Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras REFERENCE FORM

Transcription

1 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras REFERENCE FORM CENTRAIS ELÉTRICAS BRASILEIRAS S.A. ELETROBRAS A Joint Stock Mixed Capital Government Controlled and Publicly-held Company CNPJ/MF nº / Setor Comercial Norte, Quadra 4-BL-B-nº100, sala 203, Asa Norte CEP , Brasília DF Balance Date: December 31 st,

2 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras SUMMARY CONSIDERATIONS ON THIS REFERENCE FORM IDENTIFICATION OF THOSE RESPONSIBLE FOR THE CONTENTS OF THIS FORM Declaration from the Chief Executive Officer and Executive Investors Relations Officer AUDITORS In regard to independent auditors: Inform total amount of independent auditors remuneration in the last fiscal year, discriminating fees for audit services and for any other services rendered Other relevant information SELECTED FINANCIAL INFORMATION The table below presents information based on consolidated financial statements of the Company Non-accounting measures Subsequent events which may alter the latest financial statements of closing of fiscal year Description of destination policy for the last 3 fiscal years: Table with dividends distribution and profit retention occurred in the 3 last fiscal years: Declared dividends to the profit account retained or constituted reserves in the last 3 fiscal years Table with information about the level of the Company s indebtedness Amount of the Company s obligations according to maturity date, separated by collateralized, debt with floating charge and unsecured debts: Other relevant information: RISK FACTORS Risk factors that can influence the investment decision in Company s securities, especially Expectations for reduction or increase in exposure to risks: Judicial, administrative and arbitration proceedings in which the Company or its controlled companies are parties, discriminated in labor, tax, civil and other: i) that are not confidential, and ii) are relevant to the business of the Company or its controlled companies: Legal, administrative and arbitral lawsuits, not in secrecy, in which the Company or its controlled companies are parties and whose opposing parties are administrators or former administrators, controllers or former controllers or investors of the Company or its controllers: Impacts in case of loss and amounts involved in relevant secret lawsuits in which the Company or its controlled companies are parties: Other relevant contingencies not included in the previous items: Information regarding the rules of the Company`s country of origin and the rules of the country in which the Company`s movable assets are withheld, identifying: a) restrictions imposed to the exercise of political and economic rights; b) restrictions to the circulation and transference of movable assets; c)chances of register cancellation; and d) other issues of interest to investors: MARKET RISKS

3 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 5.1. Main market risks to which the Company is exposed, including exchange risks and interest rates: Policy of market risk management of the Company, including objectives, strategies and instruments: Meaningful changes in the main market risks to which the Company is exposed or in the risk management policy adopted in the last fiscal year Further relevant information: COMPANY HISTORY Company Establishment: Term of Activity: Brief Company History: Date of Registration at the CVM: Main corporate events, such as incorporations, fusions, spin-offs, incorporation of shares, disposals and acquisitions of corporate control, acquisition of important assets, through which the Company or any of its controlled companies or confederated companies have been, indicating: (a) event; (b) main business conditions; (c) corporations involved; (d) effects resulting from the operation in the capital base, especially over the participation of the parent company, shareholders who possess over 5% of the share capital and the Company s administrators; (e) shareholding structure before and after the operation Petitions for bankruptcy, provided they are based on the Company s relevant, judicial or extrajudicial recovery amounts, and the current status of such petitions: Further relevant information: COMPANY S ACTIVITIES Summarized description of activities carried out by the Company and its controlled companies: Operating segments which have been disclosed in the last three financial statements on the closing of fiscal year or, when available, in consolidated financial statements: Products and services corresponding to operating segments described above in item 7.2.: Relevant customers accounting for more than 10% of total net revenues of the Company, stating: a) total revenues from the client and b) operating segments affected by income from the client: Relevant effects of state regulation on the Company's activities: Information on countries from which the Company obtains relevant incomes: a) income from customers assigned to the Company s host country and its participation in the Company's total net income, b) income from customers assigned to each foreign country and its participation in the Company's total net income, c) total income from foreign countries and its participation in the Company's total net income: Regulation of countries from which the Company obtains relevant incomes and influence in the Company business: Other relevant long-term relationships of the Company that are not listed elsewhere in this Form: Other relevant information: ECONOMIC GROUP Company's economic group

4 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 8.2. Organogram of the Company s Economic Group Operations of restructuring, acquisitions, merging, stock acquisitions, divestitures and acquisitions of corporate control and acquisitions and divestitures of important assets in the past 3 fiscal years and the current fiscal year: RELEVANT ASSETS Non-current assets' goods relevant to the activities of the Company: a) fixed assets, b) patents, trademarks, licenses, concessions, franchises and contracts for technology transfer Other information the Company considers relevant: COMMENTS BY EXECUTIVE OFFICERS Comments by executive officers on a) general conditions on finances and asset b) capital structure and the possibility of redemption of shares or quotas, indicating (i) chance of redemption, (ii) formula for calculating the redemption value, c) payment ability in respect of financial commitments; d) sources of financing for working capital and investments in used non-current assets e) sources of financing for working capital and investments in non-current assets to use for coverage deficiencies in liquidity, f) levels of indebtedness and the characteristics of such debts; g) limits on the use of funds already acquired; h) significant changes in each financial statement item Comments from Executive Officer about: a) the result the Company's results, in particular: i. description of any major revenue components, ii. factors that materially affect operating results, b) changes in revenue attributable to changes in prices, exchange rates, inflation, changes in volumes and introduction of new products and services, c) impact of inflation, of change in price of key inputs and products, of exchange rate and interest rate in operating result and financial results of the Company Comments by Corporate Executive Officers on significant effects that the events below have caused or are expected to cause in the financial statements and results of the Company: Comments from corporate executive officers about: a) significant changes in accounting practices, b) significant effects of changes in accounting practices, c) caveats and emphases present in the opinion of the auditor Critical accounting policies adopted by the Company (including accounting estimates made by administration on issues uncertain and relevant to the description of the financial position and results, which require subjective or complex judgments, such as provisions, contingencies, revenue recognition, tax credits, long-life assets of non-current assets, pension plans, adjustments in foreign currency conversion, environmental recovery costs, testing criteria for asset recovering and financial instruments): Comments by executive officers on internal controls adopted to ensure the provision of reliable financial statements: Comments by executive officers on matters relating to possible public offerings of securities distribution: Relevant items not disclosed in the financial statements of the Company: Comments of the executive officers on each of the items not disclosed in the financial statements referred to in item 10.8:

5 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Executive officers commentary on key elements of the Company s business plan: Comments by executive officer on other factors that influenced in a relevant manner operational performance and have not been identified or commented on other items in this section: PROJECTIONS Projections relative to the past 3 fiscal years to the current fiscal year: a) the object of projection b) projected period and period of validity of the projection, c) the projection assumptions, with an indication of which can be influenced by the Company s administration and which escape their control, and d) values of the indicators that are the subject of the forecast If the Company released projections on the evolution of the indicators during the last three financial years: a) projections that are being replaced by new projections contained in this form, b) comparing the projected data for the periods elapsed with the effective performance of the indicators, stating clearly the reasons for deviations in the projections, and c) projections for the ongoing periods still to valid at the date of the delivery of the form, and in case of replacement, explain why they were abandoned or replaced GENERAL MEETING AND ADMINISTRATION Description of the administrative structure of the Company as set out in its bylaws, identifying: a) responsibilities of each agency and committee, b) date of installation of the supervisory board, if this is not permanent, and the establishment of committees; c ) mechanisms for performance evaluation of each agency or committee, d) in relation to board members, their individual responsibilities and powers, and e) mechanisms for evaluating performance of members of the board, committees and board of directors Rules, policies and practices relating to General Meetings: Dates and publishing in newspapers: Rules, policies and practices regarding the Board of Directors: Bylaw commitment clause to solve conflicts among shareholders and between them and the Company by means of arbitration, if applicable: Administrators and members of the Fiscal Council: Members of the statutory, audit, risk, financial, and remuneration committees: Administrators and members of the Fiscal Council: Matrimonial relations, common-law marriages or second degree relatives between: Subordination relations, service rendering or control, over the last 3 years, between the Company s administrators and: Agreements (including insurance policy), with payment or reimbursement of expenses by the administrators resulting from damages caused to third parties or to the company, from penalties imposed by state agents and agreements aiming to end administrative or judicial processes, as consequences of the exercise of their functions: Further information relevant to the Company ADMINISTRATORS S REMUNERATION Description of the policy or practice of remuneration for the Board of Directors; statutory and nonstatutory boards; Fiscal Council; statutory and audit committees; risk, financial and remuneration 5

6 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras committess; including the following items: a) goals of the policy and practice of remuneration; b) remuneration composition, including: (i) description of the remuneration elements and their goals; (ii) proportion of each element related to the total remuneration; (iii) calculation and readjustment methodology for each remuneration element; (iv) justification of the remuneration composition Remuneration recognized in the income of the last three fiscal years and foreseen to the current fiscal year of the Board of Directors, the statutory board, and the fiscal 4 : With regard to the variable remuneration of the last three fiscal years and to that foreseen to the current fiscal year of the Board of Directors, the statutory board, and the Fiscal Council, lay out a table containing: a. body; b. number of members; c. with regard to bonus: (i) minimum amount foreseen in the remuneration plan; (ii) maximum amount foreseen in the remuneration plan; (iii) amount foreseen in the remuneration plan, in case the established targets are reached; and (iv) amount effectivelly recognized in the income of the last three fiscal years; d. with regard to the income share: (i) minimum amount foreseen in the remuneration plan; (ii) maximum amount foreseen in the remuneration plan; (iii) amount foreseen in the remuneration plan, in case the established targets are reached; and (iv) amount effectivelly recognized in the income of the last three fiscal years; d. with regard to the income share 15 : Remuneration plan based on shares of the Board of Directors and the statutory board in force over the last fiscal year and foreseen to the current fiscal year: a) General terms and conditions; b) Main goals of the plan; c) How the plan contributes to these goals; d) How the plan suits the Company s remuneration policy; e) How the plan combines the administrators and the Company s interest in short, medium and long term; f) Maximum number of shares included; g) Maximum number of options to be approved; h) Conditions for shares purchasing; i) Criteria to establish the purchase or year price; j) Criteria to establish the year period; k) Form of settlement; l) Share transference restrictions; m) criteria and events which, when confirmed, may result in suspension, alteration, or ending of the plan; and n) Effects of the administrator egress from the Company s bodies on their rights foreseen in the shares-based remunaration plan Shares or quotas directly or indirectly withheld in Brazil or abroad, and other securities convertible in shares or quotas, issued by the Company; direct or indirect controllers; controlled companies or companies under common control of members of the Board of Directors, the statutory board, or the Fiscal Council grouped by body in the date of end of the last fiscal year 16 : Regarding the shares-based remuneration recognized in the income of the last three fiscal years and foreseen to the current fiscal year of the Board of Directors and the statutory board: a) body; b) number of members; c) with regard to each approval of shares buying options; (i) approval date; (ii) number of approved options; (iii) deadline to start exercising the option; (iv) maximum deadline to exercise the options; (v) restriction deadline to transfer the shares; (vi) weighted average price of each of the following option groups: (I) outstanding in the beginning of the fiscal year; (II) lost during the fiscal year; (III) exercised during the fiscal year; (IV) expired during the fiscal year; d) fair value of the options at the approval date; and e) potential stock watering in case all the options approved are exercised: With regard to outstanding options of the Board of Directors and the statutory board by the end of the last fiscal year: a) body; b) number of members; c) regarding options which cannot be exercised; (i) amount; 6

7 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (ii) date in which they can be exercised; (iii) maximum deadline to exercise the options; (iv) restriction deadline to transfer the shares; (v) weighted average exercise deadline; (vi) fair value of the options at the last day of the fiscal year; and d) regarding the options to be exercised; (I) amount; (II) maximum deadline to exercise the options; (III) restriction deadline to transfer the shares; (IV) weighted average exercise price; (V) fair value of the options at the last day of the fiscal year; (VI) fair value of the total options at the last day of the fiscal year: With regard to the exercised options and delivered shares relating to the shares-based remuneration of the Board of Directors and the statutory board, over the last 3 fiscal years: a) body; b) number of members; c) regarding the exercised options: (i) number of shares; (ii) weighted average exercise price; and (iii) total difference value between the exercised value and the market value of shares relating to the exercised options; and (d) regarding the delivered shares, please inform: (I) number of shares; (II) weighted average purchase price; and (III) total difference value between tge purchase value and the market value of the purchased shares: Information required to the understanding of the data published in items 13.6 to 13.8 (including pricing method of the shares and options value), pointing out: a) pricing model; b) data and premises used in the pricing model, including the weighted average price of shares, exercise price, expected volatility, option term, expected dividends, and risk-free interest rate; c) methods utilized and premises assumed to incorporate the expected effects of the anticipated exercise; d) how the expected volatility is determined; and e) whether any other component of the option has been incorporated in the measurement of the fair value: With regard to pension plans in force offered to members of the Board of Directors and to the statutory executive officers, please include the following information: Indication of the items in the table below, for the last 3 fiscal years, relating to the Board of Directors, the statutory board, and the Fiscal Council: Contractual arrangement, insurance policies or other instruments that structure remuneration mechanisms or indemnification to administrators in case of dismissal or retirement (including financial consequences for the Company): Total remuneration percentage of each body recognized in the Company's income, relating to members of the Board of Directors, the statutory board, or the Fiscal Council, which are portions related to controllers, direct or indirect, according to the relating accounting rules: Values recognized in the Company s income as remuneration of members of the Board of Directors, the statutory board, or the Fiscal Council, grouped by body, for any reason other than the position they hold; for example, comissions and consultancy and advisory services rendered: Values recognized in the income of the last 3 fiscal years of controllers, direct or indirect, of corporations under common control and of the Company s controlled companies, as remuneration of members of the Company s Board of Directors, the statutory board, or the Fiscal Council, grouped by body, specifying to which security such values have been offered to these individuals: Further information relevant to the Company:

8 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 14. HUMAN RESOURCES Company s Human Resources: Relevant changes resulted from the published numbers of aforementioned item 14.1: Policies for remuneration of the Company s employees, informing: CONTROL Controller shareholder or shareholder group: Information on shareholders or shareholder group with concerted actions or representing the same interests with shares equal or higher than 5% of a same class or type of shares and that are not listed in item 15.1, mentioning; (a) name; (b) nationality; (c) CPF/CNPJ; (d) amount of withheld shares, by class and type; (e) withheld percentage regarding the respective class or type and the total capital stock; (f) whether they are part of shareholder agreements; and (g) date of the last alteration: Capital allocation, as per verification in the last shareholders general meeting: Company s shareholders organogram, identifying all direct and indirect controllers as well as shareholders with share equal or higher than 5% of a class or type of shares, as far as compatible with the information listed in items 15.1 and 15.2 (optional): Information on shareholder agreements regulating the right of vote or the transference of the Company s shares, filed at the Company s headquarters and in which the controller take part: Relevant alterations in the shares of members of the Conpany s controller group and administrators: Further information relevant to the Company: TRANSACTIONS OF RELATED PARTIES Company s rules, policies, and practices as for the transactions between related parties (according to accounting rules on the subject): As for transactions with related parties which, according to the accounting norms, must be published in the issuer s individual or consolidated financial statements and signed in the last three fiscal years or become in force in the current fiscal year: a) name of the related parties; b) relation between the party and the Company; c) transaction date; d) contract object; e) amount of the deal; f) existing balance; g) amount corresponding to the interest of the related party in the deal, estimate it if possible; h) related guarantees and insurances; i) term; j) conditions of rescission or closing; and k) whether the relation is a loan or any other type of debt, inform; (i) operation nature and reasons; and (ii) interest rate: With regard to each of the transactions or set of transactions mentioned in the item 16.2 above performed over the last fiscal year: a) measures taken to deal with conflicts of interest; b) the agreed conditions or the compensatory adequate payment are strictly commutative CAPITAL STOCK General information on the capital stock: Company s capital stock increase: a) decision date; b) body which decided on the increase; c) issuing date; d) total increase amount; e) amount of securities issued, separated by class and type; f) issuing price; g) integration form: (i) money; (II) if they are assets, describe the assets; (III) if they are rights, 8

9 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras describe the rights; h) criteria used to determine the issuing value (art. 170, 1, Law No. 6404, of 1976); (i) whether the subscription was private or public; and j) percentage represented by the increase regarding the capital stock immediately previous to the capital increase: Developments, groups, and bonuses: a) decision date; b) amount of shares before the approval, separated by class and type; and c) amount of shares after the approval, separated by class and type: With regard to the Company s capital reduction: a) decision date; b) reduction date; c) total reduction value; d) amount of shares cancelled by the reduction, separated by class and type; e) refunded value per share; f) refund form: (I) money; (II) if they are assets, describe the assets, (III) if they are rights, describe the rights; g) percentage represented by the reduction regarding the capital stock immediately previous to the capital reduction; and h) reduction reasons: Further information relevant to the Company: SECURITIES Rights of each class and type of share issued: Bylaw rules, if there is any, which limit the right of vote of important shareholders or oblige them to make a public offer: Exceptions and suspending clauses with regard to shareholders equity or political rights predicted by the Bylaws: Amount of negotiations as well as highest and lowest quotations of securities negotiated in stock exchange or over-the-counter market, in each of the three-month periods of the last 3 fiscal years: Other securities issued which are not shares, mentioning: a) identification of the security; b) amount; c) value; d) issuing date; e) circulation restrictions; f) conversion in shares or right of subcribing or purchasing shares from the issuer, mentioning: (i) conditions; (II) effects of the capital stock; g) redemption possibility, mentioning: (I) redemption possibility; (II) calculation of the redemption value; h) whenever the securities result from debt, mention, if applicable; (I) expiration date, including the conditions for anticipated expiration date; (II) interest; (III) guarantee and, if collateral, description of the object asset; (IV) in the lack of guarantee, whether the credit is unsecured or subordinated; (V) occasional restrictions imposed to the issuer regarding the dividends distribution, the dispose of certain assets, the contracting of new debts, and the issuing of new securities; (VI) the fiduciary agent, mentioning the main terms of the contract; i) conditions to alter the rights ensured by such securities; and j) other relevant characteristics: Brazilian markets in which such securities of the Company are admitted to negotiation: Classes and types of securities admitted to negotiation in foreign markets, including: a) country; b) market; c) administrator entity of the market in which the securities are admitted to negotiation; d) negotiation admission date; e) if it is the case, mention the negotiation segment; f) initial date of the negotiation segment listing; g) percentage of the negotiation amount abroad relating to the total amount of negotiations in each class and type over the last fiscal year; h) if it is the case, the proportion of deposit certificates abroad relating to each class and type of shares; i) if it is the case, depositary bank. And j) if is it the case, custody institution: Public offers of distribution carried out by the Company or third parties, including controllers and 9

10 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras associated companies and controlled companies, relating to the Company s securities over the last 3 fiscal years and over the current fiscal year: Public offers of purchase carried out by the Company relating to shares issued by a third party over the last three fiscal years or over the current fiscal year: Other information relevant for the Company: PLANS OF RE-PURCHASE AND SECURITIES IN TREASURY With regard to re-purchase plan of the Company's shares over the last 3 fiscal years and over the current fiscal year: a) date of the decisions which approved the re-purchase plan; and b) with regard to each plan, mention: (I) amount of predicted shares, separated by class and type; (II) percentage relating to the total shares in circulation, separated by class and type; (III) re-purchase period; (IV) funds and profits available for re-purchase; (V) other important characteristics; (VI) amount of purchased shares, separated by class and type; (VII) average weighted price of purchase, separated by class and type; and (VIII) percentage of shares purchased relating to the total approved: With regard to the transaction of securities maintained in treasury, over the last 3 fiscal years and over the current fiscal year, mention, separating by kind, class and type, the amount, the total value, and the average weighted price of purchase, of: a) the initial balance ; b) the purchases; c) the disposes; d) the cancellings; and e) the final balance: With regard to securities maintained in treasury, on the closing date of the last fiscal year, mention, separating by kind, class and type: a) amount; b) average weighted price of purchase; c) purchase date; and d) percentage relating to the securities in circulation of the same class and type: Other information relevant for the Company: POLICY FOR SECURITIES NEGOTIATION Policy for securities negotiation issued by the controlling shareholders, direct and inderect, executive officers, members of the Board of Directors, of the Fiscal Council, and of any other technical or cunsultant body, created by bylaw provisions, including a) approval date; b) connected people; c) main characteristics; and d) prediction of prohibition periods of negotiation and description of the procedures adopted to supervise the negotiation in such periods: Other information relevant for the Company: INFORMATION PUBLISHING POLICY Describe the internal norms, rulings, or procedures adopted by the Company to ensure that the pieces of information to be published are gathered, processed, and reported precisely and in the correct time: Describe the publishing policy for relevant facts or acts adopted by the Company, mentioning the procedures relating to the secrecy about the non-published relevant information: Inform who the responsible administrators by the implementation, maintenance, evaluation, and supervision of the information publishing policy are: Other information relevant for the Company:

11 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras CONSIDERATIONS ON THIS REFERENCE FORM This form was produced according to Instruction CVM no. 480, from December ( Instruction CVM no. 480 ). The update of this Form of Reference does not necessarily mean that all information has been updated until this date, though some or all information has been updated according to the caput of Article 24 in Instruction CVM no. 480 and its 1 st, 2 nd and 3 rd Paragraphs. This Form of Reference alone is not a document for the public offer of the Company s securities, neither is it a sales offer nor a solicitation for the purchase offer of bonds and securities in Brazil or any other jurisdiction. Company identification Headquarters Chief Financial and Investor Relations Office Company s IndependentAuditors Centrais Elétricas Brasileiras Eletrobras, a joint stock mixed capital government controlled and publicly-held company, constituted on June 11 th 1962, in conformity with the authorization contained in Law no. 3,890-A, of April 25 th 1961, registered in the Cadastro Nacional de Pessoa Jurídica do Ministério da Fazenda (CNPJ/MF) under the number / , with its certificate of incorporation filed in the Trade Board of the Federal District under the NIRE no , and registered as a publicly-held company in front of the Commission of Securities ( CVM ) in January 28 th under the number 2437 ( Company or Eletrobras ). The company s headquarter is located in Brasília, Federal District, in Setor Comercial Norte, Quadra 4-BL-B-nº100, Torre C, sala 203, Centro Empresarial Varig, Bairro Asa Norte, CEP , Brasília, GO, and its main office is in the City of Rio de Janeiro, Rio de Janeiro State, Av. Presidente Vargas, 409-9º andar, Edifício Herm Stoltz, Centro, CEP , Rio de Janeiro, RJ. Av. Presidente Vargas, º andar, Edifício Herm Stoltz, Centro, CEP , Rio de Janeiro, RJ. The Executive Investors Relations Officer is Mr. Armando Casado de Araújo. The Investor Relations Division telephones are (5521) or (21) Fax number is (5521) and the is invest@eletrobras.com 2009: Pricewaterhouse Coopers Auditores Independentes located at 1400 Av. Francisco Matarazzo, Torre Torino Água Branca, CEP , Cidade de São Paulo, Estado de São Paulo, telephone (55 11) and fax (55 11) and 2008: BDO Trevisan Auditores Independentes, located at Rua Bela Cintra, 952, 3º Andar, Conj. 32, Cerqueira César, CEP , Cidade de São Paulo, State of São Paulo, telephone (55 11) and fax (55 11) Record Keeping Bank Newspapers for information publishing Website Banco Bradesco The company s publications are released in the following newspapers: (i) Correio Brasiliense and Diário Oficial do Distrito Federal, in the Federal District; (ii) O Globo, Jornal do Comércio, Tribuna da Imprensa, O Dia, and Diário Oficial do Estado do Rio de Janeiro, in the State of Rio de Janeiro; (iii) Valor Econômico, Diário Comércio Indústria e Serviços, Folha de São Paulo and Diário Oficial do Estado de São Paulo, in the State of São Paulo; (iv) O Estado do Maranhão and Diário Oficial do Estado do Maranhão, in the State of Maranhão; and (v) Diário do Pará, O Liberal and Diário Oficial do Estado do Pará, in the State of Pará. The company s website is The information provided in the world wide web page (Internet web page) is not part of this Reference Form and is not incorporated to it as a reference to this document. 11

12 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Shareholders Service Bonds and securities issued Reference Form last update Services for the company s shareholders are provided (i) by the Management Division of the Company s Shareholders Rights, telephones (5521) or (5521) , fax (5521) and dfsa@eletrobras.com; or (ii) by any Banco Bradesco S.A. agency, whose headquarters are located at Av. Yara, S/N, Prédio Amarelo, 2º Andar, Cidade de Deus, CEP , Cidade de Osasco, Estado de São Paulo. Mr. José Donizetti de Oliveira is responsible for the Department of Bradesco s Shareholders Services and can be contacted at phones (55 11) and (55 11) or by fax (55 11) and donizetti@bradesco.com.br The Company s stocks are listed under the Futures and Commodities Exchange (BM&FBOVESPA - Bolsa de Mercadorias e Futuros BM&FBOVESPA ) under the symbols ELET 3 (common stocks), ELET5 (preferred stocks class A ) and ELET 6 (preferred stocks class B ), in the Level 1 segment. June 30, IDENTIFICATION OF THOSE RESPONSIBLE FOR THE CONTENTS OF THIS FORM 1.1 Declaration from the Chief Executive Officer and Executive Investors Relations Officer José Antônio Muniz Lopes (Company s CEO) and Armando Casado de Araújo (Company s Executive Investors Relations Officer), on the terms of item 1 from the Annex 24 from Instruction CVM no. 480, declare that: (i) have revised this Form of Reference; (ii) all information contained in this form attends to CVM Instruction no. 480, especially as regards articles 14 to 19; and that; (iii) the set of information here contained depicts the true, precise and complete image of the Company s economic-financial situation and of the risks inherent to its activities and securities issued on this date. 2. AUDITORS 2.1 In regard to independent auditors: Fiscal year a)company s name b) Person in charge contract and personal data and Individual Taxpayer s Register (CPF) PricewaterhouseCoopers Auditors BDO Trevisan Auditores BDO Trevisan Auditores Independents Independentes Independentes Mr. Luiz Carlos de Carvalho Mr. Sergio Eduard Zamora CPF/MF: Mr. Luiz Carlos de Carvalho CPF/MF: Address: CPF/MF: Address: Rua 7 de setembro, nº 71, 15º Address: Av. Francisco Matarazzo 1400 e 21º andares Rua 7 de setembro, nº 71, 15º e 21º Torre Torino - Água Branca CEP , Rio de janeiro andares CEP , São Paulo SP RJ CEP , Rio de janeiro RJ Telephone: (11) Telephone: (21) Telephone: (21) Fac-símile: (11) Fac-símile: (21) Fac-símile: (21) sergio.zamora@br.pwc.com luiz.carlos@bdotrevisan.com.br luiz.carlos@bdotrevisan.com.br c) Service hiring date March 27 th, 2009 August 1 st, 2005 August 1 st, 2005 d) Description of services 1 (i) Special Services, regular and specialized (i) work planning, (i) work planning, considering the independent auditing, including the revision considering the relevance relevance of the balances, the of local Quarter Information, the auditing of of the balances, the volume of transactions and the Financial Statements in US GAAP(SEC), from volume of transactions and Company s internal Controls (ii) 12

13 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 2009 to 2013 fiscal years, including consolidated statements (ii) revision of Fiscal and Tributary Procedures(iii) examination of Accounting Statements and Complementary Information required by the Regulatory Agency (ANEEL), CVM and Financial Institutions (iv) issuance of reports and documents concerning the services rendered and (v) examination of internal controls according to IBRACON Rules and to the North American Law Sarbanes-Oxley-SOX, with the issuance of required reports and certificates. the Company s internal Controls (ii) test-based perception of evidences and records that support the values and accounting data informed, and (iii) evaluation of the most representative practices and accounting estimates adopted by the Company s Administration, and of the presentation of accounting statements taken as a whole. e) auditor replacement Yes Not applicable Not applicable i) replacement justification The replacement of the independent auditors Not applicable Not applicable was due to the end of contract and to the period for rotating auditors according to article 31 of CVM Instruction nº 308/99. New regular and specialized independent audit services have been hired for Eletrobras Companies from 2009 to 2013/ Bidding DAA nº 5 /2008. ii) auditor s reasons Not applicable Not applicable Not applicable ¹ The services described in this item encompass all services rendered by the auditing company. test-based perception of evidences and records that support the values and accounting data informed, and (iii) evaluation of the most representative practices and accounting estimates adopted by the Company s Administration, and of the presentation of accounting statements taken as a whole Inform total amount of independent auditors remuneration in the last fiscal year, discriminating fees for audit services and for any other services rendered In the last fiscal year ended on December 31, 2009, the Company's independent auditors, due to the external audit services provided, received fees totaling the amount of R$ 4,980.0 thousand. In relation to the consultancy services for the human resources area of Itaipu Binacional were paid fees totaling the value of R$ 20.0 thousand. No other value was received in respect of other services. 2.3 Other relevant information All relevant information was listed in item 2. 3 SELECTED FINANCIAL INFORMATION Some values presented in this Form of Reference might not result in a precise summing since numbers have been rounded. 3.1 The table below presents information based on consolidated financial statements of the Company. Fiscal Year ending on December 31 st in: Account Description a) net worth (R$ thousand) 76,091,785 85,618,361 79,963,236 b) total worth (R$ thousand) 138,816, ,053, ,927,908 c) net income (R$ thousand) 27,652,513 30,388,632 24,734,869 d) gross result (loss) (R$ thousand) (723,484) 9,209,411 2,325,226 e) net result (loss) (R$ thousand) 170,526 6,136,497 1,547,857 f) number of shares (excluding treasury shares) 1,132,357,090 1,132,357,090 1,129,498,502 g) value per share (R$ thousand) h) earnings per share (R$ thousand) i) other accounting information EBITDA (R$ thousand) 7,046 8,198 5,295 13

14 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 3.2 Non-accounting measures a) value of non-accounting measures EBITDA EBITDA is calculated by using the operating income before the financial result, adding depreciation and amortization. EBITDA is not a measure in accordance to BR GAAP, does not represent cash flow for the periods considered here and must not replace net profit as an indicator of the Company s operational performance or replace cash flow as liquidity indicator. EBITDA is additional information for the Company s financial statements and must not be used to replace audited results. EBITDA has no standardized meaning and its definition may not match the ones adopted by other companies. b) conciliations of values reported and audited financial statements: EBITDA statements are shown below. Fiscal year ending on Dec. 31 st (R$ thousand) Year Operating Income before Financial Result 4,648 5,858 3,453 Depreciation and Amortization 2,398 2,340 2,127 EBITDA 7,046 8,198 5,580 c) explaining the reasons why this mediation is considered most adequate for the correct understanding of the Company s financial condition and operations results: EBITDA is used as a performance measure for internal management purposes; therefore, the Company considers its inclusion in this Reference Form very important. The Company s Management believes EBITDA is a practical measure to evaluate its operating performance and to compare the Company with others in the same sector, though others may calculate it differently. 3.3 Subsequent events which may alter the latest financial statements of closing of fiscal year On March 22 nd 2010, controlled Eletrobras Furnas paid ANEEL a fine of R$ thousand, as it was understood that failures occurred in the protection system of two substations, Itaberá (SP) and Ivaiporã (PR), which provoked an electrical failure and interruption of electricity supply on November 10 th Controlled s Management will appeal the regulatory agency s decision, since it cannot take the blame for the accident. On June 8, 2010, ANEEL approved the tariff revision for the transmission companies of the Eletrobras System (Furnas, Chesf, Eletronorte and Eletrosul). The indices of review to be applied are negative. On June 29, 2010, the Board of Directors of the Company resolved and will submit to the Extraordinary General Meeting - EGM to be convened in due course, a proposal to capital increase share of the Company corresponding to the capitalization of credits of the advance for future Capital increase (AFACs), whose value recorded in the Financial Statements of March 31, 2010, was R$ 4,808,185,864.80, which will be monetarily adjusted by the Selic rate up to the day of the aforementioned Shareholders' Meeting. The effectiveness of this proposal is conditional on the issuance of Presidential Decree authorizing this capital increase. 14

15 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 3.4 Description of destination policy for the last 3 fiscal years: Year (a) Rules on retained earnings According to the Law of Partnership with share capital, the Annual General Shareholders Meeting may deliberate, through Management s proposition, the retention of part of the net income to apply in the Company s investments. According to the Law of Partnership with share capital, the Annual General Shareholders Meeting may deliberate, through Management s proposition, the retention of part of the net income to apply in the Company s investments. According to the Law of Partnership with share capital, the Annual General Shareholders Meeting may deliberate, through Management s proposition, the retention of part of the net income to apply in the Company s investments. (b) Rules on the Distribution of dividends The Company s bylaws, on their turn, state that: The Company s General Meeting, besides the statutory reserve, calculated over the net profit of that fiscal year, will allocate : (i) 1% of the capital reserve for studies and projects aiming at viable technicaleconomic studies in electrical energy sector, whose accumulated balance shall not exceed two per cent of paid-up capital; and (ii) 50%, from the investments reserve, alloted for investments in electrical energy utilities concessionaires, which accumulated balance shall not exceed 75% of paid-up capital. The General Meeting will annually allot the sum of up to 1% calculated over the net profit in that fiscal year, considering the limit of 1% of paidup capital, to provide for its employees social assistance, in conformity with the plans approved by the Board of Executive Officers of the Company. The company will annually allot, and state in its budget, funds of at least 0.5% over the paid-up capital by the end of the immediate previous fiscal year to be used in programs for technological development. When dividends reach 6% of paidup capital, the General Meeting group may fix percentages or gratuities, based on the profits, for the Company s administration. In accordance to the Company s bylaws, in each fiscal year, it is mandatory the distribution of dividends, not less than 25% of the net profit, legally adjusted. The Company s Bylaws establishes that the Company s preferred shares will be prioritized in the distribution of dividends, in the following terms: (i) Class A preferred shares, which are subscribed up to June 23 rd 1969 and those that come from gratuities attributed to them will be prioritized in the distribution of dividends; these will be based on the ratio of 8% per year over this very class of shares, and among them will be shared; and (ii) preferred shares The Company s bylaws, on their turn, state that: The Company s General Meeting, besides the statutory reserve, calculated over the net profit of that fiscal year, will allocate : (i) 1% of the capital reserve for studies and projects aiming at viable technicaleconomic studies in electrical energy sector, whose accumulated balance shall not exceed two per cent of paid-up capital (ii) 50%, from the investments reserve, allotted for investments in electrical energy utilities concessionaires, which accumulated balance shall not exceed 75% of paid-up capital. The General Meeting will annually allot the sum of up to 1% calculated over the net profit in that fiscal year, considering the limit of 1% of paidup capital, to provide for its employees social assistance, in conformity with the plans approved by the Board of Executive Officers of the Company. The company will annually allot, and state in its budget, funds of at least 0.5% over the paid-up capital by the end of the immediate previous fiscal year to be used in programs for technological development. When dividends reach 6% of paidup capital, the General Meeting group may fix percentages or gratuities, based on the profits, for the Company s administration. In accordance to the Company s bylaws, in each fiscal year, it is mandatory the distribution of dividends, not less than 25% of the net profit, legally adjusted. The Company s Bylaws establishes that the Company s preferred shares will be prioritized in the distribution of dividends, in the following terms: (i) Class A preferred shares, which are subscribed up to June 23 rd 1969 and those that come from gratuities attributed to them will be prioritized in the distribution of dividends; these will be based on the ratio of 8% per year over this very class of shares, and among them will be shared; and (ii) preferred shares The Company s bylaws, on their turn, state that: The Company s General Meeting, besides the statutory reserve, calculated over the net profit of that fiscal year, will allocate : (i) 1% of the capital reserve for studies and projects aiming at viable technicaleconomic studies in electrical energy sector, whose accumulated balance shall not exceed two per cent of paid-up capital (ii) 50%, from the investments reserve, allotted for investments in electrical energy utilities concessionaires, which accumulated balance shall not exceed 75% of paid-up capital. The General Meeting will annually allot the sum of up to 1% calculated over the net profit in that fiscal year, considering the limit of 1% of paidup capital, to provide for its employees social assistance, in conformity with the plans approved by the Board of Executive Officers of the Company. The company will annually allot, and state in its budget, funds of at least 0.5% over the paid-up capital by the end of the immediate previous fiscal year to be used in programs for technological development. When dividends reach 6% of paidup capital, the General Meeting group may fix percentages or gratuities, based on the profits, for the Company s administration. In accordance to the Company s bylaws, in each fiscal year, it is mandatory the distribution of dividends, not less than 25% of the net profit, legally adjusted. The Company s Bylaws establishes that the Company s preferred shares will be prioritized in the distribution of dividends, in the following terms: (i) Class A preferred shares, which are subscribed up to June 23 rd 1969 and those that come from gratuities attributed to them will be prioritized in the distribution of dividends; these will be based on the ratio of 8% per year over this very class of shares, and among them will be shared; and (ii) preferred shares 15

16 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (c) Periodicity for the Dividends distribution (d) Restrictions to the distribution of dividends class "B" which are those subscribed from June 23, 1969, will have priority in the distribution of dividends, these incidents at a six percent per annum rate over own capital of that species and class of shares, these dividends are to be apportioned equally between them. The preferred shares of the Company participate on equal terms with common shares in the distribution of dividends, after these be assured the lowest minimum dividends described in clauses (i) and (ii) above, being secured to each preferred share the Company the right to receive dividend, per share, at least 10% higher than those attributable to common shares. The minimum priority dividend of preferred shares will be distributed when calculated net profit or even in years where there is loss, when there are reserves of available profits. class "B" which are those subscribed from June 23, 1969, will have priority in the distribution of dividends, these incidents at a six percent per annum rate over own capital of that species and class of shares, these dividends are to be apportioned equally between them. The preferred shares of the Company participate on equal terms with common shares in the distribution of dividends, after these be assured the lowest minimum dividends described in clauses (i) and (ii) above, being secured to each preferred share the Company the right to receive dividend, per share, at least 10% higher than those attributable to common shares. The minimum priority dividend of preferred shares will be distributed when calculated net profit or even in years where there is loss, when there are reserves of available profits. Annual Annual Annual In the terms of the Corporate Law with share capital, 5% of the company s net profit Will be applied, before anything else, in the constitution of the statutory reserve, which won t be able to surpass 20% of the corporate capital. In accordance to its Bylaws, the Company should distribute, in each fiscal year, dividends not inferior than 25% of the net profit adjusted in the Terms of the Law of Partnership with share capital, considering the minimum remuneration for the preferred shares of class A and B, in case, 8% and 6%, respectively, from the corporate capital relative to these species and classes of stock. The net profit can be invested, used to compensate for losses, or then retained, in conformity to the Law of Partnership with share capital, being able not to be made available for dividends payment. The Company might not pay dividends to its shareholders in a determinate fiscal year, if its administrators manifest, and the Annual Meeting approve, that such payment is not advisable in terms of the financial situation of the Company. In the terms of the Corporate Law with share capital, 5% of the company s net profit Will be applied, before anything else, in the constitution of the statutory reserve, which won t be able to surpass 20% of the corporate capital. In accordance to its Bylaws, the Company should distribute, in each fiscal year, dividends not inferior than 25% of the net profit adjusted in the Terms of the Law of Partnership with share capital, considering the minimum remuneration for the preferred shares of class A and B, in case, 8% and 6%, respectively, from the corporate capital relative to these species and classes of stock. The net profit can be invested, used to compensate for losses, or then retained, in conformity to the Law of Partnership with share capital, being able not to be made available for dividends payment. The Company might not pay dividends to its shareholders in a determinate fiscal year, if its administrators manifest, and the Annual Meeting approve, that such payment is not advisable in terms of the financial situation of the Company. class "B" which are those subscribed from June 23, 1969, will have priority in the distribution of dividends, these incidents at a six percent per annum rate over own capital of that species and class of shares, these dividends are to be apportioned equally between them. The preferred shares of the Company participate on equal terms with common shares in the distribution of dividends, after these be assured the lowest minimum dividends described in clauses (i) and (ii) above, being secured to each preferred share the Company the right to receive dividend, per share, at least 10% higher than those attributable to common shares. The minimum priority dividend of preferred shares will be distributed when calculated net profit or even in years where there is loss, when there are reserves of available profits. In the terms of the Corporate Law with share capital, 5% of the company s net profit Will be applied, before anything else, in the constitution of the statutory reserve, which won t be able to surpass 20% of the corporate capital. In accordance to its Bylaws, the Company should distribute, in each fiscal year, dividends not inferior than 25% of the net profit adjusted in the Terms of the Law of Partnership with share capital, considering the minimum remuneration for the preferred shares of class A and B, in case, 8% and 6%, respectively, from the corporate capital relative to these species and classes of stock. The net profit can be invested, used to compensate for losses, or then retained, in conformity to the Law of Partnership with share capital, being able not to be made available for dividends payment. The Company might not pay dividends to its shareholders in a determinate fiscal year, if its administrators manifest, and the Annual Meeting approve, that such payment is not advisable in terms of the financial situation of the Company. Other restrictions apply to the distribution of dividends, imposed by legislation or special regulation applicable to the emitter, as well as contracts, judicial, administrative, or arbitraries. 16

17 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras There are no other restrictions to the distribution of dividends imposed by legislation or special regulation applicable to the Company, as well as judicial, administrative or arbitrary decisions 3.5 Table with dividends distribution and profit retention occurred in the 3 last fiscal years: Period a) net profit adjusted for dividends reasons (in R$ thousand) 161,990 5,829,672 1,470,464 b) distributed dividends (in R$ thousand): Minimun mandatory dividend (25%) 40,500 1,457, ,616 Dividends: Profit over own capital: Common - 1,343, ,416 Preferred Class A Preferred Class B - 371, ,773 Total: 40,500¹ 1,715, ,486 c) percentage of distributed dividends in regard to adjusted net profit (in %) % 29.41% 47.84% d) distributed dividend, by class and species of stocks (in Reais): Dividends Interest rate over own capital: Common Preferred Class A Preferred Class B e) date for the payment of dividends 05/18/ /20/ /30/2008 f) return rate in regard to the Company s net equity Common % % Preferred Class A % % % Preferred Class B % % % General: 0.974% 2.003% % g)net profit retained (in R$ thousand) - 487,476 68,748 h) approval date for the retention - 27/03/ /03/2008 ¹ At the end of 2009, the Company distributed Interest over Own Capital (JCP) to the account of accumulated reserves in previous years, as item 3.6 of this Reference Form Declared dividends to the profit account retained or constituted reserves in the last 3 fiscal years On April 30 th, 2010, the Company s Annual Ordinary General Meeting approved, in agreement with the Board of Directors accompanied by favorable opinion from the Fiscal Council, the remuneration to shareholders from the profits account retained and previously constituted reserves and based on the net profit assessed in the fiscal year ending 31 st. December 2009, on the following terms: CONTROLLER (in R$ thousand) Period Financial year ended on December 31, 2009 Net income of the year 170,526 Legal reserve (8,526) Adjusted net income 161,990 Minimum compulsory dividends (25%) 40,500 Remuneration approved by the General 741,509 Meeting Available net income to the shareholders 75,032 Realization of evaluation of reserves 14,479 Reserves reversion 648,999 Total: 741,509 17

18 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Non distributed dividends to be paid: The Company s Board of Directors deliberated, in January of 2010, for the payment of the Special Reserve non Distributed Dividends balance, in 4 annual installments, starting from the 2010 fiscal year. Based on this decision and at the cashier position presented in 2009, the amount of approximately R$10.3 billions relative to non distributed dividends in the fiscal years of 1979,1980,1981,1982,1983,1984,1989, 1996 and 1998 until then maintained as shareholders equity, was reclassified for the chargeable current assets, in the amount of R$2.6 billions, which payment occurred in February 26, 2010, and for the chargeable fixed assets, in the amount of R$7.7 billions, relative to the installments to be paid from 2011 to The individuals and legal entities that are part of the Company shareholders will have the right to receive the referred receivable mentioned above in January 29, Still, according to the Company s Bylaws, the referred credits will continue to be paid in agreement to the SELIC Tax variation, up to the date of the effective payment for each installment, included over this remuneration the retention of income tax, in the terms of the legislation in effect. The balance of the remuneration to shareholders, demonstrated on the current liabilities, contains the installment of R$ 219 millions (December 31 st R$154 millions) referring to non claimed remunerations from the fiscal years 2006, 2007 and The remuneration referring to 2005, and before, is prescribed, on the terms of the Company s Bylaws. 3.7 Table with information about the level of the Company s indebtedness CONSOLIDATED Period a) total debt of any kind (in R$ thousand) ¹ 17,789,744 20,012,173 14,479,883 b) debt ratio ² c) other debt ratio ¹ sum of current liabilities and non-current liabilities (financing and short-term and long-term loans) ² current liabilities plus non-current liabilities divided by Amount of the Company s obligations according to maturity date, separated by collateralized, debt with floating charge and unsecured debts: Period Financial year ended on December 31, 2009 (in millions of R$) term: a) inferior to 1 b) superior to 1 c) superior to 3 d) superior to 5 Total Floating charge¹ Collateralized 998,626 2,717,467 2,613,724 11,459,928 17,789,744 Unsecured² Total 998,626 2,717,467 2,613,724 11,459,928 17,789,744 ¹The Company has no debts with floating charge ² The Company has no unsecured debts Other relevant information: All information relevant and pertinent to this topic was published in the items above. 4. RISK FACTORS 4.1 Risk factors that can influence the investment decision in Company s securities, especially 18

19 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras a) Risks related to the Company Some of the Company s concessions have expiration date in 2015 and, at the moment, the Brazilian Law doesn t allow the renovation of such concessions, what might cause an adverse effect over the operational results from the Company in case the renewals cannot be obtained The company develops the activities of generation, transmission and distribution of electrical energy in accordance with the concession contracts agreed with the Brazilian Government through ANEEL, with a life span from 20 to 35 years. The concession contracts with the closest expiration date expire in 2015 and have been renewed once, except the contracts of the hydroelectric power-plant Serra da Mesa and Corumbá I that will expire in May of 2011 and November of 2014, respectively. The Company has asked for the concession renewal for the hydroelectric power plant Serra da Mesa and, at the moment, waits for the approval of ANEEL. Considering the generation segment, these concessions ( which expire in 2015 or before) represent in December 31 st., 2009 approximately 32% of the total Company s installed capacity, and in the case of the controlled companies Eletrobras Chesf and Eletrobras Furnas, 86.8% and 37.4% of its installed capacity, respectively. Nowadays, the New Law of Energy allows that the concessions be only once renewed. If the New Energy Law is not altered, the Company will not be able to renew certain concessions and will have to participate in new auctions to keep such concessions and continue to operate the hydroelectric plants involved. If the Company is not able to renew any of these concessions and is not able to win any of the referred auctions; it will lose its activities, which will affect adversely its financial condition and its operational results. Still, there s no way how to guarantee that the concessions, if renewed, will not predict less favorable conditions to the Company and/or its controlling companies. The Company is subject to rules which limit loans to companies of the public sector and may not obtain sufficient resources to complete its investment program. The company s current budget indicate investments of, approximately, R$9.0 billion in The Company cannot guarantee that it will be able to finance the investments program based on the cash flow or external resources. Besides that, as a Company administrated by the Federal Government, the company is subject to certain rules that limit its indebtedness and investments and should submit its proposition of annual budget to the Ministry of Economy, Treasury and Planning, Budget and Management to the National Congress, for approval. This way, in case the Company s operations don t fit in the parameters and conditions established by these rules and by the Brazilian Government, Eletrobras will have difficulties to obtain the financial authorizations necessary, which might make financing harder. If the Company is not able to obtain such financing, its investment capacity in expansion and maintenance could well be impacted, which, in turn, might affect the execution of its growth strategy, and, particularly, large scale projects such as such as the construction of the new nuclear plant Angra III, the development of the Belo Monte s hydroelectric complex and the continuation of the works of the Jirau and Santo Antonio s hydroelectric power plants. In case any of the Company s assets is considered assets dedicated to an essential public service rendering, they would not be available for liquidation in the hypothesis the Company go bankrupt and could not be exposed to execution. On February 9, 2005, the Brazilian Government enacted Law no ( New Bankruptcy Law ), which controls the judicial recuperation, the extrajudicial recuperation and bankruptcy, besides substituting the judicial process of the debt reorganization known as debt rehabilitation by the judicial recuperation process and extrajudicial recuperation. The New Bankruptcy Law stipulates that its dispositions do not apply to public companies and mixed-capital company, such as Eletrobras. Even though, the Brazilian Federal Constitution establishes that mixed-capital companies, that do economic activities, will be subject to the law regimen applicable to private companies in relation to civil, commercial work and tributaries questions. In this manner, it s not clear if the dispositions of the New Bankruptcy Law referring to the judicial and extrajudicial recuperation and to the bankruptcy will apply or not to Eletrobras. The company believes that a substantial part of its assets, including the generation assets, the transmission network and the limited distribution network, could be considered by the Brazilian courts as being dedicated 19

20 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras to an essential public service rendering. This way, these assets would not be available for liquidation in the hypothesis of the Company s bankruptcy or available for a sentence execution. In any of the cases, these assets would be reverted for the Brazilian Government, in conformity with the Brazilian law and with the contract concession terms signed by the Company. Even though the Brazilian Government would feel obliged, in these circumstances, to compensate for Eletrobras in regard to the reversion of these assets, the Company cannot assure that the compensation received will be equal to the market value of the assets and, this way, the financial condition and the results of the Company s operations could be adversely and significantly affected. Judicial proceedings as well as administrative ones involving the Company could affect negatively its economic-financial situation. On December 31 st., 2009 the Company took part in diverse civil suits and in administrative proceedings related to civil, fiscal, work, environmental and regulatory subjects. Such proceedings involve substantial amounts in money and other indemnifications and many of these litigations respond individually for significative part of the total amount of disputes in which the Company is part of. The Company constituted provisions for all of the values in dispute that represent probable loss, as classified by its legal consultants, or in conformation with laws, administrative decrees, or yet other decrees or decisions that, in conformity with the Company, cause unfavorable impact in the referred disputes. On December 31 st., 2009 the company had provisioned the total value of, approximately, R$ 2,686 billion relatively to the in which is part of (increased of judicial deposits with value of R$1,354 millions), from whichr$2,631 billions are related to civil lawsuits, R$1,248 billions are related to labor suits and R$ 161 millions are related to fiscal lawsuits. In case there is unfavorable decision in a suit that involves relevant amounts, and about which the Company has not constituted provision, or in the case the estimated losses result in values significantly higher than the provisions, the total cost of unfavorable decisions might affect, adversely and substantially, the financial conditions and the Company s operational result. Besides that, the defense of such proceedings might demand the expenditure of time and attention by the administration, which might deviate it from the Company s main focus of activity. Depending on the result, certain litigations might result in operational restrictions and cause a relevant adverse effect in some of the main business of the company. The Company s Insurance coverage might be insufficient to cover potential losses. The business developed by the Company, in general, is subject to diverse risks and dangers, including industrial accidents, labor disputes, unexpected geologic conditions, changes in the regulatory environment, ecologic and meteorological risks, besides other natural phenomena. Besides that, the Company and/or its controlling companies are responsible for damages and losses caused to third parties occurring from flaws on the service rendering of generation, transmission and distribution. The insurances contracted by the Company only cover part of the losses. The Company believes that the quantity of insurances is adequate to cover fires, responsibility for accidents from third parties and operational risks in its plants. If the Company is unable to renew their insurance policies from time to time or losses or other claims arising which are not covered by insurance or that exceed the insured, the Company may be subject to unexpected losses in substantial amounts. Changes in Accounting Principles Adopted in Brazil due to its convergence with international accounting practices ("IFRS") may adversely affect the Company's results On December 28, 2007, the Law No /07 was approved, complemented by Law No /09 (conversion, by law, the Provisional Measure 449/08), which amended the Corporations Law and introduced new accounting rules in order to converge on International Accounting Standards (IFRS) issued by the International Accounting Standards Board - IASB. The Accounting Pronouncements Committee - CPC in 2009 issued several accounting pronouncements, interpretations and guidelines that have been approved by the CVM and the Federal Accounting Council - CFC, with mandatory implementation as of 2010, including financial statements for the year ended on December 31, 2009, which will be restated for comparison 20

21 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras purposes. The Company is currently evaluating the potential effects resulting from the adoption of new accounting pronouncements, interpretations and guidelines that may have material impact on financial statements, results and on the basis of the calculation of the dividends of the Company as of the year ending on December 31, 2010, including balances for the year ended on December 31, 2009, which will be restated for comparison purposes. Regarding the electricity sector, there was, until December 31, 2009, an uncertainty related to the form of recognition of the regulatory assets and the regulatory liabilities as well as the register of the fixed assets related to the concession of service of electric energy distribution, as the specific rule on these matters is in process of review and approval by Brazilian regulatory agencies to be issued in the near future. The modification of these accounting standards related to electric energy sector could produce significant impacts on the financial statements of the transmission and distribution companies, including the Company, with some effect on the accounting results, on the basis of the calculation of the dividends, on the maintenance of financial rates adopted by the Company and certain other financial contracts b) Risks related to the controller, direct or indirect, or Company s control group. The Company is controlled by the Federal Government, which could have policies and priorities that affect directly the Company s results and might shock with the investors interests. The Federal Government influences substantially the strategic orientation for the Company s business and, being the shareholder controller, has pursued some of its macroeconomic and social goals using, mainly, government funds administrated by the Company: Reversion Global Reserve Fund ( Fundo RGR ) the CCC Account and the Energy Development Account ( Account CDE ). The Federal Government has the prerogative of appointing 8 of the 10 members from the board of Directors and, through them, indicates the majority of executive directors responsible for day-to-day operations. Additionally, the Federal Government possesses the absolute majority of voting stocks from the Company and, consequently, has the right to the majority of votes in the Annual Meeting, being able to deliberate and approve great part of the issues predicted by law, as well as the following subjects (i) sale, whole or in part, of the shares of the capital stock of the controlled companies of the Company, (ii) increase of the Company's capital by subscription of new shares, (iii) determination of the dividend distribution policy of the Company, subject to the minimum mandatory dividend by law, (iv) issuance of bonds or securities in the country or abroad, (v) operation of spinoff, merger or corporate association, (vi) transfer of Company shares or other securities and ( vii) redemption of shares of one or more classes, regardless of the approval from the extraordinary meeting of shareholders of the classes involved. The Company s operations have caused and will continue to cause impact over the commercial, industrial and social development promoted by the Federal Government. The Federal Government demanded and might demand in the future, that the company make investments, suffer costs or enter into operations (demanding, for example, the realization of acquisitions) that are not in accordance with the Company s main goal to maximize its profits. c) Risks related to shareholders/stocks from the Company The Company could pay reduced dividends, in case its net profit does not reach certain levels. The Company s Bylaw determine that in each fiscal year, it ll be mandatory the distribution of dividend not inferior than 25% of the net profit, adjusted in the Terms of Law. The Company s Bylaw still predicts that the preferred Company s stocks will have priority over the common stocks in the distribution of fixed dividends, with 8% of annual taxes for the Class A preferred stocks (subscribed up to June 23 rd. 1969) and 6% for the Class B (subscribed from June 24 th. 1969), calculated over the own corporate capital to each species and class of stocks. The minimum priority dividend of the preferred stocks shall be distributed always when the net profit is raised or, even when there is loss, when there are profit reserves available. Notwithstanding, if the Company s net profit is negative or if the available profits are insufficient in a fiscal year, the 21

22 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Administration might recommend to the Annual Meeting referred to that year, that the payment of dividends in that year is not made. The Company has extremely limited preferred shares with the right to vote In accordance to the Corporate Law and to the Company Bylaw, the bearers of preferred stocks do not have the right to vote on the Annual Meetings, except in specific circumstances. This means that, among other things, a preferred shareholder do not has the right to vote in corporate transactions, including merges or consolidations with other companies. This way, the main shareholder, that detains the majority of common shares with the right to vote, is able to approve corporate measurements without the approval of the preferred shareholders. Therefore, the investment in preferred shares is not adequate for those who consider the rights to vote an important point in the investment decision. If the Company issues new shares or if the shareholders sell shares in the future, their market price can be reduced. The issue by the Company or the sale of a substantial amount of stocks, or the supposition that this might happen, could reduce the common share market price, considering its dilution. These issues or sales could make even harder the issue of future shares, on a date and with a price considered appropriated by the Company, being able to make it more difficult to sell these shares by their price or above the price they have paid for them. Developments and the perception of risk in other countries, especially in the United States and emerging economies can affect the market price of Brazilian securities, including the shares of the Company. The market value of the securities of the Brazilian companies is influenced, at different scales, by other countries economic and market conditions, including other Latin American countries and emerging economies. Although the economic situation in those countries may be significantly different from the economic situation in Brazil, investors' reaction to events in those other countries may cause an adverse effect on the market value of the securities of the Brazilian issuers. Crises in other emerging economies may reduce investor interest in securities of the Brazilian issuers, including securities issued by the Company. This could adversely affect the market value of the shares of the Company, also hindering the Company's access to capital markets and in obtaining financing on acceptable terms in the future. The Brazilian economy is also affected by the economic and international market conditions in general, especially economic and market conditions of the United States. Stock prices at BM&FBOVESPA, for example, have historically been sensitive to fluctuations in interest rates in the United States, as well as to changes in major stock indexes of the United States. d) Risks related to the Company s controlling and colligated companies. The Company may be liable if there is a nuclear accident involving its controlled Eletrobras Thermonuclear SA (Eletronuclear). The controlled Eletronuclear, as operator of two nuclear power plants, is liable in the event of a nuclear accident. The Vienna Convention on Civil Liability for Nuclear Accidents ("Vienna Convention") was internalized by the Brazilian legal system in The Vienna Convention provides that an operator of a nuclear plant, as Eletronuclear, in a country that is signatory to it and which has adopted legislation to implement the Vienna Convention, is subject to liability for damages on an unlimited amount in the case a nuclear accident (with reservation to a few exceptions), subject to the right of the signatory jurisdictions to adopt their legislation in certain limits to this responsibility, which was not made by Brazil. Eletronuclear is regulated by several federal and state agencies. Although Angra I and Angra II of Eletronuclear are currently insured against losses arising from a nuclear accident at a total value amounting to US$ 171 million, and count on an additional insurance against operational risks arising from possible operational failures of US$ 500 million for each plant, the Company cannot assure that this coverage is sufficient in the event of a 22

23 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras nuclear accident. Thus, any nuclear accident could have a material adverse effect on the financial condition and operating results of the Company. The Company's distribution companies operate under challenging market conditions and historically, in aggregate terms, have had losses. The Company's distribution companies are conducted in the northern and northeastern Brazil, representing 7.8% of net operating revenue of the Company. These regions are among the poorest regions of Brazil with the distribution controlled companies suffering commercial losses (theft of electricity) and relatively high levels of defaults by consumers in those regions. Historically, in general, the Company's distribution controlled companies have incurred losses that have adversely affected the consolidated results of the Company. In May 2008, the Company introduced a new management structure for the distribution business and a series of measures are being taken to reduce commercial losses and renegotiate its delinquent debts from consumers with the distribution controlled companies. However, the Company cannot ensure that such measures will succeed in substantially reducing the losses incurred by the distribution companies, nor that the conditions in the markets in which they act will not deteriorate further. Thus, the controlled companies of electric energy distribution may incur losses which could continue to adversely affect the financial condition and operating results of the Company. e) Risks related to the Company suppliers The Company has no alternative sources of supply of raw material to be used for its thermal and nuclear plants. The Company's thermal plants operating on coal and/or fuel oil and nuclear power plants operate with processed uranium. In each case, the Company is totally dependent on others for provision of such raw materials as it does not produce them. If for some reason these materials are not available, the Company would have no alternative sources of supply and thus the generation of electrical energy for its thermal and nuclear power plants would be significantly and adversely affected, which could adversely affect the financial condition and the Company's operating results. f) Risks related to the Company's customers The Company is not subject to risks related to its customers. g) Risks related to the sectors of activity of the Company The Company is affected by hydrological conditions and results of operations may be affected. The hydrological conditions may adversely affect the Company's operations. For example, the hydrological conditions that result in low capacity to generate electricity in Brazil could lead to the implementation of programs for mandatory reductions in generation or consumption of electricity. The most recent period of low rainfall occurred in the years prior to 2001 and as a result, the Brazilian government instituted a program to reduce electricity consumption, from June 1 st, 2001 to February 28 th, A new occurrence of unfavorable hydrological conditions resulting in low supply of electricity in the Brazilian market can cause, among other things, the implementation of comprehensive programs for the conservation of electricity, including mandatory reductions in electricity consumption. It is possible that prolonged periods of below average rainfall adversely affect future financial results of the Company. The generating capacity may still be affected by events like flooding, which may damage the facilities of the Company, which in turn may adversely affect the financial condition and operating results of the Company. Construction, expansion and operation of facilities and equipment for generation, transmission and distribution of electricity involve significant risks that might lead to revenues losses or increased expenses. The construction, expansion and operation of facilities and equipment for generation, transmission and distribution of electricity involve many risks, including: 23

24 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (I) the inability to obtain necessary permits and approvals from government; (Ii) the unavailability of equipment; (Iii) supply interruptions; (Iv) stoppages of the work; (V) stoppage of the workforce; (Vi) social unrest; (Vii) disruptions caused by weather and hydrological conditions; (Viii) unforeseen environmental and engineering problems; (Ix) increases in losses of electricity, including technical and commercial losses; (X) delays in the construction and operation, or increases in estimated costs, and (Xi) unavailability of adequate funding. The Company has no insurance coverage for some of these risks, especially those arising from weather conditions. If the Company goes through the problems above mentioned, it may not be able to generate and distribute electricity in amounts consistent with its projections, which may have an adverse effect on the financial condition and operating results. The Company is strictly responsible for any damages resulting from inadequate supply of electricity to distribution companies, and the hired insurance policies may not cover such damage. According to Brazilian law, the company has strict responsibility for damages resulting from inadequate supply of electricity to distribution companies, such as sudden interruptions or disruptions resulting from the generation, transmission and distribution. Accordingly, the Company may be liable for any direct damage without committing a fault. Depending on the uncertainty involved in these issues, Eletrobras does not maintain any provisions with respect to potential harm. The contingencies arising from these interruptions or disruptions that are not covered by insurance policies or which exceed the coverage limits of such policies could result in significant additional costs for the Company and may adversely affect its financial condition and operating results. h) risks related to regulation of the sector of the Company Chance of Law , of March 15, 2004, as amended (the "New Energy Act") be declared unconstitutional by the Federal Supreme Court (STF). In 2004, the Brazilian government enacted the New Energy Act, which is the new regulatory framework for the energy sector in Brazil. Among other changes, new legislation stipulates (i) changes in the rules about the purchase and sale of electricity between generating companies and distribution companies, (ii) new rules for bidding for generation projects, (iii) the creation of the Board of Electric Energy Commercialization (CCEE) and new sector bodies, and (iv) changes in the powers of the Ministry of Mines and Energy ("MME") and ANEEL. The Company has aligned its business to this new legislative framework. However, the constitutionality of this law is being questioned before the Federal Supreme Court, which has not delivered its final understanding on the matter, despite being denied, by majority vote, the suspension of that law until its constitutionality is debated. If the Supreme Court rules that the law is unconstitutional, there will be doubt about which is the appropriate legislative framework for the sector, what could materially and adversely affect the Company's business. In addition, the Company has no way to anticipate the terms of a possible regulatory framework to replace the New Energy Act and the Company probably would face costs of 24

25 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras realigning its business to the new legislative framework, which would adversely affect its financial condition and operating results. The Company may be penalized by ANEEL for failing to comply with the terms of its concession contracts and may not recover the full value of its investment in the event that any of its concession contracts is canceled. The Company conducts its business of generation, transmission and distribution in accordance with concession agreements signed with the Brazilian Government through ANEEL. These concessions vary in duration between years. ANEEL may impose penalties on the Company, in case it fails to comply with any requirement under the concession contracts. Depending on the severity of the noncompliance, these penalties could include warnings, substantial fines (in some cases up to 2% of revenue of the fiscal year immediately preceding the assessment), restrictions on the Company's operations, intervention or termination of the concession. For example, on March 22, 2010 the controlled Eletrobras Furnas was fined in R$ 53.7 million; ANEEL, who understood that there had been failures in the protection of two substations Itaberá (SP) and Ivaiporã (PR), which may have driven to electrical failure and interruption in the supply of electric power on November 10, ANEEL may also cancel the concessions prior to maturity in the event that the Company has its bankruptcy declared or being wound up, or in case ANEEL determines that such cancellation serves the public interest. The Company cannot ensure that will not be penalized by ANEEL for breach of their concession contracts or that its concessions will not be canceled later. In the event that ANEEL cancel any of the concessions of the Company Group prior to their maturity, the licensee may not operate in that activity and the compensation to be received by the cancellation of the concession may not be sufficient to recover the full value of the investment and thus it may have an adverse effect on the financial condition and operating results of the Company. The generation, transmission and distribution of electricity are regulated and supervised by the Federal Government and changes in the regulatory area that may be implemented, may adversely impact the Company's business. According to Brazilian legislation, the National Agency of Electrical Energy ("ANEEL") is empowered to regulate and supervise the activities of the concessionaires of generation, transmission and distribution of electricity, as the Company and its controlled companies, including in relation to investments, additional costs, tariffs, transfer of energy prices purchased at the rates charged by these concessionaires, among other matters. Regulatory changes in the electrical sector are difficult to predict and may have adverse impact on the activities, business and results of the Company and its controlled companies. Concessions granted by the Federal Government for the activities of generation, transmission and distribution may be terminated before the expiration of their terms and the corresponding compensation may be less than the amount needed to fully recover the investments made by the Company. In certain situations, the termination of the concession may be advanced by means of expropriation and/or forfeiture. Expropriation is the resumption of service by the grantor during the licensing period for reasons relating to public interest, which should be expressly stated by specific law. Forfeiture shall be declared by the grantor after ANEEL or the MME have conducted an administrative procedure and certified that the licensee: (a) failed to provide adequate service for over 30 consecutive days and did not submit any acceptable alternative to ANEEL or ONS (National Operator of Power), or to comply with applicable law or regulation, (b) lost the technical, financial or economical conditions to maintain adequate service provision, and / or (c) did not fulfill the fines levied by the grantor. Penalties for the concessionaire that have a performance below the levels set are provided in the ANEEL Resolution No. 63, of May 12, 2004, and include warnings, substantial fines (in some cases up to 2% of 25

26 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras revenue of the fiscal year immediately preceding evaluation), restrictions on the Company's operations, intervention or termination of the concession as provided above. The Company and/or its controlled companies, as the case, may contest any expropriation or forfeiture that may be determined and will be entitled to receive compensation for their investments in expropriated assets which have not been fully amortized or depreciated. Such indemnity, however, may not be sufficient to fully recover the investments made by the Company, which could cause a material adverse effect on its financial condition and its operating result for the Company. The Company is subject to environmental laws and regulations as well as health and safety regulations, which may become stricter in future and result in higher liabilities and capital expenditures. The Company's operations are subject to federal, state and municipal health and safety and environment legislations, as well as supervision by the Brazilian government agencies responsible for implementing these laws. Among other things, these laws require Eletrobras to obtain environmental permits for the construction of its facilities or for installation and operation of new equipment needed for its activities. The rules are complex and can be changed in the course of time, making the ability to meet the requirements more difficult or even impossible, thus undermining the ongoing or future operations of generation, transmission and distribution. There is a trend towards greater demands on health and safety in the industry of the Company. In addition, individuals, nongovernmental organizations and the public have certain rights to file lawsuits seeking to obtain injunctions to suspend or cancel the licensing procedures. Likewise, agencies of the Brazilian Government may take measures to compel the Company to remedy any failure to comply with applicable laws. Such measures may include, among other things, the imposition of fines, revocation of licenses and suspension of operations. These failures may also result in criminal liability, regardless of the responsibility to perform environmental remediation and to compensate third parties for environmental damage. The Company cannot predict accurately the effect of the compliance with new environmental, health or safety standards might have over its activities. If it does not ensure the appropriate licenses, the Company's growth strategy could be significantly affected. Environmental regulations require the Company to conduct environmental impact studies on future projects and to obtain all the necessary regulatory permissions. The Company needs to perform environmental impact studies and obtain licenses for its current and future projects. The Company cannot ensure that such environmental impact studies are approved by the Brazilian Government, that public opposition will not result in delays and/or modifications of any proposed project or that laws or regulations will not change or be interpreted in a manner which may affect adversely its operations or plans for projects in which it has an investment. The Company sees the concern for environmental protection as a growing trend in the industry. Changes in environmental standards, or changes in policy to comply with existing environmental standards, may adversely affect the Company's financial condition and results of its operations by delaying the implementation of electric energy projects, increasing costs of expansion, or subjecting Company to administrative fines for noncompliance with environmental standards. i) Risks related to foreign countries in which the Company operates Not applicable, since the activities and results of the Company are restricted to transactions carried out in Brazil Expectations for reduction or increase in exposure to risks: The Company constantly monitors the risks of its business that may adversely impact its operations and its results, including changes in macroeconomic and sector scenario that may affect its activities, analyzing price and economic activity indexes, as well as the supply and demand for electricity. The Company conservatively manages its cash position and working capital. 26

27 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Additionally, it is worth noting that as determined by Deliberation CVM 565, of December 17, 2008 which approved the CPC 13 from the year ended on December 31, 2008 the Company adopted the Law 11,638/2007 and Provisory Measure 449/2009, converted into Law 11,941 of May 27, The Company adopted January 1, 2008 as the date of transition. The Accounting Pronouncements Committee - CPC issued and the CVM approved during the year 2009 several accounting pronouncements aligned with International Accounting Standards issued by the IASB - International Accounting Standards Board. The standards and interpretations of the standards listed below are mandatory for the fiscal years beginning from January 1, In addition to these, other standards and interpretations which alter the accounting practices adopted in Brazil in the process of convergence with international standards were also published. The technical interpretation ICPC-01 establishes the general principles on the recognition and measurement of their rights and obligations in the concession contracts. According to the ICPC 01 the remuneration received or receivable by the concessionaire shall be recorded at fair value, corresponding to the right on a financial asset and / or on an intangible asset to the business of Transmission and Distribution. Considering the range of the complexity of the changes required by this technical interpretation, the Company is evaluating the impact on its financial statements while follows the discussions and debates of the subject, especially at the accounting bodies and associations and at the regulators, who will manifest themselves on aspects of this technical instruction application. The Provisional Measure # 449/2009 also introduced the Transitional Tax Regime - RTT which establishes the treatment of tax effects on the effects of the new accounting legislation in Brazil. The Company is currently evaluating the effects on such pronouncements, interpretations and guidelines, which may have material impact on its financial statements Judicial, administrative and arbitration proceedings in which the Company or its controlled companies are parties, discriminated in labor, tax, civil and other: i) that are not confidential, and ii) are relevant to the business of the Company or its controlled companies: The Company and its controlled companies are parties on many lawsuits and administrative proceedings arising in the normal course of business, which includes civil, tax, labor, among others. The Company has a provision on its balance sheets in respect of losses arising from litigation based on the estimated probability of such losses. Accounting practices adopted in Brazil, which are based on the Corporations Law, in the rules issued by CVM, the accounting standards issued by IBRACON and the resolutions of the CFC ("BR_GAAP") require the Company to maintain reserves because of probable losses and make provision when, in the opinion of its Board of Executive Officers and its outside lawyers, the Company believes that an unfavorable outcome is probable and the loss can be reasonably estimated. At the date of the Financial Statements closing for the fiscal year ended on December 31, 2009, the Company had the following provisions for contingent liabilities by nature: PARENT COMPANY CONSOLIDATED Period (in Thousands of R$) Financial years ended on December CURRENT Labor , ,743 Tax , ,853 Civil , ,706 (-) Escrow deposits - - (57,150) (172,593) ,526 1,481,709 NON CURRENT Labor 6,130 88, , ,831 27

28 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Tax ,880 60,147 Civil 1,311,445 1,328,244 2,622,737 1,899,297 (-)Escrow deposits (489,890) (407,304) (1,296,468) (725,719) 827,685 1,009,514 2,302,016 1,695,556 The Company and its controlled companies are involved in several ongoing proceedings within the judiciary, particularly in labor and civil spheres, which are in various stages of trial. The Company's management in accordance with CVM Deliberation 489/2005, adopts the procedure of classifying the causes filed against the Company in relation to the risk of loss, based on the opinion of legal counsel, as follows: to causes whose negative outcome for the Company is considered likely, provisions are made; to causes whose negative outcome for the Company is considered possible, relevant information is disclosed in Notes and to causes whose negative outcome for the Company is considered remote, are only disclosed in Notes the information that, at the discretion of management, are deemed relevant to the full understanding of Financial Statements. Therefore, to cope with any losses, provisions are made for contingencies presented above, net from escrow deposits and judged by the administration of the Company and its controlled companies, based on their legal advisors, as sufficient to cover possible losses in legal proceedings of any nature and had, in the year ended December 31, 2009, the following developments: In thousands of Reais PARENT COMPANY CONSOLIDATED Balance at ,037,192 2,977,143 Provisioning 71, ,870 Reversal of provisions - (311,265) Payments - (42,240) Monetary restatement - 24,592 Escrow deposits (99,180) (168,997) Survey of escrow deposits - 15,162 Balance at ,009,514 3,177,265 Provisioning (82,444) 447,563 Reversal of provisions (16,799) (474,149) Payments - (240,189) Monetary restatement - (55,023) Escrow deposits (82,586) (531,418) Survey of escrow deposits - 99,494 Balance at ,685 2,423,543 We highlight, below, the judicial and administrative processes of greatest importance in which the Company and its controlled companies are parties. In assessing the relevance, the Company has not only stuck to the ability of the process of significantly impacting its assets, its financial standing or its business, or its controlled companies, and also considered other factors that could influence the investing public decision, for example, the image risks inherent to a certain practice of the Company or legal risks related to the discussion of the validity of statutory provisions. Nevertheless, the Company's management believes that an unfavorable outcome to the Company in such proceedings would not cause risks for the company image. Civil In the Parent company 28

29 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The Company appears as an accused in a lawsuit filed by Associação Brasileira dos Consumidores de Água e Energia Elétrica ASSOBRAEE which is in the 17th Federal Court DF, which object is to use the Company s market share value as price of emission of shares issued for payment of Compulsory Loan credits, which wiil be realized making use of the share net equity. The said lawsuit values, conferred by the author, R$ 2,397.0 million. In the evaluation of the company s legal advisors, the risk of loss is remote. It is important to enlighten that STJ has already declared its opinion about the issue, in trial held in the form of repeated appeals, declaring expressly that the proceeding of conversion in shares by net equity was correctly adopted by Eletrobras, ratifying the understanding that the risk of loss of the mentioned lawsuit should be considered remote. Below, there is a brief description of the main terms of the mentioned lawsuit. Its relevance derives from the high value discussed. DECLARATORY Process n a) court 17th FEDERAL COURT OF DISTRITO FEDERAL b) instance 2 nd grade c) date of establishment 05/23/2007 d) parties to the proceedings ELETROBRAS Vs. Associação Brasileira dos Consumidores de Água e Energia Elétrica ASSOBRAEE (Author) e) values, property or rights Use of Company s share market value as a price of emission of shares involved issued for payment f) key Facts The verdict in first degree ruled as extinct lawsuit by legal incapacity of the author. The judicial proceeding is pending trial of appealing interposed by the author in the Federal Regional Court of the 1 st Region. g) chance of loss Remote h) impact in case of loss The impact is considered because of the values discussed. i) provisioned value There is none. In controlled companies In the controlled Eletrobras Chesf: A. Eletrobras Chesf is the author of a lawsuit in which it seeks a declaration of partial invalidity in asset (K-factor of analytical price correction) to the contract of civil works of Xingó Power Plant, signed with the consortium formed by Brazilian Company of Projects and Works - CBPO, CONSTRAN SA - Construction and Trade and Mendes Junior Engenharia SA, and the return of sums paid by way of K-factor, amounting to approximately R$ million, double. The lawsuit was filed before the Federal Court, but the Federal Court decision in the 5th Region determined its proceedings before the State Court of Pernambuco. The lawsuit filed by Eletrobras Chesf was dismissed. The counter-claim presented by the defendants was upheld by the Judge of the 12th Civil Court of Recife, and the decision was upheld by the 2nd Civil Chamber of the Court of Pernambuco, having Eletrobras Chesf brought Declaration Embargoes for clarification of certain points of its Appellate that were omitted from the decision of the 2nd Civil Chamber. These embargoes were tried and refused by the 2nd Civil Chamber. Patrons of Eletrobras Chesf brought, then, a special appeal and extraordinary appeal against the ruling by the 2nd Civil Court alluded to in the appeal. On March 31, 2004, a legal recourse filed by Eletrobras Chesf had been accepted by Pernambuco s court and sent to the Superior Court, while the extraordinary recourses also brought by Eletrobras Chesf were not accepted, reason why Eletrobras Chesf presented against this negative the legal appeal of the instrument. On June 30, 2005 those recourses were sub judice in the High Courts. After that date until March 31, 2006, 29

30 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras the instruments issued by Eletrobras Chesf in STF were denied, while the Special Appeal by Eletrobras Chesf and the Federal Government by the opinion of the STJ received an opinion of the Federal Public Ministry, which manifests itself by the cancellation of the process by absolute lack of competence of justice in the State of Pernambuco to judge the proceeding and by the review of the merits by the competent court. On September 30, 2006, the files were concluded for decision. In November 1998, the defendants requested the provisory execution of the decision, amounting to R$ million being case is suspended by determination of the Minister President of the STJ (PET 1621). That injunction was the subject of an appeal by the Consortium, which was judged on June 24, 2002, remaining unanimously the injunction before granted by the President of the STJ, being thus ruled out the possibility of the Consortium obtaining interim protection. Subsequently the defendants presented liquidation decision procedure, in order to determine the current value of the conviction, in the event of being denied all the appeals of Eletrobras Chesf and Federal Government. At September 30, 2005, the forensic works determined by the presiding judge were ongoing with the purpose of ascertaining the real value of the conviction. After the submitting of the first report by the expert, the parties requested clarification on the report, and the process is with the expert for examination. The Administration, based on the opinion of its legal advisors and based on calculations that took into account the suspension of payment of installments on the K-factor and their monetary restatement, keeps track of provision, in the Liabilities, which the amount updated to 31 December 2009 is R$ million to cover possible losses arising from this matter. This provision corresponds to the partial disallowance of the K-factor between July 1990 and December 1993 in compliance with Law No /1990, and suspension and full payment of the K-factor for the period from January 1994 to January 1996, as understood by Eletrobras Chesf. On March 31, 2009, Special Appeal and the Bill of Review were awaiting trial in Superior Court and Federal Supreme Court, respectively, the files of these resources were concluded for the Minister Rapporteur, it should be emphasized that in the 12th Court of Recife s District, the proceeding for settlement decision at the state level remained ongoing. Judging the procedure of liquidation of the sentence, the judge recognized that the jurisdiction to judge the demand was the Federal Court, considering the presence of the Union as an interested party in the proceeding. The Consortium Xingó filed a motion for clarification against this decision, and the judge, taking into account this appeal, maintained his decision and sent the case to the federal court. Not satisfied with this decision, the Consortium Xingó brought bill of review, in September 30th, 2008, it was sub judice in the Court of Justice of Pernambuco. On December 31, 2008, the trial of Bill for review was awaited which was later judged to determine the jurisdiction of state courts to appreciate the feat. Substitute Judge in the 12th Civil Court of Recife uttered sentence by setting the value of the conviction in R$ 842,469, and there Eletrobras Chesf brought against this decision reasonable requests for clarification, considering that the sentence did not manifest on various challenges presented by Eletrobras Chesf around the expert opinion offered by the expert provided by court. On September 30, 2009, these embargoes were awaiting trial. On December 17, 2009 the 2nd Chamber of the Superior Court started the trial of the Special appeals brought by the parties and the Union; once started the trial of the first RESP by the Federal Government, considered harmful compared to others, the Minister Hermann Benjamin asked to examine the files for further analysis of matter. Thus, on December 31, 2009 the trial of the RESPs relevant to the dispute "K Factor" was suspended. At the state level, the process for liquidation of the sentence was deemed extinct by the judge holding the 12th County of Recife, on the grounds that the matter was still sub judice in the STJ; against this decision, Consortium Xingó filed bill of review for Court of Pernambuco; a negative conflict of jurisdiction between two justices was settled in TJP, it is now up to the collegiate resolve the issue. There is no term prediction for the outcome of the dispute. 30

31 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Below there is a brief description of the principal terms of such action. Civil Lawsuit Process n RESP /PE a) court SUPERIOR COURT b) instance 2nd PANEL c) date of establishment 04/26/1994 d) parties to the proceedings CONSÓRCIO XINGÓ Vs. COMPANHIA HIDRO ELÉTRICA DO SÃO FRANCISCO - CHESF e) values, property or rights R$ million (CONSÓRCIO XINGÓ S INTENT) involved f) Key Facts TRIAL SUSPENDED FOR FILE REVIEW BY THE MINISTER HERMANN BENJAMIM g) chance of loss Likely h) impact in case of loss The Company believes that an unfavorable decision neither would impact significantly the financial capacity or assets of the Company or its business, nor would not influence the decision of the investing public. i) provisioned value R$ million B. Eletrobras Chesf is also involved in an Action Indemnity of 14,400 ha. Of land in Aldeia farm, as proposed in County Sento Sé, Bahia, for the assets of Aderson Moura de Souza and wife (Proc. 0085/1993). The first-degree Sentence upheld the condemnation of Eletrobras Chesf in R$ 50.0 million, equal to the main plus interest and inflation. On December 31, 2008, Eletrobras Chesf had appealed to the Court of Bahia. On March 31, 2009 the case was transferred to the Federal Court by an absolute incompetence of the Judge. Means that all decision-making acts are void and a new process must be started, this time in Federal Court. On September 30, 2009 Eletrobras Chesf had not been notified under the redistribution of the files. On December 31, 2009, trial of Appeals was awaited. Below is a brief description of the principal terms of such proceeding. Indemnity Lawsuit Process n a) court State Civil Court b) instance 2nd instance TJBA c) date of establishment 12/07/1993 d) parties to the proceedings Company (Defendant) CHESF Vs. (Plaintiff(s)) Aderson Moura Souza and Eliza Teixeira Moura e) values, property or rights Indemnity of ha. ln land in Aldeia farm, Sento Sé BA. involved f) Key Facts The verdict in first degree upheld the condemnation of Eletrobras Chesf of R$ 50.0 million, equal to the main plus interest and inflation; 31/12/ The Eletrobras Chesf appealed to the Court of Bahia; 31/12/ The case was transferred to the Federal Court by the Judge's absolute incompetence, implying the invalidity of any decisionmaking and actions a new proceeding be initiated in federal court, and 30/09/ The Eletrobras Chesf had not been notified under the redistribution of the case. 31/12/ trial of Appeals was awaited. g) chance of loss Likely h) impact in case of loss The Company believes that an unfavorable decision neither would impact significantly the financial capacity or assets of the Company or its business, nor would not influence the decision of the investing public. i) provisioned value R$ 50,000,

32 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras C. Two proceedings for compensation filed by the consortium formed by companies CBPO / CONSTRAN / Mendes Junior, in which it is requested the condemnation of Eletrobras Chesf and payment of additional compensation due to late payment of bills of contract referring to Xingó Power Plant. One, filed on June 8, 1999 for bills issued on or after April 30, 1990 and another, filed on May 31, 2000, for the invoices issued until that date. In the mentioned legal proceedings, the authors have formulated generic requests, but merely to point out the existence of a supposed right to financial compensation, leaving the determination of values for the liquidation of the sentence. Eletrobras Chesf challenged the proceedings and requested that the Federal Government was admitted in the process, with the referral of the cases to the Federal Courts of Justice in Pernambuco. The Consortium petitioned talking about the application for admission of the Federal Government in the process. After the presentation of the expertise and additional information, a hearing was held in August 2005, determining the presentation of final reasons up to October 17, Currently, proceedings are concluded to be ordered and probably the final works will occur for the announcement of the sentence. On December 31, 2009, the process remained conclusive for the court decision. D. Public Civil Proceeding brought against Eletrobras Chesf by the Associação Comunitária do Povoado do Cabeço e Adjacências (Community Association of Cabeço Town and Surroundings) in the state of Sergipe, totaling R $ million, before the 2nd Federal Court in Sergipe, it s purpose is to obtain financial compensation due to alleged environmental damage caused to the fishermen of Cabeço, to the downstream of Xingó HEP and caused by the construction of this plant. It was filed in Federal Court in June 27, 2002, and contested within the statutory period. After a sequence of procedural incidents that did not affect the question or request, the trial judge ruled on August 31, 2005, the inclusion of IBAMA, IMA-AL, BA, CRA, Federal Government and ADEMA-SE in the passive pole of the proceeding, ordering the service of these entities On September 30, 2005 the fulfillment of the mandate for service were awaited. On September 30, 2006, the files were concluded and the case filed to the judge after the attorney joined the new patrons of Eletrobras Chesf. On December 31, 2006, the process was suspended by order of the judge, awaiting trial for bill of review filed by the author before the Federal Court of the 5th Region. Not yet tried. The Joint Parties of Eletrobras Chesf (Federal Government, IBAMA, IMA-AL, CRA-BA and ADEMA-SE) had already been serviced. On September 12, 2007, the judge gave the order reads as follows: "Wait for the information of res judicata decision of the bill of review, and Eletrobras Chesf should communicate." Whereas the bill of review brought by Eletrobras Chesf was denied, the Company filed a declaratory embargos against this decision which were pending trial on March 31, On the other side, in the district of Brejo Grande/SE, there was also a civil proceeding brought against Eletrobras Chesf by the Village Community Association of Cabeço and Saramém, which has been assigned a value of $ 100,000 for the same purposes of the demand previously commented, this process is abandoned by the party that made the author since February The last procedural motion occurred in November 2007, when the judge ruled the subpoena of the Attorney General to rule on the proceeding. On March 31, 2008, the process stopped and stood still without manifestation of the prosecution. On June 30, 2008, Judge from Brejo Grande County had given decision recognizing the lack of competence of state courts jurisdiction to consider the process, deciding to send the file to the Federal Court. On September 30, 2008, the files were under review from IBAMA. On December 31, 2008, the return of the files by IBAMA was waited. On February 19, 2009 this proceeding, which had been referred for competence to the federal courts, was deemed procedurally connected with other proceeding of a similar character that there was already appreciated - quoted at the beginning - both being considered together from that date. On June 13, 2008 it was published an order by the judge determining the service of the Federal Government and IBAMA, and the subpoena of the plaintiff to comment on the terms of the defense. On September 30, 2008, the files were under review by IBAMA. On December 31, 2008, conciliation hearing was awaited a scheduled for February 19, haven t the conciliation hearing occurred in the on February 19, 2009, the 32

33 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras judge ordered new arrangements for the process continuity. At that hearing, the judge noted the existence of a lawsuit with similar purposes, which was being considered in the Civil Court of the Brejo Grande / SE and had been referred for competence to the Federal Court and distributed to its jurisdiction. As a result, the judge decided to recognize the procedural connection between the two demands, both, from that date, transact together. Then fixed the date of May 14, 2009 was set to perform a new hearing for the purpose of deciding on the procedural nature of the evidence to be taken, including completion of forensics. At that hearing, the judge set the deadline of three months for the parties to submit questions to the forensics. It was set the date of September 15, 2009 for a hearing to delimit the object of forensics, and Eletrobras Chesf is to submit to this end, Terms of Reference Draft. This document has been prepared by experts of the Company, together with their outsourced attorneys. On September 30, 2009 the judge presiding the process had postponed the hearing scheduled for September 15, 2009 for October 22, At that hearing, the judge has set a new one to be held on March 2, 2010, with the purpose of designation of the expert opinion and to determine the time for completing the examination by experts. Supported by evaluation of the lawyers who sponsor the causes for Eletrobras Chesf, the expectation of the Administration on the possibility of loss of these proceedings is possible, as the failure of the defense, but not about the values of applications. E. Despite being considered by managers, supported by legal advisors of the Company, as Remote risk of loss, there is an ongoing collection proceedings filed by Construtora Mendes Junior SA, a contractor for the construction of the Itaparica Hydroelectric, for alleged financial losses due to late payment of invoices by the Company. This collection proceeding is based on the Declaratory Proceeding was ruled founded for the purpose of declaring the existence of a credit relationship of Mendes Junior with Eletrobras Chesf, ensuring financial compensation. In this collection proceeding Construtora Mendes Junior SA received sentence of Judge of the 4th Civil Court, subsequently revoked, which condemned Eletrobras Chesf to pay the amount, including attorneys' fees and inflation until the month of August 1996, calculated according to criteria determined by the judge - would be approximately R $ 7,000.0 million, in December 31, 2009, not updated since August After the decision of the Superior Court, of not knowing any special appeal brought by the construction company Mendes Junior, and confirming the decision of the 2nd Civil Chamber of the Court of Pernambuco, which overturned the verdict, determining also the redistribution of the process to one of the Federal Courts of Pernambuco, the case was referred to the 12th Federal Court to a new expert s analysis and to be given new sentence. The expert s analysis was submitted. Should be noted that the expert, answering the question of Eletrobras Chesf, said "not being possible, by analyzing the accounting records of Mendes Junior, to claim it to have captured, in periods when there were delays in payment of bills, funds in the financial market, specifically to finance the work of Itaparica. This response was confirmed by analysis by the Technical Assistant of Eletrobras Chesf, which included careful examination of the financial statements of Mendes Junior. Based on these results, Eletrobras Chesf requested the total dismissal of the proceeding. The Federal Prosecutor presented demonstration with requests for declaration of nullity of the whole process. And, in substance, asked for the dismissal of the proceeding. The proceeding was ruled valid in part, by ruling published on March 8, Against the sentence, Mendes Junior presented requests for clarification, in which it asked that the report prepared by the Official Expert was accepted, in its entirety. The Federal Prosecutor submitted requests for clarification asking that the proceeding was dismissed as entirely unfounded. Mendes Junior and the Federal Public Ministry Embargoes were rejected by MM. Judge of the 12th Federal Circuit. 33

34 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The Eletrobras Chesf and the Federal Government had requests for clarification, accepted by MM. Judge, by a decision that clarified some points of the sentence relating to the investigation of potential debt of Eletrobras Chesf with Mendes Junior. Being clarified the sentence at the point at which states that, in determining the eventual debt Eletrobras Chesf with Mendes Junior, must be discounted any and all payments of the main, and any and all financial compensation paid by Eletrobras Chesf in fulfillment of the contract. Against this sentence Eletrobras Chesf presented an appeal, in which it asked for the total dismissal of the proceeding, especially considering that, in this collection action, it was up to Mendes Junior, to do justify to some sort of financial compensation, in compliance with the decision rendered in the previously filed Declaratory Action, show that raised funds specifically to finance the works of Itaparica, due to the delay of Eletrobras Chesf to pay some bills, and that the financial costs that it had, with this fundraising, have been higher than the total of increases paid by Eletrobras Chesf, due to these delays. On December 31, 2008, the Federal Government, Eletrobras Chesf and Mendes Junior construction company, had filed an appeal, being in progress a period of time for the Public Ministry to comment on the sentence. The Public Ministry gave its assent to the reception of the appeal of Eletrobras Chesf. The appeals were placed on the agenda for trial on May 7, 2009, for the 1st Class of the Federal Court, but for lack of quorum, this trial was postponed until May 14, And when the Judge asked to review the file, the case was withdrawn from the agenda, situation in which still was in December 31, On February 25, 2010 the 1st Class of the TRF 5th Region upheld the appeals of Eletrobras Chesf, the Federal Government and the Public Ministry, and dismissed the appeal of Mendes Junior, with the corresponding ruling published on March 8, Considering elements already on the process, we see that Mendes Junior did not take any loan, specifically to fund the action of Itaparica (or did not take it in the amounts expressed), and considering that, according to the sentence, the full benefits granted to Junior Mendes during the execution of the contract should be compensated, and considering, finally, calculations made preliminary by Eletrobras Chesf, the Legal Counsel of Eletrobras Chesf supports the position of the patrons of the Company, in the sense that, at present, the risks of loss are remote. In the Controlled Eletrobras CGTEE: The controlled was sued by CEEE-D for exaction of values deriving from the transfer from Eletrobras CGTEE to the Company, occurred as a result from the split of CEEE. This process has a value of R$ 3.6 million and according to analysis from the Legal Advisory, the probability of loss by the Company was considered probable from the third quarter of 2009, deriving from changes in the progress of the mentioned process. Labor Labor Lawsuits filed against the Company and its controlled companies: On December 31, 2009, the Company and its controlled companies were part in 411 labor and accidents at work claims, involving the total amount at issue of R$ 129 million. None was considered relevant to the performance of the Company's activities. In general, the processes are labor-related actions in salary equalizing, framework, overtime, supplementary retirement, additional danger money, severance payments from outsourced workers, rescissory actions. The Company believes that, although the number of labor disputes is high, no action is considered individually significant enough to adversely impact its results in a relevant way. In the Parent Company: The company maintains provisions in the amount of R$6.1 million in order to cover possible losses due to labor claims which are probable to be lost, in the opinion of the legal counsels. 34

35 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras In Controlled companies: In the Controlled Eletrobras Furnas: A. Database of Engineers Labor claims filed by the Union of Engineers from Rio de Janeiro taken to court with the objective of retrieving differences in salary related to the change in the database of engineers, whereas the process is in the stage of settlement, whose amount, estimated and accounted for, is R$82.8 million. B. Hazardous Work Premium Sundry lawsuits in which hazardous work premium payments are demanded, understanding that the full percent must be granted instead of proportional to all employees who render services through activities subject to the risk of electric shock. The amount estimated for the coverage of possible losses deemed as probable by the legal counsels, on December 31 st, 2009, was R$82.1 million. C. Retirement supplement Amount of R$61.9 million regarding retirement supplement payments deriving from parity lawsuits involving active employees. D. Sundry Lawsuits Sundry labor claims filed against the company to which provisions are maintained in the amount of R$162.8 million on December 31 st, 2009 (December 31 st, 2008 R$149.8 million) related to the lawsuits in progress deemed as probable loss. In the controlled Eletrobras Chesf: A. Lawsuit in progress at the Bahia State Regional Labor Court filed by the Union of the Electricity Service workers of the State of Bahia, requiring the payment of differences in salary deriving from the incidence of the Additional Payment included in Decree-Law No ADL and the Annual Bonus on the Health Hazard Payment, in the estimated amount of R$7.5 million, to employees of the Paulo Alonso Regional Management. The Company lodged an Interlocutory Appeal in Review Appeal to the Higher Labor Court - TST, which was rejected. The decision became final and unappealable and Eletrobras Chesf was condemned. The execution phase commenced and the amount of R$3,7 million was paid to a significant portion of employees, and another R$3,8 million is expected to be paid. On March 31 st, 2009 the execution commenced, the credit of which was partially stayed. On September 30 th, 2009, the lawsuit was in the possession of the court expert for posterior judgment of the Execution Fees, aiming at the debit adjustment. On December 31 st, 2009, the Execution Fees were deemed groundless and Eletrobras Chesf lodged an Interlocutory Appeal at the Regional Labor Court (TRT) 5 th Region. Below, there is a brief description of the main terms of such lawsuit: Labor Claim Process No a) trial Labor-related b) court 2 nd Court - TRT - 5 th Region c) date of establishment 01/22/2004 d) parties of the lawsuit Company (Defendant) CHESF Vs. (Plaintiff(s)) Union of the Electricity Service workers of the State of Bahia e) values, assets or rights R$13,232, concerned f) main facts Execution Interlocutory Appeal of Petition to the TRT 5 th Region g) loss probability Probable 35

36 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras h) impact in case of loss The Company does not believe that an unfavorable decision would have a significant impact on its financial or asset capability, or its businesses, and neither would it influence the investor public s decision. i) provisioned value R$ million B. Lawsuit filed at the 4 th Labor Court of Recife - PE by the Union of Workers of Urban Industries of the State of Pernambuco - urban public or private utility workers in substitution of 460 employees allocated in the city of Recife, state of Pernambuco, pleading for the hazardous work premium over all payroll allowances, amounting to R$4 million. The Lower Court Judge excluded from the dispute, due to libis alibi penden or res judicata, approximately 300 of the workers, as well as considered the action groundless on the merit. The Labor Union lodged an Ordinary Appeal at the Regional Labor Court (TRT) 6 th Region, which was accepted. The lawsuit is under phase of settlement based on the results of expert examination, the amount of R$3.3 million having already been settled. According to the Company's legal counsels' calculation, this debit stands at R$2.9 million, and the difference was the subject-matter of a motion to refute execution fees. On December 31 st, 2009, the judgment of the Execution Fees lodged by Eletrobras Chesf aiming at the debt adjustment was pending. Below, there is a brief description of the main terms of such lawsuit: Labor Claim Process No a) trial Labor-related b) court 1 st Court c) date of establishment 10/03/2005 d) parties of the lawsuit Company (Defendant) CHESF Vs. (Plaintiff(s)) Union of Workers of Urban Industries of the State of Pernambuco e) values, assets or rights R$ 4,582, concerned f) main facts Execution Awaiting judgment of the Execution Fees g) loss probability Probable h) impact in case of loss The Company does not believe that an unfavorable decision would have a significant impact on its financial or asset capability, or its businesses, and neither would it influence the investor public s decision. i) provisioned value R$4.583 million C. Below, there is a brief description of the main terms of a lawsuit filed by the Union of Workers of the State of Piauí against Eletrobras Chesf:<0} Labor Claim Process No a) trial Labor-related b) court 1 st Court c) date of establishment 05/22/2003 d) parties of the lawsuit Company (Defendant) CHESF Vs. (Plaintiff(s)) Union of Workers of the State of Piauí e) values, assets or rights R$ 5,816, concerned f) main facts Release of the amounts to the Plaintiffs g) loss probability Probable h) impact in case of loss The Company does not believe that an unfavorable decision would have a significant impact on its financial or asset capability, or its businesses, and neither would it influence the investor public s 36

37 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras decision. i) provisioned value R$ 5,816, In the controlled Distribuição Alagoas (CEAL): The Union of Workers in Urban Industries of the State of Alagoas, in the capacity of procedural substitute, brought a labor claim on behalf of employees of Companhia Energética de Alagoas CEAL (now Distribuição Alagoas), aiming at receiving supposed salary differences in view of the implementation of the economic plan called Bresser Plan. The claim was supported by the Distinguished Second Board of Conciliation and Judgment of Maceió-AL, the decision of which was corroborated by the Regional Labor Court 19 th region, and became final and unappealable. However, upon the execution of the judgment, the judge of the 2 nd labor court of Maceió understood at that time that it should not be limited to the reference date of the category, which would extraordinarily increase the execution. The risk is assessed as a possible loss, as the judgment on the restriction to the reference date of the category will occur along with execution, since as per OJ/TST (SDI I) 262, the restriction to the reference date of the category during the execution stage has no effect on the res judicata sentencing to pay the salary differences deriving from economic plans. Allied with this, the Federal Government filed an objection of pre-enforceability in the execution records pleading the recognition of annulment of the decision rendered by the 2 nd Labor Court of Maceió, which may recognize as invalid the decision unfavorable to Distribuição Alagoas. Tax In the Parent Company: On December 31 st, 2009, the Company and its controlled companies were parties in 58 administrative and legal tax lawsuits, involving the total concerned amount of R$444 million, whereas none of these lawsuits are considered relevant to the performance of the Company s activities Reference Form. The Company was a party in other tax lawsuits arising from the normal course of its businesses, which, in the Company s understanding, do not involve amounts that may have a relevant negative impact on its outcomes. The Company emphasizes that it maintains, concerning the tax lawsuits deemed as probable loss, provisions amounting to R$60.1 million in order to support possible contingencies discussed in these lawsuits. In Controlled In the Controlled Eletrobras Furnas: Tax deficiency notices - FINSOCIAL, COFINS and PASEP On May 3 rd, 2001, the Company received tax deficiency notices related to FINSOCIAL, COFINS and PASEP, in the updated amount of R$1,098.9 million (R$791,8 million historical), as a result of exclusions in the related calculation bases mainly for energy transfer and transport from ITAIPU for a 10-year period. These tax deficiency notices supervened other notices issued in 1999 for a 5-year inspection period, amounting to R$615.1 million, which have been used for adhesion to the Tax Recovery Program - Refis, on March 1 st, 2000 and transferred on July 31 st, 2003 to the Special Installment Program - Paes. On June 12, 2008, the Federal Supreme Court (STF) set the binding precedent 8 that the enforcement of tax deficiency notices was reduced to five (5) years, and the restated amount of R$1,098.9 million became R$241.4 million, unprovisioned, should the risk be deemed probable. 37

38 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The Company, based on the latest decisions of the Internal Revenue Service, recorded a provision for tax risks, of R$89.3 million related to Pasep/Cofins on the exclusion from the calculation basis of the Global Reversion Reserve (RGR) for the periods between October 1995 and September 2000, October 2005 and March The difference of R$195.2 million refers to other exclusions from these calculation bases, still in judgment phase, where Furnas has possible chances of success, according to its legal department's understanding Legal, administrative and arbitral lawsuits, not in secrecy, in which the Company or its controlled companies are parties and whose opposing parties are administrators or former administrators, parent companies or former parent companies or investors of the Company or its parent companies : On December 31 st, 2009, there were no legal, administrative and arbitral lawsuits, not in secrecy, in which the Company or its controlled companies are parties and whose opposing parties are administrators or former administrators, parent companies or former parent companies or investors of the Company or its parent companies: 4.5. Impacts in case of loss and amounts involved in relevant secret lawsuits in which the Company or its controllled companies are parties: On December 31 st, 2009, the Company and its controlled companies were not parties in secret lawsuits which had not been disclosed in the sections 4.3 e 4.4 of this Reference Form Legal, administrative and arbitral recurrent or connected lawsuits, based on similar facts and legal causes, in which the Company or its controlled companies are parties, not in secrecy, which together may be relevant to its businesses, distinguishing between labor, tax, civil and others. The Company and its controlled companies are not parties in legal, administrative and arbitral recurrent or connected lawsuits, based on similar facts and legal causes, which are not in secrecy and which together may be relevant. Civil In the Parent Company: The provision for contingencies, in the Company, amounting to R $ 1,311.4 million (December 31, R$ 1,328.2 million), correspond to lawsuits that focus on the implementation to the book claims of the Compulsory Loan made since 1978 of criteria for monetary correction different from those set forth in specific legislation. These proceedings do not overlap with those filed with the intention of obtaining the redemption of bearer bonds, currently unenforceable, issued as a result of the Compulsory Loan. The demands that were subject of provision challenge the systematic calculation of monetary correction determined by the legislation governing the Compulsory Loan, used for the updating of credits arising from 1978, these credits have been fully paid by the Company through conversion into shares occurred through the 72 nd, 82 nd and 142 nd Extraordinary General Meetings of the Company. There are currently about 4,000 lawsuits with this object being processed in many levels and the Company administration, aided by its their legal advisers evaluation, estimated between eight to ten years the average time for a final settlement of the knowledge processes in progress. On trial in August 12, 2009, regarding the claims of the Compulsory Loan, proceedings brought by the Company were partly provided by STJ, when were considered as prescribed the claims of the 1st and 2nd conversions. It was also considered not applicable to the Selic rate on the main, interest focusing only from the date of service. It was confirmed the conversion of such claims by the equity value. 38

39 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Due to this trial, the calculation premises considered in the value determination were revised taking into account impacts of legal and methodological aspects, arising from the judicial decision. Thus, the administration of the company recognizes a provision amounting to R$ 1,311.4 million, corresponding to 100% of the amount of expected losses. As an example, follows a description of an individual lawsuit related to the subject mentioned above. Such lawsuit was chosen to serve as an example among the lawsuits mentioned above, considering the similarity of these processes, just to illustrate the lawsuit main terms and conditions. The Company stresses such cases as relevant only because it is a matter related to several different processes, with a substantial amount. DECLARATORY Process n a) court 02nd FEDERAL COURT OF CURITIBA b) instance STJ c) date of establishment 03/21/2003 d) parties to the proceedings ELETROBRÁS Vs. ITACOLOMBO INDÚSTRIA E COMÉRCIO DE MINÉRIOS LTDA Differences in the monetary correction on the return of Compulsory Loan credits e) values, property or rights involved f) key Facts The verdict in first degree ruled as prescribed the rights to the claims of the 1 st and 2 nd Eletrobrás conversions and ordered it to pay differences in correction just over the claims of the 3rd conversion. The parties appealed and the case is pending trial of special appeal under appreciation in STJ. g) chance of loss Likely h) impact in case of loss The impact is considered because of the amount discussed. i) provisioned value R$ 10,834, The Company is also part in several other lawsuits whose object is the redemption of bearer bonds issued by the Company due to the compulsory loan proceeds in the years from 1964 to The mentioned Bonds are unenforceable by virtue of Article 4, 11 of Law 4.156/1962 and Article 1 of Decree /1932. The Company's management, thus, supported the assessment of its legal advisors, concluded that the possibility of loss by Company in the proceedings that have this object is remote, since the jurisprudence has confirmed the limitation of the right to postulate for redemption of bonds issued due to Compulsory Loan and consequent unenforceability of such securities. As an example, follows a description of an individual lawsuit related to the subject mentioned above. Such lawsuit was chosen to serve as an example among the lawsuits mentioned above, considering the similarity of these processes, just to illustrate the lawsuit main terms and conditions. The Company stresses such cases as relevant only because it is a matter related to several different processes, with a substantial amount. CIVIL Processo n a) court 02nd FEDERAL COURT OF RIO DE JANEIRO b) jurisdition STJ c) date of establishment 08/24/1993 d) parties to the proceedings ELETROBRÁS Vs. AD LIDER EMBALAGENS S/A e) values, property or rights Redemption of bearer bonds issued by the Company due to the involved compulsory loan collected in the years 1964 to f) Key Facts The verdict of first degree rejected the request of the author, stating as prescribed the securities that the author wished to redeem. The case is 39

40 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras pending trial of Special Appeal brought by the author, under consideration in STJ. g) chance of loss Remote h) impact in case of loss The impact is due to the amount in dispute. i) provisioned value There is none. In the Controlled companies: In the Controlled Eletrobras CGTEE: Civel Contingencies relating mainly to values for disputes with suppliers whose loss is considered as probable by the legal department of the Company and for which there is provision of R$ 3.7 million on December 31, 2009 (December 31, R$ 0.3 million). In the Controlled Eletronorte: Several civil claims of indemnity for financial losses due to delayed payments to suppliers and explorations of areas flooded by hydroelectric reservoirs. The estimated amount of loss, which probability is likely, is R$ million. As an example, follows the description of an individual lawsuit related to the subject mentioned above. Such lawsuit was chosen to serve as an example among the lawsuits mentioned above, in view of the similarity of these processes, just to illustrate the main terms and conditions of the lawsuit. The Company does not believe that an unfavorable decision would impact significantly on the ability or financial assets of the Company or its business nor would influence the decision of the investors. Execution of the Judgement Process n 2006,01,1, a) court 9th Civil Court of Brasilia b) jurisdiction 1st Jurisdiction c) date of establishment 05/09/1997 d) parties to the proceedings Company (Defendant) Vs. Sondotécnica Engenharia de Solos S.A. (Author) e) values, property or rights Contractual Penalty for noncompliance with Delay involved f) Key Facts It was signed an agreement between the Sondoténica and Eletrobras Eletronorte referring to the works of Samuel Hydroelectric Power Plant / Rondonia and Manso Hydroelectric Plant / Mato Grosso. Eletronorte from a certain point no longer paid for services. After several years without receiving and having the obligation to provide the service, the author claims to have been forced by their financial situation to accept the payment terms imposed by Eletronorte. So, the author has signed an Instrument of Consolidation in which Eletronorte acknowledged the debt in the amount of CR$ 1,019,931,331.63, which should be payable in 32 equal installments, quarterly and successive. 32 promissory notes in the amount of tranches of debt and 32 more promissory notes in the amount of interest were given. However, on 31/12/1994 Eletronorte failed to pay the promissory notes provided for that month and thus the author, as stipulated in the contract, considered the early payment of debt and notified Eletronorte to make payment of the remainder of total debt plus adjustment for inflation, interest and penalty. However, the company continued to pay the notes by their original values and afterwards deposited part of the value of charges. The Court acknowledged the existence of General Effect of the constitutional question raised, losers the Ministers Celso de Mello, 40

41 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Cezar Peluso and Joaquim Barbosa.The Minister Carmen Lucia remained silent. The National Treasury has requested entry into the proceedings as amicus curiae. Conclusions to the Rapporteur on 05/20/2010 g) chance of loss Probable h) impact in case of loss The Company does not believe that an unfavorable decision would impact significantly on the financial capacity or assets of the Company or its business, nor would it influence the decision of the investing public. i) provisioned value R$261,412, Labor In Controlled Companies In the Controlled Eletronorte: Sundry labor claims, most of which deriving from actions related to hazardous work premium, Bresser Plan, overtime, FGTS fine calculation and wage curve alignment. The estimate probable loss amount is R$154.6 million. In the Controlled Eletrobras CGTEE: The court deposits refer to the amounts required in order to proceed with the labor claims litigations, including claims filed by employees of Companhia Estadual de Energia Elétrica CEEE. Based on the opinion of its legal counsels, the Company accrued the amount of R$11.5 million on December 31 st, 2009 (December 31 st, R$11.5 million) to cover probable losses in which the Company may be financially involved, for which the Company had made court deposits of R$2 million, on December 31 st, 2009 (on December 31 st, R$1.8 million). Eventual liabilities arising from labor claims filed by CEEE's employees reallocated to the company, filed until August 11 th, 1997, when CEEE's corporate restructuring occurred, and with an unfavorable final decision culminating in the obligation to pay the amounts resulting from the award, will be fully borne by CEEE or CEEE-GT. In addition, the Company offered as collateral, 18 vehicles of its fleet in labor claims execution proceedings, representing a book value of R$0.3 million. Tax In the Parent Company: On December 31 st, 2009, the Company and its controlled companies were parties in 58 administrative and legal tax lawsuits, involving the total concerned amount of R$444 million whereas none of these lawsuits are considered relevant to the performance of the Company s activities Reference Form. The Company was a party in other tax lawsuits arising from the normal course of its businesses, which, in the Company s understanding, do not involve amounts that may have a relevant negative impact on its outcomes. The Company emphasizes that it maintains, concerning the tax lawsuits deemed as probable loss, provisions amounting to R$60.1 million in order to support possible contingencies discussed in these lawsuits. In Controlled Companies 41

42 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras In the Controlled Eletrobras Eletronorte: The subsidiary has certain disagreements involving the Tax on Sales and Services - ICMS and maintains a provision amounting to R$17.8 million to cover possible losses with these lawsuits, which are deemed probable. In the Controlled Eletrobras Chesf: b) The subsidiary has matters basically involving actions for annulment of tax deficiency notices; claims for credit refunds (PIS/PASEP - COFINS) and other special taxes. The company has a provision amounting to R$10.3 million (at December 31 st, R$8.7 million) for these matters. 4.7 Other relevant contingencies not included in the previous items: All the information relevant and pertinent to this topic has been disclosed in the items above. 4.8 Information regarding the rules of the Company`s country of origin and the rules of the country in which the Company`s movable assets are withheld, identifying: a) restrictions imposed to the exercise of political and economic rights; b) restrictions to the circulation and transference of movable assets; c) chances of register cancellation; and d) other issues of interest to investors: Not applicable. 5. MARKET RISKS 5.1. Main market risks to which the Company is exposed, including exchange risks and interest rates: The Brazilian Government has been exercising a significative influence on the Brazilian economy. The Brazilian economic and political conditions have a direct impact on the Company s activities, its financial condition, the outcomes of its operations and its perspectives. The Brazilian economy has been characterized by the significative involvement of the Brazilian Government, which frequently changes the money, credit and other policies in order to influence the country s economy. The actions of the Brazilian Government to control the inflation and put into effect other policies has frequently involved salary and price controls, devaluation of the Real, controls over the remittance of resources abroad, intervention of the Central Bank to affect the basic interest rates and other measures. The Company does not have control over and can not anticipate the measures or policies the Brazilian Government will adopt in the future. The Company s activities, its financial condition, the outcomes of its operations and its perspectives may be adversely affected by changes in the Brazilian Government s policies, as well as by general factors, including, but not limited to: the Brazilian economic growth; inflation; interest rates; variations in the exchange rates; exchange control policies; liquidity of the national capital and loan markets; tax policy and changes in the tax laws; and other political, diplomatic, social and economic guidelines or developments in Brazil or affecting it. 42

43 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The changes and uncertainties surrounding the implementation of the above policies may contribute to the economic uncertainty in Brazil, thus increasing the volatility of the Brazilian marketable securities and, consequently, the value of the Company s shares. The stability of the Real is affected by its relationship with the American Dollar, inflation and the Brazilian Government s policy concerning exchange rates. The businesses of the Company may be adversely affected by any recurrence of volatility which affects its accounts receivable and obligations related to the foreign currency. Historically, the Brazilian currency endured frequent devaluation. The Federal Government implemented several economic plans and adopted several exchange policies, including sudden devaluations, mini periodic devaluations during which the adjustment frequency varied from daily to monthly, floating exchange market systems, exchange controls and parallel exchange market. From time to time, there were significant fluctuations in the exchange rate between the real and the dollar and other currencies. On December 31 st, 2009, the exchange rate between the real and the dollar was R$ for US$1.00. The Real may not maintain its current value or the Brazilian Government may implement exchange control mechanisms. Any governmental interference in the exchange rate, or the implementation of exchange control mechanisms, may lead to devaluation in the Real, which may decrease the value of Eletrobras accounts receivable and make its obligations related to the foreign currency more costly. Except regarding the Company s revenues and accounts receivable expressed in American Dollars, this devaluation may adversely affect the Company s activities, operations and perspectives. On December 31 st, 2009, approximately 86.5% of the Company s consolidated indebtedness, corresponding to R$23,257 million, had been stipulated in foreign currency. Out of this debt expressed in foreign currency, R$ 22,327 million, or approximately 96% had been stipulated in Dollars (R$ 18,140 million, or approximately 78% of which referred to the indebtedness of Itaipu. The expectations surrounding the international macroeconomic scenario influence the external interest rates (U.S.Treasury, Libor, etc.). The Libor interest rate is used to index some external fundraising agreements carried out by Eletrobras. As it is a floating interest rate, such indexer represents a market risk to the company. The Libor (London Interbank Offered Rate) corresponds to the average of the interest rates through which banks raise resources in the London interbank market. Therefore, it is a floating rate, published daily by the British Banker s Association (BBA) after 11 a.m. (London time). In 2005, the Company carried out a fundraising in the amount of US$100 million (CAF 100) linked to the floating Libor and, carrying on the external fundraising program, in 2008, the amount of US$600 million (CAF 600), also linked to the floating Libor, was raised. As the Libor is a floating interest rate, such agreements represent a risk to the company due to the unexpectedness regarding the interest rates payable. Currently, the Libor is at 0.38% a.a., close to the minimum observed along the last 20 years. In this period, from 1990 to 2010, the average Libor was 4.43% a.a., whereas the rate already went up to around 8.8% a.a., in the early 90s. The inflation and some measures taken by the Federal Government to fight it, including increased interest rates, may contribute to Brazil s economic uncertainty and have a relevant adverse effect on the Company s financial condition, operational results and the market price of its shares. In the past, Brazil registered extremely high inflation rates. The inflation and some actions from the government to fight it had significative negative effects on the Brazilian economy. However, since the introduction of the Real Plan, in July, 1994, the Brazilian inflation has been substantially lower compared to earlier periods. Nevertheless, inflationary pressures persist and the measures adopted to fight them, as well as the speculation about future measures that may be adopted by the Federal Government, have been generating an environment of economic uncertainty in Brazil and increased the volatility of the Brazilian capital market over the last years. Brazil may endure high inflation indexes in the future. The inflationary pressures may lead to governmental interventions in the economy, including the introduction of policies 43

44 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras which can adversely affect the general performance of the Brazilian economy, e.g., the policy of increase in the basic interest rate of the economy, which, in turn, could adversely affect the Company s operations and the market value of its shares. The events and the perception of risks in other countries, especially the United States and countries of emergent economies, may impair the market price of the Brazilian marketable securities, including the Company s shares. The market value of the marketable securities of Brazilian companies is influenced, in different scales, by other countries economic and market conditions, including other Latin American countries and countries of emergent economy. Although the economic conjuncture of these countries may be significantly different from Brazil s, the reactions of investors to events in these other countries may have an adverse effect on the market value of the marketable securities of Brazilian emitters. Crises in other countries of emergent economy may reduce the interest of investors in the marketable securities of Brazilian emitters, including the marketable securities emitted by the Company. This could impair the market price of the shares emitted by the Company, in addition to hampering the Company s access to the capital market and the financing of its future operations under acceptable terms, or under any conditions. The Brazilian economy is also generally affected by international economic and market conditions, especially the U.S s economic and market conditions The prices of the shares at BM&FBOVESPA, for instance, have been historically sensitive to fluctuations in the U.S's interest rates, as well as to variations in the North American main share indexes. Changes in the Financial Practices Adopted in Brazil due to its convergence with the international financial practices ( IFRS ) may adversely affect the Company s outcomes. In December 28 th, 2007, Law No /07 was approved, complemented by Law No /09 (a conversion into law of the Provisional Measure 449/08), which changed the Law of Corporations per Shares and introduced new financial rules with the objective of converging with the international financial norms (IFRS) emitted by the International Accounting Standards Board IASB. The Financial Pronouncement Committee CPC issued, in 2009, several financial pronouncements, interpretations and pieces of advice, which have already been approved by CVM and the Accounting Federal Committee CFC, with mandatory application in 2010, also for the financial statements of the fiscal year finished on December 31 st, 2009, which will be re-presented for comparability reasons. The Company is in the process of assessing the potential effects deriving from the adoption of these new financial pronouncements, interpretations and pieces of advice, which may have a relevant impact on the financial statements, outcomes and in the Company s dividends examination base, as of the fiscal year to be finished on December 31 st, 2010, including the balances referring to the fiscal year finished on December 31 st, 2009, which will be represented for comparability reasons. Regarding the electricity sector, up to December 31 st, 2009, there was no definition as to the form of recognition of regulatory assets and liabilities, as well as to the register of the fixed assets related to the concession of the electricity distribution service, considering that the specific regulation for these matters is in process of analysis and approval by the Brazilian regulating bodies, for emission in the near future. The change in the said financial norms related to the electricity sector may have relevant impacts on the financial statements of the electricity transmission and distribution companies, including Eletrobras, with possible effects on its financial outcomes, dividends distributions bases, maintenance of financial indexes taken over by the Company and a few other financial agreements Policy of market risk management of the Company, including objectives, strategies and instruments: In 2009, the Exchange Hedge Policy, approved in 2007, was reviewed by the Company and had its scope broadened, comprehending, besides currency gaps, any financial risks that may be identified. 44

45 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras In this context, the Company s Financial Hedge Policy was approved. The objective of the current policy is to pursue the mitigation of the exposure to the market variables that may have an impact on the assets and liabilities of the Company and its controlled companies, thus reducing the undesirable fluctuation effects of these variables in the financial statements. This said, the aforementioned policy aims at having the Company s results faithfully reflect its real operational performance and having its projected cash flow present less volatility. Along with the policy, the creation of the Financial Hedge Committee, in the scope of the Financial Management, was approved, having as main function defining the hedge strategies and instruments to be presented to the Company s Board of Executive Officers. Taking into account the different forms of realizing the hedge of the gaps presented by the company, the policy enlists a scale of priorities, focusing on structural solutions. The operations with financial derivatives will only be carried out complementarily and aiming exclusively at protecting the indexed assets and liabilities of the Company and its controlled companies that present any gap, and may not be characterized as financial leverage or operation of credit concession to third parties. There were no hedge operations in the fiscal year finished on December 31 st, These operations are expected to be carried out throughout a) risks against which the Company searches for protection; The Company is searching for protection against risks deriving from exchange and interest rates. Exchange Risk The Company presents gaps between the assets and liabilities indexed to foreign currencies, especially the American Dollar, arising mainly from the financing agreements with the controlled Itaipu Binacional, which provokes exposure to financial risks that cause volatility in its financial statements as well as its cash flow. As a resource to protect itself from this exposure, the Company s management may carry out operations with financial derivatives, aiming to mitigate the exchange risk. Interest Rate Risk The Company is subject to exposures to the Libor interest rate, regarding external fundraising agreements. In addition to the already mentioned risks, there are others of smaller relevance deriving from granted and obtained agreements. As a resource to protect itself from this exposure, the Company s management may carry out, as a complement to the structural solutions, operations with financial derivatives, aiming to mitigate the exchange risk. b) equity protection strategy (hedge); In the scope of its current equity protection policy, the Company has been developing studies and discussing, through the Financial Hedge committee, the execution of interest rate swapping operations, aiming at neutralizing the volatility of the fundraising agreements entered into at Libor. These operations are expected to be carried out throughout Besides the Libor swapping operation, exchange hedge strategies were analyzed in 2009 and are being implemented, focusing on structural solutions, in line with the Company s Financial Hedge Policy. Aiming at mitigating the counterpart risks presented by the operations with derivatives, when carried out in the over-the-counter market, the Company established a norm regarding the register of financial institutions for purposes of execution of operations with derivatives. This norm defines criteria regarding size, rating and expertise in the derivatives market, so that the institutions that may carry out operations with the Company can be selected. Moreover, the Company has developed an exposure control methodology for the registered companies, which defines the limits to the volume of operations to be carried out with each one of them. 45

46 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The company strives for all operations with derivatives it carries out to be fit into the hedge accounting concept, thus ratifying the sole and exclusive intention of executing hedge with such positions. Such measure puts the risk of settlement gaps in hedge positions against their respective objects, since the financial flows of both will always match. In 2009, guarantee limits criteria started being discussed, and will be implemented along 2010, which will be a previous condition for the execution of any operation of this nature, aiming at decreasing the counterpart risk exposure in operations with derivatives. c) instruments used for equity protection (hedge); In 2008, in the scope of the Company s former Exchange Hedge Policy, operations with derivatives were carried out so as to mitigate a small portion of the active gaps in foreign currencies. The Company used Non-Deliverable Forwards NDFs amounting to US$280 million, matching the maturity of the agreements with the dates of indebtedness receipt from the jointly-controlled controlled Itaipu Binacional. In the scope of its current equity protection policy, the Company has been developing studies and discussing, through the Financial Hedge committee, the execution of interest rate swapping operations, aiming at neutralizing the volatility of the fundraising agreements entered into at Libor. These operations are expected to be carried out throughout Besides the Libor swapping operation, exchange Hedge strategies were analyzed in 2009 and are being implemented, focusing on structural solutions, in line with the Company s Financial Hedge Policy. Thus, in 2009, US$1 billion were raised through the issuance of bonuses in the international market, and new external fundraising opportunities are being analyzed as an important instrument for mitigating the active exposures to foreign currencies. In the scope of this strategy, not only the gap s total amount is being taken into account in the structuring of new fundraising, but also its arrangement with the passing of time, aiming to accomplish both the Company s equity balance hedge and the cash flow hedge. Currently, Eletrobras does not have any pending derivative agreement, neither does it have other unsettled equity protection instruments. These operations are expected be carried out throughout The financial instruments to be used aiming at the Company s equity protection may be: SWAPs, NDFs and Options; and Electricity derivative instruments, including SWAPs, Options, Term and Future Agreements for management of risks related to the purchase and selling of electricity. d) parameters used for managing these risks; In 2007, when the former Exchange Hedge Policy was adopted by the Company, the internal controls necessary to tracking the equity protection operations, registering financial positions and marking and to the portfolio market were developed, since the Company had not made use of this type of financial instrument before. The behavior of the projections of the parameters that influence the exchange fluctuation also started being systematically monitored, thus assessing the strategy s adherence to the risk profile and the objectives of the hedge policy defined by the Company s management. These controls were effective for both the portfolio management and the supply of the financial information necessary to the adjustment of the portfolio results. In its current Financial Hedge Policy, having defined the hedge object and the instrument to be used, the Company shall price such operations, always abiding by the valid market methodologies. e) if the Company operates financial instruments with objectives other than equity protection 46

47 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (hedge) and what they are; The Company operates financial instruments with the sole objective of equity protection (hedge) and the operations with such instruments will only be carried out complementarily and aiming exclusively at protecting the indexed assets and liabilities of the Company and its controlled companies that present any gap, and may not be characterized as financial leverage or operation of credit concession to third parties. f) organizational control structure for managing these risks; The Company manages its risks through the Financial Hedge Committee, which operates in the scope of the Financial Management and whose main function is to define the hedge strategies and instruments to be presented to the Company s Board of Executive Officers. g) adjustment of the operational structure and internal controls for verifying the efficiency of the adopted policy The Company monitors the risk management through its Financial Management and the tests to verify the efficiency of this management are applied by the internal control areas and the internal audit Meaningful changes in the main market risks to which the Company is exposed or in the risk management policy adopted in the last fiscal year: In the last fiscal year, there were no meaningful changes in the main market risks concerning the Company. However, there is a projection of substantial decrease in the risk of exchange exposure for the coming years. The current instability is caused by the excess of assets compared to the liabilities indexed to the American Dollar. Such excess of assets is mostly formed by the accounts receivable deriving from the financing agreement granted to the controlled Itaipu Binacional. As the debit balance of this agreement has been amortized year after year and, concurrently, the Company has been carrying out new fundraisings in foreign currencies, the excess of assets over liabilities indexed to the American Dollar tends to decrease even more with time. In the fiscal year of 2009, the Company revised the Exchange Hedge Policy approved in 2007 and approved the Company s new Financial Hedge Policy, whose scope comprehends any financial risks that are identified by the Company, as well as the currency gaps Further relevant information: All the information relevant and pertinent to this topic has been disclosed in the items above. 6. COMPANY HISTORY 6.1. Company Establishment: a) Date: June 11 th, b) Form: Established as a mixed-capital limited liability corporation. c) Country: Brazil 6.2. Term of Activity: Undetermined Brief Company History: The company was created during the government of Jânio Quadros, in 1961, being established in the government of João Goulart, on June 11 th, In the form of a mixed-capital limited liability corporation, Eletrobras is responsible for promoting studies, projects of hydroelectric plants construction and operation, 47

48 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras transmission lines and substations meant to supply electricity across the country. In this sense, it started decisively contributing to the expansion of the electricity supply and the country s development. Since the beginning, Eletrobras has presented characteristics of a holding the core of a group of concessionaries with great administrative autonomy and the Federal Electricity Fund resource management quickly transformed it into the main financial agency of the sector. With this, Eletrobras added the following already existing companies as controlled companies: Companhia Hidrelétrica do São Francisco (Eletrobras Chesf), Central Elétrica de Furnas (Eletrobras Furnas), Companhia Hidrelétrica do Vale do Paraíba (Chevap) e Termelétrica de Charqueadas S.A. (Termochar), which, together, amounted to a generating capacity of MW. In 1964, Eletrobras participated intensely in the Public Utility Concessionary Companies Nationalization Committee (Conesp), which considered purchasing the concessionaries of the American & Foreign Power Company group (Amforp), operating in the country through the Brazilian government. The transaction was finalized in November of that same year, adding ten other controlled companies to Eletrobras. In 1967, a set of laws concerning the growth of the electricity sector in the country was created and Eletrobras was held responsible for developing the Federal Government electricity policy and the National Department of Water and Electricity (Dnaee), created in 1965, with normative and inspecting functions. In 1968 and 1973, the controlled companies Centrais Elétricas do Sul do Brasil S.A. (Eletrobras Eletrosul) and Eletrobras Eletronorte were established, respectively. In 1973, Eletrobras, along with Administración Nacional de Electricidad, a Paraguayan state company, established Itaipu, aiming at building the Itaipu Hydroelectric Plant, in the Paraná river, on the border between the two countries. Soon after that, Law No , of July 5 th, 1973, assigned to Eletrobras the competence to promote, through its regional companies, the construction and operation of high and low-voltage transmission systems, aiming at the interstate integration of the systems and the transportation of Itaipu s electricity. For this purpose, the Coordinating Groups for the Interconnected Operation (GCOI) were established. With the first oil crisis, in 1974, the government of the then president Ernesto Geisel formulated a new policy for expanding the country s electricity sector. This policy anticipated the construction of hydroelectric plants, nuclear plants and a research center focused on the technological development of the sector (Cepel), which were established in the 80s. In May 1995, Eletrobras and its four regional companies - Eletrobras Chesf, Eletrobras Furnas, Eletrobras Eletrosul and Eletrobras Eletronorte were included in the National Privatization Program (PND). At the time, the Eletrobras system accounted for 48% of the country s installed generating capacity, totalizing 55,512 million kw. In this period, the company started operating, due to a legal decision and transitorily, in the electricity distribution as well, through the companies Companhia Energética de Alagoas (Ceal), Companhia Energética do Amazonas (Ceam), Companhia Energética do Piauí (Distribuição Piauí), Centrais Elétricas de Rondônia S.A. (Distribuição Rondônia), and Companhia de Eletricidade do Acre (Distribuição Acre), directly controlled by the holding, as well as Boa Vista Energia S. A. (Boa Vista) e Manaus Energia S. A. (Manaus Energia), then controlled by the controlled Eletrobras Eletronorte. In 2004, the new sector regulation excluded Eletrobras from the PND. Currently, Eletrobras is a mixed-economy and open capital company, with shares negotiated at BM&FBOVESPA, and the stock exchanges of Madrid (Spain) and New York (USA). It controls 11 controlled companies Eletrobras Chesf, Eletrobras Furnas, Eletrobras Eletrosul, Eletrobras Eletronorte, Companhia de Geração Térmica de Energia Elétrica (Eletrobras CGTEE), Eletronuclear, Distribuição Acre, Amazonas Energia S.A. (a result of the fusion of Ceam and Manaus Energia), Distribuição Rondonia, Distribuição Piauí and Distribuição Alagoas, as well as a share company, Eletrobras Participações S. A. (Eletrobras Eletropar), the biggest research center of the Southern Hemisphere, the Electricity Research Center (Cepel) and withholds half the capital from Itaipu on behalf of the Brazilian Government. 48

49 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Existing all over Brazil, the Eletrobras System has an installed capacity to produce 39,453 MW, including half the power of the Brazilian Itaipu hydroelectric plant and over 59,000 km of transmission lines Date of Registration at the CVM: Registered on January 28 th, Main corporate events, such as incorporations, fusions, spin-offs, incorporation of shares, disposals and acquisitions of corporate control, acquisition of important assets, through which the Company or any of its controlled companies or confederated companies have been, indicating: (a) event; (b) main business conditions; (c) corporations involved; (d) effects resulting from the operation in the capital base, especially over the participation of the parent company, shareholders who possess over 5% of the share capital and the Company s administrators; (e) shareholding structure before and after the operation. Fiscal year finished on December 31 st, 2007 There were no important corporate events. Fiscal year finished on December 31 st, 2008 Incorporation of Ceam by Manaus Energia On March 28 th, 2008, Ceam s Shareholders Meeting approved its incorporation by Manaus Energia, an integral controlled of Eletrobras Eletronorte. Eletrobras had 97.96% of Ceam's share capital and 99.03% of Eletrobras Eletronorte s social capital. After Ceam s incorporation by Manaus Energia and the transfer of Manaus Energia to Eletrobras, the latter then retained 100% of Manaus Energia s (now Amazonas Energia) share capital. As a result of the incorporation, the provision for losses in Ceam's investments, in the amount of R$697,150, was completely reverted, to the credit of the result of the first quarter of 2008, and the provision for coverage of its unsecured liability, in the amount of R$657,508, was also reverted in the first quarter, totalizing R$1,354,658. At the same moment, the Company s administration recognized the loss in the realization of the asset corresponding to the investment in Ceam, based on the evaluation report elaborated to support the process of incorporation of Ceam by Manaus Energia, which amounts to R$1,436,223, recognized as debit of the result of the first quarter of 2008, in the quality of realization of investments, the reflection on the result of 2008 being the amount of R$81,565. Ceam and Manaus Energia operate in the supply of electricity to the countryside and the capital of the state of Amazonas, respectively. The operation, carried out within Eletrobras' Corporate Management policy, created a single company to supply the entire state of Amazonas with greater synergy in the operational activities. Fiscal year finished on December 31 st, 2009 During the fiscal year of 2009, the Company verified the following corporate movements: Disposal of the holding retained at ELEJOR On September 13 th, 2002, ELETROBRAS entered into the Shareholders Agreement, aiming to establish and regulate the participation of ELEJOR CENTRAIS ELÉTRICAS DO RIO JORDÃO S.A. in the share capital. In the terms of the aforementioned Shareholders Agreement, ELEJOR made use of the right to anticipate the repurchase of the PNB shares which belonged to ELETROBRAS, before the foreseen terms and on the following dates: 49

50 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras DATE SALE OF SHARES (R$) + DIVIDEND RECEIVED 5/30/ , /14/ ,110, /5/ , /12/ ,000, /15/ , /11/ ,600, /15/2009 8,000, /18/2009 8,026, /31/ , Total 157,475, With this operation, Eletrobras disposed of its entire participation at ELEJOR. Corporate Reorganization at Energisa Exchange of the holding retained by Eletrobras at Energisa Paraíba and Energisa Borborema for the holding at Energisa S.A.. On August 17 th, 2009, Energisa S.A. started the process of corporate incorporation of its controlled companies, starting to retain 100% of the total capital of its controlled companies. Energisa argued that the corporate reorganization aimed at optimizing the activities of the incorporated companies, directing investments more efficiently, in addition to increasing the volume of Energisa s shares in circulation and making them more liquid. This way, Eletrobras holding at Energisa Paraíba and Energisa Borborema was transferred to Holding Energisa S.A., where Eletrobras holding at Energisa S.A is 2.98% of the total capital. Incorporation of EDP Lajeado by Lajeado Energia Participation in the incorporation of EDP Lajeado by Lajeado Energia, Eletrobras holding remaining at 40.07%. In 2008, Rede Energia S.A transferred its holding at Rede Lajeado to Energias do Brasil EDP. This fact made EDP Lajeado S.A. start retaining 73.1% of the voting capital at Investco. In 2009, there was the incorporation of Tocantins Energia and EDP Lajeado by Lajeado Energia S.A., whereas there was no change in Eletrobras total holding at Lajeado Energia, remaining at 40.07%. Participation at IGESA (Peru) Participation at the company IGESA for the construction of the Hydro Electric Plant of Inanmbari, in Peru. Regarding IGESA, according to DEL 138/2008, of November 10 th, 2008, Eletrobras Board of Directors approved the agreement between Eletrobras, Eletrobras Furnas and the Construction Company OAS Ltda. Eletrobras holds 29.4% of IGESA Inambari Geração de Energia S.A s share capital, a company established with the purpose of building the Inambari HEP, in Peru. The company is in the final stage of the technical, economic, financial and environmental feasibility studies. Up to now, the share capital of the company totalizes R$35,729,459. Eletrobras holds 10,504,461 (ten million, five hundred and four thousand and four hundred and sixty-one shares) with a nominal value of R$10,504,461. The first payment of Eletrobras capital subscribed at IGESA took place on January 15 th, 2009, in the amount of R$2,646, Participation at CHC (Panama) The Company s Board of Directors approved Eletrobras participation at CENTRALES HIDORELECTRICAS DE CENTRO AMÉRICA S.A. (CHC), a corporation established in the Republic of Panama, whose objective is to create and develop feasibility studies and the basic project for building the Tumarin HEP, in Nicaragua. 50

51 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The company is in the initial stage of the feasibility studies, having the participation of the Construction Company Queiroz Galvão S.A. in its share capital, in addition to Eletrobras itself. Eletrobras retains 4,900,000 shares of CHC s share capital, with the nominal value of US$4,900,000 (four million and nine hundred thousand dollars). Increase in the CTEEP Capital Subscription of the shares at CTEEP (R$24.9 million) so as to maintain Eletrobras participation at 35.33% of the total capital Petitions for bankruptcy, provided they are based on the Company s relevant, judicial or extrajudicial recovery amounts, and the current status of such petitions: There were no petitions for bankruptcy based on the Company s relevant, judicial or extrajudicial recovery amounts Further relevant information: All the information relevant and pertinent to this topic has been disclosed in the items above. 7. COMPANY S ACTIVITIES 7.1. Summarized description of activities carried out by the Company and its controlled companies: The Company is, directly and through its controlled companies, involved in electricity generation, transmission and distribution in Brazil. Electricity Generation: The Company s main activity is electricity generation. On December 31 st 2009, the Company, through its controlled companies Eletrobras CGTEE, Eletrobras Chesf, Eletrobras Eletronorte, Eletrobras Eletronuclear, Eletrobras Furnas and Amazonas Energia, as well as Itaipu Binacional, owned approximately 37% of installed capacity of electricity generation in Brazil. The Company generates electricity through its hydro, thermal and nuclear power stations. It is worth mentioning that ONS is exclusively responsible to determine, in any year, the amount of energy each of these plants must generate. According to Law Nº 5.899, of July 5 th 1993, and Decree Nº 4.550, of December 27 th 2002, the Company must sell all the energy produced by Itaipu Power plant to electricity distributers in Southern, Southeastern and Midwestern Brazil. Expanding Generation: National installed Power of electricity generation reached MW on December 31 st 2009, and Eletrobras system reached MW installed, which represents 37,0% of participation in Brazil. By 2015, Eletrobras system will hold the concession/authorization to build new enterprises through permits/biddings/auctions of MW, with direct participation, and of MW, in partnership with private agents through Sociedades de Propósito Específico (SPEs Special Purpose Companies). Electricity Transmission: Transmission is the large-scale transference of electricity at very high voltages (from 230 kv to 750 kv), from generation installations to distribution systems in charge centers through transmission network. In Brazil, an interconnected electric transmission system links Northern and Northeastern regions to those in the South and Southeast. The coordination of these transmission systems is required so as to optimize investments and operating costs, as well as to ensure reliability and adequate conditions for energy supply 51

52 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras through the interconnected electric system. Except for a small part of Eletrobras Eletronorte located in the isolated system, transmission lines in the interconnected electric system are totally integrated. The electricity generated by the Company is transported through Brazil voltage transmission network with km of transmission lines above 138 kv on December 31 st 2009, when compared with 56,826 km on December 31 st 2008 and 55,942 km on December 31 st Considering the partnerships with private companies in the SPEs/Consortium, the Company reached approximately km of transmission lines above 138 Kv in operation for the fiscal year ended on December 31 st In Brazil, most hydro power plants are located far away from the main charge centers and, thus, to make energy reach consumers, an extensive transmission system was developed. Eletrobras System Transmission Lines with voltage above 230 Kv: Companies Situation on 12/31/2009 Extension (Km)* Eletrobras Chesf 18,130 Eletrobras Eletronorte 9,216 Eletrobras Furnas 16,979 Eletrobras Eletrosul 8,459 Amazonas Energia 365 TOTAL

53 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras * Extension of lines considering partnerships. At present, the Company owns approximately 61.0% of all transmission lines above 230 kv in Brazil and, therefore, receives taxes from companies which transmit electricity in those lines. Considering all transmission lines in Brazil (230 kv and above), we pay a tax of 39.0% of all these lines. The Company operates as a part of National Interconnected System coordinated by the System National Operator - ONS. Concessions Law authorizes the Company to start charging other electricity companies taxes for the use of its transmission system; the Company will be able to charge these taxes as soon as regulations have been promulgated by ANEEL. Electric losses in the transmission system are defined as ohmic losses which occur in the stretch between generating plant bus (elevating substations outputs) and distribution substations bus, according to the criterion established by ANEEL. According to this criterion, and to ONS s data, electrical losses in the transmission system in Brazil have historically been as much as 6% of all electricity transmitted in the system, comparing to approximately 8% from international transmission system. Transmission Expansion: The companies which belong to Eletrobras system have participated in the planning activities for the PDE 2009/2018 expansion of transmission, through Grupos de Estudos de Transmissão Regionais (GET study groups on regional transmission) supporting EPE, responsible for the planning of regional transmission. Moreover, the System also participated in studies on regional interconnections and on power plant interconnection. At this cycle of PDE, the integration study of Belo Monte hydro electric complex must be highlighted. It counts on the effective participation of companies of Eletrobras system as to transmission alternatives which might allow for the drainage of this hydro power plant energy in the North, Northeast and Southeast. In 2009, the Basic Project of transmission system was also created and it interconnects the power plants of Rio Madeira, Santo Antônio and Jirau to the Sistema Interligado Nacional (interconnected national system), which is approximately 2.375Km long. Electricity Distribution: The Company s distribution activities are a small portion of all its global operations. The following companies of the Company s system carry out distribution activities according to concessions granted by ANEEL: Amazonas Energia, Distribuição Alagoas, Distribuição Piauí, Distribuição Rondonia and Distribuição Acre. The Company s transmission and distribution network consists of air transmission lines and substations which operate on various voltage bands. The Company s customers served through its distribution network are ranked according to voltage levels. As to distribution to state service companies and industries, the Company distributes electricity at higher voltage levels (up to 750 kv), whereas household and some commercial companies distribution is at reduced voltage levels (either at 230 kv, 138 kv or at 69 kv). Distribution System: Distributers Electricity Supply - GWh Growth (%) Participation (%) Brazil ,2 100 Distrib. Alagoas ,7 0,6 Distrib. Piauí ,6 0,5 Distrib. Rondonia ,4 0,5 Distrib. Acre ,2 0,2 53

54 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Amazonas Energy/Interior ,8 1,1 Boa Vista Energy ,2 0,1 Total ,4 2,9 Shareholdings: The Company s shareholdings are present in electricity generation, transmission and distribution segments as follows: 13 controlled companies and 32 associated companies with minor participation, including Sociedades de Propósito Específico (SPE Special Purpose Companies). Moreover, the Company contributes with 50% of Itaipu Binacional capital and with 81.61% of Eletrobras Eletropar, besides sponsoring Centro de Pesquisa de Energia Elétrica Cepel (Electricity Research Center). Besides shares, the Company owns public debt securities from the process of privatization of Brazilian electric sector in the 90 s; among these, CFT-E1 (Certificados Financeiros do Tesouro Financial Certificates of Treasury) are the most representative and records a market value of R$ million. Eletrobras shareholdings market value in the companies whose shares are traded in the Stock Exchange was over R$ 6.8 billion, and its variation was mainly fit to Índice de Energia Elétrica (IEE Electricity Index). Eletrobras portfolio, since its papers focus on fixed or regulated income companies, is less volatile in the market and, thus, a more conservative portfolio. Other Activities: Beside the activities listed above, the Company s Bylaws establishes, also, the following: (i) cooperate with the Ministry to which it is bond as to energy policy in the country; (ii) grant funding to electricity public concessionaries under its control and ensure guarantee, in the country or abroad, in its favor, as well as acquire debentures of the emissions; (iii) grant funding and offer guarantee, in the country or abroad, favoring technologic-scientific research entities under its control; (iv) promote and support researches of interest in the energy sector, connected to electricity generation, transmission and distribution, as well as studies on the use of reservoirs for multiple purposes; (v) contribute to the training of technical staff necessary for the electric energy sector in Brazil, as well as for the training of qualified workers through specialized courses, and it may also grant aid to schools or scholarships abroad and sign up agreements with entities which contribute to the qualification of technical specialized workers; and (vi) collaborate, both technically and administratively, with companies whose capital participates in the stocks and with Ministry departments to which it is bond. Company s Strategies: The Company s main strategies are to achieve sustainable growth and profitability, keeping up, at the same time, its leading position in the electric sector in Brazil. In order to achieve those aims, our main strategies are: Expansion and Efficiency The Company aims at expanding and improving the efficiency of generation and transmission central lines. The Company s activity historically focus both on central operations in Brazilian market for generation and transmission as on its historical role as a lender to third parties, including its controlled companies. Since the start of electricity industry privatization, the opportunities to consolidate the role of the Company as a lender have diminished, since many of its former controlled companies were privatized and the Company no longer has the permission to act as a lender to those companies or to any other third party. Therefore, the Company has adopted a strategy that focuses on the central operations of generation and transmission. This involves a special focus on maximizing opportunities which arise from auction processes, according to the New Law of Electricity, for sales of electricity to distribution companies. Moreover, the Company may 54

55 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras attempt to dispose of some of the distribution companies it has acquired in 1996 and in 1999, which are not profitable (the North and Northeast Distribution Companies). On concentrating on generation and transmission operations, the Company believes it will be able to maximize profits and improve existing infrastructure efficiency, capitalizing opportunities coming from its new structure, such as transmission lines. As to distribution operations, since 2008, the Company has been implemented a new strategy to the management of distribution companies of the group aiming at improving its operating efficiency. Governance The Company intends to continue to improve its corporate governance standards, including the admission to the list of BM&FBOVESPA Level 1 Segment, register at SEC and admission to the list of New York Stock Exchange. In 2006, Eletrobras was accepted to the list in the segment Level 1 of BM&FBOVESPA, which establishes corporate governance norms to be followed. The Company believes that the improvement of its corporate governance standards is a key feature to achieve its overall goals of growth, profitability and position in the market due to the positive effect caused by high corporate governance standards on the Company s perception by national and international market. As a part of that, the Company has been setting necessary controls and procedures, on its part, according to the Law Sarbanes-Oxley of Moreover, the Company has joined United Nations Global Compact, the world s largest corporate responsibility initiative; it is a member of BM&FBOVEPSA Sustainability Indexes and, also, intends to integrate Dow Jones Sustainability. The Company believes joining these initiatives, as well as registering for the organizations renowned for adopting governance standards which are among the world s strictest, will greatly foster its global profile. As a significant administrative effort, and aiming at unifying and boosting all those initiatives, the Company has developed a five-year Corporate Plan. The Company s goal for 2010 is to firm its position as a holding company, ruled by the best practices of corporate governance, operating in an environment committed to achieving economic, financial and operational goals through negotiation with its controlling shareholder and controlled companies. The Company aims to create a competitive enterprise which emphasizes social and environmental responsibility as much as development and life quality for its employees. In order to maintain its current position in the market, the Company is continuously focused on improving its investments performance by diversifying its portfolio of direct investments, restructuring its controlled companies and expanding to international markets. Internationalization The Company aims to identify and select growth opportunities in international markets. Historically, the Company has concentrated its activities solely on Brazilian national market. However, in order to achieve sustainable growth, the Company believes certain international electricity markets offer opportunities to be explored and plans to selectively identify them in the future. The Company trusts that obtaining the SEC registration and the admission to New York Stock Exchange are key features of this strategy, due to its positive effect on the perception of Eletrobras among prospective commercial partners and Company s investors from The United States of America and from other countries. International Operations Strategy With the enactment of Law of April 8 th 2008, which authorized the Company to operate abroad, studies and researches were carried out and, as a result, the strategy to be adopted by Eletrobras system in its internationalization process was consolidated, and its main guidelines are: The Company will have as its international expansion target as a priority business in which it has already proven outstanding competence: hydroelectric generation and transmission. Investments will be developed through a combination of new projects and acquisitions/participations as a way to reduce risks. Its priority market will be that of Americas - South, Central and North Americas -, though it will also examine, one by one, other attractive possibilities which may be identified in other markets. 55

56 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Operational Process: after defining the strategy, the evaluation of prospected projects was segmented into three sequential phases: Preliminary Analysis: initial evaluation of the project, taking into account the strategy defined and the institutional analysis (political stability, regulatory model, economic situation, funding prospects, etc.) of the country the project focuses; Pre-feasibility: general evaluation of the Project as to technical, legal, regulatory, market and financial aspects. On average, pre-feasibility studies conception represents the need of a small investment and of deadlines; Feasibility: detailed studies of engineering (hydrology, topography, geology, energy studies, electric and mechanic infra-structure, logistics, etc.) as well as environmental and financial studies, in addition to business structuring through its Business Plan, which includes risk mitigation, financing sources, profitability of the project, etc. Ongoing international undertakings status: Undertakings under evaluation identified in 2009: Legend: Minoritary participation in Transmission Companies Hydroelectric projects evaluation Interconnection 7.2. Operating segments which have been disclosed in the last three financial statements on the closing of fiscal year or, when available, in consolidated financial statements: a) Commercialized products and services The Company does not disclose its results by segment. The main products and services commercialized by the Company are: (i) electricity generation and its sale to electricity distributors and free consumers; (ii) electricity transmission favoring other electricity concessionaries; and (iii) electricity distribution to final consumers. 56

57 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras For more information on the Company s activities, please refer to item 7.1. of this Reference Form. b) Segment revenue and its participation in the Company s net revenue The Company does not disclose partial results by segment. c) Segment profit or loss and its participation in the Company s net profit The Company does not disclose partial results by segment Products and services corresponding to operating segments described above in item 7.2.: The Company is, directly and through its controlled companies, involved in electricity generation, transmission and distribution in Brazil and, therefore, its main products and services commercialized by the Company are: (i) electricity generation and its sale to electricity distributors and free consumers; (ii) electricity transmission favoring other electricity concessionaries; and (iii) electricity distribution to final consumers. a) characteristics of the production process Electricity Generation: Eletrobras System is present throughout Brazil. There are 29 hydropower plants in operation, regardless of Itaipu, 15 thermoelectric plants, being five in Isolated Systems, and two thermonuclear plants. Among the largest and major plants, there are: Tucuruí (8.370 MW), the Brazilian part of Itaipu Binacional (7.000 MW), the Complex Paulo Afonso and Moxotó (4.280 MW), Xingó (3.162 MW), Angra 1 and Angra 2 (2.007 MW), Serra da Mesa (1.275 MW), Eletrobras Furnas (1.226 MW) and Sobradinho (1.050 MW). Hydroelectric power plants produced 93.0% of all energy generated by the Company in 2009, compared to 92,1% in 2008 and 93,7% in The Company also generates energy through thermal and nuclear power plants. Thermal plants produced 1.6% of the total energy generated in 2009, compared to 1.8% in 2008, and 1.0% in Nuclear plants generated 5,4% of all energy in 2009, compared to 6.1% in 2008 and 5.3% in Hydroelectric power plants Hydroelectric power plants, whose basic principle is to use the power of a waterfall to generate electric energy, provide most primary and back-up electricity generated by the Company during peak periods of high demand, and produced 93,0% of all energy generated by the Company in In that case, electricity is generated from the use of the hydraulic potential of a river. Hydraulic potential is provided by hydraulic flow and by the concentration of unevenness along the course of a river. This can occur: (i) naturally, when unevenness is concentrated in a waterfall; (ii) by means of a dam, when small unevenness concentrate at the height of the dam or (iii) by diverting the river from its natural bed, concentrating small unevenness in this diversion. Basically, a hydroelectric power plant comprises the following parts: (i) dam; (ii) catchment systems and water supply; (iii) powerhouse; and (iv) a system to replace water to the river natural bed. Each of these parts demand a set of buildings and installations designed to operate efficiently in harmony with the whole set. The water obtained from the lake formed by the dam is conducted to the powerhouse through canals, tunnels and/or metal tubes. After going through the hydraulic turbine, in the powerhouse, the water is replaced to the river natural bed through a leakage channel. Thus, hydraulic power is transformed into mechanic power when the water goes through the turbine, making it turn, and, in the generator which also turns since it is mechanically connected to the turbine mechanical power is transformed into electrical power. 57

58 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The energy generated is, thus, taken through cables or conducting bars from the generator s terminals to the transformer, where tension (voltage) is increased for adequate conduction, through transmission lines, until consumption center. Then, step-down transformers adequate tension levels for consumers use. The following scheme represents electricity generation process in a hydroelectric power plant. Legend: Hydroelectric power plant 1. Reservoir 2. Gate 3. Dam 4. Penstock 5. Hydraulic turbine 6. Generator 7. Leakage channel 8. Transformer 9. Transmission Line 10. Step-down station 11. Distribution network 12. Transformer 13. Measurer 58

59 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 14. Consumer Thermoelectric power plants Conventional thermoelectric power plants generate electricity through a three-phase process: (i) burning of fossil fuel, such as coal, oil or gas, transforming water into vapor with the heat from the boiler; (ii) using this steam, under high pressure, to turn a turbine, which triggers the electric generator; and (iii) condensing the steam and transferring its thermal energy residue to an independent cooling circuit, replacing the water into the boiler and completing the cycle. The mechanical power obtained from the passage of steam through the turbine making it turn and in the generator which also turns since it is mechanically connected to the turbine is precisely what transforms mechanical power into electrical power. Thus, the energy generated is taken through cables or conducting bars from the generator terminals until the transformer, where its tension is increased for adequate conduction, through transmission lines, until consumption center. Thermoelectric power plants may also operate in a combined cycle, generating electricity in a process which combines the operation of a gas turbine, propelled by the burning of natural gas or diesel, directly connected to a generator. Thus, exhaust gases of gas turbine, due to temperature, transform water into steam to trigger the steam turbine, in the same conditions described for the operation of a conventional thermoelectric power. The following scheme represents electricity generation process in a thermoelectric power plant. Legend: Thermoelectric Power Plant combined cycle 1. Fuel input (oil/coal/gas) 2. Gas turbine 59

60 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras 3. Air input 4. Generator 5. Heat recovering boiler 6. Transformer 7. Bus 8. Transmission line 9. Step-down substation 10. Distribution network 11. Transformer 12. Measurer 13. Consumer 14. Condenser 15. Cooling water pump 16. Steam turbine 17. Cooling water source (river/lake/sea) Nuclear power plants Through Eletrobras Eletronuclear, the Company operates two nuclear power plants: Angra I and Angra II. At present, Eletrobras Eletronuclear is initiating the building of the third Brazilian nuclear power plant: Angra III. A nuclear power plant is very similar to a conventional thermal plant. The main difference is that whereas a conventional thermal plant uses a boiler to generate necessary heat to heat water which will become steam to turn the turbine blades, in a nuclear plant the water heating is processed in a nuclear reactor. In this case, heat is generated by nuclear reactions, which transform mass into energy. There are two forms to use this energy for the production of energy: (i) nuclear fission, when atomic nucleus is divided into two or more particles; and (ii) nuclear fusion, when two or more nuclei unite to produce a new element. The fission of the uranium atom is the main technique used to generate electricity in nuclear plants. Uranium atom fission within the rods of fuel element heats the water as it goes through the reactor at 320 degrees Celsius. To avoid boiling which would normally happen at 100 degrees Celsius -, the water is kept under a pressure which is 157 times greater than atmospheric pressure. The steam generator performs an exchange of heat between this first circuit water and that of the secondary circuit, which do not depend on each other. With this exchange of heat, the water in the secondary circuit is transformed in steam and moves the turbine at rpm which triggers the electric generator. After moving the turbine, the steam goes through a condenser, where it is cooled down by sea water brought in by a third independent circuit. The existence of those three circuits prevents the contact with the water which goes through the reactor to other waters. The following scheme represents electricity generation process in a nuclear power plant. 60

61 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras CIRCUITO PRIMÁRIO CIRCUITO SECUNDÁRIO Gerador CIRCUITO de Vapor SECUNDÁRIO Envoltório de de Contenção Turbina Água de de Circulação Condensador CIRCUITO TERCIÁRIO Gerador de Vapor EDIFÍCIO DO REATOR Tanque de de Água Água de de Alimentação b) Characteristics of transmission and distribution process Electricity Transmission Transmission is the transference of electricity at large scale at very high voltages (from 230 kv to 750 kv), since the installations of the generation until the distribution centers through transmission network ( Basic Network ). In Brazil, transmission lines are usually very long, since most hydroelectric plants are very far away from big consumer centers. At present, the country s system is almost totally connected, except for the states of Amazonas, Roraima, Acre, Amapá, Rondônia and a part of Pará. In those states, supply is carried out by small thermoelectric power plants located near their respective capital cities. The interconnected electric system provided the exchange of energy among different regions whenever these regions may face problems to generate energy due to a reduction in the level of their reservoirs. As rain seasons are different in the South, Southeast, North and Northeast of Brazil, high voltage transmission lines (500 kv or 750 kv) allow places of insufficient production of energy to be supplied by generator centers from more favorable places. Any agent in the market of electricity who produces and consumes energy has the right to use the Basic Network. Free consumers also have this right, provided that they follow certain technical and legal demands. This is called free access and it is enforced by law and ensured by ANEEL. Basic Network operation and administration is under ONS responsibility, which is also responsible to manage the delivery of energy from the power plants in optimized conditions, involving the use of hydroelectric reservoirs and fuel of thermal plants belonging to the interconnected electric system. 61

62 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Eletrobras system of transmission, which is a set of transmission lines interconnected to substations, is responsible for over 59 thousand kilometers of transmission lines, which corresponds to approximately 56% of total lines in Brazil. Besides operating and managing this system within the patterns of performance and quality demanded by ANEEL, Eletrobras System has actively participated in the expansion of transmission through concessions in auctions promoted by ANEEL, individually or through consortia, as well as through authorization to reinforce the current system. Main ongoing transmission projects by Eletrobras System companies are: (i) LT 230 kv Ji-Paraná Pimenta Bueno Vilhena C1 (RO); (ii) LT 230 kv Funil Itapebi C3 (BA); (iii) LT 230 kv Ibicoara Brumado II (BA); (iv) LT 230 kv Paraíso Açu II C2 (RN); (v) LT 230 kv Picos Tauá (PI/CE); (vi) LT 230 kv Milagres Coremas II (PI/PB); (vii) LT 345 kv Campos Macaé (RJ); (viii) LT 345 kv Tijuco Preto Itapeti Nordeste (SP); (ix) LT 230 kv Biguaçu Palhoça Desterro (SC); e (x) LT 500 kv Oriximiná Itacoatiara Cariri (PA/AM). Brazil owns six medium and large interconnections with other South American countries; four of which are operated by Eletrobras System; they are: (i) (ii) (iii) (iv) With Paraguay, through four transmission lines in 500 kv which Interconnect Itaipu power plant to the substation Margem Direita (Paraguay) and to substation Foz do Iguaçu (Brazil). The sector energy of 50 Hz de Itaipu is then transported to substation of Ibiúna (SP) by a transmission system of direct current of MW; With Uruguay, through the frequency converter station in Rivera, with capacity of 70 MW (Uruguay) and a transmission line at 230 kv, connecting it to the substation of Livramento (Brazil); With Argentina, through a frequency converter station in Uruguaiana, with capacity of 50 MW (Brazil) and a transmission line at 132 kv, connecting it to Paso de los Libres (Argentina); and With Venezuela, through a transmission line at 230 kv, with capacity of 200 MW, which interconnects de city of Boa Vista, in the state of Roraima, to the city of Santa Elena (Venezuela). Electricity Distribution Electricity distribution to consumers are carried out by controlled companies Eletrobras Amazonas Energia, Eletrobras Distribuição Alagoas, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia and Eletrobras Distribuição Acre. It is worth mentioning that, due to sector legislation, distributors in the interconnected electric system are not allowed to develop activities related to electricity generation and transmission. Information on the composition of the Company s distribution network: Eletrobras Amazonas Energia Number of consumers: Number of cities served: 62 Distribution Networks (Km): Substations: 119 Eletrobras Distribuição Alagoas Number of consumers:

63 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Number of cities served: 102 Distribution Networks (Km): Substations: 37 Eletrobras Distribuição Piauí Number of consumers: Number of cities served: 223 Distribution Networks (Km): Substations: 67 Eletrobras Distribuição Rondônia Number of consumers: Number of cities served: 52 Distribution Networks (Km): ,59 Substations: 48 Eletrobras Distribuição Acre Number of consumers: Number of cities served: 22 Distribution Networks (Km): ,28 Substations: 8 Eletrobras Distribuição Roraima Number of consumers: 79,029 Number of cities served: 1 Distribution Networks (Km): 1,960 Substations: 3 c) Characteristics of performance market, especially: (i) Participation in each market; and (ii) Conditions for market competition Brazilian electric system is formed by Sistema Interligado Nacional SIN (National Interconnected System), constituted of South, Southeast/Center-West, North and and Northeast systems and by several individual and smaller systems in the North and West of the country. SIN is responsible for 97% of the energy charge in Brazil. Federal Constitution considers hydraulic energy potentials as Union assets, and transfers them competence to, directly or by concession, authorization or permission, explore services and installations of electricity and the use of water energy resources. The Union must also implement a national system to manage water resources and define criteria for granting right of their use, register, follow up and supervise right 63

64 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras concessions for research and exploitation of water resources, in addition to legislate over waters and electricity. On December 26 th 1996, according to Law nº 9.427, ANEEL was constituted, na autarchy under special regimen and the Ministry of Energy (Ministério de Minas e Energia - MME), which aims to regulate and supervise production, transmission, distribution and marketing of electricity, according to policies and guidelines proposed by Federal Government. ANEEL is responsible, among others, by: implementing federal government s policies and guidelines for the exploitation of electric energy and exploitation of hydraulic potential; promoting the bids for the hiring of public service concession to generate, transmit and distribute electricity and for the concession granting for hydraulic potential exploitation; granting and authorizing energy installation and services; ensuring fair rates; ensuring the quality of service; requiring investments; concluding and managing the concession or permission contracts of public electric power, granting for public property use; issuing permits and supervise concessions and the provision of electricity services. In order to provide services in the area of studies and research designed to support the planning of the Brazilian energy sector expansion, it was created by Law , of March 15, 2004, and Decree No of August 16, 2004 the Energy Research Company (Empresa de Pesquisa Energética ) EPE, an enterprise linked to the MME. EPE's mission is to become a reference in studies and research-oriented energy planning in Brazil, considering they should be technically, economically and socially viable and environmentally sustainable. Among the products produced by EPE there is the Ten Year Plan for Expansion of Energy that, with respect to the Brazilian electric sector, besides supporting the development of several products, mainly the preparation of Bidding Program for Power Plants and Transmission Lines, provides the market with a reference to the sector s expansion. In 1997 came into being Law No /1997, also known as "Water Law", which established the National Water Resources Policy and created the National Water Resources Management (Singreh). Water is considered a public asset and a limited natural resource with economic value. Moreover, the legal instrument provides that the management of water resources should provide multiple uses of water and should be decentralized and include the participation of the Public Power, users and communities. Law No of July 17, 2000 provides for the creation of the National Water Agency ANA, autarchy under special scheme, under the Ministry of Environment, aiming to implement in its sphere of competence, the National Policy of Water Resources, incorporating the National Water Resources Management. Moreover, among other things, ANA has the powers to supervise, monitor and evaluate the actions and activities resulting from compliance with federal legislation related to water resources, it can discipline, normatively, implementation, operation, monitoring and evaluation of instruments of National Policy on Water Resources, ANA can also grant, through permits, the right to use water in bodies of water controlled by the Federal Government; inspect the use of water resources of bodies of water controlled by the Federal Government; elaborate technical studies to support the definition by the National Council of Water Resources of the amounts to be charged for the use of water resources of Federal Government, based on the mechanisms and quantities suggested by the Watershed Committees; set and monitor the operation conditions of reservoirs by public and private agents, seeking to ensure the multiple use of water resources, as set forth in the plans for water resources of each respective watersheds. (I) participation in each market: Generation Eletrobras and its controlled companies are responsible for 39,453 MW of installed capacity of electric power generation in the country, representing 37.0% of total national capacity. Transmission 64

65 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Eletrobras System is responsible for more than 53,000 kilometers of transmission lines with voltage exceeding 230 kv, corresponding to about 61% of total lines in Brazil. Distribution: Eletrobras and its controlled companies are responsible for providing 11,426 GWh to 2,880,663 consumer units, representing 4.5% of the national market in terms of units assisted. (Ii) Competition conditions in the markets. The Brazilian Constitution stipulates that the development, use and sale of energy can be performed directly by the Brazilian government or indirectly through concessions, permits or authorizations. Historically, the Brazilian energy industry has been dominated by the generation, transmission and distribution concessionaires controlled by the Brazilian Government. In recent years, the Brazilian Government has taken steps to reshape the energy industry. Overall, these measures were aimed at increasing the role of private investment and eliminating restrictions on foreign investment, thereby increasing competition in the energy industry. Considering that the activities of generation, transmission and distribution of electric energy are object of concession granted by the Government, there is no competition in the exploitation of such grants during the term of those contracts. However, there is significant competition in the bidding period for the granting of new concessions. As established by Law 10,884 of March 15, 2004, and according to the new electricity sector model, power can be traded on the Regulated Contracting Environment ("ACR"), which should be preceded by a formal bidding and formal contract between the generators and distributors in the terms of the auction, or under the Free Contracting Environment ("ACL"), a segment in which they carry out purchase and sale of electricity through bilateral contracts freely negotiated between generators, retailers and free consumers. Can be free consumers for the purposes of participating in the ACL: (I) consumer units with load greater than or equal to 3,000 kw served at voltages greater than or equal to 69 kv - in general the consumer units in subgroup A3, A2 and A1. Are also free to choose their supplier, new consumer units installed after May 27, 1998 with demand greater than or equal to 3,000 kw and treated at any voltage. Such consumers can buy electricity from any agent of generation or supply of energy, and (Ii) consumer units with demand greater than 500 kw supplied at any voltage, being restricted to the energy from so-called encouraged sources, namely: Small Hydropower (SHP), Biomass Plants, Wind Power Plants and Cogeneration Qualified Systems. Furthermore, in accordance with paragraph 1 of Article 31 of Law , ELETROBRAS and its controlled companies Eletrobras Furnas, Eletrobras Chesf, Eletrobras Eletronorte Eletrobras Eletrosul and Eletrobras CGTEE were excluded from the National Privatization Program - PND. Thus, they are subject to examination by the Secretariat of Economic Law (SDE) of the Ministry of Justice, on the concentration in the electricity sector, according to the ANEEL Resolution 378 of November 10, 2009 establishing procedures for analysis of mergers and infringements of the economic order in the electric power sector. d) Possible seasonality There is no seasonality in the activity of the Company, considering that the demand for electricity is constant. e) Key inputs and raw materials: i. description of the relationships held with suppliers, including whether they are subject to governmental control or regulation, identifying the bodies and the respective applicable legislation; 65

66 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras ii. iii. dependence upon few suppliers; and possible volatility of their prices. For the construction of power plants, the main inputs used by the Company are the materials, equipment for generation and transmission of energy, especially for hydro turbines and substations of high / medium voltage, and civil engineering services for infrastructure construction of central power generation, including dams. For these activities, the choice of suppliers and contractors varies with the size of the enterprise. Hiring these suppliers and contractors is not subject to governmental control or regulation. For plants in operation, the main inputs and materials are related to the activities of replacement and modernization of hydro-mechanical equipment and systems. In this case, there are few large suppliers, which limits competition and consequent price volatility. Hiring these suppliers is not subject to governmental control or regulation. Regarding the activities of thermoelectric and nuclear power generation, the Company does not produce coal and / or fuel oil and processed uranium (the raw materials for thermal and nuclear power plants, respectively). Thus, the Company is totally dependent on their suppliers for the provision of such raw materials Relevant customers accounting for more than 10% of total net revenues of the Company, stating: a) total revenues from the client and b) operating segments affected by income from the client: The Company has no customers responsible for more than 10% of its total net revenue Relevant effects of state regulation on the Company's activities: a) need for government authorization for the exercise of activities and historical relationship with the government to obtain such permits The Brazilian Constitution stipulates that the development, use and sale of energy can be performed directly by the Brazilian government or indirectly through concessions, permits or authorizations. Historically, the Brazilian energy industry has been dominated by generation, transmission and distribution concessionaires controlled by the Brazilian Government. In recent years, the Brazilian Government has taken steps to reshape the energy industry. Overall, these measures were aimed at increasing the role of private investment and eliminating restrictions on foreign investment, thereby increasing competition in the energy industry. Companies or consortia wishing to build or operate facilities for generation, transmission or distribution of electricity in Brazil must pay the MME and ANEEL, as representatives of the Brazilian Government for a concession, permit or authorization, as appropriate. The permits grant rights to generate, transmit or distribute electricity in the relevant concession area for a specific period. This period is generally 35 years for new generation concessions, and 30 years for new grants of transmission or distribution. A grant may be renewed at the discretion of the granting authority only once. Law No. 8,987 of February 13, 2005, as amended ("Concessions Law") establishes, among other things: the conditions that the licensee must comply with when providing electricity services, consumer rights, and obligations of the concessionaire and the conceding authority. In addition, the licensee must comply with regulations governing the electricity sector. The main provisions of the Concessions Law are as follows: (i) appropriate Service. The concessionaire shall provide adequate service, especially with regard to continuity, efficiency, safety and accessibility; 66

67 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (ii) (iii) (iv) (v) (vi) (vii) Land use. The concessionaire may use public land or require the granting authority to expropriate private land needed for the benefit of the concessionaire. In this case, the licensee must compensate owners of land affected; strict liability. The licensee is strictly liable for all damages arising from the provision of their services; changes in the controlling interest. The grantor must approve any change in direct or indirect controlling interest of the concessionaire; Intervention by the grantor. The granting authority may intervene in the concession, through a presidential decree to ensure the adequacy of service provision, and the faithful compliance with relevant legal and contractual regulations. Within 30 days after the date of the decree, the representative of the grantor must initiate an administrative process, the concessionaire being guaranteed the right to contest the action. During the term of the administrative process, a person appointed in accordance with the decree of the grantor will be responsible for granting the concession. If the administrative process is not completed within 180 days from the date of the decree, the action stops and the grant is returned to the concessionaire. The grant is also returned to the concessionaire if the representative of the grantor decides not to terminate the concession and it is still action; Termination of the concession. The termination of the concession can be accelerated by means of expropriation and / or forfeiture. Expropriation is the premature termination of a concession for reasons related to public interest and should be expressly declared by law. Forfeiture shall be declared by the grantor after ANEEL or MME have edited an administrative regulation stating that the concessionaire: (a) failed to provide adequate service or to comply with applicable law or regulation, (b) lost the technical financial or economical conditions to maintain adequate service provision, or (c) did not fulfill the fines levied by the grantor. The concessionaire may contest any expropriation or forfeiture in court. The concessionaire is entitled to compensation for its expropriated investments in assets that have not been fully amortized or depreciated, after deducting any amounts for penalties and damages owed by the concessionaire, and Termination. When the lease expires, all assets, rights and privileges materially related to the provision of electricity services return to the Brazilian Government. Upon expiration, the concessionaire is entitled to compensation for its investments in assets that have not been fully amortized or depreciated during the expiration. The main regulators of the electricity sector in Brazil are the MME and ANEEL, whose powers can be summarized as follows: (i) Ministry of Mines and Energy The MME is the main regulator of the Brazilian government's energy industry by acting as a grantor on behalf of the Brazilian government, and empowered to formulate regulatory and supervisory policies. (ii) ANEEL The Brazilian energy industry is regulated by ANEEL, an independent federal regulatory agency. The main responsibility of ANEEL is to regulate and oversee the power industry in accordance with the policy dictated by the MME and answer questions delegated to it by the Brazilian Government and the MME. The current responsibilities of ANEEL include, among others: (a) administration of concessions for generation, transmission and distribution of electricity, including approval of electricity rates, (b) enactment of regulations for the electrical industry, (c) implementation and regulation of energy sources exploitation, including hydroelectric power, (d) promotion of public bidding procedure for the granting of new concessions, (e) settlement of disputes between administrative authorities of electricity generation and purchasers of electricity, and (f) defining the criteria and methodology for the determination of transmission tariffs. (Iii) The National Energy Policy CNPE 67

68 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras In August 1997, CNPE was created to advise the President referring to the development of national energy policy to optimize the use of energy resources in Brazil and to ensure energy supply in the country. The CNPE is chaired by MME, and most of its members are government ministers. iv) National Operator of the System - ONS Created in 1998, the ONS is a private non-profit entity consisting of generation, transmission and distributions companies, and free consumers, importers and exporters of electricity, whose basic role is to coordinate and control the operations of generation and transmission of National Interconnected Electric System, subject to regulation and supervision of ANEEL. The Law of the New Electric Sector Model gave the government power to appoint three members of the Board of Executive Officers of ONS. The objectives and primary responsibilities of the ONS include: operational planning for the sector of generation and transmission; organization of the use of the National Interconnected Electric System and international interconnections; ensure the industry players access to the transmission network in a nondiscriminatory way; assist in the expansion of the energy system; propose to MME plans and guidelines for extensions to the Basic Network, and presentation of rules for operation of the transmission system for approval by ANEEL (v) Energy Research Company EPE Created in August 2004, the Energy Research Company - EPE is responsible for conducting strategic research in the Electric Energy Sector, including electricity, oil, gas, coal and renewable energy sources. The researchs made by the EPE are used to subsidize the MME in their role as makers of programs for the national energy sector. (vi) Monitoring Committee of the Energy Sector CMSE The Law of the New Electric Sector Model authorized the creation of the Monitoring Committee of the Electricity Sector-CMSE, which operates under the direction of the MME. The CMSE is responsible for monitoring the conditions of supply of the system and the indication of the necessary steps to correct the identified problems. (vii) Other institutions: ANA, IBAMA, State and Municipal Agencies The ANA is responsible for regulating water use in lakes and rivers under the federal domain. Its objectives include ensuring the quality and quantity of water to meet their multiple uses.additionally, the ANA must implement the National Plan for Water Resources Monitoring, a series of mechanisms that seek the rational use of water resources of the country. Regarding the rivers and lakes under the state government domain, the state agencies are responsible for the implementation of their State Plans for Water Resources, as well as for analysis and concession for water resources use. IBAMA is an environmental agency linked to the Ministry of Environment and is responsible for environmental monitoring and enforcement at the federal level. The IBAMA is responsible for the environmental licensing of activities and enterprises that produce environmental impact at the regional or national level. Finally, the municipal bodies and environmental agencies are responsible for the licensing of activities involving local environmental impact, and in other cases, the bodies and state environmental agencies are responsible for the conduction of the environmental licensing. 68

69 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras b) Company's environmental policy and costs incurred for compliance with environmental regulation and, where appropriate, other environmental practices, including adherence to international standards of environmental protection Eletrobras System s Environmental policy aims to guide the treatment of social and environmental issues associated with the electric power enterprises of its companies, reinforcing the commitment of Eletrobras System with respect to environment and sustainable development of the country. The reflection on the social and environmental aspects involved in the generation, transmission and distribution of electricity has evolved in recent decades. The environmental policy for the Brazilian electric sector was first established in the Second Master Plan for the Environment of Power Sector (II PDMA) /1993 (Vol I and II). The new institutional model of the sector led to the formulation of an exclusive environmental policy for the Eletrobras System. The first version was approved in March 2006 by the Superior Board of Eletrobras System ("Consise ). To meet the requirements of the process of reorganization and strategic repositioning of Eletrobras System, its environmental policy has been improved in the second half of 2009 under the Subcommittee on Environment of the Eletrobras System (SCMA). This revised version was approved in January This new environmental policy is divided into two levels: (i) principles, which encapsulate the essence of the environmental commitment of companies and (ii) guidelines, which seek to give an operational dimension to the principles. The principles addressed by the Environmental Policy of Eletrobras System, and its main guidelines are as follows: (i) Internal Articulation: ensures the incorporation of environmental processes of the company. To this end, the Company should consider the public policies regarding the environment in the internal processes, address issues of environmental projects in coordination among the company s areas, incorporate the environmental dimension to decision-making processes and incorporate the principles and guidelines of the environmental policy to the signed contracts and partnerships; (ii) External Articulation: seeks the implementation of environmental programs and actions in coordination with other sectors and institutions. To this end, the Company shall enhance the sustainable development opportunities arising from local and regional enterprises, seeking to share the financial and institutional responsibilities with other public and private actors working in the area of the enterprises, contributing to the integrated management of watersheds and for sustainable use of water resources, in conjunction with the involved agents, and consider the specificities of ecosystems and local communities in joint actions and actions with environmental programs and policies; (iii) Relationship with Society: promotes the relationship with the several segments of society. The guidelines established for this are: have dialogue with the several social actors involved from the beginning of the planning of projects and identify their needs and expectations, establish communications with appropriate language to the intended audience, and establish ongoing process of communication and clarification to the public on issues related to energy and climate actions; (iv) Sustainable Use of Energy Resources: exploiting the potential of these local and regional resources in regard to the principles of sustainable development. To this end, the Company shall encourage the use of renewable sources in expanding the supply of electricity, use incentive mechanisms to reduce emissions of greenhouse gases as a business opportunity, internalize the costs and social and environmental benefits in the definition of energy resources use, and support programs for energy conservation and energy efficiency as a strategy for rational use of natural resources; 69

70 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras (v) Scientific and Technological Development: supports the development in these areas applied to environmental issues. The Company shall promote technical cooperation for the preparation of studies and research related to interactions between electric energy, environment and sustainable development, share the management and resources under study and projects of common interest to Eletrobras System companies and support teaching and research institutions in the development of studies and research of environmental interest, and (vi) Environmental Management: Search the deployment of an environmental management system integrated with other business managing systems. The Company shall take actions that promote the improvement of environmental performance indicators used to measure the results of environmental management; encourage the attendance of environmental requirements by employees, business partners and suppliers; encourage actions of energy conservation, energy efficiency and combat to waste in the company; raise awareness and train employees, partners and suppliers as to their responsibilities to the environment and promote environmental awareness activities in the areas of influence of the enterprises. Costs incurred in 2009 for compliance with environmental regulation amounted to R $ 201, Although the company is diligent in its activities for environmental preservation, and fully comply with Brazilian regulations on environment and its responsibilities, as shown above, on December 31, 2009 the Company did not formally adhered to any international standards of environmental protection. c) dependence on patents, trademarks, licenses, concessions, franchises, contracts, royalties for the development of relevant activities The Company develops its generation, transmission and distribution of electric energy in accordance with the concession agreements signed with the Brazilian Government through ANEEL, and therefore the financial condition of the Company and its operating result depends on the maintenance of such grants. For more information on Company s concessions see section 9.1. of this Reference Form Information on countries from which the Company obtains relevant incomes: a) income from customers assigned to the Company s host country and its participation in the Company's total net income, b) income from customers assigned to each foreign country and its participation in the Company's total net income, c) total income from foreign countries and its participation in the Company's total net income: Although the Company has been looking into the feasibility of and participation in overseas ventures, currently there are no Company's incomes from countries other than Brazil Regulation of countries from which the Company obtains relevant incomes and influence in the Company business: Not applicable Other relevant long-term relationships of the Company that are not listed elsewhere in this Form: Itaipu Binacional - ANDE (Paraguay) Itaipu Binacional is a binational entity created and governed under equal rights and obligations according to the Treaty signed on April 26 th 1973, between the Federative Republic of Brazil and Republic of Paraguay, namely High Contracting Parties, and whose capital is owned in equal parts by the Company and by the Administración Nacional de Electricidad ANDE, also referred to as Parties. 70

71 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Itaipu Binacional s headquarters are located in Brasília, capital of the Federative Republic of Brazil and in Asunción, capital of the Republic of Paraguay, and they are totally exempt of taxes in both countries, according to the Treaty signed. The Company s goal is the hydroelectric water resources utilization of Parana River timeshared between both countries, from and including Salto de Guaíra to Iguaçu River mouth, by the construction and operation of a hydro power plant with total available capacity to contract 12.6 million of kw, generating quality electricity with social and environmental responsibility and encouraging sustainable economical, tourist and technological development in Brazil and in Paraguay. Itaipu Binacional formally began its activities on May 17 th 1974, and Hydro Power Plant was officially inaugurated on October 25 th 1984, when two generation units started operating on a trial basis. Since May, 1991, 18 units have been operating. In November 2006, a generation unit called 9A was installed and, in April 2007, the generation unit known as 18A was also installed, thus completing the installation stage of the generation units at the hydroelectric plant. Completed, the hydroelectric plant counts on 20 generation units installed: 18 units are available for simultaneous operation and 2 are reserve units. On November 13 th 2000, an agreement was signed between Itaipu Binacional and companies which are members of CEITAIPU - Consórcio Empresarial Itaipu, to implement generation units 9A and 18A, under the regime of Integral Contract, valued at $ million, not including capitalized contributions. By the year 2009, companies which are part of the consortium received payments for completed events and for other appropriations totalizing US$ million ( US$ million). The total financial resources for this investment have been set at U.S. $ 211 million, including interests capitalization during the construction term and they were assured by Eletrobras, by the financing contract No. ECF 1628/97 and additives A/2002, B/2005, C/2006, and D/2007. Itaipu Binacional is governed by rules established by the Treaty and its Annexes, listed below, and it is managed by a Board of Directors and an Board of Executive Officers, constituted by the same number of members from each country: - Annex "A" - Itaipu Binacional Statute; - Annex "B" - Overview of facilities assigned to Produce Electricity and of Ancillary Works; and - Annex "C" - Itaipu Binacional Financial and Supply Electricity Basis. As set forth in the Entity official acts, Itaipu Binacional financial statements comprise the Balance Sheet, Profit and Loss Statement, Statement of Sources and Application of Funds and Financial Statements Explanatory Notes. Financial statements and supplementary information were prepared according to accounting practices adopted in Brazil and Paraguay, concerning specific provisions laid down in the Treaty, in its annexes and in other official acts. The main provisions which differ from accounting practices in these countries are: Fixed Assets depreciation is not calculated; Entity accumulated results are not shown in equity, they are shown under Results Compensation belonging to the Asset; The remuneration on equity paid to the Parties does not take into account the profit-taking, it is part of Liabilities and represents an operating expense in the result; and 71

72 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras The Statement of Sources and Application of Funds includes the Entity's Financial Statements and Statements of Cash Flows and Added Value are presented as supplementary information. Itaipu Binacional operating incomes include values from electricity service rendering, based on the amount of power contracted, for Eletrobras companies, in Brazil, and ANDE, in Paraguay, under the commitment and agreement letters signed to this effect, as well as the costs reimbursement of additional energy, not including the amount of power contracted. The remuneration for energy transfer, charged to Eletrobras, is credited to the Government of Paraguay, depending on its part of energy transfer. Itaipu Binacional Financial Incomes include incomes resulting from investments in banks and arrears received for late payment of invoices for electricity service rendering contracts, as well as interests arising from ANDE debt renegotiation, related to the rendering of electricity services. At last, Itaipu Binacional operations, carried out in various currencies, but mainly in real and guarani, are accounted based on the U.S. dollar. Effects of variations in real and guarani purchasing power are reflected in Itaipu Binacional financial statements, according to conversion criteria described in the financial statements of the company, to the extent of variation of these currencies as to the dollar of the United States of America in Brazil and in Paraguay. Amounts accounted in U.S. dollars are registered at historical cost without considering any effect of variation in their purchasing power. For more information on contracts, financing and other operations involving the Company and Itaipu Binacional, see sections 10.2 and 16.2 of this Reference Form. CEPEL The Electricity Research Center Cepel is the central executer of R&D+I programs and projects for the Eletrobras System (ES). It was created in 1974, resulting from Eletrobras strategic vision, aiming at the formation of a research infrastructure for the development of advanced technology in electrical equipment and systems in the country. The beneficiaries of the Center s performance transcend the System. Among them, are: the MME and sector entities such as EPE, ONS, CCEE and Aneel, in addition concessionaires and manufacturers. Cepel has a collection of computer methodologies and programs, under constant improvement and development, which are applied to the generation and transmission expansion plan, considering environmental aspects and the insertion of alternative sources, in the operation of interconnected hydrothermal systems and the basic grid, including real-time, being widely used in all of the electric sector. It also develops studies and researches which generate: technologies for transmission, enabling, for example, capacity increase, passbands decrease and improved layout for the installation of lines; equipment monitoring and diagnosis, aiming at the optimization of investments and security in the operation; energy saving and efficient use as well as metallurgy and materials. Besides that, it also provides technological support to important governmental programs and projects, such as Luz para Todos, Proinfa, Procel and Reluz, also collaborating to the preparation of Energy Expansion Plans. Cepel has a complex of 30 laboratories, used to support the execution of research and development projects and, it is also where trials and expert/conformity for certification analyses are conducted. Many of these laboratories are pioneers in Brazil and others are unique in South America. In 2009, Cepel developed 102 R&D corporate projects for the companies of the ES, namely: Generation and Transmission Expansion Plan (4)/ Environment (5); Stochastic Hydrology and Hydric Resources (4); Energy Operation Plan (5); Grid Planning, Operation and Analysis (8); Scada/Ems Sage Technologies (6); Local Automation and Disorder Analysis (2); Transmission Technologies (11); Metallurgy and Materials (6); Equipment and Installations Monitoring and Diagnosis (15); Energy Saving and Efficient Use (16); 72

73 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Renewable Energies and Distributed Generation (5); Electric Measures and Fight Against Losses (4); Computer Techniques and Methodologies (3); Projects and Tariffs Financial Analysis (1); Reliability (2); Energy Quality (2); Electromagnetic Transients (1). Within the financing warranty of the Center s research projects, Eletrobras, Chesf, Eletronorte, Eletrosul and Furnas made available, through yearly contribution, resources for the budget of fiscal year 2009 of R$120 million, of which R$18 million were invested in laboratories. Andrade Gutierrez Eletrobras Eletronuclear keeps a long-term relationship to Andrade Gutierrez Construction Company in the scope of civil works of Angra III Nuclear Power Plant. Angra III civil works were bidden and adjudicated to Andrade Gutierrez Construction Company by a contract signed on June 16, The contracted construction company was mobilized in June, 1984, starting civil works. Services already implemented consisted of mobilization, contractor installation at the construction site and local interventions in the buildings, with rock cuttings and pits opening for foundation blocks. In April, 1986, civil works were halted, and contractor demobilization was carried out. However, the contract still is in force, and it is awaiting for a government decision on the civil works resumption. To maintain the above mentioned, the annually amount paid to Andrade Gutierrez for its facilities maintenance, preservation of construction site installations and use of its houses by Eletrobras Eletronuclear was around $ 5 million. In 2009, the contract with the construction company was revised by it was adapted to the current market conditions, the real quantitatives resulting from experience with Angra II and the establishment of a scope that meets all civil works needs. In order to support the negotiations, timetables and histograms were developed and established to the main Angra III civil work activities considering 66 months to complete the project (from the beginning of the concrete slab foundation of the reactor building) and all required services were identified to the respective quantitatives. Both Eletrobras Eletronuclear and Andrade Gutierrez Construction Company prepared for all services, compositions of unit prices. TCU has examined this additive and released civil works progression to complete the Plant. The construction company offer, after a few negotiation proposals, was R$ 1,368,600 million. Considering the reduction established by TCU of $ million (120 million 100 thousand), the final amount of the contract was R$ million. Areva Areva, resulting from the merger between the German company Siemens KWU and France's Framatome, is the biggest supplier of Angra III Project and it owns a valid business contract for its involvement in the Plant construction, by imported service goods supply. Because these contracts are very old, negotiations are ongoing to update them. Funding for this scope of imported goods and services - about EUR 770 million - should be a result of loans from European banks, some of them, repeatedly, have confirmed their interest in participating in venture financing. Areva NP has 03 contracts with Eletrobras Eletronuclear - which: 01 to supply several imported pieces of equipment (mechanical, electrical, instrumentation and control), 01 to render engineering services and 01 to ensure supplies and services Other relevant information: Angra III Unit in Construction Angra III Plant was acquired in 1976, along with Angra II, with the Siemens-KWU, and later AG Framatome, currently Areva. 73

74 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Civil work services were adjucated to Andrade Gutierrez Construction Company in 1982, after the national bidding process. Civil works began in 1984 but they were interrupted in 1986, according to the budget constraints at that time. In this short term, we carried out the dismantling and the rocky hollow initial preparation of plant construction site. The debris was used in the construction of a breakwater to protect the marine site of the plant. Since that time, activities have focused primarily on preserving the site and facilities for construction site installation that had been built by the contractor and on maintaining mechanical equipment that had been acquired in early '80s. Today, the enterprise counts on approximately 13,500 tons of components already acquired and stored under strict storage conditions, among which we highlight the key mechanical components imported from the so-called "nuclear island", for example, the reactor vessel, the pressurizer, Sprinkler Generator and main refrigeration pump of the primary circuit (nuclear). Tt has also acquired turbine, electric generator, emergency diesel group and a several pieces of process equipment, such as: heat exchangers, valves, pumps, special piping parts, etc. Since 2001, the process of decision making and evaluations regarding the relevance of project resumption fell to the National Council for Energy Policy (CNPE). Since then, many resolutions adopted by CNPE required study intensification on Angra III environmental, technical and economic feasibility, and those studies are often supported by Eletrobras Eletronuclear. On June 25 th 2005, CNPE, through the resolution nº 03/2007, has determined that the Company and Eletrobras Eletronuclear lead the resuming of the construction of nuclear power plant Angra III, establishing that the Ministry of Mines and Energy (MME) arrange, through independent consulting, an assessment of the structure and components of the operating costs of Angra III, aiming to define the bill for electricity generation. These policies gave rise, basically, to three action lines regarding the resumption of Angra III construction: 1. Reassessment of costs for completion of the enterprise: MME hired the Swiss consultant COLENCO to conduct an independent reassessment of the costs. The final report was issued by the hired company in December 2007, pointing to the value of R$ 7.32 billion, 0.5% less than the amount estimated by Eletrobras Eletronuclear on the same date; 2. Revision of the feasibility study for Angra III: A Working Group composed by specialists from Eletrobras and Eletrobras Eletronuclear, with the cooperation of Civil House of Presidency of Republic and MME, intending to review the premises and calculations of the report by Eletrobras Eletronuclear Angra III: Economical-Financial Feasibility Analysis of the Enterprise Rev. 3A, which main goal is the estimate of the equilibrium price for the energy to be generated by Angra III. In December 2007, in April 2009 and October 2009, the aforementioned Working Group issued, respectively, the revisions, 4a, 4b and 5 of the report. In all revisions, depending on the simulated scenarios, on initiatives at government level with regard to tax exemptions and other incentives, and especially, on the treatment to be given to the already accounted costs for the enterprise, it is concluded that the enterprise is viable and that the necessary value of sales of energy to ensure the economic and financial balance of the project lies in the level of competitiveness with other conventional thermal options. 3. Legal Consideration of Existing Contracts for Angra III: Eletrobras Eletronuclear prepared a managerial report addressing the relevant points of each contract and forwarded it to the Working Group comprised fo representatives of the Civil House of the Presidency, MME and Eletrobras. The Working Group concluded that the contracts signed in the past are still valid, lacking, 74

75 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras however, renegotiations that better reflect current conditions, from legal, trading and prices viewpoint. These contracts can be divided into three major groups: Contract with Andrade Gutierrez Construction Company for the execution of civil works the plant construction: Contract with Areva for the provision of imported services and equipment and materials from the imported scope of supplies: Contracts with the National Industry for the provision of equipment from the national scope of supplies: Angra III Main Technical Project Data Considering that Angra II is the Reference Plant or the design, construction and operation of Angra III, the latter shall, within the possibilities and with very few exceptions, a replica of the first, presenting however, two main differences: Place of construction: Angra II was built on stilts, Angra III will be built directly on bedrock. Technological advance of Angra III in the electronics: Angra II uses a system of analog instrumentation and control, Angra III is designed to use a last generation digital system. Schedule of the Enterprise The planned period for construction of Angra 3 is 5.5 years, encompassing steps from the beginning of implementation of the concrete building foundation slab for the reactor until the beginning of commercial operation, including the stages of design, construction, electromechanical assembly, commissioning and testing. Current status of plant construction: Questions concerning environmental licensing process: with regard to environmental licensing process there are no impediments to the continuation of works, having in mind that, to improve the understanding of the public about Angra 3 project and by Eletrobras Eletronuclear own initiative, 17 Public Meetings were performed with the communities surrounding Almirante Álvaro Alberto Nuclear Central (Angra dos Reis, Paraty and Rio Claro); and in the cities of Rio and Ubatuba-SP, by formal invitation from the Brazilian Institute of Environment and Natural Resources IBAMA, 8 Public Hearings were held; cities where the Environmental Impact Assessment - EIA and the Report on Environmental Impact - EIR and the Plan to meet the requirements of the Process of Environmental Licensing, submitted by Eletrobras Eletronuclear were approved by that licensing body, all this culminating in the granting of permits required by IBAMA to the beginning and continuation of the works, namely: Previous License: issued on July 23 rd, 2008 Installation License: issued on March 5 th, 2009 Questions concerning the Licensing Process for Land Use: similarly to previous case, there aren't also any obstacles to the continuation of Angra III implementation works, whereas on June 24 th 2009, the Municipality of Angra dos Reis, after a negotiation period with Eletrobras Eletronuclear on environmental investments to be made in the nuclear plant's area of influence, issued the Charter for the Construction License nº 108/2009 referring to the construction of Angra III. Questions concerning the Nuclear Licensing Process: based on the main documents submitted by Eletrobras Eletronuclear aiming the completion of nuclear licensing process, the Preliminary Report of Security Analysis - RPAs, the Preliminary Report of Physical Protection - RPPF, the Preliminary Report of 75

76 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Fire Protection - RPPCI and a series of documents and reports proving the safety of the plant in its construction and operation phases, the Brazilian regulatory authority for nuclear installations, the National Commission for Nuclear Energy - CNEN, issued the following licencing grants: 1st Partial License: issued on March 9 th, 2009, allowing the execution of the regularization concrete for the foundation pits and waterproofing of the reactor building foundation slab and of the foundation of the reactor's auxiliary building. 2nd Partial License: issued on March 11 th, 2010, authorizing the construction of non-nuclear structures and buildings. 3rd Partial License: issued on March 29 th, 2010, authorizing the construction of the turbine building. Concreting Permit for the reactor's building: result of a series of technical meetings that have long been held between CNEN and Eletronuclear, it is foreseen that the licensing body may issue, even in early June 2010, a license for the implementation of the reactor's building slab foundation. That fact will allow Eletronuclear start concreting the foundation slab of the reactor building, a relevant milestone towards achieving the "critical path" of the implementation schedule of the plant. Definitive License for Construction: granted on May 31 st by CNEN. Renegotiation of Existing Contracts for Angra III: from the recognition of the legal validity of the contracts for Angra III, which had been previously signed by a Working Group coordinated by the Civil House of the Presidency of the Republic and composed by representatives from the Ministry of Mines and Energy, Eletrobras and Eletrobras Eletronuclear, the latter has been undertaking renegotiations of the technical and commercial bases with several suppliers of materials, equipment and components of national scope for provisions for Angra III. Among these manufacturers and suppliers the following are highlighted: CONFAB: provision of various tanks and large size vessels and of material for the manufacturing of he containment sphere for the reactor building; BARDELLA: supply of equipment for cargo handling and components such as: overhead travelling cranes, gantry cranes, etc.; NUCLEP: providing the main condensers, accumulator tanks, spent fuel pool racks and special supports for large components; SIEMENS IN BRAZIL: the supply of transformers of electric generator; KSB: supply of centrifugal pumps, and EBSE: supply of ferritic welded tubes. Main Bidding Process underway: after authorization of its parent company Eletrobras, on August 21 st, 2009, in Rio de Janeiro, Eletrobras Eletronuclear held a Public Hearing to present the range of services to be bid for the execution of the engineering detailing project for Angra III, for the electromechanical assembly works, as well as for the support to the enterprise management. Currently, Eletrobras Eletronuclear has been making efforts to prepare all documentation for publication, in short time, of the main Bid Notices of such services, among which we highlight: Civil engineering services (three contracts): completion of projects and structural calculations for buildings classified as nuclear, complete projects for conventional buildings and emergency projects for the supply of civil construction documents to the work. 76

77 Formulário de Referência Centrais Elétricas Brasileiras S.A. - Eletrobras Electromechanical engineering services (5 contracts): pipeline, mechanical components, ventilation, fire protection and others projects to: nuclear structure, conventional structures, the area outside the plant, development of ventilation and fire protection flowcharts, design of a small part of the transmission line 138 / 500 kv. Management Support Services (6 contracts): Inspection of equipment and components manufacturing, inspection of civil works, electromechanical assembly inspection, technical support, support to planning, support to the international engineering. Electromechanical assembly (two contracts): assembly of pipes, equipment, mechanical and electrical components, instrumentation and control systems, ventilation, fire protection, cooling and other thermal insulation, painting etc. comprising the nuclear structures and the conventional structures. Main activities of civil works in progress: from the obtainment of licenses previously mentioned and of an IBAMA authorization, in September 2005, for the execution of civil works of PRAD - Recovering of Degraded Areas Plan, to date, the following works were briefly performed: Preparatory activities in Foundations Digging: depletion of the area, surface cleaning, removal of loose stones and choco, correction of negative slope, filling of points of water arising, regularization concrete execution of foundations pits for several buildings etc. Infrastructure Building Site Activities: modernization of existing concrete central and implementation of two new concrete centrals, assembling of the temporary substation to supply electricity to the construction site, implantation of mechanical repair shops, reform of the preliminary inspection warehouses of stored volumes, installation of tower cranes for construction, deployment of temporary facilities for water treatment and sewage, installation of the electrical network of the building site, implementation of the central cooling of the building site etc. Foundations Waterproofing Activities: Waterproofing the reactor building's concrete foundation slab and the foundation slab of the reactor auxiliary building Armor Mount Activities (hardware): execution of 55% for the slab of the reactor building and 60% for the foundation slab of the turbine building. Concreting Foundations Activities: concreting of foundation slab of the turbine building initiated. 77

78 8. ECONOMIC GROUP 8.1. Company's economic group a) direct and indirect parent companies and d) participation of group's societies in the Company Eletrobras is an open A Joint Stock Mixed Capital Government Controlled and Publicly-held by Brazilian government, which holds 52.0 % of it common shares and right to vote and 41.56% of its total capital. On this reference form date, Eletrobras social capital is divided as follows: Shareholder % Common % Preferred A % Preferred B % Total Capital Federal Government Fundo Garantidor da Habitação Popular FGHAB¹ Fundo Nacional de Desenvolvimento FND¹ FGI Fundo Garantidor de Investimentos¹ Fundo de Garantia de Operações FGO¹ BNDES Participações S.A. BNDESPAR Other Total: ¹ Funds controlled by the Government b) controlled companies and affiliates, c) the Company's holdings in the group s companies and e) companies under common control Company name Partnership Company's holdings in the group s companies Common Preferred Total Amazonas Energia Controlled % 0.00% % Distribuição Alagoas Controlled 74.84% 94.02% 75.16% Distribuição Piauí Controlled 99.98% 68.33% 98.56% Distribuição Rondônia Controlled 99.96% 0.00% 99.96% Eletrobras CGTEE Controlled 99.94% 0.00% 99.94% Eletrobras Chesf Controlled % 81.35% 99.45% Distribuição Acre Controlled 95.34% 87.86% 93.29%

79 Company name Partnership Company's holdings in the group s companies Common Preferred Total Eletrobras Eletronorte Controlled 99.03% 0.00% 99.03% Eletrobras Eletronuclear Controlled 99.93% 99.41% 99.81% Eletrobras Eletropar Controlled 81.61% 0.00% 81.61% Eletrobras Eletrosul Controlled 99.71% 0.00% 99.71% Eletrobras Furnas Controlled 99.82% 98.56% 99.54% Itaipu 1 Controlled 50,00% 0,00% 50,00% AES Tietê S.A. ( AES ) Affiliate 0,08% 16,38% 7,94% Companhia Docas de Santana ( CDSA ) Affiliate 0,36% 0,00% 0,13% Companhia de Eletricidade do Amapá ( CEA ) Affiliate 0,03% 0,00% 0,03% Companhia Energética de Brasília ( CEB ) Affiliate 0,00% 6,56% 3,29% CEB Lajeado S.A. ( CEB Lajeado ) Affiliate 0,00% 100,00% 40,07% Companhia Estadual de Distribuição de Energia Elétrica ( CEEE D ) Affiliate 32,23% 53,43% 32,59% Companhia Estadual de Geração e Transmissão de Energia Elétrica Affiliate ( CEEE GT ) 32,23% 53,43% 32,59% Companhia Energética da Borborema ( Celb ) Affiliate 0,38% 0,78% 0,48% Centrais Elétricas de Santa Catarina S.A. ( Celesc ) Affiliate 0,03% 17,98% 10,75% Companhia Celg de Participações ( Celgpar ) Affiliate 0,07% 0,00% 0,07% Centrais Elétricas do Pará S.A. ( Celpa ) Affiliate 34,79% 26,86% 34,24% Companhia Energética de Pernambuco ( Celpe ) Affiliate 0,03% 13,79% 1,56% Companhia de Energia Elétrica do Estado do Tocantins ( Celtins ) Affiliate 0,00% 0,00% 0,000026% Companhia Energética do Maranhão ( CEMAR ) Affiliate 33.50% 37.29% 33.57% Centrais Elétricas Matogrossenses S.A. ( CEMAT ) Affiliate 5.14% 59.78% 40.92% Companhia Energética de Roraima ( CER ) Affiliate 0.00% % % Companhia Energética de São Paulo ( CESP ) Affiliate 0.03% 3.05% 2.05% Companhia de Geração de Energia Elétrica Paranapanema ( CGEEP ) Affiliate 0.00% 0.74% 0.47% Companhia Energética do Ceará ( Coelce ) Affiliate 0.00% 18.46% 7.06% Companhia Paranaense de Energia ( Copel ) Affiliate 1.06% 0.00% 0.56% Companhia de Transmissão de Energia Elétrica Paulista ( CTEEP ) Affiliate 9.85% 53.99% 35.33% Empresa Amazonense de Transmissão de Energia S.A. ( EATE ) Affiliate 0.00% 55.80% 27.28% Empresa Elétrica Bragantina S.A. ( EEB ) Affiliate 0.13% 0.00% 0.11% 1 Jointly controlled by ANDE (Paraguay).

80 Company name Partnership Company's holdings in the group s companies Common Preferred Total Empresa Metropolitana de Águas e Energia S.A. ( EMAE ) Affiliate 0.00% 64.82% 39.02% Empresa Paraense de Transmissão de energia S.A. ( ETEP ) Affiliate 0.00% 48.58% 19.43% Energisa S.A. ( Energisa ) Affiliate 1.25% 4.55% 2.98% Guascor do Brasil Ltda. ( Guascor ) Affiliate 4.41% 0.00% 4.41% SPE Inambari Geração de Energia ( Inambari ) Affiliate 29.40% 0.00% 29.40% Edp Lajeado Energia S.A. ( EDP ) Affiliate 0.00% 90.78% 40.07% Paulista Lajeado Energia S.A. ( Paulista Lajeado ) Affiliate 0.00% % 40.07% Tangará Energia S.A. ( Tangará ) Affiliate 0.00% 66.44% 25.47%

81 8.2. Organogram of the Company s Economic Group 8.3. Operations of restructuring, acquisitions, merging, stock acquisitions, divestitures and acquisitions of corporate control and acquisitions and divestitures of important assets in the past 3 fiscal years and the current fiscal year: See item 6.5. in this reference form Other information that the Company deems relevant: All relevant and pertinent information to this topic was published in the items above.

82 9. RELEVANT ASSETS 9.1. Non-current assets' goods relevant to the activities of the Company: a) fixed assets, b) patents, trademarks, licenses, concessions, franchises and contracts for technology transfer a) fixed assets (including those subject to rent or lease, identifying the location) The main fixed assets of the Company consist of hydroelectric, thermoelectric, nuclear plants, and transmission networks located throughout Brazil. The total book value of fixed assets on December 31 st 2009, December 31 st 2008 and December 31 st 2007 was R $ 77,261 million, R $ 80,262 million and R $ 75,262 million, respectively. Electric Power Generation Plants The generating capacity of Eletrobras system, including 50% of Itaipu power belonging to the Brazilian Government, is 39,453 MW, which corresponds to approximately 37.0% of total installed capacity in the country on December 31, This energy is produced by 29 hydroelectric plants, 15 thermoelectric and two nuclear power plants, owned by Eletrobras, added to the participations in the Itaipu hydroelectric plant (50%), Baguari (15%), Peixe Angical (40%) and in the thermoelectric Serra do Navio (49%). The following table illustrates the power plants owned by the Company: Company Plant State City Kind of Unit Amazonas Energia Aparecida Amazonas Aparecida Thermal Amazonas Energia Balbina Amazonas Presidente Figueiredo Hydroelectric Amazonas Energia Electron Amazonas Manaus Thermal Amazonas Energia Mauá Amazonas Manaus Thermal CGTEE Presidente Médici Rio Grande do Sul Candiota Thermal CGTEE São Jerônimo Rio Grande do Sul São Jerônimo Thermal CGTEE Nutepa Rio Grande do Sul Porto Alegre Thermal Chesf Araras Ceará Reriutaba Hydroelectric Chesf Boa Esperança Piauí Guadalupe Hydroelectric Chesf Camaçari Bahia Dias D Ávila Thermal Chesf Curemas Paraíba Coremas Hydroelectric Chesf Funil Bahia Ubatã Hydroelectric Chesf Luiz Gonzaga Pernambuco Petrolândia Hydroelectric Chesf Paulo Afonso I Bahia Paulo Afonso Hydroelectric Chesf Paulo Afonso II Bahia Paulo Afonso Hydroelectric Chesf Paulo Afonso III Bahia Paulo Afonso Hydroelectric Chesf Apolônio Salles (Moxotó) Alagoas Delmiro Gouveia Hydroelectric

83 Company Plant State City Kind of Unit Chesf Paulo Afonso IV Bahia Paulo Afonso Hydroelectric Chesf Pedra Bahia Jequié Hydroelectric Chesf Piloto Bahia Paulo Afonso Hydroelectric Chesf Sobradinho Bahia Sobradinho Hydroelectric Chesf Xingó Sergipe Canindé do São Francisco Hydroelectric Eletronorte Rio Acre Acre Rio Branco Thermal Eletronorte Rio Branco I Acre Rio Branco Thermal Eletronorte Rio Branco II Acre Rio Branco Thermal Eletronorte Coaracy Nunes Amapá Ferreira Gomes Hydroelectric Eletronorte Santana Amapá Santana Thermal Eletronorte Curuá-Una Pará Santarém Hydroelectric Eletronorte Tucuruí Pará Tucuruí Hydroelectric Eletronorte Rio Madeira Rondônia Porto Velho Thermal Eletronorte Samuel Rondônia Candeias do Jamari Hydroelectric Eletronorte Serra do Navio Amapá Serra do Navio Thermal Eletronorte Senador Arnon Farias de Roraima Boa Vista Thermal Mello Eletronuclear Angra I Rio de janeiro Angra dos Reis Nuclear Eletronuclear Angra II Rio de janeiro Angra dos Reis Nuclear Furnas Baguari Minas Gerais Governador Valadares Hydroelectric Furnas Corumbá Goiás Caldas Novas Hydroelectric Furnas Funil Rio de janeiro Resende Hydroelectric Furnas Eletrobras Furnas Minas gerais São José da Barra e São João Batista do Hydroelectric Glória Furnas Itumbiara Goiás e Minas Gerais Itumbiara (GO) e Arapoã (MG) Hydroelectric Furnas Luiz Carlos Barreto de São Paulo Pedregulho Hydroelectric Carvalho Furnas Manso 2 Mato Grosso Chapada dos Guimarães e Nova Brasilândia Hydroelectric Furnas Marimbondo São Paulo e Minas Gerais Icem (SP) e Fronteira (MG) Hydroelectric Furnas Mascarenhas de Moraes Minas Gerais Ibiraci Hydroelectric (Peixoto) Furnas Peixe Angical Tocantins Peixe, São Salvador do Tocantins e Paranã Hydroelectric Furnas Porto Colômbia Minas gerais e São Paulo Planura (MG) e Guairá (SP) Hydroelectric Furnas Serra da Mesa 3 Goiás Minaçu Hydroelectric Furnas Campos Rio de janeiro Campos dos Goytacazes Thermal Furnas Santa Cruz Rio de janeiro Rio de janeiro Termelétrica

84 Company Plant State City Kind of Unit Itaipu Itaipu Binacional 4 Paraná Foz do Iguaçu Hydroelectric 2 Plant in consortium. Furnas holds 70% of HPU Manso 3 Plant in consortium. Furnas holds 48.5% of HPU Serra da Mesa 4 Company holds 50% of participation in Itaipu For more details about the Company's plants and respective permits for their operation, see Section 9.1.b of this Reference Form. Electricity Transmission Networks As for transmission networks, Eletrobras System has kilometers of transmission lines above 230 kv, representing about 61% of the total lines that cut Brazil, and 247 substations. Also, another 24 transmission lines and 21 substations are currently under construction by companies of Eletrobras system alone or in partnership with the private sector. For more information on the concessions of the lines that make up the power transmission network of the Company, see Section 9.1.b of this Reference Form. Other: The Company is headquartered in Brasilia, Federal District, in the Setor Comercial Norte Quadra 4, Bloco B - 100, room Asa Norte, although its principal Executive Office is located in the city of Rio de Janeiro, State of Rio de Janeiro in Avenida Presidente Vargas, nº 409, 13th floor, Building Herm Stolz. In addition, the Company has a number of offices that are also considered relevant properties, which are: (i) Building Herm. Stoltz, on Avenida Presidente Vargas, No. 409, 15th and 17th floors, in the City of Rio de Janeiro, State of Rio de Janeiro, (ii) Building CORRFA on Avenida Presidente Vargas, nº 583, rooms in the City Rio de Janeiro, Rio de Janeiro, this property is rented to third parties, (iii) m² of land located in the city of Macae, State of Rio de Janeiro, the BR 101 highway, km 168, and (iv) land and build of 2,622 square meters located in the city of Guaira, in the State of Paraná, in lots of numbers 3, 4, 5, 6 and 7 Q-59-A.

85 The Company is headquartered in Brasilia, Federal District, in the North Commercial Sector Square 4, Block B - 100, room 203 North Wing, although its principal executive office is located in the city of Rio de Janeiro, Rio de Janeiro State, at 409, Avenida Presidente Vargas, 13th floor, Herm Stolz Building. In addition, the Company has a number of offices that are also considered relevant properties, which are: (i) Herm. Stoltz Building, on 409, Avenida Presidente Vargas, 13th floor and 17th floors, in the City of Rio de Janeiro, Rio de Janeiro State, (ii) CORRFA Building on 583, Presidente Vargas Avenue, rooms in the City of Rio de Janeiro, Rio de Janeiro, this property is leased from third parties, (iii) m² of land located in the city of Macae, State of Rio de Janeiro, at 168 kilometer of BR 101 highway, and (iv) land and construction of 2,622 square meters located in the city of Guaira, in the State of Paraná, in lots of numbers 3, 4, 5, 6 of 7 Q-59-A. b) patents, trademarks, licenses, concessions, franchises and contracts of technology transfer, stating: (i) duration, (ii) affected area, (iii) events that can cause loss of rights relating to such assets, and (iv ) possible consequences of the loss of such rights for the Company Concessions of Electric Power Generation Plants :

86 CONCESSIONS (Generation) Concession State Kind of Unit Installed Capacity (MW) End of Concession Start of Service CGTEE São Jerônimo Rio Grande do Sul Thermal July April 1953 Presidente Médici Rio Grande do Sul Thermal July January 1974 Nutepa Rio Grande do Sul Thermal July Chesf July Funil 2 Bahia Hydroelectric Pedra 3 Bahia Hydroelectric Araras Ceará Hydroelectric 4.00 July July July February 1968 March 1962 April 1978 February 1967 Curemas Bahia Hydroelectric 3.52 November January 1957 Paulo Afonso Complex and Moxotó (Apolônio Sales) Bahia Hydroelectric 4, October January 1955 Sobradinho Bahia Hydroelectric 1, February April 1979 Luiz Gonzaga Pernambuco Hydroelectric 1, October February 1988 Boa Esperança Piauí/Maranhão Hydroelectric October January 1970 Xingó Sergipe/Alagoas Hydroelectric 3, October April 1994 Camaçari Bahia Thermal August February 1979 Eletronorte Rio Acre Acre Thermal undefined April 1994 Rio Branco II Acre Thermal undefined April 1981 Rio Branco I Acre Thermal undefined February 1988 Electron (TG) Amazonas Thermal undefined June 2005 Santana Amapá Thermal undefined January 1993 Rio Madeira Rondônia Thermal undefined April 1968 Coaracy Nunes Amapá Hydroelectric July April 1975 Tucurui Pará Hydroelectric 8, July April 1984 Samuel 7 Rondônia Hydroelectric September March 1989 Curuá-Una 4 Pará Hydroelectric July December 2005 Senador Arnon Farias de Mello Roraima Thermal 85.9 undefined Eletronuclear 5 Angra I Rio de janeiro Nuclear No concession January 1985 Angra II Rio de janeiro Nuclear 1, No concession September 2000 Furnas Corumbá I Goiás Hydroelectric November April 1997 Serra da Mesa 6 Goiás Hydroelectric 1, May April Approval for the renewal of environmental license to Funil already requested but not yet granted. However, this does not affect plant operations. 3 Approval for the renewal of environmental license to Pedra already requested but not yet granted. However, this does not affect plant operations. 4 Currently, Eletronorte does not have a license to operate Curuá-Una and operates this plant under a temporary authorization guaranteed by CEMA. This plant was transferred from Celpa to Eletronorte in December 2005 as payment for outstanding debts of Celpa with Eletronorte, relating to the sale of energy. 5 Nuclear power plants are allowed to operate for 40 years from the date on which commenced operations. Some years before the expiration of this date, each nuclear generating company may apply for an extension of their respective concession to CNEN. For an extension, CNEN may request the replacement of certain equipment. For example, in the case of Angra I, CNEN asked to replace a steam generator after our request to extend the concession for 20 years. 6 ANEEL's decision is pending in relation to the request of Furnas for renewal on May 5,

87 CONCESSIONS (Generation) Concession State Kind of Unit Installed Capacity (MW) End of Concession Start of Service Furnas Minas Gerais Hydroelectric 1, July March 1963 Itumbiara Minas Gerais Hydroelectric 2, February February 1980 Marimbondo São Paulo Hydroelectric 1, March April 1975 Peixoto (Mascarenhas de Morais) Minas Gerais Hydroelectric October April 1956 Porto Colômbia Minas Gerais Hydroelectric March March 1973 Manso Mato Grosso Hydroelectric February October 2000 Funil Rio de janeiro Hydroelectric July April 1969 Luiz Carlos Barreto de Carvalho São Paulo Hydroelectric 1, July January 1969 Campos Rio de janeiro Thermal July April 1968 Santa Cruz Rio de janeiro Thermal July March 1967 Peixe Angical 7 Tocantins Hydroelectric November June 2006 Baguari 7 Minas Gerais Hydroelectric August 2041 November 2009 Itaipu 8 Itaipu Binacional Paraná Hydroelectric No concession - Amazonas Energia Aparecida Amazonas Thermal Undefined February 1984 Mauá Amazonas Thermal Undefined April 1973 Balbina Amazonas Hydroelectric March January 1989 Electron (TG) Amazonas Thermal Undefined June 2005 Em construção Usinas Próprias Simplício Rio de Janeiro Hydroelectric August 2041 December 2010 Batalha Minas Gerais/Goiás Hydroelectric August 2041 May 2011 Candiota III Rio Grande do Sul Thermal Passo São João Rio Grande do Sul Hydroelectric São Domingos Mato Groso do Sul Hydroelectric Barra do Rio Chapéu Small Santa Catarina Hydroelectric Unit Special Purpose Company Dardanelos Mato Grosso Hydroelectric Jirau Rondônia Hydroelectric 3, Retiro Baixo Minas Gerais Hydroelectric 82.0 August 2041 March 2010 Foz do Chapecó Rio Grande do Sul Hydroelectric November 2036 August 2010 Serra do Facão Goiás Hydroelectric November 2036 Outubro 2010 Santo Antônio Rondônia Hydroelectric 3,150.0 May 2012 Junho 2043 Mauá Paraná Hydroelectric ANEEL's decision is pending in relation to the request of Furnas for renewal on May 5, Special Purpose Company in operation. 8 Itaipu is not part of any concession (the Itaipu treaty expires in 2023). The Company holds 50% stake in Itaipu Binacional. Network Transmission Lines Grants: 87

88 CONCESSIONS (Transmission) Extension (Km) Average Deadline to the End of Concessions Lines (by tension - KV) Own Partner s Own Partnerships Eletrobras Chesf > 750 KV KV KV KV 5, July KV KV 12, July KV July KV KV July < 69 KV Sub-total: , Total Eletrobras Chesf: ,36 Eletrobras Eletronorte Isolated System > 750 KV KV KV KV KV KV July KV July KV KV July < 69 KV Sub-total: Total Isolated System Interconnected System > 750 KV KV KV KV 3, July KV KV 5, July KV KV KV July < 69 KV Sub-total: 9, Total Interconnected System ,99 Total Aggregated Eletrobras Eletronorte: ,88 Eletrobras Eletrosul > 750 KV KV KV 2, July KV KV KV 4, July KV 1, July

89 CONCESSIONS (Transmission) Extension (Km) Average Deadline to the End of Concessions Lines (by tension - KV) Own Partner s Own Partnerships 132 KV July KV July < 69 KV Sub-total: 9, Total Eletrobras Eletrosul: 10, Eletrobras Furnas > 750 KV 2, July KV 1, July KV KV 4, July KV 6, July KV 1, July KV 2, July KV KV < 69 KV July Sub-total: 19, Total Eletrobras Furnas: 19, General total: 59,890 (iii) events that can cause loss of rights relating to such assets The Company conducts its business of generation, transmission and distribution in accordance with concession agreements signed with the Brazilian Government through ANEEL. ANEEL may impose penalties on the Company, in the event that it fails to comply with any requirement under the concession contracts. Depending on the severity of noncompliance, these penalties could include warnings, substantial fines, and restrictions on the Company's operations, intervention or termination of the concession. ANEEL may also cancel the concessions prior to maturity in the event of Eletrobras having its bankruptcy declared or being dissolved, or in case ANEEL determines that such cancellation fulfills public interest or because of the expiration of the concession. (iv) possible consequences of the loss of such rights for the Company In the event that ANEEL cancel any of the concessions to the Company prior to its maturity, the Company will no longer operate that activity and the compensation to be received by the cancellation of the concession may not be sufficient to recover the full value of the investment made by the Company and thus it may have an adverse effect on its financial condition and operating results. Patents: The Company's research and development activities are performed by Cepel - Electric Energy Research Center, a nonprofit organization established in 1974 with the objective of supporting the technological development of the Brazilian electricity sector. The Company is the principal sponsor of Cepel programs and takes part in coordination programs of environmental planning and energy conservation. The operating controlled companies of the Company (including Itaipu and Eletrobras Eletronuclear) are Cepel clients alongside other Brazilian and foreign electricity service provision companies. Cepel activities aim to achieve high standards of quality and productivity in the electricity sector through research and technological 89

90 development. Cepel has a network of laboratories to carry out its activities, and has contracts for technical cooperation with various international energy research and development institutions. Cepel prioritizes the strategic and structuring projects, with its activities concentrated in five departments: Department of Systems Automation: This department is focused on developing tools for data acquisition, real time operation of electrical systems and analysis of disturbances; Electrical Systems Department: This department is focused on developing methods and computer programs that provide conditions for expansion, supervision and operation of central systems; Special Technologies Department: This department researches the application of technologies related to the use of materials for electrical installations, energy efficiency and renewable resources, including the analysis of sustainability and economic viability; Installation and Equipment Department: This department is focused on developing technologies to refine the equipment used in the generation, transmission and distribution of electricity (computer models, test and measurement techniques, monitoring and diagnosis systems ) and Department of Environment and Energy Optimization: This department is focused on developing methods and computer programs for planning the expansion and operation of interconnected and integrated hydrothermal systems and in assessment of environmental issues. The Company has a research center that conducts scientific research, measurement, expert analysis and other tests and analysis relevant to our core operations. This center is certified by the National Institute of Metrology which allows it to certify electrical equipment. Cepel is concentrated also in the development of energy efficiency projects, including the ones related to the generation of electricity from renewable sources such as solar and wind power. As part of this focus, the structure of Cepel includes the following projects: (i) the Reference Center for Solar and Wind Energy Sérgio de Salvo Brito, (ii) Efficient Solar House, and (iii) the Center for Application of Effective Technology. The Cepel has nineteen registered patents in INPI, on equipment and manufacturing processes. (I) duration In Brazil, once granted the patent, the patentee has the right to prevent third parties, without his consent, from making, offering for sale, using, importing the patented product or process or product directly obtained by the patented process. The invention patent will be valid for 20 (twenty) years from the date of deposit. (ii) affected area Brazilian territory, which concerns the Company's patents registered in Brazil. (iii) events that can cause loss of rights relating to such assets A patent granted by the INPI may be declared afterwards invalid by the agency itself or by the courts in the following cases: a. Any legal requirements relating to novelty, inventive activity and industrial application of the patent has not been observed. b. The report and the claims do not meet the Articles 24 and 25 of Law no. 9279, of May 14, 1996, regarding the sufficiency descriptive and the basis for the claims of the application for registration of the patent. 90

91 c. The object of the patent goes beyond the content of the application as originally filed. d. In the process of the patent registration, any of the essential formalities necessary for the concession has been omitted. (iv) possible consequences of the loss of such rights to the Company Loss of intangible asset Loss of exclusivity in marketing the product now patented. Cancelation of contracts of the product's marketing. Possible legal pending due to values negotiated before the loss of the patent. Loss of the investment made on the research and development that generated the product to be patented. Loss of the investment made on the attempt to acquire the patent. Table with relevant patents of the Company or its controlled: National Patents Holder Situation Patent Record Total Records of ELETRONORTE Publication of Patent Application and / or Certificate of Invention Addition PI , PI , PI , PI , PI , PI , PI ,PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI Notice of Patent Application or Certificate of Invention Addition PI , PI , PI , PI , PI , PI , PI , PI ELETROSUL Publication of Patent Application and / or Certificate of Invention Addition PI FURNAS Patent or Certificate of Invention Concession MU , MU , MU , MU , MU , PI , MU

92 Publication of Patent Application and / or Certificate of Invention Addition PI , PI , PI Filed for various Reasons PI , PI , PI , MU Under Analysis Classification Change MU On procedural demand MU CEPEL Patent or Certificate of Invention Concession Publication of Patent Application and / or Certificate of Invention Addition Notice of Patent Application or Certificate of Invention Addition Filed for various Reasons PI , PI , PI , PI , PI , PI , PI , PI , C , PI , PI PI , PI , PI , PI , PI , PI , PI , PI , PI , PI , PI PI PI , PI On demand PI Restoration of the request PI International Patents Holder Situation Patent Record Total of Records FURNAS Patent Granted in U.S. (US) US US US Patent Granted in U.S (US) US US Patent Granted in Europe (EPO) WO/ 1993/024842, EP EP CEPEL Patent filed in New Zealand (NZ), Mexico, Vietnam and Finland WO/1995/ Patent Published in Europe (EPO) WO/2009/

93 Trademarks: (I) Duration: In Brazil, the ownership of a mark is acquired only by a validly issued registration by the National Institute of Industrial Property (INPI), the entity responsible for registering trademarks and patents, the owner being guaranteed exclusive use throughout national territory by a specified period of 10 years, subject to renewals. During the registration process, the depositor is only entitled to an expectation of the right to use the trademarks filed applied for the identification of their products or services. (ii) Territory: Brazilian territory, in which refer to the Company's trademarks registered in Brazil. (iii) events that can cause loss of rights to such assets: Under administrative (with INPI), applications for trademark registration that are under review of INPE may be denied. Moreover, even for trademark registrations already granted, it is not possible to ensure that third parties (or INPI itself) do not try to harm the Company's registers (with nullity or forfeiture processes for example). In the judicial sphere, while the Company holds the register of several of its brands, it is not possible to ensure that third parties will not claim that the Company is violating their intellectual property rights and possibly obtain a victory. Moreover, the maintenance of trademark registrations is accomplished through the regular payment of fees to the INPI. Payment of required fees is essential to prevent the extinction of the records and the consequent cessation of the holder's rights. (iv) possible consequences of the loss of such rights to the Company Any loss of rights over the trademarks registered by the Company would cause the end of the right to exclusive use of them in national territory. Moreover, if the Company is not the legitimate owner of the brands it uses, there would be a possibility of lawsuits in criminal and civil scopes, for improper use of trademark and violation os third parties' rights Among the Company's main brands we highlight: CEPEL CGTEE. 93

94 Table with relevant marks of the Company or its controlled companies: Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) SELO PROCEL DE ECONOMIA DE ENERGIA ELETROBRAS Register ELETROBRAS Registration published request CENTRO BRASILEIRO DE INFORMAÇÃO DE EFICIÊNCIA ENERGÉTICA 94

95 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) ELETROBRAS COMBATE AO DESPERDICIO DE ENERGIA ELÉTRICA ELETROBRAS Filed PROCEL PROGRAMA DE COMBATE AO DESPERDICIO DE ENERGIA ELETRICA ENERGIA É DINHEIRO NÃO DESPERDICE 95

96 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) ELETROBRAS Opposition or Request Suspended CORRENTE CONTINUA PENSO NO FUTURO COM ENERGIA ELETRONORTE Filed ELETRONORTE Register 96

97 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) ELETRONORTE Deferral of Registration Application ELETRONORTE Request Suspended ELETRONORTE Register Request Published ELETROSUL Register 97

98 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) ELETROSUL Opposition ELETROSUL FURNAS Register 98

99 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) FURNAS Filed SISTEMA ESPECIALISTA PARA DISJUNTORES DE ALTA TENSÃO SEDIS FURNAS Request Published FURNAS Request Suspended CHESF Filed CHESF Request Published CEPEL Register CEPEL 99

100 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) SINAPE CEPEL Request Suspended CEPEL Register Request Published SINV HARMZS FLUPOT ANAFAS PREVIVAZ SADISP ANAREDE NH2 PACDYN ANAFIN CONFINT SPEC GEVAZP DESSEM PLANTAC SAPRE PREVMERCADO ANATEM DECOMP 100

101 Trademark Holder CEPEL Situation Oposition Trademark (Nominative, Mixed or Figurative) AAEXP NEWAVE SOMA SUISHI ANAQUALI MELP ENCAD DIANE ITAIPÚ BINACIONAL ITAIPU BINACIONAL Register ITAIPU BINACIONAL Register Request Published 101

102 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) FUNDACAO PARQUE TECNOLOGICO ITAIPU Request Granted CENTRO INTERNACIONAL DE HIDROINFORMÁTICA (CIH) FUNDACAO PARQUE TECNOLOGICO ITAIPU FUNDACAO PARQUE TECNOLOGICO ITAIPU Register Request Suspended CENTRO DE REFERÊNCIA EM FONTES ALTERNATIVAS DE ENERGIAS RENOVÁVEIS (CRER) PÓLO ASTRONÔMICO DO PARQUE TECNOLÓGICO ITAIPU (PÓLO ASTRONÔMICO - PTI) INCUBADORA EMPRESARIAL SANTOS DUMONT (IESD) CENTRO DE CIÊNCIA E TECNOLOGIA PARA ARTESANATO (CCTA) LABORATÓRIO DE AUTOMAÇÃO E SIMULAÇÃO DE SISTEMAS ELÉTRICOS (LASSE) NÚCLEO DE PESQUISAS EM TECNOLOGIAS EDUCACIONAIS (NPTE) ESTAÇÃO CIÊNCIA DO PARQUE TECNOLÓGICO ITAIPU (ESTAÇÃO CIÊNCIA - PTI) FUNDACAO PARQUE TECNOLOGICO ITAIPU Application Refused FUNDACAO PARQUE TECNOLOGICO ITAIPU Register Request Published INSTITUTO DAS ÁGUAS 102

103 Trademark Holder Situation Trademark (Nominative, Mixed or Figurative) ELETRONUCLEAR Register CGTEE Register CGTEE Others There are no relevant assets other than the ones described in this item. 103