Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

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São Paulo, March 13, 2013 – CPFL Energia S.A. (BM&FBOVESPA: CPFE3 and NYSE: CPL), announces its 4Q12/2012 results. The financial and operational information herein, unless otherwise indicated, is presented on a consolidated basis and is in accordance with the applicable legislation. Comparisons are relative to 4Q11/2011, unless otherwise stated.

CPFL ENERGIA ANNOUNCES 4Q12 NET INCOME

OF R$ 278 MILLION

Notes:

(1)     EBITDA (IFRS) is calculated from the sum of net income, taxes, financial result, depreciation/amortization and result of pension fund contributions;

(2)     EBITDA (IFRS + Regulatory Assets & Liabilitites – Non-recurring) considers, besides the items mentioned above, the regulatory assets and liabilities, and excludes the non-recurring effects;

(3)     Net Income (IFRS + Regulatory Assets & Liabilitites – Non-recurring) considers the regulatory assets and liabilities and excludes the non-recurring effects.

4Q12 HIGHLIGHTS

·      Increase of 5.6% in energy sales within the concession area;

·      Commercial start-up of Tanquinho solar plant in November 2012 and Salto Góes SHPP in December 2012;

·      Distribution of R$ 1,096 million in dividends, related to 2012, with dividend yield of 4.6% (LTM);

·      Investments of R$ 537 million in 4Q12 and of R$ 2,468 million in 2012;

·      Estimated capex of R$ 2,325 million in 2013, totaling R$ 8,709 million between 2013 and 2017;

·      Binding proposal for the acquisitionof Grupo Rede´s assets, along with the Equatorial Energia;

·      Assignment of the brAA+ credit rating by Standard & Poor’s to the debentures’ issuance of subsidiaries and maintenance of the AA+(bra) credit rating by Fitch Ratings to CPFL Energia and subsidiaries;

·      Increase of 30.1% in the average daily trading volume of CPFL Energia’s shares on BM&FBOVESPA and on NYSE, to R$ 42.7 million in 2012 from R$ 32.8 million in 2011;

·      2012 Guia Exame Sustentabilidade Award and ÉPOCA/A.T. Kearney Award “As Empresas mais Inovadoras do Brasil em 2012”;

·      CPFL Energia’s shares were maintained in the ISE (the BM&FBOVESPA’s Corporate Sustainability Index), for the 8^th consecutive year;

·      CPFL Energia joined Dow Jones Sustainability Index Emerging Markets.

4Q12/2012 Results | March 13, 2013

 

INDEX

1) MESSAGE FROM THE CEO

2012 was a remarkable year for the Brazilian electricity sector: the treatment offered by the Federal Government to the expiring concessions in generation, transmission, and distribution stimulated large discussions by sector agents and the society as a whole. The proposal for the extension of these concessions was an important step aimed at reducing electricity bills in Brazil.

Deemed as one of the most expensive tariffs in the world, the society had already been waiting for some years for government’s action to reduce power tariffs, contributing in this way to increase the competitiveness of our economy and to render better life conditions to the population.

In the case of CPFL Energia, we had a very small part of our operations affected by these governmental measures. I am referring to seven small hydro power plants that together represent less than 1% of the Group’s total installed capacity. The other generation concessions are very long term, being the first one to expire only in 2032. There are also five small distributors, representing 4.5% of the Group’s concession area, with contracts expiring in 2015. Our expectation is that the terms and conditions for the extension of these concessions will not result in relevant impacts, since each 4 or 5 years this segment goes through a rigorous tariff reset process conducted by the National Electric Energy Agency – ANEEL.

More recently, in March 2013, due to the unfavorable hydrological conditions, the Government announced a series of measures to compensate the higher generation costs related to the operation of more expensive thermal power plants. Among the main measures, I would like to highlight: (i) the increase in the pass-through of overcontracting limits by distributors to the consumers, to 5% from 3%; (ii) the neutralization of distribution companies’ exposures to the short term market related to the allocation of quotas under Provisional Measure 579; and (iii) the coverage of costs of expensive thermoelectric power plants dispatched for energy security reasons. These initiatives will address the cash flow pressure that distributors are under since September 2012.

Even in this changing scenario, the consistency of our businesses’ strategy, supported by the commitment with discipline and proactive management of performance ratios, has paved the way for CPFL Energia to reach excellent results in the fouth quarter and throughout the year. The total consumption of energy inside our concession area grew by 5.6% in the 4Q12 compared to a year ago, totaling 3.8% in 2012. The sales of energy outwards the Group increased 9.0% in the quarter, amassing 8.3% in 2012. The residential and commercial segments have been the key actors in this growth. In the residential segment, we continue to be favored by strong gains in wealth associated to an all-time low unemployment rates. We have also observed that in recent years the regions served by CPFL Energia are benefited by above-average migratory flows, supporting the connection of new customers. As for the commercial segment, the excellent perspectives for household consumption have leveraged the opening of new shops, improving the consumption coming from this segment.

I have also to highlight our operations at CPFL Renováveis, that after its inception in August 2011, have generated very good results. In 2012 we were very active in M&A and acquired the wind farms Bons Ventos and Atlântica, and the biomass cogeneration facility Ester. We started up the biomass-fired thermal power facilities Ipê and Pedra in the upcountry of the state of São Paulo, the wind farms Santa Clara in the state of Rio Grande do Norte, the small hydro power plant Salto Góes in the state of Santa Catarina, and the first solar power plant in the state of São Paulo, the Tanquinho Power Plant, a milestone in the evolution of electric generation in Brazil. Hence, CPFL Renováveis reached a portfolio of 1,154 MW of operating installed capacity, the largest generation complex of renewable and alternative energy in Latin America.

We continue also to lead the commercialization segment with CPFL Brasil, representing a 10% market share. CPFL Serviços, our value-added services arm, has been gaining muscles day-to-day, increasing its revenues by almost 35% in 2012, on the backdrop of strong expansion of transactions and services provided to customer nationwide.

Our investments in 2012 totaled R$ 2.5 billion, a record in CPFL Energia’s history. This figure represents only a small fraction of the amount needed in infrastructure in Brazil and our confidence that these resources will generate extraordinary results to the Company and its shareholders.

In December 2012, we announced a binding proposal to acquire, together with Equatorial Energia, the assets of Grupo Rede. This proposal is subject to conditions precedent, therefore we have been working in an incessant way to meet all the necessary conditions and be successful in the closing of this deal.

All this evolution in our operations was translated into our financial figures: excluding revenues from construction of infrastructure, our net revenues expanded by 16.9% in 2012, reaching a whopping level of R$ 13.4 billion. Our cost cutting initiatives announced in 2010 have already yielded fruits: we were able to reduce our manageable costs in more than R$ 100 million. Therefore, our recurring EBITDA surpassed R$4.6 billion, a growth of 22.7% compared to 2011. In turn, net income was up 7.5% in relation to 2011, totaling R$ 1.5 billion. Hence, our dividends in 2012 will reach R$ 1.1 billion, representing a yield of 4.6%.

The electric energy sector in Brazil should have big challenges in the coming years. Even on the backdrop of an unfavorable hydrologic condition in the beginning of 2012, the the rationing risks are completely off at this moment. New auctions for the expansion of generation capacity shall be put up for auction, mainly of thermoelectric facilities to add even more reliability and confidence to our system. The Brazilian economy is in continuous expansion, demanding new investments in our distribution network. The smart grid has been implemented at a fast pace, representing tremendous opportunities to reduce costs and improve the quality of services. The renewable energy sources will be more and more a topic of discussion in the Government and the society; therefore, they should represent great business opportunities. As a consequence, I am convinced that CPFL Energia is very well prepared and positioned to act in a competitive and efficient way to capture the best opportunities in the market, providing services at the highest standards to its customers and creating even more value to our shareholders.

Wilson Ferreira Jr.

CEO of CFPL Energia

2) MACROECONOMIC CONTEXT

In the recent months, the probability of an adverse scenario for world economy has decreased with a more active stance of ECB to avoid a financial crisis in Europe and the postponement of an agreement regarding the fiscal cliff in the USA. However, uncertainty still remains, given the political polarization in the U.S. Congress regarding the impasse for the formalization of a fiscal agreement, combined with low economic growth in Europe, active and potential geopolitical conflicts and inflation of commodities, especially metal.

It is a fact that advanced economies will grow slightly in 2013 after the poor performance already achieved in 2012. The estimates compiled in Consensus Forecasts indicate growth of only 2.0% in the U.S. and reduction of 0.1% in the Eurozone. Thus, world economic growth should once again be influenced by emerging economies, especially China, which will continue to show higher growth rates (8.1% in 2013).

GDP 2012 and GDP estimates for 2013 (% anual growth)

Source: US Bureau of Economic Analysis (BEA), Eurostat, Japan Cabinet Office, National Bureau of Statistics of China (NBSC) and Consensus Forecasts, Jan/13

    *2012: LCA estimates. Actual numbers will be released on March 15.

Given this scenario, the Brazilian economy also continues at a slower pace. In 2012, according to IBGE, Brazil's GDP grew only 0.9%. Despite the positive performance of services in GDP (1.7%) and Household Consumption (3.1%), the performance of domestic economy was heavily influenced by industrial GDP, which fell by 0.8%, and by Investment, which was reduced by 4.0%.

Brazilian GDP growth - % annual

Source: IBGE. Estimates: LCA Consultores

*Estimates

For 2013, LCA Consultores estimates GDP to grow 3.5%, reflecting a recovery driven not only by credit and expansion of domestic market, as in previous years, but also by the effectiveness of measures taken by the government in late 2012 in order to stimulate investment and recover the competitiveness of domestic industry. Among these measures, we may highlight the PM 579/2012, which reduced the cost of electricity, the discharge of payroll in various sectors, a more competitive exchange rate and lower interest rates and spreads, with the consequent increase in fiscal gap.

Though lately adopted, these measures have already had some effect, and we observed an improvement in business confidence even in late 2012, which is also evidenced by the higher volume of BNDES consultations for new fundings and disbursements, which increased by 37.5% and 49.8%, respectively, from 3Q12 to 4Q12. It is worth noting that consultations take about six months to be converted into actual disbursements, so that the outlook for 2013 is also very positive.

BNDES: Monthly consultations and disbursements

(R$ million)

Estimates indicate that these measures will significantly reduce the cost of production in domestic industry and contribute, in the long term, for the reduction of structural deficiencies. A recent study¹ shows that despite the increase in the price of domestic and imported inputs, the unit labor cost should be reduced by approximately 9.6% in 2013. For the cost of electricity, it was considered a reduction of around 18.8%, so that the index of total cost, denominated in reais, will rise by only 2.1% in the year. Adding to this the foreign exchange devaluation, estimated at 25.4%, we might say that industrial unit cost, denominated in dollars, is expected to fall 18.6% in 2013, improving the competitiveness of Brazilian industry compared to its foreign competitors.

Indexes for nominal unit cost in Brazilian industry

(2001=100)

Thus, the outlook for energy consumption in the industrial segment is also quite positive and estimates indicate higher rates for that segment in the coming years.

Similarly, we estimate that the positive effects that favored the residential and commercial segments in recent years will continue to be observed.

Residential segment keeps being favored by lower unemployment, the minimum wage increase, albeit to a lesser extent than observed in 2012, and the consequent increase in real income. This increases household consumption and represents a huge potential market for the Brazilian economy.

Real income (IBGE/LCA) and residential consumption

(annual growth in %)

The housing sector in particular is driven by income growth and mortgages, which has seen a reduction in delinquency and record volume of concessions. Nevertheless, an international comparison shows that the volume of credit compared to GDP is still very low, opening the possibility of a significant expansion over the coming years.

Mortgages compared to GDP (in %)

Source: European Mortgage Federation National Experts, European Central Bank, National Central Banks, Eurostat, Bureau of Economic Analysis, Federal Reserve

In this context it is also interesting to note that the migration, combined with population growth, contributes to a greater number of new connections in CPFL Energia’s concession area. It is noteworthy, in this sense, Campinas Metropolitan Region, which received annually about 9.2 inhabitants/thousand from other regions of the state of São Paulo and other states of Brazil. The same happens with Santos Metropolitan Region, which received about 3.2 inhabitants/thousand each year. 2

Annual population growth (in %) and migration (per 1000 inhabitants) - 2000-2010

Source: Fundação Seade

The commercial segment keeps the same pace of retail sales, which accumulate a growth of 58.6% between 2007 and 2012.

Retail sales (IBGE) and commercial consumption

(annual growth in %)

This impressive growth should continue, since the movement of retail sales, measured by the volume of credit score checking monthly made ​​by traders to the Serasa Experian database, maintains its uptrend. Interestingly, even during the 2008-2009 crisis, this indicator has continued to grow, demonstrating the strength of the Brazilian domestic market.

Serasa: Indicator of retail activity – seasonally adjusted

2000 = 100. Source: Serasa Experian and LCA

In response to this trend, the Brazilian Association of Shopping Malls (Abrasce) estimates that 70 new malls will be opened in Brazil between 2013 and 2014. Of this total, 11 malls will be installed within CPFL Energia’s concession area, one in RGE and the others in the companies located in the state of São Paulo.

For these reasons, we reaffirm, despite the uncertainties regarding the external environment, the optimistic outlook for the Brazilian economy in the coming years, as well as to the economic dynamics of CPFL Energia’s concession area, which will surely reflect in maintaining high growth rates in energy consumption.

3) ENERGY SALES

3.1) Sales within the Distributors’ Concession Area

In 4Q12, sales within the concession area, achieved by the distribution segment, totaled 14,730 GWh, an increase of 5.6%.

Note: Considers changes in billing calendar of RGE’s free consumers and permissionaires in 2Q12.

In 4Q12, sales to the captive market totaled 10,507 GWh, an increase of 3.2%.

The energy volume in GWh consumed by free customers in the distributors’ concession areas, billed through the Distribution System Usage Tariff (TUSD), rose by 12.2% to 4,223 GWh in 4Q12, reflecting the migration of customers from the captive market to the free market.

Note: The tables of sales within the concession area by distributor are attached to this report in item 13.9. Considers changes in billing calendar of RGE’s free consumers and permissionaires in 2Q12.

Emphasis is given to the growth of the residential and commercial classes, which jointly accounted for 42.1% of the sales within the concession area:

·      Residential and commercial classes: up by 10.1% and 10.4%, respectively, favored by the accumulated effects of economic growth (increase of income levels, purchasing power of consumers and the expansion of credit to consumption) over recent years and the higher temperatures.

·      Industrial class: up by 1.6%, reflecting the industrial production, still at a slower pace, due to the international crisis. Nevertheless, requests for reduction in power demand from industrial customers were not observed in the period, favoring the maintenance of the revenue level coming from this class.

The following table shows sales in the concession area adjusted for calendar and temperature:

4Q12/2012 Results | March 13, 2013

3.1.1) Sales by Class – Concession Área

Note: in parentheses, the variation in percentage points from 4Q11 to 4Q12.

3.1.2) Sales to the Captive Market

Note: The captive market sales by distributor tables are attached to this report in item 13.10. Considers changes in billing calendar of RGE’s free consumers and permissionaires in 2Q12.

3.1.3) TUSD

4Q12/2012 Results | March 13, 2013

3.2) Commercialization and Generation Sales – Excluding Related Parties

Note: Excludes sales to related parties and in the CCEE. Considers Furnas (Semesa) and other generation sales outside the group, Considers 100% of the sales of CPFL Renováveis and CERAN (accounting criteria | IFRS). Considers the provision adjustement of 89 GWh in 4Q12 and 2 GWh in 2012.

In 4Q12, commercialization and generation sales totaled 4,790 GWh, an increase of 38.5%, due to the follonwing factors: (i) increase in sales of CPFL Renováveis; (ii) increase in sales to free customers, as a result of the increase in the number of customers in the portfolio (from 141 in 4Q12 231 in 4Q11) and (iii) the increase in sales through commercialization and generation’s bilateral contracts.

4) INFORMATION ON INTEREST IN COMPANIES AND CRITERIA OF
FINANCIAL STATEMENTS CONSOLIDATION

The interests directly or indirectly held by CPFL Energia in its subsidiaries and jointly-owned entities are described bellow. Except for: (i) the jointly-owned entities Enercan, Baesa, Foz do Chapecó and Epasa, which are consolidated proportionately, and (ii) the investment in Investco recorded at cost by the subsidiary Paulista Lajeado, the other units are fully consolidated.

As of December 31, 2012 and 2011, the participation of non-controlling interests stated in the consolidated statements refers to the third-party interests in the subsidiaries Ceran, Paulista Lajeado and in CPFL Renováveis. On June 30, 2011, the participation of non-controlling interests refered to the third-party interests in the subsidiaries Ceran and Paulista Lajeado.

Notes:

(1)       Does not include the 24 MW of installed capacity equivalent to the 9 Small Hydroelectric Power Plants of the distribution companies: Companhia Leste Paulista de Energia (CPFL Leste Paulista), Companhia Sul Paulista de Energia (CPFL Sul Paulista), Companhia Jaguari de Energia (CPFL Jaguari) and Companhia Luz e Força Mococa (CPFL Mococa);

(2)       Paulista Lajeado has a 7% stake in the installed capacity of Investco S.A..

4.1) Consolidation of CPFL Renováveis Financial Statements

On August 24, 2011, the joint venture between CPFL Energia and ERSA was actually implemented, through the incorporation of CPFL Renováveis, when CPFL Energia started holding, indirectly, 54.50% of CPFL Renováveis, through its subsidiaries CPFL Geração (43.65%) and CPFL Brasil (10.85%).

CPFL Renováveis has been fully consolidated (100%, line by line), in CPFL Energia’s financial statements since August 1, 2011, and the interest held by the non-controlling shareholders has been mentioned bellow the net income line (in the Financial Statements), as “Non-Controlling Shareholders’ Interest”, and in the Shareholders Equity (in the Balance Sheet) in the line with the same name.

On December 19, 2011, CPFL Renováveis concluded the acquisition of Jantus throught the capital increase of CPFL Brasil on CPFL Renováveis. CPFL Energia now indirectly holds 63.0% of CPFL Renováveis, through its subsidiaries CPFL Geração (35.5%) and CPFL Brasil (27.5%).

Jantus has been consolidated in CPFL Renováveis’ financial statements since December 1, 2011.

Impact of acquisitions in 2012 on the Financial Statements

The acquisition of Atlântica Wind Complex was completed on March 26, 2012, with the opening balance sheet as at February 29, 2012. As such, the consolidated financial statements on December 31, 2012 therefore include ten months of this indirect subsidiary’s operations.

The acquisition of Bons Ventos was completed on June 19, 2012, with the opening balance sheet as at May 31, 2012. As such, the consolidated financial statements on December 31, 2012 therefore include seven months of this indirect subsidiary’s operation.

The acquisition of SPE Lacenas (controlled company of Usina Ester) was completed on October 18, 2012, with the opening balance sheet prepared in the base date of September 30, 2012. As such, the consolidated financial statements on December 31, 2012 therefore include three months of this subsidiary’s operation.

5) ECONOMIC-FINANCIAL PERFORMANCE

Notes:

(1)     EBITDA (IFRS) is calculated from the sum of net income, taxes, financial result and depreciation/amortization;

(2)     EBITDA (IFRS + Regulatory Assets & Liabilitites – Non-recurring – Employee Pension Plan) considers, besides the items mentioned above, the regulatory assets and liabilities, and excludes the non-recurring effects and the result of pension fund contributions;

(3)     Net Income (IFRS + Regulatory Assets & Liabilitites – Non-recurring) considers the regulatory assets and liabilities and excludes the non-recurring effects.

5.1) Operating Revenue

Gross operating revenue in 4Q12 reached R$ 5,915 million, representing an increase of 18.7% (R$ 933 million). Excluding the revenue from building the infrastructure of the concession (which does not affect the results because of the related cost, in the same amount), gross operating revenue would have amounted to 5,545 million, an increase of 19.7% (R$ 914 million).

The upturn in gross operating revenue was mainly caused by the following factors:

·         Increase of 3.2% in the sales volume to the captive market, in the amount of R$ 172 million (R$ 156 million net of Pis and Cofins); 

·         Average tariff adjustment of 6.2% in the distribution companies, for the period between 4Q11 and 4Q12, in the amount of R$ 244 million (R$ 221 million – net of PIS and Cofins taxes);

·         Additional gross revenue from CPFL Renováveis, in the amount of R$ 177.0 million (R$ 163.9 million net of PIS and Cofins taxes). Part of the sales of these projects is made to companies within the Group, being the corresponding revenue eliminated in the CPFL Energia consolidation. The additional revenue of CPFL Renováveis, net of PIS and Cofins taxes and eliminations, was of R$ 147 million;

·         Increase in the revenue from the Segment of Conventional Generation, in the amount of R$ 139.3 million (R$ 124.3 million net of PIS and Cofins taxes), due to the following factors:

            (i)                 Increase in the revenue from Termonordeste and Termoparaíba Thermoelectric Facilities, from Epasa, in the amount of R$ 113 million, due to the dispatch in the thermoelectric facilities;

           (ii)                Increase in the revenue from Foz do Chapecó Hydroelectric Facility, in the amount of R$ 24 million, due to the increase of 40% in the tariffs, as a result of the exchange of bilateral contracts for new contracts signed at the auction;

          (iii)                Increase in the revenue supplied to Furnas, in the amount of R$ 5 million, due to the increase of 5.1% in the tariffs (2011 IGP-M effect).

Part of the sales of these projects is made to companies within the Group, being the corresponding revenue eliminated in the CPFL Energia consolidation. The increase of revenue net of PIS and Cofins taxes and eliminations was of R$ 62 million.

·        Increase in the revenue from the Segment of Commercialization and Services, in the amount of R$ 189.8 million (R$ 168.8 million net of PIS and Cofins taxes). The increase of revenue net of PIS and Cofins taxes and eliminations was of R$ 175 million.

·         Increase of 9.3% (R$ 30.9 million) in the gross revenue of TUSD from free customers, mainly due to the migration of captive customers to the free market;

·         Increase of 70.4% (R$ 45.2 million) in other revenues and income, mainly due to the accounting of the revenues from reimbursement to the distributors by the generators (R$ 16.8 million in CPFL Paulista, R$ 9.2 million in CPFL Piratininga and R$ 4.6 million in RGE). Until 3Q12, these amounts were recorded as reducers of the cost of energy, considering that the change in accounting occurred in response to the order of Aneel No. 155, of January 23, 2013;

These increases were partially offset by the following factor:

·         Reduction of R$ 8.3 million in six distribution companies of the Group (CPFL Piratininga, CPFL Santa Cruz, CPFL Mococa, CPFL Sul Paulista, CPFL Leste Paulista and CPFL Jaguari) related to the reclassification of the revenue for the exceeding demand and surplus of reactive to special obligations. Of this amount, R$ 6.8 milllion are related to CPFL Piratininga and the remaining amount (R$ 1.5 million) is related to the other five distribution companies mentioned.

In compliance with Aneel Order No. 4,991, of December 29, 2011, related to the basic procedures for the preparation of financial statements, these six distribution companies adjusted the revenue for the exceeding demand and surplus of reactive in the “Electricity Sales to Final Customers” and “TUSD from free customers” itens to the “Special Obligation” item.

These distribution companies made the reclassification (such amounts have been accrued as “Special Obligations”, in compliance with the Accounting Pronouncement CPC 25) but are awaiting a court decision regarding how to treat these revenues. On February 7, 2012, the Brazilian Association of the Electricity Distributors (Abradee) obtained the suspension of the effects of Normative Resolution No. 463, with early relief accepted and suspension of the ruling for booking revenues for exceeding demand and surplus of reactive as special obligations. In June 2012, the effect requested by Aneel in its “Bill of Review”, which had suspended the early relief originally granted in favor of Abradee, was accepted. The six distributors are waiting the final sentence for the definitive treatment of these revenues.

Deductions from the gross operating revenue were R$ 1,659 million, representing a increase of 5.1% (R$ 80.8 million), due to the increases: (i) of 9.8% in ICMS tax (R$ 75.3 million); (ii) of 14.2% in PIS/COFINS taxes (R$ 58.0 million); (iii) of 11.4% in CDE sector charge (R$ 15.0 million); (iv) of 35.1% in Proinfa (R$ 5.8 million); (v) of 16.4% in the value related to the R&D and energy efficiency program (R$ 6.1 million); and (vi) of 5.9% in the global reversal reserve - RGR (R$ 1.4 million). These increases were partially offset by the reduction of 41.9% in the CCC sector charge (R$ 80.7 million).

The increase in the PIS and Cofins was partially offset by effect of the recording (in the amount of R$ 30.2 million) of PIS and Cofins taxes credits on the depreciation and amortization of the distribution companies. In 4Q11, theses credits were registered in the “depreciation and amortization” expenses line and, in 4Q12, they were registered in the “deductions from the operating revenue” line for better accounting purposes.

Net operating revenue reached R$ 4,256 million in 4Q12, representing an increase of 25.0% (R$ 852 million). Excluding the revenue from building the infrastructure of the concession, net operating revenue would have amounted to 3,886 million, an increase of 27.3% (R$ 834 million).

5.2) Cost of Electric Energy

The cost of electric energy, comprising the purchase of electricity for resale and charges for the use of the distribution and transmission system, amounted to R$ 2,258 million in 4Q12, representing an increase of 37.5% (R$ 616 million):

·      The cost of electric power purchased for resale in 4Q12 was R$ 1,771 million, representing an increase of 36.5% (R$ 473 million), due to the following effects:

         (i)        Increase in the cost of energy purchased through auction in the regulated environment and through bilateral contracts (R$ 661.0 million), caused by the decreases of 6.6% in the average purchase price and increase of 71.4% (6,236 GWh) in the volume of purchased energy;

        (ii)        Increase in the cost of energy from Itaipu (R$ 33.8 million), mainly due to the 12.9% increase in the average purchase price;

       (iii)       Increase in the PROINFA cost (R$ 8.8 million), due to the 20.9% increase in the average purchase price, partially offset by the decrease of 18.3% (82 GWh) in the volume of purchased energy.

Partially offset by:

      (iv)        Increase in PIS and Cofins tax credits, generated from the energy purchase (R$ 44.0 million);

       (v)         Reduction in the cost of energy purchased in the short term (R$ 187.2 million)

·         Charges for the use of the transmission and distribution system reached R$ 487 million in 4Q12, a 41.6% increase (R$ 143 million), due to the following factors:

            (i)                 Increase of 267.9% in the system service usage charges – ESS (R$ 121.7 million), mainly due to the increases of R$ 61.5 million in CPFL Paulista, R$ 26.8 million in RGE and R$ 26.6 million in CPFL Piratininga;

           (ii)                 Increase of 15.9% in the basic network charges (R$ 41.4 million), mainly due to the increases of 12.0% (R$ 15.0 million) in CPFL Paulista, of 22.7% in RGE (R$ 9.6 million), of 7.5% (R$ 4.8 million) in CPFL Piratininga, and of the CPFL Renováveis additional (R$ 8.9 million);

          (iii)                 Increase  of 12.2% in the conection charges (R$ 2.2 million);

         (iv)                  Increase of 7.1% in Itaipu charges (R$ 1.7 million);

Partially offsetting:

          (v)                  Reduction of 57.9% in the energy reserve charges (R$ 9.4 million);

         (vi)                 Reduction of 2.1% in the charges for the use of the distribution system (R$ 0.2 million);

        (vii)                 Increase in PIS and Cofins tax credits, generated from the charges (R$ 14.2 million).

5.3) Operating Costs and Expenses

Operating costs and expenses were R$ 1,464 million in 4Q12, registering an increase of 48.6% (R$ 479 million), due to the following factors:

·      Increase of 5.2% (R$ 18 million) in the cost of building the infrastructure of the concession (which does not affect the results because of the related revenue, in the same amount). This item, which reached R$ 370 million in 4Q12, has its counterpart in the “operating revenue”;

·         The Private Pension Fund, which represented a revenue of R$ 15.9 million in 4Q11 and of R$ 8.8 million in 4Q12, resulting in a negative variation of R$ 7.1 million. This variation is due to the expected estimated impact on actuarial assets and liabilities, according to CVM Deliberations Nos. 371/00 and 600/09, as shown in the Actuarial Report;

·      Depreciation and Amortization, which represented a net increase of 37.9% (R$ 82 million), mainly due to the following factors:

            (i)           Additional of CPFL Renováveis, in the amount of R$ 59.7 million;

           (ii)         Increase in the Conventional Generation Segment, in the amount of R$ 5.3 million, mainly due to the increase in CPFL Geração, due to: (i) the change in the depreciation rate defined by the Brazilian Electric Energy Agency (Aneel), that reduced the useful life of the energy generation assets (R$ 1.2 million); (ii) the increase in Chapecoense (R$ 1.0 million); and (iii) the increase of intangible amortization in Epasa (R$ 2.5 million).

On February 4, 2012, through Normative Ruling No. 474, Aneel established new annual rates of depreciation for assets in services granted the power sector. The new rates have changed those contained in the Power Sector Assets Control Manual (MCPSE), approved by Normative Ruling No. 367, of June 2, 2009, and became effective on January 1, 2012. This change resulted in a reduction in the useful life of generation assets and, in line with the accounting pronouncement CPC 23, the Company prospectively changed the depreciation of fixed assets as of that date.

          (iii)         Increase in the Distribution Segment, in the amount of R$ 18.9 million, mainly due to the following factors:

ü The recording effect, in the amount of R$ 30.2 million, of PIS and Cofins tax credits on the depreciation and amortization. In 4Q11, these credits were registered in the “depreciation and amortization” expenses line and, in 4Q12, they were registered in the “deductions from the operating revenue” line for better accounting purposes;

ü Increase in the new assets depreciation.

Partially offset by:

ü The reduction, in the amount of R$ 22.2 million, related to the change in the depreciation rates stablished by the Brazilian Electric Energy Agency (Aneel). In the average, this change, as explained in the item “(ii)” above, caused an increase in the useful life of the energy distribution assets and, pursuant to the accounting pronouncement CPC 23, the distribution companies changed the fixed asset depreciation prospectively, from that date.

·      The PMSO item, that reached R$ 803.4 million in 4Q12, compared to R$ 432.1 million in 4Q11, registering an incrase of 85.9% (R$ 371.3 million), mainly due to the following factors (that need to be excluded for comparison purposes with the 4Q11):

         (i)          Non-recurring  increase in the legal and judicial expenses and indemnities (R$ 142.3 million);

           (ii)       Non-recurring  adjustment in the provision for doubtful debts, in the 8 distribution companies, due to the change in the estimate (R$ 21.9 million);

          (iii)       Non-recurring  additional expenses related to personnel dismissal, mainly in CPFL Paulista and CPFL Piratininga (R$ 7.0 million);

          (iv)       Non-recurring  increase in the other operating expenses regarding the assets write-off, due to the implementation of the Manual for the Equity Control in the Power Sector (MCPSE) in the distribution companies CPFL Paulista and RGE (R$ 27.7 million);

            (v)       Additional PMSO of CPFL Renováveis (R$ 28.7 million);

          (vi)        Additional PMSO related to the expansion of the activities of CPFL Serviços, CPFL Atende, CPFL Total and Nect (R$ 5.8 million);

         (vii)        Additional expenses of materials relating to the purchase of fuel oil by Epasa, due to the dispatch of the thermoelectric facilities (R$ 108.9 million).

Excluding these effects, PMSO for 4Q12 would have totaled R$ 382.0 million, compared to R$ 352.9 million in 4Q11, an increase of 8.2% (R$ 29.0 million), compared to the IGP-M index of 7.8% (price variation between December 31, 2011 and December 31, 2012).

The main factors explaining the variation in PMSO, following the exclusion of the effects already mentioned were:

         (i)           Personnel expenses, which reported a net increase of 13.5% (R$ 20.4 million), mainly due to: (i) the 2012 Collective Bargaining Agreement, that readjusted the wages by 6.34% in the average (R$ 8.9 million); (ii) the increase in RGE (R$ 2.9 million); (iii) the increases is Epasa and Foz do Chapecó (R$ 2.0 million); and (iv) other increases (R$ 6.6 million);

        (ii)            Other operating costs/expenses, which registered an increase of 35.9% (R$ 22.0 million), mainly due to the following increases:

ü       CPFL Paulista (R$ 9.0 million), due to the following factors: (i) increase in the advertising and market expenses (R$ 3.0 million); (ii) increase in legal and judicial expenses and indemnities (R$ 1.8 million); and (iii) increase in other expenses (R$ 4.2 million);

ü        CPFL Piratininga (R$ 7.2 million), mainly due to the following factors: (i) negative variation in the disposal of assets due to the gain occurred in 4Q11 (R$ 2.0 million); (ii)   increase in the advertising and market expenses (R$ 1.1 million); (iii) increase in legal and judicial expenses and indemnities (R$ 0.9 million); and (iv) increase in other expenses (R$ 3.2 million);

ü        RGE (R$ 2.9 million), mainly due to the loss with disposal of assets and due to the increase in the advertising and market expenses;

ü        CPFL Jaguari, CPFL Mococa, CPFL Leste Paulista, CPFL Sul Paulista, and CPFL Santa Cruz (R$ 1.1 million).

Partially offset by:

       (iii)           Out-sourced services expenses, which registered a decrease of 10.7% (R$ 13.2 million), mainly due to the decrease in expenses with: (i) maintenance in substations (R$ 8.5 million); and (iii) tree pruning (R$ 5.1 million).

5.4) Regulatory Assets and Liabilities

The regulatory assets and liabilities, which are no longer registered, in accordance with the pronouncements issued by the Accounting Pronouncements Committee (CPC) and the international practices (IFRS), represented a cost reversal of R$ 285.6 million in 4Q12 and of R$ 1.1 million in 4Q11 (impact in EBITDA). The amounts related to the deferral of the regulatory assets and liabilities will be passed through the tariffs in the next tariff readjustment, through the financial components. The amounts related to the amortization are reflected in the tariffs of each period.

Provisory tariff procedures:

It is important to note that, as directed by Aneel, the 4Q12 values include preliminary amounts of the liability related to the provisory tariff procedures for the 3^rd cycle of tariff review of 6 distribution companies (CPFL Piratininga, CPFL Santa Cruz, CPFL Leste Paulista, CPFL Sul Paulista, CPFL Mococa and CPFL Jaguari), corresponding to a reduction of R$ 24.0 million in the EBITDA. The application of this methodology should have occurred on October 23, 2011, for CPFL Piratininga, and on February 3, 2012, for the other distribution companies (CPFL Santa Cruz, CPFL Leste Paulista, CPFL Sul Paulista, CPFL Mococa and CPFL Jaguari). Therefore, the amount related to the impact of the provisory tariff procedures of the distribution companies tariff review in 2012 needs to be accumulated from January 1 to October 22, 2012, for CPFL Piratininga, and from February 3 to December 31, 2012 for the other 5 smaller distribution companies.

5.5) EBITDA

4Q12 EBITDA (IFRS) reached R$ 833.3 million, registering a 16.2% reduction (R$ 160.7 million).

Considering the regulatory assets and liabilities, excluding the non-recurring effects and the result of pension fund contributions, the recurring EBITDA (IFRS + Regulatory Assets and Liabilities – Non-recurring – Employee Pension Plan) totaled R$ 1,325.5 million in 4Q12, compared to R$ 981.0 million in 4Q11, an increase of 35.1% (R$ 344.5 million).

5.6) Financial Result

The 4Q12 net financial expense was of R$ 78 million, a 27.0% reduction (R$ 28.9 million) compared with the net financial expense of R$ 107 million reported in 4Q11.

The items explaining these changes are as follows:

·         Financial Revenues: increase of 0.87% (R$ 2.5 million), from R$ 289.8 million in 4Q11 to R$ 292.3 million in 4Q12, mainly due to the following factors:

(i) Non-Recurring  Financial Revenue revenue due to the monetary update of the financial asset (R$ 95,9 million) (CPFL Paulista, CPFL Piratininga, RGE, CPFL Santa Cruz, CPFL Leste Paulista, CPFL Sul Paulista, CPFL Jaguari and CPFL Mococa)

Partially offset by:

(ii) Reduction in the income from financial investments (R$ 77.2 million), due to the reduction in the CDI Interbank rate and the cash equivalents;

(iii) Reduction in the updates of judicial deposits and tax credits and in the monetary updates (R$ 18 million), mainly due to the reduction in the indexes used to update these items;

·         Financial Expenses: decrease of 6.6% (R$ 26.3 million), from R$ 396.8 million in 4Q11 to R$ 370.5 million in 4Q12, mainly due to the following factors:

         (i)    Decrease of debt of charge (R$ 57 million)

        (ii)    Decrease in the monetary and foreign exchange updates (R$ 25.8 million), mainly due to the reduction in the indexes used to update the debt;

       (iii)    Reduction in the other financial expenses (R$ 8.9 million);

       Partially offset by:

    (iv)        Financial expenses from CPFL Renováveis, in the amount of R$ 63.9 million, mainly due to:

ü     The new operating assets, resulting from the acquisition of Jantus, whose results have been accounted for CPFL Renováveis since December 2011;

ü     The acquisitions of Bons Ventos wind farms (157.5 MW) in June 2012, and the assets of biomass cogeneration of Ester thermoelectric facility (40 MW) in October 2012;

ü     The beginning of operations of Bio Ipê and Bio Pedra thermoelectric facilities in May 2012; 

ü     The beginning of operations of Santa Clara wind farms (188 MW) in July 2012.

     (v)        Non-recurring  financial expense at CPFL Paulista regarding the interests and penalties on payments related to the incorporation of networks (R$ 6.9 million);

   (vi)        Non-recurring  financial expense regarding the assets write-off related to the implementation of the Manual for the Equity Control in the Power Sector (MCPSE) in 2 distribution companies (CPFL Paulista and RGE) (R$ 4.4 million).

5.7) Net Income

Net income (IFRS) in 4Q12 was R$ 278.4 million, a decrease of 42.6% (R$ 206.8 million). This result reflects the higher financial expense related to (i) the higher financial expense related to the purchase of energy and to the energy charges, due to the higher dispatch of the thermoelectric facilities, and that resulted in the EBITDA (IFRS) decrease of R$ 160.7 million; and (ii) the higher depreciation and amortization expense, due to the beginning of operations of several projects at CPFL Renováveis.

Excluding the amount related to the non-controlling shareholders, the net income (IFRS) in 4Q12 was R$ 271.9 million, a decrease of 40.4% (R$ 184.0 million), compared to the net income of R$ 455.9 million in 4Q11.

Considering the regulatory assets and liabilities, including the effects on the financial result, (net of taxes) and excluding the non-recurring effects, the total net income (IFRS + Regulatory Assets and Liabilities – Non-recurring) would have totaled R$ 509.5 million in 4Q12, comparared to R$ 443.3 million in 4Q11, an increase of 14.9% (R$ 66.2 million).

6) DEBT

6.1) Financial Debt (Including Hedge)

CPFL Energia’s financial debt (including hedge) reached R$ 16,639 million in 4Q12, increase of R$ 3,251 million, or 24.3%, compared to 4T11. This increase in net debt is mainly a reflection of:

·         the consolidation of 100% of the debt of CPFL Renováveis (principal + charges), which according to the new IFRS accounting practices, has added around R$ 2,336 million to the consolidated indebtedness of CPFL Energia. Part of these funds, around R$ 704 million, was assumed through the acquisitions of Bons Ventos wind farms and Ester cogeneration assets in the period. The remaining amount, which totaled around R$ 1,632 million, occurred through funding for the payment of these acquisitions, as well as for the construction of several greenfield projects;

·         the increase in indebtedness due to the funding, net of amortizations, in the amount of R$ 892 million, in CPFL Energia (Holding) and the other Group companies (conventional generation, distribution and commercialization segments);

·         the increase in the other charges and monetary and exchange rate updates (net of hedge) in the period, in the amount of R$ 23 million.

The main contributing funding and amortizations to the variation in the balance of financial debt described above were:

·         CPFL Renováveis: funding, net of amortizations, in the amount of R$ 1,632 million, and debt assumptions in the amount of R$ 704 million:

+      Debentures issuance by CPFL Renováveis (1^st Issue of R$ 430 million);

+      Funding of BNDES financing for CPFL Renováveis (source CPFL), in the amount of R$ 410 million;

+      Funding related to the acquisition of Bons Ventos (operation with redeemable preferred shares), in the amount of R$ 400 million;

+      Promissory notes issuances by Coopcana and Alvorada Thermoelectric Power Plants and Atlântica Wind Complex, in the amount of R$ 320 million;

+      Funding of BNDES financing for Salto Góes Small Hydroelectric Power Plant, in the amount of R$ 70 million;

+      Funding of BNDES financing for Coopcana and Alvorada Thermoelectric Power Plants, in the amount of R$ 98 million;

-      Amortizations of BNDES financing for CPFL Renováveis (source CPFL), in the amount of R$ 42 million;

-      Amortizations of BNDES financing for CPFL Renováveis (source ERSA), in the amount of R$ 32 million;

-      Amortization related to the operation with redeemable shares (Alto Irani and Plano Alto Small Hydro Power Plants), in the amount of R$ 22 million;

+      Indebtedness from the acquisition of Bons Ventos by CPFL Renováveis, in the amount of R$ 477 million, of which R$ 213 million are related to BNDES financing, R$ 182 million are related to BNB financing and R$ 82 million are related to NIB (Nordic Investment Bank) financing;

+      Indebtedness from the acquisition of Santa Luzia Small Hydro Power Plant, in the amount of R$ 173 million, related to the 2^nd Issue of Debentures;

+      Indebtedness from the acquisition of Ester Thermoelectric Power Plant by CPFL Renováveis, in the amount of R$ 54 million, related to BNDES financing.

·         Group’s Distributors: funding (BNDES and other financial institutions), net of amortizations, totaling R$ 1,280 million:

+      Debentures issuance by CPFL Paulista (6^th Issue of R$ 660 million), CPFL Piratininga (6^th Issue of R$ 110 million) and RGE (6^th Issue of R$ 500 million);

+      Funding of financing, through Law No. 4131/62, for CPFL Paulista (R$ 49 million), CPFL Piratininga (R$ 64 million), RGE (R$ 223 million), CPFL Santa Cruz (R$ 20 million), CPFL Leste Paulista (R$ 25 million), CPFL Sul Paulista (R$ 21 million), CPFL Jaguari (R$ 13 million) and CPFL Mococa (R$ 11 million);

+      Funding of working capital by CPFL Jaguari (R$ 19 million), CPFL Leste Paulista (R$ 9 million) and CPFL Mococa (R$ 6 million);

+      Funding, net of amortizations, of BNDES financing for Group’s Distributors, totaling R$ 296 million;

-      Amortizations of the principal of RGE (3^rd Issue of R$ 127 million) and CPFL Paulista’s debentures (3^rd Issue of R$ 427 million);

-      Amortizations of financing for CPFL Paulista (R$ 49 million), CPFL Piratininga (R$ 5 million), RGE (R$ 95 million), CPFL Santa Cruz (R$ 8 million), CPFL Leste Paulista (R$ 8 million), CPFL Sul Paulista (R$ 5 million) and CPFL Mococa (R$ 4 million);

-      Other amortizations, net of funding, in the amount of R$ 18 million.

·         CPFL Geração, EPASA and Conventional Generation Projects: amortizations (BNDES and other financial institutions), net of funding, totaling R$ 252 million:

4Q12/2012 Results | March 13, 2013

+      Funding of BNDES financing for EPASA (R$ 2 million) and Foz do Chapecó (R$ 5 million);

-      Amortizations of the principal of Epasa (3^rd Issue of R$ 6 million), BAESA (R$ R$ 6 million) and ENERCAN’s debentures (R$ 4 million);

-      Amortization of working capital by Foz do Chapecó (R$ 4 million);

-      Amortizations of BNDES financing for CPFL Geração (R$ 56 million), CERAN (R$ 55 million), Foz do Chapecó (R$ 66 million), ENERCAN (R$ 35 million), BAESA (R$ 19 million) and EPASA (R$ 8 million).

·         CPFL Brasil and CPFL Serviços: funding, net of amortizations, totaling R$ 14 million:

+      Funding of working capital by CPFL Serviços (R$ 8 million);

+      Funding of BNDES financing for CPFL Brasil (R$ 5 million) and CPFL Serviços (R$ 3 million);

-      Amortizations of BNDES financing for CPFL Brasil (R$ 2 million).

·         CPFL Energia (Holding): 

-      Amortization of the principal of CPFL Energia’s debentures (3^rd Issue of R$ 150 million).

During the second half of 2011, CPFL Energia put into practice its pre-funding strategy, anticipating funding for maturing debt during 2012. This strategy continued to be employed during the year 2012 in respect of debt maturing in 2013. The latest funding for this purpose were conducted in the second half of 2012 through the issuance of debentures, in the total amount of R$ 1,270 million, and a credit line of R$ 426 million through Law No. 4131/62. In 2012, CPFL Energia made amortizations that exceeded the mark of R$ 1,800 million. Therefore, the company was capable of reducing the nominal cost of its debt by approximately 2.1 percentage point, to 9.0% p.a., as well as extending its debt profile by 3.5%, from 4.32 to 4.47 years.

Of the total indebtedness of R$ 16,639 million in 4Q12, R$ 14,507 million (87.2%) are considered long term and R$ 2,132 million (12.8%) are considered short term. In 4Q11, of the total of R$ 13,388 million, R$ 11,739 million (87.7%) are considered long term and R$ 1,649 million (12.3%) are considered short term.

The cash position at the end of 4Q12 has coverage ratio of 1.3x the amortizations of the next 12 months, enough to honor all amortization commitments until early 2014.

6.2) Total Debt (Financial Debt + Hedge + Debt with the Private Pension Fund)

Total debt, comprising financial debt, hedge (asset/liability) and debt with the private pension fund, amounted to R$ 17,006 million in 4Q12, growth of 22.9%. The nominal average cost of debt fell from 11.1% p.a. in 4Q11 to 9.0% p.a. in 4Q12, due to the decrease in the CDI interbank rate (from 11.6% to 8.4%). (accrued rates in the last 12 months)

Debt Profile – 4Q11

		R$	Swap
		Million
	Banking	2,165	95.50% to 106.85% of CDI
	Hedge	107	106.30% of CDI
	13.6%	79	143.90% of CDI
		24	105.95% of CDI
			Revenue with foreign exchange component
	Natural
	Hedge	38
	0.3%

Debt Profile – 4Q12

		R$	Swap
		Million
		2,239	95.50% to 106.85% of CDI
	Banking	149	108% of CDI
	Hedge	76	143.9% of CDI
	14.2%	13	95.78% of CDI
		2	106.0% to 106.5% of CDI
			Revenue with foreign exchange component
	Natural
	Hedge	49
	0.3%

Note: PSI – Investment Support Program

As a result of the funding operations and amortizations, considering the indexation after hedge, there was an increase in the portion tied to the CDI-pegged portion (from 58.5%, in 4Q11, to 60.4%, in 4Q12) and prefixed-PSI (from 4.4%, in 4Q11, to 7.4%, in 4Q12), and a decrease in the BNDES-TJLP-indexed portion (from 33.4%, in 4Q11, to 29.2%, in 4Q12) and the IGP-M/IGP-DI (from 3.4%, in 4Q11, to 2.7%, in 4Q12).

The foreign-currency and TJLP debt would have come to 14.4% and 29.3% of the total, respectively, if banking hedge operations had been excluded. Considering the contracted swap operations, which convert the indexation of debt in foreign-currency and TJLP to the CDI, the effective foreign-currency and TJLP debt is 0.3% (all of this possesses a natural hedge) and 29.2%, respectively.

The portion of the debt tied to the IGP-M/IGP-DI is related mostly to the debt with the private pension fund.

6.3) Net Debt and Leverage

In 4Q12, net debt totaled R$ 14,161 million, an upturn of 32.5% or R$ 3,473 million, compared to net debt position at the end of 4Q11 in the amount of R$ 10,689 million. This increase is explained on the following factors:

·         Increase of R$ 3,251 million in the gross indebtedness, as described in the item 5.1;

·         Reduction of R$ 222 million in the balance of the cash, from R$ 2,700 million in 4Q11 to R$ 2,478 million in 4Q12, mainly explained by: