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Companhia Energetica de Minas Gerais (NYSE:CIG)
Q2 2020 Earnings Call
Aug 17, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for holding. And welcome to Cemig's second-quarter 2020 conference call. [Operator instructions] Now I would like to turn the floor over to Mr. Antonio Velez, who will start the presentation.

Please, Mr. Velez.

Antonio Velez

Good afternoon. My name is Antonio Velez, Cemig's investor relations superintendent. We now will start Cemig's second-quarter 2020 earnings conference call with the following executives: CEO, Mr. Reynaldo Passanezi Filho; CFO and IR Officer Leonardo George De Magalhaes; Chief Generation and Transmission Officer Paulo Mota Henriques; Chief Distribution Officer Ronaldo Gomes de Abreu; Chief Legal and Regulatory Officer Eduardo Suarez; and also Mr.

Rafael, chief participation officer. You can also follow this broadcast by the following phone numbers, 55-11-3127-4971, and in the U.S., 1 (929) 378-3440, as well as by our links at our website, ri.cemig.com.br. For the initial remarks, I will turn the floor to our CEO, Reynaldo Passanezi.

Reynaldo Passanezi -- Chief Executive Officer

Good afternoon, everyone. Welcome to not anymore a teleconference of results, but this is a results webcast for the second quarter of 2020. We are starting a new webcast format. And also, we are opening it with all our executive board.

I asked everyone to be here to show you that we are here together. And if you have any questions, all of us will be here, and it's very important to provide transparency and accountability to our investors. So Ronaldo from distribution is here; Paulo Mota from generation; Dimas from commercialization is on vacation. But Paulo and Ronaldo can take questions about that; Rafael from corporate participations; and also Leonardo, and we have the whole team here.

Well, I think we can turn to Slide No. 3, please. I would like to highlight the main messages that we have. And I think that maybe the main one is the resilience of the company and despite the pandemics.

We see an EBITDA that is recurring of BRL 2.3 billion in the first half of 2020, up 12% in our results. And for me, that is a clear demonstration of the company's resilience and despite the situation we are going through. And this is a result that happens throughout all segments, in distribution, generation, transmission, commercialization, and the holding. So this is really a result that can be applied to all segments, of course, with a few differences, but all of them show resilience.

And we are very proud to say that a significant share of this performance, of this increased EBITDA, is related to our efforts in order to improve operating efficiency of the company. Almost half of this growth of the EBITDA in this period has to do with our optimization efforts and increase of operating efficiency. I think this is the subject that we will be following with a lot of hard work, and we'll be aiming operating efficiency, permanent optimizations. And I will give you a few examples, also some signs on where we are going to our direction.

We are concentrating Cemig's activities in our main building, and we are going to leave the building, Aureliano Soares, by the end of November. We are bringing in Gasmig to our headquarters. Also, Cemig's team is coming to this headquarters. We have now an open office for our top management in order to have integration and efficiency.

We have put for sale the airplane that we still have. So I think these are examples, and these are signs that show that we are working on better efficiency, and we have a bold target to reduce 150 million this year in PMSO. So I believe this is our initial message. A lot of resilience in the company's results.

Growth of our EBITDA, recurring EBITDA, and this has to do with our optimization efforts. The second message here, which is also important is a drop in our load, and that is because of the pandemics. But what we see that this is increasing. It was 6% in the second quarter.

Now in the first half of the year, the accumulated amount was 4%. And it's important to say that in July, it's slightly above of what we had in 2019. We see that, obviously, for the integrated national system, you know that the national system discloses these figures, and we are seeing the behavior here in Minas Gerais and Cemig's areas, basically, the whole state of Minas Gerais. It's very similar, and we see a clear recovery of the load.

We still have here year on year, but this recovery is very important for the second half of the year and important also to show that we are going to go through the pandemics in this difficult period with a lot of resilience. So first, this low drop is decreasing. So in July alone, we already have a figure that is higher than in the same period in 2019. And we also see that in our delinquency rate.

Our delinquency in April reached significant amounts. And today, we have a figure that we use a lot, which is the ratio between collection and billing. And it is already very close to what was the target for the year. We are just 1% below that target.

And it also shows that payments are improving, and thanks to the public policies and other conditions that do allow for that recovery. And obviously, we have very positive expectations in terms of provisions and also because we are bringing back our disconnections policies and agreements with granting power and also agreements with our debtors. And we do have a very positive expectation that we have a better result of our ADA over the year, whether because we are already back with our disconnection policies. We did return to it now in August and also because of other agreements in which we are working on commercial debtors and also with the granting powers.

And I believe we are going to have good results stemming from all these initiatives, and that also has to do with the flexibilization of ANEEL's resolution that allows us to once again the disconnections. And one thing that I would like to highlight and it's in the next slide, I believe, is the potential that we are going to have both in terms of efficiency as well as improvement in service providing with digitization. So digitization, effectively, will allow us, for instance, payments, bill payments today, electronics are growing a lot and decreasing the dependency of more expensive channels, such as bank branches. So I think that we can clearly say that the company is showing its resilience.

We believe that the worst of the pandemics is over, and we come out of it strengthened. I also would like to mention that we had excellent results in terms of tariff review. This is a very important subject for us. I'm sorry.

Are we back? Yes. On the tariff review for transmission, we have very positive results. In our balance sheet, we have BRL 430 million. For us, it's very good to be able to say that transmission is the benchmark in this sector.

And with that, we have a positive result, both because the O&M revenue has improved, and this is valid since 2018 since we are benchmarked, also because of the KE review and the walk review and efforts and improvements. So transmission is bringing positive results and I should say the transmission is a very important segment within Cemig and it needs to be duly appreciated under different multiples. Because for us, it's different from other companies with a component of improvement and organic growth. That's very important and positive in terms of value generation for the company.

After that, the enrollment under the COVID account, we have received -- and we have the figure is 1.1 or at 1.2 billion. We have received that, and it's going to reach 1.4 billion by the end of the year, and depending on the situation, the load situation, and over-contracting. But we have already received 1.2 billion. And our cash in 6/30 was BRL 37 billion.

So with COVID accounts, it's already 5 billion in cash and a net debt of two times the EBITDA. And you can compare that with 3.2 in 2018. So higher amount in the past. So a lot of financial soundness and also cash liquidity, which is enough to face our obligations and our investment plans.

I think we can turn to Slide No. 4 now. Here on Slide No. 4, the first thing that I would like to mention is that we are ensuring the quality of service continuity.

Of course, this is a crucial topic for us, and we are very happy to be able to say that we have a great perspective of having a DEC this year below the 10, which is a record figure for the number, the best result for the company. When we look the year to date up to June is 4.97. So in these first six months, it is already two digits. July also, the figure is positive.

So we have positive perspectives in here for all the employees of the company that are working hard to improve our DEC, average outage duration per customer. I would like to thank everyone and the team, all our employees. This is a guarantee of public service of high quality. And to reach this DEC under two digits is the reason that makes us very proud.

Employees' health and safety also is a crucial topic for us when we consider our own employees and outsourced ones, we have 22,000 of them. And we have 130 confirmed cases. Unfortunately, three of them were fatal. And that shows, I believe, all the efforts we have made so that the measures have been working.

Almost everyone, of course, on the operating front is out in the field. So the percentage of contamination is very low, ensuring the quality and health and safety of our employees and our support people, our own and outsourced as I said. And now we are slowly going back to activities here in Minas Gerais starting next week, actually. In terms of relationship with our clients, we have our digital solutions.

I think, here, we have a great potential. I mentioned that in the past that digitization is something that is very positive. To improve the performance of the company, electronic channels have increased to almost 40%, from 28% to almost 40%. That is a significant increase so that we don't have that dependency on bank branches.

And also, of course, we have a better operating efficiency. And finally, social responsibility. Once again, we confirm the donation of 5 million in equipment to hospitals in the state of Minas Gerais. The donation has been already formalized.

Financial sustainability, I just mentioned, we do have a comfortable cash position and net debt over EBITDA ratio in two times. I think we can turn to Slide No. 5 to conclude my initial remarks. We are working hard to optimize and to have operating efficiency.

And in summary, that shows the resilience of a recurring EBITDA that is valid to all the set of areas that the company works on, very much focused, and better management of expenses and maintaining the investment program. This investment program is still very bold of 1.7 billion this year. This reduction is not compromising investments in that cycle. Not at all, it's compromising it.

It is just an adjustment during the year and sometimes even because of an execution problem due to the moment we are going through. We know that, sometimes, it's more difficult to talk to see the administration, so there are delays. But in general, this investment program is preserved. And that shows the mission that I have always highlighted, generating service, providing of maximum quality.

I just mentioned DEC, and we are going to be able to be below two digits, competitive prices. Of course, we are working on optimization so that we can have competitive prices and with a private rationale in terms of decision-making. And that private rationale is reflected in these efforts to increase efficiency as well as work on investments that will generate value to the company and will add quality in service providing and also will add to the regulatory base and asset base of the company in a transformation project, a cultural transformation project that here, we call it novas energias or new energies. And the objective is to bring results into a winning team that is effectively recovering that proud of being Cemig, of being in this company and of providing maximum quality service to our people in the state.

These were my initial remarks. And now I'll turn the floor to Leo, and we will be available to take your questions in the Q&A. OK. Thank you.

Leo de Magalhaes -- Chief Financial Officer and Investor Relations Officer

Thank you very much, Reynaldo. Good afternoon, everyone. Thank you for your participation in this video call for the results of the second quarter. I will mention some highlights, and then I'll turn the floor to Velez, who will go into the figures we will compare quarter on quarter.

And I would like to start on Slide No. 6 about our voluntary redundancy program. Mr. Reynaldo mentioned our operating efficiency process, which is continuous.

And the company understands that the cost reduction process already has had positive results in the second quarter, and our costs are dropping continuously, and we understand that the process is going to -- started or is coming and is going to have effects throughout 2021. And among one of these factors of cost reduction, we understand that the voluntary redundancy program has an important role. We implemented this program now, and we had the enrollment of almost 400 employees. And for 2021, that is going to represent a reduction in our cost of 95 million.

And that already considering a small replacement. And of course, there is an outsourcing effect here, but that is not high if we compare with the gains that we are going to have with the PE gain. So we understand that this BRL 95 million recovery is very significant. And basically, eight months, we are going to recover that.

And we understand that when we invest in efficiency, we can have this as a permanent gain in our results. On the next slide, and Dr. Reynaldo already mentioned the COVID account enrollment and the funds have already been received, that this 1.4 billion were approved. And the first tranche was 1.18 billion, reinforcing our cash and liquidity contributing to reducing our leverage, and that allows us to have a comfortable position.

And now we start the second half of the year with a cash position that allows us to pay for our debt without having to have new finances or rolling over. And so as I said, this is very comfortable, the company can deal well with the pandemics moment. Another topic on Slide No. 8, and we did have a material fact disclosed to the market.

Our tariff adjustment allowed by ANEEL was 4.27%, backdated to May 28. We had administrative appeals with ANEEL questioning this adjustment because the company had already received a judicial deposit amount regarding the recovery of PIS, Pasep tax credits over ICMS. And then we received cash to the distributing company. So we understood that in order to provide a contribution to society right now in the pandemics, and this is also something that can reduce delinquency with those actions we sent a note to ANEEL when we proposed that 714 million of this 1.2 billion that we have already received a judicial deposit regarding that tax credit over ICMS lawsuit.

And this issue is going to be discussed by ANEEL to all distributing companies in the segment in the future, in the next few months. But in an anticipated fashion, we already agreed that 714 million of this amount can be reimbursed to our consumers. And it's important to highlight here that the 714 million are within the 10-year period that we understand that should be reimbursed to consumers. And the success of this lawsuit of Cemig D was 6 billion.

We understand that 2 million is from a period prior to 10 years; 4 million is an amount within the 10 million that should be reimbursed to consumers, and this 714 million are within this 4 billion. So we believe this has a positive effect for the company, for our consumers, and we understand that this should be a balanced situation because we are recognizing the efforts of the company of having filed that lawsuit in 2008, advocating for the rights of consumers and we understand the company also deserves to receive a share of this amount because of its efficiency when dealing with this tax issue. This is going to be defined by ANEEL's executive board, but this was the company's proposal. On Slide No.

9, we have delinquency and losses. Our losses today are at 2% higher than what is recognized by ANEEL to 3.66 and recognized by ANEEL is 11.45, and we are implementing a whole series of measures to reduce those losses, telemetering for major clients, a number -- a higher number of inspections. And we expect that by 2021, we are able to bring to zero that gap of 2% that we have today vis-a-vis of what is covered by the tariffs. Our losses add up to 13.66%.

We are working a lot internally. We have taken several measures to reduce losses that involve several actions of the company. It's not a single action. We have inspection style and metering, technology, effective actions, intelligence in the process.

And we expect that by the end of 2021, we are able to reduce close to zero, these losses. Default also, we imagine that this would happen in the second quarter because of the pandemics, and it had to do with the economic situation of families. And the ADA was 199 million in this half of year vis-a-vis 108 million for past year. And also, we have to say that disconnections were suspended.

We did not have any disconnections in the second quarter. Disconnections are coming back now. We know the disconnections are very sensitive in terms of dealing with delinquencies. So disconnections are happening again now in August.

And we have held several campaigns to renegotiate that involving low-income customers, hospitals, and small companies to reduce delinquency rates. Also, we should say that now in July, we enrolled to a state law that would allow us to offset all debts with electric energy up to June of 2019. And these debts should be received with ICMS, and we can discount to ICMS that we paid the state on a monthly basis up to the end of 2022. So the debt that we have in the receivables, around 220 million, 240 million, is going to be received up to the end of 2022.

And that will allow us, considering this is a real guarantee, to reverse the provision that we have for ADA, and that refers to the share of the debt of the state of Minas. So in spite of our provision being of 199 up to June, we expect that by the end of the year, it reaches a 170 million at the most, exactly because now in the second quarter, we will have a reversal in the provision in this amount that we mentioned, 220 million, BRL million because of this agreement signed with the state administration. We think this is good news, and that shows the effort of the company in this process of the renegotiation of debt with customers and in the case that the state had a higher debt. And it's also important because we did have that regulation by the state because this was a past-due debt.

Talking about efficiency on Slide 10. We talk about our quality indicators. We believe this is another good news. The company is more efficient operationally.

We are reducing costs without damaging, without hurting quality. Our average frequency duration per consumer has always been much lower than what is established by the regulating agency and is still very good. Our indexes are good. We did have 2.28.

And the regulating agency establishes 3.24. And DEC also expected that this is the last year in the cycle, after the beginning of the conceptions -- concessions, so it's very important for us in terms of the DEC. We believe we are going to meet the figure. And here, we have the average of the last 12 months.

And compared to the prior year, we are one hour with better quality in service to our consumers. We understand this is also good news. This is the first time that the company has a DEC that is lower than 10 hours a year because these are annualized results. So we understand it shows our commitment with customers in terms of asset-based modernization and having investments that have consequences that improve our quality indicators.

On Slide 11, we have our distribution load. Cemig in the second quarter had a load reduction close to 6%. It was one of the lowest distribution loads here in Brazil. We were able to see that very clearly that even with the pandemic's effects, and well, this is going to show you that our distributing company had resilience in the results.

And here, we see the figures up to June and July and August. Still, this is preliminary. We had a drop here, a reduction in the load in April specifically. And then the load picked up back in May and June.

And now July and August, it is even higher than what we saw in 2019. That is a marked recovery in the state of Minas Gerais. It really is high. Our own load, still with a reduction, it matched 2019 but came down a little bit.

But for free clients, it's much higher. So our expectation for the second half of the year, and of course, we have traded a little bit, but the chart trend shows a recovery of the load of Cemig distribution vis-a-vis the second quarter and even of the year of 2019. On Slide 12, we have the tariff review of transmission, and Dr. Reynaldo mentioned, but we should highlight that Cemig GT is a benchmark in the sector with CTEEP.

So we have discipline in our transmission costs. And it's important to say that in our tariff review -- because it had happened already, a tariff review in the distributing company. This is important to show the regulatory compliance of the company and how the company is making very prudent investments. And that's important when we think about expectation of revenue for Cemig GT and D.

And here, we have an increase of 9.13% in our APR, and it's 100 million higher than the prior RAP of 640 million, close now to 780 million adjusted for June 2020. And because of this APR, this new pricing of assets of transmission by ANEEL and the regulatory base, that is an accounting difference there, and this new base approved by ANEEL has generated a creditor effect of 430 million. And this effect, of course, this 430 million effect at this moment, is nonrecurring. It does not mean that it's going into our cash position right now.

But in the future, this impact of 430 million will revert into the company in significant revenue in our transmission business. Now talking about GT, just as the same, we had a major recovery in GT revenue here in August. We reached 1,954 megawatts or average gigawatts, higher than what we had in March of last year. And when we break it down, we see the incentive-based once with the loads to lower.

Here in the incentive-based, we have shopping malls and other areas that have been impacted by the pandemics. But in conventional clients, we see a significant recovery. We believe that is very relevant and even at higher levels than what we had seen in March. And continuing, we see that this creates an expectation for the next half of the year.

We know that Cemig GT's results in this quarter suffered a little bit because there was a drop in the demand in the load of our free clients, but we have a favorable expectation for the third and fourth quarter for 2020. Of course, we are going to have to wait a little bit more and to see how the market is going to behave with the pandemics and the Brazilian society as well. And on Slide 14, we had a major concern with our free clients. So the delivery -- we did not have a huge delinquency in the generation sector.

And then we had the opportunity and we have taken several actions to have bill deferrals of the difference between the take and what effectively was consumed by our clients in a period of up to 36 months. And we believe we have been well succeeded because although we postponed the cash, we were able to have GT's effective delinquency to be very low. In April, of course, we showed the results of the quarter. But in April, we did have a higher provision, but that was reverted in the following months because we were successful in negotiating these overdue bills with our customers and clients.

We believe this is also good news. So for Cemig GT, we understand once again that the results have been affected in this quarter, but we do have reasons to be optimistic about the second half of 2020. Now I'll turn the floor to Velez so that he can analyze the results into details for the second quarter of 2020 and also in the first half of 2020 when compared to the first half of 2019.

Antonio Velez

Thank you, Leo. So I will turn now to the results of the second quarter, and then I will talk a little bit about the trend of the first half of the year. On Slide 16, we have here some comments that are important to be taken into consideration because they also explain our results. For the holding, we have the restatement at market value of Light with a positive impact of BRL 475 million.

Remember that Light is in our assets -- in our balance sheet as an asset available for sale. And because this is a listed company, at every quarter, we have to do the mark to market and the amount of our shares. So here we did have a positive impact of 475 million, and that is in our results as well. At Cemig Distribution here, we have a lower volume, as Leo has mentioned and our COO.

So we had a drop in energy sold of 6%. In our captive clients, this drop was of 8%, and transmission was down 3.5%. Also in the voluntary redundancy program, the expense is allocated. And here, we have more people involved, as you know, but the expenses allocated for that was 46 million.

For Cemig GT, the main effect in the results here for Cemig GT was the sale of energy at the lower limit of flexibility contract range. This was the main effect. We also had the tariff review for transmission already mentioned, which allowed us to have a positive effect on the amount of the concession. Therefore, that also ran through our EBITDA in the amount of 430 million.

The voluntary redundancy program, the expenses allocated for Cemig GT was of 11 million. We also had the marking to market of the Eurobonds, which had a positive effect in 2020 -- second Q 2020 of 71 million. And when you compare that to the second Q '19, also there, we had a positive effect of 558 million. So here on Slide No.

17, we have the explanation of that variation of mark to market of Eurobonds and also hedge instruments. And in this case, we had the hedge instrument that had a positive variation of 487 million, while the debt amount when we consider the depreciation of real, it had a negative variation of 416 million. So the impact in our financial result is 71 million positive. So this is our hedge working to protect our debt.

Turning to Slide 18. And here, we have an energy market for Cemig Distribution in the second quarter of 2020. We had a reduction in the load of Cemig D of 6% and the transported energy from distribution -- Cemig Distribution had a drop of 3.5%, and the captive market had a drop of 8%. If we analyze that into the details and we break it down, the consumption classes, we have -- as expected, we did have a drop in all the segments, exception made to residential consumers.

As we know, everyone was at home, so it's no surprise that the residential consumption was higher during this period. Now turning to Slide 19. We have here our EBITDA and consolidated net profit. And we have here an analysis because of these effects and nonrecurring effects on our daily operations or that are not referenced to the long term.

So we made a few adjustments. When we -- well, let me comment the EBITDA and the adjusted net profit, you see the charts here and also in our release, if you want to understand it better, but these are all the facts that we already know and that have already been discussed here in the presentation. Our EBITDA -- our adjusted EBITDA, and I would say that it had a drop of 6.8%, which I consider small starting on 1 billion and BRL 7 million to 939 million in the second quarter of 2020. Net profit had an increase of almost 5% starting at 415 million 2Q '19 to 435 million in 2Q '20.

Now turning to Slide 20, we have Cemig GT with EBITDA and net profit. As we have mentioned, when we do not consider the tariff review, we have the EBITDA in the second quarter of 2020 of 341 million, a drop of 33% compared to the same period of last year. And this drop is because of the seasonalization and mainly what I have mentioned, our free clients had a reduction in consumption and, therefore, they were billed in the lower limit of the contract flexibility. They have been billed on the take.

So that generated a drop in our revenue. And the energy available was sold at the spot price at an amount or price that was lower than the contract. And you all know that this was low this period. And the net profit in the second quarter of 2020 for Cemig GT had a drop of 63% from 88 million in 2Q '19 to 7 million in 2Q '20.

Cemig Distribution, on the other hand, had a very good result also considering the scenario, of course, that we expected better than last year. But this was higher than last year from 407 million of last year if we do not consider PIS, Cofins tax credits and to 535 million this year, a growth of 31.4%, and this is also because -- and it's important to remind everyone, that is thanks to our operating efficiency efforts. And I will go into the details in the next slide. Same thing for net profit.

Here, in recurring terms, it went BRL 152 million in 2Q '19 to 285 million in 2Q '20, a growth of over 87%. In terms of operating costs and expenses for the company, when we basically look at what would be the PMSO, the expenses that are manageable here, I'm also not considering provisions because last year, we had a huge provision that would impact the analysis. It was the provision for Renova credits of almost 700 million. So when we look at PMSO here, we have a reduction of over 8% in the second quarter of '19 to the second quarter of 2020.

That is significant if we consider also expenses of the voluntary redundancy program. So that's a reduction of over 70 million. It's important to stress also here on Slide 22 that out of the budget that we had originally for 2020, we still had a reduction for this year of 150 million in materials and services. And this is already being seen after the second quarter.

On Slide 23, and I'm mentioning the numbers, but these are the same effects, but now with the specific figures that we had in the first half of 2020, and now we are going to compare to the first half of 2019. So in the first half, for Light, we had a reduction of 134 million in the first half of 2020. Also, we have a restatement at fair value for Centroeste to a gain of 52 million. For Cemig Distribution, there was a drop in the energy distributed of 4%.

The captive market was down 6%, and transmission was down 1.3%. Once again, the 46 million expenses with a voluntary redundancy program and an increase of ADA of 91 million, our allowance for that full doubtful accounts. At Cemig GT, as I mentioned, we had a profit affected by sale of energy at lower limit of flexibility contract range. We also had the tariff review, the voluntary redundancy program, and the marking to market of Eurobond.

We had a positive effect of 677 million in the first half of '19 against a negative effect of 367 million in the first half of '20. On Slide 24, the energy market for Cemig Distribution in the first half of the year had a reduction of 4%, the billed market, and transmission, and the free market was down 1.3%, and the captive market was down 6%. Once again, when we look at the consumption segment, the only one that has increased, that had a positive variation was the residential consumers that when we compare the first half of '19 and the first half of '20, residential consumers were up 2.8%. On Slide 25, consolidated EBITDA and net profit, we see an increase in adjusted EBITDA of over 12%, as our CEO mentioned in the beginning, from 2 billion 34 million in the first half of '19 to 2 billion 284 million in the first half of 2020.

And net profit and recurring terms had an increase of 20%, reaching 1 billion 22 million in this quarter. On Slide 26, EBITDA and net profit for Cemig GT. And here, the EBITDA had an increase of 2% if we just consider nonrecurring impact up to 1 billion and BRL 26 million. And net profit had a reduction of 15.8%, especially because of the hedge effect, which was not offset by other effects.

Now EBITDA net profit for Cemig Distribution for the first half of 2020, Slide No. 27, still we see growth of almost 13% for the EBITDA in the first half of 2020, BRL 1 billion and 29 million. Same thing for net profit, a growth of over 41%, from BRL 340 million in the first half of '19 million to BRL 481 million in the first half of 2020. On Slide 28, we also see the same trend of expenses reduction, of PMSO reduction in the first half of the year that we had seen in the quarters.

Our operating expenses have dropped 8.2% when compared to the first half of last year. On Slide 29, we have the comparison of Cemig Distribution in terms of the regulatory and what was realized. For OPEX, we understand that we had a regulatory cover of operating expenses of BRL 1 billion and 323 million, and the realized was 196 million higher than the coverage that we have, as you can see here, the real OPEX. This is because our retirement and post-job expenses and post-retirement expenses, BRL 152 million, and also our default provision.

And turning to the EBITDA, the regulatory EBITDA, and the real EBITDA, we then had the regulatory EBITDA in here BRL 1 billion 323 thousand. And here, we have OPEX, BRL 196 million, and also other losses here, non-technical losses, as it already was mentioned, that had a negative effect of BRL 108 million. So the real EBITDA was 1 billion and 25 million. So in this quarter, our EBITDA was 300 million below the regulatory EBITDA.

As our CEO mentioned, and our CFO also mentioned, we are working hard so that the distributing company overcomes and is able to meet the regulatory targets that we have. At cash flow generation, we have here a short summary on Slide 30 of our cash flow generation in December of '19 was of BRL 1 billion 300 million. So we had a cash generation in the first half of 2020 of BRL 4.2 billion. In this period also, we paid some debt of over BRL 1 billion.

And we have made investments of BRL 700 million. So our cash in June, as it already has been mentioned, it was very robust, consolidated cash of BRL 3.7 billion, not considering the amount that has already been received in the COVID account of 1.2 billion at the end of July. Turning to the next slide, 31. We have our debt profile.

And here is the consolidated result. This is a debt that's very comfortable. So when we look at the maturities timetable, we have an average tenor here of 3.8 years. Of course, that, we'd like to extend it a little bit more.

But in the short term, between 2020 and 2023, we have very comfortable maturities. And within our cash generation, we don't have major problems, not only cash generation but also cash position. We have a tower wall in 2024, which is here, the Eurobond that is due in 2024. In terms of net debt, we had a net debt of BRL 12.2 billion.

And when you consider the present value of hedge, because this is the amount that we would be receiving right now if we were to pay the debt today, and we have to take that into consideration, so it is like we had a net debt of BRL 8.9 billion. So our main indexers here, you can see most of our debt is dollar-denominated debt, and the remainder is distributed, just as the same between IPCA, 24% of the debt; and CDI, 23%. Remember that our dollar-denominated debt is protected, as I mentioned, by hedge instruments that are transformed into CDI. Our cost of debt also has a strong reduction since 2018.

The nominal cost of our debt at the end of '18 was of 9.67%. And now in June of 2020, the cost of debt is 4.3%, and that also has to do with the reduction of the CDI, but the debt in the dollar-denominated debt, the bond that was hedged, 142% of the CDI. Now this is a relatively affordable debt, if we consider any debt that we might contract from now on. And as our CEO mentioned, when we see -- when we analyze the leverage indicators, total net debt over adjusted EBITDA of two times already in June '20 -- from -- you can see here almost three to two in June.

This was a very quick recovery of our financial soundness. And also capital structure, which is measured total net debt over equity plus total net debt of 34.5%. Also a very robust structure. Turning now to Slide No.

32. I'm almost at the end of our presentation. We have here the Eurobond covenants. Maybe these are the most restrictive ones.

And here, we show and we focus on the covenants in June. So net debt over EBITDA for Cemig GT, it was 2.85 times, and the limit for that covenant is of 4.5. And here you can see the breakdown of the calculations. It's very transparent on how the calculation is done.

And for the holding, just as the same, the indicator of net debt over EBITDA covenants is 2.12 times. And the limit here for this covenant is 3.5. So this is a very comfortable position as well. And now turning to the end of our presentation on Slide 33.

I would like you to save the date, September 15, a month from now, basically, so that you can be with us in this 25th Annual Cemig Meeting with the capital markets. We hold that every year. This is already our 25th edition. Normally, this is done in May.

Unfortunately, this was not possible this year because of the pandemics, but we really wanted to do it, and we are preparing. This event is going to be fully digital this year, and we hope to have you with us. So please save the date, September 15. We do expect you to be with us.

That's what we had to explain our results of the second quarter. And now we are going to open the floor for the Q&A session.

Questions & Answers:


Operator

[Operator instructions] First question from Marcelo Sa from Itau.

Marcelo Sa -- Banco Itau -- Analyst

Hello, everyone. Thank you very much for the call. I have two questions. First, I would like to understand which are the main goals that the company has now? Reynaldo is in the company for a shorter period of time.

So which are the targets? What can you comment? And second question is about the sale of assets. This has always been a relevant topic for Cemig in the past few years. So what can you do this year? What about Light's share or Taesa's share. Can you comment on that?

Reynaldo Passanezi -- Chief Executive Officer

Marcelo, thank you very much for your question. Yes. It is true that I've been here for a while. With the pandemics, it's been six months already.

Cemig is a major -- a huge company, and it always had its targets, and we follow the company's budget. And the main targets are all defined in the budget for 2020. So we are working on DEC, the average outage duration per consumer. This is the fifth year of the concession, so we do have to meet the DEC indicators.

This is a mandatory clause for performance. When I mentioned that it is below 10 hours, it means that this is an all-time result for the company. This is a really historic moment. And I'm working a lot to bring to the company operating efficiency, investments that will add value to the company, and also private criteria to make decisions.

I know we are in the pandemics but I'm trying to go out and talk to people. We are working on these three topics to ensure quality in the service providing, and that has to do with DEC. And we do have great results also stemming from digitization, virtual services. We are working a lot to improve customer service by means of digital channels.

We are working to improve telemeasuring and also move forward in automation of our operating and dispatch centers. We have great opportunities there. So the two main drivers that move the company are operating efficiency and digitization. And we are trying to guarantee and maintain the investments program for the company.

This is a huge one for distribution, also an important one for generation. We are considering to hold a public call now in a short period of time. So obviously, we intend to increase our own production, and that has a positive characteristic of having customers there. So if we are able to grow our own production, we have this advantage, which is to have our own customers.

And we are working to effectively bring in criteria and the rationale of a private company in all this decision process. And when I talk about the profit rationale, I'm talking about looking for results to generate value and to really be paying attention to the company to generate value out of each decision and to create that culture, which is a winning culture and not a culture that will allow us not to fulfill these targets. This is a culture that will generate results. Maybe we'll bring to Cemig D, I don't know.

We are thinking about it, about having -- and the strategic review, that's always done. Probably we'll be working on it because we cannot only think about the present, but we do have a lot of topics on the future, modernization, and others. We have 8.5 million clients that allow us to have a huge potential in distribution. And we have the strength of the brand.

We are the largest commercializing company. So we do have great opportunities. We have many, many advantages that we are discussing here that can generate a lot of value, and we have to be prepared for this future. And we'll take this opportunity to make a strategic review.

So in the short term, we are proving to have a lot of resilience. The numbers show it. And in the mid and the long term, we'll be working to be able to seize the most of this modernization project. And then we will be able to see that we do have a strong electric matrix.

Everything is integrated and the business is sound and that we are serving consumers. Our investment plans, and I don't know if Paulo or Ronaldo want to comment, and Rafael as well, our investment plan -- or divestment plan actually, is moving on. These are strategic topics. And in due time, we'll make the announcements.

But nothing has changed vis-a-vis the past. We are moving forward with this program. Important divestment program to generate capacity to invest in the core areas, which are generation and transmission. I don't know if Paulo, Ronaldo, or Rafael want to comment.

Paulo Mota -- Chief Generation and Transmission Officer

Marcelo, this is Paulo. Adding to Reynaldo's comment, yes, we have developed and we are trying to develop projects that will add value. Cemig has an important tradition in generation and the HVPs. So now we're investing in new projects and also in different sources, such as wind and solar projects.

Just to give you an idea, the asset of the company itself here, we have a small investment that happened in last year's auction and also the plant. We were awarded the auction. The project is moving well, and we are also working with other possibilities. And that will obviously depend on the development of the market, of the sector.

For instance, TPPs, we are also considering that if the market moves on. And all of that in agreement with commercialization. This is a major differential. So we do have a strong commercialization company, and we do want to have support, so that this commercialization becomes more effective and adds more value and that our projects also can be developed and reach that level of performance.

And on a daily basis, as the comments mentioned, efficiency itself in transmission being benchmarked and generation trying to optimize our processes using technology. So in summary, these are some daily projects that we are working on. And everything is very well-balanced with all the different areas of the company.

Marcelo Sa -- Banco Itau -- Analyst

Now if you allow me. I will leverage the strategy for the company was to buy energy from players that were going to participate in the auction. So Cemig purchased energy of companies that were developing solar and wind projects, maybe closer to the average megawatts that you wanted. And so now I understand that the company's idea is to invest in its own projects as a source of growth.

Is this the strategic change of the company now to be able to meet the demands of clients by that type of service of product.

Reynaldo Passanezi -- Chief Executive Officer

Marcelo, for us, we want to seize the opportunity. The fact that we know clients. This is not a change in strategy. I can tell you that because I'm not here for a long time.

But clearly, I can't tell you this was not in our plans either. But in any way, yes, we have to increase our own generation capacity. There is a process of postponement of the plants and the renewal of the plants as well. But we do have clients and customers.

And if we can have our own production, much better. Right?

Marcelo Sa -- Banco Itau -- Analyst

It's very clear. Now considering that you mentioned the postponement of the plant, what is your idea, to try to privatize the plant so that you have the right to postpone that, and then you would need a shareholders' meeting or you have margin for any other possibility?

Reynaldo Passanezi -- Chief Executive Officer

No. Yes. We are working on the available ones. The main legal alternative is renewal of the plants, either by SPE or by changes in the capital structure of our holding.

In addition to PLS 232, that has to be approved. But we have more time than other companies. So the main process for us right now is to follow-up other companies that started with them. But in terms of definition of the methodology and the conditions, what is the granting amount and the payments, and our focus now is to follow this methodology rather than making a short-term decision because our concessions are due further on in the future.

Marcelo Sa -- Banco Itau -- Analyst

That's great. Thank you very much.

Operator

Our next question from Felipe Rached from Goldman Sachs.

Felipe Rached -- Goldman Sachs -- Analyst

Good afternoon. Well, considering the pandemic scenario, how do you see the trajectory for the next few years? Can you comment on what you see for the future? About the PMSO, my second question, do you see reductions in the next quarter? And if you do, where would you have those savings?

Reynaldo Passanezi -- Chief Executive Officer

Felipe, I could not hear well your questions. I don't know if they did. I'll turn the floor to Velez. I think Velez was able to understand the questions.

Antonio Velez

I had a hard time understanding your questions. But first question, I thought it was about the price of energy. Is that correct? And then second question on our efforts for PMSO. I'll comment on that.

And if there is anything else that you want to know, ask me. So energy specifically in the short term, we already estimated for next year -- by the end of last year, we estimated for next year a price that was closer to the long term, closer to BRL 150. But now with the pandemics, that's not the case anymore. We expect that this BRL 150, we get to that in 2022, 2023.

That's why we are working on our negotiations. But that's the reference we have. But for now, it's just a reference because there are not that many contracts being signed. And in the short term, the price is BRL 100 and BRL 110 for this year, going a little bit higher next year.

Now about PMSO, this is what we mentioned. We have that focus, specifically this year, because of the pandemics, we have taken more initiatives, ones that the dynamics allowed us to take. So in addition to the reduction that we had forecast, we had initiatives specifically regarding materials and services that will allow us to have an additional reduction of BRL 150 million, which starts to show in the second quarter of this year. We already have a little bit of that in our results for second Q '20, and it will show more in the second half of the year.

And we are still analyzing all opportunities. OK?

Felipe Rached -- Goldman Sachs -- Analyst

Thank you. Now going back, I think my phone was not very good. I hope that you can hear me better now. My first question actually was about commercial losses considering the pandemics.

How do you see the trajectory of losses for the next years? I know you have inspections and other actions being taken. But are they enough to face these losses?

Ronaldo Gomes -- Chief Distribution Officer

I think I would have to address this answer, Ronaldo Gomes from Cemig Distribution. About losses, we have concluded by the end of last year, a huge structural diagnosis for losses, and this would be our last mile. We are working on investments, the acceptance of these investments in the tariff review. We are working in the DEC this year.

From DEC January to July, we are meeting DEC. We also are working on delinquency that had reductions up to last year. We did have an impact of the pandemics. And this structural diagnosis for commercial losses allow us to have here the amount broken down by reasons.

So we have a plan that is being implemented. We know that we have a structural problem. We are starting to work on obsolete measuring devices. This action is in line to what was planned.

Still this year, we have an increase in the number of inspections. Up to June, we had the same number of inspections that we had in 2019, the whole year of '19. But we still have a potential of doing much more in the second half of the year. So these two actions, one is in line.

The exchanging of the obsolete measures -- measuring devices and inspections. We have to wait with the pandemic so that we can do more in the second half more than the first half. We have a systemic structural action in connections that are faulty or that are illegal, both embedded as well as in the whole state. We have another project where we are going to have 330 telemeasuring devices.

We already installed some of them. And we also have a project to fight commercial losses with public lighting. We understand that this year, we are going to have a positive result in the second half of the year. And in 2021, we are going to have the commercial losses under the regulatory coverage, removing those 2% that we were over in Slide No.

9 of the presentation. OK, Felipe?

Felipe Rached -- Goldman Sachs -- Analyst

Yes. Thank you very much. Very clear, and I'm sorry about my audio.

Ronaldo Gomes -- Chief Distribution Officer

No problem. Thank you.

Operator

[Operator instructions] If there are no further questions, we turn the floor back to the company's management for the final remarks.

Reynaldo Passanezi -- Chief Executive Officer

Well, I would like to thank you very much for being here with us on this call. And our Investor Relations area is available to take your questions and to talk to you if you needed. We expect to see you in our Cemig Day. Thank you very much.

Operator

[Operator signoff]

Duration: 77 minutes

Call participants:

Antonio Velez

Reynaldo Passanezi -- Chief Executive Officer

Leo de Magalhaes -- Chief Financial Officer and Investor Relations Officer

Marcelo Sa -- Banco Itau -- Analyst

Paulo Mota -- Chief Generation and Transmission Officer

Felipe Rached -- Goldman Sachs -- Analyst

Ronaldo Gomes -- Chief Distribution Officer

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