Good morning to everyone. Welcome to the presentation of results of the 4th quarter 2020 CPFL Energy. I'm Carlos Sedino, Investor Relations Director. And today, I will be conducting all the dynamics of our event. We have with us Gustavo Estrela, Estrela President Mr.
Pan, Director, Vice President, Finances and Investor Relations and the other executives of the company. Due to the pandemic of COVID-nineteen, all the executives are connected from home. So we apologize if there's any failure of connection. We reinforce that we'll be working soon to reestablish communication if there's any problem. The presentation will be carried out in Portuguese with interpretation for English.
All you have to do is click on the button Interpretation, which shows up on the lower bar of the tool of the platform. If you want to see the presentation in English, it is in the site of CPFL. I would like to inform all the participants, the whole presentation will start questions and answers. All the questions will be done live. And to request this, click on the button, raise your hands, which you will find at the in the bottom part of the platform, and we will follow the order.
This presentation is being recorded. I'm now going to give the floor to Gustavo Estrella, our CEO, for us to begin the presentation of the results.
Okay, Serino.
Thank you. Good morning, gentlemen. Thank you, everyone, for the participation in our call of results. I'm going to now talk of the main highlights of the year. One is the load in the concession area.
We have a positive performance 2.6% in the 4th quarter 2020 and minus 1.7 percent in the year, which is a positive performance and special with the uptake that we had after the 2nd semester of 2020. We will be talking more in details about the performance of our market. With this, our EBITDA is BRL 1,921,000,000, a growth of 10 point 4,000,000,000 in relation to 2019, the Q4 and for the year, 6,800,000,000, a growth of 6% if we compare this to 2019. The net profit, EUR 897,000,000, 15% in the Q4. If we compare to 2019, yen 3,703,000,000, 34.9 percent in relation to 2020.
Leverage, we closed with a net debt of BRL 15,700,000,000, a leverage of 2.19x net debt EBITDA. And here we use the criteria of finance numbers. We conclude the plan also a very relevant plan. This is one of our commitments of IPO 2019, the integration of CPFL Renewable to the CPFL Group. We merged the CPFL Renewables and Novaves, and we start already to observe a reduction of financial costs, operational costs and also the recognition of fiscal credits.
We also had a positive impact for the whole sector. For the GSF and the free market, we counted BRL140,000,000 at the end of the year, the impact on the EBITDA in 2020. We also have about BRL 80,000,000 to be accounted for in 2021. In relation to the investments, this was also a long discussion about our CapEx plan, and we decided in 2020 to keep up and preserve our investment plan during the pandemic. We did this, delivering investments of almost 25% in relation to 2019.
It's the highest volume of investments in the company, BRL 2,800,000, BRL 880,000,000 just in the second quarter. As for dividends, what we're going to declare a payout of 50%, BRL 1,731,000,000, BRL 1.50 per share. And what is important to make clear is our strategy is precisely the strategy of the group already a long time balancing growth with dividend payment, and we have the expectation of some opportunities for investment during the next few months. So the strategy of the company is prudent, preventive, and we declare the dividends of 50% of the profit in 2020. The idea is to evaluate opportunities of growth eventually.
If this does not if this investment, we will then declare the rest of the dividends during the year of 2021. It's important to mention also the strategy of growth continues being determined on the financial discipline. So all metrics of return and the perception of value, all these are the precondition to advance in the growth process and this continues exactly in the same way. Therefore, we are looking at opportunities, and we have a rationale of value we follow. And if we don't, we don't, as we didn't in the past.
And then we proceed to distribute the dividends during 2021. Here, I think this is a mark for the company in 2 companies of the group. I'm going to talk a bit more about this. But in CPFL Santa Cruz, we have the lowest index of Dec FEC and the story of the company. Special rates, we this is lower than the limits.
Tariff readjustments, positive in the year of 2020 with a very positive perspective for 2021. The impacts of the IGPN and also the investments, I've just said of our record for investments in 2020, and this reflects with the tariffs of our distributors. We also have the entry of operation of the project of the wind complex of Gamelera from the Q2 of 2021. This is 2.5 years before the announced official deadline. It's also a victorious process, very well executed, not only because it comes before, and it's also a reduction of our risk.
As for the ESG, we're going to talk a bit more about this further forward, but we have SEPEPE win some market rates. This is also an important moment for the company, some main rates for Vespa and some specific rates in our ESG agenda, the easy ICO2 and also the ESG portfolio of the Santander Bank. We were also recognized with the Credit Suisse and the Global ESG report as one of the main preferred shares of the analysts, and this reflects our our agenda in terms of ESG. And we're going to highlight this further forward. We launched our sustainability plan 2020-twenty 24 and we entered the leadership with impact program with global Impact, the ADS 3, to talk about health and well-being.
We also started a pilot project of electrification of the operational fleet. We start with our regional and India, BRL 23,000,000 for vehicles, 100 percent of our fleet electrified. Of course, the expectation is that we are able to extend this project 4,500 for the group. And also linked to this theme of ESG, we're also part of the supplier engagement leaderboard of the CDP. This means we understand the commitment linked to ESG, not only our commitments, but also the commitments of the chain.
So we also embark all our supply chain and link to these themes of the ESG. Now let's move towards the next slide. Here, we talk about sales. In the Q4, we can clearly see a signal of recovery in the consumption of energy in our concession areas. We closed our load with a growth of 2.6%.
We highlight the growth of the 3 clients, 11.5%. And we can see a large different sales in the consumption segment. And our sales in this quarter were impacted by the 8.3 percent revolution, where it says that we now have to invoice our clients of the A group within the next month. So this was a change of the calendar and invoicing. So this is an impact in the sales.
And it's important to highlight the impact does not bring impact on the results due to the compensation of the non invoice. So there's no result in 2020 impacted by this change of the Resolution 8 23. What we do is this adjustment and we can see that this hits 1.%. It's aligned with the concession load. We can see the growth per consumption class.
We see that it's a consumption that's led by residential class with 5.5%, followed by industry here with 0.1% if we adjust the impact of the Resolution 863 and the migrations of the clients to the basic network, we can see that the industrial class was also very positive with a growth of almost 5% in relation to 2019. The commercial class also has a relevant impact with the Resolution 863. But even so, we see that the commercial class has a huge challenge, a decrease in consumption of over 5%, but a decrease in consumption if we compare to 20 19. Now let's go to the next slide. 2020, we closed this year with a drop in the concession area of 1.7.
When we remember the beginning of the pandemic in the second quarter, the estimates and the expected. So a drop of 1.7 in our concession area. We can see here we also have the impact of the resolution 863, of course, much lower than the Q2, but it's also percentages that should be removed so that we can analyze this market in a more precise manner. We can see here the sales, this drop of 3.1. Percent.
We have to remove the 0.8 percent of the Resolution 863 percent, another 0.8 percent of the effect of the migrations. So we can see here a drop of about 1.5 percent in the performance of the market, very positive and due to the challenges of the pandemic that we had last year. We have more or less the same design in the Q4, the growth of the market led by the residential areas showing a certain recovery of the industry and the commercial class still suffering a lot due to the effect of the pandemic. We made a slide here to show you the growth per class in 2020, adjusting the number due to the effects that I mentioned, the Resolution 863, the migrations, the generation, the calendar invoicing. Here we can see the numbers residential class adjusted with all these effects, an average growth of 3.7% in the year, negative growth here in the first quarter but already recovering in the second quarter.
The industry, we can clearly see a huge impact concentrated in the 2nd semester. And in the 3rd semester, we see clearly a recovery closing here the 4th semester with an impact of high impact. The commercial class also has a recovery, but it closing with almost 5% drop. And the others here, basically the impact of the rural class that did not suffer a lot during the pandemic and has a performance always positive during the whole year of 2020. Next slide, please.
In relation to delinquency and losses, we can see that we closed the 4th quarter with a default of BRL 52,000,000, 0.69%. Here, there are 2 important points: the growth in relation to the Q3 of 2020 and the growth in relation to the Q4 of 2019 have to be adjusted in this comparison. We had a series of renegotiations during these two prior quarters, which makes us have a large variation in relation to the Q4. And when we see historical medium 2016, 2019 average delinquency, 0.6%. We can see that in the Q4, we got closer to this historical medium.
So that's the main indicator. There's a huge effort here of our team. We can see here in the chart below where the we have the resolution where we could cut and we can see the billing in the Q4, we reached the highest levels of cut in the history of the company. So we cut 872,000 clients in the 4th quarter. So we were able to control and bring the delinquency to this historical.
When we see the losses, it's also a huge challenge due to the pandemic. When you see the calendar, we have a loss aligned with the Q4 of 2019. This also is a reflex of a lot of hard work fighting these losses, which in a complicated time, so we have lost, but it's practically aligned with what went on in 2019. Next slide, please. Here is the performance of the deck and the FERC.
I think once more, this is a mark for the history of the company. We reached here in Santa Cruz and the RGE the lowest levels in our history. And the challenge in Santa Cruz is to reduce the level of DECFEC, which is already very low. We can see here, we went from €5.56 to €4.89 and the FEC of €425,000,000 to 368,000,000 in the RGE case, the challenge was huge. Historically, we had especially the deck much higher And the challenge became even larger when we acquired the NGSU, which also had higher levels of deck.
And this made us design a plan of reduction of the deck. And this plan started way back in 2017 with a series of actions, increase of investment, complete redesign of our operation so that we were able to focus and reduce this. This is a mark in our history with a drop of almost 4 hours to 10.83 from 2019 to 2020, really relevant. The challenge was huge. We were able to solve this in effect also a bit lower challenge, but 625 to 5.27 here, the challenge once more is a reduction in the deck that was already lower.
We can see here the FERC regulatory FERC in 8.15. So the deck is much lower. So I believe this is a challenge. This is a mark for the company during 2020. Next slide, please.
Well, let's talk about generation now. Here, we have in relation to the PLD, we have a growth of the PLD, which reflects the increase of prices that we had at the end of last year, a growth of 30%. But in the average of the year, due to the effect of the pandemic in the 2nd semester, a drop an average of 21.7 percent. The GSF practically aligned with 2019, a drop of 1.9% and 3.7% in the quarter if you do an annual comparison. Here you can see the flow of aged PPS drop, remembering that in the majority they are located in the south where we had drought during 2020.
So this is an important drop of the flow of our UHF. In the SHPs, it's similar, less critical than the first case, but also affected by the Southern and Southeast region, partially compensated by the area of Minas Gerais, where we had an increase of flow. And this made these effects a bit better. But the flow of 2020 was worse than 2019. In the wind generation sector, we have here 2 movements, 2 impacts, 2 main impacts.
These are contrary movements. 1 of them is the wind in 2020, a bit worse than it was in 2019. And this is a negative reflex of our generation capacity. And we had an increase in the availability of machines here directly affected by the OEM services and this brought growth in the availability in the average of the year of 94 to 96.7 and we were able to have higher generation than 2019. The next slide please.
Okay. So now I'm going to give the floor to my colleague for him to continue the presentation.
Thank you,
Gustavo. Good morning to everyone. This slide, the EBITDA in this semester was EUR 1,900,000,000, an increase of 10.4%. The distribution segment had a good result again with an increase of 11%. Confirm the finance asset of the concession had a high of 187,000,000 due to the higher PCA.
The PMSO had a high of €42,000,000 due to a high in the legal fees. But it is important to mention that the operational expenses continued dropping. In the pension plan, there was an increase of 15,000,000. The PDD was higher, R13 million because last year we did some large deals with hospitals and other institutions. The current PDD level corresponds to our historical mean, as Gustavo has already shown.
The other variations add up to EUR 6,000,000. In generation, we add here the conventional and the renewable segments. The EBITDA was of EUR 768,000,000, a high of 8.5%. The main effect was the gain of the GSF in the free market with EUR 140,000,000. I highlight that this amount is still preliminary.
We have projects of CPFL, Genovavis, where the gains have not yet been accounted for. Therefore, we can expect an additional value for the result in 2021. Another positive effect was the updating of the tariffs of the contracts, a total of BRL 34,000,000. On the other side, we had some negative impacts in the period, a low of assets, BRL 44,000,000 changes in the depreciation taxes of the assets of Ipaz to adequate the end of the contract, the 25,000,000 high of the UBP due to a higher IGPM, EUR 21,000,000 the seasonality of the PCH contracts, negative €14,000,000 among other effects. The segment of Trading Services and Others had a high of 31.3%.
Lower volumes in the trading have been compensated by higher prices in the segment of services, good performance of CPFL Services and CPFL Efficiency. Here in Slide 12, we show you the performance of the net profit, which was €898,000,000 a high of BRL 15.5 million in relation to the same period last year. Besides the variation of BRL 181,000,000 in the EBITDA, we had in the financial result a worsening of 10,000,000. The depreciation varied, 25,000,000 and the taxes had a negative impact of R63,000,000. In the financial results, we have to highlight some effects.
The first one is the MTM. After a gain of over 250,000,000 in the first quarter. We returned a part of that result with the improvement of the spreads of risk, risk spreads in the market. On the other hand, we had a gain of 71,000,000 euros
with
interests and fines and delays of payments of energy bills due to the increase of the IGPM. And then the expenses with the net debt had a reduction of EUR 37,000,000. This is explained by the drop of the Seliki and by our liability management plan that reduced the average cost of the net debt. As for taxes, we had a better result when we compare to last year. And this explains the increase.
In the next slide, we're going to show you the results of the year 2020. EBITDA grew 6% or EUR 386,000,000. We highlight here distribution, which grew 6.5%, favored by the good performance of the market, the tariffs, highlighting the performance of the residential class and the financial asset of the concession. Still referring to distribution, I would like to highlight two points here that even there have been lower variations, they deserve to be highlighted. The PDD, we had a reduction of 3.6%, 8,000,000.
In spite of all the challenges of the pandemic, we were able to keep delinquency under control. PMSO, we had a reduction of 34,000,000 in the distribution, and this represents a reduction of 1.3% compared to an inflation of approximately 5% in 2020. Another highlight is the generation with a high of 6.6% or BRL 167,000,000. This is the result mainly of the gain with a solution of GSF for the free market, BRL 140,000,000. Besides this, we had contract readjustments.
These gains were partially compensated by the weaker result of EPASA and larger payment of UBP due to the IGPM. I would also like to highlight the cost reduction obtained, especially due to the integration of CPFL CPFL Renewables or Genovavis to the group. There was a reduction of EUR 22,000,000 with employees, material and third party services. Now the net profit or income improved 34.9% or 959,000,000. This result was very much favored by the lower CDI and the cost of the debt, which generated a gain of EUR 376,000,000 besides a positive effect of MTM with BRL 117,000,000.
The gains with fines and interest rates also added EUR 100 and 12,000,000 during the year. On the other hand, the updating of the regulatory assets dropped 71,000,000 and we did not have an extraordinary financial income generated by re IPO resources last year as compared to what happened in 2019. We also had a positive effect on taxes due to the fiscal credits accounted for in 2020, adding up to EUR 323,000,000. The next slide, please. We have the indebtedness of the company.
The first graphic shows that the net debt is €15,700,000,000 and EBITDA, €7,200,000,000 The leverage, which is measured by the net debt is 2.19 times. I'd like to highlight here that we're proposing the payment of dividends relative to the results of 2020. With this macro scenario that we have nowadays and considering that we are evaluating potential M and As, our proposal is to pay dividends worth BRL 1,700,000,000 or BRL 1.5 per share. This represents a pay out of 50%. And if these projects we're going to be evaluating them in the if this doesn't take place, then we'll implement a new proposal to complement the payment of dividends.
That means that we are assuring to you, our shareholders, the balance between the growth and the yield. About the debt profile in the chart on the bottom part of the slide, we have the cost of the debt, whether real or nominal. The increase is due to the variation of the IPCA during the period, but the real cost is negative. It is helped by the Selic rate with its historical minimum and by the inflation over 4%. Now in the composition of the gross debt, we can see that the largest exposure is indexed to the CDI with 76%.
The cash at the end of the semester was close to €4,000,000,000 with a coverage rate of 0.71 times the amortizations short term. The medium term of the amortizations is 2 point 53 years. Thank you very much. And now I give the floor back to Mr. Estrella.
Thank you. Thank you. Thank you very much. Well, continuing our presentation. Here we have our CapEx for the year of 2020.
So we can see here the distribution, BRL 2,300,000, a growth of BRL 13.9 if we compare to 2019. In general lines, the investment for expansion, modernization of the system, infrastructure and IT, a series of projects that are have been carrying out last year in generation. We've reached BRL 283,000,000. Basically, the two projects that are under construction that we have here today and wind complex of Gamelera. Here, we have in transmission BRL 184,000,000.
The Project 1 to 4, these consumed BRL 134,000,000 of investment. These are investments and especially our arm of services. Here we have the perspective, we go from this investment, we increase this investment even more in all the businesses of our group. We're going to reach BRL 3,400,000,000. And in the horizon, these are BRL 15 point 4,000,000,000 of investments, and the main is the distribution, 13,300,000.
This investment, it presents an increase in relation to last year and especially led by the distribution. We have a series of new investments to fight default with long term investments. So these are investments incorporated to our operational base. Next slide, please. Here in relation to the Aeolik Gamelera wind complex starting now in 2021.
As I mentioned, we anticipated this. This would be January 24, the defined date by ANAIM. So this is the semester 2021 with the contracted energy. The initial in the beginning of the PPI at the time of the bidding process and also a process contracted in a perspective. The CapEx, 5% below.
Also, the time frame, the costs and this execution was very well done in the Gaberela Wind Complex. Next slide, please. Well, lastly, it's very important to mention here our sustainability plan for 20 20, 2024. We have a series of results reached here in 2020, especially a challenging year for us, but 3 pillars of our plan, we were able to have important advances in all of them, smart solutions, sustainable energy, society shared values. These are very important themes for 2020.
Almost 10,000 units of transformers and intelligent solutions, 100% of Group A with more than 35,000 smart meters installed and operated, over 50 2% of our total consumption is telemetered. We increased the digital channels. Over 110,000,000 attendant services. This was a reflex of the pandemic last year and expressive growth in digital bills, over 2,000,000 bills and now 3.4 7,000,000 clients, a growth of 54 percent. And shared value, it's a program, CPFL in hospitals.
We have accumulated values of accumulated values of BRL 72,000,000 in investments. It was BRL 51,000,000 in last year and 84 hospitals benefited and our expectation has reached BRL 150,000,000 and BRL 314,000,000 hospitals benefited of the CPFL hospital program. This was a huge challenge last year. We advanced this. And even in the communication way, this sustainability plan, We did a first event dedicated to this, to the market, and we spoke about our plan.
We made all our challenges public, 15 goals linked to this sustainability plan. It's already now knowledge of the market, expectations of investments, and the market currently can follow and monitor the execution of SEPEPFLETE. So I think this entry is an important mark in the easy portfolio have to demonstrate to all our investors and stakeholders, community, clients, everyone in general, everything that we've been doing and it is a lot. So all linked to the sustainability issue. So these were the main messages that we had today.
Once more, I thank you for your participation. And we will now come into our question and answer part of the event. Thank you, Gustavo. Thank you, Pan. Thank you for your presentation.
So now let's go, as Gustavo said, to the session of questions and answers, reminding you that the questions can be live. And to ask a question, click on your little button there, raise a hand, which is at the bottom part of the platform. We have some questions here already, some people who have requested. So the first question is Carolina Carneiro from Credit Suisse. Thank you, Carolina, for your participation.
And let's go to your question. Thank you. Thank you, Vauxhall. Good morning and thank you for the call. I have two questions.
The first question is about the location of capital. The numbers here, we see that you have the leverage has been dropping about compared to 4, 5 years ago. The leverage was about 3.5x. And now after the IPO, 2.5x. And now we're talking about 2.2 percent leverage.
So with an expectation of generation a beta cash after the readjustments due to the IGP, which accumulated should help a lot. So it's more to understand why the definition now of 50% of payout is given that your leverage would allow an M and A, a large M and A visavis this expectation of cash flow to be generated in the future. So is there a need of cash flow? And is that why you took the decision of having a payout of only 50% given the situation? The second question in relation to the bidding process that we would have, The Enel has recommended and some players like you recommended that in the past perhaps the economics of this tender would be challenging due to the issues of the problem.
So does this make sense to for this bidding process to take place? Or is anything that we know that would make this asset more attractive? Thank you for your questions. I'm going to start with the capital allocation. I think it's important once more to register that the reduction measure of the payout is very much preventive.
And I think it shows the idea that we don't know exactly what opportunities we'll have in the next few months. I think we have a series of opportunities of assets coming onto the market. I think the idea is to be preventive, to evaluate all the opportunities that we have on the market and that we will have during the next months so that we can guarantee that it won't be due to a lack of capacity of investment that we're going to lose opportunities. I think that once more, it's much more preventive and I would say even conservative. So what is our plan?
The idea is to evaluate these opportunities, evaluate like we always have done. So there's no pressure per growth that will make us do differently. It will be the same as we've always done. So evaluating the opportunities, if they're good, if they generate value to our shareholders, we will follow this new investment. If by any chance we're not able to make this feasible, it's very clear to us that this balance between growth and yield, it is an expectation of the market, I would say, even of our controlling shareholders.
So the expectation and strategy, the idea is that after this analysis and these evaluation of these assets, we will sit down, reevaluate what we were able to implement and what we were not able to implement. If we can, we follow with the payment. So it's very clear in our minds. It's very simple, and we are very careful. We evaluate these opportunities during the coming months, and we will talk again about dividends further forward.
I believe that basically the strategy of the group has not changed. It's preventive and it's the opportunities of growth that we see coming in the next month. Your second question of Citezera, I think we've talked a lot about Citezera. I believe that it is challenging. We challenging asset.
We don't have this is not closed yet. It does bring additional risk, which has to be very well understood. And the company has to advance in this project. All of this is being evaluated. So we don't have a closed and formal position around this.
But I would say that it is a challenge due to all the risks that we see in this asset. Thank you, Gustavo. A follow-up. I think there are a lot of other people wanting to ask questions. Are you looking at other segments because there are is the segment of sanitation in your scope?
No, not right now. It isn't. Okay. Thank you. Thank you, Karol, for your question.
Now let's go to the next question. The second question, I'm going to ask Marcelo Sa from Itau, BBA Bank. Thank you for your I have two questions. I think the first is about M and A following the first question, if there's any possibility or if it's being discussed to have a combination of CPFL with state grid transmission assets? That's the first question.
And on the regulatory side, I know that there have been a lot of conversations with Enel and the market about the possibility of tariff deferment taking place this year. I would like to know how these discussions are panning out, what you've heard and about the fact that there's going to be a meeting at 2 o'clock in the afternoon of Arnel to discuss measures that can be implemented due to the pandemic. So do you think there will be any measure like the suspension of cuts like we saw in the 1st wave?
So that's the first question. Kind of possibility of the opportunity. And of course, I have to tell you that in the past 2 to 3 years, we had a lot of progress. And recently, in the headquarter, we also, of course, the Catherine shareholder has some kind of progress in their management team and this matter is on the top list and is under discussion. I will say if there's anything that deserves the disclosure to the market, we will let you guys know in the first time.
Thank you.
As for the regulatory topic, this subject is on the table. We also are very concerned with the tariffs. I think the numbers of last year, the default, this topic is very sensitive. I would say the scenario is still very uncertain for 2021. We have here an apparent confirmation of the initial with the values lower than last year.
We know that last year, this emergency helped amount the money that people received helped a lot to fight against the fall. And this year now the market the scenario of the pandemic are worse moment. How we have to see how the economy reacts. So, delinquency is, yes, a real factor of concern today. As you know, with all the readjustments in the case of CPFL.
So removing Santa Cruz and the old contracts, we have the IGPM, which was high in 2020, continues high this year. But what we're doing now is to pass over the high IGPM in our tariffs in this beginning of the year. So we are sensitive and discussing how we mitigate the effect of the tariffs. And this is a precondition, I would say, very much aligned so that we don't lose any type of economical right. We're discussing this, putting on the table, deferring the impact, the cash impact, but without economical losses for the company.
So it is a sensitive topic and we are, yes, very concerned. And we're discussing with Enel about the alternatives. This, I think, will happen for all companies, not only CPFL, the market in general. And I think it's a benefit for everyone, the client that doesn't receive a high readjustment right now for the agency and for the companies as well. Does anyone want to add anything?
No, I think the deferring well, first of all, good morning to everyone. Good morning, Marcelo. I think you said very well. Marcelo has a second question about the measures to suspend the cuts that Arnel will decide in the meeting at 2 o'clock. The expectation, Marcel, is that Arnel, as it has been publicizing And the suspension will be focused in social tariffs tariff consumers.
Those the limit is 30 June, so it's much more limited than the measure of last year. And during the same period, we will be without having to do the compensation due to transgression of the individual minute limits of continuation, not that we're not going to pay the same thing that happened last year, but it's due to the eventual flow of this suspension to the low class consumers. It's an expectation this meeting is going to happen at 2 o'clock, so we'll have to wait for the formal deliberation and the discussion that will take place in the collegiate directors at 2 o'clock, but it's very much focused and the debate is being carried out and the preliminary notes with the consumers, the low class consumers. Perfect. I'd like to follow-up Pan's response to see if I understood.
I understand this is a discussion point that you had in the past, that it evolved in the company during the last years and that, if I understood, this is one of the most relevant points that is in the head of the control is that this could be a real possibility at some time, but that this will be shared when a decision is taken to the market. Was that what you meant, Pan? Is that what I understood?
Yes, you are absolutely right. And there is some definitely, this is always in the mind of the on the top list. This is a huge strategic topic. And as you said, if there is any progress these services are released to the market, we will let you know. Just confirm.
Okay. Thank you. Thank you.
Thank you, Marcelo, for your questions. Now we're going to move to the 3rd question. Flavia of Goldman Sachs. Thank you for your participation. We'll proceed with your question.
Hi, guys. Good morning. My question is more related to OpEx. We saw sequentially an increase in the costs of the CPMS besides the increase of the legal costs compared. So I'd like to better understand what happened sequentially, how recurrent this is or not?
And also if you could detail a bit better what's included in these legal expenses, this high increase of legal expenses, which called our attention? Thank you. Thank you, Flavio. So responding your question in relation to the PMSO. In this quarter, specifically, we had an increase due to some legal expenses.
Of course, when we look at the OpEx of the year, we see a reduction of OpEx. And of course, a lot of this is influenced by the pandemic, especially with actions towards digitization, new payment methods, all the mobile that was implemented in during this time, the service client services also in operations. I believe that part of this PMSO perpetuates into 2021, especially related to these topics. But in the Q4, we did have, in fact, influence of the increase of legal expenses. I think it's important to comment that part of these expenses were labor issues that take place during the year.
Obviously, that during a pandemic, this was thrown to the end of the year. It's very much spread out. There's no huge event to mention. There was also a reversion last year in Piratinga, which adds to these values. We also had some other arbitration processes, so no relevant value.
And I think that some regulatory fines that also happen in the sector and no expressive value, Of course, we're always paying attention to try to revert the situation in the future. So I think what I bring to you, Flavia, in relation to the legal expenses that there's no impact of any specific relevant fact. It's very much spread out. And I'd like to reinforce another point of the PMSO when we talk about inflation because if we get our PMSO reduction compared to the inflation that we saw in Brazil that was high, This brings us not only a saving, but it's if we compare this to the inflation, it was higher to the decrease in the Jumesa. Thank you very much.
I would like to follow-up and try to understand a bit better, more specifically thinking about 3rd party services, employees, I can see considerable growth. What can be considered recurrent in the Q3? Or is this there's a big difference. It's about 20% difference here in our numbers. So if we get the 2nd quarter and the 3rd as a base, we were at a time of a more critical time in terms of learning and making some changes.
So looking at this increase of expenses, the legal expenses, I don't think it's a good indicator. So what do we have here that can perpetuate to next year? We can think about the gains of digitization, new technologies, especially this digital side of services of clients, new means of payments. This brought some interesting gains. For example, payment means in terms of tariffs.
And when we increase the digital payment means, we reduce the tariff 1 third when we compare to the physical channels. So of course, in this route, we have a certain reduction and this should continue. It's difficult to give you a specific number because we're still in a pandemic. We don't know how this is going to pan out in the future. So if we talk about the Q3, perhaps it will make sense when we analyze the next months, but it's still difficult to tell you for the rest of the year.
It will depend how on the recovery in terms of the pandemic and other issues. Thank you very much. Thank you.
Good morning.
Well, now going to the next question, the question of Gilles of UBS. Thank you for your participation in our event. Please ask your question. Well, hi, guys. I have two questions.
I would like to be more I would like to talk about the CCR. We understand it's a challenge I would like to know what do you see the challenges at the ICMS? How you're working on the modeling of this of the C3E? And can you merge the assets with the ATCS III or the different indexes, the IGPM and if you have the authorization of Arnel to merge these assets? And the second question that I have also related to the IGPM, if it makes sense for you to change the IGPM indexes for the ICP to extend the concession.
Have you analyzed this possibility you could actually alleviate the tariff pressure doing this? But in compensation, you would reduce the risk average and long term. So it's these two questions. Okay. As we mentioned, I think it's a highly complex asset.
I don't know exactly what you're saying. I would say it's an operational challenge as well, not only the balance sheet or the financial statements. So it's a challenge to turn around a company, and it's, of course, a challenge with the accounts. So here you have discussions in relation to the pension plan, to the payment of the ICMS, which is pending, which is an account which goes up daily until the tender date. So you have financial questioning, which is also important.
So all these challenges together that we insert in the model to see if in fact we can close the accounts. About the concession, as you said, here we have a challenge of merging, which is different than we had in the RG. First is the difference of contracts. 1 is a new contract, and we are still in the old contracts of RG. So you have additional complexity here.
And you also have the fiscal credit, which also has to have a price. We didn't have this discussion with RG, so we have it here. So I would say that the complexity is bigger when we talk about an eventual merge of the assets with different than what we did with the RG South. About the change of indexes, I think this is a discussion which is very complex and almost impossible to forecast how the IGPM and the IPCA in the future is going to how do you put a price on this. So this is the challenge.
And the second point is the concession extension. This is a different discussion than the generation case. Our scenario here is of renewing the concession. We're in the 1st cycle, 1st concession, and we work with basic scenario with an automatic extension or to, of course, checking all the quality indicators, the ANL, we are going to renew this to a new contract model. It's a given.
And there, we will evaluate the IGP and IPCA automatically. But if we talk about concession extension in a scenario where we consider it given that we're going to have the right to the second concession, I think it's the same as what we discussed in the case of the GCE. Thank you very much. Thank you. Well, guys, we don't have any more questions.
So we will now close the session of questions and answers. And if there's any question, please talk to Sonia, Investor Relations. She's always available to clarify anything that has not been clarified. And I'm now going to give the floor back to Gustavo Estrella for his final considerations. First of all, I'd like to thank you all for your participation.
We're now going to end the year of 2020. It was a very challenging year for the company. It was a year of a lot of uncertainty, and we had to remodel all our businesses. We had to focus to on the health and the safety of all our collaborators, and I think we had a very positive result. I think we were able to retake an uptake of consumption, an uptake of our results after the Q2, which was negative for the whole market.
And I think we are beginning to have good recovery results from the 3rd quarter preserving the main projects of the company, the deck, the tech and our investment program. I think these are examples that life has not stopped with the pandemic. And we struggle a lot to keep up our short term operations, also maintaining the focus and the vision long term. We are in the infrastructure sector. We need investments long term, and I think we were able to do this balancing all the short term challenges, but knowing that we're going to continue to have a long term perspective and building this future for CPFL.
I think we were able to do this. We have here a year which is going to bring us a lot of challenges. It depends a lot in the how quickly the economy is going to recover and how the vaccination program moves along. And we see that we're much more prepared to for these challenges and for the opportunity. I thank you very much for your partnership during last year.
Thank you very much and see you next time. We're now going to end our conference of the results of CPFL Energy. We thank you very much for your participation, and we wish you an excellent afternoon, a wonderful weekend. Take care. Bye bye.