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Annual Report

 

 

2016

 

 

 

 

 

 

 

Contents
Introduction	03
Corporate profile	16
Strategy and vision of the future	37
Operating performance	56
Economic and financial performance	75
Environmental performance	82
Social performance	99
GRI Content Index	115
Assurance Report	127
Credits	130

 

 

 

 

Introduction

 

 

 

 

 

 

 

The challenge is: innovation

Apparently simple ideas can bring great results. But how to promote continuous improvement in processes, providing reduction of losses and costs?

 

At the Internal Improvement Case Seminar, held at the Tucuruí plant, in Pará, employees of Eletrobras Eletronorte's Hydraulic Generation Superintendence register and present works in which they seek to improve their day-to-day processes in the company, using innovative solutions.

 

Creativity seems to be endless: counting 16 years of seminar, with dozens of works registered in each edition. The ideas are presented to managers, evaluators and colleagues, with extra care to the crowd, in a true celebration of the culture of innovation.

 

 

 

 

 

 

ABOUT THIS PUBLICATION

 

 

G4-24; G4-25; G4-26; G4-27; G4-28; G4-32; G4-33

 

 

In order to maintain the transparency of its operations, Eletrobras publishes its new Annual Report, in accordance with the guidelines of the Global Reporting Initiative (GRI, version G4), the Global Compact Principles, the Sustainable Development Goals (SDGs).

This report covers the guidelines, management and performance of economic, social and environmental aspects, between January 1 and December 31, 2016, of Eletrobras and its subsidiaries, except for Celg Distribuição (Celg-D), which is presented only in sector indicators, in the Operating Performance chapter.

Eletrobras has chosen to prepare this report “in accordance” with the GRI G4 guidelines Core option. KPMG Brasil provided external assurance in accordance with Rule NBC TO 3000 of the Brazilian Federal Accounting Council (CFC), and the International Standard on Assurance Engagements (ISAE 3000) of the International Auditing and Assurance Standards Board. Profile items (strategy, profile and governance), and sustainability performance indicators are externally assured.

Stakeholder engagement

 

Eletrobras maintains a continual dialogue with stakeholders, defined as persons or groups of people that somehow impact or are impacted by its activities.

 

 

Eletrobras’ Stakeholders

 

The process for the Eletrobras companies to identify and select stakeholders is aligned with the company’s business strategy and with the Eletrobras Companies’ Code of Ethics and Conduct. Likewise, all subsidiaries are committed to sustainable development, favoring the dialogue with and engagement of stakeholders, according to the Eletrobras Companies Stakeholder Engagement and Communication Policy. In order to maintain the transparency of its operations, Eletrobras has specific channels and actions in place for each stakeholder type.

In order to improve even more its stakeholder communication, in January 2017 the company introduced its IR Ombudsman, which is an important Investor Relations tool to strengthen corporate governance and improve internal processes. The channel is exclusive for consultation, suggestions, complaints, and compliments regarding the capital markets, and is available on Eletrobras’ IR website.  

The company also surveys its stakeholders to identify the most material aspects relative to its companies, using mechanisms that include a climate survey, Ombudsman channels, the institutional website, a direct survey with suppliers and investors, in addition to interactive channels like Twitter and Facebook.  The results are considered for strategic planning, so that the business conduct meets the expectations of stakeholders.

In 2016, Eletrobras analyzed the demands received through these communication channels, and made an online survey with stakeholders in order to consolidate the most relevant themes.

 

 

 

A new resource was added to Eletrobras’ communication with internal stakeholders in 2016: The “Leadership Minute” (Minuto de Liderança, in Portuguese), broadcast by TV Eletrobras, is a series of short videos for employees where the top management talks about themes that are strategic for the company’s future. The series was first aired on December 1, when the holding implemented its new organizational structure. In the first video, CEO Wilson Ferreira Junior spoke about the importance of that change for the company’s sustainability.

 

Materiality

G4-18; G4-19; G4-20; G4-21; G4-23

For the Annual Report 2016, Eletrobras conducted a new materiality process to map the key topics of interest for stakeholders. The work was based on the following activities:

·         Analysis of the results of the Stakeholders Survey carried out by all Eletrobras companies;

·         Analysis of the data provided by relationship channels: Ombudsman, Social Networks (Facebook, and Twitter);

·         Meeting with Suppliers;

·         Investor Relations;

·         Media Report Analysis;

·         Review of the fines received in the reporting period; and

·         Workshop organized with sustainability specialists from all Eletrobras companies.

 

After completing these stages, the company found 13 relevant topics, which were then validated by the Board of Directors, and guided the selection of GRI indicators to be answered in the report. The topics are presented below:

 

 

 

Limits of impacts of relevant themes

 

 

All these topics are addressed in this report using GRI indicators and considering additional strategic demands, the Eletrobras companies also report on other indicators that go beyond the material aspects identified.

 

 

 

 

 

 

 

 

 

 

 

 

Generation and Transmission Capacity Eletrobras has reached an installed capacity of 46,856 MW in generation projects, representing 31% of the 150,338 MW installed in Brazil, considering its corporate investments and the interest it holds in Special Purpose Entities (SPEs). Transmission lines totaled nearly 70,201 km, equivalent to almost twice the Earth’s circumference.

 

Belo Monte’s deployment 2016 was also the year when the Belo Monte 1,988.70 MW plant begun commercial operations, as well as the Jirau hydroelectric power plant, wth installed capacity of 3,750 MW. The plant represents a new technological frontier in the Amazon: it uses bulb hydro turbines that take advantage of the characteristics of the rivers in the region, which have a high water flow and low drops.

 

 

Record high at Itaipu Itaipu broke its annual generation record in 2016, with 103,098,366 MWh1 and is once again the plant with the highest annual production in the world. Such production would be enough to supply the whole of Brazil for two months and 18 days, or Paraguay for seven years and three months.

 

Business alignment with the SDGs               Reaffirming its commitment to sustainable development, in 2016, Eletrobras started to align its businesses to the Sustainable Development Goals—a global agenda adopted during the United Nations Sustainable Development Summit held in September 2015, and that contains 17 objectives and 169 goals to be met by 2030.

        

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Message from

 

 

 

the

 

 

 

management

 

 

 

 

G4-1

In 2016, we witnessed one of the biggest turning points in the history of Eletrobras. On the eve of celebrating 55 years (in June 2017), the company faced one of the most challenging periods in its trajectory. Debts reached unsustainable levels. The company's shares were suspended from the NYSE, and were at risk of being unlisted. The crisis demanded an intense reflection on management choices, as well as a necessary consistent revolution in our organizational culture.

 

Having nearly completely renewed the company's top management members - president, president of the Board and most of the directors, chosen among experienced professionals with a long history of services rendered to the country and to the electric sector - from July 2016, we were able to tackle the challenges of operational improvement, financial discipline and corporate governance. With regard to this last point, we have not only followed up and deepened the investigation on previous administrative acts but also created a Compliance Board to implement the most rigorous controls at Eletrobras and a the companies in which it participates.

 

Through intense mobilization with employees and senior management, we were able to file the 20-F Forms for 2014 and 2015 with the Securities and Exchange Commission of the United States. As a result, the shares could be traded again on the New York Stock Exchange on October 13, 2016. The successful operation represented a milestone and served to show us that the difficult moment could be overcome, as long as a course correction was initiated.

 

Moving on this new path, we have strengthened the reforms with the launch of the Business and Management Master Plan 2017-2021, entitled "Challenge 21 - Sustainable Excellence", an offshoot of the strategic planning 2015-2030, which carries in its name our concern with sustainability, inherent to a structuring business such as that of Eletrobras. The "Challenge 21" is based on the three aforementioned pillars that we have identified as the company's great needs - operational excellence, corporate governance and financial discipline - and encompasses 18 measures that will help put the company on the path to a more efficient and sustainable management.

 

 

We must not forget to mention the achievements not only of Eletrobras, but of the entire country: the start-up of the Belo Monte dam, on the Xingu river and the completion of the Jirau dam on the Madeira river. These dams, including Santo Antônio, represent a new innovation milestone for the sector, very different from past projects. Belo Monte, Jirau and Santo Antônio are the result of long projects, which have gone through many adaptations over time to comply with environmental and social requirements. The three projects use bulb-type turbines, allowing maximum utilization of the characteristics specific to the rivers of the region, with great flow and low falls. In addition, for each dam, a specific sustainability project was developed that takes into account the particularities of each affected area and the needs of the surrounding communities.

 

It should be noted that the concern for sustainability has never been overlooked in the projects the company is involved with, even when complex challenges were faced by Eletrobras companies in recent years, demonstrating that sustainable performance is naturally embedded in the core business of the company. In 2016, projects such as the ones Eletrobras has been conducting with Norte Energia, responsible for the Belo Monte dam, and the Kabu Institute to strengthen income generation and protection of lands of the Kayapó Indians in the state of Pará, were continued. The company also provided support for the activities carried out within the Eletrobras Volunteer Program, which implements company's employees initiatives in partnership with institutions that serve socially vulnerable groups, such as women and children in need.

 

We are signatories to the Global Compact commitments and we hold an important role in achieving the UN Sustainable Development Goals for 2030, which we have been aligned since its launch. In recognition to the commitment undertaken towards the sustainable development of contemporary society and ethical responsibility demands, Eletrobras was included for the tenth consecutive year in the portfolio of Bovespa‘s (the São Paulo Stock Exchange) Corporate Sustainability Index (ISE).

 

Gradually, we are taking firm steps to leave the period of difficulties behind. Our purposes have been recognized by the market, which has already shown signs of confidence in our transformation capacity, as evidenced by the 240% appreciation of our shares in 2016, the second highest increase on the Bovespa in the year. And the annual result of 2016, after four years of consecutive losses, registered a profit of R$ 3,426 billion.

 

Undoubtedly, this is a moment that will go down in the company’s history. We learned a lesson and we must take it for our future: to be sustainable it needs to be efficient. Efficient and disciplined. The 2016 events served to prove that a company that aims not only to be great, but to be recognized for its excellence, needs to engage each of its employees on this commitment, defending this motto in every new project initiated, in each investment analyzed, at each business meeting.

 

We believe that Eletrobras represents a significant asset for Brazil and we are aware that only by making the changes we have planned throughout this important year of 2016 and by valuing our values - focus on results; ethics and transparency; people appreciation and commitment, entrepreneurship and innovation; and sustainability - we may continue as one of the main drivers of sustainable development in our country. We thank each one of our stakeholders for their key role in this history. Finally, we thank the support received from the federal government and especially from the Minister of Mines and Energy, Fernando Bezerra Coelho Filho, who is tireless in defending the greater interests of the Brazilian electric sector.

 

 

We remain counting on each one of you, employees, partners, shareholders, investors and the whole Brazilian society, to make this company, already the Latin American largest holding company in the electric sector, also the best.

 

 

José Luiz Alquéres                                                                                        Wilson Ferreira Junior.

Eletrobras Board of Directors President                                                          Eletrobras CEO

 

 

 

 

 

 

 

INDUSTRY OVERVIEW

 

2016 was another year of political and economic instability, which reflected throughout the whole Brazilian economy. The country’s GDP dropped 3.6%, investments plummeted 10.2%, and household consumption fell 4.2% due to more expensive credit and a decrease in income.

Adding to that, Brazilians witnessed Operation Car Wash shake companies and the national political scenario, as the corruption and money laundering investigation, started in 2014, got more intense. Political instability reached top point with president Dilma Rousseff’s impeachment, causing an impact in the economy—construction works were suspended, investments were cut, and layoffs affected several industries.

The electric power sector was also affected by this crisis. According to the Brazilian Energy Research Agency (EPE), the total consumption of electric power reached 460,001 GWh in 2016 in Brazil, down 0.9% year-over-year. The sharpest drop was recorded in the industrial sector—2.9% as expected due to the economic slowdown. Commerce and services also recorded a decrease of 2.5%, and the residential sector recorded a slight increase of 1.4%.

Against this backdrop, hydropower plant Itaipu broke its annual generation record in 2016, with 103,098,366 MWh² and is once again the plant with the highest annual production in the world. Angra dos Reis’s nuclear plants Angra I and Angra II also reported record high generation figures for 2016, and generated nearly 15.9 TWh.

This whole scenario of political and economic uncertainty resulted in a few new measures that aim at supporting the rebound of businesses in the electric power sector.  Normative Resolution 699/2016, for example, regulates acts executed among related parties, and allows for the sharing of infrastructure and human resources. Such regulation is an important step for Eletrobras, which in its strategic planning intends to create a Shared Services Center (CSC) to cut costs.

An important achievement this year was the recognition in Eletrobras’ balance sheet of compensation relative to the Existing System’s Basic Network (RBSE), whose transmission assets generated net income of R$ 18,876.3 million in 2016. Now, Eletrobras is focusing on receiving a more adequate remuneration for the operation and maintenance of generation and transmission assets—whose concessions have been renewed—especially in terms of recognition for the improvements made in the system to ensure firm and continuous electric power.

Another important development in 2016 is Decree 8,828/2016, which changed the electric power trading model in Brazil. These changes have an impact on electric power purchase and sale strategies in the distribution, generation and trading segments, and influence the dynamics of free and regulated markets.

Moreover, electric power distributors and generators now have greater autonomy to set the terms of their agreements, under Aneel Normative Resolution 711/2016, which regulates the improvement of mechanisms in bilateral agreements.

Regarding the management of sector resources, Act # 13,360/2016 determined that the Electric Power Trading Chamber (CCEE) be responsible for managing and operating sector funds from the Energy Development Account (CDE, or Conta de Desenvolvimento Energético, in Portuguese), the Fuel Consumption Account (CCC, Conta de Consumo de Combustíveis), and the Global Reversion Reserve (RRR, Reserva Global de Reversão), beginning in 2017. Prior to that, Eletrobras was responsible for it. Therefore, the company started concentrating its efforts on the electric power generation, trading and transmission businesses, in line with its strategic planning.

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Ultimately, Act # 13,334/2016 established the Investment Partnership Program (PPI, in Portuguese) with the goal of expanding and strengthening the interaction between government and private initiative in the execution of public infrastructure projects and in other privatization measures.

 

 

 

Corporate

 

 

 

 

 

profile

 

 

 

 

The challenge is: leadership

The Chinese Three Gorges plant started operating at full load in 2012, with 22,000 MW of installed capacity - 60% more than the 14,000 MW of the Itaipu plant. Has much difference made it impossible for Itaipu to maintain the world's leading annual power generation? The answer is no, after all, we are talking about the largest generator of clean and renewable energy on the planet.

 

Although with much higher installed capacity equipment, Three Gorges only managed to produce more than Itaipu in 2014, when Brazil faced a major drought and water generation was impaired.

2016 was an unprecedented year for Itaipu, which reached 32 years and seven months of operation, at production peak, with many records, retaking the world's leading annual power generation, with over 4 million MWh of advantage over the Chinese hydropower.

 

 

 

 

ABOUT ELETROBRAS

 

 

G4-3; G4-4; G4-7; G4-8; G4-9; G4-13

 

Founded in 1962, Centrais Elétricas Brasileiras S/A – Eletrobras controls 13 subsidiaries in electric power generation, transmission, and distribution, a research center (Eletrobras Cepel), a holding company (Eletrobras Eletropar), and half of the capital stock of Itaipu Binacional. The company also holds an indirect interest in 179 Special Purpose Entities (SPEs), and minority interests in 26 companies.

 

Eletrobras companies:

 

•         Eletrobras Itaipu

•         Eletrobras Furnas

•         Eletrobras Chesf

•         Eletrobras Eletronorte

•         Eletrobras Eletronuclear

•         Eletrobras Amazonas GT

•         Eletrobras Eletrosul

•         Eletrobras Companhia de Geração Térmica de Energia Elétrica - CGTEE

•         Eletrobras Cepel

•         Eletrobras Eletropar

•         Eletrobras Distribuição Acre

•         Eletrobras Distribuição Amazonas

•         Eletrobras Distribuição Piauí

•         Eletrobras Distribuição Alagoas

•         Eletrobras Distribuição Rondônia

•         Eletrobras Distribuição Roraima

 

 

 

Ownership Chart

 

 

 

International operations
G4-6

In 2016, Eletrobras redesigned its international operations, seeking to increase its participation in international generation, transmission, and trading businesses, by prioritizing projects in regional integration and renewable energy generation in Latin America.  With that in mind, the company has been building on studies on hydropower development in the regions bordering Bolivia and Argentina, and on interregional transmission systems integration with Guiana, French Guiana, and Suriname.

In 2016, we had nine projects in our International Projects Portfolio, being one in operation and eight under analysis. Assets totaled 4,721 MW in generation and 900 km in transmission lines.

Eletrobras maintained the partnership with Uruguayan state-run company Administración Nacional de Usinas y Trasmisiones Eléctricas (UTE)—resulting in the development of the Artilleros Wind Farm (65 MW), located in the Colônia department (Uruguay)— and Argentine state-run company EBISA (Emprendimientos Energéticos Binacionales Sociedad Anónima), for the studies on hydropower development in the Uruguay River, on the Brazil-Argentina frontier.

Negotiations with Bolivian ENDE (Empresa Nacional de Electricidad) have also evolved for the exploration of the power generation potential on the Brazil-Bolivia frontier. In November 2016, a technical cooperation agreement was executed by Eletrobras, ENDE, and CAF (Banco de Desarrollo de América Latina) to begin the studies for the development of a binational hydroelectric power plant on the Madeira River. Viability studies have also advanced for the Arco Norte Project—a transmission system of nearly 1,900 km that will ensure the transfer of the electric power generated by new generation projects among Brazil (Roraima and Amapá), Guiana, Suriname, and French Guiana.

 

Eletrobras also operates medium- to large-sized international interconnections with Argentina, Paraguay, Uruguay, and Venezuela.

Through SPE Centrales Hidroeléctricas de Centroamérica, Eletrobras has chosen to no longer participate in development of the Tumarín hydropower project (253MW) in Nicaragua, and sold the shares of its wholly-owned subsidiary Centrales Hidroeléctricas de Nicaragua (CHN) to Nicaraguense de Eletricidad (ENEL) and Distribuidora de Electricidad del Norte S.A (DISNORTE).

 

 

 

 

 

 

 

 

 

 

 

 

OWNERSHIP STRUCTURE

 

G4-9

 

A publicly held government-controlled company, Eletrobras is controlled by the Brazilian government and its stock is listed on the São Paulo Stock and Futures Exchange, New York Stock Exchange (United States), and Madrid Stock Exchange (Spain). The company is also listed on BM&FBovespa’s Corporate Sustainability Index (ISE Bovespa), which gathers the companies with the best business sustainability practices.

 

 

Information on distribution by shareholder and by region can be obtained on page 111 of the Financial Statements, available on the Eletrobras website, in the Investor Relations section.

 

AWARDS AND RECOGNITION

 

Eletrobras

Listed, for the tenth consecutive year, on the Sao Paulo Stock and Futures Exchange Corporate Sustainability Index (ISE), which reviews the companies’ sustainability policies and practices and selects the most committed to be part of the portfolio.

 

Eletrobras’ common shares ranked second in a ranking made by consulting firm Economatica that listed the 16 stocks that rose over 100% in 2016. Eletrobras’ common shares rose 288% in the period, and its preferred shares ranked ninth in the same ranking, with a 141% rise.

 

Winner of the MarCo award in the energy sector, awarded by Época Negócios magazine to the most prestigious companies in Brazil, evaluated for attributes such as quality, purpose, and media recognition.

 

22nd place in the ranking of the 1,000 largest companies in Brazil in the “Best of Dinheiro 2016” publication.

 

For the fourth consecutive year, it is the largest company in the Brazilian electric power sector in terms of net revenue in the “Valor 1000” yearbook, published by Valor Econômico in a partnership with Serasa Experian and the Getúlio Vargas Foundation. In the overall ranking of the 1,000 largest companies in terms of net revenue, Eletrobras ranked 16th.

 

Recognized in innovation for the “Advanced Metering Infrastructure” (AMI) project, carried out in a partnership with Consórcio Energia + Smart, in the Metering Excellence Awards category of the Latin American Utility Week Awards 2016.

 

Certified in recognition for its contribution, throughout the years, to disseminating the culture of quality in Brazil, by the Brazilian Quality Committee of the Brazilian Technical Standards Association (ABNT).

 

Eletronorte

First “Summa cum laude” award of the National Quality Foundation, granted to the organizations that have maintained an excellence level for three consecutive years.

 

Eletronuclear

Certified by the Brazilian Authorized Economic Operator Program (OEA) of the Brazilian Federal Revenue Office, in recognition for its foreign trade operations; it is the first state-run company to be part of the group of 85 certified operators.

 

Eletrosul

Global Recognition “Good Practices for Employees with Disability”, at the United Nations’ headquarters, for its Program of Attention to People with Disability, in the protagonist and accessibility categories.

 

 

“Onda Verde” trophy, in the “Environmental Management” category, for the project to make the headquarters building, located in Florianópolis, more efficient.

 

Itaipu Binacional

Two first places in the 2016 ranking of “Sustainability Legitimacy” promoted by the Benchmarking Brazil Program, for its case “Biodiversity: Our Heritage” and the new “Indicators” category, for the certifications and parameters that attest to the quality of the company’s social-environmental management.

 

Furnas

Fourth place among the 17 finalists in the “Sustainability Legitimacy” ranking, with the case “Furnas Educa”.

 

Winner of the 6th Environmental Agenda in Public Administration Award, in the “Innovation in Public Management,” with the project for the development and testing of electric buses in a partnership with Coppe/UFRJ; and 2nd place in the “Waste Management” category, with the project for the application of stationary ion-lithium batteries in its information and communication systems.

 

Distribuição Alagoas

Recognized as the company that evolved the most in customer satisfaction in Latin America, in an award granted by the Energy Integration Regional Committee (Cier).

 

Distribuição Rondônia

Winner in the northern region of the 2016 ANEEL Customer Satisfaction Rate (IASC) award. Eletrobras Distribuição Amazonas ranked fourth in Aneel’s service quality ranking, up 11 positions.

 

 

 

CORPORATE

 

 

GOVERNANCE

 

 

PRINCIPLES

Eletrobras complies with the best corporate governance practices in order to strengthen its credibility for shareholders and investors, showing the reliability of internal controls, management transparency, the importance of compliance, and attention to stakeholder interests.

 

The company’s governance model relies on five principles—Ethics, Transparency, Equality, Accountability, and Corporate Responsibility—to maintain solid bases for the sustainability of its companies, and to continually improve its relationship with stakeholders. 

 

In addition to these principles, Eletrobras has a structure in place with management bodies, policies and tools to promote governance, in addition to corporate governance agents trained every year.

 

Below are the key cornerstones of this structure for the promotion of governance and a culture of ethics.

 

POLICIES AND OTHER MANAGEMENT TOOLS

 

Eletrobras’ key policies and governance tools:

- Bylaws

- Boards’ Internal Statutes

- Guide for the Board of Directors

- Eletrobras Companies’ Antitrust Policy, and Eletrobras Antitrust Guidelines

- Code of Ethics and Conduct of the Eletrobras Companies

- Manual for the Disclosure and Use of Material Information, and Policy on Trading in Eletrobras Securities

- Guide for the Board of Directors Representing the Eletrobras Companies

- Guide for the Supervisory Board Member Representing the Eletrobras Companies

- Manual of the Eletrobras Companies’ Anti-corruption Program

- Manual for Participating in Eletrobras’ Shareholders Meetings

- Eletrobras companies’ specific policies for the management of their businesses

 

 

More details on these policies are available on the company's website in the Corporate Governance section.

 

 

 

 

STRUCTURE

G4-34; G4-35; G4-38; G4-39; G4-40; G4-42; G4-43; G4-44

 

Eletrobras’ corporate governance model includes the Shareholder’s Annual Meeting, the Board of Directors, the Supervisory Board and the Executive Board. their roles and responsibilities are determined in the company’s Bylaws and the internal statutes of each body, under the current legislation. The Audit Committee and the Board of Directors’ Supporting Committees respond to the Board of Directors. The supporting committees include Audit and Risks, and Compensation and People Management.

 

Management Organizational Chart

 

 

Shareholders Meetings: this is the decision-making body of shareholders with right to vote; the Annual Shareholders Meeting (AGO, in Portuguese) is held every year up to April, and the Extraordinary Shareholders Meetings (AGEs) are held whenever the Board of Directors deems convenient or in circumstances provided for by the law. In 2016, the company held one AGO and two AGEs.

 

Board of Directors: this is Eletrobras’ main governance body, in charge of the company’s strategic direction, mission, vision and values, with active participation in the elaboration of the strategic planning and in the Business and Management Master Plan (PDNG) of the company. The Board protects and values the company, optimizing the long-term return on investment, and seeks to balance the expectations of all stakeholders. The Board is formed by up to 10 directors elected at the Annual Meeting, seven of whom are appointed by the majority shareholder; one, by minority shareholders holding common shares; one, by minority shareholders holding preferred shares; and one representing the employees (Under Act #12,353/2010). They serve a term of office of one year and can be reelected. One of these directors must be independent, as required by BM&FBOVESPA and the Brazilian Corporate Governance Institute (IBGC).

The members of the Board hold ordinary meetings every month, and convene extraordinary meetings whenever necessary. They can require that Executive Officers attend the meetings. In 2016, the board held 20 meetings.

 

 

Eletrobras’ Board of Directors in 2016

*The chair appointed by the minority shareholder holding common shares was not filled due to noncompliance with the requirements in the Bylaws (art. 17, item IV).

 

 

The Internal Audit Committee and the Board of Directors’ Supporting Committees respond to the Board of Directors. The supporting committees include Sustainability, Audit and Risks, and Compensation and People Management, and are formed by directors responsible for deepening the company’s strategic studies in economic, environmental and social aspects. Learn more about the roles and the composition of the committees in their internal statutes and the Internal Audit Rules, available on Eletrobras’ website.

 

Executive Board: responsible for the general management of Eletrobras, based on the guidelines set by the Board of Directors, it is made up by six officers and one CEO, elected by the Board of Directors, with a term of office of up to three years, reelection being allowed. The Executive Board meets on a weekly basis, and in 2016 it held 63 meetings. The board also has committees and workgroups created on-demand to discuss the technical aspects of management matters.

 

Eletrobras’ Executive Board in 2016

 

 

Supervisory Board: Supervisory Board: it is chiefly responsible for substituting and representing the shareholders’ supervisory function, overseeing the management to ensure compliance with their statutory and bylaw duties.

 

 

It is formed by five members and their relative deputies, serving a term of one year in office. Members may run for reelection. One of the members must be a financial expert, according to the requirements of the Securities and Exchange Commission (SEC). Three members are appointed by the majority shareholder, one by the minority shareholders holding common shares, and one by the minority shareholders holding preferred shares. This board holds ordinary meetings every month, and convenes extraordinary meetings whenever necessary. In 2016, the board held 14 meetings.

 

 

Eletrobras’ Supervisory Board in 2016

 

 

In 2016, Eletrobras’ corporate governance was improved, especially the reviewing process for appointees of the Board of Directors, the Executive Board, and the Supervisory Board. In addition to considering the current law, bylaws and other corporate rules, Act # 13,303 and Decree 8,945 added new criteria for reviewing these appointees’ qualification. The Board of Directors of Eletrobras has recommended that for all appointments of directors and executive officers a prior analysis must be conducted by the integrity department on the compliance status of the appointees, and that the Eletrobras companies’ Ombudsman must be consulted. The analysis of the appointees now includes a database search on sanctions applied by the Public Ethics Commission and on the websites of regulators (control agencies and courts of accounts), to check for violations of integrity.  In 2017, a change is planned in the bylaws to create the Eligibility Committee, which will help shareholders appoint executives and members of the supervisory board regarding prerequisites and the lack of restrictions for such appointments. It will also ensure compliance of the evaluation process of these directors and executive officers. While the implementation of the Eligibility Committee is not completed, the Transitional Internal Eligibility Commission (CITE) will temporarily play this role. It is composed of directors, and one of them is independent.

 

 

 

 

ETHICS AND INTEGRITY

 

 

Eletrobras promotes the creation of an ethical organizational culture of management to guide its operations based on institutional and normative instruments that establish the principles, guidelines and standards that formalize actions and commitments by companies and their employees, as well as how they liaise with vendors, business partners, customers and other stakeholders. Compliance G4-37; G4-49; G4-50; G4-57; G4-58; G4-SO3; G4-SO4; G4- SO5 In addition to being a guide for all stakeholders to work in accordance with the values and practices of an ethical conduct, the instruments used by Eletrobras also identify, mend, handle and, in case of breach, penalize any acts that might be contrary to ethics and integrity. In this sense, all areas in the company undergo internal audits that check whether processes, internal procedures and contracts are adequate and comply with the rules. As a way of strengthening its commitment against corruption and fraud, improve its control mechanisms, intensify risk mitigation practices to ensure that the Eletrobras companies are healthy and sustainable, and gain shareholders' confidence, the company has been working to step up its controls and investigation, compliance, and integrity processes for the past two years. As a result, three major actions have been put in place to mitigate new risks and correct nonconformities, namely:

 

 

Internal investigation and audit

Considering that some of the Eletrobras companies have been named in Operation Car Wash (Lava Jato) (an investigation led by the Brazilian Federal Police and the Federal Prosecutor's Office), and the risk of a violation to the Integrity Program, the company launched an independent investigation in 2015, with the help of U.S. law firm Hogan Lovells to assess the existence of irregularities.

The investigation was organized around the principles of the Securities and Exchange Commission (SEC) and Department of Justice (DOJ), in light of the fact that Eletrobras has been listed on the New York Stock Exchange through American Depositary Receipts (ADRs) since 2008, which require the company to comply with U.S. laws that govern the securities industry, specifically the regulations set forth by the U.S. Securities and Exchange Act.

 

 

Another law that the company must abide by is the Foreign Corrupt Practices Act (FCPA), which prohibits acts of corruption in connection with payment to foreign government officials and the trading of commercial or economic benefits with foreign political parties or candidates. In this context, the independent internal investigation undertaken by Eletrobras took into consideration the Brazilian legislation, the Code of Ethics and Conduct of Eletrobras Companies, and also the FCPA.

 

Between 2015 and 2016, under the scope of Operation Car Wash, operations Radioactivity and Pripyat resulted in arrest warrants for five former executives of Eletronuclear and other parties. It is worth mentioning that since the investigations started, Eletrobras has been cooperating with authorities and sharing information gathered by the independent investigation, in addition to assisting the prosecutors in the criminal proceedings.

 

Therefore, with the goal of facilitating and guaranteeing the ongoing progress of the investigations, the company management has been adopting the governance measures required and/or recommended by Hogan Lovells, by the Independent Commission and the independent auditors.   Since the start of investigations has been strengthening its compliance structure. An executive Compliance Office was also put in place and is responsible for the coordination of the Compliance Program and risk management at all the Eletrobras companies (more information in the box to your right - second significant action).   With respect to employees and directors identified by the investigation, Eletrobras took non-judicial punitive measures including suspension and termination of employment contracts. Options for imposing civil liability on such employees are under consideration, and the company has started talks with the Federal Attorney General's Office to charge them with impropriety.   In October 2016, the independent investigation completed the stage of identifying unlawful acts that could cause potential distortions to the company’s consolidated financial statements.  It found fraudulent overpricing of bids arising from the practice of collusion and kickbacks paid, since 2008, by some contractors and contracted suppliers.

 

The company has not identified any contracts that may have been affected by the overpricing scheme after December 31, 2015. Therefore, Eletrobras recorded a loss of R$ 211,123, which represents the estimated amounts of improper payments in prior periods, of which R$ 143,957 had already been recorded as an impairment. A loss in the amount of R$ 91,464 has also been recorded from investments in Norte Energia S.A., an SPE (“special-purpose entity”) not controlled by Eletrobras.

 

 

Individual and consolidated balance sheet adjustments are summarized below:

 

 

Note: the values in the table are in R$ thousand.

 

Eletrobras completed the stage of the independent investigation, and recorded the accounting impacts caused by the unlawful acts, however, additional procedures are still ongoing mainly to comply with the requirements of U.S. regulators.

 

 

 

Integrity Program

The third action devised by Eletrobras to tackle issues related to fraud, corruption and unethical conduct is an organization-wide Integrity Program held that counts on the permanent engagement of the holding company's Executive Board and its Board of Directors.   For that matter, in 2015 the company set up under the coordination of the holding company a Compliance Committee (CDC) that holds weekly meetings and is made up of Eletrobras compliance managers.   The main contributions of CDC are in terms of proposing and developing practices that strengthen integrity practices in companies - by providing the continuous improvement and dissemination of the Eletrobras Compliance Program -, as well as encouraging compliance with anti-corruption laws, providing training sessions and analyzing company guidelines regarding this topic.

The success of this initiative gave Eletrobras the chance to participate in the best practices in integrity management award organized by the Brazilian Government Accountability Office (CGU).

 

In addition, in order to supplement the company's Integrity Program, the Compliance Department created in 2016 the program 'Eletrobras 5 Dimensões' (5 Dimensions),  implemented in all subsidiaries to boost integrity into processes, routines and conducts.

 

The program is comprised of the following phases listed below:

 

1. Development of the management environment of the integrity program: creation of a management environment focused on corporate integrity, in which the initiatives are sponsored by top management and culture is disseminated through the Boards of Directors of the controlled companies.

 

2. Regular risk assessments: risk analysis and management focused on identifying and protecting areas in which risk of corruption is more likely.

 

3. Designing and implementing the integrity program policies and procedures: revision of feedback channels with the rollout of a complaints management program (ongoing) aimed at improving complaints handling and management; regular updates of the Code of Ethics and Conduct of Eletrobras companies (for compliance with Act# 13,303/16); and the enforcement of policies and procedures that guide interpersonal and business relationships.

 

 

 

4. Communication and Training: dissemination of Eletrobras 5 Dimensions program via communication actions and training sessions tailored to every audience, in all companies, reaching 100% of the employees and the Boards of Directors of the main subsidiaries. Among the initiatives, we highlight news broadcast via intranet, lectures from the Compliance Board and the “Leadership Minute” -Minuto de Liderança, in Portuguese -, (featuring short movies with the CEO and the Compliance Board about the program). The company has also consolidated, as a communication and training initiative, the annual Ethical Culture Week, which, in its third edition (in 2016), published an updated version of the Code of Ethics and Conduct of Eletrobras Companies, which is available online (both on the company's private and public portals), and introduced its Online Integrity and Ethics Course for all employees, a joint effort with Unise (Universidade das Empresas Eletrobras), held between December 2016 and February 2017.

 

 

5.  Program monitoring, remediation measures and enforcement of penalties:

continuous monitoring of the Integrity Program by internal audit committee, controls implemented at ProERP (SAP) and Sarbanes-Oxley (SOX) control testing.

 

 

 

G4-36; G4-41

 

Eletrobras relies on several mechanisms to prevent conflicts between company and personal interests of its employees or officers from happening. 

 

As for the Board of Directors, the company bylaws determine that when situations of conflict of interest arise its members should abstain from discussing or voting such matters. The board member elected by the employees, specifically, does not participate in debates and deliberations about matters involving union relations, remuneration, benefits, and advantages, including matters related to supplemental pension funds and assistance funds; such cases are deemed a conflict of interest as per paragraph 3 of Act # 12,353/2010.

 

Board members are likewise responsible for monitoring and handling potential conflicts of interest involving executives, board members, and shareholders to prevent misuse of company assets and especially abusive related party transactions.

 

To prevent potential conflicts of interest and the misuse of confidential and strategic information, officers are forbidden to hold management or consulting positions at private companies, utilities concessionaires, or at private entities linked to the electricity sector that are not controlled by the company, special purpose entities (SPE), and state-run concessionary companies in which Eletrobras has an equity interest.  Act # 9,292/1996, which regulates remuneration, is also considered for when officers also hold positions in the board of directors and finance committee. Board members must also submit a confidential information statement (DCI) to the public ethics committee, which includes a comprehensive list of their estate, as well as shareholdings that may be deemed a conflict of interest, and which actions have been taken by the board members and chairman to mitigate such situations. Act # 12,813/2013 establishes a series of information that public agents must submit to the public ethics committee, likewise applicable to those on leave.

 

The other company employees, in turn, rely on a consultation system that integrates the people management area and Ethics Committee, and can be reached on the e-mail [email protected], through which they can make formal consultations about how to go about situations that may be a conflict of interest, as per Act # 12,813/2013.

 

In addition to that, the Brazilian Government Accountability Office (CGU) created an electronic system to prevent conflicts of interest (SeCI), which can be accessed by all government entities and is available online both on the company's private portal and on the CGU website.

 

Management compensation

G4-51; G4-52; G4-53

 

The monthly remuneration of the Executive Board is determined by the department of coordination and governance of state-run companies (SEST), as per federal decree # 8,578/2015.

 

As per Act # 9,292/1996, the monthly compensation of the members of the board of directors and finance committee of federal state-run and mixed-investment companies must not exceed 10% of the average monthly remuneration of the directors of the respective companies. Members of the Board of Directors are not paid any additional remuneration as consideration for their board committees and/or advisory commissions’ duties.  Conversely, members of the Executive Board receive a fixed remuneration and annual variable remuneration (AVR) as a percentage of the company's profits; in 2016, they were not paid variable remuneration due to the company's results.

 

 

For 2017, the proposed AVR includes financial, operational, social and environmental indicators, among which the ISE-BOVESPA climate change score, in order to engage the company managers with the strategic guidelines of the Board of Directors and with public policies. The AVR also includes the outcome of the performance evaluation of the Executive Board, which assesses how well aligned the company's strategy management is with the Board of Directors guidelines, observing the economic, environmental and social impacts and risks.

 

It is worth mentioning that the remuneration of the Board of Directors and the Executive Board is also disclosed on an aggregated basis in the Management Report and in the Reference Form submitted to the Brazilian Securities and Exchange Commission (CVM); and individually in the Business Management Report submitted to the Brazilian Government Accountability Office (CGU), which then presents it to the Federal Court of Accounts (TCU).

 Moreover, shareholders can access the "Manual for Participation in Shareholders Meetings of Eletrobras" on the company's website, which explains matters being discussed at general meetings and how they should participate.

 

 

 

 

Strategy and vision of the future

 

The challenge is: technology

 

Increase revenues, optimize operating costs, improve the quality of services provided and decrease the level of energy losses. All this is possible with the Measurement Intelligence Center (CIM), inaugurated by Eletrobras in 2016, in Brasília.

 

The CIM is part of the Advanced Measurement Infrastructure (AMI) project of Eletrobras distribution companies, which consists of a platform with intelligent meters, which will have their data collected online, at the CIM, through a communication network. The data will then be interpreted, identifying potential frauds and measurement errors.

 

 

STRATEGIC PLANNING

 

G4-56

 

The challenges of Brazil’s economic scenario and of the company led Eletrobras to prepare its Business and Management Master Plan (PDNG), for the five-year period 2017- 2021, focused on governance and compliance, financial discipline and operational excellence, to ensure the company sustainability and intensify the competitive advantages in generation, transmission and trading, creating value for all its stakeholders. The document, launched in November 2016, is an extension of Eletrobras Companies Strategic Plan 2015-2030, it encompasses targets and projects to achieve strategic objectives, projections to support decisions on business portfolio and maintains the lineup with Eletrobras Corporate Identity– Mission, Vision 2030 and Values. In order comply with its Mission and to achieve its Vision of the Future, within 2015-2030 time frame, Eletrobras companies shall guide their performance in the business portfolio defined through five strategic guidelines shown in the figure below:

 

 

The three cornerstones of PDNG 2017-2021 – governance and compliance, financial discipline and operational excellence - were considered priority in the next five-year period and are directly inspired in the guidelines of the Strategic Plan 2015-2030. Each one is broken down in initiatives and targets, as described below:

 

 

 

 

CORPORATE PERFORMANCE MONITORING

Eletrobras monitors its companies to measure performance in established strategies and planned results; it assists in the decision-making process; it facilitates cooperation, articulation and integration among its companies and even with external bodies; it identifies needs of adjustments and plans revision; and it favors the accountability. The Business Performance Target Agreement (CMDE) is the main instrument of Eletrobras business management, as it subsidizes the areas of strategic planning and corporate sustainability, besides intensifying the integration between the holding and its subsidiaries. The indicators and targets established to achieve the corporate objectives result in a portfolio of actions which are managed in each company, monitored by Corporate Project Management Office (Corporate EGP).

Based on PDNG 2017-2021, the CMDE was revised in 2017 and extended until 2021, updating its panel of indicators to current reality of Eletrobras companies. The monitoring of CMDE and PDNG results is published in monthly reports for analysis by the Executive Board and Board of Directors.

In 2016, the CMDE was used as basis to develop the Management Variable Compensation Program (RVA 2017), which is focused on corporate sustainability. Each executive board of Eletrobras companies relies with at least, a project listed to monitor the RVA. Likewise, the Profit Sharing Program (PLR), which is a variable compensation for Eletrobras companies’ employees, is composed of a subgroup of economic and financial, operating, social and environmental, management and corporate governance indicators of CMDE.

 

 

INVESTMENT

In 2016, Eletrobras invested R$8.7 billion corresponding to 76% of the budget estimated for the year. Among investments made, we point out the implementation of the UHE Belo Monte hydroelectric power plant, the converter station Xingu-Estreito and LT Xingu-Estreito, the UHE Jirau and UHE São Manuel.

 

 

 

 

For the period between 2017 and 2021, PDNG foresees investments of R$35.8 billion, down 29% compared to previous five-year period of 2015-2019.

 

Out of this total, approximately R$20.5 billion (57%) are estimated to expand generation and transmission, in own projects, of which R$15.27 billion in clean energy (74.5%) and R$1.3 billion (3.8%) to expand energy distribution. R$5.5 billion will be invested to revamp and maintain generation, transmission and distribution, and 85% of this amount will be allocated for generation and transmission. Eletrobras estimates investments in infrastructure of R$1.3 billion; and, approximately R$6.9 billion will be set aside to SPEs.

 

       Source of Resources

 

 

COMMITMENTS AND GOALS

 

Future

 

 

 

 

In progress

 

 

RISKS AND OPPORTUNITIES

 

G4-2; G4-14, G4-45, G4-46, G4-47; G4-EC2; G4-SO3; G4-SO4

 

At Eletrobras companies, risk management is governed by a single policy and coordinated by the holding, ensuring a systemic view of the results and its standardization across all companies of the group. Based on the principle of caution, the main purpose of the process is to reduce the occurrence of events that could have a negative impact on its strategic goals, seeking to safeguard and create value and provide transparent information to the market and shareholders.

 

Having as methodological bases the COSO 2013 and ISO 31000:2009, the company’s risk integrated management model identifies and consolidates, in a matrix, the strategic, operational, financial, and compliance risks to which the companies are exposed to, for subsequent analysis, treatment, and monitoring through specific proprietary processes.

 

This process is conducted by the risk management departments and by the risk committees of each of the Eletrobras companies. Its general guidelines are set out by the Risk Committee of the holding, and the results are forwarded for analysis to the Executive Board and Board of Directors of Eletrobras by means of the Audit and Risk Committee.

 

 

 

 

The Board of Directors periodically resolves on strategic matters referring to risk management, such as the company’s level of appetite for risk, its tolerance ranges, the role of the Executive Board in managing risks, and the policy that should govern the whole process.

 

The Company reports the results of its analysis understood as most relevant in documents, such as the 20-F Form and the Reference Form of the Brazilian Securities Commission, available at its investor relations website.

 

•         Compliance - the actions taken by Eletrobras to address issues relating to fraud, corruption, and unethical conduct are strongly sustained by its Compliance Program, which encompasses all Eletrobras companies, and count on the involvement of the holding company’s Executive Board and Board of Directors.  Since 2014, the Company has been implementing the guidelines of the Manual of Compliance with the Anticorruption Policy in all its subsidiaries. In order to strengthen the commitment with issues, such as fraud and corruption, since 2015 a series of actions has been set out to reinforce the culture of integrity at Eletrobras companies. In this sense, 93% of the governance members were informed about the anticorruption policies adopted by Eletrobras and around 4 thousand employees that work in Eletrobras companies (16% of the total) received training on the subject in 2016. Until February 2017, this percentage increased to 74%. In addition, the Company mapped in 2016, the main business partners exposed to the corruption risk and prioritized the implementation of integrity practices and protection with goods and services suppliers, representatives of Eletrobras companies, donees and joint ventures partners. Further details on the Company’s Integrity Program may be checked on page 33.

 

•         SPEs Management and Consortia (2016) - the business structuring by means of SPEs is a prevailing alternative for growth of Eletrobras companies. However, the companies of the group had not structured a uniform process for monitoring and managing these partnerships so far, especially for the holding to manage their consolidated information about financial, technical, and corporate issues, both in pre-operating  and operating stages. In this regard, in 2015, the Board of Directors approved the elaboration of  “Eletrobras Companies SPEs Manual”, which sets forth specific structures to treat and monitor these issues in the group’s companies. The Investment Committee of the Eletrobras System (CISE) was also restructured, responsible for analyzing the companies’ investment proposals. The Manual is currently being implemented.

 

•         Budget and Cash Flow - with Act # 12,783/13, the companies are now responsible only for the operation and maintenance of the generation assets under its concession, which has substantially reduced their revenue. To offset this loss, as provided for by the law, and in order to be compensated for the investments made in such assets, the companies have requested to ANEEL that these amounts be refunded. Certain group’s companies obtained favorable decision and they will receive indemnities as of July 2017, through collection of a charge over consumer’s bills during eight years. This will represent a relevant improvement in Eletrobras cash flows, however, the companies' expansion now mainly relies on the result of their interest in SPEs and significant reduction of its operating costs. In an attempt to reduce the exposure to cash flow risk for the companies that have difficulties to generate resources by themselves, the Business and Management Master Plan (PDNG) brings several actions to improve the finances of these companies in the short-term, including the sale of non-strategic assets, owned by the company or in partnerships, and reducing the PMSO. In order to support Eletrobras cash, the federal government injected approximately R$2.90 billion in 2016, by means of Future Capital Increase (AFACs).  To have access to the credit market has been essential so that Eletrobras may maintain current levels of investments and reach its long-term targets, without impairing its capacity of appropriately complying with all its obligations with creditors.

 

•         Licensing, Social and Environmental Management - the company’s risk reports now more frequently approach and with detail issues related to the companies’ environmental variables management, which are the measures and actions they foresee to avoid or minimize the impacts associated with their activities. Electric power generation and transmission companies must comply with specific environmental laws for them to operate. The indigenous issue has been standing out as one of the most striking issues and its recognition came from its inclusion in the second version of Eletrobras Companies Social Responsibility Policy, updated in 2016. In order to tackle this aspect of project environmental management risk , Eletrobras companies seek to develop actions in partnership with Indigenous National Foundation (Funai) - see more on page 112. In addition, the subsidiaries have been implementing environmental management systems encompassing tested and formalized rules and procedures, such as those required for treatment of waste and effluents.

 

 

•         Climate Change Risk – the company assesses whether companies may be impacted by risks deriving from climate change, foreseeing actions to readapt their operations, repair and mitigate damages, adhering to regulations established for the electric power sector.

Since 87% of energy production derives from hydroelectric power plants, the impacts from climate change on the water regime in the country may cause great financial losses to the company. Extreme events, such as droughts, floods and windfalls, can also affect the generation, transmission, and distribution of electricity. The subsidiaries monitor this issue through the Environment area of the holding company and through the working group GT3 - Climate Strategy, of the Environment Committee (SCMA), where information is made available for the elaboration of the Annual Greenhouse Gas Emissions Inventory (published since 2009).

Experiences on actions to control these emissions are shared at the GT3, and aspects related to the implementation of a methodology that allow a systematic calculation of all the risks associated with the climate change at Eletrobras companies are also discussed.

 

·         Operating Risks

 

Nuclear power generation: Eletrobras Eletronuclear periodically conducts clarification campaigns and yearly distributes approximately 40 thousand calendars to neighboring community households, along with instructions about how to act in emergency situations. The calendar also calls the attention for the sound system monthly test in locations nearby the plants, which takes place every day 10 of each month, at same hour.

 

The company also maintains work groups formally created (on-call duty) for emergency situations and Emergency Centers; it conducts simulations and training with its employees, it maintains 24-hour emergency calls, with team and emergency medical support procedure and in emergency situations, it has hospital-medical support from Marcílio Dias Navy Hospital to assist persons injured by radiation, according to agreement signed with Navy Health Executive Board.

 

Hydropower generation: the generation companies operating hydroelectric power plants have  Flood Control manuals for basins where they operate their main reservoirs, with operation guidelines in the event of floods and measures to be taken upon such occurrence. Yearly the Flood Prevention Annual Plan is reviewed and updated, document which is approved by the

National Water Regulatory Agency (ANA) and by Aneel. Referring to the safety at dams, the Itaipu hydroelectric power plant, for instance, is a global benchmark in terms of dam safety, devoting special attention to safety procedures, with over 2.4 thousand monitoring instruments installed, international audits conducted every four years, visual inspections and sounding periodically performed, as well as seismological monitoring.

 

 

 

SUSTAINABILITY VISION

 

G4-EU8

Increasingly, sustainability has been driving Eletrobras’ business strategy, which seeks at all times the balance between economic, financial, environmental and social aspects of its projects as way to prevent risks and promote the value creation and successful operations. Signatory of the Global Compact since 2006, which mobilizes international business community to adopt essential and globally accepted values in the areas of human rights, labor relations, environment and anti-corruption, the Company has been lining up its performance based on the principles established by such initiative. The Sustainable Development Goals (SDGs) represent a global agenda adopted by member states of the United Nations, composed of 17 goals and 169 targets to be met until 2030. Such agenda foresees actions in areas such as poverty eradication, health, education, energy, water, amongst others.

In compliance with such global agenda, Eletrobras approved, in 2016, its Business and Management Master Plan – Challenge 21: Sustainable Excellence. The initial evaluation performed by the company showed that 277 actions, projects and programs of its companies correlate with at least one of the SDGs. In addition to the SDG 7 - Affordable and Clean Energy, Eletrobras' primary vocation, all SDGs were contemplated by actions, projects and programs, highlighting: SDG 3 - Good Health and Well-being; SDG 8 - Decent Work and Economic Growth and SDG 10 - Reduced Inequalities. For additional information on SDGs, access http://www.agenda2030.com.br/aagenda2030.php .

Subsequently, the Company’s objective is to prioritize the SDGs with greater capillarity to its strategic planning and in the next PDNG (2018-2022) define targets for all its subsidiaries.

The integration of Eletrobras and its companies in SDGs evidences the company’s commitment with sustainable development and reinforces the ties with civil society and governments, promoting the development and implementation of public policies.

 

 

SUSTAINABILITY MANAGEMENT
G4-36; G4-48

To ensure the connection of planning, strategy and sustainability, Eletrobras relies on the Sustainability Management Executive Committee, which is linked to the chief executive officer and reports to the Sustainability Committee.

This committee is responsible for internationally implementing recognized sustainable management processes, procedures and tools—and monitoring and assessing results—for preparing target and improvement plans for sustainable development.

The Committee is coordinated by the Superintendence of Strategy, Business Management and Sustainability, having among its duties:

·         providing support and interacting with Eletrobras Sustainability Committee;

·         disclosing and unfolding the guidelines established by Sustainability Committee;

·         structuring plans for improvement and proposing them to the Sustainability Committee based on the results of the ISE/Bovespa, DJSI, assurance process, and others; and

·         proposing to the Sustainability Committee the editorial model to be adopted in Eletrobras Companies Annual Report. The process of drawing up this report comprises the presentation of research on the issues listed by materiality study for Sustainability Committee’s analysis.

 

Clean and responsible energy
G4-EU8

Eletrobras’ commitment, present in its mission, vision and in its set of organizational values and in the transversality of its electric power programs is to bring energy and sustainable development for the country.

One of the major cornerstones to achieve such commitment is promoting the clean energy generation, environmentally less striking and socially responsible, generating value for stakeholders.

Therefore, Eletrobras invests in innovation, research and development, as a way to provide more competitiveness to businesses and mitigate the social and environmental impacts of its operations.

In partnership with universities, research centers and experts, Eletrobras encourages and takes part in studies on different issues deemed as critical for its business, as a way to mitigate its impact and ensure continued processes improvement: greenhouse gas emissions in hydroelectric power plants reservoirs and reduction of emissions deriving from thermal generation, amongst others.

In 2016, Eletrobras signed an agreement with Bolivian state-owned company (Ende) and Development Bank of Latin America (CAF), aiming at starting the studies necessary for eventual project development of a binational hydroelectric power plant on Madeira river.

 

Cepel

 

Eletrobras innovation management aims at promoting a favorable environment for creativity, experimentation and implementation of new ideas of the company’s interest.  In this regard, Eletrobras companies rely on the Electric Power Research Center (Cepel), considered the largest one in South hemisphere in its category. Its operations cover seven relevant areas:  energy optimization and environment; electric grids; systems automation; lines and stations; distribution technology; materials, alternative sources and energy efficiency; and laboratory infrastructure and experimental research.

 

Cepel conducts several experimental researches, including the solar and wind power reference center Sérgio de Salvo Brito (Cresesb), the efficient technologies application center (Cate) and the Efficient Solar House. With support of Ministry of Mines and Energy, Cepel is building a laboratory and research infrastructure for development and assessment of smart grids solutions.

 

Cepel has several projects concerned with maintenance of reliability and extension of useful life of equipment, generation, transmission and distribution systems, which are relevant to improve Eletrobras technical and economic performance. In monitoring and managing company asset, its systems (SOMA, DianE and IMA-DP) assist in the optimization of investments, maintenance and safety in operations.

 

One of the most relevant investments is the Ultra High Voltage Time Laboratory (External UHV Lab), which started operations in November  2016 with capacity to carry out experimental researches, developments and tests in configurations of transmission lines and related equipment, until voltage classes between ± 1000 KV CC and 1200 kV CA. The laboratory activities not only give support to Eletrobras companies, but also to electricity sector and manufacturers, acting in partnership with universities, domestic and international research centers.

Concurrently, Eletrobras plans a new laboratory to conduct tests in Ultra High Voltage under controlled conditions, the Sheltered UHV Lab. It is worth mentioning that characteristics of the National Interconnected System (SIN) raise the need of specialized, reference, laboratory infrastructure for experimental researches and tests in large-sized equipment, involving high and current voltages and other relevant sizes, essential factor to confer sustainability to SIN operation and development. In order to meet such demand, Cepel implemented the South Hemisphere’s largest set of electric laboratories.

 

Processes improvement

Operational Excellence is one of Eletrobras’ strategic cornerstones. In this regard, the Company has been investing in projects to reduce waste, increasing productivity gains and optimizing processes.

One of the actions developed is Eletrobras Processes Improvement Program, which aims at contributing to creating a culture of continued improvement at Eletrobras. Therefore, employee voluntarily may submit an improvement project for the program. Once concluded, participants are certified as improvement agents and are qualified to develop any improvement in their areas of expertise. In 2016, 11 projects were selected, and five of them were concluded and six are in progress. The implementation of a new cycle of the program is scheduled for  2017.

Investments in R&D of Eletrobras companies, totaled approximately R$ 534 million, as per table below.

 

INNOVATION HIGHLIGHTS

One of the outstanding projects in 2016, relating to Research and Development is the electric power generation by means of floating photovoltaic panels. The Company inaugurated a prototype in Balbina hydroelectric power plant reservoir, in Amazonas and then at the Sobradinho hydroelectric power plant in Bahia. The objective is to mix the production of two types of energy in order to bring greater efficiency in generation and transmission and solve potential bottlenecks in situations of low reservoir, caused by dry conditions – recurring condition, related to climate factors, which mainly The study is conducted by researchers of federal universities of the states of Amazonas and Pernambuco, monitored by federal government and will analyze several issues, from economic feasibility for large scale expansion to potential environmental impacts.

Another highlight in 2016 is the inauguration of Chapada do Piauí II wind farm, located in the Piaui state, in the municipalities of Marcolândia, Simões, Padre Marcos and Caldeirão Grande - with an installed capacity of 172.40 MW. The project conducted by Eletrobras Chesf and ContourGlobal, is composed of the wind farms Chapada do Piauí I and II, with installed capacity of 205 MW and 172.4 MW, respectively, sponsored by both organizations and Salus FIP; and Chapada do Piauí III, with 59.2 MW, from investment made by ContourGlobal. The wind farm, with potential to provide power to more than 1 million homes, is composed of 247 GE 1.85 MW and GE 1.7 MW turbines and created 1,500 thousand direct jobs and 3,000 indirect jobs during construction period.

Besides generating renewable energy to supply Brazilian market, the  Chapada do Piauí Wind Farm brings development for local economy, by hiring local workforce, through land regularization of small owners and generation of income via leasing of land. The wind farm also has been enabled the improvement of health, education and professional qualification programs in the project’s neighboring communities.

Another innovative event was the inauguration of substation Mirueira II, one of Brazil’s most modern substations, built with hybrid technology, which ensures higher compression of equipment, cost savings and maintenance easiness. The substation will reinforce supply to the metropolitan region of  Recife, especially Olinda, Rio Doce, Pau Amarelo, Santo Amaro and São Benedito. Approximately 450,000 inhabitants are estimated to benefit from such project.

In the Social and Environmental Performance chapters, know the details on the initiatives and results of the Company’s programs and management to continue generating value for sustainability.

 

 

 

G4-15; G4-16

 

To reaffirm its commitment with the sustainable development of its companies, Eletrobras voluntarily participates in domestic and international initiatives which discuss social, environmental, economic and human rights issues in businesses. Amongst them, we point out:

 

·         Statement of Commitment for the Protection of Children and Adolescents Against Sexual Exploitation;

·         UN Global Compact;

·         Pro-Gender and Race Equality Program;

·         Women’s Empowerment Principles;

·         Sustainable Development Goals – SDGs;

·         Carbon Disclosure Program – CDP;

·         Mão Certa Program;

·         Environmental Agenda in Public Administration (A3P).

In this regard, Eletrobras also voluntarily participates in following organizations:

 

·         Climate Change Brazilian Forum (FBMC);

·         Brazilian Electricity Sector Environment Forum (Fmase);

·         Brazilian Nuclear Program Protection Commission (Copron);

·         Brazilian Business Council for Sustainable Development (Cebds);

·         Brazilian Association of Concessionaires (Abce);

·         Electric Power Trade Chamber (CCEE);

·         Brazilian Association of Thermoelectric Generators (Abraget);

·         Brazilian Association of Electric Power Distributors (Abradee);

·         Cier Brazilian Committee – Bracier;

·         Utilities Telecomunicatin Council America Latina - UTC-AL;

·         Brazilian Committee of Electric Power Production and Transmission - Cigré-Brasil;

·         Ethics Management Forum of State-Owned Companies;

·         Brazilian Committee of Dams (CBDB);

·         Brazilian Association of Electric Power Generation Companies (Abrage);

·         Brazilian Association of Electric Power Transmission Companies (Abrate);

·         Brazilian Association of Wind Power (ABEEólica);

·         World Energy Council;

·         National Management Forum of Ethics at State-Owned Companies;

·         CBCME - Brazilian Committee of World Energy Council;

·         EPC - Companies for Climate;

·         IHA - International Hydropower Association;

·         Global Compact Brazilian Network;

·         ABDAN - Brazilian Association for Development of Nuclear Activities;

·         ABEN - Brazilian Association of Nuclear Energy;

·         International Association for Volunteer Effort - IAVE (Brazilian representation);

·         Member of Leadership Group WEPs (Global Compact and UN Women);

·         Permanent Committee for gender issues of the Ministry of Mines and Energy and Related Companies;

·         Border Committee between Brazil, Paraguay and Argentina to fight against violence and women trafficking;

 

·         Ethos Institute of Companies and Social Responsibility;

·         Global Reporting Initiative - GRI Gold Community;

·         Brazilian Global Compact Committee;

·         World Water Council (WWC).

 

 

 

Operating

 

 

 

performance

 

 

 

 

The challenge is: originality

Decades of experience in hydraulic generation drive Eletrobras to improve and to seek new ways of doing. Inaugurated in 2016, the Jirau hydroelectric power plant, - in which Eletrobras holds a 40% stake, through its subsidiaries Eletrosul and Chesf - brings a major contribution to the Brazilian energy sector by opting to use bulb type turbines, developed to operate with low falls and high flows, taking advantage of the full potential of the Madeira River.

 

The plant features the world's most powerful bulb-type turbines and was built with an unprecedented amount of 50 turbines with water line operation - a concept that consists mainly in operation with no need of large reservoir and, consequently, decreases the environmental impacts. Bulb type turbines weren’t common in the Brazilian generating plants and training teams for installation, operation and maintenance of this type of generating units is an important addition to our expertise.

 

 

 

GENERATION

G4-EU1

 

INSTALLED CAPACITY

 

In 2016, Eletrobras reached an installed capacity of 46,856 MW in generation projects, representing 31% of the 150,338 MW installed in Brazil. Of the company’s total installed capacity, 69% are company projects, 14% are projects developed through Special Purpose Entities (SPEs), and 17% are jointly owned projects, including half of Itaipu Binacional’s capacity (7,000 MW, or 15% its total capacity).

 

The map below shows all Eletrobras plants that were operative in 2016:

 

 

 

Nearly 94% of the company’s installed capacity derives from low greenhouse gas (GHG) emission sources, making Eletrobras one of the largest companies in the world in the generation of clean and renewable energy, the largest provider of the Brazilian electricity matrix, and the second in the ranking of the cleanest and most renewable companies in the world. Eletrobras’ overall installed capacity in low greenhouse gas emission projects corresponds to 40% of the Brazilian capacity.

 

 

 

 

 

 

ELECTRIC POWER PRODUCTION

G4-EU2

 

In 2016, the Eletrobras companies, including SPEs, generated 170,917 GWh, up 2.9% when compared to 2015. The highlights were wind, hydro, and nuclear sources. Regarding the hydro source, the highlights were the record high production at the Itaipu hydroelectric power plant, which has set a new global benchmark, and the deployment of the Belo Monte hydroelectric power plant and of new generating units at the Jirau, Teles Pires, and Santo Antônio plants.

 

Generation from wind power sources rose over 100% year-over-year with the deployment of the Sento Sé III and Chapada do Piauí II wind farms, and the expansion of the Capão do Inglês, Galpões, and Hermenegildo III wind farms. Electric power production from oil and gas sources were significantly reduced after the decommissioning of Amazonas GT, and the reduction of generation by Eletronorte’s thermal power plants.

 

¹ Figures have been restated from the 2015 report (G4-22).

 

 

 

 

 

AVERAGE AVAILABILITY BY SOURCE

G4-EU30

 

 

G4-EU11

 

 

 

PLANNED CAPACITY

G4-EU10

 

One of the key tools for planning the country’s expansion in energy is the Ten-Year Energy Expansion Plan (PDE), prepared by the Brazilian Energy Research Agency (EPE) and the Ministry of Mines and Energy (MME). The latest plan was published in 2015, the PDE 2024. Considering the installed capacity of the Eletrobras plants that are connected to the National Interconnected System (SIN), which includes those that the company has concession/authorization or those pending approval (whether wholly or jointly owned), compared to the evolution of the planned installed capacity, as contained in the PDE 2024, the following result is obtained:

 

Notes

Includes the Brazilian half of Itaipu Binacional (7,000 MW).

For jointly owned plants, the installed capacity considered was proportional to the ownership interest held by the parties.

There is a difference between the installed capacity in nuclear power estimated for Brazil and for the Eletrobras System in 2021 because the Eletrobras estimate was made after the publication of the 2024 PDE, and considers the deployment of the Angra 3 plant, with 1,405 MW, after 2021.

The table considers the decommissioning of some thermal power plants planned by Eletrobras companies, according to the Monthly Operation Program (PMO) of January 2017, prepared by the Brazilian Electric System Operator (ONS).

Eletrobras companies do not have plants running on biomass. However, the 2024 PDE aggregates the amounts of the biomass, wind, solar, and small hydroelectric power plants sources.

Considering the installed capacity of the Eletrobras companies connected to the SIN plus those in Standalone Systems (504 MW, including 15 MW in natural gas and 489 MW in oil), the total generation installed capacity of the Eletrobras companies was 46,856 MW in 2016.

 

 

 

STRATEGIC EXPANSION IN GENERATION

 

Eletrobras holds concession and authorization for the construction of several electric power generation projects, including company projects and partnerships. The installed capacity of these projects, which will start operating in 2017, equals to 14,000 MW, of which approximately 8,100 MW is equivalent to Eletrobras' equity interest.

 

This expansion is being mostly made through hydropower sources, which correspond to nearly 77% of the installed capacity. The largest plant in implementation is the Belo Monte HPP, in which Eletrobras has 49.98% stake. This plant, which has already started operations, will add more than 9,000 MW to the electricity system from 2017.

 

In addition, the HPPs São Manoel (700 MW) and Sinop (408 MW) are expected to be deployed in the next few years. The installed capacity in wind power should add more than 1,200 MW. Also, the company is currently implementing a thermal power plant run on gas -Mauá 3 -, (591 MW), which will operate in combined cycle, generating power more efficiently and the nuclear power plant Angra 3 is expected to be deployed after 2020 (1,405 MW).

 

Seeking new business opportunities, Eletrobras companies participates in hydroelectric power plant studies and projects, directly or through partnerships, that amount to a generation installed capacity of 21,300 MW. Of all projects undergoing studies, nearly 10,700 MW are projects that are still pending bidding, but that have been included in the supply expansion of the 2024 Ten-Year Energy Expansion Plan (PDE 2024), prepared by the Brazilian Energy Research Agency (EPE) and the Ministry of Mines and Energy (MME), equivalent to 83% of the capacity of all hydroelectric power plants pending bidding in the Plan.

 

 

 

Generation expansion historical profile

For the past three years, the company’s installed capacity has been growing at an average of 1,290 MW per year, especially through SPEs.

 

 

*Considers Eletrobras’ proportionate interest in SPEs.

 

 

 

Eletrobras has become Itaipu’s Electric Power Trader, under Act # 10,438/2002. Using a quota regime, the company has allocated to concessionaires connected to the National Interconnected System (SIN) in the South, Southeast and Mid-West 67,460 GWh relating to contracted power, corresponding to revenue of nearly US$ 3.4 billion. 

 

Under Decree 8,401/2015, the hydrological risks associated with Itaipu’s generation are taken by the distribution utilities in the proportion of the amount of electric power allocated to each one, in the Account for Resources from Time-of-Use Rates, the cost of which is passed through to the rates.

 

 

 

 

TRANSMISSION

 

TRANSMISSION LINES

 

Eletrobras’ transmission lines network totaled nearly 70,201 km in 2016. Of that amount, 6,545 km are wholly owned by Eletrobras, 57,027 km refer to corporate assets under O&M agreements, and 6,629 km correspond to its ownership interest in projects developed by Eletrobras companies through SPEs.

 

Considering only the basic network of the National Interconnected System (SIN), that is, voltages of 750, ±600, 525/500, 345, and 230 kV, the company is responsible for 63,387 km of transmission lines, or 47% of all transmission lines in Brazil in said voltages.

 

(c) Considers only Eletrobras’ proportionate interest in SPEs;

(d) Total - Leveraged means the total of km in lines of projects where Eletrobras holds an interest.

 

 

SUBSTATIONS

 

Eletrobras closed 2016 with transformation capacity of 218,922 MVA in its wholly-owned substations, and 17,020 MVA in SPEs, totaling 235,942 MVA.

 

 

QUALITY AND EFFICIENCY

G4-EU6

 

 

The transmission lines availability rate is calculated based on Network Proceedings. This rate considers all disconnections on Eletrobras companies’ transmission lines, including those that cannot be managed by the company, such as in expansions, or random or force majeure cases. The table below shows the Operational Availability rate of the Eletrobras companies, which represents the percentage of hours in one year that the lines remain available for the transmission system.

 

 

 

 

LOSSES

G4-EU12

The company recorded an increase of 0.2% in transmission technical losses compared to 2015. To calculate losses, the company uses a methodology based cases of power-flow. The current regulatory model in Brazil provides for the cost of losses to be split between consumers and generators, with no burden for the transmission company.

 

 

*G4-22: Data for 2015 have been corrected and are different from what was reported in the 2015 annual report.

 

 

 

EXPANSION

 

Strategic expansion in transmission

 

In 2016, transmission lines wholly-owned by the company and through partnerships rose by 1,766 km, out of which 1,561 km are lines above 230 kV. The Eletrobras companies invested in wholly-owned and partnership projects nearly R$ 14 billion in 2016. The highlights were the following:

·         Expansion of transmission systems in the South, adding 1,952 km of 230 kV and 500 kV transmission lines, and eight new substations and expansion in other substations, in an estimated investment of R$ 3 billion by Eletrosul.

·         First circuit of the Belo Monte Plant Interconnection, with a 4,000 MW transmission capacity, which will bring electric power from Pará to Minas Gerais through a 2,092 km line,  in an investment of R$ 4.5 billion.

·         Manaus-Boa Vista interconnection, an R$ 1 billion investment in a 715 km transmission line to be implemented with the participation of Eletronorte.

·         Brazil-Uruguay interconnection, deployed in 2016, is the first large scale connection between the two countries and includes a new substation in Candiota, and a 63 km transmission on the Brazilian side. This Interconnection has capacity to transmit 500 MW in both ways.

• Completion of the 987 km Jauru-Porto Velho transmission line, in the states of Mato Grosso and Rondônia, and expansion of associated substations by Eletronorte, which has invested R$ 923 million in the project.
• Luiz Gonzaga-Garanhuns-Pau Ferro transmission line, in 799 km covering the states of Alagoas, Pernambuco, and Paraíba. This project, carried out by SPE Interligação Elétrica Garanhuns (49% Chesf and 51% CTEEP), was energized in October 2016, and investment corresponded to R$ 942 million.

 

Regarding substations, Eletrobras’ transformation capacity rose by 1,959 MVA, out of which 1,875 MVA correspond to wholly-owned substations, and 85 to SPEs. The total transformation capacity of the projects where Eletrobras holds an interest added 2,041 MVA in Brazil.

Transmission expansion historical profile

 

Eletrobras has been expanding its operations at an average of 2,804 km per year of transmission lines for the past five years, especially through SPEs, showing the company is committed to its strategic guidance of being an important player in the transmission sector, keeping its leading position.

 

 

 

 

*Considers Eletrobras’ proportionate interest in SPEs

 

 

 

 

DISTRIBUTION

 

Eletrobras’ electric power distribution companies located in Acre, Alagoas, Amazonas, Rondônia, Roraima, and Piauí operate in the North and Northeast and serve over 7 million consumers. In December 2016, these companies used a low-, medium-, and high-voltage distribution network extending for 478,768 km and a total of 555 substations, spanning across 700 municipalities. As informed in the Strategy section, Eletrobras has sold its whole interest in distributor Celg-D, but the consolidated data regarding the distribution of energy still include the company.

 

OPERATION AND TRADING

 

Eletrobras’ distribution companies reported lower operating results in 2016 than in previous years, reflecting factors such as the economic slowdown, low GDP growth, the political crisis, and reduced funds from CDE, CCC, and RGR. As we have already mentioned in this publication, all distribution utilities will be sold by the end of this year. For now, they will continue to operate and maintain the distribution services in their locations up to when the transfer of their controlling stock is completed.

 

Nationwide consumption of electricity dropped 0.9% when compared to 2015, according to data by the Brazilian Energy Research Agency (EPE). In the same period, the Eletrobras distribution companies recorded a decrease of 2.45% in the captive market, supplying 29,010.6 GWh to 7,090,252 consumer units (considering Celg-D).

 

In 2016, 231,399 new units were added, an increase of 3.4% year-over-year, reaching 700 cities in the states of Amazonas, Acre, Alagoas, Piauí, Rondônia, Goiás, and in the city of Boa Vista. In order to achieve this performance, distributors invested R$1.13 billion. Distribution lines and networks gained 12,284 additional kilometers in 2016.

 

Electric power trading by distribution companies

 

 

Residential disconnections

G4-EU27

 

In order to reduce the power disconnection rate, the Eletrobras distribution companies contact customers directly to investigate the causes of their debts and attempt settlement.

 

 

The table below shows a comparison between the number of consumer units and the time it takes for reconnection, in the period between disconnection and payment of overdue bills, for the past four years.

 

 

                * Figures in this table do not include Celg-D.

 

QUALITY AND EFFICIENCY

G4-EU28

 

Quality of distribution services is monitored by changes in the DEC ratio (Equivalent Outage Duration per Consumer Unit), which measures how many hours a consumer unit experienced power outage; and the FEC ratio (Equivalent Outage Frequency per Consumer Unit), which indicates how many times, on average, there was a disruption in the supply of energy to consumers.

 

In 2016, the Eletrobras distribution companies recorded a positive variation, according to the graph below:

 

 

 

*Years 2014, 2015 and 2016 were consolidated with Celg-D figures; the company is not consolidated in other years.