Edgar Filing: ENERGY CO OF MINAS GERAIS

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

Date: April 14, 2015

/s/ Fabiano Maia Pereira

Fabiano Maia Pereira

Chief Officer for Finance and Investor Relations

6-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of foreign private issuer

pursuant to rule 13a-16 or 15d-16 of

the securities exchange act of 1934

For the month of April 2015

Commission File Number 1-15224

ENERGY COMPANY OF MINAS GERAIS

(Translation of Registrant’s Name Into English)

Avenida Barbacena, 1200

30190-131 Belo Horizonte, Minas Gerais, Brazil

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of 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 by furnishing the information contained in this Form, the registrant 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): N/A

INDEX


Item		Description of Item

1.		2014 Annual Audited Financial Statements (together with the Report of Independent Registered Public Accounting Firm)

2.		Management’s Annual Report on Internal Control Over Financial Reporting

3.		Report of Independent Registered Public Accounting Firm (on internal control over financial reporting)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

1. 2014 ANNUAL AUDITED FINANCIAL STATEMENTS (TOGETHER WITH THE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of Companhia Energética de Minas Gerais—CEMIG and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Companhia Energética de Minas Gerais—CEMIG and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in accordance with International Financial Reporting Standards—IFRS, as issued by the International Accounting Standards Board—IASB.

As discussed in Notes 4 and 15 to the consolidated financial statements, the Usina Hidrelétrica Jaguara (“UHE Jaguara”) and Usina Hidrelétrica São Simão (“UHE São Simão”) concession agreements expired in August, 2013 and January, 2015, respectively. The Company is discussing in courts the extension for these concessions and continues to operate these plants based on a preliminary injunctions issued by the Superior Tribunal de Justiça—STJ, Brazilian Superior Court of Justice.

As discussed in Note 4 to the consolidated financial statements, the Company’s distribution concession agreements will expire in February, 2016. The Company has requested the renewal of these concessions from the Granting Authority. As of the date of this report, it is unknown whether or not these concessions will be renewed and, if renewed, the related conditions of the respective renewals.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 10, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

DELOITTE TOUCHE TOHMATSU

Auditores Independentes

Belo Horizonte, MG, Brazil

April 10, 2015

CONTENTS


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION			2
CONSOLIDATED STATEMENTS OF INCOME			4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			5
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONSOLIDATED			6
CONSOLIDATED STATEMENTS OF CASH FLOW			8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			10
1. OPERATING CONTEXT			10
2. BASIS OF PREPARATION			16
3. PRINCIPLES OF CONSOLIDATION			33
4. CONCESSIONS AND AUTHORIZATIONS			35
5. OPERATING SEGMENTS			42
6. CASH AND CASH EQUIVALENTS			46
7. SECURITIES			46
8. CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS			47
9. RECOVERABLE TAXES			48
10. INCOME AND SOCIAL CONTRIBUTION TAXES			48
11. ESCROW DEPOSITS			51
12. ENERGY DEVELOPMENT ACCOUNT (CDE)			51
13. FINANCIAL ASSETS OF THE CONCESSION			52
14. INVESTMENTS			56
15. PROPERTY, PLANT AND EQUIPMENT			74
16. INTANGIBLE ASSETS			79
17. SUPPLIERS			81
18. TAXES, INCOME TAXES AND SOCIAL CONTRIBUTION TAXES			81
19. LOANS, FINANCINGS AND DEBENTURES			82
20. REGULATORY CHARGES			88
21. POST-RETIREMENT LIABILITIES			88
22. PROVISIONS			94
23. EQUITY AND REMUNERATION TO SHAREHOLDERS			105
24. REVENUE			110
25. OPERATING COSTS AND EXPENSES			113
26. FINANCIAL REVENUES AND EXPENSES			115
27. RELATED PARTY TRANSACTIONS			117
28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT			120
29. MEASUREMENT AT FAIR VALUE			128
30. INSURANCE			130
31. COMMITMENTS			131
32. NON-CASH TRANSACTIONS			131
33. SUBSEQUENT EVENTS			131

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND 2013

ASSETS

(MILLIONS OF BRAZILIAN REAIS—R$)


	Note	2014		2013
Current
Cash and cash equivalents	6		887		2,202
Marketable securities	7		994		933
Consumers and traders	8		2,142		1,912
Concession holders – Transport of electricity	8		248		241
Financial assets of the concession	13		848		2
Recoverable taxes	9		214		481
Income and social contribution tax credits	10a		295		249
Dividends receivable			73		17
Inventories			40		38
Energy Development Account (CDE)	12		345		175
Other			468		419

TOTAL, CURRENT			6,554		6,669

NON-CURRENT
Marketable securities	7		17		90
Consumers and traders	8		203		180
Concession holders – Transport of electricity	8		6		8
Recoverable taxes	9		387		382
Income and social contribution taxes recoverable	10a		207		178
Deferred income and social contribution taxes	10b		1,246		1,221
Escrow deposits	11		1,535		1,180
Other credits			407		83
Financial assets of the concession	13		7,475		5,841
Investments	14		8,040		6,161
Property, plant and equipment	15		5,544		5,817
Intangible assets	16		3,379		2,004

TOTAL, NON-CURRENT			28,446		23,145

TOTAL ASSETS			35,000		29,814

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND 2013

LIABILITIES

(MILLIONS OF BRAZILIAN REAIS—R$)


	Note	2014			2013
Suppliers	17		1,604			1,066
Regulatory charges	20		106			153
Profit sharing			116			125
Taxes payable	18a		555			499
Income and Social Contribution taxes	18b		43			35
Interest on equity and dividends payable			1,643			1,108
Loans and financings	19		4,151			1,056
Debentures	19		1,140			1,182
Payroll and related charges			195			186
Post-retirement liabilities	21		153			138
Concessions payable			22			20
Other obligations			395			354

TOTAL, CURRENT			10,123			5,922

NON-CURRENT
Regulatory charges	20		252			193
Loans and financings	19		1,832			2,379
Debentures	19		6,386			4,840
Taxes payable	18a		723			705
Deferred income and social contribution taxes	18b		611			256
Provisions	22		755			306
Concessions payable			157			152
Post-retirement liabilities	21		2,478			2,311
Other obligations			398			112

TOTAL, NON-CURRENT			13,592			11,254

TOTAL LIABILITIES			23,715			17,176

EQUITY	23
Share capital			6,294			6,294
Capital reserves			1,925			1,925
Profit reserves			2,594			3,840
Equity Valuation Reserve
Deemed cost of property, plant and equipment			780			850
Other Comprehensive Income			(312	)		(271	)

EQUITY ATTRIBUTABLE TO THE CONTROLLING SHAREHOLDERS			11,281			12,638

EQUITY ATTRIBUTABLE TO NON-CONTROLLING SHAREHOLDERS			4			—

TOTAL EQUITY			11,285			12,638

TOTAL LIABILITIES AND EQUITY			35,000			29,814

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(MILLIONS OF BRAZILIAN REAIS—R$)

(except Net income per share)


	Note	2014			2013			2012
NET REVENUE	24		19,540			14,627			14,137
OPERATING COSTS
COST OF ELECTRICITY AND GAS	25
Electricity purchased for resale			(7,428	)		(5,207	)		(4,683	)
Charges for the use of the national grid			(744	)		(575	)		(883	)
Gas purchased for resale			(254	)		—			—

			(8,426	)		(5,782	)		(5,566	)
OTHER COSTS	25
Personnel and managers			(999	)		(946	)		(950	)
Materials			(340	)		(111	)		(60	)
Outsourced services			(736	)		(672	)		(741	)
Depreciation and amortization			(779	)		(782	)		(729	)
Operating provisions			(262	)		(212	)		(43	)
Royalties for use of water resources			(127	)		(131	)		(185	)
Infrastructure construction cost			(942	)		(975	)		(1,336	)
Other			(191	)		(237	)		(85	)

			(4,376	)		(4,066	)		(4,129	)
TOTAL COST			(12,802	)		(9,848	)		(9,695	)
GROSS PROFIT			6,738			4,779			4,442
OPERATING EXPENSES	25
Selling expenses			(128	)		(121	)		(227	)
General and administrative expenses			(654	)		(799	)		(537	)
Other operating expenses			(867	)		(463	)		(1,068	)

			(1,649	)		(1,383	)		(1,832	)
Equity in earnings of unconsolidated investees, net	14		210			764			865
Gain on disposal of equity investment			—			284			—
Unrealized gain on disposal of investment			—			(81	)		—
Gain on acquisition of control of investee	14		281			—			—
Income before Financial income (expenses) and taxes			5,580			4,363			3,475
Financial revenues	26		593			885			2,923
Financial expenses	26		(1,694	)		(1,194	)		(1,294	)

Income before income tax and social contribution tax			4,479			4,054			5,104
Current income and social contribution taxes	10c		(1,259	)		(994	)		(1,035	)
Deferred income and social contribution taxes	10c		(83	)		44			203

NET INCOME FOR THE YEAR			3,137			3,104			4,272

Total of net income for the year attributed to:
Controlling shareholders			3,137			3,104			4,272
Non-controlling shareholders			—			—			—
Basic and diluted income per preferred share – R$	23		2.49			2.47			3.40
Basic and diluted income per common share – R$	23		2.49			2.47			3.40

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(MILLIONS OF BRAZILIAN REAIS—R$)


	2014			2013		2012
NET INCOME FOR THE YEAR		3,137			3,104		4,272
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		(44	)		175		(471	)
Equity gain (loss) on Other comprehensive income in jointly-controlled entities		(7	)		31		56

		(51	)		206		(415	)
Items that may be reclassified to profit or loss
Equity gain (loss) on Other comprehensive income in jointly-controlled entities		10			7		4
Cash flow hedge instruments, net of taxes		—			—		(1	)

		10			7		3

COMPREHENSIVE INCOME FOR THE YEAR		3,096			3,317		3,860

Total of comprehensive income for the year attributed to:
Interest of the controlling shareholders		3,096			3,317		3,860
Non controlling interest arising from business combination		—			—		—

		3,096			3,317		3,860

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONSOLIDATED

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(MILLIONS OF BRAZILIAN REAIS—R$)


	Share capital		Capital reserves			Profit reserves			Equity Valuation adjustments			Retained earnings			Total equity
AS OF DECEMBER 31, 2011		3,412		3,954			3,293			1,008			—			11,667
Net income for the year		—		—			—			—			4,272			4,272
Other comprehensive income
Equity gain on Other comprehensive income in jointly-controlled entity		—		—			—			60			—			60
Cash flow hedge instruments		—		—			—			(1	)		—			(1	)
Adjustment to actuarial liabilities		—		—			—			(471	)		—			(471	)
Total comprehensive income for the year		—		—			—			(412	)		4,272			3,860
Other changes in equity
Increase in share capital		853		—			(853	)		—			—			—
Interim dividends (R$ 0.69 per share)		—		—			—			—			(590	)		(590	)
Interest on Equity (R$ 1.99 per share)		—		—			—			—			(1,700	)		(1,700	)
Extraordinary dividends (R$ 1.88 per share)		—		—			(1,600	)		—			—			(1,600	)
Additional dividend proposed in 2011 (R$ 0.13 per share)		—		—			(87	)		—			—			(87	)
Additional dividend proposed in 2012 (R$ 0.74 per share)		—		—			628			—			(628	)		—
Constitution of reserves
Legal reserve		—		—			171			—			(171	)		—
To Retained earnings		—		—			1,304			—			(1,304	)		—
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—			—			(121	)		121			—

AS OF DECEMBER 31, 2012		4,265		3,954			2,856			475			—			11,550

Net income for the year		—		—			—			—			3,104			3,104
Other comprehensive income
Equity gain on Other comprehensive income in jointly-controlled entity		—		—			—			38			—			38
Post retirement liabilities, net of taxes		—		—			—			175			—			175

Total Comprehensive income for the year		—		—			—			213			3,104			3,317
Other changes in equity:
Increase in share capital		2,029		(2,029	)		—			—			—			—
Additional dividends proposed in 2012 (R$ 0.50 per share)		—		—			(628	)		—			—			(628	)
Interim dividends (R$ 0.85 per share)		—		—			—			—			(1,068	)		(1,068	)
Interest on equity (R$ 0.42 per share)		—		—			—			—			(533	)		(533	)
Additional dividends proposed (R$ 0.04 per share)		—		—			55			—			(55	)		—
Constitution of reserves
Reserve under By-laws		—		—			1,557			—			(1,557	)		—
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—			—			(109	)		109			—

AS OF DECEMBER 31, 2013		6,294		1,925			3,840			579			—			12,638

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	Share capital		Capital reserves		Profit reserves			Equity Valuation adjustments			Retained earnings			Total interest of the controlling shareholders			Non controlling interest arising from business combination		Total equity
AS OF DECEMBER 31, 2013		6,294		1,925		3,840			579			—			12,638			—		12,638

Net income for the year		—		—		—			—			3,137			3,137			—		3,137
Other comprehensive income
Post retirement liabilities, net of taxes		—		—		—			(44	)		—			(44	)		—		(44	)
Equity gain on Other comprehensive income in jointly-controlled entity		—		—		—			3			—			3			—		3

Total Comprehensive income for the year		—		—		—			(41	)		3,137			3,096			—		3,096
Other changes in equity:
Reimbursement of shares of dissident shareholders		—		—		—			—			—			—			—		—
Additional dividends proposed in 2013 (R$ 0.04 per share)		—		—		(55	)		—			—			(55	)		—		(55	)
Extraordinary dividends (R$ 2.23 per share)		—		—		(2,804	)		—			—			(2,804	)		—		(2,804	)
Statutory dividends (R$ 1.04 per share)		—		—		—			—			(1,364	)		(1,364	)		—		(1,364	)
Interest on Equity (R$ 0.18 per share)		—		—		—			—			(230	)		(230	)		—		(230	)
Constitution of reserves												—
Tax incentives reserve		—		—		29			—			(29	)		—			—		—
Profit reserve		—		—		1,584			—			(1,584	)		—			—		—
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—		—			(70	)		70			—			—		—

ATTRIBUTED TO INTEREST OF THE CONTROLLING SHAREHOLDERS		6,294		1,925		2,594			468			—			11,281			—		11,281
Non controlling interest arising from business combination		—		—		—			—			—			—			4		4

AS OF DECEMBER 31, 2014		6,294		1,925		2,594			468			—			11,281			4		11,285

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(MILLIONS OF BRAZILIAN REAIS—R$)


	2014			2013			2012
CASH FLOW FROM OPERATIONS
Net income for the year		3,137			3,104			4,272
Expenses (revenues) not affecting cash and cash equivalents
Income and social contribution taxes		1,342			950			832
Depreciation and amortization		801			824			763
Write-offs of PP&E and Intangible assets		105			33			211
Equity in earnings of unconsolidated investees, net		(210	)		(764	)		(865	)
Interest and monetary variation		1,145			942			(1,448	)
Monetary variation on advance for future capital increase from Minas Gerais State government		239			—			—
Gain on disposal of investments		—			(284	)		—
Unrealized profit		—			81			—
Provisions for operating losses		581			305			671
Net gain on indemnity of assets		(420	)		(21	)		—
Financial assets —CVA		(1,107	)		—			—
Gain on acquisition of subsidiary		(281	)		—			—
Provision for losses on financial instruments		—			(2	)		(22	)
Post-retirement liabilities		311			269			227
(Increase) / decrease in assets
Consumers and traders		(285	)		(134	)		(177	)
Energy Development Account (CDE)		(170	)		—			—
Recoverable Taxes		320			(255	)		(99	)
Income and social contribution tax credit		(37	)		(223	)		(206	)
Transport of electricity		(5	)		109			(50	)
Escrow deposits in litigation		(305	)		120			(24	)
Dividends received from investments		683			554			684
Financial assets		6			286			(192	)
Other		(191	)		7			(113	)
Increase (reduction) in liabilities
Suppliers		472			(239	)		462
Taxes payable		54			2			(33	)
Income and social contribution taxes payable		(22	)		3			2
Payroll and related charges		4			(41	)		(15	)
Regulatory charges		11			(140	)		(47	)
Post-retirement liabilities		(195	)		(181	)		(196	)
Other		(160	)		(21	)		(55	)
Cash generated by operating activities		5,823			5,284			4,582
Interest paid on loans and financings		(781	)		(814	)		(818	)
Income and Social Contribution taxes paid		(1,308	)		(955	)		(935	)

NET CASH GENERATED BY OPERATING ACTIVITIES		3,734			3,515			2,829

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	2014			2013			2012
CASH FLOWS FROM INVESTMENT ACTIVITIES
Marketable securities		116			(267	)		(400	)
Financial assets		(80	)		(91	)		(107	)
Accounts receivable from Minas Gerais state government		—			2,466			1,498
Restricted cash		1			130			(129	)
Investments
Acquisition of equity investees		(2,405	)		(94	)		—
Acquisition of subsidiary – Gasmig		(465	)		—			—
Gain on disposal of investments		—			1,691			—
Capital increase in investees		(546	)		(355	)		(396	)
PP&E		(122	)		(69	)		(109	)
Intangible assets		(798	)		(908	)		(1,263	)

NET CASH FROM (USED IN) INVESTMENT ACTIVITIES		(4,299	)		2,503			(906	)

CASH FLOW IN FINANCING ACTIVITIES
Loans. financings and debentures		4,562			2,466			4,916
Payment of loans financings and debentures		(1,394	)		(3,601	)		(5,276	)
Interest on equity and dividends		(3,918	)		(4,600	)		(1,748	)

NET CASH USED IN FINANCIAL ACTIVITIES		(750	)		(5,735	)		(2,108	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,315	)		283			(185	)

STATEMENT OF CHANGES IN CASH AND CASH EQUIVALENTS
Beginning of the year		2,202			1,919			2,104
End of the year		887			2,202			1,919

NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,315	)		283			(185	)

The Notes are an integral part of these Consolidated Financial Statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2014 AND 2013 AND FOR THE YEARS ENDED ON DECEMBER 31, 2014, 2013 AND 2012

(In Millions of Brazilian Reais—R$ except where otherwise indicated)

1. OPERATING CONTEXT

a) The Company

Companhia Energética de Minas Gerais (‘Cemig’, also herein ‘the Company’, ‘Parent company’ or ‘Holding company’) is a listed corporation registered in the Brazilian Registry of Corporate Taxpayers (CNPJ) under number 17.155.730/0001-64, with shares traded: on the BM&F Bovespa (‘Bovespa’), at Corporate Governance Level 1; on the New York Stock Exchange (‘NYSE’), through ADRs; and on the stock exchange of Madrid (‘Latibex’). It is domiciled in Brazil, with head office at Avenida Barbacena 1200, Belo Horizonte, the capital of the state of Minas Gerais. It operates exclusively as a holding company, with interests in subsidiaries or jointly controlled entities, which are engaged in the activities of the construction and operation of systems for generation, transformation, transmission, distribution and sale of electricity, and also activities in the various fields of energy, for the purpose of commercial operation.

On December 31, 2014, the Company’s consolidated current liabilities exceeded its consolidated current assets by R$ 3,569. The reason for this working capital deficiency was, primarily, new financings with short-term maturities for the Company’s Investment Program, and also an increase in the outflow of cash from the distribution business due to a higher average price of electricity supplied by the thermoelectric generation plants. Management plans include the renegotiation of financings, and new transactions to raise funds in the market. Additionally, the Company has reported positive cash flow from its operations of R$ 3,734 in 2014 and R$ 3,515 in 2013.

Cemig has interest in the following subsidiaries and jointly-controlled entities:

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Cemig Geração e Transmissão S.A. (Cemig GT) is Cemig’s wholly-owned subsidiary operating in generation and transmission. It is listed, in Brazil, but not traded. Cemig GT has interests in 51 power plants, and the transmission lines associated with them, most of which are part of the Brazilian national generation and transmission grid system. Of these power plants, 47 are hydroelectric, 3 are wind power plants and one is a thermal plant. Cemig GT has interest in the following jointly-controlled entities:

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Jointly-controlled entities in operation:

– Hidrelétrica Cachoeirão S.A. (Cachoeirão) (Jointly controlled): Production and sale of electricity as an independent power producer, through the Cachoeirão hydroelectric power plant located at Pocrane, in the State of Minas Gerais. The plant began operating in 2009.

– Baguari Energia S.A. (Baguari Energia) (Jointly controlled): Construction, operation, maintenance and commercial operation of the Baguari Hydroelectric Plant, through participation in the UHE Baguari Consortium (Baguari Energia 49.00%, Neoenergia 51.00%), located on the Doce River in Governador Valadares, Minas Gerais State. The plant began operation of its units from September 2009 to May 2010.

– Central Eólica Praias de Parajuru S.A. (Parajuru) (Jointly controlled): Production and sale of electricity from the Parajuru wind farm at Beberibe, in the State of Ceará, Northern Brazil. The plant began operating in August 2009.

– Central Eólica Praias do Morgado S.A. (Praias do Morgado) (Jointly controlled): Production and sale of electricity from the Morgado wind farm at Acaraú, in Ceará, Northern Brazil. The plant began operating in May 2010.

– Central Eólica Volta do Rio S.A. (Volta do Rio) (Jointly controlled): Production and sale of electricity from the Volta do Rio wind farm also at Acaraú, in the State of Ceará, Northern Brazil. The plant began operating in September 2010.

– Hidroelétrica Pipoca S.A. (Pipoca) (Jointly controlled): Independent production of electricity, through construction and commercial operation of the Pipoca Small Hydro Plant (Pequena Central Hidrelétrica, or PCH), on the Manhuaçu River, in the Municipalities of Caratinga and Ipanema, in the State of Minas Gerais. This hydroelectric plant began operating in October 2010.

– Madeira Energia S.A. (Madeira) (jointly controlled) – Construction and commercial operation, through its subsidiary Santo Antônio Energia S.A., of the Santo Antônio hydroelectric plant in the basin of the Madeira River, in the State of Rondônia. This started commercial operation in March 2012. There are more details in Note14.

– Lightger S.A. (LightGer) (Jointly controlled): Independent power production through building and commercial operation of the Paracambi Small Hydro Plant (or PCH), on the Ribeirão das Lages river in the county of Paracambi, in the State of Rio de Janeiro. The plant started operating in May 2012.

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– Renova Energia S.A. (Renova) (Jointly-controlled entities): Listed company operating in development, construction and operation of plants generating power from renewable sources – wind power, small hydro plants (SHPs), and solar energy; sales and trading of electricity, and related activities.

– Retiro Baixo Energética S.A. (RBE) (Jointly-controlled entities): RBE holds the concession to operate the Retiro Baixo hydroelectric plant, on the Paraopeba River, in the São Francisco river basin, in the municipalities of Curvelo and Pompeu, in Minas Gerais State. The plant has installed capacity of 83.7 MW and assured energy offtake level of 38.5MW average.

Subsidiaries and jointly-controlled entities at development stage:

– Guanhães Energia S.A. (Guanhães Energia) (Jointly controlled): Production and sale of electricity through building and commercial operation of the following Small Hydro Plants (PCHs): Dores de Guanhães, Senhora do Porto and Jacaré, in the county of Dores de Guanhães; and Fortuna II, in the county of Virginópolis, in Minas Gerais. First generation is scheduled for August 2015.

– Cemig Baguari Energia S.A. (Cemig Baguari) (Subsidiary) – Production and sale of electricity as an independent power producer, in future projects.

– Amazônia Energia Participações S.A (Amazônia Energia) (jointly controlled) – Unlisted company whose object is to hold and manage equity interest in Norte Energia S.A. (Nesa), which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará. It is jointly controlled by Light S.A. (25.5%) and Cemig GT (74.5%). Amazônia Energia holds 9.77% of Nesa, and has significant influence in its management, but not joint control. The first turbine of Belo Monte is expected to operate in 2015. There are more details in Note 14.

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Cemig Distribuição S.A. (Cemig D or Cemig Distribution) (Subsidiary): – Wholly-owned subsidiary, listed, but not traded: distributes electricity through networks and distribution lines to practically the whole of the Brazilian state of Minas Gerais.

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Transmissora Aliança de Energia Elétrica S.A. (Taesa) (Jointly controlled): Construction, operation and maintenance of electricity transmission facilities in 11 states of Brazil through direct and indirect equity interests in investees.

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Light S.A. (Light) (jointly-controlled): Hold direct or indirect interests in other companies and, directly or indirectly, operate electricity services, including generation, transmission, trading or distribution, and other related services. Light has the following subsidiaries and jointly-controlled entities:

– Light Serviços de Eletricidade S.A. (Light Sesa) (Subsidiary): A listed company operating primarily in electricity distribution, in various municipalities of Rio de Janeiro State.

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– Light Energia S.A. (subsidiary): Study, plan, build, and commercially operate electricity generation, transmission and sales/trading systems and related services. Owns equity interests in two wind power companies, Central Eólica São Judas Tadeu Ltda. and Central Eólica Fontainha Ltda., and in Guanhães Energia S.A. and Renova Energia S.A.

– Light Esco Prestação de Serviços Ltda. (subsidiary): Purchase, sale, importation and exportation of electricity, and consultancy services in the electricity sector. Light Esco has interest in EBL Companhia de Eficiência Energética S.A.

– Itaocara Energia Ltda. (subsidiary): Planning, construction, installation, and commercial operation of electricity generation plants, is still at development stage. It is a member of the Itaocara Hydro Plant Consortium for commercial operation of the Itaocara Hydroelectric Plant (51%). Cemig GT owns 49%.

– Lightger S.A. (‘Light Ger’) – Described in the list of jointly-controlled entities of Cemig GT, above.

– Light Soluções em Eletricidade Ltda. (Light Soluções): Its main objects are provision of service to low-voltage clients including assembly, overhaul and maintenance of installations in general.

– Instituto Light para o Desenvolvimento Urbano e Social (Light Institute for Urban and Social Development)(subsidiary): Participation in social and cultural projects, and interest in economic and social development of cities.

– Lightcom Comercializadora de Energia S.A. (subsidiary): Purchase, sale, importation and exportation of electricity, and general consultancy, in the free and regulated electricity markets.

– Axxiom Soluções Tecnológicas S.A. (jointly-controlled): Unlisted company, providing technology and systems solutions for operating management of public service concession holders, including companies in electricity, gas, water, sewerage and other utilities. Jointly owned by Light (51%) and Cemig (49%).

– Amazônia Energia Participações S.A (‘Amazônia Energia’) (jointly controlled) – Unlisted company whose object is to hold and manage equity interest in Norte Energia S.A. (Nesa), which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará. It is jointly controlled by Light S.A. (25.5%) and Cemig GT (74.5%). Amazônia Energia holds 9.8% of Nesa, and has significant influence in its management, but not joint control. The first turbine of Belo Monte is expected to operate in February 2015. There are more details in Note 14.

– Renova Energia S.A. (Jointly controlled): Described in the list of equity interests of Cemig GT, above.

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Sá Carvalho S.A. (subsidiary) – Production and sale of electricity, as a public electricity service concession holder, through the Sá Carvalho hydroelectric power plant.

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Usina Térmica Ipatinga S.A. (‘Ipatinga’) (subsidiary) – Production and sale, as an independent power producer, of thermally generated electricity, through the Ipatinga thermal plant, located on the premises of Usiminas (Usinas Siderúrgicas de Minas Gerais S.A.).

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Companhia de Gás de Minas Gerais (‘Gasmig’) (jointly controlled) – Acquisition, transport and distribution of combustible gas or sub-products and derivatives, through a concession for distribution of gas in the State of Minas Gerais. Cemig acquired a controlling interest in Gasmig in October 2014.

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Cemig Telecomunicações S.A. (‘CemigTelecom’) (previously named Empresa de Infovias S.A.)(subsidiary) – Provision and commercial operation of a specialized telecommunications service through an integrated multi-service network of fiber optic cables, coaxial cables, and electronic and associated equipment. CemigTelecom owns 49% of Ativas Data Center (‘Ativas’) (a jointly-controlled entity), which operates primarily in supply of IT and communications infrastructure services, including physical hosting and services for medium-sized and large corporations.

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Efficientia S.A. (subsidiary): Provides electricity efficiency and optimization services and energy solutions through studies and execution of projects, as well as providing services of operation and maintenance in energy supply facilities.

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Horizontes Energia S.A. (subsidiary) – Production and sale of electricity, as an independent power producer, through the Machado Mineiro and Salto do Paraopeba hydroelectric power plants in the State of Minas Gerais, and the Salto do Voltão and Salto do Passo Velho hydro power plants in the State of Santa Catarina.

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Cemig Comercializadora de Energia Incentivada S.A. (‘CCEI’ – previously named Central Termelétrica de Cogeração S.A.) (subsidiary) – Production and sale of electricity as an independent power producer, in future projects.

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Rosal Energia S.A. (subsidiary) – Production and sale of electricity, as a public electricity service concession holder, through the Rosal hydroelectric power plant located on the border between the States of Rio de Janeiro and Espírito Santo, Brazil.

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Empresa de Serviços e Comercialização de Energia Elétrica S.A. (ESCE – previously named Central Hidrelétrica Pai Joaquim S.A.) (subsidiary) – Production and sale of electricity as an independent power producer, in future projects.

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Cemig PCH S.A. (Subsidiary) – Production and sale of electricity as an independent power producer, through the Pai Joaquim hydroelectric power plant.

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Cemig Capim Branco Energia S.A. (‘Capim Branco’) (subsidiary) – Production and sale of electricity as an independent producer, through the Amador Aguiar I and Amador Aguiar II hydroelectric power plants, built through a consortium with private-sector partners. This company was absorbed by Cemig GT in 2015.

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UTE Barreiro S.A. (subsidiary) – Production and sale of thermally generated electricity, as an independent producer, through the construction and operation of the UTE Barreiro thermal generation plant, located on the premises of V&M do Brasil S.A., in the State of Minas Gerais.

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Cemig Trading S.A. (subsidiary): Sale and intermediation of business transactions related to energy.

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Companhia Transleste de Transmissão (jointly controlled): Operation of the transmission line connecting the substation located in Montes Claros to the substation of the Irapé hydroelectric power plant.

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Companhia Transudeste de Transmissão (jointly controlled): Construction, operation and maintenance of national grid transmission facilities of the Itutinga–Juiz de Fora transmission line.

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Companhia Transirapé de Transmissão (jointly controlled): Construction, operation and maintenance of the Irapé–Araçuaí transmission line.

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Axxiom Soluções Tecnológicas S.A. (jointly-controlled): Described in the list of investees of Light, above.

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Transchile Charrúa Transmisión S.A. (jointly controlled): Construction, operation and maintenance of the Charrúa-Nueva Temuco transmission line, and two sections of transmission line at the Charrúa and Nueva Temuco substations, in the central region of Chile. The head office of Transchile is in Santiago, Chile. The transmission line started operating in January 2010.

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Companhia de Transmissão Centroeste de Minas (jointly controlled): Construction, operation and maintenance of the Furnas-Pimenta transmission line – part of the national grid. The line started operating in April 2010.

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Parati S.A. Participações em Ativos de Energia Elétrica (jointly-controlled entity): Holding company owning interests in other companies, Brazilian or foreign, through shares or share units, in any business activity. Parati holds an equity interest of 25.64% in Light.

Where Cemig exercises joint control it does so through shareholders’ agreements with the other shareholders of the investee.

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2. BASIS OF PREPARATION

2.1 Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB).

On April 10, 2015, the Company’s Fiscal Counsel authorized the filling of the Financial Statements for the year ended December 31, 2014 in a Form 6-K.

2.2 Bases of measurement

The consolidated financial statements have been prepared based on historical cost, with the exception of the following material items recorded in the Statement of financial position (balance sheet):

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Non-derivative financial assets measured at fair value through profit or loss.

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Financial assets held for trading measured at fair value.

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Financial assets of the Concession measured by the New Replacement Value (VNR), equivalent to fair value.

2.3 Functional currency and currency of presentation

These consolidated financial statements are presented in Reais, which is the Company’s presentation and functional currency. All the financial information is presented in millions of Reais, except where otherwise indicated.

2.4 Use of estimates and judgments

The preparation of the consolidated financial statements, under IFRS, requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported in assets, liabilities, revenues and expenses. Future reported results may differ from these estimates.

Estimates and assumptions are revised continually, using as a reference both historical experience and also any significant changes of scenario that could affect the equity situation of the company or its results in the applicable items. Revisions in relation to accounting estimates are recognized in the period in which the estimates are reviewed, and in any future periods affected.

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The principal estimates related to the financial statements refer to recording of effects arising from:

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Allowance for doubtful accounts – see Note 8;

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Deferred income and social contribution taxes – see Note 10;

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Financial assets of the concession – see Note 13;

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Investments – See Note 14.

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Property, plant and equipment – Note 15.

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Intangible assets – see Note 16;

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Depreciation – see Note 15;

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Amortization – see Note 16;

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Employee post-retirement liabilities – see Note 21;

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Provisions – see Note 22;

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Unbilled electricity supplied – see Note 24; and

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Fair value measurement and Derivatives instruments – see Note 29.

2.5 Rules, interpretations and changes that came into effect on January 1, 2014, with effects for the Company

IFRIC 21 – Taxes: This gives orientation on when to recognize a liability for a levy imposed by the government, for charges that are accounted in accordance with IAS 37 – Provisions, contingent liabilities and contingent assets, and for those in which the amounts and the period of the levy or charge are clear.

IAS 36 – Impairment of assets: This adds orientation on reporting of recoverable values of non-financial assets. The amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit to which the goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related cash generating unit. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a cash generating unit is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions, and valuation techniques used which are in line with the disclosure required by IFRS 13 – Fair Value Measurements.

Changes to IAS 32– Offsetting Financial Assets and Financial Liabilities: The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’ and ‘simultaneous realization and settlement’.

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Changes to IFRS 10, IFRS 12 and IAS 27: These define an investment entity, and require that a reporting entity which fits the definition should not consolidate its subsidiaries but, instead, value them at fair value through profit or loss in its consolidated and separate financial statements. Changes have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities.

The Company has analysed impacts of these changes and did not recognize material impacts in its financial statements.

2.6 New and revised rules and interpretations already issued and not yet adopted, with possible impacts for the Company

IFRS 9 – Financial Instruments, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and derecognition. Another revised version of IFRS 9 was issued in July 2014 mainly to include (a) impairment requirements for financial assets; and (b) limited amendments to the classification and measurement requirements bt introducing a ‘fair value through Other comprehensive income’ measurement category for certain simple debt instruments.

The most significant effect of IFRS 9 in terms of the classification and measurements of financial liabilities is in accounting of changes in fair value of a financial liability (designated at fair value through profit or loss) that are attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, in relation to the financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that it attributable to changes in the credit risk of that liability is presented in Other comprehensive income, unless the recognition of the effects of changes in the credit risk of the liability in Other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to the credit risk of a financial liability are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

In relation to the impairment of financial assets, IFRS 9 requires an ‘expected credit loss’ model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires that the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized. It is not possible to disclose a reasonable estimate of this effect until the Company carries out a detailed review of these impacts.

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Amendments to IFRS 11– Joint arrangements: The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint operation that constitutes a ‘business’, as defined i IFRS 3—Business combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations under IFRS 3 and other standards (such as IAS 36 – Impairment of assets regarding impairment testing of a cash-generating unit to which goodwill on acquisition of a joint operation has been allocated) should be applied. The alterations to IFRS 11 apply prospectively for annual periods beginning on or after January 1, 2016.

2.7 Principal accounting policies

The accounting policies described in detail below have been applied consistently to all the periods presented in these consolidated financial statements.

The accounting policies referring to the Company’s current operations, and consistently applied by the entities of the Group, are as follows:

Financial instruments

Non-derivative financial assets: The Company initially recognizes loans, receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the transaction date, which is the date on which the Company becomes one of the parties to the contractual provisions of the instrument.

The Company derecognizes a non-derivative financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as an individual asset or liability.

Financial assets or liabilities are offset, and the net amount presented in the Statement of financial position, when, and only when, the Company has the legal right to offset the amounts and has the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

The company has the following non-derivative financial assets: Securities – measured at fair value through profit or loss; Cash and cash equivalents, credits owed by consumers, Traders and Electricity transport concession holders; restricted cash and Escrow deposits in litigation – recognized at nominal realization value, similar to fair value; and Financial assets of the concession not covered by Law 12783/13, and Financial assets of the concession covered by Law 12783/13, measured at New Replacement Value (valor novo de reposição, or VNR), equivalent to fair value.

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Non-derivative financial liabilities: The Company recognizes issued debt securities initially on the date on which they are originated. All the other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date on which the Company becomes one of the parties to the contractual provisions of the instrument. The company writes down a financial liability when its contractual obligations are discharged, cancelled or expire.

The Company has the following non-derivative financial liabilities: Loans; Financings; Debentures; Suppliers; and Other accounts payable. These liabilities are recognized initially at fair value plus any attributable transaction costs. After the initial recognition, they are measured at amortized cost using the effective rates method.

Share capital: Common shares are classified as equity. Preferred shares are classified as equity if they are not redeemable, or if they are redeemable only at the Company’s option. Preferred shares do not carry the right to vote; and also have preference in the event of liquidation of their portion of the share capital. The rights to minimum dividends for the preferred shares are described in Note 23 to the consolidated financial statements. The minimum obligatory dividends as defined in the by-laws are recognized as a liability.

Financial instruments at fair value through profit or loss: A financial asset is classified at fair value through profit or loss if it is classified as held for trading, that is to say, designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages those investments and takes purchase and sale decisions based on their fair values in accordance with the Company’s documented risk management and investment strategy. Transaction costs are recognized in the Statement of income when incurred. Financial assets recorded at fair value through profit or loss are measured at fair value, and changes in the fair value of these assets are recognized in the Statement of income for the period. Securities were classified in this category.

Financial instruments available for sale: A financial instrument is classified as available for sale when the purpose for which it was acquired is not investment of funds to obtain short-term gains, and there is no intention of keeping the investments up to maturity or, further, when they do not fit in the other categories. As from December 31, 2012, assets in this category include the financial assets of the transmission and distribution concession that were covered by Law 12783 (of January 11, 2013). They are measured at New Replacement Value (Valor Novo de Reposição, or VNR), equivalent to fair value on the date of these financial statements. The Company recognizes a financial asset resulting from a concession contract when it has an unconditional contractual right to receive cash or another financial asset from, or under the direction of, the Concession-granting power for the services of construction or improvement provided.

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Financial instruments held to maturity: Securities are in this category, when there is a positive intention to hold them to maturity. They are measured at amortized cost, using the effective interest method.

Loans and receivables: These are financial assets with fixed or calculable payments that are not quoted on an active market. These assets are recognized initially at fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost by the effective interest method, less any loss by impairment.

The category includes: Cash equivalents; Consumers and traders; Holders of electricity transport concessions; Financial assets of the concession not covered by Law 12783 and Traders – ‘Free Energy’ transactions.

Cash and cash equivalents includes: balances of cash; bank deposits; and cash investments with original maturity of three months or less from the date of contracting, which are subject to an insignificant risk of change in value. Cash and cash equivalents are maintained for the purpose of meeting cash commitments in the short term and not for investment or other purposes.

The Company recognizes a financial asset resulting from a concession contract when it has an unconditional contractual right to receive cash or another financial asset from, or under the direction of, the concession-granting power for the services of construction or improvement provided. Such financial assets are measured at fair value through the initial recognition. After the initial recognition, the financial assets are measured at amortized cost and classified as loans and receivables.

Foreign currency and operations outside Brazil

Transactions in foreign currency are converted to the functional currency of the Company at the exchange rates of the dates of the transactions. Monetary assets and liabilities denominated and calculated in foreign currencies on the date of presentation are reconverted to the functional currency at the exchange rate found on that date. The exchange rate gain or loss on monetary items is the difference between the amortized cost of the functional currency at the beginning of the period, adjusted for interest and any payments made during the period, and the amortized cost in foreign currency at the exchange rate of the financial position date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are reconverted to the functional currency at the exchange rate on the date on which the fair value was calculated. Foreign currency differences resulting from reconversion are recognized in the Statement of income. Non-monetary items that are measured in terms of historic cost in foreign currency are converted at the exchange rate found on the transaction date.

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The gains and losses arising from variations in foreign currencies relating to the jointly-controlled entity Transchile are recognized directly in Equity in the Accumulated Conversion Adjustment and recognized in the Statement of income when these investments are sold, partially or totally The financial statements of a subsidiary outside Brazil are adjusted to the Company’s accounting practices and, subsequently, converted to the local functional currency at the exchange rate of the financial position date.

Consumers and traders; Concession holders – Transport of electricity; and Consumers and traders – Transactions in ‘Free Energy’

Accounts receivable from Consumers and traders, and from Concession holders for transport of electricity, are initially recorded at fair value, whether already invoiced or not, and, subsequently, measured by amortized cost. They include any direct taxes for which the company has the tax responsibility, less taxes withheld at source, which are considered to be tax credits.

The provision for doubtful receivables, for low and medium voltage consumers, is recorded based on estimates by Management, in an amount sufficient to cover probable losses. The principal criteria set by the company are: (i) For consumers with significant balances, the balance receivable is analyzed in the light of the history of the debt, negotiations in progress and real guarantees; (ii) For other consumers, the following are provisioned: Debts from residential consumers more than 90 days past due; debts from commercial consumers more than 180 days past due; and debts more than 360 days past due from other consumers.

For large consumers an individual analysis is made of the debtors and of the actions in progress for receipt of the credits.

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the principle of average cost of acquisition and includes expenses incurred in the acquisition of inventories and other costs incurred in bringing them to their present locations and conditions. Materials in inventory are classified in Current assets, and are not depreciated or amortized; materials that are used for works are classified in Property, plant and equipment or Intangible assets.

The net realizable value is the estimated sale price in the normal course of business, less the estimated costs of conclusion and expenses of sales.

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Investments

The financial information of jointly-controlled entities, which are characterized as “joint ventures”, is recognized by the equity method. The Company’s investments include the goodwill identified on acquisitions, net of any accumulated losses by impairment.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for the control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of the non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. If, after the reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the net assets of the entity in the event of liquidation may be initially measured at the proportionate share of the non-controlling interests of the recognized amounts of the acquiree’s identifiable net assets. When a business combination is achieved in stages, the previously held interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in or statement of income.

Operating leases

Payments made under operating lease contracts are recognized as expenses in the Statement of income on a straight-line basis over the period of the lease contract.

Assets linked to the concessions

Distribution activity: The portion of the assets of the concession that will be totally amortized during the concession period is recorded as intangible assets and is completely amortized during the concession agreement period.

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The amortization reflects the pattern of consumption of the rights acquired. It is calculated on the balance of the assets linked to the concession, by the straight-line method, based on the application of the rates set by ANEEL for the electricity distribution activity.

The Company measures the value of the assets which will not be fully amortized by the end of the concession agreement period and reports this amount as a financial asset because it is an unconditional right to receive cash or other financial asset directly from the grantor.

New assets are recorded initially in Intangible assets, valued at acquisition cost, including capitalized borrowing costs. When the assets start operation they are split into financial assets and intangible assets, according to the criterion mentioned in the previous paragraphs: The portion of the assets that is recorded in financial assets is valued based on the new replacement cost, having as a reference the amounts homologated by ANEEL for the Asset Base for Remuneration in the processes of tariff review.

When an asset is replaced, the net book value of the assets is written off as an expense to the Statement of income.

Transmission activity: – For the new transmission concessions, granted after the year 2000, the costs related to the construction of the infrastructure are recorded in the Statement of income as and when they are calculated, and a Construction Revenue is recorded based on the stage of conclusion of the assets, including the taxes applicable to the revenue and any profit margin.

Since the transmission contracts determine that the concession holders have an unconditional right to receive cash or another financial asset directly from, or in the name of, the Concession-granting power, for the new transmission concessions the Company records a financial asset, during the period of construction of lines, the transmission revenue to be received during the whole period of the concession, at fair value.

Of the invoiced amounts of Permitted Annual Revenue (Receita Anual Permitida, or RAP), the portion relating to the fair value of operation and maintenance of the assets is recorded as revenue in the Statement of income, and the portion relating to the construction revenue, originally recorded at the time of the formation of the assets, is used to recover the financial assets.

Additional expenditures incurred for purposes of capital expansion and improvements to the transmission assets generate additional cash flow, and hence this new cash flow is capitalized into the financial asset balance.

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In counterpart to acceptance of the terms of renewal of the old transmission concessions, as described in more detail in Note 4, the greater part of the transmission assets of the old concessions will be the subject of indemnity by the Concession-granting power, having already been written off on December 31, 2012, and an item in Accounts receivable having been posted corresponding to the estimated indemnity to be received.

Gas concession: The portion of the assets of the concession that will be consumed in full during the concession is recorded as an Intangible asset and fully amortized during the period during which the concession contract is in effect.

The amortization is calculated on the balance of the assets linked to the concession by the straight line method, applying amortization rates that reflect the estimated useful life of the assets.

The Company measures the value of the assets which will not be fully amortized by the end of the concession agreement period, and reports this amount as a financial asset, because it is an unconditional right to receive cash or other financial asset directly from the grantor.

New assets are recorded initially in Intangible assets, valued at acquisition cost, including capitalized borrowing costs. When they start operation they are divided into financial asset and intangible asset, in accordance with a criterion mentioned in the previous paragraphs. When an asset is replaced, the net book value of the asset is written, with counterpart in the profit or loss.

Intangible assets

Intangible assets comprise assets relating to: service concession contracts, and software.

The following criteria are applied to individual cases: (i) Intangible assets acquired from third parties are measured at total acquisition cost, less expenses of amortization; and (ii) intangible assets generated internally are recognized as assets in the phase of development, provided that the technical feasibility of using them is demonstrated and that the future economic benefits are probable. They are measured at cost, net of accumulated amortization and accumulated impairment losses.

For intangible assets linked to the concession, the accounting practices described in the item ‘Assets linked to the concession’ above are applied.

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Property, plant and equipment

The goods in Property, plant and equipment are valued at the cost incurred on the date of their acquisition or formation, including deemed cost, and capitalized financial costs, less accumulated depreciation. The cost includes expenditures that are directly attributable to the acquisition of an asset. The cost of self-constructed assets includes the cost of materials and direct labor, and any other costs directly attributable to bringing the assets to a working condition for their intended use.

The subsequent costs are capitalized to the extent that it is probable that the Company will receive future benefits associated with those expenditures.

When an asset is replaced, the net book value of the asset, taking into account expenses on repairs and maintenance, is written off as an expense to the Statement of income.

Depreciation and amortization: These are calculated on the balance of property, plant and equipment in service and investments in consortia, on a straight-line basis, using the rates determined by ANEEL for the assets related to electricity activities, which reflect the estimated useful life of the assets.

The depreciation rates applied to the Company’s property, plant and equipment assets are shown in Note 15 to the consolidated financial statements.

Assets that will not be fully depreciated by the end of the concession will be reverted to the Concession-granting power and this non-depreciated portion will be indemnified.

Interest and other financing charges incurred on financings linked to works in progress are appropriated to PP&E assets in progress, and Consortia, during the period of construction.

For borrowings raised for the construction of a specific PP&E asset, the Company capitalizes all of the financial costs related to the borrowings directly to the respective assets being financed. For other borrowings raised that are not linked directly to a specific PP&E asset, a weighted average rate is established for the capitalization of the costs of those loans.

The residual value is the balance remaining of the asset at the end of the concession, thus, as established in a contract signed between the Company and the federal government, at the end of the concession the assets will be reverted to the federal government which, in turn, will indemnify the Company for those assets that have not yet been totally depreciated. In cases where there is no indemnity at the end of the concession, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession. See more details in Note 13.

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Impairment

Financial assets: A financial asset not carried at fair value through profit or loss is assessed at each financial position date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect that can be reliably estimated on the estimated future cash flows of that asset. The Company considers evidence of impairment for receivables both at specific asset level and at collective level. All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping them with receivables with similar risk characteristics.

In assessing collective impairment, the Company uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in relation to a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in the Statement of income and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Non-financial assets: The carrying amounts of the Company’s non-financial assets, other than Inventories and Deferred income tax and Social Contribution tax, are reviewed at each financial position date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Property, plant and equipment and intangible assets have their carrying amount tested if there was an indication that an asset may be impaired.

Benefits to employees

Defined contribution plans – A defined contribution plan is a post-retirement benefit plan under which an entity pays fixed contributions into a separate entity (pension fund) and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Statement of income in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

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Defined benefit plans – A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their services rendered in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the financial position on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the asset recognized is limited to the total of any unrecognized past service costs and net actuarial losses and the present value of the economic benefits available in the form of future reimbursements or reductions in future contributions to the plan. In calculating the present value of the economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities.

Past service cost is the change in the present value of the defined benefit obligation, resulting from alteration or reduction (shortening) of the plan). The entity should recognize the cost of past service as an expense on the date of the first of the following events: (a) the alteration in the plan; or (b) when the entity recognizes the corresponding costs of restructuring or the cancellation benefits.

The Company recognizes all such actuarial gains and losses arising from adjustments based on experience, or on any changes of actuarial assumptions immediately through Other comprehensive income so that the net assets or liabilities of the pension plan are recognized in the consolidated Statement of financial position to reflect the full value of the plan’s deficit or surplus.

For the Company’s retirement benefit pension plan obligations, the liability recorded in the statement of financial position is the greater of: a) the debt agreed upon with the foundation for amortization of the actuarial obligations, and b) the present value of the actuarial obligation, as calculated by a qualified actuary, less the fair value of the plan’s assets, and adjusted for unrecognized actuarial gains and losses. In the business years presented, the debt agreed with the Foundation is greater than the amounts of net liabilities. In this case, the annual amount recorded for the year in the Statement of income corresponds to the charges and monetary variation on that debt, which is allocated as a financial expense of the Company.

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Other long-term benefits to employees: The Company’s net obligation in respect of employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior years. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the financial position date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations. The calculation is carried out by the projected unit credit method. Any actuarial gains and losses are recognized in the Statement of income in the period in which they arise.

The procedures mentioned above are used for the actuarial obligations relating to the health plan, life insurance and the dental plan.

Termination benefits: These are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate the employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, and if it is probable that the offer will be accepted, and if the number of acceptances by employees can be reliably estimated.

Short-term employee benefits: Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee, and the obligation can be reliably estimated. Employees’ profit shares specified in the Company’s by-laws are accrued for in accordance with the requirements established in the collective agreements with the employee unions and recorded in Employees’ and managers’ profit shares in the Statement of income.

Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Onerous Contracts: A provision for onerous contracts is recognized when the benefits that are expected to be derived from a contract are less than the inevitable cost of meeting the obligations of the agreement. The provision is measured at present value by the lower of: (i) the expected cost of rescinding the concession contract and (ii) the expected net cost of continuing with it.

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Income and Social Contribution taxes

Income tax and the Social Contribution tax, current and deferred, are calculated based on the rates of: income tax at 15%, plus the additional rate of 10% on taxable income exceeding R$ 240,000.00 (two hundred and forty thousand Reais) per year; and for the Social Contribution tax, 9% on taxable profit. They include the offsetting of tax losses/carryforwards for both taxes, the total of which is limited to 30% of the real profit.

The expense on Income tax and the Social Contribution tax comprises current and deferred taxes. Current and deferred taxes are recognized in the Statement of income except to the extent that they relate to a business combination, or items directly recognized in Equity or in Other comprehensive income.

Current tax is the tax payable or receivable expected on the taxable profit for the year, using tax rates in force or substantially enacted at the financial position date, and any adjustment to the tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is measured at the rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantially enacted up to the financial position date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.

Deferred income tax and Social Contribution tax assets are reviewed at each financial position date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Operating revenue

In general, for the Company’s business in the electricity, telecommunications and other sectors, revenues are recognized when there is persuasive evidence of agreements, when delivery of merchandise takes place or when the services are provided, the prices are fixed or determinable, and receipt is reasonably assured, independently of whether the money has actually been received.

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Revenues from sale of electricity are recorded based on the electricity delivered and the tariffs specified in the terms of the contract or in effect in the market. Revenues from retail supply of electricity to final consumers are recorded when the delivery has taken place. The billing is carried out monthly. Unbilled retail supply of electricity, from the period between the last billing and the end of each month, is estimated based on the billing from the previous month and is accrued for at the end of the month. The differences between the estimated amounts accrued and the actual revenues realized are recorded in the following month. Historically, these have not been significant.

Revenue from the supply of electricity to the Brazilian grid system is recorded when the delivery has taken place and is invoiced to consumers on a monthly basis, in accordance with the payment schedules specified in the concession agreement.

For the older transmission concessions, the fair value of the operation and maintenance of the transmission lines and the remuneration of the financial asset are recorded as revenue in the Statement of income each period.

The services provided include charges for connection and other related services; the revenues are accounted when the services are provided.

The ‘Parcel A’ revenue, and the Other financial items related to tariff adjustments, are recognized in the statement of income when the costs effectively incurred are different from those incorporated into the electricity distribution tariff. For more details, see Note 13.

Financial revenue and expenses

Financial revenue includes interest income on funds invested, fee income for consumer payments made late, interest income on financial assets of the concession, and interest income on other financial assets. Interest income is recognized in the Statement of income using the effective interest method.

Financial expenses include interest expense on borrowings; and foreign exchange and monetary variation on borrowing cost of debt, financings and debentures. Interest expense on the Company’s borrowings that is not capitalized is recognized in the Statement of income using the effective interest method.

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Earnings per share

Basic earnings per share (EPS) is calculated by dividing the profit or loss attributable to the controlling shareholders and non-controlling interest of the Company by the weighted average number of the common and preferred shares outstanding during the periods. Diluted EPS is determined by that average number of shares in circulation, adjusted for any instruments potentially convertible into shares, with dilutive effect, in the periods presented.

Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The operating results of all operating segments for which discrete financial information is available are reviewed regularly by the Company’s CEO, to make decisions about resources to be allocated to the segment, and to assess its performance.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters) and head office expenses.

Segment capital expenditure is the total cost incurred during the year to acquire: the Financial assets of the concession; Property, plant and equipment; and Intangible assets other than Goodwill.

Determination of the adjustment to present value

The Company has applied adjustment to present value to certain concession contracts held for consideration, and also to the balance of debentures issued by the Company. Discount rates were used that are compatible with the cost of funding in transactions with the same maturity on the date of the transactions or of the transition to IFRS, as the case may be.

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3. PRINCIPLES OF CONSOLIDATION

The financial statements date of the subsidiaries and jointly-controlled entities, used for the purposes of calculation of consolidation and equity in earnings of unconsolidated investees coincide with those of the Company.

The Company uses the criteria of full consolidation for the following companies which are direct equity investments of Cemig:


Subsidiary	Form of valuation		2014 Direct stake (%)
Subsidiary	Form of valuation		2014 Direct stake (%)
Cemig Geração e Transmissão		Consolidation		100.00
Cemig Distribuição		Consolidation		100.00
Gasmig		Consolidation		99.57
Cemig Telecom		Consolidation		100.00
Rosal Energia		Consolidation		100.00
Sá Carvalho		Consolidation		100.00
Horizontes Energia		Consolidation		100.00
Usina Térmica Ipatinga		Consolidation		100.00
Cemig PCH		Consolidation		100.00
Cemig Capim Branco Energia		Consolidation		100.00
Cemig Trading		Consolidation		100.00
Efficientia		Consolidation		100.00
Cemig Comercializadora de Energia Incentivada		Consolidation		100.00
UTE Barreiro		Consolidation		100.00
Empresa de Serviços e Comercialização de Energia Elétrica		Consolidation		100.00

Due to the acquisition of the additional equity interest in Gasmig in the fourth quarter of 2014, Cemig now exercises control over this entity and, consequently, consolidates Gasmig in its financial statements, as described in Note 14.

a)	Subsidiaries and jointly-controlled entities

The financial statements of subsidiaries are included in the consolidated financial statements as from the date on which the control starts until the date on which the control ceases to exist. The assets, liabilities and profit (loss) of the subsidiaries were consolidated using full consolidation. The accounting policies of the subsidiaries are aligned with the policies adopted by the Company. The financial information of subsidiaries and jointly-controlled entities is recognized by the equity method.

In some jointly-controlled entities Cemig has more than 50% of the voting power. However, there are shareholders’ agreements that give the minority shareholders material rights that represent sharing of control.

b)	Consortia

The assets, liabilities, and profits (losses) of a consortium are recorded in accordance with the percentage interest held in the consortium, since these investments are considered to be ‘joint operations’ in accordance with the requirements of IFRS11.

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c)	Transactions eliminated in consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with investee companies recorded by the equity method are eliminated against the investment in proportion to the Company’s equity interests in the investee. Unrealized losses are eliminated in the same way as unrealized gains are eliminated, but only up to the point at which there is no evidence of impairment.

The financial statements of Transchile, for the purposes of calculations by the equity method, are converted from US dollars (the functional currency of Transchile) to Reais based on the exchange rate at last quoted day of the year, since Cemig’s functional currency is the Real. Foreign currency differences are recognized in Other comprehensive income and presented in equity.

The consolidated financial statements include the balances and transactions of the investment funds in which the Company and its subsidiaries and jointly-held entities are the sole unit holders. These funds comprise public securities, private securities and debentures of companies, which have minimum risk classification A+(bra) (Brazilian long-term rating), ensuring high liquidity.

The exclusive funds, the financial statements of which are regularly reviewed/audited, are subject to limited obligations, namely payment for services provided by the administration of the assets, attributed to the operation of the investments, such as charges for custody, auditing and other expenses, and there are no significant financial obligations, nor are there assets of the unit holders to guarantee those obligations.

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4. CONCESSIONS AND AUTHORIZATIONS

Cemig and its subsidiaries hold the following concessions or authorizations, from ANEEL:


	Location	Date of concession or authorization		Expiration date
GENERATION
Hydroelectric plants
São Simão(1)	Rio Paranaíba		01/1965		01/2015
Emborcação	Rio Paranaíba		07/1975		07/2025
Nova Ponte	Rio Araguari		07/1975		07/2025
Jaguara (1)	Rio Grande		08/1963		08/2013
Miranda	Rio Araguari		12/1986		12/2016
Três Marias	Rio São Francisco		04/1958		07/2015
Volta Grande	Rio Grande		02/1967		02/2017
Irapé	Rio Jequitinhonha		01/1999		02/2035
Aimorés	Rio Doce		07/2000		12/2035
Salto Grande	Rio Santo Antônio		10/1963		07/2015
Funil	Rio Grande		10/1964		12/2035
Queimado	Rio Preto		11/1997		01/2033
Itutinga	Rio Grande		01/1953		07/2015
Camargos	Rio Grande		08/1958		07/2015
Porto Estrela	Rio Santo Antônio		05/1997		07/2032
Igarapava	Rio Grande		05/1995		12/2028
Piau	Rio Piau / Pinho		10/1964		07/2015
Gafanhoto	Rio Pará		09/1953		07/2015
Cachoeirão PCH	Rio Manhuaçu		07/2000		07/2030
Santo Antônio UHE	Rio Madeira		06/2008		06/2043
Baguari UHE	Rio Doce		08/2006		08/2041
Pipoca PCH	Rio Manhuaçu		09/2001		09/2031
Others	Various		Various		Various
Wind farms (2)
Morro do Camelinho	Gouveia –Minas Gerais		03/2000		01/2017
Praias do Parajuru	Beberibe – Ceará		09/2002		08/2029
Volta do Rio	Acaraú – Ceará		12/2001		08/2034
Praia de Morgado	Acaraú – Ceará		12/2001		08/2034
Thermal plants
Igarapé	Juatuba – Minas Gerais		01/2001		08/2024
Ipatinga (3)	Ipatinga –Minas Gerais		11/2000		12/2014
Barreiro	Belo Horizonte –Minas Gerais		02/2002		04/2023
TRANSMISSION
National grid	Minas Gerais		07/1997		07/2015
Substation: Itajubá	Minas Gerais		10/2000		10/2030
DISTRIBUTION
North	Minas Gerais		04/1997		02/2016
South	Minas Gerais		04/1997		02/2016
East	Minas Gerais		04/1997		02/2016
West	Minas Gerais		04/1997		02/2016

(1)	The extension of the concession specified in the concession contract is not included in these figures. See details in this Note.

(2)	Permission to operate the activity of wind power generation is given by means of authorizations.

(3)	This plant will not have its concession contract extended, and will be returned to Usiminas.

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Generation concessions

In the generation business, the Company, as well as selling electricity through auctions to distributors in the Regulated Market, also sells electricity to Free Consumers in the Free Market (Ambiente de Contratação Livre, or ACL). In the Free Market, electricity is traded by generation concession holders, Small Hydro Plants (PCHs), self-producers, traders, and importers of electricity.

Free Consumers are those that have demand of more than 3MW at a voltage of 69kV or higher, or at any voltage if their supply began after July 1995.

A consumer that has opted for the Free Market may return to the regulated system only if it gives its distributor five years’ prior notice. The purpose of this period of notice is to ensure that if necessary the distributor will be able to buy additional electricity to supply the re-entry of Free Consumers into the regulated market. The state-controlled generators can sell electricity to Free Consumers, but unlike the private generators they are obliged to do so through an auction process.

Transmission concessions

Under its transmission concession contracts, Cemig is authorized to charge the Tariff for Use of the Transmission System (Tarifa de Uso do Sistema de Transmissão, or TUST). These tariffs are adjusted annually on the same date as the adjustments of the Permitted Annual Revenue (Receitas Anuais Permitidas, or RAP) of the holders of transmission concessions. This tariff period starts on July 1 of the year of publication of the tariffs and runs until June 30 of the subsequent year.

The service of transport of large quantities of electricity for long distances, in Brazil, is provided by a network of transmission lines and substations operating at a voltage of 230kV or higher, referred to technically as the Basic Grid (Rede Básica), or National Grid.

Any agent of the electricity sector that produces or consumes electricity has the right to use the Basic Grid, as does the consumer, provided certain technical and legal requirements are met. This is referred to as Open Access, and in Brazil is guaranteed by law and by the regulator, ANEEL.

The payment for use of transmission service also applies to generation provided by Itaipu Binacional, the company operating the Itaipu plant on the borders of Brazil and Paraguay. However, due to the legal characteristics of that plant, the corresponding charges are assumed by a number of holders of distribution concessions that hold quotas of its output.

For the newer transmission concessions – granted after the year 2000, the portion of the assets that will not be used up during the concession is recorded as a financial asset, because there is an unconditional right to receive cash or other financial assets directly from the grantor at the end of the concession agreement period.

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Transmission concessions renewed under Law 12783/2013

For the older transmission concessions, granted before the year 2000, renewals have been applied for as from January 1, 2013 in accordance with Law 12783, under which the assets are the property of the Concession-granting power. The renewals were obtained and, as a result the Company is remunerated, as from 2013, for the operation and maintenance of these assets.

Distribution concessions

Cemig D has the following concessions from ANEEL:


In the State of Minas Gerais	Date of grant		Expiration
North		04/1997		02/2016
South		04/1997		02/2016
East		04/1997		02/2016
West		04/1997		02/2016

As determined by the concession contract, all assets and facilities that are linked to the provision of the distribution service and which have been created by the concession holder are considered reversible and part of the assets of the related concession. These assets are automatically reverted to the Grantor at the end of the contract, and are then valued to determine the amount of the indemnity payable to the concession holder, subject to the amounts and the dates on which they were incorporated into the electricity system.

The Company does not have obligations to make payment in compensation for commercial operation of the distribution concessions, but it is required that standards of quality, and investments made, in accordance with the concession contract, are complied with.

The concession contracts, and the Brazilian legislation, establish a mechanism of maximum prices that allows for three types of adjustment to tariffs: (i) an annual tariff adjustment; (ii) periodic review of tariffs; and (iii) extraordinary reviews.

Each year the Company has the right to request the annual adjustment, the purpose of which is to compensate for the effects of inflation on the tariffs, and allow for certain changes in costs that are outside the Company’s control to be passed through to clients – for example the cost of electricity purchased for resale, and sector charges, including charges for the use of the transmission and distribution facilities.

Also, ANEEL makes a Periodic Review of tariffs every five years, which aims to identify changes in the Company’s costs, and to establish a factor based on scale gains, which will be applied in the annual tariff adjustments, for the purpose of sharing such gains with the Company’s consumers.

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The Company also has the right to request an extraordinary review of tariffs, in the event that any unforeseen development significantly alters the economic-financial equilibrium of the concession. The Periodic Review and the Extraordinary Review are subject, to a certain degree, to the discretion of ANEEL, although there are pre-established rules for each cycle of revision. Although concession contracts specify that the Company’s economic and financial balance shall be maintained, it cannot be guaranteed that ANEEL will set tariffs that appropriately compensate the Company and that the operating revenue and profit will not be prejudiced by such tariffs. When the Company requests an annual tariff adjustment, it becomes necessary to prove the resulting financial impact of these events on operations.

Under the distribution concession contracts, the Company is authorized to charge its consumers a tariff consisting of two components: (i) One part relating to electricity purchased for resale, charges for use of the transmission grid, and charges for use of the distribution system that are not under its control (‘Portion A costs’), and (ii) a portion relating to operating costs (‘Portion B costs’). Both portions are established as part of the original concession, for specific initial periods. Subsequently to the initial periods, and at regular intervals (as described above), ANEEL reviews the Company’s costs, for the purpose of determining the adjustment for inflation (or a similar adjustment factor) – known as the Scalar adjustment – to the Portion B costs for the subsequent period. This review can result in a scalar adjustment that is positive, or zero, or negative.

On November 25, 2014 ANEEL decided to amend the concession contracts of Brazilian electricity distribution companies to ensure that, in the event of extinction of the concession contract, for whatever reason, the remaining balances (assets and liabilities) of any shortfall of payment or reimbursement resulting from the tariff should also be taken into account by the concession-granting power for the purposes of indemnity. There are more details on this amendment in Note 13.

Renewal of concessions

On September 11, 2012 the Brazilian federal government issued Provisional Measure 579 (‘PM 579’), subsequently approved by Congress and sanctioned as Law 12,783 of January 11, 2013, which makes provisions governing: electricity generation, transmission and distribution concessions; reduction of the sector charges; and provisions for reduction of tariffs.

PM 579, when dealing with the extensions of concessions for electricity distribution, transmission and generation covered by the articles listed above, imposed new conditions on the concession holders for extension: they allowed extension for a period of 30 years.

The extension referred to in the Provisional Measure also depends on express acceptance by the concession holder of the criteria for remuneration, electricity allocation, and quality standards contained in PM 579; and PM 579 also specifies that indemnity for assets not yet amortized or depreciated will be based on the New Replacement Value (Valor Novo de Reposição, or VNR).

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In compliance with the terms of PM 579, on October 15, 2012 Cemig D submitted to ANEEL its statement of interest in extension of its Concession Contracts for electricity distribution which in its understanding were within the criteria of the PM, without prejudice to any rights provided in law for conversion.

On January 17, 2014 ANEEL sent Circular Letter 01/2014-DR/ANEEL to the Company, informing that it was studying the requests for extension of a concession, and the final decision on approval of this request lay with the Concession-granting power. Up to the date of the approval of these Financial Statements, the terms of the extension are not known to the Company’s management.

Management’s expectation is that this request for extension will be approved by the Concession-granting power, on conditions similar to the present ones, for a period of 30 years.

Gas concessions

The concessions for distribution of natural gas are given by Brazilian states, and in the state of Minas Gerais, the tariffs for natural gas are set by the regulatory body, the State’s Economic Development Secretariat, by market segment. The tariffs comprise a portion for the cost of gas and a portion for the operation of the Concession. Every quarter, the tariffs are adjusted to pass through the cost of gas, and once a year they are adjusted to update the portion allocated to cover the costs relating to the provision of the distribution service – remuneration of invested capital and to cover all the operating, commercial and administrative expenses of the concession holder.

In addition to these adjustments, a tariff review is planned for July 2015. These reviews occur every five years, to evaluate the changes in the costs of the Company and to adapt the tariffs. The Concession Contract also specifies the possibility of an extraordinary review of tariffs if any event occurs that puts the economic-financial balance of the Concession at risk.

On December 26, 2014, the Second Amendment to the Concession Contract was signed by Gasmig and the Minas Gerais State Government, extending by 30 years the period of concession in which Gasmig may commercially operate the services of industrial, commercial, institutional and residential piped gas in the state of Minas Gerais. The expiration date of the contract is thus now extended from January 10, 2023 to January 10, 2053.

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Electricity generation

The Company opted not to renew the electricity generation concessions for the power plants listed below, which are included in Concession Contract 007/97–Cemig Geração:


Generating plant	Concession expiry date		Installed capacity (MW)		Net value of assets based on historic cost at December 31, 2014		Net value of assets based on deemed cost at December 31, 2014
Hydroelectric Plants
Três Marias		Jul. 2015		396		45		389
Volta Grande		Feb. 2017		380		24		65
Salto Grande		Jul. 2015		102		11		39
Itutinga		Jul. 2015		52		4		9
Camargos		Jul. 2015		46		6		20
Small Hydro Plants
Piau		Jul. 2015		18.01		1		9
Gafanhoto		Jul. 2015		14		2		13
Peti		Jul. 2015		9.40		2		8
Tronqueiras		Jul. 2015		8.50		2		13
Joasal		Jul. 2015		8.40		2		8
Martins		Jul. 2015		7.70		—		3
Cajuru		Jul. 2015		7.20		4		1
Paciência		Jul. 2015		4.08		1		5
Marmelos		Jul. 2015		4		1		5
Sumidouro		Jul. 2015		2.12		2		1
Anil		Jul. 2015		2.08		1		—
Poquim		Jul. 2015		1.41		2		4

				1,063		110		592

For the concessions of Jaguara plant, which expired in August 2013, and São Simão and Miranda plants, which expire in January 2015 and December 2016, respectively, the Company believes that it has the right to extend the concessions on the conditions prior to MP 579, under clauses existing in those contracts and under Article 19 of Law 9074/1995.The historic balances of the assets of these plants on December 31, 2014 totaled R$ 943; and on the basis of deemed cost, used in the adoption of IFRS, totaled R$ 1,136. Pursuant to the the concession contract, Cemig GT shall have the right to be indemnified for the assets that have not been depreciated at the end of the respective concession term. The Company believes that this Indemnification will happen after the extension of its concession mentioned in the previous paragraph. There is more information in Note 15 – Property, plant and equipment.

Electricity transmission

The Company opted to accept the terms of PM 579 for renewal of the transmission concessions. The information relating to the amounts of the respective indemnities to be received is disclosed in Note 13 – Financial assets of the concession.

Electricity distribution

In compliance with PM 579, on October 15, 2012 Cemig advised ANEEL of its interest in extending the electricity distribution contracts which in the Company’s view were within the criteria of the PM, without prejudice to any rights specified in the law into which Congress might convert the Provisional Measure.

The expiry dates of the distribution concessions of Cemig D, which will be extended for 30 years, are in February 2016.

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Concessions payable

In obtaining the concessions for construction of certain generation projects, the Company undertook to make payments to ANEEL, over the period of validity of the contract, as compensation for the commercial operation. The information on the concessions, and the amounts to be paid, is as follows:

Project

Nominal value in
2014

Present value in
2014

Amortization period

Updating
indexor

Porto Estrela (Consortium)

395

148

08/2001 to 07/2032

IGPM

Irapé

03/2006 to 02/2035

IGPM

Queimado (Consortium)

01/2004 to 12/2032

IGPM

Capim Branco

09/2007 to 09/2035

IGPM

Various PCHs and Hydro Plants (*)

06/2013 to 07/2015

IPCA

Salto Morais PCH

—

06/2013 to 07/2020

IPCA

Rio de Pedras PCH

06/2013 to 09/2024

IPCA

Various PCHs (**)

06/2013 to 08/2025

IPCA

(*)	Anil, Cajuru, Camargos, Gafanhoto, Joasal, Marmelos, Martins, Paciência, Peti, Piau, Poquim, Sumidouro, Tronqueiras;

(**)	Luiz Dias, Poço Fundo, São Bernardo, Xicão.

The concessions to be paid to the concession-granting power provide for monthly portions with different values over time. For the purposes of accounting and recognition of costs, due to the understanding that they represent an Intangible Asset related to the right of commercial operation, they are recorded as from the date of signature of the contracts at the present value of the payment obligation.

The portions paid to the Concession-granting power in 2014, the present value and the nominal value of the portions to be paid in the forthcoming period of 12 months, are as follows:


Project	Amounts paid in 2014		Present value of amounts to be paid in 12 months		Nominal value of amounts to be paid in 12 months
Porto Estrela (Consortium)		16		16		16
Irapé		2		2		2
Queimado (Consortium)		—		—		—
Capim Branco		1		1		1
Various PCHs and Hydro Plants (*)		3		2		2
Salto Morais SHP		—		—		—
Rio de Pedras SHP		—		—		—
Various SHPs (**)		—		—		—

(*)	Anil, Cajuru, Camargos, Gafanhoto, Joasal, Marmelos, Martins, Paciência, Peti, Piau, Poquim, Sumidouro, Tronqueiras;

(**)	Luiz Dias, Poço Fundo, São Bernardo and Xicão.

The rate used by Cemig for discounting of its liabilities to present value is 12.50% and 5.10%, for Small hydro plants (PCHs) and conventional hydroelectric plants, respectively, representing the average funding rates using usual conditions at the date of the transition to IFRS, and at the grant of the new concessions of the PCHs and Hydro Plants, respectively.

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5. OPERATING SEGMENTS

The operating segments of Cemig reflect the structure of the regulatory framework for the Brazilian electricity sector, with different legislation for the sectors of generation, transmission and distribution of electricity.

The Company also operates in gas, telecommunications and in other businesses, which have a smaller impact on the results of its operations.

These segments are reflected in the Company’s management, organizational structure, and monitoring of results. In accordance with the regulatory framework of the Brazilian electricity sector, there is no segmentation by geographical area.

Impacts due to GASMIG acquisition in the CEMIG consolidation results

R$ 340 Net sales and R$ 108 net profit are related to GASMIG operations after the business combinations date.

If this business combination had happened on January 1o, 2014, the CEMIG net sales and net profit had been increased in the amounts of R$ 979 and R$ 32, respectively.

These tables show the operating revenues, costs and expenses for 2014, 2013 and 2012 in consolidated form:

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OPERATING SEGMENTS. 2014
ITEM	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOM			GAS			OTHER			ELIMINATIONS			TOTAL
SEGMENT ASSETS		11,528			3,882			15,064			327			2,549			2,007			(357	)		35,000
ADDITIONS TO (REDUCTION IN) THE SEGMENT		2,995			80			792			29			501			19			—			4,416
INVESTMENTS IN ASSOCIATES AND JOINTLY-CONTROLLED ENTITIES		4,036			2,315			1,199			—			—			490			—			8,040
		—			—			—			—			—			—			—			—
NET REVENUE		7,339			708			11,241			119			340			90			(297	)		19,540
OPERATING COSTS		—			—			—			—			—			—			—			—
Electricity purchased for resale		(1,833	)		—			(5,747	)		—			—			—			152			(7,428	)
Charges for the use of the national grid		(282	)		—			(573	)		—			—			—			111			(744	)
Gas purchased for resale		—			—			—			—			(254	)		—			—			(254	)

		(2,115	)		—			(6,320	)		—			(254	)		—			263			(8,426	)

OTHER COSTS
Personnel		(201	)		(105	)		(886	)		(13	)		(11	)		(36	)		—			(1,252	)
Employees’ and managers’ profit shares		(39	)		(16	)		(184	)		(1	)		—			(9	)		—			(249	)
Post-retirement liabilities		(34	)		(14	)		(153	)		—			—			(11	)		—			(212	)
Materials		(295	)		(5	)		(80	)		—			(1	)		—			—			(381	)
Outsourced services		(159	)		(39	)		(737	)		(23	)		(2	)		(23	)		30			(953	)
Depreciation and amortization		(324	)		—			(428	)		(34	)		(4	)		(11	)		—			(801	)
Royalties for use of water resources		(127	)		—			—			—			—			—			—			(127	)
Operating provisions (reversals)		(62	)		(26	)		(300	)		—			—			(193	)		—			(581	)
Construction costs		—			(81	)		(861	)		—			—			—			—			(942	)
Other operating expenses. net		(130	)		(34	)		(300	)		(27	)		(11	)		(29	)		4			(527	)

Total cost of operation		(1,371	)		(320	)		(3,929	)		(98	)		(29	)		(312	)		34			(6,025	)

TOTAL COSTS AND EXPENSES		(3,486	)		(320	)		(10,249	)		(98	)		(283	)		(312	)		297			(14,451	)
Operating profit before Equity gains (losses) and Financial revenue (expenses)		3,853			388			992			21			57			(222	)		—			5,089

Equity in earnings of unconsolidated investees, net		(386	)		386			150			(28	)		47			41			—			210
Gain on acquisition of control of investee		—			—			—			—			—			281			—			281
Financial revenues		119			46			358			5			21			44			—			593
Financial expenses		(396	)		(291	)		(751	)		(3	)		(6	)		(247	)		—			(1,694	)

Income before income tax and social contribution taxes		3,190			529			749			(5	)		119			(103	)		—			4,479
Current income and social contribution taxes		(1,061	)		(42	)		(114	)		(7	)		(5	)		(30	)		—			(1,259	)
Deferred income and social contribution taxes		(55	)		(2	)		(55	)		—			(7	)		36			—			(83	)

NET INCOME FOR THE YEAR		2,074			485			580			(12	)		107			(97	)		—			3,137

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		—			—			(36	)		—			—			(8	)		—			(44	)
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—			(7	)		—			(7	)
Items that may be reclassified to profit or loss
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—			10			—			10

COMPREHENSIVE INCOME FOR THE YEAR		2,074			485			544			(12	)		107			(102	)		—			3,096

Total of comprehensive income for the year attributed to:
Interest of the controlling shareholders		2,074			485			544			(12	)		107			(102	)		—			3,096
Non controlling interest arising from business combination		—			—			—			—			—			—			—			—

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OPERATING SEGMENTS. 2013
ITEM	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOM			GAS		OTHER			ELIMINATIONS			TOTAL
SEGMENT ASSETS		10,224			3,452			13,688			328			577		3,091			(1,546	)		29,814
ADDITIONS TO (REDUCTION IN) THE SEGMENT		520			(1,600	)		884			—			—		22			—			(174	)
INVESTMENTS IN ASSOCIATES AND JOINTLY-CONTROLLED ENTITIES		1,623			2,379			1,191			4			577		387			—			6,161
		—			—			—			—			—		—			—			—
NET REVENUE		5,253			277			9,206			114			—		96			(319	)		14,627
OPERATING COSTS		—			—			—			—			—		—			—			—
Electricity purchased for resale		(1,294	)		—			(4,089	)		—			—		—			176			(5,207	)
Charges for the use of the national grid		(264	)		—			(410	)		—			—		—			99			(575	)

		(1,558	)		—			(4,499	)		—			—		—			275			(5,782	)

OTHER COSTS
Personnel		(215	)		(103	)		(894	)		(14	)		—		(58	)		—			(1,284	)
Employees’ and managers’ profit shares		(40	)		(19	)		(146	)		(2	)		—		(14	)		—			(221	)
Post-retirement liabilities		(27	)		(13	)		(119	)		—			—		(17	)		—			(176	)
Materials		(64	)		(5	)		(53	)		(1	)		—		—			—			(123	)
Outsourced services		(153	)		(40	)		(721	)		(21	)		—		(21	)		39			(917	)
Depreciation and amortization		(371	)		—			(416	)		(31	)		—		(1	)		(5	)		(824	)
Royalties for use of water resources		(131	)		—			—			—			—		—			—			(131	)
Operating provisions (reversals)		(37	)		(18	)		(275	)		—			—		25			—			(305	)
Construction costs		—			(91	)		(884	)		—			—		—			—			(975	)
Other operating expenses. net		(81	)		(31	)		(328	)		(19	)		—		(38	)		4			(493	)

Total cost of operation		(1,119	)		(320	)		(3,836	)		(88	)		—		(124	)		38			(5,449	)

TOTAL COSTS AND EXPENSES		(2,677	)		(320	)		(8,335	)		(88	)		—		(124	)		313			(11,231	)
Operating profit before Equity gains (losses) and Financial revenue (expenses)		2,576			(43	)		871			26			—		(28	)		(6	)		3,396

Equity in earnings of unconsolidated investees, net		75			484			113			(20	)		91		15			6			764
Gain on disposal of equity investment					(94	)										378						284
Unrealized profit on disposal of investment		—			—			—			—			—		(81	)		—			(81	)
Financial revenues		228			94			453			6			—		104			—			885
Financial expenses		(288	)		(226	)		(647	)		(4	)		—		(29	)		—			(1,194	)

Income before income tax and social contribution taxes		2,591			215			790			8			91		359			—			4,054
Income and social contribution taxes		(726	)		79			(187	)		(6	)		—		(110	)		—			(950	)

NET INCOME FOR THE YEAR		1,865			294			603			2			91		249			—			3,104

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		41			—			72			—			—		62			—			175
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—		31			—			31
Items that may be reclassified to profit or loss
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—		7			—			7

COMPREHENSIVE INCOME FOR THE YEAR		1,906			294			675			2			91		349			—			3,317

Total of comprehensive income for the year attributed to:
Interest of the controlling shareholders		1,906			294			675			2			91		349			—			3,317

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OPERATING SEGMENTS. 2012
ITEM	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOM			GAS		OTHER			ELIMINATIONS			TOTAL
SEGMENT ASSETS		8,896			7,229			12,885			320			508		3,581			(849	)		32,570
ADDITIONS TO (REDUCTION IN) THE SEGMENT		473			107			1,229			—			—		66			—			1,875
INVESTMENTS IN ASSOCIATES AND JOINTLY-CONTROLLED ENTITIES		1,135			3,747			1,104			—			508		361			—			6,855
NET REVENUE		4,238			658			9,504			114			—		74			(451	)		14,137
OPERATING COSTS
Electricity purchased for resale		(735	)		—			(4,180	)		—			—		—			232			(4,683	)
Charges for the use of the national grid		(275	)		—			(794	)		—			—		—			186			(883	)

		(1,010	)		—			(4,974	)		—			—		—			418			(5,566	)

OTHER COSTS
Personnel		(180	)		(105	)		(831	)		(15	)		—		(43	)		—			(1,174	)
Employees’ and managers’ profit shares		(40	)		(19	)		(164	)		(1	)		—		(14	)		—			(238	)
Post-retirement liabilities		(20	)		(10	)		(94	)		—			—		(10	)		—			(134	)
Materials		(14	)		(6	)		(52	)		—			—		(1	)		—			(73	)
Outsourced services		(145	)		(42	)		(695	)		(19	)		—		(33	)		27			(907	)
Depreciation and amortization		(333	)		—			(393	)		(32	)		—		—			(6	)		(764	)
Royalties for use of water resources		(185	)		—			—			—			—		—			—			(185	)
Operating provisions (reversals)		(1	)		(1	)		(268	)		—			—		(400	)		—			(670	)
Construction costs		—			(107	)		(1,228	)		—			—		—			—			(1,335	)
Other operating expenses. net		(91	)		(24	)		(307	)		(17	)		—		(42	)		—			(481	)

Total cost of operation		(1,009	)		(314	)		(4,032	)		(84	)		—		(543	)		21			(5,961	)

TOTAL COSTS AND EXPENSES		(2,019	)		(314	)		(9,006	)		(84	)		—		(543	)		439			(11,527	)
Operating profit before Equity gains (losses) and Financial revenue (expenses)		2,219			344			498			30			—		(469	)		(12	)		2,610

Equity in earnings of unconsolidated investees, net		(12	)		719			103			(23	)		55		13			10			865
Financial revenues		105			38			289			9			—		2,482			—			2,923
Financial expenses		(325	)		(253	)		(574	)		(5	)		—		(137	)		—			(1,294	)

Income before income tax and social contribution taxes		1,987			848			316			11			55		1,889			(2	)		5,104
Income and social contribution taxes		(571	)		(37	)		(20	)		(6	)		—		(198	)		—			(832	)

NET INCOME FOR THE YEAR		1,416			811			296			5			55		1,691			(2	)		4,272

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		(87	)		—			(231	)		—			—		(153	)		—			(471	)
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—		56			—			56
Items that may be reclassified to profit or loss
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—		3			—			3

COMPREHENSIVE INCOME FOR THE YEAR		1,329			811			65			5			55		1,597			(2	)		3,860

Total of comprehensive income for the year attributed to:
Interest of the controlling shareholders		1,329			811			65			5			55		1,597			(2	)		3,860

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6. CASH AND CASH EQUIVALENTS


	2014		2013
Bank accounts		89		75
Cash investments
Bank certificates of deposit		750		1,893
Overnight (Repos)		48		228
Other		—		6

		798		2,127

		887		2,202

Cash investments are transactions carried out with Brazilian institutions, and international financial institutions with branch offices in Brazil, at normal market conditions and rates. All the transactions are liquid, promptly convertible into a known amount of cash, are subject to insignificant risk of change in value, and have no restrictions on use. Bank Certificates of Deposit (Certificados de Depósito Bancário, or CBDs), with fixed or floating rates, are remunerated at a percentage (varying from 80% to 109.6%) of the CDI rate (Interbank Rate for Certificates of Deposit – Certificados de Depósito Inter-bancário – CDIs) published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). Repo transactions state, in their trading notes, the Bank’s commitment to repurchase the security, at sight, on the maturity date of the transaction, or earlier, at the Company’s option.

Overnight repo transactions are short-term cash investments, with availability for redemption on the day following the date of investment. These are usually backed by treasury bills, notes or bonds and referenced to a pre-fixed rate.

The Company’s exposure to interest rate risk and a sensitivity analysis of financial assets and liabilities are given in Note 28 to the consolidated financial statements.

7. SECURITIES


	2014		2013
Cash investments
Current
Bank certificates of deposit		238		196
Financial Notes – Banks		556		504
Treasury Financial Notes (LFTs)		86		38
Debentures		98		170
Other		16		25

		994		933

Non-current
Financial Notes – Banks		17		89
Other		—		1

		17		90

		1,011		1,023

Securities refers to financial investments in transactions contracted with Brazilian financial institutions, and international financial institutions with branch offices in Brazil, for market prices and conditions.

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Fixed-rate or floating-rate Bank certificates of deposit (Certificados de Depósito Bancário, or CDBs) are remunerated at a percentage of the rate for interbank deposits (Certificado de Depósito Interbancário, or CDI, rate), which is published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). This percentage ranges from 80% to 109.6% depending on the transaction.

Classification of these securities in accordance with the categories specified in Brazilian accounting rules is presented in Note 28.

8. CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS


	Balances not yet due		Up to 90 days past due		More than 90 days past due			2014			2013
Invoiced supply		883		421		715			2,019			1,726
Supply not yet invoiced		668		—		—			668			512
Wholesale supply to other concession holders		237		24		47			308			439
Concession holders – Transport of electricity		90		4		160			254			249
(–) Allowance for doubtful accounts		—		—		(650	)		(650	)		(585	)

		1,878		449		272			2,599			2,341

Current assets									2,390			2,153
Non-current assets									209			188

The Company’s exposure to credit risk related to Consumers and traders is given in Note 28.

The provision for the allowance for doubtful receivables is considered to be sufficient to cover any losses in the realization of these assets, and breaks down by type of consumer as follows:


	2014		2013
Residential		174		147
Industrial		329		299
Commercial. services and others		99		84
Rural		18		19
Public authorities		10		10
Public illumination		5		11
Public service		10		10
Other		5		5

		650		585

Changes in the provision for doubtful receivables in 2014, 2013 and 2012 were as follows:


	01/01/2012		New provisions		Reversals			2012		New provisions		Reversals			2013		New provisions		Written off			2014
Allowance for doubtful receivables		337		227		(49	)		515		121		(51	)		585		127		(62	)		650

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9. RECOVERABLE TAXES


	2014		2013
Current
ICMS tax recoverable		169		115
PIS and Pasep taxes		7		47
Cofins tax		31		314
Other		7		5

		214		481

Non-current
ICMS tax recoverable		283		249
PIS and Pasep taxes		18		23
Cofins tax		84		108
Other		2		2

		387		382

		601		863

The credits of the PIS, Pasep and Cofins taxes arise mainly from acquisitions of property, plant and equipment, and can be offset over 48 months.

The recoverable ICMS tax credits in Non-current assets arise from acquisitions of property, plant and equipment and can be applied against taxes payable in 48 months. The transfer to Non-current assets was made in accordance with estimates by Management of the amounts which will likely be realized by December 2015.

10. INCOME AND SOCIAL CONTRIBUTION TAXES

a) Income and social contribution taxes recoverable

The balances of income and social contribution taxes refer to tax credits in corporate income tax returns of previous years and to advance payments in 2014, which will be offset against federal taxes payable for the year 2015. These are posted in Taxes and contributions.


	2014		2013
Current
Income tax		202		181
Social Contribution tax		93		68

		295		249

Non-current
Income tax		196		168
Social Contribution tax		11		10

		207		178

		502		427

b) Deferred income and social contribution taxes

Cemig and its subsidiaries have tax credits for income tax, constituted at the rate of 25%, and the social contribution tax, constituted at the rate of 9%, as follows:

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	2014			2013
Tax credits
Tax loss carryforwards		268			259
Provisions		306			104
Post-retirement liabilities		623			558
Allowance for doubtful receivables		221			201
Taxes payable – suspended liability (1)		196			179
Paid concession		67			67
‘Parcel A’ items Variation Compensation Account (‘CVA’) (2)		—			106
Other		50			43

Total		1,731			1,517

Deferred obligations
Funding cost		(2	)		(4	)
Deemed cost		(305	)		(335	)
Adjustment to present value		(59	)		(84	)
IRT		(10	)		—
Purchase price allocation adjustments		(356	)		—
Borrowing costs, capitalized		(60	)		(41	)
Taxes on revenues not redeemed – Presumed Profit accounting method		(2	)		(2	)
Transmission companies: Indemnity gain		(227	)		(85	)
Updating of financial assets		(75	)		(1	)

Total		(1,096	)		(552	)

Total. net		635			965

Total assets		1,246			1,221
Total liabilities		(611	)		(256	)

(1)	Refers to court escrow deposit relating to PIS, Pasep and Cofins taxes applicable to amounts of ICMS tax.

(2)	Adjustment arising from Law 11638/2007 – Transition Tax Regime (RTT), due to adoption of IFRS.

The changes in Deferred income and social contribution taxes were as follows:


Balance on January 1. 2012	598
Effects allocated to Statement of income	204
Effects allocated to Statement of comprehensive income	192
Realized	3

Balance on December 31. 2012	997

Effects allocated to Statement of income	43
Effects allocated to Statement of comprehensive income	(90	)
Realized	15

Balance on December 31. 2013	965
Effects allocated to Statement of income	(83	)
Deferred taxes recognized in business combination	(269	)
Effects allocated to Statement of comprehensive income	22
Realized	—

Balance on December 31. 2014	635

The Board of Directors, in a meeting held on March 25, 2015, approved a technical study prepared by the Financial Department, on the forecast for the Company’s future profitability. This study demonstrates the Company’s capacity to realize the deferred tax asset, over a maximum period of 10 years.

Under the current Brazilian tax legislation deductible temporary differences and accumulated tax losses do not expire by limitation of time. Deferred tax assets have been recognized in relation to these items, because it is probable that the future taxable profits will be available for the company to be able to use for the benefits of these items.

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According to the individual estimates of the Company and its subsidiaries, the future taxable profits enable the Deferred tax asset existing on December 31, 2014 to be realized, as follows:


2015			227
2016			364
2017			189
2018			196
2019			204
2020 – 2022			319
2023 – 2024			232

			1,731

c) Reconciliation of the expense on income and social contribution taxes

This table reconciles the nominal expense on income tax (rate 25%) and the Social Contribution tax (rate 9%) with the actual expense, presented in the Statement of income:


	2014			2013			2012
Profit before income tax and Social Contribution tax		4,479			4,054			5,104
Income tax and Social Contribution tax – nominal expense		(1,523	)		(1,378	)		(1,735	)
Tax effects applicable to:
Gain (loss) in subsidiaries by equity method (net of Interest on Equity)		25			187			270
Interest on Equity		78			181			578
Non-deductible contributions and donations		(13	)		(11	)		(9	)
Tax incentives		66			39			33
Tax credits not recognized		(1	)		4			—
Difference between Presumed Profit and Real Profit		8			29			24
Cemig/Minas Gerais State settlement for TUSD ICMS case		(5	)		—			(3	)
Excess on reactive power and demand levels		(12	)		(10	)		—
Other		35			9			10

Income tax and Social Contribution – effective gain (expense)		(1,342	)		(950	)		(832	)

Effective rate		29.96%			23.44%			16.30%
Current tax		(1,259	)		(994	)		(1,035	)
Deferred tax		(83	)		44			203

Law 12973/14

Provisional Measure 627 of 2013 (passed as Law 12973/2014) was enacted to end the Transition Taxation Regime (Regime Tributário de Transição, or RTT) for all taxpayers, in calendar-year 2015, and adapt the tax legislation to International Financial Reporting Standards, which are included in the Corporate Law by Law 11638 of 2007. Law 12973/14 gave taxpayers the option of early adopting the change as from January 1, 2014, under normative Instructions issued by the federal tax authority (Secretaria da Receita Federal). The Company decided not to opt for early adoption of the tax rules established by this law.

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Tax incentives – Sudene

By its Decision Dispatch 1352 DRF/BHE of July 21, 2014, the federal tax authority (Receita Federal) recognized the right to a reduction of 75% in income tax, including the part paid at the additional rate, calculated based on the operating profit made in the region under the aegis of Sudene (the Development Authority for the Northeast), for 10 years from 2014. The incentive amount recorded was R$ 25.

11. ESCROW DEPOSITS

These payments are mainly for legal actions relating to employment-law contingencies and tax obligations.

The most important escrow deposits for tax obligations refer to income tax withheld at source on Interest on Equity, and the Pasep and Cofins taxes – in actions seeking to exclude the ICMS tax itself from the calculation base of the Pasep and Cofins taxes.


	2014		2013
Employment law cases		300		282
Tax issues
Income tax on Interest on Equity		15		15
Pasep and Cofins tax (1)		720		720
Other		193		97

		928		832

Other
Monetary updating on AFAC from Minas Gerais State Government (2)		240		—
Regulatory		37		35
Third party		9		10
Consumer relations		4		5
Court embargo		10		13
Other		7		3

		307		66

		1,535		1,180

(1)	The balances of escrow deposits relating to Pasep and Cofins taxes have a corresponding provision in Taxes. See more details in Note 19.

(2)	Administrative deposit seeking suspension of enforceability of the credit charged by the Minas Gerais State Government for a difference in the monetary updating on the Advance against Future Capital Increase. See more details in Note 23.

12. ENERGY DEVELOPMENT ACCOUNT (CDE)

Reimbursment of tariff subsidy payments

The subsidies applicable to tariffs charged to users of public electricity distribution service, which are reimbursed through payments of funds from the Energy Development Account (CDE). In 2014, the amount appropriated as incoming subsidies was R$ 790 (R$ 488 in 2013), of which the Company has R$ 345 (R$ 136 in 2013) yet to be received.

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Reimbursement of costs of energy purchased

Due to the low level of the reservoirs of the hydroelectric plants and the consequent increase in the price of electricity, with a significant impact on the cost of electricity purchased by distributors of electricity in Brazil, the federal government, through Decree 7945/13, decided to pay funds from the Energy Development Account (CDE) to cover, principally, the costs arising from dispatching of the thermoelectric plants.

These payments were recognized in the Statement of income as a compensation for costs of electricity purchased in the spot market, in the amount of R$ 2,302 (R$ 519 in 2013).

13. FINANCIAL ASSETS OF THE CONCESSION


	31/12/2014		31/12/2013
Assets related to infrastructure (a)
Distribution concessions		5,944		5,064
Transmission concessions
Contract 006/97 – Indemnity receivable		953		534
Contract 006/97 – Assets remunerated by tariff		277		200
Contract 079/00 – Assets remunerated by tariff		42		45

		7,216		5,843

CVA (Parcel A Variation Compensation Account) and Other financial components in tariff adjustments (b)		1,107		—

Total		8,323		5,843

Current assets		848		2
Non-current assets		7,475		5,841

a) Assets related to infrastructure

The distribution, transmission and gas contracts of the Company and its subsidiaries are within the criteria for application of Technical Interpretation IFRIC 12, which governs accounting of concessions. These contracts refer to the investment made in infrastructure, which will be the subject of indemnity by the Concession-granting power, during the period and at the end of the concessions, as specified in the regulations of the electricity sector and in the concession contract signed between Cemig and its subsidiaries and ANEEL.

For distribution contracts, the portion of the assets of the concession that will be totally used up during the concession period is recorded as an Intangible asset and is completely amortized during the concession agreement period. The part of the value of the assets that will not be completely amortized by the end of the concession agreement period is reported as a Financial asset due to an unconditional right to receive cash or other financial asset directly from the grantor.

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Transmission assets

ANEEL Normative Resolution 589 of December 10, 2013 laid down the criteria for calculation of the New Replacement Value (Valor Novo de Reposiçã, or VNR) of the transmission facilities, for the purposes of indemnity.

The valuation opinion delivered to ANEEL on July 31, 2014 represented an indemnity to the Company in the amount of R$ 1,169, on base date December 31, 2012, of which R$ 285 has been received in the first quarter of 2013.

On February 23, 2015, ANEEL sent the Company the Report of Inspection with the preliminary review of the valuation report sent by the Company, in the original amount of R$ 1,157, which updated to December 31, 2014 represents R$ 1,239.

The amounts recorded corresponding to the indemnity specified for the transmission assets relating to concession grant 006/97, formed up to December 31, 2012, and the subject of the valuation report referred to above, are R$ 597, this net of the R$ 285 already received.

Thus, the Company recognized in the statement of income for 2014 the difference between the amount of the preliminary Opinion inspected by ANEEL, which corresponds to an indemnity of R$ 954 (net of the R$ 285 already received), and the carrying value of R$ 597, corresponding to a revenue of R$ 357.

It will be the responsibility of the Mining and Energy Ministry to define the complementary guidelines in relation to the form and period of payment of the amounts referred to in the related Ministerial Order.

The remaining balance in relation to the transmission concessions refers to investments which will be remunerated through Permitted Revenue, as established by ANEEL through specific authorizations.

Distribution assets

The process of Tariff Review of the subsidiary Cemig D takes place every five years, through a process of economic evaluation, in which the tariffs of the Company’s distribution concessions in the state of Minas Gerais are decided. Within the process of tariff review, a variable known as the Remuneration Base of Assets (Base Regulatória de Remuneração, or BRR), related to the assets linked to the concessions, is decided.

On March 11, 2013, the Economic and Financial Inspection Management Unit (Superintendência de Fiscalização Econômico Financeira, or SFF) of ANEEL, by its Dispatch 689, published the preliminary BRR of Cemig D, in the amount of R$ 5,112. Shortly after the publication of the preliminary BRR, management began discussions with ANEEL with the aim of demonstrating, technically, to that Agency the need for the said amount to be reviewed. On April 5, 2013, in a meeting with the Council of ANEEL, the revised BRR of Cemig D, in the amount of R$ 5,512 was homologated.

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The Company filed a further appeal to ANEEL questioning certain criteria and value of the BRR that was decided on April 5, 2013, since the amounts considered in the revised published BRR, relating principally to expenses made by the Company for the Light for Everyone Program (Programa Luz para Todos, or PLPT) are still substantially lower than those actually incurred in the execution of the program.

On March 25, 2014, the Director-General of ANEEL issued Director-General’s Dispatch 729, which partially granted the Company’s requests for reconsideration in the Administrative Appeal filed by Cemig D against Dispatch 689/2013 – approving a new value for the Company’s BRR, to R$ 5,849, an increase of R$ 337 on Company’s BRR.

The effect of the homologation of the final BRR, representing a reduction in the Company’s financial assets in the amount of R$ 110, was recognized in the statement of income for 2014.

The changes in Financial assets of the concession related to infrastructure is as follows:


	Transmission			Distribution			Gas			Total
Balance on January 1. 2012		758			3,118			—			3,876
Additions		300			1,710			—			2,010
Written off		(2	)		(70	)		—			(73	)
Transfers		(50	)		—			—			(50	)

Balance on December 31. 2012		1,006			4,758			—			5,763

Additions		91			—			—			91
Written off		(1	)		(18	)		—			(18	)
Reversal of provision		24			—			—			24
Transfers		(52	)		319			—			267
Amounts received		(289	)		—			—			(289	)
Monetary updating		—			5			—			5

Balance on December 31. 2013		779			5,064			—			5,843

Additions		80			—			—			80
Written off		—			(22	)		—			(22	)
Revenue recorded for adjustment in the value of the transmission indemnity		420			—			—			420
Asset acquired in business combination		—			—			656			656
Transfers *		(1	)		844			(656	)		187
Amounts received		(6	)		—			—			(6	)
Monetary updating		—			58			—			58

Balance on December 31. 2014		1,272			5,944			—			7,216

(*)	As mentioned on note 4, Gasmig has renewed its concession agreement on December 26, 2014 extending its concession terms to January, 2053. As such financial assets were transferred to intangible assets as of December 31, 2014, to be consumed during the extended term.

b) CVA Account (Compensation of Parcel A items) and Other Financial Components in tariff adjustments

On November 25, 2014, ANEEL amended the concession contracts of the Brazilian electric power distribution companies to guarantee that in the event that the concession contract is terminated for any reason, the remaining balances (assets and liabilities) of any remaining payment or reimbursement through the tariff process is considered by the grantor for compensation purposes.

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Thus, as from the signature of the amendment of the concession agreement on December 10, 2014, Cemig D now recognizes the balance of the CVA account and the balance of other financial components accumulated up to that date. The Company recognized CVA balances in statement of financial position as either financial assets or liabilities, depending on the case, with a corresponding debit or credit to revenue from sales of goods and services in the statement of income.

The Company has financial assets and liabilities, recognized as from December 2014, as a result of the contractual amendment, as shown below.

This table shows the composition of the balance of CVA and other financial components recognized on December 31, 2014:


Balance at December 31, 2014	Amounts homologated by ANEEL in the last tariff adjustment			Amounts to be homologated by ANEEL in the next tariff adjustment			TOTAL
Assets
Quota for the Energy Development Account (CDE)		—			13			13
Tariff for use of transmission facilities of grid participants		16			79			95
Tariff for transport of electricity provided by Itaipu		—			2			2
Program to encourage alternative sources of electricity – Proinfa		2			—			2
System Service Charges (ESS) and Reserve Energy Charge (EER)		3			—			3
Electricity purchased for resale		447			1,617			2,064
Overcontracting of supply		6			205			211
Others		36			—			36

Total assets		510			1,916			2,426

Liabilities
System Service Charges (ESS) and Reserve Energy Charge (EER)		(23	)		(287	)		(310	)
Electricity purchased for resale		(345	)		(649	)		(994	)
Neutrality of Portion A		(6	)		(5	)		(11	)
Others		(2	)		(2	)		(4	)

Total liabilities		(376	)		(943	)		(1,319	)

Total net assets presented in Statement of financial position		134			973			1,107

Current assets		133			711			844

Non-current assets		1			262			263

The following is a brief description of main features of these assets and liabilities:

Account for Compensation of Parcel A Costs Variation (CVA) and neutrality of sector charges

The balance on the Account of CVA (Compensation for Variation of Parcel A items) in tariff adjustments and for Neutrality of Sector Charges refers to the positive and negative differences between the estimate of the Company’s non-manageable costs and the payments actually made. The variations found are the subject of monetary updating based on the Selic rate and compensated in the subsequent tariff adjustments.

Other financial components

This refers to the other positive or negative differences between the estimate of non-manageable costs, not defined as CVA, and the payments actually made, compensated in the subsequent tariff adjustments.

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14. INVESTMENTS

This table gives a summary of the financial information on the affiliated companies and jointly-controlled enterprises. The information presented below has been adjusted by the percentage of the Company’s equity interest in each item.


	2014		2013
Cemig Geração e Transmissão
Hidrelétrica Cachoeirão		34		34
Guanhães Energia		69		69
Hidrelétrica Pipoca		28		24
Retiro Baixo		150		—
Madeira Energia (Santo Antônio power plant)		778		643
FIP Melbourne (Santo Antônio power plant)		604
Lightger		38		39
Baguari Energia		193		199
Renova		1,538		—
Aliança		3		—
Central Eólica Praias de Parajuru		62		61
Central Eólica Volta do Rio		84		78
Central Eólica Praias de Morgado		62		61
Amazônia Energia		395		311
Light		1,198		1,190
TAESA		2,188		2,250
Ativas Data Center		—		4
Gasmig		—		577
Epícares Empreendimentos e Participações Ltda		92		103
Companhia Transleste de Transmissão		14		29
Companhia Transudeste de Transmissão		13		14
Companhia Transirapé de Transmissão		13		14
Transchile		67		55
Companhia de Transmissão Centroeste de Minas		22		18
Axxiom Soluções Tecnológicas		23		8
Parati		372		380

		8,040		6,161

The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the Santo Antônio power plant, which is a case of an affiliated company in which the Company has significant influence.

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a) The movement of Investments in the jointly-controlled entities in 2014 and 2013, is as follows:


	2013		Equity method gain (Statement of income)			Equity method gain (Other comprehensive income)			Dividends			Injections / acquisitions		Other			2014
Gasmig (*)		577		47			—			(55	)		—		(569	)		—
Companhia Transleste de Transmissão		29		2			—			(17	)		—		—			14
Companhia Transudeste de Transmissão		14		1			—			(2	)		—		—			13
Companhia Transirapé de Transmissão		14		—			—			(1	)		—		—			13
Transchile		55		2			10			—			—		—			67
Companhia de Transmissão Centroeste de Minas		18		5			—			(1	)		—		—			22
Light		1,190		150			(6	)		(136	)		—		—			1,198
Axxiom Soluções Tecnológicas		8		(1	)		—			—			16		—			23
Hidrelétrica Cachoeirão		34		8			—			(8	)		—		—			34
Guanhães Energia		69		—			—			—			—		—			69
Hidrelétrica Pipoca		24		5			—			(1	)		—		—			28
Madeira Energia (Santo Antônio power plant)		643		(294	)		—			—			429		—			778
FIP Melbourne (Santo Antônio power plant)		—		(94	)		—			—			698		—			604
Lightger		39		—			—			(1	)		—		—			38
Baguari Energia		199		8			—			(14	)		—		—			193
Central Eólica Praias de Parajuru		61		2			—			(1	)		—		—			62
Central Eólica Volta do Rio		78		6			—			—			—		—			84
Central Eólica Praias de Morgado		61		2			—			(1	)		—		—			62
Amazônia Energia		311		(17	)		—			—			101		—			395
Ativas Data Center		4		(26	)		—			—			—		22			—
Epícares Empreendimentos		103		3			—			(14	)		—		—			92
Parati		380		41			(1	)		(48	)		—		—			372
Taesa		2,250		376			—			(438	)		—		—			2,188
Renova		—		(12	)		—			—			1,550		—			1,538
Aliança		—		—			—			—			3		—			3
Retiro Baixo		—		(4	)		—			—			154		—			150

		6,161		210			3			(738	)		2,951		(547	)		8,040

(*)	Consolidation of Gasmig began as from October 2014, and as a result the value of the investment, of R$ 569 was eliminated.

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	2012		Equity method gain (Statement of income)			Equity method gain (Other comprehensive income)		Disposal TBE/Taesa			Dividends			Other		2013
Gasmig		508		91			—		—			(22	)		—		577
Companhia Transleste de Transmissão		27		6			—		—			(4	)		—		29
Companhia Transudeste de Transmissão		14		3			—		—			(3	)		—		14
Companhia Transirapé de Transmissão		12		3			—		—			(1	)		—		14
Transchile		48		—			7		—			—			—		55
Companhia de Transmissão Centroeste de Minas		21		4			—		—			(7	)		—		18
Light		1,104		113			25		—			(52	)		—		1,190
Emp. Paraense de Transm. de Energia (ETEP)		132		8			—		(133	)		(7	)		—		—
Emp. Norte de Transm. de Energia (ENTE)		304		22			—		(310	)		(16	)		—		—
Emp. Regional de Transm. de Energia (ERTE)		73		5			—		(72	)		(6	)		—		—
Emp. Amazonense de Transm. de Energia (EATE)		670		50			—		(685	)		(35	)		—		—
Emp. Catarinense de Transm. de Energia (ECTE)		43		2			—		(42	)		(3	)		—		—
Axxiom Soluções Tecnológicas		5		1			—		—			—			2		8
Hidrelétrica Cachoeirão		32		8			—		—			(6	)		—		34
Guanhães Energia		20		—			—		—			—			49		69
Hidrelétrica Pipoca		20		4			—		—			—			—		24
Madeira Energia		428		47			—		—			—			168		643
Lightger		40		1			—		—			(2	)		—		39
Baguari Energia		194		7			—		—			(2	)		—		199
EBTE		154		12			—		(166	)		—			—		—
Central Eólica Praias de Parajuru		60		1			—		—			—			—		61
Central Eólica Volta do Rio		74		4			—		—			—			—		78
Central Eólica Praias de Morgado		62		(1	)		—		—			—			—		61
Amazônia Energia		203		(3	)		—		—			—			111		311
Ativas Data Center		—		(16	)		—		—			—			20		4
Epícares Empreendimentos		—		7			—		—			—