Corporate
Presentation

October 2013
São Paulo, 07 de março de 2012
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

2

Corporate Overview

The Electric...
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

3

Corporate Overview

The Electric...
Corporate overview – Highlights
• Largest private player in the Brazilian electricity sector
• Market cap of ≈ R$19 billio...
Corporate structure

Free Float

100%
100%

100%

100%

100%
99.95%
100%

GENERATION

100%

30.5%

15.1%

COMMERCIALIZATIO...
Corporate governance

World-Class Corporate Governance Practices
• Shares listed in differentiated segments:
• BM&FBovespa...
CPFL Energia enjoys long term concessions

2015

2027

2028

2032

2035

2036

CPFL Santa
Cruz

CPFL
Paulista

CPFL
Pirati...
CPFL Energia | Key financial figures – Sales
Total energy sales1 (GWh)
51,090

52,382

13,269

13,132

3.7%
52,852
446
12,...
CPFL Energia | Key financial figures – EBITDA and net
income
-0.8%

EBITDA (R$ million) | Adjusted1
4,625
3,320

4,586
EBI...
CPFL Energia | Key financial figures – Dividends
Dividend Yield 1 (LTM)

9.1% 8.7%

Declared dividends (R$ Mi)

9.6%

10.9...
CPFL Energia | EBITDA breakdown
CPFL Energia – LTM2Q13 Adj. EBITDA Breakdown¹ | R$ million
CPFL Energia - Consolidated1 | ...
Capex 2013 - 2017

R$ 2,325

Generation:
R$ 2,062 million2

R$ 1,923

Commercialization and Services:
R$ 667 million

R$ 1...
CPFL Energia | Indebtedness and leverage

Leverage1 | R$ billion

12.6

12.5

12.6

2.73x

2.89x

3.03x

3.42x

2011

2012...
CPFL Energia | Strong and robust liquidity

Debt amortization schedule1 (Jun-13) | R$ million
Cash coverage:
2.0x short-te...
CPFL Energia | Short term outlook

Growth and productivity

• Ramp-up at CPFL Renováveis
• 2H13: 278 MW still to be start...
CPFL Energia’s ambitions
Leadership among private companies in the electric sector,
with a diversified portfolio in differ...
TSR Performance
Total Shareholder Return

1

Jun-08 to Jul-13 | % p.a.

Dividends
Stock appreciation

-2.9

13.1

4.3
8.6
...
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

18

Corporate Overview

The Electri...
Distribution Segment

1º

Market share: 13%

CAGR 2008-12
3.7%

TUSD

+3.3%

Captive

• 7.3 million customers
• 569 munici...
Brazilian economy and market performance

2006

2007
2008
Real wage bill

2006

20

-2.7
0.7

0.4
3.9

2007
2008
2009
2010...
Distribution business

Footprint in the most developed regions of Brazil
Southeast:
CPFL Paulista, CPFL Piratininga, CPFL ...
Distribution: best-in-class operational efficiency
Avg. Length of Power Outages per Consumer per Year - DEC
2012 (hours)
1...
Pressure on tariffs
Average tariff1 (CPFL Piratininga) - [R$/MWh]2
-24%

Taxes
Sector
charges
Distribution
Transmission

G...
3rd tariff review cycle for discos | Methodology
3rd Tariff Review Cycle | Final Methodology | Nov, 11
Regulatory Asset Ba...
Cost-cutting initiatives

1

2

3

4

Zero-Base Budget

Tauron Program

Inefficiencies from
past budgets are not
carried o...
Distribution | Key financial figures
Sales in the Captive Market (TWh)

Net revenues1 – Adjusted2

+0,4%
CAGR = +1.8%

40....
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

27

Corporate Overview

The Electri...
Generation Segment
2º

Market share: 2.3%

•

Long Term Concessions

•

Latin America’s largest Portfolio in
Alternative E...
Conventional generation | 2,234 MW1 of installed capacity
CPFL Energia’s power plants – state-of-the-art environmental eff...
CPFL Renováveis | Corporate structure

100%

Free float

63.0%

58.8%

37.0%

24.6%

0.0%

16.6%

Pre-IPO
Post-IPO

Small ...
CPFL Renováveis | Installed capacity (MW)

Wind
SHPP – Small Hydro
Biomass

3,818

5,553

Under
development

Total
Portfol...
CPFL Renováveis | Track record

(MW)
CPFL Renováveis
(Aug-11)

(MWavg)

652

314

2Q12

25

8.2

Free market

-

2Q12

70
...
CPFL Renováveis | Portfolio under construction

(e)

(MW)

(MWavg)

3Q13

50.0

18.0

3Q13

30.0

15.0

BNDES funding (und...
CPFL Renováveis | High quality and diversified portfolio
Diversified and high quality portfolio, delivering superior perfo...
CPFL Renováveis | Unparalleled wind conditions
combined with top technology
Wind Features in Brazil are the Most Adequate ...
Conventional and Alternative Energy | Key financial figures
Net Revenues (R$ million) - Adjusted1

EBITDA (R$ million) - A...
World’s most attractive alternative energy market
Renewables in Brazil are expected to grow at a CAGR of 9.5%, from 16 GW ...
Stable and solid regulatory framework
Description
Environmental
& Streamlined
Implementation
Process






Access to Mu...
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

39

Corporate Overview

The Electri...
Competitive power supply| Regulated vs. free market
Main differences
No choice - distribution company

Free choice

Distri...
Competitive power supply
1º

Market share: 10%

• CPFL Brasil was awarded the winner
of Exame Magazine’s 2013 Best and
Lar...
Competitive power supply | Opportunities

Number of free clients in Brazil
# of competitive customers – larger than 3 MW

...
Services Segment | CPFL Serviços
• Foundation: 2006
• Core Business: offers a wide range of value-added
services, ranging ...
Services Segment | CPFL Total and CPFL Atende

• CPFL Total offers collection services with an
established authorized netw...
Competitive power supply and Services | Financials1

Net revenues

EBITDA
2,271

2,040

1,909
101

1,699

151

303
13

158...
Agenda

1
2

Distribution

3

Generation

4

Competitive Power Supply and Services

5

46

Corporate Overview

The Electri...
Energy sector in Brazil: business segments

Consumers
73.8 million consumers

Generation
• 124 GW of
installed capacity1
•...
Brazilian electricity matrix

Brazilian Energy Matrix
Brazil’s electricity matrix is predominantly renewable, with hydro i...
Mechanics of regulated auctions
Gencos
• New Energy: Initial supply 5 years after the auction
• Term of contract: 15-30 ye...
Overall storage conditions
Reservoir levels in the National Interconnected System (SIN) | % volume

1

Spot prices (PLD) |...
Decree #7,945 – liquidity injection in the sector in 2013

On a monthly basis, sector fund CDE
covers the following items:...
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Corporate Presentation CPFL Energia

  1. 1. Corporate Presentation October 2013 São Paulo, 07 de março de 2012
  2. 2. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 2 Corporate Overview The Electric Sector
  3. 3. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 3 Corporate Overview The Electric Sector
  4. 4. Corporate overview – Highlights • Largest private player in the Brazilian electricity sector • Market cap of ≈ R$19 billion1, listed on BM&FBovespa Novo Mercado and on NYSE (ADR Level III) • LTM2Q13 Adj. EBITDA2 of R$ 4.6 billion and Adj. Net Income2 of R$ 1.6 billion • Differentiated Dividend Policy: >50% of net income, semiannually. Payout ratio of ≈95% since IPO in 2004 • Presence concentrated in the most developed regions of Brazil • Leadership in Distribution through 8 subsidiaries • Leadership in Competitive Power Supply and a world-class provider of Value-Added Services • Leadership in Renewable Energy in Latin America • 2nd largest private Generator with an equivalent stake of 2,941 MW of installed capacity, more than 93% from renewable sources 4 1) On Sep, 26, 2013; 2) IFRS (+) proportional consolidation of minorities’ stakes at gencos (+) regulatory assets & liabilities (-) non-recurring items.
  5. 5. Corporate structure Free Float 100% 100% 100% 100% 100% 99.95% 100% GENERATION 100% 30.5% 15.1% COMMERCIALIZATION 100% 30.0% SERVICES DISTRIBUTION 24.4% 100% 5 25.01% 48.72% 1 51% 100% 100% 59.93% 5.94% Investco 100% 100% 100% Nect Serviços RENEWABLES 100% 65% 52.75% 100% 100% 100% 58.8%2 1) Termoparaíba and Termonordeste thermal power facilities; 2) CPFL Energia has a 58.8% indirect interest in CPFL Renováveis through CPFL Geração.
  6. 6. Corporate governance World-Class Corporate Governance Practices • Shares listed in differentiated segments: • BM&FBovespa Novo Mercado • NYSE (ADR Level III) • Compliant with the Sarbanes-Oxley Act • Board of Directors composed by 7 members: • 1 Independent Member • Advised by 3 Committees • Self-Assessment for Board of Directors and Fiscal Council • Enforcement of policies for disclosure of information and for prevention of insider trading by employees • Dividend Policy: • Minimum of 50% of net income, semi-annually 6
  7. 7. CPFL Energia enjoys long term concessions 2015 2027 2028 2032 2035 2036 CPFL Santa Cruz CPFL Paulista CPFL Piratininga HPP Luis Eduardo Magalhães HPP Campos Novos HPP Foz do Chapecó CPFL Jaguari RGE HPP Serra da Mesa1 CPFL Sul Paulista CPFL Leste Paulista … ~3% CPFL Energia's EBITDA 19 SHPPs (CPFL Renováveis) HPP Castro Alves HPP Monte Claro 1 TPP (Carioba) CPFL Mococa HPP Barra Grande HPP 14 de Julho SHPP Rio do Peixe (I/II) SHPP Macaco Branco 7 <1% CPFL Energia's installed capacity CPFL Energia requested Aneel to renew the expiring concessions Distribution Generation 1) Furnas has the concession for HPP Serra da Mesa. CPFL has the contractual right of 51.54% of the plant’s assured energy, according to the 30year leasing contract, maturing in 2028.
  8. 8. CPFL Energia | Key financial figures – Sales Total energy sales1 (GWh) 51,090 52,382 13,269 13,132 3.7% 52,852 446 12,489 57,128 59,299 2,167 3,046 14,278 15,446 CAGR 2009-12 37,821 39,250 39,917 40,683 40,807 2009 2010 2011 2012 3.8% LTM2Q13 CPFL Renováveis2 Commercialization + Conventional generation3 Net revenues (R$ million) – adjusted5 5.9% 13,420 10,566 10,962 Captive market4 14,206 11,476 CAGR 2009-12 7.0% 2009 8 8 2010 2011 2012 LTM2Q13 1) Disregarding CCEE and intercompany sales. 2) 100% - IFRS criteria. 3) Incl. provision adjustments of 46 GWh in 1H12 and equivalent stakes at Foz do Chapecó, Baesa, Enercan and Epasa. 4) Take into account changes in billing calendar for permissionaires in RGE in 2Q12. 5) Adjusted by generation proportionate consolidation (IFRS 11), regulatory assets & liabilities, non-recurring items and ex-construction revenues.
  9. 9. CPFL Energia | Key financial figures – EBITDA and net income -0.8% EBITDA (R$ million) | Adjusted1 4,625 3,320 4,586 EBITDA EBITDA Margin 3,770 2,762 30.3% 32.9% 34.5% 32.3% 11.7% 26.1% 2009 2010 2011 2012 Net Income (R$ million) | Adjusted1 LTM2Q13 -4.7% 1,676 1,544 1,560 14.6% 13.6% 12.5% 2011 2012 1,598 1,286 11.7% 2009 9 2010 CAGR 2009-12 Net Income Net Margin CAGR 2009-12 11.2% LTM2Q13 1) Adjusted by generation proportionate consolidation (IFRS 11), regulatory assets & liabilities and non-recurring items 9.2%
  10. 10. CPFL Energia | Key financial figures – Dividends Dividend Yield 1 (LTM) 9.1% 8.7% Declared dividends (R$ Mi) 9.6% 10.9% 9.7% 6.5% 3.7% 401 498 612 722 842 719 CPFL average price (R$/ORD)2 8.6% 7.6% 7.3% 7.6% 7.9% 6.9% 602 606 572 655 774 6.0% 7.1% 748 758 6.1% 4.6% 3.9% 640 486 456 363 140 2H04 1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 22.05 21.95 17.99 18.05 16.69 15.77 16.51 18.44 20.18 15.02 14.13 15.87 11.67 8.29 9.43 26.30 22.78 21.11 Since its IPO, CPFL Energia has distributed R$ 10.6 billion in dividends. Payout ratio has been close to 100%. 1H13 Dividends: R$ 363 million | 0.38/share 10 1) On a LTM basis; 2) Adjusted by reversal stock split and simultaneous split of shares on June 29, 2011 (not dividend adjusted).
  11. 11. CPFL Energia | EBITDA breakdown CPFL Energia – LTM2Q13 Adj. EBITDA Breakdown¹ | R$ million CPFL Energia - Consolidated1 | 4,633 Competitive Supply3 179 4% Generation 1,798 57% Distribution 2,657 39% Distribution Segment CPFL Santa Cruz CPFL Leste Paulista CPFL Jaguari CPFL Sul Paulista CPFL Mococa 4% 56% CPFL Paulista 27% RGE 12% CPFL Piratininga Generation Segment Conventional 1,180 66% 34% Alternative Energy 618 3rd Tariff Review Cycle CPFL Piratininga Oct-122 CPFL Santa Cruz CPFL Leste Paulista CPFL Jaguari Feb-132 CPFL Sul Paulista CPFL Mococa Apr-13 RGE 11 11 CPFL Paulista Jun-13 1) Adjusted by regulatory assets & liabilities and non-recurring items; does not consider the holding company; 2) 12 months retroactive effect; 3) Commercialization in the free market and Services
  12. 12. Capex 2013 - 2017 R$ 2,325 Generation: R$ 2,062 million2 R$ 1,923 Commercialization and Services: R$ 667 million R$ 1,367 1,231 1,321 R$ 1,706 R$ 1,389 12 2013 2014 2015 11 113 120 15 2012 actual (cash flow) 151 234 22 136 147 729 1,047 1,072 1,043 1,117 1,403 R$ 2,468 Distribution: R$ 5,981 million 1,265 Total: R$ 8,709 million1 2016 2017 1) Constant currency Dec-12. Take into account 100% interest in CPFL Renováveis and Ceran (IFRS); 2) Conventional + Alternative Energy
  13. 13. CPFL Energia | Indebtedness and leverage Leverage1 | R$ billion 12.6 12.5 12.6 2.73x 2.89x 3.03x 3.42x 2011 2012 1Q13 2Q13 3,665 4,377 4,111 3,676 10.0 Adjusted net debt1/ Adjusted EBITDA2 Adjusted EBITDA2 R$ million Gross debt cost3 | LTM Gross debt breakdown3 13 3.0% 2012 2011 4.9% 4.4% 4.3% Real 8.4% 8.0% CDI TJLP 1.7% 1.2% 1Q13 10.5%11.1% 9.4% 9.0% 2010 2006 2005 2004 9.9% 7.3% 7.1% 2008 7.9% 2007 9.4% Nominal 2009 13.9% 13.4% 13.4% 12.1% 2Q13 17.7% Prefixed (PSI) IGP 1) Financial covenants criterion: proportionate consolidation for all assets and adjusted by regulatory assets & liabilities; 2) LTM recurring EBITDA; 3) Financial debt (+) private pension fund (-) hedge (considering proportionate consolidation).
  14. 14. CPFL Energia | Strong and robust liquidity Debt amortization schedule1 (Jun-13) | R$ million Cash coverage: 2.0x short-term amortization (12M) Average tenor: 4.00 years Short-term1 (12M): 16.6% of total 5,420 3,856 3,278 2,721 2,403 2,121 2,413 1,484 Cash 14 Short-term 2014² 2015 2016 2017 2018 2019+ 1) Disregard financial charges (ST = R$ 295 million; LT = R$ 45 million), hedge (net positive effect of R$ 539 million) and MTM (R$ 86 million). 2) Amortization obligations as from July 01, 2014.
  15. 15. CPFL Energia | Short term outlook Growth and productivity • Ramp-up at CPFL Renováveis • 2H13: 278 MW still to be started up • Signals of recovery, favoring energy consumption – industrial segment: +2.7% in 2Q13 • Productivity gains: • Focus on cost reduction and optimization (Zero Based-Budget and Corporate Services Center) • Tauron Project (smart grid): higher productivity, lower costs • Optimization in the occupancy of buildings – sale of vacant assets 15 Optimization of capital structure • Liability management exercise: pre funding for the next 12m - longer terms and lower costs • Average tenor: 4.0 years (2Q13) vs. 3.2 years (4Q09) • Real cost of debt: 1.2% p.a. (2Q13) vs. 4.9% p.a. (4Q09) • Reaffirmation of ratings: brAA+ since 2Q08 (S&P) and 3Q10 (Fitch) • Liquidity policy (minimum cash vs. amortizations in the next 12-18 months) – 2Q13 cash coverage: 2.0x • Stable cash flow from operations (on avg. R$ 2.3 billion/year since 2010 | LTM2Q13: R$2.5 billion) • Optimal capital structure • Reduction in WACC • Maximization of shareholder return
  16. 16. CPFL Energia’s ambitions Leadership among private companies in the electric sector, with a diversified portfolio in different businesses related to Energy GENERATION • Operational Excellence, presenting the highest margins of the sector • Expansion of installed capacity in hydro and thermal with attractive returns DISTRIBUTION • Market leader, doubling the market share in Brazil • Operational excellence through innovation and new technologies (smart grid) • Leadership in renewable sources (> 4 GW by 2020) COMPETITIVE SUPPLY • Leadership in commercialization in the free market • Maximization of profitability, through a best-inclass set of solutions 16 16 SERVICES • Largest services company in the power sector • Strong growth of sales
  17. 17. TSR Performance Total Shareholder Return 1 Jun-08 to Jul-13 | % p.a. Dividends Stock appreciation -2.9 13.1 4.3 8.6 14.5% 5.5 4.9 25.6% 14.5% 3.6% 5.0% 7.4% -1.8% -1.4% -17.8 4.3 7.8% 7.1% -2.8% -2.8% -5.8 3.9% -9.7% -10.2% -27.0% -28.5% Genco 1 17 Genco 2 Integrated 1 Integrated 2 9.2% Disco 1 Disco 2 Integrated 3 1) Adjusted for inflation (IGP-M in Jul-13); 2) Weighted average by Companies’ Market Cap; Source: Economática Integrated 4 Average2 0.8%
  18. 18. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 18 Corporate Overview The Electric Sector
  19. 19. Distribution Segment 1º Market share: 13% CAGR 2008-12 3.7% TUSD +3.3% Captive • 7.3 million customers • 569 municipalities • Footprint: most developed regions • High potential in per capita consumption 2008 2009 2010 2011 2012 2008 2009 2010 2011 LTM2Q12 LTM2Q13 Industrial Residential 26% 44% 14% Others 16% Commercial 19 1) Excluding sales at CCEE; 2) Source: EPE. 2012 2013
  20. 20. Brazilian economy and market performance 2006 2007 2008 Real wage bill 2006 20 -2.7 0.7 0.4 3.9 2007 2008 2009 2010 2011 2012 Industrial production Industrial consumption • • • • • • • 8.5 6.8 6.7 6.6 6.0 10.9 5.9 5.2 9.1 2007 2008 Retail sales 2009 2010 2011 2012 Commercial consumption Other variables influencing energy consumption 10.5 9.3 -7.4 -6.7 3.1 2.9 6.0 6.1 2.8 3.3 Industrial production2 and CPFL’s industrial consumption3 | %YoY growth 2006 5.6 6.2 5.5 4.5 4.9 2009 2010 2011 2012 Residential consumption 9.7 7.7 Retail sales2 and CPFL’s commercial consumption3 | %YoY growth 6.6 6.9 7.3 5.2 3.9 6.0 6.1 6.8 5.9 6.9 5.9 4.5 Real wage bill1 and CPFL’s residential consumption | %YoY growth Population growth Migration Credit Household appliances Temperature Rainfalls Public investments 1) Source: IBGE/LCA. 2) Source: IBGE. 3) Take into account changes in billing calendar for free consumers.
  21. 21. Distribution business Footprint in the most developed regions of Brazil Southeast: CPFL Paulista, CPFL Piratininga, CPFL Santa Cruz, CPFL Leste Paulista, CPFL Jaguari, CPFL Sul Paulista, CPFL Mococa South: RGE Leadership in the distribution segment • • • • • Start Up 8 distribution companies; 13% of market share; 7.3 million customers; 569 municipalities; LTM2Q13 sales of 57,605 GWh | 04-12 CAGR of 3.7% Discos’ Acquisitions | Key dates 1 1 1912 21 21 1997-2001 2006 2007 1) Acquired by VBC (one of CPFL Paulista’s controlling shareholder at the time) and PSEG in 1997, during the privatization process, and incorporated by CPFL Energia in 2001 (67,03%). In 2006, CPFL Energia acquired the additional stake (32.67%).
  22. 22. Distribution: best-in-class operational efficiency Avg. Length of Power Outages per Consumer per Year - DEC 2012 (hours) 10.8 8.1 8.3 8.4 9.4 9.8 9.9 5.8 7.5 4.5 5.3 5.7 21.6 19.3 19.4 20.0 16.5 16.9 18.2 14.5 14.6 14.7 Avg. Frequency of Power Outages per Consumer per Year – FEC 2012 (# occurrences) 8.4 8.9 8.9 9.0 9.1 7.0 7.9 8.1 6.6 5.4 5.7 5.8 6.0 6.4 4.2 4.6 4.7 4.7 5.3 22 10.9 11.8 13.0
  23. 23. Pressure on tariffs Average tariff1 (CPFL Piratininga) - [R$/MWh]2 -24% Taxes Sector charges Distribution Transmission Generation R$/MWh (6%) (18%) (9%) (45%) 1st CRTP3 2003-2006 (14%) (22%) (7%) (13%) (8%) (15%) (4%) (44%) (53%) 3rd CRTP3 2011-2014 R$/MWh % -16% -22.1 -27% 20.0 88% -4.2 -18% -25.6 -38% -26.0 -39% -7.4 -24% -21.6 -69% -25.8 (22%) % -13.3 82 (22%) -16% -18.5 -11% 2012 Tariff after RTE4 The Distribution segment, intensive in O&M expenses, has gone through periodic tariff reviews to reduce costs and improve efficiency, while Generation and Transmission segments, capitalintensives, did not suffer the same regulation 23 1) Average of all classes and voltages; does not take into account financial components. 2) Constant figures in December/12. Amounts adjusted by IPCA | Source: CPFL Energia. 3) Periodic Tariff Review. 4) Extraordinary Tariff Review.
  24. 24. 3rd tariff review cycle for discos | Methodology 3rd Tariff Review Cycle | Final Methodology | Nov, 11 Regulatory Asset Base • Maintenance • WACC of 7.50% Regulatory WACC • Capital structure 55%/45% (D/E) • Adjustment of levered Beta: from 0.66 to 0.74 Operational Costs Irrecoverable Revenue • Maintenance of proposal of the 2nd phase, with improvements • Single productivity of 0.78% • Delinquency by consumer class and on sector charges with limits defined by ANEEL • XPd: central point of 1.11%, ex-ante calculation X Factor • Xq: companies that perform better have a greater benefit and lower fee. The opposite holds true for companies that have poorer quality performance, when compared with its track record. • Xq = 0 for changes in quality metrics (DEC and FEC ) between -5% and +5% • Xt limited to +/- 2% 24 24
  25. 25. Cost-cutting initiatives 1 2 3 4 Zero-Base Budget Tauron Program Inefficiencies from past budgets are not carried over to the next periods Introduction of the smart grid technology in the distribution network Redundancy Program Corporate Services Center Special retirement plan with 445 adherences ~R$50 million/year (2012-15) ~R$60 million/year ~R$25 million/year Implementation of a back-office services provider to increase operating productivity and efficiency Value Initiatives Corporate Level • Reduction of consulting services and “insourcing” of activities: reduction of ≈47% • Standardization of outsourced labor: reduction of ≈52% • Improved management of travel expenses: reduction of ≈18% • Consumption of paper and office supplies: reduction of ≈66% 25 Achievements1 Operational Level 2012 • Optimization of inspections (loss prevention), process review, and improvement in assertiveness: reduction of ≈17% Reduction of 7.2% or R$ 108 million Personnel: -R$ 17 million MSO: -R$ 91 million • Metering and delivery of bills online billing (email), changes in layout/type of paper, alignment of bank fees for all Discos: reduction of ≈11% 1H13 Reduction of 2.0% or R$ 10 million Personnel: -R$ 6 million MSO: -R$ 4 million 1) Excluding CPFL Renováveis (ramp-up), CPFL Serviços (revenue-related expenses) and non-recurring items. In real terms. Inflation index: IGP-M.
  26. 26. Distribution | Key financial figures Sales in the Captive Market (TWh) Net revenues1 – Adjusted2 +0,4% CAGR = +1.8% 40.8 40.7 40.6 2012 LTM2Q12 +13.6% CAGR = +6.8% 9,432 9,794 2010 10,763 2011 10,120 11,495 39.9 39.3 2010 2011 EBITDA – Adjusted2 CAGR = +8.7% 2,267 26 2011 +8.3% 2,678 2,351 2010 LTM2Q13 2012 2,453 2,657 LTM 2Q12 LTM 2Q13 2012 Net income – Adjusted2 CAGR = +3.4% 1,309 2010 1) Excludes construction revenue; 2) Adjusted by non-recurring items and regulatory assets & liabilities. +10.1% 1,399 1,250 1,235 2011 LTM 2Q12 LTM 2Q13 2012 1,376 LTM 2Q12 LTM 2Q13
  27. 27. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 27 Corporate Overview The Electric Sector
  28. 28. Generation Segment 2º Market share: 2.3% • Long Term Concessions • Latin America’s largest Portfolio in Alternative Energy 25% Renewable Sources: higher than 93% • Installed Capacity1 (MW) | Estimated growth CAGR 2000-16e = 21.5% a.a. Enercan Semesa Ceran Foz Chapecó Epasa Baldin Creation of CPFL Renováveis Baesa 657 660 747 751 931 - Greenfield 28 Brownfield 1) Considering 58.8% stake at CPFL Renováveis, since its creation. Privatization assets 1,047 1,047
  29. 29. Conventional generation | 2,234 MW1 of installed capacity CPFL Energia’s power plants – state-of-the-art environmental efficiency 1998 2005 2007 2007¹ 2008 2008 2010 2010-11 1,275.0 130.0 690.0 880.0 902.5 130.0 100.0 855.0 341.6 671.0 59.0 380.6 377.9 526.6 64.0 50.0 432.0 247.6 51.54% 65.00% 25.01% 48.72% 6.93% 65.00% 65.00% 51.00% 52.75% 657.1 84.5 172.5 428.7 62.5 84.5 65.0 436.1 180.2 345.8 38.4 95.2 184.1 36.5 41.6 32.5 220.3 130.6 1.784 1.4 95.0 32.9 630 5.0 5.0 80.0 - 0.7 92.9 7.3 26.7 1.4 26.0 20.0 10.7 - 2028 29 2004 2036 2036 2035 2032 2036 2036 2036 2042 1) Equivalent stake, including 38MW of small plants at CPFL Geração and 24MW of SHPP embedded in the distribution companies.
  30. 30. CPFL Renováveis | Corporate structure 100% Free float 63.0% 58.8% 37.0% 24.6% 0.0% 16.6% Pre-IPO Post-IPO Small Hydro 30 Biomass Wind Solar
  31. 31. CPFL Renováveis | Installed capacity (MW) Wind SHPP – Small Hydro Biomass 3,818 5,553 Under development Total Portfolio Possible Probable Highly Confident 100% with PPA 1,735 1,203 Operating (Sep-13) Small Hydro Under construction End of 2016 Biomass Wind Total • 35 operating: 327MW • 7 operating: 320MW • 15 operating: 556MW • 58 operating: 1,203MW1 • Under construction: - • 1 under construction: 50MW • 18 under construction: 482MW • 19 under construction: 532MW • Under development: 626MW • Under development: - • Under development: 3,192MW • Under development: 3,818MW Total: 4,230MW Total: 5,553MW1 Total: 953MW 31 Total: 370MW 1) Including Tanquinho solar power plant – 1MWp of installed capacity
  32. 32. CPFL Renováveis | Track record (MW) CPFL Renováveis (Aug-11) (MWavg) 652 314 2Q12 25 8.2 Free market - 2Q12 70 24.4 LER auction (R$158.81/MWh) Estimated revenue: R$ 20 million/year 2Q12 158 63 Proinfa PPA (R$ 310.51/MWh) Acquisition price: R$ 1,062 million 3Q12 188 76 LER auction (R$ 175.51/MWh) Estimated Revenue: R$ 115 million/year 4Q12 40 11 Alternative sources auction (64%) and free market (36%) Acquisition price: R$ 111.5 million 4Q12 1 1 Free market - 4Q12 20 11 Alternative sources auction (R$166.41/MWh) Estimated Revenue: R$ 112 million/year 3Q13 50 18 Free market - 1,203 526 Current portfolio (Sep-13) 32 1) Constant currency (Dec-12)
  33. 33. CPFL Renováveis | Portfolio under construction (e) (MW) (MWavg) 3Q13 50.0 18.0 3Q13 30.0 15.0 BNDES funding (under review) COMMERCIAL BANKS (bridge loan approved and disbursed) Reserve auction (Aug/10) R$ 142,53/MWh 52.7 BNDES funding (bridge loan approved and disbursed, long-term funding under review) COMMERCIAL BANKS (bridge loan approved and disbursed) Alternative sources auction (Aug/10) R$ 154,83/MWh 3Q13 120.0 4Q13 82.0 40.2 3Q16 33 37.5 1Q16 Projects under construction 78.2 172.0 89.0 532.2 (e) BNDES funding (approved and partially disbursed) BNDES funding Free market Alternative sources auction (Aug/10) R$ 152,63/MWh 252.4 (bridge loan contracted and disbursed, long-term funding under review) BNDES funding (structuring) BNDES funding (structuring) Free market Free market 1) Macacos, Pedra Preta, Costa Branca e Juremas; 2) Atlântica I, II, IV e V; 3) Constant currency (Dec/12); 4) Campo dos Ventos I, III, V; 5) Ventos de São Benedito, Ventos de Santo Dimas, Santa Mônica, Santa Úrsula São Domingos and Ventos de São Martinho
  34. 34. CPFL Renováveis | High quality and diversified portfolio Diversified and high quality portfolio, delivering superior performance, mitigating risks, ensuring reliable load factors and providing capacity to grow with different sources High Quality Development, Construction and Operation • • • • • Biomass Solar 21% Selective high quality project development Wind projects certified by industry leaders Backed by high quality equipment suppliers Long term O&M contracts Energy generation monitoring and optimization Wind Portfolio Attractive location due to high wind speeds Installed Capacity1 0% 19% SHPP 60% Wind Total: 1,735 MW CPFL Renováveis benefits from the complementarity of sources • Biomass Portfolio Proximity to sugarcane production centers Reservoir storage at high levels in the first semester while wind energy generation is concentrated in the second semester of the year Region NE Reservoir Storage (%) 34 34 Feb Mar Apr May Jun Jul Wind (Generation - MWavg) 1) To be fully operational by 2016 Aug Sep Oct Nov Dec Reservoir Storage 506 SO Wind Generation MW Jan 958 CW/SE Complementarity of Sources Mitigating Risks MW 271 Operating: Hydro Wind Biomass Solar SHPP Portfolio Exposure to abundant hydro resources Under Construction: Hydro Wind SHPP Potential (Southeast and Midwest Regions) Biomass Wind Potential (Northeast and South Regions)
  35. 35. CPFL Renováveis | Unparalleled wind conditions combined with top technology Wind Features in Brazil are the Most Adequate for Power Generation | The average wind in Brazil (Northeast) has a similar intensity with less variability Brazil (NE) Area 89% Frequency United States Frequency Frequency Europe Area 95% Ideal Wind Speed Wind Speed (m/s) Ideal Wind Speed Area 99% Wind Speed (m/s) Ideal Wind Speed Wind Speed (m/s) Technology Has Shown Great Improvements in Recent Years | Recently developed technology for wind power plants allows greater load factors Europe and EUA 180 Brazil 100m 3.000kW 160 140 Altura (m) 120 Rotor Diameter (m) Rating (kW) 80m 1.800kW Greater efficiency 70m 1.500kW 100 50m 750kW 80 30m 300kW 60 40 17m 75kW 20 0 1980 1990 35 1990 1995 1995 2000 2000 2005 2000 2005 2010 Improved availability Reduced generation losses
  36. 36. Conventional and Alternative Energy | Key financial figures Net Revenues (R$ million) - Adjusted1 EBITDA (R$ million) - Adjusted1 2,634 2,350 CAGR = +43.7% 1,798 1,672 1,397 1,842 1,520 1,181 1,121 2010 +28.7% +43.0% CAGR = +44.8% 810 2011 2012 LTM2Q12 LTM2Q13 Net Income (R$ million) - Adjusted1 2010 2011 2012 LTM2Q12 LTM2Q13 EBITDA Margin - Adjusted1 -56.3% 819 778 384 262 2010 36 2011 2012 358 LTM2Q12 LTM2Q13 1) Adjusted by proportional consolidation and non-recurring items. 2010 2011 2012 LTM2Q12 LTM2Q13
  37. 37. World’s most attractive alternative energy market Renewables in Brazil are expected to grow at a CAGR of 9.5%, from 16 GW in 2012 to 36 GW in 2021 and still a highly fragmented market Unrealized Potential to be Explored in Brazil Potential Realized Wind  Potential: 143GW  Installed capacity: 2.0GW 1% SHPP  Potential: 17.5GW  Installed capacity: 5.0GW 29% Biomass  Potential: 17.2GW  Installed capacity: 8.9GW Highly Fragmented Market | Renewables Market Share in Brazil based on contracted energy (22GW) 8% Renova 5% 52% Energimp 4% QGER 4% Evolution of Brazilian Installed Capacity by Source | GWh 4.6% p.a. 182 Brookfield 3% Cosan2 3% CAGR 36 122 16 10 10 Renewables 9.5% 16 Other 5.1% 13 Natural Gas Eletrosul 3% Elecnor 2% Bioenergy 2% 2.7% Hydro Others 66% 3.6% 117 85 2012A 37 2021E Source: ANEEL, PDE 2021 and Company; 1) Projected to 2020; 2) Considers the export of 2/3 of energy produced by the Company;
  38. 38. Stable and solid regulatory framework Description Environmental & Streamlined Implementation Process    Access to Multiple Sales Channels    Dedicated Sovereign Funding Conditions Discounts on Transmission Charges   Discount of at least 50% (TUST and TUSD)             38 Regulated energy auctions and the free market Long term inflation protected/linked PPA (average 20-30 years) Special niche in the free market for “special client” (demand between 0.5-3.0MW) Current special free market of 2.7% (1.6GW) to potential of 9.6% (5.8GW) BNDES Financing Low Cost – average interest rate of 7.0% Long-term funding of 16 years Attractive capital structure   Favorable Tax Regime and Fiscal Incentives Faster and simpler environmental process Faster construction cycle Sustainability “Lucro Presumido” with reduction in the effective tax rate to 5% - 15% from 34% REIDI (special program of incentives for infrastructure development) - exemption of PIS/COFINS, Exemption of ICMS (movement tax) and IPI (production tax) Source: Company ; 1) Tax on revenues    Natural consequence of projects with lower environmental impact Annual auctions to match growth in energy consumption Price of energy at the captive market structurally higher than at the free market given regulatory charges Not a sector specific benefit BNDES has been providing support for the sector for many years Policies in place since 1996 Not a direct government expenditure/tax break Not applicable for regulated auctions Tax regime for small enterprises (annual revenues below R$78 mm), which is not sector specific REIDI is applicable for all infrastructure projects ICMS/IPI1: discussions on expanding tax incentives to SHPPs
  39. 39. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 39 Corporate Overview The Electric Sector
  40. 40. Competitive power supply| Regulated vs. free market Main differences No choice - distribution company Free choice Distribution company Distribution company Regulated by ANEEL Free negotiation Advantages Regulated Market  Lower prices 73%  Free choice from energy supplier 27%  Better predictability of energy expenses  Customization according to consumer seasonality Free Market1 Who can join after July, 1995 Free Special 40 > 3,000 kW 500-3,000 kW units totaling 500 kW 1) Source: EPE. 12 months ended in Aug-13. before July, 1995 - any any > 69 kV any < 69 kV incentivized Group A Group A incentivized incentivized
  41. 41. Competitive power supply 1º Market share: 10% • CPFL Brasil was awarded the winner of Exame Magazine’s 2013 Best and Largest Companies (category Energy) Sector Leader • 280 free consumers • The Company was selected among gencos, discos, transcos and other players in the electric sector throughout Brazil 2010 | 2011 | 2013 • Nationwide outreach • Value-added product portfolio • Synergy with CPFL Renováveis Portfolio (Free Consumers) 210 179 Outside the concession area Inside the concession area CAGR = 30% 280 231 70 52 Free Market in Brazil 41 Number of Consumers (#) | CPFL Brasil 129 80 Current: 11.5 GW avg Potential: +4.8 GW avg 2009 2010 2011 74 2008 141 2012 2Q13
  42. 42. Competitive power supply | Opportunities Number of free clients in Brazil # of competitive customers – larger than 3 MW # of special customers – from 0.5 to 3 MW 441 465 491 1,123 CAGR=55.5% CAGR=8.6% 558 796 613 495 192 221 Jun/09 Jun/10 Jun/11 Jun/12 Jun/13 Jun/09 Jun/10 Jun/11 Jun/12 Jun/13 Current: 9.6 GWavg Potential: +0.7 GWavg Current: 1.9 GWavg Potential: +4.1 GWavg Competitive advantages of CPFL: market leadership, expertise and synergies with CPFL Renováveis 42 Source: ANEEL and CCEE
  43. 43. Services Segment | CPFL Serviços • Foundation: 2006 • Core Business: offers a wide range of value-added services, ranging from engineering projects to maintenance and recovery of equipment. These services are designed to help consumers improve the efficiency, cost and reliability of their electric equipment • Type of services: construction of transmission and distribution networks; maintenance and recovery of equipment; selfgeneration networks (cogeneration, energy-efficiency projects and distributed generation arrays – solar energy) Transmission networks 43 Self-generation networks Distribution networks Recovery of equipment
  44. 44. Services Segment | CPFL Total and CPFL Atende • CPFL Total offers collection services with an established authorized network; capacity to collect utility bills, such as water, energy, telephone, and cable TV. • Capability of cross-sale with other service providers, enabling the collection via energy bills. 44 • Foundation: 2008 • Core Business: provider of contact center and customer relationship services to other utility companies • Services: face-to-face attendance, backoffice, credit recovery, toll-free customer support, ombudsman, service desk and sales
  45. 45. Competitive power supply and Services | Financials1 Net revenues EBITDA 2,271 2,040 1,909 101 1,699 151 303 13 158 278 Net income 293 201 35 7 26 164 132 11 176 1,808 1,882 2,120 124 19 290 1,567 252 22 194 258 84 157 2010 2011 2012 LTM2Q13 2010 2011 2012 Commercialization 45 1) Pro forma 8 153 LTM2Q13 Services 102 2010 2011 2012 76 LTM2Q13
  46. 46. Agenda 1 2 Distribution 3 Generation 4 Competitive Power Supply and Services 5 46 Corporate Overview The Electric Sector
  47. 47. Energy sector in Brazil: business segments Consumers 73.8 million consumers Generation • 124 GW of installed capacity1 • 79.3% Renewable energy1 • Eletrobrás: ~33% of total assets Transmission • 68 Companies • 63 Companies • 107,400 km of transmission lines • 458 TWh of billed energy3 • Eletrobrás: ~55% of total assets • Top 5: ~50% of the market Competitive Power Supply 47 Distribution 1) Source: ANEEL - 2Q13; 2) Source: EPE - 12 months ended in Aug-13 Captive Market Free Market
  48. 48. Brazilian electricity matrix Brazilian Energy Matrix Brazil’s electricity matrix is predominantly renewable, with hydro installed capacity totaling 70% of the total supply, while biomass, wind and SHPPs account for 13%. In the next years, it is expected that other sources will grow, mainly wind, reaching 9% of total installed capacity in 2021. Evolution of Installed Capacity (GW) 2012-20211 2012 2021 122 GW 48 2016 151 GW 182 GW 1) Source: EPE - National Energy Balance 2013 and 10-year Energy Plan 2012-2021; 2) Others: considers coal, oil, diesel and process gas.
  49. 49. Mechanics of regulated auctions Gencos • New Energy: Initial supply 5 years after the auction • Term of contract: 15-30 years • Objective: Cover discos market growth and finance new generation • Energy contract limit: no limit A-5 Auction • • • • A-3 Auction A-1 Auction 2013 • • • • “New” Energy: Initial supply 3 years after the auction Term of contract: 15-30 years Objective: Adjust discos’ contracted energy levels Energy contract limit: 2% of the load “Old” or Existing Energy: Initial supply in the following year Term of contract: 1-15 years Objective: Replace old contracts, maintaining the discos’ contracting level Energy contract limit: 96% to 100% of the Replacement Amount (MR) 2014 2015 2016 2017 2018 Reserve Energy Auction - LER: Discos are not required to declare contracting needs and generation costs are covered through sector charges Discos Discos must purchase electric energy to supply their captive market, five years in advance, in public auctions (Regulated Market – ACR) 49
  50. 50. Overall storage conditions Reservoir levels in the National Interconnected System (SIN) | % volume 1 Spot prices (PLD) | R$/MWh Better hydrological conditions favored a reduction in spot prices (PLD), as many of the expensive thermal plants were shut down from June to August. As of September, the new ONS model was implemented, incorporating the thermal dispatch in the spot price formation. Therefore, spot prices remain at a higher level. 50 1) Until September 27, 2013.
  51. 51. Decree #7,945 – liquidity injection in the sector in 2013 On a monthly basis, sector fund CDE covers the following items: 1 Effects of PM 579 Thermal dispatch Disco’s involuntary exposure to spot market Quotas of extended concessions were insufficient to fulfill discos’ contracting needs 2 Hydrology risk Assets, whose contracts were extended by PM579, now transfer the hydrologic risks to consumers Thermal dispatch out of merit order since Jan-13 increases Energy Service Charges (ESS) 3 At the each disco’s tariff readjustment, the CVA balance can be totally or partially advanced 1 Accounted as recovery of costs Energy purchases R$ 4.8 billion Sector charges R$ 3.6 billion Accumulated costs not covered by current tariffs (CVA) 51 4 Until Dec-12, all cost difference not covered by current level of tariffs were accumulated and set to be discharged in the next tariff readjustment. As tariff increases were capped at 3% in 2013, the difference is compensated by CDE funding Total (until Aug-13) R$ 8.4 billion2 1) RGE periodic tariff review: Jun-13 and CPFL Piratininga annual tariff adjustment: Oct-13. 2) Source: Aneel. CPFL Energia recorded R$ 823 million in 1H13 (R$ 495 million as energy purchases and R$ 328 million as sector charges).

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