Enersis S.A. 20-F 2010
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-12440
Securities registered or to be registered pursuant to Section 12(b) of the Act:
*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
x Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Indicate by check mark which financial statement item the registrant has elected to follow:
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
o Yes x No
Enersis Simplified Organizational Structure (*)
as of December 31, 2009
(*) Only principal operating subsidiaries are presented here. Percentage ownership includes Enersis direct and indirect equity interests.
TABLE OF CONTENTS
As used in this report on Form 20-F, first person personal pronouns such as “we,” “us” or “our” refer to ENERSIS S.A. (Enersis or the Company) and our consolidated subsidiaries unless the context indicates otherwise. Unless otherwise noted, our interest in our principal subsidiaries and affiliates is expressed in terms of our economic interest as of December 31, 2009.
We are a Chilean company with subsidiaries engaged primarily in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru. As of the date of this report, we own 60.0% of Empresa Nacional de Electricidad S.A. (Endesa Chile) and 99.1% of Chilectra S.A. As of the same date ENDESA S.A. (Endesa Spain), a Spanish electricity generation and distribution company, owns 60.6% of Enersis. Enel S.p.A. (Enel), an Italian generation and distribution company, owns through a wholly-owned subsidiary 92.1% of Endesa Spain.
In this report on Form 20-F, unless otherwise specified, references to “dollars” or “$” are to dollars of the United States of America; references to “pesos” or “Ch$” are to Chilean pesos, the legal currency of Chile; references to “Ar$” or “Argentine pesos” are to the legal currency of Argentina; references to “R$” or “reais” are to the Brazilian real, the legal currency of Brazil; references to “soles” are to Peruvian Nuevo Sol, the legal currency of Peru; references to “CPs” or “Colombian pesos” are to the legal currency of Colombia; references to “€” or “Euros” are to the legal currency of the European Union; and references to “UF” are to Unidades de Fomento.
The Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary unit. The UF rate is set daily in advance based on changes in the previous month’s inflation rate. As of December 31, 2009, UF 1 was equivalent to Ch$ 20,942.88. The dollar equivalent of UF 1 was $ 41.30 at December 31, 2009, using the Observed Exchange Rate, reported by the Banco Central de Chile (the Chilean Central Bank or the Central Bank) as of December 31, 2009 of Ch$ 507.10 per $ 1.00. As of May 31, 2010, UF 1 was equivalent to Ch$ 21,112.41. The dollar equivalent of UF 1 was $ 39.79 as of May 31, 2010, using the Observed Exchange Rate reported by the Central Bank of Ch$ 530.62 per $ 1.00.
Our Consolidated Financial Statements and, unless otherwise indicated, other financial information concerning to Enersis included in this report are presented in pesos. Until the year ended December 31, 2008, Enersis prepared its financial statements in accordance with generally accepted accounting principles in Chile (Chilean GAAP). In accordance with the rules of the Superintendency of Securities and Insurance (SVS), for 2009, Enersis has prepared its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standard Board (IASB). The opening IFRS statement of financial position was prepared as of January 1, 2008. A description of the principal differences between Chilean GAAP and IFRS applicable to Enersis, a reconciliation of our shareholders’ equity as of January 1 and December 31, 2008, and a reconciliation to the net income for the year ended December 31, 2008 from Chilean GAAP to IFRS, are included in Note 40 to our Consolidated Financial Statements.
Subsidiaries are consolidated by the global integration method, incorporating into the Consolidated Financial Statements all assets, liabilities, income, expenses and cash flows after making the corresponding adjustments and eliminations for intra-company transactions.
Jointly-controlled entities, which are those that do not have a controlling shareholder but are governed by a joint management agreement, are consolidated by the proportional integration method. Enersis recognizes, line by line, its share of the assets, liabilities, income and expenses of such entities, so that the aggregation of balances and subsequent eliminations, takes place only in the proportions of Enersis’ shares in them.
Investments in associates over which the Company has significant influence, are recorded in our Consolidated Financial Statements under the equity method.
For detailed information regarding subsidiaries, jointly-controlled entities and associates, see Appendix No. 1 of the Consolidated Financial Statements.
For the convenience of the reader, this report contains translations of certain peso amounts into dollars at specified rates. Unless otherwise indicated, the dollar equivalent for information in pesos is based on the Observed Exchange Rate, as defined in “Item 3. Key Information — A. Selected Financial Data — Exchange Rates” as of December 31, 2009. The Federal Reserve Bank of New York does not report a noon buying rate for pesos. No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, as the case may be, at such rate or at any other rate (See "Item 3. Key Information — A. Selected Financial Data — Exchange Rates").
References to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively; references to “MW” and “MWh” are to megawatts and megawatt hours, respectively; references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively; references to “kV” are to kilovolts, and references to “MVA” are to megavolt amperes. Unless otherwise indicated, statistics provided in this report with respect to electricity generation facilities are expressed in MW, in the case of the installed capacity of such facilities. One TW = 1,000 GW, one GW = 1,000 MW, and one MW = 1,000 kW.
Statistics relating to aggregate annual electricity production are expressed in GWh and based on a year of 8,760 hours, except for 2008, a leap year, based on 8,784 hours. Statistics relating to installed capacity and production of the electricity industry do not include electricity of self-generators. Statistics relating to our production do not include electricity consumed by us from our generators.
Energy losses experienced by generation companies during transmission are calculated by subtracting the number of GWh of energy sold from the number of GWh of energy generated (excluding own energy consumption and losses of the power plant), within a given period. Losses are expressed as a percentage of total energy generated.
Energy losses during distribution are calculated as the difference between total energy purchased (GWh of physical demand, including own generation) and the energy sold (GWh), within a given period. Losses are expressed as a percentage of total energy purchased. Losses in distribution arise from illegally tapped energy as well as technical failures.
Calculation of Economic Interest
References are made in this report to the “economic interest” of Enersis in its related companies. In circumstances where we do not directly own an interest in a related company, our economic interest in such ultimate related company is calculated by multiplying the percentage economic interest in a directly held related company by the percentage economic interest of any entity in the ownership chain of such related company. For example, if we own 60% of a directly held subsidiary and that subsidiary owns 40% of an associate, our economic interest in such associate would be 24%.
This report contains statements that are or may constitute forward-looking statements. These statements appear throughout this report and include statements regarding our intent, belief or current expectations, including but not limited to any statements concerning:
· our capital investment program;
· trends affecting our financial condition or results from operations;
· our dividend policy;
· the future impact of competition and regulation;
· political and economic conditions in the countries in which we or our related companies operate or may operate in the future;
· any statements preceded by, followed by or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions; and
· other statements contained or incorporated by reference in this report regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to:
· changes in the regulatory framework of the electric industry in one or more of the countries in which we operate;
· our ability to implement proposed capital expenditures, including our ability to arrange financing where required;
· the nature and extent of future competition in our principal markets;
· political, economic and demographic developments in the emerging market countries of South America where we conduct our business; and
· the factors discussed below under “Risk Factors.”
You should not place undue reliance on such statements, which speak only as of the date that they were made. Our independent public accountants have not examined or compiled the forward-looking statements, and, accordingly, do not provide any assurance with respect to such statements. You should consider these cautionary statements together with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
For all these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
A. Selected Financial Data.
The following summary of consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements, included in this report. Our audited Consolidated Financial Statements as of and for the years ended December 31, 2009 and 2008 are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB. For further detail on the adoption of IFRS, please see Introduction Financial Information. The financial data as of and for each of the two years ended December 31, 2009 in the table below are presented in nominal pesos.
In general, amounts are expressed in million except for ratios, operating data, shares and ADS data. For the convenience of the reader, all data presented in dollars in the following summary, from and at the end of the year ended December 31, 2009, are translated at the Observed Exchange Rate for December 31, 2009 of Ch$ 507.10 per $ 1.00. No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, at such rate or at any other rate. For more information concerning historical exchange rates, see Exchange Rates below.
The following table sets forth the selected consolidated financial data of Enersis S.A. in accordance with IFRS for the periods indicated:
(1) Solely for the convenience of the reader, peso amounts have been translated into dollars at the exchange rate of Ch$ 507.10 per dollar, the Observed Exchange Rate as of December 31, 2009.
(2) Capex figures represent effective payments for each year.
(1) Energy losses are calculated as the difference between total energy purchased (GWh of physical demand, including own generation) and the energy sold (GWh), within a given period. Losses are expressed as a percentage of total energy purchased. Losses in distribution arise from illegally tapped energy as well as technical failures.
(2) Energy production is defined as total generation minus energy consumption and technical losses within our own power plants.
(3) As a result of the creation of Endesa Brasil, Cachoeira Dourada became a subsidiary of Enersis as of October 2005. As of the same date, Enersis also started to consolidate Endesa Fortaleza. Ampla had generation facilities which were sold in 2006.
(4) The differences in the 2008 figures of Chile compared to those reported in our 2008 Form 20‑F are explained by the consolidation of 50% of GasAtacama, a jointly controlled company, into Endesa Chiles financial statements due to the adoption of IFRS in January 2009, which requires proportional consolidation of the owned joint ventures.
(5) Values for year 2009 include the consolidation of 49.0% of Distribuidora de Energía de Cundinamarca S.A.(DECA), a jointly-controlled company of Codensa, into Codensas financial statement, due to the adoption of IFRS in January 2009, which requires proportional consolidation of the owned joint ventures. This consolidation also affects other 2009 figures such as capital expenditure, kilometers of concession area, transmission lines, sub-stations, transformers and employees. The 2009 figure for electricity sold does not coincide with previously disclosed Company information, as the required data for DECA was not available at that earlier time.
Fluctuations in the exchange rate between the peso and the dollar will affect the dollar equivalent of the peso price of our shares of common stock, without par value (the Shares or the Common Stock), on the Bolsa de Comercio de Santiago (the Santiago Stock Exchange), the Bolsa Electrónica de Chile (the Chilean Electronic Exchange) and the Bolsa de Corredores de Valparaíso (the Valparaíso Stock Exchange) (collectively, the Chilean Exchanges). These exchange rate fluctuations will likely affect the price of the Companys American Depositary Shares (ADSs) and the conversion of cash dividends relating to the Shares represented by ADSs from pesos to dollars. In addition, to the extent financial liabilities of the Company are denominated in foreign currencies, exchange rate fluctuations may have a significant impact on earnings.
The Ley Orgánica del Banco Central de Chile 18,840 (the Central Bank Act), provides that the Central Bank may require that certain purchases and sales of foreign currency be carried out in the Mercado Cambiario Formal (the Formal Exchange Market), a market comprised of banks and other entities explicitly authorized by the Central Bank. Purchases and sales of foreign currency, which can take place outside the Formal Exchange Market, can be carried out in the Mercado Cambiario Informal (the Informal Exchange Market), which is a recognized currency market in Chile. Free market forces drive both the Formal and Informal Exchange Markets. Foreign currency for payments and distributions with respect to the ADSs may be purchased in either the Formal or the Informal Exchange Market, but such payments and distributions must be remitted through the Formal Exchange Market. The Central Bank publishes daily the dólar observado (the Observed Exchange Rate), which is computed by taking the weighted average of the previous business days transactions in the Formal Exchange Market.
Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other. The Informal Exchange Rate means the average rate at which transactions are made in the Informal Exchange Market. On December 31, 2009, the Informal Exchange Rate was Ch$ 507.45, or 0.07% higher than the published Observed Exchange Rate of Ch$ 507.10 per $ 1.00. On May 31, 2010, the informal exchange rate was Ch$ 530.35 per $ 1.00, 0.05% lower than the Observed Exchange Rate corresponding to such date of Ch$ 530.62 per $ 1.00. Unless otherwise indicated, amounts translated to dollars were calculated based on the exchange rates in effect as of December 31, 2009.
The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank.
Source: Chilean Central Bank.
(1) Reflects pesos at historical values rather than in constant pesos.
(2) The average of the exchange rates on the last day of each month during the period. This is not applicable to monthly data.
B. Capitalization and indebtedness.
C. Reasons for the offer and use of proceeds.
D. Risk factors.
South American economic fluctuations are likely to affect our results from operations.
All of our operations are located in five South American countries. Accordingly, our consolidated revenues are sensitive to the performance of South American economies as a whole. If local, regional or worldwide economic trends adversely affect the economy of any of the five countries in which we have investments or operations, our financial condition and results from operations could be adversely affected.
The South American financial and securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries. Although economic conditions are different in each country, investor reaction to developments in one country may have a significant effect on the securities of issuers in other countries, including Chile. Chilean financial and securities markets may be adversely affected by events in other countries and such effects may affect the value of our securities. Moreover, we have significant investments in relatively risky countries such as Argentina. Generation and distribution of cash from such subsidiaries in these countries have proven to be volatile.
Our business is particularly dependent on the Chilean economy and our revenues are sensitive to its performance.
A substantial portion of our assets and operations are located in Chile and, accordingly, our financial condition and results of operations are to a certain extent dependent upon economic conditions prevailing in Chile. In 2009, the Chilean GDP decreased by 1.5% compared to a 3.7% increase in 2008. The latest Chilean Central Bank estimate for growth in 2010, is in the 4.25% - 5.25% range. However, there is no assurance that such growth will be achieved, that the growth trend will be resumed in the future, or that future developments in the Chilean economy will not impair our ability to proceed with our strategic plans or adversely impact our financial condition or results of operations. Our financial condition and results from operations could also be adversely affected by changes in economic or other policies of the Chilean government, which has exercised and continues to exercise a substantial influence over many aspects of the private sector. In addition, our financial condition and results of operations could also be affected by other political or economic developments in Chile, a well as regulatory changes or administrative practices of Chilean authorities, over which we have no control.
Certain South American economies have been characterized by frequent and occasionally drastic intervention by governmental authorities, which may adversely affect our business.
Governmental authorities have changed monetary, credit, tariff and other policies to influence the course of the economies of Argentina, Brazil, Colombia and Peru. These governmental actions, intended to control inflation and affect other policies, have often involved wage, price and tariff rate controls as well as other interventionist measures, which in Argentina included freezing bank accounts and imposing capital restrictions in 2001, the nationalization of the private sector pension funds in 2008, and the use of Central Bank reserves of the Argentine Treasury in order to pay down indebtedness maturing in 2010. Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could adversely affect our business and financial results, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the response by governments in the region to these circumstances. If governmental authorities intervene materially in any of the countries in which we operate, it could cause our business to become less profitable, and our results from operations may be adversely affected.
Our electricity business is subject to risks arising from natural disasters, catastrophic accidents and acts of terrorism which could adversely affect our operations, earnings and cash flow.
Our primary facilities include power plants, transmission and distribution assets, pipelines, LNG terminals and re‑gasification plants, storage and chartered LNG tankers. Our facilities may be damaged by earthquakes, flooding, fires, other catastrophic disasters arising from natural or accidental human causes, as well as acts of terrorism. For example, on February 27, 2010, Chile experienced a major earthquake measuring 8.8 on the Richter scale, followed by a tsunami. Notwithstanding our insurance policies regarding these events, we could still experience severe business disruptions, significant decreases in revenues based on lower demand arising from catastrophic events, or significant additional costs to us not otherwise covered by business interruption insurance clauses. There may be an important time lag between a major accident or catastrophic event and our definitive recovery from our insurance policies, which typically carry non‑recoverable deductible amounts, and in any event are subject to caps per event. Some of these considerations, among others, could lead to an adverse effect on our operations, earnings and cash flow. For information on the February 27, 2010 earthquake in Chile, please see Item 4. Information on the Company A. History and Development of the Company. Recent Developments.
We are subject to refinancing risk and to debt covenants that could affect our liquidity.
As of December 31, 2009, our debt in financial terms was $ 8,224 million while, under accounting terms, it totaled $ 7,978 million. These amounts differ since financial debt does not include accrued interest, which accounting debt includes, and considers other items that accounting debt does not include, such as derivatives mark to market effects.
Our financial debt had the following maturity timetable:
· $ 1,313 million in 2010;
· $ 1,200 million in 2011;
· $ 4,451 million in the period 2012-2014; and
· $ 1,260 million thereafter.
Of the $ 1,313 million of financial debt maturing in 2010:
· $ 369 million is in Chile;
· $ 123 million in Argentina;
· $ 478 million in Brazil;
· $ 242 million in Colombia; and
· $ 101 million in Peru.
Our debt agreements are subject to certain fairly standard debt to EBITDA and debt to equity financial covenant ratios, among others. With IFRS adoption, all the financial covenants were amended, so as to leave the Company with approximately the same levels of covenant constraints as before the accounting standards change. They also contain common affirmative and negative covenants, as well as events of default, and in some cases, mandatory prepayment events.
As is customary for certain credit and capital market debt facilities, a significant portion of Enersis and Endesa Chiles financial indebtedness is subject to cross default provisions, with different definitions, criteria, materiality thresholds, and applicability as to the subsidiaries that could give rise to a cross default.
In the event that any of our cross default provisions are triggered and our existing creditors demand immediate repayment, a portion of our indebtedness could become due and payable. For more information on covenants, cross default and relevant provisions for these credit facilities, see Item 5. Operating and Financial Review and Prospects B. Liquidity and Capital Resources.
We may be unable to refinance our indebtedness or obtain such refinancing on terms acceptable to us. In the absence of such refinancing, we could be forced to dispose of assets in order to make up for any shortfall in the payments due on our indebtedness under circumstances that might not be favorable to obtaining the best price for such assets. Furthermore, assets may not be sold quickly enough, or for amounts sufficient to enable us to make such payments.
As of the date of this report, Argentina continues to be the country with the highest refinancing risk. As of December 31, 2009, the third-party financial debt of our Argentine subsidiaries amounted to $ 380 million. As a matter of policy for all of our Argentine subsidiaries as long as fundamental issues concerning the electricity sector remain unresolved, we are rolling over our Argentine outstanding debt. If our creditors do not continue to accept rolling over debt principal when it becomes due, we may be unable to refinance such indebtedness.
Since our generation business depends heavily on hydrological conditions, drought conditions may hurt our profitability.
Approximately 58% of our consolidated installed generation capacity is hydroelectric. Accordingly, extreme hydrological conditions may affect our business and have an adverse effect on our results.
During periods of drought, thermal plants, such as ours that use natural gas, fuel oil or coal as a fuel are dispatched more frequently. Our operating expenses increase during these periods, and depending on our commercial obligations, we may have to buy electricity from other generators in order to comply with our contractual supply obligations. The cost of these electricity purchases in the spot market may exceed the price at which we sell contracted electricity, thus producing losses from those contracts.
Governmental regulations may impose additional operating costs which may reduce our profits.
We are subject to extensive regulation of tariffs and other aspects of our business in the five countries in which we operate, and these regulations may adversely affect our profitability. In addition, changes in the regulatory framework, including changes that if adopted would significantly affect our operations, are often submitted to the legislators and administrative authorities in the countries in which we operate and could have a material adverse impact on our business. For instance, in 2005 there was a change in the water rights law in Chile that requires us to pay for all the unused water rights.
The Chilean government can impose electricity rationing during drought conditions or prolonged failures in power facilities. If, during rationing, we are unable to generate enough electricity to comply with our contractual obligations, we may be forced to buy electricity in the pool market at the spot price, since even a severe drought does not constitute a force majeure event. The spot price may be significantly higher than our costs to generate the electricity and can be as high as the cost of failure set by the National Energy Commission, or the CNE. This cost of failure, which is updated semiannually by the CNE, is a measurement of how much final users would pay for one extra MWh under rationing conditions. If we are unable to buy enough electricity in the pool market to comply with all of our contractual obligations, then we would have to compensate our regulated customers for the electricity we failed to provide at the rationed price. If material rationing policies are imposed by regulatory authorities in Chile, our business, financial condition and results from operations may be affected adversely in a material way.
Similarly, if material rationing policies are imposed by any regulatory authority as a result of adverse hydrological conditions in the other countries in which we operate, our business, financial condition and results from operations may be affected adversely in a material way. Rationing periods may occur in the future and consequently, our generation subsidiaries may be required to pay regulatory penalties if such subsidiaries fail to provide adequate service under such conditions.
Regulatory authorities may impose fines on our subsidiaries.
In Chile, our electricity businesses may be subject to regulatory fines for any breach of current regulations, including energy supply failure. Such fines may range from 1 Unidad Tributaria Mensual (UTM), or $ 73, to 10,000 Unidades Tributarias Anuales (UTA), or $ 8.7 million, in each case using the UTM, UTA and foreign exchange rate as of December 31, 2009. Any electricity company supervised by the Superintendencia de Electricidad y Combustibles (Chilean Superintendence of Electricity and Fuels), or SEF, may be subject to these fines in cases where, in the opinion of the SEF, operational failures that affect the regular energy supply to the system are the fault of the company; for instance, when the coordination duty of the system agents is not fulfilled.
Our generation and distribution subsidiaries may be required to pay fines or to compensate customers if those subsidiaries are unable to deliver electricity to them even if such failure is due to forces outside of our control.
In 2004, the SEF imposed fines on Chilectra and Endesa Chile in the amount of UTA 1,830, or $ 1.6 million and UTA 2,030, or $ 1.8 million, respectively, due to a blackout that occurred in the Metropolitan Region in 2003. As a result of an administrative resolution, Endesa Chiles fine has since been reduced to UTA 1,610, or $ 1.4 million. In 2005, the SEF imposed fines of UTA 1,260, or $ 1.1 million, on Endesa Chile due to a blackout that occurred in the Metropolitan Region in 2003. In February 17, 2009, the SEF imposed fines on Endesa Chile, Pehuenche and San Isidro for UTA 200, UTA 200 and UTA 100, respectively, or $ 0.4 million in total. Also in 2009, the SEF fined Chilectra for UTA 2,000, or $ 1.7 million, due to billing management procedures challenged by our customers. In June 2009, the SEF imposed fines on Chilectra in the amount of UTA 1,630, or $ 1.4 million, due to a blackout that occurred in the Metropolitan Region in 2004. We are currently appealing all these fines, but these appeals may be unsuccessful.
We depend in part on payments from our subsidiaries and affiliates to meet our payment obligations.
We have no significant assets other than the stock of our subsidiaries. In order to pay our obligations, we rely on cash from dividends, loans, interest payments, capital reductions and other distributions from our subsidiaries and equity affiliates, as well as cash from proceeds of the issuance of new securities. Our ability to pay our obligations will depend on the receipt of distributions from our subsidiaries. The ability of our subsidiaries and equity affiliates to pay dividends, interest payments, loans and other distributions to us is subject to legal constraints such as dividend restrictions, fiduciary duties, contractual limitations and foreign exchange controls that may be imposed in any of the five countries where they operate.
Historically, we have been able to access the cash flows of our Chilean subsidiaries, but we have not been similarly able to access at all times the cash flows of our non‑Chilean operating subsidiaries due to government regulations, strategic considerations, economic conditions and credit restrictions.
Our future results from operations outside Chile may continue to be subject to greater economic and political uncertainties than what we have experienced in Chile, thereby reducing the likelihood that we will be able to rely on cash flows from operations in those entities to repay our debt.
Dividend Limits and Other Legal Restrictions. Some of our non‑Chilean subsidiaries are subject to legal reserve requirements and other restrictions on dividend payments. In addition, the ability of any of our subsidiaries which are not wholly owned to distribute cash to us may be limited by the fiduciary duties of the directors of such subsidiaries to their minority shareholders. Furthermore, some of our subsidiaries may be forced by local authorities to diminish or eliminate dividend payments, such as the temporary restrictions for distributing dividends faced by our Argentine subsidiary, Edesur, during 2009. As a consequence of such restrictions, our subsidiaries could, under certain circumstances, be prevented from distributing cash to us.
Contractual Constraints. Distribution restrictions in our subsidiaries contractual agreements include the following: prohibitions against dividend distributions by many companies in the case of default, and in the case of Pangue, Edegel, Fortaleza and Cien, if they are not in compliance with certain financial ratios; and prohibitions against dividend distributions, capital reductions, intercompany interest payments and debt repayment by Ampla and Coelce in Brazil, and Endesa Costanera and El Chocón in Argentina, in the case of default and if not in compliance with certain financial ratios.
Operating Results of Our Subsidiaries. The ability of our subsidiaries and equity affiliates to pay dividends or make loan payments or other distributions to us is limited by their operating results. To the extent that the cash requirements at any of our subsidiaries exceed available cash, such subsidiary will not be able to make cash available to us.
Foreign Currency Controls. The ability of our non-Chilean subsidiaries and equity affiliates to pay dividends and make loan payments or other distributions to us may be subject to restrictions that may be imposed by Central Banks or other governmental authorities in the various jurisdictions in which we operate. For example, during the economic crisis of 2001, the Central Bank of Argentina imposed restrictions on the transfer of funds outside Argentina.
Foreign exchange risks may adversely affect our results, and the dollar value of dividends payable to ADS holders.
Most South American currencies in which we and our subsidiaries operate have been subject to large devaluations and appreciations against the dollar and may be subject to significant fluctuations in the future.
Historically, a significant portion of our consolidated indebtedness has been denominated in dollars and, although a substantial portion of our revenues are linked to dollars, we generally have been and will continue to be materially exposed to fluctuations of our local currencies against the dollar because of time lags and other limitations in the indexation of our tariffs to the dollar.
Because of this exposure the cash generated by our subsidiaries can be diminished materially when the local currencies devalue against the dollar. Future volatility in the exchange rate of the currencies in which we receive revenues or incur expenditures, may affect our financial condition and results from operations. For more information on the risks associated with foreign exchange rates, see Item 11. Quantitative and Qualitative Disclosures About Market Risk.
As of December 31, 2009, using financial rather than accounting conventions, Enersis total consolidated financial debt was $ 8,224 million (net of currency hedging instruments). Of this amount $ 2,357 million, or 29%, was denominated in dollars and $ 1,804 million in pesos. In addition to the dollar and the peso, our foreign currency denominated consolidated indebtedness included the equivalent of:
· $ 159 million in Argentine pesos;
· $ 1,847 million in reais;
· $ 2 million in Euro;
· $ 1,585 million in Colombian pesos; and
· $ 470 million in soles.
This totals an aggregate of $ 4,063 million in currencies other than dollars or pesos.
For the twelve‑month period ended December 31, 2009, our operating revenues amounted to $ 12,897 million (before consolidation adjustments) of which:
· $ 750 million, or 6%, was denominated in dollars; and
· $ 2,436 million, or 19%, was linked in some way to the dollar.
In the aggregate, 25% of our operating revenues (before consolidation adjustments) was either denominated in dollars or linked to dollars through some form of indexation, while 18% were in pesos.
Revenues, before consolidation adjustments, in other currencies for the year ended December 31, 2009, included the equivalent of:
· $ 1,124 million in Argentine pesos;
· $ 3,594 million in reais;
· $ 2,070 million in Colombian pesos; and
· $ 643 million in soles.
Despite the fact that we generate revenues and incur debt in these same currencies, we believe that we are subject to risk in terms of our foreign exchange exposure to these four currencies. The most material case is that of our Argentine generation companies, where most of our debt is denominated in dollars while our revenues are mostly in Argentine pesos.
Furthermore, trading in the shares of our common stock underlying ADSs is conducted in pesos. Our depositary bank will receive cash distributions that we make with respect to the shares underlying the ADSs in pesos. The depositary bank will convert such pesos to dollars at the then-prevailing exchange rate to make dividend and other distribution payments in respect of ADSs. If the peso depreciates against the dollar, the value of the ADSs and any dollar distributions ADS holders receive from the depositary bank will decrease.
Construction of new facilities may be adversely affected by factors associated with these projects.
Factors that may adversely affect our ability to build new facilities include: delays in obtaining regulatory approvals, including environmental permits; shortages or increases in the price of equipment, materials or labor; opposition by local or international political, environmental and ethnic groups; strikes; adverse changes in the political and regulatory environment in the five countries where we operate; adverse weather conditions, natural disasters, accidents or other unforeseen events; and the inability to obtain financing at affordable rates.
Any of these factors may cause delays in the completion of all or part of our capital investment program and may increase the cost of the projects.
We are involved in litigation proceedings.
We are currently involved in various litigation proceedings, which could result in unfavorable decisions or financial penalties against us, and we will continue to be subject to future litigation proceedings, which could have material adverse consequences to our business.
We are a party to a number of legal proceedings, some of which have been pending for several years. Some of these claims may be resolved against us. Our financial condition or results from operations could be adversely affected in a material way if certain material claims are resolved against us. See Note 22.2 of our audited Consolidated Financial Statements.
The values of our subsidiaries long-term energy supply contracts are subject to fluctuations in the market prices of certain commodities.
We have economic exposure to fluctuations in the market prices of certain commodities as a result of the long‑term energy sales contracts we have entered into. Our subsidiaries have material obligations under long‑term fixed-price electricity sales contracts, the values of which fluctuate with the market price of electricity. In addition, we have material obligations as selling parties under long‑term energy supply contracts with prices that vary in accordance with the market price of electricity, which, in turn, depend on water levels in reservoirs, the market prices of commodities such as natural gas, fuel oil, coal and other energy-related products, as well as the dollar exchange rate. Changes in the market price of these commodities and in the dollar exchange rate do not always correlate with changes in the market price of electricity or with our cost of production of electricity. Accordingly, there may be times when the price paid to us under these contracts is less than our cost of production or acquisition of electricity. We do not carry out transactions in commodity derivative instruments to manage our exposure to commodity price fluctuations. For further discussion, please refer to Item 11 ‑Quantitative and Qualitative Disclosures about Market Risk ‑ Commodity Price Risk.
Our controlling shareholders may have conflicts of interest relating to our business.
Enel through a wholly-owned subsidiary owns 92.1% of Endesa Spain which owns 60.6% of Enersis share capital. Our controlling shareholders have the power to determine the outcome of most material matters that require shareholders votes, such as the election of the majority of our board members and, subject to contractual and legal restrictions, the distribution of dividends. Our controlling shareholders also can exercise influence over our operations and business strategy. Their interests may in some cases differ from those of our other shareholders. Enel and Endesa Spain conduct their business in South America through us as well as through entities in which we do not have an equity interest.
Environmental regulations in the countries in which we operate may increase our costs of operations.
Our operating subsidiaries are also subject to environmental regulations which, among other things, require us to perform environmental impact studies for future projects and obtain permits from both local and national regulators. Approval of these environmental impact studies may be withheld by governmental authorities. In addition, public opposition may cause delays or modifications to any proposed project and laws or regulations may change or be interpreted in a manner that could adversely affect our operations or our plans for companies in which we hold investments. See Item 4. Information on the Company B. Business Overview Electricity Industry Regulatory Framework.
The relative illiquidity and volatility of Chilean securities markets could adversely affect the price of our common stock and ADSs.
Chilean securities markets are substantially smaller and less liquid than the major securities markets in the United States. In addition, Chilean securities markets may be affected materially by developments in other emerging markets. The low liquidity of the Chilean market may impair the ability of holders of ADSs to sell shares of our common stock withdrawn from the ADS program into the Chilean market in the amount and at the price and time they wish to do so.
Lawsuits against us brought outside of Chile or complaints against us based on foreign legal concepts may be unsuccessful.
All of our assets are located outside of the United States. All of our directors and officers reside outside of the United States and most of their assets are located outside the United States as well. If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce against them, in United States or Chilean courts, judgments obtained in United States courts based upon the civil liability provisions of the federal securities laws of the United States. In addition, there is doubt as to whether an action could be brought successfully in Chile on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.
New share issuances might not have the rights granted by former Chapter XXVI.
The Chilean Central Bank Decision 1333‑01‑070510 adopted on May 10, 2007 extended the effects of the former Chapter XXVI to capital increases approved after April 18, 2001. Under the former Chapter XXVI and the Foreign Investment Contracts, the Chilean Central Bank agreed to grant access to the formal exchange market to convert pesos into dollars (See Item 10. Additional Information. D Exchange Rate Controls for further detail).
Enersis formally requested permission from the Central Bank to enter into a new Foreign Investment Contract to include its capital increase approved by Enersis shareholders meeting held on March 31, 2003, which was granted by the Central Bank on September 7, 2007, subject to the execution and delivery of a new Foreign Investment Contract, dated September 24, 2008. Nevertheless, the Central Banks approval, aimed at extending the effects of the former Chapter XXVI to the last capital increase of Enersis, is subject to the condition that Enersis previously inform the Central Bank with respect to the measures adopted in the issuance of new shares of a future capital increase in order to sufficiently differentiate new shares from the shares issued previously, under the former Chapter XXVI, so that the shareholders would have the necessary information to learn about such difference. If Enersis does not comply with this condition, the Central Bank could revoke its approval and the benefits granted to the shares issued in the last capital increase of Enersis by the former Chapter XXVI. Furthermore, it is not certain that additional Chilean restrictions applicable to the holders of ADRs, the disposition of underlying shares of common stock or the repatriation of the proceeds from such disposition will not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.
Item 4. Information on the Company
A. History and Development of the Company.
Enersis was originally organized as Compañía Chilena Metropolitana de Distribución Eléctrica S.A., as recorded in a public deed on June 19, 1981. The existence of our company was authorized, and its bylaws were approved, pursuant to Resolution 409-S on July 17, 1981, issued by the Chilean SVS. The bylaws have been amended subsequently. The existence of our company under its current name, ENERSIS S.A., or Enersis, dates back to August 1, 1988. Enersis is a publicly held limited liability stock company domiciled in Santiago, Chile, and operates under Chilean law and regulations.
The Companys authorized representative in the United States of America is Puglisi & Associates, whose contact information is:
We are an electric utility company engaged through our subsidiaries and affiliates in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru.
We are one of the largest private companies in the electricity sector in South America. We trace our origin to Compañía Chilena de Electricidad Ltda., or CCE, which was formed in 1921 as a result of the merger of Chilean Electric Tramway and Light Co., founded in 1889, and Compañía Nacional de Fuerza Eléctrica, with operations dating back to 1919. In 1970, the Chilean government nationalized CCE. In 1981, CCEs operations were divided into one generation company, the current AES Gener S.A. (Gener), and two distribution companies, one with a concession in the Valparaíso Region, the current Chilquinta S.A., and the other with a concession in the Santiago Metropolitan Region, Compañía Chilena Metropolitana de Distribución Eléctrica S.A. From 1982 to 1987, the Chilean electric utility sector went through a process of re-privatization. On August 1, 1988, Compañía Chilena Metropolitana de Distribución Eléctrica S.A. changed its name to ENERSIS S.A. and became the new parent company of Distribuidora Chilectra Metropolitana S.A., later renamed Chilectra S.A. In the 1990s, we diversified into electricity generation and transmission through our increasing equity stakes in Endesa Chile. We began our international operations with the 1992 investment in Edesur, an Argentine electricity distribution company. We then expanded primarily into electricity generation, transmission and distribution businesses in four South American countries: Argentina, Brazil, Colombia and Peru. We remain focused on the electricity sector, although we also have small operations in other businesses.
In 2005, Endesa Brasil was formed as a company to manage all generation, transmission and distribution assets that Endesa Latinoamérica S.A.U., or Endesa Latinoamérica, (formerly known as Endesa Internacional, a subsidiary of Endesa Spain), Enersis, Endesa Chile and Chilectra held in Brazil, namely, through Ampla, Endesa Fortaleza, Investluz, CIEN, Cachoeira Dourada and Coelce. Enersis began consolidating Endesa Brasil in October 2005. In 2006, the International Finance Corporation (IFC) became a new shareholder in Endesa Brasil, contributing $ 50 million or a 2.7% share of capital of Endesa Brasil. As of December 31, 2009, Enersis directly and indirectly controlled 54.3% of Endesa Brasils share capital.
In order to optimize taxes, simplify the organizational structure and diminish corporate costs, on April 2006, Enersis decided to merge Elesur S.A. (Elesur), a virtually wholly-owned subsidiary, and Chilectra in Chile. As a consequence of this merger, Elesur absorbed Chilectra; the surviving company retained the name of Chilectra.
In order to achieve synergies in Peru, in 2006, we conducted the merger of Edegel and Etevensa (60% owned by Endesa Spain), which was a 457 MW thermoelectric generation company.
In September 2007, we merged our subsidiaries in Colombia, Emgesa and Betania, resulting in a new company which retained the name Emgesa. Following the merger, as of December 31, 2009, Enersis indirectly controlled 16.1% of Emgesas share capital. Due to a shareholders agreement, we control Emgesa through Endesa Chile.
In February 2009, Codensa, our Colombian distribution subsidiary, acquired approximately 49% of Distribuidora de Energía de Cundinamarca S.A., or DECA, for Ch$ 23.7 billion. The remaining 51% was acquired by Empresa Eléctrica de Bogotá (EEB). Codensa and EEB jointly control DECA. On March 13, 2009, DECA acquired 82.3% of Empresa Eléctrica de Cundinamarca S.A., a Colombian distribution company, for Ch$ 48.5 billion.
On March 26, 2007, Spanish company Acciona, S.A. (Acciona) and Italian company Enel, executed an agreement for the joint management of Spanish company, Endesa Spain. The latter, through its Spanish subsidiary Endesa Latinoamérica, holds 60.6% of the share capital of Enersis.
On February 20, 2009, Acciona and Enel reached an agreement whereby Acciona would transfer directly and indirectly to Enel Energy Europe S.L., wholly owned by Enel, its 25.0% shareholding in Endesa Spain, subject to certain conditions, which were subsequently met. In accordance with the agreement, Enel paid Acciona 9,627 million. The amount was determined by subtracting the dividends distributed by Endesa Spain and received by Acciona after February 20, 2009 ( 1,561 million) from the cash consideration of the agreement established on that same date ( 11,107 million) and adding interest accrued as from the agreement date ( 81 million). On June 25, 2009, the shares were transferred, making Enel the ultimate controller of Enersis by virtue of its 92.1% shareholding in Endesa Spain. This transaction was reported to the Spanish National Securities Market Commission (CNMV in its Spanish acronym) as material information on the same date. In addition, during 2009, Endesa Spain transferred to Acciona certain wind and hydroelectric energy generation assets in Spain and Portugal priced at 2,814 million.
In October 2009, Endesa Chile purchased an additional 29.4% of Edegel from Generalima, a Peruvian indirect subsidiary of Endesa Spain. With this transaction, Endesa Chile increased its economic interest in Edegel to 62.5%. In the same month, Enersis acquired an additional 24% of the share capital of our Peruvian subsidiary Edelnor, increasing our direct and indirect ownership stake in Edelnor from 33.5% to 57.5%.
As of December 31, 2009 we had 14,851 MW of installed capacity with 56 power plants in the five countries in which we operate, 12.9 million distribution customers covering 45 million inhabitants, consolidated assets of $ 26.1 billion and our operating revenues were $ 12.7 billion.
On January 28, 2010 Enersis and Endesa Chile held four bondholder meetings for our Chilean bonds denominated in UF, with the purpose of carrying out certain proposed amendments. The bondholders approved the amendments, which dealt with both technical adjustments for setting the proper financial covenants as a consequence of the adoption of IFRS on January 1, 2009, as well as new borrower‑friendly language on certain cross acceleration and bankruptcy/insolvency clauses. After giving legal effect to such amendments on March 10, 2010, all series of our Chilean bonds reference only the borrower, and no longer reference any of our subsidiaries in Chile and abroad, in these Event of Default provisions.
On February 27, 2010, Chile experienced a major earthquake measuring 8.8 on the Richter scale, in the Bío-Bío Region, followed by a tsunami. As a consequence, few of our facilities were affected, and the Company did not suffer any casualty. Our generation thermal plants Bocamina I (128 MW) and Bocamina II (370 MW, still under construction), which are located near the epicenter, presented some structural damages, causing the interruption of operations in the former plant and an expected delay in the construction on the latter. Bocamina I represents 2% of our generating capacity in Chile. The rest of our generating facilities in the country were impacted within the limits of the original design, and there was no discontinuity in their normal operations. In our distribution business centered in Santiago, 24 hours after the earthquake, service was reinstated to 77% of our Chilectra customers and it took nine days to reach a 99.9% coverage.
Damages suffered by some of our customers affected our business, due to the impact on electricity demand. Also some suppliers (such as Transelec, a transmission company not owned by us) experienced difficulties in their facilities, with negative effects on our capacity to effectively deliver electricity to our clients. We have insurance policies which provide us coverage (while in compliance with our property policy), including property damages, business interruptions and contingent business interruptions (i.e., attributable to our customers and/or suppliers). In the case of Bocamina II, we also have insurance for the construction phase of our projects, covering damages and advance loss of profits for up to two years. All these insurance policies have their customary deductibles. There may be an important time lag until we finally receive total compensation.
For additional information, see D. Property Plants and Equipment.
Capital Investment Program
We coordinate the overall financing strategy of our subsidiaries and intercompany advances to optimize debt management as well as the terms and conditions of our financing. Our operating subsidiaries independently plan capital expenditure financed by internally generated funds or direct financings. One of our goals is to focus on investments that will provide long-term benefits, such as energy loss reduction projects. Additionally, by focusing on Enersis as a whole and seeking to provide services across the group of companies, we are aiming to reduce the level of investment necessary at the individual subsidiary level in items such as procurement, telecommunication and information systems. Although we have considered how these investments will be financed as part of the Companys budget process, we have not committed to any particular financial structure, and investments will depend on the market conditions at the time the cash flows are needed.
Our investment plan is flexible enough so as to adapt to changing circumstances by giving different priorities to each project in accordance with profitability and strategic fit. Investment priorities are currently focused on developing the capacity plan in Chile and Colombia, so as to guarantee adequate levels of quality of supply and manage environmental issues.
For the period between 2010 and 2014, we expect to make capital expenditures of Ch$ 3,022 billion in our majority‑owned subsidiaries. The table below sets forth the capital expenditures made by our subsidiaries in 2008 and 2009 and the expected capital expenditures for the 2010-2014 period.
(1) Capex figures represent accrued investments for each year, except for future projections.
Investments in Chile
Reinforcing our commitment with sustainability and with our non-conventional renewable energy (NCRE) project development initiatives, and following the commercial start-up of the Canela 18 MW wind farm in December 2007, our subsidiary Endesa Eco completed the commissioning of 40 wind generators of the wind farm Canela II on November 25, 2009, thereby adding 60 MW of new capacity in the Sistema Interconectado Central (SIC), the Central Interconnected System, with an investment of approximately $ 150 million. Commercial operations started on December 11, 2009.
With respect to the Quintero LNG project, in which Endesa Chile holds a 20% stake in the re-gasification terminal, the Early Gas phase started commercial operations on September 12, 2009, requiring the presence in port of the tanker to operate the re-gasification plant. This re-gasification plant is already operating in a fast-track mode, and plans to be fully operational in its total storage capacity in August 2010. Total investment for this project is approximately $ 1.1 billion.
On June 20, 2009, the first unit of the Quintero thermal-plant project, which Endesa Chile built in the Valparaíso Region, successfully made its first synchronization with the SIC, beginning its commercial operations on July 23, 2009. The second unit successfully made its synchronization with the SIC on August 28, 2009, and has been in commercial operations since September 4, 2009. This project, located on a site alongside the Quintero re-gasification plant, has a declared capacity of 257 MW, and will operate with either natural gas or diesel oil. Total investment was approximately $ 140 million.
Works continue for the construction of the Bocamina II coal-fired plant in Coronel, in the Bío-Bío Region. With a capacity of 370 MW, it will be equipped with the latest emission-reduction technologies, reaching an estimated investment of $ 750 million. The start-up is expected for June 2011.
Investments in Argentina
In Argentina, Endesa Chile, through its subsidiaries Endesa Costanera S.A. and Hidroeléctrica El Chocón S.A., carried out investments between 2004 and 2007 in the Fondo Para Inversiones Necesarias Que Permitan Incrementar La Oferta De Energía Eléctrica En El Mercado Eléctrico Mayorista (Foninvemem), which translated into a 21% shareholding in Termoeléctrica José de San Martín S.A. (San Martín) and Termoeléctrica Manuel Belgrano S.A. (Manuel Belgrano), corresponding to two 800 MW combined-cycle plants. Both plants started operating in open cycle during 2008. The closing of the cycles (combined-cycle operation) took place in January 2010 in the case of the Manuel Belgrano plant and in February 2010 in the case of the San Martín plant.
Investments in Colombia
Following the conclusion of the Firm Energy Obligation process (see B. Business OverviewElectricity Industry Regulatory Framework) for the projects which start operations between December 2014 and November 2019, in June 2009, the Colombian Ministry of Mines and Energy chose Emgesas El Quimbo hydroelectric project, with a capacity of 400 MW. In line with the projects schedule, the principal civil works and equipment supply and assembly contracts are currently in their tender processes, in order to estimate the required investment.
Investments in Peru
In January 2008 Edegel signed a turnkey contract with Siemens Power Generation for the installation of a 189 MW turbine at the Santa Rosa plant, to operate with natural gas from Camisea. On September 2, 2009, the turbine started its commercial operations with a capacity of 193 MW, with an investment of approximately $ 90 million. On November 28, 2009, an increase of 7 MW was recognized, reaching a total capacity of 200 MW, allowing Edegel to increase its installed capacity to 1,667 MW, thereby enabling it to meet the Peruvian market demand growth. Also, in October 2009, Endesa Chile purchased a 29.4% stake of Edegel for $ 375 million. With this transaction, Endesa Chile increased its economic interest in Edegel from 33.1% to 62.5%.
Our distribution business in Chile, Argentina, Brazil, Colombia and Peru is carried out by our subsidiaries listed in the table below. In 2009, we incurred total capital expenditures of Ch$ 394 billion, principally to better service demographic growth and new clients, as well as to reduce energy losses.
In Chile, during 2009, Chilectra made progress on its investment plan for meeting the growth in energy demand and providing an increasingly reliable service to all its customers, as well as supporting service quality, safety and loss-prevention projects.
The company continued with the tension change from 12 kV to 23 kV, incorporating a capacity of 24 MVA in medium tension. High-tension networks were also reinforced with a high-capacity conductor such as the 110 kV El Salto-San Cristóbal line of the sub-transmission system.
Chilectra also continued to develop its intelligent networks plan which integrates electricity infrastructure with new electronic technologies, information systems and communications.
In Argentina, during 2009, Edesur carried out important electricity infrastructure works including the increase in capacity of Perito Moreno substation, a mobile substation in Bosques substation, and the renovation and/or installation of many kilometers of electricity networks and medium and low-tension transformers.
Regarding the expansion of the Perito Moreno substation, in order to provide a solution to the problem of meeting demand in the southeast of the Capital Federal, the project contemplated the expansion of 2x40 MVA 132/13.2 kV to 3x40 MVA 132/13.2 kV. These works began in 2008 and their completion and start-up occurred in 2009.
Also important was the installation of a new mobile substation at Bosques, in order to meet the high demand growth in the Greater Buenos Aires districts of Berazategui, Hudson, Gutiérrez, Bosques, Florencio Varela and El Pato. The project consisted of connecting a mobile substation within the site of the Bosques substation and incorporating five new medium‑tension feeders.
In order to sustain the operative reliability of the network, two 220 kV switches have been replaced at the Costanera substation and three 132 kV at the Perito Moreno substation, as well as installing/renovating considerable distances in electricity networks, medium/low tension transformers and monophase and three-phase meters. In all such cases, this is new equipment with the latest technology and optimum performance.
In the case of Brazil in 2009, investment was concentrated on projects for reducing losses and improving the quality of the distribution network. Important improvements have been achieved in both in recent years, although the results in 2009 were affected by the global crisis and certain effects that impacted the supply service, with the consequent worsening of the quality indicators.
Regarding the quality of service, the DEC (fault duration) and FEC (fault frequency) indicators since 2003 have improved substantially, showing the effectiveness of the investments made by the company in these matters. However, in 2009, these indicators were affected by an event outside the companys control. In November 2009, a blackout occurred in the Brazilian electricity grid as a result of high-tension transmission line problems. This affected 60 million people and generated a total loss of load of 28,800 MW.
The Ampla loss indicator was also affected by non-manageable external factors, such as the prohibition on billing new customers with electronic meters and the lower production of the industrial sector due to the global economic crisis, which caused an increase in the indicator of 1 percentage point with respect to 2008, from 20.2% to 21.2%.
Coelce connected 117,000 new customers to the low-tension electricity network, with an implied investment of R$ 62.7 million ($ 36 million as of December 31, 2009). Maintaining its target of continuing to improve the quality of service and reliability of the system, various investments amounting to R$ 60.1 million ($ 34.5 million as of December 31, 2009) were made in the low, medium and high-tension electricity systems, in order to provide better stability for the growth experienced in recent years. The agreement signed between the federal government, Coelce and the state government for the Light for Everyone project (for serving and supplying energy to consumer units located in the rural area), continued in 2009, as a result of which 20,410 new customers were connected. During 2010, projects regarding the control of illegally tapped energy will continue, specifically the Loss Plan in Ampla. On the other hand, Coelce will continue collaborating with the Light for Everyone project.
In Colombia in 2009, through Codensa, investments were mainly directed to expansion projects for servicing new customers and growth in demand, and for incorporating equipment and renovating distribution networks in order to continue improving the continuity and quality of energy supplies.
In particular, in the technical area, investments for a total amount of Col$ 220,054 million ($108 million as of December 31, 2009) were made in order to service centers of demand growth, normalize the high and medium-tension infrastructure, and improve the service quality and reliability indicators of the distribution system.
The principal investments were made:
· To meet the energy demand in the urban, savanna and rural areas for 61,412 new customers, with an additional 40 MVA installed to meet demand in the northwestern districts of Bogotá, together with the construction and remodeling of the associated medium-tension networks.
· To improve service quality and reliability and ensure capacity to meet demand in the industrial and business zone of the Medellín Highway corridor, 42.5 MVA were installed and the medium-tension network was extended.
· The modernization of the Calle Primera substation with GIS technology was completed, with an installed capacity of 60 MVA and the normalization of the high transmission lines in addition to the medium-tension networks. We also invested in the normalization of the high-transmission infrastructure in ten substations and the renovation of several kilometers of the high-transmission network.
· Distribution transformers were replaced and the low-tension network in the urban zone renovated. Twenty substations were also integrated into the control center system and 13 medium-tension substations were adapted.
In Peru in 2009, Edelnor carried out an investment program focused mainly on the expansion and reinforcement of low and medium-tension networks, plus the expansion of capacity in medium and low-tension feeders and the increase in capacity of the transforming substations.
According to the secondary transmission investment plan, prepared together with the regulator, Osinergmin, the beginning of the construction of the new Zárate and UNI substations, plus the expansion of capacity at other substations were carried out in 2009.
The Peruvian company also continued to improve attention and electrification for new human-settlement projects, and also for reducing commercial losses and improving street lighting and infrastructure of customer service centers.
On October 2009, we acquired an additional 24% of the share capital of Edelnor, increasing our direct and indirect ownership stake from 33.5% to 57.5%.
B. Business Overview.
We are a publicly held limited liability stock company with consolidated operations in Chile, Argentina, Brazil, Colombia and Peru. Our core business is electricity generation, transmission and distribution. We also participate in other activities which are not part of our core business. Since these activities represent less than 1% of our 2009 operating income, we do not report them as a separate business segment for purposes of this discussion, or under IFRS.
Information relating to operating revenue by business segment is set forth in Note 35 to our Consolidated Financial Statements.
Electricity Generation Business Segment
As of December 31, 2009, electricity generation represented 42% of our operating revenues and 61% of our operating income, in both cases before consolidation adjustments.
Our consolidated physical sales for 2009 were 66,728 GWh and our production was 58,349 GWh, 3.4% and 3.9% higher than in 2008, respectively. The total installed capacity in 2009 was 14,851 MW as compared to 14,284 MW in 2008.
Our electricity generation business is conducted primarily through Endesa Chile, which has operating subsidiaries in Chile, Argentina, Colombia and Peru. Since October 2005, the generation, transmission and distribution business in Brazil has been managed through our subsidiary, Endesa Brasil. Endesa Chile also holds an equity interest in Endesa Brasil.
The following tables summarize the information relating to Enersis electricity generation:
Physical Data per Country
(1) For details on generation facilities, see D. Property Plants and Equipment.
(2) Total installed capacity is defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics, in most cases confirmed by satisfaction guarantee tests performed by equipment suppliers certified by Bureau Veritas, an international independent certification company. Figures may differ from installed capacity declared to regulating authorities and customers in each country, according to criteria defined by each authority and corresponding contractual frameworks. We have not restated capacities based on this certification.
(3) Energy generated defined as total generation minus own power plant consumption and technical losses.
(4) The differences in the 2008 figures of Chile compared to those reported in our 2008 Form 20-F are explained by the consolidation of the 50% of GasAtacama, a jointly controlled company, into Endesa Chiles financial statements due to the adoption of IFRS in January 2009, which requires proportional consolidation of the owned joint ventures. This change also explains differences in other 2008 figures such as physical sales, generation, purchases, installed capacity, main customers and number of power plants.
(5) San Isidro 2, Palmucho and Canelas generation in Chile consolidated since April, November and December 2007, respectively; Quintero and Canela II generation in Chile consolidated since July and December 2009, respectively; Santa Rosa TG8s generation in Peru consolidated since November 2009.
In the electricity industry, it is common to segment the business into hydroelectric and thermoelectric generation, because each method of generation has different variable costs. Thermoelectric generation requires the purchase of fuel rather than the use of water from reservoirs or rivers, thereby increasing the variable costs of generation. Of our total consolidated generation, 65% was from hydroelectric sources, 35% came from thermal sources, and wind energy represented less than 1%.
The following table summarizes Enersis consolidated generation by type of energy:
(1) The difference in the values reported in our 2008 Form 20-F is explained by the incorporation of the mini hydro Ojos de Agua into the item Other generation and the consolidation of GasAtacama.
(2) Other generation refers to the generation of our subsidiary Endesa Eco (Renewable energy: mini hydro Ojos de Agua and wind farm Canela and Canela II).
In general, in the countries in which we operate, the potential for contracting electricity is related to the volume of electricity demand. Customers identified as small volume-regulated customers, such as residential customers subject to government regulated electricity tariffs, must purchase electricity directly from a distribution company. These distribution companies, which purchase large amounts of electricity for small residential customers, generally enter into contractual agreements with generators at a regulated tariff price. Those identified as large volume industrial customers also enter into contractual agreements with energy suppliers. However, such large volume industrial customers are not subject to the regulated tariff price. Instead, these customers are allowed to negotiate the price of energy with generators based on the characteristics of the service required. Finally, the market pool, where energy is normally sold at the spot price, is not carried out through contractual agreements, but instead complies with pool market operations.
The following table contains information regarding our subsidiary Endesa Chiles consolidated sales of electricity by type of customer for each of the periods indicated:
ENDESA CHILE CONSOLIDATED PHYSICAL SALES BY TYPE OF CUSTOMER (GWh)
The specific energy consumption limit (measured in GWh) for regulated and unregulated customers is country specific. Moreover, regulatory frameworks often require that regulated distribution companies have contracts to support their commitments to small customers and also determine which customers can purchase energy in electricity pool markets.
The following table contains information regarding Endesa Chiles physical sales of electricity per customer segment:
ENDESA CHILE CONSOLIDATED PHYSICAL SALES PER CUSTOMER PRICE SEGMENT (GWh)
(1) Includes the sales to distribution companies not backed by contracts in Chile and Peru.
Generation in Chile
We accounted for 42% of Chiles physical sales, 39% of generation and 40% of total installed capacity, as of December 31, 2009, measured by the maximum capacity calculated by the Centro de Despacho Económico de Cargaof both interconnected systems (CDECs). Our hydroelectric installed capacity represents 61% of our total installed capacity in Chile.
We own and operate, through our subsidiary, Endesa Chile, 29 generation facilities in Chile with an aggregate installed capacity of 5,650 MW as of December 31, 2009, compared to 5,283 MW in 2008.
The most important increases in our total installed capacity in Chile were mainly due to the start-up of commercial operations of the LNG terminal; the incorporation of Quintero (257 MW, thermal) in September 2009; and the increase in the installed capacity of San Isidro 2 (from 353 to 399 MW) in December 2009. Also, the incorporation of Canela II (60 MW, wind farm) in December 2009 contributed to the increased capacity.
The following table sets forth the installed generation capacity for each of the Companys Chilean subsidiaries:
INSTALLED CAPACITY PER SUBSIDIARY IN CHILE (MW) (1)
(1) The installed capacity was certified by Bureau Veritas.
Our total electricity generation in Chile (in both the SIC and the SING) reached 22,239 GWh in 2009, 4.6% higher than in 2008, and accounted for approximately 39.1% of total electricity production in Chile during 2009.
The following table sets forth the electricity generation for each of our Chilean subsidiaries:
ELECTRICITY GENERATION IN CHILE (GWh)
Hydroelectric generation in 2009 was 7.7% higher than in 2008. The potential energy in reservoirs at December 31, 2009 was 2% higher than at December 31, 2008, as shown in the following table.
Hydroelectric generation accounted for 66.7% of our total electricity generation in 2009 compared with the 64.7% of 2008. Generation by type in Chile is shown in the following table:
OUR GENERATION IN CHILE (GWh)
(1) The differences in the generation of 2008 compared to last years Form 20-F are explained by the incorporation of the mini hydro Ojos de Agua into the item Other generation and also to the consolidation of 50% of GasAtacama as previously explained in this report.
(2) Other generation refers to the generation of our subsidiary Endesa Eco (Renewable energy: mini hydro Ojos de Agua and wind farms Canela and Canela II)
Our thermal electric generation facilities are either gas, LNG, coal or oil-fired. In order to satisfy our natural gas and transportation requirements, we enter into long-term gas contracts with suppliers who establish maximum supply amounts and prices and long-term gas transportation agreements with the pipeline companies, currently Gas Andes and Electrogas (the latter a related company of Endesa Chile). Since March 2008, all of Endesa Chiles natural gas units can operate with natural gas and diesel and since December 2009, San Isidro, San Isidro 2 and Quintero can operate with LNG.
Because of the lack of Argentine gas since 2006, Endesa Chile has been using coal and diesel in an extensive way. Diesel consumption during the last four years was 23,000 tons, 591,000 tons, 728,000 tons and 430,000 tons in 2006, 2007, 2008 and 2009, respectively. On the other hand, coal consumption was 438,000 tons, 851,000 tons, 774,000 tons and 760,000 tons in 2006, 2007, 2008 and 2009, respectively.
In May 2007, as part of a consortium with Enap, Metrogas and British Gas, in which Endesa Chiles participation is 20%, we agreed to the construction of the LNG re-gasification facility in Quintero Bay, in order to deal with the Argentine gas.
In July 2008, we started the construction of a pipeline that supplies the gas obtained at the re-gasification plant in Quintero to Quillota and to San Isidro and other off-takers. The pipeline is 28 km long and has a capacity of 15 million m3/d. The construction was completed in February 2009.
The LNG terminal commissioning began in July 2009 and partial fast-track commercial operations started in March 2009; full commercial operations should begin in August 2010.
On June 29, 2009, the first ship with LNG arrived, and after that, another seven commercial ships arrived with LNG during 2009. Endesa Chile consumed 206 million m3 of LNG in 2009.
Thermal Unit Quintero began partial commercial operations in July 2009 and full commercial operations in September 2009 using diesel fuel. Partial commercial operations burning LNG began in November 2009 and full commercial operations on December 2009.
ELECTRICITY SALES PER SYSTEM IN CHILE (GWh)
Our physical energy sales in Chile reached 21,532 GWh in 2008 and 22,327 GWh in 2009 which represent a 40.8% and 42.1% market share, respectively. The percentage of the energy purchases to satisfy our contractual obligations to third parties has declined from 5.3% in 2007 to 2.3% in 2009, as a result of the increase in our generation.
The following table sets forth our electricity purchases and production in Chile:
ENDESA CHILE PHYSICAL GENERATION AND PURCHASES IN CHILE (GWh)
Endesa Chile supplies electricity to the major regulated electricity distribution companies, large unregulated industrial firms (primarily in the mining, pulp and steel sectors) and the pool market. Commercial relationships with customers are usually governed by contracts. Supply contracts with distribution companies must be auctioned, are generally standardized and have an average term of ten years. Supply contracts with unregulated customers (large industrial customers) are specific to the needs of each client and the conditions are agreed between both parties, reflecting competitive market conditions.
In 2007, 2008 and 2009, Endesa Chile had 35, 40 and 44 customers in Chile, respectively, including for 2009 eight main distribution companies in the SIC, 33 unregulated industrial customers in the SIC and the SING and three minor commercial customers. There were 22 distribution companies which presented energy withdrawals under the provisions of Resolution 88, accounting for 11.4% of total sales. (See B. Business OverviewElectricity Industry Regulatory Framework.). Sociedad Austral de Electricidad S.A., or Saesa, a non-related Chilean distribution company, was the largest with purchases of 669 GWh/year. The following table sets forth information regarding our sales of electricity in Chile by type of customer:
ENDESA CHILE PHYSICAL SALES PER CUSTOMER PRICE SEGMENT
Endesa Chiles most significant supply contracts with regulated customers are with Chilectra S.A. (Chilectra) and Compañía General de Electricidad S.A. (CGE), the two largest distribution companies in Chile in terms of sales. Endesa Chiles current contracts with Chilectra expire in December 2010. Endesa Chiles contracts with CGE expired in December 2009.
In March 2008, Chilectra and other distributors allocated the third long-term energy bid for 1,800 GWh for the period 2011-2021 and 1,500 GWh for the period 2022-2023, in both cases to Gener. In January 2009, Chilquinta, Saesa and CGE allocated 8,010 GWh, divided in four blocks (BB1, BB2, BB3 and BB4) to be delivered starting on January 2010 for 14, 12, 14 and 15 years, respectively. The energy allocated was 7,110 GWh and represented 88.7% of the bidders demand. The energy allocation per company and per block was as follows: