Eng vi encontro - cenários e estratégias - wilson

Scenarios and strategies

Wilson FerreiraCEO of CPFL Energia

This presentation may contain statements that represent expectations about future events or results according to Brazilian and international securities regulators. These statements are based on certain assumptions and analysis made by the Company pursuant to its experience and the economic environment and market conditions and expected future events, many of which are beyond the Company's control. Important factors that could lead to significant differences between actual results and expectations about future events or results include the Company's business strategy. Brazilian and international economic conditions, technology, financial strategy, developments in the utilities industry, hydrological conditions, financial market conditions, uncertainty regarding the results of future operations, plans, objectives, expectations and intentions, among others. Considering these factors, the Company's actual results may differ materially from those indicated or implied in forward-looking statements about future events or results.

The information and opinions contained herein should not be construed as a recommendation to potential investors and no investment decision should be based on the truthfulness, timeliness or completeness of such information or opinions. None of the advisors to the company or parties related to them or their representatives shall be liable for any losses that may result from the use or contents of this presentation.

This material includes forward-looking statements subject to risks and uncertainties, which are based on current expectations and projections about future events and trends that may affect the Company's business.

These statements may include projections of economic growth, demand, energy supply, as well as information about its competitive position, the regulatory environment, potential growth opportunities and other matters. Many factors could adversely affect the estimates and assumptions on which these statements are based.

Disclaimer

Agenda

Strategic Planning Scenarios

CPFL’s Strategic Plan

Planning scenarios place strategic challenges in CPFL’s future

Main scenarios evaluated in the 2012-2017 Strategic Plan

Macroeconomic Scenario

Market Scenario

Regulatory Scenario

Competitive Scenario

1

2

3

4


Macroeconomic Scenario

MarketScenario

Regulatory Scenario

Competitive Scenario

1

2

3

4


We are estimating a world with low growth in the mature economies (effect of the crisis) and greater participation from the emerging economies1

2

3

Mature economies will have low growth, due to the financial crisis on the European continent and the uncertainties brought by the US “fiscal cliff”

The emerging countries will continue gaining importance on the world economy, led by China

PIIGS debt crisis – Portugal, Ireland, Italy, Greece and Spain –will continue contaminating the main economies of the region (France and Germany); however, there should be no more critical economic events

The austerity measures will contribute to reduce demand (and GDP growth) and will not be enough to restore confidence in the short term

1World: +4.2% p.a. Europe: +1.5% p.a. USA: +2.4% p.a.

China: +7.5% p.a.

2012: -0.5%2013: -0.3%

2014-2017: +1.9%

1) LCA Scenario.

We estimate Brazil with sustainable economic growth and monetary stability1

Growth of Brazilian GDP : average of 4.2% p.a. between 2013 and 20171

Inflation slightly higher than the target: average IPCA of 4.8% p.a. 2

Domestic market continues to stimulate growth between 2013 and 2017 (Payroll: 4.3%; Retail: 5.6%; Unemployment: 5.2%)3

Per capita income growth: +3.5% p.a. Low unemployment and economic growth will sustain the expansion of the middle class and poverty reduction4

Virtuous investment cycle: infrastructure, decline in the real interest rate, World Cup, Olympic Games and other measures to stimulate investments5

Institutional stability, low country risk and a comfortable level of reserves will keep the country attractive to external investment 6

1) LCA Scenario.

Planning scenarios place strategic challenges in CPFL’sfuture

MacroeconomicScenario

Market Scenario

Regulatory Scenario

Sompetitive Scenario

1

2

3

4


Market Scenario | Energy Demand

1) Considers supply to ANDE and Manaus/Macapá connection to the North submarket as of July/2013 (1,284 MW average);2) Growth excluding Manaus/Macapá connection: 4.1%; Source: CPFL (OP); EPE; LCA

National Interconnected System (SIN) load grows at an average rate of 3.8% p.a. over the 2012-2031 period, with a highlight being the growth of the North (5.3% p.a.) and Northeast (4.5% p.a.) regions

CPFL Scenario (GW average)1

CPFL Scenario 2013-2017 2018-2021

Average GDP1 4.2% 3.7%

Average Growth2 4.2% 3.7%

Southeast / Center-West South Northeast North

Market Scenario | National Energy Balance

The system is in balance until 2016, despite the problems with the construction of Bertin and Multinerthermoelectric plants

Supply and Demand of the National Interconnected System (SIN)GW average

0.0% 4.8% 7.0% 6.1% 3.8% 3.4% 3.4% 0.1% -3.4% -6.8%

-1.0% 3.0% 4.3% 3.3% 1.1% -0.9% -0.7% -3.8% -7.2% -10.5%

Market Scenario | Expansion of supply will be mostly through hydroelectric sources, complemented by renewable sources and natural gas thermal plants

The expansion of supply will be mainly through hydroelectric plants supplemented by Natural Gas TPPs and Renewable Sources. Nuclear plants will play an important role in the second half of the 2020s

Expansion of Planned SupplyCPFL Scenario (GW average)


MacroeconomicScenario

MarketScenario

Regulatory Scenario

CompetitiveScenario

1

2

3

4


Regulatory Scenario | Pressure for tariff reductions | PM 579

• Government package for the reduction of energy tariffs on 2 fronts:

• Concession renewal: PM 579

• Reductions of electric sector charges

• Objective: to promote domestic industry competitiveness, once the correlation between the

reduction of energy costs and the promotion of development has been identified

• Benefits: generation of jobs, reduction of inflation and an increase in investments

• Breaking of market expectations versus breaking of contracts

• “(...) the regulatory, and even economic and development, logic is that the investments must beconducted with investors’ capital to be remunerated when the energy is made available forconsumption.” (Paulo Pedrosa, Abrace)

• Amount foreseen in indemnities is less than the market agents expected – indications that some

companies will not sign the new contract

Concessions renewal and tariff reduction

The Distribution sector’s tariffs were always pressured in order to achieve efficiency and lower tariffs, whereas the Generation and Transmission segments did not suffer the same regulations

Regulatory Scenario | Pressure for tariff reductions | PM 579

Industrial Tariffs1 (CPFL Piratininga) - [R$/MWh]2

1.3 2%

22.1 120%

-16.1 -41%

-2.2 -10%

7.4 6%

R$/MWh %

+5%

Generation

Transmission

Distribution

Sector charges

Taxes

3rd CRTP

(47%)

(8%)

(9%)

(9%)

(22%)

(7%)

(15%)

(47%)

(6%)

1st CRTP

(26%)

(8%)

(13%)

(47%)

2nd CRTP

(22%)

(15%)

1) Proxy of the industrial segment represented by the Average Tariff of Group A; 2) Real values in October 2011 | Source: CPFL Energia. Amount adjusted by IPCA.

• Sector charges and Taxes: increase in the tariff of R$23.4/MWh(120% and 2% respectively)

• Distribution: reduction of R$16.1/MWh due to the tariff reviews (-41%)

• Generation:Increase of R$7.4/MWhdue to tariff realignment (6%)

Impacts on the tariff

Xingó

Paulo A

fonso

I. Solt. - T. Irmãos

Itaparica

Jupiá

Marimbondo

Furn

as

Estreito

Três Marias

Volta Grande

Coru

mbá I

Porto C

olômbia

Jacu

í

Boa Esp

erança

Salto G

rande

Parigot de Souza

Passo R

eal

3,162

4,280 4,252

1,480 1,551 1,440 1,216

1,048

396 380 375 319 180 237 102 260 158

Amounts proposed by the PM 579

Distribution of O&M amounts of the projects with capacity above 100 MW

The average amount of O&M tariff is R$ 9.80/MWh and takes into account a profit margin of 10% (R$ 0.90/MWh). It is estimated that the amount of the final tariff (O&M, Sector Charges and

Network Use) will be R$ 27/MWh.

Source: Based on APINE data

Capacity (MW)

O&M (R$/MWh)

CCEAR NE

Itaipu

+Proinfa

CCEAREE

RA

Adjustment in the contracting level of the distribution companies

CCEAR NE

Itaipu+

Proinfa

CCEAREE

RA

CCEAR NE

Itaipu+

Proinfa

2012 2013Before the PM

CCEAR NE

Itaipu+

Proinfa

CCEAR EE

RA

2013After the PM

CCEARs Reduced

AngraEE

Quotas

(1) Situation in the case there is no allocation of quotas (shutdown CCEARs recontracted in the A-1 as Reposition Amount - RA)

(3) CCEAR EE parcel ballasted by TPPs with renewed concessions will be reduced

(4) EE Quota is allocated to the Distribution resource and the RA is absorbed. Momentarily, over-contracting is generated

CCEAR NE

Itaipu+

Proinfa

Angra

CCEAR EE

(5) Frustration of the thermoelectric projects absorbs an eventual excess of quotas

2013 After the

PM Quotas

2013After the PM

Final Compositionof the Resource

The maintenance of the contracting level is not guaranteed. There is a provision for dealing with an imbalance upon contracting, although it still must be regulated

(2) Reposition Amount (RA) will be reduced from the Angra I and II quotas (REN 505/2012)

Angra


Contracting Level

1 2 3 4

8.6 GW med

10.2 GW avg

1.5 GW avg

11.4 GW med

CCEAREE

BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL

CCEAR EE

Itaipu+

Proinfa

Angra

CCEAR NE

5BILATERAL

CCEAR NE

Itaipu

+Proinfa

CCEAREE

RA

Adjustment in the contracting level of the distribution companies

CCEAR NE

Itaipu+

Proinfa

CCEAREE

RA

CCEAR NE

Itaipu+

Proinfa

2012 2013Before the PM

CCEAR NE

Itaipu+

Proinfa

CCEAR EE

RA

2013After the PM

CCEARs Reduced

Angra EE Quotas

(1) Situation in the case there is no allocation of quotas (shutdown CCEARs recontracted in the A-1 as Reposition Amount - RA)

(3) CCEAR EE parcel ballasted by TPPs with renewed concessions will be reduced

(4) EE Quota is allocated to the Distribution resource and the RA is absorbed. Momentarily, over-contracting is generated

CCEAR NE

Itaipu+

Proinfa

Angra

CCEAR EE

(5) Frustration of the thermoelectric projects absorbs an eventual excess of quotas

2013 After the

PM Quotas

2013After the PM

Final Compositionof the Resource

The maintenance of the contracting level is not guaranteed. There is a provision for dealing with an imbalance upon contracting, although it still must be regulated

(2) Reposition Amount (RA) will be reduced from the Angra I and II quotas (REN 505/2012)

Angra


Contracting Level

1 2 3 4

8.6 GW med

10.2 GW avg

1.5 GW avg

11.4 GW med

CCEAREE

BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL

CCEAR EE

Itaipu+

Proinfa

Angra

CCEAR NE

5BILATERAL

CPFL Energia requested Aneel to renewal all the expiring concessions

PM 579 | Expiration schedule of CPFL Energia’s concessions

HPP Serra da Mesa

HPP Foz do Chapecó

HPP Barra Grande

HPP Castro Alves

HPP Monte Claro

HPP 14 de Julho

HPP Campos Novos

HPP Luis Eduardo

Magalhães

CPFL Piratininga

CPFLPaulista

RGE

19 SHPPs (CPFL

Renováveis)

1 TPP (Carioba)

Distribution

CPFL Santa Cruz

CPFL Jaguari

CPFL Sul Paulista

CPFL Leste Paulista

CPFL Mococa

Generation

SHPP Rio do Peixe (I/II)

SHPP Macaco Branco

2039203620352032202820272015 …

~3%EBITDACPFL

Energia

<1% Installed capacityCPFL

Energia

PM 579 | Expected Effects

Segment For the sector For CPFL

• Tariff = operational cost + spread

• Amortization of the non-depreciated amounts calculated by the New Replacement Value (VNR)

• Long-term concessions (expiring as of 2032)

• Exposure: almost no impact (<1% of installed capacity)

• Cost of O&M lower than the band presented by the PM 579

• New quality rules and requirements being detailed by ANEEL

• Changes in energy contracting due to the allocation of quotas

• Renewed energy (cheaper) will destined exclusively to regulated market

• Restriction of conventional energy liquidity on the 2013-15 horizon

• Migration A4: from 6 months to 5 years

• More competitive environment for the commercialization segment, pressure on margins

Conventional Generation

Distribution

Commercialization

• Limited impact in view of the low exposure of assets whose concessions are expiring in 2015

• Larger assets will begin to expire as of 2027 (CPFL Paulista/RGE)

Besides pressure to reduce tariffs, quality and technology have been focal points

Topics that will be on the sector’s radar in the upcoming years

Regulatory Scenario | Other regulatory agenda topics

• Electronic Meters and Intelligent Networks

• DER/FER regulation – Commercial quality control indicators

• DER (Average Duration of Response to Complaint) – average time to solve

complaints

• FER (Average Frequency of Response to Complaint) – frequency of occurrence

of a complaint for every thousand consumer units

• Methodology of the 4th Tariff Review Cycle


Macroecomic scenario

Marketscenario

Regulatoryscenario

Competitivescenario

1

2

3

4


With the Brazilian electricity market growing, competition in the sector has been getting tougher

The Brazilian electricity market is notable in the world due to its growth and investment opportunities1

Major international players continue to be highly interested in remaining and boosting their business in Brazil, as a result of the crisis in United States and Europe2

The very attractive market has increased competition, whether through acquisition of assets or in disputing auctions3

Large domestic companies have continued their strategy of diversification and may use indemnification funds (PM 579) for growth4

Some agents could erroneously interpret the recent measures as an increase in the institutional risk for the sector5

Agenda

Strategic Planning Scenarios

CPFL’s Strategic Plan

CPFL’s corporate ambition

To be the leader of the domestic electric sector, focusing

on excellence, maximizing value for shareholders and

guaranteeing the sustainability of business

CPFL 2017 AMBITION

10.8%5.1% 7.0% 8.1% 5.1%

17.7%

4.4%9.0%

4.2%

0.8%

2.0%

-0.1% -3.3%-1.6%

-14.4%

-3.9%-9.2%

-14.6%

Total Shareholder Return | History

Note: 1) TSR = shareholder IRR – Market cap values in Sep/2007 and Sep/2012; 2) Amounts corrected by the IGP-M (Dec/2011) | Source: Economatica

The results of shares performance and the dividend policy resulted in CPFL’s TSR being above the market average over the past few years

Total Shareholder Return1 | 2007 – 20122 | % p.a.

6.93.5

7.1

11.63.3

-10.3

-0.2

0.5

4.8

For the next few years there is an estimate of reduction in the average TSR of the electric sector due to the macroeconomic stabilization and decline in the cost of capital

Dividends

Share appreciation

CPFL’s Strategic PlanStrategic Guidelines | 2013-2017

Focus on PerformanceInnovation of processes

Strategic Growth1 2

CPFL’s Strategic PlanTransformation | Culture and Behavior

Projects were implemented seeking gains in efficiency and productivity

Project Description Objectives

• Installation of intelligent meters and remotely commanded switches/reconnectors

• Intelligent dispatching of teams seeking optimal operating

• Application of the smart grid concept

• Productivity and efficiency gains

• Transformation of management profile focusing on new skills

• Annual benefit of around R$ 106 million

• Transfer of the transactional corporate activities to the CPFL Shared Services Center

• Implementation of the Zero Base Budget methodology

• Efficiency gains facing the regulatory challenges

• Improvements in the organization’s budgeting process and cost culture

• Annual average gains of R$ 50 million in 5 years

Tauron ProgramSmart Grid

CSCShared Services

Center

ZBBZero Base Budget

• Increase in operational productivity and efficiency

• Reduction of corporate costs

• Sustenance of Group’s growth at a lower incremental cost

Focus on PerformanceInnovation of processes

Strategic Growth1 2

CPFL’s Strategic PlanStrategic Guidelines | 2013-2017

CPFL’s Strategic PlanStrategic Growth Avenues | DistributionEfficiency Benchmarking | ANEEL Methodology

Companies with MORE than 400,000 clients | In %

Companies with LESS than 400,000 clients | In %

CPFL’s Strategic PlanStrategic Growth | Distribution

1) Large companies: market higher than 1TWh (Source: ANEEL 2009)

Regulatory RemunerationImprovement in macro scenario

leads to smaller returns

Higher efficiency in capital allocation

Brazil 3 largest distribution companies

have a 34% market share

Consolidation and gains in scale being reverted into

productivity

Fragmented MarketRelevant number of small

companies concentrated in the South and Southeast regions

Sector consolidation opportunities

32large

31small 21

North/NortheastCenter-West

42South/Southeast

-

- - -42 100 257

686 803 835 1,297

1,537 1,715 1,934 2,094

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ativos da privatização Brownfield Greenfield

Estimated growth in Generation | Installed capacity (MW)

CPFL Energia: Conventional Generation + Renewables

2009 2011

CPFL RenováveisTPP Bio FormosaTPP Bio BuritiJantus wind farm

2012

Santa Clara wind farmAtlântica wind farmTPP Bio Ipê e Bio PedraTPP Ester

2014

1,737 MW 2,644 MW 2,948 MW

CAGR 2000-14e = 25% p.a

Semesa Baesa

Enercan Ceran

Foz ChapecóEpasaBaldin

CreationCPFL Renováveis

Ranking | Generators in BrazilEBITDA (12M3Q12) | R$ billion

CPFL Strategic Plan | Strategic Growth | Generation

Privatization assets

Duke

EDP

CPFL

AES Tietê

Cemig

Cesp

Tractebel

Eletrobras

0.8

1.2

1.5

1.9

2.4

3.1

7.2

SpainBrazil France Germany

0.01% of solar radiation = worldwide demand for energy – Brazil: radiation ≈

two times the developed nations

Solar energy is abundant and variability is low

5 countries → 88% of installed capacity (31 GW ) - Brazil still taking

its first steps

SpainGermany Italy USAJapan

Photovoltaic solar energy is still little exploited in the world

Brazil

• Current capacity in operation in Brazil: 2,578 kW (10 plants)

• Just between 10/31 and 11/05 some 1.0 GW in projects were requested

CPFL – Tanquinho Plant

• 1st Solar Plant in the state of São Paulo

• Possibility of redesign of the energy matrix and development of a new industry

• 5,380 photovoltaic panels

• Photovoltaic Plant with connection to Medium Voltage (1,05 MWp) and connection in Low Voltage (0.075 MWp)

Solar Energy | Outlook

49.7%

11.2% 10.0% 10.4% 7.2%

2,4001,850 1,650

1,250

CPFL Brasil is in an advantageous position to confront the challenges

Competitive Client (#)Greater than 3 MW

Number of free clients in Brazil

Source: Aneel and CCEE

Dec/08 Dec/09 Dec/10 Dec/11

CAGR: 4.1% CAGR: 45.1%

Special Client (#)0.5 to 3 MW

• Diversified portfolio and large energy volume

• Renowned team of market specialists

• Governance and firm finances

• Culture of structured risk management in place

• Ballast already contracted

Aug/12 Dec/08 Dec/09 Dec/10 Dec/11 Aug/12

CAGR: 29.6%

Sales agents (#)

Number of sellers

CPFL’s Strategic PlanStrategic Growth | Energy Commercialization

456 446 485 514 570

192 219

455587

857

2008 2009 2010 2011 2012

51 6283

107144

In 2012 the service operations were consolidated and the companies are ready to reach their growth potentials

• Modernization of network construction (CCM)

• Construction of the largest solar power plant in the

country (Tanquinho)

• Consolidation of the group’s call center operations and the

startup of negotiations with the market

• Creation of CPFL TotalSolid growth plan through 2017

2012 Highlights

nect serviços

CPFL’s Strategic Plan | Strategic Growth | Services

CPFL in 2017

Leadership among private companies in the electric sector, with a diversified portfolio in different businesses related to Energy

COMMERCIALIZATION

• Leadership in commercialization of renewable energy on the free market

• Maximize profitability, given the new market conditions

GENERATION

• Operational Excellence, with the greatest profitability of the sector

• Growth in installed capacity in hydro and thermal plants

• Leader in renewable sources (> 4 GW by 2020)

DISTRIBUTION

• Market leader, with up to 30% of the market share in Brazil

• Operational excellence, using innovation and new technologies

SERVICES

• Strong growth of sales

• Strong integration with the Group’s other businesses and clients

Scenarios and strategies

Wilson FerreiraCEO of CPFL Energia

Eng vi encontro - cenários e estratégias - wilson

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