Commission File Number 32297

---

 

 

 

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-_________________

.

 

São Paulo, March 21, 2016 – CPFL Energia S.A. (BM&FBOVESPA: CPFE3 and NYSE: CPL), announces its 4Q15 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 4Q14, unless otherwise stated.

 

 

CPFL ENERGIA ANNOUNCES ITS 4Q15 RESULTS

 

 

 

Notes:

(1)   Disregard construction revenues;

(2)   EBITDA (IFRS) is calculated from the sum of net income, taxes, financial result, depreciation/amortization, as CVM Instruction no. 527/12;

(3)   Adjusted EBITDA considers similar holdings in each of the assets in which CPFL Energia has a stake, the sectorial financial assets and liabilities (previously called regulatory assets and liabilities) and excludes the non-recurring effects;

(4)   Adjusted Net Income considers similar holdings in each of the assets in which CPFL Energia has a stake, the sectorial financial assets and liabilities (previously called regulatory assets and liabilities) and excludes the non-recurring effects.

 

 

4Q15 HIGHLIGHTS

 

•     Sales dropped 5.3% in the concession area in 4Q15 - residential (-2.0%), commercial (-2.2%) and industrial  (-9.6%)

•     Sales dropped 4.0% in the concession area in 2015 - residential (-2.0%), commercial (-1.0%) and industrial  (-6.9%)

•     Investments of R$ 496 million in 4Q15 and of R$ 1,428 million in 2015

•     Renegotiation of the hydrological risk, represented by the consents granted by ANEEL in December 2015 to Enercan, Ceran, Paulista Lajeado, Foz do Chapecó and projects controlled by CPFL Renováveis and ​​negotiated in the Proinfa; the total renegotiated was of 458.8 average MW

•     brAA- rating defined by Standard&Poor’s Rating Services to CPFL Energia and its subsidiaries

•     AA(bra) rating defined by Fitch Ratings to CPFL Energia and its subsidiaries

•     Entry of CPFL Energia’s shares in the IBrX-50 of the BM&FBOVESPA and, consequently, becoming a component stock of the ICO2 (Carbon Efficient Index) in January 2016

•     CPFL Energia’s shares were maintained in the ISE (the BM&FBOVESPA’s Corporate Sustainability Index), for the 11^th consecutive year

•     CPFL Energia was classified as a member in Sustainability Yearbook 2015, prepared by RobecoSAM, responsible for review of the DJSI

 

 

 

 

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	7
2.1.2) Sales to the Captive Market	7
2.1.3) TUSD	7
2.2) Contracted Demand in % (high voltage)	8
2.3) Generation Installed Capacity	8
3) INFORMATION ON INTEREST IN COMPANIES AND CRITERIA OF FINANCIAL STATEMENTS
CONSOLIDATION	9
3.1) Consolidation of CPFL Renováveis Financial Statements	11
3.2) Presentation of adjusted figures	11
4) ECONOMIC-FINANCIAL PERFORMANCE	12
4.1) Sectoral Financial Assets and Liabilities	12
4.2) Operating Revenue	13
4.3) Cost of Electric Energy	13
4.4) Operating Costs and Expenses	14
4.5) EBITDA	16
4.6) Financial Result	17
4.7) Net Income	18
5) DEBT	19
5.1) Debt (IFRS)	19
5.2) Debt (Proforma)	20
5.2.1) Debt Evolution in Proforma criteria (R$ Billion)	20
5.2.2) Debt Amortization Schedule in Proforma criteria	20
5.2.3) Indexation and Debt Cost in Proforma criteria	22
5.3) Net Debt and Leverage (Covenant criteria)	22
5.4) Ratings	23
6) INVESTMENTS	23
6.1) Capital Expenditures	23
6.2) Projected Capital Expenditures	24
7) ALLOCATION OF RESULTS	25
8) STOCK MARKETS	26
8.1) Stock Performance	26
8.2) Daily Average Volume	26
9) CORPORATE GOVERNANCE	28
10) CURRENT SHAREHOLDERS STRUCTURE – 12/31/2015	29
11) PERFORMANCE OF THE BUSINESS SEGMENTS	30
11.1) Distribution Segment	30
11.1.1) Economic-Financial Performance	30
11.1.1.1) Sectoral Financial Assets and Liabilities	30
11.1.1.2) Operating Revenue	30
11.1.1.3) Cost of Electric Power	31
11.1.1.4) Operating Costs and Expenses	32
11.1.1.5) EBITDA	34
11.1.1.6) Financial Result	34
11.1.1.7) Net Income	35
11.1.2) Annual Tariff Adjustment	35

 

11.1.3) 2015 Extraordinary Tariff Review (ETR)	36
11.1.4) 4th Tariff Review Periodic Cycle	37
11.1.4.1) 4th Periodical Tariff Review Cycle – CPFL Piratininga	37
11.1.5) Operating Performance of Distribution	38
11.1.5.1) SAIDI and SAIFI	38
11.1.5.2) Losses	39
11.2) Commercialization and Services Segments	39
11.3) Conventional Generation Segment	40
11.3.1) Economic-Financial Performance	40
11.4) CPFL Renováveis	44
11.4.1) Economic-Financial Performance	44
11.4.2) Status of Generation Projects – 100% Participation	47
12) ATTACHMENTS	49
12.1) Statement of Assets – CPFL Energia	49
12.2) Statement of Liabilities – CPFL Energia	50
12.3) Income Statement – CPFL Energia (IFRS)	51
12.4) Income Statement – CPFL Energia (Adjusted)	52
12.5) Cash Flow – CPFL Energia	53
12.6) Income Statement – Conventional Generation Segment (IFRS)	54
12.7) Income Statement – Conventional Generation Segment (Adjusted)	55
12.8) Income Statement – CPFL Renováveis (IFRS)	56
12.9) Income Statement – CPFL Renováveis (Adjusted)	57
12.10) Income Statement – Distribution Segment (IFRS)	58
12.11) Income Statement – Distribution Segment (Adjusted)	59
12.12) Economic-Financial Performance – Distributors	60
12.13) Sales within the Concession Area by Distributor (in GWh)	62
12.14) Sales to the Captive Market by Distributor (in GWh)	63

 

 

1) MESSAGE FROM THE CEO

The year 2015 proved to be one of the most challenging in CPFL Energia’s history. Nevertheless, if we draw a parallel between the situation faced by the electricity sector at the start of 2015 with the current scenario, the progress made during the course of the year is remarkable.

In the beginning of 2015, the risk of rationing was imminent. With a wet period during which Affluent Natural Energy (ENA) in Brazil’s National Interconnected System (SIN) reached only 71% of the long-term average natural flow (MLT), SIN reservoirs closed April with 35% of their capacity. Recovery of the reservoirs came with an ENA of 113% of MLT during the dry period, combined with load shedding of 1.7% in Brazil in 2015. Now, in early 2016, the Electricity Sector Monitoring Committee (CMSE) calculated the risk of rationing at 0%, which means one less thing that industry players have to worry about.

In the regulatory area, significant progress was made. Energy distributors started the year with the threat of cash imbalances, without being able to rely on funds from the ACR account or the Treasury, which used to subsidize tariffs in the past. However, ANEEL authorized an Extraordinary Tariff Review (RTE), implemented on March 1, 2015, which partially offset the increase in the Parcel A (non-manageable) costs of Distributors. Parcel A was under pressure especially due to the increase in CDE, a sector charge that was significantly hiked at the start of 2015. Another mechanism implemented at the start of the year was dynamic pricing in the form of Tariff Flags, which was a quicker-reaction tool that enabled an additional charge in tariffs to cover the costs of thermal generation and the exposure of distributors to PLD (hydrological risk, ESS and involuntary exposure). Despite all this, the cash gap continued and the CPFL Energia group registered accumulated CVAs of about R$ 1.9 billion at the end of 3Q15, almost equivalent to one year’s cash generation of its energy distributors. In 4Q15, this scenario of accumulation of regulatory assets started being reversed, bringing some relief to the Company's working capital, which closed 2015 with around R$ 1.7 billion in accumulated CVAs.

Though “Tariff Realism”, which allowed readjustments in energy prices, was essential to mitigate cash flow gaps at the distributors, together with the macroeconomic downturn - which resulted in the reduction of the volume of real income, increase in the unemployment rate, lower volume of retail sales and fall in the industrial production - it led to a drop in energy sales, which recorded a consolidated decrease of 4.0% in the year to the set of eight distribution companies of CPFL Energia group, with 2.0% in residential consumption, 1.0% in commercial consumption and 6.9% in industrial consumption. With this scenario and to inhibit the increase in delinquency, the Company strengthened its collection actions since July 2015, increasing by more than 50% the number of cuts, charges and negativities among others.

The year began with uncertainties surrounding the renewal of distribution concessions, whose terms had not been defined in the Provisional Measure no. 579/2012, which only dealt with Generation and Transmission projects. During the year, ANEEL addressed the issue by setting the parameters for economic and financial sustainability and quality, which are fundamental to ensure quality customer service. On December 8, 2015, five Distributors that went through this process signed new agreements, which extended their concessions for another 30 years: CPFL Santa Cruz, CPFL Leste Paulista, CPFL Sul Paulista, CPFL Mococa and CPFL Jaguari.

Other important development in 2015 was the conclusion of the Public Hearing no. 23/2014, which dealt with the Tariff Review methodologies of distributors. Most of the methodologies were published in 1Q15, such as regulatory WACC and items such as Operating Costs, Other Revenue, Losses, General Procedures and Others. In December 2015, the methodologies for the treatment of Regulatory Remuneration Base were published, thus concluding the process. The first group company to go through the 4^th Cycle of Tariff Review was CPFL Piratininga, whose tariff event occurred on October 23, 2015. The progress achieved with the new conditions enabled CPFL Piratininga to increase by 5.31% its Parcel B (parcel that remunerates investment and covers operating costs and investment costs). The average tariff increase of CPFL Piratininga was 21.11%.

 

Finally, the renegotiation of hydrological risk (GSF) of hydroelectric generators was another positive development for the sector, achieved during 2015 after four rounds of Public Hearing. Apart from the impact of adverse hydrological conditions, hydroelectric generation started decreasing also due to unforeseen factors beyond the control of hydroelectric power plants, such as thermal dispatch outside the merit order and growth in the reserve energy capacity, basically composed of wind power, a non-dispatchable source. These conditions have been negatively affecting the balance sheets of generators since the end of 2013. Plants were then offered the possibility of paying a premium to renegotiate this risk. CPFL Energia chose to renegotiate its eligible agreements in the Regulated Contracting Environment (ACR), under SP100 modality, protecting 100% of GSF until the end of the agreements. Renegotiation of hydrological risk returns to hydroelectric power generators, predictability and stability of cash flows. The option for renegotiation enabled the reversal of R$ 134 million in 2015, relating to 459 MW of contracts already renegotiated.

In renewable generation, the positive highlight of 2015 was the delivery of the wind farm Morro dos Ventos II (29 MW of installed capacity), with eight months in advance, increasing the installed capacity of our subsidiary CPFL Renováveis ​​to 1,802 MW. In April 2015, CPFL Renováveis ​​had success in the A-5 auction, when hiring Boa Vista II SHPP (26.5 MW) to be delivered in 2020. In CPFL Renováveis ​​pipeline, there are about 3 GW of projects to be developed. In the first full year of consolidation of the assets of DESA, the company reached the mark of R$ 1.0 billion of EBITDA (IFRS) contributing in R$ 517 million to the consolidated results of the group, if our stake of 51.6% in the subsidiary CPFL Renováveis is considered.

Leverage in CPFL Energia Group showed improvement in the quarter, reducing the indicator Net Debt/EBITDA of 3.46x in the end of 3Q15 to 3.41x in the end of 4Q15, when we consider the proportional contribution of each project in this indicator, the same criterion used for measure the financial covenants of the company. The turnaround in the balance of CVAs¹, which ended the year at R$ 1.7 billion, down from R$ 1.9 billion in the previous quarter also helped to strengthen the company's cash, which ended the year 2015 with R$ 5.5 billion, more than enough to cover debt maturities until the end of 2017, reinforcing the strategy of the group to appreciate the liquidity. Despite the challenging environment, CPFL Energia presented an adjusted EBITDA with a slight growth of 1.2%, reaching R$ 3.9 billion in the year 2015, of which R$ 844 million in 4Q15.

Despite the improvements in the regulatory framework achieved in 2015, we must highlight the need for continued progress on regulatory issues in order to create the incentives for the electricity sector to resume investments. Public Hearings No. 004/2016 and no. 012/2016 are currently under discussion, to address issues related to overcontracting of the distribution companies, systemic event caused due to an energy contracting model designed for a power consumption in steady growth.

The challenges remain in 2016, given the worsening macroeconomic scenario in Brazil. However, the CPFL Energia group is committed to continuing its strategy of financial discipline and operational excellence in order to ensure long-term business sustainability in all the sectors it operates, while providing quality customer service and generating value for our stakeholders.

 

 

Wilson Ferreira Jr.

CEO of CPFL Energia

 

 

---

 

2) ENERGY SALES

2.1) Sales within the Distributors’ Concession Area

In 4Q15, sales within the concession area, achieved by the distribution segment, totaled 14,504 GWh, a decrease of 5.3%.

 

 

In 4Q15, sales to the captive market totaled 10,621 GWh, a decrease of 4.1%. The energy volume, in GWh, consumed by free customers in the distributors’ concession areas, billed through the Distribution System Usage Tariff (TUSD), reached 3,883 GWh in 4Q15, a decrease of 8.5%. These reductions reflect the turmoil of the macroeconomic scenario, which has resulted in the drop in industrial production, lower sales volume of retail trade and reducing real income mass.

 

 

Note: The tables with sales within the concession area by distributor are attached to this report in item 12.13.

Noteworthy in 4Q15, in the concession area:

·           Residential and commercial segments (28.2% and 17.8% of total sales, respectively): down by 2.0% and up by 2.2%, respectively. This performance reflects the changes in the labor market, with the hike of unemployment, the decrease of the volume in real income and the increase in electricity tariffs. Although temperature has been higher in the 4Q15 (compared to 4Q14), was not sufficient to reverse the effects of macro-economic performance of classes they pulled down.

·           Industrial segment (38.9% of total sales): decrease of 9.6%, reflecting weaker performance of the economic activity and the fall of the business confidence in the industry recently and excessive inventories observed in the industry in recent months. In the same period last year, industrial production fell by 11.89%. This result was common to all distribution group, especially CPFL Paulista, which fell by -9.1% or 274 GWh, CPFL Piratininga, down 10.2% (or 203 GWh) and RGE, which showed a decrease of 11.3% (or 107 GWh).

 

 

2.1.1) Sales by segment – Concession Area

 

2.1.2) Sales to the Captive Market

 

 

Note: The tables with captive market sales by distributor are attached to this report in item 12.14.

 

The retail sales were influenced mainly by the decrease in consumption in the industrial class which, in turn, reflects the slowdown in economic activity and the fall of the confidence level and excessive inventories, as explained above. Another key factor that influenced the captive market was the performance of the residential segment, which decreased consumption in quarterly comparisons for the third time in a row.

 

2.1.3) TUSD

 

 

 

 

TUSD by Distributor - GWh
	4Q15	4Q14	Var.	2015	2014	Var.
CPFL Paulista	1,959	2,118	-7.5%	7,861	8,261	-4.8%
CPFL Piratininga	1,347	1,479	-8.9%	5,640	6,045	-6.7%
RGE	478	537	-11.0%	1,928	2,088	-7.7%
CPFL Santa Cruz	12	11	3.1%	46	45	2.0%
CPFL Jaguari	23	16	46.6%	75	71	5.5%
CPFL Mococa	8	7	18.1%	27	27	-1.0%
CPFL Leste Paulista	13	12	6.9%	49	47	4.7%
CPFL Sul Paulista	42	61	-30.8%	203	219	-7.1%
Total	3,883	4,243	-8.5%	15,829	16,802	-5.8%

 

2.2) Contracted Demand in % (high voltage)

 

2.3) Generation Installed Capacity

In 4Q15, the Generation installed capacity of CPFL Energia, considering the stake in each project, reached 3,129 MW of installed capacity, an increase of 0.1% compared to 4Q14. This increase is mainly due to the addition of Morro dos Ventos II (2Q15) wind farms.

 

 

 

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 (and for comparative purpose for the balances of 2012) 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, 2015 and 2014, 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.

 

 

 

 

 

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)     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.

f)      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.

g)     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.

 

 

 

 

 

3.1) Consolidation of CPFL Renováveis Financial Statements

On December 31, 2015, 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) Presentation of adjusted figures

Since the 1Q14, the presentation of adjusted figures considers similar holdings in each of the assets in which CPFL Energia has a stake. Therefore, the result of adjusted figures already excludes non-controlling shareholders’ interests.

 

 

 

4) ECONOMIC-FINANCIAL PERFORMANCE

 

Notes:

(1)    Adjusted figures take into account CPFL’s equivalent stake in each generation project, the sectorial financial assets and liabilities (previously called regulatory assets and liabilities) of 2014 and disregard non-recurring effects. Since 4Q14, the old regulatory assets and liabilities, now called sectorial financial assets and liabilities, are being recognized by the IFRS. Details about the adjustments in EBITDA and net income are in items 4.5 and 4.7 of this report.

(2)    Disregard construction revenues;

(3)    EBITDA is calculated from the sum of net income, taxes, financial result and depreciation/amortization, according to CVM Instruction no. 527/12.

 

4.1) Sectoral Financial Assets and Liabilities

On November 25, 2014, through Dispatch no. 4,621, Aneel approved the amendment to concession agreements of distribution companies, in order to include a specific clause guaranteeing that the balance remaining of any insufficient payment or reimbursement of tariff due to termination of the concession, for any reason, will be indemnified.

After this change, the Securities and Exchange Commission of Brazil (CVM) approved, on December 9, 2014, through Resolution no. 732, the recognition of assets and liabilities that were previously called “regulatory assets and liabilities” in the financial statements of distribution companies, which are now called “sectorial financial assets and liabilities”.

In 4Q15, R$ 177 million, net of PIS and COFINS, were accounted in sectoral financial assets and liabilities related to this period. On December 31, 2015, the balance of these sectoral financial assets and liabilities was of R$ 1,954 million (R$ 1,682 million, excluding tariff flags not approved by Aneel up to the date and special obligations accounted under 4^th Tariff Review Cycle methodology), compared to a balance of R$ 2,302 million in the end of September 2015 (R$ 1,907 million, excluding tariff flags not approved by Aneel up to the date).

 

4.2) Operating Revenue

Disregarding the revenue from the construction of concession infrastructure, gross operating revenue (IFRS) reached R$ 8,296 million in 4Q15, an increase of 27.8% (R$ 1,806 million). The adjusted gross operating revenue was of R$ 8,220 million, an increase of 38.7% (R$ 2,293 million).

Net operating revenue (IFRS disregarding the revenue from the construction of concession infrastructure) reached R$ 4,507 million in 4Q15, a decrease of 8.7% (R$ 427 million). The adjusted net operating revenue, disregarding the revenue from the construction of concession infrastructure, amounted to R$ 4,429 million, an increase of 0.3% (R$ 15 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$ 136 million (for more details, see item 11.1.1);

·         Increase of revenues in CPFL Renováveis, in the amount of R$ 42 million;

Partially offset by:

·         Decrease of revenues in the Conventional Generation segment, in the amount of R$ 56 million; and

·         Increase of revenues in the Commercialization and Services segment, in the amount of R$ 107 million.

 

4.3) Cost of Electric Energy

The cost of electric energy (IFRS), comprising the purchase of electricity for resale and charges for the use of the distribution and transmission system, amounted to R$ 2,962 million in 4Q15, virtually stable (-0.9%) in comparison with 4Q14 (decrease of R$ 27 million). The adjusted cost of electric energy was R$ 2,875 million in 4Q15, an increase of 3.9% (R$ 108 million).

The factors that explain these variations follow below:

·      The cost of electric power purchased for resale (IFRS) in 4Q15 reached R$ 2,639 million, a decrease of 9.6% (R$ 279 million), mainly due to the following non-recurring events:

ü GSF (Generation Scale Factor), in the amount of R$ 26 million in 4Q15 versus R$ 144 million in 4Q14; and

ü Renegotiation of GSF related to the ACR (regulated market) portion of Ceran, Enercan, Foz do Chapecó, Paulista Lajeado and 9 SHPPs of CPFL Renováveis (reversal of GSF expenses net of R$ 9.50/MWh risk premium), in the amount of R$ 134 million; and

ü CPFL Renováveis’ energy purchase for SHPPs, totaling R$ 1.0 million in 4Q15 and R$ 1.0 million in 4Q14.

In the adjusted figures, that disregard these effects, the cost of electric power purchased for resale in 4Q15 was R$ 2,546 million, a decrease of 5.3% (R$ 143 million). The decrease mainly reflects the variations below:

            (i)       Decrease in the amount of energy purchased in the spot market (R$ 409 million), excluding GSF effects (non-recurring), due to lower spot prices (in SE/CW, R$ 177.09/MWh in 4Q15 vs R$ 727.54/MWh in 4Q14; in South, R$ 166.85/MWh in 4Q15 vs R$ 712.43/MWh in 4Q14);

           (ii)       Decrease in the cost of energy purchased through auction in the regulated environment and bilateral contracts (R$ 352 million), mainly caused by the decrease of 21.3% in the average purchase price (R$ 155.47/MWh in 4Q15 vs R$ 197.64/MWh in 4Q14), despite the increase of 6.6% in the volume of purchased energy (732 GWh);

 

          (iii)       Decrease of 0.6% in the PROINFA cost (R$ 0.4 million), mainly due to the decrease of 1.6% in the average purchase price (from R$ 222.33/MWh in 4Q14 to R$ 218.79/MWh in 4Q15), despite the increase of 1.1% (3 GWh) in the volume of purchased energy;

Partially offset by:

         (iv)       Increase in the cost of energy from Itaipu (R$ 442 million), mainly due to the increase of 124.4% in the average purchase price (R$ 311.50/MWh in 4Q15 vs R$ 138.79/MWh in 4Q14),  despite the decrease of 1.6% (or 42 GWh) in the volume of purchased energy;

          (v)       The recording of ACR account loans in 4Q14, in the amount of R$ 161 million, in order to cover costs with involuntary exposure and thermal dispatch incurred by the distribution companies.

         (vi)        Decrease of 5.8% (R$ 16 million) in PIS and Cofins tax credits (cost reducer), generated from the energy purchase;

 

·         Charges for the use of the transmission and distribution system (IFRS) reached R$ 323 million in 4Q15, an increase of 354.9% (R$ 252 million) if compared to 4Q14. In adjusted figures, that take into account the proportionate consolidation of generation assets, sector charges reached R$ 329 million, an increase of 321.1% (R$ 251 million), due to the following factors:

            (i)        Increase in the system service usage charges – ESS (R$ 323 million), from a revenue of R$ 175 million in 4Q14 to a cost of R$ 148 million in 4Q15, due to the spot price (PLD) reduction;

           (ii)        Increase of R$ 11 million in charges for connection, usage of the distribution system and Itaipu transmission;

Partially offset by:

          (iii)        Revenue of R$ 41 million in Reserve Energy Charge – EER, recorded in 4Q15 and not observed in 4Q14;

         (iv)        Decrease in basic network charges (R$ 17 million); and

          (v)        Increase of 424.9% (R$ 26 million) in PIS and Cofins tax credits (cost reducer), generated from the charges.

 

4.4) Operating Costs and Expenses

Operating costs and expenses (IFRS) were R$ 1,238 million in 4Q15, an increase of 4.8% (R$ 56 million). Adjusted operating costs and expenses were R$ 1,275 million in 4Q15, a decrease of 3.3% (R$ 43 million), due to the following factors:

·         Decrease of 9.0% (R$ 28 million) in the cost of building the infrastructure of the concession. This item, which reached R$ 279 million in 4Q15, has its counterpart in the “operating revenue”;

·         Decrease of 7.4% in the Private Pension Fund expenses (R$ 1 million);

·         The adjusted PMSO item, that reached R$ 700 million in 4Q15, compared to R$ 724 million in 4Q14, registering a decrease of 3.3% (R$ 24 million);

 

 

The table below lists the main variation in PMSO:

 

MANAGERIAL ADJUSTMENTS ON PMSO, FOR COMPARISON PURPOSES (in millions of Reais)
			Variation
	4Q15	4Q14
			R$ MM	%
Reported PMSO (IFRS)
Personnel	(240.3)	(226.9)	(13.4)	5.9%
Material	(34.1)	(29.7)	(4.4)	14.8%
Outsourced Services	(146.3)	(153.4)	7.2	-4.7%
Other Operating Costs/Expenses	(200.6)	(144.6)	(56.0)	38.7%
Allowance for doubtful accounts	(32.8)	(22.7)	(10.1)	44.4%
Legal, judicial and indemnities expenses	(66.3)	(84.2)	17.9	-21.2%
Others	(101.5)	(37.7)	(63.7)	168.9%
Reported PMSO (IFRS) - (A)	(621.2)	(554.7)	(66.6)	12.0%
Proportional Consolidation + Regulatory Assets&Liabilities
Personnel	5.3	5.5
Material	(77.4)	(170.7)
Outsourced Services	(6.4)	11.9
Other Operating Costs/Expenses	(30.9)	(1.1)
Allowance for doubtful accounts	0.3	(0.0)	0.3	-
Legal, judicial and indemnities expenses	1.1	0.3	0.8	302.2%
Others	(10.5)	(5.7)	(4.8)	84.7%
Total Proportional Consolidation + Regulatory Assets&Liabilities - (B)	(109.4)	(154.3)	44.9	-29.1%
Non-recurring effects
Impairment of assets	(39.0)		(39.0)
Insurance reimbursement	8.4		8.4
Agreement with equipment supplier delay in plant construction		14.9	(14.9)
(=) Total Non-recurring effects - (C)	(30.6)	14.9	(0.6)	(0.29)
Adjusted PMSO
Personnel	(235.0)	(221.4)	(13.6)	6.1%
Material	(111.5)	(200.4)	88.8	-44.3%
Outsourced Services	(152.6)	(141.5)	(11.1)	7.9%
Other Operating Costs/Expenses	(200.8)	(160.6)	(40.2)	25.1%
Allowance for doubtful accounts	(33.0)	(21.4)	(11.7)	54.7%
Legal, judicial and indemnities expenses	(66.8)	(84.2)	17.4	-20.6%
Others	(101.0)	(55.1)	(45.9)	83.4%
Total adjusted PMSO - (D) = (A) + (B) - (C)	(700.0)	(723.9)	23.9	-3.3%

   

This variation is explained mainly by the following aspects:

    (i)        Decrease of 44.3% in Material (R$ 89 million), mainly explained by (iv.a) additional material expenses related to the oil acquisition by Epasa (Termonordeste TPP and Termoparaíba TPP), that reduced R$ 84 million in Conventional Generation and other effects (R$ 5 million). The average Unit Variable Cust (CVU) this termal plant decreased of R$ 510/MWh in 4Q14 to R$ 367/MWh in 4Q15. The item related to oil acquisition by Epasa is directly associated to revenue generation from this activity.

Partially offset by:

           (ii)        Personnel expenses, that recorded an increase of 6.1% (R$ 14 million), mainly due to: (i.a) Collective Bargaining Agreement – wages and benefits (R$ 12 million); (i.b) increase in the Services segment business, due to  business expansion of CPFL Serviços, CPFL Atende and Nect (R$ 6 million) and (i.c) others effects  (R$ 3 million), partially offset by lower realization of employee profit-sharing program (R$ 7 million);

 

          (iii)        Out-sourced services expenses, which registered an increase of 7.9% (R$ 11 million), mainly due to (iii.a) increase in the Services segment business (R$ 5 million); (iii.b) increase in the Conventional Generation segment business (R$ 4 million) and (iii.c) increase in the Distribution segment business (R$ 2 million).

 

         (iv)        Other operational costs/expenses, that registered an increase of 25.1% (R$ 40 million), mainly due to:

ü  Increase of 54.7% in allowance for doubtful accounts (R$ 12 million)

ü  Expenses of R$ 12 million in 4Q15 related to the reclassification of operating fines from financial expenses to operating expenses;

ü  Reduction of 45.1% in the gain on the disposal and decommissioning of assets (R$ 5 million)

ü  Increase of 55.1% in costs/expenses with donations, contributions, and subsidies (R$ 2 million);

ü  Increase of 7.1% in Financial Compensation for Water Resources Utilization (CFURH) (R$ 1 million) and increase of 4.0% in collection charges (R$ 1 million) and;

ü  Increase of R$ 24 million in other expenses

Partially offset by:

ü  reduction of 20.6% of legal and court expenses (R$ 17 million)

Partially offset by:

·         Depreciation and Amortization, which represented an increase of 3.2% (R$ 9 million), are mainly explained by (i) the increase in the Generation segment (R$ 8 million), mainly CPFL Renovaveis due to the depreciation of the assets that went into operation between 4Q14 and 4Q15; (ii) increase in the Distribution business (R$ 7 million), (iii) increase in the Commercialization and Services Business segment (R$ 2 million), partially offset by (iv) reduction in the holding CPFL Energia in the “Intangible of concession amortization” (R$ 8 million).

 

4.5) EBITDA

4Q15 IFRS EBITDA reached R$ 1,005 million, a decrease of 25.1% (R$ 337 million). The adjusted EBITDA in 4Q15 totaled R$ 844 million, compared to R$ 914 million in 4Q14, a decrease of 7.7%.

 

 

*Regulatory assets and liabilities in the period

 

4.6) Financial Result

In 4Q15, net financial expense (IFRS) was of R$ 114 million, a decrease of 57.2% (R$ 153 million) compared to the net financial expense of R$ 268 million reported in 4Q14. The adjusted net financial expense was R$ 95 million, a decrease of 54.7% if compared to the same period of 2014 (R$ 115 million).

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

·         Financial Revenues: increase of 111.4% (R$ 263 million), from R$ 237 million in 4Q14 to R$ 500 million in 4Q15, mainly due to the following factors:

(i)            Restatement of concession’s financial asset (R$ 96 million), due to IGP-M variation, a higher asset base and the indexer replacement from IGP-M to IPCA;

(ii)           Restatement of sectorial financial assets (R$ 59 million);

(iii)          Restatement of tax credits (R$ 36 million);

(iv)         Increase in the income from financial investments and monetary and exchange adjustments (R$ 36 million), due to the higher average cash balance (R$ 4.0 billion in 4Q15 versus R$ 3.6 billion in 4Q14) and higher average CDI interbank rate, from 11.72% in 4Q14 to 14.39% in 4Q15;

(v)          Increase in arrears of interest and fines (R$ 25 million);

(vi)         Increase in revenues from fines, interest and monetary adjustment relating to installment payments made by consumers (R$ 25 million);

(vii)        Restatement of the balance of tariff subsidies, as determined by ANEEL (R$ 11 million);

(viii)       Other effects (R$ 18 million);

Partially offset by:

(ix)         PIS and COFINS on financial revenues (R$ 32 million); and

 

(x)          Currency variation in Itaipu invoices (R$ 11 million), offset by the sectorial financial assets and liabilities, which comprises the operating revenue.

 

·         Financial Expenses: increase of 33.2% (R$ 148 million), from R$ 447 million in 4Q14 to R$ 595 million in 4Q15, mainly due to the following factors:

(i)            Increase of debt charges and monetary and exchange variations (R$ 94 million), due to the higher average CDI interbank rate, from 11.72% in 4Q14 to 14.39% in 4Q15, and the debt stock;

(ii)           Mark-to-market effect for financial operations under Law 4,131 (non-cash effect) (R$ 101 million);

(iii)          Increase in the financial expenses with the Use of Public Asset (UBP) (R$ 11 million), due to the variation of the IGP-M, index used to update this item;

(iv)         Other effects (R$ 4 million);

Partially offset by:

(v)          Currency variation in Itaipu invoices (R$ 61 million), offset by the sectorial financial assets and liabilities, which comprises the operating revenue.

 

4.7) Net Income

In 4Q15, net income (IFRS) was R$ 363 million, a decrease of 22.8% if compared to 4Q14. Adjusted net income totaled R$ 255 million, a decrease of 10.1% if compared to 4Q14.

 

 

*Regulatory assets and liabilities in the period

 

 

 

 

 

5) DEBT

5.1) Debt (IFRS)

Notes: 1) Considering the proportional consolidation of CPFL Renováveis, Ceran, Baesa, Enercan, Foz do Chapecó and Epasa ; 2) For debt linked to foreign currency (27.1 % of total), swaps are contracted, which convert indexing for CDI; 3) PSI - Investment Support Program.

 

Net Debt and Leverage in IFRS

 

 

 

 

5.2) Debt (Proforma)

5.2.1) Debt Evolution in Proforma criteria (R$ Billion)

 

Notes:
1 This graphic consider MTM and expenses with funding and issuance.

(*) These graphics do not consider MTM and expenses with funding and issuance.

 

5.2.2) Debt Amortization Schedule in Proforma criteria

CPFL Energia has always adopted a solid and conservative financial policy. Thus, the Company has used since 2011, a prefunding strategy, in other words, forecasts the cash needs for the next 18-24 months and anticipates market access on more favorable terms of liquidity and cost. Thus, at the end of 2014, CPFL Energia, envisioning a more restrictive credit scenario in 2015, started working in 2016 prefunding.

 

 

The cash position at the end of 4Q15 has coverage ratio of 2.36x the amortizations of the next 12 months, enough to honor all amortization commitments until around the beginning of 2018. The average amortization term, calculated by this schedule, is 3.44 years.

 

 

 

 

 

 

5.2.3) Indexation and Debt Cost in Proforma criteria

 

Notas: 1) Considering proportional consolidation of CPFL Renováveis, CERAN, BAESA, ENERCAN, Foz do Chapecó and EPASA; 2) For debt linked to foreign currency (35.4% of total), swaps are contracted, which convert the indexation to CDI; 3) PSI - Investment Support Program.

 

 

5.3) Net Debt and Leverage (Covenant criteria)

In 4Q15, Net Debt Pro-forma totaled R$ 12,213 million, an decrease of 6.3% compared to net debt position at the end of 4Q14 in the amount of R$ 13,038 million.

 

 

 

Notas: 1) Considering proportional consolidation of CPFL Renováveis, CERAN, BAESA, ENERCAN, Foz do Chapecó and EPASA. 2) Adjusted EBITDA in the covenants criteria: adjusted according to equivalent participation of CPFL Energia in each of its subsidiaries, with the inclusion of regulatory assets and liabilities and the historical EBITDA of newly acquired projects.

 

In line with the criteria for calculation of financial covenants of loan agreements with financial institutions, net debt is adjusted according to the equivalent participation of CPFL Energia in each of the projects. Also, include in the calculation of adjusted EBITDA the effects of the CVA – "Account for the Compensation of the Variations of Parcel A" and the historic EBITDA of newly acquired projects. Considering that, adjusted net debt totaled R$ 12,213 million and adjusted EBITDA reached R$ 3,584 million, the adjusted Net Debt / adjusted EBITDA at the end of 4Q15 reached 3,41x.

 

5.4) Ratings

In February 2016, Standard&Poor’s Ratings Agency downgraded again the Brazilian sovereign rating and outlook, impacting CPFL Energia and its subsidiaries. The automatic downgrade changed CPFL Energia rating for brAA- and maintained the negative outlook.

In March 2016, the Fitch’s Rating Agency changed CPFL Energia outlook perspective from stable to negative perspective and maintained the rating AA (bra).

Nevertheless, CPFL Energia has kept a solid cash balance, reduction in its leverage in covenant criteria and good debt profile.

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

 

 

6)  INVESTMENTS

6.1)  Capital Expenditures

 

 

 

Notes:

1) The R$ 12 million difference in the year of 2015 between the numbers reported by CPFL Renováveis's Earnings Release is accounted in the line “Non-  cash transactions and other information” from CPFL Renováveis ITR (Note 30);

2) Others – all type of investment that is not included on the segments listed above.

 

 

In 4Q15, R$ 496 million were invested in business maintenance and expansion, 61.1% higher than 4Q14. CPFL Energia’s investments totaled R$ 1.4 billion in 2015, which represents an increase of 34.5% YoY. In addition, we invested R$ 7 million in the quarter (R$ 37 million in 2015) in the construction of CPFL Transmissão’s transmission lines and, according to the requirements of IFRIC 12, it was recorded as “Financial Asset of Concession” in non-current assets. CPFL Energia also booked R$ 81 million in Special Obligations in the quarter (R$ 255 million in 2015) among other items financed by the consumer.

 

Listed below are some of the main investments made by CPFL Energia in 4Q15, in each segment:

 

         (i)   DisCos:

 

a.    Strengthening and expansion the electric system;

b.    Electricity system maintenance and improvements;

c.    Operational infrastructure;

d.    Upgrade of management and operational support systems;

e.    Customer help services;

f.     Research and development programs.

 

        (ii)   GenCos:

a.    Campo dos Ventos II Wind Complex;

b.    São Benedito Wind Complex;

c.    Pedra Cheirosa Wind Complex;

d.    Mata Velha SHPP.

 

6.2)  Projected Capital Expenditures

In December 2015, the Board of Executive Officers' proposal for the 2016 Annual Budget and the 2017/2020 Multiannual Plan for CPFL Energia and its subsidiaries, which was previously discussed by the Budget and Corporate Finance Commission.

 

 

 

 

 

 

Notes:

(i) Constant currency;

(ii) Disregard investments in Special Obligations on Distribution segment (among other items financed by consumers);

(iii) IFRS – Considers 100% on CPFL Renováveis and Ceran; Pro forma – Considers proportional stakes in the generation projects.

 

 

7) ALLOCATION OF RESULTS

The Company’s Bylaws require the distribution annually of at least 25% of net income adjusted according to law, as dividends to its shareholders.  The proposal for allocation of net income from the fiscal year is shown below:

 

 

Minimum Mandatory Dividend (25%)

The Board of Directors propose the payment of R$ 205 million in dividends to holders of common shares traded on the BM&FBovespa – Bolsa de Valores, Mercadorias e Futuros S.A. (BM&FBOVESPA). This proposed amount corresponds to R$ 0.206868475 per share, related to the year 2015.

 

 

Statutory Reserve – Strengthening of Working Capital

For this fiscal year, considering the current adverse economic scenario and the uncertainties regarding market projections for distributors due to energy efficiency campaigns and extraordinary tariff increases occurred during the year 2015, the Company’s Management proposes the allocation of R$ 393 million to the statutory reserve – strengthening of working capital.

 

Stock Dividend for Shareholders

To strengthen the Company’s capital structure, the Board of Executive Officers meeting held on March 7, 2016, recommended that the Board of Directors propose to the Shareholders Meeting the capitalization of the balance of the statutory reserve – strengthening of working capital, through the issue of new shares to shareholders. This proposal will be submitted for approval by the Extraordinary Shareholders Meeting called for April 29, 2016.

 

8) STOCK MARKETS

8.1) Stock Performance

CPFL Energia, which has a current free float of 31.9% (up to December 31, 2015), is listed on both the BM&FBOVESPA (Novo Mercado) and the NYSE (ADR Level III), segments with the highest levels of corporate governance

 

 

On December 31, the shares price closed at R$ 15.18 on BM&FBovespa and $ 7.42 on NYSE. In 4Q15, the shares’ prices valued 2.1% and devalued -1.1%, respectively. Year over year, the shares devalued 15.3% on BM&FBovespa and 45.3% on NYSE.

 

8.2) Daily Average Volume

The daily trading volume in 4Q15 averaged R$ 33.2 million, of which R$ 22.1 million on the BM&FBOVESPA and R$ 11.1 million on the NYSE, 6.1% down compared to 4Q14. The number of trades on the BM&FBOVESPA increased by 11.6%, rising from a daily average of 6,110, in 4Q14, to 6,820 in 4Q15.

 

 

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

 

 

 

9) CORPORATE GOVERNANCE

The corporate governance model adopted by CPFL Energia ("CPFL" or "Company") and its subsidiaries is based on the principles of transparency, fairness, accountability and corporate responsibility.

In 2015, CPFL marked 11 years since being listed on the BM&FBovespa and the New York Stock Exchange (“NYSE”).  With more than 100 years of history in Brazil, the Company’s shares are listed on the Novo Mercado Special Listing Segment of the BM&FBovespa with Level III ADRs, a special segment for companies that comply with corporate governance best practices.  All CPFL shares are common shares, entitling all shareholders the right to vote with 100% Tag Along rights guaranteed in case of sale of shareholding control.

CPFL’s Management is composed of the Board of Directors (Board), its decision-making authority, and the Board of Executive Officers, its executive body.  The Board is responsible for defining the strategic business direction of the holding company and subsidiaries, and is composed of 7 external members, one of whom an Independent Member, whose term of office is 1 year and who are eligible for reelection.

The Bylaws of the Board establishes the procedures for evaluating the directors, under the leadership of the Chairman, their main duties and rights.

The Board set up three advisory committees (Risk Management Processes, People Management and Related Parties), which support the Board in its decisions and monitor relevant and strategic themes, such as people and risk management, sustainability and the surveillance of internal audits, analysis of transactions with Parties Related to controlling shareholders and handling of incidents recorded through complaint hotlines and ethical conduct channels.

To ensure that best practices permeate all activities of the Board and its relations with the Company while the Board members are focused on their decision-making functions, in 2006 the Company created the Board of Directors Advisory Council, which reports directly and solely to the Chairman of the Board. In 2015, the name was changed from Board of Directors Advisory Council to Corporate Governance Advisory Council.

This Advisory Council acts as the guardian of best practices to ensure compliance with Governance Guidelines; speed of communication between the Company and its Board members; quality and timeliness of information; integration and evaluation of members of the Board of Directors and the Audit Board; constant improvement of governance processes and institutional relations with government authorities and entities.

The composition of Executive board, in line with governance guidelines, was changed on May 2015.  The change in Company’s Bylaws, which were approved at the General Shareholders Meeting held on April 29, 2015, created a new vice President position subordinated to the CEO, who passes 5 (five) to 6 (six) Executive vice Presidents, standing in line with our succession program. The mandates of the Executive vice Presidents endures two years, with a re election possibility, besides they sit on the Boards of the subsidiaries. Therefore, the changes in CPFL Energia aims to create the bases required to consolidate as the leader of Brazilian power Market, always seeking the efficient management of its assets and sustainable opportunities to create value for its stakeholders.

CPFL has a permanent Audit Board, made up of 5 members, that also exercises the duties of the Audit Committee, in line with Sarbanes-Oxley law (SOX) rulings applicable to foreign companies listed on U.S. stock exchanges.

 

The guidelines and documents on corporate governance are available at the Investor Relations website http://www.cpfl.com.br/ri.

 

10) CURRENT SHAREHOLDERS STRUCTURE – 12/31/2015

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

 

 

Notes:

1) Controlling shareholders;

2) Includes the 0,5% stake of Caixa de Previdência dos Funcionários do Banco do Brasil;

3) Includes the 0.2% stake of Petros pension fund;

4) Bounded shares, according to the Shareholders Agreement;

5) 51.54% stake of the availability of power and energy of Serra da Mesa HPP, regarding the Power Purchase Agreement between CPFL Geração and Furnas.

 

 

 

11) PERFORMANCE OF THE BUSINESS SEGMENTS

11.1) Distribution Segment

11.1.1) Economic-Financial Performance

 

 

Notes:

(1)     Excludes Construction Revenue;

(2)     EBITDA (IFRS) is calculated from the sum of net income, taxes, financial result and depreciation/amortization, as CVM Instruction no. 527/12;

(3)     Adjusted EBITDA considers, besides the items mentioned above, the sectoral financial assets and liabilities (previously called regulatory assets and liabilities) and excludes the non-recurring effects;

(4)     Adjusted Net Income considers the sectoral financial assets and liabilities (previously called regulatory assets and liabilities) and excludes the non-recurring effects;

(5)     The distributors’ financial performance tables are attached to this report in item 13.12.

 

11.1.1.1) Sectoral Financial Assets and Liabilities

On November 25, 2014, through Dispatch no. 4,621, Aneel approved the amendment to concession agreements of distribution companies, in order to include a specific clause guaranteeing that the balance remaining of any insufficient payment or reimbursement of tariff due to termination of the concession, for any reason, will be indemnified.

After this change, the Brazilian Securities and Exchange Commission (CVM) approved, in December 2014, through Deliberation no. 732, the recognition of assets and liabilities that were previously called “regulatory assets and liabilities” in the financial statements of the electric energy distributors, which are now called “sectoral financial assets and liabilities”.

In 4Q15, the total sectoral financial assets and liabilities was accounted in the amount of R$ 195 million (R$ 177 million net of PIS and COFINS), compared to the amount of R$ 911 million in 4Q14, a reduction of 78.6% (R$ 716 million). On December 31, 2015, the balance of these sectoral financial assets and liabilities was of R$ 1,954 million (R$ 1,682 million, excluding the amount related to the tariff flags not approved by Aneel and special obligations recorded as the methodology of the 4^th Cycle of Tariff Review), compared to a balance of R$ 2,302 million (R$ 1,907 million, excluding the amount related to the tariff flags not approved by Aneel) on September 30, 2015.

 

11.1.1.2) Operating Revenue

Excluding the revenue from building the infrastructure of the concession (which does not affect the results, because of the related cost, in the same amount), gross operating revenue (IFRS) amounted to 7,234 million in 4Q15, an increase of 35.1% (R$ 1,879 million), due to the following factors: