Consolidated EBITDA reaches R$ 429 million in 2Q17, CELPA reaches the regulatory target for energy losses

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1 Brasília, August 08 th, Equatorial Energia S.A. (BM&FBOVESPA: EQTL3) announces its results for the second quarter and first half of 2017 (2Q17 and 1S17). Equatorial is a holding company with investments in Companhia Energética do Maranhão (CEMAR), Centrais Elétricas do Pará (CELPA), Equatorial Transmissão, Geramar and 55 Soluções. Equatorial holds a 65.11% interest in CEMAR, the electricity distributor for the entire state of Maranhão, and 96.50% in CELPA, the electricity distributor for the entire state of Pará. In the transmission segment, Equatorial controls Equatorial Transmissão. It also holds a 25% interest in Geramar, the company responsible for the construction and operation of two thermoelectric plants in Maranhão with a combined installed capacity of 330MW. In the service segment, Equatorial holds a 100% interest in Equatorial Soluções. Non-financial information relating to Equatorial Energia and its subsidiaries and the PLPT ( Light for All Program ), as well as Management s expectations regarding the future performance of the Company and its subsidiaries were not reviewed by independent auditors. 1. Financial And Operating Highlights Consolidated EBITDA reaches R$ 429 million in 2Q17, CELPA reaches the regulatory target for energy losses As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. To keep the comparability between periods, 2Q16 and 1S16 EBITDA were adjusted accordingly. Consolidated Adjusted EBITDA reached R$ 429 million, 12.2% increase when compared to 2Q16. Not considering the accounting change from the previous highlight, Adjusted EBITDA would have reached R$ 419 million, which would represent a 30.6% growth, as we show in Section 5.1 Equatorial Consolidated EBITDA. Total sold volume by Equatorial reached 3,654 GWh, 3.0% down in CEMAR and 1.9% growth in CELPA, versus 2Q16. At CELPA, total losses reached 26.8% in the 2Q17, 0.7 p.p. reduction from 1Q17. Non-technical losses reached 34.0%, falling by 1.7 p.p., reaching the regulatory level. Total losses in CEMAR ended 2Q17 at 18.6% of the injected energy. CELPA improved both quality indicators, SAIDI and SAIFI, that reached 28.4 hours and 19.4 times at 2Q17. At CEMAR, SAIDI and SAIFI reached 14.7 hours and 7.6 times. In 2Q17, consolidated investments at Equatorial amounted to R$ 297 million and were 13.8% lower than 2Q16. In July 2017, Equatorial signed the Concession Contract for Lot 31 of the Transmission Auction #05/2016, held in April In August 2017, CELPA had its annual tariff adjustment approved, a 7.19% average increase. Financial Data (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Net Operating Revenues (NOR) 1,732 2, % 3,466 3, % Adjusted EBITDA (Quarter) % % EBITDA Margin (% NOR) 22.1% 19.7% -2.4 p.p. 19.6% 17.6% -2.0 p.p. Adjusted EBITDA (Last 12 monts) 1,256 1, % 1,256 1, % Adjusted Net Income % % Net Income Margin (% NOR) 10.4% 6.8% -3.6 p.p. 8.7% 5.7% -3.1 p.p. Net Income per Share (R$/ share) % % Investments % % Net Debt 2,165 2, % 2,165 2, % Net Debt / EBITDA (Last 12 months) x x Cash / Short-Term Debt x x Operating Data 2Q16 2Q17 Chg. 1S16 1S17 Chg. Sold Energy (GWh) CEMAR 1,529 1, % 2,991 2, % CELPA 2,130 2, % 4,091 4, % Number of Consumers ('000) CEMAR 2,323 2, % 2,323 2, % CELPA 2,369 2, % 2,369 2, % 1

2 1. FINANCIAL AND OPERATING HIGHLIGHTS SHAREHOLDERS STRUCTURE EQUATORIAL TRANSMISSÃO OPERATING PERFORMANCE ECONOMIC AND FINANCIAL PERFORMANCE REGULATORY ASSETS AND LIABILITIES DEBT INVESTMENTS CAPITAL MARKETS SERVICES PROVIDED BY THE INDEPENDENT AUDITORS CONFERENCE CALL ANNEX 1 INCOME STATEMENTS ANNEX 2 INCOME STATEMENT PER COMPANY ANNEX 3 BALANCE SHEET

3 2. Shareholder s Structure The information contained in this section reflects the current shareholding structure, as is in the same date of this Earnings Release. These positions reflect a monitoring made by the Company. 1 There are 8 SPEs (Special Purpose Entities) 100% owned by Equatorial Transmissão, one for each transmission lot acquired in the last 2 auctions organized by ANEEL. 3

4 3. Equatorial Transmissão Transmission Segment Equatorial Transmissão currently has a pipeline of investments, as per ANEEL estimates, amounting to R$ 4.6 billion and Annual Revenues of R$ million (as of Oct/16). In the table below we show our portfolio, acquired in the last 2 Transmission Auctions organized by ANEEL, held in Oct/16 and Apr/17. The disbursement schedule is predicted to be as per below: % 50 60% 15 30% The Company is studying alternative funding structures, aiming at minimizing financing costs and optimizing the projects capital structure. For the lots acquired in Oct/16 Auction (Blocks 1, 2 and 3), we have already obtained their registration as Priority Project in the Ministry of Mines and Energy, which allows for the issuance of infrastructure debentures for these projects. The lots within Blocks 1, 2 and 3, acquired in Oct/16 Auction, all have had their concession contracts signed in Feb/17 and have also received their respective Reference Terms, the first step towards obtaining their environmental clearances. All these lots have also had their Basic Projects registered at ANEEL in May/17 and have obtained their REIDI (Pis/Cofins tax incentive) approved by the Ministry of Mines and Energy as well as by the Brazilian IRS. In Jul/17, the DUPs (Public Interest Declaration) for the lots 08, 09, 14 and 16 were approved by ANEEL, important step towards obtaining the right of way for the lines. Regarding lot 31, acquired in the last auction, we have signed its Concession Contract in Jul/17, and have also obtained its REIDI incentive approved by the Ministry. 4

5 4. Operating Performance The operating information contained in this section is pro forma and reflects 100% of the operations of CEMAR and 100% of the operations of CELPA. 4.1 Electric Energy Sales CEMAR In 2Q17, energy consumption in the captive and free markets fell 3.0% when compared to the same quarter in the previous year, reaching 1,484 GWh. The negative result in the quarter is a consequence of, mainly, the economic recession, affecting the industrial and commercial segments, and lower temperatures in the period, directly affecting the residential segment. Sales by consumption segment: Residential: Residential class consumption fell by 1.2%, being affected by the high rainfall index in the quarter, consequently reducing temperatures. In São Luís (Maranhão s capital and largest city), which represents almost 25% of CEMAR s residential market, the measured average monthly rainfall in 2Q17 was 12% higher than that of 2Q16 (271 mm in 2Q17 vs 242 mm in 2Q16). Considering the number of consumers by quarter end, average residential consumption was 4.5% below than 2Q16, also affected by the macroeconomic downturn; Industrial: Industrial energy consumption (captive + free market) fell by 7.0% in the quarter, also affected by the economic effects mentioned above. In the captive market, sales to industrial costumers fell 25.4% compared to 2Q16, due to the transition of clients from the captive to the free market; Commercial: Commercial clients consumption (captive + free market) decreased by 2.9%, resulting, mainly, of the economic downturn and weather impact; Other: Other segments consumption (rural, public entities, public lighting, public service and own consumption) fell by 5.8% compared to 2Q16. This reduction is due to, mainly, to the 11.6% reduction of the rural class consumption, given the high rainfall in Maranhão s State, 50% above the same period of the previous year (134 mm in 2Q17 vs 89mm in 2Q16). 5

6 CELPA In 2Q17, energy sales for both captive and free markets grew by 1.9% when compared to the same quarter of the previous year, reaching 2,170 GWh. Despite the weather conditions being still unfavourable in April and the economic downturn, negatively affecting the injected energy in the quarter, the efficiency in the loss combat initiatives have thrusted the residential and commercial energy sales. Sales by consumption segment: Residential: Residential segment consumption which, in 2Q17 represented 43% of the total sales volume by CELPA, grew by 4.8%. The success in the loss combat initiatives and the 5.6% increase in the numbers of residential consumers offset the macroeconomic downturn; Industrial: Sales to the industrial segment (captive + free) fell 1.7% in 2Q17, due to, mainly, reduction in the captive consumption. Among CELPA s largest clients, it should be highlighted: (i) a big construction consortium, which, given the reduction in its activities due to the conclusion of the construction, consumed 5,204 MWh in 2Q17, compared to 14,741 MWh in 2Q16, and (ii) a cement plant, whose consumption fell from 12,558 MWh in 2Q16 to 8,685 MWh in 2Q17; Commercial: The second largest consumption segment (22% of total) grew by 4.3% (captive + free), registering a 3.2% increase in the number of consumers. Like the residential segment, its positive performance arises from the efficiency in the loss combat initiatives, even despite the economic recession in Pará. Other: In the other segments (captive + free), the 3.8% reduction may be explained mainly by: (i) the decrease in consumption from the Public Lighting, which had its 2Q16 consumption impacted by a loss combat initiative, and (ii) by the Own Consumption, which is no longer billing the internal consumption from the third party thermal plants as from Mar/17 (-2 GWh/monthly). 6

7 Consumption Class (MWh) 2Q16 2Q17 Chg. 1S16 1S17 Chg. CEMAR Residential 772, , % 1,518,787 1,486, % Industrial 87,626 65, % 175, , % Commercial 307, , % 602, , % Others 333, , % 637, , % Total (Captive) 1,499,936 1,413, % 2,934,528 2,753, % Industrial 23,463 37, % 45,754 75, % Commercial 5,207 31, % 10,219 52, % Others % 506 1, % Free Consumers 29,177 70, % 56, , % Total (Captive + Free) - CEMAR 1,529,112 1,483, % 2,991,007 2,883, % CELPA Residential 893, , % 1,728,165 1,767, % Industrial 209, , % 472, , % Commercial 426, , % 829, , % Others 399, , % 751, , % Total (Captive) 1,929,471 1,883, % 3,781,057 3,587, % Industrial 174, , % 269, , % Commercial 25,118 61, % 39, , % Others 791 1, % 1,418 3, % Free Consumers 200, , % 309, , % Total (Captive + Free) - CELPA 2,129,524 2,170, % 4,090,958 4,129, % Total (Captive + Free) - Equatorial 3,658,637 3,653, % 7,081,965 7,013, % Number of Consumers 2Q16 2Q17 Chg. CEMAR Res idential - Regular 1,265,558 1,304, % Res idencial - Low Income 804, , % Indus trial 8,551 8, % Commercial 154, , % Others 90,544 90, % Total CEMAR 2,323,485 2,392, % CELPA Res idential - Regular 1,488,133 1,597, % Res idencial - Low Income 545, , % Indus trial 4,406 4, % Commercial 172, , % Others 158, , % Total CELPA 2,369,129 2,506, % Total Equatorial 4,692,614 4,899, % 7

8 4.2 Energy Balance CEMAR Injected energy volume in CEMAR s system reached 1,832 GWh in 2Q17, meaning a 0.8% reduction in the quarter. The distributed energy in the quarter also fell by 3.0%. Energy Balance (MWh) - CEMAR 2Q16 2Q17 Chg. 1S16 1S17 Chg. Interconnected System 1,846,434 1,831, % 3,614,410 3,540, % Injected Energy 1,846,434 1,831, % 3,614,410 3,540, % Dis tributed Energy 1,529,112 1,483, % 2,991,007 2,883, % Supply to Other Distribution Compa nies 386 2, % 743 5, % Total Loss es 316, , % 622, , % * Considers captive, free consumers and own consumption CELPA Injected energy in Celpa s system reached 2,988 GWh in 2Q17, representing a 1.6% drop in the quarter. Despite this, the distributed energy volume in the quarter grew 1.9% when compared to 1Q16. This trend is explained by the reduction in the Total Losses, by 9.8%. Energy Balance (MWh) - CELPA 2Q16 2Q17 Chg. 1S16 1S17 Chg. Interconnected System 2,929,412 2,897, % 5,729,974 5,570, % Isolated System 107,084 90, % 213, , % Injected Energy 3,036,496 2,988, % 5,943,006 5,753, % Dis tributed Energy 2,129,524 2,170, % 4,090,958 4,129, % Total Loss es 906, , % 1,852,048 1,624, % * Considers captive and free markets, own consumption. 8

9 4.3 Energy Losses CEMAR Total energy losses in the last 12 months ended in 2Q17 amounted to 18.6% of the required energy, a 0.4 p.p. increase when compared to the previous quarter. Non-technical losses over low voltage market ended 2Q17 at 13.6%, 0.7 p.p. above 1Q17. The non-technical losses calculations are made using the 9.9% regulatory technical losses over required energy. Despite a greater resistance against loss-combat actions, the current economic recession and the complexity of the concession area, we have been successful in maintaining a low and stable level for non-technical losses. We are reassessing our loss combat plan to adequate it to the current moment and reality in the concession area, in order to achieve a new reduction path as seen in past quarters. Total Losses over Injected Energy (last 12 months) Non-Technical Losses over Low-Voltage Market (last 12 months) 9

10 CELPA Total losses in the last 12 months ended in the 2Q17 amounted to 26.8% of the required energy, a 0.7 p.p. decrease when compared to the 1Q17. Non-technical losses over low-voltage market reached 34.0%, 1.7 p.p. reduction compared to the 1Q17. When calculating the non-technical losses, the technical losses deducted from the total losses is the one approved and used by ANEEL in the last Tariff Review, of 10.15%. It should be noted the success in the loss combat by the company, which have just reached the regulatory level, even despite the adverse economic moment and the fact that Pará is considered the most complex concession in ANEEL s complexity ranking. We are assessing if the climate effect that impacted the required energy growth in the 1S17, also positively influenced the Company s loss combat, since the demand for the usage of cooling devices should be reduced under lower temperatures. With the start of the dry (thus, hotter) season in the State in the 2S17, we should observe a higher volatility in the Company s energy losses level in the period. Total Losses over Injected Energy (last 12 months) Non-Technical Losses over Low-Voltage Market (last 12 months) 10

11 4.4 Quality Indicators SAIDI and SAIFI The quality and efficiency of the distribution concessionaires grid is measured by the SAIDI (Duration Equivalent of Interruption per Consuming Unit that measures the equivalent length of interruptions per consumer, measured in hours per consumer for a given period) and SAIFI (Frequency Equivalent of Interruption per Consuming Unit, measured as the number of interruptions per consumer for a given period). CEMAR Last-12-month SAIDI ended in 2Q17 reached 14.7 hours, 3.5% reduction compared to the 15.2 hours posted by the end of 1Q17. SAIFI index (last-12-month) at the end of 2Q17 amounted to 7.6 times, 2.7% decrease compared to the end of the previous quarter. As can be observed at the tables below, both indices are substantially below the regulatory targets. In 2016, for the second year in a row, CEMAR was the first placed in the quality ranking of the energy distribution companies with annual market above 1TWh, as calculated by ANEEL. CELPA By the end of 2Q17, last-12-month SAIDI reached 28.4 hours, a 2.6% reduction when compared to the 29.2 hours at the end of 1Q17. SAIFI index (last-12-month) at the end of the quarter amounted to 19.4 times, a 2.0% decrease from the end of 1Q17. Currently, both indices are compliant to the targets set by ANEEL for the Company. 11

12 4.5 Energy Purchase CEMAR Contracts (MWh) Hydro 3,182,217 3,467,941 2,601,737 1,938,273 Thermal 1,478,712 1,897,349 2,362,048 2,237,425 Quotas 2,410,997 2,410,997 2,410,997 2,410,997 Other Sources 467, , ,635 1,113,655 TOTAL - MWh 7,539,078 8,504,415 8,327,417 7,700,350 CELPA Contracts (MWh) Hydro 4,767,809 5,071,761 5,098,643 4,237,349 Thermal 2,098,166 2,343,734 3,214,017 2,947,629 Quotas 3,174,019 3,174,019 3,174,019 3,174,019 Other Sources 1,082,226 1,737,786 2,379,208 2,385,727 TOTAL - MWh 11,122,222 12,327,301 13,865,888 12,744,724 CEMAR Average Energy Purchase Cost* 2Q16 2Q17 Chg. 1S16 1S17 Chg. Energy Purchase - Contracts (R$MM) % % MWh - Contracted Energy 1,221,224 1,242, % 2,388,431 2,491, % Energy Purchase - Spot (R$MM) (7) (1) 78.3% (10) (10) 6.9% MWh - Spot (76,925) (20,537) 73.3% (148,476) (132,744) 10.6% Energy Quotas (R$ MM) % % MWh - Quotas 719, , % 1,407,521 1,140, % Average Energy Purchase Cost (R$/ MWh) % % * Net of Taxes CELPA Average Energy Purchase Cost* 2Q16 2Q17 Chg. 1S16 1S17 Chg. Energy Purchase - Contracts (R$MM) % % MWh - Contracted Energy 2,054,554 1,944, % 4,093,535 3,874, % Energy Purchase - Spot (R$MM) (17) (2) 86.0% (26) (17) 36.1% MWh - Spot (200,078) (46,205) 76.9% (395,300) (224,496) 43.2% Energy Quotas (R$ MM) % % MWh - Quotas 973, , % 1,881,462 1,508, % Average Energy Purchase Cost (R$/ MWh) % % * Net of Taxes 10

13 5. Financial Performance The information in this section reflects: i) 100% of CEMAR s operations, excluding 34.89% related to minority interests before Net Income, or 65.11% of the total; ii) 100% of CELPA s operations, excluding 3.50% related to minority interests before Net Income, or 96.50% of the total and iii) 100% of 55 Soluções. As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. To keep the comparability between periods, 2Q16 and 1S16 EBITDA were also adjusted to consider as if this account had already affected that quarter. We highlight that, in accordance with Brazilian accounting rules, the results referring to the 25% stake in Geramar are consolidated in Equatorial only through Equity Income. 5.1 Consolidated Financial Performance Income Statement (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Gross Operating Revenues (GOR) 2,498 3, % 4,990 5, % Net Operating Revenues (NOR) 1,732 2, % 3,466 3, % Energy Purchas e Cos t (1,126) (1,423) 26.4% (2,330) (2,542) 9.1% Operating Expenses (273) (358) 31.4% (547) (773) 41.2% EBITDA % % Other Operating Revenues / Expens es (14) (14) 3.4% (25) (19) -23.9% Depreciation (79) (96) 21.3% (166) (189) 13.8% Service Income (EBIT) % % Financial Results 30 (65) % 91 (113) % Goodwill Amortization (2) (1) -7.2% (3) (3) -7.1% Operating Results % % Income Tax (54) (53) -0.6% (106) (63) -40.0% Minorities (43) (45) 4.2% (75) (60) -20.7% Net Income % % 11

14 Equatorial Consolidated EBITDA Besides the specific adjustments made in Cemar and Celpa (see EBITDA section of each company in this Earnings Release), for Equatorial holding, we also adjusted the Stock Option Plan expenses, amounting to R$2 million in this quarter, since these expenses are non-cash. With these adjustments, Equatorial s Adjusted EBITDA amounts to R$429 million in the 2Q17, a 12.2% increase compared to 2Q16. It is worth remembering that within Equatorial s 2Q16 Adjusted EBITDA the financial asset restatement (VNR) is already considered. Income Statement (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. EBITDA CEMAR % % EBITDA CELPA % % CELPA's PPA Cons olidation - 0 N/A 50 (0) % EBITDA Holding + others (4) % (12) (1) -95.0% EBITDA Equatorial % % CEMAR Adjus tments 13 (0) % % CELPA Adjustments % % CELPA PPA Adjus tments - (0) N/A (50) % Stock Option Adjus tments (EQTL) % % Adjusted Equatorial's EBITDA % % Not considering the accounting change regarding the restatement of the financial asset (VNR), Equatorial s 2Q17 EBITDA would have reached R$ 419 million. For comparison purposes, this figure would represent a 30.6% growth over the R$ 321 million 2Q16 reported EBITDA. 2Q16 2Q17 Chg. 1S16 1S17 Chg. Equatorial's Ajusted EBITDA % % CEMAR Financial As set Restatement (25) (6) -75.0% (48) (17) -63.7% CELPA Financial Ass et Restatement (36) (4) -89.9% (76) (16) -78.5% Annual Quality Compens ations - CELPA - - N/A (10) % Equatorial's Recurring EBITDA % % 12

15 Equatorial s Consolidated Net Income To calculate Equatorial s consolidated net income, besides the EBITDA and Net Income adjustments (see Net Income section of each company in this Earnings Release), there s also an adjustment regarding the stake Equatorial holds in each company (65.11% in Cemar and 96.5% in Celpa). Considering these adjustments, we reach R$148 million in the adjusted net income in the quarter, a decrease by 17.9% compared to 2Q16. DRE (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. CEMAR Net Income % % CELPA Net Income % % Net Income Holding + Others % % Equatorial Net Income % % CEMAR Adjus tments (6) (1) -81.5% % CELPA Adjustments % (23) % Stock Option Adjus tments (EQTL) % % Equatorial Adjusted Net Income % % 13

16 5.2 Financial Performance CEMAR The financial performance section considers 100% of CEMAR s operations. CEMAR Income Statement (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Gross Operating Revenues (GOR) 962 1, % 1,948 2, % Net Operating Revenues (NOR) % 1,409 1, % Energy Purchas e Cost (421) (518) 23.1% (904) (955) 5.6% Operating Expens es (117) (103) -11.8% (226) (249) 10.2% EBITDA % % Other Operating Revenues / Expenses (4) (11) 188.1% (11) (14) 33.5% Depreciation (35) (43) 23.3% (68) (84) 22.2% Service Income (EBIT) % % Net Financial Res ult 15 (12) % 35 (28) % Operating Income % % Income Taxes (28) (29) 3.1% (48) (31) -35.7% Net Income % % 14

17 5.2.1 Operating Revenues In 2Q17, Gross Revenue reached R$ 1,127 million, a 17.2% increase compared to 2Q16. Excluding Construction Revenues, Gross Revenues posted a 26.8% increase, reaching R$ 1,039 million. This performance is mainly explained by: (i) (ii) (iii) (iv) 3.0% decrease in the volume of sold energy in the quarter (-R$ 22 million), and increase of the average tariff by 8% (+ R$ 64 million); Increase in the non-billed revenues (+ R$ 12 million); Increase in the accrual of regulatory assets linked to the Parcel A (+ R$ 178 million) arising from the higher cost of purchased energy; Reduction in the energy supply revenues (- R$ 13.5 million), arising from the lower financial exposure to different submarkets. The average spot price (PLD) in the submarkets varied by 235%. As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. To keep the comparability between periods, 2Q16 and 1S16 EBITDA were also adjusted to consider as if this account had already affected that quarter. Net Revenues, ignoring Construction Revenues, reached R$ 742 million, a 32.9% increase compared to the same quarter of the previous year. Operating Revenues - Cemar 2Q16 2Q17 Chg. 1S16 1S17 Chg. Number of Consumers 2,323,485 2,392, % 2,323,485 2,392, % Billed Energy (MWh) 1,529,112 1,483, % 2,991,007 2,883, % KWh per Consumer % 1,287 1, % Gross Supply Revenues % 1,469 1, % Residential % % Industrial % % Commercial % % Other Segments % % (-) Overdemand / Reactive Energy - (3) N/A - (6) N/A Supply (R$ MM) % % Other Revenues (R$ MM) % % Low Income Subsidy % % Irrigation Subvention % % Grid Usage % % Financial Asset Restatement (VNR) - 6 N/A - 17 N/A Financial Asset Write-Off - - N/A - (39) N/A Other Operating Revenues % % CVA - Regulatory Assets (23) % % Construction Revenues (R$ MM) % % Gross Operating Revenues (R$ MM) 962 1, % 1,948 2, % Gross Operating Revenues (w/o Construction Revenues) (R$ MM) 820 1, % 1,652 1, % Deductions from Operating Revenues (R$ MM) (262) (297) -13.6% (539) (558) -3.7% PIS and COFINS (63) (76) -19.4% (140) (144) -3.2% Consumer Charges (10) (8) 19.0% (16) (15) 6.9% CDE Subsidy (55) (48) 13.4% (111) (104) 6.7% ICMS - State Tax (132) (165) -24.5% (271) (295) -8.7% ISS - Municipality Tax (0) (0) % (0) (1) -85.0% Net Operating Revenues (R$ MM) % 1,409 1, % Net Operating Revenues w/o Construction Revenues (R$ MM) % 1,113 1, % 15

18 5.2.2 Costs and Expenses In 2Q17, operating costs and expenses, excluding construction costs, totalled R$ 587 million, 35.1% higher than 2Q16. R$ MM 2Q16 2Q17 Chg. 1S16 1S17 Chg. Pers onnel % % Profit Sharing % % Materials % % Third Party Services % % Others % % Quality Indicators Compensations % % PMSO % % PDA % % % GOR (w/o Construction Revenues) 2.0% 0.1% -1.9 p.p. 1.6% 1.4% -0.1 p.p. Provis ion for Contingencies % % Provisions % % Other Operating Expenses (Revenues) % % Depreciation and Amortization % % Manageable Expenses % % Energy Purchas e and Trans mis sion % % Grid and Connection Charges % % Non-Manageable Expenses % % Construction Costs % % Total % 1,209 1, % Manageable operating costs and expenses In 2Q17, the expenses with Personnel, Material, Third-Party Services and Others (PMSO) amounted to R$ 99 million, 6.2% increase year on year. Accumulated inflation in the last 12 months, measured by IPCA reached 3.0% and by INPC, 2.5%. The main variations in the PMSO of the 2Q17 vs 2Q16 are detailed below: Material: 26.8% increase or R$ 0.5 million (i) Due to the higher rainfall in the quarter, there was an increase in the need to intensify the maintenance activities in the network, consuming a bigger amount of materials (R$ 0.4 million); Third-Party Service: 6.1% increase or R$ 4.0 million: (i) Strengthening of the collection initiatives (+ R$ 7.6 million), with the increase of teams and adjustment in the cost of the cut and reconnection services by 7.4%; 16

19 (ii) Increase in the loss combat initiatives (+ 0.9 million) intensifying the activities in Maranhão s countryside through the hiring of new teams; (iii) Billing servies (+ R$ 1.6 million), given the increase in the amount of metered consumers and adjustment in the third-party contracts; The provision for contingencies fell by 60.5% or R$ 4.0 million in the quarter due to the reversal of R$ 1.9 million in provisions arising from the change in the loss probability in some lawsuits with favourable outcomes. In 2Q17, the Provision for Doubtful Allowances (PDA) amounted to R$ 1.1 million, or 0.1% of the Gross Operating Revenues (GOR), 1.9 p.p. below the reported figure in the 2Q16. The reversals in the period amounted to R$ 7.6 million arising from renegotiations made with the Public Sector and the strengthening in the collection activities, such as SMS messaging, active calls, special notice in the bill and suspension in the energy supply, as well as the revision of the collection rule, turning it tougher for consumers with a worse credit profile EBITDA In 2Q17, EBITDA reached R$ 209 million, 18,8% growth when compared to the 2Q16 Adjusted EBITDA. These figures already consider the net accrual of regulatory assets. As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. To keep the comparability between periods, 2Q16 and 1S16 EBITDA were also adjusted to consider as if this account had already affected that quarter. EBITDA (R$ million) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Operating Income % % Depreciation and Amortization (35) (43) 23.3% (68) (84) 22.2% IFRS EBITDA (CVM)* % % Other Operating Revenues / Expens es (4) (11) 188.1% (11) (14) 33.5% IFRS EBITDA % % Energy Purchas e (2) % 5 (0) % Tariff Flag Accounting Adjustment (10) - N/A 0 - N/A Financial Ass et Restatement 25 - N/A 48 - N/A Financial Ass et Write-off - - N/A - 39 N/A PIS/Cofins Mismatch (0) (0) 103.0% 1 (0) N/A Adjusted EBITDA % % * Calculated in accordance with CVM Decree 527/12 17

20 5.2.4 Financial Results In 2Q17, net financial result was an expense of R$ 12 million, compared to R$ 15 million in revenues reported in 2Q16. This quarter figures were affected by: (i) Lower amount of cash invested, reducing the interest on cash by 24.2%; (ii) Lower volume of fines on overdue bills, falling by 4.5%; (iii) Transfer, as from 1Q17, of the update on the financial asset (VNR) to the Operating Revenues. In the 2Q16, there were R$ 25 million accounted within the Financial Revenues; (iv) (v) Negative Foreign Exchange on Debt by R$ 13 million in 2Q17, due to the devaluatoin of the Brazilian Real compared to the US Dollar. On the other hand, expenses in Swap operations amounted to R$ 10 million. Despite the accounting standards determining the mark to market of the swap operations, causing volatility in the results, such revenues or expenses do not affect the Company s cashflow. A reduction in the debt indices, reducing the Interest Expenses by R$ 8 million, or 14.9% in the quarter. R$ MM 2Q16 2Q17 Chg. 1S16 1S17 Chg. Interested on Invested Cash % % Fines on Overdue Bills % % Swap Operations (35) % (64) (4) 94.1% Foreign Exchange on Debt 29 (13) 143.3% 55 (3) 106.3% Interest and Monetary Restatements (58) (50) 14.9% (116) (109) 6.4% Other Revenues % % Other Expenses (9) (11) -26.6% (18) (21) -18.5% Financial Results (w/o Financial Asset Restatement) (10) (12) -25.0% (13) (28) % Financial Asset Restatement (VNR) % % Net Financial Results 15 (12) 179.2% 35 (28) 179.6% 18

21 Income Tax And Social Contribution At CEMAR, the calculation of Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) is positively influenced by the following items: i) the tax incentive of a 75% reduction in income tax as a result of the total modernization benefit, effective through 2021; ii) tax incentives related to accelerated depreciation, obtained from the SUDENE, which allows investments in expansion and modernization of the distribution network to be considered as a fully tax-deductible expense for purposes of calculating income tax immediately (effective through 2018); and, iii) the offset of accrued losses. It should be noted that all items mentioned above are applicable only to income tax. Effective Income Tax and Social Contribution Rate Income Taxes (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Earnings before Taxes (1) % % Income Tax / Social Contribution Expense (28) (29) 3.1% (48) (31) -35.7% (-) Deferred Tax Assets % % = Tax Payable (14) (10) -32.4% (21) (19) -12.8% = Tax - Cash Basis (2) (14) (10) -32.4% (21) (19) -12.8% Effective Tax Rate = (2) /(1) 10.1% 6.6% -3.5 p.p. 9.1% 10.3% 1.2 p.p. Real Income (for Tax Purposes) % % Effective Tax Rate (over Real Income) 9.0% 9.0% 0.0 p.p. 9.0% 9.0% 0.0 p.p. In 2Q17, the result of income tax and social contribution was R$ 29 million and, considering the use of deferred tax assets for compensation, the cash outflow for the payment of such taxes amounted to R$ 10 million Net Income In 2Q17, CEMAR s adjusted Net Income reached R$ 113 million, 11.0% growth compared to the R$ 101 million net Income reported in 2Q16. The adjustment made is due to the adherence of the Company to the REFIS, which granted R$ 2 million in discounts accrued within the Financial Results. Net Income (R$ million) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Net Income % % EBITDA Net Adjus tments (10) (0) -98.9% % REFIS Renegotiation - (2) N/A - (2) N/A Adjusted Net Income % % 19

22 5.3 Financial Performance CELPA CELPA Income Statement (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Gross Operating Revenues (GOR) 1,501 1, % 2,944 3, % Net Operating Revenues (NOR) 1,002 1, % 1,971 2, % Energy Purchas e Cos t (686) (853) 24.3% (1,369) (1,505) 9.9% Operating Expenses (140) (207) 48.0% (329) (454) 37.8% EBITDA % % Other Operating Revenues / Expens es (10) (3) -65.4% (14) (4) -69.3% Depreciation (45) (53) 18.0% (97) (105) 7.6% Service Income (EBIT) % % Net Financial Res ult (5) (73) % 18 (117) % Operating Income % % Income Taxes (19) (17) -11.7% (39) (21) -47.4% Net Income % % 20

23 Operating Revenues In 2Q17, Gross Operating Revenues (GOR) grew 17.1% compared to 2Q16. Excluding the Construction Revenues, GOR grew by 19.5%, reaching R$ 1,546 million. Net Revenues, excluding Construction Revenues, reached R$ 1,035 million, 30.2% increase when compared to the same quarter of the previous year. As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. Operating Revenues - Celpa 2Q16 2Q17 Chg. 1S16 1S17 Chg. Number of Consumers 2,369,129 2,506, % 2,369,129 2,506, % Volume Sold (MWh) 2,129,524 2,170, % 4,090,958 4,129, % KWh per Consumer % 1,727 1, % Gross Supply Revenues 1,230 1, % 2,388 2, % Residential % 1,150 1, % Industrial % % Commercial % % Other Segments % % (-) Exceeding demand / reactive energy (11) (9) 20.5% (20) (16) 19.5% Supply (R$ MM) % % Other Revenues (R$ MM) % % Low Income Subsidy % % Grid Usage - 29 N/A % Financial Asset Restatement - 4 N/A - 16 N/A Other Operating Revenues % % CVA - Regulatory Assets (44) % % Construction Revenues (R$ MM) % % Gross Operating Revenues (R$ MM) 1,501 1, % 2,944 3, % Gross Operating Revenues (w/o Construction Revenues) 1,294 1, % 2,594 2, % Deductions from Operating Revenues (R$ MM) (499) (511) -2.4% (974) (971) 0.3% PIS and Cofins (125) (134) -7.5% (224) (241) -7.6% Consumer Charges (14) (11) 17.3% (23) (21) 9.1% CDE Contribution (88) (80) 8.8% (177) (171) 3.0% ICMS - State Tax (272) (285) -4.7% (550) (538) 2.3% ISS - Municipality Tax (0) (0) 41.4% (0) (0) 9.2% Net Operating Revenues (R$ MM) 1,002 1, % 1,971 2, % Net Operating Revenues w/o Construction Revenues (R$ MM) 795 1, % 1,620 1, % 21

24 Operating Costs and Expenses In 2Q17, Operating Costs and Expenses, excluding Construction Costs and Isolated Systems expenses, totaled R$ 886 million, 34.7% increase in comparison to 2Q16. R$ MM 2Q16 2Q17 Chg. 1S16 1S17 Chg. Personnel % % Profit Sharing % % Material (0) % % Third Party Services % % Others % % Quality Indicators Compensations % (3) % PMSO % % Duplicate Provision for Payments % - - N/A Bonus for Quality Indicators Compensations - - N/A % Net PMSO % % PDA % % % GOR (w/o Construction Revenues) 1.8% 3.6% 1.7 p.p. 2.3% 5.0% 2.7 p.p. Provision for Contingencies (6) % (4) % Provisions % % Other Operating Expenses (Revenues) % % Depreciation and Amortization % % Manageable Expenses % % Energy Purchase and Transmission % 942 1, % Grid and Connection Charges % % Non-Manageable Expenses % 1,019 1, % Construction Costs % % Total 865 1, % 1,747 2, % Manageable Operating Costs and Expenses PMSO (personnel, material, third party services and others) reported in the 2Q17 amounted to R$ 128 million, 20.5% increase compared to 2Q16. Last 12-month inflation, measured by IPCA reached 3.0% and by INPC reached 2.5%. The main impacts are detailed below: Personnel: 8.6% decrease or R$3 million, due to: (i) Headcount reduction (-R$ 3 million); 22

25 Third-Party Services: 29.5% increase or R$19 million, due to: (i) Strenghtening of the collection initatives, such as cut and reconnection services and fraud combat (+ R$ 7.8 million); (ii) Increase in the expenses related to electrical servies (R$ 4.7 million), such as pruning and right of way cleaning (R$ 3.8 million) and network maintenance services (R$ 0.7 million). Others: R$ 2 million increase, due to: (i) R$ 3 million accrual in pension expenses. In 2Q17, CELPA reported Provision for Doubtful Accounts (PDA) amounting to R$ 56 million, equivalent to 3.6% of the Gross Operating Revenues (GOR) in the quarter. As mentioned in the previous Earnings Release, an increase in delinquency is inherent to a recessive macroeconomic scenario, the stregthening of the energy loss combat initiatives (which started as from the 2 nd half of 2015) and was deepened by the challenges that arose during the implementation of the new commercial system in the Company, in March, Due to the increase in the deliquency rate, at the end of 2016, the Company reviewed its Collection Department (both in terms of strategy and structure), aiming to increase its ability to act, enhance its productivity and efficiency of the collection tools (number of power cuts, collection visits, warnings of debt in the bill, debt negotiation, among others). Given the nature of this account and the necessary time for the strengthening of the collection actions to be into effect, the Company expects the delinquency rate to gradually return to its historical level. Therefore, PDA level should gradually return to its historical level at the 2 nd half of

26 Isolated Systems As from 2Q16, the Company started to publish separately the cost of the generation plants in the isolated systems. These are regions or cities that are not connected to the National Grid (SIN, in Portuguese), and have thermal plants solely dedicated to its supply. In the 2Q17, the cost of these plants within CELPA s area amounted to R$ 19 million. Comparing with 2Q16, these variations arise: (i) (ii) (iii) Change in the agreement model as from Feb/17, under which the responsibility for the purchase of fuel as now under the Independent Producer (PIE, in Portuguese), as well the Third-Party Expenses, which are now contracted under Potency abd Energy Purchase ; Increase in the CCC subvention due to the reduction in the average-acr from R$ to R$ 204.8, in accordance to Decree 2,796/2016, valid for 2017, as well as the reduction of the cut factor on the subvention, in accordance to Decree 607/17; In 2Q16, PIS/Cofins credits were accrued, reducing the costs in that quarter by R$ 9 million; OWN GENERATION EXPENSES 2Q16 2Q17 Chg. 1S16 1S17 Chg. Third Party Services % % Others % % CCC Subvention (98) (101) -3.2% (187) (199) -6.0% Fuel for energy generation % % Potency and Energy Purchas e N/A N/A TOTAL % % 24

27 5.3.3 EBITDA In 2Q17, EBITDA reached R$ 186 million, which already considers the booking of regulatory assets and liabilities. As non-recurring effects in this quarter, it should be noted: (i) (ii) R$ 15 million in energy purchase, booked in the quarter without the corresponding Regulatory Asset; R$ 13 million by a mismatch in the PIS/COFINS compensation; (iii) R$ 3 million in pension expenses from 2011 to As from 1Q17, the restatement of the financial asset (VNR), which until then used to be booked within the Financial Results, was transferred to the Operating Revenues, affecting the Company s EBITDA. To keep the comparability between periods, 2Q16 and 1S16 EBITDA were also adjusted to consider as if this account had already affected that quarter. EBITDA (R$ million) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Operating Income % % Depreciation and Amortization (45) (53) 18.0% (97) (105) 7.6% IFRS EBITDA (CVM) % % Other Operating Revenues (Expenses) (10) (3) -65.4% (14) (4) -69.3% IFRS EBITDA % % PIS/Cofins Mismatch % (16) % Financial Asset Restatement (VNR) 36 - N/A 76 - N/A Expenses w/o Regulatory Asset % % Contingency Provisions Reversal (14) % (14) % Quality Compensations' Bonus - - N/A (12) % Effects in the NOR (11) % % Provisions / Compensations Reduction (7) % - - N/A PMSO Effects - 3 N/A - 3 N/A Overcontraction (above 105%) (1) % % Adjusted EBITDA % % * Calculated in accordance to CVM Decree 527/12 25

28 Financial Results In 2Q17, net financial result was an expense of R$ 73 million, versus R$ 5 million reported in 2Q16. This quarter s financial results were affected by: (i) Increase in the amount of cash invested in quarter, causing a 68.4% growth in the financial income; (ii) Decrease by 3.5% in Fines on Overdue Bills; (iii) As from 1Q17, the financial asset update was transferred to the Operating Revenues, causing a R$ 36 million negative variation in the Financial Results; (iv) The sum of the foreign exchange variation with the swap operations resulted in a negative R$ 14 million figure, due to the Real devaluation compared to the US Dollar in the quarter; (v) R$ 10 million increase in the Interest on the Debt and Interest on Debt Judicial Recovery, due to the issuance of R$ 1,140 million in debentures by Dec-16. R$ MM 2Q16 2Q17 Chg. 1S16 1S17 Chg. Financial Income % % Fines on Overdue Bills % % Swap Operations (100) % (203) (25) 87.7% Foreign Exchange on Debt 80 (30) 137.4% 150 (11) 107.2% Foreign Exchange on Debt - Judicial Recovery 28 (3) 110.4% 53 (3) 105.5% Foreign Exchange on STN Collateral - 3 N/A - 2 N/A Interest on Regulatory Assets (2) % (1) % Interest on Debt (27) (46) -68.8% (52) (111) % Interest on Debt - Judicial Recovery (30) (20) 31.4% (65) (28) 57.0% Present Value Adjustment - Jud. Recovery (9) (11) -22.1% (17) (21) -23.7% Contingencies (10) (3) 71.5% (12) (7) 42.1% Other Revenues % % Other Expenses (11) (16) -45.4% (20) (30) -49.5% Net Financial Results (w/o Financial Asset Restatement) (42) (73) -75.5% (59) (117) -99.7% Financial Asset Restatement (VNR) % % Net Financial Results (5) (73) % 18 (117) 763.9% 26

29 Income Tax and Social Contribution At CELPA, the calculation of Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) is positively influenced by the following items: i) the tax incentive of a 75% reduction in income tax as a result of the total modernization benefit, effective through 2021; ii) tax incentives related to accelerated depreciation, obtained from the SUDENE, which allows investments in expansion and modernization of the distribution network to be considered as a fully tax-deductible expense for purposes of calculating income tax immediately (effective through 2018); and, iii) the offset of accrued losses. It should be noted that all items mentioned above are applicable only to income tax. Effective Income Tax and Social Contribution Rate Income Taxes (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Earnings before Taxes (1) % % Income Tax / Social Contribution Expense (19) (17) -11.7% (39) (21) -47.4% (-) Deferred Tax Ass ets % % = Tax Payable (7) % (8) (2) -77.9% (+) Fiscal Credits % % = Tax - Cash Basis (2) (0) 5 N/A (2) (2) -22.4% Effective Tax Rate = (2) /(1) 0.0% -9.1% N/A -1.3% 2.2% -2.8 p.p. Real Income (for Taxes Purposes) 8 (58) % % Effective Tax Rate (over Real Income) 0.0% 9.0% 9.0 p.p. 25.6% 9.0% p.p. In 2Q17, the result of income tax and social contribution was R$ 17 million and, considering the use of deferred tax assets for compensation, the cash outflow for the payment of such taxes amounted to R$ 5 million. 27

30 Net Income In 2Q17, CELPA s Net Income amounted to R$ 40 million, compared to R$ 96 million presented in the same quarter of the previous year. The adjusted figure, in order to exclude non-recurring effects, reached R$ 61 million. The table below considers the adjustments already net of the tax effects. In this quarter, the Company enrolled in the REFIS renegotiation, generating a R$ 5 million discount accrued in the Financial Result. Net Income (R$ million) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Net Income % % EBITDA Ajustment (Net of Taxes) (2) % % Contingencies' Provision (Financial) % % PIS / Cofins Credit - - N/A % REFIS Renegotiation - (5) N/A - (5) N/A Adjusted Net Income % % 28

31 5.4 Economic and Financial Performance Geramar The information in this section represents 25.0% of Geramar s operations. Income Statement - Geramar (R$ MM) 2Q16 2Q17 Chg. 1S16 1S17 Chg. Gros s Operating Revenues (GOR) % % Net Operating Revenues (NOR) % % Energy Purchas e Cos ts (5) (0) -97.4% (20) (2) -90.6% Operating Expenses (4) (4) 14.2% (8) (8) 11.1% EBITDA % % Depreciation (1) (1) 59.3% (1) (2) 214.8% Service Income % % Net Financial Res ults (1) (1) 6.4% (3) (3) 4.2% Operating Income % % Income Tax (1) (1) -15.2% (3) (2) -5.2% Net Income % % Operating Revenues In 1Q17, Net Operating Revenue (NOR) totaled R$ 15 million, 24.6% lower than the one recorded in 2Q16. The decrease compared to the same quarter last year is due to a lower dispatch of the plants this quarter Costs and Expenses The total expenditures by the plants in 2Q17 totaled R$ 5 million, the decrease is due to the lower dispatch order of plants in the last quarter. Operating Costs and Expenses 2Q16 2Q17 Chg. 1S16 1S17 Chg. Transmiss ion and Generation Expenses % % Operating Expenses % % Depreciation % % Total % % EBITDA Geramar s EBITDA in 2Q17 reached R$ 10 million, figure considered as recurring for the plants Financial Results The financial results for 2Q17 were negative by R$ 1 million due to interest on long-term loans signed to finance the construction of the plants Net Income Geramar s Net Income reached R$ 7 million in this quartes, a recurring figure. 29

32 6. Regulatory Assets and Liabilities 6.1 CEMAR REGULATORY ASSETS 6/30/2016 9/30/ /31/2016 3/31/2017 6/30/2017 Accrual 57,237 29,272 84,948 77,084 76,036 CDE 26,626 7,181 6,350 4, Proinfa 6, System Charges (11,092) Basic Grid 1,461 1,549 2,686 3,776 4,851 Energy Purchase 21,743 19,941 75,912 69,005 82,129 Amortization 36,892 78,303 57,239 38,128 17,711 CDE 4,905 11,964 8,627 5,561 2,329 Proinfa 41 7,913 5,707 3,608 1,541 System Charges - 8,960 6,672 4,572 2,355 Basic Grid 866 1, Energy Purchase 31,080 48,109 35,255 23,756 11,220 Other Regulatory Assets 9,080 11,323 9,442 21, ,775 Angra III Asset ,081 Others 2,398 1,790 1,595 1,942 1,902 Eletronuclear Parcel A Neutrality ,232 Financial Exposure ,022 Overcontraction 6,120 9,387 7,744 19,645 25,511 Total 103, , , , ,522 REGULATORY LIABILITIES 6/30/2016 9/30/ /31/2016 3/31/2017 6/30/2017 Accrual (45,866) (4,414) (5,036) (36,820) (48,887) Energy Purchase (19,173) - - (4,538) - Basic Grid (142) System Charges (14,565) (4,183) (4,805) (31,651) (48,745) CDE (12,128) (231) (231) (631) - Amortization (11,622) (46,720) (53,988) (21,671) (16,174) Basic Grid - (65) (48) (33) (17) Energy Purchase - (2,892) (12,173) (1,476) (760) CDE (3,957) (19,050) (13,591) (8,675) (10,585) System Charges (7,665) (24,713) (28,176) (11,487) (4,812) Parcel A Neutrality (14,616) (13,913) (15,628) (6,457) (2,219) Other Regulatory Assets (56,639) (39,353) (34,176) (23,915) (7,326) Others (42) (100) 7 (114) 55 Financial Exposure (35,713) (34,520) (25,556) (18,146) (5,158) Overcontraction (10,486) (12,158) (8,627) (5,655) (2,223) PIS/Cofins (10,399) 7, Total (128,743) (104,400) (108,828) (88,863) (74,606) Net Regulatory Assets 6/30/2016 9/30/ /31/2016 3/31/2017 6/30/2017 Regulatory Assets 103, , , , ,522 Regulatory Liabilities (128,743) (104,400) (108,828) (88,863) (74,606) Net Regulatory Assets (25,534) 14,498 42,801 48, ,916 30