Annual Report - EDP

: financial report :Output from our coal plants rose by 25% in2012, mainly supported by coal plants’ costcompetitivenessvis-a-vis CCGTs. Average loadfactor advanced 10pp, to 52% in 2012 (58% infourth quarter 2012). Soto 3 plant is producingelectricity under the terms of RDL 1221/2010.In 2012, Soto 3 output totalled 1TWh. Our averageproduction cost reached €36/MWh (+13% yearon-year),mainly driven by higher CO 2costs netof free CO 2allowances.Output from our CCGT plants declined by 55%in 2012, impacted by higher production cost.As a result, average load factor was 11pp loweryear-on-year, at 9% in 2012. Average productioncost reached €79/MWh in 2012, driven by higheraverage gas cost and lower production.Output from our hydro plants in 2012 was18% higher year-on-year, following a 90%year-on-year increase in fourth quarter 2012backed by normalised hydro resources andadditional capacity in place. The contributionfrom Alqueva II, in place since 1st December2012, was still limited. The rise in average costof hydro production to €9.6/MWh derived fromthe more intense pumping activity (626GWh in2012 versus 346GWh in 2011). Pumping activitywas concentrated at our Alqueva plant, implyingan average discount to the pool price of c30%compared with c40% in 2011.Output from our nuclear plants rose by 1.5% in2012 backed by an average load factor of 90%(+1pp year-on-year).The average sourcing cost was almost flat in2012, as higher average generation costs of theelectricity generation (+4.4% prompted by a moreintense hydro pumping activity) were offset byhigher contribution from cheaper electricitypurchases. The average selling price advanced8.7% in 2012 driven by higher average sellingprices to retail clients following an increase in theshare of residential consumption in the mix.In December 2012, the Spanish governmenthas made regulatory changes, which aim toensure the sustainability of the electricity sector,including a 7% tax on revenues and differenttaxes rates over gas/coal consumption, as wellas on the use of water and nuclear waste.In the electricity supply business in Spain,volumes supplied to our clients in the free marketdecreased 5% year-on-year to 19.5TWh in 2012,while the number of clients supplied went up by10% year-on-year, translating EDP’s strategy tofocus on most attractive clients, even though atthe expense of lower volumes, therefore reducingthe risk of the company’s clients portfolio. Marketshare fell by a slight 1pp to 11% in 2012, with EDPstill maintaining a supply market share that isroughly the double of its share in generation.In the electricity supply business in Portugal,volumes supplied to EDP clients in the freemarket increased by 8% year-on-year to 9.9TWhin 2012, sustained by contracting some largeindustrial clients in mid-2011 and by a strongincrease of our B2C electricity clients base, onthe back of the current liberalisation process.All in all, EDP’s market share stood at 40% in2012, down from 42% in 2011, which is in linewith EDP’s strategy to focus on the moreattractive residential/SMEs segments.Our gas sourcing activity in 2012 is based onan annual 4.3bcm portfolio of long term contracts,which flexibility has been enhanced throughseveral contract renegotiations including changesin take or pay levels. Moreover, rather than solelyusing volumes available for electricity generationand for the sale to clients in the free market,EDP has chosen, together with its major gasEDP - Annual Report 2012suppliers, to divert gas to international markets,where market conditions prove to be moreattractive. As a result, our consumption of gaswas 14% lower year-on-year, at 44TWh (3.7bcm)in 2012, supported by lower sales to final clients(-4.8%) and a 30% decrease in consumption forelectricity generation purposes.Volumes of gas supplied to our clients in the freemarket in Spain decreased 2% year-on-year to27.6TWh in 2012, in line with the reduction of thenumber of clients supplied in the same period,which reflects our selective clients contactingpolicy in a though retail market environment.Market share fell slightly from 11% in 2011 to 10%in 2012.Volumes of gas supplied to our clients in thefree market in Portugal fell 10% year-on-yearto 6.1TWh in 2012, reflecting lower demand anda competitive market, namely in the B2B segment.Volumes supplied in fourth quarter 2012 rose 14%quarter-on-quarter to 1.6TWh, while the numberof clients went up from 29 thousands as ofSeptember 2012 to 56 thousands as of December2012. All in all, EDP gas supply market shareincreased by 2pp year-on-year to 17% in 2012.In accordance with the rules and calendardefined for the liberalisation of electricity supplyin Portugal, clients of EDP Serviço Universal(electricity last resort supplier in Portugal) hasto choose if they want to remain under regulatedtariffs after certain dates (July 1st, 2012 forclients with contracted power above 10.35 kVA,and January 1st, 2013 for clients with contractedpower below 10.35 kVA – excluding consumersentitled to a social tariff) and pay a transitorytariff, which can be subject to quarterly updates.The aim of this is to incentive consumers tomove to the free market. In line with this, in July2012 the Portuguese regulator introduced a 2%increase on regulated tariffs set for residentialconsumers with contracted power above10.35kVA; and non-residential consumers, whichwere already under a higher transitory tariff sinceJanuary 1st, 2011. All of this led to a strong levelof switching of electricity consumers to the freemarket over fourth quarter 2012 (total number ofconsumers in free market rose 43% quarter-onquarterfrom 742 thousands by September 2012to 1,064 thousands by December 2012). In thisperiod, EDP, through its subsidiary for energysupply activities in Portugal, EDP Comercial,managed to increase the number of electricityclients by 56% quarter-on-quarter, to 853thousands by December 2012, which represented80% of the total number of clients in free market.The 90% quarter-on-quarter increase in thenumber of EDP’s gas clients was driven bothby a more advanced level of liberalisation ingas supply and a strong increase of dual-offercontracting.Regulated networks activity in Iberia includesour activities of distribution of electricity and gasin Portugal and Spain and our activity of transportof gas in Spain.EBITDA from regulated networks decreased4% in 2012 amounting to EUR 1,057 millionreflecting the following events from both years:(i) EUR 15 million from the application of IFRIC18in electricity distribution in Spain (El Muselinfrastructures) in third quarter 2012, (ii) EUR13 million positive impact in third quarter 2012at the level of gas distribution in Portugal,(iii) EUR 11.6 million tariff deviations fromprevious years accounted in gas distributionin Portugal in second quarter 2011, (iv) the saleof transmission assets to REE (+EUR 27 million)in first quarter 2011 and (v) EUR 21 millionintra-group real estate gain in second quarter2011 (no impact at consolidated level). Excluding153