Companhia Paranaense de Energia (COPEL) (ELP)

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Companhia Paranaense de Energia (ELP)

Q4 2012 Earnings Call

March 27, 2013 2:00 pm ET

Executives

Lindolfo Zimmer - Chief Executive Officer, Member of the Executive Board, Secretary, Director and Member of Disclosure Committee

Luiz Eduardo da Veiga Sebastiani - Chief Financial and Investor Relations Officer, Member of Fiscal Council and Member of Audit Committee

Analysts

Lilyanna Yang - UBS Investment Bank, Research Division

Oswaldo Alcântara Telles Filho - Espirito Santo Investment Bank, Research Division

Presentation

Operator

Thank you for waiting. Welcome to COPEL's Conference Call for the Results of 2012. [Operator Instructions] .

Before proceeding, let me mention that forward-looking statements relative to COPEL's business, projections and operating and financial goals are based on the beliefs and assumptions of COPEL's management and on information currently available to the company. Forward-looking statements are not guarantees of success and involve risks, uncertainties and assumptions because as they relate to future events and therefore, it depends on the circumstances that may or may not occur in the future. Investors should understand the general economic conditions, the industry conditions and the other operating factors could also affect the future results of COPEL and could cause results to differ materially from those expressed in such forward-looking statements.

This conference call is attended by Mr. Lindolfo Zimmer, CEO of COPEL; and Luiz da Veiga Sebastiani, CFO and IRO. The presentation will be made by COPEL's management and maybe forward through the company's website at www.copel.com/ri.

We now turn the floor to Mr. Lindolfo Zimmer. Mr. Zimmer, you may go ahead.

Lindolfo Zimmer

Good afternoon to all and welcome to COPEL's 2012 results conference call. Before anything, I am delighted to introduce our new CFO and IRO, Mr. Luiz Eduardo Sebastiani. Call is given a twofold dimension: to continue and improve a close relationship with the COPEL market and to align the market view with the management view regarding our short, medium and long term. Mr. Sebastiani is an economist who graduated from the Federal University of Paraná and with the Masters degree in Economic Theory from the State University of Campinas. Among other previous positions, he was the Secretary of Finance for 6 years and was recently the Chief of Staff of the State Government of Paraná and Fiscal Advisor to the Paraná sanitation company, Sanepar, into Companhia Paranaense de Energia, COPEL.

I would also like to mention 2 other important changes in the company management. To take over the office for the Environment and Corporate Citizenship, we appointed Engr. Jonel Nazareno Iurk, who holds a Masters Degree in Social Science and a specialization in environmental engineering. Up until recently, he was a secretary for the Environment of Paraná. Soon, Engr. [indiscernible] will take over as Distribution Officer. He specialize in Energy Utilities Management having graduated from the Federal Technological University of Paraná, [indiscernible] has been with COPEL for many years and has served as COPEL's Distribution Officer previously. These changes are key for our management and will drive the improvements that we want to bring about.

Well then, 2012 was an intense year for the group in the electric sector, full of novelties. The approval of Law 12783/2013 which rules on the extension of concession conversion engaged a good deal of our attention. COPEL's management based on the rationale to maximize the net preference value of its cash flows, chose to accept the government agencies proposal to anticipate the extension of the transmission asset in agreement to 060/2001, given our strategy to work as a consolidating agent in the transmission business in Brazil and the resulting need to capture economies of scale and optimize the use of our teams of specialists in this area.

[indiscernible] January of this year, the Annual Permitted Revenue of the extended agreement will be BRL 116 million, down from BRL 305 million. Also as of January of this year, COPEL has been receiving in 30 monthly installments indemnification for transmission assets, which started operating after May of 2000. Indemnification amounts to BRL 894 million, restated by IPCA extended to consumer price index less 5.59% per annum. We will also receive an indemnification for assets which started operating until May of 2000 amounting to BRL 160 million.

In the same token, we resolved to reject the government agencies' proposal to extend the concession of the power plants of Parigot de Souza, Chopim I, Mourão and Rio dos Patos, which together comes to a little less than 6% of our installed capacity. The conditions for extension in this stage were clearly unfavorable to the company, which after a thorough analysis just to keep these assets only until the current contract expires. The current energy position SIN, Brazilian Interconnected System, have dropped and the SIN energy balance with resulting price increases in the short term, ended up proving that our decision was rightly made. Actually, this prolongs the drought and the pressure on the cash flows of our generation company and distribution company, basically explains our work results on a year-on-year comparison. With this prolonged drought, we expect that the Araucária TP to dispatch during the year of 2013, throughout the year.

In January, 8% of the energy was generated by [indiscernible] should positively reflecting the results after first half of 2013. So to readjust administrative prices, considering transport prices and generation from those assets which accepted contract extensions and the reduction of sectoral charges, COPEL Distribuicao was subjected to an extraordinary tariff review, which should determine an average 19.3% tariff reduction coming to effect as of January 24, 2013. This, however, will not affect our distribution company's capacity to generate cash. We'd also like to remind you that our distribution company went through the same tariff review cycle in June of 2012 and therefore, we expect no more surprises beyond this line of business in the coming years.

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