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INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2021
INTANGIBLE ASSETS

 

18.INTANGIBLE ASSETS

 

   2021  2020
   Historical cost  Accumulated amortization  Residual value  Historical cost  Accumulated amortization  Residual value
In service                              
Useful life defined                              
Temporary easements   15    (5)   10    13    (4)   9 
Onerous concession   13    (8)   5    19    (13)   6 
Assets of concession   21,476    (9,669)   11,807    20,781    (9,107)   11,674 
Assets of concession - GSF   1,032    (66)   966    —    —    — 
Others   78    (74)   4    78    (70)   8 
    22,614    (9,822)   12,792    20,891    (9,194)   11,697 
In progress   161    —    161    113    —    113 
Net intangible assets   22,775    (9,822)   12,953    21,004    (9,194)   11,810 

 

 

Changes in Intangible assets are as follow:

 

   2020  Additions  Disposals  Amortization  Transfers (1)  2021
In service                              
Useful life defined                              
Temporary easements   9    —    —    (1)   2    10 
Onerous concession   6    —    —    (1)   —    5 
Assets of concession   11,674    —    (23)   (757)   913    11,807 
Assets of concession - GSF   —    1,032    —    (66)   —    966 
Others   8    —    —    (4)   —    4 
    11,697    1,032    (23)   (829)   915    12,792 
In progress   113    51    —    —   (3)   161 
Net intangible assets    11,810    1,083    (23)   (829)   912    12,953 

 

(1)The transfers were made between concession contract assets to Intangible assets: R$902.

 

   2019  Additions  Disposals (1)  Amortization  Transfers (2)  2020
In service                              
Useful life defined                              
Temporary easements   8    —      —      —      1    9 
Onerous concession   7    —      —      (1)   —      6 
Assets of concession   11,517    —      (24)   (738)   919    11,674 
Others   10    —      —      (5)   3    8 
    11,542    —      (24)   (744)   923    11,697 
In progress   82    41    —      —      (10)   113 
Net intangible assets   11,624    41    (24)   (744)   913    11,810 

 

(1)      This includes the impairment reversal, in the amount of R$14, recognized in the Income Statement under “Other expenses”, as a result of the test of impairment of intangible assets, relating to the authorization for wind power generation granted to Volta do Rio, on December 31, 2020. More information is available on this note.

(2)      The transfers were made between Intangible assets, concession contract assets, financial assets and property, plant and equipment are as follows: (1) R$906 from concession contract assets to intangible assets; (2) R$2 from property, plant and equipment to intangible assets; and (3) R$5 from concession financial asset to intangible assets.

 

   2018  Additions  Disposals (1)  Amortization  Transfers (2)  2019
In service                              
Useful life defined                              
Temporary easements   9    —      —      (1)   —      8 
Onerous concession   7    —      —      —      —      7 
Assets of concession   10,680    891    (41)   (698)   685    11,517 
Others   18    7    —      (5)   (10)   10 
    10,714    898    (41)   (704)   675    11,542 
In progress   63    36    —      —      (17)   82 
Net intangible assets   10,777    934    (41)   (704)   658    11,624 

 

  (1)This includes the impairment, in the amount of R$22 recognized in the Income Statement under “Other expenses”. The test of impairment of intangible assets, relating to the authorization for wind power generation granted to Volta do Rio, recognized in 2018 as part of the its business combination, arises from non-achievement of the operational performance expected in 2019 for the wind generation assets of the subsidiary. The Value in Use of the assets was calculated based on the projection of future expected cash flows for the operation of the assets of the subsidiary, brought to present value by the weighted average cost of capital defined for the company’s activity, using the Firm Cash Flow (FCFF) methodology.
(2)The transfers were made between Intangible assets, concession contract assets and property, plant and equipment are as follows: (1) R$685 from concession contract assets to intangible assets; (2) (R$4) from intangible assets to property, plant and equipment and; and (3) (R$23) from intangible assets to concession financial assets.

 

 

Concession assets

 

The energy and gas distribution infrastructure assets already in service and that will be fully amortized during the concession term are recorded as intangible assets. Assets linked to the infrastructure of the concession that are still under construction are posted initially as contract assets, as detailed in Note 15.

 

The main amortization rates, which take into account the useful life that management expects for the asset, and reflect the expected pattern of their consumption, are as follows:

 

Energy  (%)  Administration  (%)
System cable – below 69 KV   6.67   Software   20.00 
System cable – below 69 KV   3.57   Vehicles   14.29 
Structure – Posts   3.57   General equipment   6.25 
Overhead distribution transformer   4.00   Buildings   3.33 
Circuit breaker – up to 69 kV   3.03         
Capacitor bank – up to 69 kV   6.67         
Voltage regulator – up to 69 kV   4.35         

 

          
Gas  (%)  Administration  (%)
Tubing   3.33   Software   20.00 
Buildings, works and improvements   4.00   Vehicles   20.00 
Improvements in leased properties   10.00   Data processing equipment   20.00 
Machinery and equipment   5.00 a 20.00   Furniture   10.00 

 

The annual average amortization rate is 3.94%. The segregation by activity is as follows:

 

Hydroelectric Generation  Wind Power Generation  Gas  Distribution  Administration
 7.44%   8.81%   3.33%   3.83%   15.82%

 

Under the regulations of the energy segment, property, plant and equipment used in the distribution concession are linked to these services, and cannot be withdrawn, disposed of, assigned or provided in guarantee without the prior express authorization of the Grantor.

 

The rights of authorization of the gas distribution concession, granted to Gasmig, valued at R$396 (R$412 on December 31, 2020), and to generate wind power granted to the subsidiary Parajuru and Volta do Rio, in the total amount of R$116 (R$128 on December 31, 2020) are classified in the consolidated statement of financial position under intangibles assets and are amortized by the straight-line method, for the period of the concessions. 

 

The Value in Use of the assets was calculated based on the projection of future expected cash flows for the operation of the assets of the subsidiary, brought to present value by the weighted average cost of capital defined for the company’s activity, using the Firm Cash Flow (FCFF) methodology.

 

Renegotiation of hydrological risk – the Generation Scaling Factor (GSF)

 

On September 9, 2020, the Law 14,052 was passed aiming to compensate holders of hydroelectric plants for the costs incurred due to the GSF, under the Energy Reallocation Mechanism (MRE) for the period from 2012 to 2017, during which there was hydrological crisis The aim of this new law is to compensate the holders of hydroelectric plants participating in the MRE for , and the following non-hydrological risks were incurred by the hydroelectric plants holders:

 

(i)generation ventures classified as structural, related to bringing forward of physical guarantee of the plants;
(ii)the restrictions on start of operation of the transmission facilities necessary for outflow of the generation output of structural projects; and
(iii)generation outside the merit order system, and importation.

 

This compensation in the form of an extension of the term of the concession or authorization to operate, limited to 7 years, calculated on the basis of the parameters applied by Aneel. 

 

On December 1, 2020, Aneel issued its Normative Resolution 895, which established the methodology for calculation of the compensation, and the procedures for renegotiation of hydrological risk. To be eligible for the compensations under Law 14,052, the holders of hydroelectric plants participating in the MRE are required to:

 

(i)cease any legal actions which claimed exemption from or mitigation of hydrological risks related to the MRE;
(ii)relinquishing any claims and/or further legal actions in relation to exemptions from or mitigation of hydrological risks related to the MRE; and
(iii)not to have renegotiated hydrological risk under Law 13,203/2015.

 

On June 11, 2021, the Board of Directors authorized withdrawal of any legal proceedings based on the MRE, and the signing of the Term of Acceptance of Law 14,052/2020 provisions, for the plants within the concession contracts of Cemig GT and subsidiaries. With the approval by the Board of Directors, the Company recognized, on the second quarter of 2021, an intangible asset relating to the right to the extension of concessions, with counterpart in “Operational costs – Renegotiation of Hydrological risk (Law 14,052/20)”, in the amount of R$910.

 

On August 03, 2021, Aneel ratified, through the Resolution nº. 2,919/2021, the terms of concession extension of hydroelectric plants participating in the MRE, including all of the Company’s plants qualified for the renegotiation, except for Queimado and Irapé, which renegotiate the hydrological risk through the Resolution nº. 684/2015 and were not covered by the Resolution nº. 2,919/2021. The values ratified are aligned with the Company estimations, based on the Resolution Aneel nº. 895/2020.

 

On September 14, 2021 Aneel ratified the grant extension of the hydroelectric plants participating in the MRE, through Resolution (ReH) 2,932/2021, including Irapé and Queimado, for which the extensions were under discussion with the Grantor, and, therefore, were not included in ReH 2,919/2021. Thus, in the third quarter of 2021, there was a recognition of an increase of R$122 in Intangible assets, due to the concessions extension of those plants. As a result, the total of Intangible assets was increased to R$1,032, which is recognized as a decrease in Operational costs, as Renegotiation of hydrological risk – Law 14,052/20.

 

The fair values of the concessions extension rights have been estimated individually, as shown in the table below, using the revenue approach, under which future values are converted into a single present value, discounted by the rate of profitability approved by Management for the energy generation activity, reflecting present market expectations in relation to the future amounts. The useful life of items that are components of Intangible assets has been adjusted for the new remaining concession period, that is the result of addition, to the original concession period, of the new concession extension granted.

 

 

Power Plant  Intangible assets – Right to extension of concession  End of concession  Extension in years  New end of concession
Cemig Geração Camargos   9    01/05/2046    7    01/03/2053 
Cemig Geração Itutinga   8    01/05/2046    7    01/03/2053 
Cemig Geração Leste   —                  
Dona Rita   —      07/03/2046    4    07/19/2050 
Ervalia   —      07/03/2046    0.8    04/19/2047 
Neblina   —      07/03/2046    0.8    04/19/2047 
Peti   —      01/05/2046    7    01/03/2053 
Sinceridade   —      07/03/2046    0.7    03/12/2047 
Tronqueiras   —      01/05/2046    1    12/26/2046 
Cemig Geração Oeste   —                  
Cajuru (Cemig)   —      01/05/2046    7    01/03/2053 
Cemig Geração Salto Grande   40    01/05/2046    7    01/03/2053 
Cemig Geração Sul   2                
Coronel Domiciano   —      07/03/2046    0.8    04/11/2047 
Joasal   1    01/05/2046    7    01/03/2053 
Marmelos   —      01/05/2046    7    01/03/2053 
Paciencia   —      01/05/2046    7    01/03/2053 
Piau   1    01/05/2046    7    01/03/2053 
Cemig Geração Três Marias   116    01/05/2046    7    01/03/2053 
Cemig Poço Fundo   1    05/29/2045    7    05/27/2052 
Cemig PCH (Pai Joaquim)   —      04/04/2032    0.4    09/14/2032 
Horizontes   —                  
Machado Mineiro   —      07/08/2025    1.9    05/21/2027 
Rosal   9    05/08/2032    3.6    12/13/2035 
Sá Carvalho   39    12/01/2024    1.7    08/27/2026 
Total   226                
Nova Ponte   255    07/23/2025    2.1    08/11/2027 
Irapé   105    02/28/2035    2.6    09/18/2037 
Queimado   19    12/18/2032    1.8    06/26//2034
Sao Bernardo (Cemig)   1    08/19/2025    1.9    06/27/2027 
Emborcação   426    07/23/2025    1.8    05/26/2027 
Total Cemig GT   806                
Total (R$)   1,032                

 

The Resolution nº. 2,919/2021 ratified the amount of the right to compensation for the São Simão, Jaguara, Miranda and Volta Grande generation plants, which had been owned by Cemig GT during the period stipulated in the Law 14,052/20, but does not specify how this compensation will happen in the event of absence of debts with the Federal Government related to the regime of concessions determined in that Law. The amounts calculated are:

 

 Schedule of power plant offer for tender

Cemig Geração - Plant re-offered for tender  Amount
São Simão   783 
Miranda   145 
Jaguara   237 
Volta Grande   157 
Total   1,322 

 

Considering that there is no legal provision relating to how to settled the compensation of these non-hydrological risks will happen and such compensation depends on the occurrence of uncertain future events, which are not totally under its control, these contingent assets have not been recognized.