Corporate Presentation 2016 03/17
AES Corporation Global Company Natural gas and coal fired thermal plants 27 GW of installed capacity 37 GW installed capacity Providing services to over 9 million customers 19 thousand employees Over 8 GW of Renewable sources¹ AES Corp is present in 17 countries and 4 continents Distributed energy +150MW of solar PV² projects in operation World leader in Energy Storage Total of 432 MW³ 1 Includes hydro, wind, solar, energy storage, and biomass 2 - PV Photovoltaic; 3 - Operating and under construction 1
Leading position in the energy sector in Brazil Generation 1 Market Share Distribution 2 Market Share AES Tietê 2,658 MW Concession ends in 2029 AES Ergos AES Eletropaulo 20m people served 6.9m customers Concession ends in 2028 2% 11% AES Uruguaiana 640 MW 98% 89% AES Brasil Other 1 Installed capacity as of 2016; 2 Consumption (GWh) in 2015 (Source: ABRADEE) 2
History in Brazil Solid participation in distribution and generation businesses 1995 1998 2000 2003 AES Brasil +20 years presence in Brazil Beginning of AES Uruguaiana s construction AES Corp acquired AES Sul through privatization process 1997 1 Privatization of AES Eletropaulo by a consortium comprised by AES Corp and other local and international companies Privatization of AES Tietê 1999 AES Uruguaiana beginning of operation AES Corp increases its interest in AES Eletropaulo and AES Tietê 2001 2002 Incorporation of Companhia Brasiliana de Energia and execution of shareholders agreement with BNDES AES Tietê merged into Cia Brasiliana and was renamed AES Tietê Energia S.A. 2016 1 AES Sul was sold to CPFL Energia in June/2016. 3
AES Brasil Mission, Vision and Values Mission To promote the well being and development by providing secure, sustainable and reliable energy solutions Vision To be recognized by our customers and shareholders as the preferred partner for safe, innovative, reliable and affordable energy solutions Values Put safety first Act with integrity Honor commitments Strive for excellence Have fun through work 4 4
AES Brasil Environmental Responsibility Reservoirs repopulation Reforesting, borders and archeological management programs Water quality monitoring Recycling and waste disposal programs Programs aiming to reduce CO2 emissions Risk Management and identification of opportunities related to climate change 5 5
AES Brasil Social Responsibility Access to reliable energy through social development Education for efficient and safe use of electricity Program which offer cultural and sports activities simulating citizenship practices Sustainable partnership commitment with sustainable development at AES Brasil s value chain 6 6
INVESTMENT PLAN 2017-2021 2017 9% 91% R$ 4.4 billion R$ 4.0 billion R$ 400 million 2021 Generation Distribution 7
AES Brasil Recognitions AES Eletropaulo AES Tietê AES Brasil 8
National Interconnected System GENERATION Distribution Substation Thermal Plant Hydroelectric and Solar Plant Renewable Energy Substation Transformer DISTRIBUTION Substation Transformer TRANSMISSION COMMERCIAL AND INDUSTRIAL CUSTOMERS RESIDENTIAL CUSTOMERS 9
Energy sector in Brazil: Business Segments Generation¹ Transmission² Distribution² 4,679 power plants 152 GW of installed capacity System based on hydro plants (655 3 ) Contracting environment: free and regulated markets 104 agents High voltage transmission (>230 kv) +100,000 km of lines (National Integrated System) Regulated tariff (annually adjusted by inflation) 63 distribution companies 339 TWh distributed energy 79 million consumer units Annual tariff adjustment Tariff reset every four or five years Regulated contracting environment Sources: EPE, ANEEL, ONS, ABRADEE and Instituto Acende Brasil 1 Refers to Sep/2016 data; 2 Refers to 2015 data; 3 Includes HPP (hydro power plants) and SHP (small hydro plants) 10
Ownership Structure C = Common Share P = Preferred Share T = Total AES Holdings Brasil BNDESPar C 50.00% + 1 share P 0.00% T 46.15% C 50.00% - 1 share P 100.00% T 53.85% C 61.57% P 0.04% T 24.28% C 14.38% P 37.40% T 28.33% C 50.52% P 0.00% T 16.84% C 22.56% P 16.82% T 18.73% Brasiliana Participações AES Tietê Energia AES Eletropaulo C 100.00% T 100.00% C 100.00% T 100.00% C 98.26% T 98.26% AES Ergos AES Uruguaiana AES Elpa 16.8% 18.6% Others 1 Market Cap 2 64.6% US$ 0.7 bi 24.3% 28.3% 47.4% US$ 1.7 bi 1 Includes 17.1% of the Federal Government and GWI shares in AES Eletropaulo and 7.9% of Eletrobrás shares in AES Tietê. 2 Base: 03/23/2017. FX rate 3.1242 BRL/1 USD. 11
One of the largest private generation companies Concession expires in 2029 Market Cap: US$ 1.7 billion 1 Brazil 9 hydroelectric plants and 3 SHP² in São Paulo Installed capacity of 2,658 MW, physical guarantee ³ of 1,278 MWavg Consistent evolution of client portfolio Água Vermelha (1,396 MW) Nova Avanhandava (347 MW) Promissão (264 MW) Ibitinga(132 MW) Bariri (143 MW) Barra Bonita (141 MW) Euclides de Cunha (109 MW) Caconde (80MW) Limoeiro (32 MW) Mogi-Guaçu (7 MW) São Joaquim (3 MW) São José (4 MW) Investment grade (Moody s): - National: Aa1 - International: Ba2 1 Base: 03/23/2017. FX rate 3.1242 BRL/1 USD; 2 - SHP Small hydroelectric plant (installed capacity<30mw); 3 -Amount of energy allowed to be contracted in the long term 12
24 cities attended in São Paulo metropolitan area Concession contract expires in 2028 Market Cap: US$ 687 million¹ Brazil Brazil São Paulo 16% of Brazil s GDP² in its concession area 4,526 km 2 concession area 46 thousand km of distribution and transmission lines 7 million customers 18 million people served 43 TWh distributed in 9M16 7,280 employees as of December 2016 West, South, & ABC North & East Investment Grade: Fitch S&P Moody s National AA- A- A3 International BB BB- Ba2 1 Base: 03/23/2017. FX rate 3.1242 BRL/1 USD; 2 - Source: IBGE, 2010. 13
Beginning of commercial operations in 2000 Located in the State of Rio Grande do Sul city of Uruguaiana Operations were suspended in 2008 due to lack of gas supply Initiated arbitration against YPF in Argentina ICC¹ awarded the merits in favor of AES Uruguaiana in 2013 Next and final phase refers to the damages calculation Emergency operations in 2013, 2014 and 2015 to support reservoirs recovery in Brazil Looking for long-term solution Fast Facts Combined cycle gas turbine (CCGT) Capacity (MW) 640 MW Authorization expiration 2027 1 International Chamber of Commerce 14
Corporate governance Key for investment decision - Operational and Investment Management Committee: robust capital allocation process - Corporate policy of Integrated Risk Management monthly assessed by Companies Executive Officers and quarterly by Fiscal committee and Board of Directors - High level of commitment, with monthly Board of Directors meetings - Listed at BM&FBovespa: ELPL3: Level II ELPL4: Proposal of Migration to the Novo Mercado TIET11 (units): Level II - ISE Corporate Sustainability Index portfolio - Tag along rights 15
Investment focused on power plants modernization Investment program totaled R$ 101 million in 2016 206 186 168 101 114 81 69 89 47 2013 2014 2015 2016 2017(e) 2018(e) 2019(e) 2020(e) Expected 1 2021(e) Actual Power plants modernization process, aiming for continuous improvement in operational conditions and ensuring availability in its generation plants 1 Normalized values 17
Investments and Best Practices in Asset Management, translates into outages reduction Unscheduled outages (%) 2.89 Best practices in asset management¹: PAS 55 Certification 1.59 1.60 2.33 ISO 55001 Certification 1.31 1.04 0.79 1.35 0.28 0.25 0.25 0.56 2013 2014 2015 2016 Unscheduled Outage Rate EFOF² 1 - AES Tietê was the first Latin American company to receive the certification from the British Standards Institute; 2 Equivalent Forced outage Factor - EFOF 18
Raise in generated energy reflects ONS higher dispatch Generated energy (MW average 1 ) 117% 104% 121% Hydropower plants are dispatched by ONS² Dispatch is also related to hydrological conditions: Low hydrology translates into low generation levels 67% 848 71% 905 1,492 1,468 1,169 2014 2015 2016 Generation / Physical Guarantee 4Q15 Generation - MWavg 4Q16 1 Generated energy divided by the amount of hours; 2 National System Operator 19
Level of reservoirs reflect hydrology and level of thermal dispatch Historical Level of Brazilian Reservoirs (%) Reservoirs (%) vs. Thermal Dispatch (GWavg) SIN s Average Annual Inflows: 2014 81% 2015 89% 2016 87% 90% 80% 18 16 70% 14 60% 12 50% 10 50 42 39 43 21 23 57 56 55 53 40 43 42 43 35 37 38 30 49 40 41 34 44 36 38 34 31 32 32 29 28 29 29 23 20 22 40% 30% 20% 8 6 4 10% 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0% T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 0 Historical data since 2001 2011 2012 2013 2014 2015 2016 Thermal Dispatch Reservoirs 20
Out of order dispatch continues elevated for energetic safety reasons due to low reservoir levels in the Northeast R$/MWh (Spot Price SE/CO) 378 823 823 823 807 413 593 710 729 777 805 601 388 388 388 388 387 373 240 145 227 212 203 116 36 30 38 49 76 61 83 116 147 200 166 122 GWavg¹ 16 12 08 04 00 16 18 16 12 14 12 810 8 6 4 4 2 0-13 0 16 16 15 16 15 15 16 16 17 17 17 17 17 17 16 15 16 14 15 16 14 15 14 13 12 10 12 10 11 10 12 13 13 ² 12 10 Increase in Thermal Dispatch out of Order of Merit Thermal Dispatch out of the Order of Merit Thermal Dispatch in the Order of Merit + Inflexibility Total Thermal Dispatch Spot Price SE/MW 1 - Source: ONS ( PEN 2016) 21
Energy Reallocation Mechanism (ERM) for hydrological risk sharing 1) Equilibrium (GE 1 = PG 2 ) Buy at MRE 3 2A) Deficit (GE 1 < PG 2 ) Buy at MRE 3 Buy at Spot 2B) Surplus (GE 1 > PG 2 ) Sell at MRE 3 Buy at Spot A physical guarantee (assured energy) is assigned to support contracts Energy dispatch optimized by centralized system operator (ONS) on a tight pool PG 2 PG 2 PG 2 Key drivers for hydrological risk Generated Energy MRE Genco A Assured Energy Generated Energy MRE Genco A Assured Energy Generated Energy MRE Genco B Assured Energy Generated Energy (hydro) in the entire system (ERM) - influenced by hydrology Spot Price - marginal cost influenced by hydrology and thermal dispatch - System GSF = 1.0 - PPA = PG - System GSF < 1.0 - PPA = PG - System GSF < 1.0 - PPA = PG 1 GE: Generated Energy; 2 PG: Physical Guarantee; 3 Enough to cover variable O&M costs 22
AES Brasil growth perspectives Natural Gas Power Plants & Cogen ~1.5GW of dispatchable source 2 natural gas combined cycle power plants ready to go to energy auctions Cogeneration: distributed generation based on natural gas solutions Assessing M&A opportunities Renewable Energy Solar and Wind 150 MW solar projects in São Paulo¹. Distributed generation²: AES owns globally 65 MW and Brazil s potential is 1,2 GW up to 2020³ Assessing M&A opportunities Energy Storage AES Corp is the leader (patented system): Operations in 7 Countries (+432MW capacity; + 8 years experience) Medium and large size systems: utilities and behind the meter (industrial and commercial) 1 Close to Água Vermelha HPP, an existing AES Tietê hydro power plant on the border of the states of Minas Gerais and São Paulo 2 Business model considers the payment of the plant using the economy from the distribution consumption 3 According to ANEEL 23
New Commercial Platform: Integrated energy solutions centralized in the client New Matrix Energetic Efficiency Wind Energy Clean Energy Reliable Energy Client Cogeneration Accessibility $ Solar Energy Bases of the Platform 1 2 3 Market Intelligence Technology New Business Models Bases of the Platform 1 2 3 Market Intelligence Technology New Business Models Energy Storage Free Market 24
Growth Strategy: Expansion with new solutions and non hydraulic sources + - Renewable, Solar and Wind Energies Distributed Solar Generation Energy Storage Achievements Binding offer for the acquisitoin of Alto Sertão II (386.1 MW) for R$ 650 million 36 kwp of celebrated contracts since Dec/2015 Structuring of an integrated comercial platform Pilot Project in the Bariri Plant with batteries with a total capacity of 200 kva Opportunities Other M&A¹ processes in evaluation Participation in energyauctions: 150 MW of solar projects located in São Paulo Market potential of 1.2 GW² until 2020 in Brazil Participation in isolated auctions Market potential of 1.5 GW³ until 2020 in Brazil 1 Mergers and Acquisitions; 2 Source: ANEEL; 3 Source: AES Tietê 25
Reduction of net revenue in the period reflects the end of the bilateral contract with AES Eletropaulo Billed energy (GWh) Net Revenue (R$ millions) 15,075 15,670 11,108 14,485 11,413-41% 227 11,108 3,814 3,574 2,626 3,740 940 2,437 3,854 3,270 2,645 2,439 11 1,561 1,482 929 402 544 0 0 2014 2015 2016 4Q15 4Q16 175 2015 42 37 2016 AES Eletropaulo / Regulated and Free Market ERM 1 Spot/Others CCEE AES Eletropaulo / Regulated and Free Market ERM 1 Spot/Others CCEE 1 Energy Reallocation Mechanism; 2 Includes the selling to AES Eletropaulo at A-1 Auction 26
Contracting environment and opportunities 2016 and beyond Regulated Market Free Market Spot Market Existing Energy Auctions Bilateral contracts Non contracted energy Via auctions organized by federal government Distribution companies Via bilateral agreements Free Consumers¹ Exposed to Spot Market price CCEE Settlement 1 Free Consumers (Conventional free consumer - demand above 3MW and connected to a line of 69kV and incentivized/ special free consumer - demand above 0.5MW) 27
Commercialization strategy post-2015 leveraging cash flow Our goal is to sell the major part of Company physical guarantee in the free market Customized energy with global experience Focus on long term contracts and off takers with a strong financial background aiming to ensure Company s cash flow Practices and policies to ensure an adequate risk-profile assessment Client relationship actions to promote AES Tietê and identify clients needs (i.e.: workshops, site visits, satisfaction surveys) 28
Integrated and Centralized Commercial Platform Solutions to Serve our Customers Business portfolio with innovative solutions, focused on: CO-GENERATION Natural gas and process FREE MARKET CONTRACTS Conventional and Incentivized Energy DISTRIBUTED GENERATION Renewable: remote or local SELF-PRODUCTION Wind Energy ENERGY STORAGE Versatile application 29
Free Market Dynamic and competitive market Price formation methodology Short term Spot price (hidrology and reservoirs) Medium Term Supply and demand Long Term Marginal Expansion Cost Regulated Market price 30
Tendency of higher free market prices due to uncertainties in hydrology and changes in the spot price methodology in 2017 Client portfolio 1 (MWavg) Contracting level 95% 88% 73% 40% 28% 13% Average price A R$/MWh 2 157 159 159 148 141 128 66 155 339 1,178 1,089 905 749 899 1,080 495 345 164 2016 2017 2018 2019 2020 2021 Energy available for sale Own energy already sold 1.Only Conventional Energy. Includes energy contracts firmed until December 30 th, 2016. Excludes losses and internal consumption. 2.Actual values based on December, 2016; 31
Lower average price of the contract portfolio and exposure to short term market influenced the quarter s results Net revenue (R$ million) EBITDA (R$ million) 29% 53% 51% 62% 47% 3,205-30% -6% 1,389 2,626 1,561 637-43% 364 918 803 397-57% 169 2014 2015 2016 4Q15 4Q16 2014 2015 2016 4Q15 4Q16 EBITDA Margin 32
And returns 449 Net income (R$ millions) -11% 739 359 2014 2015 2016 266 4Q15-69% 83 4Q16 Minimum of 25% dividend payout of annual net income according to bylaws Distribution practice: quarterly basis Average payout from 2008 to 2016: 106% Average dividends since 2008: R$ 772 million/yr Management proposed the payment of R$ 34.5 million in dividends for 4Q16 Dividend yield of 1.6% and payout of 113.7% Dividend of R$ 0.09/unit, equivalent to R$ 0.02 per common and preferred shares Pay out Dividend yield Net Income 33
Low leverage level Net debt (R$ billion) Debt amortization schedule 2 0.50 1.10 419 0.64 0.87 232 334 261 177 4Q15 4Q16 2017 2018 2019 2020 2012-20123 Net Debt / Adjusted EBITDA¹ Net Debt Amortization (R$ million) Covenants Net Debt/Adjusted EBITDA < 3.5x Adjusted EBITDA/Financial Expenses > 1.75x Debt Cost 4Q15 4Q16 Average cost (% CDI) 101% 107% Average term (years) 3.0 2.7 Effective rate 16.3% 13.1% 1.Adjusted to debt service 2.Flow consists of amortization of principal, accrued interest and balance of deferred as Note 13 explains in the Company s Financial Statements 34
and consistent cash flow R$ millions 2015 2016 Initial Cash 528.5 739.3 Operating Cash Flow 1,220.8 1,144.1 Investments (136.9) (109.6) Net Financial Expenses (162.6) (112.5) Net Amortization (232.9) 31.4 Income Tax (220.4) (347.0) Free Cash Flow 468.1 606.5 FINAL CASH CONSOLIDATED 739.3 577.0 35
Capital markets AES Tietê x IEE x Ibovespa¹ A B C D Mar/2012: 4Q11 results above market expectations Sept/2012: announcement of the Energy Reduction Program, through the PM 579 4 Feb/2013: High thermoelectric dispatch to conserve water in the reservoirs increase spot prices Aug/2013: 2Q13 results above consensus due to higher-than-expected spot prices 140 120 A B C D E F G H I J K L E F Nov/2013: weak 3Q13 results affected by seasonality strategy Feb/2014: 4Q13 results slightly below consensus but market show high expectations on 2014 commercialization strategy 100 G May/2014: 1Q14 EBITDA above expectation benefited from seasonality strategy 80 H Jan/2015: Hydrology for rainy season worse than expected 60 40 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 GETI4 GETI3 IEE IBOV TSR - GETI4 TIET11 TSR - TIET11 Market cap³: US$ 1.7 billion / R$ 5.3 billion BM&FBOVESPA: TIET3 (common shares); TIET4 (preferred shares) and TIET11 (units) Restricted ADR program (Reg S and 144A) I J I K K L Dez/2015: Corporate Restructuring concluded May/2016: AES Tietê s stock returned to the MSCI Index Aug/2016: Capital Increase Oct/2016: Conclusion of Capital Increase 1 Base 100: from 01/01/2012 to 01/23/2017; 2 Total Shareholders Return; 3 Base date: 03/23/2017. FX rate 3.1378 BRL. ; 4 Government program to reduce energy tariffs. 36
We have strong capabilities and business governance Asset Management - ISO 55001 certification, 1 st Generation company in America AES Tietê has been included in the Corporate Sustainability Index (ISE) since 2007 Attractive returns to investors. Strong cash generation; Maximization of payout Cost efficiency and optimized capital allocation Established risk management capability 37
2016 investments focused on system expansion and customer service Investments (R$ million) 3,970 2016 Investments focused on: 583 73 510 2014 604 82 522 2015 792 110 682 2016 428 3,542 2017-2021 (e) 219 15 204 4Q15 31% 286 40 245 4Q16 R$ 152 million in system expansion for the addition of new clients and focus on customer satisfaction R$ 244 million in operational reliability through the maintenance of distribution and transmission lines Third Party Resources Own Resources 39
Quality indexes Recovery plan already in place Quality Indexes Recovery Plan: 1,600 electricians, 173 dispatch technicians and supervisors, installation of 1,147 reconnectors, 711,720 prunings, among others Improvement of the emergency response process SAIFI¹ (times) SAIDI² (hours) 5.12 6.59 0.89 +5% 6.90 1.26 Scheduled Unscheduled 13.49 23.78 3.35-33% 15.85 4.67 Scheduled Unscheduled 5.69 5.64 20.43 11.18 2014 2015 2016 Aneel s Reference - 2015: 5.95 times / 2016: 5.91 times 2014 2015 2016 Aneel s Reference - 2015: 8.06 hours / 2016: 8.01 hours 1 - System Average Interruption Frequency Index; 2 - System Average Interruption Duration Index 40
Losses reduction efficiency over the last four years 10.5 10.1 9.7 9.5 9.4 10.2 10.0 9.7 9.4 9.6 6.1 6.1 6.1 5.7 5.2 0.26 p.p increase in technical losses between 2015 and 2016. 4.1 3.9 3.5 3.6 4.4 2012 Aneel Reference¹ 2013 2014 Technical losses² 2015 2016 Non-technical losses 1 Aneel benchmark with standardized values for the calendar year; 2 - Values estimated by the Company to Aneel reference for non-technical losses of the low voltage market 41
Historical market performance Total Market 1 (GWh) Consumption Breakdown 2015 x 2016-3.9% 43,345 7,911 45,101 8,284 45,557 7,987 46,216 8,742 46,415 8,589-3% 44,237 42,826 8,058 8,362 16,021 15,930 14,743 14,177-3.2% 44,237 42,826 35,434 36,817 37,570 37,474 37,827 36,179 34,464 9,278 8,664 4,195 4,054 2010 2011 2012 2013 2014 2015 2016 Household Commercial Industrial Other Total Free Clients Captive Market 2015 2016 1 Own consumption not included; 42
Consumption expansion is mostly in residential and commercial classes Consumption by class ¹ 29% 37% 19% 33% 36% 21% 16% 9% Brazil AES Eletropaulo Household Commercial Industrial Other 1 4Q16 (Own consumption not included) Source: EPE. 43
Revenue decrease follows the lower cost with Parcel A and market contraction Gross revenue (R$ million) Costs (R$ million) Costs and Expenses (R$ million) 15,158 583 864 3,968 9,743 24,565 611 10,898 13,057 20,510 803 8,850 10,857 9,501 1,621 7,880 12,093 2,209 9,884 10,123 2,442 7,681 2014¹ Regulatory Assets and Liabilities Construction Revenue 2015 2016 Deductions to Gross Revenue Net Revenue (ex-construction revenue) 2014 Opex² 2015 Energy costs and sector charges 2016 1- Adjusted by regulatory assets and liabilities; 2 ex-construction Costs and Depreciation and Amortization 44
Increase in ADA and higher Operating Costs influenced this year s Ebitda Adjusted Ebitda 1 (R$ million) Adjusted Net Income (Loss) 2 (R$ million) 780 963 734 198 (132) 21 1,200 1,200 1,004 402 49 2014 2015 2016-36 2014 2015 2016 Adjusted Ebitda Reported Ebitda Adjusted Net Income (Loss) Reported Net Income (Loss) 1 - EBITDA adjusted by Pension Plan expenses, regulatory assets and liabilities and possibly non-existent asset; 2 Net income (loss) adjusted by regulatory assets and liabilities and possibly non-existent asset 45
Operational cash flow generation Adjusted Cash Flow - R$ Million 2014 2015 2016 Initial Cash Balance 974 909 531 Operating Cash Generation 752 571 2,692 Investments (501) (634) (756) Net Financial Expenses / Net Amortization (53) (36) (847) Pension Fund Expenses (210) (195) (409) Income Tax (49) (106) (1) Cash Restricted and/or Locked 65 21 (100) Free Cash 4 (378) (578) Final Cash Balance 909 531 1,068 46
Leverage level within financial covenants Net debt (R$ billion) Amortization Schedule (R$ million) 2.70 3.5 2.96 3.8 3.43 4.3 3.47 4.4 3.10 3.9 3.02 3.7 2.94 3.7 3.22 3.5 3,390 2,517 1,189 1,336 440 413 749 923 929 389 540 873 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Net Debt (R$ billion) Net Debt/Adjusted Ebitda¹ Covenants within limits Net Debt/EBITDA < 3.50x Adjusted EBITDA/Financial Expenses > 1.75x 2017 2018 2019 2020-2028 Fundação Cesp - FCesp National currency (w/o Fcesp) Debt Cost 2015 2016 Average cost (CDI+) 1.80% 1.92% Average term (years) 4.63 4.54 Effective rate 2 15.25% 13.12% 1 EBITDA adjusted by Pension Plan expenses and regulatory assets and liabilities; 2 Average rate during the period; 47
120 100 80 60 40 20 0 Capital markets AES Eletropaulo x IEE x Ibovespa¹ A B C D E F G H Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 ELPL4 IEE IBOV TSR - ELPL4 I J K A B C D E F G H I J K Apr/2012: Aneel announced 3PTRC proposal (tariff cut of 8.81%) Dec/2012: Court deems Eletropaulo liable for Eletrobras lawsuit. Eletropaulo appealed the decision. Feb/2013: 4Q12 EPS affected by energy costs and regulatory charges Jul/2013: Low tariff adjustment due to payment of 2/3 of 3PTRC Bubble Aug/2013: 2Q13 results above expectations. Efficiency in cost reduction. Jul/2014: Tariff readjustment approved by ANEEL including 50% of cable restitution May/15: 4 th Tariff Reset Cycle preliminary numbers released July/15: 4 th Tariff Reset Cycle final numbers released Sep/15: Market expectation on the Eletrobras Court Case outcome Jun/16: Utilities sector intense M&A activities followed by signal of economic recovery Nov/16: Corporate Restructuring announcement Market cap³: US$ 0.8 billion / R$ 2.7 billion BM&FBOVESPA: ELPL3 (common shares) and ELPL4 (preferred shares) ADRs at US OTC Market: EPUMY (preferred shares) 1 Base 100: from 01/01/2012 to 03/23/2017; 2 Electric Power Index; 3 Base date: 03/23/2017. FX rate 3.1282 BRL. 48
Value Creation Strategy: R$ 350 million in 2 years, based on Five Main Work Fronts Fronts of the Value Creation Strategy Quality Indicators 1 Revenue Management 2 Customer Satisfaction 3 Risk and Contingency Management 4 Automation and Innovation of the Distribution Grid Integrated Management of Support Areas Continuation of the Indicator Recovery Plan Development of the Online Renegotiation Channel Creation of a Centre to Negotiate Large Debts Area Dedicated to the Low Income Public (50% of the ADA) Customer s Journey Management Quality Control Management and Service Efficiency Predictive Intelligence for Root Cause Analysis Creation of AES Eletropaulo`s Risk Management Department Anticipation of Corporate, Regulatory and Economic Risks Productivity Program OPEX reduction in R$ 350 million¹ until 2018, in relation to 2016: R$ 200 million in 2017 R$ 150 million in 2018 Corporate Governance 5 Proposed Migration to the Novo Mercado 1 values in real terms 49 49
Migration to the Novo Mercado will allow greater flexibility for the Company's capitalization The Novo Mercado Listing Segment Listing segment with the highest standards of corporate governance in Brazil Extension of voting rights - all shares are voting ( Common Shares ) Why list AES Eletropaulo in the Novo Mercado? Increase Governance Level Increase investment capacity to foster growth Potentialize stock liquidity Flexibility to offer shares in Brazil Increase the Company`s attractiveness to capital markets investors 50
Migration should be concluded by the end of 2017, depending on the planned approvals and withdrawal right Requirement to migrate to the Novo Mercado BM&FBovespa Approve the changes to the Company's bylaws, aiming at the adoption of the minimum provisions required in the Novo Mercado regulation ANEEL Approval of the new bylaws required by Novo Mercado Shareholders Extraordinary General Meeting and Special Preferred Shareholders` Meeting to approve the migration to the Novo Mercado, conversion of preferred shares into common shares and amendment of the Company's bylaws Expected right of withdrawal on equity value (Company has right to withdraw in case of material disbursement) Debt Holders Creditors approval of part of the Company's debt contracts, since there is no subsequent control of the migration 51
We have strong capabilities and corporate governance AES Corporation and BNDES as major shareholders: long-standing reputation in the market First power distribution company in the Americas to obtain ISO 55001 certification of the Asset Management Program 2017-2020 investment plan of R$ 2.8 billion mainly focused on customer services and better quality indicators Efficiency on recognizing investments on the RAB 52
Brazilian Opportunities and Recent Events
Recent events in course in the energy sector Tariff Flags 3,0 18% Red Flag reduction GSF and PLD¹ GSF: New renegotiation proposal PLD: Change in calculation Overcontracting¹ Contracted tariff above 105% Eletropaulo 110.87%² in 2016; 111.30%³ in 2017 3 rd Tariff Review Cycle Reduced Ebitda margin 4 th Tariff Review Cycle Economic-financial sustainability Special tariff review 23.4% average increase MP 579 / Law 12,783 18% reduction of the tariff benefited the increased consumption Hydrological challenges Discos cash flow mismatch Tariff Flags Reduced the split of the distribution company's cash flow 83% Red Flag increase Government Subsides CDE and debt via CCEE 1 - Items under discussion; 2-2016 FY Results; 3-2017 Estimates as of 12/31/2016 54
Appendix 55
Tariff methodology for distributors Tariff Reset is applied each 4-5 years AES Eletropaulo next Tariff Reset: Jul/2019; Parcel A: costs are passed on through to the tariff Parcel B: costs are set by ANEEL Annual Tariff Adjustment Remuneration Asset Base X WACC X Depreciation Energy Purchase Transmission Sector Charges Regulatory Opex (PMSO) Investment Remuneration Depreciation Parcel A Costs Non-manageable costs passed on through to the tariff Incentives to reduce costs Regulatory Opex Efficient operating cost determined by ANEEL Remuneration Asset Base Prudent investments used to calculate the investment remuneration (applying WACC) and depreciation Parcel A: costs are passed on through to the tariff Parcel B: costs are adjusted Remuneration on Special Obligations Special Obligations Recognition of the opportunity cost of equity capital over third party investments by IGPM +/- X Factor¹ Regulatory Ebitda Parcel A - Non-Manageable costs Parcel B - Manageable costs 1 X Factor: index that capture productivity gains 56
X Factor methodology X Factor = Pd + Q + T Definition Distribution productivity Quality of service Operational expenses trajectory Objective Capture productivity gains Stimulate improvement of service quality Implement operational expenses trajectory Application Defined at Tariff Reset, considers the average productivity of the sector adjusted by market growth and consumption variation Defined at each Tariff Readjustment, considers variation of SAIDI and SAIFI and comparative performance of discos. Includes commercial indexes Defined at Tariff Reset, makes the transitions to operational costs verified in the last 12 months to the one set in the benchmarking models 57
4 th Tariff Reset Cycle Parcel A + Financial Components 13.96% Annual impact R$ million R$ 1,936m Energy CVA including FX rate variation associated with Itaipu CDE charge increase (loans and CDE share) Reduction of AES Tietê s energy participation due to end of contract in Dec/15 Involuntary exposure in 2015 Parcel B 1.27% R$ 176m WACC of 8.09% Special Obligations remuneration Opex adjusted to match the concession area s reality Tariff Reset Effect 15.23% R$ 2,112m 58
Breaking down Parcel B Remuneration (RAB) Depreciation R$ 732m R$ 458m Net RAB of R$ 6.0 billion WACC of 8.09% Gross RAB of R$ 12.2 billion Depreciation Rate of 3.75% Special Obligations R$ 39m Remuneration of 3.34% Annuity (Other Assets) R$ 134m Remuneration and depreciation of IT, vehicles and administrative assets Operational Expenses R$ 1,373m Xt Factor of -2.37%; Inclusion of labor liabilities, São Paulo salaries and underground network Bad Debt R$ 198m 0.85% of bad debt, considering Tariff Flag revenues Other Revenues - R$ 88m ~60% of non-distribution revenues Productivity Gains - R$ 33m Xp Factor of 1.13% Parcel B R$ 2,812m 59
Ranking of distribution tariffs in Brazil Boa Vista Tariff excluding tax (R$/KWh) 0,337 Ranking (out of 63) 1 CEA 0,397 4 Bandeirante 0,403 6 Eletropaulo 0,404 7 CPFL Piratininga 0,411 9 RGE 0,415 10 Copel-DIS 0,421 13 Celesc-DIS 0,431 17 CPFL Jaguari 0,441 25 CPFL Paulista 0,447 27 Elektro 0,448 28 Coelce 0,475 37 Light 0,479 40 Eletroacre 0,503 47 Cemig-D 0,531 56 Celpa 0,566 62 Source: Aneel s website. Tariffs as of March/2017. 60
AES Brasil Investor Relations Ave. Dr. Marcos Penteado de Ulhôa Rodrigues, 939-7th floor Barueri - SP Brazil ZIP: 06460-040 Websites: http://ri.aeseletropaulo.com.br/ http://ri.aestiete.com.br/ Phone: + 55 11 2195-7048 Fax: + 55 11 2195-1004