Corporate p Presentation 2015 13/07
AES Corporation Global Company Natural g gas and coal fired thermal plants 36 GW installed capacity Providing services to over 100 million people 18.5 thousand employees 25.6 GW of installed capacity Over 8.3 GW of Renewable sources¹ AES Corp is present in 18 countries and 4 continents Distributed energy +60MW of solar PV² projects World leader in Energy Storage Total of 228 MW³ 1 Includes hydro, wind, solar, energy storage, and biomass 2 - PV Photovoltaic; 3 - Operating and under construction 1
AES Brasil SBU Represents 13% of 2014 AES Corp adjusted PTC¹ 2014 AES Corp adjusted PTC¹ AES Brasil is one of AES Corp priority markets 19% 19% 2% 13% 24% 23% AES Corp is organized in Six Strategic Business Units (SBU), focused on key markets US Andes Brazil MCAC² EMEA³ Asia 1 Pre-tax contribution (a non-gaap financial measure); 2 Mexico, Central America and Caribbean; 3 Europe, Middle-East and Africa 2
Leading position in the energy sector in Brazil Generation 1 Market Share Distribution 2 Market Share AES Tietê 13% 2,658 MW Concession ends in 2029 AES Serviços AES Eletropaulo 20m people served 6.8m customers Concession ends in 2028 2% AES Uruguaiana 640 MW AES Sul 3.7m people served 1.3m customers Concession ends in 2027 98% 87% AES Brasil Other 1 installed capacity as of 2015; 2 Consumption (GWh) in 2014 (Source: ABRADEE) 3
History in Brazil Solid participation in distribution and generation businesses 1995 1998 2000 2003 AES Brasil +19 years presence in Brazil Beginning of AES Uruguaiana construction AES Corp acquired AES Sul through privatization process 1997 Privatization of AES Eletropaulo by a consortium comprised by AES Corp and other local Privatization of AES Tietê and international companies 1999 AES Uruguaiana beginning of operation AES Corp increases its interest in AES Eletropaulo and AES Tietê 2001 2002 Incorporation of Companhia Brasiliana de Energia and execution of shareholders agreement with BNDES 4
AES Brasil Mission, Vision and Values Mission Vision To promote well being and development To be the leading power company in with the safe, sustainable and reliable Brazil that safely provides sustainable, provision of energy solutions reliable and affordable energy Values Put safety first Act with integrity Honor commitments Strive for excellence Have fun through work 5 5
AES Brasil environmental responsibility Reservoirs repopulation Reforesting, border and archeological management programs Water quality monitoring Recycling and waste disposal programs Programs aiming to reduce CO2 emissions Risk Management and identification of opportunities related to climate change 6 6
AES Brasil social responsibility Access to reliable energy through social development Education for efficient and safe use of electricity Program which offer cultural and sports activities simulating citizenship practices Sustainable partnership commitment with sustainable development at AES Brasil s value chain 7 7
INVESTMENT PLAN 48 2015-2019 2015 1% 10% R$ 4.8 89% billion R$ 3.2 billion R$ 487 million 2019 Generation Distribution Services R$ 1.1 billion R$ 19 million 8
AES Brasil widely recognized AES Eletropaulo AES Tietê AES Brasil AES Sul 9
National Interconnected System GENERATION Distribution Substation Thermal Plant Hydroelectric and Solar Plant Renewable Energy Substation Transformer DISTRIBUTION Substation Transformer TRANSMISSION COMERCIAL AND INDUSTRIAL CUSTOMERS RESIDENTIAL CUSTOMERS 10
Energy sector in Brazil: businesses segments Generation¹ Transmission² Distribution² 4,127 power plants 138GW of installed capacity System based on hydro plants (66%) Contracting environment: free and regulated markets 77 companies High voltage transmission (>230 kv) 116,767km lines (National Integrated System) Regulated tariff (annually adjusted by inflation) i 63 distribution companies 342 TWh energy distributed 190million consumers Annual tariff adjustment Tariff reset every four or five years Regulated contracting environment Sources: EPE, ANEEL, ONS, ABRADEE and Instituto Acende Brasil 1 Refers to 2015 data; 2 Refers to 2014 data 11
Ownership Structure AES Corp C 50.00% + 1 share P 0.00% + 7 shares T 46.15% Cia. Brasiliana de Energia BNDES C 50.00% - 1 share P 100.00% - 7 shares T 53.85% C = Common Share P = Preferred Share T = Total AES Sul T 99.70% C 99.99% T 99.99% C 99.99% T 99.70% AES AES AES Serviços Uruguaiana Tiête C 71.35% P 32.34% T 52.55% T 98.26% AES Elpa C 77.81% P 0.00% T 30.97% C 0.00% P 7.38% T 4.44% AES Eletropaulo ¹ ¹ Free Float Others² Market Cap³ 16.1% 19.2% 56.3% 8.5% US$ 0.9 bi 24.2% 28.3% 39.5% 8.0% US$ 2.1 bi 1 Parent, AES Corp and BNDES, have similar voting capital on each of the companies: approx 35,9% on AES Eletropaulo and 32,9% on AES Tietê; 2 Includes Federal Government and Eletrobrás shares in AES Eletropaulo and AES Tietê, respectively; 3 Base: 07/10/2015. FX rate 3.1897 BRL/1 USD 12
3 rd largest among private generation companies Concession expires in 2029 Market Cap: US$ 2.1 billion 1 Brazil 9 hydroelectric plants and 3 SHP³ in São Paulo Installed capacity of 2,658 MW, physical guarantee 2 of 1,278 MWavg Physical guarantee fully contracted with AES Eletropaulo through Dec, 2015 Água Vermelha (1.396 MW) Nova Avanhandava (347 MW) Promissão (264 MW) Ibitinga(132 MW) Bariri (143 MW) Barra Bonita (141 MW) Dividend Yield: - 2014: 9.7% PN and 10.4% ON Euclides de Cunha (109 MW) Caconde (80MW) - Last 3 years avg: 11.0% PN and 11.4% ON Limoeiro (32 MW) Investment grade (Moody s): Mogi Guaçu (7 MW) São Joaquim (3 MW) - National: Aa1 São José (4 MW) - International: Baa3 1 Base: 07/10/2015. FX rate 3.1897 BRL/1 USD; 2 - Amount of energy allowed to be contracted in the long term; 3 SHP Small hydroelectric plant (installed capacity<30mw) 13
Largest distribution company in Latin America 24 cities attended in São Paulo metropolitan area Concession contract expires in 2028 Market Cap: US$ 902 million¹ Brazil Brazil São Paulo 16% of Brazil s GDP² in its concession area 4,526 km 2 concession area 46 thousand km of distribution and transmission lines 6.8 million customers 20 million people served 46 TWh distributed in 2014 6,294 employees as of July 2015 West, South, & ABC North & East Investment Grade: Fitch S&P Moody s National A+ AA- Aa3 International BB BB Ba2 1 Base: 07/10/2015; 2 - Source: IBGE, 2010. 14
SAIDI and SAIFI 30% better than in 2009, within regulatory limits Operating costs 2% below the regulatory levels 118 cities attended in Rio Grande do Sul state Concession contract expires in 2027 Brazil Rio Grande Do Sul 1.3 million customers 9,528 GWh sold in 2014 99,512 km² concession area 3.7 million people served 1,951 direct employees¹ Regional GDP growth of 3.2%² Metropolitan Valley Region Northern Border Southern Border Central 63% dividend id d payout in 2012 R$ 401 million Ebitda in 2014 R$ 207 million invested in 2014 National investment t grade (S&P): A+ 1 as of December/2014. 2 2010-2014 15
Beginning of commercial operations in 2000 Located in the State of Rio Grande do Sul city of Uruguaiana Operations were suspended in 2008 due to lack of gas supply Initiated arbitration against YPF in Argentina ICC¹ awarded the merits in favor of AES Uruguaiana in 2013 Next and final phase refers to the damages calculation Emergency operations in 2013, 2014 and 2015 to support reservoirs recovery in Brazil Looking for long-term solution Fast Facts Combined cycle gas turbine (CCGT) Capacity (MW) 640 MW Authorization expiration 2027 1 International Chamber of Commerce 16
Customer-focused Company, that provides electrical energy services Focus on offering integrated and high-added-value solutions to the electrical energy agents, industrial and commercial segments, based on AES Brasil strong capabilities and know-how Main Products - Commercial technical services - Consulting in energy efficiency - Construction and maintenance of substations and transmission lines - Commercial service: face-to-face service and debt collection - Affinities: insurance Over 5 years of operation 5 major clients AES Eletropaulo, AES Sul, Level 3, Palácio do Governo do Estado de SP e Bridgestone 2 operational bases cities of Barueri and São Paulo 110 vehicles 520 employees 17
Corporate governance Key for the investment decision Operational and Investment Management Committee: robust capital allocation process Corporate policy of Integrated Risk Management¹ monthly assessed by Companies Executive Officers and quarterly by Fiscal committee and Board of Directors Corporate governance Listed at BM&FBovespa: manual; audit committee installed ELPL3 and ELPL4: level II High level of GETI3 and GETI4: traditional market commitment, with monthly Board of ISE Corporate Sustainability Index portfolio Directors meetings Tag along rights 1 Based on COSO_ERM and Brazilian Corporate Governance Institute models 18
Investment focused on power plants modernization R$ 487 million projected for 2015-2019 0 175 139 206 186 155 80 100 76 76 2011 2012 2013 2014 2015 2016 2017 2018 2019 Power plants modernization process, aiming for continuous improvement in operational conditions and ensuring availability in its generation plants 20
Investments and Best Practices in Asset Management, translates into outages reduction Unscheduled outages (%) 7.47 86% Best practices in asset management¹: 7.23 PAS 55 Certification i ISO 55001 Certification 0.24 2011 2.03 38% 1.59 1.32 1.68 1.04 131 1.31 0.82 0.79 1.18 0.35 0.28 0.25 0.14 0.16 2012 2013 2014 1Q14 1Q15 Unscheduled Outage Rate EFOF² 0.66 1 - AES Tietê was the first Latin American company to receive the certification from the British Standards Institute 2 Equivalent Forced outage Factor - EFOF 21
Energy generation decrease reflects hydrology behavior in the country 124% Generated energy (MW average 1 ) 127% 109% 92% Hydropower plants are dispatched by ONS² Dispatch are also related to hydrological conditions: Low hydrology translates into low generation levels 1,582 1,629 66% 1,392 1,292 61% 850 944 2011 2012 2013 2014 1Q14 1Q15 Generation/Physical guarantee Generation MWavg 1 Generated energy divided by the amount of hours; 2 National System Operator 22
Critical hydrological scenario over the last 2 years Historical Level of Brazilian Reservoirs (%) Reservoirs (%) vs. Thermal Dispatch (GW avg²) Max (%) 100 90% 18 80% 16 75 70% 14 50 60% 12 50% 10 25 40% 8 30% 6 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20% 4 Historical data since 2001 2001 2012 2013 2014 2015 10% 2 0% 0 Average Annual Inflow: Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2001 2012 2013 2014 2015¹ 2011 2012 2013 2014 2015 82% 87% 97% 81% 76% Thermal Dispatch Reservoir Levels 1 Data base: Jan-Jul/15 (as of July 10 th ); 2 Generated energy divided by the amount of hours. 23
Energy Reallocation Mechanism (MRE) for hydrological l risk sharing 1) Equilibrium (GE 1 = PG 2 ) Buy at MRE 3 2A) Deficit (GE 1 < PG 2 ) Buy at MRE 3 Buy at Spot 2B) Deficit (GE 1 < PG 2 ) Sell at MRE 3 Buy at Spot A physical guarantee (assured energy) is assigned to support contracts Energy dispatch optimized by centralized system operator (ONS) on a tight pool Generated Energy MRE Assured Energy PG 2 PG 2 PG 2 Generated Energy MRE Assured Energy Generated Energy Genco A Genco A Genco B MRE Assured Energy Key drivers for hydrological risk Generated Energy (hydro) in the entire system (MRE) - influenced by hydrology Spot Price -marginal cost influenced by hydrology and thermal dispatch 1 GE: Generated Energy; 2 PG: Physical Guarantee; 3 Enough to cover variable O&M costs 24
Tight hydrology and lower system storage capacity requires more flexible generation Thermo São Paulo (503MW) and Thermo Araraquara (579MW) Storage capacity (months) 6.2 57 5.7 5.4 4.6 4.4 4.3 4.2 3.7 2001 2005 2009 2013 2014 2015 2016 2019 Actual Projection Current contracted energy is based on renewable (mainly Wind) and run-of-river hydro projects, which has reduced the energy storage capacity over the recent years. Source: ONS and AES 25
AES Brasil growth perspectives p Natural Gas Power Plants 1.5GW of dispatchable source 2 natural gas combined cycle power plants ready to go to energy auctions Peak generation: short-term dispatch solution Assessing M&A opportunities Renewable Energy Solar and Wind 30 MW solar project: located in Agua Vermelha HPP. Ready to go to energy auctions ~150MW solar project: under development Assessing M&A opportunities 26
Currently, AES Eletropaulo is our main client Billed energy (GWh) 2014 (%) Clients per net revenue 16,728 615 1,141 3,834 15,797 1,932 545 15,075 2,069 1% 11% 74% 11,138 2,212 11,108 1,671 227 11,108 3,584 3,633 538 483 274 541 176 136 554 2,329 2,740 14% 2012 2013 2014 1Q14 1Q15 Eletropaulo 1 MRE Spot Other Bilateral Contracts Eletropaulo 1 MRE Spot Other Bilateral Contracts 1 Energy Reallocation Mechanism 27
Contracting environment and opportunities 2016 and beyond Regulated Market Free Market Spot Market Existing Energy Auctions Bilateral contracts Non contracted energy Via auctions organized by fd federal government Distribution companies Via bilateral agreements Free Consumers¹ Exposed to Spot Market price CCEE Settlement 1 Free Consumers (Conventional free consumer - demand above 3MW and connected to a line of 69kV and incentivized/ special free consumer - demand above 0.5MW) 28
Commercialization strategy post-2015 leveraging cash flow Our goal is to sell the major part of Company physical guarantee in the free market Customized energy with global experience Focus on long term contracts and off takers with a strong financial background aiming to ensure Company s cash flow Practices and policies to ensure an adequate risk-profile assessment Client relationship actions to promote AES Tietê and identifyif clients needs (i.e.: workshops, site visits, satisfaction surveys) 458 visits promoted by the team to clients within 2013 and 2014 We ve already sold 83% of the available energy for 2016, 74% for 2017 and 47% for 2018 29
Commercialization strategy Consistent evolution of client portfolio Client portfolio 1 (MWavg) Contracting level Average price R$/MWh 3 100% 100% 100% 83% 74% 47% 24% 11% 194 206 206 138 139 145 138 137 210 326 659 943 1,268 1,268 1,268 1,106 1,034 918 585 301 138 Price expectation in the range of R$190/MWh to R$200/MWh for 3 year contracts, to deliver in 2017 onwards From 2020, the price expectation is close to the Marginal Cost of Expansion, around R$160/MWh 2013 2014 2015 2016 2017 2018 2019 2020 Energy available for sale 2 Own energy already sold AES Eletropaulo PPA 1 Includes energy contracts firmed until March 31 st ; 2 Excludes losses and internal consumption; 3 Average price (based on March/15) 30
Strong and consistent annual results Net revenue (R$ million) Ebitda (R$ million) +23% 3,205 73% 65% 29% 23% 2,112 2,337 1,542 1,525 9% 756 690 918 594 34% 392 2012 2013 2014 1Q14 1Q15 2012 2013 2014 1Q14 1Q15 Ebitda Margin 31
and attractive returns Net income (R$ millions) 25% of minimum pay-out according to 29% bylaws 901 881 Distribution practice: quarterly basis Average payout from 2008 to 2014: 112% 449 358 44% Average dividends id d since 2008: R$ 836 million per year¹ 200 Dividends approved in 1Q15: R$ 122.4 million 2012 2013 2014 1Q14 1Q15 1 from 2008 until 2014. 32
Low leverage level Net debt (R$ billion) 1.2 1.9 800 Debt amortization schedule 0.3 0.5 0.4 0.7 1.1 05 0.5 0.8 1.4 166 266 266 100 2012 2013 2014 1Q14 1Q15 2015 2017 2018 2019 2020 Net Debt/Adjusted Ebitda Net Debt Amortization (R$ million) Covenants Debt Cost 1Q14 1Q15 Net debt/adjusted Ebitda 2 3.5x Average cost (% CDI) 1 108% 107% Adjusted Ebitda²/Financial Expenses 1.75x Average term (years) 2.75 1.93 Effective rate 12.7% 14.2% 1 Brazilian Interbank Interest Rate 2 Adjusted Ebitda (i) by the financial expenses/revenues and (ii) by the depreciation and amortization values to improve the reflection of the Company s operational cash generation 33
and consistent cash flow R$ Million 1Q14 1Q15 2013 2014 Initial Cash 446.7 501.4 397 457 Operating Cash Flow 450.5 101.4 1,486 1,187 Investments (59.9) (37.1) (188) (173) Net Financial Expenses (5.7) (18.2) (62) (94) Net Amortization 179.1 (120.0) 192 499 Income Tax (399.6) (147.0) (457) (483) Free Cash Flow 164.3 (221.0) 971 936 Dividends and IoE (3.1) - (912) (892) FINAL CASH CONSOLIDATED 617.9 280.4 457 501 34
Capital markets AES Tietê x IEE x Ibovespa¹ 120 110 100 90 80 70 60 A B C D E F G H I 50 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 GETI4 GETI3 IEE IBOV TSR A B C D E F G H I Mar/2012: 4Q11 results above market expectations Sept/2012: announcement of the Energy Reduction Program, through the PM 579 4 Feb/2013: High thermoelectric dispatch to conserve water in the reservoirs increase spot prices Aug/2013: 2Q13 results above consensus due to higher-than-expected spot prices Nov/2013: weak 3Q13 results affected by seasonality strategy Feb/2014: 4Q13 results slightly below consensus but market show high expectations on 2014 commercialization strategy May/2014: 1Q14 EBITDA above expectation benefited from seasonality strategy Jan/2015: Hydrology for rainy season worse than expected Jun/2015: Corporate Restructuring announced Market cap³: US$ 2.1 billion / R$ 6.6 billion BM&FBOVESPA: GETI3 (common shares) and GETI4 (preferred shares) ADRs negotiated in US OTC Market: AESAY (common shares) and AESYY (preferred shares) 1 Base 100: from 01/01/2012 to 06/19/2015; 2 Total Shareholders Return; 3 Index: 07/10/2015; 4 Government program to reduce energy tariffs. 35
We have strong capabilities and business governance ISO 55001 certification, 1 st Attractive returns to investors. Generation company in America Strong cash generation; Maximization of payout AES Tietê has been included in the ISE since 2007 Cost efficiency and optimized capital allocation Established risk management capability 36
2014 investments focused on system expansion and quality of service Investments (R$ million) 2014 Investments focused on 809 35 Substation repowering 165 and energization adding 309MVA to the system s 583 594 capacity 73 72 30 km of new distribution lines 644 Maintenance in over 4.0 510 522-13% 136 thousand km of the 118 16 17 distribution grid 120 101 Regularization of 42 thousand connections 831 796 2012 2013 2014 2015 (e) 1Q14 1Q15 Third party resources Own resources 38
Consistent improvement in the quality of service since 2011 SAIFI¹: 30% reduction in frequency of interruptions in the last 4 years SAIDI²: 14% reduction in hours of interruptions in the last 4 years SAIFI (times) SAIDI (hours) 6.93 6.87 6.65 6.36 8.68 8.67 8.49 8.29 30% -27% 14% +8% 5.45 4.65 4.37 3.81 4.37 3.21 10.36 8.35 7.99 8.86 8.42 9.08 2011 2012 2013 2014 1Q14 1Q15 2011 2012 2013 2014 1Q14 1Q15 Aneel Reference SAIFI Aneel Reference SAIDI 1 - System Average Interruption Frequency Index; 2 - System Average Interruption Duration Index 39
Efficiency in losses reduction over the last four years 11.5 10.5 10.1 9.7-8% 10.5 10.2 10.0 9.7 10.1 9.3 6.5 6.1 6.1 6.1 6.1 6.0 4.0 4.1 3.9 3.6 4.0 3.3 17.5% reduction in non-technical losses between the 1Q14 and 1Q15 and total losses within regulatory limits 2011 2012 2013 2014 1Q14 1Q15 Aneel Reference¹ Technical losses² Non-technical losses 1 Aneel benchmark with standardized values for the calendar year; 2 - Values estimated by the Company to Aneel reference for non-technical losses of the low voltage market 40
Large and resilient concession area 45,557 7,987 Total Market 1 (GWh) 46,216 46,416 8,742 8,589 AES Eletropaulo concession area consists of a mature market, representing approx. 16% of national GDP 2 State of São Paulo s GDP average growth of 2.0% p.a. for the last 5 years³ 37,570 37,474 37,827-3% 11,779 11,384 2,162 2,077 9,617 9,307 2012 2013 2014 1Q14 1Q15 Free Clients Captive Market 1 Own consumption not included; 2 Source: IBGE, 2012; 3 base date: 2010-2014(e) 41
Consumption expansion is mostly in residential and commercial classes Consumption by class ¹ 29% 36% 20% 34% 35% 21% 16% 9% Brazil AES Eletropaulo Residential Commercial Industrial Other 1 1T 2015 (Own consumption not included) Source: EPE. 42
Residential Class consumption in line with São Paulo state real income GWh R$ 4,500 2,400 2,300 4,000 2,200200 2,100 3,500 1,800 3,000 Residential 1,700 2,500 2007 2008 2009 2010 2011 2012 2013 2014 Real Income (SP) Residential Consumption 2,000 1,900 1,600 1,500 consumption per client grew an average of 0.9% in the last 8 years¹ 1 base date: 2007-2014 43
Industrial class consumption tied to the industrial production growth in the state of São Paulo Industrial class X Industrial production in SP¹ Industrial consumption impacted by lower industrial production in Brazil -0,2 0,0 Economic Economic Economic Economic crisis recovery crisis crisis Consumption focused on more resilient segment (residential and commercial classes) 0,2 Jul 07 Dec 07 Jul 08 Dec 08 Jul 09 Dec 09 Jul 10 Dec 10 Jul 11 Dec 11 Jul 12 Dec 12 Jul 13 Dec 13 Jul 14 Dec 14 Industrial Production in SP (% 12 months) Industrial consumption AES Eletropaulo (% 12 months) 1- São Paulo metropolitan area. Information until December 2014. 44
Net revenue 20% greater in 1Q15 mainly due to 2014 tariff readjustment Gross revenue (R$ million) Costs (R$ million) 15,314 831 5,355 12,611 809 3,599 14,239 583 3,952 8,553 1,670 7,474 1,640 9,498 1,602 9,128 8,203 9,704 3,620 944 2,115 +38% 425 136 4,978 1,819 2,542 499 118 6,883 5,834 7,896 2,280 408 1,872 +24% 2,834 509 2,325 2012 2013 2014¹ 1Q14² 1Q15 Regulatory Assets and Liabilities Construction Revenue Deductions to Gross Revenue Net Revenue (ex construction revenue) 2012 2013 Opex (ex construction costs) Energy costs and sector charges 2014 1Q14 1Q15 1- Does not include the recognition of regulatory assets and liabilities (OCPC-08), in the total amount of R$ 270,5 million. 2 Adjusted by regulatory assets and liabilities 45
9.3% reduction of the Adjusted Ebitda due to non recurrent expenses in 1Q15 Adjusted d Ebitda 1 (R$ million) Adjusted Net Income (Loss) 2 (R$ million) 575 780 476 (166) 207 55 198 (132) (184) 47 1,469 294 1,138 248 758 323-9% 293 104-50% 52 2012 2013 2014 1Q14 1Q15 Adjusted Ebitda Reported Ebitda 96 2012 2013 2014 1Q14 1Q15 Adjusted Net Income (Loss) Reported Net Income (Loss) 1 - EBITDA adjusted by expenses related to Pension Plan, regulatory assets and liabilities and possibly inexistent asset. 2 Net income (loss) adjusted by regulatory assets and liabilities 46
Cost management projects generated R$ 1 billion¹ in savings until 2014 1 st wave - 2007-2010 2 nd wave 2010-2012 3 rd wave 2013-2015 Headcount reduction Support functions centralization - shared services Overhead reduction - management and contracts renegotiation i Leadership headcount reduced by 44% from 2008 to 2013 Currently operating at the same PMSO level as in 2007 while every quality indicators have improved Benchmark approach Process review and IT tools to increase performance Development of strategic sourcing capability Continuous overhead reduction Administrative and operational activities i i centralized in a new site Real Estate Plan: sale of assets and maximization of occupancy rate Efficiency gains through process transformation and IT tools integration Cost management and innovation as part of the Company s culture Consider the total cost of ownership for CAPEX/OPEX allocation decisions Sustainability driving value (e.g., ABS initiative with suppliers) 1 Nominal total from 2007 until 2014 FY. Includes recurring and non-recurring reductions and the avoidance of cost increases 47
Operational cash flow generation R$ Million 1Q14 1Q15 2013 2014 Initial Cash 974 909 814 974 Operating cash generation 11 323 1,480 724 Investments (102) (167) (741) (501) Net Financial Expenses/Net Amortization (21) 139 (312) 211 Pension fund expenses (74) (47) (221) (166) Income Tax (45) (36) (25) (47) Disposal of assets - - 49 24 Cash restricted and/or locked (51) 4 26 (61) Free cash (305) 215 208 (33) FINAL CASH CONSOLIDATED 669 1124 974 909 48
Leverage level within financial covenants Net debt (R$ billion) 3.0 2.6 2.7 2.7 2.5 37 3.7 37 3.7 3.3 3.4 3.5 Average maturity of debt reaching 5.1 years Covenants within the limits established by debt contracts 1Q14 2Q14 Net Debt (R$ billion) 3Q14 4Q14 1Q15 Net Debt/Adjusted Ebitda¹ Debt btcost 1Q14 1Q15 Average cost (% CDI) 112% 113% Average term (years) 6.0 5.1 Effective rate² 13.0% 13.6% 1 EBITDA adjusted by expenses related to pension plan and regulatory assets and liabilities; 2 Average rate during the period 49
Capital markets AES Eletropaulo x IEE x Ibovespa¹ 140 120 100 80 60 40 20 A B C D E F G H I 0 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 ELPL4 IEE IBOV ELPL4 TSR A B C D E F G H I Apr/2012: Aneel announced 3PTRC proposal (tariff cut of 8.81%) Jul/2012: Aneel announced official 3PTRC (tariff cut of 9.33%) lowering dividend payout expectations Dec/2012: Court deems Eletropaulo liable for Eletrobras lawsuit. Eletropaulo appealed the decision. Feb/2013: 4Q12 EPS affected by energy costs and regulatory charges Jul/2013: Low tariff adjustment due to payment of 2/3 of 3PTRC Bubble Aug/2013: 2Q13 results above expectations. Efficiency in cost reduction. Jul/2014: Tariff readjustment approved by ANEEL including 50% of cable restitution May/15: 4 th Tariff Reset Cycle preliminary numbers released July/15: 4 th Tariff Reset Cycle final numbers released Market cap³: US$ 0.9 billion/r$ 2.9 billion BM&FBOVESPA: ELPL3 (common shares) and ELPL4 (preferred shares) ADRs at US OTC Market: EPUMY (preferred shares) 1 Base 100: from 01/01/2012 to 07/04/2015; 2 Electric Power Index; 3 Index: 07/10/2015 50
We have strong capabilities and corporate governance AES Corporation and BNDES as major shareholders: long-standing reputation in the market Consumption focused on more resilient segment (residential /commercial market) 2015-2019 investment plan of R$ 3.2 billion mainly focused on customer services and better quality indicators Efficiency on recognizing investments on the RAB Deleveraging and improving capital structure 51
Brazilian Opportunities
Brazilian Energy Matrix and perspectives Brazilian Energy Matrix¹ Governmental Expansion Plan 196 13% 21% 148 133 142 125 17 24 8 156 31 167 42 71 66% 125 125 125 125 125 125 2013 2014 2015 2016 2017 2018 2023 Hydro Renewable³ Thermal Additional Capacity by PDE² Current Installed Capacity Energy matrix based on hydropower plants Expansion based mainly on renewable and run-of-river Thermal source is responsible for system reliability hydropower plants 1 ANEEL database (07/10/2015). 2 Energy development plan (PDE 2013-2023); 3 Includes Biomass, Wind and Solar sources 53
Appendix 54
Recovery of tariff realism Tariff Flag Tariff Flag 2.0 Extraordinary Tariff Reset Time In place since January, 1 st 2015 In place since March, 2 nd 2015 In place since March, 2 nd 2015 De escriptions Reducecash flow cash flow mismatch To partially cover higher energy costs (thermal costs) Broaden application: hydrological risk involuntary exposure sector charges (ESS) thermal costs Cover additionalcosts: CDE Itaipu (tariff increase and dollar variation) A 1 and Adjustment Auctions Risks Costs not fully covered Higher bad debt and NTL¹ Costs fully covered Higher bad debt and NTL Higher bad debt and NTL Tariff in ncrease ~11% at AES Eletropaulo residential tariff ~9% at AES Eletropaulo residential tariff 32% AES Eletropaulo average increase: 26% residential tariff 40% high voltage 1 Non-technical losses 55
Tariff methodology for distributors Tariff Reset is applied each 4-5 years AES Eletropaulo next Tariff Reset: Jul/2019; AES Sul next Tariff Reset: Apr/2018 Parcel A: costs are passed on through to the tariff Parcel B: costs are set by ANEEL Remuneration Asset Base Annual Tariff Adjustment Parcel A: costs are passed on through to the tariff Parcel B: costs are adjusted by IGPM +/- X Factor¹ X WACC X Depreciation Energy Purchase Transmission Sector Charges Regulatory Opex (PMSO) Investment Remuneration Depreciation Parcel A Costs Non-manageable costs passed on through to the tariff Incentives to reduce costs Regulatory Opex Efficient operating cost determined by ANEEL Remuneration Asset Base Prudent investments t used to calculate l the investment remuneration (applying WACC) and depreciation Remuneration on Special Obligations Special Recognition of the opportunity cost of Obligations equity capital over third party investments Regulatory Ebitda Parcel A - Non-Manageable costs Parcel B - Manageable costs 1 X Factor: index that capture productivity gains 56
X Factor methodology X Factor = Pd + Q + Pd Q T Definition Distribution productivity Quality of service Operational expenses trajectory Objective Capture productivity gains Stimulate improvement of service quality Implement operational expenses trajectory Application Defined at Tariff Reset, considers the average productivity of the sector adjusted by market growth and consumption variation Defined at each Tariff Readjustment, considers variation of SAIDI and SAIFI and comparative performance of discos. Includes commercial indexes Defined at Tariff Reset, makes the transitions to operational costs verified in the last 12 months to the one set in the benchmarking models 57
4 th Tariff Reset Cycle Parcel A + Financial Components 13.96% Annual impact R$ million R$ 1,936m Energy CVA including FX rate variation associated with Itaipu CDE charge increase (loans and CDE share) Reduction of AES Tietê s energy participation due to end of contract in Dec/15 Involuntary exposure in 2015 Parcel B 1.27% R$ 176m WACC of 8.09% SpecialObligations remuneration Opex adjusted to match the concession area s reality Tariff Reset Effect 15.23% R$ 2,112m 58
Breaking down the Parcel B Remuneration (RAB) Depreciation R$ 732m R$ 458m Net RAB of R$ 6.0 billion WACC of 8.09% Gross RAB of R$ 12.2 billion Depreciation Rate of 3.75% Special Obligations R$ 39m Remuneration of 3.34% Annuity (Other Assets) R$ 134m Remuneration and depreciation of IT, vehicles and administrative assets Operational Expenses R$ 1,373m Xt Factor of 2.37%; Inclusion of labor liabilities, São Paulo salaries and underground network Bad Debt R$ 198m 0.85% of bad debt, considering Tariff Flag revenues Oh Other Revenues R$ 88m ~60% of non distribution revenues Productivity Gains R$ 33m Xp Factor of 1.13% Parcel B R$ 2,812m 59
Ranking of distribution tariffs in Brazil Tariff excluding tax (R$/KWh) Ranking (out of 64) Boa Vista 0.290 1 CPFL Piratininga 0.362 7 COELBA 0.388 13 CEAL 0.414 19 COELCE 0.418 21 CPFL Paulista 0.420 23 ELETROACRE 0.425 25 CELESC DIS 0.429 26 BANDEIRANTE 0.433 28 ELETROPAULO 0.436 29 RGE 0.447 33 LIGHT 0.469 42 AES SUL 0.480 45 COPEL DIS 0.492 50 ELEKTRO 0.506 54 CEMIG D 0.510 56 Source: Aneel website. Tariffs as of July/2015. 60
AES distribution companies have been improving their service level performance over the years SAIDI ranking 1 PROCON ranking 2 (Eletropaulo) 4 3 7 6 6 City ranking 10 13 12 State ranking 15 3 17 6 20 21 8 AES Eletropaulo 9 SAIFI ranking 1 AES Sul 1 1 11 4 3 3 10 9 17 21 18 15 14 14 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 27 2014 1 X Factor: index that capture productivity gains 1- Considers distribution companies with more than 500k customers; 2- PROCON ranks companies most claimed by costumers 61 61
Abradee s ¹ Ranking AES Eletropaulo 2007 2008 2009 2010 2011 2012 2013 2014 14 14º 8º 6º 9º 8º 5º 9º 8º AES Sul 2007 2008 2009 2010 2011 2012 2013 2014 10º 11º 8º 6º 5º 7º 2º 16º 1 Association of Brazilian electricity distributors 62
New distribution and sub-transmission operations center allows efficiency gains Modern layout maximizes the dispatch efficiency and decision making during the outage power restoration Integration of DOC 1 and SOC 2 technicians into a modern and collaborative workplace: enabling to rearrange positions at any time optimizing the use of resources improving i operational efficiency i encouraging a multifunctional profile 1 Distribution Operating Center; 2 Subtransmission Operating Center 63
Modern and integrated systems contributes to the best allocation of resources Integrated and automated systems allow the monitoring of sub-transmission and distribution grid and the best allocation of resources for operational efficiency gains State of the art in technologies for management of events and teams, providing a global l vision i of emergency teams location throughout the concession area Service orders transmission through data devices, dispatching service teams that are closer to the location, minimizing attendance time Innovative technology for forecasting and monitoring of summer rains, strategically located in the Company s substations anticipating the resources allocation 64