Corporate Risk Management is an essential aspect of CTEEP`s management model and is subject to continuous improvement For this reason, the Company keeps a formal risk management policy that entails the collection of information from different areas, with the purpose to enable mapping, monitoring and anticipating the set of risks that may interfere in the smooth management of operations, with an adverse impact on results or impairment of the Company’s operational efficiency. In 2008, CTEEP created a Risk Committee formed by six members, who meet four times a year.

The Company adopts the Integrated Risk Management (IRM) tool, a system intended to assess and monitor risks and the internal process control environment, based on the international methodology named Enterprise Risk Management (ERM). This tool enables the identification of potential risks, so as to provide recommendation of actions to manage such risks throughout all corporate processes. CTEEP’s model aims at tackling themes such as participation in transmission auctions, corporate governance and the Company`s relationship with its subsidiaries.

CTEEP has currently mapped 38 risk scenarios that are continuously monitored and prioritized according to the degree of exposure and potential occurrence. The risks of greater relevance measured by CTEEP are:

       ■   Growth-related;
       ■    Delays in projects due to contractual default;
       ■    Legal issues;
       ■    Regulatory risks;
       ■    Natural hazard risks;
       ■    Human or procedure failures; and
       ■    Accidents involving employees or outsourced workers.

The Company has developed four risk matrices, which enable management of the potential occurrence and the likely impact from each scenario based on four key resources: financial, human, information and image. In addition, the IRM tool is associated to internal controls, coupled with the monitoring of scenarios, which enables the early identification of the probability of failure occurrence.

In this sense, the Company has developed an Emergency Service Plan, which includes logistics information and resources for the recovery of Transmission Lines, thus ensuring their smooth operation. The goal is to cause the least impact on the electric power system, as well as to ensure employees` safety.

The Company provides periodic training to the maintenance staff, which covers the set of measures to be taken in the event of an emergency involving the community, authorities and industrial clients. During 2012, six training programs were offered in the area of risk management culture, totaling 48 hours and involving 58 employees from different areas and hierarchic positions.

Within the scope of financial risk analysis, the company makes use of exchange rate hedging instruments (swap derivatives), which aim at neutralizing forex risks deriving from foreign currency-denominated loans and financing.

With a view to pursue both updating and ongoing evolution of risk management tools, in 2012, the Risk Committee reviewed the risk scenario with regard to the issue involving noncompliant suppliers, alongside with the preparation of quarterly reports containing information on top priority risks. The review carried out by the Committee led to recommendations for improvement, which were put into effect during the course of the year, with special mention to:

Also in 2012, a new strategic map was structured and disclosed, which provides a better alignment of the IRM tool to the issues of sustainability and business perpetuity of both the Company and the ISA Group, considered to be a key corporate management tool.

In the last quarter of the year, CTEEP held the Annual Meeting of Risk Management Teams at ISA. During the event, different themes were discussed, such as the enhancement of the IRM methodology, integration of the information provided by the Internal Audit, IRM and Process Management and the future creation of ISA Captive Reinsurance.