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Companhia Paranaense de Energia-COPEL (NYSE:ELP)
Q1 2020 Earnings Call
May 15, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Companhia Paranaense de Energia Copel Earnings Call to discuss the results of the fourth quarter of 2019 [Phonetic]. All participants are in listen-only mode during the Company's presentation, and later, we will hold a Q&A session when further instructions will be given. [Operator Instructions]

Before proceeding, we inform that forward-looking statements that might be made during this conference call related to Copel business outlooks, projections, operating and financial projections and goals are based on beliefs and assumptions of the Company's management, as well as some information currently available.

Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may also affect the future results of Copel and cause results to differ materially from those expressed in such forward-looking statements.

With us today in this conference call, Mr. Daniel Pimentel Slaviero, CEO of the Company; and Mr. Adriano Rudek de Moura, CFO and IR Officer. Copel's presentation is available at the Company's website, www or ir.copel.com.

Now, I turn the floor to Mr. Daniel Slaviero, CEO of the Company.

Daniel Pimentel Slaviero -- Chief Executive Officer

Good afternoon, everyone. I thank you very much for your participation in our conference call, and I do hope that all of you are well, as well as your families, and everyone is protected and healthy. Before tackling the most relevant subject of this conference, which is, how Copel is facing the serious impacts of the COVID-19 pandemic. I would like to stress that, fortunately, the impacts in the first quarter have been very minimal, and we are delivering another quarter of sound and consistent results. We are very proud to keep on getting better results, better than prior-year periods.

We have a relevant improvement in the net income and in the adjusted EBITDA in the first quarter of 2020, compared to the same period of 2019. In the case of the net income, there is an increase of 16%, reaching BRL594 million, and the EBITDA 11.5%, now reaching BRL1,231 million. Further on, we are going to go into the details of these results, but I can already tell you that the first quarter of 2020 has not been affected by the impacts of the coronavirus.

Now turning to the next page, I would like to start by saying that this unprecedented crisis comes in at a moment when Copel was sound and prepared to face this turbulence. I highlight, a robust cash position of over BRL3 billion in March of 2020; also, we are maintaining the drop of our leverage, now, it's at 1.9; and no maturity of our debt in 2020, especially, that as compared to the prior year.

Now turning to the next slide. Here, we have the main advances in the quarter. Once again, the exceptional results for Copel Dis. BRL423 million of EBITDA, a growth of 28% higher than the prior year. This means that in the last 12 months, Copel DIS has already reached a regulatory efficiency of 12.2%. It's good to remind you that three years ago, we had an inefficiency of almost 50%, that proves that [Technical Issues].

We will have invested BRL2.9 billion by 2025. We also have the Three-Phase Parana program, with 25 kilometers of the grid modernization. Next week, we are going to launch a notice for the first stage of the Smart Grid in the amount of BRL430 million. Just to give you an idea of the size of the program, currently, we only have 4,000 consuming units with that type of technology, and -- but we are going to reach 900,000 of consuming units within three years, and that corresponds to 20% of our total base now. And so far, this is the most envisioned program in the industry.

These programs have three objectives here; the Three-Phase Parana, Smart Grid Copel and Total Reliability. They are all under the transformation program umbrella. We wanted to improve the quality of services and also improve our ELC and EFC; reduce costs with lower needs of displacement of our teams. And we continue having here our agenda of reducing operating costs and improving efficiency. And all of that is under the regulatory review that is going to happen in 2021.

Another important advancement and it really works hand in hand with our strategy for the free market is the increase for the Copel Energia Comercializadora, Copel Com. An increase of 42% that places Copel Com among the largest in the industry, in the CCEE ranking. Here I also highlight that in addition to the conclusion of the relevant products of Copel G&T, such as Baixo Iguacu and Cutia, that is starting 2020, we cannot already address the full impacts in our EBITDA of around BRL100 million in this quarter. We can see, practically, this inclusion of Mata de Santa Genebra works after several delays just last week. It's the last segment of the line. And our commercial operation is going to start up from Araraquara 2-Fernao Dias, reaching 862 kilometers of operating lines allowing the Company to have an APR of BRL213 million equivalent to 87.6% of total APR. And so now with this last stage of commissioning of this renown Dias substation, we will be concluding these works. Therefore, with that, we will begin to conclude the whole works.

So, ladies and gentlemen, you can see that we do not have any other relevant works on the pipeline for the G&T, just as we had in 2019. And just now we have the Jandira Wind Complex, and also we have SHP Bela Vista, and all of them are within budget and within our schedule. We are very much attend -- paying attention to opportunities to buy brownfield undertakings that might come up in the market, stemming from COIVID-19 crisis, and we are paying a lot of attention to possible opportunities like that.

And talking about COVID-19, we do believe that it's very relevant to detail to all of you how the Company is facing this crisis and which are the impacts. Well before anything else, all employees are aware of the Company's commitment, which is to ensure to our customers and consumers, electric energy supply with quality, in addition to continue contributing actively to the electric national system by the means of our efficiency in generating plants as well as transmission lines, and also data connection by optical fiber from Copel Telecom.

As I said before, the impacts of COVID-19 have not been relevant in none of Copel's businesses in the first quarter. We are following up several indicators on a daily basis, and among them the consumption energy level and delinquency, and so far. In the first two weeks of May, our drops have been lower than the national average. About load reduction, it was a little bit over 10% and delinquency is not in the good digit, yet. Even with that load reduction, fortunately, the economic impacts so far are very restricted. For instance, the grid market of the deals in April [Phonetic], which represents all the billings of the month dropped just 0.3%, and the drop in the industrial and commercial sectors have been up by -- partially by a considerable increase in the residential consumption.

Nevertheless, we are still in full alert, because and despite of seeing some slight signs of load recovery, we understand that the worst months could be May and June. Considering that, we do not have a second wave of contamination. Both the second quarter of 2020 will surely bring effects of COVID-19, both in load reduction as well as in delinquency, and therefore in our numbers.

In terms of our contingency plan, which has already been presented to the market by the end of March, when we talked about 4Q 2019 results. I think it's important to mention the four pillars and to make an update about them. About the first one, we are still following strictly the protocols of the Ministry of Health and Secretary of Health in Parana. And so far, we only had four confirmed cases among our employees and outsourced employees as well. Almost 70% of employees were already working in home office by the end of March. And those essential activities are in different work scales, and they do have all types of protection, hygiene measures that are recommended.

About the second item, the continuity of our works, everything is working well and as expected. About the third pillar, which is the follow-up of deliberation of regulating agencies. We understand that we should pay attention to this item. And I believe this is something that interests the market as a whole. First, I would like to congratulate, Minister Bento Albuquerque and all his team on how they are tackling the subject so far in the proactive transparent fashion and open to conversations. Second, we are facing an explosive combination of drop in demand, increase in delinquency and its impact in the GSF and spot price.

But we believe this is a financial crisis, not a crisis of the electric system model. Therefore, sectorial measures should isolate the problem in the distributing companies segment, and avoid them to have a cascade effect for the other links in the chain. So we do believe that a COVID account, as it has been called, is the best way to tackle the financial problem of the distributing companies. The legal framework is already there, with the Provisional Measure 950. In the next few days, we'll have the decree and right after, the regulation coming from ANEEL. We hope that these funds should be available for the banks by the end of May and the first week of June. And after that stage, immediately, we needed to work with the Ministry and with ANEEL, which is doing an excellent work, and we will have to discuss the economic balance of distributing companies, that is crucial so that they can keep on operating in a sustainable fashion.

The fourth pillar, which is crucial to support all the other ones is to protect the financial health of the Company. And here, I would like to ask Moura that when -- he is talking about this issue. He goes into the details.

And a final topic, I should highlight, just like several good examples that we have seen coming from industries or companies in this industries, or several other in the country, Copel understands that it can provide its contribution to the heroic work of our healthcare professionals. Therefore, in May 8, we approved in our Board of Directors, a donation of BRL5 million that are going to be used to buy 200,000 tests and over 1 million masks. Along with the Secretary of Health of Parana, we are going to send those where they are best used and more needed. In addition to that, of this donation, we also launched a campaign called Fatura Solidaria, which also as a donation by -- Copel donate the same items. We will be paying BRL5 for those that subscribe to our digital bill and direct debit.

Well, Copel is maintaining its strategic goals, and we do maintain a positive vision for the medium and long term. And despite of all uncertainties, at the moment, we are still focused in our business plan. First, I stress that we are not changing our investment plan. We are just making some special and one-time off adjustments among the months to adjust that cash flow, but we are still focusing on the approved plan by the Board of Directors, investments in the amount of BRL2 billion. And BRL316 million have already been invested in this first quarter, and still is on our agenda, the cost reduction and operating efficiency improvement. The figures of the first quarter already show that, especially, with the reduction in our headcount. And we implemented a program called Performance Incentive Program that is linked to goals, to our strategic plan and our budget. And this was a commitment that our management had to move forward in meritocracy.

And starting last February, we developed a work with BCG to identify additional business opportunities, especially, business and management opportunities, and I want to mention this one last [Phonetic], because I want to highlight the process of Copel Telecom divestment. This week, ANEEL provided a previous approval for the swap contract, for infrastructure among the subsidiaries of Copel Group. And yesterday, our Board of Directors approved, as a continuity, the studies for sale of 100%, as well as a public notice with already -- notice is ready in CCEE, as well as a teaser with additional details for this business. Starting Monday, this is going to be available on our webside and any further information can be provided by Banco Rothschild. We consider that an important stage up to the moment when we can evaluate impacts that COVID-19 will bring to business and to economy, and we expect to carry out this action by the end of the year, if market conditions allow us to do so.

Once again, we thank you very much for your participation, and I will be available for your questions after Moura's presentation. Thank you.

Adriano Rudek de Moura -- Chief Financial and Investor Relations Officer

Thank you very much, Daniel. Good afternoon, everyone. I also thank you very much for being with us in this conference call, and I hope all of you are doing well.

Before going into the details of the results, and turning to the main highlights in the quarter, I would like to stress what Daniel mentioned about finance -- about financial soundness to face this crisis. Here, I would like to share with you the main guidelines of our financial plan to fight COVID-19 impacts. As all of you know and you are also concerned about the crisis, but we are also comfortable, financially speaking, and we still maintain a robust cash over BRL3 billion, even with the debt and interest maturities in the first quarter of 2019, close to 900 -- BRL590 million, approximately BRL400 million in debt and BRL190 million of interest debt we have not rolled out, and in addition to the capex of around BRL300 million already invested.

Today, this is the most relevant topic of my agenda and all my teams as well, because we want to protect Copel's financial health. And in addition to being one of the pillars of our contingency plan, this is also a matter of survival right now. This financial plan is totally aligned to the priorities of the Contingency Committee that have already been mentioned by Daniel, and with the subsidiaries of Copel Group. Meetings here are have been on a daily basis and the actions are focused on the short-term cash impact, two months to three months at the most; four months for us is still a long term. Our Board of Directors and our Fiscal Committee also, all of them are following up all the impacts on a weekly basis. I highlight here that we are also making very one-time off adjustments, and the monitoring is done on a daily basis. We consider several indicators, the level of loads, reading, billing, delinquency and several accumulations of possible scenarios, and I think are the more relevant comments regarding our cash plan.

Now turning to the next slide. I would like to highlight the non-recurring items in the quarter. In the EBITDA, we had a negative impact of BRL78 million; of those BRL32 million come from impairments, a positive one coming from Colider, BRL18 million, and other negative one BRL15 million coming from WEGA [Phonetic] basically, because the expectation review for dispatch. Another negative impact was the additional provision for losses stemming from delinquency in our Dis, because of COVID-19. We also have a complement of provision for losses, including here an arbitrage process with [Indecipherable] Caiua totaling BRL28 million and some assets write-offs of Telecom of BRL8 million. The only positive impact registered here in this quarter was the mark-to-market of Copel Com of only BRL4 million. Last year, the impacts in the first quarter item that are in nonrecurring was much lower at around BRL12 million in the EBITDA and just BRL6 million in the net income. With that, the adjusted results would reach BRL1,231 million in our EBITDA, and that would represent 11.5% more than last year of the first quarter, and the net income would be BRL596 million, 16.2% higher.

As you can see the COVID impact, if we consider provision for loss and that is a BRL13 million. Maybe part of the FX rate variations because of Real depreciation should reach around BRL7 million in this line of FX variation. We would be talking about something related to BRL20 million, which is very low vis-a-vis our figures.

Now here we don't see the operating results of the subsidiaries. I highlight that we have improved in all of the businesses, but the major contribution was, in fact, from the distributing company, an improvement of 32% vis-a-vis last year. And look, if we compare here 2018 that would represent an improvement of 140%. Here major contributions in the case of Dis are related to manageable costs and the reduction of those manageable costs, especially in personnel, with a reduction of over 780 employees since 2018. And just in this quarter, comparing to 2019, almost 400 people left the Company in the Dis. And here also, we have an impact of the average increase in tariffs starting in June of 2019 of 3.41% in addition to an increase in the grid market in the first quarter of 2019 of 0.6%, as Daniel already mentioned that. This is above the national average, which dropped 0.09% [Phonetic]. Compared to the South region also, it dropped 0.3% [Phonetic] according to the EPE. And finally, we also had a reduction in the provision of contingency of several actions, especially the labor ones in the amount of BRL30 million.

So with this, we explain the improvement of the results coming from the distributing companies that's already over 12% of efficiency. Regarding the regulatory EBITDA, congratulations, Marshall and his team. In the G&T, the results also have grown around 4% vis-a-vis the same period of last year, reaching BRL687 million. It's still the largest contribution build to Group's EBITDA, 56% of the total, a little bit lower than what we had last year around 60%. The G&T results already posting the full impact by the inclusion of the new undertakings of generation escalator Cutia, Baixo Iguacu and also transmission lines, such as ARA TAU and Norte [Phonetic] which is still under construction, but it has been partially -- built, and we already have results stemming from that. And that's a contribution of BRL104 million last year. That contribution was already partial of BRL56 million. But an increment in the quarter in the G&T was over BRL50 million. So this is even clear when we compare the performance since 2018, where the increase was up 20%, when compared to this quarter, that is BRL115 million better.

Another positive impact was the dispatch in the first quarter, which contributed with BRL8 million. And in this case -- the impairment is packed and was not considered here, I already mentioned. We are just talking about adjusted results. On the negative note, there was a high -- I highlighted that there was a drop in the CCEE revenue coming from short-term energy, say, reflecting basically the difference between the energy balance of the first quarter of 2019 and the first quarter of 2020, where the surplus of energy this year was lower, especially in January of 2020, and also being affected by a drop in the average spot price of 25% and the average yield [Phonetic] in the quarter of 30%.

Additionally G&T revenue has also been impacted by the TEO, the optimization energy tariff, because of this huge hydric crisis that we have seen in the south of Brazil may be one of the largest in decades. Another negative impact in the G&T was the increased provisions for labor claims, which affected the quarter [Indecipherable]. And finally, I also should say that we have not seen major relevant impacts on our G&T stemming from COVID-19 in the first quarter.

In Telecom and despite of the reduction in revenue because of commercial reevaluation, and the objective here was to improve the customer mix. Our operating results have improved mainly by the significant reduction in personnel costs and customers activation improving to an operating cash generation of BRL52 million, 30% better than 2019. I also should highlight the contribution stemming from Copel Com that starts to be positive and very strategic for Copel Group, especially as part of our strategy to commercialized energy.

Adjusted EBITDA already is over BRL8 million in the quarter, almost BRL12 million, including mark-to-market, compared to 2019 that was BRL4 million in the same comparison basis. So here you see a relevant improvement. In the first quarter, the sold energy already went over the 4-gig average gigawatts, as Daniel has mentioned, a growth of over 40%, and we are already considering one of the largest in the industry according to CCEE ranking. Copel Com also had no relevant impact coming from COVID in the first quarter. We did not have any contracts being canceled. The other results that include in addition to Copel Com that are already mentioned also Compagas, Elejor and Holdings are stable when compared to 2019.

Here we have the performance of manageable costs or PMSO. And here we have the two first quarters of 2020 and 2019. For better comparison, we are excluding the impacts of the impairment, which we already mentioned. On line P, you can see a drop of 2%, BRL13 million less and payments for employees and managers and BRL2 millions in benefits, which is being negatively affected by an increase in the provision for our profit sharing program. And if we do not consider that impact in the profit sharing programs, line P would have reduced 5%, especially with the reduction of 515 employees in the last 12 months, as I mentioned. Remember we already laid off 1,200 employees since January of 2018. In summary, without the installation impacts, fee line would have dropped around 8%. We are still looking for opportunities here under this line.

Materials and third-party services have been affected by the increase in the maintenance efforts to increase even more the quality in the energy supply, especially outsourced services in the Dis for ELC and EFC. Other reduction is broken down basically by the reduction of a litigation and legal claims provisions of around BRL16 million, and it is -- that was BRL30 million as I already said. And also by the reduction of assets write-off impacts of Copel Telecom, almost BRL13 million. The only negative impact here was delinquency in our Dis, which increased the provision in BRL13 million.

I highlight that and despite of major advances in the past years, we are still looking for more efficiency, and as we already said, efficiency and cost reductions are still in our agenda more than ever, and we are very confident about this work forward efficiency improvement that we are doing with BCG, and we're also ready to integrate something on that in 2020.

On the next slide, we have our operating cash generation performance. We see a consistent improvement in the operating results year-on-year, especially as we said, by the works conclusions, reduction of personnel costs and efficiency improvement in Dis. Compared to the first quarter of 2019, the major reduction is related to an asset and operating liability -- operating liabilities and asset variations, specifically, lower payment of suppliers because of the conclusion of construction works, and a higher expenses of income tax, because of a higher interest on equity.

Finally, I would like to remember that cash generation of BRL1.2 billion in the first quarter was enough to cover for our investment plan, as well as to pay for interest and that without needing -- rolling out, and that allows us a reduction in our gross debt and improve our leverage.

Now turning to the next slide, we can see the history of our investments since 2018. There was a slight reduction for investments to conclude relevant projects for 2020 of the BRL2 billion that were forecasted, Most of that is for Dis. BRL1,074 million have already been invested. Out of those BRL200 million have already been invested in the first quarter of 2020 in our G&T. Our major investments are related to the conclusion of some works. And Lot E of transmission, where we already invested BRL100 million in the first quarter. In telecom, we invested just what was need to activate more clients, which added up to BRL20 million in the first quarter. And as we said, we are doing everything so that we do not affect the original plan of BRL2 billion, even with the uncertainties stemming from COVID-19. Remember that -- this last year for investments, there is a base of remuneration that is going to be recalculated for next year.

In the last slide, also important, our leverage is below 2 times in the last 12 months. This is another reason to celebrate. And now the challenges we have been saying is to maintain our capital allocation discipline in all aspects, with a strong governance and the definition of investment strategy and also to look for new business opportunities. We are working hard toward those goals. We are also evaluating our dividend policy, and that's going to take into consideration that leverage level, and that's going to be one of the items to be considered among others.

Also, we have a low level of maturities in 2020, up to December; it's lower than BRL1 billion. And today we are paying BRL315 million regarding amortization, and also the payment of the first emission of Copel G&T with no roll out. And so, for the rest of the year, we would have just BRL500 million to be paid, and that's very low when compared to prior history. Last year, let me just remind you, our debt payment went over BRL3.6 billion.

Finally, I also highlight the reduction of our debt charges in the amount of 20% vis-a-vis the first quarter of last year, not considering any FX rate variation, which is very low. Considering that we do not have any relevant exposure and dollar denominated currency, and the ones that we have on hedge. So we would have an impact.

So this is my summary. I once again thank you very much for your participation, and I am available to take your questions in the Q&A session.

Questions and Answers:

Operator

We now start the Q&A session. [Operator Instructions] Our first question is from Mr. Andre Sampaio, Santander.

Andre Sampaio -- Santander -- Analyst

Good afternoon. I would like to understand better. Actually this is an update about Foz de Areia. Do you have anything recent about this asset? And if you can also tell us about the WEGA contract? Thank you.

Unidentified Speaker

Hello, Andre. Thank you for your question. About Foz de Areia, at the end of last year, we already created the SPE and we transfered the asset there. And this was sent to ANEEL in February. And on March 3rd, we manifested interest by the terms of the decree that allows the extension for more [Technical Issues] 30 years, if the controlling interest is sold. Well, the debate with the Ministry has been interrupted, the debate around the granting bonus, so -- because now everyone is focused on COVID. But we expect that we can resume that so that we can understand how much that grant bonus is going to cost. And the auction that should be done. That's how the decree determines. This should happen in 2021. But the plan is still up. Not the plan is still up, this is part of our own strategy, and also our internal studies show that this -- the sale of this control is good for the Company.

Now about WEGA and the gas contract, right now in the first quarter, differently from the last 24 months, it generated 40 days, because in the beginning of our replacement supply contract with Petrobras or because as spot price went up, in addition to the marginal CMO cost. So it operated in the merchant mode and you can see that you will have impacts there both in revenue as well as supply costs, and obviously there is a positive operating result.

About guidance and negotiations with suppliers, Petrobras, the direct contracts that we have with the Bolivians, I would like Bertol, who is the General Manager of G&T add to that.

Moacir Carlos Bertol -- Chief Executive Officer

About the current contracts that we have with Petrobras, it is valid up to December 31st, 2020. This contract allows the generation of Araucaria thermal plant out of the merit order. And as Daniel mentioned, when you generate 681,000 [Phonetic] and since this is aimed at by brand and oil prices dropping, we asked an LDA approval for a new figure. And this has been approved at BRL475. So we do have a good expectation that the weather, as Daniel has mentioned, because of the hydric crisis here in the South region being more severe than in the last nine years, and today the south supplies basically being masked by the regional inter exchange of southwest and south, and a slow local production, and we expect that is going to be dispatched in the short period of time with the recovery of the load, and also with the stored energy supply in the South.

About the contract that we were discussing, why [Indecipherable] for auctions, A-4, A-5 of existing energy. These auctions have been suspended. They were postponed to the future, and this is under our radar, a possible negotiation, so that we can be some even more efficient. And those auctions will be the defined -- the dates will be defined by the federal administration.

Andre Sampaio -- Santander -- Analyst

Okay. Thank you very much.

Unidentified Speaker

We thank you, Andre, very much.

Operator

Next question from Carolina Carneiro, Credit Suisse.

Carolina Carneiro -- Credit Suisse -- Analyst

Good afternoon, and thank you very much for the call. I have two questions. The first one, if you can please comment on the volume and delinquency performance in your region for the distributing company? We have seen distributing companies making provisions and adjusting provisions for losses based on initial data. But if you, of course, can give us a little bit more color on how the performance is? Because I know that in the first quarter, we just had the beginning of the crisis, but from March to now, do you have anything new -- any new data that you can share with us?

Now my second question, you mentioned in the beginning of the call, Daniel, the level of operating efficiency, you mentioned the consulting company, and you mentioned what you've already developed in terms of targets, and -- it's everything base and meritocracy. Can you give us more detail about the work of this consulting company, and what kind of measures we could expect based on these study space? Thank you.

Daniel Pimentel Slaviero -- Chief Executive Officer

Okay, Carol. Thank you very much for your question. About the delinquency volume, as I mentioned in the call, in the first quarter, fortunately, we did not have any impact, and if we did, very little. And that is because of the quarantine process because in the Parana State, we did not have a severe locked down as you saw in other areas of the country. This is one thing. The second has to do with diversification of the economic factor here and agribusiness is very relevant in the state. We have the cooperative and that area that they did not stop. So they are in that segment of customers consumption even increased.

So after the fourth or the third to the fourth week after March 18 and March 19 that when we started seeing consumption dropping or the load dropping more precisely over April. They improved and they went over 15% or 14%, 15% if we compare to the average before the crisis. And then by the end of April and beginning of May, we already saw slight signs of a recovery. And in Brazil, the national average is above that. So the system -- the interconnected system from the National System Operator in the case, 18% of drop about the impacts we have provisioned what Moura mentioned BRL13 million possibility of losses.

I would say that this is one of the main subject of our agenda. And how this is happening, this in the regulated market, in the free market up to March, we did not have any significant changes, but in April we started seeing renegotiation then we are trying to discuss to renegotiate always maintaining the net present value of the contract. We have flexibility because some segments for instance shopping malls, hotels that really have serious problems and we do want to avoid the decentralization. We have only one or two of those cases. So I don't know, if you have anything else that you would like to add.

Adriano Rudek de Moura -- Chief Financial and Investor Relations Officer

I think that's it.

Daniel Pimentel Slaviero -- Chief Executive Officer

Now about item 2, operating efficiency and the scope of the BCG's work. Here we have three major lines. First, a matter of capital allocation, we review the capital structure of the company considering that continuous reduction of leverage, how we can generate value to the company under that structure, reviewing that structure. We analyze our dividend policy to look for best practices in the market and see how all of that can be addressed, but this is one topic.

The second topic, has to do with efficiency itself that propelled GeT and also in our holding. What is the right holding model, what is the structure, which services and then I'm talking about something that's very common in the market of the shared service centers, how we can restructure that, what is the best efficiency that we can get and what are the gains that all of that could provide us. Well, this is not very much under the scope of BCG by Copel is discussing it and over the second half of the year is already running our pilots and that's what we are -- we have been saying.

In the call center, we have today 450 employees that are just for call centers. So we might be able to have the same efficiency and reduce cost in an outsourced situation for instance. And the third one has to do with services, new businesses and what companies in the industry are doing in this category of distributed generation, energy efficiency, and what we are seeing around that. So over the year we expected that we can continue implementing the efficiency process and cost reduction once as well without hurting the opportunities for cost reduction that we might have.

So unless topic I already mentioned but just to conclude these investments that we are making in automation and optimization of process, the smart grid, the Three-Phase Parana all of them have, as I mentioned in the call the cost reduction aspect, because we have automatic reclosers. So this reduces cost. So we have seen that it has already been reduced in all subsidiaries. And if you reduce the cost of the PLR you will see that there was even more significant reduction, but there were some services that ended up growing these services basically were very specific and they are the first factors that really end up dropping a line like price falling and so on, and pruning as well. So I think I addressed your questions.

Carolina Carneiro -- Credit Suisse -- Analyst

Yes, it's very clear. Thank you.

Operator

Next question is from Marcelo Sa, Banco Itau.

Marcelo Sa -- Banco Itau -- Analyst

Hello, everyone. Thank you very much for your call. I have a question about what's happening related to COVID and what we see on the newspaper. The papers say that for the companies to have access to resources they will have to sign a commitment. You have to commit themselves, not to digitalize anything in the future. And I would like to understand what does it -- that is going to have you not go against the government in the future if you sign and you are not going to file a lawsuit or anything. How is that working? Thank you.

Daniel Pimentel Slaviero -- Chief Executive Officer

Hello, Marcelo. Thank you very much for your questions. Really, this is on the news today that large distributing companies sent a note to the Ministry with some comments and criticism as well. I would like to tell you that we have not invited to sign the document and we would not sign under those terms and conditions because the COVID account as we understand it is the most efficient way to address the financial problems. But about the renouncing that a composition for the future as we understand it, this is a demand from the the bank, but this is an uncomfortable position. I understand this clause can be improved. And I think ANEEL and the Ministry will be sensitive to it because considering that we are facing in the problem in the right fashion addressing the financial area and then the economic area because we do not have the dimension, the extension of the crisis.

We don't know how it's going to be. So I believe that this is a very a good, perfect rationale. But in the future it has to be analyzed and that might be a reason to have discrepancies among the companies of course analyze case by case with the regulating agency and they don't have the final word on the subject. So I think that this demand and despite of being coming from the banks and that's the information that we have I'm sure that it could be improved because the judiciary is always a possibility. And now just to conclude the question, Marcelo. We need to see if this is constitutional to waive these right. So I'm sure this is going to undergo adjustments.

But what's important here is to see how timely it is, we need to get signals from the Minister. And we didn't have them during the week and I believe that today or in the beginning of next year, the decree is going to be published. So that by the end of the month, so that in the first week of June the latest, these funds can be available to distributing company.

Marcelo Sa -- Banco Itau -- Analyst

That's great, very clear. Thank you. And now to add to what we have in that decree, just to understand if there is anything that is addressing the financial economic balance in the future or anything that is open or a term so that or a specific scheduling for analysts, do you have any specific information regarding the second stage of this decree. I don't know if you had access to that final part of the decree.

Daniel Pimentel Slaviero -- Chief Executive Officer

Marcelo, that's a very good question. So about that we do not have access to that -- that previous version. And we have, I don't know if we will have access, but we have this discuss about the concept, then I'm sure that the rebalance the economic and financial rebalance is going to be tackled in the future and according to announced analysis. So I think this is fine. They know where this is going to be in that decree. I don't know how, but we understanding that right after this initial moment and it's also important to address the subject and turn the page because we have the cost of the operation, how much this is going to cost. What's going to be the spread and what does that cost and I think this is one of the key factors to turn it to successful.

So we need to overcome that stage, so that we can start opening the negotiations for the economic aspect because the impact that started in April will be there and the distributing companies are the lungs of the electric system and they only have 18% of what they collect and that equation needs to be quickly addressed, the economic side of it, so that we can avoid any risk of covenants and so on.

Marcelo Sa -- Banco Itau -- Analyst

Okay. Okay, thank you very much.

Daniel Pimentel Slaviero -- Chief Executive Officer

Thank you, Marcelo.

Operator

Next question from Gabriel Francisco from XP Investments.

Gabriel Francisco -- XP Investments -- Analyst

Hello, Daniel. Congratulations on the results and my question as some Copel's TNT, the customers on the free market. Do you have any details of sectorial exposure of these customers and which of them are commercial ones, which are industrial ones, so that we can have an idea of how much the company can or not be affected in the pre-market. Basically that is my question. Thank you.

Daniel Pimentel Slaviero -- Chief Executive Officer

Hello, Gabriel. Thank you. Our portfolio of large free consumers is really large and they are very well diversified among the different economic segments. So we are not exposed to a single segment. Therefore, we are following that up. One or another notification that we get of active government enforcement have been addressed very fast. First, saying that we do believe and the contract and by using that recent Acts of God and Force Majeure, they have to list all losses in a very precise fashion so that we can actually apply that clause. And we haven't had anything coming back in that sense.

So our exposure to customers and clients that is very much abased and guaranteed among our clients and consumers. And just to give you an idea, we track the consumption, our free market consumers for G&T and April it was higher than what was contracted, the take of contracts have a variation of 8% and in April it was higher than what was contracted. So up to April, we do not have any changes in our free market consumers in their contracts.

Gabriel Francisco -- XP Investments -- Analyst

Perfect. That's very clear. So you allow me another topic, please. Do you have an update on the contracting status of G&T for 2020? Next year as well by focusing 2020. That's my last question. Thank you.

Daniel Pimentel Slaviero -- Chief Executive Officer

That's fine, Gabriel. No problem. We have here as a policy and that's as a company strategy is to maintain a natural hedge of the GSF between 18% and 20% in 2020. That hedge is all backed up. So we do not have any de-contracted energy because of that but we are having a load review and even an anticipated announcement, and we end up having a spot price impact and that is at the minimum with this review that's going to be anticipated to June as announced by CC. The trend is to have the stock price at a minimum for the next few months and ours is analyzation for the year and this is a strategy of the different companies.

We end up paying more or less or using more or less energy in the short term at this rate. In the first quarter and over the first half of the year, we will be kind of analyzed for that because we still have some surplus of energy because of this natural hedge that we always have, but on the other hand we will be benefited over the second half of the year when we are going to -- we won't need to, we will need to buy energy and it's going to be close at a minimum price. So we had a guarantee track for the agencies by 300 average megawatts over the first half of the year to avoid exposure and we are executing that that guarantees because of the price perspective.

That has been a little bit more challenging. I think Moura mentioned and that's the prices has been challenging, as Moura said. So in the south, we have as part of the potential and we have a strong charge there. So, we will now go through the drop period and then we have the period. I'd see how it's going to happen, but reservoirs here in the south are below 50% of your capacity. This is the third, fourth worst situation in history.

Gabriel Francisco -- XP Investments -- Analyst

Understood, Daniel. Thank you very much.

Daniel Pimentel Slaviero -- Chief Executive Officer

Thank you, Gabriel.

Operator

Manfredini has another question. Mr. Pedro Manfredini, go ahead.

Pedro Manfredini -- Goldman Sachs -- Analyst

Daniel and Moura, thank you for the call. I have a question. And that's about the renegotiation of the contracted capacity of industrial clients in the regulated market. We also have seen that there is a discussion about that negotiations in the companies and they is to -- they want to declare Force Majeure and now they are saying that there is a bilateral relationship between distributors and also clients. Can you tell us more about that negotiation for the industrial market as well that's not under QST. And what size how large is that negotiation, how is this solely backed on this program that you launched which is very interesting of helping COVID, have a donation for those that decide to choose for direct debit.

So what is the level of banking of your customers? What is the range of customers that do pay their bills in direct debit and if you have seen an improvement in that, I don't know if you have that type of comparison you know, since you launched the plan and how you are now?

Daniel Pimentel Slaviero -- Chief Executive Officer

Manfredini, thank you for participating and thank you for your question. About that first part about the QSE renegotiation if I well understood you, you are talking about the discussion regarding contracted energy versus consumed energy. There was a partial announced decision and that they are analyzing and how that's going. And if that's it, what we see is that we most of customers are demanding the contracted energy and we are discussing that in the courts. And in the first quarter, we have been able to be successful because we are waiting for announce some rolling. And as we have seen, there are three votes against it. I think one of them wanted to talk to the other agents.

But our expectation is that since we will remain there because this is one of the backbones of the electric system. So we do not intend to have any changes. We do not expect the changes on that topic. Otherwise we are going to take with them that the other length of the chain above Copel's situation and then the donation program and that's a very nice initiative and it's part of the social responsibility of the Company and so many other companies are also helping with more or with less and that shows a social corporate responsibility of all the companies. So we are following the same path.

About the banking level of Copel's customers today, we have 4.7 million of consumer units. Over 1.1 million already have the digital bill, and I think 700,000 with the direct debit to their account. So what we expect is to increase that target these figures because also this will bring benefits to the company and there is something important here. The culture of Parana people, they are good payers, our delinquency up to before the crisis was less than 2%. Let's see how it's going to behave, it might increase and come down, but there is something very particular here.

47% of our customers do not pay on the due date, but they pay in the next 30 days. And the fact that they are in this digitalization process and we are encouraging them to pay electronically that. So we don't have that detachment. Although this also, it has profits for our financial results. Just last year, we had 233 million in financial charges. I don't know if I addressed your question.

Pedro Manfredini -- Goldman Sachs -- Analyst

Yes, that's what I wanted to know. Thank you very much.

Daniel Pimentel Slaviero -- Chief Executive Officer

Well, I thank you.

Operator

Thank you, Manfredini and thank you everyone. Unfortunately, we don't have much more time, I would like to thank you very much for your participation and I will turn the floor to Daniel.

Daniel Pimentel Slaviero -- Chief Executive Officer

Well, just my final remarks here, as I said I think we already mentioned, the main topics about Copel, about our strategic foundations and our positive long-term strategy. I think also we have to mention Copel Telecom. We have taken a significant step this week, and if it were not by COVID crisis we would be already in the final approval stages of the process, but considering that the market is stressed and also there are a lot of things that are out in the open, GDP, growth, expectation and everything else. We are holding back a final valuation but the fact that ANEEL has already given initial improvement that needs one of the first points legal safety and easy model for investors, not only investors, fiber -- optic fiber and telecommunications but other investors as well after this crisis.

Well, as a certain moment is one day this crisis will be over and we want to have our strategic plans in line and also we are attentive to brownfield opportunities and we'll be talking to financial agents and we will analyze that and maybe we are able to seize a good opportunity. So once again thank you very much. We know this is going to be over and the foundation of this company in the mid and the long term are very sound and we are working on our strategic plan. Once again, thank you very much.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Daniel Pimentel Slaviero -- Chief Executive Officer

Adriano Rudek de Moura -- Chief Financial and Investor Relations Officer

Unidentified Speaker

Moacir Carlos Bertol -- Chief Executive Officer

Andre Sampaio -- Santander -- Analyst

Carolina Carneiro -- Credit Suisse -- Analyst

Marcelo Sa -- Banco Itau -- Analyst

Gabriel Francisco -- XP Investments -- Analyst

Pedro Manfredini -- Goldman Sachs -- Analyst

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