Commission File Number 32297

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Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  Form 20-F ___X___ Form 40-F _______

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_________________

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Indicators (R$ Million)	4Q16	4Q15	Var.	2016	2015	Var.
Sales within the Concession Area - GWh	15,484	14,504	6.8%	56,987	57,558	-1.0%
Captive Market	11,038	10,621	3.9%	41,277	41,730	-1.1%
Free Client	4,446	3,883	14.5%	15,710	15,829	-0.8%
Gross Operating Revenue	8,596	8,719	-1.4%	30,785	34,302	-10.3%
Net Operating Revenue	5,512	4,930	11.8%	19,112	20,599	-7.2%
EBITDA(1)	1,004	1,149	-12.6%	4,126	4,143	-0.4%
Net Income	137	363	-62.2%	879	875	0.4%
Investments(2)	694	503	37.9%	2,288	1,465	56.2%

INDEX

1) MESSAGE FROM THE CEO	4
2) ENERGY SALES	6
2.1) Sales within the Distributors’ Concession Area	6
2.1.1) Sales by Segment – Concession Area	8
2.1.2) Sales to the Captive Market	8
2.1.3) Free Clients	9
2.2) Contracted Demand (% - high voltage)	10
2.3) Generation Installed Capacity	10
3) INFORMATION ON INTEREST IN COMPANIES AND CRITERIA OF FINANCIAL STATEMENTS
CONSOLIDATION	11
3.1) Consolidation of CPFL Renováveis Financial Statements	13
3.2) Consolidation of RGE Sul Financial Statements	13
3.3) Economic-Financial Performance Presentation	13
4) ECONOMIC-FINANCIAL PERFORMANCE	14
4.1) Opening of economic-financial performance by business segment	14
4.2) Reclassification of the Concession Financial Asset	15
4.3) Sectoral Financial Assets and Liabilities	15
4.4) Operating Revenue	16
4.5) Cost of Electric Energy	16
4.6) Operating Costs and Expenses	18
4.7) EBITDA	22
4.8) Financial Result	23
4.9) Net Income	25
5) DEBT	26
5.1) Debt (IFRS)	26
5.2) Debt Amortization Schedule in Covenant Criteria	27
5.2.3) Indexation and Debt Cost in Covenant criteria	28
5.3) Net Debt in Covenant Criteria and Leverage	29
6) INVESTMENTS	29
6.1) Capital Expenditures	29
6.2) Projected Capital Expenditures	30
7) ALLOCATION OF RESULTS	30
8) STOCK MARKETS	31
8.1) Stock Performance	31
8.2) Daily Average Volume	31
9) CORPORATE GOVERNANCE	32
10) SHAREHOLDERS STRUCTURE	33
10.1) State Grid Transaction	34
11) PERFORMANCE OF THE BUSINESS SEGMENTS	38
11.1) Distribution Segment	38
11.1.1) Economic-Financial Performance	38
11.1.1.1) Reclassification of the Concession Financial Asset	38
11.1.1.2) Sectoral Financial Assets and Liabilities	38
11.1.1.3) Operating Revenue	38
11.1.1.4) Cost of Electric Power	40
11.1.1.5) Operating Costs and Expenses	42
11.1.1.6) EBITDA	44

 

 

11.1.1.7) Financial Result	45
11.1.1.8) Net Income	47
11.1.2) Tariff events	48
11.1.3) Operating Performance of Distribution	50
11.2) Commercialization and Services Segments	52
11.2.1) Commercialization Segment	52
11.2.2) Services Segment	53
11.3) Conventional Generation Segment	53
11.3.1) Economic-Financial Performance	53
11.3.1.1) Operating Revenue	54
11.3.1.2) Cost of Electric Power	54
11.3.1.3) Operating Costs and Expenses	55
11.3.1.4) Equity Income	57
11.3.1.5) EBITDA	59
11.3.1.6) Financial Result	60
11.3.1.7) Net Income	61
11.4) CPFL Renováveis	61
11.4.1) Economic-Financial Performance	61
11.4.1.1) Variations in the Income Statement of CPFL Renováve is	61
11.4.1.2) Operating Revenue	61
11.4.1.3) Cost of Electric Power	62
11.4.1.4) Operating Costs and Expenses	64
11.4.1.5) EBITDA	65
11.4.1.6) Financial Result	65
11.4.1.7) Net Income	66
11.4.2) Status of Generation Projects – 100% Participation	66
12) ATTACHMENTS	68
12.1) Statement of Assets – CPFL Energia	68
12.2) Statement of Liabilities – CPFL Energia	69
12.3) Income Statement – CPFL Energia	70
12.4) Cash Flow – CPFL Energia	71
12.5) Income Statement – Conventional Generation Segment	72
12.6) Income Statement – CPFL Renováveis	73
12.7) Income Statement – Distribution Segment	74
12.8) Income Statement – Distribution Segment (without RGE Sul)	75
12.9) Income Statement – Distribution Segment	76
12.10) Sales within the Concession Area by Distributor (In GWh)	79
12.11) Sales to the Captive Market by Distributor (in GWh)	80
12.12) Reconciliation of Net Debt/Ebitda Pro Forma ratio of CPFL Energia for purposes of financial
covenants calculation	81

 

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1) MESSAGE FROM THE CEO

The year 2016 was quite challenging for most of the companies operating in Brazil. The Brazilian economy faced one of its worst crises, marked by a slowdown in economic activity and political instability.

Nevertheless, the business environment in Brazil’s electricity sector improved significantly after the regulatory issues that were fundamental for the stability and attractiveness of the sector were sorted out. Added to this was the new vision that guided the national energy policy rolled out by the government, with the appointment of a team for the energy sector that was better aligned with the modernization trends of the global electricity sector and was open to market dynamics.

Last year was marked by frequent discussions about the new forces that are driving the developments in the electricity sector - from the way companies do business to how they deal with consumers. We will go through a period of transition from the classic energy supply chain to a more open and dynamic market that is more digital, closer to the client, more competitive and much more technological. Besides focusing on building new power plants, grids and transmission lines, the most successful companies in this new scenario will be those that are capable of meeting the needs of consumers.

It’s in this context that the competitive advantages of CPFL Energia make all the difference. Our integrated corporate strategy and management and our solid financial health serve as credentials for us to play leading role in the new evolving fronts of the market.

Our corporate platform is prepared for the new paths of growth and modernization of the sector. Our operating model is based on three pillars that work in an integrated manner. The first is the corporate structure, which formulates the strategy and the financial policy and also lays down the guidelines on sustainability, communication and human resources. The second pillar is our shared services center, which manages the support functions common to all Group companies, such as payroll and IT services. The business units make up the third pillar. This way, we capture synergies quicker and ensure quality in the services we provide to our clients.

Combined with integrated corporate management, we have a healthy capital structure that is compatible with the risks and challenges faced by a company in our sector, which enables us to access competitive financing lines that are appropriate to our investment profile.

Our 2016 results reflected the synergies from integrated business management and the robustness of our capital structure. We had stable EBITDA compared to 2015, totaling R$ 4.13 billion, and a stable net income, reaching R$ 879 million, results that demonstrate the importance of the diversification of our business. We reduced our leverage to 3.21x Net Debt/EBITDA, adequate level for a company with our characteristics.

In 1H16, we started a new cycle of consolidation of the energy distribution segment in Brazil, with the acquisition of AES Sul, now RGE Sul. The deal was concluded in November and entailed an investment of R$ 1.7 billion. This acquisition added 1.3 million clients to our base, which already exceeds nine million consumers. We are also advancing on the strategy of growing the Group's non-regulated businesses, which will enable us to participate and influence the evolution of the free market and the expansion of solar energy in Brazil. We see our trading (CPFL Brasil), distributed power generation, energy efficiency (CPFL Eficiência) and energy infrastructure services (CPFL Serviços) as important drivers of the Group’s future.

We also made progress in power generation from alternative sources, such as solar, wind, biomass and small hydroelectric power plants (SHPP). Last year, CPFL Renováveis reached the milestone of 2 GW in installed capacity, becoming the biggest company in its segment in Latin America.

In addition to the advances made in our business segments, it is important to mention that we carried out an important and planned transition in the Company's management in July 2016. I took over as CEO of CPFL Energia, succeeding Wilson Ferreira Junior, who led the Company for 18 years.

 

Another significant change was the operation that involved the sale of the controlling block of CPFL Energia to State Grid, a Chinese company that is the world’s biggest utility company and which has been in Brazil since 2010. State Grid is a benchmark in the global electricity sector, with a strong focus on new technologies and sound financial health. State Grid has a long-term vision for the business and has shown tremendous confidence in the platform and professionals of the CPFL group.

In this positive scenario of changes for both Brazil’s electricity sector and CPFL Energia, I am confident that our management model, our priorities and our vision for the future will enable us to offer the best solutions for our clients and consolidate our market leadership in Brazil.

Finally, I wish to thank our employees for their commitment and dedication. It’s they who are mainly responsible for the results that CPFL Energia has been delivering throughout its history.

 

Thank you very much.

 

Andre Dorf

CEO of CPFL Energia

 

 

2) ENERGY SALES

2.1) Sales within the Distributors’ Concession Area

 

 

 

Note: RGE Sul was consolidated in November 2016. For more information, see item 3.2 of this report.

 

In 4Q16, sales within the concession area, achieved by the distribution segment, totaled 15,484 GWh, an increase of 6.8%, mainly due to the acquisition of RGE Sul. Disregarding the effect of this acquisition, sales within the concession area would have totaled 14,032 GWh, a reduction of 3.3%.

Sales to the captive market totaled 11,038 GWh in 4Q16, an increase of 3.9%, mainly due to the acquisition of RGE Sul; disregarding the effect of this acquisition, sales to the captive market would have totaled 9,886 GWh, a reduction of 6.9%, reflecting the adverse macroeconomic scenario, resulting in the fall of consumption and in the strong client migration to the free market. The quantity of energy, in GWh, which corresponds to the consumption of free clients in the concession area of group’s distributors, billed through the Tariff for the Usage of the Distribution System (TUSD), reached 4,446 GWh in 4Q16, an increase of 14.5%, mainly due to the acquisition of RGE Sul; disregarding the effect of this acquisition, the quantity of energy billed through TUSD would have reached 4,146 GWh, an increase of 6.8%.

In 2016, sales within the concession area totaled 56,987 GWh, a reduction of 1.0%. Disregarding the effect of the acquisition of RGE Sul, sales within the concession area would have totaled 55,536 GWh, a reduction of 3.5%.

Sales to the captive market totaled 41,277 GWh in 2016, a reduction of 1.1%; disregarding the effect of the acquisition of RGE Sul, sales to the captive market would have totaled 40,125 GWh, a reduction of 3.8%, reflecting the adverse macroeconomic scenario, resulting in the fall of consumption and in the strong client migration to the free market. The quantity of energy billed through the TUSD reached 15,710 GWh in 2016, a reduction of 0.8%; disregarding the effect of the acquisition of RGE, the quantity of energy billed through TUSD would have reached 15,411 GWh, a reduction of 2.6%.

 

 

 

 

Note: The tables with sales within the concession area by distributor are attached to this report in item 12.10.

 

Noteworthy in 4Q16, in the concession area:

·         Residential and commercial classes (28.7% and 16.9% of total sales, respectively): increases of 8.7% and of 1.4%, respectively, influenced by the acquisition of RGE Sul. Disregarding the effect of this acquisition, we would have reductions of 1.7% and of 6.7%, respectively, reflecting the low economic activity in comparison with the 4Q15;

·         Industrial class (37.3% of total sales): increase of 2.2%, influenced by the acquisition of RGE Sul. Disregarding the effect of this acquisition, we would have a reduction of 5.7%, reflecting the slowdown in economic activity. It is noteworthy that a large client of the steel business in the area of CPFL Piratininga has reduced consumption by 64.2% in comparison with the 4Q15; this represents 3.2% of the 5.7% reduction. Therefore, CPFL Piratininga recorded a reduction of 13.4% (239 GWh) in this class (or a reduction of 3.7% disregarding this client). CPFL Paulista recorded a reduction of 1.2% (32 GWh) and RGE had a reduction of 2.0% (17 GWh).

Noteworthy in 2016, in the concession area:

·         Residential and commercial classes (28.9% and 17.2% of total sales, respectively): increase of 1.9% and reduction of 1.6%, respectively, influenced by the acquisition of RGE Sul. Disregarding the effect of this acquisition, we would have reductions of 0.7% and of 3.7%, respectively, reflecting the low economic activity in comparison with the 2015;

·         Industrial class (37.9% of total sales): reduction of 5.7%, despite the acquisition of RGE Sul. Disregarding the effect of this acquisition, we would have a reduction of 7.6%, reflecting the slowdown in economic activity. It is noteworthy that a large client of the steel business in the area of CPFL Piratininga has reduced consumption by 63.0% in comparison with 2015; this represents 3.2% of the 7.6% reduction. Therefore, CPFL Piratininga recorded a reduction of 15.3% (1,134 GWh) in this class (or a reduction of 5.3% disregarding this client). CPFL Paulista recorded a reduction of 3.5% (384 GWh) and RGE had a reduction of 3.0% (103 GWh).

 

 

2.1.1) Sales by Segment – Concession Area

Note: in parentheses, the variation in percentage points from 4Q15 to 4Q16.

 

2.1.2) Sales to the Captive Market

 

 

 

Note: The tables with captive market sales by distributor are attached to this report in item 12.11.

 

The increase of 3.9% (417 GWh) in sales to the captive market, from 10,621 GWh in 4Q15 to 11,038 GWh in 4Q16, was influenced by the acquisition of RGE Sul. Disregarding the effect of this acquisition, the sales to the captive market would have totaled 9,886 GWh in 4Q16, representing a reduction of 6.9% (736 GWh), mainly due to the performance of the industrial and commercial classes, reflecting the economic activity slowdown and the migration to the free market, as explained before.

 

The reduction of 1.1% (452 GWh) in sales to the captive market, from 41,730 GWh in 2015 to 41,277 GWh in 2016, despite the acquisition of RGE Sul. Disregarding the effect of this acquisition, the sales to the captive market would have totaled 40,125 GWh in 2016, representing a reduction of 3.8% (1,604 GWh), mainly due to the performance of the industrial and commercial classes, reflecting the economic activity slowdown and the migration to the free market, as explained before.

 

2.1.3) Free Clients

 

 

 

Note: (*) Considers the quantity of energy billed through the TUSD from the months of November and December 2016.

 

 

2.2) Contracted Demand (% - high voltage)

Contracted Demand Evolution | % compared to the same month of the previous year

2.3) Generation Installed Capacity

In 4Q16, the installed capacity of generation of CPFL Energia, considering the proportional stake in each project, reached 3,258 MW, representing an expansion of 4.1% compared to 4Q15. This increase is due to the commercial start-up of Mata Velha SHPP and Campo do Ventos and São Benedito Wind Complexes.

 

Generation Installed Capacity | MW

Note: Take into account CPFL Energia’s 51.61% stake in CPFL Renováveis.

 

 

3) INFORMATION ON INTEREST IN COMPANIES AND CRITERIA OF FINANCIAL STATEMENTS CONSOLIDATION

The interests directly or indirectly held by CPFL Energia in its subsidiaries and jointly-owned entities are described below. Except for: (i) the jointly-owned entities ENERCAN, BAESA, Foz do Chapecó and EPASA, that, as from January 1, 2013 are no longer proportionally consolidated in the Company’s financial statements, being their assets, liabilities and results accounted for using the equity method of accounting, and (ii) the investment in Investco S.A. recorded at cost by the subsidiary Paulista Lajeado, the other units are fully consolidated.

As of December 31, 2016 and 2015, the participation of non-controlling interests stated in the consolidated statements refers to the third-party interests in the subsidiaries CERAN, Paulista Lajeado and CPFL Renováveis. Since November 1^st, 2016 CPFL Energia is considering the full consolidation of RGE Sul.

 

 

 

Notes:

(a)     SHPP – Small Hydroelectric Power Plant;

(b)     The joint venture Chapecoense fully consolidates the interim financial statements of its direct subsidiary, Foz de Chapecó;

(c)     Paulista Lajeado has a 7% participation in the installed power of Investco S.A. (5.94% share of its capital);

(d)     MHPP – Micro Hydroelectric Power Plant;

 

 

(e)     In September, 2014 the direct subsidiary TI Nect Serviços de Informática Ltda. (“Authi”), was set up with the objective of providing informatics, information technology maintenance, system update, program development and customization and computer and peripheral equipment maintenance services;

(f)      The main objective of CPFL GD S.A., incorporated in August 2015 and fully controlled by CPFL Eficiência Energética S.A., is the provision of general consultancy services in the electric energy market and commercialization of assets related to the electric energy generation plants;

 

 

(g)     The incorporation of CPFL Transmissora Morro Agudo S.A., subsidiary of CPFL Geração, was approved in January 2015, with the objective of building and operating electric energy transmission concessions, including construction, implementation, operation and maintenance of transmission facilities of the basic network of the Interlinked National System.

 

3.1) Consolidation of CPFL Renováveis Financial Statements

On December 31, 2016, CPFL Energia indirectly held 51.61% of CPFL Renováveis, through its subsidiary CPFL Geração.

CPFL Renováveis has been fully consolidated (100%, line by line), in CPFL Energia’s financial statements since August 1, 2011, and the interest held by the non-controlling shareholders has been mentioned bellow the net income line (in the Financial Statements), as “Non-Controlling Shareholders’ Interest”, and in the Shareholders Equity (in the Balance Sheet) in the line with the same name.

 

3.2) Consolidation of RGE Sul Financial Statements

On December 31, 2016, CPFL Energia indirectly held 100% of RGE Sul, through its subsidiary CPFL Jaguariúna. RGE Sul has been fully consolidated (100%, line by line), in CPFL Energia’s financial statements since November 1^st, 2016.

In the analysis presented in this report, we consider the impact of the inclusion of RGE Sul as an isolated item.

 

3.3) Economic-Financial Performance Presentation

In accordance with U.S. SEC (Securities and Exchange Commission) guidelines and pursuant to items 100 (a) and (b) of Regulation G, with the disclosure of this report, in order to avoid the disclosure of non-GAAP measures, we no longer will disclose the economic-financial performance considering the proportional consolidation of the generation projects and the adjustment of the numbers for non-recurring items, focusing the disclosure in the IFRS criterion. Only in chapter 5, of Indebtedness, we will continue presenting the information in the financial covenants criterion, considering that the proper reconciliation with the numbers in the IFRS criterion are presented in item 12.12 of this report.

 

4) ECONOMIC-FINANCIAL PERFORMANCE

 

 

Note: (1) EBITDA is calculated from the sum of net income, taxes, financial result and depreciation/amortization, according to CVM Instruction no. 527/12. See the calculation in item 4.6 of this report.

 

4.1) Opening of economic-financial performance by business segment

 

Income Statement by business segment - CPFL Energia (R$ million)
	Distribution	Conventional Generation	Renewable Generation	Commerciali-zation	Services	Others		Eliminations	Total
4Q16
Net operating revenue	4,332	263	509	609	102	20		(324)	5,512
Operating costs and expenses	(3,960)	(59)	(239)	(550)	(85)	(48)		324	(4,618)
Depreciation e amortization	(170)	(34)	(146)	(1)	(3)	(1)		-	(355)
Income from electric energy service	202	171	123	58	14	-	29	-	539
Equity accounting	-	110	-	-	-	-		-	110
EBITDA	372	315	270	59	17	-	28	-	1,004
Financial result	(201)	(96)	(141)	(7)	2	(11)		-	(454)
Income (loss) before taxes	1	185	(18)	51	17	(40)		-	196
Income tax and social contribution	(21)	(24)	(6)	(17)	(4)	14		-	(59)
Net income (loss)	(20)	161	(24)	33	13	(26)		-	137
4Q15 (Resubmitted)
Net operating revenue	3,962	264	451	484	44	49		(323)	4,930
Operating costs and expenses	(3,473)	(69)	(79)	(450)	(32)	(94)		323	(3,873)
Depreciation e amortization	(146)	(33)	(143)	(1)	(1)	(3)		-	(327)
Income from electric energy service	344	161	229	33	11	-	48	-	729
Equity accounting	-	92	-	-	-	-		-	92
EBITDA	489	286	372	34	12	-	45	-	1,149
Financial result	(24)	(103)	(132)	4	7	(10)		-	(258)
Income (loss) before taxes	320	150	97	37	18	(58)		-	563
Income tax and social contribution	(133)	(23)	(22)	(9)	(6)	(7)		-	(200)
Net income (loss)	186	127	75	28	12	(65)		-	363
Variation
Net operating revenue	9.3%	-0.3%	12.9%	25.9%	131.9%	-59.2%		0.1%	11.8%
Operating costs and expenses	14.0%	-15.5%	204.7%	22.4%	165.8%	-49.0%		0.1%	19.2%
Depreciation e amortization	16.6%	2.2%	2.1%	-11.1%	111.5%	-71.1%		-	8.3%
Income from electric energy service	-41.1%	5.7%	-46.2%	74.9%	33.1%	-40.0%		-	-26.1%
Equity accounting	-	20.2%	-	-	-	-		-	20.2%
EBITDA	-24.0%	10.0%	-27.6%	72.3%	42.2%	-37.9%		-	-12.6%
Financial result	744.1%	-7.2%	6.9%	-307.4%	-67.4%	6.9%		-	75.6%
Income (loss) before taxes	-99.6%	23.5%	-118.4%	37.9%	-7.8%	-31.7%		-	-65.2%
Income tax and social contribution	-84.0%	6.7%	-70.5%	87.4%	-38.7%	-312.6%		-	-70.7%
Net income (loss)	-110.7%	26.5%	-132.4%	21.6%	8.8%	-60.7%		-	-62.2%

Note: an analysis of the economic-financial performance by business segment is presented in chapter 11.

 

 

Income Statement by business segment - CPFL Energia (R$ million)
	Distribution	Conventional  Generation	Renewable  Generation	Commerciali- zation	Services	Others		Eliminations	Total
2016
Net operating revenue	15,040	1,003	1,673	2,087	400	69		(1,160)	19,112
Operating costs and expenses	(13,195)	(205)	(680)	(1,924)	(322)	(133)		1,160	(15,298)
Depreciation e amortization	(591)	(127)	(553)	(4)	(13)	(3)		-	(1,291)
Income from electric energy service	1,254	672	440	159	65	(67)		-	2,523
Equity accounting	-	311	-	-	-	-		-	311
EBITDA	1,845	1,110	993	163	78	-	63	-	4,125
Financial result	(551)	(380)	(535)	7	5	(1)		-	(1,453)
Income (loss) before taxes	703	603	(95)	166	71	(68)		-	1,381
Income tax and social contribution	(296)	(99)	(46)	(53)	(17)	9		-	(501)
Net income (loss)	407	505	(141)	112	54	(58)		-	879
2015 (Resubmitted)
Net operating revenue	16,968	984	1,598	1,799	295	50		(1,094)	20,599
Operating costs and expenses	(14,824)	(309)	(597)	(1,669)	(251)	(118)		1,094	(16,674)
Depreciation e amortization	(587)	(132)	(541)	(5)	(13)	(3)		-	(1,280)
Income from electric energy service	1,557	543	461	125	31	(70)		-	2,645
Equity accounting	-	217	-	-	-	-		-	217
EBITDA	2,144	892	1,001	129	43	-	67	-	4,142
Financial result	(516)	(439)	(468)	4	39	(28)		-	(1,408)
Income (loss) before taxes	1,041	320	(7)	129	70	(99)		-	1,454
Income tax and social contribution	(415)	(38)	(49)	(41)	(18)	(18)		-	(579)
Net income (loss)	626	283	(56)	88	52	(117)		-	875
Variação
Net operating revenue	-11.4%	2.0%	4.7%	16.0%	35.9%	37.5%		6.1%	-7.2%
Operating costs and expenses	-11.0%	-33.7%	13.9%	15.3%	28.1%	12.7%		6.1%	-8.2%
Depreciation e amortization	0.7%	-4.1%	2.3%	-16.6%	1.9%	9.2%		-	0.9%
Income from electric energy service	-19.5%	23.7%	-4.5%	27.1%	113.5%	-5.2%		-	-4.6%
Equity accounting	-	43.6%	-	-	-	-		-	43.6%
EBITDA	-13.9%	24.5%	-0.8%	25.6%	80.9%	-5.9%		-	-0.4%
Financial result	6.7%	-13.6%	14.3%	51.6%	-86.1%	-97.2%		-	3.2%
Income (loss) before taxes	-32.4%	88.4%	1220.0%	28.0%	1.4%	-31.5%		-	-5.1%
Income tax and social contribution	-28.7%	162.3%	-5.9%	28.9%	-6.7%	-151.2%		-	-13.4%
Net income (loss)	-34.9%	78.5%	150.1%	27.5%	4.2%	-50.2%		-	0.4%

Note: an analysis of the economic-financial performance by business segment is presented in chapter 11.

 

4.2) Reclassification of the Concession Financial Asset

The Company and its electric energy distribution subsidiaries, aiming at the better presentation of their operational and financial performance, concluded that the adjustment of expectation of the cash flow of the indemnable financial asset of the concession of each distributor, originally presented under financial revenue item, in financial result, should be more adequately classified in the operating revenues group, together with other revenues related to its activity. This allocation reflects more accurately the business model of electric energy distribution and provides a better presentation regarding its performance.

Pursuant to CPC 23 / IAS 8 - Accounting Policies, Changes in Estimates and Error Rectification, the CPFL Energia and its Subsidiaries changed their accounting policy previously adopted by an accounting policy that better reflects the performance of the Company's and its subsidiaries' businesses and, therefore, reclassified retrospectively into their income statements for 2015.

 

4.3) Sectoral Financial Assets and Liabilities

In 4Q16, it was accounted the total sectoral financial liabilities in the amount of R$ 342 million, compared to the total sectoral financial assets in the amount of R$ 195 million in 4Q15, a variation of R$ 537 million. In 2016, it was accounted the total sectoral financial liabilities in the amount of R$ 2,095 million, compared to the total sectoral financial assets in the amount of R$ 2,507 million in 2015, a variation of R$ 4,601 million.

On December 31, 2016, the balance of these sectoral financial assets and liabilities was negative in R$ 915 million, compared to a negative balance of R$ 435 million on September 30, 2016 and a positive balance of R$ 1,954 million on December 31, 2015.

 

As established by the applicable regulation, any sectoral financial assets or liabilities shall be included in the tariffs of the distributors in their respective annual tariff events.

 

4.4) Operating Revenue

In 4Q16, gross operating revenue reached R$ 8,596 million, representing a reduction of 1.4% (R$ 123 million). Deductions from the gross operating revenue was of R$ 3,084 million in 4Q16, representing a reduction of 18.6% (R$ 705 million). Net operating revenue reached R$ 5,512 million in 4Q16, registering an increase of 11.8% (R$ 582 million).

The increase in net operating revenue, already considering revenue eliminations, was mainly caused by the following factors:

·      Increase of revenues in the Distribution segment, in the amount of R$ 370 million (for more details, see item 11.1.1.2);

·      Increase of revenues in the Commercialization segment, in the amount of R$ 125 million;

·      Increase of revenues in the Services segment, in the amount of R$ 58 million;

·      Increase of revenues in CPFL Renováveis, in the amount of R$ 58 million;

Partially offset by:

·      Reduction of revenues in Others, in the amount of R$ 29 million;

·      Reduction of revenues in the Conventional Generation segment, in the amount of R$ 1 million.

 

In 2016, gross operating revenue reached R$ 30,785 million, representing a reduction of 10.3% (R$ 3,518 million). Deductions from the gross operating revenue was of R$ 11,672 million in 2016, representing a reduction of 14.8% (R$ 2,031 million). Net operating revenue reached R$ 19,112 million in 2016, registering a reduction of 7.2% (R$ 1,487 million).

The increase in net operating revenue, already considering revenue eliminations, was mainly caused by the following factors:

·      Reduction of revenues in the Distribution segment, in the amount of R$ 1,928 million (for more details, see item 11.1.1.2);

·      Reduction of revenues in Eliminations (among the segments), in the amount of R$ 66 million;

Partially offset by:

·      Increase of revenues in the Commercialization segment, in the amount of R$ 288 million;

·      Increase of revenues in the Services segment, in the amount of R$ 106 million;

·      Increase of revenues in CPFL Renováveis, in the amount of R$ 75 million;

·      Increase of revenues in the Conventional Generation segment, in the amount of R$ 20 million;

·      Increase of revenues in Others, in the amount of R$ 19 million.

 

4.5) Cost of Electric Energy

In the analysis presented in this report, we consider the impact of the inclusion of RGE Sul as an isolated item.

In 4Q16, 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$ 3,237 million, registering an increase of 9.3% (R$ 275 million).

 

The factors that explain these variations follow below:

·      The cost of electric power purchased for resale reached R$ 2,904 million in 4Q16, an increase of 10.0% (R$ 265 million), due to the following factors:

               (i)       Impact of the inclusion of RGE Sul in our consolidation in November and December 2016, after the acquisition of this company was completed on October 31, 2016. The total cost of electric power purchased for resale in relation to RGE Sul (which was not included in our consolidation in 4Q15) totaled R$ 288 million for November and December 2016;

              (ii)       Increase of 13.7% (R$ 282 million) in the cost of energy purchased through auction in the regulated environment and bilateral contracts, due to the increases of 1.9% in the average purchase price (R$ 177.59/MWh in 4Q16 vs. R$ 174.23/MWh in 4Q15) and of 11.6% (1,362 GWh) in the volume of purchased energy;

             (iii)      Increase in the amount of energy purchased in the spot market/PROINFA cost (R$ 41 million), excluding the GSF and the effect of the strategy put in place for the seasonality of physical guarantee;

            (iv)       Reduction of 3.5% (R$ 10 million) in PIS and COFINS tax credits (cost reducer), generated from the energy purchase;

Partially offset by:

             (v)       Reduction of 44.0% (R$ 355 million) in the cost of energy from Itaipu, due to the reductions of 43.3% in the average purchase price (R$ 176.67/MWh in 4Q16 vs. R$ 311.55/MWh in 4Q15) and of 1.2% (31 GWh) in the volume of purchased energy.

 

·   Charges for the use of the transmission and distribution system reached R$ 333 million in 4Q16, an increase of 3.1% (R$ 10 million), due to the following factors:

               (i)       Impact of the inclusion of RGE Sul in our consolidation in November and December 2016, after the acquisition of this company was completed on October 31, 2016. The total charges for the use of the transmission and distribution system in relation to RGE Sul (which was not included in our consolidation in 4Q15) totaled R$ 38 million for November and December 2016;

              (ii)       Variation of R$ 41 million in Reserve Energy Charges – EER, since there was no registration in 4Q16 and there was a revenue of financial resources derived from the Reserve Energy Account (CONER) in the amount of R$ 41 million in 4Q15;

             (iii)       Increase of R$ 4 million in Itaipu transmission charges and charges for connection;

            (iv)       Reduction of 9.6% (R$ 3 million) in PIS and COFINS tax credits (cost reducer), generated from the charges;

Partially offset by:

             (v)       Reduction of 49.9% (R$ 74 million) in the System Service Usage Charges – ESS, due to the spot price (PLD) reduction;

            (vi)       Reduction of R$ 2 million in the basic network and usage of the distribution system charges.

 

In 2016, the cost of electric energy amounted to R$ 11,200 million, registering a reduction of 15.9% (R$ 2,112 million).

The factors that explain these variations follow below:

·      The cost of electric power purchased for resale reached R$ 9,849 million in 2016, a reduction of 16.9% (R$ 1,998 million), due to the following factors:

 

               (i)       Reduction of 31.5% (R$ 904 million) in the cost of energy from Itaipu;

              (ii)       Reduction of 9.3% (R$ 852 million) in the cost of energy purchased through auction in the regulated environment and bilateral contracts;

             (iii)       Reduction of 74.7% (R$ 767 million) in the amount of energy purchased in the spot market/PROINFA cost;

Partially offset by:

            (iv)       Impact of the inclusion of RGE Sul in our consolidation in November and December 2016, after the acquisition of this company was completed on October 31, 2016. The total cost of electric power purchased for resale in relation to RGE Sul (which was not included in our consolidation in 2015) totaled R$ 288 million for November and December 2016;

             (v)       Reduction of 19.8% (R$ 237 million) in PIS and COFINS tax credits (cost reducer), generated from the energy purchase.

 

·         Charges for the use of the transmission and distribution system reached R$ 1,351 million in 2016, a reduction of 7.8% (R$ 114 million), due to the following factors:

               (i)       Reduction of 35.9% (R$ 200 million) in the System Service Usage Charges – ESS;

              (ii)       Reduction of R$ 44 million in the basic network and usage of the distribution system charges;

Partially offset by:

             (iii)       Increase of 95.3% (R$ 52 million) in Reserve Energy Charges – EER;

            (iv)       Impact of the inclusion of RGE Sul in our consolidation in November and December 2016, after the acquisition of this company was completed on October 31, 2016. The total charges for the use of the transmission and distribution system in relation to RGE Sul (which was not included in our consolidation in 2015) totaled R$ 38 million for November and December 2016;

             (v)       Increase of R$ 23 million in Itaipu transmission charges and charges for connection;

            (vi)       Reduction of 11.2% (R$ 16 million) in PIS and COFINS tax credits (cost reducer), generated from the charges.

 

4.6) Operating Costs and Expenses

 

For this report, we regarded the impact of RGE Sul as an isolated item.

 

Operating costs and expenses were R$ 1,735 million in 4Q16, an increase of 40.1% (R$ 173 million) if compared to 4Q15 that reached R$ 1,238 million, due to the following factors:

 

PMSO

PMSO item, that reached R$ 819 million in 4Q16, compared to R$ 621 million in 4Q15, registering an increase of 31.9% (R$ 198 million).

 

 

PMSO (R$ million)
	4Q16	4Q15	Variation		2016	2015	Variation
			R$ MM	%			R$ MM	%
Reported PMSO
Personnel	(320.6)	(240.3)	(80.2)	33.4%	(1,093.9)	(939.2)	(154.7)	16.5%
Material	(46.1)	(34.1)	(12.0)	35.2%	(189.9)	(139.9)	(50.0)	35.7%
Outsourced Services	(187.9)	(146.3)	(41.6)	28.5%	(651.2)	(559.0)	(92.2)	16.5%
Other Operating Costs/Expenses	(264.8)	(200.6)	(64.2)	32.0%	(734.3)	(618.5)	(115.8)	18.7%
Allowance for doubtful accounts	(46.3)	(32.8)	(13.6)	41.4%	(176.3)	(126.9)	(49.5)	39.0%
Legal, judicial and indemnities expenses	(43.7)	(66.3)	22.6	(34.1%)	(181.9)	(274.4)	92.5	(33.7%)
GSF risk premium	(2.4)		(2.4)	-	(9.6)	-	(9.6)	-
Others	(172.4)	(101.5)	(70.9)	69.9%	(366.5)	(217.2)	(149.3)	68.7%
Reported PMSO - (A)	(819.3)	(621.2)	(198.1)	31.9%	(2,669.4)	(2,256.6)	(412.7)	18.3%
PMSO RGE Sul (Nov/16 and Dez/16)
Personnel	(32.6)		(32.6)		(32.6)		(32.6)
Material	(5.5)		(5.5)		(5.5)		(5.5)
Outsourced Services	(22.2)		(22.2)		(22.2)		(22.2)
Other Operating Costs/Expenses	(32.5)		(32.5)		(32.5)		(32.5)
Allowance for doubtful accounts	(5.1)		(5.1)		(5.1)	-	(5.1)
Legal, judicial and indemnities expenses	(11.1)		(11.1)		(11.1)	-	(11.1)
Others	(16.3)		(16.3)		(16.3)	-	(16.3)
Total PMSO RGE Sul - (B)	(92.8)	-			(92.8)	-
PMSO reportado
Personnel	(288.0)	(240.3)	(47.7)	19.8%	(1,061.3)	(939.2)	(122.1)	13.0%
Material	(40.6)	(34.1)	(6.5)	19.0%	(184.4)	(139.9)	(44.5)	31.8%
Outsourced Services	(165.7)	(146.3)	(19.4)	13.3%	(629.0)	(559.0)	(70.0)	12.5%
Other Operating Costs/Expenses	(232.2)	(200.6)	(31.7)	15.8%	(701.8)	(618.5)	(83.3)	13.5%
Allowance for doubtful accounts	(41.2)	(32.8)	(8.5)	25.8%	(171.2)	(126.9)	(44.4)	35.0%
Legal, judicial and indemnities expenses	(32.6)	(66.3)	33.7	(50.9%)	(170.8)	(274.4)	103.6	(37.8%)
GSF risk premium	(2.4)	-	(2.4)	-	(9.6)	-	(9.6)
Others	(156.1)	(101.5)	(54.6)	53.8%	(350.1)	(217.2)	(132.9)	61.2%
Total PMSO - (A) - (B)	(726.5)	(621.2)	(105.3)	16.9%	(2,576.5)	(2,256.6)	(319.9)	14.2%

 

    (i)        Personnel - increase of 33.4% (R$ 80 million), mainly due to:

ü  RGE Sul acquisition (R$ 33 million);

ü  Collective bargaining agreement – wages and benefits (R$ 18 million);

ü  Increase in the Services segment business, due to business expansion of CPFL Serviços, CPFL Atende, Nect and CPFL Eficiência (R$ 15 million);

ü  Increase in the CPFL Renováveis (R$ 4 million);

ü  Other effects (R$ 10 million).

 

   (ii)        Material – increase of 35.2% (R$ 12 million), mainly explained by:

ü  RGE Sul acquisition (R$ 6 million);

ü  Services business segment increase (R$ 4 million);

 

ü  Replacement of material to the maintenance of lines and grid in the Distribution segment business (R$ 3 million).

 

  (iii)        Out-sourced services - increase of 28.0% (R$ 42 million), mainly due to increase in the expenses in:

ü  RGE Sul acquisition (R$ 22 million);

ü  Maintenance of the power grid (R$ 14 million);

ü  Meter reading and use (R$ 3 million);

ü  Tree pruning (R$ 2 million);

ü  Collection actions (R$ 1 million).

 

 (iv)        Other operational costs/expenses - increase of 32.0% (R$ 64 million), mainly due to increase in the expenses in:

ü  write-off of the physical inventory of wind and SHPPs projects, as well as the provision for write-off of projects in the CPFL Renováveis (R$ 74 million);

ü  RGE Sul acquisition (R$ 33 million);

ü  Recognition of insurance against material damages related to the claim at Bio Pedra (CPFL Renováveis) in 4Q15 (R$ 16 million);

ü  Allowance for doubtful account (R$ 8 million);

ü  Recognition of indemnity for supplier unavailability (R$ 6 million);

ü  GSF risk premium payment – Conventional Generation segment business and CPFL Renováveis (R$ 2 million);

Partially offset by:

ü  50.9% legal and judicial expenses decrease (R$ 34 million);

ü  CPFL Telecom and CPFL Total assets impairment (31 million).

 

In the year, PMSO totaled R$ 2,669 million, a 18.3% increase (R$ 413 million). Disregarding RGE Sul, it would be an increase of 14.2% (R$ 320 million):

    (i)        Personnel - increase of 16.5% (R$ 155 million), mainly due to:

ü  Collective bargaining agreement – wages and benefits (R$ 68 million);

ü  Increase in the Services segment business, due to business expansion of CPFL Serviços, CPFL Atende, Nect and CPFL Eficiência (R$ 15 million);

ü  RGE Sul acquisition (R$ 33 million);

ü  Increase in the CPFL Renováveis (R$ 12 million);

ü  Other effects (R$ 4 million).

 

   (ii)        Material – increase of 35.7% (R$ 50 million), mainly explained by:

ü  Replacement of material to the maintenance of lines and grid in the Distribution segment business (R$ 14 million);

ü  Services business segment increase (R$ 9 million);

 

ü  CPFL Renováveis increase (R$ 8 million);

ü  RGE Sul acquisition (R$ 6 million);

ü  Other (R$ 4 million).

 

  (iii)        Out-sourced services - increase of 16.2% (R$ 92 million), mainly due to increase in the expenses in:

ü  CPFL Renováveis increase (R$ 32 million);

ü  RGE Sul acquisition (R$ 22 million);

ü  Collection actions (R$ 17 million);

ü  Tree pruning (R$ 12 million);

ü  Meter reading and use (R$ 10 million);

 

 (iv)        Other operational costs/expenses - increase of 18.7% (R$ 116 million), mainly due to increase in the expenses in:

ü  Write-off of the physical inventory of wind and SHPPs projects, as well as the provision for write-off of projects in the CPFL Renováveis (R$ 74 million);

ü  Allowance for doubtful account (R$ 44 million);

ü  RGE Sul acquisition (R$ 33 million);

ü  Disposal assets increase (R$ 19 million);

ü  Recognition of insurance for material damages and property, plant and equipment write-off related to the damaged turbine at Bio Pedra (CPFL Renováveis) (R$ 10 million);

ü  GSF risk premium payment – Conventional Generation segment business and CPFL Renováveis (R$ 10 million);

ü  DIC/FIC fines (R$ 7 million);

ü  Recognition of indemnity for supplier unavailability (R$ 6 million);

ü  Reversal of the provision resulting from a discontinued SHPP project (R$ 3 million);

ü  Others (R$ 37 million);

Partially offset by:

ü  Legal and judicial expenses decrease (R$ 104 million);

ü  CPFL Telecom and CPFL Total assets impairment (31 million).

 

Other operating costs and expenses

Other operating costs and expenses reached R$ 916 million in 4Q16, compared to R$ 6 million in 4Q15, registering an increase of 48.4% (R$ 299 million), with the variations below:

·         Increase of 68.5% (R$ 191 million) in cost of building the concession´s infrastructure;

·         Acquisition of RGE Sul (R$ 97 million);

·         Increase of 112.5% (R$ 13 million) in Private Pension Fund expenses, due to actuarial report update;

 

·         Increase of 2.0% (R$ 5 million) in Depreciation and Amortization;

 

In the year, other operating costs and expenses reached R$ 2,720 million, an increase of 14.0% (R$ 334 million), with the following variations:

·         Increase of 23.0% (R$ 240 million) in cost of building the concession´s infrastructure;

·         Acquisition of RGE Sul (R$ 97 million);

·         Increase of 3.7% (R$ 37 million) in Depreciation and Amortization, mainly due to increase in the Distribution segment (R$ 17 million) and CPFL Renováveis (R$ 13 million), basically due to the operational startup of assets over the last 12 months;

·         Increase of 24.9% (R$ 15 million) in Private Pension Fund expenses, due to actuarial report update ;

Partially offset by:

·         Decrease of 17.8% (R$ 54 million) in Intangible of Concession Amortization

 

4.7) EBITDA

In 4Q16, EBITDA reached R$ 1,004 million, registering a reduction of 12.6% (R$ 145 million). In 2016, EBITDA totaled R$ 4,126 million, compared to R$ 4,143 million in 2015, a reduction of 0.4% (R$ 18 million).

 

 

 

 

 

4.8) Financial Result

 

 

In the analysis presented in this report, we consider the impact of the inclusion of RGE Sul as an isolated item.

In 4Q16, net financial expense was of R$ 454 million, an increase of 75.6% (R$ 195 million) compared to the net financial expense of R$ 258 million reported in 4Q15.

The items explaining these variations in Financial Result are as follows: