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CESP – Companhia Energetica de Sao Paulo has three hydroelectric power plants operating in the price system. The operations comprises in 18 generating units with installed capacity of 1,654.6 MW and 1,081.0 MW of physical guaranteed energy.

The plants of Ilha Solteira and Jupiá had their concession contracts due on 07.07.2015 and continued to be operated by CESP until the new concessionaire began to operate them in July 2016.

Hydroelectric plants are located in two river basins, the basin of the Paraná River (PR) in the west of São Paulo, and the basin of the Paraíba do Sul River (PS) in the east of São Paulo. Below the main data generator Park are presented:

Power Plants Date of Conclusion Generating Units Installed Capacity (MW) Physical Guarantee (Average MW) End of Concession
Porto Primavera (PR) 1999 14 1,540.0 1,017.0 05/21/2028
Paraibuna (PS) 1978 2 87.0 50.0 03/09/2021
Jaguari (PS) 1972 2 27.6 14.0 05/20/2020
Total 18 1,654.6 1,081.0

The Company, by not accepting the conditions proposed by the Provisional Measure No. 579 (subsequently converted into Law No. 12,783, of November 1st, 2013), had the granting of HPP Três Irmãos reversed by the Granting Authority, due to the end of the contract. Under CESP’s Concession Contract, extinguished the concession, the Company is entitled to compensation for the value of assets not yet amortized. In July 2014, the Company filed a lawsuit against the Federal Government pleading of R$ 6.7 billion indemnity for the plant Três Irmãos, including the locks and Pereira Barreto Canal, considering that for the Concession Authority the value of compensation is R$ 1.7 billion.

In October 2015 CESP filed an compensation lawsuit against the Federal Government to be ordered to pay the Company the amount due in respect of the reversal of assets and facilities related to the concession of HPP Ilha Solteira and Jupiá, considered the updated historical cost of the assets in question in the amount of R$ 1.6 billion.

Operation Market

CESP commercializes its physical guarantee of energy in the following environments:

Unregulated Contracting Environment – ACL: by means of Purchase and Sale Agreements of Electric Energy with generator companies, commercializing companies and free consumers through public offers.

Regulated Contracting Environment – ACR: through energy purchase auctions, organized by ANEEL, carried out by CCEE to serve distributors.

Electric Energy Trading Chamber – CCEE: does the accounting of the differences between what was produced, consumed and contracted by agents. Differences are settled in the Short Term Market and valued at the Differences Settlement Price. Short Term Market is also integrated by the Energy Relocation Mechanism, where hydrologic risks are shared and whose volumes are remunerated by the Energy Tariff Optimization.

CESP is committed to transparence in administration, elaboration and divulgation of information. As a mixed company and public utilities concessionaire, its operations are regularly assessed by state and federal control agencies.

Dividend Policy

1. The CESP’s Management adopts a quarterly Policy to assess (i) Quarterly Information Results – ITR, (ii) the projected results for the current year, (iii) the future cash flows projected, and, where the financial situation permits, anticipate dividends as Interest on Capital, in the statutory terms and Brazilian law.

2. Both the dividend payment as payment as Interest on Capital observe the statutory priority given to class A Preferred Shares – PNA’s.

3. According to the Bylaws, the fiscal year coincides with the calendar year, after which the Company will prepare the annual financial statements. The Corporate Law and the Company’s Bylaws require the completion of the Annual General Meeting of Shareholders by April 30 of each year at which, among other matters, shareholders must decide on the proposal of the Board of Directors regarding the distribution of annual dividends for the preceding year. All shareholders, as holders of shares on the base date of declaration of dividends, are entitled to receive dividends distributed the Bylaws.

4. For purposes of the Corporation Act, net income is defined as the result of the year remaining after deducting accumulated losses from prior fiscal years, the amounts relating to income tax and social contribution, and any amount allocated to the payment of the statutory participation of its employees and management in the company’s profit,which are not provided for in the case of CESP. From net income, before any other allocation, 5% (five percent) will be deducted for the legal reserve, up to 20% (twenty percent) of the own capital.

5. Although under the law, the Board’s proposal for allocation of results to the shareholders will comprise the adjusted net income, net of installments required for the establishment of reserves permitted by law, as well as any profit-taking reserve.

6. The distribution of results will take place in compliance with the provisions established in the Bylaws.

Approved by the Board of Directors on 06/07/2011

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