IN 2Q18 ISA CTEEP PROGRESSES IN ITS GROWTH STRATEGY WITH THE ACQUISITION OF 2 LOTS IN AUCTION

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2 IN 2Q18 ISA CTEEP PROGRESSES IN ITS GROWTH STRATEGY WITH THE ACQUISITION OF 2 LOTS IN AUCTION Message from the Management The second quarter of 2018 s highlight was the Company s strong cash generation. Regulatory net operating revenue amounted to R$ 739 million, regulatory adjusted EBITDA was R$ 683 million with a margin of 92.4%. ISA CTEEP reported a regulatory net income of R$ 342 million. ISA CTEEP monitors its business based on the following management pillars: Operations and Maintenance, Projects, Subsidiaries, Regulation, Legal and Growth. The management pillars rest on a business strategy with the end goal of sustainability. The Company has been reporting levels of excellence for each one of these pillars. In Operations and Maintenance, the goal is to develop activities with efficiency, quality and safety. In 2Q18, efficiency levels, which for many years have made ISA CTEEP a benchmark in the utilities sector, were maintained. The Company has presented organic growth through reinforcement and improvements Projects that seek to guarantee quality in the transmission service. In 2Q18, these investments totaled R$ 45 million. The portfolio in 2Q18 was in line with the Company s forecasts. For sustainable growth, efforts have been directed to reach, continuously, higher efficiency with profitability. The management of the Subsidiaries prioritizes integration and the strengthening of the corporate governance model, which aims to align policies, processes, systems and practices, in addition to promoting greater control and financial discipline. The regulatory equity income result for the quarter was R$ 22 million. The goal of actively participating in Regulation consists in ensuring economic-financial equilibrium of the concession agreements based on the binomial of encouraging a competitive business environment and providing benefits to society. We have also monitored the proposal of the Law Project for Eletrobras privatization, which consolidates important conditions for the RBSE payment. In 2Q18 Homologation Resolution 2,408 was published, which establishes the Annual Revenue ( RAP ) for Cycle 2018/2019. RAP is maintained at R$ 2.4 billion (details in the Subsequent Events section). It is important to highlight the maintenance to receive RBSE and the linearization of the economic component for the next 5 years. In the Legal area, the Company reinforces its strategy that is focused in the reduction of contingencies. In 2Q18, it has presented a reversal of R$ 7.5 million due to the changes in the prospects for the outcome of civil and tributary lawsuits. The Company is an industry leader in the development of electric energy infrastructure projects throughout Brazil. Progress was made in Growth in the quarter with the acquisition of 2 lots in the ANEEL 02/2018 auction. Currently, the Company is implementing 10 new projects. In 2Q18, R$ 70 million was invested in these new subsidiaries. These represent a commitment to invest about R$ 2.9 billion in the domestic electricity grid and a 30% expansion in ISA CEEP s current RAP (ex-rbse). It is worth highlighting that the construction of the IE Itapura and IE Itaquerê subsidiaries began in May and July of 2018, respectively. Connections that inspire the ISA CTEEP team and generate value over time. The Management 2

3 São Paulo, July 31, 2018 ISA CTEEP - Companhia de Transmissão de Energia Elétrica Paulista ( ISA CTEEP, Company, B3: TRPL3 and TRPL4), announces its results for the second quarter of 2018 (2Q18) and the first half of the year (1H18). The Regulatory Results are shown in accordance with the accounting practices adopted in Brazil with the purpose of assisting with the understanding of the Company s business. Additionally, the information has been prepared in accordance with the applicable CVM (Brazilian Securities and Exchange Commission) and CPC (Accounting Statements Committee) standards and in accordance with International Accounting Standards (IFRS) issued by the International Accounting Standard Board (IASB) in the Attachments section of this document. Main Regulatory Indicators Consolidated (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Net Revenue % 1, Adjusted EBITDA¹ % 1, Chg (%) 177.2% 232.7% Adjusted EBITDA Margin 92.4% 73.5% 18.9 b.p. 92.9% 77.4% 15.5 b.p. Net Income % % Net Margin 46.3% 28.7% 17.6 b.p. 44.0% 31.7% 12.3 b.p. ROE² 14.1% 3.6% 10.5 b.p. 14.1% 3.6% 10.5 b.p. ¹ Excludes equity income and other non recurring effects and includes the Affiliate's EBITDA with the objective of presenting a more adequate vision of the Company's operational cash generation. ² Considers the amount value of the last 12 months 2Q18 Conference Call :00 a.m. (BRT) / 9:00 a.m. (EDT) Connection Data: Brazil: / Other Countries: Password: ISACTEEP Link for webcast available on Investor Relations website: Rinaldo Pecchio Michelle Lourenço Corda Lúcia de Luiz Cesari Gabriela Rigo Bussotti Investor Relations Contacts Phone number: ri@cteep.com.br 3

4 CONTENTS 1. ISA CTEEP 1.1 ISA CTEEP Shareholder Composition Corporate Structure Growth & Innovation 7 2. Operational Peformance 8 3. Financial Performance Operational Revenue O&M Costs and Expenses Equity Income EBITDA and Margin Financial Results Net Income Comparison of Results (Regulatory vs. IFRS) Dividends Debt CAPEX Capital Market Events during the Period Subsequent Events Other Relevant Information Concession Renewal - Contract 059/2001 (RBNI/RBSE) Main Legal Cases Supplementary Retirement Plan Law 4.819/ Collection Lawsuit: Eletrobrás against Eletropaulo and EPTE Attachments 26 * Results in Excel spreadsheet available on the Investor Relations Website 4

5 ISA CTEEP ISA CTEEP is the largest private company in transmission in the Brazilian electricity sector and is part of the National Interconnected System ( SIN ) which incorporates the Brazilian electricity grid as a whole (with the exception of some isolated systems) and serves approximately 99% of the system s total load. Through its activities and its wholly and jointly-owned subsidiaries, ISA CTEEP is present in 17 states in the country, transmitting approximately 25% of all electricity produced in Brazil, 60% of the energy consumed in the Southeast region and nearly 100% of the energy in the State of São Paulo. The coordination and control over the operations of the Company s installations, and of all installations of generation and transmission of electric energy in the SIN, is the responsibility of the National Electric Energy System Operator ( ONS ), subject to the inspection and regulation of the National Electric Energy Agency ( ANEEL ). On June 30, 2018, the installed capacity of the Company and its subsidiaries was 65.5 thousand MVA, 18.6 thousand kilometers of transmission lines, 25.8 thousand kilometers of circuits and 126 substations with voltage of up to 550 kv. In light of an increasingly demanding market and its position in a major consuming center of the country as a whole, over the past 10 years, the Company has invested about R$ 10 billion in the expansion of the system and in the application of technologies capable of adding value to the operating and maintenance activities, guaranteeing efficiency and quality in the rendering of its transmission services. Transmission Lines (TL) In operation Under construction Substation Line Entrance 5

6 Shareholder Composition Controlled by ISA, a multi-latin, linear infrastructure systems company, ISA CTEEP has among its investors, Eletrobras, the largest Brazilian electric energy group. Shareholders TRPL3 % TRPL4 % Total % ISA Capital do Brasil 57,714, % 1,286, % 59,000, % Free Float 6,770, % 98,950, % 105,720, % Eletrobras 6,289, % 52,005, % 58,295, % Others 480, % 46,944, % 47,425, % Total 64,484, % 100,236, % 164,720, % 52% of the Company s shares is held by Brazilian investors and 48% belong to foreign investors. Distribution of Total Capital on 06/30/2018 Europe 5% Luxembourg: 2% of the Float Norway: 1% of the Float Great Britain: 1% of the Float France: 1% of the Float United States of America 5% Colombia* 36% Singapore 1% Brazil 52% Australia 1% * Considers the stake of Isa Capital do Brasil, an investment vehicle of ISA Colombia for the acquisition of ISA CTEEP. 6

7 Corporate Structure ISA CTEEP s corporate structure includes its wholly- and jointly-owned subsidiaries as shown below: Operation Status¹ Location RAP Cycle 2018/2019¹ (BRL million) RAP ISA CTEEP Cycle 2018/2019 (BRL million) ISA CTEEP Operational São Paulo 2,421 2,421 ISA CTEEP 100% Fully consolidated IE Madeira Operational Rondônia / SP ISA CTEEP 51% / Furnas 24,5% / Chesf 24,5% Equity method ERB1 Under construction Paraná ISA CTEEP 50% / TAESA 50% Equity method IE Paraguaçu Under construction Bahia / MG ISA CTEEP 50% / TAESA 50% Equity method IE Garanhuns Operational Pernambuco ISA CTEEP 51% / Chesf 49% Equity method IE Aimorés Under construction Minas Gerais ISA CTEEP 50% / TAESA 50% Equity method IE Pinheiros Operational São Paulo ISA CTEEP 100% Fully consolidated IE Serra do Japi Operational São Paulo ISA CTEEP 100% Fully consolidated IE Aguapeí Under construction São Paulo ISA CTEEP 100% Fully consolidated IE Itaúnas Under construction Espírito Santo ISA CTEEP 100% Fully consolidated IE Itaquerê Under construction São Paulo ISA CTEEP 100% Fully consolidated IENNE Operational Tocantins ISA CTEEP 100% Fully consolidated Lote 1³ Under construction Santa Catarina ISA CTEEP 100% Fully consolidated IE Tibagi Under construction SP / Paraná ISA CTEEP 100% Fully consolidated IE Sul² Operational Rio Grande do Sul 18 9 ISA CTEEP 100% 2 Equity method² IEMG Operational Minas Gerais ISA CTEEP 100% Fully consolidated Evrecy Operational Espírito Santo 7 7 ISA CTEEP 100% Fully consolidated IE Itapura Under construction São Paulo ISA CTEEP 100% Fully consolidated Lote 10³ Under construction São Paulo ISA CTEEP 100% Fully consolidated Total 3,876 3,358 Share (%) Consolidation ¹ RAP considers 100% of the project value. For projects under construction, considers offered RAP; ² Purchase Agreement for acquisition of 50% of the Capital Stock signed in April/18. The closing of the operation is subject to approvals. Following conclusion the operation will be fully consolidated; ³ Successful bids for lots made at the ANEEL 02/2018 Transmission Auction. Growth & Innovation In an environment of rapid transformation of the utilities sector, innovation is key for success. Consequently, the Company continues to seek improvements in processes and absorb new technological resources as well as identify opportunities in new businesses in the long term. One of the growth fronts being evaluated by the Company is energy storage in batteries. In partnership with the University of São Paulo ( Universidade de São Paulo ), we are examining the possibility of implementing energy storage with the potential for developing complementary forms of operations in our network. In addition, ISA CTEEP is constantly evaluating growth opportunities in the market, having recently made advances in this direction. The Company s strategy consists in expanding its presence in Brazil through auctions and/or acquisitions with synergies with existent operations. In line with its growth strategy and in accordance with the Material Fact published on April 6, 2018, ISA CTEEP signed a Share Purchase Agreement with Cymi Construções e Participações S.A. ( CYMI ) to acquire 50% of the capital stock in Interligação Elétrica Sul A.A. ( IE SUL ) for the amount of R$ 20 million. The conclusion of the acquisition is still subject to the approval and agreement of certain third parties. Once completed, the Company will assume full control of this subsidiary. In the last two years, the Company has bid successfully for ten lots in ANEEL transmission auctions which will add 1.3 thousand kilometers of extension to its transmission lines with an addition of 7.5 thousand MVA to its portfolio. The new projects amount to an estimated CapEx of R$ 2.9 billion, representing an increase in RAP of approximately R$ 448 million, once all assets are operational. The implementation of the projects is in line with the challenging estimated budget and timeframe, which builds in a reduction in CapEx and the start up ahead of schedule. The IE Itapura and IE Itaquerê subsidiaries, both wholly-owned by ISA CTEEP, began their construction in May and July 2018, respectively, according to the established schedule. 7

8 Auctions Subsidiaries % ISA CTEEP Location ANEEL CAPEX ISA CTEEP Participation (BRL MM) Discount RAP ISA CTEEP (BRL MM) Profit Regime Contract signature Implementation Deadline ANEEL Necessity Date¹ Environmental License (LI) IE Paraguaçú (Lot 3) 50% Bahia Minas Gerais % 53 Real Profit Feb/17 Feb/22 Jan/19 2 3Q19 Auction 03/2015¹ 10/28/2016 IE Aimorés (Lot 4) 50% Minas Gerais % 36 Real Profit Feb/17 Feb/22 Jan/19 2 3Q19 IE Itaúnas (Lot 21) 100% Espírito Santo % 47 Presumed Profit Feb/17 Feb/22 Jul/18 3Q18 ERB1 (Lot 1) 50% Paraná % 134 Real Profit Aug/17 Aug/22 Feb/21 3 1Q20 IE Tibagi (Lot 5) 100% São Paulo Paraná % 18 Presumed Profit Aug/17 Aug/21 Jan/17 Auction 05/ /24/2017 IE Itaquerê (Lot 6) 100% São Paulo % 46 Presumed Profit Aug/17 Aug/21 Jun/18 IE Itapura (Lot 25) 100% São Paulo % 11 Presumed Profit Aug/17 Feb/21 Jan/20 IE Aguapeí (Lot 29) 100% São Paulo % 54 Presumed Profit Aug/17 Aug/21 Dec/21 1Q19 Auction 02/ /29/2018 Lot 1 100% Santa Catarina % 38 Presumed Profit Sep/18 Sep/23 Sep/21 4 N/A Lot % São Paulo % 10 Presumed Profit Sep/18 Sep/22 Sep/21 4 N/A Total ¹ According to concession contract ² Conditioned to Lot 2 (Alupar) ³ To receive the totality of RAP 4 According to draft of concession contract 3, OPERATIONAL PERFORMANCE ISA CTEEP is a benchmark in the sector in terms of performance and constantly pursues improved levels of efficiency, closely tracking operating indicators. Among these, of particular importance is the Index of Not Supplied Energy (IENS), representing the percentage between the total amount of not supplied energy during all events in the year and the total energy demanded that was supplied by the Company. In 1H18, IENS totaled 2.92 x10-6. ISA CTEEP is remunerated according to the availability of its assets through the Annual Allowed Revenue (RAP). This means that any downtime involving its assets may incur in a loss of RAP through a discount in verified revenue (Variable Parcel PV). 8

9 FINANCIAL PERFORMANCE (Regulatory Results) Operational Revenue In 2Q18, consolidated gross operational revenue was R$ million, an increase of 174.8% compared to 2Q17. In 1H18, revenue increased in R$ 1.1 billion compared to 1H17. The increase in gross revenue for both periods is mainly due to the start in RBSE payments in July 2017 (with a cash flow impact in August 2017). The variation in the IPCA inflation index applied to O&M revenue and the startup of the new projects on reinforcements and improvements also contributed to this increase. Operational Revenue Consolidated (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Chg (%) Availability of Electric Network % % O&M Revenue % % CAAE¹ Revenue % % RBSE Others % % Gross Revenue % 1, % Deductions (104.8) (44.0) 138.3% (207.1) (87.8) 135.8% Net Revenue % 1, % ¹ Annual cost of electric assets (Net investment x Regulatory WACC + Gross investment x Depreciation) The deductions from gross revenue relate to taxes (PIS/COFINS) and regulatory charges (CDE, RGR, P&D, PROINFA and Inspection Fee) which reached R$ million in 2Q18 and R$ million in 1H18. The increase in relation to previous periods is explained by the PIS and COFINS charges on revenue from the RBSE payment, totaling R$ 46.0 million in the quarter and R$ 91.7 million in the semester. Consolidated net operational revenue amounted to R$ million and R$ 1.5 billion in 2Q18 and 1H18, respectively. The first RBSE receivable cycle terminated in June 2018 (2017/2018 Cycle) and totaled R$ 1.6 billion. The additional R$ 100 million will be adjusted on the occasion of the next cycle, through the adjustment parcel (PA) as established in Ratification Resolution 2,408/ R$ 537 million Q17 Gross Revenue O&M RBSE CAAE PV and Anticipation CDE and PROINFA 2Q18 Gross Revenue Deductions 2Q18 Net Revenue 9

10 O&M Costs and Expenses Costs and Expenses Consolidated (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Chg (%) Personnel (79.4) (72.0) 10.4% (157.2) (147.6) 6.5% Material (3.4) (2.5) 34.7% (6.4) (4.9) 30.1% Services (28.5) (29.4) -3.1% (55.9) (53.1) 5.2% Contingencies % % Others (18.1) (16.0) 12.7% (22.0) (31.9) -31.2% Sub Total (121.9) (105.5) 15.5% (235.8) (225.8) 4.4% Depreciation (144.7) (18.4) 685.5% (290.5) (34.8) 735.9% Total (266.6) (123.9) 115.1% (526.3) (260.6) 102.0% Costs and expenses, ex-depreciation, recorded an increase of 15.5% in 2Q18 vs. 2Q17. The variation in the quarter reflects mainly: (i) the increase in personnel expenditure of R$ 7.5 million due to a wage bargaining agreement starting in June 2017 (3.6%) and by the lower capitalization of payroll expenses in the projects; (ii) higher expenses with materials for the maintenance of operational assets as well as the inclusion of the costs of the IENNE subsidiary in the consolidation; (iii) the lower reversal of contingencies of R$ 7.5 million (non-recurring) in 2Q18. as a result of changes in the prospects for the outcome of civil and tributary lawsuits. In 1H18, costs, ex-depreciation, amounted to R$ million, an increase of 4.4% compared to 1H17 (R$ million). Total administrative and O&M expenses and costs in 2Q18 reported an increase of 115.1% in relation to 2Q17, reaching R$ million. In 1H18, this amount was R$ million vs. R$ million reported in 1H17 (+102%). Both variations are mainly due to the recognition of the depreciation regarding the RBSE payment, based on amortization in 96 installments (8 years) of the depreciation amount held back between January 2013 and June 2017 in the amount of R$ million in the quarter and R$ million in the semester. 10

11 Equity Income Equity income in 2Q18 reported revenue of R$ 22.4 million, an increase of R$ 27.5 year-on-year. This increase is explained largely by the loss recorded at IE Madeira in 2Q17 with the booking of the negative adjustment parcel of R$ 44.1 million regarding the restitution of the RAP billed in the period for executing tests on the subsidiary s two lots. The decline in the results from IE Garanhuns reflects the negative impact of the tariff reset, which changed its WACC from 6.61% to 4.62%. The registered amount for the IE Aimorés, IE Paraguaçú and ERB1 subsidiaries is related to administrative expenses in the pre-operational phase of the projects. In the first half of 2018, equity income totaled R$ 41.8 million, an increase of 237% compared to the same period of % % Q17 2Q18 1H17 1H18 IE Madeira IE Garanhuns IENNE/IE Sul IE Aimorés/IE Paraguaçú/ERB1 11

12 EBITDA and Margin In accordance with ICVM 527/12, the consolidated EBITDA reached R$ 640 million in 2Q18, an increase of R$ million compared to EBITDA in 2Q17. In 1H18, the ICVM EBITDA amounted to R$ 1.3 billion, an increase of R$ million in relation to 1H17. Both results largely reflect the RBSE receivables as of 3Q17. To reflect more adequately operating cash generation, the Company shows an Adjusted EBITDA totaling R$ million and a margin of 92.4% in 2Q18 and R$ 1.4 billion with a margin of 92.9% in 1H18. Adjusted EBITDA excludes equity income and other non-recurring and/or non-cash effects as well as including the EBITDA of the jointly held subsidiaries (weighted according to ISA CTEEP s stake). EBITDA Consolidated (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Net income (losses) % Income and Social Contribution Taxes (tax over income) % Net financial result % Depreciation and amortization % EBITDA ICVM 527/ % 1, Affiliates EBITDA (weighted by ISA CTEEP's share) % Equity Income (22.4) % (41.8) (12.4) Others¹ (5.2) (11.6) -55.4% (14.9) (10.8) Adjusted EBITDA % 1, Chg (%) 285.2% 401.6% 9.5% 711.1% 305.8% 19.2% 236.6% 38.2% 232.7% Adjusted EBITDA Margin 92.4% 73.5% 18.9 b.p 92.9% 77.4% 15.5 b.p RBSE (451.3) (899.7) Adjusted EBITDA Ex-RBSE % % Adjusted EBITDA Ex-RBSE Margin 80.4% 73.5% 8.2 b.p 81.7% 77.4% (6.5) b.p ¹ includes tax compensation (from"iptu"), expenses with auctions and contingencies success fees 12

13 Financial Result The financial result reported an expense of R$ 25.7 million in 2Q18, a reduction of R$ 0.7 million in relation to 2Q17 and explained mainly by: (i) (ii) (iii) (iv) the increase of revenue in R$ 7.1 million in income from financial investments in light of higher cash balances in 2Q18 vs. 2Q17; a reduction in expenses with interest payments of R$ 1.8 million under the PERT tax amnesty program in 3Q17; partially compensated by: an increase in expenses with interest and charges on loans amounting to R$ 8.0 million, due to the Company s higher level of debt, which rose from R$ 1.3 billion in 2Q17 to R$ 2.5 billion in 2Q18; by the increase of expenses in the Others line, mainly due to the recognition of the swap operation linked to the Law 4,131 loan. In 1H18, the financial result reported expenses of R$ 61.0 million, an increase of R$ 5.3 million compared to 1H17. Financial Result Consolidated (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Chg (%) Financial investment income % % Monetary net variations (6.4) (8.6) (25.5%) (17.7) (16.4) 7.6% Interest costs (0.6) (2.3) (75.1%) (1.2) (8.3) (86.0%) Interest and charges on loans (35.1) (27.1) 29.5% (66.8) (52.2) 27.8% Others (2.0) 0.3 (774.2%) (4.7) (0.3) % Total (25.7) (26.4) (2.8%) (61.0) (55.7) 9.5% Net Income The increase in net income for 2Q18 and 1H18 was driven by the settlement of RBSE receivables. +285% % Q17 2Q18 1H17 1H18 13

14 Comparison of Results (Regulatory vs. IFRS) In IFRS, revenue related to investments which are realized over the course of the concession agreement are registered as a financial asset, generating construction revenue and costs regarding the implementation of infrastructure. The restatement of the financial asset generates revenue from remuneration of the infrastructure. In Regulatory accounting, investments are treated as fixed assets and are depreciated according to their useful life, and the RAP according to invoiced amounts spread over the term of the concession. The main variations between the consolidated result via IFRS and Regulatory standards are shown as follows: Consolidated DRE (BRL million) Regulatory IFRS Regulatory IFRS Change IFRS vs. Regulatory 2Q18 2Q18 1H18 1H17 Change Gross Revenue ,679 1, O&M Revenue CAAE Revenue (Annual Cost of Electric Assets) Infrastructure Revenue Concession Asset Revenue RBSE Revenue Other Revenue Deductions Net Revenue ,472 1, Infrastructure Costs Costs of O&M and General Expenses Depreciation EBIT Equity Income Other Opertional Revenues (expenses) Result Before Financial Result and Taxes Financial Result IR & CSLL Net Income before Participation of Non Controlling Shareholder Participation of Non Controlling Shareholder Consolidated Income/Losses Revenue: IFRS considers revenue from the installation of infrastructure and recognizes this over time as incurred expenditures. Revenue from the remuneration of concession assets is considered as financial revenue, recognized by the effective rate of interest on the principal amount, of which, the interest rate is exactly equal to the receipt of future cash calculated over the estimated life of the financial asset at the initial booked amount of this asset. In the case of the Regulatory Result, revenue is recognized at its invoiced amount (RAP). Costs: In IFRS, the costs of implementing infrastructure do not have an impact on the result, given that the results are neutralized by revenue from the implementation of infrastructure which is calculated by adding the rates of PIS and COFINS taxes and other charges at the value of investment cost. Depreciation: In IFRS, the concession asset is not considered a fixed asset but rather a financial asset. In IFRS, fixed assets relate largely to assets used by the Company that are not linked to the concession agreement. In the case of the Regulatory Result, the concession asset is deemed a fixed asset with its respective depreciation. Equity Income: The main effects of equity income are the same as those explained under revenue, costs and depreciation, as explained above. Income Tax/Social Contribution: In IFRS, IT/SC are provisioned monthly on an accrual basis and calculated pursuant to Law 12,973/14. The Company adopts real earnings methodology with a monthly estimate while the subsidiaries adopt the quarterly presumed profit regime. The effective consolidated (IFRS) rate for 2Q18 was 29.5% and in 1H18 it was 30.0%. In the Regulatory result, the effective tax rate was 25.6% in the quarter and 29.7% in the semester in order to equalize expectations of tax payments for the current year. 14

15 DIVIDENDS Under the Company s Corporate Bylaws, ISA CTEEP is committed to paying a minimum dividend between R$ 359 million and 25% of the fiscal year s net income, whichever is the highest. Additionally, extraordinary dividends may be distributed. On May 30, 2018, the Company s Board of Directors approved the distribution of interim dividends based on the retained profits reserve in the amount of R$ 760 million, equivalent to R$ per share. The shares began trading ex-dividends as of June 06 and payout took place on June 18. In June of 2018, management announced a dividend payment policy to the market, proposing to distribute at least 75% of regulatory net income (used as a cash generation proxy) subject to shareholders approval in Shareholder s Meeting, limited to a ceiling on leverage of 3.0x Net Debt/EBITDA, with the possibility of interim dividend payment, according to the Company s Bylaws. DEBT The Company s low leverage will provide a scope for financing of the growth cycle forecast for the next few years. In the second quarter of 2018, gross debt posted an increase following the 7 th issuance of green bonds (debentures) for R$ 621 million, expiring in Net debt also reported an increase of 27.9% in the period due to the payment of interim dividends. Debt BRL (million) 06/30/ /31/2017 Chg (%) Gross Debt 2, , % Short-term Debt % Long-term Debt 2, , % Consolidated Availabilities % Availabilities of ISA CTEEP and Subsidiaries % Availabilities of Partially Owned Subsidiaries* % Consolidated Net Debt 1, , % *The Company's resources are concentrated in exclusive investment funds, which are also used for the subsidiaries and partially owned subsidiaries in a segregated manner, and refer to quotes of the investment funds with high liquidity, conversible in cash, regardless of the expiration of the assets in which they are allocated. 15

16 The Company is in compliance with established covenants and requirements for all issues. For the years 2018, 2019 and 2020, the Net Debt/EBITDA index was of 3.0x. Greater details on financial indicators are available in Attachment V of this document. The average cost of consolidated debt was 7.86% p.a. on June 30, 2018, slightly below the costs reported for 1Q18. The IPCA inflation index for the past 12 months was 2.86% and the annualized CDI (Interbank Deposit Rate) for June was 6.39%. The average term of the consolidated debt on June 30, 2018 was of 3.6 years. Debt Amortization Schedule (BRL million) Debt Contracting and Indexation 06/30/ % 23% 64% BNDES - TJLP Debentures - CDI/IPCA Others On May 04, 2018, the Company concluded its 7 th debenture issuance amounting to R$ 621 million, expiring in The amount will be restated at the IPCA inflation index. On top of the corrected amount of the debentures, an annual interest rate of 4.70% will be applied on the basis of a 252-day year, calculated exponentially and cumulatively pro rata temporis from the first subscription and paying in date until effective payment of principal. Remuneration will be paid semi-annually as from issue date, always on the 15 th day of the months of October and April with the first payment on October 15, 2018 and the last, on the expiry date of the debentures on April 15, This is the transmission sector s first issue to be classified under the Green Bond category in the Brazilian Capital Markets. The issue is based on the Company s satisfactory socio-environmental performance, evaluated by an independent specialized consultancy, and reflecting ISA CTEEP s contribution to renewable energy transmission. The issuance s resources are being deployed as capital injections at ERB1, IE Aguapei, IE Aimorés, IE Itapura, IE Itaquerê, IE Itaúnas, IE Paraguaçú and IE Tibagi - the result of successful bids at auctions held between October 2016 and April 2017, held between 2017 and 2019 by means of capital contribution. With this issue, ISA CTEEP reinforces its strategy of seeking competitive sources of finance in addition to its commitment to sustainability. 16

17 CAPEX ISA CTEEP and its wholly and jointly-owned subsidiaries invested R$ million in 2Q18, 63.4% more than the amount reported for 2Q17. The variation is explained principally by: (i) (ii) (iii) R$ 70.3 million invested in pre-operational subsidiaries as well as the payment for environmental licensing fees and land-related negotiations. Investments in the pre-operational subsidiaries are in line with the challenging budget and schedule that has been set. It is worth noting that the main investment flows of these subsidiaries will occur in the 3 rd and 4 th year of their respective construction periods; R$ 45.0 million invested in reinforcements and improvements which generate additional revenue for the Company from organic growth. The investments in reinforcements and improvements are in line with the established budget. The investments are not comparable between periods since they involve distinct project portfolios and depend on the issuance of Authorization Resolutions by ANEEL; and, R$ 21.4 million invested in operational subsidiaries. Growth of investments at the operational subsidiaries reflects mainly the additional CapEx at IE Madeira for the solution of pending issues. In the first half of 2018, investments totaled R$ 234 million (+ 82.7% vs. 1H17). CAPEX (BRL million) 2Q18 2Q17 Chg (%) 1H18 1H17 Chg (%) ISA CTEEP (Reinforcements/Improvements) % % Total Subsidiaries % % Operational % % Pre-operational Total % % Note: Realized investments are demonstrated in the competence vision 17

18 CAPITAL MARKETS ISA CTEEP has common ( TRPL3 ) and preferred shares ( TRPL4 ) listed and traded on the São Paulo Stock Exchange ( B3 ) and since 2002 listed under Level 1 of the Corporate Governance segment, thereby enhancing values of ethics and transparency in the relationship with its shareholders and other stakeholders. The Company s shares integrate several stock indexes, such as, the Corporate Governance Index ( IGCT ), in which companies with differentiated standards of corporate governance are listed, and the Brazil 100 Index ( IBrX 100 ), comprising companies with the most traded equities in B3. Additionally, the Company participates in an American Depositary Receipts ( ADRs ) program Rule 144A in the United States under the CTPTY (common share) and CTPZY (preferred share) symbols. The closing prices of ISA CTEEP s common and preferred equities for the second quarter were R$ and R$ 57.95, respectively. The Company s market capitalization on June 30, 2018 was R$ 9.5 billion. For the 12 month period ending June 30, 2018, ISA CTEEP s preferred shares reported an annual daily trading volume on B3 of R$ 21.8 million, with an average of two thousand trades of TRPL4 per day. Performance (base 100) 40% 30% 20% 10% 0% -10% 15.7% 2.9% 1.2% 0.6% -20% Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 TRPL3 TRPL4 IBOVESPA IEEX 18

19 EVENTS DURING THE PERIOD ANEEL 02/2018 Transmission Auction On June 28, 2018, ISA CTEEP successfully bid for 2 lots tendered at the National Electric Energy Agency s ( ANEEL ) 02/2018 Transmission Auction: ISA CTEEP and Transmissora Aliança de Energia Elétrica S.A ( TAESA ) constituted the Columbia Consortium (originally with equal stakes of 50% for each partner) to bid for certain lots in this Auction. Within the scope of the Columbia Consortium, ISA CTEEP conducted studies on the technical conditions and economic-financial viability of Lot 01 with the support of external consultants in line with the best standards of corporate governance, sustainability and risk management as the Company does when developing and analyzing projects. Prior to the auction, ISA CTEEP and TAESA agreed to TAESA s Notice of Withdrawal for Lot 01. Additionally, the Company decided similarily to present a Notice of Withdrawal for Lot 19. Documents pertaining to the association between the Company and TAESA for the formation of the Columbia Consortium, already built escape mechanisms for the withdrawal of one of the partners, in this case to take place once the applicable prior agreements are obtained. ISA CTEEP reaffirms its commitment to value creation with projects that will contribute to the expansion of the electric transmission grid in Brazil. Resources for the installation of the projects will be obtained through capital injections from the shareholders and the projects will seek financial support from the National Brazilian Social and Economic Development Bank (BNDES), the capital markets through Infrastructure Debenture issuance and other sources of available financing. In addition, the projects may have synergies with the Company s existing operations. The recent successful bids are part of ISA CTEEP s strategy for sustainable growth through investments in the implementation of infrastructure and the operation of new projects. Beginning of IE Itapura s construction IE Itapura, ISA CTEEP s wholly-owned subsidiary, which was set up following the successful bid at the transmission auction in April 2017, began its construction in the month of May. ANEEL s estimated investment for the project is R$ 126 million with a RAP of R$ 11 million, consisting in the installation of a 440kV (-125/+250) MVAr. The installation of this equipment benefits the national grid system as a whole and more especially, the voltage control of the 440 kv grid in the state of São Paulo. The regulatory deadline stipulated by ANEEL for IE Itapura s to start up is February Acquisition of IE Sul In April 2018, ISA CTEEP signed a Purchase Agreement with Cymi Construções e Participações S.A. ( CYMI ) for the acquisition of 50.00% less one share of the total capital stock of Interligação Elétrica Sul S.A. ( IE SUL ). The acquisition is worth an aggregate cash amount of R$ 20 million, restated at the IPCA/IBGE on the closing of the operation. The conclusion of the operation and the effective acquisition will be subject to certain conditions enshrined in the agreement such as the approval of ANEEL for the transfer of the shares, the approval of BNDES and the analysis of the Brazilian anti-trust authority - CADE. Currently, only the approval of BNDES is pending for the conclusion of the operation. Once the operation is finalized, the Company will hold shares representing 100% of IE SUL s capital stock. 19

20 SUBSEQUENT EVENTS Annual RAP Readjustment Ratification Resolution (REH) 2,408 was published on June 28, 2018 establishing new RAPs for ISA CTEEP and its Subsidiaries for the availability of the transmission installations to members of the Basic Network and of the Other Transmission Installations for the 12 month Cycle comprising the period from July 1, 2018 to June 30, 2019 (2018/2019 Cycle). Pursuant to REH 2,408, the RAP and the amounts corresponding to the adjustment parcel (PA) of ISA CTEEP for Agreement 059/2001, net of PIS and COFINS, has now been set at R$ 2,421.1 million for the 2018/2019 Cycle compared with R$ 2,428.0 million for the preceding Cycle. The breakdown of the RAP for this Cycle may be explained by: i. monetary restatement 1 of the 2018/2019 Cycle (IPCA) totaling R$ 70.0 million which includes the restated amount of R$ 44.2 million on the tranche of the RBSE receivable; ii. iii. iv. operational startup of new reinforcement and improvement projects during the 2017/2018 Cycle adding a further R$ 60.5 million to RAP, of which approximately 73% from energized projects in the Basic Network - RB and 27% from Other Transmission Installations DIT; reduction of R$ million with respect to the RBSE payment. This reduction is mainly due to the new definition for linearizing receivables of the economic component for the next five years in the amount of R$ 150 million, partially compensated by the adjustment of items considered by ANEEL as totally depreciated and which were adjusted for this Cycle and where the corresponding renumeration (WACC) was received (+ R$ 15 million); negative adjustment parcel of R$ 31.5 million largely reflecting: (a) reimbursement due to the anticipation of the RAP (+ R$ 95.0 million); partially compensated, (b) by the retroactive receipt of reinforcements and improvements (+ R$ 32.5 million), (c) by the reimbursement for the cost of implementation of the property control manual (+ R$ 20.7 million), and (d) by the adjustment in the value of the RBSE report (+ R$ 15.0 million) as explained in the preceding item. Total RAP of the wholly-owned subsidiaries IEMG, IE Pinheiros, IE Serra do Japi, Evrecy and IENNE, net of PIS and COFINS, was R$ million for the 2017/2018 Cycle, and is now set at R$ million for the 2018/2019 Cycle. The reduction of R$ 1.0 million is mainly due to the periodic tariff revision (RTP) for IENNE and Evrecy. Evrecy s RTP considered the revision of the asset base with the writing off of total depreciated items, which had a 17% (- R$ 2.4 million) impact on the Cycle. In addition, the adjustment parcel had a negative impact of R$ 4.6 million due to the recalculation of the RAP in light of a realized reinforcement and the retroactive effects of the periodic tariff revision, which should have happened in 2017, but are only now being incorporated in the 2018/2019 Cycle. Consequently, RAP has decreased from R$ 14.1 million to R$ 7.1 million for the 2018/2019 Cycle. At the IENNE subsidiary, the periodic tariff reset restates the cost of third party capital and the WACC was changed from 6.83% to 6.41%, with a negative impact on revenue of R$ 1 million. The adjustment parcel had a negative impact of R$ 1.6 million. As a result, the RAP was reduced from R$ 45.5 million to R$ 44.2 million for the 2018/2019 Cycle. The RAP and the values which correspond to the adjustment parcel for the jointly-owned subsidiaries of IE Madeira, IE Garanhus and IE Sul, net of PIS and COFINS, which totaled R$ million for the 2017/2018 Cycle, were reduced by R$ 13.6 million to R$ million in the 2018/2019 Cycle. This reduction is largely explained by the negative adjustment parcel of R$ 66.5 million due to the reimbursement of the RAP relative to IE Madeira s 015/2009 contract, of which R$ 59.6 million relates to the cancellation of the 1 The accumulated IPCA and IGPM for the period from June 2017 and May 2018 were 2.86% and 4.26%, respectively. 20

21 Provisional Release Instrument (Termo de Liberação Provisório - TLP) in the period from March 13, 2015 to June 20, This amount is partially compensated by the positive adjustment parcel of R$ 3.3 million for IE Madeira s 013/2009 contract, due to the reimbursement of 17 days discounted in error for the 2016/2017 Cycle, in the amount of R$ 14.3 million. COMPANY RAP Cycle RAP Cycle Dealership Reinforcements RAP Cycle Contract Index 2017/2018 Inflation RBSE 2018/2019 PA BRL million & Improvements 2018/2019 REH 2,258 REH 2,408 ISA CTEEP /2001 IPCA (31.5) ISA CTEEP - RBSE 1, (135.4) 1, ,461.2 Total 2, (135.4) 2,452.6 (31.5) 2,421.1 WHOLLY OWNED SUBSIDIARIES (100% ISA CTEEP) RAP Cycle RAP Cycle Dealership Reinforcements RAP Cycle Contract Index 2017/2018 Inflation RTP 2018/2019 PA BRL million & Improvements 2018/2019 REH REH IEMG 004/2007 IPCA (0.7) 18.1 EVRECY 020/2008 IGP-M (3.0) 11.7 (4.6) / (0.7) 10.8 IE PINHEIROS 015/ (1.9) 34.8 IPCA 018/ (0.2) / (3.3) 2.4 IEJAPI 026/2009 IPCA (3.4) /2001 IGP-M (0.9) 22.4 IENNE 001/2008 IPCA (1.0) 45.8 (1.6) 44.2 Total (4.0) (17.3) Total Consolidated ISA CTEEP 2, ,653.1 (48.8) 2,604.2 JOINTLY OWNED SUBSIDIARIES RAP Cycle RAP Cycle Dealership Reinforcements RAP Cycle Contract Index 2017/2018 Inflation RTP 2018/2019 PA BRL million & Improvements 2018/2019 REH REH IESUL (50% ISA CTEEP) IEMADEIRA (51% ISA CTEEP) 013/ (0.2) 6.2 IPCA 016/ (1.6) / IPCA 015/ (66.5) IEGARANHUNS (51% ISA CTEEP) 022/2011 IPCA (2.9) 87.1 Total (67.9) Note: RAP is net of PIS/COFINS and includes regulatory charges 21

22 Start on construction work at IE Itaquerê IE Itaquerê, a wholly-owned subsidiary of ISA CTEEP, constituted following the successful bid at the transmission auction by the Company in April 2017, began its construction in July. The investment envisioned by ANEEL is R$ 398 million with a RAP of R$ 46 million. The project is formed by the Araraquara 2 substation and involves the installation of three 500 kv (-180/+300) MVAr synchronous compensators. The installation of this equipment in the substation will benefit the national interconnected grid and more particularly, voltage control of the 440 and 500 kv systems in the state of São Paulo. The deadline established by ANEEL for the start up is August IE Tibagi obtains Installment License IE Tibagi, a wholly-owned subsidiary of ISA CTEEP, constituted from the successful bid at the transmission auction by the Company in April 2017, obtained its Installment License ( LI ) from the Brazilian Institute of the Environment and Natural Renewable Resources ( IBAMA ). The investment envisioned by ANEEL is R$ 135 million, with a RAP of R$ 18 million. The project is formed by the implementation of the 230 kv transmission line that goes from Nova Porto Primavera (PR) to Rosana (SP) and the amplification of the 230/138 kv substation in Rosana, which will connect to the substation in Nova Porto Primavera. With the LI, the construction of the project may initiate. ANEEL s defined deadline for the start up is August Settlement of Law 4,131 Credit Agreement On July 17, 2017, the Company settled the Credit Agreement contract with the Bank of Tokyo-Mitsubishi UFJ LTD under Law 4,131 of September 03, 1962 for the amount of USD 50 million at currency variation (VC) + Libor 3M % p.a + Income Tax. Additionally, a Swap instrument was also contracted. The Swap instrument that was signed with Banco de Tokyo-Mitsubishi UFJ Brasil considers the notional value of R$ million with a correction factor of % of CDI interbank rate. The operation had a final expiry date of July 17, The total amount settled was R$ 163 million. Closing of a Credit Agreement - Law 4,131 On July 18, 2018, the Company concluded a new Credit Agreement with the Bank of Tokyo Mitsubishi UFJ LTD under Law 4,131/62 in the amount of USD 75 million for a two year term expiring on July 20, 2020 with the remuneration of currency variation (VC) % p.a. + Income Tax for the 1 st year and currency variation (VC) % p.a.+ Income Tax for the 2 nd year. In addition, a swap agreement was signed with the Banco de Tokyo-Mitsubishi UFJ Brasil for R$ million expiring on July 20, 2020 with a correction factor of 102.3% of CDI for the entire operation. OTHER RELEVANT INFORMATION Concession Renewal - Contract 059/2001 (RBNI/RBSE) On September 12, 2012, Provisional Measure 579/2012 ( MP 579 ) was published regulating the extension of the concession agreements for generation, transmission and distribution of electric energy. According to the provisional measure, expired concessions or concessions due to expire within 60 months from the publication date, had the option of anticipating its maturity date to December of 2012 with a subsequent extension of the agreement for up to 30 years. On November 01, 2012, the Ministry of Mines and Energy (MME) published Interministerial Ordinance 580 in which the compensation amounts were established for installations energized from June 01, 2000 and known as the Basic Network s New Installations ( RBNI ). The amount established for ISA CTEEP was R$ 2.9 billion. On the same date, MME published Interministerial Ordinance 579, establishing the RAP amount for ISA CTEEP at R$ million beginning on January 01, 201,3 and representing a reduction of approximately 75% of the RAP. On November 29, 2012, Provisional Measure 591 was published, authorizing the Concession Authority to pay the amount for undepreciated assets existing prior to May 31, 2000, known as the Basic Network s Electrical System ( RBSE ). 22

23 In December 2012, an Extraordinary General Meeting was held to decide on the anticipation of the expiration date of Concession Agreement 059/2001 as proposed in PM 579. The Company s shareholders gave their unanimous approval to the extension of the agreement pursuant to the terms of Law 12,783/2013, the concession being extended to December 2042 and guaranteeing the Company s right to receive amounts relative to RBNI and RBSE assets. The amounts with respect to RBNI assets and equivalent to R$ 2.9 billion were received between 2013 and As for the RBSE assets, an independent appraisal report was requested for evaluating the investments at the New Replacement Value ( VNR ), adjusted for depreciation up to December 31, In December 2015, ANEEL ratified the value of the RBSE assets for ISA CTEEP at R$ 3.9 billion. In April 2016, MME Ordinance 120 was published determining the amounts approved by ANEEL for RBSE installations and becoming part of the Regulatory Remuneration Base of the electric energy transmission concessionaires as of the tariff fixing process for 2017 for an estimated 8-year period. With the publication of ANEEL Ruling 1,484/17 of May 2017, the total RBSE amount due to ISA CTEEP was set at R$ 4.1 billion. The initial impact of the RBSE values was the book recognition according to IFRS principles in September of 2016 under the conditions established by MME s Ordinance 120. Pursuant to the regulatory results booking method, the impact on the Company s balance sheet may be noticed from the first receivables payments in July ANEEL Ruling 1,275/18 considers the administrative resources imposed by ISA CTEEP in 2017, in which it was requested that an adjustement be made in the totally depreciated asset account. Due to this reason, the Economic and Financial Components were raised until Cycle 2022/2023. The change mentioned was contemplated in the last tariff review, in which the RAP for Cycle 2018/2019 was also updated by an inflation of 2.86%. Besides that, a linearization of the Economic Component was applied, according to Submodel 9.1 of Proret, in a way that each one of the payments will be constant until Cycle 2022/2023. The result of the calculation with the mentioned adjustements, as disclosed by ANEEL, may be viewed below in values net of PIS/COFINS: 1, ,714 1,714 1,714 1,714 1, Assumptions according to ANEEL Normative Resolution 762/2017: 729 1, ,003 IPCA (Dec/12-June/17): 34.45% WACC: 6.64% Cost of Capital (Ke): 10.74% (1 st half/13) and 10.44% (Jul/13 to Jun/17) / / / / / / / /2025 Estimated amounts. WACC will be decided on the occasion of the tariff revision and the asset base is subject to write-offs. Economic Component Financial Component ex-ke Ke For the period of 2023/2024 an amount of R$ 332 million would be pending, correspondent to the Economic Component. However, the same linearization may be applied. Additionally, under an injunction, which determined in a temporary basis that ANEEL recalculate the RAP excluding the cost of capital (Ke) from the remuneration parcel, the Company has been receiving approximately 85% of the total amount of the RBSE since July However, the receivement of the Ke will depend on a judicial decision, and consequently there is no definition regarding the payment form of the installments, that have not been received. 23