Commission File Number 32297

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São Paulo, November 10, 2010 – CPFL Energia S.A. (BM&FBOVESPA: CPFE3 and NYSE: CPL), announces its 3Q10 results. The financial and operational information herein, unless otherwise indicated, is presented on a consolidated basis and is in accordance with the applicable legislation. Comparisons are relative to 3Q09, unless otherwise stated.

 

CPFL ENERGIA ANNOUNCES 3Q10 NET INCOME OF R$ 388 MILLION

 

 

Note: EBITDA is calculated from the sum of net income, taxes, financial result, depreciation/amortization and pension fund contributions.

 

3Q10 HIGHLIGHTS

·      Increases of 7.6% in energy sales within the concession area, of 4.5% in sales to the captive market and of 17.2% in the volume of TUSD;

·      CPFL Piratininga’s Annual Tariff Readjustment of 10.11%, 8.59% relative to the tariff readjustment and 1.52% with respect to the financial components, effective as of October 23, 2010. The Parcel B readjustment was 6.64%;

·      Commercial start-up of Baldin Thermoelectric Facility in August 2010 and Foz do Chapecó Hydroelectric Facility in October 2010 (45 MW and 436 MW of installed capacity, respectively);

·      Participation on the 3^rd Reserve Auction, with sales of wind power (30 MW) and biomass (70 MW);

·      Raising of the long-term national rating of CPFL Energia and CPFL Paulista, from “AA(bra)” to “AA+(bra)”, by Fitch Ratings;

·      CPFL Energia was elected: by Capital Aberto Magazine, as the 3^rd Best Company for Shareholders in 2010, in the category “market value higher than R$ 15 billion”; by Guia Você S/A / Exame Magazine, as outstanding leadership and  The 10th Best Company to Work for, in 2010, in the category “big companies”; by Consumidor Moderno Magazine, as the Best Company in Intangible Assets in the Utilities Sector; and by Abrasca, for The Best 2009 Annual Report;

·      RGE was elected by Abradee, as The Best Energy Distribution Company in Brazil, in 2010.

 

 

 

 

 

INDEX

 

1) ENERGY SALES

1.1) Sales within the Distributors’ Concession Area

In 3Q10, sales within the concession area, achieved by the distribution segment, totaled 13,201 GWh, an increase of 7.6%.

 

 

Sales to the captive market increased 4.5% to 9,779 GWh.

The energy volume in GWh consumed by free customers in the distributors’ operational areas, billed through the Distribution System Usage Tariff (TUSD), rose by 17.2% to 3,423 GWh, reflecting the recovery of the industrial activity and the migration of customers to the free market.

 

1.1.1) Sales to the Captive Market

 

Note: The captive market sales by distributor tables are attached to this report in item 11.8.

 

In the captive market, emphasis is given to the growths of the residential and commercial classes, which jointly accounted for 51.2% of total consumption by the distributors’ captive consumers:

·      Residential and commercial classes: up by 6.1% and 6.7%, respectively. Higher temperatures (specially in August 2010) and the accumulated effects of economic growth (increase of income levels, purchasing power of consumers and credit concessions) over recent years resulted in sustained high consumption on the part of these classes in 3Q10.

·      Industrial class: down by 2.1%, due to the migration of customers to the free market.

 

 

1.1.2) Sales by Class – Concession Area

1.1.3) TUSD by Distributor

 

 

1.2) Commercialization and Generation Sales – Excluding Related Parties

 

Note: Exclude sales to related parties and in the CCEE. Considers Furnas (Semesa) and other generation sales outside the group.

 

Commercialization and generation sales moved down by 4.1% to 3,271 GWh, mainly due to the decrease in sales through commercialization’s short-term bilateral contracts, effective in 2009. However, the sales to free customers rose due to: (i) the lower customers’ consumption in 2009 (due to the crisis) and (ii) the increase in the number of customers in the portfolio this year (from 72 to 98).

 

2) ECONOMIC-FINANCIAL PERFORMANCE

 

 

2.1) Operating Revenue

Gross operating revenue in 3Q10 reached R$ 4,174 million, representing an increase of 4.4% (R$ 174 million).

Deductions from the operating revenue were R$ 1,416 million, representing an increase of 8.5% (R$ 110 million), mainly due to the following upturns: (i) taxes on revenue (R$ 33 million) and (ii) CCC and CDE sector charges (R$ 59 million).

The increase in operating revenue was due to:

·      Distributors tariff adjustments:

ü  RGE (2010 IRT): +12.37%, 1.72% relative to the Tariff Readjustment and 10.65% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.96% on the billings of captive consumers, effective from June 19, 2010 to June 18, 2011;

ü  CPFL Jaguari (2010 IRT): 5.16%, 5.81% relative to the Tariff Readjustment and -0.65% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.67% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Sul Paulista (2010 IRT): 5.66%, 4.30% relative to the Tariff Readjustment and 1.36% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 4.94% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Mococa (2010 IRT): 3.98%, 4.15% relative to the Tariff Readjustment and -0.17% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.24% on the billings of captive consumers, effective as of February 3, 2010.

·      An increase of 4.5% in energy sales to the captive market;

·      Increase of 47.7% (R$ 99 million) in TUSD revenue from free customers due to the recovery in industrial activity, to the effects of tariff readjustments and to the migration of captive customers to the free market;

·      The reversal, in 3Q09, of revenue related to adjustments to the 2009 Tariff Adjustment Index (IRT) of CPFL Piratininga, arising from the recalculation of its tariff revision by ANEEL, in the net amount of R$ 81 million, R$ 10.5 million of which related to 3Q09 (recurring item) and R$ 70.8 million to the remaining months of the tariff year (non-recurring item);

 

The increase in operating revenue was partially offset by the following factors:

·         Tariff adjustments of distributors that had their financial components reduced, when compared to the prior Tariff Readjustment Index. (The impact on revenue was negative, but there was no impact on EBITDA):

ü  CPFL Piratininga (2009 IRT): 5.98%, 2.81% relative to the Tariff Readjustment and 3.17% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -2.12% on the billings of captive consumers, effective from October 23, 2009 to October 22, 2010;

ü  CPFL Santa Cruz (2010 IRT): 10.09%, 1.90% relative to the Tariff Readjustment and 8.19% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -2.53% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Paulista (2010 IRT): 2.70%, 1.55% relative to the Tariff Readjustment and 1.15% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -5.69% on the billings of captive consumers, effective as of April 8, 2010.

·         Negative tariff adjustment at CPFL Leste Paulista (2010 IRT): -13.21%, -6.32% relative to the Tariff Readjustment and -6.89% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -8.47% on the billings of captive consumers, effective as of February 3, 2010;

·         Reduction of 4.1% in the commercialization and generation sales, excluding related parties, due principally to the reduction in sales through short term bilateral contracts, effective in 2009, in the commercialization segment;

·         An R$ 8 million non-recurring increase (R$ 7 million net of taxes), regarding to the effect in 3Q09, of the 2009 Tariff Adjustment Index of CPFL Piratininga, due to ANEEL adjustment to the licensees’ discounting methodology that was used in the 2008 Tariff Adjustment Index.

Net operating revenue in 3Q10 reached R$ 2,758 million, representing an increase of 2.4% (R$ 64 million).

Excluding the 3Q09 non-recurring effects related to the adjustment on the Tariff Adjustment Index of CPFL Piratininga (R$ 64 million), the net operating revenue would have amounted R$ 2,758 million in 3Q09, the same as in 3Q10.

In 9M10, gross operating revenue reached R$ 12,292 million, an increase of 6.8% (R$ 778 million). Net operating revenue reached R$ 8,183 million, an increase of 5.9% (R$ 455 million).

 

2.2) Cost of Electric Energy

The cost of electric energy, comprising the purchase of electricity for resale and charges for the use of the distribution and transmission system, amounted to R$ 1,573 million in 3Q10, representing a decrease of 8.4% (R$ 144 million):

·      The cost of electric power purchased for resale in 3Q10 was R$ 1,276 million, representing a decrease of 8.9% (R$ 125 million), due principally to the following effects:

         (i)        End of the amortization of 2001 Parcel A (R$ 54 million);

        (ii)      Non-recorring effect related to the reversal, in 3Q09, of the regulatory asset with respect to the purchase of energy in 2008 by CPFL Piratininga in the amount of R$ 50 million (R$ 45 million, net of PIS and COFINS tax credits). Due to the 2009 Tariff Readjustment process at the controlled company, ANEEL deemed the transactions with respect to the acquisition of energy through the Energy Trading Board (CCEE) as voluntary exposure, and for this reason not recognized as part of the value initially registered by the company. Although this matter was at a preliminary basis, the company opted to establish a provision for it in the 3Q09 results.

 

         This issue is still opened, according to the ANEEL’s Ruling No. 3,105, of October 19, 2010.

       (iii)    Reduction in the other Regulatory Assets and Liabilities (R$ 150 million).

The decrease in the cost of energy purchased for resale was partially offset by the increase of 8.6% (R$ 120 million) in the cost of energy purchased in the regulated and free contracting environments, mainly due to the following factors:

         (i)   Increase in the average tariff actually paid on the regulated market. However, considering the Regulatory Assets and Liabilities (item mentioned above) there was a reduction in the average tariff;

        (ii)   Increase in the cost of energy purchased in the free contracting environment (R$ 23 million), mainly due to the increase in the average tariff;

       (iii)   Increase in cost regarding the energy acquisition by Epasa, in 3Q10, to honour the commitments taken, while it hasn’t started the operations of Termonordeste and Termoparaíba Thermoelectric Plants (R$ 44 million);

      (iv)   Increase in cost regarding the energy acquisition by Chapecoense, in 3Q10, due to the beginning of the energy sales contract of Foz do Chapecó Hydroelectric Facility (R$ 8 million).

·      Charges for the use of the transmission and distribution system reached R$ 297 million in 3Q10, a 6.0% decrease (R$ 19 million), mainly due to the costs of activation of thermal generating plants occurred in 3Q08, which were written off in 3Q09 (R$ 52 million variance), and the end of the amortization of 2001 Parcel A (R$ 7 million), partially offset by the increase in charges for basic network considering CVA (R$ 36 million) and by the charges for reserve energy (R$ 7 million). 

 

2.3) Operating Costs and Expenses

Operating costs and expenses were R$ 491 million in 3Q10, a 9.4% increase (R$ 42 million) due to the following factors:

·      The PMSO item reached R$ 366 million in 3Q10, an increase of 20.5% (R$ 62 million), mainly due to the following factors (that should be excluded for purposes of comparison with the 3Q09):

         (i)       The 11.3% (R$ 15 million) increase in personnel expenses, due, among other factors, to:

ü The business expansion of CPFL Atende (R$ 2 million) and CPFL Total (R$ 1 million);

ü The decrease in the 3Q09 personnel expenses, due to the accounting adjustments on CPFL Piratininga and CPFL Santa Cruz (R$ 3 million).

        (ii)       The 26.1% (R$ 4 million) upturn in material expenses, due principally to the increase in outlays with maintenance at CPFL Paulista, which were affected by the financial crisis in 3Q09 (R$ 2 million), and to the business expansion of CPFL Serviços (R$ 1 million);

       (iii)       The 22.0% (R$ 20 million) increase in out-sourced services expenses, due, among other factors, to the business expansion at CPFL Serviços (R$ 3 million) and to the increase in outlays with maintenance, which were affected by the financial crisis in 3Q09 (R$ 3 million), R$ 2.5 million of which at CPFL Paulista and R$ 0.70 million at RGE;

 

      (iv)       The 36.1% (R$ 23 million) upturn in other operating costs/expenses, mainly due to the following factors:

ü  The non-recurring effect in legal and judicial expenses and indemnities of CPFL Paulista, mainly due to the acknowledgement of the provision for a labor contingency related to the judicial agreement celebrated with the São Paulo Engineers Labor Union (R$ 20 million);

ü  Loss from the sales/deactavation of non-current assets at RGE (R$ 2 million) and CPFL Piratininga (R$ 1 million).

Excluding these effects, PMSO for 3Q10 would have totaled R$ 331 million and PMSO for 3Q09 would have been R$ 308 million, an increase of 7.8% (R$ 24 million).

     The principal factors explaining the variation in PMSO, following the exclusion of the effects   already mentioned were:

         (i)    Personnel expenses, which reported an increase of 6.7% (R$ 9 million) principally due to the Collective Bargaining Agreement for 2010 (R$ 7 million);

        (ii)    Expenses with material, which registered an increase of 5.4% (R$ 1 million) due principally to the increase at CPFL Geração (R$ 1 million);

       (iii)    Out-sourced services expenses, which registered an increase of 15.3% (R$ 14 million) due, among other factors, to the following effects:

ü  Increase at CPFL Paulista (R$ 8 million), due, among other factors, to the increase in telephony expenses (R$ 1 million), re-warning/disconnection/re-connection (R$ 1 million) and strengthening of technical staff (R$ 1 million);

ü  Increase at CPFL Piratininga (R$ 3 million), principally due to the increase in telephony expenses (R$ 1 million), and to the expenses with the 3^rd cycle of Tariff Review and with the implementation of the Manual of Public Accounting in the Energy Sector (R$ 1 million);

ü  Increase at CPFL Santa Cruz (R$ 1 million) and at CPFL Atende (R$ 1 million).

The increase in out-sourced services expenses was partially offset by the decrease at CPFL Geração (R$ 1 million).

·      The Depreciation and Amortization items which represented a net increase of 1.9% (R$ 3 million).

The increase in the operating costs/expenses was partially offset by the following factor:

·      The Private Pension Fund, an item which represented an expense of R$ 1 million in 3Q09 and in 3Q10 a revenue of R$ 22 million, resulting in a positive variation of R$ 23 million. This variation is due to the expected estimated impact of CVM Deliberation 371/00, as shown in the Actuarial Report.

 

2.4) EBITDA

Based on the above factors 3Q10 EBITDA reached R$ 817 million, registering a 21.9% increase (R$ 147 million).

Excluding the non-recurring effects ((i) in 3Q09 related to the adjustments to the 2009 Tariff Adjustment Index of CPFL Piratininga (R$ 109 million); and (ii) in 3Q10 related to the increase in legal and judicial expenses and indemnities of CPFL Paulista due to the acknowledgement of the provision for labor contingency (R$ 20 million)), 3Q10 EBITDA would have totaled R$ 836 million, 7.5%(R$ 58 million) up on the R$ 778 million recorded in 3Q09.

 

In 9M10, EBITDA reached R$ 2,419 million, registering a 19.8% increase (R$ 399 million).

 

2.5) Financial Result

The 3Q10 net financial expense was R$ 86 million, an 18.3% increase (R$ 13 million) compared with the net financial expense of R$ 73 million reported in 3Q09.

The items explaining these changes are as follows:

·      Financial Expenses: an increase of 35.2% (R$ 55 million) from R$ 155 million in 3Q09 to R$ 210 million in 3Q10, due to the following factors:

ü  Increase in debt charges and in monetary restatements and currency variations (R$ 45 million), mainly due to the increase in debt and to the increase in the average indexes used to update CPFL Energia’s debt (CDI and IGP);

ü  Increase in the CVA remuneration (R$ 5 million) and in the other financial expenses (R$ 5 million).

·      Financial Revenues: an increase of 50.1% (R$ 41 million) from R$ 83 million in 3Q09 to R$ 124 million in 3Q10, as a result of the following factors:

ü  Increase in the revenue from financial investments (R$ 25 million), due to the increase in cash equivalents and the increase in CDI interbank rate;

ü  Increase in monetary restatements and currency variations (R$ 11 million), mainly due to  the updating of regulatory liabilities (R$ 11 million), partially offset by the non-recurring effect, in 3Q09, related to the adjustment on the Tariff Adjustment Index of CPFL Piratininga (R$ 3 million);

ü  Increase in other financial revenues (R$ 9 million);

ü  Update of tax credits (R$ 3 million).

     The increase in financial revenues was partially offset by the reduction in the CVA remuneration (R$ 10 million), due to lower balances of assets.

 

2.6) Net Income

Net income in 3Q10 was R$ 388 million, an increase of 33.8% (R$ 98 million) while earnings per share were R$ 0.81.

Excluding the non-recurring effects ((i) in 3Q09 related to the adjustments to the 2009 Tariff Adjustment Index of CPFL Piratininga (R$ 74 million, net of income tax and social contribution); and (ii) in 3Q10 related to the increase in legal and judicial expenses and indemnities of CPFL Paulista due to the acknowledgement of the provision for labor contingency (R$ 13 million, net of income tax and social contribution)), net income in 3Q10 would have totaled R$ 401 million, compared to the 3Q09 net income of R$ 363 million, an increase of 10.3% (R$ 37 million).

In 9M10, net income was R$ 1,162 million, representing an increase of 34.9% (R$ 301 million).

 

 

3) DEBT

3.1) Financial Debt (Including Hedge)

CPFL Energia’s financial debt (including hedge) increased by 17.8% to R$ 8,468 million in 3Q10. The main contributing factors to the variation in the balance of financial debt were:

·         CPFL Geração and Generation Projects: funding (BNDES and other financial institutions), net of amortizations, totaling R$ 625 million, with the following highlights:

+      Debentures issuances by CPFL Geração (3^rd Issue of R$ 264 million), EPASA (1^st Issue of R$ 230 milhões) and BAESA (R$ 9 million), for debt rollover and investments funding;

+      Funding of working capital by CPFL Geração (R$ 717 million);

+      Funding of BNDES financing for Foz do Chapecó (R$ 127 million), CPFL Geração (R$ 100 million) and CPFL Bioenergia (R$ 74 million);

+      Funding of BNB financing for EPASA (R$ 91 milhões);

-      Amortizations carried out in compliance with Brazilian Central Bank Resolution 2770 by CPFL Geração (R$ 618 million);

-      Amortizations of working capital by CPFL Geração (R$ 99 million) and CERAN (R$ 17 million);

-      Amortizations of the principal of EPASA (R$ 84 million) and BAESA’s debentures (R$ 6 million);

-      Amortization of Furnas’ loan for CPFL Geração (R$ 62 million);

-      Amortizations of BNDES financing for CPFL Geração, BAESA, CERAN and ENERCAN, totaling R$ 97 million.

·         CPFL Energia, Group’s Distributors and CPFL Brasil: funding (BNDES and other financial institutions), net of amortizations, totaling R$ 445 million, with the following highlights:

+      Debentures issuance by CPFL Piratininga (3^rd Issue of R$ 260 million), for debt rollover and investments funding;

+      Funding of rural credit by RGE (R$ 233 million), CPFL Paulista (R$ 197 million), CPFL Piratininga (R$ 18 million), CPFL Santa Cruz (R$ 16 million), CPFL Leste Paulista (R$ 16 million), CPFL Sul Paulista (R$ 10 million), CPFL Mococa (R$ 8 million) and CPFL Jaguari (R$ 2 million);

+      Funding of working capital by CPFL Paulista (R$ 103 million) and CPFL Piratininga (R$ 50 million);

 

+      Funding, net of amortizations, of BNDES financing for Group’s Distributors and CPFL Brasil, totaling R$ 58 million;

-      Amortizations of the principal of CPFL Piratininga (1^st Issue of R$ 200 million and 2^nd Issue of R$ 100 million) and CPFL Paulista’s debentures (4^th Issue of R$ 65 million);

-      Amortization carried out in compliance with Brazilian Central Bank Resolution 2770 by CPFL Paulista (R$ 103 million);

-      Amortization of working capital by CPFL Piratininga (R$ 50 million).

·         Interest provision in the period, net of interest paid, in the amount of R$ 183 million.

 

 

With regard to financial debt, it is worth noting that R$ 6,447 million (76.1% of the total) are considered long term, and R$ 2,020 million (23.9% of the total) are considered short term.

 

 

3.2) Total Debt (Financial Debt + Hedge + Debt with the Private Pension Fund)

Total debt, comprising financial debt, hedge (asset/liability) and debt with the private pension fund, amounted to R$ 8,818 million in 3Q10, growth of 14.7%. The average cost of debt fell from 10.4% p.a. in 3Q09 to 10.0% p.a. in 3Q10, due to the downturn in the CDI interbank rate (from 11.2% to 9.2%), and in the TJLP long term rate (from 6.2% to 6.0%) (accrued rates in the last 12 months).

 

Debt Profile – 3Q10

   

 

As a result of the funding operations and amortizations, there was an increase in the CDI-pegged portion (from 59.3%, in 3Q09, to 62.4%, in 3Q10), and a decrease in the portion tied to the IGP-M/IGP-DI (from 7.3%, in 3Q09, to 4.7%, in 3Q10).

The foreign-currency and TJLP debt would have come to 6.8% and 33.1% of the total, respectively, if banking hedge operations had been excluded. However, as we consider contracted swap operations, which convert the indexation of debt in foreign-currency and TJLP to the CDI, the effective foreign-currency and TJLP debt is 1.0% (all of this possesses a natural hedge – revenue with foreign exchange component) and 31.9%, respectively.

 

 

3.3) Adjusted Net Debt⁽¹⁾

 

Note: (1) Not considering the exclusion of the regulatory assets/(liabilities);

         (2) Related to the income tax of CPFL Paulista.

 

In 3Q10, adjusted net debt after the exclusion of the cash equivalents, totaled R$ 7,208 million, an upturn of 9.8% (R$ 642 million).

The Company closed 3Q10 with a Net Debt / EBITDA ratio of 2.28x. Excluding the balance of the debt of Foz do Chapecó Energia (Foz do Chapecó Hydroelectric Facility), CPFL Bioenergia (Baldin Thermoelectric Facility) and EPASA (Termonordeste and Termoparaíba Thermoelectric Facilities), which have not started generating net income to the group, the Net Debt / EBITDA would have been 1.87x.

 

4) INVESTMENTS

In 3Q10, R$ 520 million were invested in business maintenance and expansion, of which R$ 347 million in distribution, R$ 161 million in generation and R$ 12 million in commercialization and value added services (SVA). As result, CPFL Energia’s investments totaled R$ 1.274 million in 9M10.

Listed below are some of the main investments made by CPFL Energia in each segment:

         (i)   Distribution: strengthening and expanding the electricity system to keep pace with market growth, both in terms of energy sales and numbers of customers. Other allocations included electricity system maintenance and improvements, operational infrastructure, the upgrading of management and operational support systems, customer help services and research and development programs, among others;

        (ii)   Generation: chiefly focused on the Foz do Chapecó Hydroelectric Facility and Baldin Thermoelectric Facility, enterprises that have already entered into commercial operation, and Bio Formosa, Bio Buriti, Bio Ipê and Bio Pedra Thermoelectric Facilities, EPASA (Termonordeste and Termoparaíba Thermoelectric Facilities) and Santa Clara Wind Farm, ongoing construction projects.

 

 

5) CASH FLOW

 

 

The cash flow balance closed 3Q10 at R$ 1,135 million, 17.5% (R$ 240 million) down on the opening figure. We highlight the following factors that contributed to this variation in the cash balance:

·      Cash increase:

         (i)   Cash from operating activities in the amount of R$ 531 million;

        (ii)   Funds of loans and debentures, which exceeded amortizations by R$ 531 million.

·      Cash decrease:

         (i)   Investments (sum of “Acquisition of Property, Plant and Equipment” and “Intangibles” accounts), in the amount of R$ 520 million (detailed in item 4, “Investments”);

        (ii)   Dividend payments related to 1H10, in the amount of R$ 776 million.

 

6) DIVIDENDS

On September 30, 2010, intermediary dividends related to 1H10 were paid to holders of common shares traded on the São Paulo Stock Exchange (BM&FBovespa S.A. Bolsa de Valores, Mercadorias e Futuros - BM&FBOVESPA). The total declared amount was R$ 774 million, equivalent to R$ 1.609579599 per share and corresponding to 100% of net income for the period.

On October 12, 2010, intermediary dividends related to 1H10 were paid to holders of ADRs, traded on the New York Stock Exchange (NYSE). The paid amount was equivalent to US$ 2.8204 per ADR.

 

 

Note: (1) Based on the average of the closing quotations in the period.

 

The 1H10 dividend yield, calculated on the average of the closing quotations in the period (R$ 36.41 per share) is 8.6% (last 12 months).

 

Dividend Distribution – R$ Million

 

The declared amounts are in line with the Company’s dividend policy, which states that shareholders will receive at least 50% of adjusted half-yearly net income as dividends and/or interest on equity (IOE).

 

7) STOCK MARKET

7.1) Share Performance

CPFL Energia, which has a current free float of 30.7%, is listed on both the BM&FBOVESPA and the NYSE.

The shares closed the period priced at R$ 38.70 per share and US$ 70.39 per ADR, respectively (closing price in 09/30/2010 - adjusted per dividends).

 

Shares Performance – 9M10

 

In 9M10, the shares appreciated 18.0% on the BM&FBOVESPA and 22.5% on the NYSE, outperforming major market indexes.

 

Shares Performance – Last 12M

 

In the last 12 months, the shares appreciated 30.5% on the BM&FBOVESPA and 40.2% on the NYSE, also outperforming major market indexes.

 

7.2) Average Daily Volume

The daily trading volume in 9M10 averaged R$ 34.2 million, of which R$ 18.2 million on the BM&FBOVESPA and R$ 16.0 million on the NYSE, 25.4% up on 2009. The number of trades on the BM&FBOVESPA increased by 5.7%, rising from a daily average of 1,366, in 2009, to 1,443, in 9M10.

Note: Considers the sum of the average daily volume on the BM&FBOVESPA and the NYSE.

 

7.3) Ratings

On September 8, 2010, Fitch Ratings raised the long-term national rating of CPFL Energia and its subsidiary CPFL Paulista, from “AA(bra)” to “AA+(bra)”. The agency also changed the outlook, from “positive” to “stable”.

 

The following table shows the evolution of CPFL Energia’s corporate ratings:

 

Note: Close-of-period positions.

 

8) CORPORATE GOVERNANCE

CPFL Energia’s corporate governance model is based on four principles – transparency, equity, accountability and corporate responsibility – and is adopted by all the companies in the CPFL group.

CPFL Energia is listed on the Novo Mercado of the BM&FBOVESPA and its Level III ADRs are traded on the NYSE, being submitted to arbitration at the BM&FBOVESPA’s Market Arbitration Chamber. The company's capital stock is composed of common shares only, and ensures tag-along rights equivalent to 100% of the amount paid to the controlling shareholders in the case of disposal of control.

The Company’s Board of Directors has as its objetive to define the overall business guidelines and elect the Board of Executive Officers, among other responsibilities determined by the law and the Bylaws. Its working rules are defined in the Internal Rules. The Board is composed of one independent member and six members designated by the controlling shareholders, with a one-year term of office, reelection being admitted. It normally meets once a month but may be convened whenever necessary, electing, among its members, the Chairman and the Vice-Chairman. No member may serve on the Company’s Board of Executive Officers.

The Board of Directors constituted three committees and defined its competence in a sole Internal Rules: the Human Resources Committee, Related Parties Committee and Management Processes Committee. Whenever necessary, ad hoc commissions are installed to advise the Board on such specific issues as: corporate governance, strategies, budgets, energy purchases, new operations and financial policies.

CPFL Energia maintains a permanent Fiscal Council comprising five members who also carry out the attributes of the Audit Committee, in accordance with the rules of the Securities and Exchange Commission (SEC). The Fiscal Council’s working rules are defined in the Internal Rules and in the Fiscal Council Guide.

The Board of Executive Officers comprises seven officers, with a two-year term of office, being admitted the reelection. It represents the Company and manages its business in accordance with the policy defined by the Board of Directors. The Chief Executive Officer is responsible for nominating the other statutory officers.

 

3Q10 Highlights

·         CPFL Energia was elected by Capital Aberto Magazine, as the 3^rd Best Company for Shareholders in 2010, in the category “market value higher than R$ 15 billion”; considering the criteria: liquidity, value creation, return to the shareholder, corporate governance and sustainability. There were analysed 92 companies, divided into three categories, depending on their market value: “up to R$ 5 billion”, between R$ 5 and R$ 15 billion” and “higher than R$ 15 billion”;

·         CPFL Energia was elected by Consumidor Moderno Magazine, as the Best Company in Intangible Assets in the Brazilian Utilities Sector. In its forth edition, the “Intangible Brazil Award” considers the relevant information of the 1,000 largest companies in Brazil and measures and awards companies that have the best management of intangible assets and that continuously invest in generating value for shareholders, customers, employees, supplies, communities and other stakeholders.

 

9) SHAREHOLDERS STRUCTURE

CPFL Energia is a holding company, whose results depend directly on those of its subsidiaries.

 

Notes:     (1) Includes the 0.1% stake of the company Camargo Corrêa S.A.;

             (2) Controlling shareholders;

             (3) Comprises 8 companies: Santa Clara I, II, III, IV, V and VI, Eurus VI and Campos dos Ventos II.

 

10) PERFORMANCE OF THE BUSINESS SEGMENTS

10.1) Distribution Segment

10.1.1) Economic-Financial Performance

 

Note: The distributors’ financial performance tables are attached to this report in item 11.7.

 

Operating Revenue

Gross operating revenue in 3Q10 reached R$ 3,730 million, representing an increase of 4.6% (R$ 163 million).

Deductions from the operating revenue were R$ 1,378 million, representing an increase of 8.6% (R$ 109 million), mainly due to the following upturns: (i) taxes on revenue (R$ 32 million) and (ii) CCC and CDE sector charges (R$ 59 million).

The increase in operating revenue was due to:

·      Distributors tariff adjustments:

ü  RGE (2010 IRT): +12.37%, 1.72% relative to the Tariff Readjustment and 10.65% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.96% on the billings of captive consumers, effective from June 19, 2010 to June 18, 2011;

ü  CPFL Jaguari (2010 IRT): 5.16%, 5.81% relative to the Tariff Readjustment and -0.65% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.67% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Sul Paulista (2010 IRT): 5.66%, 4.30% relative to the Tariff Readjustment and 1.36% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 4.94% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Mococa (2010 IRT): 3.98%, 4.15% relative to the Tariff Readjustment and -0.17% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.24% on the billings of captive consumers, effective as of February 3, 2010.

·      An increase of 4.5% in energy sales to the captive market;

·      Increase of 46.4% (R$ 96 million) in TUSD revenue from free customers due to the recovery in industrial activity, to the effects of tariff readjustments and to the migration of captive customers to the free market;

·      The reversal, in 3Q09, of revenue related to adjustments to the 2009 Tariff Adjustment Index (IRT) of CPFL Piratininga, arising from the recalculation of its tariff revision by ANEEL, in the net amount of R$ 81 million, R$ 10.5 million of which related to 3Q09 (recurring item) and R$ 70.8 million to the remaining months of the tariff year (non-recurring item);

 

The increase in operating revenue was partially offset by the following factors:

·         Tariff adjustments of distributors that had their financial components reduced, when compared to the prior Tariff Readjustment Index. (The impact on revenue was negative, but there was no impact on EBITDA):

ü  CPFL Piratininga (2009 IRT): 5.98%, 2.81% relative to the Tariff Readjustment and 3.17% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -2.12% on the billings of captive consumers, effective from October 23, 2009 to October 22, 2010;

ü  CPFL Santa Cruz (2010 IRT): 10.09%, 1.90% relative to the Tariff Readjustment and 8.19% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -2.53% on the billings of captive consumers, effective as of February 3, 2010;

ü  CPFL Paulista (2010 IRT): 2.70%, 1.55% relative to the Tariff Readjustment and 1.15% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -5.69% on the billings of captive consumers, effective as of April 8, 2010.

·         Negative tariff adjustment at CPFL Leste Paulista (2010 IRT): -13.21%, -6.32% relative to the Tariff Readjustment and -6.89% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of -8.47% on the billings of captive consumers, effective as of February 3, 2010;

·         An R$ 8 million non-recurring increase (R$ 7 million net of taxes), regarding to the effect in 3Q09, of the 2009 Tariff Adjustment Index of CPFL Piratininga, due to ANEEL adjustment to the licensees’ discounting methodology that was used in the 2008 Tariff Adjustment Index.

Net operating revenue in 3Q10 reached R$ 2,352 million, representing an increase of 2.3% (R$ 53 million).

Excluding the 3Q09 non-recurring effects related to the adjustment on the Tariff Adjustment Index of CPFL Piratininga (R$ 64 million), the net operating revenue would have amounted R$ 2,352 million in 3Q10, compared to the net operating revenue of R$ 2,363 million in 3Q09, a reduction of 0.4% (R$ 10 million).

In 9M10, gross operating revenue reached R$ 11,122 million, an increase of 8.6% (R$ 877 million). Net operating revenue reached R$ 7,121 million, an increase of 7.7% (R$ 511 million).

 

Cost of Electric Power

The cost of electric energy, comprising the purchase of electricity for resale and charges for the use of the distribution and transmission system, amounted to R$ 1,483 million in 3Q10, representing a decrease of 10.7% (R$ 178 million):

·      The cost of electric power purchased for resale in 3Q10 was R$ 1,196 million, representing a decrease of 11.5% (R$ 155 million), due principally to the following effects:

            (i)                  End of the amortization of 2001 Parcel A (R$ 54 million);

           (ii)                Non-recorring effect related to the reversal, in 3Q09, of the regulatory asset with respect to the purchase of energy in 2008 by CPFL Piratininga in the amount of R$ 50 million (R$ 45 million, net of PIS and COFINS tax credits). Due to the 2009 Tariff Readjustment process at the controlled company, ANEEL deemed the transactions with respect to the acquisition of energy through the Energy Trading Board (CCEE) as voluntary exposure, and for this reason not recognized as part of the value initially registered by the company. Although this matter was at a preliminary basis, the company opted to establish a provision for it in the 3Q09 results.

 

             This issue is still opened, according to ANEEL’s Ruling No. 3,105, of October 19, 2010.

          (iii)        Reduction in the other Regulatory Assets and Liabilities (R$ 150 million).

The decrease in the cost of energy purchased for resale was partially offset by the following factors:

            (i)        Increase of 6.7% (R$ 90 million) in the cost of energy purchased in the regulated contracting environment, due to the increase in the average tariff actually paid. However, considering the Regulatory Assets and Liabilities (item mentioned above) there was a reduction in the average tariff;

           (ii)        Reduction in the PIS and COFINS tax credits generated from the energy purchase (R$ 8 million).

·      Charges for the use of the transmission and distribution system reached R$ 286 million in 3Q10, a 7.2% decrease (R$ 22 million), mainly due to the costs of activation of thermal generating plants occurred in 3Q08, which were written off in 3Q09 (R$ 52 million variance), and the end of the amortization of 2001 Parcel A (R$ 7 million), partially offset by the increase in charges for basic network, considering CVA (R$ 36 million) and by the charges for reserve energy (R$ 7 million). 

 

Operating Costs and Expenses

Operating costs and expenses were R$ 373 million in 3Q10, an 11.1% increase (R$ 37 million) due to the following factors:

·      The PMSO item reached R$ 309 million in 3Q10, an increase of 22.5% (R$ 57 million), mainly due to the following factors (that should be excluded for purposes of comparison with the 3Q09):

         (i)       The 10.8% (R$ 12 million) increase in personnel expenses, due, among other factors, to the decrease in the 3Q09 personnel expenses, caused by the accounting adjustments on CPFL Piratininga and CPFL Santa Cruz (R$ 3 million).

        (ii)       The 20.4% (R$ 3 million) upturn in material expenses, due principally to the increase in outlays with maintenance at CPFL Paulista, which were affected by the financial crisis in 3Q09 (R$ 2 million);

       (iii)       The 22.2% (R$ 17 million) increase in out-sourced services expenses, due, among other factors, to the increase in outlays with maintenance, affected by the financial crisis in 3Q09 (R$ 3 million), R$ 2.5 million of which at CPFL Paulista and R$ 0.70 million at RGE;

      (iv)       The 52.3% (R$ 24 million) upturn in other operating costs/expenses, mainly due to the following factors:

ü  The non-recurring effect in legal and judicial expenses and indemnities of CPFL Paulista, mainly due to the acknowledgement of the provision for a labor contingency related to the judicial agreement celebrated with the São Paulo Engineers Labor Union (R$ 20 million);

ü  Loss from the sales/deactavation of non-current assets at RGE (R$ 2 million) and CPFL Piratininga (R$ 1 million).

 

Excluding these effects, PMSO for 3Q10 would have totaled R$ 281 million and PMSO for 3Q09 would have been R$ 256 million, an increase of 9.7% (R$ 25 million).

     The principal factors explaining the variation in PMSO, following the exclusion of the effects   already mentioned were:

         (i)    Personnel expenses, which reported an increase of 7.6% (R$ 9 million) principally due to the Collective Bargaining Agreement for 2010 (R$ 6 million);

        (ii)    Expenses with material, which registered an increase of 3.9% (R$ 0.5 million);

       (iii)    Out-sourced services expenses, which registered an increase of 18.0% (R$ 14 million) due, among other factors, to the following effects:

ü  Increase at CPFL Paulista (R$ 8 million), due, among other factors, to the increase in telephony expenses (R$ 1 million), re-warning/disconnection/re-connection (R$ 1 million) and strengthening of technical staff (R$ 1 million);

ü  Increase at CPFL Piratininga (R$ 3 million), principally due to the increase in telephony expenses (R$ 1 million), and to the expenses with the 3^rd cycle of Tariff Review and with the implementation of the Manual of Public Accounting in the Energy Sector (R$ 1 million);

ü  Increase at CPFL Santa Cruz (R$ 1 million).

      (iv)    Other operating costs/expenses, which registered an increase of 3.1% (R$ 1 million).

·      The Depreciation and Amortization items which represented a net increase of 3.6% (R$ 3 million).

The increase in the operating costs/expenses was partially offset by the following factor:

·      The Private Pension Fund, an item which represented an expense of R$ 1 million in 3Q09 and in 3Q10 a revenue of R$ 21 million, resulting in a positive variation of R$ 22 million. This variation is due to the expected estimated impact of CVM Deliberation 371/00, as shown in the Actuarial Report.

 

EBITDA

Based on the above factors 3Q10 EBITDA reached R$ 561 million, registering a 45.5% increase (R$ 175 million).

Excluding the non-recurring effects ((i) in 3Q09 related to the adjustments to the 2009 Tariff Adjustment Index of CPFL Piratininga (R$ 109 million); and (ii) in 3Q10 related to the increase in legal and judicial expenses and indemnities of CPFL Paulista due to the acknowledgement of the provision for labor contingency (R$ 20 million)), 3Q10 EBITDA would have totaled R$ 580 million, 17.5% (R$ 87 million) up on the R$ 494 million recorded in 3Q09.

In 9M10, EBITDA reached R$ 1,661 million, registering a 33.4% increase (R$ 416 million).

 

Financial Result

The 3Q10 net financial expense was R$ 38 million, a 25.2% increase (R$ 8 million) compared with the net financial expense of R$ 31 million reported in 3Q09.

The items explaining these changes are as follows:

·      Financial Expenses: an increase of 34.7% (R$ 32 million) from R$ 91 million in 3Q09 to R$ 122 million in 3Q10, due to the following factors:

 

ü  Increase in debt charges and in monetary restatements and currency variations (R$ 22 million), mainly due to the increase in debt and to the increase in the average indexes used to update CPFL Energia’s debt (CDI and IGP);

ü  Increase in the CVA remuneration (R$ 5 million) and in the other financial expenses (R$ 4 million).

·      Financial Revenues: an increase of 39.6% (R$ 24 million) from R$ 60 million in 3Q09 to R$ 84 million in 3Q10, as a result of the following factors:

ü  Increase in the revenue from financial investments (R$ 16 million), due to the increase in cash equivalents and the increase of CDI interbank rate;

ü  Increase in monetary restatements and currency variations (R$ 12 million), mainly due to  the updating of regulatory liabilities (R$ 11 million), partially offset by the non-recurring effect, in 3Q09, related to the adjustment on the Tariff Adjustment Index of CPFL Piratininga (R$ 3 million);

ü  Update of tax credits (R$ 2 million) and judicial deposits (R$ 2 million);

ü  Increase in other financial revenues (R$ 2 million);

ü  Increments and moratoriums fines (R$ 1 million).

     The increase in financial revenues was partially offset by the reduction in the CVA remuneration (R$ 10 million), due to lower balances of assets.

 

Net Income

Net income in 3Q10 was R$ 305 million, an increase of 69.2% (R$ 125 million).

Excluding the non-recurring effects ((i) in 3Q09 related to the adjustments to the 2009 Tariff Adjustment Index of CPFL Piratininga (R$ 74 million, net of income tax and social contribution); and (ii) in 3Q10 related to the increase in legal and judicial expenses and indemnities of CPFL Paulista due to the acknowledgement of the provision for labor contingency (R$ 13 million, net of income tax and social contribution)), net income in 3Q10 would have totaled R$ 318 million, compared to the 3Q09 net income of R$ 254 million, an increase of 25.3% (R$ 64 million).

In 9M10, net income was R$ 948 million, representing an increase of 53.6% (R$ 331 million).

 

10.1.2) Tariff Adjustment

 

 

 

10.1.2.1) CPFL Piratininga

Aneel Ratifying Resolution 1,075 of October 19 2010 readjusted electric energy tariffs of CPFL Piratininga by 10.11%, made up of 8.59% with respect to the Tariff Readjustment and 1.52% with respect to external financial components to the Annual Tariff Readjustment, corresponding to an average effect of +5.66% on consumer billings. The new tariffs come into effect on October 23 2010.

Accumulated IGP-M in the tariff period was 7.77% and the foreign exchange rate used by Aneel was R$/US$ 1.6882.

 

10.1.2.2) CPFL Santa Cruz, CPFL Leste Paulista, CPFL Jaguari, CPFL Sul Paulista and CPFL Mococa

On February 3 2010, Aneel published in the Federal Official Gazette, the Annual Tariff Readjustment Indices for 2010 for the CPFL Santa Cruz, CPFL Leste Paulista, CPFL Jaguari, CPFL Sul Paulista and CPFL Mococa distributors, effective from the same date, as shown in the table at the end of item “10.1.3.4”.

 

10.1.2.3) CPFL Paulista

 

Aneel Ratifying Resolution 961 of April 6 2010 readjusted the electricity energy tariffs at CPFL Paulista by 2.70%, 1.55% relative to the Tariff Readjustment and 1.15% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an annual impact of -5.69% on the billings of captive consumers. The new tariffs come into effect on April 8 2010 and will remain in force until April 7 2011.

 

10.1.3.4) RGE

Aneel Ratifying Resolution 1,009 of June 15 2010 readjusted the electricity energy tariffs at RGE by 12.37%, 1.72% relative to the Tariff Readjustment and 10.65% with respect to the financial components external to the Annual Tariff Readjustment, corresponding to an average impact of 3.96% on the billings of captive consumers. The new tariffs come into effect on June 19 2010 and will remain in force until June 18 2011.

Aneel Ratifying Resolution 957 of March 30 2010 amended RGE’s contractual readjustment and tariff review date, extending to June 18 2010 the electric energy tariffs for the concessionaire as set forth in Ratifying Resolution 810 of April 14 2009. (On April 14 2009, in accordance with Ratifying Resolution 810, Aneel readjusted RGE’s electric energy tariffs by 18.95%, 10.44% relative to the Tariff Readjustment and by 8.50% with respect to the financial components external to the Annual Tariff Readjustment).

 

The adjustments are presented per distributor in the following table:

 

 

 

10.2) Commercialization and Services Segment

 

 

Operating Revenue

In 3Q10, gross operating revenue reached R$ 568 million, representing an increase of 3.3% (R$ 18 million), while net operating revenue moved up by 2.4% (R$ 12 million) to R$ 508 million.

In 9M10, gross operating revenue reached R$ 1.449 million, representing a decrease of 3.6% (R$ 55 million), while net operating revenue moved down by 1.5% (R$ 20 million) to R$ 1.295 million.

 

EBITDA

In 3Q10, EBITDA totaled R$ 81 million, a decrease of 10.0% (R$ 9 million).

In 9M10, EBITDA totaled R$ 244 million, an increase of 7.8% (R$ 18 million).

 

Net Income

In 3Q10, net income amounted to R$ 55 million, down by 10.4% (R$ 6 million).

In 9M10, net income amounted to R$ 163 million, up by 4.3% (R$ 7 million).

 

10.3) Generation Segment

10.3.1) Economic-Financial Performance

 

 

Operating Revenue

In 3Q10, gross operating revenue grew by 14.6% (R$ 38 million) to R$ 294 million, while net operating revenue climbed by 14.1% (R$ 34 million) to R$ 273 million, chiefly due to the following factors:

·      Additional revenue from EPASA (R$ 33 million) as a result of a 277 GWh energy sale in 3T10;

·      Additional revenue from Chapecoense (R$ 7 million) as a result of a 64 GWh energy sale in 3T10, due to the start of the contract of Foz do Chapecó Hydroelectric Facility;

·      Additional revenue from CPFL Bioenergia.

In 9M10, gross operating revenue was R$ 795 million, representing growth of 9.0% (R$ 66 million). Net operating revenue was R$ 740 million, equivalent to growth of 8.6% (R$ 59 million).

 

Cost of Electric Power

The cost of electric power in 3Q10 increased 480.6% (R$ 53 million) to R$ 64 million, chiefly due to the following factors:

·      R$ 44 million expenses increment with the acquisition of energy (277 GWh) by EPASA in 3Q10, to honor assumed commitments, while the start-up of Termonordeste and Termoparaíba Thermoelectric Facilities does not occur;

·      R$ 8 million expenses increment with the acquisition of energy (64 GWh) by Chapecoense in 3Q10, due to the start of the contract of Foz do Chapecó Hydroelectric Facility.

 

Operating Costs and Expenses

Operating costs and expenses moved down by 1.3% (R$ 1 million) to R$ 50 million in 3Q10, mainly due to the PMSO item, which reached R$ 27 million, a decrease of 2.2% (R$ 1 million), thanks to:

·      The Outsourced Services Expenses item, which reached R$ 6 million, a decrease of 18.4% (R$ 1 million), mainly due to the closure of the contract for maintenance and operation of Barra Grande (BAESA) and Campos Novos (ENERCAN) Hydroelectric Facilities, to be operated with its own employees;

·      The Other Operating Costs/Expenses item, which reached R$ 12 million, a decrease of 7.1% (R$ 1 million), mainly due to costs reduction with royalties carried out by CERAN, ENERCAN and BAESA in relation to the decrease of energy generated in the period (R$ 1 million);

 

Partially offsetting:

·      The Personnel Expenses item, which reached R$ 8 million, an increase of 15.5% (R$ 1 million), mainly due to the 2010 collective bargaining agreement.

 

EBITDA

Based on the factors described, 3Q10 EBITDA totaled R$ 180 million, down by 9.2% (R$ 18 million).

In 9M10, EBITDA was R$ 530 million, a decrease of 5.5% (R$ 31 million).

 

Financial Result

In 3Q10, net financial expense was R$ 52 million, up by 20.2% (R$ 9 million). The items explaining these changes are as follows:

·      Financial Revenues: an increase of 165.7% (R$ 9 million) from R$ 6 million in 3Q09 to R$ 15 million in 3Q10, chiefly due to the upturn in Revenue from Financial Investments, as a result of the increase in the amount of financial investments and in the CDI;

·      Financial Expenses: an increase of 36.9% (R$ 18 million) from R$ 49 million in 3Q09 to R$ 67 million in 3Q10, chiefly due to the increase in the debt charges (R$ 14 million) and in the monetary and foreign exchange updates (R$ 3 million), basically as a result of ENERCAN’s debts with the IDB and the BNDES, indexed to the dollar and a currency basket, which moved down by 8.9% and 7.7%, respectively, in 3Q09, versus 5.9% and 5.4% decreases, respectively, in 3Q10.

 

Net Income

Net income in 3Q10 fell by 26.3% (R$ 23 million) to R$ 65 million.

In 9M10, net income was R$ 202 million, a decrease of 21.1% (R$ 54 million).

 

10.3.2) Status of Generation Projects

Baldin Thermoelectric Facility (CPFL Bioenergia)

The Baldin Thermoelectric Facility began its commercial operations on August 27, 2010. The installed capacity is of 45 MW, with the forecast to achieve 24 MW of energy exported, during the harvest season, up to 2017 (18 MW in 2011).

 

Foz do Chapecó Hydroelectric Facility (Foz do Chapecó Energia)

The first turbine of the Foz do Chapecó Hydroelectric Facility, responsible for 41% of the facility’s assured power (179.2 average-MW), began commercial operations on October 14, 2010. By the end of the year, 100% of the assured energy will be achieved. CPFL Geração has a 51% share in the project, equivalent to an installed capacity and assured power of 436.1 MW and 220.3 average-MW, respectively.

 

Termonordeste and Termoparaíba Thermoelectric Facilities are under construction (84% of works completed). Start-up is scheduled for 4Q10. CPFL Geração has a 51% share in the project, equivalent to an installed capacity of 174.2 MW.

 

Bio Formosa Thermoelectric Facility (CPFL Bio Formosa)

Bio Formosa Thermoelectric Facility is under construction (55% of works completed). Commercial start-up is scheduled for 3Q11. The installed capacity is of 40 MW, with 25 MW of energy exported, during the harvest season.

 

Bio Buriti Thermoelectric Facility (CPFL Bio Buriti)

The beginning of construction of the Bio Buriti Thermoelectric Facility occurred in April 2010. Commercial start-up is scheduled for 2Q11. The installed capacity is of 50 MW, with 30 MW of energy exported, during the harvest season.

 

Bio Ipê Thermoelectric Facility (CPFL Bio Ipê)

The beginning of construction of the Bio Ipê Thermoelectric Facility occurred in June 2010. Commercial start-up is scheduled for 2Q11. The installed capacity is of 25 MW, with 14.37 MW of energy exported, during the harvest season.

 

Bio Pedra Thermoelectric Facility (CPFL Bio Pedra)

The beginning of construction of the Bio Ipê Thermoelectric Facility occurred in October 2010. Commercial start-up is scheduled for 2Q12. The installed capacity is of 70 MW, with 44.26 MW of energy exported, during the harvest season. The energy were sold in the Reserve Auction occurred in August 2010 (price: R$ 145.48/MWh).

 

Santa Clara Wind Farm – 7 Farms

The beginning of construction of the Santa Clara Wind Farm occurred in August 2010. Start-up is scheduled for 3Q12. CPFL Geração has a 100% share in the project, equivalent to an installed capacity and assured power of 188 MW and 76 average-MW, respectively. The energy were sold in the Reserve Auction occurred in December 2009 (price: R$ 150.00/MWh).

 

Campos dos Ventos II Wind Farm

The beginning of construction of the Campos dos Ventos II Wind Farm is scheduled for 1Q12. Start-up is scheduled for 3Q13. CPFL Geração has a 100% share in the project, equivalent to an installed capacity and assured power of 30 MW and 14 average-MW, respectively. The energy were sold in the Reserve Auction occurred in August 2010 (price: R$ 126.19/MWh).

 

10.3.3) Installed Capacity and Assured Power Evolution

 

 

With the acquisition of the Diamante Small Hydroelectric Power Plant (4 MW) and the start-up of the Baldin Thermoelectric Facility (45 MW), Foz do Chapecó Hydroelectric Facility (436 MW) and Termonordeste and Termoparaíba Thermoelectric Facilities (174 MW), the installed capacity will grow 659 MW (37.9%), from 1,737 MW in 2009 to 2,396 MW in 2010. The assured power, in turn, will grow 356 average-MW, from 864 average-MW in 2009 to 1,220 average-MW in 2010.

 

 

 

11) ATTACHMENTS

11.1) Statement of Assets – CPFL Energia

(R$ thousands)

 

 

 

11.2) Statement of Liabilities – CPFL Energia

(R$ thousands)

 

 

11.3) Income Statement – CPFL Energia

(R$ thousands)

 

Note: (1)  TUSD revenue from captive customers reclassified from the line of “other operating revenues” to the line of “electricity sales to final customers”.

 

11.4) Operating Revenue – CPFL Energia

(Pro-forma, R$ thousands)

 

 

11.5) Income Statement – Consolidated Generation Segment

(Pro-forma, R$ thousands)

    

 

 

11.6) Income Statement – Consolidated Distribution Segment

(Pro-forma, R$ thousands)

                

                

 

Note: (1)  TUSD revenue from captive customers reclassified from the line of “other operating revenues” to the line of “electricity sales to final customers”.