The year 2016 represents a milestone that completes a cycle of profound changes for ISA CTEEP, which began in 2012 with the publication of Provisional Measure No. 579/12, later converted into Law No. 12.783/13. By accepting the extension of the concession agreement, we ushered in a new stage in the Company’s trajectory, in a scenario of great complexity and significant changes in the Brazilian electricity sector.

With courage, determination and leadership, we accepted the challenge of reorganizing the Company, adapting it to a context of drastic reduction in revenue. We embrace the task of further raising the high level of efficiency that ISA CTEEP has always been recognized for. We take on the ongoing commitment to strict financial discipline and cost control. And we work actively to defend the Company’s interests. All of these efforts have earned us valuable achievements and relevant advances, many of which became manifested in 2016.

One of the main events that occurred was the publication of Ordinance 120 by the Ministry of Mines and Energy (MME) on April 20, 2016, which establishes the rules for the payment of non-depreciated assets existing in May 2000 stemming from the concession extension process. Although lower than the amount presented in a report filed with ANEEL on August 13, 2014, the amount of R$ 3.9 billion has already been approved. Even with the progress achieved, we continue to act vis-à-vis the competent authorities to claim fair value for non-depreciated assets.

Another topic of major relevance to ISA CTEEP is related to Law No. 4.819/58. In 2015, the definition of Brazil’s Supreme Court regarding the jurisdiction of the Ordinary Courts, rather than the Labor Courts, to judge the lawsuit that deals with these payments, made significant progress in 2016, through legal decisions favorable to the Company. In particular, there is the debt collection lawsuit that declares the responsibility of the São Paulo State Treasury for transferring the amounts spent by ISA CTEEP on payment of supplementation to those benefited by Law No. 4.819/58 and determines the reimbursement of amounts that had not been previously transferred by the State Treasury. Although they are positive signs, these decisions were insufficient to bring an end to the matter, because of appeals lodged that are still pending judgment. For this reason, we continue to work intensively to resolve this issue and cancel the financial commitment that has negative implications on the Company’s sustainability and growth.

In the regulatory field, we also saw progress in the discussions on the transfer of facilities with voltage below 230 kV, called “Other Transmission Facilities” or “DIT” (Other Transmission Facilities), from the transmission companies to the distribution companies. We believe that the uncertainty surrounding this issue was overcome with Technical Note No. 170/2016 issued by ANEEL, after intense debate with the agents involved, which informed that the compulsory transfer would be restricted to exclusive DITs, i.e., installations with a voltage below 230 kV that serve a single concessionaire. Although it represents impacts for the transmission companies, this change significantly reduces these repercussions.

We also applaud the conditions presented in the transmission auctions held by ANEEL, notably the improvement in the rate of return on investments and the improvement in the deadlines for environmental licensing. These advances have created the right conditions to reach another highlight that marks the year 2016 and ushers in a new cycle for ISA CTEEP: the awarding of three lots of transmission projects. We purchased two lots at auction, in partnership with Taesa, in Bahia and Minas Gerais, and were also awarded an enterprise in Espírito Santo. In all, the contributions in the three lots purchased at auction represent overall investments of R$ 1,148.5 million and an expansion of 625 kilometers of transmission lines and 1,197 MVA of transformation capacity.

Regarding operational performance, we implemented the reorganization of the Technical Directorate, working with a more synergistic model between the Company’s units, and strengthening strategic points of our customer service network. This new manner of acting has led us to obtain, in yet another year, significant indicators of efficiency, such as the Non-Supplied Energy Index (“IENS”), which maintains the Company among the best in the sector.

It was also this qualified effort that enabled us to successfully overcome the challenges we faced in 2016. In June, due to extreme weather events, we faced the largest occurrence in the history of ISA CTEEP in terms of geographic coverage: the collapse of tower structures along nine transmission lines in five different locations in São Paulo state. Despite all the complexity involved in this event, we managed to restore the transmission of energy with speed, quality and safety, averting a possible breakdown of the power grid in the region.

Our efforts in 2016 were also geared toward improving the governance of our subsidiaries. We advanced in the completion of the tests of IE Madeira project, which is now ready to fully enter into commercial operation, allowing the transmission of energy at the entire potential that it has to offer.

Throughout the year, we contributed R$ 191.8 million in projects at ISA CTEEP and its subsidiaries. This amount stems from our demanding view of the profitability of projects, which has led us to adopt a more careful approach in the conduct of these investments, revising our strategy of contributions aimed at obtaining higher returns.

The financial results we achieved in 2016 attest to ISA CTEEP’s commitment to excellence in management and sustainable growth: net operating revenue was R$ 7,789.2 million and net profit recorded at year end was R$ 4,949.3 million. This is an exceptional result – the fruit of our efforts started in 2012 and the recognition of the Company’s regulatory remuneration base in May 2000.

We reaffirm our commitment to dialogue and relationships with our stakeholders, always guided by ethical standards and transparency, and by principles such as the United Nations Global Compact, to which we have been signatories since 2011.

The year 2016 symbolizes the beginning of a new phase for ISA CTEEP. By 2017, we must continue working to maintain efficiency in our operations and the same financial discipline, in order to build sustainable growth pillars with the resources derived from the restoration of the regulatory remuneration base. This challenge was initiated with the design of the enterprises awarded in the last auction, and will continue to be the central focus of our management and our mission.

ISA CTEEP is ready to spearhead a new stage of expansion of the Brazilian electric sector, contributing directly to the resumption of the nation’s growth.

São Paulo State Electrical Energy Transmission Company (CTEEP) is one of the main private concessionaires that operates in granting the public service of electrical energy transmission in Brazil through building, operating, and maintaining substations and transmission lines.G4-3

Responsible for the annual conveyance of roughly 24% of all electricity produced in the country, 60% of the electricity consumed in the Southeast Region, and nearly 100% of the electricity consumed in the state of São Paulo, the Company is headquartered in São Paulo and is present in 16 states across Brazil, either through its own assets or through subsidiaries and shareholdings: Rio Grande do Sul, Santa Catarina, Paraná, São Paulo, Minas Gerais, Espírito Santo, Rondônia, Mato Grosso, Mato Grosso do Sul, Goiás, Tocantins, Maranhão, Piauí, Paraíba, Pernambuco and Alagoas. Their main clients are other concessionaires of public energy services (generators, transmission companies, energy distributors, and free consumers). G4-5, G4-6, G4-8

The operating structure of ISA CTEEP is formed by four regional units, one of them in the city of São Paulo and three of them installed in the countryside of São Paulo State (Bauru, Cabreúva and Taubaté), a Transmission Operation Center (COT) in Jundiaí, SP, and one Backoffice Operation Center (COR) in Cabreúva, SP. G4-6

With facilities located in the state of São Paulo, ISA CTEEP has a transmission network comprised of 14,271.60 km of lines, 19,015.68 km of circuits, 2,358 km of company-owned fiber optic cables, and 108 substations up to 440 KV. Additionally, it owns connection bays at 32 third-party substations. If the subsidiaries and associated companies are added, the extension of ISA CTEEP’s transmission lines totals 18,632.55 km and 25,785.35 km in circuits, with voltages up to 550 kV and 600 kV dc (alternating current line). This network is integrated, allowing access to “free customers,” as well as the connection of generating companies and distribution companies, which carry the electricity to the final consumers. G4-4, G4-EU4

The Company has a ownership interest in the following companies formed for rendering the public service of electric power transmission: G4-4

In 2016, ISA CTEEP recorded net operating revenues of R$ 7,789 million, an increase of 505.2% over 2015, due to the recognition by ANEEL of the Company’s regulatory remuneration base in May 2000. G4-9, G4-13

Among the operational and management changes promoted during the year, we highlight the creation of the Institutional Relations Directorate, composed of the departments of Communication, Regulatory Affairs, Strategy and Innovation, and the new Regulatory Base Management department, as well as the reorganization of the Technical Directorate, which started to operate with a more synergistic model among the units, strengthening strategic points of the customer service network. In addition, in 2016 ISA CTEEP resumed its participation in auctions, purchasing three lots of transmission projects totaling R$ 1,148.5 million and representing an expansion of 625 kilometers of transmission lines and 1,197 MVA of transformation capacity. In the same year, the Replan Substation, located in the city of Paulínia (SP) and focused on meeting the energy demand of a refinery, became part of the ISA CTEEP system.G4-13

ISA CTEEP is a publicly-held company controlled by ISA, with 89.5% of the ordinary share capital and 36% of the total capital, followed by Eletrobras, the largest energy group in Brazil, with 35.4% of total capital, and more 60,000 individuals and legal entities from different countries.G4-7

With the capital increase promoted in 2016, the total number of preferred shares (TRPL 4) held by national investors (79%) and foreign investors (21%) increased from 96,775,022 shares to 100,236,393 shares. ISA CTEEP’s total capital increased from 161,259,455 shares to 164,720,393 shares. Consequently, the percentage of the shareholders’ stakes has changed, as shown below: G4-13

SHAREHOLDING STRUCTURE ON 12/31/2015

ISA is a multinational company that operates in strategic sectors, focusing its activities in electric power transmission, information technology, highway concessions, and real-time intelligent systems management.

Directly, through its 33 branches and subsidiaries, it develops infrastructure projects that contribute to the progress of countries such as Colombia, Brazil, Peru, Chile, Bolivia, Ecuador, Argentina, Panama and other Central American countries.

Strategic long-term investor in linear infrastructure systems, holds a competitive position in Latin America, thanks to the understanding of the regulated markets where it operates, as well as to the skill to carry out projects in an innovative manner and adapting to complex situations in environmental, social, and economic matters.

In electric power transmission segment, expanding, operating and maintaining high-voltage power transmission systems that position it as the largest international electric power transmission company of Latin America, with 42,064 kilometers of high-tension circuits, 81,345 MVA of transformation capacity, besides 5,140 kilometers and 7,940 MVA in construction.

With state and private investors, has shares traded in Colômbia Stock Exchange and ADR’s Level I traded in United States’ OTC (Over the Counter) market. Since 2015, takes part of Dow Jones Sustainability Index (DJSI) of the New York Stock Exchange, which measures management quality, and strategy and performance of companies in matters related to sustainability, proving its commitment to continued optimization of its initiatives in this area.

The year 2016 marked a decade in which ISA assumed the controlling interest of ISA CTEEP, contributing to the achievement of a series of advances and transformations in that period.

Publicly-held and mixed capital company controlled by the Brazilian government, Eletrobras operates in generation, transmission and distribution of electric power and is considered the largest company of power sector in Latin America.

Its structure is formed by 14 subsidiaries, a holding company (Eletrobras Eletropar), a research center (Eletrobras Cepel) and half the capital of Itaipu Binacional.

Through its 231 hydroelectric, thermal, wind, and thermonuclear power plants, more than half of the transmission lines in Brazil and seven distributing companies, Eletrobras delivers electrical energy, well-being, and development for Brazilians.

In 2016, ISA CTEEP’s work was recognized by the market with the following awards and recognitions:

Winner, for the second year in a row, of the Abrasca Award for Best Annual Report, in the category of Publicly-Held Companies with sales revenue up to R$ 3 billion, promoted by the Brazilian Association of Publicly-Held Companies (Abrasca).

Considered one of the 10 best companies in the evaluation of the Association of Capital Market Investment Analysts and Professionals (APIMEC), achieved thanks to the evaluation of its APIMEC meeting held in 2015.

Among the 20 companies with the best reputation of the São Paulo Stock Exchange (Bovespa).

APIMEC-SP’s Gold Assiduity Seal for the 14 years of participation.

Among the 200 largest companies in Latin America in market value, according to the ranking of business magazine, Exame.

One of the 100 largest publicly traded companies and among the 20 companies with the best reputation of the São Paulo Stock Exchange (Bovespa), according to a study prepared by consulting firms Reputation Dividend and MZ.

Elected one of the companies with the best working environment in Brazil, according to the Best Companies to Work ranking prepared by Great Place to Work (GPTW).