6-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of February, 2019

Commission File Number: 1-15224

 

 

Energy Company of Minas Gerais

(Translation of Registrant’s Name Into English)

 

 

Avenida Barbacena, 1219

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 ☒                 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 ☒

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 Items

1. Market Announcement Dated November  27, 2018: CEMIG and CEMIG D submit restated ITR for 2Q and 3Q 2018

2. Revision of Quarterly Information (ITR) for 2Q 2018 (Restatement)

3. Revision of Quarterly Information (ITR) for 3Q 2018 (Restatement)

4. Market Announcement Dated December  20, 2018: Cross-holding elimination between CEMIG GT and Energimp is completed

5. Summary of Minutes of the 750th Meeting of the Board of Directors Dated December 28, 2018

6. Market Announcement Dated January  2, 2019: Renova’s Board of Directors does not approve AES’s offer for Power Generation Complex

7. Market Announcement Dated January  3, 2019: TAESA’s Extraordinary General Meeting approves acquisition of transmission companies

8. Market Announcement Dated January  15, 2019: TAESA places winning bid on Eletrobras Auction

9. Market Announcement Dated January  15, 2019: Eletrobras accepts CEMIG’s exercise of first refusal right on Auction 01/2018

10. Summary of Minutes of the 751th Meeting of the Board of Directors Dated January 18, 2019

11. Market Announcement Dated January  29, 2019: Cemig named most sustainable electricity company in the Americas

 


Forward-Looking Statements

This report contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Actual results could differ materially from those predicted in such forward-looking statements. Factors which may cause actual results to differ materially from those discussed herein include those risk factors set forth in our most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission. CEMIG undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date hereof, and claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 


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.

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

 

By:

 

/s/ Maurício Fernandes Leonardo Júnior

 

Name: Maurício Fernandes Leonardo Júnior

Title: Chief Finance and Investor Relations Officer

Date: February 8, 2019

 


 

1. MARKET ANNOUNCEMENT DATED NOVEMBER 27, 2018: CEMIG AND CEMIG D SUBMIT RESTATED ITR FOR 2Q AND 3Q 2018

 

 

 

 

1


LOGO

 

 

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Revision of Quarterly Information (ITR) for 2Q and 3Q 2018

Cemig (Companhia Energética de Minas Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

On today’s date Cemig and its wholly-owned subsidiary Cemig Distribuição S.A. (Cemig D) have voluntarily re-presented their formal Quarterly Information (ITR) reports for the second and third quarters of 2018.

The re-presentation arose from differences identified in the manner of accounting of the amortization of certain concession financial assets and liabilities related to the CVA (Portion A Compensation) Account and Other Financial Components in the tariff-setting process, approved in Cemig D’s 4th Periodic Tariff Review.

The adjustments result in higher net profit for Cemig D than in the figures published to the market in the Quarterly Information (ITR) for the second and third quarters of 2018.

The Company has opted to re-present this Interim Accounting Information, so as to better reflect its equity situation and operational performance.

Cemig invites its investors to participate in a webcast and conference call on its third quarter 2018 results, on Wednesday, November 28, 2018 at 2 p.m., as specified in its Corporate Events Calendar.

Belo Horizonte, November 27, 2018.

Maurício Fernandes Leonardo Júnior

Diretor de Finanças e Relações com Investidores

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

2


 

2. REVISION OF QUARTERLY INFORMATION (ITR) FOR 2Q 2018 (RESTATEMENT)

 

 

 

 

3


LOGO

 

CONTENTS

 

STATEMENTS OF FINANCIAL POSITION      5  
STATEMENTS OF INCOME      7  
STATEMENTS OF COMPREHENSIVE INCOME      9  
STATEMENTS OF CHANGES IN EQUITY—CONSOLIDATED      11  
STATEMENTS OF CASH FLOWS      13  
STATEMENTS OF ADDED VALUE      15  
CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION      16  
1.  

OPERATING CONTEXT

     16  
2.  

BASIS OF PREPARATION

     18  
3.  

PRINCIPLES OF CONSOLIDATION

     28  
4.  

CONCESSIONS AND AUTHORIZATIONS

     29  
5.  

CASH AND CASH EQUIVALENTS

     30  
6.  

SECURITIES

     30  
7.  

CUSTOMERS, TRADERS AND TRANSPORT OF ENERGY CONCESSION HOLDERS

     31  
8.  

RECOVERABLE TAXES

     32  
9.  

INCOME AND SOCIAL CONTRIBUTION TAXES

     33  
10.  

RESTRICTED CASH

     35  
11.  

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

     35  
12.  

ESCROW DEPOSITS

     36  
13.  

REIMBURSEMENT OF TARIFF SUBSIDIES

     37  
14.  

CONCESSION FINANCIAL ASSETS AND LIABILITIES

     37  
15.  

INVESTMENTS

     44  
16.  

PROPERTY, PLANT AND EQUIPMENT

     54  
17.  

INTANGIBLE ASSETS

     56  
18.  

SUPPLIERS

     58  
19.  

TAXES PAYABLE, INCOME TAX AND SOCIAL CONTRIBUTION TAX AND AMOUNTS TO BE REIMBURSED TO CUSTOMERS

     58  
20.  

LOANS, FINANCINGS AND DEBENTURES

     60  
21.  

REGULATORY CHARGES

     65  
22.  

POST-RETIREMENT OBLIGATIONS

     65  
23.  

PROVISIONS

     66  
24.  

EQUITY AND REMUNERATION TO SHAREHOLDERS

     75  
25.  

REVENUE

     77  
26.  

OPERATING COSTS AND EXPENSES

     82  
27.  

FINANCE INCOME AND EXPENSES

     87  
28.  

RELATED PARTY TRANSACTIONS

     88  
29.  

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     92  
30.  

ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS

     105  
31.  

OPERATING SEGMENTS

     106  
32.  

THE ANNUAL TARIFF ADJUSTMENT

     109  
33.  

NON-CASH TRANSACTIONS

     109  
34.  

SUBSEQUENT EVENTS

     109  
CONSOLIDATED RESULTS      112  
OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL      126  
REPORT ON THE REVIEW OF INTERIM INFORMATION—ITR      133  

 

4


LOGO

 

STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

ASSETS

(Thousands of Brazilian Reais)

 

     Note      Consolidated      Holding company  
   June 30, 2018
(Restated)
     Dec. 31, 2017      June 30, 2018
(Restated)
     Dec. 31, 2017  

CURRENT

              

Cash and cash equivalents

     5        940,937        1,030,257        63,045        38,672  

Securities

     6        288,035        1,058,384        37,107        63,960  

Customers and traders and Concession holders – Transport of electricity

     7        3,759,200        3,885,392        24,274        —    

Concession financial assets

     14        646,904        847,877        —          —    

Recoverable taxes

     8        150,367        173,790        3,402        43  

Income and Social Contribution taxes recoverable

     9a        389,828        339,574        25,889        19,722  

Dividends receivable

        9,648        76,893        409,398        603,049  

Restricted cash

     10        111,220        106,227        90,663        87,872  

Inventories

        33,730        38,134        10        10  

Advances to suppliers

        96,563        116,050        —          —    

Accounts receivable from the State of Minas Gerais

     11               235,018        —          235,018  

Reimbursement of tariff subsidies

     13        85,827        77,086        —          —    

Low-income subscriber subsidy

        25,140        26,660        —          —    

Derivative financial instruments—Swaps

     29        6,854        —          —          —    

Other

        487,047        525,961        9,250        10,473  
     

 

 

    

 

 

    

 

 

    

 

 

 
        7,031,300        8,537,303        663,038        1,058,819  

Assets classified as Held for sale

     30        281,578        —          281,578        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, CURRENT

        7,312,878        8,537,303        944,616        1,058,819  
     

 

 

    

 

 

    

 

 

    

 

 

 

NON-CURRENT

              

Securities

     6        63,847        29,753        9,525        1,737  

Advance to suppliers

     28        99,118        6,870        —          —    

Customers and traders and Concession holders – Transport of electricity

     7        76,594        255,328        —          —    

Recoverable taxes

     8        230,781        230,678        4,100        1,810  

Income and Social Contribution taxes recoverable

     9a        11,248        20,617        11,248        20,617  

Deferred income and Social Contribution taxes

     9b        1,936,021        1,871,228        791,360        756,739  

Escrow deposits

     12        2,380,376        2,335,632        280,876        277,791  

Derivative financial instruments—Swaps

     29        125,577        8,649        —          —    

Accounts receivable from the State of Minas Gerais

     11        248,100        —          248,100        —    

Other

        666,606        628,443        29,150        34,978  

Concession financial assets

     14        7,277,562        6,604,625        —          —    

Investments – Equity method

     15        7,703,552        7,792,225        14,101,036        13,692,183  

Property, plant and equipment

     16        2,420,914        2,762,310        2,506        1,810  

Intangible assets

     17        11,184,952        11,155,928        6,730        2,458  
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, NON-CURRENT

        34,425,248        33,702,286        15,484,631        14,790,123  
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL ASSETS

        41,738,126        42,239,589        16,429,247        15,848,942  
     

 

 

    

 

 

    

 

 

    

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

5


LOGO

 

STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

LIABILITIES

(Thousands of Brazilian Reais)

 

     Note      Consolidated     Holding company  
   June 30, 2018
(Restated)
    Dec. 31, 2017     June 30, 2018
(Restated)
    Dec. 31, 2017  

Suppliers

     18        2,152,676       2,342,757       8,812       4,667  

Regulatory charges

     21        434,349       512,673       5,836       —    

Profit sharing

        19,490       9,089       1,135       348  

Taxes payable

     19a        294,755       704,572       6,546       5,841  

Income and Social Contribution tax

     19b        67,648       115,296       —         —    

Interest on Equity and Dividends payable

     24        427,790       427,832       425,832       425,838  

Loans, financings and debentures

     20        2,740,647       2,370,551       18,653       —    

Payroll and related charges

        222,530       207,091       15,921       11,072  

Post-retirement obligations

     22        236,663       231,894       12,906       12,974  

Concessions payable

        2,326       2,987       —         —    

Concession financial liabilities

     14        16,751       414,800       —         —    

Derivative financial instruments—put options

     29        569,286       507,232       569,286       507,232  

Advances from clients

     7        150,728       232,762       —         —    

Derivative financial instruments—Swaps

     29        1,214       12,596       —         —    

Other obligations

        523,782       570,152       12,990       6,218  
     

 

 

   

 

 

   

 

 

   

 

 

 
        7,860,635       8,662,284       1,077,917       974,190  

Liabilities directly associated with assets classified as held for sale

     30        5,905       —         5,905       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL, CURRENT

        7,866,540       8,662,284       1,083,822       974,190  
     

 

 

   

 

 

   

 

 

   

 

 

 

NON-CURRENT

           

Regulatory charges

     21        278,888       249,817       —         —    

Loans, financings and debentures

     20        11,863,407       12,027,146       43,484       —    

Taxes payable

     19a        28,267       28,199       —         —    

Deferred income tax and Social Contribution tax

     9b        717,902       734,689       —         —    

Provisions

     23        668,434       678,113       75,316       63,194  

Post-retirement obligations

     22        4,004,593       3,954,287       460,706       446,523  

Concessions payable

        16,151       18,240       —         —    

Concession financial liabilities

     14        6,295       —         —         —    

Pasep and Cofins taxes to be reimbursed to customers

     19a        1,105,572       1,087,230       —         —    

Derivative financial instruments—put options

     29        336,199       307,792       —         —    

Derivative financial instruments—Swaps

     29        —         28,515       —         —    

Other obligations

        117,575       133,141       41,713       39,049  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL, NON-CURRENT

        19,143,283       19,247,169       621,219       548,766  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES

        27,009,823       27,909,453       1,705,041       1,522,956  
     

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY

     24           

Share capital

        7,293,763       6,294,208       7,293,763       6,294,208  

Capital reserves

        2,249,721       1,924,503       2,249,721       1,924,503  

Profit reserves

        5,728,574       5,728,574       5,728,574       5,728,574  

Equity valuation adjustments

        (836,528     (836,522     (836,528     (836,522

Subscription of shares, to be capitalized

        —         1,215,223       —         1,215,223  

Retained earnings

        288,676       —         288,676       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

        14,724,206       14,325,986       14,724,206       14,325,986  
     

 

 

   

 

 

   

 

 

   

 

 

 

NON-CONTROLLING INTERESTS

        4,097       4,150       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

        14,728,303       14,330,136       14,724,206       14,325,986  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

        41,738,126       42,239,589       16,429,247       15,848,942  
     

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

6


LOGO

 

STATEMENTS OF INCOME

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais except earnings per share)

 

            Consolidated     Holding company  
     Note      Jan to Jun 2018
(Restated)
    Jan to Jun 2017     Jan to Jun 2018
(Restated)
    Jan to Jun 2017  

GOING CONCERN OPERATIONS

           

NET REVENUE

     25        10,541,969       10,017,959       146       178  

OPERATING COSTS

           

COST OF ENERGY AND GAS

     26           

Energy purchased for resale

        (5,082,598     (4,742,418     —         —    

Charges for use of the national grid

        (808,580     (404,261     —         —    

Gas purchased for resale

        (556,459     (485,163     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (6,447,637     (5,631,842     —         —    

OTHER COSTS

     26           

Personnel and managers

        (532,260     (688,847     —         —    

Materials

        (22,966     (17,599     —         —    

Outsourced services

        (413,971     (341,397     —         —    

Depreciation and amortization

        (374,523     (385,455     —         —    

Operating provisions, net

        (1,901     (172,079     —         —    

Infrastructure construction cost

        (383,643     (441,034     —         —    

Other

        (41,227     (21,314     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (1,770,491     (2,067,725     —         —    

TOTAL COST

        (8,218,128     (7,699,567     —         —    

GROSS PROFIT

        2,323,841       2,318,392       146       178  

OPERATING EXPENSES

     26           

Selling expenses

        (167,557     (141,472     —         —    

General and administrative expenses

        (313,117     (437,894     (34,438     (28,293

Operating provisions

        (102,795     (56,954     (78,189     (15,311

Other operating revenues (expenses)

        (256,325     (313,114     (29,545     (25,030
     

 

 

   

 

 

   

 

 

   

 

 

 
        (839,794     (949,434     (142,172     (68,634

Share of (loss) profit, net, of associates and joint ventures

     15        (26,233     60,118       529,803       511,625  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income (expenses) and taxes

        1,457,814       1,429,076       387,777       443,169  

Finance income

     27        491,169       348,901       18,792       33,018  

Finance expenses

     27        (1,345,801     (1,083,201     (3,085     (1,961
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax and social contribution tax

        603,182       694,776       403,484       474,226  

Current income and Social Contribution taxes

     9c        (196,419     (292,722     —         (2,533

Deferred income and Social Contribution taxes

     9c        25,574       78,794       38,569       8,885  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period from going concern operations

        432,337       480,848       442,053       480,578  
     

 

 

   

 

 

   

 

 

   

 

 

 

DISCONTINUED OPERATIONS

           

Net income for the period from discontinued operations

     30        21,372       —         11,358       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

        453,709       480,848       453,411       480,578  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total of net income for the period attributed to:

           

Equity holders of the parent

           

Net income for the period from going concern operations

        432,039       480,578       442,053       480,578  

Net income for the period from discontinued operations

        21,372       —         11,358       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to equity holders of the parent

        453,411       480,578       453,411       480,578  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-controlling interests

           

Net income for the period from going concern operations

        298       270       —         —    

Net income for the period from discontinued operations

        —         —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to non-controlling interests

        298       270       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        453,709       480,848       453,411       480,578  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per preferred share – R$

     24        0.31       0.38       0.31       0.38  

Basic and diluted earnings per common share – R$

     24        0.31       0.38       0.31       0.38  

The Condensed Notes are an integral part of the interim financial information.

 

7


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STATEMENTS OF INCOME

FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(In thousands of Brazilian Reais – except earnings per share)

 

            Consolidated     Holding company  
     Note      Apr to Jun 2018
(Restated)
    Apr to Jun 2017     Apr to Jun 2018
(Restated)
    Apr to Jun 2017  

GOING CONCEERN OPERATIONS

           

NET REVENUE

     25        5,606,538       5,205,029       73       84  

OPERATING COSTS

           

COST OF ENERGY AND GAS

     26           

Energy purchased for resale

        (2,818,905     (2,649,330     —         —    

Charges for use of the national grid

        (416,038     (197,764     —         —    

Gas purchased for resale

        (293,225     (262,651     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (3,528,168     (3,109,745     —         —    

OTHER COSTS

     26           

Personnel and managers

        (291,458     (401,340     —         —    

Materials

        (15,811     (11,301     —         —    

Outsourced services

        (243,201     (194,961     —         —    

Depreciation and amortization

        (179,837     (199,011     —         —    

Operating provisions, net

        10,876       (93,147     —         —    

Infrastructure construction cost

        (202,974     (240,475     —         —    

Other

        (37,941     (14,159     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (960,346     (1,154,394     —         —    

TOTAL COST

        (4,488,514     (4,264,139     —         —    

GROSS PROFIT

        1,118,024       940,890       73       84  

OPERATING EXPENSES

     26           

Selling expenses

        (91,374     (75,277     —         —    

General and administrative expenses

        (96,468     (231,896     (24,842     (8,789

Operating provisions

        (59,109     6,450       (38,878     1,157  

Other operating expenses

        (124,165     (140,437     (15,170     (11,630
     

 

 

   

 

 

   

 

 

   

 

 

 
        (371,116     (441,160     (78,890     (19,262

Share of (loss) profit, net, of associates and joint ventures

     15        (83,107     30,477       (31,433     152,163  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income (expenses) and taxes

        663,801       530,207       (47,384     132,985  

Finance income

     27        249,315       169,010       7,544       9,438  

Finance expenses

     27        (946,147     (510,564     (2,191     (834
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax and social contribution tax

        (33,031     188,653       (42,031     141,589  

Current income and Social Contribution taxes

     9c        (11,393     (59,265     —         (2,533

Deferred income and Social Contribution taxes

     9c        12,166       8,726       19,635       (1,074
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) for the period from going concern operations

        (32,258     138,114       (22,396     137,982  

DISCONTINUED OPERATIONS

           

Net income (loss) for the period from discontinued operations

     30        21,372       —         11,358       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

        (10,886     138,114       (11,038     137,982  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total of net income for the period attributed to:

           

Equity holders of the parent

           

Net income for the period from going concern operations

        (32,410     138,114       (22,396     137,982  

Net income for the period from discontinued operations

        21,372       —         11,358       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to equity holders of the parent

        (11,038     137,982       (11,038     137,982  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-controlling interests

           

Net income for the period from going concern operations

        152       132       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to non-controlling interests

        152       132       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (10,886     138,114       (11,038     137,982  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per preferred share – R$

     24        (0.01     0.11       (0.01     0.11  

Basic and diluted earnings (loss) per common share – R$

     24        (0.01     0.11       (0.01     0.11  

The Condensed Notes are an integral part of the interim financial information.

 

8


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STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated     Holding company  
     Jan to Jun 2018
(Restated)
    Jan to Jun 2017     Jan to Jun 2018
(Restated)
    Jan to Jun 2017  

NET INCOME FOR THE PERIOD

     453,709       480,848       453,411       480,578  

OTHER COMPREHENSIVE INCOME

        

Items not to be reclassified to statements of income in subsequent periods

        

Post retirement obligations – premeasurement of obligations of the defined benefit plans, net of taxes

     (416     (680     —         —    

Equity gain (loss) on other comprehensive income in subsidiary and jointly-controlled entity, net of taxes

     —         (4,851     (416     (5,531
  

 

 

   

 

 

   

 

 

   

 

 

 
     (416     (5,531     (416     (5,531

Items to be reclassified to statements of income in subsequent periods

        

Equity gain on other comprehensive income, in subsidiary and jointly-controlled entity, relating to fair value of financial asset, net of taxes

     —         (38,134     —         (38,134
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME FOR THE PERIOD

     453,293       437,183       452,995       436,913  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of comprehensive income for the period attributed to:

        

Equity holders of the parent

     452,995       436,913       452,995       436,913  

Non-controlling interests

     298       270       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     453,293       437,183       452,995       436,913  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

9


LOGO

 

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated     Holding company  
     Apr to Jun 2018
(Restated)
    Apr to Jun 2017     Apr to Jun 2018
(Restated)
    Apr to Jun 2017  

NET INCOME FOR THE PERIOD

     (10,886     138,114       (11,038     137,982  

OTHER COMPREHENSIVE INCOME

        

Items not to be reclassified to statements of income in subsequent periods

        

Equity gain (loss) on other comprehensive income in jointly-controlled entity, net of tax

     —         (3,984     —         (3,984
  

 

 

   

 

 

   

 

 

   

 

 

 
     —         (3,984     —         (3,984

Items to be reclassified to statements of income in subsequent periods

        

Equity gain on other comprehensive income, in subsidiary and jointly-controlled entity, relating to fair value of financial assets, net of taxes

     —         (73,825     —         (73,825
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME FOR THE PERIOD

     (10,886     60,305       (11,038     60,173  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of comprehensive income for the period attributed to:

        

Equity holders of the parent

     (11,038     60,173       (11,038     60,173  

Non-controlling interests

     152       132       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     (10,886     60,305       (11,038     60,173  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

10


LOGO

 

STATEMENTS OF CHANGES IN EQUITY - CONSOLIDATED

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Share
capital
     Subscription
of shares to
be
capitalized
    Capital
reserves
     Profit
reserves
     Equity
valuation
adjustments
    Retained
earnings
    Total
equity
holders of
the parent
    Non-controlling
interests
    Total
Equity
 

BALANCES ON DEC. 31, 2017

     6,294,208        1,215,223       1,924,503        5,728,574        (836,522     —         14,325,986       4,150       14,330,136  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

First adoption CPC 48

     —          —         —          —          —         (181,846     (181,846     —         (181,846

Net income for the period

     —          —         —          —          —         453,411       453,411       298       453,709  

Other comprehensive income

                     

Measurement of obligations of the defined benefit plans, net of taxes

     —          —         —          —          (416     —         (416     —         (416
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          —         —          —          (416     453,411       452,995       298       453,293  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subscription of Shares to be Capitalized

     —          109,550       —          —          —         —         109,550       —         109,550  

Capital subscribed

     999,555        (999,555     —          —          —         —         —         —         —    

Constitution of reserves

        (325,218     325,218        —          —         —         —         —         —    

Other changes in Equity:

                     

Interest on Equity

     —          —         —          —          —         —         —         (351     (351

Realization of reserves

                     

Realization of deemed cost of PP&E

     —          —         —          —          410       17,111       17,521       —         17,521  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES ON JUNE 30, 2018 (RESTATED)

     7,293,763        —         2,249,721        5,728,574        (836,528     288,676       14,724,206       4,097       14,728,303  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

11


LOGO

 

STATEMENTS OF CHANGES IN EQUITY—CONSOLIDATED

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016

(Thousands of Brazilian Reais)

 

     Share
capital
     Capital
reserves
     Profit
reserves
     Equity
valuation
adjustments
    Retained
earnings
    Total equity
holders of
the parent
    Non-controlling
interests
    Total Equity  

BALANCES ON DECEMBER 31, 2016

     6,294,208        1,924,503        5,199,855        (488,285     —         12,930,281       4,090       12,934,371  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     —          —          —          —         480,578       480,578       270       480,848  

Other comprehensive income

                   

Measurement of obligations of the defined benefit plans, net of taxes

     —          —          —          (680     —         (680     —         (680

Equity gain (loss) on Other comprehensive income in subsidiary and jointly-controlled entity

     —          —          —          (42,985     —         (42,985     —         (42,985
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          —          —          (43,665     480,578       436,913       270       437,183  

Other changes in Equity:

                   

Additional dividends proposed to non-controlling interests

     —          —          —          —         —         —         (424     (424

Tax incentives reserve

     —          —          2,192        —         (2,192     —         —         —    

Realization of reserves

                   

Realization of deemed cost of PP&E

     —          —          —          (854     598       (256     —         (256
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES ON JUNE 30, 2017

     6,294,208        1,924,503        5,202,047        (532,804     478,984       13,366,938       3,936       13,370,874  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

12


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STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

            Consolidated     Holding company  
     Note      Jan to Jun 2018
(Restated)
    Jan to Jun 2017     Jan to Jun 2018
(Restated)
    Jan to Jun 2017  

CASH FLOW FROM OPERATIONS

           

Net income for the period from going concern operations

        432,337       480,848       442,053       480,578  

Adjustments to reconcile net income to net cash flows:

           

Income tax and Social Contribution taxes

        170,845       213,928       (38,569     (6,352

Depreciation and amortization

     26        411,300       410,800       216       236  

Loss on write off of net residual value of unrecoverable Concession financial assets, PP&E and Intangible assets

        14,818       14,651       155       23  

Share of profit (loss) in associates and joint ventures

     15        26,233       (60,118     (529,803     (511,625

Interest and monetary variation

        279,744       624,221       (23,933     (952

Foreign exchange variation on loans

     20        554,278       121             —    

Amortization of loans’ transaction costs

     20        15,548       29,827       153       —    

Provisions for operating losses, net

     26        267,319       369,918       78,189       15,311  

Fair value adjustment of derivative financial instruments – Swap

     29        (180,429     —               —    

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments

     25        (1,150,672     331,896             —    

Post-retirement obligations

     22        202,556       228,012       21,990       21,242  
     

 

 

   

 

 

   

 

 

   

 

 

 
        1,043,877       2,644,104       (49,549     (1,539
     

 

 

   

 

 

   

 

 

   

 

 

 

(Increase) / decrease in assets

           

Customers and traders and Concession holders

        (14,147     (220,199     3,928       —    

CVA (Portion A Compensation) Account and

Other Financial Components, in tariff adjustments

     14        280,453       145,502             —    

Energy Development Account (CDE)

        (8,741     (9,594           —    

Recoverable taxes

        (45,383     526       285       (141

Income and Social Contribution taxes credit

        (72,663     55,284       3,652       79,081  

Escrow deposits

        (29,521     (13,655     9,472       6,448  

Dividends received from investments

        197,247       157,445       484,408       228,196  

Concession financial assets

        379,893       (36,162           —    

Advances to suppliers

        (63,707     5,656             —    

Gas drawing rights

        317       366,954             —    

Others

        92,759       30,053       (1,110     5,857  
     

 

 

   

 

 

   

 

 

   

 

 

 
        716,507       481,810       500,635       319,441  
     

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in liabilities

           

Suppliers

        (190,081     (23,660     (552     594  

Taxes payable

        (307,204     (225,049     831       (80,821

Income and Social Contribution taxes payable

        —         128,753             (452

Payroll and related charges

        15,439       9,357       2,869       1,309  

Regulatory charges

        (49,253     15,439       5,836       —    

Advances from clients

        (88,849     57,560             —    

Post-retirement obligations

     22        (147,481     (133,592     (7,875     (7,381

Others

        (86,407     (193,594     59       (9,202
     

 

 

   

 

 

   

 

 

   

 

 

 
        (853,836     (364,786     1,168       (95,953
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated by going concern operations

        906,548       2,761,128       452,254       221,949  
     

 

 

   

 

 

   

 

 

   

 

 

 

Interest paid on loans and financings

     20        (671,651     (711,474     (438     —    

Income and Social Contribution taxes paid

        (292,981     (283,024     (38     (2,081

Settlement of derivative financial instruments (Swap)

        12,981       —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) GOING CONCERN OPERATIONS

        (45,103     1,766,630       451,778       219,868  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from (used in) Discontinued operations

     30        36,602       —         18,944       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) OPERATING ACTIVITIES

        (8,501     1,766,630       470,722       219,868  
     

 

 

   

 

 

   

 

 

   

 

 

 

 

13


LOGO

 

     Note      Consolidated     Holding company  
   Jan to Jun 2018
(Restated)
    Jan to Jun 2017     Jan to Jun 2018
(Restated)
    Jan to Jun 2017  

INVESTING ACTIVITIES

           

Marketable securities

        738,632       (103,864     19,065       117,226  

Restricted cash

        (4,993     (20,810     (2,500     (20,719

Investments

           

Capital contributions in investees

        (149,918     (186,231     (569,105     (100,111

Cash received through merger

        —         —         428        

Property, plant and equipment

     16        (18,641     (31,364            

Intangible assets

     17        (368,570     (407,733     (15      
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING IN GOING CONCERN OPERATIONS

        196,510       (750,002     (552,127     (3,604
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investment activities—discontinued operations

     30        (7,631     —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING ACTIVITIES

        188,879       (750,002     (552,127     (3,604
     

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES

           

New loans and debentures

     20        395,860       60,109       —          

Capital increase

     24        109,550             109,550        

Payment of loans, financings and debentures

     20        (774,715     (855,057     (3,766      

Interest on capital and dividends paid

        (393     (270,709     (6     (270,709
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) FINANCING ACTIVITIES

        (269,698     (1,065,657     105,778       (270,709
     

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

        (89,320     (49,029     24,373       (54,445
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     5        1,030,257       995,132       38,672       69,352  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     5        940,937       946,103       63,045       14,907  
     

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

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STATEMENTS OF ADDED VALUE

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated      Holding company  
     Jan to Jun
2018
(Restated)
           Jan to Jun
2017
           Jan to
Jun 2018
(Restated)
          Jan to
Jun
2017
       

REVENUES

                  

Sales of electricity, gas and services (1)

     15,214,311          14,282,104          161         196    

Distribution construction revenue

     378,911          434,009          —           —      

Transmission construction revenue

     4,732          7,025          —           —      

Gain on financial updating of the Concession Grant Fee

     156,980          150,476          —           —      

Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession

     3,066          1,511          —           —      

Transmission indemnity revenue

     146,519          269,855          —           —      

Generation indemnity revenue

     34,463          —            —           —      

Investments in PP&E

     28,539          12,149          —           —      

Other revenues

     3,717          1,479          —           —      

Provision for Doubtful Receivables (PECLD)

     (162,063        (140,885        —           —      
  

 

 

      

 

 

      

 

 

     

 

 

   
     15,809,175          15,017,723          161         196    

INPUTS ACQUIRED FROM THIRD PARTIES

                  

Energy purchased for resale

     (5,575,380        (5,197,883        —           —      

Charges for use of national grid

     (900,253        (451,216        —           —      

Outsourced services (1)

     (663,913        (638,744        (9,377       (3,602  

Gas purchased for resale

     (556,458        (485,163        —           —      

Materials (1)

     (195,821        (217,936        3,707         (66  

Other operational costs (1)

     (229,758        (356,713        (82,895       (20,872  
  

 

 

      

 

 

      

 

 

     

 

 

   
     (8,121,583        (7,347,655        (88,565       (24,540  

GROSS VALUE ADDED

     7,687,592          7,670,068          (88,404       (24,344  

RETENTIONS

                  

Depreciation and amortization (1)

     (411,300        (410,800        (216       (236  
  

 

 

      

 

 

      

 

 

     

 

 

   

NET ADDED VALUE PRODUCED BY GOING CONCERN OPERATIONS

     7,276,292          7,259,268          (88,620       (24,580  

NET ADDED VALUE PRODUCED BY DISCONTINUED OPERATIONS

     21,372          —            11,358         —      

ADDED VALUE RECEIVED BY TRANSFER

                  

Share of (loss) profit, net, of associates and joint ventures

     (26,233        60,118          529,803         511,625    

Finance income (1)

     491,169          348,901          18,792         33,018    
  

 

 

      

 

 

      

 

 

     

 

 

   

ADDED VALUE TO BE DISTRIBUTED

     7,762,600          7,668,287          471,333         520,063    
  

 

 

      

 

 

      

 

 

     

 

 

   

DISTRIBUTION OF ADDED VALUE

                  
       %          %          %         %  
    

 

 

      

 

 

      

 

 

     

 

 

 

Employees

     816,235       10.52        1,072,781       13.99        43,703       9.27       39,991       7.69  

Direct remuneration

     521,283       6.72        600,072       7.83        19,122       4.06       14,217       2.73  

Post-employment obligations and Other benefits

     236,605       3.05        270,294       3.52        21,998       4.67       20,729       3.99  

FGTS

     32,681       0.42        36,993       0.48        762       0.16       682       0.13  

Programmed Voluntary Retirement Plan

     25,666       0.33        165,422       2.16        1,821       0.38       4,363       0.84  

Taxes

     5,079,531       65.44        4,945,812       64.50        (35,652     (7.56     (4,071     (0.78

Federal

     2,551,327       32.87        2,285,738       29.81        (36,137     (7.67     (4,613     (0,89

State

     2,520,154       32.47        2,652,340       34.59        267       0.06       392       0.08  

Municipal

     8,050       0.10        7,734       0.10        218       0.05       150       0.03  

Remuneration of external capital

     1,413,125       18.20        1,168,846       15.24        9,871       2.09       3,565       0.69  

Interest

     1,360,908       17.53        1,122,148       14.63        3,085       0.65       1,961       0.38  

Rentals

     52,217       0.67        46,698       0.61        6,786       1.44       1,604       0.31  

Remuneration of own capital

     453,709       5.84        480,848       6.27        453,411       96.20       480,578       92.40  

Retained earnings

     453,411       5.84        480,578       6.27        453,411       96.20       480,578       92.40  

Non-controlling interest in Retained earnings

     298       —          270       —          —         —         —         —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     7,762,600       100.00        7,668,287       100.00        471,333       100.00       520,063       100.00  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes the effect of net incomes arising from the discontinued operations.

The Condensed Notes are an integral part of the interim financial information.

 

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CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH PERIOD ENDED AS OF JUNE 30, 2018

(In Thousands of Brazilian Reais – except where otherwise indicated)

 

1.

OPERATING CONTEXT

 

a)

The Company

Companhia Energética de Minas Gerais (´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 São Paulo Stock Exchange (‘B3’) at Corporate Governance Level 1; through ADRs on the New York Stock Exchange (‘NYSE’); and on the stock exchange of Madrid (‘Latibex’). It is domiciled in Brazil, Belo Horizonte, Minas Gerais. It operates exclusively as a holding company, with subsidiaries and investments in associates or jointly controlled entities (collectively referred to as “Cemig” or the “the Company”), which are engaged in the construction and operation of infrastructure used in the generation, transformation, transmission, distribution and sale of electricity, and also activities in the various fields of the energy sector, for the purpose of commercial operation.

As of June 30, 2018 Company´s current liabilities exceeded its current assets by R$ 553,662 and R$ 139,206, respectively, in the consolidated and the Holding Company. In the half-year then ended, the Company generated negative consolidated operating cash flow in the amount of R$ 8,501 (positive in the amount of R$ 1,766,630 in the same period of 2017), arising mainly from higher than budgeted costs on purchase of energy – which will be the subject of reimbursement in the next tariff adjustment. The Holding Company generated a positive operating cash flow of R$ 470,722 (R$ 219,868 in the same period of 2017). Additionally, as of June 30, 2018, Cemig’s consolidated indebtedness from loans, financings and debentures on current and non-current liabilities comprised R$ 2,740,647 and R$ 11,863,407, respectively. The Company’s Management monitors its cash flow and, in that way, studies actions in order to the adjustment of its current financial position to the levels considered adequate to meet its necessities.

As part of the Company’s indebtness management, in December 2017 and July 2018 the subsidiary Cemig GT issued Eurobonds for an amount of US$ 1 billion (R$ 3.2 billion) and US$ 500 million (R$ 1.9 billion), respectively, which mature in 2024. In addition, at the end of 2017, Cemig entered into negotiations with its main creditors aiming at a Bank Debt Refinancing representing up to R$ 3.4 billion of which R$ 2.7 billion of the subsidiary Cemig D and R$ 741 million of the subsidiary Cemig GT. These initiatives have balanced the Company’s cash flows, extended average debt maturities, and improved its credit quality.

 

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Based on the facts and circumstances that existed on this reporting date, Management has evaluated the Company’s ability to continue on a going concern basis and is convinced that its operations have the capacity to generate funds to continue its business in the future. In addition, Management is not aware of any material uncertainties that could generate significant doubts about its ability to continue operating. Therefore, these interim financial information have been prepared on a going concern basis.

Merger of Cemig Telecomunicações S.A. (‘Cemig Telecom’) and sale of telecom assets

On March 31, 2018, Cemig completed the merger of its wholly-owned subsidiary Cemig Telecom at book value. As a result, Cemig Telecom has been wound up and Cemig has taken over all the subsidiary’s assets, rights and obligations. Considering this is a wholly-owned subsidiary merger there has not been capital increase nor new shares issuance. The Cemig Telecom shares have been extinguished on the merger date.

The balance sheet of Cemig Telecom used for the merger, at March 31, 2018, is as follows:

 

     Mar. 31, 2018           Mar. 31, 2018  

Assets

      Liabilities   

Current

     24,986     

Current

     33,816  

Non-current

     

Non-current

     55,407  

Non-current assets

     15,313        

Investments

     17,116        

Net PP&E

     271,766        

Intangible assets

     11,716        
  

 

 

       
     315,911      Equity      251,674  
  

 

 

       

 

 

 

Total assets

     340,897      Total liabilities and Equity      340,897  
  

 

 

       

 

 

 

The Company’s Management is in the process of sale of the assets merged from Cemig Telecom. See details in Note 30.

Changes in the Company’s by-laws – improvement of corporate governance

On June 11, 2018 a General Meeting of Shareholders approved changes to the Company’s by-laws, to formalize best corporate governance practices and meet the requirements of Law 13303/2016 (the ‘State Companies Law’). The improvements now formally incorporated in the by-laws include:

 

Reduction of the number of members of the Board of Directors from 15 to 9, in line with the IBGC Best Corporate Governance Practices Code, and the Corporate Sustainability Evaluation Manual of the Dow Jones Sustainability Index.

 

Creation of the Audit Committee (Comitê de Auditoria). The Fiscal Council (Conselho Fiscal) remains in existence.

The changes in the by-laws have had no effect on the Company’s dividend policy.

 

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2.

BASIS OF PREPARATION

 

2.1

Statement of compliance

The interim financial information has been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), Technical Pronouncement 21 (R1) – ‘CPC 21’, which applies to interim financial information, and the rules issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM), applicable to preparation of Interim Financial Information (Informações Trimestrais, or ITR).

This interim financial information have been prepared according to principles, practices and criteria consistent with those adopted in the preparation of the December 31, 2017 financial statements, except for the adoption of new pronouncements that came into force as from January 1, 2018, which impacts are presented in Note 2.2 to this interim financial information.

Thus, this consolidated interim financial information should be read in conjunction with the said financial statements, approved by the Company’s Fiscal Council on March 28, 2018.

Material information in the interim financial information is being disclosed, which is used by Management in its administration of the Company.

On August 13, 2018, the Company’s Executive Board authorized the issuance of this interim financial information for the six-month period ended on June 30, 2018. On November 27, 2018 the Company’s Executive Board authorized its restatement to reflect the effect of adjustments described in note 2.3.

 

2.2

Adoption of new pronouncements effective as from January 1, 2018

IFRS 15/CPC 47 – Revenue from contracts with customers

IFRS 15/CPC 47 – Revenue from contracts with customers establishes a five-step model to account for revenues arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount which reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. This new pronouncement will supersede all current requirements for recognition of revenue under the CPCs/IFRS. Additionally, IFRS 15/CPC 47 establishes requirements for more detailed presentation and disclosure than the standards currently in effect.

The Company and its subsidiaries adopted the new standard based on the prospective method, with the impacts accounted for as of January 1, 2018.

The Company and its subsidiaries performed an assessment of the five steps for recognition and measurement of revenue, as required by IFRS 15/CPC 47:

 

  1.

Identify the contracts signed with its customers;

 

  2.

Identify the performance obligations in each type of contract;

 

  3.

Determine the price of each type of transaction;

 

  4.

Allocate the price to the performance obligations contained in the contract; and

 

  5.

Recognize the revenue when (or to the extent that) the entity satisfies each performance obligation of the contract.

 

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The impact of the adoption of this pronouncement occurred in the recognition of reimbursements to customers resulting from the penalties for breach of quality indicators in the electricity supply, mainly the indicators DIC, FIC, DMIC and DICRI, as a reduction of revenues from use of the distribution network (TUSD). Until December 31, 2017, these reimbursements were recognized as operating expense.

This table shows the impact of adoption of IFRS 15 (CPC 47) on the statement of income for the periods of six and three months ended June 30, 2018:

 

     Jan to Jun 2018
with adoption of
IFRS 15/CPC 47
    Adjustment (1)
IFRS 15/CPC 47
    Jan to Jun 2018
without
adoption of IFRS
15/CPC 47
 

GOING CONCERN OPERATIONS

      

NET REVENUE

     10,541,969       25,681       10,567,650  

OPERATING COSTS

     (8,218,128     —         (8,218,128

OPERATING EXPENSES

     (839,794     (25,681     (865,475

Share of (loss) profit, net, of associates and joint ventures

     (26,233     —         (26,233

Net Finance income (expenses)

     (854,632     —         (854,632

Income and Social Contribution taxes

     (170,845     —         (170,845
  

 

 

   

 

 

   

 

 

 

Net income from going concern operations in the period

     432,337       —         432,337  
  

 

 

   

 

 

   

 

 

 

 

     Apr to Jun 2018
with adoption of

IFRS 15/CPC 47
    Adjustment (1)
IFRS 15/CPC 47
    Apr to Jun 2018
without
adoption of IFRS
15/CPC 47
 

GOING CONCERN OPERATIONS

      

NET REVENUE

     5,606,538       9,235       5,615,773  

OPERATING COSTS

     (4,488,514     —         (4,488,514

OPERATING EXPENSES

     (371,116     (9,235     (380,351

Share of (loss) profit, net, of associates and joint ventures

     (83,107     —         (83,107

Net Finance income (expenses)

     (696,832     —         (696,832

Income and Social Contribution taxes

     773       —         773  
  

 

 

   

 

 

   

 

 

 

Net income from going concern operations in the period

     (32,258     —         (32,258
  

 

 

   

 

 

   

 

 

 

 

(1)

Refers to penalties for violation of energy supply quality indicators, mainly the indicators DIC, FIC, DMIC and DICRI, reclassified from Other operational revenue (expenses).

IFRS 9/CPC 48 – Financial instruments

IFRS 9/CPC 48 establishes that all financial activities recognized that are within the scope of IAS 39 (equivalent to CPC 38) should subsequently be measured at amortized cost or fair value, reflecting the business model in which the assets are administered, and their cash flow characteristics, not affecting accounting recognition of the Company’s financial assets and liabilities. IFRS 9/CPC 48 contains three categories of accounting for financial instruments: Amortized cost; Fair value through other comprehensive income; and fair value through profit or loss. The standard has eliminated the existing categories under IAS 39/CPC 38 and, thus, the Company and its subsidiaries have reclassified those categories to comply with the new standard, as follows:

 

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Consolidated

   Classification  
   IFRS 39/CPC 38     IFRS 9/CPC 48  

Financial assets:

    

Cash equivalents – Investments

     Loans and receivables       Amortized cost  

Securities – Investments (1)

     Held to maturity       Amortized cost  

Securities – Investments (1)

     Available for sale       Fair value through profit or loss  

Customers and Traders; Concession holders (Transport of energy)

     Loans and receivables       Amortized cost  

Restricted cash

     Loans and receivables       Amortized cost  

Advances to suppliers

     Loans and receivables       Amortized cost  

Accounts receivable from the State of Minas Gerais

     Loans and receivables       Amortized cost  

Receivables from related parties

     Loans and receivables       Amortized cost  

Concession financial assets – CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     Loans and receivables       Amortized cost  

Reimbursement of tariff subsidies

     Loans and receivables       Amortized cost  

Low-income subsidy

     Loans and receivables       Amortized cost  

Escrow deposits

     Loans and receivables       Amortized cost  

Derivative financial instruments (swap transactions)

     Fair value through profit or loss       Fair value through profit or loss  

Concession financial assets – Transmission infrastructure

     Loans and receivables       Amortized cost  

Concession financial assets – Distribution infrastructure

     Available for sale       Fair value through profit or loss  

Indemnities receivable – Transmission

     Loans and receivables (2)       Fair value through profit or loss  

Indemnities receivable – Generation

     Loans and receivables (2)       Fair value through profit or loss  

Concession grant fee – Generation concessions

     Loans and receivables       Amortized cost  

Other

     Loans and receivables       Amortized cost  

Financial liabilities

    

Loans, financings and debentures

     Amortized cost       Amortized cost  

Debt agreed with pension fund (Forluz)

     Amortized cost       Amortized cost  

Concession financial liabilities – CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     Amortized cost       Amortized cost  

Concessions payable

     Amortized cost       Amortized cost  

The Minas Gerais State Tax Debits Regularization Plan (PRCT)

     Amortized cost       Amortized cost  

Suppliers

     Amortized cost       Amortized cost  

Advances from clients

     Amortized cost       Amortized cost  

Derivative financial instruments (swap transactions)

     Fair value through profit or loss       Fair value through profit or loss  

Derivative financial instruments – Put options

     Fair value through profit or loss       Fair value through profit or loss  

 

(1)

The Company has ‘securities’ with various classifications under IFRS 9 / CPC 48.

(2)

Recognized at their nominal realization values, which are similar to fair value.

Impairment

The material impact resulting from the adoption of the standard as from January 1, 2018 is related to the impairment of trade accounts receivable. The new pronouncement also establishes that in relation to the impairment losses of financial assets, the expectation of loss model in the credit is no longer losses incurred, but a prospective model of expected credit losses, based on probabilities. Based on the new pronouncement, provisions for expected losses were measured based on the losses expected in the next 12 months, as a function of the potential default events, or losses of credit expected for the whole life of a financial instrument, if the credit risk has significantly increased since its initial recognition.

 

 

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The Company and its subsidiaries have adopted, in its analyses, a simplified approach, considering that the balance of its accounts receivable from clients do not have a significant financial component, and have calculated the expectation of loss considering the historic average of non-collection over the total billed in each month (based on the last 12 months of billing), segregated by type of customers and projected for the next 12 months, taking into account the aging of receivables, including those not yet due. The estimated loss for the past due balances of customers who renegotiated their debt has been calculated based on the maturity date of the original invoice, with the new terms negotiated not being taken into account. For the balances that are more than 12 months past due, expectation of total loss was assumed.

The estimated effects at January 1, 2018 arising from adoption of IFRS 9/CPC 48, resulted in an increase in the provision for doubtful accounts and a corresponding effect in Equity, as follows:

 

     Jan. 1, 2018  

Customers and Traders; Transport of energy (a)

     150,114  

Reflex of the adjustment due to the jointly controlled—Light

     82,770  

Deferred income and Social Contribution taxes (a)

     (51,038
  

 

 

 
     181,846  
  

 

 

 

 

(a)

Refers to estimated losses on doubtful accounts receivable from customers of Cemig D.

 

2.3

Restatement of the interim financial information

As mentioned in Note 32, on May 28, 2018 Aneel confirmed the result of the Fourth Tariff Review of Cemig Distribuição S.A. (‘Cemig D’), a wholly-owned subsidiary of the Company. Part of this result comprised direct pass-throughs to the tariff of amounts arising from variations in non-manageable costs (‘Portion A’), arising primarily from: purchase ofpower supply, transmission charges, and other financial components of the tariff, for which Cemig D recorded the accounting effects as from May 2018.

After publication of the interim financial information for the quarter and six months ended June 30, 2018, differences were identified in the accounting of the amortization of certain concession financial assets and liabilities related to CVA Account (Portion A Compensation) and Other Financial Components approved in the tariff review referred to above. The effect of these differences on the individual interim financial information of the Company is limited to the share of profit, recorded by the equity method, related to the equity ownership that the company holds in Cemig D. As a result, Cemig and its subsidiary have opted to re-present the individual and consolidated interim financial information, so as to better reflect their financial position and operational performance. These changes caused no effects on the individual and consolidated financial statements for the year ended December 31, 2017, which are presented for the purposes of comparison, nor in the individual and consolidated financial statements for the quarter ended March 31, 2018.

Based on the orientation given in CPC 23 / IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, the interim financial information is being restated with the following adjustments:

 

(a)

Correction of the divergences in the accounting of the amortization of certain Concession financial assets and liabilities related to the CVA (Variation in ‘Portion A’ Items) account and Other Financial Components approved in the Tariff Review of May 28, 2018 – in the net amount of R$ 81,623 for the six and three-month periods ended June 30, 2018.

 

(b)

Effects of the adjustment indicated in item (a) on calculations of current and deferred income tax and Social Contribution tax, in the amount of R$ 16,375 and R$ 7,480, respectively, for the six and three-month periods ended June 30, 2018.

 

(c)

Effects of the adjustment indicated in item (a) on calculations of Pasep and Cofins taxes, in the amounts of R$ 7,550 for the six and three-month periods ended June 30, 2018.

 

(d)

Effects of the adjustment indicated in item (a) on calculations of the regulatory charges, in the amounts of R$ 734 for the six and three-month periods ended June 30, 2018.

 

(e)

Net aggregate effects, of the adjustments indicated in items (a), (b), (c), and (d), in the amount of R$ 49,484, in calculation of the gain by the equity method arising from the Company’s investment in Cemig D, for the six and three-month periods ended June 30, 2018.

 

(f)

Net effect of all the adjustments, in the amount of R$ 49,484, in the profit of the six and three-month periods ended June 30, 2018.

 

21


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STATEMENTS OF FINANCIAL POSITION

 

Assets

   Consolidated      Holding company  
   Jun. 30, 2018      Adjustments     Jun. 30, 2018
(Restated)
     Jun. 30, 2018      Adjustments      Jun. 30, 2018
(Restated)
 

CURRENT

                

Concession financial assets (a)

     565,281        81,623       646,904        —          —          —    

Income and Social Contribution taxes recoverable (b) and (e)

     406,203        (16,375     389,828        25,889        —          25,889  

Other

     5,994,568        —         5,994,568        637,149        —          637,149  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     6,966,052        65,248       7,031,300        663,038        —          663,038  

Assets classified as Held for sale

     281,578        —         281,578        281,578        —          281,578  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, CURRENT

     7,247,630        65,248       7,312,878        944,616        —          944,616  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

NON-CURRENT

                

Deferred income and Social Contribution taxes (b)

     1,943,501        (7,480     1,936,021        791,360        —          791,360  

Investments – Equity method (g)

     7,703,552        —         7,703,552        14,051,552        49,484        14,101,036  

Other

     24,785,675        —         24,785,675        592,235        —          592,235  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, NON-CURRENT

     34,432,728        (7,480     34,425,248        15,435,147        49,484        15,484,631  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL ASSETS

     41,680,358        57,768       41,738,126        16,379,763        49,484        16,429,247  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

Liabilities

   Consolidated     Holding company  
   Jun. 30, 2018     Adjustments      Jun. 30, 2018
(Restated)
    Jun. 30, 2018     Adjustments      Jun. 30, 2018
(Restated)
 

CURRENT

              

Regulatory charges (d)

     434,129       220        434,349       5,836       —          5,836  

Taxes payable (c)

     287,205       7,550        294,755       6,546       —          6,546  

Other obligations

     7,131,531       —          7,131,531       1,065,535       —          1,065,535  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     7,852,865       7,770        7,860,635       1,077,917          1,077,917  

Liabilities directly associated with assets classified as held for sale

     5,905       —          5,905       5,905       —          5,905  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL, CURRENT

     7,858,770       7,770        7,866,540       1,083,822       —          1,083,822  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

NON-CURRENT

              

Regulatory charges (d)

     278,374       514        278,888       —         —          —    

Other obligations

     18,864,395       —          18,864,395       621,219       —          621,219  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL, NON-CURRENT

     19,142,769       514        19,143,283       621,219       —          621,219  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL LIABILITIES

     27,001,539       8,284        27,009,823       1,705,041       —          1,705,041  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

EQUITY

              

Share capital

     7,293,763       —          7,293,763       7,293,763       —          7,293,763  

Capital reserves

     2,249,721       —          2,249,721       2,249,721       —          2,249,721  

Profit reserves

     5,728,574       —          5,728,574       5,728,574       —          5,728,574  

Equity valuation adjustments

     (836,528     —          (836,528     (836,528     —          (836,528

Subscription of shares, to be capitalized

     —         —          —         —            —    

Retained earnings (f)

     239,192       49,484        288,676       239,192       49,484        288,676  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

     14,674,722       49,484        14,724,206       14,674,722       49,484        14,724,206  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

NON-CONTROLLING INTERESTS TOTAL EQUITY

     4,097       —          4,097       —         —          —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL EQUITY

     14,678,819       49,484        14,728,303       14,674,722       49,484        14,724,206  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

     41,680,358       57,768        41,738,126       16,379,763       49,484        16,429,247  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

22


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STATEMENTS OF INCOME

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
     Jan to Jun
2018
    Adjustments     Jan to Jun 2018
(Restated)
    Jan to
Jun 2018
    Adjustments      Jan to
Jun 2018
(Restated)
 

Going concern operations

             

Net revenue (a), (c) and (d)

     10,468,630       73,339       10,541,969       146       —          146  

Total cost

     (8,218,128     —         (8,218,128     —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

GROSS PROFIT

     2,250,502       73,339       2,323,841       146       —          146  

Operating expenses

     (839,794     —         (839,794     (142,172     —          (142,172

Share of (loss) profit, net, of associates and joint ventures (e)

     (26,233     —         (26,233     480,319       49,484        529,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before finance income (expenses) and taxes

     1,384,475       73,339       1,457,814       338,293       49,484        387,777  

Finance income

     491,169       —         491,169       18,792       —          18,792  

Finance expenses

     (1,345,801     —         (1,345,801     (3,085     —          (3,085
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax and Social Contribution tax

     529,843       73,339       603,182       354,000       49,484        403,484  

Current income and Social Contribution taxes (b)

     (180,044     (16,375     (196,419     —         —          —    

Deferred income and Social Contribution taxes (b)

     33,054       (7,480     25,574       38,569       —          38,569  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from going concern operations

     382,853       49,484       432,337       392,569       49,484        442,053  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from discontinued operations

     21,372       —         21,372       11,358       —          11,358  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period (f)

     404,225       49,484       453,709       403,927       49,484        453,411  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted earnings (loss) per share – R$

     0.28       0.03       0.31       0.28       0.03        0.31  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

23


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STATEMENTS OF INCOME

FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
     Apr to Jun
2018
    Adjustments     Apr to Jun
2018
(Restated)
    Apr to
Jun
2018
    Adjustments      Apr to
Jun 2018
(Restated)
 

Net revenue (a), (c) and (d)

     5,533,199       73,339       5,606,538       73       —          73  

Total cost

     (4,488,514     —         (4,488,514     —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

GROSS PROFIT

     1,044,685       73,339       1,118,024       73       —          73  

Operating expenses

     (371,116     —         (371,116     (78,890     —          (78,890

Share of (loss) profit, net, of associates and joint ventures (e)

     (83,107     —         (83,107     (18,051     49,484        31,433  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before finance income (expenses) and taxes

     590,462       73,339       663,801       (96,868     49,484        (47,384

Finance income

     249,315       —         249,315       7,544       —          7,544  

Finance expenses

     (946,147     —         (946,147     (2,191     —          (2,191
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax and Social Contribution tax

     (106,370     73,339       (33,031     (91,515     49,484        (42,031

Current income and Social Contribution taxes (b)

     4,982       (16,375     (11,393     —         —          —    

Deferred income and Social Contribution taxes (b)

     19,646       (7,480     12,166       19,635       —          19,635  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from going concern operations

     (81,742     49,484       (32,258     (71,880     49,484        (22,396
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from discontinued operations

     21,372       —         21,372       11,358       —          11,358  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period (f)

     (60,370     49,484       (10,886     (60,522     49,484        (11,038
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted earnings (loss) per share – R$

     (0.04     0.03       (0.01     (0.04     0.03        (0.01
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
     Jan to
Jun 2018
    Adjustments      Jan to
Jun 2018
(Restated)
    Jan to
Jun 2018
    Adjustments      Jan to
Jun 2018

(Restated)
 

Net income for the period (f)

     404,225       49,484        453,709       403,927       49,484        453,411  

Other comprehensive income

     (416     —          (416     (416     —          (416
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income for the period

     403,809       49,484        453,293       403,511       49,484        452,995  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
     Apr to
Jun 2018
    Adjustments      Apr to
Jun 2018

(Restated)
    Apr to Jun
2018
    Adjustments      Apr to
Jun 2018

(Restated)
 

Net income for the period (f)

     (60,370     49,484        (10,886     (60,522     49,484        (11,038
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income for the period

     (60,370     49,484        (10,886     (60,522     49,484        (11,038
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

24


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STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
   Jan to Jun
2018
    Adjustments     Jan to Jun
2018
(Restated)
    Jan to
Jun 2018
    Adjustments     Jan to
Jun 2018
(Restated)
 

CASH FLOW FROM OPERATIONS

            

Net income for the period from going concern operations (f)

     382,853       49,484       432,337       392,569       49,484       442,053  

Adjustments to reconcile net income to net cash flows

            

Income tax and Social Contribution taxes (b)

     146,990       23,855       170,845       (38,569       (38,569

Share of profit (loss) in associates and joint ventures (e)

     26,233         26,233       (480,319     (49,484     (529,803

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (a)

     (1,069,049     (81,623     (1,150,672     —         —         —    

Others

     1,565,134       —         1,565,134       76,770       —         76,770  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,052,161       (8,284     1,043,877       (49,549     —         (49,549
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Increase) / decrease in assets

     716,507       —         716,507       500,635       —         500,635  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in liabilities

            

Taxes payable (c)

     (314,754     7,550       (307,204     831         831  

Regulatory charges (d)

     (49,987     734       (49,253     5,836         5,836  

Others

     (497,379     —         (497,379     (5,499     —         (5,499
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (862,120     8,284       (853,836     1,168         1,168  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated by going concern operations

     906,548       —         906,548       452,254       —         452,254  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest paid on loans and financings

     (671,651     —         (671,651     (438     —         (438

Income and Social Contribution taxes paid

     (292,981     —         (292,981     (38     —         (38

Settlement of derivative financial instruments (Swap)

     12,981       —         12,981       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) GOING CONCERN OPERATIONS

     (45,103     —         (45,103     451,778       —         451,778  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from (used in) Discontinued operations

     36,602       —         36,602       18,944       —         18,944  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) OPERATING ACTIVITIES

     (8,501     —         (8,501     470,722       —         470,722  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING IN GOING CONCERN OPERATIONS

     196,510       —         196,510       (552,127     —         (552,127

Net cash used in investment activities—discontinued operations

     (7,631     —         (7,631     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING ACTIVITIES

     188,879       —         188,879       (552,127     —         (552,127

NET CASH FROM (USED IN) FINANCING ACTIVITIES

     (269,698     —         (269,698     105,778       —         105,778  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (89,320     —         (89,320     24,373       —         24,373  

Cash and cash equivalents at the beginning of the period

     1,030,257       —         1,030,257       38,672       —         38,672  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     940,937       —         940,937       63,045       —         63,045  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


LOGO

 

STATEMENTS OF ADDED VALUE

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018

 

     Consolidated     Holding company  
     Jan to Jun
2018
    Adjustments      Jan to Jun
2018

(Restated)
    Jan to
Jun 2018
    Adjustments      Jan to
Jun 2018

(Restated)
 

Gross value added (a)

     7,605,969       81,623        7,687,592       (88,404     —          (88,404

Retentions

     (411,300     —          (411,300     (216     —          (216
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net added value produced by going concern operations

     7,194,669       81,623        7,276,292       (88,620     —          (88,620

Net added value produced by discontinued operations

     21,372       —          21,372       11,358       —          11,358  

Added value received by transfer (e)

     464,936       —          464,936       499,111       49,484        548,595  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Added value to be distributed

     7,680,977       81,623        7,762,600       421,849       49,484        471,333  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Distribution of added value

              

Employees

     816,235       —          816,235       43,703       —          43,703  

Taxes (b), (c) and (d)

     5,047,392       32,139        5,079,531       (35,652     —          (35,652

Remuneration of external capital

     1,413,125       —          1,413,125       9,871       —          9,871  

Remuneration of own capital (f)

     404,225       49,484        453,709       403,927       49,484        453,411  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     7,680,977       81,622        7,762,600       421,849       49,484        471,333  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

2.4

Correlation between the Explanatory Notes published in the annual financial statements and those in the interim financial information

The table below shows the correlation between the Explanatory Notes published in the financial statements at December 31, 2017 and the interim financial information at June 30, 2018.

The Company understands that this interim financial information presents the material updating of information relating to its financial position, and its results for the six-month period ended June 30, 2018, in compliance with the requirements for disclosure stated by the CVM (Brazilian Securities Commission).

 

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Number of the Note

  

Title of the Note

Dec. 31,
2017

   Jun. 30,
2018

1

   1   

Operational context

2

   2   

Basis of preparation

3

   3   

Consolidation principles

4

   4   

Concessions and authorizations

5

   31   

Operational segments

6

   5   

Cash and cash equivalents

7

   6   

Securities

8

   7   

Customers and traders; Concession holders (transport of energy)

9

   8   

Recoverable taxes

10

   9   

Income and Social Contribution tax

11

   10   

Restricted cash

12

   11   

Accounts Receivable from the State of Minas Gerais

13

   12   

Escrow deposits

14

   13   

Reimbursement of tariff subsidies

15

   14   

Concession financial assets and liabilities

16

   15   

Investments

17

   16   

Property, plant and equipment

18

   17   

Intangible assets

19

   18   

Suppliers

20

   19   

Taxes payable, Income tax and Social Contribution tax and amounts to be reimbursed to customers

21

   20   

Loans, financings and debentures

22

   21   

Regulatory charges

23

   22   

Post-retirement obligations

24

   23   

Provisions

25

   24   

Equity and remuneration to shareholders

26

   25   

Revenue

27

   26   

Operating costs and expenses

28

   27   

Finance income and expenses

29

   28   

Related party transactions

30

   29   

Financial instruments and risk management

31

   29   

Measurement at fair value

—  

   30   

Assets classified as held for sale

35

   33   

Transactions not involving cash

36

   34   

Subsequent events

 

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The Notes to the 2017 financial statements that have not been included in these interim financial information because they had no material changes, and/or were not applicable to the interim information, are as follows:

 

Number

  

Title of the Note

32

  

Insurance

33

  

Commitments

34

  

Annual tariff adjustment

 

3.

PRINCIPLES OF CONSOLIDATION

The reporting dates for the interim financial information of subsidiaries and jointly-controlled entities used for the purposes of consolidation and equity method gains (losses), respectively, coincide with those of the Company. Accounting practices are applied uniformly in line with those used by the Company.

The following subsidiaries are included in the consolidated interim financial information:

 

Subsidiary

   Criteria      Jun. 30, 2018      Dec. 31, 2017  
   Direct interest,%      Direct interest,%  

Cemig Geração e Transmissão

     Consolidated        100.00        100.00  

Cemig Distribuição

     Consolidated        100.00        100.00  

Gasmig

     Consolidated        99.57        99.57  

Cemig Telecom (2)

     Consolidated        —          100.00  

Rosal Energia

     Consolidated        100.00        100.00  

Sá Carvalho

     Consolidated        100.00        100.00  

Horizontes Energia

     Consolidated        100.00        100.00  

Cemig Geração Distribuída (Usina Térmica Ipatinga) (1)

     Consolidated        100.00        100.00  

Cemig PCH

     Consolidated        100.00        100.00  

Cemig Trading

     Consolidated        100.00        100.00  

Efficientia

     Consolidated        100.00        100.00  

Cemig Comercializadora de Energia Incentivada

     Consolidated        100.00        100.00  

UTE Barreiro

     Consolidated        100.00        100.00  

Empresa de Serviços e Comercialização de Energia Elétrica

     Consolidated        100.00        100.00  

Luce Empreendimentos e Participações S.A.

     Consolidated        100.00        100.00  

 

(1)

In 2018, the corporate name of UTE Ipatinga was changed to Cemig Geração Distribuída S.A.

(2)

Company merged into Cemig on March 31, 2018.

 

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4.

CONCESSIONS AND AUTHORIZATIONS

Cemig and its subsidiaries hold the following concessions and authorizations with Aneel:

 

     Company holding
concession or authorization
   Concession or authorization
contract
   Expiration
date

POWER GENERATION

        

Hydroelectric plants

        

Emborcação (1)

   Cemig GT    07/1997    07/2025

Nova Ponte (1)

   Cemig GT    07/1997    07/2025

Santa Luzia (1)

   Cemig GT    07/1997    02/2026

Sá Carvalho (1)

   Sá Carvalho    01/2004    12/2024

Rosal (1)

   Rosal Energia    01/1997    05/2032

Machado Mineiro (1)

Salto Voltão (1)

Salto Paraopeba (1)

Salto do Passo Velho (1)

   Horizontes Energia    Resolution 331/2002    07/2025

10/2030

10/2030

10/2030

PCH Pai Joaquim (1)

   Cemig PCH    Resolution 377/2005    04/2032

Irapé (1)

   Cemig GT    14/2000    02/2035

Queimado (Consortium) (1)

   Cemig GT    06/1997    01/2033

Salto Morais (1)

   Cemig GT    02/2013    07/2020

Rio de Pedras (1)

   Cemig GT    02/2013    09/2024

Luiz Dias (1)

   Cemig GT    02/2013    08/2025

Poço Fundo (1)

   Cemig GT    02/2013    08/2025

São Bernardo (1)

   Cemig GT    02/2013    08/2025

Xicão (1)

   Cemig GT    02/2013    08/2025

Três Marias (2)

   Cemig Geração Três Marias    08/2016    01/2046

Salto Grande (2)

   Cemig Geração Salto Grande    09/2016    01/2046

Itutinga (2)

   Cemig Geração Itutinga    10/2016    01/2046

Camargos (2)

   Cemig Geração Camargos    11/2016    01/2046

Coronel Domiciano, Joasal, Marmelos, Paciência and Piau (2)

   Cemig Geração Sul    12/2016 and 13/2016    01/2046

Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras (2)

   Cemig Geração Leste    14/2016 and 15/2016    01/2046

Cajurú, Gafanhoto and Martins (2)

   Cemig Geração Oeste    16/2016    01/2046

Thermal plants

        

Igarapé (1)

   Cemig GT    07/1997    08/2024

POWER TRANSMISSION

        

National grid (3)

   Cemig GT    006/1997    01/2043

Itajubá Substation (3)

   Cemig GT    79/2000    10/2030

ELECTRICITY DISTRIBUTION (4)

   Cemig D    002/1997

003/1997

004/1997

005/1997

   12/2045

GAS DISTRIBUTION (4)

   Gasmig    State Law 11,021/1993    01/2053

 

(1)

Generation concession contracts that are not within the scope of ICPC 01/IFRC 12, whose infrastructure assets are recorded as PP&E since the concession grantor does not have control over whom the service is provided to as the output is being sold mainly in the Free Market (‘ACL’).

(2)

Generation concession contracts whose revenue related to the Concession Grant Fee is within the scope of ICPC 01 /IFRIC 12, and is classified as concession financial assets.

(3)

Transmission concession contracts that are within the scope of ICPC 01 /IFRIC 12, considering the financial asset model, andthe income and costs of the construction works related to the formation of the financial asset is recognized as expenses are incurred. The financial asset to be reimbursed is identified when the implementation of the infrastructure is finalized and included as remuneration for the services of implementation of the infrastructure.

(4)

Concession contracts that are within the scope of ICPC 01 /IFRIC 12 and under which the concession infrastructure assets are recorded under the intangible and financial assets bifurcation model.

 

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5.

CASH AND CASH EQUIVALENTS

 

     Consolidated      Holding Company  
     Jun. 30,
2018
     Dec. 31,
2017
     Jun. 30,
2018
     Dec. 31,
2017
 

Bank accounts

     43,984        113,495        4,669        4,645  

Cash equivalents

           

Bank certificates of deposit (CDBs) (1)

     786,378        685,826        44,748        20,799  

Overnight (2)

     110,575        226,629        13,628        13,228  

Others

     —          4,307        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     896,953        916,762        58,376        34,027  
  

 

 

    

 

 

    

 

 

    

 

 

 
     940,937        1,030,257        63,045        38,672  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Bank Certificates of Deposit (Certificados de Depósito Bancário, or CDBs), accrued interest at 60% to 106% of the CDI Rate (Interbank Rate for Interbank Certificates of Deposit or Certificados de Depósito Inter-bancário – CDIs) published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip) on June 30, 2018 (50% to 106% on December 31, 2017). For these CDBs, the Company has repo transactions which state, on their trading notes, the bank’s commitment to repurchase the security, on demand, on the maturity date of the transaction, or earlier, at the Company’s option.

(2)

Overnight transactions are repos available for redemption on the following day.They are usually backed by Treasury Bills, Notes or Bonds and referenced to a pre-fixed rate of 6.39%, on June 30, 2018 (6.89% on December 31, 2017). Their purpose is to settle the Company’s short-term obligations, or to be used in the acquisition of other assets with better return to replenish the portfolio.

The Company’s exposure to interest rate risks and sensitivity analysis for financial assets and liabilities are disclosed in Note 29.

 

6.

SECURITIES

 

     Consolidated      Holding Company  
     Jun. 30,
2018
     Dec. 31,
2017
     Jun. 30,
2018
     Dec. 31,
2017
 

Investments

           

Current

           

Bank certificates of deposit (CDBs) (1)

     935        2,652        115        144  

Financial Notes (LFs) – Banks (2)

     158,949        303,355        19,589        17,706  

Treasury Financial Notes (LFTs) (3)

     121,124        739,945        14,928        43,189  

Debentures (4)

     4,775        10,663        1,825        2,142  

Others

     2,252        1,769        650        779  
  

 

 

    

 

 

    

 

 

    

 

 

 
     288,035        1,058,384        37,107        63,960  

Non-current

           

Bank certificates of deposit (CDBs) (1)

     234               43         

Financial Notes (LFs) – Banks (2)

     57,957               7,143         

Debentures (4)

     4,951        29,753        2,339        1,737  

Others

     705        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     63,847        29,753        9,525        1,737  
  

 

 

    

 

 

    

 

 

    

 

 

 
     351,882        1,088,137        46,632        65,697  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Investments in Bank Certificates of Deposit – CDBs – accrued interest at a percentage of the Interbank Certificates of Deposit (CDI) rate, published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip) which was 100.50% to 105.25% on June 30, 2018 (100.25% to 105.25% on December 31, 2017).

(2)

Bank Financial Notes (Letras Financeiras, or LFs) are fixed-rate fixed-income securities, issued by banks, and that accrued interest at a percentage of the CDI rate published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). The LFs accrued interest of 102% to 111.25% of the CDI rate on June 30, 2018 (102.01% to 112% on December 31, 2017).

(3)

Treasury Financial Notes (LFTs) are fixed-rate securities, their yield on which follows the daily changes in the Selic rate between the date of purchase and the date of maturity.

(4)

Debentures are medium and long-term debt securities, which give their holders a right of credit against the issuing company. The debentures have remuneration varying from 104.25% to 151% of the CDI rate on June 30, 2018 (104.25% to 161.54% on December 31, 2017).

Note 29 provides further information on these securities. Investments in securities of related parties are shown in Note 28.

 

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7.

CUSTOMERS, TRADERS AND TRANSPORT OF ENERGY CONCESSION HOLDERS

 

     Consolidated  
   Balances
not yet due
    Up to 90
days past
due
    More than
90 days
past due
    Jun. 30,
2018
    Dec. 31,
2017
 

Billed supply

     1,166,017       627,811       809,168       2,602,996       2,688,622  

Unbilled supply

     1,058,559       —         —         1,058,559       993,699  

Other concession holders – wholesale supply

     3,008       18,617       3,569       25,194       25,642  

Other concession holders – wholesale supply, unbilled

     217,120       —         —         217,120       283,061  

CCEE (Wholesale Electricity Trading Chamber)

     46,908       214,127       259       261,294       381,150  

Concession Holders – Transport of energy

     69,137       6,634       94,898       170,669       159,194  

Concession Holders – Transport of energy, unbilled

     231,550       —         —         231,550       177,308  

(–) Provision for doubtful receivables

     (191,250     (17,475     (522,863     (731,588     (567,956
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,601,049       849,714       385,031       3,835,794       4,140,720  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current assets

           3,759,200       3,885,392  

Non-current assets

           76,594       255,328  

 

     Holding Company  
   Balances not
yet due
     Up to 90 days
past due
     More than 90
days past due
    Jun. 30,
2018
    Dec. 31,
2017
 

Billed supply (Telecom services)

     15,277        4,945        5,185       25,407       —    

(–) Provision for doubtful receivables

     —          —          (1,133     (1,133     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     15,277        4,945        4,052       24,274       —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current assets

             24,274       —    

Note 29 presents the Company and its subsidiaries’ exposure to credit risk related to customers and traders.

The allowance for doubtful accounts is considered to be sufficient to cover any potential losses in the realization of accounts receivable, and the breakdown by type of customers is as follows:

 

     Jun. 30, 2018      Dec. 31, 2017  

Residential

     130,624        160,482  

Industrial

     205,834        178,058  

Commercial, services and others

     171,540        117,438  

Rural

     29,036        17,334  

Public authorities

     94,386        11,984  

Public lighting

     5,680        4,740  

Public services

     26,758        10,187  

Charges for use of the network (TUSD)

     67,730        67,733  
  

 

 

    

 

 

 
     731,588        567,956  
  

 

 

    

 

 

 

Changes in the allowance for doubtful accounts are as follows:

 

Balance at December 31, 2016

     660,105  

Additions, net

     140,885  
  

 

 

 

Balance at June 30, 2017

     800,990  
  

 

 

 

Balance at December 31, 2017

     567,956  
  

 

 

 

Additions, net

     317,671  

Write-off

     (154,039
  

 

 

 

Balance at June 30, 2018

     731,588  
  

 

 

 

The Company recorded, on January 1, 2018, the effects arising from the adoption of IFRS 9 / CPC 48, as a result of the retained earnings. More detail in Note 2 of this interim financial information.

 

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Advances from clients

Cemig GT and Cemig D receives advance payments for the sale of energy from certain customers. Advance payments related to services not yet provided are as follows:

 

Balance at December 31, 2016

     181,200  

Addition

     142,601  

Supply completed

     (85,041

Monetary adjustment

     24,680  
  

 

 

 

Balance at June 30, 2017

     263,440  
  

 

 

 

Balance at December 31, 2017

     232,762  

Supply completed

     (88,849

Monetary adjustment

     6,815  
  

 

 

 

Balance at June 30, 2018

     150,728  
  

 

 

 

Advance payments are adjusted until the actual delivery of the power supply by Cemig GT and Cemig D under the following terms:

 

June 30, 2018

     Balance
on Jun.
30, 2018
     Balance
on Dec.
31, 2017
 

Counterparty

   Specified period
for energy billing
     Index for adjusting
prepaid amounts
     MWh
deliverable
 

BTG Pactual

     Jan. 2018        1.57% p.m.        —          —          17,287  

BTG Pactual

     Jan. 2018        1.2% p.m.        —          —          25,633  

Deal Comercializadora

     Jan. 2018        1.2% p.m.        —          —          772  

White Martins Gases Industriais Ltda

     May 2018 – Mar. 2019        124% of CDI        214,642        121,396        147,066  

White Martins Gases Industriais Ltda

     May 2018 – Mar. 2019        124% of CDI        —          29,332        42,004  
           

 

 

    

 

 

 
              150,728        232,762  
           

 

 

    

 

 

 

Revenue from advanced sales of power supply is recognized in the statement of income only when the supply actually take place.

 

8.

RECOVERABLE TAXES

 

     Consolidated      Holding Company  
     Jun. 30, 2018      Dec. 31, 2017      Jun. 30, 2018      Dec. 31, 2017  

Current

           

ICMS (VAT)

     78,750        71,430        3,186        —    

PIS and Pasep

     8,672        12,130        20        6  

Cofins

     39,484        56,023        100        37  

Others

     23,461        34,207        96        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     150,367        173,790        3,402        43  

Non-current

           

ICMS (VAT)

     228,317        224,752        2,290        —    

PIS and Pasep

     43        569        3        2  

Cofins

     196        3,131        12        12  

Others

     2,225        2,226        1,795        1,796  
  

 

 

    

 

 

    

 

 

    

 

 

 
     230,781        230,678        4,100        1,810  
  

 

 

    

 

 

    

 

 

    

 

 

 
     381,148        404,468        7,502        1,853  
  

 

 

    

 

 

    

 

 

    

 

 

 

The ICMS (VAT) credits that are reported in non-current assets arise from acquisitions of property, plant and equipment, and intangible assets, and can be offset against taxes payable in the next 48 months. The transfer to non-current was made in accordance with Management’s best estimate of the amounts which will likely be realized after June 2019.

Credits of PIS, Pasep and COFINS taxes generated by the acquisition of machinery and equipment can be offset immediately.

 

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9.

INCOME AND SOCIAL CONTRIBUTION TAXES

 

a)

Income and Social Contribution tax recoverable

The balances of income tax and social contribution tax refer to tax credits in the corporate income tax returns of prior years and to advance payments which will be offset against federal taxes eventually payable.

 

     Consolidated      Holding Company  
   Jun. 30,
2018

(Restated)
     Dec. 31,
2017
     Jun. 30,
2018
     Dec. 31,
2017
 

Current

           

Income tax

     244,642        223,539        23,141        19,124  

Social Contribution tax

     145,186        116,035        2,748        598  
  

 

 

    

 

 

    

 

 

    

 

 

 
     389,828        339,574        25,889        19,722  

Non-current

           

Income tax

     —          6,685        —          6,685  

Social Contribution tax

     11,248        13,932        11,248        13,932  
  

 

 

    

 

 

    

 

 

    

 

 

 
     11,248        20,617        11,248        20,617  
  

 

 

    

 

 

    

 

 

    

 

 

 
     401,076        360,191        37,137        40,339  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

b)

Deferred income tax and Social Contribution tax

The Company and its subsidiaries have tax credits for income tax and the social contribution tax, arising from balances of tax losses, negative base for the social contribution tax, and temporary differences, at the rates of 25% (for income tax) and 9% (for the Social Contribution tax), as follows:

 

     Consolidated     Holding Company  
     Jun. 30, 2018
(Restated)
    Dec. 31,
2017
    Jun. 30,
2018
    Dec. 31,
2017
 

Deferred tax assets

        

Tax loss carryforwards

     498,792       523,595       165,505       165,235  

Provisions

     1,110,876       1,092,557       555,145       527,166  

Post-retirement obligations

     1,210,792       1,179,257       150,691       144,176  

Estimated provision for doubtful receivables

     264,591       207,415       8,161       7,775  

Taxes with suspended liability

     12,858       14,093       —         —    

Paid concession

     7,473       8,227       —         —    

Adjustment to fair value: Swap/loss

     —         12,923       —         —    

Others

     17,710       14,212       5,630       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3,123,092       3,052,279       885,132       844,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax liabilities

        

Funding cost

     (26,980     (31,115     —         —    

Deemed cost

     (252,511     (275,543     —         —    

Cost of acquisition of equity interests

     (454,616     (463,573     (86,365     (87,613

Borrowing costs capitalized

     (167,044     (165,582     —         —    

Taxes on revenues not redeemed – Presumed Profit accounting method

     (1,253     (785     —         —    

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     (919,083     (937,485     —         —    

Adjustment to fair value of derivative financial instruments

     (44,614     (1,524     —         —    

Others

     (38,872     (40,133     (7,407     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (1,904,973     (1,915,740     (93,772     (87,613
  

 

 

   

 

 

   

 

 

   

 

 

 

Total, net

     1,218,119       1,136,539       791,360       756,739  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     1,936,021       1,871,228       791,360       756,739  

Total liabilities

     (717,902     (734,689     —         —    

 

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The changes in income tax and the Social Contribution tax are as follows:

 

     Consolidated     Holding
Company
 

Balance at Dec. 31, 2016

     1,215,247       789,318  

Effects allocated to Statement of income

     78,794       8,885  

Variations in deferred tax assets and liabilities

     4,544       —    
  

 

 

   

 

 

 

Balance at June 30, 2017

     1,298,585       798,203  
  

 

 

   

 

 

 

Balance at Dec. 31, 2017

     1,136,539       756,739  

Telecom merger

     —         1,049  

Effects allocated to Statement of income – Going concern operations

     25,574       38,569  

Effects allocated to Statement of income – Discontinued operations

     (9,815     (5,742

Effects allocated to Equity

     68,586       —    

Transfer to assets held for sale

     745       745  

Variations in deferred tax assets and liabilities

     (3,510     —    
  

 

 

   

 

 

 

Balance on Jun. 30, 2018 (Restated)

     1,218,119       791,360  
  

 

 

   

 

 

 

 

c)

Reconciliation of income tax and Social Contribution tax effective rate

This table reconciles the statutory income tax (rate 25%) and the Social Contribution tax (rate 9%) with the current expense on these taxes in the statement of income:

 

     Consolidated     Holding Company  
     Jan to
Jun 2018

(Restated)
    Jan to
Jun 2017
    Jan to
Jun 2018

(Restated)
    Jan to
Jun 2017
 

Income on going concern operations before income and Social Contribution taxes

     603,182       694,776       403,484       474,226  

Income tax and Social Contribution tax – nominal expense

     (205,082     (236,224     (137,185     (161,237

Tax effects applicable to:

        

Gain (loss) in subsidiaries by equity method (net of effects of Interest on Equity)

     (16,633     9,096       176,535       166,824  

Non-deductible contributions and donations

     (1,583     (1,512     (401     —    

Tax incentives

     5,983       6,088       25       43  

Voluntary retirement provision

     (146     —         (14     —    

Difference between Presumed profit and Real profit

     48,506       38,819       —         —    

Non-deductible penalties

     (6,964     (8,405     (35     (11

Excess reactive power and demand

     —         (6,112     —         —    

Others

     5,074       (15,678     (356     733  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and Social Contribution – effective gain (expense)

     (170,845     (213,928     38,569       6,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Current tax

     (196,418     (292,722     —         (2,533

Deferred tax

     25,573       78,794       38,569       8,885  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (170,845     (213,928     38,569       6,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     28.32%       30.79%       9.56%       1.34%  

 

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     Consolidated     Holding Company  
     Apr to
Jun 2018

(Restated)
    Apr to
Jun 2017
    Apr to
Jun 2018

(Restated)
    Apr to
Jun 2017
 

Income on going concern operations before income and Social Contribution taxes

     (33,031     188,653       (42,031     141,589  

Income tax and Social Contribution tax – nominal expense

     11,231       (64,142     14,290       (48,140

Tax effects applicable to:

        

Share of (loss) profit of associates and joint ventures (net of effects of Interest on Equity)

     (34,370     503       6,466       43,983  

Non-deductible contributions and donations

     (1,214     (680     (401     —    

Tax incentives

     2,792       2,292       25       43  

Voluntary retirement provision

     108       —         (12     —    
     —         (93     —         —    

Difference between Presumed profit and Real profit

     21,296       36,192       —         —    

Non-deductible penalties

     (2,958     (3,647     (29     (5

Excess reactive power and demand

     —         (3,037     —         —    

Others

     3,888       (17,927     (704     512  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and Social Contribution – effective gain (expense)

     773       (50,539     19,635       (3,607
  

 

 

   

 

 

   

 

 

   

 

 

 

Current tax

     (11,393     (59,265     —         (2,533

Deferred tax

     12,166       8,726       19,635       (1,074
  

 

 

   

 

 

   

 

 

   

 

 

 
     773       (50,539     19,635       (3,607
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     2.34%       26.79%       46.72%       2.55%  

 

10.

RESTRICTED CASH

The balance of Restricted cash amounting to R$ 111,220 in the Consolidated (R$ 106,227 on December 31, 2017), and R$ 90,663 in the Holding Company (R$ 87,872 on December 31, 2017), refers mainly to amounts deposited with a financial institution, in accordance with the Shareholders’ agreement of the jointly controlled Rio Minas Energia Participações – RME, as a guarantee for the settlement of the options to sell an interest in RME.

 

11.

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

On October 25, 2017 the Company signed a Debt Recognition Agreement with Minas Gerais State, through its Tax Office, where the state committed to reimburse to the Company the total amount deposited, after adjusting it for inflation using the IGP-M index, related to the dispute on the criteria to be used to adjust the amounts passed through by the Minas Gerais State government as an advance for future capital contributions in the previous year.

The parties agreed that the Minas Gerais State will reimburse the Company R$ 294,390, of which R$ 239,445 relates to the historical amounts deposited, and R$ 54,945 relates to the monetary adjustment, of which R$ 13,082 is related to the six-month period ended June 30, 2018, which will be paid in 12 consecutive monthly installments, each adjusted by the IGP-M inflation index through the settlement date, starting on November 10, 2017. Further, the agreement states that, in the event of arrears or default by the State in the payment of the agreed consecutive monthly installments, Cemig is authorized to retain dividends or Interest on Equity distributable to the State in proportion to the State’s equity interest, for as long as the arrears and/or default continues. Until June 30, 2018, a total of R$ 46,290 had been received regarding two installments and the remaining balance of R$ 248,100 is still outstanding, recognized in Non-current assets, due to installments being overdue since January 2018. Company’s Management believes that no impairment losses is expected on these receivables, considering the aforementioned guarantees, which Company intends to execute in the event of non-receipt of the amount agreed in the debt recognition agreement.

 

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12.

ESCROW DEPOSITS

These deposits are mainly related to legal proceeding relating to labor and tax contingencies.

Escrow deposits mainly relate to tax disputes, mainly on the calculation of Pasep/Cofins, for which the Company believes the amounts of ICMS (VAT) should be exclude from the taxable amount on which the Pasep/Cofins taxes are charged.

 

     Consolidated      Holding Company  
     Jun. 30,
2018
     Dec. 31,
2017
     Jun. 30,
2018
     Dec. 31,
2017
 

Labor claims

     332,362        303,699        37,737        35,270  

Tax contingencies

           

Income tax on Interest on Equity

     27,418        26,861        255        244  

Pasep/Cofins taxes (1)

     1,374,109        1,337,086        —          —    

Donations and legacy tax (ITCD)

     50,031        48,981        49,592        48,541  

Urban property tax (IPTU)

     85,425        79,505        68,947        68,675  

Finsocial tax

     37,978        37,170        37,978        37,170  

Income and social contribution taxes on indemnity for employees ‘Anuênio’ benefit (2)

     271,520        267,432        13,057        12,853  

IRRF on Inflation Gain

     8,359        —          8,359        —    

Others

     86,593        116,585        21,335        31,252  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,941,433        1,913,620        199,523        198,735  

Others

           

Regulatory

           

Third party

     54,008        60,243        30,395        29,589  

Customer relations

     11,394        16,094        6,028        5,811  

Court embargo

     6,427        6,204        1,537        1,561  

Others

     13,194        14,358        4,323        5,515  
  

 

 

    

 

 

    

 

 

    

 

 

 
     21,558        21,414        1,333        1,310  
  

 

 

    

 

 

    

 

 

    

 

 

 
     106,581        118,313        43,616        43,786  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,380,376        2,335,632        280,876        277,791  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The escrow deposits relating to Pasep and Cofins taxes refer to the case challenging the constitutionality of inclusion of the ICMS (VAT), which has been charged, within the amount on which the Pasep and Cofins taxes are calculated.

(2)

See more details in Note 23 – Provisions (Indemnity of employees’ future benefit—the ‘Anuênio’).

Inclusion of ICMS (VAT) in the taxable base for Pasep /Cofins

Refers to the escrow deposits made in the action challenging the constitutionality of inclusion of ICMS (VAT), already charged, within the taxable amount for calculation of these two contributions. The subsidiaries Cemig D and Cemig GT obtained interim relief from the Court allowing them not to make the payment, and authorizing payment as escrow deposits, starting in 2008, and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, they opted to pay the taxes monthly.

On October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, on the basis of setting a global precedent, in favor of the argument of the subsidiaries. Based on the opinion of its legal advisers, the subsidiaries adopted the following procedures:

 

 

Cemig GT reversed the provision in the amount of R$ 101,233, with effect on the net income for 2017, and recorded the reversal as a deduction on revenue, in the fourth quarter of that year, remaining an escrow deposit in amount of R$ 186,784.

 

 

Cemig D wrote down the liabilities relating to these contributions; and recorded a liability for reimbursement to customers. More details in Note 19.

 

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13.

REIMBURSEMENT OF TARIFF SUBSIDIES

Subsidies on tariffs charged to users of distribution services are reimbursed to distributors through the funds from the Energy Development Account (CDE).

On June 30, 2018, the amount recognized as subsidies revenues was R$ 458,321 (R$ 401,695 in first half 2017). Of such amounts, Cemig D recorded a receivable of R$ 82,470 (R$ 73,345 in 2017), and Cemig GT recorded a receivable of R$ 3,357 (R$ 3,741 in 2017), in current assets.

 

14.

CONCESSION FINANCIAL ASSETS AND LIABILITIES

 

Consolidated

   Jun. 30, 2018
(Restated)
     Dec. 31,
2017
 

Financial assets related to infrastructure (1)

     

Distribution concessions

     384,341        369,762  

Receivable for residual value – Transmission (1.1)

     1,822,294        1,928,038  

Transmission concessions – assets remunerated by tariff (1.2)

     552,019        547,800  

Receivable for residual value – Generation (1.3)

     1,935,220        1,900,757  

Concession grant fee – Generation concessions (1.4)

     2,371,831        2,337,135  
  

 

 

    

 

 

 
     7,065,705        7,083,492  

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (2)

     858,761        369,010  
  

 

 

    

 

 

 

Total

     7,924,466        7,452,502  
  

 

 

    

 

 

 

Current assets

     646,904        847,877  

Non-current assets

     7,277,562        6,604,625  

 

Consolidated Concession financial liabilities

   Jun. 30,
2018
     Dec. 31,
2017
 

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (2)

     23,046        414,800  

Current liabilities

     16,751        414,800  

Non-current liabilities

     6,295        —    

The changes in concession financial assets related to infrastructure are as follows:

 

     Transmission     Generation     Distribution     Consolidated  

Balances at December 31, 2016

     2,287,511       2,800,389       216,107       5,304,007  

Additions

     156,280       —         —         156,280  

Transfers of indemnity – plants not renewed (Volta Grande)

     —         70,252       —         70,252  

Disposals

     (380     —         (15     (395

Amounts received

     (8,890     (111,228     —         (120,118

Transfers between PP&E, Financial assets and Intangible assets

     —         —         34,789       34,789  

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     —         —         1,511       1,511  

Monetary updating

     120,600       150,477       —         271,077  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2017

     2,555,121       2,909,890       252,392       5,717,403  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

     2,475,838       4,237,892       369,762       7,083,492  

Additions

     4,732       —         —         4,732  

Amounts received

     (262,341     (122,284     —         (384,625

Transfers between PP&E, Financial assets and Intangible assets

     (106     —         11,302       11,196  

Other transfers

     —         —         269       269  

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     9,671       —         3,066       12,737  

Monetary updating

     146,519       191,443       —         337,962  

Disposals

     —         —         (58     (58
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2018

     2,374,313       4,307,051       384,341       7,065,705  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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1)

Financial assets related to infrastructure

The energy distribution and transmission concession contracts and the gas distribution contracts are within the scope of ICPC 01 (IFRIC 12). The financial assets under these contracts refer to the investment made in infrastructure that will be returned to the grantor at the end of the concession contract and for which the Company has a contractual right to receive cash from the grantor during the concession contract as well as at the end of the concession contract.

 

1.1)

Transmission – Residual value receivable

Cemig’s transmission concession contracts are within the scope of ICPC 01 (IFRC 12). The financial assets under these contracts refer to the investment made in infrastructure that will be returned to the grantor at the end of the concession contract and for which the Company is entitled to receive an amount corresponding to the residual value of the infrastructure assets at the end of the concession contract.

On April 22, 2016 the Mining and Energy Ministry (Ministério de Minas e Energia, or MME) published its Ministerial Order 120, setting the deadline and method of payment for the remaining amount corresponding to the residual value of the assets. The Ministerial Order determined that the amounts homologated by the regulator should become part of the Regulatory Remuneration Asset Base (Base de Remuneração Regulatória, or BRR) and that the cost of capital should be added to the related Permitted Annual Revenues (‘RAP’).

On August 16, 2016, the regulator, through its Dispatch 2,181, homologated the amount of R$ 892,050, in Reais as of December 2012, for the portion of the residual value of assets to be paid to the Cemig GT. Such amount was recorded as a financial asset, with specific maturity and interest rate.

The amount of indemnity to be received, updated until June 30, 2018, amounted to R$ 1,822,294 (R$ 1,928,038 as of December 31, 2017), corresponding to the following:

Portions of remuneration and depreciation not paid since the extensions of concessions

An amount of R$ 964,679 , corresponding to the portions of remuneration and depreciation not paid since the extensions of the concessions, through the tariff adjustment in 2017 (R$ 992,802 as of December 31, 2017), which will be inflation adjusted using the IPCA (Expanded National Customer Price) index, and remunerated at the weighted average cost of capital of the transmission industry as defined by the regulator for the periodic tariff review, to be paid over a period of eight years, in the form of reimbursement through the RAP.

Residual Value of transmission assets – injunction awarded to industrial customers

On April 10, 2017, an preliminary injunction was granted to the Brazilian Large Free Customers’ Association (Associação Brasileira de Grandes Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association (Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against the regulator and the Federal Government requesting suspension of the effects on their tariffs of payment of the residual value of transmission assets payable to agents of the electricity sector who accepted the terms of Law 12,783/2013.

 

 

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The preliminary injunction was partial, with effects related to suspension of the inclusion in the customer tariffs paid by these associations of the portion of the indemnity corresponding to the remuneration at cost of capital included since the date of extension of the concessions – amounting to R$ 385,259 at June 30, 2018 (R$ 316,138 at December 31, 2017) updated by the IPCA.

In compliance with the court decision, the regulator, in its Technical Note 183/2017-SGT/ Aneel of June 22, 2017, presented a new calculation, excluding the amounts that refer to the cost of own capital. Cemig believes that this is a provisional decision, and that its right to receive the amount referring to the assets of the basic national grid system (Rede Básica Sistema Elétrico, or RBSE) is guaranteed by law, so that no adjustment to the amount recorded at June 30, 2018 is necessary.

Adjustment of the BRR of Transmission Assets – Aneel Technical Note 183/2017

In the tariff review processes of Cemig GT, ratified on June 23, 2009 and on June 8, 2010 the addition of certain conducting cables was not included in the tariff calculation. The new values calculated with the inclusion of the said conducting cables in the Remuneration Assets Base for the period from July 2005 to December 2012 resulted in the amount of R$ 149,255 as of July 2017, received by Cemig GT in 12 months up to June, 2018, through RAP.

Remaining balance to be received through RAP

The remaining balance, of R$ 472,356 on June 30, 2018 (R$ 544,471 on December 31, 2017) was incorporated into the regulatory remuneration base of assets, and is being recovered through RAP. The Company expects to receive in full the receivables in relation to the residual value of the transmission assets.

 

1.2)

Transmission – Assets remunerated by tariff

For new assets related to improvements and upgrades of facilities constructed by transmission concession holders, the regulator calculates an additional portion of Permitted Annual Revenue (RAP) in accordance with a methodology specified in the Proret – Tariff Regulation Procedures.

Under the Proret, the revenue established in the Resolutions is payable to the transmission concessionaires as from the date of start of commercial operation of the facilities. In the periods between tariff reviews, the revenues associated with the improvements and upgrades of facilities are provisional. They are then ultimately determined in the review immediately subsequent to the start of commercial operation of the facilities; this review then has effect starting the date when commercial operations begin. On June 30, 2018, the receivable amounts are R$ 552,019 (R$ 547,800 on December 31, 2017).

 

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1.3)

Generation – Residual value financial asset

Plants operated under the ‘Quotas’ regime as from January 1, 2016

Starting August 2013, various concessions under the Concession Contract 007/1997 started expiring. Upon expiration of the concession contract, the Company has a right to receive an amount corresponding to the residual value of the infrastructure assets, as specified in such concession contract. The financial asset balance corresponding to such amounts, including Deemed Cost, are recognized in Financial Assets, and amounted to R$ 816,411 on June 30, 2018 and December 31, 2017.

 

Generation plant

   Concession
expiration date
     Installed capacity
(MW)
     Net balance of assets
based on historical
cost
     Net balance of assets based
on fair value

(replacement cost)
 

Lot D:

           

Três Marias Hydroelectric Plant

     July 2015        396        71,694        413,450  

Salto Grande Hydroelectric Plant

     July 2015        102        10,835        39,379  

Itutinga Hydroelectric Plant

     July 2015        52        3,671        6,589  

Camargos Hydroelectric Plant

     July 2015        46        7,818        23,095  

Piau Small Hydroelectric Plant

     July 2015        18.01        1,531        9,005  

Gafanhoto Small Hydroelectric Plant

     July 2015        14        1,232        10,262  

Peti Small Hydroelectric Plant

     July 2015        9.4        1,346        7,871  

Dona Rita Small Hydroelectric Plant

     Sep. 2013        2.41        534        534  

Tronqueiras Small Hydroelectric Plant

     July 2015        8.5        1,908        12,323  

Joasal Small Hydroelectric Plant

     July 2015        8.4        1,379        7,622  

Martins Small Hydroelectric Plant

     July 2015        7.7        2,132        4,041  

Cajuru Small Hydroelectric Plant

     July 2015        7.2        3,576        4,252  

Paciência Small Hydroelectric Plant

     July 2015        4.08        728        3,936  

Marmelos Small Hydroelectric Plant

     July 2015        4        616        4,265  

Others:

           

Volta Grande Hydroelectric Plant

     Feb. 2017        380        25,621        70,118  

Miranda Hydroelectric Plant

     Dec. 2016        408        26,710        22,546  

Jaguara Hydroelectric Plant

     Aug. 2013        424        40,452        174,203  

São Simão Hydroelectric Plant

     Jan. 2015        1,710        2,258        2,920  
     

 

 

    

 

 

    

 

 

 
        3,601.70        204,041        816,411  
     

 

 

    

 

 

    

 

 

 

As stated in Aneel Normative Resolution 615/2014, the valuation reports that support the amounts to be received by the Company in relation to the residual value of the plants, previously operated by Cemig GT, that were included in Lot D and for the Volta Grande plant have submitted to the regulator. The Company do not expect any losses in the realization of these amounts.

On June 30, 2018, investments made after the Jaguara, São Simão and Miranda plants came into operation, in the amounts of R$ 174,203, R$     2,920 and R$ 22,546 respectively, are recorded as concession financial assets, and the determination of the final amounts to be paid to the Company are under discussions with the regulator. Management does not expect any losses in realization of these amounts.

 

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Miranda and São Simão plants – basic plans

In accordance with the Mining and Energy Ministry Order 291/17, the amounts of the basic project of Miranda and São Simão plants were recorded as concession financial asset and are being monetary adjusted, as shown below:

 

Plants

   Miranda      São Simão      Total  

Concession termination date

   Dec. 2016      Jan. 2015  

Residual value of assets based on deemed cost on 12/31/2017

     609,995        202,744        812,739  

Adjustment (1)

     174,157        40,855        215,012  
  

 

 

    

 

 

    

 

 

 

Amounts based on MME Order

     784,152        243,599        1,027,751  

Monetary updating

     25,373        31,222        56,595  
  

 

 

    

 

 

    

 

 

 

Residual value of assets of basic project on 12/31/2017

     809,525        274,821        1,084,346  

Monetary updating

     25,729        8,734        34,463  
  

 

 

    

 

 

    

 

 

 

Residual value of assets of basic project on 06/30/2018

     835,254        283,555        1,118,809  
  

 

 

    

 

 

    

 

 

 

 

(1)

Adjustment of the residual value of the São Simão and Miranda plant, as per MME Order 291/17.

On August 31, 2018 the Company received the indemnity relating to the basic plans of the São Simão and Miranda hydroelectric plants, totaling R$ 1,139,355, as specified in Ministerial Order 291/17 of the Mining and Energy Ministry (MME). The amounts of the reimbursement were subjected to monetary updating by the variation in the Selic rate up to the date of receipt.

1.4) Concession grant fee – Generation concessions

In June 2016, the Concession Contracts 08 to 16/2016, relating to 18 hydroelectric plants of Lot D of Aneel Auction 12/2015, won by Cemig GT, were transferred to the related specific-purpose entities (SPEs), wholly-owned subsidiaries of Cemig GT, as follows:

 

SPE

   Plants      Balances
on Dec. 31,
2017
     Monetary
updating
     Amounts
received
    Balances
on Jun. 30,
2018
 

Cemig Geração Três Marias S.A.

     Três Marias        1,330,134        84,877        (65,703     1,349,308  

Cemig Geração Salto Grande S.A.

     Salto Grande        417,393        26,758        (20,721     423,430  

Cemig Geração Itutinga S.A.

     Itutinga        155,594        11,237        (8,809     158,022  

Cemig Geração Camargos S.A.

     Camargos        116,710        8,372        (6,558     118,524  

Cemig Geração Sul S.A.

    
Coronel Domiciano, Joasal,
Marmelos, Paciência and Piau
 
 
     152,170        11,680        (9,227     154,623  

Cemig Geração Leste S.A.

    

Dona Rita, Ervália, Neblina,
Peti, Sinceridade and
Tronqueiras
 
 
 
     103,133        8,746        (7,007     104,872  

Cemig Geração Oeste S.A.

    
Cajurú, Gafanhoto and
Martins
 
 
     62,001        5,310        (4,259     63,052  
     

 

 

    

 

 

    

 

 

   

 

 

 

Total

        2,337,135        156,980        (122,284     2,371,831  
     

 

 

    

 

 

    

 

 

   

 

 

 

 

SPE

   Plants    Balances
on Dec. 31,
2016
     Monetary
updating
     Amounts
received
    Balances
on Jun. 30,
2017
 

Cemig Geração Três Marias S.A.

   Três Marias      1,283,197        80,959        (59,763     1,304,393  

Cemig Geração Salto Grande S.A.

   Salto Grande      402,639        25,530        (18,847     409,322  

Cemig Geração Itutinga S.A.

   Itutinga      149,904        10,825        (8,013     152,716  

Cemig Geração Camargos S.A.

   Camargos      112,447        8,060        (5,965     114,542  

Cemig Geração Sul S.A.

   Coronel Domiciano, Joasal,
Marmelos, Paciência and Piau
     146,553        11,320        (8,393     149,480  

Cemig Geração Leste S.A.

   Dona Rita, Ervália, Neblina,
Peti, Sinceridade and
Tronqueiras
     99,315        8,573        (6,373     101,515  

Cemig Geração Oeste S.A.

   Cajurú, Gafanhoto and Martins      59,710        5,210        (3,874     61,046  
     

 

 

    

 

 

    

 

 

   

 

 

 

Total

        2,253,765        150,477        (111,228     2,293,014  
     

 

 

    

 

 

    

 

 

   

 

 

 

 

41


LOGO

 

Cemig GT paid a concession fee of R$ 2,216,353 for a 30-year concession contract related to 18 hydroelectric plants. The amount of the concession fee was recognized as a financial asset, as Cemig GT has an unconditional right to receive the amount paid, updated by the IPCA Index and remuneratory interest (the total amounts is equivalent to the project’s internal return rate), during the period of the concession. Of the energy produced by these plants, 70% is sold in the Regulated Market (ACR) and 30% in the Free Market (ACL).

 

2)

Account for compensation of variation of Portion A items (CVA) and Other financial components

The Amendment that extended the period of the concession of Cemig D guarantees that, in the event of termination of the concession contract, for any reason, the remaining balances (assets and liabilities) of any shortfall in payment or reimbursement through the tariff must also be included as payable to Cemig D by the grantor. The balances on (i) the CVA (Compensation for Variation of Portion A items) Account, (ii) the account for Neutrality of Sector Charges, and (iii) Other financial components in the tariff calculation, refer to the positive and negative differences between the estimate of the Company’s non-manageable costs and the payments actually made. The variations are subject to monetary adjustment using the Selic rate and considered in the subsequent tariff adjustments.

The balances of these financial assets and liabilities are shown below. It should be noted that in the balance sheet amounts are presented net, in assets or liabilities, in accordance with the tariff adjustments approved or to be approved:

 

Statement of financial position

   Jun. 30, 2018     Dec. 31, 2017  
   Amounts ratified
by Aneel in the
last tariff
adjustment
(Restated)
    Amounts to be
ratified by
Aneel in the
next tariff
adjustments
    Total
(Restated)
    Amounts ratified
by Aneel in the
last tariff
adjustment
    Amounts to be
ratified by
Aneel in the
next tariff
adjustments
    Total  

Assets

     2,620,956       1,242,387       3,863,343       381,588       2,330,978       2,712,566  

Current assets

     2,620,956       110,267       2,731,223       381,588       1,379,162       1,760,750  

Non-current assets

     —         1,132,120       1,132,120       —         951,816       951,816  

Liabilities

     (2,527,435     (500,193     (3,027,628     (796,388     (1,961,968     (2,758,356

Current liabilities

     (2,521,140     (127,018     (2,648,158     (796,388     (1,220,637     (2,017,025

Non-current liabilities

     (6,295     (373,175     (379,470     —         (741,331     (741,331
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current, net

     99,816       (16,751     83,065       (414,800     158,525       (256,275
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current, net

     (6,295     758,945       752,650       —         210,485       210,485  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, net

     93,521       742,194       835,715       (414,800     369,010       (45,790
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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LOGO

 

 

Financial components

   Jun. 30, 2018     Dec. 31, 2017  
   Amounts ratified
by Aneel in the
last tariff
adjustment
(Restated)
    Amounts to
be ratified
by Aneel in
the next
tariff
adjustments
    Total
(Restated)
    Amounts
ratified by
Aneel in
the last
tariff
adjustment
    Amounts to
be ratified
by Aneel in
the next
tariff
adjustments
    Total  

Items of ‘Portion A’

            

Energy Development Account (CDE) quota

     (61     48,335       48,274       (154,234     (89,414     (243,648

Tariff for use of transmission facilities of grid participants

     52,907       37,073       89,980       9,058       23,448       32,506  

Tariff for transport of Itaipu supply

     4,888       4,462       9,350       2,332       1,306       3,638  

Alternative power source program (Proinfa)

     6,972             6,972       (5,148     1,513       (3,635

ESS/EER System Service/Energy Charges)

     (555,088     (52,761     (607,849     (40,105     (586,413     (626,518

Energy purchased for resale (1)

     1,487,358       695,912       2,183,270       (90,616     1,326,263       1,235,647  

Other financial components

            

Over contracting of supply

     (448,923     165,400       (283,523     8,357       (211,337     (202,980

Neutrality of Portion A

     116,617       1,206       117,823       (30,581     74,076       43,495  

Other financial items

     (519,118     (66,720     (585,838     (111,825     —         (111,825

Tariff Flag balances (2)

     —         (76,607     (76,607     —         (134,008     (134,008

Excess demand and reactive power

     (52,031     (14,106     (66,137     (2,038     (36,424     (38,462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

     93,521       742,194       835,715       (414,800     369,010       (45,790
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The amount of the CVA for power supply constituted in 2018 after the Tariff Review, for inclusion in the tariff adjustment of 2019, is due mainly to the increased expenses on purchase of energy and coverage of hydrological risk, in view of the increase in the price of energy in the wholesale market, and operation of the thermoelectric plants due to the low level of reservoirs.

(2)

Billing arising from the ‘Flag’ Tariff System not yet homologated by Aneel.

Changes in balances of financial assets and liabilities:

 

Balance on December 31, 2016

     (407,250

Net constitution of financial liabilities

     1,297  

Amortization

     (333,193

Payments from the Flag Tariff Centralizing Account

     (145,502

Updating – Selic rate

     (28,080
  

 

 

 

Balance on June 30, 2017

     (912,728
  

 

 

 

Balance on December 31, 2017

     (45,790

Net constitution of financial liabilities

     742,106  

Amortization

     408,566  

Other – P&D Reimbursement

     (114,782

Payments from the Flag Tariff Centralizing Account

     (165,671

Updating – Selic rate

     11,286  
  

 

 

 

Balance on June 30, 2018 (Restated)

     835,715  
  

 

 

 

Payments from the Flag Tariff Centralizing Account – CCRBT

The ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the funds that are collected from captive customers of distribution concession and permission holders operating in the national grid, and are paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the Wholesale Electricity Trading Chamber (CCEE) to distribution agents, based on the difference between the realized amounts of costs of thermal generation and the exposure to short term market prices, and the amount covered by the tariff in force.

Pass-through of funds from the Flag Account from January to June 2018 totaled R$ 165,671 (R$ 145,502 from January to June, 2017) and were recognized as a partial realization of the CVA receivable previously constituted.

 

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LOGO

 

 

15.

INVESTMENTS

This table provides information of investments in the subsidiaries, jointly-controlled entities and affiliated companies. The information below was presented by the percentage of interest held by the Company.

 

     Control    Consolidated      Holding Company  
   Jun. 30,
2018
     Dec. 31,
2017
     Jun. 30, 2018
(Restated)
     Dec. 31, 2017  

Cemig Geração e Transmissão

   Subsidiary      —          —          4,860,721        4,793,832  

Hidrelétrica Cachoeirão

   Jointly-controlled      48,346        57,957        —          —    

Guanhães Energia

   Jointly-controlled      59,608        25,018        —          —    

Hidrelétrica Pipoca

   Jointly-controlled      28,177        26,023        —          —    

Retiro Baixo

   Jointly-controlled      165,700        157,773        —          —    

Aliança Norte (Belo Monte Plant)

   Jointly-controlled      635,489        576,704        —          —    

Madeira Energia (Santo Antônio Plant)

   Affiliated      457,410        534,761        —          —    

FIP Melbourne (Santo Antônio Plant)

   Affiliated      516,571        582,504        —          —    

Lightger

   Jointly-controlled      41,361        40,832        —          —    

Baguari Energia

   Jointly-controlled      160,952        148,422        —          —    

Renova

   Jointly-controlled      193,432        282,524        —          —    

Aliança Geração

   Jointly-controlled      1,280,382        1,242,170        —          —    

Central Eólica Praias de Parajuru

   Jointly-controlled      54,015        60,101        —          —    

Central Eólica Volta do Rio

   Jointly-controlled      54,089        67,725        —          —    

Central Eólica Praias de Morgado

   Jointly-controlled      45,821        50,569        —          —    

Amazônia Energia (Belo Monte Plant)

   Jointly-controlled      964,978        866,554        —          —    

Usina Hidrelétrica Itaocara S.A.

   Jointly-controlled      3,621        3,699        —          —    

Cemig Distribuição

   Subsidiary      —          —          4,375,890        3,737,310  

Light

   Jointly-controlled      1,471,649        1,534,294        1,039,507        1,083,140  

Taesa

   Jointly-controlled      1,111,914        1,101,462        1,111,914        1,101,462  

Cemig Telecom (3)

   Subsidiary      —          —          —          247,313  

Ativas Data Center

   Affiliated      16,988        17,450        16,988        —    

Gasmig

   Subsidiary      —          —          1,398,287        1,418,271  

Rosal Energia

   Subsidiary      —          —          118,060        106,897  

Sá Carvalho

   Subsidiary      —          —          99,963        102,536  

Horizontes Energia

   Subsidiary      —          —          56,754        53,165  

Usina Térmica Ipatinga

   Subsidiary      —          —          4,724        4,932  

Cemig PCH

   Subsidiary      —          —          96,218        96,944  

Lepsa (1)

   Subsidiary      —          —          437,204        455,861  

RME

   Jointly-controlled      367,103        383,233        367,103        383,233  

UTE Barreiro

   Subsidiary      —          —          18,102        17,982  

Empresa de Comercialização de Energia Elétrica

   Subsidiary      —          —          26,815        18,403  

Efficientia

   Subsidiary      —          —          16,653        7,084  

Cemig Comercializadora de Energia Incentivada

   Subsidiary      —          —          2,212        2,004  

Companhia de Transmissão Centroeste de Minas

   Jointly-controlled      18,226        20,584        18,226        20,584  

Cemig Trading

   Subsidiary      —          —          27,782        29,206  

Axxiom Soluções Tecnológicas

   Jointly-controlled      7,720        11,866        7,720        11,866  

Cemig Overseas (2)

   Subsidiary      —          —          193        158  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total of investments

        7,703,552        7,792,225        14,101,036        13,692,183  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

On November 30, 2017, the Company acquired all the shares of Lepsa, and therefore as from that date now consolidates that company in its interim financial information. Lepsa’s sole asset is comprised of an investment in common and preferred shares in Light. Hence the Company no longer presents the investment that it previously held in Lepsa in its interim financial information, presenting only the interest in Light.

(2)

Company in Spain to evaluate opportunities for investments abroad. As of June 30, 2018, the company has no operations.

(3)

On March 31, 2018 Cemig Telecom was merged into the Company.

The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the interest in the Santo Antônio power plant, and Ativas Data Center, investees in which Cemig has significant influence.

 

44


LOGO

 

a) Right to exploitation of the regulated activity

In the process of allocation of the acquisition price of the jointly-controlled subsidiaries, a valuation was made of the intangible assets relating to the right to operate the regulated activity. This asset is presented together with the acquisition cost of the investments in the previous table. These assets will be amortized over the remaining period of the concessions on the straight-line basis.

 

Holding Company

   Dec. 31, 2016      Amortization     Jun. 30, 2017      Dec. 31, 2017      Amortization     Jun. 30, 2018  

Cemig Geração e Transmissão

     303,937        (6,852     297,085        285,768        (6,671     279,097  

Retiro Baixo

     29,525        (592     28,933        28,344        (591     27,753  

Central Eólica Praias de Parajuru

     19,341        (764     18,577        16,503        (707     15,796  

Central Eólica Volta do Rio

     13,807        (504     13,303        11,035        (436     10,599  

Central Eólica Praias de Morgado

     27,406        (1,028     26,378        23,956        (972     22,984  

Madeira Energia (Santo Antônio plant)

     157,340        (2,978     154,362        151,384        (2,979     148,405  

Aliança Norte (Belo Monte plant)

     56,518        (986     55,532        54,546        (986     53,560  

Taesa

     288,146        (6,780     281,366        188,745        (4,660     184,085  

Light

     208,800        (11,180     197,620        186,437        (11,181     175,256  

Gasmig

     207,498        (3,956     203,542        199,586        (3,955     195,631  

Lepsa

     48,429        (2,532     45,897        —          —         —    

RME

     48,429        (2,532     45,897        43,365        (2,532     40,833  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

     1,105,239        (33,832     1,071,407        903,901        (28,999     874,902  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

Consolidated

   Dec. 31, 2016      Amortization     Jun. 30, 2017      Dec. 31, 2017      Amortization     Jun. 30, 2018  

Taesa

     288,146        (6,780     281,366        188,745        (4,660     184,085  

Light

     208,800        (11,180     197,620        186,437        (11,181     175,256  

Gasmig

     207,498        (3,956     203,542        199,586        (3,955     195,631  

Lepsa

     48,429        (2,532     45,897        —          —         —    

RME

     48,429        (2,532     45,897        43,365        (2,532     40,833  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

     801,302        (26,980     774,322        618,133        (22,328     595,805  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

45


LOGO

 

b) Changes of investments in the subsidiaries, jointly-controlled and affiliated entities are as follows:

 

Holding Company

   Dec. 31, 2017      Gain (loss) by equity
method (Income
statement)

(Restated)
    Gain (loss) by
equity method

(Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Jun. 30, 2018
(Restated)
 

Cemig Geração e Transmissão

     4,793,832        66,889       —         —         —          —         4,860,721  

Cemig Distribuição (2)

     3,737,310        177,656       —         —         560,000        (99,076     4,375,890  

Cemig Telecom (1)

     247,313        4,778       (416     —         —          (251,675     —    

Ativas Data Center (1)

     —          (128     —         —         —          17,116       16,988  

Rosal Energia

     106,897        9,958       —         (16,342     —          17,547       118,060  

Sá Carvalho

     102,536        13,574       —         (16,147     —          —         99,963  

Gasmig

     1,418,271        61,324       —         (81,308     —          —         1,398,287  

Horizontes Energia

     53,165        11,604       —         (8,015     —          —         56,754  

Usina Térmica Ipatinga

     4,932        106       —         (314     —          —         4,724  

Cemig PCH

     96,944        15,396       —         (16,122     —          —         96,218  

Lepsa (2)

     455,861        6,389       —         (2,963     —          (22,083     437,204  

RME (2)

     383,233        1,635       —         (1,200     —          (16,565     367,103  

UTE Barreiro

     17,982        120       —         —         —          —         18,102  

Empresa de Comercialização de Energia Elétrica

     18,403        26,232       —         (17,820     —          —         26,815  

Efficientia

     7,084        730       —         (231     9,070        —         16,653  

Cemig Comercializadora de Energia Incentivada

     2,004        428       —         (220     —          —         2,212  

Companhia de Transmissão Centroeste de Minas

     20,584        2,446       —         (4,804     —          —         18,226  

Light (2)

     1,083,140        8,202       —         (7,689     —          (44,146     1,039,507  

Cemig Trading

     29,206        26,582       —         (28,006     —          —         27,782  

Axxiom Soluções Tecnológicas

     11,866        (4,146     —         —         —          —         7,720  

Taesa

     1,101,462        100,028       —         (89,576     —          —         1,111,914  

Cemig Overseas

     158        —         —         —         35        —         193  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     13,692,183        529,803       (416     (290,757     569,105        (398,882     14,101,036  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

The changes included in the ‘Others’ column arise from the merger of Cemig Telecom in March, 2018. See Note 1.

(2)

The changes included in the ‘Other’ column result from the impacts arising from the first adoption of the new accounting pronouncements on January 1, 2018 recognized by the investees directly in Equity, without passing through the period’s result. See Note 2.2.

 

46


LOGO

 

Advance for Future Capital Increase (‘AFAC’), in Cemig D

On December 11, 2017 and February 8, 2018, the Company’s Board of Directors authorized the transfer to Cemig Distribuição (Cemig D) the amounts of up to R$ 1,600,000 and R$ 600,000, respectively, totaling R$ 2,200,000, as an Advance for Future Capital Increase (Adiantamento para Futuro Aumento de Capital, or AFAC) to be subsequently converted into a capital increase through approval by future Extraordinary General Meeting of Shareholders.

As of June 30, 2018 the total amount transferred was R$ 2,060,000.

 

Consolidated

   Dec. 31,
2017
     Equity method gain
(Statement of
income)
    Dividends     Injections /
acquisitions
     Other     Jun. 30,
2018
 

Companhia de Transmissão Centroeste de Minas

     20,584        2,446       (4,804     —          —         18,226  

Light (1)

     1,534,294        15,107       (11,532     —          (66,220     1,471,649  

Axxiom Soluções Tecnológicas

     11,866        (4,146     —         —          —         7,720  

RME (1)

     383,233        1,635       (1,200     —          (16,565     367,103  

Hidrelétrica Cachoeirão

     57,957        6,739       (16,350     —          —         48,346  

Guanhães Energia

     25,018        (299     —         34,889        —         59,608  

Hidrelétrica Pipoca

     26,023        3,357       (1,203     —          —         28,177  

Madeira Energia (Santo Antônio Plant)

     534,761        (77,435     —         84        —         457,410  

FIP Melbourne (Santo Antônio Plant)

     582,504        (65,933     —         —          —         516,571  

Lightger

     40,832        2,308       (1,779     —          —         41,361  

Baguari Energia

     148,422        16,088       (3,558     —          —         160,952  

Central Eólica Praias de Parajuru

     60,101        (6,086     —         —          —         54,015  

Central Eólica Volta do Rio

     67,725        (13,636     —         —          —         54,089  

Central Eólica Praias de Morgado

     50,569        (4,748     —         —          —         45,821  

Amazônia Energia (Belo Monte Plant)

     866,554        28,243       —         70,181        —         964,978  

Ativas Data Center

     17,450        (891     —         —          429       16,988  

Taesa

     1,101,462        100,028       (89,576     —          —         1,111,914  

Renova

     282,524        (89,092     —         —          —         193,432  

Usina Hidrelétrica Itaocara S.A.

     3,699        (3,477     —         3,399        —         3,621  

Aliança Geração

     1,242,170        38,212       —         —          —         1,280,382  

Aliança Norte (Belo Monte Plant)

     576,704        17,420       —         41,365        —         635,489  

Retiro Baixo

     157,773        7,927       —         —          —         165,700  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total of investments

     7,792,225        (26,233     (130,002     149,918        (82,356     7,703,552  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

The changes included in the “Other” column derive from the impacts arising from the first adoption of the new accounting pronouncements on January 1, 2018 recognized by the investees directly in Equity, without passing through the result for the period. See Note 2.2.

 

47


LOGO

 

 

Holding Company

   Dec. 31, 2016      Equity
method
gain
(Statement
of income)
    Equity method
gain (Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Jun. 30, 2017  

Cemig Geração e Transmissão

     4,583,195        530,551       (33,852     —         100,000        —         5,179,894  

Cemig Distribuição

     2,499,867        (191,095     —         —         —          —         2,308,772  

Cemig Telecom

     191,515        (97     (680     —         —          —         190,738  

Rosal Energia

     141,038        (9,363     —         (30,968     —          —         100,707  

Sá Carvalho

     106,111        17,071       —         (18,631     —          —         104,551  

Gasmig

     1,419,492        54,844       —         (98,079     —          —         1,376,257  

Horizontes Energia

     52,396        6,878       —         (7,818     —          —         51,456  

Usina Térmica Ipatinga

     4,009        191       —         —         —          —         4,200  

Cemig PCH

     91,969        9,133       —         (10,065     —          —         91,037  

Lepsa

     343,802        (4,508     (1,876     —         —          (127     337,291  

RME

     340,063        (4,591     (1,815     —         —          (127     333,530  

Companhia Transleste de Transmissão

     21,588        2,627       —         (1,265     —          —         22,950  

UTE Barreiro

     39,266        (2,769     —         924       —          —         37,421  

Companhia Transudeste de Transmissão

     20,505        2,044       —         —         —          —         22,549  

Empresa de Comercialização de Energia Elétrica

     20,154        17,877       —         (19,570     —          —         18,461  

Companhia Transirapé de Transmissão

     23,952        2,359       —         —         —          —         26,311  

Efficientia

     4,868        2,804       —         (1,171     —          1       6,502  

Cemig Comercializadora de Energia Incentivada

     1,867        338       —         —         —          —         2,205  

Companhia de Transmissão Centroeste de Minas

     21,171        2,532       —         (1,346     —          —         22,357  

Light

     1,070,477        (30,740     (5,442     —         —          —         1,034,295  

Cemig Trading

     28,635        28,120       —         (27,435     —          —         29,320  

Axxiom Soluções Tecnológicas

     19,264        (4,437     —         —         —          —         14,827  

Taesa

     1,582,633        81,856       —         (111,297     —          —         1,553,192  

Cemig Overseas

     20        —         —         —         111        —         131  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     12,627,857        511,625       (43,665     (326,721     100,111        (253     12,868,954  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

48


LOGO

 

 

Consolidated

   Dec. 31,
2016
    Equity method gain
(Statement of
income)
    Equity method
gain (Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Jun. 30,
2017
 

Companhia Transleste de Transmissão

     21,588       2,627       —         (1,265     —          —         22,950  

Companhia Transudeste de Transmissão

     20,505       2,044       —         —         —          —         22,549  

Companhia Transirapé de Transmissão

     23,952       2,359       —         —         —          —         26,311  

Companhia de Transmissão Centroeste de Minas

     21,171       2,532       —         (1,346     —          —         22,357  

Light

     1,070,477       (30,740     (5,442     —         —          —         1,034,295  

Axxiom Soluções Tecnológicas

     19,264       (4,437     —         —         —          —         14,827  

Lepsa

     343,802       (4,508     (1,876     —         —          (127     337,291  

RME

     340,063       (4,591     (1,815     —         —          (127     333,530  

Hidrelétrica Cachoeirão

     50,411       6,396       —         (2,641     —          —         54,166  

Guanhães Energia (1)

     —         (2,081     —         —         78,641        (59,071     17,489  

Hidrelétrica Pipoca

     31,809       2,716       —         (1,284     —          —         33,241  

Madeira Energia (Santo Antônio Plant)

     643,890       (48,633     —         —         —          —         595,257  

FIP Melbourne (Santo Antônio Plant)

     677,182       (42,517     —         —         —          —         634,665  

Lightger

     41,543       3,530       —         (642     —          —         44,431  

Baguari Energia

     162,106       12,529       —         (5,752     —          1       168,884  

Central Eólica Praias de Parajuru

     63,307       (1,125     —         (406     —          —         61,776  

Central Eólica Volta do Rio

     81,228       (4,054     —         —         —          —         77,174  

Central Eólica Praias de Morgado

     59,586       (2,830     —         —         —          —         56,756  

Amazônia Energia(Belo Monte Plant)

     781,022       6,194       —         —         55,941        —         843,157  

Ativas Data Center (2)

     17,741       (1,491     —         —         —          2,003       18,253  

Taesa

     1,582,633       81,856       —         (111,297     —          —         1,553,192  

Renova

     688,625       36,553       (33,852     —         18,000        —         709,326  

Usina Hidrelétrica Itaocara S.A.

     2,782       —         —         —         —          —         2,782  

Aliança Geração

     1,319,055       39,043       —         (51,576     —          —         1,306,522  

Aliança Norte (Belo Monte Plant)

     527,498       2,304       —         —         33,649        —         563,451  

Retiro Baixo

     161,848       6,442       —         —         —          —         168,290  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total of investments

     8,753,088       60,118       (42,985     (176,209     186,231        (57,321     8,722,922  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Guanhães – uncovered liabilities of jointly-controlled entity (1)

     (59,071     —         —         —         —          59,071       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
               

Total

     8,694,017       60,118       (42,985     (176,209     186,231        1,750       8,722,922  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Transfer to uncovered liabilities.

 

49


LOGO

 

 

c)

Information from the subsidiaries, jointly-controlled and affiliated entities, not adjusted for the percentage represented by the Company’s ownership interest

 

Company

   Number of
shares
     Jun. 30, 2018      Dec. 31, 2017  
   Cemig
interest

%
     Share
capital
     Equity
(Restated)
     Cemig
interest

%
     Share
capital
     Equity  

Cemig Geração e Transmissão

     2,896,785,358        100.00        1,837,710        4,860,721        100.00        1,837,710        4,793,832  

Hidrelétrica Cachoeirão

     35,000,000        49.00        35,000        98,665        49.00        35,000        118,280  

Guanhães Energia

     358,511,000        49.00        386,139        121,650        49.00        330,536        51,058  

Hidrelétrica Pipoca

     41,360,000        49.00        41,360        57,504        49.00        41,360        53,108  

Retiro Baixo

     222,850,000        49.90        222,850        276,447        49.90        222,850        257,880  

Aliança Norte (Belo Monte Plant)

     39,919,934,434        49.00        1,203,675        1,187,611        49.00        1,119,255        1,065,628  

Madeira Energia (Santo Antônio Plant)

     9,730,201,137        18.13        9,546,672        4,552,760        18.13        9,546,672        5,327,114  

Lightger

     79,078,937        49.00        79,232        84,410        49.00        79,232        83,331  

Baguari Energia (1)

     26,157,300,278        69.39        186,573        231,961        69.39        186,573        213,895  

Renova

     417,197,244        36.23        2,919,019        534,119        36.23        2,919,019        779,808  

Aliança Geração

     1,291,582,500        45.00        1,291,488        1,970,945        45.00        1,291,488        1,857,905  

Central Eólica Praias de Parajuru

     70,560,000        49.00        70,560        77,999        49.00        70,560        88,976  

Central Eólica Volta do Rio

     117,230,000        49.00        117,230        88,752        49.00        117,230        115,694  

Central Eólica Praias de Morgado

     52,960,000        49.00        52,960        46,605        49.00        52,960        54,312  

Amazônia Energia (1) (Belo Monte Plant)

     1,281,030,446        74.50        1,323,660        1,295,273        74.50        1,229,600        1,163,160  

Usina Hidrelétrica Itaocara S.A.

     17,014,114        49.00        18,038        7,390        49.00        11,102        7,549  

Cemig Distribuição

     2,359,113,452        100.00        2,771,998        4,375,890        100.00        2,771,998        3,737,310  

Light

     203,934,060        26.06        2,225,822        3,330,378        26.06        2,225,822        3,461,971  

Cemig Telecom (2)

     —          —          —          —          100.00        292,399        247,313  

Ativas Data Center

     456,540,718        19.60        182,063        100,071        —          —          —    

Rosal Energia

     46,944,467        100.00        46,944        118,060        100.00        46,944        106,897  

Sá Carvalho

     361,200,000        100.00        36,833        99,963        100.00        36,833        102,536  

Gasmig

     409,255,483        99.57        665,429        952,739        99.57        665,429        1,223,948  

Horizontes Energia

     39,257,563        100.00        39,258        56,754        100.00        39,258        53,165  

Usina Térmica Ipatinga

     174,281        100.00        174        4,724        100.00        174        4,932  

Cemig PCH

     35,952,000        100.00        35,952        96,218        100.00        35,952        96,944  

Lepsa

     1,379,839,905        100.00        406,341        439,069        100.00        406,341        455,861  

RME

     1,365,421,406        75.00        403,040        436,891        75.00        403,040        453,157  

UTE Barreiro

     16,902,000        100.00        16,902        18,102        100.00        16,902        17,982  

Empresa de Comercialização de Energia Elétrica

     486,000        100.00        486        26,815        100.00        486        18,403  

Efficientia

     6,051,994        100.00        6,052        16,653        100.00        6,052        7,084  

Cemig Comercializadora de Energia Incentivada

     1,000,000        100.00        1,000        2,206        100.00        1,000        2,004  

Companhia de Transmissão Centroeste de Minas

     28,000,000        51.00        28,000        35,737        51.00        28,000        40,361  

Cemig Trading

     1,000,000        100.00        1,000        27,782        100.00        1,000        29,206  

Axxiom Soluções Tecnológicas

     17,200,000        49.00        46,600        15,756        49.00        46,600        24,216  

TAESA

     1,033,496,721        21.68        3,042,034        4,410,910        21.68        3,042,034        4,346,746  

 

(1)

Jointly-control under a Shareholders’ Agreement.

(2)

On March 31, 2018 Cemig Telecom was merged into the Company.

 

50


LOGO

 

On June 30, 2018, the current liabilities of some jointly-controlled entities exceeded their current assets, as follows:

Madeira Energia S.A. (‘Mesa’): The excess of current liabilities over current assets, equal to R$ 1,749,729, arises mainly from the balances of the accounts ‘Suppliers’ and ‘Loans and financings’. To resolve the situation of negative working capital, Mesa is renegotiating the flow of debt servicing payments with the BNDES and onlending banks, and the release of funds from the Reserve account, as a result of this renegotiation. The process of debt reprofiling is at an advanced stage of approval by the creditors and shareholders, and the remaining requirement for its conclusion is the definition of part of the corporate guarantees to be offered.

Renova Energia: In the period ended June 30, 2018, Renova Energia reported a loss of R$ 245,689, accumulated losses of R$ 2,440,279 and current liabilities in excess of current assets in the amount of R$ 59,190. Renova Energia is required to obtain capital to comply with the construction commitments of wind and solar generating plants.

Due to this scenario, Renova has been taking actions to rebalance its liquidity and cash flow structure, and is working together with its controlling shareholders on a new restructuring plan, aiming to rebalance its capital structure and honor its commitments.

The Management of Renova Energia believes that with the success of these measures, it will be possible to recover the economic and financial equilibrium, and liquidity.

The events or conditions described above indicate the existence of relevant uncertainty that may cast significant doubt on Renova Energia ability to continue as a going concern as of June 30, 2018.

The Company is committed to the plans of the investee’s management and has concluded that, at the present moment, there are no indicators of additional impairment need other than that already posted in the Quarterly Information of the Investee for the period ended June 30, 2018 – which has been recognized by the Company thru equity method. The Company will timely reflect any need for additional impairment of this investment.

Investment in the Santo Antônio hydroelectric plant, through Madeira Energia S.A. (‘Mesa’) and FIP Melbourne

The Company has an indirect investment, of 18.13%, in Madeira Energia S.A. (which holds an investment in Santo Antônio Energia S.A.), of R$ 973,981 on June 30, 2018 (R$ 1,117,265 on December 31, 2017).

Madeira Energia S.A. (‘Mesa’) and its subsidiary Santo Antônio Energia S.A. (‘Saesa’) are incurring construction costs related to the construction of the Santo Antônio hydroelectric plant. On June 30, 2018 the total PP&E and intangible assets constituted by these costs amounted to R$ 21,202,427 (Mesa, consolidated). According to financial projections prepared by its Management, these construction costs will be recovered through future revenues from operations as all the entity’s generation plants are currently under operation.

The Federal Public Attorneys’ Office has conducted and is in the process of conducting investigations, and other legal measures are in progress, involving other indirect shareholders of Madeira Energia S.A. and certain executives of those other indirect shareholders. In this context, the Federal Public Attorneys have started investigations on irregularities involving contractors and suppliers of Mesa and of its other shareholders. In response to allegations of possible illegal activities, the investee and its other shareholders have started an independent internal investigation. It is not possible to determine the results of these investigations, or the developments arising from them, which may at some time in the future affect the investee.

The effects of any changes to the current scenario will be reflected, appropriately, in the interim financial information of the Company and its subsidiary Cemig GT.

 

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The FID (Availability Factor)

On July 31, 2015, the Regional Federal Appeal Court accepted the request by SAESA for interim relief on appeal. This relief suspended the application of the Availability Factor (FID) related to the generating units of the Santo Antônio hydroelectric plant not dispatched by the National System Operator (ONS). This decision, which had ordered the regulator, Aneel, and the Wholesale Electricity Trading Chamber, CCEE, to adopt the necessary procedures to make that decision effective in the CCEE’s accounting and settlement, was suspended by the Higher Appeal Court (STJ), was suspended by the Higher Appeal Court (STJ), and subsequently reinstated, after an interim remedy was granted in a Constitutional Complaint to the Federal Supreme Court. However, on April 10, 2018 the Supreme Court ruled against allowing the Constitutional complaint to go forward, re-establishing the effects of the decision given by the STJ. Due to the decision by the Supreme Court the CCEE, after authorization by Aneel, agreed the payment by installments of the debt, of R$ 738,000, relating to the Availability Factor.

This was posted in the Liabilities of Saesa in Suppliers, as follows:

 

  (a)

payment in 36 equal installments, adjusted by inflation, plus interest;

 

  (b)

the installments to start with the CCEE accounting of July 2018, with financial settlement set for September 5, 2018.

Arbitration proceedings

In 2014, Cemig GT and SAAG Investimentos S.A. (SAAG), a vehicle through which Cemig GT holds an indirect equity interest in Mesa, opened arbitration proceedings, in the Market Arbitration Chamber, challenging the following: (a) the increase approved in the capital of Mesa of approximately R$ 750 million partially to be allocated to payment of the claims by the Santo Antonio Construction Consortium (‘CCSA’), based on absence of quantification of the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the bylaws and Shareholders’ Agreement of Mesa; and also on the existence of credits owed to Mesa by CCSA, for an amount greater than the claims; and (b) the adjustment for impairment carried out by the Executive Board of Mesa, in the amount of R$ 750 million, relating to certain credits owed to Mesa by CCSA, on the grounds that those credits are owed in their totality by express provision of contract.

The arbitration judgment by the Market Arbitration Chamber recognized the right of Cemig GT and SAAG in full, and ordered the annulment of the acts being impugned. As a consequence of this decision, Mesa reversed the impairment, and posted a provision for doubtful accounts in the amount of R$ 678,551 in its financial statements as of December 31, 2017.

To resolve the question of the liability of the CCSA consortium to reimburse the costs of re-establishment of the collateral and use of the contractual limiting factor, the affiliated company opened arbitration proceedings with the International Chamber of Commerce (ICC) against CCSA, which are in progress. This process is confidential under the Arbitration Regulations of the ICC.

Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte

Amazônia Energia and Aliança Norte are Shareholders 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, and manages that interest. Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest in NESA of 11.74%.

NESA will still require significant funds for costs of organization, development and pre-operating costs, resulting in negative net working capital of R$ 2,324,202 as of June 30, 2018. The completion of the construction works for Belo Monte plant, and consequent generation of revenues, in turn, depend on the capacity of the investee to continue to comply with the schedule of works envisaged, as well as obtaining the necessary financial resources, either from its shareholders and / or from third parties.

On April 7, 2015, NESA was awarded a preliminary injunction ordering the regulator to “abstain, until hearing of the application for an injunction made in the original case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant not starting operations on the date established in the original timetable for the project, including those specified in an Aneel Normative Resolution and in the Concession Contract for the Belo Monte Hydroelectric Plant” – Aneel nº 595/2013 and its Concession contract 01/2010-MME. The legal advisers of NESA have classified the probability of loss as ‘possible’ and estimated the potential loss on June 30, 2018 to approximately R$ 616,000.

 

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Investigations and other legal measures are in progress, conducted by the Federal Public Attorneys’ Office, which involve other shareholders of NESA and certain executives of those other shareholders. In this context, the Federal Public Attorneys have started investigations on irregularities involving contractors and suppliers of NESA and of its other Shareholders, which are still in progress. At present it is not possible to determine the outcome of these investigations, and their possible consequences. These might at some time in the future affect the investee. In addition, based on the results of the independent internal investigation conducted by NESA and its other Shareholders, a write-down of the value of the infrastructure of NESA, by R$ 183,000 was already recorded in 2015.

The effects of any changes in the current scenario will be reflected, appropriately, in the Company’s interim financial information.

Investment in Renova Energia S.A. (‘Renova’)

Negotiations relating to the Alto Sertão III wind farm complex

Renova is negotiating sale of the Alto Sertão III wind farm complex and has received non-binding proposals for acquisition of this Project from certain investors, which are at a final stage of the due diligence process.

Risks related to compliance with laws and regulations

On January 19, 2018, Renova responded to a formal statement by the Civil Police of Minas Gerais State received in November 2017, relating to the investigation being carried out by that Police Force related to certain capital injections made by the controlling shareholders of Renova, including Cemig GT, and capital injections made by Renova in certain projects under development in previous years. As a consequence, the governance bodies of Renova requested the opening of an internal investigation, which is being conducted by an independent party.

In addition, a monitoring committee was set up, composed by an independent counselor, the Chairman of the Fiscal Council and the chairman of the Board of Directors, who, together with the Audit Committee, will monitor the internal investigation.

The investigation is in progress, and it is not possible to determine any effects of this investigation, nor any impacts on the interim financial information of Renova, or the Company, for the six-month period ended June 30, 2018.

Non-binding proposal by Taesa for Centroeste

On May 16, 2018, the Company received a non-binding offer from Taesa for acquisition of Cemig’s 51% shareholding position in Companhia Centroeste de Minas Gerais S.A. – Centroeste. This offer is under consideration by Management.

Resolution of crossover assets of Cemig GT and Energimp

On May 17, 2018, a document entitled ‘Private Transaction Agreement’ was signed between the subsidiary Cemig GT and Energimp S.A. (‘Energimp’), for resolution of crossover Shareholdings currently held by Cemig GT and Energimp in the companies Central Eólica Praias de Parajuru S.A. (‘Parajuru ‘), Central Eólica Volta do Rio S.A. (‘Volta do Rio’) and Central Eólica Praia de Morgado S.A. (‘Morgado’).

The transaction will result in 100% of the share capital of Parajuru and Volta do Rio being wholly owned by the subsidiary Cemig GT, and 100% of the shares in Morgado being wholly owned by Energimp.

This transaction to resolve crossover shareholding was approved by the competition authority, CADE, and is in the process of approval by the financing bank.

Internal procedures on risks related to compliance with law and regulations

Considering the investigations that are being made in relation to the Company and certain investees, the governance bodies of the Company have authorized contracting of a specialized company to analyze the internal procedures related to these investments.

Considering that the work is still preliminary, at present it is not possible to measure any effects of these analyses or any impacts on the Company’s interim financial information for the period ended June 30, 2018.

 

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16.

PROPERTY, PLANT AND EQUIPMENT

 

Consolidated

   Jun. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
depreciation
    Net value      Historical
cost
     Accumulated
depreciation
    Net value  

In service

               

Land

     224,921        (14,899     210,022        224,924        (13,652     211,272  

Reservoirs, dams and watercourses

     3,281,570        (2,090,870     1,190,700        3,284,948        (2,051,372     1,233,576  

Buildings, works and improvements

     1,117,019        (794,684     322,335        1,116,990        (785,628     331,362  

Machinery and equipment

     2,251,004        (1,660,519     590,485        2,935,643        (2,062,092     873,551  

Vehicles

     31,629        (26,368     5,261        28,816        (25,711     3,105  

Furniture and utensils

     16,115        (12,392     3,723        16,109        (12,714     3,395  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     6,922,258        (4,599,732     2,322,526        7,607,430        (4,951,169     2,656,261  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

In progress

     98,388        —         98,388        106,049        —         106,049  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net property, plant and equipment

     7,020,646        (4,599,732     2,420,914        7,713,479        (4,951,169     2,762,310  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

Holding Company

   Jun. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
depreciation
    Net
value
     Historical
cost
     Accumulated
depreciation
    Net
value
 

In service

               

Land

     82        —         82        —          —         —    

Buildings, works and improvements

     408        (293     115        —          —         —    

Machinery and equipment

     5,841        (4,393     1,448        3,627        (2,289     1,338  

Furniture and utensils

     2,240        (1,838     402        657        (644     13  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     8,571        (6,524     2,047        4,284        (2,933     1,351  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

In progress

               

Development Assets

     459        —         459        459        —         459  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net property, plant and equipment

     9,030        (6,524     2,506        4,743        (2,933     1,810  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The changes in PP&E are as follows:

 

Consolidated

   Balance on
Dec. 31,
2017
     Addition      Disposals
    Depreciation
    Transfer
to Held
for sale
    Transfers /
capitalizations
    Balance on
Jun. 30,
2018
 

In service

                

Land

     211,272        —          (3     (1,247     —         —         210,022  

Reservoirs, dams and watercourses

     1,233,576        —          (2,575     (40,447     —         146       1,190,700  

Buildings, works and improvements

     331,362        —          (237     (9,358     —         568       322,335  

Machinery and equipment

     873,551        —          (5,095     (41,444     (255,758     19,231       590,485  

Vehicles

     3,105        —          —         (666     —         2,822       5,261  

Furniture and utensils

     3,395        —          —         (169     —         497       3,723  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,656,261        —          (7,910     (93,331     (255,758     23,264       2,322,526  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     106,049        26,272        (1,152     —         —         (32,781     98,388  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     2,762,310        26,272        (9,062     (93,331     (255,758     (9,517     2,420,914  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidated

   Balance
on
Dec. 31,
2016
     Addition      Jaguara, Miranda
and Volta Grande
Plants (1)
    Disposals     Depreciation     Transfers /
capitalizations
    Balance
on
Jun. 30,
2017
 

In service

                

Land

     278,650        —          (61,287     —         (4,686     —         212,677  

Reservoirs, dams, and watercourses

     1,761,013        —          (440,923     (3     (44,579     639       1,276,147  

Buildings, works, and improvements

     418,480        —          (68,971     —         (9,859     463       340,113  

Machinery and equipment

     1,171,189        —          (298,058     (4,720     (47,611     57,989       878,789  

Vehicles

     4,230        —          —         —         (563     —         3,667  

Furniture and utensils

     3,408        —          —         —         (203     57       3,262  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     3,636,970        —          (869,239     (4,723     (107,501     59,148       2,714,655  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     138,106        31,364        (130     (1,814     —         (59,148     108,378  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     3,775,076        31,364        (869,369     (6,537     (107,501     —         2,823,033  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Holding Company

   Balance on
Dec. 31, 2017
     Merger of
Telecom
(2)
     Transfer
to Held
for sale
    Transfers
(2)
    Depreciation     Write-off     Balance on
Jun. 30, 2018
 

In service

                

Land

     —          82        —         —         —         —         82  

Buildings, works, improvements

     —          116        —         —         (1       115  

Machinery and equipment

     1,338        262,138        (255,758     —         (5,802     (468     1,448  

Furniture and utensils

     13        405        —         —         (16     —         402  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,351        262,741        (255,758     —         (5,819     (468     2,047  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     459        9,025        —         (9,025     —         —         459  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     1,810        271,766        (255,758     (9,025     (5,819     (468     2,506  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Transferred to Generation concession assets, in relation to the Jaguara, Miranda and Volta Grande Plants in the amount of R$ 799,117 and to Concession financial assets, in relation to the Volta Grande Plant, in the amount of R$ 70,252.

(2)

Related to the merged of its subsidiary Cemig Telecom. The amount of R$ 9,025 was transferred to Inventories. See Note 1.

The average annual depreciation rate for the Company and its subsidiaries for the first six months of 2018 is 3.10%. Depreciation rates, which take into consideration the expected useful life of the assets, are revised annually by Management.

The Company and its subsidiaries have not identified any evidence of impairment of its Property, plant and equipment assets. The generation concession contracts provide that at the end of each concession the grantor must determine the amount to be paid to Cemig GT for the residual value of the infrastructure assets. Management believes that the amounts ultimately received will be higher than the historical residual value.

The residual value of the assets is the residual balance of the assets at the end of the concession contract which will be transferred to the grantor at the end of the concession contract and for which Cemig GT is entitled to receive in cash. For contracts under which Cemig GT does not have a right to receive such amounts or there is uncertainty related to collection of the amounts, such as in the case of thermal generation and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession term.

Consortium

Cemig GT is a partner in the electricity generation consortium for the Queimado plant, for which no separate company with independent legal existence was formed to manage the object of the concession, whose controls are being kept in Fixed assets and Intangible assets. Cemig GT’s portion in the consortium is recorded and controlled separately in the respective categories of PP&E and Intangible assets.

 

Holding Company and Consolidated

   Interest
in power
output,%
     Average annual
depreciation
rate%
     Jun. 30,
2018
    Dec. 31,
2017
 

In service

          

Queimado plant

     82.50        4.03        217,210       217,109  

Accumulated depreciation

     —          —          (95,018     (90,649
        

 

 

   

 

 

 

Total in operation

           122,192       126,460  
        

 

 

   

 

 

 

In progress

          

Queimado plant

     82.50        —          240       340  
        

 

 

   

 

 

 

Total in construction

           240       340  
        

 

 

   

 

 

 

 

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17.

INTANGIBLE ASSETS

Composition of the balance on June 30, 2018 and on December 31, 2017:

 

Consolidated

   Jun. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
amortization
    Residual
value
     Historical
cost
     Accumulated
amortization
    Residual
value
 

In service

               

Useful life defined

               

Temporary easements

     11,749        (2,327     9,422        11,749        (1,990     9,759  

Paid concession

     19,169        (11,591     7,578        19,169        (11,251     7,918  

Assets of concession

     18,146,605        (7,714,250     10,432,355        17,837,687        (7,402,296     10,435,391  

Others

     75,676        (62,225     13,451        81,721        (64,533     17,188  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     18,253,199        (7,790,393     10,462,806        17,950,326        (7,480,070     10,470,256  

In progress

     722,146        —         722,146        685,672        —         685,672  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net intangible assets

     18,975,345        (7,790,393     11,184,952        18,635,998        (7,480,070     11,155,928  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

Holding Company

   Jun. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
amortization
    Residual
value
     Historical
cost
     Accumulated
amortization
    Residual
value
 

In service

               

Useful life defined

               

Rights of software

     12,405        (8,004     4,401        3,789        (3,748     41  

Brands and patents

     239        (239     —          9        (7     2  
     12,644        (8,243     4,401        3,798        (3,755     43  

In progress

     2,329        —         2,329        2,415        —         2,415  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net intangible assets

     14,973        (8,243     6,730        6,213        (3,755     2,458  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Changes in Intangible assets:

 

Consolidated

   Balance on
Dec. 31, 2017
     Addition      Disposals     Amortization     Transfers
to Held
for sale
    Transfer
(1)
    Other
Transfers
     Balance on
Jun. 30, 2018
 

In service

                   

Useful life defined

                   

Temporary easements

     9,759        —          —         (337     —         —         —          9,422  

Paid concession

     7,918        —          —         (340     —         —         —          7,578  

Assets of concession

     10,435,391        —          (5,197     (328,997     —         330,811       347        10,432,355  
                

 

 

    

Others

     17,188        1,064        (112     (2,795     (6,947     5,053          13,451  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     10,470,256        1,064        (5,309     (332,469     (6,947     335,864       347        10,462,806  

In progress

     685,672        383,898        (856     —         —         (346,568     —          722,146  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net intangible assets

     11,155,928        384,962        (6,165     (332,469     (6,947     (10,704     347        11,184,952  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)

The residual balance of the transfers refers to the balances transferred to financial assets.

 

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Consolidated

   Balance on
Dec. 31, 2016
     Addition      Special
obligations –
write-down
(1)
     Jaguara,
Volta Grande
and Miranda
plants
    Disposals     Amortization     Transfer     Balance on
Jun. 30, 2017
 

In service

                   

Useful life defined

                   

Temporary easements

     10,434        —          —          —         —         (336     —         10,098  

Paid concession

     8,597        —          —          —         —         (340     —         8,257  

Assets of concession

     9,247,923        —          17,069        —         (2,423     (299,633     787,778       9,750,714  

Others

     17,430        —          —          (80     —         (2,990     737       15,097  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     9,284,384        —          17,069        (80     (2,423     (303,299     788,515       9,784,166  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     1,535,296        448,132        —          —         (5,296     —         (823,304     1,154,828  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net intangible assets

     10,819,680        448,132        17,069        (80     (7,719     (303,299     (34,789     10,938,994  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Holding Company

   Balance on
Dec. 31, 2017
     Merger of
Telecom (2)
     Transfers to Held
for sale
    Transfers     Addition      Amortization     Balance on
Jun. 30, 2018
 

In service

                 

Useful life defined

                 

Rights of software

     41        11,716        (6,947     101       —          (510     4,401  

Brands and patents

     2        —          —         —         —          (2     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     43        11,716        (6,947     101       —          (512     4,401  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

In progress

     2,415        —          —         (101     15        —         2,329  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net intangible assets

     2,458        11,716        (6,947     —         15        (512     6,730  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

The write-down of a Special Obligation arises for restitution of amounts calculated in the final settlement of Financing and Subsidy Contracts for the Luz Para Todos (‘Light for All’) program, with funds from the CDE account, and return of funds related to the Global Reversion Reserve (RGR).

(2)

On March 31, Cemig Telecom was merged into the Company, see Note 1.

The intangible asset easements, concessions payable, assets of concession, and others, are amortizable by the straight-line method, taking into account the consumption pattern of these rights. The Company and its subsidiaries have not identified any evidence of impairment of its intangible assets. The Company and its subsidiaries have no intangible assets with non-defined useful life. The amount of additions on June 30, 2018 includes R$ 16,392 (R$ 40,399 in the first half of 2017) of capitalized borrowing costs, as presented in Note 20.

The annual average amortization rate is 3.85% on the first half of 2018. The main annual amortization rate reflects the expected useful life of assets and pattern of their consumption by the Management.

Under the regulations of the electricity sector, goods and facilities used in the distribution are linked to these services, and cannot be withdrawn, disposed of, assigned or given in mortgage guarantee without the prior express authorization of the Regulator. Undoing of that link, for assets of an electricity concession, requires that the proceeds of the disposal are used for purposes of the concession.

 

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18.

SUPPLIERS

 

     Consolidated  
   Jun. 30, 2018      Dec. 31, 2017  

Energy on spot market – CCEE

     684,398        468,216  

Charges for use of energy network

     136,964        153,146  

Energy purchased for resale

     704,389        870,654  

Itaipu Binational

     274,236        240,220  

Gas purchased for resale

     86,306        186,401  

Materials and services

     266,383        424,120  
  

 

 

    

 

 

 
     2,152,676        2,342,757  
  

 

 

    

 

 

 

 

19.

TAXES PAYABLE, INCOME TAX AND SOCIAL CONTRIBUTION TAX AND AMOUNTS TO BE REIMBURSED TO CUSTOMER S

 

a)

Taxes payable and amounts to be reimbursed to customers

 

     Consolidated      Holding Company  
     Jun. 30, 2018
(Restated)
     Dec. 31, 2017      Jun. 30, 2018      Dec. 31, 2017  

Current

           

ICMS (VAT) (I)

     138,678        496,916        2,043        —    

Cofins

     97,714        126,065        600        2,484  

Pasep

     21,208        27,154        119        484  

Social security contributions

     18,981        19,522        2,312        1,913  

Others

     18,174        34,915        1,472        960  
  

 

 

    

 

 

    

 

 

    

 

 

 
     294,755        704,572        6,546        5,841  

Non-current

           

Cofins

     24,312        24,216        —          —    

Pasep

     3,955        3,983        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     28,267        28,199        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     323,022        732,771        6,546        5,841  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts to be reimbursed to customers

           

Non-current

           

Pasep and Cofins (II)

     1,105,572        1,087,230        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,105,572        1,087,230        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(I)

The Tax Amnesty Program (PRCT).

In 2017 the subsidiaries Cemig D and Cemig GT joined the terms of the Minas Gerais State Tax Amnesty Program (Plano de Regularização de Créditos Tributários, or PRCT), for payment of ICMS (VAT) through installments, updated and net of the reductions of penalty payments and interest, as specified in State Law 22,549, and subsequent decrees that specified the conditions for payment of tax debits by installments.

The main tax issues that led to the decision of Cemig D to subscribe to the PRCT relate to ICMS (VAT) on the CDE subvention in the period January 2013 to October 2016, and also to the classification of residential condominiums in the commercial category, which has a different ICMS (VAT) rate, generating disagreement with the tax authority on interpretation, over the period 2013 to 2015. The amount included in the PRCT for Cemig D, in the amount of R$ 557,673, net of the reduction in interest and penalty payments by 90%, was paid in 6 (six) installments, adjusted at a 50% of the Selic rate and the 6th installment was paid on April 2, 2018.

 

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(II)

The long-term obligations for the Pasep and Cofins included the amounts relating to the Court challenge of the constitutionality of inclusion of the amount of ICMS (VAT) tax within the base amount on which these contributions are calculated. The subsidiaries Cemig D and Cemig GT obtain interim relief from the Court allowing them not to make the payment and authorizing payment of the deposits into court (starting in 2008), and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, it opted to pay the taxes monthly.

On October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, on the basis of setting a global precedent, in favor of the argument of the subsidiaries. Based on the opinion of its legal advisers, the Company wrote down the liabilities relating to these contributions and recorded a potential liability related to the reimbursement to its customers. On June 30, 2018, the liability to its customers was R$ 1,105,572 (R$ 1,087,230 on December 31, 2017), which is equivalent to the updated amount of the escrow deposits already made which total R$ 1,129,612 (R$ 1,110,376 on December 31, 2017), net of the Pasep and Cofins incident on its revenue from updating, in the amount of R$ 24,040 (R$ 23,146 on December 31, 2017). This liability was recorded considering that the subsidiary passes to its Customers the tax effects incident upon its electricity bill, maintaining the neutrality of tariffs. The restitution to Customers will depend upon the court escrow deposit being lifted and a decision by Aneel on the mechanisms to be adopted. The net effect arising from the recognition of this matter on the net income for the year 2017 was null.

 

b)

Income tax and Social Contribution tax

 

     Consolidated  
     Jun. 30, 2018      Dec. 31, 2017  

Current

     

Income tax

     50,393        88,152  

Social Contribution tax

     17,255        27,144  
  

 

 

    

 

 

 
     67,648        115,296  
  

 

 

    

 

 

 

 

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20.    LOANS, FINANCINGS AND DEBENTURES

 

Financing source

   Principal
maturity
     Annual financial cost      Currency      Consolidated  
   Jun. 30, 2018     Dec. 31,
2017
 
   Current     Non-current
    Total     Total  

FOREIGN CURRENCY

                 

Banco do Brasil: Various Bonds (1)

     2024        Various        US$        1,834       27,404       29,238       22,933  

Eurobonds (2)

     2024        9.25%        USD        29,139       3,855,800       3,884,939       3,333,149  

KfW

     2019        1.78%        EURO        4,936       —         4,936       4,383  

(-) Transaction costs

              —         (15,566     (15,566     (15,400

(-) Interest paid in advance

              —         (46,312     (46,312     (47,690
           

 

 

   

 

 

   

 

 

   

 

 

 

Debt in foreign currency

              35,909       3,821,326       3,857,235       3,297,375  

BRAZILIAN CURRENCY

                 

Banco do Brasil S.A.

     2021        140.00% of CDI Rate        R$        124,665       617,622       742,287       742,364  

Banco do Brasil S.A.

     2022        146.50% of CDI        R$        2,527       500,000       502,527       500,193  

Caixa Econômica Federal

     2018        119.00% of CDI        R$        —                     8,346  

Caixa Econômica Federal

     2022        146.50% of CDI        R$        1,345       625,499       626,844       626,667  

Eletrobras

     2023        UFIR + 6.00 to 8.00%        R$        13,245       27,713       40,958       49,789  

Large customers

     2024        Various        R$        2,222       2,437       4,659       4,304  

FINEP

     2018       

TJLP + 5.00% and

TJLP + 8.00%

 

 

     R$        786             786       2,359  

Consórcio Pipoca

     2018        IPCA        R$        185             185       185  

Banco da Amazônia S.A.

     2018        CDI + 1.90%        R$        126,494             126,494       121,470  

Sonda (3)

     2021        110.00% of CDI        R$              44,005       44,005       41,993  

9th Note issue – single series (4)

     2019        151.00% of CDI        R$        6,114       400,000       406,114       —    

(– ) FIC Pampulha fund – securities of subsidiary companies (6)

                    (13,321     (13,321     —    

(-) Transaction costs

              (728     (20,680     (21,408     (26,435

Debt in Brazilian currency

              276,855       2,183,275       2,460,130       2,071,235  
           

 

 

   

 

 

   

 

 

   

 

 

 

Total of loans and financings

              312,764       6,004,601       6,317,365       5,368,610  
           

 

 

   

 

 

   

 

 

   

 

 

 

Debentures 3rd Issue, 2nd Series (2)

     2019        IPCA + 6.00        R$        149,006             149,006       301,065  

Debentures 3rd Issue, 3rd Series (2)

     2022        IPCA + 6.20        R$        21,934       977,097       999,031       1,010,202  

Debentures—5th Issue—Single series (2)

     2018        CDI + 1.70        R$        731,386             731,386       703,021  

Debentures 6th Issue, 1st series (2)

     2018        CDI + 1.60        R$        527,921             527,921       507,692  

Debentures 6th Issue, 2nd series (2)

     2020        IPCA + 8.07        R$        2,399       31,556       33,955       32,093  

Debentures 7th Issue, 1st series (2)

     2021        140.00% of CDI        R$        293,413       1,248,401       1,541,814       1,683,557  

Debentures – 3rd Issue—1st series (4)

     2018        CDI + 0.69        R$                          447,114  

Debentures – 3rd Issue—2nd series (4)

     2021        IPCA + 4.70        R$        522,382       1,008,361       1,530,743       1,537,147  

Debentures – 3rd Issue—3rd series (4)

     2025        IPCA + 5.10        R$        16,638       898,024       914,662       920,197  

Debentures 4th Issue, single series (4)

     2018        CDI + 4.05        R$        21,051             21,051       20,008  

Debentures 5th Issue, single series (4)

     2022        146.50% of CDI        R$        5,681       1,574,999       1,580,680       1,576,220  

Debentures (5)

     2018        CDI + 1.60        R$        100,309             100,309       100,328  

Debentures (5)

     2018        CDI + 0.74        R$                          33,350  

Debentures (5)

     2022       
TJLP+1.82 (75%) e
Selic+1.82 (25%)
 
 
     R$        33,075       106,996       140,071       155,377  

Debentures (5)

     2019        116.50% of CDI        R$        100       50,000       50,100       50,330  

Debentures – 2nd Issue, single series (3)

     2019        128.50% of CDI        R$        18,864             18,864       26,552  

(–) FIC Pampulha: Securities of subsidiary companies (6)

              (9,794           (9,794     (25,492

(-) Transaction costs

              (6,482     (36,628     (43,110     (49,674
           

 

 

   

 

 

   

 

 

   

 

 

 

Total, debentures

              2,427,883       5,858,806       8,286,689       9,029,087  
           

 

 

   

 

 

   

 

 

   

 

 

 

Overall total

              2,740,647       11,863,407       14,604,054       14,397,697  
           

 

 

   

 

 

   

 

 

   

 

 

 

 

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Financing source

   Principal
maturity
     Annual financial
cost
     Currency      Holding Company  
   Jun. 30, 2018     Dec. 31, 2017  
   Current     Non-current     Total     Total  

BRAZILIAN CURRENCY

                 

Sonda (2)

     2021        110.00% do CDI      R$          —         44,005       44,005       —    

(-) Transaction costs

              —         (521     (521     —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Total of loans and financings

              —         43,484       43,484       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Debentures – 2nd Issue, single series (3)

     2019        128.50% do CDI      R$          18,864       —         18,864       —    

(-) Transaction costs

              (211     —         (211     —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Total, debentures

              18,653       —         18,653       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Overall total Holding Company

              18,653       43,484       62,137       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Net balance of the Restructured Debt comprising bonds at par and discounted, with balance of R$ 173,903, less the amounts given as Deposits in guarantee, with balance of R$ 144,665.Interest rates vary – from 2 to 8% p.a.; six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)

Cemig Geração e Transmissão

(3)

Cemig holding company. Arising from merger of Cemig Telecom.

(4)

Cemig Distribuição

(5)

Gasmig

(6)

FIC Pampulha has financial investments in securities issued by subsidiaries of the Company. For more information on this fund, see Note 28.

The debentures issued by the subsidiaries are not convertible; there are no agreements for renegotiation, nor debentures held in treasury. There is an early maturity clause for cross- default in the event of non-payment, by Company or Cemig GT, of any pecuniary obligation with individual or aggregate value greater than R$ 50 million (“cross default”).

Funding raised

 

Financing source

   Date of
signature
     Principal
maturity
     Annual
financial cost
     R$’000  

Brazilian currency

           

Promissory Notes – 9th Issue – Single series (1)

     May 2018        2019        151% of CDI        400,000  

(-) Transaction costs

              (4,140
           

 

 

 

Total funding raised

              395,860  
           

 

 

 

 

(1)

In May 2018 Cemig D made its 9th Issue of Notes, with maturity of 18 months, and remuneration of 151% of the CDI rate, for payment bullet on October 24, 2019. Net proceeds will be allocated to replenishment of cash position and working capital.

Guarantees

The guarantees of the debtor balance on loans and financings, on June 30, 2018, were as follows:

 

     Jun. 30, 2018  

Promissory notes and sureties

     8,845,768  

Receivables

     3,952,964  

Shares

     1,642,990  

Without guarantee

     162,332  
  

 

 

 

TOTAL

     14,604,054  
  

 

 

 

 

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The composition of loans, financings and debentures, by currency and indexers, with the respective amortization, is as follows:

 

Consolidated

   2018     2019     2020     2021     2022     2023     2024     2025     Total  

Currency

                  

Euros

     4,704       232       —         —         —         —         —         —         4,936  

US dollar

     30,973       —         —         —         —         —         3,883,204       —         3,914,177  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, currency-denominated

     35,677       232       —         —         —         —         3,883,204       —         3,919,113  

Indexers

                  

IPCA (1)

     70,053       658,269       834,875       834,148       556,719       224,506       224,506       224,506       3,627,582  

UFIR/RGR (2)

     7,781       12,917       11,209       3,407       3,265       2,379       —         —         40,958  

CDI (3)

     1,580,426       1,380,796       1,118,917       1,520,024       1,432,136       —         —         —         7,032,299  

URTJ/TJLP (4)

     14,110       22,966       23,111       22,777       22,875       —         —         —         105,839  

IGP-DI (5)

     1,895       351       349       715       539       539       271       —         4,659  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, governed by Indexers

     1,674,265       2,075,299       1,988,461       2,381,071       2,015,534       227,424       224,777       224,506       10,811,337  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(-) Transaction costs

     (1,227     (16,928     (14,773     (18,430     (12,602     (186     (15,752     (186     (80,084

(-) Interest paid in advance

     —               —         —         —         —         (46,312     —         (46,312
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Overall total

     1,708,715       2,058,603       1,973,688       2,362,641       2,002,932       227,238       4,045,917       224,320       14,604,054  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Holding Company

   2018     2019     2020      2021     2022      2023      2024      2025      Total  

Indexers

                       

CDI (3)

     18,096       7,533       —          37,240       —          —          —          —          62,869  

Total, governed by Indexers

     18,096       7,533       —          37,240       —          —          —          —          62,869  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(-) Transaction costs

     (127     (84     —          (521     —          —          —          —          (732
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Overall total

     17,969       7,449       —          36,719       —          —          —          —          62,137  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Expanded National Customer Price (IPCA) Index.

(2)

Fiscal Reference Unit (Ufir / RGR).

(3)

CDI: Interbank Rate for Certificates of Deposit.

(4)

URTJ: Interest rate reference unit.

(5)

IGP-DI (‘General – Domestic Availability’) Price Index.

The principal currencies and Indexers used for monetary updating of loans and financings had the following variations:

 

Currency

   Accumulated
change in
06/30/2018,
%
     Accumulated
change in
06/30/2017,
%
     Indexer    Accumulated
change in
06/30/2018,
%
    Accumulated
change in
06/30/2017,
%
 

US dollar

     16.56        1.51      IPCA      2.60       1.18  

Euro

     13.45        9.79      CDI      3.17       5.61  
         TJLP      (5.71     (6.67

 

62


LOGO

 

The changes in loans, financings and debentures were as follows:

 

     Consolidated     Holding
Company
 

Balance on December 31, 2016

     15,179,280       —    

Loans and financings obtained

     60,870       —    

Transaction costs

     (761     —    

Financings obtained net of transaction costs

     60,109       —    
  

 

 

   

 

 

 

Monetary variation

     68,973       —    

Exchange rate variation

     121       —    

Financial charges provisioned

     868,249       —    

Amortization of transaction costs

     29,827       —    

Financial charges paid

     (711,474     —    

Amortization of financings

     (855,057     —    
  

 

 

   

 

 

 

Subtotal

     14,640,028       —    
  

 

 

   

 

 

 

(–) FIC Pampulha: Securities of subsidiary companies

     (33,378     —    
  

 

 

   

 

 

 

Balance on June 30, 2017

     14,606,650       —    
  

 

 

   

 

 

 

Balance on December 31, 2017

     14,397,697       —    

Balance of loans arising from the merged of Cemig Telecom

     —         65,032  
  

 

 

   

 

 

 

Loans and financings obtained

     400,000       —    

Transaction costs

     (4,140     —    
  

 

 

   

 

 

 

Financings obtained net of transaction costs

     395,860       —    

Monetary variation

     65,305       —    

Exchange rate variation

     554,278       —    

Financial charges provisioned

     619,355       1,156  

Amortization of transaction costs

     15,548       153  

Financial charges paid

     (671,651     (438

Amortization of financings

     (774,715     (3,766
  

 

 

   

 

 

 

Subtotal

     14,601,677       (62,137
  

 

 

   

 

 

 

(–) FIC Pampulha: Securities of subsidiary companies

     2,377       —    

Balance on June 30, 2018

     14,604,054       62,137  
  

 

 

   

 

 

 

Borrowing costs, capitalized

Costs of loans directly related to acquisition, construction or production of an asset which necessarily requires a significant time to be concluded for the purpose of use or sale are capitalized as part of the cost of the corresponding asset. All other costs of loans are recorded as finance costs in the period in which they are incurred. Costs of loans include interest and other costs incurred by the Company in relation to the loan.

The subsidiaries Cemig D and Gasmig transferred to Intangible assets the costs of loans and financings linked to working in progress, as follows:

 

     Jan to Jun 2018     Jan to Jun 2017  

Costs of loans and financings

     634,903       898,076  

Financing costs on Intangible assets (1)

     (16,392     (40,399
  

 

 

   

 

 

 

Net effect in Net income or loss

     618,511       857,677  
  

 

 

   

 

 

 

 

(1)

The average rate of capitalization was 9.55% p.a. in 2018 (15.84% p.a. in 2017).

The amounts of the capitalized borrowing costs have been excluded from the statement of cash flows, in the additions to cash flow of investment activities, because they do not represent an outflow of cash for acquisition of the related asset.

 

63


LOGO

 

Restrictive covenants

The Company has contracts with covenants linked to financial index, as follows:

 

Title

  

Parameter

  

Ratio required

– Issuer

  

Ratio required

– Cemig (Guarantor)

  

Compliance required

Banco do Brasil:

 

Bank Credit Notes,

and

Fixed Credit

 

Cemig GT (1)

  

Net debt

/

(Ebitda + Dividends received)

  

 

The following, or less:

5.5 on June 30, 2018

5.0 on December 31, 2018

5.0 on June 30, 2019

4.5 on December 31, 2019

4.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on /after Dec. 31, 2021

 

  

 

The following, or less:

4.5 on June 30, 2018

4.25 on December 31, 2018

4.25 on June 30, 2019

3.5 on December 31, 2019

3.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on /after Dec. 31, 2021

 

   Half-yearly

7th Debenture Issue

 

Cemig GT (2)

  

Net debt

/

(Ebitda + Dividends received)

  

 

The following, or less:

5.5 in 2017

5.0 in 2018

4.5 in 2019

3.0 in 2020

2.5 in 2021

 

  

 

The following, or less:

4.5 in 2017

4.25 in 2018

3.5 in 2019

3.0 in 2020

2.5 in 2021

 

   Half-yearly

Eurobonds

 

Cemig GT (3)

  

Net debt

/

Ebitda adjusted for the Covenant

  

 

The following, or less:

5.5 on December 31, 2017

5.5 on June 30, 2018

5.0 on December 31, 2018

5.0 on June 30, 2019

4.5 on December 31, 2019

4.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on / after Dec. 31, 2021

 

  

 

The following, or less:

5.0 on December 31, 2017

5.0 on June 30, 2018

4.25 on December 31, 2018

4.25 on June 30, 2019

3.5 on December 31, 2019

3.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

3.0 on and after Dec. 31, 2021

 

   Half-yearly

Bank Credit Notes of

 

Banco do Brasil

and

 

Caixa Econômica Federal;

and

5th Debenture Issue

 

CEMIG D (4)

  

Net debt

/

(Ebitda + Dividends received)

  

 

The following, or less:

7.5 on December 31, 2017

7.5 on June 30, 2018

4.5 on December 31, 2018

3.8 on June 30, 2019

3.8 on December 31, 2019

3.3 on June 30, 2020

3.3 on December 31, 2020

3.3 on June 30, 2021

3.3 on / after Dec. 31, 2021

  

 

The following, or less:

4.5 on December 31, 2017

4.5 on June 30, 2018

4.25 on December 31, 2018

4.25 on June 30, 2019

3.5 on December 31, 2019

3.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on /after Dec. 31, 2021

   Half-yearly
  

Current liquidity

 

   0.6x on / after Dec. 31, 2017    0.6x on /after Dec. 31, 2027

Gasmig – Debentures (5)

   Overall indebtedness (Total liabilities/Total assets)    Less than 0.6       Annual
  

 

Ebitda / Debt servicing

   1.3 or more       Annual
  

 

Ebitda / Net finance income (expenses)

  

 

2.5 or more

      Annual
  

 

Net debt / Ebitda

 

  

 

2.5 or less

      Annual

9th Promissory Note Issue

Cemig D

  

Net debt / (Ebitda + dividends received)

 

Current liquidity

  

The following, or less:

7.5 on June 30, 2018

4.5 on December 31, 2018

3.8 on June 30, 2019

The following, or more:

0.6x on and after June 30, 2018

  

The following, or less:

4.5 on June 30, 2018

4.25 on December 31, 2018

3.25 on June 30, 2019

The following, or more:

0.6x on and after June 30, 2018

   Half-yearly

 

(1)

Through contractual amendments, a further early maturity clause was added to Cemig GT’s Bank Credit Notes and Fixed Credit Line with Banco do Brasil, requiring compliance with a financial ratio similar to that required by the 7th Debenture Issue.

(2)

7th Issue of Debentures by Cemig GT, in December 2016, of R$ 2,240 million.

(3)

In the event that ‘maintenance financial covenants’ are exceeded at any time, the interest rate will automatically be increased by 2% p.a. as long as the excess continues.There is also an obligation to comply with a ‘maintenance’ covenant – which requires that the debt in Cemig Consolidated (as per financial statements), shall have asset guarantee for debt of 1.75x Ebitda (2.0 x in December 2017); and a ‘damage’ covenant, requiring real guarantee for debt in Cemig GT of 1.5x Ebitda.

(4)

The Bank Credit Notes of Banco do Brasil and Caixa Econômica Federal were amended in December 2017, to include requirement for 6-monthly compliance with covenants as described above. The 5th Debenture Issue included demand ability of compliance with the Covenants.

(5)

If Gasmig does not achieve the required covenants, Gasmig must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable to the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Cross-default: Certain contractually specified situations can cause early maturity of other debts.

 

64


LOGO

 

As of June 30, 2018, the Company was in compliance with the restrictive covenants.

 

21.

REGULATORY CHARGES

 

     Consolidated  
     Jun. 30, 2018
(Restated)
     Dec. 31,
2017
 

Liabilities

     

Global Reversion Reserve (RGR)

     27,368        36,591  

Energy Development Account (CDE)

     141,006        206,022  

Aneel inspection charge

     2,217        2,154  

Energy Efficiency

     244,714        223,767  

Research and development

     242,618        233,398  

Energy System Expansion Research

     2,250        2,696  

National Scientific and Technological Development Fund

     4,174        5,066  

Proinfa – Alternative Energy Program

     5,991        6,612  

Royalties for use of water resources

     4,054        15,172  

Emergency capacity charge

     30,994        30,996  

Customer charges –‘Tariff Flag’ amounts

     2,015        16  

Others

     5,836        —    
  

 

 

    

 

 

 
     713,237        762,490  
  

 

 

    

 

 

 

Current liabilities

     434,349        512,673  

Non-current liabilities

     278,888        249,817  

 

22.

POST-RETIREMENT OBLIGATIONS

Changes in net liabilities were as follows:

 

Holding Company

   Pension plans and retirement
supplement plans
    Health
Plan
    Dental
Plan
    Life
insurance
    Total  

Net liabilities on December 31, 2016

     257,933       95,655       2,452       41,424       397,464  

Expense recognized in Statement of income

     13,558       5,219       138       2,327       21,242  

Contributions paid

     (3,846     (3,256     (80     (199     (7,381
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on June 30, 2017

     267,645       97,618       2,510       43,552       411,325  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on December 31, 2017

     333,484       111,568       2,659       11,786       459,497  

Expense recognized in Statement of income

     15,833       5,387       129       641       21,990  

Contributions paid

     (4,292     (3,330     (78     (175     (7,875
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on June 30, 2018

     345,025       113,625       2,710       12,252       473,612  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                       Jun. 30, 2018     Dec. 31, 2017  

Current liabilities

           12,906       12,974  

Non-current liabilities

           460,706       446,523  

 

65


LOGO

 

 

Consolidated

   Pension plans and retirement
supplement plans
    Health
Plan
    Dental
Plan
    Life
insurance
    Total  

Net liabilities on December 31, 2016

     1,679,154       1,710,787       37,549       813,921       4,241,411  

Expense recognized in Statement of income

     86,979       94,632       2,086       44,315       228,012  

Contributions paid

     (78,138     (50,633     (1,206     (3,615     (133,592
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on June 30, 2017

     1,687,995       1,754,786       38,429       854,621       4,335,831  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on December 31, 2017

     2,068,355       1,809,441       38,505       269,880       4,186,181  

Expense recognized in Statement of income

     95,967       91,162       1,906       13,521       202,556  

Contributions paid

     (87,249     (54,435     (1,237     (4,560     (147,481
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on June 30, 2018

     2,077,073       1,846,168       39,174       278,841       4,241,256  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                       Jun. 30, 2018     Dec. 31, 2017  

Current liabilities

           236,663       231,894  

Non-current liabilities

           4,004,593       3,954,287  

The amounts recorded in current liabilities refer to the contributions to be made by Cemig and its subsidiaries in the next 12 months to amortize the post-retirement obligations.

The amounts reported as ‘Expense recognized in the statement of income refer to the costs of post-retirement obligations, totaling R$ 169,397 on June 30, 2018 (R$ 192,028 on June 30, 2017), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$ 33,159 on June 30, 2018 (R$ 35,984 on June 30, 2017).

Debt agreed with the pension fund (Forluz)

On June 30, 2018 the Company had an obligation recorded for past actuarial deficits relating to the pension fund in the amount of R$ 686,191 (R$ 720,498 on December 31, 2017). This amount has been recognized as an obligation payable by the Company, and is being amortized up to June 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’ table), and adjusted by the IPCA (Expanded National Customer Price) inflation index (published by the Brazilian Geography and Statistics Institute – IBGE) plus 6% per year. Because the Company is required to pay this debt even if Forluz has a surplus, the Company and its subsidiaries maintain the record of the debt in full, and the effects of inflation adjustment and interest are recorded in the statement of income as finance expense.

Agreement to cover the deficit on Forluz Pension Plan ‘A’

Forluz and the sponsors Cemig, Cemig GT and Cemig D signed Debt Assumption Instruments to cover the Deficit of Plan A for the years 2015 and 2016. On June 30, 2018 the total amount payable by Cemig and its subsidiaries Cemig D and Cemig GT as a result of the deficit found in Plan A is R$ 380,311 (R$ 283,291 on December 31, 2017) with monthly amortizations up to 2031, calculated by the system of constant installments (known as the ‘Price Table’). Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of the IPCA (Expanded National Customer Price) index published by the IBGE. If the plan reaches actuarial surplus before the full period of amortization of the contracts, the Company and its subsidiaries will be exempted from payment of the remaining installments and the contracts will be extinguished.

 

23.

PROVISIONS

The Company and its subsidiaries are involved in certain legal and administrative proceedings in various courts and government bodies, arising from the normal course of business, regarding employment-law, civil, tax, environmental and regulatory matters, and other issues.

 

66


LOGO

 

Actions in which the Company is defendant

The Company and its subsidiaries recorded Provisions for contingencies in relation to the legal actions in which, based on the assessment of the Company and its legal advisors, the chances of loss are assessed as ‘probable’ (i.e. an outflow of funds to settle the obligation will be necessary), as follows:

 

     Consolidated  
     Dec. 31,
2017
     Additions      Reversals     Settled     Jun. 30,
2018
 

Labor

     473,874        32,812        (35,872     (14,689     456,125  

Civil

            

Consumer relations

     18,632        11,522        (362     (9,393     20,399  

Other civil actions

     43,105        2,985        (1,617     (2,496     41,977  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     61,737        14,507        (1,979     (11,889     62,376  

Tax

     57,048        199        (3,405     (139     53,703  

Environmental

     45        31        —         (27     49  

Regulatory

     39,812        10,069        —         (744     49,137  

Other

     45,597        4,408        (2,734     (227     47,044  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     678,113        62,026        (43,990     (27,715     668,434  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

     Consolidated  
     Dec. 31,
2016
     Additions      Reversals     Settled     Jun. 30,
2017
 

Labor

     349,273        181,199        (3,474     (33,829     493,169  

Civil

            

Consumer relations

     14,741        8,038        (2,758     (7,645     12,376  

Other civil actions

     40,443        4,178        (61     (999     43,561  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     55,184        12,216        (2,819     (8,644     55,937  

Tax

     69,922        1,272        (4,436     (437     66,321  

Environmental

     39        3        —         —         42  

Regulatory

     43,100        2,619        (13,454     (591     31,674  

Corporate

     239,445        —          —         —         239,445  

Other

     58,054        6,633        —         (2,132     62,555  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     815,017        203,942        (24,183     (45,633     949,143  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

     Holding Company  
     Dec. 31,
2017
     Merger
of
Telecom
     Additions      Reversals     Settled     Jun. 30,
2018
 

Labor

     38,603        22        10,884        —         (3,230     46,279  

Civil

                —      

Consumer relations

     1,024        —          1,055        —         (365     1,714  

Other civil actions

     958        —          490        —         (1     1,447  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     1,982        —          1,545        —         (366     3,161  

Tax

     7,473        —          74        (87     (14     7,446  

Regulatory

     13,959        —          3,709        —         (409     17,259  

Other

     1,177        —          77        (67     (16     1,171  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     63,194        22        16,289        (154     (4,035     75,316  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

67


LOGO

 

 

     Holding Company  
     Dec. 31,
2016
     Additions      Reversals     Settled     Jun. 30,
2017
 

Labor

     34,928        15,037        (3,016     (4,906     42,043  

Civil

               —    

Consumer relations

     1,435        422        (999     (8     850  

Other civil actions

     3,238        527        (61     (2     3,702  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     4,673        949        (1,060     (10     4,552  

Tax

     8,869        209        (2,817     (125     6,136  

Regulatory

     21,614           (2,079       19,535  

Corporate

     239,445        —          —         —         239,445  

Other

     466        457        —         (34     889  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     309,995        16,652        (8,972     (5,075     312,600  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The Company’s Management and its subsidiaries, in view of the long periods and manner of working of the Brazilian judiciary and tax and regulatory systems, believes that it is not practical to provide information that would be useful to the users of this interim financial information in relation to the timing of any cash outflows, or any possibility of reimbursements, might occur. The Management of the Company and its subsidiaries believe that any disbursements in excess of the amounts provisioned, when the respective processes are completed, will not significantly affect the result of operations or financial position of the Company and its subsidiaries.

The details on the main provisions and contingent liabilities are provided below, with the best estimation of expected future disbursements for these contingencies:

Provisions, made for legal actions in which the chances of loss have been assessed as ‘probable’; and contingent liabilities, for actions in which the chances of loss are assessed as ‘possible’

Labor claims

The Company and its subsidiaries are involved in various legal claims filed by its employees and by employees of service providing companies. Most of these claims relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such items on a supplementary retirement plan. In addition to these actions, there are others relating to outsourcing of labor, complementary additions to or re-calculation of retirement pension payments by Forluz, and salary adjustments.

The aggregate amount of the contingency is approximately R$ 1,814,490 (R$ 1,854,257 on December 31, 2017), of which R$ 456,125 (R$ 473,874 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Customers claims

The Company and its subsidiaries are involved in various civil actions relating to indemnity for moral and material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling R$ 46,165 (R$ 56,017 on December 31, 2017), of which R$ 20,399 (R$ 18,632 on December 31, 2017) has been provisioned – this being the probable estimate for funds needed to settle these disputes.

Other civil proceedings

The Company and its subsidiaries are involved in various civil actions claiming indemnity for moral and material damages, among others, arising from incidents occurred in the normal course of business, in the amount of R$ 233,327 (R$ 218,455 on December 31, 2017), of which R$ 41,977 (R$ 43,105 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

 

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Tax

The Company and its subsidiaries are involved in numerous administrative and judicial claims actions relating to taxes, including, among other matters, subjects relating to the Rural Property Tax (ITR); the Urban Property Tax (Imposto sobre a Propriedade Territorial Urbana, or IPTU); the Tax on Donations and Legacies (ITCD); the Social Integration Program (Programa de Integração Social, or PIS); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or Cofins); Corporate Income Tax (Imposto de Renda Pessoa Jurídica, or IRPJ); the Social Contribution (Contribuição Social sobre o Lucro Líquido, or CSLL); and motions to stay tax enforcement. The aggregate amount of this contingency is approximately R$ 302,538 (R$ 281,057 on December 31, 2017), of which R$ 53,703 (R$ 57,048 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Environmental

The Company and its subsidiaries are involved in environmental matters, in which the subjects include protected areas, environmental licenses, recovery of environmental damage, and other matters, in the approximate total amount of R$ 70,889 (R$ 68,097 on December 31, 2017) of which R$ 49 (R$ 45 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Regulatory

The Company and its subsidiaries are involved in numerous administrative and judicial proceedings, challenging, mainly: (i) tariff charges in invoices for use of the distribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply of electricity; and (iii) the tariff increase made during the Federal Government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986. The aggregate amount of the contingency is approximately R$ 223,522 (R$ 222,434 on December 31, 2017), of which R$ 49,137 (R$ 39,812 on December 31, 2017) has been recognized as provision – the amount estimated as probably necessary for settlement of these disputes.

Corporate

Difference of monetary updating on the Advance against Future Capital Increase (AFAC) made by the Minas Gerais State Government

On December 19, 2014 the Finance Secretary of Minas Gerais State sent an Official Letter to Cemig requesting recalculation of the amounts relating to the Advances against Future Capital Increase made in 1995, 1996, and 1998, which were returned to Minas Gerais State in December 2011, for review of the criterion used by the Company for monetary updating, arguing that application of the Selic rate would be more appropriate, replacing the IGP-M index.

On December 29, 2014 the Company made an administrative deposit applying for suspension of enforceability of the credit being requested by the state, and for its non-inclusion in the Register of Debts owed to the state and in the Registry of Defaulted Payments owed to the State (Cadin).

The Company’s Management held negotiations with the government of the State of Minas Gerais, and obtained the approvals requested by its governance bodies to sign a Debt Recognition Agreement with Minas Gerais State, through the State’s Tax Office, under which the State undertook to return to the Company the total amount deposited, after monetary updating by the IGP-M index. This was signed on October 25, 2017. With this new scenario the chances of loss in this action were re-assessed to ‘remote’, and as a result the Company has reversed the provision of R$ 239,445, due to the expectation that there will be no future disbursement to liquidate this obligation, which had until then been provisioned. More details in Note 11.

Other legal actions in the normal course of business

Breach of contract – Power line pathways and accesses cleaning services contract

The Company and its subsidiaries are involved in disputes alleging losses suffered as a result of supposed breaches of contract at the time of provision of services of cleaning of power line pathways and firebreaks. The amount recorded is R$ 33,975 (R$ 31,987 on December 31, 2017), this being estimated as the likely amount of funds necessary to settle this dispute.

 

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Other legal proceedings

The Company and its subsidiaries are involved as plaintiff or defendant, in other less significant claims, including environmental claims, related to the normal course of their operations, with an estimated total amount of R$ 165,205 (R$ 170,158 on December 31, 2017), of which R$ 13,118 (R$ 13,655 on December 31, 2017) – the amount estimated as probably necessary for settlement of these disputes – has been provisioned. Management believes that it has appropriate defense for these proceedings, and does not expect these issues to give rise to significant losses that could have an adverse effect on the Company’s financial position or profit.

Contingent liabilities in which losses are assessed as ‘possible’, and the Company believes it has arguments of merit for legal defense

Taxes and contributions

The Company and its subsidiaries are involved in numerous administrative and judicial proceedings in relation to taxes. Below are details of the main claims:

Indemnity of employees’ future benefit (the ‘Anuênio’)

In 2006 The Company and its subsidiaries paid an indemnity to its employees, totaling R$ 177,686, in exchange for rights to future payments (referred to as the Anuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The Company and its subsidiaries did not pay income tax and Social Security contributions on this amount because it considered that those obligations are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the Company and its subsidiaries obtained an injunction, which permitted to make an escrow deposit of R$ 121,834, which updated now represents the amount of R$ 271,520 (R$ 267,432 on December 31, 2017). The updated amount of the contingency is R$ 317,437 (R$ 311,138 on December 31, 2017) and, based on the arguments above, Management has classified the chance of loss as ‘possible’.

Social Security contributions

The Brazilian federal tax authority (Secretaria da Receita Federal) has filed administrative proceedings related to various matters: employee profit sharing; the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT); education benefit; food benefit; Special Additional Retirement payment; overtime payments; hazardous occupation payments; matters related to Sest/Senat (transport workers’ support programs); and fines for non-compliance with accessory obligations. The Company and its subsidiaries have presented defenses and await judgment. The amount of the contingency is approximately R$ 1,269,989 (R$ 1,647,343 on December 31, 2017). Management has classified the chance of loss as ‘possible’, also taking into account assessment of the chance of loss in the judicial sphere, (the claims mentioned are in the administrative sphere), based on the evaluation of the claims and the related case law.

Non-homologation of offsetting of tax credit

The federal tax authority did not ratify the Company’s declared offsetting, in Corporate income tax returns, of carry-forwards and undue or excess payment of federal taxes – IRPJ, CSLL, PIS and Cofins – identified by official tax deposit receipts (‘DARFs’ and ‘DCTFs’). The Company and its subsidiaries are contesting the non-homologation of the amounts offset. The amount of the contingency is R$ 285,620 (R$ 274,836 on December 31, 2017), and the chance of loss was classified as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.

 

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Corporate tax returns – restitution and offsetting

The Company was a party in an administrative case involving requests for restitution and compensation of credits arising from tax losses carry-forward balances indicated in the corporate tax returns for the calendar years from 1997 to 2000, and also for over payments identified in the corresponding tax payment receipts (DARFs and DCTFs). The case against the Company was dismissed in a final judgement, with no further appeal possible. The amount of the contingency on December 31, 2017 was R$ 576,386.

Income tax withheld on capital gain in a shareholding transaction

The federal tax authority issued a tax assessment on Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações em Ativos de Energia Elétrica (Parati), relating to withholding income tax (Imposto de Renda Retido na Fonte, or IRRF) allegedly applicable to returns paid by reason of a capital gain in a shareholding transaction relating to the purchase by Parati, and sale, by Enlighted, on July 7, 2011, of 100% of the equity interests in Luce LLC (a company with head office in Delaware, USA), holder of 75% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light S.A. (Light). The amount of the contingency is approximately R$ 216,920 (R$ 212,393 on December 31, 2017), and the loss has been assessed as ‘possible’.

The Social Contribution tax on net income (CSLL)

The federal tax authority issued a tax assessment against the Company and its subsidiaries for the years of 2012 and 2013, alleging undue non-addition, or deduction, of amounts in calculating the Social Contribution tax on net income relating to the following items: (i) taxes with liability suspended; (ii) donations and sponsorship (Law 8,313/91); and (iii) fines for various alleged infringements. The amount of this contingency is R$ 295,738 (R$ 322,196 on December 31, 2017). The Company has classified the chances of loss as ‘possible’, in accordance with the analysis of the case law on the subject.

Regulatory matters

Public Lighting Contribution (CIP)

Cemig and its subsidiary Cemig D are defendants in several public civil claims (class actions) requesting nullity of the clause in the Electricity Supply Contracts for public illumination signed between the Company and the various municipalities of its concession area, and restitution by the Company of the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The actions are grounded on a supposed error by Cemig in the estimation of the period of time that was used in calculation of the consumption of electricity for public illumination, funded by the Public Lighting Contribution (Contribuição para Iluminação Pública, or CIP).

 

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The Company believes it has arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative Resolution 456/2000. As a result it has not constituted a provision for this action, the amount of which is estimated at R$ 1,050,500 (R$ 1,224,274 on December 31, 2017). The Company has assessed the chances of loss in this action as ‘possible’, due to the Customer Defense Code (Código de Defesa do Consumidor, or CDC) not being applicable, because the matter is governed by the specific regulation of the electricity sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with the subject.

Accounting of electricity sale transactions in the Wholesale Electricity Trading Chamber (CCEE)

In a claim dating from August 2002, AES Sul Distribuidora challenged in the courts the criteria for accounting of electricity sale transactions in the wholesale electricity market (Mercado Atacadista de Energia, or MAE) (predecessor of the present Wholesale Electricity Trading Chamber – Câmara de Comercialização de Energia Elétrica, or CCEE), during the period of rationing. It obtained a favorable interim judgment in February 2006, which ordered Aneel, working with the CCEE, to comply with the claim by AES Sul and recalculate the settlement of the transactions during the rationing period, not considering Aneel’s Dispatch 288 of 2002.This should take effect in the CCEE as from November 2008, resulting in an additional disbursement for Cemig GT, related to the expense on purchase of energy in the spot market on the CCEE, in the approximate amount of R$ 300,362 (R$ 287,515 on December 31, 2017). On November 9, 2008 Cemig GT obtained an interim decision in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement made by the CCEE.

Cemig GT has classified the chance of loss as ‘possible’, since this action deals with the General Agreement for the Electricity Sector, in which the Company has the full documentation to support its arguments.

System Service Charges (ESS) – Resolution of the National Energy Policy Council

Resolution 3 of the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) of March 6, 2013 established new criteria for the prorating of the cost of additional dispatch of thermal plants. Under the new criteria, the costs of the System Service Charges for Electricity Security (Encargos do Serviço do Sistema, or ESS), which were previously prorated in full between free customers and distributors, was now to be prorated between all the agents participating in the National Grid System, including generators and traders.

In May 2013, the Brazilian Independent Electricity Producers’ Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or Apine), of which Cemig GT is a member, obtained an interim court decision suspending the effects of Articles 2 and 3 of Resolution CNPE 3, exempting generators from payment of the ESS under that Resolution.

As a result of the interim decision, the CCEE carried out the financial settlement for transactions from April through December 2013 using the criteria prior to Resolution. As a result, Cemig GT recorded the costs of the ESS in accordance with the criteria for financial settlement published by the CCEE, without the effects of Resolution CNPE 3.

 

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The applications by the plaintiff (Apine) were granted in the first instance, confirming the interim decision granted in favor of its members, which include Cemig GT and its subsidiaries. This decision was subject of an appeal, distributed to the 7th Panel of the Regional Federal Court (Tribunal Federal Regional, or TRF) of the 1st Region, which is still pending of judgment.

The amount of the contingency is approximately R$ 212,399 (R$ 201,586 on December 31, 2017). In spite of the successful judgment at first instance, the Association’s legal advisers still considered the chances of loss of this contingency as ‘possible’. Cemig GT agrees with this, since there are not yet elements to make it possible to foresee the outcome of the Appeal filed by the federal government.

Tariff increases

Exclusion of customers classified as low-income

The Federal Public Attorneys’ Office filed a class action against the Company and Aneel, to avoid exclusion of customers from classification in the Low-income residential tariff sub-category, requesting an order for Cemig D to pay twice the amount paid in excess by customers. Judgment was given in favor of the plaintiffs, but the Company and Aneel have filed an interlocutory appeal and await judgment. The amount of the contingency is approximately R$ 287,271 (R$ 275,458 on December 31, 2017). Cemig D has classified the chances of loss as ‘possible’ due to other favorable decisions on this matter.

Environmental claims

Impact arising from construction of power plants

The Public Attorneys of Minas Gerais State, together with an association and individuals, have brought class actions requiring Cemig GT to invest at least 0.5% of the annual gross operating revenue of the Emborcação, Pissarrão, Funil, Volta Grande, Poquim, Paraúna, Miranda, Nova Ponte, Rio de Pedras and Peti plants in environmental protection and preservation of the water tables of the counties where these power plants are located, and proportional indemnity for allegedly irrecoverable environmental damage caused, arising from omission to comply with Minas Gerais State Law 12,503/1997. Cemig GT has filed appeals to the Higher Appeal Court (STJ) and the Federal Supreme Court (STF). Based on the opinions of its legal advisers, Cemig GT believes that this is a matter involving legislation at infra-constitutional level (there is a Federal Law with an analogous object) and thus a constitutional matter, on the issue of whether the state law is constitutional or not, so that the final decision is one for the national Higher Appeal Court (STJ) and the Federal Supreme Court (STF). No provision has been made, since based on the opinion of its legal advisers Management has classified the chance of loss as ‘possible’. The amount of the contingency is R$ 133,933 (R$ 126,664 on December 31, 2017).

 

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The Public Attorneys’ Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the reservoir of the Capim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery of alleged environmental damage. Based on the opinion of its legal advisers in relation to the changes that have been made in the new Forest Code and in the case law on this subject, Cemig GT has classified the chance of loss in this dispute as ‘possible’. The estimated value of the contingency is R$ 82,906 (R$ 79,378 on December 31, 2017).

Other contingent liabilities

Early settlement of the CRC (Earnings Compensation) Account

The Company is involved in an administrative proceeding at the Audit Court of the State of Minas Gerais which challenges: (i) a difference of amounts relating to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this payment was completed in the first quarter of 2013; and also (ii) possible undue financial burden on the State after the signature of the Amendments that aimed to re-establish the economic and financial balance of the Contract. The amount of the contingency is approximately R$ 403,418 (R$ 397,897 on December 31, 2017), and, based on the Opinion of the Public Attorneys’ Office of the Audit Board of the State of Minas Gerais, the Company believes that it has met the legal requirements. Thus, it has assessed the chances of loss as ‘possible’, since it believes that the adjustment was made in faithful obedience to the legislation applicable to the case.

Contractual imbalance

Cemig D is a party in disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known as Luz Para Todos (‘Light for All’). The estimated amount is R$ 275,032 (R$ 261,281 on December 31, 2017), and no provision has been made. Cemig D has classified the chances of loss as ‘possible’ as a result of the analysis that has been made of the argument and documentation used by the contracted parties in attempting to make the Company liable for any losses that allegedly occurred.

The Cemig D is also a party in other disputes arising from alleged non-compliance with contracts in the normal course of business, for an estimated total of R$ 84,745 (R$ 79,985 on December 31, 2017). Cemig D has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

Irregularities in competitive tender proceedings

Cemig D is a party in a dispute alleging irregularities in competitive tender proceedings, governed by an online invitation to bid. The estimated amount is R$ 26,511 (R$ 26,149 on December 31, 2017), and no provision has been made. Cemig D has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

 

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24.

EQUITY AND REMUNERATION TO SHAREHOLDERS

The Company’s issued and outstanding share capital on June 30, 2018 is R$ 7,293,763, represented by 487,614,213 common shares and 971,138,388 preferred shares, all with nominal value of R$ 5.00 (five Reais). On December 31, 2017, the Company’s share capital was R$ 6,294,208, represented by 420,764,708 common shares and 838,076,946 preferred shares, all with nominal value of R$ 5.00 (five Reais).

 

(a)

Capital increase

On October 26, 2017, the Extraordinary General Meeting (‘EGM’) of Shareholders unanimously approved the proposal by the Board of Directors for a capital increase through issuance of up to 199,910,947 new shares, each with par value of R$ 5.00 with the same rights providing to those shares in the same class of shares that resulted in the capital increase.

Up to December 31, 2017, R$ 1,215,223 had been subscribed by Shareholders, corresponding to 184,965,518 shares at the price of R$ 6.57. The remaining shares not subscribed were 14,945,429, comprising 13,139,679 ON (common) shares and 1,815,750 PN (preferred) shares.

On March 21, 2018, Cemig sold the totality of the remaining shares not subscribed through a public offer of a single and indivisible lot of shares, which resulted in a financial volume of R$ 110,700. A total of 13,139,799 remaining common shares (ON) were sold for an average price of R$ 7.30, totaling R$ 95,773; and 1,815,750 remaining preferred shares (PN) were sold for an average price of R$ 8.22, for a total of R$ 14,927.

On April 23, 2018, the EGM approved a Company capital increase in the amount of R$ 999,555, whose capital increased from R$ 6,294,208 to R$ 7,293,763, throughout the issue and subscription of 199,910,947 new shares, each with par value of R$ 5.00 (five Reais), comprising 66,849,505 common shares and 133,061,442 preferred shares.

The capital increase, considering the issuance price, represented proceeds of R$ 1,324,773. The difference, in the amount of R$ 325,218, has been allocated to the Capital reserve account.

 

(b)

Earnings per share

Considering the capital increase on April 23, 2018 described above, the calculation of basic and diluted earnings is presented as follows:

 

Number of shares

   Jan to Jun 2018     Jan to Jun 2017     Apr to Jun 2018     Apr to Jun 2017  

Common shares already paid up

     487,614,213       420,764,708       487,614,213       420,764,708  

Treasury shares

     (69     (69     (69     (69
  

 

 

   

 

 

   

 

 

   

 

 

 
     487,614,144       420,764,639       487,614,144       420,764,639  

Preferred shares already paid up

     971,138,388       838,076,946       971,138,388       838,076,946  

Treasury shares

     (560,649     (560,649     (560,649     (560,649
  

 

 

   

 

 

   

 

 

   

 

 

 
     970,577,739       837,516,297       970,577,739       837,516,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,458,191,883       1,258,280,936       1,458,191,883       1,258,280,936  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Basic and diluted earnings per share

 

     Jan to Jun 2018
(Restated)
     Jan to Jun 2017      Apr to Jun 2018
(Restated)
    Apr to Jun 2017  

Net income for the period (A)

     453,411        480,578        (11,038     137,982  

Total of shares (B)

     1,458,191,883        1,258,280,936        1,458,191,883       1,258,280,936  
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

– going concern (R$)

     0.29        0.38        (0.03     0.11  
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic and diluted earnings per share

– discontinued operations (R$)

     0.02        —          0.02       —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic and diluted earnings (loss) per share (R$)

     0.31        0.38        (0.01     0.11  
  

 

 

    

 

 

    

 

 

   

 

 

 

The shares that were subscribed in the capital increase of April 23, 2018, were considered in full in the calculation of basic and diluted net income for the first half of 2018, since the proposal for subscription of new shares was decided in an EGM of October 26, 2017, and these new shares already had potential for subscription since that date, as decided by the shareholders.

Considering that the subscribed and paid up shares have the right to dividends for the 2017 business year, if these shares had been considered in the calculation of the basic and diluted earnings per share for the six-month period ended June 30, 2017, the result of the calculation would have been R$ 0.3296.

The call and put options related to investments described in Note 29 could potentially dilute basic earnings per share in the future; however, they have not caused dilution on the earning per share in the presented periods.

 

(c)

Equity valuation adjustments

 

Equity valuation adjustments

   Consolidated  
   Jun. 30, 2018     Dec. 31, 2017  

Adjustments to actuarial obligations – Employee benefits

     (234,519     (234,519

Subsidiary and jointly-controlled subsidiary

Variation in fair value of financial asset in jointly-controlled entity

     —         139  

Cumulative Translation adjustments

     536       398  

Adjustments to actuarial obligations – Employee benefits

     (1,241,559     (1,241,144

Cash flow hedge financial instruments

     87       87  
  

 

 

   

 

 

 

Deemed cost of PP&E (1)

     (1,475,455     (1,475,039
  

 

 

   

 

 

 

Equity valuation adjustments

     638,927       638,517  
  

 

 

   

 

 

 
     (836,528     (836,522
  

 

 

   

 

 

 

 

(1)

The variation, in 2018, in the balance of deemed cost attributable to PP&E, is net of the reversal of the deferred taxes on the deemed cost of the subsidiary Rosal Energia, in the amount of R$ 17,547, arising from the change of tax criterion for this subsidiary from the Real Net income method to the Presumed Net income method, and adjustments made by other investees totaling R$ 26.

 

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25.

REVENUE

The revenue of the Company and its subsidiaries are as follows:

 

     Consolidated  
   Jan to Jun
2018

(Restated)
    Jan to Jun
2017
 

Revenue from supply of energy (a)

     11,236,009       11,572,133  

Revenue from use of the electricity distribution systems (TUSD) (b)

     814,340       900,476  

CVA, and Other financial components in tariff increases (c)

     1,150,672       (331,896

Transmission revenue

    

Transmission concession revenue (d)

     206,582       177,437  

Transmission construction revenue (e)

     4,732       7,025  

Transmission indemnity revenue (g)

     146,519       269,855  

Generation indemnity revenue (h)

     34,463       —    

Distribution construction revenue (e)

     378,911       434,009  

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession (i)

     3,066       1,511  

Revenue from updating of the Concession Grant Fee (f)

     156,980       150,476  

Energy transactions on the CCEE (i)

     159,966       425,177  

Supply of gas

     898,979       821,145  

Fine for breach of standard continuity indicator (1)

     (25,681     —    

Other operating revenues (k)

     773,444       717,632  

Deductions on revenue (l)

     (5,397,013     (5,127,021
  

 

 

   

 

 

 

Net operating revenue

     10,541,969       10,017,959  
  

 

 

   

 

 

 

 

     Consolidated  
   Apr to Jun
2018

(Restated)
    Apr to Jun
2017
 

Revenue from supply of energy (a)

     5,838,104       5,800,520  

Revenue from use of the electricity distribution systems (TUSD) (b)

     440,599       437,427  

CVA, and Other financial components in tariff increases (c)

     709,516       (29,294

Transmission revenue

    

Transmission concession revenue (d)

     105,591       84,937  

Transmission construction revenue (e)

     3,669       4,105  

Transmission indemnity revenue (g)

     96,678       204,025  

Generation indemnity revenue (h)

     17,218       —    

Distribution construction revenue (e)

     202,114       236,370  

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession (i)

     2,274       284  

Revenue from updating of the Concession Grant Fee (f)

     75,153       70,970  

Energy transactions on the CCEE (h)

     25,639       198,529  

Supply of gas

     470,908       410,604  

Fine for breach of standard continuity indicator (1)

     (9,235     —    

Other operating revenues (j)

     311,331       369,763  

Deductions on revenue (k)

     (2,683,021     (2,583,211
  

 

 

   

 

 

 

Net operating revenue

     5,606,538       5,205,029  
  

 

 

   

 

 

 

 

(1)

As mentioned in Note 2.2, as from January 1, 2018, these amounts are now recognized as a reduction of revenue rather than operating expenses, as amended by Pronouncement CPC 47 / IFRS 15.

For details on the revenue from discontinued operations, please see Note 30.

 

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a)

Revenue from energy supply

This table shows energy supply by type of customer:

 

     MWh (1)      R$  
   Jan to Jun
2018
     Jan to Jun
2017
     Jan to Jun
2018
    Jan to Jun
2017
 

Residential

     5,150,879        5,033,072        3,866,049       3,919,020  

Industrial

     8,552,810        8,704,150        2,254,923       2,423,508  

Commercial, Services and Others

     4,198,424        3,804,836        2,144,297       2,236,494  

Rural

     1,720,268        1,752,185        748,147       779,383  

Public authorities

     434,389        436,654        252,319       269,345  

Public lighting

     688,807        675,900        252,165       264,456  

Public services

     653,232        639,342        276,281       286,753  
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     21,398,809        21,046,139        9,794,181       10,178,959  
  

 

 

    

 

 

    

 

 

   

 

 

 

Own consumption

     23,481        18,050        —         —    

Unbilled revenue

     —          —          48,142       (34,436
  

 

 

    

 

 

    

 

 

   

 

 

 
     21,422,290        21,064,189        9,842,323       10,144,523  
  

 

 

    

 

 

    

 

 

   

 

 

 

Wholesale supply to other concession holders (2)

     5,607,369        5,740,378        1,468,016       1,501,839  

Wholesale supply unbilled, net

     —          —          (74,330     (74,229
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     27,029,659        26,804,567        11,236,009       11,572,133  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     MWh (1)      R$  
   Apr to Jun
2018
     Apr to Jun
2017
     Apr to Jun
2018
    Apr to Jun
2017
 

Residential

     2,557,762        2,496,022        1,948,068       1,927,607  

Industrial

     4,524,750        4,450,891        1,149,137       1,241,737  

Commercial, Services and Others

     2,155,487        1,892,746        1,075,019       1,096,355  

Rural

     954,766        953,709        405,384       411,069  

Public authorities

     220,791        226,041        131,469       138,206  

Public lighting

     345,401        341,420        127,749       134,604  

Public services

     331,174        324,405        142,009       142,495  
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     11,090,131        10,685,234        4,978,835       5,092,073  
  

 

 

    

 

 

    

 

 

   

 

 

 

Own consumption

     11,357        8,788        —         —    

Unbilled revenue

     —          —          130,096       (70,182
  

 

 

    

 

 

    

 

 

   

 

 

 
     11,101,488        10,694,022        5,108,931       5,021,891  
  

 

 

    

 

 

    

 

 

   

 

 

 

Wholesale supply to other concession holders (2)

     2,974,570        2,846,261        766,525       1,044,045  

Wholesale supply unbilled, net

     —          —          (37,352     (265,416
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     14,076,058        13,540,283        5,838,104       5,800,520  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Data not reviewed by external auditors.

(2)

Includes a CCEAR (Regulated Market Sales Contract), ‘bilateral contracts’ with other agents, and the revenues from management of generation assets (GAG) for the 18 hydroelectric plants of Lot D of Auction no 12/2015.

 

b)

Revenue from Use of the Distribution System (the TUSD charge)

A significant part of the large industrial customers in the concession areas of Cemig D are now ‘Free Customers’ – energy is sold to them by the Cemig group’s generation and transmission company, Cemig GT, and also by other generators. Thus, the charges for use of the distribution network (‘TUSD’) of these Free customers are charged separately from the posting under this line.

 

 

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c)

The CVA Account, and Other financial components

The results from variations in (i) the CVA Account (Portion A Costs Variation Compensation Account), and in (ii) Other financial components in calculation of tariffs, refer to the positive and negative differences between the estimate of non-manageable costs of the subsidiary Cemig D and the payments actually made. The amounts recognized arise from balances recorded in the current period, homologated or to be homologated in tariff adjustment processes. For more information please see Note 14.

 

d)

Transmission concession revenue

Transmission concession revenue comprises the amount received from agents of the electricity sector for operation and maintenance of transmission lines of the national grid, in the form of the Permitted Annual Revenue (Receita Anual Permitida, or RAP), plus an adjustment for expectation of cash flow arising from the variation in the fair value of the Remuneration Assets Base in the amount of R$ 9,671 in the six-month period ended June 30, 2018.

 

e)

Construction revenue

Entities that are within the scope of ICPC 01 (R1) should record a construction or improvement of the infrastructure of the concession in accordance with CPC 17 (R1) – Construction Contracts. The costs of infrastructure construction carried out by the Company are measured reliably; the revenues and expenses corresponding to these construction services are recognized as and when they are incurred, up to the reporting date. Any expected loss on construction contracts is recognized immediately as an expense. Considering that the regulatory model currently in effect does not provide for specific remuneration for construction or improvement of the infrastructure of the concession; that constructions and improvements are substantially executed through specialized services of outsourced parties; and that all construction revenues is related to the construction of the infrastructure of the energy distribution services, the Company’s Management believed that revenues related to construction services are immaterial.

 

f)

Gain on financial updating of the Concession Grant Fee

Represents the inflation adjustment using the IPCA inflation index, plus interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015. See Note 14.

 

g)

Transmission indemnity revenue

In the half year ended June 30, 2018, the Company recognized revenue in the total amount of R$ 146,519 (R$ 269,855 in the half year ended June 30, 2017), corresponded to updating, by the IPCA index, of the balance of indemnity receivable existing. See Note 14.

 

 

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h)

Generation indemnity revenue

In the first semester of 2018, the Company recognized revenue of R$ 34,463, for the adjustment to the balance of non-amortized indemnities for the concessions of the São Simão and Miranda Hydroelectric Plants, as per Ministerial Order 291/17, also taking into account the updating of the amounts. See Note 14.

 

i)

Revenue from energy transactions in the CCEE (Wholesale Electricity Trading Chamber)

The revenue from transactions made through the Wholesale Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) is the monthly positive net balance of settlements of transactions for purchase and sale of energy in the Spot Market, through the CCEE.

 

j)

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession

Monetary adjustment of the Regulatory Remuneration Asset Base resulting in the recognition of income from the adjustments on the expectation of cash flow from the Financial asset on the residual value of the infrastructure assets of distribution concessions.

 

k)

Other operating revenues

 

     Consolidated  
   Jan to Jun 2018      Jan to Jun 2017  

Charged service

     5,800        4,599  

Telecoms services (3)

     —          72,822  

Services rendered

     90,440        75,532  

Subsidies (1)

     546,907        503,020  

Rental and leasing

     42,560        58,338  

Unpaid energy reimbursement (2)

     84,092        —    

Other

     3,645        3,321  
  

 

 

    

 

 

 
     773,444        717,632  
  

 

 

    

 

 

 

 

     Consolidated  
   Apr to Jun 2018     Apr to Jun 2017  

Charged service

     2,864       2,543  

Telecoms services (3)

     (44,037     36,580  

Services rendered

     48,729       40,248  

Subsidies (1)

     281,635       260,338  

Rental and leasing

     21,645       29,402  

Other

     495       652  
  

 

 

   

 

 

 
     311,331       369,763  
  

 

 

   

 

 

 

 

(1)

Revenue recognized for the tariff subsidies applied to users of distribution services, including low-income tariff subsidies – reimbursed by Eletrobras.

(2)

Renewal of uncontracted energy due to alteration of electricity sales agreements CCEAR agreed between Santo Antônio Energia S. A., subsidiary of Madeira Energia, and Cemig Distribuição. The amount will be settled in 24 monthly installments and monthly updated by SELIC.

(3)

Due to the classification of certain telecommunications assets as held for sale, the revenues from the discontinued operations were segregated. For more information please see Note 30.

 

 

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l)

Taxes and charges reported as deductions on revenue

 

     Consolidated  
   Jan to Jun 2018
(Restated)
     Jan to Jun 2017  

Taxes on revenue

     

ICMS (VAT)

     2,517,921        2,651,348  

Cofins

     1,170,609        1,069,593  

PIS and Pasep

     252,149        232,205  

Others

     3,711        3,827  
  

 

 

    

 

 

 
     3,944,390        3,956,973  

Charges to the customer

     

Global Reversion Reserve (RGR) (recovery of expense)

     10,412        (50

Energy Efficiency Program

     29,845        25,690  

Energy Development Account (CDE)

     1,180,960        859,370  

Research and Development (P&D)

     18,639        18,987  

National Scientific and Technological Development Fund (FNDCT)

     18,639        18,987  

Energy System Expansion Research (EPE of MME)

     9,320        9,494  

Customer charges – Proinfa alternative sources program

     19,443        19,577  

Energy Services Inspection Charge

     12,594        16,636  

Royalties for use of water resources

     27,712        44,922  

Customer charges – the‘Flag Tariff’ system

     125,059        156,435  
  

 

 

    

 

 

 
     1,452,623        1,170,048  
  

 

 

    

 

 

 
     5,397,013        5,127,021  
  

 

 

    

 

 

 

 

     Consolidated  
   Apr to Jun 2018
(Restated)
     Apr to Jun 2017  

Taxes on revenue

     

ICMS (VAT)

     1,264,824        1,320,102  

Cofins

     612,229        540,306  

PIS and Pasep

     130,917        117,298  

Others

     1,463        1,927  
  

 

 

    

 

 

 
     2,009,433        1,979,633  

Charges to the customer

     

Global Reversion Reserve (RGR) (recovery of expense)

     5,172        (9,917

Energy Efficiency Program

     16,632        12,903  

Energy Development Account (CDE)

     593,105        415,749  

Research and Development (P&D)

     10,126        8,534  

National Scientific and Technological Development Fund (FNDCT)

     10,126        8,534  

Energy System Expansion Research (EPE of MME)

     5,063        4,267  

Customer charges – Proinfa alternative sources program

     9,202        9,914  

Energy Services Inspection Charge

     6,377        8,326  

Royalties for use of water resources

     9,498        18,091  

Customer charges – the‘Flag Tariff’ system

     8,287        127,177  
  

 

 

    

 

 

 
     673,588        603,578  
  

 

 

    

 

 

 
     2,683,021        2,583,211  
  

 

 

    

 

 

 

 

 

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26.

OPERATING COSTS AND EXPENSES

Composition of costs and expenses of the Company and its subsidiaries:

 

     Consolidated      Holding Company  
     Jan to Jun
2018
     Jan to Jun
2017
     Jan to Jun
2018
     Jan to Jun
2017
 

Personnel (a)

     680,240        917,162        19,967        21,066  

Employees’ and managers’ profit sharing

     22,727        24,891        5,926        962  

Post-retirement obligations – Note 22

     169,397        192,028        20,359        19,472  

Materials

     33,706        27,108        764        66  

Outsourced services (b)

     490,346        446,764        9,403        3,602  

Energy purchased for resale (c)

     5,082,598        4,742,418        —          —    

Depreciation and amortization

     411,300        410,800        216        236  

Operating provisions (d)

     267,319        369,918        78,189        15,311  

Charges for use of the national grid

     808,580        404,261        —          —    

Gas purchased for resale

     556,459        485,163        —          —    

Construction costs (e)

     383,643        441,034        —          —    

Other operating expenses, net (f)

     151,607        187,454        7,348        7,919  
  

 

 

    

 

 

    

 

 

    

 

 

 
     9,057,922        8,649,001        142,172        68,634  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consolidated      Holding Company  
     Apr to Jun
2018
     Apr to Jun
2017
     Apr to Jun
2018
     Apr to Jun
2017
 

Personnel (a)

     348,576        535,954        12,498        4,390  

Employees’ and managers’ profit sharing

     3,150        6,007        4,515        470  

Post-retirement obligations – Note 22

     86,126        97,390        10,250        9,804  

Materials

     18,416        15,829        722        50  

Outsourced services (b)

     254,553        238,140        7,436        885  

Energy purchased for resale (c)

     2,818,905        2,649,330        —          —    

Depreciation and amortization

     198,309        209,435        98        101  

Operating provisions (d)

     134,112        161,386        38,878        (1,157

Charges for use of the national grid

     416,038        197,764        —          —    

Gas purchased for resale

     293,225        262,651        —          —    

Construction costs (e)

     202,974        240,475        —          —    

Other operating expenses, net (f)

     85,246        90,938        4,493        4,719  
  

 

 

    

 

 

    

 

 

    

 

 

 
     4,859,630        4,705,299        78,890        19,262  
  

 

 

    

 

 

    

 

 

    

 

 

 

For details on the costs and expenses from discontinued operations, please see note 30.

 

  a)

Personnel expenses

Programmed Voluntary Retirement Plan (PDVP)

In March 2018, the Company approved the 2018 Employee Voluntary Severance Program (‘the 2018 PDVP’). Those eligible to take part were any employees who have worked with Cemig for 25 years or more by December 31, 2018. The acceptance period was from April 2 to 30, 2018 and it will pay the standard legal severance payments – including: payment for the period of notice, an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments specified by the legislation and there is no provision for additional premium payment. In the first semester of 2018, the amount appropriated as expense related to the 2018 PDVP, including severance payments, was R$ 25,666, corresponding to the acceptance by 151 employees.

 

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In the first semester of 2017, the amount appropriated as expense related to the 2017 PDVP, including severance payments, was R$ 165,422, corresponding to the acceptance by 891 employees.

 

  b)

Outsourced services

 

     Consolidated      Holding Company  
   Jan to
Jun 2018
     Jan to
Jun 2017
     Jan to
Jun 2018
     Jan to
Jun 2017
 

Meter reading and bill printing and delivery of energy bills

     65,538        71,217               —    

Communication

     35,945        34,089        2,208        113  

Maintenance and conservation of electrical facilities and equipment

     152,048        126,852        12        21  

Building conservation and cleaning

     52,765        50,102        294        425  

Contracted labor

     10,829        5,106        102        —    

Freight and airfares

     3,214        3,368        716        939  

Accommodation and meals

     5,616        6,437        97        100  

Security services

     10,125        10,936        —          —    

Consultancy

     4,863        7,800        898        704  

Maintenance and conservation of furniture and utensils

     1,351        1,616        13        —    

Information technology

     22,498        24,152        1,325        628  

Maintenance and conservation of vehicles

     1,045        924        —          —    

Disconnection and reconnection

     22,725        12,332        —          —    

Environment

     4,659        8,210        —          —    

Legal services

     11,101        8,801        460        440  

Legal procedural costs

     986        1,230        —          35  

Tree pruning

     9,917        8,967        —          —    

Cleaning of power line pathways

     13,692        4,050        —          —    

Copying and legal publications

     8,620        9,851        334        59  

Inspection of customer units

     4,674        57        —          —    

Other expenses

     48,135        50,667        2,944        138  
  

 

 

    

 

 

    

 

 

    

 

 

 
     490,346        446,764        9,403        3,602  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consolidated     Holding Company  
   Apr to Jun
2018
     Apr to Jun
2017
    Apr to Jun
2018
     Apr to Jun
2017
 

Meter reading and bill printing and delivery of energy bills

     34,342        37,141       —          —    

Communication

     17,536        19,243       2,082        51  

Maintenance and conservation of electrical facilities and equipment

     73,655        62,819       7        2  

Building conservation and cleaning

     26,835        27,600       236        258  

Contracted labor

     6,888        2,720       102        —    

Freight and airfares

     2,367        2,073       601        557  

Accommodation and meals

     3,032        3,439       58        59  

Security services

     5,147        5,623       —          —    

Consultancy

     1,575        4,806       860        554  

Maintenance and conservation of furniture and utensils

     756        834       13        —    

Information technology

     11,337        11,837       1,133        487  

Maintenance and conservation of vehicles

     547        505       —          —    

Disconnection and reconnection

     12,586        8,053       —          —    

Environment

     2,525        3,421       —          —    

Legal services

     6,320        5,908       189        148  

Legal procedural costs

     615        787       —          25  

Tree pruning

     5,888        5,310       —          —    

Cleaning of power line pathways

     7,719        2,974       —          —    

Copying and legal publications

     4,413        6,075       263        29  

Inspection of customer units

     2,811        (571     —          —    

Other expenses

     27,659        27,543       1,892        (1,285
  

 

 

    

 

 

   

 

 

    

 

 

 
     254,553        238,140       7,436        885  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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  c)

Energy purchased for resale

 

     Consolidated  
   Jan to Jun 2018     Jan to Jun 2017  

Supply from Itaipu Binacional

     633,420       616,817  

Physical guarantee quota contracts

     311,625       224,452  

Quotas for Angra I and II nuclear plants

     133,423       121,888  

Spot market

     929,226       771,921  

Proinfa Program

     159,696       150,644  

‘Bilateral’ contracts

     211,751       148,391  

Energy acquired in Regulated Market auctions

     1,480,756       1,377,210  

Energy acquired in the Free Market

     1,715,482       1,786,560  

Pasep and Cofins credits

     (492,781     (455,465
  

 

 

   

 

 

 
     5,082,598       4,742,418  
  

 

 

   

 

 

 

 

     Consolidated  
   Apr to Jun 2018     Apr to Jun 2017  

Supply from Itaipu Binacional

     345,177       322,771  

Physical guarantee quota contracts

     140,241       115,298  

Quotas for Angra I and II nuclear plants

     66,711       60,944  

Spot market

     710,115       614,518  

Proinfa Program

     79,848       75,322  

‘Bilateral’ contracts

     106,666       76,478  

Energy acquired in Regulated Market auctions

     757,243       634,978  

Energy acquired in the Free Market

     891,546       998,450  

Pasep and Cofins credits

     (278,642     (249,429
  

 

 

   

 

 

 
     2,818,905       2,649,330  
  

 

 

   

 

 

 

 

  d)

Operating provisions (reversals)

 

     Consolidated     Holding Company  
   Jan to Jun
2018
    Jan to Jun
2017
    Jan to Jun
2018
    Jan to Jun
2017
 

Estimated losses on doubtful receivables

     167,557       140,885       —         —    

Estimated losses on other accounts receivables (1)

     (4,934     —         —         —    

Contingency provisions (reversals) (2)

        

Labor claims

     (3,060     177,725       10,884       12,021  

Civil

     12,528       9,397       1,545       (111

Tax

     (3,206     (3,164     (13     (2,608

Environmental

     31       3       —         —    

Regulatory

     10,069       (10,835     3,709       (2,079

Other

     1,674       6,633       10       457  
  

 

 

   

 

 

   

 

 

   

 

 

 
     18,036       179,759       16,135       7,680  
  

 

 

   

 

 

   

 

 

   

 

 

 
     180,659       320,644       16,135       7,680  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment for losses

        

Put option – Sonda (Note 29)

     —         41       —         —    

Put option – Parati (Note 29)

     62,054       7,631       62,054       7,631  

Put option – SAAG (Note 29)

     24,606       41,602       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     86,660       49,274       62,054       7,631  
  

 

 

   

 

 

   

 

 

   

 

 

 
     267,319       369,918       78,189       15,311  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

84


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     Consolidated     Holding Company  
   Apr to Jun
2018
    Apr to Jun
2017
    Apr to Jun
2018
    Apr to Jun
2017
 

Estimated losses on doubtful receivables

     91,374       74,690       —         —    

Estimated losses on other accounts receivables (1)

     (5,494     —         —         —    

Contingency provisions (reversals) (2)

        

Labor claims

     (20,114     114,419       9,774       12,574  

Civil

     13,827       1,952       817       (273

Tax

     (3,275     (4,758     (28     (3,212

Environmental

     3       2             —    

Regulatory

     6,684       (11,913     750       (2,648

Other

     3,357       307       46       422  
  

 

 

   

 

 

   

 

 

   

 

 

 
     482       100,009       11,359       6,863  
  

 

 

   

 

 

   

 

 

   

 

 

 
     86,362       174,699       11,359       6,863  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment for losses

        

Put option – Sonda (Note 29)

     —         41       —         —    

Put option – Parati (Note 29)

     27,519       (8,020     27,519       (8,020

Put option – SAAG (Note 29)

     20,231       (5,334     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     47,750       (13,313     27,519       (8,020
  

 

 

   

 

 

   

 

 

   

 

 

 
     134,112       161,386       38,878       (1,157
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The estimate for loss on Other accounts receivable is presented in the Statement of income as an operating expenses.

(2)

The contingency provisions of Holding Company are presented in the consolidated Statement of income as operating expenses.

 

  e)

Construction cost

 

     Consolidated  
   Jan to Jun 2018      Jan to Jun 2017  

Personnel and managers

     34,060        24,154  

Materials

     149,614        183,160  

Outsourced services

     164,089        191,183  

Others

     35,880        42,537  
  

 

 

    

 

 

 
     383,643        441,034  
  

 

 

    

 

 

 

 

     Consolidated  
   Apr to Jun 2018      Apr to Jun 2017  

Personnel and managers

     19,490        13,908  

Materials

     73.680        103.530  

Outsourced services

     90.061        103.386  

Others

     19.743        19.651  
  

 

 

    

 

 

 
     202.974        240.475  
  

 

 

    

 

 

 

 

85


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  f)

Other operating expenses (revenues), net

 

     Consolidated      Holding Company  
   Jan to Jun
2018
     Jan to Jun
2017
     Jan to Jun
2018
     Jan to Jun
2017
 

Leasing and rentals

     45,364        44,907        2,197        1,474  

Advertising

     3,093        8,314        158        176  

Own consumption of energy

     13,475        10,813        —          —    

Subsidies and donations

     6,569        6,524        1,311        —    

Paid concession

     1,446        1,529        —          —    

Insurance

     3,643        4,429        780        1,307  

CCEE annual charge

     3,751        4,045        1        1  

Net loss (gain) on deactivation and disposal of assets

     7,695        5,338        468        —    

Forluz – Administrative running cost

     14,582        13,033        604        645  

Collection agents

     35,398        35,287        —          —    

Fine for violation of standard continuity indicator (1)

     —          20,860        —          —    

Taxes and charges

     6,758        5,386        480        543  

Other expenses

     9,833        26,989        1,349        3,773  
  

 

 

    

 

 

    

 

 

    

 

 

 
     151,607        187,454        7,348        7,919  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consolidated      Holding Company  
   Apr to Jun
2018
     Apr to Jun
2017
     Apr to Jun
2018
     Apr to Jun
2017
 

Leasing and rentals

     22,869        20,919        1,368        879  

Advertising

     1,581        7,482        154        176  

Own consumption of energy

     6,878        5,303        —          —    

Subsidies and donations

     4,764        2,991        1,311        —    

Paid concession

     668        777        —          —    

Insurance

     1,725        1,905        378        456  

CCEE annual charge

     1,827        2,017        1        1  

Net loss (gain) on deactivation and disposal of assets

     5,713        2,778        468        —    

Forluz – Administrative running cost

     6,720        6,562        326        325  

Collection agents

     17,940        17,835        —          —    

Fine for violation of standard continuity indicator (1)

     —          6,306        —          —    

Taxes and charges

     2,176        1,617        180        20  

Other expenses

     12,385        14,446        307        2,862  
  

 

 

    

 

 

    

 

 

    

 

 

 
     85,246        90,938        4,493        4,719  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1)

As mentioned in Note 2.2, as from January 1, 2018 these amounts are now recognized as a reduction of revenue rather than operating expenses, as amended by Pronouncement CPC 47 / IFRS 15.

 

86


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27.    FINANCE INCOME AND EXPENSES

 

     Consolidated     Holding Company  
   Jan to Jun
2018
    Jan to Jun
2017
    Jan to Jun
2018
    Jan to Jun
2017
 

FINANCE INCOME

        

Income from cash investments

     41,850       125,493       4,931       28,709  

Arrears fees on sale of energy

     167,950       137,923       44       —    

Foreign exchange variations

     2,561       17,589       7       —    

Monetary variations

     11,496       13,993       8       1,568  

Monetary variations – CVA

     11,286       —               —    

Monetary updating on Court escrow deposits

     15,223       23,147       12,261       952  

Pasep and Cofins charged on finance income

     (20,044     (22,322     (2,301     (4,056

Gain on Financial instruments (Note 29)

     180,396       —         (33     —    

Other

     80,451       53,078       3,875       5,845  
  

 

 

   

 

 

   

 

 

   

 

 

 
     491,169       348,901       18,792       33,018  

FINANCE EXPENSES

        

Costs of loans and financings

     (602,963     (827,850     (1,156     —    

Cost of debt – Amortization of transaction costs

     (15,548     (29,827     (153  

Foreign exchange variations

     (580,747     (18,596     (7     (9

Monetary updating – loans and financings

     (65,305     (68,973           —    

Monetary updating – Concessions payable

     (2,257     742             —    

Charges and monetary updating on post-retirement obligation

     (33,159     (35,984     (1,631     (1,770

Monetary updating – CVA

     —         (28,080           —    

Monetary updating – Advance sales of power supply

     (6,815     (24,680           —    

Other

     (39,007     (49,953     (138     (182
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,345,801     (1,083,201     (3,085     (1,961
  

 

 

   

 

 

   

 

 

   

 

 

 

NET FINANCE INCOME (EXPENSES)

     (854,632     (734,300     15,707       31,057  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Consolidated     Holding company  
   Apr to Jun
2018
    Apr to Jun
2017
    Apr to Jun
2018
    Apr to Jun
2017
 

FINANCE INCOME

        

Income from cash investments

     18,123       60,663       2,356       12,944  

Arrears fees on sale of energy

     92,288       65,059       44       —    

Foreign exchange variations

     53       9,202       7       —    

Monetary variations

     6,310       5,595       8       540  

Monetary variations – CVA

     10,839       —               —    

Monetary updating on Court escrow deposits

     8,771       13,211       4,914       (3,280

Pasep and Cofins charged on finance income

     (11,117     (11,210     (1,752     (2,906

Gain on Financial instruments (Note 29)

     82,880       —         (33     —    

Other

     41,168       26,490       2,000       2,140  
  

 

 

   

 

 

   

 

 

   

 

 

 
     249,315       169,010       7,544       9,438  

FINANCE EXPENSES

        

Costs of loans and financings

     (315,615     (382,076     (1,156     —    

Cost of debt – Amortization of transaction costs

     (6,548     (14,180     (153  

Foreign exchange variations

     (561,373     (18,596     (7     (9

Monetary updating – loans and financings

     (26,632     (25,566           —    

Monetary updating – Concessions payable

     (1,593     1,122             —    

Charges and monetary updating on post-retirement obligation

     (15,152     (16,616     (745     (817

Monetary updating – CVA

     —         (21,911           —    

Monetary updating – Advance sales of power supply

     (3,196     (12,119           —    

Other

     (16,038     (20,622     (130     (8
  

 

 

   

 

 

   

 

 

   

 

 

 
     (946,147     (510,564     (2,191     (834
  

 

 

   

 

 

   

 

 

   

 

 

 

NET FINANCE INCOME (EXPENSES)

     (696,832     (341,554     5,353       8,604  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

87


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28.    RELATED PARTY TRANSACTIONS

Cemig’s main balances and transactions with related parties and its jointly-controlled entities are as follows:

 

     ASSETS      LIABILITIES      REVENUE      EXPENSES  
  

 

 

    

 

 

    

 

 

    

 

 

 

Company / Item

   Jun. 30, 2018      Dec. 31, 2017      Jun. 30, 2018      Dec. 31, 2017      Jan to Jun
2018
     Jan to Jun
2017
     Jan to Jun
2018
    Jan to Jun
2017
 

Shareholder

                      

Minas Gerais State Government

                      

Current

                      

Customers and traders (1)

     140,122        54,926        —          —          81,249        69,390        —         —    

Public Lighting Contribution (CIP) (1)

     1,708        1,220        —          —          —          —          —         —    

Accounts Receivable—AFAC (2)

     —          235,018                   

Non-current

                      

Customers and traders (1)

     27,091        50,349        —          —          —          —          —         —    

Public Lighting Contribution (CIP) (1)

     342        1,119        —          —          —          —          —         —    

Accounts Receivable—AFAC (2)

     248,100        —          —          —          13,082        —          —         —    

Jointly-controlled entity

                      

Aliança Geração

                      

Current

                      

Transactions with energy (3)

     —          —          6,915        7,105        15,150        247        (75,255     (65,133

Provision of services (4)

     1,515        1,657        —          —          5,964        5,570        —         —    

Interest on Equity, and dividends

     —          72,315        —          —          —          —          —         —    

Baguari Energia

                      

Current

                      

Transactions with energy (3)

     —          —          846        858        —          —          (3,666     (3,457

Services (4)

     211        211        —          —          446        431        —         —    

Interest on Equity, and dividends

     3,558        —          —          —          —          —          —         —    

Madeira Energia

                      

Current

                      

Transactions with energy (3)

     —          —          26,191        56,531        17,146        10,513        (332,788     (299,092

Advance for future power supply (5)

     45,117        66,185        —          —          4,549        —          —         —    

Reimbursement for decontracted supply (6)

     42,046        —          —          —          411        —          —         —    

Non-current

                      

Advance for future power supply (5)

     —          6,870        —          —          —          —          —         —    

Reimbursement for decontracted supply (6)

     24,527        —          —          —          —          —          —         —    

Norte Energia

                      

Current

                      

Transactions with energy (3)

     130        130        5,621        3,640        8,287        2,926        (94,143     (55,813

Lightger

                      

Current

                      

Transactions with energy (3)

     —          —          —          —          —          —          (9,012     (10,463

Hidrelétrica Pipoca

                      

Current

                      

Transactions with energy (3)

     —          —          1,589        —          —          —          (9,154     (7,172

Interest on Equity, and dividends

     —          584        —          —          —          —          —         —    

Retiro Baixo

                      

Current

                      

Transactions with energy (3)

     —          —          520        528        —          —          (3,207     (2,910

Interest on Equity, and dividends

     2,581        2,581        —          —          —          —          —         —    

Hidrelétrica Cachoeirão

                      

Current

                      

Interest on Equity, and dividends

     2,291        —          —          —          —          —          —         —    

Renova

                      

Current

                      

Transactions with energy (3)

     —          —          11,963        1,744        —          —          (66,548     (102,750

Non-current

                      

Advance for future delivery of power supply (7)

     99,118        —          —          —          2,550        26,486        —         —    

Accounts receivable (8)

     367,436        350,200        —          —          17,326        —          —         —    

Empresa Amazonense de Transmissão de Energia (EATE)

                      

Current

                      

Transactions with energy (3)

     —          —          2,433        2,882        —          —          (11,706     (13,097

 

88


LOGO

 

 

     ASSETS     LIABILITIES      REVENUE      EXPENSES  

Company / item

   Jun. 30, 2018     Dec. 31, 2017     Jun. 30, 2018      Dec. 31, 2017      Jan to Jun
2018
     Jan to Jun
2017
     Jan to Jun
2018
    Jan to Jun
2017
 

Light

                    

Current

                    

Transactions with energy (3)

     84       1,128       492        483        31,736        24,291        (535     (862

Interest on Equity, and dividends

     1,200       —         —          —          —          —          —         —    

Taesa

                    

Current

                    

Transactions with energy (3)

     —         —         9,929        12,105        —          —          (61,659     (58,757

Services (4)

     172       404       —          —          282        528        —         —    

Interest on Equity, and dividends

     18       —         —          —          —          —          —         —    

Companhia Transirapé de Transmissão

                    

Current

                    

Transactions with energy (3)

     —         —         893        964        —          —          (4,692     (4,890

Services (4)

     90       90       —          —          637        634        —         —    

Interest on Equity, and dividends

     —         1,413       —          —          —          —          —         —    

Axxiom

                    

Current

                    

Provision of services (9)

     —         —         1,055        2,982        —          —          —         —    

Transudeste

                    

Current

                    

Transactions with energy (3)

     —         —         160        191        —          —          (788     (721

Services (4)

     156       175       —          —          304        279        —         —    

Transleste

                    

Current

                    

Transactions with energy (3)

     —         —         259        308        —          90        (1,271     (1,162

Services (4)

     120       120       —          —          552        543        —         —    

Other related parties

                    

FIC Pampulha

                    

Current

                    

Cash and cash equivalents

     121,953       322,423       —          —          —          —          —         —    

Securities

     297,939       1,037,423       —          —          7,535        38,169        —         —    

(-) Securities issued by subsidiary companies (10)

     (9,794     (25,493     —          —          —          —          —         —    

Non-current

                    

Securities

     77,047       30,124       —          —          —          —          —         —    

(-) Securities issued by subsidiaries (10)

     (13,321     —         —          —          —          —          —         —    

Forluz

                    

Current

                    

Post-retirement obligations (11)

     —         —         117,447        108,843        —          —          (95,967     (86,979

Supplementary pension contributions (12) - Defined contribution plan

     —         —         —          —          —          —          (36,692     (42,917

Administrative running costs (13)

     —         —         —          —          —          —          (14,582     (13,033

Operational leasing (14)

     —         —         1,662        4,998        —          —          (23,065     (24,295

Non-current

                    

Post-retirement obligations (11)

     —         —         1,959,626        1,959,512        —          —          —         —    

Cemig Saúde

                    

Current

                    

Health Plan and Dental Plan (15)

     —         —         109,601        115,045        —          —          (93,068     (96,718

Non-current

                    

Health Plan and Dental Plan (15)

     —         —         1,775,741        1,633,291        —          —          —         —    

 

The main conditions and characteristics of interest with reference to the related party transactions are:

 

(1)

This refers to sale of energy supply to the Minas Gerais State government. The price of the supply is the one set by Aneel through a Resolution relating to the annual tariff adjustment of Cemig D. In 2017 the government of Minas Gerais State signed a debt recognition agreement with Cemig D for payment of debits relating to the supply of power due and unpaid, in the amount of R$ 113,032 , to be settled in 24 installments, updated monthly by the variation of the IGP-M. The first portion, in the amount of R$ 5,418, was settled in December 2017, and the others have due dates up to November, 2019. These receivables have guarantee in the form of Cemig’s right to retain dividends and Interest on Equity otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default.

(2)

This refers to the recalculation of the monetary updating of amounts relating to the Advance for Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. Amount transferred to Accounts Receivable from Minas Gerais State, on September 30, 2017 (see Note 11).

(3)

Transactions with energy between generators and distributors were made in auctions organized by the federal government; transactions for transport of electricity, made by transmission companies, arise from the centralized operation of the National Grid carried out by the National System Operator (ONS).

(4)

Refers to a contract to provide plant operation and maintenance services.

(5)

In 2017, advance payments of R$ 70,100 were made to Santo Antônio Energia, subsidiary of Madeira Energia: R$ 51,874 by Cemig GT, and R$ 11,917 and R$ 6,309 by Sá Carvalho and Rosal, respectively. For the purposes of settlement, invoices for energy supply to be issued by Santo Antônio Energia starting in 2018, in 12 tranches, will be used;

 

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(6)

This refers to reimbursement of supply of energy that was decontracted due to alteration of Regulated Market Electricity Sale Contracts (CCEARs) between Santo Antônio Energia (subsidiary of Madeira Energia) and Cemig D (Distribution), with value totaling R$ 84,092, to be settled in 24 monthly installments, with monetary adjustment by the Selic rate, with due dates up to January 2020.

(7)

This refers to advance payments under Agreements for Incentive-bearing Power Supply becoming due in April 2018 through May 2019, discounted at 155% of the rate for Interbank Certificates of Deposit published by Cetip.

(8)

Cemig GT has an item of R$ 367 million receivable from Renova that will be paid in monthly installments over 2021 with adjustment at 150% to 155% of the CDI rate. The pre-payments have guarantees, shared between Cemig and Light, related to the stockholding positions in and dividends from investees of Renova, and also the wind projects to be developed.

(9)

This refers to a contract for development of management software between Cemig D and Axxiom Soluções Tecnológicas S.A., instituted in Aneel Dispatch 2,657/2017.

(10)

FIC Pampulha has financial investments in securities issued by subsidiary companies of the Company. There is more information, and characteristics of the fund, in the description below.

(11)

The contracts of Forluz are updated by the Expanded Customer Price Index (IPCA) calculated by the Brazilian Geography and Statistics Institute (Instituto Brasileiro de Geografia e Estatística, or IBGE) (See Note 22), and will be amortized up to the business year of 2024.

(12)

The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund.

(13)

Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.

(14)

Rental of the Company’s administrative head offices, in effect to March 2019 and May 2034, adjusted annually by IPCA inflation index.

(15)

Post-retirement obligations relating to the employees’ health and dental plan (see Note 22).

Dividends receivable from subsidiaries

 

Dividends receivable

   Consolidated      Holding Company  
   Jun. 30, 2018      Dec. 31, 2017      Jun. 30, 2018      Dec. 31, 2017  

Cemig GT

     —          —          364,230        564,230  

Other

     9,648        76,893        45,168        38,819  
  

 

 

    

 

 

    

 

 

    

 

 

 
     9,648        76,893        409,398        603,049  
  

 

 

    

 

 

    

 

 

    

 

 

 

Guarantees on loans, financings and debentures

Cemig has provided guarantees on loans, financings and debentures of the following related parties – not consolidated in the interim financial information because they relate to jointly-controlled entities or affiliated companies:

 

Related party

   Relationship    Type    Objective      Jun. 30, 2018      Maturity  

Norte Energia (NESA)

   Affiliated    Surety      Financing        2,548,450        2042  

Light (1)

   Jointly-controlled entity    Counter-guarantee      Financing        683,615        2042  

Santo Antônio Energia (SAESA)

   Jointly-controlled entity    Surety      Financing        1,892,193        2034  

Santo Antônio Energia (SAESA)

   Jointly-controlled entity    Surety      Debentures        815,497        2037  

Centroeste

   Jointly-controlled entity    Surety      Financing        7,572        2023  
           

 

 

    
              5,947,327     
           

 

 

    

 

(1)

Related to execution of guarantees of the Norte Energia financing.

On June 30, 2018, Management believes that there is no need to recognize any provisions in the Company’s interim financial information for the purpose of meeting any obligations arising under these sureties and/or guarantees.

 

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Cash investments in FIC Pampulha – investment fund of Cemig, its subsidiaries and affiliates

Cemig and its subsidiaries and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and obeys the Company’s cash investment policy. The amounts invested by the fund on June 30, 2018 are reported in Securities in Current or Non-current assets, or presented after deduction of the account line Debentures in Current or Non-current liabilities.

The funds applied are allocated only in public and private fixed income securities, subject only to credit risk, with various maturity periods, obeying the unit holders’ cash flow needs.

The financial investments of the investment fund in securities of related parties are as follows:

 

Issuer of security

   Type      Annual contractual
conditions
     Maturity      Jun. 30, 2018  
   Cemig
3.23%
     Cemig GT
8.51%
     Cemig D
0,58%
     Other
subsidiaries

26.25% (1)
     Total
38.57%
 

ETAU

     Debentures        108.00% of CDI        Dec. 01, 2019        325        856        59        1,401        2,641  

LIGHT

     Promissory Note        CDI + 3.50%        Jan. 22, 2019        222        584        40        957        1,803  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
              547        1,440        99        2,358        4,444  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Issuer of security

   Type      Annual contractual
conditions
     Maturity      Dec. 31, 2017  
   Cemig
4.17%
     Cemig GT
26.85%
     Cemig D
19.90%
     Other
subsidiaries
21.36% (1)
     Total
72.28%
 

ETAU

     Debentures        108.00% of CDI        Dec. 01, 2019        420        2,706        2,005        2,152        7,283  

LIGHT

     Promissory Note        CDI + 3.50%        Jan. 22, 2019        834        5,375        3,983        4,276        14,468  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
              1,254        8,081        5,988        6,428        21,751  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Refers to the other companies consolidated by Cemig, which also have a stake in the investment funds.

Remuneration of key Management personnel

The total costs of key personnel, comprising the Executive Board, the Fiscal Council and the Board of Directors, for the six-month periods ended June 30, 2018 and 2017, are as follows:

 

     Jan to Jun 2018      Jan to Jun 2017  

Remuneration

     16,906        15,435  

Profit sharing

     3,599        158  

Assistance benefits

     1,327        780  
  

 

 

    

 

 

 

Total

     21,832        16,373  
  

 

 

    

 

 

 

 

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29.    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

  a)

Classification of financial instruments and fair value

The principal financial instruments, classified according to the accounting practices adopted by the Company, are:

 

     Level      Jun. 30, 2018     Dec. 31, 2017  
   Book value
(Restated)
    Fair value
(Restated)
    Book value     Fair value  

Assets

           

Amortized cost (1)

           

Cash equivalents – Investments

     2        896,953       896,953       916,762       916,762  

Securities – Investments

     2        67,658       67,658       44,244       44,244  

Customers and Traders; Concession holders (Transport of energy)

     2        3,666,531       3,666,531       4,033,106       4,033,106  

Restricted cash

     2        111,220       111,220       106,227       106,227  

Advances to suppliers

     2        195,681       195,681       122,920       122,920  

Accounts receivable from the State of Minas Gerais

     2        417,363       417,363       342,632       342,632  

Concession financial assets: CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     3        858,761       858,761       369,010       369,010  

Reimbursement of tariff subsidies

     2        85,827       85,827       77,086       77,086  

Low-income subsidy

     2        25,140       25,140       26,660       26,660  

Escrow deposits

     2        2,380,376       2,380,376       2,335,632       2,335,632  

Concession grant fee – Generation concessions

     3        2,371,831       2,371,831       2,337,135       2,337,135  

Accounts receivable – Renova

     2        367,436       367,436       350,200       350,200  

Reimbursement – Decontracting of supply

     2        66,573       66,573       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        11,511,350       11,511,350       11,061,614       11,061,614  

Fair value through profit or loss

           

Securities

           

Bank certificates of deposit

     2        935       935       2,652       2,652  

Treasury Financial Notes (LFTs)

     1        121,124       121,124       739,945       739,945  

Financial Notes – Banks

     2        158,949       158,949       290,004       290,004  

Debentures

     2        3,216       3,216       11,292       11,292  
     

 

 

   

 

 

   

 

 

   

 

 

 
        284,224       284,224       1,043,893       1,043,893  

Concession financial assets – Transmission – Assets remunerated by tariff

     3        552,019       552,019       547,800       547,800  

Derivative financial instruments – Swaps

     3        132,431       132,431       8,649       8,649  

Derivative financial instruments (Ativas and Sonda put options) (2)

     3        3,849       3,849       3,801       3,801  

Concession financial assets – Distribution infrastructure

     3        384,341       384,341       369,762       369,762  

Indemnities receivable – Transmission

     3        1,822,294       1,822,294       1,928,038       1,928,038  

Indemnities receivable – Generation

     3        1,935,220       1,935,220       1,900,757       1,900,757  
     

 

 

   

 

 

   

 

 

   

 

 

 
        5,114,378       5,114,378       5,802,700       5,802,700  
     

 

 

   

 

 

   

 

 

   

 

 

 
        16,625,728       16,625,728       16,864,314       16,864,314  
     

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Amortized cost (1)

           

Loans, financings and debentures

     2        (14,604,054     (14,604,054     (14,397,697     (14,397,697

Debt agreed with pension fund (Forluz)

     2        (686,191     (686,191     (720,498     (720,498

Settlement of deficit of pension fund (FORLUZ)

     2        (380,311     (380,311     (283,291     (283,291

Concession financial assets: CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     3        (23,046     (23,046     (414,800     (414,800

Concessions payable

     3        (18,477     (18,477     (21,227     (21,227

The Minas Gerais State Tax Amnesty Plan (PRCT)

     2        —         —         (282,876     (282,876

Suppliers

     2        (2,152,676     (2,152,676     (2,342,757     (2,342,757

Advances from clients

     2        (150,728     (150,728     (232,762     (232,762
     

 

 

   

 

 

   

 

 

   

 

 

 
        (18,015,483     (18,015,483     (18,695,908     (18,695,908

Fair value through profit or loss

           

Derivative financial instruments – Swaps

     3        (1,214     (1,214     (41,111     (41,111

Derivative financial instruments – RME put options

     2        (569,286     (569,286     (507,232     (507,232

Derivative financial instruments (SAAG put options)

     3        (336,199     (336,199     (311,593     (311,593
     

 

 

   

 

 

   

 

 

   

 

 

 
        (906,699     (906,699     (859,936     (859,936
     

 

 

   

 

 

   

 

 

   

 

 

 
        (18,922,182     (18,922,182     (19,555,844     (19,555,844
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

On Saturday, June 30, 2018 December 31, 2017, the book values of financial instruments were similar to the fair values.

(2)

Options in shares of Sonda in the amount of R$ 3,849, posted in the Company’s Assets due to the merger of Cemig Telecom.

 

 

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In the initial recognition the Company measures its financial assets and liabilities at fair value and classifies them according to the accounting rules currently in effect. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Fair Value Hierarchy aims to increase consistency and comparability: it divides the inputs used in measuring fair value into three broad levels, as follows:

 

Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.

 

Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business considerations.

 

Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, or of derivatives linked to them which are to be settled by delivery of unquoted securities, is determined based on generally accepted valuation techniques, based on discounted cash flow analysis and other valuation techniques, such as new replacement Value (Valor novo de reposição, or VNR).

Fair value calculation of financial positions

Concession financial assets related to Distribution infrastructure and related to Transmission infrastructure – assets remunerated by tariff: measured at New Replacement Value (VNR), according to criteria established in regulations by the Concession grantor (‘Grantor’), based on fair value of the assets in service belonging to the concession and which will be revertible at the end of the concession, and on the Weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig. The movement in Concession financial assets is shown in Note 14.

Indemnities receivable – Transmission: measured at New Replacement Value (Valor Novo de Reposição, or VNR), according to criteria established by the Concession-granting power (‘Grantor’), based on fair value of the assets to be indemnified as a result of acceptance of the terms of Law 12,783/13, and on the weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig.

Indemnities receivable – Generation: measured at New Replacement Value (Valor Novo de Reposição, or VNR), according to criteria established by the concession Grantor, based on the assets fair value to be indemnified by the termination of the concession.

Cash investments: The fair value of cash investments is calculated taking into consideration the market prices of the security, or market information that makes such calculation possible, and future rates in the fixed income and FX markets applicable to similar securities. The market value of the security is deemed to be its maturity value discounted to present value by the discount factor obtained from the market yield curve in Reais.

Put options: The Company adopted the Black-Scholes-Merton method for measuring the fair value of the SAAG, RME, and Sonda options. The fair value of these options was calculated based on the estimated exercise price on the day of exercise of the option, less the fair value of the underlying shares, also estimated for the date of exercise, and brought to present value at the reporting date.

Swap transactions: The fair value of the swap transactions was calculated based on the security market value at the due date brought to present value using the discount factor from the market yield curve in Reais.

Other financial liabilities: The Company has calculated the fair value of its loans, financings and debentures using 147.66% of the CDI rate – based on its most recent borrowings. For those loans, financings and debentures, and for debt renegotiated with Forluz, with annual rates between IPCA + 4.70% to 8.07% and CDI + 1.60% to 4.05%, the Company considered fair value to be substantially equal to book value.

 

 

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  b)

Derivative financial instruments:

Put options

The Company holds options to sell certain securities to it (put options) for which it has calculated the fair value based On the Black and Scholes Merton (BSM) model. This takes the following variables into account: exercise price of the option; closing price of the underlying asset on June 30, 2018; the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

Analytically, calculation of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that the main divergence in the put options takes place in the measurement of the closing price and the volatility of the underlying asset.

On June 30, 2018, the existing options were as follows:

 

Consolidated

   Balance on Jun.
30, 2018
    Balance on Dec.
31, 2017
 

Put option – RME

     569,286       507,232  

Put option – SAAG

     336,199       311,593  

Put / call options – Ativas and Sonda

     (3,849     (3,801
  

 

 

   

 

 

 
     901,636       815,024  
  

 

 

   

 

 

 

Put option – SAAG

Option Contracts were signed between Cemig GT and the private pension entities that participate in the investment structure of SAAG (comprising FIP Melbourne, Parma Participações S.A. and FIP Malbec, jointly, ‘the Investment Structure’), giving those entities the right to sell units in the Funds that comprise the Investment Structure, at the option of the Funds, in the 84th (eighty-fourth) month from June 2014. The exercise price of the Put Options will correspond to the amount invested by each private pension plan in the Investment Structure, updated pro rata temporis by the Expanded National Customer Price (IPCA) index published by the IBGE, plus interest at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option was considered to be a derivative instrument, accounted at fair value through profit or loss.

For measurement of the fair value of SAAG put options Cemig GT uses the Black-Scholes-Merton (‘BSM’) model. The assumption was made that the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they were direct equity interests in Mesa. However, neither SAAG nor Mesa are traded on a securities exchange, so that some assumptions are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price of the share of Mesa on June 30, 2018 is ascertained on the basis of free cash flow to equity holders (FCFE), expressed by equivalence of the indirect interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the electricity generation sector that are traded on the Bovespa.

Based on the studies made, a liability of R$ 336,199 (R$ 311,593 on December 31, 2017) is recorded in the Company’s Interim Financial Information, for the difference between the exercise price and the estimated fair value of the assets.

The changes in the value of the options are as follows:

 

     Consolidated  

Balance at Dec. 31, 2016

     196,173  

Adjustment to fair value

     46,936  

Reversals

     (5,334
  

 

 

 

Balance on June 30, 2017

     237,775  
  

 

 

 

Balance at Dec. 31, 2017

     311,593  

Adjustment to fair value

     24,606  
  

 

 

 

Balance on June 30, 2018

     336,199  
  

 

 

 

 

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Cemig GT has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 5.44% p.a. to 9.44% p.a., and for volatility between 21% and 81% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 306,536 and R$ 391,101, respectively.

Put options of RME

Cemig granted a put option to Fundo de Participações Redentor – which is now a shareholder of Rio Minas Energia Participações S.A. (RME) – the right for Redentor to sell all RME’s shares, originally exercisable in May 2016. The exercise price of the option is calculated based on the sum of the value of the amounts injected by the Fund into the investee, plus the running expenses of the fund, less Interest on Equity, and dividends, distributed by RME.

The exercise price is subject to monetary updating by the CDI (Interbank CD) Rate plus financial remuneration at 0.9% per year.

RME owns common and preferred shares of Light, and currently exercise jointly control, with the Company, over the activities of that investee. Therefore, this option was considered to be a derivative instrument, accounted at fair value through profit or loss.

On November 22, 2017 Cemig signed the First Amendment to the Shareholders’ Agreement of RME – Rio Minas Energia Participações S.A. (‘RME’), with: Banco Santander (Brasil) S.A. (‘Santander’), BV Financeira S.A. – Crédito Financiamento e Investimento (‘BV’ Financeira’) and BB-Banco de Investimento S.A. (‘BB-BI’), (jointly, ‘the Shareholder banks’) to formalize the partial postponement of the date of the Put option granted by Cemig to the Shareholder Banks, the new exercise date being moved from November 30, 2017 to November 30, 2018.

On September 21, 2018 Cemig received Cemig Notices of Intention to Exercise Put Option – in the Third Exercise Window, from RME – Rio Minas Energia Participações S.A. (‘RME’), BB-Banco de Investimento S.A., BV Financeira S.A. Crédito, Financiamento e Investimento, and Banco Santander (Brasil) S.A., (‘the Stockholder Banks’) giving irrevocable and irreversible notice of exercise of the right to sell the totality of their respective holdings, representing a total of 50% of the voting stock and 25% of the total share capital of RME, to be acquired by Cemig or by a third party indicated by Cemig, until November 30, 2018.

Amount of the Company’s exposure

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, for the six-month periods ended June 30, 2018 and 2017, has been as follows:

 

     Consolidated  

Balance at Dec. 31, 2016

     1,149,881  

Variation in fair value

     15,651  

Reversals

     (8,020
  

 

 

 

Balance on June 30, 2017

     1,157,512  
  

 

 

 

Balance at Dec. 31, 2017

     507,232  

Variation in fair value

     62,054  
  

 

 

 

Balance on Jun. 30, 2018

     569,286  
  

 

 

 

In the calculation of the fair value of the option based on the Black-Scholes-Merton analysis, the following variables are taken into account: exercise price of the option; closing price of the share of Light on June 30, 2018 (as a reference for the value of the indirect equity interest held by the direct Shareholders of RME in Light); the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

 

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The Company has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 2.09% to 10.09% p.a., and for volatility between 10.0% and 80.0% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 558,541 and R$ 580,214, respectively.

Sonda options

As part of the shareholding restructuring process, Cemig Telecom and Sonda signed a Purchase Option Agreement (issued by Cemig Telecom) and a Sale Option Agreement (issued by Sonda). Considering the merger of Cemig Telecom into Cemig, occurred on June 30, 2018, the option contract is now between Cemig and Sonda.

These resulted in Cemig simultaneously having a right (put option) and an obligation (call option). The exercise price of the put option will be equivalent to fifteen times the adjusted net income of Ativas in the business year prior to the exercise date. The exercise price of the call option will be equivalent to seventeen times the adjusted net income of Ativas in the business year prior to the exercise date. Both options, if exercised, result in the sale of the shares in Ativas currently owned by the Company, and the exercise of one of the options results in nullity of the other. The options may be exercised as from January 1, 2021.

The put and call options in Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between the fair values of the two options on the reporting date of the interim financial information for June 30, 2018. Depending on the value of the options, the net value of the Ativas Options may be an asset or a liability of the Company.

The measurement has been made using the Black-Scholes-Merton (BSM) model. In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset on June 30, 2018; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

The closing price of the underlying asset was based on the valuation prepared by the same specialized consulting firm responsible for calculating the options. The valuation base date is June 30, 2018, the same date of closing of the Company’s interim financial information, and the methodology used to calculate the Company’s fair value is Discounted Cash Flow (DCF) based on the value of the transaction in shares of Ativas by Sonda, held on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury Bills. The time to maturity was calculated assuming exercise date on June 30, 2021.

Considering that the exercise prices of the options are contingent upon the future financial accounting results of Ativas, the estimate of the exercise prices on the date of maturity was based on statistical analysis and on information of comparable listed companies.

Swap transactions

Considering that part of the loans and financings of the Company’s subsidiaries is denominated in foreign currency, the companies use derivative financial instruments (swap transactions) to protect the servicing associated with these debts (principal plus interest).

The derivative instruments contracted have the purpose of protecting the operations against the risks arising from foreign exchange variation and are not used for speculative purposes.

The amounts of the principal of derivative transactions are not presented in the balance sheet, since they refer to transactions that do not require cash principal payments to be made: only the gains or losses that actually occur are recorded. The net result of these transactions on June 30, 2018 was a positive adjustment of R$ 180,429, recorded in finance income (expenses).

The Company has a Financial Risks Management Committee, created to monitor the financial risks in relation to volatility and trends of inflation indices, exchange rates and interest rates that affect its financial transactions and which could negatively affect its liquidity and profitability. The Committee implements action plans and sets guidelines for proactive control of the financial risks environment.

The counterparties of the derivative transactions are the banks Bradesco, Itaú, Goldman Sachs and BTG Pactual and the Company is guarantor of the derivative instruments contracted by Cemig GT.

 

 

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The table below shows the derivative instruments contracted by Cemig GT as of June 30, 2018 and December 31, 2017.

 

Cemig’s right (1)

   Cemig’s
obligation
   Maturity
period
   Trading
market
   Value of
principal
contracted (2)
     Unrealized gain / loss      Unrealized gain / loss  
   Amount
according to
contract –Jun.
30, 2018
     Fair value –
Jun. 30,
2018
     Amount
according to
contract –
Dec. 31,
2017
     Fair value
– Dec. 31,
2017
 

US$:

FX variation +

Rate (9.25% p.a.)

   In R$:

150.49% of
CDI rate

   From July
2018

to Dec.
2024

   Over-the-counter      US$ 1,000,000        584,388        131,217        50,792        (32,462)  

 

(1)

The full transaction is: Combination of (a) Call Spread on the principal, with a low limit of R$ 3.25 and a high limit of R$ 5.00, and (b) Swap of 100% of the interest, exchanging coupon of 9.25% p.a. (on the US$ amount) for local rate equivalent to 150.49% of the CDI.

(2)

In thousands of US$.

The Company uses a mark-to-market methodology for the derivative financial instruments used to protect the Eurobond, in accordance with market practices. The main indicators to measure the fair value of the swap are the market curves for the DI rate, and dollar future traded in the B3 future market. To price the call spread (options) the Black & Scholes model is used.

The fair value at June 30, 2018 was R$ 131,217, which would be a reference if the Company had settled of the derivative instrument on June 30, 2018; however, the swap contracts protect the Company’s cash flow up to maturity of the bonds in 2024, and have a contractual value of R$ 584,388, on June 30, 2018, underlining the effectiveness of the hedge strategy adopted by the Company.

 

  c)

Risk management

Corporate risk management is a management tool that is an integral part of the Company’s corporate governance practices, and is aligned with the process of planning, which sets the Company’s strategic business objectives.

The Company has a Financial Risks Management Committee, the purpose of which is to implement guidelines and monitor the financial risk of transactions that could negatively affect the Company’s liquidity or profitability, recommending hedge strategies to control the Company’s exposure to foreign exchange rate risk, interest rate risk, and inflation risks.

The principal risks to which the Company and its subsidiaries are exposed are as follows:

Exchange rate risk

Cemig and its subsidiaries are exposed to the risk of increase in exchange rates, with effect on Loans and financings, Suppliers, and cash flow.

The net exposure to exchange rates is as follows:

 

Exposure to exchange rates

   Jun. 30, 2018      Dec. 31, 2017  
   Foreign
currency
     R$      Foreign
currency
     R$  

US dollar

           

Loans and financings (Note 20)

     1,015,140        3,914,177        1,014,535        3,356,082  

Suppliers (Itaipu Binacional)

     71,046        274,236        73,698        240,220  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,086,186        4,188,413        1,088,233        3,596,302  

Euros

           

Loans and financings – Euros (Note 20)

     1,096        4,936        1,105        4,383  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net liabilities exposed

        4,193,349           3,600,685  
     

 

 

       

 

 

 

 

 

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Sensitivity analysis

Based on information from its financial consultants, the Company estimates that in a probable scenario the variation of the exchange rates of foreign currencies in relation to the Real on June 30, 2019 will an appreciation of the dollar by 7.51%, to R$ 3.57/US$, and depreciation of the Euro by 6.67%, to R$ 4.20/€. The Company has made a sensitivity analysis of the effects on the Company’s net income arising from depreciation of the Real exchange rate by 25%, and by 50%, in relation to this ‘probable’ scenario.

 

Risk: foreign exchange rate exposure

   Book value      ‘Probable’ scenario
US$1= R$ 3.57
EUR1= R$ 4.20
    ‘Possible’ scenario
US$1= R$ 4.46
EUR1= R$ 5.25
     ‘Remote’ scenario
US$1= R$ 5.36
EUR1= R$ 6.30
 

US dollar

          

Loans and financings

     3,914,177        3,620,107       4,522,599        5,435,231  

Suppliers (Itaipu Binacional)

     274,236        253,633       316,864        380,805  
  

 

 

    

 

 

   

 

 

    

 

 

 
     4,188,413        3,873,740       4,839,463        5,816,036  
  

 

 

    

 

 

   

 

 

    

 

 

 

Euros

          

Loans and financings

     4,936        4,607       5,759        6,911  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net liabilities exposed

     4,193,349        3,878,347       4,845,222        5,822,947  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net effect of exchange rate variation

        (315,002     651,873        1,629,598  
     

 

 

   

 

 

    

 

 

 

Note that the Company has contracted a swap transaction to replace the exposure to the US dollar with exposure to variation in the CDI Rate, as described in more detail in the item Swap Transactions in this Note.

Interest rate risk

On June 30, 2018 the Company is exposed to the risk of increase in Brazilian domestic interest rates. This exposure occurs as a result of net liabilities indexed to variation in interest rates, as follows:

 

Risk: Exposure to domestic interest rate changes

   Consolidated  
   Jun. 30,
2018

(Restated)
    Dec. 31,
2017
 

Assets

    

Cash equivalents – investments (Note 5)

     896,953       916,762  

Securities (Note 6)

     351,882       1,088,137  

Accounts receivable – Renova (Note 28)

     367,436       350,200  

Advances to suppliers

     195,681       122,920  

Restricted cash

     111,220       106,227  

CVA and Other financial components in tariffs – Selic rate * (Note 14)

     858,761       369,010  

Receivable for residual value – Generation – SELIC (Note 14)

     1,935,220       1,084,346  

Reimbursement – Energy Depletion (Note 28)

     66,573       —    

Credits owed by Eletrobras

     4,216       4,216  
  

 

 

   

 

 

 
     4,787,942       4,041,818  

Liabilities

    

Loans, financings and debentures – CDI rate (Note 20)

     (7,032,299     (7,202,558

Loans, financings and debentures – TJLP (Note 20)

     (105,839     (118,891

Advances from customers – CDI

     (150,728     (188,344

CVA and Other financial components in tariffs – Selic rate (Note 14)

     (23,046     (414,800

Adherence to the Tax Amnesty Program – PRCT (Note 19)

     —         (282,876
  

 

 

   

 

 

 
     (7,311,912     (8,207,469
  

 

 

   

 

 

 

Net liabilities exposed

     (2,523,970     (4,165,651
  

 

 

   

 

 

 

 

(*)

Amounts of CVA and Other financial components indexed by the Selic rate.

 

 

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Sensitivity analysis

In relation to the most significant interest rate risk, the Company and its subsidiaries estimate that, in a probable scenario, on June 30, 2019 the Selic and TJLP rates will be 6.50%. The Company has made a sensitivity analysis of the effects on its net income arising from increases in rates of 25% and 50% in relation to the ‘probable’ scenario. Variation in the CDI rate accompanies the variation in the Selic rate.

Estimation of scenarios for the path of interest rates considers the projections made by the Company and its subsidiaries, based on its financial consultants.

 

Risk: Increase in Brazilian interest rates

(Restated)

   June 30, 2018     June 30, 2019  
   Book value     ‘Probable’
Scenario
Selic 6.50%
TJLP 6.56%
    ‘Possible’
Scenario
Selic 8.13%
TJLP 8.20%
    ‘Remote’
Scenario
Selic 9.75%
TJLP 9.84%
 

Assets

        

Cash equivalents – Short-term investments (Note 5)

     896,953       955,255       969,875       984,406  

Securities (Note 6)

     351,882       374,754       380,490       386,190  

Accounts receivable – Renova (Note 28)

     367,436       391,319       397,309       403,261  

Advances to suppliers

     195,681       208,400       211,590       214,760  

Restricted cash

     111,220       118,449       120,262       122,064  

CVA and Other financial components in tariffs – Selic rate * (Note 14)

     858.761       914.580       928.578       942.490  

Receivable for residual value – Generation – SELIC (Note 14)

     1,935,220       2,061,009       2,092,553       2,123,904  

Reimbursement – Energy Depletion (Note 28)

     66,573       70,900       71,985       73,064  

Credits owed by Eletrobras

     4,216       4,490       4,559       4,627  
  

 

 

   

 

 

   

 

 

   

 

 

 
     4.787.942       5.099.156       5.177.201       5.254.766  

Liabilities

        

Loans, financings and debentures – CDI rate (Note 20)

     (7,032,299     (7,489,398     (7,604,025     (7,717,948

Loans, financings and debentures – TJLP (Note 20)

     (105,839     (112,782     (114,518     (116,254

Advances from customers – CDI

     (150,728     (160,525     (162,982     (165,424

CVA and Other financial components in tariffs – Selic rate (Note 14)

     (23,046     (24,544     (24,920     (25,293
  

 

 

   

 

 

   

 

 

   

 

 

 
     (7,311,912     (7,787,249     (7,906,445     (8,024,919
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities exposed

     (2,523,970     (2,688,093     (2,729,244     (2,770,153
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of variation in interest rates

       (164.123     (205.274     (246.183
    

 

 

   

 

 

   

 

 

 

 

(*)

Amounts of CVA and Other financial components are indexed by the Selic rate.

 

 

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Inflation risk

The Company and its subsidiaries are exposed to the risk of inflation fall due to having more assets than liabilities indexed to the variation of inflation indicators, as follows:

 

Exposure to decrease in inflation

   Jun. 30,
2018
(restated)
    Dec. 31,
2017
 

Assets

    

Concession financial assets related to Distribution infrastructure – IPCA (*)

     114,225       110,832  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (Note 28)

     169,263       107,614  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (AFAC) (Note 11)

     248,100       235,018  

Receivable for residual value – Transmission – IPCA (Note 14)

     1,822,294       1,928,038  

Assets remunerated by tariff – Transmission – IPCA (note 14)

     463,686       496,121  

Concession Grant Fee – IPCA (Note 14)

     2,371,831       2,337,135  
  

 

 

   

 

 

 
     5,189,399       5,214,758  

Liabilities

    

Loans, financings and debentures – IPCA (Note 20)

     (3,627,582     (3,800,889

Debt agreed with pension fund (Forluz) – IPCA

     (686,191     (720,498

Forluz deficit of pension plan

     (380,311     (283,291
  

 

 

   

 

 

 
     (4,694,084     (4,804,678
  

 

 

   

 

 

 

Net assets

     495,315       410,080  
  

 

 

   

 

 

 

 

(*)

Part of the Concession financial assets related to the Regulatory Remuneration Base approved by Aneel after the third tariff review cycle.

Sensitivity analysis

In relation to the most significant risk of decrease in inflation, the Company and its subsidiaries estimate that, in a probable scenario, on June 30, 2019 the IPCA inflation index will be 3.40%. The Company and its subsidiaries have made a sensitivity analysis of the effects on its net income arising from decreases in inflation of 25% and 50% in relation to the ‘probable’ scenario, naming these the ‘possible’ and ‘remote’ scenarios, respectively.

 

Risk: Decrease in inflation (Restated)

   June 30,
2018
    June 30, 2019  
   Book value     ‘Probable’
scenario

IPCA 3.40%
IGP-M 2.84%
    ‘Possible’
scenario (-25%)

IPCA 2.55%
Selic 2.13%
    ‘Remote’
scenario (-50%)

IPCA 1.70%
IGP-M 1.42%
 

Assets

        

Concession financial assets related to Distribution infrastructure – IPCA (*)

     114,225       118,109       117,138       116,167  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (TARD) (Note 28)

     169,263       174,070       172,868       171,667  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (AFAC) (Note 11)

     248,100       255,146       253,385       251,623  

Receivable for residual value – Transmission – IPCA (Note 14)

     1,822,294       1,884,252       1,868,762       1,853,273  

Assets remunerated by tariff – Transmission – IPCA (note 14)

     463,686       479,451       475,510       471,569  

Concession financial assets related to Distribution infrastructure – IPCA (*)(Note 14)

     2,371,831       2,452,473       2,432,313       2,412,152  
  

 

 

   

 

 

   

 

 

   

 

 

 
     5,189,399       5,363,501       5,319,976       5,276,451  

Liabilities

        

Loans, financings and debentures – IPCA

     (3,627,582     (3,750,920     (3,720,085     (3,689,251

Debt agreed with pension fund (Forluz) – IPCA

     (686,191     (709,521     (703,689     (697,856

Forluz deficit of pension plan

     (380,311     (393,242     (390,009     (386,776
  

 

 

   

 

 

   

 

 

   

 

 

 
     (4,694,084     (4,853,683     (4,813,783     (4,773,883
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     495,315       509,818       506,193       502,568  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of variation in IPCA and IGP-M indices

       14,503       10,878       7,253  
    

 

 

   

 

 

   

 

 

 

 

(*)

Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by Aneel after the third tariff review cycle.

 

 

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Liquidity risk

Cemig has sufficient cash flow to cover the cash needs related to its operating activities.

The Company manages liquidity risk with a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in permanent control of the financial processes, to guarantee appropriate risk management.

Cemig manages liquidity risk by permanently monitoring its cash flow in a conservative, budget-oriented manner. Balances are projected monthly, for each one of the companies, over a period of 12 months, and daily liquidity is projected over 180 days.

Short-term investments must comply with certain rigid investing principles established in the Company’s Cash Investment Policy, which was approved by the Financial Risks Management Committee. These include applying its resources in private credit investment funds, without market risk, and investment of the remainder directly in bank CDBs or repo contracts which earn interest at the CDI rate.

In managing cash investments, the Company seeks to obtain profitability through a rigid analysis of financial institutions’ credit, applying operational limits for each bank, based on assessments that take into account their ratings, exposures and balance sheets. It also seeks greater returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s minimum liquidity control requirements.

The greater part of the energy sold by the Company is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing energy, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving energy. Prolongation of generation by thermoelectric plants can pressure costs of acquisition of energy by the distributors, causing a greater need for cash, and can impact future tariff increases – as indeed has happened with the Extraordinary Tariff Review granted to the distributors in March 2015.

Any reduction in the Company’s ratings could result in a reduction of its ability to obtain new financings and could also make refinancings of debts not yet due more difficult or more costly. In this situation, any financing or refinancing of the Company’s debt could have higher interest rates or might require compliance with more onerous covenants, which could additionally cause restrictions to the operations of the business.

The flow of payments of the Company’s obligations to suppliers, for debts agreed with the pension fund, loans, financings and debentures, at floating and fixed rates, including future interest up to contractual maturity dates, is shown in this table:

 

Consolidated

   Up to 1
month
     1 to 3
months
     3 months
to 1 year
     1 to 5
years
     Over 5
years
     Total  

Financial instruments at (interest rates):

                 

- Floating rates

                 

Loans, financings and debentures

     576,104        85,419        2,961,696        11,146,811        5,894,630        20,664,660  

Concessions payable

     203        401        1,766        8,087        14,255        24,712  

Debt agreed with pension plan (Forluz) (Note 22)

     11,414        22,873        104,626        620,770        175,120        934,803  

Solution plan for deficit of the Pension Plan (Forluz) (Note 22)

     3,498        7,024        32,084        190,186        522,425        755,217  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     591,219        115,717        3,100,172        11,965,854        6,606,430        22,379,392  

- Fixed rate

                 

Suppliers

     1,986,049        151,075        15,552        —          —          2,152,676  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,577,268        266,792        3,115,724        11,965,854        6,606,430        24,532,068  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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Holding company

   Up to 1
month
     1 to 3
months
     3 months
to 1 year
     1 to 5
years
     Over 5
years
     Total  

Financial instruments at (interest rates):

                 

- Floating rates

                 

Loans, financings and debentures

     2,010        3,994        13,530        55,038        —          74,572  

Debt agreed with pension plan (Forluz) (Note 22)

     562        1,125        5,148        30,542        8,616        45,993  

Solution plan for deficit of the Pension Plan (Forluz) (Note 22)

     172        346        1,579        9,357        25,703        37,157  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,744        5,465        20,257        94,937        34,319        157,722  

- Fixed rate

                 

Suppliers

     8,812        —          —          —          —          8,812  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     11,556        5,465        20,257        94,937        34,319        166,534  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit risk

The distribution concession contract requires levels of service on a very wide basis within the concession area, and disconnection of supply of defaulting customers is permitted. Additionally, the Company used numerous tools of communication and collection to avoid increase in default. These include: telephone contact, emails, text messages, collection letters, posting of clients with credit protection companies, and collection through the courts.

The risk arising from the possibility of Cemig and its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to its customers is considered to be low. The credit risk is also reduced by the extremely wide customer’s base.

The allowance for doubtful debtors constituted on June 30, 2018, considered to be adequate in relation to the credits in arrears receivable by the Company and its subsidiaries, was R$ 731,587.

In relation to the risk of losses resulting from declaration of insolvency of a financial institutions at which the Company has deposits, a Cash Investment Policy was approved and has been in effect since 2004, and is reviewed annually.

Cemig manages the counterparty risk of financial institutions based on an internal policy approved by its Financial Risks Management Committee.

This Policy assesses and scales the credit risks of the institutions, the liquidity risk, the market risk of the investment portfolio and the Treasury operational risk.

All investments are made in financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company does not carry out any transactions that would incorporate volatility risk into its interim financial information.

As a management instrument, Cemig divides the investment of its funds into direct purchases of securities (own portfolio) and investment funds. The investment funds invest the funds exclusively in fixed income products, and companies of the Group are the only unit holders. They obey the same policy adopted in the investments for the Company’s directly-held own portfolio.

The minimum requirements for concession of credit to financial institutions are centered on three items:

 

  1.

Rating by three risk rating agencies.

 

  2.

Equity greater than R$ 400 million.

 

  3.

Basel ratio one percentage point above the minimum set by the Brazilian Central Bank.

 

 

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Banks that exceed these thresholds are classified in three groups, by the value of their equity. Within this classification, limits of concentration by group and by institution are set:

 

Group

   Equity    Concentration    Limit per bank
(% of shareholders’ equity)*

A1

   Over R$ 3.5 billion    Minimum 80%    Between 6% and 9%

A2

   R$ 1.0 billion to R$ 3.5 billion    Maximum 20%    Between 5% and 8%

B

   R$ 400 million to R$ 1.0 billion    Maximum 20%    Between 5% and 7%

 

(*)

The percentage assigned to each bank depends on individual assessment of indicators, e.g. liquidity and quality of the credit portfolio.

Further to these points, Cemig also sets two concentration limits:

 

  1.

No bank may have more than 30% of the Group’s portfolio.

 

  2.

No bank may have more than 50% of the portfolio of any individual company.

Risk of over-contracting and under-contracting of energy supply

Sale or purchase of power supply in the spot market to cover a positive or negative exposure of supply contracted, to serve the captive market of Cemig D, is a risk inherent to the energy distribution business.

The regulatory limit for 100% pass-through to customers of exposure to the spot market, valued at the difference between the distributor’s average purchase price and the spot price (PLD), is only the margin between 95% and 105% of the distributor’s contracted supply.

Any exposure that can be proved to have arisen from factors outside the distributor’s control (‘involuntary exposure’) may also be passed through in full to customers.

The Company’s Management is continually managing its contracts for purchase of power supply to mitigate the risk of exposure to the spot market.

Risk of continuity of the concession

The risk to continuity of the distribution concession arises from the new terms included in the extension of Cemig D’s concession for 30 years from January 1, 2016, as specified by Law 12,783/13. The extension brought changes to the contract. Under the new contract, continuity of the concession is conditional upon compliance by the Distributor with new criteria for quality and economic-financial sustainability.

The extension is conditional on compliance with indicators contained in the contract itself, which aim to guarantee quality of the service provided and economic and financial sustainability of the company. These are determinant for actual continuation of the concession in the first five years of the contract, since non-compliance with them in two consecutive years, or in the fifth year, results in cancellation of the concession.

Additionally, as from 2021, non-compliance with the quality criteria for three consecutive years, or with the minimum parameters for economic/financial sustainability for two consecutive years, results in opening of proceedings with a view to termination of the distribution concession.

Hydrological risk

The greater part of the energy sold by the Company’s subsidiaries is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing electricity, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving of electricity. Prolongation of the generation of energy using the thermal plants potentially could lead to cost increases for the energy distributors, causing a greater need for cash, and could result in future increases in tariffs.

 

 

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Risk of early maturity of debt

The Company’s subsidiaries have loan contracts with restrictive covenants normally applicable to this type of transaction, related to compliance with a financial index. Non-compliance with these covenants could result in earlier maturity of debts. For more details please see Note 20.

Capital management

This table shows comparisons of the Company’s consolidated net liabilities and its Equity:

 

     Consolidated     Holding company  
   Jun. 30, 2018
(Restated)
    Dec. 31, 2017     Jun. 30, 2018
(Restated)
    Dec. 31, 2017  

Total liabilities

     27,009,823       27,909,453       1,705,041       1,522,956  

(–) Cash and cash equivalents

     (940,937     (1,030,257     (63,045     (38,672

(–) Restricted cash

     (111,220     (106,227     (90,663     (87,872
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities

     25,957,666       26,772,969       1,551,333       1,396,412  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     14,728,303       14,330,136       14,726,206       14,325,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities / equity

     1.76       1.87       0.11       0.10  

 

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30.

ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS

On May 25, 2018 Cemig published Tender Announcement 500-Y12121 for disposal of certain telecom assets that were absorbed in the merger of Cemig Telecomunicações on March 31, 2018.

The assets that were the subject of the tender are a group of the Company’s infrastructure assets and contractual positions in relation to service contracts. They were separated into two lots which were sold based on the best economic proposal for each lot, with minimum auction prices set for each one of the lots, based on formal valuation of the assets – these prices were R$ 335,070 for Lot 1, and R$ 32,473 for Lot 2.

The winning bid for Lot 1, presented by American Tower do Brasil – Comunicação Multimídia Ltda., was for R$ 575,906, i.e. 71.87% above the minimum sale value specified in the Tender Announcement. The winning bid for Lot 2, presented by Algar Soluções em TIC S.A., was for R$ 78,555, or 141.05% above the minimum sale value specified in the Tender Announcement.

On August 24, 2018 Cemig signed Asset Sale Agreements with American Tower do Brasil – Comunicação Multimídia Ltda., winner of Lot 1, and with Algar Soluções em TIC S.A., winner of Lot 2.

On November 1, 2018, sale transactions were completed, after the prior conditions stated in the Tender – including approval by the monopolies authority, CADE – had been complied with.

Thus, for the preparation of the interim financial information in the six-month period ended June 30, 2018 the Company understands that the telecom assets in the Tender comply with the classification requirements of Pronouncement CPC 31 – Non-current assets held for sale, and discontinued operations, and are thus presented separately in the balance sheet, with measurement based on book value, since in both cases book value is lower than fair value less the sales expenses.

The composition of the assets of the associated liabilities is as follows:

 

     Consolidated     Holding
company
 
     Jun. 30, 2018     Jun. 30, 2018  

ASSETS

    

Assets

    

Accounts receivable

     840       840  

Inventories

     7,160       7,160  

PP&E and Intangible

     262,705       262,705  

Other current assets – Non-current

     10,873       10,873  
  

 

 

   

 

 

 

Total assets

     281,578       281,578  
  

 

 

   

 

 

 

LIABILITIES

    

Liabilities directly related to assets held for sale

    

Other non-current liabilities

     (5,160     (5,160

Deferred income tax and Social Contribution tax

     (745     (745
  

 

 

   

 

 

 

Total liabilities

     (5,905     (5,905
  

 

 

   

 

 

 

As a result of the classification as held for sale, depreciation of these assets was terminated, and the revenues, costs and expenses resulting from these assets is presented in the Statement of income in a single amount as discontinued operation, separately from the result of the going concern operations.

 

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This table shows the revenues, costs and expenses arising from the discontinued operations, related to the assets classified as held for sale, on June 30, 2018:

 

     Consolidated     Holding
company
 
     Jan to Jun
2018
    Jan to
Jun 2018
 

Results of discontinued operations

    

Operating revenues

    

Other operating revenues

    

Telecoms services

     90,099       45,325  

Leasing and Rentals

     3,389       1,690  

Other operating revenues

     509       7  
  

 

 

   

 

 

 
     93,997       47,022  
  

 

 

   

 

 

 

Deductions from operational revenue

    

PIS, Pasep and Cofins taxes

     (3,424     (1,775

ICMS tax

     (18,649     (8,858

Others

     (1,032     (522
  

 

 

   

 

 

 
     (23,105     (11,155
  

 

 

   

 

 

 
     70,892       35,867  
  

 

 

   

 

 

 

Operating expenses

    

Outsourced services

     (12,801     (7,853

Depreciation and amortization

     (14,500     (6,115

Other operating expenses, net

     (11,720     (4,944
  

 

 

   

 

 

 
     (39,021     (18,912
  

 

 

   

 

 

 

Finance income

     511       254  

Income and Social Contribution tax

    

Current income tax and Social Contribution tax

     (1,195     (109

Deferred income tax and Social Contribution tax

     (9,815     (5,742
  

 

 

   

 

 

 
     (11,010     (5,851
  

 

 

   

 

 

 

Net income

     21,372       11,358  
  

 

 

   

 

 

 

The cash flows of the discontinued operations, related to the assets classified as held for sale, on June 30, 2018, are as follows:

 

     Consolidated     Holding
company
 
     Jan to Jun
2018
    Jan to
Jun 2018
 

Cash flow from discontinued operations

    

Net cash flow from operations

     36,602       18,944  

Cash flow from investment activities

     (7,631     —    
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     28,971       18,944  
  

 

 

   

 

 

 

The amounts of results and cash flows of the holding company are different from the consolidated amounts due to the merger of Cemig Telecom, on March, 31, 2018. For more details please see Note 1.

The assets classified as held for sale and the results of the discontinued operations are presented in Note 31 as Telecom segment.

 

31.

OPERATING SEGMENTS

The operating segments of the Company and its subsidiaries reflect their management and their organizational structure, used to monitoring its results and are aligned with the regulatory framework of the Brazilian electricity sector, with different legislation for the sectors of generation and transmission of energy.

 

 

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The Company also operates in the markets of gas and telecommunications, through its subsidiaries Gasmig and Cemig Telecom (see Note 1), and other businesses which are not material to its operations results. These segments are reflected in the Company’s management, organizational structure, and monitoring of results.

The information by segment relating to the period ending on June 30, 2018 and 2017 is shown below in a consolidated manner:

 

INFORMATION BY SEGMENT ON JUNE 30, 2018 (Restated)

 
     ELECTRICITY     GAS     TELECOMS
(1)
    OTHER     ELIMINATIONS     TOTAL
(Restated)
 
     GENERATION     TRANSMISSION     DISTRIBUTION
(Restated)
 

SEGMENT ASSETS

     14,368,687       3,811,813       19,790,695       1,812,803       311,017       1,689,160       (46,049     41,738,126  

INVESTMENT IN AFFILIATES AND JOINTLY-CONTROLLED ENTITIES

     4,709,952       1,130,140       1,838,752       —         —         24,708       —         7,703,552  

ADDITIONS TO THE SEGMENT

     170,045       —         361,492       20,969       7,631       1,016       —         561,153  

ADDITIONS TO FINANCIAL ASSETS

     —         4,732       —         —         —         —         —         4,732  

GOING CONCERN

                

NET REVENUE

     3,038,039       326,689       6,528,045       730,704       —         65,045       (146,553     10,541,969  

COST OF ENERGY AND GAS

                

Energy purchased for resale

     (1,705,024     —         (3,412,396     —         —         (3     34,825       (5,082,598

Charges for use of the national grid

     (126,922     —         (780,585     —         —         —         98,927       (808,580

Gas purchased for resale

     —         —         —         (556,459     —         —         —         (556,459
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operational costs, total

     (1,831,946     —         (4,192,981     (556,459     —         (3     133,752       (6,447,637

OPERATING COSTS AND EXPENSES

                

Personnel

     (114,985     (52,575     (460,306     (24,147     (9,893     (18,334     —         (680,240

Employees’ and managers’ Profit sharing

     (2,901     (1,577     (12,674     —         351       (5,926     —         (22,727

Post-retirement obligation

     (23,053     (13,317     (112,669     —         —         (20,358     —         (169,397

Materials

     (3,436     (1,727     (26,875     (854     (709     (115     10       (33,706

Outsourced services

     (49,049     (18,880     (410,579     (8,275     (2,878     (9,123     8,438       (490,346

Depreciation and amortization

     (81,980     —         (292,240     (36,142     (704     (234     —         (411,300

Operating provisions (reversals)

     (36,369     (3,962     (148,588     —         (213     (78,187     —         (267,319

Construction costs

     —         (4,732     (361,492     (17,419     —         —         —         (383,643

Other operating expenses, net

     (23,434     (7,800     (110,686     (5,674     (1,991     (6,375     4,353       (151,607
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operation

     (335,207     (104,570     (1,936,109     (92,511     (16,037     (138,652     12,801       (2,610,285
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING COSTS AND EXPENSES

     (2,167,153     (104,570     (6,129,090     (648,970     (16,037     (138,655     146,553       (9,057,922

Share of (loss) profit, net, of associates and joint ventures

     (140,412     102,474       16,743       —         (763     (4,275     —         (26,233
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME BEFORE FINANCE INCOME (EXPENSES) AND TAXES

     730,474       324,593       415,698       81,734       (16,800     (77,885     —         1,457,814  

Finance income

     244,465       14,640       182,241       27,825       780       21,218       —         491,169  

Finance expenses

     (1,006,540     (2,343     (312,299     (19,984     (2,861     (1,774     —         (1,345,801
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX

     (31,601     336,890       285,640       89,575       (18,881     (58,441     —         603,182  

Income and Social Contribution taxes

     (22,990     (61,996     (91,241     (27,954     5,769       27,567       —         (170,845
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

RESULT OF GOING CONCERN OPERATIONS

     (54,591     274,894       194,399       61,621       (13,112     (30,874     —         432,337  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DISCONTINUED OPERATIONS

                

Income for the period from discontinued operations (Note 30)

     —         —         —         —         21,372       —         —         21,372  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

     (54,591     274,894       194,399       61,621       8,260       (30,874     —         453,709  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the parent

     (54,591     274,894       194,399       61,323       8,260       (30,874     —         453,411  

Non-controlling interests

     —         —         —         298       —         —         —         298  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (54,591     274,894       194,399       61,621       8,260       (30,874     —         453,709  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

As stated in Note 30, certain telecommunications assets were classified as held for sale. The revenues and expenses of the telecommunications segment resulting from continued operations continue to be recognized in the statement of income of the telecoms segment.

 

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INFORMATION BY SEGMENT ON JUNE 30, 2017

 
     ELECTRICITY     GAS     TELECOMS     OTHER     ELIMINATIONS     TOTAL  
     GENERATION     TRANSMISSION     DISTRIBUTION  

SEGMENT ASSETS

     20,025,471       2,739,099       16,525,323       2,098,567       350,555       2,720,320       (2,519,536     41,939,799  

INVESTMENT IN AFFILIATES AND JOINTLY-CONTROLLED ENTITIES

     8,030,138       —         —         —         —         18,252       —         8,048,390  

ADDITIONS TO THE SEGMENT

     196,558       —         421,112       26,689       21,368       —         —         665,727  

ADDITIONS TO FINANCIAL ASSETS

     —         156,280       —         —         —         —         —         156,280  

NET REVENUE

     3,305,994       449,145       5,619,766       663,318       57,721       54,778       (132,763     10,017,959  

COST OF ENERGY AND GAS

                

Energy purchased for resale

     (1,721,290     —         (3,054,465     —         —         (9     33,346       (4,742,418

Charges for use of the national grid

     (168,552     166       (314,264     —         —         —         78,389       (404,261

Gas purchased for resale

     —         —         —         (485,163     —         —         —         (485,163
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operational costs, total

     (1,889,842     166       (3,368,729     (485,163     —         (9     111,735       (5,631,842

OPERATING COSTS AND EXPENSES

                

Personnel

     (154,656     (58,470     (643,937     (25,239     (9,846     (25,014     —         (917,162

Employees’ and managers’ net income shares

     (4,136     (1,821     (17,640     —         (315     (979     —         (24,891

Post-retirement obligation

     (28,068     (12,684     (131,804     —         —         (19,472     —         (192,028

Materials

     (4,749     (1,323     (20,053     (888     (66     (84     55       (27,108

Outsourced services

     (65,918     (13,863     (360,937     (7,504     (14,675     (3,809     19,942       (446,764

Depreciation and amortization

     (102,917     —         (263,051     (27,571     (17,008     (253       (410,800

Operating provisions (reversals)

     (57,000     (4,426     (293,044     —         (137     (15,311     —         (369,918

Construction costs

     —         (7,025     (421,112     (12,897     —         —         —         (441,034

Other operating expenses, net

     (44,069     (3,773     (139,118     (4,026     (11,505     (29,483     44,520       (187,454
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operation

     (461,513     (103,385     (2,290,696     (78,125     (53,552     (94,405     64,517       (3,017,159
                

OPERATING COSTS AND EXPENSES

     (2,351,355     (103,219     (5,659,425     (563,288     (53,552     (94,414     176,252       (8,649,001

Share of (loss) profit, net, of associates and joint ventures

     182,054       —         —         —         (1,492     —         (120,444     60,118  

OPERATING INCOME BEFORE FINANCE INCOME (EXPENSES) AND TAXES

     1,136,693       345,926       (39,659     100,030       2,677       (39,636     (76,955     1,429,076  

Finance income

     89,161       3,605       205,427       12,832       921       36,955       —         348,901  

Finance expenses

     (617,297     (1,223     (433,533     (21,534     (7,648     (1,966     —         (1,083,201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX

     608,557       348,308       (267,765     91,328       (4,050     (4,647     (76,955     694,776  

Income and Social Contribution taxes

     (154,767     (106,991     76,670       (28,586     807       (1,061     —         (213,928
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

     453,790       241,317       (191,095     62,742       (3,243     (5,708     (76,955     480,848  

Equity holders of the parent

     453,790       241,317       (191,095     62,472       (3,243     (5,708     (76,955     480,578  

Non-controlling interests

     —         —         —         270       —         —         —         270  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     453,790       241,317       (191,095     62,742       (3,243     (5,708     (76,955     480,848  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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32.

THE ANNUAL TARIFF ADJUSTMENT AND TARIFF REVIEW OF CEMIG D

On May 28, 2018 Aneel confirmed the result of the Fourth Tariff Review of Cemig D. The result of the Tariff Review was a tariff increase of 23.19%. It is worth noting that the percentage increase relating to Cemig D’s manageable (‘Portion B’) costs was 4.30%. The remaining portion, of 18.89%, has a null economic effect for Cemig D – i.e. does not affect its profitability – since it consists of direct pass-throughs to the tariff of the following items of increased costs: (i) increase of 9.00% in non-manageable (‘Portion A’) costs – mainly purchase of power supply and transmission charges; and (ii) increase of 9.89% in the item ‘Other financial components of the tariff’.

The increase is in effect from May 28, 2018 to May 27, 2019.

 

33.

NON-CASH TRANSACTIONS

In the half-year periods ended June 30, 2018 and 2017, the subsidiaries made the following transactions not involving cash, which are not reflected in the Cash flow statements:

 

 

Capitalized borrowing costs of R$ 16,392 in the six-month period ended june 30, 2018 (R$ 40,399 in the six-month period ended june 30, 2017);

 

 

Except for the balance of cash and equivalents received in the merged of Cemig Telecom, in the amount of R$ 428, in the period ended June 30, 2018 the remaining balances merged have no effect on the Company’s cash flow.

 

34.

SUBSEQUENT EVENTS

Advance payment for future energy supply

On July 10 and August 8 of 2018 the amounts of R$ 26,300 and R$ 25,800, respectively, were advanced by Cemig GT to the jointly controlled subsidiary Renova, for energy supply invoices becoming due in the period from June to November 2019. These advances are adjusted to present value at a rate of 155% of the CDI Rate (Interbank Rate for Certificates of Deposit or Certificados de Depósito Inter-bancário – CDIs).

Additional Eurobond issue

On July 18, 2018, the Company completed the financial settlement of an additional tranche to its initial Eurobond issuance completed on December 5, 2017, in the amount of US$ 500 million, corresponding to R$ 1.9 billion. The issue has six-monthly coupon of 9.25% p.a., with maturity of the principal in December, 2024.

Concomitantly with the settlement a hedge transaction was contracted, for the whole period of the issue, comprising: a call spread on the principal, in which Cemig GT is protected over the interval between R$ 3.85/US$ and R$ 5.00/US$; and a swap for 100% of the interest, exchanging the 9.25% annual coupon in US$ for a rate equivalent to 125.52% of the CDI rate.

Payment of debentures

On July 16, 2018, Cemig GT amortized the first and second series of its 6th debenture issue, in the amount of R$ 533 million.

On July 27, 2018, with the additional tranche of the Eurobond issue, Cemig GT made early settlement of R$ 385 million, or 25%, of the balance of the nominal unit value of its 7th issue of non-convertible debentures, of which the cost was 140% of the CDI rate with original maturity on December 23, 2021.

Suspension of supply of power by Renova

On August 3, 2018 the Company signed the seventh amendment to the contract for purchase of wind power with the jointly controlled subsidiary Renova, suspending the supply of incentive-bearing wind energy for the period from July through December 2018, and defining the calculation of possible financial compensations to the Company, which will be recognized in the statement of income of the second half of 2018, in accordance with the proper accounting period, with settlement contractually specified for January 10, 2019.

 

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Taking into account this suspension of supply, the advances of payment made to Renova for the period from July through December 2018, in the total amount of R$ 55,880, were the subject of a Debt Recognition Agreement (‘TARD’) signed on August 3, 2018, which specifies repayment of the amount in question in a single payment, updated at 155% of the CDI rate, on January 10, 2019.

Capital increase in Madeira Energia S.A.

On August 28, 2018 an Extraordinary General Meeting of Shareholders approved an increase in the capital of Mesa of up to R$ 972,512. Simultaneously the shareholders Furnas Centrais Elétricas S.A., Odebrecht Energia do Brasil S.A. and Caixa Fundo de Investimento em Participações Amazônia Energia subscribed and paid up in full the credits that they hold against Mesa, in a total of R$ 754,669, such that an amount of capital equal to R$ 217,843 remained, referring to the subscription right of the Company and of its indirect affiliate SAAG Investimento S.A.

On October 2, 2018, since Cemig GT and SAAG had not exercised their right to subscribe in the said capital increase, the shareholder Furnas Centrais Elétricas S.A. subscribed these remaining shares, paying them up in part in the amount of R$ 85,000. On the same date the Board of Directors of Mesa partially ratified the capital increase approved on August 28, 2018, in the amount of R$ 839,670. The total of funds subscribed will be allocated in full to subscription of shares in Santo Antônio Energia S.A. With the homologation of the increase, the share capital of Mesa was increased to R$ 10,386,341, and the Company then held a direct equity interest of 8.44% and an indirect equity interest of 6.86%.

In EGM held on October 3, 2018, a further capital increase in Mesa of up to R$ 300,000 was approved. On that date Cemig GT, SAAG and Furnas Centrais Elétricas S.A. subscribed shares in the amount of R$ 25,320, R$ 26,068 and R$ 124,620, respectively, paid up in full on October 5, 2018. The other shareholders, thus did not exercise their right of first refusal in the capital increase that had been approved, the period for which expired on November 3, 2018. Thus, after homologation of this increase, the share capital of Mesa was R$ 10,562,350, and the Company’s direct and indirect equity interests in Mesa are now 8.63% and 7.05%, respectively.

ICMS – advance payment

On September 14, 2018 the State of Minas Gerais issued Decree 47488 ordering that payments of ICMS tax relating to November and December 2018 should be paid on September 20, 2018. The ICMS tax paid, in the amount of R$ 697,360 from Cemig D and R$ 55,854 from Cemig GT, is being updated at the Selic rate until the date of payment of the remaining balance, based on payment of 75% of the amount paid by Cemig D and Cemig GT in August 2018. The balance of the actual amount calculated as becoming due for the months of November and December 2018 will be paid by December 7, 2018 and January 8, 2019, respectively.

Loans with related parties

On September 18, 2018 a loan agreement was signed between Cemig GT (lender) and Cemig (borrower), for R$ 400,000, to be settled in a single payment in December 2019, with addition of interest at 125.52% of the CDI rate. As guarantee, Cemig signed a promissory note in the global amount of R$ 442,258, corresponding to the amount of the debt plus the estimated interest for the 15-month period of the agreement.

In the same period Cemig GT (lender) and Cemig D (borrower) also signed a loan agreement for R$ 630,000, to be settled in two payments becoming due in November and December 2018, plus interest at 125.52% of the CDI rate, p.a. As guarantee, Cemig D signed a promissory note in the global amount of R$ 639,110, corresponding to the amount of the debt plus the estimated interest for the period of the agreement.

 

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Eurobonds – Payment limit temporary exceeded

On October 10, 2018 Cemig’s wholly-owned subsidiary Cemig GT, in the scope of its Eurobond issuance, notified the issuer’s trustee that the permitted threshold level of investments by Cemig GT under the issue’s Limitation on Restricted Payments clause has, exceptionally, been momentarily exceeded, and that this excess would be reversed within the cure period established in the Issue Deed.

The situation is due to a loan made by Cemig GT to Cemig D on September 18, 2018.

On November 20, 2018 Cemig GT received payment of R$ 486 million, the first installment of principal and interest on its loan. Therefore, Cemig GT is once again compliant with the ‘Limitation on Restricted Payments’ clause in its Eurobond issue.

Debt prepayment

On November 6, 2018 Cemig GT has repurchased 24,565 debentures of its Fifth Issue – in the amount of R$ 132 million, in order to reduce debt, increase profitability and enhance its credit quality. These debentures were cancelled in CETIP.

Cancellation of public offer of shares issued by Light and sale of shares held by RME in this investee

On November 26, 2018 the stockholders of the controlling stockholding block of Light – namely: Companhia Energética de Minas Gerais – Cemig, Rio Minas Energia Participações S.A. (‘RME’) and Luce Empreendimentos e Participações S.A. (Lepsa) – considered that the terms and conditions proposed for the anchoring do not meet the interests of the Company and its shareholders, taking into account, among other factors, the present conditions of the market.

Therefore, on November 27, 2018, the Company and its jointly-controlled entity reported to the market the cancellation of public offer of shares issued by Light, and, on the same date, in the context of the exercise of the Put Option for shares in Rio Minas Energia Participações S.A. (‘RME’) described in note 29, RME sold 4,350,000 shares, representing 2.13% of the share capital of Light, for a total amount of R$ 64.5 million. With this sale, the aggregate of the equity holdings in Light of Cemig, RME and Luce Empreendimentos e Participações S.A. now totals 49.99%.

 

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CONSOLIDATED RESULTS

(Thousands of Brazilian Reais – R$ except where otherwise indicated)

Net income (loss) for the period

On the first half of 2018 (‘1H18’) Cemig reports net income of R$ 453,709, which compares with its net income of R$ 480,848 in first half 2017 (‘1H17’). The following notes describe the main variations between the two periods in revenues, costs, expenses and financial items.

A significant effect on the net income for 1H18 was a non-operational net expense of R$ 367,371, from the effect of exchange rate variation on the debt raised (in the Eurobond issue) in December 2017 – partially offset by gains under the swap transaction made by the Company to replace: (a) for the purposes of payment of the interest on the Eurobonds, variation in the US dollar plus 9.25% p.a. by 150.49% of the Brazilian domestic CDI rate, and (b) for the principal, a hedge against variation in the US dollar exchange rate between a floor of R$ 3.25 and a ceiling of R$ 5.00 – in this case the value the Company will pay at maturity will be will be the floor value. This effect results from the instability of the macroeconomic scenario in the first half of 2018, with increased expectations for future variations in the CDI and Foreign exchange variations – the main variables for calculation of fair value of financial instruments.

Ebitda (earnings before interest, tax, depreciation and amortization)

Cemig’s consolidated Ebitda in 1H18 was slightly (2.75%) above its Ebitda of 1H17. The most significant factors in this variation are set out below. Ebitda margin was lower, at 17.93%, in 1Q18, than in 1Q17 – when it was 18.37%.

 

Ebitda – R$ ‘000

   Jan to Jun
2018
     Jan to Jun
2017
     Change,%  

Net income for the period

     453,709        480,848        (5.64

+ Income tax and Social Contribution tax

     170,845        213,928        (20.14

+ Finance income (expenses)

     854,632        734,300        16.39  

+ Depreciation and amortization

     411,300        410,800        0.12  
  

 

 

    

 

 

    

 

 

 

= Ebitda

     1,890,486        1,839,876        2.75  
  

 

 

    

 

 

    

 

 

 

 

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Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net Finance income (expenses), Depreciation and amortization, and Income tax and Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for Net income or operating income, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

 

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Revenue from supply of energy

Total revenue from supply of energy in 1H18 totaled R$ 11,236,009, compared to R$ 11,572,133 in 1H17, 2.90% lower period-on-period.

Final customers

Total revenue from supply of energy to final customers, excluding Cemig’s own consumption, was R$ 9,842,323 in 1H18 – this was 2.98% lower than the figure for 1H17, of R$ 10,144,523.

The main factors for this reduction were:

 

 

The annual tariff adjustment for Cemig D effective May 28, 2017 (full effect in 2018) with average downward effect on customer tariffs of 10.66%.

 

 

The annual tariff adjustment for Cemig D effective May 28, 2018, with an average positive effect on customer tariffs of 23.19%.

 

 

Volume of energy sold to final customers 1.68% higher.

Cemig’s electricity market

The total for sales at Cemig’s consolidated electricity market comprises sales to: (i) Captive customers in Cemig’s concession area in the State of Minas Gerais; (ii) Free customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL); (iii) Other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market; (iv) Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and (v) The Wholesale Power Exchange (Câmara de Comercialização de Energia Elétrica – CCEE), eliminating transactions between companies of the Cemig Group.

The table below describe Cemig’s market and the change in the sale of energy by category of customers, comparing 1H18 with 1H17:

 

     MWh  
     Jan to Jun
2018
     Jan to Jun
2017
     Change,%  

Residential

     5,150,879        5,033,072        2.34  

Industrial

     8,552,810        8,704,150        (1.74

Commercial, Services and Others

     4,198,424        3,804,836        10.34  

Rural

     1,720,268        1,752,185        (1.82

Public authorities

     434,389        436,654        (0.52

Public lighting

     688,807        675,900        1.91  

Public services

     653,232        639,342        2.17  
  

 

 

    

 

 

    

 

 

 

Subtotal

     21,398,809        21,046,139        1.68  
  

 

 

    

 

 

    

 

 

 

Own consumption

     23,481        18,050        30.09  
  

 

 

    

 

 

    

 

 

 
     21,422,290        21,064,189        1.70  
  

 

 

    

 

 

    

 

 

 

Wholesale supply to other concession holders (1)

     5,607,369        5,740,378        (2.32
  

 

 

    

 

 

    

 

 

 

Total

     27,029,659        26,804,567        0.84  
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

 

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We highlight the volume of energy sold to the industrial customer category, which was 1.74% lower, basically due to three factors: (a) disconnections of customer units; (b) customers leaving the status of captive customer to become customers in the Free Market; and (c) reduction of consumption due to the truck drivers’ strike, which took place at the end of May 2018.

The volume sold to the rural customer category was also down 1.82% period-on-period, due to the higher rainfall in 1H18, resulting in less use of energy for irrigation.

On the other hand, sales were higher in three other categories: 10.34% higher in the commercial category; 2.34% higher in the residential customer category; 1.91% higher in public lighting category; and 2.17% higher in public services category – basically due to addition of new customers units.

Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free Customers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD) on the volume of energy distributed. In 1H18 this revenue totaled R$ 814,340, compared to R$ 900,476 in 1H17 – a period-on-period reduction of 9.57%, mainly due to the following factors:

 

 

reduction of approximately 40% in the TUSD, which took place in the Cemig D’s 2017 annual tariff adjustment, applied as from May 28, 2017 (full effect in 2018);

 

 

increase of approximately 36% in the TUSD, which took place in the Cemig D’s 2018 annual tariff adjustment, applied as from May 28, 2018; and

 

 

volume of energy transported 11.08% higher, due to a higher level of activity by industrial customers, mainly related to the ferro-alloys sector.

CVA and Other financial components in tariff adjustment

In its interim financial information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and energy purchased for resale, are significant components) and the costs that were used in calculating tariffs. The amount of this difference is passed through to the clients in Cemig D’s next tariff adjustment. In 1H18 this represented a net gain in revenue of R$ 1,150,672, whereas 1H17 it produced a reduction of R$ 331,896. The difference in this case is mainly due to the increase in costs of energy in 2018, in relation to tariff coverage, and in comparison to the previous period, generating a financial asset to be reimbursed to the Company through the next tariff adjustment.

For more details please see Note 14 of this interim financial information.

Transmission concession revenue

Cemig GT’s revenue from transmission comprises the sum of the revenues from all the transmission assets. The concession contracts establish the Permitted Annual Revenue (Receita Anual Permitida, or RAP) for the assets of the existing system, updated annually based on the variation in the IPCA index. Whenever there is a strengthening, improvement or adaptation to an existing asset made under a specific authorization from Aneel, an addition is made to the RAP.

This revenue was R$ 206,582 in 1H18, compared to R$ 177,437 in 1H17 – or 16.43% higher period-on-period. This variation arises basically from the inflation adjustment of the annual RAP, which was applied in July 2017, plus the new revenues related to the investments authorized to be included. It includes an additional adjustment for expectation of cash flow from financial assets, arising from change in the fair value of the Regulatory Remuneration Asset Base (BRR).

The percentages and the indices applied in this adjustment vary according to the concessions. In 2017 the adjustment was 3.59% (the IPCA index) for the concession of Cemig GT, and 1.57% (the IGP-M Index) for the concession of Cemig Itajubá.

 

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Transmission indemnity revenue

The revenue from the transmission Indemnities in 1H18 was R$ 146,519, which was 45.70% less than in 1H17 (R$ 269,855). We highlight the amount of R$ 149,255 recorded for 1H17, relating to the backdated difference of transmission concession assets the values of which were not included in the calculation basis for revenues in the previous tariff reviews.

The Company reports the updating of the amount of indemnity receivable based on the average regulatory cost of capital, as specified in the sector regulations.

For more details please see Note 14 of these interim financial information.

Generation indemnity revenue

In 1H18 the Company recognized revenue of R$ 34,463 for the adjustment to the balance not yet amortized relating to the basic plans of the concessions for the São Simão and Miranda hydroelectric plants, to be indemnified as per Ministerial Order 291/17.

For more details see Note 14 of these interim financial information.

Revenue from transactions in the Wholesale Electricity Trading Chamber (CCEE)

Revenue from energy transactions at CCEE in 1H18 was R$ 159,966, compared to R$ 425,177 in 1H17 – a reduction of 62.38%. The lower revenue from this source reflects the lower quantity of energy available for settlement in the wholesale market in 2018, in spite of the average Spot Price (PLD) being 8.46% higher (R$ 249.88/MWh in 1H18, vs. R$ 230.39/MWh in 1H17).

Revenue from supply of gas

Cemig reported revenue from supply of gas totaling R$ 898,979 in 1H18, compared to R$ 821,145 in 1H17 – 9.48% higher than prior year. This basically is due to higher tariffs the volume of gas sold was 6.83% lower than prior year (564,940 m³ in 1H18, compared to 606,365 m³ in 1H17).

Construction revenue

Infrastructure construction revenue in 1H18 was R$ 383,643, which was 13.01% less than in 1H17 (R$ 441,034). This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other operating revenues

The Company’s Other revenues in 1H18 were R$ 773,444, or 7.78% more than in 1H17 (R$ 717,632). See Note 25 for the composition of operating revenues.

Sector / Regulatory charges reported as Deductions from revenue

The charges that are recorded as deductions from operational revenue totaled R$ 5,397,013 in 1H18, or 5.27% more than in 1H17 (R$ 5,127,021).

 

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The Energy Development Account – CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, and the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account. Charges for the CDE in 1H18 were R$ 1,180,960, compared to R$ 859,370 in 1H17.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Customer charges – the ‘Flag’ Tariff system

Charges to the customer arising from the ‘Flag Tariff’ system in 1H18 were 20.06% lower – at R$ 125,059 in 1H18, vs. R$ 156,435 in 1H17. In the ‘Flag’ Tariff system, higher rates come into effect depending on the level of water in the country’s reservoirs – the yellow and red flags are for when water is more scarce: the ‘red flag’ imposes the highest extra tariff. Activation of the flag tariffs generates an impact on billing in the subsequent month. The first half of 2017 was impacted by activation of the yellow flag in March, with effect on the billing of April, and the red flag in April and May, with effects on the billing of May and June respectively. In the same period of 2018 there was an effect only in the month of June, following activation of the yellow flag in May.

Other taxes and charges on revenue

The deductions and charges with the most significant impact on revenue are mainly taxes, calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

Operating costs and expenses (excluding Finance income/expenses)

Operating costs and expenses in 1H18 totaled R$ 9,057,922, or 4.73% more than in 1H17 (R$ 8,649,001). For more on the components of Operational costs and expenses see Note 26.

The following paragraphs outline the main variations in expenses:

Energy purchased for resale

This expense in 1H18 was 7.17% higher than prior year, at R$ 5,082,598, compared to R$ 4,742,418 in 1H17. This is mainly due to the following:

 

 

Average spot price (PLD) 8.46% higher, at R$ 249.88/MWh in 2018, compared to R$ 230.39/MWh in 2017, directly affecting the price paid for spot supply.

 

 

The expense on supply acquired at auction in the Regulated Market was 7.52% higher, at R$ 1,480,756, in 1H18, compared to R$ 1,377,210 in 1H17. This is mainly due to inclusion of supply originating in assignments of new-built energy from the Surpluses and Deficits Compensation Mechanism (MCSD), representing an increase of R$ 341,518 in the expense in the first half of 2018, partially offset by the reduction in volume of supply in the contracts for quantity and availability (11,347,202 MWh in 1H18, and 12,957,063 MWh in 1H17); and

 

 

expenses on energy acquired through physical guarantee quota contracts 38.84% higher in 1H18, at R$ 311,625, compared to R$ 224,452 in 1H17. This is basically due to the increase of 41.81% in the quotas tariff – it was R$ 87.27 in 1H18 and R$ 61.54 in 1H17.

 

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Charges for use of the transmission network

Charges for use of the transmission network in 1H18 totaled R$ 808,580, an increase of 100.01% period-on-period, compared to R$ 404,261 in 1H17.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution. The higher amounts in 2018 are due to increased transmission costs related to the payment of the transmission indemnities to the agents of the electricity sector that accepted the terms of Law 12,783/13.

This is a non-manageable cost: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions

Operating costs and expenses in 1H18 totaled R$ 267,319, or 27.74% less than in 1H17 (R$ 369,918). The main factors are:

 

 

Variation in fair value of the investment options related to Parati/RME and SAAG, totaling R$ 62,054 in 1H18, compared to a total provision of R$ 7,631 in 1H17. More details on the criteria for making of these provisions are in Note 29 (Put options).

 

 

Lower expenses on labor contingencies, with reversal of R$ 3,060 in 1H18, compared to constitution of a new expense of R$ 177,725 in 1H17. The reversal is the consequence of judgments given in favor of the Company – against claims by plaintiffs.

For more information see Note 23.

Personnel

The expense on personnel in 1H18 was R$ 680,240, or 25.83% lower than in 1H17 (R$ 917,162). This arises mainly from the following factors:

 

 

Expense of R$ 25,666 on the voluntary retirement program in 1H18, compared to R$ 165,422 in 1H17 – i.e. 84.48% lower;

 

 

Salary increases, from November 2017 under the Collective Agreement (with full effect in 2018), of 1.83%.

 

 

The average number of employees was reduced by 17.66%, from 6,864 in 1H17 to 5,892 in 1H18.

Construction cost

Infrastructure construction cost in 1H18 was R$ 383,643, or 13.01% less than in 1H17 (R$ 441,034). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

Gas purchased for resale (*)

In 1H18 the company recorded an expense of R$ 556,459 on acquisition of gas, 14.70% more than its comparable expense of R$ 485,163 in 1H17. This higher expense mainly reflects increases in the prices of gas purchased, since the volume of Gas purchased for resale was lower (562,390 m³ in 1H18 vs. 599,360 m³ in 1H17).

Share of profit (loss) in associates and joint ventures

The result of equity method valuation of interests in investees was an expense of R$ 26,233 in 1H18, compared to a gain of R$ 60,118 in 1H17. This basically reflects losses in 2018 on the interests in Renova and Santo Antônio Energia.

The breakdown of the results from the investees recognized under this line is given in detail in Note 15.

 

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Net finance income (expenses)

Cemig reports net Finance expenses in 1H18 of R$ 854,632, compared to net Finance expenses of R$ 734,300 in 1H17. The main factors are:

 

 

Cash investment income 66.65% lower period-on-period, at R$ 41,850 in 1H18, compared to R$ 125,493 in 1H17. This is mainly due to a lower volume of cash invested in 2018, and also to the lower CDI rate in the period: 3.17% in 1H18 vs. 5.61% in 1H17.

 

 

Expense arising from exchange rate variation on funding indexed to the US dollar (Eurobonds), raised in December 2017 – the expense totals R$ 547,800, and is partially offset by gains arising from the swap transactions relating to that Eurobond issue, of R$ 180,429 – so that the net expense in 1H18 is R$ 367,371. The swap transaction replaced the issue’s interest rate of 9.25% p.a. in US dollars with 150.49% of the Brazilian domestic CDI rate; and a hedge was contracted for the principal for US dollar exchange rates between a floor of R$ 3.25 and a ceiling of R$ 5.00 – in this case, at maturity, the Company will pay the floor value. The net negative effect of the transaction in the half-year, consequence of the foreign exchange variation expense not being offset by the hedge instruments contracted, arises basically from the higher variation in the expected future curve for the CDI than in the expected future variation in the R$/US$ exchange rate – this situation occurred basically in the months of May and June 2018, due to the instability of the macroeconomic scenario. Expectations for future variations in the CDI rate and the US dollar exchange rate are the main variables used in the calculation of fair value of the hedge transactions referred to.

 

 

Costs of loans and financings 27.09% lower, at R$ 604,051 in 1H18, compared to R$ 828,467 in 1H17. This is mainly due to the lower variation resulting from the CDI rate, the main indexer of the debt, which was 3.17% in 1H18, and 5.61% in 1H17.

 

 

Revenue from late charges on client energy bills 21.77% higher, at R$ 167,950 in 1H18, compared to R$ 137,923 in 1H17. A major component of this increase comes from the effects of renegotiation of amounts owed on energy bills by entities of the Minas Gerais State administration – as recognition of interest due is finalized.

 

 

Higher net result of monetary updating on the balances of CVA and Other financial components: net revenue of R$ 11,286 in 1H18, compared to a net expense of R$ 28,080 in 1H17, basically reflecting the higher balance of net assets in 1H18 than in 1H17.

For a breakdown of Finance income and expenses please see Note 27 of these interim financial information.

Income and Social Contribution taxes

In 1H18, the expense on income tax and the Social Contribution tax totaled R$ 170,845, on Income before income tax and social contribution tax of R$ 603,182, representing an effective rate of 28.32%. In 1H17, the expense on income tax and the Social Contribution tax totaled R$ 213,928, on Income before income tax and social contribution tax of R$ 694,776, representing an effective rate of 30.79%. These effective rates are reconciled with the nominal tax rates in Note 9c.

 

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Net income (loss) for the second quarter 2018

On the second quarter of 2018 (‘2Q18’) Cemig reports a loss of R$ 10,886, which compares to net income of R$ 138,114 in 2Q17. The following notes describe the main variations between the two periods in revenues, costs, expenses and financial items.

This primarily reflected significant net non-operating expenses of R$ 449,088, arising from FX variation on the debt raised in December 2017 (Eurobond issue); partially offset by the effects of gains under the swap transaction made by the Company to replace: payment of the interest on the Eurobonds, 9.25% p.a. in US dollars, by 150.49% of the Brazilian domestic CDI rate; and for the principal, a hedge contracted for variation in the US dollar exchange rate between a floor of R$ 3.25 and a ceiling of R$ 5.00 – in this case the Company, at maturity, will pay the floor value. This effect results from the instability of the macroeconomic scenario in the second half of 2018, with increased expectations for future variations in the CDI and FX rates – the main variables for calculation of fair value of financial instruments.

Ebitda (earnings before interest, tax, depreciation and amortization)

Cemig’s consolidated Ebitda in 2Q18 was 19.45% below its Ebitda of 2Q17: The most significant factors in this variation are set out below. Ebitda margin in 2Q18 was 15.75%, compared to the 14.21% in 2Q17.

 

Ebitda – R$ ‘000

   Apr to
Jun 2018
    Apr to
Jun 2017
     Change,%  

Net income for the period

     (10,886     138,114        —    

+ Income tax and Social Contribution tax

     (773     50,539        —    

+ Finance income (expenses)

     696,832       341,554        104.02  

+ Depreciation and amortization

     198,309       209,435        (5.31
  

 

 

   

 

 

    

 

 

 

= Ebitda

     883,482       739,642        19.45  
  

 

 

   

 

 

    

 

 

 

 

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Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net Finance income (expenses), Depreciation and amortization, and Income tax and Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for Net income or operating income, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

 

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Revenue from supply of energy

Total revenue from supply of energy was R$ 5,838,104 in 2Q18, compared to R$ 5,800,520 in 2Q17, 0.65% higher period-on-period.

Final Customers

Total revenue from supply of energy to final customers, excluding Cemig’s own consumption, in 2Q18 was R$ 4,978,835, or 2.22% less than the figure for 2Q17, of R$ 5,092,073.

The main factors for this reduction were:

 

 

The Annual Tariff Adjustment for Cemig D effective May 28, 2017, with an average downward effect on customer tariffs of 10.66%.

 

 

The Annual Tariff Adjustment for Cemig D effective May 28, 2018, with an average positive effect on customer tariffs of 23.19%.

 

 

Volume of energy sold to final customers 3.79% higher.

Cemig’s electricity market

The total for sales at Cemig’s consolidated electricity market comprises sales to: (i) Captive customers in Cemig’s concession area in the State of Minas Gerais; (ii) Free customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL); (iii) Other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market; (iv) Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and (v) The Wholesale Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica—CCEE), eliminating transactions between companies of the Cemig Group.

The table below describe Cemig’s market and the change in the sale of energy by category of customers, comparing 2Q18 with 2Q17:

 

     MWh (1)  
     Apr to Jun
2018
     Apr to Jun
2017
     Change,%  

Residential

     2,557,762        2,496,022        2.47  

Industrial

     4,524,750        4,450,891        1.66  

Commercial, Services and Others

     2,155,487        1,892,746        13.88  

Rural

     954,766        953,709        0.11  

Public authorities

     220,791        226,041        (2.32

Public lighting

     345,401        341,420        1.17  

Public services

     331,174        324,405        2.09  
  

 

 

    

 

 

    

 

 

 

Subtotal

     11,090,131        10,685,234        3.79  
  

 

 

    

 

 

    

 

 

 

Own consumption

     11,357        8,788        29.23  
  

 

 

    

 

 

    

 

 

 
     11,101,488        10,694,022        3.81  
  

 

 

    

 

 

    

 

 

 

Wholesale supply to other concession holders (2)

     2,974,570        2,846,261        4.51  
  

 

 

    

 

 

    

 

 

 

Total

     14,076,058        13,540,283        3.96  
  

 

 

    

 

 

    

 

 

 

 

(1)

Information in MWh has not been reviewed by external auditors.

(2)

Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

 

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We highlight the growth in volume sold in numerous sectors: 2.47% in the residential customer category, 1.66% in the industrial customer category, 13.88% in the commercial customer category, and 13.05% in the public service category – mainly reflecting addition of new customer units, and overall better economic activity than in the previous year.

In contrast, consumption by public authorities was 2.32% lower, basically reflecting the truck drivers’ strike, which affected lessons in schools and universities, and declaration of optional working days in various spheres of government during the strike.

Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free customers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD), for transport of energy sold. In 2Q18 this revenue was R$ 440,599, a period-on-period increase of 0.73% from R$ 437,427 in 2Q17, mainly due to the following factors:

 

 

reduction of approximately 40% in the TUSD, which took place in the Cemig D’s 2017 annual tariff adjustment, applied as from May 28, 2017 (full effect in 2018);

 

 

Increase of approximately 36% in the TUSD, which took place in the Cemig D’s 2018 annual tariff adjustment, applied as from May 28, 2018; and

 

 

volume of energy transported 13.66% higher, due to a higher level of activity by industrial customers, mainly related to the ferro-alloys sector.

CVA and Other financial components in tariff adjustment

In its interim financial information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and energy purchased for resale, are significant components) and the costs that were used in calculating tariffs. The amount of this difference is passed through to the clients in Cemig D’s next tariff adjustment. In 2Q18 this represented a gain in revenue of R$ 709,516, whereas 2Q17 it produced a reduction of R$ 29,294. The difference in this case is mainly due to the increase in costs of energy in 2018, in relation to tariff coverage, and in comparison to the previous period, generating a financial asset to be reimbursed to the Company through the next tariff adjustment.

For more details please see Note 14 of this interim financial information.

Revenue from transactions in the Wholesale Electricity Trading Chamber (CCEE)

Revenue from energy sales on the CCEE in 2Q18 was R$ 25,639, compared to R$ 198,529 in 2Q17 – a reduction of 87.09%. The difference is due to the lower quantity of energy available for settlement in the wholesale market in 2018.

Transmission indemnity revenue

In 2Q18 this revenue was R$ 96,678, compared to R$ 204,025 in 2Q17 – or 52.61% lower period-on-period. We highlight the amount of R$ 149,255 recorded for 2Q17, relating to the backdated difference of transmission concession assets the values of which were not included in the calculation basis for revenues in the previous tariff reviews.

 

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The Company reports the updating of the amount of indemnity receivable based on the average regulatory cost of capital, as specified in the sector regulations. For more details see Note 14 – Concession financial assets.

Revenue from supply of gas

The Company reported revenue from supply of gas 14.69% higher in 2Q18, at R$ 470,908, compared to R$ 410,604 in 2Q17, mainly due to the higher volume of gas sold: 456,458 m³ in 2Q18, compared to 310,240 m³ in 2Q17.

Construction revenue

Construction and infrastructure revenues (transmission, distribution and gas) totaled R$ 205,783 in 2Q18, which was 14.43% less than their total of R$ 240,475 in 2Q17. This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other operating revenues

Other revenues were 15.80% lower in 2Q18 (at R$ 311,332), than in 2Q17 (R$ 369,763).

Sector / Regulatory charges reported as Deductions from revenue

The total of these taxes and charges incident upon operational revenue in 2Q18 was R$ 2,683,021 – an increase of 3.86% in relation to their total of R$ 2,583,211 in 2Q17.

The Energy Development Account – CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). The charges for the CDE in 2Q18 were R$ 593,105, compared to R$ 415,749 in 2Q17.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Customer charges – the ‘Flag’ Tariff system

Charges to the customer arising from the ‘Flag Tariff’ system in 2Q18 were 93.48% lower – at R$ 8,287 in 2Q18, vs. R$ 127,177 in 2Q17. In the ‘Flag’ Tariff system, higher rates come into effect depending on the level of water in the country’s reservoirs: the ‘yellow’ and ‘red’ flags represent higher charges in situations of low level of the reservoirs, due to the scarcity of rainfall.

Activation of the flag tariffs generates an impact on billing in the subsequent month. This effect took place in 2Q17 – application of the yellow flag in March resulting in increased billing in April; and the red flag in April and May had its effects in May and June of that year.

 

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In the same period of 2018 there was an effect only in the month of June, following activation of the yellow flag in May.

Operating costs and expenses (excluding Finance income/expenses)

Operational costs and expenses were up 3.28%: R$ 4,859,630 in 2Q18, and R$ 4,705,299 in 2Q17. For more on the components of Operational costs and expenses see Note 26.

The following paragraphs outline on the main variations in expenses:

Energy purchased for resale

The expense on energy purchased for resale in 2Q18 was R$ 2,818,905, compared to R$ 2,649,330 in 2Q17 – or 6.40% higher than prior year. The main factors are:

 

 

The expense on energy supply bought at auction was 19.25% higher, at R$ 757,243 in 2Q18, vs. R$ 634,978 in 2Q17. This in turn was mainly due to inclusion of the supply coming from MCSD (Excess/Deficit Compensation Mechanism) assignments for new-build projects, which resulted in Cemig D’s expense being R$ 127,780 higher than in 2Q17 – partially offset by lower volume in quantity and availability contracts (5,709,270 MWh in 2Q18 vs. 6,522,682 MWh in 2Q17).

 

 

Expenses on supply acquired through physical guarantee quota contracts 21.63% higher, at R$ 140,241 in second quarter of 2018, compared to R$ 115,298 in 2Q17. This was basically due to the increase of 40.95% in the quota tariffs – at R$ 84.88 in 2Q18, compared to R$ 60.22 in 2Q17.

 

 

Expense on supply acquired in the Free Market 10.71% lower at R$ 891,546 in 2Q18, compared to R$ 998,450 in 2Q17. This reflects a volume of energy purchased 11.88% lower in 2Q18 – at 4,726,875 MWh, vs. 5,364,064 MWh in 2Q17; partially offset by the effect of average price per MWh in 2Q18 being 3.82% higher (at R$ 189.79 in 2Q18, vs. R$ 182.81 in 2Q17);

 

 

The expense on purchase of supply in the spot market, at R$ 710,115 in 2Q18, was 15.56% higher, vs. R$ 614,518 in 2Q17, due to the higher cost of supply in the wholesale market in 2018.

Charges for use of the transmission network

Charges for use of the transmission network in 2Q18 totaled R$ 416,038, compared to R$ 197,764 in 2Q17, an increase of 110.37% period-on-period.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution.

This is a non-manageable cost: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

 

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Operating provisions

Operating provisions were 16.90% lower in the quarter – an expense of R$ 134,112 in 2Q18, compared to R$ 161,386 in 2Q17. The main factors are:

 

  (i)

Provisions of R$ 27,519, and R$ 20,231, respectively, were made in 2Q18 for the investment options of RME/Lepsa and SAAG – these compare with reversals of provisions, in 2Q17, of R$ 8,021 and R$ 5,334 respectively, for these items. More details on the criteria for making of these provisions are in Note 29 (Put options).

 

  (ii)

A reversal, of R$ 20,114, in the total provision for labor contingencies, in 2Q18, compared with new provisions totaling R$ 114,419 made in 2Q17. The reversal recognizes judgments given in favor of the Company – against claims by plaintiffs.

Personnel

The expense on personnel in 2Q18 was R$ 348,576, or 34.96% less than in 2Q17 (R$ 535,954). This arises mainly from the following factors:

 

 

Salary increase of 1.83% under the Collective Work Agreement, from November 2017.

 

 

Expense of R$ 25,666 on the voluntary retirement program in 2Q18, compared to R$ 165,422 in 2Q17.

 

 

Reduction of the average number of employees by 10.43%, from 6,618 in 2Q17 to 5,928 in 2Q18.

Construction cost

Infrastructure Construction Cost in 2Q17 was R$ 202,974, 15.59% less than in 2Q17 (R$ 240,475). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

Gas purchased for resale

In 2Q18 the Company recorded an expense of R$ 293,225 on acquisition of gas, 11.64% higher than its comparable expense of R$ 262,651 in 2Q17. This is basically due to a higher volume of gas purchased (454,622 m³ in 2Q18, vs. 308,850 m³ in 2Q17).

Share of profit (loss) in associates and joint ventures

In 2Q18 Cemig posted a net loss of R$ 83,107 by the equity method – compared to with a net gain of R$ 30,477 in 2Q17. These losses mainly come from the interests in Renova and Santo Antônio Energia. More details in Note 15.

 

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Net finance income (expenses)

Cemig reported net Finance expenses in 2Q18 of R$ 696,832, which compares with net Finance expenses of R$ 341,554 in 2Q17. The main factors are:

 

Costs of loans and financings 17.11% lower, at R$ 316,703 in 2Q18, compared to R$ 382,076 in 2Q17. The lower figure reflects lower debt indexed to the CDI rate, and the lower value of the CDI – 1.56% over the period of 2Q18, compared to 2.55% over 2Q17.

 

Revenue from late charges on customer electricity bills 41.85% higher, at R$ 92,288 in 2Q18, compared to R$ 65,069 in 2Q17. A major component of this increase comes from the effects of renegotiation of amounts owed on electricity bills by entities of the Minas Gerais State administration – as recognition of interest due is finalized.

 

Cash investment income 70.13% lower period-on-period, at R$ 18,123 in 2Q18, compared to R$ 60,663 in 2Q17. This mainly reflects (a) the lower CDI rate in the quarter (1.56% over the period of 2Q18, vs. 2.55% over 2Q17), and (b) a lower volume of cash invested in 2Q18.

 

An expense of R$ 532,000 for foreign exchange variation on US dollar-denominated funding (the Eurobond issue); this being partially offset by a gain of R$ 82,912 on financial instruments – the swap transaction contracted to cover the Eurobond issue – thus resulting in a net expense in 2Q18 of R$ 449,088. The swap transaction replaced the issue’s interest rate of 9.25% p.a. in US dollars with 150.49% of the Brazilian domestic CDI rate; and a hedge was contracted for the principal for US dollar exchange rates between a floor of R$ 3.25 and a ceiling of R$ 5.00 – in this case, at maturity, the Company will pay the floor value. The net negative effect of the transaction in the half-year, consequence of the foreign exchange variation expense not being offset by the hedge instruments contracted, arises basically from the higher variation in the expected future curve for the CDI than in the expected future variation in the R$/US$ exchange rate – this situation occurred basically in the months of May and June 2018, due to the instability of the macroeconomic scenario. Expectations for future variations in the CDI rate and the US dollar exchange rate are the main variables used in the calculation of fair value of the hedge transactions referred to.

 

The result of monetary updating of the balances of CVA was a gain of R$ 10,839, but in 2Q17 it was an expense of R$ 21,911. The positive and negative balances of CVA are updated by the Selic rate. This variation arises from there being an asset balance of CVA on June 30, 2018, leading to recording of a financial gain for updating the balance. In the same period of 2017, the Company had a net negative balance of CVA, recorded as a financial liability from updating of the obligation. For more information, see Note 14.

For a breakdown of Finance income and expenses please see Note 27 of these interim financial information.

Income and Social Contribution taxes

In 2Q18, the expense on income tax and the Social Contribution tax was R$ 773, on Losses before income tax and social contribution tax of R$ 33,031.

In 2Q17, the expense on income tax and the Social Contribution tax was R$ 50,539, on Income before income tax and social contribution tax of R$ 188,653.

These effective rates are reconciled with the nominal tax rates in Note 9c.

 

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OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL

The Board of Directors:

Meetings

Our Board of Directors met 19 times up to June 30, 2018, for matters of strategic planning, projects, acquisition of new assets, various investments, and other subjects.

Membership, election and period of office

The present period of office began with the AGM on June 11, 2018, with election by the multiple voting system.

The periods of office of the present members of the Board of Directors expire at the Annual General Meeting of shareholders to be held in 2020.

Principal responsibilities and duties:

Under the by-laws, the Board of Directors has the following responsibilities and duties, as well as those conferred on it by law:

 

Decision on any sale of assets, loans or financings, charge on the company’s property, plant or equipment, guarantees to third parties, or other legal acts or transactions, with value equal to 1% or more of the Company’s total Shareholders’ equity.

 

Authorization for issuance of securities in the domestic or external market to raise funds.

 

Approval of the Long-term Strategic and the Multi-year Business Plan, and alterations and revisions of them, and the Annual Budget.

Qualification and remuneration

The Board of Directors of the Company comprises 9 (nine) sitting members and the same number of substitute members. One is the Chair, and another the Vice-Chair. The members of the Board of Directors are elected for concurrent periods of office of 2 (two) years, and may be dismissed at any time, by the General Meeting of shareholders. Re-election for a maximum of 3 (three) consecutive periods of office is permitted, subject to the requirements and prohibitions established in the applicable legislation and regulations.

A list with the names of the members of the Board of Directors and their résumés is on our website at: http://ri.cemig.com.br.

 

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The Audit Committee

The Audit Committee is an independent, consultative, permanent body, with its own budget allocation. Its objective is to provide advice and support to the Board of Directors, to which it reports. It also has the responsibility of other activities attributed to it by legislation.

The Audit Committee has three members, the majority of them independent, nominated and elected by the Board of Directors in the first meeting after the Annual General Meeting for periods of office of three years, not to run concurrently. One re-election is permitted.

Under the by-laws, the Audit Committee of Cemig has the following duties, among others:

 

 

to supervise the activities of the independent auditors, evaluating their independence, the quality of the services provided and the appropriateness of such services to the Company’s needs;

 

 

to supervise activities in the areas of internal control, internal audit and preparation of the financial statements;

 

 

to evaluate and monitor, jointly with the Management and the Internal Audit Unit, the appropriateness of the transactions with related parties.

The Executive Board

The Executive Board is made up of eleven members, whose individual functions are set by the Company’s by-laws. They are elected by the Board of Directors, for a period of office of two years, subject to the applicable requirements of law and regulation, and may be re-elected up to three times.

Members are allowed simultaneously to hold non-remunerated positions in the Management of wholly-owned subsidiaries, subsidiaries or affiliates of Cemig, upon decision by the Board of Directors. They are also, obligatorily, members, with the same positions, of the Boards of Directors of Cemig GT (Generation and Transmission) and Cemig D (Distribution).The period of office of the present Chief Officers expires at the first meeting of the Board of Directors held after the Annual General Meeting of 2020.

The members of the Executive Board and brief résumés are on our website: http://ri.cemig.com.br

The members of the Executive Board (the Company’s Chief Officers) have individual responsibilities established by the Board of Directors and the by-laws. These include:

 

Current Management of the Company’s business, complying with the Long-term Strategy, the Multi-year Business Plan, and the Annual Budget, prepared and approved in accordance with the by-laws.

 

Authorization of the Company’s capital expenditure projects, signing of agreements or other legal transactions, contracting of loans and financings, and creation of any obligation in the name of the Company, based on the Annual Budget approved, which individually or in aggregate have values less than 1% (one per cent) of the Company’s Equity, including injection of capital into wholly-owned or other subsidiaries, affiliated companies, and the consortia in which the Company participates;

 

The Executive Board meets, ordinarily, at least two times per month; and, extraordinarily, whenever called by the Chief Executive Officer or by two Executive Officers with at least two days’ prior notice in writing or by email or other digital medium, such notice not being required if all the Executive Officers are present. The decisions of the Executive Board shall be taken by vote of the majority of its members, and in the event of a tie the Chief Executive Officer shall have a casting vote.

 

 

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The Audit Board

Meetings

 

The Audit Board held eight meetings in the six months to June 30, 2018.

Membership, election and period of office

 

We have a permanent Audit Board, made up of five sitting members and their respective substitute members. They are elected by the Annual General Meeting of shareholders, for periods of office of two years.

 

Nominations to the Audit Board must obey the following:

 

  a)

Two groups – (i) the minority shareholders of common shares, and (ii) the holders of the preferred shares – each have the right to elect one member, in separate votes, in accordance with the applicable legislation.

 

  b)

The majority of the members must be elected by the Company’s controlling shareholder; at least one must be a public employee, with a permanent employment link to the Public Administration.

 

The members of the Audit Board are listed on Cemig’s website: http://ri.cemig.com.br

Under the by-laws, the Audit Board has the duties and competencies set by the applicable legislation and, to the extent that they do not conflict with Brazilian legislation, those required by the laws of the countries in which the Company’s shares are listed and traded.

Qualification and remuneration

The global or individual compensation of the members of the Audit Board shall be set by the General Meeting of Shareholders which elects it, in accordance with the applicable legislation.

Résumé information on its members is on our website: http://ri.cemig.com.br

The Sarbanes-Oxley Law

Cemig obtained the first certification of its internal controls for mitigation of risks involved in the preparation and disclosure of the financial statements, issued in accordance with Section 404 of the Sarbanes-Oxley Law and the rules of the Public Company Accounting Oversight Board (PCAOB), which is included in the annual 20-F Report relating to the business year ended December 31, 2006, filed with the US Securities and Exchange Commission (SEC) on July 23, 2007.

Corporate risk management

Corporate risk management is a management tool that is an integral part of Cemig’s corporate governance practices. It identifies the events that can interfere in the process of the Company achieving its strategic objectives.

The Corporate Risks and Compliance Management Unit has been subordinated to the CEO’s office since 2016. This change underlines the intention to increase independence of these processes and to provide information to senior management for decision-making, preserving the value of the company. The practice of risk management is thus a competitive differentiation factor, to be used not only defensively, but also as an opportunity for improvement. The structuring and analysis of operations from the point of view of risk management are factors that optimize investment in the control of the activity. They reduce costs, improve performance, and consequently help the Company achieve its targets.

In risk management processes, in planning of operations and in development of new business initiatives, Cemig always acts in consideration of the precautionary principle. During planning, all the factors that might present risks to health and/or safety of employees, suppliers, clients, the general population or the environment are taken into account. Further, the fact that the Company is recognized by the Dow Jones Sustainability Index and the Corporate Sustainability Index (ISE) reflects the implementation of structural elements of the risk management system, and commitment to sustainability.

 

 

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Statement of Ethical Principles and Code of Professional Conduct

On May 11, 2004 Cemig’s Board of Directors approved the Statement of Ethical Principles and Code of Professional Conduct, which aims to orient and discipline everyone acting in the name of, or interacting with, Cemig, to ensure ethical behavior at all times, and always in accordance with the law and regulations. The code can be seen at http://ri.cemig.com.br. It was updated in 2018.

The Ethics Committee

Cemig’s Ethics Committee was created on August 12, 2004, to coordinate all actions relating to management (interpretation, publicizing, application and updating) of the Statement of Ethical Principles and Code of Professional Conduct, including assessment of and decision on any possible non-compliances with Cemig’s Code of Ethics.

The Committee has three sitting members and three substitute members. It may be contacted through our Ethics Channel – the anonymous reporting channel on the corporate Intranet, or by email, internal or external letter or by an exclusive phone line – these means of communication are widely publicized internally to all staff. The channels enable both reports of adverse activity and also consultations. Reports may result in opening of proceedings to assess any non-compliances with Cemig’s Statement of Ethical Principles and Code of Professional Conduct.

The Ethics Channel

Cemig installed this means of communication, available on the internal corporate Intranet, on December 13, 2006.

Through it the Ethics Committee can receive anonymous reports or accusations that can enable Cemig to detect irregular practices that are contrary to its interest, such as: financial fraud, including adulteration, falsification or suppression of financial, tax or accounting documents; misappropriation of goods or funds; receipt of undue advantages by managers or employees; irregular contracting; and other practices considered to be illegal.

It is one more step in improving Cemig’s transparency, compliance with legislation, and alignment with best corporate governance practices. It improves the management of internal controls and dissemination of the ethical culture to Cemig’s employees in the cause of optimum compliance by our business.

SHAREHOLDING POSITION OF HOLDERS OF

MORE THAN 5% OF THE VOTING SHARE

ON JUNE 30, 2018

 

     COMMON
SHARES
     %      PREFERRED
SHARES
     %      TOTAL
SHARES
     %  

State of Minas Gerais

     248,480,146        50.96        —          —          248,480,146        17.03  

FIA Dinâmica Energia S.A.

     41,635,754        8.54        62,469,590        6.43        104,105,344        7.14  

BNDESPar

     54,342,992        11.14        26,220,938        2.70        80,563,930        5.52  

CONSOLIDATED SHAREHOLDING POSITION OF

THE EQUITY HOLDERS OF THE PARENT AND MANAGERS,

AND FREE FLOAT ON JUNE 30, 2018

 

     June 30, 2018  
     Common (ON) shares      Preferred (PN) shares  

Equity holders of the parent

     248,480,146     

Board of Directors:

     100,501        190,000  

The Executive Board

     1        45,430  

Treasury Shares

     69        560,649  

Free float

     238,976,793        969,694,662  
  

 

 

    

 

 

 

TOTAL

     487,614,213        971,138,388  
  

 

 

    

 

 

 

 

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Investor Relations

In 2017, through strategic actions intended to enable investors and shareholders to make a correct valuation of our businesses and our prospects for growth and addition of value, we have increased Cemig’s exposure to the Brazilian and global capital markets.

We maintain a constant and proactive flow of communication with Cemig’s investor market, continually reinforcing our credibility, seeking to increase investors’ interest in the Company’s shares, and to ensure their satisfaction with our shares as an investment.

Our results are published through presentations transmitted via video webcast and telephone conference calls, with simultaneous translation in English, always with members of the Executive Board present, developing a relationship that is increasingly transparent and in keeping with best corporate government practices.

To serve our shareholders – who are spread over more than 40 countries – and to facilitate optimum coverage of investors, Cemig has been present in and outside Brazil at a very large number of events, including seminars, conferences, investor meetings, congresses, roadshows, and events such as Money Shows; as well as holding phone and video conference calls with analysts, investors and others interested in the capital markets.

At the end of May 2018 we held our 23rd Annual Meeting between Cemig and the Capital Markets in the city of Belo Horizonte, Minas Gerais – where these professionals had the opportunity to interact with the Company’s Directors and principal executives.

Corporate governance

Our corporate governance model is based on principles of transparency, equity and accountability, focusing on clear definition of the roles and responsibilities of the Board of Directors and the Executive Board in the formulation, approval and execution of policies and guidelines for managing the Company’s business.

We seek sustainable development of the Company through balance between the economic, financial, environmental and social aspects of our enterprises, aiming always to improve the relationship with our shareholders, clients, and employees, the public at large and other stakeholders.

Cemig’s preferred and common shares (tickers: CMIG3 and CMIG4 respectively) have been listed at Corporate Governance Level 1 on the São Paulo Stock Exchange since 2001. This classification represents a guarantee to our shareholders of optimum reporting of information, and also that shareholdings are relatively widely dispersed. Because Cemig has ADRs (American Depositary Receipts) listed on the New York Stock Exchange, representing preferred (PN) shares (with ticker CIG) and common (ON) ticker CIG.C), it is also subject to the regulations of the US Securities and Exchange Commission (SEC) and the New York Stock Exchange Listed Company Manual. Our preferred shares have also been listed on the Latibex of the Madrid stock exchange (with ticker XCMIG) since 2002.

 

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In June 2018 an Extraordinary General Meeting of Shareholders approved alterations to the Company’s bylaws, to maintain adoption of best corporate governance practices, and adaptation to Law 13303/2016 (also known as the State Companies Law).

The improvements now formally incorporated in the by-laws include:

 

   

Reduction of the number of members of the Board of Directors from 15 to 9, in line with the IBGC Best Corporate Governance Practices Code, and the Corporate Sustainability Evaluation Manual of the Dow Jones Sustainability Index.

 

   

Creation of the Audit Committee (Comitê de Auditoria). The Audit Board (Conselho Fiscal) remains in existence.

 

   

The Policy on Eligibility and Evaluation for nomination of a member of the Board of Directors and/or the Executive Board in subsidiary and affiliated companies,

 

   

The Related Party Transactions Policy.

 

   

Formal designation for the Board of Directors to ensure implementation of and supervision of the Company’s systems of risks and internal controls.

 

   

Optional power for the Executive Board to expand the technical committees (on which members are career employees), with autonomy to make decisions in specific subjects.

 

   

The CEO now to be ‘responsible for directing compliance and corporate risk management activities.

 

   

Greater emphasis on the Company’s control functions: internal audit, compliance, and corporate risk management.

 

   

Adoption of an arbitration chamber for resolution of any disputes between the Company, its shareholders, managers, and/or members of the Audit Board.

* * * * * * * * * * * *

 

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(The original is signed by the following signatories:)

 

Bernardo Afonso Salomão de Alvarenga    Luiz Humberto Fernandes    Maurício Fernandes Leonardo Júnior
Chief Executive Officer    Deputy CEO   

Chief Finance and

Investor Relations Officer

     
Ronaldo Gomes de Abreu    Franklin Moreira Gonçalves    Maura Galuppo Botelho Martins
Chief Distribution and Sales Officer   

Chief Generation and

Transmission Officer

   Chief Officer for Human Relations
     
José de Araújo Lins Neto    Thiago de Azevedo Camargo    Dimas Costa
Chief Corporate Management Officer   

Chief Institutional Relations and

Communication Officer

   Chief Trading Officer
     
Daniel Faria Costa         Neila Maria Barreto Leal

Chief Officer for

Management of Holdings

      Chief Counsel
     
Leonardo George de Magalhães         Leonardo Felipe Mesquita

Controller

CRC-MG 53.140

     

Accounting Manager

Accountant – CRC-MG-85.260

 

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Edifĺcio Phelps Offices Towers

Rua Antônio de Albuquerque, 156

11º andar - Savassi

30112-010 - Belo Horizonte - MG - Brasil

Tel: +55 31 3232-2100

Fax: +55 31 3232-2106

ey.com.br

A free translation from Portuguese into English of Independent Auditor’s Report on the Review of Interim Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board – IASB

 

Report on the review of interim information—ITR

To the Shareholders and Management of

Companhia Energética de Minas Gerais - CEMIG

Belo Horizonte - MG

 

Introduction

We have reviewed the individual and consolidated interim financial information of Companhia Energética de Minas Gerais—CEMIG (“Company”), contained in the Quarterly Information Form (ITR) for the quarter ended June 30, 2018, which comprise the statement of financial position as at June 30, 2018 and the statements of profit or loss and comprehensive income for the three and six-month periods then ended and the statements of changes in equity and cash flows for the six-month period then ended, including notes to the interim financial information.

Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) – Interim Financial Reporting and in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on review of interim financial information (NBC TR 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

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Conclusion on the individual and consolidated interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above is not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, applicable to the preparation of Quarterly Financial Information—ITR, consistently with the rules issued by the Brazilian Securities and Exchange Commission.

Emphasis of matter

Risks related to compliance with laws and regulations

As mentioned in Note 15 to the interim financial information, currently investigations and other legal measures are being conducted by public authorities in connection with Company and certain investees regarding certain expenditures and their allocations, which involve and also include some of their other shareholders and certain executives of these other shareholders. The governance bodies of the Company have authorized contracting of a specialized company to analyze the internal procedures related to these certain investments and to ascertain such claims. At this point, it is not possible to forecast future developments arising from these internal investigation procedures and conducted by the public authorities, nor their possible effects on the Company and its subsidiaries’ interim financial information. Our conclusion is not modified in respect of this matter.

Risk regarding the ability of non-controlled investee Renova Energia S.A. to continue as a going concern

As disclosed in Note 15 to the interim financial information, the non-controlled indirect investee Renova Energia S.A. has incurred recurring losses and, as at June 30, 2018, has negative net working capital. These events or conditions indicate the existence of relevant uncertainty that may raise significant doubt about its ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

Restatement of the individual and consolidated interim financial information

On August 14, 2018, we issued an unqualified review report on the Company’s individual and consolidated interim financial information for the quarter ended June 30, 2018, which are now being restated. As mentioned in note 2.3, these interim financial information have been amended and are being restated to reflect the correction of error relating to the amortization of accounts balances related to CVA Account (Portion A) and other financial components. Our conclusion is not modified in respect of this matter.

 

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Other matters

Statements of value added

We have also reviewed the individual and consolidated Statements of Value Added (SVA) for the six-month period ended June 30, 2018, prepared under the responsibility of Company management, the presentation of which in the interim financial information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR), and as supplementary information under the IFRS, whereby no SVA presentation is required. These statements have been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not consistently prepared, in all material respects, in relation to the overall accompanying interim financial information.

November 27, 2018.

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

Shirley Nara S. Silva

Accountant CRC-1BA022650/O-0

 

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3. REVISION OF QUARTERLY INFORMATION (ITR) FOR 3Q 2018 (RESTATEMENT)

 

 

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CONTENTS

 

STATEMENTS OF FINANCIAL POSITION      138  
STATEMENTS OF INCOME      140  
STATEMENTS OF COMPREHENSIVE INCOME      142  
STATEMENTS OF CHANGES IN EQUITY—CONSOLIDATED      143  
STATEMENTS OF CASH FLOWS      145  
STATEMENTS OF ADDED VALUE      147  
CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION      148  
1.  

OPERATING CONTEXT

     148  
2.  

BASIS OF PREPARATION

     150  
3.  

PRINCIPLES OF CONSOLIDATION

     161  
4.  

CONCESSIONS AND AUTHORIZATIONS

     162  
5.  

CASH AND CASH EQUIVALENTS

     163  
6.  

SECURITIES

     163  
7.  

CUSTOMERS, TRADERS AND TRANSPORT OF ENERGY CONCESSION HOLDERS

     164  
8.  

RECOVERABLE TAXES

     166  
9.  

INCOME AND SOCIAL CONTRIBUTION TAXES

     166  
10.  

RESTRICTED CASH

     169  
11.  

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

     169  
12.  

ESCROW DEPOSITS

     169  
13.  

REIMBURSEMENT OF TARIFF SUBSIDIES

     170  
14.  

CONCESSION FINANCIAL ASSETS AND LIABILITIES

     170  
15.  

INVESTMENTS

     177  
16.  

PROPERTY, PLANT AND EQUIPMENT

     187  
17.  

INTANGIBLE ASSETS

     189  
18.  

SUPPLIERS

     191  
19.  

TAXES PAYABLE, INCOME TAX AND SOCIAL CONTRIBUTION TAX AND AMOUNTS TO BE REIMBURSED TO CUSTOMERS

     192  
20.  

LOANS, FINANCINGS AND DEBENTURES

     193  
21.  

REGULATORY CHARGES

     199  
22.  

POST-RETIREMENT OBLIGATIONS

     200  
23.  

PROVISIONS

     201  
24.  

EQUITY AND REMUNERATION TO SHAREHOLDERS

     208  
25.  

REVENUE

     210  
26.  

OPERATING COSTS AND EXPENSES

     215  
27.  

FINANCE INCOME AND EXPENSES

     220  
28.  

RELATED PARTY TRANSACTIONS

     222  
29.  

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     226  
30.  

ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS

     242  
31.  

OPERATING SEGMENTS

     244  
32.  

THE ANNUAL TARIFF ADJUSTMENT

     247  
33.  

NON-CASH TRANSACTIONS

     247  
34.  

SUBSEQUENT EVENTS

     247  
CONSOLIDATED RESULTS      248  
OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL      261  
REPORT ON THE REVIEW OF INTERIM INFORMATION—ITR      268  

 

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STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

ASSETS

(Thousands of Brazilian Reais)

 

     Note      Consolidated      Holding company  
   Sep. 30,
2018
(Restated)
     Dec. 31, 2017      Sep. 30,
2018
(Restated)
     Dec. 31, 2017  

CURRENT

              

Cash and cash equivalents

     5        1,493,383        1,030,257        39,974        38,672  

Securities

     6        571,620        1,058,384        18,902        63,960  

Customers and traders and Concession holders – Transport of electricity

     7        4,195,075        3,885,392        25,602        —    

Concession financial assets

     14        918,734        847,877               —    

Recoverable taxes

     8        911,067        173,790        3,492        43  

Income and Social Contribution taxes recoverable

     9a        321,435        339,574        26,728        19,722  

Dividends receivable

        15,150        76,893        422,973        603,049  

Restricted cash

     10        113,041        106,227        93,112        87,872  

Inventories

        30,911        38,134        10        10  

Advances to suppliers

        51,767        116,050        —          —    

Accounts receivable from the State of Minas Gerais

     11        —          235,018        —          235,018  

Reimbursement of tariff subsidies

     13        85,096        77,086        —          —    

Low-income subscriber subsidy

        28,237        26,660        —          —    

Derivative financial instruments – Swaps

     29        46,789        —          —          —    

Other

        473,014        525,961        7,895        10,473  
     

 

 

    

 

 

    

 

 

    

 

 

 
        9,255,319        8,537,303        638,688        1,058,819  

Assets classified as Held for sale

     30        281,197        —          281,197        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, CURRENT

        9,536,516        8,537,303        919,885        1,058,819  
     

 

 

    

 

 

    

 

 

    

 

 

 

NON-CURRENT

              

Securities

     6        78,459        29,753        3,057        1,737  

Advance to suppliers

     28        85,277        6,870        —          —    

Customers and traders and Concession holders – Transport of electricity

     7        75,974        255,328        —          —    

Recoverable taxes

     8        229,404        230,678        3,915        1,810  

Income and Social Contribution taxes recoverable

     9a        7,651        20,617        7,651        20,617  

Deferred income and Social Contribution taxes

     9b        1,930,774        1,871,228        789,615        756,739  

Escrow deposits

     12        2,427,726        2,335,632        279,382        277,791  

Derivative financial instruments – Swaps

     29        226,847        8,649        —          —    

Accounts receivable from the State of Minas Gerais

     11        254,930        —          254,930        —    

Other

        774,959        628,443        27,881        34,978  

Concession financial assets

     14        6,309,798        6,604,625        —          —    

Investments – Equity method

     15        7,637,095        7,792,225        14,763,617        13,692,183  

Property, plant and equipment

     16        2,409,600        2,762,310        2,365        1,810  

Intangible assets

     17        11,198,086        11,155,928        6,493        2,458  
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, NON-CURRENT

        33,646,580        33,702,286        16,138,906        14,790,123  
     

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL ASSETS

        43,183,096        42,239,589        17,058,791        15,848,942  
     

 

 

    

 

 

    

 

 

    

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

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STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

LIABILITIES

(Thousands of Brazilian Reais)

 

     Note      Consolidated     Holding company  
   Sep. 30,
2018

(Restated)
    Dec. 31,
2017
    Sep. 30,
2018

(Restated)
    Dec. 31,
2017
 

Suppliers

     18        2,444,705       2,342,757       9,107       4,667  

Regulatory charges

     21        418,594       512,673       5,837       —    

Profit sharing

        19,288       9,089       1,062       348  

Taxes payable

     19a        406,927       704,572       8,355       5,841  

Income and Social Contribution tax

     19b        95,595       115,296       —         —    

Interest on Equity and Dividends payable

        427,787       427,832       425,828       425,838  

Loans, financings and debentures

     20        2,392,155       2,370,551       13,088       —    

Payroll and related charges

        235,029       207,091       17,283       11,072  

Post-retirement obligations

     22        243,057       231,894       13,097       12,974  

Concessions payable

        2,484       2,987       —         —    

Concession financial liabilities

     14        —         414,800       —         —    

Derivative financial instruments – Put options

     29        569,207       507,232       569,207       507,232  

Advances from clients

     7        89,896       232,762       —         —    

Derivative financial instruments – Swaps

     29        —         12,596       —         —    

Payables to related parties

     28        —         —         400,494       —    

Other obligations

        525,272       570,152       3,716       6,218  
     

 

 

   

 

 

   

 

 

   

 

 

 
        7,869,996       8,662,284       1,467,074       974,190  

Liabilities directly associated with assets classified as held for sale

     30        5,917       —         5,917       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL, CURRENT

        7,875,913       8,662,284       1,472,991       974,190  
     

 

 

   

 

 

   

 

 

   

 

 

 

NON-CURRENT

           

Regulatory charges

     21        279,382       249,817       —         —    

Loans, financings and debentures

     20        13,001,900       12,027,146       44,286       —    

Taxes payable

     19a        28,841       28,199       —         —    

Deferred income tax and Social Contribution tax

     9b        652,288       734,689       —         —    

Provisions

     23        683,453       678,113       64,711       63,194  

Post-retirement obligations

     22        4,024,447       3,954,287       467,511       446,523  

Concessions payable

        16,495       18,240       —         —    

Concession financial liabilities

     14        41,383       —         —         —    

Pasep and Cofins taxes to be reimbursed to customers

     19a        1,114,802       1,087,230       —         —    

Derivative financial instruments—put options

     29        374,185       307,792       —         —    

Derivative financial instruments—Swaps

     29        —         28,515       —         —    

Other obligations

        117,156       133,141       40,758       39,049  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL, NON-CURRENT

        20,334,332       19,247,169       617,266       548,766  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES

        28,210,245       27,909,453       2,090,257       1,522,956  
     

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY

     24           

Share capital

        7,293,763       6,294,208       7,293,763       6,294,208  

Capital reserves

        2,249,721       1,924,503       2,249,721       1,924,503  

Profit reserves

        5,728,574       5,728,574       5,728,574       5,728,574  

Equity valuation adjustments

        (861,862     (836,522     (861,862     (836,522

Subscription of shares, to be capitalized

        —         1,215,223       —         1,215,223  

Retained earnings

        558,338       —         558,338       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

        14,968,534       14,325,986       14,968,534       14,325,986  
     

 

 

   

 

 

   

 

 

   

 

 

 

NON-CONTROLLING INTERESTS

        4,317       4,150       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

        14,972,851       14,330,136       14,968,534       14,325,986  
     

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

        43,183,096       42,239,589       17,058,791       15,848,942  
     

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

139


LOGO

 

STATEMENTS OF INCOME

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais except earnings per share)

 

     Note      Consolidated     Holding company  
   Jan to Sep
2018

(Restated)
    Jan to Sep
2017
    Jan to Sep
2018

(Restated)
    Jan to Sep
2017
 

GOING CONCERN OPERATIONS

           

NET REVENUE

     25        16,794,251       15,153,781       233       250  

OPERATING COSTS

           

COST OF ENERGY AND GAS

     26           

Energy purchased for resale

        (8,576,061     (7,685,392     —         —    

Charges for use of the national grid

        (1,140,903     (791,339     —         —    

Gas purchased for resale

        (897,903     (789,861     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (10,614,867     (9,266,592     —         —    

OTHER COSTS

     26           

Personnel and managers

        (770,661     (992,908     —         —    

Materials

        (59,654     (30,589     —         —    

Outsourced services

        (633,257     (542,357     —         —    

Depreciation and amortization

        (563,672     (570,031     —         —    

Operating provisions

        (44,719     (195,345     —         —    

Infrastructure construction cost

        (592,206     (736,754     —         —    

Other

        (61,182     (58,101     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (2,725,351     (3,126,085     —         —    

TOTAL COST

        (13,340,218     (12,392,677     —         —    

GROSS PROFIT

        3,454,033       2,761,104       233       250  

OPERATING EXPENSES

     26           

Selling expenses

        (227,789     (191,343     —         —    

General and administrative expenses

        (470,180     (548,075     (52,744     (43,214

Operating provisions

        (134,544     (172,105     (71,952     (104,037

Other operating revenues (expenses)

        (407,489     (505,239     (40,972     (40,435
     

 

 

   

 

 

   

 

 

   

 

 

 
        (1,240,002     (1,416,762     (165,668     (187,686

Share of (loss) profit, net, of associates and joint ventures

     15        (75,986     (20,680     780,029       320,979  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income (expenses) and taxes

        2,138,045       1,323,662       614,594       133,543  

Finance income

     27        851,462       550,065       28,962       84,893  

Finance expenses

     27        (2,038,792     (1,271,951     (13,457     236,553  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax and Social Contribution tax

        950,715       601,776       630,099       454,989  

Current income and Social Contribution taxes

     9c        (379,231     (305,956     —         (13,949

Deferred income and Social Contribution taxes

     9c        91,117       101,362       41,998       (44,290
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period from going concern operations

        662,601       397,182       672,097       396,750  
     

 

 

   

 

 

   

 

 

   

 

 

 

DISCONTINUED OPERATIONS

           

Net income for the period from discontinued operations

     30        35,648       —         25,634       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

        698,249       397,182       697,731       396,750  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total of net income for the period attributed to:

           

Equity holders of the parent

           

Net income for the period from going concern operations

        662,083       396,750       672,097       396,750  

Net income for the period from discontinued operations

        35,648       —         25,634       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to equity holders of the parent

        697,731       396,750       697,731       396,750  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-controlling interests

           

Net income for the period from going concern operations

        518       432       —         —    

Net income for the period attributable to non-controlling interests

        518       432       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        698,249       397,182       697,731       396,750  
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per preferred share – R$

     24        0.48       0.32       0.48       0.32  

Basic and diluted earnings per common share – R$

     24        0.48       0.32       0.48       0.32  

The Condensed Notes are an integral part of the interim financial information.

 

140


LOGO

 

STATEMENTS OF INCOME

FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(In thousands of Brazilian Reais – except earnings per share)

 

     Note      Consolidated     Holding company  
   Jul to Sep
2018

(Restated)
    Jul to Sep
2017
    Jul to Sep
2018

(Restated)
    Jul to Sep
2017
 

NET REVENUE

     25        6,252,282       5,135,822       87       72  

OPERATING COSTS

           

COST OF ENERGY AND GAS

     26            —         —    

Energy purchased for resale

        (3,493,463     (2,942,974     —         —    

Charges for use of the national grid

        (332,323     (387,078     —         —    
           

Gas purchased for resale

        (341,445     (304,698     —      
     

 

 

   

 

 

   

 

 

   

 

 

 
        (4,167,231     (3,634,750    

OTHER COSTS

     26           

Personnel and managers

        (238,401     (304,061     —         —    

Materials

        (36,688     (13,035     —         —    

Outsourced services

        (219,286     (200,960     —         —    

Depreciation and amortization

        (189,149     (184,576     —         —    

Operating provisions, net

        (42,818     (23,266     —         —    

Infrastructure construction cost

        (208,563     (295,720     —         —    

Other

        (19,954     (36,742     —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        (954,859     (1,058,360     —         —    

TOTAL COST

        (5,122,090     (4,693,110     —         —    

GROSS PROFIT

        1,130,192       442,712       87       72  

OPERATING EXPENSES

     26           

Selling expenses

        (60,232     (50,458            

General and administrative expenses

        (157,063     (110,181     (18,306     (14,921

Operating provisions

        (31,749     (115,151     6,237       (88,726

Other operating expenses

        (151,164     (191,538     (11,427     (15,405
     

 

 

   

 

 

   

 

 

   

 

 

 
        (400,208     (467,328     (23,496     (119,052

Share of (loss) profit, net, of associates and joint ventures

     15        (49,753     (80,798     250,226       (190,646
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before finance income (expenses) and taxes

        680,231       (105,414     226,817       (309,626

Finance income

     27        362,795       201,164       10,170       51,875  

Finance expenses

     27        (695,493     (188,750     (10,372     238,514  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax and Social Contribution tax

        347,533       (93,000     226,615       (19,237

Current income and Social Contribution taxes

     9c        (182,812     (13,234     —         (11,416

Deferred income and Social Contribution taxes

     9c        65,543       22,568       3,429       (53,175
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) for the period from going concern operations

        230,264       (83,666     230,044       (83,828

DISCONTINUED OPERATIONS

           

Net income (loss) for the period from discontinued operations

     30        14,276       —         14,276       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

        244,540       (83,666     244,320       (83,828
     

 

 

   

 

 

   

 

 

   

 

 

 

Total of net income for the period attributed to:

           

Equity holders of the parent

           

Net income for the period from going concern operations

        230,044       (83,828     230,044       (83,828

Net income for the period from discontinued operations

        14,276       —         14,276       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to equity holders of the parent

        244,320       (83,828     244,320       (83,828
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-controlling interests

           

Net income for the period from going concern operations

        220       162       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to non-controlling interests

        220       162       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        244,540       (83,666     244,320       (83,828
     

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per preferred share – R$

     24        0.17       (0.06     0.17       (0.06

Basic and diluted earnings (loss) per common share – R$

     24        0.17       (0.06     0.17       (0.06

The Condensed Notes are an integral part of the interim financial information.

 

141


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STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated     Holding company  
     Jan to Sep
2018

(Restated)
    Jan to Sep
2017
    Jan to Sep
2018

(Restated)
    Jan to Sep
2017
 

NET INCOME FOR THE PERIOD

     698,249       397,182       697,731       396,750  

OTHER COMPREHENSIVE INCOME

        

Items not to be reclassified to statements of income in subsequent periods

        

Post retirement obligations – premeasurement of obligations of the defined benefit plans, net of taxes

     (416     (680     —         —    

Equity gain (loss) on other comprehensive income in subsidiary and jointly-controlled entity, net of taxes

     —         (4,851     (416     (5,531
  

 

 

   

 

 

   

 

 

   

 

 

 
     (416     (5,531     (416     (5,531

Items to be reclassified to statements of income in subsequent periods

        

Equity gain on other comprehensive income, in subsidiary and jointly-controlled entity, relating to fair value of financial asset and conversion of operations abroad, net of taxes

     —         (38,134     8       (38,134

Foreign exchange conversion differences on transactions outside Brazil

     8       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME FOR THE PERIOD

     697,841       353,517       697,323       353,085  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of comprehensive income for the period attributed to:

        

Equity holders of the parent

     697,323       353,085       697,323       353,085  

Non-controlling interests

     518       432       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     697,841       353,517       697,323       353,085  
  

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated     Holding company  
     Jul to Sep
2018

(Restated)
     Jul to Sep
2017
    Jul to Sep
2018

(Restated)
     Jul to Sep
2017
 

NET INCOME FOR THE PERIOD

     244,540        (83,666     244,320        (83,828

OTHER COMPREHENSIVE INCOME

          

Items not to be reclassified to statements of income in subsequent periods

     —          —         —          —    

Items to be reclassified to statements of income in subsequent periods

     —          —         —          —    

Equity gain on other comprehensive income, in subsidiary and jointly-controlled entity, relating to conversion of operations abroad

     —          —         8        —    

Foreign exchange conversion differences on transactions outside Brazil

     8        —         —          —    
  

 

 

    

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME FOR THE PERIOD

     244,548        (83,666     244,328        (83,828
  

 

 

    

 

 

   

 

 

    

 

 

 

Total of comprehensive income for the period attributed to:

          

Equity holders of the parent

     244,328        (83,828     244,328        (83,828

Non-controlling interests

     220        162       —          —    
  

 

 

    

 

 

   

 

 

    

 

 

 
     244,548        (83,666     244,328        (83,828
  

 

 

    

 

 

   

 

 

    

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

142


LOGO

 

STATEMENTS OF CHANGES IN EQUITY—CONSOLIDATED

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Share
capital
     Subscription
of shares
to be
capitalized
    Capital
reserves
     Profit
reserves
     Equity
valuation
adjustments
    Retained
earnings
    Total
equity
holders of
the parent
    Non-controlling
interests
    Total
Equity
 

BALANCES ON DEC. 31, 2017

     6,294,208        1,215,223       1,924,503        5,728,574        (836,522     —         14,325,986       4,150       14,330,136  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

First adoption CPC 48

     —          —         —          —          —         (181,846     (181,846     —         (181,846

Net income for the period

     —          —         —          —          —         697,731       697,731       518       698,249  

Other comprehensive income

                     

Measurement of obligations of the defined benefit plans, net of taxes

     —          —         —          —          (416     —         (416     —         (416

Foreign exchange conversion differences on transactions outside Brazil

     —          —         —          —          8       —         8       —         8  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          —         —          —          (408     697,731       697,323       518       697,841  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subscription of Shares to be Capitalized

     —          109,550       —          —          —         —         109,550       —         109,550  

Capital subscribed

     999,555        (999,555     —          —          —         —         —         —         —    

Constitution of reserves

        (325,218     325,218        —          —         —         —         —         —    

Other changes in Equity:

                     

Interest on Equity

     —          —         —          —          —         —         —         (351     (351

Realization of reserves

                     

Realization of deemed cost of PP&E

     —          —         —          —          (24,932     42,453       17,521       —         17,521  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCES ON SEPTEMBER 30, 2018 (RESTATED)

     7,293,763        —         2,249,721        5,728,574        (861,862     558,338       14,968,534       4,317       14,972,851  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

143


LOGO

 

STATEMENTS OF CHANGES IN EQUITY—CONSOLIDATED

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

(Thousands of Brazilian Reais)

 

     Share
capital
     Capital
reserves
     Profit
reserves
     Equity
valuation
adjustments
    Retained
earnings
     Total
equity
holders of
the parent
    Non-controlling
interests
    Total
Equity
 

BALANCES ON DECEMBER 31, 2016

     6,294,208        1,924,503        5,199,855        (488,285     —          12,930,281       4,090       12,934,371  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income for the period

     —          —          —          —         396,750        396,750       432       397,182  

Other comprehensive income

                    

Measurement of obligations of the defined benefit plans, net of taxes

     —          —          —          (680     —          (680     —         (680

Equity gain (loss) on Other comprehensive income in subsidiary and jointly-controlled entity

     —          —          —          (42,985     —          (42,985     —         (42,985
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

     —          —          —          (43,665     396,750        353,085       432       353,517  

Other changes in Equity:

                    

Additional dividends proposed to non-controlling interests

     —          —          —          —         —          —         (424     (424

Realization of reserves

                    

Realization of deemed cost of PP&E

     —          —          —          (43,923     43,666        (257     —         (257
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCES ON SEPTEMBER 30, 2017

     6,294,208        1,924,503        5,199,855        (575,873     440,416        13,283,109       4,098       13,287,207  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

144


LOGO

 

STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Note      Consolidated     Holding company  
   Jan to Sep 2018
(Restated)
    Jan to Sep
2017
    Jan to Sep 2018
(Restated)
    Jan to Sep
2017
 

CASH FLOW FROM OPERATIONS

           

Net income for the period from going concern operations

        662,601       397,182       672,097       396,750  

Adjustments to reconcile net income to net cash flows:

           

Income tax and Social Contribution taxes

        288,114       204,594       (41,998     58,239  

Depreciation and amortization

     26        619,104       616,783       761       351  

Loss on write off of net residual value of unrecoverable Concession financial assets, PP&E and Intangible assets

        57,775       23,060       154       25  

Share of profit (loss) in associates and joint ventures

     15        75,986       20,680       (780,029     (320,979

Interest, monetary variation and updating of Concession financial assets

        438,451       834,151       (35,988     (44,696

Reversal of monetary updating on AFAC

        —         (239,445     —         (239,445

The Minas Gerais State Tax Amnesty Plan (PRCT)

        —         587,624       —         —    

Foreign exchange variation on loans

     20        781,297       —         —         —    

Amortization of loans’ transaction costs

     20        26,323       —         285       —    

Provisions for operating losses

     26        402,117       558,793       71,952       104,037  

Fair value adjustment of derivative financial instruments – Swap

     29        (322,847     —         —         —    

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments

     25        (1,783,790     (148,216     —         —    

Provision for reimbursement due to suspension of supply – Renova

        (51,635     —         —         —    

Adjustment of indemnity – plants with non-renewed concessions (Ministerial Order 291)

        —         (259,516     —         —    

Post-retirement obligations

     22        303,832       342,018       32,984       31,863  
     

 

 

   

 

 

   

 

 

   

 

 

 
        1,497,328       2,937,708       (79,782     (13,855
     

 

 

   

 

 

   

 

 

   

 

 

 

(Increase) / decrease in assets

           

Customers and traders and Concession holders

        (510,468     (397,144     1,765       —    

CVA (Portion A Compensation) Account and Other Financial Components, in tariff adjustments

     14        568,432       304,841       —         —    

Energy Development Account (CDE)

        (8,010     (9,594     —         —    

Recoverable taxes

        (858,104     (22,057     380       (116

Income and Social Contribution taxes credit

        (31,689     (24,460     (4,526     88,723  

Escrow deposits

        (59,786     (47,440     18,042       1,598  

Dividends received from investments

        235,163       247,824       598,485       361,293  

Concession financial assets

        1,645,708       314,473       —         —    

Advances to suppliers

        (55,383     (199,400     —         —    

Gas drawing rights

        317       658,444       —         —    

Others

        51,205       (155,307     2,098       19,077  
     

 

 

   

 

 

   

 

 

   

 

 

 
        977,385       670,180       616,244       470,575  
     

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Note      Consolidated     Holding company  
   Jan to Sep 2018
(Restated)
    Jan to Sep
2017
    Jan to Sep 2018
(Restated)
    Jan to Sep
2017
 

Increase (decrease) in liabilities

           

Suppliers

        57,666       246,855       (257     2,635  

Taxes payable

        (131,409     (399,038     6,237       (78,693

Income and Social Contribution taxes payable

        29,549       175,273       2,930       (9,191

Payroll and related charges

        27,938       22,914       4,231       1,388  

Regulatory charges

        (84,304     60,478       5,837       —    

Advances from clients

        (152,050     93,246       —         —    

Post-retirement obligations

     22        (222,509     (203,090     (11,873     (11,132

Others

        (73,863     (123,032     (14,691     (11,488
     

 

 

   

 

 

   

 

 

   

 

 

 
        (548,982     (126,394     (7,586     (106,481
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated by going concern operations

        1,925,731       3,481,494       528,876       350,239  
     

 

 

   

 

 

   

 

 

   

 

 

 

Interest paid on loans, financings and debentures

     20        (834,053     (1,030,773     (787     —    

Income and Social Contribution taxes paid

        (379,628     (307,860     (151     (4,758

Settlement of derivative financial instruments (Swap)

        12,981       —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM GOING CONCERN OPERATIONS

        725,031       2,142,861       527,938       345,481  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from Discontinued operations

     30        51,271       —         43,310       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM OPERATING ACTIVITIES

        776,302       2,142,861       571,248       345,481  
     

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES

           

Marketable securities

     6      443,654       331,069       43,738       116,984  

Financial assets

        —         (160,481     —         —    

Restricted cash

     10      (6,814     (38,020     (4,949     (29,470

Investments

           

Capital contributions in investees

     15        (176,632     (228,205     (1,109,105     (100,121

Cash received through merger

        —         —         428       —    

Property, plant and equipment

     16        (50,661     (53,883     —         —    

Intangible assets

     17        (563,470     (691,017     (182     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING IN GOING CONCERN OPERATIONS

        (353,923     (840,537     (1,070,070     (12,607
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investment activities—discontinued operations

     30        (7,631     —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

        (361,554     (840,537     (1,070,070     (12,607
     

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES

           

New loans and debentures

     20        2,443,878       60,108       —         —    

Loans with related parties

        —         —         400,000       —    

Capital increase

     24        109,550       —         109,550       —    

Payment of loans, financings and debentures

     20        (2,504,654     (1,506,459     (9,416     —    

Interest on capital and dividends paid

        (396     (268,723     (10     (270,685
     

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) FINANCING ACTIVITIES

        48,378       (1,715,074     500,124       (270,685
     

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

        463,126       (412,750     1,302       62,189  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     5        1,030,257       995,132       38,672       69,352  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     5        1,493,383       582,382       39,974       131,541  
     

 

 

   

 

 

   

 

 

   

 

 

 

The Condensed Notes are an integral part of the interim financial information.

 

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STATEMENTS OF ADDED VALUE

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018 AND 2017

(Thousands of Brazilian Reais)

 

     Consolidated      Holding company  
     Jan to Sep
2018

(Restated)
   

 

     Jan to Sep
2017
   

 

     Jan to
Sep 2018

(Restated)
   

 

    Jan to
Sep 2017
   

 

 

REVENUES

                  

Sales of electricity, gas and services (1)

     24,478,915          21,927,158          257         276    

Distribution construction revenue

     579,480          725,528                  —      

Transmission construction revenue

     12,726          11,226                  —      

Gain on financial updating of the Concession Grant Fee

     245,730          240,420                  —      

Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession

     3,875          2,277                  —      

Transmission indemnity revenue

     208,164          295,749          —           —      

Generation indemnity revenue

     82,331          259,516          —           —      

Investments in PP&E

     52,513          24,549          —           —      

Other revenues

     7,219          1,479          —           —      

Provision for Doubtful Receivables (PECLD)

     (227,789        (191,343        —           —      
  

 

 

      

 

 

      

 

 

     

 

 

   
     25,443,164          23,296,559          257         276    

INPUTS ACQUIRED FROM THIRD PARTIES

                  

Energy purchased for resale

     (9,391,800        (8,424,585                —      

Charges for use of national grid

     (1,271,326        (882,536                —      

Outsourced services (1)

     (1,036,667        (983,908        (17,327       (6,796  

Gas purchased for resale

     (1,129,295        (789,861                —      

Materials (1)

     (320,372        (392,871        (1,101       (89  

Other operational costs (1)

     (410,121        (587,938        (76,835       (107,183  
  

 

 

      

 

 

      

 

 

     

 

 

   
     (13,559,581        (12,061,699        (95,263       (114,068  

GROSS VALUE ADDED

     11,883,583          11,234,860          (95,006       (113,792  

RETENTIONS

                  

Depreciation and amortization (1)

     (619,104        (616,783        (761       (351  
  

 

 

      

 

 

      

 

 

     

 

 

   

NET ADDED VALUE PRODUCED BY GOING CONCERN OPERATIONS

     11,264,479          10,618,077          (95,767       (114,143  

NET ADDED VALUE PRODUCED BY DISCONTINUED OPERATIONS

     35,648          —            25,634         —      

ADDED VALUE RECEIVED BY TRANSFER

                  

Share of (loss) profit, net, of associates and joint ventures

     (75,986        (20,680        780,029         320,979    

Finance income

     851,462          550,065          28,962         84,893    
  

 

 

      

 

 

      

 

 

     

 

 

   

ADDED VALUE TO BE DISTRIBUTED

     12,075,603          11,147,462          738,858         291,729    
  

 

 

      

 

 

      

 

 

     

 

 

   

DISTRIBUTION OF ADDED VALUE

                  
       %          %          %         %  
    

 

 

      

 

 

      

 

 

     

 

 

 

Employees

     1,178,568       9.77        1,507,087       13.52        61,658       8.34       65,849       22.56  

Direct remuneration

     755,504       6.26        850,936       7.63        25,933       3.51       26,795       9.18  

Post-employment obligations and Other benefits

     349,619       2.90        406,373       3.65        32,766       4.43       31,928       10.94  

FGTS

     47,779       0.40        52,452       0.47        1,138       0.15       1,891       0.65  

Programmed Voluntary Retirement Plan

     25,666       0.21        197,326       1.77        1,821       0.25       5,235       1.79  

Taxes

     8,065,427       66.79        7,833,994       70.28        (37,804     (5.11     62,821       21.54  

Federal

     4,094,793       33.91        3,351,706       30.07        (38,382     (5.19     62,186       21.32  

State

     3,960,135       32.79        4,472,137       40.12        283       0.04       485       0.17  

Municipal

     10,499       0.09        10,151       0.09        295       0.04       150       0.05  

Remuneration of external capital

     2,133,359       17.66        1,409,199       12.64        17,273       2.34       (233,691     (80.11

Interest

     2,060,541       17.06        1,326,887       11.90        13,457       1.82       (236,553     (81.09

Rentals

     72,818       0.60        82,312       0.74        3,816       0.52       2,862       0.98  

Remuneration of own capital

     698,249       5.78        397,182       3.56        697,731       94.43       396,750       136.00  

Retained earnings

     697,731       5.78        396,750       3.56        697,731       94.43       396,750       136.00  

Non-controlling interest in Retained earnings

     518       —          432       —          —         —         —         —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     12,075,603       100.00        11,147,462       100.00        738,858       100.00       291,729       100.00  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes the effect of net incomes arising from the discontinued operations.

The Condensed Notes are an integral part of the interim financial information.

 

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CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE NINE-MONTH PERIOD ENDED AS OF SEPTEMBER 30, 2018

(In Thousands of Brazilian Reais – except where otherwise indicated)

 

1.

OPERATING CONTEXT

 

a)

The Company

Companhia Energética de Minas Gerais (´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 São Paulo Stock Exchange (‘B3’) at Corporate Governance Level 1; through ADRs on the New York Stock Exchange (‘NYSE’); and on the stock exchange of Madrid (‘Latibex’). It is domiciled in Brazil, Belo Horizonte, Minas Gerais. It operates exclusively as a holding company, with subsidiaries and investments in associates or jointly controlled entities (collectively referred to as “Cemig” or the “the Company”), which are engaged in the construction and operation of infrastructure used in the generation, transformation, transmission, distribution and sale of electricity, and also activities in the various fields of the energy sector, for the purpose of commercial operation.

As of September 30, 2018, Company’s current liabilities exceeded its current assets by R$ 553,106 in the holding company, mainly due to the loan contract signed with its subsidiary Cemig Geração e Transmissão S.A. (“Cemig GT”), in the amount of R$ 400,000 (more details in note 28). The Company presented positive consolidated net working capital of R$ 1,660,603. In the period from January to September of 2018, the Company generated positive operating cash flows in the amounts of R$ 527,938 and R$ 725,031, in the holding company and consolidated, respectively (R$ 345,481 and R$ 2,142,861 in the prior year). In addition, on September 30, 2018 Company’s consolidated indebtedness loans, financings and debentures on current and non-current liabilities totaled R$ 2,392,155 and R$ 13,001,900, respectively.

As part of the Company indebtedness management, in July 2018 the subsidiary Cemig GT issued new Eurobonds for an amount of US$ 500 million (R$ 1,9 billion), through Eurobonds’ reopening originally issued in December 2017, with maturity in 2024 and a half-yearly coupon of 9.25% p.a.. In addition, in 2018 Cemig GT made early settlement of debts in the amount of R$ 1.3 billion, which had been contracted at a cost of 140% of the CDI rate, with original maturity in December 2021. These initiatives have balanced the Company’s cash flows, extended average debt maturities, and improved credit quality.

Based on the facts and circumstances that existed on this reporting date, Management has evaluated the Company’s ability to continue on a going concern basis and is convinced that its operations have the capacity to generate funds to continue its business in the future. In addition, Management is not aware of any material uncertainties that could generate significant doubts about its ability to continue operating. Therefore, these interim financial information have been prepared on a going concern basis.

 

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Merger of Cemig Telecomunicações S.A. (‘Cemig Telecom’) and sale of telecom assets

On March 31, 2018, Cemig completed the merger of its wholly-owned subsidiary Cemig Telecom at book value. As a result, Cemig Telecom has been wound up and Cemig has taken over all the subsidiary’s assets, rights and obligations. Considering this is a wholly-owned subsidiary merger there has not been capital increase nor new shares issuance. The Cemig Telecom shares have been extinguished on the merger date.

The balance sheet of Cemig Telecom used for the merger, at March 31, 2018, is as follows:

 

     Mar. 31, 2018           Mar. 31, 2018  

Assets

      Liabilities   

Current

     24,986        Current      33,816  

Non-current

        Non-current      55,407  

Non-current assets

     15,313           —    

Investments

     17,116           —    

Net PP&E

     271,766           —    

Intangible assets

     11,716           —    
  

 

 

       
     315,911      Equity      251,674  
  

 

 

       

 

 

 

Total assets

     340,897      Total liabilities and Equity      340,897  
  

 

 

       

 

 

 

The Company’s Management completed on November 1, 2018, the sale process of the assets merged from Cemig Telecom. See details in Note 30.

Changes in the Company’s by-laws – improvement of corporate governance

On June 11, 2018 a General Meeting of Shareholders approved changes to the Company’s by-laws, to formalize best corporate governance practices and meet the requirements of Law 13303/2016 (the ‘State Companies Law’). The improvements now formally incorporated in the by-laws include:

 

Reduction of the number of members of the Board of Directors from 15 to 9, in line with the IBGC Best Corporate Governance Practices Code, and the Corporate Sustainability Evaluation Manual of the Dow Jones Sustainability Index.

 

Creation of the Audit Committee (Comitê de Auditoria). The Fiscal Council (Conselho Fiscal) remains in existence.

The changes in the by-laws have had no effect on the Company’s dividend policy.

 

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2.

BASIS OF PREPARATION

 

2.1

Statement of compliance

The interim financial information has been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), Technical Pronouncement 21 (R1) – ‘CPC 21’, which applies to interim financial information, and the rules issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM), applicable to preparation of Interim Financial Information (Informações Trimestrais, or ITR).

This interim financial information have been prepared according to principles, practices and criteria consistent with those adopted in the preparation of the December 31, 2017 financial statements, except for the adoption of new pronouncements that came into force as from January 1, 2018, which impacts are presented in Note 2.2 to this interim financial information.

Thus, this consolidated interim financial information should be read in conjunction with the said financial statements, approved by the Company’s Fiscal Council on March 28, 2018.

Material information in the interim financial information is being disclosed, which is used by Management in its administration of the Company.

The Company’s Executive Board authorized the issuance of this interim financial information on August 13, 2018 and on November 27, 2018 the company authorized its restatement to reflect the effect of adjustments described in note 2.3.

 

2.2

Adoption of new pronouncements effective as from January 1, 2018

IFRS 15/CPC 47 – Revenue from contracts with customers

IFRS 15/CPC 47 – Revenue from contracts with customers establishes a five-step model to account for revenues arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount which reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. This new pronouncement will supersede all current requirements for recognition of revenue under the CPCs/IFRS. Additionally, IFRS 15/CPC 47 establishes requirements for more detailed presentation and disclosure than the standards currently in effect.

The Company and its subsidiaries adopted the new standard based on the prospective method, with the impacts accounted for as of January 1, 2018.

The Company and its subsidiaries performed an assessment of the five steps for recognition and measurement of revenue, as required by IFRS 15/CPC 47:

 

  1.

Identify the contracts signed with its customers;

 

  2.

Identify the performance obligations in each type of contract;

 

  3.

Determine the price of each type of transaction;

 

  4.

Allocate the price to the performance obligations contained in the contract; and

 

  5.

Recognize the revenue when (or to the extent that) the entity satisfies each performance obligation of the contract.

The impact of the adoption of this pronouncement occurred in the recognition of reimbursements to customers resulting from the penalties for breach of quality indicators in the electricity supply, mainly the indicators DIC, FIC, DMIC and DICRI, as a reduction of revenues from use of the distribution network (TUSD). Until December 31, 2017, these reimbursements were recognized as operating expense.

 

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This table shows the impact of adoption of IFRS 15 (CPC 47) on the statement of income for the periods of nine and three months ended September 30, 2018:

 

     Jan to Sep 2018
with adoption of

IFRS 15/CPC 47
(Restated)
    Adjustment (1)
IFRS 15/CPC 47
    Jan to Sep 2018
without adoption of
IFRS 15/CPC 47

(Restated)
 

GOING CONCERN OPERATIONS

      

NET REVENUE

     16,794,251       31,596       16,825,847  

OPERATING COSTS

     (13,340,218     —         (13,340,218

OPERATING EXPENSES

     (1,240,002     (31,596     (1,271,598

Share of (loss) profit, net, of associates and joint ventures

     (75,986     —         (75,986

Net Finance income (expenses)

     (1,187,330     —         (1,187,330

Income and Social Contribution taxes

     (288,114     —         (288,114
  

 

 

   

 

 

   

 

 

 

Net income from going concern operations in the period

     662,601       —         662,601  
  

 

 

   

 

 

   

 

 

 

 

     Jul to Sep 2018
with adoption of
IFRS 15/CPC 47
(Restated)
    Adjustment (1)
IFRS 15/CPC 47
    Jul to Sep 2018
without adoption of
IFRS 15/CPC 47

(Restated)
 

GOING CONCERN OPERATIONS

      

NET REVENUE

     6,252,282       5,915       6,258,197  

OPERATING COSTS

     (5,122,090     —         (5,122,090

OPERATING EXPENSES

     (400,208     (5,915     (406,123

Share of (loss) profit, net, of associates and joint ventures

     (49,753     —         (49,753

Net Finance income (expenses)

     (332,698     —         (332,698

Income and Social Contribution taxes

     (117,269     —         (117,269
  

 

 

   

 

 

   

 

 

 

Net income from going concern operations in the period

     230,264       —         230,264  
  

 

 

   

 

 

   

 

 

 

 

(1)

Refers to penalties for violation of energy supply quality indicators, mainly the indicators DIC, FIC, DMIC and DICRI, reclassified from Other operational revenue (expenses).

IFRS 9/CPC 48 – Financial instruments

IFRS 9/CPC 48 establishes that all financial activities recognized that are within the scope of IAS 39 (equivalent to CPC 38) should subsequently be measured at amortized cost or fair value, reflecting the business model in which the assets are administered, and their cash flow characteristics, not affecting accounting recognition of the Company’s financial assets and liabilities. IFRS 9/CPC 48 contains three categories of accounting for financial instruments: Amortized cost; Fair value through other comprehensive income; and fair value through profit or loss.

 

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The standard has eliminated the existing categories under IAS 39/CPC 38 and, thus, the Company and its subsidiaries have reclassified those categories to comply with the new standard, as follows:

 

Consolidated

   Classification  
   IFRS 39/CPC 38     IFRS 9/CPC 48  

Financial assets:

    

Cash equivalents – Investments

     Loans and receivables       Amortized cost  

Securities – Investments (1)

     Held to maturity       Amortized cost  

Securities – Investments (1)

     Available for sale       Fair value through profit or loss  

Customers and Traders; Concession holders (Transport of energy)

     Loans and receivables       Amortized cost  

Restricted cash

     Loans and receivables       Amortized cost  

Advances to suppliers

     Loans and receivables       Amortized cost  

Accounts receivable from the State of Minas Gerais

     Loans and receivables       Amortized cost  

Receivables from related parties

     Loans and receivables       Amortized cost  

Concession financial assets – CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     Loans and receivables       Amortized cost  

Reimbursement of tariff subsidies

     Loans and receivables       Amortized cost  

Low-income subsidy

     Loans and receivables       Amortized cost  

Escrow deposits

     Loans and receivables       Amortized cost  

Derivative financial instruments (swap transactions)

     Fair value through profit or loss       Fair value through profit or loss  

Concession financial assets – Transmission – Assets remunerated by tariff

     Loans and receivables (2)       Fair value through profit or loss  

Concession financial assets – Distribution infrastructure

     Available for sale       Fair value through profit or loss  

Indemnities receivable – Transmission

     Loans and receivables (2)       Fair value through profit or loss  

Indemnities receivable – Generation

     Loans and receivables (2)       Fair value through profit or loss  

Concession grant fee – Generation concessions

     Loans and receivables       Amortized cost  

Other

     Loans and receivables       Amortized cost  

Financial liabilities

    

Loans, financings and debentures

     Amortized cost       Amortized cost  

Debt agreed with pension fund (Forluz)

     Amortized cost       Amortized cost  

Concession financial liabilities – CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     Amortized cost       Amortized cost  

Concessions payable

     Amortized cost       Amortized cost  

The Minas Gerais State Tax Amnesty Plan (PRCT)

     Amortized cost       Amortized cost  

Suppliers

     Amortized cost       Amortized cost  

Advances from clients

     Amortized cost       Amortized cost  

Derivative financial instruments (swap transactions)

     Fair value through profit or loss       Fair value through profit or loss  

Derivative financial instruments – Put options

     Fair value through profit or loss       Fair value through profit or loss  

 

(1)

The Company has ‘securities’ with various classifications under IFRS 9 / CPC 48.

(2)

Recognized at their nominal realization values, which are similar to fair value.

 

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Impairment

The material impact resulting from the adoption of the standard as from January 1, 2018 is related to the impairment of trade accounts receivable.

The new pronouncement also establishes that in relation to the impairment losses of financial assets, the expectation of loss model in the credit is no longer losses incurred, but a prospective model of expected credit losses, based on probabilities.

Based on the new pronouncement, provisions for expected losses were measured based on the losses expected in the next 12 months, as a function of the potential default events, or losses of credit expected for the whole life of a financial instrument, if the credit risk has significantly increased since its initial recognition.

The Company and its subsidiaries have adopted, in its analyses, a simplified approach, considering that the balance of its accounts receivable from clients do not have a significant financial component, and have calculated the expectation of loss considering the historic average of non-collection over the total billed in each month (based on the last 12 months of billing), segregated by type of customers and projected for the next 12 months, taking into account the aging of receivables, including those not yet due. The estimated loss for the past due balances of customers who renegotiated their debt has been calculated based on the maturity date of the original invoice, with the new terms negotiated not being taken into account. For the balances that are more than 12 months past due, expectation of total loss was assumed.

The estimated effects at January 1, 2018 arising from adoption of IFRS 9/CPC 48, resulted in an increase in the provision for doubtful accounts and a corresponding effect in Equity, as follows:

 

     Jan. 1,
2018
 

Customers and Traders; Transport of energy (a)

     150,114  

Reflex of the adjustment due to the jointly controlled—Light

     82,770  

Deferred income and Social Contribution taxes (a)

     (51,038
  

 

 

 
     181,846  
  

 

 

 

 

(a)

Refers to estimated losses on doubtful accounts receivable from customers of Cemig D.

 

2.3

Restatement of the interim financial information

As mentioned in Note 32, on May 28, 2018 Aneel confirmed the result of the Fourth Tariff Review of Cemig Distribuição S.A. (‘Cemig D’), a wholly-owned subsidiary of the Company. Part of this result comprised direct pass-throughs to the tariff of amounts arising from variations in non-manageable costs (‘Portion A’), arising primarily from: purchase of power supply, transmission charges, and other financial components of the tariff, for which Cemig D recorded the accounting effects as from May 2018.

 

 

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After publication of the interim financial information for the quarter and nine months ended September 30, 2018, differences were identified in the accounting of the amortization of certain concession financial assets and liabilities related to CVA Account (Portion A Compensation) and Other Financial Components approved in the tariff review referred to above. The effect of these differences on the individual interim financial information of the Company is limited to the share of profit, recorded by the equity method, related to the equity ownership that the Company holds in Cemig D. As a result, the Company and its subsidiary have opted to restate the individual and consolidated interim financial information, so as to better reflect their financial position and operational performance. These changes caused no effects on the individual and consolidated financial statements for the year ended December 31, 2017, which are presented for the purposes of comparison, nor in the individual and consolidated financial statements for the quarter ended March 31, 2018.

Based on the orientation given in CPC 23 / IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, the Interim financial information is being restated with the following adjustments:

 

(a)

Correction of the divergences in the accounting of the amortization of certain Concession financial assets and liabilities related to the CVA (Variation in ‘Portion A’ Items) account and Other Financial Components approved in the Tariff Review of May 28, 2018 – in the net amounts of R$ 326,490 and R$ 244,867 for the nine and three-month periods ended September 30, 2018, respectively.

 

(b)

Effects of the adjustment indicated item (a) on calculations of current and deferred income tax and social contribution tax, in the amount of R$ R$ 64,386 and R$ 29,857, respectively, for the nine-month period ended September 30, 2018 and R$ 48,011 and R$ 22,377, respectively, for the three-month period then ended.

 

(c)

Effects of the adjustment indicated in item (a) on calculations of Pasep and Cofins taxes, in the amounts of R$ 30,200 and R$ 22,650 for the nine and three-month periods ended September 30, 2018, respectively.

 

(d)

Effects of the adjustment indicated in item (a) on calculations of the regulatory charges, in the amounts of R$ 2,936 and R$ 2,202 for the nine and three-month periods ended September 30, 2018, respectively.

 

(e)

Aggregate effect, in penalty payment and arrears interest, arising from the calculations of Income tax and Social Contribution tax, Pasep and Cofins, and regulatory charges in the amount of R$ 414, R$ 194 and R$ 27, respectively, for the nine and three-month periods ended September 30, 2018.

 

(f)

Net aggregate effects of the adjustments indicated in items (a), (b), (c), (d) and (e), in calculation of the gain by the equity method arising from the Company’s investment in Cemig D in the amounts of R$ 198,476 and R$ 148,992, for the nine and three-month periods ended September 30, 2018, respectively.

 

(g)

Net effect of all the adjustments, in the amounts of R$ 198,476 and R$ 148,992 in the profit of the nine and three-month periods ended September 30, 2018, respectively.

 

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STATEMENTS OF FINANCIAL POSITION

 

     Consolidated      Holding company  

Assets

   Sep. 30,
2018
     Adjustments     Sep. 30,
2018

(Restated)
     Sep. 30,
2018
     Adjustments      Sep. 30,
2018

(Restated)
 

CURRENT

                

Concession financial assets (a)

     818,517        100,217       918,734        —          —          —    

Income and Social Contribution taxes recoverable (b) and (e)

     386,235        (64,800     321,435        26,728        —          26,728  

Other

     8,015,150        —         8,015,150        611,960        —          611,960  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     9,219,902        35,417       9,255,319        638,688        —          638,688  

Assets classified as Held for sale

     281,197        —         281,197        281,197        —          281,197  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, CURRENT

     9,501,099        35,417       9,536,516        919,885        —          919,885  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

NON-CURRENT

                

Deferred income and Social Contribution taxes (b)

     1,960,631        (29,857     1,930,774        789,615        —          789,615  

Investments – Equity method (g)

     7,637,095        —         7,637,095        14,565,141        198,476        14,763,617  

Other

     24,078,711        —         24,078,711        585,674        —          585,674  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL, NON-CURRENT

     33,676,437        (29,857     33,646,580        15,940,430        198,476        16,138,906  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL ASSETS

     43,177,536        5,560       43,183,096        16,860,315        198,476        17,058,791  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consolidated     Holding company  

Liabilities

   Sep. 30,
2018
    Adjustments     Sep. 30,
2018

(Restated)
    Sep. 30,
2018
    Adjustments      Sep. 30,
2018

(Restated)
 

CURRENT

             

Regulatory charges (d) and (e)

     417,686       908       418,594       5,837       —          5,837  

Taxes payable (c) and (e)

     376,533       30,394       406,927       8,355       —          8,355  

Concession financial liabilities (a)

     226,273       (226,273     —         —         —          —    

Other obligations

     7,044,475       —         7,044,475       1,452,882       —          1,452,882  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     8,064,967       (194,971     7,869,996       1,467,074       —          1,467,074  

Liabilities directly associated with assets classified as held for sale

     5,917       —         5,917       5,917       —          5,917  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL, CURRENT

     8,070,884       (194,971     7,875,913       1,472,991       —          1,472,991  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NON-CURRENT

             

Regulatory charges (d) and (e)

     277,327       2,055       279,382       —         —          —    

Other obligations

     20,054,950       —         20,054,950       576,508       —          576,508  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL, NON-CURRENT

     20,332,277       2,055       20,334,332       617,266       —          617,266  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL LIABILITIES

     28,403,161       (192,916     28,210,245       2,090,257       —          2,090,257  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

EQUITY

             

Share capital

     7,293,763       —         7,293,763       7,293,763       —          7,293,763  

Capital reserves

     2,249,721       —         2,249,721       2,249,721       —          2,249,721  

Profit reserves

     5,728,574       —         5,728,574       5,728,574       —          5,728,574  

Equity valuation adjustments

     (861,862     —         (861,862     (861,862     —          (861,862

Subscription of shares, to be capitalized

     —         —         —         —         —          —    

Retained earnings (g)

     359,862       198,476       558,338       359,862       198,476        558,338  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

     14,770,058       198,476       14,968,534       14,770,058       198,476        14,968,534  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NON-CONTROLLING INTERESTS TOTAL EQUITY

     4,317       —         4,317       —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL EQUITY

     14,774,375       198,476       14,972,851       14,770,058       198,476        14,968,534  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

     43,177,536       5,560       43,183,096       16,860,315       198,476        17,058,791  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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STATEMENTS OF INCOME

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018

 

     Consolidated     Holding company  
     Jan to Sep
2018
    Adjustments     Jan to Sep
2018

(Restated)
    Jan to Sep
2018
    Adjustments      Jan to Sep
2018

(Restated)
 

Going concern operations

             

Net revenue (a), (c) and (d)

     16,500,897       293,354       16,794,251       233       —          233  

Total cost

     (13,340,218     —         (13,340,218     —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

GROSS PROFIT

     3,160,679       293,354       3,454,033       233       —          233  

Operating expenses

     (1,240,002     —         (1,240,002     (165,668     —          (165,668

Share of (loss) profit, net, of associates and joint ventures (f)

     (75,986     —         (75,986     581,553       198,476        780,029  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before finance income (expenses) and taxes

     1,844,691       293,354       2,138,045       416,118       198,476        614,594  

Finance income

     851,462       —         851,462       28,962       —          28,962  

Finance expenses (e)

     (2,038,157     (635     (2,038,792     (13,457     —          (13,457
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax and Social Contribution tax

     657,996       292,719       950,715       431,623       198,476        630,099  

Current income and Social Contribution taxes (b)

     (314,845     (64,386     (379,231     —         —          —    

Deferred income and Social Contribution taxes (b)

     120,974       (29,857     91,117       41,998       —          41,998  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from going concern operations

     464,125       198,476       662,601       473,621       198,476        672,097  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from discontinued operations

     35,648       —         35,648       25,634       —          25,634  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period (g)

     499,773       198,476       698,249       499,255       198,476        697,731  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted earnings (loss) per share – R$

     0.34       0.14       0.48       0.34       0.14        0.48  

 

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STATEMENTS OF INCOME

FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2018

 

     Consolidated     Holding company  
     Jul to Sep 2018     Adjustments     Jul to Sep 2018
(Restated)
    Jul to Sep 2018     Adjustments      Jul to Sep 2018
(Restated)
 

Net revenue (a), (c) and (d)

     6,032,267       220,015       6,252,282       87       —          87  

Total cost

     (5,122,090     —         (5,122,090     —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

GROSS PROFIT

     910,177       220,015       1,130,192       87       —          87  

Operating expenses

     (400,208     —         (400,208     (23,496     —          (23,496

Share of (loss) profit, net, of associates and joint ventures (f)

     (49,753     —         (49,753     101,234       148,992        250,226  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before finance income (expenses) and taxes

     460,216       220,015       680,231       77,825       148,992        226,817  

Finance income

     362,795       —         362,795       10,170       —          10,170  

Finance expenses (e)

     (694,858     (635     (695,493     (10,372     —          (10,372
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax and Social Contribution tax

     128,153       219,380       347,533       77,623       148,992        226,615  

Current income and Social Contribution taxes (b)

     (134,801     (48,011     (182,812     —         —          —    

Deferred income and Social Contribution taxes (b)

     87,920       (22,377     65,543       3,429       —          3,429  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from going concern operations

     81,272       148,992       230,264       81,052       148,992        230,044  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period from discontinued operations

     14,276       —         14,276       14,276       —          14,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) for the period (g)

     95,548       148,992       244,540       95,328       148,992        244,320  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted earnings (loss) per share – R$

     0.07       0.10       0.17       0.07       0.10        0.17  

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018

 

     Consolidated     Holding company  
     Jan to
Sep 2018
    Adjustments      Jan to
Sep 2018

(Restated)
    Jan to
Sep 2018
    Adjustments      Jan to
Sep 2018

(Restated)
 

Net income for the period (g)

     499,773       198,476        698,249       499,255       198,476        697,731  

Other comprehensive income

     (408     —          (408     (408     —          (408
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income for the period

     499,365       198,476        697,841       498,847       198,476        697,323  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2018

 

     Consolidated      Holding company  
     Jul to
Sep
2018
     Adjustments      Jul to Sep
2018

(Restated)
     Jul to
Sep
2018
     Adjustments      Jul to Sep
2018

(Restated)
 

Net income for the period (g)

     95,548        148,992        244,540        95,328        148,992        244,320  
              

 

 

    

Other comprehensive income

     8        —          8        8        —          8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income for the period

     95,556        148,992        244,548        95,336        148,992        244,328  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018

 

     Consolidated     Holding company  
     Jan to Sep
2018
    Adjustments     Jan to Sep
2018

(Restated)
    Jan to Sep
2018
    Adjustments     Jan to Sep
2018

(Restated)
 

CASH FLOW FROM OPERATIONS

            

Net income for the period from going concern operations (g)

     464,125       198,476       662,601       473,621       198,476       672,097  

Adjustments to reconcile net income to net cash flows

            

Income tax and Social Contribution taxes (b)

     193,871       94,243       288,114       (41,998         (41,998

Share of profit (loss) in associates and joint ventures (f)

     75,986       —       75,986       (581,553     (198,476     (780,029

Interest, monetary variation and updating of Concession financial assets (e)

     437,816       635       438,451       (35,988         (35,988

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (a)

     (1,457,300     (326,490     (1,783,790     —         —         —    

Others

     1,815,966       —       1,815,966       106,136       —       106,136  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,530,464       (33,136     1,497,328       (79,782     —         (79,782
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Increase) / decrease in assets

     977,385       —         977,385       616,244         616,244  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in liabilities

            

Taxes payable (c)

     (161,609     30,200       (131,409     6,237       —       6,237  

Regulatory charges (d)

     (87,240     2,936       (84,304     5,837       —       5,837  

Others

     (333,269     —         (333,269     (19,660     —       (19,660
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (582,118     33,136       (548,982     (7,586     —         (7,586
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated by going concern operations

     1,925,731       —         1,925,731       528,876       —         528,876  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest paid on loans and financings

     (834,053     —       (834,053     (787     —       (787

Income and Social Contribution taxes paid

     (379,628     —       (379,628     (151     —       (151

Settlement of derivative financial instruments (Swap)

     12,981       —       12,981       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) GOING CONCERN OPERATIONS

     725,031       —         725,031       527,938       —         527,938  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from (used in) Discontinued operations

     51,271       —       51,271       43,310       —         43,310  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) OPERATING ACTIVITIES

     776,302       —       776,302       571,248       —         571,248  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING IN GOING CONCERN OPERATIONS

     (353,923     —         (353,923     (1,070,070     —         (1,070,070

Net cash used in investment activities—discontinued operations

     (7,631     —         (7,631     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FROM (USED IN) INVESTING ACTIVITIES

     (361,554     —         (361,554     (1,070,070     —         (1,070,070

NET CASH FROM (USED IN) FINANCING ACTIVITIES

     48,378       —         48,378       500,124       —         500,124  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     463,126       —         463,126       1,302       —         1,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     1,030,257         1,030,257       38,672         38,672  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     1,493,383       —       1,493,383       39,974       —       39,974  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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STATEMENTS OF ADDED VALUE

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018

 

     Consolidated     Holding company  
     Jan to Sep
2018
    Adjustments      Jan to Sep
2018

(Restated)
    Jan to
Sep 2018
    Adjustments      Jan to
Sep 2018

(Restated)
 

Gross value added (a)

     11,557,093       326,490        11,883,583       (95,006     —          (95,006

Retentions

     (619,104     —          (619,104     (761     —          (761
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Net added value produced by going concern operations

     10,937,989       326,490        11,264,479       (95,767 )      —          (95,767 ) 

Net added value produced by discontinued operations

     35,648       —          35,648       25,634       —          25,634  

Added value received by transfer (f)

     775,476       —          775,476       610,515       198,476        808,991  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Added value to be distributed

     11,749,113       326,490        12,075,603       540,382       198,476        738,858  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Distribution of added value

              

Employees

     1,178,568       —          1,178,568       61,658       —          61,658  

Taxes (b), (c) and (d)

     7,938,048       127,379        8,065,427       (37,804     —          (37,804

Remuneration of external capital (e)

     2,132,724       635        2,133,359       17,273       —          17,273  

Remuneration of own capital (g)

     499,773       198,476        698,249       499,255       198,476        697,731  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     11,749,113       326,490        12,075,603       540,382       198,476        738,858  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

1.1

Correlation between the Explanatory Notes published in the annual financial statements and those in the interim financial information

The table below shows the correlation between the Explanatory Notes published in the financial statements at December 31, 2017 and the Interim financial information at September 30, 2018.

The Company understands that this interim financial information presents the material updating of information relating to its financial position, and its results for the nine-month period ended September 30, 2018, in compliance with the requirements for disclosure stated by the CVM (Brazilian Securities Commission).

 

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Number of the Note

    

Title of the Note

Dec. 31,
2017

   Sep. 30,
2018
 
1      1     

Operational context

2      2     

Basis of preparation

3      3     

Consolidation principles

4      4     

Concessions and authorizations

5      31     

Operational segments

6      5     

Cash and cash equivalents

7      6     

Securities

8      7     

Customers and traders; Concession holders (transport of energy)

9      8     

Recoverable taxes

10      9     

Income and Social Contribution tax

11      10     

Restricted cash

12      11     

Accounts Receivable from the State of Minas Gerais

13      12     

Escrow deposits

14      13     

Reimbursement of tariff subsidies

15      14     

Concession financial assets and liabilities

16      15     

Investments

17      16     

Property, plant and equipment

18      17     

Intangible assets

19      18     

Suppliers

20      19     

Taxes payable, Income tax and Social Contribution tax and amounts to be reimbursed to customers

21      20     

Loans, financings and debentures

22      21     

Regulatory charges

23      22     

Post-retirement obligations

24      23     

Provisions

25      24     

Equity and remuneration to shareholders

26      25     

Revenue

27      26     

Operating costs and expenses

28      27     

Finance income and expenses

29      28     

Related party transactions

30      29     

Financial instruments and risk management

31      29     

Measurement at fair value

—        30     

Assets classified as held for sale

34      32     

Annual tariff adjustment

35      33     

Transactions not involving cash

36      34     

Subsequent events

The Notes to the 2017 financial statements that have not been included in these interim financial information because they had no material changes, and/or were not applicable to the interim information, are as follows:

 

Number

  

Title of the Note

32   

Insurance

33   

Commitments

 

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3.

PRINCIPLES OF CONSOLIDATION

The reporting dates for the interim financial information of subsidiaries (used for consolidation) and jointly-controlled and affiliated entities (used for the purposes of equity method calculation) coincide with those of the Company. Accounting practices are applied uniformly in line with those used by the Company.

The following subsidiaries are included in the consolidated interim financial information:

 

Subsidiary

   Criteria      Sep. 30, 2018      Dec. 31, 2017  
   Direct interest, %      Direct interest, %  

Cemig Geração e Transmissão

     Consolidated        100.00        100.00  

Cemig Distribuição

     Consolidated        100.00        100.00  

Gasmig

     Consolidated        99.57        99.57  

Cemig Telecom (2)

     Consolidated        —          100.00  

Rosal Energia

     Consolidated        100.00        100.00  

Sá Carvalho

     Consolidated        100.00        100.00  

Horizontes Energia

     Consolidated        100.00        100.00  

Cemig Geração Distribuída (Usina Térmica Ipatinga) (1)

     Consolidated        100.00        100.00  

Cemig PCH

     Consolidated        100.00        100.00  

Cemig Trading

     Consolidated        100.00        100.00  

Efficientia

     Consolidated        100.00        100.00  

Cemig Comercializadora de Energia Incentivada

     Consolidated        100.00        100.00  

UTE Barreiro

     Consolidated        100.00        100.00  

Empresa de Serviços e Comercialização de Energia Elétrica

     Consolidated        100.00        100.00  

Luce Empreendimentos e Participações S.A.

     Consolidated        100.00        100.00  

 

(1)

In 2018, the corporate name of UTE Ipatinga was changed to Cemig Geração Distribuída S.A.

(2)

Company merged into Cemig on March 31, 2018.

 

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4.

CONCESSIONS AND AUTHORIZATIONS

Cemig and its subsidiaries hold the following concessions and authorizations with ANEEL:

 

     Company holding concession or
authorization
   Concession or
authorization contract
     Expiration
date
 

POWER GENERATION

        

Hydroelectric plants

        

Emborcação (1)

   Cemig GT      07/1997        07/2025  

Nova Ponte (1)

   Cemig GT      07/1997        07/2025  

Santa Luzia (1)

   Cemig GT      07/1997        02/2026  

Sá Carvalho (1)

   Sá Carvalho      01/2004        12/2024  

Rosal (1)

   Rosal Energia      01/1997        05/2032  

Machado Mineiro (1)

Salto Voltão (1)

Salto Paraopeba (1)

Salto do Passo Velho (1)

   Horizontes Energia      Resolution 331/2002       

07/2025

10/2030

10/2030

10/2030

 

 

 

 

PCH Pai Joaquim (1)

   Cemig PCH      Resolution 377/2005        04/2032  

Irapé (1)

   Cemig GT      14/2000        02/2035  

Queimado (Consortium) (1)

   Cemig GT      06/1997        01/2033  

Salto Morais (1)

   Cemig GT      02/2013        07/2020  

Rio de Pedras (1)

   Cemig GT      02/2013        09/2024  

Luiz Dias (1)

   Cemig GT      02/2013        08/2025  

Poço Fundo (1)

   Cemig GT      02/2013        08/2025  

São Bernardo (1)

   Cemig GT      02/2013        08/2025  

Xicão (1)

   Cemig GT      02/2013        08/2025  

Três Marias (2)

   Cemig Geração Três Marias      08/2016        01/2046  

Salto Grande (2)

   Cemig Geração Salto Grande      09/2016        01/2046  

Itutinga (2)

   Cemig Geração Itutinga      10/2016        01/2046  

Camargos (2)

   Cemig Geração Camargos      11/2016        01/2046  

Coronel Domiciano, Joasal, Marmelos, Paciência and Piau (2)

   Cemig Geração Sul      12/2016 and 13/2016        01/2046  

Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras (2)

   Cemig Geração Leste      14/2016 and 15/2016        01/2046  

Cajurú, Gafanhoto and Martins (2)

   Cemig Geração Oeste      16/2016        01/2046  

Thermal plants

        

Igarapé (1)

   Cemig GT      07/1997        08/2024  

POWER TRANSMISSION

        

National grid (3)

   Cemig GT      006/1997        01/2043  

Itajubá Substation (3)

   Cemig GT      79/2000        10/2030  

ELECTRICITY DISTRIBUTION (4)

   Cemig D     

002/1997

003/1997

004/1997

005/1997

 

 

 

 

     12/2045  

GAS DISTRIBUTION (4)

   Gasmig      State Law 11,021/1993        01/2053  

 

(1)

Generation concession contracts that are not within the scope of ICPC 01/IFRC 12, whose infrastructure assets are recorded as PP&E since the concession grantor does not have control over whom the service is provided to as the output is being sold mainly in the Free Market (‘ACL’).

(2)

Generation concession contracts whose revenue related to the Concession Grant Fee is within the scope of ICPC 01 /IFRIC 12, and is classified as concession financial assets.

(3)

Transmission concession contracts that are within the scope of ICPC 01/IFRIC 12, considering the financial asset model, andthe income and costs of the construction works related to the formation of the financial asset is recognized as expenses are incurred. The financial asset to be reimbursed is identified when the implementation of the infrastructure is finalized and included as remuneration for the services of implementation of the infrastructure.

(4)

Concession contracts that are within the scope of ICPC 01 /IFRIC 12 and under which the concession infrastructure assets are recorded under the intangible and financial assets bifurcation model.

 

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5.

CASH AND CASH EQUIVALENTS

 

     Consolidated      Holding Company  
   Sep. 30, 2018      Dec. 31, 2017      Sep. 30, 2018      Dec. 31, 2017  

Bank accounts

     100,181        113,495        4,472        4,645  

Cash equivalents

           

Bank certificates of deposit (CDBs) (1)

     1,256,652        685,826        31,161        20,799  

Overnight (2)

     136,550        226,629        4,341        13,228  

Others

     —          4,307        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,393,202        916,762        35,502        34,027  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,493,383        1,030,257        39,974        38,672  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Bank Certificates of Deposit (Certificados de Depósito Bancário, or CDBs), accrued interest at 60% to 106% of the CDI Rate (Interbank Rate for Interbank Certificates of Deposit or Certificados de Depósito Inter-bancário – CDIs) published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip) on September 30, 2018 (50% to 106% on December 31, 2017). For these CDBs, the Company has repo transactions which state, on their trading notes, the bank’s commitment to repurchase the security, on demand, on the maturity date of the transaction, or earlier, at the Company’s option.

(2)

Overnight transactions are repos available for redemption on the following day.They are usually backed by Treasury Bills, Notes or Bonds and referenced to a pre-fixed rate of 6.39%, on September 30, 2018 (6.89% on December 31, 2017). Their purpose is to settle the Company’s short-term obligations, or to be used in the acquisition of other assets with better return to replenish the portfolio.

The Company’s exposure to interest rate risks and sensitivity analysis for financial assets and liabilities are disclosed in Note 29.

 

6.

SECURITIES

 

     Consolidated      Holding Company  
     Sep. 30,
2018
     Dec. 31,
2017
     Sep. 30,
2018
     Dec. 31,
2017
 

Investments

           

Current

           

Bank certificates of deposit (CDBs) (1)

     —          2,652        —          144  

Financial Notes (LFs) – Banks (2)

     247,423        303,355        7,867        17,706  

Treasury Financial Notes (LFTs) (3)

     315,136        739,945        10,020        43,189  

Debentures (4)

     7,334        10,663        361        2,142  

Others

     1,727        1,769        654        779  
  

 

 

    

 

 

    

 

 

    

 

 

 
     571,620        1,058,384        18,902        63,960  

Non-current

           

Bank certificates of deposit (CDBs) (1)

     2,287               43         

Financial Notes (LFs) – Banks (2)

     71,332               2,268         

Debentures (4)

     4,840        29,753        746        1,737  
  

 

 

    

 

 

    

 

 

    

 

 

 
     78,459        29,753        3,057        1,737  
  

 

 

    

 

 

    

 

 

    

 

 

 
     650,079        1,088,137        21,959        65,697  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Investments in Bank Certificates of Deposit – CDBs – accrued interest at a percentage of the Interbank Certificates of Deposit (CDI) rate, published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip) which was 80% on September 30, 2018 (100.25% to 105.25% on December 31, 2017).

(2)

Bank Financial Notes (Letras Financeiras, or LFs) are fixed-rate fixed-income securities, issued by banks, and that accrued interest at a percentage of the CDI rate published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). The LFs accrued interest of 102% to 111.25% of the CDI rate on September 30, 2018 (102.01% to 112% on December 31, 2017).

(3)

Treasury Financial Notes (LFTs) are fixed-rate securities, their yield on which follows the daily changes in the Selic rate between the date of purchase and the date of maturity.

(4)

Debentures are medium and long-term debt securities, which give their holders a right of credit against the issuing company. The debentures have remuneration varying from 104.25% to 151% of the CDI rate on September 30, 2018 (104.25% to 161.54% on December 31, 2017).

Note 29 provides further information on these securities. Investments in securities of related parties are shown in Note 28.

 

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7.

CUSTOMERS, TRADERS AND TRANSPORT OF ENERGY CONCESSION HOLDERS

 

     Consolidated  
   Balances
not yet due
    Up to 90
days past
due
    More
than 90
days past
due
    Sep. 30,
2018
    Dec; 31,
2017
 

Billed supply

     1,456,134       783,602       822,497       3,062,233       2,688,622  

Unbilled supply

     1,084,923       —         —         1,084,923       993,699  

Other concession holders – wholesale supply

     —         21,062       3,698       24,760       25,642  

Other concession holders – wholesale supply, unbilled

     249,050       —         —         249,050       283,061  

CCEE (Wholesale Electricity Trading Chamber)

     283       223,322       10,801       234,406       381,150  

Concession Holders – Transport of energy

     72,562       11,747       90,439       174,748       159,194  

Concession Holders – Transport of energy, unbilled

     204,081       —               204,081       177,308  

(–) Provision for doubtful receivables

     (57,503     (20,494     (685,155     (763,152     (567,956
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     3,009,530       1,019,239       242,280       4,271,049       4,140,720  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current assets

           4,195,075       3,885,392  

Non-current assets

           75,974       255,328  

 

     Holding Company  
   Balances
not yet
due
     Up to
90
days
past
due
     More
than 90
days
past due
    Sep. 30,
2018
    Dec;
31,
2017
 

Billed supply (Telecom services)

     17,488        3,978        22,986       44,452       —    

Unbilled supply (Telecom services)

     3,438        —          —         3,438       —    

(–) Provision for doubtful receivables

     —          —          (22,288     (22,288     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     20,926        3,978        698       25,602        
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current assets

             25,602       —    

Note 29 presents the Company and its subsidiaries’ exposure to credit risk related to customers and traders.

The allowance for doubtful accounts is considered to be sufficient to cover any potential losses in the realization of accounts receivable, and the breakdown by type of customers is as follows:

 

     Sep. 30, 2018      Dec. 31, 2017  

Residential

     147,319        160,482  

Industrial

     195,679        178,058  

Commercial, services and others

     185,002        117,438  

Rural

     33,622        17,334  

Public authorities

     101,840        11,984  

Public lighting

     5,461        4,740  

Public services

     26,499        10,187  

Charges for use of the network (TUSD)

     67,730        67,733  
  

 

 

    

 

 

 
     763,152        567,956  
  

 

 

    

 

 

 

 

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Changes in the allowance for doubtful accounts are as follows:

 

Balance at December 31, 2016

     660,105  

Additions, net

     191,343  
  

 

 

 

Balance at September 30, 2017

     851,448  
  

 

 

 

Balance at December 31, 2017

     567,956  
  

 

 

 

Effects arising from the adoption of IFRS 9 / CPC 48 on January 1, 2018 (1)

     150,114  

Additions, net – recorded on results

     227,789  

Write-off

     (182,707
  

 

 

 

Balance at September 30, 2018

     763,152  
  

 

 

 

 

(1)

The Company recorded, on January 1, 2018, the effects arising from the adoption of IFRS 9 / CPC 48, as a result of the retained earnings. More details in Note 2 of this interim financial information.

Advances from clients

Cemig GT and Cemig D receives advance payments for the sale of energy from certain customers. Advance payments related to services not yet provided are as follows:

 

Balance at December 31, 2016

     181,200  
  

 

 

 

Addition

     282,601  

Supply completed

     (189,355

Monetary adjustment

     37,666  
  

 

 

 

Balance at September 30, 2017

     312,112  
  

 

 

 

Balance at December 31, 2017

     232,762  
  

 

 

 

Supply completed

     (152,050

Monetary adjustment

     9,184  
  

 

 

 

Balance at September 30, 2018

     89,896  
  

 

 

 

Advance payments are adjusted until the actual delivery of the power supply by Cemig GT and Cemig D under the following terms:

 

Sep. 30, 2018

     Balance
on Sep.
30,
2018
     Balance
on Dec.
31, 2017
 

Counterparty

   Specified period for
energy billing
     Index for adjusting
prepaid amounts
     MWh
deliverable
 

BTG Pactual

     —          1.57% p.m.        —          —          17,287  

BTG Pactual

     —          1.2% p.m.        —          —          25,633  

Deal Comercializadora

     —          1.2% p.m.        —          —          772  

White Martins Gases Industriais Ltda

     until March 2019        124% of CDI        143,094        76,042        147,066  

White Martins Gases Industriais Ltda (1)

     until March 2019        124% of CDI        —          13,854        42,004  
           

 

 

    

 

 

 
              89,896        232,762  
           

 

 

    

 

 

 

 

(1)

Advance repayable by Cemig D, under an agreement for prepayment of the Contract for Use of the Distribution System (CUSD), comprising the components transport, losses and charges.

Revenue from advanced sales of power supply is recognized in the statement of income only when the supply actually take place.

 

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8.

RECOVERABLE TAXES

 

     Consolidated      Holding Company  
     Sep. 30, 2018      Dec. 31, 2017      Sep. 30, 2018      Dec. 31, 2017  

Current

           

ICMS (VAT)

     101,758        71,430        3,265        —    

ICMS – advance payment (1)

     754,513           —       

PIS and Pasep

     6,250        12,130        20        6  

Cofins

     31,123        56,023        107        37  

Others

     17,423        34,207        100        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     911,067        173,790        3,492        43  

Non-current

           

ICMS (VAT)

     226,939        224,752        2,105        —    

PIS and Pasep

     43        569        3        2  

Cofins

     196        3,131        12        12  

Others

     2,226        2,226        1,795        1,796  
  

 

 

    

 

 

    

 

 

    

 

 

 
     229,404        230,678        3,915        1,810  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,140,471        404,468        7,407        1,853  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

On September 14, 2018 the State of Minas Gerais issued Decree 47488 ordering that payments of ICMS tax relating to November and December 2018 should be paid on September 20, 2018. The ICMS tax paid, in the amount of R$ 697,360 from Cemig D and R$ 55,854 from Cemig GT, is being updated at the Selic rate until the date of payment of the remaining balance and was defined based on 75% of the amount paid by Cemig D and Cemig GT in August 2018. The remaining balance for the months of November and December 2018 will be paid by December 7, 2018 and January 8, 2019, respectively. The updated balance at September 30, 2018 is R$ 754,513 (R$ 698,563 from Cemig D and R$ 55,950 from Cemig GT).

The ICMS (VAT) credits that are reported in non-current assets arise from acquisitions of property, plant and equipment, and intangible assets, and can be offset against taxes payable in the next 48 months. The transfer to non-current was made in accordance with Management’s best estimate of the amounts which will likely be realized after September 2019.

Credits of PIS, Pasep and COFINS taxes generated by the acquisition of machinery and equipment can be offset immediately.

 

9.

INCOME AND SOCIAL CONTRIBUTION TAXES

 

a)

Income and Social Contribution tax recoverable

The balances of income tax and social contribution tax refer to tax credits in the corporate income tax returns of prior years and to advance payments which will be offset against federal taxes eventually payable.

 

     Consolidated      Holding Company  
   Sep. 30, 2018
(Restated)
     Dec. 31,
2017
     Sep. 30,
2018
     Dec. 31,
2017
 

Current

           

Income tax

     197,725        223,539        24,296        19,124  

Social Contribution tax

     123,710        116,035        2,432        598  
  

 

 

    

 

 

    

 

 

    

 

 

 
     321,435        339,574        26,728        19,722  

Non-current

           

Income tax

     —          6,685        —          6,685  

Social Contribution tax

     7,651        13,932        7,651        13,932  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,651        20,617        7,651        20,617  
  

 

 

    

 

 

    

 

 

    

 

 

 
     329,086        360,191        34,379        40,339  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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b) Deferred income tax and Social Contribution tax

The Company and its subsidiaries have tax credits for income tax and the social contribution tax, arising from balances of tax losses, negative base for the social contribution tax, and temporary differences, at the rates of 25% (for income tax) and 9% (for the Social Contribution tax), as follows:

 

     Consolidated     Holding Company  
     Sep. 30, 2018
(Restated)
    Dec. 31,
2017
    Sep. 30,
2018
    Dec. 31,
2017
 

Deferred tax assets

        

Tax loss carryforwards

     446,594       523,595       164,240       165,235  

Provisions

     1,116,269       1,092,557       551,465       527,166  

Post-retirement obligations

     1,224,173       1,179,257       153,356       144,176  

Estimated provision for doubtful receivables

     276,975       207,415       8,161       7,775  

Taxes with suspended liability

           14,093             —    

Paid concession

     7,704       8,227             —    

Adjustment to fair value: Swap/loss

     2,007       12,923             —    

Others

     38,386       14,212       5,631       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3,112,108       3,052,279       882,853       844,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax liabilities

        

Funding cost

     (26,039     (31,115           —    

Deemed cost

     (241,316     (275,543           —    

Cost of acquisition of equity interests

     (450,137     (463,573     (85,740     (87,613

Borrowing costs capitalized

     (167,427     (165,582           —    

Taxes on revenues not redeemed – Presumed Profit accounting method

     (926     (785           —    

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     (767,931     (937,485           —    

Adjustment to fair value of derivative financial instruments

     (93,036     (1,524           —    

Others

     (86,810     (40,133     (7,498     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (1,833,622     (1,915,740     (93,238     (87,613
  

 

 

   

 

 

   

 

 

   

 

 

 

Total, net

     1,278,486       1,136,539       789,615       756,739  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     1,930,774       1,871,228       789,615       756,739  

Total liabilities

     (652,288     (734,689     —         —    

The changes in income tax and the Social Contribution tax are as follows:

 

     Consolidated     Holding Company  

Balance at Dec. 31, 2016

     1,215,247       789,318  

Effects allocated to Statement of income

     101,362       (44,290

Variations in deferred tax assets and liabilities

     4,543       —    
  

 

 

   

 

 

 

Balance at Sep. 30, 2017

     1,321,152       745,028  
  

 

 

   

 

 

 

Balance at Dec. 31, 2017

     1,136,539       756,739  

Telecom merger

     —         1,050  

Effects allocated to Statement of income – Going concern operations

     91,117       41,998  

Effects allocated to Statement of income – Discontinued operations

     (15,019     (10,947

Effects allocated to Equity

     68,586       —    

Transfer to assets held for sale

     775       775  

Variations in deferred tax assets and liabilities

     (3,512     —    
  

 

 

   

 

 

 

Balance on Sep. 30, 2018 (Restated)

     1,278,486       789,615  
  

 

 

   

 

 

 

 

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c)

Reconciliation of income tax and Social Contribution tax effective rate

This table reconciles the statutory income tax (rate 25%) and the Social Contribution tax (rate 9%) with the current expense on these taxes in the statement of income:

 

     Consolidated     Holding Company  
     Jan to Sep
2018

(Restated)
    Jan to Sep
2017
    Jan to Sep
2018

(Restated)
    Jan to Sep
2017
 

Income on going concern operations before income and Social Contribution taxes

     950,715       601,776       630,099       454,989  

Income tax and Social Contribution

     (323,243     (204,604     (214,234     (154,696

Tax effects applicable to:

        

Gain (loss) in subsidiaries by equity method (net of effects of Interest on Equity)

     (40,311     (34,968     256,890       95,207  

Non-deductible contributions and donations

     (3,245     (2,171     (647     —    

Tax incentives

     17,170       4,053       160       66  

Voluntary retirement provision

     (502     —         (36     —    

Difference between Presumed profit and Real profit

     66,657       59,692       —         —    

Non-deductible penalties

     (8,910     (10,077     (36     (11

Excess reactive power and demand

     —         (9,229     —         —    

Others

     4,270       (7,290     (99     1,195  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and Social Contribution – effective gain (expense)

     (288,114     (204,594     41,998       (58,239
  

 

 

   

 

 

   

 

 

   

 

 

 

Current tax

     (379,231     (305,956     —         (13,949

Deferred tax

     91,117       101,362       41,998       (44,290
  

 

 

   

 

 

   

 

 

   

 

 

 
     (288,114     (204,594     41,998       (58,239
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     30.30     34.00     6.67     12.80

 

     Consolidated     Holding Company  
     Jul to Sep 2018
(Restated)
    Jul to Sep 2017     Jul to Sep 2018
(Restated)
    Jul to Sep 2017  

Income on going concern operations before income and Social Contribution taxes

     347,533       (93,000     226,615       (19,237

Income tax and Social Contribution tax

     (118,161     31,620       (77,049     6,541  

Tax effects applicable to:

        

Share of (loss) profit of associates and joint ventures (net of effects of Interest on Equity)

     (23,678     (44,064     80,355       (71,617

Non-deductible contributions and donations

     (1,662     (659     (246     —    

Tax incentives

     11,187       (2,035     135       23  

Voluntary retirement provision

     (356     —         (22     —    

Difference between Presumed profit and Real profit

     18,151       20,873       —         —    

Non-deductible penalties

     (1,946     (1,672     (1     —    

Excess reactive power and demand

     —         (3,117     —         —    

Others

     (804     8,388       257       462  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and Social Contribution – effective gain (expense)

     (117,269     9,334       3,429       (64,591
  

 

 

   

 

 

   

 

 

   

 

 

 

Current tax

     (182,812     (13,234     —         (11,416

Deferred tax

     65,543       22,568       3,429       (53,175
  

 

 

   

 

 

   

 

 

   

 

 

 
     (117,269     9,334       3,429       (64,591
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     33.74     10.04     1.51     335.77

 

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10.

RESTRICTED CASH

The balance of Restricted cash amounting to R$ 113,041 in the Consolidated (R$ 106,227 on December 31, 2017), and R$ 93,112 in the Holding Company (R$ 87,872 on December 31, 2017), refers mainly to amounts deposited with a financial institution, in accordance with the Shareholders’ agreement of the jointly controlled Rio Minas Energia Participações – RME, as a guarantee for the settlement of the options to sell an interest in RME. For more details about RME sale options, see note 29.

 

11.

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

On October 25, 2017 the Company signed a Debt Recognition Agreement with Minas Gerais State, through its Tax Office, where the state committed to reimburse to the Company the total amount deposited, after adjusting it for inflation using the IGP-M index, related to the dispute on the criteria to be used to adjust the amounts passed through by the Minas Gerais State government as an advance for future capital contributions in the previous year.

The parties agreed that the Minas Gerais State will reimburse the Company R$ 294,390, of which R$ 239,445 relates to the historical amounts deposited, and R$ 61,775 relates to the monetary adjustment, of which R$ 19,912 is related to the nine-month period ended September 30, 2018, which will be paid in 12 consecutive monthly installments, each adjusted by the IGP-M inflation index through the settlement date, starting on November 10, 2017. Further, the agreement states that, in the event of arrears or default by the State in the payment of the agreed consecutive monthly installments, Cemig is authorized to retain dividends or Interest on Equity distributable to the State in proportion to the State’s equity interest, for as long as the arrears and/or default continues. Until September 30, 2018, a total of R$ 46,290 had been received regarding two installments and the remaining balance of R$ 254,930 is still outstanding, recognized in Non-current assets, due to installments being overdue since January 2018. Company’s Management believes that no impairment losses is expected on these receivables, considering the aforementioned guarantees, which Company intends to execute in the event of non-receipt of the amount agreed in the debt recognition agreement.

 

12.

ESCROW DEPOSITS

 

     Consolidated      Holding Company  
     Sep. 30, 2018      Dec. 31, 2017      Sep. 30, 2018      Dec. 31, 2017  

Labor claims

     346,176        303,699        38,796        35,270  

Tax contingencies

           

Income tax on Interest on Equity

     27,574        26,861        259        244  

Pasep/Cofins taxes (1)

     1,387,070        1,337,086        —          —    

Donations and legacy tax (ITCD)

     50,573        48,981        50,134        48,541  

Urban property tax (IPTU)

     86,320        79,505        69,198        68,675  

Finsocial tax

     38,205        37,170        38,205        37,170  

Income and social contribution taxes on indemnity for employees ‘Anuênio’ benefit (2)

     273,270        267,432        13,122        12,853  

IRRF on Inflation Gain

     8,387        —          8,387        —    

Social contribution on net income (CSLL) (3)

     18,062        —          —          —    

Others

     87,844        116,585        21,469        31,252  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,977,305        1,913,620        200,774        198,735  

Others

           

Regulatory

     52,597        60,243        29,634        29,589  

Third party

     9,169        16,094        3,564        5,811  

Customer relations

     6,361        6,204        1,287        1,561  

Court embargo

     13,366        14,358        3,949        5,515  

Others

     22,752        21,414        1,378        1,310  
  

 

 

    

 

 

    

 

 

    

 

 

 
     104,245        118,313        39,812        43,786  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,427,726        2,335,632        279,382        277,791  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The escrow deposits relating to Pasep and Cofins taxes refer to the case challenging the constitutionality of inclusion of the ICMS (VAT), which has been charged, within the amount on which the Pasep and Cofins taxes are calculated.

(2)

See more details in Note 23 – Provisions (Indemnity of employees’ future benefit—the ‘Anuênio’).

(3)

Escrow deposit due to an infringement notice related to CSLL tax on the amounts of cultural and artistic donations and sponsorships, expenses of punitive fines, and taxes with enforcement suspended.

 

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Inclusion of ICMS (VAT) in the taxable base for Pasep /Cofins

Refers to the escrow deposits made in the action challenging the constitutionality of inclusion of ICMS (VAT), already charged, within the taxable amount for calculation of these two contributions. The subsidiaries Cemig D and Cemig GT obtained interim relief from the Court allowing them not to make the payment, and authorizing payment as escrow deposits, starting in 2008, and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, they opted to pay the taxes monthly.

On October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, on the basis of setting a global precedent, in favor of the argument of the subsidiaries. Based on the opinion of its legal advisers, the subsidiaries adopted the following procedures:

 

 

Cemig GT reversed the provision in the amount of R$ 101,233, with effect on the net income for 2017, and recorded the reversal as a deduction on revenue, in the fourth quarter of that year, remaining an escrow deposit in amount of R$ 188,384 as of September 30, 2018.

 

 

Cemig D wrote down the liabilities relating to these contributions; and recorded a liability for reimbursement to customers. More details in Note 19.

 

13.

REIMBURSEMENT OF TARIFF SUBSIDIES

Subsidies on tariffs charged to users of the distribution network (‘TUSD’) and charges for use of the transmission system (‘EUST’) are reimbursed to distributors through the funds from the Energy Development Account (CDE).

On September 30, 2018, the amount recognized as subsidies revenues was R$ 705,730 (R$ 621,731 in the same period of 2017). Of such amounts, Cemig D recorded a receivable of R$ 82,470 (R$ 73,345 in 2017), and Cemig GT recorded a receivable of R$ 2,626 (R$ 3,741 in 2017), in current assets.

 

14.

CONCESSION FINANCIAL ASSETS AND LIABILITIES

 

Consolidated

   Sep. 30, 2018
(Restated)
     Dec. 31, 2017  

Financial assets related to infrastructure (1)

     

Distribution concessions

     393,137        369,762  

Receivable for residual value – Transmission (1.1)

     1,817,663        1,928,038  

Transmission concessions – assets remunerated by tariff (1.2)

     557,960        547,800  

Receivable for residual value – Generation (1.3)

     816,734        1,900,757  

Concession grant fee – Generation (1.4)

     2,396,907        2,337,135  
  

 

 

    

 

 

 
     5,982,401        7,083,492  

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (2)

     1,246,131        369,010  
  

 

 

    

 

 

 

Total

     7,228,532        7,452,502  
  

 

 

    

 

 

 

Current assets

     918,734        847,877  

Non-current assets

     6,309,798        6,604,625  

 

Consolidated Concession financial liabilities

   Sep. 30, 2018
(Restated)
     Dec. 31, 2017  

CVA (Portion A Compensation) Account and Other Financial Components in tariff adjustments (2)

     41,383        414,800  

Current liabilities

     —          414,800  

Non-current liabilities

     41,383        —    

 

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The changes in concession financial assets related to infrastructure are as follows:

 

     Transmission     Generation     Distribution     Consolidated  

Balances at December 31, 2016

     2,287,511       2,800,389       216,107       5,304,007  
  

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     11,226       —         —         11,226  

Transfers of indemnity – plants not renewed (Volta Grande, Miranda and São Simão)

     —         879,818       —         879,818  

Disposals

     (3,232     —         (25     (3,257

Amounts received

     (142,105     (172,368     —         (314,473

Transfers between PP&E, Financial assets and Intangible assets

     —         —         53,252       53,252  

Adjustment of the BRR of Transmission Assets

     149,255       —         —         149,255  

Adjustment of indemnity – plants not renewed (Ministerial Order 291)

     —         259,516       —         259,516  

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     —         —         2,278       2,278  

Monetary updating

     146,494       240,420       —         386,914  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2017

     2,449,149       4,007,775       271,612       6,728,536  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

     2,475,838       4,237,892       369,762       7,083,492  
  

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     12,726       —         —         12,726  

Amounts received

     (333,122     (1,325,312     —         (1,658,434

Transfers between PP&E, Financial assets and Intangible assets

     40       —         19,696       19,736  

Other transfers

     —         —         (50     (50

Adjustment to expectation of cash flow from the indemnifiable Concession financial assets

     11,977       —         —         11,977  

Monetary updating (1)

     208,164       301,061       3,874       513,099  

Disposals

     —         —         (145     (145
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2018

     2,375,623       3,213,641       393,137       5,982,401  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The revenue corresponding to financial updating is shown net of a write-off of R$ 26,999 of the deemed cost of the Miranda and São Simão plants, due to reimbursement receipt related to basic projects of these power plants.

 

1)

Financial assets related to infrastructure

The energy distribution and transmission concession contracts and the gas distribution contracts are within the scope of ICPC 01 (IFRIC 12). The financial assets under these contracts refer to the investment made in infrastructure that will be returned to the grantor at the end of the concession contract and for which the Company has a contractual right to receive cash from the grantor during the concession contract as well as at the end of the concession contract.

 

1.1)

Transmission – Residual value receivable

Cemig’s transmission concession contracts are within the scope of ICPC 01 (IFRC 12). The financial assets under these contracts refer to the investment made in infrastructure that will be returned to the grantor at the end of the concession contract and for which the Company is entitled to receive an amount corresponding to the residual value of the infrastructure assets at the end of the concession contract.

On April 22, 2016 the Mining and Energy Ministry (Ministério de Minas e Energia, or MME) published its Ministerial Order 120, setting the deadline and method of payment for the remaining amount corresponding to the residual value of the assets. The Ministerial Order determined that the amounts homologated by the regulator should become part of the Regulatory Remuneration Asset Base (Base de Remuneração Regulatória, or BRR) and that the cost of capital should be added to the related Permitted Annual Revenues (‘RAP’).

 

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On August 16, 2016, the regulator, through its Dispatch 2,181, homologated the amount of R$ 892,050, in Reais as of December 2012, for the portion of the residual value of assets to be paid to the Cemig GT. Such amount was recorded as a financial asset, with specific maturity and interest rate.

The amount of indemnity to be received, updated until September 30, 2018, amounted to R$ 1,817,663 (R$ 1,928,038 as of December 31, 2017), corresponding to the following:

Portions of remuneration and depreciation not paid since the extensions of concessions

An amount of R$ 957,872, corresponding to the portions of remuneration and depreciation not paid since the extensions of the concessions, through the tariff adjustment in 2017 (R$ 992,802 as of December 31, 2017), which will be inflation adjusted using the IPCA (Expanded National Customer Price) index, and remunerated at the weighted average cost of capital of the transmission industry as defined by the regulator for the periodic tariff review, to be paid over a period of eight years from July 2017, in the form of reimbursement through the RAP.

Residual Value of transmission assets – injunction awarded to industrial customers

On April 10, 2017, an preliminary injunction was granted to the Brazilian Large Free Customers’ Association (Associação Brasileira de Grandes Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association (Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against the regulator and the Federal Government requesting suspension of the effects on their tariffs of payment of the residual value of transmission assets payable to agents of the electricity sector who accepted the terms of Law 12,783/2013.

The preliminary injunction was partial, with effects related to suspension of the inclusion in the customer tariffs paid by these associations of the portion of the indemnity corresponding to the remuneration at cost of capital included since the date of extension of the concessions – amounting to R$ 399,796 at September 30, 2018 (R$ 316,138 at December 31, 2017) updated by the IPCA.

In compliance with the court decision, the regulator, in its Technical Note 183/2017-SGT/ ANEEL of June 22, 2017, presented a new calculation, excluding the amounts that refer to the cost of own capital. Cemig believes that this is a provisional decision, and that its right to receive the amount referring to the assets of the basic national grid system (Rede Básica Sistema Elétrico, or RBSE) is guaranteed by law, so that no adjustment to the amount recorded at September 30, 2018 is necessary.

Adjustment of the BRR of Transmission Assets – Aneel Technical Note 183/2017

In the tariff review processes of Cemig GT, ratified on June 23, 2009 and on June 8, 2010 the addition of certain conducting cables was not included in the tariff calculation. The new values calculated with the inclusion of the said conducting cables in the Remuneration Assets Base for the period from July 2005 to December 2012 resulted in the amount of R$ 149,255 as of July 2017, received by Cemig GT in 12 months up to June, 2018, through RAP.

Remaining balance to be received through RAP

The remaining balance, of R$ 459,995 on September 30, 2018 (R$ 544,471 on December 31, 2017) was incorporated into the regulatory remuneration base of assets, and is being recovered through RAP.

The Company expects to receive in full the receivables in relation to the residual value of the transmission assets.

 

1.2)

Transmission – Assets remunerated by tariff

For new assets related to improvements and upgrades of facilities constructed by transmission concession holders, the regulator calculates an additional portion of Permitted Annual Revenue (RAP) in accordance with a methodology specified in the Proret – Tariff Regulation Procedures.

Under the Proret, the revenue established in the Resolutions is payable to the transmission concessionaires as from the date of start of commercial operation of the facilities. In the periods between tariff reviews, the revenues associated with the improvements and upgrades of facilities are provisional. They are then ultimately determined in the review immediately subsequent to the start of commercial operation of the facilities; this review then has effect starting the date when commercial operations begin. On September 30, 2018, the receivable amounts are R$ 557,960 (R$ 547,800 on December 31, 2017).

 

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1.3)

Generation – Residual value financial asset

Starting August 2013, various concessions under the Concession Contract 007/1997 started expiring. Upon expiration of the concession contract, the Company has a right to receive an amount corresponding to the residual value of the infrastructure assets, as specified in such concession contract. The financial asset balance corresponding to such amounts, including Deemed Cost, are recognized in Financial Assets, and amounted to R$ 816,734 on September 30, 2018 (R$ 816,411 on December 31, 2017).

 

Generation plant

   Concession
expiration
date
     Installed
capacity
(MW)
     Net
balance
of assets
based on
historical
cost
     Net balance
of assets
based on fair
value

(replacement
cost)
 

Lot D:

           

Três Marias Hydroelectric Plant

     July 2015        396        71,694        413,450  

Salto Grande Hydroelectric Plant

     July 2015        102        10,835        39,379  

Itutinga Hydroelectric Plant

     July 2015        52        3,671        6,589  

Camargos Hydroelectric Plant

     July 2015        46        7,818        23,095  

Piau Small Hydroelectric Plant

     July 2015        18.01        1,531        9,005  

Gafanhoto Small Hydroelectric Plant

     July 2015        14        1,232        10,262  

Peti Small Hydroelectric Plant

     July 2015        9.4        1,346        7,871  

Dona Rita Small Hydroelectric Plant

     Sep. 2013        2.41        534        534  

Tronqueiras Small Hydroelectric Plant

     July 2015        8.5        1,908        12,323  

Joasal Small Hydroelectric Plant

     July 2015        8.4        1,379        7,622  

Martins Small Hydroelectric Plant

     July 2015        7.7        2,132        4,041  

Cajuru Small Hydroelectric Plant

     July 2015        7.2        3,576        4,252  

Paciência Small Hydroelectric Plant

     July 2015        4.08        728        3,936  

Marmelos Small Hydroelectric Plant

     July 2015        4        616        4,265  

Others:

           

Volta Grande Hydroelectric Plant

     Feb. 2017        380        25,621        70,118  

Miranda Hydroelectric Plant

     Dec. 2016        408        26,710        22,546  

Jaguara Hydroelectric Plant

     Aug. 2013        424        40,452        174,203  

São Simão Hydroelectric Plant

     Jan. 2015        1,710        2,258        3,243  
     

 

 

    

 

 

    

 

 

 
        3,601.70        204,041        816,734  
     

 

 

    

 

 

    

 

 

 

As stated in Aneel Normative Resolution 615/2014, the valuation reports that support the amounts to be received by the Company in relation to the residual value of the plants, previously operated by Cemig GT, that were included in Lot D and for the Volta Grande plant have submitted to the regulator. The Company do not expect any losses in the realization of these amounts.

On September 30, 2018, investments made after the Jaguara, São Simão and Miranda plants came into operation, in the amounts of R$ 174,203, R$ 3,243 and R$ 22,546 respectively, are recorded as concession financial assets, and the determination of the final amounts to be paid to the Company are under discussions with the regulator. Management does not expect any losses in realization of these amounts.

 

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Miranda and São Simão plants – basic plans

On August 31, 2018 the Company received the indemnity relating to the basic plans of the São Simão and Miranda hydroelectric plants, totaling R$ 1,139,355, as specified in Ministerial Order 291/17 of the Mining and Energy Ministry (MME). The amounts of the reimbursement were subjected to monetary updating by the variation in the Selic rate up to the date of receipt.

 

Plants

   Miranda     São Simão     Total  

Concession termination date

   Dec. 2016     Jan. 2015  

Residual value of assets based on deemed cost on 12/31/2017

     609,995       202,744       812,739  

Adjustment (1)

     174,157       40,855       215,012  
  

 

 

   

 

 

   

 

 

 

Amounts based on MME Order

     784,152       243,599       1,027,751  

Monetary updating

     25,373       31,222       56,595  
  

 

 

   

 

 

   

 

 

 

Residual value of assets of basic project on 12/31/2017

     809,525       274,821       1,084,346  

Monetary updating (2)

     42,118       12,891       55,009  

Receivables

     (851,643     (287,712     (1,139,355
  

 

 

   

 

 

   

 

 

 

Residual value of assets of basic project on 09/30/2018

     —         —         —    
  

 

 

   

 

 

   

 

 

 

 

(1)

Adjustment of the residual value of the São Simão and Miranda plant, as per MME Order 291/17.

(2)

The revenue corresponding to financial updating is shown net of a write-off of R$ 26,999 of the deemed cost of the Miranda and São Simão plants.

 

1.4)

Concession grant fee – Generation concessions

In June 2016, the Concession Contracts 08 to 16/2016, relating to 18 hydroelectric plants of Lot D of Aneel Auction 12/2015, won by Cemig GT, were transferred to the related specific-purpose entities (SPEs), wholly-owned subsidiaries of Cemig GT, as follows:

 

SPE

   Plants      Balances on
Dec. 31, 2017
     Monetary
updating
     Amounts
received
    Balances on
Sep. 30, 2018
 

Cemig Geração Três Marias S.A.

     Três Marias        1,330,134        133,096        (99,914     1,363,316  

Cemig Geração Salto Grande S.A.

     Salto Grande        417,393        41,952        (31,510     427,835  

Cemig Geração Itutinga S.A.

     Itutinga        155,594        17,549        (13,396     159,747  

Cemig Geração Camargos S.A.

     Camargos        116,710        13,077        (9,973     119,814  

Cemig Geração Sul S.A.

    
Coronel Domiciano, Joasal,
Marmelos, Paciência and Piau
 
 
     152,170        18,207        (14,032     156,345  

Cemig Geração Leste S.A.

    
Dona Rita, Ervália, Neblina, Peti,
Sinceridade and Tronqueiras
 
 
     103,133        13,596        (10,655     106,074  

Cemig Geração Oeste S.A.

     Cajurú, Gafanhoto and Martins        62,001        8,252        (6,477     63,776  
     

 

 

    

 

 

    

 

 

   

 

 

 

Total

        2,337,135        245,729        (185,957     2,396,907  
     

 

 

    

 

 

    

 

 

   

 

 

 

 

SPE

  

Plants

   Balances on
Dec. 31, 2016
     Monetary
updating
     Amounts
received
    Balances on
Sep. 30, 2017
 

Cemig Geração Três Marias S.A.

   Três Marias      1,283,197        129,986        (92,612     1,320,571  

Cemig Geração Salto Grande S.A.

   Salto Grande      402,639        40,973        (29,207     414,405  

Cemig Geração Itutinga S.A.

   Itutinga      149,904        17,193        (12,418     154,679  

Cemig Geração Camargos S.A.

   Camargos      112,447        12,809        (9,244     116,012  

Cemig Geração Sul S.A.

   Coronel Domiciano, Joasal, Marmelos, Paciência and Piau      146,553        17,884        (13,007     151,430  

Cemig Geração Leste S.A.

   Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras      99,315        13,424        (9,876     102,863  

Cemig Geração Oeste S.A.

   Cajurú, Gafanhoto and Martins      59,710        8,151        (6,004     61,857  
     

 

 

    

 

 

    

 

 

   

 

 

 

Total

        2,253,765        240,420        (172,368     2,321,817  
     

 

 

    

 

 

    

 

 

   

 

 

 

Cemig GT paid a concession fee of R$ 2,216,353 for a 30-year concession contract related to 18 hydroelectric plants. The amount of the concession fee was recognized as a financial asset, as Cemig GT has an unconditional right to receive the amount paid, updated by the IPCA Index and remuneratory interest (the total amounts is equivalent to the project’s internal return rate), during the period of the concession. Of the energy produced by these plants, 70% is sold in the Regulated Market (ACR) and 30% in the Free Market (ACL).

 

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2)

Account for compensation of variation of Portion A items (CVA) and Other financial components

The Amendment that extended the period of the concession of Cemig D guarantees that, in the event of termination of the concession contract, for any reason, the remaining balances (assets and liabilities) of any shortfall in payment or reimbursement through the tariff must also be included as payable to Cemig D by the grantor. The balances on (i) the CVA (Compensation for Variation of Portion A items) Account, (ii) the account for Neutrality of Sector Charges, and (iii) Other financial components in the tariff calculation, refer to the positive and negative differences between the estimate of the Company’s non-manageable costs and the payments actually made. The variations are subject to monetary adjustment using the Selic rate and considered in the subsequent tariff adjustments.

The balances of these financial assets and liabilities are shown below. It should be noted that in the balance sheet amounts are presented net, in assets or liabilities, in accordance with the tariff adjustments approved or to be approved:

 

     Sep. 30, 2018     Dec. 31, 2017  

Statement of financial
position

   Amounts ratified by
Aneel in the last
tariff adjustment

(Restated)
    Amounts to be ratified
by Aneel in the next
tariff adjustments

(Restated)
    Total
(Restated)
    Amounts ratified by
Aneel in the last
tariff adjustment
    Amounts to be ratified
by Aneel in the next
tariff adjustments
    Total  

Assets

     1,916,374       2,437,573       4,353,947       381,588       2,330,978       2,712,566  

Current assets

     1,916,374       825,428       2,741,802       381,588       1,379,162       1,760,750  

Non-current assets

     —         1,612,145       1,612,145       —         951,816       951,816  

Liabilities

     (1,847,178     (1,302,021     (3,149,199     (796,388     (1,961,968     (2,758,356

Current liabilities

     (1,805,795     (569,134     (2,374,929     (796,388     (1,220,637     (2,017,025

Non-current liabilities

     (41,383     (732,887     (774,270     —         (741,331     (741,331
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current, net

     110,579       256,294       366,873       (414,800     158,525       (256,275
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current, net

     (41,383     879,258       837,875       —         210,485       210,485  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, net

     69,196       1,135,552       1,204,748       (414,800     369,010       (45,790
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Financial components

   Sep. 30, 2018     Dec. 31, 2017  
   Amounts
ratified by
Aneel in
the last
tariff
adjustment

(Restated)
    Amounts to
be ratified
by Aneel in
the next
tariff
adjustments

(Restated)
    Total
(Restated)
    Amounts
ratified by
Aneel in
the last
tariff
adjustment
    Amounts to
be ratified
by Aneel in
the next
tariff
adjustments
    Total  

Items of ‘Portion A’

            

Energy Development Account (CDE) quota

     506       76,998       77,504       (154,234     (89,414     (243,648

Tariff for use of transmission facilities of grid participants

     38,931       14,097       53,028       9,058       23,448       32,506  

Tariff for transport of Itaipu supply

     3,601       10,098       13,699       2,332       1,306       3,638  

Alternative power source program (Proinfa)

     5,069             5,069       (5,148     1,513       (3,635

ESS/EER System Service/Energy Charges)

     (403,515     (269,637     (673,152     (40,105     (586,413     (626,518

Energy purchased for resale (1)

     1,085,449       1,659,612       2,745,061       (90,616     1,326,263       1,235,647  

Other financial components

            

Over contracting of supply

     (326,490     (28,188     (354,678     8,357       (211,337     (202,980

Neutrality of Portion A

     84,812       4,797       89,609       (30,581     74,076       43,495  

Other financial items

     (377,543     (138,556     (516,099     (111,825     —         (111,825

Tariff Flag balances (2)

     —         (161,323     (161,323     —         (134,008     (134,008

Excess demand and reactive power

     (41,624     (32,346     (73,970     (2,038     (36,424     (38,462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

     69,196       1,135,552       1,204,748       (414,800     369,010       (45,790
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The amount of the CVA for power supply constituted in 2018 after the Tariff Review, for inclusion in the tariff adjustment of 2019, is due mainly to the increased expenses on purchase of energy and coverage of hydrological risk, in view of the increase in the price of energy in the wholesale market, and operation of the thermoelectric plants due to the low level of reservoirs.

(2)

Billing arising from the ‘Flag’ Tariff System not yet homologated by Aneel.

 

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Changes in balances of financial assets and liabilities:

 

Balance on December 31, 2016

     (407,250
  

 

 

 

Net constitution of financial liabilities

     222,233  

Amortization

     (74,017

Payments from the Flag Tariff Centralizing Account

     (304,841

Updating – Selic rate

     (40,086
  

 

 

 

Balance on September 30, 2017

     (603,961
  

 

 

 

Balance on December 31, 2017

     (45,790

Net constitution of financial liabilities

     1,408,786  

Amortization

     375,004  

Other – P&D Reimbursement

     (114,782

Payments from the Flag Tariff Centralizing Account

     (453,650

Updating – Selic rate

     35,180  
  

 

 

 

Balance on September 30, 2018 (Restated)

     1,204,748  
  

 

 

 

Payments from the Flag Tariff Centralizing Account – CCRBT

The ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the funds that are collected from captive customers of distribution concession and permission holders operating in the national grid, and are paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the Wholesale Electricity Trading Chamber (CCEE) to distribution agents, based on the difference between the realized amounts of costs of thermal generation and the exposure to short term market prices, and the amount covered by the tariff in force.

Pass-through of funds from the Flag Account from January to September 2018 totaled R$ 453,650 (R$ 304,841 from January to September, 2017) and were recognized as a partial realization of the CVA receivable previously constituted.

 

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15.

INVESTMENTS

This table provides information of investments in the subsidiaries, jointly-controlled entities and affiliated companies. The information below was presented by the percentage of interest held by the Company.

 

     Control    Consolidated      Holding Company  
     Sep. 30,
2018
     Dec. 31,
2017
     Sep. 30, 2018
(Restated)
     Dec. 31, 2017  

Cemig Geração e Transmissão

   Subsidiary      —          —          4,799,070        4,793,832  

Hidrelétrica Cachoeirão

   Jointly-controlled      49,954        57,957        —          —    

Guanhães Energia

   Jointly-controlled      75,524        25,018        —          —    

Hidrelétrica Pipoca

   Jointly-controlled      29,368        26,023        —          —    

Retiro Baixo

   Jointly-controlled      168,253        157,773        —          —    

Aliança Norte (Belo Monte Plant)

   Jointly-controlled      651,980        576,704        —          —    

Amazônia Energia (Belo Monte Plant)

   Jointly-controlled      992,434        866,554        —          —    

Madeira Energia (Santo Antônio Plant)

   Affiliated      416,066        534,761        —          —    

FIP Melbourne (Santo Antônio Plant)

   Affiliated      481,470        582,504        —          —    

Lightger

   Jointly-controlled      41,143        40,832        —          —    

Baguari Energia

   Jointly-controlled      167,379        148,422        —          —    

Renova

   Jointly-controlled      106,100        282,524        —          —    

Aliança Geração

   Jointly-controlled      1,282,773        1,242,170        —          —    

Central Eólica Praias de Parajuru

   Jointly-controlled      44,825        60,101        —          —    

Central Eólica Volta do Rio

   Jointly-controlled      53,619        67,725        —          —    

Central Eólica Praias de Morgado

   Jointly-controlled      44,620        50,569        —          —    

Usina Hidrelétrica Itaocara S.A.

   Jointly-controlled      3,955        3,699        —          —    

Cemig Distribuição

   Subsidiary      —          —          5,084,333        3,737,310  

Light

   Jointly-controlled      1,474,056        1,534,294        1,039,247        1,083,140  

Taesa

   Jointly-controlled      1,132,594        1,101,462        1,132,594        1,101,462  

Cemig Telecom (3)

   Subsidiary      —          —          —          247,313  

Ativas Data Center

   Affiliated      18,891        17,450        18,891        —    

Gasmig

   Subsidiary      —          —          1,445,470        1,418,271  

Rosal Energia

   Subsidiary      —          —          117,053        106,897  

Sá Carvalho

   Subsidiary      —          —          86,974        102,536  

Horizontes Energia

   Subsidiary      —          —          46,406        53,165  

Usina Térmica Ipatinga

   Subsidiary      —          —          4,500        4,932  

Cemig PCH

   Subsidiary      —          —          89,810        96,944  

Lepsa (1)

   Subsidiary      —          —          439,898        455,861  

RME

   Jointly-controlled      367,537        383,233        367,537        383,233  

UTE Barreiro

   Subsidiary      —          —          18,260        17,982  

Empresa de Comercialização de Energia Elétrica

   Subsidiary      —          —          13,709        18,403  

Efficientia

   Subsidiary      —          —          17,040        7,084  

UFV Janaúba Geração de Energia Elétrica Distribuída (4)

   Affiliated      9,067        —          —          —    

Cemig Comercializadora de Energia Incentivada

   Subsidiary      —          —          2,579        2,004  

Companhia de Transmissão Centroeste de Minas

   Jointly-controlled      19,502        20,584        19,502        20,584  

Cemig Trading

   Subsidiary      —          —          14,566        29,206  

Axxiom Soluções Tecnológicas

   Jointly-controlled      5,985        11,866        5,985        11,866  

Cemig Overseas (2)

   Subsidiary      —          —          193        158  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total of investments

        7,637,095        7,792,225        14,763,617        13,692,183  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

On November 30, 2017, the Company acquired all the shares of Lepsa, and therefore as from that date now consolidates that company in its interim financial information. Lepsa’s sole asset is comprised of an investment in common and preferred shares in Light. Hence the Company no longer presents the investment that it previously held in Lepsa in its interim financial information, presenting only the interest in Light.

(2)

Company in Spain to evaluate opportunities for investments abroad. As of September 30, 2018, the company has no operations.

(3)

On March 31, 2018 Cemig Telecom was merged into the Company.

(4)

Special-Purpose Company (SPC) constituted by Efficientia and GD Energia (holding company of Mori Group) to develop the Janaúba 5MW photovoltaic generation plant in Janaúba, Minas Gerais, to be leased to consumers of Cemig Distribuição that qualify under Aneel Resolution 482/2012.

 

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The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the interest in the Santo Antônio power plant, and Ativas Data Center, investees in which Cemig has significant influence.

 

a)

Right to exploitation of the regulated activity

In the process of allocation of the acquisition price of the jointly-controlled subsidiaries, a valuation was made of the intangible assets relating to the right to operate the regulated activity. This asset is presented together with the acquisition cost of the investments in the previous table. These assets will be amortized over the remaining period of the concessions on the straight-line basis.

 

Holding Company

   Dec. 31,
2016
     Amortization     Sep. 30,
2017
     Dec. 31,
2017
     Amortization     Sep. 30,
2018
 

Cemig Geração e Transmissão

     303,937        (10,278     293,659        285,768        (10,001     275,767  

Retiro Baixo

     29,525        (888     28,637        28,344        (886     27,458  

Central Eólica Praias de Parajuru

     19,341        (1,146     18,195        16,503        (1,060     15,443  

Central Eólica Volta do Rio

     13,807        (756     13,051        11,035        (653     10,382  

Central Eólica Praias de Morgado

     27,406        (1,542     25,864        23,956        (1,457     22,499  

Madeira Energia (Santo Antônio plant)

     157,340        (4,467     152,873        151,384        (4,467     146,917  

Aliança Norte (Belo Monte plant)

     56,518        (1,479     55,039        54,546        (1,478     53,068  

Taesa

     288,146        (10,170     277,976        188,745        (6,990     181,755  

Light

     208,800        (16,772     192,028        186,437        (16,772     169,665  

Gasmig

     207,498        (5,934     201,564        199,586        (5,934     193,652  

Lepsa

     48,429        (3,798     44,631        —          —         —    

RME

     48,429        (3,798     44,631        43,365        (3,798     39,567  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

     1,105,239        (50,750     1,054,489        903,901        (43,495     860,406  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

Consolidated

   Dec. 31, 2016      Amortization     Sep. 30, 2017      Dec. 31, 2017      Amortization     Sep. 30, 2018  

Taesa

     288,146        (10,170     277,976        188,745        (6,990     181,755  

Light

     208,800        (16,772     192,028        186,437        (16,772     169,665  

Gasmig

     207,498        (5,934     201,564        199,586        (5,934     193,652  

Lepsa

     48,429        (3,798     44,631        —          —         —    

RME

     48,429        (3,798     44,631        43,365        (3,798     39,567  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

     801,302        (40,472     760,830        618,133        (33,494     584,639  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

178


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b)

Changes of investments in the subsidiaries, jointly-controlled and affiliated entities are as follows:

 

Holding Company

   Dec. 31, 2017      Gain (loss) by
equity method

(Income
statement)

(Restated)
    Gain (loss) by
equity method

(Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Sep. 30, 2018
(Restated)
 

Cemig Geração e Transmissão

     4,793,832        5,238       —         —         —          —         4,799,070  

Cemig Distribuição (2)

     3,737,310        346,099       —         —         1,100,000        (99,076     5,084,333  

Cemig Telecom (1)

     247,313        4,778       (416     —         —          (251,675     —    

Ativas Data Center (1)

     —          1,775       —         —         —          17,116       18,891  

Rosal Energia

     106,897        8,951       —         (16,342     —          17,547       117,053  

Sá Carvalho

     102,536        14,160       —         (29,722     —          —         86,974  

Gasmig

     1,418,271        108,507       —         (81,308     —          —         1,445,470  

Horizontes Energia

     53,165        12,270       —         (19,029     —          —         46,406  

Usina Térmica Ipatinga

     4,932        (118     —         (314     —          —         4,500  

Cemig PCH

     96,944        23,613       —         (30,747     —          —         89,810  

Lepsa (2)

     455,861        9,083       —         (2,963     —          (22,083     439,898  

RME (2)

     383,233        2,069       —         (1,200     —          (16,565     367,537  

UTE Barreiro

     17,982        278       —         —         —          —         18,260  

Empresa de Comercialização de Energia Elétrica

     18,403        39,357       —         (44,051     —          —         13,709  

Efficientia

     7,084        1,117       —         (231     9,070        —         17,040  

Cemig Comercializadora de Energia Incentivada

     2,004        795       —         (220     —          —         2,579  

Companhia de Transmissão Centroeste de Minas

     20,584        3,722       —         (4,804     —          —         19,502  

Light (2)

     1,083,140        7,942       —         (7,689     —          (44,146     1,039,247  

Cemig Trading

     29,206        39,948       —         (54,588     —          —         14,566  

Axxiom Soluções Tecnológicas

     11,866        (5,881     —         —         —          —         5,985  

Taesa

     1,101,462        156,333       —         (125,201     —          —         1,132,594  

Cemig Overseas

     158        (7     —         —         35        7       193  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     13,692,183        780,029       (416     (418,409     1,109,105        (398,875     14,763,617  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

The changes included in the ‘Others’ column arise from the merger of Cemig Telecom in March, 2018. For more details, please see Note 1.

(2)

The changes included in the ‘Other’ column result from the effects arising from the first adoption of the new accounting pronouncements of CPC 47/IFRS 15 and CPC 48/IFRS 9 on January 1, 2018 recognized by the investees directly in Equity, without passing through the period’s result. For more details, please see Note 2.2.

 

179


LOGO

 

Advance for Future Capital Increase (‘AFAC’), in Cemig D

The Company’s Board of Directors authorized the transfer to its subsidiary Cemig Distribuição (Cemig D) the amount of up to R$ 2,750,000, as an Advance for Future Capital Increase (Adiantamento para Futuro Aumento de Capital, or AFAC) to be subsequently converted into a capital increase through approval by future Extraordinary General Meeting of Shareholders.

Until September 30, 2018 the total amount transferred as AFAC was R$ 2,600,000.

 

Consolidated

   Dec. 31,
2017
     Equity
method
gain
(Statement
of income)
    Dividends     Injections /
acquisitions
     Other     Sep. 30,
2018
 

Companhia de Transmissão Centroeste de Minas

     20,584        3,722       (4,804     —          —         19,502  

Light (1)

     1,534,294        17,514       (11,532     —          (66,220     1,474,056  

Axxiom Soluções Tecnológicas

     11,866        (5,881     —         —          —         5,985  

RME (1)

     383,233        2,069       (1,200     —          (16,565     367,537  

Hidrelétrica Cachoeirão

     57,957        8,347       (16,350     —          —         49,954  

Guanhães Energia

     25,018        (564     —         51,070        —         75,524  

Hidrelétrica Pipoca

     26,023        4,548       (1,203     —          —         29,368  

Madeira Energia (Santo Antônio Plant)

     534,761        (118,779     —         84        —         416,066  

FIP Melbourne (Santo Antônio Plant)

     582,504        (101,034     —         —          —         481,470  

Lightger

     40,832        2,090       (1,779     —          —         41,143  

Baguari Energia

     148,422        22,515       (3,558     —          —         167,379  

Central Eólica Praias de Parajuru (2)

     60,101        (7,483     (7,793     —          —         44,825  

Central Eólica Volta do Rio

     67,725        (14,106     —         —          —         53,619  

Central Eólica Praias de Morgado

     50,569        (5,949     —         —          —         44,620  

Ativas Data Center

     17,450        1,012       —         —          429       18,891  

Taesa

     1,101,462        156,333       (125,201     —          —         1,132,594  

Renova

     282,524        (176,424     —         —          —         106,100  

Usina Hidrelétrica Itaocara S.A.

     3,699        (3,805     —         4,061        —         3,955  

Aliança Geração

     1,242,170        40,603       —         —          —         1,282,773  

Aliança Norte (Belo Monte Plant)

     576,704        33,107       —         42,169        —         651,980  

Amazônia Energia (Belo Monte Plant)

     866,554        55,699       —         70,181        —         992,434  

Retiro Baixo

     157,773        10,480       —         —          —         168,253  

UFV Janaúba Geração de Energia Elétrica Distribuída

     —          —         —         9,067        —         9,067  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total of investments

     7,792,225        (75,986     (173,420     176,632        (82,356     7,637,095  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

The changes included in the “Other” column derive from the impacts arising from the first adoption of the new accounting pronouncements on January 1, 2018 recognized by the investees directly in Equity, without passing through the result for the period. See Note 2.2.

(2)

Extraordinary dividends distribution with balance of profit reserve.

 

 

180


LOGO

 

 

Holding Company

   Dec. 31, 2016      Equity method gain
(Statement of
income)
    Equity method gain
(Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Sep. 30, 2017  

Cemig Geração e Transmissão

     4,583,195        525,407       (33,852     —         100,000        —         5,174,750  

Cemig Distribuição

     2,499,867        (538,692     —         —         —          —         1,961,175  

Cemig Telecom

     191,515        (12     (680     —         —          —         190,823  

Rosal Energia

     141,038        (7,907     —         (30,968     —          —         102,163  

Sá Carvalho

     106,111        19,360       —         (18,631     —          —         106,840  

Gasmig

     1,419,492        88,634       —         (98,079     —          —         1,410,047  

Horizontes Energia

     52,396        11,136       —         (7,818     —          —         55,714  

Usina Térmica Ipatinga

     4,009        254       —         (335     —          —         3,928  

Cemig PCH

     91,969        13,804       —         (10,065     —          —         95,708  

Lepsa

     343,802        234       (1,876     —         —          (127     342,033  

RME

     340,063        128       (1,815     —         —          (127     338,249  

Companhia Transleste de Transmissão

     21,588        4,071       —         (1,265     —          —         24,394  

UTE Barreiro

     39,266        (2,400     —         924       —          —         37,790  

Companhia Transudeste de Transmissão

     20,505        3,095       —         —         —          —         23,600  

Empresa de Comercialização de Energia Elétrica

     20,154        26,679       —         (37,447     —          —         9,386  

Companhia Transirapé de Transmissão

     23,952        3,615       —         —         —          —         27,567  

Efficientia

     4,868        3,304       —         (1,171     —          —         7,001  

Cemig Comercializadora de Energia Incentivada

     1,867        559       —         (84     —          —         2,342  

Companhia de Transmissão Centroeste de Minas

     21,171        3,828       —         (5,644     —          —         19,355  

Light

     1,070,477        3,677       (5,442     —         —          —         1,068,712  

Cemig Trading

     28,635        41,873       —         (55,555     —          —         14,953  

Axxiom Soluções Tecnológicas

     19,264        (6,530     —         —         —          —         12,734  

Taesa

     1,582,633        126,862       —         (133,339     —          —         1,576,156  

Cemig Overseas

     20        —         —         —         121        —         141  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     12,627,857        320,979       (43,665     (399,477     100,121        (254     12,605,561  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

181


LOGO

 

 

Consolidated

   Dec. 31,
2016
    Equity method gain
(Statement of
income)
    Equity method
gain (Other
comprehensive
income)
    Dividends     Injections /
acquisitions
     Others     Sep. 30,
2017
 

Companhia Transleste de Transmissão

     21,588       4,071       —         (1,265     —          —         24,394  

Companhia Transudeste de Transmissão

     20,505       3,095       —         —         —          —         23,600  

Companhia Transirapé de Transmissão

     23,952       3,615       —         —         —          —         27,567  

Companhia de Transmissão Centroeste de Minas

     21,171       3,828       —         (5,644     —          —         19,355  

Light

     1,070,477       3,677       (5,442     —         —          —         1,068,712  

Axxiom Soluções Tecnológicas

     19,264       (6,530     —         —         —          —         12,734  

Lepsa

     343,802       234       (1,876     —         —          (127     342,033  

RME

     340,063       128       (1,815     —         —          (127     338,249  

Hidrelétrica Cachoeirão

     50,411       8,950       —         (2,641     —          —         56,720  

Guanhães Energia (1)

     —         (2,037     —         —         86,280        (59,071     25,172  

Hidrelétrica Pipoca

     31,809       3,228       —         (1,284     —          —         33,753  

Madeira Energia (Santo Antônio Plant)

     643,890       (84,553     —         —         —          —         559,337  

FIP Melbourne (Santo Antônio Plant)

     677,182       (73,209     —         —         —          —         603,973  

Lightger

     41,543       2,280       —         (2,569     —          —         41,254  

Baguari Energia

     162,106       13,887       —         (30,274     —          —         145,719  

Central Eólica Praias de Parajuru

     63,307       (1,293     —         (406     —          —         61,608  

Central Eólica Volta do Rio

     81,228       (5,439     —         —         —          —         75,789  

Central Eólica Praias de Morgado

     59,586       (3,991     —         —         —          —         55,595  

Aliança Norte (Belo Monte Plant)

     527,498       (6,376     —         —         46,707        —         567,829  

Amazônia Energia (Belo Monte Plant)

     781,022       (6,965     —         —         76,686        —         850,743  

Ativas Data Center (2)

     17,741       (1,950     —         —         —          2,003       17,794  

Taesa

     1,582,633       126,862       —         (133,339     —          —         1,576,156  

Renova

     688,625       (50,048     (33,852     —         18,000        —         622,725  

Usina Hidrelétrica Itaocara S.A.

     2,782       (581     —         —         532        —         2,733  

Aliança Geração

     1,319,055       39,977       —         (51,576     —          —         1,307,456  

Retiro Baixo

     161,848       8,460       —         (11,182     —          —         159,126  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total of investments

     8,753,088       (20,680     (42,985     (240,180     228,205        (57,322     8,620,126  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Guanhães – uncovered liabilities of jointly-controlled entity (1)

     (59,071     —         —         —         —          59,071       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total

     8,694,017       (20,680     (42,985     (240,180     228,205        1,749       8,620,126  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Transfer to uncovered liabilities.

 

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c)

Information from the subsidiaries, jointly-controlled and affiliated entities, not adjusted for the percentage represented by the Company’s ownership interest

 

Company

   Number of
shares
     Sep. 30, 2018      Dec. 31, 2017  
   Cemig
interest

%
     Share
capital
     Equity      Cemig
interest

%
     Share
capital
     Equity  

Cemig Geração e Transmissão

     2,896,785,358        100.00        2,600,000        4,799,070        100.00        1,837,710        4,793,832  

Hidrelétrica Cachoeirão

     35,000,000        49.00        35,000        101,946        49.00        35,000        118,280  

Guanhães Energia

     358,511,000        49.00        386,139        154,131        49.00        330,536        51,058  

Hidrelétrica Pipoca

     41,360,000        49.00        41,360        59,934        49.00        41,360        53,108  

Retiro Baixo

     222,850,000        49.90        222,850        282,155        49.90        222,850        257,880  

Aliança Norte (Belo Monte Plant)

     41,410,158,283        49.00        205,315        1,222,271        49.00        1,119,255        1,065,628  

Amazônia Energia (1) (Belo Monte Plant)

     1,281,030,446        74.50        1,323,660        1,332,127        74.50        1,229,600        1,163,160  

Madeira Energia (Santo Antônio Plant)

     11,343,088,100        18.13        10,310,341        4,139,327        18.13        9,546,672        5,327,114  

Lightger

     79,078,937        49.00        79,232        83,965        49.00        79,232        83,331  

Baguari Energia (1)

     26,157,300,278        69.39        186,573        241,223        69.39        186,573        213,895  

Renova

     417,197,244        36.23        2,919,019        292,852        36.23        2,919,019        779,808  

Aliança Geração

     1,291,582,500        45.00        1,291,488        1,990,320        45.00        1,291,488        1,857,905  

Central Eólica Praias de Parajuru

     70,560,000        49.00        70,560        70,560        49.00        70,560        88,976  

Central Eólica Volta do Rio

     117,230,000        49.00        117,230        88,238        49.00        117,230        115,694  

Central Eólica Praias de Morgado

     52,960,000        49.00        52,960        45,145        49.00        52,960        54,312  

Usina Hidrelétrica Itaocara S.A.

     19,390,114        49.00        19,390        8,071        49.00        11,102        7,549  

Cemig Distribuição

     2,359,113,452        100.00        2,771,998        5,084,333        100.00        2,771,998        3,737,310  

Light

     203,934,060        26.06        2,225,822        3,336,522        26.06        2,225,822        3,461,971  

Cemig Telecom (2)

     —          —          —          —          100.00        292,399        247,313  

Ativas Data Center

     456,540,718        19.60        182,063        96,386        —          —          —    

Rosal Energia

     46,944,467        100.00        46,944        117,053        100.00        46,944        106,897  

Sá Carvalho

     361,200,000        100.00        36,833        86,974        100.00        36,833        102,536  

Gasmig

     409,255,483        99.57        665,429        1,003,957        99.57        665,429        1,223,948  

Horizontes Energia

     39,257,563        100.00        39,258        46,406        100.00        39,258        53,165  

Cemig Geração Distribuída (Usina Térmica Ipatinga)

     174,281        100.00        174        4,500        100.00        174        4,932  

Cemig PCH

     35,952,000        100.00        35,952        89,810        100.00        35,952        96,944  

Lepsa

     1,379,839,905        100.00        406,341        439,898        100.00        406,341        455,861  

RME

     1,365,421,406        75.00        403,040        437,293        75.00        403,040        453,157  

UTE Barreiro

     16,902,000        100.00        16,902        18,260        100.00        16,902        17,982  

Empresa de Comercialização de Energia Elétrica

     486,000        100.00        486        13,709        100.00        486        18,403  

Efficientia

     6,051,994        100.00        6,052        17,040        100.00        6,052        7,084  

Cemig Comercializadora de Energia Incentivada

     1,000,000        100.00        1,000        2,579        100.00        1,000        2,004  

Companhia de Transmissão Centroeste de Minas

     28,000,000        51.00        28,000        38,240        51.00        28,000        40,361  

Cemig Trading

     1,000,000        100.00        1,000        14,566        100.00        1,000        29,206  

Axxiom Soluções Tecnológicas

     17,200,000        49.00        46,600        12,214        49.00        46,600        24,216  

TAESA

     1,033,496,721        21.68        3,042,034        4,514,276        21.68        3,042,034        4,346,746  

 

(1)

Jointly-control under a Shareholders’ Agreement.

(2)

On March 31 ,2018 Cemig Telecom was merged into the Company.

 

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On September 30, 2018, the current liabilities of some jointly-controlled entities exceeded their current assets, as follows:

Madeira Energia S.A. (‘Mesa’): In the period ended September 30, 0218, Mesa reported a loss of R$ 1,187,787. The excess of current liabilities over current assets, equal to R$ 1,373,071, arises mainly from the balances of the accounts ‘Suppliers’ and ‘Loans and financings’. To resolve the situation of negative working capital, Mesa is renegotiating the flow of debt servicing payments with the BNDES and onlending banks, and the release of funds from the Reserve account, as a result of this renegotiation. The process of debt reprofiling is at an advanced stage of approval by the creditors and shareholders, and the remaining requirement for its conclusion is the definition of part of the corporate guarantees to be offered.

Renova Energia: In the period ended September 30, 2018, Renova Energia reported a loss of R$ 486,956, accumulated losses of R$ 2,681,546 and current liabilities in excess of current assets in the amount of R$ 172,078. Renova Energia is required to obtain capital to comply with the construction commitments of wind and solar generating plants.

Due to this scenario, Renova has been taking actions to rebalance its liquidity and cash flow structure, and is working together with its controlling shareholders on a new restructuring plan, aiming to rebalance its capital structure and honor its commitments.

The Management of Renova Energia believes that with the success of these measures, it will be possible to recover the economic and financial equilibrium, and liquidity.

The events or conditions described above indicate the existence of relevant uncertainty that may cast significant doubt on Renova Energia ability to continue as a going concern as of September 30, 2018.

The Company is committed to the plans of the investee’s management and has concluded that, at the present moment, there are no indicators of additional impairment need other than that already posted in the Quarterly Information of the Investee for the period ended September 30, 2018 – which has been recognized by the Company thru equity method. The Company will timely reflect any need for additional impairment of this investment.

Investment in the Santo Antônio hydroelectric plant, through Madeira Energia S.A. (‘Mesa’) and FIP Melbourne

The Company has an indirect investment, of 18.13%, in Madeira Energia S.A. (which holds an investment in Santo Antônio Energia S.A.), of R$ 897,536 on September 30, 2018 (R$ 1,117,265 on December 31, 2017).

Madeira Energia S.A. (‘Mesa’) and its subsidiary Santo Antônio Energia S.A. (‘Saesa’) are incurring construction costs related to the construction of the Santo Antônio hydroelectric plant. On September 30, 2018 the total PP&E and intangible assets constituted by these costs amounted to R$ 21,019,315 (Mesa, consolidated). According to financial projections prepared by its Management, these construction costs will be recovered through future revenues from operations as all the entity’s generation plants are currently under operation.

The Federal Public Attorneys’ Office has conducted and is in the process of conducting investigations, and other legal measures are in progress, involving other indirect shareholders of Madeira Energia S.A. and certain executives of those other indirect shareholders. In this context, the Federal Public Attorneys have started investigations on irregularities involving contractors and suppliers of Mesa and of its other shareholders. In response to allegations of possible illegal activities, the investee and its other shareholders have started an independent internal investigation. It is not possible to determine the results of these investigations, or the developments arising from them, which may at some time in the future affect the investee.

The effects of any changes to the current scenario will be reflected, appropriately, in the financial statements of the Company and its subsidiary Cemig GT.

 

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Capital increase in Madeira Energia S.A.

On August 28, 2018 an Extraordinary General Meeting (EGM) of Shareholders approved an increase in the capital of Mesa of up to R$ 972,512. Simultaneously the shareholders Furnas Centrais Elétricas S.A., Odebrecht Energia do Brasil S.A. and Caixa Fundo de Investimento em Participações Amazônia Energia subscribed and paid up in full the credits that they hold against Mesa, in a total of R$ 754,669, such that an amount of capital equal to R$ 217,843 remained, referring to the subscription right of the Company and of its indirect affiliate SAAG Investimento S.A.

On October 2, 2018, since Cemig GT and SAAG had not exercised their right to subscribe in the said capital increase, the shareholder Furnas Centrais Elétricas S.A. subscribed these remaining shares, paying them up in part in the amount of R$ 85,000. On the same date the Board of Directors of Mesa partially ratified the capital increase approved on August 28, 2018, in the amount of R$ 839,670. The total of funds subscribed will be allocated in full to subscription of shares in Santo Antônio Energia S.A. With the homologation of the increase, the share capital of Mesa was increased to R$ 10,386,341, and the Company then held: a direct equity interest of 8.44%; and an indirect equity interest of 6.86%.

In an EGM held on October 3, 2018, a further capital increase in Mesa of up to R$ 300,000 was approved. On that date Cemig GT, SAAG and Furnas Centrais Elétricas S.A. subscribed shares in the amount of R$ 25,320, R$ 26,068 and R$ 124,620, respectively, paid up in full on October 5, 2018. The other shareholders, thus did not exercise their right of first refusal in the capital increase that had been approved, the period for which expired on November 3, 2018. Thus, after homologation of this increase, the share capital of Mesa was R$ 10,562,350, and the Company’s direct and indirect equity interests in Mesa are now 8.63% and 7.05%, respectively.

The FID (Availability Factor)

On July 31, 2015, the Regional Federal Appeal Court accepted the request by SAESA for interim relief on appeal. This relief suspended the application of the Availability Factor (FID) related to the generating units of the Santo Antônio hydroelectric plant not dispatched by the National System Operator (ONS). This decision, which had ordered the regulator, Aneel, and the Wholesale Electricity Trading Chamber, CCEE, to adopt the necessary procedures to make that decision effective in the CCEE’s accounting and settlement, was suspended by the Higher Appeal Court (STJ), was suspended by the Higher Appeal Court (STJ), and subsequently reinstated, after an interim remedy was granted in a Constitutional Complaint to the Federal Supreme Court. However, on April 10, 2018 the Supreme Court ruled against allowing the Constitutional complaint to go forward, re-establishing the effects of the decision given by the STJ. Due to the decision by the Supreme Court the CCEE, after authorization by Aneel, agreed the payment by installments of the debt, of R$ 738,000, relating to the Availability Factor, which was registered in the account of Suppliers at SAESA, to be paid in 36 equal installments, from September 2018, adjusted by inflation, plus interest.

Arbitration proceedings

In 2014, Cemig GT and SAAG Investimentos S.A. (SAAG), a vehicle through which Cemig GT holds an indirect equity interest in Mesa, opened arbitration proceedings, in the Market Arbitration Chamber, challenging the following: (a) the increase approved in the capital of Mesa of approximately R$ 750 million partially to be allocated to payment of the claims by the Santo Antonio Construction Consortium (‘CCSA’), based on absence of quantification of the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the bylaws and Shareholders’ Agreement of Mesa; and also on the existence of credits owed to Mesa by CCSA, for an amount greater than the claims; and (b) the adjustment for impairment carried out by the Executive Board of Mesa, in the amount of R$ 750 million, relating to certain credits owed to Mesa by CCSA, on the grounds that those credits are owed in their totality by express provision of contract.

The arbitration judgment by the Market Arbitration Chamber recognized the right of Cemig GT and SAAG in full, and ordered the annulment of the acts being impugned. As a consequence of this decision, Mesa reversed the impairment, and posted a provision for doubtful accounts in the amount of R$ 678,551 in its financial statements as of December 31, 2017.

To resolve the question of the liability of the CCSA consortium to reimburse the costs of re-establishment of the collateral and use of the contractual limiting factor, the affiliated company opened arbitration proceedings with the International Chamber of Commerce (ICC) against CCSA, which are in progress. This process is confidential under the Arbitration Regulations of the ICC.

 

185


LOGO

 

Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte

Amazônia Energia and Aliança Norte are Shareholders 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. Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest in NESA of 11.74%.

NESA will still require significant funds for costs of organization, development and pre-operating costs, resulting in negative net working capital of R$ 2,791,888 as of September 30, 2018. The completion of the construction works for Belo Monte plant, and consequent generation of revenues, in turn, depend on the capacity of the investee to continue to comply with the schedule of works envisaged, as well as obtaining the necessary financial resources, either from its shareholders and / or from third parties.

On April 7, 2015, NESA was awarded a preliminary injunction ordering the regulator to “abstain, until hearing of the application for an injunction made in the original case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant not starting operations on the date established in the original timetable for the project, including those specified in an Aneel Normative Resolution and in the Concession Contract for the Belo Monte Hydroelectric Plant” – ANEEL nº 595/2013 and its Concession contract 01/2010-MME. The legal advisers of NESA have classified the probability of loss as ‘possible’ and estimated the potential loss on September 30, 2018 to approximately R$ 632,000.

Investigations and other legal measures are in progress, conducted by the Federal Public Attorneys’ Office, which involve other shareholders of NESA and certain executives of those other shareholders. In this context, the Federal Public Attorneys have started investigations on irregularities involving contractors and suppliers of NESA and of its other Shareholders, which are still in progress. At present it is not possible to determine the outcome of these investigations, and their possible consequences. These might at some time in the future affect the investee. In addition, based on the results of the independent internal investigation conducted by NESA and its other Shareholders, a write-down of the value of the infrastructure of NESA, by R$ 183,000 was already recorded in 2015.

The effects of any changes in the current scenario will be reflected, appropriately, in the Company and its subsidiary Cemig GT’s financial statements.

Investment in Renova Energia S.A. (‘Renova’)

Negotiations relating to the Alto Sertão III wind farm complex

Renova is negotiating sale of the Alto Sertão III wind farm complex and has received non-binding proposals for acquisition of this Project from certain investors, which are at a final stage of due diligence process.

Risks related to compliance with laws and regulations

On January 19, 2018, Renova responded to a formal statement by the Civil Police of Minas Gerais State received in November 2017, relating to the investigation being carried out by that Police Force related to certain capital injections made by the controlling shareholders of Renova, including Cemig GT, and capital injections made by Renova in certain projects under development in previous years. As a consequence, the governance bodies of Renova requested the opening of an internal investigation, which is being conducted by an independent party.

In addition, a monitoring committee was set up, composed by an independent counselor, the Chairman of the Fiscal Council and the chairman of the Board of Directors, who, together with the Audit Committee, will monitor the internal investigation.

The investigation is in progress, and it is not possible to determine any effects of this investigation, nor any impacts on the interim financial information of Renova, or the Company, for the nine-month period ended September 30, 2018.

Non-binding proposal by Taesa for Centroeste

On May 16, 2018, the Company received a non-binding offer from Taesa for acquisition of Cemig’s 51% shareholding position in Companhia Centroeste de Minas Gerais S.A. – Centroeste. This offer is under consideration by Management.

 

186


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Resolution of crossover assets of Cemig GT and Energimp

On May 17, 2018, a document entitled ‘Private Transaction Agreement’ was signed between the subsidiary Cemig GT and Energimp S.A. (‘Energimp’), for resolution of crossover Shareholdings currently held by Cemig GT and Energimp in the companies Central Eólica Praias de Parajuru S.A. (‘Parajuru ‘), Central Eólica Volta do Rio S.A. (‘Volta do Rio’) and Central Eólica Praia de Morgado S.A. (‘Morgado’).

The transaction will result in 100% of the share capital of Parajuru and Volta do Rio being wholly owned by the subsidiary Cemig GT, and 100% of the shares in Morgado being wholly owned by Energimp.

This transaction to resolve crossover shareholding was approved by the competition authority, CADE, and is in the process of approval by the financing bank.

Internal procedures on risks related to compliance with law and regulations

Considering the investigations that are being made in relation to the Company and certain investees, the governance bodies of the Company have authorized contracting of a specialized company to analyze the internal procedures related to these investments.

Considering that the work is still preliminary, at present it is not possible to measure any effects of these analyses or any impacts on the Company’s Interim financial information for the period ended September 30, 2018.

 

16.

PROPERTY, PLANT AND EQUIPMENT

 

Consolidated

   Sep. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
depreciation
    Net value      Historical
cost
     Accumulated
depreciation
    Net value  

In service

               

Land

     224,921        (15,525     209,396        224,924        (13,652     211,272  

Reservoirs, dams and watercourses

     3,282,064        (2,111,517     1,170,547        3,284,948        (2,051,372     1,233,576  

Buildings, works and improvements

     1,112,168        (794,331     317,837        1,116,990        (785,628     331,362  

Machinery and equipment

     2,246,233        (1,672,525     573,708        2,935,643        (2,062,092     873,551  

Vehicles

     31,636        (26,752     4,884        28,816        (25,711     3,105  

Furniture and utensils

     16,112        (12,488     3,624        16,109        (12,714     3,395  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     6,913,134        (4,633,138     2,279,996        7,607,430        (4,951,169     2,656,261  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

In progress

               

Development Assets

     129,604        —         129,604        106,049        —         106,049  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net property, plant and equipment

     7,042,738        (4,633,138     2,409,600        7,713,479        (4,951,169     2,762,310  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

Holding Company

   Sep. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
depreciation
    Net
value
     Historical
cost
     Accumulated
depreciation
    Net
value
 

In service

               

Land

     82        —         82        —          —         —    

Buildings, works and improvements

     408        (296     112        —          —         —    

Machinery and equipment

     5,840        (4,506     1,334        3,627        (2,289     1,338  

Furniture and utensils

     2,238        (1,860     378        657        (644     13  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     8,568        (6,662     1,906        4,284        (2,933     1,351  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

In progress

               

Development Assets

     459        —         459        459        —         459  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net property, plant and equipment

     9,027        (6,662     2,365        4,743        (2,933     1,810  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

187


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The changes in PP&E are as follows:

 

Consolidated

   Balance on
Dec. 31, 2017
     Addition      Disposals     Depreciation     Transfer
to Held
for sale
    Transfers /
capitalizations
    Balance on
Sep. 30, 2018
 

In service

                

Land

     211,272        —          (3     (1,873     —           209,396  

Reservoirs, dams and watercourses

     1,233,576        —          (2,046     (61,129     —         146       1,170,547  

Buildings, works and improvements

     331,362        —          (237     (14,031     —         743       317,837  

Machinery and equipment

     873,551        —          (8,673     (55,119     (255,758     19,707       573,708  

Vehicles

     3,105        —          —         (1,050     —         2,829       4,884  

Furniture and utensils

     3,395        —          —         (268     —         497       3,624  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,656,261        —          (10,959     (133,470     (255,758     23,922       2,279,996  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     106,049        58,292        (1,152     —         —         (33,585     129,604  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     2,762,310        58,292        (12,111     (133,470     (255,758     (9,663     2,409,600  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Consolidated

   Balance on
Dec. 31,
2016
     Addition      Jaguara, Miranda
and Volta Grande
Plants (1)
    Disposals     Depreciation     Transfers /
capitalizations
    Balance on
Sep. 30,
2017
 

In service

                

Land

     278,650        —          (61,287     —         (5,408     —         211,955  

Reservoirs, dams, and watercourses

     1,761,013        —          (440,923     300       (64,913     371       1,255,848  

Buildings, works, and improvements

     418,480        39        (68,971     —         (14,546     773       335,775  

Machinery and equipment

     1,171,189        253        (297,471     (5,343     (69,864     71,726       870,490  

Vehicles

     4,230        —          —         —         (845     —         3,385  

Furniture and utensils

     3,408        58        —         —         (305     —         3,161  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     3,636,970        350        (868,652     (5,043     (155,881     72,870       2,680,614  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     138,106        53,533        (130     (2,062     —         (72,870     116,577  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     3,775,076        53,883        (868,782     (7,105     (155,881     —         2,797,191  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Holding Company

   Balance
on Dec.
31,
2017
     Merger
of

Telecom
(2)
     Transfer
to Held
for sale
    Transfers
(2)
    Depreciation     Write-off     Balance
on Sep.
30,
2018
 

In service

                

Land

     —          82        —         —         —         —         82  

Buildings, works, improvements

     —          116        —         —         (4     —         112  

Machinery and equipment

     1,338        262,137        (255,758     —         (5,916     (467     1,334  

Furniture and utensils

     13        406        —         —         (41     —         378  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,351        262,741        (255,758     —         (5,961     (467     1,906  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     459        9,025        —         (9,025     —         —         459  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     1,810        271,766        (255,758     (9,025     (5,961     (467     2,365  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Transferred to Generation concession assets, in relation to the Jaguara, Miranda and Volta Grande Plants in the amount of R$ 799,117 and to Concession financial assets, in relation to the Volta Grande Plant, in the amount of R$ 70,252.

(2)

Related to the merged of its subsidiary Cemig Telecom. The amount of R$ 9,025 was transferred to Inventories. See Note 1.

 

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The average annual depreciation rate for the Company and its subsidiaries for the nine-month period ended September 30, 2018, is 3.22%. Depreciation rates, which take into consideration the expected useful life of the assets, are revised annually by Management.

The Company and its subsidiaries have not identified any evidence of impairment of its Property, plant and equipment assets. The generation concession contracts provide that at the end of each concession the grantor must determine the amount to be paid to Cemig GT for the residual value of the infrastructure assets. Management believes that the amounts ultimately received will be higher than the historical residual value.

The residual value of the assets is the residual balance of the assets at the end of the concession contract which will be transferred to the grantor at the end of the concession contract and for which Cemig GT is entitled to receive in cash. For contracts under which Cemig GT does not have a right to receive such amounts or there is uncertainty related to collection of the amounts, such as in the case of thermal generation and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession term.

Consortium

Cemig GT is a partner in the electricity generation consortium for the Queimado plant, for which no separate company with independent legal existence was formed to manage the object of the concession, whose controls are being kept in Fixed assets and Intangible assets. Cemig GT’s portion in the consortium is recorded and controlled separately in the respective categories of PP&E and Intangible assets.

 

Holding Company and Consolidated

   Interest
in power
output, %
     Average
annual
depreciation
rate %
     Sep. 30,
2018
    Dec. 31,
2017
 

In service

          

Queimado plant

     82.50        4.03        217,210       217,109  

Accumulated depreciation

     —          —          (97,202     (90,649
        

 

 

   

 

 

 

Total in operation

           120,008       126,460  
        

 

 

   

 

 

 

In progress

          

Queimado plant

     82.50        —          291       340  
        

 

 

   

 

 

 

Total in construction

           291       340  
        

 

 

   

 

 

 

 

17.

INTANGIBLE ASSETS

Composition of the balance on September 30, 2018 and on December 31, 2017:

 

Consolidated

   Sep. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
amortization
    Residual
value
     Historical
cost
     Accumulated
amortization
    Residual
value
 

In service

               

Useful life defined

               

Temporary easements

     11,749        (2,495     9,254        11,749        (1,990     9,759  

Paid concession

     19,169        (11,761     7,408        19,169        (11,251     7,918  

Assets of concession

     18,321,484        (7,835,802     10,485,682        17,837,687        (7,402,296     10,435,391  

Others

     76,009        (63,613     12,396        81,721        (64,533     17,188  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     18,428,411        (7,913,671     10,514,740        17,950,326        (7,480,070     10,470,256  

In progress

     683,346        —         683,346        685,672        —         685,672  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net intangible assets

     19,111,757        (7,913,671     11,198,086        18,635,998        (7,480,070     11,155,928  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Holding Company

   Sep. 30, 2018      Dec. 31, 2017  
   Historical
cost
     Accumulated
amortization
    Residual
value
     Historical
cost
     Accumulated
amortization
    Residual
value
 

In service

               

Useful life defined

               

Rights of software

     12,405        (8,639     3,766        3,789        (3,748     41  

Brands and patents

     239        (8     231        9        (7     2  
     12,644        (8,647     3,997        3,798        (3,755     43  

In progress

     2,496        —         2,496        2,415        —         2,415  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net intangible assets

     15,140        (8,647     6,493        6,213        (3,755     2,458  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Changes in Intangible assets:

 

Consolidated

   Balance on
Dec. 31, 2017
     Addition      Disposals     Amortization     Transfers
to Held
for sale
    Transfer
(1)
    Other
Transfers
     Balance on
Sep. 30, 2018
 

In service

                   

Useful life defined

                   

Temporary easements

     9,759        —          —         (505     —         —         —          9,254  

Paid concession

     7,918        —          —         (510     —         —         —          7,408  

Assets of concession

     10,435,391        —          (17,326     (495,152     —         562,422       347        10,485,682  

Others

     17,188        1,064        (114     (3,967     (6,947     5,172       —          12,396  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     10,470,256        1,064        (17,440     (500,134     (6,947     567,594       347        10,514,740  

In progress

     685,672        585,914        (1,548     —         —         (586,692     —          683,346  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net intangible assets

     11,155,928        586,978        (18,988     (500,134     (6,947     (19,098     347        11,198,086  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)

The residual balance of the transfers refers to the balances transferred to financial assets.

 

Consolidated

   Balance on
Dec. 31, 2016
     Addition      Special
obligations
– write-
down (2)
     Jaguara,
Volta
Grande
and
Miranda
plants
    Disposals     Amortization     Transfer (1)     Balance on
Sep. 30, 2017
 

In service

                   

Useful life defined

                   

Temporary easements

     10,434        —          —          —         —         (505     —         9,929  

Paid concession

     8,597        —          —          —         —         (510     —         8,087  

Assets of concession

     9,247,923        —          17,069        —       (5,878     (455,379     1,147,413       9,951,148  

Others

     17,430        —                 (80     —         (4,508     2,497       15,339  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     9,284,384        —          17,069        (80     (5,878     (460,902     1,149,910       9,984,503  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In progress

     1,535,296        747,868        —          —         (6,820     —         (1,203,162     1,073,182  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net intangible assets

     10,819,680        747,868        17,069        (80     (12,698     (460,902     (53,252     11,057,685  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The residual balance of the transfers refers to the balances transferred to financial assets.

(2)

The write-down of a Special Obligation arises for restitution of amounts calculated in the final settlement of Financing and Subsidy Contracts for the Luz Para Todos (‘Light for All’) program, with funds from the CDE account, and return of funds related to the Global Reversion Reserve (RGR).

 

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Holding Company

   Balance
on Dec.
31,
2017
     Merger
of
Telecom
(1)
     Transfers
to Held
for sale
    Transfers     Addition      Amortization     Balance
on Sep.
30,
2018
 

In service

                 

Useful life defined

                 

Rights of software

     41        11,716        (6,947     (130     —          (914     3,766  

Brands and patents

     2        —          —         231       —          (2     231  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     43        11,716        (6,947     101          (916     3,997  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

In progress

     2,415        —          —         (101     182        —         2,496  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net intangible assets

     2,458        11,716        (6,947     —         182        (916     6,493  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

On March 31, Cemig Telecom was merged into the Company. For more details, please see Note 1.

The intangible asset easements, concessions payable, assets of concession, and others, are amortizable by the straight-line method, taking into account the consumption pattern of these rights. The Company and its subsidiaries have not identified any evidence of impairment of its intangible assets. The Company and its subsidiaries have no intangible assets with non-defined useful life. The amount of additions on September 30, 2018 includes R$ 23,508 (R$ 56,851 in the same period of 2017) of capitalized borrowing costs, as presented in Note 20.

The annual average amortization rate is 4.09% in the nine-month period ended September 30, 2018. The main annual amortization rate reflects the expected useful life of assets and pattern of their consumption by the Management.

Under the regulations of the electricity sector, goods and facilities used in the distribution are linked to these services, and cannot be withdrawn, disposed of, assigned or given in mortgage guarantee without the prior express authorization of the Regulator. Undoing of that link, for assets of an electricity concession, requires that the proceeds of the disposal are used for purposes of the concession.

 

18.

SUPPLIERS

 

     Consolidated  
     Sep. 30, 2018      Dec. 31, 2017  

Energy on spot market – CCEE

     570,999        468,216  

Charges for use of energy network

     125,363        153,146  

Energy purchased for resale

     1,022,499        870,654  

Itaipu Binational

     295,951        240,220  

Gas purchased for resale

     120,638        186,401  

Materials and services

     309,255        424,120  
  

 

 

    

 

 

 
     2,444,705        2,342,757  
  

 

 

    

 

 

 

 

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19.

TAXES PAYABLE, INCOME TAX AND SOCIAL CONTRIBUTION TAX AND AMOUNTS TO BE REIMBURSED TO CUSTOMER S

 

a)

Taxes payable and amounts to be reimbursed to customers

 

     Consolidated      Holding Company  
     Sep. 30, 2018
(Restated)
     Dec. 31, 2017      Sep. 30,
2018
     Dec. 31,
2017
 

Current

           

ICMS (VAT) (I)

     206,581        496,916        3,875        —    

Cofins

     130,644        126,065        738        2,484  

Pasep

     28,442        27,154        141        484  

Social security contributions

     19,922        19,522        2,224        1,913  

Others

     21,338        34,915        1,377        960  
  

 

 

    

 

 

    

 

 

    

 

 

 
     406,927        704,572        8,355        5,841  

Non-current

           

Cofins

     24,804        24,216        —          —    

Pasep

     4,037        3,983        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     28,841        28,199        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     435,768        732,771        8,355        5,841  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts to be reimbursed to customers

           

Non-current

           

Pasep and Cofins (II)

     1,114,802        1,087,230        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,114,802        1,087,230        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(I)

The Tax Amnesty Program (PRCT).

In 2017 the subsidiaries Cemig D and Cemig GT joined the terms of the Minas Gerais State Tax Amnesty Program (Plano de Regularização de Créditos Tributários, or PRCT), for payment of ICMS (VAT) through installments, updated and net of the reductions of penalty payments and interest, as specified in State Law 22,549, and subsequent decrees that specified the conditions for payment of tax debits by installments.

The main tax issues that led to the decision of Cemig D to subscribe to the PRCT relate to ICMS (VAT) on the CDE subvention in the period January 2013 to October 2016, and also to the classification of residential condominiums in the commercial category, which has a different ICMS (VAT) rate, generating disagreement with the tax authority on interpretation, over the period 2013 to 2015. The amount included in the PRCT for Cemig D, in the amount of R$ 557,673, net of the reduction in interest and penalty payments by 90%, was paid in 6 (six) installments, adjusted at a 50% of the Selic rate and the 6th installment was paid on April 2, 2018.

(II)

The long-term obligations for the Pasep and Cofins included the amounts relating to the Court challenge of the constitutionality of inclusion of the amount of ICMS (VAT) tax within the base amount on which these contributions are calculated. The subsidiaries Cemig D and Cemig GT obtain interim relief from the Court allowing them not to make the payment and authorizing payment of the deposits into court (starting in 2008), and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, it opted to pay the taxes monthly.

On October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, on the basis of setting a global precedent, in favor of the argument of the subsidiaries. Based on the opinion of its legal advisers, the Company wrote down the liabilities relating to these contributions and recorded a potential liability related to the reimbursement to its customers. On September 30, 2018, the liability to its customers was R$ 1,114,802 (R$ 1,087,230 on December 31, 2017), which is equivalent to the updated amount of the escrow deposits already made which total R$ 1,139,292 (R$ 1,110,376 on December 31, 2017), net of the Pasep and Cofins incident on its revenue from updating, in the amount of R$ 24,490 (R$ 23,146 on December 31, 2017). This liability was recorded considering that the subsidiary passes to its Customers the tax effects incident upon its electricity bill, maintaining the neutrality of tariffs. The restitution to Customers will depend upon the court escrow deposit being lifted and a decision by Aneel on the mechanisms to be adopted. The net effect arising from the recognition of this matter on the net income for the year 2017 was null.

 

b)

Income tax and Social Contribution tax

 

     Consolidated  
     Sep. 30,
2018
     Dec. 31,
2017
 

Current

     

Income tax

     70,609        88,152  

Social Contribution tax

     24,986        27,144  
  

 

 

    

 

 

 
     95,595        115,296  
  

 

 

    

 

 

 

 

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20.

LOANS, FINANCINGS AND DEBENTURES

 

                          Consolidated  
                          Sep. 30, 2018     Dec. 31,
2017
 

Financing source

   Principal
maturity
     Annual financial
cost
     Currency      Current     Non-current     Total     Total  

FOREIGN CURRENCY

                 

Banco do Brasil: Various Bonds (1) (5)

     2024        Various        US$        4,196       28,435       32,631       22,933  

Eurobonds (2)

     2024        9.25%        USD        204,879       6,005,851       6,210,730       3,333,149  

KfW (2)

     2019        1.78%        EURO        2,702       —         2,702       4,383  

(-) Transaction costs

              (83     (21,877     (21,960     (15,400

(+/-) Funds advanced (3)

              101       (35,341     (35,240     (47,690
           

 

 

   

 

 

   

 

 

   

 

 

 

Debt in foreign currency

              211,795       5,977,068       6,188,863       3,297,375  

BRAZILIAN CURRENCY

                 

Banco do Brasil S.A. (2)

     2018        140.00% of CDI Rate        R$        —         —         —         742,364  

Banco do Brasil S.A. (5)

     2022        146.50% of CDI        R$        19,402       483,125       502,527       500,193  

Caixa Econômica Federal (5)

     2018        119.00% of CDI        R$        —         —         —         8,346  

Caixa Econômica Federal (5)

     2022        146.50% of CDI        R$        22,239       604,394       626,633       626,667  

Eletrobras (5)

     2023        UFIR + 6.00 to 8.00%        R$        14,184       23,460       37,644       49,789  

Large customers (5)

     2024        IGP-DI + 6.00%        R$        2,476       2,380       4,856       4,304  

FINEP (2)

     2018       

TJLP + 5.00% and

TJLP + 8.00%

 

 

     R$        —         —         —         2,359  

Consórcio Pipoca (2)

     2018        IPCA        R$        185       —         185       185  

Banco da Amazônia S.A. (2)

     2018        CDI + 1.90%        R$        129,115       —         129,115       121,470  

Sonda (4)

     2021        110.00% of CDI        R$        —         44,773       44,773       41,993  

9th Note issue—single series (5)

     2019        151.00% of CDI        R$        15,876       400,000       415,876       —    

(-) FIC Pampulha fund—securities of subsidiary companies (7)

              —         (16,564     (16,564     —    

(-) Transaction costs

              (435     (14,837     (15,272     (26,435

Debt in Brazilian currency

              203,042       1,526,731       1,729,773       2,071,235  
           

 

 

   

 

 

   

 

 

   

 

 

 

Total of loans and financings

              414,837       7,503,799       7,918,636       5,368,610  
           

 

 

   

 

 

   

 

 

   

 

 

 

Debentures - 3rd Issue - 2nd Series (2)

     2019        IPCA + 6.00%        R$        153,125       —         153,125       301,065  

Debentures - 3rd Issue - 3rd Series (2)

     2022        IPCA + 6.20%        R$        37,782       989,360       1,027,142       1,010,202  

Debentures—5ª Issue—single series (2)

     2018        CDI + 1.70%        R$        746,171       —         746,171       703,021  

Debentures - 6th Issue - 1st series (2)

     2018        CDI + 1.60%        R$        —         —         —         507,692  

Debentures - 6th Issue—2nd series (2)

     2020        IPCA + 8.07%        R$        16,502       15,976       32,478       32,093  

Debentures - 7th Issue—single series (2)

     2021        140.00% of CDI        R$        313,688       842,668       1,156,356       1,683,557  

Debentures—3rdIssue—1st series (5)

     2018        CDI + 0.69%        R$        —         —         —         447,114  

Debentures—3rd Issue—2nd series (5)

     2021        IPCA + 4.70%        R$        547,124       1,021,015       1,568,139       1,537,147  

Debentures—3rd Issue—3rd series (5)

     2025        IPCA + 5.10%        R$        28,620       909,292       937,912       920,197  

Debentures - 4th Issue—single series (5)

     2018        CDI + 4.05%        R$        21,602       —         21,602       20,008  

Debentures - 5th Issue—single series (5)

     2022        146.50% of CDI        R$        58,269       1,521,846       1,580,115       1,576,220  

Debentures (6)

     2018        CDI + 1.60%        R$        —         —         —         100,328  

Debentures (6)

     2018        CDI + 0.74%        R$        —         —         —         33,350  

Debentures (6)

     2022       

TJLP + 1.82% (75%),

Selic + 1.82% (25%)

 

 

     R$        33,037       99,341       132,378       155,377  

Debentures (6)

     2019        116.50% of CDI        R$        86       50,000       50,086       50,330  

Debentures (6)

     2023        CDI + 1.50%        R$        20,000       80,000       100,000       —    

Debentures—2nd Issue, single series (4)

     2019        128.50% of CDI        R$        13,202       —         13,202       26,552  

(-) FIC Pampulha: Securities of subsidiary companies (7)

              (3,332     —         (3,332     (25,492

(-) Transaction costs

              (8,558     (31,397     (39,955     (49,674
           

 

 

   

 

 

   

 

 

   

 

 

 

Total, debentures

              1,977,318       5,498,101       7,475,419       9,029,087  
           

 

 

   

 

 

   

 

 

   

 

 

 

Overall total

              2,392,155       13,001,900       15,394,055       14,397,697  
           

 

 

   

 

 

   

 

 

   

 

 

 

 

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Financing source

                        Holding Company  
                        Sep. 30, 2018     Dec. 31,
2017
 
   Principal
maturity
     Annual financial
cost
     Currency      Current     Non-current     Total     Total  

BRAZILIAN CURRENCY

                 

Sonda (3)

     2021        110.00% of CDI      R$          —         44,773       44,773       —    

(-) Transaction costs

              —         (487     (487     -—    
           

 

 

   

 

 

   

 

 

   

 

 

 

Total of loans and financings

              —         44,286       44,286       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Debentures – 2nd Issue, single series (3)

     2019        128.50% of CDI      R$          13,202       —         13,202       —    

(-) Transaction costs

              (114     —         (114     —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Total, debentures

              13,088       —         13,088       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

Overall total Holding Company

              13,088       44,286       57,374       —    
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Net balance of the Restructured Debt comprising bonds at par and discounted, with balance of R$ 196,647, less the amounts given as Deposits in guarantee, with balance of R$ 136,469.Interest rates vary – from 2 to 8% p.a.; six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)

Cemig Geração e Transmissão.

(3)

Funds advanced to reach the yield to maturity agreed in the Eurobonds contract.

(4)

Cemig holding company. Arising from merger of Cemig Telecom.

(5)

Cemig Distribuição.

(6)

Gasmig.

(7)

FIC Pampulha has financial investments in securities issued by subsidiaries of the Company. For more information on this fund, see Note 28.

The debentures issued by the subsidiaries are not convertible; there are no agreements for renegotiation, nor debentures held in treasury.

There is an early maturity clause for cross-default in the event of non-payment, by Company or Cemig GT, of any pecuniary obligation with individual or aggregate value greater than R$ 50 million (“cross default”).

Funding raised

 

Financing source

   Date of
signature
     Principal
maturity
     Annual
financial cost
     R$ ‘000  

Foreign currency

        

Eurobonds (1)

     July 2018        2024        9.25%        1,946,269  

(-) Transaction costs

              (7,876)  

(+/-) Funds advanced (2)

              9,625  
           

 

 

 

Total funding raised in foreign currency

              1,948,018  

Brazilian currency

           

Promissory Notes – 9th Issue – Single series (3)

     May 2018        2019        151% of CDI        400,000  

Debentures (4)

     August 2018        2023        CDI + 1,50%        100,000  

(-) Transaction costs

              (4,140)  
           

 

 

 

Total funding raised in Brazilian currency

              495,860  
           

 

 

 

Total funding raised

              2,443,878  
           

 

 

 

 

(1)

In July 2018 the company completed settlement of its second tranche of the Eurobond originally issued on December 5, 2017. This second tranche was for US$ 500 million, corresponding to R$ 1.946 billion, with 6-monthly coupon of 9.25% p.a., and principal maturity in December 2024.

(2)

Funds advanced to reach the yield to maturity agreed in the Eurobonds contract.

(3)

In May 2018 Cemig D made its 9th Issue of Notes, with maturity of 18 months, and remuneration of 151% of the CDI rate, for payment bullet on October 24, 2019. Net proceeds will be allocated to replenishment of cash position and working capital.

(4)

In August 2018 Gasmig completed its 7th debenture issue, with maturity at 5 years, remunerated at CDI + 1.50%, and annual amortization from August 2019. The funds will be used to replenish the cash position.

 

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Guarantees

The guarantees of the debtor balance on loans and financings, on September 30, 2018, were as follows:

 

     Jan to Sep 2018  

Promissory notes and sureties

     10,764,465  

Receivables

     2,902,058  

Shares

     1,567,802  

Without guarantee

     159,730  
  

 

 

 

TOTAL

     15,394,055  
  

 

 

 

The composition of loans, financings and debentures, by currency and indexers, with the respective amortization, is as follows:

 

Consolidated

   2018     2019     2020     2021     2022     2023     2024     2025     Total  

Currency

                  

Euros

     2,462       240       —         —         —         —         —         —         2,702  

US dollar

     209,075       —         —         —         —         —         6,034,286       —         6,243,361  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, currency-denominated

     211,537       240       —         —         —         —         6,034,286       —         6,246,063  

Indexers

                  

IPCA (1)

     116,808       666,530       845,353       844,616       563,705       227,323       227,323       227,323       3,718,981  

UFIR/RGR (2)

     4,474       12,910       11,209       3,407       3,265       2,379       —         —         37,644  

CDI (3)

     959,272       1,025,428       766,790       1,176,021       1,452,145       20,000       —         —         5,399,656  

URTJ/TJLP (4)

     7,552       22,967       23,111       22,777       22,875       —         —         —         99,282  

IGP-DI (5)

     2,079       437       437       517       554       554       278       —         4,856  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, governed by Indexers

     1,090,185       1,728,272       1,646,900       2,047,338       2,042,544       250,256       227,601       227,323       9,260,419  

(-) Transaction costs

     (959     (14,173     (12,564     (15,849     (11,228     (179     (22,056     (179     (77,187

(+/-) Funds advanced

     101       —         —         —         —         —         (35,341     —         (35,240

Overall total

     1,300,864       1,714,339       1,634,336       2,031,489       2,031,316       250,077       6,204,490       227,144       15,394,055  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Holding Company

   2018     2019     2020      2021     2022      2023      2024      2025      Total  

Indexers

                       

CDI (3)

     5,669       7,533       —          44,773       —          —          —          —          57,975  

Total, governed by Indexers

     5,669       7,533       —          44,773       —          —          —          —          57,975  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(-) Transaction costs

     (49     (65     —          (487     —          —          —          —          (601
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Overall total

     5,620       7,468       —          44,286       —          —          —          —          57,374  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Expanded National Customer Price (IPCA) Index.

(2)

Fiscal Reference Unit (Ufir / RGR).

(3)

CDI: Interbank Rate for Certificates of Deposit.

(4)

URTJ: Interest rate reference unit.

(5)

IGP-DI (‘General – Domestic Availability’) Price Index.

 

195


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The principal currencies and Indexers used for monetary updating of loans and financings had the following variations:

 

Currency

   Accumulated
change in
09/30/2018,
%
     Accumulated
change in
09/30/2017,
%
    Indexer    Accumulated
change in
09/30/2018,
%
    Accumulated
change in
09/30/2017,
%
 

US dollar

     21.04        (2.80   IPCA      3.34       1.78  

Euro

     17.26        8.86     CDI      4.81       8.03  
        TJLP      (6.29     (6.67

The changes in loans, financings and debentures were as follows:

 

     Consolidated     Holding Company  

Balance on December 31, 2016

     15,179,280       —    

Loans and financings obtained

     60,870       —    

Transaction costs

     (762     —    
  

 

 

   

 

 

 

Financings obtained net of transaction costs

     60,108       —    

Monetary variation

     74,656       —    

Exchange rate variation

     (823  

Financial charges provisioned

     1,217,735       —    

Amortization of transaction costs

     41,090       —    

Financial charges paid

     (998,967     —    

Amortization of financings

     (1,506,459     —    
  

 

 

   

 

 

 

Subtotal

     14,066,620       —    
  

 

 

   

 

 

 

(–) FIC Pampulha: Securities of subsidiary companies

     (11,045     —    
  

 

 

   

 

 

 

Balance on September 30, 2017

     14,055,575       —    
  

 

 

   

 

 

 

Balance on December 31, 2017

     14,397,697       —    

Balance of loans arising from the merged of Cemig Telecom

     —         65,032  
  

 

 

   

 

 

 

Loans and financings obtained

     2,446,269       —    

Transaction costs

     (12,016     —    

Funds advanced

     9,625       —    
  

 

 

   

 

 

 

Financings obtained net of transaction costs

     2,443,878       65,032  

Monetary variation

     110,031       —    

Exchange rate variation

     781,297       —    

Financial charges provisioned

     967,940       2,260  

Amortization of transaction costs

     26,323       285  

Financial charges paid

     (834,053     (787

Amortization of financings

     (2,504,654     (9,416
  

 

 

   

 

 

 

Subtotal

     15,388,459       57,374  
  

 

 

   

 

 

 

(–) FIC Pampulha: Securities of subsidiary companies

     5,596       —    

Balance on September 30, 2018

     15,394,055       57,374  
  

 

 

   

 

 

 

 

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Borrowing costs, capitalized

Costs of loans directly related to acquisition, construction or production of an asset which necessarily requires a significant time to be concluded for the purpose of use or sale are capitalized as part of the cost of the corresponding asset. All other costs of loans are recorded as finance costs in the period in which they are incurred. Costs of loans include interest and other costs incurred by the Company in relation to the loan.

The subsidiaries Cemig D and Gasmig transferred to Intangible assets the costs of loans and financings linked to working in progress, as follows:

 

     Jan to Sep 2018     Jan to Sep 2017  

Costs of loans and financings

     967,940       1,217,735  

Financing costs on Intangible assets (1)

     (23,508     (56,851
  

 

 

   

 

 

 

Net effect in Net income or loss

     944,432       1,160,884  
  

 

 

   

 

 

 

 

(1)

The average rate of capitalization was 9.60% p.a. in 2018 (15.03% p.a. in 2017).

The amounts of the capitalized borrowing costs have been excluded from the statement of cash flows, in the additions to cash flow of investment activities, because they do not represent an outflow of cash for acquisition of the related asset.

 

197


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Restrictive covenants

The Company has contracts with covenants linked to financial index, as follows:

 

Title

  

Parameter

  

Ratio required

– Issuer

  

Ratio required

– Cemig (Guarantor)

  

Compliance required

7th Debenture Issue

Cemig GT (1)

  

Net debt

/

(Ebitda + Dividends received)

  

 

The following, or less:

5.5 in 2017

5.0 in 2018

4.5 in 2019

3.0 in 2020

2.5 in 2021

 

  

 

The following, or less:

4.5 in 2017

4.25 in 2018

3.5 in 2019

3.0 in 2020

2.5 in 2021

   Half-yearly

Eurobonds

Cemig GT (2)

  

Net debt

/

Ebitda adjusted for the Covenant

  

 

The following, or less:

5.5 on December 31, 2017

5.5 on June 30, 2018

5.0 on December 31, 2018

5.0 on June 30, 2019

4.5 on December 31, 2019

4.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on / after Dec. 31, 2021

 

  

 

The following, or less:

5.0 on December 31, 2017

5.0 on June 30, 2018

4.25 on December 31, 2018

4.25 on June 30, 2019

3.5 on December 31, 2019

3.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

3.0 on and after Dec. 31, 2021

   Half-yearly

Bank Credit Notes of

Banco do Brasil

and

Caixa Econômica Federal;

and

5th Debenture Issue

CEMIG D (3)

  

Net debt

/

(Ebitda + Dividends received)

  

 

The following, or less:

7.5 on December 31, 2017

7.5 on June 30, 2018

4.5 on December 31, 2018

3.8 on June 30, 2019

3.8 on December 31, 2019

3.3 on June 30, 2020

3.3 on December 31, 2020

3.3 on June 30, 2021

3.3 on /after Dec. 31, 2021

  

 

The following, or less:

4.5 on December 31, 2017

4.5 on June 30, 2018

4.25 on December 31, 2018

4.25 on June 30, 2019

3.5 on December 31, 2019

3.5 on June 30, 2020

3.0 on December 31, 2020

3.0 on June 30, 2021

2.5 on / after Dec. 31, 2021

   Half-yearly
  

 

Current liquidity

 

  

 

0.6x on/after Dec. 31, 2017

 

  

 

0.6x on/ after Dec. 31, 2027

 

Gasmig – Debentures (4)

  

 

Overall indebtedness (Total liabilities/Total assets)

   Less than 0.6       Annual
   Ebitda / Debt servicing    1.3 or more       Annual
   Ebitda / Net finance income (expenses)    2.5 or more       Annual
  

Net debt / Ebitda

 

  

2.5 or less

 

  

 

  

Annual

 

9th Promissory Note Issue

Cemig D

  

Net debt / (Ebitda + dividends received)

Current liquidity

  

 

The following, or less:

 

7.5 on June 30, 2018

4.5 on December 31, 2018

3.8 on June 30, /2019

 

The following, or more:

0.6x on and after June 30, 2018

 

  

 

The following, or less:

 

4.5 on June 30, 2018

4.25 on December 31, 2018

3.25 on June 30, 2019

 

The following, or more:

0.6x on and after June 30, 2018

 

   Half-yearly

 

(1)

7th Issue of Debentures by Cemig GT, in December 2016, of R$ 2,240 million.

(2)

In the event that ‘maintenance financial covenants’ are exceeded at any time, the interest rate will automatically be increased by 2% p.a. as long as the excess continues. There is also an obligation to comply with a ‘maintenance’ covenant – which requires that the debt in Cemig Consolidated (as per financial statements), shall have asset guarantee for debt of 1.75x Ebitda (2.0 x in December 2017); and a ‘damage’ covenant, requiring real guarantee for debt in Cemig GT of 1.5x Ebitda.

(3)

The Bank Credit Notes of Banco do Brasil and Caixa Econômica Federal were amended in December 2017, to include requirement for 6-monthly compliance with covenants as described above. The 5th Debenture Issue included demand ability of compliance with the Covenants.

(4)

If Gasmig does not achieve the required covenants, Gasmig must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable to the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Cross-default: Certain contractually specified situations can cause early maturity of other debts.

 

198


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Eurobonds – Payment limit temporary exceeded

On October 10, 2018 Cemig’s wholly-owned subsidiary Cemig GT, in the scope of its Eurobond issuance, notified the issuer’s trustee that the permitted threshold level of investments by Cemig GT under the issue’s Limitation on Restricted Payments clause has, exceptionally, been momentarily exceeded, and that this excess would be reversed if requested within the cure period established in the Issue Deed.

The situation is due to a loan made by Cemig GT to Cemig D, on September 18, 2018, in the amount of R$ 630 million, to be repaid in two installments, in November and December 2018. The payment of the first installment (in November) will result in Cemig GT being compliant with the Limitation on Restricted Payments clause. As soon as the payment is made, Cemig GT will use the funds to pre-pay currently existing debt, accelerating the process of deleverage currently in progress.

To make the loan, Cemig GT used funds from the reimbursement, of R$ 1.14 billion, received on August 31, 2018, for the value of assets not previously reimbursed or depreciated relating to the Basic Projects of the São Simão and Miranda hydroelectric plants.

On September 30, 2018 the Company remains compliant with all the other covenants, especially in relation to the ratio Net debt / Ebitda.

 

21.

REGULATORY CHARGES

 

     Consolidated  
   Sep. 30, 2018
(Restated)
     Dec. 31, 2017  

Liabilities

     

Global Reversion Reserve (RGR)

     27,172        36,591  

Energy Development Account (CDE)

     123,023        206,022  

Aneel inspection charge

     2,329        2,154  

Energy Efficiency

     280,073        223,767  

Research and development

     209,792        233,398  

Energy System Expansion Research

     2,123        2,696  

National Scientific and Technological Development Fund

     3,918        5,066  

Proinfa – Alternative Energy Program

     7,004        6,612  

Royalties for use of water resources

     5,693        15,172  

Emergency capacity charge

     30,994        30,996  

Others

     5,855        16  
  

 

 

    

 

 

 
     697,976        762,490  
  

 

 

    

 

 

 

Current liabilities

     418,594        512,673  

Non-current liabilities

     279,382        249,817  

 

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22.

POST-RETIREMENT OBLIGATIONS

Changes in net liabilities were as follows:

 

Holding Company

   Pension plans and
retirement
supplement plans
    Health
Plan
    Dental
Plan
    Life insurance     Total  

Net liabilities on December 31, 2016

     257,933       95,655       2,452       41,424       397,464  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expense recognized in Statement of income

     20,338       7,828       207       3,490       31,863  

Contributions paid

     (5,838     (4,898     (118     (278     (11,132
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on September 30, 2017

     272,433       98,585       2,541       44,636       418,195  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on December 31, 2017

     333,484       111,568       2,659       11,786       459,497  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expense recognized in Statement of income

     23,750       8,080       193       961       32,984  

Contributions paid

     (6,505     (4,998     (116     (254     (11,873
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on September 30, 2018

     350,729       114,650       2,736       12,493       480,608  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           Sep. 30, 2018       Dec. 31, 2017  
        

 

 

   

 

 

 

Current liabilities

           13,097       12,974  

Non-current liabilities

           467,511       446,523  

 

Consolidated

   Pension plans and
retirement
supplement plans
    Health Plan     Dental Plan     Life insurance     Total  

Net liabilities on December 31, 2016

     1,679,154       1,710,787       37,549       813,921       4,241,411  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expense recognized in Statement of income

     130,471       141,947       3,128       66,472       342,018  

Contributions paid

     (118,638     (76,868     (1,816     (5,768     (203,090
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on September 30, 2017

     1,690,987       1,775,866       38,861       874,625       4,380,339  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on December 31, 2017

     2,068,355       1,809,441       38,505       269,880       4,186,181  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expense recognized in Statement of income

     143,951       136,741       2,859       20,281       303,832  

Contributions paid

     (132,218     (81,622     (1,849     (6,820     (222,509
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities on September 30, 2018

     2,080,088       1,864,560       39,515       283,341       4,267,504  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                       Sep. 30, 2018     Dec. 31, 2017  

Current liabilities

           243,057       231,894  

Non-current liabilities

           4,024,447       3,954,287  

The amounts recorded in current liabilities refer to the contributions to be made by Cemig and its subsidiaries in the next 12 months to amortize the post-retirement obligations.

The amounts reported as ‘Expense recognized in the statement of income refer to the costs of post-retirement obligations, totaling R$ 250,328 on September 30, 2018 (R$ 293,617 in the same period of 2017), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$ 53,504 on September 30, 2018 (R$ 48,401 on September 30, 2017).

Debt agreed with the pension fund (Forluz)

On September 30, 2018 the Company had an obligation recorded for past actuarial deficits relating to the pension fund in the amount of R$ 672,083 (R$ 720,498 on December 31, 2017). This amount has been recognized as an obligation payable by the Company, and is being amortized up to June 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’ table), and adjusted by the IPCA (Expanded National Customer Price) inflation index (published by the Brazilian Geography and Statistics Institute – IBGE) plus 6% per year. Because the Company is required to pay this debt even if Forluz has a surplus, the Company and its subsidiaries maintain the record of the debt in full, and the effects of monetary variation and interest are recorded in the statement of income as finance expense.

 

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Agreement to cover the deficit on Forluz Pension Plan ‘A’

Forluz and the sponsors Cemig, Cemig GT and Cemig D signed Debt Assumption Instruments to cover the Deficit of Plan A for the years 2015 and 2016. On September 30, 2018 the total amount payable by Cemig and its subsidiaries Cemig D and Cemig GT as a result of the deficit found in Plan A is R$ 380,022 (R$ 283,291 on December 31, 2017) with monthly amortizations up to 2031, calculated by the system of constant installments (known as the ‘Price Table’). Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of the IPCA (Expanded National Customer Price) index published by the IBGE. If the plan reaches actuarial surplus before the full period of amortization of the contracts, the Company and its subsidiaries will be exempted from payment of the remaining installments and the contracts will be extinguished.

 

23.

PROVISIONS

The Company and its subsidiaries are involved in certain legal and administrative proceedings in various courts and government bodies, arising from the normal course of business, regarding employment-law, civil, tax, environmental and regulatory matters, and other issues.

Actions in which the Company is defendant

The Company and its subsidiaries recorded Provisions for contingencies in relation to the legal actions in which, based on the assessment of the Company and its legal advisors, the chances of loss are assessed as ‘probable’ (i.e. an outflow of funds to settle the obligation will be necessary), as follows:

 

     Consolidated  
     Dec. 31, 2017      Additions      Reversals     Settled     Sep. 30, 2018  

Labor

     473,874        73,200        (39,590     (26,533     480,951  

Civil

            

Consumer relations

     18,632        14,227        (362     (12,821     19,676  

Other civil actions

     43,105        7,685        (12,765     (7,562     30,463  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     61,737        21,912        (13,127     (20,383     50,139  

Tax

     57,048        524        (6,075     (328     51,169  

Environmental

     45        1,146        —         (27     1,164  

Regulatory

     39,812        14,048        —         (1,295     52,565  

Other

     45,597        6,436        (3,778     (790     47,465  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     678,113        117,266        (62,570     (49,356     683,453  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

     Consolidated  
     Dec. 31, 2016      Additions      Reversals     Settled     Sep. 30, 2017  

Labor

     349,273        191,670        (3,657     (47,727     489,559  

Civil

            

Consumer relations

     14,741        11,856        (1,320     (11,855     13,422  

Other civil actions

     40,443        7,844        (238     (4,274     43,775  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     55,184        19,700        (1,558     (16,129     57,197  

Tax

     69,922        6,033        (3,632     (588     71,735  

Environmental

     39        4        —         —         43  

Regulatory

     43,100        2,833        (13,811     (766     31,356  

Corporate

     239,445        —          (239,445     —         —    

Other

     58,054        8,863        —         (2,834     64,083  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     815,017        229,103        (262,103     (68,044     713,973  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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     Holding Company
     Dec. 31, 2017    Merger of Telecom    Additions    Reversals   Settled   Sep. 30, 2018

Labor

       38,603        22        4,101        (3,402 )       (4,101 )       35,223

Civil

                          —      

Consumer relations

       1,024        —          915        —         (598 )       1,341

Other civil actions

       958        —          2,913        —         (2,790 )       1,081
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

     

 

 

 
       1,982        —          3,828        —         (3,388 )       2,422

Tax

       7,473        —          139        (87 )       (17 )       7,508

Regulatory

       13,959        —          5,336        —         (959 )       18,336

Other

       1,177        —          129        (67 )       (17 )       1,222
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

     

 

 

 

Total

       63,194        22        13,533        (3,556 )       (8,482 )       64,711
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

     

 

 

 

 

     Holding Company  
     Dec. 31, 2016      Additions      Reversals     Settled     Sep. 30, 2017  

Labor

     34,928        15,569        (3,016     (6,039     41,442  

Civil

               —    

Consumer relations

     1,435        8        (26     (8     1,409  

Other civil actions

     3,238        771        (31     (44     3,934  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     4,673        779        (57     (52     5,343  

Tax

     8,869        4,170        (2,817     (255     9,967  

Regulatory

     21,614        —          (4,241     —         17,373  

Corporate

     239,445        —          (239,445     —         —    

Other

     466        714        (1     (45     1,134  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     309,995        21,232        (249,577     (6,391     75,259  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The Company’s Management and its subsidiaries, in view of the long periods and manner of working of the Brazilian judiciary and tax and regulatory systems, believes that it is not practical to provide information that would be useful to the users of this interim financial information in relation to the timing of any cash outflows, or any possibility of reimbursements, might occur. The Management of the Company and its subsidiaries believe that any disbursements in excess of the amounts provisioned, when the respective processes are completed, will not significantly affect the result of operations or financial position of the Company and its subsidiaries.

The details on the main provisions and contingent liabilities are provided below, with the best estimation of expected future disbursements for these contingencies:

Provisions, made for legal actions in which the chances of loss have been assessed as ‘probable’; and contingent liabilities, for actions in which the chances of loss are assessed as ‘possible’

Labor claims

The Company and its subsidiaries are involved in various legal claims filed by its employees and by employees of service providing companies. Most of these claims relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such items on a supplementary retirement plan. In addition to these actions, there are others relating to outsourcing of labor, complementary additions to or re-calculation of retirement pension payments by Forluz, and salary adjustments.

The aggregate amount of the contingency is approximately R$ 1,792,967 (R$ 1,854,257 on December 31, 2017), of which R$ 480,951 (R$ 473,874 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

 

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Customers claims

The Company and its subsidiaries are involved in various civil actions relating to indemnity for moral and material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling R$ 65,672 (R$ 56,017 on December 31, 2017), of which R$ 19,676 (R$ 18,632 on December 31, 2017) has been provisioned – this being the probable estimate for funds needed to settle these disputes.

Other civil proceedings

The Company and its subsidiaries are involved in various civil actions claiming indemnity for moral and material damages, among others, arising from incidents occurred in the normal course of business, in the amount of R$ 239,962 (R$ 218,455 on December 31, 2017), of which R$ 30,463 (R$ 43,105 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Tax

The Company and its subsidiaries are involved in numerous administrative and judicial claims actions relating to taxes, including, among other matters, subjects relating to the Rural Property Tax (ITR); the Tax on Donations and Legacies (ITCD); the Social Integration Program (Programa de Integração Social, or PIS); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or Cofins); Corporate Income Tax (Imposto de Renda Pessoa Jurídica, or IRPJ); the Social Contribution (Contribuição Social sobre o Lucro Líquido, or CSLL); and motions to stay tax enforcement. The aggregate amount of this contingency is approximately R$ 178,905 (R$ 159,109 on December 31, 2017), of which R$ 41,541 (R$ 43,970 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

In addition to the issues above, the Company and its subsidiaries are involved in various proceedings on the applicability of the IPTU Urban Land Tax to real estate properties that are in use for providing public services. The aggregate amount of the contingency is approximately R$ 131,880 (R$ 121,948 on December 31, 2017). Of this total, R$ 9,628 has been recognized (R$ 13,078 on December 31, 2017) – this being the amount estimated as probably necessary for settlement of these disputes.

Environmental

The Company and its subsidiaries are involved in environmental matters, in which the subjects include protected areas, environmental licenses, recovery of environmental damage, and other matters, in the approximate total amount of R$ 14,981 (R$ 68,097 on December 31, 2017) of which R$ 1,164 (R$ 45 on December 31, 2017) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Regulatory

The Company and its subsidiaries are involved in numerous administrative and judicial proceedings, challenging, mainly: (i) tariff charges in invoices for use of the distribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply of electricity; and (iii) the tariff increase made during the Federal Government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986. The aggregate amount of the contingency is approximately R$ 242,157 (R$ 222,434 on December 31, 2017), of which R$ 52,565 (R$ 39,812 on December 31, 2017) has been recognized as provision – the amount estimated as probably necessary for settlement of these disputes.

Corporate

Difference of monetary updating on the Advance against Future Capital Increase (AFAC) made by the Minas Gerais State Government

On December 19, 2014 the Finance Secretary of Minas Gerais State sent an Official Letter to Cemig requesting recalculation of the amounts relating to the Advances against Future Capital Increase made in 1995, 1996, and 1998, which were returned to Minas Gerais State in December 2011, for review of the criterion used by the Company for monetary updating, arguing that application of the Selic rate would be more appropriate, replacing the IGP-M index.

 

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On December 29, 2014 the Company made an administrative deposit applying for suspension of enforceability of the credit being requested by the state, and for its non-inclusion in the Register of Debts owed to the state and in the Registry of Defaulted Payments owed to the State (Cadin).

The Company’s Management held negotiations with the government of the State of Minas Gerais, and obtained the approvals requested by its governance bodies to sign a Debt Recognition Agreement with Minas Gerais State, through the State’s Tax Office, under which the State undertook to return to the Company the total amount deposited, after monetary updating by the IGP-M index. This was signed on October 25, 2017. With this new scenario the chances of loss in this action were re-assessed to ‘remote’, and as a result the Company has reversed the provision of R$ 239,445, due to the expectation that there will be no future disbursement to liquidate this obligation, which had until then been provisioned. More details in Note 11.

Other legal actions in the normal course of business

Breach of contract – Power line pathways and accesses cleaning services contract

The Company and its subsidiaries are involved in disputes alleging losses suffered as a result of supposed breaches of contract at the time of provision of services of cleaning of power line pathways and firebreaks. The amount recorded is R$ 35,332 (R$ 31,987 on December 31, 2017), this being estimated as the likely amount of funds necessary to settle this dispute.

Other legal proceedings

The Company and its subsidiaries are involved as plaintiff or defendant, in other less significant claims, including environmental claims, related to the normal course of their operations, with an estimated total amount of R$ 166,743 (R$ 170,158 on December 31, 2017), of which R$ 12,133 (R$ 13,655 on December 31, 2017) – the amount estimated as probably necessary for settlement of these disputes – has been provisioned. Management believes that it has appropriate defense for these proceedings, and does not expect these issues to give rise to significant losses that could have an adverse effect on the Company’s financial position or profit.

Contingent liabilities in which losses are assessed as ‘possible’, and the Company believes it has arguments of merit for legal defense

Taxes and contributions

The Company and its subsidiaries are involved in numerous administrative and judicial proceedings in relation to taxes. Below are details of the main claims:

Indemnity of employees’ future benefit (the ‘Anuênio’)

In 2006 The Company and its subsidiaries paid an indemnity to its employees, totaling R$ 177,686, in exchange for rights to future payments (referred to as the Anuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The Company and its subsidiaries did not pay income tax and Social Security contributions on this amount because it considered that those obligations are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the Company and its subsidiaries obtained an injunction, which permitted to make an escrow deposit of R$ 121,834, which updated now represents the amount of R$ 273,270 (R$ 267,432 on December 31, 2017). The updated amount of the contingency is R$ 300,061 (R$ 311,138 on December 31, 2017) and, based on the arguments above, Management has classified the chance of loss as ‘possible’.

Social Security contributions

The Brazilian federal tax authority (Secretaria da Receita Federal) has filed administrative proceedings related to various matters: employee profit sharing; the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT); education benefit; food benefit; Special Additional Retirement payment; overtime payments; hazardous occupation payments; matters related to Sest/Senat (transport workers’ support programs); and fines for non-compliance with accessory obligations. The Company and its subsidiaries have presented defenses and await judgment. The amount of the contingency is approximately R$ 1,379,747 (R$ 1,647,343 on December 31, 2017). Management has classified the chance of loss as ‘possible’, also taking into account assessment of the chance of loss in the judicial sphere, (the claims mentioned are in the administrative sphere), based on the evaluation of the claims and the related case law.

 

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Non-homologation of offsetting of tax credit

The federal tax authority did not ratify the Company’s declared offsetting, in Corporate income tax returns, of carry-forwards and undue or excess payment of federal taxes – IRPJ, CSLL, PIS and Cofins – identified by official tax deposit receipts (‘DARFs’ and ‘DCTFs’). The Company and its subsidiaries are contesting the non-homologation of the amounts offset. The amount of the contingency is R$ 139,038 (R$ 274,836 on December 31, 2017), and the chance of loss was classified as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.

Corporate tax returns – restitution and offsetting

The Company was a party in an administrative case involving requests for restitution and compensation of credits arising from tax losses carry-forward balances indicated in the corporate tax returns for the calendar years from 1997 to 2000, and also for over payments identified in the corresponding tax payment receipts (DARFs and DCTFs). The case against the Company was dismissed in a final judgement, with no further appeal possible. The amount of the contingency on December 31, 2017 was R$ 576,386.

Income tax withheld on capital gain in a shareholding transaction

The federal tax authority issued a tax assessment on Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações em Ativos de Energia Elétrica (Parati), relating to withholding income tax (Imposto de Renda Retido na Fonte, or IRRF) allegedly applicable to returns paid by reason of a capital gain in a shareholding transaction relating to the purchase by Parati, and sale, by Enlighted, on July 7, 2011, of 100% of the equity interests in Luce LLC (a company with head office in Delaware, USA), holder of 75% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light S.A. (Light). The amount of the contingency is approximately R$ 219,256(R$ 212,393 on December 31, 2017), and the loss has been assessed as ‘possible’.

The Social Contribution tax on net income (CSLL)

The federal tax authority issued a tax assessment against the Company and its subsidiaries for the years of 2012 and 2013, alleging undue non-addition, or deduction, of amounts in calculating the Social Contribution tax on net income relating to the following items: (i) taxes with liability suspended; (ii) donations and sponsorship (Law 8,313/91); and (iii) fines for various alleged infringements. The amount of this contingency is R$ 340,517 (R$ 322,196 on December 31, 2017). The Company has classified the chances of loss as ‘possible’, in accordance with the analysis of the case law on the subject.

Regulatory matters

Public Lighting Contribution (CIP)

Cemig and its subsidiary Cemig D are defendants in several public civil claims (class actions) requesting nullity of the clause in the Electricity Supply Contracts for public illumination signed between the Company and the various municipalities of its concession area, and restitution by the Company of the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The actions are grounded on a supposed error by Cemig in the estimation of the period of time that was used in calculation of the consumption of electricity for public illumination, funded by the Public Lighting Contribution (Contribuição para Iluminação Pública, or CIP).

The Company believes it has arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative Resolution 456/2000. As a result it has not constituted a provision for this action, the amount of which is estimated at R$ 1,048,957 (R$ 1,224,274 on December 31, 2017). The Company has assessed the chances of loss in this action as ‘possible’, due to the Customer Defense Code (Código de Defesa do Consumidor, or CDC) not being applicable, because the matter is governed by the specific regulation of the electricity sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with the subject.

 

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Accounting of electricity sale transactions in the Wholesale Electricity Trading Chamber (CCEE)

In a claim dating from August 2002, AES Sul Distribuidora challenged in the courts the criteria for accounting of electricity sale transactions in the wholesale electricity market (Mercado Atacadista de Energia, or MAE) (predecessor of the present Wholesale Electricity Trading Chamber – Câmara de Comercialização de Energia Elétrica, or CCEE), during the period of rationing. It obtained a favorable interim judgment in February 2006, which ordered Aneel, working with the CCEE, to comply with the claim by AES Sul and recalculate the settlement of the transactions during the rationing period, not considering Aneel’s Dispatch 288 of 2002.This should take effect in the CCEE as from November 2008, resulting in an additional disbursement for Cemig GT, related to the expense on purchase of energy in the spot market on the CCEE, in the approximate amount of R$ 310,268 (R$ 287,515 on December 31, 2017). On November 9, 2008 Cemig GT obtained an interim decision in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement made by the CCEE.

Cemig GT has classified the chance of loss as ‘possible’, since this action deals with the General Agreement for the Electricity Sector, in which the Company has the full documentation to support its arguments.

System Service Charges (ESS) – Resolution of the National Energy Policy Council

Resolution 3 of the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) of March 6, 2013 established new criteria for the prorating of the cost of additional dispatch of thermal plants. Under the new criteria, the costs of the System Service Charges for Electricity Security (Encargos do Serviço do Sistema, or ESS), which were previously prorated in full between free customers and distributors, was now to be prorated between all the agents participating in the National Grid System, including generators and traders.

In May 2013, the Brazilian Independent Electricity Producers’ Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or Apine), of which Cemig GT is a member, obtained an interim court decision suspending the effects of Articles 2 and 3 of Resolution CNPE 3, exempting generators from payment of the ESS under that Resolution.

As a result of the interim decision, the CCEE carried out the financial settlement for transactions from April through December 2013 using the criteria prior to Resolution. As a result, Cemig GT recorded the costs of the ESS in accordance with the criteria for financial settlement published by the CCEE, without the effects of Resolution CNPE 3.

The applications by the plaintiff (Apine) were granted in the first instance, confirming the interim decision granted in favor of its members, which include Cemig GT and its subsidiaries. This decision was subject of an appeal, distributed to the 7th Panel of the Regional Federal Court (Tribunal Federal Regional, or TRF) of the 1st Region, which is still pending of judgment.

The amount of the contingency is approximately R$ 220,050 (R$ 201,586 on December 31, 2017). In spite of the successful judgment at first instance, the Association’s legal advisers still considered the chances of loss of this contingency as ‘possible’. Cemig GT agrees with this, since there are not yet elements to make it possible to foresee the outcome of the Appeal filed by the federal government.

Tariff increases

Exclusion of customers classified as low-income

The Federal Public Attorneys’ Office filed a class action against the Company and Aneel, to avoid exclusion of customers from classification in the Low-income residential tariff sub-category, requesting an order for Cemig D to pay twice the amount paid in excess by customers. Judgment was given in favor of the plaintiffs, but the Company and Aneel have filed an interlocutory appeal and await judgment. The amount of the contingency is approximately R$ 296,500 (R$ 275,458 on December 31, 2017). Cemig D has classified the chances of loss as ‘possible’ due to other favorable decisions on this matter.

 

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Environmental claims

Impact arising from construction of power plants

The Public Attorneys of Minas Gerais State, together with an association and individuals, have brought class actions requiring Cemig GT to invest at least 0.5% of the annual gross operating revenue of the Emborcação, Pissarrão, Funil, Volta Grande, Poquim, Paraúna, Miranda, Nova Ponte, Rio de Pedras and Peti plants in environmental protection and preservation of the water tables of the counties where these power plants are located, and proportional indemnity for allegedly irrecoverable environmental damage caused, arising from omission to comply with Minas Gerais State Law 12,503/1997. Cemig GT has filed appeals to the Higher Appeal Court (STJ) and the Federal Supreme Court (STF). Based on the opinions of its legal advisers, Cemig GT believes that this is a matter involving legislation at infra-constitutional level (there is a Federal Law with an analogous object) and thus a constitutional matter, on the issue of whether the state law is constitutional or not, so that the final decision is one for the national Higher Appeal Court (STJ) and the Federal Supreme Court (STF). No provision has been made, since based on the opinion of its legal advisers Management has classified the chance of loss as ‘possible’. The amount of the contingency is R$ 144,628 (R$ 126,664 on December 31, 2017).

The Public Attorneys’ Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the reservoir of the Capim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery of alleged environmental damage. Based on the opinion of its legal advisers in relation to the changes that have been made in the new Forest Code and in the case law on this subject, Cemig GT has classified the chance of loss in this dispute as ‘possible’. The estimated value of the contingency is R$ 85,535 (R$ 79,378 on December 31, 2017).

Other contingent liabilities

Early settlement of the CRC (Earnings Compensation) Account

The Company is involved in an administrative proceeding at the Audit Court of the State of Minas Gerais which challenges: (i) a difference of amounts relating to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this payment was completed in the first quarter of 2013; and also (ii) possible undue financial burden on the State after the signature of the Amendments that aimed to re-establish the economic and financial balance of the Contract. The amount of the contingency is approximately R$ 410,210 (R$ 397,897 on December 31, 2017), and, based on the Opinion of the Public Attorneys’ Office of the Audit Board of the State of Minas Gerais, the Company believes that it has met the legal requirements. Thus, it has assessed the chances of loss as ‘possible’, since it believes that the adjustment was made in faithful obedience to the legislation applicable to the case.

Contractual imbalance

Cemig D is a party in disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known as Luz Para Todos (‘Light for All’). The estimated amount is R$ 284,810 (R$ 261,281 on December 31, 2017), and no provision has been made. Cemig D has classified the chances of loss as ‘possible’ as a result of the analysis that has been made of the argument and documentation used by the contracted parties in attempting to make the Company liable for any losses that allegedly occurred.

The Cemig D is also a party in other disputes arising from alleged non-compliance with contracts in the normal course of business, for an estimated total of R$ 88,028 (R$ 79,985 on December 31, 2017). Cemig D has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

Irregularities in competitive tender proceedings

Cemig GT is a party in a dispute alleging irregularities in competitive tender proceedings, governed by an online invitation to bid. The estimated amount is R$ 26,958 (R$ 26,149 on December 31, 2017), and no provision has been made. Cemig GT has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

 

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24.

EQUITY AND REMUNERATION TO SHAREHOLDERS

The Company’s issued and outstanding share capital on September 30, 2018 is R$ 7,293,763, represented by 487,614,213 common shares and 971,138,388 preferred shares, all with nominal value of R$ 5.00 (five Reais). On December 31, 2017, the Company’s share capital was R$ 6,294,208, represented by 420,764,708 common shares and 838,076,946 preferred shares, all with nominal value of R$ 5.00 (five Reais).

 

(a)

Capital increase

On October 26, 2017, the Shareholders’ Extraordinary Meeting unanimously approved the proposal by the Board of Directors for a capital increase through issuance of up to 199,910,947 new shares, each with par value of R$ 5.00 with the same rights providing to those shares in the same class of shares that resulted in the capital increase.

Up to December 31, 2017, R$ 1,215,223 had been subscribed by Shareholders, corresponding to 184,965,518 shares at the price of R$ 6.57. The remaining shares not subscribed were 14,945,429, comprising 13,129,679 ON (common) shares and 1,815,750 PN (preferred) shares.

On March 21, 2018, Cemig sold the totality of the remaining shares not subscribed through a public offer of a single and indivisible lot of shares, which resulted in a financial volume of R$ 110,700. A total of 13,129,679 remaining common shares (ON) were sold for an average price of R$ 7.30, totaling R$ 95,773; and 1,815,750 remaining preferred shares (PN) were sold for an average price of R$ 8.22, for a total of R$ 14,927.

On April 23, 2018, the Shareholders’ Extraordinary General Meeting approved a Company capital increase in the amount of R$ 999,555, whose capital increased from R$ 6,294,208 to R$ 7,293,763, throughout the issue and subscription of 199,910,947 new shares, each with par value of R$ 5.00 (five Reais), comprising 66,849,505 common shares and 133,061,442 preferred shares.

The capital increase, considering the issuance price, represented proceeds of R$ 1,324,773. The difference, in the amount of R$ 325,218, has been allocated to the Capital reserve account.

 

(b)

Earnings per share

Considering the capital increase on April 23, 2018 described above, the calculation of basic and diluted earnings is presented as follows:

 

Number of shares

   Jan to Sep 2018     Jan to Sep 2017     Jul to Sep 2018     Jul to Sep 2017  

Common shares already paid up

     487,614,213       420,764,708       487,614,213       420,764,708  

Treasury shares

     (69     (69     (69     (69
  

 

 

   

 

 

   

 

 

   

 

 

 
     487,614,144       420,764,639       487,614,144       420,764,639  

Preferred shares already paid up

     971,138,388       838,076,946       971,138,388       838,076,946  

Treasury shares

     (560,649     (560,649     (560,649     (560,649
  

 

 

   

 

 

   

 

 

   

 

 

 
     970,577,739       837,516,297       970,577,739       837,516,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1,458,191,883       1,258,280,936       1,458,191,883       1,258,280,936  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Basic and diluted earnings per share

 

     Jan to Sep 2018
(Restated)
     Jan to Sep 2017      Jul to Sep 2018
(Restated)
     Jul to Sep 2017  

Net income for the period (A)

     698,249        397,182        244,540        (83,666

Total of shares (B)

     1,458,191,883        1,258,280,936        1,458,191,883        1,258,280,936  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted earnings (loss) per share – going concern (R$)

     0.46        0.32        0.16        (0.06
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted earnings per share – discontinued operations (R$)

     0.02        —          0.01        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted earnings (loss) per share (R$)

     0.48        0.32        0.17        (0.06
  

 

 

    

 

 

    

 

 

    

 

 

 

The shares that were subscribed in the capital increase of April 23, 2018, were considered in full in the calculation of basic and diluted net income for the nine-month period ended September 30, 2018, since the proposal for subscription of new shares was decided in an Extraordinary Shareholders’ Meeting of October 26, 2017, and these new shares already had potential for subscription since that date, as decided by the shareholders.

Considering that the subscribed and paid up shares have the right to dividends for the 2017 business year, if these shares had been considered in the calculation of the basic and diluted earnings (losses) per share for the nine-month and three-month period ended September 30, 2017, the result of the calculation would have been R$ 0.2724 and R$ -0.0574, respectively.

The call and put options related to investments described in Note 29 could potentially dilute basic earnings per share in the future; however, they have not caused dilution on the earning per share in the presented periods.

 

(c)

Equity valuation adjustments

 

Equity valuation adjustments

   Consolidated  
   Sep. 30,
2018
    Dec. 31,
2017
 

Adjustments to actuarial obligations – Employee benefits

     (234,519     (234,519

Subsidiary and jointly-controlled subsidiary

    

Variation in fair value of financial asset in jointly-controlled entity

     —         139  

Cumulative Translation adjustments

     545       398  

Adjustments to actuarial obligations – Employee benefits

     (1,241,560     (1,241,144

Cash flow hedge financial instruments

     87       87  
     (1,475,447     (1,475,039

Deemed cost of PP&E (1)

     613,585       638,517  
  

 

 

   

 

 

 

Equity valuation adjustments

     (861,862     (836,522
  

 

 

   

 

 

 

 

(1)

The variation, in 2018, in the balance of deemed cost attributable to PP&E, is net of the reversal of the deferred taxes on the deemed cost of the subsidiary Rosal Energia, in the amount of R$ 17,547, arising from the change of tax criterion for this subsidiary from the Real Net income method to the Presumed Net income method, and adjustments made by other investees totaling R$ 26.

 

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25.

REVENUE

The revenue of the Company and its subsidiaries are as follows:

 

     Consolidated  
   Jan to Sep
2018

(Restated)
    Jan to Sep
2017
 

Revenue from supply of energy (a)

     18,163,647       17,387,754  

Revenue from use of the electricity distribution systems (TUSD) (b)

     1,419,958       1,230,623  

CVA, and Other financial components in tariff increases (c)

     1,783,790       148,216  

Transmission revenue

    

Transmission concession revenue (d)

     310,293       221,422  

Transmission construction revenue (e)

     12,726       11,226  

Transmission indemnity revenue (g)

     208,164       295,749  

Generation indemnity revenue (h)

     82,331       259,516  

Distribution construction revenue (e)

     579,480       725,528  

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession (j)

     3,875       2,277  

Revenue from updating of the Concession Grant Fee (f)

     245,730       240,420  

Energy transactions on the CCEE (i)

     189,123       536,507  

Supply of gas

     1,452,427       1,305,636  

Fine for breach of standard continuity indicator (1)

     (31,596     —    

Other operating revenues (k)

     1,191,275       1,097,001  

Deductions on revenue (l)

     (8,816,972     (8,308,094
  

 

 

   

 

 

 

Net operating revenue

     16,794,251       15,153,781  
  

 

 

   

 

 

 

 

     Consolidated  
   Jul to Sep
2018

(Restated)
    Jul to Sep
2017
 

Revenue from supply of energy (a)

     6,927,638       5,815,621  

Revenue from use of the electricity distribution systems (TUSD) (b)

     605,618       330,147  

CVA, and Other financial components in tariff increases (c)

     633,118       480,112  

Transmission revenue

    

Transmission concession revenue (d)

     103,711       43,985  

Transmission construction revenue (e)

     7,994       4,201  

Transmission indemnity revenue (g)

     61,645       25,894  

Generation indemnity revenue (h)

     47,868       259,516  

Distribution construction revenue (e)

     200,569       291,519  

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession (j)

     809       766  

Revenue from updating of the Concession Grant Fee (f)

     88,749       89,944  

Energy transactions on the CCEE (i)

     29,157       111,330  

Supply of gas

     553,448       484,491  

Fine for breach of standard continuity indicator (1)

     (5,915     —    

Other operating revenues (k)

     417,832       379,369  

Deductions on revenue (l)

     (3,419,959     (3,181,073
  

 

 

   

 

 

 

Net operating revenue

     6,252,282       5,135,822  
  

 

 

   

 

 

 

 

(1)

As mentioned in Note 2.2, as from January 1, 2018, these amounts are now recognized as a reduction of revenue rather than operating expenses, as amended by Pronouncement CPC 47 / IFRS 15.

For details on the revenue from discontinued operations, please see Note 30.

 

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a)

Revenue from energy supply

This table shows energy supply by type of customer:

 

     MWh (1)      R$  
   Jan to Sep
2018
     Jan to Sep
2017
     Jan to Sep
2018
    Jan to Sep
2017
 

Residential

     7,648,175        7,489,980        6,268,428       5,797,313  

Industrial

     13,134,700        13,162,944        3,588,856       3,633,866  

Commercial, Services and Others

     6,195,337        5,581,213        3,381,247       3,218,839  

Rural

     2,777,694        2,769,082        1,325,571       1,203,749  

Public authorities

     641,551        644,621        409,581       389,945  

Public lighting

     1,038,236        1,030,199        424,413       397,147  

Public services

     977,151        977,757        463,169       430,943  
  

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     32,412,844        31,655,796        15,861,265       15,071,802  
  

 

 

    

 

 

    

 

 

   

 

 

 

Own consumption

     33,083        26,946        —          

Unbilled revenue

     —          —          86,454       (44,741
  

 

 

    

 

 

    

 

 

   

 

 

 
     32,445,927        31,682,742        15,947,719       15,027,061  
  

 

 

    

 

 

    

 

 

   

 

 

 

Wholesale supply to other concession holders (2)

     8,768,341        9,167,876        2,251,991       1,289,188  

Wholesale supply unbilled, net

     —          —          (36,063     1,071,505  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     41,214,268        40,850,618        18,163,647       17,387,754  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     MWh (1)      R$  
   Jul to Sep
2018
     Jul to Sep
2017
     Jul to Sep
2018
     Jul to Sep
2017
 

Residential

     2,497,296        2,456,908        2,402,379        1,878,293  

Industrial

     4,581,890        4,458,794        1,333,933        1,210,358  

Commercial, Services and Others

     1,996,913        1,776,377        1,236,950        982,345  

Rural

     1,057,426        1,016,897        577,424        424,366  

Public authorities

     207,162        207,967        157,262        120,600  

Public lighting

     349,429        354,299        172,248        132,691  

Public services

     323,919        338,415        186,888        144,190  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     11,014,035        10,609,657        6,067,084        4,892,843  
  

 

 

    

 

 

    

 

 

    

 

 

 

Own consumption

     9,602        8,896        —          —    

Unbilled revenue

     —          —          38,312        (10,305
  

 

 

    

 

 

    

 

 

    

 

 

 
     11,023,637        10,618,553        6,105,396        4,882,538  
  

 

 

    

 

 

    

 

 

    

 

 

 

Wholesale supply to other concession holders (2)

     3,160,972        3,427,498        783,975        401,091  

Wholesale supply unbilled, net

     —          —          38,267        531,992  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14,184,609        14,046,051        6,927,638        5,815,621  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Data not reviewed by external auditors.

(2)

Includes a CCEAR (Regulated Market Sales Contract), ‘bilateral contracts’ with other agents, and the revenues from management of generation assets (GAG) for the 18 hydroelectric plants of Lot D of Auction no 12/2015.

 

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b)

Revenue from Use of the Distribution System (the TUSD charge)

A significant part of the large industrial customers in the concession areas of Cemig D are now ‘Free Customers’ – energy is sold to them by the Cemig group’s generation and transmission company, Cemig GT, and also by other generators. Thus, the charges for use of the distribution network (‘TUSD’) of these Free customers are charged separately from the posting under this line.

 

c)

The CVA Account, and Other financial components

The results from variations in (i) the CVA Account (Portion A Costs Variation Compensation Account), and in (ii) Other financial components in calculation of tariffs, refer to the positive and negative differences between the estimate of non-manageable costs of the subsidiary Cemig D and the payments actually made. The amounts recognized arise from balances recorded in the current period, homologated or to be homologated in tariff adjustment processes. For more information please see Note 14.

 

d)

Transmission concession revenue

Transmission concession revenue comprises the amount received from agents of the electricity sector for operation and maintenance of transmission lines of the national grid, in the form of the Permitted Annual Revenue (Receita Anual Permitida, or RAP), plus an adjustment for expectation of cash flow arising from the variation in the fair value of the Remuneration Assets Base in the amount of R$ 11,977 in the nine-month period ended September 30, 2018.

 

e)

Construction revenue

Entities that are within the scope of ICPC 01 (R1) should record a construction or improvement of the infrastructure of the concession in accordance with CPC 17 (R1) – Construction Contracts. The costs of infrastructure construction carried out by the Company are measured reliably; the revenues and expenses corresponding to these construction services are recognized as and when they are incurred, up to the reporting date. Any expected loss on construction contracts is recognized immediately as an expense. Considering that the regulatory model currently in effect does not provide for specific remuneration for construction or improvement of the infrastructure of the concession; that constructions and improvements are substantially executed through specialized services of outsourced parties; and that all construction revenues is related to the construction of the infrastructure of the energy distribution services, the Company’s Management believed that revenues related to construction services are immaterial.

 

f)

Gain on financial updating of the Concession Grant Fee

Represents the monetary variation using the IPCA inflation index, plus interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015. See Note 14.

 

g)

Transmission indemnity revenue

In the nine-month period ended September 30, 2018, the Company recognized revenue in the total amount of R$ 208,164 (R$ 295,749 in the same period of 2017), corresponded to updating, by the IPCA index, of the balance of indemnity receivable existing. See Note 14.

 

h)

Generation indemnity revenue

In the nine-month period ended September 30, 2018, the Company recognized revenue of R$ 82,331 (R$ 259,516 in the same period of 2017), for the adjustment to the balance of non-amortized indemnities for the concessions of the São Simão and Miranda Hydroelectric Plants, as per Ministerial Order 291/17, also taking into account the updating of the amounts. See Note 14.

 

i)

Revenue from energy transactions in the CCEE (Wholesale Electricity Trading Chamber)

The revenue from transactions made through the Wholesale Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) is the monthly positive net balance of settlements of transactions for purchase and sale of energy in the Spot Market, through the CCEE.

 

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j)

Adjustment to expectation of cash flow from indemnifiable Financial assets of the distribution concession

Monetary adjustment of the Regulatory Remuneration Asset Base resulting in the recognition of income from the adjustments on the expectation of cash flow from the Financial asset on the residual value of the infrastructure assets of distribution concessions.

 

k)

Other operating revenues

 

     Consolidated  
     Jan to Sep 2018      Jan to Sep 2017  

Charged service

     9,543        7,723  

Telecoms services (1)

     1,424        111,342  

Services rendered

     136,620        116,167  

Subsidies (2)

     837,243        769,505  

Rental and leasing

     65,137        88,869  

Unpaid energy reimbursement (3)

     135,727        —    

Other

     5,581        3,395  
  

 

 

    

 

 

 
     1,191,275        1,097,001  
  

 

 

    

 

 

 

 

     Consolidated  
   Jul to Sep 2018      Jul to Sep 2017  

Charged service

     3,743        3,124  

Telecoms services (1)

     1,424        38,520  

Services rendered

     46,180        40,635  

Subsidies (2)

     290,336        266,485  

Rental and leasing

     22,577        30,531  

Unpaid energy reimbursement (3)

     51,635        —    

Other

     1,937        74  
  

 

 

    

 

 

 
     417,832        379,369  
  

 

 

    

 

 

 

 

(1)

Due to the classification of certain telecommunications assets as held for sale, the revenues from the discontinued operations were segregated. For more information please see Note 30.

(2)

Revenue recognized for the tariff subsidies applied to users of distribution services, including low-income tariff subsidies – reimbursed by Eletrobras.

(3)

R$ 84,092 refers to reimbursement for de-contracted power supply, agreed between Santo Antônio Energia S.A., subsidiary of Madeira Energia, and Cemig Distribuição, due to alteration of the power supply sales agreements (CCEARs). This amount will be settled in 24 monthly installments, with monetary updating by the Selic rate. The amount of R$ 51,635 refers to reimbursement for power supply de-contracted as agreed between Renova and Cemig GT due to the suspension by Renova of the power supply contracted for the period July to December 2018. The advances made by Cemig GT related to this period will be settled in a single payment in January 2019, with monetary updating at 155% of the DI rate (published by Cetip).

 

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l)

Taxes and charges reported as deductions on revenue

 

     Consolidated  
   Jan to Sep 2018
(Restated)
     Jan to Sep
2017
 

Taxes on revenue

     

ICMS (VAT)

     4,093,112        4,470,557  

Cofins

     1,882,429        1,654,269  

PIS and Pasep

     406,686        359,137  

Others

     5,497        5,942  
  

 

 

    

 

 

 
     6,387,724        6,489,905  

Charges to the customer

     

Global Reversion Reserve (RGR) (recovery of expense)

     14,902        9,418  

Energy Efficiency Program

     48,328        37,422  

Energy Development Account (CDE)

     1,835,412        1,326,946  

Research and Development (P&D)

     28,716        26,914  

National Scientific and Technological Development Fund (FNDCT)

     28,716        26,914  

Energy System Expansion Research (EPE of MME)

     14,359        13,457  

Customer charges – Proinfa alternative sources program

     29,620        29,626  

Energy Services Inspection Charge

     19,415        22,983  

Royalties for use of water resources

     35,299        66,449  

Customer charges – the‘Flag Tariff’ system

     374,481        258,060  
  

 

 

    

 

 

 
     2,429,248        1,818,189  
  

 

 

    

 

 

 
     8,816,972        8,308,094  
  

 

 

    

 

 

 

 

     Consolidated  
   Jul to Sep
2018

(Restated)
     Jul to Sep
2017
 

Taxes on revenue

     

ICMS (VAT)

     1,575,191        1,819,209  

Cofins

     711,820        584,676  

PIS and Pasep

     154,537        126,932  

Others

     1,786        2,115  
  

 

 

    

 

 

 
     2,443,334        2,532,932  

Charges to the customer

     

Global Reversion Reserve (RGR) (recovery of expense)

     4,490        9,468  

Energy Efficiency Program

     18,484        11,732  

Energy Development Account (CDE)

     654,452        467,576  

Research and Development (P&D)

     10,077        7,927  

National Scientific and Technological Development Fund (FNDCT)

     10,077        7,927  

Energy System Expansion Research (EPE of MME)

     5,039        3,963  

Customer charges – Proinfa alternative sources program

     10,177        10,049  

Energy Services Inspection Charge

     6,820        6,347  

Royalties for use of water resources

     7,587        21,527  

Customer charges – the‘Flag Tariff’ system

     249,422        101,625  
  

 

 

    

 

 

 
     976,625        648,141  
  

 

 

    

 

 

 
     3,419,959        3,181,073  
  

 

 

    

 

 

 

 

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26.

OPERATING COSTS AND EXPENSES

Composition of costs and expenses of the Company and its subsidiaries:

 

     Consolidated      Holding Company  
     Jan to Sep
2018
     Jan to Sep
2017
     Jan to
Sep 2018
     Jan to
Sep 2017
 

Personnel (a)

     988,381        1,275,667        29,168        38,796  

Employees’ and managers’ profit sharing

     22,821        25,777        5,926        1,195  

Post-retirement obligations – Note 22

     250,328        293,617        30,352        29,482  

Materials

     74,419        43,306        1,101        89  

Outsourced services (b)

     752,835        680,569        17,319        6,796  

Energy purchased for resale (c)

     8,576,061        7,685,392               —    

Depreciation and amortization

     619,104        616,783        761        351  

Operating provisions (d)

     402,118        558,793        71,952        104,037  

Charges for use of the national grid

     1,140,903        791,339               —    

Gas purchased for resale

     897,903        789,861               —    

Construction costs (e)

     592,206        736,754               —    

Other operating expenses, net (f)

     263,141        311,581        9,089        6,940  
  

 

 

    

 

 

    

 

 

    

 

 

 
     14,580,220        13,809,439        165,668        187,686  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consolidated      Holding Company  
     Jul to Sep
2018
     Jul to Sep
2017
     Jul to
Sep 2018
    Jul to
Sep 2017
 

Personnel (a)

     308,141        358,505        9,201       17,730  

Employees’ and managers’ profit sharing

     94        886              233  

Post-retirement obligations – Note 22

     80,931        101,589        9,993       10,010  

Materials

     40,713        16,198        337       23  

Outsourced services (b)

     262,489        233,805        7,916       3,194  

Energy purchased for resale (c)

     3,493,463        2,942,974               

Depreciation and amortization

     207,804        205,983        545       115  

Operating provisions (d)

     134,799        188,875        (6,237     88,726  

Charges for use of the national grid

     332,323        387,078               

Gas purchased for resale

     341,445        304,698               

Construction costs (e)

     208,563        295,720               

Other operating expenses, net (f)

     111,533        124,127        1,741       (979
  

 

 

    

 

 

    

 

 

   

 

 

 
     5,522,298        5,160,438        23,496       119,052  
  

 

 

    

 

 

    

 

 

   

 

 

 

For details on the costs and expenses from discontinued operations, please see note 30.

 

  a)

Personnel expenses

Programmed Voluntary Retirement Plan (PDVP)

In March 2018, the Company approved the 2018 Employee Voluntary Severance Program (‘the 2018 PDVP’). Those eligible to take part were any employees who have worked with Cemig for 25 years or more by December 31, 2018. The acceptance period was from April 2 to 30, 2018 and it will pay the standard legal severance payments – including: payment for the period of notice, an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments specified by the legislation and there is no provision for additional premium payment. In the nine-month period ended September 30, 2018, the amount appropriated as expense related to the 2018 PDVP, including severance payments, was R$ 25,666, corresponding to the acceptance by 151 employees.

In the nine-month period ended September 30, 2017, the amount appropriated as expense related to the 2017 PDVP, including severance payments, was R$ 197,326, corresponding to the acceptance by 1,151 employees.

 

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  b)

Outsourced services

 

     Consolidated      Holding Company  
     Jan to
Sep 2018
     Jan to
Sep 2017
     Jan to
Sep 2018
    Jan to
Sep 2017
 

Meter reading and bill printing and delivery of energy bills

     99,260        106,647              —    

Communication

     59,324        49,163        8,456       239  

Maintenance and conservation of electrical facilities and equipment

     220,610        186,971        15       84  

Building conservation and cleaning

     82,299        78,739        555       496  

Contracted labor

     16,901        9,252        110       —    

Freight and airfares

     5,088        5,434        1,360       1,357  

Accommodation and meals

     8,612        9,842        144       151  

Security services

     15,475        16,358        —         —    

Consultancy

     5,198        11,792        1,422       737  

Maintenance and conservation of furniture and utensils

     2,376        2,448        14       1  

Information technology

     34,509        34,289        2,874       771  

Maintenance and conservation of vehicles

     1,554        1,381        1       —    

Disconnection and reconnection

     37,847        23,528        —         —    

Environment

     7,800        10,058        —         —    

Legal services

     17,777        13,122        2,191       535  

Legal procedural costs

     1,502        2,010        —         43  

Tree pruning

     17,137        14,727        —         —    

Cleaning of power line pathways

     27,561        10,176        —         —    

Copying and legal publications

     14,997        16,949        408       200  

Inspection of customer units

     6,690        118              —    

Other expenses (recovery of expenses)

     70,318        77,565        (231     2,182  
  

 

 

    

 

 

    

 

 

   

 

 

 
     752,835        680,569        17,319       6,796  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Consolidated      Holding Company  
     Jul to
Sep 2018
     Jul to
Sep 2017
     Jul to
Sep 2018
    Jul to
Sep 2017
 

Meter reading and bill printing and delivery of energy bills

     33,722        35,430               

Communication

     23,379        15,074        6,248       126  

Maintenance and conservation of electrical facilities and equipment

     68,562        60,119        3       63  

Building conservation and cleaning

     29,534        28,637        261       71  

Contracted labor

     6,072        4,146        8        

Freight and airfares

     1,874        2,066        644       418  

Accommodation and meals

     2,996        3,405        47       51  

Security services

     5,350        5,422               

Consultancy

     335        3,992        524       33  

Maintenance and conservation of furniture and utensils

     1,025        832        1       1  

Information technology

     12,011        10,137        1,549       143  

Maintenance and conservation of vehicles

     509        457        1        

Disconnection and reconnection

     15,122        11,196               

Environment

     3,141        1,848               

Legal services

     6,676        4,321        1,731       95  

Legal procedural costs

     516        780              8  

Tree pruning

     7,220        5,760               

Cleaning of power line pathways

     13,869        6,126               

Copying and legal publications

     6,377        7,098        74       141  

Inspection of customer units

     2,016        61               

Other expenses

     22,183        26,898        (3,175     2,044  
  

 

 

    

 

 

    

 

 

   

 

 

 
     262,489        233,805        7,916       3,194  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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  c)

Energy purchased for resale

 

     Consolidated  
     Jan to Sep
2018
    Jan to Sep
2017
 

Supply from Itaipu Binacional

     1,007,675       933,603  

Physical guarantee quota contracts

     500,876       343,458  

Quotas for Angra I and II nuclear plants

     200,135       182,832  

Spot market

     1,662,386       1,180,780  

Proinfa Program

     239,543       225,965  

‘Bilateral’ contracts

     357,532       269,943  

Energy acquired in Regulated Market auctions

     2,558,096       2,201,909  

Energy acquired in the Free Market

     2,865,557       3,086,096  

Pasep and Cofins credits

     (815,739     (739,194
  

 

 

   

 

 

 
     8,576,061       7,685,392  
  

 

 

   

 

 

 

 

     Consolidated  
     Jul to Sep
2018
    Jul to Sep
2017
 

Supply from Itaipu Binacional

     374,255       316,786  

Physical guarantee quota contracts

     189,251       119,006  

Quotas for Angra I and II nuclear plants

     66,712       60,944  

Spot market

     733,160       408,859  

Proinfa Program

     79,847       75,321  

‘Bilateral’ contracts

     145,781       121,552  

Energy acquired in Regulated Market auctions

     1,077,340       824,699  

Energy acquired in the Free Market

     1,150,075       1,299,536  

Pasep and Cofins credits

     (322,958     (283,729
  

 

 

   

 

 

 
     3,493,463       2,942,974  
  

 

 

   

 

 

 

 

  d)

Operating provisions (reversals)

 

     Consolidated     Holding Company  
     Jan to Sep 2018     Jan to Sep 2017     Jan to Sep 2018      Jan to Sep 2017  

Estimated losses on doubtful receivables

     227,789       191,343       —          —    

Estimated losses on other accounts receivables (1)

     (4,934     —         —          —    

Contingency provisions (reversals) (2)

         

Labor claims

     33,610       188,013       699        12,553  

Civil

     8,785       18,142       3,828        722  

Tax

     (5,551     2,401       52        1,353  

Environmental

     1,146       4       —          —    

Regulatory

     14,048       (10,978     5,336        (4,241

Other

     2,658       8,864       62        713  
  

 

 

   

 

 

   

 

 

    

 

 

 
     54,696       206,446       9,977        11,100  
  

 

 

   

 

 

   

 

 

    

 

 

 
     277,551       397,789       9,977        11,100  
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjustment for losses

         

Put/Call option – Ativas and Sonda (Note 29)

     —         102       —          —    

Put option – RME and LEPSA (Note 29)

     61,975       92,937       61,975        92,937  

Put option – SAAG (Note 29)

     62,592       67,965       —          —    
  

 

 

   

 

 

   

 

 

    

 

 

 
     124,567       161,004       61,975        92,937  
  

 

 

   

 

 

   

 

 

    

 

 

 
     402,118       558,793       71,952        104,037  
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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     Consolidated     Holding Company  
     Jul to
Sep 2018
    Jul to
Sep 2017
    Jul to
Sep 2018
    Jul to
Sep
2017
 

Estimated losses on doubtful receivables

     60,232       50,458       —         —    

Contingency provisions (reversals) (2)

        

Labor claims

     36,670       10,288       (10,185     532  

Civil

     (3,743     8,745       2,283       833  

Tax

     (2,345     5,565       65       3,961  

Environmental

     1,115       1             —    

Regulatory

     3,979       (143     1,627       (2,162

Other

     984       2,230       52       256  
  

 

 

   

 

 

   

 

 

   

 

 

 
     36,660       26,686       (6,158     3,420  
  

 

 

   

 

 

   

 

 

   

 

 

 
     96,892       77,144       (6,158     3,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment for losses

        

Put option – Sonda (Note 29)

     —         61       —         —    

Put option – RME and LEPSA (Note 29)

     (79     85,306       (79     85,306  

Put option – SAAG (Note 29)

     37,986       26,364       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     37,907       111,731       (79     85,306  
  

 

 

   

 

 

   

 

 

   

 

 

 
     134,799       188,875       (6,237     88,726  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The estimate for loss on Other accounts receivable is presented in the Statement of income as an operating expenses.

(2)

The contingency provisions of Holding Company are presented in the consolidated Statement of income as operating expenses.

 

  e)

Infrastructure construction cost

 

     Consolidated  
     Jan to
Sep 2018
     Jan to
Sep 2017
 

Personnel and managers

     51,840        38,297  

Materials

     222,111        334,851  

Outsourced services

     255,383        300,244  

Others

     62,872        63,362  
  

 

 

    

 

 

 
     592,206        736,754  
  

 

 

    

 

 

 

 

     Consolidated  
   Jul to
Sep 2018
     Jul to
Sep 2017
 

Personnel and managers

     17,780        14,143  

Materials

     72,497        151,691  

Outsourced services

     91,294        109,061  

Others

     26,992        20,825  
  

 

 

    

 

 

 
     208,563        295,720  
  

 

 

    

 

 

 

 

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  f)

Other operating expenses (revenues), net

 

     Consolidated      Holding
Company
 
   Jan to
Sep 2018
     Jan to
Sep 2017
     Jan to
Sep
2018
    Jan to
Sep
2017
 

Leasing and rentals

     69,130        77,095        3,722       2,616  

Advertising

     4,476        14,331        209       276  

Own consumption of energy

     20,453        15,581        —         —    

Subsidies and donations

     13,333        9,457        2,296       —    

Paid concession

     2,068        2,264        —         —    

Insurance

     5,065        6,042        1,184       1,693  

CCEE annual charge

     5,460        6,017        1       1  

Net loss (gain) on deactivation and disposal of assets

     14,817        44,876        468       —    

Forluz – Administrative running cost

     21,291        19,607        929       970  

Collection agents

     56,558        52,664        —         —    

Fine for violation of standard continuity indicator (1)

     —          24,755        —         —    

Taxes and charges

     7,870        6,645        586       636  

Supply completed (2)

     26,999        —          —         —    

Other expenses

     15,621        32,247        (306     748  
  

 

 

    

 

 

    

 

 

   

 

 

 
     263,141        311,581        9,089       6,940  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Consolidated      Holding
Company
 
   Jul to
Sep 2018
     Jul to
Sep 2017
     Jul to
Sep
2018
    Jul to
Sep
2017
 

Leasing and rentals

     23,766        32,188        1,525       1,142  

Advertising

     1,383        6,017        51       100  

Own consumption of energy

     6,978        4,768        —         —    

Subsidies and donations

     6,764        2,933        985       —    

Paid concession

     622        735        —         —    

Insurance

     1,422        1,613        404       386  

CCEE annual charge

     1,709        1,972        —         —    

Net loss (gain) on deactivation and disposal of assets

     7,122        39,538        —      

Forluz – Administrative running cost

     6,709        6,574        325       325  

Collection agents

     21,160        17,377        —         —    

Fine for violation of standard continuity indicator (1)

            3,895        —         —    

Taxes and charges

     1,112        1,259        106       93  

Supply completed (2)

     26,999        —          —         —    

Other expenses

     5,787        5,258        (1,655     (3,025
  

 

 

    

 

 

    

 

 

   

 

 

 
     111,533        124,127        1,741       (979
  

 

 

    

 

 

    

 

 

   

 

 

 

 

  (1)

As mentioned in Note 2.2, as from January 1, 2018 these amounts are now recognized as a reduction of revenue rather than operating expenses, as amended by Pronouncement CPC 47 / IFRS 15.

  (2)

Write-off of deemed cost of the Miranda e São Simão Plants, due to reimbursement receipt related to basic projects of these power plants.

 

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27.

FINANCE INCOME AND EXPENSES

 

     Consolidated     Holding Company  
     Jan to Sep
2018

(Restated)
    Jan to Sep
2017
    Jan to
Sep 2018
    Jan to
Sep 2017
 

FINANCE INCOME

        

Income from cash investments

     80,958       171,530       7,383       39,214  

Arrears fees on sale of energy

     259,680       193,057       71       —    

Foreign exchange variations

     —         20,207       —         —    

Monetary variations

     14,735       27,125       27       1,968  

Monetary variations – CVA

     35,180       —         —         —    

Monetary updating on Court escrow deposits

     32,308       86,464       19,337       44,696  

Pasep and Cofins charged on finance income

     (33,571     (35,529     (4,309     (8,704

Gain on Financial instruments—Swap (Note 29)

     322,847       —         —         —    

Other

     139,325       87,211       6,453       7,719  
  

 

 

   

 

 

   

 

 

   

 

 

 
     851,462       550,065       28,962       84,893  

FINANCE EXPENSES

        

Costs of loans and financings

     (944,432     (1,160,884     (2,260     —    

Cost of debt – Amortization of transaction costs

     (26,323     (41,090     (285     —    

Foreign exchange – loans and financings

     (781,297     (741     —         —    

Foreign exchange—Itaipu

     (44,283     (11,787     —         —    

Monetary updating – loans and financings

     (110,031     (74,655     —         —    

Monetary updating – Concessions payable

     (3,354     737       —         —    

Charges and monetary updating on post-retirement obligation

     (53,504     (48,401     (2,632     (2,381

Monetary updating – CVA

     —         (40,086     —         —    

Monetary updating—AFAC

     —         239,445       —         239,445  

Monetary updating – Advance sales of power supply

     (9,184     (37,666     —         —    

Other

     (66,384     (96,823     (8,280     (511
  

 

 

   

 

 

   

 

 

   

 

 

 
     (2,038,792     (1,271,951     (13,457     236,553  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET FINANCE INCOME (EXPENSES)

     (1,187,330     (721,886     15,505       321,446  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

220


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     Consolidated     Holding company  
     Jul to Sep
2018

(Restated)
    Jul to Sep
2017
    Jul to
Sep 2018
    Jul to
Sep 2017
 

FINANCE INCOME

        

Income from cash investments

     39,108       46,037       2,452       10,505  

Arrears fees on sale of energy

     91,730       55,134       27       —    

Foreign exchange variations

     —         2,618       —         —    

Monetary variations

     3,239       13,132       19       400  

Monetary variations – CVA

     23,894       —         —         —    

Monetary updating on Court escrow deposits

     17,085       63,317       7,076       43,744  

Pasep and Cofins charged on finance income

     (13,527     (13,207     (2,008     (4,648

Gain on Financial instruments (Note 29)

     142,767       —         267       —    

Other

     58,499       34,133       2,337       1,874  
  

 

 

   

 

 

   

 

 

   

 

 

 
     362,795       201,164       10,170       51,875  

FINANCE EXPENSES

        

Costs of loans and financings

     (341,469     (333,034     (1,104     —    

Cost of debt – Amortization of transaction costs

     (10,775     (11,263     (131     —    

Foreign exchange – loans and financings

     (227,019     6,309       —         —    

Foreign exchange—Itaipu

     (20,555     (262     —         —    

Monetary updating – loans and financings

     (44,726     (5,682     —         —    

Monetary updating – Concessions payable

     (1,097     (5     —         —    

Charges and monetary updating on post-retirement obligation

     (20,345     (12,417     (1,001     (611

Monetary updating – CVA

     —         (12,006     —         —    

Monetary updating—AFAC

     —         239,445       —         239,445  

Monetary updating – Advance sales of power supply

     (2,369     (12,986     —         —    

Other

     (27,138     (46,849     (8,136     (320
  

 

 

   

 

 

   

 

 

   

 

 

 
     (695,493     (188,750     (10,372     238,514  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET FINANCE INCOME (EXPENSES)

     (332,698     12,414       (202     290,389  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

221


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28.

RELATED PARTY TRANSACTIONS

Cemig’s main balances and transactions with related parties and its jointly-controlled entities are as follows:

 

Company / Item

   ASSETS      LIABILITIES      REVENUE      EXPENSES  
   Sep. 30,
2018
     Dec. 31,
2017
     Sep. 30,
2018
     Dec. 31,
2017
     Jan to
Sep 2018
     Jan to
Sep 2017
     Jan to
Sep 2018
    Jan to
Sep 2017
 

Shareholder

                      

Minas Gerais State Government

                      

Current

                      

Customers and traders (1)

     203.866        54,926        —          —          120,505        101,085        —         —    

Public Lighting Contribution (CIP) (1)

     2.050        1,220        —          —          —          —          —         —    

Accounts Receivable—AFAC (2)

     —          235,018              —          38,278        —         —    

ICMS – advance payment (3)

     754.513           —             1,299        —          —         —    

Non-current

                      

Customers and traders (1)

     10.836        50,349        —          —          —          —          —         —    

Public Lighting Contribution (CIP) (1)

     —          1,119        —          —          —          —          —         —    

Accounts Receivable—AFAC (2)

     254.930        —          —          —          19,965        —          —         —    

Jointly-controlled entity

                      

Aliança Geração

                      

Current

                      

Transactions with energy (4)

     —          —          14.641        7,105        24,846        413        (125,879     (107,335

Provision of services (5)

     1.515        1,657        —          —          8,846        9,767        —         —    

Interest on Equity, and dividends

     —          72,315        —          —          —          —          —         —    

Baguari Energia

                      

Current

                      

Transactions with energy (4)

     —          —          939        858        —          111        (5,603     (5,379

Services (5)

     277        211        —          —          669        646        —         —    

Interest on Equity, and dividends

     3.558        —          —          —          —          —          —         —    

Madeira Energia

                      

Current

                      

Transactions with energy (4)

     2.073        —          22.625        56,531        54,180        18,213        (569,544     (508,741

Advance for future power supply (6)

     26.197        66,185        —          —          8,020        —          —         —    

Reimbursement for decontracted supply (7)

     42.046        —          —          —          886        —          —         —    

Non-current

                      

Advance for future power supply (6)

     —          6,870        —          —          —          —          —         —    

Reimbursement for decontracted supply (7)

     14.015        —          —          —          —          —          —         —    

Norte Energia

                      

Current

                      

Transactions with energy (4)

     130        130        6.144        3,640        12,078        5,680        (146,930     (89,256

Lightger

                      

Current

                      

Transactions with energy (4)

     —          —          1.864        —          —          —          (16,592     (15,188

Hidrelétrica Pipoca

                      

Current

                      

Transactions with energy (4)

     —          —          1.706        —          —          —          (14,385     (12,064

Interest on Equity, and dividends

     —          584        —          —          —          —          —         —    

Retiro Baixo

                      

Current

                      

Transactions with energy (4)

     1.296        —          577        528        —          —          (4,785     (4,464

Interest on Equity, and dividends

     2.581        2,581        —          —          —          —          —         —    

Central Eólica Praia de Parajuru

                      

Current

                      

Interest on Equity, and dividends

     7.793        —          —          —          —          —          —         —    

Renova

                      

Current

                      

Transactions with energy (4)

     —          —          3.083        1,744        —          —          (87,944     (140,771

Non-current

                      

Advance for future delivery of power supply (8)

     85.277        —          —          —          4,785        38,162        —         —    

Accounts receivable (9)

     434.938        350,200        —          —          27,183        —          —         —    

Reimbursement through suspension of energy supply (10)

     51.984           —             51,984        —          —         —    

Empresa Amazonense de Transmissão de Energia (EATE)

                      

Current

                      

Transactions with energy (4)

     —          —          1.545        2,882        —          —          (15,203     (19,674

 

222


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Company / item

   ASSETS     LIABILITIES      REVENUE      EXPENSES  
   Sep. 30,
2018
    Dec. 31,
2017
    Sep. 30,
2018
     Dec. 31,
2017
     Jan to
Sep
2018
     Jan to
Sep
2017
     Jan to Sep
2018
    Jan to Sep
2017
 

Light

                    

Current

                    

Transactions with energy (4)

     460       1,128       506        483        38,187        38,203        (825     (1,106

Interest on Equity, and dividends

     1,200       —         —          —          —          —          —         —    

Taesa

                    

Current

                    

Transactions with energy (4)

     —         —         8,555        12,105        34        33        (85,921     (92,905

Services (5)

     172       404       —          —          424        667        —         —    

Interest on Equity, and dividends

     18       —         —          —          —          —          —         —    

Companhia Transirapé de Transmissão

                    

Current

                    

Transactions with energy (4)

     —         —         976        964        —          —          (7,205     (7,310

Services (5)

     90       90       —          —          956        953        —         —    

Interest on Equity, and dividends

     —         1,413       —          —          —          —          —         —    

Axxiom

                    

Current

                    

Provision of services (11)

     —         —         1,634        2,982        —          —          —         —    

Transudeste

                    

Current

                    

Transactions with energy (4)

     —         —         159        191        114        113        (1,151     (1,166

Services (5)

     157       175       —          —          441        492        —         —    

Transleste

                    

Current

                    

Transactions with energy (4)

     —         —         258        308        137        135        (1,858     (1,878

Services (5)

     123       120       —          —          839        819        —         —    

Other related parties

                    

FIC Pampulha

                    

Current

                    

Cash and cash equivalents

     178,173       322,423       —          —          —          —          —         —    

Securities

     536,097       1,037,423       —          —          7,535        14,374        —         —    

(-) Securities issued by subsidiary companies (note 20)

     (3,332     (25,493     —          —          —          —          —         —    

Non-current

                    

Securities

     95,294       30,124       —          —          —          —          —         —    

(-) Securities issued by subsidiaries (note 20)

     (16,564     —         —          —          —          —          —         —    

Forluz

                    

Current

                    

Post-retirement obligations (12)

     —         —         120,673        108,843        —          —          (143,951     (130,470

Supplementary pension contributions (13) - Defined contribution plan

     —         —         —          —          —             (54,344     (61,133

Administrative running costs (14)

     —         —         —          —          —          —          (21,290     (19,606

Operational leasing (15)

     —         —         1,720        4,998        —          —          (33,983     (44,002

Non-current

                    

Post-retirement obligations (12)

     —         —         1,959,415        1,959,512        —          —          —         —    

Cemig Saúde

                    

Current

                    

Health Plan and Dental Plan (16)

     —         —         112,653        115,045        —          —          (139,600     (145,075

Non-current

                    

Health Plan and Dental Plan (16)

     —         —         1,791,422        1,633,291        —          —          —         —    

 

223


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The main conditions and characteristics of interest with reference to the related party transactions are:

(1)

This refers to sale of energy supply to the Minas Gerais State government. The price of the supply is the one set by Aneel through a Resolution relating to the annual tariff adjustment of Cemig D. In 2017 the government of Minas Gerais State signed a debt recognition agreement with Cemig D for payment of debits relating to the supply of power due and unpaid, in the amount of R$ 113,032 , to be settled in 24 installments, updated monthly by the variation of the IGP-M. The first portion, in the amount of R$ 5,418, was settled in December 2017, and the others, of which six were past their due payment date at September 30, 2018, have due dates up to November 2019. These receivables have guarantee in the form of Cemig’s right to retain dividends and Interest on Equity otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default.

(2)

This refers to the recalculation of the monetary updating of amounts relating to the Advance for Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. Amount transferred to Accounts Receivable from Minas Gerais State, on September 30, 2017 (see Note 11).

(3)

Pre-payment of ICMS tax in accordance with Minas Gerais State Decree 47488 (see Note 8);

(4)

Transactions with energy between generators and distributors were made in auctions organized by the federal government; transactions for transport of electricity, made by transmission companies, arise from the centralized operation of the National Grid carried out by the National System Operator (ONS).

(5)

Refers to a contract to provide plant operation and maintenance services and transmission network.

(6)

In 2017, advance payments of R$ 70,100 were made to Santo Antônio Energia, subsidiary of Madeira Energia: R$ 51,874 by Cemig GT, and R$ 11,917 and R$ 6,309 by Sá Carvalho and Rosal, respectively. For the purposes of settlement, invoices for energy supply to be issued by Santo Antônio Energia starting in 2018, in 12 tranches, will be used. The remaining balance on September 30, 2018 is R$ 26,197.

(7)

This refers to reimbursement of supply of energy that was decontracted due to alteration of Regulated Market Electricity Sale Contracts (CCEARs) between Santo Antônio Energia (subsidiary of Madeira Energia) and Cemig D (Distribution), with value totaling R$ 84,092, to be settled in 24 monthly installments, with monetary adjustment by the Selic rate, with due dates up to January 2020. The remaining balance of September 30, 2018 is R$ 56,061.

(8)

This refers to advance payments under Agreements for Incentive-bearing Power Supply becoming due in January 2018 through October 2019, discounted at 155% of the rate for Interbank Certificates of Deposit published by Cetip. The pre-payments have guarantees, shared between Cemig and Light, related to the stockholding positions in and dividends from investees of Renova, and also the wind projects to be developed.

(9)

Cemig GT has an item of R$ 435 million receivable from Renova that will be paid in monthly installments over 2021 with adjustment at 150% to 155% of the CDI rate. The accounts receivable have guarantees, shared between Cemig and Light, stockholding positions in and dividends from investees of Renova, and also the wind projects to be developed.

(10)

On August 3, 2018 Cemig GT signed the 7th amendment to the contract for sale of wind energy with Renova suspending supply of incentive-bearing wind energy contracted for the period July–December 2018, and setting the calculation of any financial compensations for the Company. The total amount will be settled in a single instalment in January 2019, updated by 155% of the CDI rate. On September 30, 2018 the amount to be reimbursed by Renova as indemnity for suspension of supply of power for the period July-September 2018 is R$ 51,984. The amount to be reimbursed by Renova has guarantees, shared between Cemig and Light, related to the stockholding positions in and dividends from investees of Renova, and also the wind projects to be developed.

(11)

This refers to a contract for development of management software between Cemig D and Axxiom Soluções Tecnológicas S.A., instituted in Aneel Dispatch 2,657/2017.

(12)

The contracts of Forluz are updated by the Expanded Customer Price Index (IPCA) calculated by the Brazilian Geography and Statistics Institute (Instituto Brasileiro de Geografia e Estatística, or IBGE), plus interest rate of 6% per year and will be amortized up to the business year of 2031 (See Note 22).

(13)

The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund.

(14)

Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.

(15)

Rental of the Company’s administrative head offices, in effect to March 2019 and May 2034, adjusted annually by IPCA inflation index.

(16)

Post-retirement obligations relating to the employees’ health and dental plan (see Note 22).

Dividends receivable from subsidiaries

 

Dividends receivable

   Consolidated      Holding Company  
   Sep. 30,
2018
     Dec. 31,
2017
     Sep. 30,
2018
     Dec. 31,
2017
 

Cemig GT

     —          —          364,230        564,230  

Other

     15,150        76,893        58,743        38,819  
  

 

 

    

 

 

    

 

 

    

 

 

 
     15,150        76,893        422,973        603,049  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans with related parties

On September 18, 2018 a loan agreement was signed between Cemig GT (lender) and Cemig (borrower), for R$ 400,000, to be settled in a single payment in December 2019, with addition of interest at 125.52% of the CDI rate. As guarantee, Cemig signed a promissory note in the global amount of R$ 442,258, corresponding to the amount of the debt plus the estimated interest for the 15-month period of the agreement.

In the same period Cemig GT (lender) and Cemig D (borrower) also signed a loan agreement for R$ 630,000, to be settled in two payments becoming due in November and December 2018, plus interest at 125.52% of the CDI rate, p.a. As guarantee, Cemig D signed a promissory note in the global amount of R$ 639,110, corresponding to the amount of the debt plus the estimated interest for the period of the agreement.

 

224


LOGO

 

Guarantees on loans, financings and debentures

Cemig has provided guarantees on loans, financings and debentures of the following related parties – not consolidated in the Interim Financial Information because they relate to jointly-controlled entities or affiliated companies:

 

Related party

   Relationship    Type    Objective    Jan to Sep 2018      Maturity  

Norte Energia (NESA)

   Affiliated    Surety    Financing      2,566,235        2042  

Light (1)

   Jointly-controlled entity    Counter-guarantee    Financing      683,615        2042  

Santo Antônio Energia (SAESA)

   Jointly-controlled entity    Surety    Financing      1,864,348        2034  

Santo Antônio Energia (SAESA)

   Jointly-controlled entity    Surety    Debentures      840,696        2037  

Centroeste

   Jointly-controlled entity    Surety    Financing      7,281        2023  
           

 

 

    
              5,962,175     
           

 

 

    

 

(1)

Related to execution of guarantees of the Norte Energia financing.

On September 30, 2018, Management believes that there is no need to recognize any provisions in the Company’s Interim Financial Information for the purpose of meeting any obligations arising under these sureties and/or guarantees.

Cash investments in FIC Pampulha – investment fund of Cemig, its subsidiaries and affiliates

Cemig and its subsidiaries and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and obeys the Company’s cash investment policy. The amounts invested by the fund on September 30, 2018 are reported in Securities in Current or Non-current assets, or presented after deduction of the account line Debentures in Current or Non-current liabilities.

The funds applied are allocated only in public and private fixed income securities, subject only to credit risk, with various maturity periods, obeying the unit holders’ cash flow needs.

The financial investments of the investment fund in securities of related parties are as follows:

 

Issuer of security

   Type      Annual contractual
conditions
     Maturity      Sep. 30, 2018  
   Cemig 1.01%      Cemig GT
19.60%
     Cemig D
0.32%
     Other
subsidiaries

10.94% (1)
     Total
31.87%
 

ETAU

     Debentures        108.00% of CDI        Dec. 01, 2019        103        2,006        33        1,120        3,262  

LIGHT

     Promissory Note        CDI + 3.50%        Jan. 22, 2019        70        1,376        23        768        2,237  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
              173        3,382        56        1,888        5,499  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Issuer of security

   Type      Annual contractual
conditions
     Maturity      Dec. 31, 2017  
   Cemig 4.17%      Cemig GT
26.85%
     Cemig D
19.90%
     Other
subsidiaries

21.36% (1)
     Total
72.28%
 

ETAU

     Debentures        108.00% of CDI        Dec. 01, 2019        420        2,706        2,005        2,152        7,283  

LIGHT

     Promissory Note        CDI + 3.50%        Jan. 22, 2019        834        5,375        3,983        4,276        14,468  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
              1,254        8,081        5,988        6,428        21,751  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Refers to the other companies consolidated by Cemig, which also have a stake in the investment funds.

 

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Remuneration of key Management personnel

The total costs of key personnel, comprising the Executive Board, the Fiscal Council, The Audit Committee and the Board of Directors, for the nine-month period ended September 30, 2018 and 2017, are as follows:

 

     Jan to Sep 2018      Jan to Sep 2017  

Remuneration

     23,626        23,171  

Profit sharing

     131        372  

Assistance benefits

     1,801        1,209  
  

 

 

    

 

 

 

Total

     25,558        24,752  
  

 

 

    

 

 

 

 

29.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

  a)

Classification of financial instruments and fair value

The principal financial instruments, classified according to the accounting practices adopted by the Company, are:

 

     Level      Sep. 30, 2018
(Restated)
     Dec. 31, 2017  
   Book value      Fair value      Book value      Fair value  

Assets

              

Amortized cost (1)

              

Cash equivalents – Investments

     2        1,393,202        1,393,202        916,762        916,762  

Securities – Investments

     2        81,704        81,704        44,244        44,244  

Customers and Traders; Concession holders (Transport of energy)

     2        4,056,347        4,056,347        4,035,445        4,035,445  

Restricted cash

     2        113,041        113,041        106,227        106,227  

Advances to suppliers

     2        137,044        137,044        122,920        122,920  

Customers – Accounts receivable from the State of Minas Gerais

     2        214,702        214,702        105,275        105,275  

Other Accounts receivable from the State of Minas Gerais (CIP)

     2        2,050        2,050        1,220        1,220  

Accounts receivable from the State of Minas Gerais (AFAC)

     2        254,930        254,930        235,018        235,018  

Concession financial assets:

CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     3        1,246,131        1,246,131        369,010        369,010  

Reimbursement of tariff subsidies

     2        85,096        85,096        77,086        77,086  

Low-income subsidy

     2        28,237        28,237        26,660        26,660  

Escrow deposits

     2        2,427,726        2,427,726        2,335,632        2,335,632  

Concession grant fee – Generation concessions

     3        2,396,907        2,396,907        2,337,135        2,337,135  

Accounts receivable – Renova

     2        434,938        434,938        350,200        350,200  

Reimbursement – Decontracting of supply

     2        108,045        108,045        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 
        12,980,100        12,980,100        11,062,834        11,062,834  

 

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     Level      Sep. 30, 2018
(Restated)
    Dec. 31, 2017  
   Book value     Fair value     Book value     Fair value  

Fair value through profit or loss

           

Securities

           

Bank certificates of deposit

     2                    2,652       2,652  

Treasury Financial Notes (LFTs)

     1        315,136       315,136       739,945       739,945  

Financial Notes – Banks

     2        247,423       247,423       290,004       290,004  

Debentures

     2        5,816       5,816       11,292       11,292  
     

 

 

   

 

 

   

 

 

   

 

 

 
        568,375       568,375       1,043,893       1,043,893  

Concession financial assets – Transmission – Assets remunerated by tariff

     3        557,960       557,960       547,800       547,800  

Derivative financial instruments – Swaps

     3        273,636       273,636       8,649       8,649  

Derivative financial instruments (Ativas and Sonda put options) (2)

     3        4,117       4,117       3,801       3,801  

Concession financial assets – Distribution infrastructure

     3        393,137       393,137       369,762       369,762  

Indemnities receivable – Transmission

     3        1,817,663       1,817,663       1,928,038       1,928,038  

Indemnities receivable – Generation

     3        816,734       816,734       1,900,757       1,900,757  
     

 

 

   

 

 

   

 

 

   

 

 

 
        4,431,622       4,431,622       5,802,700       5,802,700  
     

 

 

   

 

 

   

 

 

   

 

 

 
        17,411,722       17,411,722       16,865,534       16,865,534  
     

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Amortized cost (1)

           

Loans, financings and debentures

     2        (15,394,055     (15,394,055     (14,397,697     (14,397,697

Debt agreed with pension fund (Forluz)

     2        (672,083     (672,083     (720,498     (720,498

Settlement of deficit of pension fund (FORLUZ)

     2        (380,022     (380,022     (283,291     (283,291

Concession financial assets: CVA (Portion ‘A’ Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

     3        (41,383     (41,383     (414,800     (414,800

Concessions payable

     3        (18,979     (18,979     (21,227     (21,227

The Minas Gerais State Tax Amnesty Plan (PRCT)

     2        —         —         (282,876     (282,876

Suppliers

     2        (2,444,705     (2,444,705     (2,342,757     (2,342,757

Advances from clients

     2        (89,896     (89,896     (232,762     (232,762
     

 

 

   

 

 

   

 

 

   

 

 

 
        (19,041,123     (19,041,123     (18,695,908     (18,695,908

Fair value through profit or loss

           

Derivative financial instruments – Swaps

     3        —         —         (41,111     (41,111

Derivative financial instruments – RME put options

     2        (569,207     (569,207     (507,232     (507,232

Derivative financial instruments (SAAG put options)

     3        (374,185     (374,185     (311,593     (311,593
     

 

 

   

 

 

   

 

 

   

 

 

 
        (943,392     (943,392     (859,936     (859,936
     

 

 

   

 

 

   

 

 

   

 

 

 
        (19,984,515     (19,984,515     (19,555,844     (19,555,844
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

On September 30, 2018 and on December 31, 2017, the book values of financial instruments were similar to the fair values.

(2)

Options in shares of Sonda in the amount of R$ 4,117, posted in the Company’s Assets due to the merger of Cemig Telecom.

 

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In the initial recognition the Company measures its financial assets and liabilities at fair value and classifies them according to the accounting rules currently in effect. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Fair Value Hierarchy aims to increase consistency and comparability: it divides the inputs used in measuring fair value into three broad levels, as follows:

 

Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.

 

Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business considerations.

 

Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, or of derivatives linked to them which are to be settled by delivery of unquoted securities, is determined based on generally accepted valuation techniques, based on discounted cash flow analysis and other valuation techniques, such as new replacement Value (Valor novo de reposição, or VNR).

Fair value calculation of financial positions

Concession financial assets related to Distribution infrastructure and related to Transmission infrastructure – assets remunerated by tariff: measured at New Replacement Value (VNR), according to criteria established in regulations by the Concession grantor (‘Grantor’), based on fair value of the assets in service belonging to the concession and which will be revertible at the end of the concession, and on the Weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig. The movement in Concession financial assets is shown in Note 14.

Indemnities receivable – Transmission: measured at New Replacement Value (Valor Novo de Reposição, or VNR), according to criteria established by the Concession-granting power (‘Grantor’), based on fair value of the assets to be indemnified as a result of acceptance of the terms of Law 12,783/13, and on the weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig.

 

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Indemnities receivable – Generation: measured at New Replacement Value (Valor Novo de Reposição, or VNR), according to criteria established by the concession Grantor, based on the assets fair value to be indemnified by the termination of the concession.

Cash investments: The fair value of cash investments is calculated taking into consideration the market prices of the security, or market information that makes such calculation possible, and future rates in the fixed income and FX markets applicable to similar securities. The market value of the security is deemed to be its maturity value discounted to present value by the discount factor obtained from the market yield curve in Reais.

Put options: The Company adopted the Black-Scholes-Merton method for measuring the fair value of the SAAG, RME, and Sonda options. The fair value of these options was calculated based on the estimated exercise price on the day of exercise of the option, less the fair value of the underlying shares, also estimated for the date of exercise, and brought to present value at the reporting date.

Swap transactions: The fair value of the swap transactions was calculated based on the security market value at the due date brought to present value using the discount factor from the market yield curve in Reais.

Other financial liabilities: The Company has calculated the fair value of its loans, financings and debentures using 147.66% of the CDI rate – based on its most recent borrowings. For those loans, financings and debentures, and for debt renegotiated with Forluz, with annual rates between IPCA + 4.70% to 8.07% and CDI + 1.60% to 4.05%, the Company considered fair value to be substantially equal to book value.

 

  b)

Derivative financial instruments:

Put options

The Company holds options to sell certain securities to it (put options) for which it has calculated the fair value based On the Black and Scholes Merton (BSM) model. This takes the following variables into account: exercise price of the option; closing price of the underlying asset on September 30, 2018; the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

Analytically, calculation of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that the main divergence in the put options takes place in the measurement of the closing price and the volatility of the underlying asset.

On September 30, 2018 and on December 31, 2017, the existing options were as follows:

 

Consolidated

   Balance
on Sep.
30, 2018
    Balance
on Dec.
31, 2017
 

Put option – RME

     569,207       507,232  

Put option – SAAG

     374,185       311,593  

Put / call options – Ativas and Sonda

     (4,117     (3,801
  

 

 

   

 

 

 
     939,275       815,024  
  

 

 

   

 

 

 

 

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Put option – SAAG

Option Contracts were signed between Cemig GT and the private pension entities that participate in the investment structure of SAAG (comprising FIP Melbourne, Parma Participações S.A. and FIP Malbec, jointly, ‘the Investment Structure’), giving those entities the right to sell units in the Funds that comprise the Investment Structure, at the option of the Funds, in the 84th (eighty-fourth) month from June 2014. The exercise price of the Put Options will correspond to the amount invested by each private pension plan in the Investment Structure, updated pro rata temporis by the Expanded National Customer Price (IPCA) index published by the IBGE, plus interest at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option was considered to be a derivative instrument, accounted at fair value through profit or loss.

For measurement of the fair value of SAAG put options Cemig GT uses the Black-Scholes-Merton (‘BSM’) model. The assumption was made that the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they were direct equity interests in Mesa. However, neither SAAG nor Mesa are traded on a securities exchange, so that some assumptions are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price of the share of Mesa on September 30, 2018 is ascertained on the basis of free cash flow to equity holders (FCFE), expressed by equivalence of the indirect interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the electricity generation sector that are traded on the Bovespa.

Based on the studies made, a liability of R$ 374,185 (R$ 311,593 on December 31, 2017) is recorded in the Company’s Interim Financial Information, for the difference between the exercise price and the estimated fair value of the assets.

The changes in the value of the options are as follows:

 

     Consolidated  

Balance at Dec. 31, 2016

     196,173  

Adjustment to fair value

     73,299  

Reversals

     (5,334
  

 

 

 

Balance on September 30, 2017

     264,138  
  

 

 

 

Balance at Dec. 31, 2017

     311,593  

Adjustment to fair value

     62,592  
  

 

 

 

Balance on September 30, 2018

     374,185  
  

 

 

 

Cemig GT has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 5.20% p.a. to 9.20% p.a., and for volatility between 20% and 80% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 348,825 and R$ 415,096, respectively.

 

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Put options of RME

Cemig granted a put option to Fundo de Participações Redentor – which is now a shareholder of Rio Minas Energia Participações S.A. (RME) – the right for Redentor to sell all RME’s shares, originally exercisable in May 2016. The exercise price of the option is calculated based on the sum of the value of the amounts injected by the Fund into the investee, plus the running expenses of the fund, less Interest on Equity, and dividends, distributed by RME.

The exercise price is subject to monetary updating by the CDI (Interbank CD) Rate plus financial remuneration at 0.9% per year.

RME owns common and preferred shares of Light, and currently exercise jointly control, with the Company, over the activities of that investee. Therefore, this option was considered to be a derivative instrument, accounted at fair value through profit or loss.

On November 22, 2017 Cemig signed the First Amendment to the Shareholders’ Agreement of RME – Rio Minas Energia Participações S.A. (‘RME’), with: Banco Santander (Brasil) S.A. (‘Santander’), BV Financeira S.A. – Crédito Financiamento e Investimento (‘BV’ Financeira’) and BB-Banco de Investimento S.A. (‘BB-BI’), (jointly, ‘the Shareholder banks’) to formalize the partial postponement of the date of the Put option granted by Cemig to the Shareholder Banks, the new exercise date being moved from November 30, 2017 to November 30, 2018.

On September 21, 2018 Cemig received Cemig Notices of Intention to Exercise Put Option – in the Third Exercise Window, from RME – Rio Minas Energia Participações S.A. (‘RME’), BB-Banco de Investimento S.A., BV Financeira S.A. Crédito, Financiamento e Investimento, and Banco Santander (Brasil) S.A., (‘the Stockholder Banks’) giving irrevocable notice of exercise of the right to sell the totality of their respective holdings, representing a total of 50% of the voting stock and 25% of the total share capital of RME, to be acquired by Cemig or by a third party indicated by Cemig, until November 30, 2018.

Amount of the Company’s exposure

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, for the nine-month periods ended September 30, 2018 and 2017, has been as follows:

 

     Consolidated  

Balance at Dec. 31, 2016

     1,149,881  

Variation in fair value

     100,957  

Reversals

     (8,020
  

 

 

 

Balance on Sep. 30, 2017

     1,242,818  
  

 

 

 

Balance at Dec. 31, 2017

     507,232  

Variation in fair value

     62,054  

Reversals

     (79
  

 

 

 

Balance on Sep. 30, 2018

     569,207  
  

 

 

 

In the calculation of the fair value of the option based on the Black-Scholes-Merton analysis, the following variables are taken into account: exercise price of the option; closing price of the share of Light on September 30, 2018 (as a reference for the value of the indirect equity interest held by the direct Shareholders of RME in Light); the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

 

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The Company has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 1.76% to 9.76% p.a., and for volatility between 20.0% and 90.0% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 564,862 and R$ 573,582, respectively.

Sonda options

As part of the shareholding restructuring process, Cemig Telecom and Sonda signed a Purchase Option Agreement (issued by Cemig Telecom) and a Sale Option Agreement (issued by Sonda). Considering the merger of Cemig Telecom into Cemig, occurred on September 30, 2018, the option contract is now between Cemig and Sonda.

These resulted in Cemig simultaneously having a right (put option) and an obligation (call option). The exercise price of the put option will be equivalent to fifteen times the adjusted net income of Ativas in the business year prior to the exercise date. The exercise price of the call option will be equivalent to seventeen times the adjusted net income of Ativas in the business year prior to the exercise date. Both options, if exercised, result in the sale of the shares in Ativas currently owned by the Company, and the exercise of one of the options results in nullity of the other. The options may be exercised as from January 1, 2021.

The put and call options in Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between the fair values of the two options on the reporting date of the interim financial information for September 30, 2018. Depending on the value of the options, the net value of the Ativas Options may be an asset or a liability of the Company.

The measurement has been made using the Black-Scholes-Merton (BSM) model. In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset on September 30, 2018; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

The closing price of the underlying asset was based on the valuation prepared by the same specialized consulting firm responsible for calculating the options. The valuation base date is September 30, 2018, the same date of closing of the Company’s Interim financial information, and the methodology used to calculate the Company’s fair value is Discounted Cash Flow (DCF) based on the value of the transaction in shares of Ativas by Sonda, held on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury Bills. The time to maturity was calculated assuming exercise date on September 30, 2021.

Considering that the exercise prices of the options are contingent upon the future financial accounting results of Ativas, the estimate of the exercise prices on the date of maturity was based on statistical analysis and on information of comparable listed companies.

 

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Swap transactions

Considering that part of the loans and financings of the Company is denominated in foreign currency, the companies use derivative financial instruments (swap transactions) to protect the servicing associated with these debts (principal plus interest).

The derivative instruments contracted by the Company have the purpose of protecting the operations against the risks arising from foreign exchange variation and are not used for speculative purposes.

The amounts of the principal of derivative transactions are not presented in the balance sheet, since they refer to transactions that do not require cash principal payments to be made: only the gains or losses that actually occur are recorded. The net result of these transactions on September 30, 2018 was a positive adjustment of R$ 322,847, recorded in finance income (expenses).

The Company has a Financial Risks Management Committee, created to monitor the financial risks in relation to volatility and trends of inflation indices, exchange rates and interest rates that affect its financial transactions and which could negatively affect its liquidity and profitability. The Committee implements action plans and sets guidelines for proactive control of the financial risks environment.

The counterparties of the derivative transactions are the banks Bradesco, Itaú, Goldman Sachs and BTG Pactual and the Company is guarantor of the derivative instruments contracted by Cemig GT.

The table below shows the derivative instruments contracted by Cemig GT as of September 30, 2018 and December 31, 2017.

 

Cemig’s right (1)

   Cemig’s
obligation (1)
   Maturity
period
   Trading market      Value of
principal
contracted (2)
     Unrealized gain / loss      Unrealized gain / loss  
   Amount
according to
contract –
Sep. 30, 2018
     Fair value
– Sep. 30,
2018
     Amount
according to
contract –
Dec. 31,
2017
     Fair value –
Dec. 31,
2017
 

US$: FX variation + Rate (9.25% p.a.)

   In R$:
150.49% of
CDI rate
   From July
2018

to Dec. 2024

     Over-the-counter        US$ 1,000,000        821,268        256,898        50,792        (32,462)  

US$: FX variation + Rate (9.25% p.a.)

   In R$:
125.52% of
CDI rate
   From July
2018 to Dec.
2024
     Over-the-counter        US$ 500,000        109,538        16,738        —          —    
              

 

 

    

 

 

    

 

 

    

 

 

 
     930,806        273,636        50.792        (32.462)  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1)

For the original US$ 1 billion Eurobond issue of December 2017, was contracted a combination of a call spread on the principal, with floor at R$ 3.25/US$ and ceiling at R$ 5.00/US$ and for the interest, a swap for 9.25% p.a. coupon in Reais, and average of 150.49% of the CDI rate.

For the additional US$ 500 million Eurobond tranche, issued in July 2018, was contracted a combination of a call spread on the principal, with floor at US$ 3.85/US$ and ceiling at R$ 5.00/US$ and for the whole of the interest, a swap for 9.25% p.a. coupon in Reais, and average rate equivalent to 125.52% of the CDI.

2)

In thousands of US$.

 

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The Company uses a mark-to-market methodology for the derivative financial instruments used to protect the Eurobond, in accordance with market practices. The main indicators to measure the fair value of the swap are the market curves for the DI rate, and dollar future traded in the B3 future market. To price the call spread (options) the Black & Scholes model is used.

The fair value at September 30, 2018 was R$ 273,636 which would be a reference if the Company had settled the derivative instrument on September 30, 2018; however, the swap contracts protect the Company’s cash flow up to maturity of the bonds in 2024, and have a contractual value of R$ 930,806, at September 30, 2018, underlining the effectiveness of the hedge strategy adopted by the Company.

 

  c)

Risk management

Corporate risk management is a management tool that is an integral part of the Company’s corporate governance practices, and is aligned with the process of planning, which sets the Company’s strategic business objectives.

The Company has a Financial Risks Management Committee, the purpose of which is to implement guidelines and monitor the financial risk of transactions that could negatively affect the Company’s liquidity or profitability, recommending hedge strategies to control the Company’s exposure to foreign exchange rate risk, interest rate risk, and inflation risks.

The principal risks to which the Company and its subsidiaries are exposed are as follows:

Exchange rate risk

Cemig and its subsidiaries are exposed to the risk of increase in exchange rates, with effect on Loans and financings, Suppliers, and cash flow.

The net exposure to exchange rates is as follows:

 

Exposure to exchange rates

   September 30, 2018      Dec. 31, 2017  
   Foreign
currency
     R$      Foreign
currency
     R$  

US dollar

           

Loans and financings (Note 20)

     1,559,320        6,243,361        1,014,535        3,356,082  

Suppliers (Itaipu Binacional)

     73,916        295,951        73,698        240,220  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,633,236        6,539,312        1,088,233        3,596,302  

Euros

           

Loans and financings – Euros (Note 20)

     581        2,702        1,105        4,383  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net liabilities exposed

     1,633,817        6,542,014        1,089,338        3,600,685  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sensitivity analysis

Based on information from its financial consultants, the Company estimates that in a probable scenario the variation of the exchange rates of foreign currencies in relation to the Real on September 30, 2019 will an appreciation of the dollar by 6.19%, to R$ 3.7560/US$, and depreciation of the Euro by 7.20%, to R$ 4.3194/€. The Company has made a sensitivity analysis of the effects on the Company’s net income arising from depreciation of the Real exchange rate by 25%, and by 50%, in relation to this ‘probable’ scenario.

 

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Risk: foreign exchange rate exposure

   Book value      ‘Probable’ scenario
US$1= R$ 3.7560
EUR1= R$ 4.3194
    ‘Possible’ scenario
US$1= R$ 4.6950
EUR1= R$ 5.3993
     ‘Remote’ scenario
US$1= R$ 5.6340
EUR1= R$ 6.4791
 

US dollar

          

Loans and financings

     6,243,361        5,856,806       7,321,008        8,785,209  

Suppliers (Itaipu Binacional)

     295,951        277,627       347,034        416,441  
  

 

 

    

 

 

   

 

 

    

 

 

 
     6,539,312        6,134,433       7,668,042        9,201,650  
  

 

 

    

 

 

   

 

 

    

 

 

 

Euros

          

Loans and financings

     2,702        2,507       3,134        3,761  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net liabilities exposed

     6.542.014        6.136.940       7.671.176        9.205.411  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net effect of exchange rate variation

        (405,074     1,129,162        2,663,397  
     

 

 

   

 

 

    

 

 

 

Note that the Company has contracted a swap transaction to replace the exposure to the US dollar with exposure to variation in the CDI Rate, as described in more detail in the item Swap Transactions in this Note.

Interest rate risk

On September 30, 2018 the Company is exposed to the risk of increase in Brazilian domestic interest rates. This exposure occurs as a result of net liabilities indexed to variation in interest rates, as follows:

 

Risk: Exposure to domestic interest rate changes

   Consolidated  
   Sep. 30, 2018
(Restated)
    Dec. 31, 2017  

Assets

    

Cash equivalents – investments (Note 5)

     1,393,202       916,762  

Securities (Note 6)

     650,079       1,088,137  

Accounts receivable – Renova (Note 28)

     434,938       350,200  

Advances to suppliers

     137,044       122,920  

Restricted cash

     113,041       106,227  

CVA and Other financial components in tariffs – Selic rate * (Note 14)

     1,246,131       369,010  

Receivable for residual value – Generation – SELIC (Note 14)

     —         1,084,346  

Reimbursement – Energy Depletion (Note 28)

     108,045       —    

Credits owed by Eletrobras

     4,216       4,216  
  

 

 

   

 

 

 
     4,086,696       4,041,818  

Liabilities

    

Loans, financings and debentures – CDI rate (Note 20)

     (5,399,656     (7,202,558

Loans, financings and debentures – TJLP (Note 20)

     (99,282     (118,891

Advances from customers – CDI

     (89,896     (188,344

CVA and Other financial components in tariffs – Selic rate (Note 14)

     (41,383     (414,800

Adherence to the Tax Amnesty Program – PRCT (Note 19)

     —         (282,876
  

 

 

   

 

 

 
     (5,630,217     (8,207,469
  

 

 

   

 

 

 

Net liabilities exposed

     (1,543,521     (4,165,651
  

 

 

   

 

 

 

 

(*)

Amounts of CVA and Other financial components indexed by the Selic rate.

Sensitivity analysis

In relation to the most significant interest rate risk, the Company and its subsidiaries estimate that, in a probable scenario, on September 30, 2019 the Selic rate will be 7.00% and TJLP rate will be 7.3548%. The Company has made a sensitivity analysis of the effects on its net income arising from increases in rates of 25% and 50% in relation to the ‘probable’ scenario. Variation in the CDI rate accompanies the variation in the Selic rate.

 

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Estimation of scenarios for the path of interest rates considers the projections made by the Company and its subsidiaries, based on its financial consultants.

 

Risk: Increase in Brazilian interest rates

(Restated)

   Sep. 30,
2018
    Sep. 30, 2019  
   Book value     ‘Probable’
Scenario
Selic 7.00%
TJLP
7.3548%
    ‘Possible’
Scenario
Selic 8.75%

TJLP 9.1935%
    ‘Remote’
Scenario
Selic 10.50%
TJLP 11.0322%
 

Assets

        

Cash equivalents – Short-term investments (Note 5)

     1,393,202       1,490,726       1,515,107       1,539,488  

Securities (Note 6)

     650,079       695,585       706,961       718,337  

Accounts receivable – Renova (Note 28)

     434,938       465,384       472,995       480,606  

Advances to suppliers

     137,044       146,637       149,035       151,434  

Restricted cash

     113,041       120,954       122,932       124,910  

CVA and Other financial components in tariffs – Selic rate * (Note 14)

     1,246,131       1,333,360       1,355,167       1,376,975  

Reimbursement – Energy Depletion (Note 28)

     108,045       115,608       117,499       119,390  

Credits owed by Eletrobras

     4,216       4,511       4,585       4,659  
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,086,696       4,372,765       4,444,281       4,515,799  

Liabilities

        

Loans, financings and debentures – CDI rate (Note 20)

     (5,399,656     (5,777,632     (5,872,126     (5,966,620

Loans, financings and debentures – TJLP (Note 20)

     (99,282     (106,584     (108,409     (110,235

Advances from customers – CDI

     (89,896     (96,189     (97,762     (99,335

CVA and Other financial components in tariffs – Selic rate (Note 14)

     (41,383     (44,280     (45,004     (45,728
  

 

 

   

 

 

   

 

 

   

 

 

 
     (5,630,217     (6,024,685     (6,123,301     (6,221,918
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities exposed

     (1,543,521     (1,651,920     (1,679,020     (1,706,119
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of variation in interest rates

       (108,399     (135,499     (162,598
    

 

 

   

 

 

   

 

 

 

 

(*)

Amounts of CVA and Other financial components are indexed by the Selic rate.

Inflation risk

The Company and its subsidiaries are exposed to the risk of inflation fall due to having more assets than liabilities indexed to the variation of inflation indicators, as follows:

 

Exposure to decrease in inflation

   Sep. 30,
2018
    Dec. 31,
2017
 

Assets

    

Concession financial assets related to Distribution infrastructure – IPCA (*)

     359,258       110,832  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (TARD) (Note 28)

     216,752       107,614  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (AFAC) (Note 11)

     254,930       235,018  

Receivable for residual value – Transmission – IPCA (Note 14)

     1,817,663       1,928,038  

Assets remunerated by tariff – Transmission – IPCA (Note 14)

     462,989       496,121  

Concession Grant Fee – IPCA (Note 14)

     2,396,907       2,337,135  
  

 

 

   

 

 

 
     5,508,499       5,214,758  

Liabilities

    

Loans, financings and debentures – IPCA (Note 20)

     (3,718,981     (3,800,889

Debt agreed with pension fund (Forluz) – IPCA

     (672,083     (720,498

Forluz deficit of pension plan – IPCA

     (380,022     (283,291
  

 

 

   

 

 

 
     (4,771,086     (4,804,678
  

 

 

   

 

 

 

Net assets

     737,413       410,080  
  

 

 

   

 

 

 

 

(*)

Part of the Concession financial assets related to the Regulatory Remuneration Base approved by Aneel after the third tariff review cycle.

 

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Sensitivity analysis

In relation to the most significant risk of decrease in inflation, due to having more assets than liabilities indexed to the variation of inflation indicators, the Company and its subsidiaries estimate that, in a probable scenario, on September 30, 2019 the IPCA inflation index will be 4.0738% and IGPM index will be 4.2668%. The Company and its subsidiaries have made a sensitivity analysis of the effects on its net income arising from decreases in inflation of 25% and 50% in relation to the ‘probable’ scenario, naming these the ‘possible’ and ‘remote’ scenarios, respectively.

 

Risk: decrease in inflation

   Sep. 30,
2018
    September 30, 2019  
   Book value     ‘Probable’
scenario

IPCA 4.0738%
IGP-M 4.2668%
    ‘Possible’
scenario (-25%)

IPCA 3.0554%
IGPM 3.2001%
    ‘Remote’
scenario (-50%)

IPCA 2.0369%
IGP-M
2.1334%
 

Assets

        

Concession financial assets related to Distribution infrastructure – IPCA (*)

     359,258       373,893       370,235       366,576  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (TARD) (Note 28)

     216,752       226,000       223,688       221,376  

Amounts receivable from the Government of the State of Minas Gerais—IGP-M (AFAC) (Note 11)

     254,930       265,807       263,088       260,369  

Receivable for residual value – Transmission – IPCA (Note 14)

     1,817,663       1,891,711       1,873,200       1,854,687  

Assets remunerated by tariff – Transmission – IPCA (Note 14)

     462,989       481,850       477,135       472,420  

Concession Grant Fee – IPCA (Note 14)

     2,396,907       2,494,552       2,470,142       2,445,730  
  

 

 

   

 

 

   

 

 

   

 

 

 
     5,508,499       5,733,813       5,677,488       5,621,158  

Liabilities

        

Loans, financings and debentures – IPCA

     (3,718,981     (3,870,485     (3,832,611     (3,794,733

Debt agreed with pension fund (Forluz) – IPCA

     (672,083     (699,462     (692,618     (685,773

Forluz deficit of pension plan

     (380,022     (395,503     (391,633     (387,763
  

 

 

   

 

 

   

 

 

   

 

 

 
     (4,771,086     (4,965,450     (4,916,862     (4,868,269
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     737,413       768,363       760,626       752,889  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of variation in IPCA and IGP-M indices

       30,950       23,213       15,476  
    

 

 

   

 

 

   

 

 

 

 

(*)

Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by Aneel after the third tariff review cycle.

Liquidity risk

Cemig has sufficient cash flow to cover the cash needs related to its operating activities.

The Company manages liquidity risk with a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in permanent control of the financial processes, to guarantee appropriate risk management.

Cemig manages liquidity risk by permanently monitoring its cash flow in a conservative, budget-oriented manner. Balances are projected monthly, for each one of the companies, over a period of 12 months, and daily liquidity is projected over 180 days.

Short-term investments must comply with certain rigid investing principles established in the Company’s Cash Investment Policy, which was approved by the Financial Risks Management Committee. These include applying its resources in private credit investment funds, without market risk, and investment of the remainder directly in bank CDBs or repo contracts which earn interest at the CDI rate.

In managing cash investments, the Company seeks to obtain profitability through a rigid analysis of financial institutions’ credit, applying operational limits for each bank, based on assessments that take into account their ratings, exposures and balance sheets. It also seeks greater returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s minimum liquidity control requirements.

 

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The greater part of the energy sold by the Company is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing energy, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving energy. Prolongation of generation by thermoelectric plants can pressure costs of acquisition of energy by the distributors, causing a greater need for cash, and can impact future tariff increases – as indeed has happened with the Extraordinary Tariff Review granted to the distributors in March 2015.

Any reduction in the Company’s ratings could result in a reduction of its ability to obtain new financings and could also make refinancings of debts not yet due more difficult or more costly. In this situation, any financing or refinancing of the Company’s debt could have higher interest rates or might require compliance with more onerous covenants, which could additionally cause restrictions to the operations of the business.

The flow of payments of the Company’s obligations to suppliers, for debts agreed with the pension fund, loans, financings and debentures, at floating and fixed rates, including future interest up to contractual maturity dates, is shown in this table:

 

Consolidated

   Up to 1
month
     1 to 3
months
     3 months
to 1 year
     1 to 5
years
     Over 5
years
     Total  

Financial instruments at (interest rates):

                 

- Floating rates

                 

Loans, financings and debentures

     35,699        1,214,018        1,836,168        10,607,502        8,331,011        22,024,398  

Concessions payable

     203        401        1,828        8,304        14,637        25,373  

Debt agreed with pension plan (Forluz) (Note 22)

     11,487        23,063        105,810        628,609        132,342        901,311  

Solution plan for deficit of the Pension Plan (Forluz) (Note 22)

     3,521        7,075        32,436        192,597        509,531        745,160  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     50,910        1,244,557        1,976,242        11,437,012        8,987,521        23,696,242  

- Fixed rate

                 

Suppliers

     2,282,353        155,195        7,157        —          —          2,444,705  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,333,263        1,399,752        1,983,399        11,437,012        8,987,521        26,140,947  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Holding company

   Up to 1
month
     1 to 3
months
     3 months
to 1 year
     1 to 5
years
     Over 5
years
     Total  

Financial instruments at (interest rates):

                 

- Floating rates

                 

Loans, financings and debentures

     1,963        3,910        7,655        55,018        —          68,546  

Loans with related parties

     —          —          —          445,245        —          445,245  

Debt agreed with pension plan (Forluz) (Note 22)

     565        1,135        5,206        30,928        6,511        44,345  

Solution plan for deficit of the Pension Plan (Forluz) (Note 22)

     173        348        1,596        9,476        25,069        36,662  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,701        5,393        14,457        540,667        31,580        594,798  

- Fixed rate

                 

Suppliers

     9,107        —          —          —          —          9,107  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     11,808        5,393        14,457        540,667        31,580        603,905  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Credit risk

The distribution concession contract requires levels of service on a very wide basis within the concession area, and disconnection of supply of defaulting customers is permitted. Additionally, the Company used numerous tools of communication and collection to avoid increase in default. These include: telephone contact, emails, text messages, collection letters, posting of clients with credit protection companies, and collection through the courts.

The risk arising from the possibility of Cemig and its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to its customers is considered to be low. The credit risk is also reduced by the extremely wide customer’s base.

The allowance for doubtful debtors constituted on September 30, 2018, considered to be adequate in relation to the credits in arrears receivable by the Company and its subsidiaries, was R$ 763,152.

In relation to the risk of losses resulting from declaration of insolvency of a financial institutions at which the Company has deposits, a Cash Investment Policy was approved and has been in effect since 2004, and is reviewed annually.

Cemig manages the counterparty risk of financial institutions based on an internal policy approved by its Financial Risks Management Committee.

This Policy assesses and scales the credit risks of the institutions, the liquidity risk, the market risk of the investment portfolio and the Treasury operational risk.

All investments are made in financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company does not carry out any transactions that would incorporate volatility risk into its interim financial information.

As a management instrument, Cemig divides the investment of its funds into direct purchases of securities (own portfolio) and investment funds. The investment funds invest the funds exclusively in fixed income products, and companies of the Group are the only unit holders. They obey the same policy adopted in the investments for the Company’s directly-held own portfolio.

The minimum requirements for concession of credit to financial institutions are centered on three items:

 

  1.

Rating by three risk rating agencies.

 

  2.

Equity greater than R$ 400 million.

 

  3.

Basel ratio one percentage point above the minimum set by the Brazilian Central Bank.

 

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Banks that exceed these thresholds are classified in three groups, by the value of their equity. Within this classification, limits of concentration by group and by institution are set:

 

Group

   Equity    Concentration    Limit per bank
(% of shareholders’ equity)*

A1

   Over R$ 3.5 billion    Minimum 80%    Between 6% and 9%

A2

   R$ 1.0 billion to R$ 3.5 billion    Maximum 20%    Between 5% and 8%

B

   R$ 400 million to R$ 1.0 billion    Maximum 20%    Between 5% and 7%

 

(*) 

The percentage assigned to each bank depends on individual assessment of indicators, e.g. liquidity and quality of the credit portfolio.

Further to these points, Cemig also sets two concentration limits:

 

  1.

No bank may have more than 30% of the Group’s portfolio.

 

  2.

No bank may have more than 50% of the portfolio of any individual company.

Risk of over-contracting and under-contracting of energy supply

Sale or purchase of power supply in the spot market to cover a positive or negative exposure of supply contracted, to serve the captive market of Cemig D, is a risk inherent to the energy distribution business.

The regulatory limit for 100% pass-through to customers of exposure to the spot market, valued at the difference between the distributor’s average purchase price and the spot price (PLD), is only the margin between 95% and 105% of the distributor’s contracted supply.

Any exposure that can be proved to have arisen from factors outside the distributor’s control (‘involuntary exposure’) may also be passed through in full to customers.

The Company’s Management is continually managing its contracts for purchase of power supply to mitigate the risk of exposure to the spot market.

Risk of continuity of the concession

The risk to continuity of the distribution concession arises from the new terms included in the extension of Cemig D’s concession for 30 years from January 1, 2016, as specified by Law 12,783/13. The extension brought changes to the contract. Under the new contract, continuity of the concession is conditional upon compliance by the Distributor with new criteria for quality and economic-financial sustainability.

The extension is conditional on compliance with indicators contained in the contract itself, which aim to guarantee quality of the service provided and economic and financial sustainability of the company. These are determinant for actual continuation of the concession in the first five years of the contract, since non-compliance with them in two consecutive years, or in the fifth year, results in cancellation of the concession.

Additionally, as from 2021, non-compliance with the quality criteria for three consecutive years, or with the minimum parameters for economic/financial sustainability for two consecutive years, results in opening of proceedings with a view to termination of the distribution concession.

 

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Hydrological risk

The greater part of the energy sold by the Company’s subsidiaries is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing electricity, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving of electricity. Prolongation of the generation of energy using the thermal plants potentially could lead to cost increases for the energy distributors, causing a greater need for cash, and could result in future increases in tariffs.

Risk of early maturity of debt

The Company’s subsidiaries have loan contracts with restrictive covenants normally applicable to this type of transaction, related to compliance with a financial index. Non-compliance with these covenants could result in earlier maturity of debts.

On September 30, 2018, the Company was compliant with all of its covenants linked to financial indices requiring compliance on a six-monthly basis. For more details please see Note 20.

Capital management

This table shows comparisons of the Company’s consolidated net liabilities and its Equity:

 

     Consolidated     Holding company  
     Sep. 30, 2018
(Restated)
    Dec. 31, 2017     Sep. 30, 2018
(Restated)
    Dec. 31, 2017  

Total liabilities

     28,210,245       27,909,453       2,090,257       1,522,956  

(–) Cash and cash equivalents

     (1,493,383     (1,030,257     (39,974     (38,672

(–) Restricted cash

     (113,041     (106,227     (93,112     (87,872
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities

     26,603,821       26,772,969       1,957,171       1,396,412  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     14,972,851       14,330,136       14,968,534       14,325,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liabilities / equity

     1.78       1.87       0.13       0.10  

 

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30.

ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS

On May 25, 2018 Cemig published Tender Announcement 500-Y12121 for disposal of certain telecom assets that were absorbed in the merger of Cemig Telecomunicações on March 31, 2018.

The assets that were the subject of the tender are a group of the Company’s infrastructure assets and contractual positions in relation to service contracts. They were separated into two lots, being sold according to the best economic proposal for each lot, with minimum auction prices set for each one of the lots, based on formal valuation of the assets – these prices were R$ 335,070 for Lot 1, and R$ 32,473 for Lot 2.

The winning bid for Lot 1, presented by American Tower do Brasil – Comunicação Multimídia Ltda., was for R$ 575,906, i.e. 71.87% above the minimum sale value specified in the Tender Announcement. The winning bid for Lot 2, presented by Algar Soluções em TIC S.A., was for R$ 78,555, or 141.05% above the minimum sale value specified in the Tender Announcement.

On August 24, 2018 Cemig signed Asset Sale Agreements with American Tower do Brasil – Comunicação Multimídia Ltda., winner of Lot 1, and with Algar Soluções em TIC S.A., winner of Lot 2.

On November 1, 2018, sale transactions were completed, after the prior conditions stated in the Tender – including approval by the monopolies authority, CADE – had been complied with.

Thus, for the preparation of the interim financial information in the nine-month period ended September 30, 2018, the Company understands that the telecom assets in the Tender comply with the classification requirements of Pronouncement CPC 31 – Non-current assets held for sale, and discontinued operations, and are thus presented separately in the balance sheet, with measurement based on book value, since in both cases book value is lower than fair value less the sales expenses.

The composition of the assets of the associated liabilities is as follows:

 

     Consolidated     Holding
company
 
     Sep. 30, 2018     Sep. 30, 2018  

ASSETS

    

Assets

    

Accounts receivable

     1,339       1,339  

Inventories

     6,862       6,862  

PP&E and Intangible

     262,705       262,705  

Other current assets – Non-current

     10,291       10,291  
  

 

 

   

 

 

 

Total assets

     281,197       281,197  
  

 

 

   

 

 

 

LIABILITIES

    

Liabilities directly related to assets held for sale

    

Other non-current liabilities

     (5,142     (5,142

Deferred income tax and Social Contribution tax

     (775     (775
  

 

 

   

 

 

 

Total liabilities

     (5,917     (5,917
  

 

 

   

 

 

 

As a result of the classification as held for sale, depreciation of these assets was terminated, and the revenues, costs and expenses resulting from these assets is presented in the Statement of income in a single amount as discontinued operation, separately from the result of the going concern operations.

 

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This table shows the revenues, costs and expenses arising from the discontinued operations, related to the assets classified as held for sale, on September 30, 2018:

 

     Consolidated     Holding company  
   Jan to Sep 2018     Jan to Sep 2018  

Results of discontinued operations

    

Operating revenues

    

Other operating revenues

    

Telecoms services

     137,049       92,276  

Leasing and Rentals

     5,387       3,688  

Other operating revenues

     525       24  
  

 

 

   

 

 

 
     142,961       95,988  
  

 

 

   

 

 

 

Deductions from operational revenue

    

PIS, Pasep and Cofins taxes

     (5,308     (3,659

ICMS tax

     (29,044     (19,254

Others

     (1,556     (1,046
  

 

 

   

 

 

 
     (35,908     (23,959
  

 

 

   

 

 

 
     107,053       72,029  
  

 

 

   

 

 

 

Operating expenses

    

Outsourced services

     (22,159     (17,210

Depreciation and amortization

     (14,500     (6,115

Other operating expenses, net

     (17,145     (10,372
  

 

 

   

 

 

 
     (53,804     (33,697
  

 

 

   

 

 

 

Finance income

     763       507  

Income and Social Contribution tax

    

Current income tax and Social Contribution tax

     (3,345     (2,258

Deferred income tax and Social Contribution tax

     (15,019     (10,947
  

 

 

   

 

 

 
     (18,364     (13,205
  

 

 

   

 

 

 

Net income

     35,648       25,634  
  

 

 

   

 

 

 

 

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     Consolidated     Holding company  
   Jul to Sep 2018     Jul to Sep 2018  

Results of discontinued operations

    

Operating revenues

    

Other operating revenues

    

Telecoms services

     46,950       46,950  

Leasing and Rentals

     1,998       1,998  

Other operating revenues

     17       17  
  

 

 

   

 

 

 
     48,965       48,965  
  

 

 

   

 

 

 

Deductions from operational revenue

    

PIS, Pasep and Cofins taxes

     (1,884     (1,884

ICMS tax

     (10,395     (10,395

Others

     (525     (525
  

 

 

   

 

 

 
     (12,804     (12,804
  

 

 

   

 

 

 
     36,161       36,161  
  

 

 

   

 

 

 

Operating expenses

    

Outsourced services

     (9,358     (9,358

Other operating expenses, net

     (5,425     (5,425
  

 

 

   

 

 

 
     (14,783     (14,783
  

 

 

   

 

 

 

Finance income

     252       252  

Income and Social Contribution tax

    

Current income tax and Social Contribution tax

     (2,150     (2,150

Deferred income tax and Social Contribution tax

     (5,204     (5,204
  

 

 

   

 

 

 
     (7,354     (7,354
  

 

 

   

 

 

 

Net income

     14,276       14,276  
  

 

 

   

 

 

 

The cash flows of the discontinued operations, related to the assets classified as held for sale, on September 30, 2018, are as follows:

 

     Consolidated     Holding company  
   Jan to Sep 2018     Jan to Sep 2018  

Cash flow from discontinued operations

    

Net cash flow from operations

     51,271       43,310  

Cash flow from investment activities

     (7,631     —    
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     43,640       43,310  
  

 

 

   

 

 

 

The amounts of results and cash flows of the holding company are different from the consolidated amounts due to the merger of Cemig Telecom, on March, 31, 2018. For more details please see Note 1.

The assets classified as held for sale and the results of the discontinued operations are presented in Note 31 as Telecom segment.

 

31.

OPERATING SEGMENTS

The operating segments of the Company and its subsidiaries reflect their management and their organizational structure, used to monitoring its results and are aligned with the regulatory framework of the Brazilian electricity sector, with different legislation for the sectors of generation and transmission of energy.

The Company also operates in the markets of gas and telecommunications, through its subsidiaries Gasmig and Cemig Telecom (see Note 1), and other businesses which are not material to its operations results. These segments are reflected in the Company’s management, organizational structure, and monitoring of results.

 

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The information by segment relating to the period ending on September 30, 2018 and 2017 is shown below in a consolidated manner:

 

INFORMATION BY SEGMENT ON SEPTEMBER 30, 2018 (Restated)

 
     ELECTRICITY     GAS     TELECOMS
(1)
    OTHER     ELIMINATIONS     TOTAL
(Restated)
 
     GENERATION     TRANSMISSION     DISTRIBUTION
(Restated)
 

SEGMENT ASSETS

     15,083,981       3,925,781       21,490,936       1,900,985       304,058       1,625,398       (1,148,043     43,183,096  

INVESTMENT IN AFFILIATES AND JOINTLY-CONTROLLED ENTITIES

     4,618,530       1,152,096       1,841,593       —         —         24,876       —         7,637,095  

ADDITIONS TO THE SEGMENT

     228,926       —         543,859       40,302       8,631       184       —         821,902  

ADDITIONS TO FINANCIAL ASSETS

     —         12,726       —         —         —         —         —         12,726  

GOING CONCERN

                

NET REVENUE

     4,795,883       478,258       10,443,959       1,186,796       —         97,316       (207,961     16,794,251  

COST OF ENERGY AND GAS

                

Energy purchased for resale

     (2,921,763     —         (5,696,990     —         —         (2     42,694       (8,576,061

Charges for use of the national grid

     (171,357     —         (1,119,124     —         —         (1     149,579       (1,140,903

Gas purchased for resale

     —         —         —         (897,903     —         —         —         (897,903
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operational costs, total

     (3,093,120     —         (6,816,114     (897,903     —         (3     192,273       (10,614,867

OPERATING COSTS AND EXPENSES

                

Personnel

     (166,779     (76,587     (669,637     (36,511     (14,807     (24,060     —         (988,381

Employees’ and managers’ Profit sharing

     (2,994     (1,577     (12,674     —         351       (5,927     —         (22,821

Post-retirement obligation

     (33,817     (19,886     (166,273     —         —         (30,352     —         (250,328

Materials

     (30,493     (2,967     (38,542     (1,271     (973     (190     17       (74,419

Outsourced services

     (80,966     (28,046     (619,133     (14,497     (4,819     (15,365     9,991       (752,835

Depreciation and amortization

     (122,768     —         (440,055     (54,796     (1,166     (319     —         (619,104

Operating provisions (reversals)

     (74,742     (4,097     (251,112     —         666       (72,833     —         (402,118

Construction costs

     —         (12,726     (543,860     (35,620     —         —         —         (592,206

Other operating expenses, net

     (61,537     (11,515     (177,001     (8,535     (2,866     (7,367     5,680       (263,141
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operation

     (574,096     (157,401     (2,918,287     (151,230     (23,614     (156,413     15,688       (3,965,353
                

OPERATING COSTS AND EXPENSES

     (3,667,216     (157,401     (9,734,401     (1,049,133     (23,614     (156,416     207,961       (14,580,220

Share of (loss) profit, net, of associates and joint ventures

     (250,755     160,055       19,582       —         (763     (4,105     —         (75,986

OPERATING INCOME BEFORE FINANCE INCOME (EXPENSES) AND TAXES

     877,912       480,912       729,140       137,663       (24,377     (63,205     —         2,138,045  

Finance income

     443,594       24,314       301,822       50,876       1,104       31,998       (2,246     851,462  

Finance expenses

     (1,502,090     (3,694     (493,217     (27,028     (4,107     (10,902     2,246       (2,038,792
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX

     (180,584     501,532       537,745       161,511       (27,380     (42,109     —         950,715  

Income and Social Contribution taxes

     (12,242     (84,074     (172,064     (52,486     8,659       24,093       —         (288,114
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

RESULT OF GOING CONCERN OPERATIONS

     (192,826     417,458       365,681       109,025       (18,721     (18,016     —         662,601  

DISCONTINUED OPERATIONS

                

Income for the period from discontinued operations (Note 30).

     —         —         —         —         35,648       —         —         35,648  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

     (192,826     417,458       365,681       109,025       16,927       (18,016     —         698,249  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the parent

     (192,826     417,458       365,681       108,507       16,927       (18,016     —         697,731  

Non-controlling interests

     —         —         —         518       —         —         —         518  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (192,826     417,458       365,681       109,025       16,927       (18,016     —         698,249  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

As stated in Note 30, certain telecommunications assets were classified as held for sale. The revenues and expenses of the telecommunications segment resulting from continued operations continue to be recognized in the statement of income of the telecoms segment.

 

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INFORMATION BY SEGMENT ON SEPTEMBER 30, 2017

 
     ELECTRICITY     GAS     TELECOMS
(1)
    OTHER     ELIMINATIONS     TOTAL  
     GENERATION     TRANSMISSION     DISTRIBUTION  

SEGMENT ASSETS

     13,868,749       4,147,643       18,430,584       2,049,736       334,918       3,369,322       (368,877     41,832,075  

INVESTMENT IN AFFILIATES AND JOINTLY-CONTROLLED ENTITIES

     4,565,559       1,671,072       1,748,994           634,501       —         8,620,126  

ADDITIONS TO THE SEGMENT

     249,826       —         705,295       40,097       34,738       —         —         1,029,956  

ADDITIONS TO FINANCIAL ASSETS

     —         11,226       —         —         —         —         —         11,226  

NET REVENUE

     5,307,670       547,179       8,281,712       1,061,564       88,389       83,160       (215,893     15,153,781  

COST OF ENERGY AND GAS

                

Energy purchased for resale

     (3,021,466     —         (4,717,386       —         (9     53,469       (7,685,392

Charges for use of the national grid

     (261,295     (262     (661,101       —         —         131,319       (791,339

Gas purchased for resale

     —         —         —         (789,861     —         —         —         (789,861
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operational costs, total

     (3,282,761     (262     (5,378,487     (789,861     —         (9     184,788       (9,266,592

OPERATING COSTS AND EXPENSES

                

Personnel

     (218,933     (84,022     (877,192     (36,286     (14,559     (44,675     —         (1,275,667

Employees’ and managers’ net income shares

     (4,182     (1,871     (18,131     —         (380     (1,213     —         (25,777

Post-retirement obligation

     (42,539     (19,850     (201,745     —         —         (29,483     —         (293,617

Materials

     (7,468     (2,110     (32,089     (1,434     (107     (111     13       (43,306

Outsourced services

     (97,890     (21,278     (550,614     (12,231     (20,624     (7,278     29,346       (680,569

Depreciation and amortization

     (136,400     —         (400,754     (41,836     (25,974     (11,819     —         (616,783

Operating provisions (reversals)

     (97,543     (9,148     (347,608     —         (456     (104,038     —         (558,793

Construction costs

     —         (11,226     (705,296     (20,232     —         —         —         (736,754

Other operating expenses, net

     (35,322     (6,550     (240,404     (7,506     (18,501     (5,044     1,746       (311,581
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operation

     (640,277     (156,055     (3,373,833     (119,525     (80,601     (203,661     31,105       (4,542,847
                

OPERATING COSTS AND EXPENSES

     (3,923,038     (156,317     (8,752,320     (909,386     (80,601     (203,670     215,893       (13,809,439

Share of (loss) profit, net, of associates and joint ventures

     151,126       —         —         —         (1,951     (169,855     —         (20,680

OPERATING INCOME BEFORE FINANCE INCOME (EXPENSES) AND TAXES

     1,535,758       390,862       (470,608     152,178       5,837       (290,365     —         1,323,662  

Finance income

     126,202       5,013       302,727       24,240       2,149       89,734       —         550,065  

Finance expenses

     (847,998     (1,886     (616,487     (30,594     (11,450     236,464       —         (1,271,951
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX

     813,962       393,989       (784,368     145,824       (3,464     35,833       —         601,776  

Income and Social Contribution taxes

     (215,688     (120,333     245,677       (45,316     307       (69,241     —         (204,594
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FOR THE PERIOD

     598,274       273,656       (538,691     100,508       (3,157     (33,408       397,182  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the parent

     598,274       273,656       (538,691     100,076       (3,157     (33,408     —         396,750  

Non-controlling interests

     —         —         —         432       —             432  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     598,274       273,656       (538,691     100,508       (3,157     (33,408     —         397,182  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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32.

THE ANNUAL TARIFF ADJUSTMENT AND TARIFF REVIEW OF CEMIG D

On May 28, 2018 Aneel confirmed the result of the Fourth Tariff Review of Cemig D. The result of the Tariff Review was a tariff increase of 23.19%. It is worth noting that the percentage increase relating to Cemig D’s manageable (‘Portion B’) costs was 4.30%. The remaining portion, of 18.89%, has a null economic effect for Cemig D – i.e. does not affect its profitability – since it consists of direct pass-throughs to the tariff of the following items of increased costs: (i) increase of 9.00% in non-manageable (‘Portion A’) costs – mainly purchase of power supply and transmission charges; and (ii) increase of 9.89% in the item ‘Other financial components of the tariff’.

The increase is in effect from May 28, 2018 to May 27, 2019.

 

33.

NON-CASH TRANSACTIONS

In the nine-month period ended September 30, 2018 and 2017, the subsidiaries made the following transactions not involving cash, which are not reflected in the Cash flow statements:

 

 

Capitalized borrowing costs of R$ 23,508 in the nine-month period ended September 30, 2018 (R$ 56,851 in the nine-month period ended September 30, 2017);

 

 

Except for the balance of cash and equivalents received in the merged of Cemig Telecom, in the amount of R$ 428 on March 31, 2018, the remaining balances merged have no effect on the Company’s cash flow.

 

34.

SUBSEQUENT EVENTS

Debt prepayment

On November 6, 2018 Cemig GT has repurchased 24,565 debentures of its Fifth Issue – in the amount of R$ 132 million, in order to reduce debt, increase profitability and enhance its credit quality. These debentures were cancelled in CETIP.

Cemig GT received first installment of the loan granted to Cemig D

On November 20, 2018 Cemig GT received payment of R$ 486 million, the first installment of principal and interest on its loan of R$ 630 million made on September 18, 2018 to Cemig Distribuição. Therefore, Cemig GT is once again compliant with the ‘Limitation on Restricted Payments’ clause in its Eurobond issue.

Cancellation of public offer of shares issued by Light and sale of shares owned by RME in that investee

On November 26, 2018 the shareholders of the controlling shareholding block of Light –composed by Company, Rio Minas Energia Participações S.A. (‘RME’) and Luce Empreendimentos e Participações S.A. (Lepsa) – considered that the terms and conditions proposed for the anchoring of the public offer to sell shares of Light do not meet the interests of Light and its stakeholders, taking into account, among other factors, the present conditions of the market.

Thus, on November 27, 2018, the Company and its jointly-controlled entity reported to the market the cancellation of public offer of shares issued by Light, and, on the same date, in the context of the exercise of the Put Option to sell shares issued by RME described in note 29, RME sold 4,350 thousand shares, representing 2.13% of the share capital of Light, for a total amount of R$ 64.5 million. With this sale, the aggregate of the equity holdings in Light of Cemig, RME and Luce Empreendimentos e Participações S.A. now totals 49.99%.

 

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CONSOLIDATED RESULTS

(Thousands of Brazilian Reais – R$ except where otherwise indicated)

Net income (loss) for the period

In the nine-month period ended September 30, 2018 (‘9M18’) Cemig reports net income of R$ 698,249, which compares with its net income of R$ 397,182 in the nine-month period ended September 30, 2017 (‘9M17’). The following notes describe the main variations between the two periods in revenues, costs, expenses and financial items.

A significant effect on the net income in 9M18 was an expense of R$ 773,700, from the effect of exchange rate variation on the debt raised in international market (Eurobonds) – partially offset by gains under the hedge operation related to this loan, in the amount of R$ 322,847.

Ebitda (earnings before interest, tax, depreciation and amortization)

Cemig’s consolidated Ebitda raised 43.93% in 9M18, compared to the same period of 2017. The most significant factors in this variation are set out below. In line with the higher Ebitda, Ebitda margin went from 12.80% (9M17) to 16.63% (9M18).

 

Ebitda – R$ ‘000

   Jan to Sep 2018
(Restated)
     Jan to Sep
2017
     Change,%
(Restated)
 

Net income for the period

     698,249        397,182        75.80  

+ Income tax and Social Contribution tax

     288,114        204,594        40.82  

+ Finance income (expenses)

     1,187,330        721,886        64.48  

+ Depreciation and amortization

     619,104        616,783        0.38  
  

 

 

    

 

 

    

 

 

 

= Ebitda

     2,792,797        1,940,445        43.93  
  

 

 

    

 

 

    

 

 

 

 

LOGO

 

Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated Interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net Finance income (expenses), Depreciation and amortization, and Income tax and Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for Net income or operating income, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

 

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Revenue from supply of energy

Total revenue from supply of energy in 9M18 totaled R$ 18,163,647, compared to R$ 17,387,754 in 9M17, 4.46% higher period-on-period.

Final customers

Total revenue from supply of energy to final customers, excluding Cemig’s own consumption, was R$ 15,947,719 in 9M18 – this was 6.13% higher than the same period of 2017 (R$ 15,027,061).

The main factors for this reduction were:

 

 

The annual tariff adjustment for Cemig D effective May 28, 2017 (full effect in 2018) with average downward effect on customer tariffs of 10.66%.

 

 

The annual tariff adjustment for Cemig D effective May 28, 2018, with an average positive effect on customer tariffs of 23.19%.

 

 

Volume of energy sold to final customers 2.41% higher.

Cemig’s electricity market

The total for sales at Cemig’s consolidated electricity market comprises sales to:

 

  (i)

Captive customers in Cemig’s concession area in the State of Minas Gerais;

 

  (ii)

Free customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL);

 

  (iii)

other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market;

 

  (iv)

Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and

 

  (v)

the Wholesale Power Exchange (Câmara de Comercialização de Energia Elétrica – CCEE), eliminating transactions between companies of the Cemig Group.

The table below describe Cemig’s market and the change in the sale of energy by category of customers, comparing 9M18 with 9M17:

 

     MWh  
   Jan to Sep
2018
     Jan to Sep
2017
     Change,
%
 

Residential

     7,648,175        7,489,980        2.11  

Industrial

     13,134,700        13,162,944        (0.21

Commercial, Services and Others

     6,195,337        5,581,213        11.00  

Rural

     2,777,694        2,769,082        0.31  

Public authorities

     641,551        644,621        (0.48

Public lighting

     1,038,236        1,030,199        0.78  

Public services

     977,151        977,757        (0.06
  

 

 

    

 

 

    

 

 

 

Subtotal

     32,412,844        31,655,796        2.39  
  

 

 

    

 

 

    

 

 

 

Own consumption

     33,083        26,946        22.78  
  

 

 

    

 

 

    

 

 

 
     32,445,927        31,682,742        2.41  
  

 

 

    

 

 

    

 

 

 

Wholesale supply to other concession holders (1)

     8,768,341        9,167,876        (4.36
  

 

 

    

 

 

    

 

 

 

Total

     41,214,268        40,850,618        0.89  
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

 

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We highlight the volume of energy sold to the industrial customer category, which was 11% higher in the commercial category and 2.11% higher in the residential customer category – basically due to addition of new customers units.

Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free Customers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD) on the volume of energy distributed. In 9M18 this revenue totaled R$ 1,419,958, compared to R$ 1,230,623 in 9M17 – a period-on-period reduction of 15.39%, mainly due to the following factors:

 

 

Reduction of approximately 40% in the TUSD, which took place in the Cemig D’s 2017 annual tariff adjustment, applied as from May 28, 2017 (full effect in 2018).

 

 

Increase of approximately 36% in the TUSD, which took place in the Cemig D’s 2018 annual tariff adjustment, applied as from May 28, 2018.

 

 

Growth in the use of the network (MWh) and in billed demand (MW).

 

 

Increase in the number of installations of CUSD (Contract for Use of the Distribution System) billed.

CVA and Other financial components in tariff adjustment

In its interim financial information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and energy purchased for resale, are significant components) and the costs that were used in calculating tariffs. The amount of this difference is passed through to the clients in Cemig D’s next tariff adjustment. In 9M18 this represented a gain in revenue of R$ 1,783,790, whereas in the same period of 2017 it produced a reduction of R$ 148,216. The difference in this case is mainly due to the increase in costs of energy in 2018, in relation to tariff coverage, generating a financial asset to be reimbursed to the Company through the next tariff adjustment.

For more details please see Note 14 of this interim financial information.

Transmission concession revenue

Cemig GT’s revenue from transmission comprises the sum of the revenues from all the transmission assets. The concession contracts establish the Permitted Annual Revenue (Receita Anual Permitida, or RAP) for the assets of the existing system, updated annually based on the variation in the IPCA index. Whenever there is a strengthening, improvement or adaptation to an existing asset made under a specific authorization from Aneel, an addition is made to the RAP.

This revenue was R$ 310,293 in 9M18, compared to R$ 221,422 in the same period of 2017 – or 40.14% higher period-on-period. This variation arises basically from the monetary variation of the annual RAP, which was applied in July 2018, plus the new revenues related to the investments authorized to be included. It includes an additional adjustment for expectation of cash flow from financial assets, arising from change in the fair value of the Regulatory Remuneration Asset Base (BRR).

The percentages and the indices applied in this adjustment vary according to the concessions. In 2018 the adjustment was 2.86% (the IPCA index) for the concession of Cemig GT, and 4.27% (the IGP-M Index) for the concession of Cemig Itajubá.

Transmission indemnity revenue

The revenue from the transmission Indemnities in 9M18 was R$ 208,164, which was 29.61% less than in the same period of 2017 (R$ 295,749). We highlight the amount of R$ 149,255 recorded for 2017, relating to the backdated revenue of transmission concession assets the values of which had not been included in the calculation basis for revenues in the previous tariff reviews.

The Company reports the updating of the amount of indemnity receivable based on the average regulatory cost of capital, as specified in the sector regulations.

For more details please see Note 14 of these Interim Financial Information.

 

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Generation indemnity revenue

In 9M18 the Company recognized revenue of R$ 82,331 (R$ 259,516 in 9M17) for the adjustment to the balance not yet amortized relating to the basic plans of the concessions for the São Simão and Miranda hydroelectric plants, to be indemnified as per Ministerial Order 291/17.

For more details see Note 14 of these Interim Financial Information.

Revenue from transactions in the Wholesale Electricity Trading Chamber (CCEE)

Revenue from energy transactions at CCEE in 9M18 was R$ 189,123, compared to R$ 536,507 in 9M17 – a reduction of 64.75%. The lower revenue from this source reflects the lower quantity of energy available for settlement in the wholesale market in 2018, being that, in the first quarter of 2017, the Company recognized revenues concerning available energy of Jaguara and Miranda. On the other hand, the average Spot Price (PLD) increased by 10.99% (R$ 332.34/MWh in 9M18, vs. R$ 299.42/MWh in 9M17).

Revenue from supply of gas

Cemig reported revenue from supply of gas totaling R$ 1,452,427 in 9M18, compared to R$ 1,305,636 in 9M17– 11.24% higher than prior year. This basically is due to increase of gas costs, passed on to customers considering that the volume of gas sold was 12.47% lower than prior year (859,725 m³ in 9M18, compared to 982,235 m³ in 9M17). The gas cost was significantly affected by exchange rate variation in 2018. In 9M18 the US Dollar showed an increase of 21.04% against a reduction of 2.80% in the same period of 2017.

Construction revenue

Infrastructure construction revenue in 9M18 was R$ 592,206, which was 19.62% less than in the prior year (R$ 736,754). This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other operating revenues

The Company’s Other revenues in 9M18 were R$ 1,409,284, or 8.89% more than in the same period of 2017 (R$ 1,339,698). See Note 25 for the composition of operating revenues.

Sector / Regulatory charges reported as Deductions from revenue

The charges that are recorded as deductions from operational revenue totaled R$ 8,816,972 in 9M18 or 6.13% more than in the prior year (R$ 8,308,094).

The Energy Development Account – CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, and the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account. Charges for the CDE in 9M18 were R$ 1,835,412, compared to R$ 1,326,946 in 9M17.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Customer charges – the ‘Flag’ Tariff system

The ‘Flag’ Tariff bands are activated as a result of low levels of water in the system’s reservoirs – tariffs are temporarily increased due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when scarcity is more intense. Activation of the flag tariffs generates an upward effect on billing in the subsequent month.

 

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Consumer charges resulting from the ‘Flag’ tariff system were higher in 9M18 – at R$ 374,481, than in 9M17 (R$ 258,060) – or 45.11% higher year-on-year.

This reflects greater application of the Red band in 2018 than in 2017, due to (i) lower reservoir levels, and (ii) lower expectations of rain.

Other taxes and charges on revenue

The deductions and charges with the most significant impact on revenue are mainly taxes, calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

Operating costs and expenses (excluding Finance income/expenses)

Operating costs and expenses in 9M18 totaled R$ 14,580,220, or 5.58% more than in the same period of 2017 (R$ 13,809,439). For more on the components of Operational costs and expenses see Note 26.

The following paragraphs outline the main variations in expenses:

Energy purchased for resale

This expense in 9M18 was 11.59% higher than prior year, at R$ 8,576,061, compared to R$ 7,685,392 in the same period of 2017. This is mainly due to the following:

 

 

Average spot price (PLD) 10.99% higher, at R$ 332.34/MWh in 9M18, compared to R$ 299.42/MWh in 9M17, directly affecting the price paid for spot supply.

 

 

The expense on supply acquired at auction in the Regulated Market was 16.18% higher, at R$ 2,558,096, in 9M18, compared to R$ 2,201,909 in the prior year. This is mainly due to recognition of supply originating in assignments of energy from the Surpluses and Deficits Compensation Mechanism (MCSD), representing an increase of R$ 410,498 in the expense in 9M18 partially offset by the reduction in volume of supply in the contracts for quantity and availability (13,128,621 MWh in 9M18, and 19,434,006 MWh in 9M17).

 

 

Expenses on energy acquired through physical guarantee quota contracts at R$ 500,876 in 9M18, 45.83% higher than in the prior year (R$ 343,458). This is basically due to the increase of 48.14% in the average tariff of Cemig D’s quotas – it was R$ 89.18 MWh in 9M18 and R$ 60.20 MWh in 9M17.

Charges for use of the transmission network

Charges for use of the transmission network in 9M18 totaled R$ 1,140,903, an increase of 44.17% period-on-period, compared to R$ 791,339 in the prior year.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution. The higher amounts in 2018 are due to increased transmission costs related to the payment of the transmission indemnities to the agents of the electricity sector that accepted the terms of Law 12,783/13.

 

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This is a non-manageable cost: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions

Operating costs and expenses in 9M18 totaled R$ 402,117, or 28.04% less than 9M17 (R$ 558,793). The main factors are:

 

 

Reduction in fair value of the investment options related to Parati/RME and SAAG, totaling R$ 124,566 in 9M18, compared to a total provision of R$ 160,902 in the prior year. More details on the criteria for making of these provisions are in Note 29 (Put options).

 

 

Reduction of 82.12% of expenses on labor contingencies, with R$ 33,610 in 9M18, compared to R$ 188,013 in the same period of 2017. This result is the consequence of judgments given in favor of the Company – against claims by plaintiffs. For more information see Note 23.

 

 

On the other hand, estimated losses due to doubtful receivables were 19.05% higher year-on-year, at R$ 227,789 in 9M18, vs. R$ 191,343 in 9M17. This mainly comprised recognition by Cemig D of estimated losses in 2018 related to past due bills for power supply, owed by Public Authorities.

Personnel

The expense on personnel in 9M18 was R$ 988,381, or 22.52% lower than in the prior year (R$ 1,275,667). This arises mainly from the following factors:

 

 

Expense of R$ 25,666 on the voluntary retirement program in 9M18, compared to R$ 197,326 in 9M17 – i.e. 86.99% lower;

 

 

Salary increases, from November 2017 under the Collective Agreement (with full effect in 2018), of 1.83%.

 

 

The average number of employees was reduced by 11.11%, from 6,631 in 9M17 to 5,894 in 9M18.

Construction cost

Infrastructure construction cost in 9M18 was R$ 592,206, or 19.62% less than in the prior year (R$ 736,754). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

Gas purchased for resale (*)

In 9M18 the company recorded an expense of R$ 897,903 on acquisition of gas, 13.68% more than its comparable expense of R$ 789,861 in the prior year. This higher expense mainly reflects increases in the prices of gas purchased, since the volume of Gas purchased was 13.34% lower than the prior year (855,724 m³ in 9M18 vs. 987,442 m³ in 9M17). Gas price was significantly affected by the exchange rate variation in 2018. In 9M18 US Dollar showed an increase of 21.04% against a reduction of 2.80% in the same period of 2017.

 

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Share of profit (loss) in associates and joint ventures

The result of equity method valuation of interests in investees was an expense of R$ 75,986 in 9M18, compared to an expense of R$ 20,680 in 9M17. This basically reflects losses in 2018 on the interests in Renova and Santo Antônio Energia.

The breakdown of the results from the investees recognized under this line is given in detail in Note 15.

Net finance income (expenses)

Cemig reports net Finance expenses in 9M18 of R$ 1,187,330, compared to net Finance expenses of R$ 721,886 in the same period of 2017. The main factors are:

 

 

Recognition, in 2018, of gains totaling R$ 322,847 on the hedge transaction related to the Eurobond issue. There had been a negative effect in the fair value adjustment of the hedge due to a higher variation in the future curve for the DI rate than in the curve for future expectation of the R$ /US$ exchange rate.

 

 

Cash investment income 52.80% lower period-on-period, at R$ 80,958 in 9M18, compared to R$ 171,530 in the same period of 2017. This is mainly due to a lower volume of cash invested in 2018, and also to the lower CDI rate in the period: 4.81% in 9M18 vs. 8.03% in 9M17.

 

 

Costs of loans and financings 18.65% lower, at R$ 944,432 in 9M18, compared to R$ 1,160,884 in the prior year. This is mainly due to the lower variation resulting from the CDI rate, the main indexer of the debt, which was 4.81% in 9M18, and 8.03% in 9M17.

 

 

Revenue from late charges on client energy bills 34.51% higher, at R$ 259,680 in 9M18, compared to R$ 193,057 in the same period of 2017. A major component of this increase comes from the effects of renegotiation of amounts owed on energy bills by entities of the Minas Gerais State administration – as recognition of interest and monetary adjustments.

 

 

Expenses on monetary updating of loans and financings 47.39% higher, at R$ 110,031 in 9M18, compared to R$ 74,655 in 9M17. This is mainly due to the variation of 87.64% in IPCA rate (3.34% in 9M18 and 1.78% in 9M17);

 

 

Foreign exchange variation expense of R$ 773,700, in 9M18, on the amounts of the dollar-indexed Eurobond issues – made in December 2017 (US$ 1 billion, or R$ 3.2 billion) and July 2018 (US$ 500 million, or R$ 1.9 billion).

 

 

Higher net result of monetary updating on the balances of CVA and Other financial components: net revenue of R$ 35,180 in 9M18, compared to a net expense of R$ 40,086 in the same period of 2017, basically reflecting the higher balance of net assets in 9M18 than in 9M17.

For a breakdown of Finance income and expenses please see Note 27 of these Interim financial information.

Income and Social Contribution taxes

In 9M18 the expense on income tax and the Social Contribution tax totaled R$ 288,114, on Income before income tax and social contribution tax of R$ 950,715, representing an effective rate of 30.30%. In the same period of 2017, the expense on income tax and the Social Contribution tax totaled R$ 204,594, on Income before income tax and social contribution tax of R$ 601,776, representing an effective rate of 34.00%. These effective rates are reconciled with the nominal tax rates in Note 9c.

Net income (loss) for the third quarter 2018

On the third quarter of 2018 (‘3Q18’) Cemig reports a net profit of R$ 244,540, which compares to a loss of R$ 83,666 on the third quarter of 2017 (‘3Q17’). The following notes describe the main variations between the two periods in revenues, costs, expenses and financial items.

This primarily reflected significant net non-operating expenses of R$ 225,900, arising from FX variation on the debt raised in international market (Eurobond issue); partially offset by the effects of gains under the hedge transaction made by the Company related to this loan in the amount of R$ 142,418.

 

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Ebitda (earnings before interest, tax, depreciation and amortization)

Cemig’s consolidated Ebitda in 3Q18 increased compared to 3Q17. The most significant factors in this variation are set out below. Ebitda margin in 3Q18 was 14.43%, compared to 1.97% in 3Q17.

 

Ebitda – R$ ‘000

   Jul to Sep 2018
(Restated)
     Jul to
Sep 2017
    Change,%
(Restated)
 

Net income for the period

     244,540        (83,666     —    

+ Income tax and Social Contribution tax

     117,269        (9,334     —    

+ Finance income (expenses)

     332,698        (12,414     —    

+ Depreciation and amortization

     207,804        205,983       0.88  
  

 

 

    

 

 

   

 

 

 

= Ebitda

     902,311        100,569       797.21  
  

 

 

    

 

 

   

 

 

 

 

LOGO

 

 

Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated Interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net Finance income (expenses), Depreciation and amortization, and Income tax and Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for Net income or operating income, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

Revenue from supply of energy

Total revenue from supply of energy was R$ 6,927,638 in 3Q18, compared to R$ 5,815,621 in 3Q17, 19.12% higher period-on-period.

Final Customers

Total revenue from supply of energy to final customers, excluding Cemig’s own consumption, in 3Q18 was R$ 6,105,396 or 25.05% higher than the figure for 3Q17, of R$ 4,882,538.

The main factors for this reduction were:

 

 

The Annual Tariff Adjustment for Cemig D effective May 28, 2018, with an average positive effect on customer tariffs of 23.19%.

 

 

Volume of energy sold to final customers 3.81% higher.

 

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Cemig’s electricity market

The total for sales at Cemig’s consolidated electricity market comprises sales to:

 

  (i)

Captive customers in Cemig’s concession area in the State of Minas Gerais;

 

  (ii)

Free customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL);

 

  (iii)

other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market;

 

  (iv)

Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and

 

  (v)

the Wholesale Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica—CCEE), eliminating transactions between companies of the Cemig Group.

The table below describe Cemig’s market and the change in the sale of energy by category of customers, comparing 3Q18 with 3Q17:

 

     MWh (1)  
   Jul to Sep
2018
     Jul to Sep
2017
     Change,
%
 

Residential

     2,497,296        2,456,908        1.64  

Industrial

     4,581,890        4,458,794        2.76  

Commercial, Services and Others

     1,996,913        1,776,377        12.41  

Rural

     1,057,426        1,016,897        3.99  

Public authorities

     207,162        207,967        (0.39

Public lighting

     349,429        354,299        (1.37

Public services

     323,919        338,415        (4.28
  

 

 

    

 

 

    

 

 

 

Subtotal

     11,014,035        10,609,657        3.81  
  

 

 

    

 

 

    

 

 

 

Own consumption

     9,602        8,896        7.94  
  

 

 

    

 

 

    

 

 

 
     11,023,637        10,618,553        3.81  
  

 

 

    

 

 

    

 

 

 

Wholesale supply to other concession holders (2)

     3,160,972        3,427,498        (7.78
  

 

 

    

 

 

    

 

 

 

Total

     14,184,609        14,046,051        0.99  
  

 

 

    

 

 

    

 

 

 

 

(1)

Information in MWh has not been reviewed by external auditors.

(2)

Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

Some highlights of growth here are: a) volume of energy sold to the residential user category 1.64% higher; and volume sold to the commercial category 12.41% higher, due to connection of new customers; b) volume of energy sold to the industrial segment 2.76% higher due to addition of one high-voltage large-consumer client; and c) volume of energy sold to the rural category 3.99% higher, reflecting the strong retraction in consumption by this segment of the market in 2017 due to reduced activity in the farming sector in that year.

 

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Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free customers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD), for transport of energy sold. In 3Q18 this revenue was R$ 605,618, a period-on-period increase of 83.44% from R$ 330,147 in 3Q17, mainly due to the following factors:

 

 

Increase of approximately 36% in the TUSD, which took place in the Cemig D’s 2018 annual tariff adjustment, applied as from May 28, 2018; and

 

 

Growth in the use of the network (MWh) and in billed demand (MW).

 

 

Increase in the number of installations of CUSD billed.

CVA and Other financial components in tariff adjustment

In its interim financial information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and energy purchased for resale, are significant components) and the costs that were used in calculating tariffs. The amount of this difference is passed through to the clients in Cemig D’s next tariff adjustment. In 3Q18 this represented a gain in revenue of R$ 633,118, whereas 3Q17 it produced a reduction of R$ 480,112. The difference in this case is mainly due to the increase in costs of energy, in relation to tariff coverage, and in comparison with periods of analysis, generating a financial asset to be reimbursed to the Company through the next tariff adjustment. For more details please see Note 14 of this interim financial information.

Revenue from transactions in the Wholesale Electricity Trading Chamber (CCEE)

Revenue from energy sales on the CCEE in 3Q18 was R$ 29,157, compared to R$ 111,330 in 3Q17 – a reduction of 73.81%. The difference is due to the lower quantity of energy available for settlement in the wholesale market in 3Q18, due to the Company’s seasonal profile. In counterpart to this, the average spot price (PLD) was 13.63% higher (R$ 494.61/MWh in 3Q18, vs. R$ 435.27/MWh in 3Q17.

Transmission indemnity revenue

In 3Q18 this revenue was R$ 61,644, compared to R$ 25,894 in 3Q17 – or 138.06% higher period-on-period. We highlight the amount of R$ 149,255 recorded in 2017, relating to the backdated difference of transmission concession assets the values of which were not included in the calculation basis for revenues in the previous tariff reviews.

The Company reports the updating of the amount of indemnity receivable based on the average regulatory cost of capital, as specified in the sector regulations. For more details see Note 14 – Concession financial assets.

Generation indemnity revenue

In 3Q18 the Company recognized a gain of R$ 47,868 (R$ 259,516 in 3Q17) for the adjustment, as specified by Ministerial Order 291/17, to the balance not yet amortized of the value of the basic plans of the concessions for the São Simão and Miranda Hydroelectric Plants. For more details see Note 14.

Revenue from supply of gas

The Company reported revenue from supply of gas 14,23% higher in 3Q18, at R$ 553,448, compared to R$ 484,491 in 3Q17. This basically reflects the increase in the cost of gas, which was passed through to consumers – since there was in fact a reduction of 36.17% in the volume of gas sold (from 461,796 m³ in 3Q17 to 294,785 m³ in 3Q18). The cost of gas suffered a significant effect from FX variation in 2018. The US dollar appreciated by 3.84% against the Real in 3Q18, while in 3Q17 it depreciated by 4.24%.    

 

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Construction revenue

Construction and infrastructure revenues (transmission, distribution and gas) totaled R$ 208,563 in 3Q18, which was 29.47% less than their total of R$ 295,720 in 3Q17. This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other operating revenues

Other revenues were 15.58% lower in 3Q18 (R$ 653,055), than in 3Q17 (R$ 773,580).

Sector / Regulatory charges reported as Deductions from revenue

The total of these taxes and charges incident upon operational revenue in 3Q18 was R$ 3,419,959 – an increase of 7.51% in relation to their total of R$ 3,181,073 in 3Q17.

The Energy Development Account – CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). The charges for the CDE in 3Q18 were R$ 654,452, compared to R$ 467,576 in 3Q17.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Customer charges – the ‘Flag’ Tariff system

The ‘Flag’ Tariff bands are activated as a result of low levels of water in the system’s reservoirs – tariffs are temporarily increased due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when scarcity is more intense. Activation of the flag tariffs generates an impact on billing in the subsequent month.

Consumer charges arising from the ‘Flag’ Tariff band system were 145.43% higher in 3Q18, at R$ 249,422, than in 3Q17 (R$ 101,625).

In 3Q17, the ‘Yellow’ flag tariff was activated affecting billing in August, and the ‘Red’ flag was activated at Level 1 affecting billing in August and September. In 3Q18, the Red flag was activated at Level 2, affecting billing for the months of August and September.

Other taxes and charges on revenue

The deductions and charges with the most significant impact on revenue are mainly taxes, calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

 

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Operating costs and expenses (excluding Finance income/expenses)

Operational costs and expenses were up 7.01%: R$ 5,522,298 in 3Q18, and R$ 5,160,438 in 3Q17. For more on the components of Operational costs and expenses see Note 26.

The following paragraphs outline on the main variations in expenses:

Energy purchased for resale

The expense on energy purchased for resale in 3Q18 was R$ 3,493,463, compared to R$ 2,942,974 in 3Q17 – or 18.71% higher than prior year. The main factors are:

 

 

The expense on energy supply bought at auction was 30.63% higher, at R$ 1,077,340 in 3Q18, vs. R$ 824,699 in 3Q17. This in turn was mainly due to inclusion of the supply coming from MCSD (Excess/Deficit Compensation Mechanism) assignments for new-build projects, which resulted in Cemig D’s expense being R$ 151,473 higher than in 3Q17. Also, in 3Q18, there was some dispatching of thermal plants outside the usual merit order for activation, increasing total fuel costs, with a consequent increase in the price of electricity supply.

 

 

Expenses on supply acquired through physical guarantee quota contracts 59.03% higher, at R$ 189,251 in third quarter of 2018, compared to R$ 119,006 in 3Q17. This was basically due to the increase of 63.61% in the average tariffs of Cemig D’s quotas – at R$ 94.52 in 3Q18, compared to R$ 57.78 in 3Q17.

 

 

Expense on supply acquired in the Free Market 11.50% lower at R$ 1,150,075 in 3Q18, compared to R$ 1,299,536 in 3Q17. This reflects a volume of energy purchased 12.08% lower in 3Q18 – at 5,999,382 MWh, vs. 6,823,933 MWh in 3Q17; partially offset by the effect of average price per MWh in 3Q18 being 4.60% higher (at R$ 195.56 in 3Q18, vs. R$ 186.96 in 3Q17);

 

 

The expense on purchase of supply in the spot market, at R$ 733,160 in 3Q18, was 79.32% higher, vs. R$ 408,859 in 3Q17, due to the higher cost of supply in the wholesale market in 2018.

Charges for use of the transmission network

Charges for use of the transmission network in 3Q18 totaled R$ 332,323, compared to R$ 387,078 in 3Q17, an increase of 14.15% period-on-period.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution.

This is a non-manageable cost: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions

Operating provisions were 28.63% lower in the quarter – an expense of R$ 134,799 in 3Q18, compared to R$ 188,875 in 3Q17. The main factors are:

 

  (i)

Reversal of provisions of R$ 79 was made in 3Q18 for the investment options of RME and Lepsa, compared to R$85,306 in the same period of 2017. More details on the criteria for making of these provisions are in Note 29 (Put options).

 

  (ii)

Reversal of tax and civil provisions was made in 3Q18, in the amount of R$ 3,743 and R$ 2,345, respectively, compared to the provisions formed in the prior year of R$ 8,745 and R$ 5,565, respectively.

Personnel

The expense on personnel in 3Q18 was R$ 308,141, or 14.05% less than in 3Q17 (R$ 358,505). This arises mainly from the following factors:

 

 

Salary increase of 1.83% under the Collective Work Agreement, from November 2017.

 

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Expense of R$ 31,904 on the voluntary retirement program in the same period of 2017 in 3Q17.

 

 

Reduction of the average number of employees by 4.33%, from 6,618 in 3Q17 to 5,899 in 3Q18.

Construction cost

Infrastructure Construction Cost in 3Q17 was R$ 208,563, 29.47% less than in 3Q17 (R$ 295,720). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

Gas purchased for resale

In 3Q18 the Company recorded an expense of R$ 341,445 on acquisition of gas, 12.06% higher than its comparable expense of R$ 304,698 in 3Q17. This is basically due to a higher volume of gas purchased, being that there was a reduction of 14.09% in the volume of gas purchased for sale (293,334 m³ in 3Q18, vs. 341,445 m³ in 3Q17). The price of gas purchased was significantly affected by exchange rate variation in 2018. In 3Q18 US Dollar increased by 3.84% against a reduction of 4.24% in 3Q17.

Share of profit (loss) in associates and joint ventures

In 3Q18 Cemig posted a net loss of R$ 49,753 by the equity method – compared to a net loss of R$ 80,798 in 3Q17. These losses mainly come from the gain of R$ 43,143 in 3Q18, related to interests in Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte.

More details in Note 15.

Net finance income (expenses)

Cemig reported net Finance expenses in 3Q18 of R$ 332,698, which compares with net Finance revenue of R$ 12,414 in 3Q17. The main factors are:

 

Revenue from late charges on customer electricity bills 66.38% higher, at R$ 91,730 in 3Q18, compared to R$ 55,134 in 3Q17. A major component of this increase comes from the effects of renegotiation of amounts owed on electricity bills by entities of the Minas Gerais State administration – as recognition of monetary adjustment.

 

Recognition, in 2018, of gains totaling R$ 142,418 on the hedge transaction related to the Eurobond issue. There had been a negative effect in the fair value adjustment of the hedge due to a higher variation in the future curve for the DI rate than in the curve for future expectation of the R$ /US$ exchange rate.

 

Foreign exchange variation expense of R$ 225,900, in 9M18, on the amounts of the dollar-indexed Eurobond issues – made in December 2017 (US$ 1 billion, or R$ 3.2 billion) and July 2018 (US$ 500 million, or R$ 1.9 billion).

 

The result of monetary updating of the balances of CVA was a gain of R$ 23,894, but in 3Q17 it was an expense of R$ 12,006. The positive and negative balances of CVA are updated by the Selic rate. This variation arises from there being an asset balance of CVA in 3Q18, leading to recording of a financial gain for updating the balance. In the same period of 2017, the Company had a net negative balance of CVA, recorded as a financial liability from updating of the obligation. For more information, see Note 14.

For a breakdown of Finance income and expenses please see Note 27 of these Interim financial information.

Income and Social Contribution taxes

In 3Q18, the expense on income tax and the Social Contribution tax was R$ 117,269, on Income before income tax and social contribution tax of R$ 347,533.

In 3Q17, the expense on income tax and the Social Contribution tax was R$ 9,334, on Losses before income tax and social contribution tax of R$ 93,000. These effective rates are reconciled with the nominal tax rates in Note 9c.

 

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OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL

The Board of Directors:

Meetings

Our Board of Directors met 22 times up to September 30, 2018, for matters of strategic planning, projects, acquisition of new assets, various investments, and other subjects.

Membership, election and period of office

The present period of office began with the AGM on June 11, 2018, with election by the multiple voting system.

The periods of office of the present members of the Board of Directors expire at the Annual General Meeting of shareholders to be held in 2020.

Principal responsibilities and duties:

Under the by-laws, the Board of Directors has the following responsibilities and duties, as well as those conferred on it by law:

 

Decision on any sale of assets, loans or financings, charge on the company’s property, plant or equipment, guarantees to third parties, or other legal acts or transactions, with value equal to 1% or more of the Company’s total Shareholders’ equity.

 

Authorization for issuance of securities in the domestic or external market to raise funds.

 

Approval of the Long-term Strategic and the Multi-year Business Plan, and alterations and revisions of them, and the Annual Budget.

Qualification and remuneration

The Board of Directors of the Company comprises 9 (nine) sitting members and the same number of substitute members. One is the Chair, and another the Vice-Chair. The members of the Board of Directors are elected for concurrent periods of office of 2 (two) years, and may be dismissed at any time, by the General Meeting of shareholders. Re-election for a maximum of 3 (three) consecutive periods of office is permitted, subject to the requirements and prohibitions established in the applicable legislation and regulations.

A list with the names of the members of the Board of Directors and their résumés is on our website at: http://ri.cemig.com.br.

The Audit Committee

The Audit Committee is an independent, consultative, permanent body, with its own budget allocation. Its objective is to provide advice and support to the Board of Directors, to which it reports. It also has the responsibility of other activities attributed to it by legislation.

The Audit Committee has three members, the majority of them independent, nominated and elected by the Board of Directors in the first meeting after the Annual General Meeting for periods of office of three years, not to run concurrently. One re-election is permitted.

Under the by-laws, the Audit Committee of Cemig has the following duties, among others:

 

 

to supervise the activities of the independent auditors, evaluating their independence, the quality of the services provided and the appropriateness of such services to the Company’s needs;

 

 

to supervise activities in the areas of internal control, internal audit and preparation of the financial statements;

 

 

to evaluate and monitor, jointly with the Management and the Internal Audit Unit, the appropriateness of the transactions with related parties.

 

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The Executive Board

The Executive Board is made up of eleven members, whose individual functions are set by the Company’s by-laws. They are elected by the Board of Directors, for a period of office of two years, subject to the applicable requirements of law and regulation, and may be re-elected up to three times.

Members are allowed simultaneously to hold non-remunerated positions in the Management of wholly-owned subsidiaries, subsidiaries or affiliates of Cemig, upon decision by the Board of Directors. They are also, obligatorily, members, with the same positions, of the Boards of Directors of Cemig GT (Generation and Transmission) and Cemig D (Distribution).The period of office of the present Chief Officers expires at the first meeting of the Board of Directors held after the Annual General Meeting of 2020.

The members of the Executive Board and brief résumés are on our website: http://ri.cemig.com.br

The members of the Executive Board (the Company’s Chief Officers) have individual responsibilities established by the Board of Directors and the by-laws. These include:

 

 

Current Management of the Company’s business, complying with the Long-term Strategy, the Multi-year Business Plan, and the Annual Budget, prepared and approved in accordance with the by-laws.

 

 

Authorization of the Company’s capital expenditure projects, signing of agreements or other legal transactions, contracting of loans and financings, and creation of any obligation in the name of the Company, based on the Annual Budget approved, which individually or in aggregate have values less than 1% (one per cent) of the Company’s Equity, including injection of capital into wholly-owned or other subsidiaries, affiliated companies, and the consortia in which the Company participates;

 

 

The Executive Board meets, ordinarily, at least two times per month; and, extraordinarily, whenever called by the Chief Executive Officer or by two Executive Officers with at least two days’ prior notice in writing or by email or other digital medium, such notice not being required if all the Executive Officers are present. The decisions of the Executive Board shall be taken by vote of the majority of its members, and in the event of a tie the Chief Executive Officer shall have a casting vote.

The Audit Board

Meetings

 

 

The Audit Board held eleven meetings in the nine months to September 30, 2018.

Membership, election and period of office

 

We have a permanent Audit Board, made up of five sitting members and their respective substitute members. They are elected by the Annual General Meeting of shareholders, for periods of office of two years.

 

Nominations to the Audit Board must obey the following:

 

  a)

Two groups – (i) the minority shareholders of common shares, and (ii) the holders of the preferred shares – each have the right to elect one member, in separate votes, in accordance with the applicable legislation.

 

  b)

The majority of the members must be elected by the Company’s controlling shareholder; at least one must be a public employee, with a permanent employment link to the Public Administration.

 

The members of the Audit Board are listed on Cemig’s website: http://ri.cemig.com.br

Under the by-laws, the Audit Board has the duties and competencies set by the applicable legislation and, to the extent that they do not conflict with Brazilian legislation, those required by the laws of the countries in which the Company’s shares are listed and traded.

 

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Qualification and remuneration

The global or individual compensation of the members of the Audit Board shall be set by the General Meeting of Shareholders which elects it, in accordance with the applicable legislation.

Résumé information on its members is on our website: http://ri.cemig.com.br.

The Sarbanes-Oxley Law

Cemig obtained the first certification of its internal controls for mitigation of risks involved in the preparation and disclosure of the financial statements, issued in accordance with Section 404 of the Sarbanes-Oxley Law and the rules of the Public Company Accounting Oversight Board (PCAOB), which is included in the annual 20-F Report relating to the business year ended December 31, 2006, filed with the US Securities and Exchange Commission (SEC) on July 23, 2007.

Corporate risk management

Corporate risk management is a management tool that is an integral part of Cemig’s corporate governance practices. It identifies the events that can interfere in the process of the Company achieving its strategic objectives.

The Corporate Risks and Compliance Management Unit has been subordinated to the CEO’s office since 2016. This change underlines the intention to increase independence of these processes and to provide information to senior management for decision-making, preserving the value of the company. The practice of risk management is thus a competitive differentiation factor, to be used not only defensively, but also as an opportunity for improvement. The structuring and analysis of operations from the point of view of risk management are factors that optimize investment in the control of the activity. They reduce costs, improve performance, and consequently help the Company achieve its targets.

In risk management processes, in planning of operations and in development of new business initiatives, Cemig always acts in consideration of the precautionary principle. During planning, all the factors that might present risks to health and/or safety of employees, suppliers, clients, the general population or the environment are taken into account. Further, the fact that the Company is recognized by the Dow Jones Sustainability Index and the Corporate Sustainability Index (ISE) reflects the implementation of structural elements of the risk management system, and commitment to sustainability.

Statement of Ethical Principles and Code of Professional Conduct

On May 11, 2004 Cemig’s Board of Directors approved the Statement of Ethical Principles and Code of Professional Conduct, which aims to orient and discipline everyone acting in the name of, or interacting with, Cemig, to ensure ethical behavior at all times, and always in accordance with the law and regulations. The code can be seen at http://ri.cemig.com.br. It was updated in 2018.

 

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The Ethics Committee

Cemig’s Ethics Committee was created on August 12, 2004, to coordinate all actions relating to management (interpretation, publicizing, application and updating) of the Statement of Ethical Principles and Code of Professional Conduct, including assessment of and decision on any possible non-compliances with Cemig’s Code of Ethics.

The Committee has three sitting members and three substitute members. It may be contacted through our Ethics Channel – the anonymous reporting channel on the corporate Intranet, or by email, internal or external letter or by an exclusive phone line – these means of communication are widely publicized internally to all staff. The channels enable both reports of adverse activity and also consultations. Reports may result in opening of proceedings to assess any non-compliances with Cemig’s Statement of Ethical Principles and Code of Professional Conduct.

The Ethics Channel

Cemig installed this means of communication, available on the internal corporate Intranet, on December 13, 2006.

Through it the Ethics Committee can receive anonymous reports or accusations that can enable Cemig to detect irregular practices that are contrary to its interest, such as: financial fraud, including adulteration, falsification or suppression of financial, tax or accounting documents; misappropriation of goods or funds; receipt of undue advantages by managers or employees; irregular contracting; and other practices considered to be illegal.

It is one more step in improving Cemig’s transparency, compliance with legislation, and alignment with best corporate governance practices. It improves the management of internal controls and dissemination of the ethical culture to Cemig’s employees in the cause of optimum compliance by our business.

SHAREHOLDING POSITION OF HOLDERS OF

MORE THAN 5% OF THE VOTING SHARE

ON SEPTEMBER 30, 2018

 

     COMMON
SHARES
     %      PREFERRED
SHARES
     %      TOTAL
SHARES
     %  

State of Minas Gerais

     248,480,146        50.96        —          —          248,480,146        17.03  

FIA Dinâmica Energia S.A.

     41,635,754        8.54        62,469,590        6.43        104,105,344        7.14  

BNDESPar

     54,342,992        11.14        26,220,938        2.70        80,563,930        5.52  

 

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CONSOLIDATED SHAREHOLDING POSITION OF

THE EQUITY HOLDERS OF THE PARENT AND MANAGERS,

AND FREE FLOAT ON SEPTEMBER 30, 2018

 

     Jan to Sep 2018  
     Common
(ON) shares
     Preferred
(PN) shares
 

Equity holders of the parent

     248,480,146     

Board of Directors:

     100,501        196,000  

The Executive Board

     1        160,400  

Treasury Shares

     69        560,649  

Free float

     239,033,496        970,221,339  
  

 

 

    

 

 

 

TOTAL

     487,614,213        971,138,388  
  

 

 

    

 

 

 

Investor Relations

In 2017, through strategic actions intended to enable investors and shareholders to make a correct valuation of our businesses and our prospects for growth and addition of value, we have increased Cemig’s exposure to the Brazilian and global capital markets.

We maintain a constant and proactive flow of communication with Cemig’s investor market, continually reinforcing our credibility, seeking to increase investors’ interest in the Company’s shares, and to ensure their satisfaction with our shares as an investment.

Our results are published through presentations transmitted via video webcast and telephone conference calls, with simultaneous translation in English, always with members of the Executive Board present, developing a relationship that is increasingly transparent and in keeping with best corporate government practices.

To serve our shareholders – who are spread over more than 40 countries – and to facilitate optimum coverage of investors, Cemig has been present in and outside Brazil at a very large number of events, including seminars, conferences, investor meetings, congresses, roadshows, and events such as Money Shows; as well as holding phone and video conference calls with analysts, investors and others interested in the capital markets.

At the end of May 2018 we held our 23rd Annual Meeting between Cemig and the Capital Markets in the city of Belo Horizonte, Minas Gerais – where these professionals had the opportunity to interact with the Company’s Directors and principal executives.

 

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Corporate governance

Our corporate governance model is based on principles of transparency, equity and accountability, focusing on clear definition of the roles and responsibilities of the Board of Directors and the Executive Board in the formulation, approval and execution of policies and guidelines for managing the Company’s business.

We seek sustainable development of the Company through balance between the economic, financial, environmental and social aspects of our enterprises, aiming always to improve the relationship with our shareholders, clients, and employees, the public at large and other stakeholders.

Cemig’s preferred and common shares (tickers: CMIG3 and CMIG4 respectively) have been listed at Corporate Governance Level 1 on the São Paulo Stock Exchange since 2001. This classification represents a guarantee to our shareholders of optimum reporting of information, and also that shareholdings are relatively widely dispersed. Because Cemig has ADRs (American Depositary Receipts) listed on the New York Stock Exchange, representing preferred (PN) shares (with ticker CIG) and common (ON) ticker CIG.C), it is also subject to the regulations of the US Securities and Exchange Commission (SEC) and the New York Stock Exchange Listed Company Manual. Our preferred shares have also been listed on the Latibex of the Madrid stock exchange (with ticker XCMIG) since 2002.

In June 2018 an Extraordinary Meeting of Shareholders approved alterations to the Company’s bylaws, to maintain adoption of best corporate governance practices, and adaptation to Law 13303/2016 (also known as the State Companies Law).

The improvements now formally incorporated in the by-laws include:

 

   

Reduction of the number of members of the Board of Directors from 15 to 9, in line with the IBGC Best Corporate Governance Practices Code, and the Corporate Sustainability Evaluation Manual of the Dow Jones Sustainability Index.

 

   

Creation of the Audit Committee (Comitê de Auditoria). The Audit Board (Conselho Fiscal) remains in existence.

 

   

The Policy on Eligibility and Evaluation for nomination of a member of the Board of Directors and/or the Executive Board in subsidiary and affiliated companies,

 

   

The Related Party Transactions Policy.

 

   

Formal designation for the Board of Directors to ensure implementation of and supervision of the Company’s systems of risks and internal controls.

 

   

Optional power for the Executive Board to expand the technical committees (on which members are career employees), with autonomy to make decisions in specific subjects.

 

   

The CEO now to be ‘responsible for directing compliance and corporate risk management activities.

 

   

Greater emphasis on the Company’s control functions: internal audit, compliance, and corporate risk management.

 

   

Adoption of an arbitration chamber for resolution of any disputes between the Company, its shareholders, managers, and/or members of the Audit Board.

* * * * * * * * * * * *

 

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(The original is signed by the following signatories:)

 

Bernardo Afonso Salomão de Alvarenga    Luiz Humberto Fernandes    Maurício Fernandes Leonardo Júnior
Chief Executive Officer    Deputy CEO   

Chief Finance and

Investor Relations Officer

 

Ronaldo Gomes de Abreu    Franklin Moreira Gonçalves    Maura Galuppo Botelho Martins
Chief Distribution and Sales Officer   

Chief Generation and

Transmission Officer

 

   Chief Officer for Human Relations
José de Araújo Lins Neto    Thiago de Azevedo Camargo    Dimas Costa
Chief Corporate Management Officer   

Chief Institutional Relations and

Communication Officer

 

   Chief Trading Officer
Daniel Faria Costa         Neila Maria Barreto Leal

Chief Officer for

Management of Holdings

 

      Chief Counsel
Leonardo George de Magalhães         Leonardo Felipe Mesquita

Controller

CRC-MG 53.140

      Accounting Manager
Accountant – CRC-MG-85.260

 

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Edifĺcio Phelps Offices Towers

Rua Antônio de Albuquerque, 156

11º andar - Savassi

30112-010 - Belo Horizonte - MG - Brasil

Tel:+55 31 3232-2100

Fax:+55 31 3232-2106

ey.com.br

 

A free translation from Portuguese into English of Independent Auditor’s Report on the Review of Interim Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board – IASB

 

 

Report on the review of interim information—ITR

To the Shareholders and Management of

Companhia Energética de Minas Gerais—CEMIG

Belo Horizonte—MG

Introduction

We have reviewed the individual and consolidated interim financial information of Companhia Energética de Minas Gerais—CEMIG (“Company”), contained in the Quarterly Information Form (ITR) for the quarter ended September 30, 2018, which comprise the statement of financial position as at September 30, 2018 and the statements of profit or loss and comprehensive income for the three and nine-month periods then ended and the statements of changes in equity and cash flows for the nine-month period then ended, including notes to the interim financial information.

Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) – Interim Financial Reporting and in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on review of interim financial information (NBC TR 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the individual and consolidated interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above is not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, applicable to the preparation of Quarterly Financial Information—ITR, consistently with the rules issued by the Brazilian Securities and Exchange Commission.

 

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Emphasis of matter

Risks related to compliance with laws and regulations

As mentioned in Note 15 to the interim financial information, currently investigations and other legal measures are being conducted by public authorities in connection with Company and certain investees regarding certain expenditures and their allocations, which involve and also include some of their other shareholders and certain executives of these other shareholders. The governance bodies of the Company have authorized contracting of a specialized company to analyze the internal procedures related to these certain investments and to ascertain such claims. At this point, it is not possible to forecast future developments arising from these internal investigation procedures and conducted by the public authorities, nor their possible effects on the Company and its subsidiaries’ interim financial information. Our conclusion is not modified in respect of this matter.

Risk regarding the ability of non-controlled investee Renova Energia S.A. to continue as a going concern

As disclosed in Note 15 to the interim financial information, the non-controlled indirect investee Renova Energia S.A. has incurred recurring losses and, as at September 30, 2018, has negative net working capital. These events or conditions indicate the existence of relevant uncertainty that may raise significant doubt about its ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

Restatement of the individual and consolidated interim financial information

On November 14, 2018, we issued an unqualified review report on the Company’s individual and consolidated interim financial information for the quarter ended September 30, 2018, which are now being restated. As mentioned in note 2.3, these interim financial information have been amended and are being restated to reflect the correction of error relating to the amortization of accounts balances related to CVA Account (Portion A) and other financial components. Our conclusion is not modified in respect of this matter.

Other matters

Statements of value added

We have also reviewed the individual and consolidated Statements of Value Added (SVA) for the nine-month period ended September 30, 2018, prepared under the responsibility of Company management, the presentation of which in the interim financial information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR), and as supplementary information under the IFRS, whereby no SVA presentation is required. These statements have been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not consistently prepared, in all material respects, in relation to the overall accompanying interim financial information.

November 27, 2018.

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

Shirley Nara S. Silva

Accountant CRC-1BA022650/O-0

 

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4. MARKET ANNOUNCEMENT DATED DECEMBER 20, 2018: CROSS-HOLDING ELIMINATION BETWEEN CEMIG GT AND ENERGIMP IS COMPLETED

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Ceará windfarms: elimination of crossover holdings completed

Complementing its Material Announcement of May 17, 2018 and in accordance with CVM Instruction 358 of January 3, 2002 as amended, Cemig (Companhia Energética de Minas Gerais, listed in São Paulo, New York and Madrid) hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

The conditions specified in the Transaction Agreement between Cemig Geração e Transmissão S.A. (‘Cemig GT’) and Energimp S.A. (‘Energimp’) (‘the Parties’) have now been complied with, and on today’s date the Parties signed the related Memorandum of Conclusion of Elimination of Cross-holdings (‘the Conclusion document’).

With the signature of this document:

 

  1)

Elimination is completed of the cross-holdings previously existing between the Parties in the following wind farm companies in the Brazilian state of Ceará:

Central Eólica Praias de Parajuru S.A. (‘Parajuru’),

    Central Eólica Volta do Rio S.A. (‘Volta do Rio’) and

Central Eólica Praia de Morgado S.A. (‘Morgado’).

 

  2)

All stockholding partnership between the Parties no longer exists;

 

  3)

Cemig GT now owns 100% of the share capital of Parajuru and Volta do Rio; and

Energimp owns 100% of the share capital of Morgado.

Belo Horizonte, December 20, 2018.

Maurício Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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5. SUMMARY OF MINUTES OF THE 750TH MEETING OF THE BOARD OF DIRECTORS DATED DECEMBER 28, 2018

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

Meeting of December 28, 2018

SUMMARY OF PRINCIPAL DECISIONS

At its 750th meeting, held on December 28, 2018, the Board of Directors of Cemig (Companhia Energética de Minas Gerais) decided the following:

 

  1.

Approval of orientation of vote, by the representatives of Cemig on the Board of Directors of Renova, on sale of assets and reprofiling of credits owed by Renova to Cemig GT.

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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6. MARKET ANNOUNCEMENT DATED JANUARY 2, 2019: RENOVA’S BOARD OF DIRECTORS DOES NOT APPROVE AES’S OFFER FOR POWER GENERATION COMPLEX

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Renova Board: AES offer for Alto Sertão III not accepted

Cemig (Companhia Energética de Minas Gerais – listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Today Cemig’s affiliated company Renova Energia S.A. (‘Renova’) has published the following Material Announcement:

“Renova Energia S.A. (RNEW11) (‘Renova’), in accordance with CVM Instruction 358/2002 as amended, hereby informs its stockholders and the market in general as follows:

At a meeting on December 28, 2018 the Board of Directors of Renova decided not to approve the offer made by AES Tietê Energia S.A. (‘AES’) for acquisition of the Alto Sertão III Wind Power Generation Complex and approximately 1.1 GW of wind projects in development.

The Management of Renova reserves the right to re-assess this offer together with others, with a view to operation continuity of the Company.

Renova reiterates its commitment to keep stockholders and the market in general duly and timely informed in accordance with the applicable legislation.

Belo Horizonte, January 2, 2019.

Maurício Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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7. MARKET ANNOUNCEMENT DATED JANUARY 3, 2019: TAESA’S EXTRAORDINARY GENERAL MEETING APPROVES ACQUISITION OF TRANSMISSION COMPANIES

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Cemig (Companhia Energética de Minas Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Cemig’s affiliated company Transmissora Aliança de Energia Elétrica S.A. (‘Taesa’) has today published the following Material Announcement:

“Transmissora Aliança de Energia Elétrica S.A. (“Company” or “Taesa”), pursuant to the Securities and Exchange Commission’s Instruction No. 358, from January 3, 2002, as amended, and for the purposes of Paragraph 4 of Article 157 of Law 6404, from December 15, 1976, as amended (“Brazilian Corporation Law”), hereby announces to its shareholders, the market in general and other interested parties, continuing the material fact disclosed on December 17, 2018, that, the Company’s Extraordinary General Meeting approved, on this date, the acquisition by the Company of (i) 100% of the shares representing the total and voting capital of São João Transmissora de Energia S.A. (“SJT”) and São Pedro Energia Transmissora de Energia S.A. (“SPT”), and (ii) 51% of the shares representing the total and voting capital of Triangulo Mineiro Transmissora de Energia S.A. (“TMT”) and Vale do São Bartolomeu Transmissora de Energia S.A. (“VSB”) (the “Acquisition”), in accordance with the Company’s Bylaws, pursuant to its article 12, first paragraph, subparagraph ‘o’, and with the provisions of Article 256 of the Brazilian Corporation Law, given that it constitutes a material investment, under the terms of article 247 of the said Law.

It is important to note that the closing and accomplishment of the Acquisition are subject to certain precedent conditions, including, among others, (a) regulatory authorizations of ANEEL and CADE; (b) the non-exercise of the preemptive right by Furnas Centrais Elétricas S.A. (“Furnas”) in relation to shares issued by TMT and the non-exercise of the preemptive right by Furnas and CELG Geração e Transmissão S.A. in relation to shares issued by VSB; (c) confirmation of fulfillment of the obligations set forth in the Leniency Agreement signed by J&F Investimentos S.A. and the Sellers, including the commitment that no indemnifying or sanctioning measures be proposed against the purchaser; and (d) non-occurrence of material adverse effect.

The Company will keep its shareholders and the market informed on a timely manner in accordance with current legislation on the development of the matters covered in this Material Fact.”

Belo Horizonte, January 03, 2019.

Maurício Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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8. MARKET ANNOUNCEMENT DATED JANUARY 15, 2019: TAESA PLACES WINNING BID ON ELETROBRAS AUCTION

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Cemig (Companhia Energética de Minas Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Cemig’s affiliated company Transmissora Aliança de Energia Elétrica S.A. (‘Taesa’) has today published the following Material Announcement:

“Transmissora Aliança de Energia Elétrica S.A. (“Company” or “Taesa”), pursuant to CVM Instruction No. 358 from January 3, 2002, as amended, and to Article 157, paragraph 4, of Law No. 6404 from December 15, 1976, as amended, and in addition to the Material Facts disclosed on September 27, 2018, October 4, 2018 and November 26, 2018, hereby announces to its shareholders, the market in general, and other stakeholders that it has been informed, on this date, about the formal closing of the process of Eletrobras Auction No. 01/2018, regarding the lots L, N and P, for which the Company placed the minimum bid.

Through a notice, the Sale Committee of the Eletrobras Auction No. 01/2018 stated that, on January 14, 2019, Eletrobras’ Executive Board unanimously approved, without any reservations:

I. the ratification of Eletrobras Auction No. 01/2018, referring to lot L (Brasnorte), of the shareholding interest held by Eletrobras of 49.71% in Brasnorte Transmissora de Energia S.A. for the external shareholder and winning bidder Taesa, which opted to exercise its right of first refusal, in the form of Brasnorte shareholder agreement, over the integrality of the shareholding interest held by Eletrobras;

II. the ratification of Eletrobras Auction No. 01/2018, referring to lot N (ETAU), of the shareholding interest held by Eletrobras of 27.4162% in Empresa de Transmissão do Alto Uruguai S.A.—ETAU, for the external shareholders Taesa and DME Energética S.A.—DMEE, in the proportion of 23.0355% and 4.3807%, respectively, which opted to exercise their right of first refusal, in the form of ETAU shareholder agreement, over the integrality of the shareholding interest held by Eletrobras;

III. the ratification of Eletrobras Auction No. 01/2018, referring to lot P (Centroeste), of the shareholding held by Eletrobras of 49.00% in Centroeste for the external shareholder Companhia Energética de Minas Gerais—CEMIG, which opted to exercise its right of first refusal, in the form of Centroeste shareholder agreement, over the integrality of the shareholding interest held by Eletrobras.

The notice states that the auction process is formally closed regarding the lots mentioned above, and Eletrobras may proceed to the next step needed for the sale, which, for the Company, consists in the signing of the purchase and sale agreement regarding lots L (Brasnorte) and N (ETAU).

The Company will keep its shareholders and the market informed on a timely”

Belo Horizonte, January 15, 2019.

Maurício Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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9. MARKET ANNOUNCEMENT DATED JANUARY 15, 2019: ELETROBRAS ACCEPTS CEMIG’S EXERCISE OF FIRST REFUSAL RIGHT ON AUCTION 01/2018

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Eletrobras confirms Cemig’s first refusal right

to acquire equity holding in Centroeste

Complementing information in the Material Announcement published December 20, 2018, Cemig (Companhia Energética de Minas Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Cemig has been informed of the acceptance and ratification by Centrais Elétricas Brasileiras S.A. – Eletrobras – of the exercise by Cemig of its first refusal right for acquisition of the equity interest in Companhia de Transmissão Centroeste de Minas Gerais S.A. (‘Centroeste’) that was the subject of Eletrobras Auction 01/2018.

Belo Horizonte, January 15, 2019

Mauricio Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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10. SUMMARY OF MINUTES OF THE 751 TH MEETING OF THE BOARD OF DIRECTORS DATED JANUARY 18, 2019

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

MEETING OF JANUARY 18, 2019

SUMMARY OF PRINCIPAL DECISIONS

At its 751st meeting, held on January 18, 2019, the Board of Directors of Cemig (Companhia Energética de Minas Gerais) decided the following:

 

  1.

Nomination of member of management in Mesa/Saesa.

 

  2.

Communication and Spokesperson Policy.

 

  3.

Investees Governance, Management and Control Policy.

 

  4.

Information Disclosure Policy.

 

  5.

Policy on Director Remuneration;

Variable Remuneration Program.

 

  6.

Cemig GD.

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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11. MARKET ANNOUNCEMENT DATED JANUARY 29, 2019: CEMIG NAMED MOST SUSTAINABLE ELECTRICITY COMPANY IN THE AMERICAS

 

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MARKET NOTICE

Cemig named most sustainable

electricity company in the Americas

In accordance with its commitment to best Corporate Governance practices, Cemig (Companhia Energética de Minas Gerais – listed with securities traded on the stock exchanges of São Paulo, New York and Madrid) hereby informs the public as follows:

Cemig has been rated the most sustainable electricity company in the Americas – and 19th worldwide – in the ranking of the 2019 Global 100 Most Sustainable Corporations in the World survey by Corporate Knights magazine of Canada. The announcement was made at the World Economic Forum in Davos, Switzerland.

Cemig was one of four Brazilian companies included in the ranking of the world’s most sustainable companies, and was placed third in the list of the most sustainable companies in electricity worldwide. The survey assessed 7,536 listed companies in 21 countries, on indicators rating three factors: environmental and social action, and corporate governance.

The complete list of the companies recognized by the 100 Most Sustainable Corporations in the World survey is on the website of Corporate Knights, at: https://www.corporateknights.com

Belo Horizonte, January 29, 2019.

Maurício Fernandes Leonardo Júnior

Chief Finance and Investor Relations Officer

 

  

 

Av. Barbacena 1200

  Santo Agostinho   30190-131 Belo Horizonte, MG   Brazil   Tel.: +55 31 3506-5024   Fax +55 31 3506-5025

 

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

 

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