Good morning. Thank you very much for waiting. We would like to welcome everyone to the CPFL Energia 3Q19 earnings conference call today. With us, we have Mr. Gustavo Estrella, CEO of CPFL Energia, and Mr. Pan, CFO and Investor Relations Officer, as well as other officers of the company. The presentation will be available for download at the company's website, cpfl.com.br/investorrelations. We would like to inform you that all participants will be in listen-only mode during the company presentation. Afterwards, there will be a question and answer session when further instructions will be given. Should you need assistance during the call, please press star zero for an operator. It's important to mention that this call is being recorded. Before proceeding, we would like to mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995.
Forward-looking statements are based on beliefs and assumptions of CPFL Energia's management and information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may also affect the future results of CPFL Energia and may cause results to differ materially from those expressed in such forward-looking statements. We would like to turn the conference over to Mr. Gustavo Estrella. Mr. Estrella, you may proceed.
Good morning, everybody. Thank you very much for your presence in the third quarter of 2019 conference call. Let's go to slide number three of the presentation with the highlights for the third quarter.
The first two ones refer to our results, the EBITDA reached BRL 1.618 billion, a growth of 4.5%, our net income, BRL 748 million, growing by 19.4%, and later on, we will see that from the view, we have not seen a recovery of the consumption of energy, but the results are good in EBITDA and net income lines. Our net debt was BRL 16.8 billion with a leverage of 2.68 times our net debt/EBITDA ratio. Here, already considering the acquisition of the CPFL Renováveis shares that occurred in the first half, 99.94% already consolidated under the CPFL group. One important highlight has to do with investments. We invested in the quarter BRL 616 million, a growth of 17% vis-à-vis 2018. We continue delivering the investment of BRL 2.2 billion during the full year of 2019.
On this track, very good news have to do with the tariff review of CPFL Piratininga. We will be talking about this in detail later on, but the final effect is a negative adjustment of 7.8% for our customers, an increase in 6.2% in Parcel B, and the effect is the transfer of the loan of CGR. This causes this important drop in the tariff, and this is very important for our customers. As I said before, we have already finished the transfer of shares of CPFL Renováveis, BRL 4.1 billion being paid, and the value per share, BRL 16.85, and the process has already been concluded. We have Renováveis almost 100% integrated into the CPFL group. With that, our installed capacity for generation is 4.3 gigawatts, already considering the new participation of CPFL Renováveis.
We also had an important recognition on ISE B3, the sustainability index, as the most sustainable company in the area of energy, highlighted the CPFL nos Hospitais program. By means of which the energy efficiency program, we will have BRL 150 million being invested over the next three years in order to have solar energy installed in our area. This recognition from ISE B3 is very important. We also have another highlight having to do with the community, with the projects of the Instituto CPFL. Let's go to slide number four, in which we give you more details about the tariff revision of CPFL Piratininga. RAB, BRL 3.8 billion. Net regulatory asset base, BRL 2.487, Parcel B, corresponding to BRL 9.1 million, and the regulatory EBITDA, BRL 460 million.
On the chart, you can see on the lower part of our slide a growth vis-à-vis the fourth cycle of tariff review, growing by 34%, BRL 117 million in growth. Vis-à-vis our regulatory EBITDA of the fourth quarter, BRL 460 million in the comparison with the fourth cycle restated or updated considering the effects of the write-offs and depreciations and the monetary restatement, we see an even higher growth, 47% growth vis-à-vis the basis for the fourth cycle, of course, with a better expectation of regulatory EBITDA and an expectation of growth in our results for the next few years. Getting into more details, as I said before, the positive effect of the growth of Parcel B, 6.17%, the main effect here is the increase in our investments made in BRR.
We see that we have an incremental growth of BRL 69 million and also an increase in the average rate of depreciation. In the reduction of the Parcel A, the main highlight is the end of loans of CCE, a reduction of BRL 300 million practically in our Parcel A, which brings about a major reduction in our tariffs for our end customers. Let's go to slide number five, in which we see our sales performance. As I said, it's a challenging quarter with no clear signs of a recovery in consumption in our concession area. Here we see a reduction of load in our concession area, 0.3%, and sales in the concession area, 1.8% drop.
When you have the difference between these two ratios, it is because you have a recovery in the market at the end of the quarter that still does not affect our sales, but it does affect our load. What we haven't seen now going to the fourth quarter, maybe in October, we see a recovery in consumption already met. We already get a little bit of this effect at the end of the third quarter, and it has an impact on sales that we will be seeing in the fourth quarter of 2019. When we look at the consumption classes, industrial is a highlight with a drop of 4%.
What we did here on this table on the right side is to break down this drop in order to see from where it comes. We see that there is a calendar effect that is not a real effect of market and migration of some clients that today are connected directly to the base grid. There is no direct relationship with the consumption of energy and also CD with 0.1. If you isolate all the effects, you see the macroeconomic effect, that is to say, the performance of the industrial classes with a drop of 2.4%, lower than the 4%, but still a very negative effect in industrial consumption once again. Talking about a more recent consumption expectation, we see some signs already, very timid signs of recovery in consumption in the fourth quarter.
It's a little bit better than the third, but still a performance along the same lines of 2018. On slide number six, delinquency and energy losses. Regarding delinquency, we see an improvement in delinquency comparing to the second quarter of 2019. The trend that we identify here over this year, 2019, after an important increase at the end of last year. We see that in the first quarter of 2019, our ADA was BRL 68 million, going down to BRL 64 million and going down now to BRL 61 million. This is a positive trend in delinquency, much higher than the third quarter of 2018. With a very intensive action of decrease in delinquency on the lower left part, you see our collection actions with a growth of 10.8% in the volume of cuts, 589,000 cuts on an annual base.
We intend to have 2.2 million in cuts in our concession area or disconnections. In terms of losses, we closed the quarter with 9.31%, slightly higher than June 2019. Here we also see a calendar effect in terms of billings, and this affects our calculation of losses the way this is done. Our expectation is of a real growth of losses, and this is a calendar adjustment that should be offset in the fourth quarter of 2019. Slide seven, we see our hydrological scenario with an important drop in the level of reservoirs in our national interconnected system with an expectation for November to close at 21.4, one of the lowest levels in our historical series. This also brings about a bigger reliance during the period that starts now with an expectation of recomposition of these levels in the next few months.
It should continue to affect our PLD or spot price because it has been consistently superior to the 2018 levels, and this is an expectation that it continues to be under pressure over the next few months. Slide number 8 now. Renewable generation. We have the 3 sources and the CPFL Renováveis with a practically flat performance in biomass, growing by 8 gigawatts hour of energy generation. A drop of 35 gigawatt hour in our SHPPs in the South region and also in Minas and São Paulo. The main effect comes from our windmills, a drop of 169 gigawatts hour, especially due to the reduction in generation or wind. You can see on the chart a drop of 10 percentage points on an annual comparison, 3Q18 and 3Q19. Here we also see a certain recovery as of October, but still lower than the levels of the P50.
I would like to give the floor to Pan, our CFO. He will be talking about the results of the group in the third quarter.
Good morning, everyone. Let's go to slide number nine. The EBITDA in this quarter was BRL 1.6 billion with an increase of 4.5%. In the distribution segment, we had an increase of 17.8%. The main effects were BRL 187 million of market effect, mainly due to the increases in the tariffs that we had during the last readjustments and by the load in our concession area. We also had a gain of BRL 42 million because of the REB report of CPFL Piratininga. On the other hand, the financial asset of the concession had a drop of BRL 78 million due to the lower IPCA this year.
Lastly, an increase of BRL 23 million in PMSO, highlighting the expenses with asset write-offs and also linked to our CapEx of BRL 17 million. Also, our expenses with pension funds, BRL six million. In the trading services and others segments, we saw a drop of 24.8%. This happened because of CPFL Brasil that had a lower margin in 2019 due to the lower energy prices. On the next slide, we have the conventional generation segment, which had an EBITDA 0.5% higher. The main effects were the transfer of inflation to the contract amounting to BRL 32 million, the lower volume of hydro and thermal energy representing BRL 17 million, and a non-typical effect that happened in 2018, which was a tax benefit amounting to BRL 11 million.
At CPFL Renováveis, it got dropped by 10% due to a lower generation of wind energy, BRL 34 million, asset write-off, and an increase in expenses by BRL 6 million. On the other hand, seasonality of contract generated a gain of BRL 45 million due to a higher allocation of energy during this period. I would like to remind you that this should be offset during the next quarter. On slide 11, we show you the net income performance, which was BRL 748 million in this quarter with an increase of 19.4% vis-à-vis 2018. Besides the BRL 70 million variation in the EBITDA, the main effects were in the financial result.
It was an improvement of BRL 147 million, which is due to the additional revenue that we have with the funds coming from the IPO and the CPFL cash that reached BRL 56 million, and the reduction in interest rates, and also in the net debt with a benefit of BRL 53 million. The mark-to-market effect, BRL 32 million. Depreciation with a variation of BRL 30 million. There was an increase in taxes due to the better results, BRL 65 million. On the next slide, we show the results year-to-date up to September. The EBITDA had an increase of 8.6%, BRL 370 million, and net income going up by 26.5%, representing BRL 396 million. In the EBITDA, I would like to highlight distribution that was favored by the tariff reviews that occurred in 2018.
In the other segments, we see that the weak performance of wind in the CPFL Renováveis units was offset by the good result obtained in the other ones, now going to our net income. Besides the positive effect of the EBITDA, we also had an improvement in the financial result of BRL 268 million due to the lower indebtedness and the lower cost of debt added to the financial revenue from the IPO funds. Now let's go to the next slide about the company's indebtedness, in which we show in the first chart the evolution of the net debt/EBITDA indicator. Thus, net debt amounted to BRL 16.9 billion, and EBITDA in the last 12 months reached BRL 6.3 billion. Net debt/EBITDA ratio was 2.68 times, and this increase is due to a higher participation in CPFL Renováveis during this last period.
On the lower part of the slide, you can see the evolution of the nominal cost and the real cost of debt. The nominal cost reflects a change in the debt profile as from the end of 2018, and the real cost is also affected by the IPCA, which was 2.89% in the third quarter of 2019. I would like to highlight the fact that 64% of the debt is pegged to the CDI. On slide number 14, we have our CapEx figures. In this quarter, we made an investment amounting to BRL 616 million, with an increase of over 17% on a year-on-year comparison. Per segment, we had in distribution a total invested of BRL 515 million for the expansion and improvement in the system, and the year-to-date amount was BRL 1.4 billion.
For generation and transmission, we had BRL 45 million for renewables, BRL 8 million for transmission, and BRL 2 million for conventional generation. For the transmission segment, I would like to highlight the beginning of the Maracanaú Sul I and II project, which were acquired during the 2018 auctions. For the services segment, BRL 10 million were invested. Thank you very much.
Ladies and gentlemen, we will now begin the question-and-answer session. It will be in Portuguese with interpreting into English. If you want to ask a question, please press star one. To remove your question from the queue, please press star two. Our first question comes from Thiago Silva with Santander.
Good morning, everyone. Thank you for the opportunity. I have two questions. First, you mentioned in the beginning of the presentation a resumption in consumption volume in October. Given the temperature effect, could you give us more color in terms of how much is coming in your consumption area, how much is coming from volume? I mean, if this is a shy resumption, or do you think it will come with more momentum? Considering the industrial segment as well. My second question has to do with growth.
We know that we have the C3E distribution company to be sold and other distribution companies in the market. Are you considering those? Also, I'd like to know about transmission auctions, the next auction that will be held in December. Are you considering any lots that would make sense to you? Thank you very much.
Thank you, Thiago. Okay. Regarding your first question, resumption of volume and consumption. Indeed, we saw in October and in November signs of consumption recovery. Basically, in the residential segment because of the temperature. In October, average temperature
Was above the historical series, and so that drove consumption in the residential and commercial segments. Sorry for the interruption. In the industrial segment, we saw that in the third quarter, we have a 2.4% reduction in consumption. This is macroeconomics. What we see is that from October onwards, there is a certain resumption and remaining flat compared to 2018. There is some improvement in the third quarter. There is a certain resumption of growth. Our expectation for the year is that we should end consumption on average 1.5% above the level of 2018. A lot more concentrated on low voltage segment than on the industry. This would be kind of the breakdown. I think the temperature has an important effect. We don't see a lot of signs of resumption of consumption by the industrial segment. Your second question has to do with growth.
I guess that we have some good opportunities here. Keeping in mind the short to mid-term, perhaps in the foreseeable future, we have the transmission auction. In following our strategy, we want to operate in niches. There are some lots that fit our strategy. We have an expectation of, yes, bidding on this auction in December, for some lots that fit our strategies. Looking more into the mid to long-term, as you mentioned, there are some important expectations of assets in the distribution area. Again, it has to fit our strategy by region, by location. I think it makes sense to look at these assets that are possibly put in the market. You mentioned C3E and some others, and we will be looking into those for sure at the right time.
Given our size and the relevance of CPFL in the market, we are definitely a consolidation player in the distribution segment. Regarding generation, with the completion of CPFL Renováveis shares acquisition, we are now an investment player in new generation projects. Again, we are keeping this market in our radar.
Excellent. Thank you. Just going back to my second question. There was some acquisition of Sempra assets in Chile. Did you get involved in that acquisition in terms of, did you help them? Could you speak about that?
No, we didn't play a part there. Our strategy is very much geared to the Brazilian market, where we have a great competitive edge given our footprint in the market. Like I said, given that we have a number of new potential assets that we could invest in.
Our expectation is that we will keep our focus on the Brazilian market. Other players have an approach of going more international, but they do it, not us.
Excellent. Thank you.
Our next question comes from Gustavo Mielli with Itaú BBA.
Good morning, Estrella and team. Thank you for the presentation. I'd like to ask a question about CPFL Renováveis. Perhaps it is the subsidiary that drew our attention the most in the results. In a broader view, I would like to have you discuss the triggers for results of CPFL Renováveis for the next two quarters. Anything regarding lower costs that we could expect because of the integration to CPFL Energia after the follow-on? Anything we could expect in terms of a faster start-up of projects that are being built? There's another question of a more regulatory nature.
Have you conducted any study regarding the impact of implementation of hour prices in your renewable sources? Because we have talked with some wind players, and they have different views regarding this point. Some expect a benefit from the implementation of this factor. Others expect a more negative impact depending on the profile of wind that they have in their portfolio. Have you conducted any studies about that? Could you give us any number related to that? These are my questions. Thank you.
Well, Gustavo, thank you for the question. This is Fernando speaking about CPFL Renováveis. To try to address your first question in terms of results, as you mentioned, at the moment, integrating CPFL Renováveis and CPFL Energia processes, we're adopting the best practices.
As I mentioned, we have an expectation of capturing synergies in PMSO as well as tax gains, considering an accumulated loss of about BRL 2.5 million at CPFL Renováveis . There is also an expectation of reducing our cost of debt at CPFL Renováveis , and that we can actually see some of this impact in the recent months. Regarding the results, it is important to say that wind has been below expected along the year of 2019. As you know, wind projection is done for a 20-year horizon, P50. When we get our older farms that have been in operation for more than 10 years, such as is the case of CR, we have a generation very close to 100%. It is normal to have a natural resource performing a little below expectation in the next year.
In the following year, you can have a recovery in the following years. Speaking about spot price by hour, we are considering this topic at the company. It really depends on where the farm is located. A good deal of our farms are located in Rio Grande do Norte and Ceará states. Over there, winds tend to be stronger during the day, during the afternoon. That tends to generate a positive effect in terms of a spot price per hour. Our farms are located, particularly in locations where it tends to be more windy during the day.
Perfect, Fernando. Thank you very much for the explanation. It's very clear.
As a reminder, you just have to press star one. Our next question comes from Luisa Cruz with Safra.
Hello, good morning. I have two questions. Number 1, in the distribution segment, particularly regarding regulatory EBITDA for companies, I would like to know, how are the companies performing regarding the regulatory EBITDA, and particularly at Piratininga? This inquiry is expected as of the fifth cycle will be captured in the coming months. My second question is regarding the discos. What are the measures taken regarding the migration of customers regarding energy contracting in the long term?
Okay, this is Luisa Hickey from Distribution. Regarding regulatory EBITDA, it is in keeping with the real one. Given the regulatory threshold, there are no great distortions here. It is very much in line. Regarding Piratininga, we start to see the effect in the next month and in the coming years.
This effect will start to be seen gradually in the next month, October, November, and subsequently. Regarding over-contracting, we don't have any problems. All of those customers that migrated to the free market, this is considered as voluntary. We are following it. We are using all of the mechanisms for exchange, for sale. In other words, we are managing over-contracting really well. This has not been an issue for us, and we've been managing it very well over the years. Regarding possible discussions about the past, well, we are discussing this with ANEEL according to the regulatory rules and according to what is established in the regulations. It's all under control. Let me just add to this. Regarding over-contracting, yes, in some companies. One example is Piratininga.
We have a relevant surplus. You're basically given a quote, a location, and the migration of customers to the free market, which is actually involuntary. This is not a thing that worries us. All of the surplus that we have is an involuntary surplus that has no impact whatsoever on our results.
Excellent. Thank you. When you talk about the regulatory EBITDA, you think it's over-performing, or is it comparable with the regulatory EBITDA of the other companies, Paulista or RGE? We're performing in keeping with the regulatory EBITDA, but just a little bit. Recording the regulatory WACC in Q3, was it penalized in any way? No. When was it defined? A WACC of 8.09, it would be valid until the end of this year of 2019.
All tariff reviews of our group that happened in 2018 or Piratininga now in 2019, we remained with a WACC of 8.09, and this will continue until the end of the cycle. Four years of Piratininga and five years in the case of all of the other companies, Paulista and RGE.
For the next cycle, have you defined anything? Has this been discussed?
There is an open public hearing that will be held today, and this topic will be discussed. We are following this up close, but there is no definition regarding the new WACC.
Oh, excellent. Thank you very much.
As a reminder, if you want to ask a question, please press star one. This concludes the question and answer session. I would like to turn the floor back to Mr. Gustavo Estrella to proceed with his closing statements.
Please go ahead, sir.
Very well. Again, I would like to thank all of you for joining us on this earnings conference call and for your questions. I just want to stress some important points about our company. We completed the process of acquisition of CPFL Renováveis shares. As we said in the share issuance process of the company in June, this is a consolidation process in the CPFL group, bringing some important benefits to the group. Some of them are already being felt. We are finalizing the integration process of both teams, CPFL Renováveis and Energia. We're going to have a cost benefit, particularly as of 2020. We have an important expectation of reducing our funding cost, and we have a program of debt exchange at Renováveis with an expectation of reducing the cost of our debt.
Also in the integration and merger process between CPFL Geração and Renováveis , the benefits will be captured along 2020. This is a process that has been kicked off. The expectation is that the process will be ended by the end of 2020, and the expectation is that it will bring good results for the group. For 2020, we expect the economy to rallying. The reforms are now taking place. The pension reform was approved. We see, even if it's in its infancy, signs of consumption resumption for the industry, and the expectation for next year is that we're going to have the economy rebounding more strongly, and this will have a reflex on power consumption and a good effect on our commercial losses and delinquency rates. In terms of opportunities, I think the group is looking at new investments.
We are going to have the December transmission auction, and we will take part. We are monitoring and we are paying attention to opportunities in the renewable generation segment, particularly now with the integration of CPFL Renováveis and also in distribution. If there is an interesting asset in the market, we'll look into it. This is the outlook for 2019, and we have a more positive expectation regarding 2020. Again, I would like to thank all of you for your participation, and have a good day.
That concludes CPFL Energia conference call for today. Thank you very much for your participation, and have a good day.