ANNUAL MANAGEMENT REPORT AND FINANCIAL STATEMENTS
CENTRAIS ELÉTRICAS DE SANTA CATARINA S.A. – CELESC
CORPORATE TAXPAYER ID (CNPJ): 83.878.892/0001-55 COMPANY REGISTRY (NIRE): 42.3.0001127-4 STATE REGISTRATION:250.166.321 CVM Code: 00246-1
Fiscal years ended December 31, 2020 and 2019
MESSAGE FROM THE CHAIRMAN
The year 2020 was extremely challenging, full of uncertainties and difficulties. In addition to the pandemic caused in an unexpected manner by Covid-19, which generated adverse effects throughout the economy, impacting both the drop in energy consumption and the increase in defaults, the company also faced, on June 31 and July 1, 2020, the “Cyclone Bomba”, considered the worst weather event in the history of Celesc, in addition to 3 other tornadoes in the West and Midwest of the state and a major disaster due to torrential rains in the Alto Vale. The cyclone caused extensive destruction to the power grid in Santa Catarina, interrupting about 50% of the power distribution by Celesc throughout the state, and generated financial losses of R$22.0 million. To restore the grid, Celesc's own employees and partners worked tirelessly, 24 hours a day, to provide energy to locations with difficult access and minimize the population's suffering. At the extreme of the climatic event, about 1.6 million consumer units suffered a power interruption in Celesc's concession area. On the same day, 300 company and outsourced teams were mobilized and started working to mitigate the damage, and by the next morning, they were able to reestablish the system for about 750,000 CUs, or half of the affected customers. Within 72 hours, almost the entire system was recomposed.
To minimize the impacts in face of this challenging scenario, Celesc worked to raise funds and adopted measures to protect the company's cash, such as the continuity of the Incentivized Dismissal Plan (PDI), the partial contingency of investments, and the reduction of expenses with materials, services, and other expenses. If, on one hand, the board searched for ways to overcome the financial challenges, on the other, the employees worked to add quality to the services provided, contributing as agents of economic development and social welfare for the state. The figures confirm the effectiveness of the partnership and the effort to preserve the company balance that supplies energy to the people of Santa Catarina. Even facing all the challenges, in 2020 Celesc registered the best energy continuity indicators in the company's history. For the first time, the DEC (Equivalent Duration of Interruption per Consumption Unit) was below 10 hours, and the FEC (Equivalent Frequency of Power Interruption) was below 7.00, considering a twelve-month moving period (in November 2020, the registered DEC was 9.00 and the FEC 6.64), the result of strategic management and the work of its employees. This performance was reflected mainly in the positive results achieved in the year, which show the company's conditions to fulfill all its corporate obligations and still ensure its own sustainability, strengthening itself, more and more, as the energy of the people of Santa Catarina.
In 2020, the consolidated EBITDA reached a total of R$922.6 million. In comparison to the same period of the previous year (R$724.8 million), this represents an increase of 27.3%, reflecting the company's resilience in the face of an adverse scenario, through an excellent performance of Revenues and Expenses in the period. Net income was R$518.7 million for the year, compared to R$283.6 million for the previous year, an 82.9% higher net result between the periods, which represents a net margin of 5.86% in 2020 compared to 3.54% in the previous year. One of the factors that explained the increased net result in fiscal 2020 in the Company, was the good result of equity in subsidiaries. In the Celesc D subsidiary, the positive performance is the effect of the increase in its billing, in addition to all the company's commitment to managing its manageable expenses and controlling investments.
In 2020, R$671.2 million was invested in system expansion and improvement, operational efficiency, and management modernization. Of this, R$629.8 million was invested by subsidiary Celesc D and R$41.4 million by subsidiary Celesc G, with a total increase of 11.9% compared to the volume recorded in 2019 (R$599.9 million). Always focused on providing the best possible service to our consumers, we maintained our investments in the countryside as well, through the Celesc Rural Program. We invested about R$23 million in energy efficiency projects aimed at low income, charities and technical education, in addition to another R$3 million in 49 projects selected by the public edict on culture and sports.
In addition, the company, which provides its services of great relevance to the Santa Catarina society and is sensitive to the critical moment that involved it, created an installment payment committee and paid in installments electricity bills for about 59 thousand consumer units, which totaled approximately R$220 million, of which R$100 million to Group A (industries, commerce) and another R$120 million to Group B (residential).
With the investments over the last few years, the service quality indicators have been improving continuously and Celesc has been establishing itself more and more as a Group, with constant and consistent development of its power generation activities and new businesses. Besides the investment policy, the subsidiaries maintain their focus on optimizing operating costs, continuously managing the cost of Personnel, Materials, Services and Others - PMSO.
Regarding the performance in the Capital Market, the Company's Preferred shares (CLSC4) presented a positive variation of 14.20% in the accumulated in the last 12 months, highlighting that, in the same period, the Electric Energy Index (IEE), which measures the behavior of the main shares in the electric sector, presented a positive evolution of 8.12% and the Bovespa Index closed the year with a rise of 2.92%.
For the coming years, the credit line with the Inter-American Development Bank - IDB, will continue to enable the partial financing of the investment program in energy infrastructure of Celesc D. The resources will be applied in the execution of expansion and modernization works of the electrical system until 2022. This operation jointly with the IDB brings a series of important advantages in relation to the other financing modalities.
Given the dynamism and evolution of the sector, Celesc D overcame the obstacles and managed to hold on to the concession, in one year of the end of the 2016-2020 cycle. Greater efforts in the distribution segment will involve working on revenue recovery, automation of activities and digital transformation, training, qualification, and continuous strengthening of employee health and safety, and investment management. Celesc's biggest challenges are to reduce the global losses (technical and non-technical), to reduce provisions, to increase the incorporation of the investments in the remuneration base, and to balance, jointly with the employees and the unions, the situation of the assistance and social security liabilities. Therefore, the company will achieve longevity and adequate economic-financial sustainability to strengthen itself and operate effectively in other segments of power energy, such as distributed generation, commercialization, and transmission.
Regarding automation and digitalization, the company has already started the works for the implementation of the first city that will be equipped with all the power meters fully automated - smart meters, has made it possible for consumers to pay their overdue invoices directly in the service stores with credit and debit cards, will install 82 totems throughout the state with about 20 services available to customers, has invested approximately R$40 million in recloses, among others. The company's Master Plan was also revisited in 2020. The Celesc Group's strategic assumptions are part of its Master Plan, a broad, long-term plan, currently called Celesc 2025-2035. It was restructured in 2019, based on exhaustive scenario studies, stakeholder aspirations, and the legal guidelines connected to strategic management, to indicate the path to be followed by the company for sustainability and continuous improvement of the services provided to society. After the annual review conducted in 2020, the Corporate Identity was maintained as well as the Strategic Positioning, which indicates a strategy of capitalizing on synergies around the company's core business: distribution. Meanwhile, the strategic map, which defines the strategic objectives, result drivers that the company intends to achieve, and guides the main indicators and physical, financial, and sustainability targets, according to the defined strategic positioning, was also redesigned and received new indicators. The positive results registered in the technical and economic indicators reflect a greater solidity of the Group, and, mainly, an increasingly better service to the Santa Catarina society. We would like to express our gratitude to the entire Board of Directors and to each one of our Employees who devote a lot of energy to this daily journey in search of providing a better quality of life to the people of Santa Catarina and good results to our shareholders.
Cleicio Poleto Martins Chief Executive Officer
ANNUAL MANAGEMENT REPORT
1. PRESENTATION
Dear Shareholders,
We present the Annual Management Report and the Financial Statements of Centrais Elétricas de Santa Catarina S.A. - Celesc, for the fiscal year ended December 31, 2020, accompanied by the Opinion of the Fiscal Council, the Report of the Statutory Audit Committee - CAE, the Opinion of the Board of Directors, and the Report of the Independent Auditors.
This Report is primarily intended for the Company's shareholders, but is available for public access on the websites of Celesc, the Securities and Exchange Commission of Brazil (CVM), and B3, and is also published written in a large circulation newspaper in the municipality where the Company's headquarters are located and in the Official Gazette of the State of Santa Catarina, in accordance with Brazilian law.
Also aiming at uniform communication with its various publics, the Company annually publishes its Sustainability Report, developed according to the guidelines of the Global Reporting Initiative - GRI, available on the Investor Relations portal, at www.celesc.com.br/ri
2. CELESC GROUP
Centrais Elétricas de Santa Catarina S.A. – Celesc is one of the largest companies in the Brazilian electric sector, with emphasis in the areas of distribution and generation of energy. Structured as a holding company in 2006, the Company has two wholly owned subsidiaries: Celesc Geração S.A. – Celesc G and Celesc Distribuição S.A. – Celesc D. It also, jointly controls Companhia de Gás de Santa Catarina – SCGÁS and is a partner of Dona Francisca Energética S.A. – DFESA, Empresa Catarinense de Transmissão de Energia S.A. – ECTE, Companhia Catarinense de Água e Saneamento – Casan and the Project of Usina Hidrelétrica Cubatão S.A.
Its controlling shareholder is the State of Santa Catarina, holder of 50.18% of the common shares. The remaining common shares are distributed as follows: Energias do Brasil S.A. – EDP – 33.11%, Fundação Celesc de Seguridade Social – CELOS – 8.63%, Geração L Par Fundos de Investimentos – 2.97%, Eletrobras – 0.03%, other investors – 5.09%. Of the Company's total assets, the State Government holds 20.20%, Energias do Brasil S.A. – EDP – 29.90%, Fundação Celesc de Seguridade Social – CELOS – 4.07%, Geração L Par Fundos de Investimentos – 10.27%, Eletrobras – 10.75%, other investors – 16.20%.
3. AWARDS 3.1. 3.2. ANEEL QUALITY AWARD 2019
For the first time in the company's history, Celesc was the distributor that was best evaluated in Brazil by residential consumers among the companies in the electric sector that serve more than 400 thousand consumer units. The annual survey conducted by the National Agency of Electric Energy - ANEEL, in 2019, resulted in the ANEEL Quality Award 2019 (categories South Region and Brazil), delivered in February 2020 to the company's president, Cleicio Poleto Martins, and the governor of Santa Catarina, Carlos Moisés, in a ceremony held in Brasilia. The index was measured using an opinion survey conducted throughout Brazil, in
person at home, by the company Qualitest - Intelligence in Research, in the period from July 22 to November 13, 2019. The survey assessed consumers' opinions about quality and perceived value, their confidence in the supplier, their loyalty, and their overall satisfaction. We interviewed 27,308 residential consumers in 596 municipalities served by the 91 electricity distributors that operate in Brazil. In Celesc's concession area, customers gave a 77.10 index to the satisfaction level for the services provided, a far higher index than the national average for the category, which was 67.38.
3.3. ASSOCIATION OF ENERGY ENGINEERS INTERNATIONAL AWARDS
Also for the first time, Celesc was recognized by the Association of Energy Engineers (AEE) International Awards - which rewards work developed in the Energy Efficiency area worldwide - with first place in the category Innovative Energy Project of the Year 2020, with the Motor Bonus, which substituted old motors for new ones, more modern and efficient, using a financial bonus system. The initiative's focus is the driving force systems, responsible for practically 30% of the electrical energy consumption in Brazil. For companies, it promotes reduced energy consumption and increased competitiveness. For society in general, besides providing development opportunities to the entire productive and economic chain of Santa Catarina, it also collaborates with the preservation of the environment. The Motor Bonus promoted the substitution of more than 1.7 thousand motors and represented an annual energy saving of 18.64 GWh, which corresponds to the consumption of approximately 7.5 thousand houses in the same period. In engines, R$14.87 million were sold, of which R$5.02 million were paid by Celesc. Os clientes participantes tiveram um bônus médio de 33,78% na troca dos seus equipamentos.
3.4. ADVB 2020 CORPORATE CITIZEN AWARD
Celesc's project, Photovoltaic Bonus - pioneer in the country, which promotes distributed generation by means of a bonus granted to participating customers for the acquisition of photovoltaic plates for capturing solar energy, won 1st place in the Environmental Preservation category of the ADVB 2020 Citizen Company Award. The initiative began in 2016 and awarded participants a 60% bonus on the installation of 1,250 of these efficient power generation systems. In 2019, the effective calculation of the results was completed: in all, R$22.17 million was invested, of which R$14.1 million came from the ANEEL/Celesc Energy Efficiency Program and R$8 million as a counterpart from the customers who purchased the solar panels. The competitors won not only the bonus of buying the system, but also made an important contribution to the preservation of the environment, with the use of clean and sustainable energy. The estimated benefit was the generation of energy of 4,464.36 MWh/year, enough to supply more than 22,300 homes for a whole month. In addition, the Photovoltaic Bonus prevented the release of 303 tons of CO2 into the atmosphere, corresponding to the planting of 2,170 trees.
3.5. SOCIAL RESPONSIBILITY CERTIFICATE
For the sixth consecutive year, the State Legislative Assembly - ALESC certified Celesc for its Social Responsibility practices. The Social Responsibility certification, promoted by ALESC in partnership with other institutions, aims to recognize and highlight private and public companies and non-profit organizations that have social responsibility as a management policy. Celesc has been certified since 2015, when participation was made possible for institutions in this category.
3.6. 22ND ABRADEE AWARD
In 2020, the Brazilian Association of Electric Power Distributors promoted the 22nd edition of the “Abradee Award”, also alluding to the celebration of the 45th anniversary of the institution. The special edition did not grant individual awards to the companies, but recognized the efforts of all the electric power distributors operating in the country during the worldwide health crisis caused by the COVID-19 pandemic. For this reason, the entity submitted to each company, among them Celesc, a sign that highlights the dedication of the teams, which total more than 200 thousand workers working on the front line for the maintenance of the electrical system, indispensable for the exercise of any activity performed by society in the 21st century.
3.7. ABRACONEE AWARD FOR FINANCIAL STATEMENTS
Celesc received the 2nd place national award in the Holding category for the quality of the presentation of the Company's Financial Statements for fiscal year 2019 during the XXXVI National Meeting of Accountants of the Electric Power Sector - ENCONSEL, held in a webinar format.
This award is granted annually by the Brazilian Association of Accountants of the Electric Power Sector - ABRACONEE to companies that stand out in terms of content, grammatical correctness, graphic presentation, preparation of Financial Statements, Management Report, Social Balance Sheet, and Notes.
4. 2020 HIGHLIGHTS 4.1. 4.2. EFFICIENT BONUS DONATIONS
On July 3, a virtual event was held to deliver the donations collected during the 6th edition of the Efficient Bonus project. In total, R$954,000 were obtained, which were divided and distributed to the institutions: Social Assistance Works
Dom Orione from Florianópolis, Programa Viver Ações Sociais from Chapecó, Associação Vida e Arte from Tubarão, and Instituto Joinvillense de Educação e Assistência.
The institutions were selected by a public call, which took place between October 10th and October 31st last year, and in this 6th edition of the project they have a non-profit philanthropic social assistance purpose, and operate in Santa Catarina. A total of 72 applications were actually received. In January, the eligible applicants list was released.
Considered a major focus of Celesc's Energy Efficiency area, the Efficient Bonus project grants a 50% discount in the exchange of old household appliances for new ones with the Procel Seal, upon a R$50 donation to philanthropic institutions.
4.3. AUTOMATIC RENEWAL OF ENVIRONMENTAL OPERATING LICENSE - LAO
Celesc D was the first company in Santa Catarina to benefit from this new modality for the Distribution Lines activity, in September, an initiative developed by the Instituto do Meio Ambiente de Santa Catarina - IMA, the state environmental agency. The LAO is the last of three environmental licenses: Preliminary License - LAP, Installation License - LAI, and LAO, required for the enterprise functioning and which must be renewed, on average, every four years. In the case of the Distribution Lines activity, the impact, such as the destruction of vegetation and removal of structures and cables, has already occurred in the installation phase of the project. Previously, the LAO renewal process was time-consuming, and from the launch of the self-declaratory mode, if there are no changes in the original project of the enterprise, the renewal is granted online and immediately.
4.4. NATIONAL DRAWING, WRITING AND VIDEO CONTEST ABOUT SAFE ELECTRICITY
Students from Santa Catarina, through Celesc D, were once again successful in the National Drawing, Essay and Video Contest promoted by the Brazilian Association for Awareness of the Dangers of Electricity - Abracopel.
The contest, held every year, receives applications from all over the country; however, in Santa Catarina, the existing partnership between Abracopel and Celesc D provides the opportunity for schools within the Company's concession area to participate in both stages: National and Regional. This partnership with Abracopel consolidates, in a very practical way, the principle of Responsibility towards Society, Employees, and the Environment.
Despite the circumstances due to the pandemic, Santa Catarina's presence was once again expressive, with 23 students from Celesc's concession area among the best ranked in the national ranking.
4.5. RESULTS VIDEOCONFERENCE
On November 30, Celesc held a videoconference to present its 3rd quarter results to investors and the market in general.
During the event, an overview of the Celesc Group was presented, as well as the performance breakdown per business area and the Quarterly Information (ITR) of 3rd quarter of 2020. The Company's mitigating measures throughout 2020 in fighting the COVID-19 crisis were also addressed.
5. STRATEGIC GUIDELINES AND VALUE CREATION
Celesc's strategic assumptions are part of its Celesc 2025-2035 Master Plan, a broad, long-term plan, restructured and approved in 2019 (from what was then called Celesc 2030). It was revised in 2020 according to the recent historical unprecedented scenario arising from the pandemic of COVID 19, based on extensive scenario studies, stakeholder ambitions, and the guidelines related to strategic management. The Master Plan sets the Bases of the Corporate Strategy, Positioning and Strategic Objectives, and the macro-goals until 2025 and the horizon until 2035. The short and medium term goals are expressed in the 5-year Strategic Planning and the detailing of these Strategic Initiatives to the Operational Efficiency Projects.
In the 2020 annual review, the Corporate Identity and Strategic Positioning, which aims at a strategy of capitalizing on synergies around the company's core business, were maintained.
The strategic map, which defines the strategic objectives, result drivers that the company intends to achieve, and guides the main indicators and physical, financial, and sustainability targets, according to the defined strategic positioning, was also redesigned and received new indicators, was also revisited, as shown below:
To achieve the objectives and goals established in the annual review of the Master Plan and Strategic Planning, Strategic Initiatives are directed, for the next 5 years, as listed: (i) Revenue Recovery and Provision Management; (ii) Investment Management; (iii) Automation and Digital Transformation; (iv) Selective Investment in New Business; (v) Management by Processes and Goals; (vi) Actuarial balance. These Initiatives were implemented in 14 projects, which in the revision process had the addition of a Workplace Safety project.
6. RISK MANAGEMENT, INTERNAL CONTROLS AND COMPLIANCE
Celesc and its wholly owned subsidiaries have a governance structure aligned with good corporate practices and related to the Second Line of Defense according to the Global Institute Of Internal Auditors (IIA)Three Lines model, such as Risk Management, Internal Controls and Compliance.
6.1. RISK MANAGEMENT AND INTERNAL CONTROLS
Celesc has adopted a Strategic Risk Management and Internal Control Policy, available for consultation on the Investor Relations Portal (www.celesc.com.br/ri), which guides top management, managers and other employees in the prevention and mitigation of risks inherent in the Company's processes and business, indicating the guidelines to be observed for the execution of the strategic management of Corporate Risks, Financial Reporting Risks and Integrity Risks, defining the responsibilities of the Board of Directors, the Statutory Audit Committee, the Executive Board and others involved. This policy was reviewed in its entirety, considering the legal aspects in effect, the company's structure, benchmarking, and improvements in the affected processes, and was approved by the Board of Directors on October 15, 2020 as recorded in the minutes.
The Celesc Group's governance structure for controls and risks is organized as follows:
The Board of Directors, the ultimate body in the Company's organizational structure and strategic risk management, has as one of its specific responsibilities, to implement and supervise the risk management and internal control systems
established for the prevention and mitigation of the main risks to which the company is exposed (Federal Law 13,303/2016 - State Laws).
As an advisory body to the Board of Directors, to integrate the organizational structure of risk management, the company has had since 2018, also in compliance with Law 13,303/2016, the Statutory Audit Committee - CAE, with among its duties, to supervise, evaluate and monitor the quality and integrity of internal control mechanisms and monitor the exposure to risks of the Celesc Group.
As an integral part of the risk management process, the Executive Board has a vital role in identifying, assessing, controlling, mitigating, monitoring, proposing limits, developing action plans to mitigate risks, and monitoring the execution of these plans.
The company has a Planning, Controls and Compliance Department - DPL, which has, among its attributions, the development of strategic management of risks and internal controls, aiming to ensure the execution of Celesc Group's long-term strategy. Within the hierarchical structure of this Executive Board, there is the Risk Management and Internal Control Department, which in 2020 conducted among its main activities the evaluation and review of the most critical corporate risks with report to the EBD, review of mapped processes, selected according to the materiality of the Financial Statements, as well as of the financial reporting risks and existing controls therein, to be followed, in 2021, by effectiveness tests.
6.2. COMPLIANCE
As in the previous year, the Executive Board reinforced, in 2020, the support of senior management to the Compliance Program by signing the Commitment Letter, assuming the mission of promoting Compliance actions and practices and contributing to a more transparent and legitimate management.
New training courses on the Code of Ethical Conduct and the Compliance Program (“Fazer o certo é bom para todos”) were also developed and made available to the internal public on an EAD platform, contemplating employees, officers and board members through learning trails.
The training modules are designed to promote the idea that integrity goes far beyond fulfilling duties and obligations, and is a true principle that should be pursued by everyone in the company.
As well as the training mentioned above, communication performed a fundamental role in the implementation of a culture of integrity. In this regard, several advertising materials were released monthly in the internal communication media to address issues related to the Company's Compliance Program.
To strengthen the set of internal guidelines, integrity regulations were created and others were revised.
In order to identify and assess the level of exposure to integrity risks in the business relationships entered into by Celesc, the integrity analysis process for economic agents and partners was improved in 2020, incorporating new methodology for risk classification and emphasizing monitoring activities for contractual management.
Integrity risk management was another important initiative that was followed by Celesc's Compliance Program. Supported by specialized consultants, risk situations were identified and action plans developed, leading to the commitment of several areas and managers of the company in the mission of consolidating a culture of integrity. The integrity risk management process is included in Celesc's Risk Management and Internal Control Policy (http://ri.celesc.com.br/governanca-corporativa/politicas/).
For more information about the Company's Compliance Program, please access the Corporate Governance section of the Investor Relations portal (available at: http://ri.celesc.com.br/).
6.3. DATA PROTECTION
In line with the value and principle of Ethics in its conduct with people and processes, Celesc reinforces its commitment to respecting the privacy and protection of its customers' personal data in compliance with applicable legislation, especially Federal Law 13,709 of August 14, 2018, known as the General Law for the Protection of Personal Data (LGPD). In order to ensure compliance with the LGPD, a Data Officer has been appointed.
Internal presentations and workshops were held to promote the privacy culture, and the Privacy Policy was published (Available at: https://www.celesc.com.br/politica-de-privacidade-celesc). In 2020, the consultant Ernst & Young was also hired to perform a diagnosis of the adequacy of current processes to the Law and to support the compliance process.
7. ECONOMIC ENVIRONMENT
Celesc continuously follows up and monitors the evolution of the economic situation and the variation of the main indicators such as GDP, inflation, foreign exchange and interest rates and the way these variables influence the electric energy market. The exchange rate, for example, acts directly on the purchase of energy from Itaipu, GDP, and investments in the growth of the energy market. Interest impacts financing and investments (cost of capital), and inflation impacts supplies and PMSO.
The year 2020, which began with positive perspectives for the Brazilian economy, was highlighted by the turnaround provided by Covid-19. Limited to China at the beginning of the year, the virus spread around the world, reaching unprecedented dimensions and severity, leading the World Health Organization (WHO) to classify the situation as a global pandemic in March. To limit the spread of the virus and prevent the collapse of their health systems, governments were forced to take drastic measures and social isolation was implemented as a barrier against the spread of the virus. Taken by uncertainty and fear, the global economy came to a crash, leading to a simultaneous supply and demand shock to the markets. Governments and central banks, in order to mitigate the economic and social impacts, have injected massive monetary and fiscal incentives. Internally, the Brazilian scenario did not diverge from the international one, and sanitary and economic measures to mitigate the coronavirus crisis were also established.
The Central Bank's Economic Activity Index (IBC-Br), which is considered a preview of the GDP, had a negative result of 4.04% registered in the accumulated in 2020. This index incorporates information about the level of activity of the three sectors of the economy: industry, commerce, and services.
The Consumer Price Index - IPCA measured by the Brazilian Institute of Geography and Statistics - IBGE, which measures the living costs of families with an average income of one to forty minimum wages, registered 4.52% in 2020. The General Market Price Index (IGPM), which reflects the evolution of regulated and wholesale prices, showed 23.52% as a result of the high exchange rate variation that occurred in the period.
The interest rate measured by the Special System for Settlement and Custody - Selic - closed the year at 2.00% as a result of the strong monetary policy incentives to the economy. The real interest rate, considering the IPCA, was negative in the period.
From January to November 2020, in Santa Catarina, the Santa Catarina Regional Economic Activity Index - IBCr-SC, calculated by the Brazilian Central Bank, registered a retraction of 2.1%, a better result than the national average, which decreased 4.5% in the same period.
8. REGULATORY ENVIRONMENT
The Brazilian electricity sector is regulated by the Federal Government, acting through the Ministry of Mines and Energy - MME, which has exclusive authority over the electric sector. The regulatory policy for the sector is defined by ANEEL.
8.1. CELESC D a) Concession Extension
On December 9, 2015, Celesc D signed the 5th Addendum to the Electricity Distribution Concession Agreement No. 56/1999, for a period of 30 years, which states that in the first 5 (five) years there will be targets to be indicators for technical quality and economic and financial sustainability, conditions for confirmation of the extension of the concession.
Note 5.3.1, item c, presents the status of the established indicators.
From the sixth year following the conclusion of the contract, non-compliance with the quality criteria for three consecutive years, or economic and financial management criteria for two consecutive years, will lead to the opening of the expiration process of the concession. b) 2020 Annual Tariff Readjustment
ANEEL, through Ratifying Resolution No. 2,756 from August 21, 2020, approved the Annual Tariff Adjustment of Celesc D, applied as of August 22, 2020. Said adjustment resulted in a tariff effect average to be perceived by consumers, around 8.14 %, being 7.67% on average for connected consumers in the High Voltage and 8.42% on average for consumers connected in the Low Voltage.
The Sector Charges have a 2.11% share, 3.38% of Transmission Costs, 5.89% of Energy Expenses, 0.54% with Distributor Costs, -0.64% of Financial Components of the current process, and -3.19% related to the withdrawal of the Financial Components of the previous ordinary process.
On September 4, 2020, the Judge of the 2nd Federal Court of Florianópolis decided, on summary cognition, that the readjustment authorized by ANEEL in Resolution No. 2,756, of August 18, 2020, violates the Principle of
Financial and Economic Balance and the Theory of Unpredictability, under the terms of Article 6, V, of the Consumer Protection Code, which is why it suspended its application during the public calamity period provided for in Federal Legislative Decree 06/2020. The preliminary decision issued in the records of Public Civil Lawsuit 5018546-02.2020.4.04.7200/SC was filed by PROCON/SC.
The aforementioned injunction’s purpose is to suspend the implementation of the electricity tariff readjustment within the State of Santa Catarina until the end of the state of public calamity, due to the COVID-19 pandemic, recognized by Legislative Decree 06/2020, with effect until December 31, 2020. Also in court, it was established that Celesc, if it already has sent the bill to consumers with the new adjustment, sent a new electricity bill without the adjustment and, if the user has already paid the adjusted bill, the corresponding amount be credited to the bill for the following month.
Against the preliminary decision, Celesc filed an appeal at the Federal Regional Court of the 4th Region (5044167- 67.2020.4.04.0000), requesting that, in limine, the emergency relief granted by the singular court be suspended.
At the same time, a consultation was carried out with the Tariff Management Superintendence - SGT/ANEEL, regarding the maintenance of the treatment regarding the calculation of regulatory assets and liabilities in line with the provisions of REH 2756/2020. This understanding was ratified by SGT through electronic notice on October 19, 2020: “for tariff purposes, SGT sees that CELESC's tariffs are in effect and once the injunction is reversed, CELESC will be able to proceed with the re-billing immediately.”
Thus, as for the items of regulatory assets and liabilities and other aspects, the definitions set by REH 2756/2020 were used to calculate the next tariff process in August 2021, on a provisional basis, until decision in an interlocutory appeal in the injunction (Case Records 5044167-67.2020.4.04.7200) or decision on the merits in Case Records 5018546-02.2020.4.04.7200/SC.
On October 30, 2020, Celesc was notified of the decision that granted the appeal injunction in the records of Interlocutory Appeal No. 5044167-67.2020.4.04.0000 - Implementation of the Tariff Adjustment, returning the situation to its status quo. Thus, the company proceeded to adjust the invoices that did not realize the effects of the August 22, 2020 tariff adjustment, to restore its required revenue for the tariff cycle, as stated in Homologatory Resolution 2,756 of August 18, 2020. The effects of the preliminary injunction were considered in fiscal 2020. c) Tariff Levels
At the public meeting of the board of ANEEL on May 26, 2020, it was decided to keep the green level activated until December 31, 2020. However, the ANEEL board decided, at an extraordinary meeting held on November 30, 2020, to reactivate the system for activating the Tariff Levels due to the drop in storage levels in the hydroelectric reservoirs and the resumption of electricity consumption.
It was an emergency measure adopted by the Agency to reduce consumers' electricity bills in the future, since the costs would be included in the next tariff events, and to help the electricity sector in the midst of the Covid- pandemic scenario. 19. The values of the tariff flags are updated every year and take into account parameters such as market estimates, inflation, projection of hydroelectric power plants volume, history of operation of the National Interconnected System, in addition to the values and limits of the Price of Settlement of Differences - PLD.
Since, on March 10, 2020 - the day before the World Health Organization (WHO) announced a pandemic - ANEEL had proposed the discussion for the 2020/2021 cycle of additional fees, the proposal was in Public Consultation from March 12 to April 27, 2020. However, the impacts of the pandemic on energy consumption and economic activities have significantly changed the studies and parameters used in the Agency's proposal.
The levels of activation and the additional tariff flags in force are: i) Green Level: favorable conditions of energy generation. The tariff will not undergo any additional fees; ii) Yellow Level: R$1,343 for every 100 kwh; iii) Red Level 1: R$4.169 for every 100 kwh; iv) Red Level 2: R$6,243 for every 100 kwh;
The definition of the levels of activation is carried out according to the Accumulated Distribution Function (FDA) method, defined in the PRORET Manual on Tariff Regulation Procedures, sub-module 6.8, by the following criteria: i) Green Tariff Level: statistical number of FDA associated with the probability of 75%; ii) Yellow Tariff Level: average sample value of FDA comprised between 75% and 85%; iii) Red Tariff Level: FDA range between 85% and 95%: iii-a) Level 1: average sample value of FDA comprised between 85% and 90%; iii-b) Level 2: average sample value of FDA comprised between 90% and 95%.
The activation of the flags and the monthly values of the Centralizing Account of Tariff Flags (Levels) Resources (CCRBT), transferred to Celesc D, as well as the amounts transferred from Celesc D to CCRBT for the purpose of settlement of short-term market Operations with the Electric Energy Trading Chamber - CCEE, in 2020 are:
Transfers from Transfers from Celesc to Orders Month Flag CCRBT to Celesc D D to CCRBT ANEEL (R$/thousand) (R$/thousand) January Yellow 2,048 - 257/2020 February Green 10,854 - 662/2020 March Green 2,187 - 903/2020 April Green 1,886 - 1274/2020 May Green 1,991 - 1572/2020 June Green 1,905 - 1930/2020 July Green 3,028 - 2250/2020 August Green 3,054 - 2545/2020 September Green 2,809 - 2824/2020 October Green 2,796 - 3118/2020 November Green 2,724 - 3369/2020 December Red II 3,155 - 3701/2020 d) 2014 Contractual Exhibit – ANEEL Order No. 2642/2015 and No. 2078/2016
Celesc D filed a lawsuit against ANEEL, seeking to challenge Order 2,078/16, in order to obtain the full recognition of contractual exposures as involuntary, at the same time that it requested the grant of an injunction to suspend the application of reducer R$256.6 million, expected to be applied together with the homologation of the Periodic Tariff Review process that would occurred on August 22, 2016.
After the lawsuit was filed, Celesc obtained an injunction to dismiss the application of the mentioned tariff reducer. This decision was met by ANEEL upon ratification of the tariff processes of 2016, 2017 and 2018.
In December 2018, the amount was updated through SELIC to R$317.6 million and is recorded under the provision for regulatory contingency.
In 2019, the judge in charge of the case, after examining ANEEL's statement regarding the arguments presented by Celesc D, decided to maintain the injunction previously granted. Also in 2019, before the 2019 Annual Tariff Adjustment (RTA) process, a court decision was rendered against Celesc D. Given this decision, Celesc D had to appeal to discuss the matter in the second instance and awaits a decision from judges.
Due to the decision in the first instance, in August 2019, ANEEL, through Ratification Resolution No. 2,593, allocated in the tariff process the value of the non-transfer of tariffs. The Distributor requested a deferral in the amount of 5 tariff processes and ANEEL then partially accepted the request and ratified the deferral of the financial effect of the 2014 contractual exposure by a fifth of the amount in the 2019 tariff adjustment, totaling R$65.8 million.
In the 2020 RTA, the same method was adopted, considering the request formally made to the Regulatory Agency for deferral in 5 processes and this time with the treatment of R$68,540 million as a reducer.
For the next tariff processes, the Agency will evaluate the possibility of maintaining the deferral or the full consideration of the amount. The remaining balance remains as a regulatory contingency, and the updated balance in December 2020 is R$207.3 million. e) Reversal Financial Item: Extraordinary Tariff Adjustment - 2015 ETR and CVA CDE (2015 RTA and 2016 RTP)
As noted in Technical Note No. 194/2015-SGT/ANEEL 16, which instructed Celesc D’s 2015 RTA, the reversal of the 2015 RTE’s financial component was not carried out, due to the legal discussion regarding the payment of quotas and receipts of CDE’s subsidies. Similarly, the previous CVA CDE for the same period had not been considered in the tariff processes.
Administratively, the CDE installment agreement has not yet been terminated by ANEEL. Therefore, a note was inserted in the process making it possible to revisit the amounts considered, if there is an unfavorable position in the proceedings.
Item 28 if the Vote assigned to the Rapporteur Officer of the Proceeding has the following wording:
“Given arguments and documents presented by the Concessionaire, as well as the Superintendence's analysis, while the decision is in force, Celesc-DIS's claim must now be accepted, so that the differences between payment and coverage are established in the original payment dates, without no prejudice to future analysis, possibly in the
administrative proceeding 48500.003205/2017-9919, in the scenario of an unfavorable decision to the concessionaire.”
8.2. CELESC G a) Auction of Amortized Plants
Of the 12 plants that make up Celesc G’s own site, 9 were covered by Federal Law 12,783, from January 11, 2013: Palmeiras HPP, Bracinho HPP, Garcia HPP, Cedros HPP, Salto Weissbach HPP, Pery HPP, Celso Ramos SHP, Caveiras HGP and Ivo Silveira HGP.
With the entry into force of Federal Laws No. 13,097, from January 19, 2015 and No. 13,360, from November 17, 2016, since the Ivo Silveira and Caveiras Plants have an installed capacity of less than 5 MW, both were converted into HGPs, through ANEEL Authorizing Resolutions No. 5,362, from July 21, 2015 (Ivo Silveira) and No. 7,246, from August 21, 2018 (Caveiras). To legitimize the change in the concession system, the addendums to the Concession Agreement No. 006/2013 were also signed. Accordingly, the effects of Federal Law No. 12,783/2013 do not affect such plants.
In 2015, the MME, through Decree 218, established that ANEEL should promote a bidding process for the concessions of the Hydropower Plants, that do not adhere to the terms of the early extension of the concessions, in accordance with the terms and conditions established in Law 12,783/2013. According to the sectorial rule established by said Act, after the concession ends, the plant will be bidden in the form of revenue per tariff, established through the Annual Revenue Generation - AGR, included in the Annual Compensation for Plant Management - GAG-O&M and the Compensation for improvements - GAC-Improvements were included, as well as the Concession Bonus - RBO at an actual rate of 9.04% p.a.
On the other hand, the Concession Bonus was required as the portion of the bid to be carried out in the auction, whose winner would be the one offering the lowest cost management for generation assets. Celesc G won Lot C by offering a discount of 5.21% of the ceiling price defined for the management of generation services for the 5 plants covered by Law No. 12,783/2013, added to the financial contribution of R$228.6 million as Concession Bonus.
Last but not least, as a result of the auction, Celesc G signed the Concession Agreements for Generation Service No. 006/2016 and No. 007/2016 on January 5, 2016. Such contracts are effective for 30 years starting from the end of the term of the previous concessions.
The Palmeiras, Bracinho, Cedros and Salto Weissbach plants had previous concessions to the Auction 12/15 still in force until the date of November 7, 2016, and from that date on, the execution of the new Concession Agreement
The following table shows the list of the plants in Lot C purchased by Celesc G:
Plants Location Installed Power (MW) Physical Guarantee (MW) Final Concession Term Palmeiras HPP Rio dos Cedros/SC 24.60 16.70 November 7, 2046 Bracinho HPP Schroeder/SC 15.00 8.80 November 7, 2046 Garcia HPP Angelina/SC 8.92 7.10 January 5, 2046 Cedros HPP Rio dos Cedros/SC 8.40 6.75 November 7, 2046 Salto Weissbach HPP Blumenau/SC 6.28 3.99 November 7, 2046 Total 63.20 43.34
The energy generated by the plants was allocated to the quota system, which is the percentage of the plant’s energy and power physical guarantee allocated to the Distributors of the National Interconnected System (SIN or NIS). The quota system was 100% of the Physical Guarantee in 2016 and 70% as of January 1, 2017. b) Extension of the Pery HPP Concession
In 2017, Celesc G decided to extend the concession of the Pery – HPP in accordance with Law 12,783/2013, through the quota regime. Thus, on July 7, 2017 Celesc G signed with the Ministry of Mines and Energy - MME the 4th Amendment to Concession Agreement 006/2013 - ANEEL, with the purpose of exploiting the potential of hydraulic energy of the plant, with the full allocation of energy in the quota system of the physical guarantee of energy and power, extending its concession for a period of 30 years, with a final term on July 9, 2047.
In the following years (2018 to 2020), the National Agency of Electric Energy - ANEEL fixed the Annual Generation Revenue (RAG) for the next cycles of UHE Pery, including the GAG Improvement along with the RAG, and the indemnity value of the assets not amortized relating to the expansion completed in August 2013, during the term of the previous concession contract, were not considered for the definition of the RAG value.
Since then, Celesc G has been discussing with ANEEL the indemnification form for the Basic Project for the expansion of the UHE Pery.
c) Expansion of the Celso Ramos SHP
Celesc G obtained authorization to enlarge Celso Ramos SHP Power Plant in the order of 7.2MW (5.62MW to 12.82MW) by means of ANEEL Authorization Resolution No. 5078/2015, as well as the extension of the concession for 20 years, conditioned to the conclusion of the projects by November 2021.
In 2018, the Basic Project for the expansion of the Plant was revised and consolidated, foreseeing the installation of a new adductor circuit, which will have a new water intake channel, forced conduit and a new powerhouse with two UG-3 and UG-4, with 4.15MW each, totaling an increase of 8.3MW in the utilization (going from 7.2MW to 8.3MW and totaling 13.92MW of installed capacity).
On March 29, 2019, ANEEL issued the Order No. 939/2019, registering the suitability for the use of the hydraulic potential of the revision of the Basic Project for the Expansion of Celso Ramos SHP and ratifying new parameters required to define the Physical Guarantee of the project. With the registration at ANEEL’s 29th New Energy Auction, the Energy Research Company – (EPE) defined the project’s Physical Guarantee. The works started in July 2019, with 84% completed by December 2020.
It is also noteworthy that Celesc G participated in the aforementioned Auction A-4, successfully selling the energy of this project, effective in January 2023. Notice on the Approval and Grant of Auction No. 03/2019 was published on October 3, 2019.
With the signing of the CCEARs in the last quarter of 2020, ANEEL issued Authorizing Resolution No. 9,524 of December 8, 2020, which changed the technical characteristics of PCH Celso Ramos, in adherence with Order 939/2019, also adjusting the schedule for the implementation of the works, scheduled for completion by the end of March 2021.
Regarding the effects of the COVID-19 pandemic, the Company suspended the Celso Ramos Plant expansion works at the end of March 2020, and resumed them at the end of April 2020, after the main and related activities were released by official decrees. Due to this suspension, the deadline for the construction works to expand the plant has moved to March 2021, staying in line with the regulatory schedule. d) Extension of the Salto Weissbach HPP
In 2018, the basic expansion project of the Salto Weissbach HPP, located in the city of Blumenau/SC, was approved by ANEEL through Order No. 1,117, from May 21, 2018. The expansion project foresees the construction of a new adductor circuit in parallel to the existing one, with adduction channel, water outlet and each of force with two generating units of 11.5MW each, totaling the addition of 23MW of installed power in the plant, going to 29.28MW.
In 2019 Celesc G filed the request to obtain the Installation Environmental License - LAI with the Environmental Institute of Santa Catarina - IMA. In June 2019, after manifestation of that Institute, Celesc presented all technical information consistent with the referred stage. However, in August of that same year, the environmental agency requested an Integrated Study of the Basins, and later, in 2020, the study was waived, which may reduce the analysis time of the process. Until the end of 2020 this stage of the environmental licensing process remained under analysis.
After the LAI is issued, the process returns for analysis by the Empresa de Pesquisa Energética - EPE, which will then be forwarded to ANEEL to calculate the remuneration of this project, whose energy will be fully dedicated to the quota regime, so that the Company can forward the stages of financial feasibility, bidding, and construction. e) Expansion of Caveiras HGP
In 2018, Celesc G filed at ANEEL an application to carry out inventory studies for the section of the river where the Caveiras HGP is installed, with a view to promoting the expansion of its installed capacity. In the same year, through Order No. 3,005/2018, provided to Celesc G the inventory registration for a period of 630 days as of order’s issuance.
In 2019, Celesc G contracted the services to conduct the Hydroelectric Inventory Studies for the Caveiras River, and this study was forwarded in July 2020 to ANEEL. On September 28, 2020, through Order 2,752, ANEEL approved the revision of the Inventory Studies and guaranteed to Celesc G the right of first refusal for the PCH Caveiras project.
On December 17, 2020, ANEEL issued Order 3,592, which granted Celesc G the Order of Registration of Intent to Grant Authorization - DRI PCH. Thus, the Company must, within fourteen months from the abovementioned Order, prepare the Basic Project and present ANEEL with the Executive Summary.
After the revision and consolidation of the basic project and respective approval by ANEEL, the environmental feasibility study will be carried out, the licenses (preliminary and installation) will be obtained from IMA/SC and the business plan will be approved by the Company, for the project to be bid and built.
f) Reactivation of Maruim HGP
Maruim HGP, built in 1910, is located in the municipality of São José/SC. Considered one of the oldest hydroelectric plants in the country, it has been decommissioned since 1972 and Celesc G has a project for its reactivation.
In 2018, Celesc G promoted the revision and consolidation of the Basic Project, and this new configuration foresees an installed capacity of 1 MW, using the existing powerhouse, listed as a historical heritage since 2005.
In 2020, Celesc G continued the negotiations with IMA/SC aiming to issue the Environmental Installation License (EIL), which was approved by IMA/SC in the third quarter of the year, but without legal publication, a necessary formalization to conduct the next stages.
With the LAI publication by IMA, the business plan will be elaborated, aiming at the approval for contracting the works. g) EDP Transmissão Aliança SC S.A.
EDP Transmissão Aliança SC, a company formed by EDP - Energias do Brasil, with 90.00% interest, and by Celesc G, with 10.00% interest, won the bidding for lot 21 of Auction 05/2016 of ANEEL, referring to the Bidding for the Concession of Public Service of Electric Energy Transmission, including the Construction, Operation and Maintenance of the Transmission Facilities of the National Interconnected System, which was held at B3, by offering a discount of 34.99%, or a proposal of annual revenue allowed (RAP) of R$171.824 million, against the maximum value of R$264.343 million established by ANEEL. The conditions obtained in the auction result in a 12% real shareholder return, above the target established in the Company's Master Plan (10%).
Lot 21 was the third largest project offered in the auction and demands investments of around R$1.2 billion.
Origin Destination Circuit* Extension (KM) Voltage (Kv) Abdon Batista SE Campos Novos SE SC 39.8 525 Siderópolis 2 SE Abdon Batista SE DC 209.0 525 TRANSMISSION LINES SE Biguaçu Siderópolis 2 SE SC 150.5 525 Siderópolis 2 SE Siderópolis SE DC 6.0 230 Siderópolis 2 SE Forquilhinha SE SC 27.8 230 Total CS/DC 433.1 525/230
SUBSTATION SE 525/230 SIDERÓPOLIS 2 - - 525/230 * SC: Simple Circuit / DC: Double Circuit
The facilities aim to expand the system of the South and plateau region of the State of Santa Catarina and will also enable Celesc to connect its distribution system to the new structure in order to bring direct benefits to critical regions in the state's energy system.
Notwithstanding, the implementation of reinforcements and improvements in transmission facilities is mandatory to concessionaires of transmission services and is provided for in the Concession Agreement No. 39/2017 signed by EDP Transmission Aliança SC S.A. and ANEEL.
In this sense, on January 10, 2019, ANEEL sent to EDP Transmissão Aliança SC S.A. the Official Letter 011/2019, informing that it is part of the Electric Energy Transmission Grant Plan 2018 - POTEE 2018, issued by the Ministry of Mines and Energy - MME, the installation of the third autotransformer 525/230 kV, 3 X 224 MVA single-phase in SE Siderópolis 2, with a requirement date in December 2022, whose implementation is the responsibility of EDP Transmissão Aliança SC S. A. Through Technical Note 501/2019, ANEEL authorized the implementation of the reinforcement still in 2019. Therefore, the SPC decided to expand the scope of the current agreement to build SE Siderópolis (original project), immediately starting the implementation of the reinforcement together with the SE, minimizing environmental and land impacts and mitigating the risks of the work carried out.
The investment of this third autotransformer, estimated by ANEEL, is R$42 million and establishes an additional Allowed Annual Revenue (AAR) of R$5 million.
Regarding the effects of the COVID-19 pandemic on the project, the activities related to the manufacture of equipment could be maintained, according to the state decree in force. However, as the project covers around 30 municipalities in Santa Catarina and a large number of workers, civil construction works were suspended until the beginning of June 2020, when they were gradually resumed. The Company evaluates that the regulatory schedule has not been affected, and the deadline for commercial operation of the entire project is August 2022.
h) Adjustment of Annual Generation Revenue - 2020 AGR
ANEEL, by means of an Approval Resolution No. 2,746 from July 28, 2020, ANEEL has ratified the readjustment of the Annual Generation Revenue (AGR) for hydroelectric Plants under quotas, under the terms of Federal Law 12,783/2013. The new AGR readjustment term is effective from July 1, 2020 to June 30, 2021.
The AGRs established for Celesc G's Fixed Assets and which are to be charged on a monthly basis are:
Plants Annual Revenue Monthly Revenue (R$) (R$) 2020/2021 Cycle 2020/2021 Cycle Pery HPP 10,474,530.55 872,877.55 Garcia HPP 10,821,565.74 901,797.14 Bracinho HPP 13,725,718.15 1,143,809.85 Cedros HPP 9,808,376.89 817,364.74 Palmeiras HPP 21,243,017.34 1,770,251.44 Salto HPP 6,739,359.83 561,613.32 i) Dam Safety Plan (DSP) and Emergency Action Plan (EAP)
The DSP has the conditions, characteristics and operational rules for each dam. The EAP, on the other hand, provides strategies in emergency situations. In 2017, Celesc G concluded the DSPs and EAPs of the plants and forwarded them to the regulatory body and related entities.
In 2019, Celesc G continued the EAP and held a meeting with the Civil Defenses of Angelina (Garcia Plant), Blumenau (Salto Weissbach Plant), Rio dos Cedros (Cedros and Palmeiras Plants) and Schroeder (Bracinho Plant).
In the same year, Celesc G hired a company to prepare and issue a dam safety report to corroborate the finding that the dams are in normal operating conditions, with no significant anomalies that put them at risk.
The safety reports were prepared and completed by the specialized consulting firm in the second half of the year, with satisfactory results, and the recommended actions to adapt and maintain the structures will be taken during the year 2021, including hiring a company to install dam instrumentation and an executive project for civil adaptation to Eletrobras' current criteria.
Also in the company's action plan is the hiring of a consulting engineering company to prepare the RPS - Periodic Safety Review, where the PSB/PAE will be totally reviewed, with updated hydrological data, new dam break studies, computer simulation of the affected areas, and dissemination of the results to the civil defense agencies involved. According to ANEEL Resolution 695/2015, Celesc G has until the year 2022 to submit the reviews.
9. OPERATING PERFORMANCE
9.1. CELESC D
9.1.1. System Expansion
The high voltage electrical system under Celesc's responsibility has approximately 5 thousand kilometers of transmission lines of 138 thousand and 69 thousand Volts, with about 318 power transformers and a capacity of 7.8 thousand MVA for a maximum registered demand of 5,371 MVA. In 2020, extensions, improvements and completion of works in 12 substations (SEs) were performed and more accurate meters were installed in 143 substation feeder outputs, with 2 new substations completed, 5 substations with capacity expansion and improvements in 5 substations, 8 plots of land were acquired for the construction of substations and works are also planned in two more plots of land that already belong to Celesc. We also have 2 new ones under construction, 3 new ones being contracted, 17 expansions under construction, 1 expansion under contract.
Among the highlights of the year are the construction of new substations (SEs) in Araquari, in the north of the state (SE Araquari Corveta) and, in Palhoça, in the region of Greater Florianópolis (SE Palhoça Caminho Novo). Besides this, the Garopaba (SE Garopaba), Canoinhas (SE Canoinhas), Gaspar (SE Gaspar) and Joinville Vila Nova SEs were also expanded, all with an impact of about 30% in the increase of energy available to their respective areas of operation and, especially, in the greater reliability of the electrical system for better service to consumers. The construction of the SEs Chapecó Santo Antônio, in western Santa Catarina, and Itapema Meia Praia, on the coast, among other improvements, is still to come.
Besides investing in major expansion works in the system and ensuring the growth of the market, Celesc invests in the improvement of the operation process of this system, with the aim of making recomposition more agile in case of accidents or failures. For this,
resources have been destined especially in new technologies, such as the system's self-healing system, by means of the installation of reclosers, which are pieces of equipment that allow the division of circuits and load reallocation in case of unscheduled occurrences without the need for human intervention, reducing the network reenergizing time, which becomes real-time, and the number of affected consumer units, significantly increasing the reliability of the service. In 2020, more than 554 km of rural networks were replaced (single-phase to three-phase and protected cable), 105 structuring works on feeders were carried out, and more than 8,000 works were carried out to expand and improve distribution networks. A total of 684 new single-phase reclosers and 284 three-phase reclosers were installed for network automation. Also with a preventive focus, R$16.9 million were invested in actions for pruning and clearing vegetation near the power grid.
9.1.2. System Efficiency Indicators
9.1.2.1. DEC and FEC
The Interruption Equivalent Duration Index per Consuming Unit - DEC of Celesc D was 9.20 hours in the year 2020, which is equivalent to 84% of the limit established by ANEEL for the regulatory cycle (August 2016 - August 2021). In the year, the Index of Equivalent Frequency of Interruption per Consumer Unit - FEC was 6.69 interruptions, which represented 77.43% of the regulatory limit.
The following charts show the evolution of Celesc D's efficiency indicators in the last eight years: DEC and
FEC Evolution:
9.1.2.2. DECi and FECi
In relation to the DECi indicator (Equivalent Duration of Interruption per Consumption Unit caused by an occurrence in the internal system, that is, of the distributor itself), the performance, in the year, was 9.14 hours, equivalent to 19.11% below the limit established by ANEEL in the Concession Contract for 2020. The FECi (average number of interruptions per consumer unit caused by occurrences in the internal system) was 6.58 interruptions, 23.93% below the limit in the Concession Agreement for the year. The following chart shows the follow-up of the quality indicators until the end of 2020.
DECi and FECi Evolution:
9.1.3. Operational Efficiency Program
The Operational Efficiency Program, launched in 2013, has as its main objective to contribute to ensuring the Company's sustainability. In 2020, specialized consulting for restructuring and revision of the Master Plan, the Strategic Planning and the Operational Plan, in a manner aligned with good market practices, benchmarking and new strategic positioning, carried out the revision of the Company's existing projects in a manner aligned with the main challenges faced by Celesc.
9.1.4. Electricity Distribution
The total billed consumption of electric energy in the concession area reached 25,152 GWh in 2020, a decrease of 1.33% in the total energy distributed (captive + free market). The decrease was mainly driven by the performance of the commercial and industrial classes, with decreases of, respectively, 5.90% and 2.93% year-on-year.
The number of consumer units served by the Company was 3,133,425 in December 2020, representing an increase of 2.76% over December of the previous year. The continuous migration of consumers to the free market, added to the impacts of the pandemic throughout 2020, led to the registered consumption of 16,051 GWh in the captive market, an amount - 1.82% lower than that registered in 2019. The following table presents more detail:
Number of Consumer Units Billed Consumption (GWh) Consumption Class Change Change Dec 2020 Dec 2019 Change (%) 4Q20 4Q19 12M20 12M19 (%) (%) Captive Market 3,133,425 3,049,218 2.76 4,094 4,024 1.74 16,051 16,349 -1.82 Residential 2,468,904 2,399,381 2.90 1,551 1,439 7.78 6,293 6,020 4.53 Industrial 116,524 110,222 5.72 640 619 3.39 2,264 2,464 -8.12 Commercial 286,950 279,572 2.64 770 820 -6.10 3,031 3,323 -8.79 Rural 232,636 232,386 0.11 295 298 -1.01 1.160 1,174 -1.19 Other Classes 28,411 27,657 2.73 838 848 -1.18 3,303 3,368 -1.93 Government 23,735 23,272 1.99 81 116 -30.17 350 453 -22.74 Public Lighting 910 855 6.43 159 165 -3.64 637 656 -2.90 Public Service 3753 3,500 7.23 95 91 4.40 382 366 4.37 Supply 13 30 -56.67 503 476 5.67 1,934 1,893 2.17 Free Consumers 1,346 1,149 17.15 2,523 2,319 8.80 9,088 9.128 -0.44 Industrial 740 665 11.28 2,174 2,003 8.54 7,790 7,893 -1.30 Commercial 555 456 21.71 266 239 11.30 1,001 962 4.05 Rural 9 7 28.57 16 15 6.67 63 60 5.00 Public Service 4 0 - 0 0 - 0 0 - Supply 38 21 80.95 67 62 8.06 234 213 9.86 Total Market 3,135,189 3,050,769 2.77 6,616 6,343 4.30 25,152 25,491 -1.33 Residential 2,468,904 2,399,381 2.90 1,551 1,439 7.78 6,293 6,020 4.53 Industrial 117,264 110,887 5.75 2,814 2,622 7.32 10,054 10,357 -2.93 Commercial 287,505 280,028 2.67 1,036 1,059 -2.17 4,032 4,285 -5.90 Rural 232,645 232,393 0.11 310 313 -0.96 1,223 1,234 -0.89 Other Classes 28,449 27,678 2.79 905 910 -0.55 3,538 3.580 -1.17 Own Consumption 422 402 4.98 3 4 -25.00 12 15 -20.00
9.1.5. Losses in the Distribution
According to the last Celesc D Tariff Review (4CRT), the regulatory loss of distribution was estimated at 7.42% of the energy injected into the distribution system of the concessionaire. Of this total, 6.02% refers to the volume of technical losses and 1.40% of non-technical losses. In the accumulated of the last 12 months until December 2020, the global losses represented 8.06% (2,236 GWh) of the injected energy, of which 5.84% (1,620 GWh) refer to the technical losses defined by PRODIST - Module 7, revised at the beginning of each year, thus adjusting the 12-month moving average, and 2.22% (617 GWh) correspond to the non- technical losses, calculated by difference.
The following chart presents the evolution of distribution losses in Celesc D's concession area.
9.1.6. Energetic Balance in GWh
The following table shows the evolution of the energy required, distribution losses (technical and non-technical losses), losses in the basic grid and total losses in GWh in the last four years:
Energy Required - GWh 2017 2018 2019 2020 Electric Power Sale 15,603 15,778 16,348 16,050 Provision* 14,133 14,251 14,455 14,116 Supply to Distribution Agents 1,470 1,527 1,893 1,934 Free Consumers/ Dist./Gen. 8,182 8,659 9.127 9,089 Market Served 23,786 24,437 25,476 25,139 Losses in the Basic Grid 349 367 389 431 Losses in the Distribution 2,258 2,321 2,446 2,237 Technical Losses 1,598 1,638 1,804 1,620 Non-Technical Losses - NTL 660 683 642 617 NTL / Energy Required % 2.77% 2.79% 2.52% 2.45% Total Loss - TL 2,608 2,688 2,835 2,668 TL / Energy Required % 10.96% 11.00% 11.13% 10.61% Total 26,393 27,125 28,311 27,806 *Supply does not consider Own Consumption.
9.1.7. Electricity Market
In 2020, the load required in Celesc D's concession area was 0.87% lower than that recorded in 2019. In the same period, electricity consumption decreased by 1.33%. The total load served by the concessionaire includes the portions referring to the captive and free market load, self-producers and independent producers connected to the concessionaire's grid, in addition to losses in the electric system.
The following table shows the performance of the load in Celesc D's concession area, compared with the South region and the country.
Change Description 2020 2019 (%) Brasil Charge (GWh)* 586,595 594,366 -1.29 South Charge (GWh) 102,442 102,267 0.17 Celesc D Charge (GWh)** 27,747 27,991 -0.87 * Referring to the National Interconnected System - SIN ** Injected Energy in the Concessionaire's Distribution System
9.1.8. Customer Service
Considering the global crisis generated by COVID-19, Celesc D has worked tirelessly to minimize the impacts on the consumer market, by means of actions capable of assuring, with absolute priority, access to the distributor's services in the first level service channels. In parallel to this issue, the main actions in the attendance scope were directed to the optimization of the digital channels, through the implementation of strategies to migrate customers from in-person attendance to remote attendance channels, thus minimizing the risks of exposure and contamination.
To this end, several improvement actions were implemented, comprising especially the review and adaptation to the new reality of customer service processes, always seeking to offer a better experience with the digital environment, through processes that, in addition to adhering to regulations, allow for friendlier and more attractive interactions with the consumer market.
As of April, 2020, by means of customizations made to the commercial system, we have increased the number of services made available in our Web Agency, with highlight to the relaxation of the requirements for debt installment payment for consumer units and the automated record of the reading made by the consumer, in addition to the services already available. Currently, the Agência Web is the preferred channel for customer service, with an average of 3,000,000 interactions/month.
Aiming to further increase the digital channels, in June 2020 we implemented a pilot project, connected to the telephony platform, in order to encourage the use of electronic service by consumers who call Celesc's call center. Through this tool, the consumer can choose to be automatically directed to the WEB Agency, thus allowing the electronic registration of services.
Likewise, there was an increase in the number of call center attendants, at the secondary site located in POÁ/SP, in the order of 82%, providing more support by telephone to the population. There has also been an increase in the working hours allocated to this modality by the own team, which consists of 111 attendants. These two simultaneous initiatives allowed 2,360,718 calls to be answered through this channel.
Also, all of the initiatives adopted regarding the improvement and expansion of email services allowed for a significant increase in the number of services provided, from 103,851 emails in 2019 to 467,580 in 2020.
Always focused on ensuring the quality of the services provided, in 2020 licenses were acquired for the implementation, still in the first quarter of 2021, of customer service via WhatsApp.
Finally, in 2020 a bidding process was held to increase the number of self-service totems to be installed in the on-site customer service units, with a forecast for the acquisition of 60 self-service totems and 25 totems including video service, in addition to self- service.
9.1.9. Delinquency Management
The Delinquency corresponds to the amount of revenue billed but not received. ANEEL, through sub-module 2.2 of PRORET – Operating Costs and Regulatory Delinquency establishes the concepts related to Regulatory Delinquency, an amount with tariff coverage, which considers the sum of billings not received between 49 and 60 months.
The regulatory percentage of unrecoverable revenues for each company is calculated from the moving median of a set of companies, formed by the ten concessionaires situated above and below a ranking of complexity of non-technical losses.
The fight against delinquency in 2020 was a great challenge to all energy distributors, due to the circulation restrictions imposed by the government as a measure to fight the pandemic, the loss of income by a large part of the population, as well as the impossibility of suspending the supply to defaulter consumers, determined by Resolution 878/2020 by ANEEL.
The delinquency reached its highest levels in June and July, however, by the end of the year it already showed a tendency to reduce, returning to lower levels.
In December 2020, short-term delinquency, up to 90 days (the period in which most collection actions are concentrated), had an increase of approximately 11.56% compared to the same period of the previous year. The total amount of delinquency also showed an increase, 12.75%). The following table shows the evolution of Celesc D's delinquency:
Delinquency up to 90 Total Delinquency Delinquency by days Consumption Class Change Change Dec/202 Dec/201 (%) Dec/20 Dec/201 (%) 0 9 20 9 Residential 134,185 119,029 12.73 250,706 205,186 22.18 Industrial 30,793 31,613 -2.59 205,551 197,790 3.92 Commercial 42.125 40,508 3.99 156,972 136,624 14.89 Rural 12,208 11,182 9.18 21,682 18,912 14.65 Government 512 582 -12.03 6,080 6,211 -2.11 Public Lighting 1,667 4 41575.00 18,058 16,400 10.11 Public Service 277 260 6.54 1,640 1,615 1.52 Supply 2,314 - 0 3,628 1,312 176.51 Enc. Electric Network 4,525 4,204 7.64 14,647 20,387 -28.16 Use Other Credits 14,792 10,791 37.08 38,331 31,743 20.75 Total 243,397 218,173 11.56 717,294 636,179 12.75
9.1.10. Consumers Connection
The net balance (opening and closing) of UC connections was 84,400 in the year, totaling 3,134,716 consumers served by Celesc D, excluding supply and own consumption, a number 2.77% higher than in 2019.
The following table shows the evolution of the number of consumer units in the last four years:
Consumers* 2017 2018 2019 2020 Residential 2,271,604 2,335,964 2,399,381 2,468,904 Industrial 103,592 106,825 110,887 117,264 Commercial 263,044 271,240 280,028 287,505 Rural 234,545 234,759 232,393 232,645 Government 22,791 23,104 23,272 23,735 Public Lighting 750 788 855 910 Public Service 3,227 3,411 3,500 3,753 Total 2,899,553 2,976,091 3,050,316 3,134,716 Change 2.40% 2.64% 2.49% 2.77% *Own Consumption not considered.
9.1.11. Revenue
The revenue from the electricity supply to captive consumers in the year, net of ICMS, amounted to R$6.9 billion, as shown in the following table:
Consumption Class 2020 2019 Change (%) Residential 3,236,402 3,273,366 -1 Industrial 1,110,461 1,257,340 -12 Commercial 1,550,185 1,777,985 -13 Rural 481,266 464,207 4 Others 530,038 612,635 -13 Captive Total 6,908,351 7,385,534 -6
The following chart illustrates the participation of the captive consumer classes in relation to the net revenue from ICMS:
Others; 8%
Rural; 6% Residential; 44%
Commercial; 24%
Industrial; 17%
9.1.12. Market Performance in GWh in the Concession Area
The following table presents the growth of billed energy in GWh in the last four years:
Market Served – GWh 2017 2018 2019 2020 Billed Energy 15,603 15,778 16,349 16,050 Provision* 14,133 14,251 14,455 14,116 Residential 5,528 5,664 6,020 6,293 Industrial 2,588 2,539 2,464 2,264 Commercial 3,209 3,191 3,323 3,031 Rural 1,387 1,407 1,174 1.160 Government 436 442 453 350 Public Lighting 635 649 656 637 Public Service 350 359 366 381 Supply to Distribution Agents 1,470 1,527 1,893 1,934 Distribution Network Use 8,182 8,659 9.127 9,089 Free Consumers/ Dist./Gen. 8,182 8,659 9.127 9,089 Total 23,785 24,437 25,476 25,139 Change 3.95% 2.74% 4.25% -1.32% *Own Consumption not considered.
The following chart presents the energy billed by consumption class in GWh in 2020.
9.1.13. Celesc D in Figures
Change Service 2020 2019 (%) Number of consumers 3,134,767 3,050,367 2.77 Number of Employees 3,344 3,404 -1.76 Number of consumers per employee 937 896 4.58 Number of locations served 285 287 -0.70 Number of branches 16 16 0.00 Number of service stations 258 258 0.00 Change Market 2020 2019 (%) Concession area (Km²) 82,747.68 82,747.68 0.00 Highest Demand (MWh/h) 5,320.39 5,371.26 -0.95 Direct Distribution (GWh) 25,304.07 25,498.07 -0.76 Average residential consumption (KWh/year) 2,548.75 2508.95 1.59 Change Average supply tariffs (R$ per MWh) 2020 2019 (%) Residential 616.82 663.27 -7.00 Industrial 634.72 678.69 -6.48 Commercial 666.36 714.03 -6.68 Rural 597.24 481.07 24.15 Government 650.79 674.87 -3.57 Others 466.44 473.45 -1.48 Change DEC and FEC Indicators 2020 2019 (%) DEC (hours) 9.2 10.86 -15.29 FEC (number of interruptions) 6.69 7.52 -11.04 Number of complaints per 10,000 consumers 5,551.26 4742.14 17.06 Change Operating Information 2020 2019 (%) Number of substations 175 170 2.94 Distribution Lines (Km) 4,785.29 4,709.63 1.61
9.2. CELESC G
Hydrological Scenario
In 2020, Celesc G closed the indicator of Availability of its Generating Site in a positive way, highlighting the reduction of maintenance stoppages in 2.15% of the Generating Site and the increase of stoppages to make investments in 0.99% of the Generating Site.
In the sum of the unavailability indicators for maintenance, investment, and of the distributor (energy output to the interconnected system), Celesc G closed the year 2020 with an increase in the availability of its power of 0.94%, enabling greater energy production. However, despite allowing for higher energy production, the generation result for the year was lower than 2019 because of the water restriction, resulting in its generators being shut down due to lack of water (41.16% on average).
2019 Change Operating Performance 2020 (%)
Unavailability -Maintenance: 7.21% 9.36% 22.97 Unavailability - Investment: 5.01% 4.02% 124.63 Unavailability - Distributor: 0.49% 0.27% 181.48 Unavailability - Hydric: 41.16% 25.82% 159.41
We also highlight that the results of the indicators are average values that were weighted by the total Power of the Generating Site and that the hydroelectric restriction or unavailability due to momentary maintenance in a certain plant does not necessarily apply to the entire Generating Site at that moment.
The overall capacity factor in 2020 represented a change of 36.98% below that of 2019.
Electric Power Production of Generating Site
4th Quarter YTD 12 months Operating Performance (GWh) Change Change 2019 2020 (%) 2019 2020 (%) Plants 104.63 94.41 -9.77 458.46 324.40 -29.24 Palmeiras HPP 26.84 21.86 -18.57 125.12 80.47 -35.68 Bracinho HPP 14.30 12.23 -14.50 64.91 43.53 -32.94 Garcia HPP 10.88 12.81 17.78 38.94 52.11 33.81 Cedros HPP 4.17 9.02 116.20 27.82 22.22 -20.12 Salto Weissbach HPP 8.09 8.50 5.02 14.85 28.56 92.35 Pery HPP 23.36 19.01 -18.63 97.44 63.16 -35.18 Celso Ramos SHP 4.80 4.50 -6.18 25.43 26.28 3.36 Caveiras HGP 5.69 4.34 -23.81 23.22 13.53 -41.75 Ivo Silveira HGP 4.30 0.33 -92.25 19.18 1.37 -92.87 Piraí HGP 0.78 1.00 27.97 3.12 3.05 -2.10 Rio do Peixe HGP 0.94 0.46 -51.24 3.70 2.15 -41.80 São Lourenço HGP 0.50 0.36 -27.37 1.57 1.12 -28.63 Global Capability Factor 52.30% 40.07% -23.38 54.90% 34.60% -36.98
9.2.2. Energy trading
In 2020, Celesc G recorded global sales of R$160.0 million, an amount 2.93% higher than in 2019, which recorded R$155.5 million in sales. Despite the pandemic, there were no delinquency cases.
In 2020, R$20.5 million was invested in the marketing of power energy purchased from third parties, a reduction of 6.03% compared to 2019. This reduction can be attributed to the lower average value of MWh purchased in 2020, which was 1.82% lower in 2020, in addition to a 4.29% reduction in the volume purchased.
Total Revenue and Power Energy Purchase Expenses in 2020 and 2019 performed as follows:
Sales and Purchasing Expenses (R$/thousand)
R$155,536 R$160,094 R$21,900.83 2020 R$20,580.28 2019
SALES PURCHA SES
The surplus of power energy, sold on the short term market through sales contracts with a term of less than six months, resulted in R$9.7 million in 2020 versus R$9.8 million in 2019.
The result in the CCEE Short-Term Market was R$23.7 million versus R$19.7 million in 2019, including the amount of R$7.1 million related to the court order granted to Celesc G regarding the GSF, in addition to R$9.3 million related to interest and monetary updates, arising from the combination of default and IGPM increase, the rate used for correction in the CCEE.
Billing per class in 2020 and 2019 showed the following performance:
Revenues per class (R$/million)
4 105,36
3 101,07 2020
2019 9
8,35
22,12 0 2
7,47
19,69 3 9
27,78
9 23,75 Industrial Commerc ial Supply CCE E
The electricity traded in 2020 reached the amount of 670,549 MWh, lower by -3.16% when compared to the amount of 692,396 MWh traded in 2019.
In 2020, the total amount of energy purchased came to 159,160 MWh, lower than the amount purchased in 2019, which was 166,297 MWh.
Energy Supplied (MWh)
692,396 800,000 670,549 600,000 400,000 166,297 -4.76% 2020 200,000 159,160 2019 0 -3.16% -200,000 SALES PURCHAS ES
The average annual PLD (R$184.42/MWh) had a significant reduction in 2020 in relation to the previous year (R$225.65/MWh). Even with the low hydrological conditions, the load reduction in the Integrated System caused by the pandemic brought down the price of energy in the short term market during some months. With the gradual return of economic activity, and inflows below their historical average, the PLD has risen again, but not enough to match the 2019 average.
Difference
Settlemen
327
444
50 3
267
89
186
28 9
175
31 7
227
150 2019
274
115
101
237
234
85
192 72 220
2020
40180
135 79
9.2.3. Environmental
Initiatives
CELESC G a) Solid Waste Management
In the year, Celesc G sent 15.86 tons of waste, including used lubricating oils, batteries, used lamps, metal and iron fragments, and solids contaminated with mineral oils and other chemical products, to appropriate final destination.
The appropriate final destination was accomplished through recycling processes, landfill disposal, and re-refining. Celesc G has also already eliminated mineral insulating oils with PCB (Polychlorinated Biphenyls - PCB) content higher than 50 parts per million/ppm in the transformers associated to the substations of the power plants. b) Maintenance of the Bracinho Ecological Station
This preservation unit was established by State Decree 22,768/1984, which authorized the creation by Celesc G of this Ecological Station, consisting of the accumulation basin of the Bracinho and Piraí power plants, in the municipalities of Schroeder and Joinville. It includes an area of 4,780 hectares, preserving an important portion of the Atlantic Rainforest in the Serra do Mar. Over the 35 years of preservation of this area, by 2019 emissions equivalent to 994,061.19 tCO2 and the permanent removal of 198,893.00 tCO2 and a social cost of carbon estimated at R$76,225,146.81 were avoided. The topography in this region is quite irregular, with elevations between 100 and 900 meters. These areas are included in the Atlantic Forest Biome, in the core zone of the Atlantic Forest Biosphere Reserve, defined as a priority for biodiversity conservation in the Extremely High category.
In November 2019, Celesc G and IMA/SC signed a Protocol of Intentions aimed at creating the Bracinho Conservation Unit, covering the municipalities of Schroeder and Joinville, and subsequently the technical team from both institutions was established by IMA Regulation 028/2020, which is coordinating and monitoring the processes required to make the UC effective. UC. Currently, it is in an advanced stage of land regularization, since the land characterization is essential to guide the environmental agency in defining the category of the unit, as well as defining the appropriate management of the area, according to the priority uses. c) Water Use Granting
According to Federal Law 9.433, of January 8, 1997, which established the National Water Resources Policy - PNRH, hydroelectric exploitation is subject to granting by the government, which ensures the effective exercise of rights of access to water. Currently, Celesc G holds the water use permits for all 12 hydroelectric plants, in addition to the preventive permits linked to the Salto Weissbach Plant expansion projects (SDS Order 301/2017) and the reactivation of the Maruim Plant (SDS Order 273/2019). d) Brazilian Institute of Environment and Renewable Natural Resources -IBAMA
Celesc G is in compliance with the obligations of registering and providing environmental information about the activities developed under the control and supervision of IBAMA through the Federal Technical Registry of Potentially Polluting Activities and Users of Environmental Resources. In addition, it also holds with IBAMA the License for the Holding and Use of Chainsaws in the Bracinho, Pery, and Celso Ramos Plants, and in the Centers and Plants. e) Environmental Plan for Conservation and Use of the Surroundings of the Reservoir
As part of the process of renewing the environmental operating licenses for the Garcia, Salto Weissbach, Cedros and Palmeiras Plants, Celesc G finalized in 2018 a proposal for the regulation and zoning of the reservoirs associated with these plants and in 2019, of the São Lourenço Plant. These proposals were consolidated into environmental plans for the conservation and use of the surroundings of these reservoirs and were forwarded to the IMA/SC for knowledge and manifestation. The services included the stages of enterprise characterization, environmental diagnosis, and zoning of the reservoirs. To attend to the multiple uses of these reservoirs, the zoning stage also included meetings with local municipalities, basin committees, and riverside communities. These proposals are still under analysis by IMA/SC. f) Land Management
In 2020, several activities were carried out to meet the landholding regularization project, among them: meeting the requirements of the notary offices for rectifying the areas, fiscal regularization of the properties with the Brazilian Federal Revenue Service (RFB) and the National Institute for Colonization and Agrarian Reform (INCRA), evaluation of the properties, registration of the plant's landmarks, field measurements and geometric leveling, land inspections, and certification of the properties with INCRA.
Administrative rectification of the land limits of the Celso Ramos, Rio do Peixe, Ivo Silveira, Pery, and São Lourenço plants was also performed. g) Sanitary Effluent Treatment System Readequation
Giving continuity to the readjustments started in the previous year, Celesc G carried out the last installation of the new sanitary effluent treatment systems in 2020, being implemented in the Power House I of the Pery Plant. This readjustment process aims to adjust the enterprises to the technical standards in effect. h) Forest Replacement as part of the Celso Ramos Power Plant expansion works
In July 2020, the Company planted 514 seedlings of native species in areas associated with the expansion work at the Celso Ramos mill, and also proceeded with the registration of a 9,640 m2 environmental compensation area covered with native vegetation.
9.3. INNOVATION
On the path of change brought about by digital transformation, Celesc accelerated the implementation of innovative and technological processes by launching, in November 2020, the Celesc Innovation Program (PRICE). The Program was created to strengthen the company's culture of innovation and, at the launch, in a virtual environment, Celesc's employees participated in debates and lectures with guests from all over the country to exchange knowledge about technologies applied to the energy sector, idea management, leadership in the digital age, and innovation. The proposal is to develop a strategic culture with more efficient processes in electric energy and innovative management of resources, mediated by new technologies and creativity. Currently composed of four professionals from the Company, the Innovation Management Committee works in partnership with IEL/SC (Instituto Euvaldo Lodi Santa Catarina), in order to carry out the diagnosis, planning, and training of teams for the development of more innovative processes, simultaneously with the hiring of a project and idea management platform, and the creation of a collaborative environment that stimulates the employees' creativity and interaction with new technologies.
10. INVESTMENTS
10.1. CELESC D
Of the total of R$629.8 million invested in 2020, the largest volume was for expansion and improvement of the system, operational efficiency and modernization of the management of Celesc D. Of this total, R$521.7 million were own resources (of which R$470.2 million in materials and services, and R$51.5 million in own labor) and R$108.1 million were third-party resources, from Consumer Financial Participation in Celesc D's works rules of Consumer Financial Participation are established in ANEEL Normative Resolution 414 from September 9, 2010.
10.2. CELESC G
In 2020, Celesc G's investments totaled R$41.4 million and were allocated to the expansion, improvement and automation of the plants that comprise the company's own generation park and to the contribution of resources in the companies in which Celesc G has an equity interest. The investments in the site have the objective of expanding the generation capacity, modernizing the plants, reducing the operational costs, giving more reliability to the system's operation, and more security to the physical installations. Together with the SPEs, the investments enable the plan to expand the generation site and diversify the business portfolio.
Description 2020 2019 Consolidated Investments R$/thousand Change (%) R$/thous Change (%) AH and Electricity Distribution 629,777 93.83 588.576 98.1 7.00% Own Resources 521,699 - 511,899 - - Consumer Financial Participation 108,078 - 76,677 - -
Electricity Generation 41,421 6.17 11,396 1,9 263.47% Equity Interests 10,363 - 1.476 - - Own Generating Site 31,058 - 9,920 - - Total 671,198 100 599,972 100 11.87%
10.2.1. Expansion Projects of the Own Sites Plants
Expansion of the Celso Ramos SHP
The Celso Ramos SHP, located in Faxinal dos Guedes/SC, has 5.62 MW of installed capacity. The expansion project foresees a new adductor circuit in parallel to the existing one, containing an adduction channel, water intake, penstock, and a new powerhouse, with two generating units of 4.15MW each, totaling an additional 8.3MW in the plant, increasing its installed capacity to 13.92MW.
The PCH Celso Ramos Expansion Project had the service order issued on July 15, 2019. The investments are R$40 million, and by the end of 2020 the physical completion was 84%, with Celesc G accounting for R$27 million.
In December 2020, the Company finished the third issue of debentures, in the amount of R$37 million, with final maturity in ten years. The issue, unsecured and guaranteed by the holding company Celesc, was made in a single series. The resources from the infrastructure debentures will be used to finance the expansion project of PCH Celso Ramos, scheduled for completion in March 2021.
Expansion of the Caveiras Plant
The Caveiras Plant, located in the municipality of Lages/SC, has 3.829 MW of installed capacity. In order to expand its installed capacity, in 2019, Celesc G contracted the services to conduct the Hydroelectric Inventory Studies for the Caveiras River, which was forwarded in July 2020 to ANEEL, and was approved on September 28, 2020. The study amounted to an investment of R$203,000.
For 2021, the Company plans to contract the consolidation of the basic project, aiming to deliver it to the Regulatory Agency by February 2022.
Automation of Cedros Plant
In continuity with the automation process of the plants, which began in 2014 with the automation of the Salto Plant and in 2016 with the entry into operation of the Generation Operation Center - COG, the Cedros Plant and its dams went through the automation and retrofit process, completed in 2020. The total project was R$3.3 million, with R$326,000 realized in 2020.
Automation of Palmeiras Plant
The Palmeiras Plant is the second largest of Celesc G. In 2020, the Company contracted the automation and retrofit project, having signed the service order in December, which should be concluded in 2021 with an investment of around R$4.7 million.
Generation Operation Center Software Unification
Celesc G concluded in 2020 the implementation of a new supervisory system to manage the generation site from the Generation Operation Center (COG).
The implementation of this new tool for the COG is aligned with the recent investments in Celesc G's plants, which are being modernized and undergoing a process of automation of their installations.
The new system will be responsible for integrating and unifying the current supervisory systems, allowing the standardization of screens, commands, events, and alarms for the plant's equipment and assets. It is worth noting that the COG is responsible for the operation of turbines and generators, in addition to valves and water reservoir gates.
With this system, it will also be possible to access, via mobile devices, specific screens with real-time information on the main generation indicators and the status of the generation site.
The amount invested was around R$700 thousand.
Refurbishment at the Salto Weissbach Plant
Started in 2019, the refurbishment project for Generating Unit #2 at the Salto Plant was completed in 2020, with an investment of around R$1.4 million. With this maintenance investment, the century-old mill returned to full production this year.
Other Improvements in the Own Site
Among the improvement works, the highlight is the beginning of the maintenance of the Generator Unit nº 2 of the Pery Plant, with an estimated investment of R$240 thousand and disbursement in 2020 of R$138 thousand, besides the supply of power cables for the Generator Unit 1 of the Bracinho Plant, worth R$100 thousand.
Also, in 2020, after suspending the bidding process due to the COVID-19 pandemic, Celesc G contracted the replacement of the grid cleaner at the Pery Plant in the amount of R$265,000, with its conclusion expected in 2021, with disbursement to occur next year. Also in 2020, a contract was initiated for the replacement of the grid cleaners at the Salto Weissbach, Palmeiras, and Bracinho plants, which will be carried out in 2021 with estimated investments of around R$840,000.
10.2.2. New Business and Partnerships
The investments in SPEs totaled R$10.4 million in 2020, with R$10.0 million invested in EDP Transmissão Aliança to continue the works and R$0.4 million in Garça Branca Energética S.A., to supply cash and finish payments of the works period.
Although it temporarily suspended the works in 2020 due to the COVID-19 pandemic and municipal decrees regarding the municipalities where the project is being implemented, EDP Transmissão Aliança SC was able to maintain the progress of some work fronts. The project is scheduled to start commercial operation in August 2022, and there are still prospects of anticipation.
Also in relation to the EDP Transmissão Aliança SC venture, the reinforcement of the transmission system at the Siderópolis 2 substation, requested by ANEEL in 2019, will be executed in 2021 along with the implementation works of the project, in which Celesc G has a 10% share.
The following table shows the summary and evolution of the investments made in the year.
4th Quarter YTD 12 months Description Change Change 2019 2020 (%) 2019 2020 (%) Investments Celesc G (R$/million) 8.77 10.2 16.0 11.40 41.4 263.5 Investments in SPCs 0.39 0.07 -81.3 1.48 10.4 602.1 Own Generator Site Plants 8.38 10.10 20.5 9.92 31.1 213.1
11. ECONOMIC AND FINANCIAL PERFORMANCE
Celesc presented, in the year ending December 31, 2020, Net Income of R$518.7 million, representing an increase of 82.91% if compared to the year 2019, whose value was R$283.6 million.
The Gross Operating Revenue - ROB in fiscal year 2020 was R$13.6 billion, volume 5.79% higher than the R$12.9 billion realized in 2019.
The Net Operating Revenue - ROL presented a growth of 10.51% in relation to 2019, R$8.0 billion, closing the fiscal year 2020 at R$8.8 billion.
The following table shows the main economic and financial indicators for the year, compared to the previous year:
Consolidate
Dece d 31 Economic and Financial Data mber 31, December Change (R$/million) 2020 2019 Gross Operating Revenue - ROB or 13,629,201 12,883,003 5.79% GOR Net Operating Revenue - ROL or 8,858,700 8,015,909 10.51% NOR Income from Activities 681,635 497,123 37.12% EBITDA 922,559 724,819 27.28% EBITDA Margin (EBITDA/NOR) 10.41% 9.04% 1.37 p.p. Net Margin (LL/NOR) 5.86% 3.54% 2.32 p.p. Financial Results 43,080 (76,143) -156.58% Total Assets 10,654,427 9,498,257 12.17% Property and Equipment 201,427 174,796 15.24% Shareholders´ equity – SE 1,984,642 1,407,124 41.04% Profit for the year 518,685 283,575 82.91% The Company showed a significant positive variation in Net Profit, due to the gain in the result of the equity equivalence of its investees, mainly Celesc D, which totaled R$537.5 million, against R$311.6 million in the previous year, characterizing an increase of approximately 72.5% in this respect.
Another factor that contributed to the increase in the Parent Company's Net Income was the recognition of R$12.8 million in deferred Income and Social Contribution Taxes due to expected future taxable income, which were not previously being considered. The Company is enabling the transfer of revenue from agreements and donations from Celesc D for its activities.
In order to achieve the positive result for 2020, Celesc D highlights an increase in the Gross Operational Revenue, impacted mainly by the average tariff adjustment of 8.14% applied as of August 22, 2020 to its consumers, the constitution of financial assets (CVA) and the re-billing of R$31.3 million, of a specific customer, going from a free consumer to a partially free consumer. It is noteworthy that the financial updating of the refinancing in the amount of R$37.1 million was
accounted as financial income from interest and accruals on invoices. Another point that contributed to leverage the Company's Result was the reversion of the Estimated Loss for Credit of Doubtful Liquidation - PECLD.
The Financial Result in 2020 was positive R$43.1 million, this figure represents an improvement compared to the negative financial result in 2019 (R$76.1 million). This increase is mainly due to the recognition of financial revenue, interest and accruals on invoices, the monetary restatement of financial assets/liabilities, the significant reduction in interest and monetary restatement of debt charges and the finalization of the restatement of the CDE installment plan (in 2019) and the end of the SUMM001 installment plan.
In Celesc G, the positive variation in the result was mainly due to the increase in Energy Supply Revenue, which had an individual performance 15.7% higher than in 2019, representing an amount of R$4.8 million. Another factor that contributed significantly to the increase in Net Income was the improved Equity in Earnings of the investees, which increased from R$4.4 million in 2019 to R$10.0 million in 2020.
The variations of Net Income before Interest, Taxes, Financial Result and Depreciation/Amortization - EBITDA are detailed below.
Consolidated Dece Dece Ebitda Reconciliation mber 31, mber 31, (R$/million) 2020 2019 Net Income 518,685 283,575 Current and Deferred Income Tax (IRPJ) 206,030 137,405 and Social Contribution (CSLL) Financial Results (43,080) 76,143 Depreciation and amortization 240,924 227,696 EBITDA 922,559 724,819
EBITDA for 2020 was R$922.6 million, 27.28% higher than in 2019, which was R$724.8 million. The EBITDA margin increased from 9.04% in fiscal 2019 to 10.41% in 2020.
The Adjusted EBITDA, which excludes the net effect of the Impairment Test, reached R$921.2 million in 2020, 29.17% higher than in 2019. The Adjusted EBITDA margin was 10.40% in fiscal year 2020, of which 1.50 p.p. higher than in 2019.
See below some more Economic-Financial performance indexes:
Consolidated Index 2018 2019 2020 Overall Cash Flow 0.77 0.69 0.76 Current Liquidity 0.98 0.97 1.12 Return on Equity 9.06% 17.68% 30.58% Overall Debt 81.73% 85.19% 81.40%
12. STOCK PERFORMANCE
12.1. CAPITAL MARKET PERFORMANCE
The Company's updated, paid-in and subscribed Share Capital on December 31, 2020, is R$ 1,340,000,000.00, represented by 38,571,591 nominative shares, with no par value, of which 15,527,137 are common shares (40.26%), with voting rights and 23,044,454 preferred shares (59.74%), also nominative, without voting rights. Preferred shares have a priority in the receipt of a minimum 25% non-cumulative dividends.
The equity structure, in the number of shares of shareholders with more than 5% of any kind or class, is represented according to the table below: Shareholder Base as of December 31, 2020
Shareholder Common Shares Preferred Shares Total Number of % Quantity % Quantity % options State of Santa Catarina 7,791,010 50.18 191 0.00 7,791,201 20.20 EDP Energias do Brasil S.A. 5,140,868 33.11 6,390,720 27.73 11,531,588 29.90 Fundação Celesc de Seguridade Social - Celos 1,340,474 8.63 230,800 1.00 1,571,274 4.07 Geração LPar Fundo de Investimento 460,000 2.96 3,500,000 15.19 3,960,600 10.27 Centrais Elétricas Brasileiras - Eletrobras* 4,233 0.03 4,142,774 17.98 4,147,007 10.75 Alaska Poland FIA - 0.00 3,322,000 14.42 3,322,000 8.61 Others 789,952 5.09 5,457,969 23.68 6,247,921 16.20 Total 15,527,137 40.26 23,044,454 59.74 38,571,591 100,00
Foreign investors closed the fourth quarter of 2020, representing 0.59% of the Company's total Share Capital, with a total of 228,517 shares preferred shares. The investor participation per residence is shown in the following table:
Investors’ Share by Residence Number of Shares % Foreign Investors 228,517 0.59 Domestic Investors 38,343,074 99.41 Total 38,571,591 100,00
12.2. STOCK PERFORMANCE
The BOVESPA Index, after dropping up to 45.03%, closed the year with a positive performance of 2.92%. The Energy Sector Index (IEE) increased by 8.12% in the same period. Celesc's Preferred Shares (PN), meanwhile, presented a positive performance of 14.20%.
The table below presents the final quotations as of December 31, 2020 and the respective percentage changes in the Celesc's shares and the main market indicators.
Closing Change* Change* 31, Description 4th On 12 december 2020 QTR2020 months Celesc Preferred R$54.33 6.84% 14.20% Shares Celesc Common R$58.10 9.09% 21.13% Shares IBOVESPA 119,017 25.81% 2.92% IEE 82,846 20.82% 8.12% *
Percentage changes with adjustment to earnings
The Celesc's shares market value as of December 31, 2020, as shown in the table above, are the following: R$58.10 for each common share (CLSC3) and R$54.33 for each preferred share (CLSC4). The shares of the parent company, management and members of the Supervisory Board as of December 31, 2020 are represented in the table below:
Shareholder Common Shares Preferred Shares Total Number of % Quantity % Quantity % options Parent Company* 9,229,460 59.44 234,305 1.02 9,463,965 24.54 Other Shareholders 6,297,677 40.56 22,810,149 98.98 29,107,826 75.46 *Total 15,527,137 100,00 23,044,454 100,00 38,571,591 100,00 Government of the State of Santa Catarina, CELOS, CODESC and SCPAR.
12.3. INVESTOR RELATIONS
In 2020, Celesc's Investor Relations team maintained the positive agenda of presentations to the capital market by holding public and private meetings with shareholders, investors, market analysts, and the specialized press.
Meetings were held with analysts and representatives from some of the country's leading investment banks, in addition to two presentations to the Association of Capital Market Investment Analysts and Professionals - APIMEC, held in May and August via videoconference.
Celesc's IR website (www.celesc.com.br/ri) makes available for consultation all the documents filed with the regulatory bodies (CVM and B3), as well as other financial information, earnings releases, operating performance, dividend history, presentations made, corporate events calendar, material facts and notices to the market, in addition to the GRI standard sustainability reports, the Company's Balance Sheet, among other information.
13. SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
Celesc is part of a highly dynamic sector and its performance is marked by the Company’s commitment to quality, continuous improvement and the sustainability of all its operations, processes and the services it provides to society. The Company's permanent commitment to social and environmental responsibility is backed by its values and principles, as well as its corporate policies, social and environmental projects, energy efficiency and action plans.
Celesc’s Social and Environmental Responsibility Policy is based on seven guidelines, namely: Human Rights, Local Sustainability, Communication, Prevention, Integrity, Adequacy, and Evolution, which, incorporated into the Company's management, add value to its purpose of providing energy for the development and quality of life.
13.1. COMMITMENT TO THE ENVIRONMENT
The Company’s subsidiaries Celesc D and Celesc G remain committed to performing with continuous improvement, quality and sustainability of their projects, operations, processes and services provided to society.
All substations and distribution lines that have a voltage equal to or greater than 69kV undergo procedures for obtaining and maintaining (renewing) relevant environmental licenses, in strict compliance with current environmental legislation. Environmental studies are prepared for each new project in the planning phase, comprising an environmental diagnosis (for the physical, biotic and social environment) of the region where the line and substation are inserted, and possible impacts during the project, construction and operational phases are also identified, with respective plans and/or programs to mitigate negative impacts.
In 2020, all of the projects had their environmental plans and/or programs implemented and inspected, on site, by the Environmental Supervision team to guarantee compliance with the assumptions and indicators for each plan/program and with environmental conditions that may have been established in the licensing process.
Internally, Celesc D has also been gradually evolving its solid waste management, in compliance with the National Policy. We highlight that in 2020, 92% of the waste generated was sent to recycling processes. Other environmental highlights for the Company are the “Proteção de Aves na Rede” program and the partnership with the Regional University of Blumenau - FURB for the Bugio Project.
The “Proteção de Aves na Rede” Program aims to balance the distribution of electric networks with nest of the Furnarius rufus, popularly known as the joão-de-barro species. The program was implemented as a way to remove inactive nests that may cause risk to the energy distribution structures and installing spacers to make these places safer for both the birds and the local electrical system. In 2020, 912 joão-de-barro nests at risk were removed and 421 spacers were installed across Celesc D’s distribution networks. The action took place between June 15 to August 31, meeting the requirements of the Environmental Authorization (AuA 3296/2020) issued by IMA/SC.
The Bugio Project, by FURB, was elaborated identifying death occurrence by means of electrocution in the distribution network for the Bugio monkey species. The exact locations were identified, which enabled a number of measures to be taken to minimize the impacts on the populations of this species in the Blumenau region, including the cable insulation, displacement of part of the network where these animals were mostly concentrated and, in particular, the installation of bridges made of ropes, known as “fauna passages”.
In 2019, six fauna passages were installed, equipped with motion cameras and temperature sensors that automatically record, through photo or video, the passage of animals, in order to allow the monitoring of the project's effectiveness. Monitoring is being carried out with the support of FURB and the Military Environmental Police, in addition to the Blumenau Regional Prosecutor's Office.
Finally, as the Company is aware of global climate scenarios, and has its own Declaration on Climate Change (2015), it has been preparing an annual Inventory of Greenhouse Gases - GHG, which maps and quantifies the amount of carbon emissions generated from its activities, and the activities of its subsidiaries Celesc D and Celesc G, therefore enabling internal diagnosis in terms of sources and quantities, which may be used as a future tool for planning and establishing emission reduction and/or compensation goals. The GHG inventories follow the GHG Protocol methodology, which is audited by an external firm and available at the Public Emissions Registry portal. a) Management of Greenhouse Gas Emissions
In 2020, an inventory of greenhouse gas emissions was carried out for the year of 2019. Celesc's Greenhouse Gas emissions in 2019 totaled 141,249,486 tons of CO2 equivalent.
Celesc has been carrying out a complete GHG Emissions Inventories since 2012, considering the 3 scopes. And as of 2014, inventories began to be verified by verification bodies (Organismos de Verificação- OVV), which are duly accredited by the National Institute of Metrology, Quality and Technology (Inmetro), and has earned the Gold Seal of the GHG Protocol Program. Celesc’s complete inventory of emissions is available on the Public Emissions Registry.
In recognition of the advances built during this period, in 2020 Celesc achieved its score C level of awareness, which is a climate change assessment carried out by the Carbon Disclosure Project (CDP). This result arises from the gradual evolution that has been taking place in the reporting of climate change management, through a more in-depth, detailed and articulated approach with the Company’s other strategic and planning documents, thus demonstrating that Celesc has reached an assertive level of commitment to climatic risks and all adaptation and resilience actions for the electrical system are triggered under this perspective.
b) Hydrological Monitoring
The 16 telemetric stations of hydrological monitoring for compliance with ANA/ANEEL Joint Resolution 003, of August 10, 2010, normally operated during the year 2020. c) Environmental emergency assistances
In line with Celesc's Social and Environmental Responsibility Policy and aiming at the prevention and mitigation of environmental impacts, in 2020, Celesc signed a contract with a specialized firm to provide assistances for environmental emergencies. Thus, if accidents occur in which oil leaks from the network's electrical equipment, or during its the transportation of thee equipment, Celesc will be able to request immediate emergency assistance. This contract is important as a quick response in emergency situations, mitigating damages to the environment and reducing service costs, damage to third parties and image risks.
13.2. COMMITMENT TO SOCIETY
The Company's social commitment is also supported by its Energy Efficiency and Research and Development programs, action plans such as the Operational Efficiency Program and its Declaration on Climate Change, which establishes actions to promote sustainability throughout the entire productive chain. The promotion of the efficient use of electricity, the diversification of the energy matrix with renewable sources and the reduction of greenhouse gas emissions and polluting waste, for example, are among the commitments signed.
In the search for innovations to overcome technological and market challenges in the area of electricity, Celesc’s R&D Program has invested predominantly in its main focus: the distribution of electric energy. The good performance in the area is the result of a policy aimed at developing projects that seek to add value to corporate business, focusing on more operational efficiency, and leverage these projects within the chain of innovation of the Electric Sector.
In 2020, Celesc invested approximately R$14.7 million in R&D aiming at the continuity of projects in themes such as Electric Mobility, Robotics, Substation, Wind Generation, Market, Regulation, Environment, New Materials, among others. It is worth highlighting that, in 2020, we began to increase the amount of charging stations for electric vehicles, and our goal is to install up to 30 new charging stations on highways BR-101 (Southbound) and BR 282, between the cities of Lages and Chapecó.
In the Energy Efficiency Program, we carried out investments of R$20 million in programs aimed at reducing energy consumption by Celesc's consumer units. Street lighting projects were also carried out in the cities of Araquari, Caçador, Campos Novos, Correia Pinto, Fraiburgo, Itá, Itapiranga, Modelo, Pomerode, Rodeio and Santo Amaro da Imperatriz. We also began the execution of Celesc’s Cedups project, which is equipping energy efficiency laboratories in 6 Cedups units in the cities of Blumenau, Chapecó, Criciúma, Joinville, Lages and Tubarão. Through this project, professionals will be trained to work in the field of energy efficiency. The expectation is that, over the next ten years, more than 28,000 students who were trained in this field will be benefited, generating jobs and income for these families. In addition to these projects, we are also undertaking initiatives with philanthropic entities, such as hospitals and APAEs, higher education institutions, industrial, residential and low-income residential customers.
In the social field, we highlight the launching of the “Mulheres em Ação” project: The “Juntas na Mesma Energia” initiative, launched in March 2020, has the objective of putting into debate issues such as gender equality in companies and society, diversity, inclusion, etc., in line with the proposal defined in the Celesc + Energia Program, partially financed with resources from the IDB.
This program has developed strategies to minimize inequality in the sector. One of these strategies consists of internal work, based on a diagnosis carried out by a consultancy firm hired by the Company to carry out a Planning and Action Plan to create and increase awareness on the matter across the Company, aimed at building a more engaged and diverse staff, especially in technical areas, and be able to attract and retain diversity through a respectful and inclusive work environment. The company also created a committee to act on this matter.
The other front is an external initiative, complementary to the learning program, in which additional training is provided on themes related to the electricity sector, showing boys and girls the possibilities of working in the energy sector and channeling the investments made by the Company in its field of activity. Subsequently, we plan to offer technical training to young adults who show interest in our filed and, with this in mind, train more women to work in the sector since we are not able to do this directly with our own staff.
Because of these actions, Celesc was invited to participate in the Gender and Energy Panel of the 5th Energy Week in Latin America and the Caribbean, a virtual event that took place in 2020 and was promoted by the Inter-American Development Bank (IDB) and the Latin American Energy Organization (OLADE), aimed of joining the main players in the public and private energy sectors in Latin America and the Caribbean.
The apprenticeship program is today one of the Company’s main social inclusion actions. In partnership with the State Public Ministry, Celesc also maintains its Young Apprentice Program, which prioritizes vacancies for young residents of host institutions and foster homes. From 2006, when it started, until the last year, more than 1200 young people participated in the Program. In 2020, more than 160 young adults entered the Program for a 2-year cycle. In this cycle, job positions were also offered to young people coming from socio-educational institutions.
Celesc Voluntária is another corporate action that encourages employees’ volunteer work for actions such as revitalization of day care centers, schools, nursing homes, therapeutic communities, squares and sports courts; cleaning of rivers, beaches and parks; planting of trees, community gardens, painting and production of toys with tires among others.
In 2020, due to the pandemic, personal interactions were slightly harmed, however, we were able to adapt some of them. The highlight was the virtual action promoted by the Company in partnership with Green Card, a provider of food/meal voucher cards, in which virtual card donations were created for social assistance institutions selected by Celesc teams and units in different locations in the State. A total amount of R$8,412.00 (eight thousand four hundred and twelve reais) was collected for 12 social assistance institutions to purchase hygiene and food items to assist in their activities that were affected by the pandemic.
The Christmas Campaign was also adapted. In Florianópolis, Natal Solidário took place virtually and several employees were able to purchase gifts for children at foster homes in the municipality.
Celesc also participates voluntarily in the following programs: “Mão Certa”, an initiative by Childhood Brasil; Fighting Child Labor, developed by the Regional Labor Court of Santa Catarina; and the National Pact for the Eradication of Slave Labor. The Company is also a signatory, with the Ethos Institute, of the Business Pact for Integrity and Against Corruption, and the Global Compact, an initiative of the United Nations - UN. In addition, since 2006 it has been recognized by Abrinq as Child Friendly Company.
As a result of the 2nd Call Notice to Select Projects Eligible for Tax Incentives, 49 projects received funding from Celesc. The investment totaled more than R$3 million towards initiatives developed across all regions of the State, being R$2.4 million for 37 cultural projects and R$615 thousand for 12 sports projects.
R$1.2 million were also transferred to the Childhood and Adolescence Fund (FIA) and to the Elderly Fund (FEI), in the amount of R$618 thousand each. The amounts were transferred directly to the Funds, which are managed by the Social Development Secretary, with the participation of state councils that develop actions in the State to serve each of its target audiences.
13.3. COMMITMENT TO EMPLOYEES
Valuing People, Ethics and Security are among the corporate values of the Celesc Group. In this sense, several programs and projects are developed in the area of People Management to make the future Celesc better than what Celesc is today. Among the program, we highlight the commitment to the training and development of people, promoting the inclusion and valuing of diversity, prevention of accidents, occupational diseases and employee sickness, assistance for reeducation and vocational rehabilitation.
The “Celesc way of being” is the greatest representation of this commitment, since it gathers the essential competences expected from our employees which, associated with our performance management program, proposes to develop our workforce through ongoing monitoring efforts from their leaders.
The guidelines and decisions taken always aim to build a work environment in which people feel happy and committed to delivering results. The greatest tool for monitoring and seeking improvements is the Pulse Climate Survey, through which leaders receive recurring information on their teams in terms of their perception on career, work environment and also personal health.
Celesc understands its responsibility towards people's lives and knows how important it is to promote health, quality of life, a great work environment and safe behaviors at work and outside work. The Company also understands it is essential to trust people's attitudes and decisions, especially in the relationships existing between teams and their leaders.
The sharing of information in the Company is greatly favored by the existence of several internal communication channels. Through the Intranet - CELNET, every employee also has access to normative instructions and other relevant information regarding careers, benefits, Celesc guidelines, among others. The transformation of tacit knowledge into explicit is constantly improved, always aiming at the standardization of techniques and the extent of the disclosure of facts of interest to the internal public.
Employees' participation in the management of the Company is guaranteed by the Board of Directors and the Collegiate Executive Board, with representatives elected by direct vote. Likewise, the Management and Results Committees are created, which formulate and monitor the Performance Agreements of each department. Other highlights are the Working Groups - WGs, Commissions and Committees.
Celesc encourages and promotes healthy relationships between colleagues and managers. Respect for people is a priority and the commitment to be maintained with Ethics in relationships is documented in its Code of Ethical Conduct, Consequence Policy and Anti-Corruption Policy. In order to stimulate knowledge and adherence to these fundamentals, the Company promotes specific training.
A good working environment is also achieved by offering benefits to people. Special licenses, such as extension of maternity and paternity leave, granted for being a citizen company, and other advantages, such as childcare and nanny assistance, post- graduation assistance, food stamps, health and dental plans, go beyond what is established in the Consolidation of Labor Laws - CLT and are essential to cultivating a positive work environment.
Celesc D strives to values all the potential of its employees and honors all commitment to human development actions People support the organizational processes that add value to our consumers, thus being one of the guidelines of the Training and Development Policy to generate value to the population. This policy is managed and improved year by year by a highly trained internal team. The development solutions related to the business processes are prioritized by the management area of the Policy. In this way the training for the new electricians, which is the position with the highest number of employees at the Celesc D, are planned and carried out by internal instructors, that is, professionals who stand out in their activities and share their knowledge with those who are entering the field. Our way of doing things is our core competence and competitive advantage. In addition to so many other training courses, the Company offers training to improve its workforce, from operational activities, with updates on process executions, to the most strategic areas that need to develop critical skills for the organization.
In the past few years, Celesc relied on partners to develop all of the Company's leaders. More than 330 leaders received training on matters such as feedback, conflict resolution, situational leadership, communication and other trends. Through partnerships, the Team Development Plan was also implemented, offering employees opportunities to develop their communication and relationship skills to focus on results. The outcome was a success, with positive feedback from employees and leaders.
Celesc is also committed to work safety and, in 2020, we continued to take actions to reduce the number of work accidents, striving for a Zero Accidents rate. Despite all the difficulties brought about by the pandemic, we invested many hours of training, reinforcing internal and external awareness actions, giving people the chance to take on leading roles for safe behaviors, with special dedication towards preventive actions among all employees, especially outsourced workers.
Celesc believes in the importance of valuing people and promoting a meritocratic environment that recognizes individual efforts and helps to reinforce bold attitudes to promote changes, make decisions and innovate.
14. DIVIDEND DISTRIBUTION POLICY
The Company and its subsidiaries have a Dividend Distribution Policy, approved by the Board of Directors, which establishes the allocation of Net Income, improving the compensation parameters of its shareholders with maximum transparency, in line with the best management practices and relationship with investors.
15. CORPORATE GOVERNANCE
15.1. BOARD OF DIRECTORS
The Board of Directors is the first level of the administrative scale. The Board has the mission of caring for and valuing equity as well as maximizing the return on investments made.
It has eleven (11) members, with eight (8) are independent (classified according to the Level 2 Regulation) with a one-year mandate term, of which six (6) represent the controlling shareholder, three (3) represent minority shareholders, one (1) represents preferred shareholders and one (1) member is elected by employees.
As of December 31, 2020, the Board of Directors was comprised as follows:
Board of Directors
Representative Controlling Shareholder João Eduardo Noal Berbigier* Representative Controlling Shareholder Cleicio Poleto Martins Representative Controlling Shareholder Amir Antônio Martins de Oliveira Jr.* Representative Controlling Shareholder Luiz Alberton* Representative Controlling Shareholder Michele Silva Wangham* Representative Controlling Shareholder Vanessa Evangelista Rothermel Representative Minority Shareholders Henrique Manuel Marques Faria Lima Freire* Representative Minority Shareholders Luiz Otávio Assis Henriques* Representative Minority Shareholders João Manuel Brito Martins* Representative Preferred Shareholders Fabrício Santos Debortoli* Representative Employees Leandro Nunes da Silva
* Independent Board members.
15.2. STATUTORY AUDIT COMMITTEE – CAE
The Statutory Audit Committee (CAE) is a statutory advisory body directly linked to the Board of Directors of Celesc, which is permanent. Its main duties are to supervise the activities of the independent auditors and the areas of internal control, internal audit and preparation of the financial statements.
It has five (5) members, of which three (3) represent the controlling shareholder, one (1) represents preferred shareholders and one (1) represents minority common shareholders.
Statutory Audit Committee
Representative Controlling Shareholder Amir Antônio M. de Oliveira Júnior* Representative Controlling Shareholder Thiago Sá Fortes Regis* Representative Controlling Shareholder Ernesto Fernando Rodrigues Vicente* Representative Minority Shareholders Antônio Carlos Siegner Laporta* Representative Preferred Shareholders Octavio Rene Lebarbenchon Neto*
* Independent Board members.
The Fiscal Council's main functions are to analyze the financial statements and discuss these results with the independent auditors. It has five (5) members, of which three (3) represent the controlling shareholder, one (1) represents preferred shareholders and one (1) representative minority common shareholders. As of December 31, 2020, the Fiscal Council was comprised as follows:
15.3. FISCAL COUNCIL
The Fiscal Council's main functions are to analyze the financial statements and discuss these results with the independent auditors. It has five (5) members, of which three (3) represent the controlling shareholder, one (1) represents preferred shareholders and one (1) representative minority common shareholders. As of December 31, 2020, the Fiscal Council was comprised as follows:
Fiscal Council
Representative Controlling Shareholder Luis Felipe Ferreira Alternate: Abel Guilherme da Cunha
Representative Controlling Shareholder Márcio Ferreira Alternate: Lisandro José Fendrich
Representative Controlling Shareholder Ilana Luiza Ferreira Marujo
Representative Minority Shareholders Leandro Carron Rigamontte Alternate: João Antônio de Sousa Araújo Ribeiro da Costa
Representative Preferred Shareholders Paulo Caio Ferraz de Sampaio Alternate: João Gustavo Specialski
15.4. EXECUTIVE BOARD
The Company's Executive Board has eight (8) Executive Officers, appointed and approved by the Board of Directors. As of December 31, 2020, it comprised the following directories: Presidency; Financial and Investor Relations; Distribution; Commercial; Regulation and Energy Management; Corporate Management; Generation, Transmission and New Businesses; and Planning, Control and Compliance.
Executive Board Chief Executive Officer Cleicio Poleto Martins Director of Finance and Investor Relations Director Claudine Furtado Anchite of Generation, Transmission and New Businesses Pablo Cupani Carena Distribution Officer Sandro Ricardo Levandoski Commercial Officer Sandro Ricardo Levandoski Regulation and Energy Management Officer Fabio Valentim da Silva Corporate Management Officer Pablo Cupani Carena Planning, Control and Compliance Officer Marcos Penna
16. CONSOLIDATED BALANCE SHEET
17. INDEPENDENT AUDITORS
Pursuant to CVM Instruction 381, from January 14, 2003, Celesc informs that the Independent Auditor did not provide any type of service other than those strictly related to the external audit activity.
18. ACKNOWLEDGMENTS
We would like to thank the members of the Board of Directors and the Fiscal Council for their support in the debate and referral on the issues that were of most interest to the Company. Our acknowledgments to the dedication and commitment of our staff, to all those who, directly or indirectly, contributed to the fulfillment of Celesc's mission.
Florianópolis, March 12, 2021.
Management
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais) Parent Company Consolidated 2019 Assets Note 2020 2019 2020 Reclassified Note 4.2 Current 208,401 111,201 3,955,299 2,358,072 Cash and cash equivalents 8 50,421 28,451 1,166,205 566,181 Trade receivables 9 - - 1,918,725 1,421,771 Inventories 10 - 12,313 14,696 Taxes to be Recovered 11 25,888 10,905 591,837 68,579 Dividends and Interest on Shareholders’ Equity - 132,047 71,817 14,352 7,114 Financial Assets – (Concession Bonus) 13 - - 33,674 32,597 Subsidy Decree 7891/2013 - - - 47,032 53,236 Others 12 45 28 171,161 193,898 Non-Current 1,925,332 1,379,986 6,711,955 7,140,185 Long-Term Receivables 171,651 160,819 2,623,539 3,261,941 Marketable Securities 15 137,478 137,478 137,478 137,478 Trade receivables 9 - - 29,236 44,683 Deferred Taxes 17 12,827 - 884,423 1,004,094 Taxes to be Recovered 11 - - 109,904 1,092,845 Court Deposits 27 21,346 23,341 291,869 171,054 Indemnifiable Financial Assets - Concession 14 - - 612,637 525,964 Financial Assets (CVA and Concession Bonus) 13 - - 554,774 270,791 Future Advance Capital Increase - - - - 10,000 Others 12 - - 3,218 5,032 Investments 18 1,748,723 1,213,703 268,933 246,572 Property, Plant and Equipment 19 14 18 201,427 174,796 Intangible assets 20 4,944 5,446 3,618,056 3,456,876 Total do Assets - 2,133,733 1,491,187 10,667,254 9,498,257
The Accompanying Notes are an integral part of the Financial Statements
STATEMENTS OF FINANCIAL POSITION Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Company Consolidated 2019 2019 Liabilities Note 2020 Reclassified 2020 Reclassified Note 4.2 Note 4.2 Current 144,163 79,525 3,522,162 2,427,690 Trade accounts payable 21 72 1,028 1,224,547 996,725 Loans and Financing - National Currency 22 - - 860,552 377,317 Loans and Financing - Foreign Currency 22 - - 5,349 6,306 Debentures 23 - - 102,592 105,133 Social Security and Labor Obligations 24 879 632 211,656 212,148 Taxes to be Collected 25 18,795 9,855 370,858 209,296 Dividends and Interest on Shareholders’ Equity - Proposed 29 123,621 67,683 123,621 67,683 Regulatory Fees 26 - - 177,921 166,014 Actuarial Liabilities 28 - - 197,901 176,528 Financial Liabilities (CVA) 13 - - 142,491 25,142 Others - 796 327 104,674 85,398 Non-Current - 4,928 4,538 5,160,450 5,663,443 Loans and Financing - National Currency 22 - - 83,870 435,718 Loans and Financing - Foreign Currency 22 - - 705,173 468,290 Debentures 23 - - 203,916 268,812 Social Security and Labor Obligations 24 - - 60,264 48,186 Deferred Taxes 17 - - 24,469 19,596 Regulatory Fees 26 - - 183,078 189,425 Provision for Contingencies 27 4,928 4,538 492,793 506,230 Actuarial Liabilities 28 - - 2,319,432 2,661,948 PIS/COFINS to be Returned to Consumers 15 - - 1,087,455 1,065,238 Shareholders’ Equity 1,984,642 1,407,124 1,984,642 1,407,124 Share Capital 29 1,340,000 1,340,000 1,340,000 1,340,000 Capital Reserves - 316 316 316 316 Capital Reserve 29 1,911,470 1,521,681 1,911,470 1,521,681 Adjustments to Equity Valuation 29 (1,267,144) (1,454,873) (1,267,144) (1,454,873) Total Liabilities 2,133,733 1,491,187 10,667,254 9,498,257
The Accompanying Notes are an integral part of the Financial Statements
INCOME STATEMENT Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Consolidated Company Description Note 2020 2019 2020 2019 Net Operating Revenue – NOR 31 - - 8,858,700 8,015,909 Sales and Services Revenue - - - 7,390,246 7,651,060 Construction Revenue - CPC 47 - - - 592,475 541,905 Revenue from Financial Assets (Liabilities) (CVA) - - - 869,317 (181,623) Update on Indemnifiable Financial Assets - Concession - - - 6,662 4,567 Cost of Sales / Services Rendered 31 - - (7,654,978) (7,023,003) Cost of Goods Sold - - - (6,318,469) (5,735,756) Cost of Goods Sold - - - (12,622) (14,245) Cost of services Rendered - - - (731,412) (731,097) Construction Cost - CPC 47 - - - (592,475) (541,905) Gross Income - - - 1,203,722 992,906 Operating Expenses - 515,334 288,206 (522,087) (495,783) Sales 31 - - (147,010) (220,561) General and Administrative 31 (19,632) (23,348) (413,143) (390,648) Other Revenues / Expenses), Net 31 (2,525) (33) (18,517) 71,826 Equity Income 18 537,491 311,587 56,583 43,600 Operating Income before Financial Result - 515,334 288,206 681,635 497,123 Financial Result 31 (5,832) (4,631) 43,080 (76,143) Financial income - (5,751) (4,557) 231,087 232,190 Financial expenses - (81) (74) (188,007) (308,333) Result before Corporate Income Tax and Social Contribution - 509,502 283,575 724,715 420,980 Income Tax (IRPJ) and Social Contribution (CSLL) - 9,183 - (206,030) (137,405) Current - (3,644) - (178,486) (104,193) Deferred - 12,827 - (27,544) (33,212) Net Income (Loss) for the Year - 518,685 283,575 518,685 283,575 Earnings per share attributable to the Company’s shareholders during the Fiscal Year (in R$ per share) Basic Earnings per Share 29 Common Registered Shares - 12.6892 6.9374 Preferred Nominative Shares - 13.9581 7.6312 Diluted Earnings per Share 29 Common Registered Shares - 12.6892 6.9374 Preferred Nominative Shares - 13.9581 7.6312
The Accompanying Notes are an integral part of the Financial Statements
STATEMENTS OF COMPREHENSIVE INCOME Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Company Consolidated Description 2020 2019 2020 2019 Net Income for the Year 518,685 283,575 518,685 283,575 Other Comprehensive Income 188,293 (612,094) 188,293 (612,094) Remuneration of Defined Benefit Plans, Net of Taxes Comprehensive Income for the Year 706,978 (328,519) 706,978 (328,519)
The Accompanying Notes are an integral part of the Financial Statements
STATEMENTS OF CHANGES IN EQUITY Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Company / Adjustments Consolidated Adjustments Share Reserve Legal Reserve Disposal of Asset Asset Total Profit Retentio Dividends Evaluation Evaluation Accu Capit Capital Reser nDescription ASM Assigned Liabilitiemulated al ve Cost s Actuarial Balances as of December 31, 2018 1,340,000 316,156,195 1,146,571 - 15,706 (857,932) - 1,800,856 Capital Transactions with Shareholders Reversal of Prescribed Dividends - - - 54 - - - - 54 Dividends ------(19,689) (19,689)
IOE ------(51,837) (51,837)
Total comprehensive income (loss)
Net Income for the Year ------283,575 283,575
Additional Profit Sharing Realization of the Assigned Cost - - - - - (553) - 553 - Adjustment Adoption CPC 47 – ECTE - - - 6,259 - - - - 6,259 Equity Valuation Adjustments ------(612,094) - (612,094) Internal Changes in SE Constitution of Reserves - - 14,179 198,423 - - - (212,602) - Balances as of December 31, 2019 1,340,000 316,170,374 1,351,307 - 15,153 (1,470,026) - 1,407,124 Capital Transactions with Shareholders Reversal of Prescribed Dividends ------Dividends ------(52,042) (52,042) IOE ------(77,418) (77,418)
Total comprehensive income (loss)
Net Income for the Year ------518,685 518,685
Additional Profit Sharing
Realization of the Assigned Cost - - - - - (564) - 564 - Equity Valuation Adjustments ------188,293 - 188,293 Internal Changes in SE Constitution of Reserves - - 25,934 363,855 - - - (389,789) - Balances as of December 31, 2020 1,340,000 316,196,308 1,715,162 - 14,589 (1,281,733) - 1,984,642
The Accompanying Notes are an integral part of the Financial Statements
STATEMENTS OF CASH FLOWS – INDIRECT METHOD Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Company Consolidated Cash Flows From Operating Activities Note 2020 2019 2020 2019 Profit (Loss) Before Income and Social Contribution Taxes - 509,502 283,575 724,715 420,980 Adjustments to Conciliate Fiscal Year Results with Funds from Operating - (535,126) (311,703) 370,140 334,650 Activities Depreciation and amortization - 1,975 1,990 240,924 227,696 Loss from Write-off of Fixed Assets/Intangible Assets - - - 46,720 51,644 Equity Income Results 18 (537,491) (311,587) (56,583) (43,600) Update on Indemnifiable Financial Assets - Concession - - - (6,662) (4,567) Loss on Disposal of Financial Assets Indemnification - Concession - - - 164 239 Constitution (Reversal) of Impairment Recognition - - - (1,403) (11,711) Monetary Variations and Interest, Net - - (19) 172,708 206,608 Constitution (Reversal) Provision for Contingent Liabilities - 390 (2,087) (13,437) (133,343) Actuarial Expenses - - - 55,263 54,585 Estimated Losses in Doubtful Accounts - PECLD - - - (21,984) 17,603 Monetary Update Bonus Grant - - - (45,570) (30,504) Increase (Decrease) in Assets - (13,005) (12,468) (654,665) 866,349 Accounts Receivable - - - (438,393) 147,456 Taxes to be Recovered - (14,983) (8,980) 459,683 (1,077,068) Judicial Deposits - 1.995 (3,663) (120,815) (704) Inventories - - - 2,383 (6,060) Financial Assets (CVA and Granting Bonus) - - - (576,660) 361,699 Subsidy Decree 7,891/2013 - - - 6,204 1,457,767 Advance for Future Capital Increase - - - 10,000 (10,000) Other Accounts - (17) 175 2,933 (6,741) Increase (Decrease) in Liabilities - (245) 5,471 730,179 (1,279,125) Trade accounts payable - (956) (64) 227,822 (10,129) Social Security and Labor Obligations - 194 (64) 11,586 4,843 Taxes to be Recovered - (5) 5,591 149,654 (27,075) Financial Liabilities (CVA) - - - 454,519 (75,164) Regulatory Fees - - - (1,553) (2,050,985) PIS/COFINS to be Returned to Consumers - - - - 1,056,928 Actuarial Liabilities - - - (131,125) (184,792) Other Accounts 522 8 19,276 7,249 Cash Generated in Operating Activities - (38,874) (35,125) 1,170,369 342,854 Interest paid 23 - - (84,199) (114,331) Income Tax and Social Contribution Paid - (971) - (172,850) (95,897) Net Cash Generated in Operating Activities - (39,845) (35,125) 913,320 132,626 Cash Flows From Investing Activities Acquisitions of Property, Plant & Equipment and Intangible Assets - - - (552,758) (476,474) Capital Increase in Affiliates - - - (9,875) (1,476) Dividends and Interest on Shareholders’ Equity - Received - 129,065 83,325 35,878 24,933 Net Cash Generated in Investing Activities - 129,065 83,325 (526,755) (453,017) Cash Flows From Financing Activities Amortization of Loans and Financings 23 - - (423,307) (167,383) Additions in Loans and Financing 23 - - 770,318 518,897 Additions in Debentures 23 - - 35,659 - Payment of Debentures 23 - - (101,961) (126,490) Dividends and Interest on Shareholders’ Equity – Paid 29 (67,250) (36,512) (67,250) (36,512) Net Cash Generated in Financing Activities - (67,250) (36,512) 213,459 188,512 Net Increase (Decrease) in Cash and Cash Equivalents - 21,970 11,688 600,024 (131,879) Cash and Cash Equivalents at the Beginning of Period - 28,451 16,763 566,181 698,060 Cash and Cash Equivalents at the End of the Period - 50,421 28,451 1,166,205 566,181 Change in Cash and Cash Equivalents - 21,970 11,688 600,024 (131,879)
The Accompanying Notes are an integral part of the Financial Statements
STATEMENT OF ADDED VALUE Fiscal years ended December 31, 2020 and 2019 (Values stated in thousands of reais)
Parent Consolidated Company Description 2020 2019 2020 2019 Revenue - - 13,804,244 12,978,766 Gross Sales of Products and Services - - 13,030,064 12,336,531 Construction Revenue - CPC 47 - - 592,475 541,905 Other Revenues - - 159,721 130,747 Estimated Losses in Doubtful Accounts - PECLD - - 21,984 (30,417) Inputs from Third Parties (5,727) (3,023) (7,359,369) (6,622,348) Cost of Products, Goods and Services Sold - - (6,438,975) (5,862,442) Materials, Energy, Third-Party Services (5,727) (3,023) (329,322) (229,712) Construction Cost - CPC 47 - - (592,475) (541,905) Loss/Recovery of Assets - - 1,403 11,711 Gross Value Added (5,727) (3,023) 6,444,875 6,356,418 Depreciation, Amortization (1,975) (1,990) (240,924) (227,696) Net Value Added Produced By The Company (7,702) (5,013) 6,203,951 6,128,722 Value Added Received in Transfer 531,740 307,030 287,670 275,790 Equity Income 537,491 311,587 56,583 43,600 Financial Income (5,751) (4,557) 231,087 232,190 Total Added Value to be Distributed 524,038 302,017 6,491,621 6,404,512 Value Added Distribution Personnel (13,788) (17,469) (778,929) (778,919) Direct Compensation (12,354) (16,371) (656,918) (657,686) Benefits (766) (306) (95,274) (94,648) FGTS (668) (792) (26,737) (26,585) Taxes, Charges and Contributions 8,782 (598) (4,983,893) (5,011,419) Federal 8,977 (302) (2,704,944) (2,704,479) State (13) (6) (2,271,613) (2,300,231) Municipal (182) (290) (7,336) (6,709) Return on Third-Party Equity (347) (375) (210,114) (330,599) Interest (81) (74) (6,812) (13,387) Rents (266) (301) (22,107) (22,266) Monetary and Exchange Rate Variations - - (14,105) (61,331) Other Financial Expenses - - (167,090) (233,615) Return on Shareholders’ Equity (129,460) (71,526) (129,460) (71,526) Interest on Shareholders’ Equity (77,418) (51,837) (77,418) (51,837) Dividends (52,042) (19,689) (52,042) (19,689) Withheld Profit for the year (389,225) (212,049) (389,225) (212,049) Value Added Distributed (524,038) (302,017) (6,491,621) (6,404,512)
The Accompanying Notes are an integral part of the Financial Statements
NOTES TO THE FINANCIAL STATEMENTS Fiscal years ended December 31, 2020 and 2019 (In thousands of Brazilian reais, unless otherwise stated)
1. OPERATING CONTEXT
Centrais Elétricas de Santa Catarina S.A. – Celesc (“Company” and, together with its subsidiaries, “Group”), is a publicly held company, founded on December 9, 1955 by State Decree No. 22, headquartered at Itamarati Avenue, 160, Itacorubi neighborhood, CEP: 88.034-900, Florianópolis/SC, Brazil.
It obtained its first stock exchange listing on March 26, 1973, and today its shares are traded on the São Paulo stock exchange in Level 2 of Corporate Governance of B3 S.A. - Brasil, Bolsa, Balcão, in São Paulo.
The majority shareholder is the State of Santa Catarina, holder of 50.18% of the Company's common shares, corresponding to 20.20% of the total Capital. The updated, subscribed and paid-up Share Capital is R$1,340,000,000.00 represented by 38,571,591 nominative shares, with no par value, of which 40.26% are common voting shares and 59.74% are preferred shares, also nominative, without voting rights.
The main activities of the Company and its subsidiaries and associates are the Generation, Transmission and Electricity Distribution. In addition, its jointly-owned subsidiary Companhia de Gás de Santa Catarina S.A. - SCGÁS, operates in the piped natural gas distribution segment.
1.1. CORONAVIRUS PANDEMIC – COVID-19
Human infection caused by the new coronavirus (COVID-19), has had a strong impact on Brazilian and global society and, therefore, severe measures have been adopted - both by the Federal Government and by the health and ministerial bodies - to prevent the spread of the virus.
On February 6, 2020, Federal Law 13,979/2020 was published, which established measures to deal with the public health emergency, of international importance, resulting from the COVID-19, responsible for the 2019 outbreak. On March 11, 2020, the World Health Organization (WHO) classified COVID-19 as a pandemic.
On March 16, 2020, the Government of the State of Santa Catarina published Decree 507, which dealt with measures to prevent and fight the COVID-19 in the Direct and Indirect bodies and entities of the State Government and establishes other measures. On the same day, Celesc published PRE/DGC Resolution 037/2020 with the necessary measures to fight infection within the scope of Celesc.
The Government of the State of Santa Catarina, aware of the effects of the pandemic, published, on March 17, 2020, State Decree 515, declaring an emergency situation throughout the territory of Santa Catarina, to have a drastic restriction of circulation of people.
On March 18, 2020, the Minister of State for Mines and Energy published Decree No. 117/GM and created the Sector’s Crisis Committee. In its Exhibit II, item III, it was set that mixed and state-owned companies related should submit an action plan to the Ministry, covering their respective activities, to maintain the provision of services.
On March 18, 2020, Celesc created the Crisis Committee COVID-19 with the main focus on daily monitoring the cash flow and mitigating initiatives that were under discussion within the scope of ANEEL and ABRADEE.
On March 20, 2020, Federal Legislative Decree 6 was published, which recognized, exclusively for the purposes of Article 65 of Complementary Law No. 101/2000, a state of public calamity, with effect until December 31, 2020. On the same date, Decree No. 10,282 was also published, which regulated the already mentioned Federal Law No. 13,979/2020, to define essential public services and activities.
On March 23, 2020, State Decree 525 was published, with new measures to deal with the public health emergency, of international importance, resulting from the COVID-19.
The board of the Brazilian Electricity Regulatory Agency [ANEEL - Agência Nacional de Energia Elétrica], on March 24, 2020, in an extraordinary public meeting, listed a set of measures, through Regulatory Resolution 878, to preserve the provision of the public electricity distribution service due to the public calamity related to the coronavirus COVID-19 pandemic.
On April 2, 2020, through Celesc Resolution 49, following the Crisis Committee created on March 18, 2020, the COVID-19 Committee was created to identify the risks undertaken in the Company’s budgetary and strategic plan for the current year and those arising from the pandemic crisis.
On April 3, 2020, through Celesc Resolution 50, a committee was created to discuss the contingency plan for the staggered return of employees to on-site positions, and under the guidelines from Health Department of the State of SC, considering COVID-19.
On April 8, 2020, through Resolution 062/2020, Celesc created the specific committee to analyze Group A’s installment requests.
On April 24, 2020, State Law 17,933/2020 was published, which prohibits cutting off electricity, water, sewage and gas services until December 31, 2020, within the scope of the State of Santa Catarina, and establishes other measures, given the health emergency due to the pandemic of the COVID-19.
On May 12, 2020, Celesc D filed a writ of mandamus at the Court of Justice of Santa Catarina questioning the constitutionality of the aforementioned state rule, given that it dealt with regular matters affecting the Federal Government. The company initially requested the suspension of State Law 17,933/2020 until the final court decision, a request granted by the Judge on May 13, 2020. The case is currently concluded by the Judge for a court decision.
Exposed to the regulations covering the legal provisions on “Coronavirus” and its effects, Celesc has been following the initiatives under discussion within the scope of the Ministry of Mines and Energy, ANEEL and ABRADEE, as well as implementing measures to fight the impacts that COVID-19 may have in the economic and financial result.
1.1.1. Measures in the Electricity Sector
The electricity sector is having discussions, in different spheres, to minimize the impacts of the pandemic. The Energy Regulation and Management Board - DRG coordinates the discussions with different players, together with associations and other departments, thus seeking solutions to maintain the Company's essential activities.
1.1.1.1. Ministry of Mines and Energy - MME
On April 8, 2020, the Executive Branch issued Provisional Measure 950, which established important steps to deal with the impacts of the COVID-19 pandemic in the electricity sector.
The Government solved two urgent issues envisaged by the Ministries involved: the loss of the payment capacity of low-income consumers, beneficiaries of the social tariff, and a partial relief in the financial capacity of the electricity distributors, given the increased default and the decreased energy consumption.
The Provisional Measure exempted consumers who benefit from the social tariff from paying for a consumption of up to 220 kWh/month, for 3 months. Therefore, an investment of R$900 million were foreseen in the Energy Development Account (CDE), which was made possible through the creation of extraordinary credit, subject of Provisional Measure 949, also signed on the same date.
The Government established the conditions to make credit operations feasible, to provide financial relief to distributors given the sudden decrease in the market. The measure allowed distributors to continue honoring their commitments to other sector agents, preserving the sustainability of the electricity sector. Additionally, it eased the tariff pressure on consumers in 2020, due to extraordinary costs in the context of the COVID-19 pandemic.
On May 18, 2020, Decree 10,350 was published, which provides for the creation of an account for the electricity sector to confront the state of public calamity, recognized by Legislative Decree 6, of March 20, 2020. It also regulates Provisional Measure 950, of April 8, 2020,and makes other provisions.
1.1.1.2. Brazilian Electricity Regulatory Agency [ANEEL - Agência Nacional de Energia Elétrica]
On July 21, 2020, Regulatory Resolution 891/2020 was approved, resulting CP 38/2020. According to the new rules, several activities must be resumed by distributors as of August 1, 2020, such as: in-person service to the public, delivery of the printed bill and compliance with previously required deadlines and indicators. However, any restrictions should be discussed with the local health authority, who have legal authority to assess the feasibility of the services in the context of the pandemic’s restrictions.
ANEEL also decided to keep the ban on power cuts due to lack of payment for consumers classified as Low Income, while the pandemic's state of emergency lasts. According to Legislative Decree 06/2020, this period currently remains until the end of 2020. However, from August 1st, 2020, the possibility of power cuts
due to non-payment for residential consumers was again allowed, as well as those related to the supply of energy to services and activities considered essential, provided that consumers are warned in advance.
The ban on cutting remained for some groups of consumers as long as the pandemic state of emergency lasted: low-income consumers, units where the person who depends on electrical equipment essential for the preservation of life resides, units that no longer receive the printed invoice without authorization of consumers, those in places with no collection posts in operation or where the circulation of people is restricted by an act of public power. In addition, according to Federal Law 14,015, of June 15, 2020, it was forbidden to make cuts due to non-payment on Fridays, Saturdays, Sundays, holidays and the days before the holidays. The requirements and deadlines for services previously required should also be re-fulfilled. In these cases, the following deadlines were foreseen for the regularization of the distributors' activities: until August 31, 2020, the services requested by the consumer and not yet met, including reimbursement for damage to equipment and, until October 31, 2020, payments compensation for the breach of continuity indicators, with monetary restatement calculated based on the IGP-M.
It should also be noted that the ban on the cancellation of the social tariff for electric energy remained. Its restart will be carried out in accordance with the provisions of the Ministry of Citizenship.
In addition, since March 24, 2020, public meetings of the board of directors are being held virtually, with live transmission and preservation of all rites, remaining this way so far.
The Regulatory Agency authorized the Electric Energy Trading Chamber (CCEE) to transfer to distributors and part of the free market agents the financial funds available in the reserve fund for future burden relief. The action’s purpose was to reinforce the electricity sector’s liquidity in the pandemic scenario and will anticipate R$2.0 billion reserved for future relief of charges for the distributors of the Regulated Contracting Environment - ACR and for 7,166 agents of the Free Contracting Environment - ACL. The highlight is the amount of R$71.4 million received by Celesc D, on April 8, 2020 in the first tranche, R$7.2 million received in the second tranche, on May 14, 2020, and R$1.9 million in the third and last tranche, on July 1, 2020.
In addition, ANEEL established, on April 8, 2020, the Office to Monitor the Electricity Situation - GMSE. The action was added to others that the Agency previously announced, focused on addressing the pandemic scenario. The Office was created to identify the effects of the pandemic on the energy market, monitor the economic and financial situation and the energy demand and supply, as well as coordinate studies of proposals focused on preserving the balance in the relations between agents in the sector. GMSE is coordinated by the collegiate board of ANEEL and have technical advisors from the board. The Technical Note No. 001/2020, issued by the Office, stands out with initial considerations of the effects of the pandemic.
Based on Decree 10,350/2020, ANEEL performed the first calculation of the needs of the COVID Account, having released the first version of the values on May 25, 2020 in Technical Note 77/2020–SGT/SFF/SRM/SRD/GMSE/ANEEL, whose main subject is the proposal for a regulatory act to regulate Decree 10,350/2020. After the release of the Technical Note, ANEEL opened a public consultation for possible contributions.
On June 23, 2020, ANEEL approved the regulation of the COVID Account at a public board meeting, issuing Regulatory Resolution 885, of June 23, 2020, which regulates the COVID Account. The resolution also defines criteria and procedures for the management of COVID Account, establishing limits for funds by distributors, based on the loss of collection and market of each distribution agent. Also, the rule details the cost items that the account and the operational flow of the transfers can cover.
Celesc D adhered to the Term of Acceptance of Regulatory Resolution 885/2020, related to ANEEL Decree 10,320/2020 (“COVID Account”). The total required was R$583.2 million, referring to the amounts set by ANEEL. This represents 100% of the maximum amount established for the Company.
On July 21, 2020, ANEEL approved, through Order 2086/2020, the Credit Operation Contracts for the COVID Account. These contracts will be signed between the Electric Energy Trading Chamber and 16 financial institutions, as provided for in Decree 10,350/2020 and Regulatory Resolution 885/2020. ANEEL's decision details the technical and legal aspects of the contracts widely discussed and improved in an intense dialogue between ANEEL, CCEE and financial institutions. During the discussion, were established: guarantees, gross amount of the open facility line, remuneration, calculation method, application of interest and late payment fine, grace period, amortization period, allocation of funds and necessary documents of the operation.
On July 31, 2020, Celesc was credited with the funds from COVID Account in full. The collateral for the payment was items accounted as regulatory assets in the Compensation Account for Change in Amounts of Portion A Items - CVA. With the prepayment of these amounts in cash, which would be received by the consumer during the tariff cycle (12 months), the insertion of a negative financial component with effect in 12 (twelve) months has already been carried out in the 2020 tariff process.
As for consumers, the measure allowed a postponement of this effect that would be perceived in a single cycle for up to five tariff cycles, starting in August 2021.
It is noteworthy that AP 35/2020 is in its second phase, in which it analyzes additional information to improve the proposal for Regulatory Resolution that regulates Article 6 of Decree 10,350/2020, which provides for the impacts of the COVID-19 pandemic on the economic and financial balance of the electricity distribution concession and permit agreements.
The second phase of Public Consultation 35/2020, in the Document Interchange modality, lasted 45 (forty-five) days, from August 19 to October 5, 2020.
The Distributor made an individual statement and also via ABRADEE, in addition to attending meetings with the technical areas and with the Reporting Director.
1.1.1.3. Brazilian Association of Electricity Distributors - ABRADEE
ABRADEE, due to the first legal acts related to the pandemic, still in March 2020, sent an official letter to sector agents, addressing the possible impacts on the distribution activity and in the entire chain of the electric sector.
ABRADEE stressed that, since the Association is at the end of the electricity industry chain, the energy distribution represents the link with consumers and has received requests from many segments of society affected by the crisis.
However, the Association recalled that in this gear that makes electricity reach the consumer units, there are several agents involved, emphasizing that over 80% of the electricity bill corresponds to costs that are not from energy distributors, such as taxes and charges of the sector, transferred to governments and other agents; as well as electricity purchase and transmission costs, which are transferred to generators and transmitters.
In short, it showed that the distributor is main responsible for collecting and transferring revenues to the other members of the electricity production chain and the taxes destined to the government.
Also, due to its minority share in the total of this revenue from the electricity supply, it is worth noting that the distributor, alone, does not have the financial and economic conditions to withstand the extraordinary impacts that this crisis has brought to the planet.
From an internal point of view, the Association discussed on its Board of Directors many possibilities, opening two working fronts: the first, addressing an immediate solution with the sector’s entities to the distributor’s cash and the second, creating two thematic groups, of which Celesc D participates, through the coordination of its regulatory department:
G1: Apportioning the intra-sector delinquency (formulating ABRADEE’s position on the notifications issued by the associates); G2: Formulating the new ACR Account and the Regulatory Asset of Portion B.
Celesc D participates, through the coordination of its regulatory area, of the two groups and, at this moment, both thematic fronts, with the contracted consultants, are defining new strategies aligned with the Board of Directors to reduce the impact on the energy distribution environment.
1.1.2. Actions in the Company
1.1.2.1. Protection of Celesc D’s Cash
To keep a healthy short-term cash flow and minimize the impacts of the turbulent financial and global market scenario, some companies are using funds from committed credit lines.
In this sense, although Celesc D does not hold this type of agreement, it has a credit card, to make some types of transactions, such as payment of slips.
In addition to using special credit lines, Celesc D adopted the following measures to protect the cash: a) approval by the Board of Directors in an extraordinary meeting on March 25, 2020, of the submission of the Management’s Proposal to the AESM with the postponement of the payment of the 1st installment of interest on shareholders’ equity and Dividends of Celesc, Celesc D and Celesc G, for payment on December 28, 2020. The items were approved in the Management’s Proposal sent to the AESM held on April 28, 2020; b) approval, by the Board of Directors at an extraordinary meeting held on March 27, 2020, of a contingency with Materials, Services and Others – MSO by 26% and in Investments by 42%. The resolution was revised at a meeting held on June 18,
2020, which approved the spending of R$24.0 million on MSO, maintaining the freeze of 19.2%, and approved the realization of IDB Capex, in line with the 2020 budget, and R$40.0 million in Own Capex, maintaining the freeze of 54% of this item. And again, at the meeting on July 16, 2020, the Board of Directors approved the release of an additional R$25 million of MSO, thus remaining contingent the amount of R$41.1 million, which represents 11% of the original budget; c) approval, by the Board of Directors, at an extraordinary meeting, on March 27, 2020, of the launch of a new Public Call notice to raise funds for Celesc D; d) deferral of the payment period for the Employer's Social Security Contribution (Decree No. 139, from April 3, 2020); e) deferral of the FGTS’s payment period (Provisional Measure No. 927, from March 22, 2020); f) adjustments to the “S” System Contributions (Provisional Measure No. 932, from March 31, 2020); g) start offsetting credits referring to the lawsuit, final and unappealable, of Celesc D on the exclusion of ICMS from the PIS/COFINS calculation base, the amounts of which have already been used in the refund statement in March 2020; h) approval, by Resolution 050/2020, of April 8, 2020, of the change in the dates of the supplier payment schedule, provided for in item 5.2.2 of IN 212.0002 - Accounts Payable Procedures, exclusively for April and May of the 2020 fiscal year, establishing that payments will only be made on the 28th of each month, or on the immediately following business day, while the said amendment is in force, extended to wholly-owned subsidiaries; i) approval, by Resolution 051/2020, of April 8, 2020, of the postponement to July 10, 2020 of the second installment of the 2019 Profit Sharing for employees and Executive Officers; j) approval, by Resolution 062/2020, of April 8, 2020, of new installment rules, limiting it to 6 installments with a 33% down payment, previously it was possible to reach 24 installments; k) approval, at a meeting of the Board of Directors on April 23, 2020, of an Emergency Incentivized Dismissal Plan for employees with over 33 years working at the company, in addition to the approval of the continuity of the dismissals in the 2019 Incentivized Dismissal Plan for employees with over 24 years working at the company; l) approval, at an extraordinary meeting of the Board of Directors, on April 30, 2020, of the postponement of the installments due from May to December 2020 of the Mathematical Reserve contract with the Celesc Social Security Foundation – CELOS. The installments for the period will be recalculated in January 2021 and diluted in the remaining installments, keeping the contract's maturity in December 2024; m) funding through a Promissory Note, totaling R$489 million, with CDI costs + 4.5% and a 12-month term. Said funding entered Celesc’s cash on May 29, 2020 and will be settled in 12 months as a bullet; n) ANEEL Order No. 2,086, from July 21, 2020, approved the credit operation contracts of Covid Account, regulated by Normative Resolution No. 885, from June 23, 2020. On July 31, 2020, Celesc D received R$583.2 million from CCEE related to the request made.
1.1.2.2. Protection of Celesc G’s Cash
From the budget’s point of view, Celesc G revised its investment actions, postponing projects with lower priority.
Also, during the first quarter of the year, Celesc G was working on a new issue of Debentures, totaling R$37 million, to implement the expansion project of the Celso Ramos Plant, whose works started in July 2019. However, with the pandemic’s impact on the economy, the strong macroeconomic instability greatly affected the capital market and led to the discontinuity of this operation. Due to Federal and State Decrees, Celesc G suspended the works for the said expansion at the end of March 2020, establishing its restart for the end of April 2020, after the release of the main and related activities by the official bodies.
With the recovery of the economy and a more favorable fundraising scenario, the Company returned to the market in 4Q20 through a new Infrastructure Debentures issue, which was concluded in December. Therefore, according to the Notice to the Market disclosed by Celesc on December 23, 2020, the 3rd Issue of Debentures by Celesc G, in the amount of R$37 million, was concluded to finance the expansion of PCH Celso Ramos.
1.1.2.3. Fighting the Pandemic
Celesc created a Crisis Committee in response to the pandemic and its possible implications for its operation, considering State Decree 515, of March 17, 2020, which decreed the emergency situation in Santa Catarina.
The Committee is responsible for forwarding measures and actions relevant to the current context, as per the notice to the market released on March 17, 2020: COVID-19 - Clarifications and measures taken.
Accordingly, the Company issued a resolution with preventive measures, namely: a) suspending in-person services since March 18, 2020, with stores remaining closed with the staff answering calls through transfers and back office; b) making available hand sanitizers and masks for customer service points; c) all interstate and international business trips have been suspended; d) employees who return from trips abroad cannot go to their workplace up to 7 days after their arrival and, after the deadline, they must contact Celesc’s medical team for evaluation; e) employees with symptoms of infection by COVID-19 (symptomatic) must take a leave of absence for, at least, 14 (fourteen) days, after they comeback from the trip or after contact, as established by a doctor; f) employees with 60 years old or more, with chronic respiratory diseases, who live with elderly people with chronic diseases or live with people who have been abroad in the last seven days, pregnant women, nursing mothers and employees who have school- age children whose classes have been suspended and they have no other caregiver to take care of the child or they need to take turns in the care may work from home, as well as other management’s employees; the essential services necessary must be maintained; g) guidance to all managers under contract, so that contracted companies are notified of the responsibility to adopt all necessary measures to control the spread of the virus and comply with State Decree 507/2020. h) in the unfolding of the first measures of social distancing, Celesc created, on April 3, 2020, through Celesc Resolution 50, a Committee to discuss the contingency plan for the staggered return of employees to on-site positions, and under the guidelines from Health Department of the State of SC, considering COVID-19. To date, Celesc has maintained part of its employees working remotely, with a gradual return of administrative and support activities, however, with priority remote work until April 2021.
It is important to highlight that the technical and commercial activities of customer service are operating normally, with all the protocol measures required to mitigate possible contaminations. In-person stores services resumed activities on August 3, 2020.
Lastly, the Crisis Committee, in line with the actions of the health authorities of the State of Santa Catarina, keep evaluating the possible impacts on the Company’s operation, immediately adopting the appropriate mitigating measures for business stability.
1.2. CYCLONE BOMBA
According to the Environmental Resources and Hydrometeorology Information Center of Santa Catarina [Centro de Informações de Recursos Ambientais e de Hidrometeorologia de Santa Catarina] – CIRAM, between June 30 and July 1, 2020, winds over 100 km/h were recorded in several regions of the State. The weather phenomenon was highlighted by the wide area affected, the prolonged duration in some regions and the record breaking wind speed, reaching 168.8 km/h in the municipality of Siderópolis.
Through State Decree 700, from July 2, 2020, a state of public calamity was decreed in the areas of the municipalities affected by the event classified as Bomb Cyclone.
The trail of destruction left by the phenomenon "swept" Santa Catarina and was considered the worst windy disaster in the state's history, leaving more damage than Hurricane Catarina in 2004 and Tornado Xanxerê in 2015, according to the Civil Defense’s Weather Note, leading to the greatest damage ever recorded in the electrical distribution system, affecting even the states of Paraná and Rio Grande do Sul.
The cyclone led to many damages to the population, affecting, above all, the supply of electricity throughout Santa Catarina, with more than 1.5 million consumer units in the dark. Trees, power poles and road signs fell on the distribution network and
access roads, causing serious problems to recompose the system, having as aggravating the breakage of the fiber optic cable, which reached the telecommunications system of the Company and other distributors that serve the South of the country.
With the work of 300 teams and around 1,300 professionals, in 24 hours, more than 1 million consumer units had their situation restored. The uninterrupted continuity of the works allowed the recovery of the situation of 93.54% of the electrical system 48 hours after the phenomenon. After 120 hours, this had already reached 99% of the consumer units.
The total recomposition of the electrical system took 20 days of work because, after the first 5 days of the event, the remaining places without attendance were extremely difficult to access.
The costs to recover the electrical system amounted to approximately R$4 million with our own labor, R$12 million with outsourced labor and R$6 million with materials, totaling approximately R$22 million.
2. BUSINESS PROFILE
2.1. WHOLLY OWNED SUBSIDIARIES
2.1.1. Celesc Distribution S.A. - Celesc D
Centrais Elétricas de Santa Catarina S.A. – Celesc, signed on July 22, 1999, Contract 56 for the electricity distribution concession, which regulates the exploitation of public electricity distribution services, effective until July 7, 2015.
On September 29, 2006, Celesc D was constituted as a privately held company, as authorized by State Law 13,570, of November 23, 2005. With the deverticalization process in 2006, the distribution activity was transferred to Celesc D.
On December 9, 2015, in a lawsuit filed by the Ministry of Mines and Energy - MME, Celesc D signed the 5th Addendum to Concession Agreement 56/99, thus extending the concession for another 30 years. The concession agreement, as well as the 5th Addendum that extended the concession term, is within the scope of ICPC01.
Celesc D operates in the electric energy distribution segment and serves, totally or partially, 285 municipalities, accounting for 3,134,716 consumer units. Of the total, 264 municipalities are covered by the distributor’s concession agreement (263 in Santa Catarina and 1 in Paraná) and 21 municipalities are covered on a precarious basis, in concession areas of other distributors (17 in Santa Catarina and 4 in Paraná). The precarious service occurs, according to ANEEL rules, due to technical and economic convenience, resulting from the lack of a network of the concessionaire holding the concession. Additionally, Celesc D is responsible for supplying electric power to the service of four concessionaires and 20 distribution permissionaires, which operate in Santa Catarina, in other municipalities not served by the Company.
2.1.2. Celesc Generação S.A. - Celesc G
On September 29, 2006, Celesc G was constituted as a privately held company, as authorized by State Law 13,570/2005. With the deverticalization process in 2006, the generation activity was transferred to Celesc G.
Celesc G is the wholly-owned subsidiary of the Celesc and operates in the electricity generation and transmission segments through the operation, maintenance and expansion of its own generation park and participation in power generation and transmission projects in partnerships with private investors.
On December 31, 2020, Celesc G had its own generating site with 12 Plants: 6 hydroelectric plants (HPPs), 5 hydroelectric generating plants (HGPs) and 1 small hydroelectric plant (SHP).
Also, in the generation segment, Celesc G holds a minority interest in another 6 generation projects, developed in partnership with private investors, in the format of Special Purpose Company - SPC, all already in commercial operation.
Celesc G's total generation capacity in operation in the period was 118.21 MW, being 106.97 MW referring to its own site and 11.24 MW referring to the generation site established through partnerships - already proportional to the Celesc G shareholding in these ventures.
2.1.2.1. Generating Site
2.1.2.1.1. Own Generating Site – 100% owned by Celesc G
Own Generating Site - Physical Characteristics Plants Location Final Term Installed Power Guarantee Physical Guarantee in Concession (MW) Physical (MW) Quotas Pery HPP Curitibanos/SC July 9, 2047 30.00 14.08 100% Palmeiras HPP Rio dos Cedros/SC November 7, 2046 24.60 16.70 70% Bracinho HPP Schroeder/SC November 7, 2046 15.00 8.80 70% Garcia HPP Angelina/SC July 7, 2045 8.92 7.10 70% Cedros HPP Rio dos Cedros/SC November 7, 2046 8.40 6.75 70% Salto Weissbach HPP Blumenau/SC November 7, 2046 6.28 3.99 70% Celso Ramos SHP Faxinal dos Guedes/SC March 17, 2035 5.62 3.80 (**) Caveiras HGP Lages/SC (*) 3.83 2.77 (**) Ivo Silveira HGP Campos Novos/SC (*) 2.60 2.03 (**) Rio do Peixe HGP Videira/SC (*) 0.52 0.50 (**) Piraí HGP Joinville/SC (*) 0.78 0.45 (**) São Lourenço HGP Mafra/SC (*) 0.42 0.22 (**) Total 106.97 67.19 (*) Plants with a power of less than 5 MW are exempt from the concession act (Federal Law No. 13,360/2016) (**) Not applicable
2.1.2.1.2. Own Generating Site - Expansion Projects
In recent years, guided by the strategic position of increasing its own generation capacity, Celesc G started to invest in the expansion of its own plants and in the expansion of partnerships to enable projects focused on the construction of new projects. The following tables show the projects under development and their stages.
Regarding the physical guarantee (new or incremental), the goal is to obtain on average 55% of the capacity factor, a standard observed for other ventures in operation with similar characteristics.
Own Generating Site - Expansion Projects Final Fin Installed Added Power Scheduled Start-up Date Plants Localization Concession al Status Power (MW) Term Powe (MW) r (MW)
Celso Ramos SHP Faxinal dos March 17, 2035 5.62 8.30 13.92 2021 Works underway Guedes/SC Salto Weissbach HPP Blumenau/SC November 7, 2046 6.28 23.00 29.28 (**) Environmental Licensing Cedros HPP Steps 1 and Rio dos Cedros/SC 8.40 4.50 12.90 (**) Review of the Basic Project 2 November 7, 2046 UHE Palmeiras Rio dos Cedros/SC November 7, 2046 24.60 0.75 25.35 (**) Review of the Basic Project Maruim HGP São José/SC (*) 0.00 1.00 1.00 (**) Environmental Licensing Caveiras HGP Lages/SC (*) 3.83 10.00 (**) Review of the Basic Project 13.83 Total 48.73 47.55 96.28 (*) Power plants with a power of less than 5 MW are exempt from the concession act (**) Depends on regulatory procedures.
Generating Site with Minority Interest - Physical Characteristics Final Concession TermInstalled Physical Equivalent Equivalent Plants Location Concession Power Warranty (MW) Celesc G Installed Physical (MW) Power (MW) Warranty (MW) Rondinha SHP Passos Maia/SC October 5, 2040 9.60 5.48 32.5% 3.12 1.78 Prata SHP Bandeirante/SC May 5, 2039 3.00 1.68 26.0% 0.78 0.44 Belmonte SHP Belmonte/SC May 5, 2039 3.60 1.84 26.0% 0.94 0.48 Bandeirante SHP Bandeirante/SC May 5, 2039 3.00 1.76 26.0% 0.78 0.46 Xavantina SHP Xanxerê/SC April 7, 2040 6.08 3.54 40.0% 2.43 1.42 Garça Branca SHP Anchieta/SC March 13, 2043 6.50 3.44 49.0% 3.19 1.69 Total 31.78 17.74 11.24 6.27
All the plants of the own generating site and all the plants in partnership participate in the Electric Power Reallocation Mechanism – MRE or ERM, share system of hydrological risks, in which the participating plants transfer the generated energy surplus to their physical guarantee to the plants generated below.
Celesc G also has a Generation Operation Center (GOC), which is responsible for supervising, monitoring, centralizing and remotely operating Celesc G’s generating plants. The COG operates and supervises the entire generator park, 24 hours a day, 7 days a week.
a) Generation Scaling Factor Adjustment - GSF
The GSF represents an index that expresses the ratio between the sum of all the energy produced by the MRE Plants and the sum of the physical guarantees of the Plants.
Since August 2015, Celesc G has an injunction that obligates CCEE to limit the incidence of GSF to the maximum percentage of 5% of the total physical guarantee, including any collection or apportionment resulting from the GSF Adjustment Factor or from other legal proceedings.
On September 9, 2020, Law 14,052/2020 was published, which regulates hydrological risk (GSF), establishing compensations for hydroelectric plants in the MRE that were impacted, by postponing the concession period. The purpose of the legal amendment was to compensate shareholders of hydroelectric plants with lawsuits filed at the State Prosecutors’ Office for non-hydrological risks caused by: (i) structural generation projects related to the anticipation of the physical warranties, (ii) restrictions for transmission facilities required for the generation structures to enter into operation and (iii) generation outside the order of merit and imports. Said compensation will be given upon the extension of grants, with a 7-year limit and shall be calculated based on the values of the parameters applied by ANEEL.
On December 1, 2020, ANEEL Normative Resolution 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 14,052, shareholders of hydroelectric plants with lawsuits filed with the State Prosecutors Office must: (i) withdraw any lawsuits with the objective of exemption or mitigation due to hydrological risks, (ii) remove any allegation and/or new lawsuits in relation to the exemption or mitigation of hydrological risks, and (iii) not have renegotiated the hydrological risk.
Main highlights of the resolution: a) Inclusion of a free portion (30% of GSF) for the plants that were re-granted in December 2015. In the captive portion that became shares (70%), the risk lies with the consumer. Contribution by agents, including Celesc G, for this claim must be answered, as it was not included in the initial draft of the resolution; b) Hydroelectric Generating Centers (HGCs) were not included in the proposal since they operate under an authorization regime and not a concession, that is, they do not have an expiration date; c) The proposal may be accepted by company and not only by economic group, as was the case in the first renegotiation.
By extending the concession period for hydroelectric generating plants, since they are not subject to IFRIC 12 (ICPC 01) - Concessions, the granting authority compensates the generators by granting a non-pecuniary right, in the form of an extension of the concession period, with the objective of recovering costs incurred from non-hydrological risk, impacted by the GSF as of 2013.
The extension of the concession period by the granting authority has the criteria indicated by CPC 04 (R1) - Intangible Assets for the recognition of intangibles. The asset is recognized as a cost in the intangibles account, as soon as approved by ANEEL and duly accepted by each plant, and shall have a useful life equal to the new concession term, with a linear amortization schedule.
On December 31, 2020, the plants of the own generator park had the following status pursuant to Law 14,052/2020:
Celesc G is awaiting the amounts and extension period for its Plants and the impacts, considering a possible withdrawal of the lawsuit, which is a requirement to obtain compensation. In this context, the Management is carrying out a strategic analysis regarding the action in the case, maintaining permanent monitoring of the progress of the process, as well as evaluating the market movements, to anticipate measures, if necessary.
2.1.2.2. Transmission Projects
2.1.2.2.1. Celesc G/EDP Energias do Brasil - Minority Interest
Celesc G holds a 10% interest (90% under the control of EDP Energias do Brasil) in a transmission project, called EDP Transmissão Aliança SC S.A., whose purpose is to implement lot 21 of the ANEEL Auction 05/2016, the third largest project, with investment forecast at R$1.1 billion.
The facilities aim to expand the system of the South and Plateau region of the State of Santa Catarina and will also enable Celesc G to connect its distribution system to the new structure in order to bring direct benefits to critical regions in the state's energy system. The deadline for the works execution is 60 months and the commercial start-up determined is August 2022, with a possibility of anticipation. The SPC was constituted in July 2017 and the Concession Agreement was signed in August of the same year.
The project includes 5 sections of Transmission Lines and a Substation, as follows:
Description Origin Destination Circuit Extension (KM) Voltage (KV) Abdon Batista SE Campos Novos SE Simple 39.8 525 Siderópolis 2 SE Abdon Batista SE Double 209 525 TRANSMISSION LINES Biguaçu SE Siderópolis 2 SE Simple 150.5 525 Siderópolis 2 SE Siderópolis SE Double 6.0 230 Siderópolis 2 SE Forquilhinha SE Simple 27.8 230 Total 433.1 SUBSTATION Siderópolis 2 SE 525/230
The environmental installation licenses of one section and the substation were issued in early 2019 and the license for the remaining four sections was issued at the end of the year. The construction works were started with the issuance of the licenses.
The following table summarizes the main information on the project:
Transmis Final Concession Transform Interest Project Localization sion Lines Term ation Power (MVA) Celesc G (km)
EDP – Transmissão Aliança SC SC August 11, 2047 1,344 433 10.0%
2.2. OTHER INTERESTS
Investments Classification Description Recognition
Companhia de Gás de Joint venture SCGÁS detains 100% of the exploitation of natural gas distribution services Equity Santa Catarina S.A. – in the State of Santa Catarina and its piped gas distribution concession Income SCGÁS contract, signed on March 28, 1994 and valid for 50 years (2044). The Company markets and distributes approximately 1.9 million cubic meters of natural gas daily to approximately 16,500 customers. Celesc has 51.0% of the common shares, Petrobras Gás S.A. – Gaspetro has 23.0%, Mitsui Gás e Energia do Brasil Ltda – Mitsui Gás has 23.0% and Infraestrutura de Gás para a Região Sul S.A. – Infragás has 3.0%. Interest in the total share capital is as follows: Celesc 17.0%, Gaspetro 41.0%, Mitsui Gás 41.0% and Infragás 1.0%.
Empresa Catarinense de Affiliate Constituted with the specific purpose of exploring electric power Equity Transmissão de Energia transmission lines in the South, Southeast and coastal regions of Santa Income S.A. – ECTE Catarina, the company is a concessionary of transmission line SE Campos Novos/SC – SE Blumenau/SC, with a length of 252.5 km. The line is responsible for the transportation of approximately 20% of the assured energy to supply demand in the concession area of Celesc D. ECTE, through its subsidiary Empresa de Transmissão Serrana S.A. – ETSE, has the transmission concession of Abdon Batista SE (525/230 kV) and SE Gaspar (230/138 kV). Affiliated company ECTE has an electric energy transmission concession agreement signed on November 1, 2000, with a 30-year term. For its subsidiary ETSE, the concession contract for transmission of electric power is dated from May 10, 2012, with a 30-year term. Celesc holds 30.88% of the Company's share capital. The other shareholders are Alupar, with 50.02%, and TAESA, with 19.10%.
Dona Francisca Affiliate An independent power producer, DFESA owns the Dona Francisca, Equity Energética S.A – DFESA Hydroelectric Power Plant built on the Jacuí River in Rio Grande do Sul, Income with an installed capacity of 125MW and assured energy of 80MW. The development was inaugurated in May 2001. DFESA has a concession agreement dated from August 28, 1998, with a 35-year term. Celesc holds 23.03% of the company’s share capital, Gerdau holds 51.82%, COPEL holds 23.03 and Statkraft holds 2.12%.
Companhia Catarinense Temporary As a mixed economy-held company controlled by the State Government of Fair Value de Água e Saneamento – Investment Santa Catarina, the role of Casan is to plan, execute, operate and explore the through Other Casan water supply and sanitation services in their areas of concessions Comprehensive (municipality). Currently, the company provides services to 194 Income - municipalities in Santa Catarina and 1 in Paraná, serving approximately 2.7 VJORA. million consumers with treated water and 702 thousand people with sewage collection, treatment and disposal. Celesc holds 14.736% of the company’s total share capital, while the State of Santa Catarina holds 65.312%, SC Participações e Parcerias holds 17.704%, Companhia de Desenvolvimento do Estado de Santa Catarina S.A. - Codesc holds 2.238% and Others hold 0.010%.
Usina Hidrelétrica N/A Special Purpose Company (SPC), established in 1996, for deploying the N/A Cubatão S.A. Cubatão Hydroelectric Power Plant, located in Joinville/SC. With the background of environmental obstacles, rejection of the postponement of the concession period and the consequent economic impracticability for developing the project, the venture requested ANEEL to amicably terminate Concession Agreement No. 04/1996 (ANEEL Case 48100.003800/1995- 89). Through Ordinance 310, of July 27, 2018, the Ministry of Mines and Energy (MME) decided to terminate the concession and recognizes, furthermore, that there are no reversible assets linked to the concession, nor any burden of any nature to the Granting Authority or ANEEL. Celesc holds 40% of the company’s Share Capital, Inepar S.A. 40%, and Statkraft Energias Renováveis S.A. 20%. The investment in the said plant is fully provisioned as a devaluation in equity interest. The SPC has been dealing with the corporate aspects for its dissolution.
3. BASIS OF PREPARATION
The preparation bases applied in this individual and consolidated Quarterly Financial Report are detailed below:
3.1. COMPLIANCE STATEMENT
The individual and consolidated quarterly financial report were prepared and are being presented in accordance with the accounting practices adopted in Brazil, including the pronouncements issued by the Accounting Pronouncements Committee (CPC - Comitê de Pronunciamentos Contábeis) and the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The Company’s management confirms that all relevant information inherent to the financial statements, and only them, are being highlighted and correspond to the information used by Management in its daily attributions.
These statements were approved by the Company’s Board of Directors on March 11, 2021 and was revised on July 19, 2006, as established in article 17 of CVM Resolution 505, of June 19, 2006.
3.2. FUNCTIONAL AND PRESENTATION CURRENCY
The Financial Statements, Individual and Consolidated, are shown in Brazilian Reais, which is the functional currency and all amounts are rounded to thousands of Reais, except when indicated otherwise.
3.3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events, considered reasonable under the circumstances. By definition, the resulting accounting estimates will rarely equal their actual results.
Estimates and assumptions may cause significant adjustments in equity and income values for the following periods, impacting on the following measurements: a) Fair Value of Financial Instruments; (Note 5.7); b) Estimated Losses in Doubtful Settlement Accounts - PECLD (Note 9); c) Financial Asset - Concession Bonus; (Note 13.2); d) Impairment of Non-Financial Assets; (Notes 18 and 19); e) Deferred Income Tax and Social Contribution (IRPJ and CSLL) Recognized; (Note 17); f) Contingencies; (Note 27); g) Actuarial Liabilities (CPC 33) (Note 28); h) Unbilled Revenue - Celesc D (Note 9 and Note 31.1); i) Depreciation - Celesc G (Note 19); and j) Amortization of Indemnifiable Assets - Celesc D (Note 20).
4. ACCOUNTING POLICIES
The accounting policies described below have been consistently applied to all the years presented in these Individual and Consolidated Financial Statements.
4.1. MEASUREMENT BASIS
The Financial Statements have been prepared based on historical cost, with the exception of Financial Assets measured at Fair Value through Other Comprehensive Income - VJORA and at Fair Value through Profit - VJR recognized in the balance sheet.
4.2. RECLASSIFICATION OF BALANCES ON THE BALANCE SHEEET
The Company reviewed its accounting policies in order to better present its assets and liabilities.
For comparability purposes, reclassifications were made to the equity amounts for the fiscal year ended on December 31, 2019, as set forth in CPC 23 – Accounting Policies, Change of Estimates and Error Rectification (IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors), CPC 26 (R1) – Presentation of Financial Statements (IAS 1 – Presentation of Financial Statements)). It is worth mentioning that, even with reclassifications in the Balance Sheet, there was no change in the Statement of Cash Flow.
The Company decided to remove the “Related Parties” items from the Balance Sheet, both in Assets and Liabilities, adding them to “Others”, as it understands that there are other amounts that are also part of the same context and that were shown in specific items (Note 16, item b). The effects of these reclassifications are as follows:
Parent Company Consolidated December 31, Assets on December 31, 2019Reclassification December 31, December 31, 2019 Reclassificatio 2019 2019 n (Reclassified) (Reclassified) Current 111,201 - 111,201 2,358,072 - 2,358,072 Non-Current 1,379,986 - 1,379,986 7,140,185 - 7,140,185 Long-Term Receivables 160,819 - 160,819 3,261,941 - 3,261,941 Related Parties - - - 488 (488) - Others - - - 4,544 488 5,032 Investments 1,213,703 - 1,213,703 246,572 - 246,572 Property, Plant and Equipment 18 - 18 174,796 - 174,796 Intangible Assets 5,446 - 5,446 3,456,876 - 3,456,876 Total Assets 1,491,187 - 1,491,187 9,498,257 - 9,498,257
Parent Consolidated Company December 31, December 31, Liabilities on December 31, Reclassifica 2019 December 31, 2019 Reclassification 2019 2019 tion (Reclassified) (Reclassified) Current 79,525 - 79,525 2,427,690 - 2,427,690 Related Parties 53 (53) - 18,884 (18,884) - Others 274 53 327 66,514 18,884 85,398 Non-Current 4,538 - 4,538 5,663,443 - 5,663,443 Shareholders’ Equity 1,407,124 - 1,407,124 1,407,124 - 1,407,124 Total Liabilities 1,491,187 - 1,491,187 9,498,257 - 9,498,257
4.3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The new amendments to the existing norms were issued by the International Accounting Standards Board - IASB and the Accounting Pronouncements Committee, and came into effect on January 1, 2020. The Company analyzed the revisions and did not find any significant accounting impacts on its Consolidated Financial Statements.
CPC 00 (R2) – Conceptual Framework for Conceptual Financial Reporting (Framework) – The revision included a new chapter for measurement, guidance on how to disclose information regarding financial performance, improvements in the definitions of assets and liabilities and guidance to support said definitions, and clarifications for important areas, such as the management’s role, prudence and how to measurement uncertainties in financial reports.
CPC 48 – Financial Instruments (IFRS 9) – Adjusted the reference interest rate (LIBOR) due to the potential impacts on hedges.
CPC 06 (R2) – Leases (IFRS 16) – Included a new practical way to adjust for leasing benefits as a result of COVID-19 without the need to adjust contractual agreements.
CPC 15 (R1) – Business Combination (IFRS 3) – New definition to reduce the difference in recognition for the acquisition of assets or business combinations. The changes allow this assessment to be done in a simpler way.
PC 26 (R1) – Presentation of the Financial Statements (IAS 1) and CPC 23 – Accounting Policies, Change in Estimates and Error Rectification (IAS 8) – Definition of what is “material” and guidelines to help improve consistency when applying said concept for an item, transaction or event, therefore determining if information should be provided to the readers of the financial statements.
4.4. NEW STANDARDS AND INTERPRETATIONS The following standards amendments were issued by IASB, but are not yet effective for 2020. Although encouraged by IASB standards, early adoption is not allowed by the Brazilian Accounting Pronouncements Committee (CPC).
Standa Corresponding Change Applicatio rd CPC n IFRS 9 / IAS 39 / IFRS 7 CPC 48/ CPC 40 The Phase 2 of the IBOR reform address issues that may affect January 1, financial statements during the retirement of a benchmark interest rate, 2021 including the effects of changes in contractual cash flows or hedging relationships arising from the replacement of a rate with an alternative benchmark rate (substitution issues). IAS 37 CPC 25 Classification of onerosity for fulfilling a contract. In the assessment January 1, whether a contract is onerous, the cost of fulfilling the contract 2022 includes the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling it. IAS 16 CPC 27 Entity prohibition from deducting from the cost of property, plant and January 1, equipment amounts received from the sale of items produced while the 2022 asset is being prepared for its intended use. Such revenues and related costs must be recognized in the income statement. IAS 1 CPC 26 Classification of liabilities as current or non-current January 1, 2022 IFRS 3 CPC 15 Update to provide reference for the new Conceptual Framework January 1, 2022 IFRS 9 CPC 48 Clarifies which rates should be included in the 10% test for the write- January 1, off of financial liabilities. 2022
IFRS 16 CPC 06 Leasing incentives (amendment to Illustrative Example 13) January 1, 2022 IFRS 17 CPC 25 Insurance contracts January 1, 2023
There are no other IFRS standards or IFRIC interpretations that have not yet come into force that could have a significant impact on the Company's Financial Statements.
4.5. MAIN ACCOUNTING POLICIES
4.5.1. Consolidation Base
The following accounting policies were applied in the preparation of the Consolidated Financial Statements. a) Main Consolidation Procedures
The main elimination procedures in the consolidation are: balances of the assets and liabilities accounts among the consolidated companies; subsidiaries in the parent company's shareholders’ equity; and income and expense balances, as well as unrealized profits arising from intercompany transactions b) Subsidiaries
Subsidiaries are all entities in which the Group has control. The wholly owned subsidiaries are consolidated in the Group's Financial Statements.
The consolidation is interrupted from the date the Group ceases to have control, any interest retained in the entity is remeasured to it fair value, and the change in the book value is recognized in the income statement c) Affiliated and Jointly-Owned Companies
Investments in affiliates and joint ventures are accounted for using the equity method and are initially recognized at cost. The Group's investment in associates and joint ventures includes the goodwill identified in the acquisition, net of any accumulated impairment loss.
4.5.2. Presentation of Information by Segments
Information by operating segments is presented in a consistent manner with the internal reporting provided to the Executive Board, which is the Group's principal operating and strategic decision making body (Note 31).
The measurements used to report segment information are similar to those used in the preparations of the Financial Statements of the Group.
4.5.3. Foreign Currency Conversion
Transactions with foreign currencies are translated into the functional currency using the exchange rates prevailing on the dates of the transactions or valuation, in which the items are remeasured. The related exchange gains and losses are recognized in the financial result.
4.6. FINANCIAL INSTRUMENTS
4.6.1. Classification
Financial assets classified as amortized costs, fair value through profit or loss and fair value through other comprehensive income. This classification is due to the purpose for which the financial assets were acquired. The Company determines the classification of its financial assets in the initial recognition and evaluates them periodically a) Amortized Cost
This category includes the financial assets held to obtain contractual cash flows and their contractual terms give rise to payments flows only from principal and interest. b) Fair Value by Income - VJR
Celesc classifies as VJR the investments in infrastructure originated in the concession contracts of public services for generation subject to indemnification, since the change in the fair value of this asset will be recognized in the income statement. c) Fair Value through Other Comprehensive Income - VJORA
The standard requires that the financial asset evaluated to the VJORA meets the following criteria: be kept within a business model whose objective is achieved both by receiving contractual cash flows and by the sale of financial assets and giving rise, at specified rates, to flows that exclusively constitute principal and interest payments on the principal amount outstanding. Investments on which the equity method does not apply are classified.
4.6.2. Recognition and Measurement
Financial assets are initially recognized at fair value plus costs incurred in obtaining them. A financial asset must, after its initial recognition, be measured by: (a) amortized cost; (b) fair value through other comprehensive income; or (c) fair value through profit or loss.
4.6.3. Offsetting of Financial Instruments
The financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is an effective legal right to offset the recognized amounts and there is an intention to settle them on a net basis or realize the asset and settle the liability simultaneously. (Note 13.1)
4.6.4. Impairment of financial assets
Provisions for losses on financial assets are based on assumptions about the risks of default and expected loss rates. The Company applies a judgment to establish the assumptions and to select the data for the calculation of impairment based on the Company's history, in the existing market conditions and in the future estimates.
When there is evidence of loss, that is, the recoverable value is less than the book value of the asset, the loss will be recognized as an expense in the income statement. If, in a subsequent period, the impairment loss decreases because of an event occurring after the impairment is recognized, the reversal of the loss is recognized as income in the income statement.
4.6.4.1. Previous Accounting Policy for Impairment Financial Assets
In the previous year, the Group assessed, at the end of each period, whether there was objective evidence of impairment. The amount of an impairment loss was measured as the difference between the book value of assets and the present value of estimated future cash flows (excluding future credit losses not incurred), discounted at the original interest rate then applicable to financial assets.
4.7. INVENTORIES
Inventories are recorded at the average cost of purchases in current assets and are stated at cost or net realizable value, whichever is less.
4.8. CURRENT AND DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION
Income tax and social contribution expenses for the year comprise current and deferred taxes and are recognized in the statement of income and calculated based on enacted or substantially enacted tax laws.
Current Income Tax and Social Contribution are presented net, by taxpayer, in liabilities when amounts are payable, or in assets when amounts paid in advance exceed the total due at the reporting date.
Deferred income and social contribution taxes are recognized using temporary differences arising from differences between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Assets are recognized only in proportion to the probability that future taxable income is available and against which temporary differences may be used.
Deferred income tax assets and deferred liabilities are presented by the net balance in the balance sheet when there is the legal right and the intention to compensate them when calculating current taxes, related to the same taxable entity and authority.
4.9. JUDICIAL DEPOSITS
The Company has recorded in this caption amounts deposited to justify the contingency of legal proceedings (tax, labor, civil, regulatory, environmental).
4.10. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprise mainly reservoirs, dams, pipelines, buildings, machinery and equipment and civil works and improvements of Celesc G. They are measured at historical cost, adjusted for cost attributed, less accumulated depreciation and any impairment losses. Historical cost includes expenses directly attributable to the acquisition of items.
The cost of assets constructed by Celesc G itself includes: (i) the cost of materials; (ii) any other costs to put the asset in place and the necessary condition to be able to operate; and (iii) borrowing costs on qualifying assets.
Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset only when it is probable that there will be future economic benefits and that the cost of the item can be reliably measured. The carrying amount of replaced items or parts will be reversed. In case of repairs and maintenance, costs incurred are charged to income for the year, when incurred.
Gains and Losses on disposal of an item of property, plant and equipment (determined by the difference between the proceeds from the sale and the book value of property, plant and equipment) are recognized in Other Operating Revenues/Expenses in the income statement. a) Depreciation
For assets of the plants that have registry agreement, for those located in Central Management and for those concession agreements provide for indemnification to the end of the concession, depreciation is determined according to ANEEL Resolution 674/2015.
For assets in which there is no indemnification forecast at the end of the concession agreement, the depreciation is based on the concession term defined in the contract or useful life, whichever is less.
4.11. INTANGIBLE
Intangible assets are measured at acquisition and/or construction cost, including interest capitalized during the construction period, when applicable, in the case of eligible assets, less accumulated amortization calculated on a straight-line basis or for the useful life defined in contracts or yet by the term of concession a) Concession Agreements
Infrastructure rights under concession are accounted for as an intangible asset when the Group has the right to charge for the use of infrastructure assets and users (consumers) have a responsibility to pay for the services rendered by the Group.
The fair value of construction and other works on the infrastructure represent the cost of the intangible asset and is recognized as income when the infrastructure is built, provided that this work generates future economic benefits.
The intangible assets of concession contracts are amortized on a straight-line basis over the contract period or useful life of the asset to which it is attached, whichever is less.
The special obligations related to the concession of the public electricity service include payments made with the purpose of contributing to the execution of expansion projects required to meet requests for power supply and are recorded in the Financial Statements as impairment element of intangible assets. b) Goodwill
Goodwill is represented by the positive difference between the amount paid or payable and the net amount of the fair value of the assets and liabilities of the entity acquired and amortized based on the concession term. c) Computer programs - software
Licenses acquired from software are capitalized and amortized over their estimated useful life (Note 19). Expenses associated with software maintenance are recognized as expenses as they are incurred.
4.12. IMPAIRMENT OF NON-FINANCIAL ASSETS
Property, plant and equipment and other non-financial assets, including goodwill, are reviewed annually to identify evidence of non-recoverable losses, as well as when events or changes indicate that the carrying amount may not be recoverable.
If there is a loss due to a reduction in the recoverable value, it is recognized in the income statement by the amount in which the carrying amount of the asset exceeds its recoverable amount. For valuation purposes, assets are grouped into the smallest group of assets for which there are separately identifiable cash flows (Cash Generating Units - CGUs).
The impairment loss is reversed only to the extent that the carrying amount of the asset, net of depreciation or amortization, does not exceed the carrying amount that would have been incurred if the impairment loss had not been recognized.
This procedure does not apply to goodwill due to expectation of future profitability (goodwill). In the case of goodwill with indefinite useful life, the recoverable amount is tested annually.
4.13. FINANCIAL ASSETS
Refers to a financial asset as it is an unconditional right to receive indemnification directly from the granting authority, resulting from the application of Technical Interpretation ICPC 01 – Concession Agreements and Technical Guidance OCPC 05 – Concession Agreements.
4.13.1. Cash and Cash Equivalents
Includes cash, bank deposits, other highly liquid short-term investments with original maturities of three months or less, readily convertible into a known amount of cash and which are subject to insignificant risk of change in value.
4.13.2. Accounts Receivable from Customers
Accounts receivable from customers correspond to the amounts receivable from customers for the supply and the supply of billed energy and estimate of energy supplied unbilled in the normal course of the Group's activities.
The accounts receivable from customers are recognized at the amount invoiced and deducted from the expected losses for doubtful accounts, which are recognized when there are significant increases in credit risk since the initial recognition, evaluated individually or collectively, considering all reasonable information including prospective information.
4.13.3. Indemnifiable – Concession
The concession assets refer to credits receivable from the Federal Government, when the Company has an unconditional right to be indemnified at the end of the concession, as provided for in the agreement, as indemnities arising from the concession agreements for the public services of distribution and generation by investments made in infrastructure and not recovered during the concession period. These financial assets are classified as fair value through profit or loss.
It is important to emphasize that this is not an asset like the other comparable assets available in the market, but an asset that is derived and intrinsically linked to the Company's existing infrastructure, susceptible to variations due to changes in the regulatory environment and related to the infrastructure.
4.13.4. Grant Bonus
As it is a public service concession agreement, the accounting was based on ICPC 01 – Concession Agreements, being considered as a financial asset, classified as amortized cost, initially estimated based on its fair value and subsequently measured at amortized cost calculated by the effective interest rate method, not having an active market, with fixed and determinable cash flow.
These amounts were initially recorded when cash and cash equivalents were paid in cash. The balance is updated monthly by the IRR and monetarily by the IPCA, and the financial asset is amortized against the gross operating revenues of the revenue through the Annual Revenue Generation (RAG).
4.13.5. Portion A – CVA
The Financial Asset, included in the “Installment A” Cost Variation Compensation account - CVA is intended for the accounting of non-manageable costs, as defined by ANEEL, and not yet passed on to electricity supply tariffs.
These costs are part of the tariff adjustment basis and are allocated to income as the corresponding revenue is billed to consumers as determined in the Interministerial Decrees 25 and 116, of January 24, 2002 and April 4, 2003 respectively, and complementary provisions of ANEEL. The account balance is updated based on the Selic interest rate.
According to the previous accounting rule (Note 4.6.3), financial assets and liabilities - Installment A - CVA, are offset and reported in the balance sheet at the net value. This financial asset is classified as amortized cost.
4.13.6. Subsidy and Transfer of the Energy Development Account - CDE
These amounts were recorded in the caption Other Receivables, as a counterpart of gross operating revenue under Grants, Contributions and Subsidies Related to the Granted Service.
4.14. OTHER CURRENT AND NON-CURRENT ASSETS
They are stated at the realizable value (assets) and at known or estimated amounts, plus, when applicable, the related charges and monetary variations incurred (liabilities).
4.14.1. Bill Tariff Levels
These amounts were recorded in the Other Receivables account, against the Gross Operating Revenue in the Financial Assets/Liabilities account. (Note 12).
4.15. FINANCIAL LIABILITIES
Financial liabilities are initially recognized at fair value plus any attributable transaction costs. After initial recognition, they are measured at amortized cost using the effective interest method. Their write-off occurs when their contractual obligations are settled, withdrawn or canceled.
4.15.1. Suppliers
Accounts payable to suppliers are obligations payable for charges for use of the electricity grid, purchase of electricity, materials and services purchased or used in the ordinary course of business. They are initially recognized at fair value and subsequently measured at amortized cost.
4.15.2. Installment A – CVA
This financial liability, included in the “Installment A” - CVA Cost Variation Offset line is used to account for non-manageable costs, as defined by ANEEL, and not yet passed on to the electricity supply tariffs.
These costs are included in the tariff adjustments base and are included to the result, as the corresponding revenue is billed to consumers, pursuant to Interministerial Ordinances 25 and 116, of January 24, 2002 and April 4, 2003, respectively, and complementary provisions issued by ANEEL. The account balance is updated based on the Selic interest rate.
According to the previous accounting rule (Note 4.6.3), financial assets and liabilities - Installment A - CVA, are offset and reported in the balance sheet at the net value.
4.15.3. Loans and Financing
Loans and financing are initially recognized at fair value, net of transaction costs incurred, and are subsequently stated at amortized cost. Any difference between the amounts received, net of transaction costs, and the redemption value is recognized in the income statement during the period that the loans and financing are in progress, using the effective interest rate method.
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily requires a substantial period of time to be ready for its intended use or sale are capitalized as part of the cost of the asset when it is probable that they will result future economic benefits to the entity, and that such costs can be measured with confidence. Other borrowing costs are recognized as an expense in the period in which they are incurred.
4.15.4. Debentures
Debentures are recognized at fair value, net of transaction costs incurred and are subsequently stated at amortized cost After initial recognition, transaction costs and attributable interest, when incurred, are recognized in profit or loss or as PP&E under construction, according to the guidelines of CPC 20 (R1) - Borrowing Costs.
4.15.5. Energy Development Account – CDE (EDA)
These amounts were recorded in the Regulatory Fees heading, linked to the Granted Service.
4.15.6. Mathematical Reserve to be Amortized
Actuarial Liabilities related to the debt agreed with the Fundação Celesc de Seguridade Social - Celos related to the change of the Pension Plan (Defined Benefit - BD, for Definite Contribution - CD).
4.16. PROVISIONS
Provisions are recognized when the Company has a present legal or non-formalized obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and that a reliable estimate of the amount can be made.
4.17. EMPLOYEE BENEFITS AND RETIREES a) Obligations with Pension Fund
Celesc D has in its roll of benefits to employees pension plans in the modalities of Defined Benefit – BD, Variable Contribution – CV and Defined Contribution – CD. The BD and CV plans have the characteristic of retirement with a lifelong income, defined based on the regulation of the plan (BD) or according to the balance in the retirement account and life expectancy (CV).
The liability related to pension plans is the present value of the obligation at the balance sheet date less the value of the plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting estimated future cash outflows using interest rates commensurate with market income, which are denominated in the currency in which the benefits will be paid and that have close maturities of the respective pension obligation.
Actuarial gains and losses arising from adjustments by experience and changes in actuarial assumptions are recorded directly in Shareholders' Equity, as other comprehensive income, when it occurs.
For defined contribution plans, Celesc D pays contributions to the plan, in compliance with regulatory rules. Once the contributions have been made, Celesc D has no obligations regarding additional payments.
Regular contributions comprise the net periodic costs of the period in which they are due and are included in staff costs.
b) Share in Earnings and Income - PLR
The recognition of this interest is provisioned monthly and after the closing of the year, the amount is adjusted according to the effective achievement of the goals established between the Company and its employees. The Company recognizes a provision when it is contractually required or when there is an earlier practice that has generated an unrealized obligation.
4.18. OTHER CURRENT AND NON-CURRENT LIABILITIES
They are increased, when applicable, by the corresponding charges and inflation adjustments or translations adjustments incurred.
4.19. DISTRIBUTION OF DIVIDENDS AND INTEREST ON EQUITY
Dividends are recognized in current liabilities at the end of the fiscal year, in the amount of 25% of the adjusted net income, approved by the Board of Directors, to be distributed to the shareholders. Values above the mandatory minimum, defined by the Company’s Dividend Distribution Policy, are recognized in Shareholders’ Equity and are only accrued when approved by shareholders at the Annual Shareholders' Meeting.
4.20. SHARE CAPITAL
The Company's updated, subscribed and paid-up capital on December 31, 2020 was R$1,340,000,000.00 and is classified in Shareholders' Equity. Preferred shares have a priority in the receipt of 25% non-cumulative dividends.
4.21. REVENUE RECOGNITION
Revenue comprises the fair value of the consideration received or receivable for the supply and supply of billed energy, estimated energy supplied and not billed in the normal course of the Group's activities. It is presented net of taxes, restitutions, rebates and discounts, as well as after elimination of sales among Group companies.
The Group recognizes revenue when: a) the amounts of revenues, costs incurred and transaction costs can be measured reliably; b) it is probable that future economic benefits will flow to the entity; c) the Group no longer has management and control over energy sold or distributed; and d) the risks and benefits related to the energy sold or distributed are transferred to the buyer/consumer. a) Supply of Electric Energy
It is intended for the accounting of billed and unbilled revenue corresponding to the electric power supply, as well as adjustments and specific additions. b) Electrical Power Sourcing
It is intended for the accounting of revenue from the supply of electric energy to the dealer, in the Regulated Contracting Environment (ACR) and marketed in the Free Contracting Environment (ACL), as well as adjustments and specific additions. c) Availability of the Electric Network
Accounts for revenues derived from the availability of the distribution system by the Concessionaire through its activities. d) Short-Term Energy
Short-Term Energy is a segment of the Electric Energy Trading Chamber - CCEE where the differences between the amounts of electricity contracted by the agents and the amounts of generation and consumption actually verified and attributed to the respective agents. The differences, whether positive or negative, are recorded for subsequent financial settlement in the Short- Term Market and valued at the Settlement Price of Differences (PLD). e) Donations and Subventions
Grant and grant revenues are recognized on the accrual basis according to the substance of the applicable agreements and/or agreements. They are recognized in profit or loss when there is assurance that: (a) the entity has complied with all conditions; and (b) the grant will be received. The accounting will be the same regardless of whether the grant is received in cash or as a reduction of liabilities.
f) Construction Revenue
Celesc D accounts for revenues and costs related to construction services or improvement of the infrastructure used in the provision of electricity distribution services. The adopted construction margin is set as equal to zero, considering that: (i) the end- of-company activity is the distribution of electric energy; (ii) all construction revenue is related to the construction of infrastructure to reach its end-activity, that is, the distribution of electric energy; and (iii) the company outsources the construction of the infrastructure with unrelated parts. g) Update on Revenue from Indemnifiable Financial Assets - Concession
Refers to the IPCA adjustment to the indemnifiable financial asset - electric energy distribution concession. h) Revenue from the Upgrade of the Concession Bonus
As it is a Concession Agreement, the Company recognizes the effective interest income, linked to the correction of the portion of the amount paid as a grant bonus, within the "Operating Revenue" group.
For each plant there is a Specific Internal Rate of Return (IRR), as a consequence of the amount established by the grantor for the amount paid for granting the grant and for the amount received by the RBO (Return of the Concession Bonus). The monetary restatement is restated by the IPCA, as established in the Concession Agreement. i) Financial Income
Financial income is recognized in accordance with the time elapsed, using the effective interest rate method. Interest is included in the accounts receivable, in consideration of financial income. j) Dividend Income
Dividend income is recognized when the right to receive payment is established.
5. RISK MANAGEMENT
The company's Department of Planning, Controls and Compliance (DPL) develops the strategic management of risks and internal controls, preparing the corporate risk map, evaluating and monitoring these risks in order to mitigate them by means of action plans, thus aiming to achieve the company's long-term strategies.
5.1. FINANCIAL RISK CLASS
5.1.1. Process Category a) Delinquency
Risk of impairment of financial economic planning due to non-receipt of invoiced revenue due to communication, delivery and collection deficiencies in relation to customers.
5.1.2. Liquidity Category a) Third-Party Capital
Risk of the impossibility or unavailability to obtain capital from third parties in the market or impacts due to the early maturity of debts with the financial market or due to untimely and unplanned changes in interest and exchange rates. b) Cash Flow
Risk of low financial liquidity is due to the low collection, impossibility of funding, defaults, excess expenses and/or investments, to fulfill financial commitments and the business strategy.
The amounts disclosed in the table are the undiscounted contracted cash flows on December 31, 2020.
Consolidated Description Charges % Less than one From one to From three Between one More than five Total three months and month months to one year five years years Accounts Receivable (net of PECLD) 1,787,607 68,567 62,551 25,396 3,840 1,947,961 Cash and Cash Equivalents 1,166,205 - - - - 1,166,205 Judicial Deposits - - - 291,869 - 291,869 CDE Subsidy (Decree No. 7,891/2013) 47,032 - - - - 47,032 Financial Assets – CVA SELIC - - - 300,682 - 300,682 Concession Bonus IPCA 2,899 5,726 25,494 116,459 204,120 354,698 Total Assets 3,003,743 74,293 88,045 734,406 207,960 4,108,447 Banking Loans CDI CDI + 0.8% to 4.5% 49,495 59,716 760,884 85,390 - 955,485 Eletrobras 5% p.a. 77 146 666 3,368 - 4,257 Finame 2.5% to 9.5% p.a. 653 1,231 3,689 7.762 - 13,335 Debentures – Celesc D CDI + 1.9% p.a. 18,060 - 50,385 129,669 - 198,114 Debentures – Celesc G CDI + 2.5% p.a. - 199 35,376 59,392 - 94,967 Debentures – Celesc G IPCA + 4.3% p.a. - 33 104 20,590 29,430 50,157 Trade accounts payable 595,395 628,455 697 - - 1,224,547 Financial Liabilities - CVA SELIC 11,884 23,786 107,625 - - 143,295 Mathematical Reserve to be Amortized IPCA + 6% p.a. 15,975 14,285 67,980 375,591 - 473,831 IDB CDI rate + 0.89% p.a - - 5,426 77,613 768,821 851,860 a 1.44% p.a. Total Liabilities 691,539 727,851 1,032,832 759,375 798,251 4,009,848
c) Actuarial
Risk of financial losses as a result of the joint and several liabilities of the Celesc, as the sponsor of its employees' pension fund (CELOS), by definition of a wrong actuarial rate, inadequate management, or in disagreement with market practices, or unexpected fluctuations in market variables.
5.2. OPERATING RISK CLASS
5.2.1. Management Category
a) Investments
Risk of losses due to non-compliance with schedules, insufficient rates of return, unforeseen disbursements and incorrect appropriation of funds.
5.2.2. Process Category
a) Safeguarding Assets
Risk of financial losses due to the lack of protection mechanisms, claims and/or unauthorized access.
b) Losses
Risk of revenue reduction due to surpassing, technical and/or non-technical losses, the limits recognized in the tariff by ANEEL.
c) Distributor Energy Contracting
Risk of non-full tariff transfer of contracted energy costs and penalties due to contracting outside regulatory limits.
5.2.3. Personnel Category
a) Health and Safety
Risk of labor liabilities, interdiction of activities and removal or death of workers caused by non-compliance with legal norms, lack of training and lack of adequate protective equipment.
b) Management and Development of Personnel
Risk of losses due to the limits of the mechanisms to hire and retain employees or inability to promote the development of the group’s professionals, with the available workforce out of date and unable to develop the challenges of the strategy.
5.2.4. Information and Technology Category a) Cyber and IT Infrastructure
Risk of loss or damage arising from unauthorized access to critical data and information due to inappropriate security policies or parameters, or malicious intent of users, as well as the ability to process systems or failures/delays in the operations of the systems available and inadequate protection/physical safeguarding of network assets.
5.3. COMPLIANCE RISK CLASS
5.3.1. Regulatory/Legal Category a) Social and Environmental
Risk of losses arising from environmental and social policies and practices that are exposing the Company to inspection by inspection agencies, not obtaining licenses and image wear. b) Tariff Review
Risk of losses in remuneration in the so-called Portion B, which represents the Company's manageable costs, as well as the risk of losses in the remuneration in Portion A for Irrecoverable Revenues and losses of electricity, caused by non-compliance with regulatory requirements established by ANEEL or by changes in the methodology applied in the tariff review process, resulting in lower than expected tariffs and resulting in a reduction in the distributors' margin. c) Extinction of the Distribution Concession
Risk of extinction of the Concession Agreement for the Exploitation of the Public Electricity Distribution service due to non- compliance with the limits established in the amendment to the distributor’s Concession Agreement, for the collective indicators of economic and financial continuity and sustainability, whose obligations are as follows:
Technical Quality Indicators: Namely the reduction in Celesc D's DEC, must reach 9% and in 2020 – the deadline given by ANEEL for full proof of adjustments – the level becomes a 25% reduction. Following the historical pace, the reduction of this indicator should be 5% per year.
Financial Indicators: EBITDA, (EBITDA - QRR), (Net Debt/EBITDA - QRR). In 2017, EBITDA should be greater than or equal to 0 (zero) and in 2018 (EBITDA - QRR) greater than or equal to 0 (zero). Regarding (Net Debt/EBITDA - QRR) the indicator stipulated by ANEEL in 2019 should be less than or equal to (1/0.8*Selic) and in 2020 less than or equal to (1/1.11*Selic); in both cases, the Selic rate is limited to 12.87%. For 2020, the ratio (Net Debt/EBITDA - QRR) of Celesc D, adjusted by the items mentioned in the 5th Addendum to the Concession Agreement, is 6.33x, with the goal established by ANEEL less than or equal to 32.76.
Quality Indicator YEAR ECONOMIC AND FINANCIAL MANAGEMENT (Established Limits) VERIFICATION DECi ¹ FECi ² 2016 14.77 11.04 SERVED 2017 EBITDA>0 13.79 10.44 SERVED 2018 {LAJIDA (-) QRR}≥0 12.58 9.84 SERVED 2019 {NET DEBT/[EBITDA (-) QRR³]}≤1/0.8*Selic4 11.56 9.25 SERVED 2020 NET DEBT/EBITDA (-) QRR}<1/1.11*Selic 11.30 8.65 SERVED
¹DECi: Equivalent Frequency of Interruption of Internal Origin by Consumer Unit; ²FECi: Equivalent Frequency of Interruption of Internal Origin by Consumer Unit; ³QRR: Regulatory integration quota or Regulatory Depreciation Expense. It will be the value defined in the last Annual Tariff Review-RTA, plus the IGP-M between the month prior to the RTA and the month prior to the twelve (12) month period of the economic-financial sustainability benchmarking; 4Selic: limited to 12.87% p.a. d) Electricity Generation
Risk of extinction of the extension of the Celso Ramos SHP Concession Agreement due to the obligation to start commercial operations by 2021 of two new generating units to be built by Celesc G.
e) Regulation of the Electric Sector
Risk of administrative sanctions applied by Regulatory Agency in the face of inadequate internal processes, loss of value due to changes in legislation that are out of alignment with company's strategic interests, and exposure to defined government policies for the sector, as well as interference from external bodies. f) Fraud
Risk of financial loss, image damage, service quality decrease and legal sanctions due to internal or external fraud caused by employees or third parties due to control or collusion failures. g) Lawsuits
Risk of losses caused by practices or internal deficiencies that hinder or prevent the construction of defense.
5.4. STRATEGIC RISK CLASS
5.4.1. Governance Category a) Image
Risk of drop in the Group’s reputation level before the main stakeholders.
5.4.2. Credit Category a) Innovation
Risk of loss of competitive advantage due to the difficulty to develop and/or implement new technologies, compromising several aspects such as access to new markets, maximizing revenues, acquiring new knowledge, valuing the brand and corporate sustainability.
5.5. ADDITIONAL SENSITIVITY ANALYSIS REQUIRED BY CVM
The following table shows the sensitivity analysis of financial instruments, which describes the risks of interest rates that may generate material effects for the Company, with a more probable scenario (scenario I), according to an evaluation made by the Management, considering a three-month horizon, when the next financial information containing such analysis should be disclosed.
In addition, two other scenarios are demonstrated, in the terms determined by CVM Instruction No. 475, dated from December 17, 2008, in order to present 25% and 50% of deterioration in the respective risk variable, respectively (scenarios II and III).
The sensitivity analysis presented considers changes in relation to a certain risk, keeping all other variables constant, associated to other risks, with balances as of December 31, 2020: Consolidated Assumptions Effects of Accounts on Results Note Balance (Scenario I) (Scenario II) (Scenario III) CDI 2.11% 2.64% 3.17% Financial Investments 8 1,109,973 23,420 29,303 35,186 Loans 22 (1,639,182) (34,587) (43,274) (51,962) Debentures 23.5 (270,420) (5,706) (7,139) (8,572) Selic 1.90% 2.38% 2.85% Financial Assets - CVA 13.1 286,861 5,450 6,827 8,176 Financial Liabilities - CVA 13.1 (142,491) (2,707) (3,384) (4,061) IPCA 4.52% 5.65% 6.78% Indemnifiable Financial Assets - Concession 14 289,571 13,089 16,361 19,633 Debentures 23 (36,088) (1,631) (2,039) (2,447) Financial Assets – Concession Bonus 13.2 301,587 13,632 17,040 20,448 Mathematical Reserve to be Amortized - (388,043) (17,540) (21,924) (26,309)
5.6. CAPITAL MANAGEMENT
The objectives of managing its capital are to safeguard the Company's ability to continue to offer shareholder returns and benefits to other stakeholders, as well as to maintain an ideal capital structure to reduce this cost.
In order to maintain or adjust the capital structure, the Company may review the dividend payment policy, returning capital to the shareholders, or issue new shares or sell assets to reduce, for example, the level of indebtedness.
Consistent with other companies in the sector, the Company monitors the capital based on the financial leverage ratio. This index corresponds to the net debt divided by the total capital.
Net Debt, in turn, corresponds to total Loans and Financings, including short- and long-term loans, and Debentures, subtracted from the amount of Cash and Cash Equivalents. The total capital is determined by the sum of shareholders' equity with the net debt.
The table below shows the Financial Leverage Ratio:
Consolidated Description NE nº December 31, 2020 December 31, 2019 Loans and Financing - National Currency 22 944,422 813,035 Loans and Financing - Foreign Currency 22 710,522 474,596 Debentures 23.5 306,508 373,945 ( - ) Cash and Cash Equivalents 8 (1,166,205) (566,181) Net Debt 795,247 1,095,395 Total Shareholders’ Equity 1,984,642 1,407,124 Total Capital 2,779,889 2,502,519 Financial Leverage Ratio (%) 28.61% 43.77%
5.7. FAIR VALUE ESTIMATE
It is assumed that the accounts receivable from customers and accounts payable balances at the book value, less the impairment loss, are close to their fair values. The fair value of financial liabilities, for disclosure purposes, is estimated by discounting the future contractual cash flow at the prevailing market interest rate, which is available to the Company for similar financial instruments.
For financial instruments measured in the balance sheet at fair value the Company applies CPC 46 - Fair Value Measurement, which requires disclosure, by level, in the following hierarchy:
Quoted prices (unadjusted) in active markets for assets and liabilities that are identical to those that the entity may have access to at the measurement date (Level 1).
Information, in addition to the quoted prices, included in Level 1 that are adopted by the market for the Assets or Liabilities, either directly, that is, as prices or indirectly, that is, derived from prices (Level 2).
Inserts for assets or liabilities that are not based on the data adopted by the market, that is, unobservable inserts (Level 3).
The following table sets forth the Group's assets measured at fair value on December 31, 2020. The book value is close to the fair value of financial assets and liabilities. The Company does not have liabilities measured at fair value at that base date.
Consolidated Description – Level 3 Note December 31, December 31, 2019 2020 Fair Value through Other Income Comprehensive – VJORA Marketable securities 15 137,261 137,261 Others - 217 217 Fair Value by Income - VJR Indemnifiable Asset – Concession 14 612,637 525,964 Total Assets 750,115 663,442
Specific valuation techniques used to measure financial instruments at fair value include: a) Market approach; b) Cost Approach; c) Revenue Approach; d) Other techniques.
The assets registered as Securities, evaluated by FVOCI, other techniques were used, such as discounted flow analysis. For the other account the technique applied was the cost approach.
For the concession assets, valued at FVTPL, the measurement was by means of the cost approach technique, referring to the current replacement/replacement cost, other techniques were used, such as discounted flow analysis.
6. FINANCIAL INSTRUMENTS BY CATEGORY
The following table sets forth the financial instruments by category as of December 31, 2020. Consolidated Description Cost Fair Value Fair Value through Total Amortized through Result Other Comprehensive Income Assets 4,673,990 612,637 137,478 5,424,105 Cash and cash equivalents 1,166,205 - - 1,166,205 Trade receivables 2,580,436 - - 2,580,436 Judicial Deposits 291,869 - - 291,869 CDE Subsidy (Decree No. 7,891/2013) 47,032 - - 47,032 Marketable Securities - - 137,261 137,261 Indemnifiable Financial Assets - 612,637 - 612,637 - Concession Financial Assets - CVA 286,861 - - 286,861 Financial Assets – Concession 301,587 - - 301,587 Bonus Others - - 217 217
Description Cost Fair Value through Fair Value through Total Amortized Result Other Comprehensive Income Liabilities on 3,716,533 - - 3,716,533 Trade accounts payable 1,224,547 - - 1,224,547 National Currency Loans 944,422 - - 944,422 Foreign Currency Loan 710,522 - - 710,522 Debentures 306,508 - - 306,508 Mathematical Reserve to be Amortized 388,043 - - 388,043 Financial Liabilities - CVA 142,491 - - 142,491
The following table sets forth the financial instruments by category as of December 31, 2019.
Consolidated Description of Amortized Cost Fair Value Fair Value through Total through Result Other Comprehensive Income Assets 3,235,902 525,964 137,478 3,899,344 Cash and cash equivalents 566,181 - - 566,181 Trade receivables 2,142,043 - - 2,142,043 Judicial Deposits 171,054 - - 171,054 CDE Subsidy (Decree No. 7,891/2013) 53,236 - - 53,236
Marketable Securities - - 137,261 137,261 Indemnifiable Financial Assets - Concession - 525,964 - 525,964 Financial Assets – Bonus 290,710 - - 290,710 Grants Financial Assets - CVA 12,678 - - 12,678 Others - - 217 217 Liabilities on 3,060,247 - - 3,060,247 Trade accounts payable 996,725 - - 996,725 National Currency Loans 813,035 - - 813,035 Foreign Currency Loan 474,596 - - 474,596 Debentures 373,945 - - 373,945 Mathematical Reserve to be Amortized 376,804 - - 376,804 Financial Liabilities - CVA 25,142 - - 25,142
7. QUALITY OF FINANCIAL ASSETS CREDIT
The quality of credit of financial assets can be assessed by reference to the internal ratings of assignment of credit limits.
Consolidated Accounts Receivable from Customers December 31, December 2020 31, 2019 Group 1 – Customers with Collection in Due Date 929,782 739,524 Group 2 – Customers with an average delay between 1 and 90 868,941 706,825 days Group 3 – Customers with an average delay of more than 90 781,713 695,694 days Total 2,580,436 2,142,043
All other financial assets held by the Company, mainly checking accounts and financial investments, are considered to be of high quality and do not show any signs of losses.
8. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are held for the purpose of meeting short-term commitments and not for other purposes.
Parent Company Description December 31, 2020 December 31, 2019 Resources at the Bank and in Cash 40 3,234 Financial Investments 50,381 25,217 Total 50,421 28,451
Financial investments are highly liquid, readily convertible into a known amount of cash, and are not subject to significant risk of change in value. These securities refer to repurchase agreements and Bank Deposit Certificates (CDBs), remunerated on average at the rate of 95.5% of the variation of the Interbank Deposit Certificate (CDI).
9. TRADE RECEIVABLES a) Consumers, Concessionaires and Permissionaires
Consolidated Description Maturing Overdue Overdue since December 31, 2020 December 31, 2019 up to 90 days more than 90 days Consumers 1,286,442 236,103 684,658 2,207,203 1,863,255 Residential 318,929 140,587 137,858 597,374 446,134 Industrial 195,991 33,870 374,463 604,324 493,335 Trade 171,957 46,454 132,837 351,248 286,334 Rural 54,338 12,649 11,435 78,422 58,220 Government 34,753 648 9,712 45,113 51,345 Public Lighting 19,610 1,667 16,939 38,216 35,870 Public Service 22,197 228 1,414 23,839 18,869 Unbilled sales 468,667 - - 468,667 473,148 Supply to Other Concessionaires 266,738 26,762 79,733 373,233 278,788 Concessionaires and Permissionaires 211,943 11,970 13,005 236,918 195,724 Transactions in the Scope of CCEE 27,871 - 37,801 65,672 55,845 Other Credits 18,815 14,792 28,927 62,534 20,484 Unbilled Concessionaires and Permissionaires 8,109 - - 8,109 6,735 Total 1,553,180 262,865 764,391 2,580,436 2,142,043 PECLD with Customers (b) (632,475) (675,589) Total Accounts Receivable from Customers - Net 1,947,961 1,466,454 Current 1,918,725 1,421,771 Non-Current 29,236 44,683 b) Estimated Losses in Doubtful Settlement Accounts - PECLD
The estimated losses on the outstanding amounts are constituted by significant increases in credit risk since the initial recognition, assessed individually or collectively, considering all reasonable and sustainable information, including forward- looking information.
Celesc G, in addition to the defaults generated by bilateral contracts, is subject to defaults occurring in the electricity market of the national interconnected system, that are managed and accounted for by CCEE and are distributed among market agents.
The composition, by consumption class is shown below:
Consolidated Consumers December 31, 2020 December 31, 2019 Residential 76,631 104,230 Industrial 226,456 232,255 Textile (i) 114,614 114,614 Trade, Services and Others 109,029 110,284 Rural 5,509 8,569 Government 11,235 11,405 Public Lighting 16,611 16,481 Public Service 1,429 1,356 Concessionaires and Permissionaires (ii) 47,207 49,087 Free Consumers 1,250 1,312 Other 22,504 25,996 Total 632,475 675,589 Current 517,861 560,975 Non-Current 114,614 114,614
b.1) Changes
Consolidated Description Total Balance on December 31, 2018 645,172 Provision Constituted in the Period 53,044 Reversal/Write-offs of Accounts Receivable (22,627) Balance on December 31, 2019 675,589 Provision Constituted in the Period 25,890 Reversal/Write-offs of Accounts Receivable (69,004) Saldo em December 31, 2020 632,475
Celesc D, as established by CPC 48/IFRS 9, has reviewed its expected credit loss matrix considering its historical experience, adjusting it to better reflect information about current conditions and reasonable and supportable forecasts of future economic conditions, without disregarding market information about credit risk. The impact of the revision is accounted for in the Group's result as a PECLD reversal.
The following are the percentages of expected losses segregated by consumption class, applied in the recognition of receivables:
Charges Service Aging Residential Industrial Commercial Rural Supply for Use of Lighting Service Fee Power Public Public Public Networ k 1 23.85% 12.23% 12.25% 14.03% 10.48% 1.23% 2.54% 15.86% 15.86% 15.86%
3 2.55% 0.81% 1.08% 1.71% 0.55% 0.46% 0.08% 1.54% 1.54% 1.54%
6 1.18% 0.57% 0.67% 0.64% 0.17% 0.45% 0.07% 0.82% 0.82% 0.82% 12 0.85% 0.53% 0.56% 0.34% 0.04% 0.45% 0.07% 0.64% 0.64% 0.64%
18 0.76% 0.49% 0.52% 0.25% 0.02% 0.45% 0.07% 0.59% 0.59% 0.59%
24 0.70% 0.47% 0.49% 0.21% 0.01% 0.45% 0.07% 0.53% 0.53% 0.53% 36 0.63% 0.45% 0.44% 0.16% 0.01% 0.45% 0.07% 0.50% 0.50% 0.50% 48 0.52% 0.43% 0.41% 0.14% 0.01% 0.45% 0.07% 0.48% 0.48% 0.48%
60 0.46% 0.38% 0.37% 0.11% 0.01% 0.45% 0.07% 0.39% 0.39% 0.39%
(i) Estimated Losses in Doubtful Settlement Accounts - PECLD with the Textile Sector
In 2009, Celesc D implemented an action plan for debt recovery for companies in the textile industry, among them Têxtil Renaux View S.A, Tecelagem Kuehnrich - TEKA and Companhia Industrial Schlösser S.A.
In relation to the Company Têxtil Renaux View S.A., the Management of Celesc D, considering the non-payment rate of the debt related to the installment agreement, and due to the remote possibility of receiving it, it constituted a provision of the total amount receivable in the amount of R$45,215 in 2013.
In 2012, TEKA filed an application for judicial recovery before the Blumenau District, Santa Catarina. The recovery plan was approved by most of the creditors, although Celesc D has voted against it and in favor of the company’s bankruptcy. Therefore, the likelihood of receiving this amount is remote in the management’s assessment, and Celesc D incorporated a provision for the full payment of the installment that TEKA has with Celesc D, totaling R$55,794.
Also in 2011, Companhia Industrial Schlösser S.A. also entered into a judicial reorganization, with a provision of R$16,888 in 2012. Celesc D received, in 2017, a judicial recovery in the amount of R$3,283, a reversed amount of the provision.
b.2) Changes in PECLD – Textile Sector
The composition, per company is shown below:
Consolidated
Description Total Têxtil Renaux View S.A. 45,215 Teka Tecelagem Kuehnrich S.A. 55,795 Companhia Industrial Schlösser S.A 13,604 Balance as of December 31, 2018 114,614 Provision Constituted in the Period - Reversal in the Period - Balance as of December 31, 2018 114,614 Têxtil Renaux View S.A. 45,215 Teka Tecelagem Kuehnrich S.A. 55,795 Companhia Industrial Schlösser S.A 13,604 Balance on December 31, 2019 114,614 Provision Constituted in the Period - Reversal in the Period - Balance on December 31, 2019 114,614 Têxtil Renaux View S.A. 45,215 Teka Tecelagem Kuehnrich S.A. 55,795 Companhia Industrial Schlösser S.A 13,604 Balance as of December 31, 2020 114,614
(ii) Judgment of the Generation Scaling Factor Adjustment - GSF
The amounts referring to the adjustments of the preliminary measures regarding the GSF in the reports of the results of the short- term market accounting, issued by CCEE, related to Celesc G are in the amount of R$37,801 as of December 31, 2020, with R$1,962 reversed throughout this period due to its receipt. b.3) GSF Changes in PECLD
Consolidated Description Total Balance as of December 31, 2018 (Reclassified) 29,035 Provision Constituted in the Period 8,137 Reversal in the Period (Write-off in Accounts Receivable) (4,268) Balance on December 31, 2019 32,904 Provision Constituted in the Period 6,859 Reversal in the Period (Write-off in Accounts Receivable) (1,962) Saldo em December 31, 2020 37,801
10. INVENTORIES
Inventories are made up of materials intended for the maintenance of energy distribution operations and materials for administrative use.
Consolidated Description December 31, 2020 December 31, 2019 Warehouse 12,257 14,053 Others 56 643 Total 12.313 14,696
Inventories are segmented into construction materials financed by the IDB and materials acquired with own resources. There was no relevant impact due to COVID-19, such as lower turnover or reduction of inventories to net realizable value measurement.
11. TAXES RECOVERABLE
Parent Consolidated Company Description December 31, December 31, December 31, December 31, 2020 2019 2020 2019 PIS/COFINS (ICMS Exclusion Base Calculation) - - 611,534 1,065,238 Income Tax/Social Contribution 25,888 10,905 14,830 21,692 ICMS - - 57,208 56,847 PIS/COFINS - - 17,179 16,652 Others - - 990 995 Total 25,888 10,905 701,741 1,161,424 Current 25,888 10,905 591,837 68,579 Non-Current - - 109,904 1,092,845
On April 1, 2019, Celesc D obtained the final favorable decision from court, filed under No. 5006834-93.2012.4.04.7200, which recognized the right to recover the overpayments as PIS/COFINS due to the inclusion of ICMS (State VAT) in the calculation basis of taxes paid. The amounts paid to be credited to Celesc D correspond to the period from April 2007 to December 2014, due to the time limit granted in the decision due to the supereminence of Law 12,973/2014. Celesc D has recognized the amount of R$611.5 million of taxes to be recovered, restated in accordance with Brazilian Federal Revenue Service (RFB), solution 13/2018, in Other Non-Current Liabilities - Consumers. The Company obtained credits from the Federal Revenue Service in February 2020. Thus, it started the process to offset overdue taxes and reclassified this credit to current assets based on projected amounts to be offset in the next twelve months. The company is waiting for ANEEL (regulatory body) to define the transfer model to consumers.
In addition, it should be noted that the Company filed another lawsuit, under No. 5016157-78.2019.4.04.7200, claiming the return of the amounts from January 2015 onwards, which is undergoing. The lawsuit was upheld at first instance, recognizing the concessionaire's right to exclude ICMS from PIS and COFINS calculation base as of January 1, 2015, an understanding confirmed by the Federal Regional Court of the 4th Region when examining the Appeal filed by the Federal Government - National Treasury. Currently, the process awaits the publication of the decision that judged the appeals of the National Treasury and the opening of the deadline for possible appeals to the Superior Courts. At the same time, it should be noted that Extraordinary Appeal 574706/PR at the Supreme Court addressing the matter in the scope of general repercussion, whose definition of the modulation of the effects of the decision is awaited by the Company, to then recognize the tax credits to be recovered.
The Income Tax (IRPJ) and Social Contribution (CSLL) balances are substantially comprised of amounts paid in advance and reductions in Source for income tax on financial investments and will be realized in the normal course of operations.
The ICMS (State VAT) credits recoverable recorded in non-current assets derive from acquisitions of fixed assets and can be offset up to 48 months.
The balance of PIS and COFINS is composed mainly of higher payments related to a request for a preliminary injunction granted by the Federal Court regarding the process of recognition of the 2014 contractual exposure.
12. OTHER ASSETS - CURRENT AND NON-CURRENT
Consolidated Description December 31, 2020 December 31, 2019 PIS/COFINS and ICMS ST (i) 58,040 56,128 Infrastructure Share (ii) 27,241 41,501 Proinfa Down payment (iii) 17,509 14,220 CDE Refund Difference (iv) 42,777 21,698 Low Income Program 11,907 11,462 Prepaid Expenses 5,785 6,034 Eletrosul (ANEEL Order No. 4171/2017) - 13,196 Bill Level 3,155 21,262 Other Credits 7,965 13,429 Total 174,379 198,930 Current 171,161 193,898 Non-Current 3,218 5,032
(i) PIS/COFINS and ICMS Tax Replacement (ST) Amounts receivable from Free Consumers arising from the collection of taxes on electric energy invoices linked to Convenio/CONFAZ 77, of August 5, 2011.
(ii) Infrastructure Share It refers to the use of attachment points on the posts of Celesc D, carried out by third parties, for the provision of telecommunications services of collective interest, such as telephony, internet, cable TV and others.
(iii) Advance of the Incentive Program for Alternative Sources of Electric Energy - PROINFA Refers to the advance payment of the charge regulated by Decree 5,025/2004, in Celesc D, which aims to increase the participation of alternative renewable sources in the production of electricity.
(iv) CDE Refund Difference Corresponds to the difference between the amounts granted as tariff discounts to the consumer units of Celesc D and the amounts received from the CEEE - Câmara de Comercialização de Energia Elétrica to compensate the referred discounts on the tariffs applicable to: generators and consumers with an incentive source; special schedule irrigation and aquiculture service; public water, sewage and sanitation service; distributors with their own market below 500 GWh/year; rural class; rural electrification cooperative sub-class and; public irrigation service.
13. FINANCIAL ASSETS/LIABILITIES
13.1. PORTION A – CVA
Incorporation December Amorti- Remune Transfe- December Balance on Balance Non- Description 31, 2019 Addition zation ration rences 31, 2019 Amortization Constituição Current current CVA Active 565,797 842,044 (746,929) 34,471 481,767 1.177.150 473,565 703,585 723,729 453,421 Electricity 438,497 424,517 (362,991) 18,879 77,925 596,827 138,624 458,203 301,541 295,286 Itaipu Energy Cost - 71,172 (76,076) 2,749 177,217 175,062 131,536 43,526 147,012 28,05 Proinfa 13,079 (2,051) (11,409) 381 ------Basic Grid Transport 51,694 64,179 (26,200) 1,631 - 91,284 25.956 65,328 49,184 42,100 Electric Power Transport 11,953 12.703 (9,178) 411 - 15,889 6.399 9,490 9,773 6,116 ESS - 64,679 - 11 - 64,690 - 64,690 23,001 41,689 CDE 10,148 46,503 (172.984) 9.486 189.276 82,429 75.359 7,070 77,873 4,556 Neutrality of Portion A 8,479 28,498 (12.994) (432) - 23,551 23.551 - 23,551 - Energy Overcontracting - 78,809 (24.627) 1.161 37.349 92,692 44.637 48,055 61,723 30,969 Others 31,947 53,035 (50.450) 194 - 34,726 27.503 7,223 30,071 4,655 CVA Passive (578,261) (314,551) 1,088,754 (13,835) (1,214,887) (1,032,780) (827,940) (204,840) (866,220) (166,560) Proinfa - (22,092) 8,037 (347) - (14,402) (14,402) - (14,402) - Energy Overcontracting (68,138) 26,279 102,113 (524) (103,900) (44,170) (44,170) - (44,170) - ESS (242,504) (27,718) 230,067 (7,536) (79,326) (127,017) (127,017) - (127,017) - CDE (103,594) - 35,449 4,738 63,407 - - - - - Neutrality of Portion A (41,0770 (25,804) 34,272 (51) 6,805 (25,855) - (25,855) (9,193) (16,662) Tariff Returns (119,326) (37,318) 294,770 (3,935) (227,268) (93,077) (76,802) (16,275) (48,037) (45,040) Others (3,622) (227,898) 384,046 (6,180) (874,605) (728,259) (565,549) (162,710) (623,401) (104,858) Assets/(Liabilities) (12,464) 52,493 341,825 20,636 (733,120) 144,370 (354,375) 498,745 (142,491) 286,861 Balance
CVA Active 906,684 291,284 (656,283) 24,112 - 565,797 304,945 260,852 397,691 168,106 Electricity 751,541 174,777 (509,346) 21,525 - 438,497 240,038 198,459 310,601 127,896 Proinfa 5,295 19,301 (12,207) 690 - 13,079 13,079 - 13,079 - Basic Grid Transport 61,940 51,165 (62,627) 1,216 - 51,694 13,453 38,241 27,049 24,645 Electric Power Transport 16,027 9,459 (13,735) 202 - 11,953 6,428 5.525 8,392 3.561 CDE 41,303 10,097 (41,303) 51 - 10,148 - 10,148 3,608 6,540 Neutrality of Portion A 30,578 (22,425) - 326 - 8,479 - 8,479 3,015 5,464 Other - 48,910 (17,065) 102 - 31,947 31,947 - 31,947 - CVA Liability (653,425) (322,825) 506,202 (7,491) (100,722) (578,261) (365,075) (213,186) (422,833) (155,428) Energy Overcontracting (68,155) - 67,272 (1,487) (65,768) (68,138) (42,384) (25,754) (51,541) (16,597) ESS (345,759) (158,261) 271,860 (10,344) - (242,504) (154,678) (87,826) (185,905) (56,599) CDE (88,238) (75,723) 50,416 9,951 - (103,594) (103,594) - (103,594) - Neutrality of Portion A (12,529) (61,548) 35,193 (2,193) - (41,077) (41,077) - (41,077) - Tariff Returns (99,383) (27,293) 42,100 (3,418) (31,332) (119,326) (23,342) (95,984) (39,428) (79,898) Others (39,361) - 39,361 - (3,622) (3,622) - (3,622) (1,288) (2,334) Assets/(Liabilities) Balance 253,259 (31,541) (150,081) 16,621 (100,722) (12,464) (60,130) 47,666 (25,142) 12,678
Consolidated Description December 31, December 31, 2020 2019 CVA 2019 - Period from August 23, 2018 to August 22, - 14,726 2019 CVA 2020 - Period from August 23, 2019 to August 22, 236,455 164,547 2020 CVA 2021 - Period from August 23, 2020 to August 22, 648,307 - 2021
Total - CVA 884,762 179,273 Other Items - Period from August 23, 2018 to August - (74,856) 22, 2019 Other Items - Period from August 23, 2019 to August (590,830) (116,881) 22, 2020 Other Items - Period from August 23, 2020 to August (149,562) - 22, 2021 Total - Other Items - CVA (740,392) (191,737) Total 144,370 (12,464)
13.2. FINANCIAL ASSETS – CONCESSION BONUS
In 2016, Celesc G paid R$228.6 million as Concession Bonus - BO referring to the new Garcia, Bracinho, Palmeiras, Cedros and Salto Plant concessions. This amount is included in the tariff of these Plants and will be reimbursed by consumers over 30 years with an annual readjustment by the IPCA, as defined by ANEEL. The balance of the financial asset for each of the Plants is calculated by the amount paid: a) by deducting the monthly amount received from Return on Concession Bonus - RBO, established by ANEEL Resolution 2,746, of July 28, 2020; b) Summing up the monthly interest calculated on the basis of the Effective Interest Rate (TIR); and c) Adding the monetary adjustment by the IPCA, established by the Concession Agreement.
Consolidated Description Garcia Plant Bracinho Plant Cedros Plant Salto Plant Palmeiras Plant Total Balance on December 40,947 58,666 44,826 26,966 109,613 281,018 31, 2018 Monetary restatement 1,569 2,248 1,720 1,028 4,223 10,788 Interest 4,926 7,156 5,286 3,689 11,616 32,673 Amortization/Write-off (5,082) (7,340) (5,445) (3,735) (12,167) (33,769) Balance on December 31, 42,360 60,730 46,387 27,948 113,285 290,710 2019 Current 32.597 Non-Current 258,113 Monetary restatement 1,759 2,522 1,930 1,152 4,736 12,099 Interest 5,046 7,336 5,417 3,786 11,886 33,471 Amortization/Write-off (5,221) (7,540) (5,595) (3,838) (12,499) (34,693) Saldo em December 31, 43,944 63,048 48,139 29,048 117,408 301,587 2020 Current 33,674 Non-Current 267,913
14. INDEMNIFIABLE FINANCIAL ASSETS - CONCESSION
Consolidated Description December 31, December 31, 2020 2019 Concession Asset - Electricity Distribution (a) 610,216 523,543 In Service 289,571 223,353 Ongoing 320,645 300,190 Concession Assets – Power Generation (b) 2,421 2,421 Indemnifiable Assets 2,421 2,421 Total 612,637 525,964 Non-Current 612,637 525,964
14.1. INDEMNIFIABLE FINANCIAL ASSET - ELECTRICITY DISTRIBUTION
Due to the extension of the 5th Addendum to Concession Agreement No. 56/1999, Celesc D bifurcated its assets related to the concession in intangible assets and indemnifiable assets.
Based on Technical Interpretation ICPC 01 - Concession Agreements, the portion of the infrastructure that will be used during the concession was recorded in intangible assets, consisting of electricity distribution assets, net of special obligations (consumer participations).
Consolidated Description Total Balance on December 31, 2018 438,609 (+) New Investments 35,263 (+/-) Changes of Fixed Assets in Progress - AIC 45,343 (+) Update on Indemnifiable Financial Assets - Concession 4,567 (-) Redemption (239) Balance on December 31, 2019 523,543 (+) New Investments 59,720 (+/-) Changes of Fixed Assets in Progress - AIC 20,455 (+) Update on Indemnifiable Financial Assets - Concession (i) 6,662 (-) Redemption (164) Saldo em December 31, 2020 610,216 (i) IPCA
14.2. INDEMNIFIABLE FINANCIAL ASSET - POWER GENERATION
Celesc G requested to the granting power, at the end of the concessions granted by Plants Bracinho, Cedros, Salto and Palmeiras, as indemnification, according to criteria and procedures for calculation established by Normative Resolution (REN) No. 596 from 9 tion rences Amortization Constitution rent Current CVA Active 565,797 842,044 (746,929) 34,471 481,767 1,177,150 473,565 703,585 723,729 453,421 Electricity 438,497 424,517 (362,991) 18,879 77,925 596,827 138,624 458,203 301,541 295,286 Itaipu Electricity Cost - 71,172 (76,076) 2,749 177,217 175,062 131,536 43,526 147,012 28,050 Proinfa 13,079 (2,051) (11,409) 381 ------Basic Grid Transport 51,694 64,179 (26,220) 1,631 - 91,284 25,956 65,328 49,184 42,100 Electric Power Transport 11,953 12,703 (9,178) 411 - 15,889 6,399 9,490 9,773 6.116 ESS - 64,679 - 11 - 64,690 - 64,690 23,001 41,689 CDE 10,148 46,503 (172,984) 9,486 189,276 82,429 75,359 7,070 77,873 4,556 Neutrality of Portion A 8,479 28,498 (12,994) (432) - 23,551 23,551 - 23,551 - Energy Overcontracting - 78,809 (24,627) 1,161 37,349 92,692 44,637 48,055 61,723 30,969 Others 31,947 53,035 (50,450) 194 - 34,726 27,503 7,223 30,071 4,655 CVA Liability (578,261) (314,551) 1,088,754 (13,835) (1,214,887) (1,032,780) (827,940) (204,840) (866,220) (166,560) Proinfa - (22,092) 8,037 (347) - (14,402) (14,402) - (14,402) - Electric Power (68,138) 26,279 102,113 (524) (103,900) (44,170) (44,170) - (44,170) - Overcontracting ESS (242,504) (27,718) 230,067 (7,536) (79,326) (127,017) (127,017) - (127,017) - CDE (103,594) - 35,449 4,738 63,407 - - - - - Neutrality of Portion A (41,077) (25,804) 34,272 (51) 6,805 (25,855) - (25,855) (9,193) (16,662) Tariff Returns (119,326) (37,318) 294,770 (3,935) (227,268) (93,077) (76,802) (16,275) (48,037) (45,040) Others (3,622) (227,898) 384,046 (6,180) (874,605) (728,259) (565,549) (162,710) (623,401) (104,858) Assets/(Liabilities) Balance (12,464) 527,493 341,825 20,636 (733,120) 144,370 (354,375) 498,745 (142,491) 286,861
December 19, 2013, investments made in infrastructure and not depreciated in the concession period, as it has an unconditional right to be indemnified, as provided for in the agreement.
The Public Hearing 03/2019 held by ANEEL, which aimed to amend REN No. 596/2013, in view of the non-applicability of the unit cost reference base provided for in paragraph 1 of article 10 of Decree 7,805 of 2012, to the investments made throughout the concession, and considering that remained without conclusion until the end of the year, it is believed that the values presented in the table below should be required again to the granting authority, through a new procedure to be established.
Consolidated Plants December 31, 2020 December 31, 2019 Bracinho HPP 85 85 Cedros HPP 195 195 Salto HPP 1,906 1,906 Palmeiras HPP 235 235 Total 2,421 2,421
15. MARKETABLE SECURITIES
Temporary investments classified as noncurrent assets are measured at fair value.
Parent Company Consolidated Fair Value through Other Comprehensive Income (VJORA) December 31, December 31, December 31, 2020 December 31, 2020 2019 2019 Casan Shares 137,261 137,261 137,261 137,261 Other Investments 217 217 217 217 Non-Current 137,478 137,478 137,478 137,478
15.1. COMPANHIA CATARINENSE DE ÁGUAS E SANEAMENTO – CASAN
The Company has 55,358,800 Common Shares - ON, and 55,357,200 Preferred Shares - PN, representing 14.74% of Casan's Share Capital. The drop from 15.48% to 14.74% was due to two reasons, namely: dividends belonging to Celesc for 2012 and 2014, with the Company not allowing the retention of these dividends to recognize an AFAC, and the non-subscription of AFAC with Casan, by Celesc, in 2020.
As it did not have a significant influence on Casan, the Company measured the fair value of its equity interest in the temporary investment, adopting the discounted cash flow method for the annual evaluation of said investment. The historical acquisition cost of Casan's shares is of R$110.7 million.
For the calculation of valuation, the projection period adopted is 5 years (up to 2025), with a terminal value (flow of the last 12 months of projection). The discount rate used was a nominal WACC of 10.13% p.a., with a nominal long-term (perpetuity) growth rate of 3.07% (average of the inflation projections for the next 5 years). The debt cost after taxes is 4.43% p.a. and the equity cost is 14.92% p.a., resulting in a fair value of R$138.3 million.
As there was no participant in the active market and because it is an estimate with several variables, which did not result in material additions, the Company did not change the fair value of this financial instrument on December 31, 2020.
Book Value Reconciliation
Parent Company Consolidated Casan Shares Total Total Balance on December 31, 2018 137,261 137,261 Historical Acquisition Cost 110,716 110,716 Fair Value 26,545 26,545 Balance on December 31, 2019 137,261 137,261 Historical Acquisition Cost 110,716 110,716 Fair Value 26,545 26,545 Saldo em December 31, 2020 137,261 137,261
16. RELATED PARTIES
The Company has a related party transactions policy, approved by the Board of Directors in 2018.
Balances recorded in related parties in current and noncurrent assets and liabilities and changes in results for the period are as follows:
a) The table below shows the changes in the result for the period.
Parent Company Consolidated Other Financi Sales Financi Financi Description Taxes Expenses al Revenues Revenu al Revenues al Expenses e Government of the State of SC: ICMS - - (2,300,184) - - - Sales Revenue - - - 91,632 - - Underground Network - 19 - - 19 - Celos Mathematical Reserve Update - - - - - (36,348) Celesc D Personnel Available (7,470) - - - - - Balance on December 31, 2019 (7,470) 19 (2,300,184) 91,632 19 (36,348) Government of the State of SC: ICMS - - (2,271,520) - - - Sales Revenue - - - 67,383 - - Underground Network ------Celos Mathematical Reserve Update - - - - - (40,012) Celesc D Personnel Available (5,384) - - - - - Saldo em December 31, 2020 (5,384) - (2,271,520) 67,383 - (40,012)
b) The table below shows the balances and transactions in the period.
Parent Consolidated Company Assets Liabilities on Assets Liabilities on Descriptio Trade Trade Taxes to be Recovered Taxes to be Collected n receivables Other receivables -Other -Other from from Customers Customers
Government of the State of SC ICMS - - - 56,847 - 144,156 - Electric Billing - - 7,757 - - - - Personnel Available - - 256 - - - - Rondinha Energética S.A. Dividends - - - - 488 - -
Celos Contrib. Pension Plan, Health Plan and Others - 53 - - - - 18,884 Celesc D Personnel Available - 451 - - - - - Balance on December 31, 2019 - 504 8,013 56,847 488 144,156 18,884 Government of the State of SC ICMS - - - 57,208 - 274,512 - Electric Billing - - 6,285 - - - - Personnel Available - - 256 - - - - Celos Contrib. Pension Plan, Health Plan and Others - 44 - - - - 17,715 Celesc G Dividends and Interest on Shareholders’ Equity 20,546 ------Celesc D Personnel Available - 546 - - - - - Dividends and Interest on Shareholders’ Equity 97,149 ------Saldo em December 31, 2020 117,695 590 6.541 57,208 - 274,512 17,715
c) Remuneration of Key Management Personnel
The remuneration of administrators (Board of Directors - CA, Fiscal Council - CF, Statutory Audit Committee – CAE and Board of Executive Officers) is shown below:
Parent Company Consolidated Description December 31, December 31, December 31, 2020 December 31, 2020 2019 2019 Fees 4,432 5,473 4,432 5,473 Profit Sharing 1,220 1,596 1,220 1,596 Social Charges 1,229 1,395 1,229 1,395 Other 766 306 766 306 Total 7,647 8,770 7,647 8,770
17. RESULT FROM LEGAL ENTITY INCOME TAX – INCOME TAX (IRPJ) AND THE SOCIAL CONTRIBUTION ON NET PROFIT (CSLL)
17.1. COMPOSITION OF NET DEFERRED INCOME TAX (IRPJ) AND SOCIAL CONTRIBUTION (CSLL)
Deferred Income Tax (IRPJ) and Social Contribution (CSLL) assets and liabilities were calculated based on:
(i) Provision for contingencies of legal proceedings; (ii) ICPC 10 - Interpretation on the initial application to the property, plant & equipment; (iii) CPC 01 (R1) - Impairment of assets on provision for losses on property, plant & equipment; (iv) CPC 33 (R1) - Benefits to employee; (v) Adjustment to the fair value of the property, plant & equipment, arising from the initial adoption of Technical Pronouncement CPC 27 - Property, Plant & Equipment; (vi) CPC 39 - Financial Instruments in the recognition and measurement of the New Restitution Value - VNR. (vii) Deferred taxes calculated on the Concession Bonus were calculated in accordance with RFB Regulatory Instruction No. 1,700, from March 14, 2017, issued by the Federal Revenue Service.
The following table shows the balances of deferred Income Tax (IRPJ) and Social Contribution (CSLL) accounts:
Description December 31, December 2020 31, 2019 Assets 871,596 1,004,094 Liabilities (11,642) (19,596) Net Deferred Tax 859,954 984,498
Consolidated Temporary Differences Deferred Deferred Deferred Net Assets Liabilities December 31, December December 31, December 31, December December 31, 2020 31, 2019 2020 2019 31, 2020 2019 Provision for Contingencies 174,057 179,056 - - 174,057 179,056 Provision for Losses on Assets 64,738 87,902 - - 64,738 87,902 Post-Employment Benefit 766,900 875,252 - - 766,900 875,252 Assigned Cost - - 7,515 7,806 (7,515) (7,806) Deferred Income Tax and CS on Tax Losses 12,827 - - - 12,827 - Effects ICPC 01 - Concession Agreements - - 51,919 54,038 (51,919) (54,038) Effects CPC 39 - Financial Instruments - - 63,971 66,583 (63,971) (66,583) Concession Bonus - - 35,052 29,131 (35,052) (29,131) Other Provisions - - 111 154 (111) (154) Total 1,018,522 1,142,210 158,568 157,712 859,954 984,498
17.2. REALIZATION OF DEFERRED ASSETS
The Income Tax (IRPJ) and Social Contribution (CSLL) base derives not only from the profit generated, but from the existence of non-taxable revenues, non-deductible expenses, tax incentives and other variables, without an immediate correlation between the Company's net profit and income tax and social contribution. Therefore, the expectation of the use of tax credits should not be taken as the only indicative of the Company's future results.
The realization of deferred taxes is based on the budget projections approved by the Company's Board of Directors, with the purpose of defining and presenting actions necessary to meet regulatory demands, also converging to comply with the concession agreement.
The Company's Management considers that the deferred assets arising from temporary differences will be realized, in proportion to the final resolution of the contingencies and the events to which they refer when they will be offset against the profits taxable.
Deferred taxes on actuarial liabilities of employee benefits are being realized through the payment of contributions.
The remaining balance of the process of initial recognition of involuntary 2014 exposure by the regulatory body in the amount of R$207.3 million updated until December 31, 2020 is in judicial demand with the federal court and had the Income Tax (IRPJ) and Social Contribution (CSLL) amounts deferred until a final court decision is issued on the ongoing case. In August 2019, through Approval Resolution 2,593, ANEEL approved the deferral of the financial effect of the 2014 contractual exposure, reflected in five subsequent annual tariff processes. Accordingly, the 2019 and 2020 tariff adjustment had a financial realization of R$65.7 million and R$68.5 million, respectively, and the consequent realization of deferred Income Tax (IRPJ) and Social Contribution (CSLL) on this basis.
The realization of estimates for the balance of the total assets of December 31, 2020 are:
Consolidated Year December 31, 2020 December 31, 2019 2021 81,847 54,142 2022 78,914 42,414 2023 75,304 35,135 2024 74,550 34,299 Over 2025 707,907 976,220 Total 1,018,522 1,142,210
17.3. INCOME TAX (IRPJ) AND SOCIAL CONTRIBUTION (CSLL) RECONCILIATION RECOGNIZED IN THE SHAREHOLDERS' EQUITY
The change in the assigned cost and the initial adoption of CPC 48 - Financial Instruments with Income Tax (IRPJ) and Social Contribution (CSLL) amounts, recognized directly in the shareholders' equity, is shown below:
Consolidated Description Total Balance on December 31, 2018 26,782 (-) Write-off of Attributed Cost (838) (+) Taxes (IRPJ/CSLL) 285 Balance on December 31, 2019 26,229 (-) Write-off of Attributed Cost (855) (+) Taxes (IRPJ/CSLL) 291 Saldo em December 31, 2020 25,665
17.4. INCOME TAX (IRPJ) AND SOCIAL CONTRIBUTION (CSLL) RECONCILIATION RECOGNIZED IN OTHER COMPREHENSIVE RESULTS
The changes in the actuarial liabilities with Income Tax (IRPJ) and Social Contribution (CSLL) amounts, recognized directly in other comprehensive income, are shown below:
Consolidated Description Total Balance on December 31, 2018 857,932 (+) Addition of Actuarial Liabilities 927,415 (-) Taxes (IRPJ/CSLL) (315,321) Balance on December 31, 2019 1,470,026 (+) Addition of Actuarial Liabilities (285,293) (-) Taxes (IRPJ/CSLL) 97,000 Saldo em December 31, 2020 1,281,733
17.5. CURRENT AND DEFERRED INCOME TAX (IRPJ) AND SOCIAL CONTRIBUTION (CSLL) RECONCILIATION
The reconciliation of Income Tax (IRPJ) and Social Contribution (CSLL) expenses, at the nominal and effective rate, is shown below:
Parent Consolidated Company Description December 31, 2020 December 31, December December 2019 31, 2020 31, 2019 Earnings before Corporate Income Tax and Social 509,502 283,575 724,715 420,980 Contribution Combined Nominal Rate of Income Tax (IRPJ) and Social 34% 34% 34% 34% Contribution (CSLL) Income Tax (IRPJ) and Social Contribution (CSLL) (173,231) (96,416) (246,403) (143,133) Permanent Additions and Exclusions Equity Income 182,747 105,940 19,238 14,824 Fiscal Benefit - - (1,545) (1,267) Tax Incentive - - 7,410 5,292 Interest on equity (15,308) (2,837) 25,618 16,884 Non-deductible provisions (803) 39 (803) 13 Non-Deductible Fines - - (9,148) (6,151) Income Tax/Social Contribution not recognized without tax loss 14,399 (6,390) 14,399 (6,390) Managers' Interest (280) (338) (318) (382) Non-Technical Losses - - (16,130) (17,081) Other Additions (Exclusions) 1,659 2 1,652 (14) Total Current and Deferred Income Tax (IRPJ) and Social 9,183 - (206,030) (137,405) Contribution (CSLL) Current (3,644) - (178,486) (104,193) Deferred 12,827 - (27,544) (33,212) Effective Tax Rate -1.80% 0.00% 28.43% 32.64%
Celesc Holding, due to the expectation of generating tax profits for the next years and in accordance with CPC 32, recognized the amount of R$12.8 million as deferred IRPJ/CSLL assets on the tax loss amounts it estimates to use over the next 5 years. In
addition to this amount, the Company has the amounts of R$24.6 million of IRPJ/CSLL not recognized on tax losses calculated in previous years because they do not currently meet the recognition criteria set forth in CPC 32. However, this amount will be reassessed annually by the company.
17.6. UNCERTAINTY ABOUT INCOME TAX (IRPJ) AND SOCIAL CONTRIBUTION (CSLL) TREATMENT
On September 24, 2018, the Special Office of the Brazilian Federal Revenue Service (SERFB) started the Tax Proceeding No. 0900100-2018-00117-1. This procedure resulted, on January 8, 2019, in the Deficiency Notice 10980.727742/2018-81 in the amount of R$306.8 million. Said Deficiency Notice is related to the calculation of the taxable income and the Social Contribution (CSLL) calculation basis, thus imputing to the concessionaire: a) Undue adjustments attributed to the Variation Compensation Account of Portion A - CVA Items; b) Failure to comply with the remaining term of the concession agreement for the purposes of the determinations provided for in article 69 of Federal Law No. 12,973/2014.
After the Management’s analysis, it was found that the amounts determined by the tax entity are dissociated from tax rules, doctrine and court decisions in similar cases. The Management, supported by the position of its legal advisors, understands that the procedures adopted will probably be accepted in decisions of higher courts of last resort (probability of acceptance > 50%), for its total value and, therefore, did not record any liabilities of Income Tax (IRPJ)/Social Contribution (CSLL) in relation to these lawsuits.
In 2020, the Board of Tax Appeals - CARF, in hearing the Voluntary Appeal filed by the Company, partially granted the request in order to cancel the requirements related to the adjustments (additions) referred to in article 69 of Law 12,973/2014, and the application of individual fines for failure to collect estimates, maintaining the requirement to tax positive adjustments related to the CVA on an accrual basis. As a result, it is estimated that the granting of the appeal implied a reduction in the contingency to R$107.0 million. The taxpayer filed a motion for clarification of the decision, which is pending trial before the CARF.
18. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND AFFILIATED COMPANIES
Parent Company Consolidated Description December 31, 2020 December 31, December 31, 2020 December 31, 2019 2019 Subsidiaries 1,558,988 1,028,428 - - Celesc D 990,001 513,651 - - Celesc G 568,987 514,777 - - Joint Ventures 98.631 91,440 98.631 91,440 SCGÁS 98,631 91,440 98,631 91,440 Affiliated Companies 91,104 93,835 170,302 155,132 ECTE 62,955 65,509 62,955 65,509 DFESA 28,149 28,326 28,149 28,326 SPCs - - 79,198 61,297 Cubatão 3,353 3,353 3,353 3,353 (-) Provision for Loss in the Cubatão Investment (3,353) (3,353) (3,353) (3,353) Total 1,748,723 1,213,703 268,933 246,572
18.1. INVESTMENT BREAKDOWN Parent Company Description Company’s Shares Company’s Interest SE Total Profit Common Shares Share Capital Voting Capital Assets (Loss) Balance on December 31, 2019 Celesc D 630,000 100.00% 100.00% 513,651 8,409,618 198,173 Celesc G 43,209 100.00% 100.00% 514,777 701,244 74,262 ECTE 13,001 30.88% 30.88% 212,108 461,521 48,119 SCGÁS 1,827 17.00% 51.00% 328,449 586,096 81,108 DFESA 153,382 23.03% 23.03% 122,993 130,883 42,781 Cubatão 1,600 40.00% 40.00% 1,566 5,739 (125) Balance on December 31, 2020 Celesc D 630,000 100.00% 100.00% 990,001 9,553,390 409,048 Celesc G 43,209 100.00% 100.00% 568,987 768,717 81,909 ECTE 13,001 30.88% 30.88% 203,837 538,314 80,619 SCGÁS 1,827 17.00% 51.00% 379,388 627,715 70,357 DFESA 153,382 23.03% 23.03% 122,227 128,798 42,007 Cubatão 1,600 40.00% 40.00% 1,566 5,739 (125)
Consolidate Description Company’s Shares Company’s Interest SE Total d Profit Common Share Capital Voting Capital Assets (Loss) Shares Balance on December 31, 2019 ECTE 13,001 30.88% 30.88% 212,108 461,521 48,119 SCGÁS 1,827 17.00% 51.00% 328,449 586,096 81,108 DFESA 153,382 23.03% 23.03% 122,993 130,883 42,781 Cubatão 1,600 40.00% 40.00% 1,566 5,739 (125) Rondinha Energética S.A. 15,113 32.50% 32.50% 42,217 56,973 1,016 Cia Energética Rio das Flores S.A. 8,035 26.07% 26.07% 52,610 64,164 7,230 Xavantina Energética S.A. 266 40.00% 40.00% 24,722 38,264 (95) Garça Branca Energética S.A. 22,326 49.00% 49.00% 36,783 63,842 (1,008) EDP Transmissão Aliança SC 2,650 10.00% 10.00% 61,343 1,585,189 32,028 Balance on December 31, 2020 ECTE 13,001 30.88% 30.88% 203,837 538,314 80,619 SCGÁS 1,827 17.00% 51.00% 379,388 627,715 70,357 DFESA 153,382 23.03% 23.03% 122,227 128,798 42,007 Cubatão 1,600 40.00% 40.00% 1,566 5,739 (125) Rondinha Energética S.A. 15,113 32.50% 32.50% 44,716 54,652 2,712 Cia Energética Rio das Flores S.A. 8,035 26.07% 26.07% 49,843 59,662 7,775 Xavantina Energética S.A. 266 40.00% 40.00% 25,464 38,065 736 Garça Branca Energética S.A. 22,326 49.00% 49.00% 36,983 62,655 (719) EDP Transmissão Aliança SC 2,650 10.00% 10.00% 232,092 1,784,077 74,871
18.2. CHANGES IN INVESTMENTS
Parent Company Description Celesc D Celesc G ECTE SCGÁS DFESA Total Balance as of December 31, 2018 981,299 462,626 60,739 82,746 29,145 1,616,555 Dividends and Interest on Shareholders’ Equity Credited (53,727) (22,111) (17,000) (3,626) (10,672) (107,136) Amortization of the Right to Use Concessions - - - (1,468) - (1,468) Equity in the earnings (losses) of subsidiaries 198,173 74,262 15,511 13,788 9,853 311,587 Adjustments to Equity Valuation in Subsidiary (612,094) - - - - (612,094) Others Adjustments - - 6,259 - - 6,259 Balance as of December 31, 2019 513,651 514,777 65,509 91,440 28,326 1,213,703 Dividends and Interest on Shareholders’ Equity Credited (120,991) (27,699) (27,453) (3,301) (9,851) (189,295) Amortization of the Right to Use Concessions - - - (1,469) - (1,469) Equity in the earnings (losses) of subsidiaries 409,048 81,909 24,899 11,961 9,674 537,491 Adjustments to Equity Valuation in Subsidiary 188,293 - - - - 188,293
Balance as of December 31, 2020 990,001 568,987 62,955 98,631 28,149 1,748,723
Consolidated Description ECTE SCGÁS DFESA SPCs Total Balance on December 31, 2018 60,739 82,746 29,145 56,033 228,663 Payments - - - 1.476 1.476 Dividends and Interest on Shareholders’ (17,000) (3,626) (10,672) (660) (31,958) Equity (ISE) Credited Amortization of the Right to Use Concessions - (1,468) - - (1,468) Equity Income 15,511 13,788 9,853 4,448 43,600 Others Adjustments 6,259 - - - 6,259 Balance on December 31, 2019 65,509 91,440 28,326 61,297 246,572 Payments - - - 10,363 10,363 Dividends and Interest on Shareholders’ Equity (27,453) (3,301) (9,851) (2,511) (43,116) Credited Amortization of the Right to Use Concessions - (1,469) - - (1,469) Equity Income 24,899 11,961 9,674 10,049 56,583 Balance on December 31, 2020 62,955 98,631 28,149 79,198 268,933 18.3. ACQUISITION OF CONCESSION USE RIGHT
The balance of the concession uses right generated in the acquisition of SCGÁS on December 31, 2020 is R$34,135 (R$35,603 on December 31, 2019). The concession use right is amortized by the concession term of provision of public services by said company.
18.4. IMPAIRMENT TEST OF GOODWILL PAID
For the measurement of the value in use the Discounted Cash Flow - DCF methodology was considered, excluding the cash inflows and outflows arising from financing activities and any receipts or payments of income taxes, as determined by CPC 01 (R1) - Reduction to the Recoverable Value of Assets.
The discount rate adopted was the Cost of Own Capital, as it is independent from the capital structure and the way the Company has financed the acquisition of assets, considering the understanding of CPC 01 (R1).
Companhia Energética Rio das Flores – CRF
On December 31, 2020, based on the Discounted Cash Flow - DCF methodology, the net present value referring to the 26.07% stake held by Celesc G of the future cash flows projected until 2039, the year of the end of its concession, discounted at a rate of 9.97%, is R$19.5 million, which is higher than the book value of R$12.8 million. Thus, no recognition of impairment on the goodwill balance was accounted for.
The following assumptions were adopted in the business plan (2019-2039) provided by Celesc G:
Description Assumption Physical Guarantee 5.28 MWm. Quantity of energy contracted for sale 5.46 MWm. Sale in the ACL at R$267.00/MWh, at 2019 values, corrected by the IGP-M, until 2026. From 2027 the price will be Selling price of R$289.35/MWh, corrected annually by the IPCA. Purchase price in the ACL: projection of R$210.00/MWh, corrected by the IGP-M; Power Purchase Costs PLD value of R$185.00/MWh, corrected by the IGP-M. Loans and Financing on the base date (total of R$ 8,232,320.73), of which R$ 2,532,284.38 maturing in the short Loans and Financing term term and R$5,700,036.35 in the long term, with an average financial cost of 9.64% p.a. Investments Replacement of assets within maintenance costs.
19. PROPERTY, PLANT & EQUIPMENT
19.1. BALANCE COMPOSITION
Consolidated Reservoirs, Building Machinery Construct Description Lands Others Total Dams and Water s and and ion in Mains Constructio Equipment Progress (i) ns Balance on December 31, 2018 3,879 12.519 29,844 83,039 550 30,235 160,066 Property, Plant & Equipment Cost 20,202 169,867 49,895 167,109 1,912 30,235 439,220 Provision for Losses (8,995) (25,445) (2,938) (6,589) 81 - (43,886) Accumulated Depreciation (7,328) (131,903) (17,113) (77,481) (1,443) - (235,268) Balance on December 31, 2018 3,879 12.519 29,844 83,039 550 30,235 160,066 Additions - - - - - 9.564 9.564 Gross Balance Write-offs - (806) (3) (591) (46) (1,841) (3,287) Depreciation Write-offs - 761 3 471 47 - 1,282 Depreciation - (382) (768) (3,351) (110) - (4,611) (+/-) Transfers - - 274 3,684 - (3,958) - Reversal/Loss of Asset 5,731 914 2,215 2,907 (56) - 11,711 Recoverability Write-off of Loss Provision - 45 - 26 - - 71 Balance on December 31, 2019 9,610 13,051 31,565 86,185 385 34,000 174,796 Property, Plant & Equipment Cost 20,202 169,822 50,169 170,673 1,752 34,000 446,618 Provision for Losses (3,264) (24,486) (723) (3,656) 25 - (32,104) Accumulated Depreciation (7,328) (132,285) (17,881) (80,832) (1,392) - (239,718) Balance on December 31, 2019 9,610 13,051 31,565 86,185 385 34,000 174,796 Additions - - - - - 30,440 30,440 Gross Balance Write-offs - - - - (129) (3) (132) Depreciation Write-offs - - - - 129 - 129 Depreciation - (424) (903) (3,711) (171) - (5,209) (+/-) Transfers - - - 950 464 (1,414) - Reversal/Recoverability Loss (1,163) 1,348 287 878 53 - 1,403 Assets Balance as of December 31, 2020 8,447 13,975 30,949 84,302 731 63,023 201,427 Property, Plant & Equipment Cost 20,202 169,061 50,166 171,152 2,087 63,023 475,691 Provision for Losses (4,427) (23,138) (436) (2,778) 78 - (30,701) Accumulated Depreciation (7,328) (131,948) (18,781) (84,072) (1,434) - (243,563)
Balance on December 31, 2020 8.447 13,975 30,949 84,302 731 63,023 201,427 Average Depreciation Rate 0% 3.12% 2.39% 3.09% 11.67% 0.00% (i) Regarding the main investments made in the company's own generator site in 2020, R$27.1 million were invested in hydro-mechanical equipment, turbines, generators, civil, environmental, electrical and mechanical projects, mobilization and construction site, and manufacture of the elevator at the Celso Ramos plant; R$1.8 million were invested in the hydraulic turbine, ether cat module and maintenance of the rotor at the Salto Plant; R$744 thousand refer to the software development service and drone with integrated camera for Central Management; R$414,000 were allocated to the renovation of the generator 02, aluminum vessel, treadmill and cable guide, submersible pressure sensor, pole and gate at the Pery Plant; R$381,000 were applied to the steel cable, exhaustion system, electromechanical maintenance service, automation of the Rio dos Cedros Plant; R$203,000 were allocated in the consulting engineering service of the Caveiras Plant; R$172,000 refer to power cables of UG-01, electromechanical maintenance service and hydrostatic pressure probe of the Bracinho Plant and R$84,000 were allocated in steel cable, Pam IHM module, stationary battery, post and gate of Palmeiras Plant.
19.2. IMPAIRMENT TEST
In 2020 was constituted Impairment in the amount of R$5.3 million and Reversal of the Recoverable Value of Assets in the amount of R$6.7 million.
These amounts were recorded in the Statement of Income, in line item Net Provisions, in accordance with Technical Pronouncements CPC 01(R1) - Reduction to the Recoverable Value of Assets, CPC 27 - Fixed Assets, and Technical Interpretation ICPC 10 - Interpretation on the Initial Application to Fixed Assets.
The valuation method used is Value in Use, based on the discounted cash flow methodology, which is based on the assumption that the value of a company depends on its ability to generate wealth in the future, excluding cash inflows and outflows from financing activities and any receipts or payments of income taxes, as determined by CPC 01 (R1) - Reduction to the Recoverable Value of Assets.
For the analysis of the Company's Own Generating Site, a survey was conducted of the cash flows pertinent to the various Cash Generating Units - CGUs, individually, seeking to channel the operating flows of each unit. Each power plant participating in the generation park was considered as a CGU, projecting for each of them the revenues, costs and expenses, investments in maintenance and not in expansions, coming from each business and the working capital variations pertinent to these units, before taxes and depreciation effects.
For the Fixed Assets, the book value recorded in the Net Fixed Assets for the plants was considered, with a base date of December 2020.
For the Impairment Test, the projections up to the year 2047 were considered, since this is the final term of the Pery plant concession, which was extended for 30 years, effective as of July 2017, due to the level of greater certainty of these projections, given the signed and existing contracts of energy demand made by the company, as well as the dynamics of negotiation of the surplus energy generated, as provided for in the regulations.
For the investment projection, the values approved in the capital budget by the Board of Directors were considered, considering only the investments in improvements and maintenance of the plants, to maintain the assets in their current operating situation, not considering investments with expansions. The values were updated by the IPCA and adjusted by reductions in the physical guarantee of the generating site.
Due to the rules established in the concession contract, at the end of the Celso Ramos plant concession, the residual value is calculated for indemnity purposes referring to the non-depreciated fixed assets. The other plants do not have the right to compensation for investments in improvements at the end of the concession, as per the contract.
The discount rate adopted was the Cost of Own Capital, Capital Asset Pricing Model - CAPM method, as it is independent from the capital structure and the way the Company has financed the acquisition of assets, considering the understanding of CPC 01 (R1). The discount rate used was 10.36%.
The amounts of loss (reversal) of the recoverable value of assets by CGU, recorded in fiscal year 2020, are shown below:
Plant Net balance before Valuation Provisions Reversal Impact in Impairment Test Profit & Loss Caveiras HGP 5.138 (2,498) (5,138) - (5,138) Celso Ramos SHP 6,166 11,634 - 5,468 5,468 Ivo Silveira HGP 158 (5,594) (158) - (158) Pery HPP 119,116 126,735 - 1,238 1,238 Piraí HGP - (14,843) - - - Rio do Peixe HGP - (10,356) - - - São Lourenço HGP 7 (14,801) (7) - (7) Palmeiras HPP 64 140,368 - - - Bracinho HPP 2,468 81,886 - - - Garcia HPP 1,576 72,980 - - - Cedros HPP 264 65,211 - - - Salto HPP 1,296 23,284 - - - Total 136,253 474,006 (5,303) 6,706 1,403
19.3. DEPRECIATION
The average annual depreciation rates estimated for the current year are as follows:
Consolidated
Management Percentage (%)
Machinery and equipment 5.3 Vehicles 12.4 Furniture and Utensils 6.3
Operation Percentage (%) Buildings and Constructions 2.4 Machinery and Equipment 3.1 Reservoirs, Dams and Water Mains 3.1 Vehicles 10.6 Furniture and Utensils 1.4
The linear depreciation method, shelf lives and residual values are reviewed at each financial year-end and any adjustments are recognized as changes in accounting estimates.
The Garcia, Palmeiras, Salto Weissbach, Cedros and Bracinho Plants are depreciated based on the concession term defined in the agreement.
The assets of Pery Plant, Celso Ramos SHP and Caveiras, Ivo Silveira, Piraí, São Lourenço and Rio do Peixe HGPs are depreciated at the rates established by ANEEL Resolution No. 674, from August 11, 2015, since they have a registration agreement.
The investments made for expansion in the Celso Ramos, Garcia, Palmeiras, Salto Weissbach, Cedros and Bracinho Plants, which are susceptible to indemnification at the end of the concession, are also depreciated by the same Resolution.
The assets of the Central Management (Buildings and Constructions, Machinery and Equipment, Vehicles, Furniture and Utensils) are also depreciated by the rates established in the said Resolution.
19.4. FULLY DEPRECIATED FIXED ASSETS STILL IN OPERATION
The gross accounting amount of Property, Plant & Equipment that are fully depreciated and which are still in operation on December 31, 2020:
Consolidated Description December 31, 2020 December 31, 2019 Reservoirs, Dams and Water Mains 132,349 132,349 Buildings, Works and Improvements 11,935 11,935 Machinery and Equipment 48,297 48,225 Others 13,826 13,956 Total 206,407 206,465
20. INTANGIBLE ASSETS
20.1. GOODWILL ECTE
The goodwill generated on the acquisition of ECTE is amortized by the concession term of provision of public services by said company.
Parent Company Description December 31, 2018 Amortizations December 31, Amortizations December 31, 2019 2020 Goodwill ECTE 5,949 (503) 5,446 (502) 4,944
20.2. CONCESSION AGREEMENTS
The fees established by ANEEL are used in the tariff review processes, indemnification calculation at the end of the concession and are recognized as a reasonable estimate of the shelf life of the concession assets. Therefore, these rates were used as a basis for the evaluation and amortization of the intangible assets.
Consolidated Description Concession Asset Software Goodwill Level of Items on Total Celesc D (ii) Acquired Bonding In progress Balance on December 31, 2018 3,287,592 1,510 5,949 70 1.435 3,296,556 Total Cost 4,981,357 6,495 14,248 70 1,435 5,003,605 Accumulated amortization (1,693,765) (4,985) (8,299) - - (1,707,049) Balance on December 31, 2018 3,287,592 1,510 5,949 70 1.435 3,296,556 Additions 431,291 - - - 356 431,647 Write offs (49,710) - - - - (49,710) Amortizations (220,358) (756) (503) - - (221,617) Balance on December 31, 2019 3,448,815 754 5,446 70 1,791 3,456,876 Total Cost 5,362,938 6,495 14,248 70 1,791 5,385,542 Accumulated amortization (1,914,123) (5,741) (8,802) - - (1,928,666) Balance on December 31, 2019 3,448,815 754 5,446 70 1,791 3,456,876 Additions 441,525 - - - 618 442,143 Write offs (46,717) - - - - (46,717) Amortizations (232,913) (831) (502) - - (234,246) Transfers - 909 (909) Balance on December 31, 2020 3,610,710 832 4,944 70 1,500 3,618,056 Total Cost 5,757,746 7,404 14,248 70 1,500 5,780,968 Accumulated amortization (2,147,036) (6,572) (9,304) - - (2,162,912) Balance on December 31, 2020 3,610,710 832 4,944 70 1,500 3,618,056 Average Amortization Rate 4.3% 17.7% 3.5% 0% 0%
21. TRADE ACCOUNTS PAYABLE Parent Company Description December 31, 2020 December 31, 2019 Employees Available - 451 Materials and Services 72 577 Total 72 1,028
Consolidated Description December 31, 2020 December 31, 2019 Electricity 571,122 503,374 Charges for Using the Electric Grid 121,416 93,916 Materials and Services 138,291 160,947 Electric Energy Trading Chamber – CCEE (i) 393,718 238,488 Total 1,224,547 996,725 (i) The CCEE has as one of its attributions, to determine the value of the accounting of agents. This value, in the case of the distributors, involves in addition to the sale and purchase in the short term, charges, effect of dispatch of thermals and also diverse impacts of hydrological risk. The hydrological risk in the case of the distributors is associated with the energy contracts (CCEAR-QT) that have been renegotiated, contracts of physical guarantee quota and contract with Itaipu. Celesc D, even being a buyer, assumes the hydrological risk. The increase in Summary costs (SUM001) is due to the deterioration of the weather scenario at the end of 2020, in which reservoirs in the South and Southeast were impacted by the lowest rainfall rates since 1930. In this scenario, both the GSF (the hydroelectric plants' production factor) and the PLD cost were negatively impacted. Besides this, in order to promote the system's energy security, there was a significant increase in the cost of charges, mainly due to energy imports from Uruguay and Argentina, in order to guarantee the supply of energy in the South of the country.
22. LOANS AND FINANCING
Loans and Financing have five distinct classifications: (i) Bank Loans, (ii) Commercial Promissory Note, (iii) Eletrobras Loans, (iv) Finame Loans and (v) Loans - IDB, and some of them are guaranteed by the Holding’s receivables and surety, as per contractual provisions.
Consolidated Description December 31, 2020 December 31, 2019 Total in National Currency 944,422 813,035 Bank Loans (i) 7.40% p.a. - 150,357 Bank Loans (i) CDI + 1.25% and CDI + 1.3% 122,406 301,388 Bank Loans (i) CDI + 0.8% p.a. 298,315 336,200 Commercial Promissory Note (ii) CDI + 4.5% p.a. 507,939 - Eletrobras Loans (iii) 5% p.a. 3,857 5,438 Finame Loans (iv) 2.5% to 9.5% p.a. 11,905 19,652 Total in Foreign Currency 710,522 474,596 Loans - IDB (v) CDI + 0.89% to 1.44% p.a. 710,522 474,596 Total 1,654,944 1,287,631 Current 865,901 383,623 Non-Current 789,043 904,008
i) Bank Loans
The Bank Loans balances refer to the contracting, whose funds were used exclusively to strengthen the Company’s cash.
Through Bank Credit Note – CCB, in April 2018, an additional R$150 million was contracted with Banco Safra, with pre-fixed interest at 7.40% p.a. and required monthly. The contract term was 12 months and its settlement was provided in a single installment at the end of its term (bullet). However, in April 2019, the agreement was renegotiated and the payment term was extended for another 12 months, with a bullet maintained for its settlement at the end of its term. Due to the Company's strategy, this CCB was renegotiated once again, for 120 (one hundred and twenty) days, with maturity scheduled for August 2020. The repayment is kept in the bullet modality, and the interest rate was also kept in the same percentage that was contracted. The settlement was made in a single installment on their maturity.
In November 2018, R$100 million was contracted with Banco do Brasil through a Bank Credit Note – CCB, with remuneration at the rate equivalent to the CDI + 1.25% p.a. and required quarterly. The 24-month term is expected to be amortized in 4 quarterly installments, beginning in February 2020 and ending in November 2020. The four installments were amortized on their respective maturity.
Also in November 2018 and through Bank Credit Bill, R$200 million were contracted with Banco Safra, with remuneration at the rate equivalent to the CDI + 1.3% p.a. required monthly. The term is 36 months, with an 18-month grace period for the beginning of the amortization of the principal amount, and settlement in 18 monthly installments, started in June 2020 and expected to end in November 2021.
At the end of the contracts classified as Bank Loans, in April 2019, R$335 million was contracted with Banco Safra through a Bank Credit Note -, with interest rate equivalent to the CDI + 0.80% p.a. and required monthly. The terms of validity, grace period and settlement of the principal are identical to those described in the previous contract, with the beginning of the amortization scheduled for November 2020 and the end for April 2022. ii) Commercial Promissory Note
On May 29, 2020, Celesc D made the first issue of Commercial Promissory Notes, with 489 (four hundred and eighty-nine) securities issued with a unit value of R$1.0 million, totaling R$489.0 million. Maturities on May 24, 2021 and the amortization will be made in a single installment, in bullet mode. The Promissory Notes will bear interest corresponding to 100% of the accumulated variation of the average daily “over extra group” DI – Interbank Deposits rates for one day, calculated and published by B3, based on 252 business days, plus a spread of 4.50% (four point fifty per percent) per year, on a pro rata basis. Interest payments will also occur on the due date. iii) Eletrobras
The funds of these hirings were intended, among other applications, to the rural electrification programs and come from the Global Reserve of Reversão - RGR and of the Financing Fund of Eletrobras. In general, the contracts have a grace period of 24 months, amortization in 60 monthly installments, interest rate of 5.00% p.a., management fee of 2.00% p.a. and commission rate of 0.83%. All contracts have ANEEL's consent. iv) Finame
The funds of these contracts were useful to cover some of Celesc D's insufficient funds and were used to purchase machinery and equipment. Each acquisition constitutes a contract, which were traded at interest rates ranging from 2.50% to 9.50% p.a. and with amortizations estimated for 96 monthly installments. All contracts have ANEEL's consent. v) Banco Interamericano de Desenvolvimento – IDB
On October 31, 2018, Celesc D and the Inter-American Development Bank - IDB signed an external credit operation called Loan 4404/OC-BR (BR-L1491).
The total amount of the transaction is US$276,051,000.00 (two hundred and seventy-six million and fifty-one thousand US dollars) and the amortization period is of 234 (two hundred and thirty-four) months with a grace period of up to 66 (sixty-six) months, reaching a total term of 300 (three hundred) months.
The amortization is semi-annual through the constant system and the interest rate is the 3-month libor (USD-LIBOR 3m) plus spread, with monetary restatement calculated by the exchange rate change. In addition, there is a requirement for a commitment fee of up to 0.75% per annum on the undisbursed balance and a supervisory fee of up to 1% of the loan amount, divided by the number of semesters included in the original disbursement term 5 (five) years.
The loan is guaranteed by the Federative Republic of Brazil and the State of Santa Catarina, and is intended for the partial financing of the Energy Infrastructure Investment Program within the jurisdiction of the Celesc D.
The first release occurred on December 10, 2018, in the amount of seventy million, three hundred seventy-four thousand, three hundred and two US dollars and ninety-five cents (US$70,374,302.95) and the second on January 28 2019, in the amount of nine million, seven hundred and four thousand, three hundred and twenty-eight US dollars and ten cents (US$9,704,328.10).
On May 2, 2019, Celesc D opted to convert, in national currency, the debt balance released up to that date, in the amount of eighty million, seventy-eight thousand, six hundred and thirty-one US dollars and five cents (US$80,078,631.05), and by the change in the interest rate applied to the contract, which became CDI + 0.89% p.a. (already considering the IDB costs) throughout the term of the contract for these releases, therefore, there is no longer any exchange rate change.
Continuing the transaction, four more releases took place: the third, on October 07, 2019, in the amount of twenty-six million, two hundred and ten thousand, seven hundred and fifty-five US dollars (US$26,210,755.00), the fourth, on December 10, 2019, in the amount of nine million, seven hundred and sixty-seven thousand, eight hundred and ninety-one US dollars and seventy-three cents (US$9,767,891.73), the fifth, on June 09, 2020, in the amount of seven million, two hundred and seventy-three thousand, one hundred and sixty-nine US dollars and seventy-six cents (US$7,273,169.76) and the sixth, on October 13, 2020, in the amount of thirty-five million US dollars (US$35,000,000.00).
As in the previous ones, it was also decided to convert the released balance at the national interest rate, linked to the CDI, with CDI + 0.935% p.a. for the release occurred on October 7, 2019, CDI + 0.77% p.a. for the release that took place on December 10, 2019 and CDI + CDI + 1.14% p.a. for the release that took place on June 9, 2020, and CDI+1.80% p.a. for the release that took place on October 13, 2020 (already considering the IDB costs) throughout the term of the agreement for these releases, to avoid any exchange rate change on this financing. a) Breakdown of Investments
The amounts classified as non-current liabilities have the following composition, by year of maturity:
Consolidated
Description Domestic Foreigner Total December 31, December 31, December 31, December 31, December 31, December 31, 2020 2019 2020 2019 2020 2019 Year 2021 - 351,849 - - - 351,849 Year 2022 79,107 79,107 - - 79,107 79,107 Year 2023 3,260 3,259 - - 3,260 3,259 Year 2024 1,139 1,139 35,259 23,415 36,398 24,554 Year 2025 + 364 364 669,914 444,875 670,278 445,239 Total 83,870 435,718 705,173 468,290 789,043 904,008 b) Movement of Loans and Financing - National
Consolidated Description Current Non-Current Total Balance on December 31, 2018 320,322 325,026 645,348 Additions - 335,000 335,000 Provisioned Fees 60,138 - 60,138 Transfers 224,308 (224,308) - Principal amortization (167,383) - (167,383) Payment of Charges (60,068) - (60,068) Balance on December 31, 2019 377,317 435,718 813,035 Additions 538,000 - 538,000 Monetary restatement - - - Provisioned Fees 57,795 - 57,795 Transfers 351,848 (351,848) - Amortizations of Principal (423,307) - (423,307) Payment of Charges (41,101) - (41,101) Balance on December 31, 2020 860,552 83,870 944,422
c) Movement of Loans and Financing - Foreign – IDB
Consolidated Description Current Non-Current Total Balance on December 31, 2018 767 272,686 273,453 Additions - 183,897 183,897 Monetary restatement - 11,707 11,707 Provisioned Fees 23,385 - 23,385 Payment of Charges (17,846) - (17,846) Balance on December 31, 2019 6,306 468,290 474,596 Additions - 232,318 232,318 Monetary restatement - 4,565 4,565 Provisioned Fees 24,077 - 24,077 Payment of Charges (25,034) - (25,034) Balance on December 31, 2020 5,349 705,173 710,522
23. DEBENTURES
23.1. DEBENTURES 2018 – CELESC D
Celesc D issued, on July 13, 2018, 250,000 (two hundred and fifty thousand) debentures, not convertible into shares, in the unit face value of R$1.0 thousand, totaling R$250 million, due on July 13, 2023, not convertible into shares. The proceeds of this issuance were used as an aid for the ordinary management of its business.
The actual guarantee is the assignment in trust of existing and/or future receivables arising from the gross electricity supply to Celesc D's customers and Celesc Holding will provide surety in favor of the debenture holders, being obligated as a guarantor and principal payment of all due amounts under the Deed of Issuance.
The debentures will have a 5-year term as of the date of issuance, so that they expire on July 13, 2023; with a remuneration of interest corresponding to 100% of the cumulative variation of the daily average rates of DI or ID – Interbank Deposits of one day, plus a surcharge or spread of 1.9% per year.
The amortization was scheduled in 15 consecutive quarterly installments, always on the 13th of January, April, July and October, starting on January 13, 2020 and the last one on the due date. The remuneration will occur in quarterly and consecutive installments, without a grace period, as of October 13, 2018. Until December 31, 2020, R$36 million in interest payments were paid.
Annually, the Company, as guarantor, is committed to a covenant in which the Debentures issued do not present a Net Debt/EBITDA ratio above 2.5. Failure to comply with this financial indicator may entail the early due date of the total debt. As of December 31, 2020, the calculation result of this ratio was 0.92, thus fulfilling this obligation.
23.2. DEBENTURES 2018 - CELESC G
On June 1, 2018, Celesc G issued 15,000 debentures with a unit par value of R$10,000, not monetarily restated, totaling R$150 million. The issue was made in a single series, of the simple type and not convertible into shares. The actual guarantee was set as an assignment in trust of present and/or future receivables arising from the gross electricity supply to Celesc G's customers. In turn, a guarantee was set as the trust in favor of the Debentures owners, undertaking the role of guarantor and principal payment of all amounts due under the deed of issuance.
The debentures have a term of five years, as of their issue date, and the remuneration interest corresponds to 100% of the accumulated variation of the average daily rates of interbank deposits - DI of one day, plus a surcharge or spread of 2.5% p.a., until the date of actual payment.
Interest has been paid since September 2018 and the amortization has been made since June 2019, both quarterly and consecutively. Until December 31, 2020, R$24.8 million in remuneration and R$61.8 million in principal had been paid.
On a semi-annual basis, the Company, as guarantor, and Celesc G, as issuer, have a covenant related to the issuance of the debentures not to present a Net Debt/EBITDA ratio of more than 2. Failure to comply with this financial indicator may entail the early due date of the total debt. As of December 31, 2020, the calculation result of this ratios were 0.92 and 0.65, respectively, thus fulfilling this obligation.
23.3. DEBENTURES 2020 - CELESC G
On December 10, 2020, Celesc G issued 37,000 debentures with a unit par value of R$1,000, totaling R$37 million with a monetary restatement by the accumulated variation of IPCA (Extended National Consumer Price Index), monthly released by IBGE (Brazilian Institute of Geography and Statistics). The issue was made in a single series, of the simple type and not convertible into shares. A guarantee was set as the trust in favor of the Debentures owners, undertaking the role of guarantor and principal payment of all amounts due under the Deed of Issuance.
The debentures have a term of ten years, as of their issue date, and remuneration interest of 4.30% p.a., until the date of actual payment.
Interest will be paid in June 2021 and the amortization will be made in December 2023, both biannually and consecutively.
Annually, Celesc G, as issuer, have a covenant related to the issuance of the Debentures not to present a Net Debt/EBITDA ratio of more than 3.50. Failure to comply with this financial indicator may entail the early due date of the total debt. As of December 31, 2020, the calculation result of this ratio was 0.65, thus fulfilling this obligation.
23.4. OPERATIONS WITH DEBENTURES
Consolidated Description Total Balance on December 31, 2018 501,262 Provisioned Fees 34,062 Payments of Charges (36,417) Principal Payment (126,490) Costs to Issue Celesc D Debentures 1,038 Costs to Issue Celesc G Debentures 490 Balance on December 31, 2019 373,945 Current 105,133 Non-Current 268,812 Additions 35,659 Provisioned Fees 15,610 Payments of Charges (18,064) Principal Payment (101,961) Costs to Issue Celesc D Debentures 623 Costs to Issue Celesc G Debentures 490 Interest on Construction in Progress 206 Balance on December 31, 2020 306,508 Current 102,592 Non-Current 203,916
23.5. COSTS IN THE COLLECTION OF DEBENTURES TO BE OWNED
Consolidated Description December 31, 2020 December 31, 2019 Year 2020 - 1,115 Year 2021 1,248 1,113 Year 2022 1,248 1,113 Year 2023 660 528 Total 3,156 3,869
23.6 RECONCILIATION OF LIABILITIES RESULTING FROM FINANCING ACTIVITIES
Parent Company Description Balance of Dividends and Interest on Shareholders’ Equity on 39,524 December 31, 2018 Payments - Changes in the Financing Flow (36,512) Changes that do not Affect the Cash 64,671 Balance of Dividends and Interest on Shareholders’ Equity on 67,683 December 31, 2019 Payments - Changes in the Financing Flow (67,250) Changes that do not Affect the Cash 123,188 Balance of Dividends and Interest on Shareholders’ Equity on 123,621 December 31, 2020
Consolidated Total Changes in the Description December 31, 2019 Admission of Resources Principal Financing Flow Interest Changes that do December 31, 2020 Payment Payment (i) not affect the cash (ii) Resources Main Financing Flow Interest (i) Cash Effects(ii) Loans/Financing 1,287,631 770,318 (423,307) 347,011 (66,135) 86,437 1,654,944 Debentures 373,945 35,659 (101,961) (66,302) (18,064) 16,929 306,508 Dividends and Interest on 67,683 - (67,250) (67,250) - 123,188 123,621 Shareholders’ Equity Total 1,729,259 805,977 (592,518) 213,459 (84,199) 226,554 2,085,073 (i) Interest paid is classified in the Operating Activities flow in the Statement of Cash Flow. (ii) Provision for Loans and Financing totaled R$81,872. Debentures totaled R$15,610, with R$1,113 regarding costs with debentures incurred in 2020.
Inflow of Consolidated Funds Total Changes Principal Payment of Changes that do not Description December 31, 2018 Flow of Payment Interest (i) affected the Cash December 31, 2019 Financing Loans/Financing 918,801 518,897 (167,383) 351,514 (77,914) 95,230 1,287,631 Debentures 501,262 - (126,490) (126,490) (36,417) 35,590 373,945 Dividends and Interest on 39,524 - (36,512) (36,512) - 64,671 67,683 Shareholders’ Equity Total 1,459,587 518.897 (330,385) 188,512 (114,331) 195,491 1,729,259 24. SOCIAL SECURITY AND LABOR OBLIGATIONS
Parent Consolidated Company Description December 31, December 31, December 31, December 31, 2020 2019 2020 2019 Provisions for Payroll and Social Charges 658 378 94,946 100,890 Incentivized Dismissal Plan - PDI (i) - - 132,670 119,173 Consignment in Favor of Third Parties - - 7.479 8,485 Provision for Profit Sharing - PLR - - 24,155 17,999 Net Payroll 221 254 12,670 13,787 Total 879 632 271,920 260,334
Current 879 632 211,656 212,148 Non-Current - - 60,264 48,186
24.1. INCENTIVIZED DISMISSAL PLAN - PDI
The program is part of the Company’s strategy to adjust its operating costs, optimize processes and improve indicators with a view to aggregating value to shareholders.
On February 22, 2016, Celesc D approved the regulation of Incentivized Dismissal Plan (PDI). This program was first implemented in December 2016. In the following years, new editions were made with the same criteria and regulations, with changes only in the minimum company time as an eligibility rule.
Minimum Number of Number of Plans Time Installments Portions Company Adherencewith to the CD Plan PDI 2016 25 years From 24 to 60 None PDI 2017 25 years From 24 to 60 None PDI 2018 25 years From 24 to 60 None PDI 2019 25 years From 24 to 60 None PDI 2020 24 years From 24 to 60 None
On April 23, 2020, Celesc D obtained approval to carry out an Emergency Incentivized Dismissal Plan, called PDI-E, for employees with over 33 years of work. 84 employees left the company.
Minim Number of Number of Plan um Installments with Portions Company Adherence to the Time CD Plan PDI-E 2020 33 years From 36 to 60 18
In July 2020, a new edition was approved. The PDI 2020 dismissals started in September, with 18 dismissals, and should continue until May 2021. In the fiscal year of 2020, PDI and PDI-E costs are R$112,847.
Since the implementation of the program until December 2020, 942 dismissals have occurred, with expenses totaling R$364,548.
The table below shows the summary of dismissals and the expenses recognized for each edition:
Number of Expenses in Plans Employees R$ thousand Dismissed PDI 2016 71 16,183 PDI 2017 181 79,531 PDI 2018 316 68,737 PDI 2019 272 87,250 PDI/PDI-E 2020 102 112,847
In December of each year, installments are updated based on the INPC variation in the last 12 months.
25. TAXES
25.1. INCOME TAX AND SOCIAL CONTRIBUTION ON NET INCOME AND INCOME TAX ON ISE
Parent Consolidated Company Description December 31, 2020 December 31, December 31, December 31, 2019 2020 2019 Income Tax (IRPJ) - - 10,123 7,870 Social Contribution (CSLL) 971 - 5,239 3,874 6,272 4,178 6,272 Income Tax on Interest on Shareholder’ Equity 4,178 (ISE) Total to be Collected 7,243 4,178 21,634 15,922 (-) Taxes to be Recovered (25,888) (10,905) (14,831) (21,692) Net Taxes (18,645) (6,727) 6.803 (5,770)
25.2. OTHERS TAXES
The Ministry of Economy issued Decrees 139 and 245/2020 extending the deadline to collect PIS and COFINS related to April and May, 2020, due to the COVID-19 pandemic. The normal course of operations happened as of the third quarter of 2020.
Parent Consolidated Company Description December 31, 2020 December 31, December 31, December 31, 2019 2020 2019 ICMS - - 274,512 144,156 PIS and COFINS 11,329 5,572 70,171 45,183 Others 223 105 4,540 4,035 Total to be Collected 11,552 5,677 349,223 193,374 (-) Taxes to be Offset - - (686,910) (1,139,732) Net Taxes 11,552 5,677 (337,687) (946,358)
26. REGULATORY FEES
Consolidated Description December 31, 2020 December 31, 2019 Energy Efficiency Program – PEE (EEP (i) 118,427 162,400 Research and Development – R&D (i) 131,873 69,638 Emergency Capacity Charge - ECE or ECC (ii) 19,442 19,441 ECE Installments 53,596 67,000 Charge Bill Level 36,244 35,736 Inspection Charge ANEEL 768 654 Emergency Electricity Acquisition Charge - EAEEE 417 417 Others 232 153 Total 360,999 355,439 Current 177,921 166,014 Non-Current 183,078 189,425 i) R&D and PEE – In accordance with Law 9,991/2000, concessionaires of public services of electric power distribution must invest, annually, a minimum percentage of their net operating income - NOI in Technological Research and Development projects of the Electric Power Sector - R&D and in Energy Efficiency Programs - PEE, according to regulations established by ANEEL.
On September 1, 2020, Provisional Measure No. 998 was published, and it provides for the changes in legal norms, including a temporary emergency measure to mitigate the economic effects of the COVID-19 pandemic on the electric power tariffs.
PM No. 998/20 is about the transfer of resources to the Energy Development Account – CDE (EDA), between 2021 and 2025, 30% of the resources that the concessionaires of electric power must invest in research and development (R&D) and energy efficiency programs
. Funds for projects contracted or started will be preserved. The period covers September 1, 2020 to December 31, 2025.
The sector is waiting for the procedures to become law. ii) The Emergency Capacity Charge (Encargo de Capacidade Emergencial – ECE) – was instituted by Law 10,438/02 with the purpose of covering the cost of hiring emergency thermoelectric plants installed in the country, available to generate energy in case of risk of shortage. This cost was paid by all consumers in the National Interconnected System, with the exception of those classified as low income.
27. PROVISION FOR CONTINGENCY AND COURT DEPOSITS
On the dates of the Quarterly Financial Reports, the Company had the following liabilities and corresponding court deposits for contingencies:
27.1. PROBABLE CONTINGENCIES
Parent Company
Contingencies Judicial Deposits Provision for Risks December 31, December 31, December 31, December Tax 2020 2,117 2019 2,117 2020 1,263 31, 20191,263 Labor 4,686 4,669 - - Civil 6,361 8,373 182 292 Regulatory 8,182 8,182 3,483 2,983 Environmental - - - - Total 21,346 23,341 4,928 4,538
Consolidated
Contingencies Judicial Deposits Provision for RisksDecember 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Tax (i) 3,753 3,752 19,677 9,641 Labor (ii) 35,919 45,382 45,002 60,123 Civil (iii) 96,982 75,221 162,161 130,581 Regulatory (iv) 155,215 46,699 247,250 303,762 Environmental (v) - - 18,703 2,123
Total 291,869 171,054 492,793 506,230
The operations in provisions and deposits are shown below:
Parent Company Consolidated Description Court Deposits Provision for Risks Court Deposits Provision for Risks Balance on December 31, 19,678 6,625 170,350 639,573 2018 Constitution 4,765 330 160,491 107,055 Financial Update - - - 19,654 Write offs (1,102) (2,417) (159,787) (260,052) Balance on December 31, 23,341 4,538 171,054 506,230 2019 Constitution 306 598 300,785 200,453 Financial Update - - - (62,500) Write offs (2,301) (208) (179,970) (151,390) Balance on December 31, 21,346 4,928 291,869 492,793 2020
The Company is a party involved in labor, civil, tax, regulatory and environmental proceedings in progress, and is discussing these issues at both the administrative and judicial levels.
These lawsuits, when applicable, are supported by judicial deposits. Provisions for possible losses arising from these processes are estimated and updated by the management, supported by the opinion of its internal and external legal advisors.
The nature of the probable contingencies can be summarized as follows: i) Tax Contingencies
They are related to tax contingencies at the federal level, related to the collection of COFINS and Social Security Contribution, and at the municipal level, associated with tax notices issued by the City of Florianópolis for ISS requirement.
The most relevant lawsuit, at the federal level, has an estimated loss of R$3.6 million and refers to the tax execution proposed by the Federal Government, with the object of the social security contribution, provided for in article 31 of Law 8212/91, incident on invoices of services provided by assigning labor. Celesc D filed appeals to tax enforcement, maintaining the non-enforceability of the tax, which were deemed partially valid, requiring the Union to rectify the Active Debt Certificate (CDA) under the terms of the decision. The process is in the final stage of adjusting the CDA and determining the remaining tax credit.
In the municipal sphere, the most relevant lawsuit has an estimated loss of R$10.1 million, and is related to the levy of ISS on the collection of COSIP (Contribution to Funding Public Lighting Service) through an agreement signed with the public entity. ii) Labor Contingencies
These are related to complaints filed by employees and former employees of the Group and companies that provide services (outsourced) related to overtime pay issues, mainly those related to breaches of intrajourney and interjourney intervals, as well as to a revision of the calculation basis of salary, additional fees, severance pay, among other labor rights. iii) Civil Contingencies
They are related to civil actions in general, with the purpose, in sum, of compensation for damages (material and/or moral) arising from: undue suspension of electricity supply, registration of consumer names with credit protection agencies, electrical damages caused by loss of production (smoking, chickens), accidents involving third parties.
There are, in the same way, other types of demands that generate the payment of amounts by Celesc D, such as: billing review, tariff reclassification, revision of bidding agreements (economic and financial rebalancing), public bidding, among others. iv) Regulatory Contingencies
Regulatory contingencies are associated with notifications made by ANEEL, ARESC or CCEE in punitive administrative proceedings arising from events that have already occurred, the settlement of which may result in the delivery of funds for contractual or regulatory violations of the electricity sector. Regulatory contingencies are also legal proceedings in which the Celesc D discusses with other sector agents (concessionaires for generation, trading, transmission or distribution of electric energy, in addition to institutional agents such as ANEEL, CCEE, ONS, EPE and MME) sectorial regulation. The most significant regulatory contingency refers to the 2014 contractual exposure. v) Environmental Contingencies
These are cases related to judicial discussions regarding the payment of material and moral damages, due to an environmental accident that occurred in the concession area of Celesc D.
27.2. POSSIBLE CONTINGENCIES
The Company also has tax, labor, civil, regulatory and environmental lawsuits, involving the risk of loss classified by the Management as possible, based on the assessment of its legal advisors, for which there is no provision made, according to the composition and estimate below:
Consolidated Contingencies December 31, 2020 December 31, 2019 Tax (i) 4.237 4,227 Labor (ii) 15,908 15,676 Civil (iii) 212,033 276,243 Regulatory (iv) 176,772 148,679 Environmental (v) 24,079 46,962 Total 433,029 491,787
The nature of possible contingencies can be summarized as follows: i) Tax Contingencies
These are related to tax contingencies at the federal level, related to the collection of PIS, COFINS. ii) Labor Contingencies
Most of these are related to complaints filed by employees and former employees of the Group and companies that provide services (outsourced) related to issues of subsidiary/joint liability, overtime, severance pay, and other labor rights.
iii) Civil Contingencies
They are related to several civil actions filed by individuals and legal entities, related to indemnification issues caused by material damages, moral damages and loss of profits, accident, bidding processes and others. iv) Regulatory Contingencies
Regulatory contingencies are associated with notifications made by ANEEL, ARESC or CCEE in punitive administrative proceedings that imply fines for breaching contractual or regulatory estimates of the electric sector, where the Company appealed at the administrative and judicial levels. At the same time, regulatory contingencies are the legal actions in which the Company discusses with sector agents (other concessionaires of generation, trading, transmission or distribution of electric energy, in addition to institutional agents such as ANEEL, CCEE, ONS, EPE and MME) to the application of electricity sector regulation. v) Environmental Contingencies
They are related to administrative and judicial environmental contingencies filed by individuals and legal entities, consisting mainly of indemnification for material damages, moral damages and loss of profits.
28. ACTUARIAL LIABILITIES
Consolidated Obligations Recorded December 31, 2020 December 31, 2019 Social Security Plans 1,239,278 1,467,554 Mixed Plan and Transitional Plan (a) 1,239,278 1,467,554 Assistance Plans 1,278,055 1,370,922 Celos Healthcare Agreement Plan (b) 1,213,968 1,308,002 Other Benefits (c) 64,087 62,920 Total 2,517,333 2,838,476 Current 197,901 176,528 Non-Current 2,319,432 2,661,948
Celesc D is a sponsor of the Celesc Social Security Foundation - CELOS, a closed non-profit private pension fund entity, whose main objective is the management of social security benefit plans for its participants basically represented by employees of Celesc D. a) Mixed Plan and Transitional Plan
The Mixed Plan has defined benefit characteristics for the mathematical reserve portion already existing at the transition date and for the benefits granted, and defined contribution characteristics for the post-transition contributions related to the scheduled retirement benefits to be granted. The previous defined benefit plan, called the "Transitional Plan", continues to exist, exclusively covering retired participants and their beneficiaries.
Of the total amount, R$376.8 million refers to the debt agreed with CELOS on November 30, 2001, for payment of 277 additional monthly contributions, with an interest rate of 6% p.a. and updated by the IPCA to cover actuarial liability of the Mixed and Transitional Plan.
Since this debt should be paid even in the event of a surplus of the Foundation, Celesc D recorded as of 2015 the monetary restatement and interest as a financial result, in accordance with CPC 33 (R1) - Benefits to Employee. b) CELOS Saúde Plan
Celesc D offers health insurance (medical, hospital and dental care) to its active employees, retirees and pensioners. c) Other Benefits
These are amounts referring to deficient aid, funeral aid, compensation for natural or accidental death and minimum benefit to the retiree.
28.1. ACTUARIAL ASSESSMENT RESULTS a) Actuarial Obligations
Consolidated Description Mixed Plan Transitional Plan Celos Healthcare Savings Plan Other Benefits Total Agreement Plan Balance on December 31, 2018 2,090,835 695,089 957,713 2,021 53,752 3,799,410 Cost of Current Net Service 5,894 - (20,065) 117 - (14,054) Contributions from Participants Made in the 28,934 14,601 40,806 - (2,901) 81,440 Period Interest on Actuarial Duty 185,316 59,030 84,600 164 4,711 333,821 Benefits Paid in the Fiscal Year (170,603) (82,601) (82,598) (205) (4,627) (340,634) (Gains) Losses on Actuarial Liabilities 547,102 92,828 355,069 49 11,985 1,007,033 Balance on December 31, 2019 2,687,478 778,947 1,335,525 2,146 62,920 4,867,016 Cost of Current Net Service 7,524 - (25,801) 147 - (18,130) Contributions from Participants Made in the 27,529 14,831 41,238 - - 83,598 Period Interest on Actuarial Duty 183,018 50,274 93,198 134 4,180 330,804 Benefits Paid in the Fiscal Year (182,457) (83,046) (84,518) (218) (4,514) (354,753) (Gains) Losses on Actuarial Liabilities (104) 5,504 (102,520) (276) 1,501 (95,895) Balance on December 31, 2020 2,722,988 766,510 1,257,122 1.933 64,087 4,812,640
b) Determination of Net Liabilities (Assets)
Consolidated Celos Plan Description Plan Mixed Plan Plan Savings Other Total HealthHealth Transitory Plan Benefits
Liabilities (Assets) as of December 31, 2018 650,262 373,993 926,828 - 53,752 2,004,835
Fair Value of Assets at the End of the Period (1,637,050) (361,821) (27,523) (11,362) - (2,037,756)
Actuarial Obligations at the End of the Period 2,687,478 778,947 1,335,525 2,146 62,920 4,867,016
Effect of Asset Ceiling and Additional Liabilities End - Period - 9,216 - 9,216
Liabilities (Assets) as of December 31, 2019 1,050,428 417,126 1,308,002 - 62,920 2,838,476
Fair Value of Assets at the End of the Period (1,887,276) (362,944) (43,154) (12,490) - (2,305,864)
Actuarial Obligations at the End of the Period 2,722,988 766,510 1,257,122 1,933 64,087 4,812,640
Effect of Asset Ceiling and Additional Liabilities End - Period - - 10,557 - 10,557
Liabilities (Assets) as of December 31, 2020 835,712 403,566 1,213,968 - 64,087 2,517,333
c) Reconciliation of the Assets Fair Value
Consolidated Description Mixed Plan Transitional Plan Celos Healthcare Savings Plan Total Agreement Plan Balance on December 31, 2018 1,440,573 321,096 30,885 9,655 1,802,209 Benefits Paid in the Period Using the Plan Assets (170,603) (82,601) (82,598) (205) (336,007) Contributions from Participants Made in the Period 28,934 14,601 40,806 - 84,341 Employer Contributions Accomplished in the Period 73,190 58,109 48,400 - 179,699 Expected Return on Assets 128,840 28,124 2,512 852 160,328 Gain (Loss) on the Fair Value of the Plan’s Assets 136,116 22,492 (12,482) 1,060 147,186 Balance on December 31, 2019 1,637,050 361,821 27,523 11,362 2,037,756 Benefits Paid in the Period Using the Plan Assets (182,457) (83,046) (84,518) (218) (350,239) Contributions from Participants Made in the Period 27,529 14,831 41,239 - 83,599 Employer Contributions Accomplished in the Period 76,016 62,274 53,856 - 192,146 Expected Return on Assets 111,923 24,054 2,234 769 138,980 Gain (Loss) on the Fair Value of the Plan’s Assets 217,215 (16,990) 2,820 577 203,622 Balance on December 31, 2020 1,887,276 362,944 43,154 12,490 2,305,864 d) Costs Recognized in the Income Statement for the Period
Consolidated Description December 31, 2020 December 31, 2019 Transitional Plan 11,826 16,793 Mixed Plan 51,469 35,901 Health Care Plan 27,651 33,411 Other Benefits 4,329 4,828 Total 95,275 90,933 Personnel Expenses 55,263 54,585 Financial Expense 40,012 36.348 Total 95,275 90,933
e) Assumptions
The actuarial and economic assumptions used were as follows:
Disabil Funera Minimu Assumptions Mixed Transitory Savings Health ity l m Plan Assistance Assista Benefit nce Real Actuarial Discount Rate 3.50% 2.93% 3.34% 3.44% 3.80% 3.10% 3.80% AssetsExpected Real Return on Assets 3.50% 2.93% 3.34% 3.44% 3.80% 3.10% 3.80% Real Rate of Employee Wage Growth 2.95% Received N.U. 0.00% N.U. N.U. 0.00% N.U. Real Growth of the Plan's Benefits During the 0.00% 0.00% 0.00% 0.00% N.U. 0.00% -
HCCTR N.U. N.U. N.U. N.U. N.U. N.U. 3.00% Aging Factor N.U. N.U. N.U. N.U. N.U. N.U. 2.50% Capacity Factor on the Benefits 97.90% 97.90% 100.00% 97.90% N.U. 97.90% 100.00% Capacity Factor on Wages 97.90% N.U. N.U. N.U. N.U. N.U. 100.00% Expected Inflation 3.32% 3.32% 3.32% 3.32% 3.32% 3.32% 3.32% Nominal Discount Rate 6.94% 6.35% 6.77% 6.87% 7.25% 6.52% 7.25% EmployeesExpected Nominal Assets Return on the Plan’s Assets 6.94% 6.35% 6.77% 6.87% 7.25% 6.52% 7.25% Nominal Rate of Wage Growth of 6.37% N.U. 3.32% N.U. N.U. 3.32% N.U. Received Nominal Growth of the Plan’s Benefits During the 3.32% 3.32% 3.32% 3.32% N.U. 3.32% 6.42% AT – 2000 by by by by General Mortality AT- 2000 by N.U. by Male genderAT – 2000 genderAT – 2000 AT gender– 2000 genderAT – 2000 gender reduced by 5% reduced reduced reduced reduced by 5% by 5% by 5% by 5% Disability Mortality AT- 1949 by Male AT- 1949 by AT – 1949 AT- 49 AT – AT- 49 AT- 49 Male by Male by Male 1949 by Male by Male by Male Disability Entry Álvaro Vindas N.U. Álvaro N.U. N.U. N.U. Álvaro Vindas Vindas Annual Turnover Rate 1.49% N.U. N.U. N.U. N.U. N.U. 1.49% Entry into Retirement N.U. N.U. N.U. N.U. N.U. N.U. 61 years Real family for retirees and
pensioners Family Family Family Family Family Composition average for the Real Family N.U. N.U. Average Real Effective active (80% married and male three years older than female)
f) Estimated Expenses for the 2021 Fiscal Year
The estimated expenditure for the 2021 financial year is shown below:
Plans Expenses to be Recognized in 2021 Transitional Plan 8,165 Mixed Plan 32,720 Savings Plan 127 Health Care Plan 4.332 Other 4,163 Total 49,507
g) Changes in Actuarial Liabilities
Consolidated Description Plan Celos Plan Health Plan Savings Plan Other Total Transitional/Mixed Benefits (Reclassified) Balance on December 31, 2018 1,024,255 926,828 - 53,752 2,004,835 Expenses/(Revenues) Recognized in the Income 117 of the 93,276 62,023 1,810 157,226 Fiscal Year (Gains)/Losses Recognized in ORA 481,322 367,551 (117) 11,985 860,741 Employer Contributions (131,299) (48,400) - - (179,699) Benefits Paid Directly by Celesc D - - - (4,627) (4,627) Balance on December 31, 2019 1,467,554 1,308,002 - 62,920 2,838,476 Expenses/(Revenues) Recognized in the Income 147 of the 104,839 65,163 4,180 174,329 Fiscal Year (Gains)/Losses Recognized in ORA (194,825) (105,341) (147) 1,501 (298,812) Employer Contributions (138,290) (53,856) - - (192,146) Benefits Paid Directly by Celesc D - - - (4,514) (4,514) Balance on December 31, 2020 1,239,278 1,213,968 - 64,087 2,517,333
29. SHAREHOLDERS’ EQUITY
29.1. SHARE CAPITAL
The Company's update, paid-in and subscribed Share Capital is R$ 1,340,000,000.00 (one billion three hundred and forty million reais), represented by 38,571,591 nominative shares, with no par value, of which 15,527,137 are common shares (40.26%), with voting rights and 23,044,454 preferred shares (59.74%), also nominative. Preferred shares have a priority in the receipt of 25% non-cumulative dividends.
On January 21, 2020, the Board of Directors approved the proposal to amend the Company's Bylaws, increasing the amount of Authorized Share Capital to two billion six hundred million reais (R$2,600,000,000.00).
In addition to the increase in the Authorized Share Capital, it also approved the increase in the Paid-in Capital to two billion, four hundred and eighty million reais (R$2,480,000,000.00). The payment will be made with the incorporation of part of the Profit Retention Reserves of previous years, without any issue of new shares.
Article 40 of the current Constitution of Santa Catarina, which deals with matters of the exclusive competence of the Legislative Assembly, establishes in its paragraph 2, whose wording was given by Constitutional Amendment No. 59, of September 21, 2011, that the vote of the State representatives on the administrative boards of Mixed Economy Companies, except for the Companhia Catarinense de Águas e Saneamento S.A. - Casan, which implies a change in the bylaws, will be preceded by authorization from the Legislative Branch, by an absolute majority of its members.
Fulfilling the legal requirement, the matter was forwarded to the Civil House of the State of Santa Catarina, which sent the matter to the Legislative Assembly. The approval of the change, contained in Letter No. 0012.1/2020 from that legislative house, originating from Government Message No. 399, dated February 19, 2020, is represented by Legislative Decree No. 18,339, dated December 17, 2020, published in the Santa Catarina Assembly Gazette No. 7,768, dated December 18, 2020.
Finally, in order to produce the proposed accounting effect, the Shareholders' Meeting must approve the amendment to the Bylaws at its regular and extraordinary meeting to be held on April 29, 2021.
29.2. LEGAL RESERVE AND PROFIT RETENTION RESERVE
The legal reserve is constituted annually as a 5% allocation of net income for the fiscal year and may not exceed 20% of the share capital. The legal reserve aims to ensure the integrity of the share capital and can only be used to offset losses and increase capital.
The profit retention reserve refers to the retention of the remaining balance of retained earnings in order to meet the business growth plan established in its investment plan, in accordance with the capital budget approved and proposed by the Company's administrators, to be deliberated at the Shareholders' General Meeting.
29.3. DIVIDENDS AND INTEREST ON EQUITY
The dividend proposal calculated for Fiscal Year 2020 is 25%, as defined by the Company's Dividend Distribution Policy, subject to its limitations.
Description December 31, 2020 December 31, 2019 Net Income for the Year 518,685 283,575 Constitution of Legal Reserve (25,934) (14,179) (=) Dividends and IoE Calculation Basis 492,751 269,396 Proposed Dividends (Payout of 25%) 123,188 67,349 (-) IoE (Net) 71,146 (47,660) Dividends payable (Current Liabilities) 52,042 19,689 Total of Dividends and IoE of the Year 123,188 67,349
If we only consider the dividends approved for distribution in the fiscal year, we have the following situation:
Description December 31, 2020 December 31, 2019 Dividends and IoE to be Distributed of the Year (25%) 123,188 67,349 Total of Dividends and IoE of the Year 123,188 67,349
As per the Master Plan in effect, the Company has adopted an indicative policy of dividends distribution of at least 30% of adjusted Net Profit, based on the annual Financial Statements, if there is no limitation determined on its financial obligations and other factors. In this way, the Company accrued the minimum mandatory provision of 25% on account of the obligation in the contractual clause of the debentures of Celesc G, in which it is the guarantor
24.4. BASIC AND DILUTED EARNINGS PER SHARE
The calculation of Basic and diluted profit per share as of December 31, 2020 and 2019 was based on the net income for the period and the weighted average number of common shares and preferred shares outstanding during the periods presented.
As of December 31, 2020 and 2019, the Company's shares were unchanged. During this period, there were no transactions involving ordinary shares or potential common shares between the balance sheet date and the date of completion of the Quarterly Information.
During the periods of December 31, 2020 and 2019, the Company did not have any convertible instruments in stock that would have a dilutive impact on profit/(loss) per share.
24.5. BREAKDOWN OF BASIC AND DILUTED EARNINGS
Description December 31, December 31, 2020 2019 Weighted Average Number of Shares (thousands) Common Nominative Shares - ON 15,527 15,527 Preferred Nominative Shares - PN 23,044 23,044 Basic and Diluted Earnings per Share Assigned to Company Shareholders (R$) Common Nominative Shares - ON 12.6892 6.9374 Preferred Nominative Shares - PN 13.9581 7.6312 Basic and Diluted Earnings Assigned to the Company's Shareholders Common Nominative Shares - ON 197,027 107,719 Preferred Nominative Shares - PN 321,658 175,857 Total Basic and Diluted Profit Assigned to the Company's Shareholders 518,685 283,575
24.6. EQUITY VALUATION ADJUSTMENTS
The table below shows the net effect in the amount of R$1,267,144 on December 31, 2020 and R$1,454,873 on December 31, 2019, in Shareholders’ Equity:
Consolidated Adjustments to Equity Valuation December 31, 2020 December 31, 2019 Assigned Cost – Celesc G (a) 14,589 15,153 Actuarial Liabilities Adjustment - Celesc D (b) (1,281,733) (1,470,026) Total (1,267,144) (1,454,873)
(a) The attributed cost, measured at fair value at the date of the initial adoption of the CPCs in 2009, was recognized in the Equity Assessment adjustment, in shareholders' equity, net of deferred income tax and social contribution, as a counter-entry to fixed assets. Its realization is recorded as a counter-entry to the YTD profits account to the extent that the depreciation of the fair value of fixed assets is recognized in the income statement.
(b) Actuarial gains and losses arising from adjustments by experience and changes in actuarial assumptions are recorded directly in shareholders' equity, as other comprehensive income - equity valuation adjustments.
30. INSURANCES
Insurance coverage on December 31, 2020 was contracted at the amounts shown below, which are in accordance with the insurance policies: Consolidate d Company Field Covered Assets Validity Insured Amount (i) Warranty Celesc D Warranty Insurance December 29, 2017 to 300,000 of Judicial/Administrative December 31, 2020 Processes Celesc D Named Risks Substations May 14, 2020 to May 14, 2021 25,000 Celesc G Fire/Lightning/Explosion Plants and Substations August 8, 2020 to August 8, 24,272 2021 Celesc G Aircraft Fall Plants and Substations August 8, 2020 to August 8, 12,136 2021 Celesc G Gale Plants and Substations August 8, 2020 to August 8, 12,136 2021 Celesc G Electrical Damage Plants and Substations August 8, 2020 to August 8, 24,272 2021 Celesc G Warranty Insurance Warranty of Hydroelectric Utilization of US Caveiras 25.11.2020 a 25.11.2022 307
(i) The assumptions and risks adopted, given their nature, are not part of the scope of an audit of the Financial Statements, therefore they were not examined by our independent auditors.
On January 4, 2020, a claim occurred at SE Joinville III, which is currently being regulated. In 2020, there was no indemnification for insured assets.
31. INFORMATION BY BUSINESS SEGMENT
The Management has defined the Company's operating segments, based on the reports used to make strategic decisions, reviewed by the Board of Executive Officers.
The presentation of the segments is consistent with the internal reports provided to the Company's Board of Executive Officers, responsible for allocating resources and evaluating the segments' performance.
The information by business segment, as reviewed by the Executive Board for the years ended on December 31, 2020 and 2019, is as follows:
December 31, 2020 Adjustments Description Parent Company Celesc D Celesc G Total Consolidation Net Operating Revenue – ROL or NOR - 8,711,727 152,839 (5,866) 8,858,700 Cost of Sales - (7,626,762) (34,082) 5,866 (7,654,978) Gross Operating Income - 1,084,965 118,757 - 1,203,722 Selling Expenses - (140,951) (6,059) - (147,010) General and Administrative Expenses (19,632) (378,077) (15,434) - (413,143) Other Net Revenues/Expenses (2,525) (17,657) 1,665 - (18,517) Equity Income 537,491 - 10,049 (490,957) 56,583 Income from Activities 515,334 548,280 108,978 (490,957) 681,635 Financial Income (5,751) 235,313 3,357 (1,832) 231,087 Financial expenses (81) (183,337) (6,421) 1,832 (188,007) Net Financial Result (5,832) 51,976 (3,064) - 43,080 Earnings before Income Tax and Social 509,502 600,256 105,914 (490,957) 724,715 Contribution Income Tax (IRPJ) and Social Contribution 9,183 (191,208) (24,005) - (206,030) (CSLL) Net Income for the Period 518,685 409,048 81,909 (490,957) 518,685 Total Assets 2,133,733 9,553,390 768,717 Total Liabilities 149,091 8,563,389 199,730
December 31, 2019 Adjustments Description Parent Company Celesc D Celesc G Consolidation Total Net Operating Revenue – ROL or NOR - 7,872,697 148,608 (5,396) 8,015,909 Cost of Sales - (6,991,993) (36,406) 5,396 (7,023,003) Gross Operating Income - 880,704 112,202 - 992,906 Selling Expenses - (214,954) (5,607) - (220,561) General and Administrative Expenses (23,348) (351,013) (16,287) - (390,648) Other Net Revenues/Expenses (33) 61,011 10,848 - 71,826 Equity Income 311,587 - 4,448 (272,435) 43,600 Income from Activities 288,206 375,748 105,604 (272,435) 497,123 Financial Income (4,557) 232,813 9,586 (5,652) 232,190 Financial expenses (74) (301,354) (12,557) 5,652 (308,333) Net Financial Result (4,631) (68,541) (2,971) - (76,143) Earnings before Income Tax and Social 283,575 307,207 102,633 (272,435) 420,980 Contribution Income Tax (IRPJ) and Social Contribution - (109,034) (28,371) - (137,405) (CSLL) Net Income for the Period 283,575 198,173 74.262 (272,435) 283,575 Total Assets 1,491,187 8,409,618 701,244 Total Liabilities 84,063 7,895,967 186,467
31.1. CONSOLIDATED OPERATING REVENUE
Description December 31, 2020 December 31, 2019 Gross Operating Revenue – ROB or GOR 13,629,201 12,883,003 Electricity Supply (a) 5,893,269 6,632,022 Unbilled sales (a) (5,149) (51,103) Electric Energy Supply (a) 510,273 479,063 Unbilled Supply (a) 1,373 (77) Electric Grid Availability (i) 4,515,840 4,145,833 Update on Indemnifiable Financial Assets - Concession 6,662 4,567 Financial Income - Concession Bonus (a) 45,570 43.461 Income from Services 912 2,422 Short-Term Electricity 528,922 520,579 Revenue from Regulatory Assets and Liabilities 869,317 (181,623) Other Operating Revenues 5,164 17,113 Donations and Subsidies (ii) 664,573 728,841 Construction revenue 592,475 541,905 Deductions from Gross Operating Revenue (4,770,501) (4,867,094) ICMS (2,271,520) (2,300,184) PIS (214,448) (202,862) COFINS (987,763) (934,398) Energy Development Account – CDE (EDA) (1,203,282) (1,311,370) Research and Development – R&D (41,577) (37,612) Energy Efficiency Program – PEE (EEP) (40,625) (36,721) Inspection Charge – ANEEL (8,511) (7,499) Compensation for use of water resources – CFURH (2,267) (1,028) Other Charges (Tariff Level) (508) (35,420) Net Operating Revenue – ROL or NOR 8,858,700 8,015,909
(i) In compliance with the Accounting Manual for the Electric Sector - MCSE, approved by Regulatory Resolution 605/2014, Celesc D segregated TUSD's revenue from Captive Consumers for Electricity Supply for Electric Network Availability.
(ii) Amount passed on by Eletrobras, referring to the reimbursement of discounts on the tariffs applicable to users of the public electricity distribution service. The amount of revenue accounted for as CDE Subsidy (Decree No. 7,891/2013) in the 2020 fiscal year was R$607,812. The others refer to the Low-Income Program in the amount of R$15,254, supply of CCRBT Flags at R$38,253 and difference in CDE reimbursement at R$3,254. a) Electricity Supply and Provision
Number of mers (i) MWh (i) Gross Consu Revenue Description December 31, December 31, December 31, December 31, December 31, December 31, 2020 2019 2020 2019 2020 2019 Residential 2,468,904 2,399,381 6,292,611 6,019,924 3,953,569 3,971,166 Industrial 117,272 110,895 10,182,873 10,460,576 1,488,379 1,671,722 Commercial 287,506 280,029 4,076,743 4,337,609 2,066,673 2,357,965 Rural 232,645 232,393 1,222,883 1,233,744 610,979 562,141 Government 23,735 23,272 350,098 453,010 230,025 304,118 Public Lighting 910 855 637,219 655,903 242,712 268,528 Public Service 3,753 3,500 382,178 365,530 214,666 208,507 Reclassif. Rec. Subj. Electric Energy Grid - - - - (2,918,883) (2,763,228) Cons.Cat. Total Supply 3,134,725 3,050,325 23,144,605 23,526,296 5,888,120 6,580,919 Energy Supply 109 106 2,664,774 2,641,643 511,646 478,986 Financial Revenue Concession Bonus - - - - 45,570 43.461 Total 3,134,834 3,050,431 25,809,379 26,167,939 6,445,336 7,103,366 (i) Non-audited information
31.2. CONSOLIDATED OPERATING COSTS AND EXPENSES
Consolidated operating costs and expenses consist of the following types of expenses:
December Description Cost of Goods General and 31, 2020 and/or Selling Expenses Others expenses/ Administrative Revenues, Net Services Total Expenses Electricity Purchased for Resale (a) 5,134,866 - - - 5,134,866 Charges on Use of Electric Energy Grid (b) 1,183,603 - - - 1,183,603 Personnel (c) 391,716 210,202 60,227 27,011 689,156 Management - 7,647 - - 7,647 Actuarial Expense - 55,263 - - 55,263 Private Social Security Entity (c) 16,192 8,208 2,463 - 26,863 (11,055) (5,454) 16,509 Construction Costs 592,475 - - - 592,475 Third Party Costs and Services 104,020 76,556 59,907 1,028 241,511 Depreciation and amortization 213,653 25,300 - 1,971 240,924 Net Provisions - - (21,984) 47,659 25,675 Donations, Contributions and Grants - - - 525 525 Leases and Rents 1,973 19,584 550 (260) 21,847 Infrastructure Share (d) - - - (152,799) (152,799) Others 5,425 4,929 45,847 93,382 149,583 Total 7,654,978 413,143 147,010 18,517 8,233,648
December 31, 2019 Costs of Expense Sales Other Description Goods s - Expenses Expenses Total and/or General / Services and Revenues, Net Administrative Electricity Purchased for Resale (a) 4,849,680 - - - 4,849,680 Charges on Use of Electric Energy Grid (b) 886,076 - - - 886,076 Personnel (b) 398,840 197,783 64,893 24,757 686,273 Management - 8,770 - - 8,770 Actuarial Expense - 54,585 - - 54,585 Private Social Security Entity (c) 18,297 8,136 2,858 - 29,291 Supplies 10,398 6,742 - - 17,140 Construction Cost 541,905 - - - 541,905 Third Party Costs and Services 108,917 79.648 57,641 966 247,172 Depreciation and amortization 199,547 26,178 - 1,971 227,696 Net Provisions - - 30,417 (29,957) 460 Leases and Rents 2,008 19,574 684 (256) 22,010 Infrastructure Share (d) - - - (125,924) (125,924) Other 7,335 (10,768) 64,068 56,617 117,252 Total 7,023,003 390,648 220,561 (71,826) 7,562,386
The restatement mentioned in the figures for 2019 is qualitative, for the purpose of comparability with the figures for 2020, without any quantitative change. a) Electricity Purchased for Resale
Consolidated Description December 31, 2020 December 31, 2019 Electric Power Purchase in the Regulated Environment - 2,460,751 2,276,830 CCEAR Electric Energy Trading Chamber – CCEE 1,062,002 1,352,299 Itaipu Binacional 1,312,983 946,962 Bilateral Contracts 21,328 22,241 Nuclear Energy Quotas 195,843 176,699 Physical Guarantee Quotas 428,565 362,419 Proinfa 170,641 205,171 PIS/COFINS (517,247) (492,941) Total 5,134,866 4,849,680
b) Charges for Using the Electric Grid
Consolidated Description December 31, 2020 December 31, 2019 System Use Charge 988,069 805,344 System Services Charges - ESS 119,431 29,324 Itaipu Transportation Charges 109,945 94,427 Reserve Energy Charge - EER 86,815 42,942 (-) Reserve Energy Account - CONER - - PIS/COFINS (120,657) (85,961) Total 1,183,603 886,076 c) Personnel and Private Pension
Parent Company Consolidated Description December 31, December 31, December 31, 2020 December 31, 2020 2019 2019 Personnel 6,138 8,699 689,156 686,273 Compensations 5,833 8,193 280,380 289,813 Social Charges 205 296 111,620 119,327 Profit Sharing - - 38,635 37,546 Assistance Benefits - - 67,526 64,844 Provisions and Indemnities 50 78 190,876 174,536 Others 50 132 119 207 Private Pension Plans - Celos 3 - 26,863 29,291 Total 6,141 8,699 716,019 715,564 d) Infrastructure Share
It refers to the use of attachment points on the posts of Celesc D, carried out by third parties, for the provision of telecommunications services of collective interest, such as telephony, internet, cable TV and others.
31.3. FINANCIAL RESULT
Parent Consolidated Company December 31, December 31, December 31, December 31, 2020 2019 2020 2019 Financial Revenues (5,751) (4,557) 231,087 232,190 Financial Investment Income 473 1,014 16,533 28,493 Additions to Arrears on Electric Energy Bills - - 114,666 109,581 Monetary Variations - - 61,667 58,842 Monetary Restatement on Financial Assets - CVA - - 42,866 43,247 Supplier’s Discount - - - 72 Dividends Income 4.807 7 4.807 7 Interest on Equity – IoE 122,441 60,183 122,441 60,183 Reversal of Interest on Equity – IoE (122,441) (60,183) (122,441) (60,183) Reversal of provision for losses on Financial Assets - - 80 220 Other Financial Revenues 335 32 13,461 8,278 (-) PIS/COFINS w/o Financial Revenue (11,366) (5,610) (22,993) (16,550) Financial Expenses (81) (74) (188,007) (308,333) Debt Charges - - (86,537) (112,254) Mathematical Reserve Update to be Amortized - - (40,012) (36,348) Tax on Financial Transactions - IOF - - - (5,697) Monetary Variations - - (14,105) (61,331) Interest on Equity – IoE (77,417) (51,838) (101,589) (65,435) Reversal of Interest on Equity – IoE 77,417 51,838 101,589 65,435 R&D Update and Energy Efficiency - - (7,200) (15,797) Monetary Restatement on Financial Liabilities - CVA - - (28,327) (44,472) CDE Update - - - (15,511) Interest and Expenditure with Debentures - - (6,812) (13,387) Other Financial Expenses (81) (74) (5,014) (3,536) Financial Result (5,832) (4,631) 43,080 (76,143)
32. COMPLEMENTARY INFORMATION OF CELESC D
32.1. BALANCE SHEET – ASSETS
Assets 2020 2019 Current 3,765,236 2,133,010 Cash and cash equivalents 1,061,116 400,090 Trade receivables 1,889,243 1,403,888 Inventories 12,221 14,594 Taxes to be Recovered 583,781 65,740 CDE - Subsidy Decree No. 7,891/2013 47,032 53,236 Others 171,843 195,462 Non-Current 5,788,154 6,276,608 Long-Term Receivables 2,177,444 2,827,793 Indemnifiable Financial Assets - Concession 610,216 523,543 Trade receivables 29,236 44,683 Deferred Taxes 871,596 1,004,094 Taxes to be Recovered 106,149 1,090,907 Judicial Deposits 270,170 147,344 Financial Assets - CVA 286,861 12,678 Others 3,216 4,544 Intangible Assets 3,610,710 3,448,815 Total Assets 9,553,390 8,409,618
32.2. STATEMENT OF FINANCIAL POSITION – LIABILITIES
Liabilities on 2020 2019 Current 3,523,748 2,347,280 Trade accounts payable 1,217,190 989,272 National Currency Loans 860,552 377,317 Foreign Currency Loans 5,349 6,306 Debentures 67,558 69,644 Social Security and Labor Obligations 210,777 211,516 Taxes to be Recovered 351,984 194,446 Dividends and Interest on Shareholders’ Equity - Declared 97,149 47,066 Regulatory Fees 176,672 165,049 Loans (i) 91,832 - Actuarial Liabilities (CPC 33) 197,901 176,528 Financial Liabilities - CVA 142,491 25,142 Other Liabilities 104,293 84,994 Non-Current 5,039,641 5,548,687 National Currency Loans 83,870 435,718 Foreign Currency Loans 705,173 468,290 Debentures 115,714 181,760 Regulatory Fees 180,358 187,073 Social Security and Labor Obligations 60,264 48,186 Actuarial Liabilities (CPC 33) 2,319,432 2,661,948 Provision for Contingencies 487,375 500,474 PIS/COFINS to be Refunded to Consumers 1,087,455 1,065,238 Shareholders’ Equity 990,001 513,651 Share Capital Recognized 1,053,590 1,053,590 Profit Reserves 1,218,144 930,087 Adjustments to Equity Valuation (1,281,733) (1,470,026) Total Liabilities 9,553,390 8,409,618
(i) Loan between Celesc D and Celesc G
At a regular meeting of the Board of Directors, held on January 21, 2020, the transfer of funds from Celesc G to Celesc D in the form of a Loan Agreement was approved. The purpose of the operation is for working capital and ANEEL's consent was given through Order No. 3679/2019 from December 27, 2019.
The contract was signed on February 26, 2020, effective for twelve (12) months. The transfers were made in the amounts of R$40 million on the date of signature and R$50 million the following day, totaling R$90 million, which is equivalent to the limit established.
The remuneration interest of the operation corresponds to 96.75% of the CDI per year, of the accumulated variation of the daily average rates of DI - Interbank Deposits of one day, over extra-group, based on 252 business days, calculated and disclosed daily by B3. Until December 31, 2020, R$1.83 million in interest payments were recognized.
32.3. INCOME STATEMENT
Description 2020 2019 Net Operating Revenue – NOR 8,711,727 7,872,697 Net Revenue from Electric Energy Sales and Service 7,243,273 7,507,848 Revenue from Financial Assets (Liabilities) (CVA) 869,317 (181,623) Construction Revenue - CPC 47 592,475 541,905 Update on Indemnifiable Financial Assets - Concession 6,662 4,567 Costs of Sales/Services (7,626,762) (6,991,993) Cost of Goods Sold (6,302,875) (5,718,991) Cost of services Rendered (731,412) (731,097) Construction Cost - CPC 47 (592,475) (541,905) Gross Operating Income 1,084,965 880,704 Operating Expenses (536,685) (504,956) Selling Expenses (140,951) (214,954) General and Administrative Expenses (378,077) (351,013) Other Operating Revenues (Expenses) (17,657) 61,011 Operating Income before Finance Result 548,280 375,748 Financial Result 51,976 (68,541) Financial Income 235,313 232,813 Financial expenses (183,337) (301,354) Earnings before Corporate Income Tax and Social Contribution 600,256 307,207 Income Tax (IRPJ) and Social Contribution (CSLL) (191,208) (109,034) Current (155,710) (85,275) Deferred (35,498) (23,759) Net Income for the Period 409,048 198,173
32.3.1. Operating Revenue
Description December 31, 2020 December 31, 2019 Gross Operating Revenue – ROB or GOR 13,464,393 12,723,988 Electricity Supply (a) 5,858,042 6,600,634 Unbilled sales (a) (5,176) (50,194) Electric Energy Supply (a) 425,203 391,502 Financial Assets and (Liabilities) – CVA 869,317 (181,623) Electric Grid Availability 4,518,299 4,148,242 Short-Term Electricity 528,922 520,579 Donations and Subsidies 664,573 728,841 Construction Revenue 592,475 541,905 Update on Indemnifiable Financial Assets - Concession 6,662 4,567 Other Operating Revenues 6,076 19,535 Deductions from Gross Operating Revenue (4,752,666) (4,851,291) ICMS (2,271,520) (2,300,184) PIS (211,982) (200,435) COFINS (976,404) (923,218) Energy Development Account – CDE (EDA) (1,203,282) (1,311,370) Research and Development – R&D (40,625) (36,721) Energy Efficiency Program – PEE (EEP) (40,625) (36,721) Inspection Charge (7,720) (7,222) Other Charges (508) (35,420) Net Operating Revenue – ROL or NOR 8,711,727 7,872,697
a) Electricity Supply and Provision
The composition of the Gross Revenue of electricity supply and provision, by class of consumers, is as follows:
Number of Consumers (i) MWh (i) Gross Revenue Description December 31, December 31, December December December December 2019 2020 31, 2019 31, 2020 (Reclassified) 31, 2020 31, 2019 Residential 2,468,904 2,399,381 6,292,611 6,019,924 3,953,569 3,971,166 Industrial 117,264 110,887 10,053,909 10,356,678 1,460,597 1,649,602 Commercial 287,505 280,028 4,031,678 4,284,800 2,059,201 2,349,606 Rural 232,645 232,393 1,222,883 1,233,744 610,979 562,141 Government 23,735 23,272 350,098 453,010 230,025 304,118 Public Lighting 910 855 637,219 655,903 242,712 268,528 Public Service 3,753 3,500 382,178 365,530 214,666 208,507 Reclassif. Revenue Avail. Electric Energy Grid – Cons. - - - - (2,918,883) (2,763,228) Cativo Total Supply 3,134,716 3,050,316 22,970,576 23,369,589 5,852,866 6,550,440 Energy Supply 51 51 2,168,254 2,105,954 425,203 391,502 Total 3,134,767 3,050,367 25,138,830 25,475,543 6,278,069 6,941,942 (i) Non-audited information
32.3.2. Operating Costs and Expenses
December 31, 2020 Costs of Goods General Expenses and Others Expenses/ Revenues Description Administrative Sales Expenses Total and/or Services Net Electricity Purchased for Resale 6,302,875 - - - 6,302,875 Personnel 389,349 192,811 59,647 27,011 668,818 Actuarial Expense - 55,263 - - 55,263 Private Social Security Entity 16,192 8,205 2,463 - 26,860 Supplies 10,637 5,389 - - 16,026 Construction Cost 592,475 - - - 592,475 Third Party Costs and Services 99,163 68,740 59,391 1,028 228,322 Depreciation and amortization 208,620 24,293 - - 232,913 Net Provisions - - (26,881) 49,401 22,520 Others 7.451 23,376 46,331 (59,783) 17,375 Total 7,626,762 378,077 140,951 17,657 8,163,447
December 31, 2019 Costs of Goods General Expenses and Other Expenses/ Administrative Description and/or Services Sales Expenses Revenues, Net Total Electricity Purchased for Resale 5,718,991 - - - 5,718,991 Personnel 397,887 176,715 63,938 24,711 663,251 Actuarial Expense - 54,585 - - 54,585 Private Social Security Entity 18,297 8,136 2,858 - 29,291 Supplies 10,131 6,637 - - 16,768 Construction Cost 541,905 - - - 541,905 Third Party Costs and Services 101,987 72,480 57,029 966 232,462 Depreciation and amortization 195,065 25,293 - - 220,358 Net Provisions - - 26,548 (12,968) 13,580 Others 7,730 7,167 64,581 (73,720) 5.758 Total 6,991,993 351,013 214,954 (61,011) 7,496,949
33. COMPLEMENTARY INFORMATION OF CELESC G
33.1. BALANCE SHEET – ASSETS
Assets 2020 2019 Current 119,428 189,225 Cash and cash equivalents 54,668 137,640 Trade receivables 29,727 18,116 Inventories 92 102 Taxes to be Recovered 223 635 Advance to Suppliers 918 - Financial Assets – Concession Bonus 33,674 32,597 Others 126 135 Non-Current 649,289 512,019 Long-Term Receivables 366,276 273,329 Loans 91,832 - Judicial Deposits 353 369 Taxes to be Recovered 3,755 1,938 Indemnifiable Financial Assets - Concession 2,421 2,421 Financial Assets – Concession Bonus 267,913 258,113 Advance for Future Capital Increase - 10,000 Others 2 488 Investments 79,198 61,297 Property, Plant & Equipment 201,413 174,778 Intangible Assets 2,402 2,615 Total Assets 768,717 701,244
33.2. STATEMENT OF FINANCIAL POSITION – LIABILITIES
Liabilities on 2020 2019 Current 83,849 76,249 Trade accounts payable 7,530 7,109 Debentures 35,034 35,489 Taxes to be Recovered 18,134 13,696 Regulatory Fees 1,249 965 Dividends payable 20,546 17,637 Others 1,356 1,353 Non-Current 115,881 110,218 Debentures 88,202 87,052 Deferred Taxes 24,469 19,596 Regulatory Fees 2,720 2,352 Provision for Contingencies 490 1,218 Shareholders’ Equity 568,987 514,777 Share Capital 250,000 250,000 Legal reserve 21,700 17,604 Retained Profits Reserve 279,900 228,493 Dividends at the disposal of the ASM 2,798 3,527 Adjustments to Equity Valuation 14,589 15,153 Total Liabilities 768,717 701,244
33.3. INCOME STATEMENT
Description 2020 2019 Net Operating Revenue – NOR 152,839 148,608 Net Revenue from Electric Energy Sales 152,839 148,608 Cost of Sales (34,082) (36,406) Operation Cost (34,082) (36,406) Gross Income 118,757 112,202 Operating Expenses (9,779) (6,598) Cost of Sales (6,059) (5,607) General and Administrative (15,434) (16,287) Other Net Revenues/Expenses 1,665 10,848 Equity Income 10,049 4,448 Operating Income before Finance Result 108,978 105,604 Financial Result (3,064) (2,971) Financial Income 3,357 9,586 Financial expenses (6,421) (12,557) Earnings before Corporate Income Tax and Social Contribution 105,914 102,633 Income Tax (IRPJ) and Social Contribution (CSLL) (24,005) (28,371) Current (19,132) (18,918) Deferred (4,873) (9,453) Net Income for the Period 81,909 74.262
33.3.1. Operating Revenue
Description December 31, 2020 December 31, 2019 Gross Operating Revenue - ROB or GOR (a) 170,674 164,411 Electricity Supply - Industrial 27,755 23,029 Electricity Supply - Industrial - Unbilled 27 (909) Electricity Supply - Commercial 7,472 8,359 Electric Energy Supply 65,007 71,813 Electric Energy Supply - Unbilled 1,373 (77) Short-Term Electricity 23,470 18,735 Update/Interest Return/Concession Bonus 45,570 43.461 Deductions from Operating Revenue (17,835) (15,803) PIS (2,466) (2,427) COFINS (11,359) (11,180) Supervisory Fee ANEEL (791) (277) Research and Development – R&D (952) (891) Compensation for use of water resources (2,267) (1,028) Net Operating Revenue – ROL or NOR 152,839 148,608 a) Electricity Supply and Provision
Number of mers (i) MWh ( i) Gross Revenue Consu Description December December December December 31, December December 31, 31, 2020 31, 2019 31, 2020 2019 31, 2020 2019 Industrial 8 8 128,964 103,898 27,782 22,120 Commercial, Services and Others 1 1 45,065 52,809 7,472 8,359 Energy Supply 58 55 453,977 492,076 66,380 71,736 Short-Term Electricity (CCEE) - - 42,543 43,613 23,470 18,735 Update/Interest Return/Concession Bonus - - - - 45,570 43.461 Total 67 64 670,549 692,396 170,674 164,411 (i) Non-audited information
33.3.2. Operating Costs and Expenses
December 31, 2020 Description of Goods General Expenses and Other Net Administrative Sales Total Cost and/or Expenses/Revenu Expenses s Services es Electricity Purchased for Resale 19,001 - - - 19,001 Charges for Using the Electric Grid 2,459 - - - 2,459 Personnel 2,367 11,253 580 - 14,200 Supplies 418 65 - - 483 Third Party Costs and Services 4,857 2,727 516 - 8,100 Depreciation and amortization 5,033 1.003 - - 6,036 Insurance coverage 222 - - - 222 Net Provisions - - 4,897 (2,132) 2,765 Taxes (275) 99 66 - (110) Rents - 287 - - 287 Donations - - - 525 525 Others - - - (58) (58) Total 34,082 15,434 6,059 (1,665) 53,910
December 31, 2019 Description Costs of Goods General Selling Expenses Others expenses/ Total and/or Services ExpensesAdministrative and Revenues, Net Electricity Purchased for Resale 19,752 - - - 19,752 Charges for Using the Electric Grid 2,409 - - - 2,409 Personnel 953 12,415 955 - 14,323 Supplies 267 105 - - 372 Third Party Costs and Services 6,930 2,303 612 - 9,845 Depreciation and amortization 4,482 866 - - 5,348 Insurance coverage 230 - - - 230 Net Provisions - - 3,869 (14,903) (11,034) Taxes (307) 103 171 - (33) Rents - 411 - - 411 Donations - - - 624 624 Others 1,690 84 - 3,431 5,205 Total 36,406 16,287 5.607 (10,848) 47,452
34. SUBSEQUENT EVENTS
34.1. CALCULATIONS FOR GSF REPACTUATION COMPENSATION
On March 04, 2021 the CCEE, in a webinar, presented the calculations of the GSF repactuation compensation and the extensions of the permits of the plants that adhere to the repactuation of hydrological risk in the ACL.
At Celesc G, the calculations presented by the CCEE give the contemplated plants the following concession extension periods:
Number of Years until Net Margin Term Extension of Plant Future Value of Financial Impact End Date of the the End of the Name Concession (Days) - Plant (R$/MWh) - Financial Impact (R$) - (R$) - IFT_UHE Concession Months Concession (years) - EXT_UHE (plant) ML_UHE (plant) VF_IFT_UHE (plant) (plant) (plant) NAUHE (plant)
CEDROS HPP 214.9052 5,958,085.30 3,260,178.24 324,445.58 5/01/2046 25.096774 7.1635
UHE 232.6780 7,401,989.76 4,375,507.24 403,025.38 08/11/2046 25.938172 7.7559 BRACINHO CEDROS HPP 232.7055 5,677,662.60 3,356,599.16 309,174.36 11/08/2046 25.938172 7.7569
PCH CELSO 1,530.6463 3,196,026.09 10,617,891.92 2,848,936.20 3/22/2035 14.30914 51.0215 RAMOS UHE 232,6781 14,046,957.84 8,303,524.47 764,832.72 11/08/2046 25.938172 7.7559 PALMEIRAS SALTO HPP 232,7059 3,356,129.45 1,984,125.56 182,756.63 11/08/2046 25.938172 7.7569
ANEEL has 30 days to analyze and approve the calculations, then the generators will have 60 days to give up and renounce legal actions and request an extension of the concession term.
CAPITAL BUDGET PROPOSAL
In accordance with article 25, § 1, item IV of CVM Instruction 480, of December 7, 2009, below is shown the Capital Budget Proposal of Centrais Elétricas de Santa Catarina S.A. and its subsidiaries for the year 2021, approved by the Board of Directors in a regular meeting on December 10, 2020, with its origin of resources linked to financing, cash generation and retention of profits, as per article 196 of Federal Law 6,404/76.
Programs Holding Celesc D Celesc G Consolidated Electrical Assets - 540,840 - 540,840 Non-Electrical Assets - 50,592 1,000 51,592 Own Plants - - 16,653 16,653 Plant Expansion - - 14,354 14,354 Subsidiaries - - 4,829 4,829 New Businesses - - 27,050 27,050 Appropriation of Labor - 66,687 - 66,687 TOTAL - 658,119 63.887 722,005
Origin Holding Celesc D Celesc G Consolidated Outsourced Resources - 199,501 10,080 209,581 Own Resources - 393,716 53,807 447,523 Consumer Financial Participation - 64,902 - 64,902 TOTAL - 658,119 63.887 722,005
CAPEX Celesc Distribuição S/A
Investments in the electric power distribution system: Of the R$540.84 million to be invested in the energy distribution network, R$467.76 million will be used by the technical area, to enable system expansion and improvement works, and R$73.08 million will be invested by the commercial area, mainly in the installation and modernization of metering equipment. It is worth pointing out that part of the investments made by the company has the consumer's participation and/or counterpart, according to the regulatory rules.
Investments in General Facilities, Information Technology, and Vehicles: It will be R$38.33 million in hardware and software acquisition for the corporate network, R$10.30 million in vehicles, and R$1.96 million in equipment, tools, and furniture.
CAPEX Celesc Distribuição S/A
Of the R$63.89 million approved for 2021, R$27.05 million will be invested in new business and R$31.01 million in plant expansion and improvements, R$4.83 million in expected capital investments in subsidiaries, and R$1.00 million in vehicles, IT, and various equipment.
Thus, including the appropriation of labor, in the amount of R$66.69 million, the Company's consolidated investment budget for 2021 totals R$722.01 million.
OPINION OF THE BOARD OF DIRECTORS . . The Board of Directors of Centrais Elétricas de Santa Catarina S.A. - Celesc states that it examined, reviewed and agreed with all information in the Financial Statements (individual and consolidated) for the year ended December 31, 2020. . Consonant with the position of PricewaterhouseCoopers Independent Auditors - PwC, it approves the referred documents and proposes the approval by the Shareholders. . . Florianópolis/SC, March 11, 2021. . . João Eduardo Noal Berbigier Presidente . Amir Antônio Martins de Oliveira Junior . Cleicio Poleto Martins . Fabricio Santos Debortoli . Fabio William Loreti . João Manuel Brito Martins . Leandro Nunes da Silva . Luiz Alberton . Luiz Otavio Assis Henriques . Michelle Silva Wangham . Vanessa Evangelista Ramos Rothermel
DocuSign Envelope ID: 178CEE91-A5F1-4375-AF34-7725AB214A50
FISCAL COUNCIL’S REPORT
The Fiscal Council of Centrais Elétricas de Santa Catarina S.A. - Celesc, in the use of its legal and statutory attributions, in compliance with article 163, of Law 6,404/76 and its subsequent amendments, has examined the Management Report, the Financial Statements and the management proposal for the allocation of the result, all for the fiscal year ended December 31, 2020. Based on the work, interviews, and follow-ups carried out during the year, and also considering the content of the Report by PricewaterhouseCoopers Independent Auditors - PwC, it is of the opinion that these documents are in a position to be submitted for the appreciation of the Shareholders.
Florianópolis (SC), March 8, 2021.
Luiz Felipe Ferreira Presidente
Márcio Ferreira Ilana Luiza Ferreira Marujo Conselheiro Conselheiro
Leandro Carron Rigamontte Paulo Caio Ferraz de Sampaio Conselheiro Conselheiro
DocuSign Envelope ID: 991C7C9E-B480-4973-BAB4-6E30DDC8BDBC
Summarized Annual Report of the Statutory Audit Committee - CAE Fiscal Year 2020
To the Members of the Board of Directors of Centrais Elétricas de Santa Catarina S.A.; Celesc Distribuição S.A. and Celesc Geração S.A.
1. Presentation
The Statutory Audit Committee ("CAE" or "Committee") is a statutory advisory body directly linked to the Board of Directors of Centrais Elétricas de Santa Catarina S.A. - CELESC ("Company") and its wholly-owned subsidiaries, Celesc Distribuição S.A. and Celesc Geração S.A., governed by CVM Instruction 308 of the Brazilian Securities and Exchange Commission, of May 14, 1999, as amended by CVM Instruction 509, of November 16, 2011, Law 13,303, of June 30, 2016, the State Decree/SC 1484, of February 7, 2018 and the Internal Regulations of the Company's CAE ("Regulations").
Law 13,303, dated June 30, 2016, Section VII, Art. 24, item VII, determines that the Statutory Audit Committee must prepare an annual report with information about the activities, results, conclusions and recommendations of the Statutory Audit Committee, registering, if any, the significant disagreements between Management, Independent Audit and the Statutory Audit Committee in relation to the financial statements.
The Audit Committee, as of August 13, 2020, is composed of the Board Member Mr. Amir Antônio Martins de Oliveira Júnior (Committee Coordinator), and by Messrs. Thiago Sá Fortes Regis, Ernesto Fernando Rodrigues Vicente, Antônio Carlos Siegner Laporta, Octavio René Lebarbenchon Neto, as provided by Brazilian law.
The current composition of the CAE replaced the predecessor members, Messrs. Luiz Alberton (Committee Coordinator), Aloísio Macário Ferreira de Souza, Marcos Eduardo Teixeira, Marcelo Nome Silva, and Sérgio Tadeu Nabas, whose terms of office lasted from January 1, 2020 to August 12, 2020.
The members of the CAE meet the independence criteria established in article 22, §1, of Law 13,303 of 06/30/2016 and in article 31-C, §2, of CVM Instruction 308 of 05/14/1999.
2. Summary of activities in 2020
In the period from January to December 2020, Celesc's CAE held 14 meetings, involving the Board of Directors, the Company's Executive Officers and Managers, Internal Auditor, Independent Auditors, In-house Lawyers and the Executive Board of Celesc Social Security Foundation
1
DocuSign Envelope ID: 991C7C9E-B480-4973-BAB4-6E30DDC8BDBC
- Celos, as per extracts from the CAE minutes available on Celesc's portal and complete minutes available at the Company.
The Financial Statements for the year ending 12/31/2019 were examined. During this period the Company's 1st (First), 2nd (Second) and 3rd (Third) Quarter 2020 Quarterly Financial Statements (ITRs) were also approved and forwarded to the Board of Directors.
The CAE's recommendations are expressed below.
CAE monitored, through Internal Audit, the execution of the action plans designed to mitigate internal control deficiencies, referring to the report issued by the PwC Independent Audit for fiscal year 2019.
It was aware of the status of the action plans for fiscal year 2018 with deadlines set until 12/2019, some of which were behind schedule, and requested that Internal Audit continue to monitor the implementation and report back at meetings.
It also accompanied the evaluations carried out by the Planning, Controls and Compliance Department on the internal controls that impact the financial statements. It was aware of the effectiveness tests performed on the financial reporting risks, with the presentation of the effective and non-effective tests.
As for the updating of Celesc 2020's Risk Tree and Corporate Risk Map, impacted by the pandemic caused by COVID-19, the CAE also followed up and made its recommendations.
Regarding the impact of Strategic Risk Mitigation, CAE recommended adequate treatment and reporting of delays in the implementation of some action plans, especially for those risks that bring significant impacts to the Company and improvement in the assessment of these impacts.
Regarding the Corporate Risk Management program, the CAE followed up on the status of the action plans by means of four-monthly presentations, reiterating the request for attention to those that are behind schedule and in the evaluation of their impacts.
The CAE monitored during the 2020 fiscal year the updating of the Company's regulatory documents.
Celos - Social Security Foundation, through its Board of Executive Officers and Management, presented at the meetings of March 13, May 6 and
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DocuSign Envelope ID: 991C7C9E-B480-4973-BAB4-6E30DDC8BDBC
June 10, 2020, information about the investment portfolio and the rendering of accounts with an update on the performance of the portfolio of the Mixed Plan and Transitional Plan and highlights of the investments, considering the impact of the pandemic on the results presented. CAE was aware of the asset portfolios and their respective profitability.
Still in relation to Celos, the CAE was made aware at the meeting held on June 10, 2020 of the following matters: the reduction in health plan expenses due to the pandemic, but with forecasts of resumption in its use and the mechanism of the process of recognition of CELOS' Administrative Cost.
The members of Celos' Fiscal Council presented at the meeting held on January 20, 2020 the information about the preparation of the quarterly report on internal controls, compliance with the rules that determine the approval and monitoring of action plans by the Deliberative Council. The CAE requested that the internal controls be checked to see if they adhere to the best practices for obtaining the certification seal for investment funds at Celos.
CAE reiterated its recommendation to the Company to hire an independent auditor to comply with Complementary Law 108/2001, which determines that the sponsors of closed complementary pension funds entities are responsible for the systematic supervision and inspection of the activities of their respective complementary pension funds entities.
The Committee appreciated the situation of the investments in the stakes, and the Company presented the impairment tests of the stakes in Celesc Geração and the expected future profitability of the investments. The CAE requested the presentation of the same recoverability and profitability study for the other investments that are accounted for in Celesc Holding, for monitoring purposes.
It approved the Regulatory Accounting Statements for fiscal year 2019, of the subsidiaries Celesc Distribuição and Celesc Geração, previously appreciated by the Fiscal Council.
It took note, at the meetings held on May 06 and July 03, 2020, of the Audit Report on the Investment Program in Energy Infrastructure of Celesc - IDB for fiscal year 2019, considered without reservations regarding the impact on the Financial Statements.
It also learned about important topics, such as: the change in the methodology for Estimated Losses in Doubtful Settlement Accounts - PECLD; the Celesc Sustainability Report 2019 - GRI - Global Reporting Initiative Methodology; the projections for the impacts of COVID-19 on
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DocuSign Envelope ID: 991C7C9E-B480-4973-BAB4-6E30DDC8BDBC
the Company's operations; the project to change the commercial system to the SAP S/4 Utilities solution.
The Committee monitored, on a monthly basis, the work carried out by Celesc's internal auditors in the execution of the Annual Internal Audit Plan (PAAI) 2020. Within its remit, it approved the revision of the PAAI 2020 and the preparation of the PAAI for the 2021 fiscal year.
3. Conclusions and recommendation to the Board of Directors
In the exercise of our attributions and responsibilities, we analyzed the Financial Statements for the fiscal year ended on December 31, 2020 as well as the drafts of the Independent Auditors' Reports. Considering the analyses and the debates that took place during the meetings and the monitoring and supervision work we carried out, as well as in view of the information provided by Celesc's Management, the Internal Audit Report and by the Independent Auditors (PwC), we are of the opinion that all the relevant facts are adequately recorded and disclosed in the Financial Statements closed on December 31, 2020 with the respective explanatory notes, duly audited, and are therefore ready for approval by the Board of Directors.
The subjects, orientations, discussions, recommendations, and opinions of the Committees are not binding, and are only up to the shareholders and the Board of Directors, as the case may be, to take decisions.
Florianópolis, March 9, 2021.
Amir Antônio Martins de Oliveira Júnior (Coordinator)
Thiago Sá Fortes Regis Ernesto Fernando Rodrigues Vicente
Antônio Carlos Siegner Laporta Octavio René Lebarbenchon Neto
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STATEMENT FROM THE EXECUTIVE OFFICERS ON THE INDEPENDENT AUDITORS’ REPORT . . The Executive Officers of Centrais Elétricas de Santa Catarina S.A. - Celesc state that they have examined, reviewed and agreed with all information in the Independent Auditors' Report on the Financial Statements for the fiscal year ended December 31, 2020. . . Cleicio Poleto Martins Chief Executive Officer . Claudine Furtado Anchite Chief Financial and Investor Relations Officer . Vitor Lopes Guimarães Chief Commercial Officer . Sandro Ricardo Levandoski Distribution Officer . Pablo Cupani Carena Generation, Transmission and New Business Officer . Pablo Cupani Carena Corporate Management Officer . Fábio Valentim da Silva Regulation and Energy Management Officer . Marcos Penna Planning, Control and Compliance Officer . . Rogéria Rodrigues Machado Accountant – CRC/SC 024.797/O- 0
STATEMENT FROM THE EXECUTIVE OFFICERS ON THE FINANCIAL STATEMENTS . . The Executive Officers of Centrais Elétricas de Santa Catarina S.A. - Celesc state that they have examined, reviewed and agreed with all information in the Financial Statements for the fiscal year ended December 31, 2020. . . Cleicio Poleto Martins Chief Executive Officer . Claudine Furtado Anchite Chief Financial and Investor Relations Officer . Vitor Lopes Guimarães Chief Commercial Officer . Sandro Ricardo Levandoski Distribution Officer . Pablo Cupani Carena Generation, Transmission and New Business Officer . Pablo Cupani Carena Corporate Management Officer . Fábio Valentim da Silva Regulation and Energy Management Officer . Marcos Penna Planning, Control and Compliance Officer . . Rogéria Rodrigues Machado Accountant – CRC/SC 024.797/O-0
www.pwc.com.br
Centrais Elétricas de Santa Catarina S.A. Consolidated and individual financial statements as of December 31, 2020. and independent Auditor's Report
Independent auditor's report on consolidated and individual financial statements
To the Management and Shareholders of Centrais Elétricas de Santa Catarina S.A.
Opinion
We have audited the accompanying individual financial statements of Centrais Elétricas de Santa Catarina S.A. ("Company"), which comprise the balance sheet as of December 31, 2020 and the related statements of income, comprehensive income, changes in stockholders' equity and cash flows for the year then ended, as well as the consolidated financial statements of Centrais Elétricas de Santa Catarina S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as of December 31,2020 and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the year then ended, as well as the related notes, including the summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Centrais Elétricas de Santa Catarina S.A. and its subsidiaries on December 31, 2020, and the performance of its operations and its respective cash flows, as well as the consolidated performance of its operations and its consolidated cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
Basis for opinion
We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the individual and consolidated financial statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants, the professional standards issued by the Brazil’s National Association of State Boards of Accountancy (CFC) and we have fulfilled our other ethical responsibilities according to these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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PricewaterhouseCoopers Independent Auditors, Avenida Rio Branco, 847, Salas 401, 402, 403 e 409, Florianópolis, SC, Brazil 88015-215, Phone: (48) 3212-0200, www.pwc.com/br
Centrais Elétricas de Santa Catarina S.A.
Key Audits Matters
Key Audit Matters (PAA) are those matters that, in our professional judgment, were of most significance in our audit of Subjects the current year. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate Why is it an opinion on these matters. PAA?
How the matter was handled in our audit
How the matter was handled in our Why is it an PAA? audit
Revenue recognition - Notes 4.21 and 31.1
The electric energy billing that makes up the The main audit evidence considered appropriate revenues of the Company and its subsidiaries is and sufficient was obtained through a combination voluminous and pulverized. of controls testing and transaction testing. Such tests included, among others: (i) obtaining an The valuation of the quantities of energy billed must understanding of the revenue recognition flow be in accordance with the specific regulatory criteria considering the nature of electricity supply for the consumer classes and tariffs determined by revenue, consumer classes and corresponding the sector's Regulator. Once billing processing is tariffs, among others; (ii) evaluating the design, complete, the adequacy of the accounting record implementation and effectiveness of relevant depends on proper integration between the billing internal controls determined by Management over and accounting systems. It is also possible to note revenue recognition; that the Company's electric power supply (iii) obtaining an understanding of the main transactions are substantially processed by means systems used in the revenue recognition process, of automated routines. involving our Information Technology specialists; (iv) comparing the calculations made with the The finalization of the revenue recognition process prices approved by the Regulator; (v) recalculating still includes judgment by Management regarding the amounts not invoiced and comparing the the estimate in relation to the portion of the energy information used relating to the quantities of supply revenue delivered in the month, which will energy and tariffs with extra-accounting sources, only be invoiced in the following month, according such as: consumption measurements, tariffs to the accrual basis. defined by the regulator, current tax rates, among others; and (vi) tests to verify the integrity between The risks observed relate to the recognition of the billing and accounting systems. revenue outside of accrual period and/or complex and critical estimates and assumptions to estimate Our tests revealed significant deficiencies in the such revenue, insofar as they involve: design and execution of access controls and (a) estimate the volumes of energy consumed by changes to the system used for billing control. As a customers and (b) assign a value to measure the result, we changed and unbilled supply.
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Centrais Elétricas de Santa Catarina S.A.
How the matter was handled in our Why is it an PAA? audit
we have extended the scope of our substantive Due to the relevance of revenue in the financial procedures, beyond that originally planned, to statements of the Company and its subsidiaries, as obtain sufficient and appropriate audit evidence well as the processes supporting its recognition and regarding the recording of these transactions and the deficiencies in access controls and changes the impact of the deficiencies identified. identified in the billing system, we considered revenue recognition to be a key audit matter. Based on the results of the audit procedures performed, we understand that the recognition of the electric energy supply revenue, as well as the respective disclosures in the explanatory notes, are appropriate in the context of the individual and consolidated financial statements taken as a whole.
Post-employment benefits - actuarial liabilities - Notes No. 4.17 and No. 28
The Company sponsors lifelong post-employment The main audit procedures performed included, benefit plans, granted to employees and former among others, the following: (i) understanding and employees, relating to social security, medical evaluation of the relevant internal controls assistance and others. The plans classified as determined by Management over the measurement "defined benefit" generate relevant liabilities, of the actuarial obligations of the defined benefit which are calculated with reference to actuarial and supplementary health care plans; (ii) testing, assumptions that include discount rate, estimated on a sample basis, the consistency of the participant inflation rate, mortality table, demographic and data that were used by the actuary responsible for economic estimates, estimates of medical costs, as the actuarial valuation of 2020; (iii) evaluation of well as historical data on employee expenses and the main criteria for determining the individual contributions. These liabilities can be wholly or reserve of selected participants and evaluation of partially offset against the fair values of the the main actuarial assumptions and assumptions respective plan assets. The health plans, in adopted by the actuary, such as mortality table, addition, include age factors and future increases in discount rate, inflation rate and salary growth rate the cost of the plans in determining the related in comparison with legislation and market liabilities. Because the amounts are significant and practices, as applicable; and (iv) review of the involve a high degree of judgment by management mathematical accuracy of the calculations made by in defining the assumptions involved in measuring the Company's actuary. Our procedures were the actuarial obligations of the defined benefit and performed with the assistance of our actuarial supplementary health care plans, we consider the specialists and also included assessing the actuarial liability to be a key audit matter. disclosures made by the Company in the individual and consolidated financial statements.
Based on the audit evidence obtained through our procedures, we understand that the criteria for measuring post-employment benefits, as well as the related disclosures
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Centrais Elétricas de Santa Catarina S.A.
How the matter was handled in our Why is it an PAA? audit
in the notes, are reasonable, in the context of the individual and consolidated financial statements taken as a whole.
Regulatory Assets and Liabilities (Financial Assets and Financial Liabilities - “Installment A" - CVA) - Notes no. 4.13.5, 4.15.2and no. 13
The regulatory assets and liabilities refer to the The main audit procedures that were carried out, on amounts arising from the difference between the a sample basis, to obtain audit evidence were the costs originally forecast and approved annually by following: (i) recalculation of financial assets and the Regulator and those actually incurred by the liabilities; (ii) conference of the amounts with the distributors over the tariff period in the respective resolutions, dispatches and technical subsequent period. This difference constitutes a notes; (iii) review of the reconciliation performed by right to be realized, in cases where the costs the Company between the amounts of sectorial actually incurred are higher than anticipated, or financial assets and liabilities recorded in the books an obligation, where the costs incurred are lower with those homologated annually by the Regulator to than anticipated. This theme was considered as compose the concessionaire's tariff; and (iv) one of the main audit matters due to the relevance inspection of selected documents that make up the of the amounts involved, the value calculation costs incurred with the coverage amounts. system - which involves considerations as to the eligibility of certain items (appropriations) Based on the results of our audit procedures, we - as well as the amortization process that takes understand that the recorded amounts of place through the receipt/return of values on an appropriations and amortization are estimated basis, in different tariff periods, by appropriately supported and substantiate the means of tariffs to the clients. records and disclosures made in the notes to the individual and consolidated financial statements taken as a whole.
Other Matters
Statement of Added Value
The individual and consolidated value added statements for the year ended DECEMBER 31, 2020, prepared under the responsibility of the Company’s management and presented as supplemental information for the purposes of IFRS, were submitted to audit procedures performed together with the audit of the Company’s financial statements. For the formation of our opinion, we assessed whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria set forth in Technical Pronouncement CPC 09 – “Value Added Statement”. In our opinion, these statements of value added have been fairly prepared, in all material respects, in accordance with the criteria set forth in this Technical Pronouncement and are consistent with the individual and consolidated financial statements taken as a whole.
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Centrais Elétricas de Santa Catarina S.A.
Other information accompanying the individual and consolidated financial statements and the auditor’s report
Management is responsible for such other information, which comprise the Management Report.
Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of assurance conclusion on this report.
In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the Management Report, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the individual and consolidated financial statements
The Company’s Management is responsible for the preparation and fair presentation of the financial statements in accordance with the individual and consolidated accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free of material misstatement, whether due to fraud or error.
In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in the preparation of its financial statements, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those responsible for the governance of the Company and its subsidiaries are those with responsibility for overseeing the financial statement preparation process.
Auditor’s responsibilities for the audit of the individual and consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
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Centrais Elétricas de Santa Catarina S.A.
• Identified and assessed the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• We obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control and its subsidiaries.
• Evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Concluded on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluated the overall presentation, structure, and content of the individual and consolidated financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• We obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit and consequently for the audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope, timing of the audit and significant audit findings, including any significant deficiencies in internal control that we may have identified during our audit.
We also provide those charged with governance with a statement that we comply with relevant ethical requirements, including applicable independence requirements, and communicate all relationships or matters that could materially affect our independence, including, where applicable, related safeguards.
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Centrais Elétricas de Santa Catarina S.A.
From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Florianópolis, MARCH 12, 2021
PricewaterhouseCoopers Independent Auditors CRC 2SP000160/O-5
Leandro Sidney Camilo da Costa Account number CRC 1SP 236051/O-7
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