1) Risks Related to the Company and its businesses
The Company does business under the federal concession regime.
As it is an operation under concession, the Licensing Power may change the energy production, allocation and commercialization rules. Those changes may bring a significant impact to CESP, damaging its results and cash flow.
The Company’s plant concessions have an established maturity term.
The Company holds concessions for exploration of electric energy generation services impacted by the amendment of the Provisional Presidential Decree no. 579, of September 11, 2012 (thereafter converted into Law no. 12.783, of 01/14/2013).By means of this Provisional Presidential Decree, the Federal Government, in the capacity of Licensing Power, offered CESP with the advancement of the renewal of the concessions of Ilha Solteira and Jupiá plants, expiring in 2015, to January 2013, provided that the conditions for commercialization of energy from those plants are accepted. Additionally, the same treatment was extended to Três Irmãos Plant, which maturity date of the first concession period has taken place in November 2011.
CESP’s shareholders, gathered in a meeting held on December 03, 2012, decided not to renew the concessions as offered by the Provisional Presidential Decree. Upon making this decision, CESP will continue to operate Ilha Solteira and Jupiá Plants until the end of the concession term, which will take place in July 2015.
On April 17, 2013, the Ministry of Mines and Energy – MME assigned, by means of the Ordinance No. 125, the Company as the responsible for providing the energy generation services of Três Irmãos Hydroelectric Power Plant until the assumption of winning bidder of public auction held on October 10, 2014, when TIJOÁ Participações took control over concession of HPP Três Irmãos.
Porto Primavera (maturity date of the concession in May 2028), Paraibuna (March 2021) and Jaguari (May 2020) Plants were not comprised by the Provisional will continue on being normally operated by CESP.
The plants have the following features and concession terms:
|Power Plants||In Operation Since||Generating Units||Installed Capacity (MW)||Physical Guarantee (Average MW)||End of Concession|
|Ilha Solteira* (PR)||1973||20||3,444.0||1,731.5||07/07/15|
|Porto Primavera (PR)||1999||14||1,540.0||1,017.0||05/21/28|
* In operation temporarily under Quotas Regime.
The Company, in the capacity of electric energy generation public utility concessionaire, is subject to ANEEL’s regulation and inspection.
ANEEL may impose penalties to the Company in case it fails to meet its obligations as a result of the concession or it breaches the legislation or sector standards. Depending on the seriousness of the default, the applicable penalties may range from warning to termination of the concession due to caducity. The imposition of fines or penalties to the Company or the termination of any of its concessions may affect its revenue, as well as its cash flow generation.
The Company is included in the State Destatization Program of the State of São Paulo.
The Company is included in the State Destatization Program of the State of São Paulo, instituted by State Law no. 9.361, of July 5, 1996.At this time, there is no official initiative in progress, by the Government of the State of São Paulo or any Company’s controlling shareholder to promote the disposition of representative shares of the Company’s controlling interest.
In case the Company changes its controlling interest, the new controlling shareholder shall be obliged to pay 100% of the unit value paid for the shares purchased in order to acquire the Company’s controlling interest to the PNB shareholders exercising such a right.PNA and ON shareholders shall have their treatment established in the legislation in force.
Additionally, the Company’s controlling interest alteration is an Event of Assessment provided in the item (d) of the Article 51, of the FIDC IV CESP Fund Regulation, which provides the opportunity for the General Shareholders’ Meeting to be convened.
Adverse judgments against the Company in judicial proceedings may have a significant negative effect on the Company.
The Company is involved in several judicial proceedings involving significant monetary claims, including, but not limited to, civil, environmental, tax, fiscal proceedings, public-interest civil actions, citizen suits, employment claims and condemnation proceedings. An adverse decision to the Company involving substantial monies in one or more of such proceedings may have a negative impact on its results and financial condition, as well as its future cash flow generation. Additional information on the progression of the judicial proceedings in which the Company is a party, as well as its probable conclusions and respective provisions, may be observed in items 4.3 to 4.6.
The Company has insurance agreements with coverage as determined by experts, taking into consideration the risk nature and degree, in order to cover occasional losses on its assets and/or liabilities, however, the insurance agreements may not be sufficient to fully cover the damages and liabilities which may be incurred in the regular course of its businesses, operating business and financial situation.
The Company sponsors retirement and pension benefit plans for its employees and former employees, and their respective beneficiaries, in order to supplement the benefits provided by the official social security system. CESP Foundation is the entity in charge of the management of the benefit plans sponsored by the Company.
The Company, by means of negotiations with the category representative unions, reformulated the plan in 1997, having as its main characteristics the mixed model, comprised of 70% of the actual shadow wage as defined benefit and up to 30% of the actual shadow wage as optional defined contribution. This reformulation was intended to set out the actuarial technical deficit and decrease the risk of future deficits.
In addition to the plan benefits, the Company provides its employees with other benefits, such as medical and dental assistance.
The plan costing to the defined benefit is jointly borne by the Company and the employees. The costing of the installed established as the defined contribution is jointly borne by the Company and the employees, based on the percentage freely chosen by the participant up to the limit of 2.5%, higher levels are only contributed by the participant. The costing fees are reassessed on a periodical basis by any independent actuary.
BSPS (Balanced Proportional Supplementary Benefit) is insured to the employees participating in the supplementation plan and adhering to the new implemented model, as from January 1, 1998, who were dissociated. This benefit insures the proportional value of the supplementation relating to the service period prior to the supplementation plan reformulation date. The benefit shall be paid as from the date in which the participant completes the minimum waiting periods provided in the new plan regulation.
Thus, any occasional actuarial deficit may have a negative impact on its results and financial condition, as well as its future cash flow generation.
b. Related to its controlling shareholder, either direct or indirect, or controlling group
The Company is controlled by the State of São Paulo, which has powers to determine the operating and strategic policies, control the election of most of the Board of Directors’ members and appoint the Company’s Board of Officers. On December 31, 2013, the State was the holder of 94.08% of the common shares issued by the Company.
The condition of a company controlled by the State of São Paulo may imply conflicts of interest between the Company’s institutional role, policies and guidelines of controller, and may eventually differ from investor interest.
Changes in the Government of the State of São Paulo or its governmental policy may entail changes in the Company’s Board of Officers, as well as its business strategies, and they may cause an impact on its results and financial condition, as well as its future cash flow generation.
c. Related to its shareholders
Volatility and lack of liquidity of the capital market may adversely affect the share sales.
The volatility and/or lack of liquidity of the Brazilian capital market, which is less liquid, more volatile and concentrated than the major international markets, have potential to jeopardize the sales capability of the investors at the intended price and time.
The Company’s shareholders may not receive dividends or interests over their own capital.
Depending on the future results, the Company’s shareholders may not receive dividends or interests over their own capital, in case it does not assess its profits. If the dividend or interest earning over own capital is incompatible with the Company’s financial situation, the dividends or interests over own capital may not be paid either.
In the future, the Company may increase its capital, by issuing securities, and it may result into the dilution of the investors’ interest in Company’s shares at that time.
As occurred in July 2006, where the Company raised funds in the amount of R$ 3.2 billion by issuing new shares, the issuance of new shares, as well as public or private placement of securities convertible into shares, either providing or not the preemptive right to its current shareholders, resulting into the dilution of the investors’ interest in the Company’s capital share.
d. Related to its controlled and affiliated companies
The Company had no Controlled or Affiliated Company by the date of publication of this Reference Form.
e. Related to its suppliers
The Company depends on third parties to supply machinery and equipment used at its facilities, as well as specific maintenance services, being subject to price variation, as well as delivery availability for such machinery, equipment and services. Due to the technical specifications of the equipment used at its facilities, the Company has few suppliers. In case any supplier discontinues the production or disrupts the sales of any of the equipment acquired by the Company, perhaps it is not possible to acquire such equipment from other suppliers, which may damage its operating activities.
f. Related to its customers
The Company has several types of customers as a counterpart in several types of energy supply agreements and, occasionally, any customer may not be able to meet its obligations with the Company.
The risk arises out of the possibility of the Company to incur losses resulting from the difficulty to receive amounts invoiced to its customers. The receivables may be classified into three groups, which have the following characteristics: (i) for receivables arising out of the sales of distribution concessionaires – concentrated number of customers, existence of agreement guarantees, they are energy distribution public utility concessionaires, subject to the intervention of the concession and since there is no track record for significant losses when realizing their receivables; (ii) for receivables arising out of the sales to end customers or commercializers – concentrated number and size of the company of their customers, prior credit analysis and existence of agreement guarantees of, at least, two months of billing; (iii) for receivables of operations settled at the Electric Energy Commercialization Chamber – CCEE, for the same type of customers as the aforementioned items.
In case there is any difficulty to receive the invoiced amounts, there may be a negative impact on the Company’s results, its financial condition, as well as future cash flow generation.
g. Related to the economic sectors in which the Company acts
The Company acts in the Brazilian market, being subject, therefore, to the effects of the economic policy of the Federal Government.
Brazilian Government’s measures to control the inflation and implement economic and monetary policies have been involving, in past few years, interest rate alterations, currency depreciation, exchange control, rate control, electricity consumption control, fiscal and tax policy alteration, among other. Such measures may impact the Company’s businesses, as well as its financial condition, its operating results and, accordingly, its revenue and future cash flow generation.
The impact of a possible electric energy shortage and/or rationing, as occurred in 2001 and 2002, may adversely affect the electric energy generation by the Company.
In June 2001, due to the electric energy shortage in the Brazilian market, which could get worse during the winter, due to the low rainfall, the Federal Government implemented a rationing program enduring up to February 2002, where the Federal Government decided to end the electric energy rationing. As the rationing ended, the electric energy consumption levels have increased, however, it took years for them to go back to the levels observed before the rationing. Additionally, the water level of the reservoirs may decrease again, obliging the Federal Government to take new actions to reduce the energy consumption, which may have a negative impact on Brazilian economy. If new measures to decrease the electric energy consumption shall be imposed to the sector, the operating results of the Company may be negatively affected.
h) Related to regulation of the economic sectors in which the Company acts
The Company acts in the Brazilian electric sector, restructured by the Federal Government. Changes may take place in the electric sector with impact to the companies subject to their rules, such as the Company.
On March 15, 2004, the Law of the New Electric Sector Model was enacted, promoting deep changes in the current electric sector structure, among which:
(i) the alteration of the rules on electric energy purchase and sales among energy generating companies and electric energy public utility concessionaires, permissionaires and authorized service providers;
(ii) new rules for generation enterprise bidding;
(iii) creation of the Electric Energy Commercialization Chamber – CCEE;
(iv) creation of new sector agencies; and
(v) alteration of the competences of the Ministry of Mines and Energy and ANEEL.
The Law of the New Electric Sector Model has its constitutionality defended before the Federal Supreme Court by means of ADINs (Direct Actions of Unconstitutionality).There is no decision on such matter yet. By the date of this Reference Form, it is not possible to predict the occasional adverse effects of the ADINs’ judgment, as well as the impact it might cause to the Company’s revenue and its future cash flow generation.
On September 11, 2012, the Provisional Presidential Decree 579 (converted into the Law no. 12.783, January 14, 2013) was edited, amending in a significant manner the concession renewal of the plants operated by CESP. The most immediate impact was regarding Três Irmãos Plant, which was returned to the Licensing Power in April 2013.
On April 17, 2013, the Ministry of Mines and Energy – MME published the Ordinance No. 125, making official the permanence of the Company as the responsible for providing the energy generation services of Três Irmãos Hydroelectric Power Plant until the bid-winning concessionaire takes it.
On March 28, 2014, the auction for definition of a new operator of Três Irmãos hydroelectric power plant has taken place. The contest object was only the power station; Pereira Barreto Channel and sluices remained out of the contest. Consórcio Novo Oriente, composed of an investment fund, and Furnas won the tender, with discount of R$ 0,87 in relation to the ceiling price established by National Agency of Electric Energy – ANEEL (R$ 31.623.036,87). However, on the same date, the Brazilian Federal Court of Accounts (Tribunal de Contas da União) –TCU – by means of Injunctive Relief, has suspended the auction result and has determined that ANEEL is not to contract the concession with contest winners while it analyses the impacts and implications of the operational division.
In April 9, 2014, in an assembly meeting, the Federal Court of Accounts – TCU kept the decision that suspended the signature of the contract regarding the auction of UHE Três Irmãos, until the entity judges the process.
In August 20, 2014, TCU authorized the signature of the concession contract as the government presented a proposal stating that the National Department of Transports Infrastructure – DNIT would take responsibility for operating the floodgate and waterway, according to contract to be signed.
In September 10, with interference of the Fundo de Investimentos em Participações Constantinopla and Furnas Centrais Elétricas S/A, TIJOÁ Participações e Investimentos S/A signed with the Ministry of Mines and Energy – MME, the concession contract for generation of electric energy at the Três Irmãos Hydroelectric Power Plant, with 30 days of assisted operation, starting October 10, 2014, for 30 years.
The facilities and the Company’s operations are subject to environmental regulations at the federal, state and municipal levels, which may become stricter in the future and may result in increased responsibility and increased capital spending.
Another important aspect is that the Company continues on operating at Três Irmãos Plant, in virtue of the injunctive relief obtained by the Federal Government. The Plant was bid on March 28, 2014 and the execution of the concession agreement with the bid-winning consortium is suspended by decision of the Federal Accounting Court, which is assessing the matter of Pereira Barreto floodgates and canal. The Company’s facilities and operations are subject to the environmental regulation, at Federal, State and Local levels, which may become stricter in the future, entailing the increase of responsibility and capital expenditure. The Company’s activities and facilities are subject to several Federal, State and Local laws and regulations, as well as several operating requirements related to the environment protection. Additional stricter laws and regulations may be approved and the application, as well as the interpretation of the effective legislation, may become even more severe. In addition, the environmental agencies may make additional requirements concerning the Company’s operation, obliging it to spend resources in investments related to environmental matters, thereby increasing the expenses and, accordingly, reducing the Company’s result. The penalties which might be imposed to the Company, in the environmental scope, may be remedial or compensatory, so it would not be possible to measure what the exact cost would be for the Company, in the event of notice of environmental violation. i. Related to the foreign countries where the issuer acts By the date of publication of this Reference Form, the company registered its activities in Brazil only, therefore, with no type of relevant risk relating to foreign countries. 2- Market risks The Company’s business comprises particularly the energy generation to be sold to large customers (free market) and electric energy distribution public utility concessionaires (regulated market).The main risk factors of the market affecting its businesses are as follows: a. Interest and Inflation Rate RiskThis risk arises out of the possibility of the Company to incur losses in virtue of interest and inflation rate fluctuations, increasing the financial expenses relating to loans and financings raised. The Company has no derivative agreements made to hedge against this risk; however, it continually monitors the interest rate of the market in order to assess the need for replacement of the debt modality. On December 31, 2013, the Company had R$ 2,483,716 thousand at variable interest rates and/or indexed to inflation rates, and R$ 63,521 thousand at fixed rates:
|Liabilities||Accounting Balance (R$ thousand)|
|Related to the rates:|
Sensitivity analysis of interest and inflation rate riskCESP considers that the risk to be under liabilities in agreements which, in addition to the fixed rate and spread, have costs with variable indexers (updated with post-fixed interest rates or inflation rates), is the increase of those indexes and consequent increase of financial expenses related to the liabilities, raised in national and foreign currency. The Company grouped the liabilities per contracted indexer and prepared the sensitivity analysis, in compliance with CVM Instruction no. 475/08 and, as suggested by CPC 40 and IFRS 7, by using in these liabilities the scenario disclosed in Focus (Bacen) report of 10/11/2013.In the liabilities in foreign currency, the conversion into Brazilian Reais was considered with the same closing parity as this statement, in order to reflect only the alterations of interest rate scenarios:
|CDI||Prediction||Rate Appreciation at (Rate % per year)|
The result of this analysis reflects the nominal sum of the increment in Brazilian Reais of the cash outflow, based on the total debt service short-term payable (January to December/2014), including the interest appropriation up to the date of each maturity date and by deducting the amount recorded on the current assessment date of those financial statements, as per the table as follows:
|Financial Liabilities||Risk (R$ thousand)||Probable Scenario||Possible Scenario||Remote Scenario|
|Related to the rates:|
|National Currency||CDI Variation||800||4.256||7.684|
|Foreign Currency||UMBNDES Variation||-||7.255||14.666|
The Company, as a result of the projected index variation, would have an increment of R$ 443 thousand in the cash outflow in the probable scenario, R$ 11,655 thousand in the possible scenario and R$ 23,010 thousand in comparison to the flow recorded in short term. Based on the equity position and notional value of the open financial instruments on 12/31/2013, the Company, by adopting variation scenarios, estimated that the effects on 12/31/2014 would be close to those indicated in the project scenario columns in the table as follows:
|Impact on the debit balance||R$ thousand||Projection for 12.31.2014|
|Financial Liabilities||Risk||Balance on 12.31.2013||Probable Scenario||Possible Scenario||Remote Scenario|
|FIXED RATE||No Risk||30,558||25,370||25,370||25,370|
|FIXED RATE||No Risk||32,963||3,063||3,063||3,063|
b. Exchange Rate RiskThe Company’s indebtedness and operating result are significantly affected by the market risk factor of the exchange rate (US Dollar).On December 31, 2013, the total balance of loan and financing account, including charges incurred up to this date, amounted to R$ 762,923 thousand (R$ 1,269,614 thousand, on 12/31/2012) referring to foreign currency fundraising, exclusively US Dollars:
|Liabilities||Accounting Balance (R$ thousand)|
|US Dollars Loan and Financing||762,923||1,269,614||1,316,420|
Sensitivity analysis of Exchange Rate RiskCESP considers that the risk of being under the liabilities in foreign currency is the increment of the US Dollar quote (PTAX) by the maturity date of each installment of the loan and financing agreements raised in foreign currency, impacting the financial expenses of the year. In compliance with the provision in CVM Instruction No. 475/08 and as suggested by CPC 40 and IFRS 7, for determination of the adverse variation effects in the exchange rates, the Company adopted the scenarios of minimum negative variations defined by the said instruction and equivalent to 25% and 50% on the respective exchange rates used when determining the probable, possible and remote scenarios:
|Currencies||Prediction||Rate Appreciation at|
|US Dollar: US$/R$||2.40||3.00||3.60|
The result of this analysis reflects the nominal sum of the increment in Brazilian Reais of the cash outflow, based on the total debt service short-term payable (January to December/2014), including the interest appropriation up to the date of each maturity date and by deducting the amount recorded in short term from the current financial statement, as per the table as follows:
|Financial Liabilities||Risk||Probable Scenario||Possible Scenario||Remote Scenario|
|Loans and Financings at US$||US$ Appreciation||4.470||51.195||97.920|
The Company would have, as a result of the projected exchange variation, an increment in the cash outflow from January to December/2014 of R$ 4,470 thousand in the probable scenario, R$ 51,195 thousand in the possible scenario and R$ 97,920 thousand in the remote scenario. Based on the equity position and notional value of the open financial instruments on 12/31/2013, the Company, by adopting variation scenarios, estimated that the effects on 12/31/2014 would be close to those indicated in the project scenario columns in the table as follows:
|Impact on the Debit Balance – R$ thousand||Projection for 12.31.2014|
|Liabilities||Balance on 12.31.2013||Probable Scenario||Possible Scenario||Remote Scenario|
|US Dollar – US$||762,923||781,617||977,021||1,172,425|
c. Price Risk In accordance with the legislation in force, the electric energy distribution concessionaires should execute electric energy purchase agreements only in the Regulation Contracting Environment, through public auctions of energy, and free consumers, commercializers and generators should execute agreements with the Company only at the Free Contracting Environment, through freely negotiated bilateral agreements. Thus, it is not possible to predict the price by which the Company may contract its energy or it is not possible to contract its entire physical guarantee in long term, after the end of the effective Energy Sales Agreements. The prices of the electric energy commercialized arise out of the energy auction for Existing Enterprises (between 2004 and 2005), with prices between R$ 62.10 and R$ 93.43 per MWh, updatable on an annual basis, and energy auctions for New Enterprises (between 2005 and 2006), with prices between R$ 116.00 and R$ 124.97 per MWh, updatable on an annual basis. As the agreements arising out of the 1st Auction of Existing Energy (1,998 MW on average) have maturity dates between 2012 and 2014, the risk would be not to obtain prices suitable for the Company’s purposes in the upcoming auctions. The Company, however, took part in the new existing energy auction, held in 2013, which agreements have maturity dates by the end of 2014 (400 MW on average) and in the end of the 1st part of December 2015 (98 MW on average), with prices from R$ 191.60 to R$ 165.20 per MWh, respectively. If the Company is not able to contract the entire physical guarantee or do it at proper prices, it may impact its operating results, as well as its generation of future cash flow, making the Company subject to the volatility of the PLD – Balance Liquidation Price, calculated by CCEE. d. The generation of electric energy by the Company depends on the favorable hydrological conditions.Three of the main hydroelectric power plants of the Company representing 98% of the physical guarantee for sales are concentrated in the influence area of the Paraná river basin, west region of the State of São Paulo. Ilha Solteira’s Hydroelectric Power Plant operates with storage reservoir, while Engº Souza Dias’s Hydroelectric Power Plant (Jupiá) and Engº Sérgio Motta’s Hydroelectric Power Plant (Porto Primavera) operate on the run-of-river basis. Risks of water shortage due to pluviometric conditions are cyclic, with occasional occurrence. Located unfavorable hydrological situations are covered by the Energy Relocation Mechanism – MRE, a hydrological risk sharing instrument that the Brazilian Electric Sector has and allows the Electric Sector National Operator – ONS searching for the optimization of the hydrological resources through the forwarding per plant, so that transitional insufficiencies of each generating agent of the system are covered by the generation from other generators, with additional cost to an Energy Optimization Tariff – TEO:
|Confirmatory Decision||Start-up of the Effective Period||R$/MWh|
|Confirmatory Decision no. 1.098, of 12/14/2010||01/01/2011||8,99|
|Confirmatory Decision no. 1.246, of 12/13/2011||01/01/2012||9,58|
|Confirmatory Decision no. 1.404, of 12/18/2012||01/01/2013||10,01|
|Confirmatory Decision no. 1.658, of 11/26/2013||01/01/2014||10,54|
Water shortage throughout Brazilian hydroelectric system will limit the hydroelectric energy generation capability in the country. It may have a negative impact on the Company’s results and its financial condition, as well as its future cash flow generation. Since April 18, 2013, by the MME Ordinance No. 125, the hydrological risks of Três Irmãos Plant are no longer assumed by CESP and, under the Law no. 12.783/2013, they started to be under the responsibility of the distributors that acquire energy from this plant under the system of units. e. The Company may have to acquire short-term energy to fulfill the sales agreements. Occasionally, the Company may acquire short-term energy to meet its energy supply obligations and balance the differences between the physical ballast (physical guarantee) and the contracted energy, which are recorded and liquidated at CCEE – Electric Energy Commercialization Chamber. In case the Company acquires short-term energy, it will be subject to the price variation of this market, which is more volatile than those in the regulated or free contracting environment. Thus, in case the Company has to contract short-term energy, it may cause a negative impact in its results and financial condition, as well as its future cash flow generation. f. Participation in the cost proration of additional thermal forwarding due to energy safety reasons. The National Council for Energy Policy – CNPE, by means of the Resolution No. 3, of March 6, 2013, defined that part of the additional forwarding cost of thermal power plants, due to energy safety reasons, decided by the Electric Sector Monitoring Committee (CMSE), shall be prorated among all of the market agents, upon CCEE’s recording and liquidation process. The collection will be made upon the System Service Charge, due to energy safety reasons, as provided in art. 59 of Decree no. 5.163, of July 30, 2004. However, the associations representing the electric sector companies filed for injunctions suspending the articles of the Resolutions relating to this subject. CESP is part of one of those associations. In case the injunctions are reverted, the Company and all of the further agents obtaining it will be impacted by the accrued values during the judicial suspension. Anyway, the participation in the proration may cause a negative impact in the Company’s results, as well as its future cash flow generation. g. Regulatory Energy Market Risks In occurring unfavorable hydrological conditions, there may be an impact in the current levels of the reservoirs. Thus, there is a possibility for implementation of measures required for the maintenance of the electric energy supply in Brazil, such as: rationing or rationalization of the electric energy consumption. Such measures may have a negative impact on the Company’s results and its financial condition, as well as its future cash flow generation. h. Environmental Regulation Risk The Company’s activities and facilities are subject to several Federal, State and Local laws and regulations, as well as several operating requirements related to the environment protection. Additional stricter laws and regulations may be approved and the application, as well as the interpretation of the effective legislation, may become even more severe. In addition, the environmental agencies may make additional requirements concerning the Company’s operation, obliging it to spend more resources related to environmental matters, with impact on the result. From those new interpretations, the Company may occasionally suffer penalties concerning the environment. i. Credit Risk The risk arises out of the possibility of the Company to incur losses resulting from the difficulty to receive amounts invoiced to its customers. This risk is assessed by the Company as low, in view of:(1) for receivables arising out of supply revenue – the concentrated number of customers, existence of agreement obligations, the fact that they are energy distribution public utility concessionaires, subject to the intervention of the concession and since there is no track record for significant losses when realizing their receivables; (2) for receivables arising out of provision supply – concentrated number and size of the company of their customers, prior credit analysis and existence of agreement guarantees of, at least, two months of billing. j. Early Debt Liquidation RiskThe Company has loan, financing and FIDC agreements, with covenants, normally applicable to this type of operation, related to the compliance with economic-financial indexes, cash generation and other corporate acts. Those covenants are continually monitored and do not limit the capability of conducting the normal course of business. However, in case they are not met, they may entail the acceleration of maturity for those operations.