4Q17 and 2017 Release

Transcription

1 \ 4Q17 and 2017 Release February 27 th, 2018 EBITDA NET INCOME DIVIDENDS R$ 2,186.6 mi R$ mi R$ mi FINANCIAL GENERATION Adjusted Net % R$ million Income 1 vs 2016 R$ million + 11% Dividends 60% payout vs 2016 Adjusted EBITDA % R$ 2.1 billion vs 2016 PMTO 2-0.4% R$ 1.3 billion real gains Debt Management Leverage level Pecém São Manoel Hydrological Hedge R$ 864 million Holding s Debt (tax optimization) 2.0x Net Debt/EBITDA R$ 73.8 million Net Income Availability of 92% December/ % of uncontracted energy % vs x Net Debt/EBITDA In R$103.3 million vs 2016 Above regulatory target 90.14% 4-month anticipation + R$513.4 million gain COMMERCIALIZATION Commercialization EBITDA of R$ million + R$ million vs 2016 DISTRIBUTION Distributed Energy CapEx Total Losses +3.0% in the quarter R$ million p.p. at EDP SP and -0,91 p.p. in EDP ES vs % vs x Capex/QRR R$ 23.3 million PDD control 0.3% PDD/Gross Revenue in the quarter 0,8% PDD/ Gross Rev. (Y) TRANSMISSION Espírito Santo s Transmission Line February/ months - LI -10 months - Auction 1) Excluding non-recurring effects: Updating of the indemnifying financial asset (VNR), Provision for compensation of the water charge, Pantanal Energética sale, and Pecém insurance reimbursement; 2) Without PDD and contingencies; Market Value R$ 8.5 bi Treasury Stock: 685,476 Total Shares: 606,850,394 Free float: 48.7% Earnings Conference Call With webcast Investor Relations Portuguese 3:00 p.m. (BRA) +55 (11) (11) February 28, 2018 English 1:00 p.m. (NYC) EUA: +1 (646) Outros: +1 (800) ri@edpbr.com.br The conference call will be held in Portuguese with simultaneous translation into English São Paulo, February 27, EDP ENERGIAS DO BRASIL S.A. ( EDP Energias do Brasil, Company or Group ) listed on the BM&FBOVESPA s Novo Mercado (ticker symbol: ENBR3) today announces its financial and operating results for the fourth quarter 2017 and for the year. Information is shown on a consolidated basis in accordance with accounting practices in Brazil and International Financial Reporting Standards (IFRS) based on revised financial information. The operating information has not been revised by the independent auditors.

2 Highlights of the Quarter and the Year Main Indicators Indicators (R$ thousand) 4Q17 4Q16 Var Var. Gross Margin 900, , % 3,506,054 3,289, % PMTO (320,747) (327,382) -2.0% (1,250,096) (1,255,244) -0.4% EBITDA 561, , % 2,186,638 2,297, % Adjusted EBITDA¹ 551, , % 2,122,753 1,743, % Net Income 195,026 35, % 611, , % Adjusted Net Income¹ 188,173 39, % 569, , % Capex² 283, , % 772, , % Net debt 4,454,521 3,553, % 4,454,521 3,553, % 1 Excluding Non-Recurring Effects: Non-indemnified Financial Asset (VNR), Provision for the Reimbursement of the Water Charge, Sale of Pantanal Energética, Insurance Recoveries at Pecém 2 Capex considers consolidated assets Adjusted Net Income: totaled R$ million, increase of 89.4% compared to R$ million in Main adjustments were recorded in 2016 profit and refer to: (i) VNR; (ii) Sale of Pantanal Energética; and (iii) Receipt of Pecém insurance. Net Income: totaled R$ million, decrease of 8.2%, mainly due to higher Income Tax and Social Contribution expenses and non-recurring effects that contributed to the result of the previous year. Dividends: totaled R$ million, equivalent to 60.0% of the Company's Net Income. Gross Margin: EDP recorded a Gross Margin of R$ million in the fourth quarter, and R$ 3.5 billion for the year, an increase of 19.8% and 6.6%, respectively. Manageable Expenditures: PMTO decreased 0.4% comparing to the previous year. The Company continues to maintain rigorous control over costs through Zero-Based Budget (ZBB) efficiency measures and robotization, reflecting in PMTO which remained flat comparing to 2016, thus reaffirming the Company s commitment to maintaining control over expenses with increases below inflation. EBITDA (adjusted): in the quarter, EBITDA (adjusted) rose 37.9% (R$ million) while in the year, the increase was 21.7% (R$ 2.1 billion). Of the total reported for the quarter, 31.3% of the EBITDA relates to Hydro Generation, 21.8% to Thermal Generation, 37.5% to Distribution, and 9.5% to the Trading Company and EDP Grid 1. Net Debt: Continuing with the strategy of reducing the cost of debt (pre and post taxes) and the deleveraging of EDP Holding, the Company has been working on several initiatives for optimizing capital structure and tax planning. Net Debt/EBITDA ratio is 2.0x, permitting the continuity of the Company s projects with risks duly controlled. An additional R$ 1.7 billion in funding had been raised at an average cost of 11.1% p.a. by year-end. Energy Management: o o Hydro Plants: the Company has adopted measures to protect its portfolio from the impacts of GSF (Generation Scaling Factor) and PLD (Price for Settlement of Differences), allowing the capture of avoided costs and resulting in an impact on Gross Margin of R$ million and R$ million in the quarter and in the year, respectively. Commercialization: increase on energy traded volume of 45.0% and 37.2% in the quarter and year, respectively. Gross Margin posted growth of R$ 23.7 million and R$ million in the quarter and year, respectively. It is worth mentioning that the Trading Company operated as an instrument for energy portfolio management, with active support from the regulatory area in strategic planning and 89.6% of the Trading Company s operations were conducted with clients outside the group. o Thermal: through the hedge mechanism, it was possible to generate a positive impact in the Gross Margin of R$ 25.1 million in the quarter and R$ 54.4 million in the year. Distribution: in the quarter and the year, DisCos registered an increase in volume of distributed energy of 3.0% and 1.1% respectively, impacted by growth at EDP São Paulo. In the year, investments totaled R$ million, an increase of 18.3%, with a focus on improving operating efficiency and quality of services rendered, reflecting in the increase of remuneration base to be captured. Gross Margin rose 14.0% at the DisCos, disregarding the amount of indemnifiable financial assets (VNR) incorporated in the tariff revision of EDP Espírito Santo in 2016 of R$ million. Pecém: in the quarter and in the year, Net Income was R$ 27.8 million and R$ 73.9 million, respectively. The thermal reached an average uptime of 92%, exceeding the uptime required under auction parameters of 90.14%. Failure rates reported historical lows of 5.4 failures/year. As is the case annually, the Uptime Factor FID (a moving average over the last 60 months) was recalculated for 2018 at 90.7%. São Manoel: the first two generator units went into operation ahead of schedule. The operation of the Third Generator Unit is in stage of testing operation and the Fourth Generator Unit is in the final stages of assembly. Transmission: the Company proceeded to move ahead with the construction of the Transmission Line located in the state of Espírito Santo of Auction 013/2015. In February 2018, the Installation License (IL) was awarded, 8 months ahead of the date contemplated in the original schedule and 17 ahead of ANEEL schedule. 1 Considering that -4.7% related to intragroup eliminations. 2

3 Message from the Management Solid results for a sector in transformation 2017 was noticeable by several opportunities and challenges at EDP, which resulted in an 89.4% growth in Adjusted Net Income that reached R$ 570 million, adjusted for non-cash effects, enabling the distribution of R$ 367 million in dividends. The latter represents a 60% payout and therefore above the minimum commitment of 50% with our shareholders. For the electric energy sector, the year was one of profound reflection on the structural aspects of the industry. Through the intermediary of Public Hearing 33/2017, the Ministry of Mines and Energy sponsored a debate across a wide spectrum of topics critical to improving the regulatory framework of the electricity sector. EDP participated intensively in this debate, making substantive contributions of approximately 500 pages of diagnosis and concrete proposals. In 2018, the outcome of this process was the submission of Draft Law by the Ministry to the President. Like previous years, the hydrological scenario was equally adverse with the rainy season being one of the most critical in the last 87 years and requiring even greater skill in managing the potential energy risk. However, we were able to control this risk successfully using the strategy of hedging our generation alongside with commercialization portfolios with a positive impact at year-end of R$ 459 million. The consistent performance of our Trading Company during the year was instrumental in reinforcing the management of our energy portfolio. Consequently, in conjunction with the Regulatory and Strategic Planning area, this segment of the business produced an outstanding result in 2017, reporting an EBITDA of R$ 151 million. A new cycle of profitable growth For the EDP Group, 2017 saw the beginning of a new cycle of growth in our operations, reinforcing investments along all the segments of the value chain and extending our geographic footprint from 9 to across 12 states in the Brazilian federation. It was in this same year that we consolidated our position as a significant investor in the business of Transmission. As the leading successful bidder at the 05/2016 Auction alongside with the Auction from 2016, we committed to invest R$ 3.1 billion over the next 5 years in nearly 1,300 kilometers of transmission line in the states of Rio Grande do Sul, Santa Catarina, São Paulo, Minas Gerais, Espírito Santo and Maranhão, guaranteeing attractive returns (real leveraged IRR) of between 12% and 14%. In the Distribution segment, we have been anticipating future consolidation trends by growing our participation in this segment with an agreement for the acquisition of a stake in CELESC, a distributor based in the state of Santa Catarina. With the conclusion of this transaction and the announced voluntary POS, EDP took a stake of more than 33% in the company s total capital stock at an estimated investment of R$ 429 million. Superior execution to fulfill our commitments Once more and similar to our experience with the Santo Antônio do Jari and Cachoeira Caldeirão plants, together with our partners CTG and Furnas, we delivered the first generator unit of the São Manoel plant 4 months ahead of schedule. We also operated through the MCSD by decontracting 120 amw - equivalent to 30% of the plant s energy sales agreements for the entire concession period. Similarly, via the MCSD, we participated in the decontracting of energy from the Santo Antônio do Jari and Cachoeira Caldeirão plants with 21 amw and 95 amw, respectively for the second half of the year. At Pecém, we were able to report a positive result with net income of R$ 74 million, a reflection of our commitment to turning around the plant s results. At the end of 2017, the plant recorded 92% uptime (above the auction contractual level of 90.14%) with no technical faults arising over the last 12 months (as of February 2018). Greater investments. Greater efficiency. Despite the macroeconomic scenario revealing signs of recovery, with weakening inflation and declining interest rates, we remained proactive in the management of costs and enhanced initiatives for disconnecting and collection actions with delinquent customers. Our PMTO (personnel, materials, third-party services and others) fell 0.4%, in real terms, testimony to the effectiveness of our Zero-Based Budgeting program, now in its third year and with gains in excess of R$ 200 million. Additionally, we reduced our provisions for Doubtful Accounts and Defaults to 0.8% in the PDD/Gross Revenue ratio, clawing back more than R$ 23 million in Distributors total losses. Low voltage non-technical losses at EDP São Paulo and EDP Espírito Santo today stand at less than 50 bps below the regulatory curve. Our investment plan for network expansion and modernization in the Distribution segment increased to R$ 568 million in São Paulo and Espírito Santo, and we have now committed to invest a further R$ 630 million in 2018, being R$1,372 billion the total capex of the Company. This reflects a deliberate strategy of capital allocation which is designed to translate into value added in the context of the current tariff cycle which expires in We are currently investing close to twice network depreciation (reintegration quota). Despite this investment surge, our leverage continues at very healthy levels, ending the year with a ratio of Net Debt / EBITDA of 2.0x. Leadership in sustainability and innovation In 2017, we reiterated our commitment to the Principles of the Global Compact as well as incorporating the United Nations Sustainable Development Goals into our strategy. For us, sustainability is part of the daily routine of our business. Indeed, the recognition we have received in this area is evidence of this commitment. Among others, we have once more been selected as a component of B3 s Corporate Sustainability Index (ISE) and this for the 12 th consecutive year, achieving the maximum score in 5 of the 7 dimensions of the index. We were also elected the Sector s Sustainable Company by Exame magazine. We were ranked in the top 3 of the list of the 100 most sustainable companies in emerging markets analyzed by the European rating agency, Vigeo. We were elected the Most Sustainable Company in Latin America by the prestigious ALAS20 organization. These are just a few of the innumerable highlights we received in the area of Sustainability, further enhancing our leadership in this field. 3

4 We continue to improve and consolidate our compliance program, reaffirming our commitment to the highest ethical standards and contesting all forms of corruption in all our operations with customers, suppliers, partners and the community in general. Finally, in the year 2018, we learned about the results of the Transparency International Study, which evaluated how the 110 largest Brazilian companies disseminate information about their anticorruption practices and their organizational structure, thus measuring corporate transparency, with EDP ranking 3 rd place in this ranking. We continue to pursue innovative paths for our investments in Sustainability. This year, we took the lead in the electric energy sector, spearheading the robotization of business and administrative processes. Our São Paulo competency center Center for Excellence in Robotization installed 42 robots during the year with consequent gains in quality and efficiency. Undoubtedly, this will be a key area of investment within the scope of our Digital Transformation Agenda. As we are fully aware of the organizational implications of robotization, we were founder-subscribers to the so-called Brazilian Corporate Pact for the Humanized Digitization of Work, together with 3 other Brazilian institutions. Our people and our culture are our strength Over the past three years, we have invested in the Culture Project convinced of the importance of promoting and strengthening our organizational identity and creating an extremely gratifying work environment. As a reflection of this investment in our people and culture, the level of engagement at EDP in Brazil has risen for the third consecutive year to 84% compared with 75% - the average among the sample of the survey s best companies. This is a result of which we are very proud and which places still more responsibility on us. Finally, we were elected for the second consecutive year as one of the 150 best companies in which to work in Você S.A. magazine s ranking. It is to our staff that we dedicate the credit for the year s good results. Without their motivation, extreme dedication and professionalism, we would not be where we are today. We are very grateful to our 3000 employees and all our business partners. The future excites us! 2018 will bring many business challenges for EDP. We will continue seeking new investments for profitable growth. We will continue to honor the trust of our shareholders and investors by generating an attractive income flow from investments. We will continue wanting to exceed the expectations of our clients by rendering a service of extreme quality. We will continue to execute our investment commitments in a secure and agile manner. We will continue to be an ethical and well-meaning company which invests in sustainability as a core element of its business. We will continue to innovate in the sector in a pioneering spirit, always seeking the best technological solutions. We will continue caring for the environment and the communities that welcome us. We will continue investing in culture as we are already doing with the Restoration of the Portuguese Language Museum. We will continue to care for our people with respect and challenges. In short, We will continue to be EDP! António Mexia Presidente do Conselho de Administração Miguel Setas Diretor-Presidente 4

5 Contents 1. Significant Events in the Period 6 2.Operating Performance Generation Commercialization Volume Consolidated Energy Balance Losses Quality Indicators 15 3.Economic-Financial Performance Consolidated Non-Recurring Events Revenues and Gross Margin Manageable Expenditures Gain on divestment/acquisition of investment EBITDA Financial Result Net Income Unconsolidated Projects Santo Antônio Do Jari HPP Cachoeira Caldeirão HPP 27 4.Assets under Construction São Manoel HPP 28 5.Debt 28 6.Variation in Fixed Assets 30 7.Regulatory Assets and Liabilities 32 8.Sustainable Performance Commitments with Sustainable Development Sustainability Indicators Other Information on Sustainability 35 9.Capital Markets Share Performance Capital Stock Annexes 37 5

6 1. SIGNIFICANT EVENTS IN THE PERIOD Reimbursement of the Emergency Water Charge of Pecém I TPP On October 10, Pecém I TPP (Pecém) received a reimbursement of R$ 32.0 million for the Emergency Water Charge levied by the state of Ceará for the September 2016-May 2017 period. The reimbursement was granted based on a May 8 federal court order that mandated full transfer via the CVU. In addition, the order suspends eventual penalties imposed by ANEEL for any reduction and/or interruption of energy generation from the plant due to water supply problems. It also prevents any suspension of payment of the fixed revenue to which Pecém is entitled under the terms of the Power Purchasing Agreements in the Regulated Contracting Environment CCEARs in the case of similar situations. ANEEL authorizes the 2017 annual tariff readjustment for EDP São Paulo The annual tariff readjustment for EDP São Paulo was approved on October 17, effective from October 23, The average perceived effect for consumers was %, of which % for high- and medium-voltage consumers and % for lowvoltage consumers. Parcel B-tranche was adjusted by -2.68%, equal to R$ million. Reduction of Capital Stock in the Controlled Companies On October 26, decision was taken at an EGM to reduce the Capital Stock of Lajeado Energia and EDP SHP by R$ million and R$ million, respectively, given that the existing capital was deemed excessive in relation to the corporate purpose of the plants, without cancellation of shares and maintaining existing stakes of each shareholder in the overall capital. The General Meeting s resolutions are conditioned on the approval of ANEEL pursuant to Normative Resolution 149/05. Once the respective approvals are given, the resolutions will become effective and retroact to the date of the EGM. R$ Million Capital Stock Reduction Changed Capital Stock Lajeado Energia (300.0) 6.9 EDP PCH (150.0) 95.1 Acquisition of a stake in Celesc On December 19, subject to the fulfillment of conditions precedent, the Company signed a Share Purchase Agreement and Other Covenants in which it committed to acquire from Caixa de Previdência dos Funcionários do Banco do Brasil PREVI 33.1% of the common shares ( ONs ) equivalent to 5,140,868 shares and 1.9% of the preferred shares ( PNs ) equivalent to 437,807 shares. This acquisition represents a combined total of 14.5% of the total shares issued by Centrais Elétricas de Santa Catarina S.A. CELESC at a total price of R$ million, to be restated at the positive variation of the Brazilian Interbank Desposit Rate - CDI, until the conclusion of the Operation. Pursuant to the Share Purchase Agreement, the conclusion of the Operation is subject to the verification of certain conditions precedent, usual for this type of transaction. Among these include the approval: (a) by the Brazilian Anti-Trust Authority CADE, already granted on January 26; and (b) by the National Complementary Pension Agency PREVIC, obtained in February 23. Once (and only if) the Transaction is completed, EDP will comply with the procedures necessary to carry out the Voluntary Public Offering, as disclosed by the Company in Material Fact of December 19, Anticipation of start-up of São Manoel HPP On December 28, São Manoel HPP First Generator Unit began commercial operations, anticipating by 4 months its startup in commercial operations in relation to the CCEAR (Power Purchasing Agreements in the Regulated Contracting Environment) agreement. The Second Generator Unit began commercial operations on January 19, 2018, anticipating by 3.5 months startup in commercial operations in relation to the CCEAR agreement. The Third Generator Unit is already undergoing test operations while the Fourth Generator Unit is in the final stages of assembly. CCEAR initiation date is set for May 01, Energy resulting from the anticipation in commercial operations is being settled across the short-term market. 6

7 Drawdown and Raising of Funds During 4Q17 and after, group companies raised the following funds: Consolidated Amount Company Source Release Date Purpose (Thousand) Release - BNDES FINEM Nov/17 122,000 Construction Finance EDP São Paulo 8 th Debenture Issue - 1 st Series 8 th Debenture Issue - 2 nd Series Dec/17 100,000 Jan/18 100,000 Lengthen average debt term and working capital Lengthen average debt term and working capital Release - BNDES FINEM Nov/17 86,000 Construction Finance EDP Espírito Santo 6 th Debenture Issue - 1 st Series 6 th Debenture Issue - 2 nd Series Dec/17 120,000 Jan/18 100,000 Lengthen average debt term and working capital Lengthen average debt term and working capital 1 st Release - BNDES FINEM Oct/17 3,546 Projects EDP Soluções em Energia 2 nd Release - BNDES FINEM Nov/17 4,454 Projects 3 rd Release - BNDES FINEM Nov/ Projects 4 th Release - BNDES FINEM Dec/ Projects Enerpeixe 2 nd Debentury Issue Nov/17 320,000 Re-leveraging Lajeado Energia 2 nd Debenture Issue - 1 st Series Dec/17 100,000 Capital reestructuring 2 nd Debenture Issue - 2 nd Series Dec/17 200,000 Capital reestructuring EDP PCH 1 st Debenture Issue Dec/17 150,000 Capital reestructuring Amount Company Source Release Date Purpose (Thousand) Cachoeira Caldeirão Release - BNDES FINEM Oct/17 50,347 Construction Project São Manoel Release - BNDES FINEM Long-Term Loan - BNDES 6 th Release Unconsolidated Nov/17 100,000 Jan/18 20,000 Construction Project Financing Agreement ECE Participações Release - BNDES Dec/ Construction Project APINE injunction with respect to the GSF at Enerpeixe On February 07, 2018, APINE s (Brazilian Association for Independent Electric Energy Producers) injunction limiting the effects of hydrological risk for companies not signing up to GSF renegotiations in the ACL (Free Contracting Environment) was rejected on a ruling which judged the action unfounded. On February 16, APINE lodged an appeal reestablishing the effects of the injunction for the period from July 1, 2015 to February 07, Consequently, the sentence will only have an effect on the accounts as from February It should be pointed out that in the financial statements at December 31, 2017, liabilities are fully provisioned in the Suppliers account and is compensated with a receivable in the assets under the Accounts Receivable item. The cash impact, should the disbursement have to take place by virtue of the revocation of the injunction, will be R$ million. Installation License Granted for EDP Transmissão S.A. Transmission Line On February 09, 2018, an Installation License (IL) was granted by the state environmental protection agency - Instituto Estadual de Meio Ambiente e Recursos Hídricos (IEMA) to EDP Transmissão S.A. for the 230 KV SE Linhares II SE São Mateus II Transmission Line and São Mateus II Substation, lot 24, for which the Company made a successful bid in the Second Stage of the Electric Energy Transmission Public Service Concession Auction number 013/2015. According to the Company s original auction schedule, the issue of an installation license was only due in October 2018, which was reflected in the anticipation of 10 months. Congressional Bill for Modernization and Opening of the Free Electrical Energy Market On February 09, 2018, the Ministry of Mines and Energy (MME) published a bill on Modernization and Opening of the Free Electrical Energy Market, which will be submitted to the Congress. The result of contributions submitted within the scope of Accounting Pronouncements CP32 and CP33, the bill contemplates: (i) increased freedom on the part of the electricity consumer; (ii) proposal for solving the GSF question; (iii) focus on the qualities of alternative sources in expanding electric energy supply; (iv) the 7

8 allocation of costs of electricity system security on an equitable basis among consumers; and (v) the possibility of implementing the model for contracting capacity coverage separate from the commercialization of electric energy. Topics to be examined for further study are: development of energy exchanges, improvements in guarantee and price formation mechanisms, reduction of costs for implementation of intelligent meters and the opening up of the free market to the residential segment. The Company s contributions are incorporated in the final proposed bill and the next developments in this process will be announced in the coming months. 8

9 The following information relates to the fourth quarter and the year compared with OPERATING PERFORMANCE 2.1 GENERATION - Hydro Generation Asset 1 Note: 1 Total Hydroelectric Plant Tariff does not consider intragroup eliminations/ 2 Amounts of Pecém sale tariff relates to the CVU for the period indicated. The reduction in energy volume sold by the hydroelectric power plants reflects lower energy volume contracted by Enerpeixe and Energest, partially offset by the increase in short-term energy sales from the SHPs and Costa Rica. In the year, the reduction is also a reflection of the partial spin-off of assets from Energest in March 2016 and the sale of Pantanal Energética, concluded in January The growth in average energy sale tariffs reflects an increase in short-term prices and the annual adjustment in bilateral agreements and Power Purchasing Agreements in the Regulated Contracting Environment ( CCEARs ). - Unconsolidated Assets 4Q17 4Q16 Var 4Q17 4Q16 Var Lajeado 903, , % % Investco 8,861 8, % % Enerpeixe 470, , % % Energest 285, , % % PCH 110,025 84, % % Costa Rica 26,868 25, % % Santa Fé 35,563 36, % % Total HPPs 1,841,382 1,860, % % Pecém² 1,357,305 1,357, % % Total Consolidated 3,198,687 3,218, % Asset Volume (MWh) Sales Price (R$/MWh)¹ Var Var Lajeado 3,285,832 3,263, % % Investco 34,793 34, % % Enerpeixe 1,926,011 2,277, % % Energest 1,086,327 1,414, % % PCH 453, , % Pantanal - 16, Costa Rica 105,815 96, % % Santa Fé 172, , % % Total HPPs 7,065,016 7,546, % % Pecém² 5,387,400 5,402, % % Total Consolidated 12,452,416 12,948, % Asset Volume (MWh) Sales Price (R$/MWh)¹ 4Q17 4Q16 Var 4Q17 4Q16 Var Cachoeira Caldeirão (50%) 127, , % % Jari (50%) 219, , % % Total Unconsolidated 347, , % % Asset Volume (MWh) Volume (MWh) Sales Price (R$/MWh) Sales Price (R$/MWh) Var Var Cachoeira Caldeirão (50%) 536, , % % Jari (50%) 885, , % % Total Unconsolidated 1,421,629 1,257, % % The decline in energy volume sold by Unconsolidated Assets reflects lower contracted energy volume at Jari and Cachoeira for account of decontracting through the Excess and Deficits Compensation Mechanism - MCSD. In the year, growth was a function of full entry into operations of Cachoeira Caldeirão. 9

10 Consolidated Sales from Hydro Generation (GWh) Seasonalization of Hydro Generation (%) 7,546 7,065 26% 26% 25% 25% 24% 25% 25% 1,861 1,841 24% 4Q 12M 1Q 2Q 3Q 4Q GSF (Generation Scaling Factor) and Protection Mechanisms R$ R$ R$ 62.2 R$ 34.6 R$ R$ R$ R$ % 89% 83% 88% 110% 84% 62% 70% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 PLD Southeast GSF The year 2017 presented challenges from the point of view of energy management given the significant worsening in the hydrological situation. Anticipating a deterioration in the PLD and GSF scenario, the Company decided to implement certain initiatives to reinforce its strategies for protecting generation companies against the impacts of high energy prices in the Free Market by increasing the share of uncontracted energy in its portfolio. With a view to increasing the portion of total uncontracted energy ( natural hedge ) from 9.0% 2 (96 amw) in May 2017, the Company acquired 70 average MW, thus mitigating future GSF-related risks. Furthermore, in July, the company uncontracted, through MCSD (20.9 amw from Jari and 95 amw from Cachoeira Caldeirão), effective from July to December At Jari, of the uncontracted 20.9 amw, amw have been held for hedging purposes and 3.40 amw, recontracted. At Cachoeira Caldeirão, of the uncontracted amount of 95.0 amw, amw have been held for hedging purposes and amw recontracted. The recontracted amounts were sold to the shareholders trading companies in the same proportion as their stakes in the company. Considering the natural hedge (96 amw), the additional purchase of 70 amw, the impact of uncontracting through the MCSD (8 amw) and reduction in bilateral agreements (10 amw), the total amount of uncontracted energy was 18.0% 3 (184 amw). Throughout the year, the Trading Company operated as an instrument for managing the Company s energy portfolio, operating jointly with the generators in energy purchase and sale transactions and with the active support of the regulatory area in strategic planning, contributing to the amelioration of the group s hydrological risk as well as maximizing results. The graph below illustrates the Consolidated Energy Balance of Hydroelectric Generation for the quarter in amw: Free Physical Guarantee GSF Allocated Physical Guarantee Purchase/Short- Term Market CCEE Sale Contracts 2 Includes the Company s 50% stake in Jari and Cachoeira Caldeirão. 3 Includes the Company s 50% stake in Jari and Cachoeira Caldeirão. 10

11 The graph below illustrates the Consolidated Energy Balance of Hydroelectric Generation for the quarter in amw: Free Physical Guarantee GSF Allocated Physical Guarantee Purchase/Short- Term Market CCEE Sale Contracts The average GSF in the quarter was 69.7%, representing an exposure of 609 GWh 4 to the average PLD of R$ /MWh (SE/C-W submarket). In the year, the average GSF was 81.5%, representing an exposure of 1,517 GWh5 at an average PLD of R$ /MWh (SE/C-W submarket). In the 1Q17 there was secondary energy in the system, thus contributing positively to the accumulated exposure of the GSF in the year, although at a reduced LDP compared to the other quarters. - Thermal Generation Pecém s operating improvement during the year confirms the success of actions adopted by the Company towards enhancing the Plant s operational efficiency. In the quarter, average uptime was 97% and, in the year, 92%, exceeding the percentage enshrined in the contractual parameters of 90.1%. GU01 Scheduled Maintenance GU02 Scheduled Maintenance 89% 88% 88% 94% 94% 94% 80% 98% 89% 99% 99% 97% 90% 94% 93% 92% 81% 92% Q17 2Q17 3Q17 4Q GU01 GU02 Average TPP - Installed Generation Capacity The Company ended the year with an installed generation capacity of 2,831 MW, an increase of 2.5% comparing to 2016, considering the revision of installed capacity of Santo Antônio do Jari HPP ( MW) and the early entry into operations of the first machine at São Manoel HPP (58.0 MW). Installed Capacity in MW Pro forma % , , , Sale of Pantanal Energética 1Q16 C. Caldeirão HPP Revison of Jari s Installed Capacity GU 01 São Manoel HPP GU 02, 03 and 04 - São Manoel HPP 1 Considers the proportional share of the Santo Antônio do Jari (50%), Cachoeira Caldeirão (50%) and São Manoel (33.3%) HPPs. Installed capacity proportional to the stakes in Costa Rica, Lajeado and Enerpeixe HPPs is not considered since data for these plants is fully consolidated in EDP Excluding the impact of Jari and Cachoeira Caldeirão. 5 Excluding the impact of Jari and Cachoeira Caldeirão. 11

12 2.2 COMMERCIALIZATION The increased volume reflects: (i) price volatility associated with a highly liquid market, benefiting from the taking of both longand short- term positions as per market circumstances; (ii) greater allocation of energy by sector agents for 2H17, creating an increase in short-term liquidity; (iii) greater energy volume available in the market thanks to distributors uncontracting through the MCSD or bilateral agreements; and (iv) increase in energy sales to the new free consumers, as a reflection of migration of clients from the captive to the free market. 2.3 Distribution Volume (MWh) 4Q17 4Q16 Var Var Related Parts 660, , % 1,849, , % Others 5,164,921 3,699, % 15,954,706 12,316, % Total Commercialization 5,824,923 4,016, % 17,804,452 12,980, % Average Tariff (R$/MWh) % % VOLUME Distribution shows an increase in the volume of distributed energy of 3.0% and 1.1% in the quarter and year, respectively. EDP Distribution Volume (MWh) Volume (MWh) Consumers (unit) 4Q17 4Q16 Var Var Var Residential 1,466,962 1,436, % 5,888,211 5,841, % 2,877,686 2,828, % Industrial 2,781,513 2,702, % 10,990,608 10,705, % 24,585 24, % Free 2,245,973 2,117, % 8,930,438 7,960, % % Captive 535, , % 2,060,170 2,744, % 24,185 23, % Commercial 1,080,000 1,032, % 4,107,662 4,108, % 251, , % Free 254, , % 944, , % % Captive 825, , % 3,163,466 3,521, % 250, , % Rural 209, , % 860, , % 195, , % Others 532, , % 1,978,492 2,003, % 27,935 27, % Supply 123, , % 505, , % % Concessionaries\Generation 104,868 60, % 372, , % % Total Distributed Energy 6,298,857 6,117, % 24,703,799 24,424, % 3,376,825 3,316, % EDP São Paulo Residential 927, , % 3,671,770 3,586, % 1,676,680 1,646, % Industrial 1,836,591 1,771, % 7,190,960 6,969, % 13,300 12, % Free 1,465,569 1,364, % 5,786,253 5,114, % % Captive 371, , % 1,404,708 1,854, % 13,022 12, % Commercial 653, , % 2,434,493 2,404, % 126, , % Free 143, , % 525, , % % Captive 509, , % 1,909,316 2,141, % 126, , % Rural 21,459 19, % 82,631 80, % 7,904 7, % Others 301, , % 1,151,925 1,184, % 14,173 13, % Supply 11,907 10, % 46,410 43, % % Concessionaries\Generation 79,870 59, % 275, , % % Total Distributed Energy 3,831,802 3,700, % 14,853,737 14,501, % 1,838,964 1,804, % EDP Espírito Santo Residential 539, , % 2,216,441 2,254, % 1,201,006 1,182, % Industrial 944, , % 3,799,648 3,735, % 11,285 11, % Free 780, , % 3,144,186 2,845, % % Captive 164, , % 655, , % 11,163 11, % Commercial 426, , % 1,673,169 1,704, % 124, , % Free 110,796 95, % 419, , % % Captive 316, , % 1,254,150 1,380, % 124, , % Rural 188, , % 778, , % 187, , % Others 230, , % 826, , % 13,762 13, % Supply 111, , % 458, , % % Concessionaries\Generation 24, % 97,400 36, % % Total Distributed Energy 2,467,055 2,417, % 9,850,063 9,923, % 1,537,861 1,511, % Total energy volume distributed by EDP São Paulo increased 3.6% and 2,4% in the quarter and year, respectively, while EDP Espírito Santo increased 2.0% in the quarter and fell 0.7% in the year, a total increase at EDP Distribuição of 3.0% in 4Q17 and 12

13 1.1% in the year. These numbers reflect a gradual recovery in economic activity in Brazil during the course of the year, most notably in the final quarter. On the demand side, the most notable aspect was the increase in household consumption, driven by declining inflation and lower interest rates. The domestic industrial sector reported signs of recovery with an improvement in industrial output of 2.3% from January through November 2017 and of 4.3% from September to November In 2017, 131 consumers (78 at EDP São Paulo and 53 at EDP Espírito Santo) migrated from the captive to the free market, in 4Q17, 31 consumers alone migrating as a result of the significant increase in PLD, this occurring principally in the second half compared to the same period in Average Tariff Captive Market At EDP São Paulo e na EDP Espírito Santo, the average sales tariff increased 10.4% and 13,7%, respectively, following the Annual Tariff Readjustment, as well the incidence of the Red Flag. The increase in the rural tariff class in EDP Espírito Santo reflects the increase of 31.8% in off-peak consumption in the period. - Free Market Average Tariff (R$/MWh) EDP São Paulo EDP Espírito Santo 4Q17 4Q16 Var 4Q17 4Q16 Var Residential % % Industrial % % Commercial % % Rural % % Others % % Total % % Consolidated energy in transit in the distribution system (USD - Use of the Distribution System) for supply to free market clients was 8.3% and 15.7% in 4Q17 and 2017, respectively due to migrations from the ACR to the ACL CONSOLIDATED ENERGY BALANCE Total energy delivered to the system was 30,013 GWh. Total losses in transmission, sales and adjustments were 2,420 GWh. Required Energy amounted to 27,593 GWh and excluding 2,889 GWh in losses, resulted in total Distributed Energy of 24,704 GWh. Distribution Energy Balance 2017 (MWh) Itaipu + Proinfa Transmission Losses 4,292, ,322 Required Auction Losses from Itaipu 14,912,578 (-) 223,227 = Energy Others Short Term Sales 319,968-1,904,162 27,593,012 Energy in Transit Short Term Adjustments 10,488, Total 30,013,363 2,420,351 27,593,012 Wholesale Supply 505,020 Retail Supply 13,710,684 Losses and Diferences 2,889,213 Energy in Transit 10,488,095 27,593,012 Of the total Required Energy, 59% was destined for EDP São Paulo and 41% for EDP Espírito Santo. Energy Balance - EDP São Paulo 2017 (MWh) Itaipu + Proinfa Transmission Losses Wholesale Supply 2,709, ,727 Required 46,410 Auction Losses from Itaipu Retail Supply 8,634, ,201 Energy 7,980,548 Others Short Term Sales Losses and Diferences 11,985-1,570,559 16,275,200 1,421,464 Energy in Transit Short Term Adjustments Energy in Transit 6,826,779-13,198 6,826,779 Total 18,182,885 1,907,685 16,275,200 16,275,200 13

14 Energy Balance - EDP Espírito Santo 2017 (MWh) Itaipu + Proinfa Transmission Losses 1,582, ,595 Required Auction Losses from Itaipu 6,278,249 ( - ) 81,026 = Energy Others Short Term Sales 307, ,603 11,317,812 Energy in Transit Short Term Adjustments 3,661,316 12,558 Total 11,830, ,666 11,317,812 Wholesale Supply 458,610 Retail Supply 5,730,137 Losses and Diferences 1,467,749 Energy in Transit 3,661,316 11,317, LOSSES Accumulated Losses in the Last 12 Months (GWh or %) Input of Energy in Grid (A) Technical (B) Non-technical (C) Total (B + C) Technical (B/A) Non-technical (C/A) Total (B+C/A) EDP São Paulo EDP Espírito Santo Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 ANEEL Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 ANEEL 15,916 15,947 15,959 16,130 16,275 11,522 11,457 11,353 11,276 11, ,415 1,396 1,393 1,407 1,421 1,599 1,571 1,532 1,476 1, % 5.51% 5.42% 5.47% 5.50% 4.59% 8.60% 8.57% 8.50% 8.34% 8.30% 7.14% 3.37% 3.25% 3.31% 3.26% 3.23% 3.16% 5.28% 5.14% 4.99% 4.74% 4.67% 4.63% 8.89% 8.75% 8.73% 8.73% 8.73% 7.75% 13.88% 13.71% 13.50% 13.09% 12.97% 11.77% Low Tension Accumulated Losses in the Last 12 Months (GWh or %) Low Tension Demand (D) Low Tension Commercial Losses (C/D) Total (C/D) EDP São Paulo EDP Espírito Santo Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 ANEEL Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 ANEEL 5,384 5,397 5,416 5,459 5,492 4,505 4,505 4,448 4,407 4, % 9.60% 9.75% 9.63% 9.57% 9.19% 13.50% 13.08% 12.74% 12.14% 11.94% 11.45% 9.98% 9.60% 9.75% 9.63% 9.57% 9.19% 13.50% 13.08% 12.74% 12.14% 11.94% 11.45% The Company s strategy of enhanced shielding of more than 60% of total consumption proved effective in prevention and combating energy fraud and theft. This resulted in an increase in billed energy volume and in the reduction of total losses. - Consumption Shielding at the Distributors: EDP São Paulo EDP Espírito Santo # Shielded % # Shielded % Clients consumption Clients consumption Telemetering High Voltage Consumers % % Metering Shield Monitoring Interventions Medium Voltage Consumers 4, % 4, % 100% Telemetering with own team BTZero (Concentrated Metering System) Social Programs Inspections Low Voltage Consumers (High Consumptions) 17,850 20, % 0.4% % 2.0% Low Voltage Consumers Total Consumption Shielded: 42, % % The distributors made significant investments in initiatives for combating losses with an improved total loss situation at both distributors. The plan for combating losses is focused on strategic actions for reducing existing fraud, increasing the billing base, preventing irregular use of energy from previously credit-worthy consumers. Among others, the instruments used to this end included: (i) substitution of the distribution network in certain locations for shielded cable preventing clandestine connections to the low voltage network in addition to undertaking remote metering and disconnections thus reducing OPEX costs and delinquency; (ii) shielding meter panels, preventing consumer access to the energy meter box, the principal cause of fraud; and (iii) inspection of meters allowing identification of irregularities in the measuring systems as well as substitution of obsolete or defective equipment. The reduction in 2017 of 0.30 p.p. of technical losses at EDP Espírito Santo is the result of work concluded over the past two years with: (i) the inauguration of the new Distribuição Barra do Jucu Substation with four new feeders; (ii) construction of a new distribution line, interconnecting the Jaguaré and São Mateus substations; and (iii) expansion of the new Distribuição Alto Lage Substation with four new feeders and Canivete, with three new feeders. Conversely, the annual reduction of 0.47p.p. in nontechnical losses reflects the increase in investments for combating losses as previously mentioned. 14

15 Investments in programs for combating losses during the year amounted to R$ 84.2 million. Out of the total, R$ 60.0 million went to operating investments (substitution of meters, installation of a special grid and telemetering) and R$ 24.2 million to manageable expenses (inspections and dismantling irregular connections). Distributors completed thousand inspections, substituted thousand obsolete meters and regularized 88.1 thousand clandestine/irregular connections QUALITY INDICATORS Service quality indicators remained within ANEEL-ordained standards. The improvement in indicators at EDP São Paulo and at EDP Espírito Santo reflect prudent investments (installation of new substations, feeders and electronic remote reconnect switching) associated with increased tree pruning, washing of energy networks in coastal areas (EDP Espírito Santo) and in installation of shielded networks. In relation to preventive maintenance, the recurrence plan is worthy of mention, this contributing to a reduction in interruptions through technical inspections, training of field teams and rapid action solutions in areas where continuity indicators have a greater impact. DEC (hours) FEC (times) Q16 EDP São Paulo 4Q17 EDP Espírito Santo 4Q16 EDP São Paulo 4Q17 EDP Espírito Santo Note: Distributor DEC and FEC indicators disclosed in the quarter are preliminary since the final indicator is published 30 days after the end of the month. ANEEL Annual Regulatory Target for 2017 EDP São Paulo: DEC 8.41 / FEC: 6.59 EDP Espírito Santo: DEC: 9.81 / FEC: ECONOMIC-FINANCIAL PERFORMANCE 3.1 CONSOLIDATED Items in R$ Thousand or % Hydro Generation 2 Thermal Generation Distribution Comerc. + EDP GRID Transmission Holding Eliminations Consolidated 2 4Q17 4Q17 4Q17 4Q17 4Q17 4Q17 4Q17 4Q17 Net Revenue 1 351, ,585 1,778,251 1,292, (391,490) 3,551,455 Infrasctructure Construction Revenue ,494-28,152-2, ,514 Non-Manageable Expenditures (137,402) (354,836) (1,327,600) (1,219,699) ,605 (2,650,932) Gross Margin 214, , ,651 72, (2,885) 900,523 Manageable Expenditures (69,984) (80,589) (434,159) (17,946) (28,849) (37,052) (11,605) (680,184) PMTO (28,208) (34,639) (207,523) (16,447) (697) (33,243) 10 (320,747) EBITDA 185, , ,929 56,395 (116) (32,656) (7) 561,817 Depreciation and Amortization (41,868) (45,221) (50,943) (1,499) - (3,818) (11,615) (154,964) Result of Statutory Participation (6,478) ,929 (260,401) (8,950) Net Financial Result (45,343) (41,912) (29,107) (1,277) 69 (26,850) (6,496) (150,916) Net Income before minority interests 124,414 27, ,066 40,503 (149) 195,026 (351,603) 179,101 Net Income 140,332 27, ,066 40,503 (142) 195,026 (351,603) 195,026 Items in R$ Thousand or % Hydro Generation 2 Thermal Generation Distribution Comerc. + EDP GRID Transmission Eliminations Consolidated 2 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 4Q16 Net Revenue 1 298, ,186 1,381, ,990-1,237 (221,027) 2,393,877 Infrasctructure Construction Revenue , ,018 Non-Manageable Expenditures (54,291) (228,773) (1,012,311) (568,826) ,724 (1,642,477) Gross Margin 244, , ,284 32,164-1, ,400 Manageable Expenditures (70,176) (64,249) (430,101) (11,122) - (43,723) (12,345) (631,716) PMTO (32,343) (24,769) (218,238) (10,102) - (41,233) (697) (327,382) EBITDA 213,350 78, ,796 22,038 - (40,046) - 394,844 Depreciation and Amortization (38,921) (39,542) (43,595) (996) - (2,440) (11,648) (137,142) Result of Statutory Participation (85,129) ,223 (45,435) (84,341) Net Financial Result (51,281) (158,942) (25,225) (4,310) - (3,294) 75,384 (167,668) Net Income Before Minority Interests 52,693 (79,486) 77,021 10,743-35,897 (3,368) 93,500 Net Income (4,910) (79,486) 77,021 10,743-35,897 (3,368) 35,897 Holding 15

16 Items in R$ Thousand or % Var Var Var Var Var Var Var Var Net Revenue % 56.4% 28.7% 115.1% n.a % 77.1% 48.4% Infrasctructure Construction Revenue n.a. n.a. 12.7% n.a. n.a. n.a. n.a. 35.1% Non-manageable Expenditures 153.1% 55.1% 31.1% 114.4% n.a. n.a. 75.3% 61.4% Gross Margin -12.5% 59.3% 22.0% 126.5% n.a % % 19.8% Manageable Expenditures -0.3% 25.4% 0.9% 61.4% n.a % -6.0% 7.7% PMTO -12.8% 39.8% -4.9% 62.8% n.a % % -2.0% EBITDA -12.9% 64.4% 84.5% n.a. n.a % n.a. 42.3% Depreciation and Amortization 7.6% 14.4% 16.9% 50.5% n.a. 56.5% -0.3% 13.0% Result of Statutory Participation n.a. n.a. n.a. n.a. n.a % 473.1% n.a. Net Financial Result -11.6% -73.6% 15.4% -70.4% n.a % % -10.0% Net Income Before Minority Interests 136.1% % 85.7% 277.0% n.a % n.a. 91.6% Net Income n.a % 85.7% n.a. n.a % n.a % 1 Does not consider Infrastructure construction Revenue. 2 Consolidated: considers intragroup elimination. Hydro Generation 2 Thermal Generation Distribution Comerc. + EDP GRID Transmission Holding Eliminations Consolidated NON-RECURRING EVENTS There were no events which had an impact on the analysis for the quarter. In the year, non-recurring events affecting the analysis were: (i) 2Q17: Provision of R$ 33.4 million (gross of PIS/COFINS and R&D) with respect to the Emergency Water Charge at Pecém; (ii) 3Q17: Reimbursement of an insurance claim of R$ 9.0 million in recognition of loss on profits in the Cost of raw material consumed at Pecém; (iii) 1Q16: Conclusion of the divestment of Pantanal Energética with a R$ million impact on results; (iv) 1Q16: Booking to the accounts of R$ 81.8 million with respect to the difference between amount received from an insurance claim and the writing down of the asset following the stoppage of GU01 at Pecém in 2014; (v) 3Q16: Booking of the Restatement of the Indemnifiable Financial Asset (VNR) at EDP Espírito Santo, due to the Periodic Tariff Revision and resulting in a non-recurring gain of R$ million REVENUES AND GROSS MARGIN Consolidated Items in R$ Thousand or % 4Q17 4Q16 Var Var Net Operating Revenue 3,551,455 2,393, % 11,767,740 8,884, % Non-Manageable Expenditures (2,650,932) (1,642,477) 61.4% (8,261,686) (5,594,856) 47.7% Energy Purchased to Resell (2,157,392) (1,330,341) 62.2% (6,779,135) (4,610,555) 47.0% Charges for Usage of Basic Network (244,013) (122,936) 98.5% (680,036) (475,410) 43.0% Others (249,527) (189,200) 31.9% (802,515) (508,891) 57.7% Gross Margin 900, , % 3,506,054 3,289, % Breakdown of Gross Margin (R$ million) +20% Q16 Margin Hydro Generation Pecém Distribution Commerc. +GRID Others/ Eliminations 4Q17 Margin 16

17 +7% 3, , Margin Hydro Generation Pecém Distribution Commerc. +GRID Others/ Eliminations 2017 Margin - Hydro Generation Items in R$ Thousand or % Hydro Generation 4Q17 4Q16 Var Var Net Operating Revenue 351, , % 1,339,502 1,188, % Non-Manageable Expenditures (137,402) (54,291) 153.1% (395,378) (194,300) 103.5% Energy Purchased to Resell (115,134) (33,499) 243.7% (308,196) (114,870) 168.3% Charges for Usage of Basic Network (21,766) (20,792) 4.7% (84,694) (79,430) 6.6% Other (502) - n.a. (2,488) - n.a. Gross Margin 214, , % 944, , % The decline in Gross Margin for Hydro Generation reflects the increase in PLD and the worsening GSF throughout the year, generating a negative impact of R$ million in the quarter and R$ million in the year. In the light of the renegotiation, reimbursement was R$ 51.6 million in the quarter and R$ million for the year. The Company s successful strategy for mitigating hydrological risks had a positive impact on margin of R$ million in the quarter and R$ million in the year. The graph below illustrates the components making up the Gross Margin of Consolidated Hydroelectric Generation for 4Q17 in R$ million: R$ 181 Million Supply Revenue MRE GSF/Spot Price Impacts Reimbursement Short-Term Operations Margin Initial Hedge Revenue Others Gross Margin The graph below illustrates the components that make up the Gross Margin of Consolidated Hydroelectric Generation for 2017 in R$ million: 1, R$ 459 Million Sypply Revenue MRE GSF/Spot Price Impacts Reimbursement Short-Term Operations Margin Initial Hedge Revenue Others Gross Margin For additional details on the impacts of the GSF/PLD and risk-mitigation strategies adopted, see Chapter

18 - Thermal Generation The growth in Gross Margin both in the fourth quarter as well as the year is a reflection of the continual improvement in operating efficiency of the thermal plant which in December reached 96.5% uptime and an all-time failure rate record of just 5.4 failures/year. The significant growth in revenue was partially mitigated by cost overruns in coal logistics. Margin results were affected by non-recurring items booked in 2016: (i) receipt of the claim for a penalty charged due to the stoppage of GU01 in 2014 (+R$ 22.1 million); and (ii) reversal of the provision for reimbursement of downtime and a reflection of operational improvements at the plant (+ R$ 70.3 million). In order to minimize the impact of PLD volatility in the light of the penalty for downtime based on a 60-month moving average ADOMP (Dispatch by Order of Merit by Adjusted Price) - the Company structured a hedging mechanism through an energy purchase agreement at a fixed amount for the period from July to December ( ADOMP Hedge ). Thanks to the ADOMP hedge there was a positive impact on the margin of R$ 25.1 million in the quarter and R$ 54.4 million in the year. The ADOMP hedge mechanism has since been structured for the entire year of 2018, once again reflecting the Company s commitment in managing the risks of its portfolio. -Emergency Water Charge at Pecém I TPP In May, a federal court granted a preliminary injunction allowing the full amount charged by the state of Ceará under the Emergency Water Charge - EHE to be incorporated in the CVU. The decision also determines the suspension of any penalty levied by ANEEL for the eventual reduction and/or interruption of energy generation from the plant due to water supply problems. In the year, the Company generated revenue of R$ 57.5 million from the transfer in full of the additional cost of the EHE to the CVU. -Conveyor Belt Maintenance at the Pecém I TPP Continuing its strategic plan to increase Gross Margin by reducing the additional cost of coal transportation, the Company made the second stoppage out of a total of three to replace a further three Conveyor Belt sections. A further third stoppage in early 2018 is contemplated for the replacement of the two remaining Conveyor Belt sections. Consequently, the Company expects to reduce coal logistics costs by more than 50% and increase conveyor belt productivity, reducing the time spent on unloading ships by 50% in 2018 in relation to Distribution Items in R$ Thousand or % Thermal Generation 4Q17 4Q16 Var Var Net Operating Revenue 519, , % 1,705,760 1,192, % Non-Manageable Expenditures (354,836) (228,773) 55.1% (1,104,879) (626,061) 76.5% Energy Purchased to Resell (93,773) (23,333) 301.9% (245,655) (57,640) 326.2% Charges for Usage of Basic Network (16,695) (17,012) -1.9% (69,491) (64,409) 7.9% Other (244,368) (188,428) 29.7% (789,733) (504,012) 56.7% Gross Margin 164, , % 600, , % Items in R$ Thousand or % 4Q17 4Q16 Var Var Fixed Revenue (CCEAR) 194, , % 767, , % Variable Revenue (Dispatch) 232, , % 712, , % Water Charge Transfer 13,075 - n.a. 57,459 - n.a. Short-Term Energy 135,746 27, % 359, , % Gross Operating Revenue 576, , % 1,897,384 1,337, % (-) Tributos e Encargos (56,447) (40,496) 39.4% (191,624) (144,797) 32.3% Net Operating Revenue 519, , % 1,705,760 1,192, % Items in R$ Thousand or % Pecém Revenue Composition EDP São Paulo EDP Espírito Santo Total Distribution 4Q17 4Q16 Var 4Q17 4Q16 Var 4Q17 4Q16 Var Net Operating Revenue 1,115, , % 662, , % 1,778,251 1,381, % Non-Manageable Expenditures (897,407) (571,092) 57.1% (430,193) (441,219) -2.5% (1,327,600) (1,012,311) 31.1% Energy Purchased to Resell (770,633) (519,497) 48.3% (346,999) (406,015) -14.5% (1,117,632) (925,512) 20.8% Charges for Usage of Basic Network (125,509) (51,595) 143.3% (82,228) (35,204) 133.6% (207,737) (86,799) 139.3% Other (1,265) - n.a. (966) - n.a. (2,231) - n.a. Gross Margin 218, , % 232, , % 450, , % 18

19 EDP São Paulo EDP Espírito Santo Total Distribution Items in R$ Thousand or % Var Var Var Net Operating Revenue 3,705,999 2,893, % 2,654,400 2,542, % 6,360,399 5,436, % Non-Manageable Expenditures (2,816,992) (2,111,680) 33.4% (1,810,333) (1,658,105) 9.2% (4,627,325) (3,769,785) 22.7% Energy Purchased to Resell (2,516,251) (1,908,494) 31.8% (1,575,616) (1,522,712) 3.5% (4,091,867) (3,431,206) 19.3% Charges for Usage of Basic Network (299,476) (203,186) 47.4% (233,751) (135,393) 72.6% (533,227) (338,579) 57.5% Other (1,265) - n.a. (966) - n.a. (2,231) - n.a. Gross Margin 889, , % 844, , % 1,733,074 1,666, % The positive impact in Gross Margin is due to the following effects: (i) (ii) (iii) (iv) (v) Tariff Effect: considering the impact of the readjustments of tariffs and excluding the effects of Parcel A components, the impact on results was a negative R$ 16.2 million in the quarter and a positive R$ 70.5 million in the year; Overcontracting of energy: the PLD proved to be well above the average price of energy bought over the year, thereby generating a gain on the settlement of overcontracting operations. The effect of the year-on-year variation between the quarters and years was R$ 63.4 million and R$ million, respectively; Losses: through intensive management and with a strategic focus, the Company intensified actions for combating losses, resulting in a reduction of total losses in the year of 0.2 p.p. and 0.9 p.p. at EDP São Paulo and EDP Espírito Santo, respectively. In the quarter and in the year, the variation in losses at the distributors was positive at R$ 6.6 million and R$ 20.7 million respectively; VNR (Indemnifiable Financial Assets): in the quarter, the variation in VNR was R$ 14.7 million. Due to the tariff revision at EDP Espírito Santo in August 2016 in which a VNR of R$ million was booked to the accounts, in the year the variation was a negative R$ million; Market variation: during the course of 2017, there was a slight improvement in the economy with a faster growth in GDP in the second half of 2017 and enhanced activity in some sectors in the distributors concession areas. In the quarter and in the year, market variation was positive at R$ 12.4 million and R$ 27.7 million, respectively. R$ Million EDP São Paulo EDP Espírito Santo Total 1Q17 2Q17 3Q17 4Q Q17 2Q17 3Q17 4Q Non-Indemnified Financial Asset Losses (8.1) (7.4) (6.2) (4.5) (26.2) (18.7) (13.8) (9.2) (9.6) (51.4) (77.6) Overcontracting (3.9) 38.3 (11.2) Market (4.3) (0.8) Tariff Effect (8.0) (8.3) R$ Million EDP São Paulo EDP Espírito Santo Total 1Q16 2Q16 3Q16 4Q Q16 2Q16 3Q16 4Q Non-Indemnified Financial Asset (3.8) (1.2) Losses (6.0) (7.0) (7.1) (4.3) (24.4) (19.9) (19.3) (18.2) (16.5) (73.8) (98.2) Overcontracting (16.9) (8.0) (9.5) (0.8) (35.2) (9) (9.2) (44.5) Market Tariff Effect EDP São Paulo EDP Espírito Santo Total R$ Million Var. Var. Var. Var. Var. Var. Var. Var. Var. Var. Var. Non-Indemnified Financial Asset (13.5) (5.5) (4.1) 8.3 (14.8) (10.8) (3.9) (147.2) 6.5 (155.4) (170.2) Losses (2.1) (0.4) 0.9 (0.2) (1.8) Overcontracting (1.8) Market (4.3) (0.8) Tariff Effect (8.0) (8.3) Commercialization and EDP Grid Items in R$ Thousand or % EDP Comercialização EDP Grid Total Comercialização + GRID 4Q17 4Q16 Var 4Q17 4Q16 Var 4Q17 4Q16 Var Net Operating Revenue 1,262, , % 29,882 11, % 1,292, , % Non-Manageable Expenditures (1,217,539) (568,071) 114.3% (2,160) (755) 186.1% (1,219,699) (568,826) 114.4% Energy Purchased to Resell (1,213,661) (564,566) 115.0% - - n.a. (1,213,661) (564,566) 115.0% Charges for Usage of Basic Network (3,612) (3,488) 3.6% - - n.a. (3,612) (3,488) 3.6% Others (266) (17) % (2,160) (755) 186.1% (2,426) (772) 214.2% Gross Margin 45,120 21, % 27,722 10, % 72,842 32, % Items in R$ Thousand or % EDP Comercialização EDP Grid Total Comercialização + GRID Var Var Var Net Operating Revenue 3,552,777 1,850, % 63,146 33, % 3,615,923 1,884, % Non-Manageable Expenditures (3,384,314) (1,823,685) 85.6% (6,626) (2,817) 135.2% (3,390,940) (1,826,502) 85.7% Energy Purchased to Resell (3,368,737) (1,808,486) 86.3% - - n.a. (3,368,737) (1,808,486) 86.3% Charges for Usage of Basic Network (14,140) (13,137) 7.6% - - n.a. (14,140) (13,137) 7.6% Others (1,437) (2,062) -30.3% (6,626) (2,817) 135.2% (8,063) (4,879) 65.3% Gross Margin 168,463 26, % 56,520 31, % 224,983 57, % 19

20 Gross Margin from Commercialization reported significant growth both in the fourth quarter as well as the year, driven by an increase in commercialization volume and the capture of well-chosen opportunities during the course of the year such as: (i) the volatility of prices associated with a high degree of market liquidity benefiting the taking of long and short positions according to circumstances; (ii) greater volumes of available energy in the market as a result of distributors uncontracting through MCSD or bilateral agreements; and (iii) an increase in energy sales volume to new free consumers, reflecting the migration of clients from the captive to the free market. It is worth mentioning that Commercialization s results were consistent throughout all the quarters of EDP GRID s gross margin posted growth both in the quarter as well as for the year with the conclusion of new commercial projects by EDP Soluções and progress in executing pending projects, both of which increasing sales. In the year, projects were implemented at 75 consumer units with 3 energy conversion projects (Natural Gas to Biomass), resulting in total savings of 51 GWh and a reduction in polluting gases of 30,305 tco2. With its focus on distributed generation and dedicated self-production projects, in the solar segment, EDP Grid concluded 2017 with a contracted amount of MWp, beginning 2018 with a robust pipeline of projects. The increase in Non-Manageable Expenditures is associated with implementation and operating costs of these projects MANAGEABLE EXPENDITURES The Company maintains its commitment with costs control, leading efforts and initiatives backed by Zero Based Budgeting (ZBB) program, capturing cumulative gains of more than R $ 200 million in the period from 2015 to 2017, aiming to increase revenue and operational efficiency, as well as resources transferal for strategic items. Throughout this period, more than 140 operational efficiency initiatives have been implemented. The initiatives pointed out in the "ZBB 2.0" Project, which have been implemented since the beginning of 2017, have as main focus the costs and expenses control in DisCos, optimizing the utilization of operational activities such as the management of the field teams, support and customer service channels, as well as actions to combat delinquency and losses. The Company also designed a team of statistics and data engineering (Analytics) to assist with the strategy of priorities. Among the main purposes developed in 2017 are the generation of instruments in order to allow the optimization and routing of activities in actions to combat delinquency. Items in R$ Thousand or % PMTO expenses fell 2.0% and 0.4% in the quarter and in the year, respectively, through initiatives that generate efficiency and redirect expenses for strategic items (automation and robotization of administrative processes, creation of the Analytics department). Further mention should also be made of ANEEL s approval under Order 3.278/2017 for the sharing of human resources between EDP Holding and its subsidiaries. Excluding PDD and Contingencies, PMTO reported a reduction of 0.3% and an increase of 1.3%, in the quarter and year, both below the IPCA inflation index. Details of the variations between 4Q17 and 4Q16 are: Personnel increase of 8.9% (+R$ 9.8 million): (i) Increase of indemnities as a result of severance agreements principally at the distributors with respect to the Early Retirement Program (+R$ 9.9 million). Materials - Increase of 23.6% (+ R$ 2.7 million): (i) Increased expenditures with preventive maintenance at Pecém (+R$ 3.2 million); (ii) Reduction due to adjustment to the vehicles maintenance plan, with a focus on preventive actions, in addition to the implementation of steps to reduce mileage traveled, with an impact on fuel costs (-R$ 0.7 million). Third-Party Services reduction of 7.8% (-R$ 10.9 million): Consolidated 4Q17 4Q16 Var Var Personnel (120,223) (110,409) 8.9% (467,678) (447,310) 4.6% Material (14,111) (11,421) 23.6% (53,133) (51,953) 2.3% Third-Party Services (129,221) (140,117) -7.8% (491,571) (478,629) 2.7% Provision (24,233) (30,002) -19.2% (112,198) (132,312) -15.2% Other (32,959) (35,433) -7.0% (125,516) (145,040) -13.5% PMTO (320,747) (327,382) -2.0% (1,250,096) (1,255,244) -0.4% Gain/Loss on the Deactivation/Asset Sale (20,827) (29,174) -28.6% (72,758) (14,357) 406.8% Infrastructure Construction Costs (183,646) (138,018) 33.1% (602,197) (480,650) 25.3% Depreciation and Amortization (154,964) (137,142) 13.0% (578,342) (540,433) 7.0% Manageable Expenditures (680,184) (631,716) 7.7% (2,503,393) (2,290,684) 9.3% (i) Reduction in the number of software licenses and other IT expenditures in the quarter, conducted over the year, counterbalanced by the increase in expenses with agreements for outsourcing of applications and infrastructure due to price readjustments (-R$ 4.6 million); 20

21 (ii) Reduction in expenses related to the combat of delinquency in the light of fewer actions for collecting past dues (- R$ 1.9 million); (iii) Reduction of expenses with legal services at the distributors and at Pecém (-R$ 1.8 million); (iv) Reduction of infrastructure and building maintenance overheads at EDP São Paulo (-R$ 1.5 million); (v) Reduction in call center service expenses, reflecting initiatives for optimizing and reducing average answering time (-R$ 0.9 million). Provisions - reduction of 19.2% (-R$ 5.8 million): (i) (ii) Reduction in PDD (-R$ 4.8 million), see details under the PDD heading below; Reduction in labor contingencies (-R$ 0.9 million). Others - reduction of 7.0% (-R$ 2.5 million): (i) Non-recurring effects with respect to the accounting standards for appropriation of CCEE contributions (reclassification of expenses for costs) (-R$ 1.3 million); (ii) Reduction in insurance costs at Pecém following renegotiation of agreement (-R$ 0.8 million); (iii) Reduction in DIC/FIC/DMIC fines in the light of actions to improve services rendered (-R$ 0.3 million). The Gains and losses on asset deactivation and property disposals was a negative R$ 20.8 million in 4Q17, a reduction of R$ 8.3 million, particularly at EDP Espírito Santo, due to the closing of orders and deactivation of equipment for different projects at the DisCos. In 2016, losses were only booked when realized, but since January 2017, the provisions for deactivation and asset disposals have been included in this account. In 2016, a reimbursement on an insurance claim was booked for Pecém, positively affecting this item. The Depreciation and Amortization account increased 13.0% due to the higher investments in the DisCos. - Hydro Generation PMTO posted a reduction of 12.8% in 4Q17 and 11.7% in the year. In the Personnel and Third Party Services, the variation between quarters reflects the transfer of costs between group companies, these being allocated to the subsidiary companies in which the expense was incurred. The reduction in the Others account relates to non-recurring effects in 2016 at Energest (reduction in costs with the modernization of Mascarenhas HPP), EDP SHP (writing off of discontinued projects such as Fruteiras SHP (waste storage installations), at Rio Bonito SHP (adaptation of the power house) and at Suíça SHP (replacement of the roof). - Thermal Generation Items in R$ Thousand or % PMTO registered an increase of 39.8% in 4Q17 and 3.5% in the year. 4Q17 4Q16 Var Var Personnel (11,363) (13,175) -13.8% (43,715) (51,127) -14.5% Material (1,004) (668) 50.3% (3,870) (3,462) 11.8% Third-Party Services (11,429) (9,807) 16.5% (39,805) (40,764) -2.4% Provision (2,764) (1,966) 40.6% (3,633) (2,257) 61.0% Other (1,648) (6,727) -75.5% (8,229) (14,797) -44.4% PMTO (28,208) (32,343) -12.8% (99,252) (112,407) -11.7% Items in R$ Thousand or % Hydro Generation Thermal Generation 4Q17 4Q16 Var Var Personnel (11,381) (11,001) 3.5% (45,660) (41,800) 9.2% Material (4,521) (1,802) 150.9% (19,411) (17,138) 13.3% Third-Party Services (12,059) (10,034) 20.2% (47,249) (47,232) 0.0% Provision - (84) n.a. (15) (39) -61.5% Other (6,678) (1,848) 261.4% (20,881) (22,482) -7.1% PMTO (34,639) (24,769) 39.8% (133,216) (128,691) 3.5% This growth is the result of an increase in the Materials, Third-party Services and Others accounts. In Materials and Thirdparty Services, the variation relates to the increase in preventive maintenance services, as planned. In the Others item, the variation is a reflection of adjustments in coal inventory. 21

22 - Distribution Itens in R$ Thousand or % The reduction of 4.9% in PMTO expenditures reflects the reduction in Third-party Services and Provisions items, these impacted by PDD but offset by a small increase in the Personnel account. The increase in the Personnel account was due to severance payments under the Early Retirement Plan. In the year, there was a 0.8% reduction. EDP São Paulo EDP Espírito Santo Total Distribution 4Q17 4Q16 Var 4Q17 4Q16 Var 4Q17 4Q16 Var Personnel (42,687) (38,906) 9.7% (35,527) (29,417) 20.8% (78,214) (68,323) 14.5% Material (3,764) (4,236) -11.1% (4,022) (4,049) -0.7% (7,786) (8,285) -6.0% Third-Party Services (40,676) (46,995) -13.4% (43,983) (50,781) -13.4% (84,659) (97,776) -13.4% Provision (7,503) (13,713) -45.3% (12,896) (11,835) 9.0% (20,399) (25,548) -20.2% Other (10,223) (12,395) -17.5% (6,242) (5,911) 5.6% (16,465) (18,306) -10.1% PMTO (104,853) (116,245) -9.8% (102,670) (101,993) 0.7% (207,523) (218,238) -4.9% Itens in R$ Thousand or % EDP São Paulo EDP Espírito Santo Total Distribution Var Var Var Personnel (163,987) (160,918) 1.9% (142,944) (126,131) 13.3% (306,931) (287,049) 6.9% Material (13,983) (16,468) -15.1% (13,829) (12,269) 12.7% (27,812) (28,737) -3.2% Third-Party Services (167,687) (163,263) 2.7% (169,550) (168,989) 0.3% (337,237) (332,252) 1.5% Provision (42,967) (71,459) -39.9% (61,662) (59,099) 4.3% (104,629) (130,558) -19.9% Other (47,907) (54,365) -11.9% (28,293) (26,795) 5.6% (76,200) (81,160) -6.1% PMTO (436,531) (466,473) -6.4% (416,278) (393,283) 5.8% (852,809) (859,756) -0.8% The decrease in the Third-party Services account relates to: (i) a decline in electrical system s maintenance and conservation expenses and combat of delinquency; (ii) a reduction in call center services expenses due to initiatives for optimizing and reducing average answering time and; (iii) a reduction in expenditures with infrastructure and building maintenance at EDP São Paulo. - PDD Provision for Doubtful Accounts and Default The economic scenario during the year was an exceedingly challenging one for all companies with operations in Brazil when set against a background of lethargic economic activity, high jobless rates and reduced household incomes. The number of delinquent consumers in Brazil reached 60.4 million 6, 1.3% higher than the same period last year, with the utilities sector (electric energy, water and gas) accounting for 19.5% of total debt in arrears. The region with the highest percentage of delinquencies in Brazil was the Southeast region (concession area of both our distributors) with 44.9% of the total. Despite this situation, group distributors recorded a total reduction of R$ 3.5 million in PDD while in the year as a whole, the reduction was R$ 17.9 million. EDP São Paulo EDP Espírito Santo % % % 0.24% 0.29% % % % % % % 0.20% % % % % 0.42% % 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% Q16 1Q17 2Q17 3Q17 4Q17 PDD - R$/Million PDD/Revenue 0.00% Q16 1Q17 2Q17 3Q17 4Q17 PDD - R$/Million PDD/Revenue 0.00% In 4Q17, 87 and 100 thousand disconnections were made at EDP São Paulo and EDP Espírito Santo, respectively. In the year, the two distributors together made about 700 thousand disconnections. In 2017, PDD/Consolidated Gross Revenue was 0.82%, 0.09 p.p. less than in 2016, indicative of the Company s constant quest for solid results despite periods of fragility in the economy and reduced household income. In the year, initiatives were taken to intensify the combating of PDD and Delinquency, indicative of the Company s efforts in the management of actions for ensuring more targeted operations such as: 6 Serasa Experian December

23 Constant improvement in managerial controls for monitoring financial and operational indicators; Proactive attention to the rejection of disconnection, which identifies possible failure to suspend supply for operational reasons of logistics or field execution, this declining from 18% to 6%, and reflecting improved execution capacity and process efficiency; Constant work on the consumer units which are self-reconnecting, through a device which prevents self-reconnection; Careful analysis of the urgent reconnection service for improving field team logistics; Creation of a client scorecard through the Analytics team, reflecting in more targeted collection initiatives and budget optimization. As from 2018 through Brazilian Accounting Pronouncement Committee (CPC) 48 Financial Instruments and correlating with rule IFRS 9, the hybrid model for calculating expected and incurred losses for Financial Assets comes into effect. Consequently, the standard for recognizing PDD will no longer be according to the incurred losses concept with a default event (in the case of the distributors residential class, the booking to PDD takes place after 90 days past due), but according to the expected losses concept. Under this rule, companies are required to forecast their expectation of default for accounts receivable and to register the respective provision simultaneously on recognizing the respective revenue. The new methodology takes into account the history of delinquency for billings over the last three years, adjusted against future expectations of a market delinquency indicator. This study throws up the portion of billing received over a three-year period as a result of proactive collection efforts, disconnection, installment payments, etc. - Commercialization and EDP Grid Items in R$ Thousand or % 4Q17 4Q16 Var 4Q17 4Q16 Var 4Q17 4Q16 Var Personnel (2,578) (2,862) -9.9% (3,564) (2,795) 27.5% (6,142) (5,657) 8.6% Material (22) (18) 22.2% (450) (351) 28.2% (472) (369) 27.9% Third-Party Services (1,535) (914) 67.9% (5,703) (2,498) 128.3% (7,238) (3,412) 112.1% Provision (147) (1,192) -87.7% 304 (238) n.a. 157 (1,430) n.a. Others (347) (633) -45.2% (2,405) 1,399 n.a. (2,752) 766 n.a. PMTO (4,629) (5,619) -17.6% (11,818) (4,483) 163.6% (16,447) (10,102) 62.8% Items in R$ Thousand or % EDP Comercialização EDP Grid Total Comercialização + GRID EDP Comercialização EDP Grid Total Comercialização + GRID Var Var Var Personnel (10,368) (11,138) -6.9% (13,201) (9,272) 42.4% (23,569) (20,410) 15.5% Material (84) (70) 20.0% (1,059) (1,734) -38.9% (1,143) (1,804) -36.6% Third-Party Services (4,965) (3,780) 31.3% (13,964) (9,667) 44.5% (18,929) (13,447) 40.8% Provision (720) (2,936) -75.5% (181) (363) -50.1% (901) (3,299) -72.7% Others (1,320) (2,673) -50.6% (3,974) (989) 301.8% (5,294) (3,662) 44.6% PMTO (17,457) (20,597) -15.2% (32,379) (22,025) 47.0% (49,836) (42,622) 16.9% PMTO in 4Q17 of the Commercialization business was R$ 4.6 million, a reduction of 17.6%, principally in the Provisions, account, offset to a degree by expenses in the Third-party Services account. In the Provisions item, the decline relates to a reduction in PDD while the increase of Third-party Services reflects the increase in expenses with legal services, consultancy and IT. EDP Grid s PMTO was R$ 11.8 million, an increase of R$ 7.3 million in the Personnel, Third Party Services and Others, accounts due to the execution of new projects currently pending completion GAIN ON DIVESTMENT/ACQUISITION OF INVESTMENT There were no events in the gains on divestment and/or acquisition of investment in In 2016, the line was affected by the non-recurring effect of the book gain from the sale of Pantanal Energética EBITDA In 4Q17, EBITDA was R$ million, an increase of 42.3%. 23

24 +42% EBITDA 4Q16 Distribution Hydro Generation Pecém Comercialização + GRID Holding EBITDA 4Q17 In the year, EBITDA was R$ 2.2 billion, a 4.8% reduction. 2, % ,187 EBITDA 2016 Distribution Hydro Generation Pecém Comercialização + GRID Holding Others EBITDA 2017 Adjusted EBITDA in the quarter and in the year, excluding non-recurring effects, was R$ million, 37.9% higher and R$ 2.1 billion, 21.7% higher, respectively. Items in R$ Thousand or % 4Q17 4Q16 Var Var EBITDA 561, , % 2,186,638 2,297, % Provision for Water Charge Reimbursement¹ (30,000) - n.a. Sale of Pantanal Energética (278,139) n.a. Withdrawal Refund of TPP Pecém Insurance (9,003) (81,800) n.a. Update of Indemnable Financial Assets (VNR) (10,383) 4, % (24,882) (194,262) -87.2% Adjusted EBITDA 551, , % 2,122,753 1,743, % Minority Interests Result (8,950) (84,341) 89.4% (16,336) (115,443) 85.8% EBITDA in Accordance with CVM 527 Instruction 552, , % 2,170,302 2,182, % 1 Provision for Emergency Water Charge (EWC) reimbursement of R$ 33.4 million - gross of PIS/COFINS and R&D. For the calculation of Adjusted EBITDA, it considers the net EWC, excluding the effect of the charge accounted in 2Q Minority Interests Result Minority Interests Result was a negative R$ 9.0 million. The variation between compared quarters reflects the booking of the nonrecurrent effect of impairment at São Manoel. Items in R$ Thousand or % 4Q17 4Q16 Var Var Santo Antônio do Jari (50%)¹ (1,569) 27,452 n.a. 3,248 10, % Cachoeira Caldeirão (50%)¹ (3,306) (10,656) 69.0% (12,734) (22,955) 44.5% São Manoel (33.33%) (1,604) (101,925) 98.4% (3,453) (103,634) 96.7% Others² (2,471) 788 n.a. (3,397) 202 n.a. Minority Interests Result (8,950) (84,341) 89.4% (16,336) (115,443) 85.8% 1 Assumes added value of assets 2 Considers Port of Pecém Transportadora de Minérios (Pecém TM), Pecém Operação e Manutenção (Pecém OM) and Mabe equivalence. 24

25 FINANCIAL RESULT The reduction in Financial Revenue reflects: (i) Reduction in financial investments due to a decline in CDI rates and the difference in rates for financial investments with the banks between compared periods, including the smaller balance held in current account, principally at the holding company; (ii) Reduction in the Intragroup Loans line due to the settlement of an intragroup loan with the holding company; (iii) Reduction in the Other interest and monetary variation line due to the reduction in IGP-M for calculating fees for the Use of Public Property at Enerpeixe; (iv) Increase in Judicial deposits and civil provisions line due to the monetary restatement of court escrow deposits, principally at the DisCos; and (v) Increase in the Taxes on Financial Revenue line as a function of the PIS and COFINS tax credit on the Distributors outstanding sectoral assets and liabilities. Financial Expenses reported an improvement due to: 4Q17 4Q16 Var Var Financial Revenue 30,359 82, % 258, , % Interest and Monetary Variation Income from Financial Investments and Collaterals 21,471 71, % 170, , % Energy Sold 28,534 31, % 109, , % Judicial Deposits and Provisions for Civil, Tax and Labour Risks 14,692 2, % 18,507 7, % Loan Agreements 1,879 3, % 7,392 14, % Other Interests and Monetary Variation (7,452) 1,357 n.d. 4,915 3, % Adjustments to Present Value 798 (799) n.d. 1, % (-) Taxes on Financial Income (31,568) (29,166) 8.2% (63,398) (43,158) 46.9% Other Financial Revenues 2,005 3, % 10,065 20, % Financial Expenditures (198,397) (224,685) -11.7% (824,599) (982,769) -16.1% Debt Charges Financial Results (R$ Thousand) Loans and Financing (53,907) (115,263) -53.2% (227,954) (364,727) -37.5% Debentures (75,691) (74,579) 1.5% (377,530) (389,941) -3.2% Adjustments to Present Value (5,067) (4,934) 2.7% (5,067) (4,934) 2.7% (-) Capitalized Interests 2,199 2, % 8,742 6, % interest and Monetary Variations Consolidated Purchased Energy (234) (2,099) -88.9% (1,533) (13,669) -88.8% Provisions for Civil, Tax and Labour Risks (26,315) (7,994) 229.2% (53,893) (35,528) 51.7% Usage of Public Good (16) (3,353) -99.5% (77) (35,129) -99.8% Generation Scaling Factor - GSF (13,361) 339 n.d. (25,049) (18,718) 33.8% Post-Employment Benefits (18,663) (14,612) 27.7% (74,661) (58,448) 27.7% Other Interests and Monetary Variation (3,323) (7,663) -56.6% (13,140) (22,124) -40.6% Adjustments to Present Value 2,298 1, % (20,856) (11,913) 75.1% Other Financial Expenditures (6,317) 1,649 n.d. (33,581) (33,722) -0.4% Monetary Variation (9,841) (31,903) -69.2% (3,386) 145,812 n.d. Net Income from Swap and Hedge Operations 5,646 2, % (18,133) (266,764) -93.2% Sectoral Financial Assets/Liabilities 10, % 14,699 35, % Interest and Fine on Taxes 10,582 2, % 24,641 20, % Total (150,916) (167,668) -10.0% (547,800) (652,741) -16.1% (vi) Reduction in expenses with Loans and Financing due to the reduction in average interest rates (CDI, TJLP and IPCA) and reduction in outstanding principal balances, notably at Pecém; (vii) Increase in the Civil, fiscal and labor provisions line due to a modification in criteria for restatement of labor actions from the Reference Rate (TR) to IPCA-E at the Distributors; (viii) Increase in GSF expenses due to restatement of values provisioned for Enerpeixe with respect to the injunction for defining the agreement for renegotiation of the GSF; (ix) Increase in the Post-Employment benefits line due to the annual restatement of discount rates on the health care and life insurance plans in favor of employees and ex-employees of EDP Espírito Santo. The FX variation reflects the anticipated settlement in December 2016 of Pecém s financing with IBD Inter-American Development Bank, jointly with the settlement of NDF (Non-Deliverable Forward) derivatives and swaps contracted to hedge against USD/Real and Libor oscillations. Late-Payment Interest and Fines on Taxes reported an increase as follows: (i) At the distributors, reflecting the recalculation of taxes on sectorial assets and liabilities (corporate income tax, CSLL, PIS and COFINS) and subsequent signing up to PERT a tax amnesty. The recalculation reflects the change in taxcalculation methodology, which was previously based on effective energy consumption, that is, billings, and is now 25

26 considered based on the booking of provisions, that is, the date of constitution of the CVA, on an accrual basis. In addition, the recalculation is retroactive to 2014, when recognition of sectorial assets and liabilities began 7 ; (ii) At Enerpeixe, reflecting the change in levying PIS and COFINS for some agreements signed before December 31, 2003, which are now cumulative (3.65% PIS and COFINS tax rate) instead of non-cumulative (9.25% PIS and COFINS tax rate). The resulting debits have also been included in the PERT NET INCOME Consolidated Net Income was R$ million, an increase of R$ million due to the effects mentioned above and by the R$ million in additional Income Tax and Social Contribution expenses, the result of non-recurring effects, described as follows: 4Q17 4Q16 Var Var Income Befor Taxes on Profit 246,987 5, ,294 1,044, ,187 54,973 Aliquot 34% 34% n.a. 34% 34% n.a. IR/CS (83,974) (1,935) (82,039) (355,014) (336,323) (18,692) Non-Recurring Effects Unrecognized Deferred Taxes (444) (6,251) 5,807 (36,245) 7,999 (44,244) PERT - Special Tax Regularization Program under CVA (7,073) - (7,073) (7,073) - (7,073) Interest - Preferred Shares CPC 39 (56,597) - (56,597) (56,597) - (56,597) Tax Incentives R&D Results from Corporate Participation (2,134) (28,675) 26,541 (4,645) (39,250) 34,605 Interest on Equity 46, ,841 (94,279) 46, ,841 (94,279) SUDAM / SUDENE 27,887 (6,014) 33,901 42,021 28,231 13,790 Others 7,291 (10,159) 17,450 14,573 40,270 (25,696) Total (67,886) 87,807 (155,693) (355,822) (158,232) (197,590) Net Income adjusted for non-recurrent effects was R$ million, an increase of R$ million in the quarter. In the year, Adjusted Net Income was R$ million, an increase of 89.4%. Items in R$ Thousand or % 4Q17 4Q16 Var Var Income 195,026 35, % 611, , % Provision for Water Charge Reimbursement¹ - - n.a. (19,800) - n.a. (-) Sale of Pantanal Energética - - n.a. - (183,572) n.a. (-) Insurance Recoveries at Pecém TPP - - n.a. (5,942) (53,988) n.a. Update of Indemnable Financial Assets (VNR) (6,853) 3, % (16,422) (128,213) -87.2% Adjusted Net Income 188,173 39, % 569, , % Main adjustments refer to accounting entries in 2016, such as: (i) Sale of Pantanal Energética; (ii) VNR of EDP Espírito Santo, referring to the tariff revision of 2016; and (iii) receipt of Pecém insurance. Breakdown of Net Income - 4Q17 (R$ million) % Net Income 4Q16 EBITDA Dep & Amort Results from Corporate Participation Financial Result Income Tax Attributable and Social to Non- Contribution Controlling Shareholders Net Income 4Q17 7 Starting December 2014, the Company s financial statements recognized amounts associated with sectorial assets and liabilities in the Parcel A Items Compensation and Variation CVA Account. 26

27 Breakdown of Net Income (R$ million) % Net Income 2016 EBITDA Dep & Amort Results from Corporate Participation Financial Result Income Tax and Social Contribution Attributable to Non- Controlling Shareholders Net Income UNCONSOLIDATED PROJECTS SANTO ANTÔNIO DO JARI HPP Note: Amounts correspond to 50% of Jari Consolidated (ECE and CEJA), EDP Energias do Brasil s stake in the operation. The reduction in Gross Margin in the quarter reflects the impact of the hydrological deficit and worsening in PLD and GSF. In the year, the increase in Gross Margin is indicative of the successful implementation of the protection strategy against the impact of high energy prices in the Free Market via uncontracting through the MCSD (A0) of 20.9 amw at Jari, and for the most part held for hedging purposes. The strategy has been instrumental in gains from short-term sales totaling R$ 24.5 million. In the light of the Plant s renegotiation of 100% of the physical guarantee through the SP92 product, on average the negative impact was partially compensated by the reimbursement of R$ 33.8 million and R$ 85.6 million, in the quarter and in the year, respectively. In the quarter, the reduced EBITDA reflects the worsening in PLD and GSF expenditures. In the year, growth was due to the increase in revenue from higher short-term tariffs and strict control over Manageable Expenditures. The net Financial Result recorded a reduction both in the quarter and also year due to: (i) a reduction in financial income, mostly due to the decline in income from financial investments, in turn due to the decline in CDI and the difference in rates offered for financial investments by the banks, between comparative periods, together with lower balances held in current account. These effects were offset by: (ii) a reduction in financial expenses due to amortizations of debentures as well as a reduction in CDI rates between the periods under comparison. The reduction in Net Income both in the quarter and also in the year reflects the recognition of deferred income tax and social contribution in 2016 and the consequent compensating provision for the tax loss reported for the preceding fiscal year CACHOEIRA CALDEIRÃO HPP JARI Income Statement (R$ Thousand) 4Q17 4Q16 Var Var Net Operating Revenue 30,714 31, % 118, , % Non-Manageable Expenditures (10,558) (10,248) 3.0% (26,251) (29,024) -9.6% Gross Margin 20,156 21, % 92,714 86, % Manageable Expenditures (9,067) (8,980) 1.0% (34,924) (33,171) 5.3% EBITDA 18,055 19, % 85,542 79, % Net Financial Result (10,846) (11,834) -8.3% (42,829) (59,775) -28.3% Net Income , % 9,971 17, % Cachoeira Caldeirão Income Statement (R$ Thousand) 4Q17 4Q16 Var Var Net Operating Revenue 17,246 12, % 65,675 28, % Non-Manageable Expenditures (3,530) (7,842) -55.0% (13,167) (13,147) 0.2% Gross Margin 13,716 4, % 52,508 15, % Manageable Expenditures (6,112) (9,955) -38.6% (29,196) (23,609) 23.7% EBITDA 11,386 1, % 45,334 7, % Net Financial Result (10,227) (10,958) -6.7% (40,129) (26,249) 52.9% Net Income (1,824) (10,643) -82.9% (11,212) (22,933) -51.1% Note: Amounts correspond to 50% of Cachoeira Calderão, EDP Energias do Brasil s stake in the operation. 27

28 Gross Margin reported growth both in the quarter as well as the year, a reflection of the well-developed strategy for mitigating risk through increasing the amount of uncontracted energy via MCSD (A0) of 95.0 amw and largely held as a hedging mechanism. The strategy ensured gains from short-term sales totaling R$ 31.0 million. In the light of the renegotiation of 100% of the plant s physical guarantee through the SP89 product, the negative impact was partially offset by the reimbursement of R$ 18.3 million and R$ 47.1 million, in the quarter and year, respectively. EBITDA posted growth both in the quarter and in the year, boosted by the increase in tariffs in the short term and greater volumes in 2017, since the plant anticipated startup in operations on a scaled ramp up basis from April In the quarter, the decrease in the Financial Result reflects the reduction in financial overheads due to amortizations of debentures as well as the reduction of CDI between comparative periods. In the year, growth in the Financial Result was a reflection of the increase in financial expenses since in 2016, these being capitalized due to the initiation of deliveries via CCEARs as from January 1, Net Income, both in the quarter as well as the year, posted a negative variation due to recognition in 2016 of deferred income tax and social contribution relative to tax losses and the negative social contribution carried over from preceding fiscal years. 4. ASSETS UNDER CONSTRUCTION 4.1 SÃO MANOEL HPP São Manoel HPP ( São Manoel ) (700 MW) is a partnership between EDP Energias do Brasil, CTG and Furnas Centrais Elétrica S.A., each with a one third stake in the project. The plant is located on the middle reaches of the Teles Pires River on the state divide between Mato Grosso and Pará. The first generator unit with an installed capacity of 175 MW (physical guarantee of amw), began commercial operations on December 28, 4 months ahead of plan. The second generator unit with an installed capacity of 175 MW (physical guarantee of amw), began commercial operations on January 19, 2018, again 3.5 months ahead of schedule. São Manoel s CCEAR operations are scheduled for May 01, Revenue from test runs of the generator units was R$ 28.8 million. The third generator unit with an installed capacity of 175 MW (physical guarantee of 88.0 amw) began test operations while the fourth generator unit with an installed capacity of 175 MW (physical guarantee of 57.1 amw) is in the final stages of assembly. At year end, physical work on the plant was 99.6% complete. In the quarter, investments amounted to R$ million. Total investments in the project were R$ 3.3 billion (taking into account monetary restatement but ignoring interest payments). In May, as part of the protection strategy against the impact of high energy prices in the Free Market, 120 average MW were uncontracted through the MCSD. The amount originally contracted was average MW, at the price of R$ /MWh (base date December, 2016), with annual adjustment by IPCA, effective from May 1st, 2018 to December 31st, From the amount of 120 average MW, 90 average MW were contracted by its shareholders in the same proportion of the partnership for the period of May 1st, 2018 to December 31st, 2038, and the remaining 30 average MW were allocated for hedge. Plant renegotiations were finalized in October for 100% of the contracted energy (289.5 amw) via the SP92 product. 5. DEBT The debt market in the year proved more favorable than the preceding year with an increase in new issues and reflecting more favorable monetary conditions. In a scenario of declining base interest rates (Selic) and reduced flow of new disbursements from the federal Economic Development Bank - BNDES, companies resorted principally to debenture issues. The Company ended the year with a consolidated Gross Debt of R$ 6.1 billion, an increase of 8.7% compared to year-end 2016, reflecting new debenture issues and loans drawn by the group subsidiaries. This represents part of the strategy of deleveraging EDP Holding in order to optimize capital structure and tax management. As of December 31, 3.7% of the Company s debt was currency denominated with 100% derivatives-based hedging against exchange (USD) and interest rate (Libor) risks. Consolidated Gross Debt excludes the debt of the Santo Antônio do Jari, Cachoeira Caldeirão and São Manoel HPPs. 28

29 Gross Debt by Company (R$ Million) 1,790 1, , EDP São Paulo EDP Espirito Santo Energest Enerpeixe Investco Pecém EDPE Holding Lajeado Consolidado Grid Loans Debentures Intragroup Loan Santa Fé PCH Note: Intergroup eliminations of R$ 354 million not considered. Investco s preferred shares are classified as debt. Net debt amounted to R$ 4.5 billion, an increase of 25.4%, reflection of: (i) payment of interest on capital to the shareholders of EDP Brasil (R$ million) and a payout to the minority shareholders in the controlled companies (R$ million); and (ii) the reduction in the balance of regulatory liabilities (cash) at the distributors in the amount of R$ million, mitigated by the increase in working capital. New funding shown in the table below and amounting to R$ 1.7 billion, relates to: Consolidated Company Source Release Date Amount (Million) EDP São Paulo EDP Espírito Santo Enerpeixe Lajeado Energia EDP PCH 7 th Debenture Issue Promissory Notes Release - BNDES FINEM 8 th Debenture Issue 5 th Debenture Issue Release - BNDES FINEM 6 th Debenture Issue 2 nd Debenture Issue 2 nd Debenture Issue 1 st Debenture Issue Apr/ Jul/ Nov/ Dec/ Apr/ Nov/17 86 Dec/ Nov/ Dec/ Dec/ Amortization of principal and interest shown in the following table relates principally to the following topics: (i) BNDES, FINEM line for EDP São Paulo, EDP Espírito Santo and Pecém; (ii) Foreign working capital line under Law 4131 for EDP Espírito Santo; (iii) 1 st Debenture Issue of Energest; (iv) 5 th Debenture Issue at EDP São Paulo; (v) 4 th Debenture Issue of EDP Energias do Brasil; (vi) 1 st Debenture Issue of Lajeado; (vii) 6 th Debenture Issue of EDP São Paulo; and (viii) 4 th Debenture Issue of EDP Espírito Santo. Breakdown of Gross Debt (R$ million) 8.7% 5,571 1, , ,058 Debt Dec/2016 Funding Monetary variation Interests Principal Amortization Interests Amort. Swap Amortization Market Value Adjustment Debt Dec/