CVM Resolution No. 153 of June 15, 2022 — CVM — BR

SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – CEP: 70712-900 – Brazil - Tel.: (61) 3327-2030/2031 www.gov.br/cvm

CVM RESOLUTION NO. 153, OF JUNE 15, 2022
Ratifies Technical Orientation OCPC 08 of the Accounting Pronouncements Committee, which deals with the recognition of certain assets and liabilities in the general-purpose financial reports of electric power distributors issued in accordance with Brazilian and international accounting standards.

THE PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6.404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6.385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10.139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. The obligation for publicly-held companies to comply with Technical Orientation OCPC 08, which deals with the recognition of certain assets and liabilities in the general-purpose financial reports of electric power distributors issued in accordance with Brazilian and international accounting standards, issued by the Accounting Pronouncements Committee - CPC, as per Annex “A” to this Resolution, is hereby ratified.

Art. 2. CVM Deliberation No. 732, of December 9, 2014, is hereby revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Signed electronically by
Marcelo Barbosa
President

CVM RESOLUTION NO. 153, OF JUNE 15, 2022
ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL ORIENTATION OCPC 08
Recognition of Certain Assets and Liabilities in the General-Purpose Financial Reports of Electric Power Distributors Issued in Accordance with Brazilian and International Accounting Standards

Summary Item
INTRODUCTION IN1 – IN13
OBJECTIVE 1
SCOPE 2 – 4
ACCOUNTING RECOGNITION 5 – 7
INITIAL RECOGNITION 8 – 13
SUBSEQUENT MEASUREMENT 14 – 15

CVM RESOLUTION NO. 153, OF JUNE 15, 2022

Introduction
IN1. Certain public services in Brazil are operated under concession from the Union, States, or Municipalities (Granting Authority), as established by the Federal Constitution and sub-constitutional legislation. The activity of electric energy distribution, which is part of the set of services operated under concession from the Union, is characterized as the segment of the energy sector dedicated to delivering electric energy to the end user.

IN2. The provision of public services related to the electric energy segment is regulated and supervised by the National Electric Energy Agency (ANEEL), an autonomous agency constituted under a special regime, linked to the Ministry of Mines and Energy, which, among other competencies, homologates the electric energy tariffs to be charged by distribution concessionaires and permit holders.

IN3. As established in the concession and permit contracts signed between distribution concessionaires and the Granting Authority, the definition of electric energy tariffs by ANEEL must consider revenue capable of guaranteeing the economic-financial equilibrium of the concession, as defined by legislation. Thus, the tariffs that concessionaires and permit holders are authorized to charge their consumers are reviewed by ANEEL: (i) annually, according to the anniversary date of the concession contract, for the purpose of tariff adjustment; and (ii) every four years, on average, for the purpose of restoring part of Component B and adjusting Component A of certain tariff components, such as variation in the cost of acquired energy and return on invested infrastructure.

IN4. The revenue of the distribution concessionaire is basically composed of the sale of electric energy and its delivery (transport) through the use of the distribution infrastructure (network). The revenues of concessionaires are affected by the volume of energy delivered and by the tariff. The electric energy tariff is composed of two components that reflect the composition of its revenue:

Component A (unmanageable costs) - composed of the costs of acquiring electric energy, connection, and transmission, as well as sectoral charges. This component must be neutral regarding the entity's performance, meaning that the costs incurred by distributors, classifiable as Component A, are fully passed on to the consumer or borne by the Granting Authority; and
Component B (manageable costs) - composed of expenses with infrastructure investment, expenses with operation and maintenance, and remuneration to capital providers. This component is the one that effectively affects the entity's performance, as it has an intrinsic business risk due to the lack of tariff neutrality guarantee for this part. It is important to note that these events may generate "other financial components" – composed of other costs linked to Component B recoverable or refundable via tariff. These components may already be homologated by ANEEL, or be provided for in the regulatory discipline, or come to be regulated in the future by ANEEL, depending on the situation.

IN5. This tariff definition mechanism may originate a temporal difference arising from the difference between the budgeted costs (Component A and other financial components) and included in the tariff at the beginning of the tariff period, and those that are actually incurred throughout the validity period of the tariff. This difference constitutes a right to receive by the concessionaire in cases where the budgeted and included costs are lower than the actually incurred costs, or an obligation when the budgeted and included costs are higher than the actually incurred costs. This difference is a right or an obligation, perfect and complete, arising from a performance obligation fully completed (energy effectively delivered to its clients), and ANEEL, in observance of the principle of economic and financial equilibrium established by the concession and permit contract, shall only operationalize its receipt or payment, as the case may be. In addition, there are other financial components originating from the distribution activity that constitute rights or obligations that also integrate the tariff composition.

IN6. The accounting standards in force in Brazil until 2009 allowed the recognition of assets and/or liabilities arising from this temporal difference, and thus allowed distribution concessionaires to record, in the same period of competence, both the costs actually incurred with the items of Component A and other financial components, as well as their right or obligation to receive/pay the differential not yet included in the tariff, and therefore demonstrate that the fluctuations between the values contemplated in the tariffs and those actually incurred had temporary effects.

IN7. Upon the adoption of international accounting standards – IFRS – in Brazil, starting in 2010, the general-purpose financial reports of these concessionaires ceased to contemplate the recognition of these assets and/or liabilities based on the understanding that these rights and obligations do not fully meet the definitions of asset and liability contained in the Conceptual Framework for Preparation and Disclosure of Financial Reports. Such understanding arises from the fact that (i) their realization or exigibility would depend on a future event not fully controllable by the entity – the future delivery of electric energy; and (ii) it is not practicable to know, at the moment of the emergence of these rights or obligations, if and which the actual buyers of this energy in the future would pay these differences or have them returned in their electric energy bills.

IN8. Additionally, there was no consensus regarding whether the legislation in force guaranteed, in an objective manner, the right to full receipt in cases where the tariff mechanism was insufficient to realize the right, or in cases where the concession ceased for any reason. Similarly, there was no consensus regarding the probable outflow of economic resources from the entity, in cases where the tariff mechanism was unable to return to consumers the total amount of resources, or in cases where the concession ceased for any reason. Such aspects gave, in the predominant understanding until then, a contingent character to such rights and obligations.

IN9. It was based on this scenario that, from the adoption of IFRS, these assets and liabilities came to be recognized exclusively in the accounting statements for regulatory purposes required by ANEEL, and no longer in the general-purpose financial reports formally issued and approved by administrative bodies, audited, and disclosed to all interested parties.

IN10. To reduce relevant uncertainties regarding the recognition and realization or settlement of regulatory assets and/or liabilities, and consequently qualify them as eligible for recognition in the general-purpose financial reports of Brazilian electric power distribution concessionaires, ANEEL decided, on November 25, 2014, and with the subsequent full acceptance of each concessionaire and permit holder company wishing to adhere to it, to amend the concession contracts of Brazilian electric power distribution companies.

IN11. This alteration in the aforementioned contracts, as approved by the ANEEL board in the 13th extraordinary public meeting held on November 25, 2014, results in the reduction of relevant uncertainty regarding the measurement, realization, and respective recovery or settlement period of the temporal differences arising from the definition of the electric energy distribution tariff – Component A and other financial components. It should be noted that the alterations approved for the distributors' contracts cover not only the financial assets and liabilities related to the items of Component A, but also other financial components that ANEEL may homologate as a right or obligation of the distributing company.

IN12. In the same sense, the amendment to the concession contracts clearly and objectively identifies the Granting Authority as the counterparty responsible for the financial settlement or realization of the assets and/or liabilities arising from Component A differences and other financial components, and that the same will be included in the indemnification base provided for in the event of extinction, for any reason, of the public concession or permit. The amendment of the contracts would, in summary, have the following principle:
In the event of extinction of the concession, in addition to the indemnification values resulting from investments not amortized or depreciated during the course of the concession, the remaining balances determined from Component A items and other financial components that have not been recovered through the tariff cycle(s) will also be subject to indemnification by the Granting Authority; this commented hypothesis applies to any form of extinction of the concession, such as the advent of the contractual term, bankruptcy, takeover, expiration, rescission, or annulment of the contract. In the case of extinction with the remaining balance constituting an obligation for return, this amount will be offset with the aforementioned indemnifications.

IN13. After analyzing this situation and considering, mainly, the advent of the amendment to the concession contracts of Brazilian electric power distribution concessionaires and permit holders that altered the tariff review procedures, and taking into account that, as a result of such amendment, the concessionaires that adhere to this alteration will have an unconditional right (or obligation) to receive (or deliver) cash or another financial instrument to a clearly defined counterparty, this Committee understands that there is no longer significant uncertainty that is prohibitive for the recognition of the assets and liabilities arising from the methodology for defining the electric energy distribution tariff in the general-purpose financial reports of these entities. Thus, considering the fundamental characteristics of the relevance of information, the need for its faithful representation, and all the attributes of accounting information provided in the Conceptual Framework for Preparation and Disclosure of Financial Reports, this CPC decided to issue this Orientation in order to ensure in the accounting statements the recording and disclosure of relevant information that assists users in their decision-making processes.

Objective

The objective of this Orientation is to deal with the basic requirements of recognition, measurement, and disclosure to be observed when disclosing the general-purpose financial reports of public concessions and permits for electric energy distribution in Brazil.

Scope
2. This Orientation must be applied exclusively by public concessionaires and permit holders of electric energy distribution.

This document guides the application of Technical Pronouncements CPC 23 - Accounting Policies, Change in Estimate and Correction of Errors, CPC 25 - Provisions, Contingent Liabilities and Contingent Assets, CPC 30 – Revenue, CPC 38 – Financial Instruments: Recognition and Measurement, CPC 39 – Financial Instruments: Presentation and CPC 40 – Financial Instruments: Disclosure when recording the initial recognition and subsequent measurement of the effects of the recognition of assets and/or liabilities arising from the definition of tariffs in the general-purpose accounting statements of Brazilian electric energy distribution concessionaires.
The guidelines and conclusions expressed in this Orientation will be reviewed upon the adoption, in Brazil, of the new standard on revenue recognition arising from contracts with customers (IFRS 15), to be applied in 2017. The conclusions expressed here may or may not be altered.

Accounting Recognition
5. Before the amendment of the concession contracts (see items IN10 to IN12), the dependence on a future event not fully controllable by the entity qualified the asset or liability as a regulatory asset or liability and, therefore, contingent according to the definition contained in item 10 of CPC 25:
"A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
A contingent liability is:
(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or (b) a present obligation that arises from past events but is not recognized because:
(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability."

6. Contingent assets and liabilities are not recognized in the entity's accounting statements prepared in light of international and Brazilian standards, as they are results that may never be realized. However, they must be constantly evaluated regarding the probability of inflow or outflow of resources embodying economic benefits, as stated in items 30 and 35 of CPC 25:
"30. Contingent liabilities may develop in a manner not initially expected. Therefore, they are periodically evaluated to determine whether an outflow of resources embodying economic benefits has become probable. If it is probable that an outflow of future economic benefits will be required for an item previously treated as a contingent liability, the provision must be recognized in the accounting statements of the period in which the change in the probability estimate occurs (except in extremely rare circumstances where no sufficiently reliable estimate can be made).
35. Contingent assets are periodically evaluated to ensure that developments are appropriately reflected in the accounting statements. If it is virtually certain that an inflow of economic benefits will occur, the asset and the corresponding gain are recognized in the accounting statements of the period in which the change in estimate occurs. If the inflow of economic benefits becomes probable, the entity discloses the contingent asset (see item 89)."

7. For concessionaires and permit holders who adhere to the contractual alteration, as approved by the ANEEL board in the 13th extraordinary public meeting held on November 25, 2014, mentioned in items IN10 to IN12 of this Orientation, the contingent nature previously present is eliminated, from the amendment of the concession and permit contracts and consequent alteration in the tariff review procedures, allowing such entities to recognize the asset or liability as a financial instrument, that is, as values effectively to be received or paid. This is a new event that alters the assessment regarding the probability of inflow or outflow of resources embodying economic benefits for the entity, qualifying these assets or liabilities for recognition in the accounting statements. It is from its occurrence that the concessionaire is assured the recognition of the remaining balances determined regarding the differences in Component A and other financial components that have not yet been recovered or returned.

Initial Recognition
8. The aforementioned event (amendment of the concession and permit contracts and formal agreement by the concessionaire or permit holder through the signature of this instrument) requires the recognition of the balance of any Component A differences and other financial components

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm CVM RESOLUTION NO. 153, OF JUNE 15, 2022 not yet recovered or settled. The date of recognition of this asset or liability must be the date when all necessary criteria for the recognition of the asset or liability are met.
9. Accounting policies, as defined in CPC 23, "are the principles, bases, conventions, rules and
specific practices applied by the entity in the preparation and presentation of financial statements".
10. CPC 23 defines, in its item 16, the cases in which the adoption of a new practice or the recognition of the
accounting effect of a certain new event does not constitute changes in accounting policies.
“16. The following do not constitute changes in accounting policies:
(a) the adoption of an accounting policy for transactions, other events or conditions that differ in essence from those that occurred previously; and (b) the adoption of a new accounting policy for transactions, other events or conditions that did not occur previously or were immaterial.
11. The amendment of concession and permission contracts, as dealt with in this Guidance,
represents a new element that ensures, from the date of its signing, the right or imposes the obligation for the concessionaire to receive or pay assets and liabilities to the counterparty – Granting Authority. This new event alters, from this date, the environment and the contractual conditions previously existing and extinguishes uncertainties regarding the realizability of the asset or exigibility of the liability. These are, therefore, conditions that differ in essence from those that occurred previously.
12. The effects of the amendment of concession and permission contracts are not of the nature of a change in
accounting policy, but rather that of a new situation and, consequently, its application must be prospective.
13. Considering that the device added to the concession and permission contracts deals with remaining
balances calculated from items of Parcel A and other financial components that have not yet been recovered and, therefore, requires the implementation of this prospective accounting practice, the adjustment to be made must be recognized in asset or financial liability accounts, as the case may be, in counterpart to the result of the period (revenue from the sale of goods and services) in which the contractual modification occurs. Subsequent measurement
14. Subsequent to initial recognition, the financial assets and/or financial liabilities originated from the
differences calculated from items of Parcel A and other financial components in each accounting period

Lineage: No known changes