ebr20180105_6k9.htm - Generated by SEC Publisher for SEC Filing

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


*Summary of the main points of attention (1/2)*


The content below presents the main points of attention identified during the accounting due diligence procedures. Accordingly, it does
not include all matters identified and discussed in the due diligence report, and, therefore, must be read jointly with the whole report in
order to provide a comprehensive understanding of the matters identified.

1 Financial position		2 Lawsuit against all distribution

The Company has been ascertaining recurring losses (R$ 143.9 million		companies
in 2016 and R$ 184.7 million in 2015), reaching an accumulated loss of
R$ 749.1 million as of Dec-16 and a net shareholders' equity of R$ 273.7		A public civil action was filed by the National Consumers Association –
million.		ANDECO against all Electric Energy Concessionaires in the country
In addition, we identified an adjusted net indebtedness (after our		with respect to prevention and remediation of collective damages
adjustments and reclassifications) as of Dec-16 of R$ 855.6 million and		against consumers, with a request for preliminary injunction in order
negative adjusted EBITDA of R$ 5.8 million. According to the		for the companies to refrain from charging the claimed losses from the
management, the main reasons for the Company’s current financial		consumers in the electricity bills, including pro rata, as well as the
situation are:		losses sustained due to billing or measurement errors, theft, and fraud
-	Significant value of assets in service not yet included in the	in the period from 2010 to 2014. ANDECO also pursues the annulment
	“armored” basis [base blindada], resulting in a tariff below the one	of all ANEEL Resolutions that allow the collection and inclusion in the
	necessary to cover the operating costs;	bills of sums related to non-technical and technical losses. The value of
		the matter is R$ 27 billion, but the amount charged from Eletroacre is
-	Delay in the receipt of subsidies (CCC, CDE, CVA, among others);	R$ 501 million.
-	High level of client default and technical and operating losses;
-	Late payment to suppliers and other liabilities (as a consequence of	The plaintiff maintains that, notwithstanding ANEEL’s authorization,
	the items above), generating cash unbalance and increase in	the prorated billing of non-technical losses (fraud, theft, measurement
	expenses with financial charges and arrears penalties.	and billing errors, and supply without measurement) is groundless and,
		therefore, the distribution companies must indemnify the regular
We should stress that the Company’s current financial position,		consumers in twice as much (double indemnification provided for in
associated with the tariff gap (e.g., significant volume of assets in		the law) the amounts charged in the period from 2010 to 2014,
service not yet included in the “armored” basis), with the investment		according to their respective balance sheets. It also pursues the
level during the period of provision of the services, among other factors,		annulment of all ANEEL Resolutions that allow the collection and
may result in additional risks for the Company, mainly in the last fiscal		inclusion in the bills of sums related to non-technical and technical
years. We understand that those factors may impair the obtainment of		losses.
an EBITDA on a recurring and normalized basis, making it more
difficult, therefore, to compare the historical periods.		This lawsuit was classified by the Company’s lawyer as with risk of possible
		loss. Due to the relevance of the case, we recommend that you further
		develop the discussions with the legal area about the potential risks that
		this matter involves.
Privatization of the Eletrobras System Distribution Companies		10 agosto 2017
PwC		3

© 2017 - PricewaterhouseCoopers Corporate Finance & Recovery. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Corporate Finance & Recovery, a member of the PricewaterhouseCoopers network, or, as suggested by the context, the network itself.

Each member of the PwC network is a separate and independent entity. For further information on the PwC network, please access: www.pwc.com/structure


Belo Horizonte, November 1, 2017.


Gentlemen,


In furtherance of the service provision agreement, this paper is part of the services retained for Eletrobras
Distribuição Acre privatization, ITEM 3 – “SERVICE A” (Financial & Economic Evaluation), under the BNDES
Agreement.

This Report encompasses the purpose, scope, procedures and methodology used, as well as the market
and operating assumptions for Valuation of Distributor and the execution of the new Utility Contract¹.

Discounted Cash Flow was the methodology used. Assumptions were adhered to, based on information
delivered by the Distributors and BNDES, and on general market conditions.

The signed copies of this agreement are kept by our Contracting party.




Best regards,
Alexandre Moreira Galvão
Legal Representative & Stockholding Director




^í “tatutoŒÇ LaÁ íî.óôï dated JavuaŒÇ íí, îìíï, AŒti le ô, PaŒagŒaph í A: ^Whev the seŒÀi e pŒoÀideŒ is a legal evtitÇ
diŒe tlÇ oŒ ivdiŒe tlÇ ovt olled Ç the goÀeŒvuevt, the Uviov Áill e evtitled to hold su h iddivg pŒo eduŒe as de
s Œi ed iv the head se tiov of this a ti le, ou ived Áith the seŒÀi e pŒoÀidivg legal evtit ovtŒol tŒavsfeŒ, avd gŒavt
ivg the utilit ovt a t to the veÁ ovt ollivg sha eholdeŒ foŒ a ïì Çea peŒiod._

Ceres )nteligência Financeira	t


Introduction

Purpose

The purpose of this paper is to issue a Financial & Economic Evaluation Report on Eletrobras Dis-
tribuição Acre and on the execution of a new Utility Contract, in order to shore up the accurate dimen-
sioning and provide technical support in the business deals of the Company.

The purpose of the financial evaluation, besides the main point of determining the Business Valuation,
is to present scenarios, existing synergies for the business, and value possibilities that may be per-
ceived by the market, as well as associated liabilities. From the company’s viewpoint, the discounted
cash flow method reckons in numbers and at present value the whole dimension of the business, on a
realistic basis, and taking into account potential points of exploitation of the utility contract, in view of
the current structure.

Added hereto are the sensitivity analysis and the risk analysis, in addition to other valuable methods,
such as comparative evaluation by multiples or similar transactions, aiming at reaching the clearest
perception of the business value interval and possible structures that could make the transaction more
efficient, both for the buyer and the seller.

Disclaimers

The job described in this paper was developed according to information obtained from sources ap-
pointed by Eletrobras Distribuição Acre and data delivered by ANEEL.

This evaluation does not take into account the penalties for electricity over-contract by the enterprise
at issue, because it was assumed that the new utility company could afford settling its positions at
market prices. Ceres hereby highlights that sudden changes in macroeconomic indicators and electric-
ity prices may have some bearing on the values pointed out herein.

Please note that this paper does not contain a Compensation Basis added by the enterprise’s current
PP&E positions. The accounting entries covering the current PP&E positions may be found in section
“Comments on Current Assets” for invertors’ information.




Ceres Inteligência Financeira	12


Methodology

Evaluating a distributor is based on the set of regulations making up the tariff review base applicable
to inter-cycle tariffs and tariff readjustments, as well as on the economic pillar of effective forecasts,
especially about costs incurred and capital invested. The set of regulations gives direction to the Re-
quired Revenue, which is the criterion to set the tariffs used by the distributors. Such tariffs arise from
tariff reviews, decomposed from Installment A (non-manageable costs) and Installment B (managea-
ble costs).

Tariff reviews are based on “tariff moderateness” and “continued award to efficiency” principles, with
the different complexity/size areas being taken into consideration.

Costs and expenses, taxes, working capital, provision for indemnities and contingencies, and actual
disbursements supplement the economic flow, to be dimensioned in forecast and at present value, for
business analysis.

Please find below some directives forming the tariff review base, dimensioned at the Tariff Level and
specified in PRORET (Portuguese acronym standing for “Tariff Regulation Procedures”). The cash
flow and the capital cost definition methods used in this evaluation are detailed below. As a final point,
find our comments on this paper’s directives for specific approaches and risk analysis.




Ceres Inteligência Financeira	13


		Operating Costs

		Abstract
At this stage, we calculated items related to the tariff level cost elements. The operating costs calcu-
lated for the distributor take into account the own costs and the other distributors’ costs. The other
distributors are included in the calculation to form the efficient cost goal of the distributor under evalua-
tion. The Statutory Operating Costs are forecasted from two angles:

1	.	Statutory Cost from Nov-2017 to Nov-2023 equivalent to such value as specified in Technical
		Note 149/2017 SRM/SGT/SRD/SFF/ANEEL;
2	.	Statutory Cost calculation from Nov-2023 through such methodologies as described in Sub-
		modules 2.2 and 2.2-A of PRORET, considering the information obtained from RT 2013,
		SAMP, BDGD and Financial Statements as the reference values.

Accordingly, the operating costs calculation as of 2013 adhered to the following brief plan of work:

1	.	Collect data from ANEEL documents;
		a.	PRORET sub-module 2.2
		b.	PRORET sub-module 2.2-A
		c.	APPROVAL RESOLUTION # 1.858 DATED FEBRUARY 27, 2015;
		d.	Technical Note 409/2013-SRE/ANEEL;
2	.	Market Data Collection from SAMP (Economic Regulation Market Information Monitoring Sys-
		tem);
3	.	Data Collection of distributor’s structure from BDGD (Distributor’s Geographic Database);
4	.	Data Collection from the two most-recent annual Financial Statements available;
5	.	Updating Factor Calculation based on the methodology of Module 2.2, V2.0, PRORET;
6	.	Efficient Costs Interval Calculation;
7	.	Operating Costs Goal Definition;
8	.	Operating Costs Revenue Calculation;
9	.	Report containing all the calculations made and results obtained upon the application of the
		proposed methodology;

Please find below a detailed description of such stages.



		Database
		Inputs
The Operating Costs calculation required:

Ceres Inteligência Financeira				19


General Rules
Revenues deemed a reference to reach tariff moderateness shall correspond to the average revenue
invoiced plus taxes, in the 36 months preceding the 6^thmonth before the review date, updated at IGP-
M³thru the review date, multiplied by 12, as defined in Chapter 3 “Other Revenue Methodology” of
Sub-module 2.7 in PRORET.
· In the event the activity was started within a period shorter than 36 months, then we consid-
ered the average revenue invoiced thru the 6^thmonth before the review date, updated at IGP-
M, multiplied by 12.




³Value updating calculation: A * updating at IGP-M thru review date * 12.
Wherein, for updating in:
2015 and 2016: A = average revenue invoiced in the last 12 months, as of the 2^ndmonth before the tariff review date;
2017: A = average revenue invoiced in the last 24 months, as of the 6^thmonth before the tariff review date;
2018 on: A = average revenue invoiced in the last 36 months, as of the 6^thmonth before the tariff review date.

Ceres Inteligência Financeira	30


Discounted Cash Flow

Introduction
The technique used for evaluation is based on the Discounted Cash Flow methodology, which is sup-
ported on the hypothesis that the value of a project depends on its capacity to generate wealth in the
future. Revenues, costs, expenses, investments and other working capital requirements are estimat-
ed, in addition to all the items that affect the enterprise’s cash fluctuation, for a given period of time.

Seeing as the generated cash flow values occur in different time spans, these must be summed and
compared in a current equivalence. Thus, the net balances reckoned per period are taken to present
value at a discount rate reflecting the risks inherent to the business, added by the risk-averse inves-
tors opportunity cost, i.e., an attractiveness rate reflecting the business capital providers opportunity
cost.

Such rate is given by value parameters generally offered by government bonds, incorporates the spe-
cific risk of the business, and is calculated based on CAPM (Capital Asset Pricing Model). By that
model, the project owners’ equity (Ke) cost is calculated.

To calculate the project values, the owners’ equity cost (Ke) is weighted with the third-parties’ equity
cost (Kd), in proportion to the capital structure used in the project, resulting in the enterprise’s WACC
(Weighted Average Cost of Capital).

There are different versions of the Discounted Cash Flow methodology, and this paper adheres to the
Free Cash Flow to Firm (FCFF) approach.




Ceres Inteligência Financeira	34


Capital Asset Pricing Model – CAPM

Introduction
The owners’ equity cost (Ke) calculation is primarily based on the business risk analysis, added by the
economy’s risk-free yield rate, generally given by the yield offered by government bonds.

At first, companies of the industry serve as the basis, measuring the price fluctuation of their shares in
the money market, against the economy oscillations, mirrored on some market index, for instance.

One of such measures is by Beta, which represents a multiplier in relation to the return fluctuations of
companies in a given segment in relation to the market and is equivalent to the risk of the segment
analyzed. Primarily, we take a weighted average of such measure for the industry, excluding the in-
debtedness weight. That indicator represents an average and time relation between the returns on the
shares selected in relation to the economy, which was highlighted here by the S&P500 returns fluctua-
tion, an index that captures a good deal of transactions in the US market. Therefore, compared are the
fluctuations of the prices in dollars of the shares in the open capital companies that operate in the
same industry as the enterprise analyzed, with the S&P500 index fluctuations.

The purpose of this process is to obtain the additional risks of the business at issue in relation to the
economy. Therefore, the result of the return expected and required on the business would be a risk
free yield rate, in line with the rates offered by the government, added by the economy rate in general,
plus the profits or minus the losses of the business, in comparison with the economy as a whole.
Hence, a single rate synthesizes the yield required by a business, contemplating all the risks inherent
in their fluctuations of income and cash, and adds the gains on zero risk investments, given in tradi-
tional short-term investments offered by the government.

Whereas we used indexes present in the US and global economy, calculated in dollars, considering
the purpose of accuracy of inter-industry risk levels, therefore, utilization and supplementation in cal-
culating the risks present in Brazilian interest rates in relation to the global market are necessary.

For risk-free and government rates, we used the 10-year US treasury bonds, marked to market con-
tinuously (Constant Maturity Bond). Thus, the risk elements present in the Brazilian interest rate, as
the country risk premium, regarding the credit risk in the Brazilian Economy against the global market,
and the exchange risk, showing the uncertainties about the BRL fluctuation against the USD, must be
included. Both of them are already included in SELIC interest rate or government bonds with future
maturities, the reason for such inclusions, for they represent the risk-free opportunity cost in Brazil.

For the country risk premiums, we used the difference between Exchange FRC, contracts traded in
BM&F-BOVESPA, and the Risk Free Rate calculated through the Treasury Bonds.


Ceres Inteligência Financeira	36


company are weighted by their Enterprise Value, thus achieving the unleveraged Beta for the resulting
Beta, unleveraged, for the industry, which is then re-leveraged in order to consider the fraction of sys-
temic risk corresponding to the relevant company indebtedness effect.



Market Risk Premium
The Market Risk Premium represents the yield expected by the market, taking into account the addi-
tional risk in relation to the risk-free rate that practiced therein. The Market Risk Premium is calculated
based on the difference between the returns on the S&P500 Index and the perpetual 10-year US
Treasury Bonds (Constant Coupon Bond), marked to market annually, considering a long-term win-
dow of time. That is, to estimate the Market Risk Premium, the difference between the return on the
S&P500, adjusted for dividends and the return on Treasury Bonds, was taken into account.

For the calculation of the return on T-Bonds, the constant maturity bonds, i.e. 10-year-maturity
marked-to-market perpetual bonds, are taken into account, assuming the repurchase of the bond at
the end of each year. Thus, this return is composed of two components: the yield hired for the year in
which the bond was held by the investor and the paper price fluctuation to market due to the changes
in the interest rate offered at the end of the year.



Country Risk
As previously mentioned, the CAPM model structuring based on the rates practiced in foreign mar-
kets, especially those found in the US market, is more advisable due to the diversity of business seg-
ments found in their stock market indices, which explain more comprehensively the relative risks be-
tween segments and companies in an economy. However, for application in the countries of origin, it
is necessary to adjust the country-specific credit risks, since the US risk-free rate is used, based on T-
Bonds, debt securities issued by the United States. The measurement of this risk spread, which ap-
plies to developing economies, including Brazil, is denominated country risk. The option recommend-
ed in this paper, for a better adjustment, is obtaining the spread between interpolated FRC and T-
Bonds, which more directly reflect the country risk present in the interest curve.



Exchange Risk
To estimate the foreign exchange risk premium, the forward premium was obtained by the breakdown
of domestic interest rates and the FRC, which already includes the country risk. The foreign exchange
coupon and FRC contracts indicate the expected interest rates in US dollars, measuring the DI-1 day
rate fluctuation against the exchange rate fluctuation, and are good indicators of the external interest
rates evidenced in the negotiations of Brazilian bonds with sovereign risk, issued abroad.

Ceres Inteligência Financeira	39


Third -party capital cost (Kd)
The third party capital cost is obtained through the weighted average of the gross debt (2011-2016) of
the companies used to calculate Beta, weighted at the Debt/Net Debt ratio, of the same companies,
on their respective reference dates. Next, the Cost of Debt / Net Debt ratio is multiplied by the IDC
forecast of the target year. As a final point, inflation and taxes are discounted to reach the tax-free real
Kd.



Weighted Average Cost of Capital – WACC
The WACC rate is obtained by weighting the owners’ equity cost and the third-party equity cost and
their respective sharing in the company’s capital structure, considering the tax benefit of the debt for
third-party equity. The capital structure used was the same as used by ANEEL in PRORET, Sub-
module 2.4.




Ceres Inteligência Financeira	42


Special Treatments and Specific Risks

The distributors being analyzed are within the electric power distribution service provision norm as
Designated Distributors, pursuant to the terms and conditions of Article 9, Statutory Law 12.783, dated
January 11, 2013, and Ordinance 338 dated July 26, 2016, issued by the Department of Mines & En-
ergies (MME).

Accordingly, several terms and conditions were agreed to for operation under supervision of the regu-
latory agency.

“ReA No. 748/2016 imposes on such distributors the pre-privatization Temporary Distribution
Service Provision Plan for 2017, entailing loan transfer to meet the goals set and accommo-
date the operating costs, inter alia, according to Annex IV – Commitment, attached to said
ReA, as follows: ‘The Designated Distributor Officers, regarding the distribution utility service
provision (hereinafter referred to as the ‘Officers’), who are signatories to this agreement, in
order to be entitled to the transfers of funds set forth in Paragraph 4, Article 9, Statutory Law
12.783 dated January 11, 2013, commit to abide by the provisions of Ordinance MME-
388/2016 and see to continuity and suitability of the service delivered, particularly regarding
the following parameters, which have been followed up by ANEEL as a priority:

I – industry compliance;

II – the assignment’s electric power loss threshold;

III – the assignment’s Operating Costs threshold;

IV – the assignment’s threshold of discontinuity equivalent duration per consumer unit (DEC);

V – the assignment’s threshold of discontinuity equivalent frequency per consumer unit (FEC);

VI – quality of information provided to ANEEL;

VII – meeting the inspection requirements issued by ANEEL.

The signatories hereto, on behalf of the Officers, hereby commit to send to ANEEL the Tem-
porary Distribution Service Provision Plan, duly executed by the same signatories hereto, de-
tailing the actions to be taken by the management, with a view to abide by the terms and con-
ditions set forth by ANEEL during the assignment period granted by the Contract-Letting
Branch of Government.”



Ceres Inteligência Financeira	46


The evaluation model treated such special norm, containing goals and specific budget for 2017. The
treatment is due to the need to estimate the start balances for the valuation at the beginning of 2018.

For subsequent years, we considered the private utility contract and performance trajectories of dis-
tributors according to this new reality. In its turn, the statutory goals were adjusted consistently with
the reality and the complexity of the service provision in those regions. More to the point, we consid-
ered the terms and conditions contained in the draft template for the Electric Power Distribution Utility
Contract, as per resolution issued by the Board of ANEEL during the 15^thOrdinary Public Meeting held
on May 2, 2017.

Likewise, the tariff review expected for those distributors was suspended. The new draft contract al-
lows the possibility of accelerated tariff review in the new agreement⁶, a premise taken into account for
the Base Scenario 2019.

Those distributors’ compensation bases appear to be outdated, and the unitizing process is underway,
in many of them, it may valorize their compensation bases. As a final point, different compensation
bases were simulated, given the expected results that may be obtained by Eletrobras, supported by
such reports.




Ceres Inteligência Financeira	48


Related Parties
The distributors have debt agreements with Eletrobras. Those agreements were priced separately, so
as to allow possible debt restructuring with the shareholder.



Outstanding CCC Values and other Industry-Related Charges
There are debt balances for industry-related default. Normative Resolution No. 748/2016 resets post-
assignment commitments and provides for loans with RGR funds for cash closing. CCC/other debt
flows were treated separately, and the amounts of receivables and payables were reconciled.



Forecast of ‘Light to Everyone’ and RGR Flow earmarked to expira-
tion
We forecasted the amounts payable and receivable by means of CDE funds for Program ‘Light to
Everyone’ (PLPT) thru expiration scheduled for December 2018⁷. We did not make PLPT forecasts for
subsequent years at scheduled expiration because such forecasts would depend on determinations
foreign to the distributors.

As a final point, the total investment in replenishment will be distributed over the years 2018 to 2022
based on the Technical & Operating Due Diligence outcome; for the other years, the necessary re-
plenishments, consistent with the private market⁸within their area of operation.




⁷Presidency of the Republic, Chief of Staff, Legal Team, Decree No. 8.387 dated December 30, 2014.
⁸CEMAR, COELCE,COELBA,CELPE.

Ceres Inteligência Financeira	49


Economic & Financial Evaluation

General Assumptions for the Financial Model

For the financial model, it was necessary to adopt some assumptions to analyze the distributors. The
model was developed with monthly periodicity; the following general assumptions were defined: Base
Date used for the evaluation as of March 1, 2018, with analysis period from March 1, 2018 to February
28, 2048 (30 years of utility contract). However, the tables, charts, and results shown in the Report
start in January 2017 and end in December 2047, because, by considering only two months in 2048,
the analyses would not be comparable with the other years.

The discount rate used is based on the dynamic rate methodology, consisting in the monthly calcula-
tion of the WACC – Weighted Average Cost of Capital, to be applied. The reporting currency is the
official currency, i.e., the values are impacted by inflation over the analysis period. Deflator used to
bring the forecasted cash flow to present value is IPCA.

For regulatory assumptions, we assumed that Ordinary Tariff Reviews have a 5-year periodicity, being
considered in the month of November and as of the year 2023 as reference (5 years after the contract
is signed with the new utility company, which is to take place in 2018). Besides, this evaluation con-
siders an Extraordinary Tariff Review in 2019, basically encompassing the BRR reevaluation.

Finally, the results obtained in the evaluation are based on Nominal Cash Flow to Firm.




Ceres Inteligência Financeira	50


Summary of Business and Existing Structures

Features of the Business
ELETROACRE was organized under State Law No. 60 dated December 17, 1965, and authorized to
operate as an electric power utility company in the State of Acre on August 20, 1968, under Federal
Decree No. 63.121.

In September 1997, ELETROACRE, a government-controlled private company, started being man-
aged on a shared basis, by means of the Management Agreement executed by and between the State
of Acre and ELETROBRAS – Centrais Brasileiras Elétricas S.A., thru January 30, 1998, when it was
federalized by means of the Agreement on Purchase of Shares and Other Covenants, executed by
and between the said parties, previously authorized by the Legislative Assembly of the State of Acre
(State Law 9.491 dated September 9, 1997).

Currently, ELETROACRE is a federal utility company in charge of distributing and selling electric pow-
er throughout the State of Acre, the shareholding control of which, formerly held by the State Govern-
ment, is now held by ELETROBRAS, the holder of 96.70% of its total capital stock. The power supply
for the capital city, Rio Branco, and six boroughs interconnected to Rio Branco System, is delivered by
ELETRONORTE.

The countryside of the State, since 1999, by means of agreements for the purchase of electric power
in separate systems, is served by GUASCOR do Brasil Ltda., and since 2016, also by companies
Tecnogera Locação e Transformação de Energia S.A. and Brasil Bio Fuels Geração de Energia do
Acre, as a PIE (Portuguese acronym standing for ‘Electric Power Independent Producer’), by means
of Separate Generation Systems. Let us point out that the power supply to the whole State is delivered
by the Interconnected System (SIN) (80%) and Diesel Thermoelectric Plants (20%).

In June 2008, the new management model was implemented for the distribution companies of
ELETROBRAS, setting a single and integrated direction, aiming to unify procedures, put employees of
different cultures closer, and reinforce confidence of customers served in the different territories of
operation. As a holding company, ELETROBRAS controls great part of electric power generation and
transmission systems in Brazil, and operates in the distribution segment by means of companies
Eletrobras Amazonas Energia, Eletrobras Distribuição Acre, Eletrobras Distribuição Roraima,
Eletrobras Distribuição Rondônia, Eletrobras Distribuição Piauí, and Eletrobras Distribuição Alagoas.

Utility Contract # 06/2001, executed with ANEEL - National Agency of Electric Power, was signed on
12-Feb-2001 and expired on 07-Jul-2015, without renewal; nowadays, ELETROACRE is a distributor
assigned for electric power utility service provision, under Ordinance 421/2016, until a new Utility Con-
tract is executed.

Ceres Inteligência Financeira	52


Demand Forecasting

Demand Forecasting per Class
The consumption of electric power in Brazil may be divided into eight different classes, which are:
Residential, Commercial, Industrial, Rural, Government, Public Lighting, Public Service, and Own
Consumption. In order to understand the possible heterogeneities among the groups, the Residential,
Commercial, Industrial, and Rural sectors were analyzed in separate. Government, Public Lighting,
Public Service, and Own Consumption were all grouped in a single class entitled ‘Other’. This decision
was based on the similar consumption behavior between them and to reduce the effect of volatility
incurred in low-consumption classes.



Distributor’s History
To project the demand for power of the next thirty years, ending in February/2048, it is necessary to
carry out a historical analysis that demonstrates the evolution of power consumption and its distribu-
tion between the classes. As observed in Table 10 – Geometric Mean of 2007-2016 Consumptions, all
sectors present an evolution in power consumption¹⁹. The segments have similar growth, near 6.70%
p.a. A note should be made regarding the industrial sector, which had growth below the others, of
2.98% p.a. It is also worthwhile noting the composition of power consumption, i.e., how the total power
consumption is distributed between the classes. Analyzing Figure 3 – Power Consumption Compari-
son, it possible to note that no substantial changes occurred in terms of power consumption distribu-
tion. In 2007, the residential sector was responsible for 43.97% of the total consumption, against
46.47% in 2016, with the industrial sector having 5.78% in 2007 against 4.11% in 2016, and the other
sectors remaining basically constant.




¹⁹Source: Distributor’s statement of invoicing

Ceres Inteligência Financeira	60


Network Extension (Km)

Common Analyses to Distributors
The network extension project was based on the history of extension of low, medium, and high voltage
networks between years 2001 and 2016²⁹. The network extension set forth by the Decennial Plans
and PDDs of distributors was added to such history, of which the forecasted network extension was
extracted for years 2017 to 2021 for low and medium voltages, 2017 and 2018 for the “Programa Luz
para Todos” (Light for All) and high voltage for years 2017 to 2026.
Its history of expansion after the Decennial Plans and PDDs takes into account both the historical and
projected investments to each distributor.
Three groups have been segregated: (i) low and medium voltage, (ii) high voltage, and (iii) “Programa
Luz Para Todos”. This division was necessary to determine the fundamental differences existing in
each group.

The forecasting of group (i) Low and Medium Voltage is set to begin in 2022. A proxy (average of in-
vestment/average of growth) of dependency was created between the degree of investment and the
network expansion. With the degree of investment projected by Ceres, it was possible to estimate from
2022 the network mileage values.

The same methodology applied to the Low and Medium Voltages was applied to the High Voltage
segment. The Decennial Plan already projects the expansion of the network mileage for years 2017-
2026. For years 2027-2048, a causal relation was applied between the investment and the network
expansion. The investments projected for the high voltage Market served as an input to obtain the
network expansion of that class.

Regarding “Programa Luz Para Todos” (PLPT), the data used refer to the Decennial Plans and, there-
fore, based on the current condition of the legislation that determines the end of the program in 2018,
no forecast was made for the coming years.




²⁹The extension of the network built under Programa Luz para Todos in included in the 2001-2006 history, in low and medium
voltage

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Investment Forecasting

Deployment and Renewal
The Eletroacre 2017 Distribution Development Plan (PDD 2017), the 2017 Decennial Plan, the 2017
Plan on the Provisional Electric Power Distribution Services (Provisional Plan), the information of the
Due Diligence of service B, in its “Product 7 – Technical-Operational Report of Eletroacre”, annex II, in
addition to indications of Eletroacre’s technical team, obtained in the meetings organized by CERES,
were used to define Eletroacre’s investment needs.

Investments were subdivided into High Voltage Expansion, Medium Voltage/Low Voltage Expansion,
Improvement, Renewal (Maintenance), Luz para Todos, and Infrastructure and Support. From 2017 to
2022, the values obtained in the Due Diligence of service B, in its “Product 7 – Technical-Operational
Report of Eletroacre”, annex II, were considered as a whole and added to the expenses with Infra-
structure and Support in 2017 of the Provisional Plan.

Only 10% of the expenses with program Luz para Todos were considered for years 2017 and 2018,
since the other 90% were subsidized with CDE resources and have been allocated as Special Obliga-
tions. In addition, approximately BRL 65.8 million of the investments with High Voltage Expansion in
2018 were also considered as Special Obligations, since they are subrogated.

As of 2023, investments with High Voltage Expansion, Medium Voltage/Low Voltage Expansion, and
Renewal (Maintenance) continued being forecasted according to the premises described below.

High Voltage Expansion: The values informed in the 2017 PDD were corrected for the base date De-
cember 2016 and fully considered until 2024. According to information of Eletroacre, these invest-
ments would be sufficient to meet the current demand of the company, therefore, the minimum annual
expenditure of the period between 2017 and 2024 was considered as fixed for the forecasting of the
other years.

Medium Voltage/Low Voltage Expansion: As of 2023, the amount is equivalent to the average of
amounts expended between 2018 and 2022 on the base date of December 2016, considered as fixed
until the end of the forecasting.

Improvement: Based on information supplied by Eletroacre’s technical team, it has been defined that
50% of the 2019 investment could be applied again, without variations, in relation to the loss combat
program, meeting the demand and conditions expected by the company.

Renewal (Maintenance): As of 2023, expenses with maintenance will be equivalent to the asset de-
preciation value. The reference of depreciation of ANEEL’s Normative Resolution no. 674/2015 for the


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PMSO Estimate
Common Analyses to Distributors
PMSO Forecasting Method
The analysis of Personnel, Material, Third-party Services, and Other Expenses (PMSO, of the Portu-
guese “Pessoal, Material, Serviços de terceiros e Outras despesas”) may be divided into two parts:
characterization of the analytical bases and the effective forecasting of such bases according to the
types of expenses observed in such accounts
The First Part, known as the Characterization of Analytical Accounts, underwent 5 Phases:
Phase 1 – Grouping of analytical accounts;
Phase 2 – Analysis of the account nature as fixed and variable;
Phase 3 – Identification of atypical values³¹;
Phase 4 – Evaluation of the best correlation to variable accounts;
Phase 5 – Identification of regulatory accounts (considered as recurring by ANEEL and compensated
thereby).
Phase 1 begins with the monetary adjustment of the analytical accounts evaluated. These accounts
are included in the sampling period between January 2012 and December 2016, and were adjusted
for the base date of December 2016 for it is the most current of the period.
After such first monetary adjustment, the accounts of expenses were grouped in each PMSO group, in
accordance with the similarity of type of expense and respective taxable events.
Phase 2 consists of the analysis of the fixed and variable accounts. The PMSO groups were evaluated
considering as fixed account the account whose participation in the expenditure in the past 3 periods³²
was within the lower and upper limits of the expense grouping sample, where:
Upper limit fix/var = 60%*(1-((standard sample deviation)/(sample minimum)) and


³¹Values with behavior different from the usual of the account, either too high or too low in relation to the average, values at
non-recurring levels
³²To accounts completely fixed in value, each 1 out of 5 years of the period would represent 20% of the total expenditure. Thus,
the last 3 years would represent 60% of the value in the 5 years evaluated
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The Second Part includes the Forecasting of the Effective and Regulatory PMSO Groups, and may be
divided into four Phases:
Phase 1 – Expense Forecasting for 2017;
Phase 2 – Operating Costs Variation Rate;
Phase 3 – Identification and Treatment of Accounts with Behavior Linked to Improvements of the Dis-
tributor;
Phase 4 – Concession Period Forecasting – 2018 to 2047.

Phase 1, Expense Forecasting for 2017, will consider a variation of the expense based on the history
of the company, observing the fixed and variable natures of the expenses composing the PMSO.
Fixed and variable expenses are calculated as detailed in the First Part, Phase 2, in accordance with
the provisions of this chapter. Variable expenses are transformed into indicators having as denomina-
tor the parameter of best correlation that has been analyzed, based on BRL/Parameter, multiplied by
the forecasting³⁸of Network Extension (Km) or MWh Extension.
Phase 2, Operating Costs Variation Rate and Goal, is subdivided into three steps:
1 – Definition of the Operating Cost Benchmarks;
2 – Definition of Variation Rate and Goal between 2018 and 2022;
3 – Definition of Variation Rate and Goal between 2023 and 2027.
Step 1 of definition of Operating Cost Benchmarks initially took into account the groups determined by
ANEEL, which have been adjusted per region. For the distributors of the Northern region, the bench-
marks that have been considered consisted of the following private distributors: Celpa and Celtins.
These were grouped with Ceron, Eletrobrás Roraima, Eletroacre and Amazonas Energia.
For the Northeastern region, the following were considered: Celpe, Cemar, Coelce, Energisa Paraíba
and Energisa Sergipe, Coelba and Cosern; these were grouped with Cepisa and Ceal.
In Step 2 of Definition of the Variation Rate between 2018 and 2022, ANEEL’s DEA data base of cal-
culation of efficient costs was used for the 4CRTP. The PMSO expense of each company with the
extension of the network is parameterized.

³⁸Detailed in the chapter on Consumption and Demand Forecasting
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Based on these indicators, it is possible to calculate the average of the group of each distributor ac-
cording to the region. Distributors whose initial indicator is greater than that verified by the group aver-
age shall have their cost adjusted in terms of indicator in the next rate adjustment, in 2023.

Distributors whose initial indicator is below that verified in the group average shall have as their goal
the indicator level between 2023 and 2027 lower than the group average.

Step 3 of Definition of the Variation Rate between 2023 and 2027 consists of the calculation of the
average indicator of the private benchmarks of the groups. For the Northeastern region, the private
distributors considered were: Celpe, Cemar, Coelce, Energisa Paraíba, and Energisa Sergipe. For the
Northern region, the private distributors were: Celpa and Celtins.

When achieving the BRL/Consumption unit indicator of the cycle goal, distributors stabilize the operat-
ing cost indicators parameterized by consumption unit.

Phase 3 of Identification and Treatment of Accounts with Behavior Linked to Improvements of the
Distributor consists of the identification of considered accounts that influence the effective PMSO cost,
but that range in accordance with the operating improvements of the distributor³⁹. Each company had
a set of adjustments treated in their specific section.

Phase 4 consists of the estimate of the PMSO expense levels of distributors during the period of con-
cession. With the goals between 2018 and 2022 and from 2023 to 2027, distributors will achieve the
operating cost benchmarks by the end of 2027. From that year, the indicator of BRL
PMSO/Consumption Unit is stabilized, and the absolute PMSO value ranges in effective terms by
means of the variation of consumption units.



Efficient Costs Interval
The upper and lower limits of the efficiency interval⁴⁰calculated to each distributor were estimated.
The values considered to these forecasts were based on those found in “Annex I – Efficiency Inter-
vals” of submodule 2.2 V2 of PRORET. These limits have the trend of being aligned with their respec-
tive benchmarks in two occasions during the concession; the first ending in 2022 and the second end-
ing in 2027.

The first occasion calculates the simple average of each one of these limits to distributors according to
their regional groups, consisting of:




³⁹Examples: ANEEL fines are reduced according to the curve of improvement of indicators of quality
⁴⁰Greater detail on the PRORET methodology about this subject may be found in chapter “Methodology”, Item PRORET (Rate
Level), Sub-item “Operating Costs”, Topic “Efficient Cost Interval”, or PRORET submodule 2.2 V2

Ceres Inteligência Financeira	78


Nordeste: Ceal, Cepisa, Celpe, Cemar, Coelba, Coelce, Cosern, Energisa Paraíba e Energisa Sergi-
pe;
North: Amazonas Energia, Eletrobras Roraima, Ceron, Eletroacre, Celpa, and Celtins.
Distributors with upper or lower limit at level worse than that of the group average achieve the group
average by 2022.
At the second occasion, the average of private distributors of these regional groups is calculated, con-
sisting of:
Northeast Private Benchmark: Celpe, Cemar, Coelce, Energisa Paraíba, and Energisa Sergipe;
North Private Benchmark: Celpa, Celtins.
It should be noted that since Technical Note 149/2017-SRM/SGT/SRD/SFF/ANEEL defines the oper-
ating costs in force from 2017 to 2023, the efficient costs intervals defined in this section will only have
an impact to the rate after the Rate Review of 2023.




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	Voluntary Dismissal Plan (“PDV”)

	Common Analyses to Distributors
The adjustment of personnel involves the decision between terminating the labor agreement with the
collaborator versus offering him/her a voluntary dismissal against financial compensation. The values
of each option are evaluated by the employee and by the company, and each will choose what is best
when making the decision.

The evaluation begins with the definition of the public eligible to the PDV, considering only collabora-
tors with at least 20 years⁴²of effective labor link with the company. This public represents approxi-
mately one-third⁴³of the total personnel of the evaluated distributors.

Labor link with the company means employees in the following categories⁴⁴:

·	Employees in full-time positions;
·	Assigned employees⁴⁵;
·	Employees under license or with labor agreement suspended;
·	Officer⁴⁶.

In this sense, the following employees are not included in the base containing employees eligible to
the PDV:

·	Employees requested from other agencies and branches⁴⁷;
·	Employees without link with the government;
·	Board members;
·	Young apprentice;
·	Interns.




⁴²PID – Eletrobras Companies Dismissal Stimulation Plan – Commission of Mines and Energy – Chamber of Deputies –
07/02/2013
⁴³PID Eletrobras calculated 36.4% of total eligible personnel
⁴⁴The categories are those presented in the due diligence of Human Resources performed by Service B, in “Product 8: Report
on Distributor’s Human Resources Evaluation” of each distributor
⁴⁵According to Decree no. 4.050, dated April 12, 2001, which governs Article 93 of Act no. 8.112, dated 12/11/1990, these
employees are part of the personnel of the conceding agency (the evaluated distributor is the conceding institution in such case)
⁴⁶Applicable only to officers with more than 20 years of career in the distributor and part of the effective personnel, not including
officers required by other government agencies and branches or without link to the government, among others
⁴⁷According to Decree no. 4.050, dated April 12, 2001, which governs Article 93 of Act no. 8.112, dated 12/11/1990, these
employees are part of the personnel of the conceding agency (the evaluated distributor is the receiving institution in such case)

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The payroll independent of enrollment on December 31, 2016, was evaluated to each distributor. Such
evaluation resulted a termination value that is compared to the value if the employee applies to the
PDV.

The PDV expense is entered as a nonrecurring item that occurs in two occasions, in its phase 1 on
June 1, 2018, and in its phase 2 on June 2, 2019. Employees who leave the company reduce the
PMSO personnel account. Such reduction may occur in two ways, either by means of reduction of the
work position without the addition of a new employee and/or replacement with a new employee with a
more competitive cost, which will return to the PMSO Personnel account.

The termination value is calculated based on the sum of the following accounts: base salary, addi-
tions⁴⁸, overtime, prior notice, FGTS fine, vacation, and 13^thsalary, in which:

·	13^thsalary has the same value of the Dec/2016 base salary;
·	Additions and overtime refer to values received by the employees in December 2016;
·	Prior notice is the sum of the monthly base salary, extraordinary compensation for length of
work⁴⁹;
·	FGTS is calculated with the multiplication of the monthly salary by 8%, by the number of
	months that the individual worked at the company until the base date of December 31, 2016.
	The fine of FGTS represent 50% of this value;
·	Vacation has total value per employee of half plus 1+(1/3) of a base salary related to Decem-
	ber 2016. This value is divided by half because at this point of the period, half of the individu-
	als have already used their vacation benefit.

The PDV is calculated as approximately 18 times the sum of the Base Salary, Additions, and Overtime
of the collaborators in December 2016. This choice represents the value with which approximately
one-third⁵⁰of individuals eligible to the PDV see it as financially interesting when compared to the
involuntary dismissal.

Considering such eligible collaborators, those in two specific situations join the Plan:

1 – Individuals whose PDV is equal to or higher than the involuntary contractual termination value;

2 – Individuals whose PDV is greater than twice the sum of the base salary, additions, and overtime is
greater than or equal to the termination value.




⁴⁸Premium for hazardous, dangerous and hardship
⁴⁹At every one year, 3 days of bonus are received as compensation, up to a maximum of 60 days or two months of compensa-
tion. Added to the prior notice compensated with maximum of 30 days, the total of receipts may totalize 90 days
⁵⁰PID – Eletrobras Dismissal Benefit Plan – Commission of Mines and Energy – Chamber of Deputies – 07/02/2013. Eletrobras
estimated that the number of dismissals would represent 47% of the public eligible to its 2013 PID

Ceres Inteligência Financeira		91


1 – Normative Resolution no. 748, dated November 29, 2016⁵⁷, which establishes the terms and con-
ditions for the provision of the public service of electric power by Designated Distributor;

2	–	Official Letter no. 113/2017-DR/ANEEL, Brasília, dated May 3, 2017, procedure:
48510.000502/2017-00, which determines the submittal of a draft of the new model of Agreement for
the Concession of Public Service of Electric Power Distribution⁵⁸.

The treatment given in relation to Document 1, in its Chapter I (Revenue), in its Article 5 established
that: “The Designated Distributor will be authorized to assign the resources from offsetting for violation
of the limits of quality related to the continuity of the service and the voltage level in permanent regi-
men as per items 2.13 of section 8.1 and 5.11 of section 8.2 of PRODIST’ Module 8 for investments in
the area of concession. ”

These offset values are included in entry Obligations Linked to the Electric Power Service (Special
Obligations), during the period of designation for the provision of the electric power public service, i.e.,
between 01/01/17 and 02/28/18.

In relation to Document 2, in its Clause Nineteen (Transitory Provisions), Subclause One, we have:
“DISTRIBUTOR may allocate the resources from offsetting for violation of the limits of quality, related
to the continuity of the services and the sampling measurements of the voltage level in permanent
regime, for the investments in the area of concession, until the end of the fifth calendar year after the
date of execution of the concession agreement. ”

I.e., between 03/01/2018 and 02/28/2023, the distributor may allocate such offsetting to make invest-
ments, according to the criteria below:

·		Paragraph one: “DISTRIBUTOR must continue calculating the offset values from the date of
		execution of the agreement, according to the regulation, for the purposes of follow-up and in-
		spection by ANEEL”;
·		Paragraph Two: From the second calendar year following the execution of the agreement, in
		case the calculated values of the offsets are below the values of the calculated offsetting for
		the previous calendar year, such difference will be considered as a remunerable investment
		by DISTRIBUTOR upon the rate review, with the remaining value being included in entry Obli-
		gations Linked to the Electric Power Public Service (Special Obligations) ”;
·		Paragraph Three: “From the second calendar year after the execution of the agreement, in
		case the calculated values of the offsetting is greater than the values of calculated offsetting
		for the previous calendar year, such difference shall be invested doubled in the concession




⁵⁷ANEEL
⁵⁸As resolved by ANEEL Management in the 15^thOrdinary Public Meeting, held on May 2, 2017

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Agreements for the Purchase and Sale of Power

Summary of Agreements for the Purchase and Sale of Power
The data contained in the contracts were collected to define the characteristics of the agreements of
purchase and sale of power in the Regulated Contracting Environment (ACR). Such data were vali-
dated with spreadsheets of internal control assigned by the distributor and with the spreadsheet up-
dated in March 2017, of Consolidated Result of Electric Power Auctions per Contract, obtained on the
website of the Electric Power Trading Chamber.

After gathering information on the contracts, the SPARTA system, 2016 readjustment, calculated if the
power purchase volume was the same found in the contracts and spreadsheets of internal control.
From the validation, the necessary volumes were added in order to obtain values and volumes com-
patible with the SPARTA.

With the data on quantity of power, price, beginning of effectiveness, end of effectiveness, base date
of price, month of readjustment, and index rate of the readjustment of each contract, it was possible to
group them based on the beginning and end of the contractual effectiveness, and to readjust the pric-
es in order to update them. Thus, the contracts have been synthesized as shown in the table below.
Such data were used as the basis for the demand of power to compose Installment A.




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Regulatory Remuneration Base Flow
Regulatory Remuneration Base Calculation
To estimate the Regulatory Remuneration Base to be validated in 4CRTP by ANEEL, the additions,
write-off, and adjustments of the regulatory agencies have been evaluated for the following lines:
(1) Fixed Assets in Use (New Replacement Value);
(2) Maximum Usage Index;
(3) Gross Special Operations;
(4) Fully Depreciated Assets;
(5) Gross Remuneration Base = (1)-(2)-(3)-(4);
(6) Accumulated Depreciation;
(7) Net AIS (Market Value in Use);
(8) Depreciated Usage Index;
(9) Remuneration Base Value (VBR);
(10) Stockroom in Operation;
(11) Deferred Charges;
(12) Net Special Obligations;
(13) Real Property and Easements;
(14) Total Net Remuneration Base = (1)-(6)-(8)+(10)+(11)-(12)+(13);
(15) RGR PLPT Balance;
(16) RGR Balance Other Investments;
(17) Depreciation Rate;
(18) Regulatory Reintegration Quota = (5)*(17);
(19) Effective WACC before Taxes;

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(20) RGR PLPT Rate;
(21) RGR Rate Other Investments;
(22) Remuneration of Capital (RC) = (15)(20)+(16)(21)+[(14)-(15)-(16)]*(19).


Common Analyses to Distributors
Composition of the 4CRTP Regulatory Remuneration Base
The composition of the Regulatory Remuneration Base considered in the evaluation may be divided
into two parts: Initial Base and ANEEL Adjustments⁶⁰.
The Initial Base refers to the values that will compose the Regulatory Remuneration Base in the 4^th
Cycle of Periodical Rate Review (4CRTP). These values were determined by independent companies
that conduct the Investment Evaluation (Incremental Base Review) and Armored Base of distributors
between 3CRTP and 4CRTP, achieving a composition of part of the lines composing the Regulatory
Remuneration Base of the 4CRTP to each distributor. This Initial Base takes into account the Com-
plete Evaluation Report of Distributors.
Thus, the Complete Evaluation Reports, which include the Incremental Base Review and the Armored
Base Review and that were considered in the evaluation of each distributor are:
Eletrobras Distribuição Acre: SETAPE – Report: “EDAC Executive Summary – Complete Base –
Evaluation of the Electricity Assets of Acre – Eletrobras Distribuição Acre”, reference February 28,
2017;
Eletrobras Distribuição Alagoas: Levin – Complete Evaluation Report “Companhia Energética de Ala-
goas – CEAL Project no. 2715-17745”, reference February 28, 2017;
Eletrobras Distribuição Amazonas: Levin – Complete Evaluation Report “Eletrobras Amazonas Ener-
gia – Project Levin no. 3174-17752”, reference February 28, 2017;
Eletrobras Distribuição Piauí: Levin - Complete Evaluation Report “Cepisa Eletrobras Distribuição
Piauí Project Levin no. 3082-18367”, reference February 28, 2017;
Eletrobras Distribuição Rondônia: Deloitte – Equity Evaluation Report “Centrais Elétricas de Rondônia
– Ceron”, reference February 28, 2017;



⁶⁰Performed by ANEEL inspection
Ceres Inteligência Financeira	110


Eletrobras Distribuição Roraima: Levin – Complete Evaluation Report: “Eletrobras Distribuição Rorai-
ma Project no. 3012-17862” reference February 28, 2017.

Complete Evaluation of distributions shall hereinafter mean the aforementioned reports, related to the
respective distributors.

During the evaluation procedure, the Distributors had two review reports of the Regulatory Remunera-
tion Base. One to be presented to ANEEL, except atypical situations, with the Asset Evaluation Re-
port, which reviews the Incremental Base of a CRTP to the other, considering money adjustments,
additions, and write-off.

The second, the Complete Evaluation Report, considers this same Asset Evaluation Base and also
reviews the Armored Base of 3CRTP, adjusted to the 4CRTP. This report was made and used in this
work due to the important value of the assets of the distributors with potential to make part of their
Armored Bases. However, it should be noted that the reviews on the Armored Base may have a
smaller expectation of being accepted for they regard to specific cases when compared to the evalua-
tions of the Incremental Base between CRTPs⁶¹.

The position of the Complete Evaluation Report, which has been considered in this work, includes the
money adjustments of the 3CRTP Base, the additions and write-off between the 3CRTP and 4CRTP,
and the review of the 3CRTP Armored Base, adjusted to the 4CRTP. The additions, write-off, and
review of the Armored Base were included in its pertinent items by the evaluator of the Complete Re-
port.

The evaluation of the Complete Report includes⁶²from item (1) Fixed Assets in Use (New Replace-
ment Value) to (14) Total Net Remuneration Base = (1)-(6)-(8)+(10)+(11)-(12)+(13) and all were used
in the composition of the initial Regulatory Remuneration Base of 4CRTP⁶³.

Items (15) RGR PLPT Balance and (16) RGR Balance Other Investments were subject to money ad-
justment by the IPCA between the values obtained in 3CRTP and 4CRTP.

Finally, the other percentage items: (17) and (19) to (21) were maintained constant in relation to what
has been verified in 3CRTP and subtotals (5), (7), (9), (14), (18) and (22) had their calculation logics.




⁶¹To balance such smaller change of acceptance by the regulatory agency, the difference of the Reviewed Armored Base and
the “Common” Armored Base (Armored Base of the Asset Evaluation Report) is set aside, which is greater than that applied to
the Incremental Base, as detailed in the topics below
⁶²These same lines are also included for the Asset Evaluation Report that reviews the Incremental Base
⁶³Item 1 was adjusted by ANEEL’s disallowance rate, which implied the variation of the original values used in the Regulatory
Remuneration Base of the economic-financial evaluation. The disallowance was applied in separate over the Incremental Base
and the Armored Base

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ANEEL Adjustment on the Incremental and Armored Bases
ANEEL inspects the Incremental Base of assets and the Reviewed Armored Base⁶⁴between periodi-
cal rate cycles. This advent implies that the assets presented and/or reviewed may be considered as
inapplicable and thus discarded by the regulatory agency. Thus, the incremental Base between the
3CRTP and 4CRTP and the Armored Base Review of this same period were applied percentages of
Incremental Base Adjustments and Armored Base Adjustments, respectively.

The average adjustment (disallowance) of the group of distributors evaluated in the 3CRTP per region
was applied over the Incremental Base that forms the Initial Base of 4CRTP⁶⁵, or for cases in which
the average adjustment is worse than that verified by the company, the adjustment of the distributor
was maintained

The average adjustments (disallowance) of the group of distributors evaluated in the 3CRT per region
were applied over the Reviewed Armored that forms the Initial Base of the 4CRTP. Such adjustment is
applied once to each distributor in its Initial Base, i.e., it is not applied in the following years, differently
to the Incremental Base. For the Reviewed Armored Base⁶⁶, Northern companies were attributed a
disallowance of 5.73% and Northeastern companies had disallowance of 5.01%.

From 2018 to 2048⁶⁷, the average adjustment of the benchmark private distributors⁶⁸is applied per
region, obtained from the 3CRTP Incremental Base. A disallowance of 2.09% was considered to
Northeastern, and of 2.83% to Northern companies.

Disallowances are considered as effective, i.e., they are not presented again in the future and consid-
ered as assets by ANEEL. This occurs due to two main reasons:

- Difficulty to present the proof of the investment at the degree demanded by the regulatory agency;

- Management faults that could generate investments in assets not acknowledged in the Regulatory
Remuneration Base, which makes part of the invested assets to be set aside.

The evaluated distributors, with the entry of a new concession holder, will seek and gradually achieve
the adjustment level by ANEEL of the benchmark private distributors of their regions, which will cause




⁶⁴In the specific cases in which they are reviewed and presented again, as occurring to the Evaluated Distributors
⁶⁵Provided by the investment evaluators between 3CRTP and 4CRTP
⁶⁶Armored Base of the Complete Report less Armored Base of the Incremental Report
⁶⁷From the period of a new concession
⁶⁸Benchmark distributors compared to those evaluated in the Northern region: Celpa and Cemar; Northeastern region: Celpe,
Energisa Paraíba and Energisa Sergipe. Energisa Tocantins (Celtins) was discarded due to the atypical value (above 1.5 of
standard deviation over the average of indicators) of ANEEL adjustment for the period considered when compared to the other
private distributors

Ceres Inteligência Financeira	112


in the average that their asset disallowances are reduced when compared to the period prior to the
private concession holder.
Finally, the application of the disallowance of the Remuneration Base presented by the distributors is
levied upon item (1) Fixed Assets in Use (New Replacement Value) and consequently affects the
items connected thereto. This will make the values considered in the evaluation to be different of the
asset evaluation report in the magnitude of the disallowance applied to each distributor.

Regulatory Remuneration Base Components Forecasting
Inflation adjustments, additions, and write-off of assets shall occur for the years after the Initial Base of
4CRTP, which are considered in the evaluation until the final period of the concession.
Money Adjustments
The money adjustments of the Regulatory Remuneration Base may be subdivided into four detailed
subgroups, as follows:
Items Monetarily Adjusted Directly;
Items Consisting of Formulas;
Percentage Items;
Other Items.
It should also be noted that the values of the rates to which such adjustments occur may be found in
section “Economic-Financial Evaluation”, in chapter “Macroeconomic Forecasting”.
The items of the Regulatory Remuneration Base are monetarily adjusted⁶⁹by the IPCA⁷⁰:
(1) Fixed Assets in Use (New Replacement Value);
(3) Special Gross Obligations;
(10) Stockroom in Operation;
(11) Deferred Asset;


⁶⁹The IPCA is applied directly to the value observed from the Initial Base, also considering their increments and write-off
throughout the evaluation period
⁷⁰National Price Index to the Broad Consumer Amplo – IBGE, according to PRORET Submodule 2.3 V5, review 2.0, with date
of effectiveness on 11/23/2015 and after, according to Normative Review no. 686/2015, dated 11/23/2015
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(13) Real Properties and Easements;
(15) RGR PLPT Balance;
(16) RGR Balance Other Investments.
Items consisting of formulas, i.e., using the lines of the Regulatory Remuneration Base to be calculat-
ed, are monetarily updated indirectly, using the calculations over the items over which the accounts
are realized, already monetarily updated. They are:
(5) Gross Remuneration Base = (1)-(2)-(3)-(4);
(7) Net AIS (Market Value in Use);
(9) Remuneration Base Value (VBR);
(14) Total Net Remuneration Base = (1)-(6)-(8)+(10)+(11)-(12)+(13);
(18) Regulatory Reintegration Quota = (5)*(17);
(22) Remuneration of Capital (RC) = (15)(20)+(16)(21)+[(14)-(15)-(16)]*(19).
The percentage items are not monetarily adjusted by any index. These items are:
(17) Depreciation Rate;
(19) Effective WACC before Taxes;
(20) RGR PLPT Rate;
(21) RGR Rate Other Investments.
Finally, items net of their depreciations, depreciations, and complete usage rates are treated specifi-
cally and have their money adjustments obtained indirectly.
Item (2) Complete Usage Rate is obtained by multiplying item (1) Fixed Assets in Use (New Replace-
ment Value)⁷¹by the ratio of the values of the Initial Base between item (2) over item (1).
Item (4) Fully Depreciated Assets is obtained by multiplying item (1) Fixed Assets in Use (New Re-
placement Value)⁷²by the ratio between the Accumulated Fully Depreciated Assets over the Accumu-
lated VNR, both items of the ratio are in the same monetary date.


⁷¹Monetarily adjusted by the IPCA as highlighted above
Ceres Inteligência Financeira	114


On its turn, the (6) Accumulated Depreciation is found by multiplying item (1) Fixed Assets in Use
(New Replacement Value) by the ratio between the accumulated depreciation and the Accumulated
VNR, with both last items being in the same monetary date.
Item (8) Depreciated Usage Rate is also monetarily adjusted indirectly, multiplying item (2) Complete
Usage Rate⁷³by the subtraction of one by the ratio between the Depreciation of the Accumulated Us-
age Rate over the Accumulated Gross Usage Rate, with both items of the ratio being in the same
monetary date.
Finally, item (12) Net Special Obligations⁷⁴is obtained by multiplying item (3) Special Gross Obliga-
tions by one less the ratio between the Depreciation of the Accumulated Special Obligation over the
Accumulated Gross Special Obligation, with both items of the ratio being in the same monetary date.
Increments and Composition of the Regulatory Remuneration Base Lines
The assets will have increments throughout the period of concession, which are net of write-off, and
that are contemplated in the economic-financial evaluation of distributors.
The items of the Regulatory Remuneration Base are affected differently by these increments and may
be divided into five groups:
Items with Direct Increments;
Items Consisting of Formulas;
Percentage Items;
Items without Increments;
Other Items.
Part of the items of the Regulatory Remuneration Base are incremented directly, as detailed below:
(1) Fixed Assets in Use (New Replacement Value);
(3) Special Gross Obligations;
(10) Stockroom in Operation;
(13) Real Properties and Easements;


⁷²Monetarily adjusted by the IPCA as highlighted above
⁷³Monetarily adjusted by the IPCA as highlighted above
⁷⁴Monetarily adjusted by the IPCA as highlighted above
Ceres Inteligência Financeira	115


Items (1), (10) and (13) have their increment values of the Regulatory Remuneration Base detailed in
section “Economic-Financial Evaluation” of this document, in section “Investment Forecasting” and, on
its turn item (3), is detailed in chapter “Special Obligations”.
Items consisting of formulas, i.e., using the lines of the Regulatory Remuneration Base to be calculat-
ed, are monetarily updated indirectly, using the calculations over the items over which the accounts
are realized, already with their respective increments. The composition of the formulas of these items
is the same according to the provisions established by the regulatory agency⁷⁵, these items being:
(5) Gross Remuneration Base = (1)-(2)-(3)-(4);
(7) Net AIS (Market Value in Use);
(9) Remuneration Base Value (VBR);
(14) Total Net Remuneration Base = (1)-(6)-(8)+(10)+(11)-(12)+(13);
(18) Regulatory Reintegration Quota = (5)*(17);
(22) Remuneration of Capital (RC) = (15)(20)+(16)(21)+[(14)-(15)-(16)]*(19).
Percentage items are not affected by increments. Their percentages are established by regulation and
the values verified in the 3CRTP of each evaluated distributor are kept constant. These items are:
(17) Depreciation Rate;
(19) Effective WACC before Taxes;
(20) RGR PLPT Rate;
(21) RGR Rate Other Investments.
These percentages are maintained unaltered throughout the entire valuation period.
Part of the items of the Regulatory Remuneration Base do not have increments, being only adjusted
monetarily by the IPCA, considering the 3CRTP values allocated to each distributor.
(11) Deferred Asset;
(15) RGR PLPT Balance;
(16) RGR Balance Other Investments.

⁷⁵ANEEL PRORET Submodule 2.3, V2.0, of Normative Resolution no. 686/2015, dated 11/23/2015
Ceres Inteligência Financeira	116


At last, the other items of the Regulatory Remuneration Base have particularities related to their com-
position and their increments, which are not related to the groups above.

Item (2) Complete Usage Rate is obtained by multiplying item (1) Fixed Assets in Use (New Replace-
ment Value)⁷⁶of the period for the ratio of the values of the Initial Base between item (2) over item (1).

Item (4) Fully Depreciated Assets is detailed in the topic below “Fully Depreciated Assets”, of this
same Chapter “Regulatory Remuneration Base Flow”.

Item (6) Accumulated Depreciation is calculated from the sum of the depreciation of the Initial Base,
summed to the depreciation of the Incremental Base throughout the period of concession. Greater
detail of the depreciation may be found in Chapter “Investment Forecasting” of this same section.

Item (8) Depreciated Usage Rate is calculated from the multiplication of item (2) Complete Usage Rate
by one less the ratio between the Depreciation of the Accumulated Usage Rate over the Accumulated
Gross Usage Rate, considering the components of the ratio in the same monetary date.

Finally, item (12) Net Special Obligations is obtained with the multiplication of item (3) Special Gross
Obligations, by one less the ratio between the Depreciation of the Accumulated Special Obligation and
the Special Gross Obligation, considering the components of the ratio in the same monetary date.




⁷⁶Monetarily adjusted by the IPCA as highlighted above

Ceres Inteligência Financeira	117


	Considerations on Assets in Course
It should be noted that this work does not incorporate the Fixed Assets positions in course of the en-
terprise to the Remuneration Base.

The evaluation reports of the Remuneration Base did not perform any treatment regarding the items of
Fixed Assets in Course, due to the fact that this type of asset is not part of the scope of contract. In
addition, the accounting position from the audited Financial Statements of the evaluated Distributor
does not allow the acknowledgement of relevant particularities for the amounts in course to be consid-
ered.

Thus, based on the reports of the evaluators of the Remuneration Base and the audited Financial
Statements, the following information cannot be extracted:
·	what are the assets in operation not unitized;
·	which amounts represent works in progress;
·	which values refer to improvements or expansions interrupted;
·	the New Replacement Value (VNR) of Fixed Assets in course;
·	the depreciation rate to be applied and the moment in which its application begun;
·	the usage rate of the assets for the cases in which the asset is already in use, and
·	the source of financing of these assets in course.


These restrictions impede the estimate of the effective impact that the Fixed Assets in Course may
generated to the Initial Remuneration Base and, consequently, to the respective tax impact.

Since the minimum set of premises to include these assets in course in the Remuneration Base was
not met, it is not possible to obtain reasonable consistency regarding to
·	eligibility for provision;
·	physical-accounting conciliation;
·	sources of financing, and
·	other parameters of the reevaluation procedure (such as the VNR calculation, depreciation,
	usage rate, and write-off evaluations).


Thus, the effects of Fixed Assets in Course to the Remuneration Base were not included in this eco-
nomic-financial evaluation document. The investor shall then analyze the criterion of adoption of the
parameters to be considered.

Finally, for the case of Eletrobras Distribuição Acre, the Complete Evaluation Report “EDAC Executive
Summary – Complete Base – Asset Evaluation of Eletricidade do Acre – Eletrobras Distribuição Acre”
carried out by SETAPE was used.


Ceres Inteligência Financeira		125


Special Obligations

Common Analyses to Distributors
The Special Obligations consist of resources related to: financial participation of the consumer, budget
appropriation of the Government, federal, state, and municipal charges, and charges of special credits
related to the investments applied to the enterprises linked to the concession.

The Special Obligations were calculated in two periods: The first for Dec/16, which used the position
of Dec/16 made available by the evaluated distributors. The second from 2017, which excluded from
the analytical bases of Special Obligations all nonrecurring items.

Bases with different levels of detail were provided. Some distributors had specific treatments to define
the recurring items. Program “Luz para Todos” (PLPT)⁸³is considered as a recurring item during its
period of effectiveness for which distributors have expense forecasting (until 2019).

For the other Special Obligations, recurring items have been considered as those that in the past 5
years presented at least three variations of value, or that in the past three years had at least two years
with variation of value.




⁸³Tratado com maior detalhe no capítulo de investimentos

Ceres Inteligência Financeira	127


Indicators of Quality
Analysis of Indicators of Quality
The levels of the indicators of quality achieved by the evaluated distributors throughout the concession
period (03/01/2018 to 02/28/2048) were estimated, the goals established by ANEEL in the same peri-
od were forecasted.
Seven indicators were evaluated:
DEC (Equivalent Duration of Interruption per Consumption Unit);
FEC (Equivalent Frequency of Interruption per Consumption Unit);
FER (Equivalent Frequency of Complaint);
IASC (ANEEL Rating of Consumer Satisfaction);
IAb (Telephone Support Abandonment Rate);
ICO (Indicator of Busy Calls of Telephone Support).
These indicators affect the Component of Quality of Service Q of Factor X and may influence the val-
ues of Installment B of distributors, in accordance with the coverage or not of the regulatory goals
established by ANEEL. The levels of coverage or not of each distributor are compared with the results
obtained by the distributors of a same group⁸⁴. A distributor may be between the 25% best or worst
companies to whether achieve or not the goal, or between the other 75% that whether achieve or not
the levels established by ANEEL.
Summing all indicators, the addition or reduction value of Installment B may be of 2%, depending on
the level of coverage of ANEEL goals by the distributor in each indicator, also compared to the other
distributors of its group.
The equations and parameters for the classes of each indicator were used in accordance with
ANEEL’s PRORET 2.5 V2.0.
The weights equivalent to each indicator are presented below:


⁸⁴Groups are defined by size of company, as per Submodule 2.5 V2.0 of ANEEL’s PRORET
Ceres Inteligência Financeira	129


“Paragraph Three – From the second calendar year after the execution of the agreement, in case the
calculated values of the offsetting is greater than the values of calculated offsetting for the previous
calendar year, such difference shall be invested doubled in the concession and included in entry Obli-
gations Linked to the Electric Power Public Service (Special Obligations).”



DEC and FEC

Common Analyses to Distributors
Forecasting of Indicators Performed by the Companies
The indicator of DEC (Equivalent Duration of Interruption per Consumption Unit) consists of the time in
which a Consumption Unit (UC) remained without electric power for a certain period and the indicator
of FEC (Equivalent Frequency of Interruption per Consumption Unit) consists of the number of times
that an UV had no electricity for a given period.

The analyses⁸⁸may be divided into three parts: Starting Point, Indicator Variation Rate and ANEEL
Limit.

The starting point consists of the DEC and FEC estimates for 2017 and is the result of data obtained
for 2016⁸⁹and adjusted according to ANEEL’s goal of reduction for 2017⁹⁰of DECi and FECi⁹¹. Based
on the history of variation of distributors, the assumption is that distributors seek and achieve the DECi
reduction percentage for the DEC as a whole, and, similarly, achieve the FECi percentage for the FEC
as a whole.

The rate of variation of the indicator is based on the rate of variation realized by the private bench-
mark⁹². The DEC and FEC levels of the evaluated company in 2015 are evaluated and compared with
the history of the private company, identifying 1993 and 2015 the most recent period in which the
company had a rate near that of the evaluated company.

With the evaluation of this period of similarity of indicators, the extension of the period from this point
to 2015 is evaluated, followed by the calculation of the annual geometric mean of variation of the indi-
cator of the private company. Such indicator is initially applied in the distributors evaluated between
2018 and 2022, including both.




⁸⁸DEC and FEC Analyses are carried out in separate but have common constructive logical structure
⁸⁹Annual DEC and FEC of the ase of collective indicators of continuity of ANEEL
⁹⁰Procedure 48500.004245/2016-77, Vote, Table 1 – Limit for the end of 2017 for operational management. Variation % be-
tween the Determined DECi and its Limit for 2017 and the Determined FECi and its Limit for 2017
⁹¹Internal DEC and Internal FEC, indicators that accompany the interruptions occurred in the distribution system of internal
origin
⁹²Companies with geographic proximity to the evaluated distributors

Ceres Inteligência Financeira	131


The assumed premise is that the privatization will cause the evaluated company to present internal
changes that will impact the improvement of the indicator, aligned with the improvement verified by
other distributors, also private.

Between 2023 and 2027, the speed in which distributors adjust⁹³to achieve the limits established by
ANEEL⁹⁴for 2027. This is possible due to the maturity that the new concession holder gains through-
out the period in the management of the company, which enables a degree of improvement that is
faster than that verified in the recent period by the benchmark private distributors. Subsequently, the
speeds adjust to the speed verified by the private distributors.

The evolution of the indicators occurs until the distributor achieves the DEC and FEC levels of the
benchmark distributors for 2015 and remain constant until the end of the concession, on February 28,
2048.

At last, it should be noted that although achieving the global regulatory DEC and FEC levels, the dis-
tributor may offset consumer in case of violation of the individual limits. Such offsetting is treated in
section “Offsetting for the Transgression of the Continuity Limits”.


Forecasting of Limits Established by ANEEL
The definitions of the limits established by ANEEL are based on those established between 2014 and
2016 by ANEEL to each distributor. To 2017, the limit used was that established by no. 88/2017-
SRM/SGT/SRD/ ANEEL, dated May 24, 2017, procedure: 48500.002667/2017-99, until November to
Eletroacre, Amazonas Energia, Ceron and Eletrobras Roraima, and until September to Cepisa and
Ceal, for it consists of the limit established to distributors for the year.

The subsequent months used the limits established in Technical Note no. 149/2017-
SEM/SGT/SRD/SFF/ANEEL, dated September 8, 2017, procedure 48500.002667/2017-99, thus
achieving a weighted limit for 2017 between both technical notes.

Years from 2018 to 2023⁹⁵considered the provisions of Technical Note no. 149/2017-
SEM/SGT/SRD/SFF/ANEEL, dated September 8, 2017, procedure 48500.002667/2017-99, related to
the definitions of regulatory DEC and FEC limits for the designated distributors, which are: Eletroacre,
Ceal, Amazonas Energia, Cepisa, Ceron and Eletrobras Roraima⁹⁶.




⁹³Approximate speed of that verified by the private companies, to be presented in the specific analysis to each distributor
⁹⁴Estimate by Ceres as exposed below
⁹⁵Until the month of the ordinary rate review. To facilitate the view, the values are presented with annual references where 2022
will represent the indicator until the month of review
⁹⁶The limit includes Boa Vista (Capital) and CERR (Countryside), with the global limits of each one, for DEC, are of 29.75 and
99.84, respectively, while for FEC are of 54.65 and 68.65

Ceres Inteligência Financeira	132


FER

Common Analyses to Distributors
The FER indicator (Equivalent Frequency of Complaint) consists of the equivalent frequency of com-
plaints per each thousand of consumption units.

Its analysis may be divided into three main parts: Starting Point, Indicator Variation Rate, and Goal.

The starting point consists of the FER estimates for 2017 and is the result of data of the indicator of
each distributor obtained between 2010 and 2016¹⁰⁰. The geometric mean of annual variation of the
distributor to each distributor between 2010 e 2016 is calculated and the variation is applied over the
FER realized in 2016. (Realized FER Evaluated Distributor 2016)*(1+Geometric Mean FER 2010-
2016 Evaluated Distributor)

The rate of variation of the indicator as of 2018 results from the rate of variation realized by the
benchmark private groups¹⁰¹. The indicators from 2010 to 2016 of each benchmark are used to calcu-
late the simple average of the indicator of each established group¹⁰². The joint geometric mean per
group is applied between years 2012 and 2016¹⁰³, having (2017 Indicator)*(1+Rate of Variation of
2013-2016 Benchmark Group) and so successively until the indicator achieves the FER goals defined
by ANEEL of the evaluated distributions to the years starting in 2017.

The FER goal used is the limit to year 2017 and after that, defined¹⁰⁴by ANEEL to each distributor.
When achieving the goals in the period, distributors stabilize their efforts to improve the indicator. In
the long term, companies tend to have indicators equal to the goals estimated to ANEEL. This makes
companies tend to achieve the other 75% of the distributors that achieve the FER goals.




¹⁰⁰FER base of ANEEL Distribution Indicators
¹⁰¹Companies with geographic proximity to the evaluated distributors
¹⁰²Benchmark distributors of the Northern region: Celpa and Celtins (Energisa TO) and benchmark distributors of Northeastern
region: Celpe, Cemar, Energisa Paraíba and Energisa Sergipe
¹⁰³2012 is the year in which the FER indicators of the groups of private companies are more similar to te average of the indica-
tors of the evaluated distributors. From such common point, we evaluate how the indicator of non-state owned is developed and
apply its variation rate to the FER of the evaluated companies
¹⁰⁴Normative Resolution no. 574, dated August 20, 2013

Ceres Inteligência Financeira	139


IASC

Common Analyses to Distributors
The IASC (ANEEL Rating of Consumer Satisfaction) indicator consists of the result of the research of
evaluation of the degree of satisfaction of the residential consumer with the provided services.

Its analysis may be divided into three main parts: Starting Point, Indicator Variation Rate, and Meta.

The starting point consists of the IASC estimates for 2017 and also provide data of the indicator of
each distributor obtained between 2010 and 2016¹⁰⁵. The geometric mean of annual variation of the
indicator to each distributor between 2010 and 2016 and applies to the variation over the IASC during
2016. (IASC realized Evaluated Distributor 2016)*(1+Geometric Mean IASC 2010-2016 Evaluated
Distributor)

The rate of variation of the indicator as of 2018 will be originated by the realized variation rate of the
benchmark private groups¹⁰⁶. The 2010 to 2016 indicators of each benchmark allows for the calcula-
tion of the simple average of the indicator of each group established¹⁰⁷. The joint geometric mean is
applied per group¹⁰⁸between years 2015 and 2016, with (2017 Indicator)*(1+Variation Rate of the
2015-2016 Benchmark Group) and so successively until the indicator achieves the IASC goals defined
by ANEEL for the distributors evaluated for the years as of 2017.

The IASC goal used is the minimum value of 70¹⁰⁹from 2017 and sustained until the end of the con-
cession. When achieving the goals of the period, the distributors stabilize their efforts of improvement
of the indicator. In the long term, companies tend to have indicators equal to the goals estimated to
ANEEL. This makes companies tend to achieve the other 75% of the distributors that achieve the
IASC goals.



Specific Analyses of Distributor
Eletroacre will achieve ANEEL’s IASC limit in 2022 and will sustain such position throughout the peri-
od of concession.



¹⁰⁵IASC base of ANEEL Distribution Indicators
¹⁰⁶Companies with geographical proximity to the evaluated distributors
¹⁰⁷Benchmark distributors of the Northern region: Celpa and Celtins (Energisa TO) and benchmark distributors of Northeastern
region: Celpe, Cemar, Energisa Paraíba and Energisa Sergipe
¹⁰⁸The variation between 2015 and 2016 is the only one with expressive variation of the IASC indicator between 2010 and
2016. Since as of April 2017 it will count on the composition of the X Factor, we understand that the most recent improvement
represents the effort of private companies to meet ANEEL goals
¹⁰⁹PRORET ANEEL Submodule 2.5A

Ceres Inteligência Financeira	143


ICO

Analyses Common to the Distributors
The ICO (Busy Call Indicator of Telephone Service) refers to the list of busy calls over offered.

Its analysis can be divided into three main parts: Starting Point, Indicator Variation Rate and Target.

The starting point consists of the ICO estimates for 2017, which derives from indicator data of each
distributor obtained from 2010 to 2016¹¹². The average is calculated by excluding the missing data¹¹³
from 2010 to 2016.

The indicator variation rate from 2018 to 2022 is calculated based on the variation of indicators
obtained by the groups of benchmark of the outsourced distributors¹¹⁴. By using the indicators from
2010 to 2016 of each benchmark, the simple indicator average is calculated for each group
established. The joint geometric average is applied per group from 2012 to 2016¹¹⁵, in which we have
(Indicator 2017)*(1+Variation Rate of the Group of Benchmarks 2012-2016) and so on until the
indicator reaches the targets defined by ANEEL of the distributors evaluated for the years starting in
2017 of ICO.

Between 2023 and 2027 the distributor speed is adjusted¹¹⁶to reach the target established by
ANEEL¹¹⁷for 2027. This is possible thanks to the maturity that the new concessionaire acquires during
the period in the company management, which allows them an improvement rate faster than that
verified in the recent period by the benchmark of the outsourced distributors. Subsequently, the
speeds are adjusted to the speed verified by the outsourced distributors.

The ICO target used is the maximum amount of 2%¹¹⁸from 2015, which is kept to the concession end.
While reaching the targets of the period, the distributors stabilized their improvement efforts of the
indicator. In the long run, the companies tend to show indicators equal to the targets estimated for
ANEEL. This leads the companies to reach the remaining 75% of distributors that reach the ICO
targets.




¹¹²ICO base of Distribution Indicators of ANEEL
¹¹³The year of 2016 and other points along the historical series present missing data, reason which the average reference
checked in the period was used
¹¹⁴Companies geographically located near the distributors evaluated
¹¹⁵The interval with longer historic period was used, without missing data among the benchmark outsourced
¹¹⁶Speed near that checked by the outsourced companies will be presente din the specific analysis for each distributor
¹¹⁷Estimated by Ceres as it will be addressed below
¹¹⁸PRORET ANEEL Submodule 2.5A

Ceres Inteligência Financeira	153


The PTF values, Annual average variation of the distributor market and Annual average variation of
the number of consuming units were maintained during concesion, starting May/15, date on which
they became valid.

The values DMWh(i) and DUC(i) were calculated according to the forecast of demand and specific
consuming units per consumption class of each distributor evaluated and are discussed in the chapter
of Demand Forecast of this document.

Finally, we outline that according to the official letter no. 113/2017-DR/ANEEL¹²⁰in its “Clause
Nineteenth – Transitory Provisions”, Subclause Three, the value of Pd component will be defined as
zero¹²¹between the agreement execution ate and the first subsequent ordinary tariff revision.

Q Factor

The Q Component of the X Factor composed by portions of technical and commercial quality
according to the following equation: = 0,70.QTechnical + 0,30 QCommercial.	.

The technical component is composed by the indicators DEC (Equivalent Duration of Interruption per
Consuming Unit) and FEC (Equivalent Frequency of Interruption per Consuming Unit).

The commercial component is composed by the indicators of FER (Equivalent Frequency of
Complaint), IASC (ANEEL Index of Consumer’s Satisfaction), INS (Telephone Service Level Indicator),
IAb (Telephone Service Abandonment Indicator) and ICO (Busy Call Indicator of Telephone Service).

These commercial and technical indicators are discussed in further details in the chapter “Quality
Indicators” and take into account, among others, the provisions of the Technical Note 149/2017-
SEM/SGT/SRD/SFF/ANEEL, of Sep 8, 2017, case 48500.002667/2017-99.

Considerations about the T Factor
The description and dates used for this component are discussed in the chapter that addresses
Operating Costs and PMSO (Personnel, Materials, Services of Outsources and Others). We outline
that during evaluation, between the agreement execution and the first ordinary subsequent tariff
revision, its value was deemed zero¹²², as provided in the Technical Note no. 88/2017-
SEM/SGT/SRD/ANEEL¹²³.




¹²⁰On May 3, 2017, case 48510.000502/2017-00
¹²¹Also provided in the Technical Note 149/2017-SEM/SGT/SRD/SFF/ANEEL on Sep 8, 2017, case 48500.002667/2017-99
¹²²Also provided in the Technical Note 149/2017-SEM/SGT/SRD/SFF/ANEEL on Sep 8, 2017, case 48500.002667/2017-99
¹²³On May 24, 2017, case 48500.002667/2017-99

Ceres Inteligência Financeira		158


Irrecoverable Revenues

Analyses Common to the Distributors
The irrecoverable revenues evaluated are the value invoiced that had not been received up to certain
set date. Irrecoverable revenue is that deemed the indicator average: (value invoiced not received in
the period t)/(total value invoiced in the period t), from the 49th to the 60th month prior to the base
date.

The analysis can be divided into three main parts: an estimate for 2017, a variation rate of the
indicators along the concession period and the target established.

To assess the indicator level in 2017, the medium value of the indicator was calculated for the base
date of Dec/16. For each consumption class, the total value invoiced in the 60 prior months¹²⁴was
assessed as well as the total value not received of such respective months in relation to the base date
of Dec/16¹²⁵.

The medium value was calculated between the value invoiced not received over the total value
invoiced between the months of Dec/11 and Nov/12 inclusive, reaching the value of irrecoverable
revenues on the base date of Dec/16.

The percentage of annual variation proposed by ANEEL in the indicator between 3CRTP and 2CRTP
was applied to the value of Dec/16, reaching the value estimated for Dec/17. Thus, it was concluded
that the company reached the variation forecast by the regulating body.

In relation to the variation rate after 2017, between 2017 and 2020, it was concluded that the variation
rate proposed by ANEEL between 3CRTP and 2CRTP carries on being reached, completing a period
of four years in this variation rate, according to initial forecast of ANEEL.

From 2021, the variation rate considered is that proposed in the variation from 4CRTP to 3CRTP.
Such order of variations is chosen based on the difference of the rates initially proposed by the
regulating body. The variation from 3CRTP to 2CRTP in average is softer than that proposed from
4CRTP to 3CRTP. It is agreed that the default levels need time to be deeply changed and, therefore, a
less accelerated rate was used in the 3 first years of concession and a more accelerated rate was
applied in the subsequent years.




¹²⁴Data obtained from the distributors also made available for ANEEL. Period prior to the base date considered from Dec/11 to
Nov/16
¹²⁵Considering Dec/16, when what was invoiced, e.g.; in Jan/15, has not yet been received by the distributor

Ceres Inteligência Financeira	165


Loss Forecast

The electrical distribution system losses are divided into two categories: Basic Network losses and
Distribution Network losses. It its turn, the Distribution Network losses are divided into Technical
Losses and Non-Technical Losses.

The Basic Network loss consists of the energy loss in the physical processes occurring between
generation to the distribution system. Such loss costs are divided equally between the generator and
distributor, with each company assuming 50% of the Basic Network loss. The Technical Loss consists
of the energy loss inherent to the electric power transport, voltage transformation and energy
measurement. They can be deemed as the consumption of equipment employed in the energy
distribution. The Non-Technical Losses correspond to the difference between total losses and
technical losses. The remaining losses are associated to the distribution system (e.g; energy robbery,
measurement error, invoicing error, etc.). These are losses related to the commercial management of
the distributors.

The model is forecast in loss percentage in the energy invoiced (deemed equivalent to the energy
injected in the projections of this work) for the Technical Losses and in the Basic Network and loss
percentage in the low voltage market for the Non-Technical Losses, as established by the submodule
2.6 of PRORET.




Ceres Inteligência Financeira	169


Final Considerations

The fair value of the business for the Enterprise Value indicates R$ 921,169,419.22 to Eletrobras Dis-
tribuição Acre and granting of new Concession Agreement. However, the debts, liabilities with suppli-
ers and contingencies cause the company’s Valuation to be negative at R$ 159,107,674.07.

Such assertion assumes that the company sale and granting of new concession would only take effect
if proper conditions are structured for such investor, such as transferring existing liabilities to the cur-
rent shareholder.

The Non-Recoverable Revenues, X Factor and more strongly the PMSO for Eletroacre generate cur-
rent amounts which decrease the business value. Although there is great conditions to reduce such
companies’ costs, business governance and management are evolved, either as to productivity, quali-
ty, continuity, among other Indicators, yet, in view of the estimated track record, such transaction shall
not be sufficient to neutralize all existing liabilities at Eletroacre.

Analysis by multiples showed that the appraised company has an amount a little greater than that
suggested by the metrics of the compared private companies. In spite of the regional specificities, the
increased indebtedness level, the companies’ status and specific risk premiums, regulatory adjust-
ments and proposals added value to the company. In addition, taxes to be recovered of about R$
167,021,030.00, arising out of aggregate losses throughout the years, are being considered.




Ceres Inteligência Financeira	216

To:

Banco Nacional de Desenvolvimento Econômico e Social

(Brazilian Development Bank - "BNDES")

Av. República do Chile nº 100

Rio de Janeiro - RJ

Attention: Mrs. Lidiane Delesderrier Gonçalves - Manager of Contract OCS 028/2017

September 18, 2017

Dear All,

Pursuant to service contract OCS 028/201 7 (“the Contract") signed February 14, 2017 by BNDES and

Consortium Mais Energia B (“the Consortium”), this report presents the result of our analysis related to the

Privatization of Eletrobras System Distributors.

The result of our work is detailed in this document titled “Product 10: Final Valuation Report” (“the Report”)

and provides a financial valuation as of September 18, 2017, of Companhia de Eletricidade do Acre.

As contemplated under the Contract, the sole purpose of the Report is to provide a valuation of Companhia de

Eletricidade do Acre to BNDES, the institution responsible under Decree 8.893 for the privatization process

of the Eletrobras System Distributors.

If the Report is shared with third parties, it must be provided in full so that the applicable disclaimers and

limitations are effectively communicated.


		Summary
1	.	Introduction				9
1.1				Context		9
1.2				Purpose		9
1.3				Summary of the Assumptions		9
1.4				Valuation		11
2	.	History and Characteristics of the Concession Holder				12
2.1	.			Brief History		12
2.2	.			Description of the Operating Area		13
2.3	.			Socioeconomics		14
2.4	.			Transportation Infrastructure		15
2.5	.			Climate		18
2.6	.			Geoelectric Characteristics		20
3	.	Market and Consumer Unit Forecast				25
3.1	.			Market and Consumer Units Background		25
3.2	.			Market Forecasting Methodology		27
3.3	.			Market Forecast Result		33
3.4	.			Consumer Unit Forecasting Methodology		40
3.5	.			CU Projection Results		42
4	.	Methodologies, Premises, Adjustment Results and Revisions				43
4.1	.			Overview		43
4.1.1			.	Incentive regulation		43
4.1.2			.	Recent changes in the contractual and tariff rules of the electric power distribution.		47
4.2	.			Methodologies, Assumptions and Proceeds for Portion A Definition		64
4.2.1			.	Energy Acquisition and Extra Tariffs		64
4.2.2			.	Charges		65
4.2.3			.	Transmission Cost		67
4.2.4			.	Finance		67
4.2.5			.	Technical losses (PT)		68
4.2.6			.	Non-technical losses (PNT)		75
4.2.7			.	Default		91
4.3	.			Methodology for Portion B definition		93
4.3.1			.	Regulatory WACC		94
4.3.2			.	Operating Costs and Xt Factor		97
4.3.3			.	Xpd and Xq Factor		111
4.3.4			.	Surplus Demand, Excess Reactives and Other Revenues		116
4.3.5			.	DEC and FEC Indicators		119
4.3.6			.	Compensations		129
4.3.7			.	Long-Term Investment		133
4.3.8			.	Remuneration Basis		139

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4.3.9. Tariff Transactions				154
5	.	Analysis of the Distributor		158
5.1	.	Historical Financial Statements		158
6	.	Valuation		165
6.1	.	Methodology		165
6.2	.	Discount Rate		165
6.3	.	Assumptions		168
6.4	.	Valuation by Multiples		176
6.5	.	Conclusion		179
6.6	.	Sensitivity		188
7	.	References		189
ANNEX I – Extent of Responsibility				190
APPENDIX A – Socioeconomic Characteristics of the Operating Area of Eletroacre				191
APPENDIX B – Methodologies of Market Projection				194
APPENDIX C – Selection of Models for Market Projections				198
APPENDIX D – Alternative Models Not Selected				200
APPENDIX E – Models of the Assessed DEC and FEC Indicators				205
APPENDIX F – Concepts and Methods of BRR Valuation				206
APPENDIX G – Company’s Debt Overview				209



		Figures

Figure 1 – Macroeconomic Assumption				10
Figure 2 – State of Acre (featured capital)				13
Figure 3 – Forest, indigenous, and environmental preservation areas				14
Figure 4 – Rodovias Federais e Estaduais do Acre				18
Figure 5 – Total accumulated rainfall to the Brazilian states				19
Figure 6 – Average temperatures observed to the Brazilian states				20
Figure 7 – National Interconnected System				22
Figure 8 – Map of the State with the Interconnected and Individual Systems.				23
Figure 9 – GDP Actual growth forecasts (% per year) of external sources				31
Figure 10 – Schematic drawing for total CU projection				40
Figure 11 – Price cap working				44
Figure 12 – Yardstick Competition Working				45
Figure 13– Example of the Periodicity of Periodic Tariff Reviews and Tariff Adjustments				45
Figure 14 – Time line with changes in the PRORET.				49
Figure 15– Time line with the recent normative rules in connection with renewal of the concessions				52
Figure 16 - Reduction history				81
Figure 17 - Periodicity of Regulatory PNT Target Forecasts				85
Figure 18 – Dynamic of forecast for Regulatory PNT Targets				87
Figure 19 – Example pattern for calculating quality indicator components of X Factor				115
Figure 20 – Historical Financial Indicators				158
Figure 21 – Summarized Income Statements				159
Figure 22 – Summarized Balance Sheet				160
Figure 23 - Balance Sheet				160
Figure 24 – Income Statements				161
Figure 25 – Quality of Earnings				162
Figure 26 – Due Diligence Working Capital				163


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Figure 27 – Due Diligence Net Debt		164
Figure 28 – Due Diligence Financial Indicators		164
Figure 29 - Rolling WACC		168
Figure 30 - Working Capital		175
Figure 31 - EV/ Net Revenues Multiples		177
Figure 32 - EV/EBITDA Multiples		177
Figure 33 - EV/BRR Multiples		178
Figure 34 - EV/ Consumer Units Multiples (R$ thousand/ Number of clients)		178
Figure 35 - EV/ Distributed Energy Multiples (R$ thousand/MWh)		179



Graphs

Graph 1 – Density of Total Roads (km/km²)		16
Graph 2 – Percentage of Existing and Planned Roads in 2015		16
Graph 3 – Competitiveness of the generation sources		21
Chart 4 – Voltage level share in the overall market (%) - Eletroacre’s forecasts		29
Chart 5 – State GDP Share in Brazil’s GDP (%) - Eletroacre’s Forecasts		33
Chart 6 – Eletroacre’s Forecast Market for every Decade per Consumption Class.		39
Chart 7 – Eletroacre’s Forecast Market up to 2046 per Consumption Class.		40
Chart 8 – Eletroacre’s CU Projection		42
Graph 9 – Mean Losses by Eletroacre and Equiparable Companies’ Segment		72
Graph 10 – Projected regulatory allowance for technical energy losses of Eletroacre		75
Graph 11 – Comparison between Verified and Regulatory Non-Technical Losses on the BT Market		76
Graph 12 – Forecast Verified PNT and Regulatory PNT Eletroacre (Invoiced)		88
Graph 13 – Example heterogeneity curve		103
Graph 14 – Eletroacre efficiency curve		107
Graph 15 – Projection of Other Regulatory Revenues – Eletroacre (BRL Million)		118
Graph 16 – Projected Annual Income with Surplus Demand and Excess Reactives – Eletroacre (BRL Million)		119
Graph 17 – Verified Indicator and DEC Thresholds for Eletroacre		121
Graph 18 – Verified Indicator and FEC Thresholds for Eletroacre		121
Graph 19 – Historic Offsets due to Infringements to Eletroacre Individual Indicators		122
Graph 20 – Projection Eletroacre DEC		127
Graph 21 – Projection Eletroacre FEC		128
Graph 22 – Eletroacre Projected Compensation		132
Graph 23 - Projection of Eletroacre electric and non-electric investments		138
Graph 24 - Eletroacre Long-Term Investment Plan by Type of Work/Systems		138
Graph 25 – Tariff adjustments (%)		157
Graph 26 – Eletroacre Industrial Class: growth rate accumulated in 12 months		201
Graph 27 – Eletroacre Industrial Class: growth rate accumulated in 12 months		202
Graph 28 – Eletroacre Rural Class: growth rate accumulated in 12 months		203
Graph 29 – Eletroacre Public Entity Class: growth rate accumulated in 12 months		204




Tables

Table 1 – Valuation		11
Table 2 – Road Indicators to Acre		17
Table 3 – Climate Characteristics of the state of Acre		19
Table 4 – Evolution of the Number of Consumers per Voltage Level		25
Table 5 – Market Evolution per Voltage Level		26
Table 6 – Average Market Evolution per Voltage Level		26
Table 7 – Evolution of the Average Consumption per Tariff Class		27
Table 8 – Variables used in Eletroacre’s market forecasts per class		30
Table 9 – State GDP share in Brazil’s GDP (%)		32


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Table 10 – Average GDP growth rates (%)		33
Table 11 – Eleroacre’s Forecast Market for every Decade per Consumption Class.		39
Table 12 – Summary of Eletroacre’s CU Projection		42
Table 13 - T & Xpd Factor Values		58
Table 14 – Values of Regulatory Allowances for Energy Losses		58
Table 15 – Aggregate DEC and FEC Thresholds		59
Table 16 – Variation of sums assigned to PMSO by Dealer		62
Table 17 – Variation of DEC thresholds by Dealer		62
Table 18 – Variation of FEC thresholds by Dealer		63
Table 19 – Volume of Losses at Eletroacre Distribution System		70
Table 20 – Volume of Technical Losses by Transformation and Network Segment		70
Table 21 - Technical Losses Target by Voltage Segment		72
Table 22 – Projected total technical losses and losses by transformation and network segment		74
Table 23 – Socioeconomic Variables for Composition of the Complexity Index for Fighting PNT		77
Table 24 – Patterns Chosen to Compose the Complexity Index for Fighting PNT		77
Table 25 - Result of Complexity Indices of each Econometric Pattern for Eletrobras Group Companies		78
Table 26 – Mean Complexity Index of Eletrobras Group Companies		79
Table 27 – Summary Definition of Starting Point		82
Table 28 – Model of Projected Regulatory PNT		83
Table 29 - Comparison of Invoiced Verified Loss to Invoiced Regulatory Allowance for Energy Losses		86
Table 30 - Complexity index for Fighting More Complex Dealers’ PNT Group 1		86
Table 31 - Forecast Regulatory PNT 2023 to 2027		89
Table 32 - Forecast Regulatory PNT 2028 to 2032		89
Table 33 - Forecast Regulatory PNT 2033 to 2037		90
Table 34 – Forecast Regulatory PNT 2038 to 2042		90
Table 35 – Forecast Regulatory PNT 2043 to 2047		91
Table 36 – Parameters of Operating Cost Efficiency in 4CRTP		98
Table 37 – Trust Intervals of efficiency estimates		99
Table 38 – Composition of clusters		104
Table 39 – Composition of clusters and efficiencies - Eletroacre		106
Table 40 – Eletroacre regulatory PMSO Forecast		107
Table 41 – Results from sampling for network projections		110
Table 42 – Operating Costs and T Component Eletroacre		111
Table 43 – Technical and Commercial Indicators of Q Component of X Factor		113
Table 44 – Commercial Indicators in 2016 – Eletroacre		116
Table 45 – Results for X Factor and its components Eletroacre		116
Table 46 – Calculated/Projected Calculated and Homologated Limit/Projected DEC Limit of Eletroacre		128
Table 47 - Calculated/Projected Calculated and Homologated Limit/Projected FEC Limit for Eletroacre		129
Table 48 – Compensation Regression Table		131
Table 49- Five-Year Investment Projection 2018-2022		134
Table 50 - Investments in HV Expansion work 2018-2022		135
Table 51 - Mean, Standard deviation and Limits for HV Expansion works		135
Table 52 - Investments in HV Expansion work (excluding outliers)		135
Table 53 - Investments in HV Expansion work 2023-2027		135
Table 54 - Projection of Investments for the Five-Year Periods of Eletroacre		137
Table 55 – Proportions of Asset Groups in the BAR		143
Table 56 – Calculation of AIS Considered in the BRR Pattern in Feb/17		145
Table 57 –Difference between Initial and Final Incremental AIS (VOC) from 3^rdRTP		146
Table 58 – BRR Values Considered as Starting Point in the Secured BRR in Feb/17		147
Table 59 –Investments between 2018 and December, 2022 by Registration Unit: Impact on Mean Depreciation
Rate of Assets		151
Table 60 – Assumptions for Projection of Indices and Rates		152
Table 61 – TJLP Projection		152
Table 62 – Projection of Regulatory Reinstatement Quota at RTPs		153
Table 63 – Projection of Capital Remuneration without Special Liabilities at RTPs		153
Table 64 – Projection of Capital Remuneration of Special Liabilities at RTPs		154
Table 65 – Projection of Annual Cost of Personal and Real Property at RTPs		154
Table 66 – Estimates for Required Revenue, VPA and VPB for Eletroacre (Nominal BRL Million)		156


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Table 67 - Unlevered Beta of comparable companies		167
Table 68 - Transaction Multiples		176
Table 69 - Distributed energy projections		179
Table 70 - Net revenues projections		180
Table 71 - Operating costs projections		181
Table 72 - Gross profit projections		182
Table 73 - Operating expenses projections		183
Table 74 - EBITDA projections		184
Table 75 - Net income projections		185
Table 76 - Cash Flow Projections		185
Table 77 – Terminal Value		186
Table 78 – Valuation Results		187
Table 79 – Financial Covenants		187
Table 80 – Sensitivity Analysis		188
Table 81 – Demographic Information, Education Level, and Unemployment Rates		191
Table 82 – Information on Access to Services		192
Table 83 – Information on Income		192
Table 84 – Information on Violence		193
Table 85 – Family of Exponential Models		196
Table 86 – Statistical Indicators		199
Table 87 – Residential Class: Eletroacre		200
Table 88 – Industrial Class: Eletroacre		201
Table 89 – Commercial Class: Eletroacre		201
Table 90 – Rural Class: Eletroacre		202
Table 91 – Public Authority Class: Eletroacre		203
Table 92 – Public Services Class: Eletroacre		204



Charts

Chart 1 – Socioeconomic characteristics of the State of Acre		15
Chart 2 – Summary of the forecasting model for Eletroacre’s Residential Consumption		34
Chart 3 – Summary of the forecasting model for Eletroacre’s Industrial Consumption		34
Chart 4 – Summary of the forecasting model for Eletroacre’s Commercial Consumption		35
Chart 5 – Summary of the forecasting model for Eletroacre’s Rural Consumption		35
Chart 6 – Summary of the forecasting model for Eletroacre’s Government Consumption		36
Chart 7 – Summary of the forecasting model for Eletroacre’s Street lighting Consumption		37
Chart 8 – Summary of the forecasting model for Eletroacre’s Public Service Consumption		38
Chart 9 – Summary of the forecasting model for Eletroacre’s Own Consumption		38
Graph 10 – Exemplification of required investments in HV Expansion for the period between 2023-2027		135


Equations
Equation 1- Box Cox Transformation		28
Equation 2 - Household Density Calculation		41
Equation 3 - Coverage Kt		41
Equation 4 - Residential CU Projection		41
Equation 5 - Average Consumption Series		41
Equation 6 - CU Projection		42
Equation 7 - Formulation for the Maximum Price Level and Periodic Adjustment		43
Equation 8 - Formulation for Tariff Adjustment Index		46
Equation 9 - - Formula for Complexity Index for Fighting PNT of Company A		78
Equation 10 – Calculation of PNT Targets		79
Equation 11 – Aggregate Target		80
Equation 12 – Value of Non-Recoverable Revenue for companies which have not been under 4CRTP		92
Equation 13 – Value of Non-Recoverable Revenue for companies that have been under 4CRTP		92



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Equation 14 – Calculation of Portion B in readjustment procedures		94
Equation 15 – Calculation of Portion B in review procedures		94
Equation 16 – Tariff coverage of Operating Costs		100
Equation 17 – Value of Efficient Operating Costs		101
Equation 18 – Annual variation of Regulatory Operating Costs		101
Equation 19 – Target of Efficient Operating Costs		101
Equation 20 – Target of Efficient Operating Costs with sharing		101
Equation 21 – Standardization of variables		102
Equation 22 – Euclidian distance		102
Equation 23 – Efficiency indicator		104
Equation 24 – Value of Efficient Operating Costs		108
Equation 25 – Adjustment Factor		108
Equation 26 – Operating cost upon Tariff Readjustment		110
Equation 27 – T component of X Factor		110
Equation 28 – Pd component of X Factor		112
Equation 29 – Q Component of X Factor		114
Equation 30 - Heterogeneity Determination		123
Equation 31 - Equation of Limits		124
Equation 32 – Simplified Equation of Limits		124
Equation 33 – Equations of Linear Regressions for DEC		126
Equation 34 – Equations of Linear Regressions for FEC		126
Equation 35 – Calculation of mean EUSD		130
Equation 36 - Calculation of Effective Compensation		130
Equation 37 - Projected Compensation		132
Equation 38 – Regulatory Reinstatement Quota		139
Equation 39 – Gross BRR		140
Equation 40 – Capital Remuneration		140
Equation 41 – Net Regulatory Remuneration Base		141
Equation 42 – Capital Remuneration of Special Liabilities		142
Equation 43 – Regulatory Annuity Base (BAR)		142
Equation 44 – Annual Rental Cost (CAL)		143
Equation 45 – Annual vehicle cost (CAV)		143
Equation 46 – Annual IT System Cost (CAI)		144
Equation 47 - Stationary Series		194
Equation 48 - Seasonal Series		194
Equation 49 - Box & Jenkins Methodology Models		195
Equation 50 - ETS Model		195
Equation 51 - Dynamic Model		197




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1. Introduction
1.1 Context

Companhia de Eletricidade do Acre - Eletroacre (“Eletroacre”, the “Distributor”, or the
“Company”) is company headquartered in Rio Branco, the capital of the State of Acre. It is the
federal utility concession holder responsible for the sale and distribution of electricity in State of
Acre. The Company, which was previously controlled by the State Government, is currently
controlled by Centrais Elétricas Brasileiras S.A. - Eletrobras, who holds 96.70% of its shares.
According to Article 2 of Decree 8.893, the Brazilian Development Bank (BNDES) is
responsible for the supervision and execution of the privatization process of the electric
distributorship concession holders.
In this context, the Consortium has prepared the financial valuation of the Company’s
shares with a base date of December 31, 2016, using a Discounted Cash Flow (“DCF”)
methodology. The finanicial valuation assumes the scenario of renewal of the concession for
electric power distribution. Therefore, the result of this work represents the Company’s value in
the event of concession renewal.

1.2 Purpose

The purpose of this report is to provide BNDES, the leader of the project, with information
regarding the company’s Fair Value, making clear all assumptions used for calculations of
portions A and B, as well as the methodologies used in the financial model.
With this purpose, the following analyses were carried out:
·	Research and analysis or market information;
·	Projections for the energy market, energy demand and regulatory elements;
·	Analysis of the historical financial statements;
·	Meetings, conference calls, and discussions with the directors and technical

·	Field teams visits; of the Company;
·	financial statements projections (Income Statements and Cash Flow Statements)
	based on information provided by the Company, market analyses, and due

·	Financial diligence studies; valuation based on Discounted Cash Flow methodology;
·	Calculation and projection of the discount rate based on the Weighted Average
	Cost of Capital (WACC) methodology, used for calculating the present value of

·	Calculation projected cash and flows; projection of regulatory WACC.

1.3 Summary of the Assumptions

Methodology


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2. History and Characteristics of the Concession Holder

This chapter will detail relevant characteristics of Electroacre, providing information
regarding its history, socioeconomics, transportation infrastructure, climate and level of
connectedness to SIN (“Sistema Interligado Nacional” or National Interconnected System.

2.1. Brief History

The history of electricity in the state of Acre is intrinsically linked to the official recognition
of Acre as part of Brazil. This only occurred in 1903, after Brazil signed the Treaty of Petrópolis
with Bolivia, in which Brazilian government paid the Bolivian government £2 million (GBP) and
constructed the Madeira-Mamoré Railroad connecting Acre to the rest of Brazil.
Two years later, in 1905, the first factory in the State of Acre, the Cruzeiro do Sul
thermoelectric plant, started operations in the city of Cruzeiro do Sul. This plant used firewood as
fuel and had two generators, one with 12 kW of power and the other with 16 kW [1]. Acre then
largest producer of rubber, which was concentrated in the region of Puerto Alonso, next to
current-day Rio Branco. In 1909, the city was named Penápolis (in honor of the President in
charge Afonso Pena) and, in 1912, it was renamed Rio Branco, in honor of Baron Rio Branco, the
Brazilian chancellor whose diplomatic work resulted in the Treaty of Petrópolis [2].
Only in 1916, Rio Branco received its first electric power plant [3], boosting the production
of the rubber tree plantations, as well as providing public lighting to Acre citizens. Until the
1960’s, generation and distribution of electric power occurred locally, nearby the capital city of
Rio Branco.
On December 17, 1965, Eletroacre was created by State Law no. 60 and it was authorized
to operate as the electric services provider to the state of Acre. The company was created to design,
build, and develop the system of production, transmission, transformation, and distribution of
electric power and related services in the State of Acre.
In September, 1997, Eletroacre’s control began to be shared by the State of Acre and
Centrais Elétricas Brasileiras - Eletrobras due to the signing of a Management Contract between
the parties. This shared administration lasted until January 30, 1998, when Eletroacre became
federally owned after the execution of the contract titled “Purchase and Sale of Shares and Other
Covenants.”
Currently, Eletroacre is the federal utility provider responsible for the distribution of
electric power to the entire state of Acre. The company is currently controlled by Eletrobras, which
holds 96.70% of its total shares. It is important to note that the electric power supplied to the state
derives from two sources: the National Interconnected System (SIN) - 80% of the power demand
- and Diesel Thermoelectric Plants - 20% of the power demand.
The Concession Contract no. 006/2001 was signed by Electroacre and the Brazilian
Electricity Regulatory Agency (ANEEL) on February 12, 2001 and terminated on July 07, 2015
without renewal. On August 3, 2016 MME designated Eletroacre responsible for the temporary
provision of electricity distribution (Ordinance no. 421/2016), assuring the continuity of electrical



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time, when some event causes a significant economic-financial imbalance. The RTE may be
requested in cases of creation, change or extinction of taxes or duties, after signature of concession
agreements, and whenever the impact over the activities of the companies is relevant, and
properly proven, for the economic-financial balance.


e) Manageable or non-manageable parcel
Non-manageable costs are expenses that do not depend on the concessionaire’s control and
that are directly passed on to the consumer. These items are a relevant part of Parcel A,
component of the distribution concessionaire’s income that covers the costs with sector charges,
in addition to input costs and costs of segments upward the regulated company activities, such as
costs of the power generated or transmitted to electric power distribution companies. Manageable
costs are in turn the part that refers to the effective activity of the electric power distribution
concessionaire, where the company may establish management strategies. The so-called Parcel B
is comprised, for example, by operating costs, capital costs and depreciation and unrecoverable
revenues.
There are still costs that show a relative degree of management on the party of the
concessionaire companies. For example, it is the case of non-technical losses (PNT), whose
amount depends on both the efficiency of the activities and commercial routines of the
concessionaire and also the socioeconomic, institutional and cultural environment of the
geographic area where the company operates.
While they affect the purchase of energy allocated in Parcel A, technical and non-technical
losses receive a regulatory treatment in order to enable efficiency gains in the processes. The
purchase of power can also be given a regulatory treatment and respect the restrictions in order
to encourage efficient acquisition and moderateness for the end consumer (captive).
One example of such regulatory treatment is controls relating to the purchase of power
from a related party and the obligations to purchase power in auctions in the regulated
environment. Therefore, the separation of manageable and non-manageable costs in the so-called
Parcels A and B is a conceptual simplification that can be changed with the regulation evolution.

4.1.2. Recent changes in the contractual and tariff rules of the electric power
distribution.

The implementation of the incentive regulation regime in the electric power distribution
activity has been made over almost two decades, and it is subject to changes in the
concession/permission agreements and public policy guidelines. Its evolution and transformation
were also marked by discussion processes through public consultations and hearings, regulations
covering different tariff and contractual aspects. Currently, these rules are described in the
Technical Notes prepared by ANEEL, which describe in details methods, premises and results
applicable to different components of the tariffs and tariff movement processes.
These regulatory rules are consolidated in the Tariff Regulation Procedures (PRORET),
which have a normative character and consolidate the regulation of tariff processes. PRORET’s


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structure was approved by Normative Resolution No. 435/2011, and is ordered in 12 modules
divided into submodules.
	Regarding electric power distribution, there is a set of tariff procedures including
specificities for each contractual situation, as detailed below:
I.	For distributors which renewed their concession agreements under the provisions of
	Decree No. 8.461/2015, signed amendments to the agreement with new economic clauses,
	or signed amendments to the agreements upon full adhesion to the new concession
	model²¹, the new tariff rules shown in Normative Resolution No. 761/2017 and indicated
	in the PRORET listing under letter A in their original number are not valid²².
II.	For concessionaires and distribution concessionaires that have not yet renewed the
	concession agreements or signed amendments, PRORETs are still valid without the
	indication of the letter A.
III.	For the set of distributors owned by the Public Administration that are responsible for the
	provision of distribution services under concessions that have not been extended (called
	Designated Distributors), rules specified in Normative Resolution No. 748/2016 and
	Resolution No. 2,184 / 2016 will be applied²³.


	Figure 14 shows a time line with all Normative Resolutions (REN), Approval Resolutions
(REH), Technical Notes (NT) and Public Hearings (AP), which changed or propose changes in the
PRORET as of April, 2015.




²¹According to the Relater’s Vote at the 30th. Public Ordinary Meeting of 2016.
²²Submodules 2.1A, 2.2A, 2.5A, 2.7A, 3.1A, 3.2A, 3.3A, 3.4A, 4.2A and 4.4A.
²³Both resolutions replace Technical Note No. 331/2016, and definitively establish the additional conditions
applicable to Designated distributors (body or entity of the responsible public administration, by decision of the
Granting Authority, for the provision of the public service of electric power distribution due to the non -extension of
a concession according to Law No. 12.783/2013), with the purpose of ensuring the continued provision of the public
electricity distribution service until assumption by a new concessionaire to be awarded through a bidding process.

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	a.	For companies that have already made the first tariff review after the 3^rd.
		Periodic Tariff Review (RTP), the accumulated balance of UD and ER, which
		was recorded in a specific account of special obligations up to the date of
		signature of an amendment to the agreement will be subtracted from Parcel B
		only in the second revision after the 3^rd. RTP.
	b.	For companies that have not yet made the first tariff review after the 3^rd. Periodic
		Tariff Review (RTP), incomes recorded as UD and ER in special obligations up
		to the date of the amendment to the agreement will be subtracted from Parcel
		B.
	c.	For all companies, billed UD and ER values between the amendment to the
		agreement and the tariff process date will be used as reducers of Parcel B.
	d.	Billed values will be updated by IPCA.

iii.	RI is no longer calculated in two parcels and now exclusively takes regulatory default
	percentages. Additionally, financial incomes are now part of the calculation basis of RI.
iv.	In the first tariff review after signature of the amendment to the agreement, calculation
	of Factor X will no longer consider the average growth of market and consumers in the
	tariff cycle and will be ascertained on an annual basis.
v.	Other income (OR) values to be subtracted from Parcel B are calculated for the twelve
	months prior to the reference month of the review and will be updated by IPCA.
Tariff adjustment rules shown in Module 3 were changed as follows:
i.	If the first tariff process after signature of the amendment to the agreement is a tariff
	adjustment, called DR1 in version A of PRORET, the RI components must be taken out
	from Parcel B and transferred to Parcel A, besides isolating OR, UD and ER, which will
	be calculated as actually realized. ONS values must be transferred from Parcel A to
	Parcel B.
ii.	In tariff adjustments Parcel B will be actually calculated and not only obtained as a
	residue from the Required Income calculation.
iii.	Considering the conditions in force and the Reference Market (VPB0DR1), the value of
	Parcel B will be obtained by multiplying this market for the economic value in force (as
	approved in the last process) corresponding to the tariff component of Wire B (TUSD
	Wire B) in force. This value is updated by the difference between the IPCA and Factor X
	multiplied by a correction factor (DR1 Factor) required for the application of
	adjustments indicated in (i). Finally, OR, UD and ER values will be expurgated and ONS
	values will be added.
iv.	In the subsequent tariff processes, the procedure is very similar - in practical terms - to
	the calculation of Factor Pbi-1 that reintroduces OR, UD and ER values in Parcel B,
	which will be adjusted for inflation (IPCA) and Factor X. Later, values found for these
	components in the reference period are excluded from Parcel B.

In Module 4, the neutralities are now calculated for all components of Parcel A (including
the other financial components, neutrality financial items and CVA financial balance to offset),
not only for sector charges as done according to the rules in force. The concept of neutrality


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remains still unchanged as the difference between billed values and values contemplated in the
tariff processes, thus neutralizing differences deriving from market changes²⁴. Calculation
methods proposed differentiate items with a fixed tariff coverage, when the expense does not
change with the market variation (sector charges, connection charges and Itaipu), and a variable
tariff, in the opposite case (power costs, transmission/distribution use charges and unrecoverable
incomes).
The particular case of neutrality of unrecoverable incomes will be calculated only from the
second tariff process after signature of the amendment to the agreement, once so far there is no
tariff coverage component for this item. All new items for which there is no neutrality calculation
yet will take into account the date of signature of the agreement or amendment to the agreement.
Thus, for the first tariff process after signature of the agreement or publication of PRORET,
whichever occurs later, the neutrality of Parcel A will only be calculated from the next signature
month of the amendment to the agreement or renewal of the concession agreement limited to the
reference period, i.e. the last 12 months.
Finally, part of the unrecoverable revenues in function of the Loss TUSD cost was
incorporated into submodules 7.1 and 7.2. Updating submodule 3.2 directly impacts Module 7
because of the calculation of losses in other shared transmission installations (DITc), which is in
the tariff component of losses in the basic network.


b) Additional conditions for designated distributors
In its 165^th. Extraordinary Shareholders Meeting, Eletrobrás' shareholders decided not to
approve the extension of the concessions of Ceal, Cepisa, Eletroacre, Ceron, Boa Vista Energia
and Amazonas Energia. Additionally, the concession of Companhia de Eletricidade do Amapá
(CEA) was not extended because it failed to meet compliance requirements. By means of various
ordinances, the Ministry of Mines and Energy has designated Amazonas Energia, Eletroacre,
Ceron, Cepisa, Ceal, Boa Vista Energia and CEA as responsible for providing the public electricity
distribution service until the end of 2017 or until the assumption of a new concessionaire,
whichever occurs first.
Figure 15 shows the time line with the recent normative rules in connection with renewal
of the concessions of distributors of Eletrobrás Group.




²⁴We describe in this section changes made to the PRORETs resulting from Normative Resolution No. 276/2017,
including changes in the treatment of charge neutralities. Modeling of items that are components of Parcel A in the
financial model is detailed in section 3.2.

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investments in concession areas, computed from the last quarter and 2016 annual figures; (iv)
flexibilization of regulatory loss references for Amazonas Energia, Boa Vista Energia, CEA and
CERR.
This resolution further establishes that RGR's resources will be used to guarantee the
minimum sustainability conditions of the service, according to Administrative Rule 388/2016-
MME, with deadlines, periods of grace and rates set forth in REN No. 748/2016, and the
obligations will be assumed by the new concessionaire.
Moreover, REN states that there are important investments to be made, which will reduce
CCC's expenditures, and therefore, qualify as subrogation of the resources of the fund. It is up to
ANEEL to approve prudent investments considered in the preparation of the basic project,
calculate the amount to be subrogated and supervise the application. For implementation of
distribution lines, the federal government body or entity shall irrevocably and irreversibly assign
to the contracted company the credits of reimbursement of the CCC.
Finally, the resolution establishes an exceptional regime of regulatory sanctions
prioritizing the exclusively guiding and/or determining character without imposition of penalties.


c) Public Hearing No. 094/2016
After receipt of contributions during Public Hearing No. 094/2016, ANEEL published the
following in May 2017: (i) Technical Note No. 182/2017 with guidelines for the preparation of the
new concession agreement for public electricity distribution service, in accordance with the
provisions of §1-A of art. 8 of Law 12.783/2013 and (ii) a new agreement draft.
According to Technical Note No. 182/2017, dated May 2^nd, 2017, ANEEL received Official
Letter No. 242/2016-SE from the Ministry of Mines and Energy (MME) requesting the
preparation of a concession agreement draft with some guidelines intended to expedite realization
and increase the competitiveness in the bidding processes of transfer of corporate control
associated with the granting of new concessions. The MME emphasized four guidelines:
I.	Adoption of clauses that allow converting pecuniary compensation into investment
	obligations for the first five years of the new concessions, with a view to enable recovery
	of concessions;
II.	Adoption of trajectories of regulatory parameters of efficiency, providing the new
	controller with a term for adjusting values practiced by the companies;
III.	Adoption of a tariff schedule with a period of five years at each tariff review, but
	allowing two tariff reviews to be carried out in the first five years of the contract,
	making it exceptionally possible to recognize the investments with a shorter term;
IV.	The possibility for the schedule provided for in the previous paragraph being chosen
	by the winner of the bidding, and the first review should be carried out until the third
	tariff process after signature of the agreement and the second review being carried out
	in the fifth tariff process after that signature.
According to the result of the public hearing No. 094/2016 - shown in Technical Note No.
182/2017-, temporary provisions were considered regarding the use of offsets by breached quality

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thresholds concerning continuity of the service and voltage level for investments, as reproduced
below.


“CLAUSE NINETEEN – TEMPORARY PROVISIONS
Section One - DEALER may contribute funds from the offsets for breached quality
thresholds, concerning continuous service and permanently determined sampling
calibrations of the voltage level, so that investments may be made at the concession area,
until the late fifth calendar year following the date when the concession agreement was
executed.
Paragraph One – As of the date when the agreement is executed, the offsetting values
shall remain having their calculation conducted by dealer, as regulated, for the purpose
of follow-up and inspection by ANEEL.
Paragraph Two – As of the second calendar year following the year when the agreement
is executed, if the calculated offset values are lower than the offset values calculated for
the previous calendar year, such difference shall be construed as a dealer-payable
investment upon their tariff readjustment, and the remaining value shall be included into
the Liabilities Associated with the Public Electricity Service (Special Liabilities) heading.
Paragraph Three – As of the second calendar year following the year when the agreement
is executed, if the calculated offset values exceed the offset values calculated for the
previous calendar year, such difference shall be invested in double at the concession and
included into the Liabilities Associated with the Public Electricity Service (Special
Liabilities) heading.”


Under the Draft, as of 2020, non-compliances with the aggregate annual thresholds of the
preset-term continuity indicators shall lead to economic-financial limitations as stated in Section
Eight.


“Section Eight – As of 2020, non-compliance with aggregate annual thresholds of
collective continuity indicators for two following years or three times within a five-year
period may, as regulated by ANEEL, imply limitation of dividends or payments of
interest on shareholder’s equity, until the regulatory parameters are restored, in
compliance with Item I of Section One, Clause Seven.”


As of the sixth calendar year, non-compliance with the regulatory targets may result into a
lawsuit for forfeiture of the concession being filed as determined, in Section Thirteen, as
transcribed below, providing for the criteria associated with continuing the provision.


“Section Thirteen – For the period as of the sixth calendar year following that in which
this agreement is entered into, default by concessionaire arising out of non-compliance


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NT no 182/2017 stated that named companies require high investment in the early years
of the concession so as to restore the service quality levels. According to ANEEL, this context
consists in unusual situation, not corresponding to the type of application for which the X Factor
methodology was conceived. Therefore, calculation readjustment is construed as possible.
In addition, the new Draft considered that the inspection conducted by ANEEL shall not
apply any penalties in the first two years of the new agreements for the purpose of mitigating the
consequences of technical or business issues remaining from the prior situation as provided for
in Section Five.


“Section Five – Until the twenty-fourth month following that when the concession
agreement is executed, the inspection by ANEEL shall be focused on providing guidelines
and/or determinations, not applying any penalties, except in the event of non-compliance
with determinations provided by ANEEL Board.”


In order to meet the request by MME as to a tariff schedule enabling an additional tariff
readjustment in the first five years of the agreement, aimed at recognizing the investments within
a reduced time frame, the Draft includes, in its Clause Nineteen, temporary provisions.


“Section Two – Within the time frame as of the date when the agreement is executed and
the first following ordinary tariff readjustment, there may be a tariff readjustment as
requested by the Concessionaire, abiding by the following criteria:
I – The tariff readjustment in replacement with an annual tariff readjustment, for which
readjustment the same processing date shall be kept.
II – The readjustment order shall be formally provided to ANEEL at least one (1) year
earlier such order being placed.
III – The tariff shall be readjusted based on the standards provided for herein and on the
effective regulations, except for the items outlined in Section Three.
IV – During the readjustment period, Concessionaire may order the Regulatory
Remuneration Base to be fully reviewed.
V – It shall be reviewed up to the third tariff process after the agreement is executed.”


The Draft also sets values and calculation formulas specific for the period ranging from the
date when the agreement is executed and the first following ordinary tariff readjustment, as
provided for in Section Three.


“Section Three – During the period ranging from the date when the agreement is executed
and the first following ordinary tariff readjustment, values and calculation formula for



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X Factor, Operating Costs and Regulatory Allowances for Energy Losses other than those
outlined in Clause Six, shall be used, abiding by the following criteria:
I – Value of the X Factor Pd component shall be defined as 0 (zero).
II – The Regulatory Operating Costs shall be defined considering an efficiency level of []%
over the average actual costs verified over the last three (3) years prior to tariff
processing.
III – The Non-Technical Regulatory Losses shall be defined at []% of stake over the
averaged actual stakes verified over the last three (3) years prior to the tariff processing.
Sole Paragraph – Tariff consequences arising out of the treatment described herein shall
be verified as of the first tariff calculation following the year when the agreement is
executed, always having prospective effects.”


Section Four sets forth standards concerning the debt for the loan maintained with RGR
Fund which was contracted in the designation period.


“Section Four – DEALER undertakes to settle the debt concerning the loan maintained
with RGR Fund contracted in the designation period under the following circumstances:
I – The interest rate to be employed for the loan shall be 111% of the SELIC rate;
II – The principal repayment and payment of interest shall carry a 12-month grace
period after the concession is assumed by the new concessionaire, and, following the
grace period, the loan shall be repaid in 36 monthly, equal installments.”


d) Open Court no. 032 /2017
On May 24, 2017, ANEEL submitted to Open Court the Technical Note no. 088/2017 aimed
at raising subsidies in order to enhance calculation of the regulatory parameters and the service
quality indicators to serve as basis for the following tariff readjustments of Eletrobras-controlled
Dealers. The Technical Note provides for the regulatory parameters for the tariff processes of the
Named Dealers, as defined under the Regulatory Resolution no. 748/2016 and thresholds for DEC
and FEC collective continuity indicators.
Value of the X Factor’s T component is proposed to be equal to 0 (zero) for all tariff
processes homologated until the first tariff readjustment process following the Concession
Agreement execution, while for the value of the Xpd component, the effective Pd component is
advised to be maintained until the first tariff process following the Concession Agreement
execution, when then it shall assume the zero value (see Table 13).




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Considering the regulatory possibility that the payment conditions are being reviewed, thus
benefitting the bidding process and assumption by a new concessionaire, committed to the tariff
reasonableness and to service quality, the tariff impact was tested by considering interest of 5%
year-over-year and 30-year term for payment. The monthly RGR values are defined in REH
2199/2017-ANEEL and values are readjusted by ANEEL in every quarter according to the
quarterly earnings of the dealers. According to ANEEL, the loan would have its initial payment in
the sixth year of agreement effectiveness and would be so effective until its conclusion (25 years
to settle). Considering that the loan shall now be recognized at the tariff, there shall be neutrality
for the new concessionaire in terms of payment of the concerned sums.


f) Technical Note no. 247/2017
Due to NT no. 351/2017, the Brazilian Mining and Energy Department proposed
amendments to the draft of the Agreement for Concession of Public Electric Power Supply Service
by means of the Technical Note no. 247/2017. The main amendments proposed are related to (i)
recognition in Portion A of the revenue required for payment of RGR loans; (ii) defining as special
readjustment the tariff process the new controlling shareholder may request within the five-year
interval of the new concession, essentially to consider investment volume at the asset base; and
(iii) clarifications on the flexibilization system of the regulatory parameters of Operating Costs
and non-technical losses until the first regular tariff readjustment.
Find below the proposed amendments to the Agremeent Draft as mentioned in the
Technical Note no. 247/2017, the contributions of which were received until 09/06/2017.


“CLAUSE SIX – TARIFFS APPLICABLE IN THE SERVICE PROVISION
Portion A – Sectorial Charges: portion of dealer’s revenue assigned to comply with the
liabilities associated with the Electric Power Service Inspection Fee - TFSEE; with the
Financial Set-Off for Use of Water Resources - CFURH for the purpose of electric power
generation, when applicable; with the System Service Charge - ESS; the Energetic
Development Account – CDE; the Research & Development – R&D; the Energetic
Efficiency Program – PEE; the Spare Energy Charge – EER; payments of loans from the
Global Reversal Reserve – RGR, made in compliance with art. 4, Paragraph 4, item VI,
of the Act No. 5.655, dated May 20, 1971, and remaining public policies for the electric
industry defined in the governing legislation;


CLAUSE NINETEEN – TEMPORARY PROVISIONS
Section Two – During the period ranging from the date when the agreement is executed
and the first following ordinary tariff readjustment, there may be a special tariff
readjustment as requested by the Concessionaire, abiding by the following criteria:
Section Three – During the period ranging from the date when the agreement is executed
and the first following ordinary tariff readjustment, values and calculation formula for



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X Factor, Operating Costs and Regulatory Allowances for Energy Losses other than those
outlined in Clause Six, shall be used, abiding by the following criteria:
I – Value of the X Factor Pd component shall be defined as 0 (zero).
II – The Regulatory Operating Costs on first tariff process following Concession
Agreement execution shall be defined as a stake of []% over the value of the Operating
Costs from the prior tariff process, readjusted by following the Portion B readjustment
standard. Between the second tariff process and the tariff process immediately prior to
the first ordinary tariff readjustment, the Operating Costs shall be defined by applying
the Portion B readjustment standard.
III – The Non-Technical Regulatory Losses shall be defined at []% of stake over the
invoiced low-voltage supplied energy.
Paragraph One – Tariff consequences arising out of the treatment described herein shall
be verified as of the first tariff calculation following the year when the agreement is
executed, always having prospective effects.”
Paragraph Two – The temporary stakes in items II and III are those resulting from the
bidding process of the electric power supply concession associated with the ownership
transfer of the legal entity providing the service, as conducted under art. 8 of the Act No.
12.783/2013 and the respective regulations thereof.
Paragraph Three – On the first ordinary tariff readjustment, standards contained in
Clause Six shall be applied, not considering any consequences arising out of the
temporary stakes in items II and III.
Section Four – DEALER shall settle the loans with the RGR Fund as provided for in MME
Ordinance no. 388, dated July 26, 2016, readjusted pursuant to art. 4, Paragraph 5, of
the Act No. 5.655, dated May 20, 1971.
Paragraph One – Payments shall be made between the first ordinary tariff readjustment
and the date of conclusion of this instrument.
Paragraph Two – DEALER shall be entitled to tariff recognition of []% of the loans paid,
as defined in the bidding process of the electric power supply concession associated with
the ownership transfer of the legal entity providing the service, as conducted under art.
8 of the Act No. 12.783/2013 and the respective regulations thereof.”

g) Technical Note no. 149/2017
On September 08, 2017, ANEEL reopened the Open Court no. 032/2017, through the
Technical Note no. 149/2017. Therein, the Regulator stated its proposed flexibilization of some
regulatory parameters – non-technical losses, Operating Costs and X Factor – and the thresholds
for the collective continuity indicators – DEC and FEC – until the first ordinary tariff
readjustment of the new controlling shareholder of the named companies, to be contracted by
means of a bidding. The Agency proposal resulted into significant changes to some parameters
that had been determined in the Technical Note no. 351/2017, especially in terms of Operating
Costs and quality indicators.


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·		In 2018, the new agreements shall be executed, the date of which was estimated to
		03/01/2018. In the same year, an IRT is being conducted to the dates of the older
		agreements’ anniversaries;
·		In 2019, a special readjustmen			t²⁵is being made to the dates of the older agreements’
		anniversaries. In such review, the tariff coverage related to the Annual Asset Cost
		(CAA), comprised of the Capital Remuneration, Regulatory Reinstatement Quota
		and Annual Cost of Personal and Real Property, shall be readjusted. No PNT, OPEX,
		Default, X Factor metrics, etc. shall be reviewed;
·		From 2020 to 2022, there shall be usual IRTs;
·		In 2023, there shall be a full-scale RTP corresponding to th			e 5-year cycle after
		agreement execution, where the regulatory parameters shall be set forth again (such
		as PNT, OPEX, Default, X Factor etc.).
·		As of 2023, there shall be IRT and RTP in the 5-year interval until 2048.
The new agreement shall be adapted to the tariff standards of REN no. 761/2017.

4.2	.	Methodologies, Assumptions and Proceeds for Portion A Definition

Portion A is the tariff income component whereby consumers remunerate the dealer for
the costs construed as non-manageable, such as: energy acquisition, Sectorial Charges, energy
transportation cost, finance charges, technical losses, non-technical losses and default.
Since such costs are construed as non-manageable, they are directly transferred to the
tariffs (pass-through) according to the standards provided for by the Regulator, to be detailed
below.
The aforementioned pass-through condition is true for the cases in which the dealer is
within a regulatory interval of loss thresholds and excess contracted energy.

4.2.1. Energy Acquisition and Extra Tariffs

In order to define the volume of required energy supply, for the purpose of purchasing
Regulatory Allowance for Contracted Energy, the energy volumes for provision and supply were
calculated. The provision energy comprises the total projected volume, excluded from the volumes
for the free-trade, distribution and supply volumes.
The methodologies and proceeds obtained for forecast of the total and free volumes were
provided previously. The projected volumes for distribution and supply followed the estimated
behavior for the total volume of the concessionaire.
By using the projected Regulatory Allowances for Energy Losses, the total losses were
estimated – both technical, non-technical and basic high-voltage network. In relation to the basic
high-voltage network losses, the stakes provided in the 2016 SPARTA spreadsheets were


²⁵In such special readjustment, the armored base shall be reopened.

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maintained. The required energy supply is obtained by adding provision, supply and Regulatory
Allowances for Energy Losses.
The excess tariff system, as applied by concessionaires associated with the Integrated
National System – SIN, holds three extra tariffs (green, yellow and red) indicating whether the
energy costs more 0r less, according to the electricity generation conditions. For the economic-
financial appraisal, the same favorable generation scenario considered by ANEEL in the tariff
processes was assumed, i.e., scenario in which the tariff is green.

4.2.2. Charges

Sectorial Charges are all created by laws approved by the National Congress in order to
make implementation of public policies in the Brazilian electricity industry feasible. Their values
are mentioned in resolutions or decrees by the Brazilian Electricity Regulatory Agency (ANEEL)
and are taxed by dealers by means of the electric power bill. Each of the charges holds pre-set
targets. The charges corresponding to the electricity industry are described below.

Energetic Development Account (CDE)

The CDE was created by Act no. 10.438/2002 for the purpose of, among others, promoting
universalization of the electricity service in the whole national territory, funding the discounts to
the tariffs granted to low-income rural and residential classes, ensuring a competitive energy
produced from wind sources, small-sized hydroelectric plants, biomass, natural gas and mineral
coal.
The Brazilian Treasury may contribute funds to the CDE account, aimed at the tariff
reasonableness. The CDE cost is shared among all consumers served by the Integrated National
System (SIN). The quota values are calculated by ANEEL.

Electric Power Service Inspection Fee (TFSEE)

The TFSEE was conceived for the purpose of funding ANEEL operations for both
inspection and economic regulation activities.
The Fee is paid by all electricity consumers, accruing over the operations of the electricity
distribution, generation and supply agents.

Program of Incentive to Alternative Electricity Sources - PROINFA

PROINFA was created by the Act No. 10.438/2002 and regulated by Decree no.
5.025/2004 for the purpose of funding ANEEL operations for both inspection and economic
regulation activities.
Apportionment of costs and electricity contracted by means of the program, considering
the Annual Plan devised by Centrais Elétricas Brasileiras S/A (ELETROBRAS) and verified,
regulated and free energy volumes. The Act granted exemption to consumers from the Low-
Income residential sub-class.


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Financial Set-Off for Use of Water Resources (CFURH)

CFURH is provided for in the 1988 Federal Constitution for the purpose of providing
financial set-off to the Federal Government, States and municipalities for use of water and
productive land required for installation of electricity generation plants.

System Service Charges (ESS)

ESS was created for the purpose of increasing reliability and assuring the energy offered in
the country. The cost is monthly calculated by the Electricity Trading Chamber and paid by all
consumers, both regulated and free, to the generation agents. It includes cost of deployment of
thermal-electric plants based on cost-merit, for energetic security, operating restrictions and
ancillary services.

National System Operator (ONS)

The contribution to ONS was created for the purpose of financing operations of the
National Electric System Operator, which coordinates and controls operations of the electric
power generators and suppliers in the Integrated National System (SIN). The value is annually
defined by ONS and approved by ANEEL.

Research & Development and Energetic Efficiency (R&D/EE)

R&D/EE was created for the purpose of encouraging scientific and technological
researches related to electric power and to sustainable use of resources required for its generation.

Spare Energy Charge (EER)

ERR was created for the purpose of covering costs arising out of contracting of spare
energy, including administrative, financial and tax costs.
Apportionment among the electric power end users from the Integrated National System
(SIN), including free consumers and self-producers only in the energy portion deriving from
association with SIN, is monthly defined by the Electricity Trading Chamber (CCEE), under the
formula outlined in resolution issued by ANEEL.
As previously mentioned, Portion A has a pass-through effect, i.e., costs with Sectorial
Charges, one of Portion A components, are transferred to the consumer by means of the tariff,
thus neutral from the perspective of the economic-financial appraisal, only having one time effect,
since the adjustment caused by the difference between reference and realized volumes is adjusted
for inflation and adjusted at the following readjustment, but for the purpose of this appraisal, such
time effect caused by the difference between the adjustment for inflation rate (SELIC) and the
discount rate (WACC), was not considered due to its reduced representativeness.




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4.2.3. Transmission Cost

Energy transmission costs are those related to energy transmission from the generating
plants to the distribution systems, regulated by means of Resolutions 1917 and 1918 dated
06/23/2015 and Sub-module 3.3 of PRORET, being comprised of the following items:
a)	Use of transmission facilities ranked as Basic High-Voltage Network, Basic Border
	High-Voltage Network, or Remaining Transmission Facilities (DIT) of shared use;
b)	Use of distribution plants;
c)	Connection to the exclusive-use DIT;
d)	Connection to the distribution networks
e)	Energy transmission from Itaipu to the point of connection to the Basic High-
	Voltage Network;
f)	Use of Basic High-Voltage Network by Itaipu plant; and
g)	Use of the transmission system by the generation plants connected at 88kV or 138kV
	voltage level.
Use of both transmission and distribution systems aimed at tariff processes are calculated
considering the required volume contracted in the reference period, valued by the respective
economic tariffs in force on the tariff process date.
As previously mentioned, Portion A has a pass-through effect, i.e., costs with energy
transmission, one of Portion A components, are transferred to consumer by means of the tariff,
thus neutral from the perspective of economic-financial appraisal, only holding a time effect, since
the adjustment caused by the difference between reference and realized volumes is adjusted for
inflation and adjusted at the following readjustment, but for the purpose of this appraisal, such
time effect caused by the difference between the adjustment for inflation rate (SELIC) and the
discount rate (WACC), was not considered due to its reduced representativeness.

4.2.4. Finance

Portion A includes costs transferred to the regulated volume tariffs, but the tariff is
calculated from an estimate for such costs, and the verified costs tend to be different from the
estimates.
Dealer’s income, for Portion A recovery, may be in excess or insufficient in relation to
effective costs of Portion A, and calculated differences shall be included into CVA (“Offsetting of
Variation of Values for Items in Portion A”) for future account settlement.
The same goes for cost of contracted thermal-electric generation, which can be over or
under-valued in relation to the estimate in accordance with intensity of thermal plants’ use, which
in turn depends on the rainfall volume, which is a clearly difficult situation to forecast. If, when
calculating the annual readjustment, the CVA is in its surplus capacity, it means that dealer
collected, by tariff, more money than it actually applied in non-manageable costs. Balance thereof
shall be adjusted by SELIC Rate and, when calculating the tariff for the following year, the
financial component corresponding to the CVA shall be negative so as to offset the surplus, thus
charging from the consumer less than the economic tariff.


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As previously mentioned, since Portion A components were construed as neutral, i.e., they
were not construed as values related to Finance Charges for the purposes of this economic-
financial appraisal.

4.2.5. Technical losses (PT)

The electricity system is segmented into generation, transmission and distribution of
electric power. Dealers receive the energy from supply agents (transmitters, generators or other
dealers), supplying it to the end consumers, either these are residential, commercial, rural,
industrial or from remaining classes. The energy metered by dealers at the consuming units shall
always be lower than the energy received from the supply agents. Such difference is named energy
loss and it is segregated according to the origin.
The Brazilian Electricity Regulatory Agency - ANEEL – must set at each tariff readjustment
a regulatory landmark of losses which considers concessionaire’s performance. Losses may be
divided among losses at the basic high-voltage network, which are external to the concessionaire’s
distribution system and with clearly technical origin, and losses at the distribution which may
have either technical or non-technical nature.


a) Concept and Characterization of Dealer’s Historic PT
Technical losses (PT) are those inherent to the electric power transmission through the
network, related to transformation of electric power into thermal energy in the conductors (joule
effect), losses at the transformers’ cores, dielectric losses, etc. These may be construed as
consumption of the devices in charge of distributing energy. It should be stressed that PT levels
are defined by ANEEL upon the RTP and maintained as constant through a tariff cycle.
The latest calculation of technical losses on the part of Eletroacre, segmented by the
transformation and network components, was conducted by ANEEL by means of the Technical
Note no. 0229/2013-SRD/ANEEL, dated October 30, 2013, process no.: 48500.002317/2013-07,
“Analysis of contributions by the Open Court no. 096/2013 in relation to appraisal of losses at the
distribution system, concerning the 3^rdPeriodical Tariff Readjustment cycle, of Eletrobras
Distribuition Acre - Eletroacre”. The appraisal results are provided in




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	segment, application thereof is unequivocal and represents the best verified historic
	information.
ii.	Losses obtained in each dealer’s voltage segment were compared to companies
	which were most similar to the concession area being analyzed, considering their
	specific characteristics. For Eletroacre, the equiparable companies chosen were:

	·	Espírito Santo Centrais Elétricas – ESCELSA;
	·	DME Distribuition S.A. – DMED;
	·	Eletrobras Distribuition Piauí – EDPI (CEPISA);
	·	Companhia Energética do Rio Grande do Norte – COSERN;
	·	Celesc Distribuition S.A. - CELESC;
	·	Empresa Elétrica Bragantina S.A. – EEB;
	·	Companhia Paranaense de Energia – COPEL;
	·	Companhia Sul Paulista de Energia – CPFL Sul Paulista.
iii.	By comparison to similar companies, the mean IPTSs obtained consider the
	weighted losses of each dealer in relation to energy injected into each voltage
	segment. The projected target for 2047 considers, by segment, maintenance of the
	company’s rates when lower than the weighted average; or the values observed at
	the weighted average of the equiparable companies when the results attest to a level
	lower than that currently attained by the company.
iv.	Based on the results obtained from losses by segment for the projected year 2047,
	simple interpolation was used to define the interim values.
v.	With the annual IPTS values obtained, these were applied over the energy volumes
	injected by supply voltage segment, resulting into the technical losses by segment as
	estimated for the whole Concession period. In order to consolidate the total value of
	Eletroacre losses, the same injected energy share adopted in Technical Note ANEEL
	no. 0229/2013-SRD/ANEEL was used.

It should be stressed that ANEEL, by Technical Note no. 88/2017, dated May 24, 2017,
defined Eletroacre’s PT as being 9.85% of injected energy until the first full tariff readjustment
after execution of the Concession Agreements resulting from the bidding process. It means the
methodology described herein applies as of the first RTP simulated, estimated to 2023.


c)	Results
Graph 9 contains the mean losses by voltage segment of the equiparable companies and
Eletroacre.




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	Finance: finance components of distribution tariffs;
	Ác: C consumption class stake in the total revenue verified in the test year;
	RIc: stake of regulatory Non-Recoverable Revenue, related to C class, as per tables
	of PRORET Sub-module 2.2A (tables 2 and 3).


Most of the components from prior equations shall be provided in the section dealing with
Portion B and the tariff transaction proceeds. For ICMS and PIS/COFINS rates, the values used
in the 2016 tariff readjustment process are adopted. In case of Eletroacre, the values are 21.63%
for ICMS and 4.76% for PIS/COFINS. Such rates are maintained constant throughout the studied
horizon.
Percentages of regulatory Non-Recoverable Revenue are obtained by the methodology of
NT no. 107/2015 and contained in the sub-module 2.2A of PRORET and are equally maintained
constant throughout the studied period: 1.14% for residential; 0.78% for industrial; 0.55% for
commercial; 1.07% for rural; 0.20% for public authorities; 0.01% for public lighting; 0.02% for
public services.
Besides the regulatory calculation, the verified default values were also estimated to be
used in cash flow calculations. The starting point used was the mean non-charged revenues during
the period from 49 to 60 months until late 2016, as reported by dealer. Values obtained, and
applied in 2017 calculation, were: 2.95% for residential; 5.88% for industrial; 2.92% for
commercial; 6.21% for rural; 2.95% for public authorities; 1.74% for public lighting; 0.78% for
public services. As assumption, such values were assumed to converge into the regulatory stakes
throughout 10 years.

4.3.	Methodology for Portion B definition

Definitions used to calculate Portion B are provided in Release no. 113/2017-DR/ANEEL
with the Concession Agreement draft – as well as definitions for Portion A and tariff adjustments.
Apart from some specificities, definitions follow the methodologies contained in “A” versions of
PRORET, as shown below. It should be noted that the elements discussed below have a regulatory
nature and refer to the public service concession.
Calculation of the value for Portion B varies between tariff review and readjustment
processes. The tariff readjustment process is conducted in accordance with the methodology in
sub-module 3.1A of PRORET.
Firstly, Value of Portion B is estimated in the test year (12 months prior to tariff
readjustment) also referred to as VPB0 component, as the division quotient of the Value of
Portion B by the reference market (both from prior tariff process) multiplied by the value of the
current process reference market.
Then, the VPB0 is adjusted to recompose the elements excluded in the prior process: Other
Revenues, Surplus Demand and Excess Reactives. At the first tariff readjustment of the studied
concessionaires (2017), they use an adjustment factor calculated by ANEEL under the Open Court



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·	CR= Country Risk: adjustment based on JP Morgan index EMBI - Emerging Market
	Bond Index of last 5 years (Source: Bloomberg);

·	rusd = US-Inflation Rate: Mean 10-year forecast of the US-Inflation Rate, with Base
	Date for 03/31/2017 (Source: US-Congressional Budget Office);

RC = Credit risk: Mean historic spread of the credit risk in relation to SELIC applied over
SELIC forecast throughout the forecast period (Source: Bacen)

4.3.2. Operating Costs and Xt Factor

Efficient Operating Costs are one of the key components for estimating the Value of Portion
B in tariff readjustment procedures (CAOM component at the VPB calculation formula). The
methodology used to calculate the efficient Operating Costs is contained in Release no. 113/2017-
DR/ANEEL, clause six, and generally follows sub-module 2.2A of PRORET. Some specificities of
the Release shall be described throughout methodology.
From the regulatory perspective, such costs refer to the numbers of Personnel, Material,
Third-Party Services, Other Operating Costs, Taxes and Insurances related to Distribution and
Trading of Electric Power (PMSO). Under specifications of NT no. 66/2015, PMSO should go
through some adjustments, especially for the costs with Personnel and Others. The Personnel
information excludes values of actuarial deficit or surplus and retirement program and/or
voluntary dismissal, while Others consider only: indemnities for losses and damages, private
energy consumption, expenses with trainees and work initiation program, expenses with
consumer advisory, expenses with internal communication and copies, taxation fee, bank fees and
labor court sentences. Such adjustments are applied by ANEEL for tariff reviews and were
considered to compose the PMSO data to be projected within the scope of this analysis.
The approach used by ANEEL to calculate the Efficient Operating Costs in the periodical
tariff readjustment aims to define the efficient level of costs for processes being conducted, in
accordance with the conditions contained in the concession and regulation agreements, ensuring
proper service provision and that assets shall maintain their service capacity unchanged
throughout their service lives. When determining the Efficient Operating Costs, costs practiced
by dealers, efficient level of costs and characteristics of the concession area shall be followed.
ANEEL uses the non-parametric pattern called DEA (Data Envelopment Analysis), aimed
at determining a feasible production/cost border as means to identify the companies’ efficiency
level. The pattern considers PMSO, with the adjustments above, as the production proceeds.
There is also an adjustment of the values by salary indices, so that companies operating in regions
where labor cost is cheaper will have no competitive advantage masking their efficiency score.
Products considered in 4CRTP were: Network (underground network, air supply network
and high-voltage network), consumers, mean market (weighted by voltage level), non-technical
losses and quality (interrupted consumer-hour). Using a sample of 61 companies for 2011 to 2013,
ANEEL obtained the efficiency scores at the DEA pattern as provided in Table 36.




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	u = weight assigned in 4CRTP to studied company’s PMSO;
	yj = value of j product of studied company;


	Õ = = scale weight factor assigned assigned in 4CRTP in 4CRTP to j product of studied of studied company. company;


II.	With the indicator calculated for each cluster company, the following forecast rule was
	determined for studied company’s efficiency:
	(i)	Maintenance of 2016 efficiency level (latest verified data for studied
		concessionaires) in 2017 and 2018;
	(ii)	Convergence to mean efficiency level of the cluster (measured in 2013),
		considering convergence speed equal to that of the company with highest
		efficiency gain in the cluster in the studied period;
	(iii)	After reaching the mean efficiency, the company shall converge to mean
		efficiency of companies from first quartile efficiency of the group until the
		end of concession.
	(iv)	Distance of verified and regulatory Operating Costs in the beginning of the
		studied period was equally considered for definition of the efficiency gain
		assumptions of each named dealer. On one side, companies with significant
		gaps between regulatory and verified operating cost may decrease their
		inefficiency level to initial rate greater than companies near the regulatory
		efficiency standard. Such effect is because process/activity/structure
		adjustments have decreasing returns the lower the verified inefficiency
		level. On the other hand, companies with cost near the regulatory level of
		efficiency shall take less time to reach such level than those away from such
		efficiency border. Dealers away from the regulatory cost levels may take more
		than one tariff cycle to reach such level while the nearest ones shall tend to
		be efficient from the regulatory perspective of a tariff cycle.


	In case of Eletroacre, the companies composing the cluster are: CSPE, COSERN,
	Bragantina, DME, Escelsa, COPEL and CELESC. Such companies had variation in the
	efficiency indicator in the period according to Table 39.




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Revenues inherent to the electric power distribution service are in addition to the energy
supply, but are still a part to the essence of electric power supply concession, for which expenses
incurred into for provision thereof are previously comprised in the income from regulated service.
This category includes income obtained with connection charges and invoiceable services; as well
as the income earned as Surplus Demand and Excess Reactives, the taxation of which is aimed at
encouraging optimized network use and efficient energy consumption, without requiring the
effective service consideration by the concessionaire.
Complementary activities are those which expenses are not clearly identified and are
previously covered by the income from the regulated activity. This sub-group comprises earnings
with shared infrastructure and communications systems (PLC).
Unusual activities are those upon which administration and management criteria are
imposed enabling full distinction of cost and income registration. They are comprised of earnings
from provision of services to third parties (operation and maintenance, consulting,
communication and engineering) and collection for taxation of covenants in energy bills.
By the latest information as to Other Revenues provided by the studied concessionaires,
we adopted as assumption that they shall evolve following IGP-M growth, since this is the price
index used by ANEEL for adjustment for inflation of the regulatory values of Other Revenues. It
indicates the current levels of Other Revenues are maintained, with no additional effort for
expansion thereof. Such circumstance reflects reduced incentives for generation of Other
Revenues, since the period during which benefits from such income source are possible to be
earned was shortened. Upon the latest adjustment to PRORET, Other Revenues are now excluded
from Portion B on an annual basis, not only in the tariff readjustment procedures.
For the set of studied concessionaires, it should be stressed that in 2017 and 2019
readjustments, 3CRTP standard for sharing of Other Revenues was used. Application of the
current sharing methodology occurs only from the first tariff readjustment process (2020). The
results obtained are provided in Graph 15.




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Frequency of Individual Shortage by Consuming Unit or by Point of Connection; DMIC –
Maximum Period of Continuous Shortage by Consuming Unit or by Point of Connection; and
DICRI – Period of Individual Shortage occurred at a critical day by Consuming Unit or by Point
of Connection.
The individual indicators are followed-up by using equally individual thresholds, which are
defined for monthly, quarterly and annual periods in relation to DIC and FIC indicators. DMIC
indicator threshold is set for monthly period, while the DICRI indicator threshold is set for each
shortage at a critical day.
When thresholds of individual continuity indicators are infringed, Eletroacre must provide
a financial offset to the consumer, by a direct discount to the invoice within up to two months
after the infringement is determinated. As discussed in section Error! Reference source not found., t
he formula defined by the Regulator to calculate the offset considers the excess stake valued by a
finance charge.
From values calculated from DIC and FIC individual indicators, collective indicators (DEC
and FEC) are obtained which reflect the mean continuity of the service provided to a certain
consumer conglomerate. Usually, collective indicators are calculated both at the consuming unit
set (concession area subdivisions) level and the corporate level (whole concession area).
The graphs provide the historic series of both determination and thresholds of DEC and
FEC indicators of Eletroacre for years 2013 to 2016, as well as the regulatory and internal
thresholds³⁵for DEC and FEC of 2017. Eletroacre shows a decrease trend to the values calculated
from the collective indicators. However, there is greater decrease trend to admissible thresholds,
maintaining the concessionaire far from meeting targets.




³⁵Internal thresholds were set for the manageable portion of indicators by dealer in accordance with Regulatory
Resolution no. 748/16, providing for the terms and conditions for provision of public electric power distribution
services by Named dealer, under article 9 of the Act No. 12.783, dated January 11 no. 388, dated June 26, 2016 by the
Brazilian Mining and Energy Department.



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Finally, ANEEL sets criteria to handle specific goal calculation situations, such as: (i)
heterogeneous sets; (ii) sets with highly increased portion of the indicator related to supply; and
(iii) sets with goals imposing high annual reduction rates.
To handle heterogeneous sets, an index – Score ANI – is calculated which determines
whether a heterogeneous set has, in average, features with increased complexity (when positive)
or reduced complexity (when negative), as compared to remaining sets of its cluster. Score ANI is
able to change the percentile used to define the heterogeneous set regulatory target and,
accordingly, change the historic limits for the studied tariff cycle.
Handling in sets with increased stake of supply at the indicators (if exceeding the preset
9% limit for DEC and 15% for FEC), the historic limits of the set are mitigated by diluting into 4
years the difference between calculated value of the external indicator and the mean values
calculated from the external indicator of the similar sets.
The last handling provided is in relation to sets with quite intense historic reduction of
limits, determining maximum annual reduction values of 8 hours for DEC and 5 shortages for
FEC. Thus, the reduction history is restricted if it has, in following years, differences exceeding
such limits.


c) Assumptions for Projection of Calculated (or Verified) DEC and FEC Indicators
Projections for calculated (or verified) Quality Service Indicators – DEC and FEC – comply
with three specific stages of the new concession. The first stage is characterized by adoption of
Temporary Provision regime, in force during 2017 and, possibly, early 2018, assuming that
calculated indicators would remain equal to verified values in year 2016. The second stage of
projections is comprised between 2019 and 2025 where not only the kick-off of new
administration is expected, but also the initial results gathered by means of the investment and
operating efficientization measures, taken as of 2018.
For projection of the indicator performances at such new stage, the benchmarking
approach was adopted for identification of equiparable companies (same methodology provided
in section 3.3.2 - Operating Costs). Thus, eight companies equiparable to Eletroacre were used:
DME-PC, Cepisa, Cosern, Celesc, Bragantina, Copel, Escelsa and CSPE.
From the calculated aggregate DEC and FEC values of such 8 companies for the historic
years from 2003 to 2016, a database was created containing the annual indicator and such
indicator reduction value in relation to following year value, provided that there is a reduction in
the following year, considering as void when the indicator is increased from one year to the other.
Thus, linear regressions were used in such database (excluding their critical outliers³⁸and void
values), aimed at finding the equation enabling to associate annual indicators to the annual
reduction capacity, reflecting the decreasing yield of the efforts for enhancing the service quality.
Under increased service discontinuance circumstances, it is possible to check significant


³⁸Value exceeding the mean plus three times the standard deviation of observations.



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remunerable investment upon the RTP, with the remaining value being included into Special
Liabilities; and (iii) if the calculated compensation values exceed the calculated values of the prior
calendar year, such difference shall be double-invested in the concession and included into
Special Liabilities.
In such case, Eletroacre has reductions to the financial sum of compensations in the period
from 2018 to 2023, and such sums and the results of their annual differences are considered in
the 2023 RTP.



4.3.7. Long-Term Investment

This section comprises the assumptions used for projections of Eletroacre long-term
investments.
Product 7 “Eletroacre Technical-Operating Appraisal Report” contained the Five-Year
Investment Plan (PIQ) for the period from 2018 to 2022. Such plan was developed considering
technical and operating aspects of the provision of electric power distribution service, considering
the company’s short-term requirements: meeting the demand by new connections – based on the
vegetative growth and the ‘Luz para Todos’ Program (PLpT) – and enhanced performance of the
service continuity, voltage levels and electric loss indicators, as well as adequacies and
implementations of computer systems for support in the commercial and distribution
management.
PIQ 2018-2022 was designed based on information provided in the Data Room by
Eletroacre, to wit: “Electricity System Expansion Plan (2016-2025 horizon)”, “Distribution
Development Plan - PDD of the year 2017 (although temporary)⁴⁵”, “Plan of Results to Enhance
Distribution Services, dated 2015” and “Plan for Temporary Provision of Electric Power
Distribution Services, dated 2017”. Additionally, information obtained from the “Site Audit
Report” (Attachment I to the Technical-Operating Appraisal Report)” and incremental data of
investments flagged by Eletroacre planning area, upon the site meetings and conference calls
held.
Table 49 summarizes dealer’s Five-Year Investment Plan 2018-2022. It is noted that BRL
667.2 million investments are required for the first five (5) years of agreement, being noteworthy
the requirement for the year 2018, concentrating BRL 264.5 million.




⁴⁵When Product 7 was developed, 2017 PDD had not been delivered to ANEEL yet.



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Table 49- Five-Year Investment Projection 2018-2022⁴⁶




*Values in effective currency, at prices estimated in April, 2017.
Source: Drafted by company itself

This plan shall support projections of investments for the remaining 25 years of agreement,
being medium- and long-term resource requirements. Projections shall be explained in two
blocks: projections of the electric investments (HV Expansion; MV/LV Expansion; Enhanced
MV/LV and Renovation) and projection of investments in non-electric assets (Systems).


a) Assumptions for Projection of Electric Investments
Projection of electric investments in the concession for the remaining 25 years of
agreement was estimated, for five-year periods, considering required resources aimed at
expansion and enhancement of the distribution assets based on PIQ 2018-2022.
The required investments in MV/LV Expansion and Enhanced MV/LV for the 2^ndfive-year
period (2023-2027) was projected according to the following metrics: (i) initially, we calculated
the mean and standard deviation of each type of investment included into PIQ 2018-2022; (ii)
off-interval values between the mean ± a standard deviation (construed as outliers) were not
computed for PIQ 2023-2027; (iii) sum of the investments of years construed as typical were
multiplied by “5/# of typical years” factor to get to a required five-year sum; (iv) finally, such
result was multiplied by a reducing factor, through the assumption that the 1^stfive-year period of
the concession has key investments blocked, which shall be made by the new controlling
shareholder⁴⁷. Graph 10 illustrates the methodology used for projection of five-year investments.


⁴⁶There are subsides of 90% of the investments related to the works of Energy for All Program - PLpT and 100% related to the
subrogation of the benefits of the Account of Consumption of Fuels – CCC in specific works.
⁴⁷It is not to be supposed that the other five-year periods shall have network infrastructure works similar – in volume
and resources – to the requirement projected for the five-year period 2018-2022.



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Investments in HV Expansion works from the second five-year period (2023-2027) were
projected differently, since investments had been previously projected by dealer itself for years
2023 and 2024. Investments for the remaining years of the second five-year period complied with
the following metrics: (i) initially, we calculated the mean and standard deviation of the last 5
years of investments in HV Expansion (period between 2020 and 2024); (ii) off-interval values
between the mean ± a standard deviation (construed as outliers) were not computed for years
2025, 2026 and 2027; (iii) the sum of investments of years deemed as typical was multiplied by
“5/# of typical years”* factor to get to the required five-year sum; (iv) with such value, the sum of*
projected investments in the years 2023 and 2024 was subtracted and the resulting sum was
multiplied by a factor equal to 0.2 for the year 2025 and 0.4 for 2026 and 2027.
Annual segregation of the five-year investments for the remaining five-year periods for the
HV Expansion works followed the assumption that 60% of investments are allocated in the last
two years of the five-year period – near dealer’s following tariff readjustment⁴⁸- since, in general,
there is certain flexibility to conduct such works, with 30% being allocated every year. The
remaining 40% are allocated in the first three years of the five-year period, at 10% for the first two
years and 20% for the third year.
It is stressed that we considered, for the HV expansion works, varying factors between five-
year periods: every 10 years, the required investments are doubled in relation to the previous five-
year period. The idea is that expansions to high-voltage levels tend to support short- and medium-
term load increase. For MV and LV works, in turn, the investment sums were historically stable
throughout the five-year cycles, reflecting the more continuous and capillary compliance with the
increased load at such voltage levels.
In relation to investments in Renovation, the projection metrics were different, by two
steps: (i) firstly, stake of the sum allocated to Renovation within PIQ 2018-2022 investments was
calculated; (ii) using such stake as reference, we applied the same in the other 25 years of
agreement, from 2023 to 2047.
It should be stressed that no resources were projected for PLpT since the program ends in
the year 2018.


b) Assumptions for Projection of Non-Electric Investments
In addition to the projections of investments for Expansion, Enhancement and Renovation
works of dealer’s several voltage levels, it is also needed to project the sums related to the
investments in Commercial System. Therefore, we adopted the assumption that every five years
investing 50% of the mean estimated in the first five-year period (2018-2022) is required.


c) Results



⁴⁸The goal is for capital disbursement of the concessionaire to be near the tariff recognition of investments made.



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4.3.8.Remuneration Basis

Within the tariff readjustment process, definition of the Regulatory Remuneration Base
(BRR) is a vital input to calculate the Capital Remuneration and Regulatory Reinstatement Quota.
The BRR consists in the set of assets held by the service provider and valued at certain
methodology.


a)	Methodology Adopted by ANEEL
For Brazilian electric power distribution concessionaires, ANEEL uses the DORC
(Depreciated Optimized Replacement Cost) method for valuation of the assets with greatest
significance in the BRR value and CCV (Current Cost Valuation) for valuation of assets with
decreased significance. The Rolling Forward method is also applied, for the purpose of rolling it
forward in time. Such methods are described in Appendix F.
At Periodical Tariff Readjustment (RTP) BRR construction considers two elements. The
first one is obtained by the BRR sum from the prior RTP (named secured basis), discounting the
depreciations and write-offs occurred during the period between the RTPs, adjusted for inflation
by the IPCA indexer. The second, in turn, named incremental base, is calculated by means of the
additions made during the period between the RTPs, valued at market prices from an asset
revaluation process.
The BRR is comprised of the values of the following items: operating property, plant and
equipment (valuated and depreciated); operating warehouse; deferred assets; and Special
Liabilities (or non-burdensome). For the purpose of validating the physical enrollment and
revaluation, the Operating property, plant and equipment (AIS) is divided into the following
groups: intangible; lands; reservoirs, dams and water mains; constructions, civil works and
enhancements; machinery and equipment; vehicles; and furniture and appliances.
For valuation of the electric power distribution assets, DORC or CCV are considered,
depending on the asset group. The machinery and equipment; constructions, civil works and
enhancement groups; are valuated using DORC, while groups of lands and easements are valuated
using CCV, i.e., from the accounting values adjusted by IPCA index.
At Portion B composition, the Regulatory Reinstatement Quota (QRR) and the Capital
Remuneration (RC) are considered. The QRR results from multiplication of gross BRR by the
regulatory depreciation rate, as per Equation 38.


Equation 38 – Regulatory Reinstatement Quota
	QRR = BRRb x 5
	Where:
	QRR = Regulatory Reinstatement Quota.
	BRRb = Gross BRR.



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The Global Reversal Reserve (RGR) is a sectorial fund created by Decree no. 41.019/1957.
Such fund is used to finance the ‘Luz Para Todos’ Program (PLpT), as well as Energetic Efficiency
projects, within the scope of the National Electric Power Preservation Program (Procel). RGR
contributions are also to electricity system enhancement and expansion works, at the energy
generation, transmission and distribution areas.
The verified WACC before taxes is defined as described in section Error! Reference source n
ot found RGR resource remuneration rate contributed to ‘Luz Para Todos’ Program (PLpT) was
calculated in the 4th Periodical Tariff Readjustment Cycle considering the adjustment interest
spread of the permanent assets accreted of the administration rate and subtracting the mean IPCA
in the period between May, 2009 and April, 2014. On the other hand, RGR resource remuneration
rate contributed to remaining investments was calculated considering the mean TJLP in the
period between May, 2009 and April, 2014, accreted of the administration rate and subtracting
the mean IPCA in the same period.
The Net BRR, on which WACC is applied, is calculated by Equation 41.


Equation 41 – Net Regulatory Remuneration Base

BRRl = AIS - DA - IAD - OEL + AO + TS
Where:
BRRl: Net BRR
DA: Accumulated Depreciation
IAD: Depreciated Usage Index
OEL: Net Special Liabilities
AO: Operating warehouse
TS: Lands and Easements
The Accumulated Depreciation is calculated from the percentage recorded in accounting,
using the commissioning date of each asset, calculated by the straight-line depreciation method.
The Accumulated Depreciation of each asset is identified through the physical and accounting
record reconciliation process.
Operating warehouse, associated with operation and maintenance of machinery, facilities
and equipment required for the service provision is comprised of the mean balance of the last
twelve months of the following sub-accounts: (i) raw material and input for electric power
production, (ii) materials (except for materials intended to disposal, loans and wastes or scrap),
(iii) ongoing acquisitions and advance payment to suppliers, deducted from (i) provisions for
reduction to recoverable value.
In order to comprise Portion B, in addition to Capital Remuneration and the Regulatory
Reinstatement Quota, Remuneration of Special Liabilities is also considered, which is calculated
as per Equation 42.



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	ANEEL at AP no. 040/2010) added to the AIS value the VOC reported by the company for Incremental BRR of the 3^rdRTP.

·	Whole Usage Index (BRL): evolves with IPCA.
·	Gross Special Liabilities: evolves with deduction of the write-offs of Special Liabilities (OEs) and adjustment by IPCA. Write-offs of Special Liabilities were projected applying in the AIS of each month the mean OE write-off rate reported by the company on AIS during the period ranging from the 3^rdRTP and Feb/17.



·	Fully Depreciated Assets: application of mean growth rate calculated based on
	evolution of the monthly accounting balance of the Fully Depreciated Assets
	considering the mean depreciation rate of each asset and the residual value on the

·	Accumulated database of Feb/17 Depreciation: reported adjusts by the concessionaire. prior Accumulated Depreciation by IPCA, adds monthly depreciation and subtracts depreciation from write-offs.

	o	Monthly Depreciation: Gross BRR multiplied by the mean depreciation rate.
	o	Write-Off Depreciation: the data verified of write-off depreciations converted into VNR are used. Projection is conducted by application of the mean verified stake of Write-Off Depreciation in relation to write-offs in the amount of projected write-offs of the month.
·	Mean Depreciation Rate: depreciation rate falls from mean level calculated in Feb/17, considering increased mean service life of assets.

	o	In Feb/17 the weighted average between the depreciation rate of each asset and their weight to residual AIS (AIS deducted from Fully Depreciated Assets) verified in the Valuation Report drafted by Setape (delivered on 07/27/2017) was considered, resulting into 3.44%.)

	o	After Feb/17 the rate falls from the mean level of 3.44%, because the assets gradually become fully depreciated (or written-off). The aim is estimating the expected level by the end of projections (2048). Therefore, we use accounting data again, reported by the concessionaire in Feb/17, projecting the residual AIS year-over-year. Then, we calculate the mean depreciation rates of the assets, weighting the depreciation rates of each asset by their weight on residual AIS. After obtaining the expected rate in 2048, at 2.50%, values between Feb/17 and Dec/2048 were interpolated.

·	Operating warehouse: proportion of the Operating warehouse account in relation to between Feb/17 and Dec/2048 were interpolated. between Feb/17 and Dec/2048 were interpolated. applied to Gross BRR of the projected month.

·	Depreciated Usage Index (BRL): segregation of the asset stake other than lands in the sum of Whole IA, using the proportion of sum of the BRR IA assets from the 3^rdRTP other than lands.


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	o	In proportion to the Usage Index of lands the annual depreciation rate is not applied.

	o	In proportion to the Usage Index of remaining assets the annual depreciation rate is applied.

·	Net Special Liabilities: adjustment to the Net Special Liabilities accumulated until the prior month by IPCA, deduction of Special Liabilities write-offs of the current month and result depreciation.
·	Deferred assets: if any, evolves with IPCA.
·	Lands and Easements: evolves with IPCA.
·	RGR Balance (PLpT): initially, RGR Balance (PLpT) was adjusted for inflation by IPCA and the depreciation for the period between the 3^rdRTP and Feb/17 was deducted. In the following months, projection was conducted by balance adjustment until the prior month by IPCA and result depreciation.
·	RGR Balance (Other Investments): initially, RGR Balance (Other Investments) was adjusted for inflation by IPCA and the depreciation for the period between the 3^{rd RTP and Feb/17 was deducted. In the following months, projection was conducted by balance adjustment until the prior month by IPCA and result depreciation.}

The Incremental BRR (new investments) was transacted by means of the asset additions made and projected for the period after Feb/17, deducted from write-offs related to such assets. Projection of the Incremental BRR accounts was conducted as described below:
·	New Assets (Investments): addition of asset from current month added to adjustment (IPCA) of the sum accumulated until the prior month, deducted from the asset write-offs which were operationalized after Feb/17. Unitizations between Mar/17 and May/17 reversed into 15.0% were considered, following the approach contained in Table 57. Projection was conducted using investments provided in section 4.3.7, reversed into 5%. Reduced stake of reversals was considered in the projection period considering that the additional efforts in asset management and to update the capital and unitization controls shall increase consistency of information and reduce discrepancies which generate such regulatory reversals.

·	Asset Write-offs:
	o	Until Feb/27: void, considering the reduced probability of assets being written-off in the first 10 years.

	o	Mar/27 to Feb/32: 1/3 multiplied by the write-off/AIS ratio of the Secured BRR.

	o	Mar/32 to Feb/42: 2/3 multiplied by the write-off/AIS ratio of the Secured BRR.

	o	From Mar/42 on: full Write-off/AIS ratio of the Secured BRR.




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·	Gross Special Liabilities: additions of Special Liabilities and adjustment by IPCA. The compensation values were added to such account, for violation of indicators, projected between 2019 and 2023, under the provisions of Section One of Clause Nineteen dealing with Temporary Provisions in Technical Note no. 182/2017.

·	Fully Depreciated Assets: considered as void until Feb/32, given the negligible proportion of assets becoming fully depreciated in the period. After such date, escalation was conducted as follows:

	o	Mar/32 to Feb/37: 1/3 multiplied by the mean proportion of the Fully Depreciated Assets/AIS ratio of companies from Northern and Northeastern regions in the 3^rdCRTP. The companies considered were: Celtins, Energisa Borborema, Celpe and Cemar.

	o	Mar/37 to Feb/42: 2/3 multiplied by the mean proportion of the Fully Depreciated Assets/AIS ratio of companies from Northern and Northeastern regions in the 3^rdCRTP.

	o	From Mar/42 on: mean proportion of the Fully Depreciated Assets/AIS ratio of companies from Northern and Northeastern regions in the 3^rdCRTP. After 25 years, Eletrobras Group Companies were considered to be with a level of 100% depreciated similar to the equiparable companies from Northern and


·	Whole Northeastern Usage Index (BRL): regions. multiplication of AIS (New Assets) of each month by the Usage Index/AIS ratio verified in the BRR of the Valuation Report drafted by Setape (delivered on 07/27/2017).

·	Accumulated Depreciation: adjustment of prior Accumulated Depreciation by IPCA and addition of Monthly Depreciation.

·	Mean Depreciation Rate: weighted the investments contained in the Five-Year Investment Plan (PIQ) from 2018 to 2022, provided in the Front 5 Report, by group of assets and their respetive depreciation rates. Segregation of each investment by registration unit of the capital base was conducted according to their large items (e.g.: substation busbars, power converters, reclosers, drivers etc.), when possible. Thus, the Mean Depreciation Rate from investments contained in PIQ was obtained, which resulted into 3.79% of AIS, as may be noted in Table 59. Such rate was maintained constant throughout the 30 years of concession.


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(a)	value of the difference between the flexibilized regulatory level of Operating
	Costs and that recognized in the 2016 tariff process was adjusted by accumulated
	IPCA and added to VPB in 2017;
(b)	the tariff coverage of Operating Costs in Portion B in 2017 was estimated, as per
	PRORET 2.2A, formula (1) in paragraph 13, section 3.1, previously provided
	herein in Equation 16;
(c)	the new 2017 operating cost was obtained by adding (a) and (b).
(d)	stake of (c) in 2017 VPB was applied to 2018 VPBo, obtaining the estimated
	coverage of Operating Costs for 2018;
(e)	the IPCA accumulated in one year was applied, decreased of the X Factor, in (c).
	The difference between such value and (d) was applied to 2018 VPB.
In 2019, there shall be special readjustment. For implementation thereof, the tariff
coverage of Annual Asset Cost (CAA, comprised of the sum of Capital Remuneration, Regulatory
Reinstatement Quota and annuity of personal and real property) was estimated using similar
method to the calculation of the tariff coverage of Operating Costs. Such value was excluded from
VPB and CAA projection for 2019 was added. Projection includes the secured and incremental
base reports.
It should also be mentioned that for the period between 2017 and 2022, the regulatory
limits for non-technical losses were flexibilized, being replaced with the mean between the
verified and regulatory non-technical losses noted in 2016. Such procedure was not adopted for
AmE and Boa Vista Energy, because their technical losses were flexibilized by the Homologation
Resolution no. 2.184/2016.




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Table 66 – Estimates for Required Revenue, VPA and VPB for Eletroacre (Nominal BRL Million)
		RA1	VPA	VPB
Regulatory Year	Reference Period	Required Revenue	Value of Portion	Value of Portion
			A	B
2017	Nov/16 - Oct/17	R$479.36	R$274.60	R$204.76
2018	Nov/17 - Oct/18	R$527.73	R$300.31	R$227.41
2019	Nov/18 - Oct/19	R$606.67	R$323.90	R$282.77
2020	Nov/18 - Oct/20	R$660.42	R$349.88	R$310.54
2021	Nov/20 - Oct/21	R$716.38	R$377.63	R$338.75
2022	Nov/21 - Oct/22	R$777.08	R$406.26	R$370.82
2023	Nov/22 - Oct/23	R$751.15	R$417.92	R$333.22
2024	Nov/23 - Oct/24	R$801.68	R$445.60	R$356.08
2025	Nov/24 - Oct/25	R$855.48	R$475.41	R$380.07
2026	Nov/25 - Oct/26	R$911.91	R$506.98	R$404.93
2027	Nov/26 - Oct/27	R$970.49	R$540.63	R$429.86
2028	Nov/27 - Oct/28	R$997.67	R$574.04	R$423.63
2029	Nov/28 - Oct/29	R$1,064.17	R$612.06	R$452.11
2030	Nov/29 - Oct/30	R$1,133.95	R$652.08	R$481.88
2031	Nov/30 - Oct/31	R$1,207.13	R$694.25	R$512.88
2032	Nov/31 - Oct/32	R$1,284.95	R$739.27	R$545.68
2033	Nov/32 - Oct/33	R$1,331.74	R$784.76	R$546.98
2034	Nov/33 - Oct/34	R$1,418.59	R$837.06	R$581.53
2035	Nov/34 - Oct/35	R$1,511.05	R$892.90	R$618.14
2036	Nov/35 - Oct/36	R$1,609.63	R$952.36	R$657.27
2037	Nov/36 - Oct/37	R$1,714.43	R$1,015.67	R$698.76
2038	Nov/37 - Oct/38	R$1,685.55	R$1,076.74	R$608.81
2039	Nov/38 - Oct/39	R$1,794.25	R$1,147.82	R$646.44
2040	Nov/39 - Oct/40	R$1,909.97	R$1,223.65	R$686.33
2041	Nov/40 - Oct/41	R$2,033.02	R$1,304.36	R$728.66
2042	Nov/41 - Oct/42	R$2,163.84	R$1,390.23	R$773.61
2043	Nov/42 - Oct/43	R$2,253.50	R$1,474.42	R$779.08
2044	Nov/43 - Oct/44	R$2,401.19	R$1,570.89	R$830.29
2045	Nov/44 - Oct/45	R$2,559.00	R$1,673.81	R$885.18
2046	Nov/45 - Oct/46	R$2,728.38	R$1,783.29	R$945.10
2047	Nov/46 - Oct/47	R$2,909.63	R$1,899.76	R$1,009.87

Source: Drafted by company itself





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Operating Assumptions
Market demand:
The operational assumptions are based on projected energy consumption as it relates to:
·	Regulated Market: the amount of energy consumed by the clients of the Residential, Commercial, Industrial, Rural and Other Classes, who pay the distributor both for the Free consumed Consumers: energy the amount and the of distribution energy consumed service.

·	Free Consumers: the amount of energy consumed by the clients of Commercial and Industrial classes that pay the Distributor only for the distribution service, negotiating the price of the consumed energy directly with other market participants.

·	Supplied Distributors: the amount of energy delivered to another energy distribution company that serves consumers outside the concession area of the Distributor.

·	Regulatory Allowance for Energy Losses: the amount of energy the Distributor would have as a write-off due to Technical Losses, Non-Technical Losses, and Losses in the High Voltage Network, according to the efficiency limits established by Aneel.

·	Regulatory Allowance for Contracted Energy: the amount of energy the Distributor needs to generate or buy to supply the consumers (Regulatory Market, Free Consumers, and Supply), considering its Regulatory Allowance for Energy Losses.

·	Verified Energy Losses: the amount of energy equivalent to the difference between the sum of purchased and self-generated energy and the billed energy (Regulatory Market, Free Consumers, and Supply), considering Technical Losses, Non- Technical Losses, and Losses in the High Voltage Network. This amount can be different from the Regulatory Allowance for Energy Loss. When the difference between the Verified Losses and the Regulatory Allowance for Energy Losses (in terms of amount of energy), is over the tolerance limit established by ANEEL, a portion of the losses is not passed on by the Distributor as tariff, which negatively impacts the value of the Company.




·	Required Energy Supply: the amount of energy the Distributor needs to generate or buy to supply the consumers (Regulated Market, Free Consumers, and Supply), considering its index of Verified Energy Losses.

·	Excess Contracted Energy: the excess amount of energy the Distributor generates or buys in relation to the Required Energy Supply. This variable was projected according to the contracted amounts informed by the Company’s Distribution Board. Aditionally, the perspectives of adequacy of the Energy Balance with the achievement of an optimum level of 3% of Excess Contracted Energy were considered. Such optimum level is established in order to guarantee a safety margin to the supply of the demand for energy. Considering a scenario where the Regulatory Allowance for Energy Losses and the Verified Energy Losses were equivalent, the Distributor would be paid by the generation and purchase of energy exceeding the





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	demand up to the upper limit of 5% of Excess Contracted Energy calculated on the Regulatory Allowance for Contracted Energy.

·	Self-Generation: the amount of energy the Distributor itself generates through power stations and generators. As explained in this report, because Portion A was considered neutral, we did not explicitly consider the volume of self-generated energy in the projections, although its effects are implicit in the Working Capital projections.



·	Energy Purchase: the amount of energy bought by the Distributor to supply its consuming market, equivalent to the Required Energy Supply added to the Excess Contracted Energy.


·	VPA Volume: the amount of energy distributed to the Regulated Market consumers and the Supplied Distributors, who pay for the cost of the energy they consume.

·	VPB Volume: the amount of energy distributed to the Regulated Market consumers, Free Consumers, and Supplied Distributors, who only pay for the cost of the energy distribution services.




Electricity Rate
The Electricity Rate, the sale price of the electric power to the consumers in R$/MWh, is composed of Portions A and B. The former relates to the cost of energy production and other nonmanagement costs, and the latter relates to returns to investment and the operational margin inherent in the electric power distribution service. The Electricity Rate is adjusted or revised on an annual basis by ANEEL.




Our analyses considered the net value of the Electricity Rate meaning the taxes are not projected separately.

·	Portion A
Portion A considers five factors in its calculation: Energy Costs, Transportation Costs, Sector Charges, Finance Charges, and Bad Debt.

The calculation method applied for Portion A considers that its components should not have an impact on the business value (neutrality), since eventual gains or losses related to estimates made during the rate adjustment are neutralized in the adjustment the following year.


However, there are two cases where the principle of neutrality of Portion A is not applicable:

i - When the Cost of Capital of the Distributor is different from the Adjustment Rate applied on the Finance Charges. In such case, the impact will be the difference between the net present values calculated using the different rates. Considering that the difference between the rates is not relevant, the Finance Charges were not projected. Thus, we consider the costs related to Energy Purchase, Transportation, and Sector Charges (R$/MWh) as they are used in the Electricity Rate calculatione.







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ii - When the amount (MWh) of Required Energy Supply is over the limit of 105% of the Regulatory Allowance for Contracted Energy. In such case, the impact is considered in a portion of the costs related to Energy Purchase and Transportation that is not considered in the Electricty Rate calculation. Such an impact is considered in the valuation, as detailed in this report.



a) Energy Cost
The energy cost is calculated from the Weighted Average Cost of the Energy, in R$/MWh, considering the Energy Purchase Contracts.




Some Energy Purchase Contracts, as is the case for Self-Generation, have a different approach from the Portion A calculation methodology, using costs from the last energy auctions in the regulated market in order to balance the energy costs to consumers from different distributors operating in the Brazilian market.



In these cases, the differences between the effective cost of energy to the Distributor and the cost considered in Portion A is repaid to the Distributor through CCC. Since the projections assume the neutrality of Portion A, such differences were not considered. However, the financial impact related to the period between the payments of Energy Purchase Costs and the CCC repayments is considered in the projections of the Distributor’s Working Capital needs.




The Consortium observed recent cases in the electric power distribution sector where this difference is directly paid to the party responsible for the power generation, and does not impact the distributor’s Working Capital needs and, therefore, does not present a financial impact for the company. This observed trend supports the assumption of neutrality of Portion A considered in the projections, as well as the assumption of normalization of Working Capital levels based on the average financial indicators for the electricity distribution sector, as discussed in next sections.





The costs informed in the last Distributor’s rate adjustment were used to define the Weighted Average Cost of Energy as of the base date. The referred average cost was projected considering inflation rate assumptions. Since the monetary adjustments are carried out in the following year through the Finance Charges, which were not considered in the valuation, we considered the costs used in the calculation of Portion A to be equivalent to the effective Energy Purchase Costs.





Thus, the fraction of Portion A related to the Energy Purchase Cost has a negative financial impact in the cases where the considered Energy Purchase is more than 5% higher than the Regulatory Allowance for Contracted Energy.


b) Transportation Costs
The transportation costs refer to the SIN transmission system. The Transportation Cost sare paid by the Distributor in order to receive the purchased energy.

Transportation Costs were projected based on the relation between the Transportation Cost and the Energy Cost (in R$/MWh) observed in the last Distributor’s rate adjustment. The calculations consider the schedule of interconnections estimated for the Distributor.






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Thus, the fraction of Portion A related to the Transportation Cost has a negative financial impact in the cases where the Required Energy Supply is more than 5% higher than the Regulatory Allowance for Contracted Energy.


c) Sector Charges
The energy distributors collect the applicable Sector Charges from their consumers and transfer the values to the sector funds.

The Sector Charges were projected based on the values considered in the last available rate adjustment. The base values were adjusted considering the projections for the inflation rate.

Due the the assumption of neutrality of Portion A, the Sector Charges do not present financial impact in the valuation. However, the financial impact related to the period between the payment of Sector Charges and the receipt from the consumers is considered in the projections of the Distributor’s Working Capital needs.

d) Finance Charges
As mentioned before, the Finance Charges were not considered in the valuation.
e) Bad Debts
Since the projections consider impact of Bad Debts on the cash flows net of the regulatory allowance considered in Portion A, values related to Bad Debts in the calculation of Portion A were not considered.


· Portion B
Portion B compensates the distributor for capital expenditures and operating margin of the electric power distribution service. It is calculated according to the methodology previously explained in this report and divided by the size of the market considered in the rate adjustments/revision to obtain a value expressed in R$/MWh.



Revenues
The projected Net Operating Revenues are composed of four types of revenues:
· Portion A
Product of the Energy Tariff (R$/MWh) related to Portion A and VPA Volume (MWh).
· Portion B
Product of the Energy Tariff (R$/MWh) related to Portion B and VPB Volume (MWh).
· Sale of the Excess Contracted Energy
The sale of Excess Contracted Energy is considered for the amounts over the regulatory allowance limit (5.0%) in relation to the Required Energy Supply. The energy price considered for the sale of the Excess Contracted Energy is the Difference Liquidation Price (PLD).


The PLD projection considers the average values observed over the last 5 years for the maximum and minimum limits fof PLD as well as the average PLD in the region. The observed



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values were adjusted considering the inflation rate projections. The projections also considered the historical seasonality of PLD, since the averages were calculated for each month of the year. The value considered in the sale of Excess Contracted Energy is the projected average value between the minimum limit and observed mean of PLD in the region.

· Other Revenues
The other revenues include Chargeable Services and Sharing of Infrastructure, for example. No real growth was projected for those revenues.

All the projections were estimated net of sales tax, such as PIS, COFINS, and ICMS.
Costs
· Energy Purchase
Product of the Energy Purchase (MWh) and the respective cost (R$/MWh) as projected in Portion A.

· Cost of Self-Generation, Fuel and CCC Repayments
As explained before, because of the assumption of neutrality of Portion A, the values related to such items are not considered in this valuation.

· Transportation
Considering the assumption of neutrality of Portion A, the same value in R$/MWh considered in Portion A was considered as transportation costs. The impact on the Company’s valuation refers only to the amount of energy transported that exceeds the Regulatory Allowance for Contracted Energy.

Operating Expenses
In addition to the costs of Energy and Transportation, distributors also presents operational expenses, as described below:

· PMSO
Expenses of Personnel, Materials, Third Parties’ Services, and Other, projected according to the regulatory methodology of Portion B previously explained. The projected PMSO separated into the four components mentioned above is based on the historical average for each type of expense, as observed in the Distributor’s financial statements.



An additional cost is considered in relation to the eligible PMSO for Portion B, since some distributors’ expenses are not covered by regulatory allowance. This Aditional Cost is projected from historical information made available by the Distribution Board and follows an accelerated path of efficiency gain in relation to PMSO. This assumption is adopted because it is expected that the Distributor will concentrate efforts to reduce costs that do not have a regulatory allowance.




· Bad Debts
Projetada a partir de um percentual da Receita com trajetória de queda, de acordo com a etodo The bad debt levels were projected as a decreasing percentage of the net revenues. The


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calculations were made according to the regulatory methodology of Portion B previously explained. As mentioned before, the percentage was calculated net of the regulatory allowance provided as part of Portion A.


Depreciation and Amortization
The projections for depreciation of existing assets (financial, tangible, and fixed) were based on the historical relation between the Depreciation and Amortization Expenses and the the book value of the assets, calculated using the audited Financial Statements of the Distributor.

The average depreciation considered in the calculations of Regulatory Remuneration Base (BRR) was the same used for the new investments.

Financial Results
Since the valuation method used was the Free Cash Flow for the Firm approach, the financial revenues or expenses were not projected.

Income Taxes
The Income Tax (IR) and the Social Contribution on Net Profit (CSLL) were projected, considering 15% with additional 10% tax rate for the IR and 9% rate for the CSLL.

The deferred tax assets were also considered in the projections. The values reported in the financial due diligence were used as of the base date, and the applicable updates for the projection period were considered.

Investments (Capex)
The projections consider investments in electric and non-electric assets to meet the operational needs of the Distributor, projected as described in item 5.3.7 Long-Term Investment of this report.

Working Capital and Other Adjustments
The Working Capital needs are projected using the value reported in the financial due diligence as of the Base Date, and contains, among other things, the accounts receivable or payable (clients, suppliers, sector charges, and CCC). The observed relation between the initial Working Capital and the Net Operating Revenue of the previous period is considered as the starting point for the Working Capital projections. A linear normalization was proposed, starting in the 25th projected month untill the Distributor reaches the benchmark of 1.29% (see the table below) in the 84th projected month.





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	7. References


[ 1 ]		K. F. O. &. R. G. Israel, “Why Does Everyone Use the .05 Level of Significance?, Research Quarterly for Exercise and Sport,” 1987.

[ 2 ]		J. M. WOOLDRIDGE, “Econometric analysis of cross section and panel data. MIT Press.,” 2010.
[ 3 ]		“Memória de Eletricidade,” 25 04 1961. [Online]. Available: http://www.memoriadaeletricidade.com.br. [Acesso em 005 04 2017].

[ 4 ]		“Revista Guascor 10 anos,” [Online]. Available:
		http://www.guascor.com.br/livro10anos/downloads/cap_07.pdf. [Acesso em 04 04 2017].
[ 5 ]		“Centro Cultural Luso Brasileiro,” [Online]. Available: http://cclbdobrasil.blogspot.com.br/2012/04/e -assim-nasceu-rio-branco.html. [Acesso em 04 04 2017].

[ 6 ]		E. d. P. Energética, “Plano Nacional de Energia 2030,” 2007.

[ 7 ]		G1, “G1,” 25 06 2016. [Online]. Available: http://g1.globo.com/ac/acre/noticia/2016/09/eletronorte-solicitalicenca-para-obras-de-linhao-ate-cruzeiro-do-sul.html. [Acesso em 05 04 2017]. G1			,

[ 8 ]		E. D. Acre, “Desestatização Distribuidoras Eletrobrás,” 2016.

[ 9 ]		Lei nº 4.070, "O Território à o Acre, com seus atuais limites é erigido em Estado do Acre", 1962.
[10]	ANEEL, “ANEEL,” [Online]. Available: http://www.aneel.gov.br/fiscalizacao-publicacoes. [Acesso e m 06 04 2017].

[11]	E. D. Acre, “Apresentação Institucional - Eletroacre," 2017
[12]		B. Mundial, “The Regulatory Challange of Asset VAluation: A Case Study from the Brazilian Electricity Distribution Sector. Energy Working Notes. Energy and Mining Sector Board.,” 2004.

[13]	PricewaterhouseCoopers, “Electricity Lines Business – ODV Valuation. Study for Unison Networks Limited,” New Zealand, 2005.





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ANNEX I – Extent of Responsibility

This report (the “Report”) was jointly prepared by PricewaterhouseCoopers Corporate Finane &
Recovery Ltda. ("PwC CFR") and Siglasul Consultoria Ltda. (“SSU”) for the use of the Brazilian
Development Bank ("BNDES") with the purpose of supporting the privatization process of the Distributors
of Eletrobras System (the “Privatization”), in accordance with contract OCS 028/2017 of February 14, 2017
(the “Contract”).
The Report was prepared based on the information and documents provided by the administration
of Companhia of Eletricidade do Acre (the “Administration”). The works carried out do not constitute an
exam performed according to the audit standards for financial statements; the works of financial valuation
are not regulated and do not have specific determined standards and, for this reason, the procedures
applied by us were determined in the Official Notice or aligned with BNDES where indicated in this Report.
This analysis considers only one of several methods that may be used to calculate the valuation of
a company, with nothing preventing the potential stakeholders from using their own valuation of the
projects. Our analysis did not consider eventual synergies, strategic reasons, scale economies, or other
benefits or drawbacks that eventual investors could experience in the event of a change of shareholding
interests of the Company.
Upon preparing the analysis, we used information and historical and projected data, not audited
by the Consortium and provided in writing or orally by the Administration or obtained from the mentioned
sources. Additionally, as every prediction is subjective and depends on individual judgment, being subject
to uncertainties, we did not present predictions as specific results to be achieved.
Our work considered the contingencies considered in the other reports of diligences prepared by
Consórcio Mais Energia B (the “Consortium”) under the terms of the Contract, that contain more detailed
information.
Our work was developed with the purposes described above, therefore, it should not be used for
other purposes.
In the event we become aware, at any time, of facts or information that had not been provided to
us, we reserve the right to revise the calculations and the numerical results.
We do not take responsibility for the update of our reports outside the terms provided in the
Contract with BNDES.
We do not take any responsibility, outside the legal hypotheses or hypotheses provided in the
Contract executed with BNDES, for losses caused to BNDES, to Companhia de Eletricidade do Acre,
companies connected thereto, their shareholders, officers, or other parties, as a consequence of use of the
data and information provided by Companhia de Eletricidade do Acre, or obtained from other sources, or
for the improper use of our reports that does not observe the disclaimers of the previous paragraphs.
Finally, the provisions of Contract OCS no. 28/2017 (and its annexes) and the effective legislation
were followed in the preparation of this Report, whose copyrights are granted to BNDES under the terms
of art. 8 of Law no. 13.303/2016. All information transmitted in this document may be used and disclosed
by BNDES, without any restriction.




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APPENDIX C – Selection of Models for Market Projections

The selection of models to perform market projections was made from the selection of
models that would present greater strength among the set of models estimated in each distributor
and market. It should be noted that the historical series of consumption per class (MWh)
presented very strange characteristics, especially due to the economic crisis experienced by Brazil,
resulting in greater variability of the sets of data, structural and momentary breaks, modifying the
standard and level of the series, diverging from historical standards previously experienced, and
increasing the difficult of finding an ideal regression model to perform forecasts.
The models were selected within the set of adjusted models considering: the most adequate
methodology to be deployed; the use of transformations in the historical series; the need of use of
auxiliary variables; the analysis of the information criteria; the analysis of the residuals; and the
value of the need of change in the period of the observed historical series, in order to obtain more
robust models.
Statistical tests were used in the analysis of the residuals to check assumptions of non-
correlation of errors, heteroskedasticity, and normality, namely: Ljung-Box, Durbin-Watson,
Arch, and Jarque Bera tests. Additionally, the residuals of the models were analyzed, through
serial autocorrelation graphs and histograms. In the cases of the statistical tests, the greater the
p-value, the greater the evidence of non-violated assumptions. To fix a base value, the significance
level of 1% was used (0.01).
Considering all aspects presented, the purpose was to find the most robust forecast models
within each market and class. Below are the p-value of the statistical tests carried out in each
distributor and class of the final models used in the projections, which were elected as most
adequate among the possibilities and specificities of each historical series.




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	APPENDIX F – Concepts and Methods of BRR Valuation

In relation to the methods of BRR valuation, there are four main approaches used by the
regulators in Brazil and in other countries: (i) the economic or market value; (ii) the replacement
cost; (iii) the combination between the economic and replacement methods, resulting in a hybrid
approach; and (iv) valuation based on comparison of BRR with similar companies.
Methods Based on the Economic or Market Value
The methods based on the economic value, also called market value, aim at determining
the price the investors would be willing to pay for the company or, in other words, the capacity of
the company’s assets to generate wealth.
The economic value of the assets may be estimated from three methodologies:
i.	Auction Bid: corresponds to the minimum bid value of the sale auction or to the
	winning bid. Only applicable in the cases where there is a bidding process of sale of
	the assets, as in the case of privatizations. Its value shall coincide with the net
	present value of the expected cash flow from the point of view of the winner of the
	auction or the minimum bidder. This method was used by ARSESP (Regulatory
	Agency of Sanitation and Energy of the State of São Paulo) in the definition of the
	value of BRR of COMGÁS (Companhia de Gás de São Paulo) [12].
ii.	Net Present Value (VPL): defined as the sum of the present values of the estimated
	flows of expenses, taxes, investments, and revenues of the company, calculated with
	a discount rate (Weighted Average Cost of Capital - WACC). Its preparation requires
	several assumptions to the projections of the different components of costs and
	expenses of the regulated company.
iii.	Share Value: it consists of the value estimated by the quotation of the company's
	shares negotiated on a stock exchange. Although it is a simple parameter, it only
	represents part of the company's value: the business value under the point of view
	of the shareholder. Therefore, it excludes the debt value, which is added in
	separately. This method was used by the electric power and channeled gas and
	sanitation Regulators of the United Kingdom, OFGEM (Office of Gas and Electricity
	Markets) and OFWAT (Water Services Regulation Authority), respectively.
Methods Based on the Replacement Cost
The replacement cost method is focused on the physical, taking into account the valuation
of existing assets or the design of the optimum configuration of the infrastructure.
Therefore, these methods are different from the economic value, which focuses on the value
itself.
There are four main methodologies to estimate the replacement cost:
i.	Historical Corrected Costs (Current Cost Valuation - CCV): it involves the adoption
	of the original acquisition price (from the accounting records), depreciated based on
	the service life and updated by monetary indicator (sector or general). The updating
	of the book value is required when, as occurs in Brazil, the accounting standards do



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	not allow the indexation of the acquisition value of fixed assets. This method is
	adopted in the regulation of sanitation in Colombia and of Melbourne Water in
	Australia. It is also used in the regulation of the services of electric power
	distribution and transmission in Norway and The Netherlands. In the Netherlands,
	this method is also applied to the regulation of natural gas.
ii.	Depreciated Replacement Cost (DRC): consists of the cost of replacing each asset
	with a new one that performs the same services and that has the same capacity as
	the existing asset, replacing it in identical conditions—that is, without considering
	technological innovations. Additionally, the depreciation is discounted,
	representing a deduction for the physical deterioration of the asset and its
	obsolescence. This method is used in the regulation of some sanitation companies
	of Australia such as the South East Queensland Water and Hobart Water.
iii.	Depreciated Optimized Replacement Cost (DORC): this measures the current cost
	of replacing each asset, taking into account the remaining service life and the best
	technological and economical options existing. It involves the adaptation of the
	assets to the demand (such as, for example, using use indexes), the revaluation of
	the assets to the price of new and the consideration of their accumulated
	depreciation according to the service life elapsed. Such method is used by ARSESP
	in the regulation of sanitation to SABESP (Companhia de Saneamento Básico do
	Estado de São Paulo) and by ANEEL in the electric power distribution [12].
iv.	New Replacement Cost - VNR (Gross Optimized Replacement Cost - GORC): this is
	the result of an optimization process of bottom-up engineering and economic
	parameters. It does not take into consideration the age of the assets, but simulates
	the assets that would be operated by a new hypothetical and efficient provider, with
	current costs and technologies. This method, also called Reference Company, is
	applied in Chile, either in the regulation of electric power distribution or sanitation.
	It was also applied by ADASA (Agência Reguladora de Águas, Energia e Saneamento
	do Distrito Federal - Regulatory Agency of Water, Energy, and Sanitation of Distrito
	Federal) in the regulation of the sanitation services provided by CAESB (Companhia
	de Saneamento Ambiental do Distrito Federal). In the case of CAESB, the Regulator
	aimed at respecting the technological history of the investments made [12].


Hybrid Methods
The hybrid methods correspond to combinations between the methods of economic value
and replacement cost. Their use has combined pros and cons of both methods. There are two main
approaches:
i.	Optimized Deprival Value (ODV): this consists of the lowest value between the
	economic value and the replacement cost. Such method is used by the Commerce
	Commission in regulation of the services of electric power distribution and transmission in New
	Zealand [13].



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ii.	Rolling Forward: this represents the shielding of the initial base, defined from any
	of the methods previously detailed, and subsequent update of the shielded values
	until the date of each tariff revision, taking into consideration the monetary
	indexing, the deduction of the write-offs, the depreciation, and the additions (whose
	methods may be different from those used for the initial base). This method converts
	the initial asset into a kind of financial asset. Once incorporated to the BRR, the
	price of the asset is not reassessed again nor is technological change incorporated.
	This method is used by ANEEL in the valuation of the BRR of the electric power
	distributors in Brazil.


Comparison Value Method
This method is determined from the values associated to the BRR of similar companies
with a sample of comparable assets. To its calculation, it is required the establishment of a
benchmarking and the gathering of the values defined to the BRR of other companies.




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To
National Bank for Economic and Social Development ("BNDES")
Av. República do Chile, 100
Rio de Janeiro - RJ

C/O: Ms. Lidiane Delesderrier Gonçalves - OCS 028/2017 Agreement Manager

June 2017

Dear Sirs,

According to our service agreement OCS 028/2017 ("Agreement") executed between BNDES and the Mais
Energia B Consortium ("Consortium") on 2/14/2017, we present the result of our work carried out in the context
of Privatization of Eletrobrás System Distributors.

The result of our work is detailed in this document "Product 07: ELETROACRE Technical-Operational
Evaluation Report ("Report"), dated June 2017.

Our work was developed solely for the purpose of advising the BNDES, as those responsible for executing and
monitoring the process of privatization of utility companies by Decree 8,893, in ELETROACRE's evaluation, in
accordance with the Agreement, and was based on information provided by ELETROACRE's management and on
the premise that this information is true and complete. This information was not subject to testing or verification,
except where expressly stated within the scope of our work.

In case the Report is to be accessed by third parties, it must be made available in full, so that the applicable
safeguards and limitations are known.

Regards,




Siglasul Consultoria Ltda., as member of the Consortium
Luis Fernando Alvarez	Leonardo Campos Filho




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This document is a true copy of the original signed version delivered to BNDES and in the possession of Eletrobras.


Summary

1	.	Executive summary			4
2	.	Company operational characterization and diagnosis			6
2.1.			Characterization of the company's area of activity		7
2.2.			Geoelectric Characterization of the Concession		15
2.3.			Utility's Consumer Market Analysis		19
2.4.			Operating Indicators		25
2.5.			Energy Purchase and Sale Indicators		34
2.6.			Asset Conditions		37
2.7.			Critical points observed during the field visit and challenges for new utilities		37
3	.	Five-Year Investment Plan ("PIQ")			39
4	.	References			44
APPENDIX A - Socioeconomic Characterization of the Concession Area					45
APPENDIX B - Consumer Market					48
APPENDIX C - Response to Emergencies					49




Figures
Figure 1 - State of Acre (capital highlighted)					8
Figure 2 - Forest, indigenous and environmental preservation areas.					9
Figure 3 - Federal and State Highways of Acre					12
Figure 4 - Cumulative total precipitation for the Brazilian states.					14
Figure 5 - Average temperatures observed for the Brazilian states					15
Figure 6 - National Interconnected System					17
Figure 7 - Map of the state, with the Interconnected and Isolated systems					18
Figure 8 - Rate Groups and Categories					48


Graphs
Graph 1 - Total Road Density (km/km²)					11
Graph 2 - Percentage of Existing and Planned Roads in 2015					11
Graph 3 - Competitiveness of generation sources					16
Graph 4 - Eletroacre's DEC Determined Indicator and Limits					27
Graph 5 - Eletroacre's FEC Determined Indicator and Limits					28
Graph 6 - Number of Sets that violated their 2016 limits and UC Representation					28
Graph 7 - Histogram of Eletroacre's sets: 2016 DEC					29
Graph 8 - Histogram of Eletroacre's NUC: 2016 DEC					29
Graph 9 - Histogram of Eletroacre's sets: 2016 FEC					29
Graph 10 - Histogram of Eletroacre's NUC: 2016 FEC					30
Graph 11 - Evolution of the product quality indicator (DRCE)					31

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Graph 12 - Evolution of the product quality indicator (DRPE)		31
Graph 13 - Regulatory Technical Losses for Injected Energy		33
Graph 14 - Comparison between Non-Technical Real and Regulatory Losses for the BT Market		33
Graph 15 - Evolution of Base Energy, Bilateral and CCEAR and the percentage of Required Energy recognized by the Energy
Rate		36
Graph 16 - Mean Times of Response to Emergencies		49
Graph 17 - Evolution of the Number of Emergency Events with Electric Power Outage Versus the Total		50



Tables
Table 1 - Five-year investment plan - Base Scenario		5
Table 2 - Five-year investment plan - Alternative Scenario		6
Table 3 - Acre Road Indicators		12
Table 4 - Climatic Characteristics of Eletroacre's Concession Area		13
Table 5 - Load of Eletroacre's Isolated Systems		19
Table 6 - Evolution of the Number of Consumers by Voltage Level		20
Table 7 - Market Evolution by Voltage Level		21
Table 8 - Evolution of Revenue by Voltage Level		21
Table 9 - NUC Evolution by Rate Class		22
Table 10 - Market by Rate Class		22
Table 11 - Evolution of the Average Consumption by Rate Class		23
Table 12 – Revenue by Rate Class		23
Table 13 - Number of Consumers, Market and Revenue by Voltage Level		24
Table 14 - Number of Consumers and Revenue by Rate Class		24
Table 15 - Compensations for Breach of Quality of Service Indicators		27
Table 16 - Compensations for Breach of Product Quality Indicators		32
Table 17 - Results of Regulated Required Energy (MWh) from 2012 to 2016.		35
Table 18 - Results of Contracted Energy (MWh) from 2012 to 2016		35
Table 19 - Investments in progress in the year 2017 by Type of Project		40
Table 20 - Base Scenario: Five-Year Investment Projection		41
Table 21 - SEs and LDs with anticipated investments for the drafting of the Five-Year Plan		42
Table 22 - Alternatives Scenario: Five-Year Investment Projection		43
Table 23 - Demographic Information, Level of Education and Unemployment Rates		45
Table 24 - Service Access Information		46
Table 25 - Income Information		46
Table 26 - Information on Violence		47


Charts
Chart 1 - Socioeconomic characterization of the state of Acre		10
Chart 2 - Overview of the Brazilian Rate Structure		48




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1	.	Executive summary

		This report aims to fulfill item "4.2.5 -Technical-Operational Evaluation of Eletrobrás Group
Companies", of the "Invitation to Bid" regarding the "AARH Electronic Bidding #51/2016 - of the
National Bank for Economic and Social Development (BNDES) for Companhia de Eletricidade do Acre
(Eletroacre)".
		In this document, all aspects related to the Invitation to Bid are presented, as described below: (i)
operational characterization and diagnosis of the company, identifying the operational challenges in the
distributor's concession area, including the current operational indicators; (ii) conditions of assets,
services and investments in progress, based on field visits, assessing the most critical points in the
concession; and, (iii) investment plan for the next 5 years, with scenarios that envisage the proper
operation of the distributor.
		Eletroacre's concession area, located in the state of Acre, south-west of the northern region of
Brazil, borders two federative units, namely, the state of Amazonas, to the north, and Rondônia, to the
east. It also borders the countries of Bolivia, to the southeast, and Peru, to the south and west.
		The region, with an equatorial climate, has a high rainfall index and rainfall intensity, with an
average higher than the North, Northeast regions and even at the national level. Issues related to
infrastructure in the concession area show problems, such as a reduced number of roads with asphalt
pavement (17%). Weather conditions in the rainy months and the aforementioned lack of paved road
infrastructure have a direct influence on logistics, as traffic routes tend to become precarious, making it
difficult for the utility to respond to emergency situations. As a consequence, these climatic and
logistical issues compromise the collective quality indicators¹carried out by the Distributor (DEC and
FEC), resulting in a breach of thresholds (above 50%) for 67% of the electrical sets defined by ANEEL.
		Regarding the distributor's electrical system, despite the fact that assets were observed to be in
good operating conditions during the visits, we verified that a large part of the concession area still lacks
interconnection with the National Interconnected System ("SIN"); as well as a need for new substations,
transformers and lines; revitalization of assets in rural areas; and improvements in asset operation and
maintenance management.
		The consumer market is predominantly low-voltage, with the most representative classes being
residential, commercial and rural, which account for the largest share of Eletroacre's revenues (78%)
and energy consumption (74%), according to 2016 data. There is also an expressive growth of low-
income residential users (89% increase over 4 years), a class that has a rate subsidized by the Energy
Development Account ("CDE") and by the rate structure of the distributor itself. The distributor's
supplementary revenue is basically composed of customers served in medium voltage supply, since
there is only one user served in high voltage.




¹Equivalent Duration of Downtime per Consumer Unit ("DEC"); Equivalent Frequency of Downtime per Consumer Unit ("FEC")


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2.1. Characterization of the company's area of activity

2.1.1. Brief History

The history of electricity in the state of Acre is intrinsically related to its officialization as a
Brazilian territory.
Between the years 1870 and 1900, Brazilians occupied the territory that until then belonged to
Bolivia, more precisely, rubber tappers from the state of Ceará who sought to extract rubber from the
trees of the Amazon Rainforest. After the Acre Revolution ⁴, the Brazilian government began a
diplomatic dialogue with Bolivia, deciding to support the cause of Brazilians in the region and the
creation of Acre as a Brazilian territory after the Petropolis Treaty signed with Bolivia, which provided
that the Brazilian government would indemnify Bolivians in 2 million pounds sterling, as well as the
construction of the Madeira-Mamoré Railroad, so that Acre could officially integrate the Brazilian
territory.
Two years later, in 1905, the first power plant in the state of Acre (the Cruzeiro do Sul
thermoelectric plant) began its operations, and was located in the municipality of the same name. This
plant used wood as fuel and had two generators with power of 12 and 16 kW [1]. Acre became, then, the
main Brazilian rubber producer state, especially in the region of Puerto Alonso, near the current Rio
Branco. In 1909 the city was renamed Penapólis (in honor of the then President Afonso Pena) and, in
1912, Rio Branco, in homage to the Baron of Rio Branco, a Brazilian chancellor whose diplomatic
action resulted in the Petrópolis Treaty. [2]
It was only in 1916 that Rio Branco received its first electric power plant [3], thus boosting
production of rubber plantations in the region, as well as promoting street lighting for Acre citizens.
Under federal law #4,070 of 1962, then-president of Brazil João Goulart elevated the territory to
the category of state [4]. Until the mid-1960's, electricity generation and distribution services were
provided locally, close to the state capital.
On December 17, 1965, Eletroacre was created through State Law #60 and authorized to operate
as a utility for public electric power services for the state of Acre. The company was intended to design,
construct and operate a system for the production, transmission, transformation and distribution of
electric power and related services in the state of Acre.
In September 1997, the distributor started to be managed in a shared way through the
Management Agreement entered into between the state of Acre and the Centrais Elétricas Brasileiras
S.A. (Eletrobrás). Such management lasted until January 30, 1998, when the distributor was federalized
through the "Purchase and Sale of Stock and Other Covenants" agreement.
Currently, Eletroacre is a federal public utility responsible for the distribution of electric power
to the entire state of Acre. The controlling interest is exercised by Eletrobrás, which holds 96.70% of its
total capital stock. It is worth noting that the supply of electric power to the entire state is done through
the National Interconnected System ("SIN") (80% of the load) and of Diesel Thermoelectric Plants
(20% of the load).

⁴The Acre Revolution was the dispute over the territory of the present state of Acre between Brazil, Bolivia and Peru.
It took place between August 6, 1902 and January 24, 1903, having as its main issue the dispute over the control of the
rubber business.

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(ii) BT represents 99.8% of consumers, 76% of the market and 82% of the company's revenue in 2016
and, in the analyzed period from 2012 to 2016, showed annual growth rates of 3%, 4% and of 4% for
NUC, the market and the revenue, respectively; (iii) the "Low Income" market associated with the BT
voltage level had its highest value in 2015, showing an 18% drop in 2016; and (iv) free consumers had
the highest percentage increase in consumption in the last five years, namely, 690% in the period (68%
p.a.), although they had very little relevance in the distributor's income.
From the point of view of the rate classes, for the same information, it can be deduced that: (i)
the residential class represents 79% of the NUC and 47% of the company's market in 2016 with annual
growth of 4% and 6%, respectively; and (ii) in the analyzed period, the industrial class showed a growth
of 16% in market and 30% in revenue.



2.4. Operating Indicators

This chapter aims to analyze the main operating indicators of the company, based on its
performance in recent years. To do so, sections 2.4.1 and 2.4.2 address service and product quality
indicators, respectively, while Appendix C shows the evolution of emergencies. Section 2.4.3 shows a
diagnosis on power losses.



2.4.1. Quality of Service Indicators

The distributor assesses the continuity of the service provided to consumers through individual
and collective indicators, which are required by ANEEL and arranged in Module 8 of PRODIST.
Individual indicators are divided into indicators of Individual Downtime Duration per Consumer Unit or
per Connection Point ("DIC"); or Frequency of Individual Downtime per Consumer Unit or Connection
Point ("FIC"); Maximum continuous downtime duration per consumer unit or connection point
("DMIC"); and Duration of individual downtime occurred on a critical day per consumer unit or
connection point ("DICRI").
The monitoring of the individual indicators is done by means of limits which are also individual,
and are defined for monthly, quarterly and annual periods in relation to the DIC and FIC indicators. The
DMIC indicator limit is set for the monthly period, while the DICRI indicator limit is set for each
critical-day downtime.
When the limits of the individual continuity indicators are breached, the distributor must
compensate the consumer financially automatically with a deduction on their invoice within two months
after the indicator is determined.
Table 15 shows the evolution of the compensation quantity and amount paid by Eletroacre over
the period (2012-2016) by violating quality of service indicators, as well as the deterioration of
compensations on the company's Installment B. It is worth noting that the amount of compensations and
their respective financial value related to the annual period of assessment of the quality of service
indicators are not available on ANEEL's website for the year 2016, which is why the 2016
compensation path reflects a decline.


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Breaches of limits of the individual product quality indicators also generate compensation to be
paid by the Distributor. Table 16 shows the amount paid by Eletroacre with respect to the breach of
individual product quality indicators.

Table 16 - Compensations for Breach of Product Quality Indicators

Item	2012		2013		2014		2015		2016
Quantity (#)	5,615		6,057		22,620		28,584		40,763
Compensation Amounts (BRL)	533,040		588,300		1,215,875		2,096,287		2,487,163
Installment B (BRL Million)	87		118		125		142		159
%Comp./Installment B	0.61	%	0.50	%	0.97	%	1.47	%	1.56	%
Source: ANEEL website.

It should be noted that Eletroacre has a path of growth with respect to the amount paid for the
breaches and with respect to the amount of compensations paid, with 2016 being the year of greatest
installment B commitment for compensations for breaches of product quality indicators (1.56%).


2.4.3. Power Losses
Power losses in a distribution system are also taken as an operational indicator of a Distributor.
Losses are divided into the categories of Technical Losses and Non-Technical Losses.
In the calculation of technical losses carried out by ANEEL, losses in the distribution grids in
high, medium and low voltage, substations, distribution transformers, in addition to the connection
branches and meters are taken into account.
The level of technical losses calculated at the time of the company's RTP, as a percentage of the
energy injected, is kept constant in all IRTs until the subsequent revision. The regulatory framework for
non-technical losses is also defined at the time of the RTP, but unlike the PTs, a downward trajectory is
defined, with a lower level of PNT being recognized at each rate readjustment until it reaches the
regulatory target established by the Agency at the end of the cycle.
Graph 13 shows Regulatory Technical Losses, while Graph 14 illustrates the difference between
the Real and Regulatory PNTs, elucidating the Distributor's performance over the analyzed period. As
shown, the Distributor has actual PNT levels over 2 times higher than the regulatory PNT.




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2.5. Energy Purchase and Sale Indicators

This chapter shall discuss the historical evolution of Eletroacre's Required and Contracted
Energy. The entire analysis is based on the current regulation expressed in Sub-module 3.2 - Energy
Acquisition Costs - for Rate Regulation Procedures ("PRORET"), which have a normative nature
regarding the rate processes of electric power distribution utilities.
Firstly, the conceptual distinction between Required and Contracted Energy must be defined.
Required Energy is the volume of electric power (MWh) acquired in a given reference period to
serve consumers or other utilities and distribution licensees, plus regulatory power losses of the
distribution system - subdivided into technical ("PT") and non-technical ("PNT")²².
Contracted Energy is the volume of electric energy (MWh) acquired by Base contracts,
Bilateral contracts and Energy Trading in the Regulated Environment Contracts ("CCEAR"), which shall
be briefly explained below.
Base Energy encompasses:
•	Own Generation: energy generated by the distributor to serve its market, according to
	Law 9,074 of July 7, 1995, with the wording given by Law 10,848 of 2004, which
	provides that distributors of the National Interconnected System ("SIN") with a market
	below 500 GWh/year and those that serve Isolated Systems can carry out electric power
	generation activities, provided that they are fully intended to serve their own markets.
•	Angra 1 and 2 Quota: energy marketed by the Angra 1 and Angra 2 generating plants
	and compulsorily acquired by utilities operating in the SIN, as provided in article 11 of
	Law #12,111 of 2009.
•	Renewed Concession Quota: amount resulting from the apportionment of the physical
	energy and power guarantee of plants whose concessions were extended pursuant to Law
	#12,783 of 2013. Allocation of quotas to distributors is established according to ANEEL
	regulations.
•	Itaipu Binacional Quota: Energy sold by Itaipu Binacional with the electricity
	distribution utilities acquiring shares of the production that were made available to
	Brazil, according to specific ANEEL regulation. Holders of quotas of the plant's energy
	are only distributors located in the South and Southeast/Center-West subsystems, which
	compulsorily acquire the electricity generated by Itaipu. That is, they do not include
	distributors located in the North and Northeast subsystems.
Bilateral Contracts are freely negotiated between the agents, signed before the enactment of Law
#10,848 of 2004, to serve the Interconnected System. Contracts signed to serve the Isolated System
before Provisional Measure #466 of July 29, 2009, and those signed by means of a bidding held in the
form of a competition or auction, as set forth by Decree #7,246 of July 28, 2010, also correspond to
Bilateral Contracts.


²²If the real electrical losses (whether technical or non-technical) are considered instead of regulatory losses, the energy of the
system is called Injected Energy.


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Also classified as Bilateral Contracts are the contracting of Distributed Generation energy
resulting from vertical divestiture, as provided by Law #10,848 of 2004. In addition, also classified as
such are contracts arising from public bidding carried out by distribution agents with own market lower
than 500 GWh/year and contracts signed between a utility with market under 500 GWh/year and its
current supply agent.

Finally, Energy Trading in the Regulated Environment Contracts ("CCEAR") are those
established for the Auctions of: (i) Existing Energy for existing generation projects - defined based on
article 19 of Decree #5,163 of 2004; (ii) New Energy for new generation projects - deriving from
auctions defined based on article 19 of Decree #5,163 of 2004 and (iii) Alternative Energy Sources -
arising from auctions defined based on article 19 of Decree #5,163 of 2004.

After explaining the concepts, the evolution of the Required Energy (MWh) and Contracted
Energy (MWh) for the years 2012 to 2016 of distributor Eletroacre is shown on Table 17 and Table 18.


Table 17 - Results of Regulated Required Energy (MWh) from 2012 to 2016.

	2012	2013	2014	2015	2016
Required Energy (Provision + Supply
	1,035,240	1,027,839	1,079,167	1,121,364	1,154,490
+ Losses)
Provision + Supply	800,666	818,138	866,777	905,341	932,602
Provision	795,627	817,745	866,361	905,341	932,602
Supply (TE Market)	5,039	393	417	0	0
Regulatory Losses	234,574	209,701	212,390	216,023	221,889
Non-Technical Loss	90,161	88,224	85,615	84,054	81,475
Technical Loss	120,248	99,969	105,249	110,443	112,495
Basic Grid Loss on Dist.	24,165	4,022	3,885	3,807	4,807
Basic Grid Loss on Captive market	0	17,485	17,642	17,719	23,112
Source: ANEEL.

Table 18 - Results of Contracted Energy (MWh) from 2012 to 2016.

	2012	2013	2014	2015	2016
Contracted Energy (Base + Bilateral +	1,181,474	763,102	1,020,739	1,911,223	2,195,280
CCEAR)
Base Energy	35,713	36,614	273,112	566,925	473,023
Own Generation	16,068	16,068	16,068	16,068	16,068
Angra I/Angra II Quota	0	0	34,945	34,898	34,084
Quotas Law #12783/2013	0	0	200,833	495,086	400,296
Itaipu (deducting losses)	0	0	0	0	0
PROINFA	19,645	20,546	21,265	20,873	22,575
Bilateral	687,970	564,820	86,561	0	197,323
CCEAR	457,791	161,668	661,066	1,344,298	1,524,934
Source: ANEEL.





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In terms of Contracted Energy, there is a peak in energy from the Bilateral agreement in 2012,
with a path of reduction in subsequent years, while energy contracted through CCEAR showed a
dizzying path, with the highest peak being verified in 2016 (1,524 GWh). Regarding Base Energy, it
showed growth between 2012 and 2015 (414 GWh increase).
We can see that the percentage ratio of Contracted and Required Energy indicates that there is
considerable over-contracting in the past two years (approximately 42% in 2015 and 48% in 2016). The
difference can be explained, to a lesser extent, by the distance between real and regulatory commercial
losses, which was already shown in section 2.4.3, but mainly by overcontracting, the causes of which
must be detailed by the distributor to ANEEL so that they may be evaluated and recognized, if
appropriate, as involuntary²⁴.



2.6. Asset Conditions

Between 3/27/2017 and 3/31/2017, a field visit was carried out at Eletroacre's premises, aiming
at the diagnosis and evaluation of the technical and physical conditions of the utility's assets, in
particular the main electrical energy distribution equipment and infrastructure, identifying its status,
critical points at distribution grids by voltage level, as well as the description and evaluation of services.
During these field visits we observed 69 kV and 138 kV transmission lines and towers in good
condition and easement strips in a reasonable state of cleaning. In general, they run parallel and near
highways. The verified substations are in good preservation condition, but have some specific operation
and structure issues. Medium voltage distribution grids, in general, are in good condition and free of
foreign objects. According to information, 36.3% of the three-phase 13.8 kV grids are compact (916
km) - stretches of these grids were evaluated in rural visits.




2.7. Critical points observed during the field visit and challenges for new utilities

Below is a series of observations from the field visit, with the appropriate actions listed, which
are related to the PIQ to be presented later.




²⁴The vote of Director André Pepitone da Nóbrega, who monitors Aneel Order #1,143, of April 25, 2017, regarding CASE
48500.002516/2016-50 on the recognition of involuntary overcontracting, cites that "It is further recognized that paragraph 10
of article 50 of Resolution #453 of 2011 does not cover all the causes of overcontracting that may be recognized as
involuntary, requiring ANEEL to analyze exceptional cases presented by distributors. In such circumstances, as well as in the
migration of consumers to ACL, each distributor should have the opportunity to file an involuntary overcontracting
recognition petition to ANEEL by proving maximum efforts and detailing its particular case."


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2.7.1. High-voltage distribution system

Studies of Empresa de Pesquisa Energética (EPE) recommend a new source of 230 kV supply
with the objective of reducing dependence on the Rio Branco SE in the supply of Acre's 69 and 138 kV
system. Eletroacre's investments associated with this source of supply are already provided in the PIQ
and allocated to the type of project ("AT Expansion").
The construction of the Entroncamento SE, planned to operate at 138/34.5 kV voltages, with two
12.5 MVA transformers, will enable improvements to the quality of 34.5 kV voltage supply by the
Xapori SE. In addition to this substation, the Epitaciolândia SE is also planned to be expanded, which is
expected to be energized in May 2017, and will make it possible to improve supply to the city of
Brasiléia by disabling the generation of the isolated Manoel Urbano system.
There is currently a load limitation on the 69 kV Rio Branco/Tangará and Rio Branco/Taquari
lines due to the currently used current transformers. The planned investment in the expansion of the Rio
Branco SE, a 69-kV bay, will allow for improvements and is already present in Eletroacre's investment
plan.


2.7.2. Medium-voltage distribution system, grids and substations

A critical configuration in the operation of Eletroacre's medium voltage system was observed at
the Taquarí SE. The 13.8 kV busbar is raised to 34.5 kV where a circuit is fed to power five substations.
It occurs that single-phase branches and distribution transformers are also connected to this line, raising
short-circuit levels. However, there are important investments that will substantially alleviate this
existing grid, namely:
•	New Acrelândia substation, with two 6.25 MVA, 69/13.8 kV transformers and two 6.25
	MVA, 69/34.5 kV transformers;

•	New interconnection - Quinari line - Acrelândia; and,

•	New Quinari SE, with three 25 MVA, 138/69 kV, two 12.5 MVA, 69/13.8 kV and two of
	6.25, 69/34.5 kV transformers.
Another critical configuration is observed in circuits that feed substations at 34.5 kV - Xapori,
Campinas, Acrelândia, Plácido de Castro, Capixaba, Senador Guiomard and Sena Madureira - that
should be express and dedicated to serving these substations. However, connected along its path are also
single-phase branches and distribution transformers, which can cause great imbalance to the system. To
aggravate the situation, there is no balancing of most of the connections of the transformers and
branches connected to the three-phase circuit. The PIQ provides for phase addition, renovation and
revitalization of the rural grid, which can contribute to reduce the problems detected in this system.
New 34.5 kV circuits in Sena Madureira up to Manoel were found de-energized and with
vegetation occupying the easement strip. A similar situation was observed in a section from
Epitaciolândia to Assis Brasil. In order to solve such issues, investments are planned to connect these
grids.
Since it operates on a vast rural and forest area, the concession has 15,712 km of grid at MT and
of these, 13,158 km are in single-phase network. Since electrically this type of network has greater
subjection to quality issues and technical losses, specific values for phase addition are considered in the

PwC \| Loeser e Portela Advogados \| Siglasul		Prepared for BNDES	38


PIQ. Also with the objective of improving the configuration and operation of the system, Eletroacre has
380 three-phase reclosers already installed in the grid, but awaiting investment in remote control. Such
investments are considered in the plan under recloser control and remote control.



2.7.3. BT distribution system - Grids and SET

		Eletroacre's low voltage grids (BT) are mostly made of open, bare conductors. The current
standard of construction of the distributor already provides for execution with the use of pre-assembled
(insulated) cables. However, few stretches were observed to be in this configuration. Improvements are
planned on BT circuits (division and renovation of 400 circuits) in the PIQ. As the new standard is the
use of pre-assembled cable, the planned actions include increases in this type of grid.
		Other initiatives focused on operation and maintenance are also recommended:

		•	Revision of fuse links in the rural MT grid;
		•	Rebalancing of connections of single-phase grids and single-phase transformers
			and,
		•	Replacement of continuous neutral stretches in the MT grid.



3	.	Five-Year Investment Plan ("PIQ")

		The objective of the PIQ is to present, based on technical and economic evaluations, a five-year
investment plan - 2018-2022 horizon - for Eletroacre's electric energy distribution concession area, with
reference to the projects planned as necessary in the concession area, thus ensuring expansion of the
grid interconnected to the National Interconnected System ("SIN"), meeting the demand for new
connections in the scope of the vegetative growth and the Programa Luz para Todos ("PLpT") program,
improvement of the performance indicators of service continuity, voltage levels and electrical losses, as
well as adjustments and implementations of computerized systems for support in commercial
management and distribution.




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The following summarizes the main points of the adopted methodology, the contracted
investments in progress and the summary of the consolidated amounts of projected annual investments.
In order to verify the investment needs, the information provided in the Data Room by Eletroacre
was used, namely: "Electrical System Expansion Plan (2017-2026 horizon)", "Distribution
Development Plan ("PDD") for the year 2017", "Results Plan for the Improvement of Distribution
Services, 2015" and "Plan for Temporary Rendering of Electricity Distribution Service, 2017". In
addition to this information, we used information obtained by the company's planning area, obtained
through face-to-face meetings and conference call.
Also considered were investments in execution in 2017, which totaled BRL 117.9 million, as
shown in Table 19²⁵.


Table 19 - Investments in progress in the year 2017 by Type of Project

	Type of Project	Investments
	AT Expansion	BRL 36,139,076
	MT/BT Expansion	BRL 7,381,900
	MT/BT Improvement	BRL 28,549,854
	Renovation	BRL 6,718,538
	"Luz para Todos"	BRL 39,207,000
	Total	BRL 117,996,368


The works contained in the PIQ were defined based on the information provided and analysis of
the investments in progress. Firstly, we drafted a Base Scenario, starting with the 2017 PDD by setting,
for the years with no initial investment forecast, the following assumptions by type of investment and
voltage level:
•	"AT Expansion": the annual projects projected by the company in the 2017 PDD were
	considered. However, the amounts submitted by Eletroacre for these investments were
	considered to be inflated when compared to the price bank used by ANEEL. For these
	projects, we adopted a 14.12% price reduction level;
•	"MT/BT Expansion": the company's projected annual investment in the 2017 PDD for the
	period from 2018 to 2021 was considered. As there were no projected investments for the
	year 2022, the average of previous years was considered for this year;
•	"Improvement": the company's projected annual investment in the 2017 PDD for the period
	from 2018 to 2021 was considered. As investments for this period already indicate a
	downward trend, for 2022 the necessary resources were estimated based on the average
	annual reduction rate in the period from 2018 to 2021 on the investment amount for the year
	2021;



²⁵The amounts set forth in this section relate to projects in progress or which are in the process of signing a contract. The
figures shown are estimated: therefore, they may change during the year.
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•	"Renewal": the company's projected annual investment in the 2017 PDD for the period from
	2018 to 2021 was considered. For 2022, the necessary investment was estimated as the
	amount corresponding to the portion related to the "Regulatory Reintegration Quota
	('QRR')" established by ANEEL to Eletroacre in the last rate revision, adjusted by the IPCA
	projection until April 2017;
•	"PLpT": considered, in the year 2018, as the necessary investments to meet connection
	targets related to the completion of the program in that year, according to Decree #8,387 of
	12/30/2014			;
•	"Systems": considered as the investment for implementation of a new commercial system
	(50	%	of the investment amount allocated in 2018 and another 50% in 2019) and the
	investment to update the Distribution Management System ("SGD") in 2018.
Table 20 shows the projection of the Five-Year Plan investment figures by type of project and
voltage level, for the Base Scenario²⁶:

Table 20 - Base Scenario: Five-Year Investment Projection

Type of Project/
			2018		2019	2020	2021	2022	Total
Systems
AT Expansion			BRL 111,290,707		BRL 28,288,973	BRL 68,920,132	BRL 28,551,496	BRL 49,971,028	BRL 287,022,336
MT/BT Expansion			BRL 28,201,483		BRL 21,145,654	BRL 17,404,078	BRL 19,078,001	BRL 21,457,304	BRL 107,286,520
Subtotal			BRL 139,492,190		BRL 49,434,627	BRL 86,324,210	BRL 47,629,497	BRL 71,428,332	BRL 394,308,856
MT/BT Improvement			BRL 30,375,012		BRL 26,380,175	BRL 25,996,410	BRL 17,488,168	BRL 15,015,341	BRL 115,255,106
Subtotal			BRL 30,375,012		BRL 26,380,175	BRL 25,996,410	BRL 17,488,168	BRL 15,015,341	BRL 115,255,106
"Luz para Todos"			BRL 73,893,612		-	-	-	-	BRL 73,893,612
Subtotal			BRL 73,893,612		-	-	-	-	BRL 73,893,612
Asset Renewal			BRL 10,098,152		BRL 11,296,932	BRL 11,576,640	BRL 12,022,820	BRL 18,151,778	BRL 63,146,322
Subtotal			BRL 10,098,152		BRL 11,296,932	BRL 11,576,640	BRL 12,022,820	BRL 18,151,778	BRL 63,146,322
SGD Update			BRL 650,000		-	-	-	-	BRL 650,000
Commercial System			BRL 10,000,000		BRL 10,000,000	-	-	-	BRL 20,000,000
Subtotal			BRL 10,650,000		BRL 10,000,000	-	-	-	BRL 20,650,000
Total
			BRL 264,508,965		BRL 97,111,734	BRL 123,897,260	BRL 77,140,485	BRL 104,595,451	BRL 667,253,895
Investments

In the total Own Resources, listed in Table 20, we considered the 90% subsidies related to the
projects linked to the Programa Luz para Todos ("PLPT") Program and 100% subsidies related to the
subrogation of the Fuel Consumption Account ("CCC") related to the following projects:
	1	)	Epitaciolândia - Assis Brasil LD, 110 km;
	2	)	Sena Madureira - Manoel Urbano LD, 86 km;

²⁶The financial amounts presented in this section are in real currency at April 2017 prices.

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3	)	Assis Brasil SE (2 x 6.25 MVA 69/13.8 kV);
4	)	Manoel Urbano SE (2 x 6.25 MVA 69/13.8 kV); and,
5	)	Sena Madureira SE (69 kV Bay).
It should be noted that in the Base Scenario presented, the amount for investments with Own
Resources made in the year 2018 is higher than the average of other years for the period, since a large
part of the investments foreseen in the years 2016 and 2017 were allocated, intended for compliance
with the Results Plan for Improvement of the Distribution Service signed with ANEEL in 2015 to
reduce the reported values of service continuity indicators (which were not applied due to the stoppage
by Eletroacre in the implementation of the Plan in September/16). However, about 50% of the projected
investments in 2018 to serve isolated systems, replacing fossil fuel thermal generation, and service to
the PLpT, will respectively be covered by subsidy from the subrogation of the Fuel Consumption
Account ("CCC") and the Energy Development Account ("CDE").
The Alternative Scenario considers investment anticipations from 2023 and 2024 to the year
2022 to the amount of BRL 36.5 million, in order to provide an increase in assets in the Regulatory
Remuneration Base ("BRR") in the periodic rate revision designed for the year 2023²⁷.

Table 21 - SEs and LDs with anticipated investments for the drafting of the Five-Year Plan

		PROJECT DESCRIPTION	ESTIMATED	CONSIDERED AMOUNT
			AMOUNT	(PIQ)*
			(PDD)
Alto Alegre II – Porto Acre LD			BRL 6,221,315	BRL 5,342,865
Porto ACRE SE - 6.25 MVA/69 kV - 13.8 kV			BRL 5,638,647	BRL 4,842,470
Alto Alegre II SE - Nova RBR SE LD			BRL 5,181,121	BRL 4,449,547
Alto Alegre II - São Francisco SE LD			BRL 5,871,937	BRL 5,042,819
Nova RBR SE - 2X25 MVA - 69/13.8 kV			BRL 13,492,808	BRL 11,587,624
		Total Investments	BRL 36,405,829	BRL 31,265,326
*As these are AT projects, when incorporated into the Alternative Scenario, they will suffer a 14.12% price
reduction.

Table 22 shows the projection of the Five-Year Plan investment figures by type of project and
voltage level and computerized systems for the alternative Scenario.




²⁷In this case, it was assumed that the company will have its privatization process finalized in 2018, having, therefore, an RTP
in the year 2023.


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Table 22 - Alternatives Scenario: Five-Year Investment Projection

Type of Project/
	2018	2019	2020	2021	2022	Total
Systems
AT Expansion	BRL 111,290,707	BRL 28,288,973	BRL 68,920,132	BRL 28,551,496	BRL 81,236,355	BRL 318,287,663
MT/BT Expansion	BRL 28,201,483	BRL 21,145,654	BRL 17,404,078	BRL 19,078,001	BRL 21,457,304	BRL 107,286,520
MT/BT Improvement	BRL 30,375,012	BRL 26,380,175	BRL 25,996,410	BRL 17,488,168	BRL 15,015,341	BRL 115,255,106
Renewal	BRL 10,098,152	BRL 11,296,932	BRL 11,576,640	BRL 12,022,820	BRL 18,151,778	BRL 63,146,322
"Luz para Todos"	BRL 73,893,612	-	-	-	-	BRL 73,893,612
Distribution Management
System	BRL 650,000	-	-	-	-	BRL 650,000
Commercial System	BRL 10,000,000	BRL 10,000,000	-	-	-	BRL 20,000,000
Total
	BRL 264,508,965	BRL 97,111,734	BRL 123,897,260	BRL 77,140,485	BRL 135,860,778	BRL 698,519,223
Investments
Total Own Resources	BRL 140,911,399	BRL 97,111,734	BRL 123,897,260	BRL 77,140,485	BRL 135,860,778	BRL 574,921,656


The table above shows an increase of "intentional" investments in the Alternative Scenario for
the years 2019 and 2022, with a view to new investors recovering, via rate, the investments made in
advance of the year of the possible request of the 1^stPeriodic Rate Revision to be applied in the new
concession (2023).
It should be noted that the Base Scenario shall be used for the Company's economic-
financial evaluation.




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	4	.	References


[	1]		“Memória de Eletricidade,” 4 25 1961. [Online]. Available: http://www.memoriadaeletricidade.com.br. [Accessed 4 5 2017].

[	2]		“Revista Guascor 10 anos,” [Online]. Available: http://www.guascor.com.br/livro10anos/downloads/cap_07.pdf. [Accessed 4 4 2017].

[	3]		“Centro Cultural Luso Brasileiro,” [Online]. Available: http://cclbdobrasil.blogspot.com.br/2012/04/e-assimnasceu-rio-branco.html. [Accessed 4 4 2017].

[	4]		Law #4,070, "O Território à o Acre, com seus atuais limites é erigido em Estado do Acre", 1962.
[	5]		E. D. Acre, “Desestatização Distribuidoras Eletrobrás,” 2016.
[	6]		E. d. P. Energética, “Plano Nacional de Energia 2030,” 2007.
[	7]		ANEEL, “ANEEL,” [Online]. Available: http://www.aneel.gov.br/fiscalizacao-publicacoes. [Accessed 4 6 2017].
[	8]		G1, “G1,” 6 25 2016. [Online]. Available: http://g1.globo.com/ac/acre/noticia/2016/09/eletronorte-solicitalicenca-paraobras-de-linhao-ate-cruzeiro-do-sul.html. [Accessed 4 5 2017].

[	9]		Eletrobras, “Plano Anual de Operações dos Sistemas Isolados para 2017,” 2017.
[	10] ANEEL, “PRODIST - Módulo 7"
[	11] E. D. Acre, “Apresentação Institucional - Eletroacre, " 2017




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	APPENDIX A - Socioeconomic Characterization of the Concession Area

	In order to better characterize the area of activity of the Distributor, socioeconomic information
was collected and grouped into four data sets: (a) Demographic, Education and Employment; (b) Access
to Services; (c) Income and (d) Violence. In the following items, comparative analysis was performed
for each information collected from the company in relation to the data observed in the North and
Northeast regions and Brazil's average. This comparison allows to evaluate the degree of
similarity/divergence of the socioeconomic indicators of the company in relation to the regions where
the companies of the Eletrobrás group operate, as well as to compare with the national average.


a)	Demographic Information, Level of Education and Unemployment Rate
		A Table 23 shows, in order, the number of municipalities, area, population,
		population density, number of households, percentage of population living in rural areas,
		percentage of illiterate population and unemployment rate in the Distributor's area, as well
		as average data for Brazil and the North and Northeast Regions.


Table 23 - Demographic Information, Level of Education and Unemployment Rates


						#
Region		#	Area	Population	Density	Households	Rural		% Illiterate		Unemployment
		Municipalities	(km²)	(Thousand)	(Inhabitants/km²)	(thousand)	Popul.		Popul.		Rate
ACRE		22	164,845	806	4.91	232	29	%	15	%	10	%
BRAZIL		5,567	8,497,584	204,860	24.11	68,037	15	%	9	%	8	%

NORTH		449	3,848,855	17,525	4.55	5,093	25	%	11	%	9	%
NORTHEAST		1,794	1,554,291	56,639	36.44	17,836	27	%	17	%	9	%
Sources: Data on the population were taken from the 2015 PNAD. Number of municipalities and areas were obtained from INPE.
Unemployment rate was obtained at IPEA/PNAD for the year 2014.


	Acre is the third state with lowest population density in the North Region (4.91 inhabitants/km²),
and the capital (Rio Branco) is the most populous municipality in the state. Its population is mainly
concentrated in urban centers (71% of the population). However, the state shows a high percentage of
inhabitants in rural regions (29%) when compared to the averages of the North and Northeast regions
and Brazil.


b)	Access to services
	Table 24 shows (for Eletroacre, and average data from Brazil and the North and Northeast
Regions) the percentages of households (i) without garbage collection; (ii) same as point "i", but for
urban areas; (iii) without water supply through networks; (iv) same as point "iii", but for urban areas;
(v) without sanitary sewage by networks or septic tank; (vi) same as point "v", but for urban areas; and
(vi) without electric lighting located in rural areas.



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				Table 24 - Service Access Information
						% HH		% Urb.		% HH		% Urb. HH
	% HH		% Urb. HH			without		HH		without		without Sewage		% Rural HH
Region	without			without		Water		without		Sewage		Networks/Septic		without
	Garbage			Garbage		Network		Water		Networks/Septic		Tank		electrical
	Collection		Collection			Supply		Network		Tank				lighting
								Supply
ACRE	21	%		1	%	46	%	32	%	36	%	25	%	13	%
BRAZIL	10	%		1	%	15	%	6	%	19	%	12	%	2	%
NORTH	21	%		3	%	40	%	28	%	38	%	29	%	7	%
NORTHEAST	21	%		3	%	20	%	7	%	35	%	23	%	1	%
Sources: 2015 PNAD.


In Acre, 21% of the households do not have garbage collection, while 46% do not have water
supply through networks and 36% do not have access to a sewage network/septic tank. The percentages
of urban households without access to the sewage/septic tank and without water supply through network
are high and above the regional and national averages. That is, it is a state with a certain lack of basic
services infrastructure.


c) Income
Table 25 shows (i) the percentage of households with income of up to 2 Minimum Wages
("S.M."); (ii) the percentage of people living in households with per capita income below the poverty
line²⁸; (iii) average household income per capita and (v) GDP (Gross Domestic Product) per capita.


Table 25 - Income Information


				% HH w/ Income Up to 2 SM				% Pop. Below Poverty Line		Average Residential Income per capita(BRL)
	Region			% HH w/ Income Up to 2 SM				% Pop. Below Poverty Line		Average Residential Income per capita(BRL)		GDP per capita (BRL)
	ACRE					52	%	27	%	791.68		14,734
	BRAZIL					39	%	13	%	1,152.24		26,446
	NORTH					51	%	22	%	782.76		17,213
	NORTHEAST					58	%	20	%	730.24		12,955
Sources: Households with income up to 2 S.M. ’ 2015 PNAD. % Pop. Below
Poverty Line and Average Household Income per capita ’ 2014 IPEA/PNAD;
	GDP per capita ’ 2013 Datasus/IBGE.


The state of Acre has about 30% of its population living in a situation below the poverty line,
and more than 50% of households have income of up to 2 minimum wages. The average household


²⁸Equivalent to twice the extreme poverty line. The Poverty Line is based on an estimate of the value of a food basket having
the minimum calories needed to adequately supply a person, based on World Health Organization (WHO) recommendations.
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National Bank for Economic and Social Development ("BNDES")
Av. República do Chile, 100
Rio de Janeiro/RJ
September 18, 2017
Dear Sirs,
As requested by BNDES and in compliance the with terms and conditions of Electronic Tender AARH No.
51/2016, of OCS Contract No . 28/2017 (the “Contract”) dated February 14, 2017, and the provisions of section 80
of Law No. 13,303/2016, we have prepared this summary containing a presentation of key issues identified by us
during the environmental assessment work carried out in Companhia de Eletricidade do Acre (“Eletroacre”).
The scope of our services was limited to the procedures described in item 4.2.7 of Annex I to the Contract. This
summary does not include all the issues identified and presented in the Environmental Assessment Report dated
May 5, 2017, and should thus be reviewed together with the remainder of the report for a comprehensive
understanding of the issues identified.
Our work involved review of documents made available in databases, interviews with managers in charge of the
environmental activities of the company and on-site visits to six substation facilities.
The information used in our work was provided by the company's management and reviewed on the premise that it is
true and complete. Except as expressly stated in the scope of our work, this information was not subject to testing or
verification.
The work carried out does not constitute an examination performed in accordance with financial statement auditing
standards. Due diligence works are unregulated and not subject to specific standards; for this reason, the procedures
applied in our work were those determined in the Final Tender Protocol, and PwC is not responsible for any
inadequacies of such procedures in achieving the goals determined by BNDES. Other matters could have been detected
and reported if PwC had been asked to perform additional procedures.
Yours faithfully,
PricewaterhouseCoopers Corporate Finance & Recovery Ltda. acting as consortium leader

/s./ Rogério Roberto Gollo	/s./ Luciano Jorge Moreira Sampaio Junior




This document is a true copy of the original signed version delivered to BNDES and in the possession of Eletrobras.


*Summary of key issues identified*

Below is a summary of key issues identified during the environmental assessment work. This summary does not include all issues identified and
presented in the Environmental Assessment Report. Accordingly, it should be reviewed together with the remainder of the report for a
comprehensive understanding of the issues identified.
1 Purpose and limitations of the work	2 Summary of key issues identified:
Our work involved review of documents made available in databases,	•	Facilities operate without the required environmental operation license and
interviews with managers in charge of the environmental activities of the		other licenses such as the Fire Brigade Inspection Service Certificate
company and on-site visits to four substation facilities.		(FBISC) and the IBAMA Federal Technical Registration (IFTR)
The purpose of the work was to evaluate key environmental and social issues of	•	Partial compliance with the terms and conditions of operating licenses
Eletroacre in light of the applicable laws and regulations, review how such	•	Lack of documents such as Solid Waste Management Plans (SWMPs) and
issues are managed from environmental and social standpoints, and identify		Solid Waste Inventories (SWIs)
potential deficiencies and situations that may result in significant risks and
costs to the company.	•	Incorrect storage of hazardous solid wastes
The following topics were reviewed: solid wastes, PCB/ascarel, noise,	•	Substation noise levels not monitored
atmospheric emissions, wastewaters, water resources, permanent preservation	•	Unlicensed use of artesian wells (drinkability not monitored also)
areas, plant suppression, service providers, environmental accidents,
environmental liabilities, easement trespassing, conflicts with indigenous	•	Painting activities carried out without environmental controls
populations, engagement practices and interaction with surrounding	•	Substations lack appropriate containment systems and oil-water separator
populations, as well as assessments, fines and consent agreements.		boxes
The scope of the work did not include generation of additional data through	•	Old, pre-1980 transformers in use and untested for PCB/ascarel
collection and analysis of soil and water, atmospheric emission and wastewater	•	Permanent preservation areas not monitored
samples, nor was any evaluation performed for the purpose of checking	•	No management system in place for easement strips
compliance with laws related to workers' health and safety.
	•	No enforcement of contractual standards and environmental requirements
		implemented by distributor in its procurement processes




Eletrobras System Distributor
Privatization PwC		3


*Summary of key issues identified*


Below is a summary of key issues identified during the environmental assessment work. As such, it does not include all of the issues identified and
discussed in the Environmental Assessment Report and should thus be read in conjunction with the rest of the report for a comprehensive
understanding of the issues identified.

3 Estimate of costs to remedy issues identified

An estimated amount between R$ 4.5 million and R$ 12.3 million, approximately, is required in order to remedy and mitigate some of the previously highlighted
issues and their respective potential impacts, as shown in the chart below.


Cost estimates do not include the expense with fines incurred by the company due to noncompliance with any applicable laws and regulations. Fines and
assessments provided for in the applicable environmental laws and regulations vary substantially in amount; for this reason, the exact amounts of fines are
contingent, among other considerations, upon evaluation by the competent environmental authorities. Furthermore, amounts reported do not include the cost of
mitigating issues that depend on non-measurable variables at the time of writing, such as disposal of hazardous wastes and disposal of any equipment containing
PCBs.


At present, it is not the intention of PwC to state that these figures are accurate and that they reflect the amounts effectively required to implement each of the
proposed actions. In any case, the figures presented in this summary serve as a reference in connection with the privatization process.


In addition to the estimated expenditures, resolution alternatives for each identified issue as well as the potential violation or infringement, if any, that the
company is subject to under the applicable environmental laws and regulations, were presented. This information is included in the Environmental Assessment
Report dated May 5, 2017.




Eletrobras System Distributor Privatization PwC	4


*Annex I - Issue and estimated cost summary chart*


Below is a summary of key issues identified during the environmental assessment work. This summary does not include all issues identified and presented in the
Environmental Assessment Report. Accordingly, it should be reviewed together with the remainder of the report for a comprehensive understanding of the issues
identified.



				Cost (in R$)*
Issue #	Topic	Issue Identified
			Minimum	Middle	Maximum




		Deficiencies identified in
		the storage of Class I
1	Waste		R$1,810,380.00	R$4,525,965.00	R$7,241,550.00
		(hazardous) solid wastes
		at substations.




		No Solid Waste
		Management Plan
2	Waste		R$5,000	R$10,000	R$15,000
		(SWMP) implemented at
		Eletroacre.



		No Solid Waste Inventory
3	Waste	implemented at	R$5,000	R$10,000	R$15,000
		Eletroacre.


					5



Eletrobras System Distributor
Privatization PwC


*Annex I - Issue and estimated cost summary chart (cont.)*




				Cost (in R$)*
Issue #	Topic	Issue Identified
			Minimum	Middle	Maximum



		No evidence of any specific
		PCB identification test for
4	PCB/ascarel	transformers and other oil-	R$15,680	R$23,520	R$31,360
		containing equipment in
		use at company facilities.




		Risk of existing PCB and	Not measurable - The cost to dispose of ascarel waste is contingent, among other
5	PCB/ascarel	cross-contamination in	considerations, on the number of affected pieces of equipment, the treatment
		other equipment.	performed, and location of company facilities.



6	Noise		R$43,400	R$43,400	R$43,400
		Lack of noise monitoring
		at the substations.
		Potential interference with
	Permanent	PPA without proper
7	Preservation		R$180,000	R$180,000	R$180,000
	Areas	authorization from
		environmental authorities.

						6




Eletrobras System Distributor Privatization PwC


*Annex I - Point summary table and cost estimate (cont.)*



				Cost (in R$)*
Issue #	Topic	Issue Identified
			Minimum	Middle	Maximum

		Currently several
		substation facilities
8	Licensing	operate without the	R$32,388.57	R$41,273.64	R$50,158.71
		proper operating
		licenses.

		Partial compliance with
		the terms and conditions
9	Licensing		R$1,900,000	R$1,900,000	R$1,900,000
		of substation operating
		licenses (e.g. self-
		monitoring reports).
		No FBISC report/permit
		in place for Eletroacre
		substation facilities.
10	FBISC		R$980	R$980	R$980



		Potential lack of IBAMA
		Federal Technical
11	IFTR	Registration (IFTR) for		N/A
		substation facilities of
		Eletroacre.
		Painting activities
		carried out at Eletroacre
12	Atmospheric facilities lack appropriate		R$33,000	R$148,666	R$245,000
	Emissions
		environmental control
		measures.

						7

Eletrobras System Distributor Privatization PwC


*Annex I - Issue and estimated cost summary chart (cont.)*



				Cost (in R$)*
Issue #	Topic	Issue Identified
			Minimum	Middle	Maximum

			Not measurable - According to information provided by Eletroacre, containment

		Lack of containment	basin and oil-water separator boxes cannot be implemented in substations lacking
		basins and oil-water	these pieces of equipment for a number of reasons, the single most important one
13	Wastewaters		being lack of physical space. In such cases, the company’s ten-year plan
		separator boxes for power	contemplates building new substations and the phasing out unlicensed facilities.
		substation transformers.	Details on the ten-year plan can be found in the report provided by the technical
				and operational team.

		Water resources used in
14	Water	substations without	R$1,504.20	R$1,504.20	R$1,504.20
	Resources
		appropriate licensing.


		Water drinkability not
15	Water	tested at facilities using	R$440	R$1,540	R$2,640
	Resources
		artesian wells.




		Potential water and soil
		contamination resulting
16	Miscellaneous	from improperly stored	R$510,000	R$1,530,000	R$2,550,000
		oil-contaminated
		materials.




Eletrobras System Distributor Privatization PwC						8

© 2017 - PricewaterhouseCoopers Corporate Finance & Recovery. All rights reserved. In this document, “PwC” refers to PricewaterhouseCo opers Corporate Finance & Recovery, a member firm of the PricewaterhouseCoopers network, or, as suggested by context, the network itself.

Each member firm of the PwC network is a separate and independent legal entity. Please see www.pwc.com/structure for further details on the PwC network.


To
Banco Nacional de Desenvolvimento Econômico e Social National Bank for Economic and Social
Development (“BNDES”)
Av. República de Chile nº 100
Rio de Janeiro - RJ

F.A.O.: Ms. Lidiane Delesderrier Gonçalves - Manager of Contract OCS 028/2017

May 2017

Dear Sirs,

In accordance with our service agreement OCS 028/2017 (“Agreement”), signed between the BNDES and
Consórcio Mais Energia B (“Consortium”) on February 14, 2017, we present the result of the work that we
undertook in relation to Privatization of the Eletrobrás System’s Distribution Companies.

The result of our work is set out in the document “Product 08: Assessment Report of ELETROACRE’s
Human Resources (“Report”), dated May 2017.

Our work was carried out solely for the purpose of advising the BNDES, in its capacity as the party
responsible for executing and monitoring the privatization process of the concessionaires in accordance
with Decree 8893 of (sic) in ELETROACRE’s assessment, in accordance with the Agreement and was
based on information provided by ELETROACRE’s management and under the assumption that this
information is true and complete. This information was not subject to testing or verification, except as
expressly stated in the scope of our work.

In the case of access to the Report by third parties, it should be made available in full, so that the
applicable safeguards and limitations be known.

Truly yours,

PricewaterhouseCoopers Corporate Finance & Recovery Ltda., in its capacity as leader of the Consortium




Rogério Roberto Gollo	Marcio José Soares Lutterbach




PwC \| Loeser e Portela Advogados \| Siglasul	2

This document is a true copy of the original signed version delivered to BNDES and in the possession of Eletrobras.


*Summary*

1	.	Executive Summary			5
2	.	Organizational structure			8
		2.1	.	Organizational chart	8
		2.2	.	Nature and duties of the bodies	8
		2.3	.	Profile of positions and roles	10
		2.4	.	Profile of positions entitled to a bonus (funções gratificadas) and commissioned positions (cargos em
		comissão)			11
		2.5	.	Relevant changes to the organizational structure	12
3	.	Profile of the workforce			13
		3.1	.	General information	13
		3.2	.	Demographic profile	13
		3.3	.	Productive profile of the workforce	15
		3.4	.	Development of the workforce	22
		3.5	.	Leadership profile	24
		3.6	.	Leadership by position	25
		3.7	.	Education level of the leadership	26
		3.8	.	Length of service of the leadership	26
4	.	Staff costs			27
		4.1	.	Compensation structure	27
		4.2	.	Cost with active employees	29
		4.3	.	Interns and apprentices	30
		4.4	.	Cost of inactive employees	31
5	.	Collective Bargaining Agreements			32
		5.1	.	Salary adjustment	32
		5.2	.	Benefits	32
		5.3	.	Payment of other additional amounts	32
6	.	Outsourcing			34
7	.	Aspects related to health and safety			35
		7.1	.	Verification of the existence of health and safety policies and procedures	35
		7.2	.	Analysis of the PCMSO	35
		7.3	.	Analysis of the PPRA	35
		7.4	.	Verification of occupational medical tests	36
		7.5	.	Internal Commission for Accident Prevention (CIPA)	36
		7.6	.	Survey of work accidents (with/without lost time) and submission of CAT (Communication of accident at
		work)		36
		7.7	.	Verification of Delivery of PPE	37
		7.8	.	Activity of Occupational Safety Technician	37
		7.9	.	Compulsory training courses	37
1	.	Staffing and Compensation Plan (PCR)			40


PwC \| Loeser e Portela Advogados \| Siglasul					3


·	In terms of overtime, the average percentage of overtime in the last five years analyzed
	was one of approximately 3.4%, below the 5.3% average recorded in the general market.

·	Over the last 5 years, there was an average of 8% of the permanent staff on leave. The
	majority of these are concentrated in retirement due to disability (an average of 39% in
	the last 5 years) and non-work related illness (an average of 33% in the last 5 years).

·	In the last year, 32h/year per employee (approximately 4 days) were spent on training
	courses and an average amount of R$609.67 was invested per employee. The greatest
	investment was made at the managerial level (57% of the amount invested, which is equal
	to R$1,228.00 per capita). The remaining 43% was invested at the operational level,
	which is equal to R$435.00 per employee.

·	In relation to personnel management practices, the distribution company operates in an
	integrated way with the other companies in the Eletrobras System, in terms of
	progression, compensation, performance and training, demonstrating strength in the
	plans and programs that are currently in effect. Personnel management issues seem to be
	well organized and backed up by computerized systems.

	The benefits offered by Eletroacre are, in their entirety, established in a collective
	agreement. It should be noted that the package offered is superior to that usually found in
	the private sector and that there is no differentiation between the benefits offered to
	managers and employees of the administrative and operating divisions.




PwC \| Loeser e Portela Advogados \| Siglasul		6


Among the 266 active employees, there are 6 who are part of the Board of Directors and of
the Fiscal Council.
There are also 37 active retirees. Of these, 17 are allocated in fundamental level positions, 13
in mid-level support positions, 4 in mid-level operational positions, and 3 in higher-level
positions. This workforce characteristic may represent an opportunity to reduce costs, since
professionals who have already retired may have higher compensation. On the other hand, due
to their highly experienced professionals they may be valuable to the company.


3.3.2. Employees with disabilities (PCD)

The Quotas Law (Law No. 8213 of July 1991) makes it compulsory to fill between 2% and 5%
of the positions on the work force with rehabilitated or disabled professionals.
At present 3.38% of Eletroacre’s employees are classified in the PCD category, meeting the
minimum level required by the legislation which, in the case of companies with between 200
and 500 employees determines that 3% of the workforce should be made up of disabled people.




PwC \| Loeser e Portela Advogados \| Siglasul	16


The internship program includes higher education students in areas that are of interest to
the company, who have completed at least 50% of their course. In 2016 the selection was carried
out by SENAI (National Industrial Apprenticeship Service).
The value of the scholarship for interns is R$520.00 for those who are hired for a workload
of 30 hours a week and R$364.00 for a workload of 20 hours a week.
Trainees are entitled to a R$5.00 transport allowance and a R$6.00 meal ticket per day of
internship, as well as personal accident insurance, registration in their work record booklet and
individual protection equipment, when its use is required.
For apprentices, the normal payment is R$400.40 for a 20-hour week. Like the interns, the
apprentices receive meal tickets, a transport allowance and personal accident insurance.


4.4. Cost of inactive employees

In addition to the cost of employees, the payroll also includes payments to inactive
employees.
In December 2016’s payroll, those who were retired due to disability received the residual
payment in relation to profit sharing. Pensioners, by judicial determination, receive a pension.
This payment is granted to people who are not part of the workforce and who have suffered
accidents related to the electricity network, as well as former employees who resorted to the
courts on account of illnesses and disabilities acquired during the period in which they worked
for the company.
In addition, former employees, who have been terminated under Voluntary Redundancy
Incentive Program, are included on the payroll due to their being entitled to the Health Plan and
residual compensation. The total amount paid to inactive employees represents less than 1% of
the total payroll.

Category	Total value of the payroll
Retired due to disability	R$3,309.45
Pensioners	R$17,844.22
Voluntary Termination Incentive Program	R$12,522.32




PwC \| Loeser e Portela Advogados \| Siglasul	31


5. Collective Bargaining Agreements

The Collective Bargaining Agreement covers 100% of the employees, and is entered into, on
an annual basis, after negotiations between the company and union. In addition to this
instrument, the company also has a Specific Profit Sharing Agreement.
The collective bargaining agreement is valid nationwide and its clauses cover all six
Distribution companies analyzed. There are other documents that supplement the collective
bargaining agreement. Over the years the definitions established in previous years have been
maintained.

Document			Coverage
Collective bargaining agreement 2016 - 2018

Nationwide undertaking			Its clauses cover all the Distribution
Specific collective bargaining agreement 2016 -2018			companies.
Specific undertaking
Specific clauses in the Collective Bargaining			Specific clauses for Eletroacre.
Agreement by distribution company
Specific undertaking


5.1.Salary adjustment

With regard to the salary increase, under the current agreement the adjustment was 9.28%.
It is usual to establish a 5% advance on the category’s base date (May), with the difference
between the advance and the percentage increase granted under the agreement being paid
retroactively.

Collective Bargaining		Salary readjustment percentages
Agreement
2012-2013			6.60	%
2013-2015			7.90	%
2015-2016			8.18	%
2016-2018			9.28	%

5.2. Benefits

The collective bargaining agreement establishes the benefits that the Distribution companies’
employees are entitled to. The full list can be found in Part II, item 3. The face value of benefits
is generally adjusted by percentages aligned with the percentage defined for the salary increase.


5.3. Payment of other additional amounts

In addition to the benefits, the collective bargaining agreement and its specific terms provide
for the payment of additional amounts. The main elements are shown below.

Clause		Description of the agreement
Allowance	for Payment of 7.5% on top of base salary, plus Additional Pay for length of


PwC \| Loeser e Portela Advogados \| Siglasul			32


hardship	service, for employees who work on continuous rotating shifts.
Allowance for health hazard	Calculation basis will be the lowest salary in Eletrobras’ salary matrix. It
Allowance for health hazard	is restricted to percentages of 40%, 20% and 10%, according to the level
	of unhealthiness classified as maximum, average and minimum levels.
Allowance for night work	Payment of additional amounts for the employees’ extended hours,
Allowance for night work	provided that the working hours occur entirely during the nighttime
	period.
Risk premium	Indicates adoption of the payment criteria established under Law
	12740/2012 for employees who joined the company prior to
	12/08/2012	.
Overtime	Calculated in accordance with applications of the percentages
	established in the applicable legislation.
Remuneration	Amount granted non-cumulatively to the bonus payment for the formal
for substitution	substitute of the holder of a remunerated leadership function for any
	period greater than 10 days, of the sum in force in the month of
	payment.
13th salary	Advance of 50% may be requested at the time that the employee takes
	an annual vacation and should be received jointly with the payment of
	vacation pay.

Additional pay for length of service (ATS)	An additional amount will be paid to employees for each year of
	uninterrupted service with the company.

Electrician / driver remuneration (GEM)
	Remunerations as driver for those electricians who habitually perform
	the functions of Electrician/Driver.

	1/3 of the normal hourly rate for employees when they are on call as
On call	established under the applicable legislation.
Vacation pay	Payment of vacation remuneration of 75%.




PwC \| Loeser e Portela Advogados \| Siglasul			33


6. Outsourcing

		Historically, the Distribution companies have been in the practice of making use of
outsourced labor to perform certain functions. This outsourcing is contracted and managed by
the contracting area, which is the contract manager. In this way, there is no creation of any
employment relationship with the outsourced professionals.
		In 2013, there were judicial decisions to replace the outsourced labor force (judicial
decisions and judgments 2132/2010 - Federal Court of Accounts - Plenary Session and
2303/2012 - Federal Court of Accounts - Plenary). Eletroacre has created a project to in-source
this workforce. The objective applies to 341 positions, however up until now only 8 employees
have been hired to fill outsourced positions.
		The services that are the subject of this change are those of a continuous nature, directly
related to the company’s core activity and whose functions are included in the Career and
Compensation Plan (PCR). The deadline established for the conclusion of this project was May

19	,·	2017 Inspection/regularization and the following activities of UC; were deemed to be core activities:
·		Combating losses;
·		Disconnection and reconnection;
·		Preventive and corrective maintenance of energized and de-energized LD, LT.

		At present Eletroacre has an annual contract for the sum of R$2,024,000.00 for preventive
and corrective maintenance, improvement and reform of the overhead distribution networks
operating in urban and rural areas. According to Eletroacre’s Balance Sheet for 2015, the
Distribution company had 581 outsourced professionals.
		It is important to stress that Law 13249/2017 which regulates outsourcing in companies is
being discussed and has not yet been ratified, as a result of which the performance of core
activities by outsourced professionals may represent a labor exposure and the need for in-
sourcing should be considered.




PwC \| Loeser e Portela Advogados \| Siglasul			34


Broad job position		Levels of complexity

Fundamental Level Professional (PF)		I, II

Mid-Level Support Professional (PMS)		I, II, III and IV

Mid-Level Operational Professional (PMO)		I, II, III and IV

Higher Level Professional (PS)		I, II, III and IV

Professional Researcher (PP)		I, II, III and IV

The broad job positions are separated into different occupations with the aim of providing
professionals with the flexibility to assume different roles in the Organization and, in this way,
to enable greater alignment between the professional’s activity and the expectations and needs
of each person and the Organization, respecting the specific requirements of each education
level.
Each position defines specific duties, skills and educational requirements, taking into
account the characteristics of the organizational processes and the professional regulations.

1.1.	Remuneration structure

Each of the five broad job positions defined in the Eletrobras System’s Career and
Compensation Plan has its own pay scale. The pay scale, shown below, consists of “bands” that
are divided into steps:
Bands: Reflect each of the levels of complexity defined for the positions.
	*Steps*: The number of steps per band varies due to the wage spread defined - guided by
internal and external market information - and compliance with the methodology governing
requirements for accessing the complexity levels of each job position.




PwC \| Loeser e Portela Advogados \| Siglasul		41


	· Treatment Treatment outside by means the of home. Global Postural Reeducation - RPG;
	Eletroacre has a table with the values of each procedure. The
	payment is made by the company, which discounts the employee’s
	co-participation.
	In 2016, the Self-Management Health Plan (PPRS) and welfare
	provided coverage to 908 beneficiaries, including benefit-holders
	and dependents. In 2014, the annual cost of the plan was
	R$1,258,327.88.
	Reimbursement of funeral expenses up to a limit of R$4,921.28, or
Funeral Allowance	R$9,842.57 as a result of death due to an accident at work.
Incentive for physical activity	Reimbursement of expenses for physical activity up to a fixed limit.
Incentive for physical activity	Note: The values for 2016 were not made available.
	Group life insurance for permanent employees, apprentices,
Life insurance	interns, board members and executive officer, with specified
	values.
	Granted to employees, apprentices and interns, in accordance with
Transport allowance	the law.
	The Distribution company pays any medical and hospital
Medical-hospital	treatment expenses which are not covered by the health plan for
treatment	victims of accidents at work and work-related illness.

Medication for those who have suffered accidents	The Distribution company pays 100% of the value of medicines for
	victims of accidents at work.

Sick pay/work accident	A compensation supplement, which includes the thirteenth salary,
assistance	of the amount corresponding to the difference between the
	monthly compensation and the benefit received from social
	security by way of sick pay/accident assistance.
Health treatment	Advance payment of 2 months’ worth of gross wages to employees
outside the State	who need treatment outside the State of Acre (up to a maximum of
	30% of the employee’s compensation limited to 10 installments).

Air fares	Provision of air fares for treatment of illness outside the home for
	employees in the State’s interior.
Time off for victims of	Paid leave for the employee for a period of between 3 and 5 days.
domestic violence
Time off for medical	Medical observation of family members or dependents of the
observation	health plan: for a period of between 1 and 30 days on production of
	a doctor’s certificate or a medical report.
Time off for death of	Leave granted for a period of up to 5 days.
stepfather or
stepmother
Reimbursement for	Reimbursement of expenses for spectacles (lenses and frames) or
spectacles and contact	contact lenses for active employees, within the established limits:
lenses*	Frame - reimbursement of up to R$110.52;
	Monofocal lenses - reimbursement of up to R$95.49;
	Multifocal lenses - reimbursement of R$181.25;
	Contact lenses - reimbursement of up to R$149.21.

* Reimbursement not provided for in the agreement.


PwC \| Loeser e Portela Advogados \| Siglasul		46


Other incentives offered:

Private Pension Plan - Eletroacre uses PREVINORTE to offer its employees a Defined
Contribution (CD) Supplementary Pension Plan. The employees’ monthly contributions,
together with the company’s participation, will create a savings fund, enabling employees, when
they retire, to supplement their pension. The foundation also provides personal payroll-
deductible loans. In 2016, the amount of the normal contributions paid by the company to the
plan’s arithmetical reserves was R$43,033.14.

Employee Profit Sharing (PLR) – Eletrobras pays PLR to its permanent employees, after
the end of each financial year, provided that the targets established in the Term of Agreement
have been achieved. The guidelines for the distribution of the share of the profits are negotiated
with the employees’ representative entity, and comply with the provisions of the State
Enterprises’ Coordination and Control Council’s (CCE) Resolution No. 10/1995 and Law
10101/2000.

Quality of Life Program - In order to improve and ensure the quality of life of its employees,
the company signs an agreement on an annual basis with SESI/AC, the purpose of which is to
offer an active quality of life and leisure program, with the creation of groups interested in
dance, sport, culture and other fields of entertainment, where employees can exchange
experiences and perform at festive events.




PwC \| Loeser e Portela Advogados \| Siglasul	47


5. Training and development

The educational model of Eletrobras’ distribution companies for the planning and execution
of educational action is formally described in its Corporate Education regulations - Planning and
Execution and Development and Training of People, and in UNISE’s (the Eletrobras companies’
University) Corporate Education Plan.
The management of educational action has a hierarchical structure defined both in
Eletrobras’ corporate sphere and in the distribution companies’ local development structures.
The educational model’s general guidelines are defined at corporate level and implemented
locally, maintaining the strategic alignment between the different companies, while the
distribution companies’ specific demands are met by the local corporate education unit.
The structure of Eletrobras’ educational model is based on management by skills. In the
process of drawing up the educational plan, the skills that are a priority for the organization are
defined based on the business strategy. The educational model is also integrated with the other
people management practices such as performance management, the job position and salary
plan, and leadership development, promoting a strategic alignment between the various human
resources initiatives.
The Eletrobras companies’ corporate education is organized in two organizational structures

·that UNISE are complementary: - the Eletrobras companies’ University: undertakes the role of providing education
that is common to the group’s companies. The planning of UNISE’s educational action is

· Each described member in the company’s Corporate Education Corporate Plan, Education along Unit: with the this guidelines is responsible for execution. for meeting the
demands for development of each company’s specific skills, in alignment with its strategy
and UNISE’s guidelines. This service is achieved by means of drawing up a Local Corporate
Education Plan, which is constructed from each employee’s individual development plans
and in accordance with the guidelines of each company’s Business and Management Plan.
Education can be categorized as internal when performed on the company’s premises and
with internal instructors, and as external when performed by an external supplier in which case
it may be within Eletrobras facilities or outside; an introductory course that is designed to
integrate the new employee into the organization; and contractual training resulting from
contracts with equipment or software suppliers who require that the employees receive training.
The distribution companies also have short duration distance learning courses offered by TV
Corporativa (LUME).
In order to monitor the quality of the training courses and help ensure continuous
improvement, feedback and impact assessments are applied to each training course. And at
managerial level, educational action is accompanied by monthly and quarterly reports
submitted to the Executive Board.
The criteria for participation and certification of employees are clearly defined in the
regulations and the procedures in standard forms. The justifications accepted in the case of
dropping out are also listed in the regulations, along with the penalties in the case of
withdrawal, failure to pass or dismissal from the company. The formalization of the process
ensures greater transparency and fairness to the employees, with a view to guaranteeing them
equal opportunity for participation and development.
An analysis of the documentation provided by the Distribution companies for training and
development shows that Eletrobras’ Corporate University offers consistent programs for
developing leadership skills, as well as for management, strategy and various aspects related to
operations, along with other topics.




PwC \| Loeser e Portela Advogados \| Siglasul	51


To
National Bank for Economic and Social Development ("BNDES")
Av. República do Chile, 100
Rio de Janeiro - RJ
C/O: Ms. Lidiane Delesderrier Gonçalves — Manager of Agreement OCS 028/2017
May 2017

Dear Sirs,

According to our service agreement OCS 028/2017 ("Agreement") executed between BNDES
and Mais Energia B Consortium ("Consortium") on 2/14/2017, we present the result of our
work carried out in the context of Privatization of Eletrobrás System Distributors.

The summary of the outcome of our work "Product 04: Legal Due Diligence Report" for
ELETROACRE ("Report"), dated May 2017, is detailed in this document.

Our work was developed solely for the purpose of advising the BNDES, as those
responsible for executing and monitoring the process of privatization of utility
companies by Decree 8,893, in ELETROACRE's evaluation, in accordance with the
Agreement.

In case this Report is to be accessed by third parties, it must be made available in full, so that
the applicable safeguards and limitations are known.

Regards,


Loeser e Portela Advogados, as member of the Consortium



[Signed]	[Signed]
Fernando Loeser	José Augusto Sollero Figueira




This document is a true copy of the original signed version delivered to BNDES and in the possession of Eletrobras.


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 4/16

INTRODUCTION

1	.	This Executive Report ("Report") was carried out as part of the structuring of the
privatization operation of Companhia de Eletricidade do Acre ("Eletroacre" or "Company" or
"enterprise"), in accordance with the Invitation to Bid corresponding to AARH ELECTRONIC
TRADING FLOOR #51/2016 - BNDES - ITEM 1 - "SERVICE B" (economic and financial
assessment and legal, accounting, technical-operational and other specialized professional
services).

2	.	In this context, the NATIONAL BANK FOR ECONOMIC AND SOCIAL
DEVELOPMENT (BNDES), through its Bidding Department, pursuant to the provisions of
Law #10,520 of 7/17/2002; in Decree #5,450 of 5/31/2005; in Supplementary Law #123 of
12/14/2006; in Decree #8,538 of 10/6/2015; in Law #13,303 of 7/1/2016; and DIR Resolution
#3.063/2016 (BNDES System Bidding Regulation) provided for the hiring of a company to
provide the specialized services described above.

3	.	Loeser and Portela Advogados, an integral part of the Mais Energia Consortium,
together			with PricewaterhouseCoopers Corporate	Finance & Recovery Ltda.,
PricewaterhouseCoopers Serviços Profissionais Ltda. and Siglasul Consultoria Ltda.,
pursuant to OCS Agreement #028/2017, executed on February 14, 2017, was contracted to
advise BNDES on the structuring of ELETROACRE privatization operation ("Operation"),
specifically with respect to (i) legal aspects related to the structuring and implementation of
the Operation; as well as (ii) carrying out limited legal due diligence work through sampling
with respect to the Company, which is contemplated in this Executive Report.

4	.	This Legal Due Diligence resulted in the preparation of this Report, and includes the
analysis and assessment of information and documents to identify any issues that may
significantly alter the accounting position and/or market value of ELETROACRE with respect
to the following aspects:

		(i)	corporate, civil and regulatory matters. Tax, labor, social security and
			environmental aspects (compliance) were carried out by the advisors
			responsible for the analysis in these departments, and are reflected in their
			respective reports;

		(ii)	existing litigation within the administrative and/or legal spheres that affects, or
			may affect or is in any way related to ELETROACRE, and the description must
			contain the details on the litigation, its probable outcome and the amounts
			involved;


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 5/16

		(iii)	status of the assignment and ownership of real estate and equipment registered
			or likely to be registered in ELETROACRE's property, plant and equipment, and
			the regularity of the respective documentation, including before public records,
			pointing out any existing liens or encumbrances; and

		(iv)	gathering public information needed to carry out this service.

5	.	Lastly, this Report was prepared at the request of BNDES and is addressed only to
our client (BNDES), and no other person or entity other than BNDES should rely on it;
reference to this Report is also prohibited in any other document, as well as its registration
or submission to third parties without our prior and explicit authorization and consent.
Notwithstanding the foregoing, and provided that the client-attorney relationship (and related
rights and obligations) is limited exclusively to BNDES and our firm, (a) BNDES and its
advisors may use this Report for analyzing the legal feasibility of the Operation, for its
economic and financial structuring and related purposes; and (b) this Report may be sent or
disclosed to third parties, at BNDES' sole discretion and liability, which logically includes full
disclosure to potential stakeholders in the Operation and their respective advisors.

6	.	The legal audit, carried out in the period from March 6 to May 12, 2017, was based
on documents and information provided by ELETROACRE related to the Company.

7	.	The date of 12.31.2016 was set as the base date for issuance of the respective
report of the legal audit performed ("Base Date"). It should be noted, however, that some of
the information contained in this Report, as expressly indicated therein, may refer to events
occurring after the Base Date.

8	.	The content of this Report is limited to information obtained through the procedures
described below, subject to the restrictions listed.

9	.	The legal audit was conducted according to the following methodology:

		(a)	submission of initial request for documents and information to representatives of
			ELETROACRE designated to attend the audit process;

		(b)	submission of requests for additional documents and information, based on
			information obtained during the investigation process;

		(c)	interviews, meetings and contacts with ELETROACRE employees working in
			the various sectors and units of the company, especially those related to the
			legal and accounting departments;


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 6/16

		(d)	obtaining data extracted from ELETROACRE's process control system;

		(e)	analysis of the documents and information made available.

10	.	It is assumed that (i) all copies made available by ELETROACRE match the
originals; (ii) such documents, except when explicitly stated in this report, are complete and
authentic; and (iii) the signatures therein belong to persons empowered to represent the
respective parties.

11	.	In some cases, as usual in all legal proceedings, the level of detail in this Report was
compromised by the (partial or total) absence of ELETROACRE's information and
documents, especially related to Civil, Tax and Labor Litigation.

12	.	This Report is not intended to cover all legal aspects related to ELETROACRE, but
mainly those that have a significant impact on the economic-financial analysis for the
purpose of recommending the minimum sale price of the Company's shares.

* * *


Legal Auditing Executive Report		ELETROACRE
Introduction		Page 7/16

EXECUTIVE REPORT

A.	REGULATORY ASPECTS

1.	ELETROACRE is a designated distributor responsible for providing public electricity
distribution services in the areas of municipalities of the state of Acre listed in MME
Ordinance #421/2016, in order to ensure the continuity of service, pursuant to paragraph 1
of article 9 of Law #12,783/2013, and subject to provide such services in accordance with
the terms and conditions established in MME Ordinance 388/2016, until assumption by a
new utility or until 12.31.2017, whichever occurs first.

2.	ELETROBRAS agreed to designate its subsidiaries, including ELETROACRE, as
providers of energy distribution services on a temporary basis, provided that, among other
conditions: (i) ELETROBRAS does not undertake to guarantee any new obligations that may
be assumed by the distributors, in any way, including obligations arising from the provision
of temporary services; and (ii) measures be taken to ensure that the transfer of shareholding
controls of the distributors occurs by 12.31.2017, in order to avoid liquidation of the
distributors and the return of the respective concessions.

3.	ELETROACRE held the concession for operation of public electricity distribution
services under the terms of Concession Agreement #06/2001, signed on 2.12.2001,
effective until 7.7.2015, and requested extension of its validity within deadline and under the
conditions laid down in that agreement. Nevertheless, ELETROBRAS, as controlling
shareholder of ELETROACRE, at its 165^thExtraordinary General Meeting, resolved for: (i)
reject the extension of ELETROACRE's concession; and (ii) approve the assignment of
ownership control of the Distributor by 12.31.2017, provided that, until the assignment of the
Distributor to a new controller, the Distributor receives directly from the federal government
or through a rate all resources and income necessary to operate, maintain and make
investments that are related to the public services of the respective distributor.

4.	Considering the interest of the Ministry of Mines and Energy ("MME") in promoting
the bidding associated with the assignment of control of the legal entity providing energy
distribution services with the corresponding granting of a contract to the new controller for a
term of 30 (thirty) years, the National Electric Energy Agency ("ANEEL"), at the MME's
request, prepared and submitted to public hearing (Public Hearing #094/2016) the draft of
the concession agreement prepared in accordance with guidelines established by the MME
with the purpose of increasing competitiveness of bidding processes for assignment of
corporate control related with new concession grants.


Legal Auditing Executive Report			ELETROACRE
Introduction			Page 8/16

5	.	As of the Base Date, the Distributor did not have any ongoing regulatory
administrative proceedings. Nevertheless, as of the Base Date, the Distributor had 5
lawsuits contesting regulatory procedures that were already closed at the administrative
level unfavorably to the Distributor. Legal proceedings that fall within the criterion of
materiality were analyzed in Section 8 (Civil, Equity and Criminal Litigation) of this Report.

6	.	The assignment of ELETROACRE's ownership control shall be submitted to
ANEEL's prior consent, in line with the provisions of article 27 of Law #8,987/1995, article 4
(XI) of Attachment I to Decree #2,335/1997, as well as the provisions of ANEEL Normative
Resolution #484/2012.

7	.	ELETROACRE performs sharing of expenses with related parties without a formal
agreement and without observing the regulatory provisions related to the subject matter. In
view of this fact, ANEEL may apply penalties, depending on the agency's framing of the
infraction, as detailed in item I ("Sharing of Expenses with Related Parties") of the Executive
Summary of Section 2 ("Regulatory") of this Report.

8	.	ELETROACRE is in default with its intrinsic obligations, which makes it impossible
for ANEEL to issue a Certificate of Performance pursuant to article 7 and paragraph 1 of
ANEEL Normative Resolution #538/201343. The Distributor submitted the Verification of
Default regarding Obligations of the Electricity Sector, which contains a list of outstanding
debt issued by ANEEL, which as of 1.13.2017 totaled BRL 39,720,206.15.

B.		CORPORATE ASPECTS

1	.	According to article 9 of the current bylaws¹of ELETROACRE, the sale in whole or in
part of its capital stock, as well as an increase in the share capital by subscription of new
shares requires approval of the shareholders through a general meeting specially called for
this purpose, noting that ELETROACRE is a wholly owned subsidiary of ELETROBRAS.




¹Article 9: The General Meeting shall be called to specifically deliberate on: I - conveyance, in whole or in part, of
shares of its capital stock; opening and increase of share capital by subscription of new shares or sale of these
securities, if in treasury; sale of debentures which it holds, of companies in which it has a stake, and issuance of
debentures convertible into shares which he/she owns, from companies in which he/she has a stake.


Legal Auditing Executive Report		ELETROACRE

Introduction		Page 9/16


2.	Considering that the Company has not distributed dividends for more than 3 years,

holders of preferred shares, in this case, also have the right to vote at the general meeting,

which should be called to deliberate on whatever operational modality is chosen for this

privatization, especially for the case of conveyance of the shareholding control, opening or

increase of capital².


3.	ELETROACRE does not have a Shareholder Agreement with a provision for tag

along or drag along clauses in the event of conveyance of control.


4.	It should be emphasized that, if the model adopted is through capital increase, the

right of first refusal on subscription of shares must be observed in the case of minority

shareholders, since this is an essential right of the legally established shareholder³.


5.	Lastly, it should be remembered that the exercise of the right of first refusal decays in

30 days counted from the date of resolution at the general meeting, and may also be

assigned⁴.


6.	In the case of a public offer for the disposal of shares owned by ELETROBRAS,

registration with the CVM is waived, pursuant to article 5 of CVM Instruction #400/2003⁵

combined with CVM Normative Instruction #286/1998⁶.




Article 111 of Law 6,404/76: The bylaws may fail to grant preferred shares one of more of the rights recognized to common
shares, including voting rights, or grant it with restrictions, subject to the provisions of article 109.
Paragraph 1. Preferred shares without the voting rights shall acquire the exercise of such right if the company, for the period
established in the bylaws and without exceeding three (3) consecutive years, fails to pay fixed or minimum dividends to which
they are entitled, which right shall be preserved until payment, if such dividends are not cumulative, or until the cumulative
arrears are paid.
Article 171. Law 6,404/76. In proportion to the number of shares they own, shareholders shall have the right of first refusal for
subscription of capital increase.
Paragraph 1. If the capital is divided into shares of several kinds or classes and the increase is made by issuing more than one
kind or class, the following standards shall be observed:
a) in the case of an increase of the number of shares of all existing kinds and classes in the same proportion, each shareholder
shall exercise the right of first refusal over shares identical to those owned by him/her;
b) if the shares issued are of existing kinds and classes, but feature a change in their respective proportions in the share
capital, first refusal shall be exercised over shares of kinds and classes identical to those owned by the shareholders, and shall
be only extended to others which are insufficient to ensure them with the same proportion of capital as they had before the
increase;
c) if shares of a kind or class other than those existing are issued, each shareholder shall exercise first refusal over shares of
all kinds and classes from the increase proportionally to the number of shares held.
Article 171. Law 6,404/76. In proportion to the number of shares they own, shareholders shall have the right of first refusal for
subscription of capital increase. Paragraph 4. The bylaws or the general meeting shall set a period of decay not less than thirty
(30) days for the exercise of the preemptive right.
Provides for public offerings for distribution of securities in primary or secondary markets.
Provides for the conveyance of shares owned by legal entities governed by public law and entities directly or indirectly
controlled by the Public Authorities and exempts the records referred to in articles 19 and 21 of Law #6,385/76.


Legal Auditing Executive Report		ELETROACRE
Introduction		Page 10/16

7.	Article 253 of Law #6,404/76⁷("Corporation Law" or "LSA") deals with the right of
first refusal of minority shareholders in the event of admission of shareholders to a wholly-
owned subsidiary.

8.	This legal provision would not be applicable in the event of the sale of
ELETROACRE's shares to the extent that this Company became a wholly-owned subsidiary
of ELETROBRAS through the acquisition of shares, pursuant to article 251 paragraph 2 (1^st
part) of the LSA⁸. Based on the most recent decisions of the Brazilian Securities and
Exchange Commission ("CVM")⁹, and based on the specific response of this body in a
consultation formulated by ELETROBRAS, the right of first refusal provided for in this legal
provision is only applicable to wholly-owned subsidiaries thus converted through mergers of
shares.

C.	FINANCIAL AGREEMENTS

1.	Related Party Agreements. Financing agreements entered into with ELETROBRAS
do not contain provisions regarding the possibility and procedures for assignment and/or
transfer of the respective rights and obligations, nor do they expressly establish restrictions
on the conveyance of control and/or the corporate restructuring of ELETROACRE.

D.	OPERATING AGREEMENTS AND OBLIGATIONS

1.	Operating agreements were submitted in a partial manner. Until the closure of this
Report, based on the analysis of the documents provided, no information was identified
indicating risks or recommendations in the privatization process.

E.	INTELLECTUAL PROPERTY

1.	Trademark. According to information provided in the data room, and by consulting
the website of the National Intellectual Property Institute ("INPI"), no trademark related to the
name of, or distinctive sign related to, "ELETROACRE" was identified as of the completion
of this Report. However, it should be noted that the term and symbols may be protected
under business name protection.


⁷Article 253. In proportion to the shares held in the company's capital stock, shareholders shall have the right of first refusal to:
I - acquire shares in the capital of the wholly-owned subsidiary, if the company decides to convey them in whole or in part; and
II - subscribe a capital increase of the wholly-owned subsidiary, if the company decides to admit other shareholders.
⁸Article 251. The company can be established by means of a public deed, having a Brazilian company as sole shareholder.
Paragraph 2. The company may be converted into a wholly-owned subsidiary upon acquisition, by a Brazilian company, of all
its shares, or as per article 252.
⁹Such understanding may be observed in CVM Administrative Proceeding #RJ2010/13425, in which it alleges that for
companies converted into a wholly-owned subsidiary upon acquisition by a Brazilian company of all its shares, pursuant to
article 251 paragraph 2 (1^stpart), the provisions of article 253 do not apply.


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 11/16

2	.	Software. Regarding the software in use at ELETROACRE and owned by Microsoft,
we were informed that they are in the process of licensing regularization. According to
information from representatives of ELETROACRE, an audit was conducted by Microsoft in
order to generate an inventory of the software in use to identify those which need licensing.
In view of this scenario, we were informed that, based on this inventory, ELETROACRE
must carry out a process of contracting the necessary licenses for total regularization. It
should be noted that a lack of license to use software and/or the use of software above the
licensed quantity may result in a penalization of ELETROACRE and its managers under
applicable legislation.

F.		INSURANCE

1	.	Failure to submit compulsory insurance policies may result in penalties in
accordance with applicable sectoral Regulations. This item is detailed in Section xxx of this
Report.

2	.	Group Life Insurance and Equity Insurance with expired validity. Group Life
Insurance and Equity Insurance policies matured, respectively, on 2.26.2017 and 2.25.2017
and, as of the completion of this Report, no new policies were issued to extend said dates.

G.		LABOR ASPECTS

1	.	From the completion of the studies undertaken in the Distributor on labor aspects, we
highlight the following points:

		(i)	The main and most recurrent topics addressed in the individual actions relate to
			the Incentivized Resignation Program ("PDI"), subsidiary liability and issues
			involving equal pay and salary equalization, as well as actions for compensation
			for accidents;

		(ii)	there are class actions and public civil actions with probable risk of loss (items iii
			and iv, for example);


2	.	The following table summarizes the DISTRIBUTOR's estimates of contingent
liabilities related to labor litigation according to the legal audit performed.


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 13/16

			occurrence of blackouts and rationing; we estimate the potential contingency
			arising from these proceedings at BRL 1,050,000.00. There is also an action
			filed against the Distributor aimed at refunding amounts to consumers related to
			an illegal increase in rates at the beginning of the Cruzado Plan received by the
			Distributor between March and November 1986. There is a need to adjust the
			provision to the amount of BRL 9,548,000.00. Other public civil actions analyzed
			are either closed or the Distributor is not a party to the claim;

		(iv)	with respect to proceedings involving ANEEL, actions where ELETROACRE is
			listed as the petitioner were analyzed, which, however, were discussing fines
			applied by the aforementioned body. Provision is required to the amount of BRL
			1,612,873.21.

		(v)	The Company is involved in three (3) proceedings that claim payments for
			accruals made in engineering works contracted under the global price
			contracting, or the payment of contractual adjustments, with a total contingency
			of BRL 8,137,981.37, classified as a possible loss; in all of the aforementioned
			actions, the Distributor is listed as a defendant to the actions;

		(vi)	a public action filed by Antônio Acácio Moraes do Amaral against the Distributor
			was analyzed, the amount attributed to the claim being BRL 130,411,985.00,
			with a remote loss risk, and the proceeding is currently under analysis before
			the Superior Courts after judgment dismissing the action, which was upheld in
			the first appeal.

		(vii)	According to information provided by ELETROACRE, there is a total amount of
			BRL 7,377,000.00 as court deposits and appeal bonds.

I.		TAX LITIGATION

1	.	In this section, the following points are highlighted:

		(i)	Of the total 33 administrative and legal proceedings where the Distributor is
			listed as a defendant, seven (7) administrative and legal proceedings were
			analyzed, the amounts of which are aligned with the materiality criterion
			corresponding to BRL 2,000,000.00;


Legal Auditing Executive Report				ELETROACRE
Introduction				Page 14/16

		(ii)	In the Checking Account reports, information was extracted on twenty-three (23)
tax notes which were not included in the ongoing legal action report;

		(iii)	Distributor ELETROACRE is involved in a total contingency of approximately
			BRL 434,615,413.93 related to 10 legal proceedings according to the
			contingency report;

		(vi)	There are proceedings with a probable loss classification to the amount of BRL
			125,479,005.49, amount which is indicated for adjustment of provision; and

		(vii)	There are pending delivery certificates, including the Social Security Checking
			Account, which is why it is possible that there are contingencies/provisions that
			may not have been reported.

J.		REAL ESTATE ASPECTS

1	.	Absence of Regularization. According to the documentation available for analysis,
part of ELETROACRE's real estate needs regularization with respect to ownership, actually
occupied area and payment of outstanding IPTU debt. According to information received
from representatives of ELETROACRE, in the year 2015 a survey was carried out to
regularize ELETROACRE's properties, but due to financial reasons, the regularization
process was not implemented. Regarding the regularization of ELETROACRE's own
properties, representatives of ELETROACRE informed that an employee of the Company
will be provided to seek to ratify and/or correct the registration, record and tax status of the
properties in each locality.

2	.	Goods offered as Collateral. According to the analysis of the documentation
provided, the property which is the object of registration #69.074, located at Rua Antonio da
Rocha Viana - Vila Ivonete, in the city of Rio Branco - AC, is attached in favor of Jerônimo
Lima, in the records of case #01.02.014498-0 (Letters Rogatory). According to information
from representatives of ELETROACRE, this is the only ELETROACRE property offered as
collateral and said property is not tied to the concession. It is worth noting that the existence
of certain liens and encumbrances may result in the foreclosure of the property and its
subsequent public sale to third parties, thus causing the loss of ownership from the owner.

3	.	Real Estate Permitting. According to the analysis of the documentation provided, no
Operating Permits or Inspection Permits were issued from the Fire Department for the
entirety of the Company's properties. The lack of real estate licensing may result in the
imposition of administrative sanctions and penalties (warnings, fines, etc.), the amount of

Status Report on the Eletroacre Employee Complementary Pension Fund and Health Care Plan


To the
National Bank for Economic and Social Development ("BNDES")
Av. República do Chile n° 100 Rio de Janeiro - RJ

C/o: Mrs. Lidiane Delesderrier Gonçalves - Manager of OCS Contract No. 028/2017


May 2017

Dear Madam,

Pursuant to our OCS Service Contract No. 028/2017 (“Contract”) signed February 14, 2017, between BNDES and
the Mais Energia B Consortium (“Consortium"), please find enclosed our deliverable for the work performed in
connection with the Eletrobrás System Distributor Privatization Program.

Our findings are detailed in this document, which is entitled Deliverable # 6: Status Report on the Eletroacre
Employee Complementary Pension Fund and Health Care Plan (“Report”) for ELETROACRE, dated May 2017. The
work carried out does not constitute an examination performed in accordance with financial statement auditing
standards. In performing our review, we used unaudited historical information and data provided by the
Consortium’s management either orally or in writing, or obtained from mentioned sources.

Our work was developed solely for the purpose of advising BNDES in connection with the evaluation of
ELETROACRE as required by the Contract. As established by Decree 8.893, BNDES is the entity tasked in with
implementing and monitoring the utility privatization process.

In case disclosed to third parties, the Report should be made available in full so that any applicable waivers and
qualifications can be acknowledged by all recipient parties.

Yours faithfully,



PricewaterhouseCoopers Finance & Recovery Ltda. acting as consortium leader




/s./	/s./
Rogério Roberto Gollo	Carlos Eduardo Silva Teixeira




This document is a true copy of the original signed version delivered to BNDES and in the possession of Eletrobras.

Biometric tables are statistical studies that rely on the occurrence of events observed in a population in order to estimate the incidence of such occurrences in the future.

Such events can be classified as mortality, disability onset, turnover, among others categories and have a direct impact on post-employment benefits.

According to CNPC Resolution No. 9 dated November 29, 2012, which amends CGPC Resolution No. 18, the suitability of a biometric table used for longevity projections should be determined by means of a specific study, the results of which confirm adherence, in the last three fiscal years, between the demographic behavior of the mass of participants and beneficiaries within the plan and the respective biometric table used.

The general mortality table adopted for the benefit plans was the AT-83 Basic Female. According to the independent actuary's report, the table was adopted based on technical studies that confirmed its adherence to the profile of the population in the plans and therefore its suitability to discount the actuarial liability.

The table used for pension plans is the Light Fraca table. According to the study report prepared by the independent actuary, the mass of participants was not enough to allow for a study confirming that the table was suitable to match the plan population. However, since this table is customarily employed in the market and its adoption does not represent a significant risk to the plan, we believe that it is adequate for the calculations.

The disabled mortality table employed for the pension plans is the AT-1949 relieved by 2 years. According to the study report prepared by the independent actuary, the mass of participants was not enough to allow for a study confirming that the table was suitable to match the plan population. However, since this table is customarily employed in the market and its adoption does not represent a significant risk to the plan, we believe that it is adequate for the calculations.

The turnover assumed for the pension plans was nil, meaning that future participant terminations in the coming years are not expected to bear a significant impact on plan liability.

Considering the plans’ features, we understand that the assumption adopted is adequate for liability calculation purposes.

Our examinations were based on information provided by both the actuaries responsible for managing the plans and the company, and we considered this information to be appropriate for the preparation of this report.

Our numbers were calculated according to practices that we deem most appropriate when applicable, and should be taken into account together with the considerations below.

With regard to the family composition assumption, we understand that the best practice involves the use of the royal family for the beneficiaries. The impact of using an average family can be significant depending on the population of the plan.

The post-employment benefit obligations recorded in the balance sheet, even where figures are presented with incidental differences which in our opinion relate to the methodology or assumptions adopted, would not, if altered, pose any insolvency risk to the plans.

The variable contribution retirement plan 04-B has a technical surplus in the amount of R$ 447,074.35 from excess contributions carried into the plan resulting from the financial performance and actuarial gains accrued over the years. However, such surplus cannot be considered an economic benefit for the company, given that the limits enforced by local regulators call for up to 25% of the mathematical provisions to establish a reserve to hedge against plan fluctuations of plan risks. We understand that the plan is not exposed to any insolvency or liquidity risk, since all risks associated with it are supported by the portion of the assets intended as plan coverage.

To calculate the present risk in the portion of vested benefits of the 04-B plan, a monthly average real contribution (MARC) is used as per the regulations. MercerGama provided us with a calculation formula (salary based) which was used to determine the contributions by active plan participants on a constant basis. We understand that the MARC should vary according to the rate of wage evolution as indicated by the wage growth assumption, which is not in effect. Additionally, we were not provided with a methodology for calculating the percentages at which the MARC is levied on the salaries; in other words, there is a possibility, the impact of which we could not measure, that the mathematical provision calculated for the risk benefits of active participants is improperly sized compared to good practice.

The Severance Incentive Plan (SIP), which affords only health care for a fixed term of 5 years, has a liability of R$ 207,372.98 as of 2013. This liability is expected to decrease in view that this is a fixed-term plan with only two years remaining and new registrations are not allowed. The plan has an inherent deficit resulting from the fact that it does not have an asset to cover benefits and is funded by the flow of contributions.

We understand that employing a capacity factor to measure health care liabilities is not the best practice in the situation. Medical costs increase according to specific sector rules. For this reason, we understand that there is no loss of benefit value over time due to inflation and therefore the use of a capacity factor is not appropriate.

From a legal perspective, our understanding is that plan benefits have been supported by regular and extraordinary contributions established on the basis of actuarial evaluations prepared by an independent actuary and reviewed by the regulatory body (Previc) in the case of the pension plans.

With regard to the health care plan, legal compliance is secured in that contributions are made according to the general rules of the plan.


	Product 11 – Privatization Modeling Proposal




To the
Banco Nacional de Desenvolvimento Econômico e Social (“BNDES” - Brazilian National Bank for
Economic and Social Development)
Av. República do Chile nº 100
Rio de Janeiro - RJ

Attention: Ms. Lidiane Delesderrier Gonçalves - Contract Manager OCS 028/2017

December 2017

Dear All,

In accordance with our service contract OCS 028/2017 (“Contract”), executed between the BNDES
and the Consórcio Mais Energia B (“Consortium”) on 02/14/2017, we present the result of our work
made in the context of Privatization of the Distributors of the Eletrobras System.

The result of our work is detailed in this document “Product 11: Privatization Modeling Proposal”
(“Report”) of Eletroacre, dated December 2017.

Our work was developed aiming solely at the objective to assist the BNDES, in the quality as
responsible for the performance and follow-up of the privatization of concessionaire companies as per
Decree 8.893, in the evaluation of Eletroacre, in accordance with the Contract and it was carried out on
the basis of information provided by the administration of Eletroacre and on the premises that this
information is true and complete. This information has not been subject to tests or verifications, except
when expressly defined in the scope of our works.

In the case of access to the Report by third parties, it must be made available in full, provided that the
applicable safeguard and limitations are known.

Sincerely,

PricewaterhouseCoopers Corporate Finance & Recovery Ltda., as leader of the Consortium.




Rogério Roberto Gollo	Marcio Jose Soares Lutterbach


** This document is a true copy of the original signed version delivered to BNDES and in
the possession of Eletrobras.

** This document was updated to meet requirements of Resolution N^o20 from November
8^th2017 of the Board of the Investment Partnership Program (CPPI - Conselho do Programa
de Parcerias de Investimentos) related to the total value of Eletroacre shares owned by
Eletrobras




	2


				Product 11 – Privatization Modeling Proposal


*Summary*

Introduction					6
Section I - Privatization Context					7
1	.	Approach			7
2	.	Context			9
2.1			Overview		9
2.2			Institutional and Management Model of the Brazilian Electric Industry		10
2.3			Financial assessment and sales modeling conjuncture		12
3	.	Relevant aspects of the Privatization Process			14
3.1			CCC		14
3.1.1				Context	14
3.1.2				Negotiations	14
3.1.3				Negotiation operationalization	15
3.2			Minorities		15
3.3			Other critical points, necessary adjustments and recommendations		16
3.4			Consent need in Financing Contracts		16
3.5			Deposit of Shares Owned by Eletrobras at FND		17
3.6			Remaining aspects to be considered		17
3.7			Payment methods		17
4	.	Purpose of the Auction			19
4.1			Purpose of sale		19
4.2			Assessment of sale feasibility		19
5	.	Relevant Aspects of Valuation			20
5.1			Relaxation of regulatory parameters		20
5.2			Debts		20
5.3			Total liabilities		22
5.4			Risks and Contingencies		22
5.4.1				Types of contingencies	22
5.4.2				Current status of contingencies	23
5.4.3				Negotiations to deal with contingencies	24
6	.	Assessment of Synergies			25
7	.	Adjustments on the Privatization model			30
7.1			Context		30
7.2			Base amount of valuation – Average between valuations of Services A & B		30
7.3			Relevant adjustments for privatization of Eletroacre		31
7.3.1				Adjustment to comprise updated balance sheet until June 2017	31
					3


			Product 11 – Privatization Modeling Proposal

7.3.2Adjustment related to Advance Payments for Future Capital Increases (AFACs)
				33
7.3.3			Tax adjustments –Tax Losses and Negative Base	34
7.3.4			Adjustment of the relaxation of regulatory parameters	34
8. Capital and Corporate Structuring				36
8.1		Proposed capital and corporate structuring – Overview		36
8.2		Minimum adjustment of the capital structure – “Stage 1”		38
8.2.1			Symbolic value of shares sale (privatization)	38
8.2.2			Capitalization alternatives	39
8.3		Investor capitalization – “Stage 2”		39
8.4		Eletrobras corporate stake option		41
8.4.1			Justification	41
8.4.2			Eletrobras corporate interest threshold	41
8.4.3			Participation of Eletrobras in the governance of the company	42
8.4.4			Procedure for Eletrobras to increase its shareholding interest	42
8.5		Classes of shares		43
9. Shares offering to active and retired employees				44
9.1		Mechanism		44
9.2		Definition of active and retired employees		44
9.3		Offer General Conditions		44
9.3.1			Offer take and differentiated conditions	45
9.3.2			Offsetting differentiated conditions to Eletrobras	45
9.3.3			Offer Procedure and Purchase Limits	46
9.3.4			Follow-up by minority stakeholders of investor underwriting	46
9.3.5			New controller shares repurchase obligation	46
9.4		Shares not acquired by active and retired employees		47
Section II - Privatization proposal				48
10	.	Summary of Eletroacre’s privatization proposal		48
10.1		Eletroacre’s Corporate Structure		48
10.2		Eletroacre’s Sales Price Definition		48
10.2.1			Result of economic-financial evaluations	48
10.2.2			Balance update adjustment	49
10.2.3			Regulatory parameters relaxation adjustment	50
10.3		Sale vs. Liquidation Evaluation and consequent “pure” concession granting		51
10.4		Potentially convertible liabilities		52
10.5		Eletrobras capitalization value – “Stage 1”		52
10.6		Shares offering to active and retired employees		53
				4

This document refers to the report of Eletroacre Privatization Model Proposal, produced by the Consórcio Mais Energia B. In it, proposals are included regarding the distributor’s privatization modeling, including conceptual models, technical recommendations and calculated values.

The report is divided into three sections, presented below:· Section I - Privatization Context· Section II - Privatization Proposal· Section III - Auction Model Proposal

In Section I - Privatization Context, among other topics, the approach used to structure the modeling, the parameters that were used as guidelines to the analyses developed and conceptual aspects of the modeling are explained, including its main proposals, rationale and legal basis.

In Section II - Privatization Proposal, the technical and quantitative specifications of proposals made in the previous section are presented. The corporate structure is set out thereof as well as the results of the valuation, the calculated values of adjustments in the capital structure and Eletroacre's shares, in addition to the share offer conditions to employees, investors’ obligations and expected privatization schedule.

In Section III – Auction Model Proposal, procedural aspects of the auction of the distributor are detailed. In this section, recommendations are made concerning the model and sequence of auctions, auction variables, base of values for investors’ offers and classification criteria and the definition of the winner.

Finally, it should be noted that this document has been developed based on Eletroacre’s other privatization processes documentation. Among other items, there served as input for this Privatization Modeling Report, the result of the economical and financial evaluations conducted by Services A and B, as well as the legal, tax, accounting-equity, technical-operational, actuarial, human and environmental resources diligences developed by Service B.

· Fiscal and tax aspects: relevant fiscal and tax aspects were considered, as well as tax required adjustments, for the definition of the value and the process of privatization and sale of companies· Risk mitigation: as part of the process of definition of the selling price, it was necessary to evaluate the impact and value of not yet provisioned contingencies, as well as possible alternatives to mitigate them, considering the prospects of Eletrobras and the investor in order to reduce risks related to the sale transaction· Stakeholders and investors: to enable and optimize the process of privatization and sales modeling, the study considered the perspective of several Stakeholders (such as, regulating entities, government agencies and consumers), as well as investors, who had their interest in acquiring distributors and their points of view analyzed through market sounding studies· Evaluation of synergies: the possible synergies between the companies were also evaluated and considered in modeling, analyzing the opportunities for synergies of their operations to find possible levers of value· Groupings of grants: likewise, possible groupings for sale of companies were analyzed in order to enable and leverage the value of the sale of the six distributors that are part of this process of privatization· Process and sequencing of the auction: auction models and their procedural aspects, as well as the sale of sequencing alternatives of the distributors were reviewed to increase the possibilities of sale of the distributors and also to create value· Use of tariff lever: in modeling, alternatives were included regarding regulatory levers which provided a review of the level of balance of the grants relating to companies in privatization process, eventually correcting potential lags

When evaluating the nine perspectives addressed, the study made for the modeling of Eletroacre sale, along with other distributors, sought to be comprehensive and evaluating all relevant aspects to the process of privatization of the companies, identifying alternatives of the sales process optimization.

The process of privatization of Eletrobras’ Distributors was started in the 90’s and resumed in 2016 through Decree 8.893/2016, which qualified as priorities within the framework of the Partnership Program in Investment (PPI) the privatization of the distribution companies and designated the BNDES responsible for the implementation and monitoring of the process of privatization.

In this context, the BNDES hired Consórcio Mais Energia B to assist it in Privatization, involving from economic and financial valuation until the full diligence of current operations. Having completed the basic elements that allow attributing the value resulting from the distribution grants of electric energy, it remains to define how the privatization will actually take place. Such modeling combines corporate aspects, the form of capitalization, sales process, in order to increase the chance of success in attracting investors, as well as offering maximum competitiveness to obtain better conditions of offer to be received.

The guidelines emanated by the sectorial and macroeconomic policy makers, regulators and planning entities, establish the need to offer a quality service in the respective grant areas. One believes that the attraction of an operator from the private sector will have full conditions to raise the efficiency level and to remunerate the necessary investments to the full compliance with the market.

From the regulatory point of view, as a result of Public Hearings 094/2016 and 032/2017 of ANEEL [Brazilian National Electricity Agency] and Public Consultation MME 37/2017, several softening measures were introduced into the regulatory parameters, with the tariff model allowing conditions to bring back to balance the grant. It is unanimously manifested, both the discomfort with the precarious situation of the assignment condition, and the support to the efforts undertaken, so that one is successful with the privatization.

A process of evaluation of market interest (Market Sounding) allowed identifying the existence of companies with recognized competence in the industry - particularly in social economic, geographic realities and similar environmental realities - with capacity to execute the reorganizations required for this process, confirm the reasoning of attractiveness of the privatized companies for potential investors and understand the major elements of concerns. One may also establish a rather specific map of the different level of interest of the market among the several grants.

In this line, the vision of the sector investors could be obtained as to issues such as the grouping of the grants, the process of sale, sensitivity to different corporate models, the structure of capital to face the program of investments, the economic impact of the incorporation of investments to tariffs and the very contingencies bequeathed to the future operator, always with a view to optimize the competitiveness in the future auction.

In short, from this context important lines of direction derive for the model that will be sketched as follows:

· Incorporation of new investor who will be focused on the improvement of the service and economic, financial and operational recovery of the company· Prioritization of solutions that allowed the transference of all the grants to the investors - seeking models that minimize risk of auctions without interested shareholders· To make possible alternatives and solutions that allow generating value to the current shareholder without losses to the consumers and the public power, including mechanisms that make possible the capture of value in the medium and long terms in the future operation, since there is the need for capitalization of the distributors to make possible the privatization auction· Search for factors that lead to the increase of the rivalry between the potential interested shareholders, in order to provide greater competition

Such guidelines lead to solutions that are highlighted by the mitigation of failure risks, simplicity and pragmatism in the search for alternatives for privatization. Below, we present how the modeling should be structured so as to maximize the success of the process.

The characteristics and peculiarities of the Brazilian electric industry have been considered in the study developed. Both its institutional model and its legal framework have been analyzed and used as parameter for the analyses proposed.

Recently, new laws sought to address emergent challenges within the national scope (as for example Law 12.783/2013, with provision on grants of generation, transmission and distribution of electric energy, reduction of sectorial encumbrances and affordability). In this context, for this report, as noted in the previous section, Decree 8.893/2016 is of particular importance, which resumed the subject of privatizations of the Distributors, being the BNDES responsible for the execution and follow-up of the process.

In fact, the edition of Law No. 13.360/2016, resulting from the conversion of MP 735/2016, brought a series of changes for the industry, including the supposition by CCEE of the competences attributed before to Eletrobras on the management of the account of Global

Reserve of Reversion (“RGR”), as well as the Account of Energy Development (“CDE”) and of the Account of Fuel Consumption (“CCC”) from May 1^st, 2017, at no hard to the performance of Internal or External Control Agencies of the federal public administration on the management of these accounts.

Additionally, Decree No. 9.143/2017, that regulated Law No. 13.360/2017, by bringing provisions on the commercialization of electric energy, tried to provide the incentive to efficiency, to the correct allocation of the risks among the consumers and investors, as well as mitigate the obstacles to attract new investments to the electric energy industry, especially when establishing that the auctions of new energy and existing energy can be carried out fairly ahead of time and more relaxed, in addition to the possibility of the distribution agents to negotiate with free consumers and other agents from the Free Environment Contracting (“ACL”), sale contracts of backed by excess of energy contracted, as per ANEEL regulation.

Furthermore, it must be highlighted that, by means of the Public Consultation No. 33 (CP

33), of the Ministry of Mines and Energy (“MME”), already closed, on ‘Improvement of the legal landmark of the electric industry’, proposals of legal measures had been discussed that make possible the future of the electric industry, searching sustainability in the long run

In addition, Law No. 13.360/2016 amended Law No. 12.783/2013, with the objective to make possible the bidding of companies under direct or indirect control of the Union, States, Federal District and Municipalities, whose grants had not been extending, foreseeing the possibility of the Union to promote bidding associated with the transference of the shareholding control of the concessionaire, granting a new grant contract for the period of 30 years. This law also establishes the possibility of inversion of the qualification stages and judgment of the auction, so as to guarantee greater speed and efficiency to the bidding process.

It should be stood out that, as far as the bidding of distribution or transmission grant associated to the transfer of control of legal person, provider of public service of electric energy is concerning, dealt with Law No. 12.783/2013, it became necessary to edit a regulatory decree, with the purpose to, among other conditions: i) to establish requirements to be observed by the controller of the responsible legal entity for the provision of the service of distribution of electric energy, for such bid; ii) attributions of the BNDES in the execution and the follow-up of the privatization process; iii) criteria for new concession without control handover (Decree Draft that regulates the bid of distribution grant associated with the utility control handover of legal entity provider of public service of electric energy).

The new grant contract applicable to the mentioned bid associated with the shareholding control handover of the concessionaire, whose draft was elaborated by Aneel at the request of the MME and submitted the public consultation, was object of new public consultation in the period of 08/28/2017 to 09/06/2017, in virtue of adjustments proposed by means of Ordinance MME No. 342/2017, due to the fact that it was noted the existence of unbalance regarding the operational costs, losses of electric energy and loans with resources from RGR, made to assure the continuity of the service provided under the assignment mode and that, by force of provisions of Law No. 12.783/2013, should have been assumed by the new concessionaire, which could make impracticable the intended bid.

Another point to be considered is with regard to the tariff process concerning the provision of public service of electric energy distribution by agency or entity of the federal public administration. It is highlighted that the Ordinance MME No. 388/2016, which approved the terms and conditions for the provision of such services, in accordance with art. 9, Paragraph 1, of Law No. 12.783/2013, was amended by Ordinance MME No. 346/2017, published in the DOU [Federal Official Gazette] on 08/31/2017, to establish that in the tariff process of year 2017, ANEEL should make flexible, in a temporary way, the regulatory parameters relating to the operating costs and the non-technical loss in order to enable the economic balance of the grant being bid pursuant to art. 8 of Law No. 12.783/2013.

It is further highlighted that the tariff relaxation resulting from ANEEL’s Technical Notes 351/2017, of 07/24/2017, and 149/2017, of 09/08/2017, which restores levels of regulatory parameters – such as DEC/FEC, PMSO, Non-Technical Loss and RGR - aiming at the economic-financial balance of the grants of electric energy under analysis.

Finally, it is stood out that, considering the schedule foreseen for conclusion of the privatization process, as one will see below, it is quite probable that Ordinances MME 420 to 425/2016 that designated the Distributors of Eletrobras (Amazonas, Boa Vista, Ceal, Cepisa,

Ceron and Eletroacre) as responsible for the provision of the public service of distribution of electric energy until the supposition of a new concessionaire or up to December 31^st, 2017, whichever occurs first, deserve to be amended to extend such service provision deadline for a period that suffices to the conclusion of the privatization process.

As it shall be shown below, in Item 5 – Relevant Aspects of Valuation, in the course of the due diligence and financial evaluation of Eletrobras’ distributors, relevant issues were identified affecting significantly the value of the shareholder of the companies.

Initially, it was assessed that these organizations have amounts of debts of high values. These debts were accumulated by Eletrobras’ distributors over the years, both with the Holding Company (with loans of various types) and with suppliers. Such debts, in turn, often continue to be rolled over or have increasing cost in relation to the non-payment of the principal or even of interests.

It was also identified that the distributors of Eletrobras have contingencies – additional to those provided on the balance sheets – of significant value. These contingencies, from judicial and administrative proceedings and tax aspects, fiscal and labor not yet materialized, among others, also contribute to the reduction of the value of the equity of the companies.

Additionally, it has found in financial and operational evaluation that these companies demand high values of investments in the early years of the new grant. These investments are required, both to facilitate the improvement of financial performance expected and to meet regulatory metrics of service level.

Thus, even in a valuation in which there is the expectation of bold operational and financial performance optimization of the six distributors of Eletrobras in the privatization process, the factors listed overlapped to improvements, resulting often in a negative value to the shareholder.

It should be emphasized that the financial evaluation has already considered the new draft of the grant contract, resulted from contributions in the Public Hearing No. 094/2016 and the Technical Note No. 182/2017 of ANEEL. The regulatory body also reviewed and identified that these grants are unbalanced, granting regulatory parameter relaxation (Technical Notes No. 351/2017 and No. 149/2017, this last part of the Public Hearing No. 032/2017) to bring the grants back in balance, which will result in increased tariff revenues and reduction of loan value of RGR. Consequently, the financial evaluation conducted by the Consortium considered the relaxation made by ANEEL.

It is also highlighted that, in accordance with the Decree Draft that regulates the grant bid of distribution associated with the transfer of control of legal entity service provider of electric energy, dealt with by Law No. 12.783, of January 11^th, 2013, the distributors of Eletrobras to be privatized that are in areas of grant benefited by the relaxation of regulatory parameters, deriving from the Technical Note No. 351/2017 must have specific treatment. If the value to the shareholders of these companies is positive in light of regulatory flexibilizations granted, the relaxed parameters must be readjusted so that the value to the shareholders of these companies is equal to zero. Thus, the possibility that the consumers of the areas of the grant in question are burdened with additional exceptional tariffs to those necessary for the companies holders of the grant operate under financial balance is eliminated.


	Product 11 – Privatization Modeling Proposal


To this end, it is proposed that a transfer of the receivables concerning CCC equivalent to
value in dispute be made – and burdens in equal amount. This transfer would occur through the
assign of current rights relating to CCC credits and financial obligations (for example, payables
to CCC, other debts etc.) equivalent from the subsidiary to the holding company.

As a result, in the case of an unfavorable decision, Eletrobras would be charged with the
burden of loss, which would occur if the issue were priced on the sale model for the process of
privatization of the distributor. In the case of a favorable decision, Eletrobras would reverse this
potential loss, receiving the CCC credits and bearing obligations of equivalent value.

It stands out, also, that the transfer of credits and obligations related to the CCC must have
the consent of the regulators and come accompanied by considerations of external auditors of
the company, following the approval of the level of governance in charge.

Thus, with the absorption of these credits by Eletrobras, the impact on the values in question
is considered neutral, without interference in the shareholder value of the company or to the
privatization process.

In the case of Eletrobras cannot absorb the credits as per the recommended proposal – or
that of any financial, technical or legal limitation occurs - that impedes the transfer of
obligations in an amount equivalent to the credits, it is suggested that the holding company
considers the possibility to capitalize the distributor. Such capitalization may occur at the
discretion of Eletrobras, according to the best alternatives for the state-owned company.


3.1.3	Negotiation operationalization

In order to facilitate negotiations, Eletrobras should, among other things that may be
needed:
i)	Define the value and availability of CCC rights and obligations in an amount equivalent
	to the subsidiary transfer to the holding
ii)	Analyze financial and accounting specific effects, among other aspects relevant to the
	company
iii)	Analyze corporate and legal specific requirements to follow, as well as realize them in
	case one proceeds with the recommendation
iv)	Seek the consent of regulators for the operation


3.2	Minorities

Considering that at Eletroacre, there are minority stakeholders, the rights provided in the
applicable legislation shall be complied with. Particularly, the minority stakeholders´ legal
rights shall be complied with along the entire privatization process as provided in Laws
6.404/76 and 10.303/01. In this case, the minorities have the right to preference for
underwriting of shares in case of capital increase, at the proportion of the shares they own.

The possible privatization in the terms suggested in the present report stipulates obligatory

Extraordinary· Issuance General of Assembly new shares Meeting with (EGA) possible with increase the purpose of capital to deliberate stock and validate on:
	· Transfer of shares with the purpose to transfer share control

	15

Finally, based on the conducted market sounding, we identified whether there are investors potentially interested in acquiring the company.

As Eletroacre met the requirements of these four perspectives, it was concluded that it would be possible to sell the company in an auction associated with granting the concession.

It should be taken into consideration that the companies’ valuation already considers, among the flow perspectives, the consequences of the Technical Notes 351/2017 and 149/2017 of ANEEL, the latter being the result of the Open Court 032/2017, providing for loosening of regulatory metrics for financially unbalanced concessions, including Eletroacre.

Such ANEEL Technical Notes loosened for the company the regulatory values of the PMSO, Non-Technical Loss and RGR metrics of the designation period. As a result, there is increased financial setoff through tariff to the distributors and the resulting decreased volume of RGR loan, increasing the revenues thereof and, accordingly, its cash flow.

Such parameters shall be loosened from the tariff process dated 2017, initiated on November 30 of this year, up to the first regular review of the new utility to be contracted by means of a bid, estimated to be held in 2023.

Such parameters shall be used as auction variables, with their methodology and values being explained in Item 12.6 - Auction Value base for ‘Combined Discount Index in the Regulatory Flexibility and Grant’.

The indebtedness levels of Eletrobras distributors are quite high, and the debts may be divided into three major groups: Debts with Eletrobras; Debts with Specific Third Parties and Debts with Other Third Parties. Debts with Eletrobras in turn may be rated according to their origin: Ordinary Resources, RGR, Banco Mundial and Eletrobras related parties.

a) Debts with Eletrobras: refer to funds with the Holding or through it by means of onlending. Since Eletrobras itself holds the credit rights, the debts may be used by the company as means to optimize the capital structure of its distributors.

o World Bank: Eletrobras holds funds obtained with World Bank for the purpose of investing in improved infrastructures, project named by the companies as “Projeto Energia+” [Project Energy+]. Such funds are then lent to distributors as loans and financing.

o RGR (Global Reversal Reserve): Refers to amounts raised by Eletrobras for the distributor with the Global Reversal Reserve (RGR). Thus, the sums are due by the distributor to Eletrobras, associated with funds raised from the RGR. The amounts found in the balance sheet, as of the base date of this report (12/31/2016) are mostly from loans obtained prior to the designation period.


						Product 11 – Privatization Modeling Proposal


		§	RGR pre-PPST (temporary service provision period): Amount
			of debt arising out of the pre-PPST period, when the funds were aimed
			at financing investments of the distributors.

		§	RGR PPST (temporary service provision period): Debt amount
			arising out of the PPST period, initiated in November 2016. Within the
			scope of the concession agreement termination and beginning of such
			period, the RGR onlending changed their purpose to maintaining the
			companies’	activities	ensuring	the	so-called	“Appropriate
			Remuneration”, as defined in the Technical Note 331 dated September
			13, 2016. By the end of this Item, the estimated sums of the debts with
			RGR are provided until the end of February 2018 (date estimated for
			entry of the potential investors in the operations), considering the fund-
			raising operations in the service provision period.

	o	Ordinary Resources: Own fund onlending by Eletrobras to the distributors,
		through loans, usually with low financing cost and for the purpose of covering
		operating deficits. Therefore, this debt is directly due from the distributor to
		the Holding, without involving Third Parties.

	o	Advance Payment for Future Capital Increase (AFAC): Refers to funds
		contributed by Eletrobras at the distributors for future capital increases.
		Usually, AFACs are paid-up as capital within up to one year of their
		composition, but that is not a requirement, and they may be kept in the balance
		sheet as distributor debt. Currently, only Eletrobras is responsible for
		contributing AFAC sums in the distributors.

	o	Related Parties: Refer to debts contracted with other Eletrobras distributors
		or companies, except the Holding. Among the major related parties with
		effective credits we may mention, for instance, Eletronorte, Furnas and Chesf.
		Like in the case of the debts contracted directly with Eletrobras Holding, the
		company has preference over the funds, and may use the same alternatives as
		mentioned in the prior item. However, in this group of debts, there are legal
		and corporate aspects required to be noted vis-à-vis any measure. It should be
		stressed that variables such as the cash flows, the amount and the own capital
		structure of the creditor companies may be affected due to an attempted use of
		such credits.

b)	Debts with Specific Third Parties: Debts of such nature are mostly overdue
	payment liabilities concerning fuel supply agreements (therefore, rated as debt by the
	Accounting-Equity Due Diligence), due by some of the distributors which are parties
	to this privatization process. Among the major creditors, we have Petrobras and Cigás.

c)	Debts with Other Third Parties: refers to debts contracted with other parties than
	Eletrobras, its distributors, Petrobras or Cigás. The remaining creditors of the
	distributors and debt instruments are considered in this group, among which there
	are domestic public banks, such as Caixa Econômica Federal, private financial
	institutions and other funding agents. The procedures of the Accounting-Equity Due
	Diligence also included to the balances of Debts with Third Parties the amounts
	concerning overdue payments with suppliers, including, for example, overdue
	liabilities with CCC (Fuel Consumption Account).


								21

Among the contingencies for classification as “Probable”, in Litigation, there are about R$

125 million related to taxation suits. In Taxation, R$ 53 million are related to outsourcing of target activity. Among those for classification as “Possible”, Taxation is at approximately R$ 197 million associated with risks related to PIS [Social Integration Program] and COFINS [Contribution for Social Security Financing] falling upon reimbursement of CCC and R$ 80 million in non-technical loss of power.

In addition to the provided contingencies, there are also contingencies concerning environmental adaptations in the amount of R$ 8,416,848.84 required for distributor. Such values, however, were previously deducted from the equity value in the company’s valuation.

It should be stressed that the base date of the contingencies is 12/31/2016 and that such sums are in addition to those provisioned in the Eletroacre’s balance sheet dated December 2016. The full details of the contingencies are in the audit reports.

Dealing with such distributor contingencies is relevant to enable eventual adjustments to the company’s price between the selling and purchasing parties. However, after developing several legal and financial analyses on contingencies, it was concluded that Eletrobras would avoid keeping future liabilities – after privatization – with the purchaser related to contingencies, in addition to eventual legal provisions allowing for the purchaser to question or file actions in the future to Eletrobras.

Thus, the adjustment definition shall occur prior to entering into the share purchase and sale agreement. Therefore, we recommend the distributor privatization to consider prior corporate adjustments between the parties as part of distributor’s sale price definition. As a result, new value adjustments or corrections concerning these items shall not be conducted after the privatization.

Contingencies whose assessments are Probable Loss, due to the high chance they have to lose the sums involved in the respective proceedings, should be deducted from the shareholder’s value prior to transferring the shareholding control. Likewise, contingencies rated as ‘Possible’ and ‘Remote’ Loss should not have their value deducted from the company’s sale price.

· ‘Probable’ Contingencies: their amount shall be discounted from the equity price due to decreased chance of success in the proceeding and resulting probable loss of the value involved in the claim;· ‘Possible’ and ‘Remote’ Contingencies: their amount shall be not discounted from the equity price considering the chance of success in the proceeding and reduced probable loss of the value involved in the claim.

It should be stressed that several possibilities were analyzed to deal with contingencies, but all of them were proven to be financially unfeasible, with great operating complexity or with legal hindrances and risks.

In addition, Eletrobras was identified, due to its State nature and current financial condition, to have legal and financial limitations to offer warranties to the investors in relation to such contingencies.

purchasing company, being questionable to advance its pricing in the minimum amount· Companies can be privatized at different times – e.g., such as Amazonas, which would not match the different nature groupings· Ungrouped concessions can increase competitiveness between the bidders, increasing competition and resulting into higher final price, but differently from pre-estimated synergies, avoiding the risk of empty offers for a grouping

It should be stressed that grouping can be used for pragmatic aspects, deriving from objective assessment aspects (e.g., grouping to minimize the required capitalization) and the own interest of investors (mitigating risks that a less attractive concession is not successful in the privatization).

In summary, a wide assessment, allied to the discussed context, does not construe as consistent the synergy incorporation to the minimum price and, accordingly, inexistence of returns to the proposed model.

Such recommendation occurs vis-a-vis the instruction that no concession groupings should be conducted since it is construed that an open model shall tend to increase the competition between the shareholders. Thus, there would be not only an increased number of offers –avoiding the chance for auctions without bidders – but also increased prices offered. Such prices, in turn, would be more appropriate to the level of synergy the investors shall have when inserting such companies into their management model.


		Product 11 – Privatization Modeling Proposal


7	.	Adjustments on the Privatization model
7.1		Context
The privatization model is made from the results of the due diligence reports and economic-
financial assessments. However, for the final proposal of capital and corporate structuring of the
distributor, it is necessary that additional adjustments are conducted.
The adjustments are carried out for the privatization model to meet the required legal
instructions and comprise the latest information available concerning the economic-financial
condition of the distributor.
Adjustments made follow the stages provided below:
		ADJUSTMENTS FOR PRIVATIZATION MODELING
		= Mean of Services A and B
		(+/-) Consolidated adjustments
		Balance Sheet Adjustments
		(+/-) Asset and Liability Adjustments
		(+) RGR PPST Reincorporation
		(-) Reclassification of AFACs as Debt
		(-) Tax Adjustments (Tax Loss and Negative Base)
		= Adjusted Equity Value
		(-) Reduction adjustment of tariff relaxation
		= Final Equity Value

The following topics describe the adjustments made. Their amounts are detailed in Section II
- Privatization proposal.
7.2		Base amount of valuation – Average between valuations of Services A & B
Under Decree 2.594/98, providing for the National Privatization Program, Eletroacre sale
model shall consider the financial assessments conducted by Services A and B contracted by the
State-owned bank, conducted with the base date of December 2016.
Within such context, based on the equity values drafted by Service A reported through the
Letter AD/DEADE3 No. 14/2017, it is proposed that the equity value considered as basis for the
financial and corporate model of Eletroacre shall be the simple average of the equity values
defined by Service A and Service B. The formula is below:
		30


		Product 11 – Privatization Modeling Proposal



Equity value average = (Equity value Service A + Equity value Service B) / 2

As a result, an assessment basis is obtained with reduced chance of distortions since it
considers the analysis of two different assessing companies. It is construed that both assessing
companies are fully qualified to analyze the companies’ value and that the natural amount
differences are due to the inherent subjectivity of interpretations and assumptions of each of
them. Thus, any amount adopted among those provided by such companies would be
acceptable.

We should also consider that, by using the theoretical concepts and technical tools usually
accepted by the experts and the market, definition of assumptions and parameters of a financial
assessment has the subjectivity of its developers, which is inherent to valuation of a company.
Thus, the Enterprise Value of a company, representing its projected cash flows, carried at
present value by a discount rate, are subject to specific interpretations of their appraisers.

Therefore, it is construed that one-sided selection of only one of the amounts provided by
both appraisers could give room to greater assessment distortions vis-à-vis the market value
considered by potential investors of such companies. For example, if choosing the lowest
between both values, the investor could be benefited. In turn, if choosing the largest between
both values, there could be a risk that it would be distant from the market assessment, reducing
the auction attractiveness. Finally, choosing an arbitrary amount – other than the average –
between both values assessed would not be logical.

In the case of Eletroacre, the Enterprise Value estimated by the Services A and B are in close
inter-values, lower than 20% in difference between them, benefiting the average use.

	ENTERPRISE VALUES OF ELETROACRE - MEAN OF SERVICES A AND B

	Service A	R$	921,169,419.22
	Service B	R$	944,913,418.27
	Mean of Services A and B	R$	933,041,418.74
	Percentage variation¹		3	%

	1) Variation calculated as the module of lower value divided by the higher value


As a result, using the average of the amounts assessed by Services A and B is the most
effective alternative to define the privatization price of Eletroacre.

7.3	Relevant adjustments for privatization of Eletroacre

7.3.1	Adjustment to comprise updated balance sheet until June 2017

As means to minimize eventual financial discrepancies between the valuation base date and
the latest balance sheet available for Eletroacre (updated until June 2017 and not audited by the
Consortium), updates are being made as to the balance sheet accounts related to indebtedness
and working capital, in addition to specific accounting adjustments.

Accounts with their amounts updated are listed below:


			31

For positive variation, the shareholder’s value is reduced, and, for negative variation, such amount is increased.

The adjustments excluded the accounts of ‘Liabilities’ concerning variations in the provisions for contingencies, litigations and civil, tax and labor claims. The reason is the probable overlapping between the new provisions made in the statements (after the valuation base date of December 2016) and the amounts of contingencies made by the Consortium. The amounts made are related to the same topics, in addition to the amounts of provisions of the financial statements and discounted from the shareholder’s value. Thus, the adjustment related to provisions for contingencies is avoided to occur in duplicate, leading Eletrobras to make increased contributions than those actually required.

Detailed amounts and the adjustment balances are provided in Item 10.2.2 - Balance update adjustment refer to the consolidated balance between the amounts of December 2016 and June 2017, which may be positive or negative. Balances of fiscal benefit and negative CSLL [Social Contribution on Net Income] basis were also updated to June 2017.

The resulting amount is used as basis for the adjustment in loosened regulatory parameters. The adjustments were solely applied in the equity value, not being extended to any other income.

7.3.2 Adjustment related to Advance Payments for Future Capital Increases (AFACs)

Furthermore, if the distributor has AFACs, another adjustment is made, with the amounts concerning AFACs being considered as debt. Until the updating of the balance sheet dated June 2017 – last updated until this report was concluded – no existing AFAC was used to increase the capital.

Thus, we suggest no new capital increase by using the AFACs of distributors by Eletrobras. As an alternative, its amounts shall now be construed as debts in the balance sheet (and may be used as an additional alternative for the capitalization to be conducted by Eletrobras outlined in

Taking into account that, once approved, the CPPI Resolution with definitions of financial and corporate adjustments to be made in the distributor under privatization, it is not advisable that new corporate amendments are made. It means that, if paying-up of the AFACs is after the CPPI publication, there is great chance that the numbers established in such CPPI Resolution will not comply with the distributor’s capital stock after capital increase by using the AFACs.

Thus, conflicts will be avoided concerning the number of shares to be subscribed, as well as their underwriting amount, in addition to eventual legal conflicts or non-compliances.

We should also consider that there are no relevant financial benefits in paying up the AFACs instead of considering them as debt. The effect upon the equity is neutral, since the new indebtedness amount shall be part of the adjustments of the model. Eventual savings of the distributor with debt taxation costs (e.g., IOF) shall be offset with benefits of the reduced basis for collection of the distributor’s income tax and with adjustments for inflation of the AFACs


	Product 11 – Privatization Modeling Proposal


It is also stressed that the eventual paying-up of AFACs requires several levels of approvals,
including internally at distributor and Eletrobras, as well as externally from the respective
governmental agencies (e.g., MME, GCEST and PGFN).

Finally, we note that, until the latest information available for this report, the distributors’
AFACs funds solely derive from Eletrobras. Detailed adjustments and amounts related to the
AFACs are found in Section II - Privatization proposal.

7.3.2.1 AFACs at Eletroacre

It is hereby pointed out that for Eletroacre, the process for paying off the AFACs is
differentiated because of the existence of minority stakeholders in the distributor. As pay-off
results in capital stock increase with consequent share underwriting, the minority stakeholders
could be diluted. Thus, it is necessary pay-off to be discussed at EGA, in order to comply with
their legal rights.

7.3.3	Tax adjustments –Tax Losses and Negative Base

In the first semester of 2017, the distributors used part of the Tax Losses (Individual
Taxpayer Income Tax – IRPF) and Negative Base (Social Contribution on Net Income – CSLL)
to liquidate tax debts. Since the economic-financial analysis of the distributors considers the use
of these benefits positively in their cash flow, once used, such benefits must be excluded from
the evaluation.

Thus, for the financial modeling, the balances of Tax Loss and Negative Base used between
January and June 2017 have been deducted from the tax balances existing in December 2016,
base date used in the economic-financial analysis.

7.3.4	Adjustment of the relaxation of regulatory parameters

The adjustment in the relaxation of regulatory parameters aims at complying with ANEEL
Technical Note no. 149, dated September 8, 2017, in order to reach the economic equilibrium of
the concessions of designated distributors, defined under the terms of Normative Resolution no.
748/2016.

Thus, the Draft of the Decree that will govern the bidding of distribution associated with the
transfer of control of legal entity providing the electric power service, as per Law 12.783/2013,
establishes that, in case the value to the shareholder of Eletroacre resulting from the valuation is
positive (which also considers the adjustment of the balance update) based on the relaxation of
regulatory parameters, the value of relaxed parameters must be registered so that the value to
the shareholder is zero. That is, in case Eletroacre had negative value to the shareholder before
the relaxation of regulatory parameters, and such relaxation results in positive value to the
shareholder, the value of the relaxed parameters must be reduced to the amount necessary for
the value to shareholder to be equal zero.

The relaxed regulatory parameters of Eletroacre are listed below:

	RELAXED PARAMETERS

	- Non-Technical Losses
	- PMSO
	- RGR PPST

	34

The adjustment of the relaxed regulatory parameters is applied to values of equity value (average of services A and B), corrected with the other adjustments specified (balance update, RGR PPST, AFAC, Tax Loss and Negative Base).

In order to zero the value to shareholder, the relaxed values of the relaxed parameters shall be adjusted. The reason is that they have a direct effect to the first years of the concession and raise the rate to the consumer in a period in which other exceptional rate adjustments are in force.

As detailed in Section II - Privatization proposal, the relaxed values will be used as variables of the privatization auction, after the eventual adjustment of these parameters to zero the value to shareholder. In addition, the RGR PPST will also be used as an auction variable.

It is also worthwhile noting that in case the value to shareholder of the distributor is negative after the regulatory flexibilization, it will not be necessary to adjust the value of relaxed parameters. In this scenario, the relaxed value shall be fully valid as a base for the bids of investors in the auction.

Product 11 – Privatization Modeling Proposal

This stage, as well as its premises and parameters, is detailed in Item 8.2 - Minimum

adjustment of the capital structure – “Stage 1”.

Investor capitalization – “Stage 2”

“Stage 2” is a stage after “Stage 1”, and optional to Eletrobras.

It is important to stress that the capital structure of privatized companies needs to be

balanced after the sale. This equilibrium is important to assure that the company will have

financial health to honor its obligations – such as investments forecasted for the period of

concession – and overcome eventual adverse conditions.

This, the modeling determined that the investor stakeed in acquiring the company, in

addition to buying the shares held by Eletrobras at the company of symbolic value, will also

invest funds and resources to balance the capital structure of the company.

This stage, as well as its premises and parameters, is detailed in Item 8.3 - Investor

capitalization – “Stage 2”.

Eletrobras corporate stake option

In order to allow Eletrobras to have economic and financial benefits in the future with the

privatization of its distributors, the modeling foresaw the possibility for the state-owned

company to remain as a shareholder of the companies sold, holding only a minimum percentage

of corporate stake right after the disposal, being able to increase its corporate stake by up to

30% of the total shares of the distributors within up to six (6) months after the auction.

For such, Eletrobras is entitled to increase its corporate stake up to the limit of 30% of the

shares of the capital stock of Eletroacre, case in which the investor shall assign its right to

subscribe such new shares to Eletrobras, so that it may formalize such increase. Considering the

financial conditions of the company and the credit amounts of the debt held by Eletrobras with

its distributors, Eletrobras may also pay such new shares by exchanging such debts into

investment. These rules will be defined in the Shareholders Agreement to be signed by

Eletrobras and the investor, and such agreement will be an attachment to the Purchase and Sale

Agreement of the distributor.

Finally, it should be stressed that this alternative is not effectively part of the privatization,

but an alternative available to Eletrobras, to be evaluated by it. Therefore, the intent is to

include in the purchase and sale agreement of the distributor that Eletrobras may manifest its

stake in increasing its corporate stake in the distributors after the privatization, within up to six

(6) months from the date of the auction.

In order to be eligible to increase its corporate stake in this stage, Eletrobras must hold one

(1) share at the end of “Stage 1”. In case Eletrobras chooses not to increase its stake, such

remaining share shall be sold to the investor within six (6) months from the date of the auction.

This stage, as well as its premises and parameters, is detailed in Item 8.4 - Eletrobras

corporate stake option.

quantity of active and retired employees eligible to purchase shares; 3) a margin of safety for the number of eligible employees, active and retired; 4) the number of shares of the company; 5) the minimum values to each lot of shares of the company.

The capitalization value also considered the reality of six distributors in privatization procedure by Eletrobras, part of the same initiative. An uniform value was defined to all, considering the similarity of the financial situation in which they are found, as well as the proposed auction model, in which its sales operations interconnect. The definition of a homogeneous sales value of the companies, considering their financial situation, allows for a clearer and greater understanding of the privatization procedure of these companies to investors and to society.

Details on the number of shares and values, among other aspects, are listed in Section II -Privatization proposal and in the Public Notice to the privatization procedure of Eletroacre.

It is recommended that the choice on the alternatives to perform the adjustments to the capital structure of Eletroacre should fall exclusively onto Eletrobras. The choice shall be made according to the most attractive options and to the reality of financial availability and credit of the company at the time of the operation.

Recommendation made, it has been noted that Eletrobras could use three main alternatives to make the capitalization, all resulting in subscribing shares of the distributor: (i) conversion of debt credits by distributor to Eletrobras; (ii) assumption of debts of the distributor with third parties; and/or (iii) cash contribution to the distributor’s capital structure.

· Conversion of debt credit of distributor: requires that Eletrobras should waive the right to amortization and interest of the debt credits, which, in part, would be of doubtful liquidation without the privatization. However, no demand is made in terms of cash disbursements by the company;· Assumption of debts of distributor with third parties: requires disbursement of cash for the payment of debts with third parties, according to the negotiation occurred;· Funding of financial resources to the distributor: requires disbursement of capital to allow the contribution to capital.

In order to define the best alternative of capitalization to Eletrobras, a specific analysis shall be carried out by the Holding.

Even after the adjustment to the capital structure by Eletrobras to a symbolic value, the recommendation, for the purposes of conclusion of the privatization procedure of Eletroacre, is to conduct a new capitalization of the company, however this time by the investor, against the underwriting of new shares. This capitalization has the attributions of:

a) Avoiding the participation of investors effectively committed with the success of the company or without the due financial conditions to make the investments necessary for the organization;

b) Optimizing the capital structure of the company. After the “Stage 1”, against a symbolic equity value, the capital structure of Eletroacre shall consist of approximately 100% of debt. Thus, the company is not duly capitalized to make the investments and other demands of cash;

c) Demonstrating to society and stakeholders that the privatization of Eletroacre has attracted an investor committed to contributing with resources sufficient to cover the investments in the first five years of the concession, fundamental to lever efficiency and the level of service of the company.

For the definition of the capitalization value, two factors were taken into consideration: 1) capital structure of the companies after adjustment in “Stage 1”; and 2) reference leverage for the electric power distributors in Brazil, considering that Eletrobras will remain as minority partner of the companies.

In the first factor, it was considered that the capital structure, which will serve as a base to be adjusted by the investor, is the one after the privatization operation. That is, any debt conversions by Eletrobras to achieve the amount defined for the transfer of the distributor´s shares held by Eletrobras to the investor and consequent privatization of Eletroacre, have already been considered. At this stage, the company´s leverage is close to the theoretical limit, as there is no significant equity value.

In the second factor, a reference capital structure for the companies from the sector was used, 54% financial leverage. The leverage is calculated as a module of the amount of the net debt divided by the sum of the module of the net debt amount with the company´s equity value, as expressed herein: (|Net Debt| / [|Net Debt | + Equity Value]).

The value of 54% defined for the leverage target after the investor´s capitalization was calculated according to the methodology used by Consórcio Mais Energia B. It considered the current weighted average capital cost (“WACC”) of the companies compared to the most leveraged from the sector. In the calculation of the amount required from the investor, it was also considered that Eletrobras will use the option to achieve the maximum value of corporate share (30%) in Eletroacre by means of debt conversion after privatization.

In case Eletrobras does not use its option partially or totally, there are no damages to the operation or to the investor. The main reflection is that Eletroacre will have more leveraged capital structure than the suggested level (54%). However, due to the capitalization done by the investor, the distributor will be more prepared to undertake the relevant investments forecasted for the first years after the privatization. Likewise, the reasons to require the capitalization from the investor remain fulfilled.

It should be noted that, in addition to the capitalization forecasted for the investor, optimizations of the capital structure tend to be made progressively by the future investor. Thus, new contributions of resources may be demanded so that the financial equilibrium of Eletroacre is continuously achieved or even to face cash demands. Accordingly, in case Eletrobras decides to remain as a shareholder of the distributor and does not accompany the investor in eventual future increases of capital of the distributor, it shall be diluted. The same principle applies to eventual minority stakeholders (including Active and Retired Employees which adhere to the distributor’s Share Offer).

The capitalization values of the investor are listed in Section II - Privatization proposal.

The privatization modeling considers the possibility of Eletrobras continuing as a minority stakeholder of Eletroacre after the disposal of the shareholding control of such distributor. When holding a shareholding interest, even if assuming the risks as a shareholder of the company, Eletrobras may recover part of the investments made with the receipt of dividends or future increase of value and subsequent sale of its shareholding interest.

In such case, Eletrobras shall have the right to increase its shareholding interest at Eletroacre after the privatization of the company, having as an alternative not only the contribution to capital, but also the additional conversion of debts into shares. Thus, the state-owned company will not necessarily need to contribute to the capital of Eletroacre in case it is willing to exercise the respective option, using the credits of remaining debt eventually held against the privatized company.

The structuring of this alternative to Eletrobras occurs to provide it with an option to generate additional value from the privatization. For such, a financial valuation shall be carried out by Eletrobras, considering, among other aspects, the TIR and VPL of both scenarios.

The corporate interest of Eletrobras should be limited to 30% of the shares of the company. The threshold of 30% was established based on benchmarks and good market practices, in which minority stakeholders have limited participation in the governance and/or management of the company.

The established percentage, in addition to allowing Eletrobras to hold relevant economic interest in the company, will not be equivalent to that of future investor, which will provide the investor with autonomy to act.

The capitalization to be performed by Eletrobras shall also follow the same profile of share categories currently existing at Eletroacre. Thus, eventual risks of legal inquiries related to specific corporate adjustments to the privatization procedure may be mitigated.

However, the shareholders agreement set forth in Item 8.4.3 –Participation of Eletrobras in the governance of the company shall be observed. Therefore, the degree of attractiveness of Eletroacre privatization to investors, main resource holders and risk takers, should be kept when assuring autonomy in the management of the company.

Such evaluation was also carried out based on market analyses, which included interviews with market experts and potential investors. In general, investors tend to accept the participation of Eletrobras in the company, however without substantial participation in the management of the company.


	Product 11 – Privatization Modeling Proposal


As mentioned, the capitalization to be made by Eletrobras may also be made using debt
credits held by the state-owned company with Eletroacre. The financial conditions of the
capitalization, i.e., the market value per share, shall be the same of Stage 2 and of the auction.

8.5	Classes of shares

During the procedures of increase of capital of the distributor, the assumed premise is that
the distributor will observe the legal rules applicable to the matter.

In case the new controller is interested in rearranging the corporate structure of the
company, it may issue new classes of shares or create groups. This should occur provided that
the legal rights of minority stakeholders are observed, as well as the contractual obligations
resulting from the privatization procedure.




	43

According to the applicable legislation, the active and retired employees of the companies directly or indirectly controlled by the Government, included in the National Privatization

Program (“PND”), herein the Investment Partnership Program (“PPI”), are assured the offer of at least ten percent (10%) of the shares representative of its capital.

The offer to active and retired employees is made in parallel with the privatization auction, and its implementation is conditioned to its success, i.e., against the effective transfer of shareholding control.

To take part of the offer, active and retired employees must be qualified according to the criteria established in Item 9.2 – Definition of active and retired employees. After such qualification, active and retired employees shall indicate the number of lots of shares they are willing to reserve, without any purchase obligation.

Each qualified active and retired employee may receive the same number of shares, regardless of title, either at the present or upon retirement.

To negotiate the shares, the active and retired employees must be qualified and must hire a custodian agent, authorized institution accredited with B3, new denomination of BM&FBOVESPA.

For the purposes of the Offer to Active and Retired Employees, active or retired employees of the distributor shall be considered as the following:

1) Employees with labor links with the distributor on the date of publication of the Public Notice in the Federal Official Gazette;

2) Retired employees who meet any of the following requirements: a) Hold labor link with the distributor on the date of request of their retirements; b) Have the last contribution to the social security made as an employee of the distributor; c) Have the last contribution to the social security covered by the distributor, as a result of voluntary dismissal plans; The details on the eligibility criteria of active and retired employees for their eligibility to the auction, including specifications of CNPJ [Corporate Taxpayer ID Number] of companies eventually related, shall be included in the Public Notice to the privatization of Eletroacre.

The table below presents the main conditions of the offer of shares to the active and retired employees, with explicative details in the following items.

After the stage of offer to the active and retired employees, shares that have not been sold shall be purchased by the winner of the auction, for the same price as previously offered, i.e., with the same discount offered, since the investor already is responsible for the costs of such discount.

A single offer of shares shall be made, extensive to all active and retired employees of each distributor, of 10% of the total amount of shares held by Eletrobras after the adjustment of the capital structure of “Stage 1”.

Based on the value of the shares for the disposal to the Investor, the value of shares for the Offer to Active and Retired Employees shall be calculated with the application of the discount of 10%, as indicated in Item 10.6 - Shares offering to active and retired employees. In order to allow the Offer, the shares will be grouped so that a lot of shares has value equivalent to R$ 0.01 (one centavo), minimum effective unit for money transactions.

After the qualification stage, the maximum limit of lots of shares that each active and retired employee may acquire will be defined (“Purchase Limit”), through the division of the number of lots offered by the number of qualified persons.

As presented in Item 8.3 - Investor capitalization – “Stage 2”, the investor shall increase its interest in the capital stock against the underwriting of new shares following the liquidation of the auction. At that time, the persons who have acquired shares through the Shares offering to active and retired employees already are considered shareholders of the company.

The value per share (or lot of shares) for the eventual follow-up of the capitalization by the active and retired employee shall be equal to the price per share for the investor underwriting.

The active and retired employees will be entitled to distribute the acquired shares in the following differentiated conditions:

a) Under the scope of the Offer to the active and retired employees b) In the underwriting of capital with the investor

In case the active and retired employees who acquired shares of the Distributor are interested in selling such shares to the new controller, they may make such sale after three years from the date of the liquidation of the auction. The repurchase of these shares shall be made at the price per share acquired, up to the total maximum value of R$ 100,000.00 (one hundred thousand Brazilian Reais) per Active or Retired Employee.

Moreover, for the repurchase, the value of the shares acquired by the active and retired employees shall be added 10%. Following that, such total must be adjusted by the SELIC of the period for the purposes of inflation adjustment of the values. These values are detailed in Section II - Privatization proposal.

The addition of 10% to the repurchase value is defined as a form of assuring differentiated conditions to the active and retired employees with a substantial value, since the sale of shares for the privatization of the distributor is made with symbolic value. It is a benefit for the participation in the capitalization of the company and also an stimulation for employees to contribute with the financial and operating success of the company.

The price per share (or lot) shall observe eventual adjustments resulting from grouping, split, bonus, and/or additional underwritings of shares or equivalent operations. Details of the values are also presented in Section II - Privatization proposal.

It is worthwhile noting that the active and retired employee are not prohibited from selling shares they acquired from Eletroacre to third parties. However, in case such sale occurs, the obligation and respective share repurchase conditions are cancelled. Exceptions apply to cases of heritage and eventual legal provisions.

The shares offered in the Shares offering to active and retired employees, eventually not acquired by active and retired employees, shall be purchased by the investor. The purchase shall occur at the differentiated value (already with the discount), since the investor will already be entitled to offset the discount to Eletrobras.


				Product 11 – Privatization Modeling Proposal


Section II - Privatization proposal

10. Summary of Eletroacre’s privatization proposal

This summary will present the recommendations of Consórcio Mais Energia B in relation to
the privatization of Eletroacre. The evaluations and recommendations are presented in an
objective manner, according to the instructions presented in Section I - Privatization Context.
They are intended to guide the actions to be taken by Eletrobras and entities responsible for the
privatization procedure of the company.

10.1	Eletroacre’s Corporate Structure

The corporate structure on the base date of 12/31/2016 is organized according to the table
below:


	CURRENT ELETROACRE’S CORPORATE STRUCTURE
	Total shares		108,271,416,523
	Capital stock	R$		475,788,771.36
	Nominal value of shares	R$		0.00439441
	Interest		Shares	(%)
	Eletrobras		104,706,713,291	96.71	%
	Minorities		3,564,703,232	3.29	%
	Classes of shares		Shares	(%)
	Ordinary		78,582,126,234	72.58	%
	Preferential		29,689,290,289	27.42	%


10.2	Eletroacre’s Sales Price Definition

10.2.1 Result of economic-financial evaluations

The economic value of the shares of the company was determined according to the base date
of 12/31/2016. Following on, the values were defined, considering the average of the prices for
Services A and B, demonstrated in the table below:

	ECONOMIC VALUE OF ELETROACRE - MEAN OF SERVICES A AND B

	Service A		R$	(159,107,674.07	)
	Service B		R$	(135,363,675.02	)
	Mean of Services A and B		R$	(147,235,674.55	)


The definition of the economic value of Eletroacre followed the definitions and instructions
of Decree no. 2.594/98, Article 30, Paragraph 3, taking into account several aspects relevant to a
valuation:

a) Improvement of the operational efficiency level of the company, equal to or even higher
	than the efficiency levels of the market; and

				48


		Product 11 – Privatization Modeling Proposal


b) Evaluations of relevant due diligence for asset valuation (Legal Due Diligence,
Accounting-Equity Due Diligence, Technical-Operational Due Diligence, Actuarial Due
Diligence, Human Resources Due Diligence, and Environmental Evaluation Report).

The detailing of the relevant information of these reports for the modeling are described in
Section I - Privatization Context.


10.2.2	Balance update adjustment

As mentioned in Item 7.3.1 – Adjustment to comprise updated balance sheet until June 2017,
the entries of the balance of Eletroacre were updated to reduce the difference of values between
the base date of the valuation (December 2016) and the last available publication of results
(June 2017).

The balances of the adjusted values are listed below, by entry, and consolidated in a table,
including the positive or negative effect they have to the adjustment value:

ASSETS (IN R$ 000) - ELETROACRE		Dec/16	Jun/17	Adjustment
Current
Cash and cash equivalents		16,006	18,437	2,431
Securities		-	-	-
Clients		85,139	85,456	317
Taxes to be recovered		7,643	8,252	609
Reimbursement rights		103,458	55,524	(47,934	)
Warehouse		2,226	2,313	87
Services in progress		9,332	10,473	1,141
Regulatory asset		104,265	60,641	(43,624	)
Sureties and judicial deposits		-	-	-
Financial asset		-	-	-
Assets destined to disposal		86	86	-
CDE repayment		28,002	48,851	20,849
Others		13,870	12,723	(1,147	)
Non-current
Clients		41,902	44,679	2,777
Taxes to be recovered		1,897	1,768	(129	)
Taxes to social contributions		-	-	-
Sureties and related deposits		7,377	10,552	3,175
Reimbursement rights		243,030	240,643	(2,387	)
Regulatory asset		-	-	-
Others		-	-	-
Investments		-	-	-
Total asset adjustment				(63,835	)




				49

As established in the regulation above, the regulatory aspects mentioned below have been made flexible for the area of concession of the distributor:

As a form of allowing the reduction of the power rate charged against the consumer, the relaxed parameters shall be used as auction variables. They will be reduced by the bids of investors participating in the auction up to the limit of the relaxations performed by the regulator.

Once the relaxed parameters have a limit, the regulation also established the possibility of offer of values of grant by investors, with their resources being destined to the Government. The grant offer is subsequent to the reduction of the relaxed parameters and has no capped value. Thus, there are no procedural limits for the bids placed by the participants of the auction.

To reduce the operating complexity of an auction with several parameters, the proposal is to establish a single variable for the investor offers. This variable is a reference Index, exclusive and of crescent value, the ‘Combined Discount Index in the Regulatory Flexibility and Grant’ –referred to as Index.

In order to meet the regulatory requirements, the Index value will begin with 0.00 (zero) percentage point (p.p.) and shall not have capped value, with up to two decimal points for bids. The Index will also have two combined intervals, the first representing how investors are willing to reduce the tax relaxed, and the second representing how much they are willing the offer as grant value.

o The offers in this interval will be related to the discount percentage in the relaxed regulatory parameters offered by the investor, with the percentage being applied linearly to all relaxed parameters in the area of concession of the distributor;

o The values will be used to define the final regulatory parameters of the area of concession of the distributor, according to the Draft of Electric Power Distribution Concession Agreement resulting from Public Hearing 94/2016 of ANEEL and Public Inquiry 037/2017 of the Ministry of Mines and Energy -MME.

o The bids in this interval consider only the values additionally to the initial one hundred (100.00) p.p. and refer to the value of offered grant, with the payment being made to the Government;

o The value offered by the investor shall be multiplied by a pre-determined reference money value to each one (1.00) percentage point of the Index after 100.01;

- Index equal to zero (0.00): The tariff is not reduced, nor the grant value. The agreement will be signed with the whole Regulatory Flexibility that served as the base of the auction;

- Index equal to one hundred (100.00): The investor completely waives to the relaxed, without offering grant value. The concession agreement shall be signed without adjustments resulting from the auction, to be applied over the relaxed factors (as per the Draft of Electric power Distribution Concession Agreement resulting from Public Hearings 94/2016 and 032/2017 of ANEEL);

- Index equal to one hundred and ten (110.00): The investor completely waives to the relaxed and offers as grant ten (10) times its reference value for each percentage point. The concession agreement will be signed without adjustments resulting from the auction, to be applied over the relaxed factors. The reference grant value of each percentage point (for instance, R$ 5 million) will be multiplies by 10, and the resulting grant value (in this case, R$ 50 million) will be destined to the Government.

The Index will be valid both to the first stage (in closed envelope) and in the second stage (live bidding). After opening the envelopes, in case of bidders classified to the 2^ndstage, the bids of investors for the highest Index value continue in live bidding until one of them is declared winner.

12.6 Auction Value base for ‘Combined Discount Index in the Regulatory Flexibility and Grant’

The values of the first interval of the Index (from 0.00 to 100.00 p.p.) refer to the Regulatory Flexibility, in which the offered discount is applied linearly over the values of the relaxed parameters by the regulator.

In this context, the values of the regulatory parameters used as variables of the auction should be fixed. Thus, investors will know the amount in which they bids will be placed and that will base the auction. This recommendation also aims at avoiding legal inquiries prior to or after the auction, which may compromise the privatization of the distributor.

For such, the PMSO value and the RGR PPST to be used as auction variables should be fixed. These values will depend on the future definition of ANEEL to be used in the auction and will be informed upon the publication of the invitation to privatization. The additional RGR values eventually not part of the auction will be fully offset via tariff. The Non-Technical Loss amounts have already been pre-defined according to ANEEL Technical Note 149/2017.

The table below shows the Consortium estimate for the base of values of the auction variables for the auction of the distributor:

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.


Statistical Techniques

During the project, statistical techniques were worked, such as the multi-varied analysis for demand
forecast and sensitivity analysis.



Financial Techniques

Please find below the techniques that are comprised by the methodology of the financial and econom-
ic analysis for the evaluation. You may see the description of the Free Cash Flow to Firm. Then, you
will find the analysis on the composition and formation of the capital cost that reflects the discount rate
compatible with the business risk.




Ceres Inteligência Financeira	33


Free Cash Flow to Firm – FCFF
The Free Cash Flow to Firm approach uses the weighted average capital cost (WACC) to discount at
present value the free cash flow to firm. Hence, all resources available for dividend distribution or rein-
vestment are taken into account, but amortization flows and third-party debt interests paid are not
considered, the yield on which is implied in estimated WACC rate. The firm flow is recommended for
the evaluation at issue because it foresees the likelihood of permanent leverage over the utility con-
tract period.




Ceres Inteligência Financeira	35


The Real Exchange Rate is calculated based on the difference between the Interbank Deposit (ID)
and the Forward Rate Contract (FRC) rates. It should be noted that this indicator is calculated in real
terms, discounting the forecasted inflation in Brazil (IPCA) and the forecasted inflation in the USA
(CPI).

The data of the rates and their respective maturities were interpolated using the Cubic Spline method-
ology to obtain the related risk curve.




Ceres Inteligência Financeira	40


Risk Analysis and Sensitivity Analysis

With the purpose of analyzing possible impacts on the valuation, we analyze the sensitivity of relevant
variables for the forecast model, with a view to checking the impact on the Net Present Value (VPL).
Herein, the sensitivity analysis was conducted in view of the impacts on the evaluation, from fluctua-
tions falling on the Yield Base and on the weighted average cost of capital.




Ceres Inteligência Financeira	43


Critical Points and Adaptations

This paper further analyzes critical points of the business and suggested adaptations that may add
value to the companies. We also studied some possibilities for this transaction that would minimize
risks and maximize the return for investors.




Ceres Inteligência Financeira	44


Synergies

Costs and investments synergies and optimizations were identified, so as to obtain post-privatization
potential business value benchmarks. We also appraised possible gains that could be reversed to the
seller, depending on the sale structure.




Ceres Inteligência Financeira	45


General Comments on the Report

This report contains the assumptions, analyses and forecasts carried out for the valuation of the distri-
bution companies for the privatization process. The analysis period is from 01-Mar-18 to 28-Feb-2048,
which period is used to calculate the evaluation results.

Illustratively, tables and charts are shown in annual values thru 31-Dec-47, seeing as the year 2048
covers only two months of evaluation, thus avoiding a distorted perception of the value over the series.




Ceres Inteligência Financeira	51


Specific Analyses of Distributor

History
The annexes contain tables that show the groups of the accounts related to the PMSO of each distrib-
utor. Similar accounts were initially grouped in terms of type of expense. After this exercise, the groups
were allocated inside the PMSO accounts. The names and codes of accounts are described according
to the original names and codes of the financial statements provided by the distributor. The values are
adjusted as per the December/2016 Base Date.




Ceres Inteligência Financeira	80


and included in entry Obligations Linked to the Electric Power Public Service (Special Obliga-
tions) ”.

In addition, regarding Document 2, the values of offsets accounted in special obligations and remu-
nerable investments by the distributor are distributed in 12 months starting from the comparative cal-
culation of the values as described in Paragraphs Two and Three.

Finally, from 03/01/2023 to the end of the concession, on 02/28/2048, all the offsetting will be included
as an expense in the PMSO account.




Ceres Inteligência Financeira	96


Other Revenues Forecasting
The revenues that have not been linked to the operational indicators will remain fixed and shall be
corrected by the IGP-M during the period. The initial base date of these revenues was defined by the
average of the entry in the past three years. Revenues related to operational indicators were projected
from the calculation of the average value in BRL per Consumption Units (“UC”) or Mega Watt hour
(MWh), and based on the curve of the indicators, the factor is corrected based on the IGP-M. The
definition of the factor was based on the average of the value of revenue in the past three years, over
the average of the past three years of the operational indicator values.




Ceres Inteligência Financeira	108


Notes: ANEEL’s 3CRTP Base; Armored Base 4CRTP, based on the SETAPE data of the Complete Evaluation
adjusted by means of disallowances applied to the Additional Incremental and Armored Bases, in separate, by
Ceres




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The revenue Growth Rate follows the demand projections, being positive, but with a slightly decreas-
ing variation until the end of the concession.




Ceres Inteligência Financeira	183


With the amounts of multiples for each year, the simple arithmetic average for each company was
calculated. From average values, the average between companies was calculated to obtain the
amount of each multiple.




Ceres Inteligência Financeira	201


With each year’s amounts of multiples, the simple arithmetic average for each company was calculat-
ed. From average values, the average between companies was calculated for each multiple. Amounts
found are reported below:




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PMSO Background

The tables below contain the grouping conducted of the ledger accounts related to each utility’s
PMSO. Firstly, similar accounts were grouped, in terms of type of expenditure. After such exercise,
groups were inserted into the PMSO accounts. Names and codes of the ledger accounts are de-
scribed according to those from the accounting statements provided by the utility. Amounts are adjust-
ed by the Base Date of December/2016.




Ceres Inteligência Financeira	220


power supply that serves urban loads, also serves the rural load, causing a high number of
interruptions. But in some other cities, the main characteristics of the low and medium voltage
systems are the long distances traveled. Some circuits of 13.8 kV travel distances between 80 km
and 100 km.
Another characteristic fact of MT and BT system is the existence of conductors operating
for a long time with high load that end up supplying energy of poor quality. This directly affects
the quality indicators (DEC and FEC) of the system and causes damages paid for by Eletroacre.




PwC \| Loeser e Portela Advogados \| Siglasul	Preparado para BNDES	24


Table 19 and Table 20.
PwC \| Loeser e Portela Advogados \| Siglasul	Preparado para BNDES	69


Based on the projected IPTSs, projected losses are established. Projected annual IPTSs and
consolidated technical losses for the company and regulatory losses are shown in item “Projected
% of Technical Losses” and “Projected % of Regulatory Allowance for Technical Energy Losses” of
Table 22.




PwC \| Loeser e Portela Advogados \| Siglasul	Preparado para BNDES	73


Figure 17 (abiding by the targets determined by Homologation Resolution no. 2.184/2016,
applicable to the dealers AME, Boa Vista and CEA). For years 2017 to 2023, the Regulatory PNT
of the latest review cycle (3CRTP) was considered. Such level is updated upon the 1^stRTP of the
new concessionaire (2023).




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income is close to the North region average and the GDP per capita is below the North Region average
and well below the national average.

d) Violence
Table 26 shows the number of deaths per aggression for every 100 thousand inhabitants
registered in the year 2014. As shown, Acre shows a death index equivalent to the national average and
lower than the regional averages.

Table 26 - Information on Violence

Region	Deaths by
	Aggression
ACRE	29.3
BRAZIL	29.4
NORTH	34.3
NORTHEAST	41.6
Source: 2014 Datasus/IBGE.




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		1.1	.	Remuneration structure	41
		Steps: The number of steps per band varies due to the wage spread defined - guided by internal and external
		market information - and compliance with the methodology governing requirements for accessing the complexity
		levels of each job position			41
		1.2	.	Rules of movement:	42
		1.3	.	Access requirements	43
2	.	Variable compensation			44
3	.	Benefits			45
4	.	Performance Management			48
		4.1	.	Performance matrix	50
5	.	Training and development			51
6	.	Organizational climate			53




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·	NR10 - Training course taken by employees who carry out activities related to the
·	NR35 electrical - Training system; course taken by employees who carry out activities at heights;
·	NR33 - Training course taken by employees who carry out activities in confined spaces.




PwC \| Loeser e Portela Advogados \| Siglasul		38


Due to budget constraints, the training courses offered by the Distribution companies are
more focused on operational aspects and compliance with compulsory training. For these
courses the Distribution companies sometimes use the agreement with System S institutions.




PwC \| Loeser e Portela Advogados \| Siglasul	52


General Favorability Index (%)
Boa Vista
Ceron
Eletroacre
Amazonas
Ceal
Cepisa
Eletrobas System Average




PwC \| Loeser e Portela Advogados \| Siglasul	54


TABLE OF CONTENTS
INTRODUCTION		4
EXECUTIVE REPORT		7
A.	REGULATORY ASPECTS	7
B.	CORPORATE ASPECTS	8
C.	FINANCIAL AGREEMENTS	10
D.	OPERATING AGREEMENTS AND OBLIGATIONS	10
E.	INTELLECTUAL PROPERTY	10
F.	INSURANCE	11
G.	LABOR ASPECTS	11
H.	CIVIL, COMMERCIAL, EQUITY AND CRIMINAL LITIGATION	12
I.	TAX LITIGATION	13
J.	REAL ESTATE ASPECTS	14

	*** * ***


*Summary*
1	.	Executive summary			4
2	.	Plan types			4
3	.	Plan statistics			4
4	.	Analysis of assumptions and recommendations			5
		4.1	.	Discount rate	5
		4.2	.	Wage growth projection	5
		4.3	.	Biometric tables	6
		4.4	.	Attrition	6
		4.5	.	Age of retirement	7
		4.6	.	Family composition	7
		4.7	.	Health care cost growth rate (HCCTR)	7
5	.	Independent calculation of actuarial results			7
6	.	Independent review of actuarial commitment			8
7	.	Conclusion			9


			Product 11 – Privatization Modeling Proposal

10.7	Investor capitalization – “Stage 2”		54
10.8	Eletroacre’s final corporate structure		55
10.9	Investors Obligations		55
10.9.1		Financial obligations	55
10.9.2		Obligations defined in the Purchase Agreement	56
11. Eletroacre’s privatization schedule			57
Section III - Auction Model Proposal			58
12. Model and Procedure of Auctions			58
12.1	Proposed model		58
12.2	Sequence		59
12.3	The right to participate		59
12.4	The right to withdraw bids		60
12.5	Bid procedures and values		60
12.6	Auction Value base for ‘Combined Discount Index in the Regulatory Flexibility and
	Grant’		62
12.7	Auction´s 2nd stage ranking criteria		64
12.8	Auction procedures		65




			5

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRÁS

By:	/S/ Armando Casado de Araujo
	Armando Casado de Araujo Chief Financial and Investor Relation Officer