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TABLE OF CONTENTS

 

INVITATION
NOTICE OF MEETING
MANAGEMENT’S PROPOSAL FOR THE 55TH ANNUAL GENERAL MEETING
1. Procedures related to the Annual General Meeting hereby called
1.1.	Installation of the Annual General Meeting
1.2.	Qualification and Participation in the Annual General Meeting
1.3.	Representation at the Annual General Meeting
2. Matters to be resolved at the Annual General Meeting hereby called
ANNEX 01 - COMMENTS BY THE MANAGEMENT ON THE FINANCIAL POSITION OF THE COMPANY, UNDER THE TERMS OF ITEM 10 OF THE REFERENCE FORM, AS INDICATED IN ANNEX "A" OF CVM No. 552, OF OCTOBER 09, 2014			12
ANNEX 02 - INFORMATION RELATED TO THE CANDIDATES FOR THE BOARD OF DIRECTORS APPOINTED BY THE CONTROLLING SHAREHOLDERS			98
ANNEX 03 - INFORMATION RELATED TO CANDIDATES FOR THE FISCAL COUNCIL APPOINTED BY THE CONTROLLING SHAREHOLDERS			108
ANNEX 04 - SETTING THE COMPENSATION FOR DIRECTORS AND MEMBERS OF THE FISCAL COUNCIL			117
ANNEX 05 - COMPENSATION OF THE MEMBERS OF THE BOARD OF DIRECTORS, FISCAL COUNCIL AND EXECUTIVE BOARD IN ACCORDANCE WITH SECTION 13 OF THE REFERENCE FORM, AS INDICATED IN ANNEX "A" OF CVM No. 552, OF OCTOBER 09, 2014			119
ANNEX 06 - RULES FOR ELECTION OF MEMBERS TO THE BOARD OF DIRECTORS, FISCAL COUNCIL BY THE NON-CONTROLLING SHAREHOLDERS			137

 

 

 

 

 

INVITATION

 

 

Date: April 30, 2015

 

Time (Brasília): 2:00 p.m.

 

Place:  Company Headquarters, Setor Comercial Norte, Quadra 04, Bloco “B,” No. 100, Room 203 of Edifício Centro Empresarial VARIG – Brasília – FD

 

Event: Annual General Meeting

 

Matters to be decided:

 

1. Examine, discuss, and vote on the Company’s Complete Financial Statements, for the corporate fiscal year ending on December 31, 2014;

 

2. Decide on management’s proposal for allocating the result of the corporate fiscal year ending on December 31, 2014;

 

3. Elect the members of the Board of Directors and appoint, among the members elected, its Chairman;

 

4. Elect the members of the Fiscal Council and respective alternates; and

 

5. Compensation of the members of the Board of Directors, Fiscal Council and Executive Board.

 

 

 

 

 

MINISTRY OF ENERGY AND MINES

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRAS

(Publicly-held company)

CNPJ. No. 00001180/0001-26

NOTICE OF MEETING

55^th Annual General Meeting

 

We invite the Shareholders of Centrais Elétricas Brasileiras S.A  - Eletrobras (“Company”) to meet at the Company’s headquarters, in Brasília, Setor Comercial Norte, Quadra 04, Bloco “B,” No. 100, Room 203 of Edifício Centro Empresarial VARIG – Brasília – FD, on 30 April 2015, at 2:00 p.m., in a Annual General Meeting which shall take place upon first notification with the presence of shareholders representing at least 25% (twenty-five percent) of the voting capital of the Company, to decide on the following Order of the Day:

 

1. Examine, discuss, and vote on the Company’s Complete Financial Statements, for the corporate fiscal year ending on December 31, 2014;

 

2. Decide on management’s proposal for allocating the result of the corporate fiscal year ending on December 31, 2014;

 

3. Elect the members of the Board of Directors and appoint, among the members elected, its Chairman;

 

4. Elect the members of the Fiscal Council and respective alternates; and

 

5. Compensation of the members of the Board of Directors, Fiscal Council and Executive Board.

 

Under the terms of the paragraph of Article 126 of Federal Law No. 6,404/1976, as amended (“Corporate Law”) and the decision of the Honorable Directors of the CVM in proceeding CVM RJ2014/3578, on 04 November 2014, shareholders may be represented in the general meeting: (i) if a natural person, by a proxy established at least 1 (one) year in advance (who is a shareholder, director of the Company, or an attorney properly registered in the lists of the Order of Attorneys of Brazil), (ii) if a legal person, through its legal representatives or through a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code, (iii) if an investment fund, by its director and/or manager, or by a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code.

 

Shareholders shall present the following documents to ensure admission into the Meeting (Art. 5^th, caput, of CVM Instruction No. 481, of 12.17.2009):

 

·         An official identification document with a photo;

 

·         An authenticated copy of the updated articles of organization (corporate bylaws or articles of incorporation), in case of a legal person;

 

·         Original or authenticated photocopy of a power of attorney granted by the shareholder; and

 

·      Original copy of the statement of shareholdings provided by the depositary institution or by the custodian, identifying the status as shareholder.

 

 

 

Under the terms of the paragraph of Article 43 of the Company’s Corporate Bylaws, the delivery of the documents proving the status of shareholder and agency is requested at least 72 (seventy-two) hours prior to the time the Annual General Meeting hereby noticed is held, at the Investor Relations Department – DFR, Market Service Division – DFRM, at Avenida Presidente Vargas, No. 409 – 9^th Floor, in the city of Rio de Janeiro, State of Rio de Janeiro, from 8:00 a.m. to noon and from 2:00 pm to 5:00 pm.  However, all shareholders who appear with the documentation needed to participate in the meeting shall be allowed to attend the Annual General Meeting hereby noticed.

 

As stipulated in Article 141 of the Corporate Law and Articles 1 and 3^rd of CVM Instruction No. 165, of 11 December 1991, as amended, Shareholders representing at least 5% (five percent) of the voting capital of the Company may request the adoption of the cumulative voting process for the election of the members of the Company’s Board of Directors, provided that the legal time frame of 48 (forty-eight) hours in advance of the date the Annual General Meeting hereby noticed is held, is met.

 

Decisions shall be taken in the Annual General Meeting hereby noticed by a majority vote, the vote of each shareholder being proportional to his interest in the capital stock of the Company.

 

Pursuant to Art. 133, § 1 of the Corporate Law and Art. 9^th of CVM Instruction No. 481, of 17 December 2009, as amended (“CVM Instruction 481”), all documentation pertaining to the matters which shall be decided by the Annual General Meeting will be available to shareholders at the Investor Relations Department – DFR, Market Service Division – DFRM, at Avenida Presidente Vargas, No. 409 – 9^th Floor, in the city of Rio de Janeiro, State of Rio de Janeiro, and on the websites of the Company (www.eletrobras.com/elb/ri), the CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).

 

Brasília, 27 March 2015.

 

MÁRCIO PEREIRA ZIMMERMANN

President of the Board of Directors

       

 

 

 

MANAGEMENT’S PROPOSAL FOR THE 55^TH ANNUAL GENERAL MEETING

 

 

1.  Procedures related to the Annual General Meeting hereby noticed

 

To facilitate the understanding and appearance of the Shareholders at the Annual General Meeting hereby noticed, the Company lists, below, some relevant information related to the procedures for calling to order, participating in, and conducting the meeting.

 

1.1.   Calling the Annual General Meeting to Order

 

Under the terms of Article 125 of the Corporate Law, for a Annual General Meeting to be called to order upon first notification, the proper appearance of shareholders and/or their legal representatives holding an interest corresponding to at least 25% (twenty-five percent) of the voting capital of the Company, must appear.

 

If that percentage is not reached, a new notice shall be issued, at least 08 (eight) days in advance, after which the Annual General Meeting shall be called to order regardless of the number of shareholders.

 

1.2.  Authorization and Participation in the Annual General Meeting

 

To participate in the Annual General Meeting hereby noticed, Shareholders shall prove their capacity as Company shareholders, by presenting the following documents:

 

(a) a statement issued by the financial institution depositary of the book-entry shares which they own containing an indication of the respective shareholding, dated at least 02 (two) days prior to the date the Annual General Meeting is held;

 

(b) a proxy instrument, granted and regularized pursuant to the law, if the shareholder is represented, the document or a copy;

 

(c) the document or a copy of an identification document, legally recognized as such, with a recent photo and valid nationally, within its valid period, if applicable, in the case of a natural person;

 

(d) a copy of the updated articles of organization and the document which grants the representative sufficient powers of attorney for representation within the Annual General Meeting, in the case of a legal person;

 

For the purpose of the documents stipulated in item (d), the Company shall abide by (i) corporate bylaws and articles of incorporation, in a certificate from the respective registry, uncertified copies of the original, provided that they are accompanied by a certificate issued by the registry or its authenticated copy, attesting that the document or authenticated copy of the recorded document is recorded; and (ii) specifically in relation to a document which grants the representative powers of attorney to vote in behalf of a legal person shareholder, if it is a private mandate instrument, it shall contain a recognized signature of the grantor or its representatives, as the case may be.  If such document involves a meeting of the board of directors, the shareholder shall first provide proof that the document was filed and published in the competent registry.

 

In the case of legal persons with representatives who are not named in the bylaws / articles of organization themselves or by some naming procedure in a separate act, the shareholder must prove the validity of the naming by providing proof that the document was filed in the respective registry.

 

In the case of investment funds, the representative shall prove his capacity as fund administrator or an agent duly named by it, pursuant to the law applicable to it.

 

 

 

In the case of foreign legal persons, the documentation that proves the powers of representation shall go through a notarization and consularization process.  Under the terms of the Introductory Law to the Rules of Brazilian Law (Decree-Law No. 4,657, of 4 September 1942, as amended), documents written in other languages shall only be accepted by presentation of a sworn translation.

 

Under the terms of the paragraph of Article 43 of the Company’s Corporate Bylaws, delivery of the documents providing status as a shareholder and agency shall occur within up to 72 (seventy-two) hours prior to the time the Annual General Meeting hereby noticed is held, at the Department of Investor Relations – DFR, Market Service Division – DFRM, at Avenida Presidente Vargas, No. 409 – 9^th Floor, in the city of Rio de Janeiro, State of Rio de Janeiro, from 8:00 a.m. to noon and from 2:00 pm to 5:00 pm. 

 

1.3.  Representation in the Annual General Meeting

 

Under the terms of the paragraph of Article 126 of the Corporate Law and the decision of the Honorable Directors of the CVM in proceeding CVM RJ2014/3578, on 04 November 2014, shareholders may be represented in the general meeting as follows: (a) if a natural person, by a proxy established at least 1 (one) year in advance (who is a shareholder, director of the Company, or an attorney properly registered in the lists of the Order of Attorneys of Brazil), (b) if a legal person, through its legal representatives or through a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code, (c) if an investment fund, by its director and/or manager, or by a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code.

 

2.  Matters to be decided in the Annual General Meeting hereby convened

 

2.1.  Examine, discuss, and vote on the Company’s Complete Financial Statements, for the corporate fiscal year ending on December 31, 2014;

 

Under the terms of Article 132 of the Corporate Law, within 04 (four) months after the end of the corporate fiscal year, shareholders of the companies governed by it must meet to decide on the approval of the Financial Statements related to the prior fiscal year, among other things.

 

The Company informs its shareholders, that from today (inclusive), the Company’s Complete Annual Financial Statements, accompanied by the Management Report, the Report of the Independent Auditors and the Opinion of the Company’s Fiscal Council, related to the corporate fiscal year ending on December 31, 2014, are available for consultation at the Company’s headquarters or at the address of its Investor Relations Department – DFR, as well as on the websites of the Company (www.eletrobras.com/elb/ri), CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).  In that regard, the Company notes that, under the terms of Article 133 of the Corporate Law, the notices related to the availability of the aforementioned documentation were published in the newspapers normally used by the Company.

 

 

 

The publication of the Company’s Complete Annual Financial Statements, accompanied by the Management Report, the Report of the Independent Auditors, related to the corporate fiscal year ending on December 31, 2014, will occur at the appropriate time, under the terms of paragraph 3 of Article 133 of the Corporate Law.

 

Additionally, in compliance with CVM Instruction 481, the Company, 01 (one) month in advance of the date set for holding the Annual General Meeting of Shareholders, to be held on 30 April 2014, reports the following regarding the documents listed below:

                                                                   

·   Complete Annual Financial Statements; Management Report on the company’s business and principal administrative factors; Report of the Independent Auditors; and Opinion of the Fiscal Council, all related to the fiscal year ending on December 31, 2014:

 

The Company’s Complete Annual Financial Statements, including the Management Report, the Report of the Independent Auditors by KPMG Auditores Independentes and the Opinion of the Fiscal Council, which approved them, all related to the corporate fiscal year ending on December 31, 2014, were filed with the Securities Commission (“CVM”) and BM&FBOVESPA, on 27 March 2015, and they are available on the websites of the Company (www.eletrobras.com/elb/ri), the CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).

 

·       Comments by the Management on the financial position of the Company, under the terms of Section 10 of the CVM Reference Form.

 

The comments of the Directors on the financial position of the Company under the terms of Section 10 of the Reference Formula, are found in Annex 01 of this document.

 

·       Standardized Financial Statements Form - DFP

 

The Standardized Financial Statements Form – DFP was sent on the same day as the Complete Annual Financial Statements were sent, which was 27 March 2015, and are available on the websites of the Company (www.eletrobras.com/elb/ri), the CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).

 

2.2.  Decide on management’s proposal for allocating the result of the corporate fiscal year ending on December 31, 2014;

 

Under the terms of Article 132 of the Corporate Law, within 04 (four) months after the end of the corporate fiscal years, shareholders of the companies governed by it shall meet, to decide on the allocation of the results and the distribution of the profit related to the prior corporate fiscal year.

 

In this regard, considering that as determined in the Annual Financial Statements, complete, related to the corporate fiscal year ending on December 31, 2014 the Company recorded a loss of R$ 2,963 million, there will be no profit to distribute.

 

The negative result will be fully absorbed by retained profit and the legal reserve under the terms of Article 189 of the Corporate Law.

 

However, it is necessary to clarify that, if the Directors’ proposal for the allocation of the results as described above is approved, after the aforementioned absorption of the loss for the 2014 corporate fiscal year through retained earnings, there will not be a sufficient balance in retained earnings which can be used, as allowed by Article 201 of the Corporate Law, to support the declaration and payment of dividends to the Shareholders.

 

 

 

Finally, in view of the fact that a loss was recorded in the 2014 corporate fiscal year, under the terms of Official Circular CVM/SEP/02/2015 and the decision of the Honorable Board of the CVM issued as part of CVM Procedure RJ2010/14687, the Company will not present the information indicated in Annex 9-1-II of CVM Instruction 481.

 

2.3.  Elect the members of the Board of Directors and appoint, among the members elected, its Chairman;

 

Article 17 of the Corporate Bylaws of the Company stipulate that the term of office of members of the Company’s Board of Directors will be 01 (one) year, allowing for reelection.

Thus, considering that the current members of the Company’s Board of Directors were elected in the Company’s Annual General Meeting held on 30 April 2014, a new election is required.

 

On this matter the Company’s Corporate Bylaws stipulate that the Board of Directors shall be comprised of 10 (ten) members, of which: (i) 06 (six) members are appointed by the Ministry of State for Mines and Energy; (ii) 01 (one) member is appointed by the Ministry of State for Planning, Budgeting, and Management; (iii) 01 (one) member is elected by the minority shareholders holding common stock; (iv) 01 (one) member is elected by shareholders holding preferred stock, which represents at least 10% (ten percent) of the Company’s capital stock, through a separate vote, pursuant to the Corporate Law; and (v) 01 (one) member is elected by the employees of the Company, in a procedure specifically performed to that end, under the terms of current law.

 

Considering the election of members of the Board of Directors, the information on the candidates indicated or supported by Management or by the controlling shareholders, under the terms of items 12.5 to 12.10 of the Reference Form, as required by CVM Instruction 481, are in Annex 02 (Board of Directs) of this document.

 

Under the terms of Official Circular CVM/SEP Nº 02/2015, the possible scenarios for the election of members to the Board of Directors by noncontrolling shareholders are found in annex 06 of this document.

 

2.4.  Elect the members of the Fiscal Council and respective alternates;

 

Article 36 of the Company’s Corporate Bylaws stipulates that the Company’s Fiscal Council shall operate permanently, it shall be comprised of 05 (five) members and their respective alternates and the term of office of its members shall be 01 (one) year, reelection being allowed.

 

 

 

Thus, considering that the current members of the Company’s Fiscal Council and their alternates were elected in the Company’s Annual General Meeting held on 30 April 2014, a new election is required.

 

Regarding the composition of the Company’s Fiscal Council, the Corporate Bylaws stipulate that it will be comprised of 05 (five) members and their alternates, where: (i) 01 (one) member and his respective alternate, named by the Minister of State for the Treasury, as representative of the National Treasury; (ii) one (one) member and his respective alternate, named by minority common shareholders and elected by them in a separate vote; (iii) 01 (one) member and his respective alternate, named by shareholders holding preferred shares and elected through a separate vote; and the 02 (two) remaining members and their respective alternates elected through the majority principle, by the shareholders holding voting shares present in the Annual General Meeting.

 

Under the terms of items 12.5 to 12.10 of the CVM Reference Form, as required by CVM Instruction 481, taking into account the election of members to the Fiscal Council, the information on the candidates named or supported by Management or by the controlling shareholders is found in Annex 03 (Fiscal Council) of this document.

 

Under the terms of Official Circular CVM/SEP Nº 02/2015, the possible scenarios for the election of members to the Fiscal Council by noncontrolling shareholders are found in annex 06 of this document.

 

2.5.  Set the overall compensation of the directors of the Company.

 

The Corporate Law and the Company’s Corporate Bylaws grant the General Meeting the right to set the overall compensation of the directors and the members of the Fiscal Council.  Thus, taking into account the election of new members of the Company’s Board and Fiscal Council, it is necessary to set the overall amount of compensation of the directors for the period corresponding to their terms of office, which will end at the next Annual General Meeting. 

 

Thus, considering their responsibilities, the time spent on their work, competence and professional reputations, the risks they assume and the market value of this type of service the Company proposes the following sums as overall compensation of the directors and members of the Fiscal Council for the period corresponding to their terms of office, which will end at the next Annual General Meeting:

 

a)    R$ 10,163,381.94 (ten million one hundred and sixty-three thousand one three hundred and eighty-one reais and ninety-four centavos) as the overall amount to be allocated and distributed to the members of the Management Committee and Board of Directors; and

 

b)    R$ 456,990.46 (four hundred and fifty-six thousand nine hundred and ninety reais and forty-six centavos) for the members of the Fiscal Council as the overall amount to be allocated and distributed to the members of the Fiscal Council.

 

Considering the setting of compensation for the directors and the members of the Fiscal Council, the proposal for the compensation of directors and the members of the Fiscal Council is better detailed in Annex 04 of this document and the information indicated in

 

 

Section 13 of the Reference Form, as required by CVM Instruction 481, in Annex 05 of this document.

 

Rio de Janeiro 27 March 2015

 

 

José da Costa Carvalho Neto

President

 

 

 

 

 

 

 

 

 

Annex 01

Comments of the Management on the financial position of the Company, under the terms of item 10 of the Reference Form, as indicated in Annex “A” of CVM Instruction No. 552, of 09 October 2014

 

10.1 – General financial and equity conditions

 

a) general financial and equity conditions

 

Eletrobras is a company operating in the generation, transmission, trading, and distribution of electricity, as well as the performance of research and services aimed at energy efficiency.  Eletrobras is the largest electricity company in Latin America, with a total installed generating capacity of 44,156 MW on December 31, 2014, corresponding to 33% of the total installed capacity in Brazil, 90% of this installed capacity comes from low greenhouse gas emission sources.  The Company also has network of transmission lines covering the nation with approximately 61,476 km of transmission lines, corresponding to around 48.8% of total high- and extra-high voltage transmission lines in Brazil, from 230 kV to 750 kV.  Eletrobras also had, on that same date, a distribution area that served more than 6.6 million consumers through a 463,371 km distribution system.

 

2014 brought a challenge in addition to the ones that Eletrobras was already facing with focus and determination:  an unprecedented water crisis, which beyond affecting the water supply for millions of Brazilians, also harmed the generation of electricity by our hydroelectric plants.

 

As a result and aiming to preserve Brazilian reservoirs, hydroelectric operations were limited by the National System Operator (ONS) and Eletrobras was unable to generate electricity in a sufficient volume to meet the its contracts. This insufficiency in generation brought its exposure to the short-term energy market, financially settled by the PLD - Settlement of Differences Price, which had reached very high levels. Similarly, our distributors suffered from involuntary exposure to short-term energy market and the increase of generation of thermoelectric plants that operated throughout the period.

 

Despite this scenario, dominated by a non-recurring event that negatively impacted its financial results, Eletrobras maintained its commitment to generating and transmitting energy for the development of the country, though that nonrecurring event negatively impacted the Company’s accounting results.

 

During 2014 the Company continued its process of corporate reorganization, in order to improve its operating and financial results.

 

The restructuring of business processes, readjustment of costs in relation to revenue and optimization of operations among the Eletrobras Companies, matters which were already being dealt with in recent years, were intensified in 2014 and they remain on the schedule for 2015.  From this year, the company will have a major planning tool, which will help the Company face future challenges – the 2015-2030 Eletrobras Companies Strategic Plan, approved by its Board of Directors at the end of November 2014.  The Plan proposes a daring vision for the Company:  to be among the three largest global companies in clean energy and among the ten largest in the world in electricity, with profits comparable to the best in the sector and being recognized by all its interested publics.

 

After updating its 2015-2030 Eletrobras Companies Strategic Plan, Eletrobras is updating its Master Business and Management Plan for the 2015-2019 horizon.  The focus remains on the expansion of its transmission and generation business, with value added through innovation in our businesses.

 

Another important milestone was the approval and implementation of the Eletrobras companies Compliance Program, in adaptation to the Brazilian anti-corruption law (Law 12,846/2013) and for the Foreign Corrupt Practices Act – FCPA for the Eletrobras Companies, reinforcing the Company’s internal and external control processes.  Thus our interested publics, especially investors, trust the transparences of the Company’s processes more.  Everyone gains with that.

 

 

In 2014, R$ 11.4 billion was invested, divided between generation (R$ 6.3 billion), transmission (R$ 4.0 billion), distribution (R$ 729 million) and others (R$ 370 million), representing approximately 78.2% of the total budgeted at R$ 14.7 billion. From held until December, R$ 6.3 billion were invested in corporate ventures, in which Eletrobras has full responsibility, and R$ 5.1 billion referred to the relative shares of the Special Purpose Entities (SPEs). Were added to the interconnected system, along with its partners, 2,452 MW in generation and 4904 km of transmission lines.

 

At the end of 2014, Eletrobras had under construction about 21,611 MW of installed capacity in generation and 10,907 km of transmission lines, including the participation of its partners. Among the generation projects under construction, went into operation this year the new generating units of the hydroelectric Santo Antonio and hydroelectric Jirau and wind Rei dos Ventos 1, Rei dos Ventos 3 and Miassaba 3. In the transmission segment, the highlight was the completion of the works of the transmission system of hydroelectric power plants on the Madeira River.

 

With regard to the receiving process of further indemnifies resulting from the concessions extended in the light of Law 12,783/2013, the total amount claimed to date by companies Generation and Transmission Eletrobras already forwarded to ANEEL their Appraisal Reports (for transmission) and Investment Reports (for Generation), is R$ 15.08 billion. During the year 2015, it will be presented an Appraisal Report by Furnas and Investments Reports by Furnas and Eletronorte that are in development will be presented. The effects of the claimed values ​​in the financial statements are conditioned to final approvals by ANEEL.

 

Eletrobras distribution companies obtained an increase of approximately 151 thousand customers, while the default rate had a significant decrease over the year, the result of a systematic plan of judicial and administrative charges. With regard to combating losses, was given continue the Projeto Energia +, in partnership with the World Bank, which includes the deployment of advanced metering infrastructure and rehabilitation and reform of distribution networks. In early 2015, has been completed the final stage of the acquisition of control of distribution company of the state of Goiás, CELG D, concessionaire responsible for servicing 237 municipalities - more than 98.7% of Goiás - serving to 2.61 million consumer units and covers a 336,871 km2 concession area.

 

2014 was advantageous for Eletrobras in terms of recognition. For the third consecutive year, Eletrobras was listed on the Dow Jones Sustainability Emerging Markets Index, an index comprised of 86 companies, only 17 of which are Brazilian and only three in the electricity sector, and it serves to indicate the companies that adopt the best governance practices.  Beyond that, for the eighth year in a row, Eletrobras was part of the São Paulo Stock Exchange (BM&FBovespa) Business Sustainability Index (ISE).

 

These achievements show Eletrobras’ effort, through its employees and associates, to continuously promote improvements in its business practices, led by ethics, transparency, and social and environmental responsibility.  Eletrobras’ actions are also recognized in the press. The magazine Época Negócios included Eletrobras in the ranking of the 100 most prestigious brands in Brazil – the company’s brand is the most prestigious in the energy sector and the 64^th in the general ranking.

 

The recognitions obtained, the challenges faced, and the management instruments that we are implementing, lead us to believe that 2015 will be a great year for Eletrobras.  The road is long and the challenges are big, but up to our position as the largest electricity company in Latin America and one of the biggest companies in the world in the electricity sector. 

 

During the fiscal year ending on December 31, 2014, Eletrobras’ revenue increased by 26.4% in relation to the corporate fiscal year ending on December 31, 2013, reflecting, mainly, the increase seen in income derived from the sale of electricity (generation) and the supply of electricity (distribution). 

 

The table below shows our gross revenue by operating segment for the periods indicated:

 

 

 

In relation to this item 10 of the CVM Reference Form, we would like to explain that, according to guidelines from Official Circular/CVM/SEP Nº 02/2015, the amounts reported refer to Eletrobras’ consolidated accounting information.

 

Eletrobras restated its consolidated financial statements for the fiscal year ending on December 31, 2012 as a result of the adoption, on January 1, 2013 (with the corresponding restatement of its opening balance sheet at January 1, 2012), of IFRS 11 (Joint Arrangements) (“IFRS 11”).  Eletrobras applied IFRS 11 retroactively to 2012 for comparison purposes, under the terms of IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors).  The adoption of this new statement impacted several lines in Eletrobras’ financial statements related to the method of accounting for the results of joint ventures (joint ventures), which are not recognized using the equity method, instead of the proportional consolidation method used prior to the adoption of IFRS 11.  See note 3C.1 to the consolidated financial statements for a description of this statement and its impact on Eletrobras’ consolidated financial statements.  Eletrobras applied the IFRS from January 1, 2012, based on  amendments issued in relation to IFRS 10, 11, and 12 revising the transition rules to do away with comprehensive retroactive application.  Because of those amendments, Eletrobras retroactively adjusted its financial statements for the fiscal year immediately prior to the initial date of application (January 1, 2013) (“Immediately Prior Period”).  Consequently, the financial information for the fiscal years ending on December 31, 2013 and 2012 reflect the effects of IFRS 11 and those statements are fully comparable.  Because the Company was not obligated and did not restate its financial statements for the fiscal year ending on 31 December 2011 (except for assets and liabilities, which were restated), those consolidated financial statements are not directly comparable to the consolidated financial statements for fiscal years 2012 and 2013. In addition, in relation to the fiscal year ending on December 31, 2013, Eletrobras changed the method of presenting its segments, so as to better illustrate the operations of each segment and to better reflect how it manages its business. Under the terms of the new segment structure reported, Eletrobras continues to segment its principal operations into the Brazilian energy generation, transmission, and distribution markets.  However, the Company will no longer eliminate the balances of operations among the segments.  This is a change in relation to prior fiscal years, in which the balances of the segments were presented net of eliminations among them.  Eletrobras’ financial information at December 31, 2012 is derived from Eletrobras’ audited consolidated financial statements.  Taking into account that those financial statements and the corresponding financial information were not restated to reflect the change in the method of presenting the segments described above, they are not comparable to the consolidated financial statements and the corresponding financial information for the fiscal years ending on December 31, 2012 and 2013. Thus, for the purpose of ensuring comparability, the numbers related to the fiscal year ending on December 31, 2012 contained in this item 10 were adjusted according to the effects indicated above.

 

The Company's management revised the calculation of the present value of finance leases related to the assets of independent producers, which have energy supply contract for the subsidiary Amazonas Energia, and identified inaccuracies to be corrected retrospectively, as required CPC 23 - Accounting Policies, Estimates and Errors changes. Thus, the figures for the years ended December 31, 2013 and January 1, 2013, presented for comparative purposes have been restated. Thus, for purposes of ensuring comparability, the figures for the year ended December 31, 2013 included in this item 10 were adjusted according to the above effects.

 

In addition, for the better presentation of its financial statements related to the fiscal year ending on December 31, 2014, Eletrobras proceeded to reclassify certain items on its statement of results, with effects on the comparative information related to the fiscal year ended on December 31, 2012.  Because of that reclassification, Eletrobras started to present its direct costs in a specific field on the statement of results, thus comprising its gross profit.

 

 

For further information on the effects of those changes in Eletrobras’ financial statements, see item 10.4 below.

 

b) capital structure

 

Eletrobras ended 2014 with net debt of approximately R$ 15.1 billion, compared to net debt of R$ 2.3 billion at December 31, 2013 and negative net debt (net receivables) of R$ 3.7 billion at December 31, 2012. Eletrobras’ long-term debt, excluding the amount corresponding to the Reversion Global Reserve (RGR), corresponded to 20.9% of the Company’s total debt at December 31, 2014.

 

The table below evidences the calculation of Eletrobras’ net debt and degree of leverage for the periods indicated:

 

¹ This corresponds to the amount repaid to the Eletrobras because of the need to purchase and sale of all energy resources belonging to Brazil generated by Itaipu Binacional, under the Treaty signed on April 26, 1973 between Brazil and Paraguay. Disregarding this value, net debt would be R$ 15.1 billion and net leverage would be 31.3%.

 

The change in the indicator measured by the ratio between third-party liabilities and total liabilities went from 61% at December 31, 2013 to 60% at December 31, 2014 (53% on the same date in 2012).  Net leverage (measured by dividing net debt by the sum of net debt and Shareholders’ Equity), went from 3.7% at December 31, 2013 to 26.8% at December 31, 2014 ((5.5)% on the same date in 2012). Eletrobras’ Management Committee believes that that the rise in this indicator was due to the need to acquire financial indebtedness to meet the Company's investment plan, which was not fully supported by cash generation. In addition, because of their specific characteristics (as manager of the sector fund Reserva Global de Reversão - RGR – granting reimbursements), Eletrobras has certain entries in its liabilities which have matches in their assets. Excluding these amounts, the indicator measured by the ratio of third-party liabilities and total liabilities correspond, in December 31, 2014, to 57%.

 

c) payment capacity in relation to the financial commitments assumed

 

Eletrobras’ principal needs for funds refer to (i) paying for the improvement and expansion of its generation, transmission, and distribution projects, (ii) paying or rolling over debts, and (iii) ability to participate, through its subsidiaries, in auctions for new transmission lines and new generation contracts, given that, if Eletrobras is successful in any of those auctions, it will need additional funds to pay the costs for the investments needed to expand the applicable transactions.

 

In keeping with other companies in the sector, the Company monitors its commitments based on the financial leverage ratio.  That ratio corresponds to net debt divided by total capital.  Net debt, in turn, refers to all loans and financing (excluding the amount due to the RGR Fund including short- and long-term loans, as shown on the consolidated balance sheet), subtracted from the amount of cash and cash equivalents as well as the amount of Reimbursement (Itaipu).  Total capital is determined by the sum of Shareholders’ Equity, as shown on the consolidated balance sheet, and net debt.

 

 

Eletrobras’ risk rating, according to the risk rating agencies, is directly related to the risk rating obtained by Brazil, because the Union is the Company’s majority shareholder:

 

 

The Management Committee believes that the credit rating given to the Company makes it possible to obtain loans and financing under competitive terms and conditions.

 

d) sources of financing for working capital and for investments in noncurrent assets

 

Eletrobras’ principal sources of financing for working capital and investments in noncurrent assets are (i) its own generation of operating cash flow, (ii) loans received from different national and international sources, such as sector funds, Caixa Econômica Federal (“CEF”), Banco do Brasil S.A (“BB”) and Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), (iii) funds from International credit Agencies; and (iv) possible issues of bonds in the international capital markets.  Beyond that, they derive from different financial investments that Eletrobras made with the BB, taking into account that Eletrobras is obligated by law to deposit any funds derived from its available cash in federal BB and CEF banks.

 

From time to time, Eletrobras considers new potential investment opportunities and it may finance those investments with money generated from its operations, loans, through the international capital market, increases in capital or other funding sources which might be available at the time in question.  At December 31, 2014 Eletrobras had the capacity to finance up to R$ 8.8 billion of its capital investments planned for 2015 with existing or receivable resources without turning to the capital markets.  The sources of those funds are (i) part of the income generated by Eletrobras through the sale of electricity; (ii) indemnization from the concessions renewed in the light of Law No. 12,783/2013 already approved by the grantor; (iii) the amounts to be reimbursed from the sale of energy generated by Itaipu; and (iv) receivables relating to the financing granted to Itaipu.

 

e) source of financing for working capital and for investments in noncurrent assets that it plans to use to meet liquidity deficiencies

 

If the Executive Officers of Eletrobras believe it necessary to take out loans to finance Eletrobras’ working capital and current liability obligations, they believe that Eletrobras currently has the ability to take them out.

 

If funds must be obtained to make investments in noncurrent assets, Eletrobras may obtain financing with BNDES, CEF, BB, multilateral agencies such as, for example, the Inter-American Development Bank (IDB), the International Bank for Reconstruction and Development (IBRD), Corporación Andina de Fomento (CAF), and Japan Bank for International Cooperation (JBIC), as well as to enter into transactions with financial institutions, mainly as “A/B Loans” (which consists of a multilateral institution given part of a loan and the other part a syndicate of institutions), and issuing bonds in the international capital market.

 

The terms of the financing, loans, or bonds that are issued should be compatible with Eletrobras’ construction schedule for energy generation and transmission projects, and the cost must be in accordance with the project’s cash flow, considering the competitive characteristics of energy generation and transmission concession auctions.  The Management Committee believes that the credit rating attributed to the Company by risk rating agencies allows it to obtain loans and financing at rates and under terms and conditions suitable for those projects.

 

 

f) debt levels and the characteristics of that debt, describing:  (i) material loan and financing agreements; (ii) other long-term relationships with financial institutions; (iii) degree of subordination among debts; and (iv) any restrictions imposed upon Eletrobras, especially in relation to debt limits and taking out new debt, the distribution of dividends, sale of assets, issuance of new securities and change of corporate control

 

On December 31, 2014, the ratio measured by the sum of current liabilities to noncurrent liabilities, divided by Shareholders’ Equity of Eletrobras was 154%. Because of its specific features (as manager of sector fund Reserva Global de Reversão - RGR, as well as shareholder in distribution companies located in the isolated system – which grants it with reimbursements), Eletrobras has certain entries in its liabilities which have matches in its assets. Excluding these values, the ratio of the sum of current liabilities to noncurrent liabilities divided by Shareholders’ Equity would amount, in December 31, 2014, 145%.

 

Loans and Financing

 

At December 31, 2014, loan and financing agreements amounted to R$ 39.5 billion, of which R$ 4.9 billion represented short-term obligations and R$ 34.6 billion corresponded to long-term obligations.  At December 31, 2013, loan and financing agreements amounted to R$ 32.4 billion, of which R$ 1.9 billion represented short-term obligations and R$ 30.5 billion corresponded to long-term obligations.  At December 31, 2012, loan and financing agreements amounted to R$ 26.6 billion, of which R$ 1.3 billion represented short-term obligations and R$ 25.3 billion corresponded to long-term obligations.

 

The table below shows the change in Eletrobras’ consolidated debt in the respective periods:

 

 

 

The table below shows the payment schedule for Eletrobras’ total debt at December 31, 2014, in the total amount of R$ 39.539 billion:

 

 

The table below shows the schedule for payment of the total debt of Eletrobras on December 31, 2014, totaling R$ 39,539 million:

 

(i) material loan and financing agreements

 

Financing taken by the Company:

 

The financing obtained by Eletrobras principally corresponds to financing taken out with BNDES, Caixa Econômica Federal and Banco do Brasil, as well as multilateral international agencies, such as the IDB, IBRD, CAF and JBIC.  Those agreements follow the standard of clauses generally applicable to agreements with multilateral agencies, which are agreed in negotiations with those entities, and generally have a guaranty provided by the Union. Eletrobras also issued bonds in the international market.  At December 31, 2014 Eletrobras’ liabilities did not include agreements containing clauses requiring Eletrobras to maintain minimum or maximum financial ratios.

 

At December 31, 2014 Eletrobras was party to liability contracts, including loans, financing, and bonds, which totaled R$ 39.5 billion (R$ 32.5 billion at December 31, 2013 and R$ 26.6 billion at December 31, 2012), whose composition by currency is shown below

 

 

 

At December 31, 2014, Eletrobras had the following material financial agreements outstanding:

 

(a) IDB: A loan obtained from the IDB in April of 1998, the sum of US$ 307.0 million, with a guaranty by the Union, for a period of 20 years.  The interest rate for that agreement is comprised of the IDB spread (based on the history and current cost of the bank’s debt) and the rate of 3.69%, fixed since 2010 (based on LIBOR on the date the conversion offered by the IDB took effect), where the average rate for the charges in the year 2014 was 4.54%.  Interest and principal payments related to the loan are made semiannually, in the months of April and October.  The outstanding balance of that financing at December 31, 2014 was R$ 174.8 million.

 

(b) JBIC: A loan obtained from the Eximbank, the former name of the Japan Bank International Corporation, with a guaranty from the Union, in the sum of ¥4,5 billion, equivalent, when the agreement was signed, to US$ 300.0 million for a 20-year period and variable interest equivalent to the JLT Prime rate, plus a spread of 0.2%.  Payment of the interest related to the loan is made semiannually, in the months of April and October.  The outstanding balance of that financing at December 31, 2014 was R$ 171.6 million.

 

(c) KfW: A loan from Kreditanstalt für Wiederaufbau – KfW, with a guaranty from the Union, in the amount of €13.3 million, with funds coming from the negotiations of protocols for financing renewal energy projects, occurring in the years 2000 and 2001, which resulted in the signing of a Financial Cooperation agreement between the governments of Germany and Brazil, on November 27, 2003.  The agreement related to the first tranche was signed on December 12, 2008.  The term of the loan is 30 years and the interest rate is 2%.  Payment of the interest related to the loan is made semiannually, in the months of June and December.  Payment of the principal will only start in December 2018.

 

On 01 November 2012 a second tranche was signed of the financing agreement entered into with KfW, in the sum of €45.9 million, with a guaranty from the Union, with a 5 year grace period and a total term of 30 years.  The average interest rate charged in that financing is 2.93% per annum.  The funds will be used for the São Bernardo Complex Project, belonging to the controlled company Eletrosul, whose purpose is to implement four Small Hydroelectric Plants (PCH’s) in the State of Santa Catarina.  The outstanding balance of that financing at December 31, 2014 was R$ 191.2 million.

(d) China Development Bank / BNP Paribas: A loan from the China Development Bank and BNP Paribas, signed in April of 2007, in the amount of US$ 430.0 million, whose funds were used to finance the Candiota II Thermal Plant, of the subsidiary CGTEE.  A recourse agreement was signed between that subsidiary and Eletrobras.  The funds from the aforementioned loan were completely drawn down by May of 2010.  No guaranties were provided.  Payment of the interest and principal related to the loan is made semiannually, in the months of June and December.  The outstanding balance of that financing at December 31, 2014 was R$ 682.4 million.

 

(e) Syndicated “A/B loan,” via CAF:  A loan syndicated as an “A/B” loan, obtained from CAF in August of 2008.  The loan, in the sum of US$ 600.0 million, was structured as follows:  (i) Part A, US$ 150 million, directly with CAF, with a term of 12 years; and (ii) Part B, corresponding to US$ 450.0 million, with a syndicate of 16 banks, for a period of seven years.  The contracted interest rate is comprised of the change in LIBOR plus a spread of 2.05%, for part A and 1.5% for Part B).  No guaranties were provided at all.  Payment of interest and principal related to the loan is made semiannually, in the months of February and August.

 

 

At December 31, 2014, the outstanding balance of this financing was R$ 628 million.

 

(f)  CAF and BBVA, HSBC, Mercantil, Santander, Sumitomo Mitsui Banking Corporation and Bank of Tokyo-Mitsubishi: In November of 2010 Eletrobras closed on a syndicated loan, of US$ 500.0 million, in “A/B” mode, with CAF and BBVA, HSBC, Santander, Sumitomo Mitsui Banking Corporation and Bank of Tokyo-Mitsubishi. The transaction was structured such that Part A, of US$ 125.0 million, was provided by a syndicate comprised of the other banks.  The loan has a 10-year payment period for Part A and seven years for Part B.  The contracted interest rate is comprised of the change in LIBOR plus a spread of 3.4% for Part A and 1.475% for Part B).  Payment of the interest on the loan is made semiannually, in the months of May and November.  The outstanding balance of this financing via CAF at December 31, 2014 was R$ 1.7907 billion.

 

(g) World Bank: A loan obtained from the World Bank, in the amount of US$ 495.0 million, with a guaranty from the Union, whose contract was signed on February 24, 2011.  The funds will be used to finance the Energy + Project, whose main objective is to improve the quality of the services provided and to contribute to Eletrobras’ distribution companies’ reaching and maintaining economic and financial equilibrium.  The loan has a guaranty from the National Treasury.  Payment of the interest on the loan is made semiannually, in the months of March and September.  Principal will only start to be paid in March of 2016.  The outstanding balance of this financing at December 31, 2014 was R$ 198.6 million.

 

(h) BNDES: On June 24, 2013 Eletrobras signed a Bank Credit Certificate – CCB, in the amount of R$ 2.5 billion, with an interest rate equivalent Selic Rate plus a 2.5% spread, with Banco Nacional de Desenvolvimento Econômico e Social (BNDES).  The term of the agreement is 05 (five) years and it has a 12-month grace period, and is amortized over 8 successive semiannual installments.  The funds were used for working capital and the transaction has a guaranty from the Union.  The first drawdown of this loan, in the sum of R$ 2.0 billion, occurred on June 28, 2013.  The second drawdown, in the amount of R$ 500 million, was made on December 16, 2013.  At December 31, 2014 the outstanding balance of this agreement was R$ 2.6 billion.

 

(i)  Caixa Econômica Federal and Banco do Brasil: A loan was taken out in August 2014 between CEF, Banco do Brasil, and Eletrobras, in the amount of R$ 6.5 billion, with a guaranty from the Union.  Of the total contracted, R$ 4.0 billion were given by BB and R$ 2.5 billion by CEF.  The term of the transaction is 8 years, 2 being a grace period, computed from the disbursements.  The principal will be amortized monthly, and the compensation will be 119.5% CDI.  The purpose of the transaction is an investment in working capital and financing the investments of the Eletrobras Companies, according to PDG/2014. Of the total contracted, the amount of R$ 4.5 billion had already been released by December 31, 2014. The outstanding balance of these transactions at December 31, 2014 was R$ 4.5 billion.

 

(j)  Notes - Bonds: (a) Credit Suisse and Santander: On 27 October 2011 Eletrobras completed a transaction to issue Bonds in the international market, in the amount of US$ 1.75 billion, with Banco Santander and Credit Suisse as global structurers of the transaction.  The bonds were issued with a term of 10 years, maturing on 27 October 2012, with full redemption on the maturity date and with semiannual interest coupons of 5.75% per year.  There was no issue discount, which made it possible for the investor to obtain a yield at a rate equivalent to the 5.75% per annum coupon; (b) Credit Suisse:  Eletrobras completed on 07/30/2009 a transaction to issue Bonds in the international market, in the amount of US$ 1.0 billion, where Credit Suisse was the global structurer of the transaction.  The bonds were issued with a term of 10 years, maturing on 30 June 2019, with full redemption on the maturity date and with semiannual interest coupon at the rate of 6.875% per annum; (c) Dresdner: A bond issue undertaken in July of 2005 in the amount of US$ 300 million, structured by the bank Dresdner Kleinwort Wasserstein. The notes have a 10-year term and they pay semiannual interest at the rate of 7.75% per annum.  The outstanding balance of these transactions at December 31, 2014 was R$ 8.3 billion.

 

 

 

For further information on the Bonds issued by Eletrobras abroad, see section 18.5 of Eletrobras’ Reference Form.

 

Guaranties as part of ANEEL Auctions

 

The Eletrobras Companies were successful in several ANEEL auctions, held in 2010 and, therefore, they will be responsible for performing projects in the generation and transmission areas, individually or in partnership with the specific purpose vehicles – SPE’s of which they form part.

 

This being so, in order to form the financing structure for the aforementioned projects, the SPE’s negotiated financing transactions with Banco Nacional de Desenvolvimento Econômico e Social – BNDES, under which Eletrobras granted a corporate guaranty, limited to the subsidiaries’ proportion share in the capital of the project.

 

The chart below shows the guaranties granted to the companies and the SPE’s at December 31, 2014:

 

 

 

 

 

Compulsory Loan:

 

The Compulsory Loan on electricity consumption, instituted by Law No. 4,156/1962, in order to generate funds aimed at expanding the Brazilian electricity sector, was repealed by Law No. 7,181, of December 20, 1983, which set the date of 31 December 1993 as the final period for its collection.

 

In the first phase of the Compulsory Loan, ended with the advent of Decree-Law No. 1,512/1976, collection of the tax affected several classes of energy consumers, and the taxpayers’ credits were represented as “Obrigações ao Portador” issued by Eletrobras.

 

Thereafter, once the provisions contained in the aforementioned Decree-law were commenced, the Compulsory Loan started to be collected only from industries with a monthly energy consumption above 2,000 kwh, and credits are no longer represented by securities, and became mere book entries at Eletrobras.

 

The remaining balance of the Compulsory Loan, after the 4^th conversion into stock, occurring on 30 April 2008, related to the credits established from 1988 to 2004, are recorded in Eletrobras’ current and noncurrent liabilities, due starting 2008, and compensated at the rate of 6% per year, plus monetary restatement based on the change in the IPCA-E, which at December 31, 2014 corresponded to R$ 519,7 million (R$ 366.8 million and R$ 334.2 million at December 31, 2013 and 2012, respectively), of which R$ 469.5  million was noncurrent (R$ 358.9 million and R$ 291.0 million, respectively, at December 31, 2013 and 2012).

 

The “Obrigações ao Portador” issued by Eletrobras as a result of the Compulsory Loan, do not constitute securities, they are not negotiable on the Stock Exchange, nor are they listed and they are not due.

 

The issuance of these securities resulted from a legal obligation and not a business decision by Eletrobras.  Likewise, their acceptance by holders of the “Obrigações da Eletrobras”  did not arise from an act of will, but rather a legal duty, by dint of Law No. 4,156/1962.  Therefore, “Obrigações da Eletrobras” are not subject to the provisions of Law No. 6,404/1976 or of Law No. 6,385/1976.

 

The CVM in a decision by its Board issued as part of administrative proceeding CVM-RJ-2005/7230, filed by holders of the aforementioned holders of “Obrigações da Eletrobras”, the Securities Commission literally stated that “the ‘Obrigações’ issued by Eletrobras as a result of Law No. 4,156/1962 may not be deemed securities.”

 

CVM also determined that there is nothing irregular in the procedures adopted by Eletrobras in its financial statements as regards the aforementioned “Obrigações da Eletrobras”, nor the disclosure in terms of the existence of lawsuits claiming the redemption of these “Obrigações da Eletrobras”.

 

Therefore, the “Obrigações da Eletrobras” issued in the first phase of that compulsory loan, as decided by the CVM, are not debentures.  Beyond that, by dint of the provisions of Article 4^th, paragraph 11 of Law No. 4,156/1962 and Article 1 of Decree No. 20/910/1932, they are not payable, a status confirmed by the Superior Court of Justice – STJ (Special Appeal 1,050,199/RJ), which states that those “Obrigações da Eletrobras” cannot be used as a guaranty in tax enforcement actions, because they are not liquid and they are not debentures.

 

 

Thus, the liabilities related to the Compulsory Loan refer to the residual credits, established from 1988 to 1994, of the industrial consumers with a consumption in excess of 2,000 Kw/H, related to the second phase of that Compulsory Loan, as well as the interest not claimed related to those credits, as shown below:

 

 

Reversion Global Reserve:

 

The Reversion Global Reserve, or RGR, is a fund created by the Federal Government to cover indemnification expenses from reversions of public electricity concessions.  The funds, insofar as not used for the assigned purposes, are invested in granting financing used to expand the Brazilian electricity sector, improve the service, and execute programs of the Federal Government.

 

The contribution to establish the RGR was the responsibility of the electric utility concessionaires, through a fee called reversion and expropriation of electric utilities, of up to 2.5% of the value of the investments of the concessionaires and permit holders, limited to 3% of their annual income.  The amount of the fee was computed as a component of the cost of service for those entities.

 

Concessionaires paid in their annual RGR fees in twelfths, into an escrow account, managed by Eletrobras, which handles the accounts under the limits stipulated in Law No. 5,655/1971, as subsequently amended, though those transactions are not reflected on Eletrobras’ financial statements, given that the RGR is an independent entity in relation to Eletrobras.

 

According to Article 20 of Law No. 12,431/2011, the term of this charge, the extinction was expected by the end of 2010, was extended until 2035. Law 12,783/2013 established that RGR funds could be used for compensation, all or part of the investment related to reversible assets not yet amortized or not depreciated and that have been released to the payment of annual quotas of RGR:

 

            I - the concessionaires and licensees of the public service of distribution of electricity; II - the concessionaires of the public service of transmission of electricity bid from September 12, 2012; and

III -  the concessionaires of the public service of generation and transmission of electricity extended pursuant to the aforementioned law.

 

Therefore, with the payment of the indemnities relating to concessions renewed in the light of Law 12,783/2013 and the release of payment, the availability of resources in RGR account for new financing concessions was reduced.

 

Whereas Eletrobras is mere manager of the RGR account, which is one of the funding sources for the electricity sector financing, amounts drawn are recorded in the Company's liabilities under "Financing and loans", applying 5% interest per year. Against liabilities, Eletrobras records in its assets under "Financing and loans receivable", the balance receivable from electric concessionaries for which the loans were granted, applying the same interest of 5% per year. Upon receiving the values ​​of the electric utilities, the Company returns to the RGR Account, overturning the values ​​in its assets and liabilities correspondent accounts.

 

 

 

(ii)      Other long-term relations with financial institutions

 

The Eletrobras Companies were successful in different ANEEL auctions, held in 2014, either as a company or through Specific Purpose Vehicles and, therefore, they will be responsible for performing projects in the generation and transmission areas.

 

This being so, in order to form the financing structure for the aforementioned projects, financing transactions were negotiated by the subsidiary companies with Financial Institutions, including Banco Nacional de Desenvolvimento Econômico e Social – BNDES, for which Eletrobras granted or may grant a corporate guaranty for the pre-operating phase, limited to the subsidiaries’ proportion share in the capital of the project.

 

Also in 2014, Eletrobras approved a series of corporate guaranties, allow the group companies to obtain large amounts in the financial market in order to supplement cash and help the respective investment programs.  This being so, below we report the principal fundraising transactions performed by the corporation:

           

Eletrobras Furnas: Furnas concluded on December 16, 2014, a private instrument of mutual with the company State Grid Brazil Holding, whose object is to allocate resources to Eletrobras Furnas in the total amount of R$ 294.7 million, to be held in installments by requests in the period for the implementation of the Transmission Line project in DC + - 800kV, Xingu-Strait, converting AC/DC station, + - 800 kV, 4000 MW, with the SE 500kV Xingu, converter station AC/CC, + - 800 kV, 3,850 MW, with the SE 500kV Strait, which is being deployed by the Company Belo Monte Transmitter Power SPE SA, incorporated for this, whose members are: State Grid (51%), Eletrobras Furnas (24.5%) and Eletrobras Eletronorte (24.5%). Until December 31, 2014, was not made any request for resources by Eletrobras Furnas.

 

Eletrobras Eletrosul: In 2014, Eletrobras Eletrosul raised funds of the following financing and loans:

 

On September 22, 2014, Eletrobras authorized the transfer of R$ 1,210 million to Eletrobras Eletrosul. The first financial release was held on October 3, 2014, in the amount of R$ 300 million. On December 8, 2014, was released the second installment of R$ 419.4 million. his transfer has linked allocation to the amortization of amounts outstanding of certain Eletrobras Eletrosul debt contract, as well as dividends payable to shareholders and the execution of its investment plan.

 

On September 25, 2014, a contract was signed in the amount of R $ 11,300 thousand, funds from FINEP - Financiadora de Estudos e Projetos. The amount will be earmarked for airspeed and solarimetric Station located in the states of Mato Grosso, Rio Grande do Sul, Santa Catarina and Rondônia.

 

Eletrobras Chesf: In 2014, was carried out loan with Caixa Econômica Federal, seeking constitution of working capital for Eletrobras Chesf. This contract has a term of 60 months, with interest equivalent to 115% of the annual variation of the CDI and amortization interest in eight (08) semi-annual installments with a grace period of twelve (12) months, the first falling due after 18 (months) from the date of the loan. The charges will be paid quarterly.

 

(iii)     Degree of subordination among debts

 

Eletrobras’ debts are guaranteed by the Union or they do not have any guaranty.  The guaranties of Eletrobras’ subsidiaries are for the most part given by Eletrobras itself, through a bond or surety.  There is no subordination among the outstanding debts, all of them having the same level of priority.

 

 (iv)    Contractual Restrictions

 

The loan and finance agreements entered into by Eletrobras, as well as the international bonds issued, were entered into according to practices adopted in the international market for transactions of that type.  The obligations assumed (“covenants”) are those usually contained in contracts with companies of the same type of credit risk, classified with an “investment grade” rating.

 

 

In the “A/B loan” contracts, international bonds, syndicated loan between CAF and commercial banks, Eletrobras is subject to clauses usually used in the market, among which we would like to mention:  existence of corporate guaranties, requirements for a change in corporate control, compliance with the necessary licenses and authorization, and limitation on the material sale of assets.

 

At December 31, 2014 Eletrobras’ liabilities do not include contracts which contain clauses requiring Eletrobras to meet minimum or maximum financial ratios.

 

At present, no current contractual clauses have been violated in relation to the covenants required.

 

g) limits of use on already contracted financing

 

In relation to the loan transaction signed, on February 24, 2011, with the world bank – IBRD, in the amount of up to US$ 459 million, with a guaranty by the Union, whose funds will be used for the “Energy + Project” for the operational and commercial improvement of Eletrobras’ distribution companies, by December 31, 2014 disbursements had been made of US$ 74.3 million under that financing agreement, which corresponds to 15.0% of the total contracted.

 

A financing agreement was signed on 28 June 2013 by Eletrobras Electronuclear with Caixa Econômica Federal, in the amount of R$ 3.8 billion, whose funds will be used to acquire materials and services imported for the Angra 3 Plant.  The agreement, with a guaranty by the Union, has the following conditions:  interest of 6.5% per annum and a term of 25 (twenty-five) years, with a 05 (five) year grace period, computed from the date it was signed.  There is no outstanding balance under this agreement at December 31, 2014, because the funds were never disbursed.

 

Regarding the financing contracted in August 2014 to the Caixa Econômica Federal and Banco do Brasil, in the amount of R$ 6.5 billion, there was a balance of R$ 2.0 billion of available resources to Eletrobras on December 31, 2014.

 

In turn, with regard to the agreement signed between Eletrobras Furnas and the State Grid Brazil Holding in December 2014 in the amount of R$ 294.7 million by December 31, 2014, none resources request had been made by Eletrobras Furnas.

 

h) material changes in teach item of the financial statements

 

Financial Statements

 

Eletrobras’ financial statements were prepared and are presented according to accounting practices adopted in Brazil, according to Brazilian Corporate Law, consistent with the provisions of the Corporate Law – Law 6,404/1976 as subsequently amended, in accordance with the Statements issued by the Accounting Statements Committee (“CPC”), resolutions of the Federal Board of Accountancy (“CFC”), as well as the regulations of the Securities Committee “(CVM”) and the Agência Nacional de Energia Elétrica (“ANEEL”).

 

Eletrobras’ consolidated accounting statements are presented in thousands of reais, except when expressly indicated otherwise, and are in line with International Financial Reporting Standards (“IFRS(s)”).

 

Eletrobras’ Financial Statements include:

 

§  The consolidated Financial Statements, prepared according to the IFRS’s issued by the International Accounting Standards Board - IASB and accounting practices adopted in Brazil, identified as Consolidated - IFRS and BR GAAP; and

§  The individual Financial Statements of the controlling company prepared according to accounting practices adopted in Brazil, identified as Controlling Company - BR GAAP.

 

 

Accounting practices adopted in Brazil include those included in Brazilian corporate law as well as the Statements, Guidance, and Interpretations issued by the CPC and approved by the CVM and the CFC.

 

The other effects of adopting IFRS’s and new statements issued by the CPC may be consulted in item 10.4 of this CVM Reference Form.

 

Starting in 2012, Eletrobras adopted certain changes in the presentation of its financial statements so as to make the financial statements of each company in the group more consistent with each other.  Thus, Eletrobras added and excluded certain items on its balance sheet, statements of results and statement of cash flows for the fiscal years ending on December 31, 2014, 2013 and 2012.

 

Eletrobras restated its consolidated financial statements for the fiscal year ending on December 31, 2012 as a result of the adoption, on January 1, 2013 (with the corresponding restatement of its opening balance sheet at January 1, 2012), of IFRS 11 (Joint Arrangements) (“IFRS 11”).  Eletrobras applied IFRS 11 retroactively to 2012 for comparison purposes, under the terms of IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors).  The adoption of this new statement impacted several lines in Eletrobras’ financial statements related to the method of accounting for the results of joint ventures (joint ventures), which are not recognized using the equity method, instead of the proportional consolidation method used prior to the adoption of IFRS 11.  See note 3C.1 to the consolidated financial statements for a description of this statement and its impact on Eletrobras’ consolidated financial statements.  Eletrobras applied the IFRS from January 1, 2012, based on  amendments issued in relation to IFRS 10, 11, and 12 revising the transition rules to do away with comprehensive retroactive application.  Because of those amendments, Eletrobras retroactively adjusted its financial statements for the fiscal year immediately prior to the initial date of application (January 1, 2013) (“Immediately Prior Period”).  Consequently, the financial information for the fiscal years ending on December 31, 2013 and 2012 reflect the effects of IFRS 11 and those statements are fully comparable.  Because the Company was not obligated and did not restate its financial statements for the fiscal year ending on 31 December 2011 (except for assets and liabilities, which were restated), those consolidated financial statements are not directly comparable to the consolidated financial statements for fiscal years 2012 and 2013.

 

In addition, in relation to the fiscal year ending on December 31, 2013, Eletrobras changed the method of presenting its segments, so as to better illustrate the operations of each segment and to better reflect how it manages its business. Under the terms of the new segment structure reported, Eletrobras continues to segment its principal operations into the Brazilian energy generation, transmission, and distribution markets.  However, the Company will no longer eliminate the balances of operations among the segments.  This is a change in relation to prior fiscal years, in which the balances of the segments were presented net of eliminations among them.  Eletrobras’ financial information at 31 December 2011 is derived from Eletrobras’ audited consolidated financial statements.  Taking into account that those financial statements and the corresponding financial information were not restated to reflect the change in the method of presenting the segments described above, they are not comparable to the consolidated financial statements and the corresponding financial information for the fiscal years ending on December 31, 2012 and 2013.

 

The Company's management revised the calculation of the present value of finance leases related to the assets of independent producers, which have energy supply contract for the subsidiary Amazonas Energia, and identified inaccuracies to be corrected retrospectively, as required CPC 23 - Accounting Policies, Estimates and Errors changes. Thus, the figures for the years ended December 31, 2013 and January 1, 2013, presented for comparative purposes have been restated. Thus, for purposes of ensuring comparability, the figures for the year ended December 31, 2013 included in this item 10 were adjusted according to the above effects.

 

Finally, for a better presentation of its financial statements related to the fiscal year ending on December 31, 2014, Eletrobras proceeded to reclassify certain items on its statement of results, with effects on the comparative information related to the fiscal year ending on December 31, 2013.  Because of that reclassification, Eletrobras restated its direct costs in a specific field on the statement of results, thus comprising gross profit.

 

 

 

Effects of Law No. 12,783/2013

 

In 2012, the Federal Government promulgated provisional measure no. 575/2012, converted into Law No. 12,783/2013, which significantly changed the Brazilian electricity sector.  The law allowed holders of concessions to operate energy generation and transmission assets, whose end was planned for the period between 2015 and 2017, to renew those concessions for a maximum period of 30 years computed from January 1, 2013, but subject to significantly lower tariff levels.  According to the option granted by the Law, Eletrobras and other concessionaires could subject themselves to competitive procedures to renew their generation and transmission concessions.  Law No. 12,783 reached also the possibility of the renewal of distribution concession, provided that ensured the continuity, efficiency of service, reasonable tariffs and compliance criteria of operational and economic rationality, but the conditions for such renewal has not been regulated. Eletrobras stated its interest in renewing its distribution concessions according to the reduced tariff levels, but the regulation was not yet promulgated.  In 2013 there was a change in the income structuring regime as regards the renewed generation and transmission concessions, ordering the separate application of the exploration and operation and maintenance methods, under the terms of Law No. 12,783/2013.  For those reasons, in 2013 companies that renewed their generation and transmission concessions under the terms of Law No. 12,783/2013 received payment of lower tariffs in relation to the renewed assets, compared to the amounts received prior to Law No. 12,783/2013 taking effect.  To renew generation concessions, there is a new business model, under which the tariff covers only a standard operating and maintenance costs plus a 10% margin, in comparison to the unrenewed concession, in relation to which the concessionaire could sell the energy generated.

 

Under the terms of Law No. 12,783/2013, the Federal Government agreed to indemnify Eletrobras and other electricity concessionaires for part of the amount of the unamortized investments made during the concession period.  Some indemnifications were already agreed and paid, whereas others were estimated for the purpose of preparing the consolidated financial statements for the fiscal year ending on December 31, 2012, based on available information.  Certain indemnifications will be paid to the concessionaires in installments over many years, whereas the full amount of that indemnification was recorded on the aforementioned consolidated financial statements.  Consequently, Eletrobras recognized a loss of R$ 10.09 billion on its 2012 consolidated financial statements, based on the impacts of renewing its concessions under the terms of Law No. 12,783/2013. 

 

The shareholders of Eletrobras approved the renewal of the concessions under the terms of the new law despite the nonrecurring loss of R$ 10.09 billion and the significant negative impact expected on income derived from those concessions in subsequent fiscal years.

 

In 2014, the Company focused its efforts to obtain additional values ​​for the indemnity of the generation and transmission assets that had the concession extended under Law No. 12,783 and in the preparation of Regulatory Policy of Eletrobras companies.

 

In August 2014, Eletrobras Eletrosul, filed within technical appraisal report of existing assets on May 31, 2000 regarding the Rede Básica do Sistema Existente – RBSE and Other Transmission System Facilities - RPC, considered not yet amortized and not depreciated, requiring the additional amount of indemnification of R$ 1,061 million in the base date of December 2012, and the net book value of these assets is R$ 514 million. ANEEL has recognized the value of R$ 995 million for this purpose and requested additional information, which will be attended by Eletrosul, seeking recognition of its constant total value of the technical evaluation report.

 

In October 2014, Eletrobras Eletronorte filed within ANEEl its technical appraisal report of the assets of the RBSE/RPC, requiring the complementary amount of R$ 3,547 million in the base date of December 2012, and the net book value of these assets is R$ 1,733 million. Similarly, Eletrobras Chesf presented the valuation report of its transmission assets in March 6, 2015, claiming additional indemnity in the amount of R $ 5,627 million, in which there is then recorded the amount of R$ 1,187 million. To date, ANEEL did not complete the analysis of this report, considering the ANEEL has a period of 150 days from the delivery of the report, to analyze, monitor and approve the required value.

 

 

In December 2014, Eletrobras Chesf, in attendance to ANEEL Normative Resolution 596/2013, submitted supporting documentation to ANEEL of investments linked to reversible assets, not yet amortized or not depreciated, its hydroelectric exploitations renewed the light of Law 12,783/2013. The documentation indicates the R$ 4,802 million value as base value for the said supplementary compensation application. The ANEEL Resolution 596/2013 not set the deadline for the regulator to assess the demand from companies related to generation assets.

 

Eletrobras Furnas requested in December 2014, the extension of the deadline previously set for December 31, 2014 for the delivery of the appraisal report of RBSE (transmission assets), readily served by the granting authority. The EletrobrasFurnas of transmission and generation assets of appraisal reports are being completed and the delivery is expected in the first half of 2015. It is important to clarify that Eletrobras Furnas is compliant with respect to the delivery of appraisal reports of transmission assets, given that the ANEEL Resolution 589/2013 leaves the dealer's discretion the schedule for establishment preparation of this report.

 

Reports of the additional indemnity of Eletrobras Eletronorte renewed generation assets are still in preparation.

 

Regarding the generation assets, the ANEEL Resolution nº 615/2014 determined that the concessionaries should until June 17, 2014, to express interest in receiving the complementary value of the share of investments related to reversible goods, not amortized or not depreciated yet and not indemnified, and shall submit its evaluation reports by 31 December 2015. Thus, the Eletrobras companies achieved the above Resolution shall establish their respective reports during the year 2015.

 

By December 2014, reports already submitted by the subsidiaries of Eletrobras to ANEEL totaled an amount of R$ 9,410 million of additional compensation. However, the effects of the recognition of such indemnifies in the financial statements are conditioned to final approvals by ANEEL. 

 

Additionally, on March 6, 2015, the subsidiary Eletrobras Chesf presented to ANEEL the appraisal report of RBSE/PRC in the amount of R $ 5,672 million, the net book value of these assets of R$ 1,187 million.

 

Onerous Contracts

 

Eletrobras was party to several energy purchase and sale agreements related to concessions which would end between the years 2015 and 2017.  Through the promulgation of Law No. 12,783/2013, several of those contracts became onerous for Eletrobras, considering that they were entered into based on the old tariff levels.  Eletrobras believed that those contracts, based on the old tariff levels, would be profitable.  However, based on the new, lower tariffs, the contracts will result in additional losses for Eletrobras.

 

In 2014 , Eletrobras held reversal of provisions for losses on onerous contracts, relating mainly to the reversal in contract Jirau (R$ 712 million) and Itaparica (R$ 863 million). For further information the reversal of those provisions, see explanatory note no. 35 of Eletrobras’ consolidated financial statements.

 

 

 

 

 

 

 

 

Balance Sheets

 

Corporate fiscal year ending on December 31, 2013 compared to the corporate fiscal year ending on December 31, 2014

 

 

 

 

 

 

Comparison of balance sheet accounts at December 31, 2014 and 2013:

 

ASSETS

 

CURRENT ASSETS

 

Decreased by 21.82%, from R$ 39,079,833 thousand at December 31, 2013 to R$ 30,551,193 at December 31, 2014. The main changes were:

 

Reimbursement rights