sold to commercial customers increased by 29.5%, or R$501.3 million, in 2021 compared to 2020, considering a increase of 30.2% on the average price (R$/MWh). |
| · | The revenue from electricity sold to rural customers increased by 42.4%, or R$260.2 million, in 2021 compared to 2020. This increase is mainly due to the reduction of subsidies applied to the rural class, under the terms of Federal Decree n. 9,642/2018. |
| · | The revenue from electricity sold to free customers increased by 27.4%, or R$ 473.7 million, in 2021 compared to 2020. This increase is mainly due to increase of 70.0% in the volume of energy sold to Copel Mercado Livre's free consumers. |
Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 62.4%, or R$ 2,703.2 million, mainly due to the sale of 2,195 GWh of energy produced by TPP Araucária in 2021 and the increase in volume of energy sold under bilateral contracts by Copel Mercado Livre.
Use of main distribution and transmission grid. Our revenues from the use of main distribution and transmission grid increased by 14.9%, or R$1,307.6 million, mainly due to the increase in remuneration on transmission assets, due to the growth of the IPCA and IGPM indexers, the5.6% growth in the grid market and the tariff adjustment of Copel Distribuição which corresponded to the Average Tariff effect being 9.57% for consumers connected in high voltage and 10.04% for consumers connected in low voltage.
Construction revenues. Our revenues from construction increased by 38.0%, or R$537.5 million, mainly to higher investments in the energy distribution segment.
Distribution of Piped Gas. Revenues from the distribution of piped gas increased by 40.0%, or R$271.6 million, due to the higher volume of sales from Compagas to TPP Araucária and the tariff adjustment, with an average effect of 18.2%, applied to consumers as of August 1, 2021.
Sectorial Financial Assets and Liabilities. Our financial assets and liabilities result increased by 235.4%, or R$1,756.2 million due to the higher value of net assets constituted in 2021, mainly due to higher electricity costs and system service charges (ESS) than those considered in the calculation of the electricity tariff of Copel DIS, a reflection of the hydrological deficit in the period with greater dispatch of thermoelectric plants.
Other Operating Revenues. Other operating revenues decreased by 11.7%, or R$47.5 million, mainly as a result of the decrease in the fair value of the energy purchase and sale agreements of Copel Comercialização, offset by the increase in rental revenue.
Cost of sales and services provided
Our consolidated costs of sales and services provided increased by 29.7% or R$4,331.0 million. The main factors leading to such increase in our cost of sales and services provided are as follows:
| · | Electricity Purchased for Resale. Our purchased energy costs for resale increased by 39.2%, or R$2,674.2 million, mainly due to the impact of the water crisis on energy prices and to cope with the higher volume of energy sold in the period. |
| · | Charge of Main Distribution and Transmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased 64.0%, or R$976.0 million due to the higher value of System Services Charges - ESS due to the higher thermal dispatch outside the order of merit to face the water crisis and the tariff adjustment of the contracts of the basic grid. |
| · | Personnel and administrative expenses decreased by 3.2%, or R$51.0 million, mainly reflecting the reduction of R$114.3 million in the provision for performance and profit sharing, the reduction in the number of employees and the cost reduction policy, offset by the salary adjustment of 10.78% in October 2021 resulting from the higher inflation rate in the period (3.89% in October 2020), according to the collective bargaining agreement and the R$73.2 million increase in the provision for the voluntary termination program in the period. |
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| · | Material and Supplies for Power Electricity increased 358.6% or R$1,450.4 million as a result of TPP Araucaria dispatch in 2021. |
| · | Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases increased 42.7%, or R$151.4 million, resulting from the higher volume of acquisition for resale. |
| · | Third-Party Services. Expenses related to third party services increased by 26.6%, or R$148.6 million, resulting from the increase in maintenance costs of the electrical system, due to actions to reduce interruptions to consumers (DEC/FEC) and the increase in O&M services with full entry of wind farms. |
| · | Depreciation and Amortization. Depreciation and amortization increased by 7.2%, or R$72.6 million, as a result of a revision of estimated useful life of certain assets in the generation segment, mainly due to the effects of the hydrological risk renegotiation – GSF. |
| · | Accruals and Provisions. Accrual and provisions increased by 1.5%, or R$3.5 million, as a result of an increase of R$52.6 million in the estimate of expected credit losses and of R$39.8 million in provisions for litigation, partially offset by the the reversal of impairment of R$110.3 million, mainly in the generation segment due to higher operation of TPP Araucária. |
| · | Construction Cost. Costs related to construction increased by 34.0%, or R$482.3 million, reflecting investments made in the transmission and distribution infrastructure of energy and piped gas. |
| · | Hydrological risk renegotiation – GSF. On September 28, 2021, the Board of Directors of Copel Geração e Transmissão (“Copel GeT”) approved the adhesion to the renegotiation of the hydrological risk of the assured energy portion not committed to the Regulated Contracting Environment (“ACR”), through the extension of the concession of its hydroelectric plants participating in the energy reallocation mechanism (“MRE”). More information in Note 1-b to our Financial Statements. |
| · | Other Costs and Expenses.Other costs and expenses decreased 7.1%, or R$23.8 million, mainly due to gains from disposals of assets and rights, greater recovery of costs and expenses, including recovery of invoices and taxes, and gains from updating the values of indemnifiable assets in the generation segment, offset by the increase in financial compensation for the use of water resources and by the valuation adjustment of the coal stock. |
Equity earnings of associates and joint ventures
Equity earnings of associates and joint ventures was R$366.3 million in 2021, an increase of 89.3%, compared to R$193.5 million in 2020. This variation is a result of the positive result of equity in the electricity transmission jointly controlled companies, mainly as a result of the higher monetary restatement on contract assets, the conclusion of works and the lower provision for arbitration disputes with the EPC holder.
Financial Results
We recognized a decrease of financial gains of 137.8%, or R$1,193.7 million mainly due to: (i) recognition of Pis/Cofins tax credit in 2020; (ii) the lower income from financial updating of the CRC contract due to its settlement in August 2021 and; (iii) increase in interest expenses in the amount of R$ 248.2 million, due to higher interest on loans and financing (CDI accumulated in 2021 of 4.42% against 2.76% in 2020 and IPCA of 10.06% against 4.52%), partially offset by the better return on financial investments (in the amount of R$ 83.2 million).
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Income Tax and Social Contribution Expenses
In 2021, our income tax and social contribution expenses was R$1,259.6 million, reflecting an effective tax rate of 24.6% in our pretax income, compared to R$1,285.4 million and an effective tax rate of 25.1% in our pretax profit in 2020.
Net income (loss) from discontinued operations
Due to the divestment process, as described in Note 41 to our Consolidated Financial Statements, the results of Copel Telecom operations were classified as discontinued operations. The gross gain from the sale of Copel Telecom, completed on August 3, 2021, was R$ 1,723.9 million, deducting taxes, the net gain was R$1,116.4 million. Considering the consolidated result for 2021, net income from discontinued operations was R$ 1,189.6 million.
Results of Operations for 2020 Compared with 2019
Operating Revenues
Our consolidated net operating revenues increased by 17.4% or R$2,764.0 million in 2020 compared to 2019. This result reflected, mainly, an increase of R$1,029.7 million in electricity sales to distributors and of R$721.0 million in sectorial financial assets and liabilities, partially offset by a decrease of R$956.8 million in electricity sales to Final Customers. In addition, there was an increase in the amount of recovery of Pis/Pasep and Cofins on ICMS, recorded within the revenue deductions. Below are the main reasons for variations in revenue accounts:
Electricity Sales to Final Customers. Our revenues from electricity sales to Final Customers decreased by 9.1%, or R$956.9 million, mainly due to a decrease of the average price per kilowatt hour sold to the Final Customers by Copel Distribuição and the effects of the economic downturn caused by the coronavirus pandemic, as follows:
| · | The revenue from electricity sold to residential customers decreased R$237.5 million in 2020 compared to 2019, also considering a reduction of 11.9% on the average price (R$/MWh) of the electricity sold during the same period, despite the increased volume compared to 2019. |
| · | The revenue from electricity sold to industrial customers decreased by 23.9%, or R$305.5 million, in 2020 compared to 2019, considering a reduction of 13.0% on the average price (R$/MWh)) and a decrease in volume (GWh) of electricity sold during the same period. |
| · | The revenue from electricity sold to commercial customers decreased by 21.9%, or R$478.3 million, in 2020 compared to 2019, considering a reduction of 11.5% on the average price (R$/MWh) and a decrease in volume (GWh) of electricity sold during the same period. |
| · | The revenue from electricity sold to rural customers decreased by 2.9%, or R$18.1 million, in 2020 compared to 2019. This decrease is mainly due to the reduction of consumers compared to 2019 and agribusiness performance in the State of Paraná during the COVID-19 pandemic. |
Electricity Sales to Distributors. Our revenues from electricity sales to distributors increased by 31.2%, or R$1,029.7 million. This increase was mainly due to the increase in our revenues from energy sold through bilateral contracts by Copel Mercado Livre and contracts in the regulated environment, reflection of the TPP Araucária dispatch, which had not operated in 2019.
Use of main distribution and transmission grid. Our revenues from the use of main distribution and transmission grid increased by 6.2%, or R$509.6 million, mainly due the positive result of the periodic tariff review of the transmission contract 060/2001, the increase in remuneration on transmission assets, due to the growth of the IGPM / IPCA indexers, the growth in the grid market and the tariff readjustment of Copel Distribuição which corresponded to the Average Tariff effect being 1.13% for consumers connected in high voltage and 0.05% for consumers connected in low voltage. Besides that, there was an increase of 2.6% on the number of consumers compared to 2019.
Construction revenues. Our revenues from construction increased by 24.8%, or R$281.2 million, mainly due an intensification of construction efforts and improvement of the infrastructure of the distribution businesses.
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Fair value of assets from the indemnity for the concession. The fair value of the assets from the indemnity for the concession increased by 56.6%, or R$20.7 million, mainly due to higher variation in the distribution concession agreement’s assets fair value.
Distribution of Piped Gas. Revenues from the distribution of piped gas decreased by 32.3%, or R$324.5 million, considering the impacts by the reduction in gas volume due to the Covid-19 pandemic, mainly in the industrial, commercial and vehicular segments.
Sectorial Financial Assets and Liabilities. Increased by 2,877.4%, or R$721.0 million due to the higher value of net assets constituted in 2020, mainly due to the purchasing energy and charges for use of the network costs being higher than those considered in the calculation of the electricity tariff approved by Aneel for the annual tariff cycle ending in June 2021.
Other Operating Revenues. Other operating revenues decreased by 7.4%, or R$32.4 million, mainly reflecting the recognition of the fair value of the portfolio of energy purchase and sale contracts of Copel Mercado Livre referring to the variation of the contracted price in relation to the market price in an amount lower than that recorded in 2019.
Cost of sales and services provided
Our consolidated costs of sales and services provided increased by 15.0% or R$1,899.8 million. The main factors leading to such increase in our cost of sales and services provided are as follows:
| · | Electricity Purchased for Resale. Our purchased energy costs for resale increased by 11.8%, or R$724.2 million, mainly due to an increase in the purchase of Energy in the Regulated Environment – CCEAR of energy from Itaipu Binacional by Copel Distribuição and from bilateral contracts to face the higher volume of energy sold on the Free Market in the period by Copel Mercado Livre. |
| · | Charge of Main Distribution and Transmission Grid. Expenses we incurred for our use of the main distribution and transmission grid increased 22.1%, or R$276.3 million mainly as a result of the increase in tariffs and charges for transmission infrastructure made available from 2020, in addition to the effect of the variation in costs related to dispatching thermal plants, with an impact on system service fees – ESS and increase in charges for the use of the system and in the reserve energy charge - EER, partially offset by the reduction in Itaipu's transportation charges. |
| · | Personnel and administrative expenses increased by 20.8%, or R$276.5 million, reflecting the increase in provision for performance and profit sharing and the salary readjustment in October 2020, higher than in 2019, partially offset by the reduction in the number of employees and cost reduction policy. |
| · | Material and Supplies for Power Electricity increased 719.6% or R$355.1 million as a result of Araucaria TPP dispatch in 2020. |
| · | Natural Gas and Supplies for Gas Business. Expenses related to natural gas purchases decreased 39.4%, or R$230.5 million, mainly due to lower acquisition volume for resale. |
| · | Third-Party Services. Expenses related to third party services increased by 6.1%, or R$32.0 million, mainly due to increase in maintenance of the electrical system in Copel Distribuição, consulting and auditing and customer service. |
| · | Depreciation and Amortization. Depreciation and amortization increased by 6.2%, or R$59.2 million, as a result of the start of commercial operations during 2019 of the Colíder, Cutia and Baixo Iguaçu plants. In 2020, all plants depreciated a full year of use compared to prior period. |
| · | Accruals and Provisions. Accrual and provisions decreased by 8.8%, or R$22.8 million, mainly due a decrease of R$ 93.6 million in provisions for litigations, partially offset by an increase of R$ 72.6 million referred to generation segment impairment. |
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| · | Construction Cost. Costs related to construction increased by 29.9%, or R$326.1 million, reflecting the investments made in the transmission, energy distribution and piped gas infrastructure. |
| · | Other Costs and Expenses.Other costs and expenses increased 56.8%, or R$120.8 million, mainly due to the repeal of the state law and, consequently, the registration of the water rate reversal in 2019, which is not recurring in 2020. |
Equity earnings of associates and joint ventures
Equity earnings of associates and joint ventures was R$193.5 million in 2020, an increase of 81.2%, compared to R$106.8 million in 2019. This variation is a result of an increase by 111.7% in equity earnings of joint ventures, mainly Mata de Santa Genebra, offset by a decrease of 21.4% in equity earnings of associates, mainly Foz do Chopim.
Financial Results
We recognized an increase of financial gains of 290.2%, or R$1,321.7 million mainly due to: (i) increase of R$906.1 million of recognition of tax credit; (ii) increase of R$149.2 million of interest and monetary variation of CRC transfer; (iii) increase of R$ 56.4 million of arrears charges on bills; and (iv) decrease of R$246.3 of monetary and exchange variation and debt charges.
Income Tax and Social Contribution Expenses
In 2020, our income tax and social contribution expenses was R$1,285.4 million, reflecting an effective tax rate of 25.1% in our pretax income, compared to R$675.6 million and an effective tax rate of 23.7% in our pretax profit in 2019.
Net income (loss) from discontinued operations
Due to the ongoing divestment process, as described in Note 40 to our Consolidated Financial Statements, the results of Copel Telecom operations were classified as discontinued operations. The R$183.9 increase in the results of discontinued operations is due to the fact that, in 2019, there was a process of revision of Copel Telecom's property, plant and equipament assets that resulted in significant amounts of impairment and write-offs recorded that year, not recurring in 2020.
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LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity and capital requirements are to finance the expansion and improvement of our distribution and transmission infrastructure and to finance the expansion of our generation facilities.
We believe our working capital is sufficient for our present requirements and the next 12 months. We expect to finance our liquidity and capital requirements primarily with our own resources, arising from retained earnings and cash generation from our operations and third party resources (BNDES, Other Financial Institutions and Capital Markets). However, the expectation of the economic impacts resulting from the shutdown caused by the outbreak of the coronavirus (COVID-19), with subsequent effects on Copel's operations, may affect Company's financial results. In December 2021, our Current Liquidity, an index ratio that measures our current assets over our current liabilities reached 1.4x (1.2x in 2020) with a cash balance, equivalent to cash and marketable securities of R$3,853.9 million (R$3,545.7 million in 2020 and R$3,251.5 million in 2019).
With respect to long term capital needs, we use a model of five years to monitor our needs in a series of scenarios and variables, including Net Debt/ EBITDA and minimum cash balance with the intention to preserve the liquidity and improve the capital structure. In this context, we work to anticipate exercises of liability management to improve liquidity or if conditions are favorable.5
All of our future liquidity conditions rely on a series of scenarios and may be adversely affected depending on market and other conditions. Actual liquidity may differ significantly for several reasons, including, without limitation, the risks described in “Forward-Looking Statements” and “Item 3. Key Information―Risk Factors”.F
We have not engaged in any off-balance sheet arrangements that have, or are reasonably likely to have a current or future effect on the registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
We monitor our financial liquidity continuously and, for that purpose, we consider (i) on the external side, the possibility of raising funds and the prospect of preserving cash through the assistance of structural measures by the Brazilian government and other Sectoral Institutions, and (b) on the internal side, taking the necessary actions in our operations by reducing expenses or postponing investments in order to guarantee the timely fulfillment of financial obligations. Accordingly, we expect to preserve the working capital required for our operations throughout the period.
In addition to working capital, our other principal uses of cash are capital expenditures, dividend payments and debt servicing. Capital expenditures were R$2,255.2 million in 2021 and R$1,904.7 million in 2020. The following table sets forth a breakdown of our capital expenditures for the periods indicated. Our capital expenditures are focused on projects located in Brazil.
|
Year ended December 31, | |||
|
2021 |
2020 |
2019 | |
| (R$million) | |||
| Generation and transmission¹ | 494.8 | 431.9 | 691.9 |
| Distribution | 1,623.0 | 1,279.6 | 919.9 |
| Telecom | 54.4 | 103.4 | 146.3 |
| Investment of associates and joint ventures | 31.0 | 72.4 | 267.5 |
| Araucária Thermoelectric Plant | 0.0 | 0.4 | 0.4 |
| Compagas | 14.3 | 15.2 | 17.6 |
| Elejor | 31.1 | 0.2 | 0.2 |
| Others | 6.6 | 1.6 | 11.8 |
| Total | 2,255.2 | 1,904.7 | 2,055.6 |
¹ Considers investment in projects held 100% by Copel GeT.
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As in previous years, our capital requirement will be financed by cash from our operations and/or by external financing, which may serve to offset commitments arising from the maturity of previous external financing.
Our total budgeted capital expenditures for our wholly-owned subsidiaries for 2022 is R$2,067.1 million, of which:
| · | R$228.1 million are for generation and transmission; |
| · | R$1,634.5 million are for our distribution business; |
| · | R$179.2 million for the construction of the Cutia Wind Farm Complex, Jandaíra Wind Farm Complex and Vilas Complex; |
| · | R$25.3 million are for other investments. |
Our following subsidiaries also budgeted their own capital expenditures for 2022, as described as follows:
| · | Compagas: R$23.7 million; |
| · | Araucária: R$3.9 million; and |
| · | Elejor: R$23.9 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 2021 was our operating activities. Net cash used by financing activities was R$2,884.4 million in 2021, compared with R$1,715.1 million in 2020. Net cash provided by operating activities was R$3,386.8 million in 2021, compared with R$3,940.8 million in 2020 and R$2,945.0 million in 2019. The decrease is mainly explained by the growth in expenses with “Electricity Purchased for Resale,” due to the hydrological deficit and the need to purchase energy to compy with existing contracts. In 2021, the main events were the receipt of R$ 2.4 billion (equity value) for the sale of Copel Telecomunicações, the recognition by the governement a credit of R$1,570.5 million in our favor referring to the renegotiation of hydrological risk (GSF) and the full settlement by the State of Paraná of the debt balance of R$ 1,431.2 million relating to an existing contract (CRC Contract). In 2022, we expect to finance our liquidity and capital requirements primarily with own Resources, arising from retained earnings and cash generation from our operations and Third Party Resources (BNDES, Other Financial Institutions and Capital Markets).
Long-term debt have generally been used to finance our major capital expenditure projects, or capital expenditures acquisition financing programs offered by Federal Development Bank, as BNDES. The scheduled maturities of these long-term loans have been structured to match the expected cash flow from the conclusion of the related capital expenditure projects and, as a result, reduce the risk of any significant deterioration of our liquidity position.
The following table shows the maturity of loans, financing and debentures:
|
|
(R$million) | |||||||
|
Short Term |
Long Term | |||||||
|
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
>2027 |
Total | |
| Domestic Currency | 2,722.95 | 1,728.661 | 741,57 | 1,843.51 | 1,553.655 | 483.81 | 2,601.336 | 11,675.49 |
| Foreign Currency | 1.30 | - | 149.27 | - | - | - | - | 150.57 |
| Total | 2,724.25 | 1,728.661 | 890.84 | 1,843.51 | 1,553.655 | 483.81 | 2,601.336 | 11,826.06 |
As in prior years, we plan to make significant investments in future periods to expand and upgrade our generation, transmission and distribution businesses. In addition, we may seek to invest in other existing electric utilities, in communications services or in other areas, each of which may require additional domestic and international financing. Our ability to generate cash sufficient to meet our planned expenditures is dependent upon a variety of factors, including our ability to maintain adequate tariff levels, to obtain the required regulatory and environmental authorizations, to access domestic and international capital markets, and a variety of operating and other contingencies. We anticipate that our cash provided by operations may be insufficient to meet these planned capital expenditures, and that we may require additional financing from sources such as BNDES and the Brazilian and international capital markets.
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ANEEL’s regulations require prior approval from ANEEL for any transfer of funds from our subsidiaries to us in the form of loans or advances. ANEEL approval is not required for cash dividends, as long as cash dividends do not exceed a dividend threshold (“Dividend Threshold”) equal to the greater of adjusted net income or income reserves available for distribution. The Dividend Threshold is established by Brazilian Corporate Law.
The cash dividends we have received from our subsidiaries have been historically sufficient to meet our cash flow requirements without exceeding the Dividend Threshold. As a result, we have not sought approval from ANEEL to receive either loans or advances from our subsidiaries or cash dividends from our subsidiaries in excess of the Dividend Threshold. We do not expect these restrictions on loans and advances and on cash dividends exceeding the Dividend Threshold to impact our ability to meet our cash obligations, since we expect cash dividends below the Dividend Threshold to be sufficient in the future.
Like other state-owned companies, we are subject to certain CMN restrictions on our ability to obtain financing from domestic and international financial institutions. CMN restrictions could limit our ability to obtain bank financing but do not affect our ability to access the Brazilian and international capital markets, and do not restrict our access to banking financing for the purpose of repaying or refinancing debt.
Our outstanding loans and financing (including debentures) as of December 31, 2021 totaled R$11,826.1 million. Approximately R$150.6 million of the total debt outstanding as of December 31, 2021 was denominated in U.S. dollars. For more information on the terms of these loans and financings including reference to their specific maturity dates and interest rate structure, see Note 22 to our audited consolidated financial statements. We are not subject to seasonality with respect to our borrowing requirements. Our major loans and financing arrangements are:
Banco do Brasil:
| · | We have R$641.2 million of outstanding debt with Banco do Brasil (not including the debentures listed below), consisting of financings we contracted to increase our working capital. |
Debentures:
| · | In March 2016, Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus IV and Ventos de Santo Uriel Wind Farms issued R$300.8 million in non-convertible debentures, with sixteen-year maturity and payment of interest on monthly basis. The interest rate of TJLP index + 2.02% per year is applicable to R$147.6 million and IPCA index + 9.87% per year is applicable to R$153.2 million. As of December 31, 2021, we had an aggregate balance of R$231.9 million of outstanding debt under these debentures; |
| · | In October 2017, Copel Distribuição issued R$500.0 million in simple, non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five years maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$254.8 million under these debentures; |
| · | In October 2017, Copel GeT issued R$1.0 billion in simple non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five years maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$ 339.8 million under these debentures; |
| · | In July 2018, Copel GeT issued R$1.0 billion in simple, non-convertible debentures, with an interest rate of 126% of the CDI index per year, with a five-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$690.3 million under these debentures; |
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| · | In September 2018, Copel GeT issued R$290.0 million in simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 7.6475% per year, with a seven-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$284.5 million under these debentures; |
| · | In September 2018, Copel Distribuição issued R$1.0 billion in simple, non-convertible debentures with an interest rate of CDI index + 2.70% per year, with a five-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$684.2 million under these debentures; |
| · | In March 2019, Cutia Empreendimentos issued R$360.0 million in simple, non-convertible debentures. These debentures have an interest rate equal to IPCA index + 5.8813% per year, with a thirteen-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$370.9 million under these debentures; |
| · | In June 2019, Copel Holding issued R$500 million in simple, non-convertible debentures, with an interest rate of 106% of the CDI index per year, with a three-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$502.4 million under these debentures; |
| · | In July 2019, Copel GeT issued R$1 billion in simple, non-convertible debentures, in two series, with an interest rate of 109% of the CDI index per year and IPCA index + 3.90% with a five-years and six-years maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$1,063.0 million under these debentures; |
| · | In November 2019, Copel Distribuição issued R$850 million in simple, non-convertible debentures, in two series, with an interest rate of IPCA index + 4.20% per year and CDI index + 1,45% per year with an eight-years and three-years maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$761.7 million under these debentures; and |
| · | In June 2021, Copel Distribuição issued R$1.5 billion in simple, non-convertible debentures, in two series, with an interest rate of IPCA index + 4.7742% per year and CDI index + 1.95% per year with an ten-year and five-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$1,534.5 million under these debentures; and |
| · | In October 2021, Copel GeT issued R$1.5 billion in simple, non-convertible debentures, in two series, with an interest rate of CDI index + 1,38% per year and IPCA index + 5.7138% per year with a five-year and ten-year maturity and payment of interest on a semester basis. As of December 31, 2021, we had an aggregate outstanding balance of R$1,522.9 million under these debentures. |
BNDES
| · | In December 2013, we received approval for the BNDES financing of HPP Colíder in an aggregate amount of R$1,041.2 million, maturing in October 2031. As of December 31, 2013, we had received R$840.1 million of this amount, with the remaining disbursements to be made in accordance with the construction schedule of HPP Colíder. Additionally, BNDES approved the finance of the Cerquilho III transmission substation in the amount of R$17.6 million, which was disbursed in a single installment. As of December 31, 2021, the aggregate outstanding balance of these two contracts totaled R$689.2 million; |
| · | BNDES has provided a loan to Copel of R$339.0 million to finance the construction of the Mauá Hydroelectric Plant. Mauá is owned by Consórcio Energético Cruzeiro do Sul, in which Copel has a 51.0% interest and Eletrosul has a 49.0% interest. BNDES is providing 50.0% of the loan amount, and Banco do Brasil S.A. is providing the remaining 50.0%. All the receivables arising from this plant were pledged in favor of BNDES and Banco do Brasil until full repayment of the loan. As of December 31, 2021, we had an aggregate of R$144.2 million in outstanding debt with BNDES and Banco do Brasil under this facility; |
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| · | In December 2011, we entered into a financing contract with BNDES in the total value of R$44.7 million for the construction of Transmission Line Foz do Iguacu - Cascavel Oeste, with maturity in 14 years. As of December 31, 2021, we had an aggregate of R$14.4 million in outstanding debt under this financing contract; |
| · | In March 2012, we entered into a financing contract with BNDES in the total value of R$282.1 million for the construction of GE Farol, Ge Boa Vista, GE São Bento do Norte and GE Olho D’Água Wind Farms with maturity in 16 years. As of December 31, 2021, we had an aggregate of R$174.8 million in outstanding debt under this financing contract; |
| · | In September 2012, we entered into a financing contract with BNDES in the total value of R$73.1 million for the construction of SHP Cavernoso II, with maturity in 16 years. As of December 31, 2021, we had an aggregate balance of R$36.6 million of outstanding debt under this financing contract; |
| · | In December 2014, we entered into a financing contract with BNDES to finance the improvement of the distribution system of the greater Curitiba area, with maturity in 9.4 years. We have obtained a R$139.1 million funding on December 2014 and as of December 31, 2021, we had an aggregate outstanding balance of R$19.6 million under this financing contract; |
| · | In June 2015, we entered into a financing contract with BNDES in the total value of R$ 154.6 million for the construction Santa Helena and Santa Maria Wind Farm, with maturity in 16 years. As of December 31, 2021, we had an aggregate balance of R$78.8 million of outstanding debt under this financing contract; |
| · | In December 2015, we entered into a financing contract with BNDES in the total value of R$55.8 million for the construction of Transmission Line Assis - Paraguaçu Paulista II and Londrina - Figueira e Salto Osório - Foz do Chopim C2, with maturity in 15 years. As of December 31, 2021, we had an aggregate balance of R$29.0 million of outstanding debt under this financing contract; |
| · | In October 2018, we entered into a financing contract with BNDES in the total value of R$194.0 million for the implementing Baixo Iguaçu Hydroelectric Power Plant as well as its associated transmission system, with maturity in 17 years. As of December 31, 2021, we had an aggregate balance of R$171.4 million of outstanding debt under this financing contract; |
| · | In October 2018, we entered into a financing contract with BNDES in the total value of R$619.4 million for the construction and implementing Cutia Empreendimentos Eólicos Wind Farms, with maturity in 17 years. As of December 31, 2021, we had an aggregate balance of R$563.6 million of outstanding debt under this financing contract. |
| · | In August 2018, Copel GeT signed a share exchange agreement with Eletrosul in the controlled ventures Costa Oeste Transmissora de Energia S.A. (51% Copel GeT and 49% Eletrosul), Marumbi Transmissora de Energia S.A. (80% Copel GeT and 20% Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% Copel GeT and 80% Eletrosul). With this contract, Copel GeT starts to hold 100% interest in the Costa Oeste and Marumbi undertakings and Eletrosul now holds 100% stake in Transmissora Sul Brasileira. |
| · | Marumbi has an agreement signed with BNDES in 2014, in the amount of R$55 million, for the Implementation of the 525 kV Transmission Line between SE Curitiba and SE Curitiba Leste and the implementation of SE Curitiba, with maturity in 14 years. It has a balance on December 31, 2021 of R$24.7 million. |
| · | Costa Oeste has an agreement signed with BNDES in 2013, in the amount of R$36.7 million, for the implementation of the 230 kV Transmission Line between SE Cascavel Oeste and SE Umuarama Sul and the implementation of the SE, with maturity in 14 years. It has a balance on December 31, 2021 of R$16.3 million. |
| · | In June 2020, we entered into a financing contract with BNDES in the total value of R$432.1 million for the implementing of the Transmission Line SE Medianeira, SE Curitiba Centro, SE Curitiba Uberaba, SE Andirá Leste, Curitiba Leste-Blumenau and Baixo Iguaçu Realeza as well as its associated transmission system, with maturity in 23 years. As of December 31, 2021, we had an aggregate balance of R$348.3 million of outstanding debt under this financing contract. |
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| · | On December 8, 2020, BNDES announced the selection of investment bank Banco BTG Pactual SA to coordinate a secondary offering of its holdings in our share capital. There is no contractual or regulatory condition linking the BNDES Secondary Offering to the Conversion Offers described in “Item 4. Information on the Company – Recent Developments”. |
CAIXA ECONÔMICA FEDERAL (CEF)
| · | We have R$9.6 million in outstanding debt related to government programs to finance distribution projects. |
BANCO DO NORDESTE
| · | In May 2021, we entered into a financing contract with BNB for a total value of R$208.7 million for the construction of Jandaíra I, Jandaíra II, Jandaíra III and Jandaíra IV Wind Farms, with a maturity of 17 years. We had received R$69.1 million of this amount, with the remaining disbursements to be made in accordance with the construction schedule. As of December 31, 2021, we had an aggregate balance of R$69.4 million of outstanding debt under this financing contract. |
| · | In November 2021, we completed the acquisition of Vilas Complex, which has financing until 2039/2040. As of December 31, 2021, we had an aggregate balance of R$556.6 million of outstanding debt under this financing contract. |
In addition, Copel Distribuição applied to receive a loan in the amount of R$ 145,843,744.31, pursuant to the Term of Acceptance to the Water Scarcity Account created by Decree 10,939/2022 (as proposed in ANEEL Technical Note 08/2022). The loan aims to mitigate the decrease in our operating cash flow as a result of the payments of the Bonus of the Incentive Program for Voluntary Reduction of Consumption of Electricity, energy imports referring to the competences of July and August 2021 and the costs related to the fixed revenue referring to the competences from May to December 2022 of the Simplified Competitive Procedure - PCS of 2021 with monthly transfers as determined and settled by the CCEE. Our application still needs to be approved by the regulatory body.
We are party to several legal proceedings that could have a material adverse impact on our liquidity if the rulings are unfavorable to us. These contingencies are described in “Item 8. Financial Information—Legal Proceedings”.
In addition, we have commitments not yet incurred related to long-term contracts, and therefore not recognized in the financial statements, as presented in Note 38 to our consolidated financial statements. The main amount refers to energy purchase and transportation contracts commitments, totaling R$132,307.4 million on December 31, 2021. These commitments are expected to be settled as follows: R$ 8,403.2 million in less than a year, R$27,275.1 million from one to 5 years and R$96,629.1 million after 5 years.
In Note 36.2.2 to our consolidated financial statements we present the expected values for settlement of contractual obligations undiscounted in each time range. Our projections are based on financial indicators linked to the related financial instruments and forecast according to average market expectations as disclosed in the Brazilian Central Bank's Focus Report.
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Item 6. Directors, Senior Management and Employees
We are managed by:
| · | a Board of Directors, which may be composed of up to nine (9) members and is currently composed of nine (9) members; and |
| · | a Board of Executive Officers, which is currently composed of seven (7) members. |
BOARD OF DIRECTORS
The Board of Directors ordinarily meets monthly. A majority of the members of the Board of Directors is required for the meeting to be held, and decisions are taken by a majority vote of those present at the meeting. For additional information, see “Item 10. Additional Information—Memorandum and Articles of Association”. The members of the Board of Directors are elected to serve for two-year terms and may be reelected up to another three consecutive terms. Among the current nine members of the Board of Directors:
| · | five were elected by the controlling shareholders; |
| · | two was elected by minority shareholders (holding voting shares); |
| · | one was elected by minority shareholders (holding outstanding non-voting shares); and |
| · | one was elected by our employees. |
According to Brazilian Corporate Law, minority shareholders are entitled to appoint and remove at least one member of the Board of Directors, in a separate election, without the participation of the controlling shareholder, if such minority shareholders hold (i) at least 15% of our voting shares or (ii) at least 10% of the company’s outstanding non-voting shares. Minority shareholders holding at least 10% of our voting shares are entitled to request that a multiple voting procedure be adopted, a proceeding that grants each voting share as many votes as there are members of the Board of Directors and the right for all the voting shareholders to vote for only one candidate or to distribute his votes among several candidates, also in accordance with the Brazilian Corporate Law.
Our bylaws entitle minority shareholders that hold voting shares the right to appoint and remove two members of the Board of Directors, in a separate election, regardless of the voting shares which are held by them as a class, if they haven’t appointed a higher number through a Multiple Vote proceeding in the general shareholders’ meeting. Moreover, our employees are also entitled to appoint and remove one member of the Board of Directors. However, if a multiple vote proceeding is adopted and, also, the minority shareholders appoint members of the Board of Directors through a separate election, the controlling shareholder is entitled to appoint and remove the same number of members appointed and elected by the minority shareholders and employees, plus one.
Also according to Brazilian Corporate law, members of our Board of Directors who are elected by the non-controlling shareholders have the right to veto (provided it is duly justified) the appointment of the independent accountant made by the majority of the members of our Board of Directors.
The terms of the current members of the Board of Directors expire in April, 2023. The current members of our Board of Directors are:
|
Name |
Position |
Since |
| Marcel Martins Malczewski | Chairman | 2019 |
| Leila Abraham Loria | Director | 2017 |
| Andriei José Beber | Director | 2021 |
| Carlos Biedermann | Director | 2019 |
| Fausto Augusto de Souza | Director | 2021 |
| Marco Antônio Barbosa Cândido | Director | 2018 |
| Gustavo Bonini Guedes | Director | 2019 |
| Marco Antonio Bologna | Director | 2021 |
| Daniel Pimentel Slaviero | Director | 2019 |
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The following are brief biographies of the current members of our Board of Directors:
Marcel Martins Malczewski. Mr. Malczewski was born on December 8, 1964. He holds a Master's degree in Industrial Sciences and Computing from Universidade Tecnológica Federal do Paraná (1989); and a Bachelor's degree in Electrical Engineering from Universidade Federal do Paraná (1987). Mr. Malczewski also attended the Owner/President Management Program at Harvard Business School (2004). He serves as Chairman in our Board of Directors. He is also member of the Board of Directors of AMcom, InfoPrice and Velsis. Additionally, Mr. Malczewski is a partner at M3 Investimentos Ltda. and at Trivella M3 Investimentos S.A. Previously, he was member of the Board of Directors of Ubook (2017-2021); member of the Board of Directors of Veltec (2012-2018); co-founder (1990), CEO (2001-2009), Chairman (2010-2011) and member of the Board of Directors (2012-2015) at Bematech S.A. He was also a Professor (1989-1994) and coordinator (1991-1994) of the Computer Engineering undergraduate course at Pontifícia Universidade Católica do Paraná.
Leila Abraham Loria. Ms. Loria was born on January 26, 1954. Ms. Loria took a course in Sustainable Capitalism & ESG online from Berkeley Executive Education (2021); an advanced Governance, Risk and Compliance training course at Risk University - KPMG (2018) and a Corporate Governance and Innovation course at Nova School of Business and Economics, in Lisbon, Portugal (2016). She holds a Post-MBA in Corporate Governance and Capital Markets for executives from B.I. International (2015) and an International Executive MBA from APG-Amana (1994). Ms. Loria also has a Postgraduate Degree in Business Administration from COPPEAD-UFRJ Business School (1978) and a Bachelor’s Degree in Business Administration from Fundação Getúlio Vargas (1976). Ms. Loria is currently a member of our Board of Directors and Chairman of our Minority Shareholders Committee. Additionally, she is the Chairman of the Board of the Brazilian Institute of Corporate Governance - IBGC, Independent Member of the Board of Directors of JBS, alternate member of the Advisory Board of Anaconda, member of the Advisory Council of Casas Pernambucanas and Co-chair of the Women Corporate Directors - WCD. Previously, she was a member of the Statutory Audit Committee of Companhia Paranaense de Energia - Copel (2017-2021); Member of the Board of Directors of Madeira Energia - MESA and Santo Antônio Energia -SAE (2017-2021); Member of the Advisory Board of INPLAC Indústria de Plástico (2016-2021); Member of the Advisory Council of Costão do Santinho Resort (2016-2021); Member of the Advisory Board of the COPPEAD-UFRJ Business School (2005-2018);Executive Officer at Telefonica Brasil and Member of the Board of Directors of Telefonica Vivo (2010-2015); Chairman and General Officer at TVA (Abril Group) and Member of the Board of Directors at Tevecap (1997-2006) and Canbras, a joint venture between Abril and Bell Canada (1998-2002); General Officer and Member of the Board of Directors at Direct TV (1997-1999); Chief Business Officer at Walmart (1994-1997); and Chief Officer for Marketing, Sales, Business, Acquisitions and Human Resources at Mesbla (1978-1994).
Marco Antônio Barbosa Cândido. Mr. Cândido was born on March 6, 1969. Mr. Cândido holds a Ph.D. degree in Production Engineering from Universidade Federal de Santa Catarina - UFSC (1997), a Master’s degree in Production Engineering from Universidade Federal de Santa Catarina - UFSC (1994) and a degree in Aeronautical Mechanics Engineering from Instituto Tecnológico de Aeronáutica - ITA (1991). Mr. Cândido is currently a member of our Board of Directors, Chairman of our Statutory Audit Committee and Chairman of our Investment and Innovation Committee. He is also Chief Executive Officer and Founding Partner at MBC Consultoria, and member of the Board of Directors of the hotel group Rafain, in the city of Foz do Iguaçu–PR, ofAthena Saúde S.A., of Expresso Princesa dos Campos and of Aebel. Previously, he was a member of the Board of Directors of Hospital Santa Rita and Santa Rita Saúde health care provider in the city of Maringá - PR (2015-2019), at Grupo Positivo (2014-2016) and at Sistema de Saúde Mãe de Deus, in the state of Rio Grande do Sul - RS (2014-2015); Chief Executive Officer at Grupo Marista (2012-2013), at Grupo Paysage (2013-2015) and at Associação Paranaense de Cultura - APC, a parent company of Pontifícia Universidade Católica do Paraná - PUCPR (2005-2012); and a professor and researcher at Pontifícia Universidade Católica do Paraná - PUCPR (1995-2013).
Carlos Biedermann. Mr. Biedermann was born on August 18, 1953. Mr. Biedermann attended the Executive Program of the Singularity University (2019) and the International Business Programme at INSEAD in France (1995). He holds a post-graduate degree in Financial Markets from Fundação Getúlio Vargas - FGV (1979) and Bachelors’ degrees in Accounting, from Unisinos (1977), and in Business Management and Public Management, from Universidade Federal do Rio Grande do Sul (1975). He is currently a member of our Board of Directors and Financial expert member of our Statutory Audit Committee. Mr. Biedermann has considerable experience as a board member in several sectors, including organizations such as Amcham/RS and the Association of Marketing and Sales Directors of Brazil - ADVB/RS. At present, he is Chairman of the Board of Directors of Brivia Dez and also has seats in the Board of Directors of Lojas Lebes, Madero and CFL Participações. He is a member of the Audit Committee of Suzano Papel e Celulose, Grupo Algar, Grupo Solar and Grupo Cornélio Brennand, Moinho Paulista, Banrisul and of Grupo Edson Queiroz. Mr. Biedermann also acts as Chairman of the Deliberative Council of Grêmio Foot-Ball Porto Alegrense. Additionally, he is an instructor at the Brazilian Institute of Corporate Governance - IBGC and a partner at Biedermann Consulting. Previously, he was Chairman of the Board of Directors of Trensurb (2019 -2021); Guest lecturer in the Post-MBA Corporate Governance Program at Unisinos (2017 - 2019); Member of the Advisory Board of Farmácias São João (2016 - 2019); Chairman of the Audit Committee of Instituto Brasileiro de Governança Corporativa - IBGC (2009 - 2014); Chairman (2013 - 2014) and member of the Board of the Young Presidents Organization - YPO (2009 - 2012 and 2015 - 2017); and Senior Partner at PricewaterhouseCoopers Auditing and Consulting (2002 - 2015).
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Gustavo Bonini Guedes. Mr. Guedes was born on April 10, 1982. He holds a post-graduate degree in Election Law from Centro Universitário Curitiba (2009) and a Bachelor's degree in Law from Centro Universitário Autônomo do Brasil (2004). Mr. Guedes is currently a member of our Board of Directors. Additionally, he is a member of the Brazilian Academy of Election and Political Law - Abradep, founding partner at Bonini Guedes Advocacia and a Lawyer specialized in Public Law, with more than 15 years of experience in Electoral, Administrative and Public Management Law. Previously, he was President of the Election Law Institute of Paraná (2015-2016); a Professor at Escola Superior de Advocacia - ESA/PR (2008-2014); advisory member of the Election Law Commission of the Federal Council of the Brazilian Bar Association - OAB (2013-2015); and coordinator of the Election Law Department of Vernalha Guimarães e Pereira Advogados (2008-2015).
Daniel Pimentel Slaviero. Mr. Slaviero was born on November 22, 1980. Mr. Slaviero attended the Owner/President Management - OPM program (2015) and the YPO Harvard President Seminar (2010), both from Harvard Business School. Mr. Slaviero also completed the Executive Business Program (STC) from Kellog School of Management/Fundação Dom Cabral (2009); and holds a degree in Business Administration from Universidade Positivo - UP (2001). Mr. Slaviero is currently our Chief Executive Officer, Member of the Investment and Innovation Committee, Member of the Sustainable Development Committee and Executive Secretary of the Company’s Board of Directors. Additionally, Mr. Slaviero serves as Chairman of the Board of Directors of our wholly-owned subsidiaries Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Comercialização S.A., and Copel Renováveis S.A. (currently Copel Serviços S.A.). He is also Chairman of the Board of Directors of F.D.A. Geração de Energia Elétrica S.A. and Full member in the consumption category of the Board of Directors of ONS. Previously he acted as Chairman of the Board of Directors of Copel Telecomunicações S.A. (2019-2021); Chief Executive Officer at Sistema Brasileiro de Televisão - SBT (2017-2018); Chief Business Officer at Sistema Brasileiro de Televisão - SBT (2017-2018); Chief Institutional Officer at Grupo Silvio Santos (2010-2017); General Director at Sistema Brasileiro de Televisão - SBT Brasília (2010-2017); Chairman at the Brazilian Association of Radio and Television Broadcasters - ABERT (2006-2016); Executive Officer at Grupo Paulo Pimentel (2001-2010); and Programming and Production Manager at Grupo Paulo Pimentel (2000-2001).
Andriei José Beber. Mr. Beber was born on November 18, 1973. He holds an MBA in Business Management from Fundação Getúlio Vargas (2006); a PhD in Engineering, Concentration Area: Structures, from Universidade Federal do Rio Grande do Sul (2003); a Masters Degree in Engineering, Concentration Area: Structures, from Universidade Federal do Rio Grande do Sul (1999); and a Bachelor of Science in Civil Engineering from Universidade Regional de Blumenau (1997). He took several professional development courses at Instituto Brasileiro de Governança Corporativa - IBGC (Corporate Risk Management Course (2019), Advanced Course for Board Members (2018), Performance Monitoring Course (2018), Audit Committee Course (2017), and Certified Board Member Course (2016). He is a member of our Board of Directors, Chairman of our Sustainable Development Committee, and Member of our Minority Shareholders Committee. He is also Member of the Board of Directors and Coordinator of the Audit Committee of Tecnisa; Member of the Coordinating Committee - SC Chapter of IBGC; Member of the Supervisory Board of Usiminas; and Professor of the FGV Management Graduate Program of Fundação Getúlio Vargas. Previously, he was an Independent Board Member at AES Eletropaulo (2017-2018); Coordinator of the Graduate Course in Building Maintenance at Universidade do Vale do Itajaí (2004-2019); Board Member at Centrais Elétricas de Santa Catarina - CELESC S.A. (2010-2015); and Associate Researcher at Universidade Federal do Rio Grande do Sul (1999-2003).
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Marco Antonio Bologna. Mr. Bologna was born on April 22, 1955. He holds a Bachelor degree in Production Engineering from Escola Politécnica da Universidade de São Paulo (1978) and took an Extension course in Financial Services from Lloyds Bank PLC - Manchester Business School da University of Manchester (UK) (1988). At Companhia Paranaense de Energia - Copel, he is a member of our Board of Directors, our the Investment and Innovation Committee and of our Minority Shareholders Committee. Additionally, he is a member of the Board of Directors of Grupo Edson Queiroz, member of the Advisory Board of Grupo Cornélio Brennand and of Grupo Silvio Santos and Board Member at the non-governmental organization Amigos do Bem. He also acts as Strategy, Finance and Governance Consultant of Grupo F. A. Oliva/Astra and Partner of Grupo Galapagos. Previously, he was President of Grupo Banco Fator - Banco de Investimento, Corretora de Valores, Administração de Recursos e Seguradora (Investment Bank, Brokerage House, Asset Management and Insurance Company) (2015-2018); Member of the Board of Directors and Coordinator of the Audit Committee of Suzano Papel e Celulose S.A. (2006-2018); Chairman of the Board at TAM S.A. (2014-2016); Member of the Board at Multiplus Empresa de Fidelização S.A. (2013-2016); President of TAM S.A. - Holding Company (2010-2015); President of TAM S.A. and TAM Linhas Aéreas S.A. (2004-2007 and 2012-2013); Member of the Board at TAM S.A. (2009-2012); Member of the Board at TAM Aviação Executiva S.A. (2008-2012); CEO of Wtorre S.A. (2008) and Member of the Board of Wtorre Commercial Properties (2009-2011); Member of the Board of Directors of IATF - IATA Tranning Fund (Geneva) (2010-2011); CEO of TAM Aviação Executiva (2009-2010); Advisor of TAM Empreendimentos e Participações - Holding Company (Amaro family) (2003-2009); Member of the Board of Directors of Banco Daycoval S.A. (2007-2008); Member of the Board of Directors of Interprint S.A (2006-2007); CEO of Banco VR and Chief Financial Officer of Grupo VR (Szajman family) (2003); and CFO of TAM S.A. and TAM Linhas Aéreas S.A. (2001-2003).
Fausto Augusto de Souza. Mr. Souza was born on November 04, 1980. He holds an Executive MBA in Management - Electricity Sector from Fundação Getúlio Vargas (2019), a Master's degree in Electrical Engineering from Universidade Federal do Paraná (2015), a Bachelor's degree in Electrotechnical Engineering fom Universidade Tuiuti do Paraná (2011) and a Specialization in Automation and Industrial Process Control from Universidade Tecnológica Federal do Paraná (2005). He formerly took courses in Technologist in Electrotechnics: Automation and Industrial Drives (2003) and Technician in Electrotechnics at Universidade Tecnológica Federal do Paraná (1999). He is currently a member of our Board of Directors and Sustainable Development Committee. He also serves as Electro-technical Technician at Copel Distribuição S.A. Previously he was a member of the Permanent Commission of the Ecoefficiency Program at Companhia Paranaense de Energia - Copel (2017-2018); Substitute Professor of the Electrical Engineering, Control and Automation Engineering and Industrial Automation Technology courses at Universidade Tecnológica Federal do Paraná - UTFPR (2013-2015); Professor and researcher of the Electrical Engineering and Control and Automation Engineering courses at Unisociesc - Curitiba campus (2016-2017); and Professor of the Electrical Engineering and Systems Analysis course at Universidade Unicesumar - Curitiba (2018-2020).
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BOARD OF EXECUTIVE OFFICERS
Our Board of Executive Officers meets fortnightly and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by the Board’s rules of procedure.
According to our bylaws, our Board of Executive Officers consists of seven (7) members. The Executive Officers are elected by the Board of Directors for two-year terms but may be removed by the Board of Directors at any time. The terms of the current members of the Board of Executive Officers expire in December 2023. The current members are as follows:
|
Name |
Position |
Since |
| Daniel Pimentel Slaviero | Chief Executive Officer | 2019 |
| Ana Letícia Feller | Chief Business Management Officer | 2018 |
| Adriano Rudek de Moura | Chief Financial and Investor Relations Officer | 2017 |
| Cassio Santana da Silva | Chief Business Development Officer | 2019 |
| Eduardo Vieira de Souza Barbosa | Chief Legal and Institutional Relations Officer | 2019 |
| Vicente Loiácono Neto | Chief Governance, Risk and Compliance Officer | 2018 |
| David Campos | Chief Assistant Communications Officer. | 2019 |
The following are brief biographies of the current members of our Board of Executive Officers:
Daniel Pimentel Slaviero. Mr. Slaviero has been our Chief Executive Officer since January 8, 2019. For biographical information regarding Mr. Slaviero, see “—Board of Directors”.
Ana Letícia Feller. Ms. Feller was born on October 15, 1977. She received an MBA degree in Leadership with emphasis in Management, from Estação Business School (2015); a Post-graduate degree in Management with emphasis in Strategic People Management, from FAE Centro Universitário (2009); and a Post-graduate degree in Labor Law, from Unibrasil (2005). She holds a Bachelor’s degree in Law from Pontifícia Universidade Católica do Paraná (2000). She is currently our Chief Business Management Officer; as well as Member of the Board of Directors of Copel Distribuição S.A., Copel Comercialização S.A., and Copel Renováveis S.A. (currently Copel Serviços S.A.). Ms. Feller has worked for us since 2002, first as a lawyer and also as Member of the Board of Directors of Copel Telecomunicações (2019-2021); Assistant to the Chief Business Management Officer (2017-2018); Chair of the Permanent Compensation Committee (2017-2018); Chair of the Management Committee (2017-2018); Human Resources Chief Official (2007-2010 and 2013-2017); and member of the Ethical Guidance Council (2006-2008 and 2010-2012). Additionally, she was an alternate member of the Deliberative Council of Fundação Copel de Previdência e Assistência Social (2014-2018).
Adriano Rudek de Moura. Mr. Moura was born on September 25, 1962. Mr. Moura took a professional development course at Instituto Brasileiro de Governança Corporativa - IBGC (2020 and 2018), at Fundação Dom Cabral (2019), at Duke’s Fuqua School of Business (2010) and at Harvard Business School (2007). He received a post-graduate degree in Finance and Controllership from Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras - FIPECAFI/USP (1997). Mr. Moura holds a degree in Accounting from Centro Universitário Ítalo Brasileiro – Unítalo (1985). Mr. Moura is currently Copel’s Chief Financial and Investor Relations Officer. He is also Chief Financial and Investor Relations Officer of Copel Geração e Transmissão S.A.; Chief Financial Officer of Copel Distribuição S.A.; Chief Financial Officer of Copel Comercialização S.A.; and Chief Financial Officer of Copel Renováveis S.A. (currently Copel Serviços S.A.). Previously, he was Vice-president and Chief Management, Financial and Investor Relations Officer at Elecrolux for Latin America (2003-2017); Chief Management, Financial and Investor Relations Officer at Electrolux do Brasil (1999-2003); Controller at Electrolux do Brasil (1997-1999); Vice-president at Associação Nacional de Fabricantes de Produtos Eletroeletrônicos (National Association of Home Appliance Manufacturers)(2013-2015); member of the Board of Directors at CTI (2011-2017) and at Eletros (2013-2015); member of the Supervisory Board at Gafisa (2009-2014); Tenda (2009-2014); and Alphaville (2012-2013); graduate school Professor at Fundação Armando Alvares Penteado - FAAP (1999); Professor at Faculdade de Administração de Empresas e Economia do Paraná – FAE (1995); and auditor and consultant at Arthur Andersen (1982-1997).
Cassio Santana da Silva. Mr. da Silva was born on August 14, 1978. He holds a Bachelor’s degree in Business Administration from Universidade Federal do Paraná - UFPR (2002); and an Executive MBA from Fundação Getúlio Vargas - Rio de Janeiro (2003). He is currently Copel’s Chief Business Development Officer and a member of the Board of Directors of Copel Geração e Transmissão S.A. Previously, he held leading positions in many multinational companies, such as Business Unit Manager at Telefônica Brasil S.A. (2014-2019); Senior Brand and Trade Manager at Kimberly Clark (2011-2013); Marketing and Trade Marketing Manager at Danone Northeastern Business Unit (2009-2011); National Trade Marketing Manager at Danone (2008-2009); Trade Marketing Manager at Philip Morris (2007-2008); Regional Sales Manager at Ambev in the Dominican Republic (2006-2007); and Trade Marketing Manager (2005-2006) at AmBev.
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Eduardo Vieira de Souza Barbosa. Mr. Barbosa was born on October 3, 1982. Mr. Barbosa holds a post-graduate degree in Constitutional Law from Academia Brasileira de Direito Constitucional - ABDConstand a Bachelor’s degree in Law from Universidade Tuiuti do Paraná - UTP. He is currently Copel’s Chief Legal and Regulatory Officer, as well as the Chief Legal and Institutional Relations Officer of Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Comercialização S.A. and Copel Renováveis S.A. (currently Copel Serviços S.A.). Previously he acted as Chief Executive Officer at Copel Renováveis S.A. (2019-2021); Member of the Board of Directors of Copel Renováveis S.A., as Executive Secretary (2019-2021); Visiting Professor of Corporative Law for the first graduate studies module at Pontifícia Universidade Católica do Paraná - PUC/PR (2018); Vice President of the Câmara de Arbitragem, Mediação e Conciliação Societária do Brasil - Cambra (1st Brazilian Corporate Chamber of Arbitration, Mediation and Conciliation) (2017-2018); Member of the Board of Directors, elected member of the Executive Board and member of the Auction Committee of the Commercial Registry of the State of Paraná (2015-2018); Strategic Consultant of Companhia Paranaense de Saneamento do Paraná - Sanepar, Assistant to the Chief Legal Officer for CS Bioenergia S.A. (2015-2018); Professor at the Centro de Estudos da Administração Pública - Ceap (Public Administration Studies Center) (2014) and visiting professor of Public Administration; Member of the Political Council (2013-2016) and Chief Legal Officer of the Conselho de Jovens Empresários - CJE (Young Entrepreneurs Committee) (2011-2016) at the State of Paraná Trade Association; Chief Prosecutor of the Commercial Registry of the State of Paraná (2011-2015); Member of the Board of Directors of the Instituto Paranaense de Direito Eleitoral - Iprade (Electoral Law Institute of Paraná) (2010); Member of the Electoral Law Committee of the Brazilian Bar Association - State of Paraná - OAB/PR (2010); Founding partner at Vieira Barbosa & Carneiro law office (2009); and Legal adviser and referee to legal and individual entities directly and indirectly connected to the Public Administration.
Vicente Loiácono Neto. Mr. Loiácono was born on June 4, 1983. He holds a Master’s Degree in Business Law and Citizenship from Centro Universitário Curitiba - Unicuritiba (2021); a post-graduate degree in Civil Procedure Law - Great Transformations from Universidade do Sul de Santa Catarina (2010), and a Bachelor’s degree in Law from Faculdades Integradas Curitiba (2007). Mr. Loiácono is currently Copel’s Chief Governance, Risk and Compliance Officer. Mr. Loiácono has been a lawyer at the company since 2011, where he also served as Advisor to the Chief Executive Office (2017-2018) and to the Chief Legal Office (2013); and as Member of the Ethical Guidance Council (2014). He also was Coordinator of the Risk and Compliance Committee of Instituto Brasileiro de Executivos de Finanças no Paraná - IBEF-PR (2020-2021); member of the Comission on Corporate Compliance and Anti-corruption of the Brazilian Bar Association - OAB-PR (2019-2021); member of the Comission of Employee Lawyers of the Brazilian Bar Association - OAB-PR (20219-2021); member of the Supervisory Board of Fundação Copel de Previdência e Assistência Social (2015); and deputy coordinator of the Conselho de Jovens Empresários - CJE (Young Entrepreneurs Committee) at the State of Paraná Trade Association (2014-2016).
David Campos. Mr. Campos was born on November 05, 1969. Mr. Campos received a Bachelor’s degree in Social Communication - Journalism from Universidade Estadual de Ponta Grossa - UEPG (1990). He is currently Chief Assistant Communications Officer at Companhia Paranaense de Energia - Copel. Previously he acted as Chief Communication Official at Itaipu Binacional (2017); Municipal Secretary of Social Communication at Curitiba Municipality (2011-2012); Head of the Mayor’s Office in Curitiba (2010); Chief Journalist at the State of Paraná Legislative Assembly (2001-2009); Secretary of Social Communication for the State of Paraná (1999-2000); and Municipal Secretary of Social Communication at Curitiba Municipality (1997-1998).
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SUPERVISORY BOARD
We have a permanent Supervisory Board (Conselho Fiscal), which meets monthly. The Supervisory Board consists of five (5) members and five (5) alternates elected for two-year terms by the shareholders at the annual meeting, and may be re-elected up to two (2) consecutive times. The Supervisory Board, which is independent of our management and of our external auditors, has the responsibilities provided in Federal Law No. 6,404/1976 and Federal Law No. 13,303/2016, which include, among others:
| · | reviewing our financial statements and reporting on them to our shareholders; |
| · | issuing reports on proposed changes in capitalization, corporate budgets and proposed dividend distributions and any corporate reorganization to be submitted to the shareholders; and |
| · | in general, supervising the activities of management and reporting on them to our shareholders. |
The following table lists the curent and alternate members of the Supervisory Board, who were appointed at the 66th annual shareholders' meeting, held on April 29, 2021. The term of all members of the Supervisory Board indicated below will expire in April, 2023.
|
Name |
Since |
| Demetrius Nichele Macei | 2019 |
| Harry Françóia Júnior | 2019 |
| José Paulo da Silva Filho | 2019 |
| Eduardo Badyr Donni | 2021 |
| Raphael Manhães Martins | 2021 |
| Alternates | |
| João Luiz Giona Junior(1) | 2018 |
| Otamir Cesar Martins | 2018 |
| Verônica Peixoto Coelho | 2021 |
| Estevão de Almeida Accioly | 2019 |
| Cristiane do Amaral Mendonça | 2021 |
(1) João
Luiz Giona Junior resigned on December 21, 2021.
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AUDIT COMMITTEE
Pursuant to Rule 10A-3 under the Securities
Exchange Act and our bylaws, our Audit Committee consists of three (3) members, each of whom serves a term of two years, and may be re-elected
up to two consecutive times. Pursuant to the rules of procedure of the Audit Committee, the members of this committee are appointed by,
and may be replaced by, a resolution taken by our Board of Directors. The members of the Audit Committee are Mr. Marco Antônio Barbosa
Cândido (chairman), Mr. Luiz Claudio Maia Vieira and Mr. Carlos Biedermann. The Audit Committee is responsible for auditing and
supervising the processes related to the preparation of our financial statements, ensuring that we are in compliance with all legal requirements
related to our reporting obligations, monitoring the work of the independent auditors and our staff who are responsible for internal auditing
of the Company and reviewing the effectiveness of our internal control and risk management procedures and staff.
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APPOINTMENT AND EVALUATION COMMITTEE (“CIA”)
The CIA is a permanent statutory body of Copel which provides support to Copel’s shareholders. The CIA’s purpose is to verify the compliance of the process of appointment and evaluation of statutory body members of Copel (i.e. Board of Directors, Fiscal Council, Executive Board and relevant statutory committees), in each case in accordance with (i) the Appointment Policy; (ii) the Internal Rules of Appointment of Statutory Bodies Members; (iii) other internal rules; and (iv) applicable law. The CIA works closely with Copel (Holding) and its wholly-owned subsidiaries and its scope may be extended to controlled companies, affiliates and other companies in which Copel and its wholly-owned subsidiaries hold equity interests.
|
Member |
Position |
Date of Appointment |
| Marcos Leandro Pereira | Chairman | 04.29.2021 |
| Robson Augusto Pascoalini | Member | 04.29.2021 |
| Durval Jose Soledade Santos | Member | 10.01.2021 |
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INVESTMENT AND INNOVATION COMMITTEE (“CII”)
In 2021, Copel created the Investments and Innovation Committee (“The CII”), an advisory body to the Board of Directors, and approved the Investment Policy to improve capital allocation, an essential tool for the execution of our Strategic Guidelines of sustainable growth, value generation for shareholders and the longevity of our energy business. The policy establishes criteria for the selection, prioritization, evaluation, approval and monitoring of investments. As such, the development of projects takes this Policy and our Strategic Guidelines into account. Our Investment Policy is available in our website ri.copel.com/en/.
The CII is a permanent statutory body of Copel which provides support to Copel’s Board of Directors. The CII’s purpose is to analyze and issue recommendations regarding Copel’s investment plans, in order to facilitate robust oversight of our investments by the Board of Directs. The CII works closely with Copel (Holding) and its wholly-owned subsidiaries and its scope may be extended to controlled companies, affiliates and other companies in which Copel and its wholly-owned subsidiaries hold equity interests.
|
Member |
Position |
Date of Appointment |
| Daniel Pimentel Slaviero | Member | 05.06.2021 |
| Marco Antônio Barbosa Cândido | Chairman | 05.06.2021 |
| Marco Antonio Bologna | Member | 05.06.2021 |
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SUSTAINABLE DEVELOPMENT COMMITTEE (“CDS”)
The Sustainable Development Committee (“CDS”) is an independent and permanent body that advises the Board of Directors in relation to Copel and its wholly-owned subsidiaries. CDS may interact with companies directly or indirectly controlled by us when determined by the Board of Directors. CDS role, operation and composition are determined by internal policies approved by the Board of Directors. Among its activities, we highlight the assistance to the set of guidelines, policies and principles for the management of personnel and the sustainable development of the Company and its sudisidiaries, focusing on social, environmental and governance (ESG) matters, based on best market practices.
|
Member |
Position |
Date of Appointment |
| Andriei José Beber | Chairman | 05.06.2021 |
| Daniel Pimentel Slaviero | Member | 05.06.2021 |
| Fausto Augusto de Souza | Member | 05.06.2021 |
| Marcos Leandro Pereira | Member | 05.06.2021 |
MINORITY SHAREHOLDERS COMMITTEE (“CDM”)
The Minority Shareholders' Committee (“CDM”) is an independent and permanent body that advises the Board of Directors. CDM role, operation and composition are detailed in internal policies approved by the Board of Directors.
|
Member |
Position |
Date of Appointment |
| Leila Abraham Loria | Chairman | 06.16.2021 |
| Andriei José Beber | Member | 06.16.2021 |
| Marco Antonio Bologna | Member | 06.16.2021 |
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COMPENSATION OF DIRECTORS, OFFICERS, SUPERVISORY BOARD MEMBERS AND AUDIT COMMITTEE MEMBERS
Under Brazilian Corporate law, the total compensation of the Board of Directors, Executive Board and Supervisory Board is established annually by our general shareholders meeting. Under paragraph 3 of section 162 of the Brazilian Corporate Law, the compensation of the members of our Supervisory Board must be equal to, or greater than, 10% of the average compensation paid to the members of our Executive Board (excluding benefits, representation funds and profit-sharing plans, if applicable). The members of our Supervisory Board received in 2020 15% of the monthly compensation of the Chief Executive Officer. Finally, the members of our Audit Committee (who are also members of our Board of Directors) received the monthly compensation paid to the members of the Supervisory Board plus R$5,000.00.
For the year ended December 31, 2021, the aggregate amount of compensation paid by us to the members of our Board of Directors, Board of Executive Officers and Supervisory Board was R$12.94 million, of which 75.92% was for our Board of Executive Officers, 17.87% was for our Board of Directors, and 6.21% was for our Supervisory Board, as approved by our 66th annual shareholders’ meeting held on April 29, 2021.
The following table shows additional details about the compensation paid to the members of our Board of Directors, Executive Board and Supervisory Board for the periods indicated.
|
Compensation (R$’000) in the years ended December 31, | ||||||||||
|
Board of Directors |
Executive Officers |
Supervisory Board | ||||||||
|
Area |
2021 |
2020 |
2019 |
2021 |
2020 |
2019 |
2021 |
2020 |
2019 | |
| Number of members(1) | 9.17 | 9.00 | 8.33 | 7.00 | 7.00 | 7.00 | 5.17 | 5.00 | 5.00 | |
| Total Salary | 756.83 | 641,1 | 514.7 | 4,993.50 | 4,995,0 | 4,976.8 | 659.43 | 659,4 | 659.2 | |
| Largest Salary | 227.83 | 227,80 | 230.3 | 879.23 | 879,2 | 1,731.4 | 131.89 | 131,9 | 171.4 | |
| Smallest Salary | 43.23 | 131,9 | 158.3 | 388.42 | 389,9 | 805,6 | 43.23 | 131,9 | 158.3 | |
| Average Salary | 157.39 | 181,4 | 224.6 | 713.36 | 713,6 | 1,409.7 | 106.73 | 131,9 | 161.8 | |
| Compensation for attending committees(2) | 1,099.68 | 1183,6 | 1,005.2 | - | - | - | - | - | - | |
| Others(3) | 456.46 | 451,9 | 340.0 | 4,834.56 | 2,106.0 | 2,059.5 | 144.31 | 145,8 | 147.5 | |
| Total(4) | 2,312.98 | 2,276.6 | 1,871.9 | 9,828.06 | 9,360.0 | 9,868.0 | 803.74 | 805,2 | 809.1 | |
(1) This figure corresponds to the average number of members per year.
(2) Refers to Statutory Committees.
(3) Refers to Private Pension Contribution, Assistance Plan for all members and Representation Grant for Executive Officers.
(4) Comprises Total Salary, Compensation for attending committees and Others.
We have no service
contracts with our directors providing for benefits upon termination of employment. We do not have a stock option plan for our directors,
officers or employees.
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EMPLOYEES
On December 31, 2021, we had 6,383 employees, compared to 6,667 employees on December 31, 2020 and 7,095 employees on December 31, 2019. Including employees at Compagas, Elejor and UEG Araucária Ltda. (companies in which we have a majority stake) we had 6,538 employees as of December 31, 2021.
The following table sets forth the number of our employees and a breakdown of employees by area of activity as of the dates indicated in each area of our operations.
|
As of December 31, | |||
|
Area |
2021 |
2020 |
2019 |
| Generation and transmission | 1,523 | 1,533 | 1,620 |
| Distribution | 4,430 | 4,641 | 4,964 |
| Telecommunications | 0 | 355 | 412 |
| Services | 217 | ||
| Corporation staff and research and development | 169 | 96 | 61 |
| Other employees | 44 | 42 | 38 |
| Total employees of Copel and wholly-owned subsidiaries | 6,383 | 6,667 | 7,095 |
| Compagas | 133 | 142 | 148 |
| Elejor | 7 | 7 | 7 |
| Araucária | 15 | 17 | 16 |
| Total | 6,538 | 6,833 | 7,266 |
All of our employees are covered by collective bargaining agreements that we renegotiate annually with the unions that represent the various employee groups. In 2020, we negotiated and signed labor agreements with the unions representing our employees. These new bargaining agreements became effective in October and will be in place for a period of two years. We agreed to salary increases of 3.89% in 2020 compared to 2019 salaries, and of 10.78% in 2021, in comparison to 2020.
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, 2021, approximately 99% of our employees had elected to participate in a defined contribution plan.
In accordance with federal law and our compensation policy, our employees participate in a profit-sharing plan. The Board of Directors and the shareholders must approve the amount of such compensation, which is determined in accordance with an agreement between an employee committee and us. An employee’s receipt of compensation is conditioned on the company meeting certain benchmarks described in the above-mentioned agreement, as confirmed in our published year-end financial statements. The amount of profit-sharing distributions reserved and approved for the 2021 fiscal year was R$290.1 million. The amount of profit-sharing distributions accrued and approved for the 2020 fiscal year was R$420.0 million.
In November 2020, the auction for the sale of Copel Telecom was held. The sale was part of the Company's policy to divest non-strategic assets and focus on businesses and services in the energy sector. A Voluntary Dismissal Initiative (Programa de Demissão Voluntária – “PDI”) was created for the remaining employees of Copel Telecom, reducing the number of employees that were relocated within other entities affiliated to COPEL. The program included three phases:
Phase 1: targeted active employees that joined Copel Telecom as of May 31, 2021. The opt-in period began on August 18 to 31, 2021 and the employment contracts of those that adhered to this phase was terminated on February 15, 2022.
Phase 2: target active employees that joined Copel Telecom between January 1, 2019 and May 30, 2021. The opt-in period for this phase was from September 21, 2021 to October 5, 2021 and contract termination for employees that opted in occurred on February 15, 2022.
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Phase 3: target the remaining employees of Copel, and adopted categorization based on age and time in the company in descending order as of September 30, 2021. The opt-in period for this phase was from October 11 to October 22, 2021. The termination of employment for those who opted in took place on February 15, 2022.
In total, 461 employees opted into the PDI, resulting in a cost of R$139.2 million in severance pay and a potential reduction of R$153.9 million in annual costs in comparison to the realocation of such employees within our economic group.
On February 12, 2020 the Board of Directors approved the implementation,
within Copel and its wholly-owned subsidiaries, of a short-term incentive program called Performance Incentive Program, or Prêmio
Por Desempenho (“PPD”) directed at aligning efforts throughout different organizational levels to the company's strategic
objectives. The first cycle of the program began on January 1, 2020 and ended on December 31, 20. Payment occurred in April 2021. The
results obtained at the end of this first cycle show that 61% of Copel's areas met or exceeded the our set goals and the Goal Achievement
Index average (Indice de Cumprimento de Metas or “ICM”) was 100.58%.
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SHARE OWNERSHIP
As of March 31, 2022, board members and executive officers held, collectively, directly or indirectly, less than 1.0% of any class of our shares.
The following table indicates the board members, executive officers and members of the Supervisory Board who held shares as of March 31, 2022 and their respective share ownership as of such date, considering shares traded on the B3. No other board member, executive officer, members or alternate members of the Supervisory Board held shares issued by the Company on March 31, 2022.
| Number of shares(1) | ||||||
| Common | Class A | Class B | Units | |||
| Board of Directors | ||||||
| Marcel Martins Malczewski | ||||||
| Daniel Pimentel Slaviero | - | - | - | |||
| Marco Antônio Barbosa Cândido | - | - | - | |||
| Carlos Biedermann | - | - | - | |||
| Gustavo Bonini Guedes | - | - | - | |||
| Marco Antonio Bologna | - | - | - | |||
| Leila Abraham Loria | - | - | - | |||
| Andriei José Beber | - | - | - | |||
| Fausto Augusto de Souza | ||||||
| Executive Officers | ||||||
| Daniel Pimentel Slaviero | - | - | - | |||
| Ana Letícia Feller | - | - | - | |||
| Adriano Rudek de Moura | - | 13.200 | 17.100 | |||
| Cassio Santana da Silva | - | - | - | |||
| Eduardo Vieira de Souza Barbosa | - | - | - | |||
| Vicente Loiácono Neto | - | - | - | |||
| David Campos | - | - | - | |||
| Supervisory Board – Members | ||||||
| Demetrius Nichele Macei | - | - | ||||
| Harry Françóia Júnior | - | - | - | |||
| José Paulo da Silva Filho | - | - | - | |||
| Eduardo Badyr Donni | - | - | - | |||
| Raphael Manhãs Martins | - | 9.900 | - | |||
| Supervisory Board – Alternates | ||||||
| Otamir Cesar Marins | ||||||
| Estevão de Almeida Accioly | - | - | - | |||
| Veronica Peixoto Coelho | - | - | - | |||
| Cristiane do Amaral Mendonça | - | - | - | |||
| - | ||||||
(1) Considers the share split and the shares held directly or indirectly.
We have no share-based incentive plan for employees.
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Item 7. Major Shareholders and Related Party Transactions.
MAJOR SHAREHOLDERS
Since 1954, the State of Paraná has owned the majority of our Common Shares and has exercised control over us. On December 31, 2021, the State of Paraná directly owned 69.66% of the Common Shares. The State of Paraná does not have any different voting rights, but as long as it holds a majority of our Common Shares, it will have the right to elect a majority of our directors.
On December 31, 2021, BNDESPAR owned directly 12.44% of our Common Shares.
The following table, sets forth certain information regarding the ownership of our Common Shares on December 31, 2021:
|
Shareholder |
Common shares(1) |
|||
| (thousands) | (% of total) | |||
| State of Paraná | 734,305 | 69.7 | ||
| BNDESPAR | 131,162 | 12.4 | ||
| Eletrobras | 15.308 | 1.5 | ||
| Traded as ADSs | 43,115 | 4.1 | ||
| Traded in the B3 (Brasil, Bolsa, Balcão) | 126,654 | 12.0 | ||
| Traded in the B3 (Brasil, Bolsa, Balcão) – All directors and officers as a group(2) | 17 | - | ||
| Other | 3,539 | 0.3 | ||
| Total | 1.054.090 | 100.0 | ||
(1) Considers shares held through Units or ADS.
(2) On December 31, 2021, our directors and officers held an aggregate of 17,100 Common Shares.
The following table, sets forth certain information regarding the ownership of our Class B Shares on December 31, 2021:
|
Shareholder |
Class B Shares(1) |
|||
| (thousand) | (% of total) | |||
| State of Paraná | 115,970 | 6.9 | ||
| BNDESPAR | 524,646 | 31.2 | ||
| Eletrobras | - | - | ||
| Traded as ADSs | 172,460 | 10.3 | ||
| Traded in the B3 (Brasil, Bolsa, Balcão) | 863,945 | 51.5 | ||
| Traded in the B3 (Brasil, Bolsa, Balcão) All directors and officers as a group (2) | 92 | – | ||
| Other | 2,223 | 0.1 | ||
| Total | 1,679,336 | 100.0 | ||
(1) Considers shares held through Units or ADS.
(2) On December 31, 2021, our directors and officers held an aggregate of 91,500 Class B Shares.
As of March 31, 2022, 1.82% of Common Shares, 19.62% of Class B Shares and 1.29% Units were held by United States residents registered at B3 and Unit ADSs listed on the NYSE represented 15.67% of all outstanding Units.
Our total share capital remained unchaged over the past fiscal year. Upon our migration to Level 2 of Governance Standards of B3, in December 2021, the holder of Preferred Shares holder were granted restricted voting rights in relation to certain matters. As of today, each Unit gives its holder equal rights to the underlying 1 Common Shares and 4 Class B Shares, as follows: (i) each Common Shares has one voting right in any shareholder meeting (1 Unit = 1 vote); and (ii) each Class B Share has restricted voting right,s in regards to certain fundamental matters when discussed in a shareholders’ meeting, as further detailed in “Item 10. Additional Information. Memorandum and Articles of Association. Voting Rights”.
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Unitization
On April 23, 2021, the Board of Directors approved, the conversion of shares and the formation of share deposit certificates (“Units”) under the 1st Share Conversion and Share Deposit Certificate Formation Program (“1st Units Program” or “Program”). During the request period, the non-controlling shareholders requested (i) the conversion of 362,580,947 common shares into class “B” preferred shares, the conversion of 139,520 class “A” preferred shares into class “B” preferred shares, the total conversion of 82,330,391 class “B” preferred shares into common shares; and (ii) the creation of 248,134,108 Units. In addition, the State of Paraná, as the controlling shareholder, after the request period, required (i) the conversion of 115,969,784 common shares into Class B preferred shares; and (ii) the creation of 28,992,446 Units, in the book-entry environment. After the conversion, the State of Paraná maintains its participation of 31.1% in the total capital of the Company, bout of which 5.3% sre Units. The Board of Directors approved (i) the ratification of the capital stock, fully subscribed and paid up, in the amount of R$10,800,000,000.00, which, after the conversion of shares, represented by 2,736,553,750 shares, without par value, being 1,054,090,460 common shares, 3,128,000 class “A” preferred shares, and 1,679,335,290 class “B” preferred shares; and (ii) the total formation of 277,126,554 Units.
Each Unit comprises four Class B shares plus one Common share. In the United States, each Unit is represented by an ADS issued by the Depositary pursuant to a Deposit Agreement by and among Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs. The ADSs trade on the NYSE under the symbol “ELP”. In addition to NYSE and B3, in 2021, Latibex also started trading the Units, under the symbol “XCOPU”.
The following table, sets forth certain information regarding the ownership of our Units ADSs on December 31, 2021:
|
Shareholder |
UNITs |
|
| (thousands) | ||
| State of Paraná | 28,992 | |
| BNDESPAR | 131,162 | |
| Eletrobras | - | |
| Traded – as ADSs | 43,344 | |
| Traded in the B3 (Brasil, Bolsa, Balcão) | 32,587 | |
| Other | - | |
| Traded in the B3 (Brasil, Bolsa, Balcão)All directors and officers as a group(1) |
17 | |
| Total | 235,874 | |
(1) On December 31, 2021, our directors and officers held an aggregate of 17,100 Units.
Since the Conversion Offers were consummated on April 23, 2021 only Units ADS are being traded on the NYSE, while all Class B ADSs are no longer traded.
Share Split
On March 11, 2021, acting at an Extraordinary Shareholders’ Meeting, the shareholders of Copel approved the splitting of our shares, pursuant the Brazilian Corporate Law, in the proportion of one share to ten shares, so that for each one share issued by the Company, nine new shares of the same class and type would be credited (the "Share Split"). The shares were traded ex-Share Split as of March 12, 2021 (inclusive), and the shares resulting from the Share Split were credited to the shareholders on March 16, 2021. Considering that the Share Split was carried out in such a way that each share we issued was split into ten shares of the same type and class, there was no surplus resulting from fractions of shares.
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The Share Split did not affect our capital stock, which remained at R$10,800,000,000.00 as of March 12, 2021 or impacted any rights of holders of Copel shares. After the Share Split, our capital stock was represented by 2,736,553,750 shares with no par value, of which 1,450,310,800 Common Shares and 1,286,242,950 Preferred Shares and, of these, 3,267,520 Class A Shares and 1,282,975,430 are Class B Shares. Our management took the necessary measures to implement the Share Split of the ADRs.
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Related Party Transactions
We engage in transactions, including the sale of electric energy and charges for use of the transmission system, with our principal shareholders and with our joint ventures and affiliates. The tariffs we charge on electric energy sold to our related parties are approved by ANEEL, and the amounts are not material. We also provide guarantees in the context of financing transactions and power purchase agreements entered into by our subsidiaries in the ordinary course of business. For more information, see Note 37 to our audited consolidated financial statements.
Transactions with Shareholders
The following summarizes the most significant transactions with our principal shareholders:
Government of the State of Paraná
On August 10, 2021, the State of Paraná fully settled the debit balance, updated pro-rata die, of the CRC Account relating to the CRC Agreement in the amount of R$1,431.2 million.
For additional information, see Note 8 to our audited consolidated financial statements.
BNDES and BNDESPAR
BNDESPAR, a wholly-owned subsidiary of BNDES, owns 12.4% of our Common Shares. BNDES has granted us loans to finance the construction of generation and transmission facilities and both BNDES and BNDESPAR have purchased debentures issued by Compagas, Cutia and all debentures issued by Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus IV and Ventos de Santo Uriel Wind Farms, which are our subsidiaries.
As of December 31, 2021, we had an aggregate of R$2,447.6 million in outstanding net debt with BNDES and BNDESPAR under these financing transactions. For additional information, please see Notes 22, 23 and 37 to our audited consolidated financial statements, as well as Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.
Transactions with Joint Ventures and Affiliates
We have operation and maintenance services agreements, transmission system connection agreements and contracts for the use of transmission system with our Joint Ventures and, also, operation and maintenance services agreements, connection to the transmission system contracts and power purchase and sale agreements signed with our Affiliates, as described on Note 37 to our audited consolidated financial statements. We also have dividend amounts receivable from these investees, as presented in the same note.
Transactions with Other related parties
Fundação Copel
Fundação Copel is a closed pension fund sponsored by Copel, Compagas and other entities that runs and operates benefit plans, welfare and social assistance. In 2021, Copel made payments to Fundação Copel consisting of rental and for expenditure on pension and welfare plans. For more information, see Notes 24 and 37 to our audited consolidated financial statements.
Transactions with Key management staff
The fees and social security charges and the pension and healthcare plans expenses with the Management are presents at Notes 33.2 and 24.3 to our audited consolidated financial statements.
Item 8. Financial Information
See pages F-1 through F-134.
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A. Consolidated Financial Information
See “Item 5. Operating and Financial Review and Prospects—Overview” and “Item 18. Financial Statements.”
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Legal Proceedings
We are currently subject to numerous proceedings relating to civil, administrative, labor and tax claims. Our audited consolidated financial statements only include provisions when the Company has a present obligation (legal or constructive) resulting from a past event; it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount necessary to settle the obligation. As of December 31, 2021, our provisions for such risks were R$1,597.4 million. However, it is possible that some amounts actually paid are different from the estimates made in recognizing these provisions because of determinations of final judgments and/or liquidations of the award.
As of December 31, 2021, we estimate that the total amount of claims against us, excluding disputes involving non-monetary claims or claims whose potential losses cannot be reasonably estimated due to the current early stages of proceedings, for which no provisions have been made, was approximately R$5,477.5 million, of which R$275.2 million correspond to labor claims; R$3.5 million to employee benefits; R$1,400.5 million to regulatory claims; R$3,237.3 million to civil claims; and R$561.0 million to tax claims. For more information, see Note 30 to our audited consolidated financial statements.
Tax and Social Contribution Claims
During the second half of 2010, two lawsuits were decided before the Federal Regional Court (Tribunal Regional Federal) in favor of the Brazilian government, reversing the prior judgment that recognized our immunity regarding the payment of COFINS tax. As a result, the Federal Internal Revenue Service (Receita Federal) issued an infraction notice demanding the payment of COFINS tax from the period between August 1995 and December 1996. As of December 31, 2021, we had provisioned R$110.1 million to cover expected losses related to these lawsuits.
Additionally, we are party to administrative and judicial proceedings pursuant to which we are challenging claims of the Brazilian Social Security authorities to pay additional security contributions for the period between 2000 and 2006. In these proceedings, we estimate the amount of our expected loss to be R$29.8 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, 2021, we have provisions totaling R$569.8 million reflecting the expected losses related to these lawsuits.
Regulatory
We are disputing certain regulatory and legal proceedings in connection with ANEEL’s allegations that we violated regulatory standards. As of December 31, 2021, we have provisions totaling R$103.1 million reflecting the expected losses related to these proceedings.
Additional Claims
We are party to several lawsuits related to accidents involving equipment used in our electricity transmission and distribution grids and vehicle accidents (see Note 30.1 to our audited consolidated financial statements). As of December 31, 2021, we have provisions totaling R$433.4 million reflecting the expected losses related to these lawsuits.
We are also party to several lawsuits brought by landowners whose land has been affected by our transmission and distributions lines. As of December 31, 2021, we have provisions totaling R$263.1 million reflecting the expected losses related to these lawsuits.
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Dividend Payment
In accordance with our bylaws and Brazilian Corporate Law, we regularly pay annual dividends for each fiscal year within sixty days of the declaration of the dividends at the annual shareholders’ meeting or by the Board of Directors. To the extent amounts are available for distribution, we are required to distribute as a mandatory dividend an aggregate amount equal to at least 25.0% of our adjusted net profit. Dividends are allocated pursuant to the formula described in “Dividend Priority of Class A Shares and Class B Shares” below. Under Brazilian Corporate Law, we are not permitted to suspend the mandatory dividend payable with respect to the Common Shares, Class A Shares and Class B Shares for any year. Brazilian Corporate Law permits, however, a company to suspend the payment of all dividends if the Board of Directors, with the approval of the Supervisory Board, reports at the shareholders’ meeting that the distribution would be detrimental to the Company given its financial circumstances. In such a case, companies with publicly traded securities must submit a report to the CVM providing the reasons for the suspension of dividend payments. Notwithstanding the above, Brazilian Corporate Law and our bylaws provide that Class A Shares and Class B Shares shall acquire voting rights if we suspend the mandatory dividend payments for more than three consecutive fiscal years, and such voting rights will continue until all dividend payments, including back payments, have been made. We are not subject to any contractual limitations on our ability to pay dividends.
In accordance with our dividends policy, we may distribute yearly regular dividends higher than the mandatory minimum of 25% following certain guidelines related to our Financial Leverage Ratio, defined as the ratio between net debt and interest, taxes, depreciation, and amortization:
| · | If our Financial Leverage Ratio is below 1.5x, we shall distribute 65% of our adjusted net profits. |
| · | If our Financial Leverage Ratio is in between 1.5x and 2.7x, we shall distribute 50% of our adjusted net profits. |
| · | If our Financial Leverage Ratio is higher than 2.7x, we shall distribute the mandatory minimum of 25% of our adjusted net profits. |
Any distribution of dividends higher than the minimum amount of 25% of our adjusted net profits is constrained to the Available Cash Flow of the same year, defined as the operating cash flow minus net cash flow used for investment.
Calculation of Adjusted Net Profit
Annual dividends are payable from our adjusted net profit for such period. Brazilian Corporate Law defines “net profit” for any fiscal year as the profits of a fiscal year after the deduction of income and social contribution taxes for that fiscal year and after the deduction of any amounts allocated to employees’ and management’s participation in our results in such fiscal year. The “net profit” for a relevant fiscal year is subject to adjustment by the addition or subtraction of amounts allocated to legal and other reserves, the result of which is known as our adjusted net profit.
In accordance with Brazilian Corporate Law, we must maintain a legal reserve, to which we must allocate a minimum of 5% of our net profits for each fiscal year until such reserve reaches an amount equal to 20.0% of our capital stock (calculated in accordance with Brazilian Corporate Law). However, we are not required to make any allocations to our legal reserve in a fiscal year in which the legal reserve, when added to our other established capital reserves, exceeds 30.0% of our total capital stock. The amounts to be allocated to such reserve must be approved by our shareholders in a shareholders’ meeting and may be used only for the increase of our capital stock or compensation of losses.
On December 31, 2021, our legal reserve was R$1,457.1 million, or approximately 13.5% of our capital stock at that date.
In addition to deducting amounts for the legal reserve, under Brazilian Corporate Law net profit may also be adjusted by deducting amounts allocated to:
| · | the contingency reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits to a contingency reserve for anticipated losses that are deemed probable in future years, which amount may be estimated; |
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| · | the tax incentives reserve: under Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our Board of Directors or Board of Executive Officers, may decide to allocate a percentage of our net profits resulting from government donations or subsidies for investment purposes. |
On the other hand, net profits may also be increased by:
| · | the reversal of any amounts previously allocated to a contingency reserve in the fiscal year in which the loss that had been anticipated does not occur as projected or in which the anticipated loss occurs but is lower than the contingency allocated to it; and |
| · | any amounts included in the unrealized profits reserve that have been realized in the relevant fiscal year and have not been used to offset losses, as approved by our shareholders’ meeting, upon the proposal of our Board of Directors or Board of Executive Officers. |
Moreover, our net profits are also adjusted by adding the realization of amounts registered under “Equity Value Adjustments”. The account “Equity Value Adjustments” was created as a result of the first-time adoption of IFRS by Copel in 2010, which caused a fair value revaluation of certain fixed assets and the adoption of the fair value as its “deemed cost” at that date. The increase of the deemed cost of fixed assets led to an increase in depreciation costs. Thus, our management has decided to add to the adjusted net profits the realization of the “Equity Value Adjustments” in order to compensate for effects of the increased depreciation costs. In 2021, our adjusted net profits used to calculate our dividends was increased by R$46.6 million as a result of said realization.
The amounts available for distribution are determined on the basis of the Statutory Financial Statements prepared using the method required by Brazilian Corporate Law, which differ from our audited consolidated financial statements included herein.
Dividend Priority of Class A Shares and Class B Shares
According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least 10% higher than the dividends per share paid to the holders of the Common Shares. Class A Shares have a dividend priority over the Class B Shares, and Class B Shares have a dividend priority over the Common Shares. To the extent that dividends are paid, they are to be paid in the following order:
| · | first, the holders of Class A Shares have the right to receive a minimum dividend equal to 10% of the total share capital represented by the Class A Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared; |
| · | second, to the extent there are additional amounts to be distributed after all amounts allocated to the Class A Shares have been paid in accordance with the first bullet point above, the holders of Class B Shares have the right to receive a minimum dividend per share equal to (i) the mandatory dividend divided by (ii) the total number of Class B Shares outstanding at the end of the fiscal year in respect of which the dividends have been declared; and |
| · | third, to the extent that there are additional amounts to be distributed after all amounts allocated to the Class A Shares and the Class B Shares have been paid, the holders of Common Shares have the right to receive an amount per share equal to (i) the mandatory dividend divided by (ii) the total number of Common Shares outstanding at the end of the fiscal year in respect of which dividends have been declared, provided that the Class A Shares and Class B Shares receive dividends per share at least 10% higher than the dividends per share paid to the Common Shares. |
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. Holders of Units are paid dividends equal to those of their underlying shares.
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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 Units may be substantially reduced due to inflation.
Pursuant to our bylaws, our management may declare interim dividends to be paid from profits in our semi-annual financial statements, in accordance with the Company's dividend policy. Any payment of interim dividends counts towards the mandatory dividend for the year in which the interim dividends were paid. In accordance with our dividends policy, Board of Directors should approve at least once a year interim dividends.
Pursuant to Brazilian Corporate Law, we may pay interest on equity in lieu of dividends as an alternative form of making distributions to shareholders. We may treat a payment of interest on equity as a deductible expense for tax purposes, provided that it does not exceed the lesser of:
| · | the total amount resulting from (i) Long-Term Interest Rate (Taxa de Juros a Longo Prazo, or “TJLP”) multiplied by (ii) the total shareholders’ equity (determined in accordance with Brazilian tax legislation), less certain deductions prescribed by Brazilian tax legislation; and |
| · | the greater of (i) 50.0% of current net income (after the deduction of social contribution on profits (CSLL ‒ Contribuição Social sobre o Lucro Líquido) and before taking such distributions and any deductions for corporate income tax) for the year in respect of which the payment is made or (ii) 50.0% of retained earnings and profit reserves for the year prior to the year in respect of which the payment is made. |
In order to be eligible to receive amounts remitted in foreign currency outside of Brazil, shareholders who are not residents of Brazil must register with the Brazilian Central Bank in order to receive dividends, sales proceeds or other amounts with respect to their shares. The Units underlying the ADSs are held in Brazil by the Custodian, as agent for the Depositary, which is the registered owner of our shares.
Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the Custodian on behalf of the Depositary, which will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be delivered to the Depositary for distribution to holders of ADSs. In the event that the Custodian is unable to immediately convert the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before such dividends are converted and remitted. In the event the holder of an ADS fails to collect its dividends from the Custodian within three (3) years, counted as of the date when such dividend was made available, Brazilian Corporate Law states that such dividends may be returned to us. In this case, the ADS holder shall lose its right to receive the dividends.
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The table below, sets forth the cash distributions we paid/will pay as dividends and as interest on equity for the periods indicated.
|
Year |
Payment date |
Distribution (R$thousands) |
Payment per share (R$) | |||
| Common | Preferred A | Preferred B | UNIT | |||
| 2014 | Jun 2015 | 622,523 | 0.21723600 | 0.25250700 | 0.23900000 | - |
| 2015 | Jun 2016 | 326,795 | 0.11371600 | 0.25250700 | 0.12547300 | - |
| 2016 | Jun 2017 | 282,947 | 0.09853900 | 0.28905000 | 0.10841000 | - |
| 2016 | Dec 2017 | 223,266 | 0.07792700 | - | 0.08593200 | - |
| 2017 | Aug 2018 | 266,000 | 0.09262400 | 0.28905000 | 0.10188700 | - |
| 2017 | Aug 2018 | 23,401 | 0.00817700 | - | 0.00899600 | - |
| 2018 | Jun 2019 | 280,000 | 0.09751500 | 0.28905000 | 0.10727000 | - |
| 2018 | Jun 2019 | 98,542 | 0.03443500 | - | 0.03788100 | - |
| 2019 | Jun 2020 | 321,500 | 0.11211739 | 0.19732848 | 0.12334596 | - |
| 2019 | Sep 2020 | 321,500 | 0.11211739 | 0.19732848 | 0.12334596 | - |
| 2020 | Sep 2020 | 781 | - | 0.23912059 | - | - |
| 2020 | Aug 2021 | 807,500 | 0.28183240 | 0.31001564 | 0.31001564 | - |
| 2020 | Aug 2021 | 210,276 | 0.07231977 | 0.14384143 | 0.07955175 | 0.39052677 |
| profit reserves (*) | Apr 2021 | 1,250,000 | 0.43627306 | 0.47990038 | 0.47990038 | - |
| profit reserves (*) | Aug 2021 | 123,257 | 0.04301883 | 0.04732072 | 0.04732072 | - |
| profit reserves (*) | Aug 2021 | 134,192 | 0.04683557 | 0.05151910 | 0.05151910 | - |
| 2021 (**) | Nov 2021 | 1,197,002 | 0.08249641 | 0.09074606 | 0.09074606 | 0.44548065 |
| 2021 (**) | Nov 2021 | 239,636 | 0.41207756 | 0.45328533 | 0.45328533 | 2.22521888 |
| profit reserves (***) | until 7/31/2022 | 283,173 | 0.09748467 | 0.10723314 | 0.10723314 | 0.52641723 |
| 2021 (***) | until 7/31/2022 | 1,368,675 | 0.47117031 | 0.51829476 | 0.51829476 | 2.54435609 |
The table below sets forth the cash distributions we paid/will pay as dividends and as interest on equity, translated into US$ based on the exchange rate at year-end, for the periods indicated.
|
Year |
Payment date |
Distribution (US$ thousands) |
Payment per shares (US$) | |||
|
Common |
Preferred A |
Preferred B |
UNIT | |||
| 2014 | Jun 2015 | 234,366 | 0.08178450 | 0.09506325 | 0.08997816 | - |
| 2015 | Jun 2016 | 83,691 | 0.02912211 | 0.06466580 | 0.03213302 | - |
| 2016 | Jun 2017 | 86,818 | 0.03023503 | 0.08869013 | 0.03326378 | - |
| 2016 | Dec 2017 | 68,505 | 0.02391059 | - | 0.02636679 | - |
| 2017 | Aug 2018 | 81,618 | 0.02800000 | 0.08737908 | 0.03080018 | - |
| 2017 | Aug 2018 | 7,074 | 0.00247189 | - | 0.00271947 | - |
| 2018 | Jun 2019 | 72,262 | 0.02516646 | 0.07459740 | 0.02768401 | - |
| 2018 | Jun 2019 | 25,431 | 0.00888691 | - | 0.00977625 | - |
| 2019 | Jun 2020 | 79,763 | 0.02781586 | 0.04895638 | 0.03060162 | - |
| 2019 | Sep 2020 | 79,763 | 0.02781586 | 0.04895638 | 0.03060162 | - |
| 2020 | Sep 2020 | 150 | - | 0.04601393 | - | - |
| 2020 | Aug 2021 | 155,387 | 0.05423296 | 0.05965625 | 0.05965625 | - |
| 2020 | Aug 2021 | 40,463 | 0.01391648 | 0.02767938 | 0.01530813 | 0.07514899 |
| profit reserves (*) | Apr 2021 | 219,402 | 0.07657541 | 0.08423295 | 0.08423295 | - |
| profit reserves (*) | Aug 2021 | 21,634 | 0.00755074 | 0.00830582 | 0.00830582 | - |
| profit reserves (*) | Aug 2021 | 23,554 | 0.00822066 | 0.00904272 | 0.00904272 | - |
| 2021 (**) | Nov 2021 | 220,061 | 0.01516645 | 0.01668310 | 0.01668310 | 0.08189886 |
| 2021 (**) | Nov 2021 | 44,056 | 0.07575791 | 0.08333370 | 0.08333370 | 0.40909271 |
| profit reserves(***) | until 7/31/2022 | 50,743 | 0.01746881 | 0.01921569 | 0.01921569 | 0.09433155 |
| 2021(***) | until 7/31/2022 | 245,260 | 0.08443156 | 0.09287604 | 0.09287604 | 0.45593694 |
(*) US$ based on the exchange rate of 3/31/2021 (**) US$ based on the exchange rate of 9/30/2021 (***) US$ based on the exchange rate of 12/31/2021
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| Item 9. | The Offer and Listing |
The principal trading market for our shares (including our Class B Shares, Common Shares and Units) is the B3 (Brasil, Bolsa, and Balcão) market. Our Common Shares trade on B3 under the symbol “CPLE3” our Class B Shares trade under the symbol “CPLE6” and our Units shares, each representing four Class B shares plus one Common share, trade under the symbol “CPLE11”. On March 31, 2022, approximately 188,638 shareholders owned our CPLE6 shares, 65,854 owned CPLE3 shares and 11,436 owned Units in B3.
In the United States, our Units are in the form of ADSs, issued by the Depositary pursuant to the Deposit Agreement by and between Copel, the Depositary and the registered holders and beneficial owners from time to time of the ADSs. The ADSs trade on the NYSE under the symbol “ELP”.
On June 19, 2002, our
shares were listed on Latibex, an Euro-based market for Latin American securities. In 2021, Latibex also started trading the Units, under
the symbol “XCOPU”. The shares trade under the symbols “XCOP,” XCOPO and XCOPU.
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Item 10. Additional Information
Memorandum and Articles of Association
Organization
We are a publicly traded company duly registered with the CVM under No. 1431-1. According to Article Four of our bylaws, we are authorized to pursue, directly or through consortia or in partnership with private companies, the following objectives and purposes:
| · | researching and studying, technically and economically, all energy sources, providing solutions for a sustainable development; |
| · | researching, studying, planning, constructing and developing the production, transformation, transportation, storage, distribution and trade of energy in any of its forms, chiefly electric power, as well as fuels and energy raw materials; |
| · | studying, planning, designing, constructing and operating dams and their reservoirs, as well as other undertakings for multiple uses of water resources; |
| · | providing services in energy trading, energy infrastructure, information and technical assistance concerning the rational use of energy to business undertakings with the aim of implementing and developing economic activities deemed relevant for the development of the State of Paraná, upon approval by the Board of Directors; and |
| · | developing activities in the areas of energy generation, electronic data transmission, electronic communications and control, cellular telephone systems, and other endeavors that may be deemed relevant to the Company and the State of Paraná, being authorized, for such aims, upon approval by the Board of Directors, and for the aims set forth in the second and third sub-items above, to join, preferably holding major stakes or controlling interest, consortia or concerns with private companies, pension funds or other private entities, to participate in bidding processes of new concessions and/or already established special purpose companies to exploit already existing concessions, having taken into consideration, besides the projects' general features, their respective social and environmental impacts. |
Except as described in this section, our bylaws do not contain provisions addressing the duties, authority, or liabilities of directors and management, which are instead established by Brazilian Corporate Law.
Qualification of Board of Directors
The appointed directors must comply with the legal requirements set forth in Federal Law No. 13,303/2016, particularly the ones mentioned in its article 17, and Federal Law No. 6,404/1976. Moreover, pursuant to Federal Law No. 13,303/2016 and to our bylaws, our Board of Directors will mandatorily comprise, at least, (i) three independent members or no less than 25% of the members of our Board of Directors, (ii) three to five members that meet the requirements for members of the Statutory Audit Committee, (iii) two members appointed by minority shareholders which held voting shares, if they do not elect a higher number through multiple vote, (iv) one member appointed by shareholders holding preferred shares, representing, at least, 10% of Copel’s total capital stock, and (v) one member appointed by the employees. Among the members described in item (ii) above, at least one shall compulsorily have recognized professional experience in matters of corporate accounting in order to sit on the Statutory Audit Committee.
Limitations on Directors’ Powers
Under Brazilian Corporate Law, if a director or an executive officer has a conflict of interest with the company in connection with any proposed transaction, the director or executive officer may not vote in any decision of the board of directors or of the board of executive officers related to that transaction, and must disclose the nature and extent of the conflict of interest for transcription in the minutes of the meeting. A director or an executive officer may not transact any business with a company, including accepting any loans, except on reasonable and fair terms for the Company and conditions that are identical to the terms and conditions prevailing in the market or offered by third parties. According to our bylaws, shareholders set the aggregate compensation payable to directors, executive officers, and members of the Supervisory Board. For more information, see “Item 6. Directors, Senior Management and Employees”. Our bylaws do not establish any mandatory retirement age limits.
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Board of Directors and Board of Executive Officers
According to our bylaws, we are managed by a Board of Directors, composed of nine members and a Board of Executive Officers, composed of six to seven members.
Our Board of Directors ordinarily meets monthly and is responsible, among other things, for: (i) establishing our corporate strategy; (ii) defining the general orientation of our business; (iii) defining the responsibilities of members of our Board of Executive Officers; and (iv) electing the members of our Board of Executive Officers.
Our Board of Executive Officers meets every two weeks and is responsible for the daily management of the Company. Each Executive Officer also has individual responsibilities established by our bylaws.
The members of our Board of Directors, of our Board of Executive Officers, our Supervisory Board and of our statutory committees shall be liable for any loss or damages resulting from the performance of their duties, in compliance with the applicable law. Notwithstanding, we shall ensure, provided no conflict with our own interests arises, legal assistance for members or former members of statutory bodies in judicial and administrative proceedings brought by third parties, during or after their term of office, for the performance of the duties of their office, in accordance to the terms and provisions of our bylaws.
For further information, see Items 6 – “Directors, Senior Management and Employees - Board of Directors” and “Directors, Senior Management and Employees - Board of Executive Officers”.
Shareholders’ Meetings
The convening of our shareholders’ meeting is made through publication of a notice to shareholders in a newspaper. As provided by Brazilian Corporate Law, publications have to be made 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 21 calendar days prior to the scheduled meeting date. We make local notices in the Folha de Londrina.
In order for a shareholders’ meeting to be held on first call, shareholders representing at least one-quarter of the voting capital have to be present, except as otherwise provided for under Brazilian law. If no such quorum is verified, a second meeting may be called by notice given at least 8 calendar days prior to such meeting and in accordance with the same rules of publication previously described. The quorum requirements will not apply to a second meeting, subject to the minimum quorum and voting requirements for certain matters, as discussed as follows. A shareholder without a right to vote may attend a general shareholders’ meeting and take part in the discussion of matters submitted for consideration.
A shareholder may be represented at a general shareholders' meeting by a proxy appointed in accordance with applicable Brazilian law not more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial institution.
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Right of Withdrawal
Our common shares and preferred shares are not redeemable, with the exception that a dissenting shareholder has, under certain circumstances provided for in Brazilian Corporate Law, the right to withdraw its equity interest from a company and to receive a payment for the portion of shareholder’s equity attributable to his or her equity interest.
This right of withdrawal arises if any of the following matters are decided upon at a shareholders' meeting:
| · | creation of a new class of preferred shares or a disproportionate increase in an existing class of preferred shares relative to other classes of shares, unless such action is provided for in or authorized by our bylaws, which, as of the this date, is not the case; |
| · | modification to the preference, privilege or conditions for redemption or amortization granted to one or more classes of preferred shares, or the creation of a new class of preferred shares with greater privileges than the existing classes of preferred shares; |
| · | reduction of the mandatory dividend; |
| · | consolidation or merger into another company; |
| · | participation in a group of companies (grupo de sociedades), as defined by Brazilian Corporate Law; |
| · | the transfer of all shares to another company or receipt of shares by another company, in such a way as to make the company whose shares were transferred a wholly-owned subsidiary of the other; |
| · | changes to our corporate purpose; or |
| · | a spin-off that results in (a) a change to our corporate purpose (unless the spin-off company's assets and liabilities are transferred to a company that has substantially the same corporate purpose); (b) a reduction in any mandatory dividend (although in our case, our preferred shares do not carry mandatory dividends); or (c) any participation in a group of companies. |
The right of withdrawal also arises if a spin-off or merger occurs but the new company fails to register as a public stock corporation (and, if applicable, fails to list its shares on the stock exchange) within 120 days of the date of the shareholders' meeting that approved the spin-off or merger.
Preferred Shares Rights
Pursuant to Brazilian Corporate Law, each preferred share of a class that is admitted to trading on a Brazilian stock exchange must have the certain rights under the Company’s bylaws.
Our bylaws comply with the directives provided by Brazilian Corporate Law as follows: (i) our Class A Shares shall have priority in the distribution of minimum dividends of 10% per year, pro rata, calculated as a percentage of the paid-in capital stock represented by such shares on December 31 of the previous fiscal year; (ii) our Class B Shares shall have priority in the distribution of minimum dividends, pro rata, in the amount equivalent to 25.0% of our net profits, as adjusted in accordance with Article202 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; (v) the preferred shares will acquire voting rights if, during three consecutive fiscal years, we fail to pay a fixed or minimum dividend to which the preferred shares are entitled; and (vi) each Unit receives dividends for its underlying 1 Common Share and 4 Class B Shares. For more information on our dividend policy, see “Item 8. Financial Information – Dividend Payment.”
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Voting Rights
As a general rule, only our Common Shares are entitled to vote and each Common Share corresponds to one vote. Holders of preferred shares acquire voting rights if, during three consecutive fiscal years, we fail to pay a fixed or minimum dividend to which the preferred shares are entitled. If a holder of preferred shares acquires voting rights in this manner, such rights will be identical to the voting rights of a holder of Common Shares and will continue until the dividend is paid.
Furthermore, in accordance with our bylaws holders of preferred shares are entitled to voting rights in regards of specific matter discussed in a shareholders’ meeting:
| · | Change in Copel’s corporate type into another, as well as incorporation, merger or spin-off. |
| · | Agreements between Copel and its controlling shareholder, directly or through a third party, or an entity influenced by the controlling shareholder, when such agreements shall be discussed in a shareholders’ meeting by force of statute or our bylaws. |
| · | Appraisal of assets for paying in Copel’s capital increase. |
| · | Choice of an entity to be hired for the assessment of the economic value of Copel. |
| · | Change or revocation of articles in our bylaws that alter or modify any of the requirements set forth in item 4.1. of the regulation of the Level 2 of B3, while the Level 2 participation contract is still in effect. |
| · | Appointment and removal of a member of the Board of Directors in a separate election, when requested by shareholders which have preferred shares equal to at least 10% of the Copel’s total shares. |
Exclusion or change in our bylaws aimed to suppress the right set forth in article 28, XXIX of our bylaws, which provides for the adoption of the full tariff set by a granting authority, requires the approval of most of the preferred shares. Holders of Units may exercise their voting rights in accordance with its underlying shares.
Preemptive Rights
Our shareholders have a general preemptive right to subscribe for shares in any capital increase, in proportion to his or her ownership, as provided for in the Brazilian Corporate Law. A minimum period of 30 days following the publication of notice of a capital increase is assured for the exercise of the right, and the right is transferable. We may issue shares up to the limit of the authorized capital, excluding right of first refusal to the shareholders, as provided for in the Brazilian Corporate Law and in our bylaws.
Liquidation
In the event of liquidation of the Company, after all creditors have been paid, all shareholders will participate equally and ratably in any remaining residual assets.
Liability of the Shareholders for Further Capital Calls
Neither Brazilian Corporate Law nor our bylaws provide for capital calls after shares are paid in. The shareholders’ liability is limited to the payment of the issue price of the shares subscribed or acquired.
Conversion Rights
Our bylaws provide, as a general rule, that the only permitted conversion of shares is Class A Shares are convertible into Class B Shares. As an exception, Class B Shares can be converted into Common Shares, and vice-versa, strictly for the formation of Units made of four Class B Shares and one Common Share under Copel’s unitization programs set by the Board of Directors. Our shares are not otherwise convertible.
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Form and Transfer
Our shares are maintained in book-entry form with a transfer agent (“Transfer Agent”). To make a transfer of shares, the Transfer Agent makes an entry in the register, debits the share account of the transferor and credits the share account of the transferee.
Transfers of shares by foreign investors are made in the manner described above and are executed by the investor’s local agent on the investor’s behalf. However, if the original investment was registered with the Brazilian Central Bank pursuant to a foreign investment mechanism regulated by Resolution No. 4,373 of September 29, 2014 of the CMN (“Resolution No. 4,373”) as described under “Exchange Controls” as follows, the foreign investor must declare the transfer in its electronic registration.
A shareholder may choose, in its individual discretion, to hold its shares through B3. Shares and Units are added to the B3 system through Brazilian institutions that have clearing accounts with the B3. Our shareholder registry indicates which shares and Units are listed on the B3 system. Each participating shareholder is in turn registered in a register of beneficial shareholders maintained by the B3 and is treated in the same manner as the other registered shareholders.
Changes in Rights of Shareholders
A General Meeting of Shareholders must be held whenever the Company intends to change the rights of holders of our common shares or preferred shares. Under Brazilian Corporate Law the proposed changes must be approved by a majority of the class of shareholders that would be affected. Certain changes related to the rights of preferred shares, such as changes in preferences, advantages or conditions of redemption or amortization, may result in the exercise of rights to withdraw by the holders of the shares affected.
Regulation of and Restrictions on Foreign Investors
Foreign investors face no legal restrictions barring them from holding Common Shares, Class A Shares, Class B Shares, Units or ADSs.
The ability to convert into foreign currency dividend payments and proceeds from the sale of Common Shares, Preferred Shares or Units or from the exercise of preemptive rights, and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the registration of the relevant investment with the Brazilian Central Bank. Any foreign investor who registers with the CVM in accordance with CMN Resolution No. 4,373 may buy and sell securities on Brazilian stock exchanges without obtaining a separate certificate of registration for each transaction.
Annex II to CMN Resolution No. 4,373 (“Annex II Regulations”) allows Brazilian companies to issue depositary receipts in foreign exchange markets. Our ADS program is duly registered with the Brazilian Central Bank and the CVM.
Our bylaws do not impose any limitation on the rights of Brazilian residents or non-residents to hold our shares and exercise the rights in connection therewith.
Disclosure of Shareholder Ownership
Under Brazilian regulations any person or group of persons representing the same interest that carries out a relevant trading involving shares or securities issued by a publicly traded company must disclose its share ownership to the investor relations officer of such company, which, in turn, must disclose such information to the CVM and to any relevant stock exchange. A relevant trading is defined as a transaction by which the direct or indirect equity stake of the persons referred above reaches an equity interest corresponding to 5% or its multiples (10%, 15%, and so on), of a type or class of shares representing the company’s capital stock. Any subsequent increase or decrease of 5% or its multiples in ownership of any class of shares must be similarly disclosed. The same reporting obligation applies to the acquisition of any rights over the shares and other securities mentioned in applicable regulation and to the execution of any derivative financial instruments referenced in shares. If such increase results in change of corporate control or administrative structure, or if the increase imposes a public offering, in addition to informing the investor relations officer, a statement containing certain required information must be published in newspapers that are widely circulated in Brazil.
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Change of Controlling Shareholder
Under the Brazilian constitution and our bylaws, a change of the controlling shareholder, the State of Paraná, is only permitted with legislative authorization. If such approval is granted to the State of Paraná, and the change in the control over us would happen by a private sale of shares held by the current controlling shareholder or sale of preemptive rights from such controlling shareholder, such transaction shall be subject to the buyer launch a tender offer for the shares held by the minority shareholders.
Arbitration
As provided for in our bylaws, we, our shareholders, directors, officers
and members of the supervisory board shall resolve through arbitration any dispute or conflict that may arise between them, regarding,
among others, the application, validity, effectiveness, interpretation, violation and corresponding effects of the provisions of our bylaws,
of the current applicable law, of the rules applicable to the capital markets in general, as well as those of the regulation of the level
2 of corporate governance of B3 S.A. (Brasil, Bolsa, Balcão) (“Level 2”), of the Level 2 participation contract, and
of the Sanctions and the Arbitration Regulations of the B3 Market Arbitration Chamber.
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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”.
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Exchange Controls
The ownership of Class A Shares, Class B Shares, Common Shares or Units of the Company by individuals or legal entities domiciled outside Brazil is subject to certain conditions established under Brazilian law, as described below.
The right to convert dividend payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under Brazilian foreign investment legislation, which generally requires, among other things, that the relevant investments have been registered with the Brazilian Central Bank. Such restrictions on the remittance of foreign capital abroad may hinder or prevent Itaú Unibanco S.A., as custodian for the Units represented by ADSs (“Custodian”), or holders who have exchanged ADSs for Units from converting dividends, distributions or the proceeds from any sale of such Units, 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 Units underlying the ADSs.
Under Resolution No. 4,373/2014, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. The definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad.
To be eligible to invest in the Brazilian financial and capital markets, foreign investors must:
| 1. | point at least one representative in Brazil with powers to perform actions relating to foreign investments; |
| 2. | register as a foreign investor with the CVM, pursuant to CVM Rule No. 13/2020; |
| 3. | register the foreign investment with the Brazilian Central Bank; and |
| 4. | constitute at least one custodian institution authorized by CVM, provided that this provision is not applicable to foreign investors who are individuals. |
Securities and other financial assets held by foreign investors must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM.
The Annex II Regulations provide for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. Prior to the issuance of the ADSs, the ADS program was approved by the Brazilian Central Bank and the CVM under the Annex V to CMN Resolution No. 2,689, which allowed Brazilian companies to issue depositary receipts in foreign exchange markets and was in force by the time the ADSs were issued. Depositary receipts are currently governed by Resolution No. 4,373. The proceeds from the sale of ADSs by ADS holders outside Brazil are free of Brazilian foreign investment controls and should not be subject to taxation in Brazil. The withdrawal and the disposal of Units upon cancellation of ADS will be subject to taxation in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Taxation of Gains Outside Brazil”.
An electronic registration has been issued in the name of the Depositary with respect to the ADSs and is maintained by the Custodian on behalf of the Depositary. Pursuant to this electronic registration, the Custodian and the Depositary are able to convert dividends and other distributions with respect to the Units represented by ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for Units, such holder must seek to obtain its own electronic registration with the Brazilian Central Bank.
Pursuant to Brazilian Central Bank Resolution No. 4,373/2014, the withdrawal of Units upon cancellation of ADSs may require simultaneous exchange transactions in the event the investor decides not to dispose of those Units. The simultaneous exchange transactions may be required in order to obtain a certificate of registration of Units with the Brazilian Central Bank. This transaction will be subject to tax in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Other Brazilian Taxes”.
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Thereafter, any holder of Units 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 Units, unless such holder obtains his own electronic registration. A holder that obtains an electronic registration may be subject to less favorable Brazilian tax treatment than a holder of ADSs. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations”.
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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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs. Prospective holders of Common Shares, Preferred Shares, Units or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Units underlying ADSs or (ii) to a Non-Brazilian Holder in respect of Common Shares, Preferred Shares or Units generally will not be subject to Brazilian withholding income tax. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates depending upon the year in which the profits have been obtained.
Distributions of Interest on Equity
In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on the equity of the company as an alternative form of making dividend distributions. The rate of interest may not be higher than TJLP, as determined by the Brazilian Central Bank from time to time. The total amount distributed as interest on equity may not exceed, for tax purposes, the greater of (i) 50.0% of net income (after the deduction of the social contribution on net profits and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on equity) related to the period in respect of which the payment is made and (ii) 50.0% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.
Distributions of interest on equity paid to Brazilian and Non-Brazilian Holders of Units, including payments to the Depositary in respect of Units underlying ADSs, are deductible by the Company for Brazilian corporate income tax and social contribution on net profits purposes as far as the limits above described are observed. Such payments to shareholders are subject to Brazilian withholding income tax at the rate of 15.0%, except for payments to shareholders situated in tax haven jurisdictions (that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the beneficial owner of the income derived from transactions carried out and attributable to a Non-Brazilian Holder – “Tax Haven Holder”), which payments are subject to withholding income tax at a 25.0% rate. A regulation issued by the Brazilian tax authorities on November 28, 2014 (Ordinance 488, of 2014) decreased, from 20% to 17%, the minimum threshold for certain specific cases. The reduced 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities in Normative Ruling 1,530 dated December 19, 2014. The list of tax haven jurisdictions is currently provided in Normative Ruling No. 1,037. These payments may be included, at their net value, as part of any mandatory dividend. To the extent that payment of interest on net equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax, plus the amount of declared dividends, is at least equal to the mandatory dividend.
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Taxation of Gains Outside Brazil
According to Law No. 10,833 of December 29, 2003 (“Law No. 10,833/03”), capital gains realized on the disposition of assets located in Brazil by a Non-Brazilian Holder, whether to another non-Brazilian resident or to Brazilian residents, are subject to taxation in Brazil. In this sense, if the Common Shares, Preferred Shares or Units 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 Units can occur abroad if an investor decides to cancel its investment in ADSs and register the underlying Units as a direct foreign investment under Law No. 4,131. Any capital gain arising from sales or other dispositions of Units outside Brazil would be subject to Brazilian income tax at the rates that range from 15% to 22.5% depending on the amount of the gain, as follows: (i) 15% on gains not exceeding R$5,000,000.00; (ii) 17.5% on gains that exceed R$5,000,000.00 and do not exceed R$10,000,000.00; (iii) 20% on gains that exceed R$10,000,000.00 and do not exceed R$30,000,000.00; and (iv) 22.5% on gains exceeding R$30,000,000.00 or, if the investor is a Tax Haven Holder, 25.0%, which should be withheld by the purchaser of the Units 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 Common Shares, Preferred Shares or Units 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 Common Shares, Preferred Shares or Units carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:
| 1. | exempt from income tax when assessed by a Non-Brazilian Holder registered under Resolution No. 4,373 of the CMN (“4,373 Holder”) that is not a Tax Haven Holder; |
| 2. | subject to income tax at a rate of 15.0% in the case of gains assessed by a Non-Brazilian Holder that (i) is not a 4,373 Holder and is not a Tax Haven Holder, or (ii) is a 4,373 Holder and is a Tax Haven Holder; or |
| 3. | subject to income tax at a rate of 25.0% in the case of gains assessed by a Non-Brazilian Holder that is not a 4,373 Holder and is a Tax Haven Holder. |
There can be no assurance that the current preferential treatment for 4,373 Holders will continue in the future.
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Any other gains assessed on a disposition of the Common Shares, Preferred Shares or Units that is not carried out on the Brazilian stock exchange is subject to income tax at the progressive rates ranging from 15% to 22.5%, except for gains assessed by Tax Haven Holders who are subject to an income tax rate of 25.0%.
If these gains are related to transactions conducted on the Brazilian non-organized, over-the-counter market, through an intermediary, the withholding income tax of 0.005% on the sale value shall also be applicable and can be offset with the eventual income tax due on the capital gain.
The deposit of Units in exchange for the ADSs may be subject to Brazilian income tax. In this case, the difference between the acquisition cost and the market price of the Units would be subject to income tax at the progressive rates ranging from 15% to 22.5% or 25.0% in the case of investors that are Tax Haven Holders. There may be arguments to claim that this taxation is not applicable in the case of a Non-Brazilian Holder that is registered under Resolution 4,373 (other than Tax Haven Holders), which should not be subject to income tax in such a transaction.
The withdrawal of Units upon cancellation of ADSs should not be subject to Brazilian income tax, as long as the regulatory rules are appropriately observed with respect to the registration of the investment before the Brazilian Central Bank.
In the case of redemption of the Common Shares, Preferred Shares or Units or ADSs or capital reduction by a Brazilian corporation, with subsequent withdrawal of the ADSs, such as our company, the positive difference between the amount effectively received by the Non-Brazilian Holder and the acquisition cost of the securities redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the progressive rates ranging from 15.0% to 22.5% or 25.0%, as the case may be.
Any exercise of preemptive rights relating to the Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares or Units.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs.
Pursuant to Decree No. 6,306 of December 14, 2007 (“Decree No. 6,306/07”), a tax on foreign exchange transactions (“IOF/Exchange”) may be imposed on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) or vice-versa. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%, except for: (i) foreign exchange transactions for the inflow of funds related to investments in variable income effectuated by a Non-Brazilian Holder in the Brazilian financial and capital market, in which case the rate is 0%, and (ii) payment of dividends, and interest on shareholders’ equity related to the investment mentioned under item (i) above, in which case the rate is zero. Nonetheless, the Brazilian government may increase the rate to a maximum of 25.0%. Any such increase will be applicable only prospectively.
Pursuant to Decree No 6,306/07, the Tax on Bonds and Securities Transactions (“IOF/Bonds”) may be imposed on any transactions involving bonds and securities, including those carried out on Brazilian stock, futures and commodities exchanges. The rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero if the redemption, transfer or renegotiation occurs after 30 days of their acquisition. As from December 24, 2013, the IOF/Bonds levies at a rate of zero percent on the transfer (cessão) of shares traded in a Brazilian stock exchange environment with the specific purpose of enabling the issuance of depositary receipts to be traded outside Brazil. The Brazilian government is permitted to increase such rate at any time up to 1.5% per day, but only in respect of future transactions.
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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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs. This summary applies only to purchasers of Common Shares, Preferred Shares, Units or ADSs who will hold the Common Shares, Preferred Shares, Units or ADSs as capital assets and does not apply to special classes of holders such as brokers or dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, holders of 10% or more of our shares by vote or value (taking into account shares held directly or through depositary arrangements), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders who elect to account for their investment in Common Shares, Preferred Shares, Units or ADSs on a mark-to-market basis, regulated investment companies, partnerships or other pass-through entities (or partners or members therein), insurance companies, U.S. expatriates, and persons holding Common Shares, Preferred Shares, Units or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction for U.S. federal income tax purposes. Moreover, this summary does not address the Medicare tax on net investment income or the tax consequences to U.S. holders of acquiring, owning or disposing of Common Shares, Preferred Shares, Units or ADSs under any U.S. federal estate or gift, state, local or foreign taxes.
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 Common Shares, Preferred Shares, Units or ADSs.
In this discussion, references to a “U.S. holder” are to a beneficial holder of a Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Units 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 Common Shares, Preferred Shares or Units).
We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. U.S. holders therefore should expect that distributions generally will be treated as dividends for U.S. federal income tax purpose.
If you are a U.S. holder, the amount of any distribution will include the amount of Brazilian tax withheld on the amount distributed, and the amount of a distribution paid in reais will be measured by reference to the exchange rate for converting reais into U.S. dollars in effect on the date the distribution is received by the custodian (or by a U.S. holder in the case of a holder of Common Shares, Preferred Shares or Units). If the custodian (or U.S. holder in the case of a holder of Common Shares, Preferred Shares or Units) does not convert such reais into U.S. dollars on the date it receives them, it is possible that the U.S. holder will recognize foreign currency loss or gain, which would be ordinary loss or gain, when the reais are converted into U.S. dollars. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations under the Code.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual, with respect to the ADSs, will be subject to taxation at preferential rates if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2020 and 2021 taxable years. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 2022 taxable year. Based on existing guidance, it is not clear whether dividends received with respect to the Units will be treated as qualified dividends, because the Units themselves are not listed on a U.S. exchange. Holders of ADSs and Units should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances.
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Subject to generally applicable limitations and conditions, Brazilian withholding tax on dividends with respect to Common Shares, Preferred Shares, Units or ADSs that is paid at the appropriate rate applicable to the U.S. holder may be eligible for credit against such U.S. holder’s U.S. federal income tax liability. For taxable years beginning after December 28, 2021, these generally applicable limitations and conditions include new requirements recently adopted by the IRS and any Brazilian tax will need to satisfy these requirements in order to be eligible to be a creditable tax for a U.S. holder. The application of these requirements to the Brazilian tax on dividends is uncertain and we have not determined whether these requirements have been met. If the Brazilian tax is not a creditable tax for a U.S. holder or the U.S. holder does not elect to claim a foreign tax credit for any foreign income taxes, the U.S. holder may be able to deduct the Brazilian tax in computing such U.S. holder’s taxable income for U.S. federal income tax purposes. For U.S. holders that do elect to claim foreign tax credits, dividend distributions will constitute income from sources without the United States and generally will constitute “passive category income” for foreign tax credit purposes. The availability and calculation of foreign tax credits and deductions for foreign taxes involve the application of complex rules and also vary depending upon on a U.S. holder’s particular circumstances. U.S. holders should consult their own tax advisors regarding the application of these rules to their particular situations.
Distributions of additional shares to holders with respect to their Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs that are treated as dividend income for U.S. federal income tax purposes unless such dividends are effectively connected with the conduct by the holder of a trade or business in the United States.
Taxation of Capital Gains
Upon the sale or other taxable disposition of a Common Shares, Preferred Shares, Units or ADS, a U.S. holder will recognize gain or loss for U.S. federal income tax purposes. The amount of the gain or loss will be equal to the difference between the amount realized in consideration for the disposition of the Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units 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 Common Shares, Preferred Shares, Units or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if Brazilian tax is imposed on such gain, the U.S. holder will not be able to use the corresponding foreign tax credit, unless the holder has other foreign source income of the appropriate type in respect of which the credit may be used. In addition, under the new foreign tax credit requirements recently adopted by the IRS, for taxable years beginning after December 28, 2021, any Brazilian tax imposed on the sale or other disposition of the Common Shares, Preferred Shares, Units or ADSs is unlikely to be treated as a creditable tax for U.S. foreign tax credit purposes. If the Brazilian tax is not a creditable tax for a U.S. holder or the U.S. holder does not elect to claim a foreign tax credit for any foreign income taxes, the U.S. holder may be able to deduct the Brazilian tax in computing such U.S. holder’s taxable income for U.S. federal income tax purposes. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to a sale or other disposition of the Common Shares, Preferred Shares, Units or ADSs and any Brazilian tax imposed on such sale or disposition.
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 Common Shares, Preferred Shares, Units 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.
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Foreign Financial Asset Reporting
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of US$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.
Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the ADSs or Common Shares, Preferred Shares or Units to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is furnished to the Internal Revenue Service.
A non-U.S. Holder generally will be exempt from these information reporting requirements and backup withholding tax, but may be required to comply with certain certification and identification procedures in order to establish its eligibility for such exemption in connection with payments received within the United States or through certain U.S.-related intermediaries.
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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. We are required to make filings with the SEC by electronic means. Any filings we make electronically will be available to the public over the Internet at the SEC’s website.
For more information about our securities, see Exhibit 2.4 to this annual report.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
See Note 36.2.3 to our audited consolidated financial statements for disclosure about market risk.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Item 12A. Debt Securities
Not applicable.
Item 12B. Warrants and Rights
Not applicable.
Item 12C. Other Securities
Not applicable.
Item 12D. American Depositary Shares
In the United States, the Units trade in the form of ADSs, each representing one Unit, issued by The Bank of New York Mellon (or the Depositary) pursuant to the Deposit Agreement. The ADSs trade under the symbol “ELP”. ADS holders are required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The Depositary is located at 240 Greenwich Street, New York, NY 10286.
ADS holders are required to pay the Depositary: (i) an annual fee of up to US$0.02 per ADS (or portion thereof) for administering the ADS program, and (ii) amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, cable, telex and facsimile transmission, or conversion of foreign currency into U.S. dollars. In both cases, the Depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
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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, 2021, this amount was US$639,862.98.
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Control and Procedures
2021 Fiscal Year
Disclosure Controls and Procedures, and Report on Internal Control over Financial Reporting
(a) Disclosure Control and Procedures
We evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021 with the participation of our Chief Executive Officer and Chief Financial Officer. Based on our assessment, we concluded that, as of December 31, 2021, our disclosure controls and procedures were effective in providing reasonable assurance that information that we are required to disclose in the reports we present or submit under the Exchange Act is recorded, processed, summarized and reported, within the deadlines specified in the applicable rules and forms, and are accumulated and reported to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding any required disclosure.
(b) Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating the effectiveness of internal control over financial reporting. The process of internal controls over financial reporting is designed by our Chief Executive Officer and our Chief Financial Officer, under the supervision of our Board of Directors, and is carried out by our management and other employees as a means to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS, issued by the IASB.
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Rules 13a-15(f) and 15d-15(f) under the Exchange Act define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes policies and procedures that (1) refer to record keeping that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to enable the preparation of financial statements in accordance with generally accepted accounting principles, and that Company’s receipts and expenses are being made only with authorization from Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company's assets that could have a material effect on the audited consolidated financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any assessment of effectiveness for future periods are subject to numerous risks, including that controls may become inadequate due to changes in conditions.
Our management has assessed the effectiveness of our internal controls over financial reporting as of December 31, 2021, was based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In accordance with the directive issued by the Securities and Exchange Commission that the evaluation of a recently acquired business can be omitted from the management report on internal control in the period of disclosure of the year in which the acquisition occurred, management excluded the assessment of the effectiveness of internal control disclosure period for the Vilas Wind Complex (Complexo Parque Vilas), whose acquisition was completed on November 30, 2021, and which represented 1.85% of our total assets and 0.05% of our net operating revenues and 0.10% of our net income for the period subsequent to its consolidation in our consolidated financial statements for the year ended on December 31, 2021.
Based on this evaluation, subject to the exclusions mentioned above, management has concluded that as of December 31, 2021, the Company's internal control over financial reporting is effective.
Our independent registered public accounting firm has examined the effectiveness of our internal control over financial reporting, as indicated in the report included in this document.
(c) Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of
Directors of
Companhia Paranaense de Energia - Copel
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Companhia Paranaense de Energia - Copel and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in “Internal Control - Integrated Framework (2013)”, issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021 of the Company and our report, dated April 27, 2022, expressed an unqualified opinion on those financial statements.
As described in the Management Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Vilas Wind Complex, which was acquired on November 30, 2021, and whose financial statements constitute 1.85% of total assets, 0.05% of net operating revenue and 0.10% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at Vilas Wind Complex.
Basis for opinion
The Company’s Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.
Curitiba, Brazil
April 27, 2022
(d) Changes in Internal Control on Financial Reporting
Our management implemented changes to its internal control over financial reporting during the year ended December 31, 2021 related to cyber security, as highlighted below:
| · | Improvements in procedures for monitoring and detection of cyber attacks, by means of the implementation of the EDR techonology (Endpoint Detection and Response) and rollout of the environment, with the aim of improving our timely response to cyber threat incidents; |
| · | Conducting mandatory training for employees and third parties on cyber security; |
| · | Conducting awareness campaigns for employees regarding cybersecurity, home office, LGPD, and access control; |
| · | Improvement in the procedures and controls relating to monitoring and update of security patches for all Company assets; |
| · | Implementation of a second authentication factor to all external access channels. |
Our management has not identified any other changes in its internal control over financial disclosure reporting during the year ended December 31, 2021 that has significantly affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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Item 16A. Audit Committee Financial Expert
On April 30, 2021, our Board of Directors reviewed the qualifications and backgrounds of the members of the Audit Committee and determined that Mr. Carlos Biedermann an “audit committee financial expert” within the meaning of Item 16A of Form 20-F and satisfied the requirements of independence of Rule 10A-3 under the Securities Exchange Act. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Audit Committee”.
Item 16B. Code of Ethics
Our code of ethics, called the "Code of Conduct", was first adopted in 2003. Over the years there have been reviews to the document to adequate it to the Company's reality. We highlight the review carried out in 2015, when a public consultation to stakeholders took place, and the 2017 review that started to reflect the new Brazilian regulations on conflict of interests and periodic training. The current version of the Code of Conduct was approved on March 13, 2018 by the Board of Directors. In 2019, we began a new process of reviewing our Code through public consultation, which is expected to be completed in 2022.
The Code of Conduct applies to all of our employees, interns, suppliers, service providers, contractors, directors and officers (including our Chief Executive Officer, our Chief Financial Officer and the officer in charge of our accounting department), as well as of our wholly-owned subsidiaries. Since the adoption of our Code of Conduct, we have not granted any express or implied waiver of any section of our code to the persons to whom it applies.
Our Code is available on our website (ir.copel.com) and copies may also be delivered by mail upon written request to the address provided on the cover page.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
Deloitte Touche Tohmatsu
Auditores Independentes Ltda, PCAOB ID No.
The table next sets forth
the total amount billed to
|
Year ended December 31, | ||
| Billed |
2021 |
2020 |
| (R$ million) | ||
| Audit fees | 4.7 | 4.3 |
| Audit-related fees | - | - |
| Tax fees | 0.1 | 0.2 |
| All other fees | - | 0.1 |
| Total | 4.8 | 4.6 |
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.
Tax Fees
Tax fees are fees billed for the review of fiscal and tax procedures, including the examination of the procedures in force for the calculation, retention, registration, control, collection, recovery and accounting of taxes, including ancillary obligations.
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All Other Fees
The services comprising the fees disclosed under “All Other Fees” refer to (i) fact finding consultive services in connection with the discussion with the Colíder Consortium, with respect to the “Agreement for the Supply of Goods and Services” for the Implementation of the Colíder HPP, and (ii) fact finding consultive services in connection with the discussion to reestablishing the economic and financial balance of said Agreement.
Audit Committee Pre-Approval Policies and Procedures
When hiring other services from its external auditors, the Company's practice provides for prior analysis by the Audit Committee of the Board of Directors, which must consider in this assessment whether a relationship or service provided by an independent auditor: (i) creates conflicting interests with your audit client; (ii) puts them in a position to audit their own work; (iii) results in acting as a manager or as an employee of the audit client; or (iv) puts them in a position of attorney for the audit client.
The Audit Committee also considers, in this type of assessment, whether any service provided by the independent auditing company may impair, in fact or apparently, the firm's independence. Whenever necessary, the Audit Committee can count on the technical support of the Internal Audit, or of an independent consultancy, for technical evaluation that may be required in each specific case, with discussions on the contracting of other services being recorded in the minutes of this collegiate meeting independent auditor.
For more information regarding our Board of Directors and Audit Committee, see “Item 6. Directors, Senior Management and Employees”.
Item 16D. Exemption from the Listing Standards for Audit Committees
Under the rules of the NYSE and the SEC, absent an exemption, we must comply with Securities Exchange Act Rule 10A-3, which requires that we establish an audit committee composed of independent members of the board of directors that meets specified independence requirements. We rely on our Audit Committee to meet the exemption requirements under paragraph (c)(3) of Rule 10A-3. Under our bylaws and the Audit Committee’s charter, (i) our Audit Committee shall have three to five members, (ii) each member must comply with the independence requirements of our bylaws and of Federal Law 13,303/2016, (iii) at least one member must be a member of our Board of Directors, (iv) at least one member must not be a member of our Board of Directors and (v) at least one member must be must satisfy accounting / financial expertise requirements of Federal Law 13,303/2016.
Currently, our Audit Committee is composed of three members. Mr. Carlos Biedermann, Marco Antônio Barbosa Cândido and Mr Luiz Claudio Maia Vieira. Mr Luiz Claudio Maia Vieira is characterized as an external member. For more information regarding our Audit Committee, see “Item 6. Directors, Senior Management and Employees—Audit Committee”.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Changes in Registrant’s Certifying Accountant
Not applicable.
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Item 16G. Corporate Governance
|
Section |
New York Stock Exchange Corporate Governance Rules for U.S. Domestic Issuers |
Copel’s Approach | |
|
Director Independence | |||
| 303A.01 | A company listed on the New York Stock Exchange (a “listed company”) must have a majority of independent directors on its Board of Directors. “Controlled companies” are not required to comply with this requirement. | Since the majority of its voting shares are held by the State of Paraná. As such, Copel would not be required to comply with the majority of independent directors requirement. At least three directors of Copel must be independent, to equal or exceed 25% of the total number of members. Such directors must be recognized as independent in the minutes of the General Meeting that elects them, in accordance with Copel's Bylaws, Federal Laws 6,404/1976 and 13,303/2016, B3's Level 2 Corporate Governance Regulation and Rule 10A-3 of the Securities Exchange Act | |
| 303A.03 | The non-management directors of a listed company must meet at regularly scheduled executive sessions without management. |
Copel's non-managing directors regularly hold executive sessions without management, which are usually scheduled to occur at the end of board meetings Our Chief Executive Officer is also a member of our board of directors. Pursuant to the internal regulations of our board of directors, in the event a conflict of interest or particular interest of any board member is identified in relation to a matter to be decided to be decided by the board, such board member must recuse himself from the meeting, which will continue without his presence. | |
|
Nominating/Corporate Governance Committee | |||
| 303A.04 | A listed company must have a Nominating/ Corporate Governance Committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. “Controlled companies” are not required to comply with this requirement. | As a controlled company, Copel would not be required to comply with the nominating/ corporate governance committee requirements. However, Article 10 of Brazilian Law 13,303 / 2016 requires Copel to keep a permanent statutory committee, advisory to the shareholders, and responsible for monitoring the nomination and evaluation processes applicable to our management, members of our board of directors, Supervisory Board and board committees. This committee is composed of members nominated by the shareholders. | |
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|
Compensation Committee | |||||||
| 303A.05 | A listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. “Controlled companies” are not required to comply with this requirement. | Copel fits the definition of “controlled company,” as the majority of its voting shares are held by the State of Paraná. As a controlled company, Copel would not be required to comply with the compensation committee requirements if it were a U.S. domestic issuer. | |||||
|
Audit Committee | |||||||
|
303A.06 303A.07 |
A listed company must have an audit committee with a minimum of three (3) independent directors who satisfy the independence requirements of Rule 10A-3 under the Securities Exchange Act, with a written charter that covers certain minimum specified duties. |
Copel has a Statutory Audit Committee, an independent advisory body to the Board of Directors, as per Article 51 of Copel's Bylaws (Holding Company), whose responsibilities, duties, competencies and attributions are established in specific internal regulations, in compliance with the laws of Brazil and the United States, including the provisions of the Sarbanes-Oxley Act (SOX); SEC and NYSE rule sand best practices. This Committee has three to five members elected by the Board of Directors, which can also remove members, all with a unified term of office of two years and a maximum of three consecutive reappointments. The Audit Committee must have at least one member of the Board of Directors, one member who is not part of the Board of Directors, chosen from a pool of individuals with significant experience and technical capacity, and one member with recognized professional experience in matters of corporate accounting, auditing, and finance, which characterizes them as a "financial expert" under applicable legislation. Currently the Audit Committee is composed of three independent members. The Audit Committee is an advisory committee responsible for assisting our Board of Directors and giving its opinion on matters related to our financial and accounting management, risks, internal controls and audit, including, but not limited to, the quality, transparency and integrity of our financial statements, effectiveness of our internal controls with respect to the preparation of financial reports, as well as the activities, independence and quality of the work of our external and internal auditors. In addition, the Audit Committee is responsible for monitoring the collection, subsequent investigations, findings and any follow-up of complaints made through the Reporting Channel. The Audit Committee is also responsible for issuing its annual report, published together with the Company's accounting and financial statements. | |||||
|
Equity Compensation Plans | |||||||
| 303A.08 | Shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules. |
Under Brazilian Corporate Law, shareholder pre-approval is required for the adoption of any equity compensation plans and material revisions thereto.
| |||||
|
Corporate Governance Guidelines | |||||||
| 303A.09 | A listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. | Although the corporate governance practices adopted by Copel do not comply with all the terms specified in the rules of the NYSE, they fulfill the requirements established for companies listed on level 2 of corporate governance of B3 (Brasil, Bolsa, Balcão). The Company also adopts the Code of Better Corporate Governance Practices of the Brazilian Institute for Corporate Governance (”IBGC”). | |||||
| 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, a set of rules that guide the actions of all persons who perform activities on behalf of Copel and its wholly-owned and controlled subsidiaries, including employees (regardless of their function or hierarchical position), administrators (members of the Board of Directors and Executive Board), members of the Audit Committee, interns, suppliers, service providers and outsourced personnel. All such individuals are responsible for abiding by the code’s provisions and applying its content within their respective roles, in addition to promoting disclosure, understanding and integration of Copel’s code of ethics.
| |||||
|
Certification Requirements | |||||||
| 303A.12 | A CEO of a listed company must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of Section 303A and certify he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation as and when required by the interim Written Affirmation form specified by the NYSE. |
Copel’s CEO will promptly notify the NYSE in writing after any executive officer of Copel becomes aware of any material non-compliance with any applicable provisions of the NYSE corporate governance rules and will also certify if he is not aware of any violation by the listed company of NYSE corporate governance listing standards. Copel submits every year an Annual Written Affirmation to the NYSE and will submit an interim Written Affirmation when required. | |||||
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Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
Reference is made to pages F-1 through F-134.
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Item 19. Exhibits9F9F
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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.
ADSs: American Depositary Shares, each representing one Unit.
ANATEL: The Brazilian National Telecommunication Agency, or the Agência Nacional de Telecomunicações.
ANEEL: The Brazilian Electricity Regulatory Agency, or the Agência Nacional de Energia Elétrica.
Assured Energy: Determined amount assigned to each hydroelectric plant according to the energy supply risk criteria defined by MME. The assured energy also represents the maximum energy that can be sold by the generator, which is set forth in each concession agreement, irrespective of the volume of electricity actually generated by the facility.
Availability Agreement: Agreement under which a generator commits to making a certain amount of electrical capacity available to the Regulated Market. In such case, the generator’s revenue is guaranteed and the distributors must bear the risk of a supply shortage.
Average Tariff or Rate: Total sales revenue divided by total megawatt hours (MWh) sold for each relevant period, including in the case of the Company, unbilled electricity, or electricity which has been delivered to a customer, but for which the utility has yet to deliver a bill. Total sales revenue, for the purpose of computing average tariff or rate, includes both gross billings before deducting value-added tax and unbilled electricity sales upon which such taxes have not yet accrued.
Bilateral Agreement: Legal instrument that formalizes the purchase and sale of electric energy between Agents of the Chamber of Commercialization of Electric Energy - CCEE, with the purpose of establishing prices, terms and amounts of supply at determined time intervals.
BNDES: the National Bank for Economic and Social Development, or Banco Nacional de Desenvolvimento Econômico e Social.
Brazilian Central Bank: The Brazilian Central Bank, or Banco Central do Brasil. Brazilian Forestry Code: Federal Law No. 12,651/2012.
B3 (Brasil, Bolsa, Balcão): B3 S.A. - Brasil, Bolsa, Balcão, the securities, commodities and futures exchange, headquartered in São Paulo, Brazil, incoporated as a result of the merger of BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros and CETIP S.A. – Mercados Organizados.
Captive Customers: customers whose energy is supplied by the distributor in which the consumer unit is connected, such as that the amount paid already includes the energy cost and service cost for use of transmission and distribution - wire service. The consumer is not free to negotiate the conditions and the flexibility of energy supplied to meet the needs of its business, instead having to follow the determinations set forth by the distributor. The consumer is subject to the unpredictability of the annual variation of the value of the distributors’ tariffs.
CCEE (Câmara de Comercialização de Energia Elétrica): Chamber of Commercialization of Electric Energy.
CDE: the Electric Energy Development Account, or Conta de Desenvolvimento Energético.
CER: Reserve Energy Contract (Contrato de Energia Reserva).
Class A Shares: The Company’s class A preferred shares.
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Class B Shares: The Company’s class B preferred shares.
CMN: The National Monetary Council of Brazil, or Conselho Monetário Nacional.
Code: The U.S. Internal Revenue Code of 1986, as amended.
Common Shares: The Company’s common shares.
Compagas: Companhia Paranaense de Gás – Compagas
Copel Distribuição: Copel Distribuição S.A., the Company’s entity engaged in the distribution business.
Copel Geração e Transmissão S.A. or Copel GeT: The Company’s entity engaged in the generation and transmission business.
CRC Account: The recoverable rate deficit account, or Conta de Resultados a Compensar.
Custodian: Itaú Unibanco S.A., as custodian for the Units represented by ADSs.
CVM (Comissão de Valores Mobiliários): Securities and Exchange Commission
Decree No. 6,306/07: Brazilian tax Decree No. 6,306 dated December 14, 2007, which regulates tax on credit, exchange and insurance, or relating to securities – IOF.
Deloitte: Deloitte Touche Tohmatsu Auditores Independentes Ltda.
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 grid.
Elejor: Centrais Elétricas do Rio Jordão S.A.
Eletrosul: Eletrosul Centrais Elétricas S.A.
Energy Agreement: Agreement under which a generator commits to supply a certain amount of electricity and assumes the risk that its electricity supply could be adversely affected by hydrological conditions and low reservoir levels, which could interrupt the supply of electricity. In such case, the generator would be required to purchase electricity elsewhere in order to comply with its supply commitments.
Final Customer: A party that uses electricity for its own needs.
Free Customers: Electricity customers that are able to choose their own power suppliers since they meet the following requirements: (i) demand of at least 3 MW at any voltage for new customers (those connected to the distribution grid after July 1995); (ii) demand of at least 3 MW and supplied at voltage levels equal to or greater than 69 kV for existing customers (those connected to the distribution grid before July 1995); and (iii) demand of at least 500 kW and that opt to be supplied energy by means of alternative sources, such as wind power projects, small hydroelectric power plants or biomass projects (also known as Special Customers).
Free Market: Market segment that permits a certain degree of competition. The Free Market specifically contemplates purchase of electricity by non-regulated entities such as Free Customers and energy traders.
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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 billionwatt hours.
GPON: Gigabit-Capable Passive Optical Networks - A passive optical network (PON) is a system that brings optical fiber cabling and signals all or most of the way to the end user. Depending on where the PON terminates, the system can be described as fiber-to-the-curb (FTTC), fiber-to-the-building (FTTB), or fiber-to-the-home (FTTH). Passive Optical Network: A point-to-multipoint, passive fiber network architecture in which a single fiber utilizes optical splitters to serve multiple premises. Gigabit PON: Based on the previous PON types, GPON supports higher data rates and increased security, and has been deployed around the world by major telecom operators.
Group A Customers: A group of customers that uses electricity at 2.3 kV or higher. Tariffs applied to this group are based on the actual voltage level at which energy is supplied and the time of day and year the energy is supplied.
Group B Customers: A group of customers that uses electricity at less than 2.3 kV. Tariffs applied to this group are comprised solely of an energy charge and are based on the classification of the customer.
GSF: Generation Scaling Factor.
High Voltage: A class of nominal system voltages equal to or greater than 69,000 volts and less than 230,000 volts.
HPP or Hydroelectric Power Plant: A generating unit that uses water power to drive the electric generator.
IASB: International Accounting Standards Board.
IFRS: International Financial Reporting Standards.
IGP-DI: The Índice Geral de Preços—Disponibilidade Interna inflation index.
IGP-M Index: The Brazilian General Market Price inflation index, or the Índice Geral de Preços do Mercado.
Installed Capacity: The level of electricity that can be delivered from a particular generating unit on a full-load continuous basis under specified conditions as designated by the manufacturer.
Interconnected Transmission System: Systems or grids for the transmission of energy, connected together by means of one or more lines and transformers.
IPCA: Índice Nacional de Preços ao Consumidor Amplo - IPCA inflation index.
IPP: Independent Power Producer, a legal entity or consortium holding a concession or authorization for power generation for sale for its own account to public Utility concessionaires or Free Customers.
Itaipu: Itaipu Binacional, a hydroelectric facility equally owned by Brazil and Paraguay, with an installed capacity of 14,000 MW.
Kilovolt (kV): One thousand volts.
Kilowatt (kW): One thousand watts.
Kilowatt hour (kWh): One kilowatt of power supplied or demanded for one hour, or one thousand watt hours.
Latibex: A Euro-based market for Latin American securities, which is part of the Madrid Stock Exchange.
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LGPD: Brazilian Federal Law No. 13,709/2018, or Lei Geral de Proteção de Dados Pessoais.
Low-income Residential Customers: A group of customers that consumes less than 220 kWh per month and has filed an application to receive benefits under any of the Brazilian government’s social programs. Low-income residential customers are considered a subgroup of residential customers and are not subject to payment of emergency capacity and emergency acquisition charges or any extraordinary tariff approved by ANEEL.
Main Transmission Concession: transmission concession contract No. 060/2001 comprised of different transmission assets that were in operation in the year of 2001 (date of execution of the concession agreement).
MCSD: The Mechanism for Compensation of Surpluses and Deficits (Mecanismo de Compensação de Sobras e Déficits), which corresponds to the process of reallocation of energy surpluses and deficits undertaken in accordance with the Regulated Contracting Environment – ACR among the distribution agents that participate in CCEE.
MCSD-EN: The Mechanism for Compensation of Surpluses and Deficits of New Energy (Mecanismo de Compensação de Sobras e Déficits de Energia Nova), which allows distribution agents to offset amounts of electric energy and power acquired in auctions of new generation projects, and allows the reduction of amounts contracted with generating agents bound to new generation ventures.
Megawatt (MW): One million watts.
Megawatt hour (MWh): One megawatt of power supplied or demanded for one hour, or one million watt hours.
MME: The Brazilian Ministry of Mines and Energy, or the Ministério de Minas e Energia.
MRE: The Energy Reallocation Mechanism is a mechanism which attempts to mitigate the risks borne by hydroelectric generators due to variations in river flows (hydrological risk).
MVE: The Mechanism of Surplus Sales, or the Mecanismo de Venda de Excedentes, which allows distribution companies to sell energy surpluses and, in the case of sales related to amounts within the regulatory limits or involuntary over contracting, allows distribution companies to revert the acquired benefit to consumers through tariff adjustments.
Non-Brazilian Holder: An individual, entity, trust or organization resident or domiciled outside Brazil for purposes of Brazilian taxation that acquires, owns and disposes of Common Shares, Preferred Shares, Units or ADSs.
PLD: Difference Settlement Price or, Preço de Liquidação de Diferenças.
PPD: Performance Incentive Program, or Prêmio Por Desempenho.
Preferred Shares: the preferred shares of the company, divided between Classe A Shares and Class B Shares.
ONS: The National Electric System Operator, or the Operador Nacional do Sistema Elétrico.
RAP or APR: Annual Permitted Revenues, or Receita Anual Permitida, the annual revenue established by ANEEL to be charged by a transmission concessionaire for the use of its transmission lines by third parties, which include Free Customers, generators and distributors.
Rationing Program: A program instituted by the Brazilian government to reduce electricity consumption, in effect from June 1, 2001 to February 28, 2002, given it was a period of low rainfall in Brazil.
Real, Reais or R$: Brazilian reais (plural) and the Brazilian real (singular).
Regulated Market: Market segment in which distribution companies purchase all the electricity needed to supply customers through public auctions. The auction process is administered by ANEEL, either directly or through CCEE, under certain guidelines provided by the MME. The regulated market is generally considered to be more stable in terms of supply of electricity.
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Regulatory Remuneration Base: The aggregate amount of investments made by the distribution companies in connection with the services compensated by tariffs charged to consumers (Base de Remuneração Regulatória).
Reserve Energy Auction: mechanism for the contracting of reserve energy created to increase the security in the supplied of energy by the National Interconnected System (SIN). The reserve auction acts as an insurance contracted by distributors to be used when there is a mismatch between forecasted demand and supply. This modality of contracting is formalized through the conclusion of the CER between the selling agents in the auctions and the CCEE.
Retail Tariff: Revenue charged by distribution companies to its customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Retails tariffs are subject to annual revision by ANEEL.
RGR Fund: A reserve fund designed to provide compensatory payments to energy companies for certain assets used in connection with a concession if the concession is revoked or is not renewed.
Sanepar: Companhia de Saneamento do Paraná – Sanepar.
Securities Act: The United States Securities Act of 1933, as amended.
Securities Exchange Act: The United States Securities Exchange Act of 1934, as amended.
Sercomtel: Sercomtel Telecomunicações S.A.
SHP ‒ Small Hydroelectric Plant: Hydroelectric plants with generating capacity between 1,000 kW and 30,000 kW with a reservoir covering an area equal to or less than 3.0 km2.
SPC: Special Purpose Company, or Sociedade de Propósito Específico.
Special Customers: A group of customers that uses at least 500 kV. A Special Customer may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants.
Spot Market: Deregulated market segment in which electricity is bought or sold for immediate delivery. In general, prices of spot market energy purchases tend to be substantially higher than the price of energy under long-term energy purchase agreements.
Substation: An assemblage of equipment, which switches and/or changes or regulates the voltage of electricity in a transmission and distribution system.
Tax Haven Holder: A shareholder situated in tax haven jurisdictions (that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% (or 17%, as the case may be) or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the beneficial owner of the income derived from transactions carried out and attributable to a Non-Brazilian Holder). The list of tax haven jurisdictions is currently provided in Normative Ruling No. 1,037.
Thermoelectric Plant or TPP: A generating unit which uses combustible fuel, such as coal, oil, diesel natural gas or other hydrocarbon as the source of energy to drive the electric generator.
TJLP: The Long-Term Interest Rate, or the Taxa de Juros a Longo Prazo, the Brazilian government’s long-term interest rate.
Transmission: The bulk transfer of electricity from generating facilities to the distribution grid at load center station by means of the transmission grid (in lines with capacity between 69 kV and 525 kV).
Transmission Tariff: Revenue charged by a transmission concessionaire based on the transmission grid it owns and operates. Transmission tariffs are subject to periodic revisions by ANEEL.
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TUST: The tariff established by ANEEL for the use of the transmission system, which is the Interconnected Transmission System and its ancillary facilities.
UHE GBM: Governador Bento Munhoz da Rocha Netto Hydroelectric Power Plant.
Unit(s): depositary receipt traded in B3 and Latibex, and depending on the context, the depositary receipt represented by ADS traded in NYSE, in each case composed by one Common Share and four Class B Shares.
U.S. Dollars, dollars, or US$: United States dollars.
U.S. Holder: A beneficial holder of a Common Share, a Preferred Share, an Unit 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 Common Share, Preferred Share, Unit 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/ Daniel Pimentel Slaviero
Name: Daniel Pimentel Slaviero
Title: Chief Executive Officer
By: /s/ Adriano Rudek de Moura
Name: Adriano Rudek de Moura
Title: Chief Financial and Investor Relations Officer
Date: April 27, 2022
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Companhia Paranaense de Energia - Copel
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial position of Companhia Paranaense de Energia - Copel and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and of its cash flows for each of the three years in the period ended December 31, 2021, in conformity with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal controls over financial reporting as of December 31, 2021, based on the criteria established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 27, 2022, expressed an unqualified opinion on the Company’s internal controls over financial reporting.
Basis for opinion
These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission - SEC and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by Management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Emphasis of matter
COVID-19-related matters
We draw attention to note 1 to the financial statements, where the Company describes the impacts of the coronavirus disease (COVID-19) on the operations of the business and the uncertainties of related future impacts on the business, as well as the measures, both taken and planned, to deal with these events and circumstances.
Critical audit matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recognition of revenue from electricity sales to final customers and use of the main distribution and transmission grid - Refer to notes 4.12 and 32 to the financial statements
Critical audit matter description
The Company recognize unbilled revenue calculated between the date of the last measurement and the end of the month, on estimated basis, based on the average of the last billing. The Company bills its consumers on a monthly basis based on the energy measured. Unbilled revenues from the billing date to month-end are estimated based on the prior month’s billing and recognized as revenue at the end of the month in which the service was provided. At the end of each month, the volume of energy delivered to customers since the date of the last measurement is estimated and the corresponding unbilled revenue is determined considering the estimated daily consumption and the applicable rates by customer class, reflecting historical trends and significant experience. The differences between estimated unbilled and actual revenues are recognized in the next month.
We identified recognition of revenue from electricity sales to final customers and use of the main distribution and transmission grid as a critical audit matter because of the judgments necessary to audit the revenue recognition, including the methods and assumptions used to estimate unbilled revenue, as well as the use of automated systems to process and recognize revenue. Performing procedures to audit revenue required a high degree of auditor judgment and extensive audit effort, including involvement of our Information Technology (IT) specialists.
How the critical audit matter was addressed in the audit
Our audit procedures on revenue recognition included the following, among others:
| · | We tested the effectiveness of controls over revenue recognition, including Management’s controls over the measurement of energy volumes and pricing, as well as controls over estimates of unbilled revenue. |
| · | With the assistance of our IT specialists, we: |
| - | Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls. |
| – | Performed testing of system interface controls and automated controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenue. |
| 159 |
| · | With respect to unbilled revenue, we: |
| - | Evaluated the appropriateness and consistency of the methods and assumptions used by Management to develop the estimates of unbilled revenue. |
| - | Tested the mathematical accuracy of Management’s estimates of unbilled revenue. |
| - | We evaluated Management’s ability to estimate unbilled revenue accurately by comparing actual subsequent revenue with Management’s historical estimates for the related revenue streams. |
| · | We performed a test that comprised developing an independent expectation of the revenue amounts and its comparison with revenue effectively recognized. |
| · | For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to source documents, testing the mathematical accuracy of the revenue recognized, and verifying subsequent cash receipts. |
| · | We assessed whether the disclosures made by Management in the financial statements are appropriate. |
Provisions for legal claims and contingent liabilities - Refer to notes 4.11 and 30 to the financial statements
Critical audit matter description
The Company is part in several legal and administrative proceedings before different courts. Based on assessments made by the Company’s legal counsel, Management recognized a provision for those lawsuits which likelihood of loss is probable. The Company’s Management believes that it is not practicable to provide information regarding the expected timing of any cash outflows related to the lawsuits in which the Company and its subsidiaries are involved, due to the slow pace and unpredictability of Brazilian legal, tax and regulatory systems, and since final resolution of the proceedings for which a provision has been registered depends on the conclusions of the lawsuits.
We identified provisions for legal claims and contingent liabilities as a critical audit matter because of the large number of cases and the subjectivity necessary to estimate the likelihood and to measure the provision for litigation of potential losses. Performing audit procedures to evaluate whether the provision for legal claims was appropriately recognized and disclosed required a high degree of auditor judgment and an increased extent of effort.
How the critical audit matter was addressed in the audit
Our audit procedures related to provision for legal claims and contingent liabilities included the following, among others:
| · | We tested the effectiveness of controls related to provision for legal claims and evaluation of contingent liabilities, including those over the completeness and review of new and outstanding legal matters, as well as controls over the measurement of potential losses. |
| · | With the assistance of our IT specialists, we tested the effectiveness of controls related to the information systems used by Management to monitor and evaluate outstanding legal matters. |
| · | We tested the completeness and accuracy of the database used by Management to manage outstanding legal matters and to determine the likelihood of loss and measuring potential losses. |
| 160 |
| · | We inquired internal and external legal counsel to understand developments in legal matters and progression in potential settlement discussions. |
| · | We requested and received a written response from internal and external legal counsel as it relates to lawsuits and the related classification of the likelihood of loss for the Company and the amounts involved. |
| · | We read Board of Directors and Executive meeting minutes for evidence of undisclosed contingencies or unrecognized provisions. |
| · | We evaluated the assumptions and judgments used by Management to estimate the provision for legal claims, including corroborating the assumptions with internal legal counsel, with the assistance of our tax and environmental specialists. |
| · | We evaluated the Company’s disclosures for consistency with our knowledge of the Company’s legal matters. |
Renegotiation of the hydrological risk (Generation Scaling Factor-GSF) - Refer to note 1(b) and 4.9.2 to the financial statements
Management exercised judgment in the development and application of the accounting policy and measurement of the fair value of the intangible asset upon recognition of the effects relating to the renegotiation of the hydrological risk prescribed by Law 14.052, which amended Law 13.203/2015, and which methodology for calculation of the compensation and the procedures for the renegotiation were established by Aneel Regulatory Resolution 895.
We identified the renegotiation of the hydrological risk as a critical audit matter because of the judgments exercised in the application of the accounting pronouncements to define the existence of the intangible asset and its recognition at fair value and the corresponding impact on the Company’s results of operations. Performing procedures to audit the renegotiation of the hydrological risk required a high degree of auditor judgment due to the significant judgment exercised by Management in determining the related accounting policy and estimates for fair value measurement.
How the critical audit matter was addressed in the audit
Our audit procedures related to renegotiation of the hydrological risk included the following, among others:
| · | We tested the effectiveness of controls related to the Management’s process to measure the fair value of the intangible asset recognized. |
| · | With the assistance of our specialists in technical accounting and audit standards, we: |
| - | Assessed the accounting policy and corresponding methodology defined by Management for fair value measurement (discounted cash flow). |
| - | Assessed the recognition period. |
| · | With respect of the intangible asset recognized deriving from the renegotiation: |
| - | We evaluated the key business assumptions used in the discounted cash flow model, more specifically related to the projected revenue and estimated costs. |
| - | We evaluated the accounting for as intangible asset and the amount recognized in other operational income. |
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| · | We have evaluated the Company’s disclosures for consistency. |
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.
April 27, 2022
We have served as the Company’s auditor since 2016.
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Companhia Paranaense de Energia – Copel and Subsidiaries
Consolidated Financial Statements as of December 31, 2021 and 2020
and for the years ended December 31, 2021, 2020 and 2019 and Report of
Independent Registered Public Accounting Firm
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2021 and 2020
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| ASSETS | Note | 12.31.2021 | 12.31.2020 |
| CURRENT ASSETS | |||
| Cash and cash equivalents | 5 | | |
| Bonds and securities | 6 | |
|
| Collaterals and escrow accounts | | ||
| Trade accounts receivable | 7 | | |
| Dividends receivable | |
||
| CRC transferred to the Paraná State Government | 8 | - | |
| Sectorial financial assets | 9 | | |
| Accounts receivable - concessions | 10 | |
|
| Contract assets | 11 | | |
| Other current receivables | 12 | | |
| Inventories | | ||
| Income tax and social contribution receivable | |||
| Other current recoverable taxes | 13.2 | | |
| Prepaid expenses | 14 | |
|
| |
|||
| Assets held for sale | 41 | - | |
| NONCURRENT ASSETS | |||
| Long Term Assets | |||
| Bonds and securities | 6 | | |
| Other temporary investments | |
||
| Collaterals and escrow accounts | 22.1 | | |
| Trade accounts receivable | 7 | |
|
| CRC transferred to the Paraná State Government | 8 | - | |
| Judicial deposits | 16 | | |
| Sectorial financial assets | 9 | | |
| Accounts receivable - concessions | 10 | | |
| Contract assets | 11 | | |
| Other noncurrent receivables | 12 | | |
| Income tax and social contribution receivable | | ||
| Deferred income tax and social contribution | 13.1 | | |
| Other noncurrent recoverable taxes | 13.2 | | |
| Prepaid expenses | 14 | |
|
| Investments | 17 | | |
| Property, plant and equipment | 18 | |
|
| Intangible assets | 19 | | |
| Right-of-use asset | 28 | | |
| TOTAL ASSETS | |
||
| Notes are an integral part of these financial statements | |||
| F-1 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2021 and 2020
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| LIABILITIES | Note | 12.31.2021 | 12.31.2020 |
| CURRENT LIABILITIES | |||
| Payroll, social charges and accruals | 20 | | |
| Accounts payable to suppliers | 21 | | |
| Income tax and social contribution payable | |
| |
| Other taxes due | 13.2 | | |
| Loans and financing | 22 | | |
| Debentures | 23 | | |
| Dividend payable | | ||
| Post-employment benefits | 24 | |
|
| Sectorial charges payable | 25 | ||
| Research and development and Energy efficiency | 26 | | |
| Accounts payable related to concession | 27 | ||
| Sectorial financial liabilities | 9 | | |
| Lease liability | 28 | |
|
| Other accounts payable | 29 | | |
| PIS and Cofins to be refunded to consumers | 13.2.1 | |
|
| | |||
| Liabilities associated with assets held for sale | 41 | - | |
| |
| ||
| NONCURRENT LIABILITIES | |||
| Accounts payable to suppliers | 21 | | |
| Deferred income tax and social contribution | 13.1 | | |
| Other taxes due | 13.2 | | |
| Loans and financing | 22 | | |
| Debentures | 23 | | |
| Post-employment benefits | 24 | | |
| Research and development and Energy efficiency | 26 | | |
| Accounts payable related to concession | 27 | | |
| Sectorial financial liabilities | 9 | ||
| Lease liability | 28 | ||
| Other accounts payable | 29 | | |
| PIS and Cofins to be refunded to consumers | 13.2.1 | | |
| Provisions for legal claims | 30 | | |
| EQUITY | |||
| Attributable to controlling shareholders | |||
| Capital | 31.1 | |
|
| Equity valuation adjustments | 31.2 | | |
| Legal reserve | | ||
| Profit retention reserve | | ||
| Additional dividends proposed from the non-capitalized earning reserve | 31.4 | | |
| |
|||
| Attributable to non-controlling interests | 17.2.2 | | |
| TOTAL LIABILITIES & EQUITY | |
||
| Notes are an integral part of these financial statements | |||
| F-2 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2021, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| CONTINUING OPERATIONS | ||||
| NET OPERATING REVENUE | 32 | |||
| Operating costs | 33 | ( |
( |
( |
| GROSS OPERATING PROFIT | |
|
| |
| Other operational expenses / income | ||||
| Selling expenses | 33 | ( |
( |
( |
| General and administrative expenses | 33 | ( |
( |
( |
| Hydrological Risk Renegotiation - GSF | 33 | |
||
| Other operational income (expenses), net | 33 | ( |
( |
( |
| Equity in earnings of investees | 17 | |
|
|
| |
( |
( | ||
| PROFIT BEFORE FINANCIAL RESULTS AND TAXES | |
|
| |
| Financial results | 34 | |||
| Financial income | |
|
| |
| Financial expenses | ( |
( |
( | |
| ( |
|
( | ||
| OPERATING PROFIT | |
|
| |
| INCOME TAX AND SOCIAL CONTRIBUTION | 13.3 | |||
| Current | ( |
( |
( | |
| Deferred | ( |
( |
( | |
| ( |
( |
( | ||
| NET INCOME FROM CONTINUING OPERATIONS | |
|
| |
| DISCONTINUED OPERATIONS | ||||
| Net income from discontinued operations | 41 | |
|
( |
| NET INCOME | |
|
| |
| Attributed to shareholders of the parent company arising from continuing operations | |
|
| |
| Attributed to shareholders of the parent company due to discontinued operations | |
|
( | |
| Attributed to non-controlling shareholders resulting from continuing operations | 17.2.2 | |
|
|
| BASIC AND DILUTED EARNING PER SHARE ATTRIBUTED TO CONTROLLING | ||||
| SHAREHOLDERS - CONTINUING OPERATIONS - Expressed in Brazilian Reais | 31.3 | |||
| Common shares | |
|
| |
| Class "A" Preferred shares | |
|
| |
| Class "B" Preferred shares | |
|
| |
| BASIC AND DILUTED EARNING PER SHARE | ||||
| ATTRIBUTED TO CONTROLLING SHAREHOLDERS - Expressed in Brazilian Reais | 31.3 | |||
| Common shares | |
|
| |
| Class "A" Preferred shares | |
|
| |
| Class "B" Preferred shares | |
|
| |
| Notes are an integral part of these financial statements | ||||
| F-3 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2021, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| NET INCOME | |
|
| |
| Items that will never be reclassified to profit or loss | 31.2 | |||
| Gain (losses) on actuarial liabilities | ||||
| Post employment benefits | |
( |
( | |
| Taxes on other comprehensive income | ( |
|
| |
| Total other comprehensive income, net of taxes | |
( |
( | |
| TOTAL COMPREHENSIVE INCOME | |
|
| |
| Attributable to controlling shareholders - continuing operations | |
|
| |
| Attributable to controlling shareholders - discontinued operations | |
|
( | |
| Attributed to non-controlling shareholders - continuing operations | |
|
| |
| Notes are an integral part of these financial statements | ||||
| F-4 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Attributable to controlling shareholders | |||||||||||
| Equity valuation adjustments | Profit reserves | ||||||||||
| Additional dividends proposed | Attributable | ||||||||||
| Profit | to non - | ||||||||||
| Deemed | Other comprehensive | Legal | retention | Accumulated | Shareholders’ | controlling | Equity | ||||
| Note | Capital | cost | income | reserve | reserve | profit | equity | interests | Consolidated | ||
| Balance as of January 1, 2019 | |
|
( |
|
|
|
|||||
| Net Income | - | |
|
|
| ||||||
| Other comprehensive income | |||||||||||
| Actuarial gain (losses), net of taxes | 31.2 | ( |
( |
( |
( | ||||||
| Gain (losses) on Subsidiary with interest variation | 31.2 | ( |
( |
|
|||||||
| Total comprehensive income | ( |
|
|
|
| ||||||
| Realization - deemed cost, net of taxes | 31.2 | ( |
- | |
|||||||
| Deliberation of additional dividends proposed | 17.2.2 | |
- | ( |
( |
( | |||||
| Dividends | - | ( |
( | ||||||||
| Allocation proposed to AGM: | |||||||||||
| Legal reserve | - | |
( |
||||||||
| Interest on own capital | 31.4 | - | ( |
( |
( | ||||||
| Dividends | 31.4 | - | ( |
( | |||||||
| Profit retention reserve | - | |
( |
||||||||
| Balance as of December 31, 2019 | |
( |
|
|
|
||||||
| Net income | - | |
|
|
| ||||||
| Other comprehensive income | |||||||||||
| Actuarial losses, net of taxes | 31.2 | ( |
( |
( |
( | ||||||
| Total comprehensive income | ( |
|
|
|
| ||||||
| Realization - deemed cost, net of taxes | 31.2 | ( |
- | |
|||||||
| Deliberation of additional dividends proposed | 17.2.2 | - | ( |
( | |||||||
| Allocation proposed to AGM: | |||||||||||
| Legal reserve | - | |
( |
||||||||
| Interest on own capital | 31.4 | - | ( |
( |
( | ||||||
| Additional dividends proposed from the non-capitalized earning reserve | 31.4 | - | ( |
|
|||||||
| Dividends | 31.4 | - | ( |
( |
( |
( | |||||
| Profit retention reserve | - | |
( |
||||||||
| Balance as of December 31, 2020 | |
( |
|
|
|
|
|||||
| Net income | - | |
|
|
| ||||||
| Other comprehensive income | |||||||||||
| Actuarial losses, net of taxes | 31.2 | |
|
|
| ||||||
| Total comprehensive income | |
|
|
|
| ||||||
| Realization - deemed cost, net of taxes | 31.2 | ( |
- | |
|||||||
| Realization of actuarial liabilities - divestment of Copel Telecom | 31.2 | ( |
|
||||||||
| Deliberation of additional dividends proposed | 17.2.2 and 31.4 | - | ( |
( |
( |
( | |||||
| Allocation proposed to AGM: | |||||||||||
| Legal reserve | - | |
( |
||||||||
| Interest on own capital | 31.4 | - | ( |
( |
( |
( | |||||
| Additional dividends proposed from the non-capitalized earning reserve | 31.4 | - | |||||||||
| Dividends | 31.4 | - | |
( |
( |
( |
( | ||||
| Profit retention reserve | - | |
( |
||||||||
| Balance as of December 31, 2021 | |
( |
|
|
|
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| Notes are an integral part of these financial statements | |||||||||||
| F-5 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| CASH FLOWS FROM OPERATIONAL ACTIVITIES | ||||
| Net income from continuing operations | |
| ||
| Net income (loss) from discontinued operations | ( | |||
| Net income | |
| ||
| Adjustments to reconcile net income for the period with cash | ||||
| Unrealized monetary and exchange variation and debt charges - net | |
| ||
| Interest - bonus from the grant of concession agreements under the quota system | 10.3 | ( |
( |
( |
| Remuneration of transmission concession contracts | 11.3 | ( |
( |
( |
| Recovery of PIS / Pasep and Cofins on ICMS | 13.2.1 | ( |
( |
( |
| Income tax and social contribution | 13.3 | |
| |
| Deferred income tax and social contribution | 13.3 | | ||
| Equity in earnings of investees | ( |
( |
( | |
| Appropriation of post-employment benefits obligations | 24.4 | |
| |
| Creation for research and development and energy efficiency programs | 26.2 | |
| |
| Recognition of fair value of assets related to concession compensation | 32 | ( |
( |
( |
| Sectorial financial assets and liabilities result | 32 | ( |
( |
( |
| Depreciation and amortization | 33 | |
| |
| Net operating estimated losses, provisions and reversals | 33.4 | |
| |
| Net hydrological risk renegotiation - GSF | 33 | ( |
||
| Result of business combination carried out with asset swap - gain | - | | ||
| Realization of added value in business combinations | ( |
( |
| |
| Fair value in energy purchase and sale operations | 32.1 and 33.1 | |
( |
( |
| Derivatives fair value | 34 | |
( |
|
| Loss on disposal of accounts receivable related to concession | 10.1 and 10.2 | |
|
|
| Loss on disposal of contract assets | 11.1 and 11.3 | |
| |
| Loss on disposal of property, plant and equipment | |
|
||
| Loss on disposal of intangible assets | 19.1 to 19.4 | |
||
| Result of write-offs of use rights of assets and liabilities of leases - net | 28.1 and 28.2 | ( |
( |
( |
| Net income for the period from discontinued operations | 41 | ( |
||
| |
| |||
| Decrease (increase) in assets | ||||
| Trade accounts receivable | ( |
( |
| |
| Dividends and interest on own capital received | |
|||
| CRC transferred to the Government of the State of Paraná | 8.1 | |
| |
| Judicial deposits | ( |
|||
| Sectorial financial assets | 9.2 | |
| |
| Other receivables | ( |
( |
( | |
| Inventories | ( |
( |
( | |
| Income tax and social contribution | ( |
|
( | |
| Other current taxes recoverable | ( |
( | ||
| Prepaid expenses | ( |
( |
||
| Related parties | - | ( | ||
| |
| |||
| Increase (decrease) in liabilities | ||||
| Payroll, social charges and accruals | |
|
||
| Suppliers | ( |
|
| |
| Other taxes | ( |
( | ||
| Post-employment benefits | 24.4 | ( |
( |
( |
| Sectorial charges due | |
( | ||
| Research and development and energy efficiency | 26.2 | ( |
( |
( |
| Payable related to the concession | 27.1 | ( |
( |
( |
| Other accounts payable | |
|
( | |
| Provisions for legal claims | ( |
( |
( | |
| ( | ||||
| CASH GENERATED BY OPERATING ACTIVITIES | |
| ||
| Income tax and social contribution paid | ( |
( |
( | |
| Loans and financing - interest due and paid | 22.4 | ( |
( |
( |
| Debentures - interest due and paid | 23.2 | ( |
( |
( |
| Charges for lease liabilities paid | ( |
( |
( | |
| NET CASH GENERATED BY OPERATING ACTIVITIES FROM | ||||
| CONTINUING OPERATIONS | |
| ||
| NET CASH (USED) GENERATED BY OPERATING ACTIVITIES FROM | ||||
| DISCONTINUED OPERATIONS | 41 | |
|
|
| NET CASH GENERATED FROM OPERATING ACTIVITIES | |
| ||
| (continued) |
| F-6 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries
Consolidated Statements of Cash Flows, continuation
For the years ended December 31, 2021, 2020 and 2019
All amounts expressed in thousands of Brazilian reais, unless otherwise stated
| Note | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| CASH FLOWS FROM INVESTMENT ACTIVITIES | ||||
| Financial investments | ( |
( |
||
| Additions to contract assets | ( |
( |
( | |
| Acquisitions of subsidiaries - effect on cash | 1.2 | ( |
( | |
| Additions in investments | 17.1 | ( |
( |
( |
| Capital reduction of investees | 17.1 | - | |
|
| Additions to property, plant and equipment | ( |
( |
( | |
| Additions to intangible assets | ( |
( |
( | |
| NET CASH USED BY INVESTMENT ACTIVITIES | ||||
| FROM CONTINUING OPERATIONS | ( |
( |
( | |
| NET CASH GENERATED (USED) BY INVESTMENT ACTIVITIES | ||||
| FROM DISCONTINUED OPERATIONS | 41 | ( |
( | |
| NET CASH GENERATED (USED) FROM INVESTING ACTIVITIES | |
( |
( | |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Loans and financing obtained from third parties | 22.4 | |
|
|
| Custos de transação na captação de empréstimos e financiamentos | 22.4 | ( |
||
| Issue of Debentures | 23.2 | | ||
| Custos de transação na emissão de debêntures | 23.2 | ( |
||
| Payments of principal - loans and financing | 22.4 | ( |
( |
( |
| Payments of principal - debentures | 23.2 | ( |
( |
( |
| Amortization of principal of lease liabilities | ( |
( |
( | |
| Dividends and interest on own capital paid | ( |
( |
( | |
| NET CASH USED BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS | ( |
( |
( | |
| NET CASH USED BY FINANCING ACTIVITIES FROM DISCONTINUED OPERATIONS | 41 | ( |
( |
|
| NET CASH USED FROM FINANCING ACTIVITIES | ( |
( |
( | |
| TOTAL EFFECTS ON CASH AND CASH EQUIVALENTS | |
|
| |
| Cash and cash equivalents at the beginning of the period | 5 | |
| |
| Cash and cash equivalents at the end of the period | 5 | |
| |
| Cash and cash equivalents variations from discontinued operations | 41 | |
|
|
| CHANGE IN CASH AND CASH EQUIVALENTS | |
|
| |
| Notes are an integral part of these financial statements | ||||
| F-7 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1. | Operations |
Companhia Paranaense de Energia (Copel, Company), with its head office located at Rua José Izidoro Biazetto, 158, bloco A, Curitiba - State of Paraná, is a publicly-held mixed capital company controlled by the State of Paraná and its shares are traded at Corporate Governance Level 1 of the Special Listing Segments of B3 S.A. - Brasil, Bolsa Balcão Stock Exchange and also on the New York Stock Exchange (NYSE) and on the Madrid Stock Exchange, in the Latin American segment (Latibex).
The core activities of Copel and its subsidiaries, which are regulated by the Brazilian Electricity Regulatory Agency (ANEEL), linked to the Brazilian Ministry of Mines and Energy (MME), are to carry out research, study, planning, and asset building activities related to the generation, transformation, distribution and trading of energy in any of its forms, primarily electricity. Furthermore, Copel has participations in consortiums and in private sector and mixed-capital companies for the purpose of engaging in activities, primarily in the fields of energy and natural gas. On August 03, 2021 the divestment is telecommunications participation was concluded (Note 41).
| a) | Coronavirus pandemic (Covid-19) and its impacts |
Coronavirus is a family of viruses discovered in 2019 after cases registered in China and causes the disease called Covid-19, which has clinical symptoms ranging from asymptomatic infections to severe respiratory conditions. On February 26, 2020 the first case of infection was identified in Brazil, in the city of São Paulo and on March 11, 2020, World Health Organization - WHO attributed the status of pandemic to coronavirus, in view of the spread of contamination throughout the world. In Brazil, federal state and municipal governments have implemented several measures of action with the public health emergency. In the state of Paraná, measures included social isolation and restrictions on the operation of non-essential activities as a way to slow the spread of the disease, as well as expanding vaccination for the general population. After an aggravation cycle of the pandemic that lasted until mid-June 2021, there was a reduction in social isolation and increase in economic activity from this period, mainly due to the advance of vaccination, which reflected in the decrease in severe cases of the disease, even with the increase in infections by the Ômicron variant in late 2021 and early 2022.
As of March 2020, Copel’s Management issued rules that aim to ensure compliance with the measures to contain the spread of the disease in the Company and minimize its impacts and potential impacts on the administrative, operations and economic-financial areas.
Accordingly, Copel established a Contingency Commission, whose objective is to monitor and mitigate the impacts and consequences in the main activities of the Company. The 4 pillars defined are: (i) safety of personnel, (ii) continuity of essential activities, (iii) monitoring of the guidelines and requirements of regulatory bodies, and (iv) preservation of adequate financial conditions to withstand the crisis
| F-8 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Among the main initiatives implemented by the Company, there are actions to prevent and mitigate the effects of contagion in the workplace, such as: adoption of home office in areas where it is possible to adopt this format, travel restrictions, meetings by video conference, daily monitoring of the health and well-being of employees and contingency protocols in order to fully maintain the operations of the electric power and piped gas infrastructure, preserving the health of its professionals, their safe access to locations, an environment that preserves distance between individuals, hygiene and access to personal protective equipment.
Likewise, Copel has adopted several activities in favor of its customers, maintaining the reliability and availability of its plants, the transmission and distribution systems of electric power and gas, so that they can remain connected and take advantage of Company services in this moment of pandemic.
Effects from coronavirus (Covid-19) on the financial statements
Copel has been continuously monitoring energy load projections and from the second quarter of 2021 there was a resumption of most sectors of the economy, the load in the National Interconnected System - SIN in 2021 increased by 4.1% compared to 2020, the result of which is mainly attributed to the progressive reduction of restrictive measures to combat Covid-19.
With regard to the implementation schedule of energy distribution, generation and transmission projects, or even on the availability of existing assets resulting from local actions that prevent access to facilities or problems with suppliers in the sector, also affected by the downturn, Management, diligently, continues to monitor the deadlines for construction works in progress and has maintained continuous communication with the concession regulator regarding any delays that may occur until the normalization of commercial activities in the overall market. The Company’s construction in progress to date have not had any significant delays.
With the objective of mitigating the impacts and consequences on its main activities, Copel has been continuously monitoring its contracts, liquidity in the energy market and the short-term energy price, as well as communicating with the Regulatory Body of the Brazilian energy sector for the implementation of guidelines ensuring maintenance of economic and financial sustainability of the entire chain of energy generation, transmission, sale and distribution.
In this scenario, for the purposes of preparing and disclosing these financial statements, the Company’s management evaluated its estimates in order to identify the possible impacts of Covid-19 on the Company’s business, as follows:
| F-9 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
a.1) Expected credit losses
A potentially relevant risk in the emergence of Covid-19 is related to customer default. In this scenario, the Company maintains regular contact with its main customers, adding flexibility to the collection policy during the pandemic period and increasing the level of digitalization in the relationship with Copel.
In relation to the captive energy distribution market, Copel, after the end of the restrictions imposed by Aneel, resumed the collection actions with defaulting consumers and created special conditions for debt payment in installments, providing conditions to consumers in remaining compliant with the Company.
On March 26, 2021, Aneel Resolution No. 928 was issued, which prevents the suspension of energy supply to low-income consumers and some other consumer groups, with no relevant impact for Copel, given that these consumers are already covered by the State Law No. 20.187/2020 which also deals with the prohibition of power supply cuts.
In the area of energy contracts entered into on the free market, to reduce the impact on collection and avoid future legal disputes, Copel renegotiated with customers with difficulties in complying with contracts, proposing installment payments and postponing the maturity of invoices.
Both the Company’s accounts receivable position as well as the estimates of expected credit losses recorded on December 31, 2021 reflect, in a timely manner, the best analysis by Management at this time on the quality and recoverability of this financial asset.
Although the loss indicator has not significantly deteriorated, the Company may face pressure on this indicator if the pandemic lasts longer and if implemented stricter restrictions on social distancing.
a.2) Impairment of non-financial assets - impairment
On December 31, 2021 the assumptions of the Company’s relevant non-financial assets were assessed individually and Management did not identify that any asset may have suffered additional impairment as a result of the economic consequences of the pandemic, in addition to the entries shown in Note 18.4.
The most significant entry recorded occurred at the UEG Araucária thermoelectric plant, with the reversal in June 30, 2021 of the entire impairment recognized in previous periods, considering that the estimates of its cash flows are affected by the increase in dispatch from thermal plants, due to unfavorable hydrological conditions associated with operational policies of the National Operator of the Electric System – ONS to guarantee energy supply, including the restoration of the reservoirs of the hydroelectric plants, which makes the plant’s future dispatch assumptions have longer periods than previous projections.
| F-10 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In relation to the projections for hydroelectric and wind projects, the main assumptions applied in the preparation of cash flow models did not have a significant impact in the short term, given that most of the energy is already contracted and the amount of energy exposed to Settlement Price of the Differences (PLD) is not significant. In the medium and long term, there was an improvement in the prices practiced in the free market on the portion of non-contracted energy. Finally, in the long term, the expected GSF assumption used to calculate the impairment did not change significantly, accordingly evidencing the recoverability of assets.
a.3) Recovery of deferred tax assets
The
Company has a balance of R$
a.4) Fair value of future energy purchase and sale operations
The variation in the mark-to-market of electric power purchase and sale agreements occurred mainly due to the increase in the discount rate, which uses as a reference the rate of return of NTN-B disclosed by Anbima. In the medium and long-term, future electric power prices did not change significantly. Therefore, currently, the effects of the pandemic did not have a significant impact on the fair value of the Company’s future energy purchase and sale operations.
a.5) Fair value of other assets and liabilities
At the present time, the effects of the pandemic did not have a significant impact on the fair value of the Company’s assets and liabilities, mainly on assets originating from concession agreements that are made in the long-term and are contractually guaranteed to receive residual balance at the end of the concession and/ or right to receive cash during the concession. Accordingly, considering that there were no changes in long-term estimates and assumptions, and that the Company’s assets are essential and indicate continuity of operations and cash flows in the medium and long term, up to the present date, its effects did not have a significant impact on the fair value of the Company’s assets and liabilities.
a.6) Post-employment benefits
The Company’s management has constantly monitored the fair value of the actuarial asset of the post-employment benefit plans due to the instability of the interest rate, which is determined based on market data. Despite the economic instability in this pandemic period, the pension plan surplus remained in 2021 due to the increase in discount rates that reduced the present value of actuarial liabilities and offset the fall in the fair value of financial assets. As shown in Note 24, the benefit plans did not generate additional obligations.
a.7) Liquidity
The Company has met its expected liquidity ratios and Management believes the financial situation and working capital are within its sufficient requirements.
| F-11 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
At
December 31, 2021, the Company’s net working capital totals R$
The Company has been monitoring its financial liquidity, considering raising funds and implementing cost reduction actions, with the objective of guaranteeing compliance with financial obligations in due time.
a.8) Other assets
The Company has not identified any changes in circumstances that indicate impairment of other assets. It should be noted that the Company records changes in sectorial financial assets and liabilities, updated up to the date of the tariff adjustment/review when, the Granting Authority ratifies the transfer on the tariff base and the Company transfers it to the consumer during the next annual cycle, which at Copel occurs as of June 24 of each year.
In view of the above, it should be noted that there was no significant or material impact on the Company’s business that could change the measurement of its assets and liabilities presented in the financial statements at December 31, 2021, and until the date of this publication. However, considering that, like all companies, Copel is exposed to risks arising from any legal and market restrictions that may be imposed, it is not possible to ensure that there will be no impact on operations or that the result will not be affected by the future consequences of the pandemic.
| b) | Renegotiation of the Hydrological Risk (Generation Scaling Factor-GSF) |
On September 9, 2020, Law No. 14,052 was published, which amended Law No. 13,203/2015, establishing new conditions for renegotiating the hydrological risk related to the portion of the costs incurred with the GSF, assumed by the holders of the hydroelectric plants participating in the Energy Reallocation Mechanism (MRE) since 2012, with the worsening of the water crisis.
The purpose of the legal amendment was to compensate the owners of the hydroelectric power plants participating in the MRE for non-hydrological risks caused: (i) for generation projects called structuring, related to the anticipation of the physical guarantee, (ii) for the restrictions on the start-up of transmission facilities necessary for the flow of the generation of structuring and (iii) for generation outside the order of merit and import. Such compensation will occur upon the extension of the grant, limited to seven years, and calculated based on the values of the standards applied by Aneel.
On December 1, 2020, Aneel Normative Resolution No. 895 was issued, which establishes the methodology for calculating the compensation and the procedures for renegotiating the hydrological risk. To be eligible for the compensation provided for in Law No. 14,052, holders of hydroelectric power plants participating in the MRE must: (i) withdraw any lawsuits whose purpose is the exemption or mitigation of hydrological risks related to the MRE, (ii) waive any allegation and/or new actions in relation to the exemption or mitigation of the hydrological risks related to the MRE, (iii) not having renegotiated the hydrological risk on terms of the Law No. 13.203/2015.
| F-12 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In the renegotiation of the hydrological risk, Management exercised its judgment in the development and application of the accounting policy, as provided for in IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, using the precepts of IAS 38 by analogy, in order to deal with it is essentially an intangible asset related to the concession right resulting from compensation for costs incurred in previous years. Additionally, considering also by analogy of the referred IAS 38, the constituted asset, in case of renegotiation of the non-hydrological risk, was recognized at fair value, considering the best estimate of the Company.
Copel’s plants with the right to extend the concession, pursuant to Aneel Ratification Resolution No, 2.919 of August 03, 2021 and No. 2.932, of September 17, 2021, are listed below:
| Aneel Homologation | Company | Plant | Lease End Date (Current) | Extension (days) | Concession end date (After adhesion) | Interest % |
| (a) Copel GeT subsidiaries | ||||||
On
September 20, 2021 and September 28, 2021, the Board of Directors of Elejor and Copel GeT, respectively, approved the adhesion to the
renegotiation of the hydrological risk of the portion of physical guarantee not renegotiated in the Regulated Contracting Environment
- ACR, through the extension of grant of its hydroelectric plants participating in the energy reallocation mechanism - MRE. With the
approval of the Board of Directors of adherence to the terms of the Law, which includes the waiver of future questions or lawsuits in
relation to the hydrological risks in question, the Company recognized an intangible asset referring to the right to the extension of
the grant, in return to the item “Operating costs” as a cost recovery, in the amount of R$
| F-13 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1.1 | Copel’s equity interests |
Copel has direct and indirect interests in subsidiaries (1.1.1), joint ventures (1.1.2), associates (1.1.3) and joint operations (1.1.4).
| 1.1.1 | Subsidiaries |
| Headquarters | Main activity | Interest | ||
| Subsidiaries | % | Investor | ||
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| (a) Pre-operating stage. | ||||
| (b) SPEs established with 0.1% interest in Cutia. The transfer of all shares to Copel GeT was concluded in 2021. | ||||
(c) Wind farm with 99.99992% interest in Copel Get and 0.00008% in Brownfield. | ||||
| F-14 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1.1.2 | Joint Ventures |
| Joint ventures | Headquarters | Main activity | Interest | |
| % | Investor | |||
| (a) Holding of 6 Special Purpose Entities (SPEs) operating in the distributed generation sector (photovoltaic plants): Pharma Solar II, Pharma Solar III, Pharma Solar IV, in commercial operation, and Bandeirantes Solar I, Bandeirantes Solar II and Bandeirantes Solar III, in pre-operating stage. | ||||
(b) Company closed in July 26, 2021. | ||||
| 1.1.3 | Associates |
| Associated companies | Headquarters | Main activity | Interest | |
| % | Investor | |||
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| 1.1.4 | Joint operations (consortiums) |
| Joint operations - Consortiums | Consortium members | Interest (%) |
| a) | Consórcio Copel Energia a Gás Natural |
In July 2020, Consórcio Copel Energia a Gás Natural was created with the purpose of developing technical, economic-financial and socio-environmental feasibility studies of natural gas thermoelectric generation projects. The object planned for the consortium is under development.
| b) | Consórcio Paraná IP |
In September 2020, the Consórcio Paraná IP was created, with the objective of participating in studies and tenders for modernization of public lighting systems and development of smart cities solutions. However, the Company deepened the prospecting of business opportunities and the analysis of attractiveness to operate in the segment, considering the recent concessions made by municipalities to establish Public-Private Partnerships and the discount levels presented by potential competitors and decided to not prioritize its performance in this service currently. The consortium’s termination process was completed on May 25th, 2021 with registration with the Paraná Commercial Registry.
| F-15 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 1.2 | Business combination – Vilas Wind Complex |
According to Material Fact 19/21, on November 30, 2021 Copel GeT completed the acquisition of 100% of the Vilas Wind Complex as part of the Company’s strategy of sustainable growth in renewable energy, expanding the diversification of the generation matrix aligned with the Investment Policy.
The project comprises 5 wind farms with 186.7 MW of installed capacity located in the Municipality of Serra do Mel - RN, fully in operation.
The table below shows the equity interests acquired. Copel GeT took control over these companies that, until then, were directly or indirectly controlled by Voltalia S.A.:
| Interest | ||
| Subsidiaries | % | Investor |
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Copel GeT preliminarily measured the fair value of the identified assets acquired and liabilities assumed at the acquisition date. The table below shows the consolidated amounts of all companies acquired:
| Adjusted | Fair value | Fair value at the | |
| book value (a) | adjustment | acquisition date | |
| Assets acquired | |
||
| Cash and cash equivalents | |
- | |
| Bonds and securities | |
- | |
| Trade accounts receivable | |
- | |
| Other receivables | |
- | |
| Income tax and social contribution | |
- | |
| Other recoverable taxes | - | ||
| Prepaid expenses | - | ||
| Property, plant and equipment | - | ||
| Intangible assets | |
|
|
| Right-of-use asset | |
- | |
| Liabilities assumed | |||
| Suppliers | |
- | |
| Income tax and social contribution | |
- | |
| Other taxes due | |
- | |
| Deferred income tax and social contribution | |
| |
| Loans and financing | - | ||
| Lease liability | |
- | |
| Other accounts payable | |
- | |
| Net assets acquired | |
||
| (a) Book value of investees adjusted to the Company’s practices before the allocation of fair value in the business combination. | |||
| F-16 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The authorization right and the deferred tax liability generated in the business combination were recorded in Copel GeT’s investment. In the consolidated balance sheet, these amounts will comprise the balances of intangible assets and deferred income tax and social contribution.
The table below shows the consideration transferred for the assets acquired and the goodwill determined as a result of the recognition of the deferred tax liability in the business combination:
| Consideration amount | |
| (-) Fair value of net assets acquired | |
| Goodwill | |
The amount paid is supported by the projections of discounted cash flows from the operations of the projects acquired. Of the total consideration, Copel GeT disbursed R$578,236 in November 2021 and the remainder will be paid during the first half of 2022 when prices will also be adjusted in accordance with the contractual provisions. Considering the cash acquired from the subsidiary in the amount of R$76,350, the net effect on the Company’s cash was R$501,886, as shown in the Statements of Cash Flows.
Had this business combination been carried out on January 1, 2021, the net operating revenue would have increased by R$78,071, totaling R$24,062,358, and the net income for the year would have increased by R$45,792, totaling R$5,094,394.
| 2. | Concessions and Authorizations |
| 2.1 | Concession contracts or authorizations obtained by Copel |
| Concession agreement / authorization of the equity | Interest % | Maturity | |
| Copel DIS | |||
| Elejor | |||
| Dona Francisca Energética | |||
| UEG Araucária | |||
| Compagás (2.1.1) | |||
| Usina de Energia Eólica São João S.A. (a) | |||
| Usina de Energia Eólica Carnaúba S.A. (a) | |||
| Usina de Energia Eólica Reduto S.A. (a) | |||
| Usina de Energia Eólica Santo Cristo S.A. (a) | |||
| (a) | |
| Hydroelectric Power Plant - HPP | |
| Small Hydroelectric Plant - SHP | |
| Thermal Power Plant - TPP | |
| Wind Power Plant - WPP | |
| 2.1.1 | Compagas |
Compagas is a party to a concession agreement entered into with the Concession Grantor, the State of Paraná, which determines the validity of 30 years as of July 6, 1994.
| F-17 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
On December 7, 2017, the State of Paraná published Complementary Law 205, introducing a new interpretation to the end of the concession that occurred on January 20, 2019. There was an understanding among the shareholders that the law could be challenged and Compagas filed a lawsuit, due to the unconstitutionality of the Law. Provisional protection was granted to Compagas recognizing the validity of the maturity clause provided for in the contract.
On December 1, 2020, Supplementary Law No. 227 was issued, revoking article 15 of Supplementary Law No. 205/17, maintaining the expiration of the concession on July 6, 2024.
On July 23, 2021, the Secretary of Planning and Structuring Projects of the State of Paraná submitted for public consultation the State Plan for the Piped Gas Distribution Sector, covering the proposal to extend the concession of Compagas for 30 years, counted from July 6, 2024. The proposal includes the execution of a new concession agreement, with a change in the tariff structure of the price concession by cost to a ceiling tariff. On February 22, 2022, a Public Hearing was held via videoconference to obtain suggestions and contributions to the State Gas and Concession Extension Plan. The Final Report of the hearing had not been disclosed until the authorization for issuance of these financial statements.
| F-18 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 2.2 | Concession contracts or authorizations obtained by Copel Get and its investees |
| Copel GeT | Interest % | Maturity | |
| ONEROUS CONCESSION BY THE USE OF PUBLIC PROPERTY - UBP | |||
| Generation Concession Contract 001/2007 - HPP Gov. Jayme Canet Júnior (Mauá) | |||
| Generation Concession Contract 001/2011 - HPP Colíder | |||
| Authorization - Ordinance 133/2011 - SHP Cavernoso II | |||
| Generation Concession Contract 002/2012 - HPP Baixo Iguaçu | |||
| Generation Concession Contract 007/2013 | |||
| HPP Apucaraninha | |||
| HPP Chaminé | |||
| HPP Derivação do Rio Jordão | |||
| HPP Cavernoso | |||
| PUBLIC SERVICE CONCESSIONS | |||
| Generation Concession Contract 045/1999 | |||
| TPP Figueira (Note 36.2.6) | |||
| HPP São Jorge (Note 36.2.6) | |||
| HPP Gov. Ney Aminthas de Barros Braga (Segredo) | |||
| HPP Gov. José Richa (Salto Caxias) | |||
| Generation Concession Contract 001/2020 | |||
| UHE Guaricana | |||
| Authorization - Resolution 278/1999 - WPP Palmas | |||
| Dispatch 182/2002 - Hydroeletric Generating Plant - HGP Melissa, HGP Pitangui and | |||
| HGP Salto do Vau (only register with ANEEL) | - | ||
| Generation Concession Contract 003/2016 - HPP Gov. Pedro Viriato Parigot de Souza (GPS) | |||
| HPP Marumbi - Power generating plant registration: CGH. PH. PR. 001501-6.02 | - | ||
| Authorization Aneel 5,373/2015 - HGP Chopim I (only register with ANEEL) | - | ||
| Concession agreement / authorization of the equity | |||
| UEG Araucária | Authorization 351/1999 - TPP Araucária (20,3% - Copel) | ||
| Nova Asa Branca I | MME Ordinance 267/2011 - WPP Asa Branca I | ||
| Nova Asa Branca II | MME Ordinance 333/2011 - WPP Asa Branca II | ||
| Nova Asa Branca III | MME Ordinance 334/2011 - WPP Asa Branca III | ||
| Nova Eurus IV | MME Ordinance 273/2011 -WPP Eurus IV | ||
| Santa Maria | MME Ordinance 274/2012 - WPP SM | ||
| Santa Helena | MME Ordinance 207/2012 - WPP Santa Helena | ||
| Ventos de Santo Uriel | MME Ordinance 201/2012 - WPP Santo Uriel | ||
| GE Boa Vista | MME Ordinance 276 /2011 - WPP Dreen Boa Vista | ||
| GE Farol | MME Ordinance 263 /2011 - WPP Farol | ||
| GE Olho D’Água | MME Ordinance 343 /2011 - WPP Dreen Olho D’Água | ||
| GE São Bento do Norte | MME Ordinance 310 /2011 - WPP Dreen São Bento do Norte | ||
| Esperança do Nordeste | MME Ordinance 183/2015 - WPP Esperança do Nordeste | ||
| Paraíso dos Ventos do Nordeste | MME Ordinance 182/2015 - WPP Paraíso dos Ventos do Nordeste | ||
| Usina de Energia Eólica Jangada | Resolution 3,257/2011 - WPP GE Jangada | ||
| Maria Helena | Resolution 3,259/2011 - WPP GE Maria Helena | ||
| Usina de Energia Eólica Potiguar | MME Ordinance 179/2015 - WPP Potiguar | ||
| Usina de Energia Eólica Guajiru | Resolution 3,256/2011 - WPP Dreen Guajiru | ||
| Usina de Energia Eólica Cutia | Resolution 3,258/2011 - WPP Dreen Cutia | ||
| São Bento do Norte I | Ordinance 349/2015 - WPP São Bento do Norte I | ||
| São Bento do Norte II | Ordinance 348/2015 - WPP São Bento do Norte II | ||
| São Bento do Norte III | Ordinance 347/2015 - WPP São Bento do Norte III | ||
| São Miguel I | Ordinance 352/2015 - WPP São Miguel I | ||
| São MigueI lI | Ordinance 351/2015 - WPP São Miguel II | ||
| São Miguel III | Ordinance 350/2015 - WPP São Miguel III | ||
| Foz do Chopim | Authorization 114/2000 - SHP Arturo Andreoli | ||
| SHP Bela Vista | Resolution 913/2017 - transfer of title under | ||
| Resolution 7,802/2019 | |||
| F.D.A. Electricity Generation (Note 36.2.6) | Generation Concession Contract contract 002/2020 | ||
| Jandaíra I Energias Renováveis (a) | Ordinance 140/2020 - WPP Jandaíra I | ||
| Jandaíra II Energias Renováveis (a) | Ordinance 141/2020 - WPP Jandaíra II | ||
| Jandaíra III Energias Renováveis (a) | Ordinance 142/2020 - WPP Jandaíra III | ||
| Jandaíra IV Energias Renováveis (a) | Ordinance 139/2020 - WPP Jandaíra IV | ||
| EOL Potiguar B 141 SPE S.A. | Ordinance 02/2019 - WPP Vila Maranhão I | ||
| EOL Potiguar B 142 SPE S.A. | Ordinance 12/2019 - WPP Vila Maranhão II | ||
| EOL Potiguar B 143 SPE S.A. | Ordinance 13/2019 - WPP Vila Maranhão III | ||
| EOL Potiguar B 61 SPE S.A. | Ordinance 453/2019 - WPP Ventos de Vila Mato Grosso I | ||
| Ventos de Vila Paraíba IV SPE S.A | Ordinance 10/2019 - WPP Vila Ceará I | ||
| (a) Building under construction. | Building under construction. | ||
| F-19 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Copel GeT | Interest % | Maturity | Next
tariff review | |
| Transmission lines and substations concession agreements | ||||
| Contract 060/2001 - Transmission facilities (sundry Transmission lines and Substations) | ||||
| Contract 075/2001 - Transmission line 230 kV Bateias - Jaguariaíva | (b) | |||
| Contract 006/2008 - Transmission line 230 kV Bateias - Pilarzinho | ||||
| Contract 027/2009 - Transmission line 525 kV Foz do Iguaçu - Cascavel Oeste | ||||
| Contract 010/2010 - Transmission line 500 kV Araraquara II - Taubaté | ||||
| Contract 015/2010 - Substation Cerquilho III 230/138 kV | ||||
| Contract 022/2012 - Transmission line 230 kV Londrina - Figueira and Transmission line 230 kV Foz do Chopim - Salto Osório | ||||
| Contract 002/2013 - Transmission line 230 kV Assis - Paraguaçu Paulista II e Substation Paraguaçu Paulista II 230 kV | ||||
| Contract 005/2014 - Transmission line 230 kV Bateias - Curitiba Norte e Substation Curitiba Norte 230/138 kV | ||||
| Contract 021/2014 - Transmission line 230 kV Foz do Chopim - Realeza e Substation Realeza 230/138 kV | ||||
| Contract 022/2014 - Transmission line 500 kV Assis - Londrina | ||||
| Contract 006/2016 - Transmission line 525 kV Curitiba Leste - Blumenau (a) | ||||
| Contract 006/2016 - Transmission line 230 kV Baixo Iguaçu - Realeza | ||||
| Contract 006/2016 - Transmission line 230 kV Curitiba Centro - Uberaba | ||||
| Contract 006/2016 - Substation Medianeira 230/138 kV | ||||
| Contract 006/2016 - Substation Curitiba Centro 230/138 kV | ||||
| Contract 006/2016 - Substation Andirá Leste 230/138 kV | ||||
| Concession agreement / authorization of the equity | ||||
| Costa Oeste Transmissora | Contract 001/2012: | |||
| Transmission line 230 kV Cascavel Oeste - Umuarama | ||||
| Substation Umuarama 230/138 kV | ||||
| Caiuá Transmissora | Contract 007/2012: | |||
| Transmission line 230 kV Umuarama - Guaíra | ||||
| Transmission line 230 kV Cascavel Oeste - Cascavel Norte | ||||
| Substation Santa Quitéria 230/138/13,8 kV | ||||
| Substation Cascavel Norte 230/138/13,8 kV | ||||
| Marumbi Transmissora | Contract 008/2012: | |||
| Transmission line 525 kV Curitiba - Curitiba Leste | ||||
| Substation Curitiba Leste 525/230 kV | ||||
| Integração Maranhense | Contract 011/2012: Transmission line 500 Kv Açailândia - Miranda II | |||
| Matrinchã Transmissora | Contract 012/2012: | |||
| Transmission line 500 kV Paranaíta - Cláudia | ||||
| Transmission line 500 kV Cláudia - Paranatinga | ||||
| Transmission line 500 kV Paranatinga - Ribeirãozinho | ||||
| Substation Paranaíta 500 kV | ||||
| Substation Cláudia 500 kV | ||||
| Substation Paranatinga 500 kV | ||||
| Guaraciaba Transmissora | Contract 013/2012: | |||
| Transmission line 500 kV Ribeirãozinho - Rio Verde Norte | ||||
| Transmission line 500 kV Rio Verde Norte - Marimbondo II | ||||
| Substation Marimbondo II 500 kV | ||||
| Paranaíba Transmissora | Contract 007/2013: | |||
| Transmission line 500 kV Barreiras II - Rio das Éguas | ||||
| Transmission line 500 kV Rio das Éguas - Luziânia | ||||
| Transmission line 500 kV Luziânia - Pirapora 2 | ||||
| Mata de Santa Genebra | Contract 001/2014: | |||
| Transmission line 500 kV Itatiba - Bateias | ||||
| Transmission line 500 kV Araraquara 2 - Itatiba | ||||
| Transmission line 500 kV Araraquara 2 - Fernão Dias | ||||
| Substation Santa Bárbara D ́Oeste 440 kV | ||||
| Substation Itatiba 500 kV | ||||
| Substation Fernão Dias 500/440 kV | ||||
| Cantareira Transmissora | Contract 019/2014: Transmission line Estreito - Fernão Dias | |||
| Uirapuru Transmissora | Contract 002/2005: Transmission line 525 kV Ivaiporã - Londrina | (b) | ||
| (a) Beginning of commercial operation on April 1, 2021. | ||||
| (b) Do not undergo tariff review and RAP reduces to 50% in the 16th year. | ||||
| 3. | Basis of Preparation |
| 3.1 | Basis of elaboration |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board, IASB.
The Company’s Management believes that all the relevant information used in its management is evidenced in the consolidated financial statements, and that it corresponds to that used by Management in administering the Company.
| F-20 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The issuance of these consolidated financial statements was approved by Board of Directors on April 27, 2022.
| 3.2 | Functional and presentation currency |
The consolidated financial statements are presented in Brazilian Reais, which is the functional and presentation currency of the Company. Balances herein have been rounded to the nearest thousand, unless otherwise indicated.
| 3.3 | Basis of measurement |
The consolidated financial statements were prepared based on the historical cost, except for certain financial instruments and investments measured at fair value, as described in the respective accounting policies and notes.
| 3.4 | Use of estimates and judgments |
In the preparation of these consolidated financial statements, Management used judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses of the Company. Actual results may differ from those estimates.
Estimates and assumptions are reviewed on a continuous basis. The revisions to the estimates are recognized prospectively.
| 3.4.1 | Judgments |
Information about judgment referring to the adoption of accounting policies which significantly impacts the amounts recognized in the consolidated financial statements, except those involving estimates, is included in the following notes:
| · | Note 4.1 - Basis of consolidation; and |
| · | Note 4.2 - Financial instruments. |
| 3.4.2 | Uncertainties over assumptions and estimates |
Information on uncertainties related to assumptions and estimates with a reasonable possibility of leading to significant adjustments of resulting in a material change within the next financial year is included in the following notes:
| · | Notes 4.3 and 9 - Sectorial financial assets and liabilities; |
| · | Notes 4.4 and 10 - Accounts receivable related to the concession |
| · | Notes 4.5 and 11 - Contract assets; |
| · | Notes 4.8 and 18 - Property, plant and equipment; |
| · | Notes 4.9 and 19 - Intangible assets; |
| · | Notes 4.10.1 and 7.3 - Expected Credit Losses; |
| · | Notes 4.10.2 and 18.4 - Impairment of assets; |
| · | Notes 4.11 and 30 - Provisions for litigation and contingent liabilities; |
| · | Note 4.12 - Revenue recognition; |
| F-21 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| · | Note 4.14 - Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamber - CCEE); |
| · | Note 4.15 - Derivative financial instruments; |
| · | Note 4.16.2 and 13.1 - Deferred income tax and social contribution; and |
| · | Note 4.17 and 24 – Post-employment benefits. |
| 3.5 | Management’s judgment on going concern |
Management has concluded that there are no material uncertainties that cast doubt on the Company’s ability to continue as a going concern. No events or conditions were identified that may raise significant doubts on its ability to continue as a going concern.
The main bases of judgment used for such conclusion are: (i) main activities resulting from long-term concessions; (ii) robust equity; (iii) strong operating cash generation, including financial capacity to settle commitments entered into with financial institutions; (iv) historical profitability; and (v) fulfillment of the objectives and targets set forth in the Company’s Strategic Planning, which is approved by Management, monitored and reviewed periodically, seeking the continuity of its activities.
| 4. | Significant Accounting Policies |
| 4.1 | Basis of consolidation |
| 4.1.1 | Calculation of equity in earnings of investees |
Investments in joint ventures and associate are recognized in the consolidated financial statements based on the equity method. Under this method, investments are initially recorded at cost and their carrying amount is increased or decreased by the recognition of the investor’s interest in profit, loss and other comprehensive income generated by investees after acquisition. This method must be discontinued from the date the investment ceases to qualify as a jointly controlled or associated company.
Payment of dividends decreases the carrying value of investments.
When required, for calculation of equity in earnings of investees, the investees’ financial statements are adjusted to align their policies with the Company’s accounting policies.
| 4.1.2 | Subsidiaries |
The subsidiaries are entities to which the Company is exposed to or has a right over the variable returns arising from its involvement with them and has the ability to affect those returns exerting its power over the entities.
The financial statements of the subsidiaries are included in the consolidated financial statements as from the date they start to be controlled by the Company until the date such control ceases.
The balances of the subsidiaries’ assets and liabilities, and profit or loss, are consolidated and transactions between consolidated companies are eliminated. The balances of transactions between continuing operations and discontinued operations are also fully eliminated in the consolidated balance sheet.
| F-22 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.1.3 | Noncontrolling interests |
Noncontrolling interests are presented in equity, separately from the equity attributable to the Company’s shareholders. Profits, losses and other comprehensive income are also allocated separately from the ones allocated to the Company’s shareholders, even if this procedure results in negative noncontrolling interest balance.
| 4.1.4 | Joint ventures and associates |
Joint ventures are entities over which the Company, subject to an agreement, has the ability to affect returns exerting its power in conjunction with other parties, irrespective of the percentage of interest in the voting capital.
Associates are entities over which the Company exerts significant influence regarding financial and operational decisions, without control.
When the share in losses of a joint venture or associate equals or exceeds the accounting balance of the investor’s equity interest in the investee, the investor should discontinue the recognition of its share in future losses. Additional losses will be considered, and a liability will be recognized, only if the investor incurs legal or constructive obligations, or performs payments on behalf of the investee. Should the investee subsequently post profits, the investor should resume the recognition of its interest in these profits only subsequent to the point at which the portion to which it is entitled to in these subsequent profits equals its share in unrecognized losses.
| 4.1.5 | Joint operations (consortiums) |
Joint operation is a joint business according to which parties that jointly control the business have rights on assets and obligations regarding liabilities related to the business.
Joint operations are recorded in proportion to the share of interest held in their assets, liabilities and profit or loss.
| 4.1.6 | Business combination |
The acquisition analysis is done on a case-by-case basis to determine whether the transaction represents a business combination or an asset purchase. Transactions between companies under common control do not constitute a business combination.
Assets and liabilities acquired in a business combination are accounted for using the acquisition method and are recognized at their fair value at the acquisition date.
The excess of the acquisition cost over the fair value of the net assets acquired (identifiable assets acquired, net of assumed liabilities) is recognized as goodwill in intangible assets. When the amount generated is negative, the bargain purchase gain is recognized directly in profit or loss.
The amount paid that refers specifically to the concession right acquired in a business combination where the acquired entity is a concession operator, whose right to the concession has a known and defined term, is not characterized as goodwill.
| F-23 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In acquisitions of interests in affiliates and in joint ventures, although they do not constitute a business combination, the net assets acquired are also recognized at fair value. Goodwill is presented in the investment.
| 4.2 | Financial Instruments |
Financial instruments are recognized immediately on the trade date, that is, when the obligation or right arises. They are initially recorded at fair value, unless it is a trade receivable without a significant financing component, plus, for an item not measured at fair value through profit or loss, any directly attributable transaction costs. An accounts receivable from customers without a significant component of financing is initially measured at the price of the transaction.
Fair values are determined based on market prices for financial instruments with active market, and by the present value method of expected cash flows, for those that have no quotation available in the market.
After initial recognition, financial assets are only reclassified if the Company changes its business model for managing financial assets and this reclassification must be made prospectively.
The
Company does not have financial instruments measured at fair value through other comprehensive income. The Company operates with derivative
financial instruments as described in
Note 4.15.
The Company’s financial instruments are classified and measured as described below.
| 4.2.1 | Financial assets recorded at fair value through profit or loss |
Financial assets recorded at fair value through profit or loss include assets classified as held for trading, financial assets designated upon initial recognition as at fair value through profit or loss or financial assets required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of being sold or repurchased in the near term. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. After initial recognition, transaction costs and attributable interest expenses, when incurred, are recognized through profit or loss.
| 4.2.2 | Financial assets measured at amortized cost |
These are so classified and measured when: (i) the financial asset is maintained within a business model whose objective is to maintain financial assets in order to receive contractual cash flows; and (ii) the contractual terms of the financial asset give rise, on specified dates, to cash flows that exclusively comprise payments of principal and interest on the principal amount outstanding.
| 4.2.3 | Financial liabilities measured at amortized cost |
Financial liabilities are measured at amortized cost using the effective interest method. This method is also used to allocate interest expense of these liabilities for the period. The effective interest rate is the rate that discounts estimated future cash flows (including fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the financial liability or, when appropriate, over a shorter period, for the initial recognition of the net carrying amount.
| F-24 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.2.4 | Financial liabilities measured at fair value through Profit or Loss |
These are liabilities designated upon initial recognition as at fair value through profit or loss and those classified as held for trading. Financial liabilities designated fair value through profit or loss are stated at fair value with the respective gains or losses in fair value recognized in the statement of income. Net gains or losses recognized in profit or loss include the interest paid on the financial liability.
| 4.2.5 | Derecognition of financial assets and liabilities |
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Company derecognizes financial liabilities only when its obligations are discharged, cancelled or settled. The difference between the carrying amount of the derecognized financial liability and the corresponding disbursement made, or to be made, is recorded to profit or loss.
| 4.3 | Net sectorial financial assets and liabilities |
According to the amendment to the concession agreement of distribution companies, the Company records changes in sectorial financial assets and liabilities, until the next tariff adjustment/review process, when the Concession Grantor approves the transfer as components of the power tariff and thus, it passes the adjustment on to consumers in the next tariff cycle, which occurs on June 24 of each year.
The balances of the net sectorial financial assets and liabilities comprise: a) Parcel A Variation Compensation Account - CVA, which records the variation between estimated and actual energy purchase and transmission costs and sector charges, and b) financial items, which correspond to energy over-contracting, neutrality of charges and other rights and obligations included in the tariff.
After approval of the Annual Tariff Adjustment and Periodic Tariff Review, the new tariff applied for the tariff year provides for the collection or return of the constituted assets and liabilities.
In the event of termination of the concession for any reason, the residual values of Part A items and other financial components not recovered or returned through tariff are incorporated in the calculation of compensation or deducted from unamortized assets indemnity values, thus protecting rights or obligations of the distribution company to the Concession Grantor.
| F-25 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.4 | Accounts receivable related to the concession |
Refer to financial assets of the concessions with unconditional right to receive cash by the Company, guaranteed by the Concession Grantor by contractual clause and specific legislation.
| 4.4.1 | Power distribution service concession |
The concession agreement for electricity distribution provides that the users of the public service remunerate part of the investments made by the concessionaire and the Concession Grantor at the end of the concession indemnifies the other party. This model provides for the recognition of financial assets, contract assets in the construction period and intangible assets.
The portion recognized as financial asset refers to the indemnity set forth in the public power distribution service concession agreements, which the Company understands as an unconditional right to cash payments from the Concession Grantor upon expiration of the concession. This indemnification aims to reimburse the Company for investments made in infrastructure, without recovery, through the tariff.
The cash flows related to these assets are determined taking into account the Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by the Concession Grantor, and the fair value is recorded based on the replacement cost methodology of the assets included in the distribution infrastructure linked to the concession.
| 4.4.2 | Piped gas distribution service concession |
Gas concession agreement follows the bifurcated model, whereby part of the investments made by the concession operator is paid by users of the public service and the other part is indemnified by the Concession Grantor, the State of Paraná, at the end of the concession. This model provides for recognition of a financial asset, a contract asset in the construction period and an intangible asset.
The amount recognized as a financial asset is the amount that will be indemnified by the Concession Grantor corresponding to the investments made in the last ten years prior to the end of the concession as foreseen in the agreement and that, according to Management, assures the unconditional right to receive cash at the end of the concession. The indemnity assumption is based on the replacement cost of the concession assets.
| 4.4.3 | Bonus for the grant of quota system generation concession agreement |
The quota system generation concession agreement provides for the payment of a bonus for the grant to the Concession Grantor, pursuant to paragraph 7 of article 8 of Law 12,783/2013.
This bonus is recognized as a financial asset because it represents an unconditional right to receive cash, guaranteed by the Concession Grantor during the term of the concession and without risk of demand.
The remuneration of this financial asset is based on the Weighted Average Cost of Capital - WACC defined by the National Energy Policy Council (CNPE) in Resolution 2/2015, which is being presented in the statement of income as operating revenue in accordance with the Company’s business model.
| F-26 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.4.4 | Concession of power generation |
The Company has operated and operates concession agreements for power generation that contain indemnification clauses for the infrastructure not depreciated, amortized and/or received during the concession term. After maturity, the residual balances of the assets is transferred to Accounts receivable related to the concession. At the end of each reporting period, Management evaluates the recoverability of the asset, remeasuring its cash flow based on its best estimate.
| 4.5 | Contract assets |
Represented by the construction in progress or in service of the infrastructure delegated by the Concession Grantor, conditional upon the receipt of revenue not only by the passage of time, but after fulfilling the performance obligation to maintain and operate the infrastructure.
| 4.5.1 | Power distribution service concession |
Represents the concessionaire’s contractual right related to the works under construction to meet the needs of the concession, accounted for at cost plus financial charges, when applicable.
When the assets are put into operation, the assets are transferred to the intangible asset, in the amount equivalent to what will be remunerated by the user through payment of the fee for the use of the services, or to the accounts receivable associated to the concession, in the amount equivalent to the residual portion of the assets not amortized, which will be reverted to the Concession Grantor through indemnification at the end of the concession.
| 4.5.2 | Power gas distribution service concession |
Construction in progress for the distribution of piped gas which will be transferred to intangible assets upon their entry in operation and to the extent that the right (authorization) is received to charge the users of the public service. The amount that will not be amortized within the term of the concession is presented in financial assets and indemnified at the end of the concession by the Concession Grantor according to contractual definition.
| 4.5.3 | Power transmission concession |
Represents the balance of public electricity transmission contracts signed with the Concession Grantor to build, operate and maintain the high voltage lines and substations of the generation centers up to the distribution points.
During the term of the concession agreement, the Company receives, subject to its performance, a remuneration denominated Annual Revenue Allowance (RAP) that remunerates the investments made in the construction of the infrastructure and covers also, the costs of operation and maintenance incurred.
| F-27 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
After the beginning of the commercial operation and insofar as the operation and maintenance service - O&M is provided, the portion of RAP referring to O&M revenue is recognized in profit or loss at fair value, on a monthly basis, and billed together with the revenue part recognized in the construction phase, referring to the remuneration of the built-up assets. This amount billed after complying with the O&M performance is reclassified to the financial asset under Customers until its effective receipt.
The Company estimates its revenue in the construction phase at fair value based on the budgeted cost of the work and used by management as a parameter for bidding on the concession auction. Fair value revenue comprises the budgeted cost for the entire construction period plus the construction margin, which represents sufficient profit to cover the costs of managing and monitoring the work.
The remuneration rate of each concession is determined by the projection of the expected cost, of the profit margin on the cost in the construction phase and also of the projection of the RAP to be received in the operational stage, already net of the variable consideration estimate (PV) and the RAP part of the O&M performance. This fair value valuation technique using the income approach discounts cash flow for the entire concession period, determining at initial recognition the implied rate that zeroes the flow over time. This remuneration rate is fixed at the initial period and does not change during the performance of the contract and represents the market rate in effect at the time under the conditions of the negotiation between parties.
The assets arising from the construction of the transmission infrastructure are formed by the recognition of construction revenue, according to the percentage of completion of the construction (Note 4.13), and by their financial remuneration (Note 4.12.2).
The Company recognizes gains and losses due to efficiency or inefficiency in the construction of the infrastructure and due to periodic tariff review (RTP), when incurred, directly in the statement of income for the year.
Upon expiration of the concession, any uncollected amounts related to the construction of infrastructure shall be received directly from the Concession Grantor, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP).
Existing System Basic Network - RBSE
The assets that compose the Existing System Basic Network - RBSE include one economic component, referring to the cost of capital of the assets not depreciated in July 2017, and one financial component, resulting from the right for the Annual Permitted Revenue (RAP) of the Concession Agreement No. 060/2001, not received in the period from January 2013 to June 2017, plus monetary adjustment and remuneration interest.
| F-28 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.6 | Accounts payable related to the concession |
These refer to the amounts set forth in the concession agreement in connection with the right to explore hydraulic power generation potential (onerous concession), whose agreement is signed as Use of Public Property (Uso do Bem Público or UBP) agreements. The obligation is recognized on the date of signature of the concession agreement corresponding to the present value of future cash payments for the concession. The liability is then remeasured using the effective interest rate and reduced by contractual payments.
| 4.7 | Inventories (including property, plant and equipment and contract assets) |
Materials and supplies in inventory, classified under current assets, and those assigned for investments, classified under property, plant and equipment, and contract assets, have been recorded at their average acquisition cost. Recorded amounts do not exceed their net realizable value.
| 4.8 | Property, Plant and Equipment |
The property, plant and equipment related to the public service concession agreement are depreciated according to the straight-line method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful lives of the assets related to concession’s infrastructure. Property, plant and equipment related to contracts for the use of public property under the independent electricity producer scheme are depreciated based on annual rates established by ANEEL limited to the concession period. All other property, plant and equipment are depreciated using the straight-line method based on estimates of their useful lives, which is reviewed annually and adjusted if necessary.
Costs directly attributable to construction works as well as interest and financial charges on borrowings from third parties during construction are recorded under property, plant and equipment in progress, if it is probable that they will result in future economic benefits for the Company.
| 4.9 | Intangible Assets |
These comprise software acquired from third parties and software developed in-house and are measured at acquisition cost and amortized over five years, besides Intangible assets from Concession Agreements below.
| 4.9.1 | Onerous concession of electric power generation |
Corresponds to acquisition of exploration rights on hydropower potential whose onerous concession contract is signed as Use of Public Property - UBP.
During construction work, this asset is recognized at the present value of future cash disbursements during the Concession Agreement term. When commercial operation starts, the amount starts to be amortized over the concession period.
| F-29 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.9.2 | Hydrological risk renegotiation (Generation Scaling Factor - GSF) |
Asset consisting of the renegotiation of the hydrological risk under the terms of Law No. 13,203/2015 and subsequent changes, arising from the amounts recovered from the cost with the adjustment of the Energy Reallocation Mechanism - MRE (GSF). The amount was transformed by ANEEL into an extension of the concession period, which is amortized on a straight-line basis until the end of the new concession period, according to note 1-b.
| 4.9.3 | Power distribution service concession |
This comprises the right to control infrastructure, built or acquired as part of the electric energy public service concession, and the right to charge fees to the users of the public service.
Intangible assets are recorded at their fair acquisition and construction value, less accumulated amortization and impairment losses, when applicable. The amortization of intangible assets reflects the pattern in which it is expected that future economic benefits will flow to the Company during the concession period.
During the infrastructure construction phase costs are classified as contract assets (Note 4.5).
| 4.9.4 | Piped gas distribution service concession |
Intangible assets for piped gas distribution services, which correspond to the right to charge users for the gas supply.
This intangible asset was initially recognized at acquisition or construction cost, plus interest and other capitalized finance charges. This asset is amortized using the straight-line basis over its estimated useful life, considering the economic benefits generated by intangible assets.
During the infrastructure construction phase, costs are classified as contract assets (Note 4.5).
| 4.9.5 | Intangible assets acquired separately |
Intangible assets with a finite useful life, acquired separately, are recorded at cost, less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method based on the estimated useful lives of the corresponding assets. The estimated useful lives and the amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
| 4.9.6 | Derecognition of intangible assets |
An intangible asset is derecognized when no future economic benefits are expected from use or disposal. Gains or losses arising from disposal of an intangible asset are recognized in profit or loss, measured as the difference between net disposal proceeds and the carrying amount of the asset.
| 4.10 | Impairment of assets |
Assets are assessed to detect evidence of impairment.
| F-30 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.10.1 | Financial assets |
Provisions for losses on financial assets are based on assumptions about default risk, existing market conditions and future estimates at the end of each year.
The Company applies the simplified approach of IFRS 9 to the measurement of expected credit losses for the entire existence of financial assets that do not have significant financing components, by considering a provision for expected loss over a useful life for all trade accounts receivable. To measure expected credit losses, trade accounts receivable is grouped based on shared credit risk characteristics, numbers of days late, in the amount considered enough to cover losses on the realization of these assets, based on specific criteria of the payment history, collection actions carried out for the credit recovery and relevance of the amount due in the receivable portfolio.
Trade accounts receivable are written off when there is no reasonable expectation of recovery. Evidence for this includes, among other things, the debtor’s inability to participate in a plan to renegotiate its debt with the Company or to make contractual payments on overdue debts.
| 4.10.2 | Non-financial assets |
Whenever there is a loss resulting from situations where an asset’s carrying value exceeds its recoverable value, defined as the higher of the asset’s value in use or its net selling price, this loss is recognized in profit or loss for the year.
For impairment testing purposes, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating Units - CGU).
The amount of the impairment of non-financial assets is reviewed at the reporting date. In case of reversal of impairment losses which had been recorded in prior years, this reversal is recognized in current year’s profit or loss.
Assets under formation arising from onerous concession and concession rights and/or authorization to generate electricity are classified as intangible assets. Impairment is tested along with the other assets of that cash-generating unit.
The Impairment of contract assets in their construction phase are tested immediately, mainly considering the use of the effective interest rate fixed at the beginning of the project and carried to the end of the concession cash flow. After the beginning of the commercial operation, the portion of revenue recognized is tested for impairment in the accounts receivable from customers. For the receivable part conditioned to fulfill the performance obligation to maintain and operate the infrastructure, the Company has no history and no expectation of losses, since amount are subject to guarantee structures, via shared apportionment of eventual default losses among the other members of the national interconnected system managed by the “Operador Nacional do Sistema” (ONS) and by jurisdiction of the sector.
| 4.11 | Provisions |
Provisions are recognized when: i) the Company has a present obligation (legal, formalized or constructive) resulting from a past event, ii) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and iii) a reliable estimate can be made of the amount to settle the obligation.
| F-31 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The estimates of outcomes and financial impacts are determined by the Company, which requires use of judgment by Management, supplemented by the experience of similar past transactions and, in some cases, by independent expert reports.
Environmental liabilities are recognized as the Company assumes formal obligations before regulatory agencies or becomes aware of potential risks related to environmental issues, which may lead to cash disbursements that are deemed probable and that may be estimated. During the project implementation phase, the accrued amounts are included in property, plant and equipment (generation), construction cost (transmission) or contract assets (distribution). At the start of operations, all costs included in the Operating License, whose programs will be executed during the concession and the respective disbursement has not yet occurred, are measured and adjusted to present value according to the estimated cash flow of disbursements and recorded as environmental provisions matched against the assets related to the project, being adjusted periodically.
Once the project enters commercial operation, all costs or expenses incurred with environmental programs related to the project’s operation and maintenance licenses are analyzed according to their nature and included in profit or loss for the period.
| 4.12 | Revenue recognition |
| 4.12.1 | Revenue from contracts with customers |
Revenue is measured based on the consideration that the Company expects to receive in a contract with the customer, net of any variable consideration. The Company recognizes revenues when it transfers control of the product or service to the customer and when it is probable to receive the consideration considering the client’s ability and intention to pay the consideration when due. The Company’s operating revenue comes mainly from the electricity supply and from the electric network availability.
The revenue from electricity supply is recognized monthly based on the data for billing that are determined by the average MW of contracted electricity and declared with the CCEE. When the information is not available, the Company estimates the revenue considering the contracts’ rules, the price estimate and the volume provided.
For wind power generation companies subject to minimum generation amounts, the Company understands that it is subject to variable consideration, and for this reason, includes a provision for non-performance based on the annual generation estimates, reducing revenue.
Revenue from electric power supply and network availability is recognized monthly based on measured and effectively billed energy. In addition, the Company records unbilled revenue, calculated from the period between the last billing and the end of each month, by estimate based on the last measurement taken. In the concession contract for the public electricity distribution service, non-performance compensations are provided for quality indicators that, when incurred, reduce electricity availability revenue.
| F-32 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.12.2 | Interest income |
Interest income is recognized when it is probable that future economic benefits will flow to the Company and its amount can be reliably measured. Interest income is recognized on a straight-line basis and based on time and the effective interest rate on outstanding principal amounts. The effective interest rate is the one that discounts the estimated future cash receipts calculated during the estimated life of the financial asset in relation to initial net carrying amount of that asset.
Regarding the contract assets of the power transmission concession, financial compensation revenue is recognized using the implicit remuneration rate established at the beginning of each project, which is presented in the statement of income as operating income in accordance with the Company’s business model.
| 4.13 | Construction revenues and costs |
Revenue related to construction services for infrastructure in the power transmission and distribution services, and gas distribution, are recognized over time based on the stage of completion of the work.
The respective costs are recognized when incurred, in the statement of income for the year, as construction cost.
Given that Copel DIS and Compagas outsource the construction of distribution infrastructure to unrelated parties through works carried out in the short term, the construction margin to the power and gas distribution activities is not material.
The
construction margin adopted for the transmission activity for the years 2021, 2020 and 2019 was
| 4.14 | Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamber - CCEE) |
Power purchase and sale transactions in CCEE are recorded on the accrual basis of accounting, based on data released by CCEE, which are calculated by the product of the Differences settlement prices - PLD multiplied by the energy surplus declared with CCEE, or, when such information is not available in a timely manner, by an estimate prepared by Management.
| 4.15 | Derivative Financial Instruments |
| 4.15.1 | Power purchase and sale transactions |
The Company negotiates energy purchase and sale agreements and part of its contracts are classified as derivative financial instruments measured at fair value through profit or loss.
Unrealized net gains or losses arising from the mark-to-market of these contracts (the difference between contractual and market prices) are recognized in the statement of income.
| 4.15.2 | Non-Deliverable Forward (NDF) contracts |
In addition, the Company operates with Non-Deliverable Forward – NDF contracts, which aim exclusively at providing hedge against exchange rate risks associated with cash flows from capital contributions to subsidiaries, when they reflect foreign-currency denominated purchases of projected equipment. They are measured at their fair value, with changes recorded in the statement of income for the year. The fair value is calculated based on the information of each contracted operation and the respective market information on the closing dates of the financial statements.
| F-33 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 4.16 | Taxes |
| 4.16.1 | Income Tax and Social Contribution |
The
taxation on profit comprises income tax and social contribution calculated based on the taxable profits (adjusted profit) of each taxable
entity at the applicable tax rates according to prevailing legislation, namely, at
Income
tax and social contribution losses can be offset against future taxable profits, considering the limit of
| 4.16.2 | Deferred income tax and social contribution |
The Company, based on its profitability history and the expectation of generating future taxable profits, based on its internal projections prepared for reasonable periods for its business, sets up a deferred tax asset on temporary differences between the tax bases and on tax losses and negative tax basis.
The deferred income tax and social contribution are recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used for tax calculation purposes, to the extent that it is probable that there will be sufficient taxable profits against which the temporary differences can be utilized and the tax losses can be offset.
Deferred tax assets and liabilities may be offset if there is a legal right to offset the current tax assets and liabilities and they relate to the same taxing authority.
| 4.16.3 | Other taxes recoverable and other tax obligations |
Sales and services revenues are subject to value-added tax (Imposto sobre Circulação de Mercadorias e Serviços or ICMS) and service tax (Imposto sobre Serviços or ISS), at the applicable rates, and to the PIS (Social Integration Program) and COFINS (Contribution for Social Security Funding).
Credits resulting from non-cumulative PIS and COFINS charges are accounted for as reductions to operating costs in the statement of income.
Credits arising from non-cumulative ICMS, PIS and COFINS related to the purchase of assets are presented as reductions to the acquisition cost of these assets.
Prepayments or amounts that can be offset are presented in current and non-current assets, according to their expected realization.
| 4.17 | Post-employment benefits |
The Company and its subsidiaries sponsor pension plans to supplement retirement and pension plans and the Assistance Plan (medical and dental assistance) for their active employees and their legal dependents. The amounts of these actuarial commitments (contributions, costs, liabilities and/or assets) are calculated annually by an independent actuary, with the base date that coincides with the end of the year. The economic and financial assumptions for the purposes of the actuarial valuation are discussed with the independent actuary and approved by the Company’s Management.
| F-34 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The assets of the benefit plans are valued at market value (marked-to-market) by the Company. The value of the net plan liability is recognized at the present value of the actuarial obligation, less the fair value of the plan assets. The adoption of the projected credit unit method adds each year of service as a triggering event for an additional benefit unit, adding up to the calculation of the final obligation.
Other actuarial assumptions are used, which take into account biometric and economic tables in addition to historical data from the benefits plans, obtained from the manager of these plans, Fundação Copel de Previdência e Assistência Social.
Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized in other comprehensive income.
| 4.18 | Standards applicable to the Company effective January 1, 2021 |
As of the fiscal year 2021, changes in the following standards are in effect, without impacts on the Company’s financial statements:
| (i) | Annual review of standards: IFRS 16, IFRS 4, IAS 39, IFRS 7 and IFRS 9, as a result of the definition of the term “Reform of the Reference Interest Rate - Phase 2”; |
| (ii) | Amendment to IFRS 16 - lease concessions related to Covid-19. |
| 4.19 | New standards that are not yet in effect |
As of the 2022 and 2023 financial years, changes in the following standards will be in effect:
| (i) | IAS 37: specification of costs to fulfill onerous contract (from January 1,2022); |
| (ii) | IAS 16: definitions of resources before their intended use (from January 1,2022); |
| (iii) | IFRS 3: update of the standard, in view of the changes in the Conceptual Framework (from January 1,2022); |
| (iv) | Annual improvements to the 2018–2020 IFRS cycle with changes in standards: IFRS 1, IFRS 9, IFRS 16 and IAS 41 - Agriculture (from January 1,2022); |
| (v) | Changes in IAS 1: classification of liabilities as current or non-current (from January 1,2023); |
| (vi) | IFRS 17: new standards for insurance contracts, replacing IFRS 4 (from January 1,2023); |
| (vii) | IAS 1 amendment to the disclosures of accounting policies (from January 1,2023); |
| (viii) | IAS 8: update of definition of accounting estimates (from January 1,2023); |
| F-35 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| (ix) | IAS 12: amendment to the treatment of deferred tax related to assets and liabilities arising from a single transaction (from January 1,2023); |
| (x) | IFRS 10 and IAS 28: changes related to the sale or contribution of assets between an investor and its associate or joint venture (no defined effective date). |
The Company does not expect significant impacts on the Company’s financial statements resulting from these changes in standards.
| 5. | Cash and Cash Equivalents |
| 12.31.2021 | 12.31.2020 | |
| Cash and bank accounts | |
|
| Financial investments with immediate liquidity | |
|
| |
|
These comprise cash on hand, deposits with banks and short-term highly liquid investments, which can be redeemed in cash within 90 days from the investment date. Temporary short-term investments are recorded at cost at the reporting date, plus earnings accrued. Cash and cash equivalents are subject to an insignificant risk of change in value.
Financial
investments of the Company refer to Bank Deposit Certificates - CDBs and Repurchase Agreements, which are the sale of a security with
the commitment of the seller (Bank) to repurchase it, and of the purchaser to resell it in the future. Investments have post-fixed interest
rates between
| 6. | Bonds and Securities |
The Company hold securities that yield variable interest rates. The term of these securities ranges from 1 to 48 months from the end of the reporting period.
| Category | Index | 12.31.2021 | 12.31.2020 |
| Units in Funds (a) | | ||
| Bank Deposit Certificates - CDB | |
| |
| Financial Treasury Bonds - LFT | |
| |
| National Treasury Bills - LTN | |
| |
| | |||
| Current | |
| |
| Noncurrent | | ||
| Interbank Deposit Certificate - CDI | |||
| Interest rate equivalent to the reference rate of the Special System for Settlement and Custody - Selic | |||
| (a) These are fixed income funds in the Parent Company and reserve accounts intended to comply with contracts with BNDES. | |||
| F-36 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 7. | Trade Accounts Receivable |
| Balances | Overdue | Overdue for more | Total | Total | |
| falling due | up to 90 days | than 90 days | 12.31.2021 | 12.31.2020 | |
| Customers | |||||
| Residential | |
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| Industrial | |
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| |
| Commercial | |
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| |
| Rural | |
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| |
| Public Entities | |
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| |
| Public lighting | |
|
- | |
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| Public service | |
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| |
| Unbilled - captives | |
- | |
| |
| Energy installments plan - captives (7.1) | |
|
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| |
| Low income subsidy - Eletrobras | |
- | |
| |
| Free consumers | |
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| Other receivables | |
|
|
| |
| Bonus for voluntary consumption reduction (7.4) | ( |
- | - | ( |
- |
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| ||
| Concessionaires, Permission holder and Trading Companies | |||||
| Bilateral contracts | |
|
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| Regulated contracts | |
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| CCEE (7.2) | |
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| ||
| Energy suplies | |
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| |
| Charges from using transmission grid | |
|
|
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| Gas distribution | |
|
|
|
|
| Expected credit losses (7.3) | ( |
( |
( |
( |
( |
| |
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| ||
| Current | |
| |||
| Noncurrent | |
| |||
| 7.1 | Energy installments plan – captive customers |
The
trade accounts receivable renegotiated are discounted to present value as of December 31, 2021, taking into consideration the future
value, the maturity dates, the dates of settlement and the discount rate of
| 7.2 | Electricity Trading Chamber - CCEE |
Balance receivable deriving from the positive position in the monthly settlement of the spot market centralized by CCEE. Amounts are received in the second month following the recognition of revenue or offset against future settlements when the result is negative for the subsidiary.
Of
the total presented, R$
| F-37 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Copel GeT filed an administrative request for the exclusion of liability at ANEEL, which was denied, and subsequently, at December 18, 2017, it filed an ordinary lawsuit with request for advance protection with the Court, requesting the reversal of the agency’s decision. On April 6, 2018, the Federal Court of the 1st Region fully granted the preliminary injunction applied for in the interlocutory appeal to suspend the enforcement of any burden or penalty to Copel as a result of noncompliance with the deadlines originally provided for in the Concession Agreement until a final unappealable ruling is rendered. The main action awaits its judgment on merits.
The contracted energy of the Colider plant is 125 MW average. For overdue periods the contract was fulfilled and, due to the fact it is awaiting a decision on the merits of the lawsuit, the Company recognized the revenue limited to the financial covenants of the agreement and the regulatory rules, as well as the cost of energy to cover the contractual guarantee.
| 7.3 | Expected credit losses |
|
||||||||||||
Balance as of January 1, 2019 |
Additions / (Reversals) |
Reversal of write offs |
Balance as of December 31, 2019 |
Additions / (Reversals) |
Reversal of write offs |
Reclassi- fication (a) |
Balance as of December 31, 2020 |
Additions / (Reversals) |
Reversal of write offs |
Reclassi- fication (a) |
Balance as of December 31, 2021 | |
| Customers | ||||||||||||
| Residential | |
|
( |
|
( |
- | |
( |
- | |||
| Industrial | |
|
( |
|
( |
- | ( |
- | ||||
| Commercial | |
|
( |
|
( |
- | ( |
- | ||||
| Rural | |
|
( |
|
( |
- | |
|
( |
- | | |
| Public Entities | |
|
( |
|
( |
- | |
|
( |
- | | |
| Public lighting | |
( |
- | ( |
- | |
( |
- | ||||
| Public service | |
|
( |
|
|
( |
- | |
( |
( |
- | ( |
| Unbilled | |
( |
- | |
- | - | |
|
- | - | | |
| Adjustment to present value | ( |
|
- | ( |
|
- | - | ( |
( |
- | - | ( |
| |
|
( |
|
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( |
- | |
|
( |
- | | |
| Concessionaires, Permission holder and Trading Companies | ||||||||||||
| CCEE (7.2) | |
- | - | |
- | - | - | |
- | - | - | |
| Concessionaries and permission holder | |
|
( |
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( |
- | |
( |
- | ||
| |
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( |
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( |
- | |
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( |
- | | |
| Telecommunications | |
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( |
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( |
( |
- | |
( |
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- | |
| Gas distribution | |
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( |
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( |
- | ( |
- | | ||
| |
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( |
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( |
( |
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( |
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| (a) Reclassification to Assets classified as held for sale (Note 41). |
| 7.4 | Incentive program for the voluntary reduction of electricity consumption |
Due to the water scarcity scenario in the last years, the Federal Government proposed the creation of the Incentive Program for the Voluntary Reduction of Electricity Consumption, within the scope of the Chamber of Exceptional Rules for Hydroenergetic Management (CREG), with the purpose of encouraging consumers to reduce their energy consumption and thus avoid contracting more expensive plants.
To
be entitled to the bonus, the consumer should reduce his electricity consumption in the months from September to December 2021, in such
a way that the total consumptions in this period were at least
| F-38 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Consumers eligible to receive the bonus are those of low voltage (group B) and medium and high voltage (group A), only from residential, industrial, commercial, services and other activities, rural and public service consumption classes, including those residential consumers that benefit from the Social Electricity Tariff (TSEE). The costs of the Incentive Program for the Voluntary Reduction of Electricity Consumption will be covered by the System Service Charges (ESS), to be passed on by CCEE to the distributors.
The
Company recorded a credit in the amount of R$
For eligible consumers, the bonus will be credited to invoices for January, February and March 2022, and reimbursement to distributors will be made in the CCEE accounting for January, February and March, to be settled in March, April and May of the same year.
| 8. | CRC Transferred to the Paraná State Government |
The Company’s Management and the Paraná State Government maintained an agreement for negotiation of the Account for Compensation of Income and Losses - CRC until August 10, 2021.
On
July 14th, 2021, Official Letter No. 443/2021 - GS/SEFA was received, through which the Paraná State Government expressed its
intention to fully settle the CRC and on August 10, 2021 the debt balance was fully paid restated on a daily pro rata basis, in the amount
of R$
The State of Paraná complied with the agreed terms and made the payments under the contracted conditions.
| 8.1 | Changes in CRC |
| Balance as of | Monetary | Balance as of | Monetary | Balance as of | ||||
| January 1, 2020 | Interest | variations | Amortizations | December 31, 2020 | Interest | variations | Receipts | December 31, 2021 |
| |
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( |
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( |
||
| Current | |
- | ||||||
| Noncurrent | |
- |
| F-39 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 9. | Net Sectorial Financial Assets and Liabilities |
| 9.1 | Compositions of net sectorial financial assets and liabilities balances per tariff cycle |
| 12.31.2021 | 12.31.2020 | |||
| Current | Noncurrent | Current | Noncurrent | |
| Sectorial financial assets - Electricity rate adjustment recoverable 2021 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | - | ( |
( | |
| Electricity purchased for resale - Itaipu | - | |
| |
| Transport of energy using the transmission system - basic grid | - | |
||
| Transport of energy purchased from Itaipu | - | | ||
| System Service Charges - ESS | - | |
||
| Energy Development Account - CDE | - | ( |
( | |
| Proinfa | - | ( |
( | |
| Other financial components | ||||
| Neutrality | - | |
||
| Overcontracting | - | |
||
| Hydrological risk | - | ( |
( | |
| Tariff refunds | - | ( |
( | |
| Other | | |||
| - | |
| ||
| Sectorial financial assets - Electricity rate adjustment recoverable 2022 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | ( |
( |
- | - |
| Electricity purchased for resale - Itaipu | |
|
- | - |
| Transport of energy using the transmission system - basic grid | |
- | - | |
| Transport of energy purchased from Itaipu | ( |
( |
- | - |
| System Service Charges - ESS | |
|
- | - |
| Energy Development Account - CDE | ( |
( |
- | - |
| Proinfa | ( |
( |
- | - |
| Other financial components | ||||
| Neutrality | |
- | - | |
| Overcontracting | ( |
( |
- | - |
| Hydrological risk | ( |
( |
- | - |
| Tariff refunds | ( |
( |
- | - |
| Itaipu Bonus | |
- | - | |
| Other | |
- | - | |
| |
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- | - | |
| |
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| |
| F-40 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2021 | 12.31.2020 | |||
| Current | Noncurrent | Current | Noncurrent | |
| Sectorial financial liabilities - Electricity rate adjustment recoverable 2020 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | - | - | ||
| ESS | - | ( |
- | |
| CDE | - | ( |
- | |
| Proinfa | - | |
- | |
| Transport of energy using the transmission system - basic grid | - | |
- | |
| Transport of energy purchased from Itaipu | - | |
- | |
| Other financial components | - | |||
| Offset of energy surplus/deficit under CCEAR bilateral contracts | - | |
- | |
| Hydrological risk | - | ( |
- | |
| Tariff refunds | - | ( |
- | |
| Overcontracting | - | ( |
- | |
| Neutrality | - | |
- | |
| Other | - | - | ||
| - | ( |
- | ||
| Sectorial financial liabilities - Tariff Review 2021 | ||||
| Portion A | ||||
| Electricity purchased for resale - CVA Energ | ( |
- | - | - |
| ESS | |
- | - | - |
| CDE | |
- | - | - |
| Proinfa | |
- | - | - |
| Electricity purchased for resale - Itaipu | |
- | - | - |
| Transport of energy using the transmission system - basic grid | |
- | - | - |
| Transport of energy purchased from Itaipu | |
- | - | - |
| Other financial components | - | - | - | |
| Refund Pis and Cofins credits | ( |
- | - | - |
| Hydrological risk | ( |
- | - | - |
| Tariff refunds | ( |
- | - | - |
| Overcontracting | |
- | - | - |
| Neutrality | |
- | - | - |
| Offset of energy surplus/deficit under CCEAR bilateral contracts | ( |
- | - | - |
| Other | ( |
- | - | - |
| ( |
- | - | - | |
| Sectorial financial liabilities - Tariff Review 2023 | ||||
| Financial components | ||||
| Tariff refunds | - | ( |
- | - |
| Other | - | ( |
||
| - | ( |
- | - | |
| Sectorial financial liabilities - Tariff Review 2024 | ||||
| Financial components | ||||
| Tariff refunds | - | ( |
- | - |
| - | ( |
- | - | |
| Sectorial financial liabilities - Tariff Review 2025 | ||||
| Financial components | ||||
| Tariff refunds | - | ( |
- | - |
| - | ( |
- | - | |
| ( |
( |
( |
- | |
| F-41 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 9.2 | Changes in net sectorial financial assets and liabilities |
| Balance as of | Operating revenues | Financial results | Tariff | Statement of Financial Position | Balance as of | ||
| December 31, 2020 | Constitution | Amortization | Updating | flags | Constitution | December 31, 2021 | |
| Portion A | |||||||
| Electricity purchased for resale - Itaipu | |
( |
|
- | - | | |
| Electricity purchased for resale - CVA Energ | ( |
( |
( |
- | ( | ||
| Transport of energy using the transmission system - basic grid | |
( |
|
- | - | | |
| Transport of energy purchased from Itaipu | |
( |
|
- | - | ||
| ESS | ( |
|
( |
- | | ||
| CDE | ( |
|
( |
|
- | - | ( |
| Proinfa | ( |
|
( |
- | - | ||
| Other financial components | |||||||
| Refunds of Pis and Cofins (Note 13.2.1) | - | - | - | - | ( |
( | |
| Neutrality | |
( |
|
- | - | ||
| Offset of energy surplus/deficit under CCEAR bilateral contracts | ( |
( |
- | - | - | ( | |
| Hydrological risk | ( |
( |
( |
- | - | ( | |
| Tariff refunds | ( |
( |
( |
- | - | ( | |
| Overcontracting | |
( |
( |
( |
( |
- | ( |
| Itaipu bonus | - | |
- | - | ( |
( | |
| Others | |
|
|
( |
- | ( |
|
| |
|
( |
( |
| |||
| Current assets | |
| |||||
| Noncurrent assets | |
| |||||
| Current liabilities | ( |
( | |||||
| Noncurrent liabilities | - | ( | |||||
| Balance as of | Operating revenues | Financial results | Write-offs Covid Account | Tariff | Balance as of | ||
| January 1, 2020 | Constitution | Amortization | Updating | flags | December 31, 2020 | ||
| Portion A | |||||||
| Electricity purchased for resale - Itaipu | |
( |
|
( |
- | | |
| Electricity purchased for resale - CVA Energ | |
( |
( |
|
|
( |
( |
| Transport of energy using the transmission system - basic grid | |
|
|
( |
- | | |
| Transport of energy purchased from Itaipu | |
|
( |
( |
- | ||
| ESS | ( |
( |
( |
|
( |
||
| CDE | |
|
( |
|
( |
- | ( |
| Proinfa | ( |
( |
( |
- | ( | ||
| Other financial components | |||||||
| Neutrality | |
|
( |
( |
- | ||
| Offset of energy surplus/deficit under CCEAR bilateral contracts | |
|
( |
- | - | - | |
| Hydrological risk | ( |
( |
( |
- | - | ( | |
| Tariff refunds | ( |
( |
|
( |
- | - | ( |
| Overcontracting | ( |
( |
( |
| |||
| Others | ( |
( |
- | - | | ||
| |
( |
|
( |
( |
| ||
| Current assets | |
| |||||
| Noncurrent assets | |
| |||||
| Current liabilities | - | ( | |||||
| Noncurrent liabilities | ( |
- | |||||
| 10. | Accounts Receivables - Concessions |
| 12.31.2021 | 12.31.2020 | |
| Power distribution service concession (10.1) | |
|
| Piped gas distribution service concession (10.2) | |
|
| Bonus from the grant of concession agreements under the quota system (10.3) | |
|
| Generation concession agreements (10.4) | |
|
| |
| |
| Current | |
|
| Noncurrent | |
|
| F-42 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 10.1 | Power distribution service concession |
| Balance as of January 1, 2020 | |
| Transfers from contract assets (Note 11.1) | |
| Transfers to intangible assets (Note 19.1) | ( |
| Transfers to other receivables (assets held for disposal) | ( |
| Fair value recognition | |
| Loss on disposal | ( |
| Balance as of December 31, 2020 | |
| Transfers from contract assets (Note 11.1) | |
| Transfers to intangible assets (Note 19.1) | |
| Transfers to other receivables (assets held for disposal) | ( |
| Fair value recognition | |
| Loss on disposal | ( |
| Balance as of December 31, 2021 | |
The distribution concession agreement amount is measured at fair value and its collection is assured by the Concession Grantor through an indemnity upon the return of these assets at the end of the concession period.
| 10.2 | Piped gas distribution service concession |
| Balance as of January 1, 2020 | |
| Transfers from contract assets (Note 11.2) | |
| Transfers to intangible assets (Note 19.3) | ( |
| Fair value recognition | |
| Loss on disposal | ( |
| Balance as of December 31, 2020 | |
| Transfers from contract assets (Note 11.2) | |
| Transfers to intangible assets (Note 19.3) | |
| Fair value recognition | |
| Loss on disposal | ( |
| Balance as of December 31, 2021 |
| 10.3 | Bonus from the grant of concession agreements under the quota system |
| Balance as of January 1, 2020 | |
| Transfers to electricity grid use charges - customers | ( |
| Interest (Note 32.1) | |
| Balance as of December 31, 2020 | |
| Transfers to electricity grid use charges - customers | ( |
| Interest (Note 32.1) | |
| Balance as of December 31, 2021 | |
On
January 5, 2016, Copel GeT entered into a -year concession agreement of HPP GPS, in accordance with Law No. 12,783/2013, with payment
of the Bonus from the Grant - BO to the Concession Grantor, amounting to R$
The amount of the bonus for the grant was recognized as a financial asset due to the Copel GeT’s unconditional right to receive the amount paid with inflation adjustment based on IPCA and interest during the concession period.
| F-43 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 10.4 | Power generation concession contract |
| Balance as of January 1, 2020 | |
| Remeasurement | |
| Reversal of impairment (Note 33.4) | |
| Balance as of December 31, 2020 | |
| Remeasurement | |
| Reversal of impairment (Note 33.4) | |
| Balance as of December 31, 2021 | |
Residual balance refers to the electricity generation assets of HPP GPS and HPP Mourão I. Copel GeT depreciated the plants until 2015, the expiration date of the concessions, and the remaining balances were reclassified to accounts receivable linked to the concession. Although the Granting Authority has not yet disclosed the form of payment of remuneration of the assets, Management’s expectation about indemnification for these assets indicates the recoverability of the recorded balance, based on the remuneration methodology established by ANEEL.
Copel GeT timely manifested to ANEEL its interest in receiving the indemnifiable amount. Formalization of proof of realization of the respective investments to ANEEL occurred on December 17, 2015.
| 11. | Contract assets |
| 12.31.2021 | 12.31.2020 | |
| Power distribution service concession (11.1) | |
|
| Piped gas distribution service concession (11.2) | ||
| Power transmission concession (11.3) | |
|
| |
| |
| Current | |
|
| Noncurrent | |
|
| 11.1 | Power distribution service concession contract |
| Assets | Special liabilities | Total | |
| Balance as of January 1, 2020 | ( |
| |
| Acquisitions | - | | |
| Customers contributions | - | ( |
( |
| Provision for legal claims added to the cost of the works | - | | |
| Transfers to intangible assets (Note 19.1) | ( |
( | |
| Transfers to accounts receivable - concessions (Note 10.1) | ( |
( | |
| Loss on disposal | ( |
- | ( |
| Balance as of December 31, 2020 | ( |
| |
| Acquisitions | - | | |
| Customers contributions | - | ( |
( |
| Provision for legal claims added to the cost of the works | |
- | |
| Transfers to intangible assets (Note 19.1) | ( |
( | |
| Transfers to accounts receivable - concessions (Note 10.1) | ( |
|
( |
| Loss on disposal | ( |
- | ( |
| Balance as of December 31, 2021 | ( |
|
| F-44 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 11.2 | Piped gas distribution service concession contract |
| Balance as of January 1, 2020 | |
| Acquisitions | |
| Transfers to intangible assets (Note 19.3) | ( |
| Transfers from/to accounts receivable - concessions (Note 10.2) | ( |
| Balance as of December 31, 2020 | |
| Acquisitions | |
| Transfers to intangible assets (Note 19.3) | ( |
| Transfers to accounts receivable - concessions (Note 10.2) | ( |
| Balance as of December 31, 2021 | |
| 11.3 | Transmission service concession contract |
| Concession assets | RBSE assets | Total | |
| Balance as of January 1, 2020 | | ||
| Realization of gains/losses in business combinations | - | | |
| Transfers to electricity grid use charges - customers | ( |
( |
( |
| Transfers to property, plant and equipment | ( |
- | ( |
| Transfers from litigations | ( |
- | ( |
| Remuneration | | ||
| Construction revenue | - | | |
| Construction income | - | | |
| Loss from inefficiency (11.3.1) | ( |
- | ( |
| Loss on disposal | ( |
- | ( |
| Balance as of December 31, 2020 | | ||
| Realization of gains/losses in business combinations | - | | |
| Transfers to electricity grid use charges - customers | ( |
( |
( |
| Transfers to property, plant and equipment | ( |
- | ( |
| Transfers from litigations | - | | |
| Remuneration | | ||
| Construction revenue | - | | |
| Construction income | - | | |
| Gain from efficiency (11.3.1) | |
| |
| Balance as of December 31, 2021 | |
| 11.3.1 | Gain (loss) due to efficiency or inefficiency in the implementation and operation of transmission infrastructure |
In the construction and operation of the transmission infrastructure, possible positive or negative impacts are expected due to delays and additional costs due to environmental issues, variation in costs, mainly with cables and structures when indexed to foreign currency, additional easement costs and land negotiations, potential earthworks for unforeseen events, early maturity of commercial transactions and RAP revision/readjustment according to the regulatory standards and contractual provisions. Changes in the original project that affect its profitability are recognized directly in the statement of income when incurred, except for the part of RAP related to the operation and maintenance performance of the assets that is recognized as the services are performed.
In
the year 2021, there was an estimated efficiency gain of R$
•
Gain of R$
| F-45 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
•
Gain of R$
•
Gain of R$
•
Efficiency gains in the construction of reinforcements and improvement in the amount of R$
| 11.3.2 | Assumptions adopted for the calculation of contract assets |
| . | 12.31.2021 | 12.31.2020 | ||
| Concession assets | RBSE assets | Concession assets | RBSE assets | |
| Construction income | N/A | N/A | ||
| Operating and maintenance margin | N/A | N/A | ||
| Remuneration rate (a) | |
|
|
|
| Contract correction index | ||||
| Annual RAP, according to Homologatory Resolution | |
|
|
|
| (a) Average rate of contracts | ||||
| (b) Contract 075/2001 - LT 230 kV Bateias - Jaguariaíva, from Copel GET, and contract 002/2005 - LT 525 kV Ivaiporã - Londrina, from Uirapuru, are adjusted by the IGPM. | ||||
| 12. | Other Receivables |
|
||
| 12.31.2021 | 12.31.2020 | |
| Fair value in the purchase and sale of power (Note 36.2.12) | |
|
| Services in progress (a) | |
|
| Bonus for voluntary consumption reduction (Note 7.4) | |
|
| Credits on purchases of gas (12.1) | |
|
| CDE Transfer (12.2) | |
|
| Disposals and decommissioning in progress | |
|
| Reimbursement of coal consumption values by CDE | |
|
| Advance payments to employees | |
|
| Advance payments to suppliers (b) | |
|
| Tariff flag - CCRTB | |
|
| Derivatives fair value - forward contract (Note 36.2.3 - b) | ||
| Advance for real estate indemnity | ||
| Other receivables | |
|
| |
|
|
| Current | |
|
| Noncurrent | |
|
| CCRTB - Centralizing account of Tariff Flag Resources. | ||
| (a) This item refers to services currently in progress within the Company, most of which are related to the Research and Development and Energy Efficiency programs, which upon conclusion are offset against the respective liability recorded for this purpose. | ||
| (b) Advances to suppliers provided on contractual clauses. | ||
| 12.1 | Credits on purchases of gas - Compagas |
This balance refers to the gas acquisition of contracted and guaranteed volumes, higher than those actually withdrawn and used, and contains a future compensation clause. Compagas has the right to use and offset this gas over the term of the contract up to one year after the closure, currently established in December 2023. According to the contractual provisions and consumption perspectives, derived from the review of the projects
| F-46 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
and scenarios for the next years, Compagas estimates to fully offset the contracted volumes in the course of its operation. Contracts with Petrobras provide for the right to assign this asset. In accordance with contractual provisions and consumption perspectives, from the review of projects and scenarios for the coming years, the Company carried out a review of the estimated recoverable value of the ship or pay credit to be offset and recorded impairment, as shown in NE nº 33.4.
| 12.2 | CDE Transfer |
Values
of the Energy Development Account - CDE to be transferred to the Company, to cover the tariff discounts on the tariffs,
defined in Law 10,438/2002 and Decree 7,891/2013. The amount transferred for the period from June 2020 to May 2021, in accordance with
Aneel Resolution 2,704/2020, was R$
As
of June 2021, the amount was changed to R$47,661 monthly (Aneel Ratifying Resolution 2,886/2021 of June 22, 2021), upon approval of the
result of the last Annual Tariff Adjustment. This amount comprises R$2,643, which refers to previous differences and R$
| 13. | Taxes............. |
| 13.1 | Deferred income tax and social contribution |
| Recognized | Recognized | |||||||||
| Balance as of | Recognized | Reclassi- | comprehensive | Balance as of | Recognized | Reclassi- | comprehensive | Balance as of | ||
| January 1, 2020 | in income | fication (b) | income | December 31, 2020 | in income | Others (a) | fication (b) | income | December 31, 2021 | |
| Noncurrent assets | ||||||||||
| Provisions for legal claims | |
( |
( |
- | |
|
- | ( |
- | |
| Post-employment benefits | |
|
|
|
( |
- | |
( |
| |
| Impairment of assets | |
( |
( |
- | |
( |
- | ( |
- | |
| Research and development and energy efficiency programs | |
( |
- | - | |
( |
- | - | - | |
| Tax losses and negative tax basis | |
|
( |
- | |
|
( |
|
- | |
| Provisons for performance and profit sharing | |
|
- | - | |
( |
- | - | - | |
| Expected credit losses | |
( |
( |
- | |
( |
- | ( |
- | |
| Social security contributions - injunction on judicial deposit | |
|
( |
- | |
- | - | |||
| Amortization - concession | |
( |
- | - | |
- | - | - | ||
| Voluntary retirement program | |
|
- | - | |
- | - | - | ||
| Concession contracts | |
( |
- | - | ( |
- | - | - | ||
| Others | |
( |
( |
- | |
|
|
|
- | |
| |
|
( |
|
( |
( |
|
( |
| ||
| (-) Noncurrent liabilities | ||||||||||
| Concession contracts | |
|
- | - | |
|
|
- | - | |
| Deemed cost of property, plant and equipment | |
( |
- | - | |
( |
- | - | - | |
| Derivative financial instruments | |
|
- | - | |
( |
- | - | - | |
| Accelerated depreciation | |
|
- | - | |
- | - | - | | |
| Escrow deposits monetary variation | |
|
( |
- | |
- | - | - | ||
| Transaction cost on borrowings and debentures | |
( |
( |
- | |
- | - | - | ||
| Others | |
( |
- | - | ( |
- | - | - | ||
| |
|
( |
- | |
|
|
- | - | | |
| Net | |
( |
( |
|
( |
( |
|
(93,881) | ( | |
| Assets presented in the Statement of Financial Position | |
|
| |||||||
| Liabilities presented in the Statement of Financial Position | ( |
( |
( | |||||||
| (a)
R$ | ||||||||||
| (b) R$ | ||||||||||
| 13.1.1 | Projection for realization of deferred income tax and social contribution: |
The projection of deferred tax credits realization recorded in noncurrent assets and liabilities is based on the realization period of each item of deferred assets and liabilities and tax losses, also based on projections of future results. These projections were evaluated by the Supervisory Board and approved by the Board of Directors on April 27, 2022.
| F-47 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The criteria used for the realization of each item are related to the predictability of realization of the main value that gave rise to the temporary difference. When the expectation of realization of the item is difficult to predict, mainly because it is not under the control of the Company, such as provisions for litigation, the Company adopts history of realization to project its future realization. The realization of the amounts of income tax and social contribution losses follow the potential compensation considering future profits and the limit defined by the legislation.
Following are the items that were the basis for the setup of the main credits, as well as their form of realization:
- Provisions for post-employment benefits: realized as the payments are made to the Fundação Copel or reversed according to new actuarial estimates;
- Provisions for legal claims: realized according to court decisions or by the reversal when the possible risk of the shares is reviewed;
- Impairment of assets: realized through the amortization and/or depreciation of the impaired asset;
- Provisions for R&D and PEE: realized through the expenses incurred in the projects carried out;
- Deemed cost: realized through the amortization and/or depreciation of the valued asset;
- Amounts related to the concession agreement: realized over the term of the agreement;
- Amounts related to tax losses and negative tax basis: recovered by offsetting against future taxable income;
- Other amounts: realized when they meet the deductibility criteria provided for in tax legislation, or upon reversal of the recorded amounts.
The projected realization of the deferred taxes is shown below:
| Assets | Liabilities | |
| 2022 | |
( |
| 2023 | |
( |
| 2024 | |
( |
| 2025 | |
( |
| 2026 | ( | |
| 2027 to 2029 | |
( |
| 2030 to 2031 | |
( |
| |
( |
| 13.1.2 | Unrecognized tax credits |
As
of December 31, 2021, Company did not recognize income tax and social contribution credits on income tax and social contribution tax
losses in the amount of R$
| F-48 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 13.2 | Other taxes recoverable and other tax obligations |
| 12.31.2021 | 12.31.2020 | |
| Current assets | ||
| Recoverable ICMS (VAT) | |
|
| Recoverable PIS/Pasep and Cofins taxes (a) | |
|
| Other recoverable taxes | |
|
| |
| |
| Noncurrent assets | ||
| Recoverable ICMS (VAT) | |
|
| Recoverable PIS/Pasep and Cofins taxes (a) | |
|
| Other recoverable taxes | | |
| |
| |
| Current liabilities | ||
| ICMS (VAT) payable | |
|
| PIS/Pasep and Cofins payable | | |
| IRRF on interest on capital | | |
| Special Tax Regularization Program - Pert | | |
| Other taxes | | |
| |
| |
| Noncurrent liabilities | ||
| Social security contributions - injunction on judicial deposit | |
|
| Special Tax Regularization Program - Pert | |
|
| Other taxes | |
|
| |
| |
| (a) The balance contains amounts referring Pis and Cofins credit on ICMS (Note 13.2.1) | ||
| 13.2.1 | Pis and Cofins credit on ICMS |
Copel Distribuição
On August 12, 2009, Copel DIS filed for writ of mandamus No. 5032406-35.2013.404.7000 with the 3rd Federal Court of Curitiba applying for the granting of an order to stop including ICMS in the PIS and Cofins tax base, as well as to authorize it to proceed with the administrative offsetting of the amounts collected more than due for such social contributions in the last five years.
On June 16, 2020, a final unappealable ruling was handed down by the 2nd Panel of the Federal Regional Court of the 4th Region recognizing Copel DIS’s right to exclude from the PIS and Cofins tax base the full amount of ICMS included in the energy supply and distribution invoices. The ruling also recognized that the limitation period, in this case, is of five years and that, therefore, Copel has the right to recover the amounts that have been paid during the five years preceding the filing of the writ of mandamus until the date of the final unappealable ruling.
Considering the final and unappealable ruling, with a favorable decision for the Company, the entry of economic benefits became virtually certain and, therefore, the asset became realizable. In view of these, Copel DIS recognized the updated tax credit in assets, which will be recovered by offsetting against taxes payable within the statute of limitations period.
| F-49 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Additionally, with the assistance of the opinion of its legal counsel, the Company concluded to record the liability to be refunded to consumers for the last 10 years of the credit, as from the date of the unappealable ruling, considering the current legislation, the statute of limitations period defined in the civil code and the jurisprudence of the courts. The refund of PIS and Cofins credits to consumers awaits the conclusion of discussions with Aneel regarding compensation mechanisms and criteria, based on the effective compensation of tax credits, which began in June 2021 with authorizations from the Federal Revenue of Brazil of the credit originating from Cofins.
On February 09, 2021, Aneel opened a public consultation aimed at discussing how to return tax credits to consumers, as described in Note 30.2. Aneel’s proposal is the return of the amounts through a rebate in the electricity bill in each Tariff Cycle (credits with Federal Revenue of Brazil, plus any judicial deposits already received by the concessionaire/permissionaire), allocated according to its consumer class, with shares being defined for each of them at each billing cycle, so that their participation in monthly billing is taken into account. There was also no manifestation by Aneel regarding the statute of limitations for returning the credit to the consumer.
Also, on February 09, 2021, Aneel published Aneel Dispatch No. 361, establishing that, in exceptional situations, in which there is a possibility of a significant tariff increase, prior to the conclusion of a Public Consultation No. 005/2021, part of the PIS and Cofins credits may be utilized in offsetting the tariff increase, limited to 20% (twenty percent) of the total involved in lawsuits filed by distributors.
Considering Aneel Dispatch nº 361/2021, in tariffs readjusted as of June 24, 2021, by means of Ratifying Resolution No. 2,886, R$702,000 were used as a financial item, reducing consumer tariffs in the next twelve months. However, in the tariff process, the Company expressed the right to claim, if necessary, future tariff adjustments to equalize any financial differences observed between the amounts considered herein and the amounts effectively recovered from tax credits, as well as other rights it deems necessary.
On May 13th, 2021, the Supreme Court concluded the judgment of the opposing motion for clarification filed by the Federal Government in Extraordinary Appeal 574.706/PR, partially granting it in the following terms: (i) relating to ICMS excluded from the calculation basis of PIS/Cofins contributions, prevailed the detached ICMS method; and (ii) modulate the effects of the judgment whose production will take place after March 15, 2017, except for the judicial and administrative actions filed up to the date of the session in which the judgment is delivered. Therefore, the final decision on this matter did not impact the final and unappealable decision in favor of the Company, maintaining the treatment and amounts recorded.
The table below shows the impacts of these records on Copel’s statement of financial position and statement of income:
| F-50 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 12.31.2021 | 12.31.2020 | |
| Tax credit - principal | ||
| Tax credit - monetary update | ||
| Effect on assets | ||
| Pis/Pasep and Cofins to be refunded to consumers | ( |
( |
| (-) Transfer to sectorial financial liabilities | - | |
| Tax liabilities - Pis/Pasep and Cofins payable on financial income | - | ( |
| Income tax and social contribution | - | ( |
| Effect on liabilities | ( |
( |
| EFFECT ON STATEMENT OF FINANCIAL POSITION | ||
| Net operating revenue | - | |
| Financial income, net of pis and cofins | |
|
| Income tax and social contribution | ( |
( |
| EFFECT ON THE INCOME STATEMENT | |
In addition, as mentioned above, in the Tariff Review process of Copel DIS of 06.24.2021, the amount of R$702,000 was transferred to the Sector Financial Liability account, of which R$578,603 referring to the portion of tax credits to be returned to the consumer and R$123,397 that were recorded in the PIS and Cofins account to be refunded to consumers. Part of this balance has already been amortized and the remainder will be paid up to June 2022, when this tariff cycle ends, as shown in Note 9.2.
Compagas
The
balance contains the record resulting from the final and unappealable decision of the lawsuit records in which Compagas discussed the
exclusion of ICMS from the PIS and Cofins calculation basis. Due to the favorable ruling, Compagas recorded, on September 2019, the credit
right of R$
| 13.3 | Reconciliation of provision for income tax (IRPJ) and social contribution (CSLL) |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Income before IRPJ and CSLL | |
| |
| IRPJ and CSLL (34%) | ( |
( |
( |
| Tax effects on: | |||
| Equity in income | |
| |
| Interest on own capital | |
| |
| Dividends | |
| |
| Non deductible expenses | ( |
( |
( |
| Tax incentives | |
|
|
| Unrecognized income and social contribution tax loss carry-forwards | ( |
( |
( |
| Setting up and/or offset of income tax and social contribution | |||
| losses of prior years | |
- | |
| Difference between the calculation bases of deemed profit and taxable profit | |
|
|
| Others | |
|
|
| Current IRPJ and CSLL | ( |
( |
( |
| Deferred IRPJ and CSLL | ( |
( |
( |
| Effective rate - % |
| F-51 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 14. | Prepaid Expenses |
| 12.31.2021 | 12.31.2020 | |
| Program for incentive to alternative energy sources - Proinfa | |
|
| Insurance premiums | |
|
| Others | ||
| |
| |
| Current | |
|
| Noncurrent | |
|
| 15. | Dividends Receivable |
| 12.31.2021 | 12.31.2020 | |
| Joint ventures | ||
| Matrinchã | |
|
| Guaraciaba | |
|
| Other | |
|
| |
| |
| Associates and other temporary investments | ||
| 112 | 497 | |
| |
|
| 16. | Judicial Deposits |
| 12.31.2021 | 12.31.2020 | |
| Taxes claims (16.1) | | |
| Labor claims | | |
| . | ||
| Civil claims | ||
| Civil claims | |
|
| Easements | |
|
| Customers | |
|
| |
| |
| . | ||
| Others | |
|
| |
| 16.1 | Tax judicial deposits |
Of the balance, R$218,143 at December 31, 2021 (R$208,871 at December 31, 2020) refers to the challenge in court of the levy of social security contribution (INSS payable) on certain salary amounts. The liability is recorded under Other Tax Obligations, as mentioned in Note 13.2.
| F-52 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17. | Investments |
| 17.1 | Changes in investments |
| Balance as of | Investment/ | Amorti- | Dividends | Other | Balance as of | ||
| January 1, 2021 | Equity | AFAC | zation | and JSCP | (a) | December 31, 2021 | |
| Joint Ventures (17.3) | |||||||
| Voltalia São Miguel do Gostoso I | |
|
- | - | | ||
| Voltalia São Miguel do Gostoso - authorization rights | ( |
- | - | | |||
| Caiuá | |
|
( |
- | | ||
| Integração Maranhense | |
|
( |
- | | ||
| Matrinchã | |
|
( |
- | | ||
| Guaraciaba | |
|
( |
- | | ||
| Paranaíba | |
|
( |
- | | ||
| Mata de Santa Genebra | |
|
( |
- | | ||
| Cantareira | |
|
|
( |
- | | |
| Solar Paraná | |
|
- | - | | ||
| |
|
|
( |
( |
- | | |
| Associates | |||||||
| Dona Francisca Energética (17.4) | |
|
( |
- | |||
| Foz do Chopim Energética (17.4) | |
( |
- | ||||
| Other | ( |
- | - | | |||
| |
|
( |
- | ||||
| Investment property | |
( |
- | ( |
| ||
| |
|
|
( |
( |
( |
| |
| (a) Transfer of assets destined for disposal. | |||||||
| AFAC - Advance for future capital increase | |||||||
| JSCP - Interest on capital | |||||||
| Balance as of | Investment/ | Capital | Amorti- | Dividends | Other | Balance as of | ||
| January 1, 2020 | Equity | AFAC | decrease | zation | and JSCP | (a) | December 31, 2020 | |
| Joint Ventures (17.3) | ||||||||
| Voltalia São Miguel do Gostoso I | |
( |
- | - | - | - | - | |
| Voltalia São Miguel do Gostoso - authorization rights | |
- | - | - | ( |
- | - | |
| Caiuá | |
( |
|
- | - | - | - | |
| Integração Maranhense | |
- | - | - | ( |
- | | |
| Matrinchã | |
- | - | - | ( |
- | | |
| Guaraciaba | |
- | - | - | ( |
- | | |
| Paranaíba | |
- | - | - | - | - | | |
| Mata de Santa Genebra | |
|
- | - | - | - | | |
| Cantareira | |
- | - | - | ( |
- | | |
| Solar Paraná | - | ( |
|
- | - | - | - | |
| - | ||||||||
| |
|
|
- | ( |
( |
- | | |
| Associates | ||||||||
| Dona Francisca Energética (17.4) | |
|
- | - | - | ( |
- | |
| Foz do Chopim Energética (17.4) | |
|
- | - | - | ( |
- | |
| Dominó Holdings | |
( |
- | - | - | - | ( |
|
| Other | |
( |
- | ( |
- | - | ( |
|
| |
- | ( |
- | ( |
( |
|||
| Investment property | |
- | - | - | ( |
- | - | |
| |
|
|
( |
( |
( |
( |
| |
| (a)
R$7.969 of Impairment of Estação Osasco Desenvolvimento Imobiliário S.A., an associate of UEG Araucária,
and R$ | ||||||||
| F-53 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.2 | Subsidiaries with non-controlling interests |
| 17.2.1 | Summarized financial information |
| Compagás | Elejor | UEG Araucária | ||||
| 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | |
| ASSETS | |
|
||||
| Current assets | |
|
||||
| Noncurrent assets | |
|
||||
| LIABILITIES | |
|
||||
| Current liabilities | |
|
|
|||
| Noncurrent liabilities | |
|
|
|
||
| Equity | ( |
|
|
|
||
| Compagás | Elejor | UEG Araucária | |||||||
| 12.31.2021 | 12.31.2020 | 12.31.2019 | 12.31.2021 | 12.31.2020 | 12.31.2019 | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| STATEMENT OF INCOME | |||||||||
| Net operating revenue | |
|
| ||||||
| Operating costs and expenses | ( |
( |
( |
( |
( |
( |
( |
( |
( |
| Financial results | |
( |
|
( |
( |
( |
|
|
|
| Equity in earnings of investees | - | - | - | - | - | - | - | - | |
| Income tax and social contribution | ( |
( |
( |
|
|
( |
( |
( |
( |
| Net income (loss) | |
|
( |
( |
|
|
( |
( | |
| Other comprehensive income | ( |
( |
- | - | - | - | ( |
||
| Total comprehensive income | |
|
( |
( |
|
|
( |
( | |
| STATEMENTS OF CASH FLOWS | |||||||||
| Cash flows from operating activities | |
|
|
|
|
( | |||
| Cash flows from investing activities | ( |
( |
( |
( |
( |
( |
( |
|
( |
| Cash flows from financing activities | ( |
( |
|
- | ( |
( |
( |
|
|
| TOTAL EFFECTS ON CASH AND CASH EQUIVALENTS | |
( |
|
|
|
( |
|
|
( |
| Cash and cash equivalents at the beginning of the year | |
|
|
|
|
|
| ||
| Cash and cash equivalents at the end of the year | |
|
|
|
| ||||
| CHANGE IN CASH AND CASH EQUIVALENTS | |
( |
|
|
|
( |
|
|
( |
The loss recorded at Elejor is due to the monetary update on Accounts payable related to concession, which increased significantly as a result of the IGPM increase, as shown in Note 27.
| F-54 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.2.2 | Changes in equity attributable to non-controlling shareholders |
| Participation in capital stock | Compagás
49% |
Elejor 30% |
UEG Araucária 18,8% | Total |
| Balance as of January 1, 2019 | |
|
|
|
| Net income (loss) | |
( |
| |
| Other comprehensive income | ( |
( | ||
| Additional dividends proposed | ( |
( | ||
| Dividends | ( |
( |
( | |
| Gain with interest variation in Subsidiary | ||||
| Balance as of December 31, 2019 | |
| ||
| Net income (loss) | |
( |
( |
|
| Other comprehensive income | ( |
( |
( | |
| Additional dividends proposed | ( |
( | ||
| Dividends | ( |
( | ||
| Balance as of December 31, 2020 | |
|
| |
| Net income (loss) | |
( |
| |
| Other comprehensive income | |
| ||
| Dividends | ( |
( |
( | |
| Balance as of December 31, 2021 | |
( |
|
|
| 17.3 | Summarized information on the main joint ventures |
| Balance as of December 31, 2021 | Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira |
| ASSETS | |
|
|
|
|
|
|
|
| Current assets | |
|
|
|
|
|
|
|
| Cash and cash equivalents | |
|
|
|
|
|
|
|
| Other current assets | |
|
|
|
|
|
|
|
| Noncurrent assets | |
|
|
|
|
|
|
|
| . | ||||||||
| LIABILITIES | |
|
|
|
|
|
|
|
| Current liabilities | |
|
|
|
|
|
|
|
| Financial liabilities | |
|
|
|
|
|
| |
| Other current liabilities | |
|
|
|
|
|
|
|
| Noncurrent liabilities | |
|
|
|
|
|
| |
| Financial liabilities | |
|
|
|
|
|
| |
| Other noncurrent liabilities | |
|
|
|
|
|
| |
| Equity | |
|
|
|
|
|
|
|
| . | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating revenue | - | |
|
|
|
|
|
|
| Operating costs and expenses | ( |
( |
( |
( |
( |
( |
( |
( |
| Financial results | |
( |
( |
( |
( |
( |
( |
( |
| Equity in income of subsidiaries | |
|||||||
| Income tax and social contribution | ( |
( |
( |
( |
( |
( |
( |
( |
| Net income (loss) | |
|
|
|
|
|
|
|
| Other comprehensive income | ||||||||
| Total comprehensive income | |
|
|
|
|
|
|
|
| . | ||||||||
| Investment interest - % | |
|
|
|
|
|
|
|
| Investment book value | |
|
|
|
|
|
|
|
| F-55 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira | |
| Balance as of December 31, 2020 | ||||||||
| . | ||||||||
| ASSETS | |
|
|
|
|
|
|
|
| Current assets | |
|
|
|
|
|
|
|
| Cash and cash equivalents | |
|
|
|
|
|
|
|
| Other current assets | |
|
|
|
|
|
|
|
| Noncurrent assets | |
|
|
|
|
|
|
|
| . | ||||||||
| LIABILITIES | |
|
|
|
|
|
|
|
| Current liabilities | |
|
|
|
|
|
|
|
| Financial liabilities | |
|
|
|
|
|
| |
| Other current liabilities | |
|
|
|
|
|
|
|
| Noncurrent liabilities | |
|
|
|
|
|
| |
| Financial liabilities | |
|
|
|
|
|
| |
| Other noncurrent liabilities | |
|
|
( |
|
|
| |
| Equity | |
|
|
|
|
|
|
|
| . | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating revenue | - | |
|
|
|
|
|
|
| Operating costs and expenses | ( |
( |
|
( |
( |
( |
( |
( |
| Financial results | |
( |
( |
( |
( |
( |
( |
( |
| Equity in income of subsidiaries | ( |
- | - | - | - | - | - | - |
| Income tax and social contribution | - | |
( |
( |
( |
( |
( |
( |
| Net income (loss) | ( |
( |
|
|
|
|
|
|
| Other comprehensive income | - | - | - | - | - | - | - | - |
| Total comprehensive income | ( |
( |
|
|
|
|
|
|
| . | ||||||||
| Investment interest - % | |
|
|
|
|
|
|
|
| Investment book value | |
|
|
|
|
|
|
|
| Voltalia | Caiuá | Integração Maranhense | Matrinchã | Guaraciaba | Paranaíba | Mata de Santa Genebra | Cantareira | |
| Balance as of December 31, 2019 | ||||||||
| STATEMENT OF INCOME | ||||||||
| Net operating revenue | - | |
|
|
|
|
|
|
| Operating costs and expenses | ( |
( |
( |
( |
( |
( |
( |
( |
| Financial results | |
( |
( |
( |
( |
( |
( |
( |
| Equity in income of subsidiaries | ( |
- | - | - | - | - | - | - |
| Income tax and social contribution | ( |
( |
( |
( |
( |
( |
|
( |
| Net income (loss) | ( |
|
|
|
|
|
( |
|
| Other comprehensive income | - | - | - | - | - | - | - | - |
| Total comprehensive income | ( |
|
|
|
|
|
( |
|
On
December 31, 2021, Copel’s interest in contingent liabilities classified as a possible loss in its joint ventures is equivalent to R$
| F-56 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 17.4 | Summarized information of the main associates |
| Dona Francisca | Foz do Chopim | |||
| 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | |
| . | ||||
| ASSETS | |
|
|
|
| Current assets | |
|
|
|
| Noncurrent assets | |
|
|
|
| . | ||||
| LIABILITIES | |
|
|
|
| Current liabilities | |
|
||
| Noncurrent liabilities | |
- | - | |
| Equity | |
|
|
|
| Investment interest - % | |
|||
| Investment book value | ||||
| . | ||||||
| Dona Francisca | Foz do Chopim | |||||
| 12.31.2021 | 12.31.2020 | 12.31.2019 | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| STATEMENT OF INCOME | ||||||
| Net operating revenue | |
|
|
|
|
|
| Operating costs and expenses | ( |
( |
( |
( |
( |
( |
| Financial income (expense) | ( |
( |
( |
|||
| Income tax and social contribution | ( |
( |
( |
( |
( |
( |
| Net income | |
|
|
|
|
|
| Other comprehensive income | - | - | - | - | - | - |
| Total comprehensive income | |
|
|
|
|
|
As
of December 31, 2021, Copel’s interest in the contingent liabilities of its associates is equivalent to R$
| F-57 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18. | Property, Plant and Equipment |
| 18.1 | Property, plant and equipment by asset class |
| Accumulated | Accumulated | |||||
| Cost | depreciation | 12.31.2021 | Cost | depreciation | 12.31.2020 | |
| In service | ||||||
| Reservoirs, dams and aqueducts | |
( |
|
|
( |
|
| Machinery and equipment | |
( |
|
|
( |
|
| Buildings | |
( |
|
|
( |
|
| Land | |
( |
|
|
( |
|
| Vehicles and aircraft | ( |
|
( |
| ||
| Furniture and fixtures | ( |
|
( |
| ||
| (-) Impairment (18.4) | ( |
- | ( |
( |
- | ( |
| (-) Impairment Copel TEL | - | - | - | ( |
- | ( |
| (-) Special Obligations | ( |
|
( |
( |
( | |
| |
( |
|
|
( |
| |
| In progress | ||||||
| Cost | |
- | |
|
- | |
| (-) Impairment (18.4) | ( |
- | ( |
( |
- | ( |
| (-) Impairment Copel TEL | - | - | - | ( |
- | ( |
| |
- | |
|
- | | |
| |
( |
|
|
( |
|
| 18.2 | Changes in property, plant and equipment |
| Balance
as of January 1, 2021 |
Additions
/ Impairment |
Depreciation | Loss
on disposal |
Transfers | Effects
of acquisition of Vilas Complex (Note 1.2) |
Copel Telecom Disposal (Note 41) |
Balance
as of December 31, 2021 |
|
| In service | ||||||||
| Reservoirs, dams and aqueducts | |
- | ( |
|
|
- | |
|
| Machinery and equipment | |
- | ( |
( |
|
( |
|
|
| Buildings | |
- | ( |
( |
|
( |
|
|
| Land | |
- | ( |
( |
|
( |
|
|
| Vehicles and aircraft | - | ( |
( |
|
( |
|
||
| Furniture and fixtures | - | ( |
( |
|
( |
|
||
| (-) Impairment (18.4) | ( |
|
- | - | - | ( |
||
| (-) Impairment Copel TEL | ( |
- | - | |
||||
| (-) Special Obligations | ( |
- | |
( |
- | ( |
||
| (-) Reclassification (a) | ( |
- | - | |
|
|||
| |
|
( |
( |
|
- | |
||
| In progress | ||||||||
| Cost | |
|
- | ( |
( |
( |
|
|
| (-) Impairment (18.4) | ( |
( |
- | - | - | ( |
||
| (-) Impairment Copel TEL | ( |
- | - | |
||||
| (-) Reclassification (a) | ( |
- | - | - | ( |
- | |
- |
| 610,346 | 342,202 | - | (42,655) | (344,429) | - | - | 565,464 | |
| |
|
( |
( |
|
|
- | ||
| (a) Reclassification to Assets classified as held for sale (Note 41). | ||||||||
| F-58 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Balance as of | Additions
/ Impairment |
Loss on | Balance as of | |||
| January 1, 2020 | Depreciation | disposal | Transfers | December 31, 2020 | ||
| In service | ||||||
| Reservoirs, dams and aqueducts | |
- | ( |
- | ( |
|
| Machinery and equipment | |
- | ( |
( |
| |
| Buildings | |
- | ( |
( |
| |
| Land | |
- | ( |
( |
| |
| Vehicles and aircraft | - | ( |
( |
| ||
| Furniture and tools | - | ( |
( |
| ||
| (-) Impairment (18.5) | ( |
|
- | - | - | ( |
| (-) Impairment Copel TEL | ( |
|
- | - | - | ( |
| (-) Special Obligations | ( |
- | |
- | ( |
( |
| (-) Reclassification (a) | - | - | - | - | ( |
( |
| |
|
( |
( |
( |
| |
| In progress | ||||||
| Cost | |
- | ( |
( |
| |
| (-) Impairment (18.5) | (122,261) | |
- | - | - | ( |
| (-) Impairment Copel TEL | (5,325) | |
- | - | - | ( |
| (-) Reclassification (a) | - | - | - | - | ( |
(61,309) |
| |
- | ( |
( |
| ||
| |
( |
( |
( |
| ||
| (a) Reclassification to Assets classified as held for sale (Note 41). | ||||||
| 18.3 | Joint operations - consortiums |
The amounts recorded under property, plant and equipment referring to share of interest of Copel GeT in consortiums are show below:
| Share | Annual average | |||
| Joint operations | Copel GeT (%) | depreciation rate (%) | 12.31.2021 | 12.31.2020 |
| HPP Gov. Jayme Canet Júnior (Mauá) - Consórcio | ||||
| Energético Cruzeiro do Sul | ||||
| In service | |
| ||
| (-) Accumulated depreciation | ( |
( | ||
| In progress | ||||
| |
| |||
| HPP Baixo Iguaçu | ||||
| In service | |
| ||
| (-) Accumulated depreciation | ( |
( | ||
| In progress | ||||
| |
| |||
| |
|
| 18.4 | Impairment of generation segment assets |
Cash-generating units of the generation segment were tested for impairment based on previous evidence of impairment, assumptions representing the best estimates of the Company’s management, the methodology provided for in IAS 36 and measurement of value in use.
The calculation of the value in use was based on discounted operating cash flows over the time of concessions, maintaining the Company’s current commercial conditions. The rate used to discount the cash flows was set and updated considering the WACC (Weighted Average Cost of Capital) methodology and CAPM (Capital Asset Pricing Model) methodology for the generation business, considering usual market parameters.
| F-59 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Internal references such as the budget approved by the Company, historical or past data, updating of the timeframe of work and amount of investments for projects in course support the design of key assumptions by Company Management. In the same framework, external references such as level of consumption of electric power and the availability of water resources support the key information about estimated cash flows. In particular, 2020 and 2021 proved to be atypical years in terms of growth of the economic activity in the country and in the world, due to the Covid-19 pandemic and, consequently, due to measures to contain it, which directly had an impact on trade, industry and services.
A number of assumptions used by Company Management when determining future cash flows can be affected by uncertain events, which, in turn, may give rise to variation in results. Changes in the political and economic model, for example, may lead to upward trend when projecting country risk-rating, increasing the discount rates used in tests.
The tests considered the following key assumptions:
| · | Growth compatible with historical data and perspective for the Brazilian economy growth; |
| · | Updating specific after-tax discount rates for the segment tested, obtained through the methodology usually applied by the market, taking into consideration the weighted average cost of capital; |
| · | Projected revenue in accordance with the agreements in force and future market expectations, without any expectation for renewal of concession/authorization; |
| · | Expenses broken into cash generating units, projected in view of the budget approved by the Company; |
| · | Updating of regulatory charges. |
The Company considered all its generation projects as independent cash generating units.
The projects with impairment balances recorded at December 31, 2021 are the following:
| Property, Plant and Equipment | Value in use | |||
| Cost | Depreciation | Impairment | ||
| HPP Colíder | |
( |
( |
|
| Consórcio Tapajós (a) | ( |
- | ||
| Power plants in Paraná | |
( |
( |
|
| |
( |
( |
||
| (a) Project under development | ||||
| F-60 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The table below shows the changes in the impairment for the year:
| Balance as of | Impairment / Reversal |
Balance as of | Impairment / Reversal |
Balance as of | |
| January 1, 2020 | December 31, 2020 | December 31, 2021 | |||
| In service | |||||
| UHE Colíder | ( |
|
( |
|
( |
| Wind power complex Cutia | ( |
|
- | ||
| UEGA | - | ( |
( |
||
| Power plants in Paraná | ( |
|
( |
|
( |
| ( |
|
( |
( | ||
| In progress | |||||
| Consórcio Tapajós | ( |
- | ( |
( |
( |
| Power plants in Paraná | ( |
|
( |
( |
( |
| ( |
|
(120,308) | ( |
( | |
| ( |
|
( |
( |
| 18.4.1 | UHE Colíder |
In December 2021, the calculation of value in use took into account the Company’s assumptions and budgets and the discount rate after taxes of 5.77% p.a. (in 2020, 5.70% p.a.), which derives from the WACC methodology for the electricity generation segment. The revision in the expected sale of uncontracted energy offset the increase in operating costs and regulatory charges, reflecting the partial reversal of the impairment balance recognized in prior periods.
| 18.4.2 | Wind farms |
In December 2021, the calculation of value in use of wind power assets took into account the Company’s assumptions and budgets and the discount rate after taxes of 7.65% p.a. (in 2020, 7.08% p.a.) which derives from the WACC methodology for the electric power generation segment, adjusted for the specific taxation condition of the projects. In particular, for the test of the Vilas Wind Complex, acquired at the end of 2021, the after-tax discount rate of 5.46% p.a. was adopted according to the financing contracted before the acquisition. Based on the calculations of the wind farms, it was verified that these assets are recoverable and that, therefore, there is no need to recognize impairment.
| 18.4.3 | UEG Araucária |
In December2021, the calculation of the value in use considered the Company’s assumptions and budgets, change of dispatch assumptions, updated of variable cost per unit (CVU) and discount rate after taxes by 7.69% p.a. (in 2020, 7.87% p.a.), which derive from the WACC methodology for the electricity generation segment, plus additional risk associated with revenue variation. By reviewing the assumptions, the impairment recognized in previous periods were fully reversed, mainly in view of the increase in plant’s demand as a result of the unfavorable hydrological conditions associated with the ONS operating policy to guarantee energy supply, including the restoration of the hydroelectric plant’s reservoirs, which makes the UEG Araucária dispatch assumptions take place in a longer period than predicted in previous projections.
| F-61 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18.4.4 | Figueira Thermoelectric Plant |
In
December 2021, the calculation of the value in use considered the Company’s assumptions and budgets, the discount rate after taxes of
| 18.4.5 | Other plants in Paraná: |
In
December 2021, the calculation of the value in use of generation assets in the State of Paraná considered the Company’s assumptions
and budgets, the discount rate after taxes at
| 18.4.6 | Cash-generating units that have no impairment |
Plants
that have no impairment have recoverable amount higher than the carrying amount of property, plant and equipment on December 31, 2021.
The following table shows the percentage by which the recoverable amount (“RA”) exceeds the carrying amount (“CA”)
of generation assets and also demonstrates the sensitivity analysis, increasing the discount rate by
| F-62 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Cash-generating units | Discount | RA/CA-1 | RA/CA-1 | Impairment Risk | |
| rate | RA/CA-1 | (5% Variation) | (10% Variation) | ||
| Wind power Assets | |||||
| São Bento Complex (a) | - | ||||
| Brisa I Complex (b) | - | ||||
| Brisa II Complex (c) | - | ||||
| Bento Miguel Complex (d) | - | ||||
| Cutia Complex (e) | - | ||||
| Jandaíra Complex (f) | - | ||||
| Vilas Complex (g) | - | ||||
| Thermal Assets | |||||
| UEG Araucária | - | ||||
| Hydric Assets | |||||
| Foz do Areia | - | ||||
| Segredo | - | ||||
| Caxias | - | ||||
| Guaricana | - | ||||
| Chaminé | - | ||||
| Apucaraninha | - | ||||
| Chopim I | - | ||||
| Mauá | - | ||||
| Marumbi | - | ||||
| Cavernoso | - | ||||
| Cavernoso II | - | ||||
| Bela Vista | - | ||||
| Elejor | - | ||||
| (a) Contemplates the GE Boa Vista, GE Farol, GE Olho D’Água e GE São Bento do Norte wind farms. | |||||
| (b) Contemplates the Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III e Nova Eurus IV wind farms. | |||||
| (c) Contemplates the Santa Maria, Santa Helena e Ventos de Santo Uriel wind farms. | |||||
| (d) Contemplates the São Bento do Norte I, São Bento do Norte II, São Bento do Norte III, São Miguel I, São Miguel II and GE São Miguel III wind farms. | |||||
| (e) Contemplates the Cutia, Guajiru, Jangada, Maria Helena, Potiguar, Esperança e Paraíso dos Ventos wind farms. | |||||
| (f) Contemplates the Jandaíra I, Jandaíra II, Jandaíra III e Jandaíra IV wind farms. | |||||
| (g) Contemplates the Potiguar B61, Potiguar B141, Potiguar B142, Potiguar B143 e Ventos de Vila Paraíba IV wind farms. | |||||
| 18.5 | New plants under construction |
| 18.5.1 | SHPP Bela Vista |
With
estimated investment of R$
The participation in the A-6 auction held on August 31, 2018 led to sale of 14.7 MW average in regulated contracts at the original price of R$195.70/MWh. The energy sale contracts provide for beginning of energy supply on January 1, 2024, with a 30-year term and annual adjustment by reference to IPCA variation.
The works started in August 2019, with the entry into commercial operation of the first and second and third generation units on June 12, 2021, July 10, 2021 and August 15, 2021 respectively. The entry into commercial operation of the fourth unit is scheduled for the first half of 2022.
| F-63 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18.5.2 | Jandaíra Wind Complex |
With
estimated investment of R$
The
participation in the new power generation auction A-6, held on October 18, 2019,
In all, 26 wind turbines will be installed, divided into four wind farms, and a substation and a 16 km transmission line will also be built next to the farms to drain the electricity to be generated for the National Interconnected System - SIN.
With all the necessary licenses in place, civil works began in the first week of January 2021, and the wind farm is expected to start operating between May and July 2022, on a phased basis, by wind turbine.
| F-64 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 18.6 | Depreciation rates |
| Depreciation rates (%) | 12.31.2021 | 12.31.2020 | 12.31.2019 |
| Average generation segment rates (Note 18.8.1) | |||
| General equipment | |
|
|
| Machinery and equipment | |
|
|
| Generations | |
|
|
| Reservoirs, dams and ducts | |
|
|
| Hydraulic turbines | |
|
|
| Gas and steam turbines | - | |
|
| Water cooling and treatment | |
|
|
| Gas conditioner | |
|
|
| Wind power plant unit | |
|
|
| Buildings | |
|
- |
| Average rates for central government assets | |||
| Buildings | |
|
|
| Machinery and office equipment | |
|
|
| Furniture and fixtures | |
|
|
| Vehicles |
In 2021, the Company’s Management reassessed the estimated useful lives of assets in the generation segment, mainly for the effects of the hydrological risk renegotiation - GSF (Note 1 - b). The changes were treated prospectively as of October 2021, including the depreciation quota for this year, together with the amortization of the intangible asset recognized on September 30, 2021, in the amount of R$50,880. Additionally, they will include, on average, the amounts of R$203,517 in 2022, R$205,180 in 2023, R$210,098 in 2024, and R$82,725 from 2025 to 2033.
| 18.6.1 | Assets with depreciation rates limited to the concession term |
The assets of the original project of the Mauá, Colíder, Baixo Iguaçu, Cavernoso II and SHPP Bela Vista plants, of Copel GeT, and of the Santa Clara and Fundão plants, of Elejor, are considered by the Granting Authority, without full guarantee of indemnification for their residual value at the end of the concession term. This interpretation is based on the Concessions Law No. 8,987/1995 and Decree No. 2,003/1996, which regulate the generation of electricity by independent generators. Accordingly, from the entry into operation of these assets, including land, depreciation is recognized at the highest rate among that determined by the useful lives of the assets or the rate calculated based on the concession period.
As provided for in the concession contracts, subsequent investments not foreseen in the original project, as long as approved by the Granting Authority and not yet amortized, will be indemnified at the end of the concession period and depreciated at the rates established by the useful lives of the assets, as from the date of their entry in operation.
| F-65 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 19. | Intangible assets |
| 12.31.2021 | 12.31.2020 | |
| Concession agreement - distribution of electricity (19.1) | |
|
| Generation concession agreements/ authorization (19.2) | |
|
| Concession agreement - piped gas distribution (19.3) | | |
| Others (19.4) | ||
| |
|
Management did not identify evidence that would justify the need to recognize impairment of intangible assets in 2021 and 2020.
| 19.1 | Power distribution service concession |
Intangible asset in service |
Special liabilities in service |
Total | |
| Balance as of January 1, 2020 | |
( |
|
| Transfers from accounts receivable - concessions (Note 10.1) | |
- | |
| Transfers from contract assets (Note 11.1) | |
( |
|
| Transfers to other receivables | ( |
- | ( |
| Amortization of quotas - concession (a) | ( |
|
( |
| Amortization of quotas - PIS/Pasep and Cofins credits | ( |
- | ( |
| Loss on disposal | ( |
- | ( |
| Balance as of December 31, 2020 | |
( |
|
| Transfers from accounts receivable - concessions (Note 10.1) | - | ( |
( |
| Transfers from contract assets (Note 11.1) | |
( |
|
| Transfers to other receivables | ( |
- | ( |
| Quotas amortization - concession (a) | ( |
|
( |
| Quotas amortization - PIS/Pasep and Cofins credits | ( |
- | ( |
| Loss on disposal | ( |
- | ( |
| Balance as of December 31, 2021 | |
( |
|
| (a) Amortization during the concession period after the transfer to intangible assets in service of useful life of the assets, whichever the lower. | |||
The balance refers to the portion of infrastructure that will be used during concession, net of special liabilities. The special liabilities represent the resources related to the financial participation of consumers, the Federal, State and Municipal Governments, destined to investments in projects related to the concession, and are not onerous liabilities or shareholder credits.
| F-66 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 19.2 | Generation concession agreements |
| Concession contract (a) | Concession and authorization | |||
| in service | in progress | rights/ goodwill | Total | |
| Balance as of January 1, 2020 | |
- | |
|
| ANEEL grant - use of public property | - | - | | |
| Amortization of quotas - concession and authorization (b) | ( |
- | ( |
( |
| Capitalizations for intangible in service | |
( |
- | |
| Balance as of December 31, 2020 | |
- | |
|
| Effect of acquisition of control of Vilas Complex (Note 1.2) | - | - | |
|
| Goodwill arising from the business combination - Vilas Complex (Note 1.2) | - | - | | |
| ANEEL grant - use of public property | |
- | | |
| Qutoas amortization - concession and authorization (b) | ( |
- | ( |
( |
| Capitalizations for intangible in service | |
( |
- | - |
| Hydrological Risk Renegotiation - GSF - Note 1-b | |
- | - | |
| Balance as of December 31, 2021 | |
- | |
2,473,858 |
| (a) Includes the balances of use of public asset and hydrological risk renegotiation | ||||
| (b) Amortization during the concession/authorization as of the start of commercial operations of the enterprises. | ||||
| 19.3 | Piped gas distribution service concession |
| Total | |
| Balance as of January 1, 2020 | - |
| Transfers from accounts receivable - concessions (Note 10.2) | |
| Transfers from contract assets (Note 11.2) | |
| Amortization of quotas - concession | ( |
| Loss on disposal | ( |
| Balance as of December 31, 2020 | |
| Transfers from contract assets (Note 11.2) | |
| Transfers from accounts receivable - concessions (Note 10.2) | ( |
| Quotas amortization - concession | ( |
| Balance as of December 31, 2021 | |
The publication of Complementary Law 205/2017 brought a new interpretation regarding the expiration date of the Compagas concession, which generated a practice adjustment between the accounting records at Compagas, which maintained the expiration date provided for in the concession agreement as a basis, in 2024, and at Copel, which now considers the expiration date provided for by law, in 2019, as the basis for accounting. As of Complementary Law 227/2020, which determined that the expiration date should be in 2024, the difference generated by the practice adjustment made since December 2017 is recorded in intangible assets and will be amortized until the end of the concession.
| F-67 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 19.4 | Other intangible assets |
| in service | in progress | Total | |
| Balance as of January 1, 2020 | |
|
|
| Acquisitions | |
|
|
| Transfers from property, plant and equipment | |
| |
| Capitalizations for intangible in service | |
( |
- |
| Amortization quotas (a) | ( |
- | ( |
| Amortization quotas - PIS/Pasep and Cofins credits | ( |
- | ( |
| Loss on disposal | - | ( |
( |
| (-) Reclassification (b) | ( |
( |
( |
| Balance as of December 31, 2020 | |
|
|
| Effect of acquisition of control of Vilas Complex | |
- | |
| Acquisitions | |
||
| Transfers from property, plant and equipment | |
| |
| Capitalizations for intangible in service | |
( |
- |
| Amortization quotas (a) | ( |
- | ( |
| Amortization quotas - PIS/Pasep and Cofins credits | ( |
- | ( |
| Partial division of assets | ( |
( |
( |
| (-) Reclassification (b) | |
| |
| Balance as of December 31, 2021 | |
|
|
| (a) Annual amortization rate: 20%. | |||
| (b) Reclassification to Assets classified as held for sale (Note 41). | |||
| 20. | Payroll, Social Charges and Accruals |
| 12.31.2021 | 12.31.2020 | |
| Social security liabilities | ||
| Taxes and social contribution | |
|
| Social security charges on paid vacation and 13th salary | |
|
| |
||
| Labor liabilities | ||
| Vacation | | |
| Provisons for performance and profit sharing | | |
| Voluntary dismissal program | |
|
| Other liabilities | |
|
| | ||
| |
| 21. | Accounts Payable to Suppliers |
| 12.31.2021 | 12.31.2020 | |
| Energy supplies | |
|
| Materials and supplies | |
|
| Natural gas for resale | ||
| Charges for use of grid system | |
|
| |
| |
| Current | |
|
| Noncurrent | |
|
| F-68 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 22. | Loans and Financing |
| Contractual | Effective | 12.31.2021 | 12.31.2020 | |||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | ||||||
| Contracts | Company | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| FOREIGN CURRENCY | ||||||||||||
| National Treasury Department (STN - Secretaria do Tesouro Nacional) | ||||||||||||
| |
|
| ||||||||||
| |
| |||||||||||
| Total foreign currency | ||||||||||||
| LOCAL CURRENCY | ||||||||||||
| Banco do Brasil | ||||||||||||
| |
||||||||||||
| 641,207 | 640,177 | |||||||||||
| Caixa Econômica Federal | ||||||||||||
| |
| |||||||||||
| |
- | |||||||||||
| |
| |||||||||||
| Banco do Nordeste do Brasil | ||||||||||||
| I |
|
- | ||||||||||
| |
- | |||||||||||
| |
- | |||||||||||
| |
- | |||||||||||
| I |
|
- | ||||||||||
| |
- | |||||||||||
| |
- | |||||||||||
| |
- | |||||||||||
| |
- | |||||||||||
| - | ||||||||||||
| Banco do Brasil - BNDES Transfer | ||||||||||||
| |
|
| ||||||||||
| |
| |||||||||||
| (a) Debt renegotiated in March 2021, with changes in the amortization dates and the amount of financial charges. | ||||||||||||
| (1) - IPCA used in the calculation of interest and not in updating the principal. | ||||||||||||
| (continued) | ||||||||||||
| F-69 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Contractual | Effective | 12.31.2021 | 12.31.2020 | |||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | ||||||
| Contracts | Company | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| BNDES | ||||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
| |||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
|
|
| ||||||||
| |
- | | ||||||||||
| |
- | | ||||||||||
| |
|
| ||||||||||
| - | | |||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
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| ||||||||||
| |
| |||||||||||
| |
|
| ||||||||||
| |
|
| ||||||||||
| |
| |||||||||||
| Total local currency | |
| ||||||||||
| Gross debt | |
| ||||||||||
| (-) Transaction cost | ( |
( | ||||||||||
| Net debt | |
| ||||||||||
| Current | |
| ||||||||||
| Noncurrent | |
| ||||||||||
| DI - Interbank Deposit Rate | ||||||||||||
| IPCA - Inflation Index (Índice Nacional de Preços ao Consumidor Amplo, in Portuguese) | ||||||||||||
| F-70 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 22.1 | Collateral and Escrow deposits– STN |
Recognition of guarantees, in the form of a cash guarantee, Par Bond, in the amount of R$84,163 (R$78,764 at December 31, 2020), and Discount Bond, in the amount of R$58,601 (R$54,757 at December 31, 2020) intended to the repayment of the amount of principal related to the STN contracts, upon maturity on April 11, 2024. The amounts are adjusted by applying the weighted average of the percentage changes of the Zero Coupon Bond prices of the United States of America Treasury, by the percentage share of each series of the instrument in the portfolio of collateral for repayment of principal, recognized pursuant to the Brazilian Financing Plan of 1992. According to Note 15.2, the loan was paid on March 10, 2022.
| 22.2 | Breakdown of loans and financing by currency and index |
| 12.31.2021 | % | 12.31.2020 | % | ||
| Foreign currency - change in currencies in the period (%) | |||||
| U.S. Dollar | 7.39 | |
|
|
|
| |
|
|
| ||
| Local currency - indexes at period end (%) | |||||
| TJLP | 5.32 | |
|
||
| CDI | 9.15 | |
|
||
| IPCA | 10.06 | |
|
| |
| Without indexer (annual fixed rate) | - | |
| ||
| |
|
||||
| |
|
|
| ||
| 22.3 | Maturity of noncurrent installments |
| 12.31.2021 | Gross debt | (-) Transaction cost | Net debt |
| 2023 | |
( |
|
| 2024 | |
( |
|
| 2025 | |
( |
|
| 2026 | |
( |
|
| 2027 | |
( |
|
| After 2027 | |
( |
|
| |
( |
|
| F-71 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 22.4 | Changes in loans and financing |
| Foreign currency | Local currency | Total | |
| Balance as of January 1, 2020 | |
|
|
| Funding | - | |
|
| Charges | |
| |
| Monetary and exchange variations | |
|
|
| Amortization - principal | - | ( |
( |
| Payment - charges | ( |
( |
( |
| Balance as of December 31, 2020 | |
|
|
| Effect of acquisition of control of Vilas Complex | - | |
|
| Funding | - | |
|
| (-) Transaction costs | - | ( |
( |
| Charges | |
| |
| Monetary and exchange variations | |
|
|
| Amortization - principal | - | ( |
( |
| Payment - charges | ( |
( |
( |
| Balance as of December 31, 2021 | |
|
|
| 22.5 | Covenants |
The Company signed loans and financing agreements containing covenants that require economic and financial ratios to be maintained within pre-determined parameters, requiring annual fulfillment and other conditions to be complied with, such as not changing the Company’s interest in the capital stock of subsidiaries that would represent change of control without prior consent. Failing to fulfill these conditions may lead to accelerated debt repayment and/or fines.
As of December 31, 2021, all ratios and covenants have been fully met.
The financial covenants contained in the agreements are presented below:
| Company | Contract | Annual financial ratios | Limit |
| Financing for businesses - Finem | |||
| (a) financial ratio calculated based on the amounts of the consolidated financial statements of Cutia Empreendimentos Eólicos S.A. | |||
| F-72 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23. | Debentures |
Schedule of debentures
| Contractual | Effective | 12.31.2021 | 12.31.2020 | ||||||||||
| Issue | Number of | Final | Payment | financial | interest | Contract | |||||||
| Company | Issue | Characteristics | Allocation | Guarantees | Date | installment | maturity | of charges | charges p.y. | rate p.y. | amount | ||
| (a) | |
- | | ||||||||||
| Half-yearly | |
|
| ||||||||||
| (a) | |
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| ||||||||||
| |
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| (b) | |
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| (c) | |
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| ||||||||||
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- | |||||||||||
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- | |||||||||||
| (a) | |
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| (c) | |
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- | |||||||||||
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- | |||||||||||
| (d) | |
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| (b) | |
|
| ||||||||||
| (e) | |
- | |||||||||||
| - | - | ||||||||||||
| (f) | |
- | | ||||||||||
| Gross debt | |
| |||||||||||
| (-) Transaction cost | ( |
( | |||||||||||
| Net debt | |
| |||||||||||
| Current | |
| |||||||||||
| Noncurrent | |
| |||||||||||
| (a) Simple debentures, single series, not convertible into shares, unsecured, for public distribution with restricted placement efforts, according to CVM No. 476. Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (b) Simple debentures, single series, not convertible into shares, with security interest and additional personal guarantee, for public distribution with restricted efforts, pursuant to CVM Instruction No. 476. Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (c) Simple debentures, two series, not convertible into shares, unsecured, for public distribution with restricted placement efforts, according to CVM No. 476. Guarantor: Copel. Trustee: Pentágono S.A. DTVM. | |||||||||||||
| (d) Simple debentures, two series, not convertible into shares, issued privately. Companies: Nova Asa Branca I, Nova Asa Branca II, Nova Asa Branca III, Nova Eurus e Ventos de Santo Uriel. Guarantor: Copel. They have no trustee. | |||||||||||||
| (e) Simple registered debentures, single series, with private issue and exclusive placement by BNDESPAR. Guarantor: Compagás. Trustee: BNDES Participações S.A. BNDESPAR. | |||||||||||||
| (f) Simple and registered debentures, with a single series, in private issue, with public distribution of restricted efforts. Guarantor: Compagás. Trustee: Simplific Pavarini DTVM Ltda. | |||||||||||||
| F-73 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 23.1 | Maturity of noncurrent installments |
| 12.31.2021 | Gross debt | (-) Transaction cost | Net debt |
| 2023 | |
( |
|
| 2024 | |
( |
|
| 2025 | |
( |
|
| 2026 | |
( |
|
| 2027 | |
( |
|
| After 2027 | |
( |
|
| |
( |
|
| 23.2 | Changes in debentures |
| Balance as of January 1, 2020 | |
| Charges and monetary variations | |
| Amortization - principal | ( |
| Payment - charges | ( |
| Reclassification (a) | ( |
| Balance as of December 31, 2020 | |
| Funding | |
| (-) Transaction costs | ( |
| Charges and monetary variations | |
| Amortization - principal | ( |
| Payment - charges | ( |
| Reclassification (a) | ( |
| Balance as of December 31, 2021 | |
| (a) Reclassification to Assets classified as held for sale (Note 41). | |
| 23.3 | Covenants |
Copel issued debentures containing covenants that require the maintenance of certain economic and financial ratios within pre-determined parameters, requiring annual fulfillment and other conditions to be complied with, such as not changing the Company’s interest in the capital stock that would represent change of control without prior consent from the debenture holders; not paying out dividends or interest on capital if it is in arrears in relation to honoring any of its financial obligations or not maintaining the financial ratios as determined without prior written consent of the debenture holders. Failing to fulfill these conditions may lead to accelerated redemption of debentures and regulatory penalties.
As of December 31, 2021, all ratios and covenants have been fully met.
| F-74 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The financial covenants contained in the debenture agreements are presented as follows:
| Company | Contract | Annual financial ratio | Limit |
Debt service coverage ratio |
≥ 1.5 | ||
| (a) financial ratio calculated based on the amounts of the consolidated financial statements of Cutia Empreendimentos Eólicos S.A. | |||
| 24. | Post-employment Benefits |
The Company sponsors private retirement and pension plans (Unified Plan and Plan III) and Healthcare Plan for medical and dental care ("ProSaúde II" and "ProSaúde III" Plans) for their active employees and their legal dependents. The lifetime sponsorship of the Healthcare Plan for retirees, pensioners and legal dependents is only applied to "Prosaúde II" plan participants. Fundação Copel de Previdência e Assistência is the entity that manages these plans.
| 24.1 | Pension plan |
The Unified Plan is a Defined Benefit plan - BD in which the income is predetermined, according to each individual’s salary. This plan is closed for new participants since 1998.
The Plan III is a Variable Contribution plan - CV, being the only plan available for new participants.
| 24.2 | Healthcare Plan |
The Company allocate resources for the coverage of healthcare expenses incurred by their employees and their dependents, within rules, limits and conditions set in "ProSaúde II" and "ProSaúde III" Plans’ regulations. Coverage includes periodic medical exams in both plans and is extended to all retirees and pensioners for life only in the "ProSaúde II" plan.
| F-75 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 24.3 | Statement of financial position and statement of income |
Amounts recognized in liabilities, under Post-employment benefits, are summarized below:
| 12.31.2021 | 12.31.2020 | |
| Pension plans | |
|
| Healthcare plans | |
|
| |
| |
| Current | |
|
| Noncurrent | |
|
Amounts recognized in the statement of income are shown below:
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Employees | |||
| Pension plans | |
|
|
| Healthcare plan - post employment | |
| |
| Healthcare plan - active employees | |
|
|
| Management | |||
| Pension plans | |
| |
| Healthcare plan | | ||
| |
|
| |
| 24.4 | Changes in post-employment benefits |
| Balance as of January 1, 2020 | |
| Appropriation of actuarial calculation | |
| Appropriation of pension and healthcare contributions | |
| Adjustment related to actuarial loss | |
| Amortizations | ( |
| Balance as of December 31, 2020 | |
| Appropriation of actuarial calculation | |
| Appropriation of pension and healthcare contributions | |
| Adjustment related to actuarial gains (loss) | ( |
| Amortizations | ( |
| Balance as of December 31, 2021 | |
| 24.5 | Actuarial valuation in accordance with IAS 19 |
| 24.5.1 | Actuarial assumptions |
The actuarial assumptions used to determine the amounts of liabilities and costs for 2021 and 2020 are shown below:
| F-76 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 2021 | 2020 | |||
| Real | Nominal | Real | Nominal | |
| Economic | ||||
| Inflation p.y. | - | - | ||
| Expected rate of discount/return p.y. | ||||
| Unified Plan - Defined Benefit | ||||
| Unified Plan - Balance | ||||
| Plan III | ||||
| Assistance Plan | ||||
| Salary growth/medical costs | ||||
| Unified Plan p.y. | ||||
| Plan III p.y. | ||||
| Assistance Plan - Aging Factor | - | - | ||
| Demographic | ||||
| Mortality Table | ||||
| Mortality table of individuals with permanent disability | ||||
| Table of new disability benef it vested |
| 24.5.2 | Number of participants and beneficiaries |
| Social Security Plans | ||||||
| Unified Plan | Plan III | Assistance Plan | ||||
| 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | |
| Number of active participants | |
|
|
|
|
|
| Number of Inactive participants | |
|
|
|
|
|
| Number of dependent people | - | - | - | - | |
|
| Total | |
|
|
|
|
|
| 24.5.3 | Life expectancy after the average age of participants - Annuity Table AT-2000 (in years) |
The average age of inactive participants of the healthcare and pension plans of the Company is and years, respectively.
| Unified Plan | Plan III | |
| As of December 31, 2021 | ||
| Retired participants | ||
| Pensioner participants | ||
| As of December 31, 2020 | ||
| Retired participants | ||
| Pensioner participants |
| 24.5.4 | Actuarial evaluation |
Based on the revision of the assumptions, the amounts of the Unified Plan and Plan III as of December 31, 2021 totaled surplus of R$653,654 and R$10,111 (R$807,444 and R$285,057, respectively as of December 31, 2020). Applicable ruling legislation does not allow any significant reduction in contributions or refunds to the Company based on the current surplus of these plans. For this reason, the Company did not record assets in its balance sheet as of December 31, 2021, reflecting any right to reduce contributions, refund of surplus or other amounts.
| F-77 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Unified Plan |
Plan III |
Assistance Plan |
12.31.2021 | 12.31.2020 | |
| Total liabilities or partially covered | |
||||
| Fair value of the plan assets | ( |
( |
( |
( |
( |
| Plan coverage status | ( |
( |
|
|
|
| Unrecognized asset | |
|
| ||
| - | - | |
|
|
The Company adjusted their assistance liabilities through the actuarial report issued on December 31, 2021, as presented in the Statements of Comprehensive Income.
| 24.5.5 | Changes in actuarial liabilities |
| Unified Plan | Plan III | Assistance Plan | |
| Present value of net actuarial obligations as of January 1, 2020 | |
|
|
| Cost of services | |
|
|
| Cost of interest | |
|
|
| Benefits paid | ( |
( |
( |
| Actuarial (gain) losses | |
|
|
| Present value of net actuarial obligations as of December 31, 2020 | |
|
|
| Cost of services | |
|
|
| Cost of interest | |
|
|
| Benefits paid | ( |
( |
|
| Actuarial (gain) losses | ( |
( |
( |
| Present value of net actuarial obligations as of December 31, 2021 | |
|
|
| 24.5.6 | Changes in actuarial assets |
| Unified Plan | Plan III | Assistance Plan | |
| Fair value of the Plan’s assets as of January 1, 2020 | |
|
|
| Return estimated for assets | |
|
|
| Contributions and distributions | |
|
- |
| Benefits paid | ( |
( |
- |
| Actuarial gain (losses) | ( |
|
|
| Fair value of the Plan’s assets as of December 31, 2020 | |
|
|
| Return estimated for assets | |
|
|
| Contributions and distributions | |
|
- |
| Benefits paid | ( |
( |
- |
| Actuarial gain (losses) | ( |
( |
( |
| Fair value of the Plan’s assets as of December 31, 2021 | |
|
|
| F-78 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 24.5.7 | Estimated costs |
The estimated net periodic plan costs (income) for 2022 for each plan are shown below:
| Unified Plan | Plan III | Assistance Plan | |
| Cost of current service | | ||
| Estimated cost of interest | |||
| Expected return on plan assets | ( |
( |
( |
| Expected employee contributions | ( |
( |
- |
| Costs (income or loss) | ( |
| 24.5.8 | Sensitivity Analysis |
The following tables set out a sensitivity analysis, which shows the effect of a one percent increase or decrease in the assumed care costs, in the aggregate of the cost of service and cost of interest components and the accumulated post-employment benefit obligation.
| Projected scenarios | ||
| Increase by 1% | Decrease in 1% | |
| Sensitivity of long-term interest rate | ||
| Impacts on the obligations of the pension | ( |
|
| Impacts on the obligations of healthcare program | ( |
|
| Sensitivity of growth rate of the medical costs | ||
| Impacts on the obligations of healthcare program | |
( |
| Impact on cost of service for the following financial year of healthcare program | |
( |
| Sensitivity of the service cost | ||
| Impacts on the obligations of the pension | |
( |
| Impacts on the obligations of healthcare program | |
( |
| 24.5.9 | Benefits payable |
The estimated benefits to be paid by the Company in the next five years and the total benefits for the following fiscal years are shown below:
| Unified Plan | Plan III | Assistance Plan | Total | |
| 2022 | |
|
|
|
| 2023 | |
|
|
|
| 2024 | |
|
|
|
| 2025 | |
|
|
|
| 2026 | |
|
|
|
| 2027 a 2051 | |
|
|
| F-79 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 24.5.10 | Asset allocation and investment strategy |
The asset allocation for the Company pension and healthcare plans at the end of 2021 and the allocation goal for 2022, by asset category, are shown below:
| Goal for 2022 (*) | 2021 | |
| Fixed income | ||
| Variable income | ||
| Loans | ||
| Real estate | ||
| Investment structuring | ||
| Investments abroad | ||
| (*) Target based on the total investment of each plan. |
In addition, information on the allocation of assets of pension plans sponsored by the Company:
| Unified Plan | Plan III | |||
| target (%)(*) | minimum (%) | target (%) | minimum (%) | |
| Fixed income | ||||
| Variable income | ||||
| Loans | ||||
| Real estate | ||||
| Investment structuring | ||||
| Investments abroad | ||||
(*) Target 2021. | ||||
Management
of Fundação Copel decided to keep a more conservative approach investing in variable income in relation to the allowed
legal limit, which is | ||||
| 24.5.11 | Additional information |
The
Company made contributions to Plan III (variable contribution plan) for all active employees at December 31, 2021, 2020 and 2019, in the amounts
of R$
| 25. | Sectorial Charges Payable |
| 12.31.2021 | 12.31.2020 | |
| Energy Development Account - CDE | |
|
| Global Reversal Reserve - RGR | |
|
| Tariff flags | | |
| |
| 26. | Research and Development and Energy Efficiency |
In accordance with Law No. 9,991/2000 and supplementary regulations, concession operators and licensees of electric power generation and transmission are required to allocate annually the percentage of 1% of their net operating regulatory revenue to research and development of the electricity sector activities, and the electric power distribution concession operators must segregate this same percentage into the research and development and energy efficiency programs of the electricity sector.
| F-80 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Provisional Measure No. 998/2020, converted into Law No. 14,120/2021, amends Law No. 9,991/2000 and provides for the allocation of unused resources from Research and Development (R&D) and Energy Efficiency (PEE) to the Energy Development Account (CDE), aiming at low tariffs until 2025, as a measure to mitigate the economic impacts arising from the Covid-19 pandemic. Aneel Order No. 904/2021 determined the payments to CDE as from April 2021.
| 26.1 | Balances recognized for investment in Research and Development (R&D) activities and the Energy Efficiency Program (EEP) |
| Disbursed and not completed | Balance to be collected | Balance to disburse | Balance as of | Balance as of | |
| 12.31.2021 | 12.31.2020 | ||||
| Research and Development - R&D | |||||
| FNDCT | - | |
- | |
|
| MME | - | |
- | |
|
| R&D | |
|
|
|
|
| |
|
|
|
| |
| Energy efficiency program - EEP | |||||
| Procel | - | |
- | | |
| EEP | |
|
| ||
| |
|
| |||
| |
|
|
| ||
| Current | |
| |||
| Noncurrent | |
| |||
| National Fund for Scientific and Technological Development - FNDCT | |||||
National Program of Electricity Conservation - Procel | |||||
| 26.2 | Changes in R&D and EEP balances |
| FNDCT | MME | R&D | Procel | EEP | Total | |
| Balance as of January 1, 2020 | |
|
|
|
||
| Additions | |
|
||||
| Performance agreement | - | - | - | |
||
| Interest rate (Note 34) | - | - | |
|
|
|
| Payments | ( |
( |
( |
( | ||
| Concluded projects (Note 12 - a) | - | - | ( |
- | ( |
( |
| Balance as of December 31, 2020 | |
|
|
|
|
|
| Additions | |
|
||||
| Performance agreement | - | - | - | |
||
| Interest rate (Note 34) | - | - | |
|
|
|
| Payments | ( |
( |
( |
- | ( |
( |
| Concluded projects (Note 12 - a) | - | - | ( |
- | ( |
( |
| Balance as of December 31, 2021 | |
|
|
|
| F-81 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 27. | Accounts Payable Related to Concessions |
| Discount | Annual | |||||||
| Company | Grant | Signature | Closing | rate | Adjustment | 12.31.2021 | 12.31.2020 | |
| |
| |||||||
| |
| |||||||
| |
| |||||||
| |
| |||||||
| Current | | |||||||
| Noncurrent | ||||||||
| Discount rate applied to calculate present value | ||||||||
| Real and net discount rate, compatible with the estimated long-term rate, not being linked to the expectation of return from the project. | ||||||||
| Payment to the federal government | ||||||||
| Monthly installments equivalent to 1/12 of the annual payment restated, as defined in the concession agreement. | ||||||||
| 27.1 | Changes in accounts payable related to concessions |
| Balance as of January 1, 2020 | |
| Additions | |
| Adjust to present value | ( |
| Monetary variations | |
| Payments | ( |
| Balance as of December 31, 2020 | |
| Additions | |
| Adjustment to present value | |
| Monetary variations | |
| Payments | ( |
| Balance as of December 31, 2021 |
| 27.2 | HPP Fundão and HPP Santa Clara |
On September 30, 2021, Elejor filed the Term of Acceptance arising from Law No. 14,052/2020, Aneel Normative Resolution No. 895/2020 and Aneel Ratifying Resolution No. 2,932/2021, which deal with the renegotiation of the hydrological risk with extension of the HPP Santa Clara grant until May 10, 2040 and HPP Fundão until June 10, 2040, as detailed in NE 1(b). The present value of future payments of the UBP (Use of Public Property) for the extension period were recognized on this date.
| 27.3 | Nominal value and present value of accounts payable related to concession |
| Nominal value | Present value | |
| 2022 | ||
| 2023 | | |
| 2024 | | |
| 2025 | | |
| After 2025 | |
|
| |
| F-82 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 28. | Right-of-use asset and lease liability |
| 28.1 | Right-of-use asset |
| Balance as of | Additions | Remeasurement adjustment | Amorti- | Loss on | Reclassification | Balance as of | |
| January 1, 2021 | zation | disposal | /Others (a) | December 31, 2021 | |||
| Real estate | |
|
( |
( |
| ||
| Vehicles | |
|
|
( |
( |
|
|
| Equipment | |
|
|
( |
( |
|
|
| |
|
( |
( |
| |||
| (a) Reclassification to Assets classified as held for sale (Note 41) and effect of business combination (Note 1.2) | |||||||
| Balance as of | Additions | Remeasurement adjustment | Loss on | Reclassi- | Balance as of | ||
| January 1, 2020 | Amortization | disposal | fication (a) | December 31, 2020 | |||
| Real estate | |
|
|
( |
( |
( |
|
| Vehicles | |
( |
- | ( |
|||
| Equipment | - | ( |
- | ( |
|||
| |
|
( |
( |
( |
| ||
(a) Reclassification to Assets classified as held for sale (Note 41). | |||||||
| 28.2 | Lease liability |
| 28.2.1 | Changes in lease liability |
| Balance as of January 1, 2020 | |
| Additions | |
| Remeasurement adjustment | |
| Charges | |
| Amortization - principal | ( |
| Payment - charges | ( |
| Loss on disposal | ( |
| Reclassification (a) | ( |
| Balance as of December 31, 2020 | |
| Effect of acquisition of control of Vilas Complex | 22,381 |
| Additions | |
| Remeasurement adjustment | |
| Charges | |
| Amortization - principal | ( |
| Payment - charges | ( |
| Loss on disposal | ( |
| Reclassification (a) | |
| Balance as of December 31, 2021 | |
| Current | |
| Noncurrent | |
| (a) Reclassification to Assets classified as held for sale (Note 41). |
The
Company defines the discount rate based on the nominal interest rate applied to the last fundraising, disregarding subsidized or incentivized
funding. The interest rates applied range from
| F-83 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 28.2.2 | Maturity of noncurrent installments |
| 2023 | |
| 2024 | |
| 2025 | |
| 2026 | |
| 2027 | |
| After 2027 | |
| Undiscounted amounts | |
| Embedded interest | ( |
| Lease liabilities balance |
| 28.2.3 | Potential right to Pis/Cofins recoverable |
The table below shows the potential right to Pis/Cofins recoverable for Pis/Cofins computed in lease consideration payable in the foreseen periods.
| Cash Flows | Nominal value | Present value |
| Lease consideration | ||
| Potencial Pis/Cofins | |
|
| 28.3 | Impact of forecast inflation on discounted cash flows |
In accordance with IFRS 16, in measuring and remeasuring lease liabilities and right-of-use assets, the Company used the discounted cash flow method without considering forecast future inflation, according to the prohibition imposed by the standard.
However, given the current reality of long-term interest rates in the Brazilian economic environment, the table below shows the comparative balances between the information recorded in accordance with IFRS 16 and the amount that would be recorded considering forecast inflation:
| Balance in accordance with IFRS 16 | Inflation projected balance | % | |
| Lease liabilities | |
||
| Right to use assets | |
||
| Financial expense | |
|
|
| Amortization expense | |
|
| 28.4 | Commitments from leases and rentals |
For leases of low value assets, such as computers, printers and furniture, short-term leases, as well as for leases of land for development of wind power generation projects, whose payment is made based on variable remuneration, the amounts are recognized in the statement of income as operating costs and/or expenses (Note 33.6). The balance of commitments from leases and rentals is shown below:
| Less than | Over | |||
| 1 year | 1 to 5 years | 5 years | 12.31.2021 | |
| Commitments from leases and rents | |
|
| F-84 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 28.5 | Receivables from leases |
| Less than | Over | Total | ||
| 1 year | 1 to 5 years | 5 years | 12.31.2021 | |
| Facilities sharing | |
|
|
|
| 29. | Other Accounts Payable |
| 12.31.2021 | 12.31.2020 | |
| Fair value in the purchase and sale of power (Note 36.2.12) | ||
| Generation deviation - wind projects (Note 36.2.11) | | |
| Investment acquisition | |
|
| Payments/returns to consumers | |
|
| Pledges in guarantee | |
|
| Obligations to customers in gas sales operations (a) | |
|
| Aneel Order No. 084/2017 provision | |
|
| Public lighting rate collected | |
|
| Financial offset for the use of water resources | |
|
| Other liabilities | |
|
| Current | ||
| Noncurrent | ||
(a) Refers to amounts paid for the purchase of contracted gas volumes not yet taken by customers. | ||
| 30. | Provisions for Legal Claims and Contingent Liabilities |
The Company is responsible for several legal and administrative proceedings before different courts. Based on assessments made by the Company’s legal counsel, Management makes provisions for legal claims in which the losses are rated probable, when the criteria for recognition of provisioning, described in Note 4.11, are met.
The Company’s management believes it is impracticable to provide information regarding the timing of any cash outflows related to the lawsuits for which the Company is responsible on the date of preparation of the financial statements, in view of the unpredictability and dynamics of the Brazilian judicial, tax and regulatory systems, and that the final resolution depends on the conclusions of the lawsuits. For this reason, this information is not provided.
| F-85 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 30.1 | Change in provision for legal claims |
| Income | ||||||||
| Provision | Construction | Transfers/ | Balances as of | |||||
| Balances as of | for litigations | cost | Additions | Others | December, 31 | |||
| January 1, 2021 | Additions | Reversals | Additions | to assets | Settlements | (a) | 2021 | |
| Tax | ||||||||
| Cofins | |
( |
- | - | - | |||
| Others | |
( |
- | ( |
( |
| ||
| ( |
- | ( |
( |
|||||
| Labors | ( |
- | ( |
|
||||
| Employee benefits | |
|
( |
- | ( |
|
| |
| Civil | ||||||||
| Civil and administrative claims | |
( |
- | ( |
||||
| Easements | |
- | |
( |
- | |||
| Expropriations and property | |
( |
( |
( |
- | |||
| Customers | |
|
( |
- | ( |
- | | |
| Environmental | |
|
( |
- | - | ( |
| |
| |
( |
|
( |
( |
||||
| Regulatory | |
( |
- | ( |
- | |||
| |
|
( |
|
( |
( |
|||
| (a) Reclassification mainly to Liabilities associated with assets classified as held for sale (Note 41). | ||||||||
| Income | ||||||||
| Provision | Construction | Transfers/ | Balances as of | |||||
| Balances as of | for litigations | cost | Additions | Others | December 31, | |||
| January 1, 2020 | Additions | Reversals | Additions | to assets | Settlements | (a) | 2020 | |
| Tax | ||||||||
| Cofins | |
|
- | - | - | - | - | |
| Others | |
|
( |
- | - | ( |
( |
|
| |
|
( |
- | - | ( |
( |
| |
| Labors | |
( |
- | - | ( |
( |
| |
| Employee benefits | |
|
( |
- | - | ( |
( |
|
| Civil | ||||||||
| Civil and administrative claims | |
|
( |
- | - | ( |
( |
|
| Easements | |
( |
( |
|
( |
- | | |
| Expropriations and property | |
|
( |
|
( |
- | | |
| Customers | ( |
- | - | ( |
- | | ||
| Environmental | |
( |
- | - | - | - | | |
| |
( |
( |
( |
( |
| |||
| Regulatory | |
|
( |
- | - | ( |
- | |
| |
( |
( |
( |
( |
| |||
| (a) Reclassification mainly to Liabilities associated with assets classified as held for sale (Note 41). | ||||||||
| 30.2 | Details of provisions for legal claims and contingent liabilities |
The table below shows the details of the provisions for registered litigation and, in addition, the amounts of contingent liabilities that are past events for which no provisions are recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
| F-86 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Provisions | Contingent liabilities | ||||
| Description | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | |
| Tax | |||||
| Cofins | |
|
|
| |
| INSS | |
| |||
| Federal taxes | |
- | |||
| ICMS (VAT) | - | ||||
| IPTU | - | |
|||
| ISS | |
|
|||
| Others | |
| |||
| |
|
|
| ||
| Labor | |
|
|
| |
| Employee benefits | |
| |||
| Regulatory | |||||
| Aneel Order nº 288/2002 | - | ||||
| ESBR | - | |
| ||
| Excludente Colíder | As a result of the court injunction that excluded the delay period for the Colíder HPP from being responsible for the delivery of energy contracted in the Regulated Contracting Environment - ACR, CCEE proceeded to credit, valued to PLD, the energy previously backed to comply with ACR. However, in the event of failure in the lawsuit, the Company must return the amounts credited, updated by the IGPM. |
- | |
| |
| Others | - | ||||
| |
|
| |||
| (to be continued) | |||||
| F-87 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Provisions | Contingent liabilities | ||||
| Description | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | |
| Civil | |||||
| Tobacco growers | |
|
|
| |
| Department of Roads and Roadworks | - | - | - | | |
| Arbitration | |
|
|
| |
| PIS / COFINS credit on ICMS | - | - | |
| |
| Civil and administrative law | |
|
|
| |
| Indemnification to third parties (civil) | |
|
|
| |
| Easements | |
|
|
| |
| Expropriations and property | |
|
|
| |
| Indemnification to third parties (expropriations) | |
|
- | | |
| Consumers | |
|
|
| |
| Environmental | |
|
|
| |
| |
|
|
| ||
| |
|
|
| ||
| F-88 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31. | Equity............. |
| 31.1 | Capital |
Capital consists of common and preferred shares. “A” and “B” and have restricted voting rights as per § 7 of article 5 of the Bylaws.
According to Article 17 and following paragraphs of Federal Law No. 6,404/1976, .
.
.
On March 11, 2021, the General Meeting approved the submission of the proposal for comprehensive amendment and consolidation of the Company’s Bylaws, including, among other changes, the share split of the Company, in the proportion of one share for ten shares, so that, for every one share issued by the Company, nine new shares of the same class and type will be credited.
In 2021, the Company implemented the UNITs Program, which consists of the formation of Share Deposit Certificates, or UNITs, comprising one common share (CPLE3) and four class “B” preferred shares (CPLE6). The program was approved by Copel’s Board of Directors on April 23, 2021 and its operations started on April 26, 2021 in the Brazilian market.
| Number of shares in units | ||||||||
| Shareholders | Common | Class "A” Preferred | Class “B” preferred | Total | ||||
| number of share | % | number of share | % | number of share | % | number of share | % | |
| State of Paraná | |
|
|
|
|
|
||
| BNDES | |
|
|
|
|
|
||
| Eletrobras | |
|
|
| ||||
| Free float: | ||||||||
| B3 | |
|
|
|
|
|
|
|
| NYSE | |
|
|
|
|
| ||
| Latibex | |
|
|
|
|
|
| |
| City Halls | |
|
|
|
|
| ||
| Other shareholders | |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| F-89 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.2 | Equity valuation adjustments |
Fair values of fixed assets – deemed costs – were recognized on the first-time adoption of IFRS. The line item “Equity value adjustments” was the balancing item of this adjustment, net of deferred income tax and social contribution. The realization of such adjustments is recorded in the retained earnings line item, to the extent of the depreciation or possible disposal of the measured fixed assets.
Adjustments arising from the changes in fair value involving financial assets, as well as actuarial gains and losses, are also recorded in this line item:
| Balance as of January 1, 2020 | |
| Actuarial liabilities | |
| Post employment benefits | ( |
| Taxes on adjustments | |
| Realization of equity evaluation adjustment | |
| Deemed cost of fixed assets | ( |
| Taxes on adjustments | |
| Attributed to non-controlling interest | |
| Balance as of December 31, 2020 | |
| Actuarial liabilities | |
| Post employment benefits | |
| Taxes on adjustments (a) | ( |
| Realization of equity evaluation adjustment | |
| Deemed cost of fixed assets | ( |
| Taxes on adjustments | |
| Actuarial liability - investment realization | ( |
| Attributed to non-controlling interest | ( |
| Balance as of December 31, 2021 | |
| (a) Derecognition of deferred tax assets on actuarial liabilities of Copel SER because there is no reasonable certainty that sufficient future taxable income w ill be generated for its absorption. | |
| 31.3 | Legal reserve and profit retention reserve |
The
amount of
The profit retention reserve is earmarked for covering the Company’s investment program, according to Article 196 of Law No. 6,404/1976. It is funded by retaining the remaining profit or loss after setting up the legal reserve, interest on capital and dividends proposed.
| F-90 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.4 | Proposed dividend distribution |
| Parent Company | 12.31.2021 | 12.31.2020 | 12.31.2019 |
| Calculation basis for dividends | |||
| Net income for the year | |
|
|
| Legal Reserve (5%) | ( |
( |
( |
| Realization of equity evaluation adjustment | |
|
|
| |
|
| |
| Proposed dividends | |||
| Interest on own capital - gross value (a) | |
|
|
| Interim dividends (b) | |
- | - |
| Complement to reach the mandatory minimum | - | |
- |
| Additional proposed dividends | |
|
- |
| |
|
| |
| Gross value of dividends per class of shares: | |||
| Ordinary shares | |
|
|
| Class “A” preferred shares | |||
| Class “B” preferred shares | |
|
|
| Gross value of dividends per share: | |||
| Ordinary shares | |
|
|
| Class “A” preferred shares | |
|
|
| Class “B” preferred shares | |
|
|
| Gross value of dividends per share - Units (c) | |
- | - |
| (a) R$239,636 approved by the Board of Directors on 9/17/2021, paid on 11/30/2021, and R$283,173 approved by the Board of Directors on 12/8/2021, with payment date to be defined at the AGM. | |||
| (b) Dividend approved by the Board of Directors on 9/17/2021, paid on 11/30/2021. | |||
| (c) The Units are made up of 1 common share and 4 class "B" preferred shares | |||
In accordance with the legal and statutory provisions in effect, the basis for calculating mandatory dividends is obtained from net income, less the quota allocated to the legal reserve. However, Management has the practice of adding to the calculation basis the realization of the equity valuation adjustments, which is dealt with in IAS 16, 40 and IFRS 1, in order to void the effect of the increase in depreciation expense arising from the adoption accounting standards, as well as IAS 16 - Property, Plant and Equipment. This procedure reflects the Company’s shareholder remuneration policy, which will be practiced during the realization of the entire reserve for equity valuation adjustments.
| F-91 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 31.5 | Earnings per share - basic and diluted |
| Parent company | Continuing | Discontinued | Total | Continuing | Discontinued | Total | Continuing | Discontinued | Total |
| operations | operations | 12.31.2021 | operations | operations | 12.31.2020 | operations | operations | 12.31.2019 | |
| Basic and diluted numerator | |||||||||
| Basic and diluted earnings allocated by classes of shares, allocated to controlling shareholders: | |||||||||
| Common shares | |
( |
|||||||
| Class “A” preferred shares | |
|
|
|
|
|
|
( |
|
| Class “B” preferred shares | |
( |
|||||||
| |
( |
||||||||
| Basic and diluted denominator | |||||||||
| Weighted average of shares (in thousands): | |||||||||
| Common shares | |
|
|
|
|
|
|
|
|
| Class “A” preferred shares | |||||||||
| Class “B” preferred shares | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
| Basic and diluted earnings per share attributable to controlling shareholders | |||||||||
| Common shares | ( |
||||||||
| Class “A” preferred shares | ( |
||||||||
| Class “B” preferred shares | ( |
||||||||
| 32. | Net Operating Revenue |
| Net revenues | ||||||||
| Gross | PIS/Pasep | Sectorial | Service tax | |||||
| revenues | and Cofins | ICMS (VAT) | charges | (ISSQN) | 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Electricity sales to final customers | |
( |
( |
( |
- | |
|
|
| Electricity sales to distributors | ( |
( |
( |
- | |
|
| |
| Use of the main distribution and transmission grid | |
( |
( |
( |
- | |
|
|
| Construction income | - | - | - | - | |
|
| |
| Fair value of assets from the indemnity for the concession | |
- | - | - | - | |
||
| Distribution of piped gas | |
( |
( |
- | ( |
|
|
|
| Sectorial financial assets and liabilities result | ( |
- | - | - | |
|
||
| Other operating revenue | |
( |
( |
- | ( |
|||
| Recovery of Pis/Pasep and Cofins on ICMS | - | - | - | - | - | - | - | |
| |
( |
( |
( |
( |
|
|
| |
| F-92 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 32.1 | Revenue by type and/or class of customers |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Electricity sales to final customers | |
| |
| Residential | |||
| Industrial | |
||
| Trade, services and other activities | |||
| Rural | |
||
| Public entities | |
||
| Public lighting | |
||
| Public service | |
||
| Free consumers | |||
| Donations and grants | |
||
| Electricity sales to distributors | |||
| Bilateral contracts | |||
| Regulated contracts | |
||
| Electric Energy Trade Chamber - CCEE | |
||
| Effective interest - grant bônus (Note 10.3) | |
| |
| Use of the main distribution and transmission grid | |
||
| Residential | |||
| Industrial | |||
| Trade, services and other activities | |||
| Rural | |
||
| Public entities | |
||
| Public lighting | |
||
| Public service | |
||
| Free consumers | |||
| Concessionaires and generators | |
|
|
| Operating and maintenance income - O&M and interest income | |
||
| Construction income | |||
| Power distribution service concession | |||
| Power gas distribution service concession | |
| |
| Power transmission concession (a) | |
||
| Fair value of assets from the indemnity for the concession | |
| |
| Distribution of piped gas | |
||
| Sectorial financial assets and liabilities result | |
| |
| Other operating revenue | |
||
| Leasing and rent (32.2) | |
||
| Fair value in the purchase and sale of power | - | |
|
| Income from rendering of services | |
|
|
| Other income | |
|
|
| GROSS OPERATING REVENUE | |
|
|
| (-) Pis/Pasep and Cofins | ( |
( |
( |
| Recovery of Pis/Pasep and Cofins on ICMS (Note 13.2.1) | - | |
|
| (-) ICMS (VAT) | ( |
( |
( |
| (-) Service tax (ISSQN) | ( |
( |
( |
| (-) Sectorial charges (32.3) | ( |
( |
( |
| NET OPERATING REVENUE | |
|
|
(a) The balance contains the amount of construction revenue, the construction margin and the efficiency gain or loss as detailed in Note 11.3 | |||
| F-93 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 32.2 | Leases and rentals |
| 32.2.1 | Revenue from leases and rentals |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Equipment and structures | | ||
| Facilities sharing | | ||
| Real estate | | ||
| |
| 32.3 | Regulatory charges |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Energy Development Account - "CDE " - Power distribution service concession (32.3.1) | |||
| Other charges - rate flags | |
||
| Research and development and energy efficiency - R&D and EEP | |||
| Global Reversion Reserve - RGR quota | |
|
|
| Energy Development Account - "CDE " - Power transmission concession | |
|
|
| Inspection fee | |
|
|
| |
|
|
| 32.3.1 | Energy Development Account - CDE - power distribution concession |
The CDE, created by Law 10,438/2002 and amended by Law 12,783/2013, has among its sources of funds, in order to meet its objectives, the quotas paid by agents that negotiate energy with final consumers, by average of a charge included in the tariffs. The Company makes payments for the “CDE USO” charge, intended to cover the CDE’s objectives set forth by law. The annual quotas for each distributor are defined by Aneel through resolutions enacted by it.
As of June 2021, the Company started to pay monthly the quota related to CDE Covid Account in the amount of R$29,032, segregated between “CDE USO” and “CDE ENERGIA”. This charge, passed on in the tariff to consumers, is due by distribution concessionaires and licensees according to Order No. 939/2021 and has the purpose of amortizing the credit operation contracted by the CCEE in the management of the Covid Account, under the terms of Normative Resolution No. 885/2020.
The balance is as follows:
| Resolutions | Period | 12.31.2021 |
| CDE USO | ||
| | ||
| | ||
| | ||
| | ||
| | ||
| | ||
| CDE ENERGIA | ||
| | ||
| |
| F-94 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Resolutions | Period | 12.31.2020 |
| CDE USO | ||
| | ||
| ( | ||
| |
| Resolutions | Period | 12.31.2019 |
| CDE USO | ||
| | ||
| ( | ||
| | ||
| CDE ENERGIA | ||
| | ||
| ( | ||
| | ||
| CDE ENERGIA | ||
| ( | ||
| |
| 32.4 | Copel DIS anual tariff adjustment |
ANEEL approved the result of Copel DIS’s 5th Periodic Tariff Review Cycle 2021 through Ratifying Resolution No. 2,886, dated June 22, 2021, authorizing average adjustment of 9.89% (0.41% in 2020) applied to consumers and whose application occurred in full to tariffs as from June 24, 2021. For high voltage consumers the average readjustment was 9.57% and for low voltage consumers it was 10.04%.
Copel Distribuição’s net Regulatory Compensation Basis - BRR, in the 2021 Periodic Tariff Review, was ratified at R$8,362,118. The return on capital reached R$985,623, at a rate of 10.64% before taxes, and the Regulatory Reintegration Quota - QRR, which aims to restore the assets related to the provision of the service throughout its useful life, was R$438,786, average rate of 3.73%.
| F-95 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 33. | Operating Costs and Expense |
| General and | Other | ||||
| Operational | Selling | administrative | operating | ||
| costs | expenses | expenses | expenses, net | 12.31.2021 | |
| Electricity purchased for resale (33.1) | ( |
- | - | - | ( |
| Charge of the main distribution and transmission grid | ( |
- | - | - | ( |
| Personnel and management (33.2) | ( |
( |
( |
- | ( |
| Pension and healthcare plans (Note 24.3) | ( |
( |
( |
- | ( |
| Materials and supplies | ( |
( |
( |
- | ( |
| Materials and supplies for power electricity | ( |
- | - | - | ( |
| Natural gas and supplies for gas business | ( |
- | - | - | ( |
| Third-party services (33.3) | ( |
( |
( |
- | ( |
| Depreciation and amortization | ( |
( |
( |
( |
( |
| Credit losses, provisions and reversals (33.4) | |
( |
- | ( |
( |
| Construction cost (33.5) | ( |
- | - | - | ( |
| Hydrological risk renegotiation (Note 1-b) | - | - | | ||
| Other operating costs and expenses, net (33.6) | ( |
|
( |
( |
( |
| ( |
( |
( |
( |
| General and | Other | ||||
| Operational | Selling | administrative | operating | ||
| costs | expenses | expenses | expenses, net | 12.31.2020 | |
| Electricity purchased for resale (33.1) | ( |
- | - | - | ( |
| Charge of the main distribution and transmission grid | ( |
- | - | - | ( |
| Personnel and management (33.2) | ( |
( |
( |
- | ( |
| Pension and healthcare plans (Note 24.3) | ( |
( |
( |
- | ( |
| Materials and supplies | ( |
( |
( |
- | ( |
| Materials and supplies for power electricity | ( |
- | - | - | ( |
| Natural gas and supplies for gas business | ( |
- | - | - | ( |
| Third-party services (33.3) | ( |
( |
( |
- | ( |
| Depreciation and amortization | ( |
- | ( |
( |
( |
| Credit losses, provisions and reversals (33.4) | |
( |
- | ( |
( |
| Construction cost (33.5) | ( |
- | - | - | ( |
| Other operating costs and expenses, net (33.6) | ( |
( |
( |
( |
( |
| ( |
( |
( |
( |
( |
| General and | Other | ||||
| Operational | Selling | administrative | operating | ||
| costs | expenses | expenses | expenses, net | 12.31.2019 | |
| Electricity purchased for resale (33.1) | ( |
- | - | - | ( |
| Charge of the main distribution and transmission grid | ( |
- | - | - | ( |
| Personnel and management (33.2) | ( |
( |
( |
- | ( |
| Pension and healthcare plans (Note 24.3) | ( |
( |
( |
- | ( |
| Materials and supplies | ( |
( |
( |
- | ( |
| Materials and supplies for power electricity | ( |
- | - | - | ( |
| Natural gas and supplies for gas business | ( |
- | - | - | ( |
| Third-party services (33.3) | ( |
( |
( |
- | ( |
| Depreciation and amortization | ( |
( |
( |
( |
( |
| Credit losses, provisions and reversals (33.4) | |
( |
- | ( |
( |
| Construction cost (33.5) | ( |
- | - | - | ( |
| Other operating costs and expenses, net (33.6) | ( |
( |
( |
( |
( |
| ( |
( |
( |
( |
( |
| F-96 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 33.1 | Electricity purchased for resale |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Purchase of Energy in the Regulated Environment - CCEAR | |
|
|
| Itaipu Binacional | |
|
|
| Electric Energy Trade Chamber - CCEE | |
|
|
| Bilateral contracts | |
|
|
| Program for incentive to alternative energy sources - Proinfa | |
|
|
| Micro and mini generators and repurchase of customers | |
|
|
| Fair value in the purchase and sale of power | |
- | - |
| (-) PIS/Pasep/Cofins taxes on electricity purchased for resale | ( |
( |
( |
| |
|
|
| 33.2 | Personnel and management |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Personnel | |||
| Salaries and management fees | |
| |
| Social charges on payroll | |
| |
| Meal and education allowance | |
| |
| Voluntary retirement program | |
|
|
| |
| ||
| Management | |||
| Salaries and management fees | |
|
|
| Social charges on payroll | |
| |
| Other expenses | |
| |
| |
|
| |
| Provisions for performance and profit sharing | |||
| of employees and administrators | |
| |
| |
|
|
| 33.3 | Third party services |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Maintenance of electrical system | |
|
|
| Maintenance of facilities | |
|
|
| Communication, processing and transmission of data | |
|
|
| Consumer service | |
|
|
| Meter reading and bill delivery | |
|
|
| Consulting and audit | |
|
|
| Other services | |
|
|
| |
|
| F-97 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 33.4 | Credit losses, provisions and reversals |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Provision for legal claims (a) | |
| |
| Impairment of assets | |||
| Power generation concession contract (Note 10.4) | ( |
( |
( |
| QNPR gas impairment (amount paid and not withdrawn) (b) | |
||
| Property, plant and equipment - generation segment (Note 18.4) | ( |
( |
( |
| Expected credit losses (Trade accounts and Other receivables) | |
| |
| Tax credits estimated losses | |
( |
( |
| Provision for losses on equity interests | - | |
|
| |
|
| (a) |
| (b) |
| 33.5 | Construction costs |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Materials and supplies | |
|
|
| Third party services | |
|
|
| Personnel | |
|
|
| Others (a) | |
||
| |
|
| |
(a) The balance includes the reversal amount of provisions for legal claims, in the total amount of R$ | |||
| F-98 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 33.6 | Other operating costs and expenses, net |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Financial offset for the use of water resources | |
|
|
| Collection charge | |
|
|
| Compensation | |
|
|
| Taxes | |
|
|
| Donations, contributions, grants, tax incentives (a) | |
|
|
| Leasing and rent | |
|
|
| Net losses (gains) in the decommissioning and disposal of assets | ( |
|
|
| Advertising and publicity | |||
| Associação das Emissoras de Radiodifusão do Paraná - AERP | |
|
|
| Talento Olímpico Paranaense - TOP | |
|
|
| Sponsorship | |
| |
| Publicity | |
|
|
| Other net income, costs and expenses | ( |
|
( |
(a) The balance includes the Company’s social investments in education, culture, health, sports, among others, including incentive donations used as a tax benefit. | |||
| F-99 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 34. | Financial Results |
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Financial income | |||
| Arrears charges on bills | |
|
|
| Interest and monetary variation of CRC transfer (Note 8.1) | |
|
|
| Return on financial investments | |
| |
| Remuneration of net sectorial assets and liabilities (Note 9.2) | |
| |
| Monetary variation over the Itaipu power purchase | |
| |
| Recognition of tax credit (Note 13.2.1) | |
|
|
| Exchange variation on loan collateral | |
- | |
| Monetary variation and adjustment to present value of accounts | |||
| payable related to the concession (Note 27.1) | |
|
|
| Derivatives fair value - forward contract (Note 36.2.3 - b) | - | - | |
| Other financial income | |
|
|
| (-) Pis/Pasep and Cofins taxes on interes on capital | ( |
( |
( |
| |
|
| |
| ( - ) Financial expenses | |||
| Monetary and exchange variation and debt charges | |
|
|
| Monetary variation and adjustment to present value of accounts | |||
| payable related to the concession (Note 27.1) | |
|
|
| Monetary variation over the Itaipu power purchase | |
| |
| PIS/Pasep/Cofins taxes on interest on capital | |
| |
| Derivatives fair value - forward contract (Note 36.2.3 - b) | |
| |
| Interest on R&D and EEP (Note 26.2) | |
| |
| Remuneration of net sectorial assets and liabilities (Note 9.2) | |
|
|
| Interest and monetary variation of CRC transfer (Note 8.1) | |
| |
| Other financial expenses | |
| |
| |
|
| |
| Net | ( |
|
( |
| 35. | Operating Segments |
Operating segments are business activities that generate revenues and incur expenses, whose operating results are regularly reviewed by the executive boards of the Company and by key strategic decision-maker responsible for allocating funds and assessing performance.
| 35.1 | Products and services from which the reportable segments have their revenues generated |
The Company operates in reportable segments identified by Management, through the chief officers of each business area, taking into consideration the regulatory environments, the strategic business units and the different products and services. These segments are managed separately, since each business and each company require different technologies and strategies.
| F-100 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Until December 31, 2021, all sales have been to customers within the Brazilian territory, in addition, all noncurrent assets are also located in the national territory. The Company does not identify any customer who individually accounts for more than 10% of their total net revenue until December 31, 2021.
The Company evaluates the performance of each segment, based on information derived from the accounting records. The accounting policies of the operating segments are the same as those described in Note 4 of these financial statements.
| 35.2 | Company’s reportable segments |
The reportable segments of the Company, in accordance with IFRS 8, are:
Power generation and transmission (GET) - its attribution is to produce electricity from hydraulic, wind, and thermal projects (GER) and to provide services of transmission and transformation of electric power, being responsible for the construction, operation and maintenance of substations, as well for the energy transmission lines (TRA); for managers, the assets and liabilities of the generation and transmission segments are shown on an aggregate basis while their result is presented separately;
Power distribution (DIS) - its attribution is to provide public electricity distribution services, being responsible for the operation and maintenance of the distribution infrastructure, as well as providing related services;
Telecommunications (TEL) - its attribution is to provide telecommunications and general communication services. The segment was discontinued after the completion of the divestment process of Copel Telecomunicações, detailed in Note 41;
GAS - its attribution is to provide public service of piped natural gas distribution;
Power sale (COM) - its attribution is to trade energy and related services;
Holding Company (HOL) - its attribution is to participate in other companies.
| 35.3 | Assets by reportable segment |
| ASSETS | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 41 |
Intersegment operations | Total | ||
| 12.31.2021 | GET | DIS | COM | ||||||
| TOTAL ASSETS | |
( |
( |
||||||
| CURRENT ASSETS | |
|
|
( |
( |
||||
| NON-CURRENT ASSETS | |
( |
|
||||||
| Long term assets | |
|
|
( |
( |
||||
| Investments | |
|
|
|
|
|
|
| |
| Property, plant and equipment | |
|
|
( |
|
||||
| Intangible assets | |
|
|
|
( |
|
| ||
| Right-of-use asset | - | |
|
( |
|
| |||
| ASSETS | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 41 |
Intersegment operations | Total | ||
| 12.31.2020 | GET | DIS | COM | ||||||
| TOTAL ASSETS | ( |
( |
|||||||
| CURRENT ASSETS | |
|
( |
( |
|||||
| NON-CURRENT ASSETS | ( |
( |
|||||||
| Long term assets | |
|
( |
( |
|||||
| Investments | |
|
- | - | - | - | - | | |
| Property, plant and equipment | |
- | |
( |
|
| |||
| Intangible assets | |
|
|
( |
|
| |||
| Right-of-use asset | |
|
( |
- | | ||||
| F-101 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 35.4 | Statement of income by reportable segment |
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 41 |
Inter- segment operations |
Total | |||
| GET | ||||||||||
| 12.31.2021 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | |
|
|
|
|
( |
( |
| ||
| Net operating revenues - third-parties | |
|
|
|
|
( |
| |||
| Net operating revenues - between segments | |
|
|
|
- | ( |
- | |||
| OPERATING COSTS AND EXPENSES | ( |
( |
( |
( |
( |
( |
( |
|
( | |
| Energy purchased for resale | ( |
- | ( |
( |
- | - | |
( | ||
| Charges for use of the main transmission grid | ( |
- | ( |
- | - | |
( | |||
| Personnel and management | ( |
( |
( |
( |
( |
( |
( |
( | ||
| Pension and healthcare plans | ( |
( |
( |
( |
( |
( |
( |
( | ||
| Materials and supplies | ( |
( |
( |
( |
( |
( |
( |
|
|
( |
| Raw materials and supplies for generation | ( |
- | - | - | - | ( | ||||
| Natural gas and supplies for gas business | - | - | ( |
- | ( | |||||
| Third party services | ( |
( |
( |
( |
( |
( |
( |
( | ||
| Depreciation and amortization | ( |
( |
( |
( |
( |
( |
( |
|
( | |
| Provision (reversal) for litigations | ( |
( |
( |
( |
|
( |
( |
( |
( | |
| Impairment of assets | |
( |
- | |
( |
- | ( |
|||
| Other estimated losses, provisions and reversals | ( |
( |
( |
( |
( |
|
( |
|
( | |
| Construction cost | ( |
( |
( |
- | ( | |||||
| Hydrological Risk Renegotiation - GSF | |
- | - | - | - | |||||
| Other operating costs and expenses, net | ( |
( |
( |
( |
( |
( |
( |
( | ||
| EQUITY IN EARNINGS OF INVESTEES | - | - | ||||||||
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | |
( |
( |
|
||||||
| Financial income | |
|
|
( |
( |
|||||
| Financial expenses | ( |
( |
( |
( |
( |
( |
( |
( | ||
| OPERATING PROFIT (LOSS) | |
( |
( |
( |
|
|||||
| Income tax and social contribution | ( |
( |
( |
( |
( |
( |
|
( |
( | |
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | |
( |
|
( |
( |
|||||
| Result of discontinued operations | - | - | - | |||||||
| NET INCOME (LOSS) | |
( |
|
|||||||
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassi- fications Note 41 |
Inter- segment operations |
Total | |||
| GET | ||||||||||
| 12.31.2020 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | |
|
|
|
|
( |
( |
| ||
| Net operating revenues - third-parties | |
|
|
|
|
( |
- | | ||
| Net operating revenues - between segments | |
|
( |
- | ||||||
| OPERATING COSTS AND EXPENSES | ( |
( |
( |
( |
( |
( |
( |
|
|
( |
| Energy purchased for resale | ( |
- | ( |
( |
|
( | ||||
| Charges for use of the main transmission grid | ( |
- | ( |
|
( | |||||
| Personnel and management | ( |
( |
( |
( |
( |
( |
( |
- | ( | |
| Pension and healthcare plans | ( |
( |
( |
( |
( |
( |
( |
- | ( | |
| Materials and supplies | ( |
( |
( |
( |
( |
( |
( |
|
- | ( |
| Raw materials and supplies for generation | ( |
- | - | ( | ||||||
| Natural gas and supplies for gas business | - | - | - | ( |
- | ( | ||||
| Third party services | ( |
( |
( |
( |
( |
( |
( |
( | ||
| Depreciation and amortization | ( |
( |
( |
( |
( |
( |
( |
|
( | |
| Provision (reversal) for litigations | ( |
( |
( |
|
( |
( |
( |
( |
- | ( |
| Impairment of assets | - | - | ( |
- | | |||||
| Other estimated losses, provisions and reversals | ( |
( |
( |
( |
( |
( |
- | ( | ||
| Construction cost | - | ( |
( |
( |
- | ( | ||||
| Other operating costs and expenses, net | ( |
( |
( |
( |
( |
( |
( |
( | ||
| EQUITY IN EARNINGS OF INVESTEES | |
- | ( |
|
- | |||||
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | |
|
( |
( |
||||||
| Financial income | |
|
|
( |
( |
|||||
| Financial expenses | ( |
( |
( |
( |
( |
( |
( |
|
( | |
| OPERATING PROFIT (LOSS) | |
( |
|
( |
||||||
| Income tax and social contribution | ( |
( |
( |
|
( |
( |
|
( |
( | |
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS | |
( |
|
|
( |
|||||
| Result of discontinued operations | - | - | - | - | | |||||
| NET INCOME (LOSS) | |
( |
|
|
||||||
| F-102 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| STATEMENT OF INCOME | Electric Energy | TEL | GAS | HOL | Reclassifi- cations Note 41 |
Intersegment operations | Total | |||
| GET | ||||||||||
| 12.31.2019 | GER | TRA | DIS | COM | ||||||
| NET OPERATING REVENUES | |
( |
( |
|||||||
| Net operating revenues - third-parties | |
( |
- | |||||||
| Net operating revenues - between segments | |
|
|
( |
- | |||||
| OPERATING COSTS AND EXPENSES | ( |
( |
( |
( |
( |
( |
( |
( | ||
| Energy purchased for resale | ( |
( |
( |
( | ||||||
| Charges for use of the main transmission grid | ( |
( |
( | |||||||
| Personnel and management | ( |
( |
( |
( |
( |
( |
( |
- | ( | |
| Pension and healthcare plans | ( |
( |
( |
( |
( |
( |
( |
- | ( | |
| Materials and supplies | ( |
( |
( |
( |
( |
( |
( |
|
- | ( |
| Raw materials and supplies for generation | ( |
- | |
( | ||||||
| Natural gas and supplies for gas business | - | ( |
- | ( | ||||||
| Third party services | ( |
( |
( |
( |
( |
( |
( |
|
|
( |
| Depreciation and amortization | ( |
( |
( |
( |
( |
( |
( |
- | ( | |
| Provision (reversal) for litigations | ( |
( |
( |
( |
( |
( |
( |
|
- | ( |
| Impairment of assets | - | |
- | | ||||||
| Other estimated losses, provisions and reversals | |
( |
( |
( |
( |
( |
( |
- | ( | |
| Construction cost | ( |
( |
( |
- | ( | |||||
| Other operating costs and expenses, net | ( |
( |
( |
( |
( |
|
( |
|
( | |
| EQUITY IN EARNINGS OF INVESTEES | |
|
- | ( |
|
- | | |||
| PROFIT (LOSS) BEFORE FINANCIAL | ||||||||||
| INCOME AND TAX | |
( |
( |
- | | |||||
| Financial income | |
|
|
|
|
|
( |
( |
| |
| Financial expenses | ( |
( |
( |
( |
( |
( |
( |
|
|
( |
| OPERATING PROFIT (LOSS) | |
( |
( |
- | | |||||
| Income tax and social contribution | ( |
( |
( |
( |
|
( |
( |
( |
- | ( |
| OPERATING PROFIT (LOSS) | |
( |
( |
- | | |||||
| Income tax and social contribution | - | ( |
- | ( | ||||||
| NET INCOME (LOSS) | |
( |
( |
| ||||||
| 35.5 | Additions to noncurrent assets by reportable segment |
| Electric Energy | TEL | GAS | HOL | Total | |||
| 12.31.2021 | GET | DIS | COM | ||||
| Contract assets | |
| |||||
| Property, plant and equipment | |
|
|
| |||
| Intangible assets | |
|
|
|
|||
| Right-of-use asset | |
|
|
||||
| Electric Energy | TEL | GAS | HOL | Total | |||
| 12.31.2020 | GET | DIS | COM | ||||
| Contract assets | |
| |||||
| Property, plant and equipment | |
|
|
|
| ||
| Intangible assets | |
|
|
|
|||
| Right-of-use asset | |
|
|
| |||
| F-103 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 36. | Financial Instruments |
| 36.1 | Categories and determination of fair value of financial instruments |
| 12.31.2021 | 12.31.2020 | |||||
| Note | Level | Book value | Fair value | Book value | Fair value | |
| Financial assets | ||||||
| Fair value through profit or loss | ||||||
| Cash and cash equivalents (a) | 5 | 1 | ||||
| Bonds and securities (b) | 6 | 1 | |
|
||
| Bonds and securities (b) | 6 | 2 | |
|
|
|
| Accounts receivable - distribution concession (c) | 10.1 and 10.2 | 3 | ||||
| Accounts receivable - generation concession (d) | 10.4 | 3 | |
|
|
|
| Derivatives fair value - forward contracts (e) | 12 | 3 | |
| ||
| Fair value in the purchase and sale of power (e) | 12 | 3 | |
|
|
|
| Other temporary investments (f) | 1 | |
|
|
| |
| Other temporary investments (f) | 2 | |||||
| Amortized cost | ||||||
| Collaterals and escrow accounts (a) | ||||||
| Collateral and escrow deposits - STN (g) | 22.1 | |
|
|
| |
| Trade accounts receivable (a) | 7 | |||||
| CRC Transferred to the Paraná State Government (h) | 8 | - | - | |||
| Sectorial financial assets (a) | 9 | |
|
|
| |
| Accounts receivable - concessions - bonus from | ||||||
| the grant (i) | 10.3 | |
|
|
| |
| Total financial assets | |
|
|
| ||
| Financial liabilities | ||||||
| Fair value through profit or loss | ||||||
| Fair value in the purchase and sale of power (e) | 29 | 3 | |
|
|
|
| |
|
|
| |||
| Amortized cost | ||||||
| Sectorial financial liabilities (a) | 9 | |
|
|
| |
| Special Tax Regularization Program - Pert (g) | 13.2 | |
|
|
| |
| PIS and Cofins to be refunded to consumers (a) | 13.2.1 | |||||
| Accounts payable to suppliers (a) | 21 | |||||
| Loans and financing (g) | 22 | |||||
| Debentures (j) | 23 | |||||
| Accounts payable related to concession (k) | 27 | |
|
| ||
| |
|
|
| |||
| Total financial liabilities | |
|
|
| ||
| Different levels are defined as follows: | ||||||
| Level 1: Obtained from quoted prices (not adjusted) in active markets for identical assets and liabilities; | ||||||
| Level 2: obtained through other variables in addition to quoted prices included in Level 1, which are observable for the assets or liabilities; | ||||||
| Level 3: obtained through assessment techniques which include variables for the assets or liabilities, which however are not based on observable market data. | ||||||
Determining fair values
| a) |
| b) |
| c) |
| d) |
| F-104 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| e) |
| f) |
| g) |
| h) |
| i) |
| j) |
| k) |
| 36.2 | Financial risk management |
The Company’s business activities are exposed to the following risks arising from financial instruments:
| 36.2.1 | Credit risk |
Credit risk is the risk of the Company incurring losses due to a customer or counterparty in a financial instrument, resulting from failure in complying with their contractual obligations.
| Exposure to credit risk | 12.31.2021 | 12.31.2020 |
| Cash and cash equivalents (a) | ||
| Bonds and securities (a) | ||
| Pledges and restricted deposits linked (a) | ||
| Trade accounts receivable (b) | ||
| CRC Transferred to the Paraná State Government (c) | - | |
| Sectorial financial assets (d) | ||
| Accounts receivable - distribution concession (e) | ||
| Accounts receivable - concessions - Bonus from the grant (f) | ||
| Accounts receivable - generation concessions (g) | | |
| Other temporary investments (h) | |
|
| |
|
| a) |
| F-105 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| b) |
| c) |
| d) |
| e) |
| f) |
| g) |
| h) |
| 36.2.2 | Liquidity risk |
The Company’s liquidity risk consists of the possibility of having insufficient funds, cash or other financial assets, to settle obligations on their scheduled maturity dates.
The Company manages liquidity risk relying on a set of methodologies, procedures and instruments applied to secure ongoing control over financial processes to ensure proper management of risks.
Investments are financed by incurring medium and long-term debt with financial institutions and capital markets.
Short, medium and long-term business projections are made and submitted to Management bodies for evaluation. The budget for the next fiscal year is annually approved.
| F-106 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Medium and long-term business projections cover monthly periods over the next five years. Short-term projections consider daily periods covering only the next 90 days.
The Company permanently monitors the volume of funds to be settled by controlling cash flows to reduce funding costs, the risk involved in the renewal of loan agreements and compliance with the financial investment policy, while concurrently keeping minimum cash levels.
The following table shows the expected undiscounted settlement amounts in each time range. Projections were based on financial indicators linked to the related financial instruments and forecast according to average market expectations as disclosed in the Central Bank of Brazil’s Focus Report, which provides the average expectations of market analysts for these indicators for the current year and for the next 3 years. As from 2026, 2025 indicators are repeated on an unaltered basis throughout the forecast period.
| Less than | 1 to 3 | 3 months | 1 to 5 | Over | |||
| Interest (a) | 1 month | months | to 1 year | years | 5 years | Total | |
| 12.31.2021 | |||||||
| Loans and financing | Note 22 | |
|
|
|
|
|
| Debentures | Note 23 | |
|
|
|
|
|
| Accounts payable related | Rate of return + | ||||||
| to concession | IGP-M and IPCA | |
|
|
|
|
|
| Accounts payable to suppliers | - | |
|
|
|
| |
| PIS and Cofins to be refunded | |||||||
| to consumers | - | - | |
| |||
| Special Tax Regularization Program - Pert | Selic | |
|
|
|
| |
| Sectorial financial liabilities | Selic | |
|
|
|
| |
| Lease liability | Note 28 | |
|
|
|
|
|
| |
|
|
|
|
| ||
| (a) Effective interest rate - weighted average. | |||||||
As disclosed in Notes 22.5 and 23.3, the Company has loans and financing agreements and debentures with covenants that if breached may have their payment accelerated.
| 36.2.3 | Market risk |
Market risk is the risk that the fair value or the future cash flows of a financial instrument shall oscillate due to changes in market prices, such as currency rates, interest rates and stock price. The purpose of managing this risk is to control exposures within acceptable limits, while optimizing return.
| a) | Foreign currency risk (US Dollar) |
This risk comprises the possibility of losses due to fluctuations in foreign exchange rates, which may reduce assets or increase liabilities denominated in foreign currencies.
The Company’s foreign currency indebtedness is not significant, and it is not exposed to foreign exchange derivatives. The Company monitors all relevant foreign exchange rates.
The effect of the exchange rate variation resulting from the power purchase agreement with Eletrobras (Itaipu) is transferred to customers in Copel DIS’s next tariff adjustment.
| F-107 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The exchange rate risk posed by the purchase of gas arises from the possibility of Compagas reporting losses on the fluctuations in foreign exchange rates, increasing the amount in Reais of the accounts payable related to the gas acquired from Petrobras. This risk is mitigated by the monitoring and transfer of the price fluctuation through tariff, when possible. The Company monitors these fluctuations on an ongoing basis.
Sensitivity analysis of foreign currency risk
The Company has developed a sensitivity analysis in order to measure the impact of the devaluation of the US dollar on its loans and financing subject to currency risk.
The valuation of the financial instruments considers the possible effects on profit and loss and equity of the risks evaluated by the Company’s Management on the reporting date for the financial instruments, as recommended by IFRS 7 - Financial Instruments: Disclosure. Based on the equity position and the notional value of the financial instruments outstanding at the date of these financial statements, it is estimated that these effects will approximate the amounts stated in the above table in the column for the forecast probable scenario, since the assumptions used by the Company are similar to those previously described.
The baseline scenario takes into account the existing balances on the date of these financial statements and the probable scenario assumes a variation in the foreign exchange rate - prevailing at the end of the period (R$/US$5.50) based on the median market expectation for 2022 according to the Focus Report of February 18, 2022, issued by the Central Bank of Brazil, with the exception of the amounts related to the STN, which for the probable scenario considered the balances effectively realized, since the operation was settled on March 10, 2022. Additionally, the Company continues to monitor scenarios 1 and 2, which consider a deterioration of 25% and 50%, respectively, in the main risk factor of the financial instrument in relation to the level used in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| . | Baseline | Projected scenarios | |||
| Foreign exchange risk | Risk | 12.31.2021 | Probable | Scenario 1 | Scenario 2 |
| . | |||||
| Financial assets | |||||
| Collaterals and escrow accounts - STN | ( |
(a) | (a) | ||
| . | ( |
||||
| Financial liabilities | |||||
| Loans and financing - STN | ( |
|
(a) | (a) | |
| Suppliers | |||||
| Eletrobras (Itaipu) | ( |
( |
( | ||
| Acquisition of gas | ( |
( |
( | ||
| ( |
|
( |
( | ||
(a) Projected scenarios not evaluated. Probable value reflects the settlement value of the transaction, which took place on March 10, 2022. | |||||
| F-108 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| b) | Foreign exchange risk - euro |
This risk arises from the possibility of loss due to fluctuations in exchange rates affecting fair value of Non-Deliverable Forward (NDF) transactions. These derivatives were contracted considering that in the supply contracts for wind turbines of companies in the Jandaíra wind complex, controlled by Copel GeT, disbursement installments in Euro are foreseen. Sporadic gains and losses are recognized in the Company’s statement of income.
Based on the notional amount of €2.200 outstanding at the date of these financial statements, the fair value was estimated by the difference between the amounts contracted under the respective terms and the forward currency quotations (B3 reference rates), discounted to present value at the fixed rate. The net asset balance recorded is shown in Note 12.
Sensitivity analysis of operations with derivative financial instruments
The Company developed a sensitivity analysis in order to measure the impact from exposure to fluctuation in exchange rate to Euro (€).
For the base scenario, the accounting balances recorded on the date of these financial statements were considered and for the probable scenario, the balances effectively carried out.
| Exchange | Baseline | Projected scenarios | |||
| rate variation | 12.31.2021 | Probable | Scenario 1 | Scenario 2 | |
| Gains (losses) on operations with derivative financial instruments | Increase | |
(a) | (a) | |
| Decrease | |
(a) | (a) | ||
| (a) Projected scenarios not evaluated. Probable value reflects the settlement value of the transaction, which took place on March 10, 2022. | |||||
| c) | Interest rate and monetary variation risk |
This risk comprises the possibility of losses due to fluctuations in interest rates or other indicators, which may reduce financial income or increase the financial expenses related to the assets and liabilities raised in the market.
The Company has not entered into derivative contracts to cover this risk but has been continuously monitoring interest rates and market indexes in order to observe any need for contracting.
Sensitivity analysis of interest rate and monetary variation risk
The Company has developed a sensitivity analysis in order to measure the impact of variable interest rates and monetary variations on its financial assets and liabilities subject to these risks.
| F-109 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The valuation of the financial instruments considers the possible effects on profit and loss and equity of the risks evaluated by the Company’s Management on the reporting date for the financial instruments, as recommended by IFRS 7 - Financial Instruments: Disclosure. Based on the equity position and the notional value of the financial instruments outstanding at the date of these financial statements, it is estimated that these effects will approximate the amounts stated in the above table in the column for the forecast probable scenario, since the assumptions used by the Company are similar to those previously described.
The baseline scenario takes into account the existing balances on the date of these financial statements and the probable scenario assumes balances reflecting varying indicators (CDI/Selic - 12.25%, IPCA - 5.56%, IGP-DI - 8.09%, IGP-M - 8.12% and TJLP - 6.55%) estimated as market average projections for 2022 according to the Focus Report of February 18, 2022, issued by the Central Bank of Brazil, except IGP-DI and TJLP that considers the Company’s internal projection. Additionally, the Company continues to monitor scenarios 1 and 2, which consider a deterioration of 25% and 50%, respectively, in the main risk factor of the financial instrument in relation to the level used in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| . | Baseline | Projected scenarios | |||
| Interest rate risk and monetary variation | Risk | 12.31.2021 | Probable | Scenario 1 | Scenario 2 |
| . | |||||
| Financial assets | |||||
| Bonds and securities | Low CDI/SELIC | |
|
|
|
| Collaterals and escrow accounts | Low CDI/SELIC | |
|
|
|
| Sectorial financial assets | Low Selic | |
|
|
|
| Accounts receivable - concessions | Low IPCA | |
|
| |
| Accounts receivable - generation concessions | Undefined (a) | |
- | - | - |
| |
|||||
| Financial liabilities | |||||
| Loans and financing | |||||
| Banco do Brasil | High CDI | ( |
( |
( |
( |
| BNDES | High TJLP | ( |
( |
( |
( |
| BNDES | High IPCA | ( |
( |
( |
( |
| Banco do Nordeste | High IPCA | ( |
( |
( |
( |
| Banco do Brasil - BNDES Transfer | High TJLP | ( |
( |
( |
( |
| Other | No risk | ( |
- | - | - |
| Debentures | High CDI/SELIC | ( |
( |
( |
( |
| Debentures | High IPCA | ( |
( |
( |
( |
| Debentures | High TJLP | ( |
( |
( |
( |
| Sectorial financial liabilities | High Selic | ( |
( |
( |
( |
| Special Tax Regularization Program - Pert | High Selic | ( |
( |
( |
( |
| Accounts payable related to concession | High IGP-M | ( |
( |
( |
( |
| Accounts payable related to concession | High IPCA | ( |
( |
( |
( |
| . | ( |
( |
( |
( | |
| (a) Risk assessment still requires ruling by the Concession grantor. | |||||
| 36.2.4 | Electricity shortage risk |
Approximately 64% of installed capacity in Brazil currently comes from hydroelectric generation, as informed by the Generation Information Bank of ANEEL, which makes Brazil and the geographic region in which we operate subject to unpredictable hydrological conditions, due to non-cyclical deviations of mean precipitation. Unsatisfactory hydrological conditions may cause, among other things, the implementation of comprehensive programs of electricity savings, such as rationalization or even a mandatory reduction of consumption, which is the case of rationing.
| F-110 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
From September 2020, the National Interconnected System has been presenting the worst record of Affluent Natural Energies in the aggregate of its uses. The Ministry of Mines and Energy and other sector bodies are working to mitigate the risks of rationing, with emphasis on a high thermoelectric dispatch outside the order of cost merit, as well as the relaxation of restrictions on the system’s hydroelectric operation. Additionally, considering the strong wind generation in the Northeast and the generation of biomass in the Southeast, it is estimated that the risk of energy shortages in 2021 and 2022 will be minimized, according to official information published so far.
In order to mitigate the risk of meeting instant demand, the MME is managing large energy consumers in order to migrate their consumption from periods of greater demand. Which, in general, means moving production into the early morning hours. This guarantees the service to consumers with greater economy, since the operation in periods of high demand is very expensive.
The Electric Sector Monitoring Committee (CMSE) has maintained the energy deficit risk indicators within the safety margin in short-term projections, with the authorization of a reduced dispatch of thermal generation outside the order of merit of cost by ONS, which for in turn, it has dispatched the amounts necessary for a safe operation to the National Interconnected System.
Although dam storage levels are not ideal, from the standpoint of the bodies responsible for planning the operation of the system, when combined with other variables, such as affluent flows, wind and solar generation, they are sufficient to keep the risk of deficit within the safety margin established by the National Energy Policy Council (CNPE) in all subsystems (maximum risk of 5%).
| 36.2.5 | Risk of GSF impacts |
The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia - MRE, in Portuguese) is a system of redistribution of electric power generated, characteristic of the Brazilian electric sector, which has its existence by the understanding, at the time, that there is a need for a centralized operation associated with a centrally calculated optimal price known as PLD. Since generators have no control over their production, each plant receives a certain amount of virtual energy which can be compromised through contracts. This value, which enables the registration of bilateral contracts, is known as Physical Guarantee (Garantia Física - GF, in Portuguese) and is also calculated centrally. Unlike PLD, which is calculated on a weekly basis, GF, as required by Law, is recalculated every five years, with a limit of increase or decrease, restricted to 5% by revision or 10% in the concession period.
The contracts need to have an energy physical guarantee basis. This is done, especially, through the allocation of power generated received from the MRE or purchase. The GSF is the ratio of the entire hydroelectric generation of the MRE participants to the GF sum of all the MRE plants. Basically, the GSF is used to calculate how much each plant will receive from generation to back up its GF. Thus, knowing the GSF of a given month the company will be able to know if it will need to back up its contracts through purchases.
| F-111 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Whenever GSF multiplied by GF is less than the sum of contracts, the company will need to buy the difference in the spot market. However, whenever GSF multiplied by GF is greater than the total contracts, the company will receive the difference to the PLD.
The low inflows that have been recorded since 2014, as well as problems with delays in the expansion of the transmission system have resulted in low GSF values, resulting in heavy losses for the companies holding MRE participating hydroelectric projects.
For plants with contracts in the Free Contracting Environment - ACL, the main way to manage the low GSF risk is not to compromise the entire GF with contracts, as well as the timely repurchase of intra-annual energy approaches currently adopted by the Company.
For the contracts in the ACR, Law 13,203/2015 allowed the generators to contract insurance for electricity demand (load), by means of payment of a risk premium. Copel adopted this approach to protect contracts related to energy generated by the Mauá, Baixo Iguaçu and Colíder Thermoelectric Plants and Cavernoso II Small HPP.
For the distribution segment, the effects of the GSF are perceived in the costs associated with quotas of Itaipu, of Angra and the plants whose concessions were renewed in accordance with Law 12,783/2013, as well as in the costs of the contracts for power availability with thermoelectric plants. This is a financial risk, since there is guarantee of neutrality of expenses with energy purchases through a tariff transfer.
| 36.2.6 | Risk of non-renewal of concessions - generation and transmission |
The extension of energy generation and transmission concessions, achieved by Law No. 9,074/1995, is regulated by Law No. 12,783/2013, which was amended by Law No. 14,052/2020, regarding the deadline for requesting an extension of concessions.
According to the new law, the concession operator should request extension of concession at least 36 months before the final contract date or after granting of concessions to hydroelectric power generation and electric power transmission and distribution plants, and of up to 24 months for thermoelectric plants. The Concession Grantor may advance effects of extension by up to 60 months counted as of contract or grant date and may also define initial tariff or revenue, which includes the definition of the tariff or initial revenues for the generation and transmission ventures (RAG - Annual Generation Revenue and RAP - Permitted Annual Revenue, respectively).
Concessions for hydroelectric power generation and electric power transmission may be extended, at the discretion of the granting authority, only once, for a period of up to 30 years. Thermoelectric power generation concessions have an extension term limited to 20 years.
| F-112 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In 2019, Decree No. 10,135/2019 was published, which regulated the granting of concession contracts in the electricity sector associated with privatization through sale of control by holder of a public service concession for electricity generation, having as one of the conditioning factors the alteration of the exploration regime to Independent Power Producer (IPP). According to the Decree, the manifestation of sale of the concession must take place within up to 42 months from the date of the related formal agreement, and any sale must take place within up to 18 months from the concession end date. If sale of control of the venture does not occur within the specified period, the plant must be subject to auction by the granting authority and the same concessionaire can participate in the auction, if it meets the qualification conditions.
Compensation was established through the extension of the concession period of the plants contemplated by Law No. 13,203/2015, ratification of the period of extension of the concession of these plants through Ratification Resolutions No. 2919/2021 and No. 2932/2021 (Note 1-b).
For HPP Governador Bento Munhoz da Rocha Netto - HPP GBM (1,676 MW), whose concession will end in 2024, the Company has not expressed any interest in extending the concession, as internal studies have shown that the extension through early change of the exploration regime would be economically and financially disadvantageous in relation to exploration of the plant under the current regime until concession end. On March 3, 2020, Copel GeT transferred the concession of HPP GBM to subsidiary F.D.A. Geração de Energia Elétrica S.A. with the purpose of, if the studies carried out by Copel GeT point to the advantage of the operation, divesting the control of this concessionaire and, thus, allow a new concession grant for 30 years.
With respect to HPP São Jorge, whose concession ends in 2026, Copel did not express interest in the renewal and intends, at the end of the concession, to request ANEEL to convert the granting of concession into granting of registration.
Regarding the Figueira HPP concession, expired in March 2019, the Company awaits the conclusion of the related ANEEL and MME procedural steps to execute any amendment to the Concession Agreement. The plant is undergoing a modernization process and will have as direct benefits the improvement in energy efficiency and the reduction of pollutant emissions in the atmosphere, in comparison with the old plant.
According to the new law, the Company may express its intention to extend the concession of the Apucaraninha HPP until January 2024, and the Guaricana and Chaminé HPPs until July and August, 2025, respectively. If the Company does not express an interest in the extension of the current regime at its final term, be granted to the Company in the condition of registration, and the other concessions, at their final term, must be returned to the Concession Grantor.
Copel GeT has no transmission concession to expire in the next ten years.
| F-113 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 36.2.7 | Risk on non-renewal of concessions – distributions of electricity |
The fifth amendment to Copel DIS’s concession contract No. 46/1999 imposes economic and financial efficiency covenants and indicators that consider the duration and frequency of service interruptions (DECi and FECi). Failure to comply with the conditions will result in termination of the concession (clause eighteen, subclause one), with due regard for the provisions of the contract, particularly the right to full defense and adversary system.
On November 17, 2020, Aneel approved Normative Resolution 896, which establishes the indicators and procedures for monitoring efficiency in relation to the continuity of supply and the economic-financial management of public electricity distribution service concessions from the year 2021.
Indicators and penalties
| Year | Indicator | Criteria | Penalties |
| Until 2020 | |||
|
| |||
| From the 6th year of (2021) | |||
| (a) Within 180 days from the end of each fiscal year, in the totality of the insufficiency that occurs to reach the Minimum Economic and Financial Sustainability Parameter. | |||
Targets for Copel Distribuição in 2021
The criterion of efficiency in relation to economic-financial management will not be complied when what is determined in the table below is not achieved, or even when the EBITDA is lower than the QRR. The calculation of results occurs at the end of each year, when the results are disclosed in the Regulatory Financial Statements.
| Quality - limits | Quality (Performed) | |||||
| Year | Economic and Financial Management | Realized | DECi | FECi | DECi | FECi |
| 2021 | - | |||||
| Net Debt | Gross Debt deducted from Financial Assets, with the exception of Financial Assets and Financial Liabilities in administrative or judicial discussion. The accounts that make up the Gross Debt and Financial Assets are defined in the attachment to Resolution No 896/20. | |||||
| QRR | Regulatory Reinstatement Share or Regulatory Depreciation Expense. This value will be the one defined in the last Periodic Tariff Review, updated by the variation of the Regulatory Portion B and calculated on a pro rata basis. | |||||
| Recurring EBITDA: | Recurring: refers to Earnings Before Interest (Financial Result), Taxes (Income Taxes), Depreciation and Amortization. | |||||
| F-114 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Targets for Copel Distribuição from 2016 to 2020
| Quality - limits (a) | Quality (Performed) | |||||
| Year | Economic and Financial Management | Realized | DECi (b) | FECi (b) | DECi | FECi |
| 2016 | ||||||
| 2017 | ||||||
| 2018 | ||||||
| 2019 | ||||||
| 2020 | ||||||
| (a) According to Aneel’s Technical Note No. 0335/2015. | ||||||
| (b) DECi - Equivalent Time of Interruption Caused by Internal Source per Consumer Unit; and FECi - Equivalent Frequency of Interruption Caused by Internal Source per Consumer Unit. | ||||||
| (c) Regulatory EBTIDA adjusted for non-recurring events (Voluntary retirement program, post-employment benefit, provisions and reversals) according to sub-clause six, of the Fifth Amendment to the Concession Agreement. | ||||||
| (d) QRR: Regulatory Reintegration Quota or Regulatory Depreciation Expense. This is the value defined in the most recent Periodical Tariff Review (RTP), plus General Market Price Index (IGPM) variation between the month preceding the RTP and the month preceding the twelve-month period of the economic and financial sustainability measurement. | ||||||
| (e) Selic: limited to 12.87% p.a. | ||||||
| 36.2.8 | Risk of non-extension of the gas distribution concession |
In the event of termination of the concession at the end of the contractual term, Compagas will be entitled to compensation for investments made in the last 10 years prior to the end of the concession at their depreciated replacement value, according to the contractual clause.
| 36.2.9 | Risk of overcontracting and undercontracting of electricity |
Under the current regulatory model, the agreement for purchase of electric power by distributors is regulated by Law 10,484/2014 and Decree 5,163/2004, which determine that the purchase of energy must be in the volume necessary to serve 100% of the distributor’s market.
The difference between the costs remunerated by the tariff and those actually incurred in the power purchases are fully passed on to captive consumers, as long as the distributor presents a contracting level between 100% and 105% of its market. However, if distributors determine contracting levels lower or higher than the regulatory limits, there is the assurance of neutrality if it is identified that such violation derives from extraordinary and unforeseen events that are not manageable by the buyer.
In the last years, the distribution segment has been exposed to a general overcontracting scenario, as most companies determined contracting levels higher than 105%. Considering that several factors that have contributed to this situation are extraordinary and unavoidable by the distributors, such as the involuntary allocation of physical guarantee quotas and the broad migration of consumers to the free market and more recently, from 2020, the effects on the market of the governmental measures of social isolation implemented in the fight against the pandemic of the coronavirus Sars-CoV-2 (Covid-19), which caused a significant retraction in the market of distribution concessionaires, ANEEL and MME implemented a series of measures aiming at the mitigation of overcontracting.
| F-115 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In relation 2021, the scenarios of supply and demand indicate the occurrence of overcontracting in relation to the contracted portion above the regulatory limits in the calendar year. However, the distributor will continue to exercise continuous vigilance in relation to its contracting levels and occurrences of involuntary events beyond its management, such as the migration of consumers to the free market and load reduction.
| 36.2.10 | Gas shortage risk |
The natural gas market in Paraná covers Compagas consumers (non-thermoelectric market) and the Araucária Thermoelectric Plant (UEG Araucária). This market is currently supplied by contracts with Petrobras, which uses the transport infrastructure of the Brazil-Bolivia gas pipeline (Gasbol). As a result of the public call in 2021, Compagas signed a new contract with Petrobras for the supply of natural gas, effective from 2022 to 2025, which will make it possible to meet the demand that was uncontracted for 2022, as well as part of the estimated demand between 2023 and 2025. On the other hand, UEG Araucária negotiates and enters into short-term natural gas contracts as it does not have electricity generated under contract in the regulated environment.
In the current situation of the natural gas sector in Brazil, the New Gas Market program is coordinated by the Ministry of Mines and Energy together with the Civil House of the Presidency of the Republic, the Ministry of Economy, the Administrative Council for Economic Defense, the National Petroleum Agency and the Energy Research Company - EPE, whose purpose is to open the natural gas market in order to make it dynamic, competitive, integrated with the electric and industrial sector. This program is advancing, but still requires improvement of the sector’s regulation.
In the current natural gas market, there is already a growing supply of natural gas and diversified sources, having as alternatives the import of gas from Bolivia, import of liquefied natural gas (LNG), use of natural gas explored in onshore basins and greater use of natural gas from the pre-salt layer, which has large volumes to be explored. The biggest challenge of the sector still is enabling new producers and traders to access the infrastructure and the consumer market, currently mostly served by Petrobras.
Regarding the transport network, changes in regulation allow new shippers to access the gas pipelines, through public calls carried out by TBG (Gasbol transporter) with the purpose of offering the contracting of capacity in the gas pipeline. In addition, it is important to highlight the periodic updating of the Indicative Gas Pipeline Plan (PIG) coordinated by the EPE, which provides a vision of better structuring of the natural gas transport sector and adequate planning to meet current and future demands, even if for these latter significant investments are required.
Additionally, the new gas law, Law No. 14,134/2021, which replaces Law No. 11,909/2009, was signed, representing another important step in opening the Brazilian gas market, in order to make it more competitive and with greater potential expansion, in view of the fact that brings agility to the authorization, implantation and expansion of new ventures, as well as the possibility of third party access to existing infrastructures.
| F-116 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
A possible shortage in gas supply could result in losses to Copel due to a reduction in revenue from the natural gas distribution service provided by Compagas, as well as any penalty resulting from non-compliance with the obligations contained in the concession contract. In addition, in this scenario, UEG Araucária would probably be kept out of operation. However, this risk is considered low in view of the situation of the New Gas Market and the Law No. 14,134/2021.
| 36.2.11 | Risk of non-performance of windfarms |
The power generation purchase and sale contracts for wind power are subject to performance clauses, which provide for a minimum annual and four-year generation of the physical guarantee committed in the auction. Ventures are subject to climatic factors associated with wind velocity uncertainties. Non-compliance with what is stated in the agreement may jeopardize future revenues of the Company. The balance recorded in liabilities referring to the non-performance is demonstrated in note 29.
| 36.2.12 | Risk related to price of power purchase and sale transactions |
The Company operates in the electricity purchase and sale market with the objective of achieving results with variations in the price of electricity, respecting the risk limits pre-established by Management. This activity, therefore, exposes the Company to the risk of future electricity prices.
Future electricity purchase and sale transactions are recognized at fair value through profit or loss, based on the difference between the contracted price and the market price of operations on the balance sheet date.
Based on the notional amounts of R$7,530,281 (R$6,065,065 in 2020) for electricity purchase contracts and R$7,881,880 (R$6,634,477 in 2020) for electricity sales contracts, outstanding at the date of these financial statements, the fair value was estimated using the prices defined internally by the Company, which represented the best estimate of the future market price. The discount rate used is based on the NTN-B rate of return disclosed by ANBIMA, adjusted for credit risk and additional project risk.
The balances referring to these outstanding transactions at the date of these financial statements are stated below.
| Assets | Liabilities | Net | |
| Current | |
( |
|
| Noncurrent | |
( |
|
| |
( |
|
Sensitivity analysis on the power purchase and sale transactions
The Company developed a sensitivity analysis in order to measure the impact of changes in future prices. For the base scenario, the accounting balances recorded on the date of these financial statements were considered and for the probable scenario, the balances updated with the market price curve and NTN-B rate of December 31, 2021 were considered. Additionally, the Company continues to monitor scenarios 1 and 2, which consider the 25% and 50% rise or fall applied to future prices considered in the probable scenario, as a result of extraordinary events that may affect the economic scenario.
| F-117 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| Price | Baseline | Projected scenarios | |||
| variation | 12.31.2021 | Probable | Scenario 1 | Scenario 2 | |
| Unrealized gains (losses) on purchase and sale of energy | Increase | ||||
| Decrease | |||||
| 36.2.13 | Counterparty risk in the energy market |
Since free energy market still does not have a counterparty acting as guarantor of all agreements (clearing house), there is a bilateral risk of default. Thus, the Company is exposed to the risk of failure in the supply of energy contracted by the seller. In the event of such failure, the Company must buy energy at the spot market price, being further subject to regulatory penalties and loss of amounts paid.
The Company follows a policy that establishes limits for possible operations with each counterparty, after analyzing its credit worthiness, maturity and history.
In addition, even if our policy is more restrictive and the counterparties present good financial condition, the Company is exposed to systemic events in which the default of one agent ends up affecting other energy trading companies in a "domino effect" until reaching the Company’s counterparties.
| 36.3 | Capital management |
The Company seeks to keep a strong capital base to maintain the trust of investors, creditors and market and ensure the future development of the business. Management also strives to maintain a balance between the highest possible returns with more adequate levels of borrowings and the advantages and the assurance afforded by a healthy capital position. Thus, it maximizes the return for all stakeholders in its operations, optimizing the balance of debts and equity.
The Company monitors capital by using an index represented by adjusted net debt divided by adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization), for the last twelve months. The corporate limit established in the debt indentures provides for maintenance of ratio below 3.5 while any expectation of failing to meet this target will prompt Management to take steps to correct its course by the end of each reporting period.
| F-118 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
As of December 31, 2021 and 2020, the ratio attained is shown below:
| 12.31.2021 | 12.31.2020 | |
| Loans and financing | ||
| Debentures | ||
| (-) Cash and cash equivalents | ( |
( |
| (-) Bonds and securities (current) | ( |
( |
| (-) Bonds and securities (noncurrent) - debt contract guarantees | ( |
( |
| (-) Collaterals and escrow accounts STN | ( |
( |
| Adjusted net debt | ||
| Net income from continuing operations | ||
| Equity in earnings of investees | ( |
( |
| Deferred IRPJ and CSLL | | |
| Provision for IRPJ and CSLL | ||
| Financial expenses (income), net | ( | |
| Depreciation and amortization | ||
| Ebitda from discontinued operations | ||
| Adjusted ebitda | ||
| Adjusted net debt/Adjusted ebitda | |
|
| 36.3.1 | Debt to equity ratio: |
| Indebtedness | 12.31.2021 | 12.31.2020 |
| Loans and financing | |
|
| Debentures | |
|
| (-) Cash and cash equivalents | |
|
| (-) Bonds and securities | |
|
| Net debt | |
|
| Equity | ||
| Debt to equity ratio |
| F-119 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 37. | Related Party Transactions |
| Assets | Liabilities | Revenue | Cost / Expense | |||||||
| Related parties / Nature of operation | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | 12.31.2021 | 12.31.2020 | 12.31.2019 | 12.31.2021 | 12.31.2020 | 12.31.2019 |
| Controlling shareholder | ||||||||||
| State of Paraná - dividends payable | - | - | - | - | - | - | - | - | ||
| CRC Transfer (Note 8) | - | |
- | - | - | - | - | |||
| Luz Fraterna Program (a) | |
|
- | - | - | - | - | - | - | - |
| Tarifa Rural Noturna Program (a) | |
|
- | - | - | - | - | - | - | - |
| Morar Bem Paraná Program (a) | - | |
- | - | - | - | - | - | - | - |
| Employees transferred (b) | |
|
- | - | - | - | - | - | - | - |
| Telecommunication services (c) | - | |
- | - | |
|
|
- | - | - |
| Meteorological System of Paraná - Simepar (c) (d) | - | |
|
- | ( |
( |
( | |||
| Entities with significant influence | ||||||||||
| BNDES and BNDESPAR - dividends payable (e) | - | - | - | - | - | - | - | - | ||
| Financing (Note 22) | - | - | - | - | - | ( |
( |
( | ||
| Debentures - Compagás (Note 23) | - | - | - | |
- | - | - | ( |
( |
( |
| Debentures - wind farms (Note 23) (f) | - | - | - | - | - | ( |
( |
( | ||
| State of Paraná investee | ||||||||||
| Sanepar (c) (g) | - | |
|
|
|
|
|
( |
( |
( |
| Use of water taken from plants’ reservoirs | - | - | - | - | |
|
|
- | - | - |
| Joint ventures | ||||||||||
| Voltalia São Miguel do Gostoso - dividends | |
|
- | - | - | - | - | - | - | - |
| Caiuá Transmissora de Energia (c) (h) (i) (j) | |
|
|
|
|
|
( |
( |
( | |
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Integração Maranhense Transmissora (i) (j) | - | - | - | - | - | ( |
( |
( | ||
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Matrinchã Transmissora de Energia (i) (j) | - | - | |
- | - | - | ( |
( |
( | |
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Guaraciaba Transmissora de Energia (i) (j) | - | - | |
- | - | - | ( |
( |
( | |
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Paranaíba Transmissora de Energia (i) (j) | - | - | |
- | - | - | ( |
( |
( | |
| Dividends | |
- | - | - | - | - | - | - | - | - |
| Cantareira Transmissora de Energia (i) (j) | - | - | |
|
- | - | - | ( |
( |
( |
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Mata de Santa Genebra Transmissão (i) (j) (k) | |
|
|
|
|
|
( |
( |
( | |
| Dividends | |
- | - | - | - | - | - | - | - | - |
| Associates | ||||||||||
| Dona Francisca Energética S.A. (l) | |
|
|
|
|
( |
( |
( | ||
| Dividends | |
|
- | - | - | - | - | - | - | - |
| Foz do Chopim Energética Ltda. (c) (m) | |
- | - | |
|
|
- | - | - | |
| Key management staff | ||||||||||
| Fees and social security charges (Note 33.2) | - | - | - | - | - | - | - | ( |
( |
( |
| Pension and healthcare plans (Note 24.3) | - | - | - | - | - | - | - | ( |
( |
( |
| Other related parties | ||||||||||
| Fundação Copel (c) | - | |
- | - | |
- | - | - | ||
| Administrative property rental | - | - | |
- | - | - | ( |
( |
( | |
| Pension and healthcare plans (Note 24.3) | - | - | |
|
- | - | - | - | - | - |
| Lactec (c) (n) | |
|
|
|
|
( |
( |
( | ||
| Tecpar (c) (o) | - | |
- | - | |
|
- | - | - | - |
| Celepar (c) (p) | - | - | |
|
- | ( |
( |
( |
| a) | The
|
| F-120 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
In
March 2018, the amount of R$
The Tarifa Rural Noturna Program, regulated by Decree 1,288/2019, provides for the payment to Copel Distribuição, by the State Government, of the amount corresponding to 60% of the active electricity tariff and of the charges resulting from this service, including the additional tariff flag, owned by the beneficiary consumers, included in the denominated night period consumption, as specified in the decree.
The Morar Bem Paraná Program, established by Decree 2,845/2011, is an agreement between the Paraná State Government, the Companhia de Habitação do Paraná - Cohapar and Copel DIS, which is managed by Cohapar. Copel’s main assignment in this agreement is the construction of electricity distribution networks and service entrances for consumer units of housing estates.
| b) |
| c) |
| d) |
| e) |
| f) |
| g) |
| h) |
| i) |
| F-121 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| j) |
| k) |
| l) |
| m) |
| n) |
| o) |
| p) |
The relevant transactions with related parties are shown above. Transactions arising from operations in a regulated environment are billed according to the criteria and definitions established by the regulatory agents and other transactions are recorded according to the market prices practiced by the Company.
Copel’s direct and indirect subsidiaries have short and long-term energy purchase and sale agreements entered into with each other, carried out in accordance with the criteria and definitions of the regulated environment. Both the balances of the transactions and of the commitments are eliminated in the consolidated financial statements of the Company.
In
addition, Copel GeT has energy purchase commitments with Dona Francisca in the amount of R$
With regard to the compensation of key management personnel, the Company does not have additional obligations beyond the short-term benefits disclosed in the table above and in the notes referenced.
| F-122 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 37.1 | Guarantees awarded to related parties |
Sureties and guarantees granted by Copel to its subsidiaries for financing and debentures are informed in Notes 22 and 23.
Copel
provided financial guarantees, in the form of corporate guarantee letter, for power purchase and transport agreements made by Copel GeT
and its subsidiaries, in the total amount of R$
Sureties and guarantees granted by Copel and Copel GeT for financing, debentures and insurance contracts of joint ventures are shown below:
| Final | Amount | Balance (a) | Interest | Amount | |||
| Company | Operation | maturity | approved | % | guarantees | ||
| (1) | Caiuá Transmissora (b) | |
|||||
| (2) | Cantareira Transmissora | |
| ||||
| (3) | |
(c) | |||||
| (4) | Guaraciaba Transmissora | |
| ||||
| (5) | |
| |||||
| (6) | Matrinchã Transmissora | |
| ||||
| (7) | |
(c) | |||||
| (8) | |
(d) | |||||
| (9) | IMTE Transmissora | |
(c) | ||||
| (10) | Mata de Santa Genebra | |
| ||||
| (11) | | ||||||
| (12) | Paranaíba Transmissora | |
(c) | ||||
| (13) | |
| |||||
| (a) Gross debt balance, discounted from restricted cash that is already guaranteed by the companies themselves. | |||||||
| (b) Guarantee awarded of fixed amount pursuant to the contractual provisions and formal requirements of the financial institution | |||||||
| (c) For these contracts, the corporate guarantee and/or the letter of guarantee were exonerated, leaving only the pledge of Copel GeT shares. | |||||||
| (d) The guarantees to be provided in the 3rd issue will only be presented after the maturity of the Debentures of the 2nd issue and the Financing with BNDES. | |||||||
| Letter of guarantee, provided by Copel GeT: (1) | |||||||
| Corporate guarantee provided by Copel: (2) (4) (5) (6) (10) (11) (13) | |||||||
Operation guarantee: pledge of shares held by Copel Get in the ventures.
|
|||||||
| F-123 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 38. | Commitments |
The main commitments related to long-term contracts not yet incurred, and therefore not recognized in these financial statements, are as follows:
| 12.31.2021 | 12.31.2020 | |
| Energy purchase and transportation contracts | |
|
| Additions to property, plant and equipment | ||
| Construction of transmission lines and substations | - | |
| Construction of Jandaíra wind farm complex | |
|
| Construction of SHP Bela Vista | - | |
| Telecommunications works | - | |
| Acquisition of assets for electricity distribution | |
|
| Gas purchase contracts | |
|
| 39. | Insurance....... |
The specification by risk modality and effective date of the main insurance policies can be seen below:
| End | Insured | |
| Policy | of term | amount |
| Operational risks - HPP Baixo Iguaçu | | |
| Operational risks - Cutia and Bento Miguel | | |
| Named perils | | |
| Operational risks - HPP Colíder | | |
| Operational risks - HPP Governador Jayme Canet Junior | | |
| Fire - owned and rented facilities | | |
| Operational risks - Brisa Potiguar | | |
| Operational risks - Elejor | | |
| Operational risks - UEG Araucária (a) | | |
| Operational risks - São Bento | | |
| (a) The insured amount of operational risks - UEG Araucária have been translated from USD into BRL, with the current rate R$5,5805 as of December 31, 2021. | ||
In addition to the insurance policies listed above, the Company takes out other insurance policies with lower values, such as: Directors and Officers liability (D&O), general civil liability, court award payment guarantee, sundry perils, national and international transportation, life, aircraft and vehicles. The guarantee insurance taken out by the subsidiaries, joint ventures and associates have Copel and/or Copel GeT as guarantor, within the limits of their share of interest in each project.
| F-124 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 40. | Additional information to the Statement of Cash Flows |
| 40.1 | Transactions not involving cash |
Of
the total additions of Contract assets (shown in Notes 11.1 and 11.2) and acquisitions of property, plant and equipment (shown in Note
18.2), R$
As
described in Note 28.1, the additions and remeasurement adjustment occurred in right-of-use assets totaled R$
The mentioned transactions did not involve cash and, for this reason, are not being presented in the statement of cash flows.
| 41. | Assets held for sale and discontinued operations |
On July 15, 2020, through Relevant Event 07/2020, Copel communicated the approval of the divestment of 100% of the interest in Copel Telecomunicações by the Board of Directors. On this occasion, the beginning of the external phase was also approved, which included: (i) the opening of a Virtual Data-Room (“VDR”) with detailed information on the divestment; (ii) sending Paraná State Court of Auditors - TCE-PR the complete file for analysis; and (iii) the scheduling and holding of a virtual public hearing on the divestment, to be operated jointly with B3 SA - Brasil, Bolsa, Balcão.
On
September 16, 2020, Relevant Event 10/2020 announced that the Company’s Board of Directors authorized the publication of the Copel Telecomunicações
Divestment Auction Notice with the minimum divestment price of R$
On
November 9, 2020, there was a public auction session related to the sale of 100% of the shares issued by Copel Telecomunicações
owned by the Company. The Bordeaux Investment Fund in Multi-Strategic Participations was declared the winner of the event, after presenting
the highest offer, in the amount of R$
On January 14, 2021, the Share Purchase and Sale Agreement (CCVA) was signed with Bordeaux Participações S.A., a company belonging to Bordeaux Fundo de Investimento em Participações Multiestratégia, the winner of the auction.
| F-125 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
On
August 3, 2021, the sale operation was concluded, as informed in relevant fact 13/21, after compliance with the conditions defined in
the Notice and the CCVA, which included, among others, the approvals of CADE and Anatel. Besides that, the updated amount of R$
The revenues, costs and expenses as well as the cash flow movement resulting from these assets and liabilities were presented in separate lines, as discontinued operation, both in the Statement of Income and Statement of Cash Flows.
It should also be noted that as of October 1, 2020, the depreciation and amortization of assets that have been sold have ceased, after their reclassification to current assets, in the line item Assets held for sale, in compliance with what determines IFRS 5.
The details of these amounts, as well as the profit resulting from this operation are presented in the following tables:
| Statements of Income from discontinued operations | 12.31.2021 | 12.31.2020 | 12.31.2019 |
| Net operating revenue | |
||
| Operating costs | ( |
( |
( |
| Gross profit | |
| |
| Selling expenses | ( |
( |
( |
| General and administrative expenses | ( |
( |
( |
| Other operational income (expenses) | ( |
( |
( |
| (62,539) | (103,095) | (190,606) | |
| Profit (loss) before financial results and taxes | |
( | |
| Financial results | ( |
( |
( |
| Operating profit (loss) | |
( | |
| Income tax and social contribution | ( |
( |
|
| Net income (loss) | |
( | |
| Gain on the share sales operation | |
- | - |
| Income tax on sales gains | ( |
- | - |
| Deferred income tax on sales gains | ( |
- | - |
| Net income from discontinued operations | |
|
( |
| Statements of Cash Flows from discontinued operations | 12.31.2021 | 12.31.2020 | 12.31.2019 |
| Net income | |
|
( |
| Adjustments to reconcile net income | ( |
|
|
| Changes in assets and liabilities | ( |
( |
( |
| Taxes and charges paid | ( |
( |
( |
| Cash flows from operational activities | |
|
|
| Additions to property, plant and equipment and intangible assets | ( |
( |
( |
| Disposal Copel Telecom receipt | |
- | - |
| Cash flows from investment activities | |
( |
( |
| Issue of Debentures | - | ||
| Payment of loans and financing and lease | ( |
( |
( |
| Cash flows from financing activities | ( |
( |
|
| Changes in cash and cash equivalents | |
|
| F-126 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| 42. | Subsequent events |
| 42.1 | Water shortage account |
On January 13, 2022, Decree 10,939 regulated MP 1,078/2021, which provided for measures to address the financial impacts on the electricity sector arising from the situation of water scarcity and deferrals applied in previous tariff processes, authorizing the contracting of financial operation to face this scenario. On March 15, 2022, Aneel approved a resolution that presents the criteria and procedures for managing the Water Scarcity Account, in which resources will be allocated to cover, in whole or in part, the additional costs temporarily assumed by distribution concessionaires and licensees related to: I – estimate of the balance of the Centralizing Account of Tariff Flag Resources for April 2022; II – costs associated with the Incentive Program for the Voluntary Reduction of Electricity Consumption III; – cost of importing electricity in a decision approved by CREG for the period from July and August 2021; IV – deferrals referred to in § 1-I of art. 13 of Law 10,438/2002; V - fixed revenue for the period from May to December 2022 of the Simplified Competitive Procedure - PCS of 2021. The distributors must declare the amounts of their resources to Aneel within 10 days after the publication of the resolution, and the agency will evaluate and approve the amounts and authorize the CCEE to make the transfers. Upon receipt of the declared amount, Copel DIS will write off the registered sectoral financial asset.
| 43. | Condensed individual financial information of Companhia Paranaense de Energia - Copel |
In order to attend Rule 12-04 of Regulation S-X of the Securities and Exchange Commission (the “SEC”), Management has incorporated the condensed individual financial information of Companhia Paranaense de Energia - Copel in these financial statements, as part of the Form 20-F. These information were prepared considering the same accounting policies as described in Note 3 and 4 to Company’s consolidated financial statements.
| F-127 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(a) Condensed statements of financial position as of December 31, 2021 and 2020
| ASSETS | 12.31.2021 | 12.31.2020 |
| Current assets | ||
| Cash and cash equivalents | |
|
| Bonds and securities | |
|
| Dividends receivables | ||
| CRC transferred to the State Government of Paraná | - | |
| Other current receivables | ||
| Income tax and social contribution | | |
| Prepaid expenses | ||
| Receivable from related parties | | |
| 2,195,398 | 1,674,337 | |
| Assets classified as held for sale | - | |
| Noncurrent assets | ||
| Other temporary investments | |
|
| CRC transferred to the State Government of Paraná | - | |
| Judicial deposits | |
|
| Other current receivables | ||
| Income Tax and Social Contribution | |
|
| Deferred tax assets | |
|
| Other noncurrent recoverable taxes | |
|
| Receivables from related parties | |
|
| 543,877 | 1,888,883 | |
| Investments | |
|
| Property, Plant and Equipment, net | ||
| Intangible Assets | ||
| Right-of-use asset | ||
| |
| |
| Total assets | |
|
| F-128 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
| LIABILITIES | 12.31.2021 | 12.31.2020 |
| Current liabilities | ||
| Payroll, social charges and accruals | |
|
| Related parties | | |
| Suppliers | ||
| Income tax and social contribution | - | |
| Other taxes payable | |
|
| Loans and financing | |
|
| Debentures | |
|
| Dividends payable | |
|
| Post employment benefits | ||
| Lease liability | ||
| Other accounts payable | ||
| Noncurrent liabilities | ||
| Related parties | ||
| Other taxes due | ||
| Loans and financing | |
|
| Debentures | - | |
| Post employment benefits | |
|
| Lease liability | ||
| Other accounts payable | |
|
| Provisions for legal claims | |
|
| |
||
| Equity | ||
| Share capital | |
|
| Equity valuation adjustments | |
|
| Legal reserves | ||
| Retained earnings | ||
| Additional dividend from non-capitalized earnings reserve | ||
| |
| |
| Total liabilities and equity | |
|
| F-129 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(b) Condensed statements of income for the years ended December 31, 2021, 2020 and 2019
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Operating revenues (expenses) | |||
| General and administrative expenses | ( |
( |
( |
| Other revenues (expenses), net | ( |
( |
|
| Result of equity in investees | |
|
|
| 3,476,829 | 3,447,069 | 2,118,966 | |
| Operating income before financial results | |
|
|
| Financial income (expenses) | |||
| Financial revenues | |
|
|
| Financial expenses | ( |
( |
( |
| 192,477 | 249,409 | (25,354) | |
| Operating income | |
|
|
| Income tax and social contribution | |||
| Income tax and social contribution | |
- | ( |
| Deferred income tax and social contribution | |
|
|
| 97,891 | 127,503 | (15,345) | |
| Net income from continuing operations | |
|
|
| Discontinued operations | |||
| Net income (loss) from discontinued operations | |
( | |
| Net income | |
|
|
| Basic and diluted net earning per share attributed to controlling shareholders - continuing operations - expressed in Brazilian Reais | |||
| Common shares | |
|
|
| Class A preferred shares | |
|
|
| Class B preferred shares | |
|
|
| Basic and diluted net earning per share attributed to controlling shareholders - expressed in Brazilian Reais | |||
| Common shares | |
|
|
| Class A preferred shares | |
|
|
| Class B preferred shares | |
|
|
| F-130 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
(c) Condensed statement of comprehensive income for the years ended December 31, 2021, 2020 and 2019
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| NET INCOME | |
|
|
| Other comprehensive income | |||
| Items that will never be reclassified to profit or loss | |||
| Gain (losses) on actuarial liabilities | |||
| Post employment benefits | ( |
( |
( |
| Post employment benefits - equity | |
( |
( |
| Taxes on other comprehensive income | |
|
|
| Items that are or maybe reclassified to profit or loss | |||
| Subsidiary loss with interest variation | - | - | (4,874) |
| Total comprehensive income, net of taxes | |
( |
( |
| TOTAL COMPREHENSIVE INCOME | |
|
|
(d) Condensed statements of cash flows for the years ended December 31, 2021, 2020 and 2019
| 12.31.2021 | 12.31.2020 | 12.31.2019 | |
| Net cash generated from operating activities | |
||
| Cash flow from investing activities | |||
| Financial investments | |
|
|
| Loans and financing granted to related parties | - | ( |
( |
| Receipt of loans and financing granted to related parties | |
|
|
| Additions in investments | ( |
( |
( |
| Capital reduction of investees. | |
||
| Additions to property, plant and equipment | ( |
( |
( |
| Additions to intangible | ( |
( |
( |
| Net cash used in investing activities | |||
| from continuing operations | ( |
( |
( |
| Net cash generated by investment activities | |||
| from discontinued operations | |
||
| Net cash generated (used) from investing activities | |
( |
( |
| Cash flow from financing activities | |||
| Issue of Debentures | - | ||
| Issue of loans with related parties | - | | |
| Amortization of principal - loans and financing | - | ( |
( |
| Amortization of principal - debentures | ( |
( |
( |
| Amortization of loans obtained from related parties | ( |
( | |
| Amortization of principal - Lease liabilities | ( |
( |
( |
| Dividends and interest on capital paid | ( |
( |
( |
| Net cash used in financing activities | ( |
( |
( |
| Total effects on cash and cash equivalents | |
|
( |
| Cash and cash equivalents at the beginning of the period | |
|
|
| Cash and cash equivalents at the end of the period | |
|
|
| Change in cash and cash equivalents | |
|
( |
| F-131 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
Additional individual information related to Companhia Paranaense de Energia - Copel are presented below:
· Related Parties: Copel has the following balances outstanding with related parties:
| 12.31.2021 | 12.31.2020 | |
| Assets | ||
| Copel Distribuição (a) | ||
| UEG Araucária - mutual | | |
| Investees and Subsidiaries - Structure sharing | |
|
| Liabilities | ||
| Copel CTE - mutual | ||
| Investees and Subsidiaries - Structure sharing | |
|
| Elejor advance | |
|
| |
(a) Copel DIS - Financing transferred - STN
Copel transferred loans and financing to its wholly-owned subsidiaries at the time of its establishment in 2001. However, since the contracts for the transfers to the subsidiaries were not subject to formalization with the financial institutions, these commitments are also recorded in the Parent company.
The balance with Copel DIS refers to the National Treasury Department - STN financing, transferred with the same levy of charges assumed by the Company (Note 22) and shown as obligations for loans and financing at Copel DIS.
On March 10, 2022, seeking to reduce costs and improve the Company’s leverage, the debt was redeemed in advance, in the amount of R$9,350, corresponding to the principal plus interest incurred, net of the collateral and escrow deposits (Note 22.1).
· Investments - As of December 31, 2021 and 2020, investments in subsidiaries are comprised as follows:
| 12.31.2021 | 12.31.2020 | ||
| Copel Geração e Transmissão | |||
| Copel Distribuição | |
| |
| Copel Telecomunicações | - | | |
| Copel TEL - Reclassification (a) | - | ( | |
| Copel Energia | |
| |
| Compagas | |
| |
| UEG Araucária | |
||
| Other investments | |||
| (a) Reclassification to Assets classified as held for sale. |
| F-132 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The information regarding joint ventures, associates and other investments are presented in note 17.1 – Changes in investments.
· Dividends receivable - The dividends receivable is comprised as follows:
| 12.31.2021 | 12.31.2020 | |
| Investees and subsidiaries | ||
| Copel Geração e Transmissão | |
|
| Copel Distribuição | |
|
| Copel Comercialização | ||
| Compagas | ||
| UEG Araucária | |
|
| Joint Ventures and Associates | ||
| Voltália | |
|
| Dona Francisca | ||
| Other investments | | |
| |
|
| · | Provisions for Legal Claims - Copel recorded provisions for Legal Claims, as follows: |
| 12.31.2021 | 12.31.2020 | |
| Regulatory | |
|
| Labor | |
|
| Employee benefits | ||
| Civil | ||
| Tax Claim | ||
· Restriction of transfer of funds from subsidiaries - The subsidiaries described below qualify as either concessionaires of public services or independent power producers. As such, any transfer of funds to the respective parent company, in the form of loans or advances, requires approval by Aneel. This regulatory restriction does not apply to cash dividends determined in accordance with the Brazilian Corporate Law.
As of December 31, 2021, total restricted subsidiaries net assets amount to R$20,720,412 composed as follows:
| 12.31.2021 | 12.31.2020 | |
| Copel Geração e Transmissão S.A. | ||
| Copel Distribuição S.A. | |
|
| UEG Araucária Ltda. | |
|
| Centrais Elétricas Rio Jordão - Elejor | ( |
|
| F-133 |
COMPANHIA PARANAENSE DE ENERGIA – COPEL and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2021, 2020 and 2019 All amounts expressed in thousands of Brazilian reais, unless otherwise stated |
The following table shows the expected undiscounted settlement values of the Copel liabilities, in each time range:
| Interest (a) | Less
than 1 month |
1 to 3 months | 3 months to 1 year | 1 to 5 years | Over 5 years |
Total | |
| 12.31.2021 | |||||||
| Loans and financing | Note 21 | |
|||||
| Debentures | Note 22 | ||||||
| Suppliers | - | |
| ||||
| |
|
||||||
(a) Effective interest rate - weighted average. | |||||||
| F-134 |
