AES Tietê Energia S.A. Formely Companhia Brasiliana de Energia

Transcription

1 AES Tietê Energia S.A. Financial Statements December 31, 2015 With Independent Auditor s Report on Financial Statements

2 FINANCIAL STATEMENTS Content Independent auditor's report on the financial statements... 1 Audited financial statements: Balance sheets... 3 Statements of income... 5 Statements of comprehensive income... 6 Statements of changes in shareholders equity... 7 Statements of cash flows... 8 Statements of value added... 9 Notes to the financial statements... 10

3 A free translation from Portuguese into English of Independent Auditor s Report on Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB Independent auditor s report on financial statements The Board of Directors and Shareholders AES Tietê Energia S/A (formerly Companhia Brasiliana de Energia S/A) Barueri - SP We have audited the accompanying financial statements of AES Tietê Energia S/A. (formerly Companhia Brasiliana de Energia S/A) ( Company ), which comprise the individual balance sheet as at December 31, 2015 and the related individual and consolidated income statement, statements of comprehensive income, of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting practices and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and for such internal control as management determines as necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether these financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the Company s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 1

4 In our opinion, the financial statements referred to above present fairly, in all material respects, the individual financial position of AES Tietê Energia S/A, as at December 31, 2015, and its individual and consolidated financial performance and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Other matters Statement of value added We have also audited the individual and consolidated statement of value added (SVA) for the year ended December 31, 2015, prepared under the responsibility of Company management, the presentation of which is required by the Brazilian Corporation Law for publicly-held companies, and as supplementary information under IFRS, whereby SVA presentation is not required. This statement has been subjected to the same auditing procedures previously described and, in our opinion, is presented fairly, in all material respects, in relation to the overall financial statements. Prior years financial statements audited by other independent auditors The individual and consolidated financial statements for the year ended December 31, 2014, as originally prepared before the reclassifications described in Note 1.1, were audited by other independent auditors, who expressed an unmodified opinion on those statements on February 9, As part of our audit of the financial statements for the year ended December 31, 2015, we have also audited the reclassifications made to the individual and consolidated statements of income, cash flow statements, and statement of value added, described in Note 1.1, which have restated the 2014 financial statements originally presented. In our opinion, these reclassifications are appropriate and have been made correctly. We were not engaged to audit, review or apply any other procedures on the individual and consolidated financial statements for the year ended December 31, 2014, therefore, we do not express an audit opinion or any form of assurance on these overall financial statements. São Paulo, February 22, ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 Marcos Antonio Quintanilha Accountant CRC-1SP132776/O-3 2

5 A free translation from Portuguese into English of the financial statements in accordance with accounting practices adopted in Brazil and in accordance with International Financial Reporting Standards (IFRS). AES TIETÊ ENERGIA S.A. BALANCE SHEETS (Amounts expressed in thousands of reais R$) ASSETS CURRENT Notes Cash and Cash Equivalents ,634 Short-Term Investments 5 746, ,241 1,607,000 Consumers, concessionaires and permitees 6 27,697-1,762,878 Recoverable income tax and social contribution ,515 25,283 62,809 Other recoverable taxes , ,680 Dividends and Interest on Shareholders Equity Receivable - 2,699 - Sundry receivables 522-2,774 Accounts receivable - agreements ,911 Accounts receivable - related parties , Pension plan - Defined benefit assets Other credits 10 1, ,476 Inventories ,776 Prepaid expenses ,134 Financial sector assets, Net ,940 TOTAL CURRENT ASSETS 1,185, ,811 4,424,012 ASSETS Company Consolidated NON CURRENT Consumers, concessionaires and permitees 6 13,075-33,121 Other recoverable taxes ,084 Deferred income tax and social contribution 8-45, ,326 Recoverable taxes 9 179,860-79,852 Guarantees and judicial deposits 19 37,008 31, ,063 Accounts receivable - agreements ,900 Other credits ,797 Impairment - - (61,175) Financial asset related to the concession agreement - - 1,980,753 Financial sector assets, Net ,566 Investments 11-2,377,887 8,769 Fixed assets, net 12 3,145,358-3,537,703 Impairment - - (376,114) Intangible 13 75, ,161 6,663,157 TOTAL NON-CURRENT ASSETS 3,451,398 3,386,376 13,249,802 TOTAL ASSETS 4,636,779 3,723,187 17,673,814 See accompanying notes to the financial statements 3

6 BALANCE SHEETS (Amounts expressed in thousands of reais R$) LIABILITIES CURRENT Notes Trade accounts payable , ,752,879 Loans and financing ,407 Debentures , ,320 Finance lease ,661 Government grants - - 2,478 Income tax and social contribution payable , ,424 Other taxes payable , ,826 Dividends and Interest on shareholders equity payable 36,828-6,167 Accrued liabilities 17 18, ,447 Labor and social liabilities 1,126-2,687 Consumer charges payable ,252 Provision for Legal Proceedings and Others 19 14, ,273 Research and development and Energy efficiency 20 10,014-49,005 Other liabilities 10, ,092 TOTAL CURRENT LIABILITIES 915, ,548,918 LIABILITIES Company Consolidated NON CURRENT Payables for purchase of energy - CCEE ,887 Loans and financing ,364 Debentures 16 1,230,570-2,810,245 Finance lease ,933 Government grants ,535 Deferred income tax and social contribution 8 381, ,597 Pension plan liabilities ,818,793 Provision for Legal Proceedings and Others 19 76,823 31, ,499 Research and development and Energy efficiency 20 9,591-27,025 Payables from related parties 28-9,228 9,010 Accrued liabilities Reversal reserve ,085 Other liabilities 3,558-27,119 TOTAL NON-CURRENT LIABILITIES 1,702,380 40,745 7,222,021 SHAREHOLDERS' EQUITY Subscribed and paid in Capital ,018 2,960,708 2,960,708 Capital reserve , Income reserves: , , ,958 - Legal reserve , , ,512 - Statutory reserve , ,446 - Proposed additional dividends distribution , Equity valuation adjustment , , ,601 Other comprehensive income (actuarial valuation adjustment) ,500 (355,087) (355,087) TOTAL SHAREHOLDERS' EQUITY 2,018,466 3,682,180 3,682,180 Non-controlling interest - - 2,220,695 TOTAL SHAREHOLDERS' EQUITY 2,018,466 3,682,180 5,902,875 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,636,779 3,723,187 17,673,814 See accompanying notes to the financial statements 4

7 STATEMENTS OF INCOME Company CONTINUED OPERATIONS Notes Reclassified Consolidated Reclassified NET OPERATING REVENUES ,625,821 3,205,007 OPERATING COSTS Cost of electric energy Electricity purchased for resale (852,506) (1,946,683) Charge for use of transmission and distribution system (114,879) (98,427) Inspection charge - - (6,155) (5,004) Compensation for use of water resources - - (44,600) (41,085) Operating Costs Personnel and management - - (82,181) (75,351) Private pension entity - - (2,577) (2,651) Third-party services (11,940) (3,628) (91,833) (89,695) Materials - (19) (6,693) (5,510) Reversal for doubtful accounts - - Provision for legal proceedings and others - - (1,654) (489) Impairment provision/reversal - - (3,000) - Depreciation and amortization - - (169,564) (167,515) Others costs 25 (821) (284) (30,556) (26,157) GROSS OPERATING COSTS (12,761) (3,931) (1,406,198) (2,458,567) INCOME FROM SERVICES (GROSS PROFIT) (12,761) (3,931) 1,219, ,440 Equity pick-up 379, , Intangible concession amortization (56,105) (60,289) (56,105) (60,289) FINANCIAL RESULTS Financial income 26 43,728 28, ,976 71,839 Financial expense 26 (2,818) (2,298) (192,010) (127,622) Net foreign exchange (16,557) (3,152) TOTAL FINANCIAL RESULTS 40,910 26,535 (107,591) (58,935) RESULTS BEFORE TAXES 351, ,214 1,055, ,216 Social contribution 8 and (105,990) (67,516) Income tax 8 and (281,993) (177,736) Deferred social contribution 8 and 27 10,784 2,103 18,289 8,253 Deferred income tax 8 and 27 31,983 5,840 52,525 22,527 TOTAL TAXES 42,767 7,943 (317,169) (214,472) NET INCOME FOR CONTINUED OPERATIONS 394, , , ,744 DESCONTINUED OPERATIONS Net income from spun-off operations ,579 (85,140) 95,630 (171,846) Intangible concession amortization from spun-off operations 1.1 (31,072) (31,072) (31,072) (31,072) TOTAL OF DESCONTINUED OPERATIONS (493) (116,212) 64,558 (202,918) NET INCOME FOR THE YEAR 393,583 81, , ,826 Attributed to shareholders of parent company 393,583 81, ,583 81,945 Attributed to noncontrolling interests , ,881 Earnings per share - basic and diluted: Per Common share - ON Per Preferred share - PN See accompanying notes to the financial statements 5

8 STATEMENTS OF COMPREHENSIVE INCOME Years ended (Amounts expressed in thousands of reais R$) Company Consolidated NET INCOME FOR THE YEAR 393,583 81, , ,826 Other comprehensive income for the year Refected effects of actuarial calculation - controlled AES Tiete, net of taxes Refected effects of actuarial calculation - controlled eletropaulo and Elpa, net of taxes 72,489 (47,815) 207,870 (137,118) COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAXES 466,214 34,358 1,011,456 73,143 Attributed to shareholders of parent company 466,214 34,358 Attributed to noncontrolling interests 545,242 38,785 See accompanying notes to the financial statements. 6

9 STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Years ended (Amounts expressed in thousands of reais) Capital reserve Income reserve Equity valuation adjustment / Other comprehensive income Description Notes Special Interest on Stock and goodwill construction in restricted Capital Legal Estatutory reserve on progress - stock options merger Equity granted Proposed additional dividends distribution Equity valuation adjustment Other comprehensive income Retained earnings Acumulados Subtotal Participation of Non- Controlling Total shareholders' equity Balance as of December 31, ,960, , ,160 80, ,638 (307,500) - 3,948,769 2,589,572 6,538,341 Total comprehensive income: Net income for the year ,945 81, , ,826 Refected effects of actuarial calculation - controlled Tiete Refected effects of actuarial calculation - controlled Eletropaulo and Elpa (47,815) - (47,815) (89,303) (137,118) Transactions with shareholders: Share-based payments of controlled ,082 1,082 Dividends approved by AGO on 04/25/ (80,000) (80,000) - (80,000) Interim dividends distribution approved by RCA on 08/06/2014 and 11/05/ (122,000) (102,842) (224,842) - (224,842) Dividends of non-controlling shareholders (413,149) (413,149) Prescribed dividends and interest own capital unclaimed by shareholders ,895 3,895 4,405 8,300 Internal changes in equity accounts: Realization of equity valuation adjustment (80,358) - 80, Income tax and social contribution on equity valuation adjustments ,321 - (27,321) Legal reserve destination , (6,749) Statutory reserve destination , (29,286) Balance as of December 31, ,960, , , ,601 (355,087) - 3,682,180 2,220,695 5,902,875 Total comprehensive income: Net income for the year , , , ,316 Refected effects of actuarial calculation - controlled Tiete Refected effects of actuarial calculation - controlled Eletropaulo and Elpa ,489-72, , ,870 Transactions with shareholders: Share-based payments of controlled ,367 1,367 Interim dividends approved by RCA on 05/08/2015, 08/07/2015 and 11/04/ (88,500) (107,362) (195,862) - (195,862) Minimum mandatory dividend - addition (35,432) (35,432) - (35,432) Prescribed dividends and interest own capital unclaimed by shareholders ,642 1,642 2,248 3,890 Dividends of non-controlling shareholders (149,104) (149,104) Internal changes in equity accounts: Realization of equity valuation adjustment (69,925) - 69, Income tax and social contribution on equity valuation adjustments ,775 - (23,775) Legal reserve destination , (12,000) Additional dividends - exceeding the mandatory minimum , (428,384) Corporate reorganization effects Partial Split 1 (2,097,566) (182,605) (29,946) - (213,717) 283,770 (63,256) (2,303,320) (1,859,139) (4,162,459) Capital Redution 1 (699,463) (699,463) 341,198 (358,265) AES Tietê incorporation (non-controlling interest) 1 98, ,198 9,405 1,950 8, ,873 1, ,059 1,102,507 (1,102,507) - Balance as of December 31, , ,198 9,405 1,950 52, , ,607 2,500-2,018,466-2,018,466 See accompanying notes to the financial statements. 7

10 Operating activities: AES TIETÊ ENERGIA S.A. STATEMENTS OF CASH FLOWS Years ended (Amounts expressed in thousands of reais R$) Net income for the year 393,583 81, , ,826 Expense (Income) not affecting cash and cash equivalents Depreciation and amortization , ,515 Amortization of intangible related to concession - continued operations 56,105 60,289 56,105 60,289 Amortization of intangible related to concession - descontinued operations 31,072 31,072 31,072 31,072 Amortization of the use of public assets charges - - 2,690 2,690 Monetary and foreign exchange variation (56) (1,733) 22,707 4,315 Allowance (reversal) for doubtful accounts Provision for legal proceedings and others - - 1, Cost of loans and financing (charges on debt) , ,587 Pension fund/ health plan - CVM Rule ,758 1,716 Interest income on short-term investments (40,775) (23,083) (85,302) (60,212) Write-Off of fixed assets Equity pick-up (381,655) (235,981) - - Loss on investments 2,390 8,082 2,390 6,617 Reversal (provision) of impairment - - 3,000 - Deferred taxes and social contributions (42,767) (7,943) (70,814) (30,780) Shares and stock options granted Capital gain on disposal of assets - - (1,634) - Net results from spun-off operations (30,579) 85,140 (95,630) 171,846 Changes in assets and liabilities: Consumers, concessionaires and permitees - - (6,684) 16,643 Recoverable income tax and social contribution 25,541 (1,716) 34,982 3,155 Other recoverable taxes - - (49,439) (49,326) Accounts receivable from related parties 24,214 (67,674) Other credits 615 (18) 27,427 (27,002) Trade accounts payable 5,479 (71) (129,920) 381,172 Income tax and social contribution payable , ,693 Other taxes payable 1,136 1,887 3,343 14,621 Accounts payable from related parties (218) - (218) 1 Payment of legal proceedings and others - (186) (1,708) (4,485) Research and development - - (114) 4,024 Other liabilities 6,338 (3,715) Rescued interest of short-term investments 40,230 7,834 77,019 43,809 Pension plan payments - - (1,556) (1,057) Sundry receivables (66) Prepaid expenses 70 (82) 1,714 (234) Labor and social liabilities Accrued liabilities - - 1, Dividends and Interest on Shareholders Equity Receivable 132, , , ,318 1,401,560 1,244,415 Interest paid (charges on debt) - - (196,118) (122,914) Income tax and social contribution paid (13,216) (1,860) (241,522) (492,659) Net cash from continued operating activities 179, , , ,842 Net cash from (used in) descontinued operating activities 42,061 24,798 (295,191) 18,345 Net cash from operating activities 221, , , ,187 Investing activities: Company Consolidated Additions of financial and intangible assets - - (167,729) (184,546) Purchase of short-term investments (484,746) (306,826) (3,227,411) (3,004,292) Redemptions of short-term investments 459, ,339 2,971,832 2,664,754 Purchase/sale of guarantees and judicial deposits (929) (881) (32,949) 1,828 Cash received on sale of property, pland and equipament and intangibles - - 1, Incorporation effects - Transfer provided by AES Tietê (note 1) Net cash from continued investing activities (25,429) (182,368) (454,623) (522,015) Net cash used in descontinued investing activities - - (165,217) (179,079) Split effects - Transfer to Brasiliana Participações (note 1) (25) - (152,185) - Net cash used in investing activities (25,454) (182,368) (772,025) (701,094) Financing activities: New loans and debentures , ,000 Dividends and interest on shareholders' equity paid (195,862) (304,842) (320,361) (734,539) Withholding taxes held on interest on shareholders' equity (3,107) Payments of loans - - (800,060) (299,970) Cost of loans - - (24,628) (1,578) Payment for capital leasing - - (325) (270) Net cash used in continued financing activities (195,862) (304,842) (551,374) (239,464) Net cash from descontinued finnancing activities , ,009 Net cash used in financing activities (195,862) (304,842) (113,780) (455) Net increase (decrease) in cash and cash equivalents: (217,076) (54,362) Cash and cash equivalents at the beginning of the period , ,996 Cash and cash equivalents at the end of the period ,634 See accompanying notes to the financial statements. 8

11 STATEMENTS OF VALUE ADDED Years ended (Amounts expressed in thousands of reais R$) Company Consolidated REVENUES - - 2,779,246 3,430,956 Gross revenues from sale of energy - - 2,778,977 3,429,721 Other operating revenues ,235 Reversal for doubtful accounts 2. INPUTS ACQUIRED FROM THIRD PARTIES (12,756) (3,927) (1,190,177) (2,290,247) Material - (19) (6,693) (5,510) Third party services (11,940) (3,628) (91,833) (89,695) Cost of purchased energy and transmission - - (1,057,727) (2,169,518) Other operating costs (816) (280) (33,924) (25,524) 3. GROSS VALUE ADDED (12,756) (3,927) 1,589,069 1,140, RETENTION (56,105) (60,289) (225,669) (227,804) Depreciation and amortization - - (169,564) (167,515) Amortization of intangible related to concession (56,105) (60,289) (56,105) (60,289) 5. NET VALUE ADDED PRODUCED BY THE ENTITY (68,861) (64,216) 1,363, , VALUE ADDED RECEIVED UPON TRANSFER 422, , ,534 (131,079) Equity pick-up 379, , Financial income 43,728 28, ,976 71,839 Net results from spun-off operations 30,579 (85,140) 95,630 (171,846) Amortization of intangible related to concession from spun-off operations (31,072) (31,072) (31,072) (31,072) 7. TOTAL VALUE ADDED TO BE DISTRIBUTED 353,639 76,304 1,528, , DISTRIBUTION OF ADDED VALUE 353,639 76,304 1,528, ,826 Employees ,335 65,536 Salaries and charges ,213 51,619 Employees' Profit Sharing - - 8,277 8,136 Private pension plan - - 2,577 2,651 FGTS - - 3,268 3,130 Other Taxes (Government) (42,767) (7,943) 444, ,656 Federal (42,767) (7,943) 365, ,544 Income tax and social contribution (42,767) (7,943) 317, ,472 Cofins ,493 55,571 PIS - - 6,155 12,035 INSS - - 9,486 9,087 Social charges - others - - 3,937 3,379 State - - 2,356 1,957 ICMS - - 2,171 1,880 Other Municipal IPTU ISS Regulatory concession charges ,013 78,139 Research and development ,258 32,050 Inspection charge - ANEEL - 6,155 5,004 Compensation for the use of water resources ,600 41,085 Third party capital remuneration 2,823 2, , ,808 Interest 2,818 2, , ,774 Rental 5 4 1,089 1,034 Allocation of Income 393,583 81, , ,826 Dividends and interest on shareholders's equity 381,583 45, ,583 45,910 Statutory reserve destination - 29,286-29,286 Legal reserve destination 12,000 6,749 12,000 6,749 Minority interest in retained earnings , ,881 See accompanying notes to the financial statements. 9

12 1. Corporate reorganization AES Tietê Energia SA (formerly Companhia Brasiliana de Energia) is the Company that succeeds AES Tietê S.A. after the corporate reorganization events, implemented in 2015, which had the main purpose strengthen AES Tietê Energia as a sole growth platform of its controller in the electrical energy generation segment in Brazil. Due to the reorganization and in compliance with CPC 36 (R3) - Consolidated Financial Statements, certain parts of the financial statements are presented as follows: i) Consolidated Balance Sheet the Company is presenting only the consolidated balance sheet on December 31, 2014, as at December 31, 2015 was completed the corporate reorganization process, when the Company no longer has investments in other companies; ii) iii) iv) Other financial statements The Company presents all other financial statements showing the controlling and consolidated position at December 31, 2015 and 2014, with particularly emphases to the spin-off of assets to liabilities (referred as "discontinued operations"), since the control no longer exist only on the last day of the year, in other words, the Company lost control in part of its investments on December 31, 2015; The consolidated financial statements show the company's consolidation with the merged company AES Tietê S.A. The results of spun-off investments (ex-controlled) and related items were reclassified to "discontinued operations". For details, see Note 1.1. The same reclassification was made for year ended December 31, 2014 to allow comparability. Due to reclassifications made to discontinued operations in the income statement, the operations performed by the Company and incorporated AES Tietê with the spun-off investments (ex-controlled) have not been eliminated (see details in note 28.1); v) The notes of consolidated balance sheet only have a column related to December 31, 2014 and accurately reflect the information contained in the financial statements approved by the Executive Board of the Company on February 9,

13 Following the details of the reorganization is presented. On June 3, 2015, the Company and AES Tietê SA ("AES Tietê") published material fact informing the market the corporate reorganization ("Reorganization") involving the Company and AES Tietê and the companies directly or indirectly controlled by them. The proposal of reorganization was formalized by the Restructuring Agreement signed between AES Holdings Brasil Ltda. ( AES Holdings Brasil ) and BNDES Participações S.A. - ( BNDESPAR ), and subsequently approved by ANEEL, as Authorizing Resolution N as of August 25, 2015, and the Company's Board of Directors and AES Tietê, through corporate documents, besides to obtaining the consents from creditors. On October 26, 2015, the Shareholders' Meetings from all companies involved approved all the reorganization stages, subject to certain condition precedents that were met on December 28, Thus, for tax and corporate effects, on December 31, 2015, the corporate reorganization process involving the Company and companies directly and indirectly controlled by the Company was completed. The Reorganization took place by means of the partial spin-off of Companhia Brasiliana and merger of the spun-off portion into Brasiliana Participações S.A. ( Brasiliana Participações ). Companhia Brasiliana shall hold directly and exclusively the shareholding control of AES Tietê and Brasiliana Participações shall hold directly or indirectly the shareholding control of all other companies (Eletropaulo Metropolitana Eletricidade de São Paulo, AES Elpa S.A., AES Uruguaiana Empreendimentos S.A. and AES Serviços TC Ltda.) ( Interest Spunoff Assets ). In a subsequent stage, AES Tietê was incorporated by the Company, the latter being the remnant legal entity, which was renamed as AES Tietê Energia S.A. ( AES Tietê Energia ). Finally, in July 4, 2015 AES Tietê Energia joined the level 2 of Corporate Governance of BM&FBOVESPA S.A. - Securities, Commodities and Futures Exchange ("BM&FBOVESPA") and its securities are traded through Units, with each Unit consisting of four (4) preferred shares and one (1) common share. Preferred and common shares from AES Tietê Energia have equivalent economic rights. After the implementation of the Restructuring, AES Holdings Brasil Ltda. and BNDES Participações S.A. - BNDESPAR terminated the previous shareholders' agreement of the Company and entered into two new agreements, one for the Company, which consists of the adequacy of the previous agreement to the new corporate structure, in line with the objectives of the Restructuring, preserving BNDESPAR s veto rights regarding issues of a strategic nature and promoting liberty with regard to the transfer of shares held by the signatory parties ( New AES Tietê Energia shareholders' agreement ). The Restructuring has not implied on a change in the controlling shareholder of Brasiliana Participações and AES Tietê Energia, which continued being AES Holdings Brasil. After the Restructuring, the interest of AES Holdings Brasil in the total share capital of Company is 24.25%, with voting capital interest equivalent to 61.55%. 11

14 The participation of BNDESPAR in the total share capital of Company is 28.29%, with voting capital interest equivalent to 14.36%, in the form of Units. Before reorganization After reorganization Quantities Total Quantities Common share Preferred share participation % Common share Preferred share Total participation % Shareholders AES Holdings Brasil Ltda. 300,000, % 462,300, % BNDESPar 300,000,000 50,000, % 107,870, ,480, % Centrais Elétricas Brasileiras S.A % 30,258, ,032, % Others % 150,665, ,661, % Total of shares 600,000,001 50,000, % 751,093,534 1,155,173, % The former minority shareholders did not have their participation in the share, total and voting capital diluted as a result of the Restructuring, details are presented in Note The main objectives of the Restructuring were as follows: (i) (ii) Strengthen AES Tietê Energia as a sole growth platform of its controller in the electrical energy generation segment in Brazil; Simplify the decision-making process, with a new shareholders' agreement; (iii) Implement greater levels of corporate governance, which will join Tier 2 of Corporate Governance of BM&FBOVESPA S.A., resulting in the right of all shares (preferred and common) to be included, on equal terms, in case of a public offering ("tag along") arising from transfer of control provided for in article 254-A of Law No. 6404, of December 15, 1976, as amended ("Brazilian Corporation Law"); and (iv) Enhance the current level of liquidity of the Company's shares through the consolidation of trading securities in Units, now under the code "TIET". The impacts of the organization on the Company s assets and liabilities as of December 31, 2015, are as follows: 12

15 AES Tietê Energia S.A. Full settelment of assets and merge of ABEH (i) Merge of AES Rio PCH (ii) Effects of corporate reorganization Partial split (iii) Capital reduction (vi) Subtotal: Balance before the merge of AES Tietê Merge of AES Tietê (vii) Deferred income tax and social contribution (viii) Results allocation AES Tietê Energia S.A. ASSETS CURRENT Cash and Cash Equivalents (25) Short-Term Investments 334, (326,878) - 7, , ,210 Consumers, concessionaires and permitees , ,697 Recoverable income tax and social contribution 12, , , ,246 Dividends and Interest on Shareholders Equity Receivab 12, (12,094) Sundry receivables Accounts receivable - related parties , ,814 Pension plan - Defined benefit assets Other credits , ,540 Prepaid expenses (14) TOTAL CURRENT ASSETS 358, (339,011) - 19,924 1,165, ,185,381 ASSETS NON CURRENT Consumers, concessionaires and permitees , ,075 Other recoverable taxes Deferred income tax and social contribution 48, ,353 (48,353) Recoverable taxes , ,860 Guarantees and judicial deposits 35, (35,684) , ,008 Other credits (32) Investments 2,676, ,652 1,066 (1,604,398) (341,198) 840,812 (840,812) Fixed assets, net ,145, ,145,358 Intangible 843,984 (108,652) - (377,067) (358,265) - 75, ,265 TOTAL NON-CURRENT ASSETS 3,604,743-1,066 (2,017,181) (699,463) 889,165 2,562, ,451,398 TOTAL ASSETS 3,963,678-1,066 (2,356,192) (699,463) 909,089 3,727, ,636,779 LIABILITIES CURRENT Trade accounts payable 5, (4,305) - 1, , ,076 Debentures , ,283 Leasing Income tax and social contribution payable (56) , ,568 Dividends and Interest on shareholders equity payable ,396-35,432 36,828 Accrued liabilities , ,310 Labor and social liabilities , ,126 Provision for Legal Proceedings and Others , ,090 Research and development and Energy efficiency , ,014 Other liabilities , ,324 TOTAL CURRENT LIABILITIES 5, (4,361) - 1, ,101-35, ,933 LIABILITIES NON CURRENT Debentures ,230, ,230,570 Leasing Deferred income tax and social contribution 4, (4,114) ,813 (43,702) - 381,111 Provision for Legal Proceedings and Others 35, (35,387) , ,823 Research and development and Energy efficiency , ,591 Payables from related parties 9, (9,010) Accrued liabilities Other liabilities , ,558 TOTAL NON CURRENT LIABILITIES 48, (48,511) - - 1,746,082 (43,702) - 1,702,380 EQUITY BOOK VALUE 3,909,406-1,066 (2,303,320) (699,463) 907,689 1,102,507 43,702 (35,432) 2,018,466 (*) With the incorporation of AES Tietê, now presents net balance of deferred tax liabilities (see note 8). Thus, there was a reclassification of the deferred tax assets balance in the amount of R$48,353 for the liabilities account of deferred taxes and social contributions. Such amount is part of the balance kept by the Company after the partial spin-off, which was shared with the Company's minority shareholders, not being a part then of the exchange relationship (see explanatory note No. 8.1). Preliminary actions of the reorganization in chronological order of execution: (i) Integralization of assets of AES Brazilian Energy Holdings Ltda: The Company granted to AES Brazilian Energy Holdings all of the equity interest held by it on AES Tietê, as well as the related intangible asset relating to the concession (previously to adoption of international accounting standards the credit was recorded as goodwill related to investments in AES Tietê and the corporate restructuring occurred in 2006) recorded in the Company. Thus, AES Brazilian Energy Holdings became the owner of equity interest previously held by Company on AES Tietê, equivalent to 52.55% of the total share capital of AES Tietê, as well as the respective intangible asset. 13

16 Following this, AES Brazilian Energy Holdings was incorporated by AES Tietê, ceasing to exist, generating a record of tax benefit in a total of R$108,652 by AES Tietê besides of special goodwill reserves, as investments. With the incorporation of AES Brazilian Energy Holdings, the Company returned to being a direct shareholder of AES Tietê, owner of 52.55% of the total share capital of AES Tietê. See note 21.2 (a) for further details of this reserve. The conference of AES Tietê shares and its goodwill at AES Brazilian Energy Holdings and its incorporation by AES Tietê were held for the purposes set out in the Securities and Exchange Commission ("CVM") Instruction no. 319 of December 3, 1999, as amended ("Instruction CVM 319") and aimed to prevent the minority shareholders of AES Tietê from suffering any impact on the flow of their dividends as a result of the amortization of such goodwill upon the incorporation of AES Tietê by the Company. (ii) Incorporation of AES Rio PCH Ltda. by AES Tietê: AES Rio PCH Ltda. was merged by AES Tietê, with its consequent extinction and succession in all rights and obligations. Considering that AES Tietê was the sole partner of AES Rio PCH at the time of the Rio PCH Incorporation, the share capital of AES Tietê was not increased due to this incorporation. After incorporation, AES Tietê recorded an additional tax benefit additional (tax benefit related to impairment) in a total of R$2,027. Consequently, the Company increased its investment in AES Tietê by R$1,066 (amount corresponding to its shareholding). Reorganization Acts: (iii) Partial spun off of the Company: the Company was partially divided, with the incorporation of the divided assets by Brasiliana Participações, assessed by its book value, and comprised mainly by equity interest in Eletropaulo Metropolitana Eletricidade de São Paulo S.A., AES Elpa S.A., AES Uruguaiana Empreendimentos S.A. and AES Serviços TC Ltda. After the partial division, the Company holds only its equity interest in AES Tietê At the time of the partial division, Brasiliana Participações was a nonoperating private equity stock company. After the partial division, the share capital of Brasiliana Participações is held by AES Holdings Brasil and BNDESPAR in the same proportions in which they currently participate in the Company. Additionally, as a result of the Partial Division, Brasiliana 14

17 Participações is responsible for all assets and liabilities relating to Shares - Divided Assets, without solidarity with the Company. (iv) Sale of Brasiliana shares by BNDESPAR: AES Brasil and BNDESPAR entered into a Commitment of Purchase and Sale of Shares through which BNDESPAR undertakes to sell the Company s common shares to AES Brasil, corresponding to % of its total share capital, by asset value. Due to the Commitment of Purchase and Sale of Shares, the equity interest held by BNDESPAR in the Company s total capital becomes temporarily 45.72%. For further details arising the sales of share, see note (v) Share conversion and split of Company s share: after the conclusion of the Commitment of Purchase and Sale described in item above, was held the conversion of common shares issued by the Company, held by BNDESPAR, in preferred shares, with the same rights as the already existing preferred shares previously issued by the Company and conversion of preferred shares issued by the Company, held by AES Holdings Brasil, into common shares, with the same rights as the already existing common shares. Further was held the splitting of shares issued by the Company. After the conversion of shares, the equity interest held by BNDESPAR in the total share capital of the Company returned to being equal to the share held by BNDESPAR prior to the conclusion of the Commitment of Purchase and Sale of Shares, however, their equity interest in the voting share capital decreased to 18.92% and its share in preferred capital became 100%. For further details arising the share conversion and split of share, see note (vi) Capital reduction of Brasiliana: The share capital of the Company was reduced by R$699,463, without cancelation of its shares, through the transfer to its shareholders, AES Holdings Brasil and BNDESPAR, (a) right of capitalization the goodwill reserve in a total of R$341,198, which includes R$108,652 arising from the merger of AES Brazilian Energy Holdings (see item (i) described above) and R$232,546 from previously incorporations of AES Tietê (see note 21.2 (a); and (b) intangible asset relating to the concession (previously to adoption of international accounting standards the credit was recorded as goodwill) recorded by Company in a total of R$358,265. Thus, from January 01, 2016, the amortization of intangible assets related to the concession will not provide more results impact for AES Tietê Energia. BNDESPAR gave to AES Holdings Brasil, through the conclusion of a contract of assignment of rights, the right to the capitalization of the goodwill 15

18 reserve received by BNDESPAR as a result of the capital reduction described above. Observing that, as the special goodwill reserve is capitalized by AES Holdings Brasil, BNDESPAR will be entitled to receive the shares issued by the Company that AES Holdings Brasil eventually may come to receive as a result of the BNDESPAR capitalization rights, as well as the monetary amount received by AES Holdings Brasil from other shareholders of the Company, who come to exercise their right of first refusal on the capitalization, regarding the portion of the BNDESPAR capitalization rights. (vii) Incorporation of AES Tietê by Brasiliana: AES Tietê was merged by the Company, with its consequent extinction and succession in all rights and obligations by the Company ("Merger"), and the consequent change in the Company s corporate name to AES Tietê Energia. As a result of the Merger, the Company s share capital were increased in R$98,339 with the allocation of the shares issued on the basis of this increase to AES Tietê s shareholders. AES Tietê's net equity was appraised by its book value on June 30, 2015 ("base date of the merger"), based on the appraisal report for purposes of the merger, issued by an independent appraisal company. AES Tietê's merger became effective as from December 31, 2015, as set forth in the merger protocol. Thereby, the effects of that merger shall only affect the result of the Company's operations as from January 1, It is worth mentioning that the minority shareholders of AES Tietê were not diluted after Incorporation, considering that on the date immediately prior to the merger, the Company did not hold any other asset or liability than: (i) tax credits (deferred assets taxes) in a total of R$48,353; (ii) recoverable tax in a total of R$12,495; (iii) short-term investments in a total of R$7,429, composed by R$6,029 of recordable taxes that were refunded by the Brazilian IRS to the Company in the period between the issuance of the merge report and the incorporation (July to December 2015); and (iv) R$1,400 of short-term investments to pay the remaining expenses of reorganization, since the same amount was also transferred from the accounts payable, thus bringing no effect to the Company. Therefore, the balance of the remaining assets and liabilities amounted to R$66,877 on the base date of December 31, 2015, before AES Tietê's merger. It is noteworthy that such credits were not considered for the purposes of exchange of shares object of the merger, so that there was no relation of differentiated exchange for the controlling shareholder. Due to the Merger, it was assured to shareholders dissenting from AES Tietê the right of withdrawal by compensation for the equity value of their stock. 16

19 After the time limit for exercising the right of withdrawal from AES Tietê, it was found that no shareholder had exercised such right of withdrawal. AES Tietê's equity variations occurred between the base date of merger (June 30, 2015) and the effective date of merger (December 31, 2015) were absorbed by the Company, as determined in the merger protocol, generating the following effects on the Company's net equity: SHAREHOLDERS' EQUITY AES Tietê Energia S.A. Effects of corporate reorganization Partial split Capital reduction Merge of AES Tietê Equity variations arising corporate reorganization - July to December 2015 Partial split Capital reduction Merge of AES Tietê Results allocation AES Tietê Energia S.A. Capital 2,960,708 (2,069,513) (727,516) 98,339 (28,053) 28, ,018 Capital reserve , ,405 Shares and stock options granted , ,950 Special reserve of goodwill on merger , (6,591) - 341,198 Legal reserve 214,512 (170,605) - 8,497 (12,000) ,000 52,404 Statutory reserve 29,946 (29,946) Equity valuation adjustment 697,451 (219,984) - 451,812 6,266 - (14,938) - 920,607 Other comprehensive income - actuarial gain (282,456) 356,259-1,058 (72,489) ,500 Retained earnings 289,245 (148,644) - 107,086 85, ,740 (475,816) - (-) Complement of minimum mandatory dividend , ,384 TOTAL SHAREHOLDERS' EQUITY 3,909,406 (2,282,433) (727,516) 1,025,833 (20,887) 28, ,442 (35,432) 2,018,466 (viii) Constitution of deferred income tax and social contribution: AES Tietê's merger resulted in the increased expectation for future taxable income generation, allowing for the constitution of additional tax credit in the amount of R$43,702. The expectation for future taxable income is supported by a technical study approved by the Board of Directors (see explanatory note No. 8) 1.1 Discontinued operations The Company made the following reclassification to discontinued operations income: Income Statements a) Company: (i) (ii) Earnings aring from equity pick up spun off investments (Eletropaulo Eletricidade de São Paulo S.A., AES Elpa S.A., AES Uruguaiana Empreendimentos S.A. e AES Serviços TC Ltda.) in a total of R$30,579 (loss of R$85,140 on December 31, 2014). Only the equity pick up resulting from the investment in AES Tiete in a total of R$379,265 (R$227,899 on December 31, 2014), remained as continued operations, reflecting in this way, the developed activities by the Company after the corporate reorganization. Amortization of intangible assets of concession related to spun-off investments of Eletropaulo and AES Elpa in a total of R$31,072 (R$31,072 on December 31, 2014). 17

20 b) Consolidated: (iii) (iv) Net income of spun-off investments (Eletropaulo Eletricidade de São Paulo, AES Elpa S.A, AES Uruguaiana Empreendimentos S.A. e AES Serviços TC Ltda.) in a total of R$95,630 (net loss of R$171,846 on December 31, 2014), are being presented in a single line of income statement called "discontinued operations". As earlier mentioned, for both years, there was only results consolidation of the Company's and incorporated AES Tietê. Amortization of intangible assets of concession related to spun-off investments of Eletropaulo and AES Elpa in a total of R$31,072 (R$31,072 on December 31, 2014). DESCONTINUED OPERATIONS Company Consolidated Net results from spun-off operations 30,579 (85,140) 95,630 (171,846) Amortization of intangible related to concession from spun-off operations (31,072) (31,072) (31,072) (31,072) Total of continued operations (493) (116,212) 64,558 (202,918) Attributed to shareholders of parent company (493) (116,212) Attributed to noncontrolling interests 65,051 (86,706) It is important to note that there was no gain or loss on the fair value, as all amounts involved in the reorganization were evaluated at book value. Below follows the details of net profit (loss) for spun-off operations. The operational impacts of spun-off of subsidiaries in the consolidated income statement for the years ended on are presented below AES Elpa Eletropaulo AES Uruguaiana AES Serviços Subtotal Eliminations and adjustments Total consolidated Net operating revenues - 13,667, ,552 32,726 14,191,691-14,191,691 Total operanting costs (1,271) (13,194,534) (483,019) (32,294) (13,711,118) - (13,711,118) Income from services (gross profit) (1,271) 472,879 8, , ,573 Other expenses (15,365) (15,365) (30,581) (45,946) Financial results 1,754 (313,906) 36,608 1,045 (274,499) (670) (275,169) Results befores taxes (14,882) 158,973 45,141 1, ,709 (31,251) 159,458 Total taxes (income tax and social contribution) (650) (57,837) (4,834) (507) (63,828) - (63,828) Net results from spun off investments (15,532) 101,136 40, ,881 (31,251) 95,630 Attributed to shareholders of parent company 30,579 Attributed to noncontrolling interests 65, AES Elpa Eletropaulo AES Uruguaiana AES Serviços Subtotal Eliminations and adjustments Total consolidated Net operating revenues - 10,557, ,608 23,878 10,819,765-10,819,765 Total operanting costs (809) (10,551,749) (246,586) (25,491) (10,824,635) - (10,824,635) Income from services (gross profit) (809) 5,530 (7,978) (1,613) (4,870) - (4,870) Other expenses (87,971) (87,971) 42,025 (45,946) Financial results 1,130 (201,905) 13,375 (580) (187,980) (1,223) (189,203) Results befores taxes (87,650) (196,375) 5,397 (2,193) (280,821) 40,802 (240,019) Total taxes (income tax and social contribution) (513) 64,628-4,058 68,173-68,173 Net results from spun off investments (88,163) (131,747) 5,397 1,865 (212,648) 40,802 (171,846) Attributed to shareholders of parent company (85,140) Attributed to noncontrolling interests (86,706) 18

21 1.1.2 Cash Flow Statements a) Company (i) The Company emphasizes that received dividends and interest over own capital of R$42,061 (R$24,798 on December 31, 2014) of spun-off investments classified as operating activities. b) Consolidated (ii) Operating activities: The Company highlights in a separate line the net results of the spun-off investment Eletropaulo - 3,181 (316,180) 1,938 AES Serviços - - 4,673 16,317 AES Uruguaiana 42,061-16, AES Elpa - 21, (207) Net cash from (used in) operating activities 42,061 24,798 (295,191) 18,345 Investing activities: Company Consolidated Eletropaulo - - (156,549) (191,416) AES Serviços (15,711) AES Uruguaiana - - (8,008) 24,412 AES Elpa - - (1,624) 3,636 Net cash used in investing activities - - (165,217) (179,079) Financing activities: Eletropaulo , ,864 AES Serviços - - (500) (493) AES Uruguaiana AES Elpa (362) Net cash from in financing activities , ,009 Net increase (decrease) in cash and cash equivalents: 42,061 24,798 (22,814) 78,275 2 General information As detailed in note 1, the Companhia Brasiliana de Energia had its name changed to AES Tietê Energia S.A. ( Company or AES Tietê Energia ). Is a publiclytraded company, whose headquarter is located at Avenue Dr. Marcos Penteado de Ulhôa Rodrigues, 939, 5th floor, single room 2, Sítio Tamboré, Tower II Condominium Castelo Branco Office Park, Barueri, São Paulo State, Brazil. After the partial spin-off described in note 1, the Company's business focused on the activities carried out by AES Tietê before the reorganization. It is emphasized that Brasiliana Participações was responsible for all the liabilities of AES Tietê power split, without solidarity. In contrast, AES Tietê Energia took over all rights and obligations by the acquired AES Tietê. The Company is authorized to operate as concessionaire for the use of public assets to generate and trade electric power as Independent Electric Energy Producer, with activities regulated and inspected by the Brazilian Electric Power Regulatory 19

22 Agency (ANEEL), which is associated to the Brazilian Ministry of Mines and Energy. Business purpose: (i) to study, plan, project, produce, market, build, perform and operate (a) energy production, transmission and marketing system, resulting from the usage of rivers and other energy sources, including, without limitation to, renewable sources, such as solar, wind and biomass, in addition to non-renewable and thermoelectric sources of any nature whatsoever, as well as to perform any activity related to this purpose, such as the installation and implementation of projects for independent energy production, operation and maintenance of plants, works and related buildings, in addition to the purchase and import of energy generation equipment, (b) dams, gates and other enterprises assigned to the multiple usage of water and its beds and reservoirs, and (c) research and development plans and programs of new energy sources and vectors, directly or in cooperation with other entities; (ii) to explore, develop, produce, import, export, process, handle, transport, load, store, pack, operate and keep activities related to the supply, distribution and marketing of fuels allocated to the energy generation, in addition to perform the liquefaction and regasification; (iii) to provide and all services, in compliance with the provision of the Concession Agreement; and (iv) to have interest in other companies as a member, shareholder or quotaholder, provided that the Company s purpose where it participates will be limited to items i to iii aforementioned. The Company is directly controlled by AES Brazil Holdings Ltda. and indirectly controlled by The AES Corporation (headquartered in the United States). Until December 31, 2015, 1,268 MW of the physical guarantee of the Company were sold to Eletropaulo. In 2016 the Company has 95% of its contracted physical guarantee, which was sold to a diverse customer base. For 2017, 2018, 2019 and 2020, the percentage of assured energy sold is 88%, 60%, 26% and 12%, respectively. (For more details see note 28.4). Tietê s generating units comprise the following plants: Plant Year of completion Number of turbines Installed capacity MW Physical guarantee MW Hydroelectric Power Plants (HPP) Água Vermelha Nova Avanhandava Promissão Bariri Barra Bonita Ibitinga Euclides da Cunha Caconde Limoeiro Small Hydroelectric Plants (SHPPs) Mogi-Guaçu São José São Joaquim Total

23 2.1 Obligation to expand As set forth in Companies Privatization Public Notice, the Company is required to expand the installed capacity of its generation system by at least 15% (fifteen percent), over a period of eight years as of the execution of the Concession Agreement, which took place on December 20, The aforementioned Public Notice also establishes that such expansion must be carried out by implementing new projects in the State of São Paulo or through contracting electric power from new projects implemented in the State of São Paulo by third parties, for a period longer than five years, observing regulatory restrictions. In order to fulfill such obligation, soon after its privatization auction, the Company made some efforts, under the former electric sector model, to expand its generation facilities by 15% (fifteen percent), representing 398 MW. However, from 2004 on, there were significant changes in the regulatory framework of the Brazilian electricity industry, which made unfeasible the aforementioned obligation fulfillment. Such changes, together with other reasons beyond the Company control, such as natural gas supply conditions, insufficient water resources and judicial claims filed by the Office of the State Prosecutor, did not allow the compliance with this obligation. Since then, the Company has been holding talks with the São Paulo State Electric Power Department with the objective of reviewing the expansion obligation in order to adjust it to the new sector/regulatory reality. On August 12, 2011, a claim was filed by São Paulo State Government aiming to enforce the Company to fulfill its obligation to expand its generation system installed capacity by at least 15% (fifteen percent) or pay damages. A first-level preliminary decision was awarded determining that the Company produced, its plan to fulfill said obligation, including all aspects necessary fully comply with it, subject to daily fine payment. On September 6, 2011, the Company was summonsed in the claim and was officially informed of the preliminary decision awarded. On October 11, 2011, the Company was officially informed of the requests for amendment of judgment; the referred to 60-day period thereafter, which would end on December 12, 2011, should be observed. In October 2011, the Company filed its defense and an appeal against the preliminary decision. On November 3, 2011, considering that there is a necessity to examine whether there are material conditions to fulfill the obligation, the higher court suspended the injunction previously granted in favor of the State of São Paulo until judgment of the appeal lodged by the Company in October On March 19, 2012, the appeal was judged unfavorable for the Company, thus determining the presentation of the plan to fulfill the obligation to expand. 21

24 On April 26, 2012, the Company presented its plan to fulfill the obligation to expand to the Court, who consists of Termo São Paulo project, a natural gas thermoelectric plant, with installed capacity of approximately 503 MW. On September 12, 2012, the judicial decision in the first appeal level was rendered, determining that the State of São Paulo should express itself on the foundations of the Companies capacity to comply with the expansion requirement. On December 6, 2012, the manifestation prepared by the São Paulo State was attached with regards to the Capacity Expansion Plan presented by the Company ( Termo São Paulo ), which basically claims that: (i) the proposed plan is consistent; (ii) there is no guarantee that the natural gas will be supplied by Petrobras, which should jeopardize the execution of the plan; (iii) the thermal power plant would not be the only alternative to comply with the expansion requirement; (iv) even if the natural gas be supplied by Petrobras, there is no guarantee of success at the auction (for the construction of the plant), which may be regarded as a justification for failing the fulfillment of the obligation. The lower court ruled that the Company should issue a comment on the manifestation of the São Paulo State and that the parties should inform whether they were interested in holding a hearing in an attempt to reach an agreement. The conciliation hearing was held on October 9, 2013, the Judge overseeing the case given the stay of proceedings to which the Company studied alternatives to expand its generation capacity than the expansion plan submitted in court. On March 13, 2014, the judge issued an order mandating the parties to inform whether they had reached an agreement. Both, the Company and the State of São Paulo had filed a request for suspending the proceedings for another 60 days in order to carry on with the negotiations. On May 23, 2014, the Company filed a new request for the stay of the proceedings for 90 days, given the progress of negotiations with the State of São Paulo. This new request filed prior to a decision concerning the 60-day suspension requested by both parties has not yet been assessed in court. On August 14, 2014, was accepted by the court's request to suspend proceedings for 90 days. In April 17, 2015, after the judge requests the Company and State of São Paulo for the presentation of any statement on the completion of the suspension period, the Company submitted the new request for suspension of the proceeding for additional 90 days, taking into consideration that the negotiations with the State of São Paulo moved forward. On July 14, 2015, conciliation hearing was held but the parties did not settle. Both parties requested a 30-day suspension of the proceedings to explore other options available for meeting the obligation to expand capacity. The parties also requested consideration of the request to produce evidence, if any, and the trial of the action. Thus, the court ordered the proceedings suspended until August 14, On August 20, 2015, the Company submitted a petition reporting that no agreement has been reached, requesting the production of evidence, especially expert report. 22

25 It is important to note that any delay in the fulfillment of the expansion obligation, after definition of term for this by the court, could result in fines being requested by the State Government. Therefore, there is still no certainty that the state government request will be granted by the judiciary. According to information provided by the Company legal advisors, the chances of an unfavorable outcome on the case are classified as possible. New Projects linked to the obligation to expand As mentioned before, the Company is studying the feasibility of implementing a natural gas thermoelectric plant, net generation capacity of approximately 503 MW. The venture, located in the city of Canas in the State of São Paulo, has its preliminary environmental license in force and valid until October 2016, having issued on October 20, 2011, by the São Paulo State Environmental Company (CETESB). On November 30, 2011, the State Prosecutor Office and the State of São Paulo Public Defender filed civil action against the State of São Paulo, the Company and CETESB, are arguing the invalidity of the environmental licensing procedure and requesting an injunction suspending the effects of the Preliminary Environmental License, which was granted by the Judiciary on March 30, On April 23, 2012, the Company voluntarily declared itself summonsed in order to present reasonable measures against this decision. On May 15, 2012, the court of Sao Paulo suspended the injunction that suspended the effects of the Preliminary Environmental License issued by CETESB and, on January 31, 2013, the court of Sao Paulo granted a favorable decision to the Company, sustaining the Preliminary Environmental License. On March 14, 2013, the Public Defense Attorneys Office filed for a request for clarification, stating that the decision by the São Paulo court Court of São Paulo had not considered some environmental laws. On June 27, 2013, the request for clarification was considered as unreasonable by the Court of São Paulo based on the premise that all relevant points for judging the demand had been analyzed and that there had been no offense against the environmental legislation. On August 20, 2013, the Public Defender s Office filed for appeals at the Higher Court of Justice and the Federal Supreme Court against the decision favorable to the Company by the Court of São Paulo, who maintained the effects of the Prior License. On January 29, 2015, appeals by the Ombudsman seeking reinstatement of the injunction to suspend the environmental license were not admitted. On March 18, 2015, it was delivered to the Company prevail in 1 st instance. The public civil action was dismissed, on the grounds that: (i) there was legality in the licensing 23

26 procedure; and (ii) it has been proven, through technical studies and approved by the environmental authorities (CONSEMA and CETESB), the environmental feasibility of the project. In June 2015 they have filed an appeal by the Public Defender and the Public Ministry. On July 16, 2015 the Company presented counterarguments to an appeal, filed by the Public Defender and the Public Ministry and is awaiting trial. Based on the decision of 1 st instance and judged Civil Action unfounded, the Company and its legal advisors reassessed the chances of loss of share, which was changed from possible to remote. The Company continues to seek alternatives for the supply of gas, including LNG purchase alternative in the international market, so that in this way is able to participate in new energy auctions along The installation license is required when signing a contract of sale of energy for the project. Besides the before mentioned project, the Company acquired on March 27, 2012, an option to purchase a thermal power plant project, with net installed capacity of 579 MW, to be installed in the municipality of Araraquara, in the State of São Paulo Termo Araraquara. Thus, it was guaranteed exclusivity for project evaluation in the coming years and the possibility of suit it to the business development standards of the Company. If the two projects are executed simultaneously, the Company believes that there is potential for synergy and reduce construction costs and purchase of gas. The development of the project Termo Araraquara, as well as the Termo São Paulo, is dependent on obtaining a gas supply contract. Until December 31, 2015, the Company did not enter into gas supply contract. Additionally contribute to the achievement of the target of Expansion Requirement São Joaquim SHPP 3 MW and Sao Jose SHPP 4 MW, in addition to two long-term power purchase agreements from biomass sugarcane, totaling 10 MW. 2.2 Information of subsidiaries spun off The Company presents the following information of consolidated subsidiaries as of December 31, As previously mentioned, after the conclusion of the corporate reorganization on December 31, 2015, the Company did not hold investments in other companies (of spin-off events). AES Tietê will not be shown in the following data since it was merged company, which has taken over the activities developed by then incorporated. Energy distribution Eletropaulo - Eletropaulo is a publicly traded company under private law, with headquarters in Barueri, São Paulo, directly controlled by AES Elpa, and is authorized to operate as a public service concessionaire of Electricity Distribution, 24

27 mainly for distribution and sale of electric power in 24 municipalities in the metropolitan region of São Paulo and has activities are regulated and inspected by the National electric energy Agency - ANEEL, under the Ministry of Mines and energy. Power generation AES Uruguaiana - privately held company, private, based in the city of Uruguaiana, the BR 472, Km 576, State of Rio Grande do Sul, and is engaged in the production and commercialization of thermal energy and related activities to that object, such as the installation and implementation of an independent power producer projects, operation and maintenance of power plants, construction and related buildings and the purchase and import of equipment for the generation, transmission and distribution of electricity. AES Uruguaiana is authorized to operate as Independent Power Producer by Ordinance of the Ministry of Mines and Energy No The authorization is valid for 30 years, starting from June 26, Currently AES Uruguaiana is with their activities paralyzed due to lack of gas supply. Providing services related to electricity distribution AES Serviços - AES Serviços revenue is primarily attributable to the provision of services related to the distribution of electricity. The main services are performed with Eletropaulo, of which stand out: (i) provision of commercial technical services cut, rewiring, modification, calibration, verification and electricity connection; (ii) provision of continuous construction services (assembly and disassembly), maintenance and repair of networks and overhead distribution lines; (iii) provision of stores service operation services, to receive requests for commercial and technical services, providing information and answering complaints. Holding AES Elpa - stock corporation publicly traded and aims at participation in other companies as shareholder, shareholder or consortium member based in Barueri, São Paulo. AES ELPA is the parent company of Eletropaulo. 3 Basis for preparation and presentation financial of information On February 22, 2016, the Company s management authorized the conclusion of the financial statements for the year ended December 31, 2015, submitting such documents, at this date, to the approval of the Board of Directors and to the examining by the Fiscal Council. Based on the proposal of the Board of Directors and opinion by the Fiscal Council, such financial statements will be submitted to the approval of the Company s shareholders. 25

28 3.1 Declaration of conformity The consolidated financial statements have been prepared in accordance with the international accounting standards (International Financial Reporting Standards - IFRS) issued by the International Accounting Standards Board - IASB and the accounting practices adopted in Brazil. The individual financial statements of the company, identified as "Company" or "Individual", have been prepared in accordance with accounting practices adopted in Brazil. The accounting practices adopted in Brazil comprise the Pronouncements, Interpretations and Guidelines issued by the Accounting Pronouncements Committee - CPC, which were approved by the Brazilian Securities Commission - CVM and the Federal Accounting Council - CFC, also including the supplementary rules issued by CVM. The financial statements were prepared using the historical cost basis, except for share options granted and the valuation of certain assets and liabilities as financial instruments, which are measured at fair value and the evaluation of fixed assets at deemed cost ( "deemed cost"), at the transition date in January Basis for preparation and presentation All amounts presented in the financial statements are expressed in thousands of reais, unless otherwise indicated. Due to rounding, the figures throughout this document may not accurately add up to the totals stated. Quantitative data, such as volumes and numbers of consumer units, were not audited the independent auditors. 3.3 Functional currency and translation of balances and transactions in foreign currency (a) Functional and presentation currency The financial statements were prepared and are presented in Reais (R$), which is the functional currency of the Company's presentation. The functional currency is determined by the primary economic environment of its operations. There was no change in the functional currency due to corporate restructuring. (b) Transactions and balances Foreign currency transactions, i.e. all those that are not carried out at the Company s functional currency, are translated into the functional currency at the exchange rate on the date in which the transactions were carried out. Monetary assets and liabilities in foreign currency are translated into the functional currency of the effective exchange rate at the financial statements date. 26

29 4 Accounting policies and estimates The main accounting policies applied in the preparation of the financial statements are stated below. Those policies were applied consistently in all years presented. Policies and estimates used by the built-in AES Tietê are similar to those adopted by the Company. Thus, there was no change of policy or estimate due to reorganization. 4.1 Financial assets initial recognition and subsequent measurement Financial assets are any assets identified as: cash and cash equivalents, an equity instrument of another entity, including short-term investments, a contractual right to receive cash or another financial asset from another entity; to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity, or a contract that may be settled by the entity s equity instruments under certain conditions. The main financial assets of the Company are: (a) Cash and cash equivalents and short-term investments Include cash, bank accounts and investments that are highly liquid and bear insignificant risk of change in their market value. Cash and cash equivalents are stated at cost plus accrued interest, since there was no material difference in relation to their market value. Investments which maturity term is set at three months or less on the date of acquisition are recorded as cash equivalents. Those investments with maturities greater than three months on the date of acquisition are classified as Short-term investments. Short-term investments are classified as available for sale and measured at fair value through profit or loss. Interest, monetary and exchange variations executed in short-term investments agreements are recognized in income statement when incurred. The variations stemming from changes in the fair value of these investments are recognized in a specific equity account, as incurred. Any provisions for impairment are recorded in the income statement. Gains and losses recorded in equity are transferred to net income at the time these investments turn into cash or when there is evidence of loss on their realization. On December 31, 2015 and 2014, there was no change in the fair value. (b) Consumers resellers and other receivables The Company classify the balances of consumers, resellers and other receivables as financial instruments loans and receivable. These receivables are initially recognized at fair value and are subsequently adjusted for principal repayments, for the interest calculated based on the effective interest rate method ( amortized cost ) and can be reduced by allowance for doubtful accounts. Accounts receivable from consumers and resellers include amounts related to electricity supply services, including transactions in the spot market. 27

30 (c) Allowance for doubtful accounts The allowance for doubtful accounts is recorded based on estimated probable losses that may occur upon collection of receivables and balances are stated in current or non-current according to the classification of the title that originated them. The criterion adopted by the Company to record allowance for doubtful accounts is to perform an individual analysis of accounts deemed hardly realizable. (d) Provision for impairment of financial assets Financial assets are analyzed on a quarterly basis to identify any changes that may indicate a reduction in their recovery value (impairment). Assets are considered irrecoverable when there is evidence that one or more events occurred after their initial recognition, having impacted their estimated future cash flow on a significant or prolonged way. (e) Write-off financial assets The Company writes their financial assets off upon expiration of the contractual rights on such assets cash flow, or when substantially all the risks and rewards underlying this financial asset are transferred to another entity. If the Company retain substantially all the risks and rewards of a transferred financial asset, such financial asset is held in the financial statements and a liability is recognized for any amounts received in the transaction. 4.2 Inventories Inventories of merged AES Tietê were valued at deemed cost on the date of transition to the international financial reporting standards, on January 01, 2009, net of depreciation, except for land, which is not subject to any depreciation charges. The useful life of assets was reviewed in conjunction with valuation of assets at deemed cost. Depreciation is calculated by the straight-line method per component. These depreciation rates take into consideration the estimated useful lives of the assets as of December 31, When significant items of inventory are replaced, such items are recognized as individual assets with specific useful life and depreciation. Likewise, when significant maintenance is performed, its cost is capitalized in inventory if relevant recognition criteria are satisfied. All other repair and maintenance costs are recognized in the income statement when incurred. An item of PP&E is written off when sold or when no future economic benefit is expected from its use or sale. Possible gains or losses from assets written off are included in the income statement in the year in which the assets are written-off. 28

31 The gain/loss on disposal or removal of inventory is determined by the difference between the sale value and the carrying amount of assets, being recognized in income statement. The residual value and useful life of assets and depreciation method are reviewed at each financial year end and adjusted prospectively, if applicable. The estimated residual value of fixed assets takes into account the best estimate of the Company, including supported by positioning its legal counsel, as to the law applicable to concessions regarding the right to compensation of the remaining assets, including the generation of basic design, and not amortized at the end of the concession. The Company recognizes monthly accrued interest on debentures, loans and financing the cost of fixed assets in progress, considering the following capitalization criteria: (a) the interest is capitalized during the construction phase of property until the date the underlying asset is available for use; (b) the interest is capitalized considering the monthly rate of the debentures applied to the fixed assets in the course of the month; (c) capitalized interest does not exceed the total value of the total monthly interest expenses; and (d) capitalized interest is depreciated considering the same criteria and useful life determined for the fixed assets which were incorporated. The capitalized interest for the years ended are presented in Note Intangible Intangible assets acquired separately are measured at cost at the time of their initial recognition. Thereafter, intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses. The Company and its subsidiaries have no indefinite lived intangible assets, for which an impairment test would be required. The main intangible assets includes the right to operate as a concessionaire of public good use in the production and sale of electricity, provided Independent Power Producer, pursuant to the concession contract signed on December 20, 1999, which has term of 30 years. The amortization of the use of public property is recognized in the income statement under other revenues and expenses, consistent with the use of the intangible assets. Intangible assets with finite lives are amortized on a straight-line basis over the useful economic life and assessed for impairment loss whenever there is indication of loss on the economic value of the assets. The period and method of amortization for intangible assets with a finite life are reviewed at least at the end of each fiscal year. Gains and losses resulting from the disposition of intangible assets, if any, are measured as the difference between the net value from the sale and the book value of the assets and are recognized in the income statement upon the write-off of the assets. 29

32 4.4 Provision for impairment of non-current or long-term assets (non-financial assets) The management review at least quarterly the net book value of non-current assets with the purpose of evaluating events or changes in economic, operating or technological circumstances that may indicate deterioration or loss of their recoverable value. December 31, 2015, the Company did not identify any event, through information obtained from internal and external sources, indicating the existence of any impairment losses. The recoverable assets are defined as the greater value between the value in use and the net sales value. In order to measure the recoverable value of assets through the use of value, the Company uses the smallest group of assets for which there are separately identifiable cash flows (cash generating units - CGU). The Company s management considered all plants as a single cash generating unit. A loss is recognized, in the income statement, by the amount which the asset's carrying amount exceeds its recoverable amount. 4.5 Provisions for litigation and others The Company is party to various legal and administrative proceedings. Provisions are established for cases in which it is probable an outflow of resources to settle them and on which it is possible to make a reasonable estimate of the amount to be disbursed. The evaluation of the probability of loss on the part of the Company's legal advisors includes assessing the available evidence, the hierarchy of laws, available case law, recent court decisions and their relevance in the legal system, as well as the assessment of outside counsel. Provisions are reviewed and adjusted to take into account changes in circumstances, such as applicable statute of limitations, additional exposures identified based on new issues and court decisions. 4.6 Financial liabilities initial recognition and subsequent measurement As described in Note 29.2, the Company classifies suppliers, debentures, finance leases, dividends and interest on capital payable as financial liabilities. All financial liabilities are recognized and measured at amortized cost. Settlement of financial liabilities The Company and its subsidiaries settles financial liabilities only when the obligations are extinguished, i.e. when they are settled, canceled by lender or timebarred by statute in accordance with contractual provisions or legislation in force. Financial instruments net amount presentation Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and 30

33 there is an intention to offset or realize the asset and settle the liability simultaneously. 4.7 Embedded derivatives Embedded derivatives in other financial instruments or agreements, when applicable, are treated as separate derivatives when their risk and characteristics are not close related to the main agreements and when these agreements are not measured at fair value through statement of income. For the years ended December 31, 2015 and 2014, the Company did not identify any embedded derivatives in its contracts. 4.8 Sales taxe These taxes are deducted from sales revenues, which are presented in the income statement on a net basis. Contribution on Social Integration Program (PIS): 0.65% (cumulative basis) and 1.65% (non cumulative basis), on sale of electric energy and revenue of services rendered; Social Security Financing Contribution (COFINS): 3.00% (cumulative basis) and 7.60% (non cumulative basis), on sale of electric energy and revenue of services rendered; Value Added Tax - ICMS is applied according to customers to be billed: deferral in the case of generation or distribution and billing with an internal rate for the remaining customers; Service Tax (ISS) 2% levied on the revenue of service rendered. The taxes reduce sales revenues, which are stated in the statements of income at their net value. The credits generated from PIS and COFINS non cumulative taxes over the operating expenses and costs are presented as reduction of these groups in the financial statements. PIS and COFINS rate applied to the bilateral contract with the affiliate Eletropaulo is equivalent to 3.65% (cumulative basis). 4.9 Current and deferred income tax and social contribution (a) Current income tax and social contribution Taxation on income includes income and social contribution taxes. Current income and social contribution tax expense is calculated pursuant to prevailing tax legislation. Income tax is calculated on taxable profit at a 15% rate, plus a surcharge of 10% for the portion of income exceeding R$240 in the base period for calculating the tax, while social contribution tax is computed on taxable profit at 9% rate. Income tax and social contribution are recognized on an accrual basis. 31

34 Taxes prepaid or recoverable are stated under current or non-current assets, based on forecast of their realization until the end of the year, when the income tax due is dully calculated and offset with the tax prepayments. Management periodically evaluates the tax position of situations requiring interpretation of tax regulations and sets up provisions as applicable. (b) Deferred income tax and social contribution Deferred taxes arise from temporary differences existing at the balance sheet date between the carrying amounts and tax bases of assets and liabilities. Deferred tax liabilities are recognized for all temporary tax differences. Deferred tax assets are recognized for all deductible temporary differences, credits and tax losses not used, to the extent it is probable that taxable profit will be available for the temporary differences to be realized, and unused tax credits and losses to be utilized. The recovery of deferred tax assets is reviewed at each balance sheet closing or shorter period, when significant events occur that require a revision. When it is not probable that future taxable profits will be available to allow the recovery of all assets, or part of the asset balance is adjusted by the amount expected to be recovered, according to the maximum concession period. The expectation of generating future taxable income is determined by a technical study approved by the organs of the Company. To the extent that it becomes probable that there will be sufficient future taxable income, the Company recognizes an addition to the deferred tax in proportion to such profits. Deferred tax assets and liabilities are measured at the tax rate determined by tax legislation in effect at the balance sheet date and that is expected to be applicable at the date of realization of the assets or settlement of the liabilities which generated the deferred taxes. Deferred taxes related to items directly recognized in equity are also recognized in equity rather than in the income statement. Deferred taxes are recognized according to their originating transaction, either in the income statement or in equity. Deferred tax assets and liabilities are presented net only if the deferred taxes are related to the same taxpayer and subject to the same tax authority, and when there is a legal or constructive right ensuring the offset of current tax assets against current tax liabilities Employee benefits The Company sponsors a retirement and pension plans for its active and former employees, and their beneficiaries, for the purpose of supplementing the retirement and social security benefits provided by the government. 32

35 The defined-benefit-type retirement plan has the cost of benefit payouts determined by the Projected Unit Credit method. The actuarial valuation is prepared based on assumptions (interest rates, inflation, benefit increases, life expectancy, wage growth of active participants etc.) reviewed and updated on an annual basis, at the end of each year, or shorter period, when relevant events requiring a new actuarial valuation occur. Asset or liability related to defined benefit plans recognized in the financial statements represents the present value of the defined benefit obligation (using a discount rate based on Federal Government long-term securities), less the fair value of plan assets. The plan assets are held by a closed supplementary pension entity (FUNCESP). The fair value is based on information about market price and in the case of listed securities, on the purchase price published. The amount of any recognized defined benefit asset is limited to the present value of any economic benefits available in the form of refunds or reductions in future employer plan contributions by sponsor Other current and non-current assets and liabilities Other assets are stated at their acquisition or realization value, when the second is lower, and other liabilities are stated at known or determinable amounts including, when applicable, accrued charges and monetary variation incurred Classification of assets and liabilities as current and non-current An asset or liability should be recorded as current if it is expected to be settled within the 12 month period following the financial statements base date, otherwise these are recorded as non-current Distribution of dividends Approved dividends payable or grounded on statutory obligations are recorded in current liabilities. The Company s articles of incorporation establish the distribution of mandatory minimum dividends corresponding to 25% of adjusted net income. Also, in accordance with the articles of incorporation, the Board of Directors shall resolve on the payment of interest on shareholders equity and intermediate and/or interim dividends. In determining the adjusted net income for distribution of dividends, realization of the surplus value of the assets is considered which was calculated on the date of transition to the international financial reporting standards and recorded as Equity Valuation Adjustment under Equity. Thus, the increase in depreciation and write off expenses due to the asset surplus recorded in property, plant and equipment (deemed cost) has no effect on calculation of the Company s dividends. 33

36 Thus, at the end of the fiscal year and after due legal allocations, the Company records under current liabilities, the equivalent amount to the minimum mandatory dividend not yet distributed during the year, and records the Company s proposed dividends in excess to the minimum mandatory amount as additional proposed dividend in equity. The Company distributes interest on own capital, pursuant to Art. 9, paragraph 7 of Law No of December 26, 1995, which is deductible for tax purposes. Dividends and interest on capital not claimed for three years are reversed to the account profits (losses) for new distribution, in accordance with the Brazilian Corporate Law Revenue recognition Sales revenue includes only the gross inflows of economic benefits received and receivable by the Company. Amounts charged on account of third parties, such as sales taxes are not economic benefits, therefore, are not presented in the Income Statement. Revenue is not recognized if there is significant uncertainty as to its realization. (c) Revenues from electricity supply Revenue from electricity sale is recognized in income in accordance with the rules governing the electricity market, which establish the transfer of risks and rewards over the contracted amount of energy to the buyer. The determination of energy delivered as contractually provided for occurs on a monthly basis. The electric power supply revenue also includes transactions in the spot market. (d) Interest income Interest income is recognized based on the period of time and effective interest rate on the outstanding principal amount invested. The effective interest rate is that from which is discounted the estimated future cash flow receipts during the useful life of a financial asset in relation to the initial net book value of that asset Lease agreements Leased items whose control, risks and benefits are substantially exercised by the Company (capital lease) are recorded as property, plant and equipment matched against a current or non-current liabilities accounts, on a case by case basis. Interests on capital leases are allocated to statements of income in accordance with the duration of the agreement by the effective interest rate method. Operating lease payments are recognized as expenses in the statement of income on a straight line method over the term of the lease. 34

37 4.16 Earnings per share The Company calculates earnings per share using the weighted average number of total outstanding common and preferred shares during the period corresponding to the earnings. Basic earnings per share are calculated by dividing net income for the year by the weighted average number of outstanding shares. The Company's preferred and common shares have equivalent economic rights Business segment Operating segments are defined as business activities which can generate revenues and incur expenses, the operating results of which are regularly reviewed by the Company s Management for decision-making about funds to be allocated to the segment, for assessing its performance. In the fiscal year ended December 31, 2014, the Company had the main purpose of direct or indirect holdings in other companies. Following the partial spin-off, as described in Note 1, the Company focused exclusively on the power generation segment, represented by the activities of embedded AES Tietê. Thus, there will be shown specific note business segment Significant accounting judgments, estimates and assumptions In the preparation of the financial statements, the Company uses judgment and estimates, based on available information, as well as adopts assumptions, which affect the amounts of revenues, expenses, assets and liabilities, and the disclosure of contingency liabilities. Whenever necessary, the judgments and estimates are supported by opinions prepared by specialists. The Company adopts assumptions derived from its experience and other factors considered reasonable and significant under the circumstances. The assumptions adopted by the Company are periodically reviewed in the ordinary course of business. However, it is important to note that there is an inherent uncertainty related to setting these assumptions and estimates, which can lead to a significant adjustment to the book value of the asset or liability in future periods, mainly as new information becomes available. An event that requires a modification in estimative is treated prospectively. The main assumptions and estimative used in the preparation of financial statements are discussed below: (a) Retirement and other post-employment benefits The Company has defined benefit plan and also defined contribution plan. Under a defined contribution plan, the Company has no legal or constructive obligation to make further payments if the fund does not have sufficient assets to 35

38 pay benefits. The contributions are recognized as expense benefits to employees when incurred. In relation to the defined benefit plan, the Company evaluates its liability with post retirement pension plan through an actuarial valuation performed on an annual basis and whenever necessary in interim periods, with the help of consultants specializing in services. The actuarial valuation is prepared based on assumptions and projections of interest and inflation rates, increases in benefits, life expectancy, etc. The defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed and updated on an annual basis at the end of each year. The main assumptions used by the Company are described as follows: Discount rate In determining the appropriate discount rate, management considers the rates of National Treasury bonds with maturity duration (average time future payment of benefits) of the defined benefit obligation. Mortality rate The mortality rate is based on mortality tables available in the country. The FUNCESP tests, on an annual basis, the adequacy of mortality rate according to the most recent mortality of plan members. Salary increase and pension and inflation Future increases in salaries and in retirement and pension benefits are based on future inflation rates expected for the country. As to the inflation rate used, the Company carried out a survey on the projection of long-term inflation with the economic departments of several financial institutions. Expected return rate on plan assets The expected return rate on plan assets is the same discount rate used for discounting the value of liabilities. (b) Useful lives of property, plant and equipment The Company uses the criteria set forth in ANEEL Resolution No. 474 of February 7, 2012, and the assumptions of the appraisal report when determining the estimated useful lives of their fixed assets. Hence the residual values of the fixed assets result from applying the useful life defined by ANEEL and the resulting residual values that include the basic design, mirroring the right to indemnity at the end of the concession agreement based on the best estimate by the Company s management, which is supported by the opinion of its legal consultants as to the legislation in force. 36

39 (c) Provision for legal proceedings and others According to Note 4.5, the Company recognizes a provision for legal proceedings and others based on the likelihood of loss assessment. Estimates and assumptions used to record provisions for the Company s proceedings and others are reviewed on a quarterly basis. (d) Provision for impairment of non-current or long term assets The Company reviews, at least on a quarterly basis the existence of events or changes that may indicate impairment in the recoverable value of non-current assets or long-term (note 4.4). The recoverable value is the higher between fair value less costs of sales and value in use. The calculation of fair value less costs of sales is based on sales transaction information available for similar assets or market prices less additional costs to dispose of the asset. The calculation of value in use is based on the discounted cash flow model. Cash flows derive from the short-term budget and the long-term projections, corresponding to concession period and do not include restructuring activities where the Company is still not fully committed or significant future investments that will improve the asset base of the cash generating unit being tested. The recoverable value is sensitive to the discount rate used in the discounted cash flow method, as well as to the expected future cash receipts and the extrapolated growth rate. For the year ended December 31, 2015, Management has evaluated that there is no indicator that the amounts recorded will not be recovered throughout future operations. (e) Taxes There are uncertainties regarding the interpretation of tax regulations. The Company sets up provisions based on reasonable estimates, for possible consequences of audits conducted by tax authorities of the jurisdictions where it operates, when, likelihood of loss is assessed as probable. The amount of these provisions is based on several factors such as experience in previous tax audits and differing interpretations of tax regulations by the taxable entity and the tax authority in charge. Such differences of interpretation may arise in a wide variety of matters, depending on the conditions prevailing in the respective domicile of the Company. Significant judgment by management is required to determine the amount of recognizable deferred tax assets based on the probable term of realization and level of future taxable profits, along with future tax planning strategies. 37

40 (f) Allowance for doubtful accounts The criteria relating to credit risk analysis to determine the allowance for doubtful accounts are described in Note 4.1 (c). (g) Fair value of financial instruments The fair value of financial instruments actively traded in over-the-counter markets is determined based on purchase prices quoted in the market at close of business on the balance sheet date, without deduction of transaction costs. The fair value of financial instruments for which there is no active market is determined by using valuation techniques. These valuation techniques may include the use of recent market transactions (at arm s length); reference to current fair value of other similar instrument; analysis of discounted cash flows or other valuation models. An analysis of the fair value of financial instruments, and further details about their calculation are calculated are reported in Note New pronouncements, interpretations and guidelines (i) Review of Technical Pronouncements No. 08/ Approved on August 7, 2015 and published on November 5, 2015: Represents changes to the following technical pronouncements: CPC 01 (R1), CPC 04 (R1), CPC 06 (R1) CPC 18 (R2), CPC 19 (R2), CPC 20 (R1), CPC 21 (R1), CPC 22, CPC 26 (R1), CPC 27, CPC 28, CPC 29, CPC 31, CPC 33 (R1 ), CPC 36 (R3), CPC 37 (R1), CPC 40 (R1) and CPC 45. All changes are effective as of January 1, 2016 and in general, introduce improvements in the texts aimed at better application of the pronouncements in line with international accounting practices. (ii) The following pronouncements and interpretations are effective for periods after the date of these financial statements. The potential impacts of these adoptions will be assessed when issuing technical pronouncements of the Accounting Pronouncements Committee: IFRS 9 Financial Instruments; IFRS 15 Contract Revenue with Clients; IFRS 16 - Leases; Amendment to IFRS 11 - Accounting for Investments Acquisition of Joint Operations Amendment to IAS 1 Disclosure Initiative; Amendment to IAS 16 e IAS 38 Clarification of the methods of depreciation and amortization acceptable; Amendment to IAS 27 Equity method and separate financial statements; Amendment to IFRS 10 e IAS 28 Sale or contribution of assets between an investor and its associate or joint venture; Amendment to IFRS 10, IFRS 12 e IAS 28 Investment entities: Applying the exception of consolidation; Annual Improvements to IFRS cycle

41 5 Cash and cash equivalents and short-term investments Company Consolidated Cash and cash equivalents Cash on bank ,653 Cash in transit ,975 CDB-DI (i) ,566 Repurchase agreement ,440 Subtotal ,634 Company Consolidated Short-term investment: CDB-DI 117,851 59, ,049 Repurchase agreement 605, ,100 1,187,136 Investment fund 23,117-39,606 Government securities ,209 Subtotal 746, ,241 1,607,000 Total 746, ,307 1,824,634 As of December 31, 2013, short-term investments is represented by CDB operations, investment funds and repurchase agreements with daily liquidity and average profitability for the year of 99.54% of the Interbank Deposit Certificate - CDI (101.68% for the year ended December 31, 2014). 6 Consumers and resellers Company Current Bilateral contracts 18,932 - Spot Market Sale 8,765 - Subtotal 27,697 - Non-current Free energy (i) 13,075 - Subtotal 13,075 - Total 40,772-39

42 Balances falling due Balances past-due up to 90 days over 90 days Consolidated CURRENT Consumers - Supply: Residential 209, ,640 36, ,741 (49,626) 414,115 Industrial 48,602 30,516 13,183 92,301 (6,109) 86,192 Commercial 179,243 51, ,599 (11,099) 220,500 Rural Government: Federal 2,698 2, ,116 (291) 4,825 State 10,407 1, ,246 (4) 12,242 Municipal 13,618 3,325 1,863 18,806 (82) 18,724 Public lightening 15, ,401-16,401 Public service 18, ,944 24,677 (963) 23,714 Total billed 498, ,933 58, ,025 (68,174) 796,851 Unbilled 587, , ,482 Total 587, , ,482 TOTAL 1,085, ,933 58,621 1,452,507 (68,174) 1,384,333 Consumers, concessionaires and permitees Use of energy grid charges Dealers 5,014-4,248 9,262 (4,248) 5,014 Spot market - CCEE 351, , ,782 Free energy 13, ,075-13,075 Reimbursement - energy auctions 8, ,614-8,614 Total 378,545-4, ,793 (4,248) 378,545 Total - CURRENT 1,464, ,933 62,869 1,835,300 (72,422) 1,762, Total ADA (*) Net balance NON-CURRENT Consumers, concessionaires and permitees Spot market - CCEE 33, ,121-33,121 Total - NON-CURRENT 33, ,121-33,121 TOTAL - CURRENT + NON-CURRENT 1,497, ,933 62,869 1,868,421 (72,422) 1,795,999 (i) ANEEL Regulatory Resolution No. 387, of December 15, 2009, established a new methodology for calculation of Free Electric Power and Loss of Revenue for the year later to the end of the collection of Extraordinary Restoration of Rates (RTE) on supply. The Company calculated and recorded the new balances of accounts receivable and payable based on ANEEL resolution No. 2517/10, 1068/11 and No. 1469/11. As of December 31, 2013, accounts payable and receivable balances amounted to R$948 and R$13,075, respectively. Amounts received and paid relating to free energy are subject to the writ of end mandamus decision filed by ABRADE, on behalf of its associated companies, against ANEEL decisions No. 2517/10 and No. 1068/11, stating that both decisions affects negatively the whole systematic established by the Extraordinary Margin Recovery (RTE) between generation and distribution companies of electric energy. Spot market transactions (MRE and Spot) are settled in accordance with the market rules and ANEEL resolutions. Such transactions are usually settled within 60 days after the month they take place. The warranties on the spot market energy sales are determined in accordance with market rules established by the Electric Energy Trade Chamber (CCEE) and ANEEL, respectively. The Company does not require additional guarantees on energy sales in the spot market as well as on the amounts receivable related to free energy. 40

43 7 Tax and social contributions 7.1 Recoverable income tax and social contributions Company Consolidated CURRENT Social Contribution 3-4,376 Income tax 2,004 20,096 33,270 Wittholding income tax 20,508 5,187 25,163 Total 22,515 25,283 62,809 According to the spin-off agreement, the tax credits amounting to R$12,495 remained in the Company as it is not possible the balance transfer through spin-off, since they are linked to companies that originated them. 7.2 Others recoverable taxes Company Consolidated CURRENT INSS - - 1,231 VAT (ICMS) ,042 VAT (ICMS) - rate differential ,026 VAT (ICMS) - credit purchase - - 8,850 PIS 20,343-12,551 COFINS 93,268-57,816 Others Subtotal 113, ,680 NON-CURRENT VAT (ICMS) ,084 Subtotal ,084 Grand total 114, ,764 8 Deferred income tax and social contribution 8.1 Breakdown of deferred income tax and social contribution assets and liabilities Balance sheet Company Income Deferred income tax and social contribution refers to: Profit sharing provision 2, Tax proceedings provision 1, Labor proceedings provision 2, Impairment provision - note 1 (ii) 2, Civil proceedings provision 11, Accruals for trade accounts payable - material and services 9, Environmental proceedings provision 3, Property, plant and equipment - deemed cost (474,252) Intangible assets - right to operate using public assets (12,805) Tax losses/tax losses carry forward (*) 92,055 48,353 43,702 8,712 Actuarial valuation adjustment (Other comprehensive income) (1,288) Others (16,964) (3,179) (935) (769) Revenue related to deferred income tax and social contribution 42,767 7,943 Deferred tax assets (liabilities), net (381,111) 45,174 Deferred tax assets 129,960 48,353 Deferred tax liabilities (511,071) (3,179) Deferred tax assets (liabilities), net (381,111) 45,174 41

44 Deferred tax assets (liabilities), net Consolidated Balance Sheet 2014 Labor proceedings provision 298,559 Legal proceedings and others provision 163,607 Allowance for doubtful accounts 67,598 Equity valuation adjustment/revaluation of assets (1,123,075) Actuarial valuation adjustment (Other comprehensive income) 525,175 Tax losses/tax losses carry forward 123,323 Monetary adjustment on financial concession assets (53,162) Difference in depreciation/amortization rates 94,837 Intangible assets - right to operate using public assets (13,720) Sale of property (24,129) Others (21,284) Total consolidated 37,729 Deferred tax 2014 Brasiliana Elpa Eletropaulo Tietê AES Serviços Total consolidated Assets 48,353-1,251,923 31,974 4,301 1,336,551 Liabilities (3,179) (1,879) (752,072) (541,692) - (1,298,822) Total net 45,174 (1,879) 499,851 (509,718) 4,301 37,729 Composition Assets 45, ,851-4, ,326 Liabilities - (1,879) - (509,718) - (511,597) (*) Deferred tax assets of taxes losses and social contribution carry forwards of R$48,353 was not split up to Brasiliana Participações being shared with minority shareholders when the merger of AES Tietê. In addition, after the merger event, the Company recorded an additional tax credit of R$43,702 due to increased expectation of generating future taxable income. Thus, due to the reorganization, there deferred tax asset increased in the amount of R$92,055. The deferred tax, recorded in the Company before the merger, corresponding to R$4,114 and refers mainly to update of judicial deposits. With the partial spin-off, both provisions for legal proceedings and the corresponding deposit were transferred to Brasiliana Participações (see note 1). Thus, the deferred tax liabilities were also spin-off. 8.2 Estimated tax credit recovery Based on technical study regarding generation of future taxable profit, to the year ended December 31, 2015, the Company estimates that tax credits will be recovered as follows: 42

45 Deferred tax and social contribution Company Recoverable taxes (*) Total ,733 20,187 94, ,934 18,736 53, ,289 17,340 30, ,089 16, to ,349 42, to ,548 32,767 37, to ,228 33,392 34,620 Total 129, , ,820 (*) Estimated realization of recoverable taxes recorded as non-current assets was defined by ANEEL s Official Letter - Further details on the nature of these credits are described on note 9. On January 28, 2016, the technical study feasibility of the Company's tax credits were approved by the Board of Directors and reviewed by the Fiscal Council. The assumptions of operational and financial projections and the growth potential were based on expectations of the Company's management concerning its future and they are not to be relied upon in making any investment decision. Management understands that this estimate is consistent with its business plan at the time of such technical study was conducted, such way no losses on the realization of such credits are expected, and the adjustments have not been significant compared to previous years. 9 Recoverable Taxes - non-current assets Recoverable taxes recorded as noncurrent are related to the tax benefit resulting from the amortization of goodwill on parent company AES Gás Ltda., AES Tietê Participações S.A. and AES Brazilian Energy Holdings, are recorded under the concepts set forth in CVM Instructions No. 319/99 and No. 349/01. Goodwill and the corresponding provisions have been amortized over the Company's concession period, considering the expected future profitability curve established by ANEEL in its Official Letter 87 of January 16, The Company accounting records maintained for corporate and tax purposes state specific accounts related to the goodwill, provision for special goodwill reserve on merger under equity, and corresponding amortization, reversal and tax credit under the income statement for the year. As of related balances are as follows: 43

46 Consolidated Goodwill Provision Net value Net value Net value AES Brazilian Energy Holdings Ltda. (*) Balances arinsing incorporation 319,564 (210,912) 108, Subtotal 319,564 (210,912) 108, AES Gás Ltda. Balances arinsing incorporation 808,304 (541,564) 266, ,740 Accumulated amortisation (616,323) 412,441 (203,882) - (196,255) Subtotal 191,981 (129,123) 62,858-70, Company AES Tietê Participações S.A. Balances arinsing incorporation 82,420 (54,397) 28,023-28,023 Accumulated amortisation (57,862) 38,189 (19,673) - (18,656) Subtotal 24,558 (16,208) 8,350-9,367 Balance as of December 31, ,103 (356,243) 179,860-79,852 (*) As detailed in note 1 (i), this balance represents tax benefit corresponding to goodwill related to incorporation of AES Brazilian Energy Holdings by AES Tietê. The balance is composed by goodwill transferred in incorporation and by the provision arising the difference between the goodwill and the tax benefit from its amortization as per Art. 6 of CVM Instruction 319/99. The tax benefit shall only bring benefits to the Company as from January 01, 2016, at the time of the respective amortization. It is worth mentioning that this amortization brings no impact to the result, since the premium amortization, provision reversion, and tax benefit occur at the same period. There is an impact on the cash only due to the decreased income tax and social contribution payment. The amount of tax benefit already used by Company and, therefore, available for capitalization is R$150,574 as of December 31, Changes of recordable taxes are not being presented, given that the balance reflects values incorporated by AES Tietê on December 31, Other credits Company Consolidated CURRENT Contribution for public lighting fee - COSIP ,185 Guarantees and others deposits ,641 Disposal of assets and rights ,726 Property sale 626-9,916 CDE Resources discounts in the tariff ,669 Services rendered Others ,208 Total 1, ,374 Provision for doubtful accounts - - (898) Total, net of allowance for doubtful accounts 1, ,476 NON-CURRENT CESP financing - - 5,752 Secured account - disposal of investments Gas right of use ,175 Reluz program- PMSBC - - 3,728 Property sale ,659 Disposal of assets and rights ,552 Others 43-16,540 Total ,406 Provision for doubtful accounts - - (12,609) Total, net of allowance for doubtful accounts ,797 44

47 11 Investments After the reorganization, the Company has no longer any investments in other companies, so the amounts recorded as Investments on December 31, 2014 are no longer relevant to the business, as they were transferred to Brasiliana Participações S.A, except AES Tietê that was merged into the Company. Company Consolidated Investment in subsidiaries: Equity value - 1,560,173 - Resources for capital increase - 429,200 - Equity valuation adjustment in subsidiary - AES Eletropaulo - 226,671 - Equity valuation adjustment in subsidiary - AES Tietê - 516,930 - Actuarial impact (loss) of subsidiaries - (355,087) - Subtotal - 2,377,887 - Property available for future use - - 4,707 Others - - 4,062 Total - 2,377,887 8,769 Composition of investments AES Tietê AES Elpa AES Uruguaiana AES Eletropaulo AES Serviços Total Direct participation Capital value Shareholders' equity % participation Investiment Special reserve - goodwill Resources for capital increase Investiments on % 98.26% % 4.44% % 0.00% 0.00% 0.00% 0.00% 0.00% 207, ,782 8,562 1,257,629 29, , ,782 8,562 1,257,629 29,172 1,130, ,768 39,636 2,548,605 5, % 98.26% % 4.44% % 593, ,673 39, ,224 5,778 1,716, , , , , ,376 1,392,873 39, ,224 5,778 2,377,887 Changes on investments AES Tietê AES Elpa AES Uruguaiana AES Eletropaulo AES Serviços Total Values on Equity valuation adjustment - continued operations Equity valuation adjustment - descontinued operations Dividends declared Prescribed dividends and interest own capital Refected effects of controlled actuarial calculation Values on Equity valuation adjustment - continued operations Equity valuation adjustment - descontinued operations Dividends declared Prescribed dividends and interest own capital Goodwill special reserv - merger of AES Brazilian Energy Holdings Refected effects of controlled actuarial calculation Subtotal - Investments before reorganization Corporate reorganization effects Effects of partial split Capital reduction - goodwill special reserve Effects of merge Values on Year's results Profit (loss) of subsidiaries for the year 1,046,882 1,537,465 36, ,817 3,912 2,750, , ,899 - (86,626) 5,397 (5,777) 1,866 (85,140) (448,999) (19,496) (2,699) - - (471,194) 365 3, , (41,724) - (6,092) - (47,587) 826,376 1,392,873 39, ,224 5,778 2,377, , ,265 - (15,261) 40,307 4, ,579 (132,792) - (49,516) (1,940) - (184,248) 367 1, , , , ,254-9,235-72,631 1,182,010 1,441,999 30, ,224 6,748 2,786,408 - (1,441,999) (30,427) (125,224) (6,748) (1,604,398) (341,198) (341,198) (840,812) (840,812) ,337 (15,532) 40, ,

48 12 Fixed assets a) The breakdown of property, plant and equipment is as follows: Annual average depreciation rates (%) (*) Cost Accumulated depreciation Consolidated Net value Net value Net value Land - 410, , ,163 Reservoirs, dams and ducts 3.2% 2,881,635 (1,670,878) 1,210,757-1,283,804 Thermoelectric plant 4.3% ,482 Buildings, civil works and improvement: 2.1% 651,069 (440,002) 211, ,771 Spare parts 3.4% ,217 Materials in deposit 0.0% ,794 Machinery and equipment 3.0% 1,788,812 (638,710) 1,150, ,332 Vehicles 12.2% 8,456 (4,424) 4,032-5,095 Furniture and fixtures and other 5.1% 4,949 (3,202) 1,747-2,963 In service 5,745,704 (2,757,216) 2,988,488-3,290,621 Impairment (land) (3,000) (3,000) - In progress (I) 161, , ,187 Special obligations (4,781) - (4,781) - (4,781) Real properties for future use 2,099-2,099-2,099 Concession-related assets 5,901,811 (2,757,216) 3,144,595-3,525,126 IT equipments (finance lease) 25.0% 1,752 (989) ,577 Total PP&E - Company 5,903,563 (2,758,205) 3,145,358-3,537, Company (I) (*) The balance of construction in progress primarily consists of expenditures on modernization in some of its generating units. These assets will be classified as PP&E in service as soon as they start up and/or return to their ordinary operations. The average rate is calculated considering the beginning balance, additions and write-offs during the year. Changes of fixed assets are not being presented, given that the balances reflects values incorporated by AES Tietê on December 31, 2015 (b) Concession-related assets Assets and installations used in the generation, transmission, distribution and sale of electricity are related to these services and cannot be retired, sold, assigned or pledged as mortgage guarantees without the prior and express authorization of the Regulatory Agency. Concession-related assets is R$3,144,595 as December, (c) Special obligations (original amount from CESP spin-off) Refers to the received users contributions to finance projects required to meet electric power demand, and its eventual settlement will occur as determined by the granting authority. (d) Characteristics of the concession agreement On December 20, 1999, Concession agreement No. 92/99 (ANEEL - Tietê) was executed with the subject matter of electric power generation and sale, as an Independent Producer, through the power plants described in Note 1 and the transmission facilities of restricted use by those power plants. 46

49 The agreement term is of 30 years, from the date of execution thereof, which may be extended upon application to be submitted 36 months before the expiration of the contractual term. ANEEL should issue a statement on the application for term extension until the 18th month before the expiration of the concession term. The granting of term extension will take into account compliance with the requirements for proper concession operation. The concession agreement provides that electric power shall be sold by the Concessionaire as Independent Producer, observing the conditions of the concession agreement and in specific legislation. The concession agreement provides for charges related to compliance with the terms of the agreement, the Notice of Privatization, legislation on use of hydroelectric potential, maintenance operations, equipment and plants and suitable technical personnel as well as industry regulations and ruling legislation applicable to the Company in order to ensure the continuation, regularity and efficiency in the in order to ensure the continuity, consistency and efficiency of the exploration of the Water Uses. Sub-Clause 2 nd clause 11, when the Agreement expires, the assets and installations associated with the independent power generation in the hydroelectric plants will return to the Federal Government, upon reimbursement for investments made but not yet amortized, provided such investments have been authorized and computed by ANEEL s audit. As required, the Company, through amendment, will request the contract concession changes, to reflect corporate reorganization effects completed on 31 December The signature of the new amendment includes the replacement of AES Tietê by the universal successor, AES Tietê Energia, whereas AES Tietê, was extinguished by merger pursuant to Art. 219, II of Law 6,404 of December 15, 1976, just formalizing the transaction merger. Other aspect of the contract remains unchanged. As previously mentioned, ANEEL approved the reorganization through Authorizing Resolution No of August 25,

50 13 Intangible The compositions of intangible are as follows: Company Consolidated Intangible assets - concession assets - controlled Eletropaulo Cost - - 6,895,634 Amortization - - (1,850,180) Total intangible concession asset - - 5,045,454 Intangible asset - use of public assets Cost 73,174-73,174 Amortization (35,511) - (32,821) Total intangible asset - use of public assets 37,663-40,353 Intangible assets arising from the acquisition of the concession (**) - 931,161 1,538,624 Other intangibles (*) Cost 54,283-49,662 Amortization (16,681) - (10,936) Total other intangibles 37,602-38,726 Total intangible 75, ,161 6,663,157 (*) (**) Mainly refers to software, which has an annual average amortization rate of 20%. The amounts recorded as intangible assets arising from the acquisition of the concession on December 31, 2014 arose from the purchase of shareholding from controlled companies that, prior to the adherence to the international accounting standards, were classified as premium. As mentioned in note 1.1, the intangible assets arising from the acquisition of the concession related to investments on Eletropaulo and AES Elpa was spun-off to Brasiliana Participações. With respect to the investment on AES Tietê, it was the subject of transfer through capital reduction. Thus, the balances on December 31, 2015 exactly reflect the amounts merged from AES Tietê. As previously mentioned, as from January 01, 2016, the amortization of intangible assets generated in purchasing the grant shall not result in impacts on the Company's income. The use of public assets was paid by merged company AES Tietê from years 2000 through The amounts paid were recorded as an intangible asset relating to the concession. This asset is amortized by the straight-line method over the concession period. 48

51 14 Trade Accounts Payable The breakdown of trade accounts payable - suppliers are as follows: Company Consolidated CURRENT Itaipu ,128 Electric power spot market - CCEE ,652 Auction - CCEAR ,737 Spot market energy and free energy (i) 297, ,577 Use of basic grid ,530 System Service Charges- ESS/EER ,418 Transmission installations usage charges - TUST 6,575-10,477 Connection to the basic grid - - 3,676 Use of distribution system - - 1,043 Other transmission installations usage charges - TUSDg 2,255-1,927 National System Operator - ONS - - 3,513 Subtotal 306,686-1,442,678 Materials and services 45, ,820 Suppliers - related parties - note Total 352, ,752,879 NON-CURRENT Electric power spot market - CCEE ,887 Total ,887 Gran total 352, ,823,766 (i) As described in Note 29.4 (c.2), the amount payable on December 31, 2015 regarding the injunction granted over the downgrade discussion is R$208,175, processed by the Chamber of Electrical Energy Commercialization (CCEE). However, as the discussion is underway, the Company did not recognize such earnings in its results for the year ended December 31, 2015, being the amount disputed recorded as a liability under the supplier. On December 31, 2015 the Company has contracted 13 credit letters in a total of R$120,268 and 3 insurance guarantees in a total of R$2,344, totaling an insured amount of R$122,612, with a cost of 0.25% pa to 2.50% pa. The amounts related to guarantees are recorded as prepaid expenses. These guarantees are mainly intended to meet energy purchase requirements, especially in MRE and in a short term market (SPOT). 15 Taxes and social contributions payable 15.1 Taxes and social contributions payable The Company is taxed on actual profits and makes monthly estimated tax payments with annual adjustment as of December of each fiscal year. Amounts relating to 49 Company Consolidated CURRENT Federal Income tax 227, ,917 Social contribution 73,559-35,507 Total 300, ,424

52 estimated amounts and annual adjustment of income tax and social contribution are due on the last working day of the subsequent month and can be offset with withholding taxes of the same nature, within the same calendar year Other taxes payable Company Consolidated CURRENT Federal PIS 1,336-11,668 COFINS 6,166-53,757 Wittholding income tax FGTS (5) INSS 1,896-2,191 Others 1, ,407 11, ,804 State VAT (ICMS) ,647 VAT (ICMS) - Parcelling , ,775 Municipal ISS 528-1, ,247 Total 11, ,826 The Company judicially discusses the effects of the Decree No. 8,246/15, providing for the PIS/COFINS taxation on financial revenue as from July 1, 2015 and until the decision of merit on the action is rendered. While there is no decision authorizing the non-enforcement of new rules from the Decree, the Company has been offsetting these debts with its credits from Federal taxes, which it estimates to recover until 2023, at the final decision. If the Company has a favorable final decision, the offset credits shall be refunded. The offsets made until December 31, 2015 totals R$2,001 and refer to the accrual of July and December. The amounts are recorded deducting financial revenue. 16 Loans and financing, debentures and finance lease 16.1 Amounts relating to non-convertible debentures, loans and financing and finance lease are composed as follows: Company Financial Institutions / Creditors Maturity Effective interest rate (i) (%) Charges Principal Current Transaction costs to be amortized Total 2015 Principal Non-current Transaction costs to be amortized Total Total Current + Non-Current 2014 Total Current + Non-Current Debentures Debentures - 2nd issue (a) 2019 CDI ,940 - (2,754) 6, ,000 (4,324) 493, ,862 - Debentures - 3rd issue (a) % do CDI 12,162 - (1,307) 10, ,000 (3,706) 296, ,149 - Debentures - 4th issue (1st tranche) (c) 2016 CDI % ,500 (576) 143, ,767 - Debentures - 4th issue (2nd tranche) (c) 2018 CDI % (222) ,742 (391) 148, ,038 - Debentures - 4th issue (3rd tranche) (c) 2020 IPCA % (2,189) (1,212) 303,205 (10,956) 292, ,037 - Subtotal 23, ,500 (7,048) 160,283 1,249,947 (19,377) 1,230,570 1,390,853 - Lease Finance lease (d) 8.49 a Subtotal Total debt 23, ,814 (7,048) 160,597 1,250,438 (19,377) 1,231,061 1,391,658-50

53 Consolidated 2014 Current Non-current Financial Institutions / Creditors Maturity Effective interest rate (i) (%) Charges Principal Transaction costs to be amortized Total Principal Transaction costs to be amortized Total Loans and financing Foreign currency: RELUZ - Eletrobrás - SBC - Eletropaulo BNDES - Finame - Eletropaulo ,528-1, FINEP - Eletropaulo ,621-3,727 44,270-44,270 Bank Credit Bills - Citibank (CCB's) - Eletropaulo 2019 CDI ,904 60,000 (3,494) 62, ,000 (7,543) 412,457 Promissory note - 2nd issue - Tietê 2015 CDI , ,000 (429) 501, Others Total 7, ,589 (3,923) 569, ,907 (7,543) 457,364 Debentures Debentures - 1st issue - Tietê 2015 CDI , ,060 (159) 308, Debentures - 2nd issue - Tietê 2019 CDI ,132 - (408) 6, ,000 (1,103) 496,897 Debentures - 3rd issue - Tietê % do CDI 9,790 - (198) 9, ,000 (813) 299,187 Debentures - 9th issue - Eletropaulo 2018 CDI ,039 75,000 (3,552) 82, ,000 (4,930) 170,070 Debentures - 11th issue - Eletropaulo 2018 CDI ,090 - (798) 3, ,000 (1,706) 198,294 Debentures - 13th issue - Eletropaulo 2020 CDI ,645 40,000 (2,074) 43, ,000 (5,343) 314,657 Debentures - 14th issue - Eletropaulo 2021 CDI ,512 - (1,540) 4, ,000 (9,345) 590,655 Debentures - 15th issue - Eletropaulo 2018 CDI ,692 - (4,636) 16, ,000 (9,515) 740,485 Debentures - 16th issue - Eletropaulo 2015 CDI , ,000 (275) 369, Total 93, ,060 (13,640) 845,320 2,843,000 (32,755) 2,810,245 Lease Finance lease 8.40 a ,661-3,661 9,933-9,933 Total - 3,661-3,661 9,933-9,933 Total debt 101,641 1,334,310 (17,563) 1,418,388 3,317,840 (40,298) 3,277,542 (i) Effective interest rate differs from contractual interest rate, as the transaction costs incurred in the emission are considered part of the rate. Transaction costs incurred in obtaining funds from third parties are appropriated to income for the year over the term of the debt that originated them, through the amortized cost method. The use of the amortized cost method results in the calculation and accrual of financial charges based on the effective interest rate instead of the contractual interest rate of the relevant instrument. Changes are not being presented, given that the balances reflects values incorporated by AES Tietê on December 31, The main characteristic of debentures, loans and financing and financial lease are described below: (a) Debenture 2 nd Issuance: R$498,000 in debentures which took place on May 15, 2013, local market, with final maturity date in May Contractual rate Interest payment Amortization Maturity 165,983 May 2017 CDI % Semi-annually Annual 165,983 May ,034 May 2019 Debentures are non-convertible into shares, simple and of unsecured species. Debentures do not have a repricing clause. Funds obtained through the 2 nd issuance of debentures were wholly allocated to the pre-payment of the Commercial Notes which amounted to R$503,957, with the consequent cancellation of such commercial notes. As part of the merger of AES Tietê (Note 1), the Company has obtained prior permission of debenture holders, as agreed in the Debenture Holders' Meeting of September 18, In accordance with CPC 38, the Company assessed that there 51

54 was no substantial modification to the terms of the debts, thus the cost referring to the obtainment of prior consent (waiver fee - R$5,976) granted by the debenture holders was deferred and shall be amortized by the debenture realization term. As a result, the effective interest rate increased from 0.89% to 1.50%. (b) Debenture 3 nd Issuance: R$300,000 in debentures which took place on March 20, 2014, local market, with final maturity date in May Contractual rate Interest payment Amortization Maturity 99,990 March % do CDI Semi-annually Annual 99,990 March ,020 March 2020 Debentures are non-convertible into shares, simple and of unsecured species. Debentures do not have a repricing clause. The net funds obtained through the 3 th issue of debentures were utilized to amortization the second portion of the 1 th issue of debentures. As part of the merger of AES Tietê (Note 1), the Company has obtained prior permission of debenture holders, as agreed in the Debenture Holders' Meeting of September 18, In accordance with CPC 38, the Company assessed that there was no substantial modification to the terms of the debts, thus the cost referring to the obtainment of prior consent (waiver fee - R$4,200) granted by the debenture holders was deferred and shall be amortized by the debenture realization term. As a result, the effective interest rate increased from % to %. (c) Debenture 4 th Issuance: R$594,000 in debentures which took place on December 15, 2015, local market in 3 tranches, with final maturity date until December Contractual rate Interest payment Amortization Maturity (1st tranche) CDI % Semi-annually Single 143,500 December 2016 (2nd tranche) CDI % Semi-annually Annual 74,371 December ,371 December 2018 (3rd tranche) IPCA % Semi-annually Single 303,205 December 2020 Debentures are non-convertible into shares, simple and of unsecured species. The net funds obtained through the 1 st and 2 nd tranche, in a total of R$292,242 were utilized to amortization of the 2 nd promissory note with maturity date December 17, The net funds obtained through the 3rd tranche, in a total of R$301,758, will be used to pay the costs already incurred or to incur in order to modernize and/or retrain the equipments of plants: Água Vermelha, Barra Bonita, Bariri, Caconde, Euclides da Cunha, Ibitinga, Nova Avanhandava e Promissão. For this series, the debit balance shall be adjusted by IPCA on a daily basis, where such amount is 52

55 merged with the debit balance. Thus, up to December 31, 2015, the adjusted principal balance was R$303,205. (d) Finance lease: Refer to lease of computer equipment and neither contains any provisions on contingent payments, renewal or purchase option nor imposes restrictions on payments of dividends and interest on shareholders equity or limits on financial indicators. The balance of financial lease as of December 31, 2015 recorded by the Company amounted to R$805 in liabilities and R$763 in assets. The guarantee for the lease agreements is the residual value of the assets amounting to R$763 as of December 30, As of December 31, 2015, installments related to the principal amounts of debentures and financial lease and transaction costs to be amortized classified under non-current liabilities fall due as follows Debentures Finance lease Company Transaction costs to be amortized Total R$ R$ R$ R$ , (6,507) 234, , (5,512) 335, , (4,138) 261, ,672 - (3,220) 401,452 1,251, (19,377) 1,232,508 Loans and financing Debentures Consolidated Finance lease Transaction costs to be amortized 16.4 The index used to monetarily update debentures is the CDI, which had the following change: Total R$ R$ R$ R$ R$ , ,498 8,922 (17,997) 925, ,876 1,052,608 6,687 (13,520) 1,206, , ,288 5,159 (7,700) 772, , ,936 4,070 (5,122) 807,533 after , ,064 7,843 (948) 395, ,711 3,641,394 32,681 (45,287) 4,107, CDI (i) 14.14% 11.57% IPCA (ii) 10.67% 6.41% (i) Index of last business day of year (ii) Index accumulated in the last 12 months 53

56 16.5 Financial commitments - Covenants As a way to monitor the Company financial situation, creditors involved in the financial agreements use financial covenants in contracts relating to debentures. As defined in the contracts, the Company management maintains the follow-up of some financial indexes: (i) Indebtedness ability (net indebtedness): measures the level of net indebtedness compared to the adjusted (*) EBITDA of the last 12 months. This index must be less than 3.5 times. As of December 31, 2015, the index was 0.5 times. (ii) Ability to pay interest: measures the adjusted EBITDA on financial expenses of the last 12 months. This index must be higher than 1.75 times. As of December 31, 2015, the index was 6.3 times. The calculation of covenants on December 31, 2015 takes into consideration the Company's net debt, already with AES Tietê's merger effects, as per the corporate reorganization. In order to calculate the adjusted EBITDA, the consolidated AES Tietê's operating income shall be taken into consideration before the merger effects of AES Tietê Energia in the amount of R$1,404,524. On December 31, 2015, these indexes were within the limits established in the Company debt agreements. Breach of covenants above, verified quarterly, implies the possibility of accelerated debt maturity. The Company also monitors other qualitative covenants, which on December 31, 2015 have been met. (*) Adjusted EBITDA - means the sum of the last twelve months of (i) operating income as presented in the restated accounting statement of the Issuer in the "Operating Income" line (excluding financial income and expenses), (ii) all amounts of depreciation and amortization, (iii) all amounts relating to expenditure on private pension entity. 17 Accrued liabilities Company Consolidated Vacation 6,917-40,950 Social charges over vacation 2,478-15,424 Profit sharing 6,444-45,928 Bonus 2,471-6,145 Total Current 18, ,447 Bonus Total non-current

57 18 Pension plan obligation The Company sponsors a retirement and pension plan for its active and former employees, and their beneficiaries, for the purpose of supplementing the retirement and social security benefits provided by the government. FUNCESP is the entity that administers the benefit plans sponsored by the Company. In 1997 through negotiations with professional category unions, the plan was reformulated to adopt a mixed system, i.e., 70% relate to defined benefit and 30% to defined contribution. This change was intended to solve the actuarial deficit and also reduce the risk of future deficits. Funding of the defined benefit portion is divided equally between the sponsor and its employees. Funding rates are revalued, periodically, by independent actuaries. The cost of the defined contribution portion is based on a percentage freely chosen by the participant, up to the limit of 5% on a 30% base of their compensation. The Settled Proportional Supplementary Benefit - BSPS is guaranteed to the plan participants who enrolled with the supplementary plan as of the Company privatization date and who come to leave even if not for retirement purposes. This benefit ensures a proportional supplementary amount related to the period of employment prior to the date of the change to the plan. The benefit is due starting from the date on which the minimum grace period established by the plan rules are completed. At the end of 2015, the company carried out the annual actuarial assessment, performed by independent actuaries, where all assumptions for that date were reviewed. The plans actuarial valuation used the projected unit credit method. The benefit plan net assets are measured at fair value. The balance recorded in the current assets in the amount of R$207 refers to the contributions made by the Company; thereafter, the employees were dismissed ("dismissed employees' leftover fund"), without any right to redemption either in part or in whole. This amount shall be used by the Company to reduce any future contributions. Actuarial assets and liabilities: Company Eletropaulo AES Tietê Consolidated Present value of actuarial obligations 278,262 10,078, ,633 10,357,425 Fair value of plan assets (311,573) (7,259,999) (298,426) (7,558,425) Adjust of limit on asset recognition 33,104-19,793 19,793 Total recorded (207) 2,818,793-2,818,793 55

58 18.1 Actuarial report information s of December 31, 2015 Changes in the present value of actuarial obligations with post-retirement benefits are as follows: Present value of actuarial obligations at the beginning of the year 278, ,365 Cost of current services 1,907 1,840 Interest 29,537 27,634 Employee s contribution 1,710 1,205 Benefits paid (17,199) (16,042) Actuarial (loss) gain (16,326) 11,631 Present value of actuarial obrigations at the end of the year 278, ,633 Changes in the fair value of the plan assets are set out as follows: Expenses recorded are as follows: Fair value of plan assets at the beginning of the year 298, ,059 Employer s contribution 1,556 1,057 Actuarial loss related to plan assets (4,769) (4,302) Employee s contribution 1,710 1,205 Expected return on plan assets 31,849 31,449 Benefits paid (17,199) (16,042) Fair value of plan assets at the end of the year 311, ,426 Changes in assets recorded are as follows: Cost of current services 1,907 1,840 Interest 29,537 27,634 Expected return on plan assets (31,849) (31,449) Adjust of limit on asset recognition 2,163 3,691 Total expense defined benefit 1,758 1, Balance as of December 31, Expenses for the year as actuarial report 1,758 Payment of contributions (1,556) Actuarial valuation adjustment (409) Balance as of December 31, 2015 (207) 56

59 Changes in actuarial measurements recognized in other comprehensive income are as follows: Changes in limits on asset recognition are as follows: Balance at the beginning of the year 3,378 2,720 Actuarial (loss) gain related to the discount rate 35,963 (10,213) Actuarial (loss) gain related to demographic experience (17,550) (2,673) Actuarial gain related to demographical assumptions (2,086) 1,254 Actuarial loss related to the return on plan assets (4,769) (4,302) Adjust of limit on asset recognition (11,148) 16,592 Balance at the end of the year 3,788 3, Limit on asset recognition at the begining of the year 19,793 32,694 Interest of limit on asset recognition 2,163 3,691 Maximimun of limit on asset recognition 11,148 (16,592) Limit on asset recognition at the end of the year 33,104 19,793 The breakdown of investments of the plan, per segment, is as follows: Investment distribution Fixed rate 80.23% 81.93% Variable rate 10.96% 14.48% Loans to participants 2.58% 1.62% Investments structured 0.25% 0.00% Foreign investments 3.00% 0.00% Real states 2.98% 1.97% Total % % Allocation limits established by National Monetary Council up to 100% up to 70% up to 15% up to 20% up to 10% up to 8% Actuarial assumptions are as follows: a) Economics assumptions: a1) Determination of actuarial liability: Discount rate for actuarial liability N/A 12.08% p.a % p.a. Estimated index for salary increase N/A 6.59% p.a. 6.59% p.a. Estimated index for inflation in long-term N/A 4.50% p.a. 4.50% p.a. Nominal Rate of compensation increase N/A 4.50% p.a. 4.50% p.a. a2) Determination of actuarial expenses: Discount rate 12.08% p.a % p.a % p.a. Estimated index for salary increase 6.59% p.a. 6.59% p.a. 6.59% p.a. Estimated index for inflation in long-term 4.50% p.a. 4.50% p.a. 4.50% p.a. Nominal Rate of compensation increase 4.50% p.a. 4.50% p.a. 4.50% p.a. b) Demographical assumptions: Mortality biometric table (actuarial liability) N/A AT-2000 AT-2000 Mortality biometric table (expense) AT-2000 AT-2000 AT-83 Disability biometric table N/A Light low Mercer table Expected turnover N/A EXPR ,30 / (years of service + 1) c) Life Expectancy at retirement age of 65 years N/A

60 Projected expenses for fiscal year 2016 are as follows: Company s expected contributions for 2016 amount to R$1, Cost of current services 1,070 Interest 32,438 Expected return on plan assets (36,693) Interest over the ceiling effect over the asset of plan 3,999 Total projected expense for the year 814 The average of benefit plan obligation set at the end of the year is years The expected payment s plan for future years concerning the benefit liability are as follows: year 19,468 From 2 to 5 years 90,668 More than 5 years 157,811 Total payments expected 267,947 With an aim at checking the impact of actuarial liabilities, which on December 31, 2015 is R$278,262, the Company made an analysis of the sensitivity of actuarial assumptions considering 0.25% variation. The result of the quantitative analysis on December 31, 2015 is shown below. Hypotheses Estimated index for salary increase Nominal Rate of compensation increase Estimated index for inflation in long-term Discount rate Sensitivity Level (+0.25%) (+0.25%) (+0.25%) (-0.25%) (+0.25%) (-0.25%) Impact on the defined benefit obligation 7, (6,991) 7,314 Total defined benefit obligation 286, , , , , , Contracts with FUNCESP At the time of its privatization, the Company assumed the coverage of the actuarial deficit of the private social security plan in force until that moment, relating to the benefits of retired employees and pensioners and the guarantee to the active employees of a benefit, at the date of their retirement, proportional to past service. To finance this actuarial deficit, on November 25, 1997, the Company executed a debt acknowledgement agreement with the FUNCESP with maturity date in September At the end of each fiscal year an actuarial evaluation is prepared and eventual deficits or surpluses of the plan is increased or decreased from the Agreement balance, promoting a recalculation of the remaining installments. Through the years, surpluses reduced the Agreement s balance, since December 31, 2009; the debt balance was fully set-off with the actuarial gain in the same amount. 58

61 However, FUNCESP's actuarial appraisal indicated a loss of R$23,535 on December 31, Thus, sponsor and participants started making special contributions since May From the balance appraised from the loss, only R$14,002 is subject to calculation through special contributions by the sponsor and participants, as provided for in CNPC resolution No. 22 of November The special contribution is calculated by taking into consideration the average duration of the liabilities estimated by FUNCESP within 18 years, adjusted on an annual basis by IGP-DI variation and actuarial gains and losses. It is emphasized that there are two ways to determine actuarial results related to pension plan: to which the Company estimates in comply with CVM Resolution No. 695/2012 and calculated by the administrator (FUNCESP) in comply with the resolutions of National Council for Pension Funds - CNPC. Numbers are different as the calculations follow different methodologies and assumptions. While the year ended December 31, 2015, according to the Company s actuarial study, a surplus was found, on other hand, the FUNCESP actuarial valuation, for purposes of compliance with the resolutions of the National Council for Pension Funds - CNPC, the result was calculated deficit. For this reason, due to the limitation of the net asset of a defined benefit at the asset ceiling, the asset recorded was restricted to the balance of the dismissed employees leftovers fund in the amount of R$207, recorded by FUNCESP and it can be used by the Company to deduct future contributions. 19 Provision for legal proceedings and others 19.1 Proceedings with probability classified as probable Liabilities Provision for legal proceedings and others Labor (a) 6,867-3,173 - Provision for losses on resale of energy from Itaipu (b) 34, Environmental (c) 10, Civil - Decision 288 (d) 31, Civil proceedings 2, Income tax and social compensation - (e) 5, Tax proceedings - PIS / COFINS (f) - 31,517-31,517 Tax proceedings - others Total 90,913 31,517 3,175 31,517 Current 14,090 - Non-current 76,823 31,517 Total 90,913 31,517 Company Assets Guarantees and judicial deposits 59

62 Liabilities Provision for legal proceedings and others Labor 258, ,267 PIS / COFINS interest on capital 49,816 49,816 Cruzado economic plan tariff adjustment 15,864 3,180 Civil proceedings 34,357 1,382 Provision for losses on resale of energy from Itaipu 17,981 - Administrative proceedings -city government Tax proceedings 71,385 29,300 Civil - Decision ,262 - Income tax and social compensation 5,005 - Regulatory proceedings 58,479 - Environmental 22,232 - Others 24,586 - Total 586, ,945 Current 184,273 Non-current 402,499 Total 586,772 Consolidated Assets Guarantees and judicial deposits Total amount of guarantee and judicial deposits on December 31, 2015 as of R$37,008 (R$31,944 as of December 31, 2014) classified according likelihood of loss which the process is linked, are as follows: Company Guarantees and judicial deposits Consolidated Probable proceedings 3,175 31, ,945 Possible proceedings 32, ,854 Remote proceedings ,264 37,008 31, ,063 Change in provision in legal proceedings and others is as follows: Provision Monetary / exchange variation Split effects Merge effects Labor ,867 6,867 Provision for losses on resale of energy from Itaipu ,378 34,378 Provision for environmental ,667 10,667 Civil - Decision ,282 31,282 Cível ,457 2,457 Income tax and social compensation ,259 5,259 Tax proceedings - PIS / COFINS 31,517 1,115 2,755 (35,387) - - Tax proceedings - others Total 31,517 1,115 2,755 (35,387) 90,913 90, Monetary / exchange variation Payments Tax proceedings - PIS / COFINS 29,433 2,270 (186) 31,517 Total 29,433 2,270 (186) 31,517 Estimates of closure of legal lawsuits, disclosed in the items below cannot be accurately performed due to the progress of future proceedings. (a) Labor claims filed by employees, former and outsourced staff of the Company in around of 168 cases which are claimed equal pay for equal work performed, 60

63 overtime worked, risk and health exposure premium among others. Judicial deposits related to labor claims are due to the requirement to set up judicial deposits in the amount of the appeals filed at the several appellate courts, plus deposits in court for claim guarantee purposes of the litigation. Out of the provisioned processes, one (1) Public-Interest Civil Action ("ACP") aiming at the compliance with the legal working hours, weekly paid rest period, supply of and guidelines on PPEs and payment for personal injury to the Company's employees may be highlighted. On April 11, 2012, the Company was sentenced to pay R$200 for personal injury. After the appeal, this amount increased to R$500. In January 2015, the appellate decision for review was published, and was denied. On December 31, 2015, the action is in the appeal stage, under feasibility analysis and has the updated provisioned amount of R$797. The Company's management, based on the opinion of its legal advisors, estimates that the current processes will be completed by (b) (c) On January 23, 2003, the Company obtained an injunction upholding its right not to purchase electricity from Itaipu. This injunction was revoked on June 26, 2003 and reinstated on June 30, On October 1, 2004, the Higher Court of Justice (STJ) suspended the injunction. On October 5, 2004, the Company filed for an Appeal challenging such court decision whereby the injunction was suspended. Based on this Appeal, the decision was subject to the ex nunc effect, that is, suspension of the injunction would only be applied to future events. In this regard, the effects of the interim relief previously granted were retained for the year from January 2003 to September On August17, 2007 the court rendered a favorable reward as to the requests made by the Company. On October 17, 2007 Eletrobrás filed for an appeal, and on November 26, 2007 ANEEL also filed for an appeal. Currently the Company awaits judgment by the 1st Region of the Federal Court. Since no final decision has yet been rendered on this suit, management decided to keep the balance of this provision updated by the exchange rate in December 31, 2015 the amount of R$34,378. The Company's management, based on the opinion of its legal advisors, estimates that the current process will be completed by The Company has provisions related to the environment as detailed below (c.1) The Company figures as defendant in 337 cases of public civil class actions addressing environmental damage caused by illegal occupation in permanent environmental conservation areas. These actions brought against the Company are due to the fact that a good part of these illegal occupancy instances are partially or fully located in environmentally protected areas within the Concession area. These actions primarily seek recovery of eventually degraded areas and, where no such recovery is possible, recovery would take place through indemnity payments. The legal advisors and the Company s management assessed the chances of loss as probable for the environmental recovery measures within the concession area for 290 proceedings, since favorable decisions have already been rendered regard the remaining 47 cases in connection with which there are appeals pending judgment. The amount provisioned for these proceedings totals approximately R$1,

64 (c.2) On October 5, 2006, in order to comply with the requirements of the environmental licensing of PCH Mogi Guaçu, the Company executed with SMA the Environmental Compensation Agreement ( TCCA ) in the amount of R$600. According to that Agreement, the Company commits to invest that amount in the preparation of the integrated handling plan of the conservation units (i) Mogi- Guaçu Ecological Station and (ii) Mogi-Guaçu Biological Reserve, coordinated by Instituto Florestal and Instituto de Botânica. That amount has been deposited in two Company savings account and payments are being made as requested by the institutes. R$283 have already been spent, however considering the savings income, the Company decided to accrue as of December 31, 2015 in amount of R$612. It is important to note that at the time, for the use of the balance, the Company awaits only the demand of the Institutes. Since September 2013, the units do not request disbursements because they await the approval of the Management Plan by the State Environment Council - CONSEMA before any request to the Company. Without this approval, the Company will remain without making disbursements. (c.3) In 2002, the Company entered into an agreement ("Term Commitment to Environmental Compensation" or "TCCA") with IBAMA (currently, the Chico Mendes Institute for Biodiversity Conservation - ICMBio) to meet environmental licensing requirements ( Environmental Compensation ) of the plants Água Vermelha, Caconde, Limoeiro, Euclides da Cunha, Promissão, Ibitinga, Bariri and Barra Bonita. In that commitment term, the Company commits to invest their environmental compensation in four protected areas the original amount of R$4,402, being already made payments in the amount of R$1,232, according to requests by the Conservation Units. Updated until December 31, 2015 the remaining amount is R$8,118. Last disbursement was made by the Company in 2012, when there were only obligations relating to land regularization of protected areas. The Company is currently negotiating with ICMBio and IBAMA, for execution of a new commitment term that allows the full payment of the remaining balance to ICMBio, without having to wait for the request from the protected areas. The Company management, based on the opinion of its legal advisors, estimates that the current processes will be completed by (d) On May 16, 2002, ANEEL published ANEEL Dispatch nº 288, which introduced changes to certain trading rules of the then so-called Energy Wholesale Market MAE. For that reason, ANEEL determined that the figures obtained by MAE on March 13, 2002 must be recalculated. Those figures recognized the Company in debt on the short-term market. Should the guidelines of that Dispatch be considered, the Company would have its status in the market altered and would be creditor instead of debtor. However, AES Sul, a company under the same control as the Company, and who was the main market agent affected by the effects of the changes made by ANEEL Dispatch nº 288, since its status went from creditor to debtor, brought a lawsuit in court in an attempt to annul the aforementioned 62

65 Dispatch seeking a decision to grant advance relief and uphold the market rules before the effects of ANEEL Dispatch nº 288. Advance relief was granted to AES Sul, and CCEE, the successor of MAE, prepared a new liquidation, now without the effects of ANEEL Dispatch nº 288. Based on that new decision, the Company remained debtor in the market. On June 29, 2012, the AES Sul lawsuit was considered unfounded by the trial court. However on March 27, 2014, the appeal court considered the request for annulment of ANEEL Dispatch nº 288 well founded. The Company is now appealing against that decision, still in the appeal court, and awaits judgment of the appeal. The amount accrued to date December 31, 2015 corresponds to R$31,282. The Company management, based on the opinion of its legal advisors, estimates that the current processes will be completed by (e) (f) On December 2, 2008, the Company was summoned by the Federal Treasury, concerning the non-ratification of 5 (five) administrative compensations among the negative balance credits of IRPJ (2001 and 2002) and IRPJ debits (2003 and 2004) and CSLL (2003). The main reason why the Tax Administration did not ratify the abovementioned compensations is the alleged divergence between the accounting and tax information. According to information received from the legal advisors, of a total of R$133,516 involved in the dispute, only R$5,259 are considered as loss, and the remaining amount is classified as possible loss. The Company management, based on the opinion of its legal advisors, estimates that the current processes will be completed by PIS/COFINS interest on equity: The Company, up to the moment prior to the spin-off, had a process discussing the non-levy of PIS and COFINS on the amounts distributions by way of Interests on Shareholders' Equity. The Management, together with its legal advisors, rates it as probable and thus, on December 31, 2015, recorded a provision that corresponds to R$34,253 (R$31,517 on December 31, 2014) and performed judicial deposits in the same amount. Trial court's decision and appellate decision were rendered. Currently, the judgment on STJ/STF (Superior Court of Justice/Federal Supreme Court) is still pending. In December 2015 this process was transferred to the Brasiliana Participações SA, through the spin-off, as described in Note 1 and shown on picture of changes in provision above. PIS/COFINS on financial revenue: effects of the Decree No /2015, providing for the PIS/COFINS taxation on financial revenue as from July 1, While there is no decision authorizing the non-enforcement of new rules from the Decree, the Company is making judicial deposits in the amounts corresponding to the taxes levying upon the financial revenue. The Company recorded a provision that, adjusted until December 31, 2015, corresponds to R$1,134 and performed judicial deposits in the amount of R$959. While regard to merits of case, the Management, together with its legal advisors, rates it as possible. However, with regard to the cash disbursement, the Company estimates it s likely that payments referring to this action may be made before the discussion of the merits. Thus, the Company made a provision for the said amount. In December 2015 this process was transferred to the Brasiliana Participações SA, through the spin-off, as described in 63

66 Note 1 and shown on picture of changes in provision above. The Company's discussion of this subject is detailed in Note Proceedings whose likelihood of an unfavorable outcome was classified as possible The Company presents below a summary of major contingent liabilities for which the likelihood of loss was classified by management as possible. The Company is involved in other suits for which the chances of loss assessed are possible, however they were not disclosed since the Company established a minimum amount of R$5,000 for disclosure. Assessment of this probability is based upon on reports prepared by the Company legal counsel. Contingency description 2015 (a) Remediation for environmental damages Undetermined (b) Offset of IRPJ and CSLL 128,257 (c) Tax delinquency notice - goodwill 126,512 (d) Notice of infraction Research and development 6,995 (e) Public civil suit golden mussels Undetermined (f) Resolution by the National Council for Energy Policy - CNPE No 3, of March 6, ,207 (g) Arbitration - BTG Pactual 33,405 (h) Obligation to expand Undetermined (i) Hydroelectric Drawdown 208,175 (a) Remediation for environmental damages Refers to 3 public civil proceedings through which seeking to obtain a preliminary injunction suspending the environmental licensing procedure and to require the Company to recover environmental damages resulting from reservoir flooding of Bariri, Nova Avanhandava and Barra Bonita. Generally require that the Company perform environmental compensation programs, as well as present symbolic case value, reason why it is not possible at this point to estimate the amount of possible future cash outflow. (b) Offset of IRPJ and CSLL As mentioned on item (e) of explanatory note 19.1, Brazilian IRS notified the Company on non-approval of 5 (five) administrative compensations of income tax and social contribution. In July 2014, the Company was informed of favorable final decision on compensation, finally extinguishing the debt of R$1,207. Currently, for 4 (four) remaining compensation, is pending a decision in second administrative appellate court of appeals by the Company. According to information from legal counsel, an amount of R$133,516 involved in the discussion, R$128,257 are considered probability of possible loss. (c) Tax delinquency notice - goodwill On November 2011, a tax delinquency notice was issued by Brazilian IRS to collect R$126,512 updated until December 31, Due to, in sole opinion of Brazilian IRS, has been am improper deduction in income tax and social contribution bases due to goodwill recorded upon merger of AES Gás 64

67 Empreendimentos Ltda and Tietê Participações Ltda. It is worth clarifying that goodwill deducted from taxable income of the Company resulted from expected future profitability upon acquisition of Companhia de Geração Tietê S.A., the Company former corporate name, at the electric sector privatization auction occurred in On May, 2013, the appeal was judged favorable for the Company. Currently, the Company awaits the judgment of the appeal at CARF. (d) Notice of infraction Research and development In October 2012 the Brazilian IRS drew up a Notice of Infraction for an allegedly undue deduction in 2008 of investments made in R&D projects from the calculation basis of income tax and social contribution, as well as the monetary variation on liabilities arising from investments. In November 2012, the Company presented its defense, having been given an unfavorable decision to the Company s interests. In November 2013, a voluntary appeal was filed and awaits judgment. The amount monetarily adjusted until December 31, 2015 is R$6,995. (e) Public Civil Suit Golden mussels On March 25, 2013, the District Attorney s Office of Jales filed a public civil suit against the Company, Federal Government, IBAMA and State of São Paulo with a view at adopting control and eradication measures to fight the disorderly proliferation of the golden mussel in the UHE Água Vermelha lake, by way of measures of disclosure, monitoring, education and inspection to be adopted by the National Task Force for the Control of the Golden Mussel, as well as by way of the execution of a handling plan drawn up by the District Attorney s Office, or in the event that it is absolutely impossible that the current level of the mussels population is maintained, under the penalty of holding the company responsible for its proliferation in the reservoir. The following actions have been requested by way of injunctions (i) inclusion of the company and the state of São Paulo in the National Task Force for the control of that mussel; (ii) 90 days for producing the mapping/monitoring of the area contaminated by the mussel, by identifying the area with information signs, and (iii) presentation of a Handling Plan as suggested by the General Attorney s Office; (iv) 60 days for the identification of the areas of potential invasion and (v) Sharing the costs for advertising in the media the prophylactic measures adopted, all under the penalty of a daily fine of R$10 in the event of non-compliance. On September 5, 2013 the Company was notified, and on October 4, 2013 it presented contestation and produced counter arguments to the restraining order requested by the General Attorney s Office. On July 24, 2014 the requests for the Injunction filed by the Federal Prosecution determining that: (i) the defendants, the Company and the State of SP, joined the Domestic Task Force for the Control of Golden Mussels, and that (ii) all defendants (Company, Federal Government, IBAMA and the State of São Paulo) identified the areas that can potentially be invaded by the mollusk; map and monitor the areas that are already contaminated identifying such areas with information signs, and provided information in the media on measures to avoid the mollusk to proliferate. On august 18, 2014 the Company filed an appeal against the injunction granted to the Federal Prosecutor. 65

68 On September 15, 2014, the Court suspended the preliminary injunction until the study of impacts and measures involving the golden mussels in another lawsuit where the Company is not a party (Ilha Solteira Reservoir) was concluded, time where the Court would assess the potential measures applicable to the Company (Red Water Reservoir) and October 29, 2014, a hearing was scheduled for December 2014 aiming to analyze the conclusion of the study. On December 12, 2014 a hearing was made in which it was decided that the lawsuit would remain suspended and with respect to the Company only the following two points were defined (i) Support in preventive action: the Company shall print an educational booklet on mussels in the format of the official material of IBAMA, whose initial estimate was for July 2015; (ii) Use of chlorine in Plants hitherto pending: Company is still awaiting the issuance of authorization for emergency use of chlorine, which is estimated was for March The other measures set out in the hearing do not involve the Company but other state bodies (survey of critical areas, municipalities and bodies involved as well as preparatory activities for monitoring). On July 1, 2015 another hearing was held whereat there the deadlines previously established at the hearing of December 2014 were reviewed. In relation to the Company, only 2 points originally planned were maintained which deadlines were revised as follows: (i) Support in preventive effort: following the final validation of the preventive Guidelines by IBAMA, was scheduled for July 25, 2015, the Company would have 3 months to make corresponding printing of the educational Guidelines; (ii) Use of chlorine in Plants hitherto pending the corresponding approvals from the relevant authorities. On July 15, 2015 the Company, together with the CESP, entered in the records of proceedings, technical studies to support approval of the request for emergency use of dichloride for subsequent review and decision by the relevant authority. This request was sent directly by the judiciary to the environmental agency, which has not yet completed the licensing procedure for emergency use of chlorine. On September 30, 2015, the appellate decision was published in 2 nd instance, holding valid the interlocutory appeal filed by the Company against the injunctions that had been granted at trial, and it judicially ratified the Report (Action Plan) and Business Project - see items (i) and (ii) above, prepared by the Defendants and, as a result, the public-interest civil action was terminated under the grounds that such documents surpassed the purpose of the legal demand. On February 12, 2016 the decision has become final to the Judiciary. Regarding the fulfillment of obligations from the Action Plan and Executive Project, judicially approved, the Company informs that: i) With respect to support preventive actions: the content of educational materials validated with IBAMA was implemented in the environmental education program of the Company, as well as educational Leaflets were distributed in the Company's concession area. 66

69 ii) With respect to the emergency use of chlorine in plants: after the request made by the judiciary to its licensing, the environmental agency has not yet completed the corresponding procedure. Based on the decision judging the terminated Public-Interest Civil Action, the Company and its independent legal advisors reassessed the action defeat prognosis, which was amended from possible to remote. (f) Resolution by the National Council for Energy Policy - CNPE No 3, of March 6, 2013 CNPE Resolution No 3, of March 6, 2013, set forth guidelines for internalizing risk aversion mechanisms in the computer programs for energy studies and pricing, and created a new criterion for splitting the costs of the thermoelectric plants additional dispatch during the transition phase and prior to the implementation of the new calculation of PLD (April to August 2013). According to the new criterion, and for energy safety reasons the cost of the Service Charges System - ESS, which was fully split according to consumer category, free consumers and distributors, shall henceforth be split among all agents of the National Interconnected System SIN, including generators and trade agents. In May 2013, the Brazilian association of Electric Energy Independent Producers (APINE) was granted an injunction suspending the split of the ESS for independent producers. The judicial decision pointed out that the costs could only be onlent to independent producers by means of changes to the law. According to information of the Company's legal advisors, the chance of loss in this case is classified as possible On December 5, 2014 a favorable decision to APINE was rendered, confirming the injunction obtained, thus declaring the unenforceability of ESS arising from Resolution CNPE 03. On December 12, 2014, the federal government filed an appeal to that sentence. On June 1, 2015, the APINE presented its counterarguments to the appeal filed by the federal government. On December 31, 2015 the injunction remains in valid until final decision is made in the ordinary actions, which disputes the collection of ESS required under Resolution CNPE 03. Based on that injunction and on the legal opinion earned by APINE, the company does not accrue the ESS cost due to energy safety. In the event an unfavorable decision is handed down, the Company will be required to pay approximately R$84,207, referring to the original values published by the CCEE in the financial payments made by December 31, (g) Arbitration - BTG Pactual On July 30, 2015, BTG Pactual ("BTG") commenced the arbitration proceeding against the Company, based on the Electrical Energy Sale Agreements ("Agreements"). BTG claims that the Company breached the agreements by purchasing more energy than authorized therein and intends to recover the amounts 67

70 that the Company received with the sales of energy supplied by BTG in the spot market, equivalent to R$33,405. The updated value of security deposit is R$32,743, with full rights reserve. (h) Expansion Obligation As described in note 2.1. (i) Hydroelectric Drawdown As described in note 14 e 29.4 (c.2). Letters of guarantee, guarantee insurances and collateral As of December 31, 2015, the Company entered into one letters of guarantee in amount of R$473 and three guarantee insurance in amount of R$3,159 for legal processing with tax nature, totaling R$3,632 with cost from 0.28% and 2.00% p.a. The amounts relating to guarantee insurances are recorded as prepaid expense and amortized in the income statement in accordance with the contractual period, linearly. 20 Research and development and energy efficiency Company Consolidated CURRENT Research and development 8,730-33,134 National technology development fund 856-2,686 Ministry of mines and energy 428-1,343 Energy efficiency ,842 Subtotal 10,014-49,005 NON-CURRENT Research and development 9, Energy efficiency ,984 Subtotal 9,591-27,025 Total 19,605-76,030 Changes are not being presented, given that the balances reflects values incorporated by AES Tietê on December 31, Shareholders equity 21.1 Capital Following are the events that impact the Company's capital stock: (i) Partial spin-off, without cancellation of shares in the amount of R$2,097,566; (ii) Capital reduction, without cancellation of shares in the amount of R$699,463; and (iii) Capital increase with the incorporation of Tietê S.A., with a consequent increased capital of R$98,

71 The following presents the Company's shareholding structure: AES Tietê Energia Before reorganization After reorganization Quantity Total Quantity Total Common share Preferred share participation % Common share Preferred share participation % Shareholders AES Holdings Brasil Ltda. 300,000, % 462,300, % BNDESPar 300,000,000 50,000, % 107,870, ,480, % Centrais Elétricas Brasileiras S.A % 30,258, ,032, % Others % 150,665, ,661, % Total of shares 600,000,001 50,000, % 751,093,534 1,155,173, % The changes described below was approved by Extraordinary General Meeting held on October 26, 2015, except for the share transfer item, which was entered through a commitment of purchase and sale agreement of shares on the same date Common Common Transfer of shares from BNDESPAR conversion AES Holdins Brasil Merger of AES Tiete - Quantity % BNDES to AES Holdings Stock split Quantity % of shares conversion of shares non-controlling Brasil Shareholders AES Holdings Brasil Ltda. 300,000, ,819, ,300, ,300, BNDESPar 300,000, (52,819,838) (164,855,535) - 107,870, ,870, Centrais Elétricas ,258,222 30,258, Brasileiras S.A. Others ,665, ,665, Total of shares 600,000, ,855, ,170, ,923, ,093, Preferred Preferred Transfer of shares from BNDESPAR conversion AES Holdins Brasil Merger of AES Tiete - Quantity % BNDES to AES Holdings Stock split Quantity % of shares conversion of shares non-controlling Brasil Shareholders AES Holdings Brasil Ltda (7) BNDESPar 50,000, ,298, ,480, ,480, Centrais Elétricas Brasileiras S.A ,032, ,032, Others ,661, ,661, Total of shares 50,000, ,298,508 (7) 431,480, ,693,892 1,155,173, The details of the above transactions are included in Note 1. The subscribed and paid up capital is R$262,018, divided into 1,906,267,462 shares, split into 751,093,534 common shares and 1,155,173,928 preferred shares, all nominative and with no par value. The Company s authorized capital amounts to R$4,600,000 of which R$2,383,260 in common shares and R$2,216,740 in preferred shares, all nominative and with no par value. 69

72 21.2 Reserves Company Breakdown of reserves: Capital reserves: Special goodwill reserve on merger (a) 341,198 - Interest on construction in progress equity 9,405 - Shares and stock options granted (b) 1,950 - Subtotal 352,553 - Equity Valuation/Other comprehensive income: Equity valuation adjustment (c.1) 920, ,601 Pension plan - actuarial gain (loss) (c.2) 2,500 (355,087) Subtotal 923, ,514 Income reserve: Legal reserve (d) 52, ,512 Estatutory reserve - 118,446 Proposed additional dividends distribution 428,384 - Subtotal 480, ,958 Total 1,756, ,472 (a) (b) (c) The special goodwill reserve on merger was generated by: (i) appropriation of the goodwill of parent company AES Gás Ltda. in the amount of R$266,740, R$59,811 of which was capitalized, with R$206,929 remaining in the reserve account; (ii) appropriation of the goodwill of AES Tietê Participações S.A. in the amount of R$25,617, as approved by the Extraordinary Shareholders Meeting of September 28, 2007; and (iii) appropriation of the goodwill of AES Brazilian Energy Holding in the amount of R$108,652 on December 31, 2015 as part of the corporate reorganization. As allowed by CVM Rule 319, to the extent in which there is realization of the tax benefit of special goodwill on merger reserve, in the Company equity, this tax benefit may be capitalized in favor of AES Holdins Brasil Ltda e da BNDESPar, granting other shareholders the right to participate in this capital increase, in order to maintain their shareholding interest in the Company. Consists of The AES Corporation s stocks and stock options granted to Management, employees or individuals who provide services to the Company. This reserve may be used for capital increase in favor of The AES Corporation after capital contribution through the delivery of shares to employees of the Company, being ensured to the other shareholders interest in this capital increase, in order to maintain their shareholding in the Company. As of December 31, 2015, equity valuation adjustment/other comprehensive income balance was comprised of the deemed cost of its fixed assets and actuarial gain relating to the pension plan. (c.1) Equity Valuation Adjustment (inventory deemed cost): The Company decided to assign a new cost to the balances of its fixed assets on the base date of transition to the First-time Adoption of Accounting Pronouncements (CPCs), on January 1, Thus, a valuation report was prepared on the Company property, plant and equipment. On the transition date, the amount of such appreciation of R$1,437,623 was recorded in property, plant and equipment, 70

73 the contra entry being to equity, in Asset Revaluation Adjustment account, net of tax effects, which are classified as deferred taxes and social contributions in non-current liabilities and will be realized as appreciation of related assets is depreciated/amortized or disposed of. The balance on December 31, 2015 accurately reflects the amount transferred from merged company AES Tietê. (c.2) Other comprehensive income, relating to the actuarial gain on pension plan liability, amounts to an impact of R$2,500, net of income tax and social contribution. The balance on December 31, 2015 accurately reflects the amount transferred from merged company AES Tietê. (d) The legal reserve was spun-off in the corporate restructuring process, being R$182,605 transferred to the Brasiliana Participações, leaving a balance of R$31,907. Later there was the following increment: R$8,497 due to the incorporation of AES Tietê and R$12,000 due to the allocation of income for the year ended December 31, 2015 (see Note 22), totaling R$52,404 on December On the same date, the Company has reached the limit permitted by law, since this reserve already equals 20% of the share capital. 22 Allocation of Income The Company articles of incorporation establish a minimum dividend of 25%, calculated on annual net income, adjusted pursuant to article 202 of Law No. 6404/76. The table below shows allocation of results summarized in comparison with the previous year: Net income 393,583 81,945 Performance of equity assessment adjustment 46,150 53,037 Adjustment due to prescribed dividends 1,642 3,895 Spin-off effect (63,256) - Merger effect 205,059 - Constitution of legal reserve (12,000) (6,749) Base for dividend payment 571, ,128 Destination: Distributed intermediate dividend (i) 107, ,842 Minimum required dividend - supplement (ii) 35,432 - Supplementary dividend exceeding the minimum required (iii) 428,384 - Allocation of statutory reserve - 29,286 Total distributed 571, ,128 The amount of R$205,059, related to incorporation event, corresponds to the noncontrolling shareholders portion of merged company AES Tietê results. This amount when incorporated by the Company, allows the base to be distributed to reflect the balance of merged company, with no effect on distributable base between the two companies due to the merger. 71

74 Acts prior to the reorganization: (i) The Company declared interim dividends for the first semester, as follows: At the Board of Directors Meeting held on August 7, 2015, it was approved interim dividends, totaling R$68,000, corresponding to R$ per common and preferred share. The payment occurred on September 25, At the Board of Directors Meeting held on November 04, 2015 it was approved interim dividends, totaling R$39,362, corresponding to R$ per common and preferred share. The payment occurred on November 26, At the Board of Directors Meeting held on May 08, 2015 it was approved interim dividends, totaling R$88,500 to the profit reserve account - statutory, corresponding to R$ per common and preferred share. The payment occurred on May 25, Because they occurred prior to the corporate reorganization, payments were made up to the shareholders of AES Holdings Brasil and BNDESPAR. Acts after the reorganization: (ii) The Company's management recorded a complementary mandatory minimum dividends of R$35,432, corresponding to R$ per common and preferred share and R$ per Unit, in compliance with the provisions of Law No. 6,404/1976. Because it is a legal obligation, this dividend proposed was recorded in a specific account in the Company's current liabilities. (iii) In December 2015, in accordance with the provisions of paragraph 3 of article 176 of Law 6,404/76, there was a recording of the Company s management proposal for dividend payment of R$428,384, corresponding to R$ per common and preferred share and R$ per Unit. This amount is classified in equity under "proposed distribution of additional dividends", once your payment depends on approval by the Company's shareholders. 23 Earnings per share The purpose of the calculation of earnings per share is to enable performance comparisons between different companies in the same period and for the same company in different periods. As mentioned earlier, the profits earned for the years ended December 31, 2015 and 2014 refer to the Company's operations prior to the reorganization events. Thus, the income statement mainly has investments in controlled entities. Since the incorporation event took place only on December 31, 2015, the Company is using the number of shares prior to this event, after the split for purposes of calculating earnings per share. Thus, both the numerator (income) and denominator (number of shares) would be on a comparable basis. Earnings per share basic and 72

75 diluted is the same for the years presented. Only from January 1, 2016, the Company will present different results due to the incorporation of the special goodwill reserve. Is worth emphasizing that the shares split occurred without change in the value of capital. Thus, the calculation of basic and diluted earnings per share, have been adjusted for the comparative period presented. Only for informational purposes, if the reserve been capitalized with an issuance of 100% of the shares in favor of AES Holdings Brasil and BNDESPAR and any minority shareholders exercise their right to participate in the capital increase, the percentage of non-controlling interest would reduce to % to 46.87% as of December 31, 2015, considering the stock price on the same date. Information related to the allocation of income is detailed in Note 22, which incorporates information about the allocation to the new base of shareholders. The table below demonstrates the basic and diluted earnings per share for the year ended : Profit attributable to shareholders: Numerator: Net income of continued operations 394, ,157 Net income of descontinued operations (493) (116,212) Net income for the period 393,583 81,945 Denominator - (in thousands of shares): Weighted average of the number of common shares 570, ,170 Weighted average of the number of preferred shares 431, ,480 (Loss) Net income per share Continued operations Basic and diluted earnings per common share Basic and diluted earnings per preferred share Descontinued operations Basic and diluted loss per common share ( ) ( ) Basic and diluted loss per preferred share ( ) ( ) Net income for year Basic and diluted earnings per common share Basic and diluted earnings per preferred share Year Common Preferred Total , , , ,646 35,299 81,945 73

76 24 Supply, purchase and transmission of electric power Consolidated Own generation and others: MWh R$ MWh R$ Bilateral contract with Eletropaulo (Note 28) 11,107,680 2,355,172 11,107,680 2,233,613 Bilateral contract 1,854, ,536 2,069, ,004 Spot Market MRE 940,023 12, ,715 4,405 Spot 582, ,875 1,671, ,948 Other - 11,124-10,751 Carbon credits ,006 Service rendered (Note 28) Other revenues Gross operating revenue - Company 14,484,613 2,779,246 15,074,763 3,430,956 Research and development (26,258) - (32,050) PIS - (22,270) - (34,227) COFINS - (102,720) - (157,787) ICMS - (2,171) - (1,880) ISS - (6) - (5) Net operating revenue 14,484,613 2,625,821 15,074,763 3,205,007 Purchased electricity and charges: Bilateral contracts 2,025,654 (246,398) 2,240,832 (261,304) Spot Market MRE 2,441,835 (31,052) 2,744,634 (34,451) Spot 2,315,251 (650,929) 2,762,847 (1,762,129) Other - (14,469) - (13,207) Transmission charges - (112,846) - (96,680) Connection charges - (2,033) - (1,747) PIS - 16,115-22,192 COFINS - 74, ,216 Total 6,782,740 (967,385) 7,748,313 (2,045,110) 25 Other revenues and costs Company Consolidated Donations - - (13,717) (10,772) Leasing (3) (4) (1,087) (1,024) Amortization of the public utilities charges - (2,690) (2,690) Insurance (57) (49) (8,027) (7,754) Contributions CCEE / ONS - - (1,512) (1,343) Gains in the asset sale - - 1, Indemnity claim ,490 Other sectoral contributions - - (3,813) (3,596) Taxes (305) (231) (305) (231) Disposal of other assets (436) - (436) - Other costs (20) - (649) (2,701) Total (821) (284) (30,556) (26,157) 74

77 26 Financial results Company Consolidated Financial income Interest on investments 41,118 24,799 87,120 66,089 Monetary variation on judicial deposits 3,716 4,027 4,661 4,300 PIS and COFINS on financial income (1,115) - (3,116) - Judicial Deposit - PIS ,270 Payment postponed - Eletropaulo (note 28.1) ,256 - Others Subtotal 43,728 28, ,976 71,839 Financial expenses Charges on debt - - (197,428) (130,587) Capitalized interest transferred to construction in progress ,123 20,225 Letters of guarantee and warranty insurance - - (1,707) (1,234) Late payment fines, penalties and sanctions (20) (5) (20) (5) Monetary variation on judicial process and others (2,755) (2,270) (8,198) (5,400) Exchange variation on research and development - - (2,093) (1,306) Loss on investments - - (2,390) (6,858) Other (43) (23) (3,297) (2,457) Subtotal (2,818) (2,298) (192,010) (127,622) Foreign exchange variation Provision for losses on resale of energy from Itaipu (note 19.1) - - (16,397) (3,152) Other - - (160) - Subtotal - - (16,557) (3,152) Total, net 40,910 26,535 (107,591) (58,935) 27 Income tax and social contribution The breakdown of tax base and balances of these taxes is as follows: IRPJ CSLL IRPJ CSLL Breakdown of income taxes in the income statement: Deferred 31,983 10,784 5,840 2,103 Income tax and social compensation expense 31,983 10,784 5,840 2,103 Tax calculation statement: Income before taxes 351, , , ,214 Additions (exclusions) Concession intangible amortization (196,935) (121,930) 18,307 14,819 Equity assessment adjustment (379,265) (379,265) (227,899) (227,899) Provision 9,386 9,386 2,095 2,095 Judicial deposit (2,750) (2,750) (2,264) (2,264) Others Total additions (exclusions) (569,103) (494,098) (209,751) (213,239) Adjusted results (217,794) (142,789) (19,537) (23,025) Tax losses/tax losses carry forward lost in the spun off 128,281 84, Tax losses/tax losses carry forward current year ,537 23,025 Constitution of previous years tax credits (41,170) (63,878) (25,623) (25,636) Judicial deposit 2,750 2,750 2,264 2,264 Basis for calculation (127,933) (119,817) (23,359) (23,372) Tax rate 25% 9% 25% 9% Income with taxes at nominal rates 31,983 10,784 5,840 2,103 Effective tax rate -9.1% -3.1% -3.1% -1.1% 2015 Company 2014 The Company recorded an additional tax credits of R$43,702, R$27,660 for the current year and R$16,042 from previous years, considering the spin-off event. As from January 01, 2015, the Company has been appraising the Corporate Income Tax - IRPJ, Social Contribution on Net Income - CSLL, Contribution to PIS/PASEP and Contribution to Social Security Financing - COFINS, applying the 75

78 precepts of Law No /2014 and Normative Instructions RFB No , of November 24, 2014, and No , of March 31, Consolidated IRPJ CSLL IRPJ CSLL Breakdown of income taxes in the income statement: Current (281,993) (105,990) (177,736) (67,516) Deferred 52,525 18,289 22,527 8,253 Income tax and social compensation expense (229,468) (87,701) (155,209) (59,263) Tax calculation statement: Income before taxes 1,055,927 1,055, , ,216 Additions (exclusions) AConcession intangible amortization (196,935) (121,930) 18,307 14,819 Donations 11,899 11,899 10,802 10,802 Research and development (4,255) (4,255) (3,906) (3,906) HManagement bonuses -estatutory 1,221 1,221 1,275 1,275 Others 8,633 8,619 7,115 8,619 Total additions (exclusions) (179,437) (104,446) 33,593 31,609 Adjusted results 876, , , ,825 Tax losses/tax losses carry forward lost in the spun off 128,281 84, Tax losses/tax losses carry forward current year ,537 23,025 Constitution of previous years tax credits (41,170) (63,878) (25,623) (25,636) Others 2,750 2,750 2,264 2,264 Basis for calculation 966, , , ,478 Tax rate 25% 9% 25% 9% Taxes (241,588) (87,701) (164,247) (59,263) Tax incentives 12,096-9,014 - Others Income with taxes at nominal rates (229,468) (87,701) (155,209) (59,263) Effective tax rate 22% 8% 25% 9% 28 Related parties 28.1 Transaction with related parties Company Consolidated Assets Accounts receivable: AES Eletropaulo - Bilateral contract (i) 271, Assets for defined benefit pension (ii) Payable dividends and interest on shareholders equity: AES Uruguaiana - dividens - 2,699 - Other credits: Spot Market Sale - MAE - Eletropaulo x AES Sul - - 2,759 Sublease - Eletropaulo x AES Sul (vii) Investments - resources for capital increase (iii) - 429, , ,899 2,769 Liabilities Trade Accounts Payable AES Eletropaulo x AES Big Sky (iv) AES Tietê x AES Big Sky (iv) AES Big Sky (iv) (note 14) Accounts payables: AES Corporation (v) - 9,010 9,010 AES Eletropaulo (vi) Provision for legal proceedings and others: AES Sul - Decision 288 (note 19.1) 31,282-28,262 31,335 9,228 37,653 76

79 Company Consolidated Income Statement Net operating revenue: Eletropaulo - Bilateral contract (i) (note 24) - - 2,355,172 2,233,613 AES Uruguaiana - Provision of service (viii) (note 24) Third-party services: Tietê x AES Big Sky (iv) - - (53) (38) Pension plan: FUNCESP - pension plan (ii) - - (1,758) (1,716) Other revenues and expenses: Eletropaulo - sublease part of property (vii) (5) (4) (1,189) (1,098) Financial Income Eletropaulo - Fine for postponed payment (i) (note 26) ,256 - Monetary variation: Eletropaulo (vi) (27) (25) (27) (25) Monetary variation - AES Tietê x AES Sul (ix) (note 19.1) AES Sul - Decision 288 (note 19.1) - - (3,020) (997) (32) (29) 2,361,550 2,229,882 (i) In December 2000, the Company entered into a power purchase and sale agreement with Eletropaulo for a 15-year term. Under this agreement, since 2003 the Company started selling to Eletropaulo electric power corresponding to a decrease of 25% per year in the quantities established in the initial contracts. Electric power quantities under this agreement correspond, as from January 2006, to an average 1,268 MW. This agreement was approved by ANEEL and determines annual electric power sales price adjustments based on the General Market Price Index (IGP-M) variation. The average price for the year ended December 31, 2015 is R$ per MWh. The contract finished on December 31, 2015, only remaining the accounts receivable of competence November and December The Company postponed and settled five invoices of the bilateral contract with Eletropaulo, referring to competences May, June, September, October and November Thus, an interest income was recorded of R$12,256, according to the contract terms. (ii) The Company is part of the Advisory Board of the Fund, which exerts a substantial influence over its management. The details of the pension plan with FUNCESP are stated in Note 18. (iii) Refers to late charges of AES Elpa's debt with the BNDES, which were assumed by the Company as a result of the corporate restructuring of AES Group, which should be capitalized. These values are not subject to monetary adjustment. In December 2015 this investment was transferred to Brasiliana Participações S.A., through the spin-off, as described in Note 1. (iv) This refers to the integrated IT system management operation and processing service value of Company with AES Big Sky (v) Corresponds to credits that The AES Corporation holds with the Company referring to the remittance of capital in early 2004 to withstand the miscellaneous expenditures as a result of the corporate reorganization process of AES Group in Brazil, completed in December In December 2015, such liabilities were transferred to Brasiliana Participações S.A. by means of partial spin-off, as described in note 1. 77

80 (i) As the sale contract of Eletropaulo Telecomunicações LTDA to Tim Celular S.A., the Company should keep into specific account resources such as warranty obligations adjustment of the selling price. The Company redeemed partly the deposit kept in secured account which was transferred to the Eletropaulo in the accordance with the terms of the credit assignment. In December 2015, the Company redeem the remaining balance of the deposit in the amount of R$244, which was also transferred to Eletropaulo. At December 31, 2015 the contract is closed. (ii) Corresponds to sublease contract of part of the commercial building executed between the Eletropaulo (sublesse) and the Company (subtenant) and between Eletropaulo and AES Tietê, for a 10 years-term. ANEEL approved the transaction through the Dispatch 2,804/2012. The contract between Eletropaulo and the Company was transferred to the Brasiliana Participações with the spin-off event. In relation to the contract signed between AES Tietê and Eletropaulo, it was assumed as part of the merger process. (vi) Refers to contract to provide services related to the assignment of manpower by the Company to the AES Uruguaiana. (vii) Refers to the contingency between AES Sul and AES Tietê which discusses the effects of Dispatch 288/2002 of ANEEL that regulated the energy sales carried out by AES Sul Senior management Compensation For the periods presented, the Company has no senior management compensation. The values below represent the consolidation of the results of the embedded AES Tietê. Pursuant to CVM Instruction No. 642 of October 07, 2010, the Company is required to disclose its Senior Management compensation. For the period ended, management compensation was as follows Management compensation was approved at the Extraordinary General Meeting held on April 25, 2014, except for the remuneration plan based on actions that is administered and funded by The AES Corporation. a) Represented by wages, salaries and social security contributions and nonmonetary benefits (such as health care, housing, cars and goods or services for free or subsidized); 78 Consolidated Short-term benefits (a) 5,051 3,628 Post-employment benefits (b) Other long-term benefits (c) Share-based payment (d) Total 5,530 3,946

81 b) Represented by pensions, other retirement benefits, post-employment life insurance and post-employment health care; c) Represented by paid leave, bonus for years of service, profit sharing, bonuses and other deferred compensation, and d) Represented by The AES Corporation s stocks and stock options granted to Senior Management. 29 Financial instruments and risk management 29.1 General considerations The main financial instruments, according to the accounting practices adopted by the Company, are stated as follows: a) Cash and cash equivalents (explanatory note 5); b) Short-term investments (explanatory note 5); c) Consumers, concessionaires and permissionaires (explanatory note 6); d) Accounts receivable Agreements (explanatory note 27); e) Guarantees and judicial deposits (explanatory note 19); f) Trade accounts payable (explanatory note 14); g) Dividends payable and interest on shareholders equity h) Loans, financing, debentures and financial leasing (explanatory note 16); 29.2 Fair value and financial instruments classification Book value Fair value Book value Fair value Category ASSETS (Current and non-current) Cash and cash equivalents Financial assets measured at fair value through profit and loss Short-term investments 746, , , ,241 Financial assets available for sale Consumers and resellers 40,772 40, Loans and receivables Accounts receivable from related parties 271, , Loans and receivables Guarantees and judicial deposits 37,008 37,008 31,944 31,944 Loans and receivables Total 1,096,362 1,096, , ,251 LIABILITIES (Current and non-current) Trade accounts payable 352, , Financial Liabilities - Amortized cost Debentures 1,390,853 1,281, Financial Liabilities - Amortized cost Leasing Financial Liabilities - Amortized cost Dividends and interest on shareholders' equity 36,828 36, Financial Liabilities - Amortized cost Total 1,780,562 1,671, Cash and cash equivalent and short term investment are composed of Bank Deposit Certificates (CDB), Repurchase Agreements and Investment Fund which are marked to market on a monthly basis according to the curve during the term of the investment. For debentures, the measurement technique used for fair value calculation is the discounted cash flow, considering the expectation of liquidation of such liabilities and current market rates and respecting the peculiarities of each instrument at the balance sheet date. For the remaining accounts, book values approximate to the fair value. Therefore, the Company is disclosing both as equivalents to the carrying value. 79

82 There was no reclassification between categories of financial instruments for ninemonth period ended December 31, Fair value hierarchy The table below demonstrates the financial instruments recorded at fair value, according to the measurement method: The measurement of financial instruments is grouped into levels 1 to 3, based on the degree at which their fair value is quoted: Level 1 - prices quoted in active markets for identical assets and liabilities; Level 2 - other techniques for which all data significantly affecting the recorded fair value are observable, whether directly or indirectly, and Level 3 - techniques that use data significantly affecting the recorded fair value not based on observable market data. During the period ended December 31, 2015, there was no transfer relating to measurement of fair value from levels 1 and 2, either for or from level Risk management Fair value 2015 Measurement Measurement Fair value Level I Level II Level III Level I Level II Level III ASSETS Cash and cash equivalents Short-term investments 746, , , ,241 - Total assets 746, , , , (a) Structure of risk management In its structure, the Company has an Internal Controls Management which main role is to advise the business areas in the review of processes and implementation of controls to ensure accuracy of financial reporting and compliance with laws, standards, regulations and internal procedures. The effectiveness of the main key controls implemented by Company to ensure the accuracy of financial statements is tested annually. In case of eventual improvements on theses controls, the Company prepares the action plan establishing the terms and responsibilities to ensure the mitigation of all risks associated. The Company also relies on an internal audit department that acts in four areas: operational, financial, information technology and investigative. The first evaluates all processes and procedures connected with the Company operations, the second evaluates financial statements, the third, information safety controls and the fourth acts in investigation of possible fraud and irregularities, all in accordance with the US Sarbanes-Oxley Act, requirements of the Brazilian legislation, regulatory provisions of the electricity sector and internal rules and procedures. 80

83 The annual internal audit plan is prepared in conformity with the result of the assessment of risks and its main purpose is to provide independent assessment of risks, control environment and significant weaknesses which may affect the financial statements and processes of the Company. Possible weaknesses or noncompliances are corrected through an action established by the persons responsible for the processes, reviewed by the area of Internal Controls and its implementation is duly monitored by the areas of internal controls and Internal Audit area. The internal audit plan is approved by both The AES Corporation s Audit Committee and the Company top Management and Board of Directors. In addition, audit findings and corresponding action plan to implement potential improvements are submitted to the Fiscal Committee regularly. (b) Risks associated with financial instruments The Company is exposed to the following risks resulting from financial instruments: (b.1) Credit risk Credit Risk is the risk of the Company to incur in loss due to a client or a contraparty in a financial instrument fails to fulfill its contractual obligations. This risk is basically generated in: (i) accounts receivable from customers; and (ii) cash equivalents and short term investments. Accounts receivable From January 01, 2016 the Company s energy sales will be made to free consumers, traders and generators, mainly through bilateral contracts as well in the short-term market and contracts in the regulated environment. The sales to Eletropaulo held until December 2015 are secured by its receivables, with the Company having the right to request that the bank accounts of its customer be blocked until receivables are fully collected. In bilateral agreements, the Company requires collateral for bank guarantees. For the spot market, any default on sale contracts to other customers is subject to ANEEL regulation, which aims to ensure liquidity in the electric power market. Sales in the regulated environment are guaranteed by receivables of the contracting party, which are signed by guarantees of the constitution contracts Cash and cash equivalents and short term investment Risks related to financial investments deposited in financial institutions that are subject to market actions and the risk associated with them, and especially to the lack of guarantees for the amounts invested, which may lead to loss of related amounts. The Company operates so as to diversify credit risk with financial institutions, concentrating their transactions only in prime institutions and a limit relating to its 81

84 concentration, following their internal policies on valuation of investments to equity of financial institutions and ratings. The Company uses the ratings by Fitch Ratings (Fitch), Moody s or Standard & Poor s (S&P) to identify the banks eligible for investment portfolio composition. Any financial institutions that show, at least one of the risk rating agencies, rating below that established (AA), at the domestic level, in local currency, may not be take part of the investment portfolio. As to the financial institutions maximum exposure amounts, the Company has set out the following criteria: (i) Cash Criterion: investments of up to 20% (Shareholders Equity (PL) less than R$6,000,000) up to 25% (PL exceeds R$6,000,000) of the financial institution's total portfolio; (ii) Company Shareholders Equity Criterion: investments of up to 20% of the Company shareholders equity by financial institution; and (iii) Funded Financial Institution's Shareholders' Equity Criterion: each financial institution could receive funds of up to 3% (PL less than R$6,000,000) until 5% (PL exceeds R$6,000,000) of its shareholders' equity. Worth the most restrictive criteria i, ii and iii. The book values of financial instruments represent the maximum exposure to the credit risk. The maximum exposure to the credit risk as of December 31, 2015 is: (b.2) Liquidity Risk Company The Company adopt as risk management policy: (i) to maintain a minimum cash level as to insure the availability of financial resources and to mitigate liquidity risks; (ii) to establish guidelines to contract hedge operations to mitigate the Company and its subsidiary financial risks, as well as the operation and control of these positions. The table below shows information on future maturities of financial liabilities of the Company. For debentures the projected cash flow are being used. As it is a projection of future amount, the amounts shown differs from the amounts shown in explanatory note 16. Information on the table below includes both principal and interest Cash and cash equivalents 558 Short-term investments 746,210 Consumers and reselers 40,772 Accounts receivable from related parties 271,814 Total net exposure 1,059,354 Consolidated Year ended December 31, 2015 Less than 3 months From 3 to 12 months From 1 to 2 years From 2 to 5 years Trade accounts payable 352, Debentures 22, , ,382 1,369,255 Leasing Dividends and interest on shareholders equity 1,396 35, Total 376, , ,629 1,369,499 82

85 According to CPC 40 Financial Instruments: Disclosures, when the amount payable is not fixed, the amounts are determined with reference to the existing conditions on the closing date. As such, the CDI and IPCA indexes used in the projections correspond to the index of the December 31, (b.3) Operations with derivative financial instruments For the period ended the Company had no operations with derivative financial instruments. (b.4) Market risks Capital management The Company controls its capital structure according to the economic conditions, in order to allow for the payment of dividends, return on shareholders capital, and the funding of new loans issues of securities in the financial and capital market, in addition to other instruments that it may deem necessary. In order to maintain or adjust the capital structure, the Company may revise its practice of paying dividends, increasing capital by issuing new shares or selling assets to reduce debt levels, if applicable. The Company also constantly monitors its liquidity and levels of financial leverage, and seeks the lengthening of the profile of its debt in order to mitigate the risk of refinancing. The Company includes in its net debt structure: loans and financing, debentures and financial leases, less cash and cash equivalents and short-term investments. The table below shows the Company's net debt: Of the total financial debt on December 31, 2015, 11.54% was short-term and the average maturity was 2.7 years Debentures 1,390,853 Financial lease 805 Cash on bank (558) Short-term investments (746,210) Net debt 644,890 Shareholders's Equity 2,018,466 Net debt/shareholders' Equity 31.95% 83

86 Interest rate risk The Company has debentures paid by the variation of DI and IPCA, plus contractual interest. Consequently, the result is affected by the variation of these indexes. On December 31, 2015 the short-term investments of Company, for the most part, were allocated in CDBs and repurchase agreement indexed by CDI. A small portion is invested in investment fund, which has the same type of investments in its portfolio. The net amount that the Company is exposed relating to the interest risk on the date of the financial information was: Analysis of sensitivity to interest rate risk With a view to determining the sensitivity on short-term investment and debts indexes to which the Company was exposed as of December 31, 2015, 5 different scenarios were developed. Based on the report prepared by FOCUS on December 31, 2015, the CDI and IPCA indexes was estimated for one year, and this scenario was defined as probable; 25% and 50% variations were calculated thereon. Gross financial income and expense were calculated for each scenario, which represents the estimated effect in the profit and loss and shareholders equity for each projected scenario, not considering taxes on short-term investment yields or flow of payments for each year. The portfolio base date was December 31, 2015 with a one-year forecast and CDI sensitivity tested for each scenario Short-term investments 746,210 Debentures (1,417,278) Total net exposure (671,068) Financial institutions - Company Contractual interest rate Position as of Scenario I (-50%) Scenario II (-25%) Probable Scenario Scenario III (+25%) Scenario IV CDI 7.69% 11.54% 15.38% 19.23% 23.07% Short-term investments CDI 746,210 57,384 86, , , ,151 Subtotal 746,210 57,384 86, , , ,151 Debts - Company Contractual interest rate Position as of Scenario I (-50%) Financial expenses projection - 01 year Financial expenses projection - 01 year Scenario II (-25%) Probable Scenario Scenario III (+25%) (+50%) Scenario IV CDI 7.69% 11.54% 15.38% 19.23% 23.07% Debentures - 2nd Issue CDI+0.79% p.a. (506,940) (43,296) (62,968) (82,588) (102,260) (121,880) Debentures - 3rd Issue % of CDI (312,162) (28,245) (40,415) (52,553) (64,723) (76,861) Debentures - 4th issue (1st tranche) CDI % p.a. (144,343) (13,509) (19,153) (24,781) (30,425) (36,053) Debentures - 4th issue (2nd tranche) CDI % p.a. (149,651) (14,973) (20,859) (26,729) (32,614) (38,484) Subtotal (1,113,096) (100,023) (143,395) (186,651) (230,022) (273,278) IPCA 4.78% 7.16% 9.55% 11.94% 14.33% Debentures - 4th issue (3rd tranche) IPCA % p.a. (304,182) (41,417) (49,267) (57,150) (65,033) (72,916) Subtotal (304,182) (41,417) (49,267) (57,150) (65,033) (72,916) Total net exposure (671,068) (84,056) (106,549) (129,034) (151,559) (174,043) (+50%) 84

87 Rehiring risk (volume and price) Until December 31, 2015 almost all the Company assured power supply (physical guarantee) is being sold to Eletropaulo with an average price for the period ended December 31, 2015 in amount of R$212.03/MWh. This contract expired on December 31, 2015 and thereafter this electric power will be sold on the regulated and/or free markets at negotiated prices under the market conditions then prevailing. Therefore, from 2016, the Company revenue will be directly linked to the rehire price of this energy. In the event of any power surplus or shortage price will be determined on the spot market (CCEE). In 2011, the Company laid down the commercialization strategy geared towards the sale of energy for December 2015, when the bilateral contract with AES Eletropaulo expires. The purpose is to speed up the process aimed to expand the client base, as well as to seek to attain attractive commercialization margins, so as to position the Company as a major player in the free market. The Company's strategy is to sell energy either in a regulated environment or a free environment in order to assure the company's revenue in sale agreements. The recontracting prices depend on market behavior and practices and contracting volume strategy provides for a reserve for protection against hydrological risk. The contracting position of the Company's portfolio is 95% and 88%, with average prices at R$149/MWh and R$150/MWh for 2016 and 2017, respectively. In December 2015, the Company took part in energy auction A-1, through which it signed energy agreements at regulated environment - CCEAR. The agreements have a duration term of 3 years, with an average price of R$ The Company sold 90 MW on average, of which 49.7 MWm were directed to Eletropaulo, a company in the same economic group. The contractual conditions are regulated by ANEEL. (c) Other risks (c.1) Regulatory risk The Company activities, as well as those of its competitors are regulated and supervised by ANEEL. Any change in the regulatory environment may have an impact on its activities. The Company based on the legislation in force and supported by its legal consultants, considers that the investments related to the Basic Project, as well as those investments made after and dully approved by the Granting Authority after the concession, agreement signature. (c.2) Hydrological risk The energy produced by the generators in Brazil is destined to the National Interconnected System (SIN), composed of generation power plants of the South, Southeast, Center-West and Northeast regions and part of the North region of the country. The activities of coordination and control of the operation of generation of 85

88 energy are conducted by the ONS, which seeks to manage the stock of energy so as to ensure the security of energy supply all over the country. Climate variations may produce excess or shortage of hydroelectric production in certain regions and in given periods of the year, since the volume of energy generated by the hydroelectric power plants depends on rainfall index and the water accumulation in their reservoirs, which determines the dispatch of ONS. The SIN enables to transmit and distribute all the generated power more properly throughout the Country, permitting the exchange of energy among the regions, as well as obtaining benefits from the diversity of river basins. According to the rules of the Energy Reallocation Mechanism (MRE), the total volume of energy generated in the Country is allocated to each hydroelectric power plant of the SIN participating of this mechanism, in proportion to their respective physical guarantee (or assured energy). This allocation seeks to ensure that all plants participants in the MRE have their energy levels assured, regardless of the individual s production of each plant. If, after the above stage has been complied with, all the MRE members reach their levels of physical guarantee and there is balance of power generated, the surplus net regional generation, called as "secondary power", should be proportionally allocated among generation companies. Similarly, if the overall energy generated by the plants falls short of the total physical guarantee of SIN's hydropower plants, this deficit, called the Generation Scaling Factor (GSF), is also proportionally distributed among the ERM members, resulting in an exposure to the short-term market and the Settlement Price for Differences (PLD). In the situations mentioned above, it may also occur that the allocation of energy in the ERM may take place in a submarket other than the one where the energy is generated, which may or may not create exposure to the difference between the submarkets' PLD where the plant is located and where the energy is allocated. Such exposures, whether positive or negative, are subject to a mechanism for financial relief and can be reduced or eliminated, depending on the month s short-term accounting in which is included. Every year in December, ANEEL establishes the maximum and minimum PLD limits that to be in place the following year. The maximum PLD is calculated based on highest CVU of a Thermal Power Plant, natural gas, in commercial operation status, contracted through CCEAR. To calculate the minimum PLD is considered the generation estimated cost of Itaipu and other necessary cost to keep and operate the hydroelectric projects, charges and CFURH - Compensation for Use of Water Resources. On 22 December 2015, was published the Homologatory Resolution no. 2002/2015, which set the maximum and minimum limits of PLD for the year The minimum PLD was set at R$30.25 / MWh, based on the operating costs of unit holder plants, added to CFURH. The maximum PLD, was set at R$ / MWh based on Variable Cost per Unit (CVU) of thermoelectric plant Mario Lago, determined as thermal reference. 86

89 Since 2014, generation by hydroelectric power plants participating in the MRE has been lower than their respective Physical Guarantees, resulting in a GSF less than 1, which indicates the level of downgrade of the Physical Guarantees for purpose of accounting the short-term market that, usually, is linked with adverse hydrology and a higher PLD, resulting in significant economic impact. In the beginning of 2016 is still expected that ONS will keep the strategy to preserve the hydroelectric plants reservoir levels, mainly for relationship of Northeast reservoirs, which faces critical levels of storage. Due to the good hydrology over the wet season in progress, the reservoir levels are recovering and PLD reached the regulatory minimum level at Southeast/Center-West submarket. For 2016, the Company is commercializing 88% of its energy in the free market through bilateral agreements and 7% in the regulated market by means of public auction. The total remaining 5% of physical guarantee constitute a protection hedge against the hydrological risk. It is important to highlight that the 2016 commercial margin may be impacted particularly by PLD and GSF. Associação dos Produtores Independentes de Energia Elétrica (APINE) obtained, on June 1, 2015, an injunction in favor of all generation companies in that association, the Company among them, precluding the hydroelectric downgrade (GSF) to be allocated to the generation companies holding the injunction in the next financial settlements of CCEE. According to the Company's legal advisors, the chance of action merit is classified as possible. However, the Ministry of Mines and Energy (MME), on August 18, 2015, published the provisional decree No. 688/2015 ("MP 688/2015"), converted into Law 13,203/2015, on December 09, 2015, providing for the hydrological risk renegotiation for electrical energy generation, to take effect from January 1, 2015, upon consideration entry of the hydroelectric generation companies. In general terms, exist two possibilities for eligibility of the generator based on its energy contracting environment, ACL (Free Contracting Environment) or ACR (Regulated Contracting Environment). In both cases, the waiver of the generators in lawsuits is required, so that they may request the hydrological risk renegotiation. ANEEL, through public hearing No. 32/2015 ("AP032") obtained subsides to regulate the consent and renegotiation criteria for the hydrological risk of hydro power plants participating in MRE, described in ANEEL Resolution 684 of December 11, 2015, pursuant to Law 13,203/2015. The Company decided not to adhere to the repricing proposed, since it does not consider it economically attractive. It is worth highlighting that the injunction continues on as effective and, if it is impeached, the Company shall disburse the amount of R$208,175 (see details on note 14). (c.3) Debt acceleration risk The Company has debt contracts (debentures and promissory notes) containing covenants usually applicable to these types of transactions, related to compliance with economic and financial indexes, cash generation and others. These covenants were complied with and do not affect the Company ordinary course of businesses. 87

90 On December 31, 2015, the Company was compliant with the terms of the covenants (explanatory note no 16.5). In case the Company does not comply with, or cannot comply with covenants in its debentures and promissory note agreements, such operations may be terminated early, which has an adverse impact t in the cash flow of the Company. (c.4) Changes in Brazilian tax legislation Brazilian government frequently changes the tax legislation, thus affecting the Company. These changes include changes to rates and, occasionally, the collection of temporary taxes, which collection is associated with certain governmental specific purposes. Since some of these measures result in increase of the tax burden, may influence the profitability the financial result of the Company. Only after the disclosure of the tax adjustment is that the Company will be able to assess possible impacts on its business, including with regard to the maintenance of prices, projected cash flows or profitability. (c.5) Risk of currency instability and economic Economic instability The Company operating results are affected by the level of economic activity in Brazil and the world. A reduction in the economic activity in Brazil and the rest of the world typically results in a reduction of productive events which, in turn, results in reduced consumption of the Company operations. In the case of a deceleration in GDP growth in Brazil and the rest of the world, affects the Company operating results adversely. The decrease of economic activity results in reduction of productive events which on the other hand, implies in the reduction of the consumption of energy, in the reduction of liquidity of energy markets and in the reduction of expansion projects for the contracting of new energy. Exchange rate instability Future measures eventually undertaken by the Brazilian Government, including reducing interest rates, interventions in the foreign exchange or securities market to adjust or fixate the value of the Real, could initiate further increases in inflation. As a result of several pressures, the Brazilian currency has suffered continuous changes with respect to Dollar and other strong currencies throughout the last four decades. Throughout this period the Brazilian Government has implemented several economic plans and used a number of exchange rate policies, including sudden devaluations, mini devaluations, floating exchange rate systems, exchange controls and dual exchange rate markets. Depreciation of Brazilian real against U.S. dollar could lead to additional inflation in Brazil and increase interest rates, which could adversely affect the Brazilian economy as a whole and the Company. 88

91 (c.6) Environmental risk The deployment and operation of projects addressed at the electric power generation activity, like hydroelectric plants, use natural resources and may have environmental impacts. The Brazilian legislation in force sets forth quality and environmental protection standards that must be respected, and that, if violated, might subject the offenders to administrative, civil and criminal sanctions, in addition to the obligation to repair environmental damages. The Company maintains a certificate with the Environmental Management System in ISO 14001, with a view at mitigating the environmental impacts of its activities, potentializing compliance with the environmental legislation and encouraging ongoing improvements of its control process. In addition, all the plants have valid operation environmental permits, issued by the competent environmental agencies. (c.7) Expansion Obligation risk The Company has an obligation, provided by its Privatization invitation and Share Purchase and Sale Agreement, to expand the installed capacity of its generation system, within the State of São Paulo, in at least fifteen per cent (15%) (398MW) in the period of eight years from the execution of the Assignment Agreement, noncompliance which may result in a warning, and/or suspension of Company participation in state biddings and, also, legal action started by the Government of the State of São Paulo. The details of the lawsuits related to expansion obligation are disclosed in explanatory note Insurance As of December 31, 2015, insurance coverage, considered sufficient by Company s management to cover any claims and civil liability, is summarized as follows: Effective Risk From to Amount assured Operating risks 01/01/ /01/2017 3,750,000 Group life 01/01/ /01/ X salary, up to R$ 1,833 Civil liability 01/04/ /04/ ,000 Fleet of vehicles - RCF 01/04/ /04/2016 RCFV Combined Single Limit R$ 1,000 Environmental risks 01/04/ /04/ ,000 Civil liability directors and officers (D&O) 01/04/ /04/ ,000 The insurance of vehicle fleet is contracted individually by the Company. For other insurance, the insured amount is shared with other companies of the Group AES Brasil (co-insured). The premium is paid individually by each company involved and the sale is the basis for apportionment criterion. 31 Environmental investments Of the total spending on the environment in 2015, R$14,929 were recorded in the income statement for the year and R$575 were used for investments in fixed assets. The expense capitalization policy is based on the general instructions of the 89

92 MCPSEE Manual Manual of Accounting for the use of public service of electric energy. Consolidated Environment investments Licensing and environmental programs 11,212 10,843 Operational management Environmental Management Programs (SGA) 1,054 1,083 R&D Projects 3,133 2,321 Total 15,504 14,733 The Company has an unwavering commitment to and responsibility for environmental issues and seeks excellence and solid foundation for planning its actions. In 2015, the Company maintained ISO certification 14001:2004 (Environment) and BS OHSAS 18001:2007 (Health and Occupational Safety) in the Integrated Management System, thus ensuring the standardization of processes related to Health, Occupational Safety and Environment in all its power plants. In addition, all the plants have valid operation environmental permits, issued by the competent environmental agencies. The Company's engagement in the issue of climate change has been increasing. In 2015, published its Inventory of Greenhouse Gas Emissions in the public record of such emissions, in connection with the FGV Empresas pelo Clima (EPC) initiative. The Company also responded to the CDP Investors (Carbon Disclosure Project) report and the Sustainability Index (ISE) of BM&FBOVESPA, reporting information on climate changes. The MDL project (Clean Development Mechanism) reforestation awaiting final approval of the United Nations regarding the monitoring report of verified carbon credits in the first period of the project ( ). The company traded approximately 167 thousand carbon credits with International Bank for Reconstruction and Development in the beginning of The project is monitored annually for monitoring of carbon credits The Company develops projects that consolidate its engagement in efforts to restore and preserve biodiversity, as follows: (i) The flora management program, which ensures the production of 1 million seedlings of native tree species in own nurseries and seeds collected from selected trees in the watersheds where Company reservoirs are located, keeping the average range of 120 different species, ensuring forest biodiversity; (ii) The program of restocking the reservoirs which aims to maintain the biodiversity of fish fauna in the reservoirs, as well as ensuring the continuity of fishing activity by riverside communities. Thus it maintains a target annual production of 2.5 million fingerlings of native species of the Tietê River in 90

93 hydrobiology and aquaculture units located in the Promissão and Barra Bonita hydroelectric power plants, promoting the reproduction of seven native species of Tietê River (pacu-guaçu, curimbatá, dourado, pirancajuba, tabarana e piapara fish), observed during spawning (migratory movement of fish back to the source), of which the records are showing recovery of the fish population in the reservoirs. (iii) The monitoring program of water quality is essential for understanding the structure and functioning of these aquatic ecosystems and the long-term spatial and temporal variations, seeking to verify the biological productivity of the reservoirs trophic state and water quality through assessment of seasonal variations in physical, chemical and biological parameters. (iv) The purpose of the terrestrial fauna monitoring and conservation program is to characterize the terrestrial fauna (mammals, birds, reptiles and amphibians) for the conservation of the current situation, allowing for the evaluation of populations and ecosystem. The monitoring and control of reservoirs is made through continuous inspections by the technical team of the Reservoir Monitoring Center (CMR), change detection system through satellite images and aerial photography. The restoration process of edges of the reservoirs has been obtained by reforestation and also the removal of irregular occupations. More restrictive criteria have been inserted in the contracts on use of the edges of reservoirs, based on relevant environmental legislation and also aimed at preventing degradation and environmental pollution. 32 Commitments The Company incurs costs with access the distribution and transmission system and connection contracts whose tariffs are homologated by ANEEL. The Company has commitments to sector charges e.g.: Research and Development (R&D), Electric Energy Inspection Services Charge (TFSEE) and Financial Compensation for Use of Hydro Resources, whose tariffs are also homologated by ANEEL. In addition, the Company incurs cost for access to the transmission system, whose rates are also approved by ANEEL. The Company does not have any guarantees and use of financial credit limits as of December 31, Subsequent event On July 4, 2015 AES Tietê Energia adhere to the Corporate Governance Level 2 of BM&FBOVESPA S.A. and its securities shall be traded through Units, and each Unit is comprised of 4 (four) preferred shares and 1 (one) common share. The common and preferred shares of AES Tietê Energia have equivalent economic rights. The Units have been released to be traded at Level II Corporate Governance under the code "TIET11" from the trading day of January 04, 2016, as per the Notice to the Market disclosed on December 28,

94 In virtue of AES Tietê's merger by the Company, the investors holding common or preferred shares issued by AES Tietê received, at the end of the trading day of January 06, 2016, one (1) certificate of share deposit ("Unit") for each common or preferred share issued by AES Tietê of which they were holders at the end of the trading day of December 30, 2015, under the applicable rules of the Depository Asset Center of BM&FBovespa S.A. - Securities, Commodities and Futures Exchange ("BM&FBovespa"). Thus, the investors may view the Units in their respective investment portfolios as from January 7, Each Unit is comprised of 1 (one) common share and 4 (four) preferred shares. 92

95 Comments about the Company s Projections Comments about the Company s Projection a) Projection purpose 1. Investments The Company informs the amounts of investments divided in investments and capitalized interest. 2. Purchase of energy in the short term market: The Company reports its estimate of the average annual percentage of the lowering of the physical guarantee. 3. Manageable Cost Reduction Program The Company informs its estimates for manageable costs reduction, seeking efficiency gains and improvements in the management of its costs. b) Projected period and validity period of projection 1. Investments The Company discloses its projections for annual investments for the next five years including the present financial period, which it can review quarterly and will expire as of realization or substitution for a new projection. 2. Purchase of energy in the short-term market The projected average annual percentage of the lowering of the physical guarantee for the present year, which can be reviewed quarterly and are valid until the realization or substitution for a new projection. 3. Manageable Cost Reduction Program Estimation of the result of the Cost Reduction Program valid for the present year, which can be reviewed quarterly and are valid until the realization or substitution for a new projection. c) Assumptions of projection, with indication of which could be affected by the Company's management and which are beyond the control of the Company's management 1. Investments The projections of the Company s investments are mainly based upon the following assumptions: Schedule of maintenance of generation units; Diagnosis of equipment; Regulatory requirements; and Strategic initiatives. 2. Purchase of energy in the short-term market The Company s projections of exposure to the short-term market in 2015 are mainly based on the following assumptions: Average thermal dispatch of GWavg; Seasonality of participating plants of ERM; Seasonality of the Company s physical guarantee and contracts;

96 Average price of settlement of differences (PLD) of R$ 290/MWh for the year of 2015; Load retraction in relation to 2014 in the range of 2.0% to 2.5%; and, Exchange between subsystems and maintenance of intermittent generation. 3. Manageable Cost Reduction The projections for the Manageable Cost Reduction Program for 2015 are directly related to the estimated results for the initiatives described below: improvements in the processes of operation and maintenance of plants and locks of the Company; internalization of activities related to the management of reservoirs; and, reevaluation of administrative costs, by reducing the group of third-party services. These projections reflect solely the view of AES Tietê s administration about the future of its businesses, considering mainly the following factors: (i) the national and international economy performance; (ii) the market and the electrical sector general condition, including the country s hydrological condition; (iii) the electrical sector regulation and environmental legislation; and (iv) operational factors. All the assumptions highlighted under item c are subject to change, risks and uncertainties outside the control of the AES Tietê s administration. Any changes in perception or in the above highlighted factors could cause the actual results to diverge from projections. Should relevant changes affect these factors, the Company should revise its projections. d) Amount of indicators that are subject to estimations 1 - Investments The projected values related to the next five years ( ) are included in the tables below: R$ MM Estimated investments Total Investments Capitalized interest Total Purchase of energy in the short-term market The estimated average annual lowering of the physical guarantee from 15% to 17%, the seasonality of the Company s physical guarantee and contracts applied in 2015 and the performance of the ERM results in an impact on the Ebitda related to this exposure of between R$ 570 million and R$ 630 million. 3 - Manageable costs review As disclosed in the Company's Reference Form, the Company expects to achieve in 2015 through the Manageable Costs Reduction Program 1, zero growth of manageable expenses in nominal terms, compared to the level verified in 2014, in the amount R$ 186 million. 1 Excludes from the concept of manageable costs items considered non-recurrent and non-manageable by the Company such as: purchase and sale of energy, fees, financial compensation and sector charges, energy transmission and distribution costs, insurance reimbursements, normalization of biannual maintenance of the Company s floodgates, pension fund expenses, contingency provisions, gains with the sale of assets, among other non-recurrent effects

97 e) Projections substituted for new projections included herein 1 Investments 1Q15 3Q15 Update After the first, second and third quarters of 2015, the Company did not revise the projected values for the current and next four fiscal years (according to the table of the item D). 4Q15 Update The Company presented a comparison between the projected and realized data for the year of 2015, as detailed in the table below: Investments R$ M Estimated 2015 Realized 2015 Variation Investments % Capitalized Interest Total % AES Tietê invested a total of R$ million in 2015, amount 8.1% above the estimated for the period, mainly due to a raise in capitalized interest, a reflection of the raise of interest in the period. 2- Energy purchase in the short-term market 1Q15 Update Ended the 1Q15 and considering the hydrology performance, the Company revised its projection of impact from the energy purchase in the short-term market. A comparative of the projections updated in the 1Q15 versus the expectations in the 4Q14, is detailed in the table below. 2Q15 Update Ended the second quarter of 2015 and considering the hydrology performance during the period, the verified load reduction and Brazilian economy perspectives, the Company revised its projection of short-term market energy purchase impact. A comparative of the updated projection in the 2Q15 versus the estimate in 4Q14 and 1Q15 is detailed in the table below: 3Q15 Update Ended the third quarter of 2015 and considering the hydrology performance during the period, the verified load reduction and Brazilian economy perspectives, the Company revised its projection of short-term market energy purchase impact. A comparative of the updated projection in the 3Q15 versus the estimate in the 4Q14,1Q15, and 2Q15 is detailed in the table below. 4Q15 Update Ended the fourth quarter of 2015 and considering the hydrology performance during the period, the verified load reduction and Brazilian economy perspectives, the Company presents the update of its projection of short-term market energy purchase impact as detailed in the table below.

98 Assumptions Negative impact on EBITDA Estimated 2015 R$ 590 million to R$ 680 million 1Q15 Revision R$ 750 million to R$ 840 million 2Q15 Revision R$ 730 million to R$ 810 million 3Q15 Revision R$ 570 million to R$ 630 million Realized 2015 R$ 593 million Avg. Physical 15% - 17% 17% - 19% 17% - 19% 15% - 17% 15.8% guarantee reduction Average PLD R$ 388/MWh R$ 388/MWh R$ 371/MWh R$ 290/MWh R$ 287.2/MWh Inflows % of the LTA 78% of the LTA 76% of the LTA 85% of the LTA 89% of the LTA Charge % -0.5% to -1% -1.5% to -2% -2.0% to % 2.5% Avg. Thermal Dispatch 16GWavg- 17GWavg 16GWavg- 17GWavg 15GWavg- 16GWavg 14GWavg- 16GWavg 15.5GWavg 3 Manageable costs reduction 1Q15 3Q15 Update After the first, second and third quarters of 2015, the Company did not revise its projection of manageable costs reduction for the year of Q15 Update Considering the Manageable Cost Reduction Program, the Company intends on reaching zero growth in its manageable costs in 2015, in nominal terms, when comparing to the figures verified in 2014, of R$ 193 million.

99 2015 Management Report AES Tietê Energia S.A. Dear Shareholders, The management of AES TIETÊ ENERGIA S.A. ( AES Tietê Energia ), formerly Companhia Brasiliana de Energia ( Cia Brasiliana ), in compliance with legal and statutory provisions, submits for your approval the Management Report and financial statements thereof, accompanied by the independent auditors' report on such statements, referring to the fiscal year that ended on December 31, In virtue of the Corporate Reorganization completed on December 31, 2015, the management presents the pro forma comparison of the formerly AES Tietê S.A. ( AES Tietê or Company ), a company which was merged by AES Tietê Energia on December 31, PROFILE Corporate Restructuring / Shareholding Structure On June 03, 2015, AES Tietê S.A., together with Companhia Brasiliana de Energia ("Cia Brasiliana"), published the Material Fact on the Securities and Exchange Commission ("CVM") informing the market of a proposal for Corporate Reorganization involving those companies and the companies either directly and indirectly controlled by Cia Brasiliana. The restructuring proposal was submitted for approval of the corporate bodies composing AES Tietê and Cia Brasiliana, as well as the approval of regulatory authorities, as applicable, and, on December 31, all conditions precedent of the reorganization were implemented. Thus, on December 31, 2015, the reorganization process was done. The reorganization was done by means of the partial spin-off of Cia Brasiliana and the spun-off archive was transferred to Brasiliana Participações S.A. Cia Brasiliana started directly holding the exclusive control of AES Tietê, and Brasiliana Participações S.A. started holding the control, either direct or indirect, of all other companies ( Spun-Off - AES Eletropaulo, AES Elpa, AES Uruguaiana and AES Serviços). In a subsequent stage, AES Tietê was merged by Cia Brasiliana, and was consequently terminated, with the latter being the surviving legal entity, whose business name shall be renamed to AES Tietê Energia. Upon the corporate reorganization, a new shareholders' agreement was signed between AES Holding Brasil and BNDES Participações S.A. ("BNDESPAR"). AES Tietê Energia's direct controlling shareholder continues to be AES Holdings Brasil. AES Tietê Energia is indirectly controlled by The AES Corporation ("AES Corp"). The main purposes of the corporate reorganization were to (i) strengthen AES Tietê Energia as a sole growth platform of AES group in Brazil, in the electrical energy generation segment in Brazil; (ii) enhance AES Tietê Energia's Corporate Governance by migrating to Level 2 at BM&FBOVESPA (100% tag along); (iii) consolidate the liquidity by creating Units (1 ON and 4 PN); and (iv) simplify and create more dynamism for the decision-making process, with a new shareholders' agreement. The following is the summary of the corporate structure before and after the aforementioned corporate restructuring conclusion. 1

100 Structure before the Corporate Reorganization AES CORP BNDESPAR Minority Cia. Brasiliana Minority AES Tietê AES Uruguaiana AES Serviços AES ELPA AES Eletropaulo Structure after the Corporate Reorganization Minority AES CORP BNDESPAR AES Tietê Energia Brasiliana Participações Minority AES Uruguaiana AES Serviços AES Elpa AES Eletropaulo On December 31, 2015, AES Tietê Energia's subscribed and paid-in share capital is R$262.0 million, represented by 751,093,534 common shares and 1,155,173,928 preferred shares, with a total free float of 180,923,473, as follows. At the end of the fiscal year, AES Tietê Energia had approximately 19.6 thousand shareholders. Shareholder ON % PN % Units % Total AES Holdings Brasil (AES Corp) 462,300, % % % BNDESPar 107,870, % 431,480, % 107,870, % Other (Free Float) 180,923, % 723,693, % 180,923, % Total 751,093, % 1,155,173, % 288,793, % On 12/31/2015. Generating Station 2

101 Up to December 31, 2015, Cia Brasileira was a publicly-traded corporation and its purpose was to exercise the control of companies mostly acting in the electrical energy generation and distribution sector. Its main controlled companies were: AES Elpa S.A. ("AES Elpa"), Eletropaulo Metropolitana Eletricidade de São Paulo S.A. ( AES Eletropaulo ), AES Uruguaiana Empreendimentos S.A. ( AES Uruguaiana ), AES Tietê and AES Serviços TC Ltda. ( AES Serviços ), upon direct or indirect shareholding in the capital of those companies AES Tietê Energia, after the mentioned above restructuring, took over AES Tietê's business and started being one of the generators in AES Brasil group. AES Tietê Energia is a publicly-traded corporation listed at BM&FBOVESPA and is authorized to do business as a concessionaire for use of public property, in electrical energy generation and commercialization and in the capacity of independent electrical energy producer. AES Tietê Energia has its business regulated and inspected by ANEEL (Brazilian Electrical Energy Agency), linked to the Ministry of Mines and Energy ("MME"). The concession agreement was executed on December 20, 1999, with a duration of 30 years, as from April 1, AES Tietê Energia is one of the most efficient electrical energy generators in Brazil, with a generating station consisting of nine hydropower plants and three small hydropower centers ("PCHs"). The concessions hydropower plants and PCH Mogi-Guaçu expire in 2029 and PCHs São José and São Joaquim are authorized to operate until AES Tietê Energia has capacity utilization of 2,658 MW and gross physical guarantee. AES Tietê Energia's plants are located in Tietê, Pardo, Grande and Mogi-Guaçu Rivers, as shown on the following map: The 12 AES Tietê Energia's plants have obtained valid environmental permits to operate. Two of them - Água Vermelha and Caconde - are licensed by the Brazilian Environment and Renewable Natural Resources Institute ("IBAMA") and other plants are licensed by Environment Company of the State of São Paulo ("Cetesb"). Sustainable Strategic Planning The strategy of AES Brasil, the group of which AES Tietê Energia is a part, is directed by four strategic directors between 2015 and 2019; Customer satisfaction, business development, efficiency in resource use and discipline in performance and engagement of relationship audiences. CUSTOMER SATISFACTION In the new AES Brasil's Sustainable Strategic Planning, one of the commitments is to guarantee excellence in services provided in an ethical and respectful manner towards the customer. AES Tietê Energia's goal, at this level, is to achieve a customer satisfaction level of 90% up to Periodical researches are carried out with commercialization customers in order to assess their satisfaction with the company's services. In the first semester of 2015, the research was made for the 3