CPFL Energia S.A. (NYSE:CPL)
Q1 2016 Results Earnings Conference Call
May 12, 2016, 10:00 am ET
Wilson Ferreira Jr - Chief Executive Officer and Member of the Executive Board
Leandro Cappa - Investor Relations Director
Gustavo Estrella - Vice President of Finance, Member of the Executive Board, Investor Relations Officer
Luiza Mariko - Market Planning
Kaique Vasconcellos - Citigroup
Vinicius Canheu - Credit Suisse
Miguel Rodrigues - Morgan Stanley
Marcelo Sa - UBS
Sergio Tamashiro - Haitong
Carolina Carneiro - Santander
Good morning and thank you for waiting. Welcome to CPFL Energia's First Q16 earnings results conference call. Today, we have here with us Executive Mr. Wilson Ferreira Jr, CEO of CPFL Energia as well as other officers of the company. This call is being broadcast simultaneously via Internet on the website www.cpfl.com.br/ir, where you will find the respective presentation for download.
We inform that all participants will be in listen-only mode during the company's presentation. After that, there will be a Q&A session when further instructions will be given. [Operator Instructions]. I would like to mention that this conference call is being recorded.
Before proceeding, we would like to mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CPFL Energia's management and on information currently available to the company.
Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate to the future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CPFL Energia and could cause results to differ materially from those expressed in such forward-looking statements.
Now I will turn the floor to Mr. Wilson Ferreira Jr. Please, Mr. Wilson, the floor is yours.
Wilson Ferreira Jr
Good morning everyone. Good morning investors and analysts that are here with us for the earnings call for the first quarter of 2016.
Let's start on page three or the highlights of the quarter. Here we have a negative highlight. Unfortunately sales dropped in the concession area. Now segment we are going to into details. On the other hand, in the industrial area, the contracted demand is still positive. On the other hand, we excellent yields, which was the reduction on the CVA balance. As you know, we had at the end of last year BRL1.7 billion rows received and we were able to reduce that to BRL0.7 billion. So we have much more positive position here. The problem had been solved. After that we have processes for tariff adjustments where our difficult and we will talk more about that during the presentation. Another good news is that Mata Velha is started early start-up. We had initial operations of wind farms for the free market. We will talk more about that as well. We have the renegotiation also of the hydrological risk of Baesa. This was one of the only major plant where we needed to do the renegotiation. It is completed now. You will see also a drop in our GSF expenses. We will talk about my succession as well. There was also an approval of capital increase through stock dividend that was approved in our shareholders assembly and new shares will be distributed to shareholders from May 5 on an investment of BRL0.5 billion in this quarter and also we disclosed our annual reports on March 31. It electronically available in our homepage.
So now turn to page four. We have a breakdown of energy sales. You can see that in the first quarter in fact we had an important drop in energy sales of 6.4%. Here we have 5.2% in the captive market and the free market of almost 10%. And the breakdown for consumption segment shows that we had no segments important drop vis-à-vis the first quarter of last year. So the economic downturn is strong both in residential as well as commercial segment of around 5%, industrial segment of over 10%. That does not change our market profile. And in the bottom part of the slide you can see two important observations. We are in a leap year. So that comparison of drop is a little different too. We will go into details, both on bill volume as well as energy loss. But when we analyze the load in the concession area which gives us a wide view of what is happening, we see that we have numbers a little bit lower. Therefore we believe in the next quarters, we should bring those figures up. As I had said, the contracted demand is still positive, so we see a movement of a positive expectation of entrepreneurs and the industry. And obviously we see new companies coming in the concession area. That's why we have lowered values to contracted demand, both for peak and off-peak as positive areas. As I said, we have the recovery of traffic in the renewable area. Therefore, our installed capacity now is reaching 3,128 conventional installed megawatts and that happens specifically in Renovaveis.
On page 5, we have our outlook. We have reported a drop in the residential segment and what we try to show you with this chart and we possibly have reached the drop in 5%. It has been stable for a few months and obviously that is because of several situations and circumstances that caused it to become stable. First, last year there was an adjustment in the tariff that was unprecedented over 50% in the electric segment and now we also have negative tariff adjustment in the second half of the year. So we had to reduce both tariff side since the beginning of the year. So that pressure on the economy in fact has dropped. It is important to say that probably people and there is a great increase and they reacted and so we can see in our sales of LED lamp sales in 2014, the amount was 27 million and last year it amounted 81 million, tripled in number. So I would say that the consumption reduction is largely due to rationalization and exchange of equipment such as LED lamp ales that propose more advantages than conventional lamp. So considering future outlook, there is drop in inflation and because of that negative adjustments, we probably won't have higher drops in the residential area, so that consumption per client should be stable along the year. And now that we the income of new consumers, we will believe that we will have a stable volume for the second, third and fourth quarters of this year.
What is of our concern here is on page six and it is also a concern of the analysts, is delinquency. Arguably, we also are comparing ourselves to other companies and now our figures have been lower PDA or the ADA gross revenue is still lower event though Renovaveis have increased, we have an increase in tariffs compared to quarters that is higher than 50%, but we have here on the fourth quarter to the first quarter also an increase from 0.5% to 0.7%, 40% higher volume in terms of our allowance for doubtful accounts. This is something we pay attention to. There is a set of questions that we have listed in the bottom right part of the slide. So the company is working on it. We have been working on conventional energy cuts over 150%. This is the most effective measure right now. You are following delinquency in the different segments in the different industries, especially in the finance sector. So that's why we also have the blacklisting and we have lower efficacy but we are also using the electronic protest and tele collection. We have tripled e-mails. We have the collection agencies almost 44% of electronic protest actually, the new initiative and it is important to highlight that this peak has in the background our economic scenario and this is something that we needed to acknowledge in the agency itself because the agency's barriers are lower and in general all segments of the economy are going by this problem.
Now on page seven. I will go back to one of our highlights. The total losses that have an increase in our area in March, but if we analyze the moving average of 12 months, it's not different from the figures that we have seen since March of last year. But in March, especially or in the first quarter, we have that higher figure 8.63% first that reflects the higher unbilled invoices because here we have a leap year that has an extra day and the load which is not reflected in the billing schedule. And that is the main reason why we have that difference in the billed invoices and the drop in the load. So this should reflect in our billing schedule later on. And also we have higher temperatures in this last quarter that also impacts the figures for the unbilled voices. We expect impact the slight increase shall be offset in the following quarters. So there is nothing structurally that is responsible for this increase in losses except those two topics I mentioned that are related to the billing schedule.
Now turning to page eight, we have the results of the first quarter. On the first line, we have the IFRS results and on the second line, it's what we call the adjusted base. So you can have a more perennial outlook of our company. We can see that growth for net revenues, the drops of 20% and 19% in the two different bases. They are due to the integration of regulatory assets and tariffs, but explained that major drop that we had in our PDA obviously that also is related to the market. I will talk about that in the distribution area, they are lower and also we had the tariff lags that changed and the important news is that EBITDA has an IFRS result of BRL25 million negative and also we have BRL232 million in the net income that is positive. In the recurring base, we have 5.3% negative or BRL53 million, most of that refers to wins in the renewable area. There is less wind in this quarter and as it was said yesterday by the President of the company, that has been recovered in April. So this is an important significant effect now in the first quarter, but there is a recovery of half of that difference in April in our renewable activities. And because of that and the adjusted page, we have an increase of 6.7% or BRL70 million reaching to BRL167 million in the first quarter. The amount that determine these variations are in the bottom part of the slide, the proportionate consolidation of generation also Itaipu foreign currency variation that by fact as a new accounting that go into the EBITDA amount on the net income. So it's important to have a recurring comparison of this reconciliations and also we have the nonrecurring effects, the extraordinary ones last year we had GSF and the Energy Purchase in two generation operations, generations and renewable, the adjustment of this emphasis and track record also have a specific adjustments is now on this year and also on typically Renovaveis has now adopted the hydrological agreement and we won't have that impact anymore. So for recurring effect comparison we think it's important to separate it. Therefore, I believe we have an EBITDA that has a stable impact as I have mentioned by this effect we will go into details and our net income is positive.
On page nine, we that assessment of the company's EBITDA. So to the outside we have the IFRS base and in the inside area that we are going to go into details, we help a drop of 5.3%. Basically, we can see that there is a drop in the distribution area, renewable generation as well. And distribution, we have a drop BRL37 million or 6.9% and it is related to the increase in manageable PMSO lower than the IGPM of the period. We have legal and judicial expenses BRL28 million. The allowance for doubtful accounts of BRL26 million and a drop of 6.4% in sales in the concession area BRL24 million. This way we have here a negative effect in distribution. So we did have gains, both in and the reviews and tariff adjustment that added BRL66 million and our company offer different groups and also that specific treatment of the PIS and COFINS as I have mentioned. So renewable generation, there is a drop of BRL26 million or 23.3% and basically half of that is explained by less wind in windfarms and that corresponds to BRL13 million. So we have SHPPs seasonality BRL10 million. We have that last year and this year as well. So we will recover that amount in the future structures and we have a PMSO of BRL6 million and also the renegotiation premium. On the other hand, we have conventional generations with a gain of BRL9 million with positive better performance of our thermal operations and others of BRL12 million in expenses with the GSF and commercialization services and holding is rather stable with a gain of BRL1 million. So the results are negatively driven because of the renewable impact, especially wind and also a drop in volumes in addition to the allowance for doubtful account and distribution.
Now on page 10, just to give you an idea for the future. Somehow we started working with ZBB methodology, BRL320 million we reached BRL369 million. You have the chart showing it and obviously our future challenge is related to the subject which is productivity here. The company is deploying two important projects, one related to using technology to increase productivity in the distribution segment. We have a whole set of indicators developed by the company, the analysis of teams and unavailability and management of our workforce. So today we have more tools to monitor and obviously to integrate technology and automation and to increase productivity. This is something with a great potential and in the near future we will be sharing with you what this work is like. And we are also working with consulting services in a news stage for corporate companies. We started doing that now and we believe that in the near future we will be able to share with you and let you know what we are doing in these two areas. So this is something we have to do to add productivity to our group.
Now turning to page 11, we come to net income. In the recurring reduction, it was almost 7% and in the IFRS base it's 63%. Here as a negative aspect, we have a drop in EBITDA of 5%, we already mentioned it. We had an improvement of the negative net financial results. It is thanks to that adjustment of sectoral financial assets and liabilities, also a variation of discos' concession financial assets, additions and late payments fines and installments debt. We will also have here BRL30 million for that and the mark-to-market effect, the operations 4,131, these are non-cash operations and also we have the PIS/COFINS over financial revenues effect because of new taxes and that is BRL21 million net and also we had a reduction of 3.3% in depreciation and amortization with the driver coming from the reduction in the amortization of the concessions intangible assets. And here we have an increase in depreciation and amortization also an increase in income tax related to financial operations of the company. So I would say that here we have a positive outlook because we have our stable EBITDA and we are working in that environment that we mentioned.
Now turning to page 12. These are the tariff events. There were several ones in this quarter, starting in what we call the tariff reviews of our five concessions that have been renewed. So we have reported here the increases in Parcel A and Parcel B, looked at industry view they already integrated the increase in the net base, increase in the CACC and the remuneration of the regulatory assets base and also the addition of special obligations remuneration, we have a parcel B in a positive variation. The effect of these gains are up around BRL15 million and we have a pass through of BRL80 million. We have also the annual tariff adjustment for CPFL Paulista increasing in little over 10% parcel B and the average effect for consumers 7.55%, lower than inflation and we have the transfer off BRL951 million financial component. As we have said, we had an important drop of our CVA in the quarter of almost BRL1 billion and now with this last adjustment Paulista then, at the end of this semester will be very close to turning this key now to the positive side for the concession. In terms of cash of the company that will fall definitely because of these adjustment, especially for Paulista.
Now on page 13, we have our indebtedness. And here we have adjusted net debt over adjusted EBITDA of BRL12 million and we 3.42 and remember that with the CVA coming in, we will be running at 3.22 and be adjusted by CVA cash in balance in here. We will be able to have the benefit of the leverage in creating value for the company. This is the good news and the bad news is the increase of the nominal cost of our debt, amounting 13.7%. Obviously, that is driven by the increase of the CDI. 70% of the gross that of the company is indexed by the CDI. So obviously we reach 13.7% and inflation is at 4% of real cost of that debt.
Turning to page 14. We can see that we are at a comfortable situation in terms of cash coverage. Over BRL4 billion, over two times the cover the short-term amortizations. The debt has a net average term of 3.5 years and in the short-term only 11% of it. So this is a , comfortable situation in terms of management of our debt.
On page 15, another subject that concerns which is that over contracted position and the good news here is that with this PH 04, the exposure that we had that exposure was eliminated. We had 180 average megawatts before PH 04 and six of our age concessions and the public hearing of ANEEL solving on 100% of the problems. We have some residual in one of the companies and here we are talking about very little figure, maybe less than 10% of those 180. So we are telling you that obviously PH 04 mitigated 4% and we have our distributors totally aligned for 2016. It is very important because considering the macroeconomic scenario for the future, we should do some reinforcement there. So here we have also the approval in April of PH 012 that simplifies the process for postponement of new energy contracts. Here is the potential of our variation, which is 2.5% that has to be dealt with. There is some potential for mitigation, but I believe this is more important especially for future perspectives and we have to work on that. And now so it is under discussion right now the impact of what is called the customers migration to the free market. And this is a huge debate here between the agents and ANEEL. And let me remind you that what I have mentioned about exposure of 180 average megawatts, that residual very amount is after that 1.8% going out. So it will be almost 100% if we do not have such an important migration of consumers 1.8% is a high figure.
So now just to report some new points here. The Mata Velha, one-and-a-half years before the contracted period, a very important part CPFL Renovaveis, 13 average megawatts and the auction is May 16, 2016 and value was BRL155 per megawatt hour and we, in these last few months, already have a sale on the free market viable and things have already been released.
On page 17, just to talk about plans still in the free market. The Campo des Ventos and Sao Benedito Wind Farms will come in this year, but also with this new regulation of the agency, we have allowed to have the commercial startup of certain generators. And so we have already had up to the state the entry of four wind turbines. And we have 110 towers which will be added. So we have a reporting scheduled for the coming into operation over the next few months of this farm and this is the first financed for the free market approved by the BNDES and we have the prospect of adding revenue to EBITDA of CPFL Renovaveis which is very important to other projects, which are under construction. The Pedra Cheirosa 48.3 megawatts and the Boa Vista also under construction and so what is really important is coming of the capacity at the very short-term, both for the Mata Velha and for these two new wind farms in the Northeast Brazil. And here CPFL Efficiencia and this is very important for us. CPFL coming in here in the solar distribution and generation through CPFL Efficiencia. Here we have the Algar plant in Campinas with all the solar panels. This has involved the change of 15,000 volts using the LED efficiency or bulbs technology and also the air-conditioning has been changed and replaced much of the fluids and the construction of two solar power plants in Campinas, 200 kilowatts at the peak and another 400 in Uderlandia, savings of 27% with energy efficiency during to photovoltaic generation. An initial investments of BRL6 million and this was inaugurated in March. So in Algar, we have savings of 3,500 megawatts a year and also postponement of the construction of a substation and also with this operation we can enter the free market and also CPFL Energia participates in gains with the solar generation for the next 10 years. And we have a BOT agreement for asset remuneration in six years and it is still the supply of free energy for the next 10 years. In fact, it is a win-win operation which is very important for the CPFL Efficiencia it is very significant.
I am almost finishing, but on page 19, we have the performance of shares. The share had a better performance than IEE in Bovespa appreciating almost 30%. The same with ADR, 47%. So the exchange rates effect and with the CPFL coming back in January and recovered efficiency rate. This has had its effects on the volume of business. And on the left hand side here, the lower left-hand chart, we can see this and this is very important for the future.
I conclude on page 20, showing you some facts about my succession. In April, we have amounts the succession plan. It is part of a planned process the company within the best governance practices I have been here with the group for more than 18 years. So I will finish the second quarter and I will be replaced by Andre Dorf who was the President or CEO of CPFL Renovaveis and has been with us now for about three years in the company and has done outstanding work in the Renovaveis. And he will come with all his youth to manage this new phase of CPFL and we are delighted with this and in this quarter, we have carried out an integration program with the team and Andre has taken part in many activities with us so that he comes in on July 1 playing to win.
So ladies and gentlemen, this is what we had to say about our results and my team and I are now at your disposal for questions. Thank you.
[Operator Instructions]. Our first question comes from Mr. Kaique Vasconcellos from the Citigroup.
Good morning. I have two questions. First regarding demand. You said that you will have more stable demand and have had a shrinkage. So up to May, what have things been like? And what are the prospects for the second quarter? And second question is about amortization. So you have cash to cover the short-term amortization. So what are you going to do? Wait for better debt situation in the market or take CDI or any special spread that you are waiting for? Thank you.
Wilson Ferreira Jr
I will ask Leandro to answer the first question and Gustavo the second.
Hello. Thank you. The April market has not yet presented the recovery that we expected because it has resolved. We have seen the load improve at the end of March and now in April. But the unbilled that Wilson mentioned has not yet come in load because of the mismatch that we have of reading days, the meter reading. So April was a hot month. So this impacted and helped with the recovery of residential factors. But the billed market, we will only see this during the second quarter. well, in fact, we are seeing that we do in fact have an expectation that this year we will be able to work with almost flat volume. Today we are working with the prospect that it won't be flat. It will be between 1% more in terms of volume of negative, I am sorry.
Regarding liquidity and rollover, I think that the market has confirmed our expectation of credit restrictions allied to an increase of cost. And I think this has been a market trend in general. What we have done was basically bring forward a rollover. Basically last year we have few needs to rollover our debt. Today, in the company, Wilson has shown that cash of BRL4 billion, we have already covered everything that we need for 2016 and 2017. So our focus today for rollover will be only for 2018 which gives us a very much more comfortable situation so that we will be able to fetch extra situations of rollover when they are needed. And we can work from the management of the debt, we are already thinking ahead 2018 and we have plenty of time to find the best moment of the market. More important is that those discussions regarding infrastructure for the distribution sector, this discussion goes on, both the Ministry of Finance and the Ministry of Energy, we have here positive outlook to access the market for distribution and we can rollover lesser cost and greater terms, longer terms. But we don't have anything now which obliges us to look for money to rollover the short-term debt. We are in a comfortable position for the company at the moment.
Thank you very much.
Our next question comes from Mr. Vinicius Canheu from Credit Suisse.
Good morning. I have two questions. One, I want to know if you could breakdown what was the loss with the over-contracting? And second, something which I did not understand, when you see slide nine regarding distribution, you show the gains with the pass through of Parcel A. I would like to know why did this impact the results? Because generally these movements of Parcel A are in the asset and liabilities, regulatory abilities. So why did this come into the result? Thank you.
Hello Vinicius. This is Leandro. At the moment, when we have the tariff adjustments, we have some gains, because we have been very conservative during the year in our accounting and when we do the adjustments as happened here with the Paulista, we had a gain with Parcel A at the time of the tariff adjustment of this amount to BRL66 million. About half of that is just simple because of the mismatch and also because of the unbilled amount which is later, it does not have an effect. So we have a temporary effect. And during the second quarter, we will normalize this. So of these BRL66 million, half is temporary. So this will come back during the year and half is because we were conservative during the year and we have some gain at the moment of the annual adjustments.
Okay. Now could you talk about the over contracting please?
This had zero impact of the first quarter and none at the distribution company.
Our next question comes from Miguel Rodrigues, Morgan Stanley.
Good Morning. I have two questions. First, recently we had the regulation of ANEEL for the group of concessions. Could you talk a little bit about the possibly gains and risks of CPFL, if they managed to group together the five smaller concessions? And secondly, could you comment a little on the change of the methodology of the PLD, calculation of PLD and what about your risk aversion? And is this the best way to adjust the model or do you think that the model should be reviewed more thoroughly? I would like you to elaborate on that please.
Wilson Ferreira Jr
So starting by the grouping of concessions. Miguel, at this moment, we are evaluating this alternative. We will bring to the Board probably next month. We will bring this up to the Board. The grouping brings marginal gains to the company, but there is something that we don't know. There are five reports of balance sheet against one balance sheet. So there will be a gain. There are five processes of adjustment and review against one. I have no doubt that some marginal gain will be possible. Our evaluation here is more of a rationalization because this is inside the company also determines for every adjustment processed, the man-hours that you must account for.
So there is a gain. It's not significant, but it does rationalize both our work team and particularly ourselves. We think the gain is more of process rationalization which makes more sense. But for the point of view of consumers, it might have the advantage of a larger area with the same tariff. It's very difficult for us to face different tariffs from one municipality to another. This occurred in the five distributors. We would try and avoid this. We understand that the regulation was established, it's good and we, in the next few months, will propose this to the agency.
Regarding the PLD, the spot price. Regarding the review of the pricing methodology, there are some points, highlights here. The concern of minimizing, the model must reflect as well as possible the operation cost of the system. Another important point is that in case of an alteration of the methodology of the pricing that this not be done in a raw way because this will cause impact on the market negotiations in the pricing method of the agency. So you must have time to apply this change and it does not cause negative impact for the agents and a negative impression. And if you have to change things, this is under study and the CPFL Group is still studying whether this is the best way to adjust the model to improve this outside the merit. There is no way to. This is under study. We have not decided.
Our next question comes from Marcelo Sa with UBS.
Hello. To continue, it seems that there has been an increase regarding the long-term price that the collective bargaining is discussing BRL120 to BRL122. Is this because of the change of PLD? Or was it for any other reason? Is the hydrological scenario, would it be more difficult next year? And could you give us more data regarding the privatization of the Sul, do you have a new schedule or new price review with the new government, will things change?
Wilson Ferreira Jr
Regarding your first question, naturally the evaluation of the price curve involves many elements. The discussion regarding the formatting of the price is one of them but you have elements like the delay of Belo Monte line, which affects the price. Hydrology, well, there is a difference of expectation regarding the former one and there are several elements reflected here. It's not a significant variation of the price, just adjustment of different variables. But nothing stands out regarding the price variation.
The second question. We have not been officially informed regarding the process and we now have a new government and this would be important to review as quickly as possible. Obviously the price, there is an error, just comparing comparables of multiples regarding the bases and you will see that we have here a mistake. The sector now has, because of the regulatory movement, we are made important progress regarding the rules of distribution and we see the different states and Electrobras needing cash for the question of privatization, which could bring many benefits to those who want the concessions and for consumers, as I see it personally, should be stepped up considerably in the next few months. Especially, we don't want to increase taxes. So one way of capitalizing companies and governments is to do this where everybody can gain. So two-thirds of the concessions are private. In all governments, there has been with a greater gain of tax because of the better efficiency of these, better quality and obviously the use of that resource for the rebalancing of public accounts and whoever is doing the selling, I believe, the shares that all the analysts have said that all those interested have already manifested their interest and I would think within the next days or months, we will have the review of this amount.
Our next question comes from Ms. Sergio Tamashiro from Haitong.
Thank you. And Wilson, I wish you all the best in your new activities and Alberto as well. Second continuing regarding the new government now with the entry of Fernando Bezerra, we know that this future government has a quick need to attract new investment to try and reverse this trend towards economic shrinkage. So in your sector, what steps do you think might be taken? You mentioned the process of privatization in the distribution sector. But what other steps could be taken and do you think could be implemented? A greater flexibility in the -- what can you imagine? The second question regarding the level of debt, you had said that there was no problem here. There was no short-term cash problem and quickly you are coming into a fast leverage situation. You will have a lot of cash and then you will be thinking, well, among these new projects and you are seeing capacity of generation and new projects for distribution. So what are you seeing? Will you be interested in these other projects? Expansion into other countries? So what would be alternatives? And finally, I would just like you to elaborate regarding the level of losses. It's a very simple thing. You have the numerator equal losses and then under that the low voltage and these two indicators seem, even in leap year, they are equally intense. So I don't understand why only the numerator feels the effects of the leap year.
Wilson Ferreira Jr
Thank you Sergio for your questions and also thank you for your good wishes. One of the things besides being team tried to CPFL, I will continue here being the Chairman of the Board of ABRADEE. We have had a chance to talk to some of the members who will be involved in this process.
And with an overview, I can say that the government has already taken the first step with the talking about the partnerships for investments, I feel that there is total clarity [indiscernible] with the attraction of an investment is the most important thing to [indiscernible] invest in capital and infrastructure. So there are two points here. First of all, [indiscernible] in many of the projects we have projects that are up for bidding but have not yet been put into practice also for environmental projects. And on the other hand, we have an important agenda to show legal security and regulatory stability. I think the discussions will come along regarding improvement of the regulations for the agency, improvement of the auction conditions. I want to be very frank with you regarding the electric sector. I think we have made great progress last year and this year, because most of the election, except the last one for distribution had participants and all the lots were sold.
In a specific one, the last transmission auction we had the entry of new agents and we did not have the presence of some important private agents or even public that have always been part of it and the main reason was because the fact of the nonpayment of the RBS, was harming these agents, something which was done on the last day of the management of Eduardo Braga. The electric power sector today where the ceiling prices have gone up and because of competition and this is the right way to establish price and this implies in each one of these themes a higher remuneration on your own capital and also as Gustavo has said, the increase of financing or the increase of this ceiling. So the environment expropriation themes will be addressed by the next 12 months. It's very important that infrastructure if it is useful to country and we can go from 2% to 4% of GDP in investments very quickly.
This must be followed by the recognition of this importance. It means that we will have people with us and entrepreneurs trying to make things easier with the government and not complicate it. Everybody wins with this. Things become simplified. The work is delivered more quickly to the population and work is distributed more quickly. As it gets the explicit show that the theme of the investment in infrastructure and the poetry is something very smart. And this committee that is going to manage this is doing right. So they are going the right way. And the electric sector has already done a lot of this improvement. But generally speaking, so that the environment be generalized and not only for the electric power sector, many elements, be it in the agencies or the laws that support the expert preparation which comes from 1941 and all the other periods of loss, the things lost, all have to be reviewed. And I am very positive about that.
Now one last point, I think, was the losses. I will call upon someone on my team.
Hello. This is Luiza Mariko from market planning. As you said, the calculation is simple. What is the difference? We are performing a loss in May where the average is 8.1%, it's higher. You have more load than market at the moment because you have the effect of temperature on the lead. When you do the reading in the month and it's a question of date of the month. One is right at the beginning and one is right at the end. So this amount of energy which is not billed from March 15 until the March 31 had a strong temperature effect and as you have said, the load of the year has one day more, 366 days. For the reading, it's still 365 days but there were more then 100 gigawatts accumulated and I am talking about the residential and commercial areas. Well, looking at this question of losses and as is indicated, as this will effect other quarters, this losses will probably drop. The temperature will give us back its effect in the calendar as well. At the middle of the year, we have three 365 days and so those effects of the calendar and the temperature will give us back the losses stabilizing this expectation.
Now going back to this question of new investments, Wilson, I think the government will be attracting new investments as a priority. Now specifically the electric power, especially the great generators, there was a strong participation of the construction companies. Do you see any structural changes for the fact that this company is no longer here and there is not a participation of Electrobras and they are only private companies?
Wilson Ferreira Jr
Yes Sergio. I think you have had that. For example, if you take in transmission, the last auction, the great largest lot was sold to a front of infrastructure investment. So these agents that are coming in and if they are skilled, there are many resources in the world looking for investments to have these prospects that we have in Brazil. I would say that it is sure that we will have new agents here. But the CPFL, well, in the specific case of public companies, just look at the balance sheet. It is a difficult situation and I think it's already difficult to incorporate what has been signed. So you need financial discipline to manage these companies and we participate in these investments. But with the improvement of the economic and regulatory environment and the legal environment and the business environment that this new government is bringing us, we will certainly be capable of attracting investments from other places in the world here because of the demand that you will be offering each one of them.
This is the only reason, the only good point of not having invested very much in the last few years, is that there is a lot of repressed demand that can be met. And in fact, as I had said at the beginning of the year, we overcame this small acute moment of the crisis. And CPFL, just look at the indicators of solvency of liquidity and of indebtedness, the company's situation allows it and I think that this is the main point of this new phase will come in to a new cycle of growth. The company has a very good structure to evaluate these alternatives and fortuitously we have here, if you take the breakdown of the company's EBITDA, it has a 45% distribution, 45% generation and 10% in commercialization and services and it's very well balanced. If we could keep this, then certainly we will do so because I think this balance is very good.
The opportunities appear and we are looking at most of them according to our strategy which is to follow in the three businesses that we have said. Very focused on the electric power session and distribution and expansion or through M&A or greenfield in generation. We have experience in both and in the strengthening of this activity of services which has been an important arm for the company to make consumers more loyal or to capture new clients. So this structure is possible. But you can't choose, if it's a consolidation and this big steps to us to create value, this is very important. We don't want market share, we want prospects to increase our value and improve our corporate structure. So this is what we want. The company is very aware of this and the group of opportunities is there and we are evaluating them. And we will present the best options which will bring about better value creation for our shareholders. This is our value, to create this and share with the others.
Okay. If you will allow me a quick follow-up, although you have a positive entry on the Itaipu [ph] and also we see other companies came in the electric energy sector and I don't know, maybe in my point of view, that could be somewhat risky. We have seen in other auctions of energy generation that the new players later on had difficulties in going forward Genpower, Bolognesi. I am not talking about Bengo, but you see that future-ly these assets being that are developed by them so that they would come in the secondary market. What is your point of view?
Wilson Ferreira Jr
Yes. You are right on your comment. I believe that in the development of the regulation in the auction processes, we will have two things. First, a more correct evaluation in the financial services of the bidders, actually. So some of them maybe would not be approved by the bank. So there was an improvement in the bidder's qualification. And on the other side, we have a faster pace in the assessment of the delay. There are projects that today are at the base, also of the distributors and we already know that those will not happen. So here we should have a faster pace to make the decision and say cancel the project. That will generate the needed demand for the future because so far, well, when the project is seen as a potential to be connected in addition to the delay it might cause and sometimes this is a serious delay and that could cause a fluctuation in the market price, you then want to do investment that would be needed there. So here we do have adjustments and improvements to be made into the process and I believe that in the system of partnership and investment that has been announced yesterday probably will address the issue. But yes, we do have homework to do, both in qualification as well as in following up the process and in a possible cancellation of that participation considering all the consequences that could be attributed to the bidders.
Thank you very much.
Our next question is from Ms. Carolina Carneiro, Santander.
Good afternoon everyone. My question is about the next reserve energy auction. The company has any projects that would be interested to participate on that? And a second question, in the prior call, you talked about a flat demand this year and you see a small growth and I would like to know if the economic data and billing data that you have seen in the first quarter, if that estimate is still there? Thank you.
Wilson Ferreira Jr
Carolina, starting on your second question. I mentioned in the call, yes, with the results of this first quarter we reviewed our projections and we estimate that it's not going to be flat, zero. It's going to be slightly negative, maybe one, we could be reaching two. About the reserve energy auction, especially in renewable that has been said yesterday, yes, we do have a set of assets and we will assess timely our interest in taking part on it. But yes, we do have potential assets to take part in this bid or on this auction actually and we will have a saying on that briefly.
The conference call of CPFL Energia is concluded. We thank you all for your participation. Have a nice day. Thank you.
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