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Rio de Janeiro, March 27, 2017 - Eletrobras (Centrais Elétricas Brasileiras SA) [BM & FBOVESPA: ELET3 and ELET6 - NYSE: EBR and EBR-B - Latibex: XELTO and XELTB] the largest company in the electricity sector in Latin America, operating in generation, transmission and distribution, the Parent Company company of 14 subsidiaries, a holding company - Eletropar - a research center - Cepel and accounting for 50% of the capital Itaipu Binacional, announces its results for the period.

Eletrobras presented in 2016 a net profit assigned to controllers R$ 3,426 million, compared to a net loss of R$ 14,442 million recorded in 2015.

In the fourth quarter of 2016 (4Q16), the company presented a net loss in the amount of R$ 6,261 million, compared to a net loss assigned to controllers R$ 10,327 million in the fourth quarter of 2015 (4Q15).

 

 

2016 HIGHLIGHTS:

 

»       Accounting recognition related to RBSE with the following impacts: entry in the amount of R$ 28,601 million of the Transmission Return Rate Update revenue; Income Tax/Social Contribution (IRPJ/CSLL) provision for the recognition of the Basic Network of Existing System (RBSE) in the amount of R$ 9,724 million; and a net effect on the result of R$ 18,876 million;

 

»       Physical Aggregation of 1.465 MW in Power Generation installed capacity;

 

»       Physical Aggregation of 1.766 Km of Transmission Lines;

 

»       Net Operating Revenue in the amount of R$ 60,749 million;

 

»       Itaipu transfer negative in the amount of R$ 347 million;

 

»       CVA negative amount of R$ 339 million;

 

»       Provisions for contingency in the amount of R$ 3,994 million;

 

»       Provisions for the impairment and onerous contract of thermonuclear plant Angra III in the amount of R$ 2,886 million and R$ 1,350 million, respectively;

 

»       Other Impairments (Excluding Angra III) amounting to R$ 2,651 million;

 

»       Provision for onerous contracts (excluding Angra III) in the amount of R$ 844 million;

 

»       Provision for losses on investments in the amount of R$ 1,479 million;

 

»       Reversal of provision for Hydrological Risk in the amount of R$ 451 million;

 

»     Provision concerning the suspension of CDE / CCC payments, within the CDE budget of 2017 in the amount of R$ 742 million;

 

»       Investigation findings in the gross amount of R$ 302 million;

 

»       Negative Net Financial Results in the amount of R$ 5,929 million, impacted by the restatement regarding the compulsory loan processes in the amount of R$ 3,067 million;

 

»     Sum of the Losses of Distribution Companies in the amount of R $ 6,985 million, highlighting the loss of R$ 4,968 million of Amazonas Energia;

 

 

»     Management EBITDA in the amount of R$ 3,496 million;

 

»     Privatization of CEGL-D for a total amount of R$ 2.19 billion, with a premium of 28% in relation to the minimum price approved by the 166th Extraordinary Shareholders' Meeting of Eletrobras, and Eletrobras received the approximate amount of R$ 1.07 billion from Enel and the first offer to employees of R$ 0.5 million from the employees of CELG D who decided to exercise the right to purchase CELG D. However, there was no impact of the sale of CELG-D in the result of the period because it is a subsequent event.

 

 

 

(1)    Does not consider the energy allocated for quotas, from the plants renewed by Law 12.783 / 2013;

(2)    Excludes CELG D and Construction Revenue and Transmission Revenue from RBSE;

(3)    Excludes (2) and expenses with independent research, research findings, contingency provisions, onerous contracts, Impairment, ANEEL CCC provision, Provision for losses on investments, Provision for Hydrological Risk, Equity interests (RBSE CTEEP and SPE Research)

(4)    Excludes (3) and monetary adjustment to compulsory and provision for Income Tax referring to RBSE.

 

 

4Q16 HIGHLIGHTS:

 

 

»    IR Ombudsman launch;

»     Accounting update referring to the RBSE with the following impacts: launching in the revenue of the Transmission Return Rate in the amount of R$ 1,291 million; Provision for IRPJ / CSLL referring to RBSE's recognition of R$ 439 million; And a net effect on income of R$ 851 million;

»    Net Operating Revenue in the amount of R$ 12,294 million;

»    Negative Itaipu Transfer in the amount of R$ 163 million;

»    CVA negative in the amount of R$ 303 million;

»    Provisions for contingency in the amount of R$ 1,208 million;

»    Impairment in the net amount of R$ 2,926 million;

»    Provision for Losses on Investments in the amount of R$ 1,479 million;

»    Provision for onerous contracts in the amount of R$ 1,061 million;

»     Provision concerning the suspension of CDE / CCC payments, within the CDE budget of 2017, in the amount of R$ 742 million;

»    Reversal of provision for Hydrological Risk in the amount of R$ 451 million;

»    Negative Net Financial Results in the amount of R$ 1,863 million, impacted by the restatement regarding the compulsory loan processes in the amount R$ 1,904 million;

»     Consolidation of CELG D, since the purchase and sale agreement was only signed in February 2017, and therefore deconsolidation should occur in 1Q17.

 

 

 

 

 

 

 

 

* Excludes results CELG D, with construction revenues and expenses, transmission revenue with RBSE, expenditure on independent research, findings of the investigation, impairment, Onerous contracts, provisions for contingencies, CCC ANEEL provision, Provision for Hydrological Risk, provision for losses on investments, the result of CTEEP's shareholdings that were impacted by the RBSE and research in the SPES, monetary restatement of compulsory loans and provision for income tax / social contribution on RBSE.

 

 

 

 

 

I.1 Main Statements of Income variations

Variations of DRE (2016 x 2015)

The 2016 income records an  increase by 124% relative to 2015, with a net income attributed to the controlling in the amount of R$ 3,426 million in 2016, compared to a net loss attributable to controlling in the amount of R$ 14,442 million in 2015.

The Management Income in 2016 increased from a Management net loss in the amount of R$ 705 million in 2015, compared to a Management net loss in the amount of R$ 118 million in 2016.

Operating Income

Net Management Operating Revenue, amounting to R$ 25,981 million presented, in 2016, an increase by 3.4% compared to 2015, when it was recorded in the amount of R$ 25,131 million.

Net Operating Revenue, in the amount of R$ 60,749 million,  presented, in 2016, a increase by 86.4% compared to 2015, when it was recorded in the amount of R$ 32,589 million. In the analysis by segments, reported in the IFRS, we present the following highlights:

»             Generation revenues decreased by 5.1%, from R$ 19,959 million in 2015 to R$ 18,947 million in 2016. The sale of energy in the spot market decreased from R$ 1,812million in 2015 to R$ 1,242 million in 2016, due mainly to the reduction of the Differences Settlement Price (PLD) in 2016. Supply revenue also presented a 18% reduction, from R$ 3,572 million in 2015 to R$ 2,946 million in 2016, mainly due to the (i) effect of the changes in the conditions contracted by Chesf for the supply to Northeastern industries, as established by Law No. 13,182/2015, which established, on the occasion of the extension of the Sobradinho HPP Concession, and consequently the signature of the additives to contracts with industrial consumers, the application of an additional tariff adjustment, which was only exceptionally effective during the second half of 2015; and (ii) effect of the unbundling of Amazonas Energia, since the electricity sold from the generation assets, which was previously classified as a supply within the Amazonas D, began to be recorded in the Supply Account at Amazon GT, excluding effect on the outcome consolidated 2016 due to the consolidation of Eletrobras; and (iii) Sales of contracts with Albras and South 32 (former BHP Billiton), Eletronorte whose contracts are influenced by exchange rate volatility, aluminum price in the international market (LME). Supply revenue increased from R$ 12,310 million in 2015 to R$ 12,886 million in 2016, driven by revenue growth in the subsidiary Eletronuclear, due to the update of contracted revenue in 2016 (pursuant to RH ANEEL 2,006) for Angra 1 and 2 and the positive balance for the variable portion of these plants. The total volume of energy sold by Eletrobras companies increased from 158 TWh in 2015 to 162 TWh in 2016. Revenues from operation and maintenance of power plants modernized pursuant to Law 12,783/2013 increased from R$ 1,883 million in 2015 to R$ 2,179 million in 2016, influenced mainly by the annual adjustment of RAG, which occurred in July 2016. Construction revenue decreased from R$ 148 million in 2015 to R$ 41 million in 2016, but excluding effect on the result since it equivalent value at the cost of construction. Itaipu transfer decreased from a positive amount of R$ 234 million in 2015 to a loss by R$ 347 million in 2016, influenced by the effects of

 

the dollar's variation on monetary adjustment based on the American indices Commercial Price and Industrial goods (details on the Itaipu effect on item II.2).

»             Transmission Revenues increased by 498%, from R$ 5,611 million in 2015 to R$ 33,557 million in 2016, influenced mainly by the effect of Ordinance No. 120, of April 20, 2016, issued by the Ministry of Mines and Energy, which established the terms of payment and remuneration on the RBSE, allowing the accounting record of the credit with an impact on transmission revenue, in the transmission return rate updates account, in the amount of R$ 28,601 million. Transmission revenues, excluding the effects of accounting for RBSE and construction revenues, would have decreased by 11.7% influenced mainly by the decrease in construction revenue, which decreased from R$ 2,078 million in 2015 to R$ 1,175 million in 2016, but excluding effect on the result, since it has equivalent amount recorded as construction cost. Operation and Maintenance Revenues of modernized and non modernized transmission lines increased from R$ 2,696 million in 2015 to R$ 2,976 million in 2016, influenced mainly by the annual RAP review. Excluding revenues from RBSE, the revenue from transmission investment return would decrease from R$ 838 million in 2015 to 805 million in 2016 due to the lower volume of investments in the period. Operation and Maintenance Revenues from modernized and non modernized transmission lines increased from R$ 2,696 million in 2015 to R$ 2,976 million in 2016, influenced mainly by the annual RAP review.

»              Distribution Segment Revenue decreased by 0.8%, from R$ 16,171 million in 2015 to R$ 16,034 million in 2016. This reduction is due mainly to reduced income from CVA, which decreased from R$ 324 million (revenue) in 2015 to R$ 339 million (expense) in 2016, due mainly to the due constitution parcel calculation, affected by over contracting and the difference between the price considered for the average ACR in tariffs and the average price of energy purchase contracts during the year 2016, highlighting the subsidiaries CELG-D, Amazonas Energia and Ceal. Supply revenues increased by 2.5%, from R$ 14,835 million in 2015 to R$ 15,208 million in 201 in function of the tariff readjustments. The amount of energy sold increased from 29.8 TWh in 2015 to 30.4 TWh in 2016. Construction revenue increased from R$ 1,012 millionIn 2015 to R$ 1,166 million in 2016, but excluding effect on the outcome as it has equivalent amount recorded as construction cost.

 

Other Revenues grew by 65%, from R$ 1,484 million in 2015 to R$ 2,450 million in 2016, mainly due to the reclassification of Distribution Revenues - TUSD in the subsidiary CEPISA.

 

 

 

 

 

Operating costs

 

Management Operating increased by 6%, from an amount of R$ 10,642 million in 2015 to an amount of R$ 11,238 in 2016, according to the following table:

 

In the analysis of the reported IFRS , we present the following highlights:

Operating costs decreased by 4.6%, from an amount of R$ 16,992 million in 2015 to an amount R$ 16,211 million in 2016.

- Electricity Purchased for Resale increased by 4.6%, from R$ 10,766 million in 2015 to R$ 11,264 million in 2016 influenced mainly by the energy purchased for Proinfa. Of the total the energy purchased for resale, R$ 4,001 million refer to purchased by Holding and the generation companies (excluding the transactions between the companies controlled by Eletrobras), in particular to comply with the PPA agreements entered into under Project Finance of SPEs in which Eletrobras Companies has an equity interest highlighting the energy purchased from Teles Pires and Jirau in 2016. The energy purchased for resale by distributors, in the amount of R$ 7,263 million, was strongly influenced by the interruption of gas supplies for the thermal plant Aparecida in the northern region.

- An increase by 3.9% was recorded in the Use of Network account: and expense in the amount of R$ 1,738 million in 2015, compared to an expense in the amount of R$ 1,805 million in 2016, influenced by the entry into operation of wind power plants.

- The Fuel for Electricity Production account recorded a 39% reduction: an expense in the amount of R$ 1,250 million was recorded in 2015, compared to an expense in the amount of R$ 760 million in 2016, mainly due for the Aparecida UTE interruption of gas supply to Amazonas Energia, the deactivation of some Amazonas Energias’ plants that operated with fuel and decreased generation in thermal power plants of Eletrobras companies in 2016, especially UTE Santa Cruz, UTE Roberto Silveira and UTE UTE Aparecida and Mauá (Block III).

Operating expenses

Operating expenses, in the managerial view, increased by 4,4%, from R$ 14,068 million in 2015 to R$ 14,693 million in 2016, according to the following table:

 

 

In the analysis of the reported IFRS, we present the following highlights:

Operating Expenses increased by 3,4%, from R$ 28,673 million in 2015 to R$ 29,699 million in 2016.

- In 2016, the sum of Personnel, Materials, Services And Other (PMSO) accounts increased by 12,76% from R$ 11,842 million in 2015 to R$ 12,768 million in 2016.

The Personnel account increased by 9.1%, from R$ 6,005 million in 2015 to R$ 6,549 million in 2016, influenced by the collective labor agreements in 2016, of about 9% and also for the expenses of Eletronorte arising from the termination of the injunction (R$ 49 million) and the administrative agreement of uninterrupted shift of relay (R$ 38 million). The Services account increased by 9.9%, from R$ 3,172 million in 2015 to R$ 3,485 million in 2016, due mainly to expenses for internal independent investigation in the amount of R$ 291 million in 2016. The Materials account increased by 3.5%, from R$ 318 million in 2015 to R$ 330 million in 2016, with an increase in expenses due to the paralysis of Angra 3's work, partially offset by the reduction in CGTEE's lime costs. The Other Expenses account increased by 2,5%, from R$ 2,347 million in 2015 to R$ 2,405 million in 2016, impacted by the recording of "investigation findings" in the amount of R$ 211 million.

 

 

 

 

 

As mentioned above, operating expenses were influenced by the outcome of the independent investigation conducted by Hogan Lovells, in the gross amount of R$ 300 million and the net amount of R$ 211 million in the account other operating expenses, considering that there was a reversal of impairment previously recorded on certain projects, which have been recorded in the 3Q16 as expenses, as shown the table below, and the recording of the findings of SPE Norte Energia (SHU Belo Monte) was recorded in the equity interest account. It is worth highlighting that, in the 2014 and 2015 20F Forms, these findings were recorded at different times (namely, US$ 4 million in the 2014 20F and R$ 154 million in the 2015 20F), whereas the amounts resulting from the independent investigation were recorded in each issue of its location in the financial statement that was open. For the purpose of statement filing with the CVM, the amounts were fully recorded in the 3Q16. 

 

 

 

- Operating provisions decreased from R$ 14,639 million in 2015 to R$ 14,415 million in 2016. In 2016, operating provisions were influenced mainly by impairment in the amount of R$ 5,537 million in the generation and transmission companies and the provision for onerous contract in the amount of R$ 2,194 million, the largest impact related mainly to the development of the Angra 3 nuclear power plant (see Item I.3). Another significant impact is the provision for contingencies in the amount of R$ 3,994 million, caused mainly by the provision relating to court proceedings involving the compulsory loan in the amount of R$ 2,065 million, provision for civil lawsuits filed by independent producers against Amazonas D, in the amount of R$ 400 million; provision related to the lawsuit filed by the KFW Bank, approximately in the amount of R$ 235 million, related to a guarantee not recognized by CGTEE (See Note 30 of the consolidated financial statements); and Provision referring to Pará Tax charged from Eletronorte (R$ 346 million).  Eletrobras also recorded provision for losses on investments in the amount of R$ 1,479 million (highlight to impairments applied to SPEs under the investor's perspective at Belo Monte Transmissora, SINOP, Manuas Transmissora, Norte Brasil Transmissora) and a provision in the amount of R$ 742 million, relating to credits owed by the CDE /CCC, due to the issuing of Resolution No. 2202, which approved the CDE, but suspending the payment of a relevant portion of these credits until Aneel has completed its inspection (see Note 1 to this Report)  There was also the reversal of the provision for Hydrological Risk due to the renegotiation of the hydrological risk held in 2015, by Eletronorte, amounting to R$ 451 million. We also highlight the allowance for loan losses of R$ 334 million, impacted by the reversal of Ceal's (R$ 57 million) and Cepisa (R$ 91 million) PCLD due to repricing with class customers Public service, and the creation of PCLD by Amazonas D (R$ 205 million).

 

Note: Negative values ​​in the table above indicate reversals of provisions.

 

Shareholdings

- Shareholdings increased by 486% resulting from the accounting of a positive amount of R$ 531 million in 2015, to a positive amount R$ 3,114 million in 2016, with a highlight on the recognition of RBSE by the related company CTEEP, with an impact on the Eletrobras equity in the amount of R$ 1,603 million, partially offset by the decrease resulting from the research findings at SPE Belo Monte (R$ 91 million).

Financial Result

- The Net Financial Result increased from a net expense of R$ 1,699 million in 2015 to a net expense of R$ 5,929 million in 2016. This variation is mainly the net monetary adjustment account, which decreased 164%, from a revenue of R$ 2,403 million in 2015 to an expense of R$ 1,600 million in 2016, mainly due to the accounting for the monetary restatement of the lawsuits Of compulsory loan, in the amount of R$ 3,067 million in 2016. In addition, the financial result was influenced by the monetary restatement of the charges related to the fuel suppliers of the isolated system, including the debt renegotiated with Petrobras / Br Distribuidora, in 2014, especially the debt of Amazonas D. In addition, the financial result was influenced by the monetary adjustment of the charges related to the fuel suppliers of the isolated system, including the debt renegotiated with Petrobras/Br Distribuidora, in 2014, especially the debt from Amazonas D. In addition, in 2015, full interest and monetary restatement related to the 1st tranche of credits related to the non-depreciated and undepreciated assets of the concessions renewed by Law No. 12,783 / 2013, reflected in the compensation account due to the Payment of the tranche. The financial result was also impacted by the exchange rate, which increased from a net revenue of R$ 33 million in 2015 for a net revenue of R$ 138 million in 2016, due to the dollar variation in the period.

Income tax and Social Contribution

The provision for income tax and social contribution increased from an expense of R$ 710 million in 2015 to an expense of R$ 8,511 million in the 2016, influenced by the increase in deferred taxes, mainly due to the effect of accounting for the Basic Network Existing System (RBSE). The Provision for RBSE was R$ 9,724 million.

 

 

Variations of the Statements (4Q16 x 4Q15)

 

Management Income for the 4Q16 recorded a 187%, when it obtained a managerial profit of R $ 802 million, compared to the managerial loss in relation to the R$ 796 million in 4Q15.

In the 4Q16 IFRS result, Eletrobras recorded a net loss attributable to controlling in the amount of R$ 6,261 million, compared to a net loss attributed to controlling in the amount of R$ 10,327 million in the 4Q15.

Operating Income

Net Management Operating Revenue, amounting to R$ 6,469 million increased by 18% in the 4Q16, compared to 4Q15, when it was recorded in the amount of R$ 5,592 million.

Net Operating Revenue, in the amount of R$ 12,294, increased by 56% in the 4Q16, relative to4Q15, when it was recorded in the amount of R$ 7,861 million. In the analysis by segments, we present the following highlights:

»     Generation revenues increased by 5.6%, from R$ 4,244 million in the 4Q15 to R$ 4,482 million in the 4Q16.

»     This increase was mainly influenced by the increase of the short-term energy sales revenue (CCEE), which went from R$ 209 million (negative) in 4Q15, to R$ 307 million (positive) in 4Q16,  reflecting the rectification of the 2015 revenue in the subsidiary Amazonas Energia in the face of problems related to measurement and other technical issues. The Supply revenue increase from R$ 2,966 million in the 4Q15 to R$ 3,514 million in the 4Q16. Sales revenues decreased by 9%, from R$ 788 million in the 4Q15 to R$ 293 million in the 4Q16, influenced by changes in contractual conditions for the sale to Northeastern industries by Chesf, as established by Law No. 13,182 / 2015. Operations and Maintenance revenue from plants modernized pursuant to Law 12.783/2013 increased from R$ 487 million in the 4Q15 to R$ 583 million in the 4Q16, mainly influenced by the annual adjustment of RAG, which occurred in July 2016. The Itaipu Transfer decreased from a positive amount of R$ 170 million in the 4Q15 to a negative amount of 163 million in the 4Q16, influenced by the effects of the dollar's variation on monetary adjustment based on the American price indices Commercial Price and Industrial Goods. The total volume of energy sold by Eletrobras companies increased from 25.0 TWh in the 4Q15 to 29.3 TWh in the 4Q16. There was also a reduction in Construction Revenue from R$ 42 million (negative) in 4Q15 to R$ 61 million (negative) in 4Q16, but has no effect on 4Q16 result, since it has an equivalent amount recorded at cost of construction

»     Transmission Revenues increased by 34.5%, from R$ 1,859 million in the 4Q15 to R$ 2,502 million in the 4Q16, influenced mainly by the effect of Ordinance No. 120, of April 20, 2016, issued by the Ministry of Mines and Energy, which established the terms for the payment and remuneration on the Basic Network of Existing System (RBSE), allowing the accounting record of said credit, with an impact on transmission revenue, in the Transmission return rates update account in the amount of R$ 1,291 million. Excluding the effects of RBSE accounting and transmission construction revenue, the transmission revenues would have decreased by 35%

 

influenced by construction revenue wich decreased from R$ 911 in the 4Q15 to R$ 239 million to the 4Q16, with no effect to the result, as it has equivalent amount recorded as cost of construction. Excluding RBSE, the revenue from return rates update would decrease by 3%, from R$ 235 million in the 4Q15 to R$ 227 million in the 4Q16. Revenue from Operations and Maintenance of modernized (O & M regime) and non modernized (Operating regime) transmission lines increased by 4%, from R$ 714 million in the 4Q15 to R$ 745 million in the 4Q16, due to the annual adjustment, partially offset by the anticipation of variable revenues and installments in the year 2015. In 2016, in addition to not having anticipated revenue, there were variable returns.

»     Distribution segment revenues increased by 95%, from R$ 4,629 million in the 4Q15 to R$ 9,012 million in the 4Q16, due to the consolidation  of CELG-D in the 4Q16. Excluding the revenues from CELG-D, distribution revenues would decrease by 33%. Supply revenue (excluding CELG-D), decreased by 45%, mainly influenced by the reduction in revenues due to tariff flag change, to negative adjustments in some distribution companies and to the downturn in the economy. There was also a reduction by 11% in CVA and other financial components, which decreased from a net income of R$ 339 million in the 4Q15 to a net expense of R$ 303 million in the 4Q16. Construction revenue increased from R$ 391 million in the 4Q15 to R$ 571 million in the 4Q16, but with no effect on the result as it has equivalent amount recorded as cost of construction. The amount of energy sold decreased from 8.0 TWh in the 4Q15 to 7.8 TWh in the 4Q16.

 

 

Operating Costs

Management Operating costs, amounting to R$ 2,250 million, increased by 59% in the 4Q16, compared to 4Q15, when R$ 1,415 million were recorded.

 

Operating costs, in the IFRS view, increased by 53%, from R$ 3,471 million in the 4Q15 to R$ 5,591 million in the 4Q16. In the analysis, we present the following highlights:

- Electricity purchased for resale increased by 140%, from R$ 1,793 million in the 4Q15 to R$ 4,304 million in the 4Q16, by the retroactive accounting of CELG-D. Excluding CELG-D, Electricity purchased for

 

resale would have increased by 82%, from R$ 1,042 million in the 4Q15 to R$ 1,898 million in the 4Q16. This result was mainly influenced due to the interruption of the gas supply to the Aparecida UTE in the north of the country, responsible for the generation of energy to supply demand from Amazonas D; Due to the significant change in the average ACR from R$ 192.61 / MWh in 2015 to R$ 295.10 / MWh in 2016, as established by Aneel, since this is established by ANEEL with annual validity and is used as a cost restrictor to be trasnfered to the consumer tariff, whichever is above is covered through CCC / CDE subsidy, or system service charge; increase in Ceron's reserve power costs, whose contracting mechanism was created to increase the security of electricity supply of the National Interconnected System (SIN). In addition, in 4Q15, there was an atypical effect, which did not occur in 2016, as some generation subsidiaries registered the effects of the Hydrological Risk Repactuation Adjustment Factor (GSF), in the amount of R$ 430 million, as a rectification of the cost of the electricity purchased for resale, reducing in that amount the cost of energy purchased for resale in 4Q15.

- The fuel for electricity production account recorded in the 4Q15, a net income of R$ 14 million, while in the 4Q16 it recorded revenues in the amount of R$ 36 million. The result of the 4Q15 was impacted by the ANEEL resolution 679/2015, issued in September, which modified the criteria for refund of fuel in order to reduce the time of receipt of these funds by the supplier. These results were impacted by ANEEL's resolution 679/2015, issued in September, which changed the fuel reimbursement criterion, in order to reduce the supplier's term of receipt of these resources;  and the interruption of fuel gas supply to Aparecida UTE, the deactivation of some Amazonas Energia plants that operated with fuel and the decrease of the generation in the thermal plants of the Eletrobras companies in 2016, in particular UTE Santa Cruz, UTE Roberto Silveira and UTE Aparecida And UTE Mauá (Block III)

Operating Expenses

Management Operating expenses, amounting to R$ 4,575 million, increased in the 4Q16 by 2% compared to the 4Q15, when they were recorded in the amount of R$ 4,676 million.

 

 

 

Operating expenses, in the IFRS view, decreased by 7,8%, from R$ 13,699 million in the 4Q15 to R$ 12,627 million in the 4Q16. In the analysis, we present the following highlights:

- In the 4Q16, the sum of Personnel, Materials, Services and Other (PMSO) accounts increased by 18,3%, from R$ 3,747 million in the 4Q15 to R$ 4,432 million in the 4Q16, influenced by the retroactive accounting effect of CELG D to early 2016. Excluding CELG-D, the Personnel account would have increased by 15.7%, from R$ 1,554 million in the 4Q15 to R$ 1,797 million in the 4Q16, mainly influenced by the adjustment of the 2016-2017 collective labor agreement around 9%. The Materials account, excluding CELG-D, would have increased by 15,5%, from R$ 81 million in the 4Q15 to R$ 94 million in the 4Q16. Excluding CELG-D and expenditures on internal independent research (which totaled R$ 80 million), the Services account would have decreased by 4,3%, from R$ 969  million in the 4Q15 to R$ 927 million in the 4Q16, influenced by the annual adjustment of the contracts. The Other operating expenses account, excluding CELG-D, would have decreased by 25,2%, from R$ 871 million in the 4Q15 to R$ 546 million in the 4Q16.

 

- Operating provisions increased from R$ 9,392 million in the 4Q15 to a provision of R$ 7,587 million in the 4Q16. In the 4Q16, operating provisions were influenced mainly by the Judicial Provision for Contingencies in the amount of R$ 1,208 million, with emphasis on the actions filed by the PIEs against Amazonas D and the action of KFW Bank against CGTEE and (See analysis of financial statements of 2016). Operating Provisions were also strongly influenced by impairment in the amount of R$ 2.926 million, the provision for onerous contract in the amount of R$ 564 million, the provision for losses on investments amounting to R$ 1,479 million (related to impairments on SPEs under the investor's perspective) and by the provision of credits suspended by ANEEL related to CCC, within the scope of the CDE 2017 budget (See Note 1 to the Report and 3 of the Financial Statements), in the amount of R$ 742 million.  The provisions were partially offset by the reversal of the provision for Hydrological risk in the amount of R$ 451 million in the subsidiary Eletronorte.

 

Note: Negative values ​​in the table above indicate reversals of provisions.

 

Shareholdings

- Shareholdings recorded a positive amount of R$ 347 million in the 4Q15 and a positive amount of R$ 625 million in the 4Q16, an effect of the improvement of the results of projects where Eletrobras has participation, highlighting the reversal of the provision for exclusive responsibility and transmission system use charges - EUST, performed by SPE ESBR Participações (SHU Jirau).

 

Financial Result

- The Net Financial Result decreased from a net expense of R$ 1,686 million in the 4Q15 to a net expense of R$ 1,863 million in the 4Q16. This variation is mainly due to the net monetary adjustment account, which increased from a revenue of R $ 1.592 million in 4Q15 to an expense of R $ 1,648 million in 4Q16, mainly influenced by the accounting for monetary restatement of loans Reserve requirements in the amount of R $ 1,068 million.

 

I.2 Energy Sales

 

I.2.1 Energy Sold in 2016 - Generation Companies - TWh

 

Eletrobras sold, in 2016,  162,1 TWh, compared to 158,2 TWh traded in the same period last year, representing an increase by 2,5%.

 

  

 

 

 

(1)   Plants modernized by Law 12.783 / 13 - quotas (2)     ( 2 )  Plants under operation regime: ACR Sales and ACL

 

 

 

 

 

 

 

I.2.2 Energy Sold in 2016 – Distribution Companies - TWh

 

Eletrobras Distribution Companies sold, in 2016, 30,4 TWh of energy, compared to 29,8 TWh traded in the same period last year – an increase by 2,1%.

 

* CELG -D was privatized on November 30, 2016, however, the share purchase agreement was only signed in February 2017 being, CELG-D, consolidated by Eletrobras on December 31, 2016.

** It takes into account only the captive market and supply.

 

I.3 impairments and Onerous Contracts

 

*The impairment reversals that occurred in the 4Q16 regarding Angra 3 and Simplicio were reclassified as operating expenses, due to the results of the independent investigation.

 

* The table considers an increase by R$ 50 million from the onerous contract of Amazonas Energia intangible assets, which does not transit in the result.

 

I.4 Consolidated EBITDA 

 

 

I.4.1 EBITDA of Subsidiaries *

 

In 2016, Eletrobras’ subsidiaries’ EBITDA was positive in the amount of R$ 21,290 million.

In the 4Q16, the sum of Eletrobras’ subsidiaries’ EBITDA was negative in the amount of R$ 3,874 million, representing a variation by 8% compared to negative EBITDA of R$ 4,198 million in the 4Q15.

 

 

EBITDA = Net profit for the period plus income taxes, net financial expenses, interest income and depreciation, amortization and depletion, as determined by the CVM Instruction 527/2012.

pp = percentage points

Source: Financial Statements presented in the Appendix to this document.

 

I.6 Net Debt

 

1. Excluded from the gross debt: financing granted with funds from RGR, owed by any companies out of the Eletrobras group (R$ 1,885 million) and credits for the federalization of the Distribution Companies, pursuant to Article 21a and 21b of Law 12.783/2013 (R$ 1,355 million).

2. Receivables due to the account of RGR (1.885 million) by any Eletrobras companies were excluded.

 

 

II.          Company Results Analysis

 

Eletrobras recorded, in the results of the 4Q16, a net loss in the amount of R$ 6,261 million, compared to a loss of R$ 10,327 million in the 4Q15.

Eletrobras recorded, in the result of 2016, a net income in the amount of R$ 3,426 million, compared to a net loss of R$ 14,442 million recorded in 2015.

This result 2016 was decisively influenced by: (i) Equity in the amount of R$ 20,465 million, mainly influenced by the effect of Ordinance No. 120, issued by the Ministry of Mines and Energy on April 20, 2016, which established the terms for the payment and remuneration on the Basic Network Existing System (RBSE); (ii) Unsecured liabilities in subsidiaries in the amount of R$ 12.155 million impacted, mainly by Eletronuclear subsidiaries (R$ 4,072 million), Amazonas Energia Distribution (R$ 4,968 million), Ceron (R$ 835 million) and CGTEE (R$ 1.073 million); (iii) Provisions for legal contingencies, amounting to R$ 2,420 million, mainly due to the provisions relating to judicial proceedings of compulsory loan (See note number 30 of the Financial Statements of 3Q16); and (iv) Monetary restatements in the net negative amount of R$ 2,035 million, strongly influenced by the monetary restatement of the provision for compulsory loans. The chart below shows a comparison of the results of Eletrobras holding for the nine months of 2016 and 2015.

Outcome evolution R$ million

 

 

                                                    

 

 

 

                                                                                                         

Note: The results of each subsidiary is in the Annex.

 

 

II.1 Eletrobras Shareholdings

 

In 2016, the result of Shareholdings positively impacted the Company's results in the amount of R$ 20,465 million, due to the evaluation of corporate investments, primarily due to the result of the equity of subsidiaries, mainly influenced by the effect of Ordinance No 120, issued by the Ministry of Mines and Energy on April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE).

In the 4Q16, the result of Shareholdings negatively impacted the Company's results in the amount of R$ 1,034 million, better than the Shareholdings in the negative amount of R$ 8,097 million recorded in the 4Q15, as follows:

 

 

II.2.  Energy Trading by the Parent Company Company

 

a.Itaipu Binacional