20-F 1 elpform20f_2018.htm FORM 20-F elpform20f_2018.htm - Generated by SEC Publisher for SEC Filing

As filed with the Securities and Exchange Commission on April 26, 2019

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

Commission file number: 001-14668

                                                

COMPANHIA PARANAENSE DE ENERGIA – COPEL

(Exact Name of Registrant as Specified in its Charter)

Energy Company of Paraná

(Translation of Registrant’s Name into English)

The Federative Republic of Brazil

(Jurisdiction of Incorporation or Organization)

Rua Coronel Dulcídio, 800

80420-170 Curitiba, Paraná, Brazil

(Address of Principal Executive Offices)

Daniel Pimentel Slaviero

+55 41 3331 4011 – ri@copel.com

Rua Coronel Dulcídio, 800, 3rd floor – 80420.170 Curitiba, Paraná, Brazil

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Name of Each Exchange on Which Registered

Preferred Class B Shares, without par value*

New York Stock Exchange

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

each representing one Preferred Class B Share

New York Stock Exchange

 

* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of December 31, 2018:

145,031,080 Common Shares, without par value

328,627 Class A Preferred Shares, without par value

128,295,668 Class B Preferred Shares, without par value

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

Yes x   No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

N/A

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

Large accelerated filer x   Accelerated filer ¨  

Non-accelerated filer ¨   Emerging growth company ¨  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   ¨                                             IFRS               x                                            Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

N/A

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes ¨  No x


 

Table of Contents

Presentation of Financial and Other Information 3
Forward-Looking Statements 4
Item 1. Identity of Directors, Senior Management and Advisers 4
Item 2. Offer Statistics and Expected Timetable 4
Item 3. Key Information 5
  Selected Financial Data 5
  Risk Factors 8
Item 4. Information on the Company 29
  The Company 29
  Business 32
  Concessions 60
  Competition 68
  Environment 70
  Plant, Property and Equipment 71
  The Expropriation Process 72
  The Brazilian Electric Power Industry 73
Item 4A. Unresolved Staff Comments 93
Item 5. Operating and Financial Review and Prospects 93
  Overview 94
  Critical Accounting Policies 98
  Analysis of Electricity Sales and Cost of Electricity Purchased 103
  Results of Operations for the Years Ended December 31, 2018, 2017 and 2016 104
  Liquidity and Capital Resources 113
  Contractual Obligations 119
  Off-Balance Sheet Arrangements 120
Item 6. Directors, Senior Management and Employees 121
  Board of Directors

121

  Board of Executive Officers 124
  Supervisory Board 126
  Audit Committee 127
  Compensation of Directors, Officers, Supervisory Board Members and Audit Committee Members 127
  Employees 129
  Share Ownership 131
Item 7. Major Shareholders and Related Party Transactions 132
  Major Shareholders 132
  Related Party Transactions 133
Item 8. Financial Information 135
  Legal Proceedings 136
  Dividend Payments 138
Item 9. The Offer and Listing 141
Item 10. Additional Information 142
  Memorandum and Articles of Association 142
  Material Contracts 147
  Exchange Controls 148
  Taxation 150
  Dividends and Paying Agents 156
  Statement By Experts 157
Documents on Display 159
Item 11. Quantitative and Qualitative Disclosures about Market Risk 159
Item 12. Description of Securities Other than Equity Securities 159
Item 12A. Debt Securities 159
Item 12B. Warrants and Rights 159
Item 12C. Other Securities 159
Item 12D. American Depositary Shares 159
Item 13. Defaults, Dividend Arrearages and Delinquencies 160
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 160
Item 15. Controls and Procedures 160
Item 16A. Audit Committee Financial Expert 164
Item 16B. Code of Ethics 164
Item 16C. Principal Accountant Fees and Services 164
Item 16D. Exemption from the Listing Standards for Audit Committees 165

 


 

 

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 165
Item 16F. Changes in Registrant s Certifying Accountant 165
Item 16G. Corporate Governance 165
Item 17. Financial Statements 167
Item 18. Financial Statements 167
Item 19. Exhibits 167
Technical Glossary 169
Signatures 176

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, we refer to Companhia Paranaense de Energia ‒ Copel, and, unless the context otherwise requires, its consolidated subsidiaries as “Copel”, the “Company”, “we” or “us”.

References to (i) the “real”, “reais” or “R$” are to Brazilian reais (plural) and the Brazilian real (singular) and (ii) “U.S. dollars”, “dollars” or “US$” are to United States dollars. We maintain our books and records in reais. Certain figures included in this annual report have been subject to rounding adjustments.

Our consolidated financial statements as of December 31, 2018 and 2017, and for each of the years ended December 31, 2018, 2017 and 2016, are included in this annual report. We prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

References in this annual report to the “Common Shares”, “Class A Shares” (or “Class A”) and “Class B Shares” (or “Class B”) are to our common shares, class A preferred shares and class B preferred shares, respectively. References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing one Class B Share. The ADSs are represented by American Depositary Receipts (“ADRs”).

Certain terms are defined the first time they are used in this annual report. As used herein, all references to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively, references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively, references to “MW” and “MWh” are to megawatts and megawatt hours, respectively, and references to “kV” are to kilovolts. These and other technical terms are defined in the “Technical Glossary” that begins on page 169.

 

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. We may also make written or oral forward-looking statements in our annual report to shareholders, in our offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees. These statements are not historical facts and are based on management’s current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words “anticipates”, “believes”, “estimates”, “expects”, “plans” and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting the financial condition, liquidity or results of operations are examples of forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve only the current view of management and are subject to a number of inherent risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to:

·         Brazilian political and economic conditions;

·         economic conditions in the State of Paraná;

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

·         lawsuits;

·         our ability to obtain financing;

·         developments in other emerging market countries;

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

·         competition;

·         electricity shortages; and

·         other factors discussed below under “Item 3. Key Information―Risk Factors”.

All forward-looking statements are expressly qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement contained in this annual report.

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

 

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Item 3. Key Information

SELECTED FINANCIAL DATA

This section contains selected consolidated financial data presented in reais and derived from our consolidated financial statements that were prepared in accordance with IFRS as of and for each of the five years ended December 31, 2018, 2017, 2016, 2015 and 2014.

The following selected financial data should be read in conjunction with our audited financial statements (including the notes thereto), “Presentation of Financial and Other Information”, “Item 5.  Operating and Financial Review and Prospects” and “Item 8. Financial Information”.

The selected financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 have been derived from our audited financial statements, prepared in accordance with IFRS, and included in this annual report. The selected financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31,2016, 2015 and 2014, have been derived from our audited financial statements, prepared in accordance with IFRS, which are not included in this annual report.

As of January 1, 2018, IFRS 9 and IFRS 15 took effect on the opening balance, but without restatement of the balances as of December 31, 2017 and earlier. The application of these standards needs to be taken into account in the comparability of the balances presented below. For further details see "Item 5. Operating and Financial Review and Prospects - Critical Accounting Policies" and Note 4.17 from our audited financial statements, prepared in accordance with IFRS.

 

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As of and for the year ended December 31,

 

2018

2017

2016

2015

2014

 

(R$ million)

 

Statement of income data(1):

 

 

Operating revenues

14,935

14,025

13,102

14,946

13,996

Cost of sales and services provided

(11,502)

(10,666)

(10,234)

(11,799)

(11,289)

Gross profit

3,433

3,359

2,868

3,147

2,707

Operational expenses/income

(1,039)

(1,218)

(879)

(1,025)

(903)

Profit before financial results and taxes

2,394

2,141

1,989

2,121

1,804

Financial results

(438)

(748)

(595)

(428)

54

Profit before income tax and social contribution

1,956

1,393

1,394

1,694

1,858

Income tax and social contribution on profit

(512)

(275)

(520)

(532)

(522)

Net income for the year

1,444

1,118

874

1,162

1,336

Statement of financial position data:

 

 

 

 

 

Current assets

6,678

5,702

4,237

6,822

5,218

Recoverable rate deficit (CRC)(1)

1,445

1,516

1,523

1,383

1,344

Non-current assets

10,014

8,608

8,313

4,952

8,261

Property, plant and equipment, net

10,841

9,829

8,934

8,693

8,304

Total assets

35,930

33,162

30,289

28,844

25,618

Loans and financing and debentures (current)

3,298

2,417

2,602

1,233

1,299

Current liabilities

6,695

6,110

5,656

4,789

4,055

Loans and financing and debentures (non-current)

8,268

7,414

6,235

6,528

4,755

Non-current liabilities

12,899

11,542

9,655

9,574

7,880

Equity

16,336

15,510

14,978

14,480

13,683

 Attributable to controlling shareholders

16,033

15,208

14,718

14,162

13,331

 Attributable to non-controlling interest

303

302

260

318

352

Share capital

7,910

7,910

7,910

6,910

6,910

                                                                      

 (1) This item includes both current and non-current CRC Account receivables. Amounts due from the State of Paraná that were included in current assets totaled R$190.9 million in 2018, R$167.1 million in 2017, R$111.7 million in 2015 and R$94.6 million in 2014. Amounts due from the State of Paraná that were included in long-term assets totaled R$1,254.2 million in 2018, R$1,349.3 million in 2017, R$1,522.7 million in 2016, R$1,271.6 million in 2015 and R$1,249.5 million in 2014. In 2016 the entire amount due by the State of Paraná was included in long-term assets due to the negotiation of the Amendment to the CRC Agreement. See Note 8 to our audited consolidated financial statements.

 

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2018

2017

2016

2015

2014

 

(R$, except for number of shares)

 

Basic and diluted earnings per share:

 

 

Common Shares

4.91

3.61

3.13

3.87

4.21

Class A Preferred Shares

5.40

3.97

3.44

4.26

4.63

Class B Preferred Shares

5.40

3.97

3.44

4.26

4.63

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

 

 

 

 

 

Common Shares

145,031

145,031

145,031

145,031

145,031

Class A Preferred Shares

329

329

349

380

380

Class B Preferred Shares

128,295

128,295

128,275

128,244

128,244

Total

273,655

273,655

273,655

273,655

273,655

Dividends per share at year end:

 

 

 

 

 

Common Shares

1.32

1.01

0.99

1.14

2.17

Class A Preferred Shares

2.89

2.89

2.89

2.53

2.53

Class B Preferred Shares

1.45

1.11

1.08

1.25

2.39

 

 

 

 

2018

2017

2016

2015

2014

 

(US$¹, except for number of shares)

 

Basic and diluted earnings per share:

 

Common Shares

1.27

1.09

0.97

0.99

1.58

Class A Preferred Shares

1.39

1.20

1.06

1.09

1.74

Class B Preferred Shares

1.39

1.20

1.06

1.09

1.74

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

 

 

 

 

 

Common Shares

145,031

145,031

145,031

145,031

145,031

Class A Preferred Shares

329

329

349

380

380

Class B Preferred Shares

128,295

128,295

128,275

128,244

128,244

Total

273,655

273,655

273,655

273,655

273,655

Dividends per share at year end:

 

 

 

 

 

Common Shares

0.34

0.31

0.30

0.29

0.82

Class A Preferred Shares

0.75

0.87

0.89

0.65

0.95

Class B Preferred Shares

0.37

0.34

0.33

0.32

0.90

           

(1) This information is presented in U.S. dollars at the exchange rate in effect as of the end of each year.

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Risk Factors

Risks Relating to Our Company and our Operations

We are controlled by the State of Paraná, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors.

We are controlled by the State of Paraná, which holds 58.6% of our outstanding common voting shares as of the date of this annual report, and whose interests may differ from other shareholders. As a major shareholder, the State of Paraná has the power to control all of our operations, including the power to elect a majority of the members of our Board of Directors and determine the outcome of any action requiring common shareholder approval, including transactions with related parties and corporate reorganizations.

Our operations have had and will continue to have an important impact on the commercial and industrial development of the State of Paraná. In the past, the State of Paraná has used, and may in the future use, its status as our controlling shareholder to decide whether we should engage in certain activities and make certain investments aimed, principally, to promote its public policies or social objectives and not necessarily to meet the objective of improving our business and/or operational results.

In October 2018, an election was held to appoint the governor and members of the legislature of the State of Paraná. It is not possible to predict whether this election will result in changes to the interests and decisions of the majority shareholder with respect to the Company's goals.

The construction and expansion of our transmission and power generation projects involve significant risks that may have an adverse effect on us.

In connection with the development of transmission and generation projects, we generally must obtain feasibility studies, governmental concessions or authorizations, permits and approvals, condemnation agreements, equipment supply agreements, engineering, procurement and construction contracts, sufficient equity and debt financing and site agreements, each of which involves the consent of third parties over which we have no control. In addition, project development is subject to environmental, engineering and construction risks that can lead to cost overruns, delays and other impediments to timely complete within a project’s budget. We cannot assure you that all required permits and approvals for our projects will be obtained, that we will be able to secure private sector partners for any of our projects, that we or any of our partners will be able to obtain adequate financing for our projects or that financing will be available on a non-recourse basis to us.

If we are unable to complete a project, whether at the initial development phase or after construction has commenced, or if the completion of a project is delayed, this may decrease our expected financial return from the project, which may lead to impairment. If we experience these or other problems relating to the expansion of our electricity transmission and power generation capacity, we may be exposed to increased costs, or we may fail to achieve the revenues we planned in connection with such expansion projects, which may have an adverse effect on our financial condition and results of operations.

We are involved in several lawsuits that could have a material adverse effect on our business if their outcome is unfavorable to us.

We are the defendant in several legal proceedings, mainly relating to civil, administrative, labor and tax claims. The outcome of these proceedings is uncertain and, if determined against us, may result in obligations that could materially affect our results of operations. On December 31, 2018, our provisions for probable (more likely than not) and reasonably estimated losses were R$1,664.8 million. For additional information, see “Item 8. Financial Information—Legal Proceedings”.

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

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Our current budget anticipates capital expenditures for expansion, modernization, research, infrastructure and environmental projects of approximately R$1,993.5 million in 2019. As a state-controlled company, we are subject to Brazilian Central Bank Resolution no. 4,589/2017(Resolução nº 4,589/2017 do Banco Central do Brasil), which defines the limit of exposure and the annual global limit of credit to public sector entities to be observed by financial institutions and other institutions authorized to operate by the Brazilian Central Bank. The annual global limit that can be contracted in credit operations, with and without guarantee of the Union, by the bodies and entities of the public sector with the financial institutions and other institutions authorized to operate by the Brazilian Central Bank is defined by the National Monetary Council by means of inclusion of an annex to Brazilian Central Bank Resolution no. 4,589/2017, establishing, until the end of each fiscal year, the limit for the following year. The maximum amounts defined for the 2019 financial year are up to R$13.5 billion for Union guaranteed operations and up to R$11.0 billion for operations without Union guarantee. As a result of these limits, we may have difficulty in obtaining financing from financial institutions and other institutions authorized to operate by the Brazilian Central Bank, which could create difficulties in the implementation of our investment program.

Additionally, some of our concession contracts have provisions that limit our permitted level of indebtedness, which could also affect our ability to obtain necessary financing. Furthermore, the requirements and other criteria adopted by financial institutions when approving new financing transactions may be related to certain Brazilian macroeconomic scenarios, as well as to our financial indicators, such as our indebtedness levels and other indicators usually considered by financial institutions in their credit risk assessments. We cannot ensure you that these requirements and criteria will be met. As a result of these regulations and provisions, our capacity to incur debt from certain sources is limited, which could negatively affect the implementation of our investment program.

Cyber attacks or breach of security of our data center may result in disruption of our operations or leakage of confidential information of the Company, our customers, third parties or interested parties and may cause financial losses, legal exposures and damage to our reputation.

We are the managers and owners of various confidential information related to our business and operations. In our ordinary course of business, we collect and store personal data of our customers in our data centers.

Despite our security measures, our information technology and infrastructure may be vulnerable to (i) attacks by hackers, which can access our safety net and steal our information, paralyze our operations or even cause power outages, or (ii) breaches due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or loss of information could affect our operations and could result in legal claims or proceedings under Brazilian laws that protect the privacy of personal information (among others) and damage our reputation.

Brazilian Federal Law No. 13,709/2018 (known as Lei Geral de Proteção de Dados Pessoais) was enacted on August 15, 2018 and applies to any data processing operation performed by an individual or by a public or private entity, regardless of the environment where this operation is carried out. This statute provides the legal principles and requirements for the processing of personal data, as well as liabilities and penalties that data processing agents are subject to. These agents must be able to demonstrate the measures they adopted to comply with personal data protection rules, as well as the effectiveness of such measures. This statute will come into force in August 2020 and provides a deadline for the data processing agents to meet its requirements. As a result of any violations to this statute, including any leakage of our clients’ private data in connection with a cyber attack, we may be subject to penalties, such as (i) warning, with indication of a term for adoption of corrective measures; (ii) simple fine of up to 2% of the Company’s revenue in Brazil, limited to R$ 50 million per infringement; (iii) daily fine, limited to R$ 50 million per infringement; (iv) disclosure of the infringement after it has been duly confirmed; and (v) elimination of the personal data to which the infringement relates. These penalties may only be imposed as a result of an administrative proceeding, where we must be given the opportunity to present our defense, in accordance with the peculiarities of the case. These administrative sanctions can be imposed in addition to any other applicable civil and criminal penalties.

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

In 2019, we plan to invest approximately R$794.8 million in our generation and transmission activities (including Baixo Iguaçu HPP, Colíder HPP and SPCs of transmission lines), R$66.4 million in wind farms, R$835.0 million in our distribution activities, R$290.2 million in our telecommunications activities and R$7.1 million in others investments. Our ability to complete this investment program depends on multiple factors, including our ability to charge sufficient fees for our services and to obtain sufficient financing and a variety of regulatory and operational contingencies. There is no assurance that we will have the financial resources to complete our proposed investment program, and our inability to do so may adversely affect the operation and development of our business leading to the imposition of fines levied by ANEEL as well as a reduction in tariff levels.

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

Our distribution market for the majority of our sales of electricity is located in the State of Paraná. Although a more competitive market involving possible sales to customers outside Paraná might develop in the future, our business depends and is expected to continue to depend to a very large extent on the economic conditions of Paraná. We cannot assure you that economic conditions in Paraná will be favorable to us in the future. The GDP (gross domestic product) of the State of Paraná decreased 0.6% in 2018, while Brazil’s GDP increased 1.1% during the same period.

The recessive economic environment of recent years led to the reduction of energy consumption in the State of Paraná and in Brazil as a whole, resulting in leftover energy in the interconnected system, consequently reducing (i) short-term prices and (ii) prices negotiated in the free market. At the same time, prices in the regulated market have risen steadily as a result of supply deficiencies on the part of contracted energy by distributors and high prices in the short-term market in previous years. As a result, consumers consistently migrated into the free market and, therefore, the captive market of distributors suffered a reduction in 2016, 2017 and 2018.

On December 28, 2018, the MME enacted the Ministerial Ordinance No. 514, lowering the minimum energy amounts that consumers may purchase in the Free Market and, consequently, authorizing more consumers to access the Free Market. Even though this ordinance enabled more consumers to migrate from the captive market to the Free Market, we cannot predict its impact.

A reduction in the captive market often leads to distributors selling excess contracted energy in the short-term market. This short-term market is subject to relevant price fluctuations. Whenever the price in the short-term market is lower than the price paid by the distributor in its long-term energy purchase agreement, the sale of energy in the short-term market is made at a loss, which may not be recovered in the future.

Unfavorable economic conditions in the State of Paraná and increasing energy prices may affect both the ability of our distribution costumers to pay amounts they owe us, as well as increase the number of our commercial losses. An increase in our commercial losses or uncollected receivables could materially adversely affect our business, financial condition and results of operations.

An increase in electricity prices, as well as poor economic performance in the State of Paraná, would affect the ability of some of our distributions customers to pay amounts owed to us. As of December 31, 2018, our past due receivables with Final Customers were approximately R$659.5 million in the aggregate, or 11.9% of our revenues from electricity sales to Final Customers for the year ended December 31, 2018, and our allowance for doubtful accounts related to these receivables was R$186.3 million. See Note 7 to our audited consolidated financial statements.

In addition, in the event of an economic recession combined with high energy prices, the number of our distribution customers connecting illegally to our distribution grid may increase, which would then decrease our revenue from electricity sales to Final Customers. Furthermore, energy we lose to these illegal connections is considered a commercial loss, and we may incur regulatory penalties if our commercial losses exceed certain established regulatory thresholds calculated by ANEEL. If ANEEL determines that we were not efficient in inspecting and controlling the non-technical losses in the distribution grid, the agency may  limit the transfer of such losses to the Final Customers.

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Disruptions in the operation of, or deterioration of the quality of, our services, or those of our subsidiaries, could have an adverse effect on our business, financial condition and results of operations.

The operation of complex electricity generation, transmission and distribution systems and networks involves various risks, such as operational setbacks and unexpected interruptions, caused by accidents, breakdown or failure of equipment or processes, performance below expected levels of availability and efficiency of assets, or disasters (such as explosions, fires, natural phenomena, landslides, sabotage, vandalism, and similar events). In addition, operational decisions by authorities responsible for the electricity network, environment matters, operations and other issues affecting the electricity generation, transmission or distribution could have an adverse effect on the performance and profitability of the operations of our generation, transmission and distribution systems. If these issues occurred, our insurance may be insufficient to wholly account for the costs and losses that we may incur as a result of the damages caused to our assets, or due to outages.

Further, the revenues that our subsidiaries generate from establishing, operating and maintaining their facilities are related to the availability of equipment and assets, and to the quality of the services (continuity and service in accordance with levels demanded by regulations). Under the related concession contracts, we and our subsidiaries are subject to: (i) a reduction  of the distributor revenue as a result of the reduction of the so-called “Portion B” allocation in the revenue calculation formula; (ii) a reduction of the Permitted Annual Revenue - APR (Receita Anual Permitida, or RAP), for the transmission companies; (iii) the effects of the Availability Factor (Fator de Disponibilidade, or FID) and the offtake guarantee levels for the generation facilities; and (iv) the application of penalties and payment of compensation amounts, depending on the scope, severity and duration of non-availability of the services and equipment. Under Brazilian Law, we are strictly liable for direct and indirect damages resulting from the inadequate supply of electricity such as abrupt interruptions arising from the generation, transmission or distribution systems. Therefore, outages or stoppages in our generation, transmission and distribution facilities, or in substations or networks, may cause a material adverse effect on our business, financial situation and results of operations.

We are subject to risks related to social and environmental impacts of our projects.

The construction and operation of our assets may modify the ecosystem, particularly the natural state of the water resources and of the vegetation of the flooded river basin in the case of hydroelectric power plants. Our projects may cause direct and indirect impacts in the local communities, such as housing displacement. Moreover, they may affect the economic outputs of the local communities, lead to the loss of cultural identity or increase the demand for government services. In these eventualities, we may implement specific plans in order to minimize and mitigate those impacts.

Failures in dams under our responsibility may cause serious damages to the affected communities, to our results and to our reputation.

Dams are important infrastructures to our business, and are fundamental components of our hydroelectric power plants for the purposes of diking and storing water, accounting for the majority of our energy generation capacity. However, in any dam, there is an intrinsic risk of ruptures caused by different internal or external factors. Therefore, we are subject to the risk of a dam failure that could have repercussions much greater than just the loss of hydroelectric power generation capacity. A dam failure may result in economic, social, regulatory and environmental damages and potential loss of human life in the communities downstream from the dams, which may have a material adverse effect in the image, business, operational results and financial conditions of the Company.

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We are exposed to behaviors that are incompatible with our ethical and compliance standards, and we may be unable to prevent, detect or remediate them in time, which may cause material adverse effects in our operational results, financial condition and reputation.

We have a range of internal rules and controls, including a Governance, Risk and Compliance Office, with the aim to guide our directors, officers, managers, employees and third-party contractors, and to reinforce our ethical principles and rules of professional conduct. However, due to the wide distribution and outsourcing of the production chains of our suppliers, we are not able to control all possible irregularities of the latter and we are not able to ensure that our selection processes will be sufficient to avoid that our suppliers have problems related to compliance with applicable law, sustainability or outsourcing of the production chain under inadequate safety conditions.

Furthermore, we are subject to the risk that our directors, officers, managers, employees, contractors or any person that may do business with us may involve themselves in fraudulent activities, corruption or bribery, circumventing our internal controls and procedures, misappropriating our assets or using them for private benefit to the detriment of the Company’s interests. We are also subject to the risk that any other material violations of applicable laws by our directors, officers, managers, employees, or any person that may do business with us, or any material legal or administrative proceeding, arbitration or investigation in connection with those violations, may adversely affect our reputation. These risks are increased by the fact that our portfolio includes affiliated companies, such as special purpose companies, some of which we do not hold a controlling interest in.

Our systems may not be effective in all circumstances. Any failure in our capacity to prevent or detect noncompliance with the applicable governance rules or regulatory obligations may cause damages to our reputation or other material adverse effects to our results of operation or financial condition.

The rules for electricity trading and market conditions may affect the sale prices of electricity.

Our energy trading business is strongly affected by regulatory changes that impact the methodology used for short term energy price formation.

We perform trading activities through power purchase and sale agreements, mainly in the Free Market, through our generation and trading companies. Agreements in the Free Market may be entered into with other generation and trading entities and mainly with Free Customers.

Energy trading is affected by changes in the methodology used to calculate energy price in the short-term (Preço de Liquidação de Diferenças, or PLD). PLD is determined by the results of optimization models of operation of the interconnected systems used by the ONS and by Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE”). In such determination, there may be data entry errors or errors in the model, which may lead to an unexpected change of the PLD and possible future republications of the PLD. Thus, there is a risk for the commercial business with respect to the alteration of these models, data entry errors and republishing of the PLD, which may cause market uncertainty, reduction of liquidity, and financial losses with unexpected price variation.

Additionally, any change in the energy trading rules related to the increase of restrictions for the entry of new consumers in the Free Market may affect the expansion of our energy trading business.

On December 28, 2018, the MME enacted the Ministerial Ordinance No. 514, lowering the minimum energy amounts that consumers may purchase in the Free Market. Even though this ordinance enabled more migration from the captive market to the Free Market, we cannot predict its effect. As a Free Costumer is responsible for contracting its own consumption directly with a generation or trading company, an increase of the number of Free Customers may increase the trading in the Free Market and consequently affect energy prices. In parallel, distribution companies may face energy contract surpluses and have to participate in the Mechanism for Compensation of Surpluses and Deficits (Mecanismo de Compensação de Sobras e Déficits, or MCSD) to mitigate financial losses.

Our energy trading companies, Copel Comercialização and Copel GeT, that operate in the Free Market may decide, based on market conditions, to operate in long and short positions and may present financial losses for certain periods. To operate in long positions means that we buy electricity that will be delivered to us only in the future and sell it before the delivery is due, expecting the price to go up in the short-term market. To operate in short positions means that we sell electricity that needs to be delivered only in the future, but buy it before the delivery is due expecting the price to go down in the short-term market.  

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We assess the market exposure risk of our commercialization company on a weekly basis, based on risk limits and methodology approved by the board of directors of Copel. Our methodology for calculating the risk of market exposure was developed internally using financial market concepts.

Our management has identified a material weakness in our internal controls and has concluded that our internal controls over financial reporting, with respect to the issues classified as a material weakness, were not effective as of December 31, 2018, which may adversely affect our business and our operating results.

Our management, Supervisory Board and internal auditors assess the effectiveness of our controls framework and reporting procedures in accordance with SEC rules, including the effectiveness of our internal controls over financial reporting. This analysis adopts the criteria established in the Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission – COSO.

During this evaluation, our management identified a material weakness in our internal controls in 2018. This material weakness refers to our internal controls over the revenues of  Copel GeT and Copel Telecom. In view of this weakness, our management concluded that our internal control over financial reporting was not effective as of December 31, 2018 with respect to the items classified as a material weakness.

Although we have developed plans to remedy this material weakness, we cannot be certain that there will be no other material weaknesses in our internal control over financial reporting in the future. Therefore, we may be unable to report our results of operations for future periods accurately and in a timely manner and make our required filings with government authorities, including the SEC. Any of these occurrences could adversely affect our business and operating results and could generate negative market reactions, potentially leading to a decline in the price of our shares, ADSs and debt securities.

Our affiliated companies may not be successful in their businesses.

There is no assurance that our investments in affiliated companies will have the expected outcome. Our activities and financial and operational conditions may be affected as a result of (i) regulatory, economic, environmental matters, among other issues, or (ii) corporate disputes.

The lack of equipment and workforce in the appropriate timeframe may affect our business.

We cannot assure that the equipment and services hired from third parties will be timely delivered. If they are delivered with delay, we may incur in additional costs and fines.

The services and equipments hired from third parties may not have the expected quality.

Being a mixed capital publicly-held company, the acquisition of equipments, materials and services are subject to Brazilian Federal Law No. 8,666/1993, Paraná State Law No. 15,340/2006 and Brazilian Federal Law No. 13,303/2016. Therefore, we are legally obliged to engage a bidding process, which may not guarantee the best quality of services, equipments and materials.

Our wind farms’ operations are subject to climate factors and to uncertainties related to the speed of wind and non-compliance with minimum performance covenants set forth in our authorization agreements may adversely impact our results.

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The authorization agreements that govern our power generation activities in wind farms set forth certain performance covenants, which require us to generate minimum amounts of energy on annual and four-year bases in accordance with the energy amounts sold in the correspondent auctions. The operations of our wind farms are subject to climate factors and to uncertainties related to the speed of wind and non-compliance with the above mentioned agreements may adversely impact our results.   

We may acquire other companies in the electric sector or new energy concessions, as we already did in the past, which may increase our financial leverage and adversely affect our consolidated performance.

We constantly prospect for businesses that are related to our corporate purpose and aligned with our strategic plan. To expand our business, we may participate in auctions for the construction and operation of new power generation and transmission ventures, as well as invest in other companies from the energy sector, as we have done in the past. These acquisitions can increase our financial leverage or reduce our profits. In addition, the integration of the new businesses may not result in the synergy we expect in terms of efficiency gains and economies of scale for our operations, which may adversely affect our operational and financial performance.

 Strikes, work interruptions or other events carried out by our employees or by the employees of our suppliers or contractors, may adversely affect our operating results and our businesses.

 

Our employees are represented by unions. Disagreements regarding issues related to divestitures, changes to our business strategy, and reductions in the professional staff may lead to employee reactions. Strikes, work interruptions, or other forms of protests in any of our major suppliers or contractors or at their facilities may undermine our ability to complete relevant projects on time, negatively impacting our results of operations, and affect our ability to achieve long-term strategic goals.

 

Risks Relating to the Brazilian Electricity Sector and Other Sectors that We Operate    

We are uncertain as to the renewal of certain of our generation and transmission concessions.

Under Federal Law No. 12,783/2013, or the 2013 Concession Renewal Law, we may only renew our concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional 30-year period (or an additional 20-year period in the case of thermal plants), if we agree to amend the terms of the concession contract that is up for renewal to reflect certain new terms and conditions imposed by the 2013 Concession Renewal Law, which vary depending on whether the concession is for generation, transmission or distribution. If we do not agree to amend the concession contract to reflect these new conditions, the concession contract cannot be renewed and will be subject to a competitive bidding process upon its expiration, which we might not win. If we do not renew our generation and transmission concessions or if they are renewed under less favorable conditions, our financial condition and results of operations could be materially adversely affected. For more information, see “Item 4. Information on the Company—Concessions”.

The concession agreement of our controlled company Compagas is under discussion with the granting authority.

Compagas has entered into a concession agreement with the State of Paraná, as granting authority, pursuant to which the concession shall expire on July 6, 2024. The purpose of this concession is to provide piped gas distribution services and other related activities, to all segments of the consumer market, either as raw material or for the purpose of power generation or other uses made possible by technological advances.

The gas concession agreement is part of the so called “bifurcated model”, where part of the investments made by the concessionaire is paid by the users of the public service and the remaining part is indemnified by the granting authority, the State of Paraná, at the end of the concession.

On December 7, 2017, the State of Paraná enacted Complementary Law No. 205, setting forth a new interpretation regarding the expiration date of the concession, leading to the understanding that the new expiration date was January 20, 2019. The management of Compagas, its controlling shareholder and other shareholders are analyzing and questioning the effects of such law, as they understand that these effects are not consistent with the terms set forth in the current concession agreement.

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Compagás filed a lawsuit challenging the early termination of the concession and, on October 30, 2018, a preliminary injunction was granted, which can be subject to an appeal by the State of Paraná. The Company is awaiting the trial of the merit of the case.

Therefore, in the event of non-extension of the concession, even if Compagas is entitled to compensation for the investments made in the last 10 years prior to the end of the concession, the financial condition and results of operations of our controlled company may be adversely affected. For more information see Note 2.1.1 to our Consolidated Financial Statements.

Our operating results depend on prevailing hydrological conditions, which have been volatile recently. The impact of water shortages and resulting measures taken by the government to conserve energy may have a material adverse effect on our business, financial condition and results of operations.

We are dependent on the prevailing hydrological conditions throughout Brazil and in the geographic region in which we operate. According to data from ANEEL, approximately 64.0% of Brazil’s installed capacity currently comes from hydroelectric generation facilities. Hydrological conditions in our region, and Brazil in general, are frequently subject to changes because of non-cyclical deviations in average rainfall.

From 2012 to 2015, Brazil experienced a period of low rainfall. Poor hydrological conditions could lead the Brazilian government to institute a rationing program, which would require that our distribution business distribute less energy to Final Customers. Our distribution business would be adversely affected by a mandatory rationing program because its revenues are partially based on the volume of electricity it provides through our distribution grid to Final Customers. However, a mandatory rationing program involves a predictable decrease in energy, which would allow our distribution business to better estimate the amount of electricity it must purchase in order to sell to Final Customers. In addition, in the context of a formal rationing program, our distribution business would be fully compensated for the amount of energy that it purchased prior to the rationing period in excess of the amount of energy it is allowed to distribute under the rationing program, through automatic adjustment in its energy supply contracts.

In contrast, the Brazilian federal government in the past has reacted to poor hydrological conditions not by implementing a formal rationing program, but rather by seeking to reduce the consumption of electricity by Final Customers by other means, for example through general conservation campaigns to raise public awareness. The effect of these campaigns is less predictable, making it difficult for our distribution business to accurately estimate the volume of energy it needs to purchase for sale to Final Customers. Furthermore, in the absence of a formal rationing program, our distribution business is not compensated for the amount of energy it had previously contracted that now exceeds the newly-depressed Final Customer demand. Even after a conservation or rationing program ends, it may take several years for demand by Final Customers to fully recover, if at all. Deteriorating hydrological conditions may, therefore, have a material adverse effect on our distribution business.

                In 2014 and 2015 the Brazilian Federal Government provided and facilitated various forms of assistance to distribution concessionaires experiencing cash flow difficulties arising from poor hydrological conditions, which had increased their energy acquisitions costs thereby resulting in mismatches of cash flow in the short-term. These forms of assistance included funding from the CDE Account, credit facilities contracted by the CCEE through the ACR Account and the new “Bandeira Tarifária” system. There is no assurance that the Federal Government will continue this assistance, or that the Federal Government will continue it on favorable terms or that it will be sufficient to cover our losses. See “Item 4. Information on the Company—Energy Sector Regulatory Charges—CDE” and “Item 4. Information on the Company—Energy Sector Regulatory Charges— Regulated Market Account – ACR Account”.

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With respect to our generation business, in order to compensate for poor hydrological conditions and to maintain adequate water levels in reservoirs, the ONS may order the reduction of generation from hydroelectric power plants, which would be partially compensated by increased generation by thermoelectric plants. This mechanism for replacing hydroelectric production with thermoelectric production may not provide all of the energy we need to fulfill our obligations under existing energy supply contracts. To compensate for this deficit, our generation business can be required to purchase energy in the spot market, typically at higher prices, and we would not be able to pass on these increased costs. This mechanism impacts all generation companies in Brazil regardless of whether the geographical region in which a specific generator is located is experiencing low rainfall, and could have a material adverse effect on our generation business.

The Generation Scaling Factor, or GSF, is a factor used to adjust the guaranteed power output and represents the ratio between the total power produced by the hydroelectric plants that integrate the Energy Reallocation Mechanism (Mecanismo de Realocação de Energia, or MRE) and their guaranteed power outputs. This represents, on average, the amount of energy committed to energy generation contracts. If there are excessively low flow rates, the GSF equals to less than 1 and the hydroelectric generators that contracted their guaranteed power outputs have to incur additional costs to acquire energy in the spot market to fulfill their obligations. As Brazil experienced an unusually severe drought between 2012 and 2015, its energy generation was below its expected levels.

In 2015, the financial effects of the GSF on the generation companies were discussed. There was a broad sector debate on the effects of, and solutions for the GSF from an administrative, regulatory, business and legal perspective. Accordingly, Law No. 13,203, dated December 8, 2015, and ANEEL Resolution No. 684, dated December 11, 2015, established the criteria for the approval and the conditions for the renegotiation of the hydrological risks borne by certain hydroelectric generation companies. Pursuant to such new rules, the generators could share their hydrologic risks with consumers, through the payment of a “risk premium”. Copel Geração e Transmissão and Elejor filed a request for the renegotiation of the hydrological risk of HPPs Mauá, Foz do Areia, Santa Clara and Fundão, which was consented through ANEEL Decisions No. 84/2016 and 43/2016, respectively. Subsequently, in 2017 Copel Geração e Transmissão filed another request for the renegotiation of the hydrological risk of HPPs Cavernoso II e Baixo Iguaçu, which was consented through ANEEL Decision No. 4,101/2017, and, in 2018, ANEEL approved the renegotiation of the hydrological risk of HPP Colíder through ANEEL Decision No. 2,889/2018. For more information, see Note 14.1 to our audited consolidated financial statements.

In addition, in an extreme scenario, given the increased presence of thermal generation in the national electric matrix, if a shortage of natural gas were to occur, this would increase the general demand for hydroelectric energy in the market and therefore increase the risk that a rationing program would be instated.

Regarding our energy trading business, the effect of volatility in hydrological conditions is the increase of the variation of energy price , which in turn increases the spot market volatility, thus affecting our operating results.

Spot price (PLD) is determined by mathematical models that consider the prevalence of hydroelectric plants in the Brazilian generation context, hydrological conditions, energy demand, fuel prices, deficit costs, the entry of new projects and the availability of generation and transmission equipment, and aim to find an optimal balance between the present benefit of water usage and the future benefit of its storage, measured in terms of the expected economy of the fuels in thermoelectric plants. The energy spot prices are calculated by CCEE every week and are set for each region.

When there is great availability of hydrological resources, the spot price tends to remain at lower levels, which may not be enough to (i) cover the generation costs of this very same energy (when related to our generation business) and (ii) cover the cost of the power purchase and sale agreement in our energy trading business.

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Conversely, if hydrological availability is affected, spot prices tend to increase significantly, in addition to occasionally impacting the GSF, which may adversely impact our costs of energy purchases, as the price set forth in power purchase and sale agreements may not be sufficient.

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

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

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

ANEEL could penalize us for failing to comply with the terms of our concessions or with applicable laws and regulations, and we may not recover the full value of our investment in the event that any of our concessions are terminated.

Our concessions are for terms of 20 to 35 years and may be extended if certain conditions are met. In the event that we fail to comply with any term of our concessions or applicable law or regulation, ANEEL may impose penalties on us, which may include warnings, the imposition of potentially substantial fines (in some instances, up to 2% of our revenues in the fiscal year immediately preceding the assessment) and restrictions on our operations, among others. ANEEL may also terminate our concessions prior to the expiration of their terms if we fail to comply with their provisions or if they determine that terminating our concessions would be in the public interest, in both cases through an expropriation proceeding. In particular, our renewed distribution concession agreement contains both quality and financial metrics that become more restrictive over time, and that we must meet to ensure that our distribution concession agreement is not terminated. If ANEEL terminates any of our concessions before its expiration, we would not be able to operate the segment(s) of our business that had been authorized by the concession. Furthermore, any compensation that we may receive from the federal government for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment. The early termination or non-renewal of any of our concessions or the imposition of severe fines or penalties by ANEEL could have a material adverse effect on our financial condition and results of operations. See “Item 4. Information on the Company—The Brazilian Electric Power Industry—Concessions”.

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

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

It is also incumbent upon ANEEL to determine the revenues to be charged by the generating companies, holding assets with renewed concession agreements or resulting from concessions auctions (both cases in accordance with 2013 Concession Renewal Law). The Annual Generation Revenue (RAG) is the amount which the generating companies are entitled to in accordance with the physical guarantee of a hydroelectric plant that is allocated to the regulated/quota market. RAG is calculated taking into account the regulatory costs of operation, maintenance, administration, compensation and amortization of the hydroelectric plant, being adjusted annually, in addition to being reviewed every 5 years.

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

As is the case for distribution companies, the regulation mechanisms for transmission companies are the tariff review, which occurs every five years, and the annual tariff readjustment, which is a monetary adjustment of the tariffs charged. These mechanisms depend on the concession agreement of each company. At the time of the tariff review, the objective of ANEEL is to recalculate the costs for the efficient operation and maintenance of the system managed by the transmission company.

We cannot assure you that ANEEL will establish tariffs at rates that are favorable to us. To the extent that any of our requests for adjustments are not granted by ANEEL in a timely manner, our financial condition and results of operations may be adversely affected. In addition, ANEEL’s decisions relating to our tariffs may be contested by public authorities or by our customers. Administrative and judicial decisions resulting from these challenges may modify ANEEL’s decisions in a manner that is unfavorable to us, which may adversely affect our financial condition and results of operations.

We are subject to comprehensive regulation of our business, which fundamentally affects our financial performance.

Our business is subject to extensive regulation by various Brazilian legal and regulatory authorities, particularly the MME and ANEEL, which regulate and oversee various aspects of our business and establish our tariffs. Changes to the laws and regulations governing our operations, which have occurred in the past, could adversely affect our financial condition and results of operations.

For example, the Brazilian government has taken action to reduce tariffs in recent years. In order to substantially reduce the price paid by Final Customers for electricity, the Brazilian government enacted the 2013 Concession Renewal Law, which significantly changed the conditions under which concessionaires are able to renew concession contracts. Under the 2013 Concession Renewal Law, most generation, transmission and distribution concessionaires may be renewed at the request of the concessionaire for an additional period of 30 years, but only if the concessionaire agrees to amend the terms of the concession contract to reflect certain new terms and conditions. For more information, see “Item 4. Information on the Company – Concessions”.

If any further regulations or new laws are passed by the Brazilian government to lower electricity prices, these new laws and regulations could have a material adverse effect on our results of operations. If we are required to conduct our business in a manner substantially different from our current operations as a result of regulatory changes, our results of operations and financial condition may be adversely affected.

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

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

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Certain customers in our distribution concession area may cease to purchase energy from our distribution business.

Our distribution business generates a large portion of its revenues by selling energy that it purchases from generation companies. Large electricity customers within the geographic area of our concession that meet certain regulatory requirements may qualify as free customers (“Free Customers”). A Free Customer in our distribution concession area is entitled to purchase energy directly from generation and energy trading companies rather than through our distribution business, in which case that Free Customer would cease to pay our distribution business for that energy that we previously supplied. Therefore, if the number of Free Customers within the geographic area of our concession increases and these Free Customers purchase energy from sources other than our generation and trading  companies, our revenues and results of operations would be adversely affected. Furthermore, prices in the free market have recently been lower than those in the regulated market in the past years, which has been leading to an increase in the number of Free Customers within the geographic area of our concession.

In addition, ANEEL has recently improved regulations related to micro and mini distributed generation, which has been facilitating customers to purchase or to lease power generation equipment, specially solar photovoltaic modules, to produce energy for their own consumption. Therefore, if the number of customers with micro and mini distributed generation within the geographic area of our concession increases, our revenues and results of operations could also be adversely affected.

We generate a portion of our operating revenues from Free Customers who may seek other energy suppliers upon the expiration of their contracts with us.

As of December 31, 2018, we had 345 Free Customers, representing approximately 6.8% of our consolidated operating revenues and approximately 23.6% of the total volume of electricity we sold to Final Customers.

Until March 31, 2019, Copel GeT signed 1 additional agreement with Free Customers in our generation business. Our contracts with Free Customers are typically for periods ranging between two years and five years in our generation business.

Approximately 5.2% of the megawatts-hours sold under contracts to such customers by Copel GeT expired in 2018. These customers represented approximately 1.5% of the total volume of electricity we sold in 2018, and approximately 1.7% of total net operating revenue from energy sales for that year. There can be no assurance that Free Customers will enter into contracts or extend their current contracts to purchase energy from us.

Additionally, it is possible that our large industrial clients could be authorized by ANEEL to generate electric energy for their own consumption or sale to other parties, in which case they may obtain an authorization or concession for the generation of electric power in a given area, which could adversely affect our results of operations.

Regarding our energy trading company, as of December 31, 2018, we had 292 Free Customers, representing approximately 2.5% of our consolidated operating revenues.

 

We may be forced to purchase or sell energy in the spot market at higher or lower prices if our forecasts for energy demand are not accurate, if there is a shortage of energy supply available in the regulated market or if energy we contract is not delivered, and we may not be entitled to pass on any increased costs or incurred losses to our Final Customers in a timely manner, or at all.

Under the New Industry Model Law, electric energy distributors, including us, must contract to purchase, through public bids conducted by ANEEL, 100% of the forecasted electric energy demand for their respective distribution concession areas, up to seven years prior to the actual delivery of electric energy. We cannot guarantee that our forecasts for energy demand in our distribution concession area will be accurate. If our forecasts fall short of actual electricity demand, or if we are unable to purchase energy through the regulated market due to lack of energy supply in the market, or if a generation company fails to deliver energy that was previously contracted, we may be forced to make up for the shortfall by entering into short-term agreements to purchase electricity in the spot market where we may pay significantly more for energy without being able to pass on these increased costs to our Final Customers. In addition, if we underestimate our distribution energy needs, we may be subject to penalties imposed by the CCEE. Moreover, if our forecasts surpass actual demand by more than the allowed margin (105% of actual demand), including where demand is depressed due to government campaigns in response to poor hydrological conditions or due to reduced economic activity, we will not be able to pass on to our Final Customers the cost of the excess energy that we acquire.

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In 2016, as a consequence of the country’s economic crisis and the increase in the number of Free Customers who were attracted by lower prices in the free market, several distribution companies, including Copel Distribuição, were contracted above 105% of their actual demand. As a result, those companies may incur losses due to sale of the excess energy at lower prices in the spot market. On the other hand, facing this same scenario in 2017, Copel Distribuição and other  distribution companies sold the surplus energy at a higher price in the spot market, resulting in the possibility of earnings. On August 28, 2017, Brazilian Decree No. 9,143/2017 recognized the involuntary nature of energy surplus arising from the migration of consumers to the Free Market. However, we cannot guarantee the results of such rules and their impact on our future operations.

In 2018, purchases made by Copel Distribuição did not exceed the regulatory margin of 105% of the forecasted energy amount. Even though Copel Distribuição plans on adopting the same strategies onwards, we cannot ensure you that it will be able to comply with the regulatory requirements in the future.   

We are subject to a counterparty’s credit risk, and,  in case the purchasers or sellers that are parties to power purchase and sale agreements entered into with Copel Comercialização default on their obligations, we may have to sell or purchase energy at a different base price. 

Copel Comercialização is subject to a counterparty’s credit risk. When Copel Comercialização sells energy, the counterparties to power purchase agreements may default on their contractual obligations, which may cause Copel Comercialização to sell energy at a different base price. In cases where Copel purchases energy, the selling counterparties may also default on the relevant contracts, and, consequently, Copel Comercialização may have to buy energy at a different base price and be subject to regulatory penalties imposed by CCEE due to insufficient contractual guarantees. Even though the Company performs credit analyses in accordance with market standards and requires its counterparties to provide guarantees in connection with the power purchase and sale agreements, we cannot guarantee that our counterparties will not fail to comply with their payment obligation or with their obligation to deliver energy to Copel, as the case may be, which may adversely affect our results.

Our equipment, facilities and operations are subject to numerous environmental and health regulations, which may become more stringent in the future and may result in increased liabilities and increased capital expenditures.

Our distribution, transmission and generation activities are subject to comprehensive federal, state and local legislation, as well as supervision by Brazilian governmental agencies that are responsible for the implementation of environmental and health laws and policies. These agencies could take enforcement action against us for our failure to comply with their regulations and with requirements established for the maintenance of our environmental licenses. These actions could result in, among other things, the imposition of fines, embargoes and revocation of licenses, which could have a material adverse effect on our financial condition and results of operations. It is also possible that enhanced environmental and health regulations will force us to allocate capital towards compliance, and consequently, divert funds away from planned investments. Such a diversion could have a material adverse effect on our financial condition and results of operations.

We are strictly liable for any damages resulting from inadequate provision of electricity services and our insurance policies may not fully cover such damages.

We are strictly liable under Brazilian law for damages resulting from the inadequate provision of electricity distribution services. In addition, our distribution, transmission and generation utilities may be held liable for damages caused to others as a result of interruptions or disturbances arising from the Brazilian generation, transmission or distribution systems, whenever these interruptions or disturbances are not attributed to an identifiable member of the National Electric System Operator, the Operador Nacional do Sistema Elétrico (“ONS”). We cannot assure you that our insurance policies will fully cover damages resulting from inadequate rendering of electricity services, which may have an adverse effect on us.

We are the controlling shareholders of a company that operates a gas distribution business (Compagas) and we are consequently exposed to risks inherent to this sector.

We control a business in the gas distribution sector, which is operated by Companhia Paranaense de Gas – Compagas. This company is entitled to exclusive rights with respect to the supply of piped gas in the State of Paraná. The clients of this business are thermoelectric plants, cogeneration plants, gas stations, other companies and residences.

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Businesses in the gas distribution sector are subject to a broad set of risks inherent to its operation, including among the main ones:

• Regulatory instability,

• Shortage of natural gas,

• Depending on a single supplier in Brazil,

• Capacity of financing expansion,

• Operational failures and accidents in distribution,

• Performance of outsourced service providers,

• Alternative energy sources,

• Quality in service.

As a result of these uncertainties, there is no guarantee that the purposes of our gas distribution business will be achieved, which may have an adverse effect on our results of operations and our business.

We are the controlling shareholders of a company that operates a telecommunications business (Copel Telecomunicações S.A.) and we are consequently exposed to the risks inherent to this sector.

We control a business in the telecommunications sector under an authorization granted by the National Telecommunications Agency (Agência Nacional de Telecomunicações – ANATEL). This business provides telecommunications services through the use of fiber optics. It also provides a number of telecommunications services to other companies of the Copel group.

Businesses in the telecommunications sector are subject to a broad set of risks inherent to its operation, such as:

• Regulatory instability,

• Increase in competition,

• Technological changes,

• Capacity of financing our expansion,

• Failures in technological systems and information security,

• Performance of outsourced service providers,

• Exchange rate fluctuations,

• Variation in operating costs,

• Operational failures,

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• Quality in service.

As a result of these uncertainties, there is no guarantee that the purposes of our telecommunications business will be achieved, which may have an adverse effect on our results of operations and our business.

We are uncertain as to the outcome of the administrative proceeding brought by ANATEL against Sercomtel S.A. Telecomunicações to terminate concessions and authorizations previously awarded to this company.

We own 45% of the stock of Sercomtel Telecomunicações S.A. ("Sercomtel"). Sercomtel holds a concession to provide fixed telephony services and an authorization to provide mobile services in the municipalities of Londrina and Tamarana, located in the State of Paraná. In addition, Sercomtel has two (2) other authorizations from ANATEL that allow it to provide fixed telephony and broadband internet services in all other municipalities of the State of Paraná. Currently, Sercomtel operates with its own network in fifteen (15) municipalities of the State of Paraná, providing voice services and fixed broadband. In September 2017, ANATEL determined that Sercomtel was not in compliance with certain financial indicators set forth by the agency in connection with the concessions granted to Sercomtel and required for the company's operations to continue. As a consequence of this determination, ANATEL brought an administrative proceeding against Sercomtel to assess whether the concession and the authorizations granted to this company should be terminated. In March 2019, ANATEL decided to suspend the above mentioned proceeding for a 120-day period, so that Sercomtel could present to the agency alternative plans for meeting the relevant regulatory indicators. The process for determining whether the concession and authorizations granted to Sercomtel should be terminated is carried out by ANATEL and will be resumed once the suspension period elapses. We are not certain as to the outcome of this administrative proceeding. If ANATEL determines the termination of the concession held by Sercomtel, we may be adversely affected in accordance with our stake in this company's capital stock.

We cannot assure the speed of our innovation capacity and our responses in view of the changes the energy sector has been going through as a result of technology advances.

The electric energy sector has been going through changes driven by (i) the decentralization of the power generation systems; (ii) advances in energy storage technologies; (iii) dissemination of digital technologies that improve the efficiency of energy generation, transmission and consumption; (iv) increase of renewable energy sources, such as wind and solar energy; and (v) a tendency of reducing carbon footprints in the energy system, as part of the global efforts to mitigate the effects of climate change. These changes present many challenges and we may not be able to keep up with the effects of the increasing adoption of digital technologies in the electric energy sector and the significant potential of new technology solutions (both with respect to the improvement of processes and services provided to consumers and with respect to the development of new products that may lead to higher productivity gains, more affordable prices, higher competition and the creation of new markets). Investments in research and development may contribute to mitigate the risks related to the transformations of the energy sector and create new opportunities.   

Risks Relating to Brazil

The Brazilian Government has significant influence over the Brazilian economy. Brazilian economic and political conditions - and investor perception of these conditions - have a direct impact on our business, financial condition, results of operation and prospects.

Historically, the country’s political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which resulted in economic deceleration, the downgrading of credit ratings of the Brazilian government and Brazilian issuers, and heightened volatility in the securities issued abroad by Brazilian companies.  In August 2016, the Brazilian Congress approved the impeachment of the Brazilian president.  Also, ongoing corruption investigations have led to charges against former and current public officials, members of several major political parties and directors and officers of many Brazilian companies. In addition, Brazil’s elected a new president and members of the federal legislature in October 2018.  We cannot predict whether these elections will result in changes in Brazilian governmental and economic policies or in the Brazilian energy industry.  Political instability and the upcoming elections may aggravate economic uncertainties in Brazil and increase volatility of securities of Brazilian issuers.

Additionally, the Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy and often changes monetary, credit, exchange and other policies to influence Brazil’s economy. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies, as well as other factors including, without limitation:  

• fluctuations in the exchange rate;

• inflation;

• changes in interest rates;

• exchange control policies;

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• fiscal policy and changes in tax laws;

• other political, diplomatic, social and economic developments that may affect Brazil or the international markets;

• controls on capital flows; and/or

• limits on foreign trade.

In the last few years, Brazil faced an economic recession, adverse fiscal developments and political instability. Brazilian GDP grew by 1.1% in 2018, grew by 1.0% in 2017 and declined by 3.5% in 2016. Unemployment rate was 11.6% in 2018, 12.7% in 2017 and 11.5% in 2016. Inflation, as reported by the consumer price index (IPCA), was 3.75% in 2018, 2.95% in 2017 and 6.29% in 2016. The Brazilian Central Bank's base interest rate (SELIC) was 6.5% on December 31, 2018, 7.00% on December 31, 2017 and 13.75% on December 31, 2016. Future economic, social and political developments in Brazil may impair our business, financial condition or results of operations, or cause the market value of our securities to decline.

Changes in, or uncertainties regarding the implementation of, the policies above, might generate or contribute to uncertainties in the Brazilian economy. This would increase the volatility of the domestic capital market and the value of Brazilian securities traded abroad, and adversely affect our business, results of operations and financial condition.

Moreover, taking into account the Brazilian presidential system of government, and the considerable influence of the executive power, it is not possible to predict whether the present government or any successive governments will have an adverse effect on the Brazilian economy, and consequently on our business.

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

In recent years, the Brazilian real has fluctuated in value against foreign currencies, and the value of the real may rise or decline substantially from current levels. Over the course of 2015, the value of the Brazilian real declined more than 48% against the U.S. Dollar. In contrast, in the course of 2016, the Brazilian real appreciated 16.5% against the U.S. Dollar, following a year of intense volatility. In 2017, the Brazilian real was  subject to relative stability. As of December 31, 2018, the real vs. U.S. dollar exchange rate recorded was R$3.87 to US$1.00, depreciating 17.2% against the U.S. Dollar, compared to the exchange rate recorded on December 31, 2017. Depreciation of the real increases the cost of servicing our foreign currency-denominated debt and the cost of purchasing electricity from the Itaipu – a hydroelectric facility which is one of our major suppliers and adjusts its electricity prices based in part on its U.S. dollar costs. Depreciation of the real also creates additional inflationary pressure in Brazil that may negatively affect us. Indeed, depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. dollar value of our dividends and the U.S. dollar equivalent of the market price of our common shares and the ADSs.

Inflation and governmental measures to curb inflation may contribute to economic uncertainty in Brazil, and could reduce our margins and the market price of the Class B Shares and ADSs.

Brazil has in the past experienced extremely high rates of inflation. More recently, Brazil’s annual rates of inflation, measured in accordance with the variation of the Índice Geral de Preços - Disponibilidade Interna (“IGP-DI”) index, were 2.4% for the three-month period ended March 31, 2019, 7.1% in the year 2018, (0.4)% in the year 2017, 7.2% in 2016 and 10.7% in 2015. 2018 was a year of stabilizing inflation rates. Brazilian inflation rates observed in 2018 were below the government’s desired rate, but this scenario can change abruptly as a consequence of facts beyond our control. The Brazilian government has in the past taken measures to combat inflation, such as raising the basic Selic interest rate to elevated levels, and public speculation about possible future government actions has had significant negative effects on the Brazilian economy. Although our concession contracts provide for annual adjustments based on inflation indexes, if Brazil experiences substantial inflation in the future, and the Brazilian government adopts inflation control policies similar to those adopted in the past, our costs may increase faster than our revenues, our operating and net margins may decrease and, if investor confidence lags, the price of the Class B Shares and ADSs may fall. Inflationary pressures may also curtail our ability to access foreign financial markets and could lead to further government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy.

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Allegations of political corruption against the Brazilian federal government and the Brazilian legislative branch could create economic and political instability.

Currently, several former and current members of the Brazilian executive and legislative branches of government are being investigated as a result of allegations of unethical and illegal conduct identified by the Operation Car Wash (Operação Lava-Jato) being conducted by the Office of the Brazilian Federal Prosecutor, and a number of politicians and businessmen have been arrested. The potential outcome of these investigations is unknown, but they have already had an adverse impact on the image and reputation of the investigated companies, in addition to adversely impacting general market perception of the Brazilian economy, including our business, financial condition and results of operations, as well as the trading price of our common shares and ADSs. Moreover, the conclusion of these proceedings or further allegations of illicit conduct could have additional adverse effects on the Brazilian economy. We cannot predict whether such allegations will lead to further instability or whether new allegations against key Brazilian government officials will arise in the future. In addition, we cannot predict the outcome of any such allegations and their effect on the Brazilian economy.

In addition Jair Bolsonaro was elected as the new President of Brazil in October 2018, but political uncertainty has remained. We cannot predict the effects of these recent developments and the current ongoing political uncertainties on the Brazilian economy.

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

The Brazilian government has in the past changed its tax policies in ways that affect the electricity sector, and it may do so again in the future. These changes include increases in the tax rates affecting energy companies and, occasionally, the collection of temporary taxes related to specific governmental purposes. If we are unable to adjust our tariffs accordingly, we may be adversely affected.

Negative developments in other national economies, especially those in developing countries, may negatively impact foreign investment in Brazil and the country’s economic growth.

International investors generally consider Brazil to be an emerging market. Historically, adverse developments in the economies of emerging markets have resulted in investors’ perception of greater risk from investments in such markets. Such perceptions regarding emerging market countries have significantly affected the market value of securities of Brazilian issuers. Furthermore, although economic conditions are different in each country, investors’ reactions to developments in one country can impact the prices of securities in other countries, including those in Brazil, and this may diminish investors’ interest in securities of Brazilian issuers, including ours.

Risks Relating to the Class B Shares and ADSs

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

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

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In addition, in the limited circumstances where the holders of Class B Shares are entitled to vote, holders may exercise voting rights with respect to the Class B Shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs. There are no provisions under Brazilian Corporate Law or under our bylaws that limit ADS holders’ ability to exercise their voting rights through the Depositary with respect to the underlying Class B Shares. However, the procedural steps involved create practical limitations on the ability of ADS holders to vote. For example, holders of our Class B Shares will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. In accordance with the Deposit Agreement, we will provide the notice to the Depositary, which will in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the Depositary how to vote their shares. Because of this extra procedural step involving the Depositary, the process for exercising voting rights will take longer for ADS holders than for direct holders of Class B Shares. ADSs for which the Depositary does not receive timely voting instructions will not be voted.

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

Our corporate affairs are governed by our bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil. Under Brazilian Corporate Law, you and the holders of the Class B Shares may have fewer and less well-defined rights to protect your interests in connection with actions taken by our Board of Directors or the holders of Common Shares than under the laws of the United States and certain other jurisdictions outside Brazil.

Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly supervised as the United States securities markets or markets in certain other jurisdictions outside Brazil. For instance, rules and policies against self-dealing and regarding the preservation of minority shareholder interests may be less developed and not as robustly enforced in Brazil as in the United States and certain other jurisdictions outside Brazil, which could potentially disadvantage you as a holder of the preferred shares and ADSs. In addition, shareholders in Brazilian companies must hold 5% of the outstanding share capital of a corporation in order to have standing to bring shareholders’ derivative suits, and shareholders in Brazilian companies ordinarily do not have standing to bring a class action suit.

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

You will not be able to exercise the preemptive rights relating to the Class B Shares underlying your ADSs unless a registration statement under the Securities Act, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Therefore, the Depositary will not offer rights to you as a holder of the ADSs unless the rights are either registered under provisions of the Securities Act or are subject to an exemption from the registration requirements. We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement. Accordingly, you may receive only the net proceeds from the sale of your preemptive rights by the Depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. If you are unable to participate in rights offerings, your holdings may also be diluted.

Sales of a substantial number of shares, or the perception that such sales might take place, could adversely affect the prevailing market price of our shares or ADSs.

As a consequence of the issuance of new shares, sales of shares by existing share investors, or the perception that such a sale might occur, the market price of our shares and, by extension, of the ADSs may decrease significantly.

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Future equity issuances may dilute the holdings of current holders of our shares or ADSs and could materially affect the market price for those securities.

We may in the future decide to offer additional equity to raise capital or for other purposes. Any such future equity offering could reduce the proportionate ownership and interests of holders of our shares and ADSs, as well as our earnings and net equity value per share or ADS. Any offering of shares and ADSs by us or our main shareholders, or a perception that any such offering is imminent, could have an adverse effect on the market price of these securities.

You may not receive dividend payments if we incur net losses or our net profit does not reach certain levels.

Under Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net profit for the preceding fiscal year, with holders of preferred shares having priority of payment. According to our bylaws, Class A Shares and Class B Shares are entitled to receive annual, non-cumulative minimum dividends, which dividend per share shall be at least 10% higher than the dividends per share paid to the holders of the Common Shares. Class A Shares have a dividend priority over the Class B Shares, and Class B Shares have a dividend priority over the Common Shares.

If we realize a net profit in an amount sufficient to make dividend payments, at least the mandatory dividend is payable to holders of our preferred and common shares. After payment of the mandatory dividend, we can retain profits as statutory profit reserves for investments or capital reserves. If we incur net losses or realize net profits in an amount insufficient to make dividend payments, including the mandatory dividend, our management may recommend that dividend payments be made using the statutory profit reserve after accounting for the net losses for the year and any losses carried forward from previous years. In the event that we are unable to declare dividends, our management may nevertheless decide to defer payment of dividends or, in limited circumstances, not to declare dividends at all. We cannot make dividend payments from our legal reserve and capital reserve accounts.

Additionally, in accordance with Brazilian Corporate Law, in fiscal years in which the amount of mandatory dividends exceeds the amount of realized net profits, according to the parameters set forth in this law, management may suggest the formation of a reserve for realizable profits. This reserve can be offset with any losses and then used for paying mandatory dividends.

Holders of our ADSs may be unable to enforce judgments against our directors or officers.

All of our directors and officers named in this annual report reside in Brazil. Substantially all of our assets, as well as the assets of these persons, are located in Brazil. As a result, it may not be possible for holders of our ADSs to effect service of process upon us or our directors and officers within the United States or other jurisdictions outside Brazil, attach their assets or enforce against us or our directors and officers judgments obtained in the United States or other jurisdictions outside of Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain requirements are met, holders of ADSs may face greater difficulties in protecting their interest in actions against us or our directors and officers than would shareholders of a corporation incorporated in a state or other jurisdiction of the United States.

Judgments of Brazilian courts with respect to our shares will be payable only in reais.

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our shares, we will not be required to discharge any such obligations in a currency other than reais (R$). Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais (R$) may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and any such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non Brazilian investors with full compensation for any claim arising out of, or related to, our obligations under our shares.

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If you exchange your ADSs for Class B Shares, you risk increased taxes and the inability to remit foreign currency abroad.

Brazilian law requires that parties obtain a registration before the Central Bank in order to be allowed to remit foreign currencies, including U.S. dollars, abroad. For the ADSs, the Brazilian custodian for the Class B Shares has obtained the necessary certificate from the Central Bank for the payment of dividends or other cash distributions relating to the preferred shares or upon the disposition of the preferred shares. If you exchange your ADSs for the underlying Class B Shares, however, you must obtain your own certificate of registration or register in accordance with Central Bank and CVM rules in order to obtain and remit U.S. dollars abroad upon the disposition of the Class B Shares or distributions relating to the preferred shares. If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the preferred shares. Pursuant to Central Bank rules, obtaining this registration requires exchange transactions, which are subject to taxes in Brazil. For more information, see “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Other Brazilian Taxes”. If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to the preferred shares or the return of your capital in a timely manner. The custodian’s registration before the Central Bank and any certificate of foreign capital registration you obtain may be affected by future legislative changes. Additional restrictions may be imposed in the future on the disposition of the underlying Class B Shares or the repatriation of the proceeds from disposition.

The Brazilian government may impose exchange controls and restrictions on remittances abroad which may adversely affect your ability to convert funds in reais into other currencies and to remit other currencies abroad.

In the past, the Brazilian government has imposed restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion of Brazilian currency into foreign currencies. The Brazilian government could again choose to impose this type of restriction if, among other things, there is deterioration in Brazilian foreign currency reserves or a shift in Brazil’s exchange rate policy. Reintroduction of these restrictions would hinder or prevent your ability to convert dividends, distributions or the proceeds from any sale of Class B Shares, as the case may be, from reais into U.S. dollars or other currencies and to remit those funds abroad. We cannot assure you that the Brazilian government will not take similar measures in the future.

The relative volatility and illiquidity of the Brazilian securities markets may impair your ability to sell the Class B Shares underlying the ADSs.

The Brazilian securities markets are substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and certain other jurisdictions outside Brazil, and are not as highly regulated or supervised as some of these other markets. The illiquidity and relatively small market capitalization of the Brazilian equity markets may cause the market price of securities of Brazilian companies, including our ADSs and Class B Shares, to fluctuate in both the domestic and international markets, and may substantially limit your ability to sell the Class B Shares underlying your ADSs at a price and time at which you wish to do so.

Instability of the exchange rate could adversely affect the value of remittances of dividends outside of Brazil and also the market price of the ADSs.

Many Brazilian and global macroeconomic factors have an influence on the exchange rate. In this context, the Brazilian federal government, through the Central Bank, has in the past occasionally intervened for the purpose of controlling unstable variations in exchange rates. We cannot predict whether the Central Bank or the federal government will continue to allow the real to float freely or whether it will intervene through a system involving an exchange rate band, or the use of other measures.

As a result, the real might fluctuate substantially in relation to the United States dollar, and other currencies, in the future. That instability could adversely affect the equivalent in US dollars of the market price of our shares, and as a result the prices of our ADSs and also outward dividends remittances from Brazil.

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Changes in economic and market conditions in other countries, especially Latin American and emerging market countries, may adversely affect our business, results of operations and financial condition, as well as the market price of our shares, preferred ADS and common ADSs.

The market value of the securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American countries and emerging market countries. Although the economic conditions of such countries may differ significantly from the economic conditions of Brazil, the reactions of investors to events in those countries may have an adverse effect on the market value of the securities of Brazilian issuers. Crises in other emerging market countries might reduce investors’ interest in the securities of Brazilian issuers, including our Company. In the future, this could make it more difficult for us to access the capital markets and finance our operations on acceptable terms or at all. Due to the characteristics of the Brazilian power industry (which requires significant investments in operating assets) and due to our financing needs, if access to the capital and credit markets is limited, we could face difficulties in completing our investment program and refinancing our obligations, and this could adversely affect our business, results of operations and financial condition.

Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our shares or ADS.

Law No. 10,833 of December 29, 2003, provides that the disposition of assets located in Brazil by a non resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common or preferred shares by a nonresident of Brazil to another non-resident of Brazil. There is no judicial guidance as to the application of Law No. 10,833 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADS between nonresidents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADS, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADS by a non-resident of Brazil to another non-resident of Brazil.

 

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Item 4. Information on the Company

 

The Company

We engage in the generation, transmission, distribution and sale of electricity mainly in the Brazilian State of Paraná, pursuant to concessions granted by ANEEL, the Brazilian regulatory agency for the electricity sector. We also provide telecommunications and other services. While our activities are more concentrated in the Brazilian State of Paraná, we also operate in 10 different Brazilian states through our generation and transmission businesses.

As of December 31, 2018, we generated electricity from seventeen (17) hydroelectric plants, eighteen (18) wind plants and one (1) thermoelectric plant, for a total installed capacity of 5,135.3 MW, of which, approximately 99.6% is derived from renewable sources. Including the installed capacity of generation companies in which we have an equity interest, our total installed capacity is 5,787.2 MW. Our electric power business is subject to comprehensive regulation by ANEEL.

We hold concessions to distribute electricity in 394 of the 399 municipalities in the State of Paraná and in the municipality of Porto União in the State of Santa Catarina. As of December 31, 2018, we owned and operated 3,214.3 km of transmission lines and 198,373.6 km of distribution lines, constituting one of the largest distribution networks in Brazil. Of the electricity volume we supplied in 2018 to our Final Customers:

·         33.7% was to industrial customers;

·         28.2% was to residential customers;

·         19.4% was to commercial customers; and

·         18.7% was to rural and other customers.

Key elements of our business strategy include the following:

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

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

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

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

·         seeking cost efficiency and innovation;

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

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

Our revenues for each of the last three (3) financial years by activity are described in “Item 5. Operating and Financial Review and Prospects  Results of operations for the years ended December 31, 2018, 2017 and  2016”.

Historical Background

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We were formed in 1954 by the State of Paraná to engage in the generation, transmission and distribution of electricity, as part of a plan to bring the electric energy sector under state control. We acquired the principal private power companies located in the State of Paraná in the early 1970s. From 1970 to 1977, we significantly expanded our transmission and distribution grid and worked to increase the connectivity of our network to networks in other Brazilian states. In 1979, a change in state law permitted us to extend our generating activities to include production from sources other than hydroelectric and thermal power plants.

Currently, we are the largest energy company in the State of Paraná. We are a corporation incorporated and existing under the laws of Brazil, with the legal name Companhia Paranaense de Energia – Copel. Our head offices are located at Rua Coronel Dulcídio, 800, CEP 80420-170 Curitiba, Paraná, Brazil. Our telephone number at the head office is +55 (41) 3331-4011. Our website is www.copel.com and any filings we make electronically with the SEC will be available to the public over the Internet at the SEC’s website. The commercial name of each of our businesses is provided as follows.

Relationship with the State of Paraná

The State of Paraná owns 58.6% of our Common Shares and, consequently, has the ability to control the election of the majority of the members of our Board of Directors, members of our Supervisory Board, the appointment of senior management and our direction, future operations and business strategy.

Corporate Structure

Prior to 2001, we operated as a single corporation engaged in the generation, transmission and distribution of electricity and in certain related activities. In compliance with the new regulatory regime, we transferred our operations to four wholly-owned subsidiaries (one each for generation, transmission, distribution and telecommunications) and our investments in other companies to a fifth wholly-owned subsidiary. This corporate restructuring was completed in July 2001.

In 2007, to comply with energy sector legislation, we divided the assets of our transmission business (“Copel Transmissão S.A.”) between our distribution business (“Copel Distribuição S.A.”) and our generation business, (“Copel Geração S.A.”). As a result, we changed the name of the latter entity to Copel Geração e Transmissão S.A.

In 2013, the Company was restructured in order to enhance the efficiency of our corporate structure and reduce our operating costs.

On January 28, 2016, our board of directors approved the amendment of the bylaws of Copel Participações S.A., in order to change its corporate purpose and denomination to Copel Comercialização S.A. The corporate purpose of this company is the sale of energy and rendering of related services. The restructuring that created Copel Comercialização S.A. is aimed at strengthening Copel’s positioning in the energy trading market and to improve its efficiency, allowing for greater agility and flexibility in the sale of energy.

In September 2017, in order to optimize the management of operating activities, the Company carried out an organizational restructuring of its wholly-owned subsidiary Copel Renováveis S.A., whose activities were absorbed by Copel Geração e Transmissão S.A.

On August 30, 2018, Copel GeT signed a Share Exchange Agreement with Eletrosul with respect to the joint ventures Costa Oeste Transmissora de Energia S.A. (51% - Copel GeT and 49% - Eletrosul), Marumbi Transmissora de Energia S.A. (80% - Copel GeT and 20%- Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% - Copel GeT and 80% - Eletrosul). Under this agreement, Copel GeT started holding share of interest of 100% in the joint ventures Costa Oeste and Marumbi, in addition Eletrosul started to hold share of interest of 100% in Transmissora Sul Brasileira. The business combinations occurred on August 31, 2018, date of transfer of the shares. For additional information, see Note 1.2 to our audited consolidated financial statements.

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Copel currently has five wholly-owned subsidiaries, which are Copel Geração e Transmissão S.A., Copel Distribuição S.A., Copel Telecomunicações, Copel Comercialização S.A. and Copel Renováveis S.A.

Copel also holds 100% shareholding stake in several Special Purpose Companies (SPC).

The current organization of the group is as described as follows. All of our subsidiaries are incorporated in the Federative Republic of Brazil and subject to the Brazilian law.

 

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BUSINESS

In the past, our generation and distribution businesses were integrated, and we sold most of the electricity we generated to the customers of our distribution business. This changed as a result of the implementation of the New Industry Model Law, enacted in 2004. Today, open auctions on the regulated market are still one of the primary channels by which our distribution business purchases energy to resell to Captive Customers and one of the channels by which our generation business generates revenues. Our generation business only sells energy to our distribution business through auctions in the regulated market. Moreover, our distribution business, like other certain Brazilian distribution companies, is also required to purchase energy from Itaipu, in an amount determined by the Brazilian government based on our proportionate share in the Brazilian electricity market. For more information, see “Item 4. Information on the Company—The Brazilian Electric Power Industry”.

The following table shows the total electricity we (i) generated through entities in which we hold a 100.0% shareholding stake and the 51.0% of energy generated by Mauá Hydroelectric Plant (corresponding to the interest we hold in this asset) and (ii) purchased in the last five years, broken down by the total amount of electricity generated and purchased by Copel Geração e Transmissão and our wind farm generation facilities described bellow (“Wind Farms”) and the total amount of electricity purchased by Copel Distribuição and Copel Comercialização.

 

Year ended December 31,

 

2018

2017

2016

2015

2014

 

(GWh)

 

Copel Geração e Transmissão(1)

 

 

 

 

 

 

Electricity generated(2)

18,029

19,583

25,319

24,494

24,232

Electricity purchased from others

321

1,055

141

257

612

Electricity received from the Interconnected System

142

425

 

2

7

91

Total electricity generated and purchased by Copel Geração e Transmissão

18,492

21,063

25,462

24,758

24,935

Wind Farms(1) (3)

 

 

 

 

 

Electricity generated(2)

1,067

989

1,175

621

-

Electricity purchased from others

-

-

-

295

-

Total electricity generated and purchased by Wind Farms

1,067

989

1,175

916

-

Copel Distribuição

 

 

 

 

 

Electricity purchased from Itaipu(4)

5,726

5,934

5,958

5,941

5,870

Electricity purchased from Auction – CCEAR – affiliates

92

87

157

215

411

Electricity purchased from Auction – CCEAR – other

10,691

9,860

13,387

14,419

16,281

Electricity purchased from others(5)

9,242

10,209

10,361

8,419

6,171

Total electricity purchased by Copel Distribuição

25,751

26,090

29,863

28,994

28,733

Copel Comercialização

 

 

 

 

 

Electricity purchased from others

6,525

2,671

59

-

-

Total electricity purchased by Copel Comercialização

6,525

2,671

59

-

-

Total electricity generated and purchased by Copel Geração e Transmissão, Copel Distribuição, Wind Farms and Copel Comercialização

51,835

50,813

56,559

54,668

53,668

           

                                                            

 

(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, even with respect to past years, were calculated in accordance with the criteria adopted by the CCEE.
(2) Includes the electrical losses of wiring and interconnecting station and technical losses by delivering energy to the Interconnected System.
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.
(4) Distribution companies operating under concessions in the Midwest, South and Southeast regions of Brazil purchase electricity generated by Itaipu.
(5)

These numbers do not include assignments related to the Mechanism for Compensation of Surpluses and Deficits of New Energy (Mecanismo de Compensação de Sobras e Déficits de Energia Nova, or MCSD-EN).

  

 

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The following table shows the total electricity we sold to Free Customers, Captive Customers, distributors, energy traders and other utilities service providers in the south of Brazil through the Interconnected Transmission System in the last five years.

 

Year ended December 31,

 

2018

2017

2016

2015

2014

 

 

 

(GWh)

 

 

Copel Geração e Transmissão(1)

 

 

 

 

 

Electricity delivered to Free Customers

3,960

3,860

3,600

3,921

4,018

Electricity delivered to Bilateral Agreements

8,795

8,504

7,908

6,675

7,392

Electricity delivered under auction – CCEAR – affiliates

92

86

157

215

411

Electricity delivered under auction – CCEAR – other

876

838

3,154

4,391

4,677

Electricity delivered to Spot Market – CCEE(2) 

213

1,246

(252)

(640)

101

Electricity delivered to the Interconnected System 

4,556

6,529

10,895

10,196

8,336

Total electricity delivered by Copel Geração e Transmissão

18,492

21,063

25,462

24,758

24,935

Wind Farms(1)(3)

 

 

 

 

 

Electricity delivered under auction – CCEAR – other

840

840

842

724

-

Electricity delivered under auction – CER – other

334

357

358

337

-

Total electricity delivered by Wind Farms

1,174

1,197

1,200

1,061

-

Copel Distribuição

 

 

 

 

 

Electricity delivered to Captive Customers

19,594

19,743

22,328

24,043

24,208

Electricity delivered to distributors in the State of Paraná

279

521

614

699

699

Spot Market – CCEE(4)

2,401

2,510

3,611

910

368

Total electricity delivered by Copel Distribuição

22,274

22,774

26,553

25,652

25,275

Copel Comercialização

 

 

 

 

 

Electricity delivered to Free Customers

2,096

771

58

-

-

Electricity delivered to Bilateral Agreements

4,403

1,882

-

-

-

Electricity delivered to Spot Market – CCEE 

26

18

1

-

-

Total electricity delivered by Copel Comercialização

6,525

2,671

59

-

-

Subtotal

48,465

47,705

53,274

51,471

50,210

Losses by Copel Distribuição and Wind Farms(5)

3,370

 3,108

3,285

3,197

3,458

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

51,835

50,813

56,559

54,668

53,668

                                                                      

 

(1) In 2018, Copel adopted the criteria set forth by the CCEE to determine the energy flows in sale and purchase transactions. The energy amounts reflected in this table, even with respect to past years, were calculated in accordance with the criteria adopted by the CCEE.
(2) Amounts indicated as less than zero (negative numbers) refer to the consolidated purchase of electricity from the Spot Market along the year.
(3) Electricity generated and purchased by our wind farm generation facilities which were under the supervision of Copel Renováveis until 2015. In December 2015, Copel Geração e Transmissão became responsible for the operation of these facilities.
(4) Includes the MCSD.
(5) Includes Technical, Non-technical and Basic network losses of Copel Distribuição and losses related to the Wind Farms.

 

   

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Generation

As of December 31, 2018, considering only the entities in which we hold a 100.0% shareholding stake and 51.0% of the energy generated by Mauá Hydroelectric Plant (corresponding to the interest we hold in this asset), we operated and sold energy through seventeen (17) hydroelectric plants, eighteen (18) wind plants and one (1) thermoelectric plant, with a total installed capacity of 5,135.3 MW. Our assured energy totaled an average of 2,262.4 MW in 2018. Our generation varies yearly as a result of hydrological conditions and other factors. We generated 19,159 GWh in 2018, 20,891 GWh in 2017, 27,068 GWh in 2016, 25,960 GWh in 2015 and 24,605 GWh in 2014.

Considering the installed capacity of all of the generation companies in which we have an interest (equity or otherwise), our total installed capacity as of December 31, 2018, was 5,787.2  MW.

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

Hydroelectric Generation Facilities

 

The following table sets forth certain information related to our main hydroelectric plants in operation during 2018:

Plant

Installed capacity

Assured energy (1)

Placed in service

Concession expires

 

(MW)

(GWh/yr)

 

 

Foz do Areia

1,676.0

 5,284.91

1980

September, 2023

Segredo

1,260.0

 5,067.66

1992

November, 2029

Salto Caxias

1,240.0

5,305.06

1999

May, 2030

Capivari Cachoeira(2) 

260.0

954.84

1971

January, 2046

Mauá

185.2(3)

883.24

2012

July, 2042

Others

102.7

556.30

N/A

N/A

                                                                                                 

 

(1) Values used to determine volumes committed for sale.
(2) On January 5, 2016, Copel Geração e Tramissão executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2046.
(3) Corresponds to 51.0% of the installed capacity of the plant (363.0 MW), corresponding to the interest we hold in this plant,  as we operate this plant through a consortium.

 

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

 

Governador Ney Aminthas de Barros Braga (“Segredo” Plant). The Segredo Hydroelectric Power Plant is located on the Iguaçu River, approximately 370 kilometers southwest of the city of Curitiba.

Governador José Richa (“Salto Caxias” Plant). The Salto Caxias Hydroelectric Power Plant is located on the Iguaçu River, approximately 600 kilometers southwest of the city of Curitiba.

Governador Pedro Viriato Parigot de Souza (“Capivari Cachoeira” Plant). The Capivari Cachoeira Hydroelectric Power Plant is the largest underground hydroelectric plant in Southern Brazil. The reservoir is located on the Capivari River, approximately 50 kilometers north of the city of Curitiba, and the power station is located on the Cachoeira River, approximately 15 kilometers from the reservoir.

Our concession agreement for the Capivari Cachoeira Plant expired on July 7, 2015. Although Copel Geração e Transmissão did not elect to renew the original concession pursuant the 2013 Concession Renewal Law, it participated in the new competitive bidding process and won. On January 5, 2016, Copel GeT executed a concession agreement with ANEEL, allowing it to continue to operate this plant under an operation and maintenance regime until January 5, 2046. We paid a total of R$574.8 million as the signing bonus for this concession and we received an annual generation revenue (AGR) of R$144.1 million from January 5, 2016 to December 31, 2016. This AGR is subject to an annual tariff adjustment. In July 2017, the AGR was adjusted to R$114.1 million for the period from July 2017 to June 2018 pursuant to the ANEEL Resolution No. 2,265/2017, and in 2018 the AGR was adjusted to R$119.2 million for the period from July 2018 to June 2019 pursuant ANEEL Resolution No. 2,421/2018.

The Capivari Cachoeira Plant has 260.0 MW of installed capacity and assured energy of 954.8 GWh/year. 100.0% of the energy generated by this plant in 2016 was allocated in quotas to the regulated market and as of January 1, 2017, this percent was reduced to 70.0%. Copel GeT will no longer bear the hydrological risk for the energy allocated in quotas under the MRE associated with the Capivari Cachoeira Plant.

Mauá. The Jayme Canet Júnior Hydroelectric Power Plant (Mauá Plant) is located on the Tibagi River, in the State of Paraná. It was constructed between 2008 and 2012 by Consórcio Energético Cruzeiro do Sul, in which we hold a 51.0% interest and Eletrosul holds the remaining 49.0%. The facility is located approximately 250 kilometers from Curitiba, in the Municipality of Telêmaco Borba.

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

Between 2004 and 2010, we were required by law to retain a majority of the voting shares of any company in which we obtained an ownership interest. Starting in 2010, it became possible for us to hold non-controlling interests in companies.

The following table sets forth information regarding the hydroelectric generation plants in which we had a partial equity interest as of December 31, 2018:

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Plant

Installed

capacity

Assured

energy

Placed in service

Our ownership

Concession

expires

 

(MW)

(GWh/yr)

 

(%)

 

Elejor Facility

(Santa Clara and Fundão) 

246.5

1,229.0

July, 2005
June, 2006

70.0

May, 2037(1)

December, 2032

Dona Francisca

125.0

664.9

February, 2001

23.0

August, 2033

SHP Arturo Andreoli

(Foz do Chopim)

29.1

178.6

October, 2001

35.8

April, 2030

                                                                                                 

 (1) Elejor Facility adhered on January 14, 2015, with the renegotiation of the hydrological risks, which caused the expiration date to be extended from 2036 to 2037.

Elejor Facility. The Elejor Facility consists of the Santa Clara and Fundão Hydroelectric Power Plants, both of which are located on the Jordão River in the State of Paraná. The aggregate total installed capacity of the units is 246.5 MW, which includes two smaller hydroelectric generation units installed in the same location. Elejor signed a concession agreement with a term of 35 years for the Santa Clara and Fundão plants in October 2001. As of December 31, 2018, we own 70.0% of the common shares of Elejor, and Paineira Participações owns the remaining 30.0%.

Elejor is required to make monthly payments to the federal government for the use of hydroelectric resources, which in 2001 totaled R$19.0 million. This amount is adjusted on an annual basis by the IGP-M Index.

We have a power purchase agreement with Elejor, which provides that we will purchase all of the energy produced by the Santa Clara and Fundão facilities at a set rate until April 2019, to be adjusted annually in accordance with the IGP-M Index. In 2018, Elejor’s net revenues and net profits were R$293.9 million and R$76.3 million, respectively, while in 2017 its net revenues and net profits were R$291.6 million and R$96.2 million, respectively.  

Dona Francisca. We own 23.03% of the common shares of Dona Francisca Energética S.A. (“DFESA”). The other shareholders are Gerdau S.A. with a 51.82% interest, Celesc S.A. with a 23.03% interest and Desenvix S.A. with a 2.12% interest. DFESA Hydroelectric Power Plant is located on the Jacuí River in the State of Rio Grande do Sul. The plant began full operations in 2001. In April 2015, we signed a new ten year power purchase agreement with DFESA, valued at R$17.0 million annually, under which Copel purchases 23.03% of DFESA’s assured energy (proportional to Copel’s stake).

In 2018, DFESA’s net revenues and net profits were R$70.7 million and R$43.3 million, respectively, while in 2017 its net revenues and net profits were R$70.7 million and R$38.5 million, respectively.

SHP Arturo Andreoli (“Foz do Chopim” Hydroelectric Plant). The Foz do Chopim Hydroelectric Plant is located on the Chopim River in the State of Paraná. We own 35.8% of the common shares of Foz do Chopim Energética Ltda., the entity that owns the Foz do Chopim Hydroelectric Plant. Silea Participações Ltda. owns the remaining 64.2%. The operation and maintenance of Foz do Chopim Hydroelectric Plant is performed by Copel Geração e Transmissão S.A. Energy supply agreements were executed at an average tariff of R$220.07/MWh. Foz do Chopim Energética Ltda. also has the authorization to operate Bela Vista SHP, a Hydroelectric Power Plant that is located on the same river and has similar capacity. The process for obtaining the necessary installation environmental license is ongoing. In 2018, Foz do Chopim’s net revenues and net profits were R$46.6 million and R$36.9 million, respectively, while in 2017 its net revenues and net profits were R$40.5 million and R$18.6 million, respectively.

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Wind Farm Generation Facilities

Since 2013 we have been expanding our energy generation capacity and diversifying our energy matrix through the development of renewable energy sources, like the construction and acquisition of wind farms in the State of Rio Grande do Norte. The following table sets forth certain information relating to our wind farm plants in operation as of December 31, 2018:

 

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Plant

Installed capacity

Assured Power

Placed in Service

Concession Expires

 

(MW)

(Average MW)

 

 

São Bento Energia

94.0

46.3

 

 

Boa Vista 

14.0

6.3

February, 2015

April, 2046

Olho d'Água 

30.0

15.3

February, 2015

May, 2046

São Bento do Norte 

30.0

14.6

February, 2015

May, 2046

Farol

20.0

10.1

February, 2015

April, 2046

Palmas

2.5

0.5

November, 1999

 September, 2029

Copel Brisa Potiguar Wind Complex     

183.6

98.4

 

 

Asa Branca I

27.0

14.2

August, 2015

April, 2046

Asa Branca II

27.0

14.3

September, 2015

May, 2046

Asa Branca III

27.0

14.5

September, 2015

May, 2046

Eurus IV

27.0

14.7

August, 2015

April, 2046

Santa Maria

29.7

15.7

April, 2015

May, 2047

Santa Helena

29.7

16.0

May, 2015

April, 2047

Ventos de Santo Uriel

16.2

9.0

May, 2015

April, 2047

São Miguel do Gostoso I(1)

108.0

57.1

 

 

Carnaúbas

27.0

13.1

June, 2015

April, 2047

Reduto

27.0

14.4

June, 2015

April, 2047

Santo Cristo

27.0

15.3

June, 2015

April, 2047

São João

27.0

14.3

June, 2015

March, 2047

Cutia(2)                                           

153.3

60.8

 

 

Dreen Cutia                                 

23.1

9.6

December, 2018

January, 2042

Dreen Guajiru                              

21.0

8.3

December, 2018

January, 2042

Esperança do Nordeste                

27.3

9.1

December, 2018

May, 2050

GE Jangada                                  

27.3

10.3

December, 2018

January, 2042

GE Maria Helena                         

27.3

12.0

December, 2018

January, 2042

Potiguar                                       

27.3

11.5

December, 2018

May, 2050

         

                                                                         

(1) Copel has a 49.0% interest in São Miguel do Gostoso I.

(2)  In December 2018, Dreen Cutia, Dreen Guajiru and Esperança do Nordeste began their operations with 100% of their installed capacity, while the Jangada, Maria Helena and Potiguar parks began their commercial operations with 85%, 54% and 77%  of their installed capacity respectively.

 

São Bento Energia. On February 25, 2015, the four wind farms (Boa Vista, Olho d’Água, São Bento do Norte and Farol) which are part of the São Bento Wind Farm Complex, located in the State of Rio Grande do Norte, began operations. With an installed capacity of 94 MW and assured energy of 46.3 average-MW. In August 2010, 43.7 average-MW of the energy generated at a weighted average price of R$134.40/MWh (annually adjusted by IPCA index) was sold to fifteen distribution concessionaires in ANEEL public auctions. The energy generated by these wind farms is sold through 20-year term contracts.

Copel Brisa Potiguar Wind Complex. On September 15, 2015, Copel concluded the installation of the Brisa Potiguar Wind Complex with an installed capacity 183.6 MW and assured energy of 92.6 average-MW. An assured energy of 52.2 average-MW (from Asa Branca I, Asa Branca II, Asa Branca III and Eurus IV wind farms) was committed under contract to electric power distributors in the alternative energy auction in August 2010 at a weighted average price of R$135.40/MWh (adjusted annually by IPCA inflation index) and an average of 40.7 MW (from WPPs Santa Helena, Santa Maria and Ventos de Santo Uriel) was committed under contract in the 6th Reserve Energy Auction held in August 2011 at a weighted average price of R$101.98/MWh (annually adjusted by the IPCA inflation index). The energy to be generated was sold through 20-year term contracts with payments beginning in April 2015.

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São Miguel do Gostoso I. In June 2014, we negotiated with Voltalia Energia do Brasil Ltda. (Voltalia) the acquisition of a 49.0% interest in the São Miguel do Gostoso I Wind Farm Complex, in the State of Rio Grande do Norte. The São Miguel do Gostoso wind farm complex has 108.0 MW of installed capacity and assured energy of 57.1 average-MW, and its energy was sold in the 4th Reserve Energy Auction at an average price of R$98.92/MWh through 20-year term contracts. In April 2015, we concluded the construction of this wind farm complex and ANEEL, in July and August 2015, classified it as ready for commercial operation. This wind farm complex began production in June 2017 after completion of the necessary transmission lines.

Cutia. Cutia Empreendimentos Eólicos, which is Copel’s largest wind farm business, is divided into two large complexes totaling 312.9 MW of installed capacity: (a) Cutia Complex, composed of seven wind farms (Guajiru, Jangada, Potiguar, Cutia, Maria Helena, Esperança do Nordeste and Paraíso dos Ventos do Nordeste), with a total installed capacity of 180.6 MW, 71.4 average MW of physical guarantee and located in the State of Rio Grande do Norte; and (b) Bento Miguel Complex, composed of six wind farms (São Bento do Norte I, São Bento do Norte II, São Bento do Norte III, São Miguel I, São Miguel II and São Miguel III) with 132.3 MW of total installed capacity, 58.7 average MW of physical guarantee and located in the State of Rio Grande do Norte, in the same region of other wind farm complexes that belong to us. On October 31, 2014, at the 6th Reserve Energy Auction, we sold 71.2 average MW from the Cutia Complex for R$144.00/MWh (maximum auction price). In addition, at the 20th New Energy Auction (A-5), held on November 28, 2014, we sold 54.8 average MW from the six Bento Miguel wind farms for R$ 136.97/MWh, through Availability Agreements with a 20-year term.

 In December 2018, the wind farms of Cutia, Guajiru and Esperança do Nordeste, all part of the Cutia Complex, began their operations with 100% of their installed capacity, while the parks of Jangada, Maria Helena and Potiguar, also part of the Cutia Complex, began their commercial operations on the same date, with 85%, 54% and 77%  of their installed capacity respectively. For additional information on the development of the Cutia wind farms, see “Item 4. Information on the Company – Business – Generation - Expansion and Maintenance of Generating Capacity - Wind Farm Projects”.

Thermoelectric Generation Facilities

The following table sets forth certain information about our thermoelectric plants in operation as of December 31, 2018:

Plant

Installed

capacity

Assured

energy

Placed in service

Our ownership

Concession/ authorization

expires

 

(MW)

(GWh/yr)

 

(%)

 

TPP Araucária

484.1

3,199.2(1)

September, 2002

80.0

December, 2029

TPP Figueira

20.0

90.2

April, 1963

100.0

March, 2019(2)

                                                                      

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

(2)  We are currently waiting for the granting authority to amend our concession agreement with respect to TPP Figueira, extending the concession of the thermoelectric plant for another 20 years, pursuant to the Concession Extension Law of 2013

 

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Araucária. We have an 80.0% interest in UEG Araucária Ltda., which owns the Araucária Thermoelectric plant, a natural gas thermoelectric power plant, located in the state of Paraná. The Araucária Thermoelectric plant has 484.1 MW of installed capacity, does not have Availability Agreements currently in force and operates under a business model in which revenue depends on the plant’s operation. When produced, energy will be sold in the spot market as directed by the ONS.

Figueira. The Figueira plant is located in the city of Figueira, in the northeast of the state of Paraná (where the main coal basin of Paraná is located). This plant is currently in a modernization process, which consists of replacing the old equipment for new equipment. This process aims to make this plant more efficient, reduce emissions of gases and particles resulting from the burning of coal and comply with applicable environmental legislation.

The Figueira plant has an installed capacity of 20.0 MW, with two generating units of 10.0 MW and a physical guarantee of 10.3 average MW, as determined by Portaria No. 303/2004 issued by the Ministry of Mines and Energy of Brazil. The Figueira plant produces an average net energy of 8.6 MW (internal consumption of discount, recorded in Copel's Energy Balance Sheet). Due to the long period in which the Figueira plant was in operation and the use of outdated equipment, the maximum energy efficiency of this plant is approximately 13%.

After the modernization, the plant will maintain the installed capacity of 20.0 MW with only one generating unit and the physical guarantee of 17.7 MW, so that it is in compliance with Normative Resolution No. 801/2017, which defines a minimum efficiency of 25% for installations with installed capacity up to 50.0 MW.

The operation and maintenance of this facility is carried out by Companhia Carbonífera do Cambuí Ltda., a company also responsible for the supply of coal consumed in the plant. However, upon the completion of the modernization process, Copel GeT will be in charge of operating this plant for a period of up to 18 months. By the end of this period, the operation of this plant will be outsourced to a third-party chosen through a bidding process.

Expansion and Maintenance of Generating Capacity

We expect to spend R$464.1 million in 2019 to expand and maintain our generation capacity, including participation in new businesses, of which R$113.6 million will be invested in SHP Bela Vista, R$59.2 million will be invested in Complexo Eólico Cutia, R$59.3 million will be invested in the Colíder Hydroelectric Power Plant, R$18.1 million will be invested in the Baixo Iguaçu Hydroelectric Power Plant and R$6.0 million will be invested in the Brisa Potiguar Wind Complex. The remaining amount will be spent on equipment maintenance, the modernization of the HPP Foz do Areia, the modernization of the Figueira Thermal Power Plant and other projects.

Hydroelectric Power Plant Projects

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

Facility

Installed capacity

Estimated

assured energy (1)

Budgeted completion cost

Beginning of operation

Our ownership

Status

 

(MW)

(GWh/year)

(R$ million)

 

(%)

 

HPP Colíder

300.0

1,560

2,364

March, 2019(2)

100.0

Concession granted

HPP Baixo Iguaçu

350.2

1,501

2,346

February, 2019

30.0

Concession granted

SHP Bela Vista

29

145

200

January, 2024

99.9

Concession granted

                                                                                                 

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

(2) The scheduled commencement of operations for the Colíder plant was delayed due to fortuitous events.

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Colíder. In July 2010, we won an ANEEL bid for the 35-year concession to build and operate the Colíder Hydroelectric Power Plant on the Teles Pires River in the State of Mato Grosso. The Colíder plant will have an installed capacity of 300.0 MW and is located between the municipalities of Nova Canaã do Norte and Itaúba. The municipalities of Colíder and Cláudia are also affected by the  reservoir. The construction of the plant began in 2011 and about 97% of the work was concluded in 2018. The reservoir and the spillway were already completed. Equipment manufacturing and electromechanical assemblies are underway, and generating unit 01 entered commercial operation on March 9, 2019. In February 2016, we started the construction of a 64-km-long transmission line that will connect the plant to the “Cláudia” substation.

As a result of fortuitous events, Copel GeT filed an application with ANEEL to excuse it from certain fines, penalties and charges incurred as a result of the delay in the beginning of operations of the plant, initially scheduled for December 31, 2014. The request filed by Copel GeT was not approved by ANEEL, so Copel GeT filed an administrative appeal, which was denied on March 14, 2017. Not agreeing with the decision, Copel GeT again requested the reconsideration of such decision by ANEEL, which was definitively denied on July 04, 2017. On December 18, 2017, we filed an ordinary lawsuit regarding the matter. On June 4, 2018, the Regional Federal Court of Appeals (Tribunal Regional Federal da 1ª Região) exempted Copel GeT from any liens or restrictions due to delays in implementation schedule of Colíder HPP.

Copel GeT has been honoring the energy supply commitments of the Colíder HPP (CCEAR), totaling 125.0 average MW, as follows:

(i) From January 2015 to May 2016: Copel GeT used leftover energy de-contracted in other generation facilities.

(ii) June 2016: partial reduction pursuant to a Bilateral Agreement.

(iii) From June 2016 to December 2018: reduction of all of the Energy Commercialization Contracts in the Regulated Environment - CCEARs, pursuant to a Bilateral Agreement and participation in the MCSD-EN or the so-called New Energy.

As a result of the above, the Colíder HPP obtained a release of its obligations to deliver energy in 2017 and 2018 under the contracted CCEARs (125.0 average-MW).

Ordinance MME No. 258, on December 21, 2016, required Copel GeT to ensure a 177.9 average MW for the plant, which was increased to 178.1 average MW by MME Ordinance No. 213  of July 14, 2017. Of this total, 125 average MW are committed under a 30-year contract, at a price of R$103.40/MWh, as of July 1, 2010 (adjusted annually for the variation of the IPCA rate). The remaining 53.1 average MW not sold under this agreement have not yet been contracted and are available for sale to large consumers in the free market. For more information, see Note 18.4 to our audited consolidated financial statements.

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Baixo Iguaçu. In June 2013, we acquired a 30.0% equity interest in the Baixo Iguaçu HPP through a consortium, with no premium payment. Baixo Iguaçu is the last large energy project planned for the main Iguaçu River and will be located around 30 km downstream from Governador José Richa HPP - the Salto Caxias Hydroelectric Power Plant, which is 100.0% owned by Copel. The Baixo Iguaçu facility will have an installed capacity of 350.2 MW and will be located in the municipalities of Capanema, Capitão Leonidas Marques, Planalto, Realeza and Nova Prata do Iguaçu. Of the facility’s assured energy of 171.3 average MW (established by Ordinance MME No. 11, on January 18, 2017), 121 average MW are committed under a 30-year contract to distributors at a price of R$98.98/MWh, as of July 1, 2008 (adjusted annually in accordance with the IPCA inflation index), with supply starting in February 2019. The remaining 50.3 average MW power not sold under this contract has yet to be contracted for and is still available for sale to large customers in the free market.

The construction of this facility began in 2013 and its commercial operation (initially expected for 2016) was delayed after its environmental installation license was suspended in June 2014 due to judicial disputes. The 4th Regional Federal Court of Appeals determined the suspension of the construction, which had not been approved yet by ICMBio, the environmental agency responsible for the management of Iguaçu National Park (Parque Nacional do Iguaçu) (the natural reserve is located 500 meters from the plant).

On August 23, 2016, we entered into the 2nd Amendment to the Concession Agreement with respect to the Baixo Iguaçu HPP, with the purpose of formalizing the new work schedule and recognizing that we should not be held liable for the delay in the implementation of the project for a period corresponding to 756 days, which was considered as an extension of the concession period. Consequently, the concession period was extended from August 19, 2047 to September 14, 2049.

In November 2017, ANEEL acknowledged, through Order No. 3,770, a new 46-day period during which we should not be held liable for delays in implementing the project as a result of systematic invasions of the construction site, carried out by unofficial entities, in mid-May and October 2016.

The civil works and electromechanical assembly in the powerhouse allowed the installation and positioning of important parts of the turbine-generator set, from the first generating unit, in the months of October and November of 2017. In December 2018, the reservoir of Baixo Iguaçu HPP was filled up for operational tests.

The commercial operations of generation units 1, 2 and 3 of Baixo Iguaçu’s began in February 2019, Feburary 2019 and April 2019, respectively.

Bela Vista. In August 2018, we participated in the A-6 auction as a member of the Consórcio Bela Vista Geração and sold 14.7 MW of the SHP Bela Vista, at a price of R$195.70 / MWh. With an estimated investment of R$200.0 million, the Bela Vista SHP has 29 MW of installed capacity and 16.6 MW of assured power and will be built in the Chopim river, in the São João and Verê Municipalities, located in the southwest of the State of Paraná. The energy sales agreement will be in force as of January 1, 2024, for a 30-year term and will be subject to an annual readjustment by the IPCA. The construction of this facility is scheduled to start in the first semester of 2019.

Wind Farm Projects

                The following table sets forth information regarding our wind farm projects, all of which currently refer to the Cutia wind farm (Cutia Empreendimentos Eólicos). We currently hold 100% equity interest in the Cutia wind farm, composed of the Cutia and Bento Miguel Complexes, totaling 312.9 MW of installed capacity. All the energy produced by these wind farms was sold to energy concessionaires through contracts subject to a 20-year term. As of March 31, 2019,  95% of the 149 wind turbines in the Cutia wind farm were in operation (127 of which were in commercial operation and 16 of which were subject to tests), and the remaining 6 wind turbines were expected to enter into operation on staggered form. Once these parks start operating wih total installed capacity, our Cutia wind farm business will be in full commercial operation. For additional information see: “Item 4. Information on the Company – Business - Generation – Wind Farm Generation Facilities.”

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Wind Farm

Installed capacity

Estimated Assured Power (1)

Budgeted completion cost

Beginning of commercial operation

Our ownership

Concession

expires

 

(MW)

(Average MW)

(R$ million)

 

(%)

 

Cutia                

312.9

130.1

2,003.8

-

100.0

 

 

GE Jangada(1)

27.3

10.3

-

December, 2018

-

January, 2042

GE Maria Helena(2)

27.3

12.0

-

 December, 2018

-

January, 2042

Paraíso dos Ventos do    Nordeste

27.3

10.6

-

 January, 2019

-

May, 2050

Potiguar(3)

27.3

11.5

-

 December, 2018

-

May, 2050

São Bento do Norte I

23.1

10.1

-

January, 2019

-

August, 2050

São Bento do Norte II

23.1

10.8

-

January, 2019

-

August, 2050

São Bento do Norte III(4)

23.1

10.2

-

April, 2019

-

August, 2050

São Miguel I

21.0

9.3

-

February, 2019

-

August, 2050

São Miguel II

21.0

9.1

-

February, 2019

-

August, 2050

São Miguel III

21.0

9.2

-

 February, 2019

-

August, 2050

                                                                                                 

(1) The commercial operations of the Jangada park began in December 2018 with 85% of its installed capacity.

(2) The commercial operations of the Maria Helena park began in December 2018 with 54% of its installed capacity.

(3) The commercial operations of the Potiguar park began in December 2018 with 77% of its installed capacity.

(4) The assured power of São Bento Norte III  was adjusted pursuant to Aneel Dispatch No. 1,387/2018 dated as of June 25, 2018.

Development Projects

We are involved in various initiatives to study the technical, economic and environmental feasibility of certain hydroelectric, wind, solar photovoltaic and thermoelectric generation projects. The following table sets forth information regarding our proposed generation projects that are considered feasible under a technical, economic, social, environmental and land-related perspective pursuant to the above-mentioned studies.

Proposed Projects(1)

Estimated Installed Capacity

Estimated Assured Energy

Our Ownership

 

(MW)

(GWh/yr)

(%)

HPP São Jerônimo

331.0

1,560.2

41.2

WPP Complexo Jandaíra

99.0

428.2

100.0

WPP Complexo Alto Oriente

60.0

247.5

100.0

HPP Salto Grande

47.0

235.8

99.9

SHP Dois Saltos

30.0

133.4

30.0

SHP Bela Vista

29.0

145.8

99.9

SHP Salto Alemã

29.0

173.8

19.0

TOTAL

625.0

2,924.7

-

       

(1)   Do not include other proposed projects of Copel whose technical, economic, social, environmental and land-related feasibility is still under analysis.

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Copel is also a member of Consortium Geração Luz Paranaense - CGLP, which was granted with exploration rights related to the following projects: (i) SHP Foz do Curucaca, (ii) SHP Salto Alemã, (iii) SHP Alto Chopim and (iv) SHP Rancho Grande. After obtaining the applicable authorization from ANEEL and evaluating the hydraulic potential of each project, the consortium decided to carry out the studies only with respect to SHP Salto Alemã and SHP Foz do Curucaca and to return the exploration rights for SHP Alto Chopim and SHP Rancho Grande projects to ANEEL. The basic design of SHP Salto Alemã had already been approved by ANEEL in 2017 and the environmental studies related to this project were registered in the competent entity for analysis in October 2018. In December 2018, the basic design of SHP Foz do Curucaca was submitted to ANEEL approval.

From November 1999 to August 2018, Copel Geração e Transmissão S.A. held a minority stake in Foz do Chopim Energética Ltda., which was controlled by SILEA Participações Ltda. and held exploration rights over SHP Bela Vista and HPP Salto Grande. In October 2017, SILEA Participações Ltda. presented to Copel Geração e Transmissão S.A. an offer to sell its rights in SHP Bela Vista and HPP Salto Grande. In March 2018, SILEA Participações Ltda. also offered to sale its rights in SHP Bela Vista and HPP Salto Grande pursuant to Copel´s Public Call No. 04/2018 (Acquisition of Transmission and Generation Assets that are in the design, construction or commercial operation phase). During 2018, several studies were carried out to assess whether SHP Bela Vista would be competitive in the energy auction no. 03/2018. In August 2018, Copel Geração e Transmissão S.A. and SILEA Participações Ltda. entered into a purchase agreement pursuant to which  Copel Geração e Transmissão S.A. agreed to purchase both SHP Bela Vista and HPP Salto. As a condition precedent to closing of such transaction, SHP Bela Vista would have to win the auction for commercialization of energy, what actually occurred on August 31, 2018. The construction of SHP Bela Vista is planned to begin in the first semester of 2019.

Since 2017, Santa Clara Indústria de Pasta e Papel Ltda. (“Santa Clara”) had demonstrated that it had no interest in mantaining the partnership with COPEL in Dois Saltos Empreendimentos de Geração de Energia Elétrica Ltda. (“Dois Saltos”), a company that owns the rights to exploit SHP Dois Saltos. In October 2017, Santa Clara made an offer for the entire stake held by COPEL in Dois Saltos. After engaging an independent consulting firm in January 2018 and determining the fair value of its stake in Dois Saltos, COPEL presented to Santa Clara its terms for reaching an agreement. In October 2018, Santa Clara adjusted its proposal, based on the conditions and price requested by COPEL. This proposal was accepted by the Board of Directors of COPEL in November 2018, and a share purchase agreement was signed by the parties in December 2018. The closing of this transaction, however, is expected to occur in June 2019.

In 2019, we plan to bid for concessions to construct and operate new hydroelectric power plants in power auctions in the regulated market for new generation projects. We are studying the feasibility of our participation in the hydroelectric, wind farms and solar photovoltaic projects planned to be listed in the auctions of 2019, or sell the energy in the unregulated electricity market (free market). We will also conduct studies of new hydroelectric power plants. For instance, we have partnered with BE - Empresa de Estudos Energéticos S.A., Minas PCH S.A.and SILEA Participações Ltda.to develop studies in the lower region of the Chopim River, which may lead to the development of another four (4) hydroelectric projects.We are also conducting studies related to future government auctions for wind farms, solar photovoltaic and hydropower plants, small hydroelectric plants and thermoelectric power plants in which we may eventually participate. Other renewable energy projects under study or development include the use of municipal solid waste in power generation, and thermosolar energy. For instance, since 2017, Copel has conducted solarimetric measurements in two solarimetric stations located in areas leased by Copel Brisa Potiguar. The development of solar energy projects in such areas is still under analysis and the corresponding studies are expected to be concluded as to be able to submit such projects to energy auctions in 2019.

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Transmission and Distribution

General

Electricity is transferred from power plants to customers through transmission and distribution systems. Transmission is the bulk transfer of electricity from generating facilities to the distribution system by means of the Interconnected Transmission System, in tension greater than or equal to 230 kV. Distribution is the transfer of electricity to Final Customers, in tension lesser or equal to 138 kV.

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

 

As of December 31,

 

2018

2017

2016

2015

2014

Transmission lines (km):

 

 

 

 

 

230 kV and 500 kV 

3,206.8

2,691. 8

2,514.0

2,398.8

2,197.3

138 kV

7.2

7.2

7.2

7.2

7.2

69 kV(1)

-

-

-

-

-

Distribution lines (km):

 

 

 

 

 

230 kV(2)

-

-

165.5

129.6

123.5

138 kV

6,264.8

5,935.0

5,970.3

5,866.6

5,153.5

69 kV

751.2

866.4

695.4

695.3

727.2

34.5 kV

85,172.4

84,639.2

84,071.3

83,347.4

82,232.5

13.8 kV

106,172.4

105,510.6

104,556.0

103,488.2

101,688.7

Transformer capacity (MVA):

 

 

 

 

 

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

22,825.1

22,849.3

22,535.4

21,727.2

21,649.7

Generation (step up) substations

6,355.0

6,335.0

6,335.0

6,312.4

6,312.4

Distribution substations (34.5 kV)

1,502.3

1,537.9

1,488.5

1,517.2

1,545.0

Distribution transformers

13,404.6

12,956.9

12,548.2

12,032.7

11,278.2

Total energy losses(4) (5)

8.3%

7.8%

8.1%

7.8%

8.1%

           

                                                                         

(1)As approved by ANEEL in 2008, these 69 kV transmission lines held by Copel Distribuição were transferred to Copel Geração e Transmissão, since they were part of our transmission business segment.
(2)Due to improvements to registration and control systems used by Copel Distribuição to classify and register its transmission lines, lines were classified pursuant to its insulation voltage, and not according to its structure and isolate components. Consequently, all lines previously registered by Copel Distribuição were reclassified and there are no lines classified as 230 kV anymore.
(3)This figure includes transformers with primary tensions of 69 kV and 138 kV which belong to Copel Distribuição but are implemented in 230 kV and 525 kV substations, which belong to Copel Geração e Transmissão.
(4)Percentage of losses on the energy injected in the distributor (technical and non-technical losses on injected energy). Does not consider losses in the basic network.
(5)We note that percentages measured until 2016 and reported in previous reports of the Company reflected the amounts of physical losses (Technical), commercial losses (Non-Technical) and losses on the basic network (allocation of agreements on the gravity center of the submarket) of Copel Distribuição, as well as the losses related to the allocation of agreements of Copel GeT. Those percentages were calculated taking into account the total of power purchased and sale agreements entered into by both Copel Distribuição and Copel GeT. For a better representation and comparison of the percentage of losses, we considered the percentage obtained by dividing the total amount of technical and non-technical losses by the energy injected into the network of Copel Distribuição. This percentage may be compared to other companies and has a more accurate physical meaning as it utilizes the database of measured data and not information taken from agreements of the period being analyzed.

 

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Transmission

Our transmission system consists of all our assets of 230 kV and greater and a small portion of our 69 kV and 138 kV assets, which are used to transmit the electricity we generate and the energy we receive from other sources. In addition to using our transmission lines to provide energy to customers in the State of Paraná, we also transmit energy through the Interconnected Transmission System. Two companies owned by the federal government, Eletrosul and Furnas, also maintain significant transmission systems in the State of Paraná. Furnas is responsible for the transmission of electricity from Itaipu, while Eletrosul’s transmission system links the states in the south of Brazil. Copel, like all other companies that own transmission facilities, is required to allow third party access to its transmission facilities in exchange for compensation at a level set by ANEEL.

Currently, we carry out the operation and maintenance of 3,214 km of transmission lines, thirty-seven (37) substations in the State of Paraná and two (2) substation in the State of São Paulo. In addition, we have partnerships with other companies to operate 3,401 km of transmission lines and six (6) substations through special purpose companies (SPCs).

The table below sets forth information regarding our transmission assets in operation:

 

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Subsidiary / SPC

Transmission Lines

TL Extension

(km)

Number of Substations

Concession Expiration Date

Our Ownership

APR ¹
(R$ million)

COPEL GeT

Main Transmission Concession(1)

2,024

33

December, 2042

100.0%

473.9

COPEL GeT

TL Bateias - Jaguariaiva

137

-

August, 2031

100.0%

18.3

COPEL GeT

TL Bateias - Pilarzinho

32

-

March, 2038

100.0%

1.0

COPEL GeT

TL Foz - Cascavel Oeste

116

-

November, 2039

100.0%

10.9

COPEL GeT

Cerquilho III Substation

-

1

October, 2040

100.0%

4.5

COPEL GeT

TL Londrina – Figueira

Foz do Chopim – Salto Osório

102

-

August, 2042

100.0%

5.5

COPEL GeT

TL Assis – Paraguaçu Paulista

Paraguaçu Paulista II Substation

83

1

February, 2043

100.0%

7.6

COPEL GeT

Curitiba Norte Substation

TL Bateias – Curitiba Norte

31

1

January, 2044

100.0%

8.3

COPEL GeT

Realeza Sul Substation

TL Foz do Chopim- Realeza Sul

52

1

September, 2044

100.0%

7.2

COPEL GeT

TL Assis – Londrina

122

-

September, 2044

100.0%

18.9

COPEL GeT

TL Araraquara II – Taubaté

334

-

October, 2040

100.0%

30.0

Costa Oeste (Copel GeT – 100%)(2)

LT Cascavel Oeste - Umuarama Sul
SE Umuarama Sul

152

1

January, 2042

100%

9.1

Marumbi   (Copel GeT – 100%)(2)

LT Curitiba – Curitiba Leste

29

1

May, 2042

100%

18.1

Subtotal Copel GeT

3,214

39

 

 

613.3

Caiuá Transmissora

TL Guaíra - Umuarama Sul
TL Cascavel Norte - Cascavel Oeste
Santa Quitéria Substation / Cascavel Norte Substation

136

2

May, 2042

49.0%(3)

9.5

Integração Maranhense

LT Açailandia-Miranda II

365

-

May, 2042

49.0%(3)

15.2

Matrinchã

TL Paranaíta - Ribeirãozinho

1,005

3

May, 2042

49.0%(3)

92.8

Guaraciaba

TL Ribeirãozinho - Marimbondo

600

1

May, 2042

49.0%(3)

48.7

Paranaíba

TL Barreiras II - Pirapora II

953

-

May, 2043

24.5%(3)

30.1

Cantareira

TL Estreito – Fernão Dias

342

-

September, 2044

49.0%(3)

47.6

Subtotal SPCs

 

3,401

6

 

 

243.9

Total

 

6,615

45

 

 

857.2

                                                                         

(1)Our main transmission concessions encompasses several transmission lines.
(2) On August 30, 2018, Copel GeT entered into an exchange agreement with Eletrosul for the exchange of shares issued by Costa Oeste Transmissora de Energia S.A. (51% Copel GeT and 49% Eletrosul), Marumbi Transmissora de Energia S.A. (80% Copel GeT and 20% Eletrosul) and Transmissora Sul Brasileira de Energia S.A. (20% Copel GeT and 80% Eletrosul). Pursuant to this agreement, Copel GeT now holds 100% interest in the Costa Oeste and Marumbi projects, while Eletrosul now holds a 100% stake in Transmissora Sul Brasileira.
(3) Refers to the equity interest held by Copel Geração e Transmissão.

 

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Expansion and Maintenance of Transmission Facilities

The construction of new transmission facilities of 230 kV and higher must be awarded in a bidding process or otherwise authorized by ANEEL. We are permitted by ANEEL to make minor improvements to some of the existing 230 kV and 500 kV facilities.

In November 2013, SPC Mata de Santa Genebra Transmissora, a strategic partnership between Copel (50.1%) and Furnas (49.9%), won the right to build and operate 847 km of transmission lines and three substations in the States of Paraná and São Paulo. On February 25, 2019, all the stages planned for the test run period of the Santa Bárbara d’Oeste substation (300MVar/-300MVar static compensator), belonging to the SPE Mata de Santa Genebra, were concluded, allowing the operation of this substation under the commercial operation regime. The Annual Permitted Revenue (APR) related to the Santa Bárbara d’Oeste substation is R$10.8 million. The project’s total expected APR is R$233.8 million, of which R$117.1 million related to COPEL's stake, and full receipt is subject to the startup of the other stages of the project.  These transmission lines are scheduled to be in full operation in August 2019.

In November 2015, Copel GeT won ANEEL’s public auction No. 005/2015 for the construction and operation of 230 km of transmission lines in the States of Paraná and Santa Catarina, and three (3) substations in the State of Paraná, with a total capacity of 900 MVA. With an APR of R$108.6 million, the corresponding concession agreement was signed in April 2016, and these transmission lines are scheduled to become operational partly in September 2019 and partly in March 2021.

The table below summarizes information regarding our transmission assets currently under construction:

Subsidiary / SPC

Transmission Lines

State

Km

Number of Substations

Our Ownership

Beginning of Operation (expected)

COPEL GeT

TL Curitiba Leste-Blumenau

TL Baixo Iguaçu-Realeza

PR/SC

189

3

100.0%

April, 2021

Subtotal Copel GeT

 

189

3

 

 

Mata de Santa Genebra

TL Araraquara II - Bateias

SP / PR

885

1

50.1%

August, 2019

Subtotal SPC

 

 

885

1

 

 

Total

 

 

1,074

4

 

 

             

 

In September 2018, Copel GeT acquired Lot J of the Eletrobras Auction No. 01/2018 for R$105 million. This lot corresponded to 75% of Uirapuru Transmissora de Energia S.A. (“Uirapuru”), a special purpose company that is already under commercial operation and has an APR of R$32.4 million. The project developed by this entity corresponds to the transmission line LT Ivaiporã – Londrina, a 120 Km transmission line that crosses ten different cities in the Brazilian State of Paraná (Manoel Ribas, Ariranha do Ivaí, Ivaiporã, Grandes Rios, Cruzmaltina, Faxinal, Marilândia do Sul, Califórnia, Apucarana e Londrina), next to other projects developed by Copel GeT. As a result of this physical proximity, we expect to benefit from the synergy in connection with the use of operating and maintaince resources within the different projects developed by Copel GeT and we believe that this may also reduce our operational costs.

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The rules governing Eletrobras Auction No. 01/2018 entitled the existing shareholders of Uirapuru with a right of first refusal and a tag along right. As a consequence, as a shareholder of that company, Fundação Eletrosul de Previdência e Assistência Social – ELOS, had the right to purchase the stake subject to the auction under the same conditions offered by Copel GeT or could exercise a tag along right and sell its own stake (equivalent to the remaining 25% of Uirapuru) to the auction winner. In October 2018, ELOS exercised its tag along right, and in April 2019, the Brazilian Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica, or CADE) approved the transaction. The closing of this transaction, comprising the acquisition of the entire 100% stake in Uirapuru, is expected to occur in the first semester of 2019, after the consent of the ANEEL is obtained.

Distribution

Our distribution system consists of a widespread network of overhead lines and substations with voltages up to 138 kV assets. Higher voltage electricity is supplied to bigger industrial and commercial customers and lower voltage electricity is supplied to residential, small industrial, and commercial customers in addition to other customers. As of December 31, 2018, we provided electricity in a geographic area encompassing approximately 97% of the State of Paraná and served 4.6 million customers.

Our distribution grid includes 198,373.6 km of distribution lines, 434,439 distribution transformers and 225 distribution substations of 34.5 kV, 35 substations of 69 kV and 109 substations of 138 kV. During 2018, 77,311 new captive customers were connected to our network, including customers connected through the rural and urban electrification programs. We are continuing to implement compact grid design distribution lines in urban areas with large concentration of trees in the vicinity of the distribution grid.

We have seven (7) captive customers that are directly supplied with energy at a high voltage (69 kV and above) through connections to our distribution lines. These customers accounted for approximately 1.1% of the total volume of electricity sold by Copel in 2018.

We are also responsible for expanding the 138 kV and 69 kV distribution grid within our concession area to meet any future demand growth.

Performance of the Distribution System

Total losses are commonly divided into a technical and non-technical component. Technical losses are inherent to the transportation of electricity and consist mainly of power dissipation in the line network. Non-technical (or commercial) losses are caused by actions external to the power system (for instance, electricity theft). Since total losses are comprised of both technical and non-technical parcels, the latter is easily calculated as the difference between total losses and the estimated technical losses inherent to the system.

Total losses in our distribution system are segmented between (i) losses in the basic network (tension equal to or greater than 230kV), which are external to our distribution grid and have a technical cause, and (ii) losses in the distribution network (internal to our distribution grid), which are usually caused by both technical and non-technical reasons.

Losses in the basic network are calculated monthly by the CCEE as the diference between the total generation and the energy effectively delivered to the distribution networks. The total losses from our distribution grid are calculated as the difference between the energy allocated to the system and the energy supplied to the customers.

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Our total energy distribution losses (including transmission system, technical and commercial losses) totaled 9.7% of the total energy amount available in 2018, being (i) 1.4% related to losses in the basic network, (ii) 5.9% of technical losses and (iii) 2.4% of non-technical losses.

ANEEL grants the transfer of all energy losses to the final consumers when the real losses are less than regulatory losses. The calculation is made within the regulatory period, that is different from a civil year, and thereby we will know the result just in the next tariff adjustment, in June 2019. But our simulation indicates that in the civil year, from January until December 2018, we will have all losses transferred to the final consumers.

Furthermore, ANEEL requires distributors to observe certain standards for “energy supply continuity”, namely (i) duration of outages per customer per year or DEC – Duração Equivalente de Interrupção por Unidade Consumidora and (ii) frequency of outages per customer per year or FEC – Frequência Equivalente de Interrupção por Unidade Consumidora. Information regarding the duration and frequency of outages for our customers is set forth in the following chart for the years indicated.

 

 

Quality of supply indicator

2018

2017

2016

2015

2014

DEC – Duration of outages per customer per year

(in hours)

10h19min

10h28min

10h49min

13h40min

14h01min

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

6.22

6.83

7.23

8.33

9.08

We comply with the quality indicators defined by ANEEL for 2018, which penalizes power outages in excess of an average number of hours per customer, in each case calculated on an annual basis. These limits vary depending on the geographic region, and the average limit established by ANEEL for our distribution company was 11 hours and 14 minutes of outages per customer per year, and a total of 8.24 outages per customer per year. Failure to comply with these predetermined standards with a Final Customer results in a reduction of the amount we can charge such Final Customer in future periods.

In addition, quality target indicators are taken into consideration by ANEEL during distribution concession renewal proceedings, and also influence ANEEL’s calculation of our tariff adjustments. For more information, see “Distribution Concessions” and “Distribution Tariffs”.

Purchases

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

Source

2018

2017

2016

Itaipu

 

 

 

Volume (GWh)

5,726  

5,934

5,958

Cost (R$ millions)

1,272.2

1,118.0

1,089.9

Average tariff (R$/MWh)

222.18

188.41

182.91

Angra

 

 

 

Volume (GWh)

1,009

1,023

1,026

Cost (R$ millions)

250.3

231.7

227.0

Average tariff (R$/MWh)

248.07

226.49

221.25

CCGF

 

 

 

Volume (GWh)

6,520

7,271

7,553

Cost (R$ millions)

593.0

447.5

499.9

Average tariff (R$/MWh)

90.95

61.55

66.19

Auctions in the regulated market

 

 

 

Volume (GWh)(1)

10,783

9,860

13,387

Cost (R$ millions)(2)

2,080.8

2,014.8

2,493.6

Average tariff (R$/MWh)

192.97

204.34

186.27

                                                                                                                                                  

(1) These numbers do not include assignments related to MCSD-EN.

(2) These numbers do not include short-term energy purchased through the CCEE.

 

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Itaipu                                                                                                         

We purchased 5,726 GWh of electricity from Itaipu in 2018, which constituted 11.7% of our total available electricity in 2018 and 22.2% of Copel Distribuição’s total available electricity in 2018. Our purchases represented approximately 7.1% of Itaipu’s total production. Distribution companies operating under concessions in the midwest, south and southeast regions of Brazil are required by law to purchase Brazil’s portion of the energy generated by Itaipu in a proportion that correlates with the volume of electricity that they provide to customers. The rates at which these companies are required to purchase Itaipu’s energy are fixed to cover Itaipu’s operating expenses and payments of principal and interest on Itaipu’s U.S. dollar-denominated borrowings, as well as the cost of transmitting the power to their concession areas. These rates are denominated in U.S. dollars, and have been set for 2019 at US$27.71 per kW per month.

In 2018, we paid an average tariff of R$227.03/MWh for energy from Itaipu, compared to R$188.41/MWh in 2017. These figures do not include the transmission tariff that distribution companies must pay for the transmission of energy from Itaipu.

ANGRA

Because Eletronuclear renewed the generation concession of Angra under the 2013 Concession Renewal Law, the energy generated by Angra is no longer sold in auctions in the regulated market. Rather, under the 2013 Concession Renewal Law, this energy is sold to distributors in accordance with the quota system established by said law. For more information, see “Item 4. Information on the Company - The Brazilian Electric Power Industry”. As a result, Copel Distribuição was legally required to purchase 1,009 GWh from Angra in 2018, 1,023 GWh in 2017 and 1,026 GWh in 2016.

Assured Power Quota Contract – CCGF

Under the 2013 Concession Renewal Law, certain generation concessionaires renewed their concession contracts, and therefore these concessionaires no longer sell the energy produced by these generation facilities at auctions in the regulated market. Rather, this energy is sold to distribution companies in accordance with the quota system established by the 2013 Concession Renewal Law. For more information, see “Item 4. Information on the Company - The Brazilian Electric Power Industry”. Copel Distribuição is obligated to purchase energy from these generation concessionaires that have renewed generation concessions under this quota system. Copel Distribução was legally required to purchase 6,520 GWh in CCGF contracts in 2018, 7,271 GWh in CCGF contracts in 2017 and 7,553 GWh in 2016.

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Auctions in the Regulated Market

In 2018, we purchased 10,783 GWh of thermoelectric and hydroelectric energy through auctions in the regulated market. This energy represents 39% of the total electricity we purchased. For more information on the regulated market and the free market, see “Item 4. Information on the Company - The Brazilian Electric Power Industry - The New Industry Model Law”.

Sales to Final Customers

During 2018, we supplied approximately 98.6% of the energy distributed directly to  Captive Customers in the State of Paraná. Our concession area includes 4.6 million customers located in the State of Paraná and in one municipality in the State of Santa Catarina, located south of the State of Paraná. We also sold energy to a total of three hundred, forty-five (345) Free Customers. During 2018, the total power consumption of our Captive Customers and Free Customers was 25,627 GWh, a 5.1% increase as compared to 24,374 GWh during 2017. The following table sets forth information regarding our volumes of energy sold to different categories of purchasers for the periods indicated.

 

Year ended December 31,

Categories of purchaser

2018

2017

2016

2015

2014

 

(GWh)

Industrial customers

8,641

7,689

9,574

10,823

10,841

Residential

7,238

7,126

6,932

6,957

7,267

Commercial

4,979

4,847

5,061

5,542

5,482

Rural

2,288

2,257

2,180

2,256

2,252

Other(1)

2,481

2,455

2,404

2,371

2,382

Total(2)

25,627

24,374

26,151

27,949

28,224

           

                                                                                                                                                                                                   

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

(2) Total GWh does not include our energy losses.

 

 

The following table sets forth the number of our Final Customers in each category as of December 31, 2018.

 

Category

Number of Final Customers

Industrial

73,350

Residential

3,754,598

Commercial

400,266

Rural

352,074

Other(1)

57,853

Total

4,637,804

                                                                         

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

 

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Industrial and commercial customers accounted for approximately 33.4% and 18.6%, respectively, of our total net revenues from sales to Final Customers during 2018. In 2018, 28.8% of our total net revenues from energy sales were from sales to residential customers.

Tariffs

Retail Tariffs. We classify our customers in two groups (“Group A Customers” and “Group B Customers”), based on the voltage level at which electricity is supplied to them and on whether they are considered as industrial, commercial, residential or rural customers. Each customer falls within a certain tariff level defined by law and based on the customer’s classification, although some flexibility is available according to the nature of each customer’s demand. Under Brazilian regulation, low voltage customers such as residential customers (other than Low-income Residential Customers, as defined as follows) pay the highest tariff rates, followed by 13.8 kV and 34.5 kV voltage customers (usually commercial customers), and 69 kV and 138 kV voltage customers (usually industrial customers).

Group A Customers receive electricity at 2.3 kV or higher and the tariffs applied to them are based on the actual voltage level at which energy is supplied and the time of day the energy is supplied. Tariffs are comprised of two components: a “capacity charge” and an “energy charge”. The capacity charge, expressed in reais per kW, is based on the higher of (i) contracted firm capacity and (ii) power capacity actually used. The energy charge, expressed in reais per MWh, is based on the amount of electricity actually consumed as evidenced by our metering.

Group B Customers receive electricity at less than 2.3 kV, and the tariffs applied to them are comprised solely of an energy charge and are based on the classification of the customer.

ANEEL restates our tariffs annually, usually in June. For more information about the distribution tariff adjustments that have been made by ANEEL in recent years, see “Item 5. Operating and Financial Review and Prospects—Overview—Rates and Prices”.

The following table sets forth the average tariffs for each category of final customer in effect in 2018, 2017 and 2016.

Tariffs

2018

2017

2016

 

(R$/MWh)

Industrial

767.87

389.04

398.35

Residential

505.08

425.26

459.35

Commercial

527.31

419.27

439.47

Rural

345.80

286.96

302.47

Other customers

375.99

311.37

331.85

All Final Customers

514.94

387.90

410.08

       

 

Low-income Residential Customers. Under Brazilian law, we are required to provide low level rates to certain low-income residential customers (“Low-income Residential Customers”). In December 2018, we served approximately 273,131 low-income residential customers. For servicing these customers, in 2018 we received an approximately R$73.4 million grant from the Brazilian Federal Government, which was approved by ANEEL.

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The following table sets forth the current minimum discount rates approved by ANEEL for each category of Low-income Residential Customer.

Consumption

Discount from base tariff

Up to 30 kWh per month

65%

From 31 to 100 kWh per month

40%

From 101 to 220 kWh per month

10%

 

Special Customers. A customer of our distribution business that consumes at least 500 kW (a “Special Customer”) may choose its energy supplier if that supplier derives its energy from alternative sources, such as small hydroelectric plants, wind plants or biomass plants. A Special Customer that chooses to purchase energy from a supplier other than Copel Geração e Transmissão continues to use our distribution grid and pay our distribution tariff. However, as an incentive for Special Customers to purchase from alternative sources, we are required to reduce the tariff paid by Special Customers by 50%. This discount is subsidized by the Brazilian federal government, and therefore does not impact the revenues of our distribution business.

Transmission Tariffs. A transmission concessionaire is entitled to annual revenues based on the transmission network it owns and operates. These revenues are annually readjusted according to criteria stipulated in the concession contract. We are directly a party to twelve (12) transmission concession contracts, eleven (11) of which are in the operational stage and one (1) of which refers to a transmission line that is still under construction. Not all of the transmission concession contracts employ the same revenue model. 2.4% of our transmission revenues are updated on an annual basis by the IGP-M and the other 97.6% are subject to the tariff review process.

The first periodic revision related to our main transmission concession scheduled for 2005 was only carried out in 2007, at which point ANEEL reduced the tariffs by 15.08%. This adjustment was applied retroactively to July 2005, and was passed on to our final customers until June 2009. In addition, in July 2010 pursuant to a second periodic revision of our principal concession, ANEEL granted provisional approval of a reduction in our transmission tariff by 22.88%, applied to the revenues of new installations in the Interconnected Transmission System, and applied retroactively from July 1, 2009 onward. In June 2011, ANEEL reviewed the figures of the second periodic revision and reduced the annual revenues by 19.94%. The remainder of our annual revenues was subject to adjustment by IGP-M or IPCA, as applicable.

By late 2012, Copel decided to anticipate the extension of its main transmission concession agreement (corresponding to 78% of the Company’s transmission lines then in operation) that would expire in 2015, pursuant to the new rules of the 2013 Concession Renewal Law. In December 2012, Copel executed the Third Addendum to the Concession Agreement 060/2001, extending this transmission concession agreement until December 31, 2042. In order to adjust these assets’ annual permitted revenue to the new rules of 2013 Concession Renewal Law, ANEEL reduced the transmission tariffs we charged by 61.9%.

Of all our transmission concessions in operational stage, our main transmission concession (which involves our main transmission facilities) accounted for about 80.2% of our gross transmission revenues in 2018.

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In addition, we have ten (10) concession agreements for transmission lines and substations in operation, which correspond to an aggregate of 19.8% of our transmission revenues. The amount of revenues we are entitled to receive pursuant to one of these contracts is updated on an annual basis by the IGP-M and is not subject to the tariff review process, but, pursuant to the terms set forth in this agreement, our revenues were reduced by 50% starting in June 2018. Other nine (9) agreements revenues are subject to the tariff review process and adjustments by the IPCA.

In 2013, our main transmission concession agreement was adjusted by the IPCA, and improvements to the system were approved by ANEEL (increase of 8.9%). Out of the other three transmission concession agreements that were operational in 2013, one was adjusted by the IPCA (increase of 6.5%), another by the IGP-M (increase of 6.2%), and the last one had a first tariff review (decrease of 8.9%). As a result, the annual permitted revenues for the 2013/2014 cycle for our transmission assets reflected an 8.4% net increase over our annual permitted revenues following the renewal of our main transmission concession in 2012.

In 2014, (i) two of our transmission concession agreements (including our main transmission concession agreement), were adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 18.2%), (ii) one was adjusted by the IPCA (6.4%), (iii) another one was adjusted by the IGP-M (7.8%) and (iv) one became operational on July 28, 2014, adding R$4.2 million to our annual permitted revenues. As a result, the annual permitted revenues for the 2014/2015 cycle for our transmission assets reflects an increase of 19.9% over our annual permitted revenues for the 2013/2014 cycle.

In 2015, (i) two of our transmission concession agreements (including our main transmission concession agreement), were adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 15.6%), (ii) three transmission concession agreements were adjusted by the IPCA (8.5%), (iii) one transmission concession agreement was adjusted by the IGP-M (4.1%), and (iv) two transmission agreements became operational on June 28, 2015 and January 25, 2016, adding R$12.1 million of annual permitted revenues. As a result, the annual permitted revenues for the 2015/2016 cycle for our transmission assets reflects an increase of 21.0% over our annual permitted revenues for the 2014/2015 cycle.

In 2016, (i) four of our transmission concession agreements (including our main transmission concession agreement), were adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 9.5%), (ii) two transmission concession agreements were adjusted by the IPCA (9.3%), (iii) one transmission concession agreement was adjusted by the IGP-M (11.1%), and (iv) two transmission agreement became operational on May 16, 2016, and on January 15, 2017, adding R$15.4 million of annual permitted revenues. As a result, the annual permitted revenues for the 2016/2017 cycle for our transmission assets reflects an increase of 16.7% over our annual permitted revenues for the 2015/2016 cycle.

 In relation to our main concession agreement, on April 22, 2016, Ordinance No. 120/2016 of the Ministry of Mines and Energy determined that the amounts ratified by ANEEL related to the non-depreciated transmission assets existing on May 31, 2000 (RBSE) should be incorporated to the Regulatory Remuneration Base, and that their cost of capital should be added to APR. The Ordinance also determined that the cost of capital would be composed of compensation and depreciation installments, plus related taxes, and recognized as of the 2017 tariff revision process, with adjustments and revisions in accordance with contractual conditions.

Also pursuant to the Ordinance, the cost of capital not incorporated between the concessions’ extensions and the 2017 tariff revision process should be restated at the real cost of own capital of the transmission segment defined by ANEEL (10.4%) and, after the tariff revision process, it should be remunerated at the Weighted Average Cost of Capital (WACC) of 6.6%, also defined by that agency.

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On May 9, 2017, ANEEL approved the result of the inspection of the appraisal report of the transmission assets existing on May 31, 2000 (Existing Basic Network System - RBSE and Other Transmission Facilities - RPC) related to our main transmission concession agreement. The Agency recognized the amount of R$667.6 million as the net value of the assets for the purposes of indemnification as of December 31, 2012. As of December 31, 2017, the net value of those assets for the purposes of indemnification amounted to R$1,418.4 million.

On June 27, 2017, ANEEL approved the Annual Permitted Revenue (Receita Anual Permitida, or APR) of the transmission assets of Copel GeT for the 2017/2018 cycle, including the commencement of receipt of the RBSE indemnification of our main transmission concession agreement.

In 2017, (i) our main transmission concession agreement was adjusted by the IPCA and by the portion related the commencement of receipt of the RBSE indemnification (average increase of 151.3%) (ii) one of our transmission concession agreements was adjusted by the IPCA and improvements to the system were approved by ANEEL (average increase of 3.7%), (iii) six transmission concession agreements were adjusted by the IPCA (3.6%), (iv) one transmission concession agreement was adjusted by the IGP-M (1.6%), and (v) one transmission agreement became operational in August 2017, adding R$18.9 million of annual permitted revenues. As a result, the annual permitted revenues for the 2017/2018 cycle for our transmission assets reflected an increase of 121.2% over our annual permitted revenues for the 2016/2017 cycle.

In June 2018, ANEEL approved the APR for the 2018/2019 cycle, considering (i) an adjustment of relevant amounts by the IGP-M and IPCA indexes, and (ii) the expansion of our transmission system with strengthening works and revenues from other works classified as improvement measures.

Compared to our total APR for the 2017/2018 cycle, the APR of our main concession for the 2018/2019 cycle was reduced by 8.1%, as a result of the correction of a prior calculation made by ANEEL, which take into account certain financial and economic portions of unamortized and unrepaired assets related to the RBSE when determining the assets of the Regulatory Remuneration Base in the prior cycle.

The APR of concession No. 075/2001 was reduced by approximately 30.5%, as a result of a 50% reduction of the APR starting at the 16th anniversary of commercial operation, which will occur during the 2018/2019 cycle. Two of our concession agreements (022/2012 and 002/2013) were subject to a periodic review, which resulted in a lower APR in connection with increasing revenues related to strengthening works.

The table as follows shows our APR (R$ million) for the last four cycles of transmission lines over which we hold a 100% ownership:

Contract

Transmission Line /

Substation

Jul. 2018

Jun. 2019

Jul. 2017

Jun. 2018

Jul.2016

Jun.2017

Jul.2015

Jun.2016

 

 

 

APR (R$ million)

060/2001

Main Transmission Concession(1)

450.4

482.7

192.1

174.9

075/2001

Bateias – Jaguariaiva

13.5

19.4

19.1

17.2

006/2008

Bateias – Pilarzinho

1.1

1.0

1.0

0.9

027/2009

Foz do Iguaçu - Cascavel Oeste

11.9

11.6

11.2

10.2

015/2010

Cerquilho III

4.8

4.7

4.5

4.6

022/2012

Foz do Chopim – Salto Osório

5.8

5.8

5.6

5.1

002/2013

Assis-Paraguaçu Paulista II

SE Paraguaçu Paulista II

7.9

7.7

7.7

7.0

005/2014

Bateias – Curitiba Norte

9.5

8.7

8.4

-

021/2014

Foz do Chopim - Realeza(2)
 

7.5

7.3

7.1

-

022/2014

Assis – Londrina(3)

19.5

18.9

-

-

010/2010

Araraquara 2 – Taubaté(4)

30.0

-

-

-

Total

 

561.9

567.8

256.7

219.9

           

                                                                         

(1) Our main transmission concessions encompasse several transmission lines.

(2) This transmission line became operational in January 2017.

(3) This transmission line became operational in August 2017.

(4) This transmission line became operational in July 2018.

 

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Other Businesses

Telecommunications

Copel Telecomunicações S.A. Pursuant to an authorization from the Brazilian National Telecommunication Agency, Agência Nacional de Telecomunicações (“ANATEL”), we provide telecommunication services within the States of Paraná and Santa Catarina. We have been offering these services since August 1998 through the use of our fiber optics network (totaling 34.2 thousand km of fiber optic cables by the end of 2018). In addition we have been involved in an educational project aimed at providing broadband internet access to public elementary and middle schools in the State of Paraná.

COPEL currently serves 399 municipalities in the State of Paraná. All of these municipalities are connected to COPEL’s optical backbone.

In addition to the high transmission capacity in its backbone, Copel Telecom serves 85 municipalities in the State of Paraná, with GPON (Gigabit-Capable Passive Optical Networks) access technology, providing several network services with symmetry rates, in different types of FTTx services.

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

On April 17, 2019, Copel's Board of Directors resolved, unanimously, that we should continue to analyze alternatives for a potential transfer of control of Copel Telecomunicações S.A.

Sercomtel. We own 45% of the stock of Sercomtel Telecomunicações S.A. ("Sercomtel"). Sercomtel holds a concession to provide fixed telephony services and an authorization to provide mobile services in the municipalities of Londrina and Tamarana, located in the State of Paraná. In addition, Sercomtel has two (2) other authorizations from ANATEL that allow it to provide fixed telephony and broadband internet services in all other municipalities of the State of Paraná. Currently, Sercomtel operates with its own network in fifteen (15) municipalities of the State of Paraná, providing voice services and fixed broadband. Pursuant to a commercial agreement between COPEL and Sercomtel in force since March 2012, Sercomtel has been providing voice services over COPEL's network in one hundred and eighty three (183) cities within the State of Paraná, including Curitiba.

As of December 31, 2018, Sercomtel provided a total of 249,568 accesses in fixed telephone services, 62,185 mobile accesses and 109,011 fixed broadband accesses in operation.

In addition to the telecommunications business, Sercomtel currently holds 100% of the capital stock of three subsidiaries: (i) Sercomtel Participações, a company whose purpose is to provide added value services, design, deploy and maintain internet service providers, operate a service center for users of telecommunications services, offer integrated IT solutions, among others (ii) Sercomtel Contact Center, a company whose purpose is to operate call centers, develop and implement CRM - Customer Relation Management projects, provide customer service and relationship services, among others, and (iii) Sercomtel Iluminação, that provides maintenance services in public lighting in the city of Londrina, State of Paraná.

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Sercomtel has had losses in previous years and is facing financial difficulties for carrying out its operations, so it may need additional financial contributions from its shareholders.

In September 2017, pursuant to the Decision (Acórdão) no. 366, ANATEL determined that Sercomtel was not in compliance with certain financial indicators set forth by the agency in connection with the concessions granted to Sercomtel and required for the company's operations to continue. As a consequence of this determination, ANATEL brought an administrative proceeding against Sercomtel to assess whether the concession and the authorizations granted to this company should be terminated. In March 2019, ANATEL decided to suspend the above mentioned proceeding for a 120-day period, so that Sercomtel could present to the agency alternative plans for meeting the relevant regulatory indicators. The process for determining whether the concession and authorizations granted to Sercomtel should be terminated is carried out by ANATEL and will be resumed once the suspension period elapses.

In view of the accumulated losses and uncertainties regarding its operational feasibility, we carried out in 2013 the write-off of this investment in its financial statements.

Gas

Gas Distribution

We are engaged in the distribution of natural gas through Companhia Paranaense de Gás (“Compagas”), the company that holds the exclusive rights to supply piped gas in the State of Paraná. Compagas operates the gas distribution grid in the State of Paraná under a concession agreement with a term of 30 years, with expiry on July 6, 2024. Such date has always been announced and considered for assessment of the balances of the prior-year financial statements. The concession agreement may be extended for an equal 30-year period upon request of the concessionaire.

On December 7, 2017, however, the State of Paraná published Supplementary Law 205, introducing a new interpretation of the expiry of the concession, which should have occured on January 20, 2019. Notwithstanding the new expiration date provided by the state law, this concession has not been subject to neither an extension nor a new bidding process. Pursuant to applicable law, Compagas, as the current concessionaire, may continue to operate the concession until a new concessionaire is appointed.

In addition, the management of Compagas, we and other shareholders are challenging the effects of the aforesaid law, understanding that it conflicts with the provisions of the concession agreement currently in force. Compagas filed a lawsuit challenging the anticipating of the expiration date of such concession and was granted with a provisional remedy on October 30, 2018. A final decision on this lawsuit is still pending. However, such discussion has not yet been concluded and that law continues in force, and the effects of such law on our financial statements for 2018 had to be taken into consideration. For more information, see Note 2.1.1 to our audited financial statements for December 31, 2018.

Management will continue to make its best efforts to protect the Company interests, aiming to appropriately settle the impacts of the new interpretation given by the concession grantor and find alternatives necessary to maintain the concession in a sustainable manner. For more information see Note 2.1.1 to our audited consolidated financial statements.

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Compagas covered 824 kilometers in 2018, an increase of 1.5% compared to 812 kilometers covered in 2017. Compagas’s net revenues were R$588.5 million, an increase of 14.1%, compared to 2017 (R$515.6 million), and its net income was R$59.6 million, an decrease of R$54.4 million or 47.7% compared to 2017. Compagas’ customers include industries, gas stations, other businesses and residences and Araucária Thermoelectric plan. Compagas is focusing its business strategy on increasing the volume of gas it distributes to customers by marketing the benefits of substituting oil and other fuels by gas as a mean of achieving greater energy efficiency. Compagas’ customer base increased 11.6%, to 43,943 customers in 2018 from 39,377 in 2017.

Compagas registered an increase of 2.9% in the average daily volume of natural gas distributed to Final Customers, to 1,190,302 cubic meters per day in 2018 (not including the volume of gas supplied to Araucária Thermoelectric plant) compared to 1,156,657 cubic meters per day in 2017 (not including the volume of gas supplied to Araucária Thermoelectric plant). In addition, Compagas makes its distribution grid available to transport natural gas to Araucária TPP. Petrobras delivered 42 million cubic meters of gas to Araucária TPP in 2017, but did not deliver any gas to Araucária TPP in 2018.

As of December 31, 2018, we owned a controlling stake (51%) of the capital stock of Compagas and consolidated this equity interest in our financial statements. The minority shareholders of Compagas are Petrobras and Mitsui Gás, each of which owns 24.5% of the capital stock of Compagas.

Gas Exploration

In the 12th bidding round of ANP (Agência Nacional do Petróleo), held at the end of 2013, the consortium formed by us (30%), Bayar Participações (30%), Tucumann Engenharia (10%) and Petra Energia (30%), the latter acting as operating company, won the right to explore, research, develop and produce oil and natural gas in four blocks located in the central southern region of the State of Paraná, in a 11,327 km² area. The minimum investment in the first phase of the research is approximately R$78.1 million for a 4-year term. We and our partners have signed the concession contracts for 2 blocks in May 2014. However, because of a public civil action, the first phase of exploration for these two blocks was halted and the signing of the other two concession contracts was prohibited. On June 7th, 2017, a court decision held that all the bidding round and the agreements related thereto should be deemed null and void. Moreover, the Government of the State of Paraná enacted Law No. 18,947 (December 22, 2016), suspending for ten years the exploration of shale gas through the drilling / fracking method. The suspension is intended to prevent environmental damage.

As a result of the above-mentioned events, our consortium requested ANP to release it from its contractual obligations, with no liabilities and with reimbursement of the signing bonuses, reimbursement of all costs incurred in connection with guarantees and release of such guarantees for the four blocks. Even though this request was submitted to ANP on September 6th, 2017, it is still subject to analysis.  All the activities for the four blocks were interrupted due to the suspension of the effects of the12th bidding round of ANP because of an injunction granted in connection with the above mentioned public civil action, which awaits a decision from the Federal Court of Appeals of the 4th Region. For this reason, in October 2018, the consortium approved the establishment of an institutional arbitration procedure with the ANP for the four blocks awarded in the 12th bidding round of ANP, asking for the refund of the contributions made.

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CONCESSIONS

 

We operate under concessions granted by the Brazilian government for our generation, transmission and distribution businesses. Under Brazilian law, concessions are subject to competitive bidding processes at the end of their respective terms.

2013 Concession Renewal Law

Until 2013, the Brazilian rules governing generation concessions gave concessionaires the right to renew for an additional 20 years concession contracts that were entered into prior to December 11, 2003. For transmission and distribution concessions granted after 1995, concessionaires had the right to renew these contracts for an additional 30-year period.

On September 11, 2012, the Brazilian federal government enacted the Provisional Measure No. 579, subsequently converted into the 2013 Concession Renewal Law, which significantly changed the conditions under which concessionaires are able to renew concession contracts. Under the 2013 Concession Renewal Law, generation, transmission and distribution concessionaires may renew the concessions that were in effect as of 1995 (and, in the case of generation facilities, generation concession contracts entered into prior to 2003) for an additional period of 30 years (or an additional 20-year period in the case thermal plants), provided that the concessionaire agrees to amend the concession contract to reflect a series of new conditions that aim to ensure that services are provided in a continuous and efficient fashion and subject to low tariffs. Under the 2013 Concession Renewal Law, concessionaires must decide 60 months before the end of each concession term whether to amend and renew a concession contract or to terminate each concession contract at the end of its respective term.

For concessionaires of existing generation facilities, the 2013 Concession Renewal Law changed the scope of these concession contracts that are renewed. Previously, a generation concessionaire had the right to sell the energy generated by the facilities subject to its concession for profit. In contrast, generation concessions renewed pursuant to the 2013 Concession Renewal Law do not grant concessionaires the right to sell the energy generated by these facilities. Instead, these concessions only cover the operation and maintenance of the generation facilities, subject to quality standards determined by Brazilian authorities. The energy generated by these facilities will be allocated by the Brazilian federal government in quotas to the regulated market, for purchase by distribution concessionaires. For new generation facilities, on the other hand, the concessionaire still has the right to sell the energy produced by the generation facility.

In addition to changing the scope of generation concessions, the 2013 Concession Renewal Law establishes a new tariff regime that significantly affects the treatment of amounts to be invested by concessionaires to improve and maintain generation plants. To this effect, several regulations were issued by MME and ANEEL to regulate the compensation due to concessionaires as a result of their investments to improve and maintain generation plants.

The 2013 Concession Renewal Law affects transmission and distribution concessions differently. The principal change is that amounts invested in modernization projects, structural reforms, equipment and contingencies are subject to prior ANEEL approval. However, the 2013 Concession Renewal Law does not affect the manner in which distribution and transmission concessionaires may recover amounts invested in transmission infrastructure.

With respect to the transmission agreements, the conditions for renewal set forth in the 2013 Concession Renewal Law are the acceptance of a fixed income as determined by ANEEL and compliance with quality standards set forth in applicable regulation. With respect to distribution agreements, the conditions are set forth in the amendment to the concession agreement and are related to compliance with quality standards, economic-financial sustainability indicators and corporate governance as set forth in the amendment to the concession agreement according to the parameters provided in the 2013 Concession Renewal Law.

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The 2013 Concession Renewal Law applies to all generation, transmission and distribution contracts that were in effect as of 1995 (and, in the case of generation concessions, entered into prior to 2003), regardless of whether a contract grants to the concessionaire the right to renew a concession on its original terms. For example, several of our concession contracts contain provisions allowing us to renew these concessions for a period of 20 years. Under the 2013 Concession Renewal Law, in order to renew these contracts, we nonetheless would be required to accept the application of the conditions imposed by the 2013 Concession Renewal Law to the contract, and the concession contract would then be renewed for 30 years, rather than 20 years. If we choose to renew a concession contract that contains a renewal provision, we would be indemnified by the Brazilian government using funds from the RGR Fund (see Energy Sector Regulatory Charges) in an amount equal to the portion of our investments related to the concession that have not yet been amortized or depreciated, as calculated by ANEEL.

If a concessionaire decides not to accept the new tariff regime with respect to a concession contract and therefore decides not to renew the contract, the concession will terminate at the end of its original term, and the Brazilian government will conduct a new competitive bidding process for the concession. The original concessionaire may participate in the new competitive bidding process.

In the case of hydroelectric generation concessions with an installed capacity of more than 5,000 kW, upon the expiration of their original term and provided that the concessionaire does not request the extension of such term, the granting authority may submit the concession to a new bidding process. In the case of concessions for hydroelectric generation units with an installed capacity of 5,000 kW or less, upon the expiration of their original term, the concessions may be granted to the current concessionaire in the form of registration, for an indefinite term.

Generation Concessions

Of the seventeen (17) generation plants we operated in 2018, fourteen (14) were operated under the generation concession contracts that were in force prior to the 2013 Concession Renewal Law, and three (3) were operated in accordance with the 2013 Concession Renewal Law (UHE Capivari Cachoeira, UHE Chopim I and UHE Marumbi).12 of the 13 hydro and thermoelectric generation concessions operated by the Company in 2013 (exception made only HPP Rio dos Patos) were extended pursuant to the old regime and may be renewed again under the 2013 Concession Renewal Law. With respect to the concessions granted between 2011 and 2017 with no renewal right attached, we acquired the right to renew only one of the hydroelectric plants (HPP Cavernoso II) for a 30-year period, as a result of an amendment to the 2013 Concession Renewal Law by Law No. 13,360, of November 17, 2016.

At the time the 2013 Concession Renewal Law was enacted, the Company elected not to renew the following generation concessions: Rio dos Patos (2014), Mourão I (2015), Chopim I (2015) and Capivari Cachoeira (2015), all of which had remaining terms of 60 months or less. In 2018, the Company chose not to extend the concession of Foz do Areia HPP (Governador Bento Munhoz da Rocha Netto), which will expire in 2023.

The concession of Rio dos Patos HPP was terminated and not submitted to a further bidding process due to the lack operational conditions. The granting authority submitted the concessions for HPP Capivari Cachoeira and Mourão I to new bidding processes, pursuant to which new agreements should be in force for a 30-year period. Copel was the winner in the bidding process related to HPP Capivari Cachoeira . 

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 With respect to Capivari Cachoeira, although Copel GeT did not elect to renew the original concession for the Capivari Cachoeira HPP, it participated in the new competitive bidding process and won. On January 5, 2016, Copel GeT executed a concession agreement with ANEEL so that it will continue to operate this plant under an operation and maintenance regime until 2046. We paid a total amount of R$574.8 million as signing bonus for this concession agreement. 100.0% of the energy generated by this plant in 2016 was allocated in quotas to the regulated market and  reduced to 70.0% on January 1, 2017. Copel GeT can sell remaining amount of energy generated by this plant on the energy market.

As the installed capacity of HPP Chopin I does not exceed the 5,000 kW, the concession regime of this plant has been changed to a registration in favor of the Company, valid for an indefinite term. 

Our concession for the Figueira TPP expired on March 26, 2019. We had filed an extension request with respect to this plant on May 24, 2017, but we are still waiting for the granting authority to amend our concession agreement, extending its term for an additional 20-year period in accordance with the 2013 Concession Renewal Law. This plant has an installed capacity equivalent to 20 MW and subject to a modernization process.

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

In accordance with the 2013 Concession Renewal Law, the Company may flag to the granting authority its intention to extend: (i) in 2019, the concession of HPP São Jorge; (ii) in 2020, the concession of HPP Apucaraninha; and (iii) in 2021, the concessions of HPP Guaricana and Chaminé. In the event the Company does not request the extension of the HPP São Jorge concession, its regime may be converted into a registration regime in favor of the Company. However, in the event the Company does not request the extension of the other concessions described above, they will be subject to new bidding processes conducted by the granting authority.

Currently, there are two bills that intend to amend the 2013 Concession Renewal Law, one of which intends to reduce the deadline available to concessionaires to request an extension of their concessions from 60 to 36 months, and another proposing to terminate the operation and maintenance regime set forth in such statute. For additional information, see: “Item 4. Information on the Company - The Brazilian Electric Power Industry – Historical Background of Industry Legislation.”

The following tables sets forth information relating to the terms as well as the renewals of our main generation hydroelectric, thermoelectric and wind farm plants and all of which we hold a direct ownership interest in:

Hydroelectric Plants

Initial concession date

First expiration date

Extension Date

Final expiration date

Foz do Areia

May, 1973

May, 2003

January, 2001

September, 2023

Apucaraninha

October, 1975

October, 2005